1) Decompose Tesla’s ROE for the annual periods 2012-2014. Note any trends you observe.2) Tesla notes that Q1 automotive revenue includes $51 million from the sale of ZEV credits.*Assuming that 2012-2014 annual revenues are comprised of the same percentage of ZEVrevenues as was the case in Q1 of 2015, re-compute Tesla’s income after removing the effect ofthe ZEV sales and decompose ROE using the revised data.3) Compare your new calculations to your ROE decomposition from question 1.4) Comment on the quality of Tesla’s earnings.5) Given that Tesla has consistently generated losses, how has the company managed to survive?Read Tesla’s Stockholder Letter for the first quarter of 2015. Tesla repeatedly refers to “non-GAAP” results.6) What are the specific departures Tesla makes from GAAP in computing these numbers?7) Why do you think the company keeps referring to “non-GAAP” measures?
Microsoft Word - Final Examination – ACG6175 CMBA .docx Final Examination – ACG6175 CMBA By submitting this examination for grading I affirm that I have not discussed this examination with any other person, nor accessed or employed any information not included in the materials presented below. Required: Write your answers in standard English. Include any computations you make in completing your answers. Be specific. 1) Decompose Tesla’s ROE for the annual periods 2012-2014. Note any trends you observe. 2) Tesla notes that Q1 automotive revenue includes $51 million from the sale of ZEV credits.* Assuming that 2012-2014 annual revenues are comprised of the same percentage of ZEV revenues as was the case in Q1 of 2015, re-compute Tesla’s income after removing the effect of the ZEV sales and decompose ROE using the revised data. 3) Compare your new calculations to your ROE decomposition from question 1. 4) Comment on the quality of Tesla’s earnings. 5) Given that Tesla has consistently generated losses, how has the company managed to survive? Read Tesla’s Stockholder Letter for the first quarter of 2015. Tesla repeatedly refers to “non- GAAP” results. 6) What are the specific departures Tesla makes from GAAP in computing these numbers? 7) Why do you think the company keeps referring to “non-GAAP” measures? *Here’s how ZEV (zero emission vehicle) credits work: Every major auto manufacturer in the U.S. is required to sell a given percentage of zero-emission vehicles (by 2025 it will reach 15%). Failure to meet this standard results in a fine. Manufacturers receive zero emission vehicle “credits” for each ZEV sold. ZEV sales were, however, only 1% of automotive sales in 2014. This means many manufacturers fall below the threshold. They can, however, buy “credits” from other companies in order to keep from paying the fines. Since Tesla only sells ZEVs it has “extra” credits that it can sell. Tesla Motors, Inc. Consolidated Statements of Operations (in thousands, except share and per share data) Year Ended December 31, 2014 2013 2012 Revenues Automotive sales $3,192,723 $1,997,786 $385,699 Development services 5,633 15,710 27,557 Total revenues 3,198,356 2,013,496 413,256 Cost of revenues Automotive sales 2,310,011 1,543,878 371,658 Development services 6,674 13,356 11,531 Total cost of revenues 2,316,685 1,557,234 383,189 Gross profit 881,671 456,262 30,067 Operating expenses Research and development 464,700 231,976 273,978 Selling, general and administrative 603,660 285,569 150,372 Total operating expenses 1,068,360 517,545 424,350 Loss from operations (186,689) (61,283) (394,283) Interest income 1,126 189 288 Interest expense (100,886) (32,934) (254) Other income (expense), net 1,813 22,602 (1,828) Loss before income taxes (284,636) (71,426) (396,077) Provision for income taxes 9,404 2,588 136 Net loss $(294,040) $(74,014) $(396,213) Net loss per share of common stock, basic and diluted $(2.36) $(0.62) $(3.69) Weighted average shares used in computing net loss per share of common stock, basic and diluted 124,539,343 119,421,414 107,349,188 $(0.32) $(0.11) Consolidated Balance Sheets (in thousands, except share and per share