SOLAREDGE TECHNOLOGIES, INC. 10-K/A

ITEM 9A. CONTROLS AND PROCEDURES Disclosure Controls and Procedures Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of December 31, 2020. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs. Based on that evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were effective and operating to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and to provide reasonable assurance that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure. Management’s Report on Internal Control Over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of consolidated financial statements for external purposes in accordance with U.S. generally accepted accounting principles. Management assessed our internal control over financial reporting as of December 31, 2020. Management based its assessment on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework). Management’s assessment included evaluation of elements such as the design and operating effectiveness of key financial reporting controls, process documentation, accounting policies, and our overall control environment. Based on this assessment, management has concluded that our internal control over financial reporting was effective as of the end of the year to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external reporting purposes in accordance with U.S. generally accepted accounting principles. We reviewed the results of management’s assessment with the Audit Committee of our Board of Directors. Our independent registered public accounting firm, Kost Forer Gabbay & Kasierer, a member of Ernst & Young, independently assessed the effectiveness of the company’s internal control over financial reporting, as stated in the firm’s attestation report, which is incorporated by reference into Part II, Item 8 of this Form 10-K. Our management, including our chief executive officer and chief financial officer, does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well-designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been detected. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of the effectiveness of controls to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures. Changes in Internal Control over Financial Reporting There have been no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) that occurred during the fourth fiscal quarter of 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. ITEM 9B. OTHER INFORMATION None. 51 PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE The information required by Item 10 will be included under the captions “Directors and Corporate Governance”, “The Board’s Role in Risk Oversight”, “Board Committees”, “Director Compensation”, “Compensation Committee Report”, and “Section 16(a) Beneficial Ownership Reporting Compliance” in our definitive Proxy Statement for the 2021 Annual Meeting of Stockholders to be filed with the SEC within 120 days of the year ending December 31, 2020 (the "2021 Proxy Statement") and is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION The information required by Item 11 will be included under the captions “Executive Compensation” in our 2021 Proxy Statement and is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS Except as set forth below, the information required by Item 12 will be included under the captions “Security Ownership of Certain Beneficial Owners and Management” in our 2021 Proxy Statement and is incorporated herein by reference. Equity Compensation Plan Information The following table summarizes information as of December 31, 2020, about shares of common stock that may be issued under our equity compensation plans. Plan Category Number of securities to be issued upon exercise of outstanding stock awards(a) Weighted-average exercise price of outstanding stock awards (b) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c) Equity compensation plans approved by security holders (1) 2,957,346 $ 7.47 7,324,042 Equity compensation plans not approved by security holders — — — Total 2,957,346 $ 7.47 7,324,042 (1) Includes in column (a) 2,840,081 shares of common stock issuable upon exercise of stock awards outstanding under the Company’s 2015 Global Incentive Plan, 117,265 shares of common stock issuable upon exercise of options outstanding under the Company’s 2007 Global Incentive Plan. Includes in column (c) 5,248,820, shares of common stock available for future issuance under the Company’s 2015 Global Incentive Plan and 2,075,222 shares of common stock available for future issuance under the Company’s Employee Stock Purchase Plan. Upon consummation of our initial public offering, the Company’s 2007 Global Incentive Plan was terminated and no further awards can be granted under this plan. Employee Stock Purchase Plan We have adopted an employee stock purchase plan (“ESPP”), pursuant to which our eligible employees and eligible employees of our subsidiaries may elect to have payroll deductions made during the offering period in an amount not exceeding 10% of the compensation which the employees receive on each pay day during the offering period. In the second quarter of calendar 2016, we started granting eligible employees the right to purchase our common stock under the ESPP. As of December 31, 2020, a total of 2,687,451 shares were reserved for issuance under the ESPP. The number of shares of common stock reserved for issuance under the ESPP will increase annually on January 1st, for ten years, by the lesser of 1% of the total number of shares of the Company’s common stock outstanding on December 31st of the preceding calendar year or 487,643 shares. Our board of directors may reduce the number of shares to be added to the share reserve for the ESPP in any particular year at their discretion. 52 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE The information required by Item 13 will be included under the captions “Transactions with Related Persons” in our 2021 Proxy Statement and is incorporated herein by reference. ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES The information required by Item 14 will be included under the captions “Audit and Related Fees” in our 2021 Proxy Statement and is incorporated herein by reference. PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES Our Consolidated Financial Statements and Notes thereto are included in ITEM 8 of this Annual Report on Form 10-K. See Index to ITEM 8 for more detail. All financial schedules have been omitted either because they are not applicable or because the required information is provided in our Consolidated Financial Statements and Notes thereto, included in ITEM 8 of this Annual Report on Form 10-K. Index to Exhibits Exhibit No. Description Incorporation by Reference 3.1 Amended and Restated Certificate of Incorporation Incorporated by reference to Exhibit 4.1 to Form S-8 (Registration No. 333-203193) filed with the SEC on April 2, 2015   3.2 Amended and Restated By‑Laws Incorporated by reference to Exhibit 4.2 to Form S-8 (Registration No. 333-203193) filed with the SEC on April 2, 2015   3.3 Description of Common Stock Filed with this report.   4.1 Specimen Common Stock Certificate of the Registrant Incorporated by reference to Exhibit 4.1 of Amendment No. 1 to Form S-1 (Registration No. 333-202159) filed with the SEC on March 11, 2015   4.2 Indenture, dated September 25, 2020, between the Company and U.S. Bank National Association, as trustee Incorporated by reference to Exhibit 4.1 to Form 8-K filed with the SEC on September 25, 2020   4.3 Form of 0.000% Convertible Senior Note due 2025 (included in Exhibit 4.2) Incorporated by reference to Exhibit 4.2 to Form 8-K filed with the SEC on September 25, 2020   10.1† Employment Agreement, dated August 20, 2019 between SolarEdge Technologies Ltd. and Uri Bechor Incorporated by reference to Exhibit 10.1 to Form 8-K filed with the SEC on August 21, 2019   10.2 Employment Agreement, dated December 1, 2010, between SolarEdge Technologies, Inc. and Ronen Faier Incorporated by reference to Exhibit 10.3 of Amendment No. 1 to Form S-1 (Registration No. 333-202159) filed with the SEC on March 11, 2015   10.4† Employment Agreement, dated May 17, 2009, between SolarEdge Technologies, Inc. and Zvi Lando Incorporated by reference to Exhibit 10.3 of Amendment No. 1 to Form S-1 (Registration No. 333-202159) filed with the SEC on March 11, 2015   10.5† SolarEdge Technologies, Inc. 2007 Global Incentive Plan. Incorporated by reference to Exhibit 99.3 to Form S-8 (Registration No. 333-203193) filed with the SEC on April 2, 2015   10.6† SolarEdge Technologies, Inc. 2015 Global Incentive Plan Incorporated by reference to Exhibit 99.1 to Form S-8 (Registration No. 333-203193) filed with the SEC on April 2, 2015   10.7† SolarEdge Technologies, Inc. 2015 Employee Stock Purchase Plan Incorporated by reference to Exhibit 99.2 to Form S-8 (Registration No. 333-203193) filed with the SEC on April 2, 2015 53 Exhibit No. Description Incorporation by Reference 10.11 † Form of Non-Employee Director RSU Award Agreement Incorporated by reference to Exhibit 10.11 to Form 10-K filed with the SEC on August 20, 2015   10.12 † Form of Non-Employee Director Stock Option Award Agreement Incorporated by reference to Exhibit 10.12 to Form 10-K filed with the SEC on August 20, 2015   10.13 † Form of Employee RSU Award Agreement Incorporated by reference to Exhibit 10.13 to Form 10-K filed with the SEC on August 20, 2015   10.14 † Form of Employee Stock Option Award Agreement Incorporated by reference to Exhibit 10.14 to Form 10-K filed with the SEC on August 20, 2015   21.1 List of Subsidiaries of the Registrant Filed with this report.   23.1 Consent of Kost Forer Gabbay & Kasierer, independent registered public accounting firm Filed with this report.   24.1 Power of Attorney (included in signature page) Filed with this report.   31.1 Certification of Chief Executive Officer Pursuant to Rules 13a-14(a) and15d-14(a) of the Securities Exchange Act of 1934, as amended Filed with this report.   31.2 Certification of Chief Financial Officer Pursuant to Rules 13a-14(a) and15d-14(a) of the Securities Exchange Act of 1934, as amended Filed with this report.   32.1 Certification of Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Filed with this report.   32.2 Certification of Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Filed with this report.   101.INS XBRL Instance Document - - embedded within the Inline XBRL document Filed with this report.   101.SCH XBRL Taxonomy Extension Schema Document Filed with this report.   101.CAL XBRL Taxonomy Extension Calculation Linkbase Document Filed with this report.   101.DEF XBRL Taxonomy Extension Definition Linkbase Document Filed with this report.   101.LAB XBRL Taxonomy Extension Label Linkbase Document Filed with this report.   101.PRE XBRL Taxonomy Extension Presentation Linkbase Document Filed with this report.   104 Cover Page Interactive Data File - the cover page XBRL tags are embedded within the Inline XBRL document. Filed with this report. † Management contract or compensatory plan or arrangement. ITEM 16. FORM 10–K SUMMARY None. 54 SOLAREDGE TECHNOLOGIES, INC. AND ITS SUBSIDIARIES. CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2020 AUDITED INDEX Page Reports of Independent Registered Public Accounting Firm F-2 Consolidated Balance Sheets as of December 31, 2020 and 2019 F-5 Consolidated Statements of Income for the year ended December 31, 2020, 2019 and 2018 F-7 Consolidated Statements of Comprehensive Income for the year ended December 31, 2020, 2019 and 2018 F-8 Statements of Changes in Stockholders’ Equity for the year ended December 31, 2020, 2019 and 2018 F-9 Consolidated Statements of Cash Flows for the year ended December 31, 2020, 2019 and 2018 F-11 Notes to Consolidated Financial Statements F-13 - - - - - - - - - - - - - - - - - - - - - REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and the Board of Directors of SOLAREDGE TECHNOLOGIES, INC. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of SolarEdge Technologies, Inc. and subsidiaries (the “Company”) as of December 31, 2020 and 2019, the related consolidated statements of income, comprehensive income, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2020, and the related notes (collectively referred to as the "consolidated financial statements"). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 19, 2021 expressed an unqualified opinion thereon. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involve our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. F - 2   Valuation of Warranty Obligations   Description of the Matter As described in Notes 2.t and 13 to the consolidated financial statements, as of December 31, 2020, the warranty obligation was $204,994 thousand. Substantially all of the Company's warranty obligations are related to the solar business. The calculation of such warranty obligations requires significant judgment due to the inherent complexity in estimating the amount and timing of future warranty costs. The Company's products include a warranty of up to 12 years for inverters and up to 25 years for its power optimizers. In order to predict the failure rate of each product, the Company established a reliability model based on the estimated mean time between failures ("MTBF") and an additional model to capture non-systematic failures. Predicted failure rates are updated periodically based on new product versions and analysis of the root cause of actual failures, as are warranty related replacement costs.   Auditing the management’s valuation of warranty obligations was complex and subject to judgment calls due to the significant estimation required in determining its amount. In particular, the warranty obligation is subject to significant assumptions such as product failure rates, the average cost of products replacements and other warranty related costs.   How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of internal controls over the accounting for warranties, including management's assumptions and data underlying the warranty obligation valuation. Our substantive audit procedures included, among others, look back analyses and testing the accuracy and completeness of the underlying data used in management's warranty obligation valuation assessment. We assessed the accuracy of historical data used in estimating forecasted failure rates, repair replacement ratios and other warranty related costs and compared them to actual warranty claims. In addition, we involved a specialist to assess the assumptions and the precision of the inputs underlying the MTBF model, including, evaluating the appropriateness of the MTBF model and its consistency with data obtained from external sources.   Valuation of and Accounting for Convertible Notes at Issuance   Description of the Matter As described in Note 11 to the consolidated financial statements, in September 2020, the Company issued $632.5 million aggregate principal amount of 0.00% Convertible Senior Notes (the “Notes”) in a private placement. The nature of the convertible note transaction required management to allocate the proceeds between the liability and equity components, with the equity component representing the difference between the proceeds and the fair value of a similar liability that does not have an associated conversion feature. Management applied significant judgment in estimating the borrowing rate for a comparable non-convertible note that does not have an associated conversion feature, including in determining the Company's synthetic credit rating. Auditing the Company’s valuation of and accounting for convertible notes at issuance involved a high degree of auditor judgment, subjectivity, and effort due to significant management judgment required in determining the estimated borrowing rate of a comparable non-convertible note, which is a significant assumption in determining the fair value of a similar liability that does not have an associated conversion feature.   How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of internal controls over the valuation of and accounting for the Notes, including management's assessment of the assumptions and data underlying the Notes. Our substantive audit procedures included, among others, analyzing the methodology used by management to determine the fair value of a similar liability that does not have an associated conversion feature, evaluating management’s selection of the borrowing rate of a comparable non-convertible note, assessing the reasonableness of the underlying assumptions used to determine the borrowing rate, such as the Company’s synthetic credit rating, and performing an independent calculation of the carrying amounts attributable to the liability and equity components. In addition, professionals with specialized skill and knowledge were used to assist in evaluating whether the borrowing rate of a comparable non-convertible note used by management was reasonable considering consistency with external market and industry data. We have also evaluated the Company’s disclosures regarding the issuance of the Notes included in Notes 2.u and 11 to the consolidated financial statements. /s/ Kost Forer Gabbay & Kasierer A Member of Ernst & Young Global   We have served as the Company's auditor since 2007. Tel-Aviv, Israel February 19, 2021 F - 3 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and the Board of Directors of SOLAREDGE TECHNOLOGIES, INC. Opinion on Internal Control over Financial Reporting We have audited SolarEdge Technologies, Inc. and subsidiaries internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, SolarEdge Technologies, Inc. and subsidiaries (the "Company") maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on the COSO criteria. