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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
For the quarterly period ended June 30, 2012
For the transition period from to
Commission File Number: 001-13828
MEMC ELECTRONIC MATERIALS, INC.
(Exact name of registrant as specified in its charter)
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes o 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 o
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):
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
The number of shares of the registrant’s common stock outstanding at August 6, 2012 was 230,923,934.
Table of Contents
PART I—FINANCIAL INFORMATION
MEMC ELECTRONIC MATERIALS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(In millions, except per share data)
See accompanying notes to unaudited condensed consolidated financial statements.
MEMC ELECTRONIC MATERIALS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except per share data)
See accompanying notes to unaudited condensed consolidated financial statements.
See accompanying notes to unaudited condensed consolidated financial statements.
MEMC ELECTRONIC MATERIALS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
See accompanying notes to unaudited condensed consolidated financial statements.
MEMC ELECTRONIC MATERIALS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited condensed consolidated financial statements of MEMC Electronic Materials, Inc. and subsidiaries ("MEMC"), in our opinion, include all adjustments (consisting of normal, recurring items) necessary to present fairly our financial position and results of operations and cash flows for the periods presented. MEMC has presented the unaudited condensed consolidated financial statements in accordance with the Securities and Exchange Commission's requirements of Form 10-Q and Article 10 of Regulation S-X and consequently, these financial statements do not include all disclosures required by U.S. generally accepted accounting principles ("U.S. GAAP"). These unaudited condensed consolidated financial statements should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2011, which contains MEMC's audited financial statements for such year. Operating results for the three and six month periods ended June 30, 2012 are not necessarily indicative of the results that may be expected for the year ending December 31, 2012.
During the three month period ended June 30, 2012, we recorded income tax expense for adjustments to deferred taxes that primarily relate to our pension plan, along with other adjustments to income tax expense, which resulted in a net expense of $6.1 million. These adjustments are out of period because they related to our 2011 consolidated financial statements. The amount of such adjustments was not material to our consolidated results of operations in 2011, and the amount is not expected to be material to the 2012 consolidated results of operations. The expense was recorded in the consolidated results of operations for the three month period ended June 30, 2012.
As part of our restructuring plan (see Note 2), effective January 1, 2012, we consolidated our two solar business units' operations into one business unit, and since that date we have been engaged in two reportable segments, Semiconductor Materials and Solar Energy. These condensed consolidated financial statements and related footnotes, including prior year financial information, are presented as two reportable segments for all periods presented.
In preparing our condensed consolidated 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, employee benefits, derivatives, 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, asset valuations, including allowances, among others. These estimates and assumptions are based on current facts, historical experience and various other factors 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.
New Accounting Standards Adopted
In May 2011, the Financial Accounting Standards Board (the "FASB") issued Accounting Standards Update 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS, to provide guidance about fair value measurement and disclosure requirements. This standard does not extend the use of fair value but, rather, provides guidance as to how fair value should be applied where it is already required or permitted under International Financial Reporting Standards ("IFRS") or U.S. GAAP. For U.S. GAAP, most of the changes are clarifications of existing guidance or wording changes to align with IFRS. This standard was adopted on January 1, 2012 and did not have a material impact on our condensed consolidated financial statements.
In June 2011, the FASB issued Accounting Standards Update 2011-05 ("ASU 2011-05"), Comprehensive Income (Topic 220): Presentation of Comprehensive Income. ASU 2011-05 allows an entity to present components of net income and other comprehensive income in one continuous statement, referred to as the statement of comprehensive income, or in two separate but consecutive statements. ASU 2011-05 eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders' equity. While the new guidance changes the presentation of comprehensive income, there are no changes to the components that are recognized in net income or other comprehensive income under current accounting guidance. This standard was adopted on January 1, 2012, and we have presented components of net income (loss) and other comprehensive income (loss) in one continuous statement for the three and six month periods ended June 30, 2012 and 2011.
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 order to better align our business to current and expected market conditions in the semiconductor and solar markets, as well as to improve the company's overall cost competitiveness and cash flows across both segments, we committed to a series of actions to reduce the company's global workforce, right size production capacity and accelerate operating cost reductions in 2012 and beyond (the "2011 Global Plan"). These actions included reducing the total workforce by approximately 20%, shuttering the company's Merano, Italy polysilicon facility, reducing production capacity at the company's Portland, Oregon crystal facility and slowing the ramp of the Kuching, Malaysia facility, as well as consolidating our solar wafering and solar energy systems operations into a single Solar Energy business unit effective January 1, 2012. Subject to negotiations with certain vendors and suppliers affected by our actions, we expect the 2011 Global Plan to be substantially complete in 2012, except for certain voluntary termination benefits which are expected to occur in 2013.
We incurred tangible asset impairment charges of $0.6 million and $3.1 million, respectively, on solar wafering assets during the three and six month periods ended June 30, 2012.
