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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark one)
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended October 3, 2009
OR
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number: 000-31687
EVERGREEN SOLAR, INC.
(Exact name of registrant as specified in its charter)
Delaware | 04-3242254 | |
(State or other jurisdiction of | (I.R.S. Employer | |
Incorporation or organization) | Identification No.) | |
138 Bartlett Street | ||
Marlboro, Massachusetts | 01752 | |
(Address of Principal Executive Offices) | (Zip Code) |
(508) 357-2221
(Registrants telephone number, including area code)
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past
90 days.
Yes
þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). Yes
o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated
filer in Rule 12b-(2) of the Exchange Act. (Check one).
Large accelerated filer þ | Accelerated filer o | Non-accelerated filer o | Smaller reporting company o | |||
(Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act).
Yes o No þ
As of November 6, 2009 the registrant had 207,831,820 shares of common stock outstanding.
EVERGREEN SOLAR, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED OCTOBER 3, 2009
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED OCTOBER 3, 2009
TABLE OF CONTENTS
Table of Contents
FORWARD-LOOKING STATEMENTS
This
Quarterly Report on Form 10-Q, including Managements Discussion and Analysis of Financial Condition and Results of Operations in Item 2 of this report and the documents incorporated by
reference herein, contain forward-looking statements that involve risks, uncertainties and
assumptions, including those discussed in Item 1A. Risk Factors of this Quarterly Report on Form
10-Q and in Item 1A. Risk Factors of the Companys Annual Report on Form 10-K filed with the SEC on
March 2, 2009 and subsequently amended. If the risks or uncertainties ever materialize or any of
the assumptions prove incorrect, our results will differ from those expressed or implied by such
forward-looking statements and assumptions. All statements other than statements of historical fact
are statements that could be deemed forward-looking statements, including but not limited to
statements regarding:
| our future growth, revenue, earnings and gross margin improvement; | |
| the completion of our Devens, Midland and Wuhan, China facilities and other potential capacity expansions, and the timing of such facilities becoming fully operational and meeting manufacturing capacity goals on schedule and within budget; | |
| the transition of our panel assembly to China from our manufacturing facility in Devens, Massachusetts; | |
| the sufficiency of our cash, cash equivalents and marketable securities; access to capital markets to satisfy our anticipated cash requirements; and possible sales of securities and our planned use of proceeds from such sales; | |
| capital requirements to respond to competitive pressures and acquire complementary businesses and necessary technologies; | |
| costs associated with research and development, building or improving manufacturing facilities, general and administrative expenses and business growth; | |
| the demand and market for our products, shifts in our geographic product revenue mix, and our position in the solar power market; | |
| the volume of photovoltaic solar panels we will produce; | |
| the making of strategic investments and expansion of strategic partnerships, manufacturing operations and distribution networks; and the future benefit of these activities; | |
| operating efficiency of manufacturing facilities, including increases in manufacturing scale and technological improvements needed to continuously reduce the cost per watt to manufacture our products; | |
| revenue from customer contracts primarily denominated in Euros that are subject to foreign currency exchange risks and the use of derivative financial instruments to manage those risks; | |
| future plans for the Sovello AG joint venture (Sovello), including the need for continued financial support from its shareholders to meet its liquidity needs and our ability to obtain liquidity for our investment; | |
| our receipt or Sovellos receipt and retention of public grant awards and other funding to support our expansion or Sovellos expansion; | |
| our expectations regarding product performance and cost and technological competitiveness; | |
| our ability to obtain key raw materials, including silicon supply from our suppliers; | |
| the benefits of our proprietary technology and new manufacturing and other developments, including our quad wafer furnace design and continued enhancements of our wafer, cell and panel production technologies. |
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These statements may be identified with such words as we expect, we believe, we
anticipate or similar indications of future expectations. These statements are neither promises
nor guarantees and involve risks and uncertainties, which could cause our actual results to differ
materially from such forward-looking statements. Such risks and uncertainties constitute
forward-looking statements and are made under the safe harbor provisions of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. Our actual results of operations and financial condition have varied and could in the
future vary significantly from those stated in any forward-looking statements. The factors
described in Part I, Item 1A, Risk Factors, in our Annual Report on Form 10-K for the year ended
December 31, 2008, as amended, as updated in Part II, Item 1A in this Quarterly Report on Form
10-Q, among others, could cause actual results to differ materially from those contained in
forward-looking statements made in this Quarterly Report on Form 10-Q, in the documents
incorporated by reference into this Quarterly Report on Form 10-Q or presented elsewhere by our
management from time to time. Such factors, among others, could have a material adverse effect upon
our business, results of operations and financial condition. We disclaim any obligation to update
publicly or revise any such statements to reflect any change in our expectations, or events,
conditions, or circumstances on which any such statements may be based, or that may affect the
likelihood that actual results will differ from those set forth in such forward-looking statements.
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PART IFINANCIAL INFORMATION
Item 1. Financial Statements
Evergreen Solar, Inc.
Condensed Consolidated Balance Sheets
(in thousands, except share data)
(unaudited)
December 31, | October 3, | |||||||
2008 | 2009 | |||||||
(Adjusted) | ||||||||
Assets |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 100,888 | $ | 90,960 | ||||
Marketable securities |
76,621 | | ||||||
Accounts receivable, net of allowance for doubtful
accounts |
35,458 | 63,796 | ||||||
Due from Sovello AG |
1,949 | 3,318 | ||||||
Inventory |
23,500 | 30,743 | ||||||
Prepaid cost of inventory |
11,696 | 19,302 | ||||||
VAT receivable, net |
1,474 | 1,601 | ||||||
Other current assets |
7,684 | 7,980 | ||||||
Total current assets |
259,270 | 217,700 | ||||||
Investment in and advances to Sovello AG |
115,553 | 50,000 | ||||||
Restricted cash |
212 | 3,138 | ||||||
Deferred financing costs |
6,152 | 5,115 | ||||||
Loan receivable from silicon supplier |
41,757 | | ||||||
Prepaid cost of inventory |
172,193 | 155,996 | ||||||
Fixed assets, net |
406,191 | 440,348 | ||||||
Other assets |
3,579 | 330 | ||||||
Total assets |
$ | 1,004,907 | $ | 872,627 | ||||
Liabilities and stockholders equity |
||||||||
Current liabilities: |
||||||||
Accounts payable and accrued expenses |
$ | 62,652 | $ | 25,951 | ||||
Due to Sovello AG |
22,840 | 1,620 | ||||||
Accrued employee compensation |
6,451 | 5,646 | ||||||
Accrued interest |
7,392 | 3,277 | ||||||
Accrued warranty |
1,182 | 2,091 | ||||||
Total current liabilities |
100,517 | 38,585 | ||||||
Senior convertible notes, net of discount |
311,531 | 320,262 | ||||||
Loan payable |
| 14,115 | ||||||
Deferred income taxes |
9,776 | 2,400 | ||||||
Total liabilities |
421,824 | 375,362 | ||||||
Commitments and Contingencies (Notes 7, 8 and 9) |
||||||||
Stockholders equity: |
||||||||
Common stock, $0.01 par value, 250,000,000 shares authorized,
164,874,850 and 207,845,548 shares issued and
outstanding at December 31, 2008 and October 3, 2009, respectively |
1,649 | 2,078 | ||||||
Additional paid-in capital |
803,491 | 881,192 | ||||||
Accumulated deficit |
(223,687 | ) | (390,759 | ) | ||||
Accumulated other comprehensive income |
1,630 | 4,754 | ||||||
Total stockholders equity |
583,083 | 497,265 | ||||||
Total liabilities and stockholders equity |
$ | 1,004,907 | $ | 872,627 | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
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Evergreen Solar, Inc.
Condensed Consolidated Statements of Operations
(in thousands, except per share data)
(unaudited)
Quarter Ended | Year-to-Date Period Ended | |||||||||||||||
September 27, | October 3, | September 27, | October 3, | |||||||||||||
2008 | 2009 | 2008 | 2009 | |||||||||||||
(Adjusted) | (Adjusted) | |||||||||||||||
Product revenues |
$ | 17,803 | $ | 75,450 | $ | 54,180 | $ | 192,586 | ||||||||
Royalty and fee revenues |
4,264 | 2,208 | 13,590 | 4,716 | ||||||||||||
Total revenues |
22,067 | 77,658 | 67,770 | 197,302 | ||||||||||||
Cost of revenues |
20,820 | 70,092 | 50,914 | 187,842 | ||||||||||||
Gross profit |
1,247 | 7,566 | 16,856 | 9,460 | ||||||||||||
Operating expenses: |
||||||||||||||||
Research and development |
5,541 | 4,417 | 16,371 | 13,307 | ||||||||||||
Selling, general and administrative |
6,174 | 5,872 | 17,060 | 18,990 | ||||||||||||
Write-off of loan receivable from silicon supplier |
| | | 43,882 | ||||||||||||
Facility start-up |
8,956 | 2,493 | 20,948 | 6,639 | ||||||||||||
Restructuring charges |
2,709 | 777 | 7,279 | 3,394 | ||||||||||||
Total operating expenses |
23,380 | 13,559 | 61,658 | 86,212 | ||||||||||||
Operating loss |
(22,133 | ) | (5,993 | ) | (44,802 | ) | (76,752 | ) | ||||||||
Other income (expense): |
||||||||||||||||
Foreign exchange gains (losses), net |
(5,017 | ) | 2,478 | (1,361 | ) | 3,460 | ||||||||||
Interest income |
4,242 | 118 | 10,004 | 3,672 | ||||||||||||
Interest expense |
(3,295 | ) | (7,430 | ) | (3,657 | ) | (19,342 | ) | ||||||||
Other income (expense), net |
(4,070 | ) | (4,834 | ) | 4,986 | (12,210 | ) | |||||||||
Loss before equity income (loss) from interest in Sovello AG,
impairment of equity investment and income tax benefit |
(26,203 | ) | (10,827 | ) | (39,816 | ) | (88,962 | ) | ||||||||
Equity income (loss) from interest in Sovello AG and
impairment of investment |
1,558 | (79,423 | ) | 6,224 | (85,915 | ) | ||||||||||
Income tax benefit |
| (7,805 | ) | | (7,805 | ) | ||||||||||
Net loss |
$ | (24,645 | ) | $ | (82,445 | ) | $ | (33,592 | ) | $ | (167,072 | ) | ||||
Net loss per share (basic and diluted) |
$ | (0.19 | ) | $ | (0.40 | ) | $ | (0.28 | ) | $ | (0.92 | ) | ||||
Weighted average shares used in computing basic and diluted
net loss per share |
132,034 | 204,790 | 119,807 | 182,250 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
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Evergreen Solar, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
Year-to-Date Period Ended | ||||||||
September 27, | October 3, | |||||||
2008 | 2009 | |||||||
Cash flows from operating activities: |
||||||||
Net loss |
$ | (33,592 | ) | $ | (167,072 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: |
||||||||
Imputed interest and accretion of bond premiums |
(1,708 | ) | (478 | ) | ||||
Accretion of capped call discount |
345 | | ||||||
Amortization of prepaid cost of inventory |
| 7,479 | ||||||
Equity (income) loss from Sovello AG and impairment of investment |
(6,224 | ) | 85,915 | |||||
Amortization of deferred debt financing costs |
515 | 1,037 | ||||||
Loss on loan receivable from silicon supplier |
| 43,882 | ||||||
Depreciation expense |
10,274 | 29,067 | ||||||
Loss on disposal of fixed assets |
7,361 | | ||||||
Provision for warranty |
359 | 962 | ||||||
Amortization of debt discount |
2,461 | 8,731 | ||||||
Compensation expense associated with employee equity awards |
5,343 | 5,253 | ||||||
Changes in operating assets and liabilities: |
||||||||
Accounts receivable |
(2,887 | ) | (29,707 | ) | ||||
Grants receivable |
17,678 | | ||||||
Inventory |
(4,232 | ) | (7,243 | ) | ||||
Prepaid cost of inventory |
(26,268 | ) | (427 | ) | ||||
Other current assets |
9,357 | (2,427 | ) | |||||
Accounts payable |
(12,883 | ) | (20,953 | ) | ||||
Accrued expenses |
3,714 | (5,206 | ) | |||||
Interest payable, net |
(1,852 | ) | 2,045 | |||||
Deferred income taxes |
| (7,805 | ) | |||||
Other |
(1,040 | ) | 2,904 | |||||
Net cash used in operating activities |
(33,279 | ) | (54,043 | ) | ||||
Cash flows from investing activities: |
||||||||
Purchases of fixed assets and deposits on fixed assets under construction |
(250,793 | ) | (101,331 | ) | ||||
(Increase) decrease in restricted cash |
17,178 | (2,914 | ) | |||||
Increase in Sovello AG loan |
(18,174 | ) | (11,750 | ) | ||||
Capital Contribution to Sovello AG |
| (2,917 | ) | |||||
Increase in other loans |
(22,164 | ) | | |||||
Purchases of marketable securities |
(88,520 | ) | | |||||
Proceeds from sale and maturity of marketable securities |
61,809 | 76,716 | ||||||
Net cash used in investing activities |
(300,664 | ) | (42,196 | ) | ||||
Cash flows from financing activities: |
||||||||
Proceeds from issuances of common stock, net of offering costs |
166,726 | 72,387 | ||||||
Proceeds from China government loan |
| 13,592 | ||||||
Proceeds from the issuance of senior convertible debt, net of offering costs |
363,983 | | ||||||
Payment for capped call up-front premium |
(39,543 | ) | | |||||
Proceeds from the share lending arrangement |
3 | |||||||
Proceeds from exercise of stock options and shares purchased under Employee Stock Purchase Plan |
1,272 | 332 | ||||||
Net cash provided by financing activities |
492,441 | 86,311 | ||||||
Net increase (decrease) in cash and cash equivalents |
158,498 | (9,928 | ) | |||||
Cash and cash equivalents at beginning of period |
29,428 | 100,888 | ||||||
Cash and cash equivalents at end of period |
$ | 187,926 | $ | 90,960 | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
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Evergreen Solar, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
(unaudited)
1. Basis of Presentation
The condensed consolidated financial statements of Evergreen Solar, Inc. (Evergreen Solar or the
Company) are unaudited and have been prepared on a basis substantially consistent with the
Companys audited financial statements for the year ended December 31, 2008. These condensed
consolidated financial statements have been prepared in accordance with accounting principles
generally accepted in the United States of America for interim financial information.
Consequently, these statements do not include all disclosures normally required by generally
accepted accounting principles for annual financial statements. These condensed consolidated
financial statements should be read in conjunction with the Companys audited financial statements
for the year ended December 31, 2008, which are contained in the Companys Annual Report on Form
10-K for the fiscal year ended December 31, 2008. The unaudited condensed consolidated financial
statements, in the opinion of management, reflect all adjustments necessary for a fair statement of
the financial position at October 3, 2009, the results of operations for the quarters and
year-to-date periods ended September 27, 2008 and October 3, 2009, and the cash flows for the
year-to-date periods ended September 27, 2008 and October 3, 2009. The balance sheet at December
31, 2008 has been derived from audited financial statements as of that date, except for the impact
of the accounting change described in Note 2, but does not include all disclosures required by
accounting principles generally accepted in the United States of America. The results of
operations for the interim periods are not necessarily indicative of the results of operations to
be expected for any other interim period or for the full fiscal year ending December 31, 2009.
The condensed consolidated financial statements include the accounts of the Companys wholly owned
subsidiaries. All intercompany accounts and transactions have been eliminated. Operating results of
its foreign subsidiaries are translated into U.S. dollars at the average rates of exchange during
the period, and assets and liabilities are translated into U.S. dollars at the period-end rate of
exchange. The operating results and financial positions of the subsidiaries are limited in nature.
Evergreen Solar has operated as one reportable segment since 2007.
The Company is currently a one-third owner of Sovello AG (Sovello), a joint venture with Q-Cells
SE (Q-Cells) and Renewable Energy Corporation ASA (REC), and licenses to Sovello its wafer
manufacturing technology used to manufacture solar panels. The Company accounts for its ownership
interest in Sovello using the equity method of accounting in accordance with the Investments topic
of the Financial Accounting Standard Board (FASB) codification. Under the equity method of
accounting, the Company reports its one-third share of Sovellos net income or loss as a single
line item in its condensed consolidated statement of operations which also includes the impairment
of the investment as further described in Note 6. The Companys investment in and advances to
Sovello is reported as a single line item in its condensed consolidated balance sheet.
The Companys preparation of financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect the reported amount of
assets and liabilities and disclosures of contingent assets and liabilities at the dates of the
financial statements and the reported amounts of revenue and expenses during the reported periods.
Estimates are used when accounting for the collectability of receivables, valuing deferred tax
assets, provisions for warranty claims, determining potential impairments of long-lived assets and
investments, and inventory obsolescence.
Certain prior year balances have been reclassified to conform to the current year presentation.
Liquidity and Management Plans
At October 3, 2009, the Company had approximately $91.0 million of cash and cash equivalents, which
includes approximately $13.6 million in loans received from the Hubei Science & Technology
Investment Co., Ltd., an investment fund sponsored by the government of Hubei, China (HSTIC), as
part of its funding obligation for the Companys Wuhan, China factory expansion. Early in the
fourth quarter of 2009, the Company received the remaining $19.4 million due from HSTIC and expects
to receive a loan of approximately $5 million from the Commonwealth of Massachusetts later in the
quarter. Through mid 2010, the completions of its Devens and
Midland factories, the build-out of its wafer manufacturing facility in Wuhan, China, sustaining
capital and debt service will require about $69 million.
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The Company has sales contracts for approximately 20 megawatts, or MW, of product to be
manufactured at its Devens facility for delivery in the balance of 2009. The Companys sales plan
assumes there should be sufficient market demand to sell the remaining expected Devens
manufacturing capacity at continually declining selling prices. The Company expects to continue to
moderate its production levels depending on changes in market demands during the balance of the
year.
As
approved in the fourth quarter of 2009 the Company intends to accelerate its strategic initiative of focusing on its unique wafer
manufacturing technology and will transition its Devens, Massachusetts based panel assembly to
China beginning in mid 2010. The Company expects to reduce manufacturing costs associated with
panel assembly once the transition is completed by the end of 2010.
