Notes to Consolidated Financial Statements
1. Nature of Operations
Description of Business
Plug Power Inc., or the Company, is a leading provider of alternative energy technology focused on the design, development, commercialization and manufacture of hydrogen fuel cell systems used primarily for the material handling and stationary power market.
We are focused on proton exchange membrane, or PEM, fuel cell and fuel processing technologies, fuel cell/battery hybrid technologies, and associated hydrogen storage and dispensing infrastructure from which multiple products are available. A fuel cell is an electrochemical device that combines hydrogen and oxygen to produce electricity and heat without combustion. Hydrogen is derived from hydrocarbon fuels such as liquid petroleum gas, or LPG, natural gas, propane, methanol, ethanol, gasoline or biofuels. Plug Power develops complete hydrogen delivery, storage and refueling solutions for customer locations. Hydrogen can also be obtained from the electrolysis of water, or produced on-site at consumer locations through a process known as reformation. Currently the Company obtains hydrogen by purchasing it from fuel suppliers for resale to customers.
We provide and continue to develop commercially viable hydrogen and fuel cell product solutions to replace lead‑acid batteries in material handling vehicles and industrial trucks for some of the world’s largest distribution and manufacturing businesses. We are focusing our efforts on industrial mobility applications (forklifts and electric industrial vehicles) at multi‑shift high volume manufacturing and high throughput distribution sites where our products and services provide a unique combination of productivity, flexibility and environmental benefits. Additionally, we manufacture and sell fuel cell products to replace batteries and diesel generators in stationary backup power applications. These products prove valuable with telecommunications, transportation and utility customers as a robust, reliable and sustainable power solution. Our current products and services include:
GenDrive: GenDrive is our hydrogen fueled PEM fuel cell system providing power to material handling vehicles;
GenFuel: GenFuel is our hydrogen fueling delivery system;
GenCare: GenCare is our ongoing maintenance program for GenDrive fuel cells, GenSure products and GenFuel products;
GenSure: GenSure (formerly ReliOn) is our stationary fuel cell solution providing scalable, modular PEM fuel cell power to support the backup and grid-support power requirements of the telecommunications, transportation, and utility sectors;
GenKey: GenKey is our turn-key solution combining either GenDrive or GenSure with GenFuel and GenCare, offering complete simplicity to customers transitioning to fuel cell power;
ProGen: ProGen is our fuel cell engine technology, under development for use in mobility and stationary fuel cell systems;
GenFund: GenFund is a collaboration with leasing organizations to provide cost efficient and seamless financing solutions to customers.
We provide our products worldwide through our direct product sales force, and by leveraging relationships with original equipment manufacturers, or OEMs, and their dealer networks.
We were organized as a corporation in the State of Delaware on June 27, 1997.
Unless the context indicates otherwise, the terms “Company,” “Plug Power,” “we,” “our” or “us” as used herein refers to Plug Power Inc. and its subsidiaries.
Liquidity
Our cash requirements relate primarily to working capital needed to operate and grow our business, including funding operating expenses, growth in inventory to support both shipments of new units and servicing the installed base, growth in equipment leased to customers under long-term arrangements, funding the growth in our GenKey “turn-key” solution, which includes the installation of our customers’ hydrogen infrastructure as well as delivery of the hydrogen fuel, continued development and expansion of our products, payment of lease obligations under sale/leaseback financings, and the repayment or refinancing of our long-term debt. Our ability to achieve profitability and meet future liquidity needs and capital requirements will depend upon numerous factors, including the timing and quantity of product orders and shipments; attaining and expanding positive gross margins across all product lines; the timing and amount of our operating expenses; the timing and costs of working capital needs; the timing and costs of building a sales base; the ability of our customers to obtain financing to support commercial transactions; our ability to obtain financing arrangements to support the sale or leasing of our products and services to customers and to repay or refinance our long-term debt, and the terms of such agreements that may require us to pledge or restrict substantial amounts of our cash to support these financing arrangements; the timing and costs of developing marketing and distribution channels; the timing and costs of product service requirements; the timing and costs of hiring and training product staff; the extent to which our products gain market acceptance; the timing and costs of product development and introductions; the extent of our ongoing and new research and development programs; and changes in our strategy or our planned activities. If we are unable to fund our operations with positive cash flows and cannot obtain external financing, we may not be able to sustain future operations. As a result, we may be required to delay, reduce and/or cease our operations and/or seek bankruptcy protection.
We have experienced and continue to experience negative cash flows from operations and net losses. The Company incurred net losses attributable to common shareholders of $57.6 million, $55.8 million and $88.6 million for the years ended December 31, 2016, 2015, and 2014, respectively, and has an accumulated deficit of $1.1 billion at December 31, 2016.
During the year ended December 31, 2016, cash used in operating activities was $29.6 million, consisting primarily of a net loss attributable to the Company of $57.5 million, offset by the impact of noncash charges/gains of $10.9 million and net inflows from fluctuations in working capital and other assets and liabilities of $16.9 million. The changes in working capital primarily were related to collections of accounts receivable and managing of accounts payable, offset by consumption against the accrual for loss contracts related to service. As of December 31, 2016, we had cash and cash equivalents of $46.0 million and net working capital of $44.4 million. By comparison, at December 31, 2015, we had cash and cash equivalents of $64.0 million and net working capital of $88.5 million.
Net cash used in investing activities for the year ended December 31, 2016, totaled $58.1 million and included purchases of property, plant and equipment and outflows associated with materials, labor, and overhead necessary to construct new leased property. Cash outflows related to equipment that we sell and equipment we lease directly to customers are included in net cash used in operating activities and net cash used in investing activities, respectively.
During the year ended December 31, 2016, we generated $69.9 million in cash flows from financing activities, primarily comprised of increases in finance obligations, borrowings against short and long-term loan agreements, as described in Notes 9 and 10, Short-Term Borrowing and Long-Term Debt, and proceeds from the issuance of common and preferred stock and warrants, as described in Notes 12 and 13, Stockholders’ Equity and Redeemable Preferred Stock, offset by an increase in restricted cash and payments on short-term borrowing and long-term debt.
Prior to 2016, the Company signed sale/leaseback agreements with various financial institutions to facilitate the Company’s commercial transactions with key customers. The Company had sold certain fuel cell systems and hydrogen infrastructure to the financial institutions, and leased the equipment back to support certain customer locations and to fulfill its varied PPAs. In connection with these operating leases, the financial institutions require the Company to maintain cash balances in restricted accounts securing the Company’s lease obligations. Cash received from customers under the PPAs is used to make lease payments. As the Company performs under these agreements, the required restricted cash balances are released, according to a set schedule. The total remaining lease payments to financial institutions under these agreements was $53.6 million which has been fully secured with restricted cash and pledged service escrows.
The master lease agreement with one of the financial institutions required the Company to maintain a minimum balance of unrestricted cash. This requirement was removed in October 2016, when the Company elected to pledge additional cash collateral of $12.0 million. The Company’s remaining contractual lease payments to this financial institution are fully secured through a combination of restricted cash and pledges on funds escrowed for future service by the Company.
During the year ended December 31, 2016, cash flows from financing activities included short-term borrowings and long-term debt, which are described more fully in Notes 9 and 10, Short-Term Borrowing and Long-Term Debt, respectively. On March 2, 2016, the Company entered into a loan agreement with Generate Lending, LLC., pursuant to which $25.0 million was borrowed upon closing and issuance costs of $1.3 million were incurred. On June 27, 2016, this borrowing was converted to long-term project financing from the same lender. On June 27, 2016, the Company borrowed $25.0 million under a loan agreement with Hercules Capital, Inc., and incurred related issuance costs of $1.4 million. On December 22, 2016 the Company repaid the loan in full. On December 23, 2016, the Company, entered into a loan and security agreement with NY Green Bank, borrowing $25.0 million under a loan agreement on the date of closing and issuance costs of $1.2 million were incurred.
During 2016, we received gross proceeds of $30.0 million from underwritten public offerings of our common stock and preferred stock as well as warrants to purchase additional shares of common stock. Net proceeds after underwriting discounts and commissions and other fees and expenses were $27.5 million. During 2014, we received gross proceeds of $176.7 million from three underwritten public offerings. Net proceeds after underwriting discounts and commissions and other fees and expenses were $165.7 million. In addition, during 2014, we received $18.3 million from the exercise of previously issued common stock warrants.
We have historically funded our operations primarily through public and private offerings of common and preferred stock, as well as short-term borrowings and long-term debt and project financing. The Company believes that its current working capital and cash anticipated to be generated from future operations, as well as borrowings from lending and project financing sources and proceeds from equity offerings, will provide sufficient liquidity to fund operations for at least one year after the date that the financial statements are issued. There is no guarantee that future funding will be available if and when required or at terms acceptable to the Company. This projection is based on our current expectations regarding new project financing and product sales and service, cost structure, cash burn rate and other operating assumptions.
2. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the financial statements of the Company and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.
Revenue Recognition
The Company recognizes revenue under arrangements for products and services, which may include the sale of products and related services, including revenue from installation, service and maintenance, spare parts, hydrogen fueling services (which may include hydrogen supply as well as hydrogen fueling infrastructure) and leased units. The Company also recognizes revenue under research and development contracts, which are primarily cost reimbursement contracts associated with the development of PEM fuel cell technology.
The Company enters into revenue arrangements that may contain a combination of fuel cell systems and infrastructure, installation, service, maintenance, spare parts, and other support services. Revenue arrangements containing fuel cell systems and related infrastructure may be sold, or provided to customers under a PPA.
Sales of and Services Performed on Fuel Cell Systems and Related Infrastructure
When sold to customers, the Company accounts for each separate deliverable of these multiple deliverable arrangements as a separate unit of accounting if the delivered item or items have value to the customer on a standalone
basis. The Company considers a deliverable to have standalone value if the item is sold separately by us or another entity or if the item could be resold by the customer. The Company allocates revenue to each separate deliverable based on its relative selling price. For a majority of our deliverables, the Company determines relative selling prices using its best estimate of the selling price since vendor-specific objective evidence and third-party evidence is generally not available for the deliverables involved in its revenue arrangements due to a lack of a competitive environment in selling fuel cell technology. When determining estimated selling prices, the Company considers the cost to produce the deliverable, a reasonable gross margin on that deliverable, the selling price and profit margin for similar products and services, the Company’s ongoing pricing strategy and policies, the value of any enhancements that have been built into the deliverable and the characteristics of the varying markets in which the deliverable is sold, as applicable. The Company determines estimated selling prices for deliverables in its arrangements based on the specific facts and circumstances of each arrangement and analyzes the estimated selling prices used for its allocation of consideration of each arrangement.