Details of expenses related to the 2011 Global Plan are set forth in the following table:
2009 U.S. Plan
In September 2009, MEMC committed to actions to reduce manufacturing costs by shifting manufacturing from our St. Peters, Missouri and Sherman, Texas facilities to other locations which are closer to a number of MEMC's customers in the Asia Pacific region (the “2009 U.S. Plan”). MEMC will provide severance benefits to those employees who will be terminated under the 2009 U.S. Plan. We expect the 2009 U.S. Plan to be substantially complete in 2012. Restructuring expenses for the 2009 U.S. Plan recorded in 2011 and 2012 relate primarily to asset move costs. In the three months ended June 30, 2012 and 2011, we recorded restructuring expenses of $2.3 million and $1.4 million, respectively, primarily for infrastructure and equipment moving costs related to the 2009 U.S. Plan. Additionally, we recorded a favorable adjustment to our accrual estimates for the 2009 U.S. Plan of $0.8 million in the three months ended June 30, 2012. No such adjustments were made in the prior year comparable period.
In the six month period ended June 30, 2012 and 2011, we recorded restructuring expenses of $3.3 million and $2.7 million, respectively.
Details of expenses related to the 2009 U.S. Plan are set forth in the following table:
Inventories consist of the following:
In connection with our 2011 Global Plan, we have realigned our operations such that we are primarily manufacturing solar wafers and sourcing solar cells and modules only for internal consumption by SunEdison. As a result, effective January 1, 2012, all solar wafer, cell and module inventory is classified as goods and work in process. Finished goods inventory as of December 31, 2011 in the above table includes $42.8 million of solar wafer inventory classified as finished goods.
Due to the earthquake in Japan on March 11, 2011, wafer production in our semiconductor wafer plant in Japan was suspended through April 12, 2011. Due to the unplanned downtime, we recorded $7.2 million and $14.9 million in the three and six month periods ended June 30, 2011, respectively, as period charges to cost of goods sold for the under absorption of production costs. We had no similar adjustments during the three and six month periods ended June 30, 2012.
Solar energy systems held for development and sale consist of the following:
The short-term and long-term investments consist of the following:
Samsung Fine Chemicals Joint Venture
In February 2011, we entered into a joint venture with Samsung Fine Chemicals Co. Ltd. for the construction and operation of a new facility to produce high purity polysilicon in Ulsan, South Korea (the “SMP JV”). The SMP JV will manufacture and supply polysilicon to MEMC and to international markets. MEMC Singapore Pte. Ltd.'s ownership interest in the joint venture is 50% and Samsung Fine Chemicals Co. Ltd. owns the other 50%.
In September 2011, we executed a Supply and License Agreement with the SMP JV under which MEMC will license and sell to the joint venture fluid-bed reactor (FBR) technology and related equipment used for producing polysilicon. We will receive proceeds under the Supply and License Agreement based on certain milestones being achieved throughout the construction, installation and testing of the equipment. Proceeds received from the SMP JV under the Supply and License Agreement will be recorded as a reduction in our basis in the SMP JV investment, and to the extent that our basis in the investment is zero, the remaining proceeds received will be recorded as a liability. To the extent the total cash proceeds received exceed the sum of our cost basis in the equipment plus our capital contributions to the SMP JV, and when we have no remaining performance obligations, a gain will be recognized.
During the three and six month periods ended June 30, 2012, we received cash deposits under the Supply and License Agreement of $5.8 million and $16.0 million, respectively. In total, we have made $40.1 million in equity contributions to the SMP JV, of which $26.2 million was contributed during the three month period ended June 30, 2012. Since inception, the deposits received have exceeded our investment, and we recorded this as a reduction in our equity investment balance with the excess of $49.1 million recorded in long-term customer and other deposits. The cash received is recorded as an investing inflow within the condensed consolidated statement of cash flows. As of June 30, 2012, our investment balance in the SMP JV was $0. Our total cash commitments, inclusive of the $40.1 million invested thus far, are expected to be approximately $175.0 million through 2013. We expect our remaining cash commitments to be substantially offset by proceeds received under the Supply and License Agreement.
Changes in intangible assets, net of accumulated amortization, for the six month period ended June 30, 2012 are as follows:
During the six months ending June 30, 2012 and June 30, 2011, we recognized amortization expense of $4.5 million and $17.0 million, respectively. During the three month periods ending June 30, 2012 and June 30, 2011, we recognized amortization expense of $2.4 million and $3.6 million, respectively. During 2011, we impaired all of our historical goodwill.
Debt (including consolidated variable interest entities) and capital lease obligations outstanding consist of the following:
Non-solar Energy System Debt
On March 10, 2011, we issued $550.0 million of 7.75% Senior Notes due April 1, 2019 (the "2019 Notes"). We incurred $13.8 million in debt issuance costs, which is amortized into the condensed consolidated statement of comprehensive (loss) income over the eight year term. The 2019 Notes were sold at a price equal to 100% of the principal amount thereof. The interest on the 2019 Notes is payable semi-annually, in cash in arrears, on April 1 and October 1, commencing October 1, 2011. We may redeem the 2019 Notes at our option, in whole or in part, at any time on or after April 1, 2014, upon not less than 30 nor more than 60 days notice at the redemption prices (expressed as percentages of the principal amount to be redeemed) set forth below, plus any accrued and unpaid interest and additional interest, if any, to the redemption date, if redeemed during the 12-month period beginning on April 1 of the years indicated below.