The Company believes that its business plan will provide sufficient liquidity to fund its planned
capital programs, its share of any potential funding requirements related to its investment in
Sovello and its operating needs for the next 12 months. While the Companys business plan
anticipates certain levels of potential risk, particularly in light of the difficult and uncertain
current economic environment and the continuing reduction of industry panel pricing caused by
emerging competition, especially from China, and the resulting excess capacity, the company is
exposed to additional particular risks and uncertainties including, but not limited to:
| the need to maintain the Devens facility at a minimum of 75% capacity, or 30 MW per quarter, and stabilization of panel pricing at about $2.00 to $2.25 per watt, with sales made to creditworthy customers; | ||
| higher than planned manufacturing costs and failing to achieve expected Devens operating metrics, with any delays in our plan to transition panel assembly to China resulting in continued higher costs that could impair business operations; | ||
| continued significant fluctuation of the Euro against the U.S. dollar, as a substantial portion of the contracted sales are denominated in Euros; | ||
| the ability of Jiawei to execute against its plans to meet our required timetables; and | ||
| increased funding requirements for Sovello to complete its third manufacturing facility and achieve its planned manufacturing cost and operating metrics, to provide Sovello with additional liquidity, if needed, or to potentially address the loss of any prior or expected government grant funding for Sovello (see Note 6). |
Although the Companys current business plan indicates it has adequate liquidity to operate under
expected operating conditions, the risks noted above could result in liquidity uncertainty. The
Companys plan with regard to this uncertainty includes, among other actions:
| continually monitoring operating results against expectations and, if required, further restricting operating costs and capital spending if events warrant; | ||
| if market conditions allow, possibly accessing the capital markets to meet liquidity and capital expenditure requirements; and | ||
| negotiating with a number of banks to secure a borrowing base line of credit, without a minimum cash requirement as is required with our current line of credit, supported by the expected significant increase in our accounts receivable, inventory and overall working capital and possibly hedging exposure to fluctuations in the U.S. dollar / Euro exchange rate to limit any adverse exposure; but there can be no assurance that hedges can be put in place at terms acceptable to us or that such hedging activities will be effective. |
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If additional capital is needed and does not become available on acceptable terms, the Companys
ability to fund operations, further develop and expand its manufacturing operations and
distribution network or otherwise respond to competitive pressures would be significantly limited.
2. Accounting Change
Effective January 1, 2009 the Company adopted new guidance for convertible debt instruments, as
required by the Debt Conversion and Other topic of the FASB codification, which required
retrospective application. The guidance requires issuers of certain convertible debt instruments to
separately account for the liability and equity components of the instrument in a manner that
reflects the issuers nonconvertible debt borrowing rate. Upon the original issuance of its 4%
Senior Convertible Notes due 2013 (the Senior Notes) in 2008, the Company recorded the debt
obligation as long-term debt in accordance with the applicable accounting standards at that time.
As required by the new guidance, the Company estimated the fair value, as of the date of issuance,
of its Senior Notes as if the instrument was issued without the conversion option. The difference
between the fair value and the principal amount of the instrument was retrospectively recorded as
debt discount and as a component of equity. The amortization of the debt discount is being
recognized over the expected five-year life of the Senior Notes as a non-cash increase to interest
expense. A portion of the incremental interest cost is capitalized and added to the cost of
qualified assets. The Companys aggregate principal amount of $90.0 million subordinated
convertible notes which were issued in June 2005 and subsequently redeemed in July 2008 are not
within the scope of the guidance.
The following table reflects the Companys previously reported amounts, along with the adjusted
amounts as required by the new guidance in the Debt Conversion and Other topic of the FASB
codification (in thousands):
As of December 31, 2008 | ||||||||||||
Effect of | ||||||||||||
Balance Sheet Category | As Reported | As Adjusted | Change | |||||||||
Other current assets |
$ | 5,723 | $ | 7,684 | $ | 1,961 | ||||||
Deferred financing costs |
7,494 | 6,152 | (1,342 | ) | ||||||||
Fixed assets, net |
403,664 | 406,191 | 2,527 | |||||||||
Senior convertible notes |
373,750 | 373,750 | | |||||||||
Debt discount |
| (62,219 | ) | (62,219 | ) | |||||||
Deferred income taxes |
7,815 | 9,776 | 1,961 | |||||||||
Additional paid-in capital |
737,615 | 803,491 | 65,876 | |||||||||
Accumulated deficit |
(221,215 | ) | (223,687 | ) | (2,472 | ) |
For the quarter and year-to-date periods ended October 3, 2009, the Company recognized non-cash
interest expense of approximately $3.0 million and $8.7 million, respectively, associated with the
amortization of the debt discount. The adoption of the new guidance resulted in a change to the
Companys condensed consolidated statement of operations for the quarter and year to date period
ended September 27, 2008, specifically an increase to interest expense of approximately $2.5
million, excluding capitalized interest, as its Senior Notes were issued in the third quarter of
2008. In addition, the Company will be required to amend its 2008 operating results for the fourth
quarter of 2008 and the full year 2008 when presented in future filings.
3. Cash and Marketable Securities
Cash and cash equivalents consist of cash and highly liquid investments with maturities of three
months or less from the date of purchase and whose carrying amount approximates fair value.
The Companys marketable securities are classified as available-for-sale. At December 31,
2008, the Company primarily held commercial paper and corporate bonds. All commercial paper is
rated A-1/P-1 or higher and corporate bonds A/A2 or higher. The investments are carried at fair
market value. At December 31, 2008 and
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October 3, 2009, there were unrealized gains of $26,000 and
$0, respectively, which are reported as part of stockholders equity.
The following table summarizes the Companys marketable securities as of December 31, 2008, with
maturity dates ranging from January 2009 through August 2009 (in thousands):
Unrealized | ||||||||||||
Amortized | Gains | Fair | ||||||||||
Cost | (Losses) | Value | ||||||||||
Government Obligations |
$ | 9,997 | $ | 3 | $ | 10,000 | ||||||
Commercial paper |
44,852 | 24 | 44,876 | |||||||||
Corporate bonds |
21,746 | (1 | ) | 21,745 | ||||||||
Marketable Securities |
$ | 76,595 | $ | 26 | $ | 76,621 | ||||||
4. Inventory
Inventory consisted of the following at December 31, 2008 and October 3, 2009 (in thousands):
December 31, | October 3, | |||||||
2008 | 2009 | |||||||
Raw materials |
$ | 17,928 | $ | 19,805 | ||||
Work-in-process |
3,910 | 6,770 | ||||||
Finished goods |
1,662 | 4,168 | ||||||
$ | 23,500 | $ | 30,743 | |||||
Prepaid cost of inventory |
$ | 183,889 | $ | 175,298 | ||||
Less: current portion |
11,696 | 19,302 | ||||||
Non-current portion |
$ | 172,193 | $ | 155,996 | ||||
The Company has entered into multiple multi-year silicon supply agreements, several of which
required advanced funding under the contract. These prepayments, which are non-refundable, are
presented on the balance sheet in Prepaid Cost of Inventory and will be amortized as an additional
cost of inventory as silicon is delivered and utilized by the Company. Prepayments are classified
as short-term based upon the value of silicon contracted to be delivered during the next twelve
months. The Company carries these prepayments on its balance sheet at cost and periodically
evaluates the status of the vendors underlying project intended to fulfill the silicon contract.
On December 7, 2007, the Company entered into a multi-year silicon supply agreement with Silicium
de Provence S.A.S. (Silpro). This supply agreement provided the general terms and conditions
pursuant to which Silpro would supply the Company with specified annual quantities of silicon at
fixed prices beginning in 2010 and continuing through 2019. In connection with the supply
agreement, the Company loaned Silpro 30 million Euros at an interest rate of 3.0% compounded
annually. The difference between this rate and prevailing market rates at that time was recorded
as an adjustment to the cost of inventory. At December 31, 2008 this loan is presented on the
balance sheet as loan receivable from silicon supplier. In April 2009 as a result of its inability
to obtain additional financing to continue construction of its factory, Silpro announced that the
French commercial court ordered the filing for judicial settlement proceedings (redressement
judiciaire), a process similar to bankruptcy proceedings in the United States. As a result, the
loan receivable from Silpro and the related interest will not be repaid and the Company recognized
a non-cash charge of $43.9 million for the quarter ended April 4, 2009. In August 2009, the court
ordered liquidation proceedings (liquidation judiciaire) due to Silpros inability to secure a
long-term financing solution.
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5. Fixed Assets
Fixed assets consisted of the following at December 31, 2008 and October 3, 2009 (in thousands):
Useful | December 31, | October 3, | ||||||||
Life | 2008 | 2009 | ||||||||
(Adjusted) | ||||||||||
Land |
$ | 119 | $ | 119 | ||||||
Building |
40 years | 97,957 | 206,236 | |||||||
Laboratory and manufacturing equipment |
3-7 years | 182,109 | 279,536 | |||||||
Computer and office equipment |
3-7 years | 4,594 | 6,110 | |||||||
Leasehold improvements |
Lesser of 15 to 20 | 16,413 | 16,418 | |||||||
years or lease term | ||||||||||
Assets under construction |
175,880 | 30,104 | ||||||||
477,072 | 538,523 | |||||||||
Less: Accumulated depreciation |
(70,881 | ) | (98,175 | ) | ||||||
$ | 406,191 | $ | 440,348 | |||||||
During 2007, the Commonwealth of Massachusetts support program awarded the Company $20.0 million in
grants towards the construction of its Devens, Massachusetts manufacturing facility, virtually all
of which has been received as of October 3, 2009. The grants have been capitalized as a reduction
of the construction costs. The funds granted are subject to repayment by the Company if, among
other conditions, the Devens manufacturing facility does not create and maintain 350 new jobs in
Massachusetts through November 20, 2014. The repayment of the grants, if any, will be proportional
to the targeted number of jobs per annum that are not created. Because the Company has the ability
and intent to satisfy the obligations under the awards, the grant amounts received will be
amortized over the same period as the underlying assets to which they relate.
In conjunction with the closing of the Companys Marlboro, Massachusetts pilot manufacturing
facility in December 2008, it recorded write-offs of leasehold improvements and other related
building costs with a net book value of approximately $5.4 million and equipment of approximately
$20.9 million. In addition to the closure of Marlboro the Company incurred charges of
approximately $8.0 million to write-off R&D equipment that supported now-obsolete technologies.
Depreciation expense for the quarter and year-to-date periods ended September 27, 2008 was $4.4
million and $10.3 million, respectively, and $10.6 million and $29.1 million, respectively, for the
quarter and year-to-date periods ended October 3, 2009.
As of October 3, 2009, the Company had outstanding commitments for capital expenditures of
approximately $13.9 million, primarily for the construction and equipment for its Devens facility
and for its new Midland, Michigan and Wuhan, China facilities.
6. Investment in Sovello
The Company owns a one-third interest in Sovello and therefore applies the equity method of
accounting for its share of Sovellos operating results in accordance with the guidance in the
Equity Method and Joint Ventures topic in the FASB Codification.
The financial information for Sovello for the quarter and year-to-date periods ended September 27,
2008 and October 3, 2009 is as follows (in thousands):
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Quarter Ended | Year-to-Date Period Ended | |||||||||||||||
September 27, | October 3, | September 27, | October 3, | |||||||||||||
2008 | 2009 | 2008 | 2009 | |||||||||||||
Revenue |
$ | 84,123 | $ | 43,260 | $ | 258,369 | $ | 89,969 | ||||||||
Cost of goods sold |
65,421 | 52,723 | 201,886 | 100,595 | ||||||||||||
Other expenses |
13,781 | 19,668 | 37,563 | 38,985 | ||||||||||||
Net income (loss) |
4,921 | (29,131 | ) | 18,920 | (49,611 | ) |
December 31, | October 3, | |||||||
2008 | 2009 | |||||||
Current assets |
$ | 241,871 | $ | 183,249 | ||||
Non-current assets |
408,347 | 448,876 | ||||||
Current liabilities |
181,550 | 447,312 | ||||||
Non-current liabilities |
318,627 | 78,691 |
The European Commission is currently reviewing certain investment grants relating to the
construction of the Sovello 1 and Sovello 2 facilities. Grants of approximately 9.0 million Euros
(approximately $13.1 million at October 3, 2009 exchange rates) relating to Sovello 1 (which have
been received by Sovello) and up to 18.0 million Euros (approximately $26.3 million at October 3,
2009 exchange rates) relating to the combined Sovello 1 and Sovello 2 facilities (which have been
earned but yet to be received) are under review.
An unfavorable ruling by the European Commission against Sovello would require repayment of any
grants already received, or if any of the grants earned but not yet received by Sovello are not
paid, then the Company would be obligated to fund its pro-rata share of the lost grant amounts
through further loans or equity contributions. Early in the fourth quarter, Sovello was informed
by the European Commission that it intends to release a negative decision on the 9.0 million Euro
grant although Sovello has not received formal notification. Sovello believes that it qualified
for the investment grants and will appeal any such finding by the European Commission if
formalized.
Accordingly, Sovello has not recorded any repayment provisions in its financial statements as of
October 3, 2009. Sovellos shareholders, including the Company, agree with Sovellos position on
the matter.
As of October 3, 2009, Sovello is in violation of its bank loan agreement (the Loan Agreement)
with a syndicate of lenders led by Deutsche Bank AG (Deutsche Bank). The violation allows the
bank to exercise its termination rights and call the loan. However, Deutsche Bank has temporarily
waived the violation until November 30, 2009 and is negotiating with Sovello and its shareholders
to amend the loan agreement. Required repayments of the loans were suspended during the first three
quarters of 2009.
On April 15, 2009, the Company entered into a guarantee of loan obligations on behalf of Sovello.
Pursuant to this guarantee, the Company has agreed to guarantee up to 10 million Euros
(approximately $14.6 million at October 3, 2009 exchange rates) of Sovellos repayment obligations
under the Loan Agreement. The Loan Agreement was entered into in April 2007 and amended in
September 2008 between Sovello and Deutsche Bank and provides Sovello with an aggregate loan amount
of up to 192.5 million Euros. Sovellos other shareholders also entered into guarantees for an
additional 20 million Euros with Deutsche Bank on the same terms as the Company (see Note 9).
The shareholder guarantees were provided by the Company and Sovellos other shareholders in
connection with ongoing discussions between Sovello, Deutsche Bank and the shareholders regarding a
restructuring of Sovellos obligations under the Loan Agreement. In connection with the guarantees,
the Company, Q-Cells and REC also entered into a letter agreement with Deutsche Bank. Pursuant to
the letter agreement the three Sovello shareholders made loans to Sovello in the aggregate amount
of 15 million Euros (approximately $21.9 million at October 3, 2009 exchange rates), including the
U.S. dollar equivalent of 5 million Euros (approximately $7.3 million at October 3, 2009 exchange
rates) loaned by the Company. Also, pursuant to the letter agreement, the shareholders initially
agreed to provide Sovello through August 15, 2009 with additional liquidity, if needed, other than
payments that
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might be required pursuant to the Loan Agreement. This date, which has since been
amended, now extends to November 30, 2009. In conjunction with the agreement the bank syndicate
had requested that each shareholder put an additional 2.0 million Euro into escrow (approximately
$2.9 million at October 3, 2009 exchange rates) to continue good faith negotiations on
restructuring Sovellos debt. The escrow deposits, which were made by the shareholders during the
third quarter of 2009, have since been contributed as additional equity to Sovello as of October 3,
2009 and remitted to the banks as a loan payment.
Evergreen Solar Loans to Sovello
In January 2007, the Company, REC and Q-Cells entered into a shareholder loan agreement with
Sovello. Under the terms of the shareholder loan agreement, Sovello repaid all outstanding
shareholder loans at that time, plus accrued interest, in exchange for a shareholder loan of 30
million Euros (approximately $43.8 million at October 3, 2009 exchange rates) from each
shareholder. Since that time, the Company, REC and Q-Cells have entered into several other
shareholder loan agreements with Sovello with the Companys share denominated in U.S. dollars.
Interest on the January 2007 loan and the $18.2 million June 2008 loan is payable quarterly in
arrears, however such payments have been suspended. Interest on the $10.6 million December 2008
loan and $6.7 million March 2009 loan is payable concurrent with the repayment of the underlying
principal amounts. The loans, which in the aggregate total approximately $79.3 million at October
3, 2009, prior to the impairment charge, carry interest rates ranging from 5.43% to 7.0% and are
included in Investments in and advances to Sovello AG on the balance sheet. Based upon an
agreement between Sovellos shareholders and Sovellos bank, the loans and interest thereon will
not be repaid until the earlier of the completion of an initial public offering or other liquidity
event generating sufficient cash to repay the bank loans.
Impairment
The Company regularly monitors the performance of Sovello and, utilizing several factors, assesses
the need to record an impairment of the carrying value of its aggregate investment when the
impairment is determined to be other than temporary in nature. The process of assessing whether
its investments net realizable value is less than its carrying cost requires a significant amount
of judgment. In making this judgment, the Company carefully considers the investees cash
position, projected cash flows, financing needs, comparable market data, the current investing
environment, management changes and competition.
Based on the Companys evaluation, it recorded an impairment charge of approximately $69.7 million
related to its aggregate investment in Sovello for the quarter and year-to-date period ended
October 3, 2009 as a result of continued deterioration in Sovellos operations during the third
quarter of 2009, their continued difficulties in renegotiating their bank financing, and on-going
deterioration in world-wide pricing for their products. This impairment loss is reflected in
Equity income (loss) from interest in Sovello AG and impairment of investment in the Companys
accompanying condensed consolidated statements of operations. In making this assessment, the
Company performed an expected value calculation that considered a range of scenarios including Sovellos ability to continue as a going concern,
forecasted 2010 EBITDA which included current projections of volumes and selling prices, and enterprise value multiples of comparable
entities.
If Sovello is not able to restructure the terms of its loan agreements or its operations continue
to deteriorate, the carrying value of the Companys aggregate investment could be further impaired
in the future.
7. Long-Term Debt
Convertible Subordinated Notes
On June 29, 2005, the Company issued 4.375% convertible subordinated notes due 2012 (the Notes)
in the aggregate principal amount of $90.0 million with interest on the Notes payable semiannually.
The Company received proceeds, net of offering costs, of $86.9 million, a portion of which was
used to (1) increase research and development spending on promising next generation technologies,
(2) explore further expansion opportunities and (3) fulfill its commitments with Sovello. On July
7, 2008, the Company notified the holders of the Notes that on July 22, 2008 (the Redemption
Date) it would redeem all of the outstanding Notes at a redemption price of 100% of the principal
amount thereof, plus accrued and unpaid interest to the Redemption Date. In lieu of redemption,
all of the Notes were converted to common stock of the Company and the Company issued 12,178,607
shares of common stock to the holders of the Notes on July 22, 2008.
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Senior Convertible Notes
On July 2, 2008, the Company completed its public offering of $373.75 million aggregate principal
amount of its Senior Notes. Net proceeds to the Company from the Senior Notes offering, including
the cost of the capped call transaction (see Capped Call), were approximately $325.8 million. The
Companys financing costs associated with the Senior Notes are being amortized over the five year
term.
The Senior Notes bear cash interest at the rate of 4% per year, payable semi-annually in arrears on
January 15 and July 15 of each year, beginning on January 15, 2009, with an effective interest cost
of approximately 8.4% as a result of the adoption of the guidance as required in the Debt
Conversion and Other topic of the FASB codification. The Senior Notes will mature on July 15, 2013
unless previously repurchased by the Company or converted in accordance with their terms prior to
such date. The Senior Notes are not redeemable at the Companys option prior to the stated maturity
date. If certain fundamental changes occur at any time prior to maturity, holders of the Senior
Notes may require the Company to repurchase their Senior Notes in whole or in part for cash equal
to 100% of the principal amount of the Senior Notes to be repurchased, plus accrued and unpaid
interest to, but excluding, the date of repurchase. The fair value of the Companys Senior Notes
is estimated based on quoted market prices which were trading at an average of approximately 40% of
par value as of October 3, 2009, or approximately $149.5 million.
