Financial StatementAnalysis | Pierre-Louis Terry | Alexis...

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1 Financial Statement Analysis Nathan Carlesimo | Pierre-Louis Terry | Alexis Ladasic

Transcript of Financial StatementAnalysis | Pierre-Louis Terry | Alexis...

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Financial Statement AnalysisNathan Carlesimo | Pierre-Louis Terry | Alexis Ladasic

Table of content

Strategic and Economic Assessment 3-6

Growth Analysis 7-10

Profitability Analysis 11-16

Risk Analysis 17-25

Conclusion 26-27

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1. Strategic and Economic Assessment

3

1.1 Overview of SolarCity

u SolarCity provides homeowners, businesses and government organizations with renewable energy

u Cleaner, more affordablealternatives to traditional utility bills

u As the No. 1 provider of distributed solar in the United States, SolarCity has completed installations in 26 states as well as in Puerto Rico and Canada

u Vertically-integrated services covering module manufacturing, mounting hardware, software, sales, installation, financing, monitoring, and maintenance

u SolarCity was founded on July 4, 2006, to symbolize the commitment to becoming independent of fossil fuels

u Founders: Peter and Lyndon Rive

u based on a suggestion by their cousin, Elon Musk

u Based in San Mateo (California)

u SolarCity went public on December 2012 at 8$ per share

u raised $92 million in its initial public offering

u On August 1, 2016, SolarCity accepted Tesla Motors' offer of 2.6 billion dollars

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SolarCity || Strategic & Economic Assessment | Growth Analysis | Profitability Analysis | Risk Analysis | Conclusions

1.2 Share price evolution

5

Share price evolution since IPO

Share price evolution Year-to-Date

u Fast take-off: share price multiplied by 8 within the 14 months following the IPO

u Since the highest value on 24 Feb 2014 at 84$: share price divided by 4 down to 20$

u SolarCity lost 61% on YtDbasis

u However flat on a 6m basis

u Volatile stock price

Source: yahoo finance

SolarCity || Strategic & Economic Assessment | Growth Analysis | Profitability Analysis | Risk Analysis | Conclusions

1.3 What do we expect to see ?

Financial statement analysis:

u High fixed assets coupled with a long production cycle

u Probably a high proportion of long-term financing for long-termprojects

u Improving revenues as the marketbecomes mature

Questions we want to emphasize:

u What is the rationale behind the stock price fall and the offer of Tesla ?

u How can SCTY still raise funds withnegative revenues ?

u Can we say that SCTY’s project isvalue creating and profitable ?

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SolarCity || Strategic & Economic Assessment | Growth Analysis | Profitability Analysis | Risk Analysis | Conclusions

2. Growth Analysis

7

2.1 Sales’ growthu Net sales grow up at a 4,4% growth rate

without any slowdown since the IPOu Net sales’ dynamic probably due to the

enthousiasm for renewable energies

u Reminder: no direct EBITDA is given by SCTY, we recreated it by adding operating lossesand depreciation/amortization

u EBITDA almost stable: why is the net lossincreasing ?

8

(400 000)

(300 000)

(200 000)

(100 000)

-

100 000

200 000

300 000 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016

($ 0

00')

Growth evolution

Net Sales EBITDA Net Loss Linéaire (Net Sales)

Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016

Net sales (SCTY) 67 479 102 803 113 857 115 480 122 572 185 784 200 551

Net Sales (SunRun) 49 680 72 690 82 600 99 640 98 740 122 540 112 030

Net sales (Ameresco) 115 430 152 490 189 140 173 770 133 780 162 630 180 600

-

50 000

100 000

150 000

200 000

250 000

Sector comparaison

u In the sector, SCTY’s performances are in line with the sector

u Even a bit better as they seem to have won market shares especially fromAmeresco

u Competition is fierce on the sector: SCTY needs to be competitive on prices and quality

SolarCity || Strategic & Economic Assessment | Growth Analysis | Profitability Analysis | Risk Analysis | Conclusions

