v2.3.0.15
Variable Interest Entity
3 Months Ended
Sep. 30, 2011
Variable Interest Entity [Abstract] 
Variable Interest Entity

Note 18 – Variable Interest Entity

A variable interest entity (“VIE”) is an entity that by design has (i) insufficient equity to permit it to finance its activities without additional subordinated financial support or (ii) equity holders that lack the characteristics of a controlling financial interest. VIEs are consolidated by the primary beneficiary, which is the entity that has both the power to direct the activities that most significantly impact the entity’s economic performance and the obligation to absorb losses of the entity or the right to receive benefits from the entity that potentially could be significant to the entity. Variable interests in a VIE are contractual, ownership, or other financial interests in a VIE that change with changes in the fair value of the VIE’s net assets.

In 2010, the Company entered into a development loan agreement and a development services agreement with Winch Energia S.R.L. and its affiliates (collectively “Winch”) whereby it would fund Winch’s acquisition of development rights for solar installation projects in Italy. As part of these agreements, the Company provided Winch with the funding necessary to procure the development rights and defray third-party development expenditures through the time permanent financing is obtained. The Company procured the solar modules for the projects. Winch manages the development of the solar projects, arranges the construction debt financing and procures the turnkey Engineering, Procurement and Construction (“EPC”) contractor, who will install the solar modules procured by the Company. The development loan is secured by a pledge in equity in the Winch entities holding the projects. In the event of a loan default, the Company may request that the Winch shareholders transfer 100% of their equity interests to it for a fee of 1 Euro. If this provision is enforced and the Company realizes the value of its loan by selling or otherwise monetizing the development rights, the net proceeds (after deducting costs, interest, and other amounts owed to it) are to be remitted to Winch.

In fiscal 2011, a portion of the development loan was converted into an unsecured vendor loan related to one of the development projects. This vendor loan bears interest at 5.5% annually and is to be repaid upon completion and refinancing of the development project.

As of September 30, 2011 and June 30, 2011, the outstanding balance of the development loan was $6.6 million and $7.1 million, respectively.

As a result of the change in market conditions and difficulty in obtaining governmental approval for the remaining projects in Italy in fiscal 2011, the ability to develop these remaining projects and enable Winch to repay the development loans to the Company is in doubt. As a result, the development loan is fully reserved as of June 30, 2011 and September 30, 2011.

As of September 30, 2011, the outstanding balance of the vendor loan was $2.0 million.

The Company continuously reassesses whether (i) entities we are associated with are still VIEs and (ii) whether we are the primary beneficiary of those entities. Previously, because the Company’s interest was the sole source of financial support to Winch, the Company determined that all of Winch was a VIE and should be consolidated in the Company’s consolidated results of operations. Although the Company is the primary beneficiary of the remainder of Winch, it has not been consolidated because it is not material to the Company’s results of operations, financial condition, or liquidity as of and for the period ended September 30, 2011.