At maturity and upon certain other events, including a change of control and when the trading price
of the Companys common stock exceeds 130% of the then effective conversion price, the Senior Notes
are convertible into cash up to their principal amount and shares of the Companys common stock for
the remainder, if any, of the conversion value in excess of such principal amount at the initial
conversion rate of 82.5593 shares of common stock per $1,000 principal amount of Senior Notes
(equivalent to an initial conversion price of $12.1125 per share). Subject to certain exceptions
and limitations, the holder of a note for $1,000 principal amount that is converted when the
Companys common stock is trading at the conversion price of $12.1125 (or lower) would receive
$1,000 (or less) in cash, and the holder of a note for $1,000 principal amount that is converted
when the Companys common stock is trading above the conversion price of $12.1125 would receive
$1,000 in cash and shares of the Companys common stock to the extent that the market value of the
Companys common stock multiplied by the conversion rate, which is initially 82.5593, exceeds
$1,000. If a non-stock change of control occurs and a holder elects to
convert Senior Notes in connection with such non-stock change of control, such holder may be
entitled to an increase in the conversion rate. The conversion rate may also be adjusted under
certain other circumstances, including, but not limited to, the issuance of stock dividends and
payment of cash dividends. In accordance with the guidance in Earnings Per Share topic and the
Debt topic of the FASB codification, the Senior Notes were initially accounted for as traditional
convertible debt, with no bifurcation of the conversion feature recognized as a separate asset or
liability (see Note 2 Accounting Change for the impact of the Companys adoption of the guidance in
the Debt Conversion and Other topic of the FASB codification).
For each of the quarters ended September 27, 2008 and October 3, 2009, the Company recorded
approximately $6.0 million and $6.7 million (which includes non-cash interest of approximately $2.5
million and $3.0 million associated with guidance in the Debt Conversion and Other topic of the
FASB codification in 2009), respectively, in interest expense associated with its Notes and Senior
Notes, and capitalized interest of approximately $3.4 million and $200,000, respectively. For each
of the year-to-date periods ended September 27, 2008 and October 3, 2009, the Company recorded
approximately $7.9 million and $20.1 million (which includes non-cash interest of approximately
$2.5 million and $8.7 million associated with the guidance in the Debt Conversion and Other topic
of the FASB codification in 2009), respectively, in interest expense associated with its Notes and
Senior Notes, and capitalized interest of approximately $5.2 million and $2.6 million,
respectively.
Capped Call
In connection with the Companys Senior Notes offering on June 26, 2008, the Company entered into a
capped call transaction with respect to the Companys common stock (the Capped Call) with an
affiliate of underwriter for the offering, Lehman Brothers Inc. (the the lead underwriter), in
order to reduce the dilution that would otherwise
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occur as a result of new common stock issuances
upon conversion of the Senior Notes. The Capped Call has an initial strike price of $12.1125 per
share, subject to certain adjustments, which matches the initial conversion price of the Senior
Notes, and has a cap price of $19.00 per share.
The capped call transaction was designed to reduce the potential dilution resulting from the
conversion of the Senior Notes into shares of common stock, and effectively increase the conversion
price of the Senior Notes for the Company to $19.00 per share from the actual conversion price to
the note holders of $12.11 per share. The total premium to be paid by the Company for the capped
call was approximately $68.1 million, of which $39.5 million was paid contemporaneously with the
closing of the Senior Notes offering and the remaining $28.6 million was required to be paid in
nine equal semi annual installments beginning January 15, 2009. In accordance with the guidance in
Distinguishing Liability from Equity topic in the FASB codification. and the Derivative and Hedging
topic in the FASB codification, the capped call instrument was classified as equity and therefore
the up-front capped call premium plus the present value of the future installments were recorded in
additional paid-in capital. As this instrument does not qualify as a derivative under Derivatives
and Hedging topic of the FASB codification, it will not be subject to mark-to-market adjustments in
future periods.
On September 15, 2008 and October 3, 2008, respectively, the lead underwriter and its affiliate
filed for protection under Chapter 11 of the federal Bankruptcy Code, each an event of default
under the transaction. As a result of the default, the affiliate is not expected to perform its
obligations if such obligations were to be triggered and the Companys obligations under the
agreement have been suspended. The Company believes it has the right to terminate the Capped Call
based on the defaults that have occurred. Accordingly the remaining premium liability under the
Capped Call was reversed against equity (see Note 9).
On September 9, 2009, the Company received notification from the lead underwriters affiliate
purporting to terminate the capped call transaction based on the Companys failure to pay certain
amounts under the capped call transaction. Despite the notification received, the Company does not
believe the lead underwriters affiliate has the right to terminate the capped call transaction and
the Company disputes the assertion that it has defaulted on any payment obligations under the
capped call transaction.
In connection with the sale of the Senior Notes, the Company also entered into a common stock
lending agreement (see Common Stock Lending Agreement within Note 11).
Loan Payable
As part of the Companys plan to expand its manufacturing operations into China, on July 24, 2009
the Company and HSTIC entered into an Increase Registered Capital and Enlarge Shares Agreement (the
Investment Agreement) related to HSTICs investment in the Companys subsidiary, Evergreen Solar
(China) Co., Ltd. (Evergreen Wuhan). Pursuant to the Investment Agreement, HSTIC will invest the
RMB equivalent of $33 million in Evergreen Wuhan in exchange for 66% of Evergreen Wuhans shares.
The Company will invest $17 million in cash and equipment for the remaining 34% of Evergreen
Wuhans shares. Immediately upon HSTICs investment, the Company agreed to purchase HSTICs shares
and is required to pay for the shares no later than the end of the five-year period after the
investment is received by Evergreen Wuhan. This payment obligation will require the Company to pay
to HSTIC for its shares in Evergreen Wuhan an amount equal to HSTICs aggregate investment of $33
million plus 7.5% compounded annually, resulting in a debt-like instrument. Accordingly, the
Company has treated its payment obligation as indebtedness of the Company and fully consolidates
Evergreen Wuhan which it considers to be wholly-owned.
The Investment Agreement also sets forth certain negative and affirmative covenants that must be
complied with to avoid accelerating the Companys obligation to pay for HSTICs shares. Covenants
include, but are not limited to, reporting obligations and approval requirements for certain
affiliate transactions and other extraordinary business activities. If the Registrant fails to
meet its obligation to pay for HSTICs shares at the end of five years or upon the possible
acceleration of the payment term, the Company will be required to relinquish its Board and
management control over Evergreen Wuhan.
As of October 3, 2009 HSTIC has made an initial investment of approximately RMB 92.8 million ($13.6
million at October 3, 2009 exchange rates). Interest incurred on the loan as of October 3, 2009,
which is payable in
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conjunction with the loan repayment, was approximately RMB 3.4 million ($0.5
million at October 3, 2009 exchange rates). The combined amount has been included in Loan Payable
on the balance sheet. Early in the fourth quarter of 2009, the Company received the remaining
$19.4 million due from HSTIC.
8. Line of Credit
On October 16, 2008, the Company entered into a Loan and Security Agreement with a bank for a
credit facility that provides for a $40 million secured revolving line of credit, which, provided
the Company is not in default of any covenants, may be used to borrow revolving loans or to issue
letters of credit on its behalf, and includes a foreign exchange sublimit and a cash management
services sublimit. The Company is currently in default as described below and cannot draw on the
credit facility.
This credit facility replaced a $25 million secured revolving line of credit which matured on July
4, 2008. The interest rates on borrowings under the line of credit will be calculated by reference
to the banks prime rate and will depend on maintenance by the Company of certain amounts of cash
at the bank. The credit facility matures on October 16, 2010, at which time all outstanding
borrowings and any unpaid interest thereon must be repaid, and all outstanding letters of credit
must be cash collateralized. As of October 3, 2009, there were approximately $2.9 million of
outstanding letters of credit. As collateral and support for the loans to be made under the credit
facility, the Company pledged controlling interests in its domestic subsidiaries to the bank, and
the Companys domestic subsidiaries have made unconditional guaranties of the Companys
indebtedness and entered into security agreements with the bank.
The credit facility contains a financial covenant requiring the Company to maintain during the term
of the credit facility a combination of cash and available borrowing base under the line of at
least $80 million, including at least $40 million in cash in an account with the bank. The credit
facility also contains certain other restrictive loan covenants, including covenants limiting the
Companys ability to dispose of assets, make acquisitions, be acquired, incur indebtedness, grant
liens, make investments, pay dividends, and repurchase stock.
The credit facility contains events of default that include, among others, non-payment of principal
or interest, inaccuracy of any representation or warranty, violation of covenants, bankruptcy and
insolvency events, material judgments, cross defaults to certain other indebtedness, a material
adverse change default, and events constituting a change of control. The occurrence of an event of
default could result in the acceleration of the Companys obligations under the credit facility.
As of October 3, 2009, the Company is in violation of the financial covenant described above and,
as a result, does not have availability under the line. The Company has segregated cash to
collateralize the outstanding letters of credit which is included in restricted cash on the balance
sheet.
9. Commitments and Contingencies
Potential Litigation with Lehman Brothers.
On September 25, 2009, the Company received a letter from an affiliate of the lead underwriter to
its Senior Notes offering requesting payment of $19,992,487 (plus $340,673 in interest) as payment
for the termination of the Capped Call transaction (see Note 7) which the affiliate believes it has
the right to terminate and purported to terminate in a letter received by the Company on September
9, 2009.
Despite the demand for payment and purported termination letter received, the Company rejects the
affiliates assertions that (i) it has the right to terminate the Capped Call transaction, (ii)
that the Company has defaulted on any payment obligations under the Capped Call transaction and
(iii) that any amounts are currently due and payable to the affiliate under the Capped Call
transaction. The Company intends to vigorously defend against all such claims by the affiliate and
any related parties should they be asserted and the Company continues to pursue its related claims
in bankruptcy against the lead underwriter and certain of its affiliates.
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Noise Noncompliance Proceedings for the Devens Manufacturing Facility.
In late-March 2009, initial complaints regarding noncompliance with applicable noise restrictions
were made to the Devens Enterprise Commission, (the DEC), the governmental authority that
regulates development and zoning within the Devens Enterprise Zone where the Companys Devens,
Massachusetts manufacturing facility is located.
After the issuance by the DEC of two noncompliance notices and initial efforts by the
Company to remedy the noncompliance and various administrative proceedings, on July 14,
2009, the DEC adopted a Resolution which requires the Company to attenuate certain noises
being generated by the Devens facility in violation of the DECs noise regulations by
September 2009.
At this time, the Company believes it is operating in compliance with the DECs regulations but the
DEC has extended the deadline for full compliance with the Resolution so that some testing of noise
levels can be completed and certain other requirements from the Resolution can be addressed,
including a worst case scenario test to confirm that the facility will comply with the noise
restrictions under all possible operating conditions and the installation of a long-term monitoring
system.
Product Warranty
The Companys current standard product warranty includes a five-year warranty period for defects in
material and workmanship and a 25-year warranty period for declines in power performance. When it
recognizes revenue, the Company accrues a liability for the estimated future costs of meeting its
warranty obligations. The Company makes and revises this estimate based on the number of solar
panels shipped and its historical experience with warranty claims. During 2008, the Company
re-evaluated potential warranty exposure as a result of the substantial increase in production
volumes at its Devens, Massachusetts manufacturing facility.
The Company engages in product quality programs and processes, including monitoring and
evaluating the quality of component suppliers, in an effort to ensure the quality of its product
and reduce its warranty exposure. The Companys warranty obligation will be affected not only by
its product failure rates, but also the costs to repair or replace failed products and potential
service and delivery costs incurred in correcting a product failure. If its actual product failure
rates, repair or replacement costs, or service or delivery costs differ from these estimates,
accrued warranty costs would be adjusted in the period that such events or costs become known.
The following table summarizes the activity regarding the Companys warranty accrual for the
year-to-date periods ended September 27, 2008 and October 3, 2009 (in thousands):
Year-to-Date Period Ended | ||||||||
September 27, | October 3, | |||||||
2008 | 2009 | |||||||
Balance at beginning of period |
$ | 705 | $ | 1,182 | ||||
Warranty costs accrued |
359 | 962 | ||||||
Warranty costs incurred |
(88 | ) | (53 | ) | ||||
Balance at end of period |
$ | 976 | $ | 2,091 | ||||
Sovello Debt Guarantees
On April 30, 2007, the Company, Q-Cells and REC entered into a Guarantee and Undertaking Agreement
in connection with Sovello entering into a loan agreement with a syndicate of lenders led by
Deutsche Bank AG (the Guarantee). The loan agreement originally provided Sovello with aggregate
borrowing availability of up to 142.0 million Euros (approximately $207.1 million at October 3,
2009 exchange rates) which was subsequently amended to 192.5 million Euros in September 2008
(approximately $280.8 million at October 3, 2009 exchange rates). Pursuant to the Guarantee, the
Company, Q-Cells and REC each agreed to guarantee a one-third portion of the loan outstanding, up
to 30.0 million Euros of Sovellos repayment obligations under the loan agreement. As of October
3, 2009, the total amount of debt outstanding under the loan agreement was 93.6 million Euros
(approximately $136.6 million at October 3, 2009 exchange rates) which was all current, a reduction
of
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approximately 27.4 million Euros from December 31, 2008 (approximately $39.9 million at October
3, 2009 exchange rates). Repayment of the loan is due in quarterly installments through December
31, 2011 (see Note 6 Investment in Sovello).
On April 15, 2009, the Company entered into a new guarantee of loan obligations on behalf of
Sovello. Pursuant to the new guarantee, the Company has agreed to guarantee up to 10 million Euros
(approximately $14.6 million at October 3, 2009 exchange rates) of Sovellos repayment obligations
under a syndicated loan agreement with a syndicate of lenders led by Deutsche Bank. Sovellos other
shareholders also entered into guarantees for an additional 20 million Euros (approximately $29.2
million at October 3, 2009 exchange rates) with Deutsche Bank on the same terms as the Company.
The shareholder guarantees were provided by the Company and Sovellos other shareholders in
connection with ongoing discussions between Sovello, Deutsche Bank and the shareholders regarding a
restructuring of Sovellos obligations under the Loan Agreement. In connection with the guarantees,
the Company, Q-Cells and REC also entered into a letter agreement with Deutsche Bank. Pursuant to
the letter agreement the three Sovello shareholders made loans to Sovello in the aggregate amount
of 15 million Euros (approximately $21.9 million at October 3, 2009 exchange rates), including the
U.S. dollar equivalent of 5 million Euros (approximately $7.3 million at October 3, 2009 exchange
rates) loaned by the Company. Also, pursuant to the letter agreement, the shareholders initially
agreed to provide Sovello through August 15, 2009 with additional liquidity, if needed, other than
payments that might be required pursuant to the Loan Agreement. This date, which has since been
amended, now extends to November 30, 2009.
10. Fair Value Measurements
The Fair Value Measurements and Disclosures topic of the FASB codification, establishes a valuation
hierarchy for disclosure of the inputs to valuation used to measure fair value. This hierarchy
prioritizes the inputs into three broad levels as follows:
Level 1-Inputs are unadjusted quoted prices in active markets for identical assets or
liabilities that the Company has the ability to access at the measurement date.
Level 2-Inputs include quoted prices for similar assets and liabilities in active markets,
quoted prices for identical or similar assets or liabilities in markets that are not active, inputs
other than quoted prices that are observable for the asset or liability (i.e., interest rates,
yield curves, etc.), and inputs that are derived principally from or corroborated by observable
market data by correlation or other means (market corroborated inputs).
Level 3-Unobservable inputs that reflect the Companys views about the assumptions that market
participants would use in pricing the asset or liability. The Company develops these inputs based
on the best information available, including its own data.
A financial asset or liabilitys classification within the hierarchy is determined based on
the lowest level input that is significant to the fair value measurement.
The following tables provide the assets and liabilities carried at fair value measured on a
recurring basis as of December 31, 2008 and October 3, 2009 (in thousands):
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December 31, 2008 | ||||||||||||||||
Using | ||||||||||||||||
Using Significant | Significant | |||||||||||||||
Quoted Prices in | Other Observable | Unobservable | ||||||||||||||
Total Carrying | Active Markets | Inputs | Inputs | |||||||||||||
Value | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
Money markets |
$ | 65,599 | $ | 65,599 | $ | | $ | | ||||||||
Government obligation |
10,000 | | 10,000 | | ||||||||||||
Marketable securities |
66,621 | | 66,621 | |
October 3, 2009 | ||||||||||||||||
Using | ||||||||||||||||
Using Significant | Significant | |||||||||||||||
Quoted Prices in | Other Observable | Unobservable | ||||||||||||||
Total Carrying | Active Markets | Inputs | Inputs | |||||||||||||
Value | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
Money markets |
$ | 23,006 | $ | 23,006 | $ | | $ | | ||||||||
Term deposit |
13,056 | 13,056 | | |
Valuation Techniques
Money Market funds are measured at fair value using unadjusted quoted prices in active markets for
identical securities and are classified within Level 1 of the valuation hierarchy. Marketable
securities are measured using quoted prices for identical or similar assets in markets that are not
active, inputs other than quoted prices that are observable for the asset or liability (for example
interest rates and yield curves observable at commonly quoted intervals, volatilities, prepayment
speeds, loss severities, credit risks, and default rates) and inputs that are derived principally
from or corroborated by observable market data by correlation or other means and are classified
within Level 2 of the valuation hierarchy.
11. Stockholders Equity
The Company has two classes of capital stock: common and preferred. As of December 31, 2008, the
Company had 250,000,000 shares of common stock authorized and 27,227,668 shares of preferred stock
authorized, of which 26,227,668 shares were designated Series A convertible preferred stock. At
the Companys annual meeting of stockholders on June 18, 2008, the stockholders approved a
resolution increasing the number of authorized shares of common stock from 150,000,000 to
250,000,000, the amount reflected on the Companys balance sheet. In addition 1,500,000 shares
were authorized for future issuance under the Companys 2000 Stock Option and Incentive Plan. At
October 3, 2009, 12,150,000 shares of common stock were authorized for issuance under the Companys
Amended and Restated 2000 Stock Option and Incentive Plan. On November 5, 2009, the Company filed
a proxy statement to hold a special shareholders meeting to approve an amendment to the Companys
Third Amended and Restated Certificate of Incorporation to increase the authorized number of shares
of our common stock from 250,000,000 to 450,000,000.
On February 15, 2008, the Company closed a public offering of 18.4 million shares of its
common stock. The shares of common stock were sold at a per share price of $9.50 (before
underwriting discounts). The net proceeds to the Company from the public offering were
approximately $166.7 million.
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On May 28, 2009, the Company completed a public offering of 42.6 million shares of its common
stock. The shares of common stock were sold at a per share price of $1.80 (before underwriting
discounts). Proceeds to the Company from the public offering were approximately $72.4 million, net
of reimbursed legal fees and the underwriters discount of approximately $3.7 million.
