Note 17 - Commitments and Contingencies

12 Months Ended

Dec. 31, 2012

Commitments and Contingencies Disclosure [Text Block]

17. Commitments and Contingencies

Commitments

Restricted cash —At December 31, 2012 and 2011, the Company had restricted bank deposits of $0.4 million and $1.0 million, respectively. The restricted bank deposits consist of a reserve pursuant to our guarantees of Solar Tax Partners 1, LLC (“STP”) with the bank providing the debt financing on the Aerojet 1 solar generating facility (see below for additional details related to the Aerojet 1 development project) and reserves pursuant to SGT’s performance bonds and surety guarantees held at various foreign banks. As part of the sale of STP2 in June 2012, the previously restricted bank deposits of $0.3 million were released upon assignment to HEK of the related loan agreement with the bank providing the debt financing for the solar generating facility formerly owned by our subsidiary, Solar Tax Partners 2, LLC.

Guarantee —On December 22, 2009, in connection with an equity funding of STP related to the Aerojet 1 solar development project, the Company along with STP’s other investors entered into a Guaranty (“Guaranty”) to provide the equity investor, Greystone Renewable Energy Equity Fund (“Greystone”), with certain guarantees, in part, to secure investment funds necessary to facilitate STP’s payment to the Company under the EPC. Specific guarantees made by Solar Power, Inc. include the following in the event of the other investors’ failure to perform under the operating agreement:

• Operating Deficit Loans—the Company would be required to loan Master Tenant or STP monies necessary to fund operations to the extent costs could not be covered by Master Tenant’s or STP’s cash inflows. The loan would be subordinated to other liabilities of the entity and earn no interest; and

• Exercise of Put Options—At the option of Greystone, the Company may be required to fund the purchase by Managing Member of Greystone’s interest in Master Tenant under an option exercisable for 9 months following a 63 month period commencing with operations of the Facility. The purchase price would be equal to the greater of the fair value of Greystone’s equity interest in Master Tenant or $1.0 million.

The Company has recorded on its Consolidated Balance Sheet the guarantees of $0.1 million at December 31, 2012 and 2011, respectively, which approximates their fair value (refer to Note 19— Fair Value of Financial Instruments ). These amounts, less related amortization, are included in accrued liabilities. These guarantees for the Aerojet 1 project are accounted for separately from the financing obligation related to the Aerojet 1 project because they are with different counterparties.

Financing Obligation —The guarantees associated with Aerojet 1 constitute a continuing involvement in the project. While the Company maintains its continuing involvement, it will apply the financing method and, therefore, has recorded and classified the proceeds received of $12.9 million and $13.9 million from the project in long-term liabilities within loans payable, financing and capital lease obligations, net of current portion, at December 31, 2012 and 2011, respectively, in the Consolidated Balance Sheets.

Performance Guaranty — On December 18, 2009, the Company entered into a 10-year energy output guaranty related to the photovoltaic system installed for STP at the Aerojet 1 facility in Rancho Cordova, CA. The guaranty provided for compensation to STP’s system lessee for shortfalls in production related to the design and operation of the system, but excluding shortfalls outside the Company’s control such as government regulation. The Company believes that the probability of shortfalls is unlikely and if they should occur they would be covered under the provisions of its current panel and equipment warranty provisions. For the fiscal year ended December 31, 2012, there continues to be no charges against our reserves related to this performance guaranty.

