UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
|
|
|
þ
|
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the quarterly period ended March 31, 2010
or
|
|
|
o
|
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the transition period from
to
Commission File Number 1-8403
ENERGY CONVERSION DEVICES, INC.
(Exact name of registrant as specified in its charter)
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|
|
Delaware
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|
38-1749884
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(State or other jurisdiction of incorporation or
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|
(I.R.S. Employer Identification No.)
|
organization)
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|
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|
2956 Waterview Drive, Rochester Hills, Michigan
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48309
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(Address of principal executive offices)
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(Zip Code)
|
Registrants telephone number, including area code:
(248) 293-0440
Former name, former address and former fiscal year, if changed since last report
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.
þ
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).
o
Yes
o
No
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 definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of
the Exchange Act.
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Large accelerated filer
þ
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|
Accelerated filer
o
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Non-accelerated filer
o
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|
Smaller reporting company
o
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|
(Do not check if a smaller reporting company)
|
|
|
Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
o
Yes
þ
No
As of May 6, 2010, there were 45,762,991 shares of the registrants Common Stock outstanding.
TABLE OF CONTENTS
ENERGY CONVERSION DEVICES, INC. and SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 2010
1
PART I FINANCIAL INFORMATION
Item 1
:
Financial Statements
ENERGY CONVERSION DEVICES, INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(In thousands, except per share data)
|
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|
|
|
|
|
|
|
|
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|
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|
|
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Three Months Ended
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Nine Months Ended
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|
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March 31,
|
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|
March 31,
|
|
|
|
2010
|
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|
2009
(1)
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|
2010
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|
|
2009
(1)
|
|
Revenues
|
|
|
|
|
|
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Product and project sales
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$
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65,076
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|
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$
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60,190
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$
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148,981
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$
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248,978
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Royalties
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1,919
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|
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|
1,477
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6,132
|
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|
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4,365
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|
Revenues from product development agreements
|
|
|
2,580
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|
|
|
3,967
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|
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9,578
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|
|
|
10,316
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|
License and other revenues
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|
|
2,831
|
|
|
|
372
|
|
|
|
3,571
|
|
|
|
1,220
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenues
|
|
|
72,406
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|
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66,006
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|
168,262
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264,879
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Expenses
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|
|
|
|
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|
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|
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Cost of product and project sales
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|
68,982
|
|
|
|
42,719
|
|
|
|
155,196
|
|
|
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167,347
|
|
Cost of revenues from product development agreements
|
|
|
1,949
|
|
|
|
2,451
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|
|
|
7,624
|
|
|
|
6,974
|
|
Product development and research
|
|
|
3,442
|
|
|
|
2,424
|
|
|
|
8,817
|
|
|
|
6,568
|
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Preproduction costs
|
|
|
72
|
|
|
|
1,325
|
|
|
|
82
|
|
|
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5,133
|
|
Selling, general and administrative
|
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16,730
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|
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12,314
|
|
|
|
50,152
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43,742
|
|
Net loss on disposal of property, plant and equipment
|
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|
31
|
|
|
|
677
|
|
|
|
1,296
|
|
|
|
1,086
|
|
Impairment loss
|
|
|
357,975
|
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|
|
|
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359,228
|
|
|
|
|
|
Restructuring charges
|
|
|
338
|
|
|
|
139
|
|
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|
3,460
|
|
|
|
574
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Total Expenses
|
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|
449,519
|
|
|
|
62,049
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|
|
|
585,855
|
|
|
|
231,424
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (Loss) Income
|
|
|
(377,113
|
)
|
|
|
3,957
|
|
|
|
(417,593
|
)
|
|
|
33,455
|
|
Other Income (Expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Interest income
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|
|
404
|
|
|
|
712
|
|
|
|
960
|
|
|
|
4,783
|
|
Interest expense
|
|
|
(6,970
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)
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|
|
(2,310
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)
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(20,770
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)
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|
|
(9,904
|
)
|
Distribution from joint venture
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1,309
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|
|
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Other nonoperating expense, net
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(1,257
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)
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|
|
(552
|
)
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|
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(1,333
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)
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|
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(1,392
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)
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|
|
|
|
|
|
|
|
|
|
|
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Total Other Income (Expense)
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|
(7,823
|
)
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|
|
(2,150
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)
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|
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(19,834
|
)
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|
|
(6,513
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)
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(Loss) Income before Income Taxes and Equity Income (Loss)
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(384,936
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)
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1,807
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(437,427
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)
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26,942
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Income tax (benefit) expense
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|
(55
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)
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|
|
549
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|
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(1,955
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)
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|
822
|
|
|
|
|
|
|
|
|
|
|
|
|
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(Loss) Income before Equity Income (Loss)
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|
|
(384,881
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)
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|
|
1,258
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|
|
(435,472
|
)
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|
|
26,120
|
|
Equity income (loss)
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|
148
|
|
|
|
|
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(185
|
)
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Net (Loss) Income
|
|
|
(384,733
|
)
|
|
|
1,258
|
|
|
|
(435,657
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)
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|
26,120
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|
Net Income (Loss) Attributable to Noncontrolling Interest
|
|
|
113
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|
|
|
|
|
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(40
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)
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|
|
|
|
|
|
|
|
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|
|
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|
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|
Net (Loss) Income Attributable to ECD Shareholders
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|
$
|
(384,846
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)
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|
$
|
1,258
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|
|
$
|
(435,617
|
)
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|
$
|
26,120
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|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
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|
|
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|
|
|
|
|
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(Loss) Earnings Per Share, Attributable to ECD Shareholders
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|
$
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(9.10
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)
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|
$
|
0.03
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|
$
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(10.30
|
)
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|
$
|
0.62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Diluted (Loss) Earnings Per Share, Attributable to ECD
Shareholders
|
|
$
|
(9.10
|
)
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|
$
|
0.03
|
|
|
$
|
(10.30
|
)
|
|
$
|
0.61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
As adjusted due to the implementation of FASB ASC 470-20 (See Note 1).
|
See notes to consolidated financial statements.
2
ENERGY CONVERSION DEVICES, INC. and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
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|
|
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|
|
|
March 31,
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2009
(1)
|
|
|
|
(Unaudited)
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
58,244
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|
|
$
|
56,379
|
|
Short-term investments
|
|
|
127,242
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|
|
|
245,182
|
|
Accounts receivable, net
|
|
|
67,472
|
|
|
|
69,382
|
|
Inventories, net
|
|
|
94,416
|
|
|
|
74,266
|
|
Other current assets
|
|
|
21,575
|
|
|
|
4,897
|
|
|
|
|
|
|
|
|
Total Current Assets
|
|
|
368,949
|
|
|
|
450,106
|
|
|
|
|
|
|
|
|
|
|
Property, Plant and Equipment, net
|
|
|
297,237
|
|
|
|
614,330
|
|
|
|
|
|
|
|
|
|
|
Other Assets:
|
|
|
|
|
|
|
|
|
Restricted cash
|
|
|
8,073
|
|
|
|
|
|
Lease receivable, net
|
|
|
11,316
|
|
|
|
|
|
Other assets
|
|
|
11,877
|
|
|
|
11,661
|
|
|
|
|
|
|
|
|
Total Other Assets
|
|
|
31,266
|
|
|
|
11,661
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
697,452
|
|
|
$
|
1,076,097
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
43,476
|
|
|
$
|
50,238
|
|
Current portion of warranty liability
|
|
|
13,432
|
|
|
|
5,917
|
|
Other current liabilities
|
|
|
6,122
|
|
|
|
3,506
|
|
|
|
|
|
|
|
|
Total Current Liabilities
|
|
|
63,030
|
|
|
|
59,661
|
|
|
|
|
|
|
|
|
|
|
Long-Term Liabilities:
|
|
|
|
|
|
|
|
|
Convertible senior notes
|
|
|
258,944
|
|
|
|
247,974
|
|
Capital lease obligations
|
|
|
20,596
|
|
|
|
21,412
|
|
Warranty liability
|
|
|
28,633
|
|
|
|
|
|
Other liabilities
|
|
|
21,197
|
|
|
|
9,701
|
|
|
|
|
|
|
|
|
Total Long-Term Liabilities
|
|
|
329,370
|
|
|
|
279,087
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies (Note 10)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders Equity
|
|
|
|
|
|
|
|
|
Common stock, $0.01 par value,
100 million shares authorized,
45,774,386 and
45,754,652 issued at
March 31, 2010 and
June 30,2009,
respectively
|
|
|
458
|
|
|
|
458
|
|
Additional paid-in capital
|
|
|
1,059,145
|
|
|
|
1,055,705
|
|
Treasury stock
|
|
|
(700
|
)
|
|
|
(700
|
)
|
Accumulated deficit
|
|
|
(752,235
|
)
|
|
|
(316,618
|
)
|
Accumulated other comprehensive loss, net
|
|
|
(1,576
|
)
|
|
|
(1,496
|
)
|
|
|
|
|
|
|
|
Total ECD stockholders equity
|
|
|
305,092
|
|
|
|
737,349
|
|
Accumulated deficit noncontrolling interest
|
|
|
(40
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total Stockholders Equity
|
|
|
305,052
|
|
|
|
737,349
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders Equity
|
|
$
|
697,452
|
|
|
$
|
1,076,097
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
As adjusted due to the implementation of FASB ASC 470-20 (See Note 1).
|
See notes to consolidated financial statements.
3
ENERGY CONVERSION DEVICES, INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
March 31,
|
|
|
|
2010
|
|
|
2009
(1)
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(435,657
|
)
|
|
$
|
26,120
|
|
Adjustments to reconcile net (loss) income to net cash (used in)
provided by operating activities:
|
|
|
|
|
|
|
|
|
Impairment loss
|
|
|
359,228
|
|
|
|
|
|
Depreciation and amortization
|
|
|
27,302
|
|
|
|
23,695
|
|
Amortization of debt discount and deferred financing fees
|
|
|
11,927
|
|
|
|
10,958
|
|
Share-based compensation
|
|
|
3,440
|
|
|
|
4,885
|
|
Other-than-temporary impairment of investment
|
|
|
|
|
|
|
969
|
|
Net loss on disposal of property, plant and equipment
|
|
|
1,296
|
|
|
|
1,086
|
|
Equity loss
|
|
|
185
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
6,482
|
|
Changes in operating assets and liabilities, net of foreign exchange:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(3,417
|
)
|
|
|
(13,084
|
)
|
Inventories
|
|
|
3,328
|
|
|
|
(35,058
|
)
|
Other assets
|
|
|
(14,285
|
)
|
|
|
(9,040
|
)
|
Accounts payable and accrued expenses
|
|
|
(17,492
|
)
|
|
|
17,584
|
|
Other liabilities
|
|
|
(579
|
)
|
|
|
(876
|
)
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities
|
|
|
(64,724
|
)
|
|
|
33,721
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Purchases of property, plant and equipment
|
|
|
(26,904
|
)
|
|
|
(193,508
|
)
|
Acquisition of business, net of cash acquired
|
|
|
(2,088
|
)
|
|
|
|
|
Purchases of investments
|
|
|
(68,089
|
)
|
|
|
(68,357
|
)
|
Proceeds from maturities of investments
|
|
|
174,644
|
|
|
|
2,700
|
|
Proceeds from sale of investments
|
|
|
10,120
|
|
|
|
|
|
Increase in restricted cash
|
|
|
(6,510
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
81,173
|
|
|
|
(259,165
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Principal payments under capitalized lease obligations and other debt
|
|
|
(1,131
|
)
|
|
|
(787
|
)
|
Repayment of revolving credit facility
|
|
|
(5,705
|
)
|
|
|
|
|
Repayment of convertible notes
|
|
|
(8,000
|
)
|
|
|
|
|
Proceeds from sale of stock and share-based compensation, net of
expenses
|
|
|
|
|
|
|
1,966
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
|
|
(14,836
|
)
|
|
|
1,179
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
252
|
|
|
|
(51
|
)
|
Net increase (decrease) in cash and cash equivalents
|
|
|
1,865
|
|
|
|
(224,316
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
56,379
|
|
|
|
484,492
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
58,244
|
|
|
$
|
260,176
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
As adjusted due to the implementation of FASB ASC 470-20 (See Note 1).
|
See notes to consolidated financial statements.