Once relative selling prices are determined, the Company proportionately allocates the sale consideration to each element of the arrangement. The allocated sales consideration related to fuel cell systems and infrastructure, spare parts, and hydrogen infrastructure is recognized as revenue at shipment if title and risk of loss have passed to the customer, there is persuasive evidence of an arrangement, the sales price is fixed or determinable, collection of the related receivable is reasonably assured, and customer acceptance criteria, if any, have been successfully demonstrated. The allocated sales consideration related to service and maintenance is generally recognized as revenue on a straight-line basis over the term of the contract, as appropriate.
For those customers who do not purchase an extended maintenance contract, the Company does not include a right of return on its products other than rights related to standard warranty provisions that permit repair or replacement of defective goods. The Company accrues for anticipated standard warranty costs at the same time that revenue is recognized for the related product. Only a limited number of fuel cell units are under standard warranty.
In a vast majority of its commercial transactions, the Company sells extended maintenance contracts that generally provide for a five to ten year warranty from the date of product installation. These types of contracts are accounted for as a separate deliverable, and accordingly, revenue generated from these transactions is deferred and recognized in income over the warranty period, generally on a straight-line basis. Additionally, the Company may enter into annual service and extended maintenance contracts that are billed monthly. Revenue generated from these transactions is recognized in income on a straight-line basis over the term of the contract. Costs are recognized as incurred over the term of the contract. When costs are projected to exceed revenues on the life of the contract, an accrual for loss contracts is recorded. Costs are estimated based upon historical experience, contractual agreements and the estimated impact of the Company’s cost reduction initiatives. The actual results may differ from these estimates.
Power Purchase Agreements
When fuel cell systems and related infrastructure are provided to customers through a PPA, revenues associated with these agreements are treated as rental income and recognized on a straight-line basis over the life of the agreements. In conjunction with entering into a PPA with a customer, the Company may enter into sale/leaseback transactions with third-party financial institutions, whereby the fuel cells, related infrastructure, and service are sold to the third-party financial institution and leased back to the Company through either an operating or capital lease.
During 2016, the Company’s sale/leaseback transactions with third-party financial institutions were required to be accounted for as capital leases under Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Subtopic 840-40,
Leases – Sale/Leaseback Transactions
(ASC Subtopic 840-40). As a result, no upfront revenue was recognized at the closing of these transactions and a finance obligation for each lease was established. The fuel cell systems and related infrastructure that are provided to customers through these PPAs are considered leased property on the accompanying consolidated balance sheet. Costs to service the leased property are considered cost of PPA revenue on the accompanying consolidated statement of operations.
All PPAs entered into through December 31, 2015 had corresponding sale-leaseback transactions with third-party financial institutions which were required to be accounted for as operating leases in accordance with ASC Subtopic 840-40. The Company has rental expense associated with sale/leaseback agreements with financial institutions that were
entered into commensurate with the PPAs. Rental expense is recognized on a straight-line basis over the life of the agreements and is characterized as cost of PPA revenue on the accompanying consolidated statement of operations.
Fuel Delivered to Customers
The Company purchases hydrogen fuel from suppliers and sells to its customers upon delivery. Revenue and cost of revenue related to this fuel is recorded as dispensed, and included in the respective “Fuel delivered to customers” lines on the consolidated statements of operations.
Research and Development Contracts
Contract accounting is used for research and development contract revenue. The Company generally shares in the cost of these programs with cost sharing percentages ranging from 30% to 50% of total project costs. Revenue from time and material contracts is recognized on the basis of hours expended plus other reimbursable contract costs incurred during the period and is included within the “other” revenue line on the consolidated statement of operations. All allowable work performed through the end of each calendar quarter is billed, subject to limitations in the respective contracts.
Cash Equivalents
Cash equivalents consist of money market accounts with an initial term of less than three months. At December 31, 2016, 2015 and 2014, cash equivalents consist of money market accounts. For purposes of the consolidated statements of cash flows, the Company considers all highly-liquid debt instruments with original maturities of three months or less to be cash equivalents. The Company’s cash and cash equivalents are deposited with financial institutions located in the U.S. and may at times exceed insured limits.
Accounts Receivable
Accounts receivable are stated at the amount billed to customers and are ordinarily due between 30 and 60 days after the issuance of the invoice. Receivables are reserved or written off based on individual credit evaluation and specific circumstances of the customer. The allowance for doubtful accounts and related receivable are reduced when the amount is deemed uncollectible. As of December 31, 2016 and 2015, the allowance for doubtful accounts was zero.
Inventory
Inventories are valued at the lower of cost, determined on a first-in, first-out basis, or market. All inventory, including spare parts inventory held at service locations, is not relieved until the customer has received the product, at which time the risks and rewards of ownership have transferred.
Property, Plant and Equipment
Property, plant and equipment are originally recorded at cost or, if acquired as part of business combination, at fair value. Maintenance and repairs are expensed as costs are incurred. Depreciation on plant and equipment, which includes depreciation on the Company’s facility that is accounted for as a financing obligation, is calculated on the straight-line method over the estimated useful lives of the assets. The Company records depreciation and amortization over the following estimated useful lives:
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Buildings
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20 years
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Building improvements
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5 ‑ 20 years
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Software, machinery and equipment
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1 ‑ 15 years
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Gains and losses resulting from the sale of property and equipment are recorded in current operations.
Leased Property
Leased property primarily consists of the cost of assets deployed related to capital leases. Depreciation expense is recorded on a straight-line basis over the shorter of the lease term or the estimated useful life of the asset, generally six years, and is included in cost of revenue for PPAs in the accompanying consolidated statements of operations.
Impairment of Long-Lived Assets
Long-lived assets, such as property, plant, and equipment, leased property and purchased intangibles subject to amortization, are reviewed for potential impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset or asset group to estimated undiscounted future cash flows expected to be generated by the asset or asset group. If the carrying amount of an asset or asset group exceeds its estimated undiscounted future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset or asset group exceeds the fair value of the asset or asset group. Fair value is determined through various valuation techniques, including discounted cash flow models, quoted market values and third party independent appraisals, as considered necessary. Assets to be disposed of and considered held for sale would be separately presented in the consolidated balance sheet and reported at the lower of the carrying amount or fair value less costs to sell, and are no longer depreciated. The assets and liabilities of a disposal group classified as held for sale would be presented separately in the appropriate asset and liability sections of the consolidated balance sheet.
Goodwill
Goodwill is an asset representing the future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized. Goodwill is reviewed for impairment at least annually.
The Company has the option to perform a qualitative assessment to determine whether it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount prior to performing the two-step goodwill impairment test. If this is the case, the two-step goodwill impairment test is required. If it is more-likely-than-not that the fair value of a reporting unit is greater than its carrying amount, the two-step goodwill impairment test is not required.
The Company performs its annual impairment review of goodwill at December 1, and when a triggering event is determined to have occurred between annual impairment tests. For the year ended December 31, 2016, the Company performed a qualitative assessment of goodwill for its single reporting unit based on market capitalization, and determined that it is not more likely than not that the fair value of its reporting unit is less than the carrying amount. Accordingly, no impairment loss was recorded in 2016.
Intangible Assets
Intangible assets consist of acquired technology, customer relationships and trademarks, and are amortized using a straight-line method over their useful lives of 5 - 10 years. Additionally, the intangible assets are reviewed for impairment when certain triggering events occur.
Product Warranty Reserve
Aside from when included in the sale of an extended maintenance contract, the Company provides a one to two year standard product warranty to customers from date of installation of GenDrive units, and the GenSure sales generally include a two year standard product warranty. We currently estimate the costs of satisfying warranty claims based on an analysis of past experience and provide for future claims in the period the revenue is recognized. Factors that affect our warranty liability include the number of installed units, estimated material costs, estimated travel, and labor costs. The warranty reserve is included within the other current liabilities on the accompanying consolidated balance sheet.
Common Stock Warrant Accounting
The Company accounts for common stock warrants in accordance with applicable accounting guidance provided in FASB ASC Subtopic 815-40,
Derivatives and Hedging-Contracts in Entity’s Own Equity
, as either derivative liabilities or as equity instruments depending on the specific terms of the warrant agreement. In compliance with applicable securities law, registered common stock warrants that require the issuance of registered shares upon exercise and do not sufficiently preclude an implied right to cash settlement are accounted for as derivative liabilities. We currently classify these derivative warrant liabilities on the accompanying consolidated balance sheets as a long-term liability, which is revalued at each balance sheet date subsequent to the initial issuance using the Black-Scholes pricing model. The Black-Scholes pricing model, which is based, in part, upon unobservable inputs for which there is little or no market data, requires the Company to develop its own assumptions. Changes in the fair value of the warrants are reflected in the accompanying consolidated statements of operations as change in fair value of common stock warrant liability.
Redeemable Preferred Stock
We account for redeemable preferred stock as temporary equity in accordance with applicable accounting guidance in FASB ASC Topic 480,
Distinguishing Liabilities from Equity
. Dividends on the redeemable preferred stock are accounted for as an increase in the net loss attributable to common shareholders.
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that includes the enactment date. A valuation allowance is recorded to reduce the carrying amounts of deferred tax assets if it is more likely than not that such assets will not be realized. We did not report a benefit for federal and state income taxes in the consolidated financial statements as the deferred tax asset generated from our net operating loss has been offset by a full valuation allowance because it is more likely than not that the tax benefits of the net operating loss carryforward will not be realized.
The Company accounts for uncertain tax positions in accordance with FASB ASC No. 740-10-25,
Income Taxes-Overall-Recognition
. The Company recognizes in its consolidated financial statements the impact of a tax position only if that position is more likely than not to be sustained on audit, based on the technical merits of the position.
