scty-10q_20160331.htm

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes ¨ No x

The number of shares outstanding of the registrant’s common stock as of March 31, 2016 was 98,296,422.

The discussion in this quarterly report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. Forward-looking statements are any statements that look to future events and consist of, among other things, our business strategies; anticipated future financial results; expected trends in certain financial and operating metrics; our belief that the aggregate megawatt production capacity of our systems is an indicator of the growth rate of our solar energy systems business; the calculation of metrics based on forward-looking projections; projections on growth in the markets that we operate and our growth rates; pricing trends, including our ability to achieve economies of scale in both installation and capital costs; our ability to successfully integrate acquired businesses, operations and personnel; our ability to achieve manufacturing economies of scale and associated cost reductions; our goals reducing our cost per watt; our expectations regarding the Riverbend Agreement, the development and construction of the Manufacturing Facility, anticipated timing and expense related to acquisition of manufacturing equipment, and related assumptions regarding expected capital and operating expenses and the performance of our manufacturing operations; our belief that adequate surplus capacity of non-tariff solar panels is available to suit our future needs and the costs of solar energy system components; our beliefs regarding future regulations and policies affecting our business, such as net energy metering policies; projections relating to our use of and reliance on U.S. Treasury grants and federal, state and local incentives and tax attributes; our regulatory status as a non-utility; our ability to continue to meet the regulatory requirements of a public company; domestic and international expansion, including throughout Mexico, and hiring plans; compliance with federal and international laws and regulations; product development efforts and customer preferences; the fair market value of our solar energy systems, including amounts potentially payable to our fund investors as a result of decreased fair market value determinations by the U.S. Treasury Department; the life and durability of our solar systems and equipment, anticipated contract renewals and warranty obligations; the success of our sales and marketing efforts; our internal control environment; pending litigation; the payment of future dividends; and our belief as to the sufficiency of our existing cash and cash equivalents, funds available under our credit facilities, funds available under existing financing funds and our ability to refinance existing indebtedness to meet our working capital and operating resource requirements for the next 12 months.

The forward-looking statements are contained principally in, but not limited to, the sections titled “Risk Factors,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” In addition, forward-looking statements also consist of statements involving trend analyses and statements including such words as “will,” “may,” “anticipate,” “believe,” “could,” “would,” “might,” “potentially,” “estimate,” “continue,” “plan,” “expect,” “intend,” and similar expressions or the negative of these terms or other comparable terminology that convey uncertainty of future events or outcomes are intended to identify forward-looking statements. These forward-looking statements speak only as of the date of this quarterly report on Form 10-Q and are subject to business and economic risks. As such, our actual results could differ materially from those set forth in the forward-looking statements as a result of a number of factors, including those set forth below in “Risk Factors,” and in our other reports filed with the U.S. Securities and Exchange Commission. Moreover, we operate in a very competitive and rapidly changing environment, and new risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties, and assumptions, the forward-looking events and circumstances discussed in this report may not occur, and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. We undertake no obligation to revise or publically release the results of any revision to these forward-looking statements, except as required by law. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.

	March 31,		December 31,
	2016		2015
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	361,661	$	382,544
Short-term investments		—		11,311
Restricted cash		51,608		39,864
Accounts receivable (net of allowances for doubtful accounts of $5,149 and $4,292 as of March 31, 2016 and December 31, 2015, respectively)		40,733		33,998
Rebates receivable (net of reserves of $2,554 and $2,207 as of March 31, 2016 and December 31, 2015, respectively)		11,428		11,545
Inventories		306,686		342,951
Prepaid expenses and other current assets		64,235		79,925
Total current assets		836,351		902,138
Solar energy systems, leased and to be leased – net		4,788,935		4,375,553
Property, plant and equipment – net		270,109		262,387
Build-to-suit lease asset under construction		519,796		284,500
Goodwill and intangible assets – net		508,882		517,109
MyPower customer notes receivable, net of current portion		539,432		488,461
MyPower deferred costs		238,411		215,708
Other assets		257,289		241,262
Total assets(1)	$	7,959,205	$	7,287,118

	March 31,			December 31,
	2016			2015
	(Unaudited)
Liabilities and equity
Current liabilities:
Accounts payable	$	294,182		$	364,973
Distributions payable to noncontrolling interests and redeemable noncontrolling interests		15,710			26,769
Current portion of deferred U.S. Treasury grant income		15,336			15,336
Accrued and other current liabilities		277,291			276,506
Current portion of deferred revenue		116,697			103,078
Current portion of long-term debt		255,421			180,048
Current portion of solar bonds		14,186			13,189
Current portion of solar bonds issued to related parties		165,110			165,120
Current portion of solar asset-backed notes		17,817			13,864
Current portion of financing obligation		39,596			34,479
Total current liabilities		1,211,346			1,193,362
Deferred revenue, net of current portion		1,061,372			1,010,491
Long-term debt, net of current portion		1,101,865			1,006,595
Solar bonds, net of current portion		36,787			35,678
Solar bonds issued to related parties, net of current portion		100			100
Convertible senior notes		882,610			881,585
Convertible senior notes issued to related parties		12,975			12,975
Solar asset-backed notes, net of current portion		606,334			395,667
Long-term deferred tax liability		788			1,373
Financing obligation, net of current portion		68,579			68,940
Deferred U.S. Treasury grant income, net of current portion		378,449			382,283
Build-to-suit lease liability		519,796			284,500
Other liabilities and deferred credits		356,132			279,006
Total liabilities(1)		6,237,133			5,552,555
Commitments and contingencies (Note 12)
Redeemable noncontrolling interests in subsidiaries		304,009			320,935
Stockholders' equity:
Common stock, $0.0001 par value - authorized, 1,000,000 shares as of March 31, 2016 and December 31, 2015; issued and outstanding, 98,296 and 97,864 shares as of March 31, 2016 and December 31, 2015, respectively		10			10
Additional paid-in capital		1,227,550			1,195,246
Accumulated deficit		(341,678	)		(316,690	)
Total stockholders' equity		885,882			878,566
Noncontrolling interests in subsidiaries		532,181			535,062
Total equity		1,418,063			1,413,628
Total liabilities and equity	$	7,959,205		$	7,287,118

	Three Months Ended March 31,
	2016			2015
Revenue:
Revenue from periodic billings:
Periodic operating lease billings and incentives	$	60,169		$	38,104
Sale of solar renewable energy credits		4,943			2,282
Revenue from solar energy systems under long-term loan arrangements		19,110			1,069
Total revenue from periodic billings		84,222			41,455
Solar energy systems and components sales revenue		22,023			11,639
Revenue from operating lease prepayments and upfront incentives		16,327			14,385
Total revenue		122,572			67,479
Cost of revenue:
Cost of periodic billings revenue (exclusive of depreciation and amortization)		16,895			8,904
Cost of solar energy systems and components sales revenue (exclusive of amortization and warranty)		27,634			11,553
Pre-production expense		16,583			—
Depreciation, amortization and warranty		48,035			25,263
Total cost of revenue		109,147			45,720
Gross profit		13,425			21,759
Operating expenses:
Sales and marketing		126,083			86,671
General and administrative		86,926			48,654
Research and development		13,920			12,120
Total operating expenses		226,929			147,445
Loss from operations		(213,504	)		(125,686	)
Interest and other expenses:
Interest expense (excluding amortization of debt discounts and fees) - recourse debt		9,074			5,393
Interest expense (excluding amortization of debt discounts and fees) - non-recourse debt		14,291			5,173
Other interest expense and amortization of debt discounts and fees, net		9,182			7,955
Other expense, net		37,122			2,104
Total interest and other expenses		69,669			20,625
Loss before income taxes		(283,173	)		(146,311	)
Income tax benefit (provision)		68			(626	)
Net loss		(283,105	)		(146,937	)
Net loss attributable to noncontrolling interests and redeemable noncontrolling interests		(258,117	)		(125,412	)
Net loss attributable to stockholders	$	(24,988	)	$	(21,525	)
Net loss attributable to common stockholders
Basic	$	(24,988	)	$	(21,525	)
Diluted	$	(24,988	)	$	(21,525	)
Net loss per share attributable to common stockholders
Basic	$	(0.25	)	$	(0.22	)
Diluted	$	(0.25	)	$	(0.22	)
Weighted-average shares used to compute net loss per share attributable to common stockholders
Basic		98,073,719			96,680,069
Diluted		98,073,719			96,680,069

	Three Months Ended March 31,
	2016			2015
Operating activities:
Net loss	$	(283,105	)	$	(146,937	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		55,831			36,351
Change in fair value of interest rate swaps		32,048			—
Non-cash interest and other expense		9,635			3,782
Stock-based compensation, net of amounts capitalized		18,587			18,361
Tax benefit of stock option exercises		(1,983	)		—
Loss on extinguishment of long-term debt		423			—
Deferred income taxes		(585	)		4
Non-cash reduction in financing obligation		(10,797	)		(10,570	)
Loss on disposal of property, plant and equipment and construction in progress		293			66
Changes in operating assets and liabilities:
Restricted cash		(25,500	)		7,992
Accounts receivable		(6,735	)		(2,883	)
Rebates receivable		117			2,742
Inventories		36,794			(10,107	)
Prepaid expenses and other current assets		19,728			(7,695	)
MyPower deferred costs		(23,658	)		(47,603	)
Other assets		161			(10,292	)
Accounts payable		(69,725	)		(22,957	)
Accrued and other liabilities		44,762			13,119
Deferred revenue		10,594			5,345
Net cash used in operating activities		(193,115	)		(171,282	)
Investing activities:
Payments for the cost of solar energy systems, leased and to be leased		(440,111	)		(294,998	)
Purchase of property, plant and equipment		(19,529	)		(30,497	)
Purchases of short-term investments		—			(44,592	)
Proceeds from sales and maturities of short-term investments		11,243			53,308
Payments for the acquisition of noncontrolling interests		(13,089	)		—
Payments for termination of interest rate swaps		(4,625	)		—
Net cash used in investing activities		(466,111	)		(316,779	)

	Three Months Ended March 31,
	2016			2015
Financing activities:
Investment fund financings, bank and other borrowings:
Borrowings under long-term debt		379,652			178,082
Repayments of long-term debt		(212,626	)		(752	)
Proceeds from issuance of solar bonds		3,749			6,227
Proceeds from issuance of solar bonds issued to related parties		90,000			90,000
Repayments of borrowings under solar bonds		(1,509	)		—
Repayments of borrowings under solar bonds issued to related parties		(90,000	)		—
Proceeds from issuance of solar asset-backed notes		221,753			—
Repayments of borrowings under solar asset-backed notes		(6,824	)		(5,817	)
Payment of deferred purchase consideration		—			(1,249	)
Proceeds from financing obligation		12,712			6,392
Repayments of financing obligation		(118	)		(4,912	)
Repayment of capital lease obligations		(2,588	)		(716	)
Proceeds from investment by noncontrolling interests and redeemable noncontrolling interests in subsidiaries		276,518			176,318
Distributions paid to noncontrolling interests and redeemable noncontrolling interests in subsidiaries		(35,602	)		(16,857	)
Net cash provided by financing activities before equity and convertible notes issuances		635,117			426,716
Equity and convertible notes issuances:
Proceeds from exercise of stock options		1,243			3,645
Tax benefit of stock option exercises		1,983			—
Net cash provided by equity issuances		3,226			3,645
Net cash provided by financing activities		638,343			430,361
Net decrease in cash and cash equivalents		(20,883	)		(57,700	)
Cash and cash equivalents, beginning of period		382,544			504,383
Cash and cash equivalents, end of period	$	361,661		$	446,683
Supplemental disclosures of cash flow information:
Cash paid during the period for interest	$	21,444		$	8,427
Cash paid during the period for taxes, net of refunds	$	6,580		$	70

SolarCity Corporation, or the Company, was incorporated as a Delaware corporation on June 21, 2006. The Company is primarily engaged in the design, manufacture, installation and sale or lease of solar energy systems to residential and commercial customers, or sale of electricity generated by solar energy systems to customers. The Company’s headquarters are located in San Mateo, California.

The accompanying condensed consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles, or GAAP, and reflect the accounts and operations of the Company and those of its subsidiaries in which the Company has a controlling financial interest. In accordance with the provisions of Financial Accounting Standards Board, or FASB, Accounting Standards Codification, or ASC, 810, Consolidation, the Company consolidates any variable interest entity, or VIE, of which it is the primary beneficiary. The Company forms VIEs with its financing fund investors in the ordinary course of business in order to facilitate the funding and monetization of certain attributes associated with its solar energy systems. The typical condition for a controlling financial interest ownership is holding a majority of the voting interests of an entity; however, a controlling financial interest may also exist in entities, such as VIEs, through arrangements that do not involve controlling voting interests. ASC 810 requires a variable interest holder to consolidate a VIE if that party has the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE. The Company does not consolidate a VIE in which it has a majority ownership interest when the Company is not considered the primary beneficiary. The Company has determined that it is the primary beneficiary of a number of VIEs (see Note 6, VIE Arrangements). The Company evaluates its relationships with all the VIEs on an ongoing basis to ensure that it continues to be the primary beneficiary. All intercompany transactions and balances have been eliminated in consolidation.

The Company and its subsidiaries’ fiscal quarters and years are the same as calendar quarters and years except for Silevo, which continues to have fiscal quarters based on 13-week periods and fiscal years based on 52-week periods. For 2016, Silevo’s first fiscal quarter began on December 27, 2015 and ended on March 26, 2016, and this timing difference and the related activity did not materially impact the condensed consolidated financial statements.

Certain prior period balances have been reclassified to conform to the current period presentation. In particular, the consolidated statements of operations have been expanded to present revenue generated from periodic billings under long-term contracts, including customer operating leases and MyPower contracts, as well as sales of solar renewable energy credits. Accordingly, the previously presented operating leases and solar energy systems incentives revenue has been separated into (i) revenue generated from periodic billings under operating leases as well as periodic incentives generated by the operating leases; (ii) revenue generated from sales of solar renewable energy credits and (iii) revenue from operating lease prepayments and upfront incentives that is recognized over the term of the operating lease. Additionally, revenue from sales under MyPower contracts, which was previously presented within revenue from solar energy systems and components sales, has been separately presented as revenue from solar energy systems under long-term loan arrangements; this together with periodic operating lease billings and incentives revenue and sales of solar renewable energy credits revenue comprise the total revenue from periodic billings. Furthermore, the cost of revenue line items have also been expanded to conform to the current period revenue presentation and to separately present non-cash expenses, including depreciation, amortization and warranty expenses.

The preparation of the condensed consolidated financial statements requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and the accompanying notes. Management regularly makes significant estimates and assumptions regarding the selling price of undelivered elements for revenue recognition purposes, the collectability of accounts and rebates receivable, the valuation of inventories, the labor costs for long-term contracts used as a basis for determining the percentage of completion for such contracts, the fair values and residual values of solar energy systems subject to leases, the accounting for business combinations, the fair values and useful lives of acquired tangible and intangible assets, the fair value of contingent consideration payable under business combinations, the useful lives of solar energy systems,

property, plant and equipment, the determination of accrued warranty, the determination of accrued liability for solar energy system performance guarantees, the determination of lease pass-through financing obligations, the discount rates used to determine the fair values of investment tax credits, the valuation of stock-based compensation, the determination of valuation allowances associated with deferred tax assets, asset impairment, the valuation of build-to-suit lease assets, the fair value of interest rate swaps and other items. Management bases its estimates on historical experience and on various other assumptions believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results could differ materially from those estimates.

In the second quarter of 2015, the Company began entering into fixed-for-floating interest rate swap agreements, as required by its lenders, to reduce the potential impact of changes in interest rates on certain variable rate debt. The Company has not designated any interest rate swaps as hedging instruments. Accordingly, all interest rate swaps are recognized at fair value on the consolidated balance sheets within other assets or other liabilities and deferred credits, with any changes in fair value recognized as other income or expense in the consolidated statements of operations and with any cash flows recognized as investing activities in the consolidated statements of cash flows. As of and for the three months ended March 31, 2016, the Company had interest rate swaps outstanding as follows (in thousands):

ASC 820, Fair Value Measurements, clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability.

ASC 820 requires that the valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. ASC 820 establishes a three-tier fair value hierarchy, which prioritizes inputs that may be used to measure fair value as follows:

As of March 31, 2016, the assets and liabilities carried at fair value on a recurring basis included cash equivalents, interest rate swaps and contingent consideration, and their fair values were as follows (in thousands):

The Company classified its money market funds within Level 1 because their fair values are based on their quoted market prices. The Company classified its interest rate swaps within Level 2 because their fair values are determined using models that utilized market observable inputs, including current and forward interest rates. The Company classified its contingent consideration within Level 3 because its fair value is determined using unobservable probability estimates and unobservable estimated discount rates applicable to the acquisition. During the three months ended March 31, 2016, there were no transfers between the levels of the fair value hierarchy.

The contingent consideration is dependent on the achievement of the specified production milestones for the acquired business. The Company determined the fair value of the contingent consideration using a probability-weighted expected return methodology that considers the timing and probabilities of achieving these milestones and uses discount rates that reflect the appropriate cost of capital. The Company reassesses the valuation assumptions each reporting period, with any changes in the fair value accounted for in the consolidated statements of operations. The fair value of the contingent consideration is directly proportional to the estimated probabilities of achieving these milestones. As of March 31, 2016, the Company has determined that the first milestone was achieved and, accordingly, adjusted the contingent consideration balance associated with the first milestone to the full amount payable of $48.3 million, which is included under accrued and other current liabilities in the consolidated balance sheets. The fair value of the contingent consideration balance related to the remaining milestones was determined using an estimated probability of achievement of 95% and discount rates ranging between 6% and 7%, and amounted to $81.4 million, which is included under other liabilities and deferred credits in the consolidated balance sheets. The following table summarizes the activity of the Level 3 contingent consideration balance in the three months ended March 31, 2016 (in thousands):

The Company’s financial instruments that are not re-measured at fair value include accounts receivable, customer notes receivable, rebates receivable, accounts payable, customer deposits, distributions payable to noncontrolling interests and redeemable noncontrolling interests, the participation interest, solar asset-backed notes, solar loan-backed notes, convertible senior notes, Solar Bonds and long-term debt. The carrying values of these financial instruments other than customer notes receivable, the participation interest, solar asset-backed notes, solar loan-backed notes, convertible senior notes, Solar Bonds and long-term debt approximated their fair values due to the fact that they were short-term in nature at March 31, 2016.

The Company estimates the fair value of convertible senior notes based on their last actively traded prices (Level 1) or market observable inputs (Level 2). The Company estimates the fair value of customer notes receivable, the participation interest, solar asset-backed notes, solar loan-backed notes, Solar Bonds and long-term debt based on rates currently offered for instruments with similar maturities and terms (Level 3). The following table presents their estimated fair values and their carrying values (in thousands):

The Company provides a warranty on the installation and components of the solar energy systems it sells for periods typically between 10 to 30 years. The manufacturer’s warranty on the solar energy systems’ components, which is typically passed-through to customers, ranges from one to 25 years. However, for the solar energy systems under lease contracts or power purchase agreements, the Company does not accrue a warranty liability because those systems are owned by consolidated subsidiaries of the Company. Instead, any repair costs on those solar energy systems are expensed when they are incurred as a component of operating leases and solar energy systems incentives cost of revenue. The changes in the accrued warranty balance, recorded as a component of accrued and other current liabilities on the consolidated balance sheets, consisted of the following (in thousands):

The Company guarantees certain specified minimum solar energy production output for certain systems leased or sold to customers generally for a term of up to 30 years. The Company monitors the solar energy systems to ensure that these outputs are being achieved. The Company evaluates if any amounts are due to its customers and makes any payments periodically as specified in the customer contracts. As of March 31, 2016 and December 31, 2015, the Company recorded liabilities of $3.2 million and $3.1 million, respectively, under accrued and other current liabilities in the consolidated balance sheets, relating to these guarantees based on the Company’s assessment of its current exposure.

The Company accounts for comprehensive income (loss) in accordance with ASC 220, Comprehensive Income. Under ASC 220, the Company is required to report comprehensive income (loss), which includes net income (loss) as well as other comprehensive income (loss). There were no significant other comprehensive income (losses) and no significant differences between comprehensive loss as defined by ASC 220 and net loss as reported in the consolidated statements of operations, for the periods presented.

Operating segments are defined as components of a company about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision making group, in deciding how to allocate resources and in assessing performance. The Company’s chief operating decision maker is the executive team, which is comprised of the chief executive officer, the chief financial officer, the chief technology officer and the chief revenue officer. Based on the financial information presented to and reviewed by the chief operating decision maker in deciding how to allocate the resources and in assessing the performance of the Company, the Company has determined that it has a single operating and reporting segment: solar energy products and services. The Company’s principal operations, revenue and decision-making functions are located in the United States.

The Company’s basic net loss per share attributable to common stockholders is calculated by dividing the net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding for the period.

The diluted net loss per share attributable to common stockholders is computed by giving effect to all potential common stock equivalents outstanding for the period determined using the treasury stock method or the if-converted method, as applicable. In periods when the Company incurred a net loss attributable to common stockholders, stock options, restricted stock units and convertible senior notes were considered to be common stock equivalents but have been excluded from the calculation of diluted net loss per share attributable to common stockholders as their effect is antidilutive.

In February 2015, the FASB issued Accounting Standards Update, or ASU, No. 2015-02, Amendments to the Consolidation Analysis, to amend the criteria for consolidation of certain legal entities. The Company adopted the ASU retrospectively on January 1, 2016. Adoption of the ASU did not have a material impact on the Company’s condensed consolidated financial statements.

In September 2015, the FASB issued ASU No. 2015-16, Simplifying the Accounting for Measurement-Period Adjustments, to change the accounting for subsequent adjustments to the provisional balances recognized in a business combination from retrospective to prospective. However, the ASU requires separate presentation or disclosure of the impact on prior periods had the adjustments been recognized as of the acquisition date. The Company adopted the ASU prospectively on January 1, 2016. Adoption of the ASU did not have a material impact on the Company’s condensed consolidated financial statements.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, to replace the existing revenue recognition criteria for contracts with customers and to establish the disclosure requirements for revenue from contracts with customers. In August 2015, the FASB issued ASU No. 2015-14, Deferral of the Effective Date, to defer the effective date of ASU No. 2014-09 to interim and annual periods beginning after December 15, 2017, with early adoption permitted. In March, April and May 2016, the FASB issued ASU No. 2016-08, Principal versus Agent Considerations, ASU No. 2016-10, Identifying Performance Obligations and Licensing, and ASU No. 2016-11, Rescission of SEC Guidance Because of Accounting Standards Updates 2014-09 and 2014-16 Pursuant to Staff Announcements at the March 3, 2016 EITF Meeting, to clarify the guidance in ASU No. 2014-09. Adoption of the ASUs is either retrospective to each prior period presented or retrospective with a cumulative adjustment to retained earnings or accumulated deficit as of the adoption date. The Company is currently assessing the impact of the ASUs on its condensed consolidated financial statements.

In August 2014, the FASB issued ASU No. 2014-15, Going Concern, to provide guidance within GAAP requiring management to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and requiring related disclosures. The ASU is effective for annual periods ending after December 15, 2016. The Company anticipates that the adoption of the ASU will not have a material impact on its condensed consolidated financial statements.

In July 2015, the FASB issued ASU No. 2015-11, Simplifying the Measurement of Inventory, to specify that inventory should be subsequently measured at the lower of cost or net realizable value, which is the ordinary selling price less any completion, transportation and disposal costs. However, the ASU does not apply to inventory measured using the last-in-first-out or retail methods. The ASU is effective for interim and annual periods beginning after December 15, 2016. Adoption of the ASU is prospective. The Company anticipates that the adoption of the ASU will not have a material impact on its condensed consolidated financial statements.

In January 2016, the FASB issued ASU No. 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities, to mainly change the accounting for investments in equity securities and financial liabilities carried at fair value as well as to modify the presentation and disclosure requirements for financial instruments. The ASU is effective for interim and annual periods beginning after December 15, 2017, with early adoption permitted. Adoption of the ASU is retrospective with a cumulative adjustment to retained earnings or accumulated deficit as of the adoption date. The Company is currently assessing the impact of the ASU on its condensed consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02, Leases, to require lessees to recognize most leases on the balance sheet, while recognition on the statement of operations will remain similar to current lease accounting. The ASU also eliminates real estate-specific provisions and modifies certain aspects of lessor accounting. The ASU is effective for interim and annual periods beginning after December 15, 2018. Adoption of the ASU is modified retrospective. The Company is currently assessing the impact of the ASU on its condensed consolidated financial statements.

