SUNED - 12.31.2014 - 10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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(Mark One)
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x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2014
OR
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¨ | 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 001-13828
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SunEdison, Inc.
(Exact name of registrant as specified in its charter)
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Delaware | | 56-1505767 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
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13736 Riverport Dr. Maryland Heights, Missouri
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(Address of principal executive offices) | | (Zip Code) |
Registrant’s telephone number, including area code:
(314) 770-7300
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Securities registered pursuant to Section 12(b) of the Act:
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Title of Each Class | | Name of Each Exchange on Which Registered: |
$.01 Par Value Common Stock | | New York Stock Exchange |
Securities Registered Pursuant to Section 12(g) of the Act:
None
(Title of Class)
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Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No x
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 x No ¨
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 x No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer x Accelerated filer ¨ Non-accelerated filer ¨ 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 ¨ No x
The aggregate market value of the registrant's Common Stock held by nonaffiliates of the registrant, based upon the closing price of such stock on June 30, 2014 of $22.60 as reported by the New York Stock Exchange, and 268,667,042 shares outstanding on such date, was approximately $6,071,875,149. The number of shares outstanding of the registrant's Common Stock as of February 20, 2015, was 272,356,787 shares.
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of the registrant’s 2014 Annual Report to Stockholders (Part I and Part II)
2. Portions of the registrant’s 2015 Proxy Statement (Part III)
Table of Contents
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PART I
Overview
During the 2014 fiscal year, SunEdison, Inc. ("SunEdison" or the "Company") was a major developer and seller of photovoltaic energy solutions, an owner and operator of clean power generation assets, and a global leader in the development, manufacture and sale of silicon wafers to the semiconductor industry. We are one of the world's leading developers of solar energy projects and, we believe, one of the most geographically diverse. Our technology leadership in silicon and downstream solar are enabling the Company to expand our customer base and lower costs throughout the silicon supply chain.
SunEdison is organized by end market and through 2014 we were engaged in three reportable segments: Solar Energy, TerraForm Power, Inc. (“TerraForm”) and Semiconductor Materials through SunEdison Semiconductor Ltd. ("SSL"). TerraForm and SSL are each separate SEC registrants. The results of TerraForm are reported as our TerraForm Power reportable segment, and the results of SSL are reported as our Semiconductor Materials reportable segment. References to "SunEdison", "we", "our" or "us" within the accompanying consolidated financial statements refer to the consolidated reporting entity. Our Solar Energy segment provides solar energy services that integrate the design, installation, financing, monitoring, operations and maintenance portions of the downstream solar market for our customers. Our Solar Energy segment also owns and operates solar power plants and manufactures polysilicon and silicon wafers and subcontracts the assembly of solar modules to support our downstream solar business, as well as for sale to external customers as market conditions dictate. Our TerraForm Power segment owns and operates clean power generation assets, both developed by the Solar Energy segment and acquired through third party acquisitions, that sell electricity through long-term power purchase agreements to utility, commercial, and residential customers. Our Semiconductor Materials segment includes the manufacture and sale of silicon wafers to the semiconductor industry.
Financial segment information for our reportable segments for 2014 is contained in our 2014 Annual Report, which information is incorporated herein by reference. See Note 21, Notes to Consolidated Financial Statements.
SunEdison, formerly known as MEMC Electronics Materials, Inc., was formed in 1984 as a Delaware corporation and completed its initial public stock offering in 1995.
Our principal executive offices are located at 13736 Riverport Drive, Maryland Heights, Missouri 63043 , and our telephone number is (314) 770-7300. Our website address is www.sunedison.com.
Recent Events
Acquisition of First Wind Holdings, LLC
On January 29, 2015, SunEdison and TerraForm First Wind ACQ, LLC, a subsidiary of TerraForm Power Operating, LLC (“TerraForm Operating”), as assignee of Terra LLC under the Purchase Agreement (as defined below), completed the previously announced acquisition of First Wind Holdings, LLC (“Parent,” together with its subsidiaries, “First Wind”), pursuant to a purchase and sale agreement, dated as of November 17, 2014, as amended by the First Amendment to the Purchase and Sale Agreement, dated as of January 28, 2015 (together, the “Purchase Agreement”), among SunEdison, TerraForm Power, Terra LLC, First Wind, the members of First Wind and certain other persons party thereto (the “Acquisition”). In the Acquisition, TerraForm First Wind ACQ, LLC purchased from First Wind certain solar and wind operating projects representing 521 MW of operating power assets (including 500 MW of wind and 21 MW of solar power assets), and SunEdison purchased all of the equity interests of Parent and all of the outstanding equity interests in certain subsidiaries of Parent that own, directly or indirectly, wind and solar operating and development projects representing 1.6 GW of pipeline and backlog and development opportunities representing more than 6.4 GW of wind and solar projects.
Pursuant to the terms of the Purchase Agreement, SunEdison and TerraForm Operating paid a total consideration of $2.4 billion, which was comprised, in part, of an upfront payment of $1.0 billion, including the assumption of $361.0 million of debt at closing, and an expected $510.0 million of earnout payments over two-and-a-half years upon full notice to proceed with respect to solar earnout projects and substantial completion with respect to wind earnout projects, subject to certain adjustments as set forth in the Purchase Agreement.
SunEdison’s portion of the total consideration is $1.5 billion, comprised of the upfront payment of $1.0 billion and the expected earn-out payments. The earn-out payments will be payable by SunEdison subject to completion of certain projects in First Wind’s backlog. TerraForm First Wind ACQ, LLC acquired First Wind’s operating portfolio for an enterprise value of $862
million. Part of SunEdison’s upfront consideration came from proceeds of senior exchangeable notes described below ("Completion of 3.75% Guaranteed Exchangeable Senior Notes Offering due 2020"). The remainder of the consideration for the Acquisition was funded from cash on hand and from other previously disclosed financing sources.
Margin Loan Agreement
On January 29, 2015 (the “Margin Closing Date”), SUNE ML 1, LLC (the “Borrower”), a wholly owned special purpose subsidiary of SunEdison, entered into a Margin Loan Agreement (the “Loan Agreement”) with the lenders party thereto (each, a “Lender”) and Deutsche Bank AG, London Branch, as the administrative agent (in such capacity, the “Administrative Agent”) and the calculation agent thereunder. SunEdison concurrently entered into a Guaranty Agreement in favor of the Administrative Agent for the benefit of each of the Lenders, pursuant to which SunEdison guaranteed all of the Borrower’s obligations under the Loan Agreement.
On the Margin Closing Date, $410.0 million in term loans were made to the Borrower under the Loan Agreement. The net proceeds of the term loans, less certain expenses, were made available to SunEdison to fund the First Wind Acquisition (as defined above). The term loans mature on the 24-month anniversary of the Margin Closing Date.
The Loan Agreement requires the Borrower to maintain a certain loan to value ratio (based on the value of the Class A common stock of TerraForm Power (“TerraForm Power Class A Common Stock”), which certain of the collateral may be exchanged for). In the event that this ratio is not maintained, the Borrower must post additional cash collateral under the Loan Agreement and/or elect to repay a portion of the term loans thereunder.
In addition, the Loan Agreement requires the repayment of all or a portion of the term loans made thereunder upon the occurrence of certain events customary for financings of this nature, including events relating to the price, liquidity or value of TerraForm Power Class A Common Stock, certain events or extraordinary transactions related to TerraForm Power and certain events related to SunEdison.
The Borrower’s obligations under the Loan Agreement are secured by a first priority lien on shares of Class B common stock in TerraForm Power, and Class B units and Incentive Distribution Rights in TerraForm Power, LLC (“Terra LLC”), in each case, that are owned by the Borrower. All outstanding amounts under the Loan Agreement bear interest at a rate per annum equal to a three-month Eurodollar rate plus an applicable margin as otherwise agreed among the parties.
The Loan Agreement contains customary representations and warranties, covenants and events of default for financings of this nature. Upon the occurrence and during the continuance of an event of default, any lender may declare the term loans due and payable, exercise remedies with respect to the collateral and demand payment from SunEdison of the obligations under the Loan Agreement then due and payable. TerraForm Power has agreed to certain obligations in connection with the Loan Agreement relating to its equity securities.
3.75% Guaranteed Exchangeable Senior Secured Notes Due 2020
On January 29, 2015, Seller Note, LLC, a wholly owned special purpose subsidiary of SunEdison (“Seller Note LLC”), issued $336.5 million aggregate principal amount of 3.75% Guaranteed Exchangeable Senior Secured Notes due 2020 (the “Exchangeable Notes”) pursuant to an Indenture, dated January 29, 2015 (the “Exchangeable Notes Indenture”), among Seller Note LLC, SunEdison, as guarantor, and Wilmington Trust, National Association, as exchange agent, registrar, paying agent and collateral agent (the “Exchangeable Notes Trustee”). In connection with the issuance of the Exchangeable Notes, Seller Note LLC also entered into a Pledge Agreement with the Exchangeable Notes Trustee, in its capacity as collateral agent, providing for the pledge of TerraForm Power’s shares of Class B common stock and Terra LLC’s Class B units held by Seller Note LLC (the “Class B Securities”) as described below.
The proceeds of the Exchangeable Notes issuance makes up a portion of SunEdison’s upfront consideration for the First Wind Acquisition. The Exchangeable Notes bear interest at a rate of 3.75% per annum and mature on January 15, 2020. Interest on the Exchangeable Notes will be payable semiannually in arrears to holders of record at the close of business on January 1 or July 1 immediately preceding the interest payment date on January 15 and July 15 of each year, commencing on July 15, 2015.
The notes will be secured by a first priority lien on the Class B Securities, equal to the number of shares of TerraForm Power Class A Common Stock initially issuable upon exchange of the Exchangeable Notes, including the maximum number of shares of TerraForm Power Class A Common Stock to be issued upon exchange in connection with a make-whole fundamental change, which Class B Securities will be transferred by SunEdison to Seller Note LLC upon issuance of the Exchangeable Notes. SunEdison will transfer to Seller Note LLC, and Seller Note LLC will pledge, on a first priority basis, additional shares of the Class B Securities in connection with any adjustment to the exchange rate, so that, at all times, the Class B Securities equal to the full number of shares of TerraForm Power Class A Common Stock issuable upon exchange of the Exchangeable Notes
shall be held by Seller Note LLC and subject to such first priority lien. The Exchangeable Notes are fully and unconditionally guaranteed by SunEdison. The Exchangeable Notes and the guarantees are pari passu in right of payment to the SunEdison’s obligations under its outstanding convertible debt.
Holders of the Exchangeable Notes may exchange their Exchangeable Notes at their option on or after January 29, 2016 at any time prior to the close of business on the business day immediately preceding the maturity date. Upon exchange, Seller Note LLC will deliver shares of TerraForm Power Class A Common Stock, based upon the applicable exchange rate (together with a cash payment in lieu of delivering any fractional share). The initial exchange rate is 28.9140 shares of TerraForm Power Class A Common Stock per $1,000 principal amount of Exchangeable Notes, equivalent to an initial exchange price of approximately $34.58 per share of TerraForm Power Class A Common Stock. The exchange rate is subject to adjustment in some events but will not be adjusted for accrued interest.
Seller Note LLC may not redeem the relevant Exchangeable Notes prior to the maturity date, and no “sinking fund” is provided for the Exchangeable Notes. Upon the occurrence of a “Fundamental Change” (as defined in the Exchangeable Notes Indenture), Holders of the Exchangeable Notes may require Seller Note LLC to repurchase for cash the Exchangeable Notes at a price equal to 100% of the principal amount of the Exchangeable Notes being repurchased plus any accrued and unpaid interest up to, but excluding, the repurchase date; provided, however, that if the repurchase date is after a regular record date and on or prior to the interest payment date to which it relates, Seller Note LLC will instead pay interest accrued to the interest payment date to the holder of record of the Exchangeable Note as of the close of business on the regular record date, and the Fundamental Change purchase price shall then be equal to 100% of the principal amount of the note subject to purchase and will not include any accrued and unpaid interest. In addition, following certain events that constitute “Make-Whole Fundamental Changes” (as defined in the Exchangeable Notes Indenture), Seller Note LLC will increase the exchange rate for holders who elect to exchange Exchangeable Notes in connection with such events in certain circumstances.
The Exchangeable Notes are subject to certain customary events of default, as described in the Exchangeable Notes Indenture. The Exchangeable Notes were offered in a private placement to certain eligible investors pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”).
In connection with the issuance of the Exchangeable Notes, SunEdison entered into a registration rights agreement with the holders of the Registrable Securities (as defined therein) party thereto, the Exchangeable Notes Trustee and TerraForm Power, pursuant to which TerraForm Power agreed to file a shelf registration statement (the “Shelf Registration Statement”) with the Securities and Exchange Commission (the “SEC”), covering resales of Registrable Securities, if any, issuable upon exchange of the Exchangeable Notes by the holders of Registrable Securities (including the Exchangeable Notes Trustee), and have it declared effective by the SEC within twelve months of the issue date of the Exchangeable Notes (the “Effectiveness Deadline”), or use commercially reasonable efforts to cause the Shelf Registration Statement to be declared effective by the SEC as soon as reasonably practicable if certain events described in the Exchangeable Notes Indenture occur before the Effectiveness Deadline. Upon effectiveness of the Shelf Registration Statement, Significant Holders (as defined in the registration rights agreement) will have the ability to request up to two underwritten offerings per year, and TerraForm Power will cooperate with non-Significant Holders in effecting block trades, in each case under the Shelf Registration Agreement and subject to minimum aggregate offering sizes and certain other conditions. The Registration Rights Agreement includes customary piggyback registration rights and black-out periods and also provides that to the extent TerraForm Power does not meet certain obligations pursuant to the agreement, it will be obligated to pay liquidated damages to holders of the Exchangeable Notes that are party to the registration rights agreement.
2.375% Convertible Senior Notes Offering Due 2022
On January 27, 2015, SunEdison issued $460.0 million in aggregate principal amount of 2.375% Convertible Senior Notes due April 15, 2022 (the “Notes”) under an indenture, dated as of January 27, 2015 (the “Indenture”), between the Company and Wilmington Trust, National Association, as trustee (the “Trustee”). The Company offered and sold the Notes in reliance on the exemption from registration provided by Section 4(2) of the Securities Act. The initial purchasers for the offering (the “Initial Purchasers”) offered and sold the Notes to “qualified institutional buyers” pursuant to the exemption from registration provided by Rule 144A under the Securities Act. The Notes and any common stock issuable upon conversion of the Notes have not been registered under the Securities Act and may not be offered or sold in the United States absent registration or an applicable exemption from registration.
The Notes will bear interest at a rate of 2.375% per year, payable semiannually in arrears in cash on April 15th and October 15th of each year, beginning on October 15, 2015. The Notes are our senior unsecured obligations and will rank equally with all of our existing and future senior unsecured debt and senior to all of our existing and future subordinated debt.
Holders may surrender all or any portion of their notes for conversion at any time until the close of business on the business day immediately preceding January 15, 2022 only under the following circumstances: (1) during any calendar quarter
commencing after the calendar quarter ending March 31, 2015 if the closing sale price of our common stock, for at least 20 trading days (whether or not consecutive) in the period of 30 consecutive trading days ending on the last trading day of the calendar quarter immediately preceding the calendar quarter in which the conversion occurs, is more than 130% of the conversion price of the notes in effect on each applicable trading day; (2) during the five consecutive business day period following any 10 consecutive trading-day period in which the trading price for the notes for each such trading day is less than 98% of the closing sale price of our common stock on such trading day multiplied by the applicable conversion rate on such trading day; or (3) upon the occurrence of specified corporate events described in the offering memorandum pertaining to the Notes. On and after January 15, 2022 and until the close of business on the second scheduled trading day immediately prior to the stated maturity date, holders may surrender all or any portion of their notes for conversion regardless of the foregoing conditions.
Upon conversion we will pay cash, and if applicable, deliver shares of our common stock, based on a “Daily Conversion Value” calculated on a proportionate basis for each “VWAP Trading Day” (each as defined in the Indenture) of the relevant 25 VWAP Trading Day observation period. The initial conversion rate for the Notes will be 39.6118 shares of common stock per $1,000 in principal amount of Notes, equivalent to a conversion price of approximately $25.25 per share of common stock. The conversion rate will be subject to adjustment in certain circumstances.
Subject to certain exceptions, holders may require the Company to repurchase, for cash, all or part of their Notes upon a “Fundamental Change” (as defined in the Indenture) at a price equal to 100% of the principal amount of the Notes being repurchased plus any accrued and unpaid interest up to, but excluding, the “Fundamental Change Purchase Date” (as defined in the Indenture). In addition, upon a “Make-Whole Fundamental Change” (as defined in the Indenture) prior to the maturity date of the Notes, we will, in some cases, increase the conversion rate for a holder that elects to convert its Notes in connection with such Make-Whole Fundamental Change. The Company may not redeem the Notes prior to maturity.
The Indenture contains certain events of default after which the Notes may be due and payable immediately. Such events of default include, without limitation, the following: failure to pay interest on any Note when due and such failure continues for 30 days; failure to pay any principal of any Note when due and payable at maturity, upon required repurchase, upon acceleration or otherwise; failure to comply with our obligation to convert the Notes into cash, our common stock or a combination of cash and our common stock, as applicable, upon exercise of a holder’s conversion right and such failure continues for 5 business days; failure by us to provide timely notice of a fundamental change, make-whole fundamental change or certain distributions; failure in performance or breach of any covenant or agreement by us under the Indenture (other than those described above in this paragraph) and such failure or breach continues for 60 days after written notice has been given to us; failure to pay any indebtedness borrowed by us or one of our Significant Subsidiaries (as defined in the Indenture) in an outstanding principal amount in excess of $50 million; failure by us or one of our Significant Subsidiaries to pay, bond or otherwise discharge any judgments or orders in excess of $50 million within 30 days of the entry of such judgment; and certain events in bankruptcy, insolvency or reorganization of the Company.
Capped Call Transactions
In connection with the offering of the Notes, on January 27, 2015, the Company entered into capped call transactions with three counterparties, including certain of the Initial Purchasers or their affiliates (the “Option Counterparties”).
Funding of the capped call transactions occurred on January 27, 2015. The capped call transactions cover, subject to customary anti-dilution adjustments, the number of shares of the Company’s Common Stock initially underlying the Notes, at a strike price that corresponds to the initial conversion price of the Notes, also subject to adjustment. The capped call transactions are expected generally to reduce the potential dilution with respect to the Company’s common stock upon conversion of the notes and/or offset any cash payments the Company is required to make in excess of the principal amount of converted notes, as the case may be, upon any conversion of notes in the event that the market price of the Company’s common stock is greater than the strike price of the capped call transactions, with such reduction of potential dilution or offset of cash payments subject to a cap based on the cap price of the capped call transactions. The cap price of the capped call transactions is initially approximately $32.72 per share, which is approximately 75% above the closing sale price of the Company’s Common Stock on January 21, 2015. The Company paid an aggregate of approximately $37.6 million to the Option Counterparties for the capped call transactions.
Credit Facility Amendment
On January 20, 2015, we entered into Amendment No. 5 to our Credit Agreement dated as of February 28, 2014. Amendment No. 5 amends our Credit Agreement to permit us to incur a loan of up to $400 million secured by certain equity interests in TerraForm and to issue up to $500 million in convertible senior notes due 2022.
Sale of SunEdison Semiconductor Shares through a Secondary Offering
On January 20, 2015, the Company disposed of 12,951,347 shares of SSL in connection with an underwritten public offering (the “Offering”) of 17,250,000 ordinary shares, no par value. The Offering closed on January 20, 2015 (the “Closing Date”). Going forward, SunEdison will no longer consolidate SSL's results with those of SunEdison. In addition, because SunEdison ceased to own 50% or more of SSL’s outstanding ordinary shares, employees of SSL were deemed to have a termination of employment from the Company under its various equity incentive plans and all of their outstanding equity awards with respect to Company stock would have been forfeited (in the case of unvested awards) or would have expired within three months (in the case of vested options) in accordance with the terms of such plans. In order to minimize the adverse impact of these plans’ provisions on the SSL employees, to provide for a fair continuation of the compensation previously granted and to ensure that SSL’s employees remain incentivized and committed to the mission and performance of SSL’s objectives, SSL and the Company agreed, effective as of the Closing, to replace 25% of the equity-based compensation awards relating to Company stock that are unvested and held by SSL employees (including non-U.S. employees, subject to applicable local laws) with adjusted stock options and restricted stock units, as applicable, for the SSL’s ordinary shares, each of which generally preserves the value of the original awards. Each of the foregoing replacement awards was issued pursuant to the SunEdison Semiconductor Limited 2014 Long-Term Incentive Plan. The remaining 75% of each of the unvested awards and all vested awards will continue to be held as stock options and restricted stock units, as applicable, for Company common stock by virtue of an amendment to our plans. These continuing options and restricted stock units will continue to vest in accordance with their terms, with employment by SSL deemed employment by the Company. The options may be exercised, when vested, by SSL’s employees in accordance with the terms of the original grant. Vesting terms for any awards relating to SSL’s ordinary shares that were substituted for awards originally granted with respect to the Company stock generally remain substantially similar to the vesting provided for under the original awards, subject to certain adjustments to reflect employment with SSL.
Solar Energy Segment
Overview. Our Solar Energy segment provides solar energy services that integrate the design, installation, financing, monitoring, operations and maintenance portions of the downstream solar market to provide a comprehensive solar energy service to our customers. We are a leading global solar energy services provider. As of December 31, 2014, we have interconnected over 974 solar power systems representing 2.35 gigawatts ("GW") of solar energy generating capacity. As of December 31, 2014, we had 467 megawatts ("MW") of projects under construction and 5.1 GW in pipeline. A solar energy system project is classified as "pipeline" when we have a signed or awarded power purchase agreement (PPA) or other energy off-take agreement or have achieved each of the following three items: site control, an identified interconnection point with an estimate of the interconnection costs, and an executed energy off-take agreement or the determination that there is a reasonable likelihood that an energy off-take agreement will be signed. "Under construction" refers to projects within pipeline, in various stages of completion, which are not yet operational. There can be no assurance that pipeline will be converted into completed projects or generate revenues or that we can obtain the necessary financing to construct these projects.
In support of our downstream solar business, our Solar Energy segment manufactures polysilicon, silicon wafers and solar modules. Additionally, our Solar Energy segment will sell solar modules to third parties in the event the opportunity aligns with our internal needs. Consistent with our existing solar strategy, we will continue to utilize our joint ventures and partner with third-party vendors to procure or have manufactured solar modules for use in our business.
Our business is focused on the installation of solar energy systems that are connected to the electricity grid. A wide variety of international and U.S. federal, state and local government and utility commission rules, regulations and policies affect our ability to conduct our business. See "Regulation" below.
We provide our downstream customers with a simplified and economical way to purchase renewable energy by delivering solar power under long-term power purchase arrangements with customers or feed-in tariff arrangements with government entities and utilities. Our business is heavily dependent upon government subsidies, including U.S. federal incentive tax credits, state-sponsored energy credits and foreign feed-in tariffs. In certain jurisdictions, the sale of a solar energy system would not be profitable without these incentives. When we retain systems on our balance sheet, our customers pay us only for the electricity output generated by the solar energy systems we install on their rooftops, or other property, thereby avoiding the significant capital outlays otherwise usually associated with power plant projects, including typical solar power plants. Once installed, our solar energy systems provide energy savings to customers and enable them to hedge a portion of their energy costs against volatile electricity prices by generating electricity during daylight hours when electricity prices are typically highest.
Our objective is to develop solar power generation assets that serve as a cost-effective clean energy alternative to central-generated power in select markets throughout North America, South America, Europe, the Middle East and Asia. Outside of the United States, including in Europe, Asia and Canada, projects are developed and operated pursuant to a government feed-in tariff structure which provides stable pricing under long term contracts, typically 20 years. In certain countries, for example, in India
and South Africa, there is a multi-year holding requirement for a portion of our equity position in such projects. In the United States, Canada, South Africa, Australia and India, we sell a portion of solar systems directly to a strategic buyer which results in the recognition of electricity generation and revenue. We are now developing and constructing solar power generation assets and retaining the assets on the balance sheet, including systems that we intend to contribute to TerraForm and other potential yield vehicles. These assets produce electricity that is sold to the energy consumer or utility generator and results in the recognition of electricity generation and revenue. For many projects, we operate solar energy systems after construction pursuant to predefined operations and maintenance agreements. Our long-term objective is to lower the levelized cost of solar energy to the point that solar electricity is cost competitive with fossil fuel generated electricity, enabling us to reach grid parity with traditional energy alternatives without government incentives or subsidies. We also intend to leverage our customer relationships and on-site customer presence to obtain additional power purchase agreements for new locations and long-term contracts for operations and maintenance services for non-SunEdison solar energy systems.
Our portfolio of solar power generation assets that we have sold and then leased back generates revenue in the U.S. from the sale of electricity pursuant to long-term, typically 20-year, solar power services agreements and the receipt and sale of renewable energy incentives, including renewable energy credits ("RECs"), which we sell to third parties. In the State of California, we may also receive performance based incentives ("PBIs") from public utilities, under certain state-wide solar incentive programs.
Through electricity generation by solar electric systems that we operate and through the solar power services agreements in certain states in the U.S., including Massachusetts, Maryland, New Jersey, California, Ohio and Colorado, we are credited with approximately one REC for each 1,000 kilowatt-hour (or megawatt-hour) of electricity we produce. RECs represent the right to claim the environmental, social and other non-power qualities of the renewable electricity generation. At the appropriate time in the construction of a solar power plant, we submit an application to the relevant state energy regulatory bodies. The solar power plant is inspected and, if approved, we are qualified to receive RECs based on actual production in the future. A REC, and its associated attributes and benefits, can be sold with or separately from the underlying physical electricity associated with a renewable-based generation source. Buyers of these certificates are typically the utilities that can use the credits to offset state or public utility commission mandated environmental obligations that specify that a portion of their electricity must be generated by solar energy or commodity trading desks that acquire RECs to resell to utilities. Whenever possible, we enter into multi-year binding contractual arrangements with utility companies or other investors who purchase RECs at fixed rates. Sales directly to utilities are generally recorded at the time the required level of energy is generated, which in turn gives us the right to the REC. We typically have the legal and contractual right to transfer ownership of RECs to third parties under the terms of the agreements between us and the utility. Investors also purchase these certificates, typically under similar contracts. These investors then resell the certificates to end-user utilities or other companies.
In the event of under-production of energy versus the contracted volume or inability to secure state validation, we may be required to purchase RECs on the spot market and transfer them to the contracted counterparty. Based on our operating experience, we believe that it is unlikely that we would be required to purchase a material amount of RECs to satisfy potential future contractual shortfalls.
We also receive renewable energy incentives from public utilities in the State of California in the form of PBIs under the California Solar Initiative ("CSI") program for the production of renewable energy. A fixed rate per kilowatt hour of actual solar energy production is paid in cash by the utilities over a 60 month period, and the incentive is not based or calculated on the cost to construct the solar power plant. The PBIs are not earned by us unless production actually occurs. There is no penalty under the PBI program if there is no electricity production. Production from our operated systems is verified by an independent third party before billing to the utilities. Unlike RECs discussed above, PBIs are merely a cash incentive and are not tradeable.
Suppliers and Raw Materials. For our Solar Energy business, we procure modules through our OEM (Original Equipment Manufacturer) manufacturing relationships and we also have a limited number of suppliers for modules, trackers and inverters. We generally enter into purchase agreements with one (or more) year terms with these suppliers. We believe this allows us to optimize system performance, reduce system costs and benefit from the long-term innovation and cost reduction trends of the solar industry. Our solar module suppliers generally provide a 25-year limited warranty for power and a multi-year limited warranty for workmanship. We provide a similar warranty for our solar modules that we supply to our own solar energy projects or to third party purchasers of such modules. Inverter suppliers generally provide a product workmanship warranty of five years with available extended warranties if purchased. In the event that a module or inverter fails in the future, we will repair or replace the failed module or inverter and then recoup the costs from the supplier. We have also entered into OEM module production arrangements to strengthen our supply chain and provide lower cost modules.
For our solar wafer production, the main raw material is polysilicon. We use two types of polysilicon: granular polysilicon and chunk polysilicon. We produce all of our requirements for granular polysilicon at our facility in Pasadena, Texas. Although we have produced chunk polysilicon in our Merano, Italy polysilicon facility, on February 10, 2014, the Company announced
that the facility will be indefinitely closed. The Merano polysilicon facility was shuttered in December of 2011 as part of the 2011 Global Plan (see Note 13 to the consolidated financial statements). We explored various options to improve the cost effectiveness of the Merano polysilicon facility. Ultimately, the identified cost reductions were not enough to sustain the economic viability of the plant in the current market environment. In connection with the closure, the associated electronic grade TCS (trichlorosilane) operation, which employs approximately 35 people, will be closed over the next 12 months. As a result of the decision to indefinitely close the polysilicon manufacturing facility and TCS operation, we recorded $37.0 million of non-cash impairment charges to write down these assets to their current estimated salvage value for the year ended December 31, 2013. In 2014, we received offers of interest to purchase these facilities. These offers indicated to us that the carrying value of the assets exceeded the estimated fair value. As a result of an impairment analysis, we recognized $57.3 million of impairment charges to write down these assets to their estimated fair value. In December 2014, we closed the sale of the Merano, Italy facilities. The facilities were sold to a third party for $12.2 million. No cash payment was made at the date of closing and the purchase consideration will be paid to us over ten years. In connection with the sales transaction, we provided the buyer with loans totaling $9.1 million which will be repaid over nine years. We accounted for this transaction in accordance with the deposit method of real estate accounting, and we recognized a $4.7 million loss on sale of property, plant and equipment for the year ended December 31, 2014.
We are now buying chunk polysilicon pursuant to short- to medium-term agreements with other polysilicon manufacturers. Chunk polysilicon can be substituted for granular polysilicon, although our manufacturing throughput and yields could be adversely affected.
In February 2011, we entered into a joint venture (SMP Ltd. or "SMP") with Samsung Fine Chemicals Co. Ltd. ("SFC") for the construction and operation of a new facility in Ulsan, South Korea to produce high purity polysilicon, including electronic grade polysilicon, which is expected to have an initial, annual production capacity of approximately 10,000 metric tons. Prior to May 28, 2014, our ownership interest in SMP was 50% and Samsung Fine Chemicals Co. Ltd. owned the other 50%. In September 2011, we executed a Supply and License Agreement with SMP under which we license and sell to SMP certain technology and related equipment used for producing polysilicon. In accordance with the Supply and License Agreement, we have received proceeds based on certain milestones we have achieved throughout the construction, installation and testing of the equipment. On May 28, 2014, we acquired from SFC an approximate 35% interest in SMP for a cash purchase price of $140.7 million ($71.2 million, net of cash acquired). Prior to the completion of the SSL IPO, we contributed this approximate 35% interest in SMP to SSL. As a result, on a consolidated basis, we own an approximate 85% interest in SMP, and effectively control SMP's operations, and thus SMP's results are included in our consolidated financial statements from May 28, 2014 onwards. In connection with the contribution, SSL entered into a joinder and amendment agreement whereby SSL became a party to and undertook its pro rata share of the obligations of the SMP joint venture agreement. Construction of the SMP facility was recently completed. Once operational, SMP is required to sell to the joint venture partners their pro rata share (based on their respective ownership interests) of SMP’s polysilicon production at prices negotiated and mutually agreed upon between SMP and the joint venture partners based on a standard cost plus a markup established by an independent professional transfer consultant engaged by SMP. Until February 15, 2019, the joint venture partners have agreed not to transfer interests in SMP to any party other than respective affiliates. After February 15, 2019, if any joint venture partner desires to transfer its interest in SMP to any party other than one of its affiliates, each other joint venture partner has a right of first refusal to purchase such interest.
Sales, Marketing and Customers. We market our solar energy generation, monitoring and maintenance services primarily through a direct sales force, and also through local or regional solar channel partners both domestically and internationally. A key element of our sales and marketing strategy is establishing and maintaining close relationships with our customers. We accomplish this through multi-functional teams of marketing, sales, technical, project finance and legal personnel.
Domestic Marketing and U.S. Customers. Our U.S. solar energy customers fall into three categories: (i) commercial customers, which principally include large, national retail chains and real estate property management firms; (ii) federal, state and municipal governments; and (iii) utilities.
For our commercial customers, our business model centers on entering into long-term power purchase agreements where our customers purchase electricity at a pre-determined price for an extended period of time, which may be up to 20 years. Under these arrangements, we generally agree to sell, and the customer agrees to buy, all of the electricity produced by a solar energy system which is installed to the rooftops of the location where the customer is located, canopies built over parking lots on their land or on their other property. We structure these contracts so that the customer pays us a price per kilowatt hour that is competitive with the price charged by the customer’s local electric utility. Our commercial customers are primarily large companies that operate on a national or regional basis. These customers have certain attributes that make them good candidates for our services, such as multiple locations with large rooftops, parking canopies or unused land, strong credit quality, large electricity consumption requirements and appropriate load usage.
Our approach to government customers is similar to that with commercial customers. Government customers also purchase power under long-term power purchase agreements; however, our government customers generally tend to be interested in single large solar energy systems rather than systems at multiple locations. Our solar energy services provide several benefits tailored to government customers, including helping them to achieve renewable energy mandates and allowing them to benefit from solar tax incentives for which they would not otherwise qualify.
We typically enter into two kinds of agreements with utility customers-long-term power purchase agreements and agreements to sell RECs. Our power purchase agreements, similar to our agreements with commercial and government customers, provide for the sale of electricity to the utility at a contracted price, typically over a 20-year term. The benefits to our utility customers of entering into a power purchase agreement with us include: (i) our solar energy systems allow utilities to satisfy increasing interest by their customers and regulators in purchasing electricity generated by solar and other renewable energy sources; (ii) our distributed generation system can help utilities balance grid electricity demands and meet their ongoing generation, transmission and distribution requirements in order to supply electricity to their end-customers, while avoiding expensive and potentially difficult new generation, transmission and distribution investment and construction; and (iii) because the pricing of the electricity generated by our solar energy systems takes into account all available federal and state tax incentives, which certain not-for-profit utilities are not entitled to benefit from directly, our solar energy systems offer utilities a mechanism through which to indirectly benefit from these tax incentives. We sell RECs that are generated by our solar energy systems to utilities to assist them in complying with renewable energy regulatory requirements that require them to produce a specified percentage of their electricity from renewable energy sources.
International Marketing and Foreign Customers. Our international business operations have focused primarily in certain areas in Europe, Canada, Latin America, South Africa and India and we continue to diversify our business internationally. Our growth in 2010 primarily reflected an increase in ground mount projects in Italy. Our growth in 2011 and 2012 was primarily from an increase in utility projects in North America. Our 2013 growth was similarly focused in North America while also diversifying into South Africa and South America. For 2014, our growth was primarily in Canada, Chile, India, South Africa and the United Kingdom. We believe this regional and market diversification will reduce country concentration risk and improve overall project returns.
In our international operations, we either develop projects ourselves or enter into strategic alliances or partnership arrangements with local project developers with extensive knowledge of the local licensing, permitting, land siting and other legal aspects of developing a solar energy system in each given country or region. Under these arrangements, our local partners generally obtain the necessary permits, authorizations, licenses and land rights for the development of the solar energy system, and we manage the design and engineering, construction, procurement, installation and financing of the solar energy system. We also may execute an operations and maintenance agreement to service the system for an extended period of time after construction.
Project Finance and Project Working Capital. Except for systems retained and a small number of systems sold to third parties, our business model is to contribute or sell solar energy systems to our TerraForm Power segment, and to realize cash upon the completion and sale of a solar energy system (directly or through the sale of the equity in the vehicle company owning such system). Typically, a construction financing facility is implemented prior to commencement of construction of the solar energy system, or when the projects are at an early stage of construction, and long-term debt and/or equity financing of ITC credits in the United States is arranged prior to commercial operation of the system and drawn on at or about the time of commercial operation or the sale of the system.
We utilize a variety of project and debt financing structures to arrange long-term financing for our systems, including non-recourse construction finance. In the United States, our long-term financing consists of selling our solar energy systems to TerraForm for further leasing to a tax advantaged equity owner pursuant to a lease pass through structure or a sale to a partnership between TerraForm and tax advantaged equity owner in a partnership flip structure. Outside the U.S., we typically obtain term debt financing with a maturity date tied to the date the applicable feed-in tariff or similar incentive expire, or in the case of projects structured on the basis of power purchase agreements, tied to the duration of such agreements. The tenor for our merchant plants (San Andres and Crucero in Chile), in absence of incentives and power purchase agreements, was agreed to on the basis of the projected market prices. Upon the sale of these systems, the new project owner acquires the term debt financing. Alternatively, in lieu of, or in addition to financing solar energy systems, we may choose to sell a portion of our systems portfolio to third parties. Outside the U.S., we generally sell projects outright to third parties, except in India, South Africa and Jordan where there is a partial equity holding requirement. Our currently known or anticipated market and liquidity risks are described more fully in Item 1A, "Risk Factors", below, and "Management's Discussion and Analysis of Financial Condition and Results of Operations-Liquidity and Capital Resources" in our 2014 Annual Report, which is incorporated herein by this reference.
Asset Management of Renewable Energy Systems: We also provide services related to the safeguarding of our customers’ assets and maximizing their performance. Our customers can be either related- parties or third-parties. We also operate assets that are neither owned nor installed by SunEdison. We deliver operations and maintenance services, portfolio management services and other solutions to our customers.
Operations and Maintenance
Our Renewable Operations Centers (“ROC's”) provide monitoring of renewable energy systems and measure outputs in minute-level increments. This enables us to dispatch repair crews as needed based on system performance and conditions. Our customers are also able to access data for their systems remotely through our online customer portal. With the SunEdison Energy & Environmental Data System ("SEEDS") Data Acquisition System, we are able to measure production, create customized reports and ensure efficient operation and maintenance. Our personnel (or subcontractors) may be responsible for the corrective and preventive maintenance as well as maintaining our customers' assets in good working order (including vegetation abatement and module washing). Our personnel (or subcontractors) also perform extraordinary maintenance work, not included in our standard scope of work, for an additional fee.
Portfolio Management
We maintain overall compliance of our customers’ assets with the various project documents including, but not limited to, regulatory compliance, statutory reporting, debt covenants compliance. Our team also prepares forecasts and variance analysis for our customers’ assets as well as reporting and consolidating financials. We maintain the financial records of our customers’ assets and ensure that their financials are fairly and accurately stated, both from a local statutory and US GAAP standpoint.
Other Solutions
We provide software applications to enhance our customers’ control over their assets, including software to monitor, report, and diagnose performance. Our team also provides data analytics and insights to understand key drivers of assets performance and we offer advisory services to enhance assets performance.
Competition. The solar power market in general competes with conventional fossil fuels supplied by utilities and other sources of renewable energy such as wind, hydro, biomass, concentrated solar power and emerging distributed generation technologies such as micro-turbines and fuel cells. Furthermore, the market for solar electric power technologies is competitive and continually evolving. We believe our major competitors in the renewable energy services provider market include E.On, Enel, NextEra, NRG, SunPower Corporation, First Solar, Inc., JUWI Solar Gmbh and Solar City. We may also face competition from polysilicon solar wafer and module suppliers, who may develop solar energy system projects internally that compete with our product and service offerings, or who may enter into strategic relationships with or acquire other existing solar power system providers. We also compete to obtain limited government funding, subsidies or credits. In the large-scale on-grid solar power systems market, we face direct competition from a number of companies, including some utilities and construction companies that have expanded into the renewable sector. In addition, we will occasionally compete with distributed generation equipment suppliers.
We generally compete on the basis of the price of electricity we can offer to our customers; our experience in installing high quality solar energy systems that are generally free from system interruption and that preserve the integrity of our customers’ properties; our continuing long-term solar services (operations and maintenance services) and the scope of our system monitoring and control services; quality and reliability; and our ability to serve customers in multiple jurisdictions.
Seasonality. Our quarterly revenue and operating results for solar energy system installations are difficult to predict and have in the past and may in the future fluctuate from quarter to quarter due to changes in subsidies, as well as weather, economic trends and other factors. For example, in Canada and in European countries with feed-in tariffs, the construction of solar power systems may be concentrated during the second half of the calendar year, largely due to periodic reductions of the applicable minimum feed-in tariff and the fact that the coldest winter months are January through March, which impacts the extent (or amount) of construction that occurs. In the United States, customers or investors will sometimes make purchasing decisions towards the end of the year in order to take advantage of tax credits or for other budgetary reasons.
TerraForm Power Segment
TerraForm was formed under the name SunEdison Yieldco, Inc. on January 15, 2014, as a wholly owned indirect subsidiary of SunEdison. The name change from SunEdison Yieldco, Inc. to TerraForm Power, Inc. became effective on May 22, 2014. Following TerraForm’s initial public offering ("IPO") on July 23, 2014, TerraForm became a holding company and its sole asset is an equity interest in TerraForm Power, LLC ("Terra LLC") an owner of solar generation systems and long-term contractual arrangements to sell the electricity generated by such systems and the related green energy certificates and other environmental attributes to third parties. TerraForm is the managing member of Terra LLC, and operates, controls and consolidates the business affairs of Terra LLC.
TerraForm is a dividend growth-oriented company formed to own and operate contracted clean power generation assets acquired from SunEdison and from third parties. Its business objective is to acquire high-quality contracted cash flows, primarily from owning solar and wind generation assets serving utility, commercial and residential customers. Over time, TerraForm intends to acquire other clean power generation assets, including natural gas and hydro-electricity facilities, as well as hybrid energy solutions that enable TerraForm to provide contracted power on a 24/7 basis.
Business Strategy. TerraForm’s primary business strategy is to increase the cash dividends it pays to holders of its Class A common stock over time. Its plan for executing this strategy includes the following:
Focus on long-term contracted clean power generation assets. TerraForm’s portfolio and any projects that it acquires from SunEdison or third parties will have long-term PPAs with creditworthy counterparties. TerraForm intends to focus on owning and operating long-term contracted clean power generation assets with proven technologies, low operating risks and stable cash flow.
Grow the business through acquisitions of contracted operating assets. TerraForm intends to acquire additional contracted clean power generation assets from SunEdison and third parties to increase its cash available for distribution.
Attractive asset classes. TerraForm’s current focus is on the solar and wind energy segments because of the belief they are currently the fastest growing segments of the clean power generation industry and offer attractive opportunities to own assets
and deploy long-term capital due to the predictability of cash flow. In particular, TerraForm believes the solar and wind segments are attractive because there is no associated fuel cost risk and the relevant technologies have become highly reliable. TerraForm also believes the declining levelized costs of energy for solar and wind projects will enable these asset classes to continue to add additional MW of completed projects to its portfolio and enable it to gain market share. Solar and wind projects also have an expected life which can exceed 30 years. In addition, the solar and wind energy generation projects in or to be added to TerraForm’s portfolio generally operate under long-term PPAs with terms of up to 30 years.
Focus on core markets with favorable investment attributes. TerraForm intends to focus on growing its portfolio through investments in markets with (i) creditworthy PPA counterparties, (ii) high clean energy demand growth rates, (iii) low political risk, stable market structures and well-established legal systems, (iv) grid parity or the potential to reach grid parity in the near term and (v) favorable government policies to encourage renewable energy projects. TerraForm believes there will be ample opportunities to acquire high-quality contracted power generation assets in markets with these attributes. While its current focus is on solar and wind generation assets in the United States, Canada, the United Kingdom and Chile, TerraForm will selectively consider acquisitions of contracted clean generation sources in other countries.
Maintain sound financial practices. TerraForm intends to maintain its commitment to disciplined financial analysis and a balanced capital structure. Its financial practices include (i) a risk and credit policy focused on transacting with creditworthy counterparties, (ii) a financing policy focused on achieving an optimal capital structure through various capital formation alternatives to minimize interest rate and refinancing risks, and (iii) a dividend policy that is based on distributing the cash available for distribution generated by its project portfolio (after deducting appropriate reserves for working capital needs and the prudent conduct of its business). TerraForm’s initial dividend was established based on our targeted payout ratio of approximately 85% of projected cash available for distribution.
Competition
Power generation is a capital-intensive business with numerous industry participants. TerraForm competes to acquire new solar generation facilities and wind power plants with renewable energy developers who retain renewable energy power generation asset ownership, independent power producers, financial investors and certain utilities. TerraForm competes to supply energy to its potential customers with utilities and other providers of distributed generation. TerraForm competes with other solar and wind developers, independent power producers and financial investors based on its competitive cost of capital, development expertise, pipeline, global footprint and brand reputation. TerraForm believes that they compete favorably with its competitors
based on these factors in the regions they service. To the extent TerraForm re-contract power generation facilities upon termination of a PPA or sell electricity into the merchant power market, they compete with traditional utilities primarily based on low cost of capital, generation located at customer sites, operations and management expertise, price (including predictability of price), green attributes of power, the ease by which customers can switch to electricity generated by its solar generation facilities and wind power plants and its open architecture approach to working within the industry, which facilitates collaboration and power generation asset acquisitions.
Environmental Matters
TerraForm is subject to environmental laws and regulations in the jurisdictions in which they own and operate solar generation facilities and wind power plants. These laws and regulations generally require that governmental permits and approvals be obtained both before construction and during operation of these power generation assets. TerraForm incurs costs in the ordinary course of business to comply with these laws, regulations and permit requirements. While TerraForm does not expect that the costs of compliance to generally have a material impact on its business, financial condition or results of operations, it is possible that as the size of its portfolio grows we may become subject to new or modified regulatory regimes that may impose unanticipated requirements on its business as a whole that were not anticipated with respect to any individual project. TerraForm also do not anticipate material capital expenditures for environmental controls for its solar generation facilities and wind power plants in the next several years. These laws and regulations frequently change and often become more stringent, or subject to more stringent interpretation or enforcement, and therefore future changes could require us to incur materially higher costs which could have a material adverse impact on its financial performance or results of operations.
Regulatory Matters
With the exception of the Mt. Signal, Regulus and certain of the power plants TerraForm acquired as part of the First Wind acquisition, all of the U.S. renewable energy solar generation facilities and wind power plants in its portfolio are "Qualifying Small Power Production Facilities" ("QFs") as defined under the Public Utilities Regulatory Policies Act of 1978, as amended ("PURPA"). Depending upon the power production capacity of the renewable energy power generation asset in question, TerraForm's QFs and their immediate project company owners may be entitled to various exemptions from ratemaking and certain other regulatory provisions of the Federal Power Act, as amended ("FPA"), from the books and records access provisions of the Public Utilities Holding Company Act of 2005, as amended ("PUHCA"), and from state organizational and financial regulation of electric utilities.
All of the solar generation facility companies that TerraForm owns outside of the United States are Foreign Utility Companies, as defined in PUHCA. They are exempt from state organizational and financial regulation of electric utilities and from most provisions of PUHCA and FPA.
The owners of each of the Mt. Signal project (the "Mt. Signal ProjectCo"), the Regulus project (the "Regulus ProjectCo") and certain of TerraForm's wind projects are Exempt Wholesale Generator ("EWGs") as defined in PUHCA (the "EWG ProjectCos"). Status as an EWG exempts them and TerraForm (for purposes of TerraForm's ownership of each such company) from the federal books and access provisions of PUHCA. Each of the Mt. Signal ProjectCo, the Regulus ProjectCo and the EWG ProjectCos has obtained “market-based rate authorization” and associated blanket authorizations and waivers from the Federal Energy Regulation Commission ("FERC") under the FPA, which allows it to sell electric energy, capacity and ancillary services at wholesale at negotiated, market-based rates, instead of cost-of-service rates, as well as waivers of, and blanket authorizations under, certain FERC regulations that are commonly granted to market based rate sellers, including blanket authorizations to issue securities.
The project company owners of all U.S. solar generation facilities or wind power plants acquired by TerraForm that have a net power production capacity greater than 20 MW (AC) will similarly need to obtain market-based rate authorization prior to commencement of the sales of test energy from their power generation facilities.
Under Section 203 of the FPA, pre-approval by FERC is generally required for Under Section 203 of the FPA, pre-approval by FERC is generally required for any direct or indirect acquisition of control over, or merger or consolidation with, a “public utility” or in certain circumstances an “electric utility company,” as such terms are used for purposes of FPA Section 203. FERC generally presumes that the acquisition of direct or indirect voting power of 10% or more in an entity results in a change in control of such entity. Violation of Section 203 can result in civil or criminal liability under the FPA, including civil penalties of up to $1 million per day per violation, and the possible imposition of other sanctions by FERC, including the potential voiding of an acquisition made without prior authorization under Section 203. Depending upon the circumstances, liability for violation of FPA Section 203 may attach to a public utility, the parent holding company of a public utility or an electric utility company, or to an acquirer of the voting securities of such holding company or its public utility or electric utility company subsidiaries.
TerraForm's renewable energy solar generation facilities and wind power plants are also subject to compliance with the mandatory reliability standards developed by the North American Electric Reliability Corporation and approved by FERC under the FPA. In the United Kingdom, Canada and Chile, TerraForm is also generally subject to the regulations of the relevant energy regulatory agencies applicable to all producers of electricity under the relevant feed-in tariff ("FIT") regulations (including the FIT rates); however they are generally not subject to regulation as a traditional public utility, i.e., regulation of our financial organization and rates other than FIT rates.
As the size of TerraForm's portfolio grows they may become subject to new or modified regulatory regimes that may impose unanticipated requirements on its business as a whole that were not anticipated with respect to any individual project. For example, the NERC rules impose fleetwide cyber security requirements regarding electronic and physical access to generating facilities in order to protect system reliability; such requirements expand in scope after the point at which a single owner has more than 1,500 MW of reliability assets under its control. Such future changes in TerraForm's regulatory status or the makeup of its fleet could require us to incur materially higher costs which could have a material adverse impact on its financial performance or results of operations.
Government Incentives
Each of the United States, Canada, the United Kingdom and Chile has established various incentives and financial mechanisms to reduce the cost of solar and wind energy and to accelerate the adoption of solar and wind energy. These incentives, which include tax credits, cash grants, tax abatements, rebates and RECs or green certificates and net energy metering programs. These incentives help catalyze private sector investments in solar energy and efficiency measures. Changes in the government incentives in each of these jurisdictions could have a material input on TerraForm's financial performance.
Semiconductor Materials Segment
Wafers for Semiconductor Applications. Almost all semiconductor devices are manufactured using silicon wafers. Wafers are differentiated by specific physical and electrical characteristics, such as flatness and defect free, uniform crystal structures. Semiconductor device manufacturers continue to evolve to devices with shrinking geometries and stringent technical specifications. Wafers required to produce these next generation devices are being developed in larger sizes, with the 300 millimeter wafer now being the primary wafer diameter used today.
SSL offers wafers with a wide variety of features satisfying numerous product specifications to meet its customers’ exacting requirements. Its wafers vary in size, surface features, composition, purity levels, crystal properties and electrical properties. SSL provides its customers with a reliable supply of high quality wafers with consistent characteristics.
SSL's monocrystalline wafers for use in semiconductor applications range in size from 100 millimeter to 300 millimeter and are round in shape for semiconductor customers because of the nature of their processing equipment. These wafers are used as the starting material for the manufacture of various types of semiconductor devices, including microprocessor, memory, logic and power devices. In turn, these semiconductor devices are used in computers, cellular phones and other mobile electronic devices, automobiles and other consumer and industrial products. Our monocrystalline wafers for semiconductor applications include four general categories of wafers: prime, epitaxial, test/monitor and silicon-on-insulator (SOI) wafers.
Polished Wafers
SSL’s polished wafers are used in a wide range of applications, including memory, analog, RF devices, digital signal processors, or DSPs, and power devices. SSL’s polished wafer is a polished, highly refined, pure wafer with an ultra-flat and ultra-clean surface. SSL manufactures the vast majority of its polished wafers with a sophisticated chemical-mechanical polishing process that removes defects and leaves an extremely smooth surface. Wafer flatness and cleanliness requirements, along with crystal perfection, become increasingly important as semiconductor devices become more complex and transistors decrease in size.
SSL’s OPTIA™ wafer is a 100% defect-free crystalline structure based on its patented technologies and processes, including MDZ®. SSL’s MDZ® product feature can increase its customers’ yields by drawing impurities away from the surface of the wafer during device processing in a manner that is efficient and reliable, with results that are reproducible. We believe the OPTIA™ wafer is the most technologically advanced polished wafers available today. Our annealed wafer is a polished wafer with near surface crystalline defects dissolved during a high-temperature thermal treatment.
SSL also supply’s test/monitor wafers to its customers for their use in testing semiconductor fabrication lines and processes. Although test/monitor wafers are substantially the same as polished wafers with respect to cleanliness, and in some cases flatness, other specifications are generally less rigorous.
EPI Wafers
SSL’s EPI wafers increase the reliability and decrease the power consumption of semiconductor devices and therefore are increasingly used in mobile device and cloud infrastructure applications. SSL’s wafers consist of a thin silicon layer grown on the polished surface of the wafer. Typically, the epitaxial layer has different electrical properties from the underlying wafer. This provides our customers with better isolation between circuit elements than a polished wafer, and the ability to tailor the wafer to the specific demands of the device. This improved isolation, allows for increased reliability of the finished semiconductor device and greater efficiencies during the semiconductor manufacturing process, which ultimately allows for more complex semiconductor devices.
SSL designed its AEGIS™ product for certain specialized applications requiring high resistivity EPI wafers The AEGIS™ wafer includes a thin epitaxial layer grown on a standard starting wafer which eliminates harmful defects on the surface of the wafer, thereby allowing device manufacturers to increase yields and improve process reliability.
SOI Wafers
SOI wafers improve switching speeds and enhance the performance of RF devices such as power amplifiers, switches, and sensors. SSL’s SOI wafers have three layers: a thin surface layer of silicon where the transistors are formed, an underlying layer of insulating material and a support or “handle” bulk semiconductor wafer.. Transistors built within the top silicon layer typically switch signals faster, run at lower voltages and are much less vulnerable to signal noise from background cosmic ray particles. Each transistor is isolated from its neighbor by a complete layer of silicon dioxide. References to SOI refer to the thin, layer transfer SOI technology, which is a sub-segment of the overall SOI market in which we participate.
Customers and Customer Concentration
SSL primarily sells its products to all of the major semiconductor manufacturers in the world, including integrated device manufacturers and pure-play semiconductor foundries, and to a lesser extent, leading companies that specialize in wafer customization. SSL services its customers through its 13 global locations, including manufacturing plants and sales and services offices. SSL's top 10 customers by net sales for 2014, set forth in alphabetical order, were: Global Foundries, Infineon Technologies, Intel Corporation, The International Business Machines Corporation (IBM), Micron Technology, NXP Semiconductors, Samsung, STMicroelectronics, TSMC, and United Microelectronics Corporation. SSL has had relationships with all of its top 10 customers for more than 10 years. In 2014, Samsung, TSMC, and STMicroelectronics accounted for approximately 20%, 18%, and 11%, respectively, of SSL's net sales to non-affiliates. No other customer accounted for more than 10% of SSL's net sales to non-affiliates during 2014.
Sales and Marketing. SSL markets its semiconductor wafers primarily through a direct sales force. SSL has customer service and support centers strategically located across the globe, including in China, France, Germany, Italy, Japan, Malaysia, Singapore, South Korea, Taiwan and the United States. A key element of its sales and marketing strategy is establishing and maintaining close relationships with its customers, which is accomplished through multi-functional teams of technical, sales and marketing and manufacturing personnel, including over 30 dedicated field engineers. These multi-functional teams work closely with SSL’s customers to optimize products for its customers’ current and future production processes, requirements and specifications. SSL closely monitors changing customer needs and target its research and development and manufacturing to produce wafers adapted to each customer’s specific needs.
Sales to SSL customers are generally governed by purchase orders or, in certain cases, agreements with terms of one year or less that include pricing terms and estimated quantity requirements. SSL customer agreements generally do not require that a customer purchase a minimum quantity of wafers.
SSL sells semiconductor wafers to certain customers under consignment arrangements. These consignment arrangements generally require them to maintain a certain quantity of wafers in inventory at the customer’s facility or at a storage facility designated by the customer. SSL ships the wafers to the storage facility, but does not charge the customer or recognize sales for those wafers until title passes to the customer under these arrangements. SSL had approximately $20.1 million, $22.9 million, and $27.7 million of inventory held on consignment as of December 31, 2014, 2013, and 2012, respectively.
Manufacturing. SSL has established a global manufacturing network currently consisting of eight manufacturing facilities located in Taiwan, Malaysia, South Korea, Italy, Japan, and the United States to meet its customers’ needs worldwide. SSL has located its manufacturing facilities in regions that offer both low operating costs and highly educated work forces in close proximity to its customers. This “local” presence enables SSL to facilitate collaboration with its customers on product development activities and shorten product delivery and response times.
SSL has installed consistent tools and processes across its manufacturing facilities in order to facilitate the transfer of manufacturing between sites. While customers generally require that they “qualify” each facility at which SSL manufactures wafers for them, a process that typically takes three to six months but which can take up to one year for certain products, in many cases multiple sites are qualified for a particular product to allow manufacturing flexibility. In addition, multiple qualifications permit SSL to quickly shift production between facilities in the event of a natural disaster or other occurrence affecting one of its facilities, enabling uninterrupted delivery of products to its customers.
SSL’s wafer manufacturing process begins with high purity polysilicon. The polysilicon is melted in a quartz crucible along with minute amounts of electrically active elements such as arsenic, boron, phosphorous or antimony. SSL then lowers a silicon seed crystal into the melt and slowly extracts it from the melt. The resultant body of silicon is called an ingot. The temperature of the melt, speed of extraction and rotation of the crucible govern the size of the ingot, while the concentration of the electrically active element in the melt governs the electrical properties of the wafers to be made from the ingot. This is a complex, proprietary process requiring many control features on the crystal-growing equipment.
Once the crystal ingot is grown, SSL grinds the ingots to the specified size and slices them into thin wafers. Next, SSL prepares the wafers for surface polishing with a multi-step process using precision wafer planarization machines, edge contour machines and chemical etchers. Final polishing and cleaning processes give the wafers the clean and ultraflat mirror polished surfaces required for the fabrication of semiconductor devices. SSL further processes some of its products into EPI wafers by utilizing a chemical vapor deposition process to deposit a single crystal silicon layer on the polished surface. Additional wafer customization can be made through SSL’s SOI process, which creates an oxide isolated silicon layer on a base substrate. Due to SSL’s wafer manufacturing capabilities, SSL believes it is one of only two fully integrated SOI manufactures.
Raw Materials. The principal raw material used in SSL’s manufacturing process is polysilicon. SSL has historically obtained its requirements for polysilicon primarily from the Company’s facility in Pasadena, Texas, as well as from other external polysilicon suppliers. SSL expects the Company to continue to supply SSL with its polysilicon requirements. SSL currently owns an approximately 35% interest in SMP Ltd. ("SMP"), which owns a polysilicon manufacturing facility in South Korea. Construction of the SMP polysilicon manufacturing facility was recently completed. The facility is in the initial stages of polysilicon production but has not reached full commercial capabilities at this time, and SSL is not yet purchasing polysilicon from the facility. SSL expects to purchase polysilicon from the Company on a purchase order basis or on short-term agreements at competitive market prices until SMP achieves commercial capabilities to produce electronic grade polysilicon. When SMP achieves such commercial capabilities, SSL expects to purchase a portion of its polysilicon from SMP on a purchase order basis at prices lower than its historical cost for polysilicon. If for any reason the Company or SMP is unwilling or unable to meet SSL’s demand for polysilicon, SSL expects to be able to obtains its requirements from alternative suppliers. However, SSL may experience manufacturing delays, an increase in its costs relating to obtaining polysilicon or a decrease in its manufacturing throughput and yields if it is required to seek alternative suppliers.
Customers. SSL's semiconductor wafer customers include virtually all of the world’s major semiconductor device manufacturers, including the major memory, microprocessor and ASIC manufacturers, as well as the world’s largest foundries.
Competition. The market for semiconductor wafers is competitive. SSL competes globally and faces competition from established manufacturers. SSL's major worldwide competitors are Shin-Etsu Handotai, SUMCO, Siltronic and LG Siltron. SSL's wafers compete on the basis of product quality, consistency, price, technical innovation, customer service and product availability. SSL believes it is competitive on these factors.
Regulation
Our Solar Energy business and First Wind are exempt from most regulation applicable to electric utilities under applicable national, state or other local regulatory regimes where we conduct business. In the United States, many of the solar and wind energy facilities that we own or control are certified as QFs under the Public Utility Regulatory Policy Act of 1978 or "Exempt Wholesale Generators" ("EWGs") under the Public Utility Holding Company Act of 2005. As a result, these projects are exempt from most regulations established by the Federal Energy Regulatory Commission ("FERC"). These exemptions apply to the regulation of rates of interstate sales of wholesale electricity, and otherwise to federal and state laws regarding the financial and organizational regulation of electric utilities. 2014 saw the growth of our utility-scale business, particularly our ownership and/or acquisition of solar and wind energy facilities that were large enough to require additional regulatory compliance. For many of these large utility-scale projects, the utility that is purchasing the energy must seek state regulatory approval of its power purchase agreements entered into with us. Additionally, we developed or acquired utility-scale solar and wind facilities that were not exempt from the ratemaking provisions of the Federal Power Act, and, as a result, sought and obtained or maintained "market-based rate authorization" from FERC in order to undertake wholesale sales of power. A facility with “market-based rate authorization” from FERC is regulated as a "public utility". Our generating facilities are subject to compliance with the applicable mandatory reliability standards developed by the North American Electric Reliability Corporation and approved by
FERC under the Federal Power Act. In Europe, Asia and Canada, SunEdison and its subsidiaries are also generally subject to the regulations of the relevant energy regulatory agencies applicable to all producers of electricity under the relevant feed-in tariff regulations (including the feed-in tariff rates).
Additionally, interconnection agreements are required for virtually all of our projects. Depending on the size of the system and state law requirements, interconnection agreements are between the local utility and/or grid operator and either by us or our customers in the United States. In almost all cases, interconnection agreements are standard form agreements that have been pre-approved by FERC, the local public utility commission ("PUC") or other regulatory body with jurisdiction over interconnection agreements and may require further FERC approval depending on the characteristics of the interconnection.
Research and Development
Solar Energy. The solar wafer market is characterized by intense cost pressures, competition from thin film technologies and geopolitical trade dynamics. We believe that the timely development of higher productivity and lower cost processes, enhancements to the existing products, and development of new wafer products, through our crystal growth and wafer manufacturing process are essential to maintain our competitive position and to provide lower cost modules to our projects. Our goal in solar materials research and development is to continually evaluate the cost and quality at the installed power system level to develop products capable of enhancing overall value for the end consumer while meeting the performance requirements necessary to grow the solar market. We accomplish this by closely linking our research and development projects and goals to the current and future technology requirements across the solar value chain. Some of these projects involve formal and informal joint development and corroboration efforts with our customers.
In the upstream solar materials value chain, we devote research and development resources in the areas of polysilicon production, crystallization, crystal wafering and solar cells and modules. We have a dedicated group of engineers and scientists, working in our St. Peters, Missouri and Pasadena, Texas facilities, to develop higher productivity, lower cost and ultrapure polysilicon fabrication processes. In conjunction with these efforts, we are developing efficient crystal growth processes to produce high quality monocrystalline silicon with lower defect density and higher minority carrier lifetime, using a team of engineers and scientists located primarily in our St. Peters, Missouri, Portland, Oregon and Kuching, Malaysia facilities. With our acquisition of Solaicx, we have a proprietary continuous crystal growth manufacturing technology which yields high-efficiency monocrystalline silicon wafers. The research and development efforts in crystal wafering are directed towards reducing silicon wafer thickness and kerf loss, improving the wafer quality, reducing the overall cost while improving the energy output of the solar modules derived from the silicon wafer, and achieving technological differentiation and innovation. We are developing wafering technologies that enable scaling to thinner wafer thickness while increasing the productivity of the wafering process. We are also continuing to develop our wafering manufacturing facility in Kuching, Malaysia. These efforts focus on simultaneously reducing cost and improving energy output at the module and system level. We achieve this synergy by conducting necessary complementary research and development in solar cells and modules. Our module and solar cell research and development teams are primarily located in Belmont, California. In addition, we have research and development resources in India (design) and Singapore (quality).
Moreover, we work with key customers worldwide through our Product Development/Management and research and development engineers, leveraging our research and development laboratories. This enables us to establish close technical working relationships with our customers to obtain a better knowledge of our customers’ solar materials requirements.
The Product Development and Product Management Groups for our downstream Solar Energy business unit are also focused on reducing the levelized cost of electricity in our photovoltaic installations. As a solar energy services provider, new technology evaluation is a critical part of this effort. The Product Development and Management Groups evaluate emerging industry solutions in the areas of module, structure, inverter and balance of system components. Technology evaluation is pursued through analysis, testing, demonstration and development.
In order to further our research and development efforts, SunEdison LLC became a founding member of the Solar Technology Acceleration Center in Aurora, Colorado in 2008. The other founding partners include Xcel Energy and Abengoa Solar. Sponsoring partners include the National Renewable Energy Lab and the Electric Power Research Institute. In addition to external technology evaluation, the Product Development Group leads efforts to reduce the levelized cost of electricity through internal product development of system components, with particular emphasis on module mounting components like microinverters and DC optimizers. The energy research and development team also focuses on providing platform solutions such as Solar Water Pumps for irrigation, Hybrid Solutions for fuel abatement, and operating and maintenance solutions that includes integrating data collection, analytics and optimization to keep photovoltaic plants performing at expected levels, all on the foundation of proprietary hardware and software.
The Solar Energy Product Development Group also leads a cross functional continuous improvement process within the Company to analyze and improve performance of our operational solar energy systems. This effort focuses on propagating best practices, increasing energy production and minimizing the frequency and impact of system outages. Through these combined efforts, we strive to reduce the cost of electricity delivered.
Semiconductor Materials. The semiconductor wafer market is characterized by continuous technological development and product innovation. SSL's research and development organization consists of over 92 engineers, of whom approximately 52 have PhDs. SSL's research and development model combines engineering innovation with specific commercialization strategies and seeks to align its technology innovation efforts with its customers’ requirements for new and evolving applications. SSL accomplishes this through a deep understanding of its customers’ current and future technology requirements and targeting its research and development efforts at developing products to meet those technology requirements. Particularly, SSL has a Field Applications Engineering team that collaborates with our account managers and serves as the key technical interface between SSL and its customers. Members of this team are assigned to key customers worldwide and lead the introduction and qualification of new products, collaborate with SSL's customers in the development of new technical solutions and support the resolution of any product-related issues.
SSL devotes a significant portion of its research and development resources to enhancing its position in the crystal technology area. In conjunction with the efforts, SSL is developing wafer technologies to meet advanced flatness and particle specifications of its customers. SSL is also continuing to focus on the development of advanced substrates such as EPI and SOI wafers and cost reduction activities.
SSL continues to invest in research and development associated with larger wafer sizes in addition to their focus on advancements in wafer material properties. SSL produced its first 300mm wafer in 1991 and is continuing to enhance its 300mm technology program. SSL produced its first 450mm wafer in 2009, but to date has only produced minimal quantities of mechanical wafers at this size due to limited market demand for 450mm wafers. SSL also continues to focus on process design advancements to drive cost reductions and productivity improvements.
SSL entered into joint development arrangements with SunEdison in connection with its initial public offering pursuant to which we and SSL will collaborate on future research and development activities with respect to the intellectual property to be licensed between us, as well as projects related thereto.
Proprietary Information and Intellectual Property
We believe that the success of our business depends in part on our proprietary technology, information, processes and know how. We protect our intellectual property rights based on patents and trade secrets. As of December 31, 2014, we had approximately 84 U.S. patents, of which approximately three will expire within the next five years, approximately 10 will expire between six and ten years and approximately 71 will expire after ten years. As of December 31, 2014, we had approximately 67 foreign patents, of which approximately 19 will expire within the next five years, approximately three will expire between six and ten years and approximately 45 will expire after ten years. These foreign patents are generally counterparts of our U.S. patents. As of December 31, 2014, we had approximately 113 pending U.S. patent applications and approximately 209 pending foreign patent applications. The patents we beneficially own relate to polysilicon technology.
We have agreed to indemnify some of our customers against claims of infringement of the intellectual property rights of others in our sales contracts with these customers. Historically, we have not paid any claims under these indemnification obligations, and we do not have any pending indemnification claims against us.
Customer Concentration
In 2014, one customer accounted for 11% of our 2014 consolidated net sales.
Employees
At December 31, 2014, we had approximately 7,260 employees. We have approximately 1,400 unionized employees in our facilities located in St. Peters, Missouri, Pasadena, Texas, South Korea, Italy and Japan. We have not experienced any material work stoppages at any of our facilities due to labor union activities during the last several years. We believe our relations with our employees are generally good.
Geographic Information
Information regarding our foreign and domestic operations is contained in Note 21, Notes to Consolidated Financial Statements, included in our 2014 Annual Report which information is incorporated herein by reference.
Available Information
We make available free of charge through our website (http://www.sunedison.com) reports we file with the Securities and Exchange Commission ("SEC"), including our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. The SEC maintains an internet site containing these reports and proxy and information statements at http://www.sec.gov. Any materials we file can be read and copied online at that site or at the SEC's Public Reference Room at 100 F Street, NE, Washington DC 20549, on official business days during the hours of 10:00 am and 3:00 pm. Information on the operation of the Public Reference Room can be obtained by calling the SEC at 1-800-SEC-0330.
Risks Related to Demand for Our Products and Services
Due to the general economic environment and other factors, we may be unable to generate sufficient cash flows or obtain access to external financing necessary to fund our operations.
In recent years, the European, U.S. and world economies have undergone significant turmoil amid stock market volatility, difficulties in the financial services sector, tightening of the credit markets, softness in the housing markets, concerns of inflation and deflation, reduced corporate profits and capital spending, reduced consumer spending and various other economic difficulties. This recent turmoil demonstrates how uncertain future economic conditions are and those conditions could negatively impact our ability to obtain debt or equity project financing required for the construction and sale of solar power plants. Additionally, access to capital markets continues to be challenging, especially in Europe. If the slow improvement in market and economic conditions does not continue or turmoil and volatility significantly increase, we may be further limited in our ability to access the capital markets to meet liquidity and operational and capital expenditure requirements. We may not have sufficient resources to support our business plan, and there can be no assurance that liquidity will be adequate over time. There can be no assurance that we will be able to generate sufficient cash flows, find other sources of capital or access capital markets, and if adequate funds and alternative resources are not available on acceptable terms, our ability to fund our operations, develop and construct solar power plants, maintain our research and development efforts, provide collateral for our projects or otherwise respond to competitive pressures would be significantly impaired. Our inability to do the foregoing could have a material adverse effect on our business and results of operations.
We make significant investments in building our solar energy projects, and the delayed sale of our projects or the inability to sell our projects would adversely affect our business, liquidity and results of operations.
The development and construction of solar power plants can require long periods of time and substantial initial capital investments, and there are significant risks related to the development of solar power plants, including high initial capital expenditure costs to develop and construct functional power plant facilities and the related need for construction capital, the availability of favorable government tax and other incentives, the high cost and potential regulatory and technical difficulties in integrating into new markets, an often limited or unstable marketplace, competition from other sources of electric power, regulatory difficulties including obtaining necessary permits, difficulties in negotiating power purchase agreements with potential customers, educating the market regarding the reliability and benefits of solar energy products and services, costs associated with environmental regulatory compliance and competing with larger, more established solar energy companies and utilities. There can be no assurance that we will be able to overcome these risks as we develop our solar power projects and energy services business. There can also be no assurance that a potential project sale can be completed on commercially reasonable terms or at all. Our potential inability to obtain regulatory clearance, project financing or enter into sales contracts with customers could adversely affect our business, liquidity and results of operations. Our liquidity could also be adversely impacted if project sales are delayed.
We anticipate that the Solar Energy business will continue to require significant amounts of working capital and other capital. In addition, we plan to make continued investment in the Solar Energy business to expand this business in the near future. Historically, the Solar Energy business has generated U.S. GAAP operating losses as we have ramped up its operations. There can be no assurance that the Solar Energy business will produce sufficient margins in the future to support the capital required for its operations.
If we are unable to enter into new financing agreements when needed, or upon desirable terms, for the construction and installation of our solar energy systems, or if any of our current financing partners discontinue or materially change the financing terms for our systems, we may be unable to finance our projects or our borrowing costs could increase, which would have a material adverse effect on our business, financial condition and results of operations.
We typically rely on working capital and credit facilities to fund the up-front costs associated with the design, construction and installation of our solar energy systems and the purchase of components, such as solar modules and inverters, for our systems. In addition, we secure long-term financing upon completion of our solar energy systems for those systems we retain and use the proceeds to refinance the debt incurred for the design, construction and installation of the solar energy systems, as well as to generate profits and cash flow for our business. Without access to sufficient and appropriate financing, or if that financing is not available at desirable rates or on terms we deem appropriate, we would be unable to grow our Solar Energy business by increasing the number of solar energy systems we are simultaneously developing. Our ability to obtain additional financing in the future depends on banks' and other financing sources' continued confidence in our business model and the renewable energy industry as a whole. Solar energy has yet to reach widespread market penetration and is dependent on continued support in the form of performance-based incentives, rebates, tax credits, feed-in tariffs and other incentives from federal, state and foreign governments. If this support were to dissipate, our ability to obtain external financing on acceptable terms, or at all, could be materially adversely affected. While we have solar project financing available to us through existing relationships and facilities, our current cash and financing sources may be inadequate to support the anticipated growth in our business plans. In addition, we do not currently have any dedicated financing in some of our emerging and international markets, and obtaining financing in these new markets will present challenges. Our failure to obtain necessary financing to fund our operations would materially adversely affect our business, financial condition and results of operations.
To date, we have obtained financing for our Solar Energy business from a limited number of financial institutions. If any of these financial institutions decided not to continue financing our solar energy systems or materially changed the terms under which they are willing to provide financing, we could be required to identify new financial institutions and negotiate new financing documentation. The process of identifying new financing partners and agreeing on all relevant business and legal terms could be lengthy and could require us to reduce the rate of the growth of our business until such new financing arrangements were in place. In addition, there can be no assurance that the terms of the financing provided by a new financial institution would compare favorably with the terms available from our current financing partners. Our inability to secure financing could lead to canceled projects, or reduced deal flow, or we could be forced to finance the construction and installation of solar energy systems ourselves. In any such case, our borrowing costs could increase, which would have a material adverse effect on our business, financial condition and results of operations.
We may be unable to obtain favorable financing from our vendors and suppliers, which could have a material adverse effect on our business, financial condition and results of operations.
We have historically utilized financing from our vendors and suppliers through customary trade payables or account payables. At times, we have also increased the number of days' payables outstanding. There can be no assurance that our vendors and suppliers will continue to allow us to maintain existing or planned payables balances, and if we were forced to reduce our payables balances below our planned levels, without obtaining alternative financing, our inability to fund our operations would materially adversely affect our business, financial condition and results of operations.
Our solar wafer business experienced a substantial and sustained decline in prices which has had, and could continue to have, a material adverse effect on our business, financial condition or results of operations.
According to independent sources, industry-wide solar wafer pricing fell approximately 40% during the second quarter of 2011. During the third and fourth quarters of 2011, solar wafer pricing continued to decline due to the market downturn. In 2012, solar wafer pricing fell approximately 35% due to excess capacity in the industry. In 2013, solar wafer pricing has been relatively flat compared to the 2012 price. For 2014, mono wafer pricing was essentially unchanged from 2013 whereas multi wafer pricing experienced an increase in the first and second quarters of 2014 as compared to 2013 but then decreased in the third and fourth quarters to levels consistent with 2013. Solar wafer pricing has also been affected by the unfair trade complaints as discussed in depth in the risk factor below. These price decreases had a significant unfavorable impact on our revenue and gross margins during the years ended December 31, 2012 and 2011, and, though we have largely eliminated external solar wafer sales in comparison to historical periods, solar wafer pricing may unfavorably impact future operating results in our Solar Energy business. When selling prices decline, our net sales and gross profit also decline unless we are able to sell more products or reduce the cost to manufacture our products. If the selling prices for our products continue to decline, our operating results could be materially adversely affected. Failure to successfully address the challenges facing this business may hinder or prevent our ability to achieve our business objectives in a timely manner, and
may also result in less than full recovery of our remaining Solar Energy long-lived assets, which could require further significant asset write-downs.
Historically we have made significant investments in our solar energy project pipeline, including both organically developing and acquiring projects from third-parties, and if a number of projects in our pipeline fail to proceed to construction or are not completed, our business, financial condition or operating results could be materially adversely affected.
The solar project development process is long and includes many steps involving site selection and development, commercial contracting and regulatory approval, among other factors. As of December 31, 2014, we had 5.1GW in pipeline, of which 467 MW was under construction at that time. There can be no assurance that pipeline will be converted into completed projects or generate revenues or that we can obtain the necessary financing to construct these projects. As we develop pipeline organically or through acquisitions, some of the projects in our pipeline may not be completed or proceed to construction as a result of various factors. These factors may include changes in applicable laws and regulations, including government incentives, environmental concerns regarding a project or changes in the economics or ability to finance a particular project. If a number of projects are not completed, our business, financial condition or operating results could be materially adversely affected.
Our Solar Energy business depends on the solar industry, which is driven largely by the availability and size of government and economic incentives which could be reduced or eliminated, which could have significant negative effects on our business, financial condition or results of operations.
Solar industry demand continues to be mainly driven by the availability and size of government and economic incentives related to the use of solar power because, currently, the cost of solar power exceeds the cost of power furnished by the electric utility grid in most locations. As a result, government bodies in many countries have historically provided incentives in the form of feed-in-tariffs to solar project developers to promote the use of solar energy in on-grid applications and to reduce dependency on other forms of energy. In addition, we rely upon income tax credits and other state incentives in the United States for solar energy systems. Most countries have continued to regularly reduce the rates paid to solar power system owners for generating electricity under their respective feed-in-tariff programs, and these scheduled reductions in feed-in tariff rates are expected to continue. Moreover, the value and pricing of PBIs and RECs, as well as the state PUC approved PPA rates for utilities (which are frequently higher than electricity rates for electricity generated from other energy sources), are likely to continue to decrease, further reducing the U.S. revenue stream from solar projects. These government economic incentives could be further reduced or eliminated altogether, especially in light of ongoing worldwide economic troubles and slow recovery. In addition, some of these solar program incentives expire, decline over time, are limited in total funding or require renewal of authority. Finally, some countries could and certain countries have altered their programs retroactively which would impact our systems currently in place. Reductions in, or eliminations or expirations of, governmental incentives could result in decreased demand for our wafers, our customers’ products and our solar energy systems, which could have a material adverse effect on our business, financial condition or results of operations.
Our Semiconductor Materials business depends on the semiconductor device industry, and when that industry experiences a downturn, our sales could decrease, and we could be forced to further reduce our prices while maintaining fixed costs, all of which could have significant negative effects on our operating results and financial condition.
Our Semiconductor Materials business depends in large part upon the market demand for our customers’ semiconductor devices that are utilized in electronics applications. The semiconductor device industry experiences:
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• | rapid technological change; |
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• | fluctuations in product supply and demand, some of which fluctuations can be severe. |
From time to time, the semiconductor device industry has experienced significant downturns. These downturns often occur in connection with declines in general economic conditions. In the second half of 2011, demand for wafers for semiconductor applications started to slow down and dropped by approximately 15% in the fourth quarter of 2011 as compared to the third quarter according to SEMI (the industry association serving the manufacturing supply chains for the microelectronic and photovoltaic industries), and although demand increased during the first quarter of 2012, it dropped again during the second half of 2012. In 2013 and 2014, our unit volumes increased primarily driven by increased demand of larger diameter wafers, however revenues were pressured due to industry overcapacity and other competitive factors. If
the semiconductor device industry experiences future downturns, or if the current downturn lingers, we will face pressure to further reduce prices, and we may need to further rationalize capacity and reduce fixed costs. If we are unable to reduce our expenses sufficiently to offset reductions in price and volume, our operating results and financial condition will be materially adversely affected.
The timing of completion of projects in our Solar Energy business fluctuates, which could have a material adverse effect on our business, financial condition or results of operations or the market price of our common stock.
Our quarterly results of operations fluctuate significantly based on the timing of Solar Energy projects, with a significant portion of revenues and megawatts completed recognized during the fourth quarter of each year. There are various reasons for these fluctuations, mostly related to economic incentives and weather patterns. For example, in Canada and in European countries with feed-in tariffs, the construction of solar power systems may be concentrated during the second half of the calendar year, largely due to periodic reductions of the applicable minimum feed-in tariff and the fact that the coldest winter months are January through March, which impacts the amount of construction that occurs. In the United States, customers will sometimes make purchasing decisions towards the end of the year in order to take advantage of tax credits or for other budgetary reasons. If we fail to adequately manage the fluctuations in the timing of our Solar Energy projects, our business, financial condition or results of operations could be materially affected.
Existing regulations and policies governing the electric utility industry, as well as changes to these regulations and policies, may adversely affect demand for our Solar Energy products and services and materially adversely affect our business, financial condition and results of operations.
The market for electricity generation is heavily influenced by federal, state and local government regulations and policies concerning the electric utility industry, as well as policies promulgated by public utility commissions and electric utilities. These regulations and policies govern, among other matters, electricity pricing and the technical interconnection of distributed electricity generation to the grid. The regulations and policies also regulate net metering, which relates to the ability to offset utility-generated electricity consumption by feeding electricity produced by renewable energy sources, such as solar energy, back into the grid. Utility customer purchases of alternative energy, including solar energy, could be deterred by these regulations and policies, which could result in a significant reduction in the potential demand for our solar energy systems and solar wafers. Changes in consumer electricity tariffs or peak hour pricing policies of utilities, including the introduction of fixed price policies, could also reduce or eliminate the cost savings derived from solar energy systems and, as a result, reduce our customer demand for our systems.
Certain power purchase agreements signed in connection with our utility-scale business are subject to public utility commission approval, and such approval may not be obtained or may be delayed.
As a solar energy provider in the U.S., the power purchase agreements executed by us and/or our subsidiaries in connection with the development of utility-scale projects are generally subject to approval by the applicable state PUC. It cannot be assured that such PUC approval will be obtained, and in certain markets, including California and Nevada, the PUCs have recently demonstrated a heightened level of scrutiny on solar power purchase agreements that have come before the PUC for approval. If the required PUC approval is not obtained for any particular solar power purchase agreement, the utility counterparty may exercise its right to terminate such power purchase agreement, and we may lose its invested development capital.
If we fail to meet changing customer demands, we may lose customers and our sales could suffer.
The industries in which we operate change rapidly. Changes in our customers' requirements result in new and more demanding technologies, product specifications and sizes, and manufacturing processes. Our ability to remain competitive will depend upon our ability to develop technologically advanced products and processes. We must continue to meet the increasingly demanding requirements of our customers on a cost-effective basis. As a result, we expect to continue to make significant investments in research and development. We cannot be certain that we will be able to successfully introduce, market and cost-effectively manufacture any new products, or that we will be able to develop new or enhanced products and processes that satisfy customer needs or achieve market acceptance.
Risks Related to Our Supply Chain and Supply Channels
Significant payments required from us under take-or-pay contracts could have a material adverse effect on our business, financial condition or results of operations.
We have long-term annual take-or-pay contracts with certain suppliers of precursor raw materials and solar wafers. If we fail to take the required minimum annual amounts under those contracts, we would be required to make payments to the relevant suppliers and those payments could be significant. In previous years, we have made significant payments to such suppliers because we did not take the required minimum volumes under those agreements, and we could have to make significant payments in the future if we do not take the required minimum annual amounts under those contracts.
In addition, the 2011 Global Plan necessitated termination of certain take-or-pay contracts with some of our suppliers of raw materials and solar wafers, which gave rise to disputes with those parties. In 2012, we entered into a settlement with one party, Evonik, resulting in our forfeiture of a $10.2 million deposit and an agreement by us to pay Evonik a total of 70 million euro. We may be required to make additional material payments in connection with the termination of other such contracts, including payments larger than management's current estimates of such obligations. On December 20, 2012, Wacker Chemie AG (“Wacker”) filed a notice of arbitration with the Swiss Chambers’ Arbitration Institution (the “SCAI”) against the company, requesting the resolution of a dispute arising from two agreements and a subsequent settlement agreement entered into between Wacker and the company. We estimate the range of reasonably possible losses for these take-or-pay contracts to be up to approximately $139.8 million, inclusive of the Wacker claim. These additional payments, if required in future years, could have a material adverse effect on our business, cash flows, financial condition or results of operations. See Note 16, Notes to Consolidated Financial Statements, contained in our 2014 Annual Reports.
Our dependence on single and limited source suppliers and subcontractors in our Solar Energy and Semiconductor Materials businesses could harm our production output and adversely affect our manufacturing throughput and yield, which could also have a material adverse effect on our business, financial condition or results of operations.
We obtain several raw materials, equipment, parts and supplies from sole suppliers. Likewise, we obtain all of our requirements for granular polysilicon from our facility in Pasadena, Texas. This dependence could have a material adverse effect on our business, financial condition or results of operations. In the case of granular polysilicon, although we believe that we could substitute chunk polysilicon for granular polysilicon, we cannot predict whether this substitution would be successful or how long the related customer qualification process would take. In addition, with any material, unplanned change to increased use of chunk polysilicon as a substitute for granular polysilicon, our manufacturing process would be interrupted and our manufacturing throughput and yields would be adversely affected. A failure to obtain a new qualification or a decrease in our manufacturing throughput or yields could have a material adverse effect on our business, financial condition or results of operations.
From time to time, we have experienced limited supplies of certain raw materials, equipment, parts and supplies. We may experience shortages of our key raw materials, equipment, parts and supplies in the future. A prolonged inability to manufacture or obtain raw materials, equipment, parts or supplies, or increases in prices resulting from shortages of these critical materials could have a material adverse effect on our business, financial condition or results of operations.
In addition, we often contract with subcontractors that convert our polysilicon into solar wafers which we, in turn, sell to our customers or provide for our own solar energy system projects. If module pricing increases and/or when capacity tightens, as it has in the past, we are forced to accept higher prices and less advantageous payment terms than we would accept in a more normalized supply-demand environment. These factors, which are often outside our control, could also have a material adverse effect on our business, financial condition or results of operations.
We are currently dependent on a limited number of third-party suppliers for certain components for our solar energy systems. We also rely on third-party subcontractors to construct and install our solar energy systems, which could result in sales and installation delays, cancellations, liquidated damages and loss of market share for our Solar Energy business.