If a change of control of MEMC occurs, each holder of the 2019 Notes will have the right to require us to repurchase all or any part of that holder's notes at a purchase price of 101% of the principal amount thereof, plus accrued and unpaid interest and additional interest, if any, to the date of the repurchase.
The 2019 Notes are guaranteed by certain of MEMC's domestic subsidiaries (the “guarantors”). The 2019 Notes are senior unsecured obligations and are subordinated to all of our and the guarantors' existing and future secured debt.
The indenture governing the 2019 Notes contains covenants that limit our and our subsidiaries' ability, subject to certain exceptions and qualifications, (i) to make certain asset sales, (ii) to make other restricted payments and investments, (iii) to incur indebtedness and issue preferred stock, (iv) to declare dividends, (v) to make other payments affecting restricted
subsidiaries, (vi) to enter into certain transactions with affiliates, and (vii) to merge, consolidate or sell substantially all of our assets. These covenants are subject to a number of qualifications and limitations, and in certain situations, a cross default provision that is limited to recourse debt only. As of June 30, 2012, we were in compliance with all covenants in the indenture governing the 2019 Notes.
In addition, the indenture provides for customary events of default which include (subject in certain cases to customary grace and cure periods), among other things: failure to make payments on the 2019 Notes when due, failure to comply with covenants under the indenture, failure to pay other indebtedness or acceleration of maturity of other indebtedness, failure to satisfy or discharge final judgments and occurrence of bankruptcy events.
Long-term notes at June 30, 2012 totaling $19.1 million are owed to a bank by our Japanese subsidiary, are guaranteed by us, and are secured by the property, plant and equipment of our Japanese subsidiary. Such guarantees would require us to satisfy the loan obligations in the event that our Japanese subsidiary failed to pay such debt in accordance with its stated terms. These loans mature in years ranging from 2012 to 2017.
Solar Energy System Debt, Financings 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, $1,324.7 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 MEMC or our SunEdison subsidiary under the terms of the applicable agreements. The recourse finance obligations are fully collateralized by the related solar energy system assets. These obligations may also include limited guarantees by MEMC or SunEdison related to operations, maintenance and certain indemnities.
On September 30, 2011, SunEdison amended and restated its non-recourse project construction financing revolver, which has a term of three years, to increase our borrowing capacity from $50.0 million to $300.0 million. On February 22, 2012, Moody's Investors Service ("Moody's") downgraded our Corporate Family Rating to "B2" from "B1" and downgraded the 2019 Notes to "B3" from "B1". As a result of this downgrade, a draw stop provision in the amended and restated financing agreement prohibited further draws under this revolver. On February 29, 2012, an agreement was reached with one of the lenders in the syndication which would allow us, subject to certain conditions, to maintain availability under this facility of up to $70.0 million. On April 12, 2012, SunEdison further amended and restated this non-recourse project construction financing revolver. The amendment to this facility resulted in our overall borrowing capacity being reduced from $300.0 million to $154.0 million and added another bank to the lender syndication. The terms of the facility's draw stop provision were also modified such that our amended borrowing capacity was immediately available for draw.
On May 24, 2012, Standard and Poor ("S&P") downgraded our Corporate Family Rating to "B+" from "BB". On June 7, 2012, Moody's downgraded MEMC's Corporate Family Rating to "B3" from "B2" and downgraded the 2019 Notes to "Caa1" from "B3". As a result of the downgrades, the draw stop provision in the amended and restated financing agreement prohibited additional draws under this revolver. On June 28, 2012, SunEdison further amended and restated this non-recourse project construction financing revolver to make certain changes to the revolver and remove one of the lending banks. This amendment to the facility resulted in our overall capacity being reduced from $154.0 million to $110.0 million. Under the terms of the June 28, 2012 amendment, if our Corporate Family or Corporate Credit Rating for Moody's falls below "B1" or our S&P rating falls below "B+", we will be required to post, at our election, a letter of credit or surety bond equal to 15.0% of the total outstanding balance in order to continue to make additional borrowings under this facility. As of June 30, 2012, our ratings remained unchanged. Because our Corporate Family Rating for Moody's was below "B3", a letter of credit equal to 15.0% of the $65.9 million outstanding balances was posted as of June 30, 2012. Additionally, $3.9 million of deferred financing fees were charged to interest expense as a result of the amendments made to our non-recourse project construction financing revolver. No similar charges were incurred in the comparable period of 2011.
Interest on borrowings under the construction financing revolver are based, at our election, on LIBOR plus an applicable margin (currently 3.50%) or at a defined prime rate plus an applicable margin (currently 2.50%). The construction financing revolver also requires SunEdison to pay various fees, including a commitment fee (currently 1.10%). The construction financing revolver will be used to support the construction costs of utility and rooftop solar energy systems throughout the U.S. and Canada. The construction loans are non-recourse debt to entities outside of the project company legal entities that subscribe
to the debt and will be secured by a pledge of the collateral, including the project contracts and equipment. The outstanding borrowings are typically repaid shortly after completion of the construction of the solar energy systems in accordance with the terms of the construction financing revolver, which repayments are expected to occur over the next three months. This revolver also includes a customary material adverse effect clause whereby a breach may disallow a future draw but not acceleration of payment. This revolver also includes a cross default clause which provides, among other lender rights, the right to restrict future loans as well as the right to accelerate principal and interest payments. Because this is non-recourse financing, covenants relate specifically to the collateral amounts and transfer of right restrictions. As of June 30, 2012 and December 31, 2011, there was $65.9 million and $77.2 million, respectively, outstanding on this construction revolver.
