The accompanying notes are an integral part of the consolidated financial statements.
The accompanying notes are an integral part of the consolidated financial statements.
The accompanying notes are an integral part of the consolidated financial statements.
The accompanying notes are an integral part of the consolidated financial statements.
The accompanying notes are an integral part of the consolidated financial statements.
The accompanying notes are an integral part of the consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 1:-GENERAL
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 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 the acquisitions 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 (together, the “Gamatronic Acquisition”). Together, this activity is referred to as the UPS division which provides and manufactures Uninterruptible Power Supplies (“UPS”) devices.
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 were traded on the Korean OTC market, a provider of Lithium-ion cells, batteries and energy storage solutions. Since the Kokam acquisition date through December 31, 2019, the Company has increased its shareholdings in Kokam to 100%.
On January 24, 2019, the Company completed the acquisition of 56.8% of the outstanding common shares and voting rights of S.M.R.E S.p.A (“SMRE”), an Italian company whose shares were traded on the Italian AIM, a provider of innovative integrated powertrain technology and electronics for electric vehicles (“e-Mobility”). Between January 24, 2019 and December 31, 2019, the Company increased its shareholdings in SMRE to 99.9% (see Note 3).
The Company organizes its operations into five operating segments: solar, UPS, energy storage, e-Mobility and machinery (see Note 22).
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
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 profit from intercompany sales not yet realized outside the Company have been eliminated upon consolidation.
b.Use of estimates:
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. 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:
A major part of the Company’s operations is carried out in the United States, Israel and certain other countries. The functional currency of these entities is the U.S. dollar.
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 income 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 as of the balance sheet date. Statements of income 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 $(2,073) and $132 as of December 31, 2019 and 2018, respectively.
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.)
d.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.
e.Short-term bank deposits:
Short-term bank deposits are deposits with an original maturity of more than three months and less than a year from the date of investment and which do not meet the definition of cash equivalents. The deposits are presented according to their term deposits.
f.Restricted bank deposits:
Restricted bank deposits are primarily invested in short-term bank deposits, with an original maturity of more than three months and less than a year from the date of investment and which are primarily used as collateral for a letter of credit for the Company’s customers and security for the Company’s office leases and credit cards.
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.
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 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 (“OTTI”) has occurred.
For securities that are deemed OTTI, the amount of impairment is recognized in the statement of income 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, 2019, 2018, and 2017.
h.Inventories:
Inventories are stated at the lower of cost or net realizable 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 net realizable value. Cost of finished goods and raw materials is determined using the moving average cost method.
i.Property, plant and equipment:
Property, plant and equipment are stated at cost, net of accumulated depreciation. Machinery and equipment in progress represent the construction or development stage 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 live of the assets, at the following rates:
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.)
|
|
%
|
|
|
|
Buildings and plants
|
|
2 – 5 (mainly 2.5)
|
Computers and peripheral equipment
|
|
20 – 33 (mainly 33)
|
Office furniture and equipment
|
|
7 – 25 (mainly 7)
|
Machinery and equipment
|
|
7 – 33 (mainly 10)
|
Laboratory and testing equipment
|
|
10 – 20 (mainly 15)
|
Leasehold improvements
|
|
over the shorter of the lease term or useful economic life
|
j.Leases:
The Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, other current liabilities and operating lease liabilities in the Company’s consolidated balance sheets. Finance leases are included in property, plant and equipment, net, other current liabilities, and other long-term liabilities in the Company’s consolidated balance sheets.
ROU assets represent the right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term.
The Company uses incremental borrowing rates based on the estimated rate of interest for collateralized borrowing over a similar term of the lease payments at commencement date. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. Lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expenses for lease payments are recognized on a straight-line basis over the lease term.
k.Business Combination:
The Company allocates the fair value of the purchase price to the tangible assets acquired, liabilities assumed and intangible assets acquired based on their estimated fair value. The excess of the fair value of the purchase price 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 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 does not 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 finalization of the measurement period, any subsequent adjustments are recorded to earnings.
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.)
l.Intangible Assets:
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 group of assets is measured by a comparison of the carrying amounts to the future undiscounted cash flows the group of assets is 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 of finite-lived intangible assets during the years ended December 31, 2019 and 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 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. In case the Company reduces the estimated useful life for any asset, the remaining unamortized balance is amortized or depreciated over the revised estimated useful life (see Note 9).
m.Goodwill:
Goodwill reflects the excess of the consideration transferred, including the fair value of any contingent consideration and any non-controlling interest in the acquiree, over the assigned fair values of the identifiable net assets acquired. Goodwill is not amortized, and is assigned to reporting units and tested for impairment at least on an annual basis, in the fourth quarter of the fiscal year.
The goodwill impairment test is performed according to the following principles:
(1) An initial qualitative assessment may be performed to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount.
(2) If the Company concludes it is more likely than not that the fair value of the reporting unit is less than its carrying mount, a quantitative fair value test is performed. An impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value is recognized.
The Company has not recorded any impairment charges of goodwill during the years ended December 31, 2019 and 2018.
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.)
n.Impairment of long-lived assets:
The Company’s long-lived assets to be held or used, including right-of-use assets and intangible assets that are subject to amortization, 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).
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, 2019, 2018 and 2017, no impairment losses have been identified.
o.Severance pay:
The employees of the Company’s Israeli subsidiary are 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 consolidated balance sheets.
For the years ended December 31, 2019, 2018 and 2017, the Company recorded $7,285, $4,331, $2,995, in severance expenses related to its employees, respectively.
p.Revenue recognition:
Revenues are recognized in accordance with ASC 606, revenue from contracts with customers when control of the promised goods or services is transferred to the customers, in an amount that the Company expects in exchange for those goods or services.
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 (vi) Lithium-ion cells, batteries and energy storage solutions (vii) powertrains solutions for the e-Mobility segment and (viii) machinery for manufacturing lines.
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 the performance obligation is satisfied.
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.)
(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.
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: delivery of the Company’s products; 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.
The accrual for rebates is allocated to specific receivables. The Company accrued $62,288 and $39,018 for rebates as of December 31, 2019 and 2018, respectively.
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.)
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.
As of December 31, 2019, the Company has not provided payment terms of more than a year.
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.
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.
(4) Allocate the transaction price to the performance obligations in the contract
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.
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.)
q.Cost of revenues:
Cost of revenues includes the following: product costs consisting of purchases from contract manufacturers and other suppliers, direct and indirect manufacturing costs, shipping and handling, support, warranty expenses and changes in warranty provision, provision for losses related to slow moving and dead inventory, personnel and logistics costs.
Shipping and handling costs, which amounted to $113,635, $45,821 and $29,693, for the years ended December 31, 2019, 2018 and 2017, respectively, are included in the cost of revenues in the consolidated statements of income. 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.
r.Warranty obligations:
The Company provides a product warranty for its solar related products as follows: a 10-year limited warranty for StorEdge products, a standard 12-year limited warranty for inverters, and a 25-year limited warranty for power optimizers.
In certain cases, the Company provides an extended warranty for inverters that increases the warranty period for up to 25 years.
The Company maintains reserves to cover the expected costs that could result from the standard warranty. The warranty liability is 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.
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 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, result in generating additional replacement costs to the replacement costs projected under the MTBF model.
For other products, the Company accrues 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 warranty that typically range in duration from one to ten years.
