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Summary of Significant Accounting Policies and Recent Accounting Pronouncements (Policies)

12 Months Ended

Dec. 31, 2016

Basis of Presentation—The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) and include all adjustments necessary for the fair presentation of our consolidated financial position, results of operations and cash flows for the periods presented. The consolidated financial statements include our accounts and our wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates

Use of Estimates—Financial statements prepared in conformity with GAAP require management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from those estimates.

Foreign Currency Translation

Foreign Currency Translation—The assets and liabilities of our foreign subsidiary, Solazyme Brazil, and SB Oils, where the local currency is the functional currency, are translated from their respective functional currency into U.S. dollars at the exchange rate in effect at the balance sheet date, with resulting foreign currency translation adjustments recorded in accumulated other comprehensive income (loss) in the consolidated statements of comprehensive loss. We also adjust our investment in the SB Oils JV and cumulative translation adjustment in equity for our ownership portion of the cumulative translation gain or loss recognized on the SB Oils JV's financial statements. Revenues and expense amounts are translated at average rates during the period.

Cash Equivalents

Cash Equivalents—All highly liquid investments with original or remaining maturities of three months or less at the time of purchase are classified as cash equivalents. Cash equivalents primarily consist of money market funds, commercial paper and U.S. treasury notes.

Marketable Securities

Marketable Securities—Investments with original maturities greater than three months at the time of purchase and maturing less than one year from the consolidated balance sheet date are classified as marketable securities. We classify marketable securities as short-term based upon whether such assets are reasonably expected to be used in current operations. As of December 31, 2016, all of our marketable securities are corporate bonds. We classify our marketable securities as available-for-sale, and record them at estimated fair value in the consolidated balance sheets, with unrealized gains and losses, if any, reported as a component of accumulated other comprehensive income (loss) in the consolidated statements of comprehensive loss. Marketable securities classified as available-for-sale are adjusted for amortization of premiums and accretion of discounts and such amortization and accretion are reported as components of interest and other income. Realized gains and losses and declines in value that are considered to be other-than-temporary are recognized in interest and other income. The cost of all securities sold is based on the specific identification method.

Restricted Certificates of Deposit

Restricted Certificates of Deposit—We maintained certificates of deposits classified in other long-term assets of $0.7 million as of both December 31, 2016 and 2015. These certificates of deposits were required to be pledged as collateral related to our facility lease in South San Francisco.

Deferred Financing Costs

Deferred Financing Costs—Issuance fees or direct costs relating to our debt are deferred and amortized to interest expense over the contractual or expected term of the related debt using the effective interest method. We classify deferred financing costs in the consolidated balance sheets as a reduction to associated debt balances.

Debt Discounts

Debt Discounts—Debt discounts incurred with the issuance of our debt are recorded in the consolidated balance sheets as a reduction to associated debt balances. We amortize debt discount to interest expense over the contractual or expected term of the debt using the effective interest method.

Accounts Receivable

Accounts Receivable—Accounts receivable represents amounts owed to us for product revenues, collaborative research and development agreements and agreements with related parties. We had no material amounts reserved for doubtful accounts as of December 31, 2016 and 2015, as we expected to collect our accounts receivable balances. We reserve for estimated product returns as reductions of accounts receivable and product revenues.

Fair Value of Financial Instruments

Fair Value of Financial Instruments—We measure certain financial assets and liabilities at fair value based on the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. Where available, fair value is based on, or derived from, observable market prices or other observable inputs. Where observable prices or inputs are not available, valuation models are applied. These valuation techniques involve some level of management estimation and judgment, the degree of which is dependent on the price transparency for the instruments or market and the instruments’ complexity. While we believe that our valuation methods are appropriate and consistent with other market participants, we recognize that the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.The carrying amount of certain of our financial instruments, including cash and cash equivalents, restricted certificates of deposit, accounts receivable, prepaid expenses, accounts payable and accrued liabilities, approximates fair value due to their relatively short maturities.

Concentration of Credit and Customer Risk

Concentration of Credit and Customer Risk—Financial instruments that potentially subject us to a concentration of credit risk consist of cash and cash equivalents, marketable securities, accounts receivables and restricted certificates of deposit. We place our cash equivalents and investments with high credit quality financial institutions and, by policy, limit the amounts invested with any one financial institution or issuer. Deposits held with banks may exceed the amount of insurance provided on such deposits. We have not experienced any losses on our deposits of cash and cash equivalents.

Inventories

Inventories—Inventories are stated at the lower of cost or market. Cost is determined using the first-in, first-out basis. Inventory cost consists of raw materials, third-party contractor costs associated with packaging, distribution and production of products, supplies, shipping costs and other overhead costs associated with manufacturing. If inventory costs exceed expected market value due to obsolescence or lack of demand, inventory write-downs may be recorded as deemed necessary by management for the difference between the cost and the market value in the period that impairment is first recognized. During scale up of the manufacturing process, a portion of the manufacturing and associated production costs are charged to research and development expenses.