We continue to work with the lending syndicate to add additional lenders to the syndication and increase our borrowing capacity under this construction financing facility; however, there can be no assurance that we will be successful in doing so on terms that we find acceptable, or at all. In the event additional construction debt is needed and the remainder of the original capacity is not renewed or replaced, we have the ability to draw upon the available capacity of our revolving credit facility (discussed below). In the event we cannot renew, replace or backfill the remainder of the original capacity with other financing or have adequate net working capital, such inability to fund future projects may have an adverse impact on our business growth plans and financial position and results of operations.
System Construction and Term Debt
SunEdison typically finances its solar energy system projects through project entity specific debt secured by the project entity's assets (mainly the solar energy system) which has no recourse to MEMC or SunEdison. Typically, these 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.
During the three months ended March 31, 2012, we obtained non-recourse term loans from multiple financial institutions which were secured by a 60.4 MW solar energy system in Bulgaria, classified as solar energy systems held for development and sale in the condensed consolidated balance sheet at December 31, 2011. During the three month period ended June 30, 2012, the solar energy system in Bulgaria was sold, and the debt of $189.6 million was assumed by the buyer.
As of June 30, 2012, SunEdison had total solar energy system construction and term debt outstanding of $197.5 million. Of this amount, $111.7 million relates to variable rate debt with interest rates that are tied to either the London Interbank Offered Rate, Euro Interbank Offer Rate, Canadian Dollar Offer Rate or the Prime rate. The variable interest rates have primarily been hedged by our outstanding interest rate swaps as discussed in Note 8. The interest rates on the remaining construction and term debt ranges from 3.0% to 12.0%. The maturities range from 2012 to 2033 and these facilities are collateralized by the related solar energy system assets with an aggregate carrying amount of $80.7 million.
As of June 30, 2012, we were in violation of two non-recourse solar energy system loans totaling $28.2 million as a result of the devaluation of the local currency (Indian Rupee). Accordingly, this long-term debt has been re-classified as short-term debt in the June 30, 2012 statement of financial position. The lender has not called these loans, but has the option to do so based on the violation. We are currently seeking a waiver of the covenant violation from the lender, but there are no assurances that a waiver will be obtained. The solar energy systems for these two project companies collateralize the loans and there is no recourse outside of the project companies.
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 June 30, 2012, SunEdison had $101.6 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 provide for an early buyout option. The specified rental payments are based on projected cash flows that the solar energy system will generate. Since the SunEdison acquisition date on November 20, 2009, SunEdison has not entered into any arrangements that have resulted in accounting for the sale leaseback as a capital lease.
Financing Leaseback Obligations
In 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 MEMC or SunEdison under the terms of the arrangement. The structure of the repayment terms under the lease typically 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 recorded as financings as of June 30, 2012 is $913.1 million, which includes the transactions discussed below. The maturities range from 2021 to 2037 and are collateralized by the related solar energy system assets with a carrying amount of $893.7 million.
On March 31, 2011, one of SunEdison's 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 SunEdison. The total capacity under this agreement is $120.0 million, of which $68.0 million is outstanding and $52.0 million is available as of June 30, 2012. The specified rental payments will be based on projected cash flows that the solar energy systems will generate.
Other System Financing Transactions
Other system financing transactions represent the cash proceeds that SunEdison 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 $16.8 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 $66.3 million relates to cash proceeds received in connection with separate solar energy system sales contracts for which SunEdison has substantial continuing involvement. There are no principal or interest payments associated with these transactions.
Revolving Credit Facility
On March 23, 2011, we entered into an amended and restated credit agreement with Bank of America, N.A. providing for a senior secured revolving credit facility in an initial aggregate principal amount of $400.0 million (the “Credit Facility”). The Credit Facility permits us to request an increase in the aggregate principal amount up to $550.0 million upon terms to be agreed upon by the parties.
On February 28, 2012, we amended our Credit Facility to reduce our expected minimum liquidity covenant of $500.0 million to $450.0 million and $350.0 million for the first and second quarters of 2012, respectively. We also revised the pricing grid for the applicable rate that we will pay for letters of credit and drawings under the facility by an increase of 25 basis points until September 30, 2012.