Foreign Currency Translation
Foreign currency translation adjustments arising from conversion of the Company’s foreign subsidiary’s financial statements to U.S. dollars for reporting purposes are included in accumulated other comprehensive income in stockholders’ equity on the accompanying consolidated balance sheets. Transaction gains and losses resulting from the effect of exchange rate changes on transactions denominated in currencies other than the functional currency of the Company’s operations give rise to realized foreign currency transaction gains and losses, and are included in interest and other income and interest and other expense, respectively, in the accompanying consolidated statements of operations.
Research and Development
Costs related to research and development activities by the Company are expensed as incurred.
Stock-Based Compensation
The Company maintains employee stock-based compensation plans, which are described more fully in Note 14, Employee Benefit Plans.
Stock-based compensation represents the cost related to stock-based awards granted to employees and directors. The Company measures stock-based compensation cost at grant date, based on the fair value of the award, and recognizes the cost as expense on a straight-line basis over the option’s requisite service period.
The Company estimates the fair value of stock-based awards using a Black-Scholes valuation model. Stock-based compensation expense is recorded in cost of revenue associated with sales of fuel cell systems and related infrastructure, cost of revenue for services performed on fuel cell systems and related infrastructure, research and development expense and selling, general and administrative expenses in the accompanying consolidated statements of operations based on the employees’ respective function.
The Company records deferred tax assets for awards that result in deductions on the Company’s income tax returns, based upon the amount of compensation cost recognized and the Company's statutory tax rate. Differences between the deferred tax assets recognized for financial reporting purposes and the actual tax deduction reported on the Company's income tax return are recorded in additional paid-in capital if the tax deduction exceeds the deferred tax asset or in the consolidated statements of operations if the deferred tax asset exceeds the tax deduction and no additional paid-in capital exists from previous awards. Excess tax benefits are recognized in the period in which the tax deduction is realized through a reduction of taxes payable. No tax benefit or expense for stock-based compensation has been recorded during the years ended December 31, 2016, 2015 and 2014 since the Company remains in a net operating loss (NOL) position.
Per Share Amounts
Basic earnings per common share are computed by dividing net loss attributable to common shareholders by the weighted average number of common shares outstanding during the reporting period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock (such as stock options, unvested restricted stock, common stock warrants, and preferred stock) were exercised or converted into common stock or resulted in the issuance of common stock (net of any assumed repurchases) that then shared in the earnings of the Company, if any. This is computed by dividing net earnings by the combination of dilutive common share equivalents, which is comprised of shares issuable under outstanding warrants, the conversion of preferred stock, and the Company’s share-based compensation plans, and the weighted average number of common shares outstanding during the reporting period. Since the Company is in a net loss position, all common stock equivalents would be considered to be anti-dilutive and are, therefore, not included in the determination of diluted earnings per share. Accordingly, basic and diluted loss per share are the same.
The following table provides the components of the calculations of basic and diluted earnings per share (in thousands, except share amounts):
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Year ended December 31,
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2016
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2015
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2014
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Numerator:
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Net loss attributable to common shareholders
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$
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(57,591)
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$
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(55,795)
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$
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(88,644)
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Denominator:
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Weighted average number of common shares outstanding
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180,619,860
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176,067,231
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159,228,815
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The dilutive potential common shares are summarized as follows:
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At December 31,
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2016
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2015
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2014
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Stock options outstanding (1)
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14,760,054
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11,700,786
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8,367,271
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Restricted stock outstanding
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13,333
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204,444
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473,336
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Common stock warrants (2)
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14,501,600
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4,192,567
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4,219,449
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Preferred stock (3)
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17,490,078
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5,554,594
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5,554,594
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Number of dilutive potential common shares
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46,765,065
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21,652,391
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18,614,650
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(1)
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During the years ended December 31, 2016, 2015, and 2014 the Company granted 3,702,500, 3,960,000 and 4,245,000 stock options, respectively.
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(2)
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In May 2011, the Company issued 7,128,563 warrants as part of an underwritten public offering with an exercise price of $0.93 per warrant. As a result of additional public offerings, and pursuant to the effect of the anti-dilution provisions of these warrants, the number of warrants increased to 22,995,365.
Of these warrants issued in May 2011, zero, 192,467, and 219,349 were unexercised as of December 31, 2016, 2015, and 2014 respectively.
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In February 2013, the Company issued 23,637,500 warrants as part of an underwritten public offering with an exercise price of $0.15 per warrant. Of these warrants issued in February 2013, 100 were unexercised as of December 31, 2016, 2015 and 2014.
In January 2014, the Company issued 4,000,000 warrants as part of an underwritten public offering with an exercise price of $4.00 per warrant. In December 2016, as a result of additional public offerings, and pursuant to the effect of the anti-dilution provisions of these warrants, the exercise price of the $4.00 warrants was reduced to $1.025. Of these warrants issued in January 2014, none have been exercised as of December 31, 2016, 2015 and 2014.
In December 2016, the Company issued 10,501,500 warrants as part of two concurrent underwritten public offerings with an exercise price of $1.50 per warrant. Of these warrants issued in December 2016, none have been exercised as of December 31, 2016. All warrants have anti-dilution provisions.
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(3)
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The preferred stock amount represents the dilutive potential common shares of the Series C and D redeemable preferred stock, based on the conversion price of the preferred stock as of December 31, 2016, 2015 and 2014, respectively. Of the 10,431 Series C redeemable preferred stock issued on May 16, 2013, 5,200 had been converted to common stock during the year ended December 31, 2013 with the remainder still outstanding. Of the 18,500 Series D redeemable preferred stock issued on December 22, 2016, zero have been converted to common stock as of December 31, 2016.
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Use of Estimates
The consolidated financial statements of the Company have been prepared in conformity with U.S. generally accepted accounting principles, which require management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
The determination of whether loss contracts exist is a significant estimate. During 2015, the Company recorded a provision for loss contracts related to service, as discussed in Note 11, Warranty Reserve and Accrual for Loss Contracts Related to Service.
Reclassifications
Reclassifications are made, whenever necessary, to prior period financial statements to conform to the current period presentation. These reclassifications did not impact the results of operations or net cash flows in the periods presented.
Subsequent Events
The Company evaluates subsequent events at the date of the balance sheet as well as conditions that arise after the balance sheet date but before the consolidated financial statements are issued. The effects of conditions that existed at the balance sheet date are recognized in the consolidated financial statements. Events and conditions arising after the balance sheet date but before the consolidated financial statements are issued are evaluated to determine if disclosure is required to keep the consolidated financial statements from being misleading. To the extent such events and conditions exist, if any, disclosures are made regarding the nature of events and the estimated financial effects for those events and conditions.
Recent Accounting Pronouncements
In January 2017, an accounting update was issued to simplify how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. This accounting update is effective for years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company is evaluating the impact this update will have on the consolidated financial statements.
In November 2016, an accounting update was issued to reduce the existing diversity in the classification and presentation of changes in restricted cash on the statement of cash flows. This accounting update is effective for years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The Company is evaluating the impact this update will have on the consolidated financial statements.
In October 2016, an accounting update was issued to simplify how an entity should recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. Consequently, the amendments in this update eliminate the exception for an intra-entity transfer of an asset other than inventory. Two common examples of assets included in the scope of this update are intellectual property and property, plant, and equipment. This accounting update is effective for the annual periods beginning after December 15, 2017 and interim periods within those years. The Company is evaluating the impact this update will have on the consolidated financial statements.
In August 2016, an accounting update was issued to reduce the existing diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. This accounting update is effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. Early adoption is permitted, including adoption in an interim period. The Company is evaluating the impact this update will have on the consolidated financial statements.
In March 2016, an accounting update was issued to simplify several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. This accounting update is effective for annual periods beginning after December 15, 2016, and interim periods within those periods. The Company does not expect the adoption of this update to have a significant effect on the consolidated financial statements
In March 2016, an accounting update was issued to simplify various aspects related to how share-based payments are accounted for and presented. This accounting update is effective for annual periods beginning after December 15, 2016 and interim periods within those years. Early adoption is permitted in any interim or annual period, with any adjustments reflected as of the beginning of the fiscal year of adoption. The Company does not expect the adoption of this update to have a significant effect on the consolidated financial statements.
In February 2016, an accounting update was issued which requires balance sheet recognition for operating leases, among other changes to previous lease guidance. This accounting update is effective for fiscal years beginning after December 15, 2018. The Company is evaluating the impact this update will have on the consolidated financial statements.
In July 2015, an accounting update was issued that changes inventory measurement from lower of cost or market to lower of cost and net realizable value. The new standard applies to inventory measured at first-in, first-out (FIFO). This accounting update is effective for the reporting periods beginning after December 15, 2016, and interim periods within those years. The Company does not expect the adoption of this update to have a significant effect on the consolidated financial statements.
In August 2014, an accounting update was issued relating to how management assesses conditions and events that could raise substantial doubt about an entity’s ability to continue as a going concern. This accounting update was adopted as of December 31, 2016 and did not have a significant effect on the consolidated financial statements.
In June 2014, an accounting update was issued that replaces the existing revenue recognition framework regarding contracts with customers. In July 2015, the FASB announced a one year delay in the required adoption date from January 1, 2017 to January 1, 2018. The Company has established an internal implementation team to oversee the adoption of the new standard. To date the Company has identified relevant arrangements and performance obligations and is assessing the impact of the new guidance. Evaluation is ongoing and it is too early to provide an assessment of the impact. The Company anticipates providing information about the impacts of adoption in the coming quarters. The Company is also evaluating whether to adopt the guidance using the full or modified retrospective basis, and will likely make that determination during the first half of 2017.
3. Acquisitions
HyPulsion
On July 24, 2015, the Company entered into a Share Purchase Agreement with Axane, pursuant to which on July 31, 2015, the Company (through a wholly-owned subsidiary) acquired Axane’s 80% equity interest in HyPulsion for $11.5 million, payable in shares of its common stock. In connection with the aforementioned agreement, the Company initially issued 4,781,250 shares of its common stock at closing. On August 26, 2015, the Company subsequently issued an additional 1,613,289 shares of common stock pursuant to a post-closing true-up provision, which was liability classified contingent consideration.