Property, Plant and Equipment

Property, Plant and Equipment—Property, plant and equipment are recorded at cost, less accumulated depreciation. Depreciation is calculated on a straight-line basis over the following estimated ranges of useful lives:



Asset classification		Estimated useful life
Plant equipment		5 – 20 years
Lab equipment		3 – 7 years
Leasehold improvements		Shorter of useful life or life of lease
Building and improvements		7 – 20 years
Computer equipment and software		3 – 7 years
Furniture and fixtures and automobiles		5 – 7 years

Long-Lived Assets

Long-Lived Assets—We periodically review long-lived assets, including property, plant and equipment, for impairment whenever events or changes in business circumstances indicate that the carrying amount of an asset may not be recoverable or the estimated useful lives are no longer appropriate. If indicators of impairment exist and the undiscounted projected cash flows associated with such assets are less than the carrying amount of the asset, an impairment loss is recorded to write the asset down to its estimated fair value. Fair value is estimated based on discounted future cash flows.

Segment Reporting

Segment Reporting—The chief operating decision maker is our Chief Executive Officer, and we have one operating segment, Ingredients and Other. Prior to the sale of our Algenist business, we had two operating segments for financial statement reporting purposes: Algenist and Ingredients and Other.

Revenue Recognition

Revenue Recognition—Revenues are recognized when the following criteria are met: (1) persuasive evidence of an arrangement exists; (2) transfer of title has been completed or services have been rendered; (3) the fee is fixed or determinable; and (4) collectability is reasonably assured. We recognize revenues from research and development programs that consist of collaborative research and development agreements with commercial and strategic partners and related parties, and commercial sales of our products.

Collaborative research and development programs with commercial and strategic partners typically provide us with multiple revenue streams, which may include up-front non-refundable fees for licensing and reimbursement for research and development activities; cost reimbursement fees may include reimbursement for full-time employee equivalents, contingent milestone payments upon achievement of contractual criteria, licensing fees and commercialization royalty fees. These revenues are recognized as the services are performed over a performance period, as specified in the respective agreements. When up-front payments are combined with funded research services in a single unit of accounting, we recognize the payments using the straight-line method of revenue recognition, as that best approximates actual performance under our Collaborative agreements, but not greater than the amount of the research and development program fee as specified under these agreements. We evaluate the appropriate period based on research progress attained and reevaluate the period when significant changes occur. Where arrangements include milestones that are determined to be substantive and at risk at the inception of the arrangement, revenues are recognized upon achievement of the milestone and are limited to those amounts for which collectability is reasonably assured. If these conditions are not met, the milestone payments are deferred and recognized as revenue over the estimated period of performance under the contract as we complete our performance obligations.

If collaborative research and development or sales agreements contain multiple elements, we evaluate whether the components of each arrangement represent separate units of accounting. We have determined that all of our revenue arrangements should be accounted for as a single unit of accounting. Application of revenue recognition standards requires subjective determination and requires management to make judgments about the fair values of each individual element and whether it is separable from other aspects of the contractual relationship.

Research and Development

Research and Development—Research and development costs associated with research performed pursuant to research and development programs with government entities and commercial and strategic partners and our internal projects are expensed as incurred, and include, but are not limited to, personnel and related expenses, facility costs and overhead (including costs incurred at our Peoria facility), depreciation and amortization of plant, property and equipment used in development, laboratory supplies, and scale-up research manufacturing and consulting costs.

Restructuring Charges

Restructuring Charges—We account for restructuring activities in accordance with FASB ASC 420, Exit or Disposal Cost Obligations. Costs associated with such restructuring activity are recognized in the period in which we incur the liability.

Patent Costs

Patent Costs—All costs related to filing and pursuing patent applications are expensed as incurred as recoverability of such expenditures is uncertain and the underlying technologies are under development. Patent-related legal costs incurred are recorded in selling, general and administrative expenses.

Income Taxes

Income Taxes—We account for income taxes under the asset and liability method, which requires, among other things, that deferred income taxes be provided for temporary differences between the tax basis of our assets and liabilities and the financial statement reported amounts. A valuation allowance is provided against deferred tax assets when it is more likely than not that they will not be realized.We provide for reserves necessary for uncertain tax positions taken or expected to be taken on tax filings. First, we determine if the weight of available evidence indicates that a tax position is more likely than not to be sustained upon audit. Second, based on the largest amount of benefit that is more likely than not to be realized on ultimate settlement, we recognize any such differences as a liability.

Stock-Based Compensation

Stock-Based Compensation—We recognize stock-based compensation for awards to employees based on the grant date estimated fair value. We use the Black-Scholes option-pricing model to estimate the fair value of awards granted to employees, and the requisite fair value is recognized as expense on a straight-line basis over the service period of the award, which is generally the vesting period.We account for restricted stock units issued to employees based on the quoted market price of our common stock on the date of grant, which is then expensed on a straight-line basis over the service period.

