$SCTY Falls As Light Shines On Past Accounting Errors
The shine is off SolarCity, $SCTY.
After delaying their official earnings report a week, SolarCity executives revealed plans to restate quarterly income for 2012 and the first three quarters of 2013 due to an error accounting for overhead expenses. Management and their auditors are investigating whether the error impacted financial statements before that time period.
“SolarCity is currently evaluating the materiality of this error on its consolidated financial statements as of December 31, 2011 and for the year then ended, and the impact of its assessment of internal control over financial reporting,” the company said in an SEC filing today.
The solar panel installer will file its 10K for the full year 2013 on March 18.
The stock sank on the news. It was still down about 2.5% by 10.30a.m.
$SCTY Pre-market down -135. Could be a rough ride first thing Monday AM
— Cody Smal (@cody1422) Mar. 2 at 08:23 PM
The correction will cost the company. SolarCity’s accounting firm will revise downward by 2.5% to 3.0% its Solar Energy Systems, Leased and to Be Leased numbers. It will also increase the cost of sales by $16 to $20 million for the nine month period ending September 30, 2013. And it will hike the cost of sales between $20 and $23 million for all of 2012.
— CDM Capital (@CDMCapital) Mar. 3 at 09:39 AM
SolarCity reaffirmed its full year guidance of 475 Megawatts to 525 Megawatts and a positive net cash flow in 2014.
Restating income can become a big problem for public companies. Stockholders can claim they were misled by prior financials and sue for losses. The SEC is likely to scrutinize future reports and can ask for additional disclosures if an independent auditor deems a deficiency or weakness in past accounting procedures. Compensation doled out in stock can come under scrutiny. Corporate Law Firm FoleyHoag has a detailed accounting of what companies can have to deal with here.
In a conference call discussing the official earnings results, before the opening bell this morning, SolarCity CEO Lyndon Rive tried to calm concerns that the restatement would hurt the company.
“What this is, is we’re taking overhead from the balance sheet to the income statement,” Rive said, according to a transcript provided by SeekingAlpha. “Total overhead has not changed… There is no impact in the core business operations. In fact, the business has never been healthier.”
Rive said that the company discovered an overhead allocation error this week, discussed it with auditors, and agreed on the need to restate prior financial numbers filed with the SEC. He said the company did not expect any impact on tax credits received from the government. CFO Bob Kelly said that there would not be any additional legal costs or auditing costs in relation to the restatement.
Some cashtaggers said that management calmed fears on the conference call.
$SCTY AM Conference Call — Good transparency…no big whoop. Onward….
— Cody Smal (@cody1422) Mar. 3 at 08:33 AM
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