Warranty obligations are classified as short-term and long-term obligations based on the period in which the warranty is expected to be claimed.
s.Research and development costs:
Research and development costs, are charged to the consolidated statement of income as incurred.
t.Concentrations of credit risks:
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents, short-term bank deposits, restricted bank deposits, marketable securities, trade receivables and other accounts receivable.
Cash and cash equivalents, short-term bank deposits and restricted bank deposits are mainly invested in major banks in the U.S., Israel and Korea. 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 include investments in highly-rated corporate debentures (mainly of U.S., UK, Canada, France, Australia, New Zealand 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, Korea and Australia.
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 generally does not require collateral, however, in certain circumstances, the Company may require letters of credit, other collateral, or additional guarantees.
An allowance for doubtful accounts is determined with respect to specific receivables that are doubtful of collection. The Company accrued $2,473 and $427 as allowance for doubtful accounts as of December 31, 2019 and 2018, respectively.
The Company had one major customer (customer with attributable revenues that represents more than 10% of total revenues) that accounted for approximately 20.4%, 19.4% and 14.8% of the Company’s consolidated revenues, for the years ended December 31, 2019, 2018 and 2017, respectively.
The Company had one major customer (customer with a balance that represents more than 10% of total trade receivables, net) as of December 31, 2019 and two major customers as of December 31, 2018 that accounted in the aggregate for approximately 32.1% and 41.3%, of the Company’s consolidated trade receivables, net, respectively.
u.Concentrations of supply risks:
The Company depends on two contract manufacturers and several limited or single source component suppliers. Reliance on these vendors makes the Company vulnerable to possible capacity constraints and reduced control over component availability, delivery schedules, manufacturing yields, and costs.
As of December 31, 2019 and 2018, two and three contract manufacturers collectively accounted for 42.3% and 58.8% of the Company’s total trade payables, net, respectively.
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, short-term bank deposits, restricted bank deposits, trade receivables, net, long term bank loans and current maturities, prepaid expenses and other current assets, trade payables, net, 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, 2019 and 2018 are comprised of money market funds 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.
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.)
Fair value is an exit price, representing the amount that would be received for the sale of 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.
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 income.
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.
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 (“ESPP”). 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 ESPP was calculated based upon the Company’s stock prices. The expected term of options granted is based upon historical experience and represents the period between the options’ grant date and the expected exercise or expiration date.
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 risk-free interest rate is based on the yield from U.S. treasury bonds with an equivalent term.
The Company doesn't use dividend yield rate since 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 ESPP in the years ended December 31, 2019, 2018 and 2017, are estimated at the date of grant using a Black-Scholes-Merton option-pricing model with the following assumptions:
|
|
Year ended December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
Employee Stock Options
|
|
|
|
|
|
|
|
|
|
Risk-free interest
|
|
|
2.53
|
%
|
|
|
2.32
|
%
|
|
|
2.14% - 2.17
|
%
|
Dividend yields
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
Volatility
|
|
|
56.26
|
%
|
|
|
56.53
|
%
|
|
|
58.08% - 58.10
|
%
|
Expected option term in years
|
|
|
6.03
|
|
|
|
6.06
|
|
|
|
6.06
|
|
Estimated forfeiture rate
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ESPP
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk-free interest
|
|
|
1.63% - 2.35
|
%
|
|
|
2.10% - 2.52
|
%
|
|
|
0.60% - 1.07
|
%
|
Dividend yields
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
Volatility
|
|
|
46.68% - 55.95
|
%
|
|
|
54.13% - 56.67
|
%
|
|
|
45.60% - 48.08
|
%
|
Expected term
|
|
6 months
|
|
|
6 months
|
|
|
6 months
|
|
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.
x.Income taxes:
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.
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.)
Deferred tax assets are evaluated for future realization and reduced by a valuation allowance to the extent the Company believes they will not be realized.
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.
y.Comprehensive income:
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.
z.New accounting pronouncements not yet effective:
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. The new accounting standard will be effective for the fiscal year beginning on January 1, 2020, including interim periods within that year. The Company does not expect that adoption of this standard will have a material impact on its consolidated financial statements.
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.)
aa.Recently issued and adopted pronouncements:
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 new lease standard provides a number of optional practical expedients in transition. The Company elected the transition practical expedients, which permits the Company not to reassess its prior conclusions regarding lease identification, lease classification and initial direct costs under the new standard and the use of hindsight in determining the lease term. The Company also elected the short-term lease recognition exemption for all leases with a term shorter than 12 months. The Company adopted Topic 842 effective January 1, 2019. The Consolidated Financial Statements for the year ended December 31, 2019 are presented under the new standard, while comparative periods presented are not adjusted and continue to be reported under ASC 840 (See Note 15).
On October 1, 2019, the Company early adopted Accounting Standards Update No. 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (ASU 2017-04) using the prospective approach, which eliminates step two from the goodwill impairment test. Under ASU 2017-04, an entity should recognize an impairment charge for the amount by which the carrying amount of a reporting unit exceeds its fair value up to the amount of goodwill allocated to that reporting unit. This guidance was effective beginning January 1, 2020, with early adoption permitted. The adoption of this new standard did not have a material impact on the Company's consolidated financial statements.
ab.Certain prior period amounts have been reclassified to conform to the current period presentation.
NOTE 3:-BUSINESS COMBINATION
On January 24, 2019, the Company completed the acquisition of 56.8% of the outstanding common shares and voting rights of SMRE, a provider of innovative integrated powertrain technology and electronics for electric vehicles in the total consideration of $73,036, net of cash acquired, out of which $42,240 was paid in cash and $34,601 was paid in shares of SolarEdge common stock (the “SMRE Acquisition”).
As of January 24, 2019, the fair value of the 43.2% non-controlling interests in SMRE amounted to $67,734. The fair value of the non-controlling interests was valued based on and at the transaction price.
SOLAREDGE TECHNOLOGIES, INC.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 3:-BUSINESS COMBINATION (Cont.)
The primary reason for the SMRE Acquisition was to acquire technology and customer relationships and to expand and diversify the Company’s business by entering into the e-Mobility market. The SMRE Acquisition was accounted for as a business combination in accordance with ASC 805 "Business Combinations”.
During the period from the SMRE Acquisition through December 31, 2019, the Company purchased additional common shares of SMRE in the open market and through a tender offer in a total amount of $66,604. As of December 31, 2019, the Company holds 99.9% of the outstanding common shares and voting rights of SMRE and SMRE’s shares were delisted from the Italian Alternative Investment Market (“AIM”).
The following table summarizes the purchase price allocation of SMRE Acquisition:
Components of Purchase Price:
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
42,240
|
|
Less cash acquired
|
|
|
(3,805
|
)
|
Common shares
|
|
|
34,601
|
|
Total purchase price
|
|
|
73,036
|
|
|
|
|
|
|
Allocation of Purchase Price:
|
|
|
|
|
|
|
|
|
|
Net tangible assets (liabilities):
|
|
|
|
|
Trade receivables, net
|
|
|
7,516
|
|
Prepaid expenses and other current assets
|
|
|
4,495
|
|
Inventories, net
|
|
|
7,529
|
|
Property, plant and equipment, net
|
|
|
9,454
|
|
Other non-current assets
|
|
|
11,102
|
|
Trade payables
|
|
|
(4,450
|
)
|
Loans
|
|
|
(7,230
|
)
|
Accrued expenses and other current liabilities
|
|
|
(6,868
|
)
|
Other non-current liabilities
|
|
|
(14,379
|
)
|
Total net tangible assets
|
|
|
7,169
|
|
|
|
|
|
|
Identifiable intangible assets (1):
|
|
|
|
|
Technology
|
|
|
44,071
|
|
Customer relationships
|
|
|
953
|
|
Backlog
|
|
|
254
|
|
Tradename
|
|
|
2,509
|
|
Deferred tax liabilities
|
|
|
(11,684
|
)
|
Total identifiable intangible assets acquired
|
|
|
36,103
|
|
|
|
|
|
|
Goodwill (2)
|
|
|
97,498
|
|
|
|
|
|
|
Non-controlling interests
|
|
|
(67,734
|
)
|
|
|
|
|
|
Total purchase price allocation
|
|
$
|
73,036
|
|
SOLAREDGE TECHNOLOGIES, INC.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 3:-BUSINESS COMBINATION (Cont.)