We rely on a limited number of third-party suppliers for certain components for our solar power systems, such as inverters. If we fail to develop or maintain our relationships with these suppliers or if one of these suppliers goes out of business, we may be unable to install our solar power systems on time, or only at a higher cost or after a long delay, which could prevent us from delivering our solar power systems to our customers within required timeframes. Additionally if one of these suppliers goes out of business, the warranty and other services offered by such supplier may be reduced or eliminated, and we may be required to provide such warranty and services, which could increase our costs. To the extent the processes that our suppliers use to manufacture components are proprietary, we may be unable to obtain comparable components from alternative suppliers. The failure of a supplier to supply components in a timely manner, or at all, or to
supply components that meet our quality, quantity and cost requirements, could impair our ability to install solar power systems or may increase our costs.
We utilize and rely on third party subcontractors to construct and install our solar energy systems throughout the world. If our subcontractors do not satisfy their obligations or do not perform work that meets our quality standards or if there is a shortage of third-party subcontractors or labor strikes that interfere with our subcontractors’ ability to complete their work on time and/or on budget, we could experience significant delays in our construction operations, which could have a material adverse effect on our reputation and/or our ability to grow our Solar Energy project development business.
Compliance with rules of the SEC relating to "conflict minerals” may require us and our suppliers to incur substantial expense and may result in disclosure by us that certain minerals used in products we manufacture or contract to manufacture are not "DRC conflict free."
Section 1502 of the Dodd-Frank Act required the SEC to promulgate rules requiring disclosure by a public company of any "conflict minerals" (tin, tungsten, tantalum and gold) necessary to the functionality or production of a product manufactured or contracted to be manufactured by the public company. The SEC adopted final rules in 2012 which took effect at the end of January 2013. Because we manufacture or contract to manufacture products which may contain tin, tungsten, tantalum or gold, each year we are required under these rules to determine whether those minerals are necessary to the functionality or production of our products and, if so, conduct a country of origin inquiry with respect to all such minerals. If any such minerals may have originated in the Democratic Republic of the Congo (DRC) or any of its adjoining countries (collectively referred to as "covered countries"), then we must conduct diligence on the source and chain of custody of those conflict minerals to determine if they did originate in one of the covered countries and, if so, whether they financed or benefited armed groups in the covered countries. Disclosures relating to the products which may contain conflict minerals, and the country of origin of those minerals and, possibly whether they are “DRC conflict free” must be provided in a Form SD (and accompanying conflict minerals report if one is required to disclose the diligence undertaken by us in sourcing the minerals and its conclusions relating to such diligence). If we are required to submit a conflict minerals report, after 2015 that report must be audited by an independent auditor pursuant to existing government auditing standards. Compliance with this new disclosure rule may be very time consuming for management and our supply chain personnel (as well as time consuming for our suppliers) and could involve the expenditure of significant amounts of money by us and them. Disclosures by us mandated by the new rules which are perceived by the market to be “negative” may cause customers to refuse to purchase our products. There can be no assurance that the cost of compliance with the rule, including such market response to our disclosure will not have an adverse effect on our business, financial condition or results of operations.
Risks Related to Our Operations
Two of our subsidiaries are publicly traded corporations, SSL and TerraForm, which may involve a greater exposure to legal liability than our historic operations.
SSL and TerraForm are publicly traded corporations. Our controlling interest in TerraForm and our continuing interest in SSL and the position of certain of our executive officers on the board of TerraForm and SSL may increase the possibility of claims of breach of fiduciary duties including claims of conflicts of interest related to TerraForm and SSL. Any liability resulting from such claims could have a material adverse effect on our future business, financial condition, results of operations and cash flows.
We may fail to realize the benefits of our announced closings and restructurings.
In connection with the 2011 Global Plan, we reduced our total workforce by approximately 20%, shuttered the Company's, previously idled Merano, Italy polysilicon facility, reduced production capacity at the Company's Portland, Oregon crystal facility and slowed the ramp of the Kuching, Malaysia facility. We also previously committed to similar cost reduction actions in June 2011 and significant workforce reductions and facility realignment in 2009. We may be unable to achieve the total annualized cost savings and productivity improvements we currently anticipate from these activities. The timing of facility closings and related cost savings may be delayed due to the demand requirements and customer commitments in the semiconductor and solar industries. Failure to achieve expected savings, or delays in realizing the cost savings, could have a material adverse effect on our financial results. See Note 13, Notes to Consolidated Financial Statements, contained in our 2014 Annual Report.
Our relocation of certain U.S. manufacturing operations to our Ipoh, Malaysia facility and expansion and construction of other manufacturing capacity presents business risks which could materially adversely affect our results of operations.
We have invested significantly in expanding our polysilicon production capacity and our 300 millimeter production capacity; ramping our own solar wafer (156 millimeter) manufacturing facility in Kuching, Malaysia; forming SMP to produce high purity polysilicon; and relocating certain Semiconductor Materials manufacturing capacity to Ipoh, Malaysia. Expansion of 300 millimeter and 156 millimeter wafer manufacturing production capacity, ramping of our Ipoh, Malaysia semiconductor manufacturing facility, ramping our own solar wafering facility and startup of SMP are all subject to risks such as availability of capital equipment; delays in construction or installation and related technical difficulties in ramping such new capacity to significant production levels; availability of additional precursor raw materials; timing of production ramp; and qualification of new facilities for new and existing customers. The expansion of our 156 millimeter solar wafer manufacturing in Kuching, Malaysia is also subject to additional risks, including refining and adapting our manufacturing technologies to customer requirements, and establishing and maintaining sufficient internal research and development, marketing, sales, production and customer service infrastructure to support this effort.
In order to succeed in these expansions and relocations, we will need to devote the investment of management time and related resources to successfully execute these expansions and relocations. This could disrupt our existing business, affect our operating results and distract our management team. There can be no assurance that we will be able to successfully reach our production, timing and cost goals for our expansions and relocations as customer specifications and demand evolve. Use of capital and management resources that otherwise would have been made available to expand other parts of our business could have material adverse consequences on our results of operations if we fail to manage these expansions and relocations successfully.
If we do not continue to reduce our manufacturing costs and operating expenses, we may not be able to compete effectively in the semiconductor and solar wafer industries.
The success of our Semiconductor Materials and Solar Energy businesses depends, in part, on our continuous reduction of manufacturing costs and leveraging of operating expenses. If we are not able to reduce our manufacturing costs and leverage our operating expenses sufficiently to offset future price erosion, our operating results will be adversely affected. We cannot assure you that we will be able to continue to reduce our manufacturing costs and leverage our operating expenses. Moreover, any future reduction of headcount or closure of one or more of our manufacturing facilities may adversely affect our operational capabilities and our ability to manufacture wafers in required volumes to meet customer demand and may result in other production disruptions, or could require us to take an excess capacity or impairment charges, which could have an adverse effect on our operating results. In our Solar Energy business, cost reductions on balance-of-system costs are also critical to our success in the downstream solar market.
Unfair trade complaints filed by the U.S. against imports of solar cells from China and Taiwan and solar modules or panels manufactured or assembled in China using components from other countries, as well as unfair trade complaints filed by China against exports of solar-grade polysilicon from the U.S. and South Korea into China, could have significant negative effects on our business, financial condition or results of operations.
In October 2011, a coalition of several U.S. solar companies filed complaints with the U.S. Department of Commerce ("DOC") and International Trade Commission ("ITC") charging that Chinese solar cell manufacturers have engaged in, and benefited from, various unfair trade practices. In June 2012, the DOC imposed duties on the import value of all modules using solar cells manufactured in China.
In September 2012, a similar trade case was filed by a coalition of several European solar companies in Europe. In December 2013, the Chinese exporters and association reached an agreement on a price undertaking arrangement with the European Commission, which imposed minimum export price and quantity restrictions on China’s solar exports to European Union. (“EU”)
In July 2012, the China Ministry of Commerce ("MOFCOM") announced that it would investigate unfair trade practices related to solar-grade polysilicon imported into China from the U.S. and South Korea. SunEdison, through one of its wholly owned subsidiaries, was one of the companies named in the MOFCOM petition. In January 2014, MOFCOM reached the final determination which imposed 53.7% antidumping duty and zero countervailing duty on solar-grade polysilicon manufactured and imported into China by this subsidiary. In addition to the investigation on imports from U.S. and South Korea, MOFCOM investigated the same product imported from the EU. In January 2014, MOFCOM announced preliminary determinations; but decided not to impose antidumping and countervailing provisional measure, the EU major exporter is negotiating with MOFCOM on a price undertaking arrangement.
In January 2014, the DOC initiated a new antidumping duty and countervailing duty investigations of solar cells manufactured in and imported from Taiwan and on modules manufactured in China, including solar modules or panels manufactured or assembled in China which use components from other countries. The DOC announced final countervailing duties and antidumping duties in February 2015.
Finally, DOC is conducting an Administrative Review of the 2012 tariffs on Chinese cells and released a preliminary determination of lower tariffs in January 2015; the final determination is expected in Summer 2015.
These cases could have a significant impact on both the U.S. solar industry generally and our business specifically, which has relied, and is likely to rely in the future, on cells and/or modules imported from China or third countries subject to the above-mentioned cases for some of our SunEdison installations. To the extent that we are determined to be the "importer of record" in the United States or Europe of any solar cells or modules originating from China or Taiwan (under relevant rules of origin) the additional cost incurred by us directly in the form of import duties could be substantial. Even if we are not the importer of record, the import duties incurred by our suppliers could significantly increase the cost of cells or modules that we purchase. Similarly, the unfavorable outcome of the MOFCOM investigation could negatively impact the market price of solar-grade polysilicon and restricts our access to the Chinese solar market. The existence and outcome of any of these cases, or potential similar cases or retaliatory trade cases in other countries, could increase the cost of solar components and slow the use of renewable energy throughout the world. The outcome of the cases could also negatively affect specific transactions and negotiations between SunEdison and current and future Chinese and Taiwanese partners, suppliers and customers.
There are inherent uncertainties in these cases. An unfavorable outcome could have a material adverse impact on our business, financial position or results of operations, or limit our ability to engage in certain of our business activities to the extent that we are currently intending to engage in such activities. Regardless of the outcome, we could suffer from disruptions to our normal business operations, and these issues could require significant attention from our management.
Our expansion into emerging markets may expose us to legal, political, operational and other risks that could negatively affect our operations and profitability.
We continue to explore expansion of our international operations in certain markets where we currently operate and in selected new markets, such as Chile. Emerging market operations can present many risks including the actions and decisions of foreign authorities and regulators, the imposition of limits on foreign ownership of local companies, changes in laws (including tax laws and regulations), their application or interpretation, civil disturbances and political instability, difficulties in protecting intellectual property, changes in applicable currency, restrictions that prevent us from transferring funds from these operations out of the countries in which they operate or converting local currencies we hold into U.S. dollars or other currencies, as well as other adverse actions by foreign governmental authorities and regulators, such as the retroactive application of new requirements on our current and prior activities or operations. Additionally, evaluating or entering into an emerging market may require considerable management time, as well as start-up expenses for market development before any significant revenues and earnings are generated. Operations in new foreign markets may achieve low margins or may be unprofitable, and expansion in existing markets may be affected by local political, economic and market conditions. As we continue to operate our business globally, our success will depend, in part, on our ability to anticipate and effectively manage these and other related risks. The impact of any one or more of these or other factors could adversely affect our business, financial condition or operating results.
If we fail to adequately manage our planned growth in our downstream Solar Energy business, our overall business, financial condition and results of operations could be materially adversely affected.
We expect the amount of our megawatts installed to continue to grow significantly over the next year. We expect that this growth will place significant stress on our operations, management, employee base and ability to meet capital requirements sufficient to support this growth over the next twelve months. Any failure to address the needs of our growing business successfully could have a negative impact on our chance of success.
Large scale solar projects in our Solar Energy business involve concentrated project development risks that may cause significant changes in our financial results.
We have been developing large solar projects involving significantly greater megawatt production than previous projects. These larger projects may create new operating and financial risks, as well as concentrate project development risks otherwise described in these risk factors. The effect of recognizing U.S. GAAP revenue and MWs completed on the sale of a larger project, including through percentage of completion accounting for certain projects, or the failure to recognize U.S. GAAP revenue as anticipated in a given reporting period because a project is not yet completed or sold under applicable accounting rules by period end, may materially impact our quarterly or annual financial results. These projects
may give rise to significant capital commitments which could materially affect cash flow. In addition, if approval by relevant state public utility commissions is delayed or denied or if construction, module delivery, financing, warranty or operational issues arise on a larger project, such issues could have a material impact on our financial results. Finally, we have built only a few such large scale projects in the past few years, and the management of a greater number of simultaneous projects represents a new test of our internal processes, external construction management, capital commitment process, project finance infrastructure and financing ability. The inability to successfully manage these large scale projects could materially adversely affect our results of operations.
We may incur unexpected warranty and performance guarantee claims that could materially and adversely affect our financial condition and results of operations.
In connection with our products and our services, we may provide various product and system warranties and/or performance guarantees. For solar energy systems developed, built, and sold by us, we typically provide limited engineering, procurement and construction (EPC) performance guarantees and other warranties against defects in workmanship, engineering design, and installation services under normal use and service conditions for a period of one to two years, or more in certain circumstances, following the substantial completion of a solar energy system. While we generally are able to pass through manufacturer warranties we receive from our suppliers to our customers, in some circumstances, our warranty period may exceed the manufacturer's warranty period or the manufacturer warranties may not otherwise fully compensate for losses associated with customer claims pursuant to the warranty or performance guarantee we provided. For example, most manufacturer warranties exclude many losses that may result from a system component's failure or defect, such as the cost of de-installation, re-installation, shipping, lost electricity, lost renewable energy credits or other solar incentives, personal injury, property damage, and other losses. In addition, in the event we seek recourse through manufacturer warranties, we will also be dependent on the creditworthiness and continued existence of these suppliers. As a result, warranty or other performance guarantee claims against us could cause us to incur substantial expense to repair or replace defective products in our solar energy systems. Significant repair and replacement costs could materially and negatively impact our financial condition and results of operations, as well as take up a lot of employee time remedying such issues. In addition, quality issues can have various other ramifications, including delays in the recognition of revenue, loss of revenue, loss of future sales opportunities, increased costs associated with repairing or replacing products, and a negative impact on our reputation, all of which could also adversely affect our business and operating results.
The loss of one or more of our customers, or failure of any of those customers to meet their obligations under agreements with us could materially adversely affect our results of operations.
Although only one customer accounted for more than 10% of our consolidated net sales in 2014, our operating results could materially suffer if we experience a significant reduction in, or loss of, purchases by our top customers.
We face competition in the industries in which we operate, which could force us to reduce our prices to retain market share or face losing market share and revenues.
We face competition in the renewable energy services provider market from E. On, Enel, NextEra, NRG, SunPower Corporation, First Solar, Inc., JUWI Solar Gmbh and Solar City. We also face competition in the polysilicon solar wafer and module industry from established manufacturers throughout the world, including Shin-Etsu Handotai, SUMCO Corporation, Siltronic AG and LG Siltron. Some of our competitors have substantial financial, technical, engineering and manufacturing resources to develop products that currently, and may, in the future, compete favorably against our products, and some of our competitors in the solar industry may have substantial government-backed financial resources. We expect that our competitors will continue to improve the design and performance of their products and to introduce new products with competitive price and performance characteristics, and our failure to compete effectively could have a material adverse effect on our business, financial condition or results of operations. We may need to reduce our prices to respond to aggressive pricing by our competitors to retain or gain market share, which could have a material adverse effect on our business, financial condition or results of operations.
Because we cannot easily transfer production of specific products from one of our manufacturing facilities to another, manufacturing delays or lack of capacity or output at a single facility could result in a loss of product volume in our Semiconductor Materials and Solar Energy businesses.
It typically takes three to nine months for our customers to qualify a manufacturing facility to produce a specific product, but it can take longer depending upon a customer’s requirements and market conditions. Interruption of operations or lack of available additional capacity at any of our primary wafer manufacturing facilities could result in delays or cancellations of shipments of wafers and a loss of product volume. Likewise, interruption of operations at our polysilicon manufacturing facility in Pasadena, Texas could adversely affect our semiconductor wafer manufacturing throughput and yields and could result in our inability to produce certain qualified wafer products, delays or cancellations of shipments of
wafers and a loss of product volume. A number of factors could cause interruptions, including extreme weather conditions, such as hurricanes, which occur in the Pasadena, Texas area, earthquakes, equipment failures, shortages of raw materials or supplies, transportation logistic complications or labor disputes. We have had interruptions of our manufacturing operations for some of these reasons in the past, and could have such interruptions again in the future. Unions represent some of the employees at our wafer facilities in St. Peters, Missouri, Italy and South Korea and our granular polysilicon facility in Pasadena, Texas. A work shortage or slowdown at any of these facilities could cause interruptions in manufacturing. We cannot be certain that alternate qualified capacity would be available on a timely basis or at all.
Our business may be harmed if we fail to properly protect our intellectual property.
We believe that the success of our business depends in part on our proprietary technology, information, processes and know how. We try to protect our intellectual property rights based on trade secrets and patents as part of our ongoing research, development and manufacturing activities. We cannot be certain, however, that we have adequately protected or will be able to adequately protect our technology, that our competitors will not be able to utilize our existing technology or develop similar technology independently, that the claims allowed with respect to any patents held by us will be broad enough to protect our technology, or that foreign intellectual property laws will adequately protect our intellectual property rights. Moreover, we cannot be certain that our patents provide us with a competitive advantage.
Any litigation in the future to enforce patents issued to us, to protect trade secrets or know how possessed by us or to defend us or to indemnify others against claimed infringement of the rights of others could have a material adverse effect on our business, financial condition and results of operations. From time to time, we receive notices from other companies that allege we may be infringing certain of their patents or other rights. If we are unable to resolve these matters satisfactorily, or to obtain licenses on acceptable terms, we may face litigation, which could have a material adverse effect on us. We are presently involved in a few cases involving allegations of patent infringement by us or by others. Regardless of the validity or successful outcome of any such intellectual property claims, we may need to expend significant time and expense to protect our intellectual property rights or to defend against claims of infringement by third parties, which could have a material adverse effect on us. If we lose any such litigation where we are alleged to infringe the rights of others, we may be required to pay substantial damages, seek licenses from others, or change, or stop manufacturing or selling, some of our products. Any of these outcomes could have a material adverse effect on our business, financial condition or results of operations.
From time to time, we may become involved in costly and time-consuming litigation and other regulatory proceedings, which require significant attention from our management.
In addition to litigation related to our intellectual property rights, we are named a defendant from time to time in other lawsuits and regulatory actions relating to our business, some of which may claim significant damages. Due to the inherent uncertainties of litigation and regulatory proceedings, we cannot accurately predict the ultimate outcome of any such proceedings. An unfavorable outcome could have a material adverse impact on our business and financial position, results of operations or cash flows or limit our ability to engage in certain of our business activities. In addition, regardless of the outcome of any litigation or regulatory proceedings, such proceedings are often expensive, lengthy, disruptive to normal business operations and require significant attention from our management. We are currently, and may be subject in the future, to claims, lawsuits or arbitration proceedings related to matters in tort or under contracts, employment matters, securities class action lawsuits, tax authority examinations or other lawsuits, regulatory actions or government inquiries and investigations.
Our inability to respond to rapid market changes in the solar energy industry, including identification of new technologies and their inclusion in the services that we offer, will adversely affect our business, financial condition or results of operations.
The solar energy industry is characterized by rapid increases in the diversity and complexity of technologies, products and services. In particular, the ongoing evolution of technological standards requires products with lower costs and improved features, such as more efficiency and higher electricity output. If we fail to identify or obtain access to advances in technologies, we may become less competitive, and our business, financial condition or results of operations may be materially adversely affected. In addition, we generally enter into long-term supply contracts and may hold a substantial inventory of solar modules and other related equipment that we utilize to provide our solar energy services. Rapid technological changes could result in components that we are contractually committed to purchase or our inventory becoming partially or entirely obsolete or not cost-effective, which could have a material adverse effect on our business, financial condition or results of operations.
A significant deterioration in the financial performance of the U.S. retail industry could materially adversely affect our Solar Energy business, financial condition and results of operations.
The financial performance of our Solar Energy business in the United States depends in part upon the continued viability and financial stability of its retail customers. If the retail industry is materially and adversely affected by an economic downturn, increase in inflation or other factors, one or more of our largest customers could encounter financial difficulty, and possibly, bankruptcy. If one or more of our largest customers were to encounter financial difficulty or declare bankruptcy, they may reduce their power purchase agreement payments to us or stop them altogether. Any interruption or termination in payments by our customers would result in less cash being paid to the special purpose legal entities we establish to finance our projects, which could adversely affect the entities’ ability to make lease payments to the financing parties which are the legal owners of many of our solar energy systems or to pay our lenders in the case of the solar energy systems that we own. In such a case, the amount of distributable cash held by the entities would decrease, adversely affecting the cash flows we receive from such entities. In addition, our ability to finance additional new projects with power purchase agreements from such customers would be adversely affected, undermining our ability to grow our business. Any reduction or termination of payments by one or more of our principal customers would have a material adverse effect on our business, financial condition and results of operations.
We are subject to numerous environmental laws and regulations, which could require us to incur environmental liabilities, increase our manufacturing and related compliance costs or otherwise adversely affect our business.
We are subject to a variety of foreign, federal, state and local laws and regulations governing the protection of the environment. These environmental laws and regulations include those relating to the use, storage, handling, discharge, emission, disposal and reporting of toxic, volatile or otherwise hazardous materials used in our manufacturing processes. These materials may have been or could be released into the environment at properties currently or previously owned or operated by us, at other locations during the transport of the materials or at properties to which we send substances for treatment or disposal. If we were to violate or become liable under environmental laws and regulations or become non-compliant with permits required at some of our facilities, we could be held financially responsible and incur substantial costs, including cleanup costs, fines and civil or criminal sanctions, third-party property damage or personal injury claims. Groundwater and/or soil contamination has been detected at four of our facilities. We believe we are taking all necessary remedial steps at these facilities. In addition, if we should decide to close a facility in the future, we could be subject to additional costs related to cleanup and/or remediation of the facility in connection with closing the facility. We do not expect these known conditions to have a material impact on our business. Environmental issues relating to presently known or unknown matters, however, could require additional investigation, assessment or expenditures. In addition, new laws and regulations or stricter enforcement of existing laws and regulations could give rise to additional compliance costs and liabilities.
Although we are not currently regulated as a utility under U.S. federal or state law or the laws and regulations of our foreign markets, we could become regulated as a utility company in the future.
As the owner of solar energy facilities in the United States, each of which has been certified as either a "qualifying small power production facility" or an "exempt wholesale generator", we currently are exempt from most federal and state standards, restrictions and regulatory requirements applicable to U.S. utility companies. As our utility-scale business grows, certain facilities may no longer be eligible for exemption from the rate-making provisions of the Federal Power Act, which would require compliance with public utility regulations. Similarly, although we are not currently subject to regulation as an electric utility in the foreign markets in which we provide our solar energy services, our business strategy includes the development of larger solar energy systems in the future which could change our regulatory position. Any local, state, federal or international regulations could place significant restrictions on our ability to operate our business and execute our business plan by prohibiting or otherwise restricting the sale of electricity by us. If we were deemed to be subject to the same state, federal or foreign regulatory authorities as utility companies, such as FERC in the United States, or if new regulatory bodies were established to oversee the solar energy industry in the United States or in our foreign markets, our operating costs could materially increase, adversely affecting our results of operations.
Our brand and reputation are key assets of our business, and if our brand or reputation is damaged, our business and results of operations could be materially adversely affected.
We depend significantly on our reputation for high quality semiconductor materials, solar wafers, solar energy systems and the brand names "SunEdison" to retain our current customers and attract new customers and joint venture partners in order to grow our business. If we fail to deliver our products or solar energy systems within the planned timelines, our products and services do not perform as anticipated or if we materially damage any of our clients' properties, or cancel projects, our brand name and reputation could be significantly impaired, which could materially adversely affect our business and results of operations.
We may not realize the anticipated benefits of past or future acquisitions, and integration of these acquisitions may disrupt our business and management and cause dilution to our stockholders.
We have made several acquisitions in the last several years, and in the future we may acquire additional companies, project pipelines, products, or technologies or enter into joint ventures or other strategic initiatives. We may not realize the anticipated benefits of an acquisition and each acquisition has numerous risks. These risks include the following:
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• | difficulty in assimilating the operations and personnel of the acquired company; |
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• | difficulty in effectively integrating the acquired technologies or products with our current products and technologies; |
•difficulty in achieving profitable commercial scale from acquired technologies;
•difficulty in maintaining controls, procedures, and policies during the transition and integration;
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• | disruption of our ongoing business and distraction of our management and associates from other opportunities and challenges due to integration issues; |
•inability to retain key technical and managerial personnel of the acquired business;
•inability to retain key customers, vendors, and other business partners of the acquired business;
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• | inability to achieve the financial and strategic goals for the acquired and combined businesses, as a result of insufficient capital resources or otherwise; |
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• | incurring acquisition-related costs or amortization costs for acquired intangible assets that could impact our operating results; |
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• | potential impairment of our relationships with our associates, customers, partners, distributors, or third party providers of technology or products; |
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• | potential failure of the due diligence processes to identify significant issues with product quality, legal and financial liabilities, among other things; |
•potential inability to assert that internal controls over financial reporting are effective;
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• | potential inability to obtain, or obtain in a timely manner, approvals from governmental authorities, which could delay or prevent such acquisitions; and |
•potential delay in customer purchasing decisions due to uncertainty about the direction of our product offerings.
Mergers and acquisitions of companies are inherently risky, and ultimately, if we do not complete the integration of acquired businesses successfully and in a timely manner, we may not realize the anticipated benefits of the acquisitions to the extent anticipated, which could adversely affect our business, financial condition, or results of operations.
Risks Related to our Relationship with TerraForm ("TERP")
The growth of TERP's business depends on their ability to locate and acquire interests in additional, attractive clean energy power generation facilities from the Company and unaffiliated third parties at favorable prices.
TERP's primary business strategy is to acquire clean energy power generation facilities that are operational from both
the Company and third parties. TERP may also, in limited circumstances, acquire clean energy projects that are pre-operational. The following factors, among others, could affect the availability of attractive power generation facilities to grow TERP's business:
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• | competing bids for a power generating facility, including from companies that may have substantially greater capital and other resources than TERP does; |
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• | fewer third-party acquisition opportunities than TERP expects, which could result from, among other things, available power generation facilities having less desirable economic returns or higher risk profiles than they believe suitable for its business plan and investment strategy; |
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• | our failure to complete the development of the Call Right Projects or any of the other projects in our development pipeline, which could result from, among other things, permitting challenges, failure to procure the requisite financing, equipment or interconnection, or an inability to satisfy the conditions to effectiveness of project agreements such as PPAs, which could limit TERP's acquisition opportunities under the Support Agreement or the Intercompany Agreement; and |
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• | TERP's failure to exercise its rights under the Support Agreement or the Intercompany Agreement to acquire assets from the Company. |
TERP will not be able to achieve its target compound annual growth rate of CAFD per unit unless they are able to acquire additional clean energy power generation facilities at favorable prices.
We are the our controlling stockholder over TERP and exercise substantial influence over TERP, and TERP is highly dependent on us.
We beneficially own all of TERP's outstanding Class B common stock. Each share of TERP's outstanding Class B
common stock entitles SunEdison 10 votes on all matters presented to TERP's stockholders. As a result of our ownership of TERP's Class B common stock, we possess approximately 91% of the combined voting power of TERP's stockholders even though we only own 50% of total shares outstanding (inclusive of Class A common stock, Class B common stock and Class B1 common stock). We have expressed our intention to maintain a controlling interest in TERP going forward. As a result of this ownership, we have a substantial influence on TERP's affairs and our voting power will constitute a large percentage of any quorum of TERP's stockholders voting on any matter requiring the approval of its stockholders. Such matters include the election of directors, the adoption of amendments to our amended and restated certificate of incorporation and bylaws and approval of mergers or sale of all or substantially all of TERP's assets. This concentration of ownership may also have the effect of delaying or preventing a change in control of our company or discouraging others from making tender offers for our shares, which could prevent stockholders from receiving a premium for their shares. In addition, we, for so long as we and our controlled affiliates possess a majority of the combined voting power, has the power to appoint all of TERP's directors. We also have a right to specifically designate up to two additional directors to TERP's board of directors until such time as we and our controlled affiliates cease to own shares representing a majority voting power in TERP. We may cause corporate actions to be taken even if our interests conflict with the interests of TERP's other stockholders (including holders of our Class A common stock).
Furthermore, TERP depends on the management and administration services provided by or under the direction of SunEdison under the Management Services Agreement. Other than personnel designated as dedicated to TERP, our personnel and support staff that provide services to TERP under the Management Services Agreement are not required to, and TERP does not expect that our personnel and support staff will, have as their primary responsibility the management and administration of TERP's business or act exclusively for TERP. Under the Management Services Agreement, we have the discretion to determine which of our employees, other than the designated TerraForm personnel, will perform assignments required to be provided to TERP under the Management Services Agreement. Any failure to effectively manage TERP's operations or to implement their strategy could have a material adverse effect on TERP's business, financial condition, results of operations and cash flow. The Management Services Agreement will continue in perpetuity, until terminated in accordance with its terms. The non-compete provisions of the Management Services Agreement will survive termination indefinitely. In addition, in connection with our financing activities, we have pursued and may pursue various transactions that may impact TERP or the value of its Class A common stock, including pledges of TERP's common stock held by us or our affiliates to secure debt or other obligations. In addition, we may enter into agreements with financing entities for the construction and operation of Class Right Projects that could include obligations by TERP to purchase Call Right Projects in certain limited circumstances.
The Support Agreement provides TERP the option to purchase additional solar projects that have Projected FTM CAFD of at least $75.0 million from the completion of our IPO through the end of 2015 and $100.0 million during 2016, representing aggregate additional Projected FTM CAFD of $175.0 million. The Support Agreement also provides TERP a right of first offer with respect to the ROFO Projects. Additionally, TERP depends upon us for the provision of management and administration services at all of our facilities. Any failure by us to perform its requirements under these arrangements or the failure by TERP to identify and contract with replacement service providers, if required, could adversely affect the operation of TERP's facilities and have a material adverse effect on its business, financial condition, results of operations and cash flow.
We may offer certain Call Right Projects to third parties or remove Call Right Projects identified in the Support Agreement and TERP must still agree on a number of additional matters covered by the Support Agreement.
Pursuant to the Support Agreement, we have provided TERP with the right, but not the obligation, to purchase for cash certain solar generation facilities from our project pipeline with aggregate Projected FTM CAFD (as defined below) of at least $175.0 million by the end of 2016. The Support Agreement identifies certain such facilities, which we believe will collectively satisfy a majority of the total Projected FTM CAFD commitment. We may, however, remove a project from the Call Right Project list effective upon notice to TERP, if, in its reasonable discretion, a project is unlikely to be successfully completed. In that case, we will be required to replace such project with one or more additional reasonably equivalent projects that have a similar economic profile. Additionally, in connection with the First Wind acquisition, we entered into the Intercompany Agreement with TERP, under which we granted TERP additional call rights with respect to certain power plants in the First Wind pipeline, which represent an additional 1.6 GW of wind and solar generation assets. These additional Call Right Projects under the Intercompany Agreement do not go towards satisfying our $175.0 million CAFD commitment.
As of February 20, 2015, the total nameplate capacity of the power plants to which TERP has call rights under both the Intercompany Agreement and the Support Agreement is over 3.3 GW.
The Support Agreement also provides that we are required to offer TERP additional qualifying Call Right Projects from our pipeline on a quarterly basis until TERP has acquired Call Right Projects that are projected to generate the specified minimum amount of Projected FTM CAFD for each of the periods covered by the Support Agreement. These additional Call Right Projects must satisfy certain criteria, include being subject to a fully-executed PPA with a counterparty that, in our reasonable discretion, is creditworthy. The price for each Call Right Project will be the fair market value. The Support Agreement provides that we will work with TERP to mutually agree on the fair market value and Projected FTM CAFD of each Call Right Project within a reasonable time after it is added to the list of identified Call Right Projects. If we are unable to agree on the fair market value or Projected FTM CAFD for a project within 90 calendar days after it is added to the list (or such shorter period as will still allow us to complete the call right exercise process), we or TERP, upon written notice from either party, will engage a third-party advisor to determine the disputed item so that such material economic terms reflect common practice in the relevant market. The other economic terms with respect to our purchase of a Call Right Project will also be determined by mutual agreement or, if we are unable to reach agreement, by a third-party advisor. We may not achieve all of the expected benefits from the Support Agreement if we are unable to mutually agree with TERP with respect to these matters. Until the price for a Call Right Project is agreed or determined, in the event we receive a bona fide offer for a Call Right Project from a third party, TERP has the right to match the price offered by such third party and acquire such Call Right Project on the terms we could obtain from the third party. In addition, TERP's effective remedies under the Support Agreement may also be limited in the event that a material dispute with us arises under the terms of the Support Agreement.
In addition, we have agreed to grant TERP a right of first offer on any of the ROFO Projects that we determine to sell or otherwise transfer during the six-year period following the completion of TERP's IPO. Under the terms of the Support Agreement, we agree to negotiate with TERP in good faith, for a period of 30 days, to reach an agreement with respect to any proposed sale of a ROFO Project for which TERP has exercised its right of first offer before we may sell or otherwise transfer such ROFO Project to a third party. However, we will not be obligated to sell any of the ROFO Projects and, as a result, TERP does not know when, if ever, any ROFO Projects will be offered to them. Furthermore, in the event that we elect to sell ROFO Projects, we will not be required to accept any offer TERP makes and may choose to sell the assets to a third party or not sell the assets at all.
The IDRs may be transferred to a third party without the consent of TerraForm, holders of Terra LLC’s units, or the TerraForm board of directors (or any committee thereof).
We may not sell, transfer, exchange, pledge (other than as collateral under its credit facilities) or otherwise dispose of the IDRs to any third party (other than its controlled affiliates) until after it has satisfied its $175.0 million aggregate Projected FTM CAFD commitment to us in accordance with the Support Agreement. We will pledge the IDRs as collateral under its existing credit agreement concurrently with the consummation of this offering, but the IDRs may not be transferred upon foreclosure until after we have satisfied its Projected FTM CAFD commitment to us. After that period, we may transfer the IDRs to a third party at any time without the consent of the TerraForm, holders of Terra LLC’s units, or the TerraForm board of directors (or any committee thereof). However, our Sponsor has granted us a right of first refusal with respect to any proposed sale of IDRs to a third party (other than its controlled affiliates), which we may exercise to purchase the IDRs proposed to be sold on the same terms offered to such third party at any time within 30 days after we receive written notice of the proposed sale and its terms. If we transfer the IDRs to a third party, we would not have the same incentive to grow our business and increase quarterly distributions to holders of Class A common stock over time. For example, a transfer of IDRs by us could reduce the likelihood of our accepting offers made by us relating to assets owned by our Sponsor, as it would have less of an economic incentive to grow our business, which in turn would impact our ability to grow our portfolio.
We may incur additional costs or delays in completing the construction of certain generation facilities, which could materially adversely affect our growth strategy dividend and IDR distributions.
TERP's growth strategy is dependent to a significant degree on acquiring new solar energy projects from us and third parties. We or such third parties’ failure to complete such projects in a timely manner, or at all, could have a material adverse effect on TERP's growth strategy. The construction of solar energy facilities involves many risks including:
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• | delays in obtaining, or the inability to obtain, necessary permits and licenses; |
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• | delays and increased costs related to the interconnection of new generation facilities to the transmission system; |
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• | the inability to acquire or maintain land use and access rights; |
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• | the failure to receive contracted third party services; |
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• | interruptions to dispatch at TERP's facilities; |
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• | unforeseen engineering, environmental and geological problems; |
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• | unanticipated cost overruns in excess of budgeted contingencies; |
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• | failure of contracting parties to perform under contracts, including engineering, procurement and construction contractors; and |
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• | operations and maintenance costs not covered by warranties or that occur following expiration of warranties. |
Any of these risks could cause a delay in the completion of projects under development, which could have a material adverse effect on our growth strategy.
We and other developers of solar energy projects depend on a limited number of suppliers of solar panels, inverters, modules and other system components. Any shortage, delay or component price change from these suppliers could result in construction or installation delays, which could affect the number of solar projects TERP is able to acquire in the future.
Our solar projects are constructed with solar panels, inverters, modules and other system components from a limited number of suppliers, making us susceptible to quality issues, shortages and price changes. If we or third parties from whom TERP acquires solar projects or other clean power generation projects in the future fail to develop, maintain and expand relationships with these or other suppliers, or if they fail to identify suitable alternative suppliers in the event of a disruption with existing suppliers, the construction or installation of new solar energy projects or other clean power generation projects may be delayed or abandoned, which would reduce the number of available projects that we may have the opportunity to acquire in the future.
There have also been periods of industry-wide shortage of key components, including solar panels, in times of rapid industry growth. The manufacturing infrastructure for some of these components has a long lead time, requires significant capital investment and relies on the continued availability of key commodity materials, potentially resulting in an inability to meet demand for these components. In addition, the United States government has imposed tariffs on solar cells manufactured in China. Based on determinations by the United States government, the applicable anti-dumping tariff rates range from approximately 8% to 239%. To the extent that United States market participants experience harm from Chinese pricing practices, an additional tariff of approximately 15%-16% will be applied. If we or other unaffiliated third parties purchase solar panels containing cells manufactured in China, our purchase price for projects would reflect the tariff penalties mentioned above. A shortage of key commodity materials could also lead to a reduction in the number of projects that we may have the opportunity to acquire in the future, or delay or increase the costs of acquisitions.
TERP's organizational and ownership structure may create significant conflicts of interest that may be resolved in a manner that is not in their best interests or the best interests of holders of TERP's Class A common stock and that may have a material adverse effect on its business, financial condition, results of operations and cash flow.
TERP's organizational and ownership structure involves a number of relationships that may give rise to certain conflicts of interest between them and its holders of its Class A common stock, on the one hand, and the Company, on the other hand. We have entered into the Management Services Agreement with TERP. TERP's executive officers are employees of the Company and certain of them will continue to have equity interests in the Company and, accordingly, the benefit to us from a transaction between us and TERP will proportionately inure to their benefit as holders of equity interests in the Company. We are a related party under the applicable securities laws governing related party transactions and may have interests which differ from TERP's interests or those of holders of TERP's Class A common stock, including with respect to the types of acquisitions made, the timing and amount of dividends by TerraForm, the reinvestment of returns generated by TERP's operations, the use of leverage when making acquisitions and the appointment of outside advisors and service providers. Any material transaction between us and TERP (including the acquisition of the Call Right Projects and any ROFO Projects) are subject to our related party transaction policy, which will require prior approval of such transaction by our Corporate Governance Committee. Those of our executive officers who have economic interests in TERP may be conflicted when advising our Corporate Governance Committee or otherwise participating in the negotiation or approval of such transactions. These executive officers have significant project- and industry-specific expertise that could prove beneficial to our Corporate Governance Committee’s decision-making process and the absence of such strategic guidance could have a material adverse effect on the Corporate Governance Committee’s ability to evaluate any such transaction. Furthermore, the Corporate Governance Committee and our related party transaction approval policy may not insulate us
from derivative claims related to related party transactions and the conflicts of interest described in this risk factor. Regardless of the merits of such claims, we may be required to expend significant management time and financial resources in the defense thereof. Additionally, to the extent we fail to appropriately deal with any such conflicts, it could negatively impact our reputation and ability to raise additional funds and the willingness of counterparties to do business with us, all of which could have a material adverse effect on our business, financial condition, results of operations and cash flow.
Our liability is limited under our arrangements with TERP and TERP has agreed to indemnify us against claims that it may face in connection with such arrangements, which may lead us to assume greater risks when making decisions relating to TERP than it otherwise would if acting solely for our own account.
Under the Management Services Agreement, we will not assume any responsibility other than to provide or arrange for the provision of the services described in the Management Services Agreement in good faith. In addition, under the Management Services Agreement, the liability of the Company and its affiliates will be limited to the fullest extent permitted by law to conduct involving bad faith, fraud, willful misconduct or gross negligence or, in the case of a criminal matter, action that was known to have been unlawful. In addition, TERP has agreed to indemnify us to the fullest extent permitted by law from and against any claims, liabilities, losses, damages, costs or expenses incurred by an indemnified person or threatened in connection with our operations, investments and activities or in respect of or arising from the Management Services Agreement or the services provided by us, except to the extent that the claims, liabilities, losses, damages, costs or expenses are determined to have resulted from the conduct in respect of which such persons have liability as described above. These protections may result in SunEdison tolerating greater risks when making decisions than otherwise would be the case, including when determining whether to use leverage in connection with acquisitions. The indemnification arrangements to which we are a party may also give rise to legal claims for indemnification that are adverse to TERP or holders of its Class A common stock.
Risks Related to Our Indebtedness
If we fail to comply with covenants under our credit facilities, the lenders could cause outstanding amounts to become immediately due and payable, and we might not have sufficient funds and assets to pay such loans.
On February 28, 2014, we entered into a credit agreement with the lenders identified therein, Wells Fargo Bank, National Association, as administrative agent, Goldman Sachs Bank USA and Deutsche Bank Securities Inc., as joint lead arrangers and joint syndication agents, and Goldman Sachs Bank USA, Deutsche Bank Securities Inc., Wells Fargo Securities, LLC and Macquarie Capital (USA) Inc., as joint bookrunners (as amended from time to time the “Credit Facility”). The Credit Facility provides for a senior secured letter of credit facility in an aggregate principal amount up to $540 million. On January 27, 2015, in connection with the First Wind Acquisition, we issued $460 million in aggregate principal amount of 2.375% Convertible Senior Notes due April 15, 2022 (the "2022 Notes"). In addition, we previously issued $600 million in aggregate principal amount of 0.25% Convertible Senior Notes due January 15, 2020 (the "2020 Notes"), $600 million in aggregate principal amount of 2.00% Convertible Senior Notes due October 1, 2018 (the "2018 Notes") and $600 million in aggregate principal amount of 2.75% Convertible Senior Notes due January 1, 2021 (together with the 2022 Notes, 2018 Notes and 2020 Notes, the "Convertible Notes"), which remain outstanding.
On January 29, 2015, in connection with the First Wind Acquisition, our wholly owned subsidiary, SUNE ML 1, LLC (the “Margin Loan SPV”), entered into a Margin Loan Agreement (the “Margin Loan Agreement”) providing for the issuance of an aggregate principal amount of $410 million in term loans. We have guaranteed all of the Margin Loan SPV’s obligations under the Margin Loan Agreement. Also on January 29, 2015 in connection with the First Wind Acquisition, our wholly owned subsidiary, Seller Note LLC (“Seller Note SPV”) issued $336.5 million in aggregate principal amount of 3.75% Guaranteed Exchangeable Senior Notes due 2020 (the “Exchangeable Notes”). We have guaranteed all of the Seller Note SPV’s obligations under the Exchangeable Notes.
We may request increases in the Credit Facility and enter into additional facilities in the future to support our growth plan. These facilities contain certain restrictive covenants and conditions, including a no-material-adverse-change drawing condition in the Credit Facility, and we expect future facilities will have similar restrictive covenants, including cross-default provisions affecting other instruments of indebtedness. A violation of any of these covenants, which in our industries could occur in a sudden or sustained downturn, would be deemed an event of default under the facilities. In such event, upon election of the lenders, the loan commitments under the credit facilities would terminate and the indebtedness and accrued interest then-outstanding would be due and payable immediately (or, in the case of letters of credit, subject to cash collateralization). We may not have sufficient funds and assets to cover any such required payments and may not be able to obtain replacement financing on a timely basis or at all. These events could have a material adverse effect on our business, depending on our outstanding balances at that time. We have also had to negotiate changes to our covenants in the past and may need to do so again in the future, with no assurances that we will be able to do so. As of December 31, 2014, we had
approximately $519 million of outstanding letters of credit issued under our Solar Energy Facility and $1,800 million in aggregate principal amount outstanding under the Convertible Notes.
Our long-term indebtedness could adversely affect our operations and financial condition.
As of December 31, 2014, we had approximately $3,288.1 million of non-recourse long-term debt related to our solar energy systems. In addition, we are bound by the Credit Facility, the Margin Loan Agreement and the Convertible Notes. Our indebtedness could have important consequences, including but not limited to:
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• | limiting our ability to invest operating cash flow in our operations due to debt service requirements; |
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• | limiting our ability to pay dividends to our shareholders; |
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• | limiting our ability to obtain additional debt or equity financing for working capital expenditures, product development or other general corporate purposes; |
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• | limiting our operational flexibility due to the covenants contained in our debt agreements; |
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• | limiting our ability to make required investments in our joint ventures; |
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• | requiring us to dispose of significant assets in order to satisfy our debt service obligations; |
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• | limiting our flexibility in planning for, or reacting to, changes in our business or industry, thereby limiting our ability to compete with companies that are not as highly leveraged; and |
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• | increasing our vulnerability to economic downturns and changing market conditions. |
Our ability to meet our expenses and debt service obligations will depend on the factors described above, as well as our future performance, which will be affected by financial, business, economic and other factors, including potential changes in consumer preferences, the success of product and marketing innovation and pressure from competitors. If we do not generate enough cash to pay our debt service obligations, we may be required to refinance all or part of our existing debt, sell our assets, borrow more money or raise equity. We cannot assure you that we will be able to, at any given time, refinance our debt, sell our assets, borrow more money or raise equity on acceptable terms or at all.
We may not be able to generate sufficient cash to service all of our indebtedness and may be forced to take other actions to satisfy our obligations under our indebtedness, which may not be successful.
Our ability to make scheduled payments on or to refinance our debt obligations depends on our financial condition and operating performance, which are subject to prevailing economic and competitive conditions and to certain financial, business, legislative, regulatory and other factors beyond our control. We may be unable to maintain a level of cash flows from operating activities sufficient to permit us to fund our day-to-day operations or to pay the principal, premium, if any, and interest on our indebtedness.
If our cash flows and capital resources are insufficient to fund our debt service obligations, we could face substantial liquidity problems and could be forced to reduce or delay investments and capital expenditures or to sell assets or operations, seek additional capital or restructure or refinance our indebtedness. We may not be able to affect any such alternative measures, if necessary, on commercially reasonable terms or at all and, even if successful, such alternative actions may not allow us to meet our scheduled debt service obligations. Our Credit Facility and other debt instruments restrict our ability to dispose of certain assets and use the proceeds from any such dispositions and may also restrict our ability to raise debt or equity capital to be used to repay other indebtedness when it becomes due. We may not be able to consummate those dispositions or to obtain proceeds in an amount sufficient to meet any debt service obligations then due.
Our inability to generate sufficient cash flows to satisfy our debt obligations, or to refinance our indebtedness on commercially reasonable terms or at all, would materially and adversely affect our financial position and results of operations and our ability to satisfy our debt obligations. If we cannot make scheduled payments on our debt, we will be in default and, as a result, holders of Convertible Notes and Exchangeable Notes could declare all outstanding principal and interest to be due and payable, the lenders under our debt facilities could terminate their commitments or foreclose against the assets securing our borrowings or require that all letters of credit be cash collateralized, and we could be forced into bankruptcy or liquidation, in each case, which could have a material adverse effect on our business, financial condition and results of operations.
Restrictive covenants in our Credit Facility may limit our current and future operations, particularly our ability to respond to changes in our business or to pursue our business strategies.
The terms of certain of our indebtedness, including our Credit Facility, contain a number of restrictive covenants that impose significant operating and financial restrictions, these restrictions are subject to a number of important exceptions,
including restrictions on our ability to take actions that we believe may be in our interest. In addition, our Credit Facility limits our ability to, among other things:
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• | incur additional indebtedness and guarantee indebtedness; |
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• | pay dividends on or make distributions in respect of capital stock or make certain other restricted payments or investments; |
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• | enter into certain agreements that restrict distributions from restricted subsidiaries; |
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• | sell or otherwise dispose of assets, including capital stock of restricted subsidiaries; |
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• | enter into transactions with affiliates; |
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• | merge, consolidate or sell substantially all of our assets; |
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• | make certain payments on indebtedness. |
A breach of the covenants or restrictions under our Credit Facility could result in a default. Such default may allow the creditors to cash collateralize letters of credit and may result in the acceleration of any other debt to which a cross acceleration or cross-default provision applies. In the event our lenders and note holders accelerate the repayment of our borrowings, we cannot assure you that we and our subsidiaries would have sufficient assets to repay such indebtedness.
The restrictions contained in the agreements governing our other indebtedness could adversely affect our ability to:
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• | make needed capital expenditures; |
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• | make strategic acquisitions or investments or enter into alliances; |
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• | withstand a future downturn in our business or the economy in general; |
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• | engage in business activities, including future opportunities, that may be in our interest; and |
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• | plan for or react to market conditions or otherwise execute our business strategies. |
Our financial results and our substantial indebtedness could adversely affect the availability and terms of our financing.
In connection with the First Wind acquisition, we expect to incur significant additional indebtedness and have assumed certain of First Wind's outstanding indebtedness, which could adversely affect us, including by decreasing our business flexibility, and will increase our interest expense.
We will have substantially increased indebtedness as a result of the First Wind acquisition in comparison to our indebtedness on a recent historical basis, which could have the effect, among other things, of reducing our flexibility to respond to changing business and economic conditions and increasing our interest expense. We will also incur various costs and expenses associated with the financing. The amount of cash required to pay interest on our increased indebtedness following completion of the First Wind acquisition, and thus the demands on our cash resources, will be greater than the amount of cash flow required to service out indebtedness prior to the transaction. The increased levels of indebtedness following completion of the First Wind acquisition could also reduce funds available for working capital, capital expenditures, acquisitions and other general corporate purposes and may create competitive disadvantages for us relative to other companies with lower debt levels. If we do not achieve the expected benefits from the First Wind acquisition, or if our financial performance after completion of the Fist Wind acquisition does not meet current expectations, then our ability to service our indebtedness may be adversely impacted.
Moreover, we may be required to raise substantial additional financing to fund working capital, capital expenditures, acquisitions or other general corporate requirements. Our ability to arrange additional financing or refinancing will depend on, among other factors, our financial position and performance, as well as prevailing market conditions and other factors beyond our control. We may not be able to obtain additional financing or refinancing on terms acceptable to us or at all.
The agreements that will govern the new indebtedness in connection with the First Wind acquisition, or any indebtedness of First Wind we may assume, are expected to contain various covenants that impose restrictions on us and certain of our subsidiaries that may affect our ability to operate our business.
The agreements that will govern the new indebtedness in connection with the Fist Wind acquisition, or any indebtedness of First Wind we assumed, are expected to contain various affirmative and negative covenants that may, subject to certain significant exceptions, restrict our and certain of our subsidiaries ability to, among other things, have liens on our property, change the nature of our business, and/or acquire, merge or consolidate with any other person or sell or
convey certain of our assets to any one person. Our and our subsidiaries ability to comply with these provisions may be affected by events beyond our control. Failure to comply with these covenants could result in an event of default, which, if not cured or waived, could accelerate our repayment obligations.
We and our subsidiaries may incur substantially more debt, including secured debt, in the future.
We and our subsidiaries may incur significant additional debt, including secured debt, in the future. Although our Credit Facility contains restrictions on the incurrence of additional debt, these restrictions are subject to a number of important exceptions, and debt incurred in compliance with these restrictions could be substantial. The additional debt that we and our subsidiaries may obtain in the future could intensify the risk that we may not be able to fulfill our obligations under the Convertible Notes, the Exchangeable Notes, the Credit Facility, the Margin Loan Agreement or other financing arrangements.
The accounting method for convertible debt securities that may be settled in cash, such as the Convertible Notes, is the subject of complex accounting principles requiring significant judgments that could have a material effect on our reported financial results.
Under Accounting Standards Codification 470-20, Debt with Conversion and Other Options (“ASC 470-20”), an entity must separately account for the liability and equity components of convertible debt instruments (such as our Convertible Notes) that may be settled entirely or partially in cash upon conversion in a manner that reflects the issuer’s economic interest cost. The effect of ASC 470-20 on the accounting for the notes is that the equity component is required to be included in the additional paid-in capital section of stockholders’ equity on our consolidated balance sheet and the value of the equity component would be treated as original issue discount for purposes of accounting for the debt component of the notes. As a result, we will be required to record a greater amount of non-cash interest expense in current periods presented as a result of the amortization of the discounted carrying value of the notes to their face amount over the term of the notes. We will report lower net income in our financial results because ASC 470-20 will require interest to include both the current period’s amortization of the debt discount and the instrument’s coupon interest, which could adversely affect our reported or future financial results, the market price of our common stock and the trading price of the notes.
In addition, if certain criteria are satisfied, convertible debt instruments (such as our Convertible Notes) that may be settled entirely or partly in cash are currently accounted for utilizing the treasury stock method, the effect of which is that the shares issuable upon conversion of the notes are not included in the calculation of diluted earnings per share except to the extent that the conversion value of the notes exceeds their principal amount. Under the treasury stock method, for diluted earnings per share purposes, the transaction is accounted for as if the number of shares of common stock that would be necessary to settle such excess, if we elected to settle such excess in shares, are issued. If we do not satisfy the criteria required to utilize the treasury stock method, we will be required to determine diluted earnings per share utilizing the “if converted” method, the effect of which is that the shares issuable upon conversion of the notes are included in the calculation of diluted earnings per share assuming the conversion of the notes at the beginning of the reporting period if the impact is dilutive.
Additionally, under the “if-converted” method, for diluted earnings per share purposes, interest expense associated with the notes is added back to the numerator of calculation. We cannot be sure that the accounting standards in the future will continue to permit the use of the treasury stock method. Additionally, we cannot be sure that we will satisfy the relevant criteria to utilize the treasury stock method. If we are unable to use the treasury stock method in accounting for the shares issuable upon conversion of the notes, then our diluted earnings per share would be adversely affected.
Capital and Financial Market Risks
We need to obtain additional project financing to implement our current business plan. The failure to obtain such financing may restrict our ability to grow.
Our current capital and revolving credit facilities are not sufficient to enable us to execute our current business plans, and we will be required to obtain additional project financing for our planned solar energy projects. We may not have funds sufficient for additional investments in our business that we might want to undertake. We will require additional capital in the near term, and we continue to look for opportunities to optimize our capital structure. We plan to pursue sources of such capital through various financing transactions and arrangements, including debt financing, equity financing, joint venturing of projects or other means. We may not be successful in locating suitable financing transactions in the time period required or at all, or on terms we find attractive, and we may not obtain the capital we require by other means. If we do succeed in raising additional capital, the capital received may not be sufficient to fund our operations going forward without obtaining further additional financing. In addition, debt and possible mezzanine financing may involve a pledge of assets and may be senior to equity holders.
Our ability to obtain needed financing may be impaired by conditions in the capital markets (both generally and in our industries in particular). Some of the contractual arrangements governing our operations may require us to maintain minimum capital, and we may lose our contract rights if we do not have the required minimum capital. If the amount of capital we are able to raise from financing activities is insufficient, we may be required to curtail our business plans. However, in the event we are unable to find additional financing opportunities, we believe we will be able to adjust our operating plans to execute our business plans for at least the next twelve months.
Because we manufacture and sell a substantial portion of our products outside of the United States, we are subject to the risks of doing business internationally, including periodic foreign economic downturns and political instability, which may adversely affect our sales and cost of doing business in those regions of the world.
Economic downturns have affected our operating results in the past and could affect our operating results in the future. Additionally, other factors may have a material adverse effect on our business, financial condition or results of operations in the future, including:
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• | the imposition of governmental controls or changes in government regulations, including tax regulations; |
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• | export license requirements; |
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• | restrictions on the export of technology; |
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• | compliance with U.S. and international laws involving international operations, including the Foreign Corrupt Practices Act and export control laws; |
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• | difficulties in enforcing our intellectual property; |
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• | difficulties in achieving headcount reductions; |
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• | restrictions on transfers of funds and assets between jurisdictions; |
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• | geo-political instability; and |
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• | trade restrictions and changes in tariffs. |
We cannot predict whether these economic risks inherent in doing business in foreign countries will have a material adverse effect on our business, financial condition and results of operations in the future.
We currently operate under tax holidays and/or favorable tax incentives and rates in certain foreign jurisdictions. Such tax holidays and incentives often require us to meet certain minimum employment and investment criteria or thresholds in these jurisdictions. We cannot assure you that we will be able to continue to meet these criteria or thresholds or realize any net tax benefits from these tax holidays or incentives. If any of our tax holidays or incentives are terminated, our results of operations could be materially adversely effected.
We are exposed to foreign currency exchange risks because certain of our operations are located in foreign countries.
We generate a portion of our revenues and incur a portion of our costs in currencies other than U.S. dollars. Changes in economic or political conditions in any of the countries in which we operate could result in exchange rate movement, new currency or exchange controls or other restrictions being imposed on our operations or expropriation. Because our financial results are reported in U.S. dollars, if we generate revenue or earnings in other currencies, the translation of those results into U.S. dollars can result in a significant increase or decrease in the amount of those revenues or earnings. To the extent that we are unable to match revenues received in foreign currencies with costs paid in the same currency, exchange rate fluctuations in any such currency could have an adverse effect on our profitability.
Certain of our foreign subsidiaries have debt service requirements denominated in U.S. dollars while corresponding cash flows are generated in other foreign currencies and therefore significant changes in the value of such foreign currencies relative to the U.S. dollar could have a material adverse effect on our financial condition and our ability to meet interest and principal payments on debts denominated in U.S. dollars. Additionally, we have intercompany loans denominated in U.S. dollars with certain of our foreign subsidiaries with functional currencies other that the U.S. dollar.
In addition to currency translation risks, we incur currency transaction risks whenever we or one of our subsidiaries enter into a purchase or sales transaction using a currency other than the local currency of the transacting entity.
Given the volatility of exchange rates, we cannot assure you that we will be able to effectively manage our currency transaction or translation risks. It is possible that volatility in currency exchange rates will have a material adverse effect on our financial condition or results of operations. We expect to experience economic losses and gains and negative and
positive impacts on earnings as a result of foreign currency exchange rate fluctuations. We expect that our revenues denominated in non-U.S. dollar currencies will continue to increase in future periods.
Risks Related to an Investment in Our Common Stock
Conflicts of interest between SSL or TerraForm and us might be resolved in a manner unfavorable to us.
Following completion of the SSL and TerraForm IPOs, various conflicts of interest between SSL and TerraForm and us could arise. One of our officers is a director of SSL and three officers and one director of the Company serve on the board of TerraForm. Furthermore, certain of our officers and directors may own stock in SSL and/or TerraForm. A person’s service as either a director or officer of SunEdison as well as SSL or TerraForm, or ownership interests of our directors or officers in SSL and/or TerraForm shares, could create or appear to create potential conflicts of interest when those directors and officers are faced with decisions that could have different implications for SunEdison, SSL and TerraForm. These decisions could, for example, relate to:
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• | corporate opportunities; |
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• | our financing and dividend policy; |
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• | compensation and benefit programs and other human resources policy decisions; |
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• | termination of, changes to or determinations under our agreements with SSL and TerraForm entered into in connection with the IPOs; and |
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• | determinations with respect to our tax returns. |
Potential conflicts of interest could also arise in connection with any new commercial arrangements with SSL or TerraForm in the future.. Our directors and officers who have interests in SSL or TerraForm and us may also face conflicts of interest with regard to the allocation of their time between SSL or TerraForm and us.
We may not achieve some or all of the expected benefits of the SSL and TerraForm IPOs.
We may not be able to achieve the full strategic and financial benefits expected to result from the SSL and TerraForm IPOs or such benefits may be delayed. If we are unable to achieve the strategic and financial benefits expected to result from the SSL and TerraForm IPOs our business, financial condition and results of operations could be materially adversely affected.
Under generally accepted accounting principles in the United States, we continue to consolidate SSL and TerraForm in our consolidated financial statements. Since the respective boards of directors of SSL and TerraForm owe fiduciary duties to the stockholders of SSL and TerraForm, their actions may not always be in our best interests. Accordingly, their actions may lead to outcomes that cause our consolidated financial statements, after consolidating SSL's and TerraForm's financial statements, to make it difficult to obtain needed financing or to do so on unfavorable terms.
Under U.S. GAAP, we continue to consolidate the financial statements of SSL and TerraForm into our own. This in turn will cause the total assets and liabilities on our balance sheet to appear larger than they would otherwise and our statement of operations to reflect larger revenues and expenses than would be the case absent consolidation. However, since the operations of SSL and TerraForm are also impacted by the respective boards of directors of SSL and TerraForm, who will owe fiduciary duties to the stockholders of SSL and TerraForm, respectively, their actions could lead to outcomes that have a material negative impact on their operations or financial condition. As a result of consolidation, this would impact our results of operations and financial condition, thereby potentially impacting our ability to obtain needed financing for our operations or our ability to do so on favorable terms.
Our actual operating results may differ significantly from our forward-looking statements and investors are cautioned not to place undue reliance on such statements.
From time to time, we present, in press releases, furnished reports on Form 8-K, and otherwise, forward-looking statements regarding our future performance and market conditions. These statements represent management’s estimates as of their date and are qualified by, and subject to, the assumptions and the other information contained or referred to in such presentations. Projections and other forward-looking statements are based upon a number of assumptions and estimates that, while presented with numerical specificity, are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control and are based upon specific assumptions with respect to future business decisions, some of which will change. We generally state possible outcomes as high and low ranges which are intended to provide a sensitivity analysis as variables are changed but are not intended to represent that actual results could not fall outside of the suggested ranges. Projections and other forward-looking statements are necessarily speculative in nature, and it can be expected that some or all of the assumptions of the forward-looking
statements furnished by us will not prove to be accurate or will vary significantly from actual results. Accordingly, our projections and other forward-looking statements are only an estimate of what management believes is realizable as of the date of release. Actual results will vary from the projections and the variations may be material. Investors should also recognize that the reliability of any forecasted financial data diminishes the farther in the future that the data is projected. In light of the foregoing, investors are urged not to rely upon, or otherwise consider, our projections or other forward-looking statements, including those set forth in this prospectus supplement or in the investor presentation referred to above, in making an investment decision in respect of our common stock.
The market price of our common stock has fluctuated significantly, especially in recent years, and may continue to do so in the future, which increases the risk of your investment.
We are a participant in both the renewable energy industry and the semiconductor industry, two industries that have often experienced extreme price and trading volume fluctuations that often have been unrelated to the operating performance of an individual company. This market volatility may adversely affect the market price of our common stock. The market price of our common stock may be affected by various factors, including:
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• | quarterly fluctuations in our operating results resulting from factors such as timing of orders from and shipments to major customers, product mix, competitive pricing pressures and sales of solar energy systems; |
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• | our ability to convert our pipeline and backlog into completed solar energy systems at historical or anticipated rates; |
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• | market conditions experienced by our customers and in the semiconductor industry and solar industry; |
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• | announcements of operating results that are not aligned with the expectations of investors; |
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• | general worldwide macroeconomic conditions, including availability of project financing and related interest rates, or changes in government policies regarding solar energy; |
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• | changes in our relationships with our customers; |
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• | seasonality of our Solar Energy business; |
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• | announcements of technological innovations, new products or upgrades to existing products by us or our competitors; |
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• | interruption of operations at our manufacturing facilities or the facilities of our suppliers; and |
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• | developments in patent or other proprietary rights by us or by our competitors. |
In addition, in recent years the stock market has experienced extreme price fluctuations. This volatility has had a substantial effect on the market prices of securities issued by many companies for reasons unrelated to the operating performance of the specific companies. These broad market fluctuations may adversely affect the market price of our common stock.
The accounting treatment for many aspects of our Solar Energy business is complex and any changes to the accounting interpretations or accounting rules governing our Solar Energy business could have a material adverse effect on our U.S. GAAP reported results of operations and financial results.
The accounting treatment for many aspects of our Solar Energy business is complex, and our future results could be adversely affected by changes in the accounting treatment applicable to our Solar Energy business. In particular, any changes to the accounting rules regarding the following matters may require us to change the manner in which we operate and finance our Solar Energy business:
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• | the classification of our sale-leaseback transactions as operating, capital or real estate financing transactions; |
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• | revenue recognition and related timing; |
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• | operation and maintenance contracts; |
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• | joint venture accounting, including the consolidation of joint venture entities and the inclusion or exclusion of their assets and liabilities on our balance sheet; |
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• | long-term vendor agreements; and |
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• | foreign holding company tax treatment. |
We make estimates and assumptions in connection with the preparation of our consolidated financial statements, and any changes to those estimates and assumptions could have a material adverse effect on our results of operations.
In connection with the preparation of our consolidated financial statements, we use certain estimates and assumptions based on current facts, historical experience and various other factors that may affect reported amounts and disclosures. Our most critical accounting estimates are described in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our 2014 Annual Report. While we believe that these estimates and assumptions are reasonable under the circumstances, they are subject to significant uncertainties, some of which are beyond our control. Should any of these estimates and assumptions change or prove to have been incorrect, it could have a material adverse effect on our results of operations, which could cause our stock price to decline.
Integrating the assets we acquired in the First Wind acquisition may be more difficult, costly or time consuming than expected and the anticipated benefits of the First Wind acquisition may not be realized.
The success of the First Wind acquisition, including anticipated benefits, will depend, in part, on our and our subsidiaries' ability to successfully develop, combine and integrate those assets with our existing operations. In addition, the acquisition of the wind projects represents a substantial change in the nature of our business, and we may not be able to adapt the such change in a timely manner, or at all. It is possible that the First Wind acquisition or the integration process could result in the loss of key employees, higher than expected costs, diversion of management attention and resources, the disruption of either company's ongoing businesses or inconsistencies in standards, controls, procedures and policies that adversely affect the combined company's ability to maintain relationships with customers vendors and employees or the achieve the anticipated benefits of the First Wind acquisition. If we experience difficulties with the integration process, the anticipated benefits of the First Wind acquisition may not be realized fully or at all, or may take longer to realize than expected. Management continues to refine its integration plan, which may vary from plans previously disclosed. These
integration matters could have an adverse effect during this transition period and for an undetermined period after completion of the First Wind acquisition.
The First Wind acquisition will involve substantial costs.
We have incurred, and expect to continue to incur, a number of non-recurring costs associated with the First Wind acquisition. The substantial majority of non-recurring expenses will be comprised of transaction and regulatory costs related to the First Wind acquisition. We continue to assess the magnitude of these costs, and additional unanticipated costs may be incurred in the First Wind acquisition.
Any future strategic acquisitions we make could have a dilutive effect on your investment, and if the goodwill, indefinite-lived intangible assets and other long-term assets recorded in connection with such acquisitions become impaired, we would be required to record additional impairment charges, which may be significant.
In the event of any future acquisitions, we may record a portion of the assets we acquire as goodwill, other indefinite-lived intangible assets and finite-lived intangible assets. We do not amortize goodwill and indefinite-lived intangible assets, but rather review them for impairment on an annual basis or whenever events or changes in circumstances indicate that their carrying value may not be recoverable. The recoverability of these assets is dependent on our ability to generate sufficient future earnings and cash flows. Changes in estimates, circumstances or conditions, resulting from both internal and external factors, could have a significant impact on our fair valuation determination, which could then result in a material impairment charge negatively affecting our results of operations.
Future sales of our common stock may depress our stock price.
Future sales of substantial amounts of our common stock in the public market, or the perception that these sales could occur, could adversely affect the price of our common stock and could impair our ability to raise capital through the sale of additional shares.
In the future, we may also issue our securities if we need to raise capital in connection with a capital raise or acquisitions. The amount of shares of our common stock issued in connection with a capital raise or acquisition could constitute a material portion of our then-outstanding shares of our common stock.
Conversion of our outstanding convertible notes and our warrants related to our convertible notes could dilute ownership and earnings per share or cause the market price of our stock to decrease.
To the extent we issue common shares upon conversion of our outstanding convertible notes, the conversion of some or all of such notes will dilute the ownership interests of existing stockholders, including holders who had previously converted their notes. Any sales in the public market of the common shares issuable upon such conversion could adversely affect prevailing market prices of our common stock. In addition, the existence of our outstanding
convertible notes may encourage short selling of our common stock by market participants who expect that the conversion of the notes could depress the price of our common stock.
As of December 31, 2014, we had issued warrants to affiliates of the underwriters of our convertible notes, which are exercisable for a total of approximately 104.4 million shares of our common stock. The warrants, together with certain convertible hedge transactions, are meant to reduce our exposure upon potential conversion of our convertible notes. If the market price of our common stock exceeds the respective exercise prices of the warrants, such warrants will have a dilutive effect on our earnings per share, and could dilute the ownership interests for existing stockholders if exercised.
We may not have the ability to raise the funds necessary to settle conversions of the notes or purchase the notes as required upon a fundamental change, and our existing debt contains, and our future debt may contain, limitations on our ability to pay cash upon conversion or repurchase of the notes.
Following a fundamental change as described under "Description of the Notes-Purchase of Notes at Your Option upon a fundamental Change, " holders of notes will have the right to require us to purchase their notes for cash. A fundamental change may also constitute an event of default or prepayment under, and result in the acceleration of the maturity of, our then-existing indebtedness. In addition, upon conversion of the notes, unless we are permitted, which will only occur if and when we obtain the stockholder approval described in this offering memorandum, and elect, to settle our conversion obligation in solely shares of our common stock (other than cash in lieu of any fractional share), we will be required to make cash payments in respect of the notes being surrendered for conversion as described under "Description of the Notes-Conversion of Notes-Settlement upon Conversion." We may, in certain circumstances, irrevocably elect to satisfy our conversion obligation with respect to each subsequent conversion date in a combination of cash and shares of our common stock, if any, with a particular "specified dollar amount" (as defined in this offering memorandum), in which case we will no longer be permitted to settle the corresponding portion of our conversion obligation in shares of our common stock. However, until we obtain the stockholder approvals described in this offering memorandum, we must settle conversions solely in cash. We may not have sufficient financial resources, or will be able to arrange for purchase upon a fundamental change or make cash payments upon conversions. In addition, restrictions in our then-existing credit facilities or other indebtedness, if any, may not allow us to purchase the notes upon a fundamental change or make cash payments upon conversions. In addition, restrictions in our then-existing credit facilities or other indebtedness, if any, may not allow us to purchase the notes upon a fundamental change or make cash payments upon conversions of the notes. Our failure to purchase the notes upon a fundamental change (when required) or to make cash payments upon conversions thereof for five business days after such payments have become due would result in an event of default with respect to the notes, which could, in turn, constitute a default under the terms of our other indebtedness, if any. If the repayment of the related indebtedness were to be accelerated after any applicable notice or grace periods, we may not have sufficient funds to repay the indebtedness and purchase the notes or make cash payments upon conversions thereof.
We are required to evaluate our internal controls over financial reporting under Section 404 of the Sarbanes-Oxley Act and any adverse results from such evaluation, or the failure to develop internal controls necessary for our newly acquired businesses to achieve compliance with Section 404, could result in a loss of investor confidence in our financial reports and could have an adverse effect on our stock price.
Pursuant to Section 404 of the Sarbanes-Oxley Act, we are required to furnish a report by our management assessing the effectiveness of our internal control over financial reporting as of the end of our fiscal year. This assessment must include disclosure of any material weaknesses in our internal control over financial reporting identified by management. The report must also contain a statement that our auditors have issued an attestation report on management’s assessment of our internal controls over financial reporting.
If our management identifies one or more material weaknesses in our internal control over financial reporting, we will be unable to assert our internal control over financial reporting is effective. If we are unable to assert that our internal control over financial reporting is effective presently or in the future (or if our auditors are unable to express an opinion that our internal controls over financial reporting are effective), we could incur additional costs and expenses to resolve these deficiencies and lose investor confidence in the accuracy and completeness of our financial reports, which could have an adverse effect on our stock price. As of December 31, 2014, management determined that our internal control over financial reporting is effective.
Provisions in our amended and restated certificate of incorporation, amended and restated by-laws and Delaware law may prevent or delay an acquisition of us, which could decrease the trading price of our common stock.
Our amended and restated certificate of incorporation (our “certificate of incorporation”) and amended and restated by-laws (our “by-laws”) contain provisions that are intended to deter coercive takeover practices and inadequate takeover bids and to encourage prospective acquirers to negotiate with our board of directors rather than to attempt a hostile takeover. These provisions include:
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• | a board of directors that, until the 2016 annual meeting of stockholders, will be divided into three classes with staggered terms; |
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• | rules regarding how our stockholders may present proposals or nominate directors for election at stockholder meetings; |
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• | the right of our board of directors to issue preferred stock without stockholder approval; and |
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• | the right of our board of directors to make, alter or repeal our by-laws. |
These anti-takeover provisions and other provisions under Delaware law could discourage, delay or prevent a transaction involving a change in control of us, even if doing so would benefit our stockholders. These provisions could also discourage proxy contests and make it more difficult for you and other stockholders to elect directors of your choosing and to cause us to take other corporate actions you desire.
The issuance of preferred stock could adversely affect holders of common stock.
Our board of directors is authorized to issue series of preferred stock without any action on the part of our holders of common stock. Our board of directors also has the power, without stockholder approval, to set the terms of any such series of preferred stock that may be issued, including voting rights, dividend rights, preferences over our common stock with respect to dividends or if we liquidate, dissolve or wind up our business and other terms. If we issue preferred stock in the future that has preference over our common stock with respect to the payment of dividends or upon our liquidation, dissolution or winding up, or if we issue preferred stock with voting rights that dilute the voting power of our common stock, the rights of holders of our common stock or the price of our common stock could be adversely affected.
We currently do not intend to pay dividends for the foreseeable future.
We have not historically paid cash dividends on our common stock and do not currently anticipate paying any dividends on our common stock in the foreseeable future. We currently intend to retain our earnings, if any, to use in our ongoing operations. In addition, the terms of the agreements governing our indebtedness restrict our ability to pay dividends on our common stock. Furthermore, our board of directors has the authority to issue one or more series of preferred stock without action of the stockholders. Although we have no present plan to issue any additional series of preferred stock, the issuance of any additional series could also have the effect of limiting dividends on the common stock.
Cautionary Statement Regarding Forward-Looking Statements
Statements set forth in this Form 10-K or statements incorporated by reference from documents we have filed with the Securities and Exchange Commission may contain forward-looking statements. Forward-looking statements are not based on historical facts but instead reflect our expectations, estimates or projections concerning future results or events, including, without limitation, statements regarding demand and/or pricing of our products or the pricing environment in the future; our expectation that we will generate sufficient taxable income to realize the benefits of our net deferred tax assets; the appropriateness of our tax positions and the timing of our tax audits; the timing of our various manufacturing ramps or the cessation or continuation of production at certain facilities; the anticipated growth of our business in 2015 and beyond; the effects of economic factors on our market capitalization; our expectation that we will have the financial resources and liquidity needed to meet our business requirements throughout 2015; future amendments or termination of our agreements with our long-term solar wafer customers and payments associated with such contracts; our estimates of penalties associated with termination of or purchase shortfalls under certain of our long-term supply contracts with our vendors; the nature and extent of tax rebate programs or feed-in-tariffs in the future; our expectations regarding indemnification payments related to tax credits; the ultimate impact our legal proceedings may have on us; the charges we expect to incur, the timing of completion, the savings we expect to realize, the number of employees who will be affected and our execution of our announced restructurings; our expectations regarding our annual pre-tax operating benefits upon the completion of our restructuring activities; our expectations regarding recognition of annual amortization expenses; our expectations regarding our investments in research and development; our expectations regarding our future cash flow generation; our expectations regarding solar wafer sales to external parties and sales of our solar energy systems; the amount of our contributions to our pension plans in 2015 and our estimates regarding actuarial loss (gain) and future benefits payable under our pension plans; the anticipated effect of certain accounting pronouncements on our results of operations and financial condition; the classification of our solar energy systems as direct sales, sale-leasebacks or held systems and the current and subsequent
accounting treatment, expected energy revenue and estimated retained value of such transactions; our expectations regarding the timing and amount of our investments in our joint ventures; the timing of completion of the construction, installation and testing of the equipment and the milestone payments related to the SMP JV; the requirements of and our compliance with the terms governing our indebtedness, including the indentures governing the 2018, 2020, 2021 and 2022 Notes, the impact of related cross default provisions, and the warrants related to the 2018, 2020, 2021 and 2022 Notes; the sources of funding and our ability to access funding for our Solar Energy business; our expectation regarding our purchase of RECs; our ability to compete effectively in the markets we serve; with respect to the separation of the semiconductor business, SunEdison Semiconductor Limited, and our publicly traded subsidiary, TerraForm Power, Inc.: (i) which may involve greater exposure to liability than our historic business operations (ii) we may be involved in various conflicts of interest which could be resolved in a manner unfavorable to us, we may not be able to achieve some or all of the expected benefits; anticipate benefits in connection with the First Wind acquisition and other risks described in the company’s filings with the Securities and Exchange Commission. In addition, we are exposed to risks associated with certain obligations to TerraForm associated with the initial portfolio, future Call Right Projects and interests in additional clean energy projects; and our statements regarding our working capital and other capital requirements for the next 12 months.
These statements generally can be identified by the use of forward-looking words or phrases such as "believe," "expect," "anticipate," "may," "could," "intend," "belief," "estimate," "plan," "likely," "will," "should" or other similar words or phrases. These statements are not guarantees of performance and are inherently subject to known and unknown risks, uncertainties and assumptions that are difficult to predict and could cause our actual results, performance or achievements to differ materially from those expressed in or indicated by those statements. We cannot assure you that any of our expectations, estimates or projections will be achieved. The forward-looking statements included in this document are only made as of the date of this document, and we disclaim any obligation to publicly update any forward-looking statement to reflect subsequent events or circumstances.
Because such statements are subject to risks and uncertainties, actual results may differ materially from those expressed or implied by such forward-looking statements. You should not place undue reliance on such statements, which speak only as of the date that they were made. Factors that could cause actual results to differ materially are set forth under this "Item 1A. Risk Factors".
These cautionary statements should be considered in connection with any written or oral forward-looking statements that we may issue in the future. We do not undertake any obligation to release publicly any revisions to such forward-looking statements to reflect later events or circumstances or to reflect the occurrence of unanticipated events.
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Item 1B. | Unresolved Staff Comments |
None.
Our principal executive offices are located in Maryland Heights, Missouri where we occupy approximately 80,275 square feet of office space under a lease that expires in January, 2026. Our SunEdison, LLC subsidiary leases 118,000 square feet of office space in Belmont, California and 33,327 square feet in Bethesda, Maryland.
We lease all of our facilities, and we do not own any real property. We believe that our existing facilities and equipment are well maintained, in good operating condition and are generally adequate to support the current operations of the business. The extent of utilization of these facilities varies from plant to plant and from time to time during the year.
We are involved in various legal proceedings, claims, investigations and other legal matters which arise in the ordinary course of business. Although it is not possible to predict the outcome of these matters, we believe that the ultimate outcome of these proceedings, individually and in the aggregate, will not have a material adverse effect on our financial position, cash flows or results of operations.
Jerry Jones v. SunEdison, Inc., et al.
On December 26, 2008, a putative class action lawsuit was filed in the U.S. District Court for the Eastern District of Missouri by plaintiff, Jerry Jones, purportedly on behalf of all participants in and beneficiaries of SunEdison's 401(k) Savings Plan (the "Plan") between September 4, 2007 and December 26, 2008, inclusive. The complaint asserted claims against SunEdison and certain of its directors, employees and/or other unnamed fiduciaries of the Plan. The complaint alleges that the defendants breached certain fiduciary duties owed under the Employee Retirement Income Security Act, generally asserting that the defendants failed to make full disclosure to the Plan's participants of the risks of investing in SunEdison's stock and that the company's stock should not have been made available as an investment alternative in the Plan. The complaint also alleges that SunEdison failed to disclose certain material facts regarding SunEdison's operations and performance, which had the effect of artificially inflating SunEdison's stock price.
On June 1, 2009, an amended class action complaint was filed by Mr. Jones and another purported participant of the Plan, Manuel Acosta, which raises substantially the same claims and is based on substantially the same allegations as the original complaint. However, the amended complaint changes the period of time covered by the action, purporting to be brought on behalf of beneficiaries of and/or participants in the Plan from June 13, 2008 through the present, inclusive. The amended complaint seeks unspecified monetary damages, including losses the participants and beneficiaries of the Plan allegedly experienced due to their investment through the Plan in SunEdison's stock, equitable relief and an award of attorney's fees. No class has been certified and discovery has not begun. The company and the named directors and employees filed a motion to dismiss the complaint, which was fully briefed by the parties as of October 9, 2009. The parties each subsequently filed notices of supplemental authority and corresponding responses. On March 17, 2010, the court denied the motion to dismiss. The SunEdison defendants filed a motion for reconsideration or, in the alternative, certification for interlocutory appeal, which was fully briefed by the parties as of June 16, 2010. The parties each subsequently filed notices of supplemental authority and corresponding responses. On October 18, 2010, the court granted the SunEdison defendants' motion for reconsideration, vacated its order denying the SunEdison defendants' motion to dismiss, and stated that it will revisit the issues raised in the motion to dismiss after the parties supplement their arguments relating thereto. Both parties filed briefs supplementing their arguments on November 1, 2010. On June 28, 2011, plaintiff Jerry Jones filed a notice of voluntary withdrawal from the action. On June 29, 2011, the Court entered an order withdrawing Jones as one of the plaintiffs in this action. The parties each have continued to file additional notices of supplemental authority and responses thereto. On September 27, 2012, the SunEdison defendants moved for oral argument on their pending motion to dismiss; plaintiff Manuel Acosta joined in the SunEdison defendants' motion for oral argument on October 9, 2012. On March 24, 2014, the court granted our motion to dismiss but the plaintiffs filed, and the court in April 2014 granted, a motion to stay entry of final judgment pending a Supreme Court decision in a case that could have implications in this matter. That Supreme Court case was decided in June 2014, and the plaintiffs filed a motion for reconsideration with the district court, based on that Supreme Court decision. We believe that we continue to have good reason for a dismissal and intend to vigorously defend this motion.
SunEdison believes the above class action is without merit, and we will assert a vigorous defense. Due to the inherent uncertainties of litigation, we cannot predict the ultimate outcome or resolution of the foregoing class action proceedings or estimate the amounts of, or potential range of, loss with respect to these proceedings. An unfavorable outcome is not expected to have a material adverse impact on our business, results of operations and financial condition. We have indemnification agreements with each of our present and former directors and officers, under which we are generally required to indemnify each such director or officer against expenses, including attorney's fees, judgments, fines and settlements, arising from actions such as the lawsuits described above (subject to certain exceptions, as described in the indemnification agreements).
Wacker Chemie AG v. SunEdison, Inc.
On December 20, 2012, Wacker Chemie AG (“Wacker”) filed a notice of arbitration with the Swiss Chambers’ Arbitration Institution (the “SCAI”) against the Company, requesting the resolution of a dispute arising from two agreements and a subsequent settlement agreement entered into between Wacker and the Company. In its statement of claim, Wacker alleges that the Company failed to comply with its contractual obligations, in particular that the Company failed to take or pay for certain quantities of polycrystalline silicon as required under the settlement agreement. Wacker claims a payment of 22.8 million Euro plus interest for the payment of outstanding invoices and an amount of 92 million Euro plus interest for damages it claims as a result of the alleged breach by the Company through December 2013. These amounts are included in the estimated range of reasonably possible losses as discussed above in the purchase obligations section. The Company filed its statement of defense on January 10, 2014 and has vigorously defended this action.
A hearing occurred in October 2014. Post-hearing briefings concluded in January 2015. We are awaiting the ruling of the arbitral tribunal.
From time to time, we may conclude it is in the best interests of our stockholders, employees, vendors and customers to settle one or more litigation matters, and any such settlement could include substantial payments; however, we have not reached this conclusion with respect to any particular matter at this time. There are a variety of factors that influence our decision to settle any particular individual matter, and the amount we may choose to pay or accept as payment to settle such matters, including the strength of our case, developments in the litigation (both expected and unexpected), the behavior of other interested parties, including non-parties to the matter, the demand on management time and the possible distraction of our employees associated with the case and/or the possibility that we may be subject to an injunction or other equitable remedy. It is difficult to predict whether a settlement is possible, the amount of an appropriate settlement or when is the opportune time to settle a matter in light of the numerous factors that go into the settlement decision.
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Item 4. | Mine Safety Disclosures |
Not applicable.Executive Officers of the Registrant
The following is information concerning our executive officers as of January 31, 2015.
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Name | Age | All Positions and Offices Held |
Ahmad R. Chatila | 48 |
| | President, Chief Executive Officer and Director |
Brian Wuebbels | 42 |
| | Executive Vice President, Chief Administration Officer and Chief Financial Officer |
Carlos Domenech Zornoza | 44 |
| | President and Chief Executive Officer TerraForm Power, Inc. |
Paul Gaynor | 49 |
| | Executive Vice President North America Utility and Global Wind |
Matthew E. Herzberg | 47 |
| | Senior Vice President and Chief Human Resources Officer |
Stephen O’Rourke | 50 |
| | Senior Vice President and Chief Strategy Officer |
David A. Ranhoff | 59 |
| | Senior Vice President; President - Solar Materials |
Martin H. Truong | 38 |
| | Senior Vice President, General Counsel and Secretary |
Mr. Chatila has served as President, Chief Executive Officer and as a director since March 2, 2009. Prior to joining SunEdison, Mr. Chatila served as Executive Vice President, Memory and Imaging Division of Cypress Semiconductor Corporation from July 2005 to February 2009. From September 2004 to June 2005, Mr. Chatila was the Vice President of Operations of the Cypress Memory and Imaging Division, and before that he served as Managing Director of the low power memory business unit in the Memory and Imaging Division from January 2003 to September 2004. Mr. Chatila initially joined Cypress in 1991 and held a number of management roles in wafer technology development, manufacturing and sales since that time, including the positions described above. From November 1997 to December 1999, Mr. Chatila worked for Taiwan Semiconductor Manufacturing Company (TSMC) as Senior Account Manager, before rejoining Cypress in January 2000.
Mr. Domenech serves as President and Chief Executive Officer of TerraForm Power, Inc. Previously, he served as Executive Vice President; President - SunEdison Capital from March 2013 to January 2014. After the acquisition of SunEdison by MEMC Electronic Materials, Inc. in November 2009, Mr. Domenech served as Executive Vice President and President of SunEdison. Prior to joining SunEdison, Mr. Domenech served as Chief Financial Officer at Universal Pictures’ International Entertainment, where he led its integration with NBC, from 2004 to 2007. Prior to joining Universal, Mr. Domenech spent 14 years with General Electric Company, where he served in a variety of global executive roles, including as Chief Financial Officer of GE Healthcare’s EMEA Service.