2.2 Investment Policyu Being a manufacturer of solar panel, SCTY

has obviously a large part of fixed assets (>80% of total assets)

u Looking at the break-down we can clearly identify that systems are costly

u Goodwill at 475M€: interesting to see that it depreciated from 574M€ (T4-14) overtime while there was Tesla’s offer

u Well-managed working capital: from almost 600 days they managed to go down to 300 days worth of sale

u Seems to be due to a better management of inventories

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-

2 000 000

4 000 000

6 000 000

8 000 000

10 000 000

Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016

Total assets

Fixed Asset Current Asset

-100 200 300 400 500 600

-

100 000

200 000

300 000

400 000

Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016

Evolution of the Working Capital

Inventory Account Receivable Accounts Payable WC in Days

76%

3%

7%7%

3% 4%

Fixed assets breakdown T3-16

Solar energy systems Property, plant and equipment - net

Goodwill and intangible assets - net MyPower customer notes receivable

MyPower deferred costs Other assets

SolarCity || Strategic & Economic Assessment | Growth Analysis | Profitability Analysis | Risk Analysis | Conclusions

2.3 Finance Structureu Solar City is increasingly financed by

debt compared to equity

u Corresponding to the heavy industry type, on average 81% of this debt is long term

u This highly structured debt is becoming a threat for the business

u Purpose of debt: financing the operating cycle losses more than investing

u It is not a sustainable use of financial debt over time

u Increasing operating expenses such as SG&A and Sales & Marketing are worsening the negative EBITDA while creating no explicit value for the company:

u It could be explaining the use of financial debt to keep on with this marketing investment strategy

u This debt slows down a cash hemorrhage and does support investments which could have contributed in the debt payback

u Until now, this over-investment in Sales & Marketing did not prove to be an efficient support of demand

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87113 129 128 126 117 103

4950

69 76 87 8687135

163

199 204 213 203190

4,0x 4,1x 4,8x 4,7x 6,6x

9,4x 8,9x

Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016

SG&A ($m) Sales & Marketing ($m) Financial Debt / Operating Debt

SolarCity || Strategic & Economic Assessment | Growth Analysis | Profitability Analysis | Risk Analysis | Conclusions

3. Profitability Analysis

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3.1 Margin Analysisu Operating Expenses remain key factor

of NOPAT, EBITDA margin.u …but Decrease in Opex Margin due to

faster rise in revenue (+197%) thanrise in Opex (+75%) since Q1 2014.

u Gross margin stable (29.50% avg) withexception of Q1 ‘16 due to combinationof weak sales and high D&A.

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u In the sector, SCTY’s performances paintsa mixed picture with comparables.

u Gross margin remains close to industrybenchmark (30-40%)

u … but Operating expenses remain a considerable headwind to profitability.

-240%

-200%

-160%

-120%

-80%

-40%

0%

40%

80%

120%

160%

200%

240%

Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016

Gross Margin EBITDA Operating Expenses NOPAT

-200%

-160%

-120%

-80%

-40%

0%

40%

80%

120%

160%

200%

240%

Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016

Sector Comparison

Gross Margin Gross Margin (Sunrun)

Operating Expenses Opex Margin (Sunrun)

EBITDA EBITDA Margin (Sunrun)

SolarCity || Strategic & Economic Assessment | Growth Analysis | Profitability Analysis | Risk Analysis | Conclusions

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3.2 Return on Invested Capital (ROIC)u Invested Capital has doubled in past 18

months following several large scaleprojects

u ROIC improving, demonstrating scalabilityedge.

u NOPAT margin increasing faster thaninvested capital

u ROIC still far below estimated WACC of 4.1% (conservative), meaning negative economicvalue added or value destruction

u Solar PPA WACCs have increasedconsiderably since SUNE bankruptcy.