(1)SMRE’s definite-lived intangible assets include current technology of $44,071 (10 years weighted-average useful life), tradename of $2,509 (9 years weighted-average useful life), customer relationships of $953 (8 years weighted-average useful life) and backlog of $254 (6 months weighted-average useful life).
(2)The goodwill resulted from SMRE Acquisition is primarily attributable to sales growth from future products, new customers, together with certain intangible assets that do not qualify for separate recognition.
The amounts of revenue and net loss of SMRE included in the Company’s consolidated statements of income for the period from January 24, 2019 to December 31, 2019 are $20,461 and $33,795 (including other operating expenses in the amount of $17,491, see Notes 19 (2) and 19 (3)), respectively.
The Company recognized $604 of aggregate acquisition-related costs that were expensed in the consolidated statement of income in general and administrative expenses.
The following table represents the pro-forma (unaudited) consolidated revenues and net income of the Company as if SMRE Acquisition had occurred as of the beginning of 2018:
|
|
Year ended December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
Unaudited
|
|
Revenue
|
|
$
|
1,426,883
|
|
|
$
|
961,367
|
|
Net income
|
|
$
|
144,433
|
|
|
$
|
120,027
|
|
These amounts have been calculated after applying the Company’s accounting policies and adjusting the results of SMRE to reflect the additional depreciation and amortization that would have been charged assuming the fair value adjustments to tangible and intangible assets had been applied since the acquisition date, together with the consequential tax effects.
These pro-forma results (unaudited) are based on estimates and assumptions, which the Company believe are reasonable. They are not the results that would have been realized had the acquisitions actually occurred on January 1, 2018 and 2019 and are not necessarily indicative of the Company consolidated statements of income in future periods. The pro-forma results (unaudited) include adjustments related to purchase accounting, primarily amortization of intangible assets.
As of December 31, 2019, the purchase price allocation for all acquisitions was finalized.
SOLAREDGE TECHNOLOGIES, INC.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 4:-MARKETABLE SECURITIES
The following is a summary of available-for-sale marketable securities at December 31, 2019:
|
|
Amortized
cost
|
|
|
Gross unrealized
gains
|
|
|
Gross unrealized
losses
|
|
|
Fair
value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale – matures within one year:
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds
|
|
$
|
91,677
|
|
|
$
|
196
|
|
|
$
|
(28
|
)
|
|
$
|
91,845
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for-sale – matures after one year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds
|
|
|
117,692
|
|
|
|
336
|
|
|
|
(250
|
)
|
|
|
117,778
|
|
Governmental bonds
|
|
|
1,398
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,398
|
|
|
|
|
119,090
|
|
|
|
336
|
|
|
|
(250
|
)
|
|
|
119,176
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
210,767
|
|
|
$
|
532
|
|
|
$
|
(278
|
)
|
|
$
|
211,021
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 4:-MARKETABLE SECURITIES (Cont.)
As of December 31, 2019, 2018 and 2017, 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, 2019, 2018 and 2017, were $120,834, $84,497 and $80,269, respectively. Proceeds from sales of available-for-sale marketable securities during the year ended December 31, 2019 and 2018 were $21,910 and $44,848, which lead to a realized loss of $91 and $137, respectively.
NOTE 5:-FAIR VALUE MEASUREMENTS
In accordance with ASC 820, the Company measures its cash equivalents and marketable securities, at fair value using the market approach valuation technique. Cash equivalents and marketable securities are classified within Level 1 and Level 2, respectively, because these assets are valued using quoted market prices or alternative pricing sources and models utilizing market observable inputs.
The following table sets forth the Company’s assets that were measured at fair value as of December 31, 2019, 2018 and 2017 by level within the fair value hierarchy:
|
|
Fair Value
|
|
Fair value measurements
as of December 31,
|
|
Description
|
|
Hierarchy
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Measured at fair value on a recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
Money market mutual funds
|
|
Level 1
|
|
$
|
527
|
|
|
$
|
1,767
|
|
|
$
|
6,163
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term marketable securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds
|
|
Level 2
|
|
$
|
91,845
|
|
|
$
|
110,385
|
|
|
$
|
68,272
|
|
Governmental bonds
|
|
Level 2
|
|
$
|
-
|
|
|
$
|
8,295
|
|
|
$
|
8,992
|
|
Long-term marketable securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds
|
|
Level 2
|
|
$
|
117,778
|
|
|
$
|
74,256
|
|
|
$
|
95,160
|
|
Governmental bonds
|
|
Level 2
|
|
$
|
1,398
|
|
|
$
|
-
|
|
|
$
|
7,960
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 6:-PREPAID EXPENSES AND OTHER CURRENT ASSETS
|
|
As of December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
Vendor non-trade receivables (*)
|
|
$
|
83,917
|
|
|
$
|
28,284
|
|
Government authorities
|
|
|
16,434
|
|
|
|
5,751
|
|
Prepaid expenses and other
|
|
|
14,917
|
|
|
|
11,038
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
115,268
|
|
|
$
|
45,073
|
|
(*) 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 its revenues (see also Note 16b).
NOTE 7:-INVENTORIES
|
|
As of December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
Raw materials
|
|
$
|
64,714
|
|
|
$
|
39,380
|
|
Work in process
|
|
|
20,752
|
|
|
|
18,115
|
|
Finished goods
|
|
|
85,332
|
|
|
|
84,024
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
170,798
|
|
|
$
|
141,519
|
|
The Company recorded inventory write-downs of $4,528, $943 and $1,352 for the years ended December 31, 2019, 2018 and 2017, respectively.
SOLAREDGE TECHNOLOGIES, INC.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 8:-PROPERTY, PLANT AND EQUIPMENT, NET
|
|
As of December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
Cost:
|
|
|
|
|
|
|
Land
|
|
$
|
6,938
|
|
|
$
|
6,592
|
|
Buildings and plants
|
|
|
23,670
|
|
|
|
18,196
|
|
Computers and peripheral equipment
|
|
|
24,953
|
|
|
|
17,615
|
|
Office furniture and equipment
|
|
|
6,792
|
|
|
|
5,286
|
|
Laboratory and testing equipment
|
|
|
22,666
|
|
|
|
18,160
|
|
Machinery and equipment
|
|
|
160,231
|
|
|
|
113,553
|
|
Leasehold improvements
|
|
|
23,408
|
|
|
|
11,741
|
|
|
|
|
|
|
|
|
|
|
Gross property, plant and equipment
|
|
|
268,658
|
|
|
|
191,143
|
|
|
|
|
|
|
|
|
|
|
Less - accumulated depreciation
|
|
|
91,695
|
|
|
|
71,814
|
|
|
|
|
|
|
|
|
|
|
Total property, plant and equipment, net
|
|
$
|
176,963
|
|
|
$
|
119,329
|
|
Property, plant and equipment in progress under construction and development with a cost basis of $59,058 and $22,890, was included in machinery and equipment as of December 31, 2019 and 2018, respectively.