Mr. Wuebbels became SunEdison’s Executive Vice President and Chief Financial Officer in May of 2012 and in December 2014 was given the additional role of Chief Administration Officer. Previously, Mr. Wuebbels served as SunEdison's Vice President and General Manager - Balance of System Products. At SunEdison, he has also served as Vice President, Solar Wafer Manufacturing, Vice President of Financial Planning and Analysis, and Vice President Operations Finance. Before joining SunEdison in 2007, Mr. Wuebbels was Vice President and CFO of Honeywell's Sensing and Controls Business. Prior to Honeywell, Mr. Wuebbels spent 10 years at the General Electric Company in various senior finance and operations roles in multiple businesses around the world.
Mr. Gaynor joined SunEdison as Executive Vice President North America Utility and Global Wind in connection with the First Wind acquisition, which was completed in January 2015. Prior to joining SunEdison, Mr. Gaynor served as Chief Executive Officer of First Wind since 2004. Mr. Gaynor has more than 25 years of experience in the energy field,
encompassing leadership and finance roles in the energy, power, and pipeline sectors. Mr. Gaynor has held senior leadership and financial roles with Noble Power Assets, Singapore Power Group, PSG International, GE Capital and GE Power Systems.
Mr. Herzberg joined SunEdison as Senior Vice President and Chief Human Resource Officer in March 2011. Prior to joining SunEdison, Mr. Herzberg was employed by Express Scripts, Inc. from 2006 to February 2011. Mr. Herzberg most recently served as Vice President of Human Resources and was responsible for all facets of human resources at Express Scripts, Inc. Prior to that role, Mr. Herzberg served as the Vice President, Talent Management & Total Rewards and the Vice President, Organizational and Leadership Development of Express Scripts, Inc.
Mr. O'Rourke joined SunEdison as Senior Vice President and Chief Strategy Officer in October 2010. Prior to joining SunEdison, Mr. O'Rourke served as Managing Director, Senior Analyst at Deutsche Bank Securities since 2004. Mr. O'Rourke also served in the U.S. Navy as a nuclear submarine officer and graduated from the U.S. Naval Academy, Annapolis, Maryland with a BS degree in Electrical Engineering, and did graduate work in Nuclear Engineering at the Naval Nuclear Power School in Orlando, Florida.
Mr. Ranhoff has served Senior Vice President; President - Solar Materials since July of 2013. Prior to that he served as Senior Vice President Sales & Marketing from November 2010 through March 2013. Mr. Ranhoff joined SunEdison as a result of the acquisition of Solaicx in July 2010, where he was the former President and Chief Executive Officer. Mr. Ranhoff worked at Solaicx from May 2009 to July 2010. Prior to Solaicx, Mr. Ranhoff served as an advisor and member of the board of directors of Spirox Corporation, a publicly traded semiconductor capital equipment, solar and services provider based in Taiwan from January 2007 to April 2009. Prior to that role, Mr. Ranhoff worked for 20 years at Credence Systems, a leading provider of automatic test equipment for the semiconductor industry, including as Chief Operating Officer and most recently as Chief Executive Officer.
Mr. Truong became SunEdison's Vice President, General Counsel and Secretary in April of 2013 and was promoted to Senior Vice President in April of 2014. Mr. Truong joined SunEdison in February 2008 and has held various roles of increasing responsibility and most recently served as SunEdison's Assistant General Counsel with legal responsibilities for Emerging Markets, Solar Materials and intellectual property licensing and monetization.
There are no family relationships between or among any of the named officers and the directors.
PART II
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Item 5. | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |
The narrative and tabular information regarding the market for our common equity and related stockholder matters required by this item, including our stock performance graph, is set forth under "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our 2014 Annual Report and under "Stockholders' Information" in our 2014 Annual Report, which information is incorporated herein by reference. We have not paid any dividends on our common stock for the last two fiscal years. Our corporate credit facility prevent the payments of dividends on our common stock without prior consent of the lenders. In addition, the indenture related to the notes requires that the company meet certain requirements, including those related to its leverage ratio and consolidated net income, in order to pay dividends.
The information required under this Item 5 concerning equity compensation plan information is set out below under Item 12 and is incorporated herein by this reference.
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Item 6. | Selected Financial Data |
The tabular information (including the footnotes thereto) required by this item is set forth under "Five Year Selected Financial Highlights" in our 2014 Annual Report, which information is incorporated herein by this reference.
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Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
The information required by this item is set forth under "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our 2014 Annual Report, which information is incorporated herein by this reference.
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Item 7A. | Quantitative and Qualitative Disclosures about Market Risk |
The information required by this item is set forth under "Market Risk" included in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our 2014 Annual Report, which information is incorporated herein by this reference.
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Item 8. | Financial Statements and Supplementary Data |
The information required by this item is set forth under "Consolidated Statements of Operations", "Consolidated Balance Sheets", "Consolidated Statements of Cash Flows", "Consolidated Statements of Stockholders' Equity", " Consolidated Statement of Comprehensive Loss", "Notes to Consolidated Financial Statements", "Report of Independent Registered Public Accounting Firm" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our 2014 Annual Report, all of which are incorporated herein by this reference.
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Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
None.
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Item 9A. | Controls and Procedures |
The information required by this item is set forth under "Controls and Procedures - Evaluation of Disclosure Controls and Procedures", "- Management's Report on Internal Control Over Financial Reporting" and "- Changes in Internal Control Over Financial Reporting" in our 2014 Annual Report, which information is incorporated herein by this reference.
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Item 9B. | Other Information |
None.
PART III
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Item 10. | Directors, Executive Officers and Corporate Governance |
The information required by this item with respect to compliance with Section 16(a) of the Exchange Act will be set forth in the 2015 Proxy Statement under "Section 16(a) Beneficial Ownership Reporting Compliance" and is incorporated herein by this reference. The remaining information required by this item with respect to directors will be set forth in the 2015 Proxy Statement under "Director Qualifications" and "Information about Nominees and Continuing Directors" and is incorporated herein by this reference. Information required by this Item relating to our Code of Ethics and Audit Committee will be set forth in the 2015 Proxy Statement under "Board of Directors and Committees of the Board of Directors", which is incorporated herein by this reference. The remaining information required by this item with respect to executive officers is set forth in Part I of this Annual Report on Form 10-K under "Executive Officers of the Registrant", which is incorporated herein by this reference.
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Item 11. | Executive Compensation |
The information regarding executive compensation required by this Item will be set forth in our 2015 Proxy Statement under the headings "Risk Compensation in Our Compensation Program", "Director Compensation", "Compensation Discussion and Analysis", "Report of the Compensation Committee", "Executive Compensation" and "Compensation Committee Interlocks and Insider Participation" and is incorporated herein by this reference.
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Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
The information regarding beneficial ownership of our securities required by this Item will be set forth in our 2015 Proxy Statement under the headings "Security Ownership by Certain Beneficial Owners, Directors and Executive Officers" and is incorporated herein by this reference.
Equity Compensation Plans
The following table provides information about the Company’s common stock that may be issued upon exercise of options, warrants and rights under the Company’s equity compensation plans as of December 31, 2014.
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Plan Category | | Number of securities to be issued upon exercise of outstanding options, warrants and rights(1) | | Weighted-average exercise price of outstanding options, warrants and rights(2) | | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column(a))(1) |
Equity compensation plans approved by security holders | | 26,611,597 shares of common stock (3) | | $ | 7.07 | | | 11,660,635 shares of common stock (4) |
Total | | 26,611,597 shares of common stock | | $ | 7.07 | | | 11,660,635 shares of common stock |
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(1) | Number of shares is subject to adjustment for changes in capitalization for stock splits, stock dividends and similar events. |
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(2) | Weighted average exercise price of outstanding options; excludes restricted stock units and performance-based restricted stock units. |
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(3) | Includes 7,623,274 shares of SunEdison common stock that may be issued upon vesting of restricted stock units. |
These shares are issuable under SunEdison's Amended and Restated 2010 Equity Incentive Plan.
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Item 13. | Certain Relationships and Related Transactions, and Director Independence |
The information concerning related party transactions which is required by this Item will be set forth in our 2015 Proxy Statement under the heading "Certain Transactions" and is incorporated herein by reference. The information concerning director independence required by this Item will be set forth in our 2015 Proxy Statement under the heading "Board of Directors and Committee of the Board of Directors" and is incorporated herein by this reference.
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Item 14. | Principal Accounting Fees and Services |
The information required by this Item will be set forth in our 2015 Proxy Statement under the heading "Principal Accounting Firm Services and Fees" and is incorporated herein by this reference.
PART IV
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Item 15. | Exhibits, Financial Statement Schedules |
(a)The following documents are filed as part of this report:
1.Financial Statements
The following consolidated financial statements of us and our subsidiaries and the Report of Independent Registered Public Accounting Firm of KPMG LLP are included in our 2014 Annual Report, and are incorporated herein by this reference:
Consolidated Statements of Operations-Years Ended December 31, 2014, 2013, and 2012.
Consolidated Statements of Comprehensive Loss-Years Ended December 31, 2014, 2013 and 2012.
Consolidated Balance Sheets-December 31, 2014 and 2013.
Consolidated Statements of Cash Flows-Years Ended December 31, 2014, 2013 and 2012.
Consolidated Statements of Stockholders' Equity-Years Ended December 31, 2014, 2013 and 2012.
Notes to Consolidated Financial Statements.
Report of Independent Registered Public Accounting Firm.
1.Financial Statements Schedules
None.
1.Exhibits
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Exhibit No. | | Description |
**2.1 | | Purchase and Sale Agreement, dated as of November 17, 2014, among SunEdison, Inc., TerraForm Power, LLC, TerraForm Power, Inc., First Wind Holdings, LLC, First Wind Capital, LLC, D. E. Shaw Composite Holdings, L.L.C., the company members party thereto and D. E. Shaw Composite Holdings, L.L.C. and Madison Dearborn Capital Partners IV, L.P., acting jointly, solely in their capacity as the representative of the sellers (Incorporated by reference to Exhibit 2.1 of the Company’s Form 8-K filed February 3, 2015)
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**2.2 | | First Amendment to the Purchase and Sale Agreement, dated as of January 28, 2015, among SunEdison, Inc., TerraForm Power, LLC and D. E. Shaw Composite Holdings, L.L.C. and Madison Dearborn Capital Partners IV, L.P., acting jointly, solely in their capacity as the representative of the sellers (Incorporated by reference to Exhibit 2.2 of the Company’s Form 8-K filed February 3, 2015
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2.3 | | Acquisition Agreement by and among AES U.S. Solar, LLC, as Seller, Silver Ridge Power Holdings, LLC, as Buyer, solely for the purpose of Article 9, The AES Corporation as Parent and, solely for the purposes of Section 10.13, SunEdison, Inc. as Buyer Guarantor dated as of June 16, 2014 (Incorporated by reference to Exhibit 10.3 of the Company's Quarterly Report on Form 10-Q filed on November 5, 2014) |
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3.1 | | Amended and Restated Certificate of Incorporation of SunEdison, Inc. (Incorporated by reference to Exhibit 3.1 of the Company's Form 8-K filed June 2, 2014)
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3.2 | | Amended and Restated Bylaws of SunEdison, Inc. (Incorporated by reference to Exhibit 3.2 of the Company's Form 8-K filed June 2, 2014)
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4.1 | Indenture (including the forms of notes), dated March 10, 2011, by and among MEMC Electronic Materials, Inc., the subsidiary guarantors named therein and U.S. Bank National Association, as trustee (Incorporated by reference to Exhibit 4.1 of the Company's Form 8-K filed March 10, 2011)
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4.2 | | Indenture, dated as of December 20, 2013, between SunEdison, Inc. and Wilmington Trust, National Association, as trustee, conversion agent, registrar, bid solicitation agent and paying agent, 2.00% Convertible Senior Notes due 2018 (Incorporated by reference to Exhibit 10.99 of the Company’s 10-K filed on March 6, 2014) |
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4.3 | | Indenture, dated as of December 20, 2013, between SunEdison, Inc. and Wilmington Trust, National Association, as trustee, conversion agent, registrar, bid solicitation agent and paying agent, 2.75% Convertible Senior Notes due 2021(Incorporated by reference to Exhibit 10.100 of the Company’s 10-K filed on March 6, 2014)
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4.4 | | Indenture dated June 10, 2014 between SunEdison, Inc. and Wilmington Trust, National Association as trustee, conversion agent, registrar, bid solicitation agent and paying agent (Incorporated by reference to the Company's Quarterly Report on Form 10-Q filed on August 7, 2014) |
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4.5 | | Indenture, dated as of January 27, 2015, between the Company and Wilmington Trust, National Association, as trustee (Incorporated by reference to Exhibit 4.1 of the Company's 8-K filed on January 27, 2015) |
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4.6 | | Indenture, dated as of January 29, 2015, among Seller Note, LLC, SunEdison, Inc., as guarantor, and Wilmington Trust, National Association, as trustee, exchange agent, registrar, paying agent and collateral agent (Incorporated by reference to Exhibit 10.2 of the Company’s 8-K filed on February 3, 2015)
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4.7 | | Form of 2.375% Convertible Senior Notes due April 15, 2022 (as set forth in Exhibit A to the Notes Indenture dated January 27, 2015 (Incorporated by reference to Exhibit 4.2 of the Company's Current Report on Form 8-K filed on January 27, 2015) |
†10.1 | | MEMC Electronic Materials, Inc. 1995 Equity Incentive Plan as Amended and Restated on January 26, 2004 (Incorporated by reference to Exhibit 10-cc of the Company’s Form 10-K filed on March 15, 2004) |
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†10.2 | | Form of Restricted Stock Unit Award Agreement for Directors (Incorporated by reference to Exhibit 10-cc(1) of the Company Form 10-Q filed on August 9, 2004) |
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†10.3 | | Form of Stock Option Agreement (Non-Employee Directors) (Incorporated by reference to Exhibit 10-ppp of the Company’s Form 10-Q filed on May 14, 1997)
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†10.4 | | Form of Stock Option Agreement (Outside Directors) (Incorporated by reference to Exhibit 10-cc(12) of the Company’s Form 10-K filed on March 15, 2004)
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†10.5 | | MEMC Electronic Materials, Inc. 2001 Equity Incentive Plan as Restated on January 24, 2007 (Incorporated by reference to Exhibit 10.22 of the Company’s Form 10-K filed on February 29, 2008)
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†10.6 | | Written Description of SunEdison, Inc. Cash Incentive Plan Covering Executive Officers
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†10.7 | | Form of Stock Unit Award Agreement for Directors under the 2001 Equity Incentive Plan (Incorporated by reference to Exhibit 10.44 of the Company’s Form 10-K filed on August 10, 2006)
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†10.8 | | Summary of Director Compensation
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†10.9 | | Summary of Compensation Arrangements for Certain Named Executive Officers
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†10.10 | | Form of MEMC Electronic Materials, Inc. Stock Unit Award Agreement for Directors (Incorporated by reference to Exhibit 10-44 of the Company’s Form 10-K filed on February 29, 2008)
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†10.11 | | Form of Amendment to MEMC Electronic Materials, Inc. Stock Unit Award Agreement for Directors (Incorporated by reference to Exhibit 10.45 of the Company’s Form 10-K filed on February 29, 2008)
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†10.12 | | Form of MEMC Electronic Materials, Inc. Stock Unit Award Agreement for Employees (Time Vesting) (Incorporated by reference to Exhibit 10.46 of the Company’s Form 10-K filed on February 29, 2007)
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†10.13 | | Form of Amendment to MEMC Electronic Materials, Inc. Stock Unit Award Agreement for Officers (Time Vesting) (Incorporated by reference to Exhibit 10.47 of the Company’s Form 10-K filed on February 29, 2007)
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†10.14 | | Stock Option Grant Agreement (Incorporated herein by reference to Exhibit 99.1 to the Company’s Form S-8 Registration Statement No. 333-83628 filed March 1, 2002) |
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†10.15 | | Stock Option Grant Agreement (Incorporated herein by reference to Exhibit 99.2 to the Company’s Form S-8 Registration Statement No. 333-83628 filed March 1, 2002) |
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†10.16 | | Stock Option Grant Agreement (Four Year Vesting) (Incorporated by reference to Exhibit 10-ii(2) of the Company’s Form 10-Q filed August 14, 2002) |
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†10.17 | | Form of Restricted Stock Unit Award Agreement under the 2001 Equity Incentive Plan (Incorporated by reference to Exhibit 10.44 of the Company’s Form 10-K filed on August 10, 2006) |
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†10.18 | | Form of Indemnification Agreement (Incorporated by reference to Exhibit 10-jj of the Company’s Form 10-Q filed November 12, 2002) |
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†10.19 | | Form of Indemnification Agreement (Incorporated by reference to Exhibit 10-jj(1) of the Company’s Form 10-Q filed on May 2, 2003) |
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†10.20 | | Form of MEMC Electronic Materials, Inc. Stock Unit Award Agreement for Directors (Incorporated by reference to Exhibit 10-44 of the Company’s Form 10-K filed on February 29, 2008) |
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†10.21 | | Form of Amendment to MEMC Electronic Materials, Inc. Stock Unit Award Agreement for Directors (Incorporated by reference to Exhibit 10.45 of the Company’s Form 10-K filed on February 29, 2008) |
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†10.22 | | Form of MEMC Electronic Materials, Inc. Stock Unit Award Agreement for Employees (Time Vesting) (Incorporated by reference to Exhibit 10.46 of the Company’s Form 10-K filed on February 29, 2008) |
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†10.23 | | Form of Amendment to MEMC Electronic Materials, Inc. Stock Unit Award Agreement for Officers (Time Vesting) (Incorporated by reference to Exhibit 10.47 of the Company’s Form 10-K filed on February 29, 2008) |
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†10.24 | | Form of Amendment to MEMC Electronic Materials, Inc. Stock Unit Award Agreement for Officers (Performance Vesting) (Incorporated by reference to Exhibit 10.48 of the Company’s Form 10-K filed on February 29, 2008) |
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*10.25 | | Amended and Restated STF Supply Agreement dated as of April 30, 2007, by and between the Company and PCS Phosphate Company, Inc. (Incorporated by reference to Exhibit 10.49 of the Company’s Form 10-Q filed on August 7, 2008) |
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†10.26 | | Employment Agreement between the Company and Ahmad R. Chatila dated February 4, 2009 (Incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on February 5, 2009) |
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†10.27 | | Amendment to Employment Agreement between the Company and Ahmad Chatila dated January 29, 2010 (Incorporated by reference to Exhibit 10.67 of the Company’s Form 10-Q filed on May 10, 2010) |
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†10.28 | | Letter Agreement effective March 3, 2014 by and between the Company and Ahmad Chatila (Incorporated by reference to Exhibit 10.1 of the Company's 10-Q field on May 8, 2014) |
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*10.29 | | Binding Term Sheet, Solar Plant Company between MEMC Electronic Materials, Inc. and Q-Cells SE, dated as of June 26, 2009 (Incorporated by reference to Exhibit 10.56 to the Company’s Form 10-Q filed on August 5, 2009) |
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*10.30 | | Agreement and Plan of Merger, by and among the Company, Sierra Acquisition Sub, LLC, Sun Edison LLC, and the Unitholder Representatives, dated as of October 22, 2009 (Incorporated by reference to Exhibit 10.59 to the Company’s Form 10-Q filed on November 5, 2009) |
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*10.31 | | Amendment to Agreement and Plan of Merger, dated as of November 11, 2009 by and among the Company, Sierra Acquisition Sub, LLC, Sun Edison LLC and the Representatives listed therein (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on November 17, 2009) |
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*10.32 | | Form of Blocker Purchase Agreement entered into with each of MissionPoint SE Parallel Fund Corp. and the stockholders listed therein; Greylock XII Corp. and the stockholders listed therein; Black River CEI Subsidiary 6 LLC and the equityholder listed therein; and NEA 12 SE, LLC and the equityholder listed therein (Incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K filed on November 17, 2009) |
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10.33 | | Registration Rights Agreement, by and among the Company, Carlos Domenech, Peter J. Lee, Thomas Melone, and the Preferred Unitholders of Sun Edison dated November 20, 2009 (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on November 23, 2009) |
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†10.34 | | MEMC Electronic Materials, Inc. 2009 Special Inducement Grant Plan (Incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K filed on November 23, 2009) |
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†10.35 | | Form of MEMC Electronic Materials, Inc. 2009 Special Inducement Grant Plan Restricted Stock Unit Award Agreement (performance-based vesting, employees without an employment agreement) (Incorporated by reference to Exhibit 10.3 to the Company’s Form 8-K filed on November 23, 2009) |
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†10.36 | | Form of MEMC Electronic Materials, Inc. 2009 Special Inducement Grant Plan Restricted Stock Unit Award Agreement (performance-based vesting, employees with an employment agreement) (Incorporated by reference to Exhibit 10.4 to the Company’s Form 8-K filed on November 23, 2009) |
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†10.37 | | Form of MEMC Electronic Materials, Inc. 2009 Special Inducement Grant Plan Restricted Stock Unit Award Agreement (time-based vesting, employees with an employment agreement) (Incorporated by reference to Exhibit 10.5 to the Company’s Form 8-K filed on November 23, 2009) |
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†10.38 | | Form of MEMC Electronic Materials, Inc. 2009 Special Inducement Grant Plan Restricted Stock Unit Award Agreement (time-based vesting, employees without an employment agreement) (Incorporated by reference to Exhibit 10.6 to the Company’s Form 8-K filed on November 23, 2009) |
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†10.39 | | MEMC Electronic Materials, Inc. 2010 Equity Incentive Plan (Incorporated by reference to Exhibit 99.1 of the Company’s Form 8-K filed on April 22, 2010) |
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†10.40 | | Form of Stock Option Award Agreement (four-year vesting) under the 2010 Equity Incentive Plan (Incorporated by reference to Exhibit 99.2 of the Company’s Form 8-K filed on April 22, 2010) |
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†10.41 | | Form of Restricted Stock Award Agreement (outside directors) under the 2010 Equity Incentive Plan (Incorporated by reference to Exhibit 99.3 of the Company’s Form 8-K filed on April 22, 2010) |
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†10.42 | | Form of Restricted Stock Award Agreement (time-based vesting) under the 2010 Equity Incentive Plan (Incorporated by reference to Exhibit 99.4 of the Company’s Form 8-K filed on April 22, 2010) |
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†10.43 | | Form of Restricted Stock Award Agreement (performance-based vesting) under the 2010 Equity Incentive Plan (Incorporated by reference to Exhibit 99.5 of the Company’s Form 8-K filed on April 22, 2010) |
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†10.44 | | Form of Performance Unit Award under the 2010 Equity Incentive Plan (Incorporated by reference to Exhibit 99.6 of the Company’s Form 8-K filed on April 22, 2010) |
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†10.45 | | MEMC Electronic Materials, Inc. 2001 Equity Incentive Plan, as amended and restated on February 26, 2010 (Incorporated by reference to Exhibit 99.7 of the Company’s Form 8-K filed on April 22, 2010) |
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†10.46 | | Amendment to Employment Agreement between the Company and Ahmad Chatila dated January 29, 2010 (Incorporated by reference to Exhibit 10.67 of the Company’s Form 10-Q filed on May 10, 2010) |
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*10.47 | | Agreement and Plan of Merger by and among the Company, Oscar Acquisition Sub, Inc., Solaicx, and Shareholder Representative Services, LLC, as the Representative, dated May 21, 2010 (Incorporated by reference to Exhibit 10.68 of the Company’s Quarterly Report on Form 10-Q filed on August 9, 2010) |
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*10.48 | | Framework Agreement by and among SunEdison LLC, FREI Sun Holdings (Cayman) Ltd., FREI Sun Holdings (US) LLC, SunEdison Reserve US, L.P. and SunEdison Reserve International, L.P., dated as of May 21, 2010 (Incorporated by reference to Exhibit 10.69 of the Company’s Form 10-Q filed on August 9, 2010) |
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*10.49 | | Joint Venture Agreement dated as of February 15, 2011 by and among MEMC Singapore Pte. Ltd. and Samsung Fine Chemicals Ltd. (Incorporated by reference to Exhibit 10.82 of the Company's Form 10-Q filed on May 5, 2011)
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10.50 | | Amended and Restated Credit Agreement dated as of March 23, 2011 by and between MEMC, Bank of America, N.A., as administrative agent, lender, swing line lender and letter of credit issuer, and the various lenders signatory thereto (Incorporated by reference to Exhibit 10.83 of the Company's Form 10-Q filed on May 5, 2011)
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10.51 | | Purchase Agreement dated as of June 23, 2011 by and among Sun Edison LLC, FREI Sun Holdings (Cayman) Ltd., and FREI Sun Holdings (US) LLC (Incorporated by reference to Exhibit 10.84 of the Company's Form 10-Q filed on August 9, 2011)
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†*10.52 | | Stock Sale Agreement dated as of August 3, 2011 by and among MEMC, MEMC Holdings Corporation, Fotowatio Renewable Ventures, S.L. and Fotowatio S.L. (Incorporated by reference to Exhibit 10.86 of the Company's Form 10-Q filed on November 7, 2011)
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10.53 | | First Amendment dated as of September 28, 2011 to Amended and Restated Credit Agreement dated as of March 23, 2011 by and between MEMC, Bank of America, N.A., as administrative agent, lender, swing line lender and letter of credit issuer, and the various lenders signatory thereto (Incorporated by reference to Exhibit 10.87 of the Company's Form 10-Q filed on November 7, 2011)
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10.54 | | Second Amendment, dated as of February 28, 2012, to Amended and Restated Credit Agreement dated as of March 23, 2011 by and between MEMC, Bank of America, N.A., as administrative agent, lender, swing line lender and letter of credit issuer, and the various lenders signatory thereto (Incorporated by reference to Exhibit 10.88 of the Company's Form 10-Q filed on May 9, 2012)
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†10.55 | | MEMC Electronic Materials, Inc. 1995 Equity Incentive Plan as Amended and Restated on April 4, 2012 (Incorporated by reference to Exhibit (d)(1) of MEMC's Tender Offer Statement on Schedule TO filed on July 17, 2012)
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†10.56 | | MEMC Electronic Materials, Inc. 2001 Equity Incentive Plan as Amended and Restated on April 4, 2012 (Incorporated by reference to Exhibit (d)(2) of MEMC's Tender Offer Statement on Schedule TO filed on July 17, 2012) |
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†10.57 | | MEMC Electronic Materials, Inc. 2010 Equity Incentive Plan as Amended and Restated on April 4, 2012 (Incorporated by reference to Exhibit (d)(3) of MEMC's Tender Offer Statement on Schedule TO filed on July 17, 2012)
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10.58 | | Third Amendment, dated as of May 8, 2012, to Amended and Restated Credit Agreement dated as of March 23, 2011 by and between MEMC, Bank of America, N.A., as administrative agent, lender, swing line lender and letter of credit issuer, and the various lenders signatory thereto (Incorporated by reference to Exhibit 10.92 of the Company's Form 10-Q filed on August 8, 2012)
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*10.59 | | Second Amendment to the Amended & Restated STF Supply Agreement, dated as of June 30, 2012, by and between the Company and PCS Phosphate Company, Inc. (Incorporated by reference to Exhibit 10.95 of the Company's Form 10-Q filed on August 8, 2012)
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10.6 | | Second Lien Credit Agreement, dated September 28, 2012, by and among the Company, Goldman Sachs Bank USA, Deutsche Bank Securities Inc. and the lenders party thereto (Incorporated by reference to Exhibit 10.1 of the Company's Current Report on Form 8-K filed on October 2, 2012)
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10.61 | | Guaranty Agreement, dated September 28, 2012, by and between each of the guarantor subsidiaries in favor of Goldman Sachs Bank USA as Administrative Agent for the benefit of itself and the secured parties named therein (Incorporated by reference to Exhibit 10.2 of the Company's Current Report on Form 8-K filed on October 2, 2012) |
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10.62 | | Fourth Amendment to the Credit Agreement dated as of March 23, 2011 (and amended on September 28, 2011, February 28, 2012 and May 8, 2012), dated September 28, 2012, by and among the Company, the guarantors identified therein, the lenders identified therein and Bank of America, N.A., as administrative agent (Incorporated by reference to Exhibit 10.3 of the Company's Current Report on Form 8-K filed on October 2, 2012)
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10.63 | | Settlement Agreement Pertaining to the On-Site Supply Agreement dated as of September 4, 2012 by and among the Company, MEMC Electronic Materials S.p.A., Evonik Industries AG, Evonik Degussa GMBH and Evonik Degussa Italia S.p.A. (Incorporated by reference to Exhibit 10.100 of the Company's Form 10-Q filed on November 9, 2012)
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10.64 | | Settlement Agreement Pertaining to the Off-Site Supply Agreement dated as of September 4, 2012 by and among the Company, MEMC Electronic Materials S.p.A., Evonik Industries AG and Evonik Degussa GMBH. (Incorporated by reference to Exhibit 10.101 of the Company's Form 10-Q filed on November 9, 2012)
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10.65 | | Amendment Agreement to the On-Site Settlement Agreement and the Off-Site Settlement Agreement dated as of September 24, 2012, by and among the Company, MEMC Electronic Materials S.p.A., Evonik Industries AG, Evonik Degussa GMBH and Evonik Degussa Italia S.p.A. (Incorporated by reference to Exhibit 10.102 of the Company's Form 10-Q filed on November 9, 2012) |
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10.66 | | Amendment Number 1 to Solar Wafer Supply Agreement, dated March 29, 2013, by and between MEMC Singapore Pte. Ltd. and Tainergy Tech Co., Ltd. (Incorporated by reference to Exhibit 10.94 of the Company's Form 10-Q filed on May 9, 2013) |
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†10.67 | | 2012 MEMC Downstream Solar Bonus Plan (Incorporated by reference to Exhibit 10.95 of the Company's Form 10-Q filed on May 9, 2013) |
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10.68 | | Amended and Restated SunEdison, Inc. 2010 Equity Incentive Plan (Incorporated by reference to Exhibit 10.1 of the Company's Form 8-K filed June 5, 2013) |
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10.69 | | Underwriting Agreement, dated September 12, 2013, among the Company, and Deutsche Bank Securities Inc. and Goldmand, Sachs & Co., as representatives of the several underwriters named in Schedule I thereto (Incorporated by reference to Exhibit 1.1 of the Company's Form 8-K filed September 18, 2013) |
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10.70 | | Termination Agreement for Solar Wafer Supply Agreement, dated September 30, 2013, by and between SunEdison Products Singapore Pte. Ltd. and Gintech Energy Corporation (Incorporated by reference to Exhibit 10-1 of the Company's Form 10-Q filed on November 12, 2013) |
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10.71 | | Purchase Agreement, dated December 12, 2013, between the Company and Deutsche Bank Securities, Inc. and Goldman, Sachs & Co., as Representatives of the Several Initial Purchasers, regarding 2.00% Convertible Senior Notes due 2018 and 2.75% Convertible Senior Notes due 2021 (Incorporated by reference to Exhibit 10.101 of the Company's Form 10-K filed on March 6, 2014) |
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10.72 | | Credit Agreement, dated as of December 20, 2013, among the Company., Deutsche Bank AG New York Branch, as Administrative Agent and L/C Issuer (Incorporated by reference to Exhibit 10.102 of the Company's Form 10-K filed on March 6, 2014)
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10.73 | | Pledge and Security Agreement dated as of December 20, 2013 between each of the Grantors Party Hereto and Deutsche Bank AG New York Branch (Incorporated by reference to Exhibit 10.103 of the Company's Form 10-K filed on March 6, 2014)
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10.74 | | Additional Note Hedge Transaction Confirmation (2018) between the Company and Bank of America, N.A. dated December 16, 2013 (Incorporated by reference to Exhibit 10.104 of the Company's Form 10-K/A filed on April 16, 2014) |
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10.75 | | Additional Warrant Transaction Confirmation (2018) between the Company and Bank of America, N.A. dated December 16, 2013(Incorporated by reference to Exhibit 10.105 of the Company's Form 10-K/A filed on April 16, 2014) |
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10.76 | | Base Note Hedge Transaction Confirmation (2018) between the Company and Bank of America, N.A. dated December 12, 2013 (Incorporated by reference to Exhibit 10.106 of the Company's 10-K/A filed on April 16, 2014) |
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10.77 | | Base Warrant Transaction Confirmation (2018) between the Company and Bank of America, N.A. dated December 12, 2013 (Incorporated by reference to Exhibit 10.107 of the Company's Form 10-K/A filed on April 16, 2014) |
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10.78 | | Additional Note Hedge Transaction Confirmation (2021) between the Company and Bank of America, N.A. dated December 16, 2013 (Incorporated by reference to Exhibit 10.108 of the Company's Form 10-K/A filed on April 16, 2014) |
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10.79 | | Additional Warrant Transaction Confirmation (2021) between the Company and Bank of America, N.A. dated December 16, 2013 (Incorporated by reference to Exhibit 10.109 of the Company's 10-K/A filed on April 16, 2014) |
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10.8 | | Base Note Hedge Transaction Confirmation (2021) between the Company and Bank of America, N.A. dated December 12, 2013 (Incorporated by reference to Exhibit 10.110 of the Company's Form 10-K/A filed on April 16, 2014) |
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10.81 | | Base Warrant Transaction Confirmation (2021) between the Company and Bank of America, N.A. dated December 12, 2013 (Incorporated by reference to Exhibit 10.111 of the Company's Form 10-K/A filed on April 16, 2014) |
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10.82 | | Additional Note Hedge Transaction Confirmation (2018) between the Company and Deutsche Bank AG London Branch dated December 16, 2013 (Incorporated by reference to Exhibit 10.112 of the Company's Form 10-K/A filed on April 16, 2014) |
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10.83 | | Additional Warrant Transaction Confirmation (2018) between the Company and Deutsche Bank AG London Branch dated December 16, 2013 (Incorporated by reference to Exhibit 10.113 of the Company's Form 10-K/A filed on April 16, 2014) |
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10.84 | | Base Note Hedge Transaction Confirmation (2018) between the Company and Deutsche Bank AG London Branch dated December 12, 2013 (Incorporated by reference to Exhibit 10.114 of the Company's Form 10-K/A filed on April 16, 2014) |
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10.85 | | Base Warrant Transaction Confirmation (2018) between the Company and Deutsche Bank AG London Branch dated December 12, 2013 (Incorporated by reference to Exhibit 10.115 of the Company's Form 10-K/A filed on April 16, 2014) |
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10.86 | | Additional Note Hedge Transaction Confirmation (2021) between the Company and Deutsche Bank AG London Branch dated December 16, 2013 (Incorporated by reference to Exhibit 10.116 of the Company's Form 10-K/A filed on April 16, 2014) |
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10.87 | | Additional Warrant Transaction Confirmation (2021) between the Company and Deutsche Bank AG London Branch dated December 16, 2013 (Incorporated by reference to Exhibit 10.117 of the Company's Form 10-K/A filed on April 16, 2014) |
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10.88 | | Base Note Hedge Transaction Confirmation (2021) between the Company and Deutsche Bank AG London Branch dated December 12, 2013 (Incorporated by reference to Exhibit 10.118 of the Company's Form 10-K/A filed on April 16, 2014) |
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10.89 | | Base Warrant Transaction Confirmation (2021) between the Company and Deutsche Bank AG London Branch dated December 12, 2013 (Incorporated by reference to Exhibit 10.119 of the Company's Form 10-K/A filed on April 16, 2014) |
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10.9 | | Additional Note Hedge Transaction Confirmation (2018) between the Company and Goldman, Sachs & Co. dated December 16, 2013 (Incorporated by reference to Exhibit 10.120 of the Company's Form 10-K/A filed on April 16, 2014) |
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10.91 | | Additional Note Hedge Transaction Confirmation (2021) between the Company and Goldman, Sachs & Co. dated December 16, 2013 (Incorporated by reference to Exhibit 10.121 of the Company's Form 10-K/A filed on April 16, 2014) |
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10.92 | | Additional Warrant Transaction Confirmation (2018) between the Company and Goldman, Sachs & Co. dated December 16, 2013 filed as Exhibit 10.122 of the Company's Form 10-K/A filed on April 16, 2014) |
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10.93 | | Additional Warrant Transaction Confirmation (2021) between the Company and Goldman, Sachs & Co. dated December 16, 2013 (Incorporated by reference to Exhibit 10.123 of the Company's Form 10-K/A filed on April 16, 2014) |
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10.94 | | Base Note Hedge Transaction Confirmation (2018) between the Company and Goldman, Sachs & Co. dated December 12, 2013 (Incorporated by reference to Exhibit 10.124 of the Company's Form 10-K/A filed on April 16, 2014) |
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10.95 | | Base Note Hedge Transaction Confirmation (2021) between the Company and Goldman, Sachs & Co. dated December 12, 2013 (Incorporated by reference to Exhibit 10.125 of the Company's Form 10-K/A filed on April 16, 2014) |
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10.96 | | Base Warrant Transaction Confirmation (2018) between the Company and Goldman, Sachs & Co. dated December 12, 2013 (Incorporated by reference to Exhibit 10.126 of the Company's Form 10-K/A filed on April 16, 2014) |
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10.97 | | Base Warrant Transaction Confirmation (2021) between the Company and Goldman, Sachs & Co. dated December 12, 2013 (Incorporated by reference to Exhibit 10.127 of the Company's Form 10-K/A filed on April 16, 2014) |
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10.98 | | Additional Note Hedge Transaction Confirmation (2018) between the Company and Wells Fargo Bank, National Association dated December 16, 2013 (Incorporated by reference to Exhibit 10.128 of the Company's Form 10-K/A filed on April 16, 2014) |
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10.99 | | Additional Warrant Transaction Confirmation (2018) between the Company and Wells Fargo Bank, National Association dated December 16, 2013 (Incorporated by reference to Exhibit 10.129 of the Company's Form 10-K/A filed on April 16, 2014) |
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10.100 | | Base Note Hedge Transaction Confirmation (2018) between the Company and Wells Fargo Bank, National Association dated December 12, 2013 (Incorporated by reference to Exhibit 10.130 of the Company's Form 10-K/A filed on April 16, 2014) |
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10.101 | | Base Warrant Transaction Confirmation (2018) between the Company and Wells Fargo Bank, National Association dated December 12, 2013 (Incorporated by reference to Exhibit 10.131 of the Company's Form 10-K/A filed on April 16, 2014) |
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10.102 | | Additional Note Hedge Transaction Confirmation (2021) between the Company and Wells Fargo Bank, National Association dated December 16, 2013 (Incorporated by reference to Exhibit 10.132 of the Company's Form 10-K/A filed on April 16, 2014) |
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10.103 | | Additional Warrant Transaction (2021) between the Company and Wells Fargo Bank, National Association dated December 16, 2013 (Incorporated by reference to Exhibit 10.133 of the Company's Form 10-K/A filed on April 16, 2014) |
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10.104 | | Base Note Hedge Transaction Confirmation (2021) between the Company and Wells Fargo Bank, National Association dated December 12, 2013 (Incorporated by reference as Exhibit 10.134 of the Company's Form 10-K/A filed on April 16, 2014) |
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10.105 | | Base Warrant Transaction Confirmation (2021) between the Company and Wells Fargo Bank, National Association dated December 12, 2013 (Incorporated by reference to Exhibit 10.135 of the Company's 10-K/A filed on April 16, 2014) |
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10.106 | | Credit Agreement dated February 28, 2014 between SunEdison, Inc. and Wells Fargo Bank, National Association, Goldman Sachs Bank USA and Deutsche Bank Securities Inc. (Incorporated by reference as Exhibit 10.1 to the Company's Form 10-Q filed on November 5, 2014) |
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10.107 | | Amendment No. 3 to Credit Agreement and Amendment No. 1 to Pledge and Security Agreement dated October 6, 2014 (Incorporated by reference as Exhibit 10.2 to the Company's Form 10-Q filed on November 5, 2014) |
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10.108 | | Purchase Agreement dated June 4, 2014 between SunEdison, Inc. and Deutsche Bank Securities Inc. and Goldman Sachs & Co. (Incorporated by reference to Exhibit 10.1 of the Company's 10-Q filed on August 7, 2014) |
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10.109 | | Base Note Hedge Transaction Confirmation between SunEdison, Inc. and Barclays Bank PLC dated June 4, 2014 (Incorporated by reference to Exhibit 10.2 of the Company's 10-Q filed on August 7, 2014) |
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10.110 | | Base Warrant Transaction Confirmation between SunEdison, Inc. and Barclays Bank PLC dated June 4, 2014 (Incorporated by reference as Exhibit 10.3 to the Company's Form 10-Q filed on August 7, 2014) |
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10.111 | | Base Note Hedge Transaction Confirmation between SunEdison, Inc. and Deutsche Bank AG, London Branch dated June 4, 2014 (Incorporated by reference as Exhibit 10.4 to the Company's Form 10-Q filed on August 7, 2014) |
10.112 | | Base Warrant Transaction Confirmation between SunEdison, Inc. and Goldman, Sachs & Co. dated June 4, 2014 (Incorporated by reference as Exhibit 10.5 to the Company's Form 10-Q filed on August 7, 2014) |
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10.113 | | Base Warrant Transaction Confirmation between SunEdison, Inc. and Deutsche Bank AG, London Branch dated June 4, 2014 (Incorporated by reference as Exhibit 10.6 to the Company's Form 10-Q filed on August 7, 2014) |
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10.114 | | Base Note Hedge Transaction Confirmation between SunEdison, Inc. and Goldman, Sachs & Co. dated June 4, 2014 (Incorporated by reference as Exhibit 10.7 to the Company's Form 10-Q filed on August 7, 2014) |
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10.115 | | Additional Note Hedge Transaction Confirmation between SunEdison, Inc. and Goldman, Sachs & Co. dated June 5, 2014 (Incorporated by reference as Exhibit 10.8 to the Company's Form 10-Q filed on August 7, 2014) |
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10.116 | | Additional Note Hedge Transaction Confirmation between SunEdison, Inc. and Barclays Capital Inc., acting as Agent for Barclays Bank PLC dated June 5, 2014 (Incorporated by reference as Exhibit 10.9 to the Company's Form 10-Q filed on August 7, 2014) |
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10.117 | | Additional Warrant Transaction Confirmation between SunEdison, Inc. and Barclays Capital Inc., acting as Agent for Barclays Bank PLC dated June 5, 2014 (Incorporated by reference as Exhibit 10.10 to the Company's 10-Q filed on August 7, 2014) |
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10.118 | | Additional Warrant Transaction Confirmation between SunEdison, Inc. and Goldman, Sachs & Co. dated June 5, 2014 (Incorporated by reference as Exhibit 10.11 to the Company's Form 10-Q filed on August 7, 2014) |
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10.119 | | Additional Warrant Transaction Confirmation between SunEdison, Inc. and Deutsche Bank AG, London Branch dated June 5, 2014 (Incorporated by reference as Exhibit 10.12 to the Company's Form 10-Q filed on August 7, 2014) |
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10.120 | | Additional Note Hedge Transaction Confirmation between SunEdison, Inc. and Deutsche Bank AG, London Branch, dated June 5, 2014 (Incorporated by reference as Exhibit 10.13 to the Company's Form 10-Q filed on August 7, 2014) |
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10.121 | | Confirmation for Base Capped Call Transaction, dated January 21, 2015, between the Company and Goldman, Sachs & Co. (Incorporated by reference to Exhibit 10.1 to the Company's Form 8-K filed on January 27, 2015) |
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10.122 | | Confirmation for Base Capped Call Transaction, dated January 21, 2015, between the Company and Morgan Stanley & Co. LLC. (Incorporated by reference as Exhibit 10.2 to the Company's Form 8-K filed on January 27, 2015) |
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10.123 | | Confirmation for Base Capped Call Transaction, dated January 21, 2015, between the Company and Barclays Bank PLC (Incorporated by reference as Exhibit 10.3 to the Company's Form 10-Q filed on January 27, 2015) |
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10.124 | | Confirmation for Base Capped Call Transaction, dated January 21, 2015, between the Company and Deutsche Bank AG, London Branch (Incorporated by reference as Exhibit 10.4 to the Company's Form 8-K filed on February 27, 2015) |
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10.125 | | Confirmation for Additional Capped Call Transaction, dated January 23, 2015, between the Company and Goldman, Sachs & Co. (Incorporated by reference as Exhibit 10.5 to the Company's Form 8-K filed on January 27, 2015) |
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10.126 | | Confirmation for Additional Capped Call Transaction, dated January 23, 2015, between the Company and Morgan Stanley & Co. LLC (Incorporated by reference as Exhibit 10.6 to the Company's Form 8-K filed on January 27, 2015) |
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10.127 | | Confirmation for Additional Capped Call Transaction, dated January 23, 2015, between the Company and Barclays Bank PLC (Incorporated by reference as Exhibit 10.7 to the Company's Form 8-K filed on January 27, 2015) |
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10.128 | | Confirmation for Additional Capped Call Transaction, dated January 23, 2015, between the Company and Deutsche Bank AG, London Branch (Incorporated by reference as Exhibit 10.8 to the Company's Form 8-K filed on January 27, 2015) |
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10.129 | | Margin Loan Agreement, dated as of January 29, 2015, among SUNE ML 1, LLC, the lenders party thereto, and Deutsche Bank AG, London Branch, as administrative agent, calculation agent and as a lender (Incorporated by reference to Exhibit 10.1 of the Company's 8-K filed February 3, 2015) |
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10.130 | | Amendment No. 5 to Credit Agreement dated January 20, 2015 |
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13 | | Selected pages from the Company's 2014 Annual Report to Stockholders |
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21 | | Subsidiaries of the Company |
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23 | | Consent of KPMG LLP |
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31.1 | | Certification by the Chief Executive Officer of the Company pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
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31.2 | | Certification by the Chief Financial Officer of the Company pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
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32 | | Certification by the Chief Executive Officer and Chief Financial Officer of the Company pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
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101.INS | | XBRL Instance Document |
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101.SCH | | XBRL Taxonomy Extension Schema Document |
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101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document |
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101.DEF | | XBRL Taxonomy Extension Definition Linkbase Document |
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101.LAB | | XBRL Taxonomy Extension Label Linkbase Document |
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101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document |
_________________________
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* | Confidential treatment of certain portions of these documents has been requested or granted. |
** | The schedules and exhibits have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The Company agrees to furnish supplementally to the Securities and Exchange Commission a copy of any omitted schedule and exhibit upon request. |
† | These exhibits constitute management contracts, compensatory plans and arrangements. |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
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| | | | |
| | SUNEDISON, INC. |
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| | By: | | /s/ Ahmad R. Chatila |
Date: | March 2, 2015 | | | Ahmad R. Chatila President and Chief Executive Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons, on behalf of the registrant and in the capacities and on the dates indicated.
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Signature | | Title | | Date |
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/s/ Ahmad R. Chatila | | President, Chief Executive Officer and Director (Principal executive officer) | | March 2, 2015 |
Ahmad R. Chatila | | | |
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/s/ Brian Wuebbels | | Executive Vice President and Chief Financial Officer (Principal financial officer and principal accounting officer) | | March 2, 2015 |
Brian Wuebbels | | | |
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/s/ Emmanuel T. Hernandez | | Chairman of the Board | | March 2, 2015 |
Emmanuel T. Hernandez | | | | |
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/s/ Antonio R. Alvarez | | Director | | March 2, 2015 |
Antonio R. Alvarez | | | | |
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/s/ Peter Blackmore | | Director | | March 2, 2015 |
Peter Blackmore | | | | |
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/s/ Clayton C. Daley, Jr. | | Director | | March 2, 2015 |
Clayton C. Daley, Jr. | | | | |
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/s/ Georganne C. Proctor | | Director | | March 2, 2015 |
Georganne C. Proctor | | | | |
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/s/ Steven V. Tesoriere | | Director | | March 2, 2015 |
Steven V. Tesoriere | | | | |
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/s/ James B. Williams | | Director | | March 2, 2015 |
James B. Williams | | | | |
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/s/ Randy H. Zwirn | | Director | | March 2, 2015 |
Randy H. Zwirn | | | | |
EXHIBIT INDEX
The following exhibits are filed as part of this report:
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Exhibit No. | | Description |
10.6 | | Written Description of SunEdison, Inc. Cash Incentive Plan Covering Executive Officers |
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10.8 | | Summary of Director Compensation |
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10.9 | | Summary of Compensation Arrangements for Certain Named Executive Officers |
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10.130 | | Amendment No. 5 to Credit Agreement dated January 20, 2015 |
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13 | | Selected pages from the Company's 2014 Annual Report to Stockholders |
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21 | | Subsidiaries of the Company |
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23 | | Consent of KPMG LLP |
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31.1 | | Certification by the Chief Executive Officer of the Company pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
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31.2 | | Certification by the Chief Financial Officer of the Company pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
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32 | | Certification by the Chief Executive Officer and Chief Financial Officer of the Company pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
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101.INS | | XBRL Instance Document |
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101.SCH | | XBRL Taxonomy Extension Schema Document |
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101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document |
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101.DEF | | XBRL Taxonomy Extension Definition Linkbase Document |
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101.LAB | | XBRL Taxonomy Extension Label Linkbase Document |
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101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document |
Exhibit106-CashBonusPlanDescription (3)
Written Description of
SunEdison, Inc. Cash Incentive Plan
Covering Executive Officers
SunEdison, Inc. ("SunEdison" or the "Company") maintains a cash incentive plan that covers the Chief Executive Officer and the Company's other executive officers. Under current practice, the Compensation Committee (the "Committee") makes annual cash awards under the plan to executive officers to recognize and reward Company and individual performance.
For each participant, the Committee establishes threshold, target and maximum bonus levels that are defined as a percentage of the participant's base salary. The “threshold” level of performance for a particular performance goal represents the lowest level of performance for which any bonus would be earned on that performance goal. The "maximum" level of performance represents the level for which the maximum bonus would be earned for that particular goal, and the "target" represents the target level of performance. The actual bonus, if any, attributable to each performance goal is calculated based on the actual performance compared to these “threshold," "target" and "maximum" performance levels.
The "threshold," "target" and "maximum" levels for each category of executives under the plan are generally as follows:
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| Threshold | Target | Max |
CEO, SunEdison | 63% | 125% | 250% |
CEO, SunEdison Semiconductor | 50% | 100% | 200% |
EVP | 38% | 75% | 150% |
SVP | 30% | 60% | 120% |
VP | 15-20% | 30-40% | 50-80% |
The plan has two main components: a Company milestone component and a personal goal component. The Company-based and personal performance metrics account for varying levels of the total potential award under the 2012 short term incentive plan as follows:
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| Company Metrics | Personal Metrics |
CEO | 80% | 20% |
EVP, SVP | 80% | 20% |
VP | 60% | 40% |
As a result, the bonus paid to the CEO, if any, is 80% tied to Company metrics. The Company's executive officer s have a number of quarterly, semi-annual and/or annual performance objectives including those tied to the Company's financial performance, along with a number of individual performance and financial objectives applicable to each executive officer's functional area. These objectives are reviewed and approved by the Committee on an annual basis. Based on the achievement against these performance objectives, the executive officers are entitled to receive cash awards, which are generally paid on an annual basis.
The plan is non-contractual. The Company maintains the right to terminate or amend the cash incentive plan at any time.
Exhibit108-DirectorPlan
Exhibit 10.8
Summary of Director Compensation
Set forth below is a summary of the compensation paid by SunEdison, Inc. (the “Company”) to its outside directors who are not employees of the Company or any subsidiary of the Company. Directors that are also employees of the Company receive no additional compensation for their service as a director.
Initial Election to the Board of Directors
Upon initial election to the Company’s Board of Directors, all outside directors are awarded restricted stock units (RSUs) that have an annualized common stock value of approximately $185,000 on the date of grant, which is prorated based on the Director's date of election. The RSUs shall vest 100% on the first anniversary of the date of grant.
Annual Compensation
Restricted Stock Units (RSUs)
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• | Annually (as of the date of the Annual Stockholder Meeting for that year), each person whose term on the Board of Directors extends for an additional year or who is expected to be nominated for re-election at such Annual Meeting of Stockholders, shall be awarded restricted stock units (RSUs) for shares of the Company’s common stock having a value of approximately $185,000 on the date of grant
(based on the closing price of the Company’s common stock on the date of grant). Each RSU shall represent the right to receive one share of the Company’s common stock. The actual number of RSUs to be awarded shall be determined in increments of 100 RSUs such that the value of the Company’s common stock underlying the RSUs is as close to $185,000 as possible. |
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• | The RSUs shall vest 100% on the first anniversary of the date of grant. |
Cash Compensation
The directors shall receive the following cash compensation:
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• | An annual retainer of $65,000. |
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• | An additional retainer of $65,000 for the Chairman of the Board. |
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• | An additional retainer of $40,000 for the Chairman of the Audit Committee and an additional retainer of $15,000 for each other member of the Audit Committee. |
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• | An additional retainer of $25,000 for the Chairman of the Compensation Committee and an additional retainer of $10,000 for each other member of the Compensation Committee. |
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• | An additional retainer of $10,000 for the Chairman of the Nominating and Corporate Governance Committee and an additional retainer of $5,000 for each other member of the Nominating and Corporate Governance Committee. |
Reimbursable Expenses
All reasonable out-of-pocket expenses incurred by a director for attending Board or Committee meetings will be reimbursed by the Company.
Exhibit109-Salaries
Exhibit 10.9
Summary of Compensation Arrangements for Certain Named Executive Officers
Set forth below is a summary of the compensation paid by SunEdison, Inc. (the “Company”) to the executive officers to be named in the Company’s 2015 annual proxy statement who are not covered by current employment agreements, as of the date of filing of the Company’s Annual Report on Form 10-K for the year ended December 31, 2014 (the “Form 10-K”) and are continuing as an executive officer of the Company as of February 27, 2015. None of the below executive officers has an employment agreement with the Company. Each of these executive officers is an employee at will whose compensation and employment status may be changed at any time in the discretion of the Company’s Board of Directors
Base Salaries. These executive officers currently receive base salaries in the amounts indicated below:
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Name and Position | 2014 Base Salary
Amount |
Brian Wuebbels, Executive Vice President, Chief Administrative Officer & Chief Financial Officer | $455,000 |
Carlos Domenech, President and Chief Executive Officer of TerraForm Power, Inc. | $500,000 |
Shaker Sadasivam,
Executive Vice President; President—Semiconductor Materials | $600,000 |
Dave Ranhoff, Senior Vice President, Solar Materials | $381,900 |
The Compensation Committee adjusts these base salaries from time to time as the Committee deems appropriate each year, generally annually. The Committee reviews and discusses the written performance appraisal for each executive officer with the Chief Executive Officer. The above information reflects the base salaries for our named executive officers approved by the Committee in February 2014.
Incentive Awards. These executive officers are also eligible to participate in the Company’s incentive compensation plans as provided in the terms of such plans, including the Company’s short term incentive awards plan (which provides for cash incentive awards) and the Company’s long-term incentive awards plan (e.g., the Company’s 2001 Equity Incentive Plan and 2010 Amended and Restated Equity Incentive Plan). Such plans, and any forms of awards thereunder providing for material terms, are included as exhibits to the Form 10-K as appropriate.
Pension Plan. These executive officers are also eligible to participate in the Company Pension Plan on the same terms as the Company’s other covered employees. Because he commenced employment after December 31, 2001, Messrs. Wuebbels, Domenech and Ranhoff are not covered by the SunEdison Pension Plan.
Relocation Payments. From time to time the Company makes payments to executive officers to cover relocation expenses.
Exhibit10130-AmendmentNo5
Exhibit 10.130
Execution Version
AMENDMENT NO. 5
TO CREDIT AGREEMENT
THIS AMENDMENT NO. 5 TO CREDIT AGREEMENT (this “Amendment”) is dated as of January 20, 2015 and is entered into among SUNEDISON, INC., a Delaware corporation (the “Borrower’’), the Guarantors party hereto and the Lenders party hereto, and is acknowledged by the Administrative Agent, and is made with reference to that certain Credit Agreement dated as of February 28, 2014 (as amended through the date hereof, the “Credit Agreement”) among the Borrower, the Lenders, the Administrative Agent and the other Agents named therein. Capitalized terms used herein without definition shall have the same meanings herein as set forth in the Credit Agreement.
RECITALS
WHEREAS, the Loan Parties have requested that the Required Lenders agree to amend certain provisions of the Credit Agreement as provided for herein; and
WHEREAS, the Required Lenders are willing to agree to amend the provisions of the Credit Agreement as set forth herein, upon terms and subject to conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and the agreements, provisions and covenants herein
contained, the parties hereto agree as follows:
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SECTION I. | AMENDMENTS TO THE CREDIT AGREEMENT AND THE PLEDGE AND SECURITY AGREEMENT |
The Credit Agreement is hereby amended as follows:
A. Clause (II) of the defined term “Change of Control” in Section 1.01 of the Credit Agreement is hereby amended and restated to read in its entirety as follows:
“(II) an occurrence of a “Fundamental Change” under and as defined in the 2018 Convertible Senior Notes Indenture, a “Fundamental Change” under and as defined in the 2021 Convertible Senior Notes Indenture, a “Fundamental Change” under and as defined in the 2020 Convertible Senior Notes Indenture, a “Fundamental Change” under and as defined in the 2022 Convertible Senior Notes Indenture, a “Fundamental Change” (or equivalent) under the applicable indenture governing the Permitted Seller Notes, or a “Fundamental Change” (or equivalent) under the applicable document governing the Permitted Hurricane Convertible Preferred.”
B. The definition of “Consolidated Funded Indebtedness” in Section 1.01 of the Credit Agreement is hereby amended by amending and restating clause (ii) after the proviso thereof to read in its entirety as follows:
“(ii) Indebtedness permitted by Section 7.03(l), (o), (p) and (q).”
C. The definition of “Consolidated Net Income” in Section 1.01 of the Credit Agreement is hereby amended by:
(a) amending and restating clause (1) thereof to read in its entirety as follows:
“(1) except as set forth in clause (7) below, all extraordinary gains and losses and all gains and losses realized in connection with any Disposition made pursuant to Section 7.04 or Section 7.05(g) or the Disposition of securities or the early extinguishment of Indebtedness, together with any related provision for taxes on any such gain, will be excluded;”
(b) deleting the word “and” appearing immediately before clause (6) thereof and replacing the period at the end of clause (6) thereof with the phrase “; and”
(c) inserting new clause (7) therein which shall read in its entirety as follows:
“(7) Foregone Margin will be included notwithstanding whether such Foregone Margin would be recognized in accordance with GAAP” and
(d) inserting a parenthetical therein at the end thereof which shall read in its entirety as follows:
“(it being understood and agreed that the Foregone Margin may be recognized and included in the Consolidated Net Income in a period prior to the period in which the related Disposition occurs and, in accordance with the calculation set for in the definition of the term “Foregone Margin”, over time)”
D. The defined term “Convertible Senior Notes” in Section 1.01 of the Credit Agreement is hereby amended and restated to read in its entirety as follows:
“Convertible Senior Notes” means, collectively, the 2018 Convertible Senior Notes, the 2021 Convertible Senior Notes, the 2020 Convertible Senior Notes and the 2022 Convertible Senior Notes, or any of them.
E. The defined term “Disqualified Equity Interest” in Section 1.01 of the Credit Agreement is hereby amended and restated to read in its entirety as follows:
“Disqualified Equity Interest” means any Equity Interest that, by its terms (or by the terms of any security into which it is convertible, or for which it is exchangeable, in each case, at the option of the holder of the Equity Interest), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at the option of the holder of the Equity Interest, in whole or in part, on or prior to the date that is 91 days after the latest to occur of (i) the date on which the 2022 Convertible Senior Notes mature or, if earlier, the date on which no 2022 Convertible Senior Note is outstanding, (ii) the date on which the 2020 Convertible Senior Notes mature or, if earlier, the date on which no 2020 Convertible Senior Note is outstanding, (iii) the date on which the 2021 Convertible Senior Notes mature or, if earlier, the date on which no 2021 Convertible Senior Note is outstanding, (iv) the date on which the 2018 Convertible Senior Notes mature or, if earlier, the date on which no 2018 Convertible Senior Note is outstanding, and (v) the Latest Maturity Date. Notwithstanding the preceding sentence, any Equity Interest that would constitute a Disqualified Equity Interest solely because the holders of the Equity Interest have the right to require the Borrower to repurchase such Equity Interest upon the occurrence of a change of control or an asset sale will not constitute a Disqualified Equity Interest if the terms of such Equity Interest provide that the Borrower may not repurchase or redeem any such Equity Interest pursuant to such provisions unless such repurchase or redemption complies with Section 7.06 hereof. The amount of Disqualified Equity Interests deemed to be outstanding at any time for purposes of this Agreement will be the maximum amount that the Borrower and its Subsidiaries may become obligated to pay upon the maturity of, or pursuant to any mandatory redemption provisions of, such Disqualified Equity Interests, exclusive of accrued dividends.
F. The defined term “Equity Interest” in Section 1.01 of the Credit Agreement is hereby amended and restated to read in its entirety as follows:
“Equity Interests” means, with respect to any Person, all of the shares of capital stock of (or other ownership or profit interests in) such Person, all of the warrants, options or other rights for the purchase or acquisition from such Person of shares of capital stock of (or other ownership or profit interests in) such Person, all of the securities convertible into or exchangeable for shares of capital stock of (or other
ownership or profit interests in) such Person or warrants, rights or options for the purchase or acquisition from such Person of such shares (or such other interests), and all of the other ownership or profit interests in such Person (including partnership, member or trust interests therein), whether voting or nonvoting, and whether or not such shares, warrants, options, rights or other interests are outstanding on any date of determination; provided that none of the 2018 Convertible Senior Notes, the 2021 Convertible Senior Notes, the 2020 Convertible Senior Notes, the 2022 Convertible Senior Notes or any Permitted Refinancing Convertible Bond Indebtedness of the Borrower shall constitute an Equity Interest by virtue of being convertible into capital stock of the Borrower.
G. The definition of “Excluded Assets” in Section 1.01 of the Credit Agreement is hereby amended by replacing the following phrase appearing therein:
“(xiv) the Sherman Real Estate, and (xv) Cash or Cash Equivalents.”
with the following phrase:
“(xiv) the Sherman Real Estate, (xv) Cash or Cash Equivalents and (xvi) the contribution or transfer of Margin Loan Pledged Equity permitted by Section 7.02(w).”
H. The defined term “Foregone Margin” is hereby inserted in Section 1.01 of the Credit Agreement in its appropriate alphabetical place to read in its entirety as follows:
“Foregone Margin” means the net income (or loss) in connection with the Disposition or planned Disposition of any Solar Energy System (or any Person owning such Solar Energy System) by the Borrower or any of its Subsidiaries to YieldCo, YieldCo Intermediate, YieldCo Holdings, YieldCo II, YieldCo II Intermediate, YieldCo II Holdings or any of their respective subsidiaries, calculated by (a) multiplying (i) the difference between (x) total revenue (as confirmed by an independent appraisal or third party certification) earned or projected to be earned by Borrower and its Subsidiaries from such Disposition and (y) total projected costs of Borrower and its Subsidiaries to construct such Solar Energy System (as determined by Borrower in good faith) by (ii) the estimated percentage of completion of such Solar Energy System at the time of calculation, and (b) subtracting from such product any Foregone Margin previously included in Consolidated EBITDA.”
I. Clause (h) of the defined term “Indebtedness” in Section 1.01 of the Credit Agreement is hereby amended and restated to read in its entirety as follows:
“(h) all Guarantees of such Person in respect of any of the foregoing.
For all purposes hereof, the Indebtedness of any Person shall (i) include the Indebtedness of any partnership or joint venture (other than a joint venture that is itself a corporation, limited liability company or other similar entity in which the liability of owners of Equity Interests is limited to their Equity Interest in such entity) in which such Person is a general partner or a joint venturer, unless such Indebtedness is expressly made non-recourse to such Person and (ii) exclude Permitted Equity Commitments, Permitted Project Undertakings, Permitted Deferred Acquisition Obligations and Solar Project Contractual Obligations. The amount of any net obligation under any Swap Contract on any date shall be deemed to be the Swap Termination Value thereof as of such date. The amount of any capital lease as of any date shall be deemed to be the amount of Attributable Indebtedness in respect thereof as of such date. For the avoidance of doubt, the Borrower’s obligations under any 2018 Convertible Notes Call Transaction, any 2021 Convertible Notes Call Transaction, any 2020 Convertible Notes Call Transaction, any 2022 Convertible Notes Call Transaction and any Permitted Refinancing Call Transaction shall not constitute Indebtedness.”
J. The defined term “Initial Purchasers” in Section 1.01 of the Credit Agreement is hereby amended and restated to read in its entirety as follows:
“Initial Purchasers” means the several initial purchasers named in that certain Purchase Agreement, dated as of December 12, 2013, relating to the sale of the 2018 Convertible Senior Notes and the 2021 Convertible Senior Notes, the several initial purchasers named in that certain Purchase Agreement, dated as of June 4, 2014, relating to the sale of the 2020 Convertible Senior Notes, and the several initial purchasers named in that certain Purchase Agreement, dated as of January 20, 2015, relating to the sale of the 2022 Convertible Senior Notes.
K. The defined term “Margin Loan SPV” is hereby inserted in Section 1.01 of the Credit Agreement in its appropriate alphabetical place to read in its entirety as follows:
“Margin Loan SPV” means the special purpose entity to be formed in connection with the borrowing of the loans in the Permitted Margin Loan Financing, all of the Equity Interests in which are pledged to the Administrative Agent as security for the Obligations.
L. The defined term “Margin Loan Pledged Equity” is hereby inserted in Section 1.01 of the Credit Agreement in its appropriate alphabetical place to read in its entirety as follows:
“Margin Loan Pledged Equity” means (i) up to 32,200,000 class B units of common stock, par value $0.01 per share, of TerraForm Power, Inc., a Delaware corporation, (ii) up to 32,200,000 class B units of TerraForm Power, LLC, a Delaware limited liability company and (iii) up to 50% of non-voting membership interests in TerraForm Power, LLC conferring certain incentive distribution rights to SunEdison Holding Corporation by TerraForm Power, LLC pursuant to its Organization Documents.
M. The defined term “Permitted Refinancing Call Transaction” in Section 1.01 of the Credit Agreement is hereby amended and restated to read in its entirety as follows:
“Permitted Refinancing Call Transaction” means one or more call or capped call option transactions (or substantively equivalent derivative transactions) on the Borrower’s common stock purchased by Borrower in connection with an issuance of Permitted Refinancing Convertible Bond Indebtedness (each, a “Permitted Refinancing Hedge Transaction”) and, if applicable, one or more call option or warrant transactions (or substantively equivalent derivative transactions) on the Borrower’s common stock sold by Borrower substantially concurrently with any such purchase (each, a “Permitted Refinancing Warrant Transaction”); provided that the purchase price for the Permitted Refinancing Hedge Transactions plus any net amounts received upon termination of 2018 Convertible Notes Call Transaction, any 2021 Convertible Notes Call Transaction, any 2020 Convertible Notes Call Transaction and any 2022 Convertible Notes Call Transaction related to the convertible notes being refinanced, less the proceeds from the sale of the Permitted Refinancing Warrant Transactions does not exceed the net proceeds received by the Borrower from such Permitted Refinancing Convertible Bond Indebtedness (after proceeds from such Permitted Refinancing Convertible Bond Indebtedness are used to repay the Indebtedness being refinanced and all transactional expenses (other than such purchase price) in connection therewith).
N. The defined term “Permitted Margin Loan Financing” is hereby inserted in Section 1.01 of the Credit Agreement in its appropriate alphabetical place to read in its entirety as follows:
“Permitted Margin Loan Financing” means loans borrowed by the Margin Loan SPV in an aggregate principal amount of up to $400,000,000 which (i) loans and related obligations are secured by the assets of the Margin Loan SPV (including the Margin Loan Pledged Equity) and not by the Collateral and (ii) are Guaranteed solely by the Borrower on an unsecured basis and not by any other Loan Party or a Subsidiary of a Loan Party.
O. The defined term “Swap Contract” in Section 1.01 of the Credit Agreement is hereby amended and restated to read in its entirety as follows:
“Swap Contract” means (a) any and all rate swap transactions, basis swaps, credit derivative transactions, forward rate transactions, commodity swaps, commodity options, forward commodity contracts, equity or equity index swaps or options, bond or bond price or bond index swaps or options or forward bond or forward bond price or forward bond index transactions, interest rate options, forward foreign exchange transactions, cap transactions, floor transactions, collar transactions, currency swap transactions, cross-currency rate swap transactions, currency options, spot contracts, or any other similar transactions or any combination of any of the foregoing (including any options to enter into any of the foregoing), whether or not any such transaction is governed by or subject to any master agreement, and (b) any and all transactions of any kind, and the related confirmations, which are subject to the terms and conditions of, or governed by, any form of master agreement published by the International Swaps and Derivatives Association, Inc., any International Foreign Exchange Master Agreement, or any other master agreement (any such master agreement, together with any related schedules, a “Master Agreement”), including any such obligations or liabilities under any Master Agreement. Notwithstanding the foregoing, any 2018 Convertible Notes Call Transaction, any 2021 Convertible Notes Call Transaction, any 2020 Convertible Notes Call Transaction, any 2022 Convertible Notes Call Transaction and any Permitted Refinancing Call Transaction shall not constitute a Swap Contract.
P. The defined term “Swap Termination Value” in Section 1.01 of the Credit Agreement is hereby amended and restated to read in its entirety as follows:
“Swap Termination Value” means, in respect of any one or more Swap Contracts, any 2018 Convertible Notes Bond Hedge Transaction, any 2021 Convertible Notes Bond Hedge Transaction, any 2020 Convertible Notes Bond Hedge Transaction, any 2022 Convertible Notes Call Transaction and any Permitted Refinancing Hedge Transaction, after taking into account the effect of any legally enforceable netting agreement relating to such Swap Contracts, such 2018 Convertible Notes Bond Hedge Transaction, such 2021 Convertible Notes Bond Hedge Transaction, such 2020 Convertible Notes Bond Hedge Transaction, such 2022 Convertible Notes Call Transaction and such Permitted Refinancing Hedge Transaction, as applicable (a) for any date on or after the date such Swap Contracts, such 2018 Convertible Notes Bond Hedge Transaction, such 2021 Convertible Notes Bond Hedge Transaction, such 2020 Convertible Notes Bond Hedge Transaction, such 2022 Convertible Notes Call Transaction and such Permitted Refinancing Hedge Transaction, as applicable, have been closed out and termination value(s) determined in accordance therewith, and (b) for any date prior to the date referenced in clause (a), the amount(s) determined as the mark-to-market value(s) for such Swap Contracts, such 2018 Convertible Notes Bond Hedge Transaction, such 2021 Convertible Notes Bond Hedge Transaction, such 2020 Convertible Notes Bond Hedge Transaction, such 2022 Convertible Notes Call Transaction and such Permitted Refinancing Hedge Transaction, as applicable, as determined based upon one or more mid-market or other readily available quotations provided by any recognized dealer in such Swap Contracts, such 2018 Convertible Notes Bond Hedge Transaction, such 2021 Convertible Notes Bond Hedge Transaction, such 2020 Convertible Notes Bond Hedge Transaction, such 2022 Convertible Notes Call Transaction and such Permitted Refinancing Hedge Transaction, as applicable (which may include a Lender or any Affiliate of a Lender).
Q. The definition of “Unrestricted Subsidiary” in Section 1.01 of the Credit Agreement is hereby amended by:
(a) deleting the word “and” appearing immediately before clause (v) thereof; and
(b) inserting the word “and” immediately after clause (v) thereof and inserting new clause (vi), which shall read in its entirety as follows:
“(vi) the Margin Loan SPV”.
R. The defined term “2022 Convertible Notes Call Transaction” is hereby inserted in Section 1.01 of the Credit Agreement in its appropriate alphabetical place to read in its entirety as follows:
“2022 Convertible Notes Call Transaction” means one or more capped call option transactions relating to the Borrower’s common stock purchased by Borrower in connection with an issuance of the 2022 Convertible Senior Notes from one or more of the Initial Purchasers (or their affiliates) (each a “2022 Option Counterparty” and, collectively, the “2022 Option Counterparties”) pursuant to those certain confirmations of terms and conditions dated January 20, 2015 in connection with the issuance of the initial 2022 Convertible Senior Notes (“Base Capped Call Confirmation”) and subsequent confirmations of terms and conditions (if any) in connection with the issuance of additional 2022 Convertible Senior Notes (“Additional Capped Call Confirmations”), the 2002 ISDA Equity Derivatives Definitions published by the International Swaps and Derivatives Association, Inc., and related agreements in the form of the ISDA 2002 Master Agreement between the Borrower and each applicable 2022 Option Counterparty, the purchase price for which the Borrower shall pay to the 2022 Option Counterparties in full for the Based Capped Call Confirmation on or about January 20, 2015 and for the Additional Capped Call Confirmation, substantially concurrently with the issuance of the additional 2022 Convertible Senior Notes.
S. The defined term “2022 Convertible Senior Notes” is hereby inserted in Section 1.01 of the Credit Agreement in its appropriate alphabetical place to read in its entirety as follows:
“2022 Convertible Senior Notes” means the convertible senior notes due April 15, 2022 in an aggregate principal amount of up to $500,000,000 to be issued by the Borrower on or about January 27, 2015.
T. The defined term “2022 Convertible Senior Notes Indenture” is hereby inserted in Section 1.01 of the Credit Agreement in its appropriate alphabetical place to read in its entirety as follows:
“2022 Convertible Senior Notes Indenture” means the Indenture, by and between Borrower and Wilmington Trust, National Association, as Trustee, governing and pursuant to which the 2022 Convertible Senior Notes are issued, which has the terms and provisions that are substantially similar to those described in Borrower's Preliminary Offering Memorandum relating to the 2022 Convertible Senior Notes, dated January 20, 2015, as supplemented by the pricing terms disclosed to the Lenders.
U. The defined term “2022 Refinancing Convertible Bond Indebtedness” is hereby inserted in Section 1.01 of the Credit Agreement in its appropriate alphabetical place to read in its entirety as follows:
“2022 Refinancing Convertible Bond Indebtedness” has the meaning specified in Section 7.03(l).
V. The defined terms “2022 Option Counterparty” and “2022 Option Counterparties” are hereby inserted in Section 1.01 of the Credit Agreement in their appropriate alphabetical place to read in their entirety as follows:
“2022 Option Counterparty” and “2022 Option Counterparties” have the meanings specified in the definition of the term “2022 Convertible Notes Call Transaction”.
W. Section 6.14(c) of the Credit Agreement is hereby amended by replacing the following phrase appearing therein:
“(F) Warehouse Holdings (if any Equity Interest therein is held or owned by the Borrower or a Guarantor) and (G) First Wind Holdings and each other subsidiary of First Wind Holdings whose Equity Interest is required to be pledged pursuant to the terms of this Agreement”.
with the following phrase:
(F) Warehouse Holdings (if any Equity Interest therein is held or owned by the Borrower or a Guarantor), (G) First Wind Holdings and each other subsidiary of First Wind Holdings whose Equity Interest is required to be pledged pursuant to the terms of this Agreement and (H) the Margin Loan SPV (it being
understood and agreed that, notwithstanding any previous release of the Administrative Agent’s Liens on the Equity Interests in YieldCo and YieldCo II Intermediate relating to such Equity Interests being provided as collateral securing the Permitted Seller Notes or Permitted Margin Loan Financing, such Equity Interests shall be pledged by each applicable Loan Party, and all actions required by the Administrative Agent to perfect its Lien on such Equity Interests shall be taken, within 30 calendar days (as such period may be extended by the Administrative Agent in its sole discretion) after (i) March 1, 2015, if the applicable Equity Interest are not pledged to secure the Permitted Seller Notes or Permitted Margin Loan Financing, as applicable, prior to March 1, 2015 or (ii) the release of the applicable Equity Interests from the Liens granted under the Permitted Seller Notes or Permitted Margin Loan Financing, as applicable)”.
X. Section 7.02(m) of the Credit Agreement is hereby amended and restated to read in its entirety as follows:
“(m) Investments in any 2018 Convertible Notes Bond Hedge Transaction, any 2021 Convertible Notes Bond Hedge Transaction, any 2020 Convertible Notes Bond Hedge Transaction, any 2022 Convertible Notes Call Transaction and any Permitted Refinancing Hedge Transaction;”
Y. Section 7.03(l) of the Credit Agreement is hereby amended and restated to read in its entirety as follows:
“(l) (A) unsecured Indebtedness under the 2018 Convertible Senior Notes and Guarantees thereof by the Guarantors, in aggregate principal amount not to exceed $600,000,000 and any refinancings, refundings, renewals or extensions thereof (including any Convertible Bond Indebtedness that is a refinancing thereof, the “2018 Refinancing Convertible Bond Indebtedness”), (B) unsecured Indebtedness under the 2021 Convertible Senior Notes and Guarantees thereof by the Guarantors, in aggregate principal amount not to exceed $600,000,000, and any refinancings, refundings, renewals or extensions thereof (including any Convertible Bond Indebtedness that is a refinancing thereof, the “2021 Refinancing Convertible Bond Indebtedness”), (C) unsecured Indebtedness under the 2020 Convertible Senior Notes and Guarantees thereof by the Guarantors, in aggregate principal amount not to exceed $600,000,000, and any refinancings, refundings, renewals or extensions thereof (including any Convertible Bond Indebtedness that is a refinancing thereof, the “2020 Refinancing Convertible Bond Indebtedness”) and (D) unsecured Indebtedness under the 2022 Convertible Senior Notes and Guarantees thereof by the Guarantors, in aggregate principal amount not to exceed $500,000,000, and any refinancings, refundings, renewals or extensions thereof (including any Convertible Bond Indebtedness that is a refinancing thereof, the “2022 Refinancing Convertible Bond Indebtedness”; and together with the 2018 Refinancing Convertible Bond Indebtedness, the 2021 Refinancing Convertible Bond Indebtedness and the 2020 Refinancing Convertible Bond Indebtedness, the “Refinancing Convertible Bond Indebtedness”); provided that in the case of any refinancings, refundings, renewals or extensions of Indebtedness described in either of the foregoing clause (A) or clause (B) (including any Refinancing Convertible Bond Indebtedness) (i) the principal amount of such Indebtedness is not increased at the time of such refinancing, refunding, renewal or extension except by an amount equal to a reasonable premium or other reasonable amount paid, and fees and expenses reasonably incurred, in connection with such refinancing, (ii) the direct or any contingent obligor (including any Guarantees by any Subsidiaries) with respect thereto is not changed other than in connection with a transaction permitted by Section 7.04 between and among Subsidiaries none of which are Guarantors, or all of which are Guarantors, prior to such transaction, and (iii) the terms relating to principal amount, amortization, maturity, and other material terms taken as a whole, of any such Indebtedness refinancing, refunding, renewing or extending the applicable Convertible Senior Notes, and of any agreement entered into and of any instrument issued in connection therewith, are no less favorable in any material respect to the Loan Parties or the Lenders than the terms of any agreement or instrument governing the applicable Convertible Senior Notes (it being understood that differences between the conversion rate of the applicable Convertible Senior Notes and the conversion rate of any applicable Refinancing Convertible Bond Indebtedness shall not be deemed to be less favorable in any
material respect to the Loan Parties or the Lenders), such refinancing, refunding, renewing or extending Indebtedness shall be unsecured, and the interest rate applicable to any such refinancing, refunding, renewing or extending Indebtedness does not exceed the then applicable market interest rate. No Convertible Senior Notes shall be guaranteed by any Subsidiary of a Loan Party other than such Subsidiaries that are Guarantors of the Obligations;”
Z. Section 7.02 of the Credit Agreement is hereby amended by amending and restating clause (v) thereof through the end of Section 7.02 to read in its entirety as follows:
(v) the unsecured Guarantee by the Borrower of the Indebtedness and all obligations in connection therewith of the Seller Note SPV under the Permitted Seller Notes and capital contributions (whether in the form of cash or Specified TERP Common Stock or otherwise) to the Seller Note SPV to the extent necessary for the Seller Note SPV to make required payments and deliveries pursuant to the indenture governing the Permitted Seller Notes;
(w) the contribution or transfer of the Margin Loan Pledged Equity to the Margin Loan SPV in connection with the Permitted Margin Loan Financing;
(x) the unsecured Guarantee by the Borrower of the Indebtedness and all obligations in connection therewith of the Margin Loan SPV under the Permitted Margin Loan Financing and capital contributions (whether in the form of cash or Margin Loan Pledged Equity or otherwise) to the Margin Loan SPV to the extent necessary for the Margin Loan SPV to make required payments pursuant to the loan agreement governing the Permitted Margin Loan Financing;
(y) other Investments not exceeding $200,000,000 in the aggregate outstanding at any time.
Notwithstanding anything to the contrary, neither the Borrower nor any Subsidiary may make any Investments in any Unrestricted Subsidiary other than Investments permitted by Sections 7.02(n), 7.02(p), 7.02(q), 7.02(u), 7.02(v), 7.02(w), 7.02(x) or 7.02(y).”
AA. Section 7.03 of the Credit Agreement is hereby further amended by:
(a) deleting the word “and” appearing immediately before clause (q) thereof;
(b) re-lettering the existing clause (q) as clause (r); and
(c) inserting new clause (q) therein, which shall read in its entirety as follows:
“(q) the unsecured Guarantee by the Borrower of the Indebtedness and all obligations in connection therewith of the Margin Loan SPV under the Permitted Margin Loan Financing; and”
BB. Section 7.05 of the Credit Agreement is hereby amended by:
(a) deleting the word “and” appearing immediately after clause (k) thereof;
(b) replacing the period at the end of clause (l) therein with the phrase “; and”;
(c) inserting new clauses (m) therein, which shall read in its entirety as follows:
“(m) to the extent constituting a Disposition, the contribution or transfer of the Margin Loan Pledged Equity permitted by Section 7.02(w).” and
(d) amending and restating the last sentence thereof to read in its entirety as follows:
“provided that any Disposition pursuant to this Section 7.05 (other than pursuant to clauses (l) and (m) of this Section 7.05) shall be for fair market value (as determined by the Borrower in its reasonable judgment).”
CC. Section 7.06(e) of the Credit Agreement is hereby amended and restated to read in its entirety as follows:
“(e) to the extent any cash payment and/or delivery of the Borrower’s common stock (or other securities or property following a merger event or other change of the common stock of the Borrower) by the Borrower in satisfaction of its conversion obligation or obligations to purchase notes for cash under the 2018 Convertible Senior Notes Indenture, the 2021 Convertible Senior Notes Indenture, the 2020 Convertible Senior Notes Indenture or the 2022 Convertible Senior Notes Indenture (and any Permitted Refinancing Convertible Bond Indebtedness thereof) constitutes a Restricted Payment, the Borrower may make such Restricted Payment to the extent permitted by Section 7.14;”
DD. Section 7.06 of the Credit Agreement is hereby further amended by:
(a) deleting “and” at the end of clause (l) therein;
(b) replacing the period at the end of clause (m) with the phrase “; and”; and
(c) inserting new clauses (n) and (o) which shall read in their entirety as follows:
“(n) the Borrower may receive cash payments and/or its common stock from the 2022 Option Counterparties pursuant to the terms of the 2022 Convertible Notes Call Transactions; and
(o) the Borrower may make capital contributions to the Margin Loan SPV to the extent necessary for the Margin Loan SPV to make required payments pursuant to the loan agreement governing the Permitted Margin Loan Financing.”.”
EE. Section 7.08 of the Credit Agreement is hereby amended by replacing the following proviso appearing therein:
“provided that the foregoing restriction shall not apply to (a) transactions between or among the Borrower and any Guarantor or between and among any Guarantors; or (b) transactions consisting of the contribution or deposit of the Specified TERP Common Stock to or with the Seller Note SPV permitted by Section 7.02(u) or any other agreements between or among the purchaser or holder (or any entity on behalf thereof) of the Permitted Seller Notes, the Borrower, any Guarantor and/or the Seller Note SPV, in each case as the Borrower, any Guarantor and/or the Seller Note SPV may deem reasonably necessary or appropriate in connection with the issuance of the Permitted Seller Notes (including any agreements entered into in connection with the delivery and/or registration of any capital stock deliverable upon exchange of the Permitted Seller Notes).”
with the following proviso:
“provided that the foregoing restriction shall not apply to (a) transactions between or among the Borrower and any Guarantor or between and among any Guarantors; (b) transactions consisting of the contribution or deposit of the Specified TERP Common Stock to or with the Seller Note SPV permitted by Section 7.02(u) or any other agreements between or among the purchaser or holder (or any entity on behalf thereof) of the Permitted Seller Notes, the Borrower, any Guarantor and/or the Seller Note SPV, in each case as the Borrower, any Guarantor and/or the Seller Note SPV may deem reasonably necessary or appropriate in connection with the issuance of the Permitted Seller Notes (including any agreements entered into in connection with the delivery and/or registration of any capital stock deliverable upon exchange of the Permitted Seller Notes) or (c) transactions consisting of the
contribution or transfer of the Margin Loan Pledged Equity permitted by Section 7.02(w) and the making of required payments pursuant to the loan agreement governing the Permitted Margin Loan Financing or any other agreements between or among any agent or any lender under Permitted Margin Loan Financing, the Borrower, any Guarantor and/or the Margin Loan SPV, in each case as the Borrower, any Guarantor and/or the Margin Loan SPV may deem reasonably necessary or appropriate in connection with the Permitted Margin Loan Financing.”