Product Warranties —Solar Power, Inc. offers the industry standard of 25 years for our solar modules and industry standard five years on inverter and balance of system components. Due to the warranty period, Solar Power, Inc. bears the risk of extensive warranty claims long after the Company has shipped product and recognized revenue. In our cable, wire and mechanical assemblies business, historically our warranty claims have not been material. In our solar photovoltaic business, our greatest warranty exposure is in the form of product replacement. Until the third quarter of 2007, Solar Power, Inc. purchased its solar panels from third-party suppliers and since the third-party warranties are consistent with industry standards it considered our financial exposure to warranty claims immaterial. Certain photovoltaic construction contracts entered into during the year ended December 31, 2007 included provisions under which Solar Power, Inc. agreed to provide warranties to the buyer, and during the quarter ended September 30, 2007 and continuing through the fourth quarter of 2010, Solar Power, Inc. installed its own manufactured solar panels. As a result, the Company recorded the provision for the estimated warranty exposure on these contracts within cost of sales. Since Solar Power, Inc. does not have sufficient historical data to estimate its exposure, it has looked to its own historical data in combination with historical data reported by other solar system installers and manufacturers. The Company now only installs panels manufactured by unrelated third parties and its parent, LDK. The Company provides the manufacturer’s pass through warranty, and reserves for unreimbursed costs, such as labor, material and transportation costs to replace panels and balance of system components provided by third-party manufacturers. The current portion is presented in accrued liabilities and the non-current portion is presented in the noncurrent account other liabilities on the Consolidated Balance Sheets.

The accrual for warranty claims consisted of the following (in thousands):

	2012			2011 As Recast (1)
Beginning balance - January 1, (1)	$	1,679		$	-
Adjustment to combine balance as of March 31, 2011 (1)		-			1,476
Provision charged to warranty expense		221			212
Less: warranty claims		(363	)		(9	)
Ending balance - December 31,		1,537			1,679
Current portion of warranty liability		200			200
Non-current portion of warranty liability	$	1,337		$	1,479

(1) As adjusted to reflect the balances of SGT beginning January 1, 2011 combined with the balances of Solar Power, Inc. beginning March 31, 2011, as required under the accounting guidelines for a transfer of an entity under common control (refer to Note 5 —Acquisition of Solar Green Technology).

Capital Lease Commitments —The Company’s SGT subsidiary completed construction of two SEFs in fiscal year 2011, which they sold to and leased back from a leasing company in May 2012. The balances of these Italian assets as of December 31, 2012 are under capital leases. Refer to Note 10 —Property, Plant and Equipment for further details on the related asset. The leases expire in 2030. The following is the aggregate minimum future lease payments under capital leases as of December 31, 2012 (in thousands):

2013	$	690
2014	$	685
2015	$	685
2016	$	685
2017	$	685
Thereafter	$	8,387
Total minimum lease payments	$	11,817
Less amounts representing interest	$	(5,280	)
Present value of minimum payments	$	6,537
Less current portion	$	(689	)
Present value of minimum payments - noncurrent	$	5,848

Operating leases — The Company leases facilities under various operating leases, some of which contain escalation clauses, which expire through 2017. The Company also leases vehicles under operating leases. Rental expenses under operating leases included in the statement of operations were $0.9 million and $0.5 million for the years ended December 31, 2012 and 2011, respectively.

Future minimum payments under all of our non-cancelable operating leases are as follows as of December 31, 2012 (in thousands):

2013	$	711
2014		676
2015		596
2016		482
2017		195
Thereafter		-
	$	2,660

Contingencies

Motech Industries, Inc. (“Motech”) filed a complaint against the Company on November 21, 2011, in the Superior Court of California, County of Sacramento, alleging that the Company breached a November 29, 2010 settlement agreement by failing to make payments set forth therein for products supplied to the Company by Motech. Motech has alleged causes of action for breach of contract and breach of the covenant of good faith and fair dealing seeking to recover a total of $339,544.15 in damages from the Company plus its attorneys’ fees and costs. The Company filed its answer on December 22, 2011 generally denying all of the allegations in Motech’s complaint. Specifically, the Company contends that it has paid Motech in full for all monies owed under the settlement agreement. No discovery has been conducted, and on January 25, 2013, the Court denied Motech’s motion for summary judgment. The Company intends to defend the actionand believes it is unlikely that the Company will be required to pay any amounts related to this complaint, therefore no accrual has been made in the Company’s Consolidated Financial Statements.

From time to time, the Company also is involved in various other legal and regulatory proceedings arising in the normal course of business. While the Company cannot predict the occurrence or outcome of these proceedings with certainty, it does not believe that an adverse result in any pending legal or regulatory proceeding, individually or in the aggregate, would be material to our consolidated financial condition or cash flows; however, an unfavorable outcome could have a material adverse effect on our results of operations for a specific interim period or year.