Annual report pursuant to Section 13 and 15(d)

Commitments and Contingencies

v3.19.3.a.u2
Commitments and Contingencies
12 Months Ended
Dec. 31, 2019
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies Commitments and Contingencies
Letters of Credit
As of December 31, 2019 and 2018, the Company had $20.1 million and $9.7 million, respectively, of unused letters of credit outstanding, which carry fees of 1.25 - 3.25% per annum and 2.50 - 3.25% per annum, respectively.
Operating and Finance Leases
The Company leases real estate under non-cancellable operating leases and equipment under finance leases.
The components of lease expense were as follows (in thousands):
 
 
For the Year Ended December 31,
 
 
2019
 
2018
 
2017
Finance lease cost:
 
 
 
 
 
 
Amortization of right-of-use assets
 
$
13,999

 
$
11,884

 
$
11,029

Interest on lease liabilities
 
1,915

 
676

 
640

Operating lease cost
 
13,159

 
10,467

 
10,177

Short-term lease cost
 
1,349

 
732

 
493

Variable lease cost
 
3,565

 
3,112

 
2,502

Sublease income
 
(669
)
 
(572
)
 
(24
)
Total lease cost
 
$
33,318

 
$
26,299

 
$
24,817

Other information related to leases was as follows (in thousands):
 
 
For the Year Ended December 31,
 
 
2019
 
2018
 
2017
Cash paid for amounts included in the measurement of lease liabilities
 
 
 
 
 
 
Operating cash flows from operating leases
 
$
11,516

 
$
10,765

 
$
10,027

Operating cash flows from finance leases
 
991

 
482

 
591

Financing cash flows from finance leases
 
13,919

 
9,220

 
10,032

Right-of-use assets obtained in exchange for lease obligations:
 
 
 
 
 
 
Operating leases
 
19,503

 
3,411

 
7,276

Finance leases
 
17,914

 
15,370

 
862

Weighted average remaining lease term (years):
 
 
 
 
 
 
Operating leases
 
5.39

 
3.43

 
3.99

Finance leases
 
2.91

 
3.37

 
2.06

Weighted average discount rate:
 
 
 
 
 
 
Operating leases
 
5.5
%
 
4.3
%
 
4.1
%
Finance leases
 
4.2
%
 
4.3
%
 
3.1
%


Future minimum lease commitments under non-cancellable leases as of December 31, 2019 were as follows (in thousands):
 
 
Operating Leases
Sublease Income
Net Operating Leases
 
Finance leases
2020
 
$
12,034

$
787

$
11,247

 
$
10,741

2021
 
11,338

639

10,699

 
7,659

2022
 
9,469


9,469

 
4,657

2023
 
8,611


8,611

 
1,119

2024
 
4,431


4,431

 
41

Thereafter
 
7,999


7,999

 
4

Total future lease payments
 
53,882

1,426

52,456

 
24,221

Less: Amount representing interest
 
(7,246
)

(7,246
)
 
(1,262
)
Present value of future payments
 
46,636

1,426

45,210

 
22,959

Less: Amount for tenant incentives
 
(733
)

(733
)
 

Revised Present value of future payments
 
45,903

1,426

44,477

 
22,959

Less: Current portion
 
(9,790
)

(9,790
)
 