FF. Section 7.14 of the Credit Agreement is hereby amended by replacing the following language appearing therein:
“Prepay, redeem, purchase, defease or otherwise satisfy prior to the scheduled maturity thereof in any manner any unsecured Indebtedness incurred pursuant to Section 7.03(h) or 7.03(l) (other than (i) as permitted pursuant to Section 7.03(l), (ii) any redemption required by Article III of the 2018 Convertible Senior Notes Indenture or Article III of the 2021 Convertible Senior Notes Indenture or the corresponding section or article of the 2020 Convertible Senior Notes Indenture or by the corresponding sections of the indentures governing any Permitted Refinancing Convertible Bond Indebtedness, or (iii) pursuant to a cash settlement method to the extent required by Section 4.03(a)(iv) of the 2018 Convertible Senior Notes Indenture or Section 4.03(a)(iv) of the 2021 Convertible Senior Notes Indenture or by the corresponding sections of the indentures governing any Permitted Refinancing Convertible Bond Indebtedness, (y) pursuant to a “Physical Settlement” under (and as defined in) the 2018 Convertible Senior Notes Indenture or the 2021 Convertible Senior Notes Indenture or the 2020 Convertible Senior Notes Indenture, as applicable or (z) pursuant to a “Combination Settlement” under (and as defined in) the 2018 Convertible Senior Notes Indenture or the 2021 Convertible Senior Notes Indenture or the 2020 Convertible Senior Notes Indenture, as applicable, or by the corresponding sections of the indentures governing any Permitted Refinancing Convertible Bond Indebtedness, with a “Specified Dollar Amount” (as defined therein) equal to or less than $1,000); provided that, without limitation of any of clauses (i), (ii) and (iii) of the immediately preceding parenthetical:”
with the following:
“Prepay, redeem, purchase, defease or otherwise satisfy prior to the scheduled maturity thereof in any manner any unsecured Indebtedness incurred pursuant to Section 7.03(h) or 7.03(l) (other than (i) as permitted pursuant to Section 7.03(l), (ii) any redemption required by Article III of the 2018 Convertible Senior Notes Indenture, Article III of the 2021 Convertible Senior Notes Indenture, the corresponding section or article of the 2020 Convertible Senior Notes Indenture or the 2022 Convertible Senior Notes Indenture, or by the corresponding sections of the indentures governing any Permitted Refinancing Convertible Bond Indebtedness, or (iii) pursuant to a cash settlement method to the extent required by Section 4.03(a)(iv) of the 2018 Convertible Senior Notes Indenture, Section 4.03(a)(iv) of the 2021 Convertible Senior Notes Indenture, the corresponding section or article of the 2020 Convertible Senior Notes Indenture or the 2022 Convertible Senior Notes Indenture, or by the corresponding sections of the indentures governing any Permitted Refinancing Convertible Bond Indebtedness, (y) pursuant to a “Physical Settlement” under (and as defined in) the 2018 Convertible Senior Notes Indenture or the 2021 Convertible Senior Notes Indenture or the 2020 Convertible Senior Notes Indenture or the 2022 Convertible Senior Notes Indenture, as applicable or (z) pursuant to a “Combination Settlement” under (and as defined in) the 2018 Convertible Senior Notes Indenture or the 2021 Convertible Senior Notes Indenture or the 2020 Convertible Senior Notes Indenture or the 2022 Convertible Senior Notes Indenture, as applicable, or by the corresponding sections of the indentures governing any Permitted Refinancing Convertible Bond Indebtedness, with a “Specified Dollar Amount” (as defined therein) equal to or less than $1,000); provided that, without limitation of any of clauses (i), (ii) and (iii) of the immediately preceding parenthetical:”
GG. The proviso in Section 7.14 of the Credit Agreement is hereby amended by inserting therein a new clause (D) which shall read in its entirety as follows:
“(D) the Borrower may make cash payment and/or deliver its common stock (or other securities or property following a merger event or other change of the common stock of Borrower) in satisfaction of its conversion obligation under the 2022 Convertible Senior Notes Indenture (and any Permitted Refinancing Convertible Bond Indebtedness thereof) as long as, in the case of cash payments (other than cash payments in lieu of fractional shares), both (x) immediately prior and after giving effect to any such cash payment (with the effect of any such cash payment determined after also giving effect to the satisfaction of any related settlement obligations of (i) each 2022 Option Counterparty and dealer counterparty to any Permitted Refinancing Hedge Transaction, as applicable, under the respective 2022 Convertible Notes Call Transaction or Permitted Refinancing Hedge Transaction, as applicable, and (ii) Borrower under the related Permitted Refinancing Warrant Transaction, if applicable), no Default shall exist or result therefrom and (y) immediately after giving effect to such cash payment (with the effect of any such cash payment determined after also giving effect to the satisfaction of any related settlement obligations of (i) each 2022 Option Counterparty and dealer counterparty to any Permitted Refinancing Hedge Transaction, as applicable, under the respective 2022 Convertible Notes Call Transaction or Permitted Refinancing Hedge Transaction, as applicable, and (ii) Borrower under the related Permitted Refinancing Warrant Transaction, if applicable), the Borrower and its Subsidiaries shall be in pro forma compliance with the covenant set forth in Section 7.11(a) (such compliance to be determined on the basis of the financial information most recently delivered to the Administrative Agent and the Lenders pursuant to Section 6.01(a) or (b) as though such cash payment had been consummated as of the first day of the fiscal period covered thereby) and the Liquidity Amount shall be greater than or equal to the minimum Liquidity Amount required by Section 7.11(b) (determined on the basis of the Liquidity Amount as of the date of measurement).”
HH. Section 7.15 of the Credit Agreement is hereby amended and restated to read in its entirety as follows:
“7.15 Amendment of Indebtedness. Amend, modify or change in any manner materially adverse to the interests of the Lenders any term or condition of (X) any Indebtedness set forth in Schedule 7.03, or any term or condition of any Convertible Senior Notes except for (A) any refinancing, refunding, renewal or extension thereof permitted by Section 7.03(b) or, with respect to Convertible Senior Notes, Section 7.03(l) and (B) any amendment, modification or change expressly required to be made (including adjustments to the conversion rate (howsoever defined)) pursuant to the terms of the 2018 Convertible Senior Notes Indenture as in effect on the Closing Date or the terms of the 2021 Convertible Senior Notes Indenture as in effect on the Closing Date or the terms of the 2020 Convertible Senior Notes Indenture as in effect on the date of the issuance of the 2020 Convertible Senior Notes pursuant thereto or the terms of the 2022 Convertible Senior Notes Indenture as in effect on the date of the issuance of the 2022 Convertible Senior Notes pursuant thereto or pursuant to similar terms of an indenture governing any Permitted Refinancing Convertible Bond Indebtedness or (Y) the Hurricane Bridge/Notes Financing except as permitted by the Hurricane Intercreditor Agreement.”
II. Section 8.01(e) of the Credit Agreement is hereby amended and restated to read in its entirety as follows:
“(e) Cross-Default. (i) Other than with respect to Non-Recourse Project Indebtedness, so long as no claim with respect thereto is made against any Subsidiary other than the Non-Recourse Subsidiaries liable therefor, the Borrower or any Subsidiary (A) fails to make any payment when due after any applicable grace period (whether by scheduled maturity, required prepayment, acceleration, demand, or otherwise) in respect of any Indebtedness (including any Indebtedness under any of the Convertible Senior Notes) or Guarantee (other than Indebtedness hereunder and Indebtedness under Swap Contracts) to a Person other than the Borrower and its wholly-owned Subsidiaries (including the Guarantee by the Borrower to the Sellers of the Indebtedness and all obligations in connection therewith of the Seller Note SPV under the Permitted Seller Notes and the Guarantee by the Borrower of the Indebtedness and all obligations in connection therewith of the Margin Loan SPV under the Permitted Margin Loan Financing) having an aggregate principal amount (including undrawn committed or available
amounts and including amounts owing to all creditors under any combined or syndicated credit arrangement) of more than $50,000,000, or (B) fails to observe or perform any other agreement or condition relating to any such Indebtedness or Guarantee described in clause (A) above or contained in any instrument or agreement evidencing, securing or relating thereto, or any other event occurs, the effect of which default or other event is to cause, or to permit the holder or holders of such Indebtedness or the beneficiary or beneficiaries of such Guarantee (or a trustee or agent on behalf of such holder or holders or beneficiary or beneficiaries) to cause, with the giving of notice if required, such Indebtedness to be accelerated or to otherwise become due or to be repurchased, prepaid, defeased or redeemed (automatically or otherwise), or an offer to repurchase, prepay, defease or redeem such Indebtedness to be made, prior to its stated maturity (it being understood that (X) conversions of any 2018 Convertible Senior Notes pursuant to the terms of the 2018 Convertible Senior Notes Indenture (or of any notes pursuant to the terms of any Permitted Refinancing Convertible Bond Indebtedness thereof) or conversions of any 2021 Convertible Senior Notes pursuant to the terms of the 2021 Convertible Senior Notes Indenture (or of any notes pursuant to the terms of any Permitted Refinancing Convertible Bond Indebtedness thereof) or conversions of any 2020 Convertible Senior Notes pursuant to the terms of the 2020 Convertible Senior Notes Indenture (or of any notes pursuant to the terms of any Permitted Refinancing Convertible Bond Indebtedness thereof) or conversions of any 2022 Convertible Senior Notes pursuant to the terms of the 2022 Convertible Senior Note Indenture (or of any notes pursuant to the terms of any Permitted Refinancing Convertible Bond Indebtedness thereof) or (Y) any conversion or exchange of the Permitted Seller Notes into or for the Class A TERP Common Stock (and related payments of Cash in lieu of fractional shares) or any conversion or exchange of the Permitted Hurricane Convertible Preferred into or for the common Equity Interest in the Borrower (and related payments of Cash in lieu of fractional shares) or any redemption or repurchase of Permitted Seller Notes or Permitted Hurricane Convertible Preferred upon the occurrence of a “Fundamental Change” (or equivalent) under the applicable indenture shall not constitute an Event of Default under this clause (i)) or any redemption required by Article III of the 2018 Convertible Senior Notes Indenture or Article III of the 2021 Convertible Senior Notes Indenture or the corresponding section or article of the 2020 Convertible Senior Notes Indenture or the corresponding section or article of the 2022 Convertible Senior Notes Indenture or by the corresponding sections of the indentures governing any Permitted Refinancing Convertible Bond Indebtedness shall not constitute an Event of Default under this clause (i)), or such Guarantee to become payable or cash collateral in respect thereof to be provided; or (ii) there occurs under any Swap Contract (other than with respect to Non-Recourse Project Indebtedness, so long as no claim with respect thereto is made against the Borrower or any Subsidiary other than the Non-Recourse Subsidiaries liable therefor), any 2018 Convertible Notes Bond Hedge Transaction, any 2021 Convertible Notes Bond Hedge Transaction, any 2020 Convertible Notes Bond Hedge Transaction, any 2022 Convertible Notes Call Transaction or any Permitted Refinancing Hedge Transaction, an early termination date (or such other similar term) under such Swap Contract, such 2018 Convertible Notes Bond Hedge Transaction, such 2021 Convertible Notes Bond Hedge Transaction, such 2020 Convertible Notes Bond Hedge Transaction, such 2022 Convertible Notes Call Transaction and such Permitted Refinancing Hedge Transaction, as applicable) resulting from (A) any event of default under such Swap Contract, such 2018 Convertible Notes Bond Hedge Transaction, such 2021 Convertible Notes Bond Hedge Transaction, such 2020 Convertible Notes Bond Hedge Transaction, such 2022 Convertible Notes Call Transaction and such Permitted Refinancing Hedge Transaction, as applicable) to which the Borrower or any Subsidiary is the Defaulting Party (as defined in such Swap Contract) or (B) any Termination Event (as so defined) under such Swap Contract, such 2018 Convertible Notes Bond Hedge Transaction, such 2021 Convertible Notes Bond Hedge Transaction, such 2020 Convertible Notes Bond Hedge Transaction, such 2022 Convertible Notes Call Transaction and such Permitted Refinancing Hedge Transaction, as applicable, as to which the Borrower or any Subsidiary is an Affected Party (as so defined) and, in either event, the Swap Termination Value owed by the Borrower or such Subsidiary as a result thereof is greater than the $50,000,000; or”
The Pledge and Security Agreement is hereby amended as follows:
JJ. Section 2.2(d) of the Pledge and Security Agreement is hereby amended by amending and restating the proviso appearing therein to read in its entirety as follows:
“provided, further, however, that the Collateral shall include (and such security interest shall attach to) the Equity Interests in (i) SSL TopCo to the extent not in excess of 65% of the voting power of all Equity Interest in SSL TopCo, (ii) YieldCo, (iii) YieldCo Intermediate; (iv) YieldCo II, provided that if YieldCo II is a Controlled Foreign Corporation, only to the extent not in excess of 65% of the voting power of all Equity Interest in YieldCo II, (v) YieldCo II Intermediate, provided that if YieldCo II Intermediate is a Controlled Foreign Corporation, only to the extent not in excess of 65% of the voting power of all Equity Interest in YieldCo II Intermediate, (vi) Warehouse Holdings, and (vii) Margin Loan SPV; and”
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SECTION II. | CONSENT AND AUTHORIZATION; CONFIRMATION OF THE FAIR MARKET VALUE OF THE COLLATERAL RELEASED |
Each Lender hereby consents to the release of the Administrative Agent’s Liens on the Margin Loan Pledged Equity effective concurrently with or after the consummation of the Hurricane Acquisition and authorizes the Administrative Agent to deliver such releases or other documents reasonably requested by the Borrower to evidence such release.
The Borrower hereby confirms that the value of the Margin Loan Pledged Equity to be released from the Administrative Agent’s Liens thereon pursuant hereto, together with the value of the Specified TERP Common Stock to be contributed to or deposited with the Seller Note SPV (and released from the Administrative Agent’s Lien pursuant to the Amendment No. 4 to the Credit Agreement, dated as of November 17, 2014, among the Borrower, the Guarantors party hereto and the Lenders party hereto) constitutes less than 40% of the value of all assets constituting Collateral on the date of the consummation of the Hurricane Acquisition, as shown on Exhibit A hereto.
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SECTION III. | CONDITIONS TO EFFECTIVENESS |
This Amendment shall become effective as of the date hereof upon the Administrative Agent receiving:
(i) a counterpart signature page of this Amendment duly executed by the Loan Parties and the Required Lenders and the acknowledgment of this Amendment by the Administrative Agent and
(ii) a consent from Barclays Bank PLC (“Barclays”), Goldman Sachs Bank USA (“Goldman”), Morgan Stanley Senior Funding, Inc. (“Morgan Stanley”), Macquarie Capital (USA) Inc. (“Macquarie Capital”) and MIHI LLC (“MIHI”; and together with Macquarie Capital, “Macquarie”) and the Borrower confirming that references to indebtedness “described in clauses (a) – (g) and (i) – (o) of Section 7.03 of the Existing L/C Facility” in that certain commitment letter dated as of November 17, 2014 among Barclays, Goldman, Morgan Stanley and the Borrower (the “Commitment Letter”) shall be deemed to be references to indebtedness “described in clauses (a) – (g), (i) – (n) and (p) – (r) of Section 7.03 of the Existing L/C Facility” for all purposes of the Commitment Letter.
(the date of satisfaction of each such condition being referred to herein as the “Amendment Effective Date”).
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SECTION IV. | REPRESENTATIONS AND WARRANTIES |
In order to induce Lenders to enter into this Amendment, Borrower represents and warrants to each Lender that:
A. Corporate Power and Authority. Borrower has all requisite power and authority to enter into this Amendment and to carry out the transactions contemplated by, and perform its obligations under, the Credit Agreement and the other Loan Documents.
B. Authorization; No Contravention. The execution and delivery by Borrower of this Amendment have been duly authorized by all necessary corporate or other organizational action, and do not and will not (a) contravene the terms of any of Borrower’s Organization Documents; (b) conflict with or result in any breach or contravention of, or the creation of any Lien under, or require any payment to be made under (i) any material Contractual Obligation to which Borrower is a party or affecting Borrower or the properties of Borrower or any of its Subsidiaries or (ii) any order, injunction, writ or decree of any Governmental Authority or any arbitral award to which Borrower or its property is subject; or (c) violate any Law.
C. Governmental Authorization; Other Consents. No approval, consent, exemption, authorization, or other action by, or notice to, or filing with, any Governmental Authority or any other Person is necessary or required in connection with the execution and delivery by Borrower or performance by, or enforcement against, Borrower of this Amendment, the Credit Agreement or any other Loan Document, except those that, if not obtained or made, would not reasonably be expected to have a Material Adverse Effect.
D. Binding Effect. This Amendment, when delivered hereunder, will have been duly executed and delivered by Borrower, and when so delivered will constitute a legal, valid and binding obligation of Borrower, enforceable against Borrower in accordance with its terms, except to the extent that the enforceability hereof may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws generally affecting creditors’ rights and by equitable principles (regardless of whether enforcement is sought in equity or at law).
E. Incorporation of Representations and Warranties from Credit Agreement. The representations and warranties contained in Article V of the Credit Agreement are and will be true and correct in all material respects on and as of the Amendment Effective Date and both before and after giving effect to the Amendment to the same extent as though made on and as of that date, except to the extent such representations and warranties specifically relate to an earlier date, in which case they were true and correct in all material respects on and as of such earlier date.
F. Absence of Default. Both before and after giving effect to this Amendment, no event has occurred and is continuing or would result from the transactions contemplated by this Amendment that would constitute an Event of Default or a Default.
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SECTION V. | ACKNOWLEDGMENT AND CONSENT |
Each Guarantor hereby acknowledges that it has reviewed the terms and provisions of the Credit Agreement and the Pledge and Security Agreement and this Amendment and consents to the amendments to the Credit Agreement and the Pledge and Security Agreement effected pursuant to this Amendment. Each Guarantor hereby confirms that each Loan Document to which it is a party or otherwise bound and all Collateral encumbered thereby will continue to guarantee or secure, as the case may be, to the fullest extent possible in accordance with the Loan Documents the payment and performance of all “Obligations” under each of the Loan Documents to which is a party (in each case as such terms are defined in the applicable Loan Document).
Each Guarantor acknowledges and agrees that any of the Loan Documents to which it is a party or otherwise bound shall continue in full force and effect and that all of its obligations thereunder shall be valid and enforceable and shall not be impaired or limited by the execution or effectiveness of this Amendment, except as expressly amended by this Amendment. Each Guarantor represents and warrants that all representations and warranties contained in the Credit Agreement and the Loan Documents to which it is a party or otherwise bound are true and correct in all material respects on and as of the Amendment Effective Date to the same extent as though made on and as of that date, except to the extent such representations and warranties specifically relate to an earlier date, in which case they were true and correct in all material respects on and as of such earlier date.
Each Guarantor acknowledges and agrees that (i) notwithstanding the conditions to effectiveness set forth in this Amendment, such Guarantor is not required by the terms of the Credit Agreement or any other Loan Document to consent to the amendments to the Credit Agreement effected pursuant to this Amendment and (ii) nothing in the Credit
Agreement, this Amendment or any other Loan Document shall be deemed to require the consent of such Guarantor to any future amendments to the Credit Agreement.
A. Effect on the Credit Agreement and the Other Loan Documents. Except as expressly amended by this Amendment, the Credit Agreement and the other Loan Documents shall remain in full force and effect and are hereby ratified and confirmed.
B. Headings. Section and Subsection headings in this Amendment are included herein for convenience of reference only and shall not constitute a part of this Amendment for any other purpose or be given any substantive effect.
C. Applicable Law. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES THEREOF.
D. Counterparts. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument; signature pages may be detached from multiple separate counterparts and attached to a single counterpart so that all signature pages are physically attached to the same document.
[Remainder of this page intentionally left blank.]
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered by their respective officers thereunto duly authorized as of the date first written above.
SUNEDISON, INC.,
as the Borrower
By: /s/ Brian Wuebbels
Name: Brian Wuebbels
Title: EVP, CAO & CFO
By its signature, the undersigned hereby provides the consent described in clause (ii) of Section III of the Amendment
SUNEDISON, INC.
By: /s/ Brian Wuebbels
Name: Brian Wuebbels
Title: EVP, CAO & CFO
SunEdison, Inc.
Amendment No. 5 to Credit Agreement
Signature Page
MORGAN STANLEY SENIOR FUNDING, INC.,
as a Lender
By: /s/ Dmitriy Barskiy
Name: Dmitriy Barskiy
Title: Vice President
By its signature, the undersigned hereby provides the consent described in clause (ii) of Section III of the Amendment
MORGAN STANLEY SENIOR FUNDING, INC.
By: /s/ Dmitriy Barskiy
Name: Dmitriy Barskiy
Title: Vice President
SunEdison, Inc.
Amendment No. 5 to Credit Agreement
Signature Page
KEYBANK NATIONAL ASSOCIATION, as a Lender
By: /s/ Lisa A. Ryder
Name: Lisa A. Ryder
Title: Vice President
SunEdison, Inc.
Amendment No. 5 to Credit Agreement
Signature Page
GOLDMAN SACHS BANK USA,
as a Lender
By: /s/ Michelle Latzoni
Name: Michelle Latzoni
Title: Authorized Signatory
By its signature, the undersigned hereby provides the consent described in clause (ii) of Section III of the Amendment
GOLDMAN SACHS BANK USA
By: /s/ Michelle Latzoni
Name: Michelle Latzoni
Title: Authorized Signatory
SunEdison, Inc.
Amendment No. 5 to Credit Agreement
Signature Page
MIHI LLC,
as a Lender
By: /s/ Steve Mehos
Name: Steve Mehos
Title: Authorized Signatory
By:/s/ Katherine Mogg
Name: Katherine Mogg
Title: Authorized Signatory
By its signature, each of the undersigned hereby provides the consent described in clause (ii) of Section III of the Amendment
MIHI LLC
By: /s/ Steve Mehos
Name: Steve Mehos
Title: Authorized Signatory
By: /s/ Katherine Mogg
Name: Katherine Mogg
Title: Authorized Signatory
MACQUARIE CAPITAL (USA) INC.
By: /s/ Steve Mehos
Name: Steve Mehos
Title: Authorized Signatory
By: /s/ Katherine Mogg
Name: Katherine Mogg
Title: Managing Director
SunEdison, Inc.
Amendment No. 5 to Credit Agreement
Signature Page
BARCLAYS BANK PLC,
as a Lender
By: /s/ Marguerite Sutton
Name: Marguerite Sutton
Title: Vice President
By its signature, the undersigned hereby provides the consent described in clause (ii) of Section III of the Amendment
BARCLAYS BANK PLC
By: /s/ Marguerite Sutton
Name: Marguerite Sutton
Title: Vice President
SunEdison, Inc.
Amendment No. 5 to Credit Agreement
Signature Page
DEUTSCHE BANK AG NEW YORK BRANCH,
as a Lender
By: /s/ Anca Trifan
Name: Anca Trifan
Title: Managing Director
By: /s/ Michael Winters
Name: Michael Winters
Title: Vice President
SunEdison, Inc.
Amendment No. 5 to Credit Agreement
Signature Page
Acknowledged by:
WELLS FARGO BANK, NATIONAL ASSOCIATION,
as Administrative Agent
By: /s/ Peter Sherman
Name: Peter Sherman
Title: Vice President
SunEdison, Inc.
Amendment No. 5 to Credit Agreement
Signature Page
SUNEDISON HOLDINGS CORPORATION,
as a Guarantor
By: /s/ Brian Wuebbels
Name: Brian Wuebbels
Title: Authorized Officer
SUNEDISON INTERNATIONAL, INC.,
as a Guarantor
By: /s/ Brian Wuebbels
Name: Brian Wuebbels
Title: Authorized Officer
MEMC PASADENA, INC.,
as a Guarantor
By: /s/ Brian Wuebbels
Name: Brian Wuebbels
Title: Authorized Officer
ENFLEX CORPORATION,
as a Guarantor
By: /s/ Brian Wuebbels
Name: Brian Wuebbels
Title: Authorized Officer
NVT, LLC,
as a Guarantor
By: /s/ Brian Wuebbels
Name: Brian Wuebbels
Title: Authorized Officer
SOLAICX,
as a Guarantor
By: /s/ Brian Wuebbels
Name: Brian Wuebbels
Title: Authorized Officer
SUN EDISON LLC,
as a Guarantor
By: /s/ Brian Wuebbels
Name: Brian Wuebbels
Title: Authorized Officer
SUNEDISON CANADA, LLC,
as a Guarantor
By: /s/ Brian Wuebbels
Name: Brian Wuebbels
Title: Authorized Officer
SUNEDISON INTERNATIONAL, LLC,
as a Guarantor
By: /s/ Brian Wuebbels
Name: Brian Wuebbels
Title: Authorized Officer
FOTOWATIO RENEWABLE VENTURES, INC.,
as a Guarantor
By: /s/ Brian Wuebbels
Name: Brian Wuebbels
Title: Authorized Officer
SUNEDISON CONTRACTING, LLC,
as a Guarantor
By: /s/ Brian Wuebbels
Name: Brian Wuebbels
Title: Authorized Officer
NVT LICENSES, LLC,
as a Guarantor
By: /s/ Brian Wuebbels
Name: Brian Wuebbels
Title: Authorized Officer
TEAM-SOLAR, INC.,
as a Guarantor
By: /s/ Brian Wuebbels
Name: Brian Wuebbels
Title: Authorized Officer
SUNED - Exhibit 13 - 12.31.2014
Exhibit 13
Five Year Selected Financial Highlights
The following data has been derived from our annual consolidated financial statements, including the consolidated balance sheets and the related consolidated statements of operations, cash flows, and stockholders’ equity and the notes thereto. The information below should be read in conjunction with our consolidated financial statements and notes thereto including Note 2 related to significant accounting policies.
|
| | | | | | | | | | | | | | | | | | | |
| 2014 (1) | | 2013 (1) | | 2012 | | 2011(1) | | 2010 |
In millions, except per share and employment data | | | | | | | | | |
Statement of Operations Data: | | | | | | | | | |
Net sales(2) | $ | 2,484.4 |
| | $ | 2,007.6 |
| | $ | 2,529.9 |
| | $ | 2,715.5 |
| | $ | 2,239.2 |
|
Gross profit(2) | 221.9 |
| | 145.3 |
| | 335.6 |
| | 294.9 |
| | 337.1 |
|
Marketing and administration(3) | 566.0 |
| | 361.6 |
| | 302.2 |
| | 348.8 |
| | 255.1 |
|
Research and development | 61.7 |
| | 71.1 |
| | 71.8 |
| | 87.5 |
| | 55.6 |
|
Goodwill impairment charges | — |
| | — |
| | — |
| | 440.5 |
| | — |
|
Restructuring (reversals) charges | (8.3 | ) | | (10.8 | ) | | (83.5 | ) | | 350.7 |
| | 5.3 |
|
Loss (gain) on sales / receipt of property, plant and equipment | 4.7 |
| | — |
| | (31.7 | ) | | — |
| | — |
|
Long-lived asset impairment charges | 134.6 |
| | 37.0 |
| | 19.6 |
| | 367.9 |
| | — |
|
Operating
(loss) income | (536.8 | ) | | (313.6 | ) | | 57.2 |
| | (1,300.5 | ) | | 21.1 |
|
Non-operating expense(4) | 779.6 |
| | 278.2 |
| | 138.7 |
| | 83.6 |
| | 33.6 |
|
Net (loss) income attributable to SunEdison stockholders(5)(6)(7) | (1,180.4 | ) | | (586.7 | ) | | (150.6 | ) | | (1,536.0 | ) | | 34.4 |
|
Basic (loss) income per share | (4.40 | ) | | (2.46 | ) | | (0.66 | ) | | (6.68 | ) | | 0.15 |
|
Diluted (loss) income per share | (4.40 | ) | | (2.46 | ) | | (0.66 | ) | | (6.68 | ) | | 0.15 |
|
Balance Sheet Data: | | | | | | | | | |
Cash and cash equivalents | 943.7 |
| | 573.5 |
| | 553.8 |
| | 585.8 |
| | 707.3 |
|
Cash committed for construction projects | 130.7 |
| | 258.0 |
| | 27.8 |
| | — |
| | — |
|
Restricted cash | 270.5 |
| | 143.9 |
| | 113.6 |
| | 162.7 |
| | 62.5 |
|
Working capital | (357.1 | ) | | 495.7 |
| | 324.8 |
| | 449.0 |
| | 453.2 |
|
Total assets | 11,499.8 |
| | 6,680.5 |
| | 4,745.3 |
| | 4,881.6 |
| | 4,611.9 |
|
Debt | 7,199.4 |
| | 3,576.2 |
| | 2,368.3 |
| | 1,926.8 |
| | 682.7 |
|
Total SunEdison stockholders’ equity | 232.9 |
| | 232.2 |
| | 575.3 |
| | 737.9 |
| | 2,251.7 |
|
Other Data: | | | | | | | | | |
Capital expenditures | 229.6 |
| | 133.1 |
| | 139.0 |
| | 452.5 |
| | 352.0 |
|
Construction of solar energy systems | 1,511.0 |
| | 465.3 |
| | 346.9 |
| | 598.1 |
| | 280.1 |
|
Employees | 7,300 |
| | 6,300 |
| | 5,600 |
| | 6,400 |
| | 6,500 |
|
_________________________
| |
(1) | Includes the operating results of various acquisitions since their acquisition date. |
| |
(2) | Includes $25.0 million and $22.9 million, respectively, of revenue for the termination of the Tainergy and Gintech agreements recognized in 2013. Similarly, $37.1 million of revenue was recognized in 2012 for the Conergy termination and $175.7 million of revenue was recognized in 2011 for the Suntech contract resolution. |
| |
(3) | During the years ended December 31, 2014, 2013, 2012, and 2011 we recorded income of $2.9 million, charges of $5.6 million, charges of $12.8 million and income of $26.3 million, respectively, to adjust the fair value of contingent consideration. These adjustments were recorded as increases and reductions to marketing and administration expense. |
| |
(4) | Included in 2014 are a loss on convertible note derivatives of $499.4 million and a gain on our previously held equity interest in SMP of $145.7 million. Included in 2014 and 2013 is a gain on early extinguishment of debt of $9.6 million and a loss on early extinguishment of debt of $75.1 million, respectively. Additionally, (losses) gains of $(4.8) million, $(14.0) million, and $5.4 million were recorded to non-operating expense (income) in 2012, 2011 and 2010, respectively, due to mark-to-market adjustments related to a warrant received from Suntech. Included in 2014 is a $1.0 million impairment charge, compared to $3.2 million and $3.6 million of charges in 2013 and 2012, respectively, of investments accounted for under the cost method. |
| |
(5) | Includes $67.3 million of impairment charges in 2011 from our investment in two joint ventures. |
| |
(6) | Includes in 2014 a tax benefit for the reduction of the valuation allowance on certain deferred tax assets of $95.3 million, Includes in 2012 and 2011, a net income tax expense of $94.8 million and $368.5 million, respectively, for the net valuation change in deferred tax assets. |
| |
(7) | Included in 2013 is a net income tax expense of $9.6 million due to the closure of the Internal Revenue Service (“IRS”) examination for the 2007 through 2010 years. Included in 2010 is a net income tax benefit of $15.5 million resulting from conclusion of the IRS examination for the 2007 and 2006 years. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations
EXECUTIVE OVERVIEW
SunEdison is a major developer and seller of photovoltaic energy solutions, an owner and operator of clean power generation assets and a global leader in the development, manufacture and sale of silicon wafers to the semiconductor industry. We are one of the world’s leading developers of solar energy projects and, we believe, one of the most geographically diverse. Our technology leadership in silicon and downstream solar is enabling us to expand our customer base and lower our costs throughout the silicon supply chain.
The accompanying discussion and analysis of SunEdison includes the consolidated results of TerraForm Power, Inc. ("TerraForm") and SunEdison Semiconductor Ltd. ("SSL"), which are each separate SEC registrants. The results of TerraForm are reported as our TerraForm Power reportable segment, and the results of SSL are reported as our Semiconductor Materials reportable segment, as described in Note 21 to the accompanying consolidated financial statements. References to "SunEdison", "we", "our" or "us" within the accompanying discussion and analysis refer to the consolidated reporting entity.
During the year ended December 31, 2014, we continued execution of a strategic plan for the ongoing operation of our businesses designed to continue to improve our performance and address the challenges within our industries. Our business strategy is designed to address the most significant opportunities and challenges facing the company, including:
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• | Managing cash flow and mitigating liquidity risks in consideration of our plan to retain more solar energy projects on our balance sheet by evaluating the level of committed financing prior to commencement of solar project construction, decreasing our overall cost of capital through the formation of yield vehicles and other financial structures and managing the timing of expenditures for the construction of solar energy systems as compared to receipts from final sale or financing; |
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• | Optimizing solar project pipeline development and achieving future growth in solar systems sales globally and across all platforms; |
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• | Growing our portfolio of clean power generation assets and cash available for distribution in order to increase the dividends paid by TerraForm; |
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• | Focusing on semiconductor operating cash flows and further streamlining those operations. |
Recent Events
On January 29, 2015, SunEdison and TerraForm completed the acquisition of First Wind Holdings LLC ("First Wind") for total consideration of $2.4 billion, which included $1.9 billion in upfront consideration and $510 million in earnout payments. First Wind is one of the leading developers, owners and operators of wind projects in the U.S. We purchased the equity interests of First Wind and certain of its subsidiaries, thereby acquiring a leading wind development and asset management platform. TerraForm purchased 500 MW of operating wind power plants and 21 MW of operating solar power plants from First Wind. The acquisition provides us with an additional 8 GW of development-stage projects, of which 1.0 GW consists of production tax credit ("PTC") eligible wind project pipeline and backlog, and 0.6 GW of solar project pipeline and backlog. In December 2014, we have secured wind turbines that increase the number of PTC-eligible wind projects from 1.0 GW to 2.6 GW.
On January 29, 2015, we issued $410.0 million in term loans which mature on January 29, 2017 under a margin loan agreement. The net proceeds of the term loans, less certain expenses, were used to fund a portion of the consideration for the acquisition of First Wind.
On January 28, 2015, TerraForm issued $800.0 million in senior notes due 2023 in a private placement offering. TerraForm used the net proceeds from the offering to fund a portion of the acquisition of certain power generation assets from First Wind and to refinance existing indebtedness.
On January 27, 2015, we issued $460.0 million in 2.375% convertible senior notes due 2022 in a private placement offering and paid $37.6 million to enter into related capped call transactions. We used the net proceeds from this offering to fund a portion of the consideration for the acquisition of First Wind and to repay all or a portion of indebtedness incurred to purchase 1.6 GW of production tax credit qualified turbines. We intend to use the remaining net proceeds to fund working capital, accelerate growth of the business and for other general corporate purposes.
On January 22, 2015, TerraForm completed a follow-on offering of 13,800,000 shares of its Class A common stock at a price to the public of $29.33 per share for total proceeds of $404.8 million. TerraForm used the net proceeds from the offering to fund a portion of the acquisition of certain power generation assets from First Wind.
On January 20, 2015, an underwritten secondary offering of 17,250,000 ordinary shares of SSL was closed at a price of $15.19 per share. We sold 12,951,347 of SSL’s ordinary shares held by us in the offering. We used the net proceeds from this offering to fund a portion of the consideration for the acquisition of First Wind.
On November 26, 2014, TerraForm completed the sale 11,666,667 shares of Class A common stock in a private placement offering at a price of $30.00 per share for total proceeds of $350.0 million. TerraForm used the net proceeds from the offering to fund a portion of the acquisition of certain power generation assets from First Wind and to refinance existing indebtedness.
On September 29, 2014, we announced our plan to monetize certain of our solar generation assets located in emerging markets by aggregating them under a dividend growth-oriented subsidiary ("SunEdison Emerging Markets Yield, Inc.”, or “EM Yieldco") and divesting an interest in EM Yieldco through an initial public offering (the "proposed EM Yieldco IPO"). EM Yieldco would initially own solar generation assets located in India, Malaysia and South Africa. We expect that we would retain majority ownership of EM Yieldco, and would provide specified support services to EM Yieldco based on terms that have not yet been determined. We submitted on a confidential basis a registration statement on September 29, 2014 with the SEC with respect to the proposed EM Yieldco IPO. The completion of the proposed EM Yieldco IPO and related transactions are subject to numerous conditions, including market conditions, approval by our Board of Directors of the terms of the proposed EM Yieldco IPO and receipt of all regulatory approvals, including the effectiveness of the registration statement that has been submitted to the SEC.
On July 23, 2014, we completed the underwritten initial public offering of 23,074,750 Class A shares of TerraForm, our yieldco subsidiary. The shares of TerraForm began trading on the NASDAQ Global Select Market on July 18, 2014 under the ticker symbol “TERP.” We believe this structure will allow us to capture additional retained value from our solar energy projects and to secure lower cost of capital.
On May 28, 2014, we completed the underwritten initial public offering of 8,280,000 ordinary shares of SSL, our semiconductor materials business (the "SSL IPO"). The shares of SSL began trading on the NASDAQ Global Select Market on May 22, 2014 under the ticker symbol “SEMI.” We believe this structure will allow each independent company to pursue its own strategies, focus on its key markets and customers, optimize its capital structure and enhance its access to capital in the future.
Segment Results
Effective July 23, 2014, as of the completion of the TerraForm IPO, we have identified TerraForm as a reportable segment and our results on a segment basis are reported accordingly.
Effective January 1, 2014, in contemplation of the SSL IPO, we made the following changes in our internal financial reporting in order to align our reporting with the organizational and management structure established to manage the Semiconductor Materials segment as a standalone SEC registrant:
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• | Reclassification of certain corporate costs and expenses. Prior to January 1, 2014, costs and expenses related to certain research and development and marketing activities were not allocated to the Solar Energy or Semiconductor Materials segments. These costs, as well as general corporate marketing and administrative costs, substantially all of our stock compensation expense, research and development administration costs, legal professional services and related costs, and other items were not directly attributable nor evaluated by segment and thus were included in a "Corporate and other" caption in our disclosures of financial information by reportable segment. Effective January 1, 2014, these costs and expenses have been specifically identified with the Solar Energy or Semiconductor Materials segments, and our internal financial reporting structure has been revised to reflect the results of the Solar Energy and Semiconductor Materials segments on this basis. |
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• | Reclassification of the results for the company's polysilicon operations in Merano, Italy from the Solar Energy segment to the Semiconductor Materials segment. Prior to January 1, 2014, the Merano polysilicon operations were included in the results of the Solar Energy segment. Upon the effective date of the SSL IPO, the Merano polysilicon operations were transferred to the Semiconductor Materials segment. Thus, effective January 1, 2014, the Merano polysilicon operations have been managed by the management of the Semiconductor Materials segment, and the results of the Merano polysilicon operations have been reported on this basis in our internal financial reporting. |
As a result of these changes to our internal financial reporting structure, we determined that such changes should also be reflected in the reportable segments data disclosed in our consolidated financial statements, in accordance with FASB ASC Topic 280, Segment Reporting.
Solar Energy Segment
During the year ended December 31, 2014, Solar Energy segment revenues were recognized for sales of 49 solar energy systems and other solar products totaling 325 megawatts ("MW"). Additionally, during the year ended December 31, 2014, 783 MW of additional projects were constructed and held on the balance sheet. As of December 31, 2014, we have 467 MW of solar projects under construction compared to 504 MW as of December 31, 2013. Our projects currently under construction are predominately located in Honduras, India, Chile, Canada, the United Kingdom and the United States.
The following table summarizes our individually significant projects under construction as of December 31, 2014, which are expected to be completed within the next six months. The remaining 267 MW in projects under construction are not individually material in size and vary in stages of construction and jurisdictions.
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| | | |
Project | Location | Rated Capacity (MW)1 | PPA Counterparty |
Project A | Chile | 70 | Antofagasta PLC |
Project B | India | 39 | Solar Energy Corporation of India |
Project C | Honduras | 35 | Empresa Nacional de Energía Eléctrica |
Project D | U.K. | 30 | Statkraft Markets GMBH |
Project E | United States | 26 | Southern California Edison |
1 Rated capacity is the expected maximum output a solar energy system can produce without exceeding its design limits.
We continue to evaluate project development opportunities globally. We have a project pipeline of approximately 5.1 GW as of December 31, 2014, representing a 1.7 GW increase from the 3.4 GW of project pipeline as of December 31, 2013. Approximately 2.6 GW of our 5.1 GW project pipeline represents project backlog, which includes projects that are either currently under construction or for which we have an executed PPA ("power purchase agreement") or other energy off-take agreement such as a FiT ("feed-in tariff"). Our project backlog by region as of December 31, 2014 is as follows:
|
| | |
Region | Percentage of Total Backlog |
United States | 49 | % |
Europe, the Middle East and Latin America | 35 | % |
Emerging Markets | 14 | % |
Canada | 2 | % |
Total | 100 | % |
TerraForm Power Segment
TerraForm Power segment net sales increased for the year ended December 31, 2014, compared to the same period in 2013, primarily due to energy and incentive revenue associated with operating projects acquired and projects which achieved commercial operations subsequent to December 31, 2013. Megawatt hours sold increased from 60,176 for the year ended December 31, 2013, to 722,411 for the year ended December 31, 2014. Megawatt hours sold refers to the actual volume of electricity generated and sold by the TerraForm Power segment during a particular period.
TerraForm's current portfolio consists of solar projects located in the Unites States, Puerto Rico, Canada, the United Kingdom and Chile with total nameplate capacity (rated capacity adjusted for TerraForm's economic interest) of 928 MW. All of TerraForm's projects have long-term PPAs with a weighted average (based on MW) remaining life of 21 years as of December 31, 2014.
Semiconductor Materials Segment
Net sales in our Semiconductor Materials segment decreased for the year ended December 31, 2014, as compared to the same period in 2013, primarily due to semiconductor wafer price decreases. Market conditions remain challenging due to the competitive landscape and the existence of overcapacity in the industry. These challenges were offset in part by a more favorable product mix, more favorable polysilicon costs and continued focus on manufacturing cost reductions. These cost reductions increased gross margin year over year by 50 basis points. Gross margins were also benefited by improved operating cash flow management, manufacturing cost reductions, optimization of factory utilization, and continued sales growth in higher margin products such as silicon-on-insulator ("SOI") wafers.
RESULTS OF OPERATIONS
Net Sales
Net sales by segment for the years ended December 31, 2014, 2013 and 2012 were as follows:
|
| | | | | | | | | | | | |
| | For the year ended December 31, |
In millions | | 2014 | | 2013 | | 2012 |
Solar Energy | | $ | 1,594.3 |
| | $ | 1,204.3 |
| | $ | 1,731.4 |
|
TerraForm Power | | 125.9 |
| | 17.5 |
| | 15.7 |
|
Semiconductor Materials | | 840.1 |
| | 920.6 |
| | 934.2 |
|
Intersegment eliminations | | (75.9 | ) | | (134.8 | ) | | (151.4 | ) |
Consolidated net sales | | $ | 2,484.4 |
| | $ | 2,007.6 |
| | $ | 2,529.9 |
|
Solar Energy
2014 vs. 2013
Solar Energy segment net sales increased $390.0 million in 2014 as compared to 2013. Net sales of solar energy systems increased $291.2 million due to higher sales volumes and an increase in the recognition of previously deferred revenue, partially offset by a decrease in average selling price. Net sales to residential and small commercial customers increased $57.2 million in 2014 as compared to 2013 due to the acquisition of Energy Matters during the third quarter and other growth initiatives. Solar energy system sales totaled 325 MW in 2014 as compared to 153 MW in 2013, and average selling prices decreased from $2.93 in 2013 to $2.56 in 2014. Net sales from energy production increased $76.5 million in 2014 as compared to 2013 due to our strategic decision to retain ownership of certain solar energy systems we develop. Net sales of solar materials increased by $12.8 million in 2014 as compared to 2013 due to higher average sales prices as a result of a favorable product mix due to an increase in mono wafer sales.
2013 vs. 2012
Solar Energy segment net sales decreased $527.1 million in 2013 as compared to 2012. Net sales of solar energy systems decreased $525.6 million primarily due to our strategic decision to retain ownership of certain solar energy systems we developed in preparation for the TerraForm IPO versus selling to third parties. Solar energy system sales totaled 153 MW in 2013 as compared to 292 MW during 2012. In addition, sales of solar energy systems decreased due to lower average selling price driven by an unfavorable sales mix. In 2012, approximately 95% of the solar energy project revenue was related to sales of fully developed solar energy systems, whereas in 2013, approximately 25% of the solar energy project new sales were related to engineering, procurement and construction ("EPC") solar energy system revenue. EPC solar energy system sales per watt are generally lower than fully developed solar system project sales per watt because we are not directly involved in every phase of the system's design, financing and development. This change in mix resulted in a decrease in average selling price of approximately $0.43 per watt in 2013 as compared to 2012. Decreases in net sales of solar energy systems were partially offset by increases in net sales of solar materials. Solar materials net sales in 2013 included $22.9 million related to revenue recognized as part of the termination of the long-term solar wafer supply contract with Gintech and $25.0 million related to revenue recognized as part of the amendment of the long-term solar wafer supply contract with Tainergy. Solar materials net sales in 2012 included $37.5 million in revenue recognized in 2012 for the termination of the long-term solar wafer supply contract with Conergy.
TerraForm Power
2014 vs. 2013
TerraForm Power segment net sales increased $108.4 million for the year ended December 31, 2014, compared to the same period in 2013, primarily due to energy and incentive revenue associated with operating projects acquired and projects which achieved commercial operations subsequent to December 31, 2013. Megawatt hours sold increased from 60,176 for the year ended December 31, 2013, to 722,411 for the year ended December 31, 2014.
2013 vs. 2012
TerraForm Power segment net sales increased $1.8 million for the year ended December 31, 2013, compared to the same period in 2012, primarily due to energy and incentive revenue associated with operating projects acquired and projects which achieved commercial operations subsequent to December 31, 2012. Megawatt hours sold increased from 52,325 for the year ended December 31, 2012, to 60,176 for the year ended December 31, 2013.
Semiconductor Materials
2014 vs. 2013
Semiconductor Materials segment net sales decreased for the year ended December 31, 2014, compared to the year ended December 31, 2013, primarily due to semiconductor wafer price decreases, only partially offset by volume increases. The decreases were the result of competitive pressures arising from softness in the semiconductor industry. Average selling price decreases occurred primarily in 200mm and 300mm semiconductor wafers.
2013 vs. 2012
Semiconductor Materials segment net sales decreased for the year ended December 31, 2013, compared to the year ended December 31, 2012, primarily due to semiconductor wafer price decreases driven by softness in the semiconductor industry and a less favorable product mix, offset in large part by volume increases. Unit volume increased across all wafer diameters as a result of increased sales to certain existing customers and improved market demand. Average selling price decreases occurred primarily with 300mm semiconductor wafers due to a competitive market environment, overcapacity, and the weakening of the Japanese Yen, which lowered the relative prices charged by Japanese semiconductor wafer manufacturers in markets outside Japan.
Gross Profit and Gross Margin
Gross profit and gross margin by segment for the years ended December 31, 2014, 2013 and 2012 were as follows:
|
| | | | | | | | | | | | | | | | | | |
| | For the year ended December 31, |
In Millions | | 2014 | | 2013 | | 2012 |
Solar Energy | | $ | 82.4 |
| 5.2 | % | | $ | 54.7 |
| 4.5 | % | | $ | 243.8 |
| 14.1 | % |
TerraForm Power | | 60.5 |
| 48.1 | % | | 8.9 |
| 50.9 | % | | 10.0 |
| 63.7 | % |
Semiconductor Materials | | 79.0 |
| 9.4 | % | | 81.7 |
| 8.9 | % | | 81.8 |
| 8.8 | % |
Total Gross Profit | | $ | 221.9 |
| 8.9 | % | | $ | 145.3 |
| 7.2 | % | | $ | 335.6 |
| 13.3 | % |
Solar Energy
2014 vs. 2013
Solar Energy segment gross profit increased $27.7 million in 2014 as compared to 2013 primarily due to cost reduction initiatives and an improved sales mix. Gross profit in 2013 was negatively impacted by lower sales of fully developed solar energy systems, $18.5 million of lower of cost or market charges and intangible asset impairment charges of $10.2 million. Offsetting these items in 2013 were the $25.0 million of revenue recognized on the Tainergy contract amendment, $22.9 million of revenue recognized related to a contract termination with Gintech. In addition, $32.3 million of revenue was recognized from profit deferrals for power guarantees that expired during 2013 versus $59.3 million in 2014.
2013 vs. 2012
Solar Energy segment gross profit decreased $189.1 million in 2013 as compared to 2012. Gross profit in 2013 was negatively impacted by lower sales of fully developed solar energy systems, $18.5 million of lower of cost or market charges and intangible asset impairment charges of $10.2 million. Offsetting these items in 2013 were the $25.0 million of revenue recognized on the Tainergy contract amendment, $22.9 million of revenue recognized related to a contract termination with Gintech and $32.3 million of revenue recognized from profit deferrals for power guarantees that expired during 2013. Solar Energy segment gross profit in 2012 was positively impacted by the $37.1 million of revenue on the Conergy termination and $54.4 million of revenue recognized related to profit deferrals for a power guarantee that expired for a 70 MW project in Italy that was sold in the fourth quarter of 2010.
TerraForm Power
2014 vs. 2013
TerraForm Power segment gross profit increased $51.6 million in 2014 as compared to 2013 due primarily to higher net sales volumes. Gross margins in 2014 were 48.1% as compared to 50.9% in 2013 due to higher costs of operations driven by new solar generation facilities commencing operation and increased operation costs resulting from 2014 acquisitions.
2013 vs. 2012
TerraForm Power segment gross profit decreased $1.1 million due primarily to higher net sales volumes offset by declines in margin due to increased operational and maintenance expenses related to a portfolio acquired during 2013.
Semiconductor Materials
2014 vs. 2013
Semiconductor Materials segment gross profit decreased for the year ended December 31, 2014, compared to the same period of 2013. The decrease was primarily the result of lower average selling prices for wafers, which was mostly offset by more favorable polysilicon costs and continued manufacturing cost reductions. Lower polysilicon costs resulted from a change in the average effective selling price for polysilicon supplied by the Solar Energy segment to the Semiconductor Materials segment from $55 per kilogram to $30 per kilogram which was effective January 1, 2014. As a result of more favorable polysilicon costs and continued focus on manufacturing cost reductions, gross margins increased for the year ended December 31, 2014, compared to the prior year.
2013 vs. 2012
Semiconductor Materials segment gross margin decreased for the year ended December 31, 2013 compared to the same period of 2012, primarily due to lower average selling prices for wafers, partially offset by reduced unit costs on higher product volume, improved operational efficiencies and continued focus on manufacturing cost reductions.
Operating Expenses
Marketing & Administration
Marketing and administration expense by segment for the years ended December 31, 2014, 2013 and 2012 was as follows:
|
| | | | | | | | | | | | |
| | For the year ended December 31, |
In millions | | 2014 | | 2013 | | 2012 |
Solar Energy | | $ | 427.9 |
| | $ | 252.7 |
| | $ | 196.8 |
|
As a percentage of net sales | | 26.8 | % | | 21.0 | % | | 11.4 | % |
TerraForm Power | | 53.3 |
| | 3.8 |
| | 4.7 |
|
As a percentage of net sales | | 42.3 | % | | 21.7 | % | | 29.9 | % |
Semiconductor Materials | | 84.8 |
| | 105.1 |
| | 100.7 |
|
As a percentage of net sales | | 10.1 | % | | 11.4 | % | | 10.8 | % |
Total Marketing & Administration | | $ | 566.0 |
| | $ | 361.6 |
| | $ | 302.2 |
|
As a percentage of net sales | | 22.8 | % | | 18.0 | % | | 11.9 | % |
Solar Energy
2014 vs. 2013
Solar Energy segment marketing and administrative expense increased from $252.7 million for the year ended December 31, 2013 to $427.9 million for the same period in 2014. This increase was due to increases in Solar Energy segment staffing and certain expenses and non-capitalizable costs incurred in connection with the SSL IPO, the TerraForm IPO, the proposed EM Yieldco IPO, acquisitions, including the First Wind acquisition, and other growth initiatives.
2013 vs. 2012
Solar Energy segment marketing and administrative expense increased $54.1 million in 2013 as compared to 2012. This increase was due to increases in staffing, higher expenses related to growth initiatives, and non-capitalizable costs incurred in connection with the preparation for the SSL and TerraForm IPOs and an unfavorable adjustment of $5.6 million to adjust the fair value of contingent consideration.
TerraForm Power
2014 vs. 2013
TerraForm Power segment marketing and administration expenses increased by $49.5 million from the year ended December 31, 2013 as compared to the year ended December 31, 2014 primarily due to additional costs incurred as a result of an increase in operational projects and nameplate capacity resulting from additional projects that achieved commercial operations, Call Rights acquisitions, and third party acquisitions compared to the prior year period. In addition, the TerraForm Power segment incurred $14.9 million in acquisition costs during the year ended December 31, 2014. No such costs were incurred in 2013.
2013 vs. 2012
TerraForm Power segment marketing and administration expenses slightly decreased from the year ended December 31, 2013 as compared to the same period in 2012.
Semiconductor Materials
2014 vs. 2013
Semiconductor Materials segment marketing and administration expenses decreased for the year ended December 31, 2014, compared to the prior year period, primarily as a result of lower administration expenses that were incurred as a stand-alone public company in comparison to the historical structure prior to the SSL IPO, which included expenses of SunEdison that were allocated to Semiconductor Materials for certain general corporate and administrative functions.
2013 vs. 2012
Semiconductor Materials segment marketing and administration expenses increased for the year ended December 31, 2013 compared to the prior year primarily due to $4.0 million in insurance recoveries related to the earthquake and tsunami in Japan which reduced marketing and administration expense in 2012. There were no similar insurance recoveries during the year ended December 31, 2013.
Research & Development
Research and development expense by segment for the years ended December 31, 2014, 2013 and 2012 was as follows:
|
| | | | | | | | | | | | |
| | For the year ended December 31, |
In millions | | 2014 | | 2013 | | 2012 |
Solar Energy | | $ | 26.9 |
| | $ | 34.1 |
| | $ | 38.4 |
|
As a percentage of net sales | | 1.7 | % | | 2.8 | % | | 2.2 | % |
Semiconductor Materials | | 34.8 |
| | 37.0 |
| | 33.4 |
|
As a percentage of net sales | | 4.1 | % | | 4.0 | % | | 3.6 | % |
Total Research & Development | | $ | 61.7 |
| | $ | 71.1 |
| | $ | 71.8 |
|
As a percentage of net sales | | 2.5 | % | | 3.5 | % | | 2.8 | % |
Solar Energy
2014 vs. 2013
Research and development ("R&D") expenses within the Solar Energy segment consist mainly of product and process development efforts. Since 2012, the Solar Energy segment's R&D expenses have trended lower due to restructuring actions taken in 2011 primarily with the solar materials operations and other related headcount reductions.
2013 vs. 2012
Solar Energy segment R&D expenses decreased for the year ended December 31, 2013 compared to the same period in 2012 due to restructuring actions taken in 2011.
Semiconductor Materials
2014 vs. 2013
Semiconductor Materials segment R&D expenses decreased for the year ended December 31, 2014, as compared to the prior year, primarily as a result of the decision to consolidate the semiconductor crystal operations. This decrease was partially offset by increased spending to enhance the segment's capabilities in advanced substrates and broaden its product offerings.
2013 vs. 2012
Semiconductor Materials segment R&D expenses increased for the year ended December 31, 2013, as compared to the prior year, primarily due to spending to enhance the segment's capabilities in advanced substrates and to broaden our product offerings. This increase in R&D spending primarily related to hiring additional engineers and purchasing test equipment to support advancing crystal capabilities in support of customer requirements, especially on larger diameter products.
Restructuring (Reversals) Charges
Restructuring (reversals) charges for the years ended December 31, 2014, 2013 and 2012 were as follows:
|
| | | | | | | | | | | | |
| | For the year ended December 31, |
In millions | | 2014 | | 2013 | | 2012 |
Restructuring (Reversals) Charges | | $ | (8.3 | ) | | $ | (10.8 | ) | | $ | (83.5 | ) |
As a percentage of net sales | | (0.3 | )% | | (0.5 | )% | | (3.3 | )% |
2014 vs. 2013
Semiconductor Materials recorded restructuring reversals for the year ended December 31, 2014 due to $12.0 million of severance reversals related to the sale of its Merano, Italy polysilicon and chlorosilanes facilities because the buyer has assumed legal responsibility for those employees and $2.5 million of other net favorable revisions to its estimated restructuring liabilities. These restructuring reversals were partially offset by approximately $3.5 million of restructuring expenses related to Semiconductor Materials' plan to consolidate its semiconductor crystal operations that was announced in February 2014 and $2.5 million of severance expense related to the Semiconductor's fourth quarter workforce reduction plan that was announced in December 2014.
2013 vs. 2012
Semiconductor Materials recorded $12.1 million of other net favorable revisions to their estimated restructuring liabilities, primarily due to the settlement of certain contractual obligations and changes in estimates related to the restructuring actions associated with the 2011 Global Plan (see Note 13 to the accompanying consolidated financial statements). Semiconductor Materials recognized restructuring reversals for the year ended December 31, 2012 as a result of a settlement agreement with Evonik Industries AG and Evonik Degussa Spa ("Evonik"), one of our suppliers, which resulted in $65.8 million of income within restructuring charges. In addition, Semiconductor Materials recognized $8.1 million of other net favorable revisions to their estimated restructuring liabilities based on actual results differing from our previous estimates.
Loss (Gain) on Sale / Receipt of Property, Plant and Equipment
Loss (gain) on sale / receipt of property, plant and equipment for the years ended December 31, 2014, 2013 and 2012 was as follows:
|
| | | | | | | | | | | | |
| | For the year ended December 31, |
In millions | | 2014 | | 2013 | | 2012 |
Loss (Gain) on Receipt of Property, Plant and Equipment | | $ | 4.7 |
| | $ | — |
| | $ | (31.7 | ) |
As a percentage of net sales | | 0.2 | % | | — | % | | (1.3 | )% |
Semiconductor Materials
2014 vs. 2013
The Semiconductor Materials segment recognized a $4.7 million loss on sale of property, plant and equipment for the year ended December 31, 2014 related to the sale of the Merano, Italy polysilicon and chlorosilanes facilities. No similar amounts were recorded for the year ended December 31, 2013.
2013 vs. 2012
The Semiconductor Materials segment obtained title to the Merano, Italy chlorosilanes plant as part of the settlement with Evonik, which resulted in the recognition of a gain of $31.7 million in 2012. No similar amounts were recorded in 2013. The chlorosilanes plant was determined to be impaired in 2013 as discussed below.
Long-lived Asset Impairment Charges
Long-lived asset impairment charges by segment for the years ended December 31, 2014, 2013 and 2012 were as follows:
|
| | | | | | | | | | | | |
| | For the year ended December 31, |
In millions | | 2014 | | 2013 | | 2012 |
Solar Energy | | $ | 75.2 |
| | $ | 3.4 |
| | $ | 18.1 |
|
As a percentage of net sales | | 4.7 | % | | 0.3 | % | | 1.0 | % |
Semiconductor Materials | | 59.4 |
| | 33.6 |
| | 1.5 |
|
As a percentage of net sales | | 7.1 | % | | 3.6 | % | | 0.2 | % |
Total Long-lived Asset Impairment Charges | | 134.6 |
| | 37.0 |
| | 19.6 |
|
As a percentage of net sales | | 5.4 | % | | 1.8 | % | | 0.8 | % |
Solar Energy
2014 vs. 2013
During the year ended December 31, 2014, the Solar Energy segment recognized long-lived asset impairment charges of $75.2 million compared to $3.4 million during the same period of 2013. Charges in 2014 resulted from the impairment of certain multicrystalline solar wafer manufacturing equipment due to market indications that fair value was less than carrying value, the impairment of certain solar module manufacturing equipment following the termination of a long-term lease arrangement with one of our suppliers and the impairment of power plant development arrangement intangible assets and work in process related to certain solar projects
2013 vs. 2012
Impairment charges for the Solar Energy segment in 2012 relate to an impairment charge taken on our solar wafer assets due to the market downturn and significant price declines. The 2013 impairment charges related to the determination to close the Merano, Italy facility. In the year ended December 31, 2013, we incurred a total impairment charge of $37.0 related to the closure of the Merano facility, of which $3.4 million related to the Solar Energy segment.
Semiconductor Materials
2014 vs. 2013
The Semiconductor Materials segment recognized asset impairment charges of $59.4 million for the year ended December 31, 2014, of which approximately $57.3 million relates to the assets at the Merano, Italy polysilicon and chlorosilanes facilities to write down these assets in the third quarter to their current estimated fair value, which was based on offers from potential buyers that were received in the third quarter. The Merano, Italy polysilicon and chlorosilanes facilities were sold in the fourth quarter of 2014.
2013 vs. 2012
Semiconductor Materials segment management concluded an analysis in the fourth quarter of 2013, as to whether to restart the Merano, Italy polysilicon facility and determined that, based on recent developments and current market conditions, restarting the facility was not aligned with the segment's business strategy. Accordingly, it was decided to indefinitely close that facility and the related chlorosilanes facility obtained from Evonik during 2013. Approximately $33.6 million of noncash impairment charges was recorded to write down these assets to their current estimated salvage value. The recorded asset impairment charges of $1.5 million for the year ended December 31, 2012 primarily related to the impairment of capitalized software that was no longer in use.
Non-operating Expenses (Income)
Interest Expense
Interest expense by segment for the years ended December 31, 2014, 2013 and 2012 was as follows:
|
| | | | | | | | | | | | |
| | For the year ended December 31, |
In millions | | 2014 | | 2013 | | 2012 |
Solar Energy | | $ | 316.5 |
| | $ | 186.2 |
| | $ | 130.8 |
|
As a percentage of net sales | | 19.9 | % | | 15.5 | % | | 7.6 | % |
TerraForm Power | | 84.4 |
| | 6.3 |
| | 5.7 |
|
As a percentage of net sales | | 67.0 | % | | 36.0 | % | | 36.3 | % |
Semiconductor Materials | | 9.2 |
| | 0.8 |
| | 1.0 |
|
As a percentage of net sales | | 1.1 | % | | 0.1 | % | | 0.1 | % |
Intersegment eliminations | | (0.1 | ) | | (4.1 | ) | | (2.2 | ) |
As a percentage of net sales | | 0.1 | % | | 3.0 | % | | 1.5 | % |
Total Interest Expense | | $ | 410.0 |
| | $ | 189.2 |
| | $ | 135.3 |
|
As a percentage of net sales | | 16.5 | % | | 9.4 | % | | 5.3 | % |
Solar Energy
2014 vs. 2013
The Solar Energy segment incurred $316.5 million in interest expense for the year ended December 31, 2014 compared to $186.2 million in the comparable period of 2013. Interest expense related to our debt and capital leases for solar energy systems was the primary driver for the increases totaling $101.5 million. This increase is driven by the higher debt levels necessary to fund the development of our project pipeline. In addition, due to the senior convertible notes due 2018, 2020 and 2021 we incurred a total of $97.7 million in interest expense in 2014 pertaining to amortization of the deferred financing fees, amortization of the debt discount and interest expense compared to $90.1 million in expense in 2013 for similar debt instruments. Also, we incurred $33.4 million in interest expense in 2014 due to the acquired debt through the SRP acquisition and $7.4 million in expense in 2014 related to the First Wind Bridge Credit Facility entered into on November 17, 2014.
2013 vs. 2012
Solar Energy segment interest expense increased from $130.8 million for the year ended December 31, 2012 to $186.2 million for the same period in 2013. Of this increase of $55.4 million, $24.0 million is related to the debt and capital leases for solar energy systems. Another $28 million consists of commitment fees, amortization of deferred financing fees, amortization of the debt discount, interest expense and other nonrecurring fees related to the 2018 and 2021 notes.
TerraForm Power
2014 vs. 2013
TerraForm Power segment interest expense for the year ended December 31, 2014 increased by $78.1 million compared to the year ended December 31, 2013, primarily due to increased indebtedness related to acquisitions, financing lease arrangements and borrowings under the TerraForm's term loan, which resulted in higher interest expense compared to the same period in 2013. In addition, the amortization of fees included in interest expense increased $27.5 million primarily due to deferred fees associated with the bridge facility, which was repaid upon completion of the TerraForm IPO.
2013 vs. 2012
TerraForm Power interest expense increased by $0.6 million from the year ended December 31, 2013 when compared to the same period in 2012 primarily due to the acquisition of certain levered projects.
Semiconductor Materials
2014 vs. 2013
Semiconductor Material segment interest expense increased $8.4 million for the year ended December 31, 2014 compared to the same period in 2013 due to the interest expense related to the $210.0 million senior secured term facility and $50.0 million senior secured revolving facility executed on May 27, 2014. Prior to the SSL IPO, substantially all debt was held by SunEdison, Inc.
2013 vs. 2012
Semiconductor Material segment interest expense decreased slightly for the year ended December 31, 2013 compared to the same period in 2012 due to lower outstanding debt levels.
Interest Income
Interest income for the years ended December 31, 2014, 2013 and 2012 was as follows:
|
| | | | | | | | | | | | |
| | For the year ended December 31, |
In millions | | 2014 | | 2013 | | 2012 |
Interest Income | | $ | (13.7 | ) | | $ | (6.5 | ) | | $ | (3.6 | ) |
As a percentage of net sales | | (0.6 | )% | | (0.3 | )% | | (0.1 | )% |
2014 vs. 2013
Increase in interest income of $7.2 million was primarily due to interest income recognized by SRP, an acquired entity in 2014 and higher levels of interest income earned on higher restricted cash balances.
2013 vs. 2012
Increase in interest income of $2.9 million was due to higher levels of interest income earned on higher restricted cash balances.
(Gain) Loss on Early Extinguishment of Debt
(Gain) loss on extinguishment of debt for the years ended December 31, 2014, 2013 and 2012 was as follows:
|
| | | | | | | | | | | | |
| | For the year ended December 31, |
In millions | | 2014 | | 2013 | | 2012 |
Total loss on early extinguishment of debt | | $ | (9.6 | ) | | $ | 75.1 |
| | $ | — |
|
As a percentage of net sales | | (0.4 | )% | | 3.7 | % | | — | % |
2014 vs. 2013
The TerraForm Power segment incurred a net gain on the extinguishment of debt of $9.6 million for the year ended December 31, 2014, primarily due to the termination of financing lease obligations upon acquiring the lessor interest in certain assets and defeasance of debt obligations related to certain projects in the U.S.
2013 vs. 2012
In 2013, we completed the redemption of the $550.0 million outstanding aggregate principal amount of the 7.75% senior notes due 2019 and the $200.0 million second lien term loan with an interest rate of 10.75%. As a result of these redemptions, the Solar Energy segment recognized a loss on extinguishment of debt of $75.1 million for the year ended December 31, 2013, which was comprised of pre-payment premiums and other non-capitalizable costs totaling $52.4 million and the write off of unamortized deferred loan cost and unamortized debt discount totaling $22.7 million.
Other Expense
Other expense, net for the years ended December 31, 2014, 2013 and 2012 was as follows:
|
| | | | | | | | | | | | |
| | For the year ended December 31, |
In millions | | 2014 | | 2013 | | 2012 |
Total other, net | | $ | 39.2 |
| | $ | 20.4 |
| | $ | 7.0 |
|
As a percentage of net sales | | 1.6 | % | | 1.0 | % | | 0.3 | % |
Total other expense primarily is driven by foreign exchange transaction and translation losses. The increase in expense reported for the year ended December 31, 2014 compared to the same period in 2013, is predominately driven by foreign exchange transaction losses recorded by TerraForm Power.
Income Tax (Benefit) Expense
Income tax (benefit) expense for the years ended December 31, 2014, 2013 and 2012 was as follows:
|
| | | | | | | | | | | | |
| | For the year ended December 31, |
In millions | | 2014 | | 2013 | | 2012 |
Income tax (benefit) expense | | $ | (36.0 | ) | | $ | 27.8 |
| | $ | 64.9 |
|
Income Tax Rate as a % of Loss Before Income Taxes
| | 2.7 | % | | (4.7 | )% | | (79.6 | )% |
For the year ended December 31, 2014, we recorded an income tax benefit of $(36.0) million and an effective tax rate of 2.7% compared to an income tax expense of $27.8 million and an effective tax rate of (4.7)% for the year ended December 31, 2013.
The 2014 net income tax benefit is primarily attributable to (i) the tax expense recognized at various rates in certain foreign jurisdictions which generate taxable income, (ii) a taxable gain recognized in stockholders' equity utilizing tax attributes that were previously offset with a valuation allowance, and thus as a result of intraperiod tax allocation, the tax benefit related to the reduction in the valuation allowance was recognized in continuing operations of $36.5 million, (iii) a tax benefit for the reduction of the valuation allowance on certain deferred tax assets of $95.3 million due to the ability to realize those benefits in the future offset by $62.7 million of tax expense associated with the favorable settlement of a polysilicon supply agreement between subsidiaries, (iv) tax expense associated with an increase of $7.5 million to the reserve for uncertain tax positions, and (v) a tax benefit for the establishment of deferred taxes related to certain convertible note transactions.
The 2013 net income tax expense is primarily attributable to the tax expense recognized at various rates in certain foreign jurisdictions which generate taxable income, charges recognized to establish valuation allowance on certain deferred tax assets due to the likely inability to realize a benefit for certain future tax deductions and a net expense of $9.6 million due to the closure of the Internal Revenue Service (“IRS”) examination as discussed below.
The 2012 net income tax expense is primarily the result of a release of valuation allowances in certain foreign jurisdictions offset against the tax effect of the worldwide operational earnings mix at various rates, an increase to the accrued liability for uncertain tax positions and impacts due to the IRS exam.
Certain of our subsidiaries have been granted a concessionary tax rate of 0% on all qualifying income for a period of up to five to ten years based on investments in certain plant and equipment and other development and expansion activities, resulting in tax benefits for 2014, 2013 and 2012 of approximately $0.4 million, $2.2 million and $4.6 million, respectively. Under these incentive programs, the income tax rate for qualifying income will be an incentive tax rate lower than the corporate tax rate. These subsidiaries were in compliance with the qualifying conditions of these tax incentives. The last of these incentives will expire in 2017.
We are currently under examination by the IRS for the 2011 and 2012 tax year. We are also under examination by certain foreign tax jurisdictions. We believe it is reasonably possible that some portions of these examinations could be completed within the next twelve months and have currently recorded amounts in the financial statements that are reflective of the current status of these examinations. We are subject to examination in various jurisdictions for the 2007 through 2013 tax years.
Equity in Earnings (Loss) of Joint Ventures
Equity in earnings (loss) of joint ventures, net of tax, for the years ended December 31, 2014, 2013 and 2012 was as follows:
|
| | | | | | | | | | | | |
| | For the year ended December 31, |
In millions | | 2014 | | 2013 | | 2012 |
Equity in Earnings (Loss) of Joint Ventures, Net of Tax | | $ | 8.0 |
| | $ | 5.7 |
| | $ | (2.3 | ) |
Equity in earnings of joint ventures, net of tax reported for the year ended December 31, 2014, was related to the sale of our interest in a joint venture. Equity in (loss) earnings of joint ventures, net of tax, for the years ending December 31, 2013 and 2012 relates primarily to the income and (loss) recorded during the years by both our SMP and Zhenjiang Huantai joint ventures.
FINANCIAL CONDITION
The following table summarizes the significant changes in our financial condition as of December 31, 2014 as compared to December 31, 2013:
|
| | | | | | |
Assets 2014 vs. 2013 | $ Change | % Change | Explanation |
Total cash, cash equivalents, cash committed for construction and restricted cash | $ | 328.4 |
| 36.4 | % | See discussion in Liquidity and Capital Resources |
Accounts receivable, net | 120.4 |
| 34.3 | % | Increase primarily due to change from a consigned inventory method to a sales model with our solar materials customers. |
Solar energy systems held for development and sale, including consolidated variable interest entities | (208.6 | ) | (45.3 | )% | Decrease primarily due to system sales in South Africa, Canada, U.S. and Chile, partially offset by new systems under development in Honduras and Singapore. |
Prepaid and other current assets | 184.8 |
| 43.6 | % | Increase due to higher deferred financing fees, prepaid interest and foreign value-added tax receivables |
Investments | 108.0 |
| 262.8 | % | Increase primarily due to the acquisition of SRP |
Property, plant and equipment, net: | 3,951.4 |
| 126.5 | % | Increase primarily due to acquisitions |
Note hedge derivative asset | (514.8 | ) | (100.0 | )% | Decrease due to a reclassification of these instruments to shareholders' equity upon shareholder approval of additional authorized shares of common stock during the second quarter |
Goodwill and other intangible assets | 542.7 |
| 463.5 | % | Increase due to acquisitions |
Other assets | 307.0 |
| 41.0 | % | Increase primarily due to acquisitions, deposits related to the purchase of PTC-qualified wind turbines and higher prepaid interest |
Liabilities 2014 vs. 2013 | | | |
Current portion of long-term debt and short-term borrowings | $ | 682.2 |
| 171.6 | % | Increase primarily due to short-term debt incurred for the purchase of PTC-qualified wind turbines and acquisitions |
Accounts payable | 362.0 |
| 41.7 | % | Increase primarily due to the timing of payments to vendors and acquisitions |
Long-term debt, less current portion | 2,941.0 |
| 92.5 | % | Increase primarily due to issuance of our senior convertible notes due 2020, borrowings under the TerraForm term loan and the SSL term loan and debt assumed in various acquisitions, primarily SMP |
Customer deposits | (91.7 | ) | (65.5 | )% | Decrease primarily due to lower deposits in our Semiconductor Materials segment and solar materials operations |
Conversion option derivative liability | (506.5 | ) | (100.0 | )% | Decrease due to reclassification of these instruments to stockholders' equity upon shareholder approval of additional authorized shares of common stock |
Warrant derivative liability | (270.5 | ) | (100.0 | )% | Decrease due to reclassification of these instruments to stockholders' equity upon shareholder approval of additional authorized shares of common stock |
Other liabilities | 559.4 |
| 57.2 | % | Increase primarily due to acquisitions, higher asset retirement obligations due to retaining additional projects on the balance sheet and an increase in deferred revenue |
LIQUIDITY AND CAPITAL RESOURCES
We incurred a net loss attributable to SunEdison stockholders of $1,180.4 million for the fiscal year ended December 31, 2014, which included a non-cash net loss of $499.4 million on the convertible notes derivatives, as well as a non-cash net gain of $145.7 million on our previously held equity interest in SMP Ltd. We used $770.0 million of cash for operations. Our total indebtedness, including project finance capital, increased from $3,576.2 million as of December 31, 2013 to $7,199.4 million as of December 31, 2014. As of December 31, 2014, we have a working capital deficit of $357.1 million. We continue to incur significant indebtedness to fund our operations and acquisitions and to use significant cash in our operations. If we delay the construction of solar energy systems, our operating results and cash flows will be adversely impacted.
Our consolidated financial statements have been prepared assuming the realization of assets and the satisfaction of liabilities in the normal course, as well as continued compliance with the financial and other covenants contained in our existing credit facilities and other financing arrangements.
As of December 31, 2014 we own 56.8% of SSL's common shares and continue to include SSL in our consolidated financial statements on the basis that we control SSL. However, SSL and its subsidiaries are separate legal entities with their own creditors and other stakeholders. The semiconductor business assets and other assets that SSL and its subsidiaries have acquired are legally owned by those entities and are not available to satisfy claims of creditors of SunEdison, Inc. or our other non-SSL subsidiaries. Except to the limited extent provided in certain agreements entered into with SSL and its subsidiaries to receive selected services and limited financial support from SunEdison, SunEdison has no obligations with respect to SSL or for the benefit of its creditors.
As of December 31, 2014 we own 57.3% of TerraForm and continue to include TerraForm in our consolidated financial statements on the basis that we will maintain control of TerraForm. However, TerraForm and its subsidiaries are separate legal entities with their own creditors and other stakeholders. The solar project assets and other assets that TerraForm and its subsidiaries have acquired and expect to acquire in the future are and will be legally owned by those entities and are not available to satisfy claims of creditors of SunEdison, Inc. or our other non-TerraForm subsidiaries. Except to the limited extent provided in certain agreements entered into with TerraForm and its subsidiaries to receive selected services and limited financial support from SunEdison, SunEdison has no obligations with respect to TerraForm or for the benefit of its creditors.
Liquidity
Cash and cash equivalents, plus cash committed for construction projects, at December 31, 2014 totaled $1,074.4 million, compared to $831.5 million at December 31, 2013. Approximately $272.6 million of these cash and cash equivalents was held by our foreign subsidiaries, a portion of which may be subject to repatriation tax effects. We believe that any repatriation tax effects would have minimal impacts on future cash flows. The tax effects could be minimized by our actions, including, but not limited to, our ability to bring cash and cash equivalents to the U.S. through settlement of certain intercompany loans.
The primary items impacting our liquidity in the future are cash from operations, including working capital effects from the sale of solar energy systems and reduction of current inventory levels, capital expenditures and expenditures for the construction of solar energy systems for sale or to retain on our balance sheet, borrowings and payments under our credit facilities and other financing arrangements, the monetization of our pipeline and the availability of project finance and/or project equity at acceptable terms. We believe our liquidity will be sufficient to support our operations for the next twelve months, although no assurances can be made if significant adverse events occur, or if we are unable to access project capital needed to execute our business plan.
In addition to our need to maintain sufficient liquidity from cash flow from our operations and borrowing capacity under our credit facilities, we will need to raise additional funds in the future in order to meet the operating and capital needs of our solar energy systems development business, including the acquisition and construction of solar energy systems that we intend to retain on our balance sheet, including those systems that we intend to contribute to TerraForm Power and other yield vehicles. These funds are expected to be in the form of non-recourse project finance capital. However, there can be no assurances that such project financing or equity will be available to us, or available to us on terms and conditions we find acceptable. We may not be able to sell solar projects or secure adequate debt financing or equity funding for such projects on favorable terms, or at all, at the time when we need such funding.
In the event that we are unable to raise additional funds, our liquidity will be adversely impacted, we may not be able to maintain compliance with our existing debt covenants and our business will suffer. If we are able to secure additional financing, these funds could be costly to secure and maintain and could significantly impact our earnings and our liquidity.
We expect cash on hand, 2015 operating cash flows, project finance debt, the Solar Energy credit facility, the TerraForm term loan and project construction facility to provide sufficient capital to support the acquisition and construction phases of our
currently planned projects for 2015 and otherwise meet our capital needs for the remainder of 2015. However, we will continue to need to raise additional long-term project financing, either in the form of project debt or equity, or both. SunEdison expects its ongoing efforts to secure project capital, including sources of non-recourse project capital, to generate sufficient resources to support growth. The rate of growth of the Solar Energy segment is limited by capital access. At December 31, 2014, our liabilities associated with project finance capital totaled $4,926.5 million. We anticipate incremental capital needs for 2015 associated with project finance markets for systems retained to range from $3.3 billion to $4.0 billion depending on the amount of megawatts constructed. There can be no assurances that such financing will be available to us or at terms that we find acceptable. In the event that we are unable to raise additional funds, our liquidity will be adversely impacted, we may not be able to maintain compliance with our existing debt covenants and our business will suffer. If we are able to secure additional financing, these funds could be costly to secure and maintain and could impact our earnings and our liquidity.
We have discretion in how we use our cash to fund capital expenditures, to develop solar energy systems, and for other costs of our business. We evaluate capital projects and the development of solar energy systems based on their expected strategic impacts and our expected return on investment. We may use this discretion to decrease our capital expenditures and development of solar energy systems, which may impact our operating results and cash flows for future years. For example, we may defer construction of solar energy systems, sell solar energy systems that we currently own and operate and look for opportunities to partner with outside investors to finance the development of projects.
Net cash provided (used) by activity during the years ended December 31, 2014, 2013 and 2012 follows:
|
| | | | | | | | | | | | |
| | 2014 | | 2013 | | 2012 |
In millions | | | | | | |
Net cash (used in) provided by: | | | | | | |
Operating Activities | | $ | (770.0 | ) | | $ | (706.8 | ) | | $ | (263.5 | ) |
Investing Activities | | (2,639.8 | ) | | (860.9 | ) | | (531.3 | ) |
Financing Activities | | 3,801.7 |
| | 1,594.9 |
| | 764.8 |
|
In 2014, $770.0 million of cash was used for operating activities, compared to $706.8 million that was used in operating activities in 2013. The decrease in operating cash flows was primarily a result of an increase in prepaids and other current assets coupled with payments to vendors for operating expenses supporting our various growth initiatives.
In 2013, $706.8 million of cash was used for operating activities, compared to $263.5 million that was used for operating activities in 2012. The decrease in operating cash flows was primarily a result of our strategic decision to retain more projects on the balance sheet in preparation for the TerraForm IPO and increases in our solar energy systems held for development, accounts receivable and other current assets offset by a decrease in accounts payable and accrued liabilities.
Our principal sources and uses of cash during the year ended December 31, 2014 were as follows:
Sources:
| |
• | Received $1,733.7 million from solar energy system financing arrangements, net of payments; |
| |
• | Received $975.6 million from non-solar energy system specific financing; |
| |
• | Received $1,114.2 million from IPO, private placement and other equity offerings; and |
| |
• | Received $214.8 million from noncontrolling interests for investments in solar energy systems |
Uses:
| |
• | Used $770.0 million for operations; |
| |
• | Invested $1,511.0 million in construction of solar energy systems that will remain on our balance sheet, primarily through TerraForm or other yield vehicles |
| |
• | Invested $229.6 million in capital expenditures, primarily in our Semiconductor Materials segment and SMP's construction of a polysilicon facility |
| |
• | Invested $158.9 million on a deposit for wind turbine equipment |
| |
• | Used $719.0 million in acquisitions, net of cash acquired |
At December 31, 2014, we had approximately $569.0 million of committed capital expenditures for our Solar Energy segment primarily related to projects we intend to retain on our balance sheet.
At December 31, 2014, we had approximately $26.3 million of committed capital expenditures in our Semiconductor Materials segment. Capital expenditures in 2014 primarily related to increasing our semiconductor capacity and expanding capability for our next generation products.
Borrowings
Convertible Senior Notes Due 2018 and 2021
On December 20, 2013, we issued $600.0 million in aggregate principal amount of 2.00% convertible senior notes due 2018 (the "2018 Notes") and $600.0 million aggregate principal amount of 2.75% convertible senior notes due 2021 (the "2021 Notes", and together with the 2018 Notes, the "2018/2021 Notes") in a private placement offering. We received net proceeds, after payment of debt financing fees, of $1,167.3 million in the offering, before the redemption of the $550.0 million outstanding aggregate principal amount of the 7.75% senior notes due 2019 and the repayment of the $200.0 million outstanding aggregate principle amount of the 10.75% second lien term loan and before payment of the net cost of the call spread overlay described below.
Interest on the 2018 Notes is payable on April 1 and October 1 of each year, beginning on April 1, 2014. Interest on the 2021 Notes is payable on January 1 and July 1 of each year, beginning on July 1, 2014. The 2018 Notes and the 2021 Notes mature on October 1, 2018 and January 1, 2021, respectively, unless earlier converted or purchased.
The 2018/2021 Notes are convertible at any time until the close of business on the business day immediately preceding July 1, 2018 (in the case of the 2018 Notes) or October 1, 2020 (in the case of the 2021 Notes) insomuch that they meet certain criteria defined in footnote 9.
The conversion price will be subject to adjustment in certain events, such as distributions of dividends or stock splits. The 2018/2021 Notes are convertible only into cash, shares of our common stock or a combination thereof at our election. However, we were required to settle conversions solely in cash until we obtained the requisite approvals also defined in the aforementioned footnote.
The 2018/2021 Notes are general unsecured obligations and rank senior in right of payment to any of our future indebtedness that is expressly subordinated in right of payment to the 2018/2021 Notes; equal in right of payment to our existing and future unsecured indebtedness that is not so subordinated; effectively subordinated in right of payment to any of our secured indebtedness to the extent of the value of the assets securing such indebtedness; and effectively subordinated to all existing and future indebtedness (including trade payables) incurred by our subsidiaries.
From December 20, 2013 through May 29, 2014, the period in which we would have been required to settle conversions in cash if exercised, the embedded conversion options (the "2018/2021 Conversion Options") within the 2018/2021 Notes were separated from the 2018/2021 Notes and accounted for separately as derivative instruments (derivative liabilities) with changes in fair value reported in the consolidated statements of operations. Upon obtaining the requisite approvals from our stockholders discussed above, the 2018/2021 Conversion Options were considered equity instruments. Thus, as of May 29, 2014, the 2018/2021 Conversion Options were remeasured at fair value, or $888.4 million, with the change in fair value reported in the consolidated statement of operations, and the resulting fair value of the 2018/2021 Conversion Options was reclassified to Stockholders' Equity. Changes in fair value subsequent to May 29, 2014 are not recognized in the consolidated statement of operations as long as the instruments continue to qualify to be classified as equity.
Call Spread Overlay for Convertible Senior Notes Due 2018 and 2021
Concurrent with the issuance of the 2018/2021 Notes, we entered into privately negotiated convertible note hedge transactions (collectively, the "2018/2021 Note Hedges") and warrant transactions (collectively, the "2018/2021 Warrants" and together with the 2018/2021 Note Hedges, the “2018/2021 Call Spread Overlay”), with certain of the initial purchasers of the 2018/2021 Notes or their affiliates. Assuming full performance by the counterparties, the 2018/2021 Call Spread Overlay is designed to effectively reduce our potential payout over the principal amount on the 2018/2021 Notes upon conversion.
Under the terms of the 2018/2021 Note Hedges, we purchased from affiliates of certain of the initial purchasers of the 2018/2021 Notes options to acquire, at an exercise price of $14.62 per share, subject to anti-dilution adjustments, up to 82.1 million shares of our common stock. Each 2018/2021 Note Hedge is a separate transaction, entered into by us with each option counterparty, and is not part of the terms of the 2018/2021 Notes. Each 2018/2021 Note Hedge is exercisable upon the conversion of the 2018/2021 Notes and expires on the corresponding maturity dates of the 2018/2021 Notes. The option counterparties are generally obligated to settle their obligations to us upon exercise of the 2018/2021 Note Hedges in the same manner as we satisfy our obligations to holders of the 2018/2021 Notes.
Under the terms of the 2018/2021 Warrants, we sold to affiliates of certain of the initial purchasers of the 2018/2021 Notes warrants to acquire, on the stated expiration date of each 2018/2021 Warrant, up to 82.1 million shares of our common stock at an exercise price of $18.35 and $18.93 per share, respectively, subject to anti-dilution adjustments. Each 2018/2021 Warrant transaction is a separate transaction, entered into by us with each option counterparty, and is not part of the terms of the 2018/2021 Notes.
From December 20, 2013 through May 29, 2014, the period in which we would have been required to settle the 2018/2021 Note Hedges and 2018/2021 Warrants in cash if exercised, these instruments were required to be accounted for as derivative instruments with changes in fair value reported in the consolidated statements of operations, as further discussed in the Loss on Convertible Notes Derivatives section below. Upon obtaining the requisite approvals from our stockholders discussed above, the 2018/2021 Note Hedges and 2018/2021 Warrants were considered equity instruments. Thus, as of May 29, 2014, the 2018/2021 Note Hedges and 2018/2021 Warrants were remeasured at fair value (asset of $880.0 million and liability of $753.3 million respectively), with the changes in fair value reported in the consolidated statement of operations, and the resulting fair values of the 2018/2021 Note Hedges and 2018/2021 Warrants were reclassified to Stockholders' Equity. Changes in fair value subsequent to May 29, 2014 will not be recognized in the consolidated statement of operations as long as the instruments continue to qualify to be classified as equity.
The net increase in additional paid in capital during the second quarter of 2014 as a result of the reclassification of the 2018/2021 Conversion Options, 2018/2021 Note Hedges and 2018/2021 Warrants was $761.7 million.
Convertible Senior Notes Due 2020
On June 10, 2014, we issued $600.0 million in aggregate principal amount of 0.25% convertible senior notes due 2020 (the "2020 Notes") in a private placement offering. We received net proceeds, after payment of debt financing fees, of $584.5 million in the offering, before payment of the net cost of the call spread overlay described below.
Interest on the 2020 Notes is payable on July 15 and January 15 of each year, beginning on January 15, 2015. The 2020 Notes mature on January 15, 2020, unless earlier converted or purchased.