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Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016

NOPAT Margin (185.5%) (128.8%) (167.5%) (170.3%) (174.2%) (104.5%) (93.1%)

Turnover of Capital Employed 2.1% 2.7% 2.6% 2.3% 2.1% 3.0% 3.0%

ROIC (3.9%) (3.5%) (4.3%) (3.9%) (3.7%) (3.1%) (2.8%)

3 201

3 752

4 454

5 088

5 737 6 166

6 587

(3,9%)(3,5%)

(4,3%)(3,9%) (3,7%)

(3,1%)(2,8%)

Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016

Invested Capital ($ m) ROIC WACC

SolarCity || Strategic & Economic Assessment | Growth Analysis | Profitability Analysis | Risk Analysis | Conclusions

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3.3 Return on Equityu SCTY’s ROE has been negative from

2010-2015, except in 2011.

u Factors include: High capital investments, consistent loss from operations, as well as raising additional equity capital

u Leverage effect consistently negative,

u Strengths: Relative to a large equity base, negative ROEs are shrinking

u Risks: Difficulty raising additional capital on public equity markets.

u Solution? Securitization of porftolio of solar systems on books, effectively selling revenue rights

u Risk of additional losses with smaller equity base could be headwind to improving ROE

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Q1 2015 Q2 2015 Q3 2015 Q4 2015 FY 2015 Q1 2016 Q2 2016 Q3 2016ROIC (3.9%) (3.5%) (4.3%) (3.9%) (12.7%) (3.7%) (3.1%) (2.8%)NetCost ofDebt 1.2% 1.1% 1.6% 1.0% 1.9% 1.3% .9% ROIC- NetCost ofDebt (5.1%) (4.7%) (5.9%) (4.9%) (16.5%) (5.6%) (4.5%) (3.8%)

Total Financial LeverageEffect (9.4%) (9.9%) (14.2%) (12.7%) (42.8%) (17.0%) (13.6%) (10.7%)ROE (54.4%)

(54,40%)

(33,90%)

2,60%

22,70%

3,69%

(60,00%)

(50,00%)

(40,00%)

(30,00%)

(20,00%)

(10,00%)

-

10,00%

20,00%

30,00%

SCTY Sunrun Vivint Solar Sunpower Ameresco

ROE Sector Comparison (2015)

SolarCity || Strategic & Economic Assessment | Growth Analysis | Profitability Analysis | Risk Analysis | Conclusions

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3.4 Tax Equity Partnerships: a Key Source of Financing (1/2)u 2005: ITC tax credit passed under

Bush administration, extended several times to 2022.

u Allows owners of renewable energy systems to recoup 30% of cost of systems as tax credit

u Useful for companies with large tax burdens who apply it to liabilities with rest carried forward

u As loss making entity, SCTY does not benefit from credit in near term

u Tax equity partnerships are a form of structured finance that allow SCTY to nonetheless exploit the ITC

u Largest single TEP was Google $280 mio renewable fund (2011)

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67%

33%

Financing

TEP Debt

u Investor Base:

u Pool of sophisticated (institutional) investors

u “Expanding” as asset class matures.

SolarCity || Strategic & Economic Assessment | Growth Analysis | Profitability Analysis | Risk Analysis | Conclusions

u Selected tax equity investors:

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3.4 Tax Equity Partnerships: a Key Source of Financing (2/2)

u Structure:u Value of ITC is determined as % of Fair Market Value of the

project (more advantageous than cost valuation);

u Tax Equity Investor partner receives the ITC, accelerated depreciation benefits, and a share of the cash flow of the underlying investment;

u Investor earns after tax IRR 7 to 12%;

u SCTY reduces its need for debt financing for any given project

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Solar Panel ‘Consumer’

SCTY Tax Equity Investor

Lease Installation

Debt (if any)

100% of CF from Lease Payments

100% of tax credit + 2% of CF from Lease Payments

Lender

Project Company (SPV)

Interest

ITC

100% of tax credits

98% of CF from Lease Payments

u Risks:u Complex and Costly source of financing;

u Demanded IRR by Tax equity investors increases with size of debt tranche at origination;

u Political: ITC extended to 2023-2022, unclear that Trump administration will renew/not repeal before then;

u Without TEPs, leverage and cost of debt will increase considerably.

u Is SCTY’s model economically viable?