The Company acquired all of the net assets of HyPulsion, with the excess of the purchase price over net assets attributed to goodwill. Goodwill associated with the acquisition represents expanded access to the European markets related to the sale of fuel cell technology for material handling equipment. During the year ended December 31, 2016, changes in goodwill are attributed to foreign currency translation and, to a lesser extent, changes to estimated fair values of acquired assets and liabilities upon completion of purchase accounting. During the year ended December 31, 2015, changes in goodwill are attributed to foreign currency translation.
ReliOn, Inc.
On April 2, 2014, the Company completed the acquisition of ReliOn, Inc. (“ReliOn”) for an aggregate purchase price of $4.0 million. The Company acquired substantially all of the assets of ReliOn, including patents, technology and other intangible assets, equipment and other tangible assets. ReliOn is a developer of hydrogen fuel cell stack technology based in Spokane, Washington. As consideration, the Company issued 530,504 shares of common stock, and assumed certain specified liabilities of ReliOn. The total purchase price is based on the issuance of 530,504 shares of Plug Power common stock at the closing price of the Company’s stock on April 1, 2014 of $7.54. Upon closing of the acquisition, the Company reported a gain on bargain purchase of $1.0 million and it has been included within interest and other (expense) income, net on the consolidated statements of operations.
4. Inventory
Inventory as of December 31, 2016 and December 31, 2015 consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
December 31, 2015
|
|
Raw materials and supplies
|
|
$
|
26,298
|
|
$
|
23,705
|
|
Work-in-process
|
|
|
1,865
|
|
|
5,567
|
|
Finished goods
|
|
|
1,777
|
|
|
3,480
|
|
|
|
$
|
29,940
|
|
$
|
32,752
|
|
Raw materials and supplies includes spare parts inventory held at service locations valued at approximately $3.3 million and $2.2 million as of December 31, 2016 and 2015, respectively.
5. Property, Plant and Equipment
Property, plant and equipment at December 31, 2016 and 2015 consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
December 31,
|
|
|
|
2016
|
|
2015
|
|
Land
|
|
$
|
90
|
|
$
|
90
|
|
Buildings
|
|
|
15,332
|
|
|
15,332
|
|
Building improvements
|
|
|
5,221
|
|
|
5,169
|
|
Software, machinery and equipment
|
|
|
17,269
|
|
|
14,634
|
|
|
|
|
37,912
|
|
|
35,225
|
|
Less: accumulated depreciation
|
|
|
(29,666)
|
|
|
(27,970)
|
|
Property, plant, and equipment, net
|
|
$
|
8,246
|
|
$
|
7,255
|
|
Depreciation expense related to property, plant and equipment was $1.8 million, $1.5 million, and $1.4 million for the years ended December 31, 2016, 2015 and 2014, respectively.
6. Leased Property
Leased property at December 31, 2016 and 2015 consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
December 31,
|
|
|
|
2016
|
|
2015
|
|
Leased property
|
|
$
|
58,604
|
|
$
|
3,367
|
|
Less: accumulated depreciation
|
|
|
(4,544)
|
|
|
(1,700)
|
|
Leased property, net
|
|
$
|
54,060
|
|
$
|
1,667
|
|
Depreciation expense related to leased property was $2.9 million, $0.5 million, and $0.5 million the years ended December 31, 2016, 2015 and 2014, respectively.
7. Intangible Assets
The gross carrying amount and accumulated amortization of the Company’s acquired identifiable intangible assets as of December 31, 2016 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
|
|
Gross Carrying
|
|
Accumulated
|
|
|
|
|
|
|
Period
|
|
Amount
|
|
Amortization
|
|
Total
|
|
Acquired technology
|
|
9 years
|
|
$
|
4,645
|
|
|
(928)
|
|
|
3,717
|
|
Customer relationships
|
|
10 years
|
|
|
260
|
|
|
(71)
|
|
|
189
|
|
Trademark
|
|
5 years
|
|
|
60
|
|
|
(33)
|
|
|
27
|
|
|
|
|
|
$
|
4,965
|
|
$
|
(1,032)
|
|
$
|
3,933
|
|
The gross carrying amount and accumulated amortization of the Company’s acquired identifiable intangible assets as of December 31, 2015 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
|
|
Gross Carrying
|
|
Accumulated
|
|
|
|
|
|
|
Period
|
|
Amount
|
|
Amortization
|
|
Total
|
|
Acquired technology
|
|
9 years
|
|
$
|
4,793
|
|
$
|
(403)
|
|
$
|
4,390
|
|
Customer relationships
|
|
10 years
|
|
|
260
|
|
|
(45)
|
|
|
215
|
|
Trademark
|
|
5 years
|
|
|
60
|
|
|
(21)
|
|
|
39
|
|
|
|
|
|
$
|
5,113
|
|
$
|
(469)
|
|
$
|
4,644
|
|
The change in the gross carrying amount of the acquired technology from December 31, 2015 to December 31, 2016 is due to changes attributed to foreign currency translation.
Amortization expense for acquired identifiable intangible assets for the years ended December 31, 2016, 2015, and 2014 was $0.6 million, $1.0 million, and $2.4 million, respectively. Estimated amortization expense for subsequent years is as follows (in thousands):
|
|
|
|
|
2017
|
|
$
|
568
|
|
2018
|
|
|
568
|
|
2019
|
|
|
461
|
|
2020
|
|
|
425
|
|
2021
|
|
|
425
|
|
Thereafter
|
|
|
1,486
|
|
Total
|
|
$
|
3,933
|
|
8. Accrued Expenses
Accrued expenses at December 31, 2016 and 2015 consist of (in thousands):
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
Accrued payroll and compensation related costs
|
|
$
|
1,924
|
|
$
|
3,896
|
|
Accrued accounts payable
|
|
|
2,044
|
|
|
2,444
|
|
Accrued sales and other taxes
|
|
|
2,508
|
|
|
1,490
|
|
Accrued litigation
|
|
|
1,008
|
|
|
1,077
|
|
Accrued other
|
|
|
1,035
|
|
|
945
|
|
Total
|
|
$
|
8,519
|
|
$
|
9,852
|
|
9. Short-Term Borrowing
On March 2, 2016, the Company entered into a loan agreement with Generate Lending, LLC (the Generate Lending Loan Agreement). The Generate Lending Loan Agreement, among other things, provided for a $30 million secured term loan facility (the Short-Term Loan Facility). Advances under the Short-Term Loan Facility bore interest at the rate of 12.0% per annum. The term of the Generate Lending Loan Agreement was one year, ending March 2, 2017. Pursuant to the Generate Lending Loan Agreement, $25.0 million of the Short-Term Loan Facility was drawn upon at closing. On June 27, 2016, the Short-Term Loan Facility was converted to long-term project financing from the same lender. That financing was accounted for as a series of capital leases, the obligation of which is now presented as part of finance obligations on the accompanying consolidated balance sheet, as discussed in Note 17, Commitments and Contingencies.
10. Long-Term Debt
NY Green Bank Loan
On December 23, 2016, the Company, and its subsidiaries Emerging Power Inc. and Emergent Power Inc. entered into a loan and security agreement with NY Green Bank, a Division of the New York State Energy Research & Development Authority, (NY Green Bank), pursuant to which NY Green Bank made available to the Company a secured term loan facility in the amount of $25.0 million (Term Loan Facility), subject to certain terms and conditions. The Company borrowed $25.0 million upon closing and incurred costs of $1.2 million. At December 31, 2016, the outstanding principal balance under the Term Loan Facility was $25.0 million. The fair value of the Term Loan Facility approximates the carrying value as of December, 31, 2016.
Advances under the Term Loan Facility bear interest at a rate equal to the sum of (i) the LIBOR rate for the applicable interest period, plus (ii) the credit default swap index coupon for the applicable interest period, plus (iii) 6.00% per annum. The interest rate at December 31, 2016 was approximately 11.3%. The term of the loan is three years, with a maturity date of December 23, 2019. Estimated principal payments will approximately be $3.0 million, $8.4 million, and
$13.6 million during the years ended December 31, 2017, 2018, and 2019, respectively. These payments will be funded by restricted cash released, as described in Note 17, Commitments and Contingencies.
Interest and a varying portion of the principal amount is payable on a quarterly basis and the entire then outstanding principal balance of the Term Loan Facility, together with all accrued and unpaid interest, is due and payable on the maturity date. On the maturity date, the Company may also be required to pay additional fees of up to $1.0 million if the Company is unable to meet certain goals related to the deployment of fuel cell systems in the State of New York and increasing the Company’s number of full-time employees in the State of New York.
The Term Loan Facility is secured by substantially all of the Company’s and the guarantor subsidiaries’ assets, including, among other assets, all intellectual property, all securities in domestic subsidiaries and 65% of the securities in foreign subsidiaries, subject to certain exceptions and exclusions.
The Term Loan Facility contains covenants, including, among others, (i) the provision of annual and quarterly financial statements, management rights and insurance policies and (ii) restrictions on incurring debt, granting liens, making acquisitions, making loans, paying dividends, dissolving, and entering into leases and asset sales. The Term Loan Facility also provides for events of default, including, among others, payment, bankruptcy, covenant, representation and warranty, change of control, judgment and material adverse effect defaults at the discretion of the lender.
The Term Loan Facility provides that if there is an event of default due to the Company’s insolvency or if the Company fails to perform, in any material respect, the servicing requirements for fuel cell systems under certain customer agreements, which failure would entitle the customer to terminate such customer agreement, replace the Company or withhold the payment of any material amount to the Company under such customer agreement, then the NY Green Bank has the right to cause a wholly owned subsidiary of the Company to replace the Company in performing the maintenance services under such customer agreement.
Hercules Capital, Inc. Loan
On June 27, 2016, Plug Power Inc. and its subsidiaries Emerging Power Inc. and Emergent Power Inc. entered into a loan and security agreement with Hercules Capital, Inc. (Hercules) pursuant to which Hercules agreed to make available to the Company a secured term loan facility in the amount of up to $40.0 million (the Hercules Term Loan Facility), subject to certain terms and conditions. The Company borrowed $25.0 million on the date of closing and incurred transaction costs of $1.4 million.