Common Stock Lending Agreement
Concurrent with the offering and sale of the Senior Notes on June 26, 2008, the Company entered
into a common stock lending agreement (the Common Stock Lending Agreement) with an affiliate (the
Common Stock Borrower) of the lead underwriter, pursuant to which the Company loaned 30,856,538
shares of its common stock (the Borrowed Shares) to the Common Stock Borrower. The Common Stock
Borrower offered the 30,856,538 shares in a separate registered offering. The Common Stock Borrower
received all of the proceeds from the sale of the borrowed common stock. In consideration for the
issuance of the Borrowed Shares, the Common Stock Borrower paid the Company a nominal loan fee. The
Common Stock Borrower is required to deliver to the Company 30,856,538 shares of its common stock
upon the earliest of (i) July 15, 2013, (ii) the Companys election, at such time that the entire
principal amount of the Senior Notes cease to be outstanding, (iii) the mutual agreement of the
Company and the Common Stock Borrower, (iv) the Companys election, upon a default by the Common
Stock Borrower, and (v) the Common Stock Borrowers election, at any time. The obligations of the
Common Stock Borrower under the Common Stock Lending Agreement are guaranteed by the lead
underwriter.
These shares were considered issued and outstanding for corporate law purposes at the time they
were loaned; however, at the time of the loan they were not considered outstanding for the purpose
of computing and reporting earnings per share because these shares were to be returned to the
Company no later than July 15, 2013, the maturity date of the Senior Notes. On September 15, 2008,
the lead underwriter filed for protection under Chapter 11 of the federal Bankruptcy Code and the
Common Stock Borrower was placed into administration proceeding in the United Kingdom. As a result
of the bankruptcy filing and the administration proceeding, the Common Stock Lending Agreement
automatically terminated and the Common Stock Borrower was contractually required to return the
shares to the Company. The Company has since demanded the immediate return of all outstanding
borrowed shares, however, the shares have not yet been returned. While the Company believes it is
exercising all of its legal remedies, it has included these shares in its per share calculation on
a weighted average basis due to the uncertainty regarding the recovery of the borrowed shares.
12. Comprehensive Income (Loss)
Comprehensive income (loss) consists of unrealized gains and losses on available-for-sale
securities and cumulative foreign currency translation adjustments. The following table presents
the components of comprehensive income (loss) for the quarter and year-to-date periods ended
September 27, 2008 and October 3, 2009, respectively (in thousands):
Quarter Ended | Year-to-Date Period Ended | |||||||||||||||
September 27, | October 3, | September 27, | October 3, | |||||||||||||
2008 | 2009 | 2008 | 2009 | |||||||||||||
Net loss |
$ | (24,645 | ) | $ | (82,445 | ) | $ | (33,592 | ) | $ | (167,072 | ) | ||||
Other comprehensive income (loss): |
||||||||||||||||
Unrealized loss on marketable securities |
(205 | ) | (8 | ) | (208 | ) | (26 | ) | ||||||||
Cumulative translation adjustments |
(5,836 | ) | 2,822 | (1,573 | ) | 3,150 | ||||||||||
Total comprehensive loss |
$ | (30,686 | ) | $ | (79,631 | ) | $ | (35,373 | ) | $ | (163,948 | ) | ||||
13. Stock Based Compensation
The following table presents share-based compensation expense included in the Companys
consolidated statements of operations under the Stock Compensation topic of the FASB codification
for the quarter and year-to-date periods ended September 27, 2008 and October 3, 2009, respectively
(in thousands):
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Quarter Ended | Year-to-Date Period Ended | |||||||||||||||
September 27, | October 3, | September 27, | October 3, | |||||||||||||
2008 | 2009 | 2008 | 2009 | |||||||||||||
Cost of revenue |
$ | 306 | $ | 332 | $ | 782 | $ | 1,502 | ||||||||
Research and development expenses |
392 | 345 | 1,115 | 1,111 | ||||||||||||
Selling, general and administrative expenses |
945 | 762 | 2,677 | 2,477 | ||||||||||||
Facility start-up |
302 | 146 | 769 | 163 | ||||||||||||
$ | 1,945 | $ | 1,585 | $ | 5,343 | $ | 5,253 | |||||||||
Stock-based compensation costs capitalized as part of the construction costs of the Companys
Devens manufacturing facility were approximately $110,000 and $0 for the quarters ended September
27, 2008 and October 3, 2009, respectively and $309,000 and $112,000 for the year-to-date periods
ended September 27, 2008 and October 3, 2009, respectively.
Stock Incentive Plan
The Company is authorized to issue up to 12,150,000 shares of common stock pursuant to its Amended
and Restated 2000 Stock Option and Incentive Plan (the 2000 Plan), of which 1.3 million shares
are available for future issuance or future grant as of October 3, 2009. The purpose is to incent
employees and other individuals who render services to the Company by providing opportunities to
purchase stock in the Company. The 2000 Plan authorizes the issuance of incentive stock options,
nonqualified stock options, restricted stock awards, restricted stock units, stock appreciation
rights, performance units and performance shares. All awards granted will expire ten years from
their date of issuance. Incentive stock options and restricted stock awards generally have a
four-year vesting period from their date of issuance and nonqualified options generally vest
immediately upon their issuance.
Stock option activity under the 2000 Plan for the year-to-date period ended October 3, 2009 is
summarized as follows:
Weighted- | ||||||||
Average | ||||||||
Shares | Exercise Price | |||||||
(in thousands) | ||||||||
Outstanding at January 1, 2009 |
3,688 | $ | 4.65 | |||||
Granted |
871 | 2.24 | ||||||
Exercised |
(27 | ) | 1.81 | |||||
Forfeited |
(260 | ) | 3.59 | |||||
Outstanding at October 3, 2009 |
4,272 | $ | 4.24 | |||||
The following table summarizes information about stock options outstanding at October 3, 2009:
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Options Outstanding | Options Exercisable | |||||||||||||||||||||||
Weighted | ||||||||||||||||||||||||
Average | Weighted | Weighted | ||||||||||||||||||||||
Range of | Remaining | Average | Average | |||||||||||||||||||||
Exercise | Number | Contractual | Exercise | Number | Exercise | |||||||||||||||||||
Prices | Outstanding | Life (Years) | Price | Exercisable | Price | |||||||||||||||||||
(in thousands) | (in thousands) | |||||||||||||||||||||||
$ 1.32 |
$ | 1.60 | 27 | 3.76 | $ | 1.53 | 27 | $ | 1.53 | |||||||||||||||
1.61 |
1.61 | 1,638 | 4.19 | 1.61 | 1,638 | 1.61 | ||||||||||||||||||
1.68 |
2.17 | 322 | 3.85 | 2.01 | 322 | 2.01 | ||||||||||||||||||
2.24 |
2.24 | 706 | 9.66 | 2.24 | | | ||||||||||||||||||
2.29 |
4.70 | 461 | 4.60 | 3.23 | 461 | 3.23 | ||||||||||||||||||
5.00 |
7.30 | 459 | 5.22 | 7.00 | 459 | 7.00 | ||||||||||||||||||
7.59 |
13.97 | 283 | 5.86 | 9.91 | 271 | 9.90 | ||||||||||||||||||
14.00 |
14.00 | 35 | 1.08 | 14.00 | 35 | 14.00 | ||||||||||||||||||
15.09 |
15.09 | 325 | 6.39 | 15.09 | 251 | 15.09 | ||||||||||||||||||
19.00 |
19.00 | 16 | 1.08 | 19.00 | 16 | 19.00 | ||||||||||||||||||
4,272 | 5.46 | $ | 4.24 | 3,480 | $ | 4.39 | ||||||||||||||||||
The aggregate intrinsic value of outstanding options as of October 3, 2009 was $269,000, all
of which relates to options that were vested. The aggregate intrinsic value of outstanding options
as of December 31, 2008 was $3.2 million, which relates to options that were vested. The intrinsic
value of options exercised during the year-to-date period ended October 3, 2009 was approximately
$17,000. As of October 3, 2009, there was $1.4 million of total unrecognized compensation cost
related to unvested stock options granted under the Companys stock plans. That cost is expected to
be recognized over a weighted-average period of 0.9 years. Total cash received from the exercise of
stock options was $49,000 for the year-to-date period ended October 3, 2009.
The Company estimates the fair value of stock options using the Black-Scholes valuation model. Key
input assumptions used to estimate the fair value of stock options include the exercise price of
the award, the expected option term, the expected volatility of the Companys stock over the
options expected term, the risk-free interest rate over the stock options expected term, and the
Companys expected annual dividend yield. The Company believes that the valuation technique and the
approach utilized to develop the underlying assumptions are appropriate in calculating the fair
values of the Companys stock options granted for the quarter and year-to-date periods ended
October 3, 2009. Estimates of fair value are not intended to predict actual future events or the
value ultimately realized by persons who receive equity awards. The fair value of each stock option
grant is estimated on the date of grant using the Black-Scholes option valuation model with the
following weighted-average assumptions:
Year-to-date | ||||
Period Ended | ||||
October 3, 2009 | ||||
Expected options term (years) |
4.5 - 9.25 | |||
Risk-free interest rate |
1.31% - 2.08 | % | ||
Expected dividend yield |
None | |||
Volatility |
102% - 127 | % |
The Companys expected option term assumption was determined using historical activity for
estimating the expected option life. The expected stock volatility factor was determined using
historical daily price changes of the Companys common stock. The Company bases the risk-free
interest rate that is used in the stock option valuation model on U.S. Treasury securities issued
with maturities similar to the expected term of the options. The Company does not anticipate paying
any cash dividends in the foreseeable future and therefore uses an expected dividend yield of zero
in the option valuation model.
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No options were granted for the year-to-date period ended September 27, 2008. For the quarter and
year-to-date periods ended October 3, 2009 there were 0 and 871,000 options granted, respectively.
The Company values restricted stock units and restricted stock awards at the grant date fair value
of the underlying shares, adjusted for expected forfeitures. Restricted stock activity for the
year-to-date period ended October 3, 2009 is summarized as follows:
Weighted- | ||||||||
Average | ||||||||
Grant Date | ||||||||
Shares | Fair Value | |||||||
(in thousands) | ||||||||
Outstanding at January 1, 2009 |
3,132 | $ | 10.94 | |||||
Granted |
853 | 1.93 | ||||||
Vested |
(418 | ) | 1.77 | |||||
Forfeited |
(620 | ) | 8.40 | |||||
Outstanding at October 3, 2009 |
2,947 | $ | 10.17 | |||||
Included in outstanding restricted shares are 1.3 million shares of performance-based restricted
stock. The Company granted 800,000 shares of performance-based restricted stock to the Companys
executive officers in February 2007 and 100,000 shares to an executive officer in July 2007, of
which 200,000 shares have since been cancelled due to employee terminations, which immediately vest
upon the achievement of (a) $400 million in annual revenue, such revenue to include 100% of the
Companys revenue and the Companys pro rata share of any joint venture revenue, (b) 35% gross
margin and (c) 10% net income, as adjusted for the results of any joint venture, achieved in one
fiscal year prior to January 1, 2012. Also, in February 2006, the Company granted 800,000 shares
of performance based restricted stock to the Companys executive officers, of which 200,000 shares
have since been cancelled due employee terminations, which immediately vest upon the achievement of
(a) $300 million in annual revenue, such revenue to include 100% of the Companys revenue and the
Companys pro rata share of any joint venture revenue, (b) 35% gross margin and (c) 7% net income,
as adjusted for the results of any joint venture, achieved in one fiscal year prior to January 1,
2011. As of October 3, 2009 the Company has assumed that none of these performance-based awards
will vest and accordingly has not provided for compensation expense associated with the awards.
The Company periodically evaluates the likelihood of reaching the performance requirements and will
be required to recognize $15.1 million of compensation expense associated with these
performance-based awards if such awards should vest. These Restricted Share Awards expire five
years after issuance if they have not vested.
As of October 3, 2009, there was $8.2 million of unrecognized compensation expense related to
unvested restricted stock awards (excluding performance-based awards that the Company has assumed
will not vest) under the Companys stock plans which is expected to be recognized over a
weighted-average period of 1.8 years. The aggregate intrinsic value of outstanding restricted
stock awards, including performance based awards, as of October 3, 2009 was $5.2 million.
14. Write-off of Loan Receivable from Silicon Supplier
On December 7, 2007, the Company entered into a multi-year silicon supply agreement with Silpro.
This supply agreement provided the general terms and conditions pursuant to which Silpro would
supply the Company with specified annual quantities of silicon at fixed prices beginning in 2010
and continuing through 2019. In connection with the supply agreement, the Company agreed to loan
Silpro 30 million Euros at an interest rate of 3.0% compounded annually. The difference between
this rate and prevailing market rates at that time was recorded as an adjustment to the cost of
inventory. At December 31, 2008, this loan is presented on the balance sheet as loan
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receivable
from silicon supplier. In April 2009, as a result of its inability to obtain additional financing
to continue construction of its factory, Silpro announced that the French commercial court ordered
the filing for judicial settlement proceedings (redressement judiciaire), a process similar to
bankruptcy proceedings in the United States. As a result, the loan receivable from Silpro and the
related interest will not be repaid and the Company recognized a non-cash charge of $43.9 million
during the period ended April 4, 2009. In August 2009, the court ordered liquidation proceedings
(liquidation judiciaire) due to Silpros inability to secure a long-term financing solution.
15. Facility Start-up Costs
In preparing for the operations of its Devens, Midland, Michigan and Wuhan, China facilities, the
Company incurred start-up costs of approximately $9.0 million and $2.5 million for the quarters
ended September 27, 2008 and October 3, 2009, respectively. The Company incurred start-up costs of
approximately $20.9 million and $6.6 million for the year-to-date periods ended September 27, 2008
and October 3, 2009, respectively. Start-up costs include salaries and personnel related costs,
consulting costs, consumable material costs, and other miscellaneous costs associated with
preparing and qualifying the facilities for production.
16. Restructuring Charges
On December 31, 2008, the Company ceased production at its Marlboro pilot manufacturing facility as
part of its restructuring plan to lower overhead costs and to reduce overall cash requirements.
While ongoing R&D activities will continue to be performed at its research and development facility
in Marlboro, advanced manufacturing piloting activities will be performed at its Devens
manufacturing facility with little or no impact to overall production capacity. Virtually all of
the Marlboro pilot manufacturing facility employees were transferred to the Devens manufacturing
facility. For the quarter and year-to-date periods ended October 3, 2009 the Company recorded
costs of approximately $777,000 and $3.4 million primarily for severance to terminated employees,
rent and utilities, and professional fees associated with closure of the facility. For the quarter
and year-to-date periods ended September 27, 2008, the Company recorded $2.7 million and $7.3
million for equipment write-offs of its early generation wafer manufacturing machines that would
not be used at its Devens facility. The Company expects it will continue to incur occupancy and
moving costs through the expiration of the lease in mid-2010 and may incur location restoration
costs.
17. Income Taxes
On January 1, 2007 the Company adopted the provisions related to uncertain tax positions under the
Income Taxes topic of the FASB codification. As a result of the implementation of this guidance,
there was no adjustment to accumulated deficit or the liability for uncertain tax positions. The
Company has approximately $1.7 million of reserves related to uncertain tax positions on research
and development tax credits as of October 3, 2009. The Company is in the process of completing a
study of its research and development tax credits which could result in additional charges for
these credits. Since a full valuation allowance has been provided against these carryforwards, any
adjustment to the carry forwards upon completion of the study would be offset by a corresponding
reduction to the valuation of the allowance.
Interest and penalty charges, if any, related to unrecognized tax benefits would be classified as
income tax expense in the accompanying statement of operations. As of December 31, 2008 and October
3, 2009, the Company had no accrued interest or penalties related to uncertain tax positions. In
many cases, the Companys uncertain tax positions are related to years that remain subject to
examination by relevant tax authorities. Since the Company is in a loss carryforward position, the
Company is generally subject to examination by the U.S. federal, state and local income tax
authorities for all tax years in which a loss carryforward is available.
During the quarter ended October 3, 2009 the Company recorded a $7.8 million income tax benefit in
its statement of operations as a result of the impairment charge recorded against the book basis of
its investment in Sovello (see Note 6). This income tax benefit arose from the partial reversal of
a previously recorded deferred income tax liability. As of October 3, 2009 the Company has
recorded a deferred income tax liability of approximately $0.3 million as a result of the gains
recognized from the additional investments made in Sovello by the Companys strategic partners in
2006 and 2007, in addition to cumulative translation adjustments.
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18. Net Loss per Common Share
The Company computes net loss per common share in accordance with the Earning Per Share topic of
the FASB codification. Under the guidance, basic net loss per common share is computed by
dividing net loss by the weighted average number of common shares outstanding during the period.
The calculation of diluted net loss per common share for the quarter and year-to-date periods ended
September 27, 2008 and October 3, 2009 does not include approximately 38.3 million and 38.1 million
potential shares of common stock equivalents outstanding at September 27, 2008 and October 3, 2009,
respectively, as their inclusion would be anti-dilutive. Common stock equivalents include
outstanding common stock options, unvested restricted stock awards, common stock warrants and
convertible debt.
In connection with the sale of Senior Notes on June 26, 2008, the Company entered into a common
stock lending agreement with an affiliate of the lead underwriter pursuant to which the Company
loaned 30,856,538 shares of its common stock to the affiliate (see Note 11). These shares were
considered issued and outstanding for corporate law purposes at the time they were loaned; however,
at the time of the loan they were not considered outstanding for the purpose of computing and
reporting earnings per share because these shares were to be returned to the Company no later than
July 15, 2013, the maturity date of the Senior Notes. On September 15, 2008 and October 3, 2008,
respectively, the lead underwriter and its affiliate filed for protection under Chapter 11 of the
federal Bankruptcy Code. As a result of the bankruptcy filing, the lead underwriters affiliate was
contractually required to return the shares to the Company. The Company has since demanded the
immediate return of all outstanding borrowed shares, however, the shares have not yet been
returned. While the Company believes it is exercising all of its legal remedies, it has included
these shares in its basic and diluted per share calculation on a weighted average basis due to the
uncertainty regarding the recovery of the borrowed shares.