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2020, and 2019, the related consolidated statements of income, comprehensive income, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2020, and the related notes and our report dated February 19, 2021 expressed an unqualified opinion thereon. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures, as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ Kost Forer Gabbay & Kasierer A Member of Ernst & Young Global  Tel-Aviv, Israel February 19, 2021 F - 4 SOLAREDGE TECHNOLOGIES, INC. AND ITS SUBSIDIARIES CONSOLIDATED BALANCE SHEETS U.S. dollars in thousands (except share and per share data)   December 31, 2020 2019 ASSETS   CURRENT ASSETS: Cash and cash equivalents $ 827,146 $ 223,901 Short-term bank deposits 60,096 5,010 Restricted bank deposits 2,611 27,558 Marketable securities 143,687 91,845 Trade receivables, net of allowances of $ 2,886 and $ 2,473 , respectively 218,706 298,383 Inventories, net 331,696 170,798 Prepaid expenses and other current assets 135,399 115,268   Total current assets 1,719,341 932,763   LONG-TERM ASSETS: Marketable securities 147,434 119,176 Deferred tax assets, net 11,676 16,298 Property, plant and equipment, net 303,408 176,963 Operating lease right-of-use assets, net 41,600 35,858 Intangible assets, net 67,818 74,008 Goodwill 140,479 129,654 Other long-term assets 5,353 9,904   Total long-term assets 717,768 561,861   Total assets $ 2,437,109 $ 1,494,624 The accompanying notes are an integral part of the consolidated financial statements. F - 5 SOLAREDGE TECHNOLOGIES, INC. AND ITS SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Cont.) U.S. dollars in thousands (except share and per share data)   December 31, 2020 2019   LIABILITIES AND STOCKHOLDERS’ EQUITY   CURRENT LIABILITIES: Trade payables, net $ 162,051 $ 157,148 Employees and payroll accruals 63,738 47,390 Current maturities of bank loans and accrued interest 16,894 15,673 Warranty obligations 62,614 65,112 Deferred revenues and customers advances 24,648 70,815 Accrued expenses and other current liabilities 106,154 80,576   Total current liabilities 436,099 436,714   LONG-TERM LIABILITIES: Convertible senior notes, net 573,350 - Warranty obligations 142,380 107,451 Deferred revenues 115,372 89,982 Deferred tax liabilities, net 8,593 4,461 Finance lease liabilities 26,173 2,399 Operating lease liabilities 35,194 30,213 Other long-term liabilities 14,191 11,734   Total long-term liabilities 915,253 246,240   COMMITMENTS AND CONTINGENT LIABILITIES   STOCKHOLDERS’ EQUITY: Common stock of $ 0.0001 par value – Authorized: 125,000,000 shares as of December 31, 2020, and 2019; issued: 51,560,936 and 49,081,457 shares as of December 31, 2020, and 2019, respectively; outstanding: 51,560,936 and 48,898,062 shares as of December 31, 2020 and 2019, respectively. 5 5 Additional paid-in capital 603,891 475,792 Accumulated other comprehensive income (loss) 3,857 ( 1,809 ) Retained earnings 478,004 337,682   Total stockholders’ equity 1,085,757 811,670   Total liabilities and stockholders’ equity $ 2,437,109 $ 1,494,624 The accompanying notes are an integral part of the consolidated financial statements. F - 6 SOLAREDGE TECHNOLOGIES, INC. AND ITS SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME U.S. dollars in thousands (except share and per share data) Year ended December 31, 2020 2019 2018   Revenues $ 1,459,271 $ 1,425,660 $ 937,237 Cost of revenues 997,912 946,322 618,001   Gross profit 461,359 479,338 319,236   Operating expenses:   Research and development 163,123 121,351 82,245 Sales and marketing 95,985 87,984 68,307 General and administrative 63,119 49,361 29,264 Other operating expenses (income), net ( 3,429 ) 30,696 -   Total operating expenses 318,798 289,392 179,816   Operating income 142,561 189,946 139,420   Financial expenses (income), net ( 21,105 ) 11,343 2,297   Income before income taxes 163,666 178,603 137,123   Income taxes 23,344 33,646 9,077   Net income $ 140,322 $ 144,957 $ 128,046   Net loss attributable to Non-controlling interests - 1,592 787   Net income attributable to SolarEdge Technologies, Inc. $ 140,322 $ 146,549 $ 128,833   Net basic earnings per share of common stock attributable to SolarEdge Technologies, Inc. $ 2.79 $ 3.06 $ 2.85   Net diluted earnings per share of common stock attributable to SolarEdge Technologies, Inc. $ 2.66 $ 2.90 $ 2.69   Weighted average number of shares used in computing net basic earnings per share of common stock 50,217,330 47,918,938 45,235,310   Weighted average number of shares used in computing net diluted earnings per share of common stock 52,795,475 50,195,661 47,980,002 The accompanying notes are an integral part of the consolidated financial statements. F - 7 SOLAREDGE TECHNOLOGIES, INC. AND ITS SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME U.S. dollars in thousands (except share and per share data)   Year ended December 31, 2020 2019 2018   Net income $ 140,322 $ 144,957 $ 128,046   Other comprehensive income:   Available-for-sale securities: Changes in unrealized gains (losses), net of tax ( 24 ) 829 ( 360 ) Reclassification adjustments for losses included in net income - 91 137 Net change ( 24 ) 920 ( 223 )   Cash flow hedges: Changes in unrealized gains, net of tax 966 - 31 Reclassification adjustments for gains, net of tax included in net income ( 966 ) - ( 31 ) Net change - - -   Foreign currency translation adjustments, net 5,690 ( 2,205 ) 310   Total other comprehensive income (loss) 5,666 ( 1,285 ) 87   Comprehensive income $ 145,988 $ 143,672 $ 128,133   Comprehensive loss (income) attributable to Non-controlling interests - 981 ( 150 )   Comprehensive income attributable to SolarEdge Technologies, Inc. $ 145,988 $ 144,653 $ 127,983 The accompanying notes are an integral part of the consolidated financial statements. F - 8 SOLAREDGE TECHNOLOGIES, INC. AND ITS SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY U.S. dollars in thousands (except share and per share data)   SolarEdge Technologies, Inc. Stockholders’ Equity Common stock Additional paid in Capital Accumulated Other comprehensive Income (loss) Retained earnings Total Non- controlling interests Total stockholders’ equity Number Amount   Balance as of December 31, 2017 43,812,601 $ 4 $ 331,902 $ ( 611 ) $ 66,172 $ 397,467 $ - $ 397,467 Cumulative effect of adopting ASC 606 - - - - ( 3,872 ) ( 3,872 ) - ( 3,872 ) Issuance of Common Stock upon exercise of employee and non-employees stock-based awards 2,122,932 1 6,333 - - 6,334 - 6,334 Issuance of Common stock under employee stock purchase plan 117,269 * - 3,687 - - 3,687 - 3,687 Equity based compensation expenses to employees and nonemployees - - 30,618 - - 30,618 - 30,618 Non-controlling interests related to business combination - - - - - - 22,159 22,159 Change in non-controlling interests - - ( 746 ) - - ( 746 ) ( 13,204 ) ( 13,950 ) Other comprehensive income adjustments - - - 87 - 87 150 237 Net income - - - - 128,833 128,833 ( 787 ) 128,046 Balance as of December 31, 2018 46,052,802 $ 5 $ 371,794 $ ( 524 ) $ 191,133 $ 562,408 $ 8,318 $ 570,726 Issuance of Common Stock upon exercise of employee and non-employees stock-based awards 1,691,896 * - 3,498 - - 3,498 - 3,498 Issuance of Common stock under employee stock purchase plan 142,713 * - 5,568 - - 5,568 - 5,568 Equity based compensation expenses to employees and nonemployees - - 60,353 - - 60,353 - 60,353 Treasury Stock ( 183,395 ) * - ( 2 ) - - ( 2 ) - ( 2 ) Issuance of Common stock upon business combination 1,194,046 * - 34,601 - - 34,601 - 34,601 Non-controlling interests related to business combination - - - - - - 67,734 67,734 Change in non-controlling interests - - ( 20 ) - - ( 20 ) ( 73,479 ) ( 73,499 ) Other comprehensive loss adjustments - - - ( 1,285 ) - ( 1,285 ) ( 981 ) ( 2,266 ) Net income - - - - 146,549 146,549 ( 1,592 ) 144,957 Balance as of December 31, 2019 48,898,062 $ 5 $ 475,792 $ ( 1,809 ) $ 337,682 $ 811,670 $ - $ 811,670   * Represents an amount less than $1. F - 9 SOLAREDGE TECHNOLOGIES, INC. AND ITS SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Cont.) U.S. dollars in thousands (except share and per share data)   SolarEdge Technologies, Inc. Stockholders’ Equity Common stock Additional paid in Capital Accumulated Other comprehensive Income (loss) Retained earnings Total Non- controlling interests Total stockholders’ equity Number Amount   Balance as of December 31, 2019 48,898,062 $ 5 $ 475,792 $ ( 1,809 ) $ 337,682 $ 811,670 $ - $ 811,670   Issuance of Common Stock upon exercise of employee and non-employees stock-based awards 2,579,004 * - 16,671 - - 16,671 - 16,671 Issuance of Common stock under employee stock purchase plan 83,870 * - 7,783 - - 7,783 - 7,783 Equity based compensation expenses to employees and nonemployees - - 67,309 - - 67,309 - 67,309 Equity component of convertible senior notes, net - - 36,336 - - 36,336 - 36,336 Other comprehensive income adjustments - - - 5,666 - 5,666 - 5,666 Net income - - - - 140,322 140,322 - 140,322 Balance as of December 31, 2020 51,560,936 $ 5 $ 603,891 $ 3,857 $ 478,004 $ 1,085,757 $ - $ 1,085,757   * Represents an amount less than $1. The accompanying notes are an integral part of the consolidated financial statements. F - 10 SOLAREDGE TECHNOLOGIES, INC. AND ITS SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS U.S. dollars in thousands (except share and per share data) Year ended December 31, 2020 2019 2018   Cash flows provided by operating activities: Net income $ 140,322 $ 144,957 $ 128,046 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation of property, plant and equipment 22,355 17,261 11,426 Amortization of intangible assets 9,479 9,634 1,193 Amortization of debt discount and debt issuance costs 3,185 - - Amortization of premium and accretion of discount on available-for-sale marketable securities, net 1,168 92 1,242 Stock-based compensation expenses 67,309 60,353 30,618 Deferred income taxes, net ( 2,738 ) ( 6,037 ) ( 7,093 ) Loss from sale of business - 5,269 - Other items 2,451 713 551 Changes in assets and liabilities: Inventories, net ( 149,661 ) ( 22,544 ) ( 20,178 ) Prepaid expenses and other assets ( 3,276 ) ( 67,323 ) ( 2,711 ) Trade receivables, net 86,538 ( 124,071 ) ( 60,514 ) Operating lease right-of-use assets and liabilities, net and effect of exchange rate differences 1,409 2,192 - Trade payables, net 3,333 47,837 31,482 Employees and payroll accruals 18,315 18,592 4,583 Warranty obligations 32,274 50,780 41,878 Deferred revenues and customers advances ( 21,438 ) 83,137 37,041 Other liabilities 11,630 38,158 ( 8,485 )   Net cash provided by operating activities 222,655 259,000 189,079   Cash flows from investing activities: Investment in available-for-sale marketable securities ( 223,705 ) ( 160,054 ) ( 142,627 ) Proceed from sales and maturities of available-for- sale marketable securities 141,839 142,744 129,345 Purchase of property, plant and equipment ( 126,790 ) ( 72,562 ) ( 38,608 ) Withdrawal from (investment in) bank deposits, net ( 54,752 ) 4,860 ( 9,870 ) Withdrawal from (investment in) restricted bank Deposits, net 25,267 ( 26,145 ) ( 112 ) Business combinations, net of cash acquired - ( 38,435 ) ( 94,737 ) Other investing activities 1,504 ( 3,261 ) -   Net cash used in investing activities $ ( 236,637 ) $ ( 152,853 ) $ ( 156,609 ) F - 11 SOLAREDGE TECHNOLOGIES, INC. AND ITS SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Cont.) U.S. dollars in thousands (except share and per share data) Year ended December 31, 2020 2019 2018   Cash flows from financing activities: Proceeds from issuance of convertible senior notes, net $ 617,869 $ - $ - Repayment of bank loans ( 15,595 ) ( 9,514 ) ( 3,786 ) Proceeds from bank loans 16,944 249 - Proceeds from exercise of stock-based awards 21,500 9,066 10,021 Change in non-controlling interests - ( 71,468 ) ( 14,190 ) Other financing activities ( 234 ) ( 1,354 ) -   Net cash provided by (used in) financing activities 640,484 ( 73,021 ) ( 7,955 )   Increase in cash and cash equivalents 626,502 33,126 24,515 Cash and cash equivalents at the beginning of the period 223,901 187,764 163,163 Effect of exchange rate differences on cash and cash equivalents ( 23,257 ) 3,011 86   Cash and cash equivalents at the end of the period $ 827,146 $ 223,901 $ 187,764   Supplemental disclosure of non-cash activities: Right-of-use asset recognized with corresponding lease liability $ 29,623 $ 37,298 $ - Issuance of common stock upon business combination $ - $ 34,601 $ -   Supplemental disclosure of cash flow information: Cash paid for income taxes $ 38,990 $ 41,076 $ 15,368 Cash paid for interest on bank loans $ 321 $ 1,096 $ 143 The accompanying notes are an integral part of the consolidated financial statements. F - 12 SOLAREDGE TECHNOLOGIES, INC. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands (except share and per share data) 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), (iii) a remote cloud-based monitoring platform, that collects and processes information from the power optimizers and inverters to enable customers and system owners, to monitor and manage the solar PV system (iv) a storage and backup solution that is used to increase energy independence and maximize self-consumption for homeowners by utilizing a battery that is sold separately by third party manufacturers, to store and supply power as needed, and (v) additional smart energy management solutions. The Company and its subsidiaries sell products worldwide through large distributors, electrical equipment wholesalers, as well as directly to large solar installers and engineering, procurement and construction firms. b. The Company has expanded its activity to other areas of smart energy technology organically and through acquisitions. The Company now offers variety of energy solutions, which include lithium-ion cells, batteries and energy storage systems (“Energy Storage”), full powertrain kits for electric vehicles, or EVs (“e-Mobility”), uninterrupted power supply solutions (“UPS”), as well as automated machines for industrial use (“Automation Machines”). During 2018, the Company completed the acquisitions of substantially all of the assets and activities of Gamatronic Electronic Industries Ltd and all of the outstanding shares of its wholly owned subsidiary Gamatronic (UK) Limited, respectively. Together, this activity is referred to as Critical Power, which provides and manufactures UPS devices. During 2018 and 2019, the Company completed the acquisition of Kokam Co., Ltd., a provider of lithium-ion cells, batteries and energy storage solutions (“Kokam”). On January 24, 2019, the Company completed the acquisition of 56.8 % of the outstanding common stock and voting rights of SolarEdge Automation Machines, formerly known as S.M.R.E S.p.A (“SolarEdge Automation Machines”) and its subsidiaries, providers of innovative integrated powertrain technology and electronics for electric vehicles as well as automated machines for industries. As of December 31, 2020, the Company increased its shareholdings in SolarEdge Automation Machines to 99.9 %. F - 13 SOLAREDGE TECHNOLOGIES, INC. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands (except share and per share data) NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES The consolidated financial statements are prepared according to United States generally accepted accounting principles (“U.S. GAAP”). a. Principles of consolidation: The consolidated financial statements include the accounts of the Company and its subsidiaries. Intercompany transactions and balances including profit from intercompany sales not yet realized outside the Company have been eliminated upon consolidation. b. Use of estimates: The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, costs and expenses and related disclosures in the accompanying notes. The duration, scope and effects of the ongoing COVID-19 pandemic, government and other third party responses to it, and the related macroeconomic effects, including to the Company’s business and the business of the Company’s suppliers and customers are uncertain, rapidly changing and difficult to predict. As a result, the Company’s accounting estimates and assumptions may change over time in response to this evolving situation. Such changes could result in future impairments of goodwill, intangibles, long-lived assets, inventories, incremental credit losses on receivables and AFS debt securities, or an increase in the Company’s insurance liabilities as of the time of a relevant measurement event. c. Financial statements in U.S. dollars: A major part of the Company’s operations is carried out in the United States, Israel and certain other countries. The functional currency of these entities is the U.S. dollar. Financing activities, including cash investments are primarily made in U.S. dollars. Accordingly, monetary accounts maintained in currencies other than the U.S. dollar are translated into U.S. dollars in accordance with Financial Accounting Standards Board Accounting Standards Codification (“ASC”) No. 830 “Foreign Currency Matters”. All transaction gains and losses of the re-measurement of monetary balance sheet items are reflected in the statements of income as financial income or expenses, as appropriate. The financial statements of other Company’s subsidiaries whose functional currency is other than the U.S. dollar have been translated into U.S dollars. Assets and liabilities have been translated using the exchange rates in effect as of the balance sheet date. Statements of income amounts have been translated using the average exchange rate for the relevant periods. The resulting translation adjustments are reported as a component of stockholders’ equity in accumulated other comprehensive income (loss). Accumulated other comprehensive income (loss) related to foreign currency translation adjustments, net amounted to $ 3,617 and $( 2,073 ) as of December 31, 2020 and 2019, respectively. F - 14 SOLAREDGE TECHNOLOGIES, INC. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands (except share and per share data) NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.) d. Cash and cash equivalents: Cash equivalents are short-term, highly liquid investments that are readily convertible to cash, with original maturities of three months or less at the date acquired. e. Short-term bank deposits: Short-term bank deposits are deposits with an original maturity of more than three months and less than a year from the date of investment and which do not meet the definition of cash equivalents. The deposits are presented according to their term deposits. f. Restricted bank deposits: Restricted bank deposits are primarily invested in short-term bank deposits, with an original maturity of more than three months and less than a year from the date of investment and which are primarily used as collateral for a letter of credit for the Company’s customers and security for the Company’s office leases and credit cards. g. 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 expenses (income), 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 expenses (income), net. The Company classifies its marketable securities as either short-term or long-term based on each instrument’s underlying contractual maturity date. Marketable securities with maturities of 12 months or less are classified as short-term and marketable securities with maturities greater than 12 months are classified as long-term. On each reporting period, the Company evaluates whether declines in fair value below carrying value are due to expected credit losses, as well as the ability and intent to hold the investment until a forecasted recovery occurs, in accordance with ASC 326. Allowance for credit losses on AFS debt securities are recognized as a charge in financial expenses (income), net, on the consolidated statements of income, and any remaining unrealized losses, net of taxes, are included in accumulated other comprehensive income (loss) in stockholders' equity. The Company has not recorded credit losses for the year ended December 31, 2020. There was no other-than-temporary-impairment charge for any unrealized losses in 2019 and 2018. The Company determines realized gains or losses on sale of marketable securities on a specific identification method and records such gains or losses in financial expenses (income) on the consolidated statements of income. F - 15 SOLAREDGE TECHNOLOGIES, INC. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands (except share and per share data) NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.) h. Trade receivables: Trade receivables are stated net of credit losses allowance. The Company is exposed to credit losses primarily through sales of products. The allowance against gross trade receivables reflects the current expected credit loss inherent in the receivables portfolio determined based on the Company’s methodology. The Company’s methodology is based on historical collection experience, customer creditworthiness, current and future economic condition and market condition. Additionally, specific allowance amounts are established to record the appropriate provision for customers that have a higher probability of default. The Company also considered the current and expected future economic and market conditions surrounding the COVID-19 pandemic and determined that the estimate of credit losses was not significantly impacted. Trade receivables are written off after all reasonable means to collect the full amount have been exhausted. The following table provides a roll-forward of the allowance for credit losses that is deducted from the amortized cost basis of trade receivables to present the net amount expected to be collected: Year ended December 31, 2020 Balance, at beginning of period $ 2,473 Provision for expected credit losses 956 Amounts written off charged against the allowance and others ( 543 ) Balance, at end of period $ 2,886 i. Inventories: Inventories are stated at the lower of cost or net realizable value. Cost includes depreciation, labor, material and overhead costs. Inventory reserves are provided to cover risks arising from slow-moving items or technological obsolescence. The Company periodically evaluates the quantities on hand relative to historical, current, and projected sales volume. Based on this evaluation, an impairment charge is recorded when required to write-down inventory to its net realizable value. Cost of finished goods and raw materials is determined using the moving average cost method. j. Property, plant and equipment: Property, plant and equipment are stated at cost, net of accumulated depreciation. Machinery and equipment in progress represent the construction or development stage of property and equipment that have not yet been placed in service for the Company's intended use. Depreciation is calculated by the straight-line method over the estimated useful live of the assets, at the following rates: %   Buildings and plants 2.5 – 5 (mainly 2.5 ) Computers and peripheral equipment 20 – 33 (mainly 33 ) Office furniture and equipment 7 – 25 (mainly 7 ) Machinery and equipment 10 – 25 (mainly 10 ) Laboratory and testing equipment 7 – 20 (mainly 10 ) Leasehold improvements over the shorter of the lease term or useful economic life F - 16 SOLAREDGE TECHNOLOGIES, INC. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands (except share and per share data) NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.) k. Leases: The Company determines if an arrangement is a lease at inception. Contracts containing a lease are further evaluated for classification as an operating or finance lease. In determining the leases classification the Company assesses among other criteria: (i) 75% or more of the remaining economic life of the underlying asset is a major part of the remaining economic life of that underlying asset; and (ii) 90% or more of the fair value of the underlying asset comprises substantially all of the fair value of the underlying asset. Operating leases are included in operating lease right-of-use (“ROU”) assets, other current liabilities and long-term operating lease liabilities in the Company’s consolidated balance sheets. Finance leases are included in property, plant and equipment, net, other current liabilities, and long-term finance lease liabilities in the Company’s consolidated balance sheets. ROU assets represent the right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. For leases with terms greater than 12 months, the Company records the ROU asset and liability at commencement date based on the present value of lease payments according to their term. The Company uses incremental borrowing rates based on the estimated rate of interest for collateralized borrowing over a similar term of the lease payments at commencement date. The ROU asset also includes any lease payments made and excludes lease incentives. Lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expenses are recognized on a straight-line basis over the lease term or the useful life of the leased asset. In addition, the carrying amount of the ROU and lease liabilities are remeasured if there is a modification, a change in the lease term, a change in the in-substance fixed lease payments or a change in the assessment to purchase the underlying asset. l. Business Combination: The Company allocates the fair value of the purchase price to the tangible assets acquired, liabilities assumed and intangible assets acquired based on their estimated fair value. The excess of the fair value of the purchase price over the fair values of these identifiable assets and liabilities is recorded as goodwill. Such valuations require management to make significant estimates and assumptions, especially with respect to intangible assets. Significant estimates in valuing certain intangible assets include, but are not limited to, future expected cash flows from acquired technology and discount rates. Management’s estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. During the measurement period, which does not exceed one year from the acquisition date, the Company may record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. Upon the finalization of the measurement period, any subsequent adjustments are recorded to earnings. m. Intangible Assets: The Company evaluates the recoverability of finite-lived intangible assets for possible impairment whenever events or circumstances indicate that the carrying amount of such assets may not be recoverable. F - 17 SOLAREDGE TECHNOLOGIES, INC. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands (except share and per share data) NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.) The evaluation is performed at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. Recoverability of these group of assets is measured by a comparison of the carrying amounts to the future undiscounted cash flows the group of assets is expected to generate. If such review indicates that the carrying amount of intangible assets is not recoverable, the carrying amount of such assets is reduced to fair value. The Company has not recorded any impairment charges of finite-lived intangible assets during the years ended December 31, 2020 and 2019. Acquired identifiable finite-lived intangible assets are amortized on a straight-line basis or accelerated method over the estimated useful lives of the assets. The basis of amortization approximates the pattern in which the assets are utilized, over their estimated useful lives. The Company routinely reviews the remaining estimated useful lives of finite-lived intangible assets. In case the Company reduces the estimated useful life for any asset, the remaining unamortized balance is amortized or depreciated over the revised estimated useful life (see Note 9). n. Goodwill: Goodwill reflects the excess of the consideration transferred, including the fair value of any contingent consideration and any non-controlling interest in the acquiree, over the assigned fair values of the identifiable net assets acquired. Goodwill is not amortized, and is assigned to reporting units and tested for impairment at least on an annual basis, in the fourth quarter of the fiscal year. The goodwill impairment test is performed according to the following principles: (1) An initial qualitative assessment may be performed to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount. (2) If the Company concludes it is more likely than not that the fair value of the reporting unit is less than its carrying amount, a quantitative fair value test is performed. An impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value is recognized. The Company has not recorded any impairment charges of goodwill during the years ended December 31, 2020 and 2019. o. Impairment of long-lived assets: The Company’s long-lived assets, other than goodwill and intangible assets, including right-of-use assets, are reviewed for impairment in accordance with ASC 360 “Property, Plants and Equipment”, whenever events or changes in circumstances indicate that the carrying amount of an asset (or asset group) may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset (or asset group) to the future undiscounted cash flows expected to be generated by the assets (or asset group). If such assets are considered to be impaired, the impairment to be recognized is measured as the amount by which the carrying amount of the assets exceeds their fair value. For the years ended December 31, 2020, 2019 and 2018, no impairment losses have been identified. F - 18 SOLAREDGE TECHNOLOGIES, INC. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands (except share and per share data) NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.) p. Severance pay: The employees of the Company’s Israeli subsidiary are included under Section 14 of the Severance Pay Law, 1963, under which these employees are entitled only to monthly deposits made in their name with insurance companies, at a rate of 8.33% of their monthly salary. These payments cause the Company to be released from any future obligation under the Israeli Severance Pay Law to make severance payments in respect of those employees; therefore, related assets and liabilities are not presented in the consolidated balance sheets. For the years ended December 31, 2020, 2019 and 2018, the Company recorded $ 10,598 , $ 7,285 and $ 4,331 , in severance expenses related to its employees, respectively. q. Derivatives and Hedging: 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 denominated in the Israeli currency, the New Israeli Shekels (“NIS”), during the year ended December 31, 2020, the Company instituted a foreign currency cash flow hedging program whereby portions of the anticipated payroll denominated in NIS for a period of one to six months with hedging contracts. Accordingly, when the dollar strengthens against the NIS, 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. 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 flow hedges, as defined by ASC 815, and therefore all gains and losses, resulting from fair value remeasurement, were recorded immediately in the statement of income, as a financial expense (income), net. r. Revenue recognition: Revenues are recognized in accordance with ASC 606; revenue from contracts with customers is recognized when control of the promised goods or services is transferred to the customers, in an amount that the Company expects in exchange for those goods or services. The Company’s products consist mainly of (i) power optimizers, (ii) inverters, (iii) a related cloud-based monitoring platform, (iv) communication services, (v) a storage solution, (vi) UPS units, (vii) Lithium-ion cells, batteries and energy storage solutions, (viii) powertrain kits for the e-Mobility segment and (ix) automated machinery for manufacturing lines. The Company recognizes revenue under the core principle that transfer of control to the Company’s customers should be depicted in an amount reflecting the consideration the Company expects to receive in revenue. F - 19 SOLAREDGE TECHNOLOGIES, INC. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands (except share and per share data) NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.) In order to achieve that core principle, the Company applies the following five-step approach: (1) identify the contract with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when the performance obligation is satisfied. (1) Identify the contract with a customer A contract is an agreement or purchase order between two or more parties that creates enforceable rights and obligations. In evaluating the contract, the Company analyzes the customer’s intent and ability to pay the amount of promised consideration (credit risk) and considers the probability of collecting substantially all of the consideration. The Company determines whether collectability is reasonably assured on a customer-by-customer basis pursuant to its credit review policy. The Company typically sells to customers with whom it has a long-term business relationship and a history of successful collection. For a new customer, or when an existing customer substantially expands its commitments, the Company evaluates the customer’s financial position, the number of years the customer has been in business, the history of collection with the customer, and the customer’s ability to pay, and typically assigns a credit limit based on that review. (2) Identify the performance obligations in the contract At a contract’s inception, the Company assesses the goods or services promised in a contract with a customer and identifies the performance obligations. The main performance obligations are the provisions of the following: delivery of the Company’s products; cloud based monitoring services; extended warranty services and communication services. (3) Determine the transaction price The transaction price is the amount of consideration to which the Company is entitled in exchange for transferring promised goods or services to a customer, excluding amounts collected on behalf of third parties. Generally, the Company does not provide price protection, stock rotation, and/or right of return. The Company determines the transaction price for all satisfied and unsatisfied performance obligations identified in the contract from contract inception to the beginning of the earliest period presented. Rebates or discounts on goods or services are accounted for as variable consideration. The rebate or discount program is applied retrospectively for future purchases. Provisions for rebates, sales incentives, and discounts to customers are accounted for as reductions in revenue in the same period the related sales are recorded. Accrual for rebates for direct customers is presented net of receivables. Accrual for sale incentives related to non-direct customers is presented under accrued expenses and other current liabilities. The Company accrued $ 65,131 and $ 62,288 for rebates as of December 31, 2020 and 2019, respectively. F - 20 SOLAREDGE TECHNOLOGIES, INC. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands (except share and per share data) NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.) When a contract provides a customer with payment terms of more than a year, the Company considers whether those terms create variability in the transaction price and whether a significant financing component exists. As of December 31, 2020, the Company has not provided payment terms of more than a year. The performance obligations that extend for a period greater than one year are those that include a financial component: (i) warranty extension services, (ii) cloud-based monitoring, and (iii) communication services. The Company recognizes financing component expenses in its consolidated statement of income in relation to advance payments for performance obligations that extend for a period greater than one year. These financing component expenses are reflected in the Company’s deferred revenues balance. (4) Allocate the transaction price to the performance obligations in the contract The Company performs an allocation of the transaction price to each separate performance obligation, in proportion to their relative standalone selling prices. (5) Recognize revenue when a performance obligation is satisfied Revenue is recognized when or as performance obligations are satisfied by transferring control of a promised good or service to a customer. Control either transfers over time or at a point in time, which affects when revenue is recorded. Revenues from sales of products are recognized when control is transferred (based on the agreed International Commercial terms, or “INCOTERMS”). Revenues related to warranty extension services, cloud-based monitoring, and communication services are recognized over time on a straight-line basis. Deferred revenues consist of deferred cloud-based monitoring services, communication services, warranty extension services and advance payments received from customers for the Company’s products. Deferred revenues are classified as short-term and long-term deferred revenues based on the period in which revenues are expected to be recognized (see Note 14). s. Cost of revenues: Cost of revenues includes the following: product costs consisting of purchases from contract manufacturers and other suppliers, direct and indirect manufacturing costs, shipping and handling, support, warranty expenses and changes in warranty provision, provision for losses related to slow moving and dead inventory, personnel and logistics costs. Shipping and handling costs, which amounted to $ 101,597 , $ 113,635 and $ 45,821 , for the years ended December 31, 2020, 2019 and 2018, respectively, are included in the cost of revenues in the consolidated statements of income. Shipping and handling costs include custom tariff charges and all other costs associated with the distribution of finished goods from the Company’s point of sale directly to its customers. F - 21 SOLAREDGE TECHNOLOGIES, INC. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands (except share and per share data) NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.) t. Warranty obligations: The Company provides a product warranty for its solar related products as follows: a 10-year limited warranty for StorEdge products, a standard 12 -year limited warranty for inverters, and a 25 -year limited warranty for power optimizers. In certain cases, the Company provides an extended warranty for inverters that increases the warranty period for up to 25 years. The Company maintains reserves to cover the expected costs that could result from the standard warranty. The warranty liability is in the form of product replacement and associated costs. Warranty reserves are based on the Company’s best estimate of such costs and are included in cost of revenues. The reserve for the related warranty expenses is based on various factors including assumptions about the frequency of warranty claims on product failures, derived from results of accelerated lab testing, field monitoring, analysis of the history of product field failures, and the Company’s reliability estimates. The Company has established a reliability measurement system based on the units’ estimated mean time between failure, or MTBF, a metric that equates to a steady-state failure rate per year for each product generation. The MTBF predicts the expected failure rate of each product within the Company's products installed base during the expected product warranted lifetime. The Company performs accelerated life cycle testing, which simulates the service life of the product in a short period of time. The accelerated life cycle tests incorporate test methodologies derived from standard tests used by solar module vendors to evaluate the period over which solar modules wear out. Corresponding replacement costs are updated periodically to reflect changes in the Company’s actual and estimated production costs for its products, rate of usage of refurbished units as a replacement of faulty units, and other costs related to logistic and subcontractors’ services associated with the replacement products. In addition, through the collection of actual field failure statistics, the Company has identified several additional failure causes that are not included in the MTBF model. Such causes, which mostly consist of design errors, workmanship errors caused during the manufacturing process and, to a lesser extent, replacement of non-faulty units by installers, result in generating additional replacement costs to the replacement costs projected under the MTBF model. For other products, the Company accrues for warranty costs based on the Company’s best estimate of product and associated costs. The Company’s other products are sold with a standard limited warranty that typically range in duration from one to ten years. Warranty obligations are classified as short-term and long-term obligations based on the period in which the warranty is expected to be claimed. u. Convertible senior notes: The Company accounts for its convertible senior notes in accordance with ASC 470-20 "Debt with Conversion and Other Options". The Company separately accounts for the liability and equity components of convertible debt instruments. The liability component at issuance is recognized at fair value, based on the fair value of a similar instrument that does not have a conversion feature. F - 22 SOLAREDGE TECHNOLOGIES, INC. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands (except share and per share data) NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.) The equity component is based on the excess of the principal amount of the debentures over the fair value of the liability component, after adjusting for an allocation of debt issuance costs and deferred taxes, and is recorded in additional paid-in capital. Debt discount is amortized as additional non-cash interest expense over the expected life of the debt using the effective interest rate method. In accounting for the issuance costs related to the Notes, the issuance costs incurred were allocated between the liability and equity components based on their relative values. The Company’s convertible senior notes are included in the calculation of diluted Earnings Per Share (“EPS”) if the assumed conversion into common shares is dilutive, using the “if-converted” method. This involves adding back the periodic non-cash interest expense net of tax associated with the Notes to the numerator and by adding the shares that would be issued in an assumed conversion (regardless of whether the conversion option is in or out of the money) to the denominator for the purposes of calculating diluted EPS, unless the Notes are antidilutive (See Note 20). v. Research and development costs: Research and development costs, are charged to the consolidated statement of income as incurred. w. Concentrations of credit risks: Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents, short-term bank deposits, restricted bank deposits, marketable securities, trade receivables and other accounts receivable. Cash and cash equivalents, short-term bank deposits and restricted bank deposits are mainly invested in major banks in the U.S., Israel and Korea. Management believes that the financial institutions that hold the Company’s investments are financially sound and, accordingly, minimal credit risk exists with respect to these investments. The Company's debt marketable securities include investments in highly-rated corporate debentures (located mainly in U.S., UK, France, South Korea, Netherlands and other countries) and governmental bonds. The financial institutions that hold the Company's debt marketable securities are major financial institutions located in the United States. The Company believes that the its debt marketable securities portfolio is a diverse portfolio of highly-rated securities and the Company's investment policy limits the amount the Company may invest in an issuer (see Note 2g). The trade receivables of the Company derive from sales to customers located primarily in United States, Europe and Australia. The Company performs ongoing credit evaluations of its customers for the purpose of determining the appropriate allowance for doubtful accounts (see Note 2h). The Company generally does not require collaterals, however, in certain circumstances, the Company may require letters of credit, other collateral, or additional guarantees. From time to time, the Company may purchase trade credit insurance. The Company had one major customer (customer with attributable revenues that represents more than 10% of total revenues) that accounted for approximately 14.8 %, 20.4 % and 19.4 % of the Company’s consolidated revenues, for the years ended December 31, 2020, 2019 and 2018, respectively. All of the revenues from this customer were generated in the solar segment. F - 23 SOLAREDGE TECHNOLOGIES, INC. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands (except share and per share data) NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.) The Company had two major customers (customer with a balance that represents more than 10% of total trade receivables, net) as of December 31, 2020 and one major customer as of December 31, 2019 that accounted in the aggregate for approximately 34.6 % and 32.1 %, of the Company’s consolidated trade receivables, net, respectively. x. Concentrations of supply risks: 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. As of December 31, 2020 and 2019, two contract manufacturers collectively accounted for 48.5 % and 42.3 % of the Company’s total trade payables, net, respectively. During 2020, the Company started production in its manufacturing facility in the North of Israel, “Sella 1”. y. Fair value of financial instruments: The following methods and assumptions were used by the Company in estimating the fair value of its financial instruments: The carrying value of cash and cash equivalents, short-term bank deposits, restricted bank deposits, trade receivables, net, long term bank loans and current maturities, prepaid expenses and other current assets, trade payables, net, employee and payroll accruals and accrued expenses and other current liabilities approximate their fair values due to the short-term maturities of such instruments. Assets measured at fair value on a recurring basis as of December 31, 2020 and 2019 are comprised of money market funds and debt marketable securities (see Note 4). The Company applies ASC 820 “Fair Value Measurements and Disclosures”, with respect to fair value measurements of all financial assets and liabilities. Fair value is an exit price, representing the amount that would be received for the sale of an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability. A three-tiered fair value hierarchy is established as a basis for considering such assumptions and for inputs used in the valuation methodologies in measuring fair value: Level 1- Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets. Level 2- Include other inputs that are directly or indirectly observable in the marketplace. Level 3- Unobservable inputs which are supported by little or no market activity. The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. F - 24 SOLAREDGE TECHNOLOGIES, INC. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands (except share and per share data) NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.) z. Accounting for stock-based compensation: The Company accounts for stock-based compensation in accordance with ASC 718 “Compensation-Stock Compensation”. ASC 718 requires companies to estimate the fair value of equity-based payment awards on the date of grant using an Option-Pricing Model (“OPM”). The value of the portion of the award that is ultimately expected to vest is recognized as an expense over the requisite service periods in the Company’s consolidated statements of income. The Company recognizes compensation expenses for the value of its awards granted based on the straight-line method over the requisite service period of each of the awards, net of estimated forfeitures. ASC 718 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Estimated forfeitures are based on actual historical pre-vesting forfeitures. The Company selected the Black-Scholes-Merton option-pricing model as the most appropriate fair value method for its stock-option awards and Employee Stock Purchase Plan (“ESPP”). The option-pricing model requires a number of assumptions, of which the most significant are the fair market value of the underlying common stock, expected stock price volatility, and the expected option term. Expected volatility for stock-option awards was calculated until December 31, 2017 based upon certain peer companies that the Company considered to be comparable and starting January 1, 2018 based upon the Company’s actual historical stock price movements over the most recent periods. Expected volatility for ESPP was calculated based upon the Company’s stock prices. The expected term of options granted is based upon historical experience and represents the period between the options’ grant date and the expected exercise or expiration date. The risk-free interest rate is based on the yield from U.S. treasury bonds with an equivalent term. The Company doesn't use dividend yield rate since the Company has not declared or paid any dividends on its common stock and does not expect to pay any dividends in the foreseeable future. The Company measures a modified stock based award at fair value and recognizes the compensation cost at the beginning of the modification date over the employee’s requisite service period of the modified award. F - 25 SOLAREDGE TECHNOLOGIES, INC. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands (except share and per share data) NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.) The fair value for options granted to employees and ESPP in the years ended December 31, 2020, 2019 and 2018, are estimated at the date of grant using a Black-Scholes-Merton option-pricing model with the following assumptions: Year ended December 31, 2020 2019 2018   Employee Stock Options Risk-free interest 1.73 % 2.53 % 2.32 % Dividend yields 0 % 0 % 0 % Volatility 58.98 % 56.26 % 56.53 % Expected option term in years 6.00 6.03 6.06 Estimated forfeiture rate 0 % 0 % 0 %   ESPP Risk-free interest 0.09 % - 1.63 % 1.63 % - 2.35 % 2.10 % - 2.52 % Dividend yields 0 % 0 % 0 % Volatility 55.95 % - 92.57 % 46.68 % - 55.95 % 54.13 % - 56.67 % Expected term 6 months 6 months 6 months The Company recognizes compensation expenses for the value of its restricted stock units (“RSU”) awards, based on the straight-line method over the requisite service period of each of the awards, net of estimated forfeitures. The fair value of each RSU is the market value of the Company’s stock as determined by the closing price of the common stock on the grant date. aa. Income taxes: The Company and its subsidiaries account for income taxes in accordance with ASC 740, “Income Taxes”. ASC 740 prescribes the use of the liability method, whereby deferred tax asset and liability account balances are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates that will be in effect when the differences are expected to reverse. Deferred income tax balances reflect the effects of temporary differences between the carrying amounts of assets and liabilities and their tax bases and are stated at enacted tax rates expected to be in effect when taxes are actually paid or recovered. Deferred tax assets are evaluated for future realization and reduced by a valuation allowance to the extent the Company believes they will not be realized. The Company accounts for uncertain tax positions in accordance with ASC 740. ASC 740-10 contains a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position taken or expected to be taken in a tax return by determining if the weight of available evidence indicates that it is more likely than not that, on an evaluation of the technical merits, the tax position will be sustained on audit, including resolution of any related appeals or litigation processes. The second step is to measure the tax benefit as the largest amount that is more than 50% (cumulative probability) likely to be realized upon ultimate settlement. F - 26 SOLAREDGE TECHNOLOGIES, INC. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands (except share and per share data) NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.) bb. New accounting pronouncements not yet effective: In January 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2020-01, Investments—Equity Securities (Topic 321), Investments—Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) (ASU 2020-01), which clarifies the interaction of the accounting for equity securities under Topic 321, the accounting for equity method investments in Topic 323, and the accounting for certain forward contracts and purchased options in Topic 815. This guidance will be effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. The Company do not expect the adoption of this guidance to have a material impact on its consolidated financial statements. In August 2020, the FASB issued Accounting Standards Update No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity's Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (ASU 2020-06), which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. This guidance also eliminates the treasury stock method to calculate diluted earnings per share for convertible instruments and requires the use of the if-converted method. This guidance will be effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is not permitted before fiscal years beginning after December 15, 2020. The Company do not expect the adoption of this guidance to have a material impact on its consolidated financial statements. cc. Recently issued and adopted pronouncements: In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (ASU) No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The FASB subsequently issued amendments to ASU 2016-13, which have the same effective date and transition date of January 1, 2020. This standard requires entities to estimate an expected lifetime credit loss on financial assets ranging from short-term trade accounts receivable to long-term financings and report credit losses using an expected losses model rather than the incurred losses model that was previously used, and establishes additional disclosures related to credit risks. For available-for-sale (“AFS”) debt securities with unrealized losses, the standard eliminates the concept of other-than-temporary impairments and requires allowances to be recorded instead of reducing the amortized cost of the investment. This standard limits the amount of credit losses to be recognized for AFS debt securities to the amount by which carrying value exceeds fair value and requires the reversal of previously recognized credit losses if fair value increases. F - 27 SOLAREDGE TECHNOLOGIES, INC. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands (except share and per share data) NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.) The Company adopted Topic 326 effective January 1, 2020, based on the composition of the Company’s trade receivables, investment portfolio and other financial assets, current economic conditions and historical credit loss activity. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements. The consolidated financial statements for the year ended December 31, 2020 are presented under the new standard, while comparative periods presented are not adjusted and continue to be reported in accordance with the Company’s historical accounting policy. dd. Certain prior period amounts have been reclassified to conform to the current period presentation. NOTE 3:- MARKETABLE SECURITIES The following is a summary of available-for-sale marketable securities at December 31, 2020: Amortized cost Gross unrealized gains Gross unrealized losses Fair value   Available-for-sale – matures within one year: Corporate bonds $ 141,824 $ 509 $ ( 57 ) $ 142,276 Governmental bonds 1,400 11 - 1,411   143,224 520 ( 57 ) 143,687   Available for-sale – matures after one year: Corporate bonds 142,701 65 ( 214 ) 142,552 Governmental bonds 4,895 - ( 13 ) 4,882   147,596 65 ( 227 ) 147,434   Total $ 290,820 $ 585 $ ( 284 ) $ 291,121 F - 28 SOLAREDGE TECHNOLOGIES, INC. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands (except share and per share data) NOTE 3:- MARKETABLE SECURITIES (Cont.) The following is a summary of available-for-sale marketable securities at December 31, 2019: Amortized cost Gross unrealized gains Gross unrealized losses Fair value   Available-for-sale – matures within one year: Corporate bonds $ 91,677 $ 196 $ ( 28 ) $ 91,845   Available for-sale – matures after one year: Corporate bonds 117,692 336 ( 250 ) 117,778 Governmental bonds 1,398 - - 1,398   119,090 336 ( 250 ) 119,176   Total $ 210,767 $ 532 $ ( 278 ) $ 211,021 Proceeds from maturity of available-for-sale marketable securities during the years ended December 31, 2020, 2019 and 2018, were $ 141,839 , $ 120,834 and $ 84,497 , respectively. The Company had no proceeds from sales of available-for sale, marketable securities during the year ended December 31, 2020, therefore no realized gains or losses from the sale of available for sale marketable securities were recognized. Proceeds from sales of available-for-sale marketable securities during the year ended December 31, 2019 and 2018 were $ 21,910 and $ 44,848 , which led to realized losses of $ 91 and $ 137 , respectively. NOTE 4:- FAIR VALUE MEASUREMENTS In accordance with ASC 820, the Company measures its cash equivalents and marketable securities, at fair value using the market approach valuation technique. Cash equivalents and marketable securities are classified within Level 1 and Level 2, respectively, because these assets are valued using quoted market prices or alternative pricing sources and models utilizing market observable inputs. Foreign currency derivative contracts are classified within the Level 2 value hierarchy, as the valuation inputs are based on quoted prices and market observable data of similar instruments. F - 29 SOLAREDGE TECHNOLOGIES, INC. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands (except share and per share data) NOTE 4:- FAIR VALUE MEASUREMENTS (Cont.) The following table sets forth the Company’s assets that were measured at fair value as of December 31, 2020 and 2019 by level within the fair value hierarchy: Fair Value Fair value measurements as of December 31,   Description Hierarchy 2020 2019       Measured at fair value on a recurring basis:       Assets:   Cash equivalents:   Money market mutual funds Level 1 $ 480,673 $ 527       Derivative instruments asset:   Options and forward contracts not designated as hedging instruments   Level 2 $ 3,786 $ -       Short-term marketable securities:   Corporate bonds Level 2 $ 142,276 $ 91,845   Governmental bonds Level 2 $ 1,411 $ -   Long-term marketable securities:   Corporate bonds Level 2 $ 142,552 $ 117,778   Governmental bonds Level 2 $ 4,882 $ 1,398       Liabilities   Derivative instruments liability:   Options and forward contracts not designated as hedging instruments   Level 2 $ ( 5,819 ) $ -   NOTE 5:- DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES As of December 31, 2020, the Company had no derivative instruments that were designated as cash flow hedges. As of December 31, 2020, the Company entered into forward contracts and put and call options to sell Australian dollars (“AUD”) for U.S. dollars in the amount of AUD 12 million and AUD 42 million, respectively. As of December 31, 2020, the Company entered into forward contracts and put and call options to sell Euro (“EUR”) for U.S. dollars in the amount of EUR 48 million and EUR 60 million, respectively. As of December 31, 2020, the Company entered into forward contracts to sell U.S. dollars for South Korean Won in the amount of USD 40.6 million. The fair value of derivative assets as of December 31, 2020, was $ 3,786 , which was recorded in prepaid expenses and other current assets in the Consolidated Balance Sheets. The fair value of derivative liabilities as of December 31, 2020, was $ 5,819 , which was recorded in accrued expenses and other current liabilities in the Consolidated Balance Sheets. F - 30 SOLAREDGE TECHNOLOGIES, INC. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands (except share and per share data) NOTE 5:- DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES (Cont.) For the year ended December 31, 2020, the Company recorded a loss in the amount of $ 4,013 , in financial expense (income), net, related to the derivative instruments not designated as cash flow hedges. As of December 31, 2019 and for the year then ended, the Company had no derivative instruments (see Note 4). For the year ended December 31, 2018, the Company recorded a gain in the amount of $ 698 , in financial expense (income), net, related to the derivative instruments not designated as cash flow hedges NOTE 6:- PREPAID EXPENSES AND OTHER CURRENT ASSETS As of December 31, 2020 2019   Vendor non-trade receivables (*) $ 56,617 $ 83,917 Government authorities 50,041 16,434 Prepaid expenses and other 28,741 14,917 $ 135,399 $ 115,268 (*) Vendor non-trade receivables related to contract manufacturers derive from the sale of components to manufacturing vendors who manufacture products for the Company. The Company purchases these components directly from other suppliers. The Company does not reflect the sale of these components to the contract manufacturers in its revenues (see also Note 18b). NOTE 7:- INVENTORIES, NET As of December 31, 2020 2019   Raw materials $ 128,363 $ 64,714 Work in process 25,461 20,752 Finished goods 177,872 85,332 $ 331,696 $ 170,798 The Company recorded inventory write-downs of $ 8,864 , $ 4,528 and $ 943 for the years ended December 31, 2020, 2019 and 2018, respectively. F - 31 SOLAREDGE TECHNOLOGIES, INC. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands (except share and per share data) NOTE 8:- PROPERTY, PLANT AND EQUIPMENT, NET As of December 31, 2020 2019   Cost: Land $ 17,935 $ 6,938 Buildings and plants 49,855 23,670 Computers and peripheral equipment 37,354 23,431 Office furniture and equipment 8,639 6,792 Laboratory and testing equipment 29,733 22,666 Machinery and equipment 183,512 113,355 Leasehold improvements 48,610 12,748 Assets under construction and payments on account 48,344 59,058   Gross property, plant and equipment 423,982 268,658   Less - accumulated depreciation 120,574 91,695   Total property, plant and equipment, net $ 303,408 $ 176,963 Depreciation expenses for the years ended December 31, 2020, 2019 and 2018, were $ 22,355 , $ 17,261 and $ 11,426 , respectively. NOTE 9:- INTANGIBLE ASSETS AND GOODWILL, NET a. Intangible assets: Acquired intangible assets consisted of the following as of December 31, 2020, and 2019: As of December 31, 2020 2019   Finite-lived intangible assets: Current Technology $ 78,375 $ 72,613 Customer relationships 4,227 4,351 Trade names 4,280 5,990 Patents 1,400 1,400   Gross intangible assets 88,282 84,354   Less - accumulated amortization ( 20,464 ) ( 10,346 )   Total intangible assets, net $ 67,818 $ 74,008 Amortization expenses for the years ended December 31, 2020, 2019 and 2018, were $ 9,479 , $ 9,634 and $ 1,193 , respectively. F - 32 SOLAREDGE TECHNOLOGIES, INC. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands (except share and per share data) NOTE 9:- INTANGIBLE ASSETS AND GOODWILL (Cont.) Expected future amortization expenses of intangible assets as of December 31, 2020 are as follows: 2021 $ 9,883 2022 9,949 2023 9,933 2024 9,859 2025 9,516 Thereafter 18,678 $ 67,818 b. Goodwill: The following summarizes the goodwill activity for the year ended December 31, 2020, and 2019: Solar All other Total   Goodwill at January 1, 2019 $ 31,205 $ 3,669 $ 34,874 Changes during the year: Business combinations - 97,498 97,498 Other changes related to measurement period and disposals 1,299 ( 1,653 ) ( 354 ) Foreign currency adjustments ( 1,239 ) ( 1,125 ) ( 2,364 ) Goodwill at December 31, 2019 31,265 98,389 129,654 Changes during the year: Foreign currency adjustments 1,990 8,835 10,825 Goodwill at December 31, 2020 $ 33,255 $ 107,224 $ 140,479 NOTE 10:- ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES As of December 31, 2020 2019   Accrued expenses $ 53,623 $ 39,836 Government authorities 26,218 27,191 Operating lease liabilities 10,994 9,590 Derivative liabilities 5,819 - Other 9,500 3,959 $ 106,154 $ 80,576 F - 33 SOLAREDGE TECHNOLOGIES, INC. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands (except share and per share data) NOTE 11:- CONVERTIBLE SENIOR NOTES On September 25, 2020, the Company sold $ 632,500 aggregate principal amount of its 0.00 % convertible senior notes due 2025 (the “Notes”). The Notes were sold pursuant to an indenture, dated September 25, 2020 (the “Indenture”), between the Company and U.S. Bank National Association, as trustee (the “Trustee”). The Notes do not bear regular interest and mature on September 15, 2025 , unless earlier repurchased or converted in accordance with their terms. The Notes are general senior unsecured obligations of the Company. Holders may convert their Notes prior to the close of business on the business day immediately preceding June 15, 2025 in multiples of $ 1,000 principal amount, only under the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ending on December 31, 2020 (and only during such calendar quarter), if the last reported sale price of the common stock for at least 20 trading days (whether or not consecutive) during the period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day; (2) during the five-business-day period after any five consecutive trading day period in which the trading price per $1,000 principal amount of the Notes for each trading day of that five consecutive trading day period was less than 98% of the product of the last reported sale price of the common stock and the conversion rate on each such trading day; or (3) upon the occurrence of specified corporate events as described in the Indenture. In addition, holders may convert their Notes, in multiples of $1,000 principal amount, at their option at any time beginning on or after June 15, 2025, and prior to the close of business on the second scheduled trading day immediately preceding the stated maturity date of the Notes, without regard to the foregoing circumstances. The initial conversion rate for the Notes was 3.5997 shares of common stock per $ 1,000 principal amount of Notes, which is equivalent to an initial conversion price of approximately $ 277.80 per share of common stock, subject to adjustment upon the occurrence of certain specified events as set forth in the Indenture. Upon conversion, the Company may choose to pay or deliver, as the case may be, cash, shares of common stock or a combination of cash and shares of common stock. In addition, upon the occurrence of a fundamental change (as defined in the Indenture), holders of the Notes may require the Company to repurchase all or a portion of their Notes, in multiples of $1,000 principal amount, at a repurchase price of 100% of the principal amount of the Notes, plus any accrued and unpaid special interest, if any, to, but excluding, the repurchase date. If certain fundamental changes referred to as make-whole fundamental changes occur, the conversion rate for the Notes may be increased. The Convertible Senior Notes consisted of the following as of December 31, 2020: As of December 31, 2020   Liability: Principal $ 632,500 Unamortized debt discount ( 46,353 ) Unamortized issuance costs ( 12,797 ) Net carrying amount $ 573,350   Equity component: Amount allocated to conversion option $ 48,834 Deferred taxes liability, net ( 11,368 ) Allocated issuance costs ( 1,130 ) Equity component, net $ 36,336 As of December 31, 2020, the debt discount and debt issuance costs of the Notes will be amortized over the remaining term of approximately 4.7 years. F - 34 SOLAREDGE TECHNOLOGIES, INC. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands (except share and per share data) NOTE 11:- CONVERTIBLE SENIOR NOTES (Cont.) The annual effective interest rate of the liability component is 2.10 % for the Notes which remains unchanged from the Notes issuance date. The following table presents the total amount of interest expenses recognized related to the Notes for the year ended December 31, 2020: Year ended December 31, 2020 Amortization of debt discount $ 2,480 Amortization of debt issuance costs 705 Total interest expenses $ 3,185 Total initial issuance costs of $ 14,631 related to the Notes were allocated between the liability and equity components in the same proportion as the allocation of the total proceeds to the liability and equity components. Issuance costs attributable to the liability component are being amortized to interest expense over the respective term of the Notes using the effective interest rate method. The issuance costs attributable to the equity component were netted against the respective equity component in additional paid-in capital. The Company initially allocated issuance costs of $ 13,502 and $ 1,130 to the liability and equity components, respectively. As of December 31, 2020, the estimated fair value of the Notes, which the Company has classified as Level 2 financial instruments, is $ 871,117 . The estimated fair value was determined based on the quoted bid price of the Notes in an over-the-counter market on the last trading day of the reporting period. As of December 31, 2020, the if-converted value of the Notes exceeded the principal amount by $ 238,617 . NOTE 12:- BANK LOANS The following table summarizes the Company’s bank loans:   As of December 31, 2020 Effective interest rate on bank loans   Maturities calendar year: Current maturities of bank loans and accrued interest $ 16,894 1.54 % - 2.5 % Long-term bank loans   1,383   2.5 % $ 18,277 The Company has two bank loans that are denominated in KRW and one loan, which is denominated in NIS in the amount of $ 1,523 . The bank loans bear interest at a fix rate and are payable monthly. The bank loans do not contain financial covenants. During the years ended December 31, 2020 and 2019, the Company recognized $ 302 and $ 1,116 as interest expenses related to the bank loans in the consolidated statement of income in financial expenses (income), net. As of December 31, 2020, the Company secured certain bank loans with an aggregate principal amount of $ 18,373 against bank guarantees. F - 35 SOLAREDGE TECHNOLOGIES, INC. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands (except share and per share data) NOTE 13:- WARRANTY OBLIGATIONS Changes in the Company’s product warranty obligations for the years ended December 31, 2020 and 2019, were as follows: December 31, 2020 2019   Balance, at the beginning of the year $ 172,563 $ 121,826 Additions and adjustments to cost of revenues 102,832 94,048 Usage and current warranty expenses ( 70,401 ) ( 43,311 )   Balance, at the end of the year 204,994 172,563 Less current portion ( 62,614 ) ( 65,112 )   Long term portion $ 142,380 $ 107,451 NOTE 14:- DEFERRED REVENUES Deferred revenues consist of deferred cloud-based monitoring services, communication services, warranty extension services and advance payments received from customers for the Company’s products. Deferred revenues are classified as short-term and long-term deferred revenues based on the period in which revenues are expected to be recognized. Significant changes in the balances of deferred revenues during the period are as follows: December 31, 2020 2019   Balance, at the beginning of the year $ 160,797 $ 75,021 Revenue recognized ( 72,870 ) ( 15,653 ) Increase in deferred revenues and customer advances 52,093 101,429   Balance, at the end of the year 140,020 160,797 Less current portion ( 24,648 ) ( 70,815 )   Long term portion $ 115,372 $ 89,982 The following table includes estimated revenues expected to be recognized in the future related to performance obligations that are unsatisfied (or partially unsatisfied) as of December 31, 2020: 2021 $ 24,648 2022 8,000 2023 6,328 2024 4,789 2025 3,023 Thereafter 93,232 Total deferred revenues $ 140,020 F - 36 SOLAREDGE TECHNOLOGIES, INC. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands (except share and per share data) NOTE 15:- OTHER LONG TERM LIABILITIES As of December 31, 2020 2019 Tax liabilities $ 5,062 $ 5,389 Accrued severance pay, net 1,561 4,647 Other 7,568 1,698 $ 14,191 $ 11,734 NOTE 16:- ACCUMULATED OTHER COMPREHENSIVE (INCOME) LOSS The following table summarizes the changes in accumulated balances of other comprehensive income, net of taxes, for the year ended December 31, 2020: Unrealized gains (losses) on available- for-sale marketable securities Unrealized gains on cash flow hedges Unrealized gains (losses) on foreign currency translation Total   Beginning balance $ 264 $ - $ ( 2,073 ) $ ( 1,809 ) Other comprehensive income (loss) before reclassifications ( 24 ) 966 5,690 6,632 Losses reclassified from accumulated other comprehensive income - ( 966 ) - ( 966 ) Net current period other comprehensive income (loss) ( 24 ) - 5,690 5,666   Ending balance $ 240 $ - $ 3,617 $ 3,857 The following table summarizes the changes in accumulated balances of other comprehensive loss, net of taxes, for the year ended December 31, 2019: Unrealized gains (losses) on available- for-sale marketable securities Unrealized gains on cash flow hedges Unrealized gains (losses) on foreign currency translation Total   Beginning balance $ ( 656 ) $ - $ 132 $ ( 524 ) Other comprehensive income (loss) before reclassifications 829 - ( 2,205 ) ( 1,376 ) Losses reclassified from accumulated other comprehensive income 91 - - 91 Net current period other comprehensive income (loss) 920 - ( 2,205 ) ( 1,285 )   Ending balance $ 264 $ - $ ( 2,073 ) $ ( 1,809 ) The following table summarizes the changes in accumulated balances of other comprehensive, net of taxes, for the year ended December 31, 2018: Unrealized losses on available- for-sale marketable securities Unrealized gains on cash flow hedges Unrealized gains (losses) on foreign currency translation Total   Beginning balance $ ( 433 ) $ - $ ( 178 ) $ ( 611 ) Other comprehensive income (loss) before reclassifications ( 360 ) 31 310 ( 19 ) Losses (gains) reclassified from accumulated other comprehensive income 137 ( 31 ) - 106 Net current period other comprehensive income (loss) ( 223 ) - 310 87   Ending balance $ ( 656 ) $ - $ 132 $ ( 524 ) F - 37 SOLAREDGE TECHNOLOGIES, INC. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands (except share and per share data) NOTE 17:- LEASES The Company leases offices, plants and vehicles under operating and finance leases. During the year ended December 31, 2020, due to a change in the expected lease term of the Company’s offices and laboratories in Modiin, Israel, the Company reassessed the lease classification of the leased building, which resulted in a change in classification of this lease from an operating lease to a finance lease. As a result, the ROU assets and lease liabilities under operating leases decreased by $ 4,144 and $ 4,910 million, respectively, and the ROU assets and lease liabilities under finance leases increased by $ 24,471 and $ 25,237 , respectively. During the year ended December 31, 2020, due to a change in the expected lease term of the Company’s manufacturing facility, “Sella 1”, the ROU assets and lease liabilities under operating leases increased by $ 10,203 . The following table summarizes the Company’s lease-related assets and liabilities recorded on the condensed consolidated balance sheet: Description Classification on the condensed consolidated Balance Sheet 2020 2019   Assets: Operating lease assets, net of lease incentive obligation Operating lease right-of use assets, net $ 41,600 $ 35,858 Finance lease assets Property, plant and equipment, net 28,551 3,923 Total lease assets $ 70,151 $ 39,781   Liabilities: Operating leases short term Accrued expenses and other current liabilities $ 10,994 $ 9,590 Finance leases short term Accrued expenses and other current liabilities 1,686 231 Operating leases long term Operating lease liabilities 35,194 30,213 Finance leases long term Finance lease liabilities 26,173 2,399 Total lease liabilities $ 74,047 $ 42,433 F - 38 SOLAREDGE TECHNOLOGIES, INC. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands (except share and per share data) NOTE 17:- LEASES (Cont.) The following table presents certain information related to the operating and finance leases: Year ended December 31, 2020 2019 Finance leases: Finance lease cost $ 198 $ 213 Weighted average remaining lease term in years 16.75 7.25 Weighted average annual discount rate 1.49 % 2.85 %   Operating leases: Operating lease cost $ 12,741 $ 9,665 Weighted average remaining lease term in years 9.94 4.61 Weighted average annual discount rate 1.68 % 1.46 % The following table presents supplemental cash flows information related to the lease costs for operating and finance leases: Year ended December 31, 2020 2019 Cash paid for amounts included in measurement of lease liabilities:   Operating cash flows for operating and finance leases $ 12,813   $ 9,748 Financing cash flows for finance leases $ 234   $ 1,354 The following table reconciles the undiscounted cash flows for each of the first five years and the total of the remaining years of the operating and finance lease liabilities recorded on the consolidated balance sheets: Operating Leases Finance Leases   2021 $ 11,242 $ 1,756 2022 9,944 1,756 2023 8,161 1,756 2024 4,617 1,785 2025 2,152 1,871 Thereafter   14,655   23,629 Total lease payments 50,771 32,553   Less amount of lease payments representing interest   ( 4,583 )   ( 4,694 )   Present value of future lease payments 46,188 27,859   Less current lease liabilities   ( 10,994 )   ( 1,686 )   Long-term lease liabilities $ 35,194 $ 26,173 F - 39 SOLAREDGE TECHNOLOGIES, INC. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands (except share and per share data) NOTE 18:- COMMITMENTS AND CONTINGENT LIABILITIES a. Guarantees: As of December 31, 2020, contingent liabilities exist regarding guarantees in the amounts of $ 18,373 , $ 2,813 and $ 675 in respect of bank loans, office rent lease agreements and other transactions, respectively. b. Contractual purchase obligations: The Company has contractual obligations to purchase goods and raw materials. These contractual purchase obligations relate to inventories held by contract manufacturers and purchase orders initiated by the contract manufacturers, which cannot be canceled without penalty. The Company utilizes third parties to manufacture its products. In addition, the Company acquires raw materials or other goods and services, including product components, by issuing authorizations to its suppliers to purchase materials based on its projected demand and manufacturing needs. As of December 31, 2020, the Company had non-cancelable purchase obligations totaling approximately $ 380,100 , out of which the Company recorded a provision for loss in the amount of $ 3,545 . As of December 31, 2020, the Company had contractual obligations for capital expenditures totaling approximately $ 79,447 . These commitments reflect purchases of automated assembly lines and other machinery related to the Company’s manufacturing process as well as capital expenditures associated with the construction of Sella 2, the Company’s planned second lithium-ion cell and battery factory in Korea. c. Legal claims: From time to time, the Company may be involved in various claims and legal proceedings. The Company reviews the status of each matter and assesses its potential financial exposure. If the potential loss from any claim or legal proceeding is considered probable and the amount can be reasonably estimated, the Company accrues a liability for the estimated loss. These accruals are reviewed at least quarterly and adjusted to reflect the impact of negotiations, settlements, rulings, advice of legal counsel and other information and events pertaining to a particular matter. In September 2018, the Company’s German subsidiary, SolarEdge Technologies GmbH received a complaint filed by competitor SMA Solar Technology AG (“SMA”). The complaint, filed in the District Court Düsseldorf, Germany, alleges that SolarEdge's 12.5kW - 27.6kW inverters infringe two of the plaintiff’s patents. SMA asserted a value in dispute of EUR 5.5 million (approximately $ 6,747 ) for both patents. The Company challenged the validity of both patents. In December 2019 the District Court of Düsseldorf found one of the two patents to be infringed and the Company appealed this decision to the Appeals Court Düsseldorf. In the parallel nullity proceedings regarding this patent, in October 2020, the German Patent Court rendered the SMA patent invalid. This invalidity decision has been appealed by SMA. Due to the invalidity proceedings, the infringement proceedings regarding this patent have been stayed. With respect to the other patent, in November 2019, the first instance court stayed the infringement proceedings since it considered it to be highly likely that the second SMA patent would also be rendered invalid. The Company believes that it has meritorious defenses to the claims asserted and intends to vigorously defend against the remaining lawsuit. F - 40 SOLAREDGE TECHNOLOGIES, INC. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands (except share and per share data) NOTE 18:- COMMITMENTS AND CONTINGENT LIABILITIES (Cont.) In May 2019, the Company’s two Chinese subsidiaries and its equipment manufacturer in China were served with three lawsuits by Huawei Technologies Co., Ltd., a Chinese entity (“Huawei”). The lawsuits, filed in the Guangzhou intellectual property court, alleged infringement of three patents and asked for an injunction of manufacture, use, sale and offer for sale, and damage awards. A first-instance judgment was issued on August 7, 2020 ordering the three defendants to collectively pay damages in the amount of approximately Chinese Yuan (“CNY”) 10.5 million (approximately $ 1,609 ), including court fees, with respect of one of the patents. The Company has filed an appeal with the Supreme People’s Court of China. The first instance court’s judgement is not effective or enforceable pending the appeal. In addition, in January 2021, Huawei filed a motion to increase its claimed monetary damages to CNY 50 million (approximately $ 7,660 ) and for a preliminary injunction with respect to the second lawsuit. In February 2021, a preliminary injunction was rendered by the Guangzhou intellectual property court with respect to such second lawsuit and applying to seven inverter models. In line with the court’s mandate, the Company took immediate action to make software changes to meet the court order and also appealed the decision. The Company believes that it has meritorious defenses to the claims asserted by Huawei. In December 2019, the Company received a lawsuit filed by a former consultant of the Company and its Israeli subsidiary in the amount of 25.5 million NIS (approximately $ 7,932 ) claiming damages caused relating to a terminated consulting agreement and stock options therein. The Company believes it has meritorious defenses to the claims asserted and intends to vigorously defend against this lawsuit. As of December 31, 2020, accrued amounts for legal claims of $ 5,866 , were recorded in accrued expenses and other current liabilities. NOTE 19:- STOCK CAPITAL a. Common stock rights: Common stock confers upon its holders the right to receive notice of, and to participate in, all general meetings of the Company, where each share of common stock shall have one vote for all purposes; to share equally, on a per share basis, in bonuses, profits, or distributions out of fund legally available therefor; and to participate in the distribution of the surplus assets of the Company in the event of liquidation of the Company. F - 41 SOLAREDGE TECHNOLOGIES, INC. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands (except share and per share data) NOTE 19:- STOCK CAPITAL (Cont.) b. Stock option plans: The Company’s 2007 Global Incentive Plan (the “2007 Plan”) was adopted by the board of directors on August 30, 2007. The 2007 Plan terminated upon the Company’s IPO on March 31, 2015 and no further awards may be granted thereunder. All outstanding awards will continue to be governed by their existing terms and 379,358 available options for future grant were transferred to the Company’s 2015 Global Incentive Plan (the “2015 Plan”) and are reserved for future issuances under the 2015 plan. The 2015 Plan became effective upon the consummation of the IPO. The 2015 Plan provides for the grant of options, RSUs and other share-based awards to directors, employees, officers and nonemployees of the Company and its subsidiaries. As of December 31, 2020, a total of 12,828,270 shares of common stock were reserved for issuance pursuant to stock awards under the 2015 Plan (the “Share Reserve”). The Share Reserve will automatically increase on January 1st of each year during the term of the 2015 Plan, commencing on January 1st of the year following the year in which the 2015 Plan becomes effective, in an amount equal to 5 % of the total number of shares of capital stock outstanding on December 31st of the preceding calendar year; provided, however, that the Company’s board of directors may determine that there will not be a January 1st increase in the Share Reserve in a given year or that the increase will be less than 5% of the shares of capital stock outstanding on the preceding December 31st. The aggregate maximum number of shares of common stock that may be issued on the exercise of incentive stock options is 10,000,000 . As of December 31, 2020, an aggregate of 8,627,031 options are still available for future grant under the 2015 Plan. A summary of the activity in the stock options granted to employees and members of the board of directors for the year ended December 31, 2020 and related information are as follows: Weighted average Weighted remaining Number average contractual Aggregate of exercise term intrinsic options price in years Value   Outstanding as of December 31, 2019 2,112,009 15.44 3.58 168,229 Granted 59,558 101.81 Exercised ( 1,479,835 ) 11.24 Forfeited or expired - - Outstanding as of December 31, 2020 691,732 31.86 5.07 198,709   Vested and expected to vest as of December 31, 2020 633,898 29.85 6.55 183,366   Exercisable as of December 31, 2020 495,669 24.28 6.18 146,143 F - 42 SOLAREDGE TECHNOLOGIES, INC. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands (except share and per share data) NOTE 19:- STOCK CAPITAL (Cont.) The aggregate intrinsic value in the tables above represents the total intrinsic value (the difference between the fair value of the Company’s common stock as of the last day of each period and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on the last day of each period. The total intrinsic value of options exercised during the years ended December 31, 2020, 2019 and 2018 was $ 251,564 , $ 37,509 , and $ 58,601 , respectively. The weighted average grant date fair value of options granted to employees and directors during the years ended December 31, 2020, 2019, and 2018, was $ 62.11 , $ 19.83 and $ 20.83 , respectively. A summary of the activity in the RSUs granted to employees and directors for the year ended December 31, 2020, is as follows: Number of RSUs Weighted average grant date fair value Unvested as of January 1, 2020 2,742,589 52.77 Granted 739,541 202.10 Vested ( 1,076,071 ) 49.78 Forfeited ( 189,218 ) 66.94 Unvested as of December 31, 2020 2,216,841 103.79 The weighted-average grant-date fair value of RSUs granted during the years ended December 31, 2020, 2019 and 2018, was $ 202.10 , $ 71.46 and $ 41.45 , respectively. c. Employee Stock Purchase Plan: The Company adopted an ESPP effective upon the consummation of the IPO. As of December 31, 2020, total of 2,687,451 shares were reserved for issuance under this plan. The number of shares of common stock reserved for issuance under the ESPP will increase automatically on January 1st of each year, for ten years, by the lesser of 1 % of the total number of shares of the Company’s common stock outstanding on December 31st of the preceding calendar year or 487,643 shares. However, the Company’s board of directors may reduce the amount of the increase in any particular year at their discretion, including a reduction to zero. The ESPP is implemented through an offering every six months. According to the ESPP, eligible employees may use up to 10 % of their salaries to purchase common stock up to an aggregate limit of $ 10 per participant for every six months plan. The price of an ordinary share purchased under the ESPP is equal to 85 % of the lower of the fair market value of the ordinary share on the subscription date of each offering period or on the purchase date. As of December 31, 2020, 612,229 shares of common stock had been purchased under the ESPP. As of December 31, 2020, 2,075,222 shares of common stock were available for future issuance under the ESPP. In accordance with ASC No. 718, the ESPP is compensatory and, as such, results in recognition of compensation cost. F - 43 SOLAREDGE TECHNOLOGIES, INC. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands (except share and per share data) NOTE 19:- STOCK CAPITAL (Cont.) d. Stock-based compensation expenses for employees and non-employees: The Company recognized stock-based compensation expenses related to stock options and RSUs granted to employees and nonemployees and ESPP in the consolidated statement of income for the years ended December 31, 2020, 2019 and 2018, as follows: Year ended December 31, 2020 2019 2018   Cost of revenues $ 11,082 $ 6,964 $ 4,343 Research and development 27,048 16,872 11,205 Selling and marketing 19,413 11,062 9,111 General and administrative 9,766 6,991 5,959 Other operating expenses - 18,464 - Total stock-based compensation expenses $ 67,309 $ 60,353 $ 30,618 As of December 31, 2020, there were total unrecognized compensation expenses in the amount of $ 230,503 related to non-vested equity-based compensation arrangements granted under the Company’s Plans. These expenses are expected to be recognized during the period from January 1, 2021 through November 30, 2025. NOTE 20:- EARNINGS PER SHARE Basic net EPS is computed by dividing the net earnings attributable to SolarEdge Technologies, Inc. by the weighted-average number of shares of common stock outstanding during the period. Diluted net EPS is computed by giving effect to all potential shares of common stock, to the extent dilutive, including stock options, RSUs, PSUs, shares to be purchased under the Company’s ESPP, and the Notes due 2025, all in accordance with ASC No. 260, "Earnings Per Share." 2,276,818 and 312,128 shares of common stock were excluded from the calculation of diluted net EPS due to their anti-dilutive effect for the year ended December 31, 2020 and 2019, respectively. No shares were excluded from the calculation for the year ended December 31, 2018. F - 44 SOLAREDGE TECHNOLOGIES, INC. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands (except share and per share data) NOTE 20:- EARNINGS PER SHARE (Cont.) The following table presents the computation of basic and diluted EPS attributable to SolarEdge Technologies, Inc.: Year ended December 31, 2020 2019 2018   Basic EPS: Numerator: Net income $ 140,322 $ 144,957 $ 128,046 Net loss attributable to Non-controlling interests - 1,592 787 Net income attributable to SolarEdge Technologies, Inc. $ 140,322 $ 146,549 $ 128,833   Denominator: Shares used in computing net earnings per share of common stock, basic 50,217,330 47,918,938 45,235,310   Diluted EPS: Numerator: Net income $ 140,322 $ 144,957 $ 128,046 Net loss attributable to Non-controlling interests - 1,592 787 Undistributed earnings reallocated to non-vested stockholders - ( 906 ) - Net income attributable to SolarEdge Technologies, Inc. $ 140,322 $ 145,643 $ 128,833   Denominator: Shares used in computing net earnings per share of common stock, basic 50,217,330 47,918,938 45,235,310 Weighted average effect of dilutive securities: Non-vested PSUs - ( 312,128 ) - Effect of stock-based awards 2,578,146 2,588,851 2,744,692 Shares used in computing net earnings per share of common stock, diluted 52,795,475 50,195,661 47,980,002 F - 45 SOLAREDGE TECHNOLOGIES, INC. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands (except share and per share data) NOTE 21:- OTHER OPERATING EXPENSES (INCOME) Year ended December 31,   2020 2019   A settlement of pre-acquisition legal claim against Kokam (1) $ ( 4,900 ) $ 4,900   Write-off of intangible assets (2) 1,471 -   Compensation package related to the passing of the former Founder, CEO and Chairman (3) - 8,305   Termination of SolarEdge Automation Machines’s former executive (4) - 12,222   Sale of SolarEdge Automation Machines’s subsidiary (5) - 5,269   Total other operating expenses (income) $ ( 3,429 ) $ 30,696   (1) At the time of the acquisition of Kokam, Kokam had an outstanding claim against it for damages. The claim was settled for an amount of $ 4,900 , which was recognized as an expense in the year ended December 31, 2019. In March 2020, the Company was indemnified for the full amount by a major selling shareholder of Kokam, which was recognized as an income in the year ended December 31, 2020. (2) The Company ceased to use intangible assets of one of SolarEdge Automation Machines’s subsidiaries. (3) On August 25, 2019, the Company announced the untimely death of Mr. Guy Sella, Founder, who had served as CEO and Chairman of the Board of Directors until shortly before his passing. The amount is related to payroll, bonus and acceleration of stock-based compensation award. (4) As part of SolarEdge Automation Machines acquisition, the Company issued to a shareholder who had served as an executive of SolarEdge Automation Machines 334,095 PSUs, which were subject to certain performance goals and a vesting period. In December 2019, in connection with a separation agreement between the parties, the Company and the shareholder amended the original agreement, which resulted in a modification to the terms of 150,000 of the original PSUs, such as, the fair value of the PSU, the service period and the performance goals. The Company exercised a call option with respect to the remaining 183,395 PSUs, for a price per share equal to € 0.01 . (5) On December 31, 2019, the Company completed the sale of a SolarEdge Automation Machines subsidiary. F - 46 SOLAREDGE TECHNOLOGIES, INC. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands (except share and per share data) NOTE 22:- INCOME TAXES a. Tax rates in U.S: The Company is subject to U.S. federal tax at the rate of 21 %. On December 22, 2017, the Tax Cuts and Jobs Act (the "Tax Act") was signed into law making significant changes to U.S. income tax law. These changes include, but are not limited to, a corporate tax rate decrease from 35% to 21% effective for tax years 2018 onwards and created new taxes on certain foreign-sourced earnings and certain related-party payments. The Tax Act required the Company to pay U.S. income taxes on accumulated foreign subsidiaries earnings not previously subject to U.S. income tax at a rate of 15.5 % to the extent of foreign cash and certain other net current assets and 8 % on the remaining earnings. The total tax liability was calculated to approximately $ 8,500 . The Company has elected to pay its transition tax over the eight-year period provided in the Tax Act. b. Kokam is subject to Korean tax on progressive tax rates of up to 22 %. c. SolarEdge Automation Machines is subject to Italian corporate tax rate of 24 %. d. Corporate tax in Israel: Taxable income of Israeli companies is subject to corporate tax at the rate of 23 %. In December 2016, the Israeli Parliament approved the Economic Efficiency Law 2016 (Legislative Amendments for Applying the Economic Policy for the 2017 and 2018 Budget Years), which reduces the corporate income tax rate to 23 % effective from January 1, 2018 onwards. The Israeli subsidiary is also eligible for tax benefits as further described in note 22l. e. Carryforward tax losses: As of December 31, 2020, Kokam has carryforward tax losses of $ 28,520 . As of December 31, 2020, SolarEdge Automation Machines has carryforward tax losses of approximately $ 59,140 . f. Deferred taxes: Deferred taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. F - 47 SOLAREDGE TECHNOLOGIES, INC. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands (except share and per share data) NOTE 22:- INCOME TAXES (Cont.) The Company’s Israeli subsidiary’s tax-exempt profit from Benefited Enterprises (as defined in note 22l) is permanently reinvested, as the Company’s management and the Board of Directors has determined that the Company does not currently intend to distribute dividends. Therefore, deferred taxes have not been provided for such tax-exempt income. The Company intends to continue to reinvest these profits and does not currently foresee a need to distribute dividends out of such tax-exempt income. Therefore, no deferred taxes have been provided in respect of such tax-exempt income as the undistributed tax-exempt income is essentially permanent in duration. The Company may incur additional tax liability in the event of intercompany dividend distributions by some of its subsidiaries. Such additional tax liability in respect of these subsidiaries has not been provided for in the Financial Statements as the Company’s management and the Board of Directors has determined that the Company intends to reinvest earnings of its subsidiaries indefinitely. Taxes that would apply in the event of disposal of investments in subsidiaries have not been taken into account in computing deferred income taxes, as the Company’s management and the Board of Directors has determined that the Company’s intention to hold, and not to realize, these investments. Significant components of the Company’s deferred tax liabilities and assets are as follows: December 31, 2020 2019 2018   Deferred tax assets, net:   Research and Development carryforward expenses $ 1,843 $ 4,994 $ 9,482 Carryforward tax losses 20,468 6,318 4,155 Stock based compensation expenses 6,400 4,898 3,160 Deferred revenue 5,609 3,621 1,268 Inventory Impairment 1,977 2,442 1,471 Allowance and other reserves 4,372 7,305 3,072   Total Gross deferred tax assets, net $ 40,669 $ 29,578 $ 22,608   Less, Valuation Allowance ( 9,634 ) ( 2,317 ) -   Total deferred tax assets, net $ 31,035 $ 27,261 $ 22,608   Deferred tax liabilities, net: Convertible Note ( 11,830 ) - - Purchase price allocation ( 16,122 ) ( 15,424 ) ( 9,408 )   Total deferred tax liabilities, net $ ( 27,952 ) $ ( 15,424 ) $ ( 9,408 )   Recorded as: Deferred tax assets, net $ 11,676 $ 16,298 $ 14,699 Deferred tax liabilities, net ( 8,593 ) ( 4,461 ) ( 1,499 ) Net deferred tax assets $ 3,083 $ 11,837 $ 13,200 (1) Related to deferred tax assets that would only be realizable upon the generation of net income in certain foreign jurisdictions. F - 48 SOLAREDGE TECHNOLOGIES, INC. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands (except share and per share data) NOTE 22:- INCOME TAXES (Cont.) g. Uncertain tax positions: December 31, 2020 2019 2018 Balance at January 1, $ 9,532 $ 8,499 $ 579 Increases related to current year tax positions 757 651 8,499 Increase for tax positions related to prior years 275 382 - Decreases related to prior year tax positions - - ( 579 ) Balance at December 31, $ 10,564 $ 9,532 $ 8,499 The total amount of gross unrecognized tax benefits was $ 10,564 , $ 9,532 and $ 8,499 as of December 31, 2020, 2019 and 2018, respectively, and if recognized, would affect our effective tax rate. The Company accrues interest and penalties related to unrecognized tax benefits in its provision for income taxes. The total amount of penalties and interest were $ 127 as of December 31, 2020 and not material as of December 31, 2019 and 2018. h. Income before income taxes are comprised as follows: Year ended December 31, 2020 2019 2018   Domestic $ 33,909 $ 6,029 $ 13,405 Foreign 129,757 172,574 123,718   Income before income taxes $ 163,666 $ 178,603 $ 137,123 i. Income taxes (tax benefit) are comprised as follows: Year ended December 31, 2020 2019 2018 Current taxes: U.S. Federal and State $ 1,842 $ 10,093 $ 13,894 Foreign 24,936 29,590 2,276 Total current taxes 26,778 39,683 16,170   Deferred taxes: U.S. Federal and State 2,794 ( 3,414 ) ( 1,284 ) Foreign ( 6,228 ) ( 2,623 ) ( 5,809 ) Total deferred taxes ( 3,434 ) ( 6,037 ) ( 7,093 )   Income taxes, net $ 23,344 $ 33,646 $ 9,077 F - 49 SOLAREDGE TECHNOLOGIES, INC. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands (except share and per share data) NOTE 22:- INCOME TAXES (Cont.) j. Reconciliation of theoretical tax expense to actual tax expense: The differences between the statutory tax rate of the Company and the effective tax rate are result of a variety of factors, including different effective tax rates applicable to non-US subsidiaries that have tax rates different than the Company tax rate, tax benefits relating to stock-based compensation and adjustments to valuation allowances on deferred tax assets on such subsidiaries. A reconciliation between the theoretical tax expense, assuming all income is taxed at the statutory tax rate applicable to income of the Company, and the actual tax expense (benefit) as reported in the consolidated statements of income is as follows: Year ended December 31, 2020 2019 2018   Statutory tax rate 21 % 21 % 21 % Effect of: Income tax at rate other than the U.S. statutory tax rate ( 6.9 )% ( 5.0 )% ( 12.7 )% Losses and timing differences for which valuation allowance was provided   4.4 % 1.3 % - Tax Cuts and Jobs Act of 2017 - ( 0.7 )% ( 1.0 )% Disallowable and allowable deductions ( 2.6 )% 2.3 % ( 0.5 )% Other individually immaterial income tax items, net ( 1.7 )% ( 0.1 )% ( 0.2 )%   Effective tax rate 14.2 % 18.8 % 6.6 % k. Tax assessments: As of December 31, 2020, the Company and certain of its subsidiaries filed U.S. federal and various state and foreign income tax returns. The statute of limitations relating to the consolidated U.S. federal income tax return is closed for all tax years up to and including 2016. Net operating losses generated in years prior to 2016 and carried forward are available to adjustment and subject to the statute of limitation provisions of such year when the net operating losses were utilized. The statute of limitations related to tax returns of the Company’s Israeli subsidiary for all tax years up to and including 2014 has lapsed. The statute of limitations related to tax returns of the Company’s other subsidiaries has lapsed for part of the tax years, which differs between the different subsidiaries. The Company believes that it has adequately provided for reasonably foreseeable outcomes related to tax audits and settlements. The final tax outcome of any company tax audits could be different from that which is reflected in the Company’s income tax provisions and accruals. Such differences could have a material effect on the Company’s income tax provision and net income in the period in which such determination is made. The Israeli tax authorities issued a tax assessment for 2018 against the Company’s Israeli subsidiary in the total amount of $ 11.5 million. The Israeli subsidiary has challenged the tax assessment. The Company believes it has adequately provided for this tax assessment such that any adverse results would have an immaterial impact on the Company’s financial statements. F - 50 SOLAREDGE TECHNOLOGIES, INC. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands (except share and per share data) NOTE 22:- INCOME TAXES (Cont.) l. Tax benefits for Israeli companies under the Law for the Encouragement of Capital Investments, 1959 (the “Investments Law”): The Israeli subsidiary elected tax year 2012 as a "Year of Election" for “Benefited Enterprise” status under the Investments Law. According to the Investments Law, the Israeli subsidiary elected to participate in the alternative benefits program which provides certain benefits, including tax exemptions and reduced tax rates (which depend on, inter alia, the geographic location in Israel). Income not eligible for Benefited Enterprise benefits is taxed at a regular corporate tax rate. Upon meeting the requirements under the Investments Law, undistributed income derived from Benefited Enterprise from productive activity will be exempt from tax for two years from the year in which the Israeli subsidiary first has taxable income (“exempt period”), provided that 12 years have not passed from the beginning of the year of election. By December 31, 2016, the Israeli subsidiary utilized all of its operating loss carryforwards in Israel and became profitable for tax purposes. On October 24, 2018, the Company’s Israeli subsidiary received an approval from the Israeli Tax Authorities confirming the applicability of the two-year tax exemption as provided in the Investments Law until December 31, 2018. As of December 31, 2018, approximately $ 289,900 was derived from tax exempt profits earned by the Israeli subsidiary “Benefited Enterprises” in the two tax years exempt period, years 2017 - 2018. The Company has determined that such tax-exempt income will not be distributed as dividends and intends to reinvest the amount of its tax-exempt income earned by the Israeli subsidiary. Accordingly, no provision for deferred income taxes has been provided on income attributable to the Israeli subsidiary “Benefited Enterprises” as such income is essentially permanently reinvested. If the Israeli subsidiary’s retained tax-exempt income is distributed, the income would be taxed at the applicable corporate tax rate which depends on the foreign ownership in each tax year, and the tax rate can range between 10% (when foreign ownership exceeds 90%) to 25% (when foreign ownership is below 49%). The dividend recipient is subject to withholding tax at the rate of 15 %, applicable to dividends from Benefited enterprises, or such lower rate as may be provided in an applicable tax treaty, which would generally be withheld at source by the distributing company. Through December 31, 2020, the Israeli subsidiary had generated income under the provision of the Investments Law. Amendment to the Law for the Encouragement of Capital Investments, 1959 (Amendment 73) - In December 2016, the Economic Efficiency Law (Legislative Amendments for Applying the Economic Policy for the 2017 and 2018 Budget Years), 2016 which includes Amendment 73 to the Investments Law (the “2017 Amendment") was published. According to the 2017 Amendment, a preferred enterprise located in development area A will be subject to a tax rate of 7.5% instead of 9% effective from January 1, 2017 and thereafter (the tax rate applicable to preferred enterprises located in other areas remains at 16%). The 2017 Amendment also prescribes special tax tracks for preferred technological enterprises (“PTE”), which are subject to rules that were issued by the Ministry of Finance. F - 51 SOLAREDGE TECHNOLOGIES, INC. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands (except share and per share data) NOTE 22:- INCOME TAXES (Cont.) On June 14, 2017, the Encouragement of Capital Investments Regulations (Preferred Technological Income and Capital Gain for Technological Enterprise), 2017 (the “Regulations”) were published. The Regulations applied Action 5 under the Action Plan on Base Erosion and Profit Shifting (BEPS). The Regulations describe, inter alia, the mechanism used to determine the calculation of the benefits under the PTE regime and determine certain requirements relating to documentation of intellectual property for the purpose of the PTE. According to these provisions, a company that complies with the terms under the PTE regime may be entitled to certain tax benefits with respect to income generated during the company’s regular course of business and derived from the preferred intangible asset (as determined in the Investment Law), excluding income derived from intangible assets used for marketing and income attributed to production activity. In the event that intangible assets used for marketing purposes generate over 10% of the PTE’s income, the relevant portion, calculated using a transfer pricing study, would be subject to regular corporate income tax. If such income does not exceed 10%, the PTE will not be required to exclude the marketing income from the PTE’s total income. The Regulations establish a presumption of direct production expenses plus 10% with respect to income related to production, which can be countered by the results of a supporting transfer pricing study. Tax rates applicable to such production income will be similar to the tax rates under the Preferred Enterprise regime to the extent such income would be considered as eligible. In order to calculate the preferred income, the PTE is required to take into account the income and the research and development expenses that are attributed to each single preferred intangible asset. Nevertheless, it should be noted that the transitional provisions allow companies to take into account the income and research and development expenses attributed to all of the preferred intangible assets they have. A PTE, which is located in the center of Israel will be subject to tax at a rate of 12% on profits deriving from intellectual property (in development Zone A - a tax rate of 7.5%). The Israeli subsidiary’s PTE facilities in Israel are not located in Development Zone A. The Israeli subsidiary has developed its own solar products manufacturing facilities in Israel, located in a Development Zone A. The Israeli subsidiary notified the ITA of its election to implement the PTE with effect from January 1, 2019. A Preferred Company distributing dividends from Preferred Income or income derived from its PTE, would subject the recipient to a tax at the rate of 20% (or lower, if so provided under an applicable tax treaty). In certain circumstances, a dividend distributed to a corporate shareholder who is not an Israeli resident for tax purposes, would be subject to a tax at the rate of 4%. Such taxes would generally be withheld at source by the distributing company. To benefit from any lower tax rates under an applicable tax treaty, a non-resident of Israel would need to receive in advance a valid certificate from the ITA allowing for a reduced tax rate, or to file an appropriate tax return with the ITA claiming a refund based on the lower rate under the applicable tax treaty. F - 52 SOLAREDGE TECHNOLOGIES, INC. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands (except share and per share data) NOTE 22:- INCOME TAXES (Cont.) Tax Benefits for Research and Development: Israeli tax law (section 20A to the Israeli Tax Ordinance (New Version), 1961) allows, a tax deduction for research and development expenses, including capital expenses, for the year in which they are paid. Such expenses must relate to scientific research in industry, agriculture, transportation or energy, and must be approved by the relevant Israeli government ministry, determined by the field of research. Furthermore, the research and development must be for the promotion of the company’s business and carried out by or on behalf of the company seeking such tax deduction. However, the amount of such deductible expenses is reduced by the sum of any funds received through government grants for the finance of such scientific research and development projects. As for expenses incurred in scientific research that is not approved by the relevant Israeli government ministry, they will be deductible over a three-year period starting from the tax year in which they are paid. The Company’s Israeli subsidiary intends to submit a formal request to the relevant Israeli government ministry in order to obtain such approval for 2019 - 2020. m. Tax benefits under the Law for the Encouragement of Industry (Taxes), 1969: The Company’s Israeli subsidiary claims currently to be qualified as ‘industrial company’ as defined by this law and as such, is entitled to certain tax benefits, consisting mainly of accelerated depreciation and amortization of patents and certain other intangible property. NOTE 23:- FINANCIAL EXPENSES (INCOME), NET Year ended December 31, 2020 2019 2018   Exchange rate loss (income), net $ ( 33,065 ) $ 10,342 $ 4,725 Interest income on marketable securities ( 4,900 ) ( 4,590 ) ( 5,629 ) Interest expenses 5,330 4,805 2,536 Hedging activity, net 4,013 - - Amortization of debt discount and debt issuance costs 3,185 - - Bank charges 2,048 1,021 675 Other financial expenses (income), net 2,284 ( 235 ) ( 10 ) Financial expenses (income), net $ ( 21,105 ) $ 11,343 $ 2,297 F - 53 SOLAREDGE TECHNOLOGIES, INC. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands (except share and per share data) NOTE 24:- SEGMENT, GEOGRAPHIC, MAJOR CUSTOMER AND PRODUCT INFORMATION a. Segment Information: Following the completion of three acquisitions during 2018 and 2019, the Company has changed its segments measurement, beginning in 2019. The purpose of the new measurement is to provide the Company’s chief operating decision maker (“CODM”) better information to asses’ segment performance and to make resource allocation decisions. The Company now operates in five different operating segments: Solar, Critical Power (formerly known as UPS), Energy Storage, e-Mobility and Automation Machines. The Company's Chief Executive Officer, who is the CODM, makes resource allocation decisions and assesses performance based on financial information presented on a consolidated basis, accompanied by disaggregated information about revenues and contributed profit by the operating segments. Segment profit is comprised of gross profit for the segment less operating expenses that do not include amortization, stock based compensation expenses and certain other items. The Company manages its assets on a group basis, not by segments, as many of its assets are shared or commingled. The Company’s CODM does not regularly review asset information by segments and, therefore, the Company does not report asset information by segment. The Company identified one operating segment as reportable – the Solar segment. The other operating segments are insignificant individually and therefore their results are presented together under “All other”. The Solar segment includes the design, development, manufacturing, and sales of an intelligent inverter solution designed to maximize power generation at the individual PV module level. The solution consists mainly of the Company’s power optimizers, inverters and cloud-based monitoring platform. The “All other” category includes the design, development, manufacturing and sales of UPS products, energy storage products, e-Mobility products and automated machines. Intersegment sales are a source of revenue for one of the operating segments included in the “All other” category. The Company accounts for intersegment sales as if the sales were to third parties, that is, at current market prices. The following table presents information on reportable segments profit (loss) for the period presented: Year ended December 31, 2020 2019 Solar All other Solar All other Revenues $ 1,357,261 $ 102,804 $ 1,336,618 $ 89,042 Cost of revenues 882,420 95,280 852,330 75,702 Gross profit 474,841 7,524 484,288 13,340 Research and development 110,567 25,417 91,868 12,520 Sales and marketing 66,823 8,562 67,275 8,433 General and administrative 41,723 10,389 31,201 9,561 Segments profit (loss) $ 255,728 $ ( 36,844 ) $ 293,944 $ ( 17,174 ) F - 54 SOLAREDGE TECHNOLOGIES, INC. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands (except share and per share data) NOTE 24:- SEGMENT, GEOGRAPHIC, MAJOR CUSTOMER AND PRODUCT INFORMATION (Cont.) The following table presents information on reportable segments reconciliation to consolidated revenues for the periods presented: Year ended December 31, 2020 2019 Solar segment revenues $ 1,357,261 $ 1,336,618 All other segment revenues 102,804 89,042 Adjustment of intersegment revenues ( 794 ) - Consolidated revenues $ 1,459,271 $ 1,425,660 The following table presents information on reportable segments reconciliation to consolidated operating income for the periods presented: Year ended December 31, 2020 2019 Solar segment profit $ 255,728 $ 293,944 All other segment loss ( 36,844 ) ( 17,174 ) Segments operating profit 218,884 276,770 Amounts not allocated to segments: Stock based compensation expenses ( 67,309 ) ( 60,353 ) Amortization related to business combinations ( 9,336 ) ( 9,470 ) Sale of SolarEdge Automation Machines’ subsidiary - ( 5,269 ) Legal settlement (see Note 21) 4,900 ( 4,900 ) Cost of products adjustments ( 313 ) ( 1,556 ) Other unallocated expenses ( 4,137 ) ( 5,276 ) Adjustments: Intersegment profit ( 128 ) - Consolidated operating income $ 142,561 $ 189,946 The All other segment results were immaterial for the year ended December 31, 2018. b. Revenues by geographic, based on Customers’ location: Year ended December 31, 2020 2019 2018   United States $ 613,090 $ 678,565 $ 505,469 Europe (*) 426,531 345,685 175,894 Netherlands 199,498 199,526 123,959 Rest of the world 220,152 201,884 131,915 Total revenues $ 1,459,271 $ 1,425,660 $ 937,237 (*) Except for Netherlands F - 55 SOLAREDGE TECHNOLOGIES, INC. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands (except share and per share data) NOTE 24:- SEGMENT, GEOGRAPHIC, MAJOR CUSTOMER AND PRODUCT INFORMATION (Cont.) c. Revenues by product: Year ended December 31, 2020 2019 2018   Inverters $ 641,799 $ 626,445 $ 416,966 Optimizers 625,465 634,007 432,410 Others 192,007 165,208 87,861 Total revenues $ 1,459,271 $ 1,425,660 $ 937,237 d. Long-lived assets by geographic location: As of December 31, 2020 2019   Israel $ 216,095 $ 133,113 Korea 62,570 35,490 China 32,655 26,364 Europe 24,233 12,925 Other 9,455 4,929 Total long-lived assets (*) $ 345,008 $ 212,821 (*) Long-lived assets are comprised of property and equipment, net and Operating lease right-of-use assets, net. - - - - - - - - - - - - - - - - - - - - - F - 56 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SOLAREDGE TECHNOLOGIES, INC.   By: /s/Zvi Lando Name: Zvi Lando Title: Chief Executive Officer Date: February 19, 2021 55 POWER OF ATTORNEY Know all persons by these presents, that each person whose signature appears below constitutes and appoints Zvi Lando, Ronen Faier, and Rachel Prishkolnik, or any of them, as such person’s true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for such person and in such person’s name, place, and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K/A, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as such person might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or any of them or their or such person’s substitute or substitutes, may lawfully do or cause to be done by virtue thereof. Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated below. Signature Title Date /s/Zvi Lando Zvi Lando   Chief Executive Officer and Director ( Principal Executive Officer )  February 19, 2021 /s/Ronen Faier Ronen Faier   Chief Financial Officer ( Principal Financial and Accounting Officer )  February 19, 2021   /s/Nadav Zafrir Nadav Zafrir Chairman of the Board February 19, 2021   /s/Yoni Cheifetz Yoni Cheifetz Director February 19, 2021   /s/Marcel Gani Marcel Gani Director February 19, 2021   /s/Doron Inbar Doron Inbar Director February 19, 2021   /s/Avery More Avery More Director February 19, 2021   /s/Tal Payne Tal Payne Director February 19, 2021 56