In March 2016, the FASB issued ASU No. 2016-06, Contingent Put and Call Options in Debt Instruments, to clarify when a contingent put or call option to accelerate the repayment of debt is an embedded derivative. The ASU is effective for interim and annual periods beginning after December 15, 2016, with early adoption permitted. Adoption of the ASU is modified retrospective. The Company is currently assessing the impact of the ASU on its condensed consolidated financial statements.

In March 2016, the FASB issued ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting, to simplify the accounting for the income tax effects from share-based compensation, the accounting for forfeitures and the accounting for statutory income tax withholding, among others. The ASU is effective for interim and annual periods beginning after December 15, 2016, with early adoption permitted. Adoption of the ASU is modified retrospective, retrospective and prospective, depending on the specific provision being adopted. The Company is currently assessing the impact of the ASU on its condensed consolidated financial statements.

The Company is in the process of completing the valuation of certain assets and liabilities from the Ilioss acquisition in the third quarter of 2015, including the gross amounts of certain intangible assets presented in the table below amounting to $6.4 million. Such amounts are preliminary and subject to change. There were no material changes recorded in the three months ended March 31, 2016 related to the amounts reported in the Company’s Form 10-K for the year ended December 31, 2015, except for the periodic amortization of the intangible assets.

As of March 31, 2016, the carrying value of goodwill was $321.9 million. There were no changes to the carrying value of goodwill during the three months ended March 31, 2016 and 2015.

The following is a summary of intangible assets as of March 31, 2016 (in thousands):

	Weighted-
	average
	useful life				Accumulated
	(in years)		Gross		amortization			Net
Developed technology - Silevo		10	$	115,000	$	(17,471	)	$	97,529
Developed technology - Zep Solar		7		60,100		(19,822	)		40,278
Trademarks and trade names		7		24,700		(8,138	)		16,562
Marketing database		5		17,427		(10,650	)		6,777
PowerSaver agreement		10		17,077		(4,388	)		12,689
Non-compete agreements		5		7,189		(3,648	)		3,541
Customer relationships		6		6,190		(817	)		5,373
Other		6		10,028		(5,760	)		4,268
Total		8.26	$	257,711	$	(70,694	)	$	187,017

The following is a summary of intangible assets as of December 31, 2015 (in thousands):

	Weighted-
	average
	useful life				Accumulated
	(in years)		Gross		amortization			Net
Developed technology - Silevo		10	$	115,000	$	(14,596	)		100,404
Developed technology - Zep Solar		7		60,100		(17,664	)		42,436
Trademarks and trade names		7		24,700		(7,256	)		17,444
Marketing database		5		17,427		(9,953	)		7,474
PowerSaver agreement		10		17,077		(3,961	)		13,116
Non-compete agreements		5		7,189		(3,272	)		3,917
Customer relationships		6		6,190		(542	)		5,648
Other		6		10,028		(5,223	)		4,805
Total		8.26	$	257,711	$	(62,467	)	$	195,244

All intangible assets are amortized over their estimated useful lives. The changes to the carrying value of intangible assets were as follows (in thousands):

Amortization expense from intangible assets for the three months ended March 31, 2016 and 2015 was allocated as follows (in thousands):

No intangible assets were impaired during the three months ended March 31, 2016 and 2015.

As of March 31, 2016, the total future amortization expense from intangible assets was as follows (in thousands):

Selected components of the consolidated balance sheets were as follows (in thousands):

	March 31, 2016			December 31, 2015
Inventories:
Raw materials	$	295,967		$	335,439
Work in progress		10,719			7,512
Total	$	306,686		$	342,951

Solar Energy Systems, Leased and To Be Leased - Net:
Solar energy systems leased to customers	$	3,935,400		$	3,619,214
Initial direct costs related to customer solar energy system lease acquisition costs		431,801			383,506
		4,367,201			4,002,720
Less accumulated depreciation and amortization		(312,482	)		(275,158	)
		4,054,719			3,727,562
Solar energy systems under construction		353,050			358,010
Solar energy systems to be leased to customers		381,166			289,981
Solar energy systems, leased and to be leased - net(1)(2)	$	4,788,935		$	4,375,553

Property, Plant and Equipment - Net
Manufacturing facilities - Fremont, California:
Manufacturing and lab equipment	$	86,218		$	84,418
Leasehold improvements		54,926			53,902
Manufacturing facilities - China:
Manufacturing and lab equipment		21,524			21,714
Land and buildings		6,711			6,711
Vehicles		41,569			44,036
Computer hardware and software		45,702			41,294
Furniture and fixtures		14,536			13,611
Leasehold improvements - other		21,785			19,546
Other(3)		41,717			30,861
		334,688			316,093
Less accumulated depreciation and amortization		(64,579	)		(53,706	)
Property, plant and equipment - net	$	270,109		$	262,387

Accrued and Other Current Liabilities:
Accrued expenses	$	86,102		$	110,050
Accrued compensation		78,419			64,988
Current portion of contingent consideration		48,320			42,912
Accrued warranty		26,274			22,993
Accrued professional services fees		10,097			9,915
Current portion of capital lease obligation		10,046			8,208
Other current liabilities		18,033			17,440
Total	$	277,291		$	276,506

The following is a summary of the Company’s debt as of March 31, 2016 (dollars in thousands):

	Unpaid						Unused
	Principal		Net Carrying Value				Borrowing
	Balance		Current		Long-Term		Capacity		Interest Rate	Maturity Dates
Recourse debt:
Secured revolving credit facility	$	375,000	$	23,332	$	347,860	$	692	3.7%-5.8%	December 2016 - December 2017
Vehicle and other loans		20,680		8,713		11,968		—	2.5%-7.6%	April 2016 - June 2019
2.75% convertible senior notes due in 2018		230,000		—		226,166		—	2.8%	November 2018
1.625% convertible senior notes due in 2019		566,000		—		556,634		—	1.6%	November 2019
Zero-coupon convertible senior notes due in 2020		113,000		—		112,785		—	0.0%	December 2020
Solar Bonds		216,571		179,296		36,887	*		1.1%-5.8%	April 2016 - January 2031
Total recourse debt		1,521,251		211,341		1,292,300		692
Non-recourse debt:
Term loan due in December 2016		112,483		111,537		—		—	3.9%	December 2016
Term loan due in December 2017		30,184		—		28,747		13,871	3.8%	December 2017
Term loan due in January 2021		152,362		—		147,420		7,638	4.1%	January 2021
MyPower revolving credit facility		113,677		111,839		—		126,323	3.3%-5.8%	January 2017
Revolving aggregation credit facility		562,182		—		551,178		87,818	3.7%-3.9%	December 2017
Solar Renewable Energy Credit Term Loan		15,000		—		14,692		—	9.9%	April 2017
Solar Asset-backed Notes, Series 2013-1		45,063		3,400		38,858		—	4.8%	November 2038
Solar Asset-backed Notes, Series 2014-1		63,689		2,895		58,171		—	4.6%	April 2044
Solar Asset-backed Notes, Series 2014-2		190,231		6,873		177,018		—	4.0%-Class A 5.4%-Class B	July 2044
Solar Asset-backed Notes, Series 2015-1		120,525		1,069		114,571		—	4.2%-Class A 5.6%-Class B	August 2045
Solar Asset-backed Notes, Series 2016-1		52,150		1,573		45,879		—	5.3%-Class A 7.5%-Class B	September 2046
Solar Loan-backed Notes, Series 2016-A		185,000		2,007		171,837		—	4.8%-Class A 6.9%-Class B	September 2048
Total non-recourse debt		1,642,546		241,193		1,348,371		235,650
Total debt	$	3,163,797	$	452,534	$	2,640,671	$	236,342

The following is a summary of the Company’s debt as of December 31, 2015 (dollars in thousands):

	Unpaid						Unused
	Principal		Net Carrying Value				Borrowing
	Balance		Current		Long-Term		Capacity		Interest Rate	Maturity Date
Recourse debt:
Secured revolving credit facility	$	360,000	$	22,320	$	333,287	$	13,053	3.5%-5.8%	December 2016 - December 2017
Vehicle and other loans		28,173		12,562		15,610		—	2.5%-7.6%	January 2016 - June 2019
2.75% convertible senior notes due in 2018		230,000		—		225,795		—	2.8%	November 2018
1.625% convertible senior notes due in 2019		566,000		—		555,981		—	1.6%	November 2019
Zero-coupon convertible senior notes due in 2020		113,000		—		112,784		—	0.0%	December 2020
Solar Bonds		214,324		178,309		35,778	#		1.3%-5.8%	January 2016 - December 2030
Total recourse debt		1,511,497		213,191		1,279,235		13,053
Non-recourse debt:
Term loan due in May 2016		34,622		33,918		—		—	3.5%	May 2016
Term loan due in December 2016		112,483		111,248		—		—	3.6%-3.7%	December 2016
MyPower revolving credit facility		213,125		—		210,735		26,875	3.0%-5.5%	January 2017
Revolving aggregation credit facility		455,693		—		446,963		194,307	3.1%-3.2%	December 2017
Solar Asset-backed Notes, Series 2013-1		45,845		3,342		39,669		—	4.8%	November 2038
Solar Asset-backed Notes, Series 2014-1		64,431		2,855		58,938		—	4.6%	April 2044
Solar Asset-backed Notes, Series 2014-2		193,755		6,319		181,041		—	4.0%-Class A 5.4%-Class B	July 2044
Solar Asset-backed Notes, Series 2015-1		122,295		1,348		116,019		—	4.2%-Class A 5.6%-Class B	August 2045
Total non-recourse debt		1,242,249		159,030		1,053,365		221,182
Total debt	$	2,753,746	$	372,221	$	2,332,600	$	234,235

Recourse debt refers to debt that is recourse to the Company’s general assets. Non-recourse debt refers to debt that is recourse to only specified assets or subsidiaries of the Company. The differences between the unpaid principal balances and the net carrying values are due to debt discounts and deferred financing costs. As of March 31, 2016, the Company was in compliance with all financial debt covenants. The Company’s debt is described further below except for the vehicle and other loans and the convertible senior notes, which did not change materially in the three months ended March 31, 2016.

The Company has entered into a revolving credit agreement with a syndicate of banks to fund working capital, letters of credit and general corporate needs, with a total committed amount of $398.5 million. Borrowed funds bear interest, at the Company’s option, at an annual rate of (a) 3.25% plus LIBOR or (b) 2.25% plus the highest of (i) the federal funds rate plus 0.50%, (ii) Bank of America’s published “prime rate” or (iii) LIBOR plus 1.00%. The fee for undrawn commitments is 0.375% per annum. The secured revolving credit facility is secured by certain of the Company’s accounts receivable, inventory, machinery, equipment and other assets.

In October 2014, the Company commenced issuing Solar Bonds, which are senior unsecured obligations that are structurally subordinate to the indebtedness and other liabilities of the Company’s subsidiaries. Solar Bonds have been issued under multiple series that have various fixed terms and interest rates. In September 2015, the Company commenced issuing Solar Bonds with variable interest rates that reset quarterly and that can be redeemed quarterly at the option of the bondholder or the Company, with 30-day advance notice. The Company intends to continue to issue Solar Bonds from time to time depending on market conditions.

In March 2015, Space Exploration Technologies Corporation, or SpaceX, purchased $90.0 million in aggregate principal amount of 2.00% Solar Bonds due in March 2016. In June 2015, SpaceX purchased an additional $75.0 million in aggregate principal amount of 2.00% Solar Bonds due in June 2016. In March 2016, $90.0 million in aggregate principal amount of the Solar Bonds held by SpaceX matured, and the proceeds were reinvested by SpaceX in $90.0 million in aggregate principal amount of 4.40% Solar Bonds due in March 2017. SpaceX is considered a related party, the Company has also issued Solar Bonds to other related parties and such Solar Bonds are separately presented on the consolidated balance sheets (see Note 11, Related Party Transactions).

On May 23, 2014, a subsidiary of the Company entered into an agreement with a syndicate of banks for a term loan of $125.0 million. The term loan bore interest at an annual rate of 3.00% to 4.00%, depending on the cumulative period the term loan was outstanding, plus LIBOR or, at the Company’s option, plus the highest of (i) the Federal Funds Rate plus 0.50%, (ii) Bank of America’s published “prime rate” or (iii) LIBOR plus 1.00%. The term loan was secured by certain assets and cash flows of the subsidiary and was non-recourse to the Company’s other assets or cash flows. In the first quarter of 2016, the Company fully repaid the term loan.

On February 4, 2014, a subsidiary of the Company entered into an agreement with a syndicate of banks for a term loan of $100.0 million. On February 20, 2014, the agreement was amended to increase the maximum term loan availability to $220.0 million. On March 20, 2014, the agreement was further amended to increase the maximum term loan availability to $250.0 million. The term loan bears interest at an annual rate of LIBOR plus 3.25% or, at the Company’s option, 3.25% plus the highest of (i) the Federal Funds Rate plus 0.50%, (ii) Bank of America’s published “prime rate” or (iii) LIBOR plus 1.00%. The term loan is secured by the assets and cash flows of the subsidiary and is non-recourse to the Company’s other assets.

On March 31, 2016, a consolidated subsidiary of the Company entered into an agreement for a term loan of $50.0 million. On April 6, 2016, the agreement was amended to increase the maximum term loan availability to $150.0 million. The term loan bears interest at an annual rate of the lender’s cost of funds plus 3.25%. The fee for undrawn commitments is 0.85% per annum. The term loan is secured by substantially all of the assets and cash flows of the subsidiary and is non-recourse to the Company’s other assets and cash flows.

In January 2016, a subsidiary of the Company entered into an agreement with a syndicate of banks for a term loan of $160.0 million. The term loan bears interest at an annual rate of three-month LIBOR plus 3.50%. The term loan is secured by substantially all of the assets of the subsidiary, including its interests in certain financing funds, and is non-recourse to the Company’s other assets.

On January 9, 2015, a subsidiary of the Company entered into a $200.0 million revolving credit agreement with a syndicate of banks to obtain funding for the MyPower customer loan program. The MyPower revolving credit facility initially provided up to $160.0 million of Class A notes and up to $40.0 million of Class B notes. On December 16, 2015, the committed amount under the Class A notes was increased to $200.0 million. The Class A notes bear interest at an annual rate of (i) for the first $160.0 million, 2.50% and (ii) for the remaining $40.0 million, 3.00%; in each case, plus (a) the commercial paper rate or (b) 1.50% plus adjusted

LIBOR. The Class B notes bear interest at an annual rate of 5.00% plus LIBOR. The fee for undrawn commitments under the Class A notes is 0.50% per annum for the first $160.0 million of undrawn commitments and 0.75% per annum for the remaining $40.0 million of undrawn commitments, if any. The fee for undrawn commitments under the Class B notes is 0.50% per annum. The MyPower revolving credit facility is secured by the payments owed to the Company or its subsidiaries under MyPower customer loans and is non-recourse to the Company’s other assets. In the first quarter of 2016, the Company repaid $168.2 million of the principal outstanding under the MyPower revolving credit facility.

On May 4, 2015, a subsidiary of the Company entered into an agreement with a syndicate of banks for a revolving aggregation credit facility with a total committed amount of $500.0 million. On July 13, 2015, the total committed amount was increased to $650.0 million. On March 23, 2016, the agreement was amended to modify the interest rates, extend the availability period and extend the maturity date. The revolving aggregation credit facility bears interest at an annual rate of 3.25% plus (i) for commercial paper loans, the commercial paper rate and (ii) for LIBOR loans, at the Company’s option, three-month LIBOR or daily LIBOR. The revolving aggregation credit facility is secured by certain assets and cash flows of certain subsidiaries of the Company and is non-recourse to the Company’s other assets. In the first quarter of 2016, the Company repaid $2.4 million of the principal outstanding under the revolving aggregation credit facility.

On March 31, 2016, a subsidiary of the Company entered into an agreement for a term loan of $15.0 million. The term loan bears interest at an annual rate of one-month LIBOR plus 9.00% or, at the Company’s option, 8.00% plus the highest of (i) the Federal Funds Rate plus 0.50%, (ii) the prime rate or (iii) one-month LIBOR plus 1.00%. The term loan is secured by substantially all of the assets of the subsidiary, including its rights under forward contracts to sell solar renewable energy credits, and is non-recourse to the Company’s other assets.

The Company has structured and entered into various solar asset-backed note securitization transactions pursuant to its financial strategy of monetizing solar assets at the lowest cost of capital.

In November 2013, the Company pooled and transferred qualifying solar energy systems and the associated customer contracts into a special purpose entity, or SPE, and issued $54.4 million in aggregate principal of Solar Asset-backed Notes, Series 2013-1, backed by these solar assets to certain investors. The SPE is wholly owned by the Company and is consolidated in the Company’s financial statements. Accordingly, the Company did not recognize a gain or loss on the transfer of these solar assets. As of March 31, 2016, these solar assets had a carrying value of $137.1 million and are included under solar energy systems, leased and to be leased — net, in the consolidated balance sheets. The Solar Asset-backed Notes were issued at a discount of 0.05%. The cash flows generated by these solar assets are used to service the monthly principal and interest payments on the Solar Asset-backed Notes and satisfy the SPE’s expenses, and any remaining cash is distributed to a wholly owned subsidiary of the Company. The Company recognizes revenue earned from the associated customer contracts in accordance with the Company’s revenue recognition policy. The assets and cash flows generated by the qualifying solar energy systems are not available to the other creditors of the Company, and the creditors of the SPE, including the Solar Asset-backed Note holders, have no recourse to the Company’s other assets. The Company contracted with the SPE to provide operations and maintenance and administrative services for the qualifying solar energy systems.

In connection with the pooling of the assets that were transferred to the SPE in November 2013, the Company terminated a lease pass-through arrangement with an investor. The lease pass-through arrangement had been accounted for as a borrowing and any amounts outstanding from the lease pass-through arrangement were recorded as a lease pass-through financing obligation. The balance that was then outstanding from the lease pass-through arrangement was $56.4 million. The Company paid the investor an aggregate of $40.2 million, and the remaining balance is to be paid over time. The remaining balance is paid using the net cash flows generated by the same assets previously leased under the lease pass-through arrangement, after payment of the principal and interest on the Solar Asset-backed Notes and expenses related to the assets and the Solar Asset-backed Notes, including asset management fees, custodial fees and trustee fees, and was contractually documented as a right to participate in future cash flows of the SPE. This right to participate in future residual cash flows generated by the assets of the SPE has been recorded as a component of other liabilities and deferred credits for the non-current portion and as a component of accrued and other current liabilities for the current portion under the caption “participation interest.” The Company accounted for the participation interest as a liability because the investor has no voting or management rights in the SPE, the participation interest would terminate upon the investor achieving a specified return and the

investor has the option to put the participation interest to the Company on August 3, 2021 for the amount necessary for the investor to achieve the specified return, which would require the Company to settle the participation interest in cash. In addition, under the terms of the participation interest, the Company has the option to purchase the participation interest from the investor for the amount necessary for the investor to achieve the specified return.

In April 2014, the Company pooled and transferred qualifying solar energy systems and the associated customer contracts into a SPE and issued $70.2 million in aggregate principal of Solar Asset-backed Notes, Series 2014-1, backed by these solar assets to certain investors. The SPE is wholly owned by the Company and is consolidated in the Company’s financial statements. Accordingly, the Company did not recognize a gain or loss on the transfer of these solar assets. As of March 31, 2016, these solar assets had a carrying value of $128.4 million and are included under solar energy systems, leased and to be leased — net, in the consolidated balance sheets. The Solar Asset-backed Notes were issued at a discount of 0.01%. The cash flows generated by these solar assets are used to service the monthly principal and interest payments on the Solar Asset-backed Notes and satisfy the SPE’s expenses, and any remaining cash is distributed to a wholly owned subsidiary of the Company. The Company recognizes revenue earned from the associated customer contracts in accordance with the Company’s revenue recognition policy. The assets and cash flows generated by the qualifying solar energy systems are not available to the other creditors of the Company, and the creditors of the SPE, including the Solar Asset-backed Note holders, have no recourse to the Company’s other assets. The Company contracted with the SPE to provide operations and maintenance and administrative services for the qualifying solar energy systems.

In July 2014, the Company pooled and transferred qualifying solar energy systems and the associated customer contracts into a SPE and issued $160.0 million in aggregate principal of Solar Asset-backed Notes, Series 2014-2, Class A, and $41.5 million in aggregate principal of Solar Asset-backed Notes, Series 2014-2, Class B, backed by these solar assets to certain investors. The SPE is wholly owned by the Company and is consolidated in the Company’s financial statements. Accordingly, the Company did not recognize a gain or loss on the transfer of these solar assets. As of March 31, 2016, these solar assets had a carrying value of $273.1 million and are included under solar energy systems, leased and to be leased — net, in the consolidated balance sheets. The Solar Asset-backed Notes were issued at a discount of 0.01%. These solar assets and the associated customer contracts are leased to an investor under a lease pass-through arrangement that the Company has accounted for as a borrowing. The rent paid by the investor under the lease pass-through arrangement is used (and, following the expiration of the lease pass-through arrangement, the cash generated by these solar assets will be used) to service the monthly principal and interest payments on the Solar Asset-backed Notes and satisfy the SPE’s expenses, and any remaining cash is distributed to a wholly owned subsidiary of the Company. The Company recognizes revenue earned from the associated customer contracts in accordance with the Company’s revenue recognition policy. The assets and cash flows generated by these solar assets are not available to the other creditors of the Company, and the creditors of the SPE, including the Solar Asset-backed Note holders, have no recourse to the Company’s other assets. The Company contracted with the SPE to provide operations and maintenance and administrative services for the qualifying solar energy systems.

In August 2015, the Company pooled and transferred its interests in certain financing funds into a SPE and issued $103.5 million in aggregate principal of Solar Asset-backed Notes, Series 2015-1, Class A, and $20.0 million in aggregate principal of Solar Asset-backed Notes, Series 2015-1, Class B, backed by these solar assets to certain investors. The SPE is wholly owned by the Company and is consolidated in the Company’s financial statements. Accordingly, the Company did not recognize a gain or loss on the transfer of these solar assets and continues to consolidate the underlying financing funds (see Note 6, VIE Arrangements). The Solar Asset-backed Notes were issued at a discount of 0.05% for Class A and 1.46% for Class B. The cash distributed by the underlying financing funds to the SPE are used to service the semi-annual principal and interest payments on the Solar Asset-backed Notes and satisfy the SPE’s expenses, and any remaining cash is distributed to a wholly owned subsidiary of the Company. The SPE’s assets and cash flows are not available to the other creditors of the Company, and the creditors of the SPE, including the Solar Asset-backed Note holders, have no recourse to the Company’s other assets.

In February 2016, the Company transferred qualifying solar energy systems and the associated customer contracts into a SPE and issued $52.2 million in aggregate principal of Solar Asset-backed Notes, Series 2016-1, backed by these solar assets to certain investors. The SPE is wholly owned by the Company and is consolidated in the Company’s financial statements. Accordingly, the

Company did not recognize a gain or loss on the transfer of these solar assets. As of March 31, 2016, these solar assets had a carrying value of $73.5 million and are included under solar energy systems, leased and to be leased — net, in the consolidated balance sheets. The Solar Asset-backed Notes were issued at a discount of 6.71%. These solar assets and the associated customer contracts are leased to an investor under a lease pass-through arrangement that the Company has accounted for as a borrowing. The rent paid by the investor under the lease pass-through arrangement is used (and, following the expiration of the lease pass-through arrangement, the cash generated by these solar assets will be used) to service the semi-annual principal and interest payments on the Solar Asset-backed Notes and satisfy the SPE’s expenses, and any remaining cash is distributed to a wholly owned subsidiary of the Company. The Company recognizes revenue earned from the associated customer contracts in accordance with the Company’s revenue recognition policy. The assets and cash flows generated by these solar assets are not available to the other creditors of the Company, and the creditors of the SPE, including the Solar Asset-backed Note holders, have no recourse to the Company’s other assets. The Company contracted with the SPE to provide operations and maintenance and administrative services for the qualifying solar energy systems.

On January 21, 2016, the Company pooled and transferred certain MyPower customer notes receivable into a SPE and issued $151.6 million in aggregate principal of Solar Loan-backed Notes, Series 2016-A, Class A, and $33.4 million in aggregate principal of Solar Loan-backed Notes, Series 2016-A, Class B, backed by these notes receivable to certain investors. The SPE is wholly owned by the Company and is consolidated in the Company’s financial statements. Accordingly, the Company did not recognize a gain or loss on the transfer of these notes receivable. The Solar Loan-backed Notes were issued at a discount of 3.22% for Class A and 15.90% for Class B. The payments received by the SPE under these notes receivable are used to service the semi-annual principal and interest payments on the Solar Loan-backed Notes and satisfy the SPE’s expenses, and any remaining cash is distributed to a wholly owned subsidiary of the Company. The SPE’s assets and cash flows are not available to the other creditors of the Company, and the creditors of the SPE, including the Solar Loan-backed Note holders, have no recourse to the Company’s other assets.