Capital (<50%)

X% of Capital

SolarCity || Strategic & Economic Assessment | Growth Analysis | Profitability Analysis | Risk Analysis | Conclusions

4. Risk Analysis

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4.1 Net debt reconciliationu As an accounting principle:

u Capital Employed = Invested Capital

u Fixed Assets + WC = Equity + Net Debt

u In the Solar City case, this equation only matches when including Deferred Revenues in Net Debt

u Deferred Revenues are not debt

u which leads to comparing Solar City’s leverage depending on its net debt perimeter

u When withdrawing deferred revenues from net debt, the leverage (1) is 2,8x in Q1 2016, but reaches 3,7x when taken into account (leverage 2)

u For consistency purposes, the following debt analysis does not include deferred revenues, because we do not consider this item as pure debt, which leads to a less worrying financial situation for the company

u Reconciling capital employed and invested capital suggests a much higher net debt

u c. $6.4bn in Q3 2016 vs $4.8bn 18

,8x

1,2x

1,6x

2,x

2,4x

2,8x

3,2x

3,6x

4,x

4,4x

Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016

Leverage 1 (x) Average US Leverage level Leverage 2 (x)

SolarCity || Strategic & Economic Assessment | Growth Analysis | Profitability Analysis | Risk Analysis | Conclusions

4.2 Debt evolution (1/2)u Solar City’s debt has been continuously

increasing

u Major issue: no capacity of paying it back

u Operating cycle is destroying value

u Cash reserves are negligible and shrinking compared to the total debt weight

u No sign of any strategic shift to improve the situation

u This leads to an increasing debt service, not financed by the core business

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2,1 2,5

3,1 3,6

4,3 4,6 4,8

2,5 2,9

3,5 4,1

4,6 4,7 5,1

49,8% 52,1% 54,0% 55,7% 51,0% 56,9% 55,1%

Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016

Net Debt ($m) Total Debt ($m) Total Debt in % Total Equity & Liabilities

20 625 23 265

42 713

31 103

69 669

56 138

40 098

30,6% 22,6%

37,5% 26,9%

56,8%

30,2% 20,0%

Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016

Net Financial Expenses ($ 000') Financial expenses / Net Sales

Debt service is benefitting fromdecreasing interest rates over theperiod due to the macro economic

conjuncture

SolarCity || Strategic & Economic Assessment | Growth Analysis | Profitability Analysis | Risk Analysis | Conclusions

4.2 Debt evolution (2/2)u Solar City’s net debt keeps increasing

u Current portion of short-term debt is the main concern

u Already way above Net Sales revenues

u It sends a negative signal to investors as they have legitimate concerns about Solar City’s capacity in creating value

u Negative EBITDA does not allow an accurate debt analysis based on ratios such as Debt/EBITDA or Interest Coverage Ratio

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1236 44

180

255 265286

17,4% 34,6% 39,1% 155,9% 208,4% 142,5% 142,4%

Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016

Current portion of LT Debt ($m) In % of Net Sales

u Solar short-term activity is threatened by debt service requirements it cannot commit to

0

200 000

400 000

600 000

800 000

1 000 000

1 200 000

1 400 000

Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016

Current Assets ($ 000') Current Liabilities ($ 000')Cash & Equivalents ($ 000')

SolarCity || Strategic & Economic Assessment | Growth Analysis | Profitability Analysis | Risk Analysis | Conclusions

4.3 The questionnable solvency… (1/2)u This unsustainable situation triggers an

important decrease of Solar City’s ratiosu Compared to the acceptance thresholds

of investors for each ratio:

u An artificially maintained decent current ratio with increasing current liabilities

u Because of a higher current portion of a long term debt not focused on profitable investments

u Can send a misleading signal to investors who will believe Solar City is investing in long term projects: a positive signal

u A quick ratio significantly below the commonly accepted threshold due to high levels of inventories

u A cash ratio revealing Solar City’s incapacity to meet its short-term debt deadlines

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0%

40%

80%

120%

160%

Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016

Current ratio Quick ratioCash ratio Current ratio thresholdQuick ratio threshold Cash threshold

SolarCity || Strategic & Economic Assessment | Growth Analysis | Profitability Analysis | Risk Analysis | Conclusions

4.3 The questionnable solvency… (2/2)u Solar City shows clear signs of

insolvency

u The heavy industry sector does not justify such a leverage gap between Solar City and the US average

u On average, companies under a 20% solvency ratio are considered unhealthy by investors

u From Q4 2015 until Q3 2016, Solar City is under the 20% solvency threshold

u While still having an increasing debt level

u And still having shown no sign of a strategic shift focusing on debt payback

u In Q1 2016, the ratio reaches its minimum level (17,8%) and shifts up back towards the 20% threshold

u The result notably of cost cutting policies (mainly based on reducing the staff)