data) December 31, December 31, December 31, 2014 2013 2012 Assets Current assets Cash and cash equivalents $1,905,713 $845,889 $201,890 Restricted cash and marketable securities 17,947 3,012 19,094 Accounts receivable 226,604 49,109 26,842 Inventory 953,675 340,355 268,504 Prepaid expenses and other current assets 94,718 27,574 8,438 Total current assets 3,198,657 1,265,939 524,768 Operating lease vehicles, net 766,744 382,425 10,071 Property, plant and equipment, net 1,829,267 738,494 552,229 Restricted cash 11,374 6,435 5,159 Other assets 43,209 23,637 21,963 Total assets $5,849,251 $2,416,930 $1,114,190 Liabilities and Stockholders' Equity Current liabilities Accounts payable $777,946 $303,969 $303,382 Accrued liabilities 268,884 108,252 39,798 Deferred revenue 191,651 91,882 1,905 Capital lease obligations, current portion 9,532 7,722 4,365 Customer deposits 257,587 163,153 138,817 Convertible senior notes 601,566 182 50,841 Total current liabilities 2,107,166 675,160 Capital lease obligations, less current portion 12,267 12,855 539,108 Deferred revenue, less current portion 292,271 181,180 10,692 Convertible senior notes, less current portion 1,806,518 586,119 9,965 Resale value guarantee 487,879 236,299 3,060 Other long-term liabilities 173,244 58,197 401,495 Total liabilities 4,879,345 1,749,810 25,170 Commitments and contingencies (Note 11) 989,490 Convertible senior notes (Notes 6) 58,196 - Stockholders' equity: Preferred stock; $0.001 par value; 100,000,000 shares authorized; no shares issued and outstanding - - Common stock; $0.001 par value; 2,000,000,000 shares - authorized as of December 31, 2014 and 2013, respectively; 125,687,607 and 123,090,990 shares issued and outstanding as of December 31, 2014 and 2013, respectively 126 123 115 Additional paid-in capital 2,345,266 1,806,617 1,190,191 Accumulated deficit (1,433,682) (1,139,620) (1,065,606) Total stockholders' equity 911,710 667,120 124,700 Total liabilities and stockholders' equity $5,849,251 $2,416,930 $1,114,190 Consolidated Statements of Cash Flows (in thousands) Year Ended December 31, 2014 2013 2012 Cash Flows From Operating Activities Net loss $(294,040) $(74,014) $(396,213) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 231,931 106,083 28,825 Stock-based compensation 156,496 80,737 50,145 Amortization of discount on convertible debt 69,734 9,143 - Inventory write-downs 15,609 8,918 4,929 loan origination costs - 5,558 - Change in fair value of DOE warrant liability - (10,692) 1,854 Fixed asset disposal 14,178 1,796 154 Other non-cash operating activities 7,471 1,815 1,406 Foreign currency transaction (gain) loss (1,891) (13,498) 143 Changes in operating assets and liabilities Accounts receivable (183,658) (21,705) (17,303) Inventories and operating lease vehicles (1,050,264) (460,561) (194,726) Prepaid expenses and other current assets (60,637) (17,533) 1,121 Other assets (4,493) (434) (482) Accounts payable 252,781 20,995 189,944 Accrued liabilities 162,075 66,418 9,603 Deferred revenue 209,681 268,098 (526) Customer deposits 106,230 24,354 47,056 Resale value guarantee 249,492 236,299 - Other long-term liabilities 61,968 33,027 10,255 Net cash provided by (used in) operating activities (57,337) 264,804 (263,815) Cash Flows From Investing Activities Purchases of property and equipment excluding capital leases (969,885) (264,224) (239,228) Withdrawals out of our dedicated DOE account, net - 14,752 8,620 (Increase) decrease in other restricted cash (3,849) 55 (1,330) Purchases of short-term marketable securities (205,841) - (14,992) Maturities of short-term marketable securities 189,131 - 40,000 Net cash used in investing activities (990,444) (249,417) (206,930) Cash Flows From Financing Activities Proceeds from issuance of convertible debt 2,300,000 660,000 - Proceeds from issuance of common stock in public offering - 360,000 221,496 Proceeds from issuance of warrants 389,160 120,318 - Proceeds from exercise of stock options and other stock issuances 100,455 95,307 24,885 Proceeds from issuance of common stock in