The Company has entered into various arrangements with investors to facilitate funding and monetization of solar energy systems.

Wholly owned subsidiaries of the Company and fund investors formed and contributed cash or assets to various solar financing funds and entered into related agreements. The following table shows the number of funds by investor classification, carrying value of the solar energy systems in the funds, total investor contributions received and undrawn investor contributions as of March 31, 2016 (in thousands, except for number of funds):

			Total				Carrying
			Investor		Undrawn		Value of
Investor	Number		Contributions		Investor		Solar Energy
Classification	of Funds		Received		Contributions		Systems
Financial institutions		24	$	2,155,094	$	155,808	$	2,436,129
Corporations		7		307,344		23,545		398,059
Utilities		4		316,125		34,812		322,006
Other investors		1		1,788		—		3,184
Total		36	$	2,780,351	$	214,165	$	3,159,378

The Company has determined that the funds are VIEs and it is the primary beneficiary of these VIEs by reference to the power and benefits criterion under ASC 810, Consolidation. The Company has considered the provisions within the contractual agreements, which grant it power to manage and make decisions that affect the operation of these VIEs, including determining the solar energy systems and associated customer contracts to be sold or contributed to these VIEs and the redeployment of solar energy systems. The Company considers that the rights granted to the fund investors under the contractual agreements are more protective in nature rather than participating.

Pursuant to management services, maintenance and warranty arrangements, the Company has been contracted to provide services to the funds, such as operations and maintenance support, accounting, lease servicing and performance reporting. In some instances, the Company has guaranteed payments to the investors as specified in the contractual agreements. A fund’s creditors have no recourse to the general credit of the Company or to that of other funds. None of the assets of the funds have been pledged as collateral for their obligations.

As the primary beneficiary of these VIEs, the Company consolidates in its financial statements the financial position, results of operations and cash flows of these VIEs, and all intercompany balances and transactions between the Company and these VIEs are eliminated in the condensed consolidated financial statements.

Cash distributions of income and other receipts by a fund, net of agreed upon expenses, estimated expenses, tax benefits and detriments of income and loss and tax credits, are allocated to the fund investor and the Company’s subsidiary as specified in contractual agreements.

Generally, the Company’s subsidiary has the option to acquire the fund investor’s interest in the fund for an amount based on the market value of the fund or the formula specified in the contractual agreements.

As of March 31, 2016 the Company was contractually required to make payments to a fund investor in order to ensure the investor is projected to achieve a specified minimum return annually. The amounts of any potential future payments under this guarantee are dependent on the amounts and timing of future distributions to the investor from the fund, the tax benefits that accrue to the investor from the fund’s activities and the amount and timing of the Company’s purchase of the investor’s interest in the fund or the amount and timing of the distributions to the investor upon liquidation of the fund. Due to uncertainties associated with estimating the amount and timing of distributions to the investor and the possibility and timing of the liquidation of the fund, the Company is unable to determine the potential maximum future payments that it would have to make under this guarantee.

Upon the sale or liquidation of a fund, distributions would occur in the order and priority specified in the contractual agreements.

The Company presents the solar energy systems in the VIEs under solar energy systems, leased and to be leased – net in the consolidated balance sheets. The aggregate carrying values of the VIEs’ assets and liabilities, after elimination of intercompany transactions and balances, in the consolidated balance sheets were as follows (in thousands):

	March 31, 2016		December 31, 2015
Assets
Current assets:
Cash and cash equivalents	$	59,559	$	32,105
Restricted cash		44		44
Accounts receivable - net		17,748		10,116
Rebates receivable		6,816		6,220
Prepaid expenses and other current assets		2,088		1,740
Total current assets		86,255		50,225
Solar energy systems, leased and to be leased - net		3,159,378		2,779,363
Other assets		14,116		11,204
Total assets	$	3,259,749	$	2,840,792
Liabilities
Current liabilities:
Distributions payable to noncontrolling interests and redeemable noncontrolling interests	$	15,710	$	26,769
Current portion of deferred U.S. Treasury grant income		6,506		6,506
Accrued and other current liabilities		788		598
Customer deposits		2,802		2,928
Current portion of deferred revenue		21,623		24,794
Total current liabilities		47,429		61,595
Deferred revenue, net of current portion		297,765		308,798
Deferred U.S. Treasury grant income, net of current portion		162,564		164,191
Other liabilities and deferred credits		10,022		28,460
Total liabilities	$	517,780	$	563,044

The Company is contractually obligated to make certain fund investors whole if they suffer certain losses resulting from the disallowance or recapture of ITCs or U.S. Treasury grants. The Company accounts for distributions due to the fund investors arising from a reduction of anticipated ITCs or U.S. Treasury grants received under distributions payable to noncontrolling interests and redeemable noncontrolling interests in the consolidated balance sheets. As of March 31, 2016 and December 31, 2015, the Company had accrued $2.7 million for each period for this obligation, which is included under distributions payable to noncontrolling interests and redeemable noncontrolling interests on the consolidated balance sheets.

Noncontrolling interests in subsidiaries that are redeemable at the option of the holder are classified as redeemable noncontrolling interests in subsidiaries between liabilities and stockholders’ equity in the consolidated balance sheets. The redeemable noncontrolling interests in subsidiaries balance is determined using the hypothetical liquidation at book value method for the VIE funds or allocation of share of income or losses in other subsidiaries subsequent to initial recognition, however, the noncontrolling interests balance cannot be less than the estimated redemption value. The activity of the redeemable noncontrolling interests in subsidiaries balance was as follows (in thousands):

The acquisition of redeemable noncontrolling interests above relates to the Company’s purchase of the third party investors’ interest in the Chinese joint venture between one of its subsidiaries, Silevo, and the investors, for $13.7 million.

The changes in total stockholders’ equity and noncontrolling interests in subsidiaries were as follows (in thousands):

	Total			Noncontrolling
	Stockholders'			Interests in			Total
	Equity			Subsidiaries			Equity
Balance, December 31, 2015	$	878,566		$	535,062		$	1,413,628
Contributions from noncontrolling interests		—			131,030			131,030
Tax benefit of stock option exercises		1,983			—			1,983
Stock-based compensation expense		29,078			—			29,078
Issuance of common stock upon exercise of stock options for cash		1,243			—			1,243
Net loss		(24,988	)		(122,948	)		(147,936	)
Distributions to noncontrolling interests		—			(10,963	)		(10,963	)
Balance, March 31, 2016	$	885,882		$	532,181		$	1,418,063

On September 15, 2015, the Chief Executive Officer and the Chief Technology Officer, the Company founders, were granted non-statutory stock option awards, or Founder Awards, with both market and performance vesting conditions. The exercise price per share of the Founder Awards is $48.97. The Chief Executive Officer’s Founder Award covers up to 3.0 million shares of the Company’s common stock, and the Chief Technology Officer’s Founder Award covers up to 2.0 million shares of the Company’s common stock. The Founder Awards have a maximum term of 10 years from the date of grant and vest in 10 equal tranches based on the achievement of specified operational goals and the 90-trading day average price of the Company’s common stock achieving certain targets on specified measurement dates. In the event of a change in control or a termination of employment, all vesting under the related Founder Award would cease, and any unvested portion would be cancelled.

A summary of stock option activity is as follows (in thousands, except per share amounts):

						Weighted-
				Weighted-		Average
				Average		Remaining		Aggregate
	Stock			Exercise		Contractual		Intrinsic
	Options			Price		Term (Years)		Value
Outstanding - December 31, 2015		18,315		$	38.43		7.74	$	293,855
Granted (weighted-average fair value of $20.14)		426			33.95
Exercised		(224	)		5.55				4,637
Canceled		(580	)		67.11
Outstanding - March 31, 2016		17,937		$	37.81		7.56	$	104,127
Options vested and exercisable - March 31, 2016		8,177		$	23.03		5.89	$	101,978
Options vested and expected to vest - March 31, 2016		15,181		$	35.58		7.24	$	104,050

As of March 31, 2016, 65.9% of the non-vested stock options outstanding had a performance feature that is required to be satisfied before they become vested and exercisable, including 5.0 million non-vested stock options outstanding under the Founder Awards. The grant date fair market value of the stock options that vested in the three months ended March 31, 2016 and 2015 was $22.3 million and $23.8 million, respectively.

As of March 31, 2016 and December 31, 2015, there was $237.8 million and $265.3 million, respectively, of total unrecognized stock-based compensation expense, net of estimated forfeitures, related to non-vested stock options, which are expected to be recognized over the weighted-average period of 5.43 years and 5.56 years, respectively; including $111.9 million as of March 31, 2016 from the Founder Awards.

Under ASC 718, the Company estimates the fair value of stock options on their grant dates using the Black-Scholes option valuation model, except for the Founder Awards for which the Company uses a Monte Carlo simulation performed by an independent expert, and applies the straight-line method of expense attribution to each award tranche prospectively. The fair values were estimated on each grant date with the following weighted-average assumptions used in the Black-Scholes option valuation model:

The expected volatility was calculated based on the average historical volatilities of the Company and publicly traded peer companies determined by the Company. The risk-free interest rate used was based on the U.S. Treasury yield curve in effect at the time of grant for the expected term of the stock options to be valued. The expected dividend yield was zero, as the Company does not anticipate paying a dividend within the relevant time frame. The expected term has been estimated using the simplified method allowed under ASC 718.

The Company began granting restricted stock units, or RSUs, to employees, directors and consultants in 2012 under the Company’s 2012 Equity Incentive Plan. A summary of RSU activity is as follows (in thousands, except per share amounts):

The grant date fair value of RSUs vested was $11.8 million and $1.6 million for the three months ended March 31, 2016 and 2015, respectively. Under ASC 718, the Company determines the fair value of RSUs granted on each grant date based on the fair value of the Company’s common stock on the grant date and applies the straight-line method of expense attribution. As of March 31, 2016 and December 31, 2015, there was $110.4 million and $121.5 million, respectively, of total unrecognized stock-based compensation expense, net of estimated forfeitures, from RSUs, which are expected to be recognized over the weighted-average period of 3.22 years and 3.31 years, respectively.

As part of the requirements of ASC 718, the Company is required to estimate potential forfeitures of equity awards and adjust stock-based compensation expense accordingly. The estimate of forfeitures will be adjusted over the requisite service period to the extent that actual forfeitures differ, or are expected to differ, from such estimates. Changes in estimated forfeitures will be recognized in the period of change and will also impact the amount of stock-based compensation expense to be recognized in future periods.

The amount of stock-based compensation expense recognized during the three months ended March 31, 2016 and 2015 was $28.9 million and $24.5 million, respectively. The amount of capitalized stock-based compensation expense was as follows (in thousands):

Stock-based compensation expense was included in cost of revenue and operating expenses as follows (in thousands):

The Company accounts for income taxes using the asset and liability method. Under this method, deferred income tax assets and liabilities are determined based upon the difference between the condensed consolidated financial statement carrying amounts and the tax basis of assets and liabilities and are measured using the enacted tax rate expected to apply to taxable income in the years in which the differences are expected to be reversed.

The Company has applied a valuation allowance against its deferred tax assets net of the expected income from the reversal of its deferred tax liabilities. The valuation allowance is determined in accordance with the provisions of ASC 740, Income Taxes, which requires an assessment of both negative and positive evidence when measuring the need for a valuation allowance. Based on the available objective evidence and the Company’s history of losses, the Company believes it is more likely than not that the net deferred tax assets will not be realized.

The income tax expense for the three months ended March 31, 2016 and 2015 was determined based on the Company’s estimated consolidated effective income tax rates of negative 0.02% and 0.43%, respectively. The differences between the estimated consolidated effective income tax rates and the U.S. federal statutory rates were primarily attributable to valuation allowances and the current amortization of prepaid tax asset and deferred income tax charge due to inter-company sales held within the consolidated group.

As part of its asset monetization strategy, the Company has agreements to sell solar energy systems to joint venture funds. The gain on the sale of the assets has been eliminated in the condensed consolidated financial statements. These transactions are treated as inter-company sales, and as such, income taxes are not recognized on the sales until the Company no longer benefits from the underlying assets. Since the assets remain within the consolidated group, the income tax expense incurred related to the sales is being deferred and amortized over the estimated useful life of the assets, which has been estimated to be 30 years. The deferral of income tax expense results in the recording of a prepaid tax expense that is included in the consolidated balance sheets as other assets. The amortization of the prepaid tax expense in each period makes up the major component of income tax expense.

The Company applies a two-step approach with respect to uncertain tax positions. This approach involves recognizing any uncertain tax positions that are more-likely-than-not of being ultimately realized and then measuring those positions to determine the amounts to be recognized.

The Company is subject to taxation and files income tax returns in the U.S. and various state, local and foreign jurisdictions. The U.S. and state jurisdictions have statutes of limitations that generally range from three to five years. Due to the Company’s net losses, substantially all of its federal, state, local and foreign income tax returns since inception are still subject to audit.

The Company’s operations included the following related party transactions (in thousands):

The related party transactions were primarily purchases of batteries from Tesla Motors, Inc., or Tesla; issuances or maturities of Solar Bonds held by SpaceX, the Company’s Chief Financial Officer and the Company’s Chief Technology Officer and issuances of convertible senior notes to an entity affiliated with the Chairman of the Company’s board of directors and the Company’s Chief Executive Officer. Tesla is considered a related party because the Chairman of the Company’s board of directors is the Chief Executive Officer and Chairman of Tesla, other members of the Company’s board of directors also serve as members of the board of directors of Tesla and some members of the Company’s board of directors and executive management are also investors in Tesla. SpaceX is considered a related party because the Chairman of the Company’s board of directors is the Chief Executive Officer, Chief Designer, Chairman and a significant stockholder of SpaceX; other members of the Company’s board of directors also serve as members of the board of directors of SpaceX and some members of the Company’s board of directors and executive management are also investors in SpaceX.

In March 2015, SpaceX purchased $90.0 million in aggregate principal amount of 2.00% Solar Bonds due in March 2016. In June 2015, SpaceX purchased an additional $75.0 million in aggregate principal amount of 2.00% Solar Bonds due in June 2016. In March 2016, $90.0 million in aggregate principal amount of the Solar Bonds held by SpaceX matured, and the proceeds were reinvested by SpaceX in $90.0 million in aggregate principal amount of 4.40% Solar Bonds due in March 2017.

The Company leases offices, manufacturing and warehouse facilities, equipment, vehicles and solar energy systems under noncancelable leases.

In September 2014, a subsidiary of the Company entered into a build-to-suit lease arrangement with the Research Foundation for the State University of New York, or the Foundation, for the construction of an approximately 1.0 million square-feet solar panel manufacturing facility with a capacity of 1.0 gigawatts on an approximately 88.2 acre site located in Buffalo, New York. Under the terms of the arrangement, which has been amended, the Foundation will construct the manufacturing facility and install certain utilities and other improvements, with participation by the Company as to the design and construction of the manufacturing facility, and acquire certain manufacturing equipment designated by the Company to be used in the manufacturing facility. The Foundation will cover (i) construction costs related to the manufacturing facility in an amount up to $350.0 million, (ii) the acquisition and commissioning of the manufacturing equipment in an amount up to $348.1 million and (iii) $51.9 million for additional specified scope costs, in cases (i) and (ii) only, subject to the maximum funding allocation from the State of New York, and the Company will be responsible for any construction and equipment costs in excess of such amounts. The Foundation will own the manufacturing facility and manufacturing equipment purchased by the Foundation. Following completion of the manufacturing facility, the Company will lease the manufacturing facility and the manufacturing equipment owned by the Foundation from the Foundation for an initial period of 10 years, with an option to renew, for $2 per year plus utilities.

Under the terms of the build-to-suit lease arrangement, the Company is required to achieve specific operational milestones during the initial term of the lease, which include employing a certain number of employees at the facility, within western New York and within the State of New York within specified time periods following the completion of the facility. The Company is also required to spend or incur approximately $5.0 billion in combined capital, operational expenses and other costs in the State of New York over the 10 years following the achievement of full production. On an annual basis during the initial lease term, as measured on each anniversary of the commissioning of the facility, if the Company fails to meet its specified investment and job creation obligations,

then it would be obligated to pay a $41.2 million “program payment” to the Foundation for each year that it fails to meet these requirements. Furthermore, if the agreement is terminated due to a material breach by the Company, then additional amounts might be payable by the Company.

Due to the Company’s involvement with the construction of the facility, its exposure to any potential cost overruns and its other commitments under the agreement, the Company is deemed to be the owner of the facility and the manufacturing equipment owned by the Foundation for accounting purposes during the construction phase. Accordingly, as of March 31, 2016 and December 31, 2015, the Company had recorded a non-cash investment in build-to-suit lease asset under construction of $519.8 million and $284.5 million, respectively, and a corresponding non-cash build-to-suit lease liability on the consolidated balance sheets. The non-cash investing activities and the non-cash financing activities related to this arrangement in the three months ended March 31, 2016 and 2015 amounted to $235.3 million and $26.5 million, respectively.

As disclosed in Note 6, VIE Arrangements, the Company is contractually committed to compensate certain fund investors for any losses that they may suffer in certain limited circumstances resulting from reductions in U.S. Treasury grants or ITCs. Generally, such obligations would arise as a result of reductions to the value of the underlying solar energy systems as assessed by the U.S. Treasury Department for purposes of claiming U.S. Treasury grants or as assessed by the IRS for purposes of claiming ITCs or U.S. Treasury grants. For each balance sheet date, the Company assesses and recognizes, when applicable, the potential exposure from this obligation based on all the information available at that time, including any guidelines issued by the U.S. Treasury Department on solar energy system valuations for purposes of claiming U.S. Treasury grants and any audits undertaken by the IRS. The Company believes that any payments to the fund investors in excess of the amount already recognized by the Company for this obligation are not probable based on the facts known at the reporting date.

The maximum potential future payments that the Company could have to make under this obligation would depend on the difference between the fair values of the solar energy systems sold or transferred to the funds as determined by the Company and the values that the U.S. Treasury Department would determine as fair value for the systems for purposes of claiming U.S. Treasury grants or the values the IRS would determine as the fair value for the systems for purposes of claiming ITCs or U.S. Treasury grants. The Company claims U.S. Treasury grants based on guidelines provided by the U.S. Treasury department and the statutory regulations from the IRS. The Company uses fair values determined with the assistance of independent third-party appraisals commissioned by the Company as the basis for determining the ITCs that are passed-through to and claimed by the fund investors. Since the Company cannot determine future revisions to U.S. Treasury Department guidelines governing system values or how the IRS will evaluate system values used in claiming ITCs or U.S. Treasury grants, the Company is unable to reliably estimate the maximum potential future payments that it could have to make under this obligation as of each balance sheet date.

The Company is eligible to receive certain state and local incentives that are associated with renewable energy generation. The amount of incentives that can be claimed is based on the projected or actual solar energy system size and/or the amount of solar energy produced. The Company also currently participates in one state’s incentive program that is based on either the fair market value or the tax basis of solar energy systems placed in service. State and local incentives received are allocated between the Company and fund investors in accordance with the contractual provisions of each fund. The Company is not contractually obligated to indemnify any fund investor for any losses they may incur due to a shortfall in the amount of state or local incentives actually received.

As disclosed in Note 6, VIE Arrangements, the Company is contractually required to make payments to one fund investor to ensure that the fund investor achieves a specified minimum internal rate of return. The fund investor has already received a significant portion of the projected economic benefits from U.S. Treasury grant distributions and tax depreciation benefits. The contractual provisions of the fund state that the fund has an indefinite term unless the members agree to dissolve the fund. Based on the Company’s current financial projections regarding the amount and timing of future distributions to the fund investor, the Company does not expect to make any payments as a result of this guarantee and has not accrued any liabilities for this guarantee. The amount of potential future payments under this guarantee is dependent on the amount and timing of future distributions to the fund investor and future tax benefits that accrue to the fund investor. Due to the uncertainties surrounding estimating the amounts of these factors, the Company is unable to estimate the maximum potential payments under this guarantee. To date, the fund investor has achieved the specified minimum internal rate of return as determined in accordance with the contractual provisions of the fund.

The lease pass-through financing funds have a one-time lease payment reset mechanism that occurs after the installation of all solar energy systems in a fund. As a result of this mechanism, the Company may be required to refund master lease prepayments previously received from investors. Any refunds of master lease prepayments would reduce the lease pass-through financing obligation.

As of March 31, 2016, the Company had $22.8 million of unused letters of credit outstanding, which carry a fee of 3.4% per annum.

In July 2012, the Company, along with other companies in the solar energy industry, received a subpoena from the U.S. Treasury Department’s Office of the Inspector General to deliver certain documents in the Company’s possession that were dated, created, revised or referred to after January 1, 2007 and that relate to the Company’s applications for U.S. Treasury grants or communications with certain other solar energy development companies or with certain firms that appraise solar energy property for U.S Treasury grant application purposes. The Inspector General and the Civil Division of the U.S. Department of Justice are investigating the administration and implementation of the U.S Treasury grant program, including possible misrepresentations concerning the fair market value of the solar energy systems submitted by the Company in U.S. Treasury grant applications. If the Inspector General concludes that misrepresentations were made, the U.S. Department of Justice could decide to bring a civil action to recover amounts it believes were improperly paid to the Company. If the U.S. Department of Justice is successful in asserting this action, the Company could then be required to pay material damages and penalties for any funds received based on such misrepresentations, which, in turn, could require the Company to make indemnity payments to certain fund investors. The Company is unable to estimate the possible loss, if any, associated with this ongoing investigation.

In February 2013, two of the Company’s financing funds filed a lawsuit in the United States Court of Federal Claims against the United States government, seeking to recover approximately $14.0 million that the United States Treasury was obligated to pay, but failed to pay, under Section 1603 of the American Recovery and Reinvestment Act of 2009. In February 2016, the government filed a motion seeking leave to assert a counterclaim against the two plaintiff funds on the grounds that the government, in fact, paid them more, not less, than they were entitled to as a matter of law. On May 2, 2016, the Court granted the government’s motion and allowed it to add the counterclaim. If the government is successful in asserting the counterclaim, the Company could then be required to make indemnity payments to the plaintiff funds. The Company believes that the government’s claims are without merit and expects the plaintiff funds to litigate the case vigorously. The Court has set the case for trial in January 2017.

On March 28, 2014, a purported stockholder class action lawsuit was filed in the United States District Court for the Northern District of California against the Company and two of its officers. The complaint alleges claims for violations of the federal securities laws, and seeks unspecified compensatory damages and other relief on behalf of a purported class of purchasers of our securities from March 6, 2013 to March 18, 2014. On April 16, 2015, the District Court dismissed the complaint and allowed the plaintiffs to file an amended complaint in an attempt to remedy the defects in the original complaint. The plaintiffs filed their amended complaint, and the Company filed a renewed motion to dismiss on August 7, 2015. On January 5, 2016, the District Court dismissed the amended complaint and allowed plaintiffs to file a further amended complaint in an attempt to remedy the defects in the existing complaint. The plaintiffs filed the third amended complaint, and the Company has once again filed a motion to dismiss. The Company believes that the claims are without merit and intends to defend itself vigorously. The Company is unable to estimate the possible loss, if any, associated with this lawsuit.

On June 5 and 11, 2014, stockholder derivative actions were filed in the Superior Court of California for the County of San Mateo, purportedly on behalf of the Company and against the board of directors, alleging that the board of directors breached its duties to the Company by failing to prevent the conduct alleged in the pending purported stockholder class action lawsuit. The Company and the individual board member defendants filed a motion to dismiss the complaint, which the Superior Court granted on December 17, 2015, while allowing the plaintiffs an opportunity to file an amended complaint to remedy the defects in the original complaint. On or about March 2, 2016, the plaintiffs informed the Company and the Superior Court that they had sold their shares in the Company during the pendency of the suit. Consequently, the plaintiffs no longer had standing to bring their lawsuit, which they voluntarily dismissed.

approving stock-based compensation to the non-employee directors that the plaintiff claims is excessive compared to the compensation paid to directors of peer companies. The Company is reviewing the claim and is unable to estimate the possible loss, if any, associated with this lawsuit.