The 2020 Notes are convertible at any time until the close of business on the business day immediately preceding October 15, 2019 only under the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ending September 30, 2014, if the closing sale price of our common stock, for at least 20 trading days (whether or not consecutive) in the period of 30 consecutive trading days ending on the last trading day of the calendar quarter immediately preceding the calendar quarter in which the conversion occurs, is more than 130% of the conversion price of the 2020 Notes in effect on each applicable trading day; (2) during the five consecutive business day period following any 10 consecutive trading-day period in which the trading price for the 2020 Notes for each such trading day is less than 98% of the closing sale price of our common stock on such trading day multiplied by the applicable conversion rate on such trading day; or (3) upon the occurrence of specified corporate events. The 2020 Notes were not convertible as of December 31, 2014. On and after October 15, 2019 and until the close of business on the second scheduled trading day immediately prior to the applicable stated maturity date, the 2020 Notes are convertible regardless of the foregoing conditions based on an initial conversion price of $26.87 per share of our common stock.
The conversion price will be subject to adjustment in certain events, such as distributions of dividends or stock splits. The 2020 Notes are convertible only into cash, shares of our common stock or a combination thereof at our election. Holders may also require us to repurchase all or a portion of the 2020 Notes upon a fundamental change, as defined in the indenture agreement, at a cash repurchase price equal to 100% of the principal amount plus accrued and unpaid interest. In the event of certain events of default, such as our failure to make certain payments or perform or observe certain obligations thereunder, the trustee or holders of a specified amount of then-outstanding 2020 Notes will have the right to declare all amounts then outstanding due and payable. We may not redeem the 2020 Notes prior to the applicable stated maturity date.
The 2020 Notes are general unsecured obligations and rank senior in right of payment to any of our future indebtedness that is expressly subordinated in right of payment to the 2020 Notes; equal in right of payment to our existing and future unsecured indebtedness that is not so subordinated; effectively subordinated in right of payment to any of our secured indebtedness to the extent of the value of the assets securing such indebtedness; and to all existing and future indebtedness (including trade payables) incurred by our subsidiaries.
The embedded conversion options within the 2020 Notes are indexed to our common stock and thus were classified as equity instruments upon issuance of the 2020 Notes. The initial fair value of the embedded conversion options was recognized as a reduction in the carrying value of the 2020 Notes in the consolidated balance sheet and such discount will be amortized and recognized as interest expense over the term of the 2020 Notes. Subsequent changes in fair value are not recognized as long as the instruments continue to qualify to be classified as equity.
Call Spread Overlay for Convertible Senior Notes Due 2020
Concurrent with the issuance of the 2020 Notes, we entered into privately negotiated convertible note hedge transactions (collectively, the "2020 Note Hedge") and warrant transactions (collectively, the "2020 Warrants" and together with the 2020 Note Hedge, the “2020 Call Spread Overlay”), with certain of the initial purchasers of the 2020 Notes or their affiliates. Assuming full performance by the counterparties, the 2020 Call Spread Overlay is meant to effectively reduce our potential payout over the principal amount on the 2020 Notes upon conversion of the 2020 Notes.
Under the terms of the 2020 Note Hedge, we bought from affiliates of certain of the initial purchasers of the 2020 Notes options to acquire, at an exercise price of $26.87 per share, subject to anti-dilution adjustments, up to 22.3 million shares of our common stock. Each 2020 Note Hedge is a separate transaction, entered into by us with each option counterparty, and is not part of the terms of the 2020 Notes. Each 2020 Note Hedge is exercisable upon the conversion of the 2020 Notes and expires on the corresponding maturity dates of the 2020 Notes.
Under the terms of the 2020 Warrants, we sold to affiliates of certain of the initial purchasers of the 2020 Notes warrants to acquire, on the stated expiration date of each Warrant, up to 22.3 million shares of our common stock at an exercise price of $37.21 per share, subject to anti-dilution adjustments. Each 2020 Warrant transaction is a separate transaction, entered into by us with each option counterparty, and is not part of the terms of the 2020 Notes.
The 2020 Note Hedge and 2020 Warrants are indexed to our common stock and thus were classified as equity instruments upon issuance and recognized at fair value based on the negotiated transaction prices. Subsequent changes in fair value are not recognized as long as the instruments continue to qualify to be classified as equity.
First Wind Bridge Credit Facility
On November 17, 2014, we entered into a credit agreement with the lenders identified therein and Barclays Bank PLC, as administrative agent, arranger, lender, and letter of credit issuer (the “First Wind Bridge Credit Facility”). The First Wind Bridge Credit Facility provided for a senior secured letter of credit facility in an aggregate principal amount up to $815.0 million. The purpose of the First Wind Bridge Credit Facility was to provide an interim line of credit for the Company to backstop expenses related to the acquisition of First Wind Holdings, LLC. The First Wind Bridge Credit Facility was terminated in conjunction with the acquisition consummation on January 29, 2015. No amounts were drawn under the First Wind Bridge Credit Facility.
Bridge Credit Facility
On December 20, 2013, we entered into a credit agreement with the lenders identified therein and Deutsche Bank AG New York Branch, as administrative agent, lender, and letter of credit issuer (the “Bridge Credit Facility”). The Bridge Credit Facility provided for a senior secured letter of credit facility in an aggregate principal amount up to $320.0 million and had a term ending December 15, 2014. The purpose of the Bridge Credit Facility was to backstop outstanding letters of credit issued by Bank of America, N.A. under our former revolving credit facility, which was terminated simultaneously with our entry into the Bridge Credit Facility (subject to our obligation to continue paying fees in respect of outstanding letters of credit). The Bridge Credit Facility was terminated on February 28, 2014, in connection with entering into the Solar Energy credit facility discussed below.
Solar Energy Credit Facility
On February 28, 2014, we entered into a credit agreement with the lenders identified therein, Wells Fargo Bank, National Association, as administrative agent, Goldman Sachs Bank USA and Deutsche Bank Securities Inc., as joint lead arrangers and joint syndication agents, and Goldman Sachs Bank USA, Deutsche Bank Securities Inc., Wells Fargo Securities, LLC and Macquarie Capital (USA) Inc., as joint bookrunners (the “Credit Facility”). The Credit Facility provided for a senior secured letter of credit facility in an aggregate principal amount up to $265.0 million and has a term ending February 28, 2017. In the second quarter 2014, the parties added additional issuers to the Credit Facility to increase the funds available from $265.0 million to $315.0 million. Also in the second quarter 2014, all related parties executed an amendment allowing us to increase aggregate funds committed up to $800.0 million ($400.0 million prior to amendment), subject to certain conditions. In the fourth quarter 2014, the parties added additional issuers to the Credit Facility to increase the funds available from $315.0 million to $540.0 million. Also in the fourth quarter 2014, all related parties executed an amendment permitting the Company to secure additional financing in an amount up to $815.0 million for the First Wind Bridge Facility (see "First Wind Bridge Credit Facility").
Our obligations under the Credit Facility are guaranteed by certain of our domestic subsidiaries. Our obligations and the guaranty obligations of our subsidiaries are secured by first priority liens on and security interests in substantially all present
and future assets of SunEdison and the subsidiary guarantors, including a pledge of the capital stock of certain of our domestic and foreign subsidiaries.
Interest under the Credit Facility accrues on the daily amount available to be drawn under outstanding letters of credit or bankers' acceptances, at an annual rate of 3.75%. Interest is due and payable in arrears at the end of each fiscal quarter and on the maturity date of the Credit Facility. Drawn amounts on letters of credit are due within seven business days, and interest accrues on drawn amounts at a base rate plus 2.75%.
The Credit Facility, as amended, contains representations, covenants and events of default typical for credit arrangements of comparable size, including maintaining a consolidated leverage ratio of 3.0 to 1.0 which excludes the 2018/2021 Notes and 2020 Notes(measurement commencing with the last day of the fiscal quarter ending December 31, 2014) and a minimum liquidity amount (measurement commencing with the last day of the fiscal quarter ending June 30, 2014) of the lesser of (i) 400.0 million and (ii) the sum of (x) $300.0 million plus (y) the amount, if any, by which the aggregate commitments exceed $300.0 million at such time. The Credit Facility also contains a customary material adverse effects clause and a cross default clause. The cross default clause is applicable to defaults on other indebtedness of SunEdison, Inc. in excess of $50.0 million, including the 2018/2021 Notes and 2020 Notes but excluding our non-recourse indebtedness.
The Credit Facility also contains mandatory prepayment and/or cash collateralization provisions applicable to specified asset sale transactions as well as our receipt of proceeds from certain insurance or condemnation events and the incurrence of additional indebtedness.
As of December 31, 2014, we had $518.9 million of outstanding third party letters of credit backed by the Credit Facility, which reduced the available capacity. Therefore, letters of credit could be issued under the Credit Facility in the amount of$21.1 million as of December 31, 2014.
Emerging Markets Yieldco Acquisition Facility
On December 22, 2014, our subsidiary SunEdison Emerging Markets Yield, Inc. (“EM Yieldco") entered into a credit and guaranty agreement with various lenders and J.P. Morgan, as administrative agent, collateral agent, documentation agent, sole lead arranger, sole lead bookrunner, and syndication agent (the “EM Yieldco Acquisition Facility”). The EM Yieldco Acquisition Facility provides for a term loan credit facility in the amount of $150.0 million which will be used for the acquisition of certain renewable energy generation assets. The EM Yieldco Acquisition Facility will mature on the earlier of December 22, 2016 and the date on which all loans under the Acquisition Facility become due and payable in full, whether by acceleration or otherwise. The principal amount of loans under the EM Yieldco Acquisition Facility is payable in consecutive semiannual installments on June 22, 2015 and December 22, 2015, in each case, in an amount equal to 0.5% of the original principal balance of the loans funded prior to such payment, with the remaining balance payable on the maturity date. Loans under the EM Yieldco Acquisition Facility are non-recourse debt to entities outside of the legal entities that subscribe to the debt.
Loans and each guarantee under the EM Yieldco Acquisition Facility are secured by first priority security interests in all of EM Yieldco's assets and the assets of its domestic subsidiaries. Interest is based on EM Yieldco's election of either a base rate plus the sum of 6.5% and a spread (as defined) or a reserve adjusted eurodollar rate plus the sum of 7.5% and the spread. The reserve adjusted eurodollar rate will be subject to a floor of 1.0% and the base rate will be subject to a floor of 2.0%. The spread will initially be 0.50% per annum, commencing on the five-month anniversary of the closing date, and will increase by an additional 0.25% per annum every ninety days thereafter. As of December 31, 2014, the interest rate under the EM Yieldco Acquisition Facility was 8.5%. The EM Yieldco Acquisition Facility contains customary representations, warranties, and affirmative and negative covenants, including a minimum debt service coverage ratio applicable to EM Yieldco (1.15:1.00 starting March 31, 2015) that will be tested quarterly. The EM Yieldco Acquisition Facility loans may be prepaid in whole or in part without premium or penalty, and outstanding EM Yieldco Acquisition Facility loans must be prepaid in certain specified circumstances. At December 31, 2014, EM Yieldco had borrowed $150.0 million under the EM Yieldco Acquisition Facility.
OCBC (Wind Turbine Purchase) Facility
On December 19, 2014, a subsidiary entered into a credit and guaranty agreement with the Oversea-Chinese Banking Corporation Limited ("OCBC") as sole lead arranger and lender (the “OCBC Facility"). The OCBC Facility provides for a draft loan credit facility in an amount up to $120.0 million. On December 30, 2014, we borrowed $119.1 million under the OCBC Facility to fund a portion of the purchase price for certain production tax qualified turbines. The borrowings under the OCBC Facility will mature 6 months from the funding date unless payment is otherwise accelerated, subject to certain conditions. The principal and interest amount outstanding under the OCBC Facility is payable in full at maturity. Interest is calculated at an amount equal to LIBOR plus an applicable margin of 1.25%.
SMP Ltd. Credit Facilities
As a result of the acquisition of an additional interest in, and resulting consolidation of, SMP Ltd. discussed in Note 3, our consolidated long-term debt now includes SMP Ltd.'s long-term debt, which consists of four non-recourse term loan facilities and a working capital revolving credit facility. The term loan facilities provide for a maximum credit amount of 475 billion South Korean won in aggregate, which translates to $432.1 million as of December 31, 2014. The credit facilities hold maturity dates ranging from March 2019 to May 2019. Principal and interest on the term loan facilities are paid quarterly, with annual fixed interest rates ranging from 4.34% to 4.71%. As of December 31, 2014, a total of $353.3 million was outstanding under the term loan facilities. The working capital revolving facility provides for borrowings of up to 3 billion South Korean won, which translates to approximately $2.7 million as of December 31, 2014. The working capital facility matures in March 2015. Interest under the working capital facility is paid quarterly and accrues at a variable rate based on the three-month South Korean bank deposit rate plus 1.87%. The interest rate as of December 31, 2014 was 4.03%. As of December 31, 2014, a total of $1.6 million was outstanding under the working capital revolving facility.
Project Construction Facilities
On March 26, 2014, we entered into a financing agreement with certain lenders; Wilmington Trust, National Association, as administrative agent; Deutsche Bank Trust Company Americas, as collateral agent and loan paying agent; and Deutsche Bank Securities Inc., as lead arranger, bookrunner, structuring bank and documentation agent (the “Construction Facility”). The Construction Facility provides for a senior secured revolving credit facility in an amount up to $150.0 million and has a term ending March 26, 2017. During the second quarter of 2014, the parties agreed to increase the amount available under the Construction Facility to $285.0 million. The Construction Facility will be used to support the development and acquisition of new projects in the United States and Canada. Subject to certain conditions, we may request that the aggregate commitments be increased to an amount not to exceed $300.0 million. We paid fees of $7.5 million upon entry into the Construction Facility, which were recognized as deferred financing fees.
Loans under the Construction Facility are non-recourse debt to entities outside of the project company legal entities that subscribe to the debt and are secured by a pledge of collateral of the project company, including the project contracts and equipment. Interest on loans under the Construction Facility is based on our election of either LIBOR plus an applicable margin of 3.5%, or a defined prime rate plus an applicable margin of 2.5%. As of December 31, 2014, the interest rate under the Construction Facility was 5.75%.
The Construction Facility contains customary representations, warranties, and affirmative and negative covenants, including a material adverse effects clause whereby a breach may disallow a future draw but not acceleration of payment and a cross default clause whose remedy, among other rights, includes the right to restrict future loans as well as the right to accelerate principal and interest payments. Covenants primarily relate to the collateral amounts and transfer of right restrictions.
At December 31, 2014, we had borrowed $15.4 million under the Construction Facility, which is classified under system pre-construction, construction and term debt. In the event additional construction financing is needed, we have the ability to draw upon the available capacity of our Credit Facility (discussed above). In the event additional construction financing is needed beyond the amounts available under the Credit Facility and we are unable to obtain alternative financing, or if we have inadequate net working capital, such inability to fund future projects may have an adverse impact on our business growth plans, financial position and results of operations.
TerraForm Acquisition Facility
On March 28, 2014, TerraForm entered into a credit and guaranty agreement with various lenders and Goldman Sachs Bank USA, as administrative agent, collateral agent, documentation agent, sole lead arranger, sole lead bookrunner, and syndication agent (the “TerraForm Acquisition Facility”). The TerraForm Acquisition Facility provided for a term loan credit facility in an amount up to $400.0 million and had a term ending on the earlier of August 28, 2015 and the date on which all loans under the TerraForm Acquisition Facility become due and payable in full, whether by acceleration or otherwise. The TerraForm Acquisition Facility was used in the purchase of certain renewable energy generation assets.
The TerraForm Acquisition Facility was terminated on July 23, 2014, in connection with the closing of the TerraForm IPO (see Note 23). Upon termination of the TerraForm Acquisition Facility, no write-off of unamortized deferred financing fees was required as the amount was fully amortized.
TerraForm Credit Facilities
On July 23, 2014, in connection with the closing of the TerraForm IPO, TerraForm Operating, LLC ("Terra Operating LLC") and TerraForm Power, LLC ("Terra LLC"), both wholly owned subsidiaries of TerraForm, entered into a revolving credit
facility (the "TerraForm Revolver") and a term loan facility (the "TerraForm Term Loan" and together with the TerraForm Revolver, the “TerraForm Credit Facilities”). The TerraForm Revolver provides for up to $140.0 million in senior secured revolving credit and the TerraForm Term Loan provides for $300.0 million in senior secured term loan financing.
The TerraForm Term Loan will mature on the five-year anniversary and the TerraForm Revolver will mature on the three-year anniversary of the funding date of the TerraForm Term Loan. All outstanding amounts under the TerraForm Credit Facilities bear interest at a rate per annum equal to, the lesser of either (a) a base rate plus 1.5% or (b) a reserve adjusted eurodollar rate plus 3.75%. For the TerraForm Term Loan, the base rate will be subject to a “floor” of 2.00% and the reserve adjusted eurodollar rate will be subject to a “floor” of 1.00%.
The TerraForm Credit Facilities provide for voluntary prepayments, in whole or in part, subject to notice periods and payment of repayment premiums. The TerraForm Credit Facilities require TerraForm to prepay outstanding borrowings in certain circumstances, subject to certain exceptions. The TerraForm Credit Facilities contain customary and appropriate representations and warranties and affirmative and negative covenants (subject to exceptions) by TerraForm and its subsidiaries.
The TerraForm Credit Facilities, each guarantee and any interest rate and currency hedging obligations of TerraForm or any guarantor owed to the administrative agent, any arranger or any lender under the TerraForm Credit Facilities are secured by first priority security interests in (i) all of TerraForm Operating LLC's assets and each guarantor’s assets, (ii) 100% of the capital stock of each of TerraForm’s domestic restricted subsidiaries and 65% of the capital stock of TerraForm's foreign restricted subsidiaries and (iii) all intercompany debt, collectively, the “Credit Facilities Collateral.”
On December 18, 2014, parties to the TerraForm Credit Facilities increased the TerraForm Term Loan by $275.0 million to a total of $575.0 million and the TerraForm Revolver by $75.0 million to a total of $215.0 million to increase liquidity and to fund several acquisitions. As of December 31, 2014, $573.6 million was outstanding under the TerraForm Term Loan and no amount was outstanding under the TerraForm Revolver.
SSL Credit Facility
On May 27, 2014, SSL and its direct subsidiary (the “Borrower”) entered into a credit agreement with Goldman Sachs Bank USA, as administrative agent, sole lead arranger and sole syndication agent and, together with Macquarie Capital (USA) Inc., as joint bookrunners, Citibank, N.A., as letter of credit issuer, and the lender parties thereto (the “SSL Credit Facility”). The SSL Credit Facility provides for (i) a senior secured term loan facility in an aggregate principal amount up to $210.0 million (the “SSL Term Facility”) and (ii) a senior secured revolving credit facility in an aggregate principal amount up to $50.0 million (the “SSL Revolving Facility”).
Under the SSL Revolving Facility, the Borrower may obtain (i) letters of credit and bankers’ acceptances in an aggregate stated amount up to $15.0 million and (ii) swing line loans in an aggregate principal amount up to $15.0 million. The SSL Term Facility has a five year term, ending May 27, 2019, and the SSL Revolving Facility has a three-year term, ending May 27, 2017. The full amount of the SSL Term Facility was drawn on May 27, 2014 and remains outstanding. As of December 31, 2014, no amounts were drawn under the SSL Revolving Facility, but $3.2 million of third party letters of credit were outstanding which reduced the available capacity. The principal amounts of the SSL Term Facility will be repaid in consecutive quarterly installments of $0.5 million with the remainder repaid at final maturity.
The Term Facility was issued at a discount of 1.00%, or $2.1 million, which will be amortized as an increase in interest expense over the term of the Term Facility. SSL incurred approximately $10.0 million of financing fees related to the Credit Facility that have been capitalized and will be amortized over the term of the respective Term Facility and Revolving Facility.
The Borrower’s obligations under the SSL Credit Facility are guaranteed by SSL and certain of its direct and indirect subsidiaries. The Borrower’s obligations and the guaranty obligations of SSL and its subsidiaries are secured by first priority liens on and security interests in certain present and future assets of SSL, the Borrower and the subsidiary guarantors, including pledges of the capital stock of certain of SSL's subsidiaries.
Borrowings under the SSL Credit Facility bear interest (i) at a base rate plus 4.50% per annum or (ii) at a reserve-adjusted eurocurrency rate plus 5.50% per annum. The minimum eurocurrency base rate for the Term Facility shall at no time be less than 1.00% per annum. Interest will be paid quarterly in arrears, and at the maturity date of each facility, for loans bearing interest with reference to the base rate. Interest will be paid on the last day of selected interest periods (which will be one, three and six months), and at the maturity date of each facility, for loans bearing interest with reference to the reserve-adjusted eurocurrency rate (and at the end of every three months, in the case of any interest period longer than three months). A fee equal to 5.50% per annum will be payable by the Borrower, quarterly in arrears, in respect of the daily amount available to be drawn under outstanding letters of credit and bankers’ acceptances.
The SSL Credit Facility contains customary representations, covenants and events of default typical for credit arrangements of comparable size, including that SSL maintain a leverage ratio of not greater than (i) 3.5 to 1.0 for the fiscal quarters ending September 30, 2014 and December 31, 2014, (ii) 3.0 to 1.0 for the fiscal quarters ending March 31, 2015 and June 30, 2015, and (iii) 2.5 to 1.0 for the fiscal quarters ending on and after September 30, 2015. The SSL Credit Facility also contains a customary material adverse effects clause and a cross-default clauses. The cross-default clause is applicable to defaults on other SSL indebtedness in excess of $30.0 million. As of December 31, 2014, SSL was in compliance with all covenants of the Credit Facility.
As of December 31, 2014, there was no amount outstanding under the SSL Revolving Facility, but $3.2 million of third party letters of credit were outstanding which reduced the available borrowing capacity. As of December 31, 2014, $207.1 million was outstanding under the SSL Term Facility.
Other Semiconductor Financing Arrangements
We have short-term committed financing arrangements of $30.1 million at December 31, 2014, of which there was no short-term borrowings outstanding as of December 31, 2014. Of this amount, $17.9 million is unavailable because it relates to the issuance of third party letters of credit. Interest rates are negotiated at the time of the borrowings.
Cash and Cash Equivalents
As of December 31, 2014, we had $943.7 million of cash and cash equivalents, $7,199.4 million of debt outstanding, of which $6,119.7 million is classified as long-term. Of this total debt outstanding, $3,288.1 million relates to project specific non-recourse financing that is backed by solar energy system operating assets. The breach of any of the Solar Energy Credit Facility provisions or covenants could result in a default under the Solar Energy Credit Facility and could trigger acceleration of repayment, and a cross default on other financing arrangements, which could have a significant adverse effect on our liquidity and our business. As of December 31, 2014, we were in compliance with all covenants of the Solar Energy Credit Facility. Additionally, while we expect to comply with the provisions and covenants of the Solar Energy Credit Facility, Project Construction Facility, the Indentures governing the 2018 Notes, 2020 Notes and 2021 Notes, TerraForm Credit Facilities, the SSL Credit Facility, First Wind Credit Facility, SMP Ltd. Credit Facilities, EM Yieldco Acquisition Facility, OCBC Facility and our other financing arrangements, deterioration in the worldwide economy and our operational results, including the completion of the construction and sale of solar energy systems, could cause us to not be in compliance. While we would attempt to obtain waivers for noncompliance, we may not be able to obtain waivers, which could have a significant adverse effect on our liquidity and our business.
Contractual Obligations
Contractual obligations as of December 31, 2014 were as follows:
|
| | | | | | | | | | | | | | | | | | | | |
| | Payments Due By Period |
Contractual Obligations | | Total | | Less than 1 Year | | 2-3 Years | | 4-5 Years | | After 5 Years |
In millions | | | | | | | | | | |
Long-term debt 1 | | $ | 7,117.9 |
| | $ | 1,077.6 |
| | $ | 678.2 |
| | $ | 1,591.3 |
| | $ | 3,770.8 |
|
Purchase obligations 2 | | 1,221.5 |
| | 904.6 |
| | 137.4 |
| | 156.1 |
| | 23.4 |
|
Capital leases | | 107.2 |
| | 5.4 |
| | 11.5 |
| | 10.3 |
| | 80.0 |
|
Operating leases | | 235.4 |
| | 37.1 |
| | 44.9 |
| | 24.8 |
| | 128.6 |
|
Employee related liabilities 3 | | 74.3 |
| | — |
| | — |
| | — |
| | — |
|
Uncertain tax positions 4 | | 25.7 |
| | 25.7 |
| | — |
| | — |
| | — |
|
Customer deposits 5 | | 48.3 |
| | 23.9 |
| | 24.4 |
| | — |
| | — |
|
Contingent consideration liability 6 | | 42.7 |
| | 25.6 |
| | 17.1 |
| | — |
| | — |
|
Asset retirement obligations 7 | | 149.0 |
| | — |
| | — |
| | — |
| | 149.0 |
|
Total contractual obligations | | $ | 9,022.0 |
|
| $ | 2,099.9 |
|
| $ | 913.5 |
|
| $ | 1,782.5 |
|
| $ | 4,151.8 |
|
____________________
Contractual obligations for purchase obligations and operating leases are not recognized in our consolidated balance sheet.
|
| |
1 | Long-term debt includes primarily minimum lease payments on our non-recourse financing sale-leaseback transactions and repayment of our Notes and other debt obligations. For the purpose of the table above, we assume that all holders of the Notes will hold the Notes through maturity. The table above does not include any cash outlays related to the potential settlement of the warrants and note hedge transactions entered into in connection with the convertible debt offering. See Note 9 to the Consolidated Financial Statements. |
2 | Represents obligations for agreements to purchase goods or services that are enforceable and legally binding on the Company, including minimum quantities at fixed prices to be purchased, committed capital expenditures, and outstanding purchases for goods or services as of December 31, 2014. These obligations include purchases related to solar energy systems under development and held for sale. In addition to the above purchase obligations, in connection with the 2011 Global Plan, we will no longer take supplies or materials for a number of purchase agreements. We have notified our vendors of our intent not to procure these materials and we have accrued $29.7 million related to these contracts. These agreements either do not have stated fixed quantities and prices, have termination provisions, or require the vendor to mitigate losses by selling the materials to other parties. The actual amounts ultimately settled with these vendors could vary significantly, which could have a material adverse impact on our future earnings and cash flows. |
3 | Employee related liabilities include pension, health and welfare benefits and other post-employment benefits. Other than pensions, the employee related liabilities are paid as incurred and accordingly, specific future years’ payments are not reasonably estimable. Funding projections beyond the next twelve months as of December 31, 2014 are not practical to estimate due to the rules affecting tax-deductible contributions and the impact from the plan asset performance, interest rates and potential U.S. and international legislation.
Our pension and other post-employment benefits expense and obligations are actuarially determined. See “Critical Accounting Policies and Estimates.” Effective January 2, 2002, we amended our defined benefit pension plan to discontinue future benefit accruals for certain participants. In addition, effective January 2, 2002, no new participants will be added to the defined benefit pension plan. Effective January 1, 2012, we amended the defined benefit pension plan to freeze the accumulation of new benefits for all participants. |
4 | Unrecognized tax benefits are reported as a component of other long-term liabilities. Due to the inherent uncertainty of the underlying tax positions, we are unable to reasonably estimate in which future periods these unrecognized tax benefits will be settled. |
5 | Customer deposits consist of amounts provided in connection with long-term supply agreements which must be returned to the customers according to the terms of the agreements. |
6 | Represents the estimated fair value of contingent consideration payable remaining related to past acquisitions. |
7 | We develop, construct and may temporarily operate certain project assets under power purchase and other agreements that include a requirement for the removal of the solar energy systems at the end of the term of the agreement. We recognize liabilities for asset retirement obligations (“AROs”) at fair value in connection with such projects that are not under contract to be sold in the period in which they are incurred and the carrying amount of the related project asset is correspondingly increased. AROs represent the present value of expected decommissioning costs regarding the life of the project and timing of decommissioning. As of December 31, 2014, the liability for AROs was $149.0 million. |
We have agreed to indemnify some of our solar wafer and semiconductor customers against claims of infringement of the intellectual property rights of others in our sales contracts with these customers. The terms of most of these indemnification obligations generally do not provide for a limitation of our liability. We have not had any claims related to these indemnification obligations as of December 31, 2014.
We generally warrant the operations of our solar energy systems. Due to the absence of historical material warranty claims and expected future claims, we have not recorded a material warranty accrual related to solar energy systems as of December 31, 2014.
In connection with certain contracts to sell solar energy systems directly or as sale-leasebacks, our SunEdison LLC subsidiary has guaranteed the systems' performance for various time periods following the date of interconnection. Also, under separate operations and maintenance services agreements, SunEdison LLC has guaranteed the uptime availability of the systems over the term of the arrangements, which may last up to 25 years. To the extent there are shortfalls in either of the guarantees, SunEdison LLC is required to indemnify the purchaser up to the guaranteed amount through a cash payment. The maximum losses that SunEdison LLC may be subject to for non-performance are contractually limited by the terms of each executed agreement.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and assumptions in certain circumstances that affect amounts reported in our consolidated financial statements and related footnotes. In preparing these financial statements, we have made our best estimates of certain amounts included in the financial statements. Application of accounting policies and estimates, however, involves the exercise of judgment and use of assumptions as to future uncertainties and, as a result, a change may have a material impact. Our significant accounting policies are more fully described in Note 2 to the Consolidated Financial Statements herein.
Revenue Recognition
Solar Energy System Sales
Solar energy system sales involving real estate
We recognize revenue for solar energy system sales with the concurrent sale or the concurrent lease of the underlying land, whether explicit or implicit in the transaction, in accordance with ASC 360-20, Real Estate Sales. For these transactions, we evaluate the solar energy system to determine whether the equipment is integral equipment to the real estate; therefore, the entire transaction is in substance the sale of real estate and subject to revenue recognition under ASC 360-20. A solar energy system is determined to be integral equipment when the cost to remove the equipment from its existing location, ship and reinstall at a new site, including any diminution in fair value, exceeds ten percent of the fair value of the equipment at the time of original installation. For those transactions subject to ASC 360-20, we recognize revenue and profit using the full accrual method once the sale is consummated, the buyer's initial and continuing investments are adequate to demonstrate its commitment to pay, our receivable is not subject to any future subordination, and we have transferred the usual risk and rewards of ownership to the buyer. If these criteria are met and we execute a sales agreement prior to the delivery of the solar energy system and have an original construction period of three months or longer, we recognize revenue and profit under the percentage of completion method of accounting applicable to real estate sales when we can reasonably estimate progress towards completion. During the year ended December 31, 2014, 2013 and 2012 we recognized $10.6 million, $32.5 million and $72.8 million, respectively, of revenue using the percentage of completion method for solar energy system sales involving real estate.
If the criteria for recognition under the full accrual method are met except that the buyer's initial and continuing investment is less than the level determined to be adequate, then we will recognize revenue using the installment method. Under the installment method, we record revenue up to our costs incurred and apportion each cash receipt from the buyer between cost recovered and profit in the same ratio as total cost and total profit bear to the sales value. During 2012, we recognized revenue of $22.7 million using the installment method. In 2014 and 2013, we did not have sales that qualified for installment method treatment.
If we retain some continuing involvement with the solar energy system and do not transfer substantially all of the risks and rewards of ownership, profit shall be recognized by a method determined by the nature and extent of our continuing involvement, provided the other criteria for the full accrual method are met. In certain cases, we may provide our customers guarantees of system performance or uptime for a limited period of time and our exposure to loss is contractually limited based on the terms of the applicable agreement. In accordance with real estate sales accounting guidance, the profit recognized is reduced by our maximum exposure to loss (and not necessarily our most probable exposure), until such time that the exposure no longer exists.
Other forms of continuing involvement that do not transfer substantially all of the risks and rewards of ownership preclude revenue recognition under real estate accounting and require us to account for any cash payments using either the deposit or financing method. Such forms of continuing involvement may include contract default or breach remedies that provide us with the option or obligation to repurchase the solar energy system. Under the deposit method, cash payments received from customers are reported as deferred revenue for solar energy systems on the consolidated balance sheet, and under the financing method, cash payments received from customers are considered debt and reported as solar energy financing and capital lease obligations on the consolidated balance sheet.
Solar energy system sales not involving real estate
We recognize revenue for solar energy system sales without the concurrent sale or the concurrent lease of the underlying land at the time a sales arrangement with a third party is executed, delivery has occurred and we have determined that the sales price is fixed or determinable and collectible. For transactions that involve a construction period of three months or longer, we recognize the revenue in accordance with ASC 605-35, Construction-Type and Production-Type Contracts, using the percentage of completion method, measured by actual costs incurred for work completed to total estimated costs at completion for each transaction. Contract costs include all direct material and labor costs and those indirect costs related to contract performance, such as indirect labor, supplies, tools, repairs and travel costs. Marketing and administration costs are charged to expense as incurred. Provisions for estimated losses on uncompleted contracts are recognized in full during the period in which such losses are determined. Changes in job performance, job conditions and estimated profitability, including those arising from contract penalty provisions and final contract settlements, may result in revisions to costs and revenue and are recognized in the period in which the revisions are determined. During the years ended December 31, 2014 and December 31, 2013, we recorded $9.3 million and $53.5 million, respectively, of revenue under the percentage of completion method for solar energy systems not involving real estate. There were no such amounts recognized in 2011.
Solar energy system sales with service contracts
We frequently negotiate and execute solar energy system sales contracts and post-system-sale service contracts contemporaneously, which we combine and evaluate together as a single arrangement with multiple deliverables. The total arrangement consideration is first separated and allocated to post-system-sale separately priced extended warranty and maintenance service contracts, and the revenue associated with that deliverable is recognized on a straight-line basis over the contract term. The remaining consideration is allocated to each unit of accounting based on the respective relative selling prices, and revenue is recognized for each unit of accounting when the revenue recognition criteria have been met.
Sale with a leaseback
We are a party to master lease agreements that provide for the sale and simultaneous leaseback of certain solar energy systems constructed by us. We must determine the appropriate classification of sale-leaseback transactions on a project-by-project basis because the terms of the solar energy systems lease schedule may differ from the terms applicable to other solar energy systems. In addition, we must determine if the solar energy system is considered integral equipment to the real estate upon which it resides. We do not recognize revenue on the sales transactions for any sales with a leaseback. Instead, revenue is recognized through the sale of electricity and energy credits which are generated as energy is produced. The terms of the lease and whether the system is considered integral to the real estate upon which it resides may result in either one of the following sale-leaseback classifications:
Financing arrangements
The financing method is applicable when we have determined that the assets under the lease are real estate. This occurs due to either a transfer of land or the transfer of a lease involving real estate and the leased equipment is integral equipment to the real estate. A sale-leaseback is classified as a financing sale-leaseback if we have concluded the leased assets are real estate and we have a prohibited form of continuing involvement, such as an option or obligation to repurchase the assets under our master lease agreements.
Under a financing sale-leaseback, we do not recognize any upfront profit because a sale is not recognized. The full amount of the financing proceeds is recorded as solar energy financing debt, which is typically secured by the solar energy system asset and its future cash flows from energy sales, but generally has no recourse to us under the terms of the arrangement.
We use our incremental borrowing rate to determine the principal and interest component of each lease payment. However, to the extent that our incremental borrowing rate will result in either negative amortization of the financing obligation or a built-in loss at the end of the lease (e.g. net book value of the system asset exceeds the financing obligation), the rate is adjusted to eliminate such results. The interest rate is adjusted accordingly for the majority of our financing sale-leasebacks because our future minimum lease payments do not typically exceed the initial proceeds received from the buyer-lessor. As a result, most of our lease payments are reported as interest expense, the principal of the financing debt does not amortize, and we expect to recognize a gain upon the final lease payment at the end of the lease term equal to the unamortized balance of the financing debt less the write-off of the system assets net book value.
Operations and maintenance
Operations and maintenance revenue is billed and recognized as services are performed. Costs of these revenues are expensed in the period they are incurred.
Power purchase agreements
Revenues from retained solar energy systems are obtained through the sale of energy pursuant to terms set forth in executed power purchase agreements ("PPAs") or other contractual arrangements which have an average remaining life of 20 years as of December 31, 2014. All PPAs are accounted for as operating leases in accordance with ASC 840-20, Operating Leases. Subject to the terms of the agreement, these contracts have no minimum lease payments and all of the rental income under these leases is recorded as income when the electricity is delivered.
Incentive Revenue
For owned or capitalized solar energy systems, we may receive incentives or subsidies from various state governmental jurisdictions in the form of renewable energy credits (“RECs”), which we sell to third parties. We may also receive performance-based incentives (“PBIs”) from public utilities. We recorded total PBI revenue of $22.6 million, $22.3 million and $31.4 million for the years ended December 31, 2014, 2013 and 2012, respectively, and total REC revenue of $31.9 million, $14.0 million and $17.3 million for the years ended December 31, 2014, 2013 and 2012, respectively. Both the RECs and PBIs are based on the actual level of output generated from the system. RECs are generated as our solar energy systems generate electricity. Typically, we enter into five to ten year binding contractual arrangements with utility companies or other investors who purchase RECs at fixed rates. REC revenue is recognized at the time we have transferred a REC pursuant to an executed contract relating to the sale of the RECs to a third party. For PBIs, production from our operated systems is verified by an independent third party and, once verified, revenue is recognized based on the terms of the contract and the fulfillment of all revenue recognition criteria. There are no penalties in the event electricity is not produced for PBIs. However, if production does not occur on the systems for which we have sale contracts for our RECs, we may have to purchase RECs on the spot market or pay specified contractual damages. Historically, we have not had to purchase material amounts of RECs to fulfill our REC sales contracts.
Recording of a sale of RECs and receipt of PBIs under U.S. GAAP are accounted for under ASC 605, Revenue Recognition. There are no differences in the process and related revenue recognition between REC sales to utilities and non-utility customers. Revenue is recorded when all revenue recognition criteria are met, including: there is persuasive evidence an arrangement exists (typically through a contract), services have been rendered through the production of electricity, pricing is fixed and determinable under the contract and collectability is reasonably assured. For RECs, the revenue recognition criteria are met when the energy is produced and a REC is generated and transferred to a third party pursuant to a contract with that party fixing the price for the REC. For PBIs, revenue is recognized upon validation of the kilowatt hours produced from a third party metering company because the quantities to be billed to the utility are determined and agreed to at that time.
Wafer and Other Product Sales
Revenue is recognized for wafer and other product sales when title transfers, the risks and rewards of ownership have been transferred to the customer, the fee is fixed or determinable and collection of the related receivable is reasonably assured, which is generally at the time of shipment for non-consignment orders. In the case of consignment orders, title passes when the customer pulls the product from the assigned storage facility or storage area or, if the customer does not pull the product within a contractually stated period of time (generally 60–90 days), at the end of that period, or when the customer otherwise agrees to take title to the product. Our wafers are generally made to customer specifications, and we conduct rigorous quality control and testing procedures to ensure that the finished wafers meet the customer’s specifications before the product is shipped. We consider international shipping term definitions in our determination of when title passes. We defer revenue for multiple element arrangements based on an average fair value per unit for the total arrangement when we receive cash in excess of fair value. We also defer revenue when pricing is not fixed or determinable or other revenue recognition criteria is not met.
In connection with certain of our long-term solar wafer supply agreements, we have received various equity instruments and other forms of additional consideration. In each case, we have recorded the estimated fair value of the additional consideration to long-term deferred revenue and will recognize the deferred revenue on a pro-rata basis as product is shipped over the life of the agreements.
Property, Plant and Equipment
We record property, plant and equipment at cost and depreciate it evenly over the assets’ estimated useful lives as follows:
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| | | | |
| | Years |
Software | | 3 | - | 10 |
Buildings and improvements | | 2 | - | 50 |
Machinery and equipment | | 1 | - | 30 |
Solar energy systems | | 23 | - | 30 |
Expenditures for repairs and maintenance are charged to expense as incurred. Additions and betterments are capitalized. The cost and related accumulated depreciation on property, plant and equipment sold or otherwise disposed of are removed from the capital accounts and any gain or loss is reported in current-year operations.
We often construct solar energy systems for which we do not have a fixed-price construction contract and, in certain instances, we may construct a system and retain ownership of the system or perform a sale-leaseback. For these projects, we earn revenues associated with the energy generated by the solar energy system, capitalize the cost of construction to solar energy system property, plant and equipment and depreciate the system over its estimated useful life. For solar energy systems under construction for which we intend to retain ownership and finance the system, we recognize all costs incurred as solar system construction in progress.
We may sell a solar energy system and simultaneously lease back the solar energy system. Property, plant and equipment accounted for as capital leases (primarily solar energy systems) are depreciated over the life of the lease. Solar energy systems that have not reached consummation of a sale under real estate accounting and have been leased back are recorded at the lower of the original cost to construct the system or its fair value and depreciated over the equipment's estimated useful life. For those sale-leasebacks accounted for as capital leases, the gain, if any, on the sale-leaseback transaction is deferred and recorded as a contra-asset that reduces the cost of the solar energy system, thereby reducing depreciation expense over the life of the asset. Generally, as a result of various tax attributes that accrue to the benefit of the lessor/tax owner, solar energy systems accounted for as capital leases are recorded at the net present value of the future minimum lease payments because this amount is lower than the cost and fair market value of the solar energy system at the lease inception date.
Leasehold improvements are depreciated over the shorter of the estimated useful life of the asset or the remaining lease term, including renewal periods considered reasonably assured of execution.
When we are entitled to incentive tax credits for property, plant and equipment, we reduce the asset carrying value by the amount of the credit, which reduces future depreciation.
Asset retirement obligations are recognized at fair value in the period in which they are incurred and the carrying amount of the related long-lived asset is correspondingly increased. Over time, the liability is accreted to its expected future value. The corresponding asset capitalized at inception is depreciated over the useful life of the asset. We operate under solar power services agreements with some customers that include a requirement for the removal of the solar energy systems at the end of the term of the agreement. In addition, we could have certain legal obligations for asset retirements related to disposing of materials in the event of closure, abandonment or sale of certain of our manufacturing facilities. We recognize a liability in the period in which we have determined the time frame that the asset will no longer operate and information is available to reasonably estimate the liability’s fair value.
Business Combinations
We account for business acquisitions using the acquisition method of accounting and record intangible assets separate from goodwill. Intangible assets are recorded at their fair value based on estimates as of the date of acquisition. Goodwill is recorded as the residual amount of the purchase price consideration less the fair value assigned to the individual assets acquired and liabilities assumed as of the date of acquisition. We charge acquisition related costs that are not part of the purchase price consideration to general and administrative expense as they are incurred. These costs typically include transaction and integration costs, such as legal, accounting, and other professional fees. Contingent considerations, which represents an obligation of the acquirer to transfer additional assets or equity interests to the former owner as part of the exchange if specified future events occur or conditions are met, is accounted for at the acquisition date fair value either as a liability or as equity depending on the terms of the acquisition agreement.
Goodwill
Goodwill represents the excess of the purchase price of acquired businesses over the estimated fair value assigned to the individual assets acquired and liabilities assumed. We do not amortize goodwill, but instead are required to test goodwill for impairment at least annually in the fourth quarter. We will perform an impairment test between scheduled annual tests if facts and circumstances indicate that it is more-likely-than-not that the fair value of a reporting unit that has goodwill is less than its carrying value.
We may first make a qualitative assessment of whether it is more-likely-than-not that a reporting unit’s fair value is less than its carrying value to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. The qualitative impairment test includes considering various factors including macroeconomic conditions, industry and market conditions, cost factors, a sustained share price or market capitalization decrease, and any reporting unit specific events. If it is determined through the qualitative assessment that a reporting unit’s fair value is more-likely-than-not greater than its carrying value, the two-step impairment test is not required. If the qualitative assessment indicates it is more-likely-than-not that a reporting unit’s fair value is not greater than its carrying value, we must perform the two-step impairment test. We may also elect to proceed directly to the two-step impairment test without considering such qualitative factors.
The first step in a two-step impairment test is the comparison of the fair value of a reporting unit with its carrying amount, including goodwill. We have historically defined our reporting units to be consistent with our reportable segments. In accordance with the authoritative guidance over fair value measurements, we define the fair value of a reporting unit as the price that would be received to sell the unit as a whole in an orderly transaction between market participants at the measurement date. We primarily use the income approach methodology of valuation, which includes the discounted cash flow method, and the market approach methodology of valuation, which considers values of comparable businesses to estimate the fair values of our reporting units. We do not believe that a cost approach is relevant to measuring the fair values of our reporting units.
Significant management judgment is required when estimating the fair value of our reporting units including the forecasting of future operating results, the discount rates and expected future growth rates that we use in the discounted cash flow method of valuation, and in the selection of comparable businesses that we use in the market approach. If the estimated fair value of the reporting unit exceeds the carrying value assigned to that unit, goodwill is not impaired and no further analysis is required.
If the carrying value assigned to a reporting unit exceeds its estimated fair value in the first step, then we are required to perform the second step of the impairment test. In this step, we assign the fair value of the reporting unit calculated in step one to all of the assets and liabilities of that reporting unit, as if a market participant just acquired the reporting unit in a business combination. The excess of the fair value of the reporting unit determined in the first step of the impairment test over the total amount assigned to the assets and liabilities in the second step of the impairment test represents the implied fair value of goodwill. If the carrying value of a reporting unit’s goodwill exceeds the implied fair value of goodwill, we would record an impairment loss equal to the difference. If there is no such excess then all goodwill for a reporting unit is considered impaired.
See Note 8 “Goodwill and Intangible Assets,” for additional information on our goodwill impairment tests.
Intangible Assets
Our indefinite-lived intangible assets include power plant development arrangements acquired in a business combination which relate to anticipated future economic benefits associated with our customer backlog and pipeline relationships. We initially treat backlog and pipeline as indefinite-lived intangible assets, similar to GAAP treatment of in-process R&D, which is not subject to amortization. These intangibles will be allocated to fixed assets as the construction of the related solar energy systems stemming from the existing backlog and pipeline is completed and will ultimately be charged to the statement of operations through cost of goods sold if the projects is sold in a direct sale or depreciation expense if the project is retained on the balance sheet. These assets are tested annually for impairment on December 1 of each year, or whenever events or changes in circumstances indicate that the carrying value may not be recoverable. December 1 is the date in which the annual impairment review is performed for all indefinite lived intangible assets.
Intangible assets that have determinable estimated lives are amortized over those estimated lives. Power purchase agreements ("PPA") comprise the majority of our amortizable intangible assets and have a useful life range of 3-25 years. PPAs useful life is equal to the remaining term of the contractual agreement. The straight-line method of amortization is used because it best reflects the pattern in which the economic benefits of the intangible asset are consumed or otherwise used up. The amounts and useful lives assigned to intangible assets acquired impact the amount and timing of future amortization. Reviews are performed to determine whether the carrying value of an asset is impaired, based on comparisons to undiscounted expected future cash flows or some other fair value measure. If this comparison indicates that there is impairment, the impaired asset is written down to fair value, which is typically calculated using discounted expected future cash flows utilizing an appropriate discount rate. Impairment is based on the excess of the carrying amount over the fair value of those assets.
Variable Interest Entities
Our business involves the formation of special purpose vehicles (referred to as “project companies”) to own the project assets and execute agreements for the construction and maintenance of the assets, as well as power purchase agreements or feed in tariff agreements with a buyer who will purchase the electricity generated from the solar energy system once it is operating. We may establish joint ventures with non-related parties to share in the risks and rewards associated with solar energy system development, which are facilitated through equity ownership of a project company. The project companies engage us to engineer, procure and construct the solar energy system and may separately contract with us to perform predefined operational and maintenance services post construction. We evaluate the terms of those contracts as well as the joint venture agreements to determine if the entity is a variable interest entity ("VIE"), as well as if we are the primary beneficiary.
VIEs are primarily entities that lack sufficient equity to finance their activities without additional financial support from other parties or whose equity holders, as a group, lack one or more of the following characteristics: (a) direct or indirect ability to make decisions; (b) obligation to absorb expected losses; or (c) right to receive expected residual returns. VIEs must be evaluated quantitatively and qualitatively to determine the primary beneficiary, which is the reporting entity that has (a) the power to direct activities of a VIE that most significantly impact the VIEs economic performance and (b) the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE. The primary beneficiary is required to consolidate the VIE for financial reporting purposes. A VIE should have only one primary beneficiary, but may not have a primary beneficiary if no party meets the criteria described above.
To determine a VIE's primary beneficiary, an enterprise must perform a qualitative assessment to determine which party, if any, has the power to direct activities of the VIE and the obligation to absorb losses and/or receive its benefits. Therefore, an enterprise must identify the activities that most significantly impact the VIE's economic performance and determine whether it, or another party, has the power to direct those activities. When evaluating whether we are the primary beneficiary of a VIE, and must therefore consolidate the entity, we perform a qualitative analysis that considers the design of the VIE, the nature of our involvement and the variable interests held by other parties. If that evaluation is inconclusive as to which party absorbs a majority of the entity’s expected losses or residual returns, a quantitative analysis is performed to determine the primary beneficiary.
For our consolidated VIEs, we have presented on our consolidated balance sheets, to the extent material, the assets of our consolidated VIEs that can only be used to settle specific obligations of the consolidated VIE, and the liabilities of our consolidated VIEs for which creditors do not have recourse to our general assets outside of the VIE.
We consolidate any VIEs in solar energy projects in which we are the primary beneficiary. During the year ended December 31, 2014, two solar energy system project companies that were consolidated as of December 31, 2013 were deconsolidated, as a result of amendments to certain agreements which provide the largest stakeholder with kick-out rights for certain operations and maintenance services currently provided by SunEdison. Based on this change, we no longer are considered the primary beneficiary and thus deconsolidated the two entities.
Income Taxes
Deferred income taxes arise because of a different tax basis of assets or liabilities between financial statement accounting and tax accounting, which are known as temporary differences. We record the tax effect of these temporary differences as deferred tax assets (generally items that can be used as a tax deduction or credit in future periods) and deferred tax liabilities (generally items for which we receive a tax deduction, but have not yet been recorded in the consolidated statement of operations). We regularly review our deferred tax assets for realizability, taking into consideration all available evidence, both positive and negative, including historical pre-tax and taxable income (losses), projected future pre-tax and taxable income (losses) and the expected timing of the reversals of existing temporary differences. In arriving at these judgments, the weight given to the potential effect of all positive and negative evidence is commensurate with the extent to which it can be objectively verified. Reportable U.S. GAAP income from our financing sale-leaseback transactions in the U.S. is deferred until the end of the lease term, generally 20-25 years, through the extinguishment of the debt. However, sale-leaseback transactions generate current U.S. taxable income at the time of the sale, with the timing differences increasing deferred tax assets. As a result of the continued decline in solar market conditions, the restructuring charges announced in December 2011, and cumulative losses in the U.S. and certain foreign jurisdictions, we recorded a material non-cash valuation allowance against the deferred tax assets at December 31, 2011. See Note 14 for further discussion.
We believe our tax positions are in compliance with applicable tax laws and regulations. Tax benefits are recognized only for tax positions that are more likely than not to be sustained upon examination by tax authorities. The amount recognized is measured as the largest amount of benefit that is greater than 50 percent likely to be realized upon ultimate settlement. Unrecognized tax benefits are tax benefits claimed in our tax returns that do not meet these recognition and measurement standards. Uncertain tax benefits, including accrued interest and penalties, are included as a component of other long-term liabilities because we do not anticipate that settlement of the liabilities will require payment of cash within the next twelve months. The accrual of interest begins in the first reporting period that interest would begin to accrue under the applicable tax law. Penalties, when applicable, are accrued in the financial reporting period in which the uncertain tax position is taken on a tax return. We recognize interest and penalties related to uncertain tax positions in income tax expense, which is consistent with our historical policy. We believe that our income tax accrued liabilities, including related interest, are adequate in relation to the potential for additional tax assessments. There is a risk, however, that the amounts ultimately paid upon resolution of audits could be materially different from the amounts previously included in our income tax expense and, therefore, could have a material impact on our tax provision, net (loss) income and cash flows. We review our accrued liabilities quarterly, and we may adjust such liabilities due to proposed assessments by tax authorities, changes in facts and circumstances, issuance of new regulations or new case law, negotiations between tax authorities of different countries concerning our transfer prices between our subsidiaries, the resolution of entire audits, or the expiration of statutes of limitations. Adjustments are most likely to occur in the year during which major audits are closed.
During the current year, we have repatriated the earnings of certain wholly owned subsidiaries to the United States. We do not provide for U.S. income taxes on the remaining undistributed earnings of our foreign subsidiaries which would be payable if the undistributed earnings were distributed to the U.S., as we consider those foreign earnings to be permanently reinvested outside the U.S. We plan foreign remittance amounts based on projected cash flow needs as well as the working capital and long-term investment requirements of our foreign subsidiaries and our domestic operations.
We have made our best estimates of certain income tax amounts included in the financial statements. Application of our accounting policies and estimates, however, involves the exercise of judgment and use of assumptions as to future uncertainties and, as a result, actual results could differ from these estimates. In arriving at our estimates, factors we consider include how accurate the estimate or assumptions have been in the past, how much the estimate or assumptions have changed and how reasonably likely such change may have a material impact.
Valuation of Convertible Debt
Our senior convertible notes require recognition of both a debt obligation and conversion option derivative in the consolidated financial statements. The debt component is required to be recognized at the fair value of a similar debt instrument that does not have an associated derivative component. The conversion option is recorded at fair value utilizing Level 2 inputs consisting of the exercise price of the instruments, the price and volatility of our common stock, the risk free interest rate and the contractual term. Such derivative instruments are not traded on an open market as the banks are the counterparties to the instruments. The accounting guidance also requires an accretion of the resulting debt discount as interest expense using the effective interest rate method over the expected life of the convertible debt.
Fair Value Measurements
Fair value accounting guidance establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability, and are based on market data obtained from sources independent of us. Unobservable inputs reflect assumptions market participants would use in pricing the asset or liability based on the best information available in the circumstances. The hierarchy is broken down into three levels based on the reliability of inputs as follows:
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• | Level 1—Valuations based on quoted prices in active markets for identical assets or liabilities that we have the ability to access. Valuation adjustments and block discounts are not applied to Level 1 instruments. Because valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these instruments does not entail a significant degree of judgment. |
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• | Level 2—Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly. Valuations for Level 2 are prepared on an individual instrument basis using data obtained from recent transactions for identical securities in inactive markets or pricing data from similar instruments in active and inactive markets. |
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• | Level 3—Valuations based on inputs that are unobservable and significant to the overall fair value measurement. |
We maintain various financial instruments recorded at cost in the December 31, 2014 and 2013 balance sheets that are not required to be recorded at fair value. For certain of these instruments, including cash equivalents, restricted cash, accounts receivable and payable, customer deposits, income taxes receivable and payable, short-term borrowings and accrued liabilities, cost approximates fair value because of the short maturity period. See Note 10 for disclosures regarding the fair value of debt.
Derivative Financial Instruments and Hedging Activities
All derivative instruments are recorded on the consolidated balance sheet at fair value. Derivatives not designated as hedge accounting and used to hedge foreign-currency-denominated balance sheet items are reported directly in earnings along with the offsetting transaction gains and losses associated with the items being hedged. Derivatives used to hedge foreign-currency denominated cash flows and floating rate debt may be accounted for as cash flow hedges, as deemed appropriate. Gains and losses on derivatives designated as cash flow hedges are recorded in other comprehensive (loss) income and reclassified to earnings in a manner that matches the timing of the earnings impact of the hedged transactions. The ineffective portion of all cash flow hedges, if any, is recognized currently in earnings. Derivatives used to manage the foreign currency exchange risk associated with a net investment denominated in another currency are accounted for as a net investment hedge. The effective portion of the hedge will be recorded in the same manner as foreign currency translation adjustment in other comprehensive (loss) income. When the investment is dissolved and we recognize a gain or loss in other income (expense), the associated hedge gain or loss in other comprehensive (loss) income will be reclassified to other income (expense).
Derivatives not designated as hedging
We use foreign currency forward contract to mitigate the risk that the net cash flows resulting from foreign currency transactions will be negatively affected by changes in exchange rates. Gains or losses on our forward contracts, as well as the offsetting losses or gains on the related hedged receivables and payables, are included in non-operating expense (income) in the consolidated statement of operations. Net currency losses on unhedged foreign currency positions totaled $29.2 million, $8.6 million and $17.8 million in 2014, 2013 and 2012, respectively.
The embedded conversion options within senior convertible notes are derivative instruments that are required to be separated from the notes. From December 20, 2013 through May 29, 2014, the period in which we would have been required to settle conversions in cash if exercised, the embedded conversion options within the senior convertible notes due 2018 and 2021 were separated from these notes and accounted for separately as derivative instruments (derivative liabilities) with changes in fair value reported in the consolidated statements of operations, as further discussed in Note 9 to the consolidated financial statements. Upon obtaining the requisite approvals from our stockholders, these conversion options were determined to be indexed to our common stock and therefore considered equity instruments. Thus, as of May 29, 2014, the conversion options were remeasured at fair value, with the change in fair value reported in the consolidated statement of operations, and the resulting fair value of the conversion options was reclassified to Stockholders' Equity. Changes in fair value subsequent to May 29, 2014 are not recognized in the consolidated statement of operations as long as the instruments continue to qualify to be classified as equity. The embedded conversion options within the senior convertible notes due 2020 are indexed to our common stock and thus were classified as equity instruments upon issuance of these notes.
In connection with the senior convertible notes, we also entered into privately negotiated convertible note hedge transactions and warrant transactions with certain of the initial purchasers of the senior convertible notes or their affiliates. Assuming full performance by the counterparties, the purpose of these transactions was to effectively reduce our potential payout over the principal amount on the notes upon conversion of the notes. From December 20, 2013 through May 29, 2014, the period in which we would have been required to settle the note hedges and warrants related to the senior convertible notes due 2018 and 2021 in cash if exercised, these instruments were required to be accounted for as derivative instruments with changes in fair value reported in the consolidated statements of operations, as further discussed in Note 9 to the consolidated financial statements. Upon obtaining the requisite approvals from our stockholders, these note hedges and warrants were considered equity instruments. Thus, as of May 29, 2014, these note hedges and warrants were remeasured at fair value, with the changes in fair value reported in the consolidated statement of operations, and the resulting fair values of the note hedges and warrants were reclassified to Stockholders' Equity. Changes in fair value subsequent to May 29, 2014 will not be recognized in the consolidated statement of operations as long as the instruments continue to qualify to be classified as equity. The note hedges and warrants associated with the senior convertible notes due 2020 are indexed to our common stock and thus were classified as equity instruments upon issuance of these notes.
Derivatives designated as hedging
In addition to the currency forward contracts purchased to hedge transactional currency risks, we may enter into currency forward contracts to hedge cash flow risks associated with future purchases of raw materials. Our cash flow hedges are designed to protect against the variability in foreign currency rates between a foreign currency and the U.S. Dollar. As of December 31, 2014, there were no currency forward contracts outstanding being accounted for as cash flow hedges.
We are party to certain interest rate swap instruments that are accounted for using hedge accounting. Interest rate swap arrangements are used to manage risks generally associated with interest rate fluctuations. These contracts have been accounted for as a qualifying cash flow hedge in accordance with derivative instrument and hedging activities guidance, whereby the balance reported within the consolidated financial statements represents the estimated fair value of the net amount we would settle on December 31, 2014. The fair value is an estimate of the net amount that we would pay or receive on the measurement date if the agreements were transferred to other parties or cancelled by us. The counterparties to these agreements are financial institutions. The fair values of the contracts are estimated by obtaining quotations from the financial institutions.
Commitments & Contingencies
We are involved in conditions, situations or circumstances in the ordinary course of business with possible gain or loss contingencies. At the time the situation is known we book an accrual based on either the best estimate within a range of loss or if the best estimate is unknown, we book the low range of the accrual. We continually evaluate uncertainties associated with loss contingencies and record a charge equal to at least the minimum estimated liability for a loss contingency when both of the following conditions are met: (i) information available prior to issuance of the financial statements indicates that it is probable that an asset had been impaired or a liability had been incurred at the date of the financial statements and (ii) the loss or range of loss can be reasonably estimated.
ACCOUNTING STANDARDS UPDATES NOT YET EFFECTIVE
In April 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. ASU 2014-08 limits the requirement to report discontinued operations to disposals of components of an entity that represent strategic shifts that have (or will have) a major effect on an entity’s operations and financial results. ASU 2014-08 also requires expanded disclosures concerning discontinued operations, disclosures of certain financial results attributable to a disposal of a significant component of an entity that does not qualify for discontinued operations reporting and expanded disclosures for long-lived assets classified as held for sale or disposed of. ASU 2014-08 is effective for us on a prospective basis in our first quarter of fiscal 2015. Early adoption is permitted, but only for disposals (or assets classified as held for sale) that have not been reported in financial statements previously issued or available for issuance. The adoption of ASU 2014-08 is not expected to have a material impact on our consolidated financial statements and related disclosures.
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. ASU 2014-09 will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. ASU 2014-09 is effective for us on January 1, 2017. Early application is not permitted. The standard permits the use of either a retrospective or cumulative effect transition method. We have not determined which transition method we will adopt, and we are currently evaluating the impact that ASU 2014-09 will have on our consolidated financial statements and related disclosures upon adoption.
In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements - Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, which requires management to evaluate, at each annual and interim reporting period, whether there are conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date the financial statements are issued and to provide related disclosures. ASU 2014-15 is effective for us for our fiscal year ending December 31, 2016 and for interim periods thereafter. We are currently evaluating the impact of this standard on our consolidated financial statements.
In January 2015, the FASB issued ASU No. 2015-01, Income Statement —Extraordinary and Unusual Items (Subtopic 225-20), which eliminates the concept of reporting for extraordinary items. ASU 2015-01 is effective for us for our fiscal year ending December 31, 2016 and for interim periods thereafter. We are currently evaluating the impact of this standard on our consolidated financial statements.
On February 18, 2015, the FASB issued ASU No. 2015-02, Consolidation, which reduces the number of consolidation models and simplifies the current standard. Entities may no longer need to consolidate a legal entity in certain circumstances based solely on its fee arrangements when certain criteria are met. ASU 2015-02 reduces the frequency of the application of related-party guidance when determining a controlling financial interest in a variable interest entity. ASU 2015-02 is effective for us for our fiscal year ending December 31, 2015. We are currently evaluating the impact of this standard on our consolidated financial statements.
MARKET RISK
Our market risk is mainly related to interest rate and foreign exchange risk.
The overall objective of our financial risk management program is to reduce the potential negative earnings effects from changes in foreign exchange and interest rates arising in our business activities. We manage these financial exposures through operational means and by using various financial instruments. These practices may change as economic conditions change.
To mitigate the risk associated with fluctuations in foreign currency exchange rates, we utilize currency forward contracts. We do not use derivative financial instruments for speculative or trading purposes. Foreign currency transaction gains and losses are generally offset by corresponding losses and gains on the related hedging instruments, resulting in negligible net exposure to us. A substantial majority of our revenue and capital spending is transacted in U.S. Dollars. However, we do enter into transactions in other currencies, primarily, the Euro, the Japanese Yen, the Canadian Dollar, the Australian Dollar, the British Pound, the Indian Rupee, the Mexican Peso, the Brazilian Real, the South African Rand and certain other Asian currencies. To protect against reductions in value and volatility of future cash flows caused by changes in foreign exchange rates, we have established transaction-based hedging programs. Our hedging programs reduce, but do not always eliminate, the impact of foreign currency exchange rate movements. In addition to the direct effects of changes in exchange rates, such changes typically affect the volume of sales or the foreign currency sales price as competitors’ products become more or less attractive. Our Taiwan, Malaysia and Singapore based subsidiaries use the U.S. Dollar as their functional currencies for financial reporting purposes and thus we do not hedge our New Taiwanese Dollar, Malaysian Ringgit or Singapore Dollar exposures.
The fair market value of our convertible senior notes are subject to interest rate risk, market price risk and other factors due to the convertible feature of these instruments. The fair market value will generally increase as interest rates fall and decrease as interest rates rise. In addition, the fair market value of our convertible senior notes will generally increase as the market price of our common stock increases and decrease as the market price of our common stock falls. The interest and market value changes affect the fair market value of the convertible senior notes, but do not impact our financial position, cash flows or results of operations due to the fixed nature of the debt obligations, except to the extent increases in the value of our common stock may provide the holders of the convertible senior notes the right to convert to cash in certain instances. The aggregate estimated fair value of the senior convertible notes was $1,433.0 million as of December 31, 2014 based on quoted market prices as reported by an independent pricing source. A 10% increase in quoted market prices would increase the estimated fair value of our convertible senior notes to $1,576.3 million and a 10% decrease in the quoted market prices would decrease the estimated fair value of our convertible senior notes to $1,289.7 million.
We have variable debt instruments with a carrying amount of $2,030.8 million as of December 31, 2014. Of this amount, $1,112.1 million is hedged using interest rate swaps, certain of which are designated as cash flow hedges. If the relevant market interest rates for all of our variable pay-rate borrowings had been 100 basis points higher or lower than the actual interest rates in 2014, our interest expense would have changed by $15.7 million, partially offset by our interest rate hedges. The notional amounts and fair values of our interest rate cash flow hedges at December 31, 2014 were $540.7 million and $6.0 million net liability, respectively. If the relevant market interest rates had been 100 basis points higher or lower than the actual interest rates in 2014, it would have resulted in an estimated fair value change of approximately $5.4 million to the net liability. Because these interest rate swaps are accounted for as cash flow hedges, the changes in fair value would be included within other accumulated other comprehensive income (loss) in the consolidated balance sheet. We also have interest rate swaps that are considered economic hedges. The changes in fair value of these economic hedges would be included in non-operating expense in the consolidated statement of operations. The notional amounts and fair values of our economic interest rate swap hedges, including upward amortizing instruments, as of December 31, 2014, was $571.4 million and $61.3 million liability, respectively. If the relevant market interest rates had been 100 basis points higher or lower than the actual interest rates in 2014, it would have resulted in an estimated fair value change of approximately $5.7 million to the liability.
We are also subject to interest rate risk related to our cash equivalents, pension plan assets and capital leases. In addition to interest rate risk on our cash equivalents and pension plan assets, we are subject to issuer credit risk because the value of our assets may change based on liquidity issues or adverse economic conditions affecting the creditworthiness of the issuers or group of issuers of the assets we may own. Our pension plan assets are invested primarily in marketable securities including common stocks, bonds and interest bearing deposits. See additional discussion in “Liquidity and Capital Resources” and “Critical Accounting Policies and Estimates.” Due to the diversity of and numerous securities in our portfolio, estimating a hypothetical change in value of our portfolio based on estimated changes in interest rates and issuer risk is not practical.
Our business model is highly sensitive to interest rate fluctuations and the availability of liquidity, and would be adversely affected by increases in interest rates or liquidity constraints. Our solar energy business requires access to additional capital to fund projected growth. During the construction phase of solar energy systems, we provide short-term working capital support to a project company or may obtain third party construction financing to fund engineering, procurement and installation costs. To the extent that our access to capital is limited or on unfavorable terms, our rate of growth of the Solar Energy segment may be limited by capital access.
UNAUDITED QUARTERLY FINANCIAL INFORMATION
|
| | | | | | | | | | | | | | | | |
2014 | | First Quarter | | Second Quarter | | Third Quarter | | Fourth Quarter |
In millions, except per share data | | |
| | |
| | |
| | |
|
Net sales | | $ | 546.5 |
| | $ | 646.2 |
| | $ | 681.2 |
| | $ | 610.5 |
|
Gross profit | | 47.2 |
| | 25.8 |
| | 67.9 |
| | 81.0 |
|
Net loss | | (616.0 | ) | | (51.2 | ) | | (317.7 | ) | | (287.4 | ) |
Net loss (income) attributable to noncontrolling interests | | 2.4 |
| | 10.0 |
| | 34.3 |
| | 45.3 |
|
Net loss attributable to SunEdison stockholders | | (613.6 | ) | | (41.2 | ) | | (283.4 | ) | | (242.1 | ) |
Basic loss per share | | (2.31 | ) | | (0.16 | ) | | (1.06 | ) | | (0.89 | ) |
Diluted loss per share | | (2.31 | ) | | (0.16 | ) | | (1.06 | ) | | (0.89 | ) |
Market close stock prices: | | | | | | | | |
High | | 21.48 |
| | 22.87 |
| | 24.05 |
| | 22.89 |
|
Low | | 13.37 |
| | 16.74 |
| | 18.88 |
| | 14.30 |
|
In the first quarter of 2014, net loss was impacted by a non-cash fair value adjustment on derivative instruments totaling $451.8 million reported as a non-operating expense. This was a result of the net change in the estimated fair values of the embedded conversion option, note hedge and warrant derivative instruments entered into in connection with the senior convertible notes offering completed in December 2013.
In the second quarter of 2014, net loss was impacted by a non-cash fair value adjustment on derivative instruments totaling $47.6 million reported as a non-operating expense. This was a result of the net change in the estimated fair values of the embedded conversion option, note hedge and warrant derivative instruments entered into in connection with the senior convertible notes offering completed in December 2013. This loss was offset by a gain of $145.7 million recognized as a result of the remeasurement of our previously held equity investment in SMP Ltd., our polysilicon joint venture with Samsung Fine Chemicals Co. Ltd., upon the acquisition of an additional interest in the joint venture.
In the third quarter of 2014, net loss was impacted by long-lived asset impairment charges of $100.4 million. Our Semiconductor Materials segment recognized $57.3 million of non-cash impairment charges to write down Merano, Italy polysilicon facility and the related chlorosilanes facility. Our Solar Energy segment recognized impairment charges of $42.4 million resulted from the impairment of certain solar module manufacturing equipment following the termination of a long-term lease arrangement with one of our suppliers and the impairment of a power plant development arrangement intangible asset and work in process related to one of our solar projects.
In the fourth quarter of 2014, net loss was impacted by long-lived asset impairment charges of $34.2 million, which primarily related to the impairment of a power plant development arrangement intangible asset and construction in progress related to one of our solar projects.
|
| | | | | | | | | | | | | | | | |
2013 | | First Quarter | | Second Quarter | | Third Quarter | | Fourth Quarter |
In millions, except per share data | | | | | | | | |
Net sales | | $ | 443.6 |
| | $ | 401.3 |
| | $ | 611.5 |
| | $ | 551.2 |
|
Gross profit | | 49.7 |
| | 49.2 |
| | 60.6 |
| | (14.2 | ) |
Net income (loss) | | (101.4 | ) | | (96.4 | ) | | (112.1 | ) | | (304.0 | ) |
Net (income) loss attributable to noncontrolling interests | | 12.0 |
| | (6.5 | ) | | 4.1 |
| | 17.6 |
|
Net (loss) income attributable to SunEdison stockholders | | (89.4 | ) | | (102.9 | ) | | (108.0 | ) | | (286.4 | ) |
Basic (loss) income per share | | (0.40 | ) | | (0.45 | ) | | (0.47 | ) | | (1.07 | ) |
Diluted (loss) income per share | | (0.40 | ) | | (0.45 | ) | | (0.47 | ) | | (1.07 | ) |
Market close stock prices: | | | | | | | | |
High | | 5.66 |
| | 8.72 |
| | 10.22 |
| | 13.49 |
|
Low | | 3.44 |
| | 4.08 |
| | 6.46 |
| | 8.35 |
|
In the first quarter of 2013, we recognized $25.0 million of revenue related to an amendment of a long-term solar wafer supply contract with Tainergy. In the third quarter of 2013, we terminated our long-term solar wafer supply agreement with Gintech Energy Corporation and subsequently amended. As part of that amendment, we retained a deposit and recognized $22.9 million of revenue.
In the fourth quarter of 2013, management concluded the start-up analysis of the Merano, Italy polysilicon facility and determined that, based on recent developments and current market conditions, restarting the facility was not aligned with our business strategy. Accordingly, we have decided to indefinitely close that facility and the related chlorosilanes facility obtained from Evonik. As a result, in the fourth quarter of 2013, we recorded approximately $37.0 million of non-cash impairment charges to write down these assets to their current estimated salvage value.
Fourth quarter 2013 gross profit was negatively impacted by our decision to retain more projects on the balance sheet as well as a $10.2 million impairment of intangible assets and $6.4 million of lower of cost or market charges pertaining to solar related inventory. In the fourth quarter of 2013, we completed the redemption of the $550 million outstanding aggregate principal amount of the 7.75% senior notes due 2019 and the $200 million second lien term loan with an interest rate of 10.75%. As a result of these redemptions, we recognized a loss on early extinguishment of debt in the consolidated statement of operations of $75.1 million.
Consolidated Statements of Operations
|
| | | | | | | | | | | | |
| | For the year ended December 31, |
| | 2014 | | 2013 | | 2012 |
In millions, except per share data | | | | | | |
Net sales | | $ | 2,484.4 |
| | $ | 2,007.6 |
| | $ | 2,529.9 |
|
Cost of goods sold | | 2,262.5 |
| | 1,862.3 |
| | 2,194.3 |
|
Gross profit | | 221.9 |
| | 145.3 |
| | 335.6 |
|
Operating expenses: | | | | | | |
Marketing and administration | | 566.0 |
| | 361.6 |
| | 302.2 |
|
Research and development | | 61.7 |
| | 71.1 |
| | 71.8 |
|
Restructuring reversals | | (8.3 | ) | | (10.8 | ) | | (83.5 | ) |
Loss (gain) on sale / receipt of property, plant and equipment | | 4.7 |
| | — |
| | (31.7 | ) |
Long-lived asset impairment charges | | 134.6 |
| | 37.0 |
| | 19.6 |
|
Operating (loss) income | | (536.8 | ) | | (313.6 | ) | | 57.2 |
|
Non-operating expense (income): | | | | | | |
Interest expense | | 410.0 |
| | 189.2 |
| | 135.3 |
|
Interest income | | (13.7 | ) | | (6.5 | ) | | (3.6 | ) |
(Gain) loss on early extinguishment of debt | | (9.6 | ) | | 75.1 |
| | — |
|
Loss on convertible notes derivatives, net | | 499.4 |
| | — |
| | — |
|
Gain on previously held equity investment | | (145.7 | ) | | — |
| | — |
|
Other, net | | 39.2 |
| | 20.4 |
| | 7.0 |
|
Total non-operating expense | | 779.6 |
| | 278.2 |
| | 138.7 |
|
Loss before income tax (benefit) expense and equity in earnings (loss) of equity method investments | | (1,316.4 | ) | | (591.8 | ) | | (81.5 | ) |
Income tax (benefit) expense | | (36.0 | ) | | 27.8 |
| | 64.9 |
|
Loss before equity in earnings (loss) of equity method investments | | (1,280.4 | ) | | (619.6 | ) | | (146.4 | ) |
Equity in earnings (loss) of equity method investments, net of tax | | 8.0 |
| | 5.7 |
| | (2.3 | ) |
Net loss | | (1,272.4 | ) | | (613.9 | ) | | (148.7 | ) |
Net loss (income) attributable to noncontrolling interests | | 92.0 |
| | 27.2 |
| | (1.9 | ) |
Net loss attributable to SunEdison stockholders | | $ | (1,180.4 | ) | | $ | (586.7 | ) | | $ | (150.6 | ) |
Basic loss per share (see Note 18) | | $ | (4.40 | ) | | $ | (2.46 | ) | | $ | (0.66 | ) |
Diluted loss per share (see Note 18) | | $ | (4.40 | ) | | $ | (2.46 | ) | | $ | (0.66 | ) |
See accompanying notes to consolidated financial statements.
Consolidated Statements of Comprehensive Loss
|
| | | | | | | | | | | |
| For the year ended December 31, |
| 2014 |
| 2013 |
| 2012 |
In millions | | | | | |
Net loss | $ | (1,272.4 | ) | | $ | (613.9 | ) | | $ | (148.7 | ) |
Other comprehensive loss, net of tax: | | | | | |
Net foreign currency translation adjustments, net of $4.5 tax expense and $6.6 tax benefit for 2014 and 2013, respectively | (112.1 | ) | | (49.7 | ) | | (18.5 | ) |
Net unrealized gain (loss) on available-for-sale securities | — |
| | 7.6 |
| | (2.8 | ) |
Net gain (loss) on hedging instruments | 0.1 |
| | (8.1 | ) | | (0.4 | ) |
Actuarial (loss) gain and prior service credit, net of $0.3 tax expense, $0.8 tax benefit, and $10.5 tax expense for 2014, 2013 and 2012, respectively | (30.0 | ) | | 32.6 |
| | (11.9 | ) |
Other comprehensive loss, net of tax | (142.0 | ) | | (17.6 | ) | | (33.6 | ) |
Total comprehensive loss | (1,414.4 | ) | | (631.5 | ) | | (182.3 | ) |
Net loss (income) attributable to noncontrolling interests | 92.0 |
| | 27.2 |
| | (1.9 | ) |
Net other comprehensive loss (income) attributable to noncontrolling interests | 54.8 |
| | (2.6 | ) | | (2.3 | ) |
Comprehensive loss attributable to SunEdison stockholders | $ | (1,267.6 | ) | | $ | (606.9 | ) | | $ | (186.5 | ) |
See accompanying notes to consolidated financial statements.
Consolidated Balance Sheets
|
| | | | | | | | |
|
| As of December 31, |
|
| 2014 |
| 2013 |
In millions, except share data |
| | | |
Assets |
|
| |
|
Current assets: |
|
| |
|
Cash and cash equivalents |
| $ | 943.7 |
| | $ | 573.5 |
|
Cash committed for construction projects, including consolidated variable interest entities of $32.0 and $143.6 in 2014 and 2013, respectively | | 130.7 |
| | 258.0 |
|
Restricted cash |
| 155.6 |
| | 70.1 |
|
Accounts receivable, less allowance for doubtful accounts of $5.9 and $4.9 in 2014 and 2013, respectively |
| 471.9 |
| | 351.5 |
|
Inventories |
| 226.4 |
| | 248.4 |
|
Solar energy systems held for development and sale |
| 251.5 |
| | 460.1 |
|
Prepaid and other current assets |
| 608.2 |
| | 423.4 |
|
Total current assets |
| 2,788.0 |
| | 2,385.0 |
|
Investments |
| 149.1 |
| | 41.1 |
|
Property, plant and equipment, net: |
|
| |
|
Non-solar energy systems, net of accumulated depreciation of $1,253.6 and $1,228.6 in 2014 and 2013, respectively |
| 1,738.8 |
| | 1,108.7 |
|
Solar energy systems, including consolidated variable interest entities of $2,311.5 and $157.5 in 2014 and 2013, respectively, net of accumulated depreciation of $209.9 and $119.7 in 2014 and 2013, respectively |
| 5,335.5 |
| | 2,014.2 |
|
Restricted cash |
| 114.9 |
| | 73.8 |
|
Note hedge derivative asset |
| — |
| | 514.8 |
|
Goodwill and other intangible assets | | 659.8 |
| | 117.1 |
|
Other assets |
| 713.7 |
| | 425.8 |
|
Total assets |
| $ | 11,499.8 |
| | $ | 6,680.5 |
|
Liabilities and Stockholders’ Equity | | | | |
Current liabilities: | | | | |
Current portion of long-term debt and short-term borrowings, including consolidated variable interest entities of $423.1 and $5.8 in 2014 and 2013, respectively | | $ | 1,079.7 |
| | $ | 397.5 |
|
Accounts payable | | 1,229.7 |
| | 867.7 |
|
Accrued liabilities | | 719.5 |
| | 432.7 |
|
Current portion of deferred revenue | | 92.3 |
| | 154.7 |
|
Current portion of customer and other deposits | | 23.9 |
| | 36.7 |
|
Total current liabilities | | 3,145.1 |
| | 1,889.3 |
|
Long-term debt, less current portion, including consolidated variable interest entities of $1,169.0 and $234.6, respectively | | 6,119.7 |
| | 3,178.7 |
|
Pension and post-employment liabilities | | 54.7 |
| | 49.2 |
|
Customer and other deposits, less current portion | | 24.4 |
| | 103.3 |
|
Deferred revenue, less current portion | | 204.1 |
| | 90.0 |
|
Conversion option derivative liability | | — |
| | 506.5 |
|
Warrant derivative liability | | — |
| | 270.5 |
|
Other liabilities | | 467.2 |
| | 251.8 |
|
Total liabilities | | 10,015.2 |
| | 6,339.3 |
|
| | | | |
Stockholders’ equity: | | | | |
Preferred stock, $.01 par value, 50.0 shares authorized, none issued or outstanding in 2014 or 2013 | | — |
| | — |
|
Common stock, $.01 par value, 700.0 and 300.0 shares authorized and 272.5 and 266.9 shares issued in 2014 and 2013, respectively | | 2.7 |
| | 2.7 |
|
Additional paid-in capital | | 1,698.1 |
| | 457.7 |
|
Accumulated deficit | | (1,348.4 | ) | | (168.0 | ) |
Accumulated other comprehensive loss | | (110.8 | ) | | (60.0 | ) |
Treasury stock, 0.4 and less than 0.1 shares in 2014 and 2013, respectively | | (8.7 | ) | | (0.2 | ) |
Total SunEdison stockholders’ equity | | 232.9 |
| | 232.2 |
|
Noncontrolling interests | | 1,251.7 |
| | 109.0 |
|
Total stockholders’ equity | | 1,484.6 |
| | 341.2 |
|
Total liabilities and stockholders’ equity | | $ | 11,499.8 |
| | $ | 6,680.5 |
|
See accompanying notes to consolidated financial statements.
Consolidated Statements of Cash Flows
|
| | | | | | | | | | | | |
|
| For the year ended December 31, |
2014 |
| 2013 |
| 2012 |
In millions |
| |
| |
| |
Cash flows from operating activities: |
|
|
|
|
|
|
Net loss |
| $ | (1,272.4 | ) | | $ | (613.9 | ) | | $ | (148.7 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
Depreciation and amortization |
| 357.4 |
|
| 268.3 |
|
| 246.9 |
|
Stock-based compensation | | 46.2 |
| | 30.2 |
| | 31.7 |
|
Deferred tax (benefit) expense | | (50.0 | ) | | 24.2 |
| | 10.5 |
|
Deferred revenue | | (164.9 | ) | | (60.4 | ) | | (73.8 | ) |
Loss on convertible notes derivatives, net | | 499.4 |
| | — |
| | — |
|
Gain on previously held equity investment | | (145.7 | ) | | — |
| | — |
|
(Gain) loss on early extinguishment of debt | | (9.6 | ) | | 75.1 |
| | — |
|
Long-lived asset impairment charges |
| 134.6 |
|
| 48.3 |
|
| 20.0 |
|
Investment impairments |
| 1.0 |
|
| 3.8 |
|
| 3.6 |
|
Change in contingent consideration for acquisitions |
| (2.9 | ) |
| 5.6 |
|
| 13.3 |
|
Other non-cash |
| (11.7 | ) |
| (3.1 | ) |
| 12.9 |
|
Changes in operating assets and liabilities: |
|
| | |
|
|
Accounts receivable |
| (12.3 | ) |
| (103.9 | ) |
| (19.6 | ) |
Inventories |
| 15.2 |
|
| (0.9 | ) |
| 94.8 |
|
Solar energy systems held for sale and development |
| (195.7 | ) |
| (405.7 | ) |
| (72.4 | ) |
Prepaid expenses and other current assets |
| (181.8 | ) |
| (244.5 | ) |
| 30.8 |
|
Accounts payable |
| (117.5 | ) |
| 246.6 |
|
| (266.4 | ) |
Deferred revenue for solar energy systems | | 224.7 |
| | 23.4 |
| | 121.5 |
|
Customer and other deposits | | (41.1 | ) | | (50.9 | ) | | (33.9 | ) |
Accrued liabilities | | 81.4 |
| | 51.9 |
| | (93.8 | ) |
Other long-term liabilities |
| 28.6 |
|
| (36.9 | ) |
| (148.3 | ) |
Other | | 47.1 |
| | 36.0 |
| | 7.4 |
|
Net cash used in operating activities |
| (770.0 | ) |
| (706.8 | ) |
| (263.5 | ) |
Cash flows from investing activities: |
|
|
|
|
|
|
Capital expenditures |
| (229.6 | ) |
| (133.1 | ) |
| (139.0 | ) |
Construction of solar energy systems |
| (1,511.0 | ) |
| (465.3 | ) |
| (346.9 | ) |
Deposits on wind turbine equipment | | (158.9 | ) | | — |
| | — |
|
Proceeds from sale and maturities of investments |
| — |
|
| 15.1 |
|
| — |
|
Purchases of cost and equity method investments |
| (58.5 | ) | | (67.0 | ) | | (47.8 | ) |
Net proceeds from equity method investments |
| 12.5 |
| | 68.4 |
| | 5.8 |
|
Change in restricted cash |
| (60.2 | ) |
| (37.2 | ) |
| 15.7 |
|
Change in cash committed for construction projects | | 86.2 |
| | (240.5 | ) | | (27.8 | ) |
Cash paid for acquisitions, net of cash acquired |
| (719.0 | ) | | (7.3 | ) | | — |
|
Receipts from vendors for deposits and loans | | — |
| | 1.1 |
| | 8.6 |
|
Other |
| (1.3 | ) |
| 4.9 |
|
| 0.1 |
|
Net cash used in investing activities |
| (2,639.8 | ) |
| (860.9 | ) |
| (531.3 | ) |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
|
| | | | | | | | | | | | |
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
Proceeds from short-term and long-term debt |
| 765.6 |
|
| 1,200.0 |
|
| 196.0 |
|
Proceeds from SSL term loans | | 210.0 |
| | — |
| | — |
|
Proceeds from TerraForm Power and Solar Energy system financing and capital lease obligations |
| 2,975.5 |
|
| 1,305.9 |
|
| 904.2 |
|
Principal payments on long-term debt | | (11.6 | ) | | (752.3 | ) | | (3.6 | ) |
Repayments of TerraForm Power and Solar Energy system financing and capital lease obligations |
| (1,241.8 | ) |
| (147.7 | ) |
| (246.2 | ) |
Payments on early extinguishment of debt | | — |
| | (52.4 | ) | | — |
|
Payments for note hedge | | (173.8 | ) | | (341.3 | ) | | — |
|
Proceeds from warrant transactions | | 123.6 |
| | 270.5 |
| | — |
|
Net repayments of customer deposits related to long-term supply agreements |
| (12.0 | ) |
| (75.7 | ) |
| (24.4 | ) |
Proceeds from TerraForm equity offerings and private placement transactions | | 928.9 |
| | — |
| | — |
|
Proceeds from SSL IPO and private placement transactions | | 185.3 |
| | — |
| | — |
|
Common stock issued (repurchased) | | 15.3 |
| | 239.6 |
| | (0.5 | ) |
Proceeds from (contributions to) noncontrolling interests |
| 214.8 |
|
| 39.9 |
|
| 50.8 |
|
Cash paid for contingent consideration for acquisitions | | (3.8 | ) | | (3.7 | ) | | (69.2 | ) |
Debt financing fees |
| (152.1 | ) |
| (87.4 | ) |
| (42.3 | ) |
Dividends paid by TerraForm Power | | (8.3 | ) | | — |
| | — |
|
Other |
| (13.9 | ) |
| (0.5 | ) |
| — |
|
Net cash provided by financing activities |
| 3,801.7 |
|
| 1,594.9 |
|
| 764.8 |
|
Effect of exchange rate changes on cash and cash equivalents |
| (21.7 | ) |
| (7.5 | ) |
| (2.0 | ) |
Net increase (decrease) in cash and cash equivalents |
| 370.2 |
|
| 19.7 |
|
| (32.0 | ) |
Cash and cash equivalents at beginning of period |
| 573.5 |
|
| 553.8 |
|
| 585.8 |
|
Cash and cash equivalents at end of period |
| $ | 943.7 |
|
| $ | 573.5 |
|
| $ | 553.8 |
|
| | | | | | |
Supplemental disclosures of cash flow information: | | | | | | |
Interest payments (including debt issuance costs), net of amounts capitalized | | $ | 364.2 |
| | $ | 255.2 |
| | $ | 170.9 |
|
Income taxes paid (refunded), net | | 49.6 |
| | 39.9 |
| | 40.9 |
|
Supplemental schedule of non-cash investing and financing activities: | | | | | | |
Accounts payable incurred (relieved) for acquisition of fixed assets, including solar energy systems | | $ | 323.2 |
| | $ | 123.9 |
| | $ | 49.7 |
|
Net debt transferred to and assumed by buyer upon sale of solar energy systems | | 508.7 |
| | 66.8 |
| | 403.1 |
|
See accompanying notes to consolidated financial statements.