4
ENERGY CONVERSION DEVICES, INC. and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 Nature of Operations, Basis of Presentation and Summary of Significant Accounting
Policies
Nature of Operations
Energy Conversion Devices, Inc. (the Company or ECD), through its subsidiaries,
commercializes materials, products and production processes for the alternative energy generation
(primarily solar energy), energy storage and information technology markets.
On August 19, 2009, the Company acquired 100% of the outstanding common shares of Solar
Integrated Technologies, Inc. (SIT), a Los Angeles-based company that manufactures, designs and
installs building integrated photovoltaic roofing systems for commercial rooftops. The results of
SITs operations have been included in the Companys Consolidated Financial Statements beginning
August 19, 2009.
Basis of Presentation
The accompanying unaudited consolidated financial statements of the Company have been prepared
in accordance with accounting principles generally accepted in the United States of America
(GAAP) for interim financial reporting, and the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, the financial statements for interim reporting do not include all of
the information and notes or disclosures required by GAAP for complete financial statements. In
the opinion of management, all adjustments considered necessary for a fair presentation have been
included and such adjustments are of a normal recurring nature. Results for interim periods should
not be considered indicative of results for a full year. For further information, refer to the
consolidated financial statements and notes thereto included in the Companys Annual Report on Form
10-K for the period ended June 30, 2009, as filed with the Securities and Exchange Commission
(SEC).
The consolidated financial statements include the accounts of the Company and the accounts of
the Companys subsidiaries in which it holds a controlling financial interest. All significant
intercompany balances and transactions have been eliminated in consolidation. The Companys share
of earnings or losses of nonconsolidated affiliates are included in our consolidated operating
results using the equity method of accounting when the Company is able to exercise significant
influence over the operating and financial decisions of the affiliate.
The Company has performed an evaluation of subsequent events through the date the Companys
financial statements were issued. No material subsequent events have occurred that required
recognition or disclosure in these financial statements.
Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make
estimates and assumptions that affect amounts reported therein. Due to the inherent uncertainty
involved in making estimates, actual results reported in future periods could differ from those
estimates.
5
ENERGY CONVERSION DEVICES, INC. and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Capitalized Interest
Interest is capitalized during periods of active equipment construction. During the three
months ended March 31, 2010 and 2009, the Company incurred total interest costs of $7.1 million and
$6.8 million, respectively, of which $0.2 million and $4.5 million, respectively, were capitalized.
During the nine months ended March 31, 2010 and 2009, the Company incurred total interest costs of
$21.1 million and $20.1 million, respectively, of which $0.4 million and $10.2 million,
respectively, were capitalized.
General
The Companys significant accounting policies are disclosed in the Companys Annual Report on
Form 10-K for the fiscal year ended June 30, 2009 and have not changed materially as of the date of
this Report with the exception of the following:
Restricted Cash
The Companys secured credit facility requires the Company to maintain a minimum liquidity of
$10.0 million at all times. Liquidity is defined as the sum of (a) cash (b) the market value of
cash equivalents, (c) liquid investment securities and (d) aggregate borrowing available under the
domestic portion of the facility. The net amount of cash required to
achieve $10.0 million in liquidity is
considered Restricted cash on the Companys Consolidated Balance Sheets. In addition, the
Company has posted cash collateral for certain foreign exchange transactions.
In connection with the SIT acquisition on August 19, 2009, the following accounting policies
were adopted by the Company.
Revenue Recognition Installed Solar Systems and Traditional Roofing
The Company accounts for installed solar systems and traditional roofing projects using the
percentage of completion method. Under this method, revenue arising from installed solar systems
and traditional roofing projects is recognized as work is performed based on the percentage of
incurred costs to estimated total forecasted costs at completion utilizing the most recent
estimates of forecasted costs. The Company records a receivable for costs and estimated earnings
in excess of billings and a liability for billings in excess of costs incurred.
For smaller projects of shorter durations, generally three months or less, the Company records
revenue under the completed contract method when the project is complete.
Restricted Cash SIT
As part of the SIT acquisition, the Company acquired restricted cash. In connection with the
structured financing arrangement with GE Commercial Finance Energy Financial Services (GE EFS), a
business unit of General Electric Capital Corporation, SIT was required to deposit a portion of the
proceeds from the borrowings with GE EFS. If necessary, GE EFS may use such amount to offset any
shortfall in payments required from SIT under the structured finance arrangement. In addition,
payments received from customers under sales-type lease agreements are deposited directly into a
restricted bank
account. Amounts deposited in the restricted bank account are used to fund the debt owed
under the
6
ENERGY CONVERSION DEVICES, INC. and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
structured finance arrangements with GE EFS. Upon termination of the
structured finance arrangement any remaining amounts in the restricted cash account will be
transferred to the Company.
Warranty Reserve Installed Solar Systems
The Company generally provides a 20-year roof membrane warranty, a 20-year power warranty and
a 10-year warranty on inverters. In addition, the Company generally provides a 20-year product
warranty on its building integrated photovoltaic (BIPV) product. Reserves for warranty costs are
recognized at the date of sale of the relevant products, at managements best estimate of the
expenditure required to settle the liability, taking into account the specific arrangements of the
transaction and past experience.
Recent Accounting Pronouncements Not Yet Adopted
The Financial Accounting Standards Board Accounting Standards Codification (FASB ASC)
amended Topic 810
Consolidations
(ASC 810) to change the consolidation guidance applicable to a
variable interest entity (VIE). It also amends the guidance governing the determination of
whether an enterprise is the primary beneficiary of a VIE (and is therefore required to consolidate
the VIE), by requiring a qualitative analysis rather than a quantitative analysis. The qualitative
analysis will include, among other things, consideration of which enterprise has the power to
direct the activities of the entity that most significantly impact the entitys economic
performance and which enterprise has the obligation to absorb losses or the right to receive
benefits of the VIE that could potentially be significant to the VIE. This standard also requires
continuous reassessments of whether an enterprise is the primary beneficiary of a VIE. Previously,
reconsideration of whether an enterprise was the primary beneficiary of a VIE only was required
when specific events had occurred. Qualifying special purpose entities, which were previously
exempt from the application of this standard, will be subject to the provisions of this standard
when it becomes effective. ASC 810 also requires enhanced disclosures about an enterprises
involvement with a VIE. ASC 810 is effective as of the beginning of the Companys first annual
reporting period that begins after November 15, 2009 (effective July 1, 2010 for the Company). The
Company is currently evaluating the requirements of ASC 810 and has not yet determined the impact
on its consolidated financial statements.
In October 2009, the FASB issued Accounting Standards Update (ASU) 2009-15,
Accounting for
Own-Share Lending Arrangements in Contemplation of Convertible Debt Issuance or Other Financing
(ASU 2009-15), which clarifies that share lending arrangements that are executed in connection
with convertible debt offerings or other financings should be measured at fair value and recognized
as a debt issuance cost which is amortized using the effective interest method over the life of the
financing arrangement as interest cost. In addition, ASU 2009-15 states that the loaned shares
should be excluded from basic and diluted earnings per share unless default of the share-lending
arrangement occurs, at which time the loaned shares would be included in the common and diluted
earnings per share calculation. ASU 2009-15 is effective for all arrangements outstanding as of the
fiscal year beginning on or after December 15, 2009, (effective July 1, 2010 for the Company) and
retrospective application is required for all periods presented. In addition, ASU 2009-15 is
effective for arrangements entered into on or after the beginning of the first reporting period
that begins on or after June 15, 2009. The Company is currently evaluating the requirements of ASU
2009-15 and has not yet determined the impact on its consolidated financial statements.
7
ENERGY CONVERSION DEVICES, INC. and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In October 2009, the FASB issued ASU 2009-13,
Revenue Recognition (Topic 605):
Multiple-Deliverable Revenue Arrangements a Consensus of the FASB Emerging Issues Task Force
(ASU 2009-13) which amends ASC Subtopic 605-25 for separate consideration in multiple-deliverable
arrangements. ASU 2009-13 eliminates the use of the residual method for allocating consideration,
as well as the criteria that requires objective and reliable evidence of fair value of undelivered
elements in order to separate the elements in a multiple-element arrangement. Upon adoption of the
guidance the delivered element(s) will be considered a separate unit of accounting only if both of
the following criteria are met: (i) the delivered item(s) has stand-alone value to the customer and
(ii) if a general right of return exists relative to the delivered item(s), delivery or performance
of the undelivered item(s) is substantially in the control of the vendor and is considered
probable. ASU 2009-13 is effective for fiscal years beginning on or after June 15, 2010 (effective
July 1, 2010 for the Company). The Company is currently evaluating the requirements of ASU 2009-13
and has not yet determined the impact on its consolidated financial statements.
Recently Adopted Accounting Pronouncements
In February 2010, the Company adopted the provisions of FASB issued ASU 2010-09,
Subsequent
Events (Topic 855) Amendments to Certain Recognition and Disclosure Requirements
(ASU 2010-09).
ASU 2010-09s amendment addresses certain implementation issues related to an entitys requirement
to perform and disclose subsequent events. It requires SEC filers to evaluate subsequent events
through the date the financial statements are issued and exempts SEC filers from disclosing the
date through which subsequent events have been evaluated. ASU 2010-09 is effective on the date of
issuance. The adoption of ASU 2010-09 did not have any impact on the Companys consolidated
financial statements.
In January 2010, the Company adopted the provisions of FASB issued ASU 2010-06,
Fair Value
Measurements and Disclosures (Topic 820) Improving Disclosures about Fair Value
(ASU 2010-06).
ASU 2010-06 adds new requirements for both the disaggregation of information in certain existing
disclosures, as well as the inclusion of more robust disclosures about valuation techniques and
inputs to recurring and nonrecurring fair value measurements. Entities must disclose the amounts
of, and reasons for, significant transfers between Level 1 and Level 2, as well as those into and
out of Level 3, of the fair value hierarchy. Transfers into a level must be disclosed separately
from transfers out of the level. Entities must also disclose and consistently follow their policy
for when to recognize transfers into and out of the levels. ASU 2010-06 also amends the
reconciliation of beginning and ending balances of Level 3 recurring fair value measurements. In
periods after initial recognition an entity presents information about purchases, sales, issuances,
and settlements for significant unobservable inputs (Level 3) on a gross basis rather than as a net
number as previously required. For Level 2 and Level 3 measurements, an entity must disclose
information about inputs and valuation techniques used in both recurring and nonrecurring fair
value measurements. If a valuation technique changes an entity must disclose the change and the
reason for it. In addition, fair value measurement disclosures must be presented by class of
assets and liabilities. An entity must determine the appropriate classes requiring
disclosure based on the nature and risks of the assets and liabilities, their classification in the
fair value hierarchy, and the level of disaggregated information required by other U.S. GAAP for
specific assets and liabilities. ASU 2010-06 is effective for interim and annual reporting periods
beginning after December 15, 2009 (effective January 1, 2010 for the Company), except for the
disaggregation requirement for the reconciliation disclosure of Level 3 measurements, which is
effective for fiscal years beginning after December 15, 2010 and for interim periods within those
years (effective July 1, 2011 for the Company). The adoption of ASU 2010-06 did not have any
impact on the Companys consolidated financial statements.
8
ENERGY CONVERSION DEVICES, INC. and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In October 2009, the Company adopted the provisions of FASB issued ASU 2009-05,
Fair Value
Measurements and Disclosures (Topic 820) Measuring Liabilities at Fair Value
(ASU 2009-05).
The update provides clarification that in circumstances in which a quoted price in an active market
for the identical liabilities is not available, a reporting entity is required to measure fair
value using one or more of the following techniques: (1) a valuation technique that uses (a) the
quoted price of the identical liability when traded as an asset or (b) quoted prices for similar
liabilities or similar liabilities when traded as assets or (2) another valuation technique that is
consistent with the principles of Topic 820. The amendments in this update also clarify that both
a quoted price in an active market for the identical liability at the measurement date and the
quoted price for the identical liability when traded as an asset in an active market when no
adjustment to the quoted price of the asset are required are Level 1 fair value measurements. ASU
2009-05 is effective for the first reporting period (including interim periods) beginning after
issuance of the ASU. The adoption of ASU 2009-05 did not have any impact on the Companys
consolidated financial statements.