Depreciation expenses for the years ended December 31, 2019, 2018 and 2017, were $17,261, $11,426 and $7,011, respectively.
NOTE 9:-INTANGIBLE ASSETS AND GOODWILL
a.Intangible assets:
Acquired intangible assets consisted of the following as of December 31, 2019, and 2018:
|
|
As of December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
Intangible assets with finite lives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Technology
|
|
$
|
72,613
|
|
|
$
|
30,821
|
|
Customer relationships
|
|
|
4,351
|
|
|
|
3,857
|
|
Trade names
|
|
|
5,990
|
|
|
|
3,721
|
|
Patents
|
|
|
1,400
|
|
|
|
1,400
|
|
Backlog
|
|
|
193
|
|
|
|
193
|
|
|
|
|
|
|
|
|
|
|
Gross intangible assets
|
|
|
84,547
|
|
|
|
39,992
|
|
|
|
|
|
|
|
|
|
|
Less - accumulated amortization
|
|
|
(10,539
|
)
|
|
|
(1,488
|
)
|
|
|
|
|
|
|
|
|
|
Total intangible assets, net
|
|
$
|
74,008
|
|
|
$
|
38,504
|
|
Amortization expenses for the years ended December 31, 2019, 2018 and 2017, were $9,634, $1,193 and $144, respectively.
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.)
Expected future amortization expenses of intangible assets as of December 31, 2019 are as follows:
2020
|
|
$
|
9,736
|
|
2021
|
|
|
9,783
|
|
2022
|
|
|
9,844
|
|
2023
|
|
|
9,830
|
|
2024
|
|
|
9,397
|
|
2025 and thereafter
|
|
|
25,418
|
|
|
|
|
|
|
|
|
$
|
74,008
|
|
b.Goodwill:
The following summarizes the goodwill activity for the year ended December 31, 2019, and 2018:
|
|
Solar
|
|
|
All other
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill at January 1, 2018
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Business combinations
|
|
|
30,789
|
|
|
|
3,656
|
|
|
|
34,445
|
|
Foreign currency translation
|
|
|
416
|
|
|
|
13
|
|
|
|
429
|
|
Goodwill at December 31, 2018
|
|
|
31,205
|
|
|
|
3,669
|
|
|
|
34,874
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business combination
|
|
|
-
|
|
|
|
97,498
|
|
|
|
97,498
|
|
Other changes related to measurement period and disposals
|
|
|
1,299
|
|
|
|
(1,653
|
)
|
|
|
(354
|
)
|
Foreign currency translation
|
|
|
(1,239
|
)
|
|
|
(1,125
|
)
|
|
|
(2,364
|
)
|
Goodwill at December 31, 2019
|
|
$
|
31,265
|
|
|
$
|
98,389
|
|
|
$
|
129,654
|
|
NOTE 10:-ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
|
|
As of December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
Accrued expenses
|
|
$
|
36,158
|
|
|
$
|
14,859
|
|
Government authorities
|
|
|
27,191
|
|
|
|
11,344
|
|
Operating lease liabilities
|
|
|
9,590
|
|
|
|
-
|
|
Other
|
|
|
7,637
|
|
|
|
3,525
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
80,576
|
|
|
$
|
29,728
|
|
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
The following table summarizes the Company’s bank loans:
|
|
|
As of December 31, 2019
|
|
|
Effective interest rate
|
|
|
|
|
|
|
|
|
|
Maturities calendar year:
|
|
|
|
|
|
|
|
Current maturities of bank loans
|
|
|
$
|
15,653
|
|
|
|
2.5% - 3.85%
|
|
Long-term bank loans
|
|
|
|
173
|
|
|
|
2.48%
|
|
|
|
|
|
|
15,826
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued interest of bank loans
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
15,846
|
|
|
|
|
|
All bank loans are denominated in KRW except for two loans, which are denominated in USD and in EUR in the amount of $3,000 and €141 thousand, respectively. The bank loans bear interest at variable rates and are mainly payable monthly. The bank loans do not contain financial covenants.
During the years ended December 31, 2019 and 2018, the Company recognized $1,116 and $132 as interest expenses related to the bank loans in the consolidated statement of income in financial expenses (income), net.
As of December 31, 2019, the Company secured certain bank loans with an aggregate principal amount of $15,667 against bank guarantees.
NOTE 12:-WARRANTY OBLIGATIONS
Changes in the Company’s product warranty obligations for the years ended December 31, 2019 and 2018, were as follows:
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
Balance, at the beginning of the year
|
|
$
|
121,826
|
|
|
$
|
78,811
|
|
Additions and adjustments to cost of revenues
|
|
|
94,048
|
|
|
|
70,854
|
|
Usage and current warranty expenses
|
|
|
(43,311
|
)
|
|
|
(27,839
|
)
|
|
|
|
|
|
|
|
|
|
Balance, at the end of the year
|
|
|
172,563
|
|
|
|
121,826
|
|
Less current portion
|
|
|
(65,112
|
)
|
|
|
(28,868
|
)
|
|
|
|
|
|
|
|
|
|
Long term portion
|
|
$
|
107,451
|
|
|
$
|
92,958
|
|
SOLAREDGE TECHNOLOGIES, INC.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 13:-OTHER LONG TERM LIABILITIES
|
|
As of December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Tax liabilities
|
|
$
|
5,389
|
|
|
$
|
7,147
|
|
Accrued severance pay, net
|
|
|
4,647
|
|
|
|
411
|
|
Other
|
|
|
3,924
|
|
|
|
1,833
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
13,960
|
|
|
$
|
9,391
|
|
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, 2019:
|
|
Unrealized gains (losses) on available-for-sale marketable securities
|
|
|
Unrealized gains on cash flow hedges
|
|
|
Unrealized gains (losses) on foreign currency translation
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
(656
|
)
|
|
$
|
-
|
|
|
$
|
132
|
|
|
$
|
(524
|
)
|
Other comprehensive income (loss) before reclassifications
|
|
|
829
|
|
|
|
-
|
|
|
|
(2,205
|
)
|
|
|
(1,376
|
)
|
Loses reclassified from accumulated other comprehensive income
|
|
|
91
|
|
|
|
-
|
|
|
|
-
|
|
|
|
91
|
|
Net current period other comprehensive income (loss)
|
|
|
920
|
|
|
|
-
|
|
|
|
(2,205
|
)
|
|
|
(1,285
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
264
|
|
|
$
|
-
|
|
|
$
|
(2,073
|
)
|
|
$
|
(1,809
|
)
|
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 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 15:-LEASES
The Company leases offices, plants and vehicles under operating and finance leases. For leases with terms greater than 12 months, the Company records the related asset and liability at the present value of lease payments according to their term. Several of the Company’s leases include renewal options and some have termination options that are factored into the Company’s determination of the lease payments when appropriate. The Company estimates the incremental borrowing rate in order to discount the lease payments based on the information available at the lease commencement date.