On November 6, 2015, a putative class action lawsuit was filed in the United States District Court for the Northern District of California against the Company. The complaint alleges that the Company made unlawful telephone marketing calls to the plaintiff and others, in violation of the federal Telephone Consumer Protection Act. The plaintiff seeks injunctive relief and statutory damages, on behalf of himself and a certified class. The Company filed a motion to dismiss the complaint, which the District Court denied on April 6, 2016. The Company believes that the claims are without merit and intends to defend itself vigorously. The Company is unable to estimate the possible loss, if any, associated with this lawsuit.

The following table sets forth the computation of the Company’s basic and diluted net loss per share for the periods presented (in thousands, except share and per share amounts):

The following weighted-average outstanding shares of common stock equivalents were excluded from the computation of diluted net loss per share for the periods presented because including them would have been antidilutive:

On April 15, 2016, the Company and a financing fund investor reached an agreement to increase the maximum committed investment in the financing fund by the investor from $90.0 million to $180.0 million.

On May 2, 2016, the Company entered into a financing arrangement with a third party investor for a total committed amount of $227.4 million. Under the financing arrangement, the Company monetized the majority of the cash flows from certain solar energy systems under leases or power purchase agreements.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and the accompanying notes to those statements included elsewhere in this quarterly report on Form 10-Q and with our annual report on Form 10-K filed with the Securities and Exchange Commission, or SEC, on February 10, 2016. In addition to historical financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results and timing of selected events may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those discussed under “Risk Factors” and elsewhere in this quarterly report on Form 10-Q.

We are the leading installer of residential and commercial solar energy systems in the United States. We offer innovative financing alternatives for our customers. We continually innovate and develop new technologies to facilitate our growth and to enhance the delivery of our products and services. We make it possible to offer energy to our customers at prices below utility rates. Our solar energy systems rely on the energy produced by the sun, allowing our customers to generate energy at their homes and businesses, and to reduce the amount of energy they purchase from utilities. We help put solar energy generation within the reach of our customers by providing a variety of pricing and financing options that minimize or eliminate upfront costs. Our customers have typically achieved a lower overall electricity bill immediately upon installation.

We regularly review a number of metrics, including the following key operating metrics, to evaluate our business, measure our performance, identify trends affecting our business, formulate financial projections and make strategic decisions.

We track the number of residential, commercial, government and other customers where we have installed a solar energy system. We track the cumulative number of installed customers as of the end of a given period as an indicator of our historical growth and as an indicator of our rate of expected growth from period to period.

The following table sets forth our cumulative number of installed customers as of the dates presented:

We track megawatts deployed, or the megawatt production capacity of our solar energy systems that have had all required building department inspections completed during the applicable period. This metric includes solar energy systems deployed under energy contracts (residential, commercial or government lease, power purchase agreement or MyPower contracts), as well as solar energy system direct sales. Because the size of our solar energy systems varies greatly, we believe that tracking the megawatt production capacity of deployed systems is an indicator of our growth rate and cost efficiency of our solar energy system business. We track the megawatts deployed in a given period as an indicator of asset growth and efficiency of the scale of our operations in the period. We track cumulative megawatts deployed as of the end of a given period as an indicator of our historical growth.

The following table sets forth the megawatt production capacity of solar energy systems that we have deployed during the periods presented and the cumulative megawatts deployed as of the end of each period presented:

In addition, we track megawatts installed, or the megawatt production capacity of solar energy systems for which (i) all solar panels, inverters, mounting and racking hardware and system wiring have been installed, (ii) the system inverter is connected and a successful direct current string test has been completed confirming the production capacity of the system and (iii) the system is capable of being grid connected (including pending a utility disconnect procedure), in each case, as of the latest of which criteria is completed during the applicable period. This metric includes solar energy systems installed under energy contracts, as well as solar energy system direct sales. The following table sets forth the megawatt production capacity of solar energy systems that we have installed during the periods presented and the cumulative megawatts installed as of the end of each period presented:

There were no material changes to our critical accounting policies or estimates during the three months ended March 31, 2016 from those disclosed in our annual report on Form 10-K for the year ended December 31, 2015.

The following table sets forth selected consolidated statements of operations data for each of the periods indicated (in thousands, except share and per share amounts).

	Three Months Ended March 31,
	2016			2015
Revenue:
Revenue from periodic billings:
Periodic operating lease billings and incentives	$	60,169		$	38,104
Sale of solar renewable energy credits		4,943			2,282
Revenue from solar energy systems under long-term loan arrangements		19,110			1,069
Total revenue from periodic billings		84,222			41,455
Solar energy systems and components sales revenue		22,023			11,639
Revenue from operating lease prepayments and upfront incentives		16,327			14,385
Total revenue		122,572			67,479
Cost of revenue:
Cost of periodic billings revenue (exclusive of depreciation and amortization)		16,895			8,904
Cost of solar energy systems and components sales revenue (exclusive of amortization and warranty)		27,634			11,553
Pre-production expense		16,583			—
Depreciation, amortization and warranty		48,035			25,263
Total cost of revenue		109,147			45,720
Gross profit		13,425			21,759
Operating expenses:
Sales and marketing		126,083			86,671
General and administrative		86,926			48,654
Research and development		13,920			12,120
Total operating expenses		226,929			147,445
Loss from operations		(213,504	)		(125,686	)
Interest and other expenses:
Interest expense (excluding amortization of debt discounts and fees) - recourse debt		9,074			5,393
Interest expense (excluding amortization of debt discounts and fees) - non-recourse debt		14,291			5,173
Other interest expense and amortization of debt discounts and fees, net		9,182			7,955
Other expense, net		37,122			2,104
Total interest and other expenses		69,669			20,625
Loss before income taxes		(283,173	)		(146,311	)
Income tax benefit (provision)		68			(626	)
Net loss		(283,105	)		(146,937	)
Net loss attributable to noncontrolling interests and redeemable noncontrolling interests		(258,117	)		(125,412	)
Net loss attributable to stockholders	$	(24,988	)	$	(21,525	)
Net loss attributable to common stockholders
Basic	$	(24,988	)	$	(21,525	)
Diluted	$	(24,988	)	$	(21,525	)
Net loss per share attributable to common stockholders
Basic	$	(0.25	)	$	(0.22	)
Diluted	$	(0.25	)	$	(0.22	)
Weighted-average shares used to compute net loss per share attributable to common stockholders
Basic		98,073,719			96,680,069
Diluted		98,073,719			96,680,069

	Three Months Ended March 31,				Change
(Dollars in thousands)	2016		2015		$		%
Revenue from periodic billings:
Periodic operating lease billings and incentives	$	60,169	$	38,104	$	22,065		58	%
Sale of solar renewable energy credits		4,943		2,282		2,661		117	%
Revenue from solar energy systems under long-term loan arrangements		19,110		1,069		18,041		1688	%
Total Revenue from periodic billings		84,222		41,455		42,767		103	%
Solar energy systems and components sales revenue		22,023		11,639		10,384		89	%
Revenue from operating lease prepayments and upfront incentives		16,327		14,385		1,942		14	%
Total revenue	$	122,572	$	67,479	$	55,093		82	%

Total revenue increased by $55.1 million, or 82%, for the three months ended March 31, 2016 as compared to the three months ended March 31, 2015.

Periodic operating lease billings and incentives revenue increased by $22.1 million, or 58%, for the three months ended March 31, 2016, as compared to the three months ended March 31, 2015. This increase was primarily attributable to the increase in solar energy systems placed in service under leases and power purchase agreements. The average aggregate megawatt production capacity of solar energy systems placed in service under leases during the three months ended March 31, 2016 increased by 53% as compared to the average during the three months ended March 31, 2015. In addition, the megawatt hours produced by solar energy systems under power purchase agreements increased by 81% during the three months ended March 31, 2016, as compared to the three months ended March 31, 2015. The impact of the installed base on the increase in revenue varied in part by the mix between solar energy systems under leases, for which revenue is recognized on a straight-line basis over the lease term, and under power purchase agreements, for which revenue is recognized based on energy produced and when the systems were placed in service.

Sale of solar renewable energy credits increased by $2.7 million, or 117%, for the three months ended March 31, 2016, as compared to the three months ended March 31, 2015. This increase was primarily due to the increase in solar energy systems placed in service under leases and power purchase agreements and the resulting increase in solar renewable energy credits generated and sold.

Revenue from solar energy systems under long-term loan arrangements increased by $18.0 million, or 1,688%, for the three months ended March 31, 2016, as compared to the three months ended March 31, 2015. The increase was due to the cumulative increase in sales under MyPower contracts that resulted in increased cash collections under MyPower contracts, which are recognized as revenue based on cash receipts. We discontinued offering MyPower contracts in most of our service territories in the first quarter of 2016, and expect to terminate all sales under MyPower arrangements in the course of 2016 as we introduce replacement products.

Sales of solar energy systems and components increased by $10.4 million, or 89%, for the three months ended March 31, 2016, as compared to the three months ended March 31, 2015. This increase was primarily due to an $11.2 million increase in revenue from solar energy systems sold under long-term installation contracts recognized on the percentage-of-completion basis. This increase was partially offset by a $1.0 million decrease in revenue from sales of Silevo and Zep Solar products. Revenue from sales of solar energy systems and components has varied considerably and will likely continue to vary considerably from period to period due to customer preferences, solar energy systems sold under long-term installation contracts recognized on the percentage-of-completion basis and sales to government entities.

Revenue from operating lease prepayments and upfront incentives revenue increased by $1.9 million, or 14%, for the three months ended March 31, 2016, as compared to the three months ended March 31, 2015. This increase was primarily attributable to the cumulative increase in solar energy systems placed in service under leases and power purchase agreements that qualified for upfront incentives, which resulted in higher periodic amortization.

	Three Months Ended March 31,				Change
(Dollars in thousands)	2016		2015		$		%
Cost of periodic billings revenue (exclusive of depreciation and amortization)	$	16,895	$	8,904	$	7,991		90	%
Cost of solar energy systems and components sales (exclusive of amortization and warranty)		27,634		11,553		16,081		139	%
Pre-production expense		16,583		—		16,583
Depreciation, amortization and warranty		48,035		25,263		22,772		90	%
Total cost of revenue	$	109,147	$	45,720	$	63,427		139	%

Cost of periodic billings revenue (exclusive of depreciation and amortization) increased by $8.0 million, or 90%, for the three months ended March 31, 2016, as compared to the three months ended March 31, 2015. This increase was primarily due to the $7.6 million increase in costs incurred on customer contracts that were ultimately canceled, costs from our dedicated operations and maintenance department and other costs to maintain our operating leases.

Cost of solar energy systems and components sales (exclusive of amortization and warranty) increased by $16.1 million, or 139%, for the three months ended March 31, 2016, as compared to the three months ended March 31, 2015. This increase was due to higher sales of solar energy systems and components. Additionally, in the three months ended March 31, 2016, we recorded $5.3 million related to inventory reserves.

Pre-production expense related to costs we incurred at our Fremont, California manufacturing facility prior to achievement of full production capacity and comprised of salaries and personnel-related costs, and other production costs including the cost of raw materials for solar modules run through the production line during this period.

Cost of depreciation, amortization and warranty increased by $22.8 million, or 90%, for the three months ended March 31, 2016, as compared to the three months ended March 31, 2015. The increase was primarily due to the $13.0 million increase in depreciation expense arising from the higher aggregate cost of solar energy systems placed in service and generating revenue under solar energy system leases and power purchase agreements. Additionally, the periodic expense recognition of MyPower contract deferred costs increased by $6.4 million, and warranty expenses associated with sales under MyPower contracts increased by $2.3 million for the three months ended March 31, 2016, as compared to the three months ended March 31, 2015. The warranty expense for a sale under a MyPower contract is recorded upon the delivery of the solar energy system while the associated revenue and cost of revenue are deferred and recognized over the term of the MyPower contract as the customer pays-down the principal balance of the MyPower loan.

Sales and marketing expense increased by $39.4 million, or 45%, for the three months ended March 31, 2016, as compared to the three months ended March 31, 2015. This increase was primarily due to more expansive sales and marketing efforts. The average number of personnel in sales and marketing departments increased by 63% for the three months ended March 31, 2016, as compared to the three months ended March 31, 2015. As a result of this growth in headcount, employee compensation costs increased by $25.6 million and facilities and operations costs increased by $6.0 million. In addition, promotional marketing costs increased by $7.8 million as part of this broadening of the scope of our marketing activities. However, we are currently focusing on our more efficient sales channels, renegotiating or eliminating the higher cost sales channels and undertaking other cost efficiency initiatives aimed at reducing our sales and marketing expenses on a per Watt basis.

General and administrative expense increased by $38.3 million, or 79%, for the three months ended March 31, 2016, as compared to the three months ended March 31, 2015. This increase was primarily due to the increase in the average number of personnel in general and administrative departments, which grew by 114% for the three months ended March 31, 2016, as compared to the three months ended March 31, 2015. As a result of this growth in headcount, employee compensation costs increased by $14.7 million and facilities and operations costs increased by $9.0 million. In addition, as a result of our cessation of sales and installations in Nevada, we recognized incremental general and administrative expenses of $6.5 million in the three months ended March 31, 2016. Furthermore, professional fees increased by $6.2 million primarily due to increased legal costs.

Research and development expense increased by $1.8 million, or 15%, for the three months ended March 31, 2016, as compared to the three months ended March 31, 2015. This increase was primarily due to the greater level of research and development activities as a result of our module manufacturing activities and the corresponding increase in the average number of personnel in research and development departments.

	Three Months Ended March 31,				Change
(Dollars in thousands)	2016		2015		$		%
Interest expense (excluding amortization of debt discounts and fees) - recourse debt	$	9,074	$	5,393	$	3,681		68	%
Interest expense (excluding amortization of debt discounts and fees) - non-recourse debt		14,291		5,173		9,118		176	%
Other interest expense and amortization of debt discounts and fees, net		9,182		7,955		1,227		15	%
Other expense, net		37,122		2,104		35,018		1664	%
Total interest and other expenses, net	$	69,669	$	20,625	$	49,044		238	%

Interest expense (excluding amortization of debt discounts and fees) – recourse debt increased by $3.7 million, or 68%, for the three months ended March 31, 2016, as compared to the three months ended March 31, 2015. This increase was primarily due to the 32% increase in the average carrying balances of interest bearing recourse debt for the three months ended March 31, 2016, as compared to the three months ended March 31, 2015. Additionally interest expense related to recourse debt increased due to the increase in interest rates for the three months ended March 31, 2016, as compared to the three months ended March 31, 2015.

Interest expense (excluding amortization of debt discounts and fees) – non-recourse debt increased by $9.1 million, or 176%, for the three months ended March 31, 2016, as compared to the three months ended March 31, 2015. This increase was primarily due to the 168% increase in the average carrying balances of non-recourse debt for the three months ended March 31, 2016, as compared to the three months ended March 31, 2015. Additionally interest expense related to non-recourse debt increased due to the increase in interest rates for the three months ended March 31, 2016, as compared to the three months ended March 31, 2015.

Other interest expense and amortization of debt discounts and fees, net, increased by $1.2 million, or 15%, for the three months ended March 31, 2016, as compared to the three months ended March 31, 2015. This increase was primarily due to the higher average balances of debt discounts and issuance costs related to our debt for the three months ended March 31, 2016, as compared to the three months ended March 31, 2015.

Other expense, net, increased by $35.0 million, or 1,664%, for the three months ended March 31, 2016, as compared to the three months ended March 31, 2015. This increase was mainly due to the $32.0 million change in fair value of fixed-for-floating interest rate swaps entered into, as required by our lenders, to reduce the potential impact of changes in interest rates on certain variable rate debt. We account for interest rate swaps as non-hedging derivatives.

Net Loss Attributable to Noncontrolling Interests and Redeemable Noncontrolling Interests

The net loss attributable to noncontrolling interests and redeemable noncontrolling interests represents the share of net loss that was allocated to the investors in the joint venture financing funds. This amount was determined as the change in the investors’ interests in the joint venture financing funds between the beginning and end of each reported period calculated primarily using the HLBV method, less any capital contributions net of any capital distributions. The calculation depends on the specific contractual liquidation provisions of each joint venture financing fund and is generally affected by, among other factors, the tax attributes allocated to the investors including tax bonus depreciation and ITCs or U.S. Treasury grants in lieu of the ITCs, the existence of guarantees of minimum returns to the investors by us and the allocation of tax income or losses including provisions that govern the level of deficits that can be funded by the investors in a liquidation scenario. The calculation is also affected by the cost of the assets sold to the joint venture financing funds, which forms the book basis of the net assets allocated to the investors assuming a liquidation scenario. Generally, significant loss allocations to the investors have arisen in situations where there was a significant difference between the fair value and the cost of the assets sold to the joint venture financing funds in a particular period accompanied by the absence of guarantees of minimum returns to the investors by us, since the capital contributions by the investors were based on the fair value of the assets while the calculation is based on the cost of the assets. The existence of guarantees of minimum returns to the investors by us and limits on the level of deficits that the investors are contractually obligated to fund in a liquidation scenario reduce the amount of losses that could be allocated to the investors. In addition, the redeemable noncontrolling interests balance is at least equal to the redemption amount.

The net loss allocation to noncontrolling interests and redeemable noncontrolling interests for the three months ended March 31, 2016 was $258.1 million compared to $125.4 million loss allocation for the three months ended March 31, 2015. The net loss allocation to noncontrolling interests and redeemable noncontrolling interests for the three months ended March 31, 2016 was primarily due to a $238.5 million loss allocation from financing funds into which we were selling or contributing assets. The net loss allocation to noncontrolling interests and redeemable noncontrolling interests for the three months ended March 31, 2015 was primarily due to a $121.8 million loss allocation from financing funds into which we were selling or contributing assets. This loss allocation was partially offset by a $4.0 million income allocation related to financing funds that were fully funded and that we were not selling or contributing additional assets.

We finance our operations, including the costs of acquisition and installation of solar energy systems, mainly through a variety of financing fund arrangements that we have formed with fund investors, credit facilities from banks, asset-backed notes, convertible notes, Solar Bonds and cash generated from our operations. As described below under “Financing Fund Commitments,” as of March 31, 2016, we had $543.9 million of available commitments from our fund investors and $236.3 million of unused borrowing capacity available under our credit facilities, assuming we remain compliant with the terms and covenants of our credit facilities. In future periods, we expect to incur additional capital expenses as we invest further in our solar module manufacturing operations, technology platform and proprietary mounting and racking hardware. In particular, we expect to incur substantial expenses in connection with the completion of the manufacturing facility under construction in New York and as we purchase equipment in excess of the amounts spent by the Research Foundation for the State University of New York, or the Foundation, in connection with the Riverbend Agreement.

The amount of our liquidity and capital resources as of a given date is also dependent upon, among other things, the relative timing of our investments in solar energy systems and the timing of subsequent draws on our financing funds and utilization of our credit facilities. As a result, the amount of our liquidity and capital resources may significantly fluctuate within a reporting period by amounts that are not reflected by comparing our cash and cash equivalents balances at each balance sheet date. For example, solar energy systems deployed towards the end of a fiscal quarter may not be transferred to a financing fund in sufficient time for the funds to be received and reflected in our cash and cash equivalents balance as of the quarter-end. In addition, downward revisions to our installation projections for a fiscal period are also likely to impact our liquidity and capital resources, for example, in situations where we have already spent funds to purchase components for solar energy systems that are installed in subsequent periods. As our business grows and the megawatts deployed increases, the amounts by which our liquidity and capital resources may fluctuate within a quarter are likely to increase.

While we had a net loss for the three months ended March 31, 2016, we believe that our existing cash and cash equivalents of $361.7 million, in addition to the funds available under our credit facilities and the funds available in our existing financing funds that can be drawn-down through our asset monetization strategy, will be sufficient to meet our cash requirements for at least the next 12 months. We periodically review our liquidity position and may decide to raise additional funds on an opportunistic basis from a variety of additional sources, including through issuances of equity or debt in public or private offerings.

As of March 31, 2016, we were in compliance with all of the covenants contained in our debt agreements. However, if, in the future, we are unable to do so, then we might be considered in default under our debt agreements. In that circumstance, the payments due under our debt agreements could be accelerated, which would negatively impact our liquidity and capital resources. Under the terms of our secured revolving credit facility, we are subject to the following financial covenants:

Interest Coverage Ratio: We are obligated to maintain an interest coverage ratio of 1.5-to-1 as of the end of each fiscal quarter. The interest coverage ratio is measured by dividing (a) an amount equal to the excess of (i) our trailing 12-month consolidated gross profit over (ii) 20% of our trailing 12-month consolidated general and administrative expenses by (b) our unconsolidated trailing 12-month cash interest charges.

Unencumbered Liquidity: We are obligated to maintain unencumbered liquidity at an amount equal to at least 20% of the sum of (a) the committed amount under the secured revolving credit facility plus (b) the aggregate principal outstanding of Solar Bonds that mature prior to the secured revolving credit facility’s maturity date, as of the end of each month. However, unencumbered liquidity can never be less than $50.0 million, as of the end of each month. Unencumbered liquidity is defined as our average daily cash and cash equivalents, excluding certain of our subsidiaries.

Under the terms of certain borrowings by our subsidiaries, certain of our subsidiaries are subject to the following financial covenants:

Interest Coverage Ratio: Certain of our subsidiaries are obligated to maintain an interest coverage ratio of 1.4-to-1 as of the specified dates and periods. The interest coverage ratio is measured by dividing (a) the subsidiary’s revenue less the specified expenses and fees by (b) cash interest charges plus the specified fees.

Debt Service Coverage Ratio: Certain of our subsidiaries are obligated to maintain a debt service coverage ratio of 1.05-to-1 as of the specified dates and periods. The debt service coverage ratio is measured by dividing (a) the specified cash receipts of the subsidiary less the specified cash payments by (b) cash interest charges plus any principal due and payable.

In the three months ended March 31, 2016, we utilized $193.1 million in net cash from operations. This cash outflow primarily resulted from a net loss of $283.1 million, reduced by non-cash items such as depreciation and amortization of $55.8 million, change in fair value of interest rate swaps of $32.0 million, stock-based compensation of $18.6 million, non-cash interest and other expense of $9.6 million mainly related to financing obligations and deferred contingent consideration and the tax benefit of stock option exercises of $2.0 million, and increased by a reduction in financing obligations of $10.8 million. The cash outflow also increased in part due to an increase in restricted cash of $25.5 million, an increase of $23.7 million for MyPower deferred costs, an increase in accounts receivable of $6.7 million, and a decrease in accounts payable of $69.7 million. This cash outflow was offset by a decrease in inventory of $36.8 million, a decrease in prepaid expenses and other current assets of $19.7 million mainly due to collection of state tax credits that had been outstanding in Hawaii, an increase in deferred revenue of $10.6 million relating to upfront lease payments received from customers, solar energy system incentive rebate payments received from various state and local governments and deferred investment tax credits revenue and an increase in accrued and other liabilities of $44.8 million.

In the three months ended March 31, 2015, we utilized $171.3 million in net cash from operations. This cash outflow primarily resulted from a net loss of $146.9 million, reduced by non-cash items such as depreciation and amortization of $36.4 million, stock-based compensation of $18.4 million and non-cash interest and other expense of $3.8 million mainly related to financing obligations and deferred contingent consideration and increased by a reduction in financing obligations of $10.6 million. The cash outflow also increased in part due to an increase in inventories of $10.1 million, an increase of $47.6 million for MyPower deferred costs, an increase in prepaid expenses and other current assets of $7.7 million, an increase in other assets of $10.3 million and a decrease in accounts payable of $23.0 million. This cash outflow was offset by a decrease in restricted cash of $8.0 million, an increase in deferred revenue under our joint venture and lease pass-through structures of $5.3 million relating to upfront lease payments received from customers, solar energy system incentive rebate payments received from various state and local governments and deferred investment tax credits revenue and an increase in accrued and other liabilities of $15.9 million.

Our investing activities consist primarily of purchases of solar energy systems, capital expenditures for our module research and development and our panel manufacturing, and general corporate purchases to support our standard operations.

In the three months ended March 31, 2016, we used $466.1 million in investing activities. Of this amount, we used $440.1 million on the design, acquisition and installation of solar energy systems under operating leases with our customers and the design and installation of solar energy systems under MyPower contracts, and $19.5 million in the purchase of production equipment and renovation of our solar panel manufacturing facility in Fremont, California. We also paid $13.1 million for the acquisition of noncontrolling interests in the joint venture we had in China and $4.6 million for termination of interest rate swaps. These outflows were offset by $11.2 million from sales and maturities of short-term investments.