On December 22, 2016, the Company prepaid in full its obligations under the Hercules Loan and Security Agreement and the Hercules Term Loan Facility was terminated. The Company used the net proceeds of preferred and common stock public offerings, together with existing cash, to repay the principal amount outstanding under the Hercules Term Loan Facility of $25.0 million and pay the interest, fees and expenses related to such repayment of $4.0 million. In addition, the Company recorded accelerated amortization of debt issuance costs of $1.1 million. The interest, fees, expenses and amortization have been included within interest and other (expense) income, net on the consolidated statements of operations.
9.
11. Warranty Reserve and Accrual for Loss Contracts Related to Service
The following table summarizes product warranty activity recorded during the years ended December 31, 2016 and 2015 (in thousands):
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
December 31, 2015
|
|
Beginning balance - January 1
|
|
$
|
406
|
|
$
|
1,311
|
|
Additions for current period deliveries
|
|
|
42
|
|
|
230
|
|
Reductions for payments made
|
|
|
(263)
|
|
|
(1,135)
|
|
Ending balance - December 31
|
|
$
|
185
|
|
$
|
406
|
|
Management has projected estimated service costs related to GenCare extended maintenance contracts and determined that certain loss contracts exist. A variety of assumptions are included in the estimates of future service costs,
including the life of parts, failure rates of parts, and future costs of parts and labor. As a result, the Company has an accrual for loss contracts related to service of $0.8 million and $10.1 million, as of December 31, 2016 and 2015, respectively. During the year ended December 31, 2016, the Company renegotiated one of these service contracts. As a result, the projected costs over the remaining life of the amended contract were estimated to be reduced and the Company recognized a gain within cost of revenue where the original charge was recorded.
The following table summarizes activity related to the accrual for loss contracts related to service during the years ended December 31, 2016 and 2015 (in thousands):
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
December 31, 2015
|
Beginning balance - January 1
|
|
$
|
10,050
|
|
$
|
—
|
Provision
|
|
|
(1,071)
|
|
|
10,050
|
Reductions for losses realized
|
|
|
(8,227)
|
|
|
—
|
Ending balance - December 31
|
|
$
|
752
|
|
$
|
10,050
|
12. Stockholders’ Equity
Preferred Stock
The Company has authorized 5.0 million shares of preferred stock, par value $0.01 per share. The Company’s certificate of incorporation provides that shares of preferred stock may be issued from time to time in one or more series. The Company’s Board of Directors is authorized to fix the voting rights, if any, designations, powers, preferences, qualifications, limitations and restrictions thereof, applicable to the shares of each series.
The Company has authorized Series A Junior Participating Cumulative Preferred Stock, par
value $.01 per
share. As of December 31, 2016 and 2015, there were no shares of Series A Junior Participating Cumulative Preferred Stock issued and outstanding. See Note 13, Redeemable Preferred Stock, for description of the Company’s issued and outstanding Series C and D redeemable preferred stock.
Common Stock and Warrants
The Company has one class of common stock, par value $0.01 per share. Each share of the Company’s common stock is entitled to one vote on all matters submitted to stockholders. There were 191,141,646 and 180,087,491 shares of common stock outstanding as of December 31, 2016 and 2015, respectively.
In December 2016, the Company completed an offering of an aggregate of 10,400,000 shares of common stock, and warrants to purchase 3,120,000 shares of common stock. The net proceeds to the Company were approximately $11.9 million, after deducting underwriting discounts and commissions and expenses payable by the Company. Each full warrant entitles the holder thereof to purchase one share of common stock at an exercise price equal to $1.50 per share. The warrants will be exercisable during the period commencing on the six-month anniversary of the date of original issuance and ending on June 21, 2022. The Company also entered into an underwriting agreement with Oppenheimer & Co. Inc., related to the underwritten registered offering of the Company’s Series D Redeemable Preferred Stock, which included the issuance of warrants to purchase 7,381,500 shares of common stock, as discussed in Note 13, Redeemable Preferred Stock.
During 2014, the Company completed a series of underwritten public offerings, aggregating to issuances of 36,502,440 shares of common stock. The share prices ranged from $5.50 to $5.74 with respect to 26,502,440 of the shares. One of the underwritten public offerings included accompanying warrants to purchase 4,000,000 shares of common stock. The shares and the warrants were sold together in a fixed combination, with each combination consisting of one share of common stock and 0.40 of a warrant to purchase one share of common stock, at a price of $3.00 per fixed combination for 10,000,000 shares. The total net proceeds to the Company from the 2014 public offerings were $165.7 million, of which $11.8 million in value was ascribed to the warrants issued in the January 2014 public offering. The warrants had an initial exercise price of $4.00 per share, were immediately exercisable and will expire on January 15, 2019. Due to the anti-dilutive provision, the exercise price of the warrants decreased to $1.025 per share in December 2016.
During 2013, the Company completed a series of underwritten public offerings. One of the underwritten public offerings included accompanying warrants to purchase common stock. As of December 31, 2016 and 2015, 100 warrants with an exercise price of $0.15 per share, remain outstanding, are exercisable and will expire in February 2018.
During the years ended December 31, 2016, 2015 and 2014, 119,879, 26,882 and 23,918,429 warrants were exercised, respectively, resulting in the issuance of shares of common stock of 119,879, 26,882 and 23,832,038, respectively, and gross proceeds of $111 thousand, $25 thousand, $18.3 million, respectively, and increase of paid-in capital and reduction of the warrant liability by $141 thousand, $22 thousand and $83.4 million, respectively. At December 31, 2016 and 2015, the Company has 14,501,600 and 4,192,567 warrants outstanding and exercisable. The warrants are measured at fair value and classified as a liability on the consolidated balance sheets.
13. Redeemable Preferred Stock
In December 2016, the Company completed an offering of an aggregate of 18,500 shares of the Company’s Series D Redeemable Preferred Stock, par value $0.01 per share and warrants to purchase 7,381,500 shares of common stock. The net proceeds to the Company were approximately $15.6 million, after deducting underwriting discounts and commissions and estimated expenses payable by the Company. The terms and conditions of the warrants issued pursuant to the preferred share offering are identical to the warrants issued pursuant to the common share offering (see Note 12, Stockholders’ Equity). The Company is required to redeem the Series D Redeemable Preferred Stock in ten monthly installments in the amount of $1.9 million each from January 2017 through October 2017.
Each share of Series D Redeemable Preferred Stock was issued with an initial stated value of $1,000 per share. Over the first ten months of 2017, the Series D Redeemable Preferred Stock will be redeemed in ten equal installments of $1.9 million. The Company is required to elect, on a monthly basis, whether it will redeem or convert the required installment. Should the Company elect to redeem, the shares are valued at the stated value. Should the Company elect to convert, the holder of the shares will receive common stock, with a conversion price discounted at 12% of market value. Also, the holders of the shares, at any time, may elect to convert all or any whole amount of shares, using a conversion price of $1.55. Conversion prices become more discounted upon a change in control, remote triggering events, or failure to make a redemption payment.
Except for our Series C Redeemable Preferred Stock, which shall rank senior to the Series D Redeemable Preferred Stock as to dividends, distributions and payments upon the Company’s liquidation, dissolution and winding up, and subject to the issuance of capital stock that is of senior or pari-passu rank to the preferred shares, all shares of our capital stock, including our common stock, shall be junior in rank to all preferred shares with respect to dividends, distributions and payments upon our liquidation, dissolution and winding up or any capital stock that has a maturity date or other date requiring redemption or repayment prior to the maturity date of the preferred stock.
Holders of the Series D Redeemable Preferred Shares are not entitled to receive dividends except in connection with certain purchase rights and other corporate events, as described in the certificate of designations, or in connection with certain distributions of assets, as described in the certificate of designations, or as, when and if declared by the Company’s Board of Directors acting in its sole and absolute discretion. Holders of Series D Redeemable Preferred Shares shall have no voting rights, except on matters required by law or under the certificate of designations to be submitted to a class vote of the holders of the Series D Redeemable Preferred Shares.
On May 8, 2013, the Company entered into a Securities Purchase Agreement with Air Liquide, pursuant to which the Company agreed to issue and sell 10,431 shares of the Company’s Series C Redeemable Preferred Stock. On August 26, 2014, Air Liquide acquired 5,521,676 shares of Common Stock by converting 5,200 shares of Series C Redeemable Preferred Stock at the conversion price of $0.2343. Following the conversion, Air Liquide continues to own 5,231 shares of Series C Redeemable Preferred Stock. The holder of these shares is entitled to designate one director to the Company’s Board of Directors. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company, or other deemed liquidation event, as defined in the Securities Purchase Agreement, the holder of the Series C Redeemable Preferred Stock will be entitled to be paid an amount per share equal to the greater of (i) the original issue price, plus any accrued but unpaid dividends or (ii) the amount per share that would have been payable had all shares of the Series C Redeemable Preferred Stock been converted to shares of common stock immediately prior to such liquidation event. The
Series C Redeemable Preferred Stock is redeemable at the election of the holder of the Series C Redeemable Preferred Stock or the Company.
The holder of the Series C Redeemable Preferred Stock is entitled to receive dividends at a rate of 8% per annum, based on the original issue price of $2,595,400, payable in equal quarterly installments in cash or in shares of Common Stock, at the Company’s option. During the years ended December 31, 2016, 2015 and 2014 dividends have been paid in the form of shares of Common Stock. The Series C Redeemable Preferred Stock is convertible into shares of Common Stock with the number of shares of Common Stock issuable upon conversion determined by dividing the original issue price of $2,595,400 by the conversion price in effect at the time the shares are converted. The conversion price of the Series C Redeemable Preferred Stock as of December 31, 2016 and 2015 was $0.2343. The Series C Redeemable Preferred Stock votes together with the Common Stock on an as-converted basis on all matters.