Consolidated Statements of Stockholders’ Equity
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Equity Attributable to Redeemable Noncontrolling Interests | | Common Stock Issued | | Additional Paid-in Capital | | (Accumulated Deficit) Retained Earnings | | Accumulated Other Comprehensive (Loss) Income | | Common Stock Held in Treasury | | Total SunEdison Stockholders’ Equity | | Noncontrolling Interests | | Total Stockholders’ Equity |
| Shares | | Amount | | Shares | | Amount | |
In millions | | | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2011 | $ | — |
| | 241.3 |
| | $ | 2.4 |
| | $ | 621.7 |
| | $ | 577.5 |
| | $ | (3.9 | ) | | (10.5 | ) | | $ | (459.8 | ) | | $ | 737.9 |
| | $ | 47.0 |
| | $ | 784.9 |
|
Comprehensive (loss) income | (0.3 | ) | | — |
| | — |
| | — |
| | (150.6 | ) | | (35.9 | ) | | — |
| | — |
| | (186.5 | ) | | 4.2 |
| | (182.3 | ) |
Stock plans, net | — |
| | 0.6 |
| | — |
| | 26.0 |
| | — |
| | — |
| | (0.1 | ) | | (0.5 | ) | | 25.5 |
| | — |
| | 25.5 |
|
Stock issued for SunEdison contingent consideration | 1.6 |
| | — |
| | — |
| | — |
| | (1.6 | ) | | — |
| | — |
| | — |
| | (1.6 | ) | | — |
| | (1.6 | ) |
Net repayments to noncontrolling interest | 10.0 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 39.6 |
| | 39.6 |
|
Balance at December 31, 2012 | $ | 11.3 |
| | 241.9 |
| | $ | 2.4 |
| | $ | 647.7 |
| | $ | 425.3 |
| | $ | (39.8 | ) | | (10.6 | ) | | $ | (460.3 | ) | | $ | 575.3 |
| | $ | 90.8 |
| | $ | 666.1 |
|
Comprehensive loss | (3.2 | ) | | — |
| | — |
| | — |
| | (586.7 | ) | | (20.2 | ) | | — |
| | — |
| | (606.9 | ) | | (24.6 | ) | | (631.5 | ) |
Stock plans, net | — |
| | 1.3 |
| | — |
| | 32.0 |
| | — |
| | — |
| | (0.2 | ) | | (1.2 | ) | | 30.8 |
| | — |
| | 30.8 |
|
Secondary offering | — |
| | 23.7 |
| | 0.3 |
| | (222.0 | ) | | — |
| | — |
| | 10.8 |
| | 461.3 |
| | 239.6 |
| | — |
| | 239.6 |
|
Acquisitions of noncontrolling interests | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 17.2 |
| | 17.2 |
|
Fair value adjustment to redeemable noncontrolling interest | 6.8 |
| | — |
| | — |
| | — |
| | (6.8 | ) | | — |
| | — |
| | — |
| | (6.8 | ) | | — |
| | (6.8 | ) |
Reclassification of redeemable noncontrolling interest to liability | (14.9 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Net contributions from noncontrolling interests | — |
| | — |
| | — |
| | — |
| | 0.2 |
| | — |
| | — |
| | — |
| | 0.2 |
| | 25.6 |
| | 25.8 |
|
Balance at December 31, 2013 | $ | — |
| | 266.9 |
| | $ | 2.7 |
| | $ | 457.7 |
| | $ | (168.0 | ) | | $ | (60.0 | ) | | — |
| | $ | (0.2 | ) | | $ | 232.2 |
| | $ | 109.0 |
| | $ | 341.2 |
|
Comprehensive loss | — |
| | — |
| | — |
| |
|
| | (1,180.4 | ) | | (87.2 | ) | | — |
| | — |
| | (1,267.6 | ) | | (146.8 | ) | | (1,414.4 | ) |
Stock plans, net | — |
| | 5.6 |
| | — |
| | 58.2 |
| | — |
| | — |
| | (0.4 | ) | | (8.5 | ) | | 49.7 |
| | 9.3 |
| | 59.0 |
|
TerraForm IPO and related transactions (see Note 23) | — |
| | — |
| | — |
| | 234.5 |
| | — |
| | — |
| | — |
| | — |
| | 234.5 |
| | 357.6 |
| | 592.1 |
|
Income tax impact of TerraForm IPO taxable gain (see Note 14) | — |
| | — |
| | — |
| | (36.5 | ) | | — |
| | — |
| | — |
| | — |
| | (36.5 | ) | | — |
| | (36.5 | ) |
TerraForm private placement offering (see Note 23) | — |
| | — |
| | — |
| | 128.7 |
| | — |
| | — |
| | — |
| | — |
| | 128.7 |
| | 208.1 |
| | 336.8 |
|
TerraForm dividends paid | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (8.3 | ) | | (8.3 | ) |
Net contributions to TerraForm | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 3.0 |
| | 3.0 |
|
SSL IPO (see Note 22) | — |
| | — |
| | — |
| | (220.0 | ) | | — |
| | 36.4 |
| | — |
| | — |
| | (183.6 | ) | | 368.9 |
| | 185.3 |
|
Reclassification of conversion options, warrants and note hedges related to the 2018/2021 Notes (see Note 9) | — |
| | — |
| | — |
| | 761.7 |
| | — |
| | — |
| | — |
| | — |
| | 761.7 |
| | — |
| | 761.7 |
|
Recognition of conversion options, warrants and note hedges related to the 2020 Notes (see Note 9) | — |
| | — |
| | — |
| | 124.4 |
| | — |
| | — |
| | — |
| | — |
| | 124.4 |
| | — |
| | 124.4 |
|
Acquisition of Mt. Signal (see Note 3) | — |
| | — |
| | — |
| | 146.0 |
| | — |
| | — |
| | — |
| | — |
| | 146.0 |
| | 78.7 |
| | 224.7 |
|
Acquisition of noncontrolling interest in MKC (see Note 22) | — |
| | — |
| | — |
| | 43.4 |
| | — |
| | — |
| | — |
| | — |
| | 43.4 |
| | (43.4 | ) | | — |
|
Acquisitions of other noncontrolling interests (see Note 3) | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 138.5 |
| | 138.5 |
|
Deconsolidation of noncontrolling interest | — |
| | — |
| | — |
| |
|
| | — |
| | — |
| | — |
| | — |
| | — |
| | (36.3 | ) | | (36.3 | ) |
Net contributions from noncontrolling interests | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 213.4 |
| | 213.4 |
|
Balance at December 31, 2014 | $ | — |
| | 272.5 |
| | $ | 2.7 |
| | $ | 1,698.1 |
| | $ | (1,348.4 | ) | | $ | (110.8 | ) | | (0.4 | ) | | $ | (8.7 | ) | | $ | 232.9 |
| | $ | 1,251.7 |
| | $ | 1,484.6 |
|
See accompanying notes to consolidated financial statements.
Notes to Consolidated Financial Statements
1. NATURE OF OPERATIONS
SunEdison, Inc. is a major developer and seller of photovoltaic energy solutions, an owner and operator of clean power generation assets, and a global leader in the development, manufacture and sale of silicon wafers to the semiconductor industry. We are one of the world’s leading developers of solar energy projects and, we believe, one of the most geographically diverse. Our technology leadership in silicon and downstream solar is enabling us to expand our customer base and lower our costs throughout the silicon supply chain.
The accompanying consolidated financial statements of SunEdison include the consolidated results of TerraForm Power, Inc. ("TerraForm") and SunEdison Semiconductor Ltd. ("SSL"), which are each separate U.S. Securities and Exchange Commission ("SEC") registrants. The results of TerraForm are reported as our TerraForm Power reportable segment, and the results of SSL are reported as our Semiconductor Materials reportable segment, as described in Note 21. References to "SunEdison", "we", "our" or "us" within the accompanying audited consolidated financial statements refer to the consolidated reporting entity.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
In preparing our financial statements, we use estimates and assumptions that may affect reported amounts and disclosures. Estimates are used when accounting for investments; depreciation; amortization; leases; accrued liabilities including restructuring, warranties, and employee benefits; derivatives, including the embedded conversion option, note hedges, and warrants associated with our outstanding senior convertible notes; stock-based compensation; income taxes; solar energy system installation and related costs; percentage-of-completion on long-term construction contracts; the fair value of assets and liabilities recorded in connection with business combinations; and asset valuations, including allowances, among others.
These estimates and assumptions are based on current facts, historical experience and various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the recording of revenue, costs and expenses that are not readily apparent from other sources. To the extent there are material differences between the estimates and actual results, our future results of operations would be affected.
Reclassifications
Certain amounts in prior fiscal years have been reclassified to conform with the presentation adopted in the current fiscal year.
Principles of Consolidation
Our consolidated financial statements include the accounts of SunEdison, Inc., entities in which we have a controlling financial interest and variable interest entities ("VIEs") for which we are the primary beneficiary. We record noncontrolling interests for non-wholly owned consolidated subsidiaries. All significant intercompany balances and transactions among our consolidated subsidiaries have been eliminated. We have also eliminated our pro-rata share of sales, costs of goods sold and profits related to sales to equity method investees.
Variable Interest Entities
Our business involves the formation of special purpose vehicles (referred to as “project companies”) to own the project assets and execute agreements for the construction and maintenance of the assets, as well as power purchase agreements or feed in tariff agreements with the counterparties who purchase the electricity generated from the solar energy systems once they are operating. We may establish joint ventures with non-related parties to share in the risks and rewards associated with solar energy system development, which are facilitated through equity ownership of a project company. The project companies engage us to engineer, procure and construct the solar energy system and may separately contract with us to perform predefined operational and maintenance services post construction. We evaluate the terms of these contracts and the joint venture agreements to determine if the entity is a variable interest entity ("VIE"), and if so, whether we are the primary beneficiary of the VIE.
VIEs are primarily entities that lack sufficient equity to finance their activities without additional financial support from other parties or whose equity holders, as a group, lack one or more of the following characteristics: (a) direct or indirect ability to make decisions; (b) obligation to absorb expected losses; or (c) right to receive expected residual returns. We evaluate VIEs quantitatively and qualitatively to identify the primary beneficiary, which is the reporting entity that has (a) the power to direct activities of a VIE that most significantly impact the VIEs economic performance and (b) the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be
significant to the VIE. The primary beneficiary is required to consolidate the VIE for financial reporting purposes. A VIE should have only one primary beneficiary, but may not have a primary beneficiary if no party meets the criteria described above.
To identify a VIE's primary beneficiary, we perform a qualitative assessment to determine which party, if any, has the power to direct activities of the VIE and the obligation to absorb losses and/or receive its benefits. We therefore identify the activities that most significantly impact the VIE's economic performance and determine whether we, or another party, has the power to direct those activities. When evaluating whether we are the primary beneficiary of a VIE, and therefore whether we must consolidate the entity, we perform a qualitative analysis that considers the design of the VIE, the nature of our involvement and the variable interests held by other parties. If that evaluation is inconclusive as to which party absorbs a majority of the entity’s expected losses or residual returns, a quantitative analysis is performed to determine the primary beneficiary.
For our consolidated VIEs, we have presented on our consolidated balance sheets, to the extent material, the assets of our consolidated VIEs that can only be used to settle specific obligations of the consolidated VIEs, and the liabilities of our consolidated VIEs for which creditors do not have recourse to our general assets outside of the VIEs.
Cash and Cash Equivalents
Cash equivalents include highly liquid commercial paper, time deposits and money market funds with original maturity periods of three months or less when purchased. Cash and cash equivalents consist of the following:
|
| | | | | | | | |
| | As of December 31, |
2014 | | 2013 |
In millions | | | | |
Cash | | $ | 913.5 |
| | $ | 461.9 |
|
Cash equivalents: | | | | |
Commercial paper | | — |
| | 50.0 |
|
Time deposits | | 10.6 |
| | 6.8 |
|
Money market funds | | 19.6 |
| | 54.8 |
|
Total cash and cash equivalent | | $ | 943.7 |
| | $ | 573.5 |
|
Cash Committed for Construction Projects
Cash committed for construction projects includes loan proceeds deposited into bank accounts in the normal course of business for general use only in the operations of the project company to build solar energy systems. The loan proceeds cannot be used by other project companies or for general corporate purposes. In certain instances, withdrawal of such funds may only occur after certain milestones or expenditures during construction have been incurred and approved by the lender in accordance with the terms of the debt agreement. Approvals for the disbursement of such funds are typically received based on support for the qualified expenditures related to the projects provided there are no conditions of default under the loans.
Restricted Cash
Restricted cash consists of cash on deposit in financial institutions that is restricted from use in operations. In certain transactions, we have agreed to issue a letter of credit or provide security deposits regarding the performance or removal of a solar energy system. Incentive application fees are deposited with local governmental jurisdictions which are held until the construction of the applicable solar energy system is completed. In addition, cash received during the lease term of a sale-leaseback transaction may be subject to a security and disbursement agreement which generally establishes a reserve requirement for scheduled lease payments under our master lease agreements as discussed below under Revenue Recognition, Solar Energy System Sales, Sale with a Leaseback, for each sale-leaseback arrangement, as well as certain additional reserve requirements that may be temporarily required in an accrual account. All of the reserve requirements for scheduled lease payments for all projects under each master lease agreement must be satisfied before cash is disbursed under the master lease agreements.
Accounts Receivable
Accounts receivable are reported on the consolidated balance sheets at the invoiced amounts adjusted for any write-offs and the allowance for doubtful accounts. We establish an allowance for doubtful accounts to adjust our receivables to amounts considered to be ultimately collectible. Our allowance is based on a variety of factors, including the length of time receivables are past due, significant one-time events, the financial health of our customers and our historical collections experience.
Inventories
Inventories consist of raw materials, labor and manufacturing overhead and are valued at the lower of cost or market. Fixed overheads are allocated to the costs of conversion based on the normal capacity of our production facilities. Unallocated overheads during periods of abnormally low production levels are recognized as cost of goods sold in the period in which they are incurred. Raw materials and supplies are generally stated at weighted-average cost and goods and work-in-process and finished goods inventories are stated at standard cost as adjusted for variances, which approximates weighted-average actual cost. The valuation of inventory requires us to estimate excess and slow moving inventory. The determination of the value of excess and slow moving inventory is based upon assumptions of future demand and market conditions. If actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required.
Inventories also include raw materials (such as solar modules) used to construct future solar energy systems or sold to third parties. If the inventory will be sold to a third party it would reclassified to finish goods. When the inventory is designated for use to build a specific project, the inventory will be reclassified as either solar energy systems held for development and sale (if our intent is to sell the system to a third party) or to property, plant and equipment (if our intent is to own and operate the system). The cost of raw materials for solar energy systems is based on the first-in, first-out (FIFO) method.
Solar Energy Systems Held for Development and Sale
Solar energy systems are classified as either held for development and sale or as property, plant and equipment based on our intended use of the system once constructed and provided that certain criteria to be classified as held for sale are met. The classification of the system affects the future accounting and presentation in the consolidated financial statements, including the consolidated statement of operations and consolidated statement of cash flows. Transactions related to the construction and sale of solar energy systems classified as held for development and sale are classified as operating activities in the consolidated statement of cash flows and within gross profit in the consolidated statement of operations when sold. Solar energy systems that are classified as property, plant and equipment generally relate to our sale-leaseback transactions and systems that we own and operate. The costs to construct solar energy systems classified as property, plant and equipment are reported as investing activities of the consolidated statement of cash flows. The proceeds received for the sale and subsequent leaseback of these systems are classified as cash flows from financing activities within the consolidated statement of cash flows.
Solar energy systems held for development include solar energy system project related assets for projects that are intended to be sold as direct sales. Development costs include capitalizable costs for items such as permits, acquired land, deposits and work-in-process, among others. Work-in-process includes materials, labor and other capitalizable costs incurred to construct solar energy systems.
Solar energy systems held for sale are completed solar energy systems that have been interconnected. Solar energy systems held for sale are available for immediate sale in their present conditions subject only to terms that are usual and customary for sales of these types of assets. In addition, we are actively marketing the systems to potential third party buyers, and it is probable that the system will be sold within one year of its placed in service date. Solar energy systems held for sale also include systems under contract with a buyer that are accounted for using the deposit method, whereby cash proceeds received from the buyer are held as deposits until a sale can be recognized.
We do not depreciate our solar energy systems while classified as held for sale. Any energy or incentive revenues generated by these systems are recorded to other income, as such revenues are incidental to our intended use of the system (direct sale to a third party buyer). If facts and circumstances change such that it is no longer probable that the system will be sold within one year of the system's completion date, the system will be reclassified to property, plant and equipment, and we will record depreciation expense in the amount that would have otherwise been recorded during the period the system was classified as held for sale.
Investments
We use the cost method of accounting for equity investments when the investment does not provide us with a controlling interest, does not give us the ability to exercise significant influence and we cannot readily determine the fair value. Cost method investments are initially recorded and subsequently carried at their historical cost and income is recorded to the extent there are dividends. We use the equity method of accounting for our equity investments where we hold more than 20 percent of the outstanding stock of the investee or where we have the ability to significantly influence the operations or financial decisions of the investee. We initially record the investment at cost and adjust the carrying amount each period to recognize our share of the earnings or losses of the investee based on our ownership percentage. We review our equity and cost method investments periodically for indicators of impairment.
Hypothetical Liquidation at Book Value (HLBV)
HLBV method is a balance sheet approach to applying the equity method of accounting that calculates the earnings an investor should recognize based on how an entity would allocate and distribute its cash if it were to sell all of its assets for their carrying amounts and liquidate at a particular point in time. Under the HLBV method, an investor calculates its claim on the investee’s assets at the beginning and end of the reporting period (using the carrying value of the investee’s net assets as reported under U.S. GAAP at those reporting dates) based on the contractual liquidation waterfall. Current period earnings are recognized by the investor based on the change in its claim on net assets of the investee (excluding any contributions or distributions made during the period). We use the HLBV method for any reporting entity that is consolidating an entity and that needs to allocate income to a non-controlling interest.
Property, Plant and Equipment
We record property, plant and equipment at cost and depreciate it ratably over the assets’ estimated useful lives as follows:
|
| | | | |
| | Years |
Software | | 3 | - | 10 |
Buildings and improvements | | 2 | - | 50 |
Machinery and equipment | | 1 | - | 30 |
Solar energy systems | | 23 | - | 30 |
Expenditures for repairs and maintenance are charged to expense as incurred. Additions and betterments are capitalized. The cost and related accumulated depreciation on property, plant and equipment sold or otherwise disposed of are removed from the capital accounts and any gain or loss is reported in earnings.
We often construct solar energy systems for which we do not have a fixed-price construction contract and, in certain instances, we may construct a system and retain ownership of the system or perform a sale-leaseback. For these projects, we earn revenues associated with the energy generated by the solar energy system, capitalize the cost of construction to solar energy system property, plant and equipment and depreciate the system over its estimated useful life. For solar energy systems under construction for which we intend to retain ownership and finance the system, we recognize all costs incurred as solar system construction in progress.
We may sell a solar energy system and simultaneously lease back the solar energy system. Property, plant and equipment accounted for as capital leases (primarily solar energy systems) are depreciated over the life of the lease. Solar energy systems that have not reached consummation of a sale under real estate accounting and have been leased back are recorded at the lower of the original cost to construct the system or its fair value and depreciated over the equipment's estimated useful life. For those sale-leasebacks accounted for as capital leases, the gain, if any, on the sale-leaseback transaction is deferred and recorded as a contra-asset that reduces the cost of the solar energy system, thereby reducing depreciation expense over the life of the asset. Generally, as a result of various tax attributes that accrue to the benefit of the lessor (or tax owner), solar energy systems accounted for as capital leases are recorded at the net present value of the future minimum lease payments because this amount is lower than the cost and fair market value of the solar energy system at the lease inception date.
Leasehold improvements are depreciated over the shorter of the estimated useful life of the asset or the remaining lease term, including renewal periods considered reasonably assured of execution.
When we are entitled to incentive tax credits for property, plant and equipment, we reduce the asset carrying value by the amount of the credit, which reduces future depreciation.
We operate under solar power services agreements with some customers that include a requirement for the removal of the solar energy systems at the end of the term of the agreement. In addition, we could have certain legal obligations for asset retirements related to disposing of materials in the event of closure, abandonment or sale of certain of our manufacturing facilities. Liabilities for asset retirement obligations are recognized at fair value in the period in which they are incurred and can be reasonably estimated. Upon recognition of the liability, the carrying amount of the related long-lived asset is correspondingly increased. Over time, the liability is accreted to its expected future value. The corresponding asset capitalized at inception is depreciated over the useful life of the asset.
Impairment of Property, Plant and Equipment
We assess the impairment of long-lived assets (or asset groups) whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. Reviews are performed to determine whether the carrying value of an asset is impaired, based on comparisons of the carrying value to undiscounted expected future cash flows or some other fair value measure. If this comparison indicates that there is impairment, the impaired asset is written down to fair value, which is
typically calculated using: (i) quoted market prices or (ii) discounted expected future cash flows utilizing an appropriate discount rate. Impairment is based on the excess of the carrying amount over the fair value of those assets.
Business Combinations
We account for business acquisitions using the acquisition method of accounting and record intangible assets separate from goodwill. Intangible assets are recorded at their fair value based on estimates as of the date of acquisition. Goodwill is recorded as the residual amount of the purchase price consideration less the fair value assigned to the individual assets acquired and liabilities assumed as of the date of acquisition. We recognize acquisition related costs that are not part of the purchase price consideration as general and administrative expense as they are incurred. These costs typically include transaction and integration costs, such as legal, accounting, and other professional fees. Contingent consideration, which represents our obligation to transfer additional assets or equity interests to the seller as part of the exchange if specified future events occur or conditions are met, is accounted for at the acquisition date fair value either as a liability or as equity depending on the terms of the acquisition agreement.
Goodwill and Intangible Assets
Goodwill is recorded as the difference, if any, between the aggregate consideration paid for an acquisition and the fair value of the net tangible and intangible assets acquired and liabilities assumed. Goodwill and intangible assets determined to have indefinite lives are not amortized, but rather are subject to an impairment test annually, on December 1, or whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Our indefinite-lived intangible assets include power plant development arrangements acquired in business combinations which relate to anticipated future economic benefits associated with our customer backlog relationships. These intangible assets are allocated to fixed assets upon completion of the construction of the related solar energy systems stemming from the acquired backlog.
The goodwill impairment test involves a two-step approach. We can, however, perform a qualitative analysis to determine if the two-step approach is necessary. Under the qualitative approach, we analyze relevant events and circumstances to determine if it is more likely than not (a likelihood of more than 50%) that the fair value of a reporting unit is less than its carrying amount, including goodwill. Relevant events and circumstances include, but are not limited to: macroeconomic conditions, cost fluctuations, financial performance, market and industry performance and entity structure changes. If we perform the qualitative analysis and determine there is a likelihood for impairment or we opt to forgo the qualitative analysis, we would continue with the two-step quantitative analysis. In the first step of the goodwill impairment test, we compare the fair value of the reporting unit with its carrying amount. If the carrying amount exceeds its fair value, the second step is performed. In the second step, we compare the implied value of the goodwill to the carrying amount of the goodwill. If the carrying amount of goodwill is greater than the implied value, an impairment loss is recognized and the carrying value of goodwill is written down to the fair value.
Intangible assets that have determinable estimated lives are amortized over those estimated lives. Power purchase agreement ("PPAs") and Feed-in Tariffs ("FiTs") comprise the majority of our amortizable intangible assets and have a useful life range of 3-25 years. The useful lives of PPAs and FiTs are equal to the remaining term of the contractual agreement. The straight-line method of amortization is used because it best reflects the pattern in which the economic benefits of the intangible asset are consumed or otherwise used up. The amounts and useful lives assigned to intangible assets acquired impact the amount and timing of future amortization. Intangible assets with definite lives are tested for recoverability whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. To test for impairment, we compare the carrying value to the undiscounted expected future cash flows or some other fair value measure. If this comparison indicates that there is impairment, the impaired asset is written down to fair value, which is typically calculated using discounted expected future cash flows utilizing an appropriate discount rate. Impairment is based on the excess of the carrying amount over the fair value of those assets.
Operating Leases
We enter into lease agreements for a variety of business purposes, including office and manufacturing space, office and manufacturing equipment and computer equipment. A portion of these are noncancellable operating leases. The lease expense is recorded to the income statement in operating expenses as it is incurred. Any lease that does not qualify as a capital lease is considered an operating lease.
Capital Leases
We are party to master lease agreements that provide for the sale and simultaneous leaseback of certain solar energy systems constructed by us. For those transactions which are not within the scope of the real estate accounting guidance, we record a liability for the obligation under the capital lease and the solar energy system is retained on our consolidated balance sheet as
property, plant and equipment. The excess of the cash proceeds received in the sale-leaseback over the costs to construct the solar energy system is retained by us and used to fund current operations and new solar energy projects. See further discussion in Revenue Recognition below.
Customer and Other Deposits
We have executed long-term solar wafer supply agreements, including amendments, with multiple customers which required the customers to provide security deposits. The terms of these deposits vary, but such deposits are generally required to be applied against a portion of current sales on credit or refunded to customers over the term of the applicable agreement. We also receive short-term deposits from customers, deposits from suppliers and, in 2013, deposits in connection with a supply and license agreement with SMP Ltd. During the year ended December 31, 2014, we made a deposit in the amount of $158.9 million for production tax credit ("PTC") qualified wind turbines that we expect to acquire in 2015.
Revenue Recognition
Solar Energy System Sales
Solar energy system sales involving real estate
We recognize revenue for sales of solar energy systems that involve the concurrent sale or the concurrent lease of the underlying land, whether explicit or implicit in the transaction, in accordance with ASC 360-20, Real Estate Sales. For these transactions, we evaluate the solar energy system to determine whether the equipment is integral equipment to the real estate. If the equipment is determined to be integral to the real estate, the entire transaction represents the sale of real estate and is therefore subject to the revenue recognition guidance applicable to real estate. A solar energy system is determined to be integral equipment when the cost to remove the equipment from its existing location, ship and reinstall at a new site, including any diminution in fair value, exceeds ten percent of the fair value of the equipment at the time of original installation. For those transactions subject to real estate accounting, we recognize revenue and profit using the full accrual method once the sale is consummated, the buyer's initial and continuing investments are adequate to demonstrate its commitment to pay, our receivable is not subject to any future subordination, and we have transferred the usual risk and rewards of ownership to the buyer. If these criteria are met and we execute a sales agreement prior to the delivery of the solar energy system and have an original construction period of three months or longer, we recognize revenue and gross profit using the percentage of completion method of accounting applicable to real estate sales when we can reasonably estimate progress towards completion. During the year ended December 31, 2014, 2013 and 2012 we recognized $10.6 million, $32.5 million and $72.8 million, respectively, of revenue using the percentage of completion method for the sale of solar energy systems involving real estate.
If the criteria for recognition under the full accrual method are met except that the buyer's initial and continuing investment is less than the level determined to be adequate, then we recognize revenue using the installment method. Under the installment method, we recognize revenue up to the amount of costs incurred and apportion each cash receipt from the buyer between cost recovered and gross profit in the same ratio as total cost and total gross profit bear to the sales value. During 2012, we recognized revenue of $22.7 million using the installment method. In 2014 and 2013, we did not have sales that qualified for use of the installment method.
If we retain continuing involvement in the solar energy system and do not transfer substantially all of the risks and rewards of ownership to the buyer, we recognize gross profit under a method determined by the nature and extent of our continuing involvement, provided the other criteria for the full accrual method are met. In certain cases, we may provide our customers guarantees of system performance or uptime for a limited period of time and our exposure to loss is contractually limited based on the terms of the applicable agreement. In accordance with real estate sales accounting guidance, the gross profit recognized is reduced by our maximum exposure to loss (thus not necessarily our most probable exposure), until such time that the exposure no longer exists.
Other forms of continuing involvement that do not transfer substantially all of the risks and rewards of ownership preclude revenue recognition under real estate accounting and require us to account for any cash payments using either the deposit or financing method. Such forms of continuing involvement may include contract default or breach remedies that provide us with the option or obligation to repurchase the solar energy system. Under the deposit method, cash payments received from customers are reported as deferred revenue for solar energy systems on the consolidated balance sheet. Under the financing method, cash payments received from customers are considered debt and reported as solar energy financing and capital lease obligations on the consolidated balance sheet.
Solar energy system sales not involving real estate
We recognize revenue for sales of solar energy systems without the concurrent sale or the concurrent lease of the underlying land at the time a sales arrangement with a third party is executed, delivery has occurred and we have determined that the sales price is fixed or determinable and collectible. This applies to our residential sales. Under residential sales, we sell to distributors who then install the solar system, thus we recognize revenue upon the distributor receiving the solar kit. For transactions that involve a construction period of three months or longer, we recognize revenue using the percentage of completion method. Percentage of completion is measured by the actual costs incurred for work completed divided by the total estimated costs at completion for each transaction. Contract costs include all direct material and labor costs and those indirect costs related to contract performance, such as indirect labor, supplies, tools, repairs and travel costs. Marketing and administration costs are charged to expense as incurred. Provisions for estimated losses on uncompleted contracts are recognized in full during the period in which such losses are determined. Changes in project performance, project conditions and estimated profitability, including those arising from contract penalty provisions and final contract settlements, may result in revisions to costs and revenue and are recognized in the period in which the revisions are determined. During the years ended December 31, 2014 and December 31, 2013, we recorded $9.3 million and $53.5 million, respectively, of revenue under the percentage of completion method for the sale of solar energy systems not involving real estate. There was no revenue recognized for the sale of solar energy systems not involving real estate under the percentage of completion method during the year ended December 31, 2012.
Solar energy system sales with service contracts
We frequently negotiate and execute solar energy system sales contracts and post-system-sale service contracts contemporaneously, which we combine and evaluate together as a single arrangement with multiple deliverables. The total arrangement consideration is first separated and allocated to post-system-sale separately priced extended warranty and maintenance service contracts, and the revenue associated with that deliverable is recognized on a straight-line basis over the contract term. The remaining consideration is allocated to each unit of accounting based on the respective relative selling prices, and revenue is recognized for each unit of accounting when the revenue recognition criteria have been met.
Solar energy system sales with a leaseback
We are a party to master lease agreements that provide for the sale and simultaneous leaseback of certain solar energy systems constructed by us. We must determine the appropriate classification of the sale-leaseback on a project-by-project basis because the terms of solar energy systems lease arrangements may differ from the terms applicable to other solar energy systems. In addition, we must determine if the solar energy system is considered integral equipment to the real estate upon which it resides. We do not recognize revenue on sale-leaseback transactions. Instead, revenue is recognized through the sale of electricity and energy credits which are generated as energy is produced. As of December 31, 2014, all sale leasebacks were classified as financing arrangements. A sale-leaseback is classified as a financing sale-leaseback if we have concluded the leased assets are real estate and we have a prohibited form of continuing involvement, such as an option or obligation to repurchase the assets under our master lease agreements.
Under a financing sale-leaseback, we do not recognize any upfront profit because a sale is not recognized. The full amount of the financing proceeds is recorded as solar energy financing debt, which is typically secured by the solar energy system asset and its future cash flows from energy sales, but generally has no recourse to us under the terms of the arrangement.
We use our incremental borrowing rate to determine the principal and interest component of each lease payment. However, to the extent that our incremental borrowing rate will result in either negative amortization of the financing obligation or a built-in loss at the end of the lease (e.g. net book value of the system asset exceeds the financing obligation), the rate is adjusted to eliminate such results. The interest rate is adjusted accordingly for the majority of our financing sale-leasebacks because our future minimum lease payments do not typically exceed the initial proceeds received from the buyer-lessor. As a result, most of our lease payments are reported as interest expense, the principal of the financing debt does not amortize, and we expect to recognize a gain upon the final lease payment at the end of the lease term equal to the unamortized balance of the financing debt less the remaining carrying value of the solar energy systems.
Operations and maintenance
Operations and maintenance revenue is invoiced and recognized as services are performed. Costs associated with operations and maintenance contracts are expensed in the period they are incurred.
Power Purchase Agreements
Revenues from retained solar energy systems are obtained through the sale of energy pursuant to terms set forth in executed power purchase agreements ("PPAs") or other contractual arrangements which have an average remaining life of 20 years as of December 31, 2014. All PPAs are accounted for as operating leases in accordance with ASC 840-20, Operating Leases. Subject
to the terms of the agreement, these contracts have no minimum lease payments and all of the rental income under these leases is recorded as income when the electricity is delivered.
Incentive Revenue
For owned or capitalized solar energy systems, we may receive incentives or subsidies from various governmental jurisdictions in the form of renewable energy credits (“RECs”), which we sell to third parties. We may also receive performance-based incentives (“PBIs”) from public utilities. Both the RECs and PBIs are based on the actual level of output generated from the system. RECs are generated as our solar energy systems generate electricity. Typically, we enter into five to ten year binding contractual arrangements with utility companies or other investors who purchase RECs at fixed rates. REC revenue is recognized at the time we have transferred a REC pursuant to an executed contract relating to the sale of the RECs to a third party. For PBIs, production from our operated systems is verified by an independent third party and, once verified, revenue is recognized based on the terms of the contract and the fulfillment of all revenue recognition criteria. There are no penalties in the event electricity is not produced for PBIs. However, if production does not occur on the systems for which we have sale contracts for our RECs, we may have to purchase RECs on the spot market or pay specified contractual damages. Historically, we have not had to purchase material amounts of RECs to fulfill our REC sales contracts.
Recording of a sale of RECs and receipt of PBIs under U.S. GAAP are accounted for under ASC 605, Revenue Recognition. There are no differences in the process and related revenue recognition between REC sales to utilities and non-utility customers. Revenue is recorded when all revenue recognition criteria are met, including: there is persuasive evidence an arrangement exists (typically through a contract), services have been rendered through the production of electricity, pricing is fixed and determinable under the contract and collectability is reasonably assured. For RECs, the revenue recognition criteria are met when the energy is produced and a REC is generated and transferred to a third party pursuant to a contract with that party fixing the price for the REC. For PBIs, revenue is recognized upon validation of the kilowatt hours produced from a third party metering company because the quantities to be billed to the utility are determined and agreed to at that time.
Wafer and Other Product Sales
Revenue is recognized for wafer and other product sales when title transfers, the risks and rewards of ownership have been transferred to the customer, the fee is fixed or determinable and collection of the related receivable is reasonably assured, which is generally at the time of shipment for non-consignment orders. In the case of consignment orders, title passes when the customer pulls the product from the assigned storage facility or storage area or, if the customer does not pull the product within a contractually stated period of time (generally 60–90 days), at the end of that period, or when the customer otherwise agrees to take title to the product. Our wafers are generally made to customer specifications, and we conduct rigorous quality control and testing procedures to ensure that the finished wafers meet the customer’s specifications before the product is shipped. We consider international shipping term definitions in our determination of when title passes.
Solar Energy System Deferred Revenue
Our Solar Energy segment defers revenue for profit deferrals for performance guarantees on systems sold during 2013 and prior periods subject to real estate accounting, customer deposits received for solar energy systems under development, and deferred incentive subsidies that will be amortized over the depreciable life of the system.
Valuation of Convertible Debt
Our senior convertible notes require recognition of both a debt obligation and conversion option derivative in the consolidated financial statements. The debt component is required to be recognized at the fair value of a similar debt instrument that does not have an associated derivative component. The conversion option is recorded at fair value utilizing Level 2 inputs consisting of the exercise price of the instruments, the price and volatility of our common stock, the risk free interest rate and the contractual term. Such derivative instruments are not traded on an open market as the banks are the counterparties to the instruments. The accounting guidance also requires an accretion of the resulting debt discount as interest expense using the effective interest rate method over the expected life of the convertible debt.
Derivative Financial Instruments and Hedging Activities
All derivative instruments are recorded on the consolidated balance sheet at fair value. Derivatives not designated as hedge accounting and used to hedge foreign-currency-denominated balance sheet items are reported directly in earnings along with the offsetting transaction gains and losses associated with the items being hedged. Derivatives used to hedge foreign-currency denominated cash flows and floating rate debt may be accounted for as cash flow hedges, as deemed appropriate. Gains and losses on derivatives designated as cash flow hedges are recorded in other comprehensive (loss) income and reclassified to earnings in a manner that matches the timing of the earnings impact of the hedged transactions. The ineffective portion of all
cash flow hedges, if any, is recognized currently in earnings. Derivatives used to manage the foreign currency exchange risk associated with a net investment denominated in another currency are accounted for as a net investment hedge. The effective portion of the hedge is recorded in the same manner as foreign currency translation adjustment in other comprehensive (loss) income. When the investment is dissolved and we recognize a gain or loss in other income (expense), the associated hedge gain or loss in other comprehensive (loss) income will be reclassified to other income (expense).
Derivatives not designated as hedging
We use foreign currency forward contracts to mitigate the risk that the net cash flows resulting from foreign currency transactions will be negatively affected by changes in exchange rates. Gains or losses on our forward contracts, as well as the offsetting losses or gains on the related hedged receivables and payables, are included in non-operating expense (income) in the consolidated statement of operations. Net currency losses on unhedged foreign currency positions totaled $29.2 million, $8.6 million and $17.8 million in 2014, 2013 and 2012, respectively.
The embedded conversion options within senior convertible notes are derivative instruments that are required to be separated from the notes. From December 20, 2013 through May 29, 2014, the period in which we would have been required to settle conversions in cash if exercised, the embedded conversion options within the senior convertible notes due 2018 and 2021 were separated from these notes and accounted for separately as derivative instruments (derivative liabilities) with changes in fair value reported in the consolidated statements of operations, as further discussed in Note 9. Upon obtaining the requisite approvals from our stockholders, these conversion options were determined to be indexed to our common stock and therefore considered equity instruments. Thus, as of May 29, 2014, the conversion options were remeasured at fair value, with the change in fair value reported in the consolidated statement of operations, and the resulting fair value of the conversion options was reclassified to Stockholders' Equity. Changes in fair value subsequent to May 29, 2014 are not recognized in the consolidated statement of operations as long as the instruments continue to qualify to be classified as equity. The embedded conversion options within the senior convertible notes due 2020 are indexed to our common stock and thus were classified as equity instruments upon issuance of these notes.
In connection with the senior convertible notes, we also entered into privately negotiated convertible note hedge transactions and warrant transactions with certain of the initial purchasers of the senior convertible notes or their affiliates. Assuming full performance by the counterparties, the purpose of these transactions was to effectively reduce our potential payout over the principal amount on the notes upon conversion of the notes. From December 20, 2013 through May 29, 2014, the period in which we would have been required to settle the note hedges and warrants related to the senior convertible notes due 2018 and 2021 in cash if exercised, these instruments were required to be accounted for as derivative instruments with changes in fair value reported in the consolidated statements of operations, as further discussed in Note 9. Upon obtaining the requisite approvals from our stockholders, these note hedges and warrants were considered equity instruments. Thus, as of May 29, 2014, these note hedges and warrants were remeasured at fair value, with the changes in fair value reported in the consolidated statement of operations, and the resulting fair values of the note hedges and warrants were reclassified to Stockholders' Equity. Changes in fair value subsequent to May 29, 2014 will not be recognized in the consolidated statement of operations as long as the instruments continue to qualify to be classified as equity. The note hedges and warrants associated with the senior convertible notes due 2020 are indexed to our common stock and thus were classified as equity instruments upon issuance of these notes.
Derivatives designated as hedging
In addition to the currency forward contracts purchased to hedge transactional currency risks, we may enter into currency forward contracts to hedge cash flow risks associated with future purchases of raw materials. Our cash flow hedges are designed to protect against the variability in foreign currency rates between a foreign currency and the U.S. Dollar. As of December 31, 2014, there were no currency forward contracts outstanding being accounted for as cash flow hedges.
We are party to certain interest rate swap instruments that are accounted for using hedge accounting. Interest rate swap arrangements are used to manage risks generally associated with interest rate fluctuations. These contracts have been accounted for as a qualifying cash flow hedge in accordance with derivative instrument and hedging activities guidance, whereby the balance reported within the consolidated financial statements represents the estimated fair value of the net amount we would settle on December 31, 2014. The fair value is an estimate of the net amount that we would pay or receive on the measurement date if the agreements were transferred to other parties or cancelled by us. The counterparties to these agreements are financial institutions. The fair values of the contracts are estimated by obtaining quotations from the financial institutions.
Deferred Financing Costs
We take on debt to raise cash for various transactions and incur various financing charges related to the debt. The financing charges are paid up front, but relate to the life of the debt. We record the financing fees as a deferred charge within other assets and amortize to the income statement over the life of the debt.
Foreign Currency
We determine the functional currency of each subsidiary based on a number of factors, including the predominant currency for the subsidiary’s sales and expenditures and the subsidiary’s borrowings. When a subsidiary’s local currency is considered its functional currency, we translate its financial statements to U.S. Dollars as follows:
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• | Assets and liabilities using exchange rates in effect at the balance sheet date; and |
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• | Statement of operations accounts at average exchange rates for the period. |
Translation adjustments are reported in accumulated other comprehensive (loss) income in stockholders’ equity.
Transaction gains and losses that arise from exchange rate fluctuations on transactions and balances denominated in a currency other than the functional currency are reported in the statement of operations as incurred.
Noncontrolling Interests
Non-controlling interest represents the portion of net assets in consolidated entities that we do not own. For certain partnerships structures where income is not allocated based on legal ownership percentages, we measure the income (loss) allocable to the non-controlling interest holders using the HLBV method that considers the terms of the governing contractual arrangements. The non-controlling interests’ balance is reported as a component of equity in the consolidated balance sheets.
Income Taxes
We use the asset and liability method of accounting for income taxes. Under this method, we are required to recognize the deferred tax liabilities and assets for the expected future tax consequences of temporary differences between financial statement accounting and tax accounting. We record the tax effect of these temporary differences as deferred tax assets (generally items that can be used as a tax deduction or credit in future periods) and deferred tax liabilities (generally items for which we receive a tax deduction, but have not yet been recorded in the consolidated statement of operations). We regularly review our deferred tax assets for realizability, taking into consideration all available evidence, both positive and negative, including historical pre-tax and taxable income (losses), projected future pre-tax and taxable income (losses) and the expected timing of the reversals of existing temporary differences. In arriving at these judgments, the weight given to the potential effect of all positive and negative evidence is commensurate with the extent to which it can be objectively verified. Income from our financing sale-leaseback transactions in the U.S. is deferred until the end of the lease term, generally 20-25 years, through the extinguishment of the debt. However, sale-leaseback transactions generate current U.S. taxable income at the time of the sale, with the timing differences increasing deferred tax assets.
We believe our tax positions are in compliance with applicable tax laws and regulations. Tax benefits are recognized only for tax positions that are more likely than not to be sustained upon examination by tax authorities. The amount recognized is measured as the largest amount of benefit that is greater than 50 percent likely to be realized upon ultimate settlement. Unrecognized tax benefits are tax benefits claimed in our tax returns that do not meet these recognition and measurement standards. The accrual of interest begins in the first reporting period that interest would begin to accrue under the applicable tax law. Penalties, when applicable, are accrued in the financial reporting period in which the uncertain tax position is taken on a tax return. We recognize interest and penalties related to uncertain tax positions in income tax expense, which is consistent with our historical policy. Unrecognized tax benefits, including accrued interest and penalties, are included as a component of other long-term liabilities because we do not anticipate that settlement of the liabilities will require payment of cash within the next year.
We believe that our unrecognized tax benefits, including related interest, are adequate in relation to the potential for additional tax assessments. There is a risk, however, that the amounts ultimately paid upon resolution of audits could be materially different from the amounts previously included in our income tax expense and, therefore, could have a material impact on our tax provision, net (loss) income and cash flows. We review our unrecognized tax benefits quarterly, and we may adjust such liabilities due to proposed assessments by tax authorities, changes in facts and circumstances, issuance of new regulations or new case law, negotiations between tax authorities of different countries concerning our transfer prices between our subsidiaries, the resolution of entire audits, or the expiration of statutes of limitations. Adjustments are most likely to occur in the year during which major audits are closed.
We do not recognize a deferred tax liability U.S. income taxes on the remaining undistributed earnings of our foreign subsidiaries, which would be payable if the undistributed earnings were distributed to the U.S., as we consider those foreign
earnings to be permanently reinvested outside the U.S. We plan foreign remittance amounts based on projected cash flow needs as well as the working capital and long-term investment requirements of our foreign subsidiaries and our domestic operations.
We have made our best estimates of certain income tax amounts included in the financial statements. Application of our accounting policies and estimates, however, involves the exercise of judgment and use of assumptions as to future uncertainties and, as a result, actual results could differ from these estimates. In arriving at our estimates, factors we consider include: how accurate the estimate or assumptions have been in the past, how much the estimate or assumptions have changed and how reasonably likely such change may have a material impact.
Stock-Based Compensation
Stock-based compensation expense for all share-based payment awards is based on the estimated grant-date fair value. We recognize these compensation costs net of an estimated forfeiture rate for only those shares expected to vest on a straight-line basis over the requisite service period of the award, which is generally the option vesting term. For ratable awards, we recognize compensation costs for all grants on a straight-line basis over the requisite service period of the entire award. We estimate the forfeiture rate taking into consideration our historical experience during the preceding four fiscal years.
We routinely examine our assumptions used in estimating the fair value of employee options granted. As part of this assessment, we have determined that our historical stock price volatility and historical pattern of option exercises are appropriate indicators of expected volatility and expected term. The discount rate is determined based on the implied yield currently available on U.S. Treasury zero-coupon issues with a remaining term equal to the expected term of the award. We estimate the fair value of options using the Black-Scholes option-pricing model for our ratable and cliff vesting options. For our market condition awards, the grant date fair value was calculated for these awards using a probabilistic approach under a Monte Carlo simulation taking into consideration volatility, interest rates and expected term.
Contingencies
We are involved in conditions, situations or circumstances in the ordinary course of business with possible gain or loss contingencies that will ultimately be resolved when one or more future events occur or fail to occur. We establish reserves once a payment associated with a claim becomes probable and the payment can be reasonably estimated. We continually evaluate uncertainties associated with loss contingencies and record a charge equal to at least the minimum estimated liability for a loss contingency when both of the following conditions are met: (i) information available prior to issuance of the financial statements indicates that it is probable that an asset had been impaired or a liability had been incurred at the date of the financial statements and (ii) the loss or range of loss can be reasonably estimated. Legal costs are expensed when incurred. Gain contingencies are not recorded until realized or realizable.
Shipping and Handling
Costs to ship products to customers are included in marketing and administration expense in the consolidated statement of operations. Amounts billed to customers, if any, to cover shipping and handling are reported in net sales. Cost to ship products to customers were $19.8 million, $20.8 million and $24.6 million for the years ended December 31, 2014, 2013 and 2012, respectively.
Fair Value Measurements
Fair value accounting guidance establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability, and are based on market data obtained from sources independent of us. Unobservable inputs reflect assumptions market participants would use in pricing the asset or liability based on the best information available in the circumstances. The hierarchy is broken down into three levels based on the reliability of inputs as follows:
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• | Level 1—Valuations based on quoted prices in active markets for identical assets or liabilities that we have the ability to access. Valuation adjustments and block discounts are not applied to Level 1 instruments. Because valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these instruments does not entail a significant degree of judgment. |
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• | Level 2—Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly. Valuations for Level 2 are prepared on an individual instrument basis using data obtained from recent transactions for identical securities in inactive markets or pricing data from similar instruments in active and inactive markets. |
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• | Level 3—Valuations based on inputs that are unobservable and significant to the overall fair value measurement. |
We maintain various financial instruments recorded at cost in the December 31, 2014 and 2013 balance sheets that are not required to be recorded at fair value. For certain of these instruments, including cash equivalents, restricted cash, accounts receivable and payable, customer deposits, income taxes receivable and payable, short-term borrowings and accrued liabilities, cost approximates fair value because of the short maturity period. See Note 10 for disclosures regarding the fair value of debt.
Accounting Standards Updates
In April 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. ASU 2014-08 limits the requirement to report discontinued operations to disposals of components of an entity that represent strategic shifts that have (or will have) a major effect on an entity’s operations and financial results. ASU 2014-08 also requires expanded disclosures concerning discontinued operations, disclosures of certain financial results attributable to a disposal of a significant component of an entity that does not qualify for discontinued operations reporting and expanded disclosures for long-lived assets classified as held for sale or disposed of. ASU 2014-08 is effective for us on a prospective basis in our first quarter of fiscal 2015. Early adoption is permitted, but only for disposals (or assets classified as held for sale) that have not been reported in financial statements previously issued or available for issuance. The adoption of ASU 2014-08 is not expected to have a material impact on our consolidated financial statements and related disclosures.
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. ASU 2014-09 will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. ASU 2014-09 is effective for us on January 1, 2017. Early application is not permitted. The standard permits the use of either a retrospective or cumulative effect transition method. We have not determined which transition method we will adopt, and we are currently evaluating the impact that ASU 2014-09 will have on our consolidated financial statements and related disclosures upon adoption.
In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements - Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, which requires management to evaluate, at each annual and interim reporting period, whether there are conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date the financial statements are issued and to provide related disclosures. ASU 2014-15 is effective for us for our fiscal year ending December 31, 2016 and for interim periods thereafter. We are currently evaluating the impact of this standard on our consolidated financial statements.
In January 2015, the FASB issued ASU No. 2015-01, Income Statement —Extraordinary and Unusual Items (Subtopic 225-20), which eliminates the concept of reporting for extraordinary items. ASU 2015-01 is effective for us for our fiscal year ending December 31, 2016 and for interim periods thereafter. We are currently evaluating the impact of this standard on our consolidated financial statements.
On February 18, 2015, the FASB issued ASU No. 2015-02, Consolidation, which reduces the number of consolidation models and simplifies the current standard. Entities may no longer need to consolidate a legal entity in certain circumstances based solely on its fee arrangements when certain criteria are met. ASU 2015-02 reduces the frequency of the application of related-party guidance when determining a controlling financial interest in a variable interest entity. ASU 2015-02 is effective for us for our fiscal year ending December 31, 2015. We are currently evaluating the impact of this standard on our consolidated financial statements.
3. ACQUISITIONS
SMP Ltd.
In February 2011, we entered into a joint venture (SMP Ltd. or "SMP") with Samsung Fine Chemicals Co. Ltd. ("SFC") for the construction and operation of a new facility to produce high purity polysilicon in Ulsan, South Korea. SMP will manufacture and supply polysilicon to us and to international markets. Prior to May 28, 2014, our ownership interest in SMP was 50% and Samsung Fine Chemicals Co. Ltd. owned the other 50%. Also prior to May 28, 2014, we accounted for our interest in SMP using the equity method of accounting.
In September 2011, we executed a Supply and License Agreement with SMP under which we license and sell to SMP certain technology and related equipment used for producing polysilicon. In accordance with the Supply and License Agreement, we have received proceeds based on certain milestones we have achieved throughout the construction, installation and testing of
the equipment. These proceeds received from SMP under the Supply and License Agreement were recorded as a reduction in our basis in the SMP investment and to the extent that our basis in the investment was zero, the remaining proceeds received were recorded as a long-term liability. The cash received was recorded as an investing inflow within the consolidated statement of cash flows. As of May 28, 2014, our net equity method investment balance in SMP was $13.3 million.
On May 28, 2014, we acquired from SFC an approximate 35% interest in SMP for a cash purchase price of $140.7 million ($71.2 million, net of cash acquired). Prior to the completion of the SSL IPO (see Note 22), SunEdison contributed this approximate 35% interest in SMP to SSL. As a result, on a consolidated basis, we own an approximate 85% interest in SMP, and effectively control SMP's operations, and thus SMP's results are included in our consolidated financial statements from May 28, 2014 onwards. Further, we applied the provisions of U.S. GAAP applicable to business combinations as of the acquisition date, which resulted in the recognition of SMP's net assets acquired and our previously held equity interest at fair value. The remeasurement of the previously held equity interest at the acquisition date resulted in a net gain of $145.7 million that was recorded in the accompanying consolidated statement of operations.
|
| | | |
In millions | Total Estimated Allocation |
Cash and cash equivalents | $ | 69.5 |
|
Prepaid and other current assets | 11.6 |
|
Property, plant and equipment (non-solar energy systems) | 788.1 |
|
Total assets acquired | 869.2 |
|
Accounts payable | 134.8 |
|
Accrued and other liabilities | 5.1 |
|
Long-term debt | 381.9 |
|
Total liabilities assumed | 521.8 |
|
Noncontrolling interest | 47.7 |
|
Fair value of net assets acquired | $ | 299.7 |
|
TerraForm Acquisitions
Mt. Signal
Effective July 2, 2014, TerraForm acquired a controlling interest in Imperial Valley Solar 1 Holdings II, LLC, which owns a 266 MW utility scale solar energy system located in Mt. Signal, California ("Mt. Signal"). TerraForm acquired Mt. Signal from an indirect wholly owned subsidiary of Silver Ridge Power, LLC ("SRP") in exchange for share based consideration in TerraForm consisting of (i) 5,840,000 Class B1 units (and a corresponding number of shares Class B1 common stock) equal in value to $146.0 million and (ii) 5,840,000 Class B units (and a corresponding number of shares Class B common stock) equal in value to $146.0 million.
Prior to the TerraForm IPO (see Note 23), SRP was owned 50% by R/C US Solar Investment Partnership, L.P. (“Riverstone”) and 50% by SunEdison, who acquired all of AES US Solar, LLC (“AES Solar”), a subsidiary of The AES Corporation, equity ownership interest in SRP (see "Silver Ridge Power, LLC" section below). In connection with its acquisition of AES Solar's interest in SRP, SunEdison entered into a Master Transaction Agreement (the "MTA") with Riverstone pursuant to which the parties agreed to sell Mt. Signal to TerraForm and to distribute the Class B units (and shares of Class B common stock) to SunEdison and the Class B1 units (and shares of Class B1 common stock) to Riverstone.
Capital Dynamics
On December 18, 2014, TerraForm acquired 78 MW of distributed generation solar energy systems in the U.S. from Capital Dynamics U.S. Solar Energy Fund, L.P., a closed-end private equity fund. This portfolio consists of 42 solar energy systems located in California, Massachusetts, New Jersey, New York, and Pennsylvania. The purchase price for this acquisition was $257.6 million ($256.7 million, net of cash acquired).
Other TerraForm Acquisitions
During the year ended December 31, 2014, TerraForm completed the acquisitions of 100% of the ownership interests in entities that owned and operated 168 solar energy systems in the U.S., Canada and the U.K. with an aggregate capacity of 128 MW. The aggregate consideration paid for these acquisitions was $250.0 million ($243.2 million, net of cash acquired). These acquisitions were made in order to support the development of TerraForm's initial portfolio of renewable energy generation assets.
The initial accounting for TerraForm's business combinations is not complete because the evaluation necessary to assess the fair values of certain net assets acquired is in process. The provisional amounts are subject to revision until the evaluations are completed to the extent that any additional information is obtained about the facts and circumstances that existed as of the acquisition date.
The provisional estimated allocation of assets and liabilities is as follows:
|
| | | | | | | | | | | | | | | |
In millions | Mt. Signal | | Capital Dynamics | | Other TerraForm Acquisitions | | Total Estimated Allocation |
Cash and cash equivalents | $ | 0.3 |
| | $ | 0.9 |
| | $ | 6.8 |
| | $ | 8.0 |
|
Accounts receivable | 11.6 |
| | 4.5 |
| | 11.3 |
| | 27.4 |
|
Solar energy systems | 649.0 |
| | 200.7 |
| | 245.8 |
| | 1,095.5 |
|
Restricted cash | 22.2 |
| | — |
| | 14.7 |
| | 36.9 |
|
Intangible assets | 117.9 |
| | 83.1 |
| | 140.2 |
| | 341.2 |
|
Other assets | 12.6 |
| | 22.8 |
| | 4.9 |
| | 40.3 |
|
Total assets acquired | 813.6 |
|
| 312.0 |
|
| 423.7 |
|
| 1,549.3 |
|
Accounts payable and accrued liabilities | 24.8 |
| | 5.9 |
| | 7.4 |
| | 38.1 |
|
Long-term debt | 413.5 |
| | — |
| | 137.5 |
| | 551.0 |
|
Other liabilities | 4.6 |
| | 31.9 |
| | 18.9 |
| | 55.4 |
|
Total liabilities assumed | 442.9 |
|
| 37.8 |
|
| 163.8 |
|
| 644.5 |
|
Noncontrolling interest | 78.7 |
| | 16.6 |
| | 9.9 |
| | 105.2 |
|
Fair value of net assets acquired | $ | 292.0 |
|
| $ | 257.6 |
|
| $ | 250.0 |
|
| $ | 799.6 |
|
The preliminary purchase accounting resulted in the recording of provisional amounts for long-term power purchase agreements totaling $341.2 million. The long-term power purchase agreements are intangible assets subject to amortization with no residual value. The estimated fair values were determined based on an income approach and the estimated useful lives of the intangible assets range from 3 to 25 years.
Silver Ridge Power, LLC
On July 2, 2014, we completed the acquisition of 50% of the outstanding limited liability company interests of SRP from AES Solar for total cash consideration of $178.6 million ($133.8 million, net of cash acquired). The remaining 50% of the outstanding limited liability company interests of SRP will continue to be held by Riverstone. SRP’s solar power plant operating projects included the Mt. Signal solar project. Concurrently with entry into the Acquisition Agreement, we also entered into the MTA with Riverstone. Pursuant to the MTA, concurrently with the closing of the TerraForm IPO, SRP contributed Mt. Signal to the operating entity of TerraForm in exchange for total consideration valued at $292.0 million Consequently, Mt. Signal is consolidated by TerraForm as discussed above and is excluded from the following provisional accounting for the acquired interest in SRP.
Through our acquisition of this interest in SRP, we acquired 50% of (i) 336 MW of solar power plant operating projects and (ii) a 40% interest in CSOLAR IV West, LLC (“CSolar”), which is currently developing a 183 MW solar power facility with an executed power purchase agreement in place with a high-credit utility off-taker. Pursuant to the MTA, concurrently with the closing of the TerraForm IPO, the parties also entered into a purchase and sale agreement with respect to CSolar. The purchase and sale agreement provides that, following completion of CSolar, which is expected in 2016, and subject to customary closing conditions and receipt of regulatory approvals, we will acquire Riverstone’s share of SRP’s interest in CSolar. Thereafter, we intend to contribute 100% of SRP’s 40% interest in CSolar to TerraForm.
The initial accounting for this business combination is not complete because the evaluation necessary to assess the fair values of the solar energy systems and intangible assets acquired is in process. The provisional amounts are subject to revision until the evaluations are completed to the extent that any additional information is obtained about the facts and circumstances that existed as of the acquisition date.
The provisional estimated allocation of assets and liabilities for SRP, excluding Mt. Signal, is as follows:
|
| | | |
In millions | Total Estimated Allocation |
Cash and cash equivalents | $ | 44.8 |
|
Restricted cash | 36.1 |
|
Accounts receivable | 26.0 |
|
Prepaid and other current assets | 25.3 |
|
Investments | 114.8 |
|
Solar energy systems | 570.5 |
|
Intangible assets | 205.6 |
|
Goodwill | 28.1 |
|
Long-term restricted cash | 12.4 |
|
Other assets | 87.0 |
|
Total assets acquired | 1,150.6 |
|
Accounts payable | 12.8 |
|
Accrued liabilities | 280.8 |
|
Long-term debt | 685.9 |
|
Other liabilities | 82.5 |
|
Total liabilities assumed | 1,062.0 |
|
Noncontrolling interest | 56.0 |
|
Fair value of net assets acquired | $ | 32.6 |
|
The preliminary purchase accounting resulted in the recording of provisional amounts for long-term PPAs and FiTs totaling $205.6 million. The long-term PPAs and FiTs are intangible assets subject to amortization with no residual value. The estimated fair values were determined based on an income approach and the estimated useful lives of the intangible assets range from 17 to 19 years.
In addition, we also obtained the right, but not an obligation, to acquire AES Solar’s 50% interest in a portfolio of projects located in Italy prior to August 31, 2015 for a purchase price of $42.0 million, subject to certain specified adjustments. We also assumed responsibility for operations and management and asset management for SRP’s entire projects portfolio. We will determine in the future whether these projects will be held on our balance sheet or, subject to Riverstone’s consent, sold to third parties.
Energy Matters Pty. Ltd.
On August 29, 2014, we completed the acquisition of 100% of the ownership interest in Energy Matters Pty. Ltd. ("Energy Matters"), a residential and distributed generation solar entity with operations in Australia and New Zealand. We acquired Energy Matters in exchange for total consideration of $15.8 million, consisting of cash payments totaling $3.1 million ($2.4 million, net of cash acquired) and contingent consideration valued at $11.4 million, with a remaining $1.3 million in cash to be paid in the first quarter of 2015. The preliminary purchase accounting resulted in the recording of provisional amounts for goodwill totaling $10.6 million. The initial accounting for this business combination is not complete because the evaluation necessary to assess the fair values of certain net assets acquired, along with the fair value of contingent consideration, is in process. The provisional amounts are subject to revision until the evaluations are completed to the extent that any additional information is obtained about the facts and circumstances that existed as of the acquisition date.
Other Acquisitions
During the fourth quarter of 2014, we completed the acquisitions of certain businesses for total consideration of $20.7 million, consisting of cash payments of $12.1 million ($12.0 million, net of cash acquired) and contingent consideration of $5.1 million, with a remaining $3.5 million in cash to be paid over the next four years. The preliminary purchase accounting for these acquisitions resulted in the recording of provisional amounts for goodwill totaling $9.6 million. The initial accounting for these business combinations is not complete because the evaluation necessary to assess the fair values of certain net assets acquired, along with the fair value of contingent consideration, is in process. The provisional amounts are subject to revision until the evaluations are completed to the extent that any additional information is obtained about the facts and circumstances that existed as of the acquisition dates.
Pro forma results of operations, assuming all acquisitions were made at January 1, 2013, and the amounts of revenue and earnings recognized in our consolidated statements of operations for these entities since acquisition are not presented as the effects were not material to our results.
4. INVENTORIES
Inventories consist of the following:
|
| | | | | | | | |
| | As of December 31, |
| | 2014 | | 2013 |
In millions | | | | |
Raw materials and supplies | | $ | 67.8 |
| | $ | 114.7 |
|
Goods and work-in-process | | 101.1 |
| | 98.8 |
|
Finished goods | | 57.5 |
| | 34.9 |
|
Total inventories | | $ | 226.4 |
| | $ | 248.4 |
|
Solar Energy segment inventories of $104.3 million and $62.3 million at December 31, 2014 and 2013, respectively, consist of raw materials and supplies, goods and work-in-process, and finished goods not allocated to a solar energy system. Included in the table above at December 31, 2014, was $20.1 million of Semiconductor Materials finished goods inventory held on consignment, compared to $22.9 million at December 31, 2013.
During the years ended December 31, 2014, and 2013, we recorded lower of cost or market charges totaling $7.3 million and $18.5 million respectively, to raw materials and supplies, goods and work-in- process, and finished goods, primarily related to adverse solar market pricing conditions.
5. SOLAR ENERGY SYSTEMS HELD FOR DEVELOPMENT AND SALE
Solar energy systems held for development and sale consist of the following:
|
| | | | | | | | |
| | As of December 31, |
| | 2014 | | 2013 |
In millions | | | | |
Solar energy systems under development | | $ | 164.2 |
| | $ | 419.7 |
|
Solar energy systems held for sale | | 87.3 |
| | 40.4 |
|
Total solar energy systems held for development and sale | | $ | 251.5 |
| | $ | 460.1 |
|
6. INVESTMENTS
The carrying value of short-term and long-term investments consists of the following:
|
| | | | | | | | |
| | As of December 31, |
| | 2014 | | 2013 |
In millions | | | | |
Equity method investments | | $ | 132.8 |
| | $ | 33.2 |
|
Cost method investments | | 16.3 |
| | 7.9 |
|
Total investments | | $ | 149.1 |
| | $ | 41.1 |
|
Equity Method Investments
The increase in equity method investments as of December 31, 2014 compared to December 31, 2013 is primarily related to investments acquired in the SRP business combination, including the investment in CSolar discussed in Note 3 and an investment in various solar energy project entities in Spain.
Cost Method Investments
During the years ended December 31, 2014, 2013 and 2012, we recorded other-than-temporary impairment charges of $1.0 million, $3.2 million, and $3.6 million, respectively, associated with certain cost method investments. The impairments were a result of the length and severity of a fair value decline below our cost basis, with no turnaround in the foreseeable future.
7. PROPERTY, PLANT AND EQUIPMENT (INCLUDING CONSOLIDATED VIEs)
Property, plant and equipment consists of the following:
|
| | | | | | | | |
| | As of December 31, |
| | 2014 | | 2013 |
In millions | | | | |
Land | | $ | 11.9 |
| | $ | 5.6 |
|
Software | | 33.0 |
| | 31.3 |
|
Buildings and improvements | | 286.0 |
| | 322.2 |
|
Machinery and equipment | | 1,563.6 |
| | 1,670.5 |
|
Solar energy systems | | 4,709.3 |
| | 1,686.1 |
|
Total property, plant and equipment in service, at cost | | $ | 6,603.8 |
| | $ | 3,715.7 |
|
Less accumulated depreciation | | (1,360.5 | ) | | (1,120.0 | ) |
Total property, plant and equipment in service, net | | $ | 5,243.3 |
| | $ | 2,595.7 |
|
Construction in progress – non solar energy systems | | 874.8 |
| | 79.4 |
|
Construction in progress – solar energy systems | | 956.2 |
| | 447.8 |
|
Total property, plant and equipment, net | | $ | 7,074.3 |
| | $ | 3,122.9 |
|
Consolidated depreciation expense for the years ended December 31, 2014, 2013 and 2012 was $262.2 million, $206.2 million and $200.6 million, respectively, and includes depreciation expense for capital leases of $4.3 million, $4.3 million and $4.3 million for the years ended December 31, 2014, 2013 and 2012, respectively.
8. GOODWILL AND OTHER INTANGIBLE ASSETS
Intangible assets consist of the following:
|
| | | | | | | | | | | | | | | | | | | | |
| | December 31, 2014 | | December 31, 2013 |
In millions | Weighted Average Amortization Period (years) | Gross Carrying Amount | Accumulated Amortization or Allocated to Solar Energy Systems | Net Carrying Amount | | Gross Carrying Amount | Accumulated Amortization or Allocated to Solar Energy Systems | Net Carrying Amount |
Amortizable intangible assets: | | | | | | | | |
PPAs and FiTs | 20 | $ | 552.9 |
| $ | (12.8 | ) | $ | 540.1 |
| | $ | — |
| $ | — |
| $ | — |
|
Other | 6 | 29.7 |
| (9.1 | ) | 20.6 |
| | 48.9 |
| (28.4 | ) | 20.5 |
|
Total amortizable intangible assets | | $ | 582.6 |
| $ | (21.9 | ) | $ | 560.7 |
| | $ | 48.9 |
| $ | (28.4 | ) | $ | 20.5 |
|
Indefinite lived assets: | | | | | | | | |
Power plant development arrangements(1) | Indefinite | $ | 116.0 |
| $ | (93.4 | ) | $ | 22.6 |
| | $ | 132.6 |
| $ | (62.2 | ) | $ | 70.4 |
|
Other | Indefinite | 3.1 |
| — |
| 3.1 |
| | 0.9 |
| — |
| 0.9 |
|
Total indefinite lived assets | | $ | 119.1 |
| $ | (93.4 | ) | $ | 25.7 |
| | $ | 133.5 |
| $ | (62.2 | ) | $ | 71.3 |
|
__________________________
| |
(1) | Power plant development arrangements are reclassified to the solar energy system (property, plant and equipment or inventory) upon completion of the related solar energy system. Depending on the classification of the system as held for development and sale or property, plant and equipment, amortization expense is recognized in cost of goods sold or in depreciation expense. |
For the years ended December 31, 2014, 2013 and 2012, we recognized amortization expense and expense for power plant development arrangement intangible assets allocated to solar energy systems of $28.1 million, $21.5 million and $34.6 million, respectively. Depending on the classification of the system as held for development and sale or property, plant and equipment, impairment charges related to power plant development assets are recognized in cost of goods sold or in long-lived asset impairment charges. During the year ended December 31, 2014, we incurred impairment charges for our power plant development arrangements of $28.9 million, which are classified in long-lived asset impairment charges in the consolidated statements of operations. During the year ended December 31, 2013, we incurred impairment charges for our power plant development arrangement intangible assets of $10.2 million, which are classified in costs of goods sold in the consolidated statements of operations.
We expect to recognize annual expense on our amortizable intangible assets as follows:
|
| | | | | | | | | | | | | | | | | | | | |
| | 2015 | | 2016 | | 2017 | | 2018 | | 2019 |
In millions | | | | | | | | | | |
Amortization | | $ | 35.8 |
| | $ | 35.9 |
| | $ | 34.9 |
| | $ | 34.5 |
| | $ | 33.3 |
|
The changes in the carrying amount of goodwill for the years ended December 31, 2014 and 2013 are as follows:
|
| | | | |
In millions | | |
Balance as of December 31, 2012 | | $ | — |
|
Goodwill acquired | | 25.3 |
|
Balance as of December 31, 2013 | | 25.3 |
|
Purchase accounting adjustments | | (0.2 | ) |
Goodwill acquired (see Note 3) | | 48.3 |
|
Balance as of December 31, 2014 | | $ | 73.4 |
|
Goodwill balances referenced above relate to our Solar Energy segment.
9. DEBT AND CAPITAL LEASE OBLIGATIONS
Debt (including consolidated VIEs) and capital lease obligations outstanding consist of the following:
|
| | | | | | | | | | | | | | | | | | | | |
| | As of December 31, 2014 | | As of December 31, 2013 |
In millions | | Total | Current and Short-Term | Long-Term | | Total | Current and Short-Term | Long-Term |
Solar Energy debt, non-solar energy systems: | | | | | | | | |
Convertible senior notes due 2018, net of discount | | $ | 485.2 |
| $ | — |
| $ | 485.2 |
| | $ | 460.0 |
| $ | — |
| $ | 460.0 |
|
Convertible senior notes due 2020, net of discount | | 431.6 |
| — |
| 431.6 |
| | — |
| — |
| — |
|
Convertible senior notes due 2021, net of discount | | 428.9 |
| — |
| 428.9 |
| | 408.2 |
| — |
| 408.2 |
|
SMP Ltd. credit facilities (a) | | 355.0 |
| 107.3 |
| 247.7 |
| | — |
| — |
| — |
|
Emerging Markets Yieldco acquisition facility (a) | | 150.0 |
| 1.5 |
| 148.5 |
| | — |
| — |
| — |
|
Other non-solar energy system debt | | 215.1 |
| 215.1 |
| — |
| | — |
| — |
| — |
|
Total solar energy debt, non-solar energy systems | | $ | 2,065.8 |
| $ | 323.9 |
| $ | 1,741.9 |
| | $ | 868.2 |
| $ | — |
| $ | 868.2 |
|
Solar Energy systems debt, including financing and capital leaseback obligations (b): | |
|
|
| |
|
|
|
Short-term debt | | $ | 9.1 |
| $ | 9.1 |
| $ | — |
| | $ | 68.9 |
| $ | 68.9 |
| $ | — |
|
System pre-construction, construction and term debt | | 1,767.2 |
| 631.5 |
| 1,135.7 |
| | 677.8 |
| 268.6 |
| 409.2 |
|
Capital leaseback obligations | | 81.4 |
| 3.0 |
| 78.4 |
| | 94.0 |
| 4.5 |
| 89.5 |
|
Financing leaseback obligations | | 1,403.7 |
| 13.8 |
| 1,389.9 |
| | 1,297.7 |
| 15.1 |
| 1,282.6 |
|
Other system financing transactions | | 67.0 |
| 16.2 |
| 50.8 |
| | 121.9 |
| 0.1 |
| 121.8 |
|
Total Solar Energy debt, including financing and capital leaseback obligations, solar energy systems | | $ | 3,328.4 |
| $ | 673.6 |
| $ | 2,654.8 |
| | $ | 2,260.3 |
| $ | 357.2 |
| $ | 1,903.1 |
|
TerraForm Power debt (a): | |
|
|
| |
|
|
|
TerraForm Power term facility | | $ | 573.5 |
| $ | 5.7 |
| $ | 567.8 |
| | $ | — |
| $ | — |
| $ | — |
|
Other system financing transactions | | 1,024.6 |
| 74.4 |
| 950.2 |
| | 437.3 |
| 37.5 |
| 399.8 |
|
Total TerraForm Power debt | | $ | 1,598.1 |
| $ | 80.1 |
| $ | 1,518.0 |
| | $ | 437.3 |
| $ | 37.5 |
| $ | 399.8 |
|
Semiconductor Materials debt (a): | |
|
|
| |
|
|
|
SSL term facility | | $ | 207.1 |
| $ | 2.1 |
| $ | 205.0 |
| | $ | — |
| $ | — |
| $ | — |
|
Long-term notes | | — |
| — |
| — |
| | 10.4 |
| 2.8 |
| 7.6 |
|
Total Semiconductor Materials debt | | $ | 207.1 |
| $ | 2.1 |
| $ | 205.0 |
| | $ | 10.4 |
| $ | 2.8 |
| $ | 7.6 |
|
Total debt outstanding | | $ | 7,199.4 |
| $ | 1,079.7 |
| $ | 6,119.7 |
| | $ | 3,576.2 |
| $ | 397.5 |
| $ | 3,178.7 |
|
________________________ (a) Non-recourse to SunEdison
(b) Includes $40.3 million and $60.2 million of debt with recourse to SunEdison as of December 31, 2014 and 2013, respectively
Solar Energy Debt, Non-solar Energy Systems
Convertible Senior Notes Due 2018 and 2021
On December 20, 2013, we issued $600.0 million in aggregate principal amount of 2.00% convertible senior notes due 2018 (the "2018 Notes") and $600.0 million aggregate principal amount of 2.75% convertible senior notes due 2021 (the "2021 Notes", and together with the 2018 Notes, the "2018/2021 Notes") in a private placement offering. We received net proceeds, after payment of debt financing fees, of $1,167.3 million in the offering, before the redemption of the $550.0 million outstanding aggregate principal amount of the 7.75% senior notes due 2019 and the repayment of the $200.0 million outstanding aggregate principle amount of the 10.75% second lien term loan and before payment of the net cost of the call spread overlay described below.
Interest on the 2018 Notes is payable on April 1 and October 1 of each year, beginning on April 1, 2014. Interest on the 2021 Notes is payable on January 1 and July 1 of each year, beginning on July 1, 2014. The 2018 Notes and the 2021 Notes mature on October 1, 2018 and January 1, 2021, respectively, unless earlier converted or purchased.
The 2018/2021 Notes are convertible at any time until the close of business on the business day immediately preceding July 1, 2018 (in the case of the 2018 Notes) or October 1, 2020 (in the case of the 2021 Notes) only under the following
circumstances: (1) during any calendar quarter commencing after the calendar quarter ending March 31, 2014, if the closing sale price of our common stock, for at least 20 trading days (whether or not consecutive) in the period of 30 consecutive trading days ending on the last trading day of the calendar quarter immediately preceding the calendar quarter in which the conversion occurs, is more than 120% of the conversion price of the 2018/2021 Notes in effect on each applicable trading day; (2) during the five consecutive business day period following any 10 consecutive trading-day period in which the trading price for the 2018/2021 Notes for each such trading day is less than 98% of the closing sale price of our common stock on such trading day multiplied by the applicable conversion rate on such trading day; or (3) upon the occurrence of specified corporate events. As condition (1) was met during the fourth quarter of 2014, the 2018/2021 Notes were convertible as of December 31, 2014. On and after July 1, 2018 (in the case of the 2018 Notes) or October 1, 2020 (in the case of the 2021 Notes) and until the close of business on the second scheduled trading day immediately prior to the applicable stated maturity date, the 2018/2021 Notes are convertible regardless of the foregoing conditions based on an initial conversion price of $14.62 per share of our common stock.
The conversion price will be subject to adjustment in certain events, such as distributions of dividends or stock splits. The 2018/2021 Notes are convertible only into cash, shares of our common stock or a combination thereof at our election. However, we were required to settle conversions solely in cash until we obtained the requisite approvals from our stockholders to (i) amend our restated certificate of incorporation to sufficiently increase the number of authorized but unissued shares of our common stock to permit the conversion and settlement of the 2018/2021 Notes into shares of our common stock, and (ii) authorize the issuance of the maximum numbers of shares described above in accordance with the continued listing standards of The New York Stock Exchange. At our annual stockholders meeting on May 29, 2014, the requisite majority of the outstanding shares of our common stock approved these measures, and we subsequently filed a related amendment to the SunEdison's Articles of Incorporation with the Secretary of State of the State of Delaware. Holders may also require us to repurchase all or a portion of the 2018/2021 Notes upon a fundamental change, as defined in the indenture agreement, at a cash repurchase price equal to 100% of the principal amount plus accrued and unpaid interest. In the event of certain events of default, such as our failure to make certain payments, pay debts as they become due or perform or observe certain obligations thereunder, the trustee or holders of a specified amount of then-outstanding 2018/2021 Notes will have the right to declare all amounts then outstanding due and payable. We may not redeem the 2018/2021 Notes prior to the applicable stated maturity date.
The 2018/2021 Notes are general unsecured obligations and rank senior in right of payment to any of our future indebtedness that is expressly subordinated in right of payment to the 2018/2021 Notes; equal in right of payment to our existing and future unsecured indebtedness that is not so subordinated; effectively subordinated in right of payment to any of our secured indebtedness to the extent of the value of the assets securing such indebtedness; and effectively subordinated to all existing and future indebtedness (including trade payables) incurred by our subsidiaries.
From December 20, 2013 through May 29, 2014, the period in which we would have been required to settle conversions in cash if exercised, the embedded conversion options (the "2018/2021 Conversion Options") within the 2018/2021 Notes were separated from the 2018/2021 Notes and accounted for separately as derivative instruments (derivative liabilities) with changes in fair value reported in the consolidated statements of operations, as further discussed in the Loss on Convertible Notes Derivatives section below. Upon obtaining the requisite approvals from our stockholders discussed above, the 2018/2021 Conversion Options were considered equity instruments. Thus, as of May 29, 2014, the 2018/2021 Conversion Options were remeasured at fair value, or $888.4 million, with the change in fair value reported in the consolidated statement of operations, and the resulting fair value of the 2018/2021 Conversion Options was reclassified to Stockholders' Equity. Changes in fair value subsequent to May 29, 2014 are not recognized in the consolidated statement of operations as long as the instruments continue to qualify to be classified as equity.
Call Spread Overlay for Convertible Senior Notes Due 2018 and 2021
Concurrent with the issuance of the 2018/2021 Notes, we entered into privately negotiated convertible note hedge transactions (collectively, the "2018/2021 Note Hedges") and warrant transactions (collectively, the "2018/2021 Warrants" and together with the 2018/2021 Note Hedges, the “2018/2021 Call Spread Overlay”), with certain of the initial purchasers of the 2018/2021 Notes or their affiliates. Assuming full performance by the counterparties, the 2018/2021 Call Spread Overlay is designed to effectively reduce our potential payout over the principal amount on the 2018/2021 Notes upon conversion.
Under the terms of the 2018/2021 Note Hedges, we purchased from affiliates of certain of the initial purchasers of the 2018/2021 Notes options to acquire, at an exercise price of $14.62 per share, subject to anti-dilution adjustments, up to 82.1 million shares of our common stock. Each 2018/2021 Note Hedge is a separate transaction, entered into by us with each option counterparty, and is not part of the terms of the 2018/2021 Notes. Each 2018/2021 Note Hedge is exercisable upon the conversion of the 2018/2021 Notes and expires on the corresponding maturity dates of the 2018/2021 Notes. The option
counterparties are generally obligated to settle their obligations to us upon exercise of the 2018/2021 Note Hedges in the same manner as we satisfy our obligations to holders of the 2018/2021 Notes.
Under the terms of the 2018/2021 Warrants, we sold to affiliates of certain of the initial purchasers of the 2018/2021 Notes warrants to acquire, on the stated expiration date of each 2018/2021 Warrant, up to 82.1 million shares of our common stock at an exercise price of $18.35 and $18.93 per share, respectively, subject to anti-dilution adjustments. Each 2018/2021 Warrant transaction is a separate transaction, entered into by us with each option counterparty, and is not part of the terms of the 2018/2021 Notes.
From December 20, 2013 through May 29, 2014, the period in which we would have been required to settle the 2018/2021 Note Hedges and 2018/2021 Warrants in cash if exercised, these instruments were required to be accounted for as derivative instruments with changes in fair value reported in the consolidated statements of operations, as further discussed in the Loss on Convertible Notes Derivatives section below. Upon obtaining the requisite approvals from our stockholders discussed above, the 2018/2021 Note Hedges and 2018/2021 Warrants were considered equity instruments. Thus, as of May 29, 2014, the 2018/2021 Note Hedges and 2018/2021 Warrants were remeasured at fair value (asset of $880.0 million and liability of $753.3 million respectively), with the changes in fair value reported in the consolidated statement of operations, and the resulting fair values of the 2018/2021 Note Hedges and 2018/2021 Warrants were reclassified to Stockholders' Equity. Changes in fair value subsequent to May 29, 2014 will not be recognized in the consolidated statement of operations as long as the instruments continue to qualify to be classified as equity.
The net increase in additional paid in capital during the second quarter of 2014 as a result of the reclassification of the 2018/2021 Conversion Options, 2018/2021 Note Hedges and 2018/2021 Warrants was $761.7 million.
Loss on Convertible Notes Derivatives
For the year ended December 31, 2014, we recognized a net loss of $499.4 million related to the change in the fair value of the 2018/2021 Conversion Options, the 2018/2021 Note Hedges and 2018/2021 Warrants (the "2018/2021 Convertible Notes Derivatives") prior to the reclassification of these instruments to Stockholders' Equity as discussed above, which is reported in loss on convertible notes derivatives, net in the consolidated statement of operations, as follows:
|
| | | |
In millions | December 31, 2014 |
Conversion Options | $ | 381.9 |
|
Note Hedges | (365.3 | ) |
Warrants | 482.8 |
|
Total loss on convertible note derivatives, net | $ | 499.4 |
|
The 2018/2021 Convertible Notes Derivatives were measured at fair value as of May 29, 2014 using a Black-Scholes valuation model as these instruments are not traded on an open market. Significant inputs to the valuation model, which have been identified as Level 2 inputs, were as follows:
|
| | | | | | | | | | | |
| Conversion Option | | Note Hedges | | Warrants |
| Due 2018 | | Due 2021 | | Due 2018 | | Due 2021 | | Due 2018 | | Due 2021 |
Stock price | $20.50 | | $20.50 | | $20.50 | | $20.50 | | $20.50 | | $20.50 |
Exercise price | $14.62 | | $14.62 | | $14.62 | | $14.62 | | $18.35 | | $18.93 |
Risk-free rate | 1.34% | | 1.95% | | 1.30% | | 1.93% | | 1.45% | | 2.30% |
Volatility | 45.0% | | 45.0% | | 45.0% | | 45.0% | | 42.0% | | 42.0% |
Dividend yield | —% | | —% | | —% | | —% | | —% | | —% |
Maturity | 2018 | | 2021 | | 2018 | | 2021 | | 2018 | | 2021 |
Further details of the inputs above are as follows:
| |
• | Stock price - The closing price of our common stock on May 29, 2014 |
| |
• | Exercise price - The exercise (or conversion) price of the derivative instrument |
| |
• | Risk-free rate - The Treasury Strip rate associated with the life of the derivative instrument |
| |
• | Volatility - The volatility of our common stock over the life of the derivative instrument |
Convertible Senior Notes Due 2020
On June 10, 2014, we issued $600.0 million in aggregate principal amount of 0.25% convertible senior notes due 2020 (the "2020 Notes") in a private placement offering. We received net proceeds, after payment of debt financing fees, of $584.5 million in the offering, before payment of the net cost of the call spread overlay described below.
Interest on the 2020 Notes is payable on July 15 and January 15 of each year, beginning on January 15, 2015. The 2020 Notes mature on January 15, 2020, unless earlier converted or purchased.
The 2020 Notes are convertible at any time until the close of business on the business day immediately preceding October 15, 2019 only under the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ending September 30, 2014, if the closing sale price of our common stock, for at least 20 trading days (whether or not consecutive) in the period of 30 consecutive trading days ending on the last trading day of the calendar quarter immediately preceding the calendar quarter in which the conversion occurs, is more than 130% of the conversion price of the 2020 Notes in effect on each applicable trading day; (2) during the five consecutive business day period following any 10 consecutive trading-day period in which the trading price for the 2020 Notes for each such trading day is less than 98% of the closing sale price of our common stock on such trading day multiplied by the applicable conversion rate on such trading day; or (3) upon the occurrence of specified corporate events. The 2020 Notes were not convertible as of December 31, 2014. On and after October 15, 2019 and until the close of business on the second scheduled trading day immediately prior to the applicable stated maturity date, the 2020 Notes are convertible regardless of the foregoing conditions based on an initial conversion price of $26.87 per share of our common stock.