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10%

15%

20%

25%

30%

,8x

1,2x

1,6x

2,x

2,4x

2,8x

3,2x

Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016

Leverage (x) Average US Leverage level

Solvency ratio (%) Solvency threshold

SolarCity || Strategic & Economic Assessment | Growth Analysis | Profitability Analysis | Risk Analysis | Conclusions

4.4 Further explanations (1/3)

u This is a heavy type of industry, implying high costs of sales (70% of total sales for 2014 and 2015)

u Hence a profit margin lower than in other sectors (30%)

u A strategic decision was made by the top executives to create a demand for the products and foster a new movement pro solar-energy, leading to overshot Sales & Marketing expenses

u From 94% to 110% of sales in 2014 and 2015 respectively, hence resulting in a negative EBITDA for over 3 years

u Executives expect their activity to become more profitable when the demand shifts as they predict it will

u This explains why they continue spending that much on S&M, and financing themselves through long term structured debt

23

SolarCity || Strategic & Economic Assessment | Growth Analysis | Profitability Analysis | Risk Analysis | Conclusions

4.4 Further explanations (2/3)

u It may also be taken into account that the top executives of this firm are ElonMusk's cousins

u Probably allowing them to get significant credentials and therefore a "premium" access to debt financing

u Likely enhanced trust of equity investors in Solar City

u This hypothesis may also explain the low incentives to plan a debt payback strategy

u The recent announcement of Solar City’s takeover by Tesla Motors (ElonMusk’s firm) is a good news for Solar City’s investors

u They will benefit from the financial stability of Tesla Motors alongside their current cash reserves and their strategic capacity of planning a debt payback

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SolarCity || Strategic & Economic Assessment | Growth Analysis | Profitability Analysis | Risk Analysis | Conclusions

4.4 Further explanations (3/3)

u Tesla Motors’ investors nevertheless could be less enthusiast with this acquisition:

u This distressed company will impact their return rates

u Tesla Motors will be considered as strategically responsible for the lower returns

u Another concern about this takeover focuses on the real motivations of ElonMusk: What is the rationale?

u He consistently emphasized the idea of complementary businesses to justify this operation

u Even though Solar City will negatively impact Tesla’s results for a prolonged period of time before it becomes a profitable company

u Are there implicit reasons involving the family links of the two companies’ top managers?

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SolarCity || Strategic & Economic Assessment | Growth Analysis | Profitability Analysis | Risk Analysis | Conclusions

Conclusion

26

Our recommandations:

Corporate finance view:

u SCTY project seems economicallynot viable

u Conveyed by figures of financialstatements

u Solvency is not anymore a problemas Tesla is now backing up SCTY

u Still: SCTY is burning up cash whichcould become a problem for Tesla

u Investor will slowly becomenervous about SCTY’s project, which could trigger tremendousfinancing problems

Equity research view:

u Our position: Sell

u P/E ratio still at -0,28$ at 3Q16

u No signs of improvment in the nearfuture

u Juridical environment risk as the TEP act will expire in 2022

u Business not viable

27

SolarCity || Strategic & Economic Assessment | Growth Analysis | Profitability Analysis | Risk Analysis | Conclusions

Thank You

28

Appendix: Overview of the financial statements

u Balance sheet: Assets

29

1 Assets($000') Q42014 Q12015 Q22015 Q32015 Q42015 Q12016 Q22016 Q32016

CurrentAssets

Cashandcashequivalents 504383 446683 421420 372750 382544 361661 145714 259342

Short-terminvestments 138311 129166 67665 45616 11311 - - -

Restrictedcash 20875 10395 8557 20312 39864 51608 99477 61079

Accountsreceivable 22708 25591 34233 38572 33998 40733 63682 65112

Rebatesreceivable-net 30021 27279 20383 15044 11545 11428 15786 11999

Inventories 217223 227676 279789 309190 342951 306686 229699 206205

Deferredincometaxasset 13149 12469 14887 30500 - - - -

Prepaidexpensesandothercurrentassets 55729 65442 76381 103624 79925 64235 56954 73247