On May 8, 2012, we further amended our Credit Facility to allow for a consolidated leverage ratio of not greater than 3.00 to 1.00 for the second and third quarters of 2012 and to set our minimum liquidity covenant at $400.0 million for the third quarter of 2012. In the fourth quarter of 2012, our consolidated leverage ratio covenant will revert back to 2.50 to 1.00, and our minimum liquidity covenant under this facility will require a minimum liquidity amount based on our trailing twelve month consolidated earnings before interest, taxes, depreciation, and amortization (EBITDA). Our minimum liquidity covenant amount will be $500.0 million in the event our trailing twelve month consolidated EBITDA is less than $400.0 million. In the event the trailing twelve month consolidated EBITDA is greater than or equal to $400.0 million and less than $600.0 million, our minimum liquidity amount will be $400.0 million. In the event it is greater than or equal to $600.0 million and less than $850.0 million, our minimum liquidity will be $300.0 million. Finally, if our trailing twelve month consolidated EBITDA is greater than or equal to $850.0 million, then no minimum liquidity amount is required. The interest rates on borrowings under the Credit Facility were also amended to the eurocurrency rate plus 3.75% and the base rate plus 2.75%, as applicable. The Credit Facility was also amended to permit us to incur up to $250.0 million of convertible or subordinated unsecured indebtedness, subject to compliance with certain conditions.
The Credit Facility has a term of three years. Our obligations under the facility are guaranteed by certain domestic subsidiaries of MEMC. Our obligations and the guaranty obligations of the subsidiaries are secured by liens on and security interests in substantially all present and future assets of MEMC and the subsidiary guarantors, including a pledge of the capital stock of certain domestic and foreign subsidiaries of MEMC.
Interest under the Credit Facility will accrue, depending on the type of borrowing, at the base rate (in the case of base rate loans and swing line loans) or the eurocurrency rate (in the case of eurocurrency rate loans), plus, in each case, an applicable rate that varies from (presently 3.75%) for the eurocurrency rate to (presently 2.75%) for the base rate, depending on our consolidated leverage ratio. Interest is due and payable in arrears at the end of each interest period (no less than quarterly) and on the maturity date of the Credit Facility. Principal is due on the maturity date. Commitment fees of 0.50% are payable quarterly on the unused portion of the aggregate commitment of $400.0 million. Letter of credit fees are payable quarterly on the daily amount available to be drawn under a letter of credit at an applicable rate that varies (presently 2.75%), depending on our
consolidated leverage ratio.
The Credit Facility contains representations, covenants and events of default typical for credit arrangements of comparable size, including maintaining a consolidated leverage ratio and a variable minimum liquidity amount. 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 in excess of $35.0 million, excluding our non-recourse indebtedness. Our liquidity position was in excess of the minimum liquidity amount by $369.1 million, and our consolidated leverage ratio was 1.7 at June 30, 2012.
As of June 30, 2012 and December 31, 2011, we had no borrowings outstanding under this facility, although we had approximately $129.5 million and $173.0 million, respectively, of outstanding third party letters of credit backed by this facility at such date, which reduces the available capacity. Therefore, funds available under this facility were $270.5 million and $227.0 million as of June 30, 2012 and December 31, 2011, respectively. We were in compliance with all covenants under this facility at June 30, 2012.
Other Financing Commitments
We have short-term committed financing arrangements of approximately $38.2 million at June 30, 2012, of which there were no short-term borrowings outstanding as of June 30, 2012. Of this amount, $11.4 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.
During the three months ended June 30, 2012 and 2011, we capitalized $4.8 million and $2.8 million of interest, respectively. During the six months ended June 30, 2012 and 2011, we capitalized $11.4 million and $5.5 million of interest, respectively.
MEMC’s derivatives and hedging activities consist of:
To mitigate financial market risks of 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 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 June 30, 2012 and December 31, 2011, these currency forward contracts had aggregate notional amounts of $347.6 million and $293.2 million, respectively.
We are party to interest rate swap instruments with notional amounts totaling approximately $40.1 million and $41.3 million at June 30, 2012 and December 31, 2011, respectively, 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 to the agreements pays us a floating interest rate. The amount recorded to the condensed consolidated balance sheet as provided in the table above represents the fair value of the net amount that we would settle on the balance sheet date if the agreements were transferred to other third parties or canceled by us. The effective portion of these hedges during the three and six month periods ended June 30, 2012 and 2011 was recorded to accumulated other comprehensive loss. Ineffectiveness of $0.5 million and $0.7 million was recognized during the three and six month periods ended June 30, 2011, respectively. No such ineffectiveness was recognized in 2012.
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 condensed consolidated balance sheets:
There were no transfers into or out of Level 1, Level 2 or Level 3 financial instruments during the three and six month periods ended June 30, 2012.
The following table summarizes changes in Level 3 assets and liabilities measured at fair value on a recurring basis for the six months ended June 30, 2011 and June 30, 2012:
The carrying amount of our outstanding short-term debt, long-term debt and capital lease obligations at June 30, 2012 and December 31, 2011 was $1,937.7 million and $1,926.8 million, respectively. The estimated fair value of that debt and capital lease obligations was $1,404.5 million and $1,333.6 million at June 30, 2012 and December 31, 2011, respectively. Fair value of our debt, excluding our $550.0 million 2019 Notes, is calculated using a discounted cash flow model with consideration for our non-performance risk. The estimated fair value of our 2019 Notes was based upon a broker quotation. 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. 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 significant book gain at the end of the lease.
