GENERAL

9 Months Ended

Mar. 31, 2016

Organization, Consolidation and Presentation of Financial Statements [Abstract]

GENERAL

NOTE 1:-  GENERAL

a. SolarEdge Technologies, Inc. (the “Company”) and its subsidiaries design, develop, and sell an intelligent inverter solution designed to maximize power generation at the individual photovoltaic (“PV”) module level while lowering the cost of energy produced by the solar PV system and providing comprehensive and advanced safety features. The Company’s products consist mainly of (i) power optimizers designed to maximize energy throughput from each and every module through constant tracking of Maximum Power Point individually per module, (ii) inverters which invert direct current (DC) from the PV module to alternating current (AC) and (iii) a related cloud-based monitoring platform, that collects and processes information from the power optimizers and inverters of a solar PV system to enable customers and system owners, as applicable, to monitor and manage the solar PV systems. The Company operates its business itself and through its wholly-owned subsidiaries: SolarEdge Technologies Ltd. in Israel; SolarEdge Technologies GmbH in Germany; SolarEdge Technologies (China) Co., Ltd in China; SolarEdge Technologies (Australia) PTY Ltd. in Australia; SolarEdge Technologies (Canada) Ltd. in Canada; SolarEdge Technologies (Holland) B.V. in the Netherlands; SolarEdge Technologies (UK) Ltd in United Kingdom; SolarEdge Technologies (Japan) Co., Ltd. in Japan, SolarEdge Technologies (France) SARL in France, SolarEdge Technologies Italy S.R.L. in Italy and SolarEdge Technologies (Bulgaria) Ltd. in Bulgaria (collectively, the “subsidiaries”). Except for SolarEdge Technologies Ltd in Israel, which carries out the research and development, management of manufacturing, global sales and support and management activities, the other subsidiaries are engaged solely in selling, marketing and support activities.  The Company was incorporated in Delaware in August 2006 and began commercial sale of its products in January 2010.

b. Recent accounting pronouncements: Inventory: In July 2015, the Financial Accounting Standards Board (“FASB”) issued “ASU 2015-11, Inventory (Topic 330), simplifying the Measurement of Inventory”, which changes the measurement principles for inventory from the lower of cost or market to the lower of cost and net realizable value. Net realizable value is defined as the “estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation.” ASU 2015-11 eliminates the guidance that required entities to consider replacement cost or net realizable value less an approximately normal profit margin in the subsequent measurement of inventory when cost is determined on a first-in, first-out or average cost basis. The provisions of ASU 2015-11 are effective for public entities with fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. Early adoption is permitted. The Company is in the process of evaluating the impact of ASU 2015-11 on its consolidated financial position, consolidated results of operations, and consolidated cash flows

Deferred Taxes:

In November 2015, the FASB issued ASU 2015-17, Income Taxes (Topic 740) - Balance Sheet Classification of Deferred Taxes, which will require that the presentation of deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. The amendments in this update are effective for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Earlier application is permitted for all entities as of the beginning of an interim or annual reporting period. The Company has adopted this guidance effective December 31, 2015. The adoption only impacted the presentation in its consolidated financial statements and related disclosure. No prior periods were retroactively adjusted.

c. The significant accounting policies applied in the Company’s audited annual consolidated financial statements as of June 30, 2015 are applied consistently in these financial statements.

d. Basis of Presentation: The accompanying unaudited consolidated interim financial statements have been prepared in accordance with Article 10 of Regulation S-X, “Interim Financial Statements” and the rules and regulations for Form 10-Q of the Securities and Exchange Commission (the “SEC”). Pursuant to those rules and regulations, the Company has condensed or omitted certain information and footnote disclosure it normally includes in its annual consolidated financial statements prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). In management’s opinion, the Company has made all adjustments (consisting only of normal, recurring adjustments, except as otherwise indicated) necessary to fairly present its consolidated financial position, results of operations and cash flows. The Company’s interim period operating results do not necessarily indicate the results that may be expected for any other interim period or for the full fiscal year. These financial statements and accompanying notes should be read in conjunction with the 2015 consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for its fiscal year ended June 30, 2015 filed with the SEC on August 20, 2015 (the “2015 Form 10-K”). There have been no changes in the significant accounting policies from those that were disclosed in the audited consolidated financial statements for the fiscal year ended June 30, 2015 included in the 2015 Form 10-K.