On July 1, 2009 the Company adopted the provisions of FASB ASC 323,
Investments Equity
Method and Joint Ventures
(ASC 323). ASC 323 clarifies the accounting for certain transactions
and impairment considerations involving equity method investments. ASC 323 is effective for fiscal
years beginning after December 15, 2008, with early adoption prohibited. The adoption of ASC 323
did not have any impact on the Companys consolidated financial statements.
On July 1, 2009 the Company adopted the provisions of FASB ASC Subtopic 815-40,
Contracts in
Entitys Own Equity
(ASC 815-40), which provides guidance for determining whether an
equity-linked financial instrument (or embedded feature) is indexed to an entitys own stock and
thus meets one of the scope exceptions for derivative accounting under FASB ASC 815,
Derivatives
and Hedging.
The determination is a two step process which requires the evaluation of the
instruments contingent exercise provisions and the instruments settlement provisions. ASC 815-40
is effective for fiscal years beginning after December 15, 2008. The adoption of ASC 815-40 did
not have any impact on the Companys consolidated financial statements.
On July 1, 2009 the Company adopted the provisions of FASB ASC 260,
Earnings Per Share
(ASC
260), which clarified that all outstanding unvested share-based payment awards that contain rights
to nonforteitable dividends participate in undistributed earnings with common shareholders. Awards
of this nature are considered participating securities and the two-class method of computing basic
and diluted earnings per share must be applied. ASC 260 is effective for fiscal years beginning
after December 15, 2008 (effective July 1, 2009 for the Company). The adoption of ASC 260 did not
have any impact on the Companys consolidated financial statements.
On July 1, 2009 the Company adopted the provisions of FASB ASC 805,
Business Combinations
,
(ASC 805) which retains the fundamental requirements in that the acquisition method of accounting
(which previously was called the purchase method) be used for all business combinations and for an
acquirer to be identified for each business combination. ASC 805 requires an acquirer to recognize
the assets acquired, the liabilities assumed, and any noncontrolling interests in the acquiree at
the acquisition date, measured at their fair values as of that date, with limited exceptions. ASC
805 retains the guidance
for identifying and recognizing intangible assets separately from goodwill and applies
prospectively to business combinations for which the acquisition date is on or after the beginning
of the first annual
reporting period beginning on or after December 15, 2008. The Company applied the provisions
of ASC 805 when it acquired SIT on August 19, 2009.
9
ENERGY CONVERSION DEVICES, INC. and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On July 1, 2009 the Company adopted the provisions of FASB ASC 808,
Collaborative
Arrangements
, (ASC 808) which defines a collaborative arrangement as a contractual arrangement
in which the parties are active participants in the arrangement and are exposed to significant
risks and rewards that are dependent on the ultimate commercial success of the endeavor. Whether an
arrangement is a collaborative arrangement would be determined at the inception of the arrangement
and would be reconsidered when facts and circumstances indicate a change in either a participants
role in the arrangement or its exposure to significant risks and rewards. Participants in a
collaborative arrangement would be required to make certain disclosures in their annual financial
statements about the nature and purpose of the arrangement and amounts reported in the income
statement. ASC 808 is effective for fiscal years, and interim periods within those fiscal years,
beginning after December 15, 2008. The adoption of ASC 808 did not have a material effect on the
Companys consolidated financial statements.
On July 1, 2009, the Company adopted the provisions of FASB ASC 810,
Consolidation,
(ASC
810) specifically related to the noncontrolling interest in a subsidiary which establishes new
accounting and reporting standards for the noncontrolling interest in a subsidiary and for the
deconsolidation of a subsidiary. Specifically, this statement requires the recognition of a
noncontrolling interest (minority interest) as equity in the consolidated financial statements and
separate from the parents equity. The amount of net income attributable to the noncontrolling
interest will be included in consolidated net income on the face of the income statement. ASC 810
also includes expanded disclosure requirements regarding the interests of the parent and its
noncontrolling interest. The provisions of ASC 810 are prospective upon adoption, except for the
presentation and disclosure requirements. The presentation and disclosure requirements must be
applied retrospectively for all periods presented.
On July 1, 2009, the Company adopted the provisions of FASB ASC Subtopic 470-20,
Debt with
Conversion and Other Options
(ASC 470-20), which requires issuers of convertible debt securities
within its scope to recognize both the liability and equity components of convertible debt
instruments with cash settlement features. The debt component is required to be recognized at the
fair value of a similar instrument that does not have an associated equity component. The equity
component is recognized as the difference between the proceeds from issuance of the convertible
debt and the fair value of the liability, after adjusting for the deferred tax impact. ASC 470-20
also requires an accretion of the resulting debt discount over the expected life of the convertible
debt. ASC 470-20 is required to be applied retrospectively to prior periods, and accordingly,
financial statements for the prior periods have been adjusted to reflect its adoption.
10
ENERGY CONVERSION DEVICES, INC. and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes the effect of adopting ASC 470-20:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Statement of Operations for the
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
March 31, 2009
|
|
|
March 31, 2009
|
|
|
|
As Previously
|
|
|
|
|
|
|
|
|
|
|
As Previously
|
|
|
|
|
|
|
|
|
|
Reported
|
|
|
ASC 470-20
|
|
|
As Reported
|
|
|
Reported
|
|
|
ASC 470-20
|
|
|
As Reported
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
Cost of product and project sales
|
|
$
|
42,693
|
|
|
$
|
26
|
|
|
$
|
42,719
|
|
|
$
|
167,284
|
|
|
$
|
63
|
|
|
$
|
167,347
|
|
Total expenses
|
|
|
62,023
|
|
|
|
26
|
|
|
|
62,049
|
|
|
|
231,361
|
|
|
|
63
|
|
|
|
231,424
|
|
Operating income
|
|
|
3,983
|
|
|
|
(26
|
)
|
|
|
3,957
|
|
|
|
33,518
|
|
|
|
(63
|
)
|
|
|
33,455
|
|
Interest expense
|
|
|
(2,268
|
)
|
|
|
(42
|
)
|
|
|
(2,310
|
)
|
|
|
(7,860
|
)
|
|
|
(2,044
|
)
|
|
|
(9,904
|
)
|
Total other expense
|
|
|
(2,108
|
)
|
|
|
(42
|
)
|
|
|
(2,150
|
)
|
|
|
(4,469
|
)
|
|
|
(2,044
|
)
|
|
|
(6,513
|
)
|
Net income before income taxes
|
|
|
1,875
|
|
|
|
(68
|
)
|
|
|
1,807
|
|
|
|
29,049
|
|
|
|
(2,107
|
)
|
|
|
26,942
|
|
Net income
|
|
|
1,326
|
|
|
|
(68
|
)
|
|
|
1,258
|
|
|
|
28,227
|
|
|
|
(2,107
|
)
|
|
|
26,120
|
|
Earnings per share
|
|
|
0.03
|
|
|
|
|
|
|
|
0.03
|
|
|
|
0.67
|
|
|
|
(0.05
|
)
|
|
|
0.62
|
|
Diluted earnings per share
|
|
|
0.03
|
|
|
|
|
|
|
|
0.03
|
|
|
|
0.66
|
|
|
|
(0.05
|
)
|
|
|
0.61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Balance Sheets as of June 30, 2009
|
|
|
|
As Previously
|
|
|
|
|
|
|
|
|
|
Reported
(1)
|
|
|
ASC 470-20
|
|
|
As Reported
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
Property, plant and equipment, net
|
|
$
|
605,742
|
|
|
$
|
8,588
|
|
|
$
|
614,330
|
|
Other assets
|
|
|
13,330
|
|
|
|
(1,669
|
)
|
|
|
11,661
|
|
Total assets
|
|
|
1,069,178
|
|
|
|
6,919
|
|
|
|
1,076,097
|
|
Accounts payable and accrued expenses
|
|
|
50,264
|
|
|
|
(26
|
)
|
|
|
50,238
|
|
Total current liabilities
|
|
|
59,687
|
|
|
|
(26
|
)
|
|
|
59,661
|
|
Convertible senior notes
|
|
|
316,250
|
|
|
|
(68,276
|
)
|
|
|
247,974
|
|
Total long-term liabilities
|
|
|
347,363
|
|
|
|
(68,276
|
)
|
|
|
279,087
|
|
Additional paid-in capital
|
|
|
976,575
|
|
|
|
79,130
|
|
|
|
1,055,705
|
|
Accumulated deficit
|
|
|
(312,709
|
)
|
|
|
(3,909
|
)
|
|
|
(316,618
|
)
|
Total stockholders equity
|
|
|
662,128
|
|
|
|
75,221
|
|
|
|
737,349
|
|
Total liabilities and stockholders equity
|
|
|
1,069,178
|
|
|
|
6,919
|
|
|
|
1,076,097
|
|
|
|
|
(1)
|
|
The balance as previously reported for Accounts payable and accrued expenses above
also includes (in thousands) Salaries, wages and amounts withheld from employees of $3,243,
Amounts due under incentive plans of $694 and excludes Warranty liability of $5,917.
|
11
ENERGY CONVERSION DEVICES, INC. and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Statement of Cash Flows for the
|
|
|
|
Nine Months Ended March 31, 2009
|
|
|
As
|
|
|
|
|
|
|
Previously
|
|
|
|
|
|
|
Reported
|
|
ASC 470-20
|
|
As Reported
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
Net income
|
|
$
|
28,227
|
|
|
$
|
(2,107
|
)
|
|
$
|
26,120
|
|
Depreciation and amortization
|
|
|
23,632
|
|
|
|
63
|
|
|
|
23,695
|
|
Amortization of debt
discount and deferred
financing fees
|
|
|
|
|
|
|
10,958
|
|
|
|
10,958
|
|
Other assets
|
|
|
(125
|
)
|
|
|
(8,915
|
)
|
|
|
(9,040
|
)
|
Note 2 Earnings (Loss) Per Share
Basic earnings (loss) per common share attributable to ECD shareholders is computed by
dividing the net income (loss) attributable to ECD shareholders by the weighted average number of
common shares outstanding for the period. Diluted earnings (loss) per share attributable to ECD
shareholders reflect the potential dilution that could occur if securities or other contracts to
issue common stock were exercised and converted into common stock or resulted in the issuance of
common stock that then shared in the net income (loss) attributable to ECD shareholders. The
following table reconciles the numerator and denominator to calculate basic and diluted earnings
(loss) per share attributable to ECD shareholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
Net Income
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
|
|
|
|
|
|
|
|
|
(Loss)
|
|
|
|
|
|
|
|
|
|
|
(Loss)
|
|
|
|
|
|
|
|
|
|
|
Attributable
|
|
|
|
|
|
|
|
|
|
|
Attributable
|
|
|
|
|
|
|
|
|
|
|
to ECD
|
|
|
|
|
|
|
Per
|
|
|
to ECD
|
|
|
|
|
|
|
Per
|
|
|
|
Shareholders
|
|
|
Shares
|
|
|
Share
|
|
|
Shareholders
|
|
|
Shares
|
|
|
Share
|
|
|
|
(Numerator)
|
|
|
(Denominator)
|
|
|
Amounts
|
|
|
(Numerator)
|
|
|
(Denominator)
|
|
|
Amounts
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(384,846
|
)
|
|
|
42,307
|
|
|
$
|
(9.10
|
)
|
|
$
|
1,258
|
|
|
|
42,303
|
|
|
$
|
0.03
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
89
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
(384,846
|
)
|
|
|
42,307
|
|
|
$
|
(9.10
|
)
|
|
$
|
1,258
|
|
|
|
42,392
|
|
|
$
|
0.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
ENERGY CONVERSION DEVICES, INC. and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
Net Income
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
|
|
|
|
|
|
|
|
|
(Loss)
|
|
|
|
|
|
|
|
|
|
|
(Loss)
|
|
|
|
|
|
|
|
|
|
|
Attributable
|
|
|
|
|
|
|
|
|
|
|
Attributable
|
|
|
|
|
|
|
|
|
|
|
to ECD
|
|
|
|
|
|
|
Per
|
|
|
to ECD
|
|
|
|
|
|
|
Per
|
|
|
|
Shareholders
|
|
|
Shares
|
|
|
Share
|
|
|
Shareholders
|
|
|
Shares
|
|
|
Share
|
|
|
|
(Numerator)
|
|
|
(Denominator)
|
|
|
Amounts
|
|
|
(Numerator)
|
|
|
(Denominator)
|
|
|
Amounts
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(435,617
|
)
|
|
|
42,307
|
|
|
$
|
(10.30
|
)
|
|
$
|
26,120
|
|
|
|
42,266
|
|
|
$
|
0.62
|
|
Effect of dilutive
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
174
|
|
|
|
|
|
Stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
381
|
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
(435,617
|
)
|
|
|
42,307
|
|
|
$
|
(10.30
|
)
|
|
$
|
26,120
|
|
|
|
42,821
|
|
|
$
|
0.61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As part of the agreement for the Convertible Senior Notes (Notes) issued in June 2008,
the Company also issued 3,444,975 shares as part of a share-lending arrangement with the
underwriter. The purpose of the share-lending agreement is to facilitate transactions which allow
the investors in the Notes to hedge their investments in the Notes.