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19. Geographical and Customer Concentration Information
Product revenues are attributed to regions based on the location of customers. The following table
summarizes the Companys geographical and customer concentration of total product revenue:
Quarter Ended | ||||||||
September 27, | October 3, | |||||||
2008 | 2009 | |||||||
By geography: |
||||||||
United States |
57 | % | 24 | % | ||||
Germany |
27 | % | 64 | % | ||||
Korea |
10 | % | 2 | % | ||||
All other |
6 | % | 10 | % | ||||
100 | % | 100 | % | |||||
By customer: |
||||||||
Wagner & Co. Solartechnik GmbH |
2 | % | 27 | % | ||||
IBC Solar AG |
2 | % | 20 | % | ||||
Donauer Solartechnik Vertriebs GmbH |
| 10 | % | |||||
SunPower Corporation (formerly PowerLight) |
23 | % | | |||||
Solar City |
16 | % | 7 | % | ||||
Woojin Electric Machinery Co. Ltd. |
10 | % | | |||||
All other |
47 | % | 36 | % | ||||
100 | % | 100 | % | |||||
Year-to-Date Period Ended | ||||||||
September 27, | October 3, | |||||||
2008 | 2009 | |||||||
By geography: |
||||||||
United States |
53 | % | 23 | % | ||||
Germany |
26 | % | 54 | % | ||||
Spain |
12 | % | | |||||
All other |
9 | % | 23 | % | ||||
100 | % | 100 | % | |||||
By customer: |
||||||||
IBC Solar AG |
1 | % | 19 | % | ||||
Wagner & Co. Solartechnik GmbH |
1 | % | 17 | % | ||||
SunPower Corporation (formerly PowerLight) |
43 | % | | |||||
Ralos Vertriebs GmbH |
17 | % | 11 | % | ||||
S.A.G. Solarstrom Vertriebs GmbH |
10 | % | | |||||
All other |
28 | % | 53 | % | ||||
100 | % | 100 | % | |||||
The Company has historically relied on a small number of customers for a substantial portion
of its business and generally does not require collateral or other security against accounts
receivable. This customer concentration increases our exposure to credit risk since the financial
insolvency of any of these customers could have a significant impact on our liquidity and results
of operations. The following table summarizes the Companys concentration of accounts receivable
as of December 31, 2008 and October 3, 2009, respectively:
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December 31, | October 3, | |||||||
2008 | 2009 | |||||||
% of accounts receivable | ||||||||
IBC Solar AG |
6 | % | 24 | % | ||||
Ralos Vertriebs GmbH |
13 | % | 22 | % | ||||
Sun & Kim Co., Ltd. |
| 12 | % | |||||
Solar City |
14 | % | 5 | % | ||||
SunPower Corporation
(formerly PowerLight) |
20 | % | | |||||
Top 5 Customers |
64 | % | 74 | % |
20. Related Party Transactions
In the normal course of business, the Company purchases silicon from REC and OCI Company Ltd.,
formerly DC Chemical Co., Ltd. (OCI) under existing supply agreements. For the quarters ended
September 27, 2008 and October 3, 2009, the Company purchased silicon from REC for approximately
$471,000 and $864,000, respectively. For the year-to-date periods ended September 27, 2008 and
October 3, 2009, the Company purchased silicon from REC for approximately $2.0 million and $2.7
million, respectively. For the quarters ended September 27, 2008 and October 3, 2009, the Company
purchased silicon from OCI for approximately $2.5 million and $8.3 million, respectively. For the
year-to-date periods ended September 27, 2008 and October 3, 2009, the Company purchased silicon
from OCI for approximately $3.9 million and $21.9 million, respectively. As of October 3, 2009,
the Company had approximately $288,000 outstanding to REC and $1.9 million outstanding to OCI.
The Company earns fees from Sovello for its marketing and sale of Sovello panels, as well as
management of customer relationships and contracts, and royalty payments for its technology license
to Sovello, which combined totaled approximately $4.3 million and $2.2 million for the quarters
ended September 27, 2008 and October 3, 2009, respectively, and $13.6 million and $4.7 million for
the year-to-date periods ended September 27, 2008 and October 3, 2009, respectively. The Company
also receives payments from Sovello as a reimbursement of certain research and development and
other support costs it incurs that benefit Sovello. For the quarters ended September 27, 2008 and
October 3, 2009, the Company earned $31,000 and $(7,000), respectively, from Sovello for
reimbursement of certain research and development costs and other support costs. For the
year-to-date periods ended September 27, 2008 and October 3, 2009, the Company earned $370,000 and
$6,000, respectively, from Sovello for reimbursement of certain research and development costs and
other support costs. In addition, during the normal course of operations, the Company may buy or
sell materials from/to Sovello. For the quarters ended September 27, 2008 and October 3, 2009, the
Company purchased $61,000 and $100,000 in materials from Sovello, respectively, and sold $54,000
and $0 in materials to Sovello, respectively. For the year-to-date periods ended September 27,
2008 and October 3, 2009, the Company purchased $168,000 and $132,000 in materials from Sovello,
respectively, and sold $425,000 and $38,000 in materials to Sovello, respectively. At October 3,
2009 amounts due from Sovello of $3.3 million and amounts due to Sovello of $1.6 million are
included in the accompanying condensed consolidated balance sheets.
21. Recent Accounting Pronouncements
In June 2008, an update was made to the Earning Per Share topic of the FASB codification that
clarified that all outstanding unvested share-based payment awards that contain rights to
nonforfeitable dividends participate in undistributed earnings with common shareholders. Awards of
this nature are considered participating securities and the two-class method of computing basic and
diluted earnings per share must be applied. The new guidance is effective for fiscal years
beginning after December 15, 2008. The Company adopted guidance and due to current and prior period
losses there is no impact as such losses are not attributable or allocated to such securities.
In April 2009, an update was made to the Financial Instruments topic of the FASB codification Fair
Value Measurements and Disclosures that requires disclosures about the fair value of financial
instruments in interim financial statements as well as in annual financial statements. The new
guidance also amends the existing requirements on the fair value disclosures in all interim financial statements. This guidance is
effective for interim
26
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periods ending after June 15, 2009, but early adoption was permitted for
interim periods ending after March 15, 2009. The adoption of this standard did not have a material
impact on the Companys consolidated financial position and results of operations.
In April 2009, an update was made to the Fair Value Measurements and Disclosures topic of the FASB
codification that provides additional guidance in determining fair value when there is no active
market or where price inputs being used represent distressed sales. This guidance is effective for
interim periods ending after June 15, 2009, but early adoption was permitted for interim periods
ending after March 15, 2009. The adoption of this standard did not have an impact on the Companys
consolidated financial position and results of operations.
In April 2009, an update was made to the Debt and Equity topic of the FASB codification that
provides guidance in determining whether impairments of debt securities are other than temporary,
and modifies the presentation and disclosures surrounding such instruments. This guidance is
effective for interim periods ending after June 15, 2009, but early adoption was permitted for
interim periods ending after March 15, 2009. The adoption of this standard did not have an impact
on the Companys consolidated financial position and results of operations.
In May 2009, an update was made to the Subsequent Events topic of the FASB codification that
establishes general standards for accounting for and disclosure of events that occur after the
balance sheet date but before financial statements are available to be issued (subsequent
events). More specifically, the guidance sets forth the period after the balance sheet date during
which management of a reporting entity should evaluate events or transactions that may occur for
potential recognition in the financial statements, identifies the circumstances under which an
entity should recognize events or transactions occurring after the balance sheet date in its
financial statements and the disclosures that should be made about events or transactions that
occur after the balance sheet date. The guidance provides largely the same guidance on subsequent
events which previously existed only in auditing literature. The adoption of this standard did not
have a material impact on the Companys consolidated financial position and results of operations.
In June 2009, the FASB issued SFAS No. 168, The FASB Accounting Standards Codification and the
Hierarchy of Generally Accepted Accounting Principles, a replacement of FASB Statement No. 162
(SFAS 168). SFAS 168 establishes the FASB Standards Accounting Codification (Codification) as
the source of authoritative U.S. generally accepted accounting principles (GAAP) recognized by
the FASB to be applied to nongovernmental entities and rules and interpretive releases of the SEC
as authoritative GAAP for SEC registrants. The Codification supersedes all the existing non-SEC
accounting and reporting standards upon its effective date and subsequently, the FASB will not
issue new standards in the form of Statements, FASB Staff Positions or Emerging Issues Task Force
Abstracts. SFAS 168 also replaces FASB Statement No. 162, The Hierarchy of Generally Accepted
Accounting Principles given that once in effect, the Codification will carry the same level of
authority. SFAS 168 is effective for financial statements issued for interim and annual periods
ending after September 15, 2009 and is effective for the Companys third quarter filing. The
adoption of this standard did not have a material impact on the Companys condensed consolidated
financial statements.
In October 2009, an update was made to the Revenue Recognition topic of the FASB codification that
removes the objective-and-reliable-evidence-of fair-value criterion from the separation criteria
used to determine whether an arrangement involving multiple deliverable contains more than one unit
of accounting, replaces references to fair value with selling price to distinguish from the
fair value measurements required under the Fair Value Measurements and Disclosures topic of the
FASB codification, provides a hierarchy that entities must use to estimate the selling price,
eliminates the use of the residual method for allocation, and expands the ongoing disclosure
requirements. This update is effective for fiscal years beginning on or after June 15, 2010 (early
adoption is permitted). The Company does not expect the adoption of the guidance to have an impact
on the Companys consolidated financial position and results of operations.
In October 2009, an update was made to the Debt topic of the FASB codification that amends the
topic to expand accounting and reporting guidance for own-share lending arrangements issued in
contemplation of convertible debt issuance. This update is effective for fiscal years beginning on
or after December 15, 2009 and interim periods within those fiscal years for arrangements
outstanding as of the beginning of those fiscal years. The Company is currently evaluating the
potential impact, if any, of this guidance on its consolidated financial statements.
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22. Subsequent Events
In connection with the preparation of its condensed consolidated financial statements and in
accordance with guidance recently issued under the Subsequent Event topic of the FASB codification,
the Company evaluated subsequent events to November 10, 2009, the date the condensed consolidated
financial statements were filed with the Securities and Exchange Commission.
On October 30, 2009, the Board of Directors of the Company committed it to a plan to transition its
panel assembly from its manufacturing facility in Devens, Massachusetts to China. This transition
is expected to begin in mid-2010 and be completed by the end of 2010. While specific details of
the transition plan will be determined over the next six months, the Company estimates it will
incur non-cash charges of approximately $40 million associated with the write-off of panel assembly
equipment, which is expected to be amortized ratably over the next twelve months beginning with the
fourth quarter of 2009. The Company expects that cash charges, including potential severance
payments, will be immaterial. The actual exit or disposal costs incurred will not be known until
the Company has finalized the details of its plan. Production of silicon wafers and cells will
continue to be performed at its Devens, Massachusetts manufacturing facility.
Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations |
The following discussion should be read in conjunction with the condensed consolidated financial
statements and the related notes that appear elsewhere in this Quarterly Report on Form 10-Q and
the consolidated financial statements and related notes thereto and Managements Discussion and
Analysis of Financial Condition and Results of Operations in our most recent Annual Report on Form
10-K, as amended.
Executive Overview
We develop, manufacture and market String RibbonTM solar panels utilizing our
proprietary wafer manufacturing technology. Our technology involves a unique process of growing
thin strips of multi-crystalline silicon that are then cut into wafers using lasers. This unique
process substantially reduces the amount of silicon and other processing costs required to produce
a wafer when compared to sawing processes commonly used by conventional wafer manufacturers.
Silicon is the key raw material in manufacturing multi-crystalline silicon wafers. With current
silicon consumption of just over 4 grams per watt, we believe we are the industry leader in
efficient silicon consumption and use approximately half of the silicon used by wafer manufacturers
utilizing conventional sawing processes. The wafers we produce are the primary components of
photovoltaic (PV) cells which, in turn, are used to produce solar panels. We believe that our
proprietary and patented wafer technologies offer significant cost advantages over competing
silicon-based PV technologies. Our revenues today are primarily derived from the sale of solar
panels. We sell our products using distributors, systems integrators and other value-added
resellers, who often add value through system design by incorporating our panels with electronics,
structures and wiring systems. Applications for our products primarily include on-grid generation,
in which supplemental electricity is provided to an electric utility grid. Our products are
currently sold to customers primarily in Europe and the United States. We currently have six
active multi-year solar panel supply agreements which we entered into in 2008, a portion of which
are denominated in Euros. As of October 3, 2009, we had approximately 851 MW of backlog remaining
under these contracts with deliveries scheduled through 2013.
Large-scale commercial application of our technology, using furnaces that grow two thin strips of
multi-crystalline silicon, began in 2005 with the opening of Sovello AG (formally EverQ GmbH), a
joint venture between us, Renewable Energy Corporation ASA (REC) and Q-Cells SE (Q-Cells). Since
its opening, Sovello has produced and shipped over 190 megawatts, or MW, of solar panels utilizing
our string ribbon technology and has a current annual production capacity of approximately 90 MW.
Through intensive research and design efforts, we have significantly enhanced our wafer
manufacturing technology and our ability to manufacture multi-crystalline silicon wafers. Our
manufacturing facility located in Devens, Massachusetts, which opened in mid-2008, uses our Quad
wafer furnace equipment, which grows four thin strips of
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multi-crystalline silicon from one furnace and incorporates a state of the art automated wafer
cutting technology that further improves our wafer manufacturing process.
Our wafer cost at Devens for the third quarter 2009 was about $0.75 per watt which we believe is
among the lowest in the industry, even at relatively small volumes currently produced at our Devens
facility and silicon cost at about $95 per kilogram, proving our competitive advantage in wafer
manufacturing. Our Devens facility has continuously met its key operation goals of rapid sequential
production increases and significantly reduced manufacturing costs since opening in mid-2008.
However, solar panel prices have fallen over 30% since mid-2008 making it very difficult for
manufacturers located in high-cost regions to remain price competitive. Therefore we are
accelerating our strategic initiative of focusing on our unique wafer manufacturing technology and
will transition our Devens-based panel assembly to China beginning in mid-2010. We expect that by
moving panel assembly to China we will be able to substantially reduce manufacturing costs almost
immediately. Until we begin this transition we expect to produce approximately 30 MW to 35 MW each
quarter at our Devens facility. After the transition is complete we will continue to produce wafers
and cells at Devens and may increase capacity if market demand warrants. We do not expect there
will be any significant near-term impact to our sales volume from Devens during this transition. If
long-term demand for panels manufactured in the US significantly increases, we will be well
positioned to quickly reintroduce panel assembly once again at Devens. While specific details of
the transition plan will be determined over the next six months, we estimate we will incur non-cash
charges of approximately $40 million associated with the write-off of panel assembly equipment,
which is expected to be amortized ratably over the next twelve months beginning with the fourth
quarter of 2009.
As part of our strategy of long-term growth and focusing on our core wafer manufacturing
technology, on July 30, 2009, we announced that we had finalized our agreements with Jiawei
Solarchina Co., Ltd., and Hubei Science & Technology Investment Co., Ltd., an investment fund
sponsored by the government of Hubei, China (HSTIC) to expand our manufacturing operations into
China. Under these agreements:
| We will manufacture String Ribbon wafers using our state-of-the-art Quad furnaces at a leased facility being built by Jiawei in Wuhan, China on Jiaweis campus. | ||
| Jiawei will convert the String Ribbon wafers into Evergreen Solar-branded panels on a contract manufacturing basis. | ||
| We will reimburse Jiawei for its cell and panel conversion costs, plus a contract manufacturing fee. The actual price paid to Jiawei will be negotiated annually. | ||
| Evergreen Solar will invest $17 million in cash and equipment in the Wuhan String Ribbon operation. HSTIC has provided us $33 million of 7.5% financing, which we must repay no later than July 2014. Jiawei will make a similar investment for its cell and panel operations with the support of HSTIC. | ||
| Initial capacity will be approximately 100 MW. Factory construction has begun and the parties expect that wafer, cell and panel production will begin in the spring of 2010. | ||
| The parties intend to expand production capacity of their respective manufacturing operations to approximately 500 MW by 2012, the timing and extent of any potential expansion will be determined in 2010. |
Total cost estimated for the initial 100 MW wafer manufacturing facility is expected to be
approximately $55 to $60 million, the majority of which is for quad wafer furnaces. When our China
facility reaches full capacity of 25 MW per quarter we expect production costs for completed panels
will be in the $1.35 to $1.45 per watt range at a silicon price of about $75 per kilogram. We
believe that as additional efficiencies are realized and the price of silicon approaches $50 per
kilogram we can reduce panel cost to about $1.00 per watt.
At October 3, 2009, we had approximately $91.0 million of cash and cash equivalents, which includes
approximately $13.6 million received from HSTIC as part of its funding obligation for our Wuhan,
China factory expansion. Early in the fourth quarter of 2009, we received the remaining $19.4
million due from HSTIC and
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expect to receive a loan of approximately $5 million from the Commonwealth of Massachusetts later
in the quarter. Through mid-2010, the completions of our Devens and Midland factories, the
build-out of our wafer manufacturing facility in Wuhan, China, sustaining capital and debt service
will require about $69 million.
We have sales contracts for approximately 20 MW of product to be manufactured at our Devens
facility for delivery during the balance of 2009. Our sales plan assumes there should be sufficient
market demand to sell the remaining expected Devens manufacturing capacity at continually declining
selling prices. We expect to continue to moderate our production levels depending on changes in
market demands during the balance of the year.
We believe that our business plan will provide sufficient liquidity to fund our planned capital
programs, our share of any potential funding requirements related to our investment in Sovello and
our operating needs for the next 12 months. While our business plan anticipates certain levels of
potential risk, particularly in light of the difficult and uncertain current economic environment
and the continuing reduction of industry panel pricing caused by emerging competition, especially
from China, and the resulting excess capacity, we are exposed to additional particular risks and
uncertainties including, but not limited to:
| the need to maintain the Devens facility at a minimum of 75% capacity, or 30 MW per quarter, and stabilization of panel pricing at about $2.00 to $2.25 per watt, with sales made to creditworthy customers; | ||
| higher than planned manufacturing costs and failing to achieve expected Devens operating metrics, with any delays in our plan to transition panel assembly to China resulting in continued higher costs that could impair business operations; | ||
| continued significant fluctuation of the Euro against the U.S. dollar, as a substantial portion of the contracted sales are denominated in Euros; | ||
| the ability of Jiawei to execute against its plans to meet our required timetables; and | ||
| increased funding requirements for Sovello to complete its third manufacturing facility and achieve its planned manufacturing cost and operating metrics, to provide Sovello with additional liquidity, if needed, or to potentially address the loss of any prior or expected government grant funding for Sovello (see Note 6 of our condensed consolidated financial statements). |
Although our current business plan indicates we have adequate liquidity to operate under expected
operating conditions, the risks noted above could result in liquidity uncertainty. Our plan with
regard to this uncertainty includes, among other actions:
| continually monitoring our operating results against expectations and, if required, further restricting operating costs and capital spending if events warrant; | ||
| if market conditions allow, possibly accessing the capital markets to meet liquidity and capital expenditure requirements; and | ||
| negotiating with a number of banks to secure a borrowing base line of credit, without a minimum cash requirement as is required with our current line of credit, supported by the expected significant increase in our accounts receivable, inventory and overall working capital and possibly hedging our exposure to fluctuations in the U.S. dollar / Euro exchange rate to limit any adverse exposure; but there can be no assurance that hedges can be put in place at terms acceptable to us or that such hedging activities will be effective. |
If additional capital is needed and does not become available on acceptable terms, our ability to
fund operations, further develop and expand our manufacturing operations and distribution network
or otherwise respond to competitive pressures would be significantly limited.