14. Employee Benefit Plans
2011 Stock Option and Incentive Plan
On May 12, 2011, the Company’s stockholders approved the 2011 Stock Option and Incentive Plan (the 2011 Plan). The 2011 Plan provides for the issuance of up to a maximum number of shares of common stock equal to the sum of (i) 1,000,000, plus (ii) the number of shares of common stock underlying any grants pursuant to the 2011 Plan or the Plug Power Inc. 1999 Stock Option and Incentive Plan that are forfeited, canceled, repurchased or are terminated (other than by exercise). The shares may be issued pursuant to stock options, stock appreciation rights, restricted stock awards and certain other equity-based awards granted to employees, directors and consultants of the Company. No grants may be made under the 2011 Plan after May 12, 2021. Through various amendments to the 2011 Plan approved by the Company’s stockholders, the number of shares of the Company’s common stock authorized for issuance under the 2011 Plan has been increased to 17.0 million. For the years ended December 31, 2016, 2015, and 2014, the Company recorded expense of approximately $9.0 million, $7.5 million, and $3.6 million, respectively, in connection with the 2011 Stock Option and Incentive Plan.
At December 31, 2016, there were approximately 14.8 million options granted and outstanding and 1.0 million options available to be issued under the 2011 Plan, including adjustments for other types of share-based awards. Options for employees issued under this plan generally vest in equal annual installments over three years and expire ten years after issuance. Options granted to members of the Board generally vest one year after issuance. To date, options granted under the 2011 Plan have vesting provisions ranging from one to three years in duration and expire ten years after issuance.
Compensation cost associated with employee stock options represented approximately $9.0 million, $7.5 million and $3.4 million of the total share-based payment expense recorded for the years ended December 31, 2016, 2015, and 2014, respectively. The Company estimates the fair value of stock options using a Black-Scholes valuation model, and the resulting fair value is recorded as compensation cost on a straight-line basis over the option vesting period. Key inputs and assumptions used to estimate the fair value of stock options include the grant price of the award, the expected option term, volatility of the Company’s stock, an appropriate risk-free rate, and the Company’s dividend yield. Estimates of fair value are not intended to predict actual future events or the value ultimately realized by employees who receive equity awards, and subsequent events are not indicative of the reasonableness of the original estimates of fair value made by the Company. The assumptions made for purposes of estimating fair value under the Black-Scholes model for the 3,702,500, 3,960,000 and 4,246,000 options granted during the years ended December 31, 2016, 2015 and 2014, respectively, were as follows:
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
Expected term of options (years)
|
|
6
|
|
6
|
|
6
|
|
Risk free interest rate
|
|
1.27% - 1.69%
|
|
1.52% - 1.87%
|
|
1.77% - 1.94%
|
|
Volatility
|
|
103.87% - 104.88%
|
|
104.03% - 105.29%
|
|
107.17% - 113.92%
|
|
There was no expected dividend yield for the employee stock options granted.
The Company’s estimate of an expected option term was calculated in accordance with the simplified method for calculating the expected term assumption. The estimated stock price volatility was derived from the Company’s actual historic stock prices over the past six years, which represents the Company’s best estimate of expected volatility.
A summary of stock option activity for the year December 31, 2016 is as follows (in thousands except share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
Weighted
|
|
Average
|
|
|
|
|
|
|
|
|
Average
|
|
Remaining
|
|
Aggregate
|
|
|
|
|
|
Exercise
|
|
Contractual
|
|
Intrinsic
|
|
|
|
Shares
|
|
Price
|
|
Terms
|
|
Value
|
|
Options outstanding at December 31, 2015
|
|
11,700,786
|
|
$
|
3.29
|
|
8.3
|
|
|
|
|
Granted
|
|
3,702,500
|
|
|
1.72
|
|
|
|
|
|
|
Exercised
|
|
(274,000)
|
|
|
0.37
|
|
|
|
|
|
|
Forfeited
|
|
(347,482)
|
|
|
2.91
|
|
|
|
|
|
|
Expired
|
|
(21,750)
|
|
|
49.18
|
|
|
|
|
|
|
Options outstanding at December 31, 2016
|
|
14,760,054
|
|
$
|
2.90
|
|
7.9
|
|
$
|
878
|
|
Options exercisable at December 31, 2016
|
|
7,368,564
|
|
|
3.28
|
|
7.0
|
|
|
878
|
|
Options unvested at December 31, 2016
|
|
7,391,490
|
|
$
|
2.52
|
|
8.9
|
|
|
—
|
|
The weighted average grant date fair value of options granted during the years ended December 31, 2016, 2015 and 2014 was $1.39, $1.99, and $4.05, respectively. As of December 31, 2016, there was approximately $11.0 million of unrecognized compensation cost related to stock option awards to be recognized over the next three years, all of this is expected to vest. The total fair value of stock options that vested during the years ended December 31, 2016 and 2015 was approximately $8.6 million and $6.1 million, respectively.
Restricted stock awards generally vest in equal installments over a period of one to three years. Restricted stock awards are valued based on the closing price of the Company’s common stock on the date of grant, and compensation cost is recorded on a straight-line basis over the share vesting period. The Company recorded expense associated with its restricted stock awards of approximately $88 thousand, $118 thousand, and $84 thousand for the years ended December 31, 2016, 2015 and 2014, respectively. Additionally, for the years ended December 31, 2016, 2015 and 2014, there was $43 thousand, $132 thousand, and $265 thousand, respectively, of unrecognized compensation cost related to restricted stock awards to be recognized over the next three years.
A summary of restricted stock activity for the year ended December 31, 2016 is as follows (in thousands except share amounts):
|
|
|
|
|
|
|
|
|
|
|
Aggregate
|
|
|
|
|
|
Intrinsic
|
|
|
|
Shares
|
|
Value
|
|
Unvested restricted stock at December 31, 2015
|
|
204,444
|
|
|
|
|
Vested
|
|
(191,111)
|
|
|
|
|
Unvested restricted stock at December 31, 2016
|
|
13,333
|
|
$
|
16
|
|
401(k) Savings & Retirement Plan
The Company offers a 401(k) Savings & Retirement Plan to eligible employees meeting certain age and service requirements. This plan permits participants to contribute 100% of their salary, up to the maximum allowable by the Internal Revenue Service regulations. Participants are immediately vested in their voluntary contributions plus actual earnings or less actual losses thereon. Participants are vested in the Company’s matching contribution based on years of service completed. Participants are fully vested upon completion of three years of service. During 2002, the Company began funding its matching contribution in common stock. During 2016 and 2015, the Company funded its matching contribution with cash. During 2014, the Company issued 74,863 shares of common stock to the Plug Power Inc. 401(k) Savings & Retirement Plan.
The Company’s expense for this plan, including the issuance of shares, was approximately $1.4 million, $0.8 million and $0.4 million for years ended December 31, 2016, 2015 and 2014, respectively.
Non-Employee Director Compensation
Each non-employee director is paid an annual retainer for their services, in the form of either cash or stock compensation. The Company granted 105,479, 89,490, and 71,311 shares of stock to non-employee directors as compensation for the years ended December 31, 2016, 2015, and 2014, respectively. All common stock issued is fully vested at the time of issuance and is valued at fair value on the date of issuance. The Company’s share-based compensation expense for this plan was approximately $267 thousand, $267 thousand and $331 thousand for the years ended December 31, 2016, 2015, and 2014 respectively.
15. Fair Value Measurements
The following table summarizes the financial instruments measured at fair value on a recurring basis in the consolidated balance sheets (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices
|
|
Significant
|
|
Significant
|
|
|
|
|
|
|
in Active
|
|
Other
|
|
Other
|
|
|
|
|
|
|
Markets for
|
|
Observable
|
|
Unobservable
|
|
|
|
|
|
|
Identical
Items
|
|
Inputs
|
|
Inputs
|
|
|
|
Total
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
Balance at December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock warrant liability
|
|
$
|
11,387
|
|
$
|
—
|
|
$
|
—
|
|
$
|
11,387
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock warrant liability
|
|
$
|
5,735
|
|
$
|
—
|
|
$
|
—
|
|
$
|
5,735
|
|
The Company’s common stock warrant liability represents the only financial instrument measured at fair value on a recurring basis in the consolidated balance sheets. The fair value measurement is determined by using Level 3 inputs due to the lack of active and observable markets that can be used to price identical assets. Level 3 inputs are unobservable inputs and should be used to determine fair value only when observable inputs are not available. Unobservable inputs should be developed based on the best information available in the circumstances, which might include internally generated data and assumptions being used to price the asset or liability.
Fair value of the common stock warrant liability is based on the Black-Scholes pricing model which is based, in part, upon unobservable inputs for which there is little or no market data, requiring the Company to develop its own assumptions. The Company used the following assumptions for its common stock warrants:
|
|
|
|
|
|
|
December 31, 2016
|
|
December 31, 2015
|
Risk-free interest rate
|
|
0.87% - 1.96%
|
|
0.5% - 1.28%
|
Volatility
|
|
49.0% - 103.41%
|
|
79.82% - 128.35%
|
Expected average term
|
|
1.14 - 5.47
|
|
0.42 - 3.04
|
There was no expected dividend yield for the warrants granted. If factors change and different assumptions are used, the warrant liability and the change in estimated fair value could be materially different. Generally, as the market price of our common stock increases, the fair value of the warrant increases, and conversely, as the market price of our common stock decreases, the fair value of the warrant decreases. Also, a significant increase in the volatility of the market price of the Company's common stock, in isolation, would result in a significantly higher fair value measurement, and a significant decrease in volatility would result in a significantly lower fair value measurement.