The underwriter received all proceeds from any sale of shares pursuant to the share lending
agreement. The underwriter provided the Company collateral equal to the par value of the common
stock. The shares must be returned to the Company no later than the maturity date of the Notes.
These shares are considered issued and outstanding and have all the rights of any holder of the
Companys common stock. However, because the shares must be returned to the Company, the shares
are not considered outstanding for purposes of calculating earnings per share.
The Notes are only convertible prior to March 15, 2013 under specific circumstances involving
the price of the Companys common stock, the price of the Notes, and certain corporate transactions
including, but not limited to, an offering of common stock at a price less than market, a
distribution of cash or other assets to stockholders, a merger, consolidation or other share
exchange, or a change in control. The holders of the Notes may convert the principal amount of
their notes into cash and, with respect to any amounts in excess of the principal amount, if
applicable, shares of the Companys common stock initially at a conversion rate of 10.8932 shares
(equivalent to an initial conversion price of approximately $91.80 per share) per $1,000 principal
amount of the Notes. The holders of the Notes are only entitled to amounts in excess of the
principal amount if shares of the Companys common stock exceed a market price of $91.80 for a
period of 20 consecutive trading days during the applicable cash settlement averaging period.
During the three months ended March 31, 2010 and 2009, the Companys common stock price did not
exceed the conversion price. Therefore, there are no contingently issuable shares to include in
the diluted earnings per share calculation.
13
ENERGY CONVERSION DEVICES, INC. and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following securities would have had an anti-dilutive effect on earnings per share and are
therefore excluded from the computations above.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
Share-based payment arrangements
|
|
|
1,299
|
|
|
|
405
|
|
|
|
1,304
|
|
|
|
113
|
|
Note 3 Supplemental Cash Flow Information
Supplemental disclosures of cash flow information are as follows:
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
March 31,
|
|
|
2010
|
|
2009
|
|
|
(in thousands)
|
Supplemental disclosures:
|
|
|
|
|
|
|
|
|
Cash paid for interest, including capitalized interest
|
|
$
|
6,678
|
|
|
$
|
|
|
Cash paid for income taxes
|
|
|
231
|
|
|
|
|
|
(Decrease) increase in accounts payable for capital expenditures
|
|
|
(3,120
|
)
|
|
|
23,135
|
|
Non-cash transactions:
|
|
|
|
|
|
|
|
|
Auction rate securities rights
|
|
|
|
|
|
|
3,964
|
|
Note 4 Acquisition
On August 19, 2009 the Company acquired 100% of the outstanding common shares of SIT, a Los
Angeles-based company that manufactures, designs and installs building integrated photovoltaic
roofing systems for commercial rooftops. The acquisition is an important element of the Companys
future growth plan as it transitions from manufacturing and selling a product to a company that
provides complete solar solutions, project implementation and value-added services. The Company
expects to enhance its downstream presence by combining its strengths as a product innovator with
the proven installation expertise and global footprint of SIT. The acquisition also strengthens
and diversifies the Companys business.
The Company paid 6.75 pence per share, or approximately $11.3 million cash consideration for
all of outstanding shares of SIT. The Company also recognized a gain of $0.4 million due to the
effective settlement of the Companys and SITs preexisting contractual supply relationship. The
gain was determined using a discounted cash flow analysis and was recorded in Selling, general and
administrative expenses in the Companys Consolidated Statement of Operations. The Company
incurred $3.0 million of acquisition-related costs during the nine month period ended March 31,
2010 which are included in Selling, general and administrative expenses in the Companys
Consolidated Statement of Operations.
14
ENERGY CONVERSION DEVICES, INC. and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Purchase Price Allocation
The following table summarizes the final amounts of assets acquired and liabilities assumed
recognized at the acquisition date.
|
|
|
|
|
|
|
(in thousands)
|
|
Cash
|
|
$
|
9,180
|
|
Accounts receivable
|
|
|
9,962
|
|
Inventory
|
|
|
24,031
|
|
Other current assets
|
|
|
2,372
|
|
Long-term receivables
|
|
|
11,769
|
|
Property, plant and equipment
|
|
|
2,030
|
|
Other long term assets
|
|
|
2,010
|
|
Identifiable intangible assets
|
|
|
2,780
|
|
Goodwill
|
|
|
35,299
|
|
Warranty liability
|
|
|
(38,548
|
)
|
Current liabilities
|
|
|
(27,293
|
)
|
Long-term liabilities
|
|
|
(21,913
|
)
|
|
|
|
|
Total net assets acquired
|
|
$
|
11,679
|
|
|
|
|
|
The fair value of the accounts receivable acquired was $10.0 million. The gross contractual
amount due is $10.0 million, of which an insignificant amount is expected to be uncollectible. In
addition, sales-type lease receivables with a fair value of $12.7 million were acquired. The gross
contractual amount due is $18.8 million. A liability of $38.5 million has been recognized for
estimated warranty claims on products sold by SIT.
In the first quarter of fiscal year 2010, the Company completed a preliminary allocation of
the purchase price for the SIT acquisition. During the second quarter of fiscal year 2010, the
Company finalized its allocation and adjusted the fair value of the warranty liability by $4.9
million.
15
ENERGY CONVERSION DEVICES, INC. and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Results of operations for SIT are included in the Companys consolidated financial statements
beginning August 19, 2009. The unaudited pro forma combined historical results for the amounts of
SITs revenue and earnings that would have been included in the Companys Consolidated Statement of
Operations had the acquisition date been July 1, 2009 or July 1, 2008 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
March 31,
|
|
March 31,
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
Actual Amounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
12,186
|
|
|
|
N/A
|
|
|
$
|
27,754
|
|
|
|
N/A
|
|
Net loss attributable to ECD shareholders
|
|
|
(39,741
|
)
|
|
|
N/A
|
|
|
|
(54,010
|
)
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
72,406
|
|
|
$
|
61,480
|
|
|
$
|
173,156
|
|
|
$
|
294,668
|
|
Net (loss) income attributable to ECD
shareholders
|
|
|
(384,846
|
)
|
|
|
(5,059
|
)
|
|
|
(439,284
|
)
|
|
|
7,984
|
|
(Loss) earnings per share
|
|
|
(9.10
|
)
|
|
|
(0.12
|
)
|
|
|
(10.38
|
)
|
|
|
0.19
|
|
Diluted (loss) earnings per share
|
|
|
(9.10
|
)
|
|
|
(0.12
|
)
|
|
|
(10.38
|
)
|
|
|
0.19
|
|
The pro forma information includes adjustments for depreciation and the effect of the
amortization of intangible assets recognized in the acquisition, along with intercompany
elimination entries. This pro forma information is not necessarily indicative of future operating
results.
Goodwill
The goodwill of approximately $35.4 million arising from the SIT acquisition consists largely
of the synergies and economies of scale from combining the operations of the Company and SIT. All
of the goodwill has been allocated to the Companys United Solar Ovonic Segment. It is estimated
that none of the goodwill recognized will be deductible for income tax purposes. The changes in
goodwill are as follows:
|
|
|
|
|
|
|
(in thousands)
|
|
Balance at September 30, 2009
|
|
$
|
30,523
|
|
SIT acquisition adjustment
|
|
|
4,776
|
|
Foreign currency impact
|
|
|
54
|
|
Impairment loss
|
|
|
(35,353
|
)
|
|
|
|
|
Balance at March 31, 2010
|
|
$
|
|
|
|
|
|
|
See Note 11 Impairment Loss for additional information regarding the goodwill impairment.
Intangible Assets
In conjunction with the SIT acquisition, intangible assets with a fair value of $2.8 million
were recorded including trade name intangible assets with an indefinite life of $1.1 million. In
December 2009, the Company announced a restructuring plan to better align operating expenses with
near-term revenue expectations and recognized an impairment loss of $0.2 million for proprietary
processes which will no longer be utilized.
16
ENERGY CONVERSION DEVICES, INC. and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Intangible assets, net consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010
|
|
|
|
Gross
|
|
|
Accumulated
|
|
|
Impairment
|
|
|
|
|
|
|
Value
|
|
|
Amortization
|
|
|
Loss
|
|
|
Net Value
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
Customer contracts
|
|
$
|
842
|
|
|
$
|
(379
|
)
|
|
$
|
(463
|
)
|
|
$
|
|
|
Proprietary processes
|
|
|
190
|
|
|
|
(13
|
)
|
|
|
(177
|
)
|
|
|
|
|
Order backlog
|
|
|
276
|
|
|
|
(129
|
)
|
|
|
(147
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,308
|
|
|
$
|
(521
|
)
|
|
$
|
(787
|
)
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certain intangible assets are held by the Companys foreign subsidiaries and are therefore
subject to foreign currency fluctuations. Amortization expense was $0.2 million and $0.5 million
for the three and nine months ended March 31, 2010.
See Note 11 Impairment Loss for additional information regarding the intangible asset
impairment.
Note 5 Investments
Short-Term Investments
The following schedule summarizes the unrealized gains and losses on the Companys short-term
investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
|
|
|
Gross Unrealized
|
|
|
Estimated
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Fair Value
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
March 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds
|
|
$
|
58,615
|
|
|
$
|
|
|
|
$
|
(1,140
|
)
|
|
$
|
57,475
|
|
U.S. Government securities
|
|
|
36,118
|
|
|
|
8
|
|
|
|
(21
|
)
|
|
|
36,105
|
|
Auction rate certificates
|
|
|
33,750
|
|
|
|
|
|
|
|
(4,141
|
)
|
|
|
29,609
|
|
Auction rate securities rights
|
|
|
|
|
|
|
4,053
|
|
|
|
|
|
|
|
4,053
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
128,483
|
|
|
$
|
4,061
|
|
|
$
|
(5,302
|
)
|
|
$
|
127,242
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds
|
|
$
|
23,047
|
|
|
$
|
|
|
|
$
|
(1,037
|
)
|
|
$
|
22,010
|
|
U.S. Government securities
|
|
|
188,902
|
|
|
|
148
|
|
|
|
(10
|
)
|
|
|
189,040
|
|
Auction rate certificates
|
|
|
34,250
|
|
|
|
|
|
|
|
(4,056
|
)
|
|
|
30,194
|
|
Auction rate securities rights
|
|
|
|
|
|
|
3,938
|
|
|
|
|
|
|
|
3,938
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
246,199
|
|
|
$
|
4,086
|
|
|
$
|
(5,103
|
)
|
|
$
|
245,182
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
ENERGY CONVERSION DEVICES, INC. and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following schedule summarizes the contractual maturities of the Companys short-term
investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010
|
|
|
June 30, 2009
|
|
|
|
Amortized Cost
|
|
|
Market value
|
|
|
Amortized Cost
|
|
|
Market Value
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
Due in less than one year
|
|
$
|
39,067
|
|
|
$
|
42,102
|
|
|
$
|
211,949
|
|
|
$
|
211,050
|
|
Due after one year
through five years
|
|
|
89,416
|
|
|
|
85,140
|
|
|
|
34,250
|
|
|
|
34,132
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
128,483
|
|
|
$
|
127,242
|
|
|
$
|
246,199
|
|
|
$
|
245,182
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The corporate bonds and U.S. government securities are classified as available-for-sale.