(10) (Loss) Income Per Share
For the three month periods ended June 30, 2012 and June 30, 2011, basic and diluted (loss) income per share (“EPS”) were calculated as follows:
For the six month periods ended June 30, 2012 and June 30, 2011, basic and diluted (loss) income per share (“EPS”) were calculated as follows:
For the three and six month periods ended June 30, 2012, all options to purchase MEMC stock and all restricted stock units were excluded from the calculation of diluted EPS because the effect was antidilutive due to the net loss incurred for the respective periods. For the three and six month periods ended June 30, 2011, 20.0 million and 20.4 million shares, respectively, of stock options and restricted stock units were excluded from the calculation of diluted EPS because the effect was antidilutive.
The following table presents the change in total stockholders' equity for the six month period ended June 30, 2012:
The following table presents information regarding outstanding stock options as of June 30, 2012 and changes during the six month period then ended with regard to stock options:
The weighted-average grant-date fair value per share of options granted was $1.71 and $6.30 for the six month period ended June 30, 2012 and 2011, respectively.
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, will be permitted to surrender for cancellation certain outstanding stock options with an exercise price substantially greater than our current trading price in exchange for fewer stock options at a lower exercise price. The option exchange program commenced on July 17, 2012 and will remain open until August 17, 2012, unless extended. 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 our then current stock price, and was designed to cause us to incur minimal incremental stock-based compensation expense in future periods. The additional expense will be equal to the excess of the fair value of the replacement options on their grant date over the fair value of the surrendered eligible options immediately before the exchange, and will be recognized over the vesting period of the replacement options.
The following table presents information regarding outstanding restricted stock units as of June 30, 2012 and changes during the six month period then ended:
The weighted-average fair value of restricted stock units per share on the date of grant was $3.09 and $11.41 for the six month period ended June 30, 2012 and 2011, respectively.
Stock-based compensation expense for the three month periods ended June 30, 2012 and 2011 was $6.8 million and $7.1 million, respectively. For the six month periods ended June 30, 2012 and 2011, stock based compensation expense was $14.3 million and $20.8 million, respectively.
In general, we record income tax expense (benefit) each quarter based on our best estimate as to the full year's effective tax rate. This estimated tax expense (benefit) is reported based on a pro-ration of the actual income earned in the period divided by the full year forecasted income (loss). There are certain items, however, which are given discrete period treatment, and the tax effects of those items are reported in the quarter that such event arises. Items that give rise to discrete recognition include (but are not limited to) finalizing tax authority examinations, changes in statutory tax rates and expiration of a statute of limitations.
The process for calculating income tax expense (benefit) includes estimating current taxes due and assessing temporary differences between the recognition of assets and liabilities for tax and financial statement reporting purposes. The income tax expense in the three and six month periods ended June 30, 2012 is primarily attributable to the recognition of a valuation allowance on tax assets arising in the current year and taxable income in lower rate jurisdictions. We regularly review our deferred tax assets for realizability, taking into consideration all available evidence, both positive and negative, including cumulative losses, projected future pre-tax and taxable income (losses), the expected timing of the reversals of existing temporary differences and tax planning strategies. During the period ended December 31, 2011, we recorded a significant non-cash valuation allowance against the deferred tax assets. The total deferred tax assets, net of valuation allowance, as of June 30, 2012 and December 31, 2011, were $98.6 million and $107.9 million, respectively. We believe that it is more likely than not, with our projections of future taxable income, that we will generate sufficient taxable income to realize the benefits of the net deferred tax assets which have not been offset by a valuation allowance at June 30, 2012.
We are subject to income taxes in the United States and numerous foreign jurisdictions. From time to time, we are subject to income tax audits in these jurisdictions. We believe that our tax return positions are fully supported, but tax authorities may challenge certain positions, which may not be fully sustained. Our income tax expense includes amounts intended to satisfy income tax assessments that may result from these challenges. Determining the income tax expense for these potential assessments and recording the related assets and liabilities requires significant judgments and estimates. Tax benefits are recognized only for tax positions that are more likely than not to be sustained upon examination by tax authorities. We review our 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, the resolution of entire audits, or the expiration of statutes of limitations. Adjustments, if required, are most likely to occur in the year during which major audits are closed. The total amount accrued for uncertain tax positions decreased $3.2 million during the six month period ended June 30, 2012 due to the closure of open statutes of limitations in a certain foreign jurisdiction. A majority of these exposures relate to timing differences and accordingly, the offset was primarily recorded to deferred taxes. The total reserves for uncertain tax positions as of June 30, 2012 and December 31, 2011 was $45.0 million and $48.2 million, respectively.
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. Of the cash and cash equivalents at June 30, 2012, approximately $373.3 million was held by our foreign subsidiaries, a portion of which may be subject to repatriation tax effects.
We are currently under examination by the Internal Revenue Service ("IRS") for the 2008, 2009 and 2010 tax years. Additionally, due to the carryback of our 2009 net operating loss for utilization against the 2007 tax liability, the IRS has re-opened the 2007 tax year for further review. 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; however, the results of these examinations and any potential settlements are not estimable at this time.
Variable interest entities ("VIEs") are generally 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 of 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. Our SunEdison subsidiary 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. We consolidate these project companies if we maintain the power to direct the activities which most significantly impact the project company's performance and share significantly in the risks and rewards of the project company.