Total Current Assets 1002399 944701 923315 935608 902138 836351 611312 676984

Non-Current Assets

Solarenergysystems 2796796 3073600 3421170 3869719 4375553 4788935 5173624 5493026

Property,plantandequipment-net 101914 163048 353738 481893 546887 789905 909290 1003359

OfwhichBuilt-to-suitleaseassetunderconstruction 26450 - - 238050 284500 519796 655064 752425

Goodwillandintangibleassets-net 539557 531470 523383 527418 517109 508882 485271 472557

MyPowercustomernotesreceivable 34544 138316 236701 362840 488461 539432 529852 526703

MyPowerdeferredcosts 13147 60746 106601 162810 215708 238411 237460 236574

Otherassets 97854 129084 139784 172055 241262 257289 277271 271625

Total Non-Current Assets 3583812 4096264 4781377 5576735 6384980 7122854 7612768 8003844

TotalAssets 4586211 5040965 5704692 6512343 7287118 7959205 8224080 8680828

Appendix: Overview of the financial statements

u Balance sheet: Liabilities

30

2 Liabilities&Shareholders'Equity($000')

CurrentLiabilities

Accountspayable 237809 216807 278583 296196 364973 294182 214145 253077Distributionspayabletononcontrollinginterests 8552 9065 16944 12336 26769 15710 9396 25106Accruedandothercurrentliabilities 152408 185119 212688 242434 270184 277291 231866 236951Customerdeposits 10560 7815 5281 5095 6322 - - -Currentportionof:DeferredU.S.Treasurygrantincome 15330 15330 15330 15336 15336 15336 14913 14549Deferredrevenue 86238 90009 96553 100381 103078 116697 120506 113908Long-termdebt 11781 11712 35606 44471 180048 255421 264688 285507Solarbonds 820 1658 7502 10797 13189 14186 19186 17385Solarbondsissuedtorelatedparties 330 90330 165340 165340 165120 165110 165110 165100Solarasset-backednotes 13574 12510 12592 14259 13864 17817 18275 19658Financingobligation 29689 30778 30567 31690 34479 39596 42862 44953

Total Current Liabilities 567091 671133 876986 938335 1193362 1211346 1100947 1176194

Non-Current Liabilities

Netofcurrentportion:Deferredrevenue 557408 662776 760275 885726 1010491 1061372 1082241 1084442Long-termdebt 287621 467738 588263 833154 1006595 1101865 1173464 1283540Solarbonds 2593 7982 28509 34333 35678 36787 33430 51488Solarbondsissuedtorelatedparties 200 200 200 200 100 100 100 100100Solarasset-backednotes 304393 299646 298032 410779 395667 606334 604783 550695Financingobligation 73379 65248 69107 64211 68940 68579 77268 71772DeferredU.S.Treasurygrantincome 397486 393637 389803 386121 382283 378449 364247 351738

Convertibleseniornotes 796000 796000 796000 796000 881585 882610 883644 884679Convertibleseniornotesissuedtorelatedparties - - - - 12975 12975 12977 12978Long-termdeferredtaxliability 13194 12518 14938 32298 1373 788 67 71Otherliabilitiesanddeferredcredits 244474 281606 398648 509644 563506 875928 1019537 1114421OfwhichBuilt-to-suitleaseliability 26450 - - 238050 284500 519796 655064 752425

Total Non-Current Liabilities 2676748 2987351 3343775 3952466 4359193 5025787 5251758 5505924

Totalliabilities 3243839 3658484 4220761 4890801 5552555 6237133 6352705 6682118

CommitmentsandcontingenciesRedeemablenoncontrollinginterestsinsubsidiaries 186788 246492 285081 313302 320935 304009 344932 284158

Stockholders' equity:

Commonstock 10 10 10 10 10 10 10 10Additionalpaid-incapital 1003992 1032090 1061254 1136121 1195246 1227550 1287960 1315874Accumulateddeficit (258360) (279885) (302245) (321318) (316690) (341678) (397167) (343952)Totalstockholders'equity 745642 752215 759019 814813 878566 885882 890803 971932Noncontrollinginterestsinsubsidiaries 409942 383774 439831 493427 535062 532181 635640 742620

