Tesla 2016 Annual Report Download - page 53

Tesla Motors, Inc.
Notes to Consolidated Financial Statements
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Note 1 - Overview of the Company
TeslaMotors,Inc.(Tesla,we,usorour)wasincorporatedinthestateofDelawareonJuly1,2003.Wedesign,develop,manufacture,andsellhigh-
performancefullyelectricvehicles,andstationaryenergystorageproducts.Wehavewholly-ownedsubsidiariesinNorthAmerica,EuropeandAsia.Theprimary
purposeofthesesubsidiariesistomarket,manufacture,selland/orserviceourvehicles.
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Note 2 - Summary of Significant Accounting Policies
BasisofConsolidation
TheconsolidatedfinancialstatementsincludetheaccountsofTeslaanditswhollyownedsubsidiaries.Inter-companybalancesandtransactionsbetween
consolidatedentitieshavebeeneliminated.
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andaccompanyingnotes.Estimates
areusedfor,butnotlimitedto,determiningthesellingpriceofproductsandservicesinmultipleelementrevenuearrangementsanddeterminingtheamortization
periodoftheseelements,residualvalueofoperatingleasevehicles,inventoryvaluation,warranties,fairvalueoffinancialinstruments,depreciablelivesof
propertyandequipment,inputsusedtovaluestock-basedcompensationincludingvolatility,livesofstockoptionawardsandforfeiturerates,incometaxes,and
contingencies.Actualresultscoulddifferfromthoseestimates.
RecentAccountingPronouncements
InMay2014,theFinancialAccountingStandardsBoardissuedanaccountingupdatewhichamendstheexistingaccountingstandardsforrevenue
recognition.Thenewguidanceprovidesanewmodeltodeterminewhenandoverwhatperiodrevenueisrecognized.Underthisnewmodel,revenueisrecognized
asgoodsorservicesaredeliveredinanamountthatreflectstheconsiderationweexpecttocollect.Theguidanceiseffectiveforfiscalyearsbeginningafter
December15,2017;earlyadoptionispermittedforperiodsbeginningafterDecember15,2016.Thenewstandardisrequiredtoeitherbeappliedretrospectivelyto
eachpriorreportingperiodpresentedorretrospectivelywiththecumulativeeffectofinitiallyapplyingitrecognizedatthedateofinitialapplication.Wehavenot
yetselectedatransitionmethodandareevaluatingtheimpactofadoptingit.
InApril2015,theFASBissuednewauthoritativeaccountingguidanceonsimplifyingthepresentationofdebtissuancecosts,whichrequiresthatdebt
issuancecostsrelatedtoarecognizeddebtliabilitybepresentedinthebalancesheetasadirectdeductionfromthecarryingamountofthatdebtliability,consistent
withdebtdiscounts.Wedidnotadoptthisstandardduring2015;however,theimpacttotheourConsolidatedBalanceSheetasofDecember31,2015wouldhave
beena$10.7millionreductioninprepaidexpensesandothercurrentassets,a$18.7millionreductioninotherassets,andacorrespondingreductioninthe
aggregatecarryingvalueoftheCompany’slongtermdebtliabilities.
InNovember2015,theFASBissuedAccountingStandardsUpdateNo.2015-17,IncomeTaxes(Topic740):BalanceSheetClassificationofDeferred
Taxes(ASU2015-17),whichsimplifiesthepresentationofdeferredincometaxesbyrequiringthatdeferredtaxassetsandliabilitiesbeclassifiedasnon-current.
WehaveretrospectivelyadoptedthisstandardasofDecember31,2015,andasaresultwereclassified$18.6millionofcurrentdeferredtaxassetstonon-current
andnetted$18.6millionnon-currentdeferredtaxliabilitiesagainstournon-currentdeferredtaxassetsasofDecember31,2014.
RevenueRecognition
Werecognizerevenueforproductsandserviceswhen:(i)apersuasiveevidenceofanarrangementexists;(ii)deliveryhasoccurredandthereareno
uncertaintiesregardingcustomeracceptance;(iii)pricingorfeesarefixedordeterminable;and(iv)collectionisreasonablyassured.
Vehiclesalesincludestandardfeatures,customerselectedoptionsandaccessories,andspecificotherelementsthatmeetthedefinitionofadeliverable
undermultiple-elementaccountingguidanceincludingfreeinternetconnectivity,freeaccesstoourSuperchargernetwork,andfutureovertheairsoftwareupdates.
Thesedeliverablesarevaluedonastand-alonebasisandwerecognizetheirrevenueoverourperformanceperiod,whichisgenerallytheeight-yearlifeofthe
vehicle,exceptforinternetconnectivitywhichisoverthefreefouryearperiod.Ifweselladeliverableseparately,weusethatpricingtodetermineitsfairvalue;
otherwise,weuseourbestestimatedsellingpricebyconsideringcostsusedtodevelopanddelivertheservice,thirdpartypricingofsimilaroptions,andother
informationwhichmaybeavailable.
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