In the three months ended March 31, 2015, we used $316.8 million in investing activities. Of this amount, we used $295.0 million on the design, acquisition and installation of solar energy systems under operating leases with our customers and the design and installation of solar energy systems under MyPower contracts, and $30.5 million in the acquisition of vehicles, equipment, leasehold improvements and furniture. We also invested $44.6 million in short-term investments in highly rated corporate debt securities and asset-backed securities. These expenditures were offset by $53.3 million from sales and maturities of short-term investments.

In the three months ended March 31, 2016, we generated $638.3 million from financing activities. We received $379.7 million, net of lender fees, from long-term debt and repaid $212.6 million of long-term debt. We received $221.8 million, net of issuance costs and discounts, from the issuance of solar asset-backed notes and repaid $6.8 million of the solar asset-backed notes. We received $93.7 million from the issuance of solar bonds and repaid $91.5 million of the solar bonds. We received $12.7 million from fund investors in our financing funds. We paid $2.6 million for capital lease obligations. We also generated $276.5 million from proceeds from investments by various fund investors in our joint ventures, paid distributions to fund investors of $35.6 million and generated $2.0 million from the tax benefit of stock option exercises.

In the three months ended March 31, 2015, we generated $430.4 million from financing activities. We received $178.1 million, net of lender fees, from long-term debt and repaid $0.8 million of long-term debt. We received $96.2 million from the issuance of solar bonds. We repaid $5.8 million of the solar asset-backed notes. We received $6.4 million from fund investors in our financing funds and paid $4.9 million to fund investors in our financing funds. We also generated $176.3 million from proceeds from investments by various fund investors in our joint ventures and paid distributions to fund investors of $16.9 million.

For a detailed discussion of our indebtedness, refer to Note 5, Indebtedness, to our condensed consolidated financial statements included elsewhere in this quarterly report on Form 10-Q.

We have financing fund commitments from several fund investors that we can draw upon in the future upon the achievement of specific funding criteria. As of March 31, 2016, we had entered into 52 financing funds that had a total of $543.9 million of undrawn committed capital. From our significant customer backlog, we allocate to our financing funds leases, power purchase agreements and the related economic benefits associated with the solar energy systems, in accordance with the criteria of each fund. Upon such allocation and upon our satisfaction of the conditions precedent to drawing upon such commitments, we are able to draw down on the financing fund commitments. Once received, these proceeds provide working capital to deliver solar energy systems to our customers and form part of our general working capital.

We include in our condensed consolidated financial statements all assets, liabilities and results of operations of the financing fund arrangements that we have entered into. We have not entered into any other transactions that have generated relationships with unconsolidated entities, financial partnerships or SPEs. Accordingly, we do not have any off-balance sheet arrangements.

See Note 2, Summary of Significant Accounting Policies and Procedures, to our condensed consolidated financial statements included elsewhere in this quarterly report on Form 10-Q.

We are exposed to certain market risks as part of our ongoing business operations. Our primary exposures include changes in interest rates because certain borrowings bear interest at floating rates plus a specified margin. For fixed-rate debt, interest rate changes do not affect our earnings or cash flows. Conversely, for floating-rate debt, interest rate changes generally impact our earnings and cash flows, assuming other factors are held constant. Pursuant to our risk management policies, in certain cases, we utilize derivative instruments to manage some of our exposures to fluctuations in interest rates on certain floating-rate debt. We do not enter into any derivative instruments for trading or speculative purposes. In addition, we entered into capped call option agreements to reduce the potential dilution to holders of our common stock upon the conversion of our outstanding convertible senior notes.

Changes in economic conditions could result in higher interest rates, thereby increasing our interest expense and reducing our funds available for capital investments, operations or other purposes. In addition, we must use a substantial portion of our cash inflows to service our borrowings, which may affect our ability to make future acquisitions or capital expenditures. A hypothetical 10% change in our interest rates would have increased our interest expense for the three months ended March 31, 2016 and 2015 by $1.1 million and $0.3 million, respectively.

Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.

Based on our evaluation, our chief executive officer and chief financial officer concluded that, as of March 31, 2016, our disclosure controls and procedures were designed at a reasonable assurance level and were effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.

There were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rules 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the three months ended March 31, 2016 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

In June 2014, the Company along with Sunrun, Inc., or Sunrun, filed a lawsuit in the Superior Court of Arizona against the Arizona Department of Revenue, or DOR, challenging DOR’s interpretation of Arizona state law to impose property taxes on solar energy systems that are leased by customers. On June 1, 2015, the Superior Court issued an order rejecting the interpretation of the Arizona state law under which the DOR had sought to tax leased solar energy systems. In that same order, the Superior Court held that a separate Arizona statute, which provides that such systems are deemed to have no value for purposes of calculating property tax, violated certain provisions of the Arizona state constitution. Both the DOR and the Company have appealed the Superior Court’s ruling, and the Company will continue to vigorously pursue its claims.

On March 2, 2015, the Company filed a lawsuit in the United States District Court for the District of Arizona against the Salt River Project Agricultural Improvement and Power District and the Salt River Valley Water Users’ Association, or SRP, alleging that SRP’s imposition of distribution charges and demand charges on new solar energy customers in its territory violates state and federal antitrust laws. On June 23, 2015, SRP moved to dismiss the complaint. On October 27, 2015, the District Court denied SRP’s motion to dismiss in part and granted it in part. In particular, the District Court held that the Company may proceed on its antitrust claims

against SRP to seek an injunction blocking SRP’s new charges and may proceed with claims for damages under state laws other than antitrust laws. Furthermore, the District Court held that the Company may not recover monetary damages on its antitrust theories and dismissed two of its antitrust claims while allowing the others to proceed. Discovery has commenced, and the Company intends to pursue its claims vigorously. The District Court has set the case for trial on November 8, 2016.

In April 2015, Borrego Solar Systems Inc., or Borrego, commenced an arbitration against the Company alleging that the Company wrongfully terminated a construction services agreement. The Company engaged in discovery and participated in an arbitration hearing in February 2016. After the hearing, on April 12, 2016, the arbitrator entered an interim award in favor of Borrego in the amount of $1.6 million plus interest, attorney’s fees and costs estimated at approximately $0.5 million. The Company has accrued for the interim award and is reviewing its options to challenge the interim award.

On September 18, 2015, a stockholder derivative action was filed in the Court of Chancery of the State of Delaware, purportedly on behalf of the Company and against the board of directors, alleging that the board of directors breached its duties to the Company by approving stock-based compensation to the non-employee directors that the plaintiff claims is excessive compared to the compensation paid to directors of peer companies. The Company is reviewing the claim and is unable to estimate the possible loss, if any, associated with this lawsuit.

On September 21, 2015, the Company filed a lawsuit in the United States District Court for the District of Massachusetts against Seaboard Solar Operations LLC, or Seaboard, and its principal, Stuart Longman, alleging breaches of the various written contracts between the Company and Seaboard, fraud, conversion and unfair business practices. The Company sought a declaratory judgment that it owns and has the right to develop the specified projects and of damages of approximately $16.0 million. In December 2015, the Company settled the lawsuit in exchange for $16.1 million to be paid by Seaboard over the course of 2016; upon making those payments Seaboard will have the rights to the projects.

From time to time, claims have been asserted, and may in the future be asserted, including claims from regulatory authorities related to labor practices and other matters. Such assertions arise in the normal course of our operations. The resolution of any such assertions or claims cannot be predicted with certainty. If an unfavorable ruling were to occur, there exists the possibility of a material adverse impact on our results of operations, prospects, cash flows, financial position and brand.

You should carefully consider the risks described below, together with the other information contained in this quarterly report on Form 10-Q, including our condensed consolidated financial statements and related notes, before investing in our common stock. The risks described below are not the only risks facing our company. Any of the following risks and additional risks and uncertainties not currently known to us or those we currently view to be immaterial may also materially and adversely affect our business, financial condition, results or operations. In such case, you may lose all or part of your original investment.

Existing electric utility industry regulations, and changes to regulations, may present technical, regulatory and economic barriers to the purchase and use of solar energy systems that may significantly reduce demand for our solar energy systems or adversely impact the economics of existing energy contracts.

Federal, state and local government regulations and policies concerning the electric utility industry, utility rate structures, interconnection procedures, internal policies and regulations promulgated by electric utilities, heavily influence the market for electricity generation products and services. These regulations and policies often relate to electricity pricing and the interconnection of customer-owned electricity generation. In the United States, governments and utilities continuously modify these regulations and policies. These regulations and policies could deter potential customers from purchasing renewable energy, including solar energy systems. This could result in a significant reduction in demand for our solar energy systems. For example, utilities commonly charge fees to large, industrial customers for disconnecting from the electric grid or for having the capacity to use power from the electric grid for back-up purposes. These fees could increase our customers’ cost to use our systems and make our product offerings less desirable, thereby harming our business, prospects, financial condition and results of operations. In addition, depending on the region,

electricity generated by solar energy systems competes most effectively with higher priced peak-hour electricity from the electric grid, rather than the lower average price of electricity. Modifications to the utilities’ peak-hour pricing policies or other electricity rate designs, such as a lower volumetric rate, would require us to lower the price of our solar energy systems to compete with the price of electricity from the electric grid.

Future changes to government or internal utility regulations and policies that favor electric utilities could also reduce our competitiveness, cause a significant reduction in demand for our products and services, and threaten the economics of our existing energy contracts. For example, in October 2015, the Hawaii Public Utilities Commission capped the state’s net metering program at existing levels and net energy metering no longer is available to new customers. In late-December 2015, the Nevada Public Utilities Commission effectively ended the state’s net metering program and net metering no longer is available to new customers. In addition, Nevada’s new rules include significant additional monthly charges on customers who interconnect their solar energy systems, significant reduction in the amount of bill credit for energy generated by their solar energy system that is exported to the grid in excess of electric load used by customers, and application of the new rules to existing customers with solar energy systems. These new rules and their application to existing customers have been challenged in Nevada state court and we are pursuing available remedies under state law. As a result of these new rules we ceased our sales and installation operations in Nevada. If these new rules are not overruled legislatively or otherwise, and challenges to these new rules are unsuccessful, demand for solar energy systems and services in Nevada will continue to be significantly impaired, and we could see an increase in the default rate of existing energy contracts or we may find it necessary to renegotiate our pricing of affected customers.

In other jurisdictions, it has been proposed that additional fees and other charges be assessed on customers purchasing energy from solar energy systems. In particular, the Salt River Project, or SRP, in Arizona has imposed anticompetitive penalties on new solar customers in an attempt to exclude rooftop solar, and in response in March 2015 we filed a lawsuit in federal court in Arizona, asking the court to stop SRP’s anti-competitive behavior. In the event that effective net metering programs are limited in California and other key markets or any such fees or charges are imposed, our ability to attract new customers and compete with the price of electricity generated by local utilities in these jurisdictions may be severely limited, and such unaccounted for increases in the fees or charges applicable to existing customer agreements may increase the cost of energy to those customers and result in an increased rate of defaults under our customer agreements. Any of these results could reduce demand for our solar energy systems, harm our business, prospects, financial condition and results of operations.

We rely on net metering and related policies to offer competitive pricing to our customers in some of our key markets.

Forty-one states, Washington, D.C. and Puerto Rico have a regulatory policy known as net energy metering, or net metering, available to new customers. Each of the states where we currently serve customers has adopted a net metering policy except for Texas, where certain individual utilities have adopted net metering or a policy similar to net metering. Net metering typically allows our customers to interconnect their on-site solar energy systems to the utility grid and offset their utility electricity purchases by receiving a bill credit at the utility’s retail rate for energy generated by their solar energy system that is exported to the grid in excess of the electric load used by the customers. At the end of the billing period, the customer simply pays for the net energy used or receives a credit at the retail rate if more energy is produced than consumed. Utilities operating in states without a net metering policy may receive solar electricity that is exported to the grid when there is no simultaneous energy demand by the customer without providing retail compensation to the customer for this generation.

Our ability to sell solar energy systems and the electricity they generate may be adversely impacted by the failure to expand existing limits on the amount of net metering in states that have implemented it, the failure to adopt a net metering policy where it currently is not in place, the imposition of new charges that only or disproportionately impact customers that utilize net metering or reductions in the amount or value of credit that customers receive through net metering. Our ability to sell solar energy systems and the electricity they generate may also be adversely impacted by the unavailability of expedited or simplified interconnection for grid-tied solar energy systems or any limitation on the number of customer interconnections or amount of solar energy that utilities are required to allow in their service territory or some part of the grid. For example, in October 2015, the Hawaii Public Utilities Commission capped the state’s net metering program at existing levels, and in late-December 2015, the Nevada Public Utilities Commission effectively ended the state’s net metering program and net metering is no longer available to new customers. In addition, utilities in some states, such as SRP in Arizona, imposed additional monthly charges on customers who interconnect solar energy systems installed on their homes. If such charges are imposed, the cost savings associated with switching to solar energy may be significantly reduced and our ability to attract future customers and compete with traditional utility providers could be impacted. If such charges are imposed on existing customers in a way that adversely impacts the economics of existing energy contracts, as in Nevada, we could further see an increase in the default rate of existing energy contracts or we may find it necessary to renegotiate our pricing of affected customers.

Limits on net metering, interconnection of solar energy systems and other operational policies in key markets could limit the number of solar energy systems installed in those markets. For example, California investor-owned utilities are currently required to provide net metering to their customers until the total generating capacity of net metered systems exceeds 5% of the utilities’ “aggregate customer peak demand.” In January 2016, the California Public Utilities Commission, or the CPUC, issued a decision establishing a new net metering program requiring that new customers utilize a time-of-use tariff with no participation cap after the current 5% cap on the existing program is reached. The decision has been challenged by the utilities in filings with the CPUC. New York is considering a net metering successor program through the Reforming the Energy Vision docket at the state Public Service Commission. If the caps on net metering in New York and other key markets are reached or if the amount or value of credit that customers receive for net metering is significantly reduced or eliminated, future customers will be unable to recognize the current cost savings associated with net metering and existing customers may not recognize the economic benefits that were available at the time their energy contracts were entered into. We rely substantially on net metering when we establish competitive pricing for our prospective customers and the absence of net metering for new customers could greatly limit demand for our solar energy systems and increase the default rate of existing energy contracts.

Regulatory limitations associated with technical considerations may significantly limit our ability to sell electricity from our solar energy systems in certain markets.

Regulatory limits associated with technical considerations may curb our growth in certain key markets. For example, the Federal Energy Regulatory Commission has promulgated small generator interconnection procedures that recommend limiting customer-sited intermittent generation resources, such as our solar energy systems, to a certain percentage of peak load on a given electrical feeder circuit. Similar limits have been adopted by various states and could constrain our ability to market to customers in certain geographic areas where the concentration of solar installations exceeds the limit. For example, Hawaiian electric utilities have adopted certain policies that limit distributed electricity generation in certain geographic areas. While these limits have constrained our growth in certain parts of Hawaii, policy developments in Hawaii generally have allowed distributed electricity generation penetration despite the electric utility-imposed limitations. Furthermore, in certain areas, we benefit from policies that allow for expedited or simplified procedures related to connecting solar energy systems to the power grid. If such procedures are changed or cease to be available, our ability to sell the electricity generated by solar energy systems we install may be adversely impacted. As adoption of solar distributed generation increases, along with the operation of large-scale solar generation in key markets such as California, the amount of solar energy being fed into the power grid will surpass the amount planned for relative to the amount of aggregate demand. Some utilities claim that within several years, solar generation resources may reach a level capable of causing an over-generation situation that could require some solar generation resources to be curtailed to maintain operation of the grid. The adverse effects of such curtailment without compensation could adversely impact our business, results of operations and future growth.

Our business currently depends on the availability of rebates, tax credits and other financial incentives. The expiration, elimination or reduction of these rebates, credits and incentives would adversely impact our business.

U.S. federal, state and local government bodies provide incentives to end users, distributors, system integrators and manufacturers of solar energy systems to promote solar electricity in the form of rebates, tax credits and other financial incentives such as system performance payments, payments for renewable energy credits associated with renewable energy generation and the exclusion of solar energy systems from property tax assessments. We rely on these governmental rebates, tax credits and other financial incentives to lower our cost of capital and to encourage fund investors to invest in our funds. These incentives enable us to lower the price we charge customers for energy and for our solar energy systems. However, these incentives may expire on a particular date, end when the allocated funding is exhausted or be reduced or terminated as solar energy adoption rates increase. These reductions or terminations often occur without warning.

The federal government currently offers a 30% investment tax credit under Section 48(a)(3) and Section 25D of the IRC, or the Federal ITC, for the installation of certain solar power facilities. Additionally, under Section 48, energy storage systems that are installed at the time of the solar power facility and, as required by IRS guidelines, store the energy of the solar power facility, are also eligible for the Federal ITC.

The credit under Section 48(a)(3) has been modified to remain at 30% of qualified expenditures for a commercial solar energy system that commences construction by December 31, 2019, then decline to 26% for systems that commence construction by December 31, 2020 and to 22% for systems that commence construction by December 31, 2021. The credit is scheduled to decline to a permanent 10% effective January 1, 2022. Historically, we have utilized the Section 48 commercial credit when available for both our residential and commercial leases and power purchase agreements, based on ownership of the solar energy system.

The credit under Section 25D has been modified to remain 30% of qualified expenditures for a residential solar energy system owned by the homeowner that is placed in service by December 31 2019, then decline to 26% for systems placed in service by December 21, 2020, and to 22% for systems placed in service by December 31, 2021. The credit is scheduled to expire effective January 1, 2022. Loan product customers can currently claim the Section 25D investment tax credit. Customers who purchase their solar energy systems for cash are also eligible to claim the Section 25D investment tax credit.

Department of Treasury regulations detailing how the commence construction requirements can be satisfied are expected during 2016.

Reductions in, eliminations of, or expirations of, governmental incentives could adversely impact our results of operations and ability to compete in our industry by increasing our cost of capital, causing us to increase the prices of our energy and solar energy systems and reducing the size of our addressable market. In addition, this would adversely impact our ability to attract investment partners and to form new financing funds and our ability to offer attractive financing to prospective customers.

Our business depends in part on the regulatory treatment of third-party owned solar energy systems.

Our leases and power purchase agreements are third-party ownership arrangements. Sales of electricity by third parties face regulatory challenges in some states and jurisdictions. Other challenges pertain to whether third-party owned systems qualify for the same levels of rebates or other non-tax incentives available for customer-owned solar energy systems, whether third-party owned systems are eligible at all for these incentives and whether third-party owned systems are eligible for net metering and the associated significant cost savings. In some states and utility territories, third parties that own solar energy systems are limited in the way that they may deliver solar energy to their customers. In jurisdictions such as Arizona, Florida, Georgia, Iowa, Kentucky, North Carolina, Oklahoma and the Los Angeles Department of Water and Power service territory, laws have been interpreted to prohibit the sale of electricity pursuant to our standard power purchase agreement. This has led us and other solar energy system providers that utilize third-party ownership arrangements to offer leases rather than power purchase agreements in such jurisdictions. Imposition of such limitations in additional jurisdictions or reductions in, or eliminations of, incentives for third-party owned systems could reduce demand for our systems, adversely impact our access to capital and cause us to increase the price we charge our customers for energy.

We need to enter into additional substantial financing arrangements to facilitate our customers’ access to our solar energy systems, and if this financing is not available to us on acceptable terms, if and when needed, our ability to grow our business would be materially adversely impacted.

Our future success depends on our ability to raise capital from third-party fund investors to help finance the deployment of our residential and commercial solar energy systems. In particular, our strategy is to reduce the cost of capital through these arrangements to improve our margins, offset future reductions in government incentives and maintain the price competitiveness of our solar energy systems. If we are unable to establish new financing funds when needed, or on desirable terms, to enable our customers’ access to our solar energy systems with little or no upfront cost, we may be unable to finance installation of our customers’ systems, or our cost of capital could increase, either of which would have a material adverse effect on our business, financial condition and results of operations. If we are unable to establish new financing funds when needed or at all, or on desirable terms, to enable our customers’ access to our solar energy systems with little or no upfront cost, we may encounter difficulty financing installation of our customers’ systems, or our cost of capital could increase, either of which would have a material adverse effect on our business, financial condition and results of operations. To date, we have raised capital sufficient to finance installation of our customers’ solar energy systems from a number of financial institutions and other large companies. Our ability to draw on financing commitments is subject to the conditions of the agreements underlying our financing funds. If we do not satisfy such conditions due to events related to our business or a specific financing fund, developments in our industry (including related to the Department of Treasury Inspector General investigation) or otherwise, and as a result we are unable to draw on existing commitments, it could have a material adverse effect on our business, liquidity, financial condition and prospects. If any of the financial institutions or large companies that currently invest in our financing funds decide not to invest in future financing funds to finance our solar energy systems due to general market conditions, concerns about our business or prospects, the pendency of the Department of Treasury Inspector General investigation or any other reason, or materially change the terms under which they are willing to provide future financing, we will need to identify new financial institutions and companies to invest in our financing funds and negotiate new financing terms.

In the past, challenges raising new funds have caused us to delay deployment of a substantial number of solar energy systems for which we had already signed leases or power purchase agreements with customers. For example, in late 2008 and early 2009, as a result of the state of the capital markets, our ability to finance the installation of solar energy systems was limited and resulted in a significant backlog of signed sales orders for solar energy systems. Our future ability to obtain additional financing depends on the continued confidence of banks and other financing sources in our business model and the solar energy industry as a whole. It could also be impacted by the liquidity needs of such financing sources. In addition, attracting future financing could be more difficult or

costly to secure if the quality of our customer contracts, as perceived by our fund investors, were to decrease as a result of an increase in customer default rates, lower credit rating requirements for new customers or other factors. Solar energy has yet to achieve broad market acceptance and depends on continued support in the form of performance-based incentives, rebates, tax credits and other incentives from federal, state, local and foreign governments. If this support diminishes, our ability to obtain external financing, on acceptable terms or otherwise could be materially adversely affected. In addition, we face competition for these third-party investor funds. If we are unable to continue to offer a competitive investment profile, we may lose access to these funds or they may only be available on less favorable terms than are available to our competitors. Our current financing sources may be inadequate to support the anticipated growth in our business plans. Moreover, we will require additional capital in the near term, and we continue to look for opportunities to optimize our capital structure. We plan to pursue sources of such capital through various financing transactions and arrangements. Our inability to secure financing could lead to cancellations and could impair our ability to accept new projects and customers. In addition, our borrowing costs could increase, which would have a material adverse effect on our business, financial condition and results of operations.

Servicing our debt requires a significant amount of cash and we may not have sufficient cash flow from our business to pay our substantial debt; other actions we are forced to take to satisfy our obligations under our indebtedness may not be successful.

Our total consolidated indebtedness was $3,163.8 million as of March 31, 2016. Our ability to make scheduled payments of the principal of, to pay interest on or to refinance our indebtedness depends on our future performance, which is subject to economic, financial, competitive and other factors beyond our control. Our business may not continue to generate cash flow from operations in the future sufficient to service our debt and make necessary capital expenditures. If we are unable to generate such cash flow, we may be required to adopt one or more alternatives, such as selling assets, restructuring debt or obtaining additional equity capital on terms that may be onerous or highly dilutive. In addition, our 2.75% Convertible Senior Notes due 2018 issued in November 2013 (the “2018 Notes”), our 1.625% Convertible Senior Notes due 2019 issued in September and October 2014 (the “2019 Notes”) and our Zero Coupon Convertible Senior Notes due 2020 issued in December 2015 (the “2020 Notes” and together with the 2018 Notes and the 2019, the “Notes”), are convertible into shares of common stock, and we may engage in similar issuances of convertible securities in the future to fund our operating and expansion plans. Our ability to issue additional securities and to refinance our existing indebtedness will depend on the capital markets and our financial condition at such time. We may not be able to engage in any of these activities or engage in these activities on desirable terms, which could result in a default on our debt obligations.

We expect to incur substantially more debt or take other actions which would intensify the risks discussed above.

We and our subsidiaries expect to incur substantial additional debt in the future, subject to the restrictions contained in our debt instruments, some of which may be secured debt. Incurring such additional debt could have the effect of diminishing our ability to make payments on existing indebtedness, including the Notes, when due and otherwise limiting our ability to respond to periods of increased liquidity pressure. Although our existing credit facilities restrict our ability to incur additional indebtedness, including secured indebtedness, but we may be able to obtain amendments and waivers of such restrictions or may not be subject to such restrictions under the terms of any subsequent indebtedness.

We may have trouble refinancing our credit facilities or obtaining new financing for our working capital, equipment financing and other needs in the future or complying with the terms of existing credit facilities. If credit facilities are not available to us on acceptable terms, if and when needed, or if we are unable to comply with their terms, our ability to continue to grow our business would be adversely impacted.