We are the primary beneficiary of three VIEs in solar energy projects that we consolidated as of June 30, 2012. The carrying amounts and classification of our consolidated VIEs' assets and liabilities included in our condensed consolidated balance sheet are as follows:
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. There are no material VIEs for which we determined we were not the primary beneficiary.
Deferred revenue consists of the following:
We maintain long-term agreements with multiple suppliers in connection with the purchase of certain raw materials and long-term agreements with multiple subcontractors to manufacture solar wafers for us.
As part of our restructuring activities announced in the fourth quarter of 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. We have recorded an accrual of $221.5 million as of June 30, 2012 associated with the estimated settlements arising from these actions, $94.2 million of which is recorded to short-term accrued liabilities and $127.3 million is recorded as long-term other liabilities in our condensed consolidated balance sheet. The amount accrued and the classification as short-term or long-term liabilities as of June 30, 2012 represents our best estimate of the probable amounts and timing to settle our obligations based on presently known information, which involve the use of assumptions requiring significant judgment. We estimate the range of reasonably possible losses could be up to approximately $500.0 million. 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. The actual amounts ultimately settled with these vendors could vary significantly. We continue to work toward negotiated settlements with some of these vendors and favorable or unfavorable negotiated resolutions could have a material impact on our future earnings and future cash flows.
As of June 30, 2012, contingent consideration was recorded and is outstanding on five acquisitions which closed in or before 2011, including the acquisition of Fotowatio Renewable Ventures, Inc ("FRV"). The amount payable in cash in connection with the FRV transaction is based on the entities achieving specific milestones, including the development, installation, and interconnection of solar energy systems. The amount accrued under these arrangements was $98.4 million as of June 30, 2012, representing the estimated fair value of these obligations. Of the $98.4 million accrual, $77.9 million is recorded as a short term liability in contingent consideration related to acquisitions and $20.5 million is recorded in other liabilities as a long-term liability. The aggregate maximum payouts which could occur under these arrangements is $159.9 million. The FRV contingent consideration was deemed earned and was increased by $9.8 million during the three month period ended June 30, 2012 based on a change in the estimated fair value of the contingent consideration. On July 6, 2012, FRV contingent consideration was paid in full in the amount of $66.4 million. Any future revisions to the fair value of the contingent consideration, which could be material, will be recorded to the condensed consolidated statement of comprehensive (loss) income.
We have agreed to indemnify certain 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 June 30, 2012.
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 warranty accrual related to solar energy systems as of June 30, 2012. We may also indemnify our customers for tax credits associated with the systems we construct and then sell, including sale leasebacks. During the six month period ended June 30, 2012, we have made additional payments under the terms of the sale agreements to indemnify our customers for approximately $3.7 million for shortfalls in amounts approved by the U.S. Treasury Department related to the Grant in Lieu program tax credits. We believe the potential exposure to such payments could have a significant impact on our cash flows in the second half of 2012, with a maximum exposure of approximately $20.0 million.
In connection with certain contracts to sell solar energy systems directly or as sale-leasebacks, our SunEdison subsidiary has guaranteed the systems' performance for various time periods following the date of interconnection. Also, under separate operations and maintenance services agreements, SunEdison has guaranteed the uptime availability of the systems over the term of the arrangements, which may last up to 20 years. To the extent there are shortfalls in either of the guarantees, SunEdison is required to indemnify the purchaser up to the guaranteed amount through a cash payment. The maximum losses that SunEdison may be subject to for non-performance are contractually limited by the terms of each executed agreement.
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.
S.O.I.TEC Silicon on Insulator Technologies S.A. v. MEMC Electronic Materials, Inc.
On May 19, 2008, Soitec and Commissariat A L'Energie Atomique ("CEA") filed a complaint against MEMC in the U.S. District Court for the District of Delaware (Civil Action No. 08-292) alleging infringement, including willful infringement, by MEMC of three U.S. patents related to silicon-on-insulator technology, and requested damages and an injunction. Soitec and CEA filed an amended complaint on July 21, 2009, adding a fourth, related patent to the lawsuit. MEMC filed a counterclaim against Soitec for infringement of one of MEMC's U.S. patents. The Court bifurcated the case into two phases, a first liability phase, which, to the extent liability is found, will be followed by a second damages phase. In a memorandum opinion dated October 13, 2010, the Court found that all of MEMC's current products and processes do not infringe any valid claim of the four asserted Soitec patents.
The Court held a jury trial from October 25, 2010 to November 2, 2010. After the Court's October 13, 2010 ruling in favor of MEMC, the only remaining claim that Soitec continued to assert at trial was a single patent claim directed against some mono-implant research and development efforts conducted by MEMC approximately five to seven years ago, none of which have occurred since 2006, and none of which are material or relevant to the current operations at MEMC. MEMC continued to assert at trial its counterclaim for infringement of MEMC's patent. On November 2, 2010, the jury found that certain of Soitec's wafers infringed the patent asserted by MEMC at trial. The jury also found that one of the Soitec patent claims was valid. This single patent claim covers MEMC's mono-implant research and development efforts that ended in 2006. On July 13, 2011, the court denied all post trial motions. Soitec subsequently filed an appeal and MEMC filed a cross-appeal. The appeal is now fully briefed in the U.S. Court of Appeals for the Federal Circuit, and we expect that the oral argument for the appeal will be conducted in September or October of this year. The damages phase of this trial will likely occur after the appeal. We believe that Soitec and CEA's suit against us has no merit, and we are asserting a vigorous defense against these claims, as well as our infringement counterclaim. Although it is not possible to predict the outcome of such matters, we believe that the ultimate outcome of this proceeding will not have a material adverse effect on our financial position, cash flows or results of operations.