The following table presents certain information related to the operating and finance leases:
|
|
Year ended December 31, 2019
|
|
Finance leases:
|
|
|
|
|
Finance lease cost
|
|
$
|
213
|
|
Weighted average remaining lease term in years
|
|
|
7.25
|
|
Weighted average annual discount rate
|
|
|
2.85
|
%
|
|
|
|
|
|
Operating leases:
|
|
|
|
|
Operating lease cost
|
|
$
|
9,665
|
|
Weighted average remaining lease term in years
|
|
|
4.61
|
|
Weighted average annual discount rate
|
|
|
1.46
|
%
|
The following table presents supplemental cash flows information related to the lease costs for operating and finance leases:
|
|
Year ended December 31, 2019
|
|
Cash paid for amounts included in measurement of lease liabilities:
|
|
|
|
|
Operating cash flows for operating and finance leases
|
|
$
|
9,748
|
|
Financing cash flows for finance leases
|
|
$
|
1,354
|
|
SOLAREDGE TECHNOLOGIES, INC.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 15:-LEASES (Cont.)
The following table reconciles the undiscounted cash flows for each of the first five years and the total of the remaining years of the operating and finance lease liabilities recorded on the consolidated balance sheets:
|
|
Operating Lease
|
|
|
Finance Leases
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
$
|
10,522
|
|
|
$
|
317
|
|
2021
|
|
|
9,195
|
|
|
|
317
|
|
2022
|
|
|
8,176
|
|
|
|
302
|
|
2023
|
|
|
7,172
|
|
|
|
302
|
|
2024
|
|
|
4,015
|
|
|
|
302
|
|
Thereafter
|
|
|
2,543
|
|
|
|
1,503
|
|
Total lease payments
|
|
|
41,623
|
|
|
|
3,043
|
|
|
|
|
|
|
|
|
|
|
Less amount of lease payments
representing interest
|
|
|
(1,820
|
)
|
|
|
(413
|
)
|
|
|
|
|
|
|
|
|
|
Present value of future lease payments
|
|
|
39,803
|
|
|
|
2,630
|
|
|
|
|
|
|
|
|
|
|
Less current lease liabilities
|
|
|
(9,590
|
)
|
|
|
(231
|
)
|
|
|
|
|
|
|
|
|
|
Long-term lease liabilities
|
|
$
|
30,213
|
|
|
$
|
2,399
|
|
NOTE 16:-COMMITMENTS AND CONTINGENT LIABILITIES
a.Guarantees:
As of December 31, 2019, contingent liabilities exist regarding guarantees in the amounts of $51,473, $18,373, $2,064 and $328 in respect of projects with customers, bank loans, office rent lease agreements and customs transactions, respectively.
b.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, the Company acquires raw materials or other goods and services, including product components, by issuing authorizations to its suppliers to purchase materials based on its projected demand and manufacturing needs. As of December 31, 2019, the Company had non-cancelable purchase obligations totaling approximately $472,086, out of which the Company recorded a provision for loss in the amount of $1,896.
SOLAREDGE TECHNOLOGIES, INC.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 16:-COMMITMENTS AND CONTINGENT LIABILITIES (Cont.)
As of December 31, 2019, the Company had contractual obligations for capital expenditures totaling approximately $60,634. These commitments reflect purchases of automated assembly lines and other machinery related to the Company’s manufacturing process.
c.Legal claims:
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 September, 2018, the Company’s German subsidiary, SolarEdge Technologies GmbH received a complaint filed by competitor SMA Solar Technology AG (“SMA”). The complaint, filed in the District Court Düsseldorf, Germany, alleges that SolarEdge's 12.5kW - 27.6kW inverters infringe two of plaintiff’s patents. In its complaint, SMA requests inter alia an injunction and a determination for a claim for damages for sales in Germany. Plaintiff also asserts a value in dispute of 5 million Euros (approximately $5,600) for both patents. In November 2019, the first instance court accepted the claim of infringement for one of the two patents and the Company has filed an appeal to the Appeals Court Dusseldorf and is challenging the validity of the allegedly infringed patent in the German Patent Court. Also, in November 2019 the first instance court stayed the infringement proceedings regarding the other one of the two patents since it considered it to be highly likely that the patent would be invalid. The Company believes that it has meritorious defenses to the claims asserted and intends to vigorously defend against these lawsuits.
In May 2019, the Company was served with three lawsuits by Huawei Technologies Co., Ltd., a Chinese entity (“Huawei”), against the Company's two Chinese subsidiaries and its equipment manufacturer in China. The lawsuits, filed in the Guangzhou intellectual property court, allege infringement of three patents and ask for an injunction of manufacture, use, sale and offer for sale, and damage awards of 30 million RMB (approximately $4,300). Following the receipt of the lawsuits, the Company filed three lawsuits in China against Huawei for unauthorized use of patented technology. The Company believes that it has meritorious defenses to the claims asserted and intends to vigorously defend against these lawsuits.
SOLAREDGE TECHNOLOGIES, INC.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 16:-COMMITMENTS AND CONTINGENT LIABILITIES (Cont.)
In August 2019, the Company was served with a lawsuit by certain former shareholders of SMRE, against its Italian subsidiary that purchased the shares of SMRE in the tender offer which followed the SMRE Acquisition. The shareholders who tendered their shares are asking for the difference between 6 Euro per share, which is the amount they tendered their shares, and 6.77 Euro per share, for a total awards of 2.7 million Euros (approximately $3,100). The Company believes it has meritorious defenses to the claims asserted and intends to vigorously defend against this lawsuit.
In December 2019, the Company received a lawsuit filed by a former consultant of the Company and its Israeli subsidiary in the amount of 25.5 million NIS (approximately $7,400) claiming damages caused relating to a terminated consulting agreement and stock options therein. The Company believes it has meritorious defenses to the claims asserted and intends to vigorously defend against this lawsuit.
NOTE 17:-STOCK CAPITAL
a.Composition of common stock capital of the Company:
|
|
Number of shares
|
|
|
|
Authorized
as of December 31,
|
Issued
as of December 31,
|
Outstanding
as of December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock of $0.0001 par value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
125,000,000
|
|
|
|
125,000,000
|
|
|
|
49,081,457
|
|
|
|
46,052,802
|
|
|
|
48,898,062
|
|
|
|
46,052,802
|
|
b.Common stock rights:
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.
c.Stock option plans:
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 nonemployees of the Company and its subsidiaries. As of December 31, 2019, a total of 10,383,357 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 17:-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, 2019, an aggregate of 8,686,589 options are still available for future grant under the 2015 Plan.
A summary of the activity in the stock options granted to employees and members of the board of directors for the year ended December 31, 2019 and related information are as follows:
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
average
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
remaining
|
|
|
|
|
|
|
Number
|
|
|
average
|
|
|
contractual
|
|
|
Aggregate
|
|
|
|
of
|
|
|
exercise
|
|
|
term
|
|
|
intrinsic
|
|
|
|
options
|
|
|
price
|
|
|
in years
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding as of December 31, 2018
|
|
|
2,401,893
|
|
|
|
11.04
|
|
|
|
6.19
|
|
|
|
58,323
|
|
Granted
|
|
|
267,852
|
|
|
|
36.15
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(546,412
|
)
|
|
|
6.30
|
|
|
|
|
|
|
|
|
|
Forfeited or expired
|
|
|
(11,324
|
)
|
|
|
13.84
|
|
|
|
|
|
|
|
|
|
Outstanding as of December 31, 2019
|
|
|
2,112,009
|
|
|
|
15.44
|
|
|
|
3.58
|
|
|
|
168,229
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest as of December 31, 2019
|
|
|
2,088,711
|
|
|
|
15.31
|
|
|
|
5.92
|
|
|
|
166,637
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable as of December 31, 2019
|
|
|
1,789,915
|
|
|
|
13.07
|
|
|
|
2.77
|
|
|
|
146,813
|
|
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, 2019, 2018 and 2017 was $37,509, $58,601, and $44,625, respectively.