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Critical Accounting Policies and Estimates
The preparation of consolidated financial statements in accordance with generally accepted
accounting principals requires us to make estimates and judgments that affect the reported amounts
of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and
liabilities, if applicable. We base our estimates on historical experience and on various other
assumptions that are believed to be reasonable under the circumstances, the results of which form
the basis for making judgments about the carrying values of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from these estimates under different
assumptions or conditions. We believe the following critical accounting policies affect our more
significant judgments and estimates used in the preparation of our consolidated financial
statements.
Accounting for Sovello AG
We own a one-third interest in Sovello AG (Sovello) and therefore apply the equity method of
accounting for our share of Sovellos operating results in accordance with the Investments topic of
the FASB codification. Under the equity method of accounting, we report our one-third share of
Sovellos net income or loss as a single line item in our statement of operations which also
includes the impairment of our investment (see Note 6 of our condensed consolidated financial
statements for further information). Our investment in and advances to Sovello is reported as a
single line item in our balance sheet. We regularly monitor the performance of Sovello and,
utilizing several factors, assess the need to record an impairment of the carrying value of our
aggregate investment when the impairment is determined to be other than temporary in nature. The
process of assessing whether our investments net realizable value is less than its carrying cost
requires a significant amount of judgment. In making this judgment, we carefully consider
Sovellos cash position, projected cash flows, financing needs, comparable market data, the current
investing environment, management changes and competition. Based on our evaluation, we recorded an
impairment charge of approximately $69.7 million related to our aggregate investment in Sovello for
the quarter and year-to-date period ended October 3, 2009 as a result of continued deterioration in
Sovellos operations during the third quarter of 2009, their continued difficulties in
renegotiating their bank financing, and on-going deterioration in world-wide pricing for their
products. This charge is reflected in Equity income (loss) from interest in Sovello AG and
impairment of investment in the accompanying condensed consolidated statements of operations. In
making this assessment, we considered a range of scenarios including Sovellos ability to continue
as a going concern, future projections of volumes and selling prices, and enterprise value
multiples of comparable entities. If Sovello is not able to restructure the terms of its loan
agreements or its operations continue to deteriorate, the carrying value of the Companys aggregate
investment could be further impaired in the future.
Until December 31, 2008, we marketed and sold all solar panels manufactured by Sovello under the
Evergreen Solar brand, and managed customer relationships and contracts related to the sale of
Sovello manufactured product. We receive selling fees from Sovello and do not report gross revenue
or cost of goods sold resulting from the sale of Sovellos solar panels. In addition, we receive
royalty payments for our ongoing technology license to Sovello. Combined, the sales and marketing
fee and royalties earned totaled approximately $4.3 million and $13.6 million for the quarter and
year-to-date periods ended September 27, 2008, respectively. For 2009, we, Q-Cells and REC, our
one-third partners in the Sovello joint venture, agreed to have Sovello begin marketing and selling
its products under its own brand. Sovello will continue to manufacture some Evergreen Solar-branded
product in 2009 and 2010 but, with its independent sales and marketing team now in place, our
involvement in marketing and selling Sovello product will decrease. In light of the sales
transition, our selling fee for Sovello product sold under the Evergreen Solar brand has been
reduced to 0.5% for 2009 from 1.6% in 2008 and will eventually be eliminated once the transition is
complete. For the quarter and year-to-date periods ended October 3, 2009, the sales and marketing
fee and royalties earned totaled approximately $2.2 million and $4.7 million, respectively.
For the quarters ended September 27, 2008 and October 3, 2009, we recorded approximately
$31,000 and $(7,000), respectively, for reimbursement of research and development costs, and other
support costs from Sovello. For the year-to-date periods ended September 27, 2008 and
October 3, 2009, we recorded approximately $370,000 and $6,000, respectively, for reimbursement of
research and development costs, and other support costs from Sovello.
Revenue Recognition and Allowance for Doubtful Accounts
We recognize product revenue if there is persuasive evidence of an agreement with the customer,
shipment has occurred, risk of loss has transferred to the customer, the sales price is fixed or
determinable, and collectability is reasonably assured. The market for solar power products is
emerging and rapidly evolving. We currently sell our
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solar power products primarily to distributors, system integrators and other value-added resellers
within and outside of North America, who typically resell our products to end users throughout the
world. For new customers requesting credit, we evaluate creditworthiness based on credit
applications, feedback from provided references, and credit reports from independent agencies. For
existing customers, we evaluate creditworthiness based on payment history and any known changes in
their financial condition. Royalty and fee revenue are recognized at contractual rates upon
shipment of product by Sovello. Product revenues represented 81% and 97% of total revenues for the
quarters ended September 27, 2008 and October 3, 2009, respectively, and approximately 80% and 98%
of total revenues for the year-to-date periods ended September 27, 2008 and October 3, 2009,
respectively. International product sales accounted for approximately 43% and 76% of total product
revenues for the quarters ended September 27, 2008 and October 3, 2009, respectively, and
approximately 47% and 77% of total product revenues for the year-to-date periods ended September
27, 2008 and October 3, 2009, respectively.
We also evaluate the facts and circumstances related to sales transactions and consider whether
risk of loss has passed to the customer upon shipment. We consider whether our customer is
purchasing our product for stock, and whether contractual or implied rights to return the product
exist. We have not offered rights to return our products other than for normal warranty
conditions.
We maintain allowances for doubtful accounts for estimated losses resulting from the inability of
our customers to make required payments. If the financial condition of our customers were to
deteriorate, such that their ability to make payments was impaired, additional allowances could be
required.
Warranty
Our current standard product warranty includes a five-year warranty period for defects in material
and workmanship and a 25-year warranty period for declines in power performance. When we recognize
revenue, we accrue a liability for the estimated future costs of meeting our warranty obligations.
We make and revise this estimate based on the number of solar panels shipped and our historical
experience with warranty claims. During 2008, we re-evaluated potential warranty exposure as a
result of the substantial increase in production volumes at our Devens, Massachusetts manufacturing
facility.
We engage in product quality programs and processes, including monitoring and evaluating the
quality of component suppliers, in an effort to ensure the quality of our product and reduce our
warranty exposure. Our warranty obligation will be affected not only by our product failure rates,
but also the costs to repair or replace failed products and potential service and delivery costs
incurred in correcting a product failure. If our actual product failure rates, repair or
replacement costs, or service or delivery costs differ from these estimates, accrued warranty costs
would be adjusted in the period that such events or costs become known.
Stock-based Compensation
We measure compensation cost arising from the grant of share-based payments to employees at fair
value and recognize such cost in our operating results over the period during which the employee is
required to provide service in exchange for the award, usually the vesting period, in accordance
with the provisions of the Stock Compensation topic of the FASB codification. We selected the
modified prospective method for implementing the guidance and began applying the provisions to
stock-based awards granted on or after January 1, 2006, plus any unvested awards granted prior to
January 1, 2006. Total equity compensation expense recognized during the quarter and year-to-date
periods ended September 27, 2008 and October 3, 2009 was approximately $1.9 million, $1.6 million,
$5.3 million and $5.3 million, respectively. For option grant stock-based compensation cost we
estimate the fair value of stock options using the Black-Scholes valuation model. Key input
assumptions used to estimate the fair value of stock options include the exercise price of the
award, the expected option term, the expected volatility of our stock over the options expected
term, the risk-free interest rate over the stock options expected term, and our expected annual
dividend yield. For grants of restricted stock and restricted stock units, stock-based compensation
cost is measured at the grant date based on the fair value of the award and is recognized as
expense on a straight-line basis over the awards service periods, which are the vesting periods,
less estimated forfeitures. Estimated compensation for grants that were outstanding as of January
1, 2006 will be recognized over the remaining service period using the compensation cost estimated
for the guidance pro forma disclosures for prior periods.
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During 2007 and 2006, we granted 900,000 shares and 800,000 shares, respectively, of
performance-based restricted stock, all of which immediately vest upon the achievement of specific
financial performance targets prior to 2012 and 2011, respectively. Of the 1.7 million shares
initially granted, 400,000 shares have since been cancelled due to employee terminations. We have
assumed that none of these performance-based awards will vest and accordingly have not provided for
compensation expense associated with the awards. We periodically evaluate the likelihood of
reaching the performance requirements and will be required to recognize compensation expense of
approximately $15.1 million associated with these performance-based awards if such awards should
vest.
See Note 13 of our condensed consolidated financial statements for further information regarding
our stock-based compensation assumptions and expenses.
Inventory
Inventory is valued at the lower of cost or market determined on a first-in, first-out basis.
Certain factors may impact the net realizable value of our inventory including, but not limited to,
technological changes, market demand, changes in product mix strategy, new product introductions
and significant changes to our cost structure. Estimates of reserves are made for obsolescence
based on the current product mix on hand and its expected net realizable value. If actual market
conditions are less favorable or other factors arise that are significantly different than those
anticipated by management, additional inventory write-downs or increases in obsolescence reserves
may be required. We consider lower of cost or market adjustments and inventory reserves as an
adjustment to the cost basis of the underlying inventory. Accordingly, favorable changes in market
conditions are not recorded to inventory in subsequent periods. In addition, we have made
non-refundable prepayments under several of our multi-year polysilicon supply agreements which are
presented on the balance sheet in Prepaid Cost of Inventory. These prepayments will be amortized as
an additional cost of inventory as we receive and utilize the silicon. The prepayments are
classified as short-term based upon the value of silicon contracted to be delivered during the next
twelve months. We carry these prepayments on our balance sheet at cost and periodically evaluate
the status of the vendors underlying project intended to fulfill the silicon contract.
Impairment of Long-lived Assets
Our policy regarding long-lived assets is to evaluate the recoverability or usefulness of these
assets when the facts and circumstances suggest that these assets may be impaired. This analysis
relies on a number of factors, including changes in strategic direction, business plans, regulatory
developments, economic and budget projections, technological improvements, and operating results.
The test of recoverability or usefulness is a comparison of the asset value to the undiscounted
cash flow of its expected cumulative net operating cash flow over the assets remaining useful
life. If such a test indicates that impairment exists, then the asset is written down to its
estimated fair value. Any write-downs would be treated as permanent reductions in the carrying
amounts of the assets and an operating loss would be recognized. To date, we have had recurring
operating losses and the recoverability of our long-lived assets is contingent upon executing our
business plan that includes further reducing our manufacturing costs and significantly increasing
sales. If we are unable to execute our business plan, we may be required to write down the value of
our long-lived assets in future periods.
Income Taxes
We are required to estimate our income taxes in each of the jurisdictions in which we operate as
part of our consolidated financial statements. This involves estimating the actual current tax in
addition to assessing temporary differences resulting from differing treatments for tax and
financial accounting purposes. These differences together with net operating loss carryforwards and
tax credits may be recorded as deferred tax assets or liabilities on the balance sheet. A judgment
must then be made of the likelihood that any deferred tax assets will be recovered from future
taxable income. To the extent that we determine that it is more likely than not that deferred tax
assets will not be utilized, a valuation allowance is established. Taxable income in future periods
significantly different from that projected may cause adjustments to the valuation allowance that
could materially increase or decrease future income tax expense.
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Results of Operations
Description of Our Revenues, Costs and Expenses
Revenues. Our total revenues consist of revenues from the sale of products, royalty revenue
associated with our ongoing technology agreement with Sovello, and fees from Sovello for our
marketing and selling activities associated with sales of product manufactured by Sovello under the
Evergreen Solar brand. Product revenues consist of revenues primarily from the sale of solar cells,
panels and systems.
Cost of revenues. Cost of product revenues consists primarily of material expenses, salaries and
related personnel costs, including stock based compensation, depreciation expense, maintenance,
rent and other support expenses associated with the manufacture of our solar power products.
Research and development expenses. Research and development expenses consist primarily of salaries
and related personnel costs, including stock based compensation costs, consulting expenses and
prototype costs related to the design, engineering, development, testing and enhancement of our
products, manufacturing equipment and manufacturing technology. We expense our research and
development costs as incurred. We also may receive payments from Sovello and other third parties as
reimbursement of certain research and development costs we incur. We believe that research and
development is critical to our strategic objectives of enhancing our technology, reducing
manufacturing costs and meeting the changing requirements of our customers.
Selling, general and administrative expenses. Selling, general and administrative expenses consist
primarily of salaries and related personnel costs, including stock based compensation costs,
employee recruiting costs, accounting and legal fees, rent, insurance and other selling and
administrative expenses. We expect that selling expenses will continue to increase substantially in
absolute dollars as we increase our sales efforts to support our anticipated growth, hire
additional sales personnel and initiate additional marketing programs.
Facility start-up. Facility startup expenses consist primarily of salaries and personnel-related
costs and the cost of operating a new facility before it has been qualified for full production. It
also includes all expenses related to the selection of new sites and the related legal and
regulatory costs and the costs to maintain our plant expansion program, to the extent we cannot
capitalize these expenditures. We expect to incur significant facility start-up expenses as we
continue to plan and qualify new facilities.
Restructuring charges. Restructuring charges consist of costs associated with the closure of our
Marlboro pilot manufacturing facility which occurred in December 2008. The charges primarily
include severance costs, the write-off of manufacturing equipment, leasehold improvements and
inventory, the cost of moving equipment out of the facility, occupancy expenses, and depreciation
expense.
Other income (expense), net. Other income (expense) consists of interest income primarily from
interest earned on the holding of short-term marketable securities, bond premium amortization (or
discount accretion), interest expense on outstanding debt and net foreign exchange gains and
losses.
Equity income (loss) from interest in Sovello AG and impairment of investment. We account for our
one-third share of Sovellos operating results under the equity method of accounting which requires
us to record our one-third share of Sovellos net income or loss as one line item in our
consolidated statement of operations. We also account for any impairment of the carrying value of
our aggregate investment, including advances, when the impairment is determined to be other than
temporary in nature.
Comparison of Quarters Ended October 3, 2009 and September 27, 2008
Revenues. Our product revenues for the quarter ended October 3, 2009 were $75.5 million, an
increase of $57.6 million, or 324%, from $17.8 million for the quarter ended September 27, 2008.
The increase in product revenues is primarily the result of increased sales volume which was
generated from our new Devens facility which began shipping product in the third quarter of 2008.
During the quarter ended October 3, 2009 we shipped approximately 31.3 MW compared to 4.8 MW for
the quarter ended September 27, 2008 from our now closed Marlboro facility, an increase of 548%.
This increase in volume was primarily offset by lower average selling prices of approximately 33.6%
that resulted from continued price declines in the market place and, to a lesser extent, a slightly
stronger U.S.
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dollar during the third quarter of 2009 compared to the third quarter of 2008. In addition, we
believe that third quarter 2009 sales continued to be negatively impacted by the credit constraints
being experienced in the current economic downturn. Royalty revenue and marketing and selling fees
earned from Sovello for the quarter ended October 3, 2009 were $2.2 million, a decrease of $2.1
million, or 48%, from $4.3 million for the quarter ended September 27, 2008. The decrease in
royalty revenue and marketing and selling fees was due mainly to substantially lower sales volume
at Sovello of 46%.
International product revenues accounted for 76% and 43% of total product revenues for the quarters
ended October 3, 2009 and September 27, 2008, respectively. As we increase our capacity driven by
the completion of our Devens facility, we expect that we will continually adjust our distribution
strategy as markets for solar energy rapidly develop and change.
The following table summarizes the concentration of quarterly product revenues by geography and
customer:
Quarter Ended | ||||||||
September 27, | October 3, | |||||||
2008 | 2009 | |||||||
By geography: |
||||||||
United States |
57 | % | 24 | % | ||||
Germany |
27 | % | 64 | % | ||||
Korea |
10 | % | 2 | % | ||||
All other |
6 | % | 10 | % | ||||
100 | % | 100 | % | |||||
By customer: |
||||||||
Wagner & Co. Solartechnik GmbH |
2 | % | 27 | % | ||||
IBC Solar AG |
2 | % | 20 | % | ||||
Donauer Solartechnik Vertriebs GmbH |
| 10 | % | |||||
SunPower Corporation (formerly
PowerLight) |
23 | % | | |||||
Solar City |
16 | % | 7 | % | ||||
Woojin Electric Machinery Co. Ltd. |
10 | % | | |||||
All other |
47 | % | 36 | % | ||||
100 | % | 100 | % | |||||
Cost of product revenues and gross margins. Our cost of product revenues for the quarter ended
October 3, 2009 was approximately $70.1 million, an increase of approximately $49.3 million from
$20.8 million for the quarter ended September 27, 2008. Gross margin for the quarter ended October
3, 2009 was 9.7% compared to 5.7% for the quarter ended September 27, 2008. The increase in gross
margin resulted from the increased volume of our Devens facility, offset by the lower royalty and
selling fees from Sovello that resulted from Sovellos lower sales volume. In addition, during the
third quarter of 2008 we experienced higher costs associated with the initial production from our
new Devens facility and lower support costs allocated to research and development supporting pilot
programs. These higher initial production costs were deemed temporary and resulted from the
inefficiencies we anticipated during the initial stages of our significant capacity expansion. We
do not expect substantial improvements in gross margin until our Wuhan, China facility reaches
meaningful production levels and we complete the transition of Devens panel assembly to China, both
of which are expected to occur during late 2010.
Research and development expenses. Our research and development expenses for the quarter ended
October 3, 2009 were approximately $4.4 million, a decrease of approximately $1.1 million or 20%,
from $5.5 million, net of $31,000 of reimbursements from Sovello, for the quarter ended September
27, 2008. The decrease is primarily attributable to lower depreciation expense of approximately
$620,000 that resulted from the write-off of research and development equipment in December 2008
that supported now-obsolete technologies, lower allocated manufacturing support costs of
approximately $225,000 and slightly lower compensation costs.
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Selling, general and administrative expenses. Our selling, general and administrative expenses for
the quarter ended October 3, 2009 were approximately $5.9 million, a decrease of $302,000, or 4.9%,
from $6.2 million for the quarter ended September 27, 2008. In general, the decline in our
selling, general and administrative expenses was primarily attributable to lower compensation costs
of $377,000 due mainly to general organization wide salary reductions and lower incentive
compensation accruals during the third quarter 2009, lower sales and marketing costs of
approximately $305,000 due to decreases in trade shows and advertising, and decreases in travel and
related expenses of $112,000. These decreases were offset by higher legal fees of $305,000 in
support of our ongoing operations, higher professional fees of $62,000 and slightly higher
insurance costs.
Facility start-up costs. In preparing for the operations of our Midland, Michigan and Wuhan, China
facilities, we incurred costs during the quarter ended October 3, 2009 of $2.5 million. Facility
start-up costs for the quarter ended September 27, 2008 of $9.0 million were incurred in
conjunction with the start-up of our new Devens facility. Start-up costs include salaries and
personnel related costs, consulting costs, consumable material costs, utilities and other
miscellaneous costs associated with preparing and qualifying these facilities for production.
Construction on the facility in Devens began in September 2007 with the first solar panels produced
late in the third quarter of 2008 and the second phase of Devens completed in 2009. Construction
on the facility in Midland began during the third quarter of 2008 with production scheduled to
begin during the fourth quarter of 2009. Planning for our facility in China began during the
second quarter of 2009. We expect facility start-up costs associated with our Wuhan, China
expansion will increase through mid-2010 when production is expected to begin.