Due to the bankruptcy proceedings of Lehman Brothers and the decline in the market for their bonds,
the Company recorded the decline in fair value as an other-than-temporary impairment, included in
Other nonoperating expense, net in the Companys Consolidated Statement of Operations for the
nine month period ended March 31, 2009.
Auction Rate Certificates (ARCs) represent securities with fixed maturity dates the interest
rates of which reset monthly. The Companys ARCs are Student Loan Asset-Backed Securities
guaranteed by the Federal Family Education Loan Program. The payments of principal and interest on
these student loans are guaranteed by the state or not-for-profit-guaranty agency and the U.S.
Department of Education. At the time of the Companys initial investment and through the date of
this filing, all of the Companys ARCs are rated as AAA.
The default interest rate on the ARCs, which applies in the absence of an active market for
the ARCs, is the lesser of (1) the trailing twelve-month average of the 91 day U.S. Treasury bill
rate plus 120 basis points, or (2) the trailing twelve-month average interest rate of the ARCs.
The weighted average interest rate on the ARCs was 1.4% at March 31, 2010.
The ARCs mature at various dates between December 2033 and December 2045. The ARCs bear
interest at rates determined every 28 or 35 days through an auction process, in which the
applicable rate is set at the lowest rate submitted in the auction, or, in the absence of an active
market for the ARCs, the default rate discussed above. Interest rates on the ARCs are capped
between 12% and 18%.
At March 31, 2010, the Company has valued these securities using a pricing model which is not
a market model, but which does reflect some discount due to the current lack of liquidity of the
investments as a result of recently failed auctions (see Note 14 Fair Value Measurements for a
description of the model). This valuation resulted in an unrealized loss of $4.1 million at both
periods ending March 31, 2010 and June 30, 2009.
In October 2008, the Company agreed to an offer from UBS AG (UBS) to sell at par value, at
anytime from June 30, 2010 through July 2, 2012, the ARCs purchased from UBS (which represents the
Companys entire portfolio of ARCs). These Auction Rate Securities Rights (ARSRs), which are
akin to a freestanding put option, are non-transferable and are not traded on any exchange. The
Company has valued the ARSRs using a present value model (see Note 14 Fair Value Measurements
for a description
18
ENERGY CONVERSION DEVICES, INC. and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
of the model). Using this model, the Company has determined the fair value of the
ARSRs to be $4.1 million at March 31, 2010.
The ARSRs also grants UBS the right to purchase the Companys ARCs at par value at anytime
without notice. As a result, the Company has classified the entire portfolio of ARCs as trading
securities in short-term investments based upon its intention to exercise its right to sell the
ARCs to UBS.
Note 6
-
Sales-Type Lease Receivables
In conjunction with the SIT acquisition, the Company acquired sales-type lease receivables.
In 2005 and 2006 SIT entered into Energy Services Agreements (ESAs) whereby customers agreed to
pay SIT, on a monthly basis over a 20-year period, for the electricity generated from the BIPV
roofing systems installed on their buildings. The customers pay for the energy produced by solar
systems at a rate specified in each contract. SIT recorded a lease receivable to reflect the
future stream of energy services payments from customers over the 20-year period.
Sales-type lease receivables consisted of the following:
|
|
|
|
|
|
|
March 31, 2010
|
|
|
|
(in thousands)
|
|
Total minimum lease payments receivable
|
|
$
|
18,350
|
|
Less: Unearned income
|
|
|
(6,078
|
)
|
|
|
|
|
Net investment in sales-type leases
|
|
$
|
12,272
|
|
|
|
|
|
Executory costs included in total minimum lease payments were not significant. In addition,
no value was assigned to the estimated residual value of the leased equipment due to the 20-year
lease term. Future minimum receivables under all noncancelable sales-type leases as of March 31,
2010 are as follows:
|
|
|
|
|
Fiscal Year
|
|
(in thousands)
|
|
2010
|
|
$
|
285
|
|
2011
|
|
|
994
|
|
2012
|
|
|
1,013
|
|
2013
|
|
|
1,034
|
|
2014
|
|
|
1,054
|
|
Thereafter
|
|
|
13,970
|
|
|
|
|
|
|
|
$
|
18,350
|
|
|
|
|
|
19
ENERGY CONVERSION DEVICES, INC. and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 7
-
Inventories
Inventories consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(in thousands)
|
|
Finished products
|
|
$
|
55,762
|
|
|
$
|
41,167
|
|
Work in process
|
|
|
19,451
|
|
|
|
19,247
|
|
Raw materials
|
|
|
19,203
|
|
|
|
13,852
|
|
|
|
|
|
|
|
|
|
|
$
|
94,416
|
|
|
$
|
74,266
|
|
|
|
|
|
|
|
|
Substantially all of the Companys inventories are included in its United Solar Ovonic
Segment. The above amounts are net of a reserve for slow moving and obsolete inventory of $13.5
million and $12.9 million as of March 31, 2010 and June 30, 2009, respectively. During the first
quarter of fiscal year 2010, the Company wrote off fully reserved inventory by reducing the work in
process and corresponding inventory reserve balances by $6.1 million. A $3.3 million inventory
reserve was assumed during the SIT acquisition. Included in finished products inventory is $2.9
million of inventory under contract for a project as of March 31, 2010.
Note 8
-
Liabilities
Warranty Liability
A summary of the warranty liability is as follows:
|
|
|
|
|
|
|
(in thousands)
|
|
Liability at June 30, 2009
|
|
$
|
5,917
|
|
Liability assumed in SIT acquisition
|
|
|
38,548
|
|
Warranty expense
|
|
|
2,510
|
|
Warranty claims
|
|
|
(4,188
|
)
|
Foreign currency impact
|
|
|
(722
|
)
|
|
|
|
|
Liability at March 31, 2010
|
|
$
|
42,065
|
|
|
|
|
|
20
ENERGY CONVERSION DEVICES, INC. and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Other Long-Term Liabilities
A summary of the Companys other long-term liabilities is as follows:
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(in thousands)
|
|
Structured financing
|
|
$
|
13,049
|
|
|
$
|
|
|
Long-term retirement
|
|
|
1,728
|
|
|
|
1,894
|
|
Customer deposits
|
|
|
780
|
|
|
|
1,940
|
|
Deferred patent license fees
|
|
|
3,571
|
|
|
|
4,286
|
|
Deferred revenue and royalties
|
|
|
320
|
|
|
|
321
|
|
Rent payable
|
|
|
1,080
|
|
|
|
884
|
|
Other
|
|
|
669
|
|
|
|
376
|
|
|
|
|
|
|
|
|
|
|
$
|
21,197
|
|
|
$
|
9,701
|
|
|
|
|
|
|
|
|
Note 9
-
Long-Term Debt
Convertible Senior Notes
In June 2008, the Company completed an offering of $316.3 million of Convertible Senior Notes
(Notes). The Notes bear interest at a rate of 3.0% per year, payable semi-annually on June 15
and December 15 of each year, commencing on December 15, 2008. If the Notes are not converted,
they will mature on June 15, 2013.
The Notes are only convertible prior to March 15, 2013 under specific circumstances involving
the price of the Companys common stock, the price of the Notes and certain corporate transactions
including, but not limited to, an offering of common stock at a price less than market, a
distribution of cash or other assets to stockholders, a merger, consolidation or other share
exchange, or a change in control. The holders of the Notes may convert the principal amount of
their notes into cash and, if applicable, shares of the Companys common stock initially at a
conversion rate of 10.8932 shares (equivalent to an initial conversion price of approximately
$91.80 per share) per $1,000 principal amount of the Notes. The holders of the Notes are only
entitled to amounts in excess of the principal amount if shares of the Companys common stock
exceed a market price of $91.80 for a period of 20 consecutive trading days during the applicable
cash settlement averaging period.
The Company adopted the provisions of ASC 470-20 on July 1, 2009, with retrospective
application to prior periods. (See Note 1 Nature of Operations, Basis of Presentation and
Summary of Significant Accounting Policies for additional information). The Company estimated that
the effective interest rate at the time of the offering for similar debt without the conversion
feature was 9.9%. The effective interest rate for both the three and nine month periods ended
March 31, 2010 and 2009 was 10.4%. At March 31, 2010 and June 30, 2009, the carrying amount of the
conversion option recorded in stockholders equity for both periods was $81.9 million.
21
ENERGY CONVERSION DEVICES, INC. and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The net carrying amount of the Notes is as follows:
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(in thousands)
|
|
Outstanding principal
|
|
$
|
316,250
|
|
|
$
|
316,250
|
|
Less: unamortized discount
|
|
|
57,306
|
|
|
|
68,276
|
|
|
|
|
|
|
|
|
Net carrying amount
|
|
$
|
258,944
|
|
|
$
|
247,974
|
|
|
|
|
|
|
|
|
The gross interest expense recognized is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
Contractual interest
|
|
$
|
2,372
|
|
|
$
|
2,372
|
|
|
$
|
7,116
|
|
|
$
|
7,089
|
|
Amortization of discount
|
|
|
3,772
|
|
|
|
3,434
|
|
|
|
10,969
|
|
|
|
10,211
|
|
Amortization of debt
issue costs
|
|
|
339
|
|
|
|
281
|
|
|
|
957
|
|
|
|
747
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross interest expense
recognized
|
|
$
|
6,483
|
|
|
$
|
6,087
|
|
|
$
|
19,042
|
|
|
$
|
18,047
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Structured Financing
In conjunction with the SIT acquisition, the Company assumed a structured financing liability.
In April 2005, SIT, through a subsidiary, entered into a Master Purchase and Lease Agreement and
related agreements with a subsidiary of GE EFS, a unit of General Electric Capital Corporation, to
provide structured financing for the installation of its BIPV projects on certain buildings owned
by certain qualified customers. The structured financing liability has a 20-year term and bears
interest at varying rates from 0.6% to 3.1%, with quarterly principal and interest payments.
Convertible Notes
In conjunction with the SIT acquisition, the Company assumed SITs outstanding 6.5%
convertible notes due November 1, 2010. The principal balance of $8.0 million was subsequently
repaid in October 2009.
Note 10 Commitments and Contingencies
The Company is subject to certain legal actions and claims arising in the ordinary course of
business, including, without limitation, commercial disputes, intellectual property matters,
personal injury claims, tax claims and employment matters. Although the outcome of any legal
matter cannot be predicted with certainty, management does not believe that any of these legal
proceedings or matters will have a material adverse effect on the consolidated financial position,
results of operations, or liquidity of the Company.
22
ENERGY CONVERSION DEVICES, INC. and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 11 Impairment Loss
The Company periodically evaluates the carrying value of its long-lived assets whenever events
or changes in circumstances indicate that the carrying value of those assets may not be
recoverable. The recoverability of goodwill is reviewed annually or more frequently if events or
circumstances indicate a potential change in recoverability. Goodwill is tested for impairment at
the reporting unit level. The Company determined its reporting unit to be the United Solar Ovonic
segment, which includes SIT. If goodwill and another asset group (e.g. property, plant and
equipment) of a reporting unit are tested for impairment at the same time, the other asset group
shall be tested for impairment before goodwill.
In connection with the December 2009 restructuring activities (see Note 12 Restructuring
Charges), the Company recognized an impairment loss of $1.3 million of which $1.1 million related
to equipment and $0.2 million related to intangible assets which will no longer be utilized.