Jerry Jones v. MEMC Electronic Materials, 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 MEMC's 401(k) Savings Plan (the "Plan") between September 4, 2007 and December 26, 2008, inclusive. The complaint asserted claims against MEMC 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 MEMC'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 MEMC failed to disclose certain material facts regarding MEMC's operations and performance, which had the effect of artificially inflating MEMC'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 MEMC'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 MEMC 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 MEMC defendants' motion for reconsideration, vacated its order denying the MEMC 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.
MEMC 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 could 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).
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.
From January 1, 2010 until December 31, 2011, MEMC was organized by end market, with three business segments: Semiconductor Materials, Solar Materials, and Solar Energy. During the fourth quarter of 2011, we initiated a large scale global restructuring plan across all of our reportable segments (see Note 2). As part of our restructuring plan, effective January 1, 2012, we consolidated our two solar business units' operations into one business unit, and since that date we have been engaged in two reportable segments, Semiconductor Materials and Solar Energy.
Our Semiconductor Materials segment includes the development, production and marketing of semiconductor wafers with a wide variety of features satisfying numerous product specifications to meet our customers’ exacting requirements, which wafers are utilized in the manufacture of semiconductor devices.
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. Our Solar Energy segment also manufactures polysilicon, silicon wafers and solar modules principally to support our downstream solar business. While there continued to be external solar wafer sales during the six month period ended June 30, 2012, these sales were significantly diminished from prior year sales levels and, going forward, solar wafer sales to external parties are expected to continue to decline to or remain at minimal levels given our strategic shift to primarily supplying wafers for internal consumption by our SunEdison subsidiary.
The Chief Operating Decision Maker ("CODM") is our Chief Executive Officer. The CODM evaluates segment performance based on segment operating profit plus interest expense. In order to determine segment operating profit, standard costs are used as the basis for raw material costs allocated between segments and any related variances are allocated based on usage of those raw materials. General corporate marketing and administration costs, substantially all of our stock-based compensation expense, legal professional services and related costs, and other items are not evaluated by segment and are included in Corporate and Other below. Because certain sites include operations, facilities and/or back office functions that are utilized to support our Semiconductor Materials and Solar Energy businesses, we do not have discrete financial information for total assets. Accordingly, the CODM does not consider total assets when analyzing segment performance. The CODM also evaluates the business on several other key operating metrics, including free cash flow.
During the six month period ended June 30, 2012, we recorded income of $4.0 million for an insurance claim to recover a portion of our losses related to the disruption in production at our semiconductor wafer production facility in Utsunomiya, Japan as a result of the Japan earthquake in March 2011. The full amount was recorded during the three month period ended March 31, 2012.
Due to the earthquake in Japan on March 11, 2011, our semiconductor wafer production in Japan was suspended from that time through April 12, 2011. Due to the unplanned downtime and damages to the plant, we recorded $15.8 million as period charges to cost of goods sold in the six months ended June 30, 2011, for the under absorption of costs, inventory adjustments and asset impairment charges. We had no similar adjustments during the six month period ended June 30, 2012.
During the three month period ended June 30, 2011, there was $149.4 million of revenue recognized in the Solar Energy segment in connection with the resolution of a long-term solar wafer supply contract with a customer. Additionally, the Solar Energy segment charged $52.4 million during the three month period ended June 30, 2011 to cost of goods sold related to the estimated probable shortfall to our purchase obligations associated with take-or-pay agreements we have with suppliers for raw materials. No similar amounts were recorded in this period in 2012.
Corporate and Other
Approximately $13.1 million of net expenses were recorded in Corporate and Other related to legal cases during the six month period ended June 30, 2011. Because the business decision that resulted in this litigation affected multiple segments, these expenses were recorded to Corporate and Other. There were no similar expenses in 2012.
On March 10, 2011, we issued $550.0 million of 7.75% Senior Notes due April 1, 2019. The 2019 Notes are fully and unconditionally guaranteed on a joint and several senior unsecured basis by certain wholly owned domestic subsidiaries of the company (the “ Guarantor Subsidiaries”). The following condensed consolidating financial information, which has been prepared in accordance with the requirements for presentation of Rule 3-10(d) of Regulation S-X promulgated under the Securities Act, presents the required unaudited condensed consolidating financial information.
Unaudited Condensed Consolidating Statement of Comprehensive (Loss) Income
For the Three Months Ended June 30, 2012
Unaudited Condensed Consolidating Statement of Comprehensive (Loss) Income
For the Three Months Ended June 30, 2011