As of March 31, 2016, we had the ability to draw up to an additional $236.3 million under all of our credit facilities. Our secured revolving credit facility, our primary working capital facility, currently has a maximum size of $500 million (with $398.5 million currently committed from several lenders and an additional $101.5 million subject to further conditions) that matures in December 2017. The working capital facility requires us to comply with certain financial, reporting and other requirements. The timing of our commercial projects has on occasion adversely affected our ability to satisfy certain financial covenants under these or prior facilities. While our lenders have given us waivers of certain covenants we have not satisfied in the past, there is no assurance that the lenders will waive or forbear from exercising their remedies with respect to any future defaults that might occur. In addition, we have amended our secured revolving credit facility to engage in transactions such as the issuance of the 2020 Notes and issue Solar Bonds debt securities. While we believe that some of the financial and other covenants are generally more favorable to us following these changes, a breach of our covenants may still occur in the future.

Further, there is no assurance that we will be able to enter into new credit facilities on acceptable terms. If we are unable to satisfy financial covenants and other terms under existing or new facilities or obtain associated waivers or forbearance from our lenders or if we are unable to obtain refinancing or new financings for our working capital, equipment and other needs on acceptable terms if and when needed, our business would be adversely affected.

We may not have the ability to raise the funds necessary to repurchase the Notes, including upon a fundamental change, and one of our current credit facilities prohibits us from repurchasing the issued Notes upon a fundamental change.

Holders of the Notes will have the right to require us to repurchase their Notes upon the occurrence of a fundamental change at a repurchase price equal to 100% of the principal amount of the Notes to be repurchased, plus accrued and unpaid interest, if any. However, at such time that we may be required to repurchase the Notes, we may not have sufficient available cash or be able to obtain sufficient financing to allow for repurchase. In addition, one of our existing credit facilities prohibits us from repurchasing the Notes upon a fundamental change. We may enter into agreements in the future that similarly restrict our ability to repurchase the Notes and other securities. Our failure to repurchase the Notes when required would constitute a default which could also result in defaults under other agreements governing our existing or future indebtedness. If the repayment of the related indebtedness were to be accelerated after any applicable notice or grace periods, we may not have sufficient funds to repay the indebtedness and repurchase the Notes or make cash payments upon conversions thereof. Our ability to repurchase the Notes may also be limited by law or by regulatory authority.

We have incurred losses and may be unable to achieve or sustain profitability in the future.

We have incurred net losses in the past, and we had an accumulated deficit of $341.7 million as of March 31, 2016. We may incur net losses from operations as we increase our spending to finance the expansion of our operations, expand our installation, engineering, administrative, sales and marketing staffs, and implement internal systems and infrastructure to support our growth. We do not know whether our revenue will grow rapidly enough to absorb these costs, and our limited operating history makes it difficult to assess the extent of these expenses or their impact on our operating results. Our ability to achieve profitability depends on a number of factors, including:

Even if we do achieve profitability, we may be unable to sustain or increase our profitability in the future.

The Office of the Inspector General of the U.S. Department of Treasury has issued subpoenas to a number of significant participants in the solar energy installation industry, including us. The subpoena we received requires us to deliver certain documents in our possession relating to our participation in the U.S. Treasury grant program. These documents are being delivered to the Office of the Inspector General of the U.S. Department of Treasury, which is investigating the administration and implementation of the U.S. Treasury grant program.

In July 2012, we and other companies that are significant participants in both the solar industry and the cash grant program under Section 1603 of the American Recovery and Reinvestment Act of 2009 received subpoenas from the U.S. Department of Treasury’s Office of the Inspector General to deliver certain documents in our respective possession. In particular, our subpoena requested, among other things, documents dated, created, revised or referred to since January 1, 2007 that relate to our applications for U.S. Treasury grants or communications with certain other solar companies or certain firms that appraise solar energy property for U.S. Treasury grant application purposes. The Inspector General is working with the Civil Division of the U.S. Department of Justice to investigate the administration and implementation of the U.S. Treasury grant program, including possible misrepresentations concerning the fair market value of the solar power systems submitted for grant under that program made in grant applications by solar companies, including us. We intend to cooperate fully with the Inspector General and the Department of Justice and continue to produce documents and testimony as requested by the Inspector General. We are unable to anticipate when the Inspector General will conclude its review. If, at the conclusion of the investigation, the Inspector General concludes that misrepresentations were made, the Department of Justice could bring a civil action to recover amounts it believes were improperly paid to us. If the Department of Justice were successful in asserting such an action, we could then be required to pay damages and penalties for any funds received based on such misrepresentations (which, in turn, could require us to make indemnity payments to certain of our fund investors). Such consequences could have a material adverse effect on our business, liquidity, financial condition and prospects. Additionally, the period of time necessary to resolve the investigation is uncertain and this matter could require significant management and financial resources that could otherwise be devoted to the operation of our business.

If the Internal Revenue Service or the U.S. Treasury Department makes additional determinations that the fair market value of our solar energy systems is materially lower than what we have claimed, we may have to pay significant amounts to our financing funds or to our fund investors and such determinations could have a material adverse effect on our business, financial condition and prospects.

We and our fund investors claim the Federal ITC or the U.S. Treasury grant in amounts based on the fair market value of our solar energy systems. We have obtained independent appraisals to support the fair market values we report for claiming Federal ITCs and U.S. Treasury grants. The Internal Revenue Service and the U.S. Treasury Department review these fair market values. With respect to U.S. Treasury grants, the U.S. Treasury Department reviews the reported fair market value in determining the amount initially awarded. The Internal Revenue Service and the U.S. Treasury Department may subsequently audit the fair market value and determine that amounts previously awarded must be repaid to the U.S. Treasury Department or that excess awards constitute taxable income for U.S. federal income tax purposes. A small number of our financing funds are undergoing such audits. With respect to Federal ITCs, the Internal Revenue Service may review the fair market value on audit and determine that the tax credits previously claimed must be reduced. If the fair market value is determined to be less than we reported, we may owe our financing fund or fund investors an amount equal to this difference, plus any costs and expenses associated with a challenge to that valuation. We could also be subject to tax liabilities, including interest and penalties.

The U.S. Treasury Department has previously determined to award U.S. Treasury grants for some of our solar energy systems at a materially lower value than we had established in our appraisals. As a result, we have been required to pay our fund investors a true-up payment or contribute additional assets to the associated financing funds. It is possible that the U.S. Treasury Department will make similar determinations in the future. In response to such shortfalls, two of our financing funds filed a lawsuit in the United States Court of Federal Claims to recover the difference between the U.S. Treasury grants they sought and the amounts the U.S. Treasury paid; to the extent that these lawsuits are successful, any recovery would be used to repay us for amounts we previously reimbursed those funds. Our fund investors have contributed to our financing funds at the amounts the U.S. Treasury Department most recently awarded on similarly situated energy systems in order to reduce or eliminate the need for us to subsequently pay those fund investors true-up payments or contribute additional assets to the associated financing funds.

The Internal Revenue Service or the U.S. Treasury Department may object to the fair market value of solar energy systems that we have constructed, or will construct, including any systems for which grants have already been paid, as a result of:

If the Internal Revenue Service or the U.S. Treasury Department were to object to amounts we have claimed as too high of a fair market value on such systems, it could have a material adverse effect on our business, financial condition and prospects. For example, a hypothetical 5% downward adjustment in the fair market value of the $501.2 million of U.S. Department of Treasury grant applications that have been awarded from the beginning of the U.S. Treasury grant program through March 31, 2016 would obligate us to repay up to $25.1 million to our fund investors.

We have historically benefited from the declining cost of solar panels, and our business and financial results may be harmed as a result of increases in the cost of solar panels or tariffs on imported solar panels imposed by the U.S. government.

The declining cost of solar panels and the raw materials necessary to manufacture them has been a key driver in the pricing of our solar energy systems and customer adoption of this form of renewable energy. With an increase of solar panel and raw materials prices, our growth could slow, and our financial results could suffer. Further, the cost of solar panels and raw materials could potentially increase in the future due to a variety of factors which we cannot control, including the imposition of duties, subsidies and/or safeguards or other trade-related costs or penalties or shortages of essential components.

The U.S. government imposes antidumping and countervailing duties on solar cells manufactured in China and/or Taiwan. Based on determinations by the U.S. government, the antidumping and countervailing duty rates range from approximately 33%-255%. Such antidumping and countervailing duties are subject to annual review and may be increased or decreased.

In addition, the U.S. government imposed additional tariffs on solar modules manufactured in China (with solar cells manufactured in other countries) and solar cells manufactured in Taiwan. In early January 2015, the U.S. government announced its affirmative final determinations in both the countervailing duty and antidumping cases against China and in the antidumping case against Taiwan.

Since these tariffs are reflected in the purchase price of the solar panels and cells, these tariffs are a cost associated with purchasing these solar products. In the past, we purchased a significant number of the solar panels used in our solar energy systems from manufacturers that were based in China. We continue to be affected by these tariffs/duties and any changes to them as many of the solar panels we currently purchase contain components, including solar cells, from China and Taiwan.

If additional tariffs are imposed or other negotiated outcomes occur, our ability to purchase these products on competitive terms or to access specialized technologies from countries like China and Taiwan could be limited. Further, foreign suppliers in other countries could also be the subject of these or future trade cases. Any of these events could harm our financial results by requiring us to account for the cost of trade penalties or to purchase and integrate solar panels or other system components from alternative and potentially higher-priced sources.

In September 2014, we acquired Silevo, a solar panel technology and manufacturing company with manufacturing operations in China. In May 2015, we were contacted by the U.S. Customs and Border Protection (CBP) to provide information regarding our importation of solar panels from China. Based upon the information we provided, CBP agreed that our solar panels were not subject to the scope of antidumping and countervailing duty Orders on Crystalline Silicon Photovoltaic Cells/Modules from China (Orders); however, CBP instructed us to obtain a determination from the Department of Commerce (DOC). We are presently before the DOC seeking a determination on whether our solar panels are subject to the scope of the Orders. However, until we receive a determination from the DOC, we have ceased importing Silevo solar panels manufactured in China. In March 2016, the U.S. Department of Commerce released a preliminary scope ruling finding that Silevo’s solar panels, manufactured in China, are within the scope of the antidumping and countervailing Orders. Per the administrative process, we are challenging this preliminary determination and continue to believe that the Silevo solar panels are exempt from these Orders and tariffs. In the event that the DOC’s determination in the preliminary scope ruling is accepted as a final determination, we anticipate that we will challenge that final determination in the Court of International Trade (CIT). However, until this issue is resolved, we would not be able to import Silevo solar panels produced in China for our U.S. operations without depositing the antidumping and countervailing duties.

Our ability to provide solar energy systems to new customers on an economically viable basis depends on our ability to finance these systems with fund investors who require particular tax and other benefits.

Our solar energy systems have been eligible for Federal ITCs or U.S. Treasury grants, as well as depreciation benefits. We have relied on, and will continue to rely on, financing structures that monetize a substantial portion of those benefits and provide financing for our solar energy systems. With the lapse of the U.S. Treasury grant program, our reliance on these tax-advantaged financing structures has substantially increased. If, for any reason, we were unable to continue to monetize those benefits through these arrangements, we may be unable to provide and maintain solar energy systems for new customers on an economically viable basis.

The availability of this tax-advantaged financing depends upon many factors, including:

Under current law, the Federal ITC will be reduced from 30% of the cost of solar energy systems to 26% of the cost of solar energy systems for systems that commence construction by December 31, 2020, and then reduced again to 22% of the cost of solar energy systems for systems that commence construction by December 31, 2021, until the Section 25D investment tax credit expires and the Section 48(a)(3) investment tax credit declines to a permanent 10% effective January 1, 2022.

In addition, U.S. Treasury grants are no longer available for new solar energy systems. Moreover, potential fund investors must remain satisfied that the structures we offer make the tax benefits associated with solar energy systems available to these investors, which depends both on the investors’ assessment of the tax law and the absence of any unfavorable interpretations of that law. Changes in existing law and interpretations by the Internal Revenue Service and the courts could reduce the willingness of fund investors to invest in funds associated with these solar energy system investments. In addition, changes by state energy regulators impairing the economics of existing energy contracts causing an increased risk of default may also reduce the willingness of fund investors to invest. We cannot assure you that this type of financing will be available to us. If, for any reason, we are unable to finance solar energy systems through tax-advantaged structures or if we are unable to realize or monetize depreciation benefits, we may no longer be able to provide solar energy systems to new customers on an economically viable basis. This would have a material adverse effect on our business, financial condition and results of operations.

A material drop in the retail price of utility-generated electricity or electricity from other sources would harm our business, financial condition and results of operations.

We believe that a customer’s decision to buy renewable energy from us is primarily driven by their desire to pay less for electricity. The customer’s decision may also be affected by the cost of other renewable energy sources. Decreases in the retail prices of electricity from the utilities or other renewable energy sources would harm our ability to offer competitive pricing and could harm our business. The price of electricity from utilities could decrease as a result of:

A reduction in utility electricity prices would make the purchase of our solar energy systems or the purchase of energy under our lease and power purchase agreements less economically attractive. In addition, a shift in the timing of peak rates for utility-generated electricity to a time of day when solar energy generation is less efficient could make our solar energy system offerings less competitive and reduce demand for our products and services. If the retail price of energy available from utilities were to decrease for any reason, we would be at a competitive disadvantage. As a result of these or similar events impacting the economics of our customer agreements, we may be unable to attract new customers and we may experience an increased rate of defaults under our existing customer agreements.

A material drop in the retail price of utility-generated electricity would particularly adversely impact our ability to attract commercial customers.

Commercial customers comprise a significant and growing portion of our business, and the commercial market for energy is particularly sensitive to price changes. Typically, commercial customers pay less for energy from utilities than residential customers. Because the price we are able to charge commercial customers is only slightly lower than their current retail rate, any decline in the retail rate of energy for commercial entities could have a significant impact on our ability to attract commercial customers. We may be unable to offer solar energy systems in commercial markets that produce electricity at rates that are competitive with the unsubsidized price of retail electricity. If this were to occur, our business would be harmed because we would be at a competitive disadvantage compared to other energy providers and may be unable to attract new commercial customers.

The terms of our agreement with the Research Foundation for the State University of New York, as amended, pertaining to the construction of the Buffalo Riverbend Manufacturing Facility, among other things, require us to comply with a number of covenants during the term of the agreement. Any failure to comply with these covenants could obligate us to pay significant amounts to the Foundation and result in termination of the agreement.

In September 2014, Silevo entered into an amended and restated research and development alliance agreement, as amended from time to time, referred to as the Riverbend Agreement, with the Research Foundation for the State University of New York, referred to as the Foundation, for the construction of an approximately 1 million square foot manufacturing facility capable of producing 1-gigawatt of solar panels annually on an approximately 88.24 acre site located in Buffalo, New York, referred to as the Manufacturing Facility.

Under the terms of the Riverbend Agreement, the Foundation will construct the Manufacturing Facility and install certain utilities and other improvements, with participation by us as to the design and construction of the Manufacturing Facility, and acquire certain manufacturing equipment designated by us to be used in the Manufacturing Facility and other specified items. The Foundation will cover construction costs related to the Manufacturing Facility and certain manufacturing equipment, in each case up to a maximum funding allocation from the State of New York, as well as additional specified items, and we will be responsible for any construction and equipment costs in excess of such amounts. The Foundation will own the Manufacturing Facility and manufacturing equipment it acquires for the project. We are also responsible for the acquisition of certain manufacturing equipment, which equipment we will own. Following completion of the Manufacturing Facility, we will lease the Manufacturing Facility from the Foundation for an initial period of 10 years for $2 per year plus utilities, and the Foundation will grant us the right to use the manufacturing equipment owned by it during the initial lease term at no charge.

In addition to the other obligations under the Riverbend Agreement, we must (i) use our best commercially reasonable efforts to commission the manufacturing equipment within three months of Manufacturing Facility completion and reach full production output within three months thereafter, (ii) employ personnel for at least 1,460 jobs in Buffalo, New York, with 500 of such jobs for the manufacturing operation at the Manufacturing Facility, for the initial two years of collaboration commencing after Manufacturing Facility completion, and we have committed to the retention of these jobs for five years, (iii) employ at least 2,000 other personnel in the State of New York for five years after Manufacturing Facility completion, (iv) employ a total of 5,000 people in the State of New York by the tenth anniversary of Manufacturing Facility completion, (v) spend or incur approximately $5 billion in combined capital, operational expenses and other costs in the State of New York during the 10 year period following full production, (vi) make reasonable efforts to provide first consideration to New York-based suppliers, (vii) invest and spend in manufacturing operations at a level that ensures competitive product costs for at least five years from full production, and (viii) negotiate in good faith with the Foundation on an exclusive “first opportunity basis” for 120 days before entering into any agreement for additional solar panel manufacturing capacity that Silevo may wish to develop during the term of the agreement. If we are not able to hire the specified number of employees or identify and qualify local vendors and suppliers, we would face the risk of not only failing to meet the performance criteria under the Riverbend Agreement but also not being capable of running the operations related to the Manufacturing Facility. If we fail in any year over the course of the ten-year term to meet these specified investment and job creation obligations, as described above, we would be obligated to pay a “program payment” of $41.2 million to the Foundation in any such year. In addition, we are subject to other events of defaults, including breach of these program payments and certain insolvency events, that would lead to the acceleration of all of the then unpaid program payments by us to the Foundation. Our failure to meet our contractual obligations under the Riverbend Agreement may result in our obligation to pay significant amounts to the Foundation in scheduled program payments, other contractual damages and/or the termination of our lease of the Manufacturing Facility. Any inability on our part to raise the capital necessary to operate the Manufacturing Facility and meet the specified requirements of the Riverbend Agreement during the 10-year period following full production would also cause a material adverse effect upon our business operations and prospects.

Our expectations as to the cost of building the Manufacturing Facility, acquiring manufacturing equipment and supporting our manufacturing operations may prove incorrect, which could subject us to significant expenses to achieve the desired benefits under the Riverbend Agreement. In the event of any cost overruns in construction, commissioning, acquiring manufacturing equipment or operating the Manufacturing Facility, we may incur additional capital and operating expenses that would have a material adverse effect upon our business operations and prospects.

Our projections as to the time and expense necessary to build the Manufacturing Facility and acquire the manufacturing equipment may prove incorrect and subject us to significant delay and additional expense.

We currently anticipate that construction of the Manufacturing Facility will be completed in the third quarter of 2016, and that we will be able to commence installation and commissioning of the manufacturing equipment in the second quarter of 2016. To date, we have experienced delays in purchasing some of the manufacturing equipment, due in part to longer lead times than we originally expected. While we currently believe that all manufacturing equipment will be delivered by the second quarter of 2017, we may experience additional unforeseen delays. Based on our current forecast, we estimate that we will commence manufacturing solar modules at the Manufacturing Facility in the third quarter of 2017. However, this is an aggressive schedule and we may experience additional delays.

There are a number of risks which may delay the completion of the Manufacturing Facility and commencement of operations, including:

Any delay in the completion of the Manufacturing Facility and commencement of our operations will result in us incurring additional expenses and could negatively affect our operating results, financial condition and prospects.

We may not be able to achieve anticipated production yields, efficiencies and quality, which would harm our production volume and increase our costs.

The Manufacturing Facility is expected to be the largest of its kind in the Western Hemisphere. Successfully achieving volume manufacturing of solar cells at our projected yield, efficiency and quality levels will be difficult, and we have little experience in manufacturing at these high volumes. As we expand our manufacturing capacity and qualify additional suppliers to support our projected production volume, we may initially experience lower yields than anticipated. Any deviations in our manufacturing processes may result in significant decreases in production yield, efficiency and quality, and in some cases, may cause production to be suspended or yield no output. If we cannot achieve planned yields over time, our production costs could increase and we may be unable to produce a sufficient amount of our solar panels to meet our installation needs.

In addition, Silevo’s Triex technology is novel and involves proprietary and complex manufacturing techniques, which may result in undetected errors or defects in the solar cells produced. Any defects in our solar panels could cause us to incur significant warranty, non-warranty and re-engineering costs, divert the attention of our engineering personnel, result in indemnification liability to our fund investors and significantly affect our customer relations and business reputation.

If we are unable to achieve our cost projections or otherwise control the costs associated with operating our manufacturing business, our financial condition and operating results will suffer.

As a result of initial production levels that under-utilize the Manufacturing Facility as we ramp up production, we anticipate that our initial production costs (on a per watt basis) will be relatively high. As we work to achieve full utilization of the Manufacturing Facility, we anticipate that the volume of production will reduce our production costs (on a per watt basis). There is no guarantee that we will be able to achieve planned cost targets, some of which will be beyond our control. For example, the costs of our raw materials and components, such as polysilicon and polysilicon wafers, could increase due to shortages as global demand for these products increases. Any failure to achieve our per watt cost projections would cause our financial condition and operating results to suffer. In addition, the pricing of our solar energy systems may become less competitive if our competitors are able to reduce their manufacturing and installation costs faster than we are able to.

Competition in the solar industry is intense, and future success and innovation will require additional research and development expenses.

The Manufacturing Facility is designed to be a high-technology volume-manufacturing facility. In constructing the Manufacturing Facility, including local utility infrastructure upgrades and procurement of manufacturing equipment, the State of New York is making a significant investment in the Buffalo-area economy. However, the solar panel manufacturing market is characterized by continually changing technology that requires improved features, such as increased efficiency, higher power output and enhanced aesthetics. In the time it takes us to achieve volume production of Silevo’s Triex technology, it is possible that additional innovations in solar technology could result in our technology and the Manufacturing Facility becoming less competitive or obsolete, which could harm our costs and adversely affect our business operations. This risk requires us to continuously focus on research and development, and will require significant on-going research and development expenses. If we cannot continually improve the efficiency and power output of our solar panels and reduce the cost of production, we could become less competitive in the market and our financial condition and operating results could be adversely affected.

A failure to hire, train and retain a sufficient number of skilled employees in current and new geographies would impair our ability to achieve our growth and cost efficiency plans.

To support our growth, we need to hire, train, deploy, manage and retain a substantial number of skilled employees. Competition for qualified personnel in our industry is increasing, particularly for sales professional, skilled installers and other personnel involved in the installation of solar energy systems. In particular, we need to continue to expand and optimize our sales infrastructure to grow our customer base and our business, and we plan to expand our direct sales force. Identifying, recruiting and training qualified personnel requires significant time, expense and attention. It can take several months before a new salesperson is fully trained and productive, particularly in new geographies. If we are unable to hire, develop and retain talented sales personnel or if

our sales personnel are unable to achieve desired productivity levels, we may not be able to realize the expected benefits of this investment, grow our business, and we may be unable to achieve anticipated improvements in sales cost efficiencies.

To complete current and future customer projects and to continue to grow our customer base, we need to hire a large number of installers in the relevant markets. We also compete with the homebuilding and construction industries for skilled labor. As these industries seek to hire additional workers, our cost of labor may increase. The unionization of our labor force could also increase our labor costs. Shortages of skilled labor could significantly delay a project or otherwise increase our costs. Because our profit on a particular installation is based in part on assumptions as to the cost of such project (including customer acquisition, installation and on-going maintenance and monitoring), cost overruns, delays or other execution issues may cause us to not achieve our expected margins or cover our costs for that project. In addition, because we are headquartered in the San Francisco Bay Area, we compete for a limited pool of technical and engineering resources that requires us to pay wages that are competitive with relatively high regional standards for employees in these fields.

Any significant failure to successfully execute our growth and expansion plans would materially impair our operations, reputation, business and financial results.

Changes in interest rates could have an adverse impact on our business by increasing our cost of capital. For example:

The majority of our cash flows to date have been from solar energy systems under lease and power purchase agreements that have been monetized under various financing fund structures. One of the components of this monetization is the present value of the payment streams from our customers who enter into these leases and power purchase agreements. If the rate of return required by the fund investor rises as a result of a rise in interest rates, it will reduce the present value of the customer payment stream and consequently reduce the total value that we are able to derive from monetizing the payment stream. Interest rates are at historically low levels, partially as a result of intervention by the U.S. Federal Reserve. The U.S. Federal Reserve has taken actions to taper its intervention, and should these actions continue, it is likely that interest rates will rise, which could cause our cost of capital to increase and impede our ability to secure financing. As a result, our business and financial condition could be harmed.