Due to changing market conditions, losses incurred to-date and the increased near-term
capacity anticipated from the Companys technology roadmap developed during the third quarter, the
Company concluded that the carrying values of its long-lived assets, including goodwill, may not be
recoverable. Accordingly, the Company commenced with an impairment analysis of the long-lived
assets included in its United Solar Ovonic segment as of March 31, 2010. The Companys assessment
utilized quoted market prices, fair value appraisals, management forecasts and discounted cash flow
analyses. The impairment analysis is highly judgmental and involves the use of significant
estimates and assumptions. These estimates and assumptions have a substantial impact on the amount
of any impairment loss recorded. Discounted cash flow analyses are dependent upon management
estimates and assumptions of future sales trends, current and expected future economic trends,
market conditions and the effects of new technologies. The estimates and assumptions used in the
impairment analysis are consistent with the Companys business plan; however, actual cash flows in
the future may differ significantly from those previously forecasted.
Based upon the results of the analysis, the Company recorded an impairment loss of $358.0
million. The impairment loss included a reduction in carrying value of the Companys property,
plant and equipment of $320.7 million, along with the full carrying value of the goodwill and
intangible assets recorded in conjunction with the SIT acquisition, $35.4 million and $1.9 million,
respectively.
Note 12 Restructuring Charges
The Company implemented an organizational restructuring in conjunction with the SIT
acquisition in August 2009 and consolidated certain departmental functions within the organization.
In December 2009 the Company incurred additional restructuring charges to better align operating
expenses with near-term revenue expectations. The Company estimates that it will incur total
restructuring costs of $3.7 million. The restructuring is expected to be completed in fiscal year
2010. The Company incurred $3.5 million of restructuring charges during the nine month period
ended March 31, 2010, of which $3.3 million related to employee severance and $0.2 million related
to equipment relocation costs. The restructuring charges are included in the United Solar Ovonic
segment.
23
ENERGY CONVERSION DEVICES, INC. and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A summary of the Companys restructuring liability is as follows:
|
|
|
|
|
|
|
Employee-Related
Expenses
|
|
|
|
(in thousands)
|
|
Balance June 30, 2009
|
|
$
|
840
|
|
Liability assumed in SIT
acquisition
|
|
|
122
|
|
Charges
|
|
|
3,252
|
|
Utilization or payment
|
|
|
(1,767
|
)
|
|
|
|
|
Balance March 31, 2010
|
|
$
|
2,447
|
|
|
|
|
|
Note 13 Share-Based Compensation
The Company records the fair value of stock-based compensation grants as an expense. Total
share-based compensation expense for the three month periods ended March 31, 2010 and 2009 was $1.2
million and $1.4 million, respectively. Total share-based compensation expense for the nine month
periods ended March 31, 2010 and 2009 was $3.4 million and $4.9 million, respectively.
Stock Options
In order to determine the fair value of stock options on the date of grant, the Company
applies the Black-Scholes option-pricing model. Inherent in this model are assumptions related to
expected stock-price volatility, option life, risk-free interest rate and dividend yield. While
the risk-free interest rate and dividend yield are less subjective assumptions, typically based on
factual data derived from public sources, the expected stock-price volatility and option life
assumptions require a greater level of judgment.
The Company uses an expected stock-price volatility assumption that is based on historical
implied volatilities of the underlying stock which is obtained from public data sources. The
risk-free interest rate is based on the yield of U.S. Treasury securities with a term equal to that
of the option. With regard to the weighted-average option life assumption, the Company considers
the exercise behavior of past grants and models the pattern of aggregate exercises. Patterns are
determined on specific criteria of the aggregate pool of optionees. Forfeiture rates are based on
the Companys historical data for stock option forfeitures.
The weighted-average fair value of the options granted during the three month period ended
March 31, 2010 is estimated based on the date of grant using the Black-Scholes option-pricing model
with the following assumptions:
|
|
|
|
|
Estimated fair value
|
|
$
|
10.02
|
|
Assumptions
|
|
|
|
|
Dividend Yield
|
|
|
0
|
%
|
Volatility %
|
|
|
73.53
|
%
|
Risk-Free Interest Rate
|
|
|
3.14
|
%
|
Expected Life
|
|
7.33 years
|
24
ENERGY CONVERSION DEVICES, INC. and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A summary of the transactions during the nine months ended March 31, 2010 with respect to the
Companys stock options is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate Intrinsic
|
|
|
|
|
|
|
|
Weighted-Average
|
|
|
Value
(1)
|
|
|
|
Shares
|
|
|
Exercise Price
|
|
|
(in thousands)
|
|
Outstanding at June 30, 2009
|
|
|
894,504
|
|
|
$
|
26.33
|
|
|
$
|
387
|
|
Granted
|
|
|
16,500
|
|
|
|
14.05
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(23,151
|
)
|
|
|
38.50
|
|
|
|
|
|
Forfeited
|
|
|
(779
|
)
|
|
|
76.74
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2010
|
|
|
887,074
|
|
|
|
25.74
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
The intrinsic value of a stock option is the amount by which the current
market value of the underlying stock exceeds the exercise price of the option.
|
The table below sets forth stock options exercisable:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
Weighted-Average
|
|
|
|
|
|
|
|
Average
|
|
|
Aggregate Intrinsic
|
|
|
Contractual Life
|
|
|
|
|
|
|
|
Exercise
|
|
|
Value
(1)
|
|
|
Remaining
|
|
|
|
Shares
|
|
|
Price
|
|
|
(in thousands)
|
|
|
in Years
|
|
Exercisable at March 31, 2010
|
|
|
737,744
|
|
|
$
|
22.79
|
|
|
$
|
|
|
|
|
3.02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at June 30, 2009
|
|
|
709,074
|
|
|
|
21.85
|
|
|
|
376
|
|
|
|
3.58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
The intrinsic value of a stock option is the amount by which the current
market value of the underlying stock exceeds the exercise price of the option.
|
As of March 31, 2010, there was $1.6 million of total unrecognized compensation cost
related to nonvested share-based compensation arrangements granted under the Plan. The cost is
expected to be recognized over a weighted-average period of 1.5 years.
Restricted Stock Awards
Restricted stock awards (RSAs) consist of shares of common stock the Company issued at a
price of $0. Upon issuance, RSAs become outstanding and have voting rights. The shares issued to
employees are subject to forfeiture and to restrictions which limit the sale or transfer during the
restriction period. The fair value of the RSAs is determined on the date of grant based on the
market price of the Companys common stock and is recognized as compensation expense. The value of
RSAs granted to employees is amortized over their three-year vesting period, while the value of
RSAs granted to nonemployee directors is amortized over a two- to nine-year vesting period.
25
ENERGY CONVERSION DEVICES, INC. and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Information concerning RSAs awarded under the Stock Incentive Plans during the nine month
period ended March 31, 2010 is as follows:
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
Weighted Average
|
|
|
Shares
|
|
Grant Date Fair Value
|
Nonvested at June 30, 2009
|
|
|
97,418
|
|
|
|
34.10
|
|
Awarded
|
|
|
13,290
|
|
|
|
9.58
|
|
Vested
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(90
|
)
|
|
|
9.58
|
|
Released from restriction
|
|
|
(3,500
|
)
|
|
|
28.34
|
|
|
|
|
|
|
|
|
|
|
Nonvested at March 31, 2010
|
|
|
107,118
|
|
|
|
31.27
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2010, there was $3.1 million of total unrecognized compensation cost related
to nonvested share-based compensation arrangements granted under the Plan. The cost is expected to
be recognized over a weighted-average period of 1.4 years.
Restricted Stock Units RSUs
RSUs settle on a one-for-one basis in shares of the Companys common stock and vest in
accordance with the terms of the 2006 Stock Incentive Plan or the Executive Severance Plan and the
2009 Long Term Incentive Plan, as applicable. On September 30, 2009 the Companys Board of
Directors approved an offer to exchange approximately 98,000 previously issued RSUs for new RSUs on
a one-for-one basis.
The fair value of the RSUs is determined on the date of grant based on the market price of the
Companys common stock and is recognized as compensation expense. Information concerning RSUs
awarded during the nine month period ended March 31, 2010 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average
|
|
|
Number of
|
|
Grant Date
|
|
|
Shares
|
|
Fair Value
|
Nonvested at June 30, 2009
|
|
|
204,468
|
|
|
$
|
52.63
|
|
Awarded
|
|
|
284,529
|
|
|
|
11.20
|
|
Vested
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(12,107
|
)
|
|
|
29.42
|
|
Exchanged
|
|
|
(95,234
|
)
|
|
|
52.36
|
|
Released from restriction
|
|
|
(5,774
|
)
|
|
|
9.45
|
|
|
|
|
|
|
|
|
|
|
Nonvested at March 31, 2010
|
|
|
375,882
|
|
|
|
22.82
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2010, there was $0.4 million of total unrecognized compensation cost related
to nonvested share-based compensation arrangements granted under the Plan. The cost is expected to
be recognized over a weighted-average period of 1.4 years.
26
ENERGY CONVERSION DEVICES, INC. and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 14 Fair Value Measurements
Financial instruments held by the Company include corporate bonds, U.S. government securities,
and money market funds. The Company measures certain financial assets at fair value on a recurring
basis, including cash equivalents and available-for-sale securities. The fair value of these
financial assets was determined based on observable and unobservable inputs.
Observable inputs consist of market data obtained from independent sources while unobservable
inputs reflect the Companys own market assumptions. These inputs create the following fair value
hierarchy:
|
|
|
Level 1 Quoted prices in active markets for identical assets or liabilities
|
|
|
|
Level 2 Valuations based on quoted prices in markets that are not active,
quoted prices for similar assets or liabilities or all other inputs that are
observable
|
|
|
|
Level 3 Unobservable inputs for which there is little or no market data which
require the Company to develop its own assumptions
|
If the inputs used to measure the fair value of a financial instrument fall within different
levels of the hierarchy, the financial instrument is categorized based upon the lowest level input
that is significant to the fair value measurement.
Whenever possible, the Company uses quoted market prices to determine fair value. In the
absence of quoted market prices, the Company uses independent sources and data to determine fair
value. At March 31, 2010, the fair value of the Companys investments in corporate bonds, U.S.
government securities, and money market funds was determined using quoted prices in active markets.
The carrying values of the Companys cash, cash equivalents, short-term investments, accounts
receivable, and accounts payable approximate their fair values. The fair value of the Companys
convertible senior notes was estimated at $207.1 million as of March 31, 2010 using level 1 inputs.
As described in Note 5 Investments, the Companys investments in ARCs are not valued using a
market model due to the recent absence of auctions. Each ARC was valued using a discounted cash
flow analysis because there is presently no active market for the ARCs from which to determine
value. The valuation analyses utilized discount rates based on the reported rates for comparable
securities (i.e., similar student loan portfolios and holding periods) in active markets, plus a
factor for the present market illiquidity associated with the ARCs. The reported rate for a
comparable security was the sum of (1) the base rate that is used in the reporting of that
security, in this case the three month LIBOR, and (2) the interest rate spread above the base rate,
as reported from the active markets for that security. The illiquidity factor was established
based on the credit quality of the ARC determined by the percentage of the underlying loans
guaranteed by the Federal Family Education Loan Program (FFELP). The resulting discount rates
used in the valuation analyses ranged from 2.4% to 6.3% based on the ARCs.
The ARSRs are non-transferable and not traded on any exchange, and the Company has elected to
measure them using the fair value option. The ARSRs represent a guarantee of the par value of the
ARCs, and the Company has valued the ARSRs using a present value model. In valuing the ARSRs, the
Company calculated the present value of the difference between the
par value of the ARCs and the
current fair value
27
ENERGY CONVERSION DEVICES, INC. and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
of the
ARCs. The present value model utilized a discount rate of 2.2%, which is
a combination of the credit default swap rate risk of UBS at 1.4% and the rate on a U.S. Treasury
interest rate swap of 0.6%. The sum of those rates was increased by an additional 10.0% to account
for any potential liquidity risk should UBS not be able to fulfill its obligation under the ARSR
agreement. The ARSRs are included in Short-term investments in the Companys Consolidated Balance Sheets.
(See Note 5 Investments for additional information).