The Black-Scholes option pricing model requires the following inputs: expected life, expected volatility, risk-free interest rate, expected dividend yield rate, exercise price and closing price of our common stock on the date of grant. Due to our limited history of grant activity, we calculate our expected term utilizing the “simplified method” permitted by the Securities and Exchange Commission (SEC), which is the average of the total contractual term of the option and its vesting period. We believe historical volatility data of our share price provides the best estimate for the expected volatility of the underlying share price that marketplace participants would most likely use in determining an exchange price for an option. As such, beginning in the second quarter of 2014 we began weighting the historical volatility data of our share price in proportion to the number of years of information it has available to the total expected term of stock options. The remaining volatility weight is allocated evenly among selected comparable public companies within our industry. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for zero coupon U.S. Treasury notes with maturities similar to the option’s expected term. The expected dividend yield was assumed to be zero, as we have not paid, nor do we anticipate paying, cash dividends on shares of our common stock. We estimate our forfeiture rate based on an analysis of our actual forfeitures and will continue to evaluate the appropriateness of the forfeiture rate based on actual forfeiture experience, analysis of employee turnover and other factors.We account for restricted stock units and restricted stock awards issued to employees based on the quoted market price of our common stock on the date of grant that are expensed on a straight-line basis over the service period.

We use the Black-Scholes option-pricing model to estimate the fair value of awards granted to nonemployees. We account for restricted stock units issued to nonemployees based on the estimated fair value of our common stock on the date of grant. The measurement of stock-based compensation for nonemployees is subject to periodic adjustments as the underlying equity instruments vest, and the resulting change in value, if any, is recognized in our consolidated statements of operations during the period the related services are rendered.

Net Loss per Share

Net Loss per Share—Basic net loss per share is computed by dividing our net loss by the weighted-average number of common shares outstanding during the period. Diluted net loss per share is computed by giving effect to all potentially dilutive securities, including conversion of our debt or preferred stock into common stock, stock options, common stock issuable pursuant to restricted stock units and common stock warrants. Basic and diluted net loss per share was the same for all periods presented as the inclusion of all potentially dilutive securities outstanding was anti-dilutive.

Recent Accounting Pronouncements

Recently Adopted Accounting Standards — In April 2015, the FASB issued ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs. The standard amends existing guidance to require the presentation of debt issuance costs in the balance sheet as a deduction from the carrying amount of the related debt liability instead of as an asset. We adopted ASU 2015-03 retrospectively in our fiscal quarter ended March 31, 2016. As a result of the retrospective adoption, we reclassified unamortized debt issuance costs of $0.5 million from other long-term assets to a reduction in convertible debt on the consolidated balance sheet as of December 31, 2015.

Recent Accounting Pronouncements—In May 2014, the FASB issued Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers (Topic 606) (ASU 2014-09), which supersedes the revenue recognition requirements in FASB ASC 605, Revenue Recognition. ASU 2014-09 is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. In addition, in March and April 2016, the FASB issued ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606) and ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606), which clarify the guidance in ASU 2014-09 and have the same effective date as the original standard. This guidance requires the recognition of revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration expected in exchange for those goods or services. In May 2016, the FASB issued ASU No. 2016-12, Narrow Scope Improvements and Practical Expedients, which provides for improvements to the guidance on collectability, noncash consideration and completed contracts, and provides a practical expedient for contract modifications upon adoption of the updated guidance under ASC 606. This new guidance is effective for interim and annual reporting periods beginning after December 15, 2017, with early adoption permitted, and is required to be adopted by taking either a full retrospective or a modified retrospective approach. We are currently assessing the potential impact of this new guidance on our consolidated financial statements. A portion of our revenues relate to the sale of finished product to various customers and we do not believe that the adoption of the new standard will have a material impact on these transactions. We are continuing to evaluate the impact on collaborative research and development arrangements with our strategic partners. We expect to adopt the standard in 2018 using the modified retrospective approach.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) which, for operating leases, requires a lessee to recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease payments, in its balance sheet. The standard also requires a lessee to recognize a single lease cost, calculated so that the cost of the lease is allocated over the lease term, on a generally straight-line basis. The ASU is effective for public companies for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. We are in the process of evaluating the impact of the adoption of this new guidance on our consolidated financial statements.

In March 2016, the FASB issued ASU 2016-09, Compensation, Stock Compensation (Topic 718), a new standard simplifying certain aspects of accounting for share-based payments. The key provision of the new standard requires that excess tax benefits and shortfalls be recorded as income tax benefit or expense in the income statement, rather than in stockholders' equity. The ASU is effective for public companies in the three months ending March 31, 2017. We do not believe that the adoption of this new guidance will have a material impact on our consolidated financial statements.

Fair Value Measurement

Assets and liabilities recorded at fair value in the consolidated financial statements are categorized based upon the level of judgment associated with the inputs used to measure their fair value. Hierarchical levels that are directly related to the amount of subjectivity associated with the inputs to the valuation of these assets or liabilities are as follows:


•	Level 1—Observable inputs, such as quoted prices in active markets for identical assets or liabilities.


•	Level 2—Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.


•	Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include those whose fair value measurements are determined using pricing models, discounted cash flow methodologies or similar valuation techniques and significant management judgment or estimation.