The conversion price will be subject to adjustment in certain events, such as distributions of dividends or stock splits. The 2020 Notes are convertible only into cash, shares of our common stock or a combination thereof at our election. Holders may also require us to repurchase all or a portion of the 2020 Notes upon a fundamental change, as defined in the indenture agreement, at a cash repurchase price equal to 100% of the principal amount plus accrued and unpaid interest. In the event of certain events of default, such as our failure to make certain payments or perform or observe certain obligations thereunder, the trustee or holders of a specified amount of then-outstanding 2020 Notes will have the right to declare all amounts then outstanding due and payable. We may not redeem the 2020 Notes prior to the applicable stated maturity date.
The 2020 Notes are general unsecured obligations and rank senior in right of payment to any of our future indebtedness that is expressly subordinated in right of payment to the 2020 Notes; equal in right of payment to our existing and future unsecured indebtedness that is not so subordinated; effectively subordinated in right of payment to any of our secured indebtedness to the extent of the value of the assets securing such indebtedness; and to all existing and future indebtedness (including trade payables) incurred by our subsidiaries.
The embedded conversion options within the 2020 Notes are indexed to our common stock and thus were classified as equity instruments upon issuance of the 2020 Notes. The initial fair value of the embedded conversion options was recognized as a reduction in the carrying value of the 2020 Notes in the consolidated balance sheet and such discount will be amortized and recognized as interest expense over the term of the 2020 Notes. Subsequent changes in fair value are not recognized as long as the instruments continue to qualify to be classified as equity.
Call Spread Overlay for Convertible Senior Notes Due 2020
Concurrent with the issuance of the 2020 Notes, we entered into privately negotiated convertible note hedge transactions (collectively, the "2020 Note Hedge") and warrant transactions (collectively, the "2020 Warrants" and together with the 2020 Note Hedge, the “2020 Call Spread Overlay”), with certain of the initial purchasers of the 2020 Notes or their affiliates. Assuming full performance by the counterparties, the 2020 Call Spread Overlay is meant to effectively reduce our potential payout over the principal amount on the 2020 Notes upon conversion of the 2020 Notes.
Under the terms of the 2020 Note Hedge, we bought from affiliates of certain of the initial purchasers of the 2020 Notes options to acquire, at an exercise price of $26.87 per share, subject to anti-dilution adjustments, up to 22.3 million shares of our common stock. Each 2020 Note Hedge is a separate transaction, entered into by us with each option counterparty, and is not part of the terms of the 2020 Notes. Each 2020 Note Hedge is exercisable upon the conversion of the 2020 Notes and expires on the corresponding maturity dates of the 2020 Notes.
Under the terms of the 2020 Warrants, we sold to affiliates of certain of the initial purchasers of the 2020 Notes warrants to acquire, on the stated expiration date of each Warrant, up to 22.3 million shares of our common stock at an exercise price of $37.21 per share, subject to anti-dilution adjustments. Each 2020 Warrant transaction is a separate transaction, entered into by us with each option counterparty, and is not part of the terms of the 2020 Notes.
The 2020 Note Hedge and 2020 Warrants are indexed to our common stock and thus were classified as equity instruments upon issuance and recognized at fair value based on the negotiated transaction prices. Subsequent changes in fair value are not recognized as long as the instruments continue to qualify to be classified as equity.
Convertible Senior Notes Due 2022
On January 27, 2015, we issued $460.0 million in aggregate principal amount of 2.375% convertible senior notes due 2022 (the "2022 Notes") in a private placement offering. We received net proceeds, after payment of debt financing fees, of $447.9 million in the offering, before payment of the net cost of the capped call feature described below.
Interest on the 2022 Notes is payable semiannually on April 15 and October 15 of each year, beginning on October 15, 2015. The 2022 Notes mature on April 15, 2022, unless earlier converted or repurchased.
The 2022 Notes are convertible at any time until the close of business on the business day immediately preceding April 15, 2022 only under the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ending March 31, 2015, if the closing sale price of our common stock, for at least 20 trading days (whether or not consecutive) in the period of 30 consecutive trading days ending on the last trading day of the calendar quarter immediately preceding the calendar quarter in which the conversion occurs, is more than 130% of the conversion price of the 2022 Notes in effect on each applicable trading day; (2) during the five consecutive business day period following any 10 consecutive trading-day period in which the trading price for the 2022 Notes for each such trading day is less than 98% of the closing sale price of our common stock on such trading day multiplied by the applicable conversion rate on such trading day; or (3) upon the occurrence of specified corporate events. On and after January 15, 2022 and until the close of business on the second scheduled trading day immediately prior to the applicable stated maturity date, the 2022 Notes are convertible regardless of the foregoing conditions based on an initial conversion price of $25.25 per share of our common stock.
The conversion price will be subject to adjustment in certain events, such as distributions of dividends or stock splits. The 2022 Notes are convertible only into cash, shares of our common stock or a combination thereof at our election. Holders may also require us to repurchase all or a portion of the 2022 Notes upon a fundamental change, as defined in the indenture agreement, at a cash repurchase price equal to 100% of the principal amount plus accrued and unpaid interest. In the event of certain events of default, such as our failure to make certain payments or perform or observe certain obligations thereunder, the trustee or holders of a specified amount of then-outstanding 2022 Notes will have the right to declare all amounts then outstanding due and payable. We may not redeem the 2022 Notes prior to the applicable stated maturity date.
The 2022 Notes are general unsecured obligations and rank senior in right of payment to any of our future indebtedness that is expressly subordinated in right of payment to the 2022 Notes; equal in right of payment to our existing and future unsecured indebtedness that is not so subordinated; effectively subordinated in right of payment to any of our secured indebtedness to the extent of the value of the assets securing such indebtedness; and to all existing and future indebtedness (including trade payables) incurred by our subsidiaries.
Capped Call Feature
In connection with the issuance of the 2022 Notes in January 2015, we paid $37.6 million to enter into privately negotiated capped call option agreements to reduce the potential dilution to holders of our common stock upon conversion of the 2022 Notes. The capped call option agreements have a cap price of $32.72 and an initial strike price of $25.25, which is equal to the initial conversion price of the 2022 Notes. The capped call options expire on April 15, 2022. The capped call option agreements are separate transactions, are not a part of the terms of the 2022 Notes, and do not affect the rights of the holders of the 2022 Notes. The capped call transactions are expected generally to reduce the potential dilution with respect to our common stock upon conversion of the 2022 Notes and/or offset any cash payments we are required to make in excess of the principal amount of converted 2022 Notes, as the case may be, upon any conversion of notes in the event that the market price of our common stock is greater than the strike price of the capped call transactions, with such reduction of potential dilution or offset of cash payments subject to a cap based on the cap price of the capped call transactions.
Margin Loan
On January 29, 2015, a wholly-owned subsidiary entered into a margin loan agreement (the “Margin Loan Agreement”) with the lenders party thereto (each, a “Lender”) and Deutsche Bank AG, as the administrative agent and the calculation agent thereunder, and SunEdison concurrently entered into a guaranty agreement in favor of the administrative agent for the benefit of each of the Lenders, pursuant to which SunEdison guaranteed all of the subsidiary’s obligations under the Margin Loan Agreement. Under the Margin Loan Agreement, the subsidiary borrowed $410.0 million in term loans. The net proceeds of the term loans, less certain expenses, were made available to SunEdison to fund the acquisition of First Wind Holdings, LLC. The
term loans mature on January 29, 2017. All outstanding amounts under the Margin Loan Agreement bear interest at a rate per annum equal to a three-month Eurodollar rate plus an applicable margin.
The Margin Loan Agreement requires the subsidiary to maintain a certain loan to value ratio (based on the value of the Class A common stock of TerraForm (“TerraForm Class A Common Stock”), which certain of the collateral may be exchanged for). In the event that this ratio is not maintained, the subsidiary must post additional cash collateral under the Margin Loan Agreement and/or elect to repay a portion of the term loans thereunder. In addition, the Margin Loan Agreement requires the repayment of all or a portion of the term loans made thereunder upon the occurrence of certain events customary for financings of this nature, including other events relating to the price, liquidity or value of TerraForm Class A Common Stock, certain events or extraordinary transactions related to TerraForm and certain events related to SunEdison.
The Borrower’s obligations under the Margin Loan Agreement are secured by a first priority lien on shares of Class B common stock in TerraForm, and Class B units and incentive distribution rights in TerraForm Power, LLC (“Terra LLC”), in each case, that are owned by the subsidiary. The Margin Loan Agreement contains customary representations and warranties, covenants and events of default for financings of this nature. Upon the occurrence and during the continuance of an event of default, any lender may declare the term loans due and payable, exercise remedies with respect to the collateral and demand payment from SunEdison of the obligations under the Margin Loan Agreement then due and payable. TerraForm has agreed to certain obligations in connection with the Margin Loan Agreement relating to its equity securities.
We paid fees of $10.9 million upon entry into the Margin Loan Agreement, which were recognized as deferred financing fees.
First Wind Bridge Credit Facility
On November 17, 2014, we entered into a credit agreement with the lenders identified therein and Barclays Bank PLC, as administrative agent, arranger, lender, and letter of credit issuer (the “First Wind Bridge Credit Facility”). The First Wind Bridge Credit Facility provided for a senior secured letter of credit facility in an aggregate principal amount up to $815.0 million. The purpose of the First Wind Bridge Credit Facility was to provide an interim line of credit for the Company to backstop expenses related to the acquisition of First Wind Holdings, LLC. The First Wind Bridge Credit Facility was terminated in conjunction with the acquisition consummation on January 29, 2015. No amounts were drawn under the First Wind Bridge Credit Facility. The Company incurred $7.4 million in commitment fees during the year ended December 31, 2014 which were reported in interest expense in the consolidated statement of operations.
First Wind Exchangeable Notes
On January 29, 2015, a wholly owned subsidiary of SunEdison, issued $336.5 million aggregate principal amount of 3.75% Guaranteed Exchangeable Senior Secured Notes due 2020 (the “Exchangeable Notes”) in a private placement pursuant to an indenture agreement (the “Exchangeable Notes Indenture”), among the subsidiary, SunEdison, as guarantor, and Wilmington Trust, National Association, as exchange agent, registrar, paying agent and collateral agent (the “Exchangeable Notes Trustee”). In connection with the issuance of the Exchangeable Notes, the subsidiary also entered into a pledge agreement with the Exchangeable Notes Trustee, in its capacity as collateral agent, providing for the pledge of TerraForm shares of Class B common stock and Terra LLC’s Class B units held by the subsidiary (the “Class B Securities”) as described below.
The proceeds of the Exchangeable Notes made up a portion of SunEdison’s upfront consideration for the acquisition of First Wind Holdings, LLC. The Exchangeable Notes bear interest at a rate of 3.75% per annum and mature on January 15, 2020. Interest on the Exchangeable Notes will be payable semiannually in arrears to holders of record at the close of business on January 1 or July 1 immediately preceding the interest payment date on January 15 and July 15 of each year, commencing on July 15, 2015.
The Exchangeable Notes will be secured by a first priority lien on the Class B Securities, equal to the number of shares of TerraForm Class A Common Stock initially issuable upon exchange of the Exchangeable Notes, including the maximum number of shares of TerraForm Class A Common Stock to be issued upon exchange in connection with a make-whole fundamental change, which Class B Securities will be transferred by SunEdison to the subsidiary upon issuance of the Exchangeable Notes. SunEdison will transfer to the subsidiary, and the subsidiary will pledge, on a first priority basis, additional shares of the Class B Securities in connection with any adjustment to the exchange rate, so that, at all times, the Class B Securities equal to the full number of shares of TerraForm Class A Common Stock issuable upon exchange of the Exchangeable Notes shall be held by the subsidiary and subject to such first priority lien. The Exchangeable Notes are fully and unconditionally guaranteed by SunEdison. The Exchangeable Notes and the guarantees are pari passu in right of payment to the SunEdison’s obligations under its outstanding convertible debt.
Holders of the Exchangeable Notes may exchange their Exchangeable Notes at their option on or after January 29, 2016 at any time prior to the close of business on the business day immediately preceding the maturity date. Upon exchange, the subsidiary
will deliver shares of TerraForm Class A Common Stock, based upon the applicable exchange rate (together with a cash payment in lieu of delivering any fractional share). The initial exchange rate is 28.9140 shares of TerraForm Class A Common Stock per $1,000 principal amount of Exchangeable Notes, equivalent to an initial exchange price of approximately $34.58 per share of TerraForm Class A Common Stock. The exchange rate is subject to adjustment in some events but will not be adjusted for accrued interest.
The subsidiary may not redeem the relevant Exchangeable Note prior to the maturity date, and no “sinking fund” is provided for the Exchangeable Notes. Upon the occurrence of a “Fundamental Change” (as defined in the Exchangeable Notes Indenture), holders of the Exchangeable Notes may require the subsidiary to repurchase for cash the Exchangeable Notes at a price equal to 100% of the principal amount of the Exchangeable Notes being repurchased plus any accrued and unpaid interest up to, but excluding, the repurchase date; provided, however, that if the repurchase date is after a regular record date and on or prior to the interest payment date to which it relates, the subsidiary will instead pay interest accrued to the interest payment date to the holder of record of the Exchangeable Note as of the close of business on the regular record date, and the Fundamental Change purchase price shall then be equal to 100% of the principal amount of the note subject to purchase and will not include any accrued and unpaid interest. In addition, following certain events that constitute “Make-Whole Fundamental Changes” (as defined in the Exchangeable Notes Indenture), the subsidiary will increase the exchange rate for holders who elect to exchange Exchangeable Notes in connection with such events in certain circumstances.
Bridge Credit Facility
On December 20, 2013, we entered into a credit agreement with the lenders identified therein and Deutsche Bank AG New York Branch, as administrative agent, lender, and letter of credit issuer (the “Bridge Credit Facility”). The Bridge Credit Facility provided for a senior secured letter of credit facility in an aggregate principal amount up to $320.0 million and had a term ending December 15, 2014. The purpose of the Bridge Credit Facility was to backstop outstanding letters of credit issued by Bank of America, N.A. under our former revolving credit facility, which was terminated simultaneously with our entry into the Bridge Credit Facility (subject to our obligation to continue paying fees in respect of outstanding letters of credit).
The Bridge Credit Facility was terminated on February 28, 2014, in connection with entering into the Solar Energy credit facility discussed below. The termination of the Bridge Credit Facility resulted in the writeoff of $2.5 million in unamortized deferred financing fees, which is reported in interest expense in the consolidated statement of operations.
Solar Energy Credit Facility
On February 28, 2014, we entered into a credit agreement with the lenders identified therein, Wells Fargo Bank, National Association, as administrative agent, Goldman Sachs Bank USA and Deutsche Bank Securities Inc., as joint lead arrangers and joint syndication agents, and Goldman Sachs Bank USA, Deutsche Bank Securities Inc., Wells Fargo Securities, LLC and Macquarie Capital (USA) Inc., as joint bookrunners (the “Credit Facility”). The Credit Facility provided for a senior secured letter of credit facility in an aggregate principal amount up to $265.0 million and has a term ending February 28, 2017. In the second quarter 2014, the parties added additional issuers to the Credit Facility to increase the funds available from $265.0 million to $315.0 million. Also in the second quarter 2014, all related parties executed an amendment allowing us to increase aggregate funds committed up to $800.0 million ($400.0 million prior to amendment), subject to certain conditions. In the fourth quarter 2014, the parties added additional issuers to the Credit Facility to increase the funds available from $315.0 million to $540.0 million. Also in the fourth quarter 2014, all related parties executed an amendment permitting the Company to secure additional financing in an amount up to $815.0 million for the First Wind Bridge Facility (see "First Wind Bridge Credit Facility"). In January 2015, an issuer that remains party to the facility committed $25.0 million in additional funds, increasing the aggregate funding under the Credit Facility from $540.0 million to $565.0 million, of the $800.0 million in capacity. In addition, the parties executed an amendment permitting the Company to secure additional financing in an amount up to $400 million secured by certain equity interests in TerraForm Power, Inc. (see "Margin Loan Agreement") and to issue up to $500 million in convertible senior notes due 2022 (see "2022 Notes").
The Credit Facility will be used to backstop outstanding letters of credit issued by Bank of America, N.A. under our former revolving credit facility until they expire, as well as for general corporate purposes. In addition, the amendment to the Credit Facility will permit investments in (i) a subsidiary formed for the purpose of owning subsidiaries that own and operate Alternative Fuel Energy Systems (as defined in the Credit Facility) and (ii) wind, biomass, natural gas, hydroelectric, geothermal or other clean energy generation installations or hybrid energy generation installations. We paid fees of $5.8 million upon entry into the Credit Facility, which were recognized as deferred financing fees.
Our obligations under the Credit Facility are guaranteed by certain of our domestic subsidiaries. Our obligations and the guaranty obligations of our subsidiaries are secured by first priority liens on and security interests in substantially all present and future assets of SunEdison and the subsidiary guarantors, including a pledge of the capital stock of certain of our domestic and foreign subsidiaries.
Interest under the Credit Facility accrues on the daily amount available to be drawn under outstanding letters of credit or bankers' acceptances, at an annual rate of 3.75%. Interest is due and payable in arrears at the end of each fiscal quarter and on the maturity date of the Credit Facility. Drawn amounts on letters of credit are due within seven business days, and interest accrues on drawn amounts at a base rate plus 2.75%.
The Credit Facility, as amended, contains representations, covenants and events of default typical for credit arrangements of comparable size, including maintaining a consolidated leverage ratio of 3.0 to 1.0 which excludes the 2018/2021 Notes and 2020 Notes(measurement commencing with the last day of the fiscal quarter ending December 31, 2014) and a minimum liquidity amount (measurement commencing with the last day of the fiscal quarter ending June 30, 2014) of the lesser of (i) 400.0 million and (ii) the sum of (x) $300.0 million plus (y) the amount, if any, by which the aggregate commitments exceed $300.0 million at such time. The Credit Facility also contains a customary material adverse effects clause and a cross default clause. The cross default clause is applicable to defaults on other indebtedness of SunEdison, Inc. in excess of $50.0 million, including the 2018/2021 Notes and 2020 Notes but excluding our non-recourse indebtedness.
The Credit Facility also contains mandatory prepayment and/or cash collateralization provisions applicable to specified asset sale transactions as well as our receipt of proceeds from certain insurance or condemnation events and the incurrence of additional indebtedness.
As of December 31, 2014, we had $518.9 million of outstanding third party letters of credit backed by the Credit Facility, which reduced the available capacity. Therefore, letters of credit could be issued under the Credit Facility in the amount of$21.1 million as of December 31, 2014.
Emerging Markets Yieldco Acquisition Facility
On December 22, 2014, our subsidiary SunEdison Emerging Markets Yield, Inc. (“EM Yieldco") entered into a credit and guaranty agreement with various lenders and J.P. Morgan, as administrative agent, collateral agent, documentation agent, sole lead arranger, sole lead bookrunner, and syndication agent (the “EM Yieldco Acquisition Facility”). The EM Yieldco Acquisition Facility provides for a term loan credit facility in the amount of $150.0 million which will be used for the acquisition of certain renewable energy generation assets. The EM Yieldco Acquisition Facility will mature on the earlier of December 22, 2016 and the date on which all loans under the Acquisition Facility become due and payable in full, whether by acceleration or otherwise. The principal amount of loans under the EM Yieldco Acquisition Facility is payable in consecutive semiannual installments on June 22, 2015 and December 22, 2015, in each case, in an amount equal to 0.5% of the original principal balance of the loans funded prior to such payment, with the remaining balance payable on the maturity date. Loans under the EM Yieldco Acquisition Facility are non-recourse debt to entities outside of the legal entities that subscribe to the debt.
Loans and each guarantee under the EM Yieldco Acquisition Facility are secured by first priority security interests in all of EM Yieldco's assets and the assets of its domestic subsidiaries. Interest is based on EM Yieldco's election of either a base rate plus the sum of 6.5% and a spread (as defined) or a reserve adjusted eurodollar rate plus the sum of 7.5% and the spread. The reserve adjusted eurodollar rate will be subject to a floor of 1.0% and the base rate will be subject to a floor of 2.0%. The spread will initially be 0.50% per annum, commencing on the five-month anniversary of the closing date, and will increase by an additional 0.25% per annum every ninety days thereafter. As of December 31, 2014, the interest rate under the EM Yieldco Acquisition Facility was 8.5%. The EM Yieldco Acquisition Facility contains customary representations, warranties, and affirmative and negative covenants, including a minimum debt service coverage ratio applicable to EM Yieldco (1.15:1.00 starting March 31, 2015) that will be tested quarterly. The EM Yieldco Acquisition Facility loans may be prepaid in whole or in part without premium or penalty, and outstanding EM Yieldco Acquisition Facility loans must be prepaid in certain specified circumstances.
At December 31, 2014, EM Yieldco had borrowed $150.0 million under the EM Yieldco Acquisition Facility and paid debt issuance fees of $6.8 million, which were recognized as deferred financing fees.
OCBC (Wind Turbine Purchase) Facility
On December 19, 2014, a subsidiary entered into a credit and guaranty agreement with the Oversea-Chinese Banking Corporation Limited ("OCBC") as sole lead arranger and lender (the “OCBC Facility"). The OCBC Facility provides for a draft loan credit facility in an amount up to $120.0 million. On December 30, 2014, we borrowed $119.1 million under the OCBC Facility to fund a portion of the purchase price for certain production tax qualified turbines. The borrowings under the OCBC Facility will mature 6 months from the funding date unless payment is otherwise accelerated, subject to certain conditions. The principal and interest amount outstanding under the OCBC Facility is payable in full at maturity. Interest is calculated at an amount equal to LIBOR plus an applicable margin of 1.25%. As of December 31, 2014, interest was calculated at approximately 1.6%. In conjunction with the borrowing, an immaterial amount of debt issuance cost was recognized.
SMP Ltd. Credit Facilities
As a result of the acquisition of an additional interest in, and resulting consolidation of, SMP Ltd. discussed in Note 3, our consolidated long-term debt now includes SMP Ltd.'s long-term debt, which consists of four non-recourse term loan facilities and a working capital revolving credit facility. The term loan facilities provide for a maximum credit amount of 475 billion South Korean won in aggregate, which translates to $432.1 million as of December 31, 2014. The credit facilities hold maturity dates ranging from March 2019 to May 2019. Principal and interest on the term loan facilities are paid quarterly, with annual fixed interest rates ranging from 4.34% to 4.71%. As of December 31, 2014, a total of $353.3 million was outstanding under the term loan facilities. The working capital revolving facility provides for borrowings of up to 3 billion South Korean won, which translates to approximately $2.7 million as of December 31, 2014. The working capital facility matures in March 2015. Interest under the working capital facility is paid quarterly and accrues at a variable rate based on the three-month South Korean bank deposit rate plus 1.87%. The interest rate as of December 31, 2014 was 4.03%. As of December 31, 2014, a total of $1.6 million was outstanding under the working capital revolving facility.
Solar Energy Systems Debt, Including Financing and Capital Leaseback Obligations
Our solar energy systems for which we have short-term and long-term debt, capital leaseback and finance obligations are included in separate legal entities. Of this total debt outstanding, $3,288.1 million relates to project specific non-recourse financing that is backed by solar energy system operating assets. This debt has recourse to those separate legal entities but no recourse to us under the terms of the applicable agreements. These finance obligations are fully collateralized by the related solar energy system assets and may also include limited guarantees by us related to operations, maintenance and certain indemnities.
Project Construction Facilities
On March 26, 2014, we entered into a financing agreement with certain lenders; Wilmington Trust, National Association, as administrative agent; Deutsche Bank Trust Company Americas, as collateral agent and loan paying agent; and Deutsche Bank Securities Inc., as lead arranger, bookrunner, structuring bank and documentation agent (the “Construction Facility”). The Construction Facility originally provided for a senior secured revolving credit facility in an amount up to $150.0 million and has a term ending March 26, 2017. During the third quarter of 2014, the parties agreed to increase the amount available under the Construction Facility to $285.0 million. The Construction Facility will be used to support the development and acquisition of new projects in the United States and Canada. Subject to certain conditions, we may request that the aggregate commitments be increased to an amount not to exceed $300.0 million. We paid fees of $7.5 million upon entry into the Construction Facility, which were recognized as deferred financing fees.
Loans under the Construction Facility are non-recourse debt to entities outside of the project company legal entities that subscribe to the debt and are secured by a pledge of collateral of the project company, including the project contracts and equipment. Interest on loans under the Construction Facility is based on our election of either LIBOR plus an applicable margin of 3.5%, or a defined prime rate plus an applicable margin of 2.5%. As of December 31, 2014, the interest rate under the Construction Facility was 5.75%.
The Construction Facility contains customary representations, warranties, and affirmative and negative covenants, including a material adverse effects clause whereby a breach may disallow a future draw but not acceleration of payment and a cross default clause whose remedy, among other rights, includes the right to restrict future loans as well as the right to accelerate principal and interest payments. Covenants primarily relate to the collateral amounts and transfer of right restrictions.
At December 31, 2014, we had borrowed $15.4 million under the Construction Facility, which is classified under system pre-construction, construction and term debt. In the event additional construction financing is needed, we have the ability to draw upon the available capacity of our Credit Facility (discussed above). In the event additional construction financing is needed beyond the amounts available under the Credit Facility and we are unable to obtain alternative financing, or if we have inadequate net working capital, such inability to fund future projects may have an adverse impact on our business growth plans, financial position and results of operations.
System Pre-Construction, Construction and Term Debt
We typically finance our solar energy projects through project entity specific debt secured by the project entity's assets (mainly the solar energy system) with no recourse to us. Typically, financing arrangements provide for a construction loan, which upon completion will be converted into a term loan, and generally do not restrict the future sale of the project entity to a third party buyer. As of December 31, 2014, we had system pre-construction, construction and term debt outstanding of $1,767.2 million, which is comprised of a combination of fixed and variable rate debt. The variable rate debt has interest rates tied to the London Interbank Offered Rate, the Euro Interbank Offer Rate, the Canadian Dollar Offered Rate, the Johannesburg Interbank
Acceptance Rate, and the Prime Rate. The variable interest rates have primarily been hedged by our outstanding interest rate swaps as discussed in Note 10. The interest rates on these obligations range from 1.6% to 14.0% and have maturities that range from 2015 to 2031. The weighted average interest rate on the same construction and term debt was 3.83% as of December 31, 2014.
As of December 31, 2014, $584.9 million in non-recourse project debt was assumed in the acquisition of SRP as discussed in Note 3. The weighted average interest rate on this debt was 3.26% as of December 31, 2014. In the third quarter of 2014, legislation changes in Italy introduced modifications to the feed in tariff programs that were previously guaranteed by the Italian government. These modifications resulted in an event of default for four of SRP's Italian credit facilities. We are in the process of obtaining a waiver from the lender as of year end. As a result, $353.6 million of the $584.9 million outstanding is reported in current liabilities as of December 31, 2014.
During the second quarter of 2012, we violated covenants on two non-recourse solar energy system loans as a result of devaluation in the Indian Rupee. The solar energy systems for these two project companies collateralize the loans and there is no recourse outside of these project companies for payment. On September 28, 2012, we obtained a waiver from the lender for the covenant violations, which had a grace period which expired on November 20, 2013. On July 4, 2014, we amended our loan agreements which included revisions to the financial covenants applicable to future periods and obtained a waiver for all prior covenant violations. As of December 31, 2014, we were again in violation of covenants for these two loans, and we intend to seek a waiver from the lender. The amount outstanding of $21.6 million under both loans was classified as current as of December 31, 2014.
Capital Leaseback Obligations
We are party to master lease agreements that provide for the sale and simultaneous leaseback of certain solar energy systems constructed by us. As of December 31, 2014, we had $81.4 million of capital lease obligations outstanding. Generally, this classification occurs when the term of the lease is greater than 75.0% of the estimated economic life of the solar energy system and the transaction is not subject to real estate accounting. The terms of the leases are typically 25 years with certain leases providing terms as low as 10 years and providing for early buyout options. The specified rental payments are based on projected cash flows that the solar energy system will generate. We have not entered into any arrangements that have resulted in accounting for the sale-leaseback as a capital lease since November 2009.
Financing Leaseback Obligations
For certain transactions we account for the proceeds of sale-leasebacks as financings, which are typically secured by the solar energy system asset and its future cash flows from energy sales, but without recourse to us under the terms of the arrangement. The structure of the repayment terms under the lease results in negative amortization throughout the financing period, and we therefore recognize the lease payments as interest expense. The balance outstanding for sale-leaseback transactions accounted for as financings as of December 31, 2014 is $1,403.7 million, which includes the below mentioned transactions. The maturities range from 2021 to 2039 and are collateralized by the related solar energy system assets with a carrying amount of $1,299.0 million.
On March 31, 2011, one of our project subsidiaries executed a master lease agreement with a U.S. financial institution which provides for the sale and simultaneous leaseback of certain solar energy systems constructed by us. The total capacity under this agreement is $124.4 million, of which $123.6 million is outstanding and $0.8 million is available as of December 31, 2014. The specified rental payments under the master lease agreement are based on projected cash flows that the solar energy systems generate.
On September 24, 2012, one of our project subsidiaries executed a master lease agreement with a U.S. financial institution which provides for the sale and simultaneous leaseback of certain solar energy systems constructed by us. The total capacity under this agreement was $101.4 million, of which $94.7 million is outstanding and $6.7 million was available as of December 31, 2014. The specified rental payments under the master lease agreement are based on projected cash flows that the solar energy systems generate.
Other System Financing Transactions
Other system financing transactions represent the cash proceeds that we received in connection with an executed solar energy system sales contract that has not met the sales recognition requirements under real estate accounting and has been accounted for as a financing. Included in other system financing is $16.2 million of proceeds collected under three separate solar energy system sales agreements with the buyer that provides the buyer with a put option that could become an obligation in the event that we are unable to fulfill certain performance warranties set to expire during 2015. The remaining portion of other system financings of $50.8 million relates to cash proceeds received in connection with separate solar energy system sales contracts for
which we have substantial continuing involvement. There are no principal or interest payments associated with these transactions. Of the $50.8 million, $36.5 million relates to two projects sold in Italy which did not meet the requirements to record revenue due to an indemnification that expires in 2016. The remaining amount relates to thirteen projects sold in the U.S., Korea, and Canada.
Capitalized Interest
During the year ended December 31, 2014 and 2013, we capitalized $42.0 million and $22.3 million of interest, respectively.
TerraForm Power Debt
Acquisition Facility
On March 28, 2014, TerraForm entered into a credit and guaranty agreement with various lenders and Goldman Sachs Bank USA, as administrative agent, collateral agent, documentation agent, sole lead arranger, sole lead bookrunner, and syndication agent (the “TerraForm Acquisition Facility”). The TerraForm Acquisition Facility provided for a term loan credit facility in an amount up to $400.0 million and had a term ending on the earlier of August 28, 2015 and the date on which all loans under the TerraForm Acquisition Facility become due and payable in full, whether by acceleration or otherwise. The TerraForm Acquisition Facility was used in the purchase of certain renewable energy generation assets.
The TerraForm Acquisition Facility was terminated on July 23, 2014, in connection with the closing of the TerraForm IPO (see Note 23). Upon termination of the TerraForm Acquisition Facility, no write-off of unamortized deferred financing fees was required as the amount was fully amortized.
TerraForm Credit Facilities
On July 23, 2014, in connection with the closing of the TerraForm IPO, TerraForm Operating, LLC ("Terra Operating LLC") and TerraForm Power, LLC ("Terra LLC"), both wholly owned subsidiaries of TerraForm, entered into a revolving credit facility (the "TerraForm Revolver") and a term loan facility (the "TerraForm Term Loan" and together with the TerraForm Revolver, the “TerraForm Credit Facilities”). The TerraForm Revolver provides for up to $140.0 million in senior secured revolving credit and the TerraForm Term Loan provides for $300.0 million in senior secured term loan financing.
The TerraForm Term Loan will mature on the five-year anniversary and the TerraForm Revolver will mature on the three-year anniversary of the funding date of the TerraForm Term Loan. All outstanding amounts under the TerraForm Credit Facilities bear interest at a rate per annum equal to, the lesser of either (a) a base rate plus 1.5% or (b) a reserve adjusted eurodollar rate plus 3.75%. For the TerraForm Term Loan, the base rate will be subject to a “floor” of 2.00% and the reserve adjusted eurodollar rate will be subject to a “floor” of 1.00%.
On December 18, 2014, parties to the TerraForm Credit Facilities increased the TerraForm Term Loan by $275.0 million to a total of $575.0 million and the TerraForm Revolver by $75.0 million to a total of $215.0 million to increase liquidity and to fund several acquisitions. As of December 31, 2014, $573.5 million was outstanding under the TerraForm Term Loan and no amount was drawn on the TerraForm Revolver.
On January 28, 2015, the Company repaid the TerraForm Term Loan in full and replaced the existing TerraForm Revolver with a new $550.0 million revolving credit facility (the "New TerraForm Revolver"). The New TerraForm Revolver is available for revolving loans and letters of credit and permits Terra Operating, LLC to increase commitments to up to $725.0 million in the aggregate, subject to customary closing conditions. The New TerraForm Revolver matures on January 27, 2020.
The TerraForm Credit Facilities provide for voluntary prepayments, in whole or in part, subject to notice periods and payment of repayment premiums. The TerraForm Credit Facilities require TerraForm to prepay outstanding borrowings in certain circumstances, subject to certain exceptions. The TerraForm Credit Facilities contain customary and appropriate representations and warranties and affirmative and negative covenants (subject to exceptions) by TerraForm and its subsidiaries.
The TerraForm Credit Facilities, each guarantee and any interest rate and currency hedging obligations of TerraForm or any guarantor owed to the administrative agent, any arranger or any lender under the TerraForm Credit Facilities are secured by first priority security interests in (i) all of TerraForm Operating LLC's assets and each guarantor’s assets, (ii) 100% of the capital stock of each of TerraForm’s domestic restricted subsidiaries and 65% of the capital stock of TerraForm's foreign restricted subsidiaries and (iii) all intercompany debt, collectively, the “Credit Facilities Collateral.”
Senior Notes due 2023
On January 23, 2015, Terra Operating, LLC issued $800.0 million of 5.875% senior notes due 2023 in a private placement offering. Terra Operating, LLC used the net proceeds from the offering to fund a portion of the purchase price of the acquisition of certain power generation assets from First Wind, to repay existing indebtedness that was used to purchase or develop other renewable energy products, and to pay fees, expenses and other costs related thereto. The Company will be required to make an offer to repurchase the notes upon a change in control or with specified excess proceeds following material sales.
Other TerraForm System Financing Obligations
Other TerraForm Power system financing obligations primarily consist of $402.4 million of long-term debt assumed as a result of the acquisition of Mt. Signal. The senior secured notes bear interest at 6% and mature in 2038. Interest on the notes is payable semi-annually on June 30 and December 31 of each year, commencing on June 30, 2013. A letter of credit facility was also extended to the project company to satisfy certain security obligations under the PPA, other project agreements and the notes. The facility will terminate on the earlier of July 2, 2019 and the fifth anniversary of the Mt. Signal project’s completion date.
In addition, as of December 31, 2014, $211.4 million of fixed rate non-recourse debt financing arrangements used to finance the construction of a solar power plant in Chile are included in the balance of other system financing obligations. These agreements were executed in the third quarter of 2013. The weighted average interest rate on these obligations as of December 31, 2014 was 7.10%.
Semiconductor Materials Debt
SSL Credit Facility
On May 27, 2014, SSL and its direct subsidiary (the “Borrower”) entered into a credit agreement with Goldman Sachs Bank USA, as administrative agent, sole lead arranger and sole syndication agent and, together with Macquarie Capital (USA) Inc., as joint bookrunners, Citibank, N.A., as letter of credit issuer, and the lender parties thereto (the “SSL Credit Facility”). The SSL Credit Facility provides for (i) a senior secured term loan facility in an aggregate principal amount up to $210.0 million (the “SSL Term Facility”) and (ii) a senior secured revolving credit facility in an aggregate principal amount up to $50.0 million (the “SSL Revolving Facility”).
Under the SSL Revolving Facility, the Borrower may obtain (i) letters of credit and bankers’ acceptances in an aggregate stated amount up to $15.0 million and (ii) swing line loans in an aggregate principal amount up to $15.0 million. The SSL Term Facility has a five year term, ending May 27, 2019, and the SSL Revolving Facility has a three-year term, ending May 27, 2017. The full amount of the SSL Term Facility was drawn on May 27, 2014 and remains outstanding. As of December 31, 2014, no amounts were drawn under the SSL Revolving Facility, but $3.2 million of third party letters of credit were outstanding which reduced the available capacity. The principal amounts of the SSL Term Facility will be repaid in consecutive quarterly installments of $0.5 million with the remainder repaid at final maturity.
The Term Facility was issued at a discount of 1.00%, or $2.1 million, which will be amortized as an increase in interest expense over the term of the Term Facility. SSL incurred approximately $10.0 million of financing fees related to the Credit Facility that have been capitalized and will be amortized over the term of the respective Term Facility and Revolving Facility.
The Borrower’s obligations under the SSL Credit Facility are guaranteed by SSL and certain of its direct and indirect subsidiaries. The Borrower’s obligations and the guaranty obligations of SSL and its subsidiaries are secured by first priority liens on and security interests in certain present and future assets of SSL, the Borrower and the subsidiary guarantors, including pledges of the capital stock of certain of SSL's subsidiaries.
Borrowings under the SSL Credit Facility bear interest (i) at a base rate plus 4.50% per annum or (ii) at a reserve-adjusted eurocurrency rate plus 5.50% per annum. The minimum eurocurrency base rate for the Term Facility shall at no time be less than 1.00% per annum. Interest will be paid quarterly in arrears, and at the maturity date of each facility, for loans bearing interest with reference to the base rate. Interest will be paid on the last day of selected interest periods (which will be one, three and six months), and at the maturity date of each facility, for loans bearing interest with reference to the reserve-adjusted eurocurrency rate (and at the end of every three months, in the case of any interest period longer than three months). A fee equal to 5.50% per annum will be payable by the Borrower, quarterly in arrears, in respect of the daily amount available to be drawn under outstanding letters of credit and bankers’ acceptances.
The SSL Credit Facility contains customary representations, covenants and events of default typical for credit arrangements of comparable size, including that SSL maintain a leverage ratio of not greater than (i) 3.5 to 1.0 for the fiscal quarters ending September 30, 2014 and December 31, 2014, (ii) 3.0 to 1.0 for the fiscal quarters ending March 31, 2015 and June 30, 2015,
and (iii) 2.5 to 1.0 for the fiscal quarters ending on and after September 30, 2015. The SSL Credit Facility also contains a customary material adverse effects clause and a cross-default clauses. The cross-default clause is applicable to defaults on other SSL indebtedness in excess of $30.0 million. As of December 31, 2014, SSL was in compliance with all covenants of the Credit Facility.
As of December 31, 2014, there was no amount outstanding under the SSL Revolving Facility, but $3.2 million of third party letters of credit were outstanding which reduced the available borrowing capacity. As of December 31, 2014, $207.1 million was outstanding under the SSL Term Facility.
Long-term Notes
Long-term notes, including current portion, totaling $10.4 million as of December 31, 2013 were owed to a bank by SSL's Japanese subsidiary. The notes were guaranteed by us, and further secured by the property, plant and equipment of SSL's Japanese subsidiary. The original maturity dates of these loans ranged from 2014 to 2017. These long-term notes were paid in full in May 2014 using net proceeds from the SSL initial public offering and the related private placement transactions discussed in Note 22, along with the proceeds of the SSL Term Loan.
Other Semiconductor Financing Arrangements
We have short-term committed financing arrangements of $30.1 million at December 31, 2014, of which there was no short-term borrowings outstanding as of December 31, 2014. Of this amount, $17.9 million is unavailable because it relates to the issuance of third party letters of credit. Interest rates are negotiated at the time of the borrowings.
Maturities
Financing Leaseback Obligations
The aggregate amounts of minimum lease payments on our financing leaseback obligations are $1,403.7 million. Payments from 2015 through 2019 are as follows:
|
| | | | | | | | | | | | | | | | | | | | |
In millions | | 2015 | | 2016 | | 2017 | | 2018 | | 2019 |
Minimum lease payments | | $ | 13.8 |
| | $ | 13.8 |
| | $ | 13.6 |
| | $ | 12.9 |
| | $ | 13.1 |
|
Capital Leaseback Obligations
The aggregate amounts of payments on capital leasebacks at year end are as follows:
|
| | | | |
In millions | | As of December 31, 2014 |
2015 | | $ | 5.4 |
|
2016 | | 5.7 |
|
2017 | | 5.8 |
|
2018 | | 5.4 |
|
2019 | | 4.9 |
|
Thereafter | | 80.0 |
|
Total minimum capital leaseback payments | | 107.2 |
|
Less amounts representing interest | | (25.8 | ) |
Total capital leaseback principal payments | | 81.4 |
|
Less current portion of obligations under capital leasebacks | | (3.0 | ) |
Noncurrent portion of obligations under capital leasebacks | | $ | 78.4 |
|
Other Debt
The aggregate amounts of payments on short-term and long-term debt, excluding capital and financing leaseback obligations, after December 31, 2014 are as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
In millions | | 2015 | | 2016 | | 2017 | | 2018 | | 2019 | | Thereafter | | Total |
Maturities of debt | | $ | 1,063.8 |
| | $ | 488.0 |
| | $ | 162.8 |
| | $ | 639.4 |
| | $ | 925.9 |
| | $ | 2,434.3 |
| | $ | 5,714.2 |
|
10. DERIVATIVES AND HEDGING INSTRUMENTS
SunEdison's hedging activities consist of:
|
| | | | | | | | | | | | | | |
In millions | | | | Notional Value as of December 31, | | Assets (Liabilities or Equity) Fair Value as of December 31, |
Type of Instrument | | Balance Sheet Classification | | 2014 | | 2014 | | 2013 |
Derivatives designated as hedging: | |
| |
| |
|
Interest rate swaps | | Prepaid and other current assets | | $ | 25.1 |
| | $ | 1.8 |
| | $ | 1.6 |
|
| | Accumulated other comprehensive income | |
|
| | (1.8 | ) | | (1.6 | ) |
Interest rate swaps | | Accrued liabilities | | 515.6 |
| | (7.9 | ) | | (2.4 | ) |
| | Accumulated other comprehensive loss | |
|
| | 7.0 |
| | 1.6 |
|
Cross currency swaps | | Prepaid and other current assets | | 185.8 |
| | 21.1 |
| | — |
|
| | Accumulated other comprehensive income | |
|
| | (21.1 | ) | | — |
|
Cross currency swaps | | Accrued liabilities | | — |
| | — |
| | (2.4 | ) |
| | Accumulated other comprehensive loss | |
|
| | — |
| | 2.4 |
|
Derivatives not designated as hedging: | | | | | | |
Note hedges | | Note hedge derivative asset | | $ | 1,200.0 |
| | $ | — |
| | $ | 514.8 |
|
Conversion options | | Conversion option derivative liability | | 1,200.0 |
| | — |
| | (506.5 | ) |
Warrants | | Warrant derivative liability | | 1,200.0 |
| | — |
| | (270.5 | ) |
Currency forward contracts | | Prepaid and other current assets | | 358.9 |
| | 1.9 |
| | 0.7 |
|
Currency forward contracts | | Accrued liabilities | | 358.9 |
| | (4.5 | ) | | (11.5 | ) |
Interest rate swaps | | Prepaid and other current assets | | — |
| | — |
| | 1.0 |
|
Interest rate swaps | | Accrued liabilities | | 571.4 |
| | (61.1 | ) | | (0.2 | ) |
| | | | | | | | |
| | | | Losses (Gains) for the Year Ended December 31, |
In millions | | Statement of Operations Classification | | 2014 | | 2013 | | 2012 |
Derivatives not designated as hedging: | | | | | | |
Currency forward contracts | | Other, net | | $ | 13.7 |
| | $ | 8.0 |
| | $ | 9.0 |
|
Interest rate swaps | | Interest expense | | 15.8 |
| | 0.2 |
| | — |
|
Note hedges | | Gain on convertible note derivative | | (365.3 | ) | | — |
| | — |
|
Conversion options | | Loss on convertible note derivative | | 381.9 |
| | — |
| | — |
|
Warrants | | Loss on convertible note derivative | | 482.8 |
| | — |
| | — |
|
To mitigate financial market risks of fluctuations in foreign currency exchange rates, we utilize currency forward contracts. We do not use derivative financial instruments for speculative or trading purposes. We generally hedge transactional currency risks with currency forward contracts. Gains and losses on these foreign currency exposures are generally offset by corresponding losses and gains on the related hedging instruments, reducing our net exposure. A substantial portion of our revenue and capital spending is transacted in U.S. Dollars. However, we do enter into transactions in other currencies, primarily the Euro, the Japanese Yen, the Canadian Dollar, the South African Rand, Korean Won and certain other Asian currencies. To protect against reductions in value and volatility of future cash flows caused by changes in foreign exchange rates, we have established transaction-based hedging programs. Our hedging programs reduce, but do not always eliminate, the impact of foreign currency exchange rate movements. At any point in time, we may have outstanding contracts with several major financial institutions for these hedging transactions. Our maximum credit risk loss with these institutions is limited to any gain on our outstanding contracts. As of December 31, 2014 and 2013, these currency forward contracts had net notional amounts of $358.9 million and $401.0 million, respectively, and are accounted for as economic hedges. There were no outstanding currency forward contracts designated as cash flow hedges as of December 31, 2014 and 2013.
During the second quarter of 2013, we entered into a cross currency swap with a notional amount of $185.8 million accounted for as a cash flow hedge. The amounts recorded to the consolidated balance sheet, as provided in the table above, represent the fair value of the net amount that would settle on the balance sheet date if the swap was transferred to other third parties or canceled by us. The effective portion of this cash flow hedge instrument during the year ended December 31, 2014 was recorded to accumulated other comprehensive loss (income) on the consolidated balance sheet. No ineffectiveness was recognized during the year ended December 31, 2014, 2013 and 2012, respectively.
As of December 31, 2014, we are party to certain interest rate swap instruments that are accounted for using hedge accounting. These instruments are used to hedge floating rate debt and are accounted for as cash flow hedges. Under the interest rate swap
agreements, we pay the fixed rate and the financial institution counterparties to the agreements pay us a floating interest rate. The amount recorded in the consolidated balance sheet represents the estimated fair value of the net amount that we would settle on December 31, 2014 if the agreements were transferred to other third parties or cancelled by us. The effective portion of these cash flow hedges net to losses of $5.2 million for the year ended December 31, 2014, and net to a zero value for the year ended December 31, 2013. Entries were recorded to accumulated other comprehensive loss (income). There was no material ineffectiveness recorded for the year ended December 31, 2014, 2013, or 2012, respectively. There were no outstanding currency forward contracts designated as cash flow hedges as of December 31, 2014, and 2013, respectively.
As of December 31, 2014, we are party to certain interest rate swap instruments that are accounted for as economic hedges. These instruments are used to hedge floating rate debt and are not accounted for as cash flow hedges. Under the interest rate swap agreements, we pay the fixed rate and the financial institution counterparties to the agreements pay us a floating interest rate. The amount recorded in the consolidated balance sheet represents the estimated fair value of the net amount that we would settle on December 31, 2014, if the agreements were transferred to other third parties or cancelled by us. Fluctuations in balance sheet amounts, when compared to the amount outstanding as of December 31, 2013, are primarily attributed to acquisitions executed as of, and during, the year ended December 31, 2014. Because these hedges are deemed economic hedges and not accounted for under hedge accounting, the changes in fair value are recorded to non-operating expense (income) within the consolidated statement of operations. The fair value of these hedges was a net liability of $61.1 million as of December 31, 2014, and a net asset of $0.8 million as of December 31, 2013, respectively.
In connection with the senior convertible notes issued in December 2013 and June 2014 as discussed in Note 9, we entered into privately negotiated convertible note hedge transactions and warrant transactions. Assuming full performance by the counterparties, these instruments are meant to effectively reduce our potential payout over the principal amount on the senior convertible notes upon conversion. Refer to Note 9 for additional information.
11. FAIR VALUE MEASUREMENTS
The following table summarizes the financial instruments measured at fair value on a recurring basis classified in the fair value hierarchy (Level 1, 2 or 3) based on the inputs used for valuation in the accompanying consolidated balance sheets:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | As of December 31, 2014 | | As of December 31, 2013 |
Assets (liabilities) in millions | | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | | Total |
Interest rate swap assets | | $ | — |
| | $ | 1.8 |
| | $ | — |
| | $ | 1.8 |
| | $ | — |
| | $ | 2.6 |
| | $ | — |
| | $ | 2.6 |
|
Interest rate swap liabilities | | — |
| | (69.0 | ) | | — |
| | (69.0 | ) | | — |
| | (2.6 | ) | | — |
| | (2.6 | ) |
Currency forward contracts asset | | 1.9 |
| | — |
| | — |
| | 1.9 |
| | 0.7 |
| | — |
| | — |
| | 0.7 |
|
Currency forward contracts liability | | (4.5 | ) | | — |
| | — |
| | (4.5 | ) | | (11.5 | ) | | — |
| | — |
| | (11.5 | ) |
Cross currency swaps | | — |
| | 21.1 |
| | — |
| | 21.1 |
| | — |
| | (2.4 | ) | | — |
| | (2.4 | ) |
Note hedge derivatives | | — |
| | — |
| | — |
| | — |
| | — |
| | 514.8 |
| | — |
| | 514.8 |
|
Conversion option derivative | | — |
| | — |
| | — |
| | — |
| | — |
| | (506.5 | ) | | — |
| | (506.5 | ) |
Warrant derivative | | — |
| | — |
| | — |
| | — |
| | — |
| | (270.5 | ) | | — |
| | (270.5 | ) |
Contingent consideration related to acquisitions | | — |
| | — |
| | (42.7 | ) | | (42.7 | ) | | — |
| | — |
| | (35.2 | ) | | (35.2 | ) |
Total | | $ | (2.6 | ) | | $ | (46.1 | ) | | $ | (42.7 | ) | | $ | (91.4 | ) | | $ | (10.8 | ) | | $ | (264.6 | ) | | $ | (35.2 | ) | | $ | (310.6 | ) |
Our interest rate swaps are considered over the counter derivatives, and fair value is calculated using a present value model with contractual terms for maturities, amortization and interest rates. Level 2, or market observable inputs, such as yield and credit curves are used within the present value models in order to determine fair value. Refer to Note 9 for fair value disclosures on the note hedge derivative, warrant derivative and conversion option derivative referenced above.
The fair value of our currency forward contracts is measured by the amount that would have been paid to liquidate and repurchase all open contracts and was a net liability of $2.6 million and $10.8 million as of December 31, 2014 and 2013, respectively. See Note 10 for additional discussion.
See Note 16 for disclosures related to contingent consideration related to acquisitions.
There were no transfers between Level 1 and Level 2 financial instruments during the year ended December 31, 2014 and 2013, respectively.
The following table presents the carrying amount and estimated fair value of our outstanding short-term debt, long-term debt and capital lease obligations as of December 31, 2014 and 2013, respectively:
|
| | | | | | | | | | | | | | | |
| As of December 31, 2014 | | As of December 31, 2013 |
In millions | Carrying Amount | | Estimated Fair Value (1) | | Carrying Amount | | Estimated Fair Value (1) |
Total debt and capital lease obligations | $ | 7,199.4 |
| | $ | 7,001.2 |
| | $ | 3,576.2 |
| | $ | 2,681.2 |
|
__________________________
| |
(1) | Fair value of our debt, excluding our 2018, 2020, and 2021 Notes, is calculated using a discounted cash flow model with consideration for our non-performance risk (Level 3 assumptions). The estimated fair value of our 2018, 2020, and 2021 Notes, were based on a broker quotation (Level 1). The estimated fair value of our solar energy system debt related to sale-leasebacks is significantly lower than the carrying value of such debt because the fair value estimate is based on the fair value of our fixed lease payments over the term of the leases (Level 3 assumptions). Under real estate accounting, this debt is recorded as a financing obligation, and substantially all of our lease payments are recorded as interest expense with little to no reduction in our debt balance over the term of the lease. As a result, our outstanding sale-leaseback debt obligations will generally result in a one-time gain recognition at the end of the leases for the full amount of the debt. The timing difference between expense and gain recognition will result in increased expense during the term of the leases with a gain recognized at the end of the lease. |
12. REVENUE AND PROFIT DEFERRALS
|
| | | | | | | | |
| | As of December 31, |
| | 2014 | | 2013 |
In millions | | | | |
Deferred revenue and profit for solar energy systems: | | | | |
Short-term profit deferrals and deposits on solar energy system sales | | $ | 92.3 |
| | $ | 154.7 |
|
Long-term profit deferrals and deposits on solar energy system sales | | 180.0 |
| | 66.3 |
|
Long-term deferred subsidy revenue | | 21.7 |
| | 21.1 |
|
Total solar energy system deferred revenue | | $ | 294.0 |
| | $ | 242.1 |
|
Non-solar energy system deferred revenue: | | | | |
Long-term deferred revenue | | $ | 2.4 |
| | $ | 2.6 |
|
Total deferred revenue | | $ | 296.4 |
| | $ | 244.7 |
|
During the year ended December 31, 2014, we recognized revenue of $59.3 million related to profit deferred as of the prior year end for guarantees that expired related to the sale of solar energy systems. During the year ended December 31, 2013, we recognized revenue of $32.3 million related to profit deferred as of the prior year end for guarantees that expired related to the sale of solar energy systems.
In September 2013, we terminated a long-term solar wafer supply agreement with Gintech Energy Corporation (“Gintech”). As part of the settlement, Gintech agreed that we would retain $21.9 million of a non-refundable deposit previously received without recourse and as a result, we recognized $22.9 million of revenue in 2013 representing the total amount of the unamortized non-refundable deposit and the total amount of the unamortized difference between fair value and the amounts previously paid for Gintech stock under a separate agreement. Pursuant to the termination agreement, the remaining $35.1 million refundable deposit received is being repaid to Gintech over time with payments beginning December 31, 2013 and continuing each quarter through June 30, 2016.
In March 2013, we amended a long-term solar wafer supply agreement with Tainergy Tech Co., LTD ("Tainergy"). As part of the settlement, Tainergy agreed that we would retain $25.0 million of the refundable capacity reservation deposit previously received without recourse and as a result, we recognized $25.0 million as revenue in 2013. This transaction was reflected as cash provided by operating activities and cash used in financing activities in the 2013 consolidated statement of cash flows. In addition to the settlement of purchase shortfalls for the first four contract years, we agreed to significantly reduce required minimum purchase volumes in the remaining six contract years, as well as to modify the pricing terms to be based on market rates similar to our other long-term solar wafer supply agreements. The remaining deposit is being refunded ratably as purchases are made over the remaining six contract years.
In September 2012, we agreed to terminate a long-term solar wafer supply agreement with Conergy AG. As part of the termination agreement with Conergy, we returned $21.3 million of deposits previously received and collected $26.7 million.
We recognized $37.1 million as revenue at September 30, 2012 due to the fact we were relieved of our future performance obligations under the agreement.
13. RESTRUCTURING, IMPAIRMENT AND OTHER CHARGES
Long-Lived Asset Impairment Charges
During the year ended December 31, 2014, our Solar Energy segment recognized long-lived asset impairment charges of $75.2 million. Charges resulted from the impairment of certain multicrystalline solar wafer manufacturing equipment due to market indications that fair value was less than carrying value, the impairment of certain solar module manufacturing equipment following the termination of a long-term lease arrangement with one of our suppliers and the impairment of power plant development arrangement intangible assets and construction in progress related to certain solar projects.
In 2013, management concluded the start-up analysis of our Semiconductor Materials segment's Merano, Italy polysilicon facility and determined that, based on recent developments and current market conditions, restarting the facility was not aligned with our business strategy. Accordingly, we decided to indefinitely close that facility and the related chlorosilanes facility obtained from Evonik. As a result, in 2013, we recorded approximately $37.0 million of impairment charges to write down these assets to estimated salvage value.
In 2014, we received offers of interest to purchase these facilities. These offers indicated to us that the carrying value of the assets exceeded the estimated fair value. As a result of an impairment analysis, we recognized $57.3 million of impairment charges to write down these assets to their estimated fair value. In December 2014, we closed the sale of the Merano, Italy facilities. The facilities were sold to a third party for $12.2 million. No cash payment was made at the date of closing and the purchase consideration will be paid to us over ten years. In connection with the sales transaction, we provided the buyer with loans totaling $9.1 million which will be repaid over ten years. We accounted for this transaction in accordance with the deposit method of real estate accounting and recognized a $4.7 million loss on sale of property, plant and equipment for the year ended December 31, 2014.
Our Semiconductor Materials segment also recorded long-lived asset impairment charges of $2.1 million for the year ended December 31, 2014 related to the consolidation of the semiconductor crystal operations.
We recorded asset impairment charges of $19.6 million for the year ended December 31, 2012, primarily related to solar wafer assets.
The charges above are recognized as long-lived asset impairment charges in our condensed consolidated statement of operations. Impairment charges were measured based on the amount by which the carrying value of these assets exceeded their estimated fair value after consideration of their future cash flows using management's assumptions (Level 3).
Restructuring Charges (Reversals)
2014 Consolidation of Semiconductor Crystal Operations
Our Semiconductor Materials segment announced a plan to consolidate our crystal operations during the first quarter of 2014. The consolidation will include transitioning small diameter crystal activities from our St. Peters, Missouri facility to other crystal facilities in Korea, Taiwan and Italy. The consolidation of crystal activities will affect approximately 120 employees in St. Peters and is currently being implemented. It is expected to be completed by the second half of 2015. Restructuring charges of $3.9 million were recorded for the year ended December 31, 2014 and are included within restructuring reversals on the consolidated statement of operations.
On December 18, 2014, our Semiconductor Materials segment initiated the termination of certain employees as part of a workforce restructuring plan. The plan is designed to realign the workforce, improve profitability, and to support new growth market opportunities. The plan is expected to result in a total reduction of approximately 120 positions, with a majority of the affected employees outside of the United States. It is expected to be completed by the end of the first half of 2015. We recorded restructuring charges of $2.5 million for the year ended December 31, 2014 in connection with this workforce restructuring.
2011 Global Plan
During the second half of 2011, the semiconductor and solar industries experienced downturns, of which the downturn in solar was more severe. In December 2011, in order to better align our business to then current and expected market conditions in the semiconductor and solar markets, as well as to improve our overall cost competitiveness and cash flows across all segments, we
committed to a series of actions to reduce our global workforce, right size production capacity and accelerate operating cost reductions in 2012 and beyond (the “2011 Global Plan”). These actions included:
| |
• | Reducing total workforce by approximately 1,400 persons worldwide, representing approximately 20% of our employees; |
| |
• | Shuttering our Merano, Italy polysilicon facility as of December 31, 2011; |
| |
• | Reducing production capacity at our Portland, Oregon crystal facility and slowing the ramp of the Kuching, Malaysia wafering facility; and |
| |
• | Consolidating our solar wafering and solar energy system operations into a single Solar Energy business unit, effective January 1, 2012. |
Details of the 2012 expenses, cash payments and expected costs incurred related to the 2011 Global Plan are set out in the following table:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | As of December 31, 2012 |
In millions | | Accrued January 1, 2012 | | Year-to-date Restructuring Charges (Reversals) | | Cash Payments | | Currency | | Accrued December 31, 2012 | | Cumulative Costs Incurred | Total Costs Expected to be Incurred |
2011 Global Plan | | | | | | | | | | | | | |
Severance and employee benefits | | $ | 60.2 |
| | $ | — |
| | $ | (27.8 | ) | | $ | (0.7 | ) | | $ | 31.7 |
| | $ | 63.2 |
| $ | 63.2 |
|
Contract termination | | 260.0 |
| | (93.4 | ) | | (34.3 | ) | | 2.2 |
| | 134.5 |
| | 164.6 |
| 164.6 |
|
Other | | 51.1 |
| | (2.1 | ) | | (11.9 | ) | | 1.2 |
| | 38.3 |
| | 49.7 |
| 49.7 |
|
Total | | $ | 371.3 |
| | $ | (95.5 | ) | | $ | (74.0 | ) | | $ | 2.7 |
| | $ | 204.5 |
| | $ | 277.5 |
| $ | 277.5 |
|
We executed two settlement agreements on September 4, 2012, with Evonik Industries AG and Evonik Degussa Spa ("Evonik"), one of our suppliers, to settle disputes arising from our early termination of two take-or-pay supply agreements. One of the original supply agreements also included a provision for the construction and operation of a chlorosilanes plant located on the site of our existing Merano, Italy polysilicon facility for our benefit. Pursuant to the settlement reached, we forfeited a deposit of $10.2 million and agreed to pay Evonik a total of 70.0 million Euro, of which 25.0 million Euro was paid in 2012 and 45.0 million Euro was paid in 2013. A favorable adjustment to our 2011 Global Plan liabilities was made in the third quarter of 2012 as a result of this restructuring-related settlement, resulting in $69.2 million of income within restructuring charges (reversals) on the combined statement of operations. Additionally, on December 30, 2012 as part of the settlement with Evonik, we obtained title to the chlorosilanes plant, which resulted in a $31.7 million gain on the combined statement of operations in the fourth quarter of 2012. The fair value of the chlorosilanes plant was calculated based on a discounted cash flow model using management's assumptions (Level 3).
Details of the 2013 expenses, cash payments and expected costs incurred related to the 2011 Global Plan are set out in the following table:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | As of December 31, 2013 |
In millions | | Accrued January 1, 2013 | | Year-to-date Restructuring Charges (Reversals) | | Cash Payments | | Non-Cash Settlements | | Currency | | Accrued December 31, 2013 | | Cumulative Costs Incurred | Total Costs Expected to be Incurred |
2011 Global Plan | | | | | | | | | | | | | | | |
Severance and employee benefits | | $ | 31.7 |
| | $ | (10.9 | ) | | $ | (0.3 | ) | | $ | — |
| | $ | 0.8 |
| | $ | 21.3 |
| | $ | 52.3 |
| $ | 52.3 |
|
Contract termination | | 134.5 |
| | 0.5 |
| | (60.5 | ) | | (34.8 | ) | | 0.5 |
| | 40.2 |
| | 165.1 |
| 165.1 |
|
Other | | 38.3 |
| | (1.1 | ) | | (12.4 | ) | | (1.6 | ) | | 1.1 |
| | 24.3 |
| | 48.6 |
| 48.6 |
|
Total | | $ | 204.5 |
| | $ | (11.5 | ) | | $ | (73.2 | ) | | $ | (36.4 | ) | | $ | 2.4 |
| | $ | 85.8 |
| | $ | 266.0 |
| $ | 266.0 |
|
In August 2013, we entered into a settlement agreement with ReneSola Singapore PTE. LTD (“ReneSola”) relating to the termination of the long-term polysilicon and long-term wafer supply agreement entered on June 9, 2010. This settlement agreement relieved each party of its remaining obligations. In relation to the supply agreement, we made a refundable deposit so that, in the event of a purchase shortfall during the term of the supply agreement, ReneSola could, pursuant to the terms of the supply agreement, apply any remaining deposits toward purchase shortfalls. Prior to the settlement agreement, there was approximately $34.8 million remaining in the refundable deposit. Since ReneSola was entitled to draw down on and retain the remainder of the refundable deposit upon execution of the settlement agreement, we reversed the remaining refundable deposit
asset and corresponding customer deposit liability. There was no impact to the consolidated statements of operations as a result of this settlement agreement.
The $11.5 million credit recognized pertaining to the 2011 Global Plan for the year ended December 31, 2013 is primarily the result of a reversal of liabilities related to the costs associated with the Merano, Italy polysilicon and other semiconductor facilities due to settlements of certain contractual obligations and changes in estimates.
Details of the 2014 expenses, cash payments and expected costs incurred related to the 2011 Global Plan are set out in the following table:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | As of December 31, 2014 |
In millions | | Accrued January 1, 2014 | | Year-to-date Restructuring Charges (Reversals) | | Cash Payments | | Non-Cash Settlements | | Currency | | Accrued December 31, 2014 | | Cumulative Costs Incurred | Total Costs Expected to be Incurred |
2011 Global Plan | | | | | | | | | | | | | | | |
Severance and employee benefits | | $ | 21.3 |
| | $ | (14.3 | ) | | $ | (3.6 | ) | | $ | (0.9 | ) | | $ | (1.8 | ) | | $ | 0.7 |
| | $ | 38.0 |
| $ | 38.0 |
|
Contract termination | | 40.2 |
| | — |
| | (10.5 | ) | | — |
| | — |
| | 29.7 |
| | 165.1 |
| 165.1 |
|
Other | | 24.3 |
| | (0.3 | ) | | (12.7 | ) | | 2.0 |
| | (1.8 | ) | | 11.5 |
| | 48.3 |
| 48.3 |
|
Total | | $ | 85.8 |
| | $ | (14.6 | ) | | $ | (26.8 | ) | | $ | 1.1 |
| | $ | (3.6 | ) | | $ | 41.9 |
| | $ | 251.4 |
| $ | 251.4 |
|
During the year ended December 31, 2014 our Semiconductor Materials segment recorded $12.0 million of severance reversals related to the sale of the Merano, Italy polysilicon facility because the buyer has assumed legal responsibility for those employees' severance liabilities. The severance reversals are included within restructuring reversals on the consolidated statement of operations. This severance reversal is a non-cash settlement and the statement of cash flows is adjusted for this non-cash transaction. Other revisions to our estimated restructuring liabilities included $2.6 million of net reversals which were recorded during the year ended December 31, 2014 due to actual results differing from our previous estimates.
14. INCOME TAXES
The net loss before income tax expense (benefit) and equity in earnings (loss) of equity method investments consists of the following:
|
| | | | | | | | | | | | |
| | For the Year Ended December 31, |
| | 2014 | | 2013 | | 2012 |
In millions | | | | | | |
U.S. | | $ | (1,048.5 | ) | | $ | (549.4 | ) | | $ | (261.1 | ) |
Foreign | | (267.9 | ) | | (42.4 | ) | | 179.6 |
|
Total | | $ | (1,316.4 | ) | | $ | (591.8 | ) | | $ | (81.5 | ) |
Income tax (benefit) expense consists of the following:
|
| | | | | | | | | | | | |
| | Current | | Deferred | | Total |
In millions | | | | | | |
Year ended December 31, 2014: | | | | | | |
U.S. federal | | $ | 3.3 |
| | $ | (40.0 | ) | | $ | (36.7 | ) |
U.S state and local | | 1.8 |
| | (2.7 | ) | | (0.9 | ) |
Foreign | | 43.9 |
| | (42.3 | ) | | 1.6 |
|
Total | | $ | 49.0 |
| | $ | (85.0 | ) | | $ | (36.0 | ) |
Year ended December 31, 2013: | | | | | | |
U.S. federal | | $ | (13.1 | ) | | $ | 47.6 |
| | $ | 34.5 |
|
U.S. state and local | | 1.7 |
| | (6.1 | ) | | (4.4 | ) |
Foreign | | 6.1 |
| | (8.4 | ) | | (2.3 | ) |
Total | | $ | (5.3 | ) | | $ | 33.1 |
| | $ | 27.8 |
|
Year ended December 31, 2012: | | | | | | |
U.S. federal | | $ | 38.9 |
| | $ | (0.2 | ) | | $ | 38.7 |
|
U.S. state and local | | (14.0 | ) | | 0.7 |
| | (13.3 | ) |
Foreign | | 47.5 |
| | (8.0 | ) | | 39.5 |
|
Total | | $ | 72.4 |
| | $ | (7.5 | ) | | $ | 64.9 |
|
Effective Tax Rate
Income tax expense differed from the amounts computed by applying the statutory U.S. federal income tax rate of 35% to loss before income taxes and equity in earnings (loss) of equity method investments. The “Effect of foreign operations” includes the net reduced taxation of foreign profits from combining jurisdictions with rates above and below the U.S. federal statutory rate and the impact of U.S. foreign tax credits.
|
| | | | | | | | | |
| | For the Year Ended December 31, |
| | 2014 | | 2013 | | 2012 |
Income tax at federal statutory rate | | (35.0 | )% | | (35.0 | )% | | (35.0 | )% |
Increase (reduction) in income taxes: | | | | | | |
Effect of foreign operations | | 9.1 |
| | (8.7 | ) | | (71.6 | ) |
Foreign incentives | | — |
| | (0.4 | ) | | (5.7 | ) |
Foreign repatriation | | (1.9 | ) | | — |
| | (2.1 | ) |
State income taxes, net of U.S. federal benefit | | (0.6 | ) | | (0.4 | ) | | (16.6 | ) |
Tax authority positions, net | | 0.6 |
| | 0.2 |
| | 3.8 |
|
Valuation allowance | | 12.2 |
| | 47.1 |
| | 183.2 |
|
Non-deductible or non-taxable items | | 12.1 |
| | — |
| | — |
|
Other, net | | 1.0 |
| | 1.9 |
| | 23.6 |
|
Effective tax rate | | (2.5 | )% | | 4.7 | % | | 79.6 | % |
The 2014 net income tax benefit is primarily attributable to (i) the tax expense recognized at various rates in certain foreign jurisdictions which generate taxable income, (ii) a taxable gain recognized in stockholders' equity utilizing tax attributes that were previously offset with a valuation allowance, and thus as a result of intraperiod tax allocation, the tax benefit related to the reduction in the valuation allowance was recognized in continuing operations of $36.5 million, (iii) a tax benefit for the reduction of the valuation allowance on certain deferred tax assets of $95.3 million due to the ability to realize those benefits in the future offset by $62.7 million of tax expense associated with the favorable settlement of a polysilicon supply agreement between subsidiaries, (iv) tax expense associated with an increase of $7.5 million to the reserve for uncertain tax positions, and (v) a tax benefit for the establishment of deferred taxes related to certain convertible note transactions.
The 2013 net income tax expense is primarily attributable to the tax expense recognized at various rates in certain foreign jurisdictions which generate taxable income, charges recognized to establish valuation allowance on certain deferred tax assets due to the likely inability to realize a benefit for certain future tax deductions and a net expense of $9.6 million due to the closure of the Internal Revenue Service (“IRS”) examination as discussed below.
The 2012 net income tax expense is primarily the result of the worldwide operational earnings mix at various rates, charges recognized to establish valuation allowances on certain deferred tax assets due to the likely inability to realize benefit for certain future tax deductions, a net increase to the accrual for uncertain tax positions, and the impact of examination of tax returns by the IRS, partially offset by the release of a valuation allowance in a foreign jurisdiction.
Certain of our subsidiaries have been granted a concessionary tax rate of 0% on all qualifying income for a period of up to five to ten years based on investments in certain plant and equipment and other development and expansion activities, resulting in tax benefits for 2014, 2013 and 2012 of approximately $0.4 million, $2.2 million and $4.6 million, respectively. Under these incentive programs, the income tax rate for qualifying income will be an incentive tax rate lower than the corporate tax rate. These subsidiaries were in compliance with the qualifying conditions of these tax incentives. The last of these incentives will expire in 2017.
We are currently under examination by the IRS for the 2011 and 2012 tax year. We are also under examination by certain foreign tax jurisdictions. We believe it is reasonably possible that some portions of these examinations could be completed within the next twelve months and have currently recorded amounts in the financial statements that are reflective of the current status of these examinations. We are subject to examination in various jurisdictions for the 2007 through 2013 tax years.
During the fourth quarter of 2014, we determined the undistributed earnings of certain of our foreign wholly owned subsidiaries would be remitted to the U.S. in the foreseeable future. These earnings were also previously considered permanently reinvested in the business and, accordingly, the potential deferred tax effects related to these earnings were not recognized. The deferred tax effect of this newly planned remittance was approximately $25.1 million of tax benefit and was fully offset by a valuation allowance. The undistributed earnings of all other foreign subsidiaries are not expected to be remitted to the U.S. parent corporation in the foreseeable future. Federal and state income taxes have not been provided on accumulated but undistributed earnings of these foreign subsidiaries aggregating approximately $28.9 million and $123.0 million as of December 31, 2014 and 2013, respectively. The determination of the amount of the unrecognized deferred tax liability related to our undistributed earnings is not practicable.
Uncertain Tax Positions
A reconciliation of the beginning and ending amount of gross unrecognized tax benefits is as follows:
|
| | | | | | | | |
| | For the year ended December 31, |
| | 2014 | | 2013 |
In millions | | | | |
Beginning of year | | $ | 16.7 |
| | $ | 50.9 |
|
Additions based on tax positions related to the current year | | 7.5 |
| | 7.8 |
|
Additions due to acquisition of existing entities | | 1.0 |
| | — |
|
Reductions due to settlement with tax authorities | | — |
| | (34.2 | ) |
Decreases for tax positions of prior years | | — |
| | (7.8 | ) |
End of year | | $ | 25.2 |
| | $ | 16.7 |
|
As of December 31, 2014 and 2013, we had $25.7 million and $17.1 million, respectively, of unrecognized tax benefits, net of U.S. federal, state and local deductions, associated with tax years for which we are subject to audit in U.S. federal, and various state and foreign jurisdictions. This also includes estimated interest and penalties. All of our unrecognized tax benefits at December 31, 2014 and 2013 would favorably affect our effective tax rate if recognized.
Interest and penalties were not material for the years ended December 31, 2014, 2013 and 2012. We had $0.5 million and $0.4 million accrued at December 31, 2014 and 2013, respectively, for the payment of interest and penalties.
Deferred Taxes
The tax effects of the major items recorded as deferred tax assets and liabilities are:
|
| | | | | | | | |
| | As of December 31, |
| | 2014 | | 2013 |
In millions | | | | |
Deferred tax assets: | | | | |
Inventories | | $ | 7.9 |
| | $ | 11.9 |
|
Restructuring liabilities | | 21.3 |
| | 87.3 |
|
Accrued liabilities | | 61.9 |
| | 61.1 |
|
Solar energy systems | | 581.5 |
| | 571.0 |
|
Deferred revenue | | 73.2 |
| | 51.3 |
|
Property, plant and equipment | | 39.1 |
| | 52.9 |
|
Pension, medical and other employee benefits | | 18.9 |
| | — |
|
Investment in partnerships | | 85.7 |
| | — |
|
Foreign repatriation | | 25.1 |
| | — |
|
Net operating loss carry forwards | | 513.5 |
| | 110.3 |
|
Foreign tax credits | | 296.9 |
| | 252.9 |
|
Other | | 55.0 |
| | 92.5 |
|
Total deferred tax assets | | $ | 1,780.0 |
| | $ | 1,291.2 |
|
Valuation allowance | | (1,215.2 | ) | | (785.9 | ) |
Net deferred tax assets | | $ | 564.8 |
| | $ | 505.3 |
|
Deferred tax liabilities: | | | | |
Solar energy systems | | $ | (416.5 | ) | | $ | (372.9 | ) |
Property, plant and equipment | | (19.3 | ) | | — |
|
Branch operations | | (44.5 | ) | | (51.8 | ) |
Other | | (11.7 | ) | | (14.9 | ) |
Total deferred tax liabilities | | $ | (492.0 | ) | | $ | (439.6 | ) |
Net deferred tax assets | | $ | 72.8 |
| | $ | 65.7 |
|
The solar energy systems deferred tax asset of $581.5 million is entirely associated with the Solar Energy segment. For tax purposes, income is recognized in the initial transaction year for all solar system sales and sale-leasebacks; Note 2 discusses the U.S. GAAP accounting for each of the different revenue recognition policies. The deferred tax asset represents the future disallowance of deferred book revenue recognized in post transaction years.
Our deferred tax assets and liabilities, netted by taxing jurisdiction, are reported in the following captions in the consolidated balance sheet:
|
| | | | | | | | |
| | As of December 31, |
| | 2014 | | 2013 |
In millions | | | | |
Current deferred tax assets (reported in prepaid and other current assets) | | $ | 57.4 |
| | $ | 90.5 |
|
Current deferred tax liabilities (reported in accrued expenses) | | (12.3 | ) | | (2.6 | ) |
Non-current deferred tax assets (reported in other assets) | | 94.5 |
| | 55.5 |
|
Non-current deferred tax liabilities (reported in other liabilities) | | (66.8 | ) | | (77.7 | ) |
Total | | $ | 72.8 |
| | $ | 65.7 |
|
Our deferred tax assets totaled $72.8 million as of December 31, 2014 compared to $65.7 million at December 31, 2013. The increase of $7.1 million in net deferred tax assets from 2013 to 2014 is primarily attributable to reductions in valuation allowances for specific entities. Deferred tax assets generated in 2014 were reduced by recognizing an increase in the valuation allowance associated with our U.S. operations, which contributed to the majority of the increase in the valuation allowance from 2013. We believe that it is more likely than not, based on our projections of future taxable income in certain jurisdictions, that we will generate sufficient taxable income to realize the benefits of the net deferred tax assets of $72.8 million. At December 31, 2014, we had deferred tax assets associated with net operating loss carryforwards of $11.8 million in a certain foreign jurisdiction that will not expire.
15. EMPLOYEE-RELATED LIABILITIES
Pension and Post-Employment Benefit Plans
Our consolidated subsidiary SSL sponsors a defined benefit pension plan covering certain U.S. employees and a non-qualified pension plan under the Employee Retirement Income Security Act of 1974. The U.S. defined benefit plan covered most U.S. employees prior to January 2, 2002 when we ceased adding new participants to the plan and amended the plan to discontinue future benefit accruals for certain participants. Effective January 1, 2012, the accumulation of new benefits for all participants under the U.S. defined benefit pension plan was frozen. The non-qualified pension plan provides pension benefits in addition to the benefits provided by the U.S. defined benefit pension plan. Eligibility for participation in this plan requires coverage under the U.S. defined benefit plan and other specific circumstances. The non-qualified plan has also been amended to discontinue future benefit accruals.
SSL also sponsors defined benefit pension plans for its eligible employees in Japan and Taiwan.
Additionally, SSL provides post-retirement health care benefits and post-employment disability benefits to certain eligible U.S. employees. SSL amended the health care plan on January 1, 2002 to discontinue benefits for certain participants. Effective January 2, 2002, no new participants will be eligible for post-retirement health care benefits under the plan. The health care plan is contributory, with retiree contributions adjusted annually, and contains other cost-sharing features such as deductibles and coinsurance.
Effective January 1, 2012, the amortization period for the unamortized unrealized loss was changed to the remaining life expectancy of the plan participants, which was derived from an actuarial mortality table. This change was triggered since substantially all the plan participants are now inactive or retired. Prior to 2012, the amortization period was derived based on the average remaining service period of the active participants expected to receive benefits.
Net periodic post-retirement benefit (income) cost consists of the following:
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Pension Plans | | Health Care and Other Plans |
Year Ended December 31, | | 2014 | | 2013 | | 2012 | | 2014 | | 2013 | | 2012 |
In millions | | | | | | | | | | | | |
Service cost | | $ | 1.0 |
| | $ | 1.0 |
| | $ | 1.1 |
| | $ | — |
| | $ | — |
| | $ | — |
|
Interest cost | | 7.1 |
| | 6.7 |
| | 7.8 |
| | 0.7 |
| | 0.7 |
| | 0.8 |
|
Expected return on plan assets | | (14.5 | ) | | (13.7 | ) | | (13.8 | ) | | — |
| | — |
| | — |
|
Amortization of prior service credit | | — |
| | — |
| | — |
| | (0.7 | ) | | (0.7 | ) | | (0.7 | ) |
Net actuarial loss (gain) | | 1.8 |
| | 2.9 |
| | 4.1 |
| | (1.2 | ) | | (0.1 | ) | | (0.5 | ) |
Settlement charges | | 3.1 |
| | — |
| | 6.7 |
| | — |
| | — |
| | — |
|
Net periodic benefit (income) cost | | $ | (1.5 | ) | | $ | (3.1 | ) | | $ | 5.9 |
| | $ | (1.2 | ) | | $ | (0.1 | ) | | $ | (0.4 | ) |
Our pension plans experienced increased lump sum payment activity in 2014 related to the 2014 reductions in force described in Note 13. This event triggered settlement accounting with the U.S. plan in 2014 because there were significant pension benefit obligations settled during 2014. Significant lump sum payment activity was also experienced in our pension plans in 2012 related to the 2011 global reduction in force described in Note 13. This event triggered settlement accounting in both the U.S. and foreign plans because there were significant pension benefit obligations settled during 2012. Settlement accounting was not triggered in 2013.
We use a measurement date of December 31 to determine pension and post-employment benefit measurements for the plans. Our pension and post-employment benefit (income) cost and obligations are actuarially determined, and we use various actuarial assumptions, including the discount rate, rate of salary increase, and expected return on plan assets to estimate our pension (income) cost and obligations. The following is a table of actuarial assumptions used to determine the net periodic benefit (income) cost:
|
| | | | | | | | | | | | | | | | | | |
| | Pension Plans | | Health Care and Other Plans |
Year Ended December 31, | | 2014 | | 2013 | | 2012 | | 2014 | | 2013 | | 2012 |
Weighted-average assumptions: | | | | | | | | | | | | |
Discount rate | | 3.80 | % | | 3.14 | % | | 3.65 | % | | 4.27 | % | | 3.38 | % | | 3.93 | % |
Expected return on plan assets | | 8.39 | % | | 8.38 | % | | 8.34 | % | | NA |
| | NA |
| | NA |
|
Rate of compensation increase(1) | | 0.60 | % | | 0.44 | % | | 3.59 | % | | 3.75 | % | | 3.75 | % | | 3.75 | % |
Current medical cost trend rate | | NA |
| | NA |
| | NA |
| | 7.80 | % | | 8.00 | % | | 8.00 | % |
Ultimate medical cost trend rate | | NA |
| | NA |
| | NA |
| | 4.50 | % | | 4.50 | % | | 5.00 | % |
Year the rate reaches ultimate trend rate | | NA |
| | NA |
| | NA |
| | 2022 |
| | 2022 |
| | 2018 |
|
___________________________ | |
(1) | Effective January 1, 2012, the accumulation of new benefits for all participants under the U.S. defined benefit pension plan was frozen. |
We determine the expected return on plan assets based on our pension plans’ intended long-term asset mix. The expected investment return assumption used for the pension plans reflects what the plans can reasonably expect to earn over a long-term period considering plan target allocations. The expected return includes an inflation assumption and adds real returns for the asset mix and a premium for active management, and subtracts expenses. While the assumed expected rate of return on the U.S. pension plan assets in 2014 and 2013 was 8.5%, the actual return experienced on our U.S. pension plan assets in 2014 and 2013 was 4.6% and 14.6%, respectively.
We consult with the plans’ actuaries to determine a discount rate assumption for pension and other post-retirement and post-employment plans that reflects the characteristics of our plans, including expected cash outflows from our plans, and utilize an analytical tool that incorporates the concept of a hypothetical yield curve.
The following summarizes the change in benefit obligation, change in plan assets, and funded status of the plans:
|
| | | | | | | | | | | | | | | | |
| | Pension Plans | | Health Care and Other Plans |
Year ended December 31, | | 2014 | | 2013 | | 2014 | | 2013 |
In millions | | | | | | | | |
Change in benefit obligation: | | | | | | | | |
Benefit obligation at beginning of year | | $ | 197.0 |
| | $ | 223.5 |
| | $ | 17.1 |
| | $ | 21.5 |
|
Service cost | | 1.0 |
| | 1.0 |
| | — |
| | — |
|
Interest cost | | 7.1 |
| | 6.7 |
| | 0.7 |
| | 0.7 |
|
Plan participants’ contributions | | — |
| | — |
| | 0.4 |
| | 0.4 |
|
Actuarial loss (gain) | | 25.9 |
| | (16.2 | ) | | 1.1 |
| | (4.2 | ) |
Gross benefits paid | | (9.3 | ) | | (15.0 | ) | | (1.2 | ) | | (1.3 | ) |
Settlements | | (7.7 | ) | | — |
| | — |
| | — |
|
Currency exchange gain | | (2.7 | ) | | (3.0 | ) | | — |
| | — |
|
Benefit obligation at end of year | | $ | 211.3 |
| | $ | 197.0 |
| | $ | 18.1 |
| | $ | 17.1 |
|
Change in plan assets: | | | | | | | | |
Fair value of plan assets at beginning of year | | $ | 181.2 |
| | $ | 171.8 |
| | $ | — |
| | $ | — |
|
Actual gain on plan assets | | 8.0 |
| | 23.7 |
| | — |
| | — |
|
Employer contributions | | 1.0 |
| | 0.8 |
| | 0.8 |
| | 0.9 |
|
Plan participants’ contributions | | — |
| | — |
| | 0.4 |
| | 0.4 |
|
Settlements | | (7.6 | ) | | — |
| | — |
| | — |
|
Gross benefits paid | | (9.3 | ) | | (15.0 | ) | | (1.2 | ) | | (1.3 | ) |
Currency exchange loss | | (0.2 | ) | | (0.1 | ) | | — |
| | — |
|
Fair value of plan assets at end of year | | $ | 173.1 |
| | $ | 181.2 |
| | $ | — |
| | $ | — |
|
Net amount recognized | | $ | (38.2 | ) | | $ | (15.8 | ) | | $ | (18.1 | ) | | $ | (17.1 | ) |
Amounts recognized in statement of financial position: | | | | | | | | |
Other assets, noncurrent | | $ | — |
| | $ | 18.4 |
| | $ | — |
| | $ | — |
|
Accrued liabilities, current | | (0.5 | ) | | (0.8 | ) | | (1.1 | ) | | (1.3 | ) |
Pension and post-employment liabilities, noncurrent | | (37.7 | ) | | (33.4 | ) | | (17.0 | ) | | (15.8 | ) |
Net amount recognized | | $ | (38.2 | ) | | $ | (15.8 | ) | | $ | (18.1 | ) | | $ | (17.1 | ) |
Amounts recognized in accumulated other comprehensive loss (before tax):
|
| | | | | | | | | | | | | | | | |
| | Pension Plans | | Health Care and Other Plans |
As of December 31, | | 2014 | | 2013 | | 2014 | | 2013 |
In millions | | | | | | | | |
Net actuarial loss (gain) | | $ | 84.6 |
| | $ | 57.1 |
| | $ | (2.3 | ) | | $ | (4.4 | ) |
Prior service credit | | — |
| | — |
| | (10.6 | ) | | (11.4 | ) |
Net amount recognized | | $ | 84.6 |
| | $ | 57.1 |
| | $ | (12.9 | ) | | $ | (15.8 | ) |
The estimated amounts that will be amortized from accumulated other comprehensive loss income into net periodic benefit cost (income) in 2015 are as follows:
|
| | | | | | | | |
| | Pension Plans | | Health Care and Other Plans |
In millions | | | | |
Actuarial loss (gain) | | $ | 3.0 |
| | $ | (0.2 | ) |
Prior service credit | | — |
| | (0.7 | ) |
Total | | $ | 3.0 |
| | $ | (0.9 | ) |
The following is a table of the actuarial assumptions used to determine the benefit obligations of our pension and other post-employment plans:
|
| | | | | | | | | | | | |
| | Pension Plans | | Health Care and Other Plans |
As of December 31, | | 2014 | | 2013 | | 2014 | | 2013 |
Weighted-average assumptions: | | | | | | | | |
Discount rate | | 3.24 | % | | 3.80 | % | | 3.58 | % | | 4.28 | % |
Rate of compensation increase | | 0.51 | % | | 0.54 | % | | 3.75 | % | | 3.75 | % |
The composition of our plans and age of our participants are such that, as of December 31, 2014 and 2013, the health care cost trend rate no longer has a significant effect on the valuation of our other post-employment benefits plans.