Total equity 1155584 1135989 1198850 1308240 1413628 1418063 1526443 1714552

Total liabilities and equity 4586211 5040965 5704692 6512343 7287118 7959205 8224080 8680828

Appendix: Overview of the financial statements

u Income Statement

31

Proformachanges PF2014 PF2014 PF2014 PF2014 PF2014 PF2016 PF2016 PF20161 ($000') FY2014 Q12015 Q22015 Q32015 FY2015 Q12016 Q22016 Q32016

RevenueOperating leases / SES incentives 173636 54771 78283 85059 293543 na na naSES & components sales revenue 81395 12708 24520 28798 106076 22023 25674 57522Revenue from periodic billings na na na na na 84222 141122 122608Operating lease prepayments na na na na na 16327 18988 20421

Total revenue 255031 67479 102803 113857 399619 122572 185784 200551

Cost of revenueOperating leases / SES incentives 92920 32260 37392 46015 165546 na na naSES & components sales 83512 13460 22087 42554 115245 27634 32192 49025Periodic billings revenue na na na na na 16895 18912 24189D&A and Warranty na na na na na 48035 63400 55745Pre-production expense na na na na na 16583 - -

Total cost of revenue 176432 45720 59479 88569 280791 109147 114504 128959

Gross profit 78599 21759 43324 25288 118828 13425 71280 71592

OperatingexpensesSales & marketing 238608 86671 113160 129284 457185 126083 116647 102639General & Administration 156426 48654 50211 69423 244508 86926 86097 87423Pre-production expense - - - - - - 19189 19335Restructuring and other - - - - - - 29083 34158R&D 19162 12120 12401 17652 64925 13920 14374 14129

Total operating expenses 414196 147445 175772 216359 766618 226929 265390 257684

Loss from operations (335597) (125686) (132448) (191071) (647790) (213504) (194110) (186092)

Interests and other expensesInterest expense - net 55758 18521 20497 25862 91939 32547 37059 42156Interests expense - recourse debt na na na na na 9074 9842 10974Interest expense - non-recourse debt na na na na na 14291 17811 20512Other int. exp. and amortization na na na na na 9182 9406 10670

Other expenses, net 10611 2104 2768 16851 25767 37122 19079 (2058)Total interest and other expenses 66369 20625 23265 42713 117706 69669 56138 40098

Loss before income taxes (401966) (146311) (155713) (233784) (765496) (283173) (250248) (226190)Income tax (provision) benefit 26736 (626) (20) (482) (3326) 68 (9) 848

Netloss (375230) (146937) (155733) (234266) (768822) (283105) (250257) (225342)Attributable to noncontrolling interests (319196) (125412) (133373) (215193) (710492) (258117) (194768) (278957)Attributable to stockholders (56034) (21525) (22360) (19073) (58330) (24988) (55489) 53615

Appendix: Overview of the financial statements

u Cash Flow Statement: Operating Activities

32

($000's) FY2014 Q12015 H12015 9M2015 FY2015 Q12016 H12016 Q32016 9M2016

1 Operating activities

Net loss (375230) (146937) (302670) (536936) (768822) (283105) (533362) (225342) (758704)

Adjustments to reconcile net loss to cashDisposalofPP&E 1404 66 129 92 3840 293 510 584 1094

D&A 97880 36351 74420 118091 166653 55831 144414 89411 233825

Noncashinterest&otherexpense 13631 3782 7533 12554 16427 9635 (1592) 5960 4368

Stockbasedcompensations 65562 18361 36132 61010 86369 18587 44045 21641 65686

Revaluations - - - - - - - - -

LossonextinguishmentofLTdebt 4533 - - 1093 1093 423 610 - 610

Deferredincometaxes (26680) 4 6 (102) (527) (585) (1306) 4 (1302)

ReductioninLPTfinancingobligations (48837) (10570) (23449) (36431) (48132) (10797) (21065) (16041) (37106)

