Tesla 2011 Annual Report Download - page 113

Table of Contents
during the period. As a result, selling, general and administrative expenses and net loss for the year ended December 31, 2009 were understated
by $2.7 million. The error did not have an effect on the valuation of the stock options. As stock-based compensation expense is a non-cash item,
there was no impact on net cash used in operating activities for the year ended December 31, 2009.
To correct this error, we recorded additional stock-based compensation of $2.4 million in the three months ended June 30, 2010. We
considered the impact of the error on reported operating expenses and trends in operating results and determined that the impact of the error was
not material to previously reported financial information as well as those related to the year ended December 31, 2010.
2. Summary of Significant Accounting Policies
Basis of Consolidation
The consolidated financial statements include the accounts of Tesla and its wholly owned subsidiaries. All significant inter-company
transactions and balances have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent
liabilities at the date of the financial statements, and reported amounts of expenses during the reporting period. Actual results could differ from
those estimates.
Fair Value of Financial Instruments
The carrying values of our cash and cash equivalents, and deposits approximate their fair value due to their short-term nature. As a basis
for determining the fair value of certain of our assets and liabilities, we established a three-tier fair value hierarchy which prioritizes the inputs
used in measuring fair value as follows: (Level I) observable inputs such as quoted prices in active markets; (Level II) inputs other than the
quoted prices in active markets that are observable either directly or indirectly; and (Level III) unobservable inputs in which there is little or no
market data which requires us to develop our own assumptions. This hierarchy requires us to use observable market data, when available, and to
minimize the use of unobservable inputs when determining fair value. Our financial assets that are measured at fair value on a recurring basis
consist only of cash equivalents and current restricted cash. Our liabilities that are measured at fair value on a recurring basis consist of our
common stock warrant liability, and previously, our convertible preferred stock warrant liability.
All of our cash equivalents and current restricted cash, which are comprised primarily of money market funds, are classified within Level I
of the fair value hierarchy because they are valued using quoted market prices or market prices for similar securities. We do not have any Level
II instruments, or instruments valued based on other observable inputs. Our common stock warrant liability, and previously our convertible
preferred stock warrant liability, is classified within Level III of the fair value hierarchy.
As of December 31, 2010 and 2009, the fair value hierarchy for our financial assets and financial liabilities that are carried at fair value was
as follows (in thousands):
112
December 31, 2010 December 31, 2009
Fair Value
Level I
Level II
Level III
Fair Value
Level I
Level II
Level III
Money market funds
$
145,708
$
145,708
$
—
$
—
$
64,420
$
64,420
$
—
$
—
Common stock warrant liability
6,088
—
—
6,088
—
—
—
—
Convertible preferred stock warrant liability
—
—
—
—
1,734
—
—
1,734