In addition, we evaluate our business with a long-term view based on cash flows relating to our customer agreements, third-party financing funds and other arrangements. To date, we have taken limited actions to mitigate the risk of rising future interest rates. In 2014, we initiated a strategy of purchasing limited long-term derivative securities to economically hedge the effect of future interest rate increases. We may continue to engage in such transactions and the cost and outcomes of such transactions are currently not known.

We are expanding our international activities and customers, and plan to continue these efforts, which subject us to additional business risks, including compliance with international and trade regulations.

Our long-term strategic plans include international expansion and we intend to sell our solar energy products and services in international markets. For example, in August 2015, we acquired Ilioss to expand our operations into Mexico.

Doing business in foreign markets requires us to be able to respond to rapid changes in market, legal, and political conditions in these countries. The success of our business will depend in part on our ability to succeed in differing legal, regulatory, economic, social and political environments. We recognize that we must understand the risks and opportunities relating to trade remedies so that we can develop and implement policies and strategies that will be effective in each location where we do business.

We are subject to the Foreign Corrupt Practices Act of 1977, or the FCPA, the U.S. domestic bribery statute contained in 18 U.S.C. § 201, the U.S. Travel Act, the USA PATRIOT Act, and other anti-bribery and anti-money laundering laws in countries in which we conduct activities. We face significant risks if we fail to comply with the FCPA and other anticorruption laws that prohibit companies and their employees and third-party intermediaries from authorizing, offering, or providing, directly or indirectly, improper payments or benefits to foreign government officials, political parties, and private-sector recipients for the purpose of obtaining or retaining business. In many foreign countries, particularly in countries with developing economies, it may be a local custom that businesses engage in practices that are prohibited by the FCPA or other applicable laws and regulations. We may have direct or indirect interactions with officials and employees of government agencies or state-owned or affiliated entities. We can be held liable for the corrupt or other illegal activities of our employees, representatives, contractors, partners, and agents, even if we do not explicitly authorize such activities. Any violation of the FCPA, other applicable anticorruption laws, and anti-money laundering laws could result in whistleblower complaints, adverse media coverage, investigations, loss of export privileges, severe criminal or civil sanctions and, in the case of the FCPA, suspension or debarment from U.S. government contracting, which could have a material adverse effect on our business, financial condition, cash flows and reputation. In addition, responding to any enforcement action may result in a materially significant diversion of management’s attention and resources and significant defense costs and other professional fees.

Our vertically integrated and our continued international expansion efforts may subject us to additional regulatory risks that may impact our operating results. For example, we will have to ensure we are in compliance with any bilateral and/or multilateral free trade agreements in addition to understanding trade remedies that directly affect those products and components involved in the construction of our solar energy systems, which are procured from vendors and manufacturers outside of the United States. Some of these components, particularly solar panels and mounting hardware made from aluminum extrusions, may be subject to antidumping and countervailing duties.

In March 2015, we conducted an internal review of our supply chain and import practices for our subsidiary, Zep Solar, which included a review of the classification of products manufactured overseas. We identified instances in which some of the products and system components imported into the United States were misclassified. As a result of these misclassifications, we discovered that two legacy products might be subject to antidumping and countervailing duties. In September 2015, we submitted a voluntary disclosure to the CBP identifying these and other potential misclassifications, cooperating fully with CBP to finalize this review. In April 2016, we perfected our disclosure tendering $5.3 million to CBP for import duties owed by our acquired subsidiary relating to items imported since August 2012. CBP is currently reviewing our voluntary disclosure. For items potentially subject to antidumping or countervailing duties, CBP may require us to obtain a determination from the DOC.

In the event that we fail to or are unable to comply with the legal requirements in the jurisdictions in which we operate, we may be subject to significant fines, penalties and other amounts which could materially harm our operations and financial results.

We may not realize the anticipated benefits of past or future acquisitions, and integration of these acquisitions may disrupt our business and management and cause dilution to our stockholders.

In August 2015, we acquired Iliosson S.A. de C.V., a commercial and industrial solar project developer in Mexico. In September 2014, we acquired Silevo, LLC, a solar panel technology and manufacturing company. In 2013, we acquired Zep Solar, Common Assets, certain assets of Paramount Solar and completed other smaller acquisitions. In the future, we may acquire additional companies, project pipelines, products or technologies, including additional photovoltaics companies, or enter into joint ventures or other strategic initiatives. Our ability as an organization to integrate acquisitions is unproven. We may not realize the anticipated benefits of our acquisitions or any other future acquisition or the acquisition may be viewed negatively by customers, financial markets or investors.

In connection with our acquisitions of Silevo, Zep Solar and Paramount Solar, we issued approximately 8.8 million shares of our common stock. In connection with our acquisition of Silevo, we issued an additional 1.6 million shares of common stock in May 2016 following the achievement of the first of three earnout related milestones. We may issue additional common stock with an aggregate value of up to $100.0 million, subject to adjustments and as determined in connection with the merger agreement, upon the timely achievement of future earnout related milestones. In addition, we typically offer additional equity compensation to continuing employees of these businesses. If we are unable to successfully integrate these businesses and technologies or are unable to otherwise achieve the anticipated benefits of these acquisitions, the related issuances of our securities may be highly dilutive to our existing stockholders.

If we are unable to maintain effective internal controls over financial reporting and disclosure controls and procedures, or if material weaknesses are discovered in future periods, the accuracy and timeliness of our financial and operating reporting may be adversely affected, and confidence in our operations and disclosures may be lost.

In connection with the audit of our consolidated financial statements for the year ended December 31, 2013, we identified four material weaknesses in our internal control over financial reporting relating to (i) the costing of our solar system installations, (ii) accounting for and classification of redeemable noncontrolling interests, (iii) segregation of incompatible duties at our lease administrator and our controls over the data received from our administrator, and (iv) certain areas of our financial statement close process. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of a company’s annual or interim financial statements will not be prevented or detected on a timely basis. These material weaknesses resulted from separate control deficiencies, as well as our misinterpretation of certain accounting standards, and resulted in the restatement of our consolidated financial statements as of and for the years ended December 31, 2012, 2011, 2010 and 2009 and for certain interim periods in 2012 and 2013.

As a result of significant efforts by us and our Audit Committee, we have successfully remediated these material weaknesses and improved our internal control over financial reporting.

In connection with this quarterly report on Form 10-Q, our management has performed an evaluation of our internal control over financial reporting as of March 31, 2016 pursuant to Section 404 of the Sarbanes-Oxley Act, and has concluded that our internal control over financial reporting and our disclosure controls and procedures were effective as of March 31, 2016.

If we are not able to maintain effective internal control over financial reporting and disclosure controls and procedures, or if additional material weaknesses are discovered in future periods, a risk that is significantly increased in light of the complexity of our business and investment funds, we may be unable to accurately and timely report our financial position, results of operations, cash flows or key operating metrics, which could result in additional late filings of our annual and quarterly reports under the Exchange Act, additional restatements of our consolidated financial statements or other corrective disclosures, a decline in our stock price, suspension or delisting of our common stock by The NASDAQ Stock Market, an inability to access the capital and commercial lending markets, defaults under our secured revolving credit facility and other agreements, or other material adverse effects on our business, reputation, results of operations, financial condition or liquidity.

Updates or changes to our IT systems affecting our customer billing and control environment may disrupt our operations.

As we continue to evaluate and implement upgrades and changes to our IT systems affecting our customer billing and control environment, some of which are significant, we may encounter unexpected challenges, outages and other issues. Upgrades involve replacing existing systems with successor systems, making changes to existing systems, or cost-effectively acquiring new systems with new functionality. We are aware of inherent risks associated with replacing these systems, including accurately capturing data and system disruptions, and believe we are taking appropriate action to mitigate the risks through testing, training, and staging implementation, as well as ensuring appropriate commercial contracts are in place with third-party vendors supplying or supporting our IT initiatives. However, there can be no assurances that we will successfully launch these systems as planned or that they will occur without disruptions to our operations. IT system disruptions, if not anticipated and appropriately mitigated, or failure to successfully implement new or upgraded systems, could have a material adverse effect on our results of operations, and our ability to timely and accurately report our financial and operating results.

We are not currently regulated as a utility under applicable law, but we may be subject to regulation as a utility in the future.

Federal law and most state laws do not currently regulate us as a utility. As a result, we are not subject to the various federal and state standards, restrictions and regulatory requirements applicable to U.S. utilities. In the United States, we obtain federal and state regulatory exemptions by establishing “Qualifying Facility” status with the Federal Energy Regulatory Commission for all of our qualifying solar energy projects. In Canada, we also are generally subject to the regulations of the relevant energy regulatory agencies applicable to all producers of electricity under the relevant feed-in tariff regulations (including the feed-in tariff rates), however we are not currently subject to regulation as a utility. Our business strategy includes the continued development of larger solar energy systems in the future for our commercial and government customers, which has the potential to impact our regulatory position. Any local, state, federal or foreign regulations could place significant restrictions on our ability to operate our business and execute our business plan by prohibiting or otherwise restricting our sale of electricity. If we were subject to the same state, federal or foreign regulatory authorities as utilities in the United States or if new regulatory bodies were established to oversee our business in the United States or in foreign markets, then our operating costs would materially increase.

In our lease pass-through financing funds, there is a one-time reset of the lease payments, and we may be obligated, in connection with the resetting of the lease payments at true up, to refund lease prepayments or to contribute additional assets to the extent the system sizes, costs and timing are not consistent with the initial lease payment model.

In our lease pass-through financing funds, the models used to calculate the lease prepayments will be updated for each fund at a fixed date occurring after placement in service of all solar energy systems in a given fund or on an agreed upon date (typically within the first year of the applicable lease term) to reflect certain specified conditions as they exist at such date, including the ultimate system size of the equipment that was leased, how much it cost and when it went into service. As a result of such a true up, the lease payments are resized and we may be obligated to refund the investor’s lease prepayments or to contribute additional assets to the fund. Any significant refunds or capital contributions that we may be required to make could adversely affect our financial condition.

We have guaranteed a minimum return to be received by an investor in one of our financing funds and could be adversely affected if we are required to make any payments under this guarantee.

We have guaranteed payments to the investor in one of our financing funds to compensate for payments that the investor would be required to make to a certain third party as a result of the investor not achieving a specified minimum internal rate of return in this fund, assessed annually. Although the investor has achieved the specified minimum internal rate of return to date, the amounts of any potential future payments under this guarantee depend on the amounts and timing of future distributions to the investor from the fund and the tax benefits that accrue to the investor from the fund’s activities. Because of uncertainties associated with estimating the timing and amounts of future distributions to the investor, we cannot determine the potential maximum future payments that we could have to make under this guarantee. We may agree to similar guarantees in the future if market conditions require it. Any significant payments that we may be required to make under our guarantees could adversely affect our financial condition.

It is difficult to evaluate our business and prospects due to our limited operating history.

Since our formation in 2006, we have focused our efforts primarily on the sales, financing, engineering, installation and monitoring of solar energy systems for residential, commercial and government customers. We launched our pilot commercial and residential energy storage products and services in late 2013, and revenue attributable to this line of business has not been material compared to revenue attributable to our solar energy systems. We may be unsuccessful in significantly broadening our customer base through installation of solar energy systems within our current markets or in new markets we may enter. Additionally, we cannot assure you that we will be successful in generating substantial revenue from our current energy-related products and services or from any additional products and services we may introduce in the future. Our limited operating history, combined with the rapidly evolving and competitive nature of our industry, may not provide an adequate basis for you to evaluate our operating and financing results and business prospects. In addition, we only have limited insight into emerging trends that may adversely impact our business, prospects and operating results. As a result, our limited operating history may impair our ability to accurately forecast our future performance.

We face competition from both traditional energy companies and renewable energy companies.

The solar energy and renewable energy industries are both highly competitive and continually evolving as participants strive to distinguish themselves within their markets and compete with large utilities. We believe that our primary competitors are the traditional utilities that supply energy to our potential customers. We compete with these utilities primarily based on price, predictability of price and the ease by which customers can switch to electricity generated by our solar energy systems. If we cannot offer compelling value to our customers based on these factors, then our business will not grow. Utilities generally have substantially greater financial, technical, operational and other resources than we do. As a result of their greater size, these competitors may be able to devote more resources to the research, development, promotion and sale of their products or respond more quickly to evolving industry standards and changes in market conditions than we can. Utilities could also offer other value-added products and services that could help them compete with us even if the cost of electricity they offer is higher than ours. In addition, a majority of utilities’ sources of electricity is non-solar, which may allow utilities to sell electricity more cheaply than electricity generated by our solar energy systems.

We also compete with solar companies in the downstream value chain of solar energy. For example, we face competition from purely finance driven organizations which then subcontract out the installation of solar energy systems, from installation businesses that seek financing from external parties, from large construction companies and utilities and increasingly from sophisticated electrical and roofing companies. Some of these competitors specialize in either the residential or commercial solar energy markets, and some may provide energy at lower costs than we do. Many of our competitors also have significant brand name recognition and have extensive knowledge of our target markets. Competitors have increasingly begun vertically integrating their operations to offer comprehensive products and services offerings similar to ours, and, recently, we have seen increased consolidation of competitors in our primary markets. For us to remain competitive, we must distinguish ourselves from our competitors by offering an integrated approach that successfully competes with each level of products and services offered by our competitors at various points in the value chain. As consolidation in our markets increases and more of our competitors develop an integrated approach similar to ours, our marketplace differentiation may suffer.

We also face competition in the energy-related products and services markets and we expect to face competition in additional markets as we introduce new products and services. As the solar industry grows and evolves, we will also face new competitors who are not currently in the market. Our failure to adapt to changing market conditions and to compete successfully with existing and new competitors could limit our growth and could have a material adverse effect on our business and prospects.

Projects for our significant commercial and government customers involve concentrated project risks that may cause significant changes in our financial results.

During any given financial reporting period, we typically have ongoing significant projects for commercial and governmental customers that represent a significant portion of our potential financial results for such period. For example, Walmart is a significant customer for which we have installed a substantial number of solar energy systems. These larger projects create concentrated operating and financial risks. The effect of recognizing revenue or other financial measures on the sale of a larger project, or the failure to recognize revenue or other financial measures as anticipated in a given reporting period because a project is not yet completed under applicable accounting rules by period end, may materially impact our quarterly or annual financial results. In addition, if construction, warranty or operational issues arise on a larger project, or if the timing of such projects unexpectedly shifts for other reasons, such issues could have a material impact on our financial results. If we are unable to successfully manage these significant projects in multiple markets, including our related internal processes and external construction management, or if we are unable to continue to attract such significant customers and projects in the future, our financial results could be harmed.

We depend on a limited number of suppliers of solar panels and other system components to adequately meet anticipated demand for our solar energy systems. Any shortage, delay or component price change from these suppliers could result in sales and installation delays, cancellations and loss of our ability to effectively compete.

We purchase solar panels, inverters and other system components from a limited number of suppliers, which makes us susceptible to quality issues, shortages and price changes. If we fail to develop, maintain and expand our relationships with existing or new suppliers, we may be unable to adequately meet anticipated demand for our solar energy systems or we may only be able to offer our systems at higher costs or after delays. If one or more of the suppliers that we rely upon to meet anticipated demand ceases or reduces production, we may be unable to satisfy this demand due to an inability to quickly identify alternate suppliers or to qualify alternative products on commercially reasonable terms. In particular, there are a limited number of inverter suppliers. Once we design a system for use with a particular inverter, if that type of inverter is not readily available at an anticipated price, we may incur additional delay and expense to redesign the system.

In addition, production of solar panels involves the use of numerous raw materials and components. Several of these have experienced periods of limited availability, particularly polysilicon, as well as indium, cadmium telluride, aluminum and copper. The manufacturing infrastructure for some of these raw materials and components has a long lead time, requires significant capital investment and relies on the continued availability of key commodity materials, potentially resulting in an inability to meet demand for these components. The prices for these raw materials and components fluctuate depending on global market conditions and demand and we may experience rapid increases in costs or sustained periods of limited supplies.

In addition to purchasing from New York-based suppliers, we anticipate that we will need to purchase supplies globally in order to meet the anticipated production output of the Manufacturing Facility. Despite our efforts to obtain raw materials and components from multiple sources whenever possible, many of our suppliers may be single-source suppliers of certain components. If we are not able to maintain long-term supply agreements or identify and qualify multiple sources for raw materials and components, our access to supplies at satisfactory prices, volumes and quality levels may be harmed. We may also experience delivery delays of raw materials and components from suppliers in various global locations. In addition, we may be unable to establish alternate supply relationships or obtain or engineer replacement components in the short term, or at all, at favorable prices or costs. Qualifying alternate suppliers or developing our own replacements for certain components may be time-consuming and costly and may force us to make modifications to our product designs.

Our need to purchase supplies globally in order to meet the anticipated production output of the Manufacturing Facility and our continued international expansion further subjects us to risks relating to currency fluctuations. Any decline in the exchange rate of the U.S. dollar compared to the functional currency of our component suppliers could increase our component prices. In addition, the state of the financial markets could limit our suppliers’ ability to raise capital if they are required to expand their production to meet our needs or satisfy their operating capital requirements. Changes in economic and business conditions, wars, governmental changes and other factors beyond our control or which we do not presently anticipate, could also affect our suppliers’ solvency and ability to deliver components to us on a timely basis. Any of these shortages, delays or price changes could limit our growth, cause cancellations or adversely affect our profitability and ability to effectively complete in the markets in which we operate.

Our operating results may fluctuate from quarter to quarter, which could make our future performance difficult to predict and could cause our operating results for a particular period to fall below expectations, resulting in a severe decline in the price of our common stock.

Our quarterly operating results are difficult to predict and may fluctuate significantly in the future. We have experienced seasonal and quarterly fluctuations in the past. However, given that we are an early-stage public company operating in a rapidly growing industry, those fluctuations may be masked by our recent growth rates and thus may not be readily apparent from our historical operating results. As such, our past quarterly operating results may not be good indicators of future performance.

In addition to the other risks described in this “Risk Factors” section, the following factors could cause our operating results to fluctuate:

For these or other reasons, the results of any prior quarterly or annual periods should not be relied upon as indications of our future performance. In addition, our actual revenue, key operating metrics and other operating results in future quarters may fall short of the expectations of investors and financial analysts, which could have a severe adverse effect on the trading price of our common stock.

We act as the licensed general contractor for our customers and are subject to risks associated with construction, cost overruns, delays, regulatory compliance and other contingencies, any of which could have a material adverse effect on our business and results of operations.

We are a licensed contractor or use licensed subcontractors in every community we service, and we are responsible for every customer installation. For our residential projects, we are the general contractor, construction manager and installer. For our commercial projects, we are the general contractor and construction manager, and we have historically relied on licensed subcontractors to install these commercial systems. We may be liable to customers for any damage we cause to their home or facility and belongings or property during the installation of our systems. For example, we frequently penetrate our customers’ roofs during the installation process and may incur liability for the failure to adequately weatherproof such penetrations following the completion of construction. In addition, shortages of skilled subcontractor labor for our commercial projects could significantly delay a project or otherwise increase our costs. Because our profit on a particular installation is based in part on assumptions as to the cost of such project, cost overruns, delays or other execution issues may cause us to not achieve our expected margins or not cover our costs for that project.

In addition, the installation of solar energy systems and energy-storage systems requiring building modifications are subject to oversight and regulation in accordance with national, state and local laws and ordinances relating to building codes, safety, utility interconnection and metering, environmental protection and related matters. It is difficult and costly to track the requirements of every individual authority having jurisdiction over our installations and to design solar energy systems to comply with these varying standards. Any new government regulations or utility policies pertaining to our systems may result in significant additional expenses to us and our customers and, as a result, could cause a significant reduction in demand for our systems.

Compliance with occupational safety and health requirements and best practices can be costly, and non-compliance with such requirements may result in potentially significant monetary penalties, operational delays and adverse publicity.

The installation of solar energy systems requires our employees to work at heights with complicated and potentially dangerous electrical systems. The evaluation and installation of our energy-related products requires our employees to work in locations that may contain potentially dangerous levels of asbestos, lead or mold. We also maintain a fleet of over 3,000 vehicles that our employees use in the course of their work. There is substantial risk of serious injury or death if proper safety procedures are not followed. Our operations are subject to regulation under the U.S. Occupational Safety and Health Act, or OSHA, and equivalent state laws. Changes to OSHA requirements, or stricter interpretation or enforcement of existing laws or regulations, could result in increased costs. If we fail to comply with applicable OSHA regulations, even if no work-related serious injury or death occurs, we may be subject to civil or criminal enforcement and be required to pay substantial penalties, incur significant capital expenditures or suspend or limit operations. In the past, we have had workplace accidents and received citations from OSHA regulators for alleged safety violations, resulting in fines and operational delays for certain projects. Any such accidents, citations, violations, injuries or failure to comply with industry best practices may subject us to adverse publicity, damage our reputation and competitive position and adversely affect our business.

Problems with product quality or performance may cause us to incur warranty expenses and performance guarantee expenses, may lower the residual value of our solar energy systems and may damage our market reputation and adversely affect our financial performance and valuation.

Our solar energy system warranties are lengthy. Customers who buy energy from us under leases or power purchase agreements are covered by warranties equal to the length of the term of these agreements—typically 20 years for leases and power purchase agreements and 30 years for MyPower loan agreements. Depending on the state where they live, customers who purchase our solar energy systems for cash are covered by a warranty up to 10 years in duration. We also make extended warranties available at an additional cost to customers who purchase our solar energy systems for cash. In addition, we provide a pass-through of the inverter and panel manufacturers’ warranties to our customers, which generally range from 5 to 25 years. One of these third-party manufacturers could cease operations and no longer honor these warranties, leaving us to fulfill these potential obligations to our customers. For example, Evergreen Solar, Inc., one of our former solar panel suppliers, filed for bankruptcy in August 2011. Further, we provide a performance guarantee with our leased solar energy systems that compensates a customer on an annual basis if their system does not meet the electricity production guarantees set forth in their lease.

Because of the limited operating history of our solar energy systems, we have been required to make assumptions and apply judgments regarding a number of factors, including our anticipated rate of warranty claims and the durability, performance and reliability of our solar energy systems. We have made these assumptions based on the historic performance of similar systems or on accelerated life cycle testing. Our assumptions could prove to be materially different from the actual performance of our systems, causing us to incur substantial expense to repair or replace defective solar energy systems in the future or to compensate customers for systems that do not meet their production guarantees. Product failures or operational deficiencies would also reduce our revenue from power purchase agreements because they are dependent on system production. Any widespread product failures or operating deficiencies may damage our market reputation and adversely impact our financial results.

In addition, we amortize costs of our solar energy systems over 30 years, which typically exceeds the period of the component warranties and the corresponding payment streams from our operating lease arrangements with our customers. In addition, we typically bear the cost of removing the solar energy systems at the end of the lease term. Furthermore, it is difficult to predict how future environmental regulations may affect the costs associated with the removal, disposal and recycling of our solar energy systems. Consequently, if the residual value of the systems is less than we expect at the end of the lease, after giving effect to any associated removal and redeployment costs, we may be required to accelerate all or some of the remaining unamortized expenses. This could materially impair our future operating results.

Compliance with environmental regulations can be expensive, and non-compliance with these regulations may result in adverse publicity and potentially significant monetary damages and fines.

We are required to comply with all foreign, federal, state and local laws and regulations regarding pollution control and protection of the environment. In addition, under some statutes and regulations, a government agency, or other parties, may seek recovery and response costs from operators of property where releases of hazardous substances have occurred or are ongoing, even if the operator was not responsible for such release and not otherwise at fault. While we and the State of New York have performed environmental diligence relating to the construction of the Manufacturing Facility, the site where the Manufacturing Facility is to be located is on the former site of Republic Steel and has been considered a “brownfield.”

The operation of Silevo’s manufacturing and research and development facilities, including in Hangzhou, China, Buffalo, New York and Fremont, California, involves the use of hazardous chemicals and materials which may subject us to liabilities for any releases or other failures to comply with applicable laws, regulations and policies. Any failure by us to maintain effective controls regarding the use of hazardous materials or to obtain and maintain all necessary permits could subject us to potentially significant fines and damages or interrupt our operations.

Product liability claims against us could result in adverse publicity and potentially significant monetary damages.

We would be exposed to product liability claims if one of our solar energy systems or other products injured someone. Because solar energy systems and many of our other current and anticipated products are electricity-producing devices, it is possible that consumers could be injured by our products for many reasons, including product malfunctions, defects or improper installation. We rely on our general liability insurance to cover product liability claims and have not obtained separate product liability insurance. Any product liability claim we face could be expensive to defend and could divert management’s attention. Any product liability claims against us and any resulting adverse outcomes could result in potentially significant monetary damages that could require us to make significant payments, as well as subject us to adverse publicity, damage our reputation and competitive position or adversely affect sales of our systems and other products.

