Tesla 2016 Annual Report Download - page 37
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Please find page 37 of the 2016 Tesla annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.Wealsoofferanextendedserviceplan,whichcoverstherepairorreplacementofvehiclepartsforanadditionalfouryearsoruptoanadditional50,000
miles,aftertheendofourinitialNewVehicleLimitedWarranty,providedtheyarepurchasedwithinaspecifiedperiodoftime.Paymentscollectedinadvanceof
theperformanceofserviceareinitiallyrecordedindeferredrevenuesontheconsolidatedbalancesheetsandrecognizedinautomotivesalesratablyovertheservice
coverageperiods.
InventoryValuation
Inventoriesarestatedatthelowerofcostormarket.Costiscomputedusingstandardcost,whichapproximatesactualcostonafirst-in,first-outbasis.We
recordinventorywrite-downsforexcessorobsoleteinventoriesbaseduponassumptionsaboutoncurrentandfuturedemandforecasts.Ifourinventoryonhandis
inexcessofourfuturedemandforecast,theexcessamountsarewrittenoff.
Wealsoreviewinventorytodeterminewhetheritscarryingvalueexceedsthenetamountrealizableupontheultimatesaleoftheinventory.Thisrequiresus
todeterminetheestimatedsellingpriceofourvehicleslesstheestimatedcosttoconvertinventoryonhandintoafinishedproduct.Onceinventoryiswritten-down,
anew,lower-costbasisforthatinventoryisestablishedandsubsequentchangesinfactsandcircumstancesdonotresultintherestorationorincreaseinthatnewly
establishedcostbasis.
Shouldourestimatesoffuturesellingpricesorproductioncostschange,additionalandpotentiallymaterialincreasestothisreservemayberequired.A
smallchangeinourestimatesmayresultinamaterialchargetoourreportedfinancialresults.
Warranties
Weprovideamanufacturer’swarrantyonallvehicles,productionpowertraincomponentsandsystems,andTeslaEnergyproductswesell.Atthetimeof
delivery,weaccrueforamanufacturer’swarrantywhichincludesourbestestimateoftheprojectedcoststorepairortoreplaceitemsunderwarranty.These
estimatesarebasedonactualclaimsincurredto-dateandanestimateofthenature,frequencyandcostsoffutureclaims.
Theseestimatesareinherentlyuncertainandchangestoourhistoricalorprojectedwarrantyexperiencemaycausematerialchangestoourwarrantyreserve
inthefuture.Theportionofthewarrantyprovisionexpectedtobeincurredwithin12monthsisclassifiedasacurrentliability.
Ourwarrantyreservesdonotincludeprojectedwarrantycostsassociatedwithourvehiclesaccountedforasoperatingleasesorcollateralizeddebt
arrangements.Coststorepairthesevehiclesareexpensedasincurred.Warrantyexpenseisrecordedasacomponentofcostofautomotiverevenue.
Stock-BasedCompensation
Weusethefairvaluemethodofaccountingforourstockoptionsandrestrictedstockunits(RSUs)grantedtoemployeesandourEmployeeStockPurchase
Plan(ESPP)tomeasurethecostofemployeeservicesreceivedinexchangeforthestock-basedawards.ThefairvalueofstockoptionsandESPPareestimatedon
thegrantdateandofferingdateusingtheBlack-Scholesoption-pricingmodel.ThefairvalueofRSUsismeasuredonthegrantdatebasedontheclosingfair
marketvalueofourcommonstock.Theresultingcostisrecognizedovertheperiodduringwhichanemployeeisrequiredtoprovideserviceinexchangeforthe
awards,usuallythevestingperiodwhichisgenerallyfouryearsforstockoptionsandRSUsandsixmonthsfortheESPP.Stock-basedcompensationexpenseis
recognizedonastraight-linebasis,netofestimatedforfeitures.
TheBlack-Scholesoption-pricingmodelrequiresinputssuchastherisk-freeinterestrate,expectedtermandexpectedvolatility.Further,theforfeiturerate
alsoaffectstheamountofaggregatecompensation.Theseinputsaresubjectiveandgenerallyrequiresignificantjudgment.
Weestimateourforfeitureratebasedonananalysisofouractualforfeitureexperienceandwillcontinuetoevaluatetheappropriatenessoftheforfeiture
ratebasedonactualforfeitureexperience,analysisofemployeeturnoverbehaviorandotherfactors.Quarterlychangesintheestimatedforfeitureratecanhavea
significanteffectonreportedstock-basedcompensationexpense,asthecumulativeeffectofadjustingtherateforallexpenseamortizationisrecognizedinthe
periodtheforfeitureestimateischanged.Ifarevisedforfeiturerateishigherthanthepreviouslyestimatedforfeiturerate,anadjustmentismadethatwillresultina
decreasetothestock-basedcompensationexpenserecognizedintheconsolidatedfinancialstatements.Ifarevisedforfeiturerateislowerthanthepreviously
estimatedforfeiturerate,anadjustmentismadethatwillresultinanincreasetothestock-basedcompensationexpenserecognizedintheconsolidatedfinancial
statements.
Asweaccumulateadditionalemployeestock-basedawardsdataovertimeandasweincorporatemarketdatarelatedtoourcommonstock,wemay
calculatesignificantlydifferentvolatilities,expectedlivesandforfeiturerates,whichcouldmateriallyimpactthevaluationofourstock-basedawardsandthe
stock-basedcompensationexpensethatwewillrecognizeinfutureperiods.Stock-basedcompensationexpenseisrecordedinourcostofrevenues,researchand
developmentexpenses,andselling,generalandadministrativeexpenses.
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