(10,064
)
Long term portion
 
$
36,113

$
1,426

$
34,687

 
$
12,895


Purchase Commitment
The Company entered into purchase commitments, which have the ability to be canceled without significant penalties, with multiple suppliers to purchase $78.5 million of photovoltaic modules and inverters by the end of 2019.
Warranty Accrual
The Company accrues warranty costs when revenue is recognized for solar energy systems sales, based on the estimated future costs of meeting its warranty obligations. Warranty costs primarily consist of replacement costs for supplies and labor costs for service personnel since warranties for equipment and materials are covered by the original manufacturer’s warranty (other than a small deductible in certain cases). As such, the warranty reserve is immaterial in all periods presented. The Company makes and revises these estimates based on the number of solar energy systems under warranty, the Company’s historical experience with warranty claims, assumptions on warranty claims to occur over a systems’ warranty period and the Company’s estimated replacement costs.
Commercial ITC and Cash Grant Indemnification
The Company is contractually committed to compensate certain investors for any losses that they may suffer in certain limited circumstances resulting from reductions in Commercial ITCs or U.S. Treasury grants. Generally, such obligations would arise as a result of reductions to the value of the underlying solar energy systems as assessed by the Internal Revenue Service (the “IRS”). At each balance sheet date, the Company assesses and recognizes, when applicable, the potential exposure from this obligation based on all the information available at that time, including any audits undertaken by the IRS. The Company believes that this obligation is not probable based on the facts known as of the filing date of this Annual Report on Form 10-K. The maximum potential future payments that the Company could have to make under this obligation would depend largely on the difference between the prices at which the solar energy systems were sold or transferred to the Funds (or, in certain structures, the fair market value claimed in respect of such systems (referred to as "claimed values")) and the eligible basis determined by the IRS. The Company set the purchase prices and claimed values based on fair market values determined with the assistance of an independent third-party appraisal with respect to the systems that generate Commercial ITCs that are passed-through to and claimed by the Fund investors. Since the Company cannot determine how the IRS may evaluate system values used in claiming Commercial ITCs, the Company is unable to reliably estimate the maximum potential future payments that it could have to make under this obligation as of each balance sheet date, though any potential future payments are mitigated by the insurance policy described below. In April 2018, the Company purchased an insurance policy providing for certain payments by the insurers in the event there is any final determination (including a judicial determination) that reduced the
Commercial ITCs claimed in respect of solar energy systems sold or transferred to most Funds through April 2018, or later, in the case of Funds added to the policy after such date. In general, the policy indemnifies the Company and related parties for additional taxes (including penalties and interest) owed in respect of lost Commercial ITCs, gross-up costs and expenses incurred in defending such claim, subject to negotiated exclusions from, and limitations to, coverage.
Litigation
The Company is subject to certain legal proceedings, claims, investigations and administrative proceedings in the ordinary course of its business. The Company records a provision for a liability when it is both probable that the liability has been incurred and the amount of the liability can be reasonably estimated. These provisions, if any, are reviewed at least quarterly and adjusted to reflect the impacts of negotiations, settlements, rulings, advice of legal counsel and other information and events pertaining to a particular case. Depending on the nature and timing of any such proceedings that may arise, an unfavorable resolution of a matter could materially affect the Company’s future consolidated results of operations, cash flows or financial position in a particular period.

On June 29, 2017, a shareholder derivative complaint captioned Barbara Sue Sklar Living Trust v. Sunrun Inc. et al., was filed in the United States District Court, Northern District of California, against the Company and certain of the Company’s directors and officers. The complaint generally alleges that the defendants violated Section 14(a) of the Exchange Act by making false or misleading statements in connection with public filings, including proxy statements, made between September 10, 2015 and May 3, 2017 regarding the number of customers who cancelled contracts after signing up for the Company’s home solar energy system. The Plaintiff seeks, among other things, damages in favor of the Company, certain corporate actions to purportedly improve the Company’s corporate governance, and an award of costs and expenses to the putative plaintiff stockholder, including attorneys’ fees.

On April 5, 2018, a stockholder derivative complaint captioned Leonard Olsen v. Sunrun Inc. et al., was filed in the United States District Court, District of Delaware, against the Company and certain of the Company’s directors and officers. The Olsen complaint is substantially similar to the Sklar complaint, alleges that the defendants breached their fiduciary duties and violated Section 14(a) of the Exchange Act in connection with public statements made between September 16, 2015 and May 21, 2017, and seeks similar relief.

On January 28, 2019, the Company reached an agreement in principle to settle all claims asserted in the Sklar and Olsen derivative actions against all defendants, and on November 29 2019, the Court granted final approval of the settlement. Under the terms of the settlement, the Company agreed to adopt certain corporate governance measures in the future. The Company and all defendants have denied, and continue to deny, the claims alleged in the derivative actions and the settlement does not reflect any admission of fault, wrongdoing or liability as to any defendant.

On April 8, 2019, a putative class action captioned Loftus et al. v. Sunrun Inc., Case No. 3:19-cv-01608, was filed in the United States District Court, Northern District of California.  The complaint generally alleged violations of the Telephone Consumer Protection Act (the “TCPA”) on behalf of an individual and putative classes of persons alleged to be similarly situated. Plaintiffs filed a First Amended Complaint on June 26, 2019, adding defendant MediaMix 365, LLC, also asserting individual and putative class claims under the TCPA, along with claims under the California Invasion of Privacy Act. In the amended version of their Complaint, plaintiffs seek statutory damages, equitable and injunctive relief, and attorneys’ fees and costs on behalf of themselves and the absent purported classes. On January 23, 2020, the Court held a status conference and set discovery deadlines. Most, if not all, of the claims asserted in the lawsuit relate to activities allegedly engaged in by third-party vendors, for which the Company denies any responsibility. The vendors are contractually obligated to indemnify the Company for losses related to the conduct alleged. The Company believes that the claims are without merit and intends to defend itself vigorously.