The following table shows the activity related to financial instruments measured at fair value on a recurring basis using significant unobservable inputs for the years ended December 31, 2016 and 2015 (in thousands):
|
|
|
|
|
|
|
|
Common stock warrant liability
|
|
2016
|
|
2015
|
|
Beginning of period
|
|
$
|
5,735
|
|
$
|
9,418
|
|
Change in fair value of common stock warrants
|
|
|
(4,344)
|
|
|
(3,661)
|
|
Issuance of common stock warrants
|
|
|
10,137
|
|
|
—
|
|
Exercise of common stock warrants
|
|
|
(141)
|
|
|
(22)
|
|
End of period
|
|
$
|
11,387
|
|
$
|
5,735
|
|
16. Income Taxes
The components of loss before income taxes and the income tax benefit for the years ended December 31, 2016, 2015 and 2014, by jurisdiction, are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
|
|
U.S.
|
|
Foreign
|
|
Total
|
|
U.S.
|
|
Foreign
|
|
Total
|
|
U.S.
|
|
Foreign
|
|
Total
|
|
Loss before income taxes
|
|
$
|
(56,317)
|
|
$
|
(1,562)
|
|
$
|
(57,879)
|
|
$
|
(54,921)
|
|
$
|
(769)
|
|
$
|
(55,690)
|
|
$
|
(87,459)
|
|
$
|
(1,354)
|
|
$
|
(88,813)
|
|
Income tax benefit
|
|
|
—
|
|
|
392
|
|
|
392
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
325
|
|
|
325
|
|
Net loss attributable to the Company
|
|
$
|
(56,317)
|
|
$
|
(1,170)
|
|
$
|
(57,487)
|
|
$
|
(54,921)
|
|
$
|
(769)
|
|
$
|
(55,690)
|
|
$
|
(87,459)
|
|
$
|
(1,029)
|
|
$
|
(88,488)
|
|
The significant components of deferred income tax (benefit) expense for the years ended December 31, 2016, 2015 and 2014, by jurisdiction, are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
|
|
U.S.
|
|
Foreign
|
|
Total
|
|
U.S.
|
|
Foreign
|
|
Total
|
|
U.S.
|
|
Foreign
|
|
Total
|
|
Deferred tax (benefit) expense
|
|
$
|
(6,420)
|
|
$
|
(1,299)
|
|
$
|
(7,719)
|
|
$
|
(14,237)
|
|
$
|
893
|
|
$
|
(13,344)
|
|
$
|
(4,282)
|
|
$
|
194
|
|
$
|
(4,088)
|
|
Net operating loss carryforward (generated) expired
|
|
|
(16,727)
|
|
|
(2,827)
|
|
|
(19,554)
|
|
|
(8,345)
|
|
|
895
|
|
|
(7,450)
|
|
|
(8,974)
|
|
|
625
|
|
|
(8,349)
|
|
Valuation allowance increase (decrease)
|
|
|
23,147
|
|
|
4,126
|
|
|
27,273
|
|
|
22,582
|
|
|
(1,788)
|
|
|
20,794
|
|
|
13,256
|
|
|
(819)
|
|
|
12,437
|
|
Provision for income taxes
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
The Company’s effective income tax rate differed from the federal statutory rate as follows:
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
U.S. Federal statutory tax rate
|
|
(35.0)
|
%
|
(35.0)
|
%
|
(35.0)
|
%
|
Deferred state taxes, net of federal benefit
|
|
(3.1)
|
%
|
(3.1)
|
%
|
(1.2)
|
%
|
Common stock warrant liability
|
|
(2.6)
|
%
|
(2.3)
|
%
|
20.6
|
%
|
Foreign provision to return adjustments
|
|
(2.9)
|
%
|
—
|
%
|
—
|
%
|
Change in unrecognized tax benefits
|
|
(0.7)
|
%
|
—
|
%
|
(0.9)
|
%
|
Other, net
|
|
(1.6)
|
%
|
0.3
|
%
|
0.7
|
%
|
Change in valuation allowance
|
|
45.2
|
%
|
40.1
|
%
|
15.4
|
%
|
|
|
(0.7)
|
%
|
0.0
|
%
|
(0.4)
|
%
|
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of certain assets and liabilities for financial reporting and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities as of December 31, 2016 and 2015 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
Foreign
|
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
Intangible assets
|
|
$
|
—
|
|
$
|
—
|
|
$
|
1,614
|
|
$
|
1,469
|
|
Deferred revenue
|
|
|
8,713
|
|
|
7,017
|
|
|
—
|
|
|
—
|
|
Other reserves and accruals
|
|
|
1,703
|
|
|
6,411
|
|
|
—
|
|
|
—
|
|
Tax credit carryforwards
|
|
|
1,218
|
|
|
798
|
|
|
1,216
|
|
|
65
|
|
Property, plant and equipment
|
|
|
754
|
|
|
1,803
|
|
|
—
|
|
|
389
|
|
Amortization of stock-based compensation
|
|
|
17,167
|
|
|
13,145
|
|
|
—
|
|
|
—
|
|
Capitalized research & development expenditures
|
|
|
16,935
|
|
|
13,431
|
|
|
4,352
|
|
|
4,008
|
|
Net operating loss carryforwards
|
|
|
43,929
|
|
|
27,202
|
|
|
8,624
|
|
|
5,797
|
|
Total deferred tax asset
|
|
|
90,419
|
|
|
69,807
|
|
|
15,806
|
|
|
11,728
|
|
Valuation allowance
|
|
|
(85,731)
|
|
|
(62,584)
|
|
|
(15,646)
|
|
|
(11,520)
|
|
Net deferred tax assets
|
|
$
|
4,688
|
|
$
|
7,223
|
|
$
|
160
|
|
$
|
208
|
|
Intangible assets
|
|
|
(177)
|
|
|
(220)
|
|
|
—
|
|
|
—
|
|
Property, plant and equipment
|
|
|
—
|
|
|
—
|
|
|
(160)
|
|
|
(208)
|
|
Non-employee stock based compensation
|
|
|
(1,628)
|
|
|
(1,556)
|
|
|
—
|
|
|
—
|
|
Section 382 recognized built in loss
|
|
|
(2,883)
|
|
|
(5,447)
|
|
|
—
|
|
|
—
|
|
Net deferred tax liability
|
|
$
|
(4,688)
|
|
$
|
(7,223)
|
|
$
|
(160)
|
|
$
|
(208)
|
|
Net
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
The Company has recorded a valuation allowance, as a result of uncertainties related to the realization of its net deferred tax asset, at December 31, 2016 and 2015 of approximately $101.4 million and $74.1 million, respectively. A reconciliation of the current year change in valuation allowance is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
Foreign
|
|
Total
|
|
Increase in valuation allowance for current year increase in net operating losses
|
|
$
|
16,727
|
|
$
|
2,827
|
|
$
|
19,554
|
|
Increase in valuation allowance for current year net increase in deferred tax assets other than net operating losses
|
|
|
6,420
|
|
|
282
|
|
|
6,702
|
|
Increase in valuation allowance as a result of foreign currency fluctuation
|
|
|
—
|
|
|
235
|
|
|
235
|
|
Increase in valuation allowance due to change in tax rates
|
|
|
—
|
|
|
313
|
|
|
313
|
|
Increase in valuation allowance due to change in deferred tax assets related to unrecognized tax benefits
|
|
|
—
|
|
|
469
|
|
|
469
|
|
Net increase in valuation allowance
|
|
$
|
23,147
|
|
$
|
4,126
|
|
$
|
27,273
|
|
The deferred tax assets have been offset by a full valuation allowance because it is more likely than not that the tax benefits of the net operating loss carryforwards and other deferred tax assets may not be realized. Included in the valuation allowance at December 31, 2016 and December 31, 2015 are $0.1 million of deferred tax assets resulting from the exercise of employee stock options, which upon subsequent realization of the tax benefits, will be allocated directly to paid-in capital.
Before the imposition of IRC Section 382 limitations described below, at December 31, 2016, the Company has unused federal and state net operating loss carryforwards of approximately $830.0 million, of which $117.0 million was generated from the operations of acquired companies prior to the dates of acquisition and $713.0 million was generated by the Company subsequent to the acquisition dates and through December 31, 2016.
Under Internal Revenue Code (IRC) Section 382, the use of loss carryforwards may be limited if a change in ownership of a company occurs. If it is determined that, due to transactions involving the Company’s shares owned by its 5 percent or greater shareholders, a change of ownership has occurred under the provisions of IRC Section 382, the Company's federal and state net operating loss carryforwards could be subject to significant IRC Section 382 limitations.
Based on studies of the changes in ownership of the Company, it has been determined that IRC Section 382 ownership changes have occurred which significantly reduces that amount of pre-change net operating losses that can be used in future years to $13.5 million. In addition, net operating losses of $102.2 million incurred after the most recent ownership change are not subject to IRC Section 382 and are available for use in future years. Accordingly, the Company’s deferred tax assets include $115.6 million of U.S. net operating loss carryforwards. The net operating loss carryforwards available at December 31, 2016, if unused will expire at various dates from 2017 through 2036.
The ownership changes also resulted in net unrealized built in losses per IRS Notice 2003-65 which should result in recognized built in losses during the five year recognition period. These recognized built in losses will translate into unfavorable book to tax add backs in the Company’s 2017 to 2018 U.S. corporate income tax returns of approximately $7.6 million that resulted in a gross deferred tax liability of $2.9 million at December 31, 2016. This gross deferred tax liability offsets existing gross deferred tax assets effectively reducing the valuation allowance. This has no impact on the Company’s current financial position, results of operations, or cash flows because of the full valuation allowance.
Approximately $1.2 million of research credit carryforwards generated after the most recent IRC Section 382 ownership change are included in the Company’s deferred tax assets. Due to limitations under IRC Section 382, research credit carryforwards existing prior to the most recent IRC Section 382 ownership change will not be used and are not reflected in the Company’s gross deferred tax asset at December 31, 2016.
At December 31, 2016, the Company has unused Canadian net operating loss carryforwards of approximately $13.7 million. The net operating loss carryforwards if unused will expire at various dates from 2026 through 2034. At December 31, 2016, the Company has scientific research and experimental development (SR&ED) expenditures of $16.7 million available to offset future taxable income in Canada. These SR&ED expenditures have no expiration date. At December 31, 2016, the Company has Canadian ITC credit carryforwards of $1.6 million available to offset future income tax. These credit carryforwards if unused will expire at various dates from 2021 through 2027.
At December 31, 2016, the Company has unused French net operating loss carryforwards of approximately $15.4 million. The net operating loss may carryforward indefinitely or until the Company changes its activity.