The weighted average grant date fair value of options granted to employees and directors during the years ended December 31, 2019, 2018, and 2017, was $19.83, $20.83 and $7.94, respectively.
SOLAREDGE TECHNOLOGIES, INC.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 17:-STOCK CAPITAL (Cont.)
A summary of the activity in the RSUs granted to employees and directors for the year ended December 31, 2019, is as follows:
|
|
Number of
RSUs
|
|
|
Weighted average grant date
fair value
|
|
Unvested as of January 1, 2019
|
|
|
2,807,232
|
|
|
|
34.40
|
|
Granted
|
|
|
1,332,053
|
|
|
|
71.46
|
|
Vested
|
|
|
(1,122,712
|
)
|
|
|
32.23
|
|
Forfeited
|
|
|
(273,984
|
)
|
|
|
39.61
|
|
Unvested as of December 31, 2019
|
|
|
2,742,589
|
|
|
|
52.77
|
|
The weighted-average grant-date fair value of RSUs granted during the years ended December 31, 2019, 2018 and 2017, was $71.46, $41.45 and $27.30, respectively.
d.Employee Stock Purchase Plan:
The Company adopted an ESPP effective upon the consummation of the IPO. As of December 31, 2019, total of 2,199,808 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.
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 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, 2019, 528,359 shares of common stock had been purchased under the ESPP.
As of December 31, 2019, 1,671,449 shares of common stock 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.
SOLAREDGE TECHNOLOGIES, INC.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 17:-STOCK CAPITAL (Cont.)
e.Stock-based compensation expenses for employees and non-employees:
The Company recognized stock-based compensation expenses related to stock options and RSUs granted to employees and nonemployees and ESPP in the consolidated statement of income for the years ended December 31, 2019, 2018 and 2017, as follows:
|
|
Year ended December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
$
|
6,964
|
|
|
$
|
4,343
|
|
|
$
|
2,250
|
|
Research and development
|
|
|
16,872
|
|
|
|
11,205
|
|
|
|
5,703
|
|
Selling and marketing
|
|
|
11,062
|
|
|
|
9,111
|
|
|
|
5,387
|
|
General and administrative
|
|
|
6,991
|
|
|
|
5,959
|
|
|
|
4,224
|
|
Other operating expenses
|
|
|
18,464
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation expenses
|
|
$
|
60,353
|
|
|
$
|
30,618
|
|
|
$
|
17,564
|
|
As of December 31, 2019, there were total unrecognized compensation expenses in the amount of $145,033 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, 2020 through February 29, 2024.
NOTE 18:-EARNINGS PER SHARE
Basic net Earnings Per Share (“EPS”) 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 EPS 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.”
312,128 shares of common stock were excluded from the calculation of diluted net EPS due to their anti-dilutive effect for the year ended December 31, 2019.
No shares were excluded from the calculation 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 EPS due to their anti-dilutive effect was 197,516, for the year ended December 31, 2017.
SOLAREDGE TECHNOLOGIES, INC.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 18:-EARNINGS PER SHARE (Cont.)
The following table presents the computation of basic and diluted EPS attributable to SolarEdge Technologies, Inc.:
|
|
Year ended December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
Basic EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
144,957
|
|
|
$
|
128,046
|
|
|
$
|
84,172
|
|
Net loss attributable to Non-controlling interests
|
|
|
1,592
|
|
|
|
787
|
|
|
|
-
|
|
Net income attributable to SolarEdge Technologies, Inc.
|
|
$
|
146,549
|
|
|
$
|
128,833
|
|
|
$
|
84,172
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computing net earnings per share of common stock, basic
|
|
|
47,918,938
|
|
|
|
45,235,310
|
|
|
|
42,209,238
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
144,957
|
|
|
$
|
128,046
|
|
|
$
|
84,172
|
|
Net loss attributable to Non-controlling interests
|
|
|
1,592
|
|
|
|
787
|
|
|
|
-
|
|
Undistributed earnings reallocated to non-vested stockholders
|
|
|
(906
|
)
|
|
|
-
|
|
|
|
-
|
|
Net income attributable to SolarEdge Technologies, Inc.
|
|
$
|
145,643
|
|
|
$
|
128,833
|
|
|
$
|
84,172
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computing net earnings per share of common stock, basic
|
|
|
47,918,938
|
|
|
|
45,235,310
|
|
|
|
42,209,238
|
|
Weighted average effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-vested PSUs
|
|
|
(312,128
|
)
|
|
|
-
|
|
|
|
-
|
|
Effect of stock-based awards
|
|
|
2,588,851
|
|
|
|
2,744,692
|
|
|
|
3,216,069
|
|
Shares used in computing net earnings per share of common stock, diluted
|
|
|
50,195,661
|
|
|
|
47,980,002
|
|
|
|
45,425,307
|
|
SOLAREDGE TECHNOLOGIES, INC.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 19:-OTHER OPERATING EXPENSES
|
|
Year ended December 31, 2019
|
|
Compensation package related to the passing of the former Founder, CEO and Chairman (1)
|
|
$
|
8,305
|
|
Termination of SMRE’s former executive (2)
|
|
|
12,222
|
|
Sale of SMRE’s subsidiary (3)
|
|
|
5,269
|
|
A settlement of pre-acquisition legal claim against Kokam (4)
|
|
|
4,900
|
|
Total other operating expenses
|
|
$
|
30,696
|
|
(1)On August 25, 2019, the Company announced the untimely death of Mr. Guy Sella, Founder, who had served as CEO and Chairman of the Board of Directors until shortly before his passing. For the year ended December 31, 2019, the Company recognized expenses in the amount of $8,305, in other operating expenses in the consolidated statement of income, related to payroll, bonus and acceleration of stock-based compensation award.
(2)As part of SMRE Acquisition, the Company issued to a shareholder who had served as an executive of SMRE 334,095 PSUs, which were subject to certain performance goals and a vesting period. In December 2019, in connection with a separation agreement between the parties, the Company and the shareholder amended the original agreement, which resulted in a modification to the terms of 150,000 of the original PSUs, such as, the fair value of the PSU, the service period and the performance goals. The Company exercised a call option with respect to the remaining 183,395 PSUs, for a price per share equal to €0.01. As a result of the modification, the Company accelerated the award and recognized expenses in the amount of $12,222, in other operating expenses in the consolidated statement of income.
(3)On December 31, 2019, the Company completed the sale of an SMRE’s subsidiary. As a result of this transaction, the Company recognized a loss of $5,269 in other operating expenses in the consolidated statement of income.
(4)At the time of the Kokam acquisition, Kokam had outstanding against it a claim for damages. In December 2019, the claim was settled for an amount of $4,900, which was recognized as an expense in other operating expenses in the consolidated statement of income.
SOLAREDGE TECHNOLOGIES, INC.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 20:-INCOME TAXES
a. Tax rates in U.S:
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 "Tax Act") 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 2018 onwards and created new taxes on certain foreign-sourced earnings and certain related-party payments.
Due to the timing of the enactment and the complexity involved in applying the provisions of the Tax Act, the Company made reasonable estimates of the effects and recorded provisional amounts in our consolidated financial statements as of December 31, 2017. As the Company collected and prepared necessary data, and interpreted the additional guidance issued by the U.S. Treasury Department, the IRS, and other standard-setting bodies, it made adjustments, over the course of 2018, to the provisional amounts including refinements to deferred taxes. The accounting for the tax effects of the Tax Act was completed as of December 31, 2018.