The investment objectives of our pension plan assets are as follows:
| |
• | Preservation of capital through a broad diversification among asset classes which react as nearly as possible, independently to varying economic and market circumstances, |
| |
• | Long-term growth, with a degree of emphasis on stable growth, rather than short-term capital gains, |
| |
• | To achieve a favorable relative return as compared with inflation, and |
| |
• | To achieve an above average total rate of return relative to capital markets. |
The pension plans are invested primarily in marketable securities, including common stocks, bonds and interest-bearing deposits. The weighted-average allocation of pension benefit plan assets at year ended December 31 were as follows:
|
| | | | | | | | | |
| | | | Actual Allocation |
Asset Category (Dollars in millions) | | 2014 Target Allocation | | 2014 | | 2013 |
Cash | | — | % | | — | % | | 2 | % |
Group annuity contract | | — | % | | 36 | % | | 28 | % |
Equity securities | | 30 | % | | 26 | % | | 59 | % |
Fixed income securities | | 70 | % | | 38 | % | | 11 | % |
Total | | 100 | % | | 100 | % | | 100 | % |
Judgment is required in evaluating both quantitative and qualitative factors in the determination of significance for purposes of fair value level classification. Valuation techniques used are generally required to maximize the use of observable inputs and minimize the use of unobservable inputs.
A description of the valuation techniques and inputs used for instruments measured at fair value, including the general classification of such instruments pursuant to the valuation hierarchy follows.
Mutual Funds
Mutual funds are valued at the closing price reported on the active market on which they are traded and are classified within Level 1 of the valuation hierarchy.
Group Annuity Contract
This investment represents a fully benefit-responsive guaranteed group annuity contract, with no maturity date. The group annuity contract is designed to provide safety of principal, liquidity and a competitive rate of return. The fair value of the group annuity contract is estimated to be the contract value, which represents contributions plus earnings, less participant withdrawals and administrative expenses. Contract value is the relevant measurement attributable to fully benefit-responsive investment contracts because contract value is the amount participants would receive if they were to initiate permitted transactions under the terms of the arrangement. The crediting interest rate is reset quarterly to prevailing market rates, and the pension plan can make withdrawals from the group annuity contract subject to certain provisions and restrictions. These restrictions did not result in an impairment of value below contract value as of December 31, 2014 and 2013.
While we believe the valuation methods are appropriate and consistent with other market participants’ methods, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.
The following table sets forth by level within the fair value hierarchy the investments held by pension plans at December 31, 2014. This table does not include $3.6 million in cash and $0.9 million in pending dispositions receivables in accordance with the disclosure requirements of ASC 820, Fair Value Measurements and Disclosures.
|
| | | | | | | | | | | | | | | |
In millions | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Total |
Equity mutual funds: | | | | | | | |
Large cap funds | $ | 15.6 |
| | $ | — |
| | $ | — |
| | $ | 15.6 |
|
Mid cap funds | 3.7 |
| | — |
| | — |
| | 3.7 |
|
Small cap funds | 3.8 |
| | — |
| | — |
| | 3.8 |
|
International funds | 13.6 |
| | — |
| | — |
| | 13.6 |
|
Emerging market funds | 6.7 |
| | — |
| | — |
| | 6.7 |
|
Fixed income funds: | | | | | | |
|
Investment grade bond funds | 58.7 |
| | — |
| | — |
| | 58.7 |
|
Corporate bond funds | 3.7 |
| | — |
| | — |
| | 3.7 |
|
Emerging market bond funds | 2.4 |
| | — |
| | — |
| | 2.4 |
|
Group annuity contract | — |
| | — |
| | 60.4 |
| | 60.4 |
|
Total assets at fair value | $ | 108.2 |
| | $ | — |
| | $ | 60.4 |
| | $ | 168.6 |
|
The following table sets forth by Level within the fair value hierarchy the investments held by the pension plans at December 31, 2013. This table does not include $4.1 million in cash in accordance with the disclosure requirements of ASC 820.
|
| | | | | | | | | | | | | | | |
In millions | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Total |
Equity mutual funds: | | | | | | | |
Large cap funds | $ | 46.9 |
| | $ | — |
| | $ | — |
| | $ | 46.9 |
|
Mid cap funds | 13.7 |
| | — |
| | — |
| | 13.7 |
|
Small cap funds | 13.8 |
| | — |
| | — |
| | 13.8 |
|
International funds | 22.8 |
| | — |
| | — |
| | 22.8 |
|
Emerging market funds | 9.3 |
| | — |
| | — |
| | 9.3 |
|
Fixed income funds: | | | | | | | |
Investment grade bond funds | 6.9 |
| | — |
| | — |
| | 6.9 |
|
Corporate bond funds | 13.3 |
| | — |
| | — |
| | 13.3 |
|
Group annuity contract | — |
| | — |
| | 50.4 |
| | 50.4 |
|
Total assets at fair value | $ | 126.7 |
| | $ | — |
| | $ | 50.4 |
| | $ | 177.1 |
|
The table below sets forth a summary of changes in the fair value of the Plan’s Level 3 assets for the years ended December 31, 2014 and 2013.
|
| | | | | | | | |
| | Year Ended |
In millions | | December 31, 2014 | | December 31, 2013 |
Balance, beginning of year | | $ | 50.4 |
| | $ | 53.7 |
|
Purchases | | 14.9 |
| | 0.2 |
|
Sales | | (6.2 | ) | | (4.6 | ) |
Interest credit during the year | | 1.3 |
| | 1.1 |
|
Balance, end of year | | $ | 60.4 |
| | $ | 50.4 |
|
The Plans had no transfers between Levels 1, 2, and 3 for the years ended December 31, 2014 and 2013.
Our pension obligations are funded in accordance with provisions of applicable laws. The U.S pension plan was underfunded by $7.0 million and overfunded by $18.4 million as of December 31, 2014 and 2013, respectively. Our foreign pension plans and health care and other plans were in an underfunded status as of December 31, 2014 and 2013. The accumulated benefit obligation for the U.S. pension plan was $176.5 million and the fair value of plan assets was $169.5 million as of December 31, 2014.
The U.S. pension plan assets exceeded the accumulated benefit obligation in 2013. The projected benefit obligation, accumulated benefit obligation, and fair value of plan assets for pension plans with an accumulated benefit obligation in excess of plan assets as of December 31, 2014 and 2013 were as follows:
|
| | | | | | | | |
| | Pension Plans |
| | 2014 | | 2013 |
In millions | | | | |
Projected benefit obligation, end of year | | $ | 211.3 |
| | $ | 37.6 |
|
Accumulated benefit obligation, end of year | | 200.0 |
| | 25.4 |
|
Fair value of plan assets, end of year | | 173.1 |
| | 3.3 |
|
We expect contributions to our pension and post-employment plans in 2015 to be approximately $1.0 million and $1.1 million, respectively. We estimate that the future benefits payable for the pension and other post-retirement plans are as follows:
|
| | | | | | | | |
| | Pension Plans | | Health Care and Other Plans |
In millions | | | | |
2015 | | $ | 19.5 |
| | $ | 1.1 |
|
2016 | | 15.9 |
| | 1.1 |
|
2017 | | 13.7 |
| | 1.1 |
|
2018 | | 13.3 |
| | 1.1 |
|
2019 | | 12.3 |
| | 1.1 |
|
2020-2024 | | 59.9 |
| | 5.3 |
|
SunEdison received a notice from the Pension Benefit Guaranty Corporation (“PBGC”) in May 2014 that it intends to require an additional contribution to the U.S. pension plan under ERISA section 4062(e), which was transferred to SSL upon the completion of the SSL initial public offering. SunEdison has not received a formal assessment or concluded the negotiation process with the PBGC. The PBGC announced on July 8, 2014, a moratorium through the end of 2014 on the enforcement of 4062(e) cases. In December 2014, a new law went into effect that states 90% funded plans are not required to make additional contributions to cover liability shortages. Under this new ruling, we have not made any modifications to our U.S. pension plan assets because our U.S. pension plan is over 90% funded. We do not expect any final resolution with the PBGC to have a material impact on our financial condition or results of operations.
Defined Contribution Plans
SunEdison, Inc. sponsors a defined contribution plan under Section 401(k) of the Internal Revenue Code covering all U.S. salaried and hourly employees of SunEdison, Inc. and TerraForm. Our costs included in our consolidated statements of operations totaled $7.9 million, $5.0 million and $5.1 million for 2014, 2013 and 2012, respectively.
SSL sponsors a defined contribution plan under Section 401(k) of the Internal Revenue Code covering all U.S. salaried and hourly employees, and a defined contribution plan in Taiwan covering most salaried and hourly employees of its Taiwan subsidiary. SSL's costs under this plan including allocated costs prior to the SSL initial public offering included in our consolidated statements of operations totaled $3.9 million for 2014 and $4.0 million for 2013 and 2012.
Other Employee-Related Liabilities
Employees of SSL's subsidiaries in Italy and Korea are covered by an end of service entitlement that provides payment upon termination of employment. Contributions to these plans are based on statutory requirements and are not actuarially determined. The accrued liability was $18.0 million at December 31, 2014 and $22.2 million at December 31, 2013, and is included in other long-term liabilities and accrued liabilities on our consolidated balance sheets. The accrued liability is based on the vested benefits to which the employee is entitled assuming employee termination at the measurement date.
16. COMMITMENTS AND CONTINGENCIES
Contingent Consideration
We have recognized liabilities for contingent consideration as of December 31, 2014 in connection with the acquisitions of five entities. The amount payable in cash is based on the entities achieving specific financial metrics or milestones in the development, installation and interconnection of solar energy systems or shipment of solar modules for residential and small commercial installations.
We have estimated the fair value of the contingent consideration outstanding as of December 31, 2014 related to acquisitions to be $42.7 million, which reflects a discount at a credit adjusted interest rate for the period of the contingency. That measure is based on significant inputs that are not observable in the market, including a discount rate and a probability adjustment related to the entities' ability to meet operational metrics.
During the years ended December 31, 2014, 2013 and 2012, we recorded a favorable adjustment to income of $2.9 million, an unfavorable adjustment to income of $5.6 million and an unfavorable adjustment to income of $12.8 million, respectively, related to our contingent consideration liabilities. These adjustments were based on our revised estimates of operational criteria and project milestones being achieved and were recorded to marketing and administration expense. As of December 31, 2014,
the total maximum aggregate exposure is $47.0 million. Of the total amount accrued, $25.6 million is recorded in short-term accrued liabilities and $17.1 million is recorded in other liabilities as a long-term liability.
The following table summarizes changes to the contingent consideration liability, a recurring Level 3 measurement, for the years ended December 31, 2014, 2013 and 2012:
|
| | | | |
| | Contingent Consideration Related to Acquisitions |
In millions | | |
Balance at December 31, 2011 | | $ | (90.8 | ) |
Total unrealized losses included in earnings (1) | | (15.0 | ) |
Payment of contingent consideration | | 80.9 |
|
Balance at December 31, 2012 | | $ | (24.9 | ) |
Total unrealized losses included in earnings (1) | | (6.2 | ) |
Payment of contingent consideration | | 15.9 |
|
Acquisitions, purchases, sales, redemptions of maturities | | (20.0 | ) |
Balance at December 31, 2013 | | $ | (35.2 | ) |
Total unrealized gains included in earnings (1) | | 1.3 |
|
Payment of contingent consideration | | 7.5 |
|
Acquisitions, purchases, sales, redemptions and maturities | | (16.3 | ) |
Balance at December 31, 2014 | | $ | (42.7 | ) |
The amount of total losses in 2012 included in earnings attributable to the change in unrealized losses relating to assets and liabilities still held at December 31, 2012 | | $ | (15.0 | ) |
The amount of total losses in 2013 included in earnings attributable to the change in unrealized losses relating to assets and liabilities still held at December 31, 2013 | | $ | (6.2 | ) |
The amount of total gains in 2014 included in earnings attributable to the change in unrealized gains relating to assets and liabilities still held at December 31, 2014 | | $ | 1.3 |
|
__________________________ | |
(1) | Amounts reported in marketing and administration expense in the consolidated statement of operations for fair value adjustments and to interest expense for accretion. |
Contingent consideration was due to the former Solaicx shareholders if certain operational criteria were met from July 1, 2010 through December 31, 2011. The previously disclosed dispute with the former Solaicx shareholders regarding whether those performance milestones were met was settled during the year ended December 31, 2014 with no further payouts made.
Capital Leases
As more fully described in Note 9, we are party to master lease agreements that provide for the sale and simultaneous leaseback of certain solar energy systems constructed by us.
Operating Leases
We lease land, buildings, equipment and automobiles under operating leases. Rental expense was $25.7 million, $27.3 million and $23.6 million in 2014, 2013 and 2012, respectively. The total future commitments under operating leases as of December 31, 2014 were $235.4 million, of which $75.5 million is noncancellable. Our operating lease obligations as of December 31, 2014 were as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Payments Due By Period |
| | Total | | 2015 | | 2016 | | 2017 | | 2018 | | 2019 | | Thereafter |
In millions | | | | | | | | | | | | | | |
Operating Leases | | $ | 235.4 |
| | $ | 37.1 |
| | $ | 27.2 |
| | $ | 17.7 |
| | $ | 13.3 |
| | $ | 11.5 |
| | $ | 128.6 |
|
Purchase Commitments
We recognized charges of $14.0 million, $5.3 million and $5.5 million during the years ended December 31, 2014, 2013 and 2012, respectively, to cost of goods sold related to the estimated probable shortfall to our purchase obligations associated with certain take-or-pay agreements we have with suppliers for raw materials.
Additionally, as part of our restructuring activities announced in 2011, we provided notice to several of our vendors with whom we had long-term supply contracts that we will no longer be fulfilling our purchase obligations under those contracts. During 2012, one of these vendors filed a notice of arbitration alleging that we failed to comply with our contractual purchase obligations with that vendor. As of December 31, 2014, we have recorded total accruals of $29.7 million associated with the estimated settlements arising from these purchase obligations with multiple vendors, all of which are classified as long-term other liabilities in our consolidated balance sheet. The amount accrued as of December 31, 2014 represents our best estimate of the probable amounts to settle all of our purchase obligations based on presently known information, which involve the use of assumptions requiring significant judgment. We estimate the range of reasonably possible losses to be up to approximately $139.8 million, inclusive of the Wacker claims as discussed below in the legal proceedings section. These estimates include the contractual terms of the agreements, including whether or not there are fixed volumes and/or fixed prices. In addition, under certain contracts, the counterparty may have a contractual obligation to sell the materials to mitigate their losses. We also included in our estimate of losses consideration around whether we believe the obligation will be settled through arbitration, litigation or commercially viable alternative resolutions or settlements. We intend to vigorously defend ourselves against any arbitration or litigation. Due to the inherent uncertainties of arbitration and litigation, we cannot predict the ultimate outcome or resolution of such actions. The actual amounts ultimately settled with these vendors could vary significantly, which could have a material adverse impact on our business, results of operations and financial condition.
Indemnification
We have agreed to indemnify some of our solar wafer and semiconductor customers against claims of infringement of the intellectual property rights of others in our sales contracts with these customers. Historically, we have not paid any claims under these indemnification obligations, and we do not have any pending indemnification claims as of December 31, 2014.
We generally warrant the operation of our solar energy systems for a period of time. Certain parts and labor warranties from our vendors can be assigned to our customers. Due to the absence of historical material warranty claims and expected future claims, we have not recorded a material warranty accrual related to solar energy systems as of December 31, 2014. We may also indemnify our customers for tax credits and feed in tariffs associated with the systems we construct and then sell, including sale-leasebacks. During the year ended December 31, 2014, we made no additional payments, net of recoveries, under the terms of the lease agreements to indemnify our sale-leaseback customers for shortfalls in amounts approved by the U.S. Treasury Department related to Grant in Lieu program tax credits. Based on current information, we are unable to estimate additional exposures to the indemnification of tax credits and feed in tariffs.
In connection with certain contracts to sell solar energy systems directly or as sale-leasebacks, our SunEdison LLC subsidiary has guaranteed the systems' performance for various time periods following the date of interconnection. Also, under separate operations and maintenance services agreements, SunEdison LLC has guaranteed the uptime availability of the systems over the term of the arrangements, which may last up to 25 years. To the extent there are shortfalls in either of the guarantees, SunEdison LLC is required to indemnify the purchaser up to the guaranteed amount through a cash payment. The maximum losses that SunEdison LLC may be subject to for non-performance are contractually limited by the terms of each executed agreement.
Legal Proceedings
We are involved in various legal proceedings, claims, investigations and other legal matters which arise in the ordinary course of business. Although it is not possible to predict the outcome of these matters, we believe that the ultimate outcome of these proceedings, individually and in the aggregate, will not have a material adverse effect on our financial position, cash flows or results of operations.
Jerry Jones v. SunEdison, Inc., et al.
On December 26, 2008, a putative class action lawsuit was filed in the U.S. District Court for the Eastern District of Missouri by plaintiff, Jerry Jones, purportedly on behalf of all participants in and beneficiaries of SunEdison's 401(k) Savings Plan (the "Plan") between September 4, 2007 and December 26, 2008, inclusive. The complaint asserted claims against SunEdison and certain of its directors, employees and/or other unnamed fiduciaries of the Plan. The complaint alleges that the defendants breached certain fiduciary duties owed under the Employee Retirement Income Security Act, generally asserting that the defendants failed to make full disclosure to the Plan's participants of the risks of investing in SunEdison's stock and that the company's stock should not have been made available as an investment alternative in the Plan. The complaint also alleges that SunEdison failed to disclose certain material facts regarding SunEdison's operations and performance, which had the effect of artificially inflating SunEdison's stock price.
On June 1, 2009, an amended class action complaint was filed by Mr. Jones and another purported participant of the Plan, Manuel Acosta, which raises substantially the same claims and is based on substantially the same allegations as the original
complaint. However, the amended complaint changes the period of time covered by the action, purporting to be brought on behalf of beneficiaries of and/or participants in the Plan from June 13, 2008 through the present, inclusive. The amended complaint seeks unspecified monetary damages, including losses the participants and beneficiaries of the Plan allegedly experienced due to their investment through the Plan in SunEdison's stock, equitable relief and an award of attorney's fees. No class has been certified and discovery has not begun. The company and the named directors and employees filed a motion to dismiss the complaint, which was fully briefed by the parties as of October 9, 2009. The parties each subsequently filed notices of supplemental authority and corresponding responses. On March 17, 2010, the court denied the motion to dismiss. The SunEdison defendants filed a motion for reconsideration or, in the alternative, certification for interlocutory appeal, which was fully briefed by the parties as of June 16, 2010. The parties each subsequently filed notices of supplemental authority and corresponding responses. On October 18, 2010, the court granted the SunEdison defendants' motion for reconsideration, vacated its order denying the SunEdison defendants' motion to dismiss, and stated that it will revisit the issues raised in the motion to dismiss after the parties supplement their arguments relating thereto. Both parties filed briefs supplementing their arguments on November 1, 2010. On June 28, 2011, plaintiff Jerry Jones filed a notice of voluntary withdrawal from the action. On June 29, 2011, the court entered an order withdrawing Jones as one of the plaintiffs in this action. The parties each have continued to file additional notices of supplemental authority and responses thereto. On September 27, 2012, the SunEdison defendants moved for oral argument on their pending motion to dismiss; plaintiff Manuel Acosta joined in the SunEdison defendants' motion for oral argument on October 9, 2012. On March 24, 2014, the court granted our motion to dismiss but the plaintiffs filed, and the court in April 2014 granted, a motion to stay entry of final judgment pending a Supreme Court decision in a case that could have implications in this matter. That Supreme Court case was decided in June 2014, and the plaintiffs filed a motion for reconsideration with the district court, based on that Supreme Court decision. We believe that we continue to have good reason for a dismissal and intend to vigorously defend this motion.
SunEdison believes the above class action is without merit, and we will assert a vigorous defense. Due to the inherent uncertainties of litigation, we cannot predict the ultimate outcome or resolution of the foregoing class action proceedings or estimate the amounts of, or potential range of, loss with respect to these proceedings. An unfavorable outcome is not expected to have a material adverse impact on our business, results of operations and financial condition. We have indemnification agreements with each of our present and former directors and officers, under which we are generally required to indemnify each such director or officer against expenses, including attorney's fees, judgments, fines and settlements, arising from actions such as the lawsuits described above (subject to certain exceptions, as described in the indemnification agreements).
Wacker Chemie AG v. SunEdison, Inc.
On December 20, 2012, Wacker Chemie AG (“Wacker”) filed a notice of arbitration with the Swiss Chambers’ Arbitration Institution (the “SCAI”) against the company, requesting the resolution of a dispute arising from two agreements and a subsequent settlement agreement entered into between Wacker and the company. Following a hearing before the Arbitral Tribunal where procedural matters were established by the SCAI pursuant to the parties’ agreement, on September 27, 2013, Wacker filed a complete statement of claim. In the statement of claim, Wacker alleges that we failed to comply with its contractual obligations, in particular that we failed to take or pay for certain quantities of polycrystalline silicon as required under the settlement agreement. Wacker claims a payment of 22.8 million euro plus interest for the payment of outstanding invoices and an amount of 92.2 million euro plus interest for damages it claims as a result of the alleged breach by the company through December 2013. These amounts are included in the estimated range of reasonably possible losses as discussed above in the purchase obligations section. The company filed its statement of defense on January 10, 2014 and has vigorously defended this action.
A hearing occurred in October 2014. Post-hearing briefings concluded in January 2015. We are awaiting the ruling of the arbitral tribunal.
From time to time, we may conclude it is in the best interests of our stockholders, employees, vendors and customers to settle one or more litigation matters, and any such settlement could include substantial payments; however, other than as may be noted above, we have not reached this conclusion with respect to any particular matter at this time. There are a variety of factors that influence our decision to settle any particular individual matter, and the amount we may choose to pay or accept as payment to settle such matters, including the strength of our case, developments in the litigation (both expected and unexpected), the behavior of other interested parties, including non-parties to the matter, the demand on management time and the possible distraction of our employees associated with the case and/or the possibility that we may be subject to an injunction or other equitable remedy. It is difficult to predict whether a settlement is possible, the amount of an appropriate settlement or when is the opportune time to settle a matter in light of the numerous factors that go into the settlement decision.
17. STOCKHOLDERS’ EQUITY
Preferred Stock
We have 50.0 million authorized shares of $.01 par value preferred stock and no preferred shares issued and outstanding as of December 31, 2014 and 2013. The Board of Directors is authorized, without further action by the stockholders, to issue any or all of the preferred stock.
Common Stock
Holders of our common stock are entitled to one vote for each share held on all matters submitted to a vote of stockholders. Subject to the rights of any holders of preferred stock, holders of common stock are entitled to receive ratably such dividends as may be declared by the Board of Directors. In the event of our liquidation, dissolution or winding up, holders of our common stock are entitled to share ratably in the distribution of all assets remaining after payment of liabilities, subject to the rights of any holders of preferred stock. The declaration and payment of future dividends on our common stock, if any, will be at the sole discretion of the Board of Directors and is subject to restrictions as contained in our debt agreements. There were no dividends declared or paid during the years ended December 31, 2014, 2013 and 2012. At our annual stockholders meeting on May 29, 2014, our stockholders approved an amendment to our Restated Certificate of Incorporation to increase the authorized number of shares of common stock to 700.0 million shares.
Our Board of Directors has approved a $1.0 billion stock repurchase program. The stock repurchase program allows us to purchase common stock from time to time on the open market or through privately negotiated transactions using available cash. The specific timing and amount of repurchases will vary based on market conditions and other factors and may be modified, extended or terminated by the Board of Directors at any time. No shares were repurchased in 2014, 2013, or 2012 under the stock repurchase program. From inception through December 31, 2014, we have repurchased 9.0 million shares at a total cost of $448.0 million.
On September 18, 2013, we completed the issuance and sale in a registered public offering (the "Offering") of 34,500,000 shares of SunEdison's common stock, par value $0.01 per share, at a public offering price of $7.25 per share, less discounts and commissions of $0.29 per share. All of the shares of common stock previously held as treasury stock were issued in connection with the Offering. We received net proceeds of approximately $239.6 million, after deducting underwriting discounts and commissions and related offering costs.
Redeemable Noncontrolling Interest
On June 27, 2012, we issued redeemable common stock in certain consolidated subsidiaries to a non-affiliated third party for $10.4 million in proceeds (net of stock issuance costs) representing a 15% noncontrolling interest in those consolidated subsidiaries, which was initially reported as Redeemable Noncontrolling Interest in the temporary equity section on the consolidated balance sheet. Under the terms of the arrangement, the noncontrolling interest holder had an option to make additional investments up to an aggregate of approximately $55.0 million. The noncontrolling interest holder also had a contingent right to require us to repurchase the holder's 15% interest at a redemption price that did not represent fair value. Accordingly, we adjusted the redeemable noncontrolling interest to its expected redemption value, resulting in a $1.6 million reduction to retained earnings as of December 31, 2012.
On September 24, 2013, we entered into a Share Sale Agreement with the noncontrolling interest holder, pursuant to which we agreed to repurchase the shares of redeemable common stock for a total of $14.9 million in four installments with payments beginning January 15, 2014 and continuing each quarter through October 15, 2014. As a result of our unconditional obligation under the Share Sale Agreement, the amount previously reported as Redeemable Noncontrolling Interest was reclassified to Accrued Liabilities and Other Liabilities in the consolidated balance sheet and adjusted to reflect the fair value of our obligation, which resulted in a reduction in retained earnings (accumulated deficit) of $2.4 million.
Stock-Based Compensation
SunEdison, Inc.
The SunEdison, Inc. equity incentive plans provide for the award of non-qualified stock options, restricted stock, performance shares, and restricted stock units to employees, non-employee directors and consultants. We issue new shares to satisfy stock option exercises. During 2013, 16.5 million shares were registered for issuance under our equity incentive plan pursuant to a plan amendment approved by our stockholders at the annual stockholders' meeting on May 30, 2013. As of December 31, 2014, there were 12.9 million shares remaining available for future grant under this plan. Options to employees are generally granted upon hire and annually or semi-annually, usually with four-year ratable vesting, although certain grants have three, four or five-year cliff vesting and some options have performance-based vesting criteria. No option has a term of more than 10 years. The exercise price of stock options granted has historically equaled the market price on the date of the grant.
The following table presents information regarding outstanding stock options as of December 31, 2014 and activity during the year then ended:
|
| | | | | | | | | | | | | |
| | Shares | | Weighted- Average Exercise Price | | Aggregate Intrinsic Value (in millions) | | Weighted- Average Remaining Contractual Life |
Beginning of year | | 23,742,764 |
| | $ | 6.63 |
| | | | |
Granted | | 266,500 |
| | 16.92 |
| | | | |
Exercised | | (3,937,673 | ) | | 5.42 |
| | | | |
Forfeited | | (944,943 | ) | | 4.95 |
| | | | |
Expired | | (111,757 | ) | | 16.90 |
| | | | |
End of year | | 19,014,891 |
| | $ | 7.06 |
| | $ | 244.7 |
| | 7 years |
Options exercisable at year-end | | 8,644,226 |
| | $ | 7.98 |
| | $ | 107.6 |
| | 6 years |
The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between our closing stock price on the last trading day of 2014 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on December 31, 2014. This amount changes based on the fair market value of our stock. The total intrinsic value of options exercised and the amount of cash received from exercises of stock options were $60.9 million and $21.3 million, respectively, for the year ended December 31, 2014. The tax benefit realized from stock options exercised during the year ended December 31, 2014 was not material. There was no material amounts of option exercises and related cash receipts or tax benefits realized for the years ended December 31, 2013 or 2012.
At our May 25, 2012 annual meeting of stockholders, stockholders approved amendments to our equity incentive plans to permit a one-time stock option exchange program pursuant to which certain employees, excluding directors and executive officers, would be permitted to surrender for cancellation certain outstanding stock options with an exercise price substantially greater than our then current trading price in exchange for fewer stock options at a lower exercise price. The option exchange program commenced on July 17, 2012 and closed on August 17, 2012. The number of new stock options replacing surrendered eligible options was determined by an exchange ratio dependent on the exercise price of the original options and constructed to result in the new option value being approximately equal to the value of surrendered options. The program was designed to cause us to incur minimal incremental stock-based compensation expense in future periods. The option exchange resulted in the cancellation of 6.9 million old options and the issuance of 2.0 million new options with an award date of August 20, 2012 and a new exercise price of $2.77 per share, which were considered forfeited or expired, depending on whether the old options were vested or not. New options issued in the exchange vest over a two or three year period depending on whether the surrendered options were fully or partially vested. The incremental fair value created under the stock option exchange was $0.2 million, and this cost will be recognized on a straight line basis over the two or three year vesting period. The compensation cost of the original awards will continue to be expensed under the original vesting schedule.
During the third quarter of 2012, we granted an aggregate of 9.4 million options with a 10-year contractual term to select employees, including senior executives, excluding the chief executive officer. The options will vest in three tranches 1 year after our stock achieves the following three price hurdles for 30 consecutive calendar days: $7.00, $10.00 and $15.00. If the individual price hurdles are not met within 5 years of the grant date, the options tied to that individual price hurdle will be cancelled. The grant date fair value of these awards was $11.0 million and this compensation cost will be expensed on a straight line basis over the service period of each separately identified tranche. The grant date fair value was calculated for these awards using a probabilistic approach under a Monte Carlo simulation taking into consideration volatility, interest rates and expected term. Because the vesting of these awards is based on stock price performance (a market condition), it is classified as an equity award. Two of the three market price hurdles were met during 2013 and therefore the options tied to those hurdles vested in 2014. The third price hurdle was met during the year ended December 31, 2014 and the options tied to this hurdle will vest in 2015.
The weighted-average assumptions used to determine the grant-date fair value of stock options are as follows:
|
| | | | | | | | | |
| | 2014 | | 2013 | | 2012 |
Risk-free interest rate | | 1.3 | % | | 1.0 | % | | 0.8 | % |
Expected stock price volatility | | 65.1 | % | | 62.8 | % | | 68.1 | % |
Expected term until exercise (years) | | 4 |
| | 4 |
| | 4 |
|
Expected dividends | | — | % | | — | % | | — | % |
The weighted-average grant-date fair value per share of options granted was $8.45, $4.03 and $1.18 for 2014, 2013 and 2012, respectively. As of December 31, 2014, $13.9 million of total unrecognized compensation cost related to stock options is expected to be recognized over a weighted-average period of 1.3 years.
Restricted stock units represent the right to receive a share of our stock at a designated time in the future, provided the stock unit is vested at the time. Recipients of restricted stock units do not pay any cash consideration for the restricted stock units or the underlying shares, and do not have the right to vote or have any other rights of a stockholder until such time as the underlying shares of stock are distributed. Restricted stock units granted to non-employee directors generally vest over a two-year period from the grant date. Restricted stock units granted to employees usually have three, four or five year cliff vesting, or four-year ratable vesting, and certain grants are subject to performance conditions established at the time of grant.
On May 2, 2014 we awarded 1,120,000 restricted share units, subject to achieving certain market conditions based on SunEdison's stock price, to senior executives, including our CEO. The restricted share units will vest ratably on the anniversary date in 2017 and 2018 of achieving a $35.00 per share stock price for 30 consecutive trading days on or prior to June 30, 2016, or a $50.00 per share stock price for 30 consecutive trading days on or prior to June 30, 2018. Achievement of a $50.00 per share stock price for 30 consecutive trading days on or prior to June 30, 2016 will result in a 50% share multiplier for the CEO award and a 25% share multiplier for all remaining awards. If the individual stock price hurdles are not met by the dates specified above, the awards will be cancelled. The grant date fair value of these awards was $18.4 million which will be recognized as compensation cost on a straight line basis over the service period. The grant date fair value of these awards was calculated using a probabilistic approach under a Monte Carlo simulation taking into consideration volatility, interest rates and expected term. The target stock prices were not met as of December 31, 2014.
The following table presents information regarding outstanding restricted stock units as of December 31, 2014 and changes during the year then ended:
|
| | | | | | | | | |
| | Restricted Stock Units | | Aggregate Intrinsic Value (in millions) | | Weighted-Average Remaining Contractual Life |
Beginning of year | | 4,038,782 |
| | | | |
Granted | | 5,531,025 |
| | | | |
Converted | | (1,410,129 | ) | | | | |
Forfeited | | (616,870 | ) | | | | |
End of year | | 7,542,808 |
| | $ | 147.1 |
| | 3 years |
At December 31, 2014, there were no restricted stock units which were convertible. As of December 31, 2014, $83.8 million of total unrecognized compensation cost related to restricted stock units is expected to be recognized over a weighted-average period of approximately 1.7 years. The weighted-average fair value of restricted stock units on the date of grant was $18.80, $8.88 and $3.06 in 2014, 2013 and 2012, respectively.
TerraForm Power, Inc.
In connection with the TerraForm IPO (see Note 23), TerraForm filed a registration statement to register the issuance of an aggregate of 8.6 million ordinary shares reserved for issuance under the equity incentive plan adopted immediately prior to the initial public offering. As of December 31, 2014, there were 2.8 million shares remaining available for future grant under this plan. The total grant date fair value of the awards granted under TerraForm's equity incentive plan during the year ended December 31, 2014 was $30.0 million. The expense recognized during the year ended December 31, 2014 related to these awards was $5.8 million.
SunEdison Semiconductor Ltd.
In connection with the SSL IPO (see Note 22), SSL filed a registration statement to register the issuance of an aggregate of 11.0 million ordinary shares reserved for issuance under the equity incentive plan adopted immediately prior to the initial public offering. There were approximately 7.7 million shares remaining available for future grant under these plans as of December 31, 2014. The total grant date fair value of the awards granted under SSL's equity incentive plan during the year ended December 31, 2014 was $36.4 million. The expense recognized during the year ended December 31, 2014 related to these awards was $4.5 million.
Stock-Based Compensation Expense
Stock-based compensation expense recorded for the years ended December 31, 2014, 2013 and 2012 was allocated as follows:
|
| | | | | | | | | | | | |
| | 2014 | | 2013 | | 2012 |
In millions | | | | | | |
Cost of goods sold | | $ | 8.1 |
| | $ | 6.1 |
| | $ | 5.9 |
|
Marketing and administration | | 34.0 |
| | 20.0 |
| | 21.7 |
|
Research and development | | 4.1 |
| | 3.6 |
| | 3.8 |
|
Stock-based employee compensation | | $ | 46.2 |
| | $ | 29.7 |
| | $ | 31.4 |
|
18. LOSS PER SHARE
In 2014, 2013 and 2012, basic and diluted loss per share (EPS) were calculated as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | 2014 | | 2013 | | 2012 |
| | Basic | | Diluted | | Basic | | Diluted | | Basic | | Diluted |
In millions, except per share amounts | | | | | | | | | | | | |
EPS Numerator: | | | | | | | | | | | | |
Net loss attributable to common stockholders | | $ | (1,180.4 | ) | | $ | (1,180.4 | ) | | $ | (586.7 | ) | | $ | (586.7 | ) | | $ | (150.6 | ) | | $ | (150.6 | ) |
Adjustment for net income attributable to redeemable interest holder | | (5.2 | ) | | (5.2 | ) | | — |
| | — |
| | — |
| | — |
|
Adjustment of redeemable noncontrolling interest | | — |
| | — |
| | (6.8 | ) | | (6.8 | ) | | (1.6 | ) | | (1.6 | ) |
Adjusted net loss to common stockholders | | $ | (1,185.6 | ) | | $ | (1,185.6 | ) | | $ | (593.5 | ) | | $ | (593.5 | ) | | $ | (152.2 | ) | | $ | (152.2 | ) |
| | | | | | | | | | | | |
EPS Denominator: | | | | | | | | | | | | |
Weighted-average shares outstanding | | 269.2 |
| | 269.2 |
| | 241.7 |
| | 241.7 |
| | 230.9 |
| | 230.9 |
|
Loss per share | | $ | (4.40 | ) | | $ | (4.40 | ) | | $ | (2.46 | ) | | $ | (2.46 | ) | | $ | (0.66 | ) | | $ | (0.66 | ) |
For the year ended December 31, 2013 and 2012, the numerator of the EPS calculation included the amount recorded to adjust the redeemable noncontrolling interest balance to redemption value. For the year ended December 31, 2014, the numerator of the EPS calculation was reduced by the holder's share of the net income of certain subsidiaries as a result of the Share Sale Agreement entered into with the noncontrolling interest holder.
In 2014, 2013 and 2012, all options and warrants to purchase our stock and restricted stock units and the Conversion Options and Warrants associated with the convertible senior notes (see Note 9) were excluded from the calculation of diluted EPS because the effect was antidilutive due to the net loss incurred for the respective periods.
19. COMPREHENSIVE LOSS
Comprehensive income (loss) represents a measure of all changes in equity that result from recognized transactions and other economic events other than transactions with owners in their capacity as owners. Other comprehensive income (loss) includes foreign currency translations, gains (losses) on available-for-sale securities, gains (losses) on hedging instruments and pension adjustments.
The following tables present the changes in each component of accumulated other comprehensive loss, net of tax:
|
| | | | | | | |
| For the year ended December 31, |
| 2014 | | 2013 |
In millions | | | |
Available-for-sale securities | | | |
Beginning balance | $ | — |
| | $ | (7.6 | ) |
Other comprehensive income before reclassifications | — |
| | 9.5 |
|
Amounts reclassified from other comprehensive loss | — |
| | (1.9 | ) |
Net other comprehensive income(2) | — |
| | 7.6 |
|
Balance at December 31 | $ | — |
| | $ | — |
|
| | | |
Foreign currency translation adjustments(1) | | | |
Beginning balance | $ | (20.0 | ) | | $ | 32.3 |
|
Other comprehensive loss before reclassifications | (70.6 | ) | | (52.3 | ) |
Amounts reclassified from other comprehensive loss(5) | 36.4 |
| | — |
|
Net other comprehensive loss(2) | (34.2 | ) | | (52.3 | ) |
Balance at December 31 | $ | (54.2 | ) | | $ | (20.0 | ) |
| | | |
Cash flow hedges | | | |
Beginning balance | $ | (12.4 | ) | | $ | (4.3 | ) |
Other comprehensive loss before reclassifications | (0.6 | ) | | (8.9 | ) |
Amounts reclassified from other comprehensive loss(4) | 0.7 |
| | 0.8 |
|
Net other comprehensive income (loss)(2) | 0.1 |
| | (8.1 | ) |
Balance at December 31 | $ | (12.3 | ) | | $ | (12.4 | ) |
| | | |
Benefit plans(1) | | | |
Beginning balance | $ | (27.6 | ) | | $ | (60.2 | ) |
Other comprehensive (loss) income before reclassifications | (16.6 | ) | | 30.5 |
|
Amounts reclassified from other comprehensive loss(3) | (0.1 | ) | | 2.1 |
|
Net other comprehensive (loss) income(2) | (16.7 | ) | | 32.6 |
|
Balance at December 31 | $ | (44.3 | ) | | $ | (27.6 | ) |
| | | |
Accumulated other comprehensive loss at December 31 | $ | (110.8 | ) | | $ | (60.0 | ) |
__________________________
| |
(1) | Excludes changes in accumulated other comprehensive loss related to noncontrolling interests. Refer to the consolidated statements of comprehensive loss. |
| |
(2) | Total other comprehensive loss was $87.2 million and $20.2 million for the years ended December 31, 2014 and 2013. |
| |
(3) | Amounts reclassified from accumulated other comprehensive loss related to pension plans for amortization of prior service costs/credits and net actuarial gains/losses are classified in marketing and administration expense in the consolidated statements of operations. |
| |
(4) | Amounts reclassified from accumulated other comprehensive loss related to cash flow hedges for realized losses on interest rate derivatives are classified in interest expense in the consolidated statements of operations. |
| |
(5) | Amounts reclassified from accumulated other comprehensive loss to noncontrolling interest related to net SSL currency translation adjustment attributable to noncontrolling interests. See Note 22 for a description of the SSL IPO transaction. This reclassification is not reflected in the condensed consolidated statements of operations. |
20. VARIABLE INTEREST ENTITIES
We consolidate any VIEs in solar energy projects in which we are the primary beneficiary. During the year ended December 31, 2014, two solar energy system project companies that were consolidated as of December 31, 2013 were deconsolidated, as a result of amendments to certain agreements which provide the largest stakeholder with kick-out rights for certain operations and maintenance services currently provided by SunEdison. Based on this change, we no longer are considered the primary beneficiary and thus deconsolidated the two entities.
The carrying amounts and classification of our consolidated VIEs’ assets and liabilities included in our consolidated balance sheet are as follows:
|
| | | | | | | | |
| | As of December 31, |
| | 2014 | | 2013 |
In millions | | | | |
Current assets | | $ | 308.5 |
| | $ | 274.1 |
|
Noncurrent assets | | 2,951.5 |
| | 167.2 |
|
Total assets | | $ | 3,260.0 |
| | $ | 441.3 |
|
Current liabilities | | $ | 674.8 |
| | $ | 22.0 |
|
Noncurrent liabilities | | 1,430.9 |
| | 275.4 |
|
Total liabilities | | $ | 2,105.7 |
| | $ | 297.4 |
|
The amounts shown in the table above exclude intercompany balances which are eliminated upon consolidation. All of the assets in the table above are restricted for settlement of the VIE obligations, and all of the liabilities in the table above can only be settled using VIE resources. We have not identified any material VIEs during the year ended December 31, 2014, for which we determined that we are not the primary beneficiary and thus did not consolidate.
21. REPORTABLE SEGMENTS
Effective July 23, 2014, in connection with the completion of the TerraForm IPO (see Note 23), we identified TerraForm Power as a new reportable segment. As a result, we now have three reportable segments: Solar Energy, TerraForm Power and Semiconductor Materials. The information in the table below has been presented on this basis for all periods presented.
Our Solar Energy segment provides solar energy services that integrate the design, installation, financing, monitoring, operations and maintenance portions of the downstream solar market for our customers. Our Solar Energy segment also owns and operates solar power plants, manufactures polysilicon and silicon wafers, and subcontracts the assembly of solar modules to support our downstream solar business, as well as for sale to external customers as market conditions dictate. Our TerraForm Power segment owns and operates clean power generation assets, both developed by the Solar Energy segment and acquired through third party acquisitions, that sell electricity through long-term power purchase agreements to utility, commercial, and residential customers. Our Semiconductor Materials segment includes the manufacture and sale of silicon wafers to the semiconductor industry.
Additionally, effective January 1, 2014, in connection with the plan to divest a minority ownership of SSL, the subsidiary formed to own our Semiconductor Materials business, through an initial public offering, we made the following changes in our internal financial reporting in order to align our reporting with the organizational and management structure established to manage the Semiconductor Materials segment as a standalone SEC registrant:
| |
• | Reclassification of certain corporate costs and expenses. Prior to January 1, 2014, costs and expenses related to certain research and development and marketing activities were not allocated to the Solar Energy or Semiconductor Materials segments. These costs, as well as general corporate marketing and administrative costs, substantially all of our stock compensation expense, research and development administration costs, legal professional services and related costs, and other items were not directly attributable nor evaluated by segment and thus were included in a "Corporate and other" caption in our disclosures of financial information by reportable segment. Effective January 1, 2014, these costs and expenses have been specifically identified with the Solar Energy or Semiconductor Materials segments, and our internal financial reporting structure has been revised to reflect the results of the Solar Energy and Semiconductor Materials segments on this basis. |
| |
• | Reclassification of the results for the company's polysilicon operations in Merano, Italy from the Solar Energy segment to the Semiconductor Materials segment. Prior to January 1, 2014, the Merano polysilicon operations were |
included in the results of the Solar Energy segment. Upon the effective date of the SSL IPO, the Merano polysilicon operations were transferred to the Semiconductor Materials segment. Thus, effective January 1, 2014, the Merano polysilicon operations have been managed by the management of the Semiconductor Materials segment, and the results of the Merano polysilicon operations have been reported on this basis in our internal financial reporting.
As a result of these changes to our internal financial reporting structure, we determined that such changes should also be reflected in the reportable segments data disclosed in our consolidated financial statements, in accordance with FASB ASC Topic 280, Segment Reporting. The following information has been presented on this basis for all periods presented.
The Chief Operating Decision Maker (“CODM”) is our Chief Executive Officer. The CODM primarily evaluates segment performance based on segment operating profit plus interest expense. The CODM also evaluates the business on several other key operating metrics, including free cash flow.
The following table shows information by operating segment for 2014, 2013 and 2012:
|
| | | | | | | | | | | | |
| | For the year ended December 31, |
| | 2014 | | 2013 | | 2012 |
In millions | | | | | | |
Net sales: | | | | | | |
Solar Energy | | $ | 1,594.3 |
| | $ | 1,204.3 |
| | $ | 1,731.4 |
|
TerraForm Power | | 125.9 |
| | 17.5 |
| | 15.7 |
|
Semiconductor Materials | | 840.1 |
| | 920.6 |
| | 934.2 |
|
Intersegment eliminations | | (75.9 | ) | | (134.8 | ) | | (151.4 | ) |
Consolidated net sales | | $ | 2,484.4 |
| | $ | 2,007.6 |
| | $ | 2,529.9 |
|
Intersegment sales: | | | | | | |
Solar Energy | | $ | 72.4 |
| | $ | 124.8 |
| | $ | 143.0 |
|
TerraForm Power | | 1.1 |
| | 0.9 |
| | 1.6 |
|
Semiconductor Materials | | 2.4 |
| | 9.1 |
| | 6.8 |
|
Consolidated intersegment sales | | $ | 75.9 |
| | $ | 134.8 |
| | $ | 151.4 |
|
Operating (loss) income: | | | | | | |
Solar Energy | | $ | (462.2 | ) | | $ | (299.7 | ) | | $ | (75.6 | ) |
TerraForm Power | | 7.2 |
| | 5.1 |
| | 5.3 |
|
Semiconductor Materials | | (81.8 | ) | | (19.0 | ) | | 127.5 |
|
Consolidated operating (loss) income | | $ | (536.8 | ) | | $ | (313.6 | ) | | $ | 57.2 |
|
Interest expense: | | | | | | |
Solar Energy | | $ | 316.5 |
| | $ | 186.2 |
| | $ | 130.8 |
|
TerraForm Power | | 84.4 |
| | 6.3 |
| | 5.7 |
|
Semiconductor Materials | | 9.2 |
| | 0.8 |
| | 1.0 |
|
Intersegment eliminations(1) | | (0.1 | ) | | (4.1 | ) | | (2.2 | ) |
Consolidated interest expense | | $ | 410.0 |
| | $ | 189.2 |
| | $ | 135.3 |
|
Depreciation and amortization: | | | | | | |
Solar Energy | | $ | 169.1 |
| | $ | 143.6 |
| | $ | 123.8 |
|
TerraForm Power | | 72.3 |
| | 5.1 |
| | 4.4 |
|
Semiconductor Materials | | 116.0 |
| | 119.6 |
| | 118.7 |
|
Consolidated depreciation and amortization | | $ | 357.4 |
| | $ | 268.3 |
| | $ | 246.9 |
|
Capital expenditures: | | | | | | |
Solar Energy(2) | | $ | 1,586.6 |
| | $ | 497.4 |
| | $ | 390.7 |
|
TerraForm Power | | 59.6 |
| | — |
| | — |
|
Semiconductor Materials | | 94.4 |
| | 101.0 |
| | 95.2 |
|
Consolidated capital expenditures | | $ | 1,740.6 |
| | $ | 598.4 |
| | $ | 485.9 |
|
_____________________
| |
(1) | All intersegment interest expense for the years ended December 31, 2014, 2013, and 2012 relate to the Solar Energy segment. |
| |
(2) | Consists primarily of construction of solar energy systems of $1,511.0 million, $465.3 million and $346.9 million for the years ended December 31, 2014, 2013 and 2012, respectively. |
Intersegment Sales
Intersegment sales and segment operating income (loss) for the year ended December 31, 2014 reflect a change in the average effective selling price for polysilicon supplied by the Solar Energy segment to the Semiconductor Materials segment from $55 per kilogram to $30 per kilogram, which was effective January 1, 2014.
Sales of solar energy systems by the Solar Energy segment to the TerraForm Power segment are considered transfers of interests between entities under common control. Accordingly, these transactions are recorded at historical cost in accordance with ASC 805-50, Business Combinations - Related Issues. The difference between the cash proceeds from the sale and the historical carrying value of the net assets is recorded as a distribution by TerraForm to SunEdison and reduces the balance of the noncontrolling interest in TerraForm.
Solar Energy
During the years ended December 31, 2014, 2013 and 2012 our Solar Energy segment recognized long-lived asset impairment charges of $75.2 million, $3.4 million and $18.1 million, respectively.
During the year ended December 31, 2013, we recognized $25.0 million of revenue for the Tainergy contract amendment and $22.9 million of revenue related to the contract termination with Gintech. During the year ended December 31, 2012, we recognized revenue of $37.1 million for the termination of the Conergy long-term wafer supply agreement.
We recognized charges of $14.0 million, $5.3 million and $5.5 million during the years ended December 31, 2014, 2013 and 2012, respectively, to cost of goods sold related to the estimated probable shortfall to our purchase obligations associated with certain take-or-pay agreements we have with suppliers for raw materials.
Given the deterioration in polysilicon and solar wafer pricing, we recorded a lower of cost or market adjustment on our raw material and finished goods inventory in the Solar Energy segment of approximately $7.3 million, $16.1 million and $3.4 million in the years ended December 31, 2014, 2013 and 2012, respectively.
Semiconductor Materials
During the years ended December 31, 2014, 2013 and 2012 our Semiconductor Materials segment recognized long-lived asset impairment charges of $59.4 million, $33.6 million and $1.5 million, respectively.
During the year ended December 31, 2012 our Semiconductor Materials segment recorded a favorable adjustment of $65.8 million of income related to the settlement of the Evonik take or pay contract as well as a gain of $31.7 million related to the receipt of a manufacturing plant from Evonik.
During the year ended December 31, 2012, our Semiconductor Materials segment recorded insurance recoveries related to a March 11, 2011 Japanese earthquake of $4.0 million. We had no similar charges during the years ended December 31, 2014 and 2013.
TerraForm Power
During the year ended December 31, 2014, our TerraForm Power segment had formation and offering related fees and expenses of $5.9 million and acquisition costs of $14.9 million.
Transfers of Capital Expenditures
A reconciliation of the capital expenditures reported above on a segment basis to the capital expenditures reported by TerraForm on a standalone basis in accordance with rules applicable to transactions between entities under common control is as follows:
|
| | | | | | | | |
| | Solar Energy | | TerraForm Power |
In millions | | | | |
Capital expenditures for the year ended December 31, 2014 as reported on a segment basis | | $ | 1,586.6 |
| | $ | 59.6 |
|
Capital expenditures transferred from Solar Energy to TerraForm Power | | (742.7 | ) | | 742.7 |
|
Capital expenditures for the year ended December 31, 2014 as reported by TerraForm | | $ | 843.9 |
| | $ | 802.3 |
|
| | | | |
Capital expenditures for the year ended December 31, 2013 as reported on a segment basis | | $ | 497.4 |
| | $ | — |
|
Capital expenditures transferred from Solar Energy to TerraForm Power | | (205.4 | ) | | 205.4 |
|
Capital expenditures for the year ended December 31, 2013 as recorded by TerraForm | | $ | 292.0 |
| | $ | 205.4 |
|
| | | | |
Capital expenditures for the year ended December 31, 2012 as reported on a segment basis | | $ | 390.7 |
| | $ | — |
|
Capital expenditures transferred from Solar Energy to TerraForm Power | | (2.3 | ) | | 2.3 |
|
Capital expenditures for the year ended December 31, 2012 as recorded by TerraForm | | $ | 388.4 |
| | $ | 2.3 |
|
Segment Assets
The following table shows total assets by segment as of December 31, 2014 and 2013:
|
| | | | | | | | |
| | As of December 31, |
In millions | | 2014 | | 2013 |
Total assets(1) | | | | |
Solar Energy | | $ | 7,040.0 |
| | $ | 4,994.6 |
|
TerraForm Power | | 3,410.2 |
| | 566.9 |
|
Semiconductor Materials(2) | | 1,049.6 |
| | 1,119.0 |
|
Consolidated total assets | | $ | 11,499.8 |
| | $ | 6,680.5 |
|
_____________________
| |
(1) | Excludes intercompany account balances that eliminate upon consolidation. |
| |
(2) | Semiconductor Materials segment total assets as of December 31, 2014 excludes a $130.3 million equity method investment in SMP recorded by SSL as SunEdison, Inc. consolidates the results of SMP. See Note 3 for additional information. |
Geographic Segments
Geographic financial information is as follows:
Net Sales
|
| | | | | | | | | | | | |
| | For the Year Ended December 31, |
| | 2014 | | 2013 | | 2012 |
In millions | | | | | | |
United States | | $ | 510.0 |
| | $ | 475.1 |
| | $ | 735.3 |
|
Taiwan | | 423.6 |
| | 472.5 |
| | 408.4 |
|
Canada | | 348.1 |
| | 279.1 |
| | 248.6 |
|
South Korea | | 218.1 |
| | 220.3 |
| | 198.8 |
|
South Africa | | 193.1 |
| | — |
| | — |
|
United Kingdom | | 140.4 |
| | 2.1 |
| | 5.7 |
|
Italy | | 90.2 |
| | 71.3 |
| | 234.2 |
|
Spain | | 13.0 |
| | 9.6 |
| | 175.8 |
|
Other foreign countries | | 547.9 |
| | 477.6 |
| | 523.1 |
|
Total | | $ | 2,484.4 |
| | $ | 2,007.6 |
| | $ | 2,529.9 |
|
Net sales are attributed to countries based on the location of the customer.
Our customers fall into six categories: (i) semiconductor device and solar cell and module manufacturers; (ii) commercial customers, which principally include large, national retail chains and real estate property management firms; (iii) federal, state and municipal governments; (iv) financial institutions, private equity firms and insurance companies; (v) residential customers;
and (vi) utilities. Our customers are generally well capitalized. As such, our concentration of credit risk is considered minimal. For our solar energy systems, we typically collect the full sales proceeds upon final close and transfer of the system. During the year ended December 31, 2014, one customer of our Solar Energy segment accounted for 11% of consolidated net sales. During the year ended December 31, 2013, one customer of our Semiconductor Materials segment accounted for 10% of consolidated net sales. Sales to any specific customer did not exceed 10% of consolidated net sales for the year ended December 31, 2012.
Property, plant and equipment, net of accumulated depreciation
|
| | | | | | | | |
| | As of December 31, |
| | 2014 | | 2013 |
In millions | | | | |
United States | | $ | 3,710.7 |
| | $ | 1,811.3 |
|
South Korea | | 890.3 |
| | 132.7 |
|
Italy | | 446.7 |
| | 197.7 |
|
Chile | | 430.2 |
| | 167.8 |
|
United Kingdom | | 413.2 |
| | — |
|
Malaysia | | 224.4 |
| | 262.4 |
|
Taiwan | | 195.3 |
| | 208.9 |
|
Other foreign countries | | 763.5 |
| | 342.1 |
|
Total | | $ | 7,074.3 |
| | $ | 3,122.9 |
|
22. INITIAL PUBLIC OFFERING OF SUNEDISON SEMICONDUCTOR LIMITED
Initial Public Offering and Related Transactions
On May 28, 2014, we completed the underwritten initial public offering of 8,280,000 ordinary shares of SSL, our Semiconductor Materials business, at a price to the public of $13.00 per share. All of the shares in the offering were sold by SSL, including 1,080,000 ordinary shares sold to the underwriters pursuant to the underwriters’ exercise in full of their option to purchase additional shares. SSL received net proceeds of approximately $98.0 million, after deducting underwriting discounts and commissions and related offering costs of $9.4 million. The shares of SSL began trading on the NASDAQ Global Select Market on May 22, 2014 under the ticker symbol “SEMI.”
Private Placements and Related Transactions
Concurrently with the SSL IPO, SFC and Samsung Electronics Co., Ltd. ("SECL") purchased $93.6 million and $31.5 million, respectively, of SSL’s ordinary shares in separate private placements at $13.00 per share, resulting in the issuance of 9,625,578 ordinary shares. As discussed in Note 3, SFC is our partner in SMP. SECL is one of SSL’s customers and the owner of a noncontrolling interest in MEMC Korea Company ("MKC"), a consolidated subsidiary. As consideration for the issuance of the ordinary shares, (i) SFC made an aggregate cash investment in SSL of $93.6 million, resulting in net proceeds of $87.3 million to SSL after deducting private placement commissions, and (ii) SECL transferred to SSL its 20% interest in MKC, at which time SSL obtained a 100% interest in MKC.
Additionally, on May 28, 2014, we acquired from SFC an approximate 35% interest in SMP for a cash purchase price of 144 billion South Korean won (approximately $140.7 million). Prior to the completion of the Semiconductor IPO, SunEdison contributed this approximate 35% interest in SMP to SSL. As a result, on a consolidated basis, we own an approximate 85% interest in SMP, and thus SMP's results are included in our consolidated financial statements from May 28, 2014 onwards.
Capital Structure
Upon completion of the SSL IPO and the foregoing transactions, we owned ordinary shares representing 56.8% of SSL’s outstanding ordinary shares, the Samsung entities owned ordinary shares representing 23.1% of SSL’s outstanding ordinary shares and purchasers of SSL’s shares in the SSL IPO owned ordinary shares representing 20% of SSL’s outstanding ordinary shares. SSL continued to be a consolidated entity through December 31, 2014, with a noncontrolling interest reported from May 28, 2014 onwards.
23. TERRAFORM POWER, INC. EQUITY OFFERINGS
Initial Public Offering and Related Transactions
On July 23, 2014, we completed the underwritten initial public offering of 23,074,750 Class A shares of TerraForm, our yieldco subsidiary, at a price to the public of $25.00 per share (the “TerraForm IPO”). All of the shares in the offering were sold by TerraForm, including 3,009,750 Class A shares sold to the underwriters pursuant to the underwriters’ exercise in full of their option to purchase additional shares. We received net proceeds of approximately $527.1 million, after deducting underwriting discounts, structuring fee commissions and related offering costs of $49.8 million. The shares of TerraForm began trading on the NASDAQ Global Select Market on July 18, 2014 under the ticker symbol “TERP.”
Private Placements and Related Transactions
Concurrently with the TerraForm IPO, Altai Capital Master Fund, Ltd. and Everstream Opportunities Fund I, LLC purchased $45.0 million and $20.0 million, respectively, of TerraForm Class A shares in separate private placements at $25.00 per share, resulting in the issuance of an additional 2,600,000 Class A shares.
Also concurrently with the TerraForm IPO, TerraForm acquired a controlling interest in Imperial Valley Solar 1 Holdings II, LLC, which owns the Mt. Signal project, from SRP in exchange for consideration consisting of (i) 5,840,000 Class B1 units (and a corresponding number of shares of Class B1 common stock) equal in value to $146.0 million, which SRP distributed to Riverstone, and (ii) 5,840,000 Class B units of TerraForm Power, LLC (and a corresponding number of shares of Class B common stock) equal in value to $146.0 million, which SRP distributed to SunEdison. See Note 3 for further details.
Capital Structure
Upon completion of the TerraForm IPO and the foregoing transactions, including the underwriters’ exercise of the overallotment option, we owned membership units representing 63.9% of the economic interest in the business, Altai Capital Master Fund, Ltd. and Everstream Opportunities Fund I, LLC owned membership units representing 1.8% and 1.7% of the economic interest in the business, respectively, Riverstone owned membership units representing 5.8% of the economic interest in the business and public purchasers of TerraForm’s shares in the TerraForm IPO owned membership units representing 22.8% of the economic interest in the business. The remaining ownership interests were granted to executive officers, directors, and employees as share-based compensation. Each share of TerraForm's Class A common stock and Class B1 common stock entitle its holder to one vote on all matters to be voted on by stockholders generally. Each share of Class B common stock entitles its holder to 10 votes on matters presented to TerraForm's stockholders generally. As the holder of all of TerraForm's outstanding Class B common stock, SunEdison will control a majority of the vote on all matters submitted to a vote of stockholders for the foreseeable future. TerraForm continues to be a consolidated entity, with a noncontrolling interest reported from July 23, 2014.
Financing Arrangements
Concurrently with the completion of the TerraForm IPO, Terra Operating LLC and Terra LLC (both wholly owned subsidiaries of TerraForm) entered into a $140.0 million revolving line of credit and a $300.0 million term loan. See Note 9 for further details.
Private Placement Offering
On November 26, 2014, TerraForm completed the sale of a total of 11,666,667 shares of its Class A common stock in a private placement offering to certain eligible investors for a net purchase price of $337.8 million. TerraForm used the net proceeds from the private placement offering to repay a portion of amounts outstanding under the TerraForm Term Loan.
24. PROPOSED INITIAL PUBLIC OFFERING OF SUNEDISON EMERGING MARKETS YIELD, INC.
On September 29, 2014, we announced our plan to monetize certain of our solar generation assets located in emerging markets by aggregating them under a dividend growth-oriented subsidiary ("SunEdison Emerging Markets Yield, Inc.”, or “EM Yieldco") and divesting an interest in EM Yieldco through an initial public offering (the "proposed EM Yieldco IPO"). EM Yieldco would initially own solar generation assets located in India, Malaysia, South Africa and China. We expect that we would retain majority ownership of EM Yieldco, and would provide specified support services to EM Yieldco based on terms that have not yet been determined. Concurrently with this announcement, we submitted on a confidential basis a registration statement with the SEC with respect to the proposed EM Yieldco IPO.
The completion of the proposed EM Yieldco IPO and related transactions are subject to numerous conditions, including market conditions, approval by our Board of Directors of the terms of the proposed EM Yieldco IPO and receipt of all regulatory approvals, including the effectiveness of the registration statement that has been submitted to the SEC.
25. SUBSEQUENT EVENTS
Acquisition of First Wind
On January 29, 2015, we and TerraForm First Wind ACQ, LLC, a subsidiary of TerraForm Power Operating, LLC (“TerraForm Operating”), as assignee of Terra LLC under the Purchase Agreement (as defined below), completed the previously announced acquisition of First Wind Holdings, LLC (“Parent,” together with its subsidiaries, “First Wind”), pursuant to a purchase and sale agreement, dated as of November 17, 2014, as amended by the First Amendment to the Purchase and Sale Agreement, dated as of January 28, 2015 (together, the “Purchase Agreement”), among SunEdison, TerraForm Power, Terra LLC, First Wind, the members of First Wind and certain other persons party thereto (the “Acquisition”). In the Acquisition, TerraForm First Wind ACQ, LLC purchased from First Wind certain solar and wind operating projects representing 521 MW of operating power assets (including 500 MW of wind and 21 MW of solar power assets), and SunEdison purchased all of the equity interests of Parent and all of the outstanding equity interests in certain subsidiaries of Parent that own, directly or indirectly, wind and solar operating and development projects representing 1.6 GW of pipeline and backlog and development opportunities representing more than 6.4 GW of wind and solar projects.
Pursuant to the terms of the Purchase Agreement, SunEdison and TerraForm Operating paid a total consideration of total consideration of $2.4 billion, which was comprised, in part, of an upfront payment of $1.0 billion, including the assumption of $361.0 million of debt at closing, and an expected $510.0 million of earnout payments over two-and-a-half years upon full notice to proceed with respect to solar earnout projects and substantial completion with respect to wind earnout projects, subject to certain adjustments as set forth in the Purchase Agreement.
SunEdison’s portion of the total consideration is $1.5 billion, comprised of the upfront payment of $1.0 billion and the expected earn-out payments. The earn-out payments will be payable by SunEdison subject to completion of certain projects in First Wind’s backlog. TerraForm First Wind ACQ, LLC acquired First Wind’s operating portfolio for an enterprise value of $862.0 million.
SSL Secondary Equity Offering
On January 20, 2015, an underwritten secondary offering of 17,250,000 ordinary shares of SSL was closed at a price of $15.19 per share. We sold 12,951,347 of SSL’s ordinary shares held by us in the offering. We used the net proceeds from this offering of $188.0 million to fund a portion of the consideration for the acquisition of First Wind. As a result of the offering, we expect to deconsolidate SSL from our financial statements and report our remaining ownership interest in SSL under the equity method.
TerraForm Follow-on Equity Offering
On January 22, 2015, TerraForm completed a follow-on offering of 13,800,000 shares of its Class A common stock at a price to the public of $29.33 per share for total estimated proceeds of $390.6 million. TerraForm used the net proceeds from the offering to fund a portion of the acquisition of certain power generation assets from First Wind.
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
SunEdison, Inc.:
We have audited the accompanying consolidated balance sheets of SunEdison, Inc. and subsidiaries (the Company) as of December 31, 2014 and 2013, and the related consolidated statements of operations, comprehensive loss, stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2014. We also have audited the Company’s internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on these consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of SunEdison, Inc. and subsidiaries as of December 31, 2014 and 2013, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2014, in conformity with U.S. generally accepted accounting principles. Also in our opinion, SunEdison, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
The Company acquired Silver Ridge Power, LLC and subsidiaries (Silver Ridge) and Capital Dynamics U.S. Solar Energy Fund, L.P. and subsidiaries (Capital Dynamics) during 2014, and management excluded from its assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2014, Silver Ridge’s
and Capital Dynamics’ internal control over financial reporting associated with $1,280.9 million and $56.3 million of the Company’s total assets and net sales, respectively, included in the consolidated financial statements of the Company as of and for the year ended December 31, 2014. Our audit of internal control over financial reporting of the Company also excluded an evaluation of the internal control over financial reporting of Silver Ridge and Capital Dynamics.
/s/ KPMG LLP
St. Louis, Missouri
March 2, 2015
CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We carried out an evaluation as of December 31, 2014, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of December 31, 2014.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles.
As of December 31, 2014, management conducted an assessment of the effectiveness of our internal control over financial reporting based upon the framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control—Integrated Framework (2013). Based on management’s assessment utilizing these criteria, our management concluded that, as of December 31, 2014, our internal control over financial reporting was effective.
During the year ended December 31, 2014, the Company completed the acquisitions of Silver Ridge Power, LLC and subsidiaries and Capital Dynamics U.S. Solar Energy Fund, L.P. and subsidiaries, whose financial statements constitute $1,280.9 million of total assets and $56.3 million of net sales of the consolidated financial statement amounts as of and for the year ended December 31, 2014. In accordance with SEC regulations, management has elected to exclude these acquisitions from its 2014 assessment of and report on internal control over financial reporting.
Our independent registered public accounting firm, KPMG, LLP who audited the consolidated financial statements included in this annual report has audited the effectiveness of our internal controls over financial reporting, as stated in its report, which appears in its Report of Independent Registered Public Accounting Firm, above and is incorporated herein by this reference.
Changes in Internal Control over Financial Reporting
There have been no changes in SunEdison's internal control over financial reporting during the quarter or year ended December 31, 2014 that have materially affected, or are reasonably likely to materially affect, SunEdison's internal control over financial reporting.
STOCKHOLDERS' INFORMATION
CORPORATE OFFICE
SunEdison, Inc.
13736 Riverport Drive, Suite 1000
Maryland Heights, MO 63043
(314) 770-7300
www.sunedison.com
TRANSFER AGENT AND REGISTRAR
Computershare Investor Services, L.L.C.
2 North LaSalle Street
P.O. Box A3504
Chicago, Illinois 60690-3504
(312) 360-5433
www.computershare.com
STOCKHOLDER INQUIRIES
Inquiries regarding address corrections, lost certificates, changes of registration, stock certificate holdings and other stockholder account matters should be directed to SunEdison’s transfer agent, Computershare Investor Services, L.L.C., at the address or phone number above.
COMMON STOCK LISTING
SunEdison’s common stock is traded on the New York Stock Exchange under the symbol “SUNE”. On December 31, 2014, we had 253 stockholders of record.
FORM 10-K
Stockholders may obtain, free of charge, a copy of SunEdison’s Annual Report on Form 10-K and related financial statement schedules for the year ended December 31, 2014, filed with the Securities and Exchange Commission, by visiting our website (www.SunEdison.com), by writing SunEdison’s Investor Relations Department or by calling (314) 770-7300.
FINANCIAL INFORMATION
SunEdison maintains a web page on the Internet at www.SunEdison.com where we publish information, including earnings releases, other news releases and significant corporate disclosures.
CONTACT INFORMATION
All requests and inquiries should be directed to:
Phelps Morris
Vice President, Investor Relations
SunEdison, Inc.
13736 Riverport Drive, Suite 1000
Maryland Heights, MO 63043
Tel: (314) 770-7325
Email: pmorris@sunedison.com
Kurt Wittenauer
Senior Manager, Investor Relations
SunEdison, Inc.
13736 Riverport Drive, Suite 1000
Maryland Heights, MO 63043
(314) 770-7450
Email: kwittenauer@sunedison.com
STOCK PRICE PERFORMANCE GRAPH
The graph below compares cumulative total stockholder return with the cumulative total return (assuming reinvestment of dividends) of the S&P 500 Index, the S&P 500 Semiconductors Index and the TAN index. The information on the graph covers the period from December 31, 2009 through December 31, 2014. The stock price performance shown on the graph is not necessarily indicative of future stock price performance.
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| INDEXED RETURNS | |
| Base | Years Ending |
| Period | | | | | |
Company / Index | 12/31/2009 |
| 12/31/2010 |
| 12/31/2011 |
| 12/31/2012 |
| 12/31/2013 |
| 12/31/214 |
|
SunEdison, Inc. | 100 |
| 82.67 |
| 28.93 |
| 23.57 |
| 95.81 |
| 143.25 |
|
S&P 500 Index | 100 |
| 112.78 |
| 112.78 |
| 127.9 |
| 165.76 |
| 184.64 |
|
S&P 500 Semiconductors | 100 |
| 116.26 |
| 94.86 |
| 97.58 |
| 133.41 |
| 175.37 |
|
TAN Index | 100 |
| 71.85 |
| 28.69 |
| 19.81 |
| 41.82 |
| 41.53 |
|
Exhibit21-ListofSub 2014
List of Subsidiaries
The following table shows all direct and indirect subsidiaries of the registrant except (1) subsidiaries which, considered in the aggregate as a single subsidiary, do not constitute a significant subsidiary, and (2) certain consolidated wholly-owned multiple subsidiaries carrying on the same line of business, as to which certain summary information appears below.
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List of Subsidiaries | Jurisdiction of Incorporation or Organization |
Amanecer Solar Holding SPA | Chile |
Antuko Comercializacion SpA (51%) | Chile |
Atwell Island Holdings LLC | United States |
Axio Power Holdings, LLC 6 wholly-owned subsidiaries operating in the provision of solar energy services in: U.S. (5 subsidiaries) Canada (1 subsidiary) | United States |
EchoFirst Developer Co, LLC | United States |
EchoFirst, Inc. | United States |
Energy Matters Pty Ltd 6 wholly-owned subsidiaries operating in the provision of solar energy services in Australia | Australia |
Enflex Corporation | United States |
Enfinity SPV Holdings, LLC 28 wholly-owned subsidiaries operating in the provision of solar energy services in the U.S. | United States |
Everstream Solar Infrastructure Fund I | United States |
Fotowatio
Renewable Ventures, Inc. 23 wholly-owned subsidiaries operating in the provision of solar energy services in the U.S. | United States |
Imperial Valley Solar 2, LLC | United States |
Inversiones y Servicios SunEdison Chile Limitada 3 wholly-owned subsidiaries and 2 partially-owned subsidiaries (84% owned) operating in the provision of solar energy services in Chile | Chile |
MA Operatng Holdings, LLC 4 wholly-owned subsidiaries operating in the provision of solar energy services in the U.S. | United States |
MEMC Electronic Materials, S.p.A. | Italy |
MEMC Electronic Materials Sales, Sdn. Bhd | Malaysia |
MEMC Electronic Materials, Sdn. Bhd. | Malaysia |
MEMC Electronic Materials, S.p.A. (56.8%) | Italy |
MEMC Ipoh Sdn Bhd. (56.8%) | Malaysia |
MEMC Japan Ltd (56.8%) | Japan |
MEMC Korea Company (56.8%) | South Korea |
MEMC Kuching Sdn Bhd | Malaysia |
MEMC Pasadena, Inc. | United States |
MEMC Products Korea Co. Ltd. (56.8%) | South Korea |
Nautilus Solar Funding IV, LLC 6 wholly-owned subsidiaries operating in the provision of solar energy services in the U.S. | United States |
Nautilus Solar I, LLC 3 wholly-owned subsidiaries operating in the provision of solar energy services in the U.S. | United States |
Nautilus Solar Power I, LLC | United States |
Nautilus Solar Power III, LLC 4 wholly-owned subsidiaries operating in the provision of solar energy services in the U.S. | United States |
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NVT Licenses, LLC | United States |
NVT, LLC | United States |
Participaciones Choluteca Uno, S.A. | Honduras |
San Andrés Holding SPA | Chile |
SEGP Renewable Energy Southern Africa (Pty) Ltd (51% owned) | South Africa |
SE Solar Trust X | United States |
Silver Ridge Power, LLC (50% owned) 87 subsidiaries operating in the provision of solar energy services: Spain (19 subsidiaries) United States (14 subsidiaries) United States (2 subsidiary, 50% owned) United States (1 subsidiary, 40% owned) Italy (13 subsidiaries) Bulgaria (10 subsidiaries) France (8 subsidiaries) Netherlands (7 subsidiaries) Cayman Islands (3 subsidiaries) Greece (2 subsidiaries) Greece (1 subsidiary, 30% owned) India (3 subsidiaries) Cyprus (2 subsidiaries) Mauritius (1 subsidiary) United Kingdom (1 subsidiary) | United States |
Solaicx | United States |
Sun Edison LLC | United States |
SunE ACQ3, LLC 2 wholly-owned subsidiaries operating in the provision of solar energy services in the U.S. | United States |
SunE Alamosa 1 Holdings LLC | United States |
SunE Alamosa 1 Holdings, LLC | United States |
SunE Bearpond Lessor Holdings, LLC | United States |
SunE Bearpond Lessor Managing Member, LLC | United States |
SunE Dessie Equity Holdings, LLC | United States |
SunE Dessie Managing Member, LLC | United States |
SunE Graham Lessor Holdings, LLC | United States |
SunE Graham Lessor Managing Member, LLC | United States |
SunE Green HoldCo Ltd | United Kingdom |
SunE Green HoldCo3 Limited 4 wholly-owned subsidiaries operating in the provision of solar energy services in United Kingdom | United Kingdom |
SunE Green HoldCo4 Limited 3 wholly-owned subsidiaries operating in the provision of solar energy services in the United Kingdom | United Kingdom |
SunE Green Holdco5 Limited 2 wholly-owned subsidiaries operating in the provision of solar energy services in the United Kingdom | United Kingdom |
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SunE Green Holdco6 Limited | United Kingdom |
SunE Green HoldCo7 Limited | United Kingdom |
SunE Green HoldCo9 Limited 9 wholly-owned subsidiaries operating in the provision of solar energy services in the United Kingdom | United Kingdom |
SunE NC Lessee Holdings, LLC 3 wholly-owned subsidiaries operating in the provision of solar energy services in the U.S. | United States |
SunE NC Lessee Managing Member, LLC | United States |
SunE Orion Dev, LLC | United States |
SunE Orion Holdings, LLC | United States |
SunE Orion, LLC 2 wholly-owned subsidiaries operating in the provision of solar energy services in the U.S. | United States |
SunE Regulus Equity Holdings, LLC | United States |
SunE Regulus Holdings, LLC | United States |
SunE Regulus Managing Member, LLC | United States |
SunE Sky GP First Light Ltd. | Canada |
SunE Solar B.V. Includes 57 wholly-owned subsidiaries operating in the provision of solar energy services in: Greece (20 subsidiaries) Italy (3 subsidiaries) Netherlands (7 subsidiary) Panama (3 subsidiaries) Spain (4 subsidiaries) Belgium (1 subsidiary) Brazil ( 1 subsidiary) Chile (1 subsidiary) France (1 subsidiary) Germany (1 subsidiary) Honduras (1 subsidiary) Israel (1 subsidiary) Mexico (1 subsidiary) Taiwan (2 subsidiaries) Turkey (1 subsidiary) United Kingdom (2 subsidiaries) India (1 subsidiary) Australia (8 subsidiaries) Bulgaria (1 subsidiary) | Netherlands |
SunE Solar Construction # 2 LLC 20 wholly-owned subsidiaries operating in the provision of solar energy services in the U.S. | United States |
SunE Solar Construction Holdings, LLC | United States |
SunE Solar Construction, LLC 32 wholly-owned subsidiaries operating in the provision of solar energy services in the U.S. | United States |
SunE Solar III, LLC 32 wholly-owned subsidiaries operating in the provision of solar energy services in the U.S. | United States |
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SunE Solar X, LLC 2 wholly-owned subsidiaries operating in the provision of solar energy services in the U.S. | United States |
SunE Solar XII, LLC 3 wholly-owned subsidiaries operating in the provision of solar energy services in the U.S. | United States |
SunE Solar XII, LLC | Puerto Rico |
SunE Solar XIII, LLC 5 wholly-owned subsidiaries operating in the provision of solar energy services in the U.S. | United States |
SunE Solar XV HoldCo, LLC | United States |
SunE Solar XV Lessor Parent, LLC | United States |
SunEdison Canada, LLC 22 wholly-owned subsidiaries and 3 partially-owned subsidiaries (50%) operating in the provision of solar energy services in Canada | Canada |
SunEdison Canada Yieldco, LLC | Canada |
SunEdison Chile Construction Limitada | Chile |
SunEdison DG Operating Holdings, LLC | United States |
SunEdison Emerging Markets Yield, Inc. | United States |
SunEdison Emerging Markets Yield, LLC 40 wholly-owned subsidiaries operating in the provision of solar energy services in: U.S. (24 subsidiaries) Netherlands (15 subsidiaries) Singapore (1 subsidiary) | United States |
SunEdison Energy Holding B.V. 18 subsidiaries operating in the provision of solar energy services in: South Africa (14 subsidiaries) South Africa (2 subsidiaries, 80% owned) Philippines (1 subsidiary) Netherlands (1 subsidiary, 19% owned) | The Netherlands |
SunEdison Energy Holdings (Singapore) Pte. Ltd 38 subsidiaries operating in the provision of solar energy services in: India (11 subsidiaries) India (1 subsidiary, 49% owned) Malaysia (20 subsidiaries) Thailand (4 subsidiaries) Thailand (1 subsidiary, 49% owned) Thailand (1 subsidiary, 40% owned) | Singapore |
SunEdison Energy India Private Limited (99.99%) 7 subsidiaries operating in the provision of solar energy services in India | India |
SunEdison Holdings Corporation 101 wholly-owned subsidiaries operating in the provision of solar energy services in: United Kingdom ( 11 subsidiaries) United States (90 subsidiaries) | United States |
SunEdison Holdings II LLC 14 wholly-owned subsidiaries operating in the provision of solar energy services in the U.S. | United States |
SunEdison Semiconductor Limited (56.8% owned) | Singapore |
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SunEdison International LLC 18 wholly-owned subsidiaries operating in the provision of solar energy services in: U.S. (1 subsidiary) Australia ( 2 subsidiaries) Korea (2 subsidiaries) Netherlands (2 subsidiaries) United Kingdom (8 subsidiaries) Japan (1 subsidiary) Puerto Rico (1 subsidiary) Singapore (1 subsidiary) | United States |
SunEdison Italia Construction S.r.l. | Jordan |
SunEdison Italia S.r.l. 5 wholly-owned subsidiaries operating in the provision of solar energy services in Italy | Italy |
SunEdison LLC 81 wholly-owned subsidiaries operating in the provision of solar energy services in the U.S. | United States |
SunEdison Marsh Hill, LLC (72% owned) | Canada |
SunEdison NC Utility 2, LLC 5 wholly-owned subsidiaries operating in the provision of solar energy services in the U.S. | United States |
SunEdison Power Canada Inc. 10 wholly-owned subsidiaries and 7 partially-owned subsidiaries (85%) operating in the provision of solar energy services in Canada | Canada |
SunEdison Products Singapore Pte. Ltd. 10 subsidiaries operating in the provision of solar energy services in: Taiwan (1 subsidiary, 6.51% owned) China (2 subsidiaries) China (1 subsidiary, 49.8% owned) Korea (1 subsidiary) Korea (2 subsidiaries, 50% owned) Malaysia (1 subsidiary) India (2 subsidiaries, 99.99% owned) | Singapore |
SunEdison Semiconductor BV (56.8%) 8 subsidiaries operating in the provision of solar energy services in: Italy (1 subsidiary) Korea (1 subsidiary) Netherlands (1 subsidiary) U.S (1 subsidiary) Malysia (2 subsidiaries) Japan (1 subsidiary) Taiwan (1 subsidiary) | Netherlands |
SunEdison Semiconductor Holding BV (56.8%) | Malaysia |
SunEdison Semiconductor Limited (56.8%) | Singapore |
SunEdison Solar Holdings 1 Pte. Ltd. (48%) 7 subsidiaries operating in the provision of solar energy services in Malaysia | Malaysia |
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Sunedison Solar Holdings 2 Pte. Ltd. (48%) 3 subsidiaries operating in the provision of solar energy services in Malaysia | Malaysia |
Sunedison Solar Holdings 3 Pte. Ltd. (48%) 4 subsidiaries operating in the provision of solar energy services in Malaysia | Malaysia |
SunEdison Solar Holdings 4 Pte. Ltd. (48%) 6 subsidiaries operating in the provision of solar energy services in Malaysia | Malaysia |
SunEdison Solar Power India Private Limited | India |
SunEdison YieldCo Chile HoldCo, LLC | Chile |
SunEdison YieldCo Regulus Holdings, LLC 3 wholly-owned subsidiaries operating in the provision of solar energy services in the U.S. | United States |
SunEdison, Inc. 10 subsidiaries operating in the provision of solar energy services in: United Kingdom (3 subsidiaries) United States (4 subsidiaries) United States (1 subsidiary, 20% owned) Germany (1 subsidiary, 50% owned) Korea (1 subsidiary, 7.66% owned) | United States |
SunEdison, LLC | United States |
Team Solar, Inc. | United States |
TerraForm CD ACQ Holdings, LLC 17 wholly-owned and 6 partially-owned subsidiaries (51%) operating in the provision of solar energy services in the U.S. | United States |
TerraForm Hudson Energy Solar, LLC 6 wholly-owned subsidiaries subsidiaries operating in the provision of solar energy services in the U.S. | United States |
TerraForm Power Operating, LLC 28 wholly-owned subsidiaries operating in the provision of solar energy services in the U.S. | United States |
Terraform Power, LLC 2 wholly-owned subsidiaries operating in the provision of solar energy services in the U.S. | United States |
Yieldco SunEY US Holdco, LLC 13 wholly-owned subsidiaries operating in the provision of solar energy services in the U.S. | United States |
SUNE - Exhibit 23 - Consent of KPMG - 12.31.2014
Consent of Independent Registered Public Accounting Firm
The Board of Directors
SunEdison, Inc.:
We consent to the incorporation by reference in the registration statements on Form S-8 (Nos. 333-19159, 333-43474, 333-163318, 333-166623, 333-172396, 333-183550, and 333-189266) and on Form S-3 (Nos. 333-173147 and 333-191053) of SunEdison, Inc. our report dated March 2, 2015, with respect to the consolidated balance sheets of SunEdison, Inc. and subsidiaries (the Company) as of December 31, 2014 and 2013, and the related consolidated statements of operations, comprehensive loss, stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2014, and the effectiveness of internal control over financial reporting as of December 31, 2014, which report appears in the December 31, 2014 annual report on Form 10-K of SunEdison, Inc.
Our report dated March 2, 2015, on the effectiveness of internal control over financial reporting as of December 31, 2014, contains an explanatory paragraph that states the Company acquired Silver Ridge Power, LLC (Silver Ridge) and Capital Dynamics U.S. Solar Energy Fund, L.P. (Capital Dynamics) during 2014, and management excluded
from its assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2014, Silver Ridge’s and Capital Dynamics’ internal control over financial reporting associated with $1,280.9 million and $56.3 million of the Company’s total assets and net sales, respectively, included in the consolidated financial statements of the Company as of and for the year ended December 31, 2014. Our audit of internal control over financial reporting of the Company also excluded an evaluation of the internal control over financial reporting of Silver Ridge and Capital Dynamics.
/s/ KPMG LLP
St. Louis, Missouri
March 2, 2015
Exhibit311-CEOCertification (2)
Exhibit 31.1
Certification
I, Ahmad R. Chatila, certify that:
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1. | I have reviewed this annual report on Form 10-K of SunEdison, Inc.; |
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2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
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3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
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4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
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a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision; to ensure that
material information relating to the registrant, including its consolidated subsidiaries is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting. |
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5. | The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s independent registered public accounting firm and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
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a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
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b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: March 2, 2015
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/s/ Ahmad R. Chatila |
Ahmad R. Chatila President and Chief Executive Officer |
Exhibit312-CFOCertification (2)
Exhibit 31.2
Certification
I, Brian Wuebbels, certify that:
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1. | I have reviewed this annual report on Form 10-K of SunEdison, Inc.; |
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2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
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3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
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4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
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a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision; to ensure that
material information relating to the registrant, including its consolidated subsidiaries is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting. |
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5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s independent registered public accounting firm and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
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a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
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b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: March 2, 2015
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/s/ Brian Wuebbels |
Brian Wuebbels Executive Vice President, Chief Administration Officer and Chief Financial Officer |
Exhibit32-CEO_CFO_Certifications
Exhibit 32
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the annual report of SunEdison, Inc. (the “Company”) on Form 10-K for the period ending December 31, 2014 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), we, Ahmad R. Chatila, President and Chief Executive Officer of the Company, and Brian Wuebbels, Executive Vice President, Chief Administration Officer and Chief Financial Officer of the Company, certify, to the best of our knowledge, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
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1. | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
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2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: March 2, 2015
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By:
| /s/ Ahmad R. Chatila |
Name: | Ahmad R. Chatila |
Title: | President and Chief Executive Officer SunEdison, Inc. |
Date: March 2, 2015
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By: | /s/ Brian Wuebbels |
Name: | Brian Wuebbels |
Title: | Executive
Vice President, Chief Administration Officer and Chief Financial Officer SunEdison, Inc. |