At March 31, 2010, information regarding the Companys assets measured at fair value is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
|
(in thousands)
|
Auction rate certificates
|
|
|
|
|
|
|
|
|
|
$
|
29,609
|
|
|
$
|
29,609
|
|
Auction rate securities rights
|
|
|
|
|
|
|
|
|
|
|
4,053
|
|
|
|
4,053
|
|
Investments in corporate bonds
|
|
$
|
57,475
|
|
|
|
|
|
|
|
|
|
|
|
57,475
|
|
Investments in U.S. government securities
|
|
|
36,105
|
|
|
|
|
|
|
|
|
|
|
|
36,105
|
|
Investments in money market funds
|
|
|
49,014
|
|
|
|
|
|
|
|
|
|
|
|
49,014
|
|
At June 30, 2009, information regarding the Companys assets and liabilities measured at fair
value is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
|
(in thousands)
|
Auction rate certificates
|
|
|
|
|
|
|
|
|
|
$
|
30,194
|
|
|
$
|
30,194
|
|
Auction rate securities rights
|
|
|
|
|
|
|
|
|
|
|
3,938
|
|
|
|
3,938
|
|
Investments in corporate bonds
|
|
$
|
22,010
|
|
|
|
|
|
|
|
|
|
|
|
22,010
|
|
Investments in U.S. government securities
|
|
|
189,040
|
|
|
|
|
|
|
|
|
|
|
|
189,040
|
|
Investments in money market funds
|
|
|
45,411
|
|
|
|
|
|
|
|
|
|
|
|
45,411
|
|
The following table presents the changes in Level 3 assets for the nine month period March 31,
2010:
|
|
|
|
|
|
|
|
|
|
|
Auction Rate
|
|
|
Auction Rate
|
|
|
|
Certificates
|
|
|
Securities Rights
|
|
|
|
(in thousands)
|
|
Balance at June 30, 2009
|
|
$
|
30,194
|
|
|
$
|
3,938
|
|
Redeemed by UBS
|
|
|
(500
|
)
|
|
|
|
|
Net (loss) gain included in investment
|
|
|
(85
|
)
|
|
|
115
|
|
|
|
|
|
|
|
|
Balance at March 31, 2010
|
|
$
|
29,609
|
|
|
$
|
4,053
|
|
|
|
|
|
|
|
|
In addition to the items that are measured at fair value on a recurring basis, the Company
also measured certain assets at fair value on a nonrecurring basis. As a result of an impairment
analysis, the Company recorded an impairment loss of $358.0 million to write its long-lived assets,
including goodwill, down to fair value (See Note 11 Impairment Loss for additional information).
The Company has determined that these fair value measurements rely primarily on Company-specific
inputs and the Companys assumptions about the use of the assets, as observable inputs are not
available. Accordingly, the Company determined that these fair value measurements reside primarily
within Level 3 of the fair value hierarchy.
28
ENERGY CONVERSION DEVICES, INC. and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
At March 31, 2010, information regarding the Companys assets included in its United
Solar Ovonic Segment that were measured at fair value on a nonrecurring basis is as follows:
|
|
|
|
|
|
|
Level 3
|
|
|
(in thousands)
|
Property, plant and equipment, net
|
|
$
|
296,007
|
|
Goodwill
|
|
|
|
|
Intangible assets, net
|
|
|
|
|
Note 15
-
Income Taxes
The net tax benefit of $2.0 million for the nine months ended March 31, 2010 primarily relates
to the Companys U.S. operations which recorded certain federal refundable research and development
tax credits of $1.1 million and deferred tax assets relating to the current year net operating
loss, which will be carried back to claim a refund of previously paid taxes totaling $1.1 million.
At March 31, 2010, the Company has recorded a net deferred tax asset of $1.1 million resulting
from the release of valuation allowance on the realizable portion of its net deferred tax assets
and a deferred tax liability of $0.4 million relating to indefinite-lived intangible assets
resulting from the Companys acquisition of SIT. This deferred tax liability cannot be offset by
the Companys tax assets with definite or finite reversal or carryforward periods.
Included within the Companys net operating losses (NOLs) of $425.0 million, are acquired
NOLs of approximately $61.2 million in connection with the acquisition of SIT. Section 382 and 383
of the Internal Revenue Code limits the utilization of these NOLs and certain other tax attributes.
These provisions apply after a Company has undergone an ownership change and is based on the value
of the stock of the acquired loss corporation before the ownership change times a long-term tax
exempt rate, a rate published by the Internal Revenue Service (IRS). The estimated annual
limitation of the acquired SIT NOLs is approximately $0.5 million.
The Company has a full valuation allowance against its remaining net deferred tax assets of
$284.7 million (consisting primarily of U.S. net operating loss carryforwards which expire in
various amounts between the current year and 2029, and basis differences in intangible assets).
Based on the Companys operating results for the preceding years, it was determined that it was
more than likely than not that the deferred tax assets would not be realized.
Note 16 Tax Benefits Preservation Plan
On September 30, 2009, the Companys Board of Directors adopted a tax benefits preservation
plan to preserve its ability to fully use certain tax assets, including its substantial net
operating loss carryforwards, which could be substantially limited if the Company experiences an
ownership change, as defined by Section 382 of the Internal Revenue Code. As part of the plan,
on September 30, 2009, the Board of Directors declared a dividend of one common stock purchase
right (a Right) for each outstanding share of common stock held of record as of the close of
business on October 15, 2009. Shares of common stock issued after that date also will receive
Rights.
29
ENERGY CONVERSION DEVICES, INC. and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Rights will be triggered if any person or group (subject to certain exceptions specified
in the tax benefits preservation plan) acquires 4.9% or more of the outstanding shares of the
Companys common stock, thereby becoming an Acquiring Person for purposes of the tax benefits
preservation plan. If triggered, each Right entitles the holder (other than the Acquiring Person
or any transferee of shares of the Companys stock held by the Acquiring Person) to purchase shares
of common stock at a 50 percent discount to the then market price of the Companys common stock,
and the Rights owned by the Acquiring Person (or any transferee of the Acquiring Person) become
void. Alternatively, if the Rights are triggered, the Companys Board of Directors may decide to
exchange all or part of the exercised Rights (other than those held by the Acquiring Person or any
transferee of the Acquiring Person) for shares of common stock.
The Companys Board of Directors has the discretion to exempt any acquisition of common stock
from the provisions of the tax benefits preservation plan. The plan may be terminated by the Board
of Directors at any time prior to the share purchase rights being triggered. Further, unlike a
traditional shareholder rights plan that typically endures for ten years, the tax benefits
preservation plan will expire prior to the end of its ten-year term if the Board of Directors
determines that the tax benefits preservation plan is no longer needed to preserve the Companys
ability to fully use its tax benefits due to the repeal of Section 382 of the Internal Revenue
Code, or that it cannot carry forward any more of its tax benefits.
Note 17 Business Segments
The Company has two operating segments, United Solar Ovonic and Ovonic Materials. The Company
includes the newly-acquired SIT business in its United Solar Ovonic segment.
The following table lists the Companys segment information and reconciliation to the
Companys consolidated financial statement amounts. The grouping Corporate and Other below does
not meet the definition of an operating segment as it contains the Companys headquarter costs,
consolidating entries, and the Companys investments in joint ventures, which are not allocated to
the above segments; however, it is included below for reconciliation purposes only.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United
|
|
|
|
|
|
|
|
|
Solar
|
|
Ovonic
|
|
Corporate
|
|
|
|
|
Ovonic
|
|
Materials
|
|
and Other
|
|
Total
|
|
|
(in thousands)
|
Three Months Ended March 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
66,210
|
|
|
$
|
6,143
|
|
|
$
|
53
|
|
|
$
|
72,406
|
|
Operating (loss) income
|
|
|
(375,452
|
)
|
|
|
3,778
|
|
|
|
(5,439
|
)
|
|
|
(377,113
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
63,006
|
|
|
|
2,948
|
|
|
|
52
|
|
|
|
66,006
|
|
Operating income (loss)
|
|
|
8,478
|
|
|
|
948
|
|
|
|
(5,469
|
)
|
|
|
3,957
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended March 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
154,709
|
|
|
|
13,426
|
|
|
|
127
|
|
|
|
168,262
|
|
Operating (loss) income
|
|
|
(405,495
|
)
|
|
|
7,003
|
|
|
|
(19,101
|
)
|
|
|
(417,593
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended March 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
254,461
|
|
|
|
10,258
|
|
|
|
160
|
|
|
|
264,879
|
|
Operating income (loss)
|
|
|
51,488
|
|
|
|
2,427
|
|
|
|
(20,460
|
)
|
|
|
33,455
|
|
30
ENERGY CONVERSION DEVICES, INC. and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 18
-
Litigation
On July 13, 2009, Ovonic Battery Company (OBC), a majority-owned subsidiary of the Company,
and Chevron Technology Ventures LLC (CTV) completed a sale of 100% of the membership interests in
Cobasys to SB LiMotive Co. Ltd. for $1. In connection with the sale of Cobasys, the Amended and
Restated Operating Agreement dated July 2, 2004 was terminated effective as of the transaction
date. Termination of the Operating Agreement was effectuated by a Termination Agreement dated as
of the transaction date. This transaction coincides with settlement of a pending lawsuit against
Cobasys filed in August 2008 by Mercedes-Benz U.S. International, Inc. (MBUSI). In connection
with settling the lawsuit, OBC paid MBUSI $1.1 million from the $1.3 million in royalties
distributed to it by Cobasys and entered into a mutual release with MBUSI of all Cobasys-related
claims. In addition, Cobasys restructured its intellectual property licenses with the Company and
OBC so that OBC has royalty-free, exclusive rights to the technology for defined non-transportation
uses and Cobasys has royalty-free exclusive rights for defined transportation uses.
In connection with these transactions, OBC, CTV and the Company settled and jointly dismissed
their pending arbitration without any finding of financial liability. These parties entered into
mutual releases and agreed to the terms of the Cobasys sale transaction. In July 2009, the Company
recorded the $1.3 million received in connection with this settlement as a Distribution from joint
venture and the $1.1 million paid to MBUSI as Selling, general and administrative expenses.
31
|
|
|
Item 2
:
|
|
Managements Discussion and Analysis of Financial Condition and Results of Operations
|
This section summarizes significant factors affecting the Companys consolidated operating
results, financial condition and liquidity for the three and nine-month periods ended March 31,
2010. The Managements Discussion and Analysis of Financial Condition and Results of Operations
(MD&A) included in the Report should be read in conjunction with the MD&A included in our Annual
Report on Form 10-K for the year ended June 30, 2009 as filed with the Securities and Exchange
Commission and with the Companys Consolidated Financial Statements and related notes appearing
elsewhere in this Report.
Overview
We design, manufacture and sell photovoltaic (PV) products, known as PV or solar laminates
that generate clean, renewable energy by converting sunlight into electricity. We also receive
fees and royalties from licensees of our nickel metal hydride (NiMH) battery technology and sell
high performance nickel hydroxide used in NiMH batteries, and receive funds for product development
agreements under government sponsored programs.
In August 2009, we acquired Solar Integrated Technologies, Inc. (SIT), a company that
manufactures, designs, and installs building integrated PV systems for commercial rooftops. As a
result of this acquisition, we are transitioning our business from manufacturing and selling our PV
products to a Company that provides complete solar solutions, project implementation and
value-added services. Our newly-acquired SIT business is included in our United Solar Ovonic
segment. See Item 1A: Risk Factors, for additional information.
We believe that there remains strong interest in alternative energy in general and solar in
particular, but existing global financial constraints are impacting the funding of solar projects
that otherwise have strong strategic rationale and/or financial returns. We are expanding our
business model to facilitate solar projects utilizing our solar laminates. Under our traditional
business model in which we would sell our products to building materials companies, we would enter
into long-term supply agreements, some of which were take-or-pay agreements (that require the
customer to purchase a specified minimum amount of our products) with our customers. Our backlog
of anticipated product sales for fiscal years 2010 through 2016, which primarily reflected this
business model, was approximately $1.6 billion at June 30, 2009, and $690.0 million at March 31,
2010. The decrease is primarily attributable to our acquisition of SIT, which accounted for
approximately $500.0 million of the June 30, 2009 backlog, together with product sales during the
nine-month period ended March 31, 2010, and certain contract renegotiations, including conversion
of certain take-or-pay agreements to supply contracts, some of which do not have firm annual
purchase obligations, as we work with our customers to preserve relationships and maximize
long-term value. The Companys estimate of anticipated product sales may be impacted by various
assumptions, including anticipated price reductions, currency exchange rates, and overall customer
demand. Anticipated product sales include future firm commitments under take-or-pay agreements,
confirmed orders from customers and government contracts.