e. The Company depends on two contract manufacturers and several limited or single source component suppliers. Reliance on these vendors makes the Company vulnerable to possible capacity constraints and reduced control over component availability, delivery schedules, manufacturing yields and costs. Two vendors collectively account for 72% (unaudited) and 79% of the Company’s total trade payables as of March 31, 2016 (unaudited) and June 30, 2015, respectively.

f. Marketable Securities: Marketable securities consist of corporate and governmental bonds. The Company determines the appropriate classification of marketable securities at the time of purchase and re-evaluates such designation at each balance sheet date. In accordance with FASB ASC No. 320 “Investments- Debt and Equity Securities”, the Company classifies marketable securities as available-for-sale. Available-for-sale securities are stated at fair value, with unrealized gains and losses reported in accumulated other comprehensive income (loss), a separate component of stockholders’ equity, net of taxes. Realized gains and losses on sales of marketable securities, as determined on a specific identification basis, are included in financial income (expenses), net. The amortized cost of marketable securities is adjusted for amortization of premium and accretion of discount to maturity, both of which, together with interest, are included in financial income (expenses), net. The Company classifies its marketable debt securities as either short-term or long-term based on each instrument’s underlying contractual maturity date. Marketable debt securities with maturities of 12 months or less are classified as short-term and marketable debt securities with maturities greater than 12 months are classified as long-term. The Company recognizes an impairment charge when a decline in the fair value of its investments in debt securities below the cost basis of such securities is judged to be other-than-temporary. Factors considered in making such a determination include the duration and severity of the impairment, the reason for the decline in value, the potential recovery period and the Company’s intent to sell, including whether it is more likely than not that the Company will be required to sell the investment before recovery of cost basis. If the Company does not intend to sell the security or it is not more likely than not that it will be required to sell the security before it recovers in value, the Company must estimate the net present value of cash flows expected to be collected. If the amortized cost exceeds the net present value of cash flows, such excess is considered a credit loss and an other-than-temporary impairment has occurred.  For securities that are deemed other-than-temporarily impaired (“OTTI”), the amount of impairment is recognized in the statement of operations and is limited to the amount related to credit losses, while impairment related to other factors is recognized in other comprehensive income (loss). The Company did not recognize OTTI on its marketable securities during the nine months ended on March 31, 2016.

g. Derivative financial instruments: The Company accounts for derivatives and hedging based on ASC 815 (“Derivatives and Hedging”). ASC 815 requires the Company to recognize all derivatives on the balance sheet at fair value. The accounting for changes in the fair value (i.e., gains or losses) of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and further, on the type of hedging relationship.

To protect against the increase in value of forecasted foreign currency cash flows resulting from salary and lease payments of its Israeli facilities denominated in the Israeli currency, the New Israeli Shekel (“NIS”), during the three and nine months ended March 31, 2016, the Company instituted a foreign currency cash flow hedging program. The Company hedges portions of the anticipated payroll and lease payments denominated in NIS for a period of one to twelve months with hedging contracts. Accordingly, when the dollar strengthens against the foreign currencies, the decline in present value of future foreign currency expenses is offset by losses in the fair value of the hedging contracts. Conversely, when the dollar weakens, the increase in the present value of future foreign currency cash flows is offset by gains in the fair value of the hedging contracts. These hedging contracts are designated as cash flow hedges, as defined by ASC 815 and are all effective hedges of these expenses.

In accordance with ASC 815, for derivative instruments that are designated and qualify as a cash flow hedge (i.e. hedging the exposure to variability in expected future cash flows that is attributable to a particular risk), the effective portion of the gain or loss on the derivative instrument is reported as a component of other comprehensive income and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. Any gain or loss on a derivative instrument in excess of the cumulative change in the present value of future cash flows of the hedged item is recognized in current earnings during the period of change.

In addition to the above mentioned cash flow hedges transactions, the Company also entered into derivative instrument arrangements to hedge the Company’s exposure to currencies other than the U.S. dollar. These derivative instruments are not designated as cash flows hedges, as defined by ASC 815, and therefore all gains and losses, resulting from fair value remeasurement, were recorded immediately in the statement of operations, as financial income (expenses).