As of December 31, 2016, the Company has no un-repatriated foreign earnings.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
Unrecognized tax benefits balance at beginning of year
|
|
$
|
437
|
|
$
|
522
|
|
$
|
1,033
|
|
Reductions for tax positions of prior years
|
|
|
(469)
|
|
|
—
|
|
|
(465)
|
|
Currency translation
|
|
|
32
|
|
|
(85)
|
|
|
(46)
|
|
Unrecognized tax benefits balance at end of year
|
|
$
|
—
|
|
$
|
437
|
|
$
|
522
|
|
The Company recognizes accrued interest and penalties related to unrecognized tax benefits as a component of income tax expense. The Company had $0.4 million of interest and penalties accrued at December 31, 2015, which was released in 2016 upon the expiration of the statute of limitations.
The Company files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. In the normal course of business the Company is subject to examination by taxing authorities. Open tax years in the U.S. range from 2013 to 2016, and open tax years in foreign jurisdictions range from 2008 to 2016. However, upon examination in subsequent years, if net operating loss carryforwards and tax credit carryforwards are utilized, the U.S. and foreign jurisdictions can reduce net operating loss carryforwards and tax credit carryforwards utilized in the year being examined if they do not agree with the carryforward amount. As of December 31, 2016, the Company was not under audit in the U.S. or non-U.S. taxing jurisdictions.
17.
Commitments and Contingencies
Operating Leases
As of December 31, 2016 and 2015, the Company has several non-cancelable operating leases (as lessor and as lessee), primarily associated with sale/leaseback transactions that are partially secured by restricted cash (see also Note 1, Nature of Operations) as summarized below that expire over the next six years. Minimum rent payments under operating leases are recognized on a straight-line basis over the term of the lease. Leases where the Company is the lessor contain termination clauses with associated penalties, the amount of which cause the likelihood of cancellation to be remote.
Future minimum lease payments under non-cancelable operating leases (with initial or remaining lease terms in excess of one year) as of December 31, 2016 are (in thousands):
|
|
|
|
|
|
|
|
|
|
As Lessor
|
|
As Lessee
|
|
2017
|
|
$
|
16,872
|
|
$
|
12,350
|
|
2018
|
|
|
16,872
|
|
|
12,125
|
|
2019
|
|
|
16,872
|
|
|
10,936
|
|
2020
|
|
|
15,715
|
|
|
9,802
|
|
2021
|
|
|
11,480
|
|
|
5,535
|
|
2022 and thereafter
|
|
|
2,872
|
|
|
759
|
|
Total future minimum lease payments
|
|
$
|
80,683
|
|
$
|
51,507
|
|
Rental expense for all operating leases were $13.2 million, $6.2 million, and $1.5 million for years ended December 31, 2016, 2015, and 2014 respectively.
At December 31, 2016 and 2015, prepaid rent and security deposits associated with sale/leaseback transactions were $11.8 million and $12.1 million, respectively. At December 31, 2016, $1.9 million of the amount is included in prepaid expenses and other current assets and $9.9 million was included in other assets on the consolidated balance sheet. At December 31, 2015, $2.0 million of this amount was included in prepaid expenses and other current assets and $10.1 million was included in other assets on the consolidated balance sheet.
Finance Obligation
During the year ended December 31, 2016, the Company entered into sale/leaseback transactions, which were accounted for as capital leases and reported as part of finance obligations on the Company’s consolidated balance sheet. These transactions represented project financing as referenced in Note 9, Short-term Borrowing. The outstanding balance of these finance obligations at December 31, 2016 was $29.4 million. The fair value of the finance obligation approximates the carrying value as of December 31, 2016.
Future minimum lease payments under non-cancelable capital leases (with initial or remaining lease terms in excess of one year) as of December 31, 2016 are (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
Imputed
|
|
Net Present
|
|
|
Payments
|
|
Interest
|
|
Value
|
2017
|
|
$
|
16,313
|
|
$
|
4,205
|
|
$
|
12,108
|
2018
|
|
|
10,665
|
|
|
2,064
|
|
|
8,601
|
2019
|
|
|
3,436
|
|
|
1,435
|
|
|
2,001
|
2020
|
|
|
3,436
|
|
|
1,083
|
|
|
2,353
|
2021
|
|
|
3,436
|
|
|
674
|
|
|
2,762
|
Thereafter
|
|
|
1,689
|
|
|
151
|
|
|
1,538
|
Total future minimum lease payments
|
|
$
|
38,975
|
|
$
|
9,612
|
|
$
|
29,363
|
During the year ended December 31, 2015, the Company received cash for future services to be performed associated with certain sale/leaseback transactions and recorded the balance as a finance obligation. The outstanding balance of this obligation at December 31, 2016 and December 31, 2015 is $12.8 million and $15.1 million, respectively.
The amount is amortized using the effective interest method. The fair value of this finance obligation approximates the carrying value as of December 31, 2016.
The Company has a capital lease associated with its property in Latham, New York. Liabilities relating to this agreement of $2.4 million and $2.5 million have been recorded as a finance obligation, in the accompanying consolidated balance sheets as of December 31, 2016 and December 31, 2015, respectively. The fair value of this finance obligation approximates the carrying value as of December 31, 2016.
Restricted Cash
The Company has entered into sale/leaseback agreements associated with its products and services. In connection with these agreements, cash of $53.6 million is required to be restricted as security and will be released over the lease term. The Company has additional letters of credit backed by security deposits as disclosed in the Operating Leases section above.
The Company also has letters of credit in the aggregate amount of $1.0 million associated with an agreement to provide hydrogen infrastructure and hydrogen to a customer at its distribution center and with a finance obligation from the sale/leaseback of its building. Cash collateralizing these letters of credit is considered restricted cash.
Litigation
Legal matters are defended and handled in the ordinary course of business. The Company has established accruals for matters for which management considers a loss to be probable and reasonably estimable. It is the opinion of management that facts known at the present time do not indicate that such litigation, after taking into account insurance coverage and the aforementioned accruals, will have a material adverse impact on our results of operations, financial position, or cash flows.
Concentrations of credit risk
Concentrations of credit risk with respect to receivables exist due to the limited number of select customers with whom the Company has initial commercial sales arrangements. To mitigate credit risk, the Company performs appropriate evaluation of a prospective customer’s financial condition.
At December 31, 2016, two customers comprise approximately 59.9% of the total accounts receivable balance, with each customer individually representing 40.0% and 19.9% of total accounts receivable, respectively. At December 31, 2015, two customers comprise approximately 50.9% of the total accounts receivable balance, with each customer individually representing 38.5% and 12.4% of total accounts receivable, respectively.
For the years ended December 31, 2016 and 2015, 34.1% and 56.7%, respectively, of total consolidated revenues were associated primarily with Walmart. For the year ended December 31, 2014, 37.2% of total consolidated revenues were associated primarily with Walmart and Volkswagen, representing 24.1% and 13.1% of total consolidated revenues, respectively.
18. Unaudited Quarterly Financial Data (in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarters ended
|
|
|
|
March 31,
|
|
June 30,
|
|
September 30,
|
|
December 31,
|
|
|
|
2016
|
|
2016
|
|
2016
|
|
2016
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of fuel cell systems and related infrastructure
|
|
$
|
5,218
|
|
$
|
9,121
|
|
$
|
5,653
|
|
$
|
19,993
|
|
Services performed on fuel cell systems and related infrastructure
|
|
|
5,273
|
|
|
5,360
|
|
|
4,763
|
|
|
5,060
|
|
Power Purchase Agreements
|
|
|
2,706
|
|
|
3,062
|
|
|
3,858
|
|
|
4,061
|
|
Fuel delivered to customers
|
|
|
2,010
|
|
|
2,638
|
|
|
2,909
|
|
|
3,359
|
|
Other
|
|
|
125
|
|
|
278
|
|
|
376
|
|
|
105
|
|
Gross profit (1)
|
|
|
170
|
|
|
384
|
|
|
381
|
|
|
3,011
|
|
Operating expenses
|
|
|
13,120
|
|
|
13,760
|
|
|
13,637
|
|
|
14,948
|
|
Operating loss
|
|
|
(12,950)
|
|
|
(13,376)
|
|
|
(13,256)
|
|
|
(11,937)
|
|
Net loss attributable to common shareholders
|
|
|
(11,780)
|
|
|
(13,154)
|
|
|
(13,420)
|
|
|
(19,237)
|
|
Loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted
|
|
$
|
(0.07)
|
|
$
|
(0.07)
|
|
$
|
(0.07)
|
|
$
|
(0.11)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarters ended
|
|
|
|
March 31,
|
|
June 30,
|
|
September 30,
|
|
December 31,
|
|
|
|
2015
|
|
2015
|
|
2015
|
|
2015
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of fuel cell systems and related infrastructure
|
|
$
|
5,090
|
|
$
|
18,663
|
|
$
|
24,777
|
|
$
|
29,472
|
|
Services performed on fuel cell systems and related infrastructure
|
|
|
2,645
|
|
|
2,883
|
|
|
3,555
|
|
|
4,929
|
|
Power Purchase Agreements
|
|
|
977
|
|
|
1,077
|
|
|
1,546
|
|
|
2,118
|
|
Fuel delivered to customers
|
|
|
659
|
|
|
1,128
|
|
|
1,544
|
|
|
1,744
|
|
Other
|
|
|
45
|
|
|
258
|
|
|
10
|
|
|
168
|
|
Gross (loss) profit (1)
|
|
|
(2,111)
|
|
|
1,562
|
|
|
76
|
|
|
(9,417)
|
|
Operating expenses
|
|
|
10,650
|
|
|
11,427
|
|
|
12,332
|
|
|
14,703
|
|
Operating loss
|
|
|
(12,761)
|
|
|
(9,865)
|
|
|
(12,256)
|
|
|
(24,120)
|
|
Net loss attributable to common shareholders
|
|
|
(11,077)
|
|
|
(9,253)
|
|
|
(10,238)
|
|
|
(25,227)
|
|
Loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted
|
|
$
|
(0.06)
|
|
$
|
(0.05)
|
|
$
|
(0.06)
|
|
$
|
(0.14)
|
|
|
(1)
|
|
Gross profit in the second quarter of 2016 and the fourth quarter of 2015 includes the impact of a ($1.1 million) and $10.1 million provision for loss contracts related to service recorded by the Company, respectively, as discussed in Note 11, Warranty Reserve and Accrual for Loss Contracts Related to Service.
|