Damage to our brand and reputation would harm our business and results of operations.

We depend significantly on our reputation for high-quality products and services, best-in-class engineering, exceptional customer service and the brand name “SolarCity” to attract new customers and grow our business. Our brand and reputation could be significantly impaired if we fail to continue to deliver our solar energy systems and our other energy products and services within the planned timelines, if our products and services do not perform as anticipated or if we damage any of our customers’ properties or cancel projects. In addition, if we fail to deliver, or fail to continue to deliver, high-quality products and services to our customers through our long-term relationships, our customers will be less likely to purchase future products and services from us, which is a key strategy to achieve our desired growth. In addition to our other marketing efforts, we also depend greatly on referrals from existing customers for our growth. Therefore, our inability to meet or exceed our current customers’ expectations would harm our reputation and growth through referrals.

If we fail to manage our recent and future growth effectively, we may be unable to execute our business plan, maintain high levels of customer service or adequately address competitive challenges.

We have experienced significant growth in recent periods and we intend to continue to expand our business significantly within existing markets and in a number of new foreign and domestic locations in the future. This growth has placed, and any future growth may place, a significant strain on our management, operational and financial infrastructure. In particular, we will be required to expand, train and manage our growing employee base. Our management will also be required to maintain and expand our relationships with customers, suppliers and other third parties and attract new customers and suppliers, as well as to manage multiple geographic locations and regulatory requirements.

In addition, our current and planned operations, personnel, systems and procedures might be inadequate to support our future growth and may require us to make additional unanticipated investments in our infrastructure. Our success and ability to further scale our business will depend in part on our ability to manage these changes in a cost-effective and efficient manner. If we cannot manage our growth, we may be unable to take advantage of market opportunities, execute our business strategies or respond to competitive pressures. This could also result in declines in quality or customer satisfaction, increased costs, difficulties in introducing new products and services or other operational difficulties. Any failure to effectively manage growth could adversely impact our business and reputation.

We may not be successful in leveraging our customer base to grow our business through sales of other energy products and services.

To date, we have derived substantially all of our revenue and cash receipts from the sale of solar energy systems and the sale of energy under our long-term customer agreements. While we continue to develop and offer innovative energy-related products and services, such as our Demand Logic and residential energy storage products, customer demand for these offerings may be more limited than we anticipate. We may not be successful in completing development of these products as a result of research and development difficulties, technical issues, regulatory issues, availability of third-party products or other reasons. Even if we are able to offer these or other additional products and services, we may not successfully generate meaningful customer demand to make these offerings viable. Our growth will be limited if we fail to deliver these additional products and services, if the costs associated with bringing these additional products and services to market is greater than we anticipate, if customer demand for these offerings is smaller than we anticipate or if our strategies to implement new sales approaches and acquire new customers are not successful.

Our growth depends in part on the success of our strategic relationships with third parties.

A key component of our growth strategy is to develop or expand our strategic relationships with third parties. For example, in an effort to generate new customers, we are investing resources in establishing relationships with leaders in other industries, such as trusted retailers and commercial homebuilders. Identifying partners and negotiating relationships requires significant time and resources. Our ability to grow our business could be impaired if we are unsuccessful in establishing or maintaining our relationships with these third parties. Even if we are able to establish these relationships, we may not be able to execute our goal of leveraging these relationships to meaningfully expand our business and customer base. This would limit our growth potential and our opportunities to generate significant additional revenue or cash receipts.

The loss of one or more members of our senior management or key employees may adversely affect our ability to implement our strategy.

We depend on our experienced management team and the loss of one or more key executives could have a negative impact on our business. In particular, we are dependent on the services of our chief executive officer and co-founder, Lyndon R. Rive, and our chief technology officer and co-founder, Peter J. Rive. We also depend on our ability to retain and motivate key employees and attract qualified new employees. Our founders and our key employees are not bound by employment agreements for any specific term, and as a result, we may be unable to replace key members of our management team and key employees in the event we lose their services. Integrating new employees into our management team could prove disruptive to our operations, require substantial resources and management attention and ultimately prove unsuccessful. An inability to attract and retain sufficient managerial personnel who have critical industry experience and relationships could limit or delay our strategic efforts, which could have a material adverse effect on our business, financial condition and results of operations.

The production and installation of solar energy systems depends heavily on suitable meteorological conditions. If meteorological conditions are unexpectedly unfavorable, the electricity production from our solar energy systems may be substantially below our expectations and our ability to timely deploy new systems may be adversely impacted.

The energy produced and revenue and cash receipts generated by a solar energy system depend on suitable solar and weather conditions, both of which are beyond our control. Furthermore, components of our systems, such as panels and inverters, could be damaged by severe weather, such as hailstorms or tornadoes. In these circumstances, we generally would be obligated to bear the expense of repairing or replacing the damaged solar energy systems that we own. Sustained unfavorable weather also could unexpectedly delay our installation of solar energy systems, leading to increased expenses and decreased revenue and cash receipts in the relevant periods. For example, certain states in which we operate, such as New York and Massachusetts, commonly experience inclement winter weather. Weather patterns could change, making it harder to predict the average annual amount of sunlight striking each location where we install. This could make our solar energy systems less economical overall or make individual systems less economical. Any of these events or conditions could harm our business, financial condition and results of operations.

Our business may be harmed if we fail to properly protect our intellectual property.

We believe that the success of our business depends in part on our proprietary technology, including our hardware, software, information, processes and know-how. We rely on many forms of intellectual property rights to secure our technology, including trade secrets and patents. We cannot be certain that we have adequately protected or will be able to adequately protect our technology, that our competitors will not be able to use our existing technology or develop similar technology independently, that any patents or other intellectual property rights held by us will be broad enough to protect our technology or that foreign intellectual property laws will adequately protect us. Moreover, our patents and other intellectual property rights may not provide us with a competitive advantage.

Despite our precautions, it may be possible for third parties to obtain and use our intellectual property without our consent. Reverse engineering, unauthorized use or other misappropriation of our proprietary technology could enable third parties to benefit from our technology without compensating us for doing so. In addition, our proprietary technology may not be adequately protected because:

Any such activities or any other inabilities to adequately protect our proprietary rights could harm our ability to compete, to generate revenue and to grow our business.

Claims of patent and other intellectual property infringement are complex and their outcomes are uncertain, and the costs associated with such claims may be high and could harm our business.

Our success in operating our business, including operation of the Manufacturing Facility, depends largely on our ability to use and develop our proprietary technologies and manufacturing know-how without infringing or misappropriating the intellectual property rights of third parties, many of whom have robust patent portfolios, greater capital resources and decades of manufacturing experience. In addition, as we have gained greater visibility and market exposure as a public company, we face a higher risk of being the subject of intellectual property infringement claims. Any claim of infringement by a third party, even those without merit, could cause us to incur substantial legal costs defending against the claim and could distract our management and technical personnel from our business. In particular, the validity and scope of claims relating to photovoltaic technology patents may be highly uncertain because they involve complex scientific, legal and factual considerations and analysis. Furthermore, we could be subject to a judgment or voluntarily enter into a settlement, either of which could require us to pay substantial damages. A judgment or settlement could also include an injunction, a court order or other agreement that could prevent us from operating the Manufacturing Facility and producing our products. In addition, we might elect or be required to seek a license for the use of third-party intellectual property, which may not be available on commercially reasonable terms or at all, or if available, the payments under such license may harm our operating results and financial condition. Alternatively, we may be required to develop non-infringing technology, redesign our products or alter our manufacturing techniques and processes, each of which could require significant research and development efforts and expenses and may ultimately not be successful. Any of these events could seriously harm our business, operating results and financial condition.

We are subject to legal proceedings and regulatory inquiries and we may be named in additional claims or legal proceedings or become involved in regulatory inquiries, all of which are costly, distracting to our core business and could result in an unfavorable outcome or a material adverse effect on our business, financial condition, results of operations or the trading price for our securities.

We are involved in claims, legal proceedings (such as the class action and derivative lawsuits filed against us) and receive inquiries from government and regulatory agencies (such as the pending Treasury and Department of Labor investigations) that arise from the normal business activities. In addition, from time to time, third parties may assert claims against us. We evaluate all claims, lawsuits and investigations with respect to their potential merits, our potential defenses and counter claims, settlement or litigation potential and the expected effect on us. In the event that we are involved in significant disputes or are the subject of a formal action by a regulatory agency, we could be exposed to costly and time-consuming legal proceedings that could result in any number of outcomes. Although outcomes of such actions vary, any claims, proceedings or regulatory actions initiated by or against us, whether successful or not, could result in expensive costs of defense, costly damage awards, injunctive relief, increased costs of business, fines or orders to change certain business practices, significant dedication of management time, diversion of significant operational resources or some other harm to our business. In any of these cases, our business, financial condition, results of operations or the trading price for our securities could be negatively impacted.

We make a provision for a liability relating to legal matters when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. These provisions are reviewed at least quarterly and adjusted to reflect the impacts of negotiations, estimated settlements, legal rulings, advice of legal counsel and other information and events pertaining to a particular matter. In our opinion, resolution of all current matters is not expected to have a material adverse impact on our business, financial condition or results of operations. However, depending on the nature and timing of any such controversy, an unfavorable resolution of a matter could materially affect our future business, financial condition or results of operations, or all of the foregoing, in a particular quarter.

We typically bear the risk of loss and the cost of maintenance and repair on solar systems that are owned or leased by our fund investors.

We typically bear the risk of loss and are generally obligated to cover the cost of maintenance and repair on any solar systems that we sell or lease to our fund investors. At the time we sell or lease a solar system to a fund investor, we enter into a maintenance services agreement where we agree to operate and maintain the system for a fixed fee that is calculated to cover our future expected maintenance costs. If our solar systems require an above-average amount of repairs or if the cost of repairing systems were higher than our estimate, we would need to perform such repairs without additional compensation. If our solar systems, a majority of which are located in California, are damaged in the event of a natural disaster beyond our control, losses could be excluded, such as earthquake damage, or exceed insurance policy limits, and we could incur unforeseen costs that could harm our business and financial condition. We may also incur significant costs for taking other actions in preparation for, or in reaction to, such events. We purchase Property and Business Interruption insurance with industry standard coverage and limits approved by an investor’s third-party insurance advisors to hedge against such risk, but such coverage may not cover our losses.

Any unauthorized disclosure or theft of personal customer information we gather, store and use could harm our reputation and subject us to claims or litigation.

We receive, store and use personal information of our customers, including names, addresses, e-mail addresses, credit information and other housing and energy use information. Unauthorized disclosure of such personal information could harm our business, whether through breach of our systems by an unauthorized party, employee theft or misuse, or otherwise. If we were subject to an inadvertent disclosure of such personal information or if a third party were to gain unauthorized access to customer personal information in our possession, our operations could be seriously disrupted and we could be subject to claims or litigation arising from damages suffered by our customers. In addition, we could incur significant costs in complying with the multitude of federal, state and local laws regarding the unauthorized disclosure of personal customer information. Finally, any perceived or actual unauthorized disclosure of such information could harm our reputation, substantially impair our ability to attract and retain customers and have an adverse impact on our business.

Any failure to comply with laws and regulations relating to our interactions with current or prospective residential customers could result in negative publicity, claims, investigations, and litigation, and adversely affect our financial performance.

As the country’s largest residential solar installer, we rely on our ability to engage in transactions with residential customers. In doing so, we must comply with numerous federal, state and local laws and regulations that govern matters relating to our interactions with residential consumers, including those pertaining to privacy and data security, consumer financial and credit transactions, home improvement contracts, warranties and door-to-door solicitation. These laws and regulations change frequently and are interpreted by various federal, state and local regulatory bodies. Changes in these laws or regulations or their interpretation could dramatically affect how and where we conduct our business, acquire customers, and manage and use information we collect from and about current and prospective customers and the costs associated therewith.

Even though we may believe that we maintain effective compliance with all such laws and regulations, we may still be subject to claims, proceedings, litigation and investigations by private parties and regulatory authorities, and could be subject to substantial fines and negative publicity, each of which may materially and adversely affect our business and operations. For example, a putative class action was filed against us in November 2015 alleging violations of the federal Telephone Consumer Protection Act. We have incurred, and will continue to incur, significant expenses to comply with such laws and regulations, and increased regulation of matters relating to our interactions with residential consumers could require us to modify our operations and incur significant additional expenses, which could have an adverse effect on our business, financial condition and results of operations.

In addition, we are subject to federal, state and international laws relating to the collection, use, retention, security and transfer of personal information of our customers. In many cases, these laws apply not only to third-party transactions, but also to transfers of information between one company and its subsidiaries. Several jurisdictions have passed new laws in this area, and other jurisdictions are considering imposing additional restrictions. These laws continue to develop and may be inconsistent from jurisdiction to jurisdiction. Complying with emerging and changing requirements may cause us to incur costs or require us to change our business practices. Any failure by us, our affiliates or other parties with whom we do business to comply with a posted privacy policies or with other federal, state or international privacy-related or data protection laws and regulations could result in proceedings against us by governmental entities or others, which could have a detrimental effect on our business, results of operations and financial condition.

Our stock price has been and may continue to be volatile, and the value of your investment could decline.

The trading price of our common stock has been volatile since our initial public offering. Since shares of our common stock were sold in our initial public offering in December 2012 at a price of $8.00 per share, the reported high and low sales prices of our common stock on The NASDAQ Stock Market has ranged from $9.20 to $88.35 per share, through May 6, 2016. The market price of our common stock may fluctuate widely in response to many risk factors listed in this section and others beyond our control, including:

Further, in recent years the stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies. These fluctuations often have been unrelated or disproportionate to the operating performance of those companies. In addition, the stock prices of many renewable energy companies have experienced wide fluctuations that have often been unrelated to the operating performance of those companies. These broad market and industry fluctuations, as well as general economic, political and market conditions such as recessions, government shutdowns, interest rate changes or international currency fluctuations, may cause the market price of our common stock to decline. In the past, companies that have experienced volatility in the market price of their stock have been subject to securities class action litigation. We may be the target of this type of litigation in the future. Securities litigation against us could result in substantial costs and divert our management’s attention from other business concerns, which could seriously harm our business.

Our stock price could decline due to the large number of outstanding shares of our common stock eligible for future sale and issuance.

Sales of substantial amounts of our common stock in the public market, or the perception that these sales could occur, could cause the market price of our common stock to decline. These sales could also make it more difficult for us to sell equity or equity-related securities in the future at a time and price that we deem appropriate. Such sales may occur in connection with our acquisitions, such as our issuance of approximately 8.8 million shares in the aggregate for our acquisitions of Silevo, Zep Solar and certain assets of Paramount Solar. In connection with our acquisition of Silevo, we issued an additional 1.6 million shares of common stock in May 2016 following the achievement of the first of three earnout related milestones. We may issue additional common stock with an aggregate value of up to $100.0 million, subject to adjustments and as determined in connection with the merger agreement, upon the timely achievement of future earnout related milestones. In addition, holders of a substantial amount of our common stock are entitled to rights with respect to registration of these shares under the Securities Act pursuant to an investors’ rights agreement. If these holders of our common stock, by exercising their registration rights, sell a large number of shares, they could adversely affect the market price for our common stock. If we file a registration statement for the purposes of selling additional shares to raise capital and are required to include shares held by these holders pursuant to the exercise of their registration rights, our ability to raise capital may be impaired.

Insiders have substantial control over us, which could limit your ability to influence the outcome of key transactions, including a change of control.

As of March 31, 2016, our directors and executive officers and their affiliates, in the aggregate, owned approximately 34% of the outstanding shares of our common stock. As a result, these stockholders, if acting together, would be able to influence or control matters requiring approval by our stockholders, including the election of directors and the approval of mergers, acquisitions or other extraordinary transactions. They may have interests that differ from yours and may vote in a way with which you disagree and that may be adverse to your interests. This concentration of ownership may have the effect of delaying, preventing or deterring a change of control of our company, could deprive our stockholders of an opportunity to receive a premium for their common stock as part of a sale of our company and might affect the market price of our common stock.

Provisions in our certificate of incorporation and bylaws and under Delaware law might discourage, delay or prevent a change of control of our company or changes in our management and, therefore, depress the trading price of our common stock.

Our certificate of incorporation and bylaws contain provisions that could depress the trading price of our common stock by discouraging, delaying or preventing a change of control of our company or changes in our management that the stockholders of our company may believe advantageous. These provisions include:

If securities or industry analysts cease publishing research or reports about us, our business or our market, or if they adversely change their recommendations regarding our stock, our stock price and trading volume could decline.

The trading market for our common stock, to some extent, depends on the research and reports that industry or securities analysts may publish about us, our business, our market or our competitors. If any of the analysts who cover us adversely change their recommendation regarding our stock, or provide more favorable relative recommendations about our competitors, our stock price would likely decline. If any analyst who covers us were to cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline.

We have never declared or paid any dividends on our common stock. We intend to retain any earnings to finance the operation and expansion of our business and do not anticipate paying any cash dividends in the future. As a result, you may only receive a return on your investment in our common stock if the market price of our common stock increases.

The documents listed in the Exhibit Index of this quarterly report on Form 10-Q are incorporated by reference or are filed with this quarterly report on Form 10-Q, in each case as indicated therein (numbered in accordance with Item 601 of Regulation S-K).

Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Exhibit Number		Exhibit Description

10.10o		Tenth Amendment to the Amended and Restated Credit Agreement, dated as of March 29, 2016, by and among the Registrant the Lenders party thereto and Bank of America, N.A., as administrative agent.

10.10p		Eleventh Amendment to the Amended and Restated Credit Agreement, dated as of April 19, 2016, by and among the Registrant, the Lenders party thereto and Bank of America, N.A., as administrative agent.

10.19j		Required Group Agent Action No. 11, dated as of January 7, 2016, by and among Megalodon Solar, LLC (an indirect wholly-owned subsidiary of the Registrant), as borrower, the Registrant, as limited guarantor, Bank of America, N.A., as collateral agent and administrative agent, and the group agents party thereto.

10.19k*		Required Group Agent Action No. 12, dated as of February 29, 2016, by and among Megalodon Solar, LLC (an indirect wholly-owned subsidiary of the Registrant), as borrower, the Registrant, as limited guarantor, Bank of America, N.A., as collateral agent and administrative agent, and the group agents party thereto.

10.19l*		Required Group Agent Action No. 13, dated as of March 23, 2016, by and among Megalodon Solar, LLC (an indirect wholly-owned subsidiary of the Registrant), as borrower, the Registrant, as limited guarantor, Bank of America, N.A., as collateral agent and administrative agent, and the group agents party thereto.

10.19m*		Required Group Agent Action No. 14, dated as of March 30, 2016, by and among Megalodon Solar, LLC (an indirect wholly-owned subsidiary of the Registrant), as borrower, the Registrant, as limited guarantor, Bank of America, N.A., as collateral agent and administrative agent, and the group agents party thereto.

10.21*		Credit Agreement, dated as of January 15, 2016, among Mako Solar, LLC (an indirect wholly-owned subsidiary of the Registrant), Mako Solar Holdings, LLC (an indirect wholly-owned subsidiary of the Registrant), [*] (an indirect wholly-owned subsidiary of the Registrant), [] (an indirect wholly-owned subsidiary of the Registrant), [**] (an indirect wholly-owned subsidiary of the Registrant), the Registrant, Bank of America, N.A., as administrative agent, collateral agent, mandated lead arranger and sole bookrunner, the lenders party thereto, and KeyBank National Association, as joint lead arranger.

10.21a		First Amendment and Joinder Agreement, dated as of January 22, 2016, by and among Mako Solar, LLC (an indirect wholly-owned subsidiary of the Registrant), as borrower, Silicon Valley Bank, Bank of America, N.A., as administrative agent and collateral agent, the Registrant, as limited guarantor, and the guarantors and lenders party thereto.

10.22*		Credit Agreement dated as of March 31, 2016, among Domino Solar Ltd. (an indirect subsidiary of the Registrant), as borrower, the Registrant, Dom Solar Lessor I, LP (an indirect subsidiary of the Registrant), as original lessor, Credit Suisse AG, New York Branch, as agent for the Lenders, the Lenders party thereto, the Funding Agents party thereto, and U.S. Bank National Association, as paying agent and custodian.

31.1		Certification of the Chief Executive Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002.

31.2		Certification of the Chief Financial Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002.

32.1†		Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2†		Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS		XBRL Instance Document.

101.SCH		XBRL Taxonomy Schema Linkbase Document.

101.CAL		XBRL Taxonomy Calculation Linkbase Document.

101.DEF		XBRL Taxonomy Definition Linkbase Document.

101.LAB		XBRL Taxonomy Labels Linkbase Document.

101.PRE		XBRL Taxonomy Presentation Linkbase Document.

Large accelerated filer	x	Accelerated filer	¨

Non-accelerated filer	¨	Smaller reporting company	¨

		Page

PART I — FINANCIAL INFORMATION

Item 1.	Financial Statements	2
	Consolidated Balance Sheets	2
	Consolidated Statements of Operations	4
	Consolidated Statements of Cash Flows	5
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	32
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	41
Item 4.	Controls and Procedures	41

PART II — OTHER INFORMATION

Item 1.	Legal Proceedings	42
Item 1A.	Risk Factors	43
Item 6.	Exhibits	67

					Gross Losses
	Aggregate		Gross		Three Months Ended
	Notional		Liability at		March 31,
	Amount		Fair Value		2016
Interest rate swaps	$	751,847	$	38,961	$	32,043

Balance - beginning of the period	$	123,008
Change in fair value		6,675
Balance - end of the period	$	129,683

	March 31, 2016
	Carrying Value		Fair Value
Participation interest	$	16,139	$	14,716
Solar asset-backed notes	$	450,307	$	473,163
Solar loan-backed notes	$	173,844	$	181,718
Convertible senior notes	$	895,585	$	561,141
MyPower customer notes receivable	$	547,416	$	547,416
Long-term debt	$	1,357,286	$	1,357,286
Solar bonds	$	216,183	$	216,183

	Level 1		Level 2		Level 3
Cash equivalents:
Money market funds	$	3,445	$	—	$	—
Liabilities:
Interest rate swaps	$	—	$	38,961	$	—
Contingent consideration	$	—	$	—	$	129,683

	As of and for the
	Three Months Ended
	March 31,
	2016
Balance - beginning of the period	$	22,993
Increase in liability (including $2,321 related to MyPower contracts)		2,670
Change in estimate		757
Less warranty claims		(146	)
Balance - end of the period	$	26,274

	March 31, 2016		December 31, 2015
Other Liabilities and Deferred Credits:
Deferred gain on sale-leaseback transactions, net of current portion	$	50,736	$	51,547
Deferred rent expense		16,852		16,184
Capital lease obligation		41,123		39,475
Liability for receipts from an investor(4)		48,209		17,975
Contingent consideration		81,363		80,096
Participation interest		16,139		15,919
Other non-current liabilities		101,710		57,810
Total	$	356,132	$	279,006

Balance at December 31, 2015	$	320,935
Contributions from redeemable noncontrolling interests		145,488
Net loss		(135,169	)
Distributions to redeemable noncontrolling interests		(13,580	)
Acquisition of noncontrolling interests		(13,665	)
Balance at March 31, 2016	$	304,009

				Weighted-
	Restricted			Average
	Stock			Fair
	Units			Value
Outstanding - December 31, 2015		3,577		$	49.53
Granted		591			17.38
Vested		(209	)		56.32
Cancelled		(323	)		45.24
Outstanding - March 31, 2016		3,636		$	44.29
Expected to vest - March 31, 2016		2,842		$	45.18

	March 31, 2016		December 31, 2015
Due from related parties (included in accounts receivable)	$	5	$	30
Due to related parties (included in accounts payable)	$	3,244	$	3,961
Solar bonds issued to related parties	$	165,210	$	165,220
Convertible senior notes issued to related parties	$	12,975	$	12,975
Due to related parties (included in accrued and other current liabilities)	$	204	$	1,249

		March 31, 2016				December 31, 2015
Cumulative installed customers			261,268				232,710

SOLARCITY CORPORATION

By:		/s/ Lyndon R. Rive
		Lyndon R. Rive
		Chief Executive Officer
		(Principal Executive Officer)

	Depreciation, amortization and warranty		Sales and marketing		Total
Nine months ending December 31, 2016	$	15,520	$	8,638	$	24,158
2017		20,541		10,609		31,150
2018		20,541		9,237		29,778
2019		20,541		6,329		26,870
2020		19,821		6,129		25,950
Thereafter		44,533		4,578		49,111
Total	$	141,497	$	45,520	$	187,017