Transition tax:
The Tax Act required the Company to pay U.S. income taxes on accumulated foreign subsidiaries earnings not previously subject to U.S. income tax at a rate of 15.5% to the extent of foreign cash and certain other net current assets and 8% on the remaining earnings. The total tax liability was calculated to approximately $8,500. The Company has elected to pay its transition tax over the eight-year period provided in the Tax Act.
b.Kokam is subject to Korean tax on progressive tax rates of up to 22%.
SMRE is subject to Italian corporate tax rate of 24%.
c.Corporate tax in Israel:
Taxable income of Israeli companies is subject to corporate tax at the rate of 23%.
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.
The Israeli subsidiary is also eligible for tax benefits as further described in note 20k.
SOLAREDGE TECHNOLOGIES, INC.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 20:-INCOME TAXES (Cont.)
d.Carryforward tax losses:
As of December 31, 2019, Kokam has carryforward tax losses of $17,353.
As of December 31, 2019, SMRE has carryforward tax losses of approximately $11,000.
e.Deferred taxes:
Deferred 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 (as defined in in note 20k) 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 20:-INCOME TAXES (Cont.)
Significant components of the Company’s deferred tax liabilities and assets are as follows:
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and Development carryforward expenses
|
|
$
|
4,994
|
|
|
$
|
9,482
|
|
|
$
|
5,380
|
|
Carryforward tax losses
|
|
|
6,318
|
|
|
|
4,155
|
|
|
|
-
|
|
Stock based compensation expenses
|
|
|
4,898
|
|
|
|
3,160
|
|
|
|
1,622
|
|
Deferred revenue
|
|
|
3,621
|
|
|
|
1,268
|
|
|
|
205
|
|
Inventory Impairment
|
|
|
2,442
|
|
|
|
1,471
|
|
|
|
-
|
|
Allowance and other reserves
|
|
|
7,305
|
|
|
|
3,072
|
|
|
|
1,133
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Gross deferred tax assets, net
|
|
$
|
29,578
|
|
|
$
|
22,608
|
|
|
$
|
8,340
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less, Valuation Allowance (1)
|
|
|
(2,317
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets, net
|
|
$
|
27,261
|
|
|
$
|
22,608
|
|
|
$
|
8,340
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase price allocation
|
|
|
(15,424
|
)
|
|
|
(9,408
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities, net
|
|
$
|
(15,424
|
)
|
|
$
|
(9,408
|
)
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recorded as:
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets, net
|
|
$
|
16,298
|
|
|
$
|
14,699
|
|
|
$
|
8,340
|
|
Deferred tax liabilities, net
|
|
|
(4,461
|
)
|
|
|
(1,499
|
)
|
|
|
-
|
|
Net deferred tax assets
|
|
$
|
11,837
|
|
|
$
|
13,200
|
|
|
$
|
8,340
|
|
(1)Related primarily to deferred tax assets that would only be realizable upon the generation of net income in certain foreign jurisdictions.
SOLAREDGE TECHNOLOGIES, INC.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 20:-INCOME TAXES (Cont.)
f.Uncertain tax positions:
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
Balance at January 1,
|
|
$
|
8,499
|
|
|
$
|
579
|
|
|
$
|
249
|
|
Increases related to current year tax positions
|
|
|
463
|
|
|
|
8,499
|
|
|
|
330
|
|
Decreases related to prior year tax positions
|
|
|
-
|
|
|
|
(579
|
)
|
|
|
-
|
|
Balance at December 31,
|
|
$
|
8,962
|
|
|
$
|
8,499
|
|
|
$
|
579
|
|
The total amount of gross unrecognized tax benefits was $9,500, $8,500, and $600 as of December 31, 2019, 2018 and 2017, respectively, of which, $9,500, $8,500 and $600, if recognized, would affect our effective tax rate, respectively.
The Company accrues interest and penalties related to unrecognized tax benefits in its provision for income taxes. The total amount of penalties and interest were not material as of December 31, 2019, 2018 and 2017. The Company does not expect a material change in its unrecognized tax benefits within the next 12 months.
g.Income before taxes are comprised as follows:
|
|
Year ended December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
$
|
6,029
|
|
|
$
|
13,405
|
|
|
$
|
7,461
|
|
Foreign
|
|
|
172,574
|
|
|
|
123,718
|
|
|
|
92,783
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
178,603
|
|
|
$
|
137,123
|
|
|
$
|
100,244
|
|
h.Income taxes (tax benefit) are comprised as follows:
|
|
Year ended December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
Current taxes:
|
|
|
|
|
|
|
|
|
|
U.S. Federal & State
|
|
$
|
10,093
|
|
|
$
|
13,894
|
|
|
$
|
19,889
|
|
Foreign
|
|
|
29,590
|
|
|
|
2,276
|
|
|
|
1,638
|
|
Total current taxes
|
|
|
39,683
|
|
|
|
16,170
|
|
|
|
21,527
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Federal & State
|
|
|
(3,414
|
)
|
|
|
(1,284
|
)
|
|
|
(42
|
)
|
Foreign
|
|
|
(2,623
|
)
|
|
|
(5,809
|
)
|
|
|
(5,413
|
)
|
Total deferred taxes
|
|
|
(6,037
|
)
|
|
|
(7,093
|
)
|
|
|
(5,455
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes, net
|
|
$
|
33,646
|
|
|
$
|
9,077
|
|
|
$
|
16,072
|
|
SOLAREDGE TECHNOLOGIES, INC.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 20:-INCOME TAXES (Cont.)
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 income is as follows:
|
|
Year ended December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
Income before taxes, as reported in the consolidated statements of income
|
|
$
|
178,603
|
|
|
$
|
137,123
|
|
|
$
|
100,244
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statutory tax rate
|
|
|
21
|
%
|
|
|
21
|
%
|
|
|
34
|
%
|
Theoretical tax expenses on the above amount at the US statutory tax rate
|
|
|
37,507
|
|
|
|
28,796
|
|
|
|
34,083
|
|
Income tax at rate other than the U.S. statutory tax rate
|
|
|
(8,784
|
)
|
|
|
(17,432
|
)
|
|
|
(34,734
|
)
|
Losses and timing differences for which valuation allowance was provided
|
|
|
2,317
|
|
|
|
-
|
|
|
|
-
|
|
Tax Cuts and Jobs Act of 2017
|
|
|
(1,246
|
)
|
|
|
(1,367
|
)
|
|
|
18,735
|
|
Non-deductible expenses
|
|
|
4,040
|
|
|
|
(644
|
)
|
|
|
(1,545
|
)
|
Other individually immaterial income tax items, net
|
|
|
(188
|
)
|
|
|
(276
|
)
|
|
|
(467
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual tax expense (tax benefit)
|
|
$
|
33,646
|
|
|
$
|
9,077
|
|
|
$
|
16,072
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
18.8
|
%
|
|
|
6.6
|
%
|
|
|
16
|
%
|
j.Tax assessments:
As of December 31, 2019, 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 2015. Net operating losses generated in years prior to 2016 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 2013 has lapsed.
The statute of limitations related to tax returns of the Company’s other subsidiaries has lapsed for part of the tax years, which differs between the different subsidiaries.
SOLAREDGE TECHNOLOGIES, INC.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 20:-INCOME TAXES (Cont.)
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 (which depend on, inter alia, the geographic location in Israel). Income not eligible for Benefited Enterprise benefits is taxed at a regular corporate tax rate.