Taxbenefitfromexercizedstockoptions - - - - (63019) (1983) 5833 1905 7738

Changeinfairvalueofinterestrateswaps - - - - - 32048 51454 (2865) 48589

Changes in operating assets and liabilitiesRestrictedcash (17699) 7992 5499 (19814) (48650) (25500) (87420) 22990 (64430)

Accountsreceivables 945 (2883) (11525) (15623) (11049) (6735) (29684) (1430) (31114)

Rebatesreceivables (9890) 2742 9638 14977 18476 117 (4241) 3787 (454)

Inventories (97347) (10107) (62329) (91624) (125337) 36794 114048 23252 137300

Prepaidexpensesandothercurrentassets (23579) (7695) (15766) (42305) (24485) 19728 25358 (16224) 9134

MyPowerdeferredcosts - (47603) (94203) (150267) (202899) (23658) (22196) 871 (21325)

Otherassets (32019) (10292) (18887) (12769) (70016) 161 4440 18174 22614

Accountspayable 112480 (22957) 39787 56695 125472 (69725) (149762) 38932 (110830)

Accruedandotherliabilities (22676) 15864 41017 110356 147455 44762 24855 (1125) 23730

Customerdeposits 1732 (2745) (5279) (5465) (4238) - - - -

Deferredrevenue 137941 5345 8031 10151 11505 10594 46050 (1293) 44757

Net cash used in operating activities (217849) (171282) (311916) (526317) (789884) (193115) (389011) (36809) (425820)

Appendix: Overview of the financial statements

u Cash Flow Statement: Investing and Financing Activities

33

2 Investing activities

CostofSESleasedandtobeleased (1162963) (294998) (665079) (1134929) (1665641) (440111) (857164) (372900) (1230064)PurchaseofPP&E (22892) (30497) (102065) (147784) (176540) (19529) (44404) (9041) (53445)Investmentsinpromissorynotesreceivables (21750) - - (1189) (1189) - - - -PurchasesofSTinvestments (167397) (44592) (44592) (44592) (44592) - - - -ProceedsfromsalesandmaturitiesofSTinvt. 28764 53308 114642 136560 170737 11243 11243 - 11243Acquisitionofbusiness,net 1874 - - (9509) (9509) - - - -Paymentsforacquisitionofnoncontrollinginterests (450) - - - (13089) (13664) - (13664)Paymentforterminationofinterestrateswaps - - - - - (4625) (9284) (3419) (12703)

Net cash used in investing activities (1344814) (316779) (697094) (1201443) (1726734) (466111) (913273) (385360) (1298633)

3 Financing activities

Investmentfundfinancing,bankandotherborrowingsBorrowingsunderLTdebt 373453 178082 456108 783123 1093261 379652 657373 345423 1002796RepaymentofLTdebt (336557) (752) (134613) (211976) (215933) (212626) (412685) (218207) (630892)Solarasset-backednotes:Proceedsfromissuance 262880 - - 119790 119790 221753 221472 (437) 221035Repaymentsofborrowings (5932) (5817) (7355) (13859) (15863) (6824) (8569) (53345) (61914)

Otherfinancingitems 688305 255203 604466 908658 1226075 253162 611395 463029 1074424

Net cash provided by financing activity before equity 982149 426716 918606 1585736 2207330 635117 1068986 536463 1605449Ofwhichproceedsfromnoncontrollinginterests 777963 176138 428934 754916 1097487 276518 643635 379052 1022687

Net cash provided by equity and convertible notes 507817 3645 7441 10391 187449 3226 (3532) (666) (4198)Ofwhichcommonstockissuance - na na na - na na na naOfwhichconvertibleseniornotesissuance 552765 na na na 99805 na na na na

Net cash provided by financing activities 1489966 430361 926047 1596127 2394779 638343 1065454 535797 1601251

Net(decrease)increaseincash&cashequivalents (72697) (57700) (82963) (131633) (121839) (20883) (236830) 113628 (123202)Cash&CashEquivalents,beginningofperiod 577080 504383 504383 504383 504383 382544 382544 382544 382544Cash&CashEquivalents,endofperiod 504383 446683 421420 372750 382544 361661 145714 496172 259342