Restructuring charges. We recorded a charge to continuing operations for the quarter ended October
3, 2009 of approximately $777,000 and approximately $2.7 million for the quarter ended September
27, 2008. The charges for the quarter ended October 3, 2009 relate to the closing of our Marlboro,
Massachusetts pilot manufacturing facility in December 2008, part of our ongoing efforts to lower
overhead costs and reduce overall cash requirements. Virtually all the Marlboro pilot manufacturing
facility employees transferred to the Devens manufacturing facility. Advanced manufacturing
piloting activities are now being performed at our Devens manufacturing facility. The charges we
recorded during the quarter were comprised primarily of rent, depreciation and utilities for the
closed facility, in addition to supplies and professional fees associated with the closing of the
facility. We may also incur additional related costs during the remainder of 2009. We expect we
will continue to incur occupancy and moving costs through the expiration of the lease in mid-2010
and may incur location restoration costs. The charges for the quarter ended September 27, 2008
were for equipment write-offs of our early generation wafer manufacturing machines that would not
be used at our Devens facility.
Other
income (expense), net. Other net expense of $4.8 million for the quarter ended October 3,
2009 was comprised of approximately $7.4 million in net interest expense, offset by approximately
$2.5 million in net foreign exchange gains. Other net expense of $4.1 million for the quarter ended
September 27, 2008 consisted of approximately $5.0 million of net foreign exchange losses and $3.3
million of net interest expense offset by $4.2 million of interest income. The increase in net
foreign exchange gains was due primarily to the timing of our Euro denominated transactions against
a weaker U.S. dollar. The decrease in interest income is attributable to lower interest rates in
addition to our lower average cash balance that resulted primarily from our use of cash for the
construction of the Devens and Midland facilities, and our operational requirements driven by the
growth of our business. The higher interest expense for the quarter ended October 3, 2009 is
primarily attributable to lower capitalized interest costs that resulted from the substantial
completion of our Devens facility. In addition, we incurred interest expense on the loan received
from HSTIC during the third quarter of 2009 associated with our expansion into China.
Equity income (loss) from interest in Sovello AG and impairment of investment. The equity loss
from our interest in Sovello for the quarter ended October 3,
2009, excluding the impairment charge, was $9.7 million compared to
equity income of $1.6 million, net of withholding taxes, for the quarter ended September 27, 2008.
The decrease in Sovellos operating results was primarily due to the substantial decrease in its
sales volume. In addition, as a result of continued deterioration in Sovellos operations during
the third quarter of 2009, their continued difficulties in renegotiating their bank financing, and
on-going deterioration in world-wide pricing for their products we recorded an impairment charge of
approximately $69.7 million for the quarter ended October 3, 2009 related to our aggregate
investment in Sovello, including advances.
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During the quarter ended October 3, 2009 we recorded a $7.8 million income tax benefit in our
statement of operations as a result of the impairment charge recorded against the book basis of our
investment in Sovello. This income tax benefit arose from the partial reversal of a previously
recorded deferred income tax liability.
Net
Loss. As a result of the foregoing, net loss was $82.4 million for the quarter ended October
3, 2009 ($0.40 net loss per share, basic and diluted) compared to a net loss of $24.6 million for
the quarter ended September 27, 2008 ($0.19 net loss per share, basic and diluted).
Comparison of Year-to-Date Periods Ended October 3, 2009 and September 27, 2008
Revenues. Our product revenues for the year-to-date period ended October 3, 2009 were $192.6
million, an increase of $138.4 million, or 255%, from $54.2 million for the year-to-date period
ended September 27, 2008. The increase in product revenues is primarily the result of increased
sales volume which was generated from our new Devens facility which began shipping product in the
third quarter of 2008. All product revenue in the first three quarters of 2008 was mostly from our
now-closed Marlboro facility. During the year-to-date period ended October 3, 2009 we shipped
approximately 71.7 MW compared to 14.3 MW for the year-to-date period ended September 27, 2008, an
increase of 400%. This increase in volume was offset by lower average selling prices of
approximately 28% that resulted from continued pricing pressures in the market place in addition to
a stronger U.S. dollar during the year-to-date period ended October 3, 2009 compared to the year to
date period ended September 27, 2008. In addition, we believe that year-to-date 2009 sales were
negatively impacted by the credit constraints in the current economic downturn. Royalty revenue
and marketing and selling fees earned from Sovello for the year-to-date period ended October 3,
2009 were $4.7 million, a decrease of $8.9 million, or 65%, from $13.6 million for the year-to-date
period ended September 27, 2008. The decrease in royalty revenue and marketing and selling fees
from Sovello was due mainly to substantially lower sales volume at Sovello which was down
approximately 61%.
International product revenues accounted for 77% and 47% of total product revenues for the
year-to-date periods ended October 3, 2009 and September 27, 2008, respectively. As we increase
our capacity driven by the completion of our Devens facility, we expect that we will continually
adjust our distribution strategy as markets for solar energy rapidly develop and change.
The following table summarizes the concentration of year-to-date product revenues by geography and
customer:
Year-to-Date Period Ended | ||||||||
September 27, | October 3, | |||||||
2008 | 2009 | |||||||
By geography: |
||||||||
United States |
53 | % | 23 | % | ||||
Germany |
26 | % | 54 | % | ||||
Spain |
12 | % | | |||||
All other |
9 | % | 23 | % | ||||
100 | % | 100 | % | |||||
By customer: |
||||||||
IBC Solar AG |
1 | % | 19 | % | ||||
Wagner & Co. Solartechnik GmbH |
1 | % | 17 | % | ||||
SunPower Corporation (formerly
PowerLight) |
43 | % | | |||||
Ralos Vertriebs GmbH |
17 | % | 11 | % | ||||
S.A.G. Solarstrom Vertriebs GmbH |
10 | % | | |||||
All other |
28 | % | 53 | % | ||||
100 | % | 100 | % | |||||
Cost of product revenues and gross margins. Our cost of product revenues for the year-to-date
period ended October 3, 2009 was approximately $187.8 million, an increase of approximately $136.9
million from $50.9 million for the year-to-date period ended September 27, 2008. Gross margin for
the year-to-date period ended October 3,
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2009 was 4.8% compared to 24.9% for the year-to-date period ended September 27, 2008. The decrease
in gross margin resulted from the lower selling prices, the higher costs associated with the
initial production of our new Devens facility, and the level of fixed costs in relation to our
sales volumes as we ramp up capacity at Devens. In addition, lower royalty and selling fees from
Sovello that resulted from Sovellos lower sales volume also contributed to the decline in gross
margin. The higher initial production costs experienced at our Devens facility resulted from the
inefficiencies we anticipated during the initial stages of our significant capacity expansion. We
do not expect substantial improvements in gross margin until our Wuhan, China facility reaches
meaningful production levels and we complete the transition of Devens panel assembly to China, both
of which are expected to occur during late 2010.
Research and development expenses. Our research and development expenses for the year-to-date
period ended October 3, 2009 were approximately $13.3 million, a decrease of approximately $3.1
million or 19%, from $16.4 million, net of $370,000 of reimbursements from Sovello, for the
year-to-date period ended September 27, 2008. The decrease is primarily attributable to lower
depreciation expense of approximately $1.2 million resulting from the write-off of research and
development equipment in December 2008 that supported now-obsolete technologies, lower allocated
manufacturing support costs of approximately $1.1 million, lower usage of materials of
approximately $574,000, lower professional fees of approximately $229,000 and lower travel costs of
approximately $0.1 million. This decrease was offset by higher compensation related costs of
approximately $338,000.
Selling, general and administrative expenses. Our selling, general and administrative expenses for
the year-to-date period ended October 3, 2009 were approximately $19.0 million, an increase of $1.9
million, or 11%, from $17.1 million for the year-to-date period ended September 27, 2008. In
general, our selling, general and administrative costs have increased as a result of our overall
expansion of operations. These increases were primarily attributable to increased compensation and
related costs of approximately $446,000 associated with additional personnel and the inclusion of
Devens related general and administrative support personnel which in the prior year were classified
within facility start-up costs. These combined compensation increases were offset by general
organization wide salary reductions and lower incentive compensation accruals during the first
three quarters of 2009. In addition, we incurred higher advertising and customer support costs of
approximately $227,000 including sales commissions associated with higher commissionable sales,
increased information technology costs of approximately $534,000 to support the growth of our
operations, higher insurance costs of $354,000 associated with our expanded facilities and
workforce, and higher legal of $546,000 in support of our on-going operations. These increases
were partially offset by decreases in professional fees of $152,000 and lower travel related costs
of $187,000.
Write-off of loan receivable from silicon supplier. During December 2007, we entered into a
multi-year silicon supply agreement with Silpro which provided the general terms and conditions
pursuant to which Silpro would supply us with specified annual quantities of silicon at fixed
prices beginning in 2010 and continuing through 2019. In connection with this supply agreement, we
loaned Silpro 30 million Euros, which was scheduled to be repaid in the first quarter of 2013. The
loan carried an interest rate of 3.0% compounded annually. In April, 2009 as a result of its
inability to obtain additional financing to continue construction of its factory, Silpro announced
that the French commercial court ordered the filing for judicial settlement proceedings
(redressement judiciaire), a process similar to bankruptcy proceedings in the United States. As a
result, the loan receivable and the related interest from Silpro will not be repaid; and we
recognized a non-cash charge of $43.9 million during the quarter ended April 4, 2009. In August
2009, the court ordered liquidation proceedings (liquidation judiciaire) due to Silpros inability
to secure a long-term financing solution.
Facility start-up costs. In preparing for the operations of our Devens, Massachusetts, Midland,
Michigan and Wuhan, China facilities, we incurred costs for the year-to-date period ended October
3, 2009 of $6.6 million, compared to $20.9 million for the year-to-date period ended September 27,
2008. Start-up costs include salaries and personnel related costs, consulting costs, consumable
material costs, utilities and other miscellaneous costs associated with preparing and qualifying
these facilities for production. Construction on the facility in Devens began in September 2007
with the first solar panels produced in the third quarter of 2008, and was completed in mid 2009.
Construction on the facility in Midland began during the third quarter of 2008 with production
scheduled to begin during the fourth quarter of 2009. Planning for our facility in China began
during the second quarter of 2009.
Restructuring charges. We recorded a charge to continuing operations for the year-to-date period
ended October 3, 2009 of approximately $3.4 million and approximately $7.3 million for the
year-to-date period ended September 27,
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2008. The charges for the year-to-date period ended October 3, 2009 relate to
the closing of our Marlboro, Massachusetts pilot manufacturing facility in December 2008, part of
our ongoing efforts to lower overhead costs and reduce overall cash requirements. Virtually all the
Marlboro pilot manufacturing facility employees transferred to the Devens manufacturing facility.
Advanced manufacturing piloting activities are now being performed at our Devens manufacturing
facility. The charges we recorded during the year-to-date period ended October 3, 2009 were
comprised primarily of rent, depreciation and utilities for the closed facility, and materials,
supplies and professional fees associated with the closing of the facility. We expect we will
continue to incur occupancy and moving costs through the expiration of the lease in mid-2010 and
may incur location restoration costs. The charges for the year-to-date period ended September 27,
2008 were for equipment write-offs of our early generation wafer manufacturing machines that would
not be used at our Devens facility.
Other income (expense), net. Other net expense of $12.2 million for the year-to-date period ended
October 3, 2009 was comprised of approximately $19.3 million in net interest expense offset by
approximately $3.5 million in net foreign exchange gains and $3.7 million in interest income
associated with our short-term investments and loans receivable. Other income, net of $5.0 million
for the year-to-date period ended September 27, 2008 consisted of approximately $10.0 million in
interest income offset by $1.4 million in net foreign exchange losses and $3.7 million in net
interest expense. The decrease in net foreign exchange gains was due to the mark-to-market
adjustment on our Euro denominated loan to a silicon supplier during the first quarter of 2009 in
addition to the timing of our Euro denominated transactions. The decrease in interest income is
attributable to lower interest rates in addition to our lower average cash balance that resulted
primarily from our use of cash for the construction of the Devens and Midland facilities, and our
operational requirements driven by the growth of our business. The higher interest expense for the
year-to-date period ended October 3, 2009 is attributable to our higher convertible debt
obligations which increased by approximately $284 million during the third quarter of 2008 and
lower capitalized interest costs that resulted from the substantial completion of the Devens
facility. This increase was partially offset by a slightly lower interest coupon rate on the new
borrowings. In addition to our convertible debt, we incurred marginal interest expense on the loan
we received from HSTIC during the third quarter of 2009 associated with our expansion into China.
Equity income (loss) from interest in Sovello AG and impairment of investment. The equity loss
from our interest in Sovello for the year-to-date period ended October 3, 2009, excluding the impairment charge, was $16.2 million,
net of withholding taxes, compared to equity income of $6.2 million, net of withholding taxes, for
the year-to-date period ended September 27, 2008. The decrease in Sovellos operating results was
primarily due to the substantial decrease in its sales volume. In addition, we recorded an
impairment charge of approximately $69.7 million related to our aggregate investment in Sovello,
including advances, for the year-to-date period ended October 3, 2009 as a result of continued
deterioration in Sovellos operations during the third quarter of 2009, their continued
difficulties in renegotiating their bank financing, and on-going deterioration in world-wide
pricing for their products.
During the quarter ended October 3, 2009 we recorded a $7.8 million income tax benefit in our
statement of operations as a result of the impairment charge recorded against the book basis of our
investment in Sovello. This income tax benefit arose from the partial reversal of a previously
recorded deferred income tax liability.
Net Loss. As a result of the foregoing, net loss was approximately $167.1 million for the
year-to-date period ended October 3, 2009 ($0.92 net loss per share, basic and diluted) compared to
a net loss of $33.6 million for the year-to-date period ended September 27, 2008 ($0.28 net loss
per share, basic and diluted).
Liquidity and Capital Resources
We have historically financed our operations and met our capital expenditure requirements primarily
through sales of our capital stock, issuance of debt and, to a lesser extent, product revenues;
and, beginning in 2007, fees from Sovello for our marketing and sale of Sovello panels and royalty
payments for our technology license to Sovello. At October 3, 2009, we had working capital of
$179.1 million, including cash and cash equivalents of $91.0 million.
Net cash used in operating activities was $54.0 million for the year-to-date period ended October
3, 2009 compared to $33.3 million for the year-to-date period ended September 27, 2008. The use of
cash from operating activities for the year-to-date period ended October 3, 2009 was due primarily
to increases in accounts receivable of approximately $29.7 million associated primarily with our increase in revenue in addition to
slightly longer
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customer payment cycles, an increase in inventory of $7.7 million, including the
prepaid cost of inventory, as we continue to ramp up capacity at Devens, a reduction in
accounts payable and accrued expenses of $26.2 million due to timing of payments including amounts
related to Sovello and a reduction in our deferred income tax
liability of approximately $7.8 million that resulted from the impairment charge recorded on our
investment in Sovello. These uses were offset by the positive cash flow recognized from our
operations of approximately $14.8 million, after adjusting for non-cash charges. The net cash used
in operating activities for the quarter ended September 27, 2008 resulted from an increase in
inventory, including prepaid cost of inventory, of $30.5 million the majority of which relates to
the second OCI polysilicon supply agreement entered into in January 2008 which required a
nonrefundable prepayment of approximately $21.9 million, a decrease in accounts payable of $12.9
million due to timing of payments, and a decrease in other assets of $9.4 million which relates to
a refund of VAT. These uses of cash were offset by the collection of $17.7 million of grants
associated with Devens and an increase in accrued expenses of $3.7 million.
Net cash used in investing activities was $42.2 million for the year-to-date period ended October
3, 2009 compared to $300.7 million for the year-to-date period ended September 27, 2008. The net
cash used in investing activities for the year-to-date period ended October 3, 2009 was due to
expenditures of approximately $101.3 million primarily associated with the construction of our
Devens, Massachusetts and Midland, Michigan manufacturing facilities,
advances to Sovello totaling
$14.7 million made in conjunction with a shareholder loan agreement entered into with them along
with REC and Q-Cells, our Sovello joint venture partners, and payments of approximately $2.9
million required to cash collateralize various letters of credit. These uses were offset by the
proceeds from the sale and maturity of marketable securities of $76.7 million. As of October 3,
2009, our outstanding commitments for capital expenditures were approximately $13.9 million. The
net cash used in investing activities of $300.7 million for the year-to-date period ended September
27, 2008 was due primarily to the expenditures associated with our new Devens manufacturing
facility, and to a lesser extent, facility improvements and purchases of equipment for our Marlboro
prototype manufacturing and research and development facilities which combined totaled
approximately $250.8 million. In addition, the second installment of 15 million Euros
(approximately $22.2 million) was made to Silpro in conjunction with our loan agreement with them
which has since been written-off (see Write-off of loan receivable from silicon supplier). We also
advanced approximately $18.2 million to Sovello in conjunction with a shareholder loan agreement
entered into with them along with REC and Q-Cells, our joint venture partners. Net cash used in
investing activities was also impacted by approximately $26.7 million of net purchases of
marketable securities. These uses were offset by the return to us by Deutsche Bank AG of
approximately $17.0 million of the $41.0 million deposited with them during 2007 in conjunction
with a Sovello loan guarantee.
Net cash provided by financing activities was $86.3 million for the year-to-date period ended
October 3, 2009 compared to $492.4 million for the year-to-date period ended September 27, 2008.
Net cash provided by financing activities for the year-to-date period ended October 3, 2009
resulted from the net proceeds associated with the sale in a public offering of 42.6 million shares
of our common stock at $1.80 per share and which closed on May 28, 2009. Net cash provided by
financing activities for the year-to-date period ended September 27, 2008 resulted from the net
proceeds of 18.4 million shares of our common stock sold in public offering at $9.50 per share and
which closed during the first quarter of 2008 in addition to the net proceeds of $364.0 million
from the issuance of our 4% senior convertible notes offering which closed during the third quarter
of 2008. These proceeds were offset by the up-front initial premium payment of $39.5 million
associated with the capped call which was entered into concurrent with the senior convertible debt
offering.
For the year-to-date periods ended October 3, 2009 and September 27, 2008, we recorded
approximately $20.1 million and $7.9 million, respectively, in interest expense associated with our
4.375% convertible subordinated notes due 2012 (which were redeemed in July 2008) and our 4% senior
convertible notes due 2013, and capitalized interest of approximately $2.6 million and $5.2
million, respectively. In addition we recorded approximately $495,000 in interest expense
associated with the loan received from HSTIC associated with our expansion into China.