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.
By 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 Investments Law until December 31, 2018.
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%).
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.
SOLAREDGE TECHNOLOGIES, INC.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 20:-INCOME TAXES (Cont.)
Through December 31, 2019, the Israeli subsidiary had generated income under the provision of the Investments Law.
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 Investments Law (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 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.
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.
SOLAREDGE TECHNOLOGIES, INC.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 20:-INCOME TAXES (Cont.)
A PTE, 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%).
The Israeli subsidiary’s PTE facilities in Israel are not located in Development Zone A. SolarEdge Technologies Ltd. is in the final stages of building its own manufacturing facilities in Israel, which is located in a Development Zone A.
The Company notified the ITA of its election to implement the PTE with effect from January 1, 2019.
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). 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. 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.
Tax Benefits for Research and Development:
Israeli tax law (section 20A to the Israeli Tax Ordinance (New Version), 1961) allows, 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. The Company’s Israeli subsidiary intends to submit a formal request to the relevant Israeli government ministry in order to obtain such approval for 2019.
l.Tax benefits under the Law for the Encouragement of Industry (Taxes), 1969:
The Company’s Israeli subsidiary claims 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.
SOLAREDGE TECHNOLOGIES, INC.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 21:-FINANCIAL EXPENSES (INCOME), NET
|
|
Year ended December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
Interest income on marketable securities
|
|
$
|
(4,590
|
)
|
|
$
|
(5,629
|
)
|
|
$
|
(4,398
|
)
|
Exchange rate loss (income), net
|
|
|
10,342
|
|
|
|
4,725
|
|
|
|
(8,488
|
)
|
Interest expenses
|
|
|
4,805
|
|
|
|
2,536
|
|
|
|
-
|
|
Bank charges
|
|
|
1,021
|
|
|
|
675
|
|
|
|
377
|
|
Amortization of marketable securities premium and accretion of discount, net
|
|
|
122
|
|
|
|
1,242
|
|
|
|
2,017
|
|
Other financial income, net
|
|
|
(357
|
)
|
|
|
(1,252
|
)
|
|
|
1,334
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
11,343
|
|
|
$
|
2,297
|
|
|
$
|
(9,158
|
)
|
NOTE 22:-SEGMENT, GEOGRAPHIC, MAJOR CUSTOMER AND PRODUCT INFORMATION
a.Segment Information:
Following the acquisitions of Gamatronic, Kokam, and SMRE, the Company has changed its segments measurement, beginning in 2019. The purpose of the new measurement is to provide the Company’s chief operating decision maker (“CODM”) better information to asses’ segment performance and to make resource allocation decisions. The Company now operates in five different operating segments: Solar, UPS, energy storage, e-Mobility and machinery.
The Company's CODM is our Chief Executive Officer who makes resource allocation decisions and assesses performance based on financial information presented on a consolidated basis, accompanied by disaggregated information about revenues and contributed profit by the operating segments.
Segment profit is comprised of gross profit for the segment less operating expenses that do not include amortization, stock based compensation expenses and certain other items.
The Company manages its assets on a group basis, not by segments, as many of its assets are shared or commingled. The Company’s CODM does not regularly review asset information by segments and, therefore, the Company does not report asset information by segment.
The Company identified one operating segment as reportable – the solar segment. The other operating segments are insignificant individually and in aggregate and therefore their results are presented together under “All other”.
SOLAREDGE TECHNOLOGIES, INC.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 22:-SEGMENT, GEOGRAPHIC, MAJOR CUSTOMER AND PRODUCT INFORMATION (Cont.)
The solar segment includes the design, development, manufacturing, and sales of an intelligent inverter solution designed to maximize power generation at the individual PV module level. The solution consists mainly of the Company’s power optimizers, inverters and cloud‑based monitoring platform.
The All other category includes the design, development, manufacturing and sales of UPS products, energy storage products, e-Mobility products, and special machines for automatic and semi-automatic linear sewing, digital welding and digital cutting.
Information on reportable segments and reconciliation to consolidated operating income is as follows:
|
|
As of December 31, 2019
|
|
|
|
Solar
|
|
|
All other
|
|
Revenues
|
|
$
|
1,336,618
|
|
|
$
|
89,042
|
|
Cost of revenues
|
|
|
852,330
|
|
|
|
75,702
|
|
Gross profit
|
|
|
484,288
|
|
|
|
13,340
|
|
Research and development
|
|
|
91,868
|
|
|
|
12,520
|
|
Sales and marketing
|
|
|
67,275
|
|
|
|
8,433
|
|
General and administrative
|
|
|
31,201
|
|
|
|
9,561
|
|
Segments profit (loss)
|
|
$
|
293,944
|
|
|
$
|
(17,174
|
)
|
|
|
As of
December 31,
|
|
|
|
2019
|
|
|
|
|
|
|
Solar profit
|
|
$
|
293,944
|
|
All other loss
|
|
|
17,174
|
|
Segments operating profit
|
|
|
276,770
|
|
Expenses not allocated to segments:
|
|
|
|
|
Stock based compensation expenses
|
|
|
60,353
|
|
Amortization
|
|
|
11,112
|
|
Sale of SMRE’s subsidiary
|
|
|
5,269
|
|
Legal settlement
|
|
|
4,900
|
|
Cost of products adjustments
|
|
|
1,556
|
|
Other unallocated expenses
|
|
|
3,634
|
|
Consolidated operating income
|
|
$
|
189,946
|
|
The All other Segment results were immaterial for the year ended December 31, 2018. For the year ended December 31, 2017, the Company operated in the solar segment only.
SOLAREDGE TECHNOLOGIES, INC.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 22:-SEGMENT, GEOGRAPHIC, MAJOR CUSTOMER AND PRODUCT INFORMATION (Cont.)
b.Revenues by geographic location:
|
|
Year ended December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
Revenues based on Customers’ location:
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
678,565
|
|
|
$
|
505,469
|
|
|
$
|
348,949
|
|
Europe (*)
|
|
|
345,685
|
|
|
|
175,894
|
|
|
|
128,295
|
|
Netherlands
|
|
|
199,526
|
|
|
|
123,959
|
|
|
|
70,067
|
|
Rest of the world
|
|
|
201,884
|
|
|
|
131,915
|
|
|
|
59,734
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
1,425,660
|
|
|
$
|
937,237
|
|
|
$
|
607,045
|
|
(*) Except for Netherlands
c.Revenues by product:
|
|
Year ended December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
Inverters
|
|
$
|
626,445
|
|
|
$
|
416,966
|
|
|
$
|
290,632
|
|
Optimizers
|
|
|
634,007
|
|
|
|
432,410
|
|
|
|
286,856
|
|
Others
|
|
|
165,208
|
|
|
|
87,861
|
|
|
|
29,557
|
|
Total revenues
|
|
$
|
1,425,660
|
|
|
$
|
937,237
|
|
|
$
|
607,045
|
|
d.Long-lived assets by geographic location:
|
|
As of December 31,
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
Israel
|
|
$
|
101,143
|
|
|
$
|
59,126
|
|
Asia
|
|
|
61,652
|
|
|
|
51,701
|
|
Europe
|
|
|
11,693
|
|
|
|
6,600
|
|
Other
|
|
|
2,475
|
|
|
|
1,902
|
|
|
|
|
|
|
|
|
|
|
Total long-lived assets (*)
|
|
$
|
176,963
|
|
|
$
|
119,329
|
|
(*) Long-lived assets are comprised of property and equipment, net.