As of March 31, 2016, the Company entered into forward contracts and put and call options to sell U.S. dollars and Euros in the amount of $19,547 and €2,500,000, respectively. These hedging contracts do not contain any credit-risk-related contingency features. See Note 6 for information on the fair value of these hedging contracts.

The fair value of derivative assets and derivative liabilities as of March 31, 2016 was $854 and $5, respectively which was recorded in other accounts receivable and prepaid expenses in the consolidated balance sheets.

The amount recorded as gain in the cost of revenues expenses under the consolidated statements of operations for the three and the nine months ended March 31, 2016 (unaudited) resulted from the above referenced hedging transactions was $8.

The amount recorded as gain in the research and development, net expenses under the consolidated statements of operations for the three and the nine months ended March 31, 2016 (unaudited) resulted from the above referenced hedging transactions was $18.

The amount recorded as gain in the sales and marketing expenses under the consolidated statements of operations for the three and the nine months ended March 31, 2016 (unaudited) resulted from the above referenced hedging transactions was $11.

The amount recorded as gain in the general and administrative expenses under the consolidated statements of operations for the three and the nine months ended March 31, 2016 (unaudited) resulted from the above referenced hedging transactions was $3 and $6, respectively.

The fair value of the outstanding derivative instruments as of March 31, 2016 (unaudited) and June 30, 2015 is summarized below:

		Fair Value of Derivative Instruments
	Balance Sheet Location	As of March 31, 2016 (unaudited)		As of June 30, 2015
Derivative Assets
Foreign exchange      forward contracts      and put and call options	Prepaid expenses and other accounts receivable (*)		849		859
Total			849		859

(*) Estimated to be reclassified into earnings until December 31, 2016.

The effect of derivative instruments in cash flow hedging transactions on income and other comprehensive income (“OCI”) for the three and the nine months ended March 31, 2016 and 2015 is summarized below:

	Gains on Derivatives Recognized in OCI		Gains on Derivatives Recognized in OCI
	for the three months ended		for the nine months ended
	March 31,		March 31,
	2016	2015	2016	2015
	(unaudited)		(unaudited)
Foreign exchange      forward contracts      and put and call      options	668	-	745	-

	Gains Reclassified from OCI into Income		Gains Reclassified from OCI into Income
	for the three months ended		for the nine months ended
	March 31,		March 31,
	2016	2015	2016	2015
	(unaudited)		(unaudited)
Foreign exchange      forward contracts      and put and call      options	33	-	35	-

h. Intangible assets:

On March 9, 2015, the Company and Beacon Power LLC, a Delaware limited liability company (“Beacon”) entered into a patent purchase agreement under which the Company agreed to purchase all rights in the patents. In July 2015, the Company completed the purchase of the patents for $800.

The patents are stated at cost, net of accumulated amortization. Amortization is calculated by the straight-line method over 10 years, which represents the estimated useful lives of the patents.

Amortization expenses for the three and the nine months ended March 31, 2016 (unaudited) were $21 and $63, respectively.

i. Accumulated other comprehensive income (loss):

The following table summarizes the changes in accumulated balances of other comprehensive income (loss), net of taxes, for the three months ended March 31, 2016 (unaudited):

	Unrealized gains (losses) on available-for-sale marketable securities			Unrealized gains (losses) on cash flow hedges			Unrealized gains (losses) on foreign currency translation			Total
Beginning balance		(81	)		75			(287	)		(293	)
Other comprehensive income (loss) before reclassifications		87			668			(13	)		742
Losses (gains) reclassified from accumulated other comprehensive income (loss)		1			(33	)		-			(32	)
Net current period other comprehensive income (loss)		88			635			(13	)		710
Ending balance		7			710			(300	)		417

The following table summarizes the changes in accumulated balances of other comprehensive loss, net of taxes, for the nine months ended March 31, 2016 (unaudited):

	Unrealized gains (losses) on available-for-sale marketable securities		Unrealized gains (losses) on cash flow hedges			Unrealized gains (losses) on foreign currency translation			Total
Beginning balance		-		-			(222	)		(222	)
Other comprehensive income (loss) before reclassifications		6		745			(78	)		673
Losses (gains) reclassified from accumulated other comprehensive income (loss)		1		(35	)		-			(34	)
Net current period other comprehensive income (loss)		7		710			(78	)		639
Ending balance		7		710			(300	)		417