Sovello Debt Guarantee and Undertaking
On April 30, 2007, we entered into a Guarantee and Undertaking agreement (the Old Guarantee) with
Deutsche Bank in connection with Sovello entering into a loan agreement with a syndicate of lenders
led by Deutsche Bank. The loan agreement originally provided Sovello with aggregate borrowing
availability of up to 142.0 million Euros (approximately $207.1 million at October 3, 2009 exchange
rates) which was amended to 192.5 million Euros in September 2008 (approximately $280.8 million at October 3, 2009 exchange rates). Pursuant to the
Old Guarantee,
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we along with Q-Cells and REC, each agreed to guarantee a one-third portion of the
loan outstanding, up to 30.0 million Euros of Sovellos repayment obligations under the loan
agreement. This guarantee was subsequently released in September 2008. As of October 3, 2009, the
total amount of debt outstanding under the loan agreement was 93.6 million Euros (approximately
$136.6 million at October 3, 2009 exchange rates) all of which was current. Repayment of the loan
is due in quarterly installments through December 31, 2011.
As of October 3, 2009, Sovello is in violation of its bank loan agreement. The violation allows the
bank to exercise its termination rights and call the loan. However, the bank has temporarily waived
the violation through November 30, 2009 and is negotiating with Sovello and its shareholders to
amend the loan agreement. In the first half of 2009 the quarterly repayments were suspended.
On April 15, 2009, we entered into a guarantee of loan obligations on behalf of Sovello. Pursuant
to the new guarantee, we have agreed to guarantee up to 10 million Euros of Sovellos repayment
obligations under Sovellos loan agreement. Sovellos other shareholders also entered into
guarantees for an additional 20 million Euros with Deutsche Bank on the same terms as our
guarantee.
The shareholder guarantees were provided by us and Sovellos other shareholders in connection with
ongoing discussions between Sovello, Deutsche Bank and the shareholders regarding a restructuring
of Sovellos obligations under the Sovello loan agreement. In connection with the guarantees, we,
Q-Cells and REC also entered into a letter agreement with Deutsche Bank. Pursuant to the letter
agreement the three Sovello shareholders made loans to Sovello in the aggregate amount of 15
million Euros, including 5 million Euros loaned by us. Also pursuant to the letter agreement, the
shareholders agreed to provide Sovello with additional liquidity through August 15, 2009 (which
term was subsequently amended to November 30, 2009), if needed, other than payments that might be
required pursuant to the Loan Agreement. The bank syndicate had asked that each shareholder put an
additional 2.0 million Euro into escrow (approximately $2.9 million at October 3, 2009 exchange
rates) to continue good faith negotiations on restructuring Sovellos debt, which was made by the
shareholders during the third quarter of 2009. The additional 2.0 million Euros has since been
contributed by each of the shareholders as additional equity to Sovello and remitted to the banks
as a loan payment. Based on the current business plan for Sovello, we do not expect the liquidity
assurance will require the shareholders to advance additional funding to Sovello. Since December
31, 2008, in connection with the loan restructuring negotiations, Sovello has repaid approximately
27.4 million Euros of outstanding loan amount (approximately $39.9 million at October 3, 2009
exchange rates).
Evergreen Solar Loans to Sovello
In January 2007, we, REC and Q-Cells entered into a shareholder loan agreement with Sovello. Under
the terms of the shareholder loan agreement, Sovello repaid all outstanding shareholder loans at
that time, plus accrued interest, in exchange for a shareholder loan of 30 million Euros
(approximately $43.8 million at October 3, 2009 exchange rates) from each shareholder. Since that
time, we, REC and Q-Cells have entered into several other shareholder loan agreements with Sovello
with our share denominated in U.S. dollars. Interest on the January 2007 loan and $18.2 million
June 2008 loan is payable quarterly in arrears, however such payments have been suspended.
Interest on the $10.6 million December 2008 loan and $6.7 million March 2009 loan is payable
concurrent with the repayment of the underlying principal amounts. The loans, which in the
aggregate total approximately $79.3 million at October 3, 2009, prior to the impairment charge,
carry interest rates ranging from 5.43% to 7.0% and are included in Investments in and advances to
Sovello AG on the balance sheet. Based upon an agreement between Sovellos shareholders and
Sovellos bank, the loans and interest thereon will not be repaid until the earlier of the
completion of an initial public offering or other liquidity event generating sufficient cash to
repay the loans.
We regularly monitor the performance of Sovello and, utilizing several factors, assess the need to
record an impairment of the carrying value of our aggregate investment when the impairment is
determined to be other than temporary in nature. Based on our evaluation, we recorded an
impairment charge of approximately $69.7 million related to our aggregate investment in Sovello,
including advances, during the period ended October 3, 2009 as a result of continued deterioration
in Sovellos operations during the third quarter of 2009, their continued difficulties in
renegotiating their bank financing, and on-going deterioration in world-wide pricing for their
products. This impairment loss is reflected in Equity income (loss) from interest in Sovello AG
and impairment of investment in the accompanying condensed consolidated statements of operations.
In making this assessment, we considered a
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range of scenarios including Sovellos ability to continue as a going concern, future projections
of volumes and selling prices, and enterprise value multiples of comparable entities.
If Sovello is not able to restructure the terms of its loan agreements or its operations continue
to deteriorate, the carrying value of our aggregate investment could be further impaired in the
future.
Liquidity Risk and Uncertainty
At October 3, 2009, we had approximately $91.0 million of cash and cash equivalents, which includes
approximately $13.6 million received from HSTIC as part of its funding obligation for our Wuhan,
China factory expansion. During the fourth quarter of 2009, we received the remaining $19.4
million due from HSTIC and expect to receive a loan of approximately $5 million from the
Commonwealth of Massachusetts during the fourth quarter of 2009. Through mid-2010, the completions
of our Devens and Midland factories, the build-out of our wafer manufacturing facility in Wuhan,
China, sustaining capital and debt service will require about $69 million.
We have sales contracts for approximately 20 MW of product to be manufactured at our Devens
facility for delivery during the balance of 2009. Our sales plan assumes there should be sufficient
market demand to sell the remaining expected Devens manufacturing capacity at continually declining
selling prices. We expect to continue to moderate our production levels depending on changes in
market demands during the balance of the year.
We believe that our business plan will provide sufficient liquidity to fund our planned capital
programs, our share of any potential funding requirements related to our investment in Sovello and
our operating needs for the next 12 months. While our business plan anticipates certain levels of
potential risk, particularly in light of the difficult and uncertain current economic environment
and the continuing reduction of industry panel pricing caused by emerging competition, especially
from China, and the resulting excess capacity, we are exposed to additional particular risks and
uncertainties including, but not limited to:
| the need to maintain the Devens facility at a minimum of 75% capacity, or 30 MW per quarter, and stabilization of panel pricing at about $2.00 to $2.25 per watt, with sales made to creditworthy customers; | ||
| higher than planned manufacturing costs and failing to achieve expected Devens operating metrics, with any delays in our plan to transition panel assembly to China resulting in continued higher costs that could impair business operations; | ||
| continued significant fluctuation of the Euro against the U.S. dollar, as a substantial portion of the contracted sales are denominated in Euros; | ||
| the ability of Jiawei to execute against its plans to meet our required timetables; and | ||
| increased funding requirements for Sovello to complete its third manufacturing facility and achieve its planned manufacturing cost and operating metrics, to provide Sovello with additional liquidity, if needed, or to potentially address the loss of any prior or expected government grant funding for Sovello (see Note 6 of our condensed consolidated financial statements). |
Although our current business plan indicates we have adequate liquidity to operate under
expected operating conditions, the risks noted above could result in liquidity uncertainty. Our
plan with regard to this uncertainty includes, among other actions:
| continually monitoring our operating results against expectations and, if required, further restricting operating costs and capital spending if events warrant; | ||
| if market conditions allow, possibly accessing the capital markets to meet liquidity and capital expenditure requirements; and |
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| negotiating with a number of banks to secure a borrowing base line of credit, without a minimum cash requirement as is required with our current line of credit, supported by the expected significant increase in our accounts receivable, inventory and overall working capital and possibly hedging our exposure to fluctuations in the U.S. dollar / Euro exchange rate to limit any adverse exposure; but there can be no assurance that hedges can be put in place at terms acceptable to us or that such hedging activities will be effective. |
If additional capital is needed and does not become available on acceptable terms, our ability to
fund operations, further develop and expand our manufacturing operations and distribution network
or otherwise respond to competitive pressures would be significantly limited.
Item 3. | Quantitative and Qualitative Disclosure About Market Risk |
Interest Rate Risk
We do not use derivative financial instruments to manage interest rate risk. Interest income earned
on our cash, cash equivalents and marketable securities is subject to interest rate fluctuations,
but we believe that the impact of these fluctuations will not have a material effect on our
financial position due to the liquidity and short-term nature of these financial instruments. For
these reasons, a hypothetical 100-basis point adverse change in interest rates would not have a
material effect on our consolidated financial position, results of operations or cash flows.
Foreign Currency Exchange Rate Risk
As we expand our manufacturing operations and distribution network internationally, our exposure to
fluctuations in currency exchange rates may increase. We endeavor to denominate the purchase price
of our equipment and materials and the selling price for our products in U.S. dollars but are not
always successful in doing so. To the extent that our purchases or sales are made in foreign
currency, we will be exposed to currency gains or losses.
During 2007 and 2008, we entered into multi-year silicon supply agreements with several suppliers,
a portion of which are or were, in the case of Silpro, denominated in Euros. The agreements have
varied start and end dates. Additionally, from time to time we may agree to purchase equipment and
materials internationally with delivery dates as much as six to twelve months in the future.
For the year-to-date period ended October 3, 2009, approximately 70% of our product revenues were
denominated in Euros. The portion of our sales that are denominated in Euros can vary widely in
any one period. We currently have six active multi-year solar panel supply agreements which we
entered into in 2008, a portion of which are denominated in Euros. The combined current estimated
sales value remaining under these six agreements is approximately $1.9 billion at October 3, 2009
exchange rates. These panel supply agreements provide the general terms and conditions pursuant to
which certain customers will purchase from us specified annual quantities of solar panels which
began primarily in the second half of 2008 and continue through 2013.
To date, we have not entered into any hedging transactions in an effort to reduce our exposure to
foreign currency exchange risk. While we may enter into hedging transactions in the future, given
that the availability and effectiveness of these transactions may be limited, we may not be able to
successfully hedge our exposure.
Item 4. | Controls and Procedures |
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our Chief
Executive Officer and Chief Financial Officer, we evaluated the effectiveness of the design and
operation of our disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)
under the Exchange Act). In designing and evaluating our disclosure controls and procedures, we and
our management recognize that any controls and procedures, no matter how well designed and
operated, can provide only reasonable assurance of achieving the desired control objectives, and
our management necessarily was required to apply its judgment in evaluating and implementing
possible controls and procedures. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer
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concluded that, as of the end of the period covered by
this report, our disclosure controls and procedures were effective to provide reasonable assurance.
Internal Control over Financial Reporting
During the quarter ended October 3, 2009, there were no changes in our internal control over
financial reporting (as defined in Exchange Act Rule 13a-15(f) under the Exchange Act) that have
materially affected, or are reasonably likely to materially affect, our internal control over
financial reporting.
PART IIOTHER INFORMATION
Item 1. | Legal Proceedings |
In the ordinary conduct of our business, we are subject to periodic lawsuits, investigations and
claims, including, but not limited to, routine employment matters. Although we cannot predict with
certainty the ultimate resolution of lawsuits, investigations and claims asserted against us or
administrative proceedings, we are not a party to any material legal proceedings within the meaning
of Item 103 of Regulation S-K other than the following:
Litigation with Barclays and Lehman Brothers.
In October 2008 we filed suit in the United States Bankruptcy Court for the Southern District Court
of New York against Barclays PLC and certain of its affiliated entities (or Barclays), and Lehman
Brothers Holdings Inc. and certain of its affiliated entities (or Lehman Brothers) seeking the
return of approximately 12.2 million shares of our common stock previously loaned by us to Lehman
Brothers in July 2008. Those shares were held by Lehman Brothers when it filed for bankruptcy and
purportedly transferred to an affiliate of Barclays, PLC, Barclays Capital Inc. We have
specifically demanded Barclays immediately return the 12.2 million shares it obtained from Lehman
Brothers after Lehman Brothers filed for bankruptcy on the grounds that, among other things, Lehman
Brothers did not hold title to the shares at the time of the purported transfer to Barclays.
In connection with the initiation of the lawsuit, we asked the Court to enjoin any further transfer
of the shares received by Barclays from Lehman. On November 5, the Bankruptcy Court denied our
motion for such an injunction. In February 2009 we agreed to dismiss our claims against Barclays
PLC as it was determined that the 12.2 million shares had been transferred to Barclays Capital Inc.
and Barclays PLC was not needed as a party to the lawsuit. In February 2009, the remaining
defendants filed motions to dismiss all of our claims. In response, we filed our opposition to the
motions to dismiss and a hearing on the motions to dismiss was held on April 22, 2009. At the April
22 hearing, oral arguments were presented by the defendants and us for and against the defendants
motions to dismiss our claims. The court has not yet ruled on the motions to dismiss or indicated
when it will rule. We cannot predict the outcome of this effort to recover our shares or payment
or damages related thereto.
Noise Noncompliance Proceedings for our Devens Manufacturing Facility.
In late-March 2009, initial complaints regarding noncompliance with applicable noise restrictions
were made to the Devens Enterprise Commission, (the DEC), the governmental authority that
regulates development and zoning within the Devens Enterprise Zone where our Devens, Massachusetts
manufacturing facility is located.
After the issuance by the DEC of two noncompliance notices, initial efforts by us to remedy
the noncompliance and various administrative proceedings, on July 14, 2009, the DEC adopted
a Resolution which requires us to attenuate certain noises being generated by the Devens
facility in violation of the DECs noise regulations by September 2009.
At this time, we believe we are operating in compliance with the DECs regulations but the DEC has
extended the deadline for full compliance with the Resolution so that some testing of noise levels
can be completed and certain other requirements from the Resolution can be addressed, including a
worst scenario test to confirm that the facility will comply with the noise restrictions under all
possible operating conditions and the installation of a long-term monitoring system.
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Item 1A. | Risk Factors |
Item 1A, In addition to the factors discussed elsewhere in this report, including the financial
statements and related notes, you should consider carefully the risks and uncertainties described
in the section entitled Risk Factors, in our Annual Report on Form 10-K for the year ended
December 31, 2008 as filed on March 2, 2009 and subsequently amended, together with Item 1A, Risk
Factors, of our Quarterly Report on Form 10-Q for the period ended April 4, 2009, as filed on May
11, 2009, which both describe risks and uncertainties which could materially adversely affect our
business, financial condition, results of operations, cash flows and future results. While these
are the risks and uncertainties we believe are most important, you should bear in mind that factors
may also exist that we cannot anticipate or that we currently do not consider to be significant.
These other factors also have the potential to materially affect our business, financial condition,
results of operations, cash flows and future results.
Item 4. | Submission of Matters to a Vote of Security Holders |
None.
Item 6. | Exhibits |
Exhibits are as set forth in the section entitled Exhibits Index which follows the section
entitled Signatures in this Quarterly Report on Form 10-Q.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
EVERGREEN SOLAR, INC. |
||||
Date: November 10, 2009 | /s/ Michael El-Hillow | |||
Michael El-Hillow | ||||
Chief Financial Officer and Secretary (Principal Financial Officer) |
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EXHIBITS INDEX
Number | Description | |
3.1
|
Third Amended and Restated Certificate of Incorporation (Incorporated herein by reference to Exhibit 3.2 to the Registrants Registration Statement on Form S-1/A, filed on October 3, 2000) | |
3.2
|
Second Amended and Restated By-laws (Incorporated herein by reference to Exhibit 3.4 to the Registrants Registration Statement on Form S-1/A, filed on October 3, 2000) | |
3.3
|
Amendment No. 1 to the Seconded Amended and Restated By-laws (Incorporated herein by reference to Exhibit 3.1 to the Registrants Current Report on Form 8-K, dated February 4, 2009 and filed on February 5, 2009) | |
3.4
|
Certificate of Amendment of Third Amended and Restated Certificate of Incorporation (Incorporated herein by reference to Exhibit 3.1 to the Registrants Current Report on Form 8-K dated June 18, 2008 and filed on June 23, 2008) | |
3.5
|
Certificate of the Powers, Designations, Preferences and Rights of the Series A Convertible Preferred Stock of the Registrant (Incorporated herein by reference to the Exhibit 4.4 to the Registrants Registration Statement on Form S-8 dated June 9, 2003.) | |
3.6
|
Certificate of Designations of Rights, Preferences and Privileges of Series B Preferred Stock of the Registrant (Incorporated herein by reference to Exhibit 3.4 to the Registrants Registration Statement on Form S-3 dated May 16, 2007.) | |
4.1
|
Indenture between the Registrant and U.S. Bank National Association, as Trustee, dated as of July 2, 2008 (Incorporated herein by reference to Exhibit 4.1 to the Registrants Current Report on Form 8-K dated July 2, 2008 and filed on July 7, 2008.) | |
4.2
|
First Supplemental Indenture between the Registrant and U.S. Bank National Association, as Trustee, dated as of July 2, 2008 (Incorporated herein by reference to Exhibit 4.2 to the Registrants Current Report on Form 8-K dated July 2, 2008 and filed on July 7, 2008.) | |
4.3
|
Form of 4% Senior Convertible Note due 2013 (Incorporated herein by reference to Exhibit 4.2 to the Registrants Current Report on Form 8-K dated July 2, 2008 and filed on July 7, 2008.) | |
10.1
|
Relationship Agreement among the Registrant, Evergreen Solar (China) Co., Ltd, Jiawei SolarChina Co. Ltd. and Jiawei Solar (Wuhan) Co., Ltd dated July 14, 2009 | |
10.2
|
Manufacturing Services Agreement among the Registrant, Evergreen Solar (China) Co., Ltd, Jiawei SolarChina Co. Ltd. and Jiawei Solar (Wuhan) Co., Ltd dated July 14, 2009 | |
10.3
|
Increase Registered Capital and Enlarge Shares Agreement between the Registrant and Hubei Science & Technology Investment Co., Ltd. (HSTIC) dated July 24, 2009. | |
10.4
|
Equity Transfer Agreement among the Registrant, HSTIC and various other parties dated July 24, 2009 and delivered September 22, 2009 | |
10.5
|
Amendment made on August 5, 2009 to the Master Supply Agreement by and between the Registrant and Ralos Vertriebs GmbH, dated May 21, 2008 | |
10.6
|
Amendment made on August 3, 2009 to the Master Supply Agreement by and between the Registrant and Wagner & Co Solartechnik GmbH, dated June 18, 2008 | |
10.7
|
Amendment made on August 5, 2009 to the Master Supply Agreement by and between the Registrant and IBC Solar AG, dated July 14, 2008 | |
31.1
|
Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
31.2
|
Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
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Number | Description | |
32.1
|
Certification of the Chief Executive Officer pursuant to Rule 13a-14(d) and Rule 15d-14(d) of the Securities Exchange Act of 1934, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
32.2
|
Certification of the Chief Financial Officer pursuant to Rule 13a-14(d) and Rule 15d-14(d) of the Securities Exchange Act of 1934, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| Confidential treatment requested as to certain portions |
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