32
We continue to adjust our production in our United Solar Ovonic segment and reduce costs to
respond to near-term market conditions and improve our overall competitiveness
.
We have
implemented actions, including temporary production hiatuses and a consolidation of certain
departmental functions within the organization, to lower our overall costs. We have incurred
restructuring expenses as a result of certain of these activities and may incur additional
restructuring expenses as we pursue further cost reduction activities in the future. We have also
recognized under-absorption of overhead costs, and associated period costs, resulting from our
production adjustments and may recognize similar costs in the future if we do not sustainably
operate our facilities at productive capacity.
Due to changing market conditions, losses incurred to-date and the increased near-term
capacity anticipated from our technology roadmap developed during the third quarter, we concluded
that the carrying values of our long-lived assets, including goodwill, may not be recoverable.
Accordingly, we commenced with an impairment analysis of the long-lived assets included in our
United Solar Ovonic segment as of March 31, 2010. Our assessment utilized quoted market prices,
fair value appraisals, management forecasts and discounted cash flow analyses. The impairment
analysis is highly judgmental and involves the use of significant estimates and assumptions. These
estimates and assumptions have a substantial impact on the amount of any impairment loss recorded.
Discounted cash flow analyses are dependent upon management estimates and assumptions of future
sales trends, current and expected future economic trends, market conditions and the effects of new
technologies. The estimates and assumptions used in the impairment analysis are consistent with
our business plan; however, actual cash flows in the future may differ significantly from those
previously forecasted. Based upon the results of our analysis, we recorded an impairment loss of
$358.0 million. The impairment loss included a reduction in carrying value of our property, plant
and equipment of $320.7 million, along with the full carrying value of the goodwill and intangible
assets recorded in conjunction with the SIT acquisition, $35.4 million and $1.9 million,
respectively.
Key Indicators of Financial Condition and Operating Performance
In evaluating our business, we use product sales, gross profit, pre-tax income, earnings per
share, net income, cash flow from operations and other key performance metrics. We also use
production and shipments, measured in megawatts (MW) per annum, and gross margins on product
sales as key performance metrics for our United Solar Ovonic segment, particularly in connection
with the manufacturing operations in this segment.
33
Results of Operations
Three Months Ended March 31, 2010 Compared to Three Months Ended March 31, 2009
United Solar Ovonic Segment
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(in thousands)
|
|
REVENUES
|
|
|
|
|
|
|
|
|
Product and project sales
|
|
$
|
64,050
|
|
|
$
|
59,654
|
|
Revenues from product development agreements
|
|
|
2,144
|
|
|
|
3,352
|
|
License and other revenues
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL REVENUES
|
|
|
66,210
|
|
|
|
63,006
|
|
|
|
|
|
|
|
|
EXPENSES
|
|
|
|
|
|
|
|
|
Cost of product and project sales
|
|
|
68,119
|
|
|
|
42,272
|
|
Cost of revenues from product development agreements
|
|
|
1,627
|
|
|
|
1,992
|
|
Product development and research
|
|
|
2,603
|
|
|
|
1,592
|
|
Preproduction costs
|
|
|
72
|
|
|
|
1,325
|
|
Selling, general and administrative
|
|
|
10,923
|
|
|
|
6,531
|
|
Loss on disposal of property, plant and equipment
|
|
|
31
|
|
|
|
677
|
|
Impairment loss
|
|
|
357,975
|
|
|
|
|
|
Restructuring charges
|
|
|
312
|
|
|
|
139
|
|
|
|
|
|
|
|
|
TOTAL EXPENSES
|
|
|
441,662
|
|
|
|
54,528
|
|
|
|
|
|
|
|
|
OPERATING (LOSS) INCOME
|
|
$
|
(375,452
|
)
|
|
$
|
8,478
|
|
|
|
|
|
|
|
|
Total revenues for the three months ended March 31, 2010 were $66.2 million, an increase of
$3.2 million or 5%, compared to the same period in 2009. This increase in total revenues included
incremental revenues of $12.2 million associated with our newly-acquired SIT business, offset by a
decrease in product sales of $7.8 million. The decrease in product sales of $7.8 million was
comprised of an increase of $11.1 million due to higher sales volume offset by an $18.9 million
decrease due to lower average selling prices.
Cost of product and project sales for the three months ended March 31, 2010 was $68.1 million,
an increase of $25.8 million or 61%, compared to the same period in 2009. The increase was
primarily due to incremental costs of $10.8 million attributable to sales in our newly-acquired SIT
business, unabsorbed overhead charges of $10.3 million relating to our slowdown in production, an
increase of $8.3 million compared to the same period in 2009, and an increase of $8.1 million due
to increased sales volume and changes in product mix.
The combined cost of revenues from product development agreements and product development and
research expenses for the three months ended March 31, 2010 was $4.2 million, an increase of $0.6
million or 18%, compared to the same period in 2009. The increase was primarily due to a $1.0
million increase in product development expenses related to our new PowerTilt and PowerBond solar
products,
and a $0.4 million decrease in research and development activities funded by the U.S. Air
Force and the Department of Energys Solar America Initiative.
34
Preproduction costs (consisting of new employee training, facilities preparation, set-up
materials and supplies) decreased substantially for the three months ended March 31, 2010, compared
to the same period in 2009, primarily because we paused the expansion of our Michigan and Mexico
facilities.
Selling, general and administrative expenses for the three months ended March 31, 2010 were
$10.9 million, an increase of $4.4 million or 67%, compared to the same period in 2009. The
increase was primarily due to incremental costs of $2.6 million associated with the newly-acquired
SIT business, and the $1.6 million expansion of our U.S. sales and marketing footprint.
During the third quarter, changing market conditions caused us to evaluate the recoverability
of our long-lived assets and goodwill. As a result, we recorded an impairment loss of $358.0
million, which consisted of $320.7 million for property, plant and equipment, $35.4 million for
goodwill and $1.9 million for intangible assets. See Note 11 Impairment Loss to our Notes to the
Consolidated Financial Statements for additional information.
During the three months ended March 31, 2010, we incurred restructuring charges to better
align operating expenses with near-term revenue expectations. The $0.3 million of charges were for
employee severance. See Note 12 Restructuring Charges to our Notes to the Consolidated Financial
Statements for additional information.
Ovonic Materials Segment
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(in thousands)
|
|
REVENUES
|
|
|
|
|
|
|
|
|
Product sales
|
|
$
|
1,026
|
|
|
$
|
537
|
|
Royalties
|
|
|
1,919
|
|
|
|
1,477
|
|
Revenues from product development agreements
|
|
|
436
|
|
|
|
615
|
|
License and other revenues
|
|
|
2,762
|
|
|
|
319
|
|
|
|
|
|
|
|
|
TOTAL REVENUES
|
|
|
6,143
|
|
|
|
2,948
|
|
|
|
|
|
|
|
|
EXPENSES
|
|
|
|
|
|
|
|
|
Cost of product sales
|
|
|
863
|
|
|
|
509
|
|
Cost of revenues from product development agreements
|
|
|
322
|
|
|
|
459
|
|
Product development and research
|
|
|
839
|
|
|
|
833
|
|
Selling, general and administrative expenses
|
|
|
341
|
|
|
|
199
|
|
|
|
|
|
|
|
|
TOTAL EXPENSES
|
|
|
2,365
|
|
|
|
2,000
|
|
|
|
|
|
|
|
|
OPERATING INCOME
|
|
$
|
3,778
|
|
|
$
|
948
|
|
|
|
|
|
|
|
|
Total revenues for the three months ended March 31, 2010 were $6.1 million, an increase of
$3.2 million or 108%, compared to the same period in 2009. The increase in total revenues was
primarily due to a consumer nickel metal hydride battery license fee of $2.5 million, increased
nickel metal hydride battery royalties of $0.4 million and increased sales of nickel hydroxide of
$0.5 million. These increases
were partially offset by decreased revenues for product development agreements of $0.2
million, due to an increased proportion of cost-share programs versus full-cost reimbursement
programs.
35
Cost of product sales for the three months ended March 31, 2010 was $0.9 million, an increase
of $0.4 million or 70%, compared to the same period in 2009. The increase was primarily due to
increased sales of nickel hydroxide to our main nickel hydroxide customer.
Combined cost of revenues from product development agreements and product development and
research expenses were $1.2 million, a decrease of $0.1 million or 10%, compared to the same period
in 2009. The decrease was due to reduced research and development expenses.
Corporate and Other
Selling, general and administrative expenses, which consist primarily of corporate operations,
including human resources, legal, finance, strategy, information technology, business development,
and corporate governance, were $5.5 million for the three months ended March 31, 2010 which were
comparable to the same period in 2009.
Other Income (Expense)
Other expense was $7.8 million for the three months ended March 31, 2010 compared to $2.2
million in the same period in 2009. The $5.6 million increase was principally due to increased
interest expense of $4.7 million related to a reduced level of capitalized interest and incremental
foreign currency transaction losses of $1.2 million associated with our newly-acquired SIT business
offset by reduced costs of $0.3 million.
Income Taxes
Income tax benefit was insignificant for the three months ended March 31, 2010 compared to
$0.5 million income tax expense in the same period in 2009. The decrease in income taxes relates
to the benefit of the current year net operating loss which will be carried back to claim a refund
of previously paid taxes under the current tax law.
36
Nine Months Ended March 31, 2010 Compared to Nine Months Ended March 31, 2009
United Solar Ovonic Segment
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(in thousands)
|
|
REVENUES
|
|
|
|
|
|
|
|
|
Product and project sales
|
|
$
|
146,427
|
|
|
$
|
246,419
|
|
Revenues from product development agreements
|
|
|
8,134
|
|
|
|
8,042
|
|
License and other revenues
|
|
|
148
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL REVENUES
|
|
|
154,709
|
|
|
|
254,461
|
|
|
|
|
|
|
|
|
EXPENSES
|
|
|
|
|
|
|
|
|
Cost of product and project sales
|
|
|
153,024
|
|
|
|
164,974
|
|
Cost of revenues from product development agreements
|
|
|
6,593
|
|
|
|
5,434
|
|
Product development and research
|
|
|
6,421
|
|
|
|
3,714
|
|
Preproduction costs
|
|
|
82
|
|
|
|
5,133
|
|
Selling, general and administrative
|
|
|
30,197
|
|
|
|
22,655
|
|
Loss on disposal of property, plant and equipment
|
|
|
1,298
|
|
|
|
924
|
|
Impairment loss
|
|
|
359,228
|
|
|
|
|
|
Restructuring charges
|
|
|
3,361
|
|
|
|
139
|
|
|
|
|
|
|
|
|
TOTAL EXPENSES
|
|
|
560,204
|
|
|
|
202,973
|
|
|
|
|
|
|
|
|
OPERATING (LOSS) INCOME
|
|
$
|
(405,495
|
)
|
|
$
|
51,488
|
|
|
|
|
|
|
|
|
Total revenues for the nine months ended March 31, 2010 were $154.7 million, a decrease of
$99.8 million or 39%, compared to the same period in 2009. The decrease in total revenues was
primarily due to $127.6 million decrease in product sales, comprised of a decrease of $76.4 million
due to lower sales volume and $51.2 million due to lower average selling prices, offset by
incremental revenues from our newly-acquired SIT business of $27.8 million.
Cost of product and project sales for the nine months ended March 31, 2010 was $153.0 million,
a decrease of $12.0 million or 7%, compared to the same period in 2009. The decrease was primarily
due to a decrease of $60.1 million comprised of decreased sales volume and change in product mix,
and $0.4 million of decreased warranty costs, offset by increased unabsorbed overhead costs of
$14.7 million and an increase of $3.4 million due to improved manufacturing efficiencies. In
addition, there were incremental costs of $30.4 attributable to sales in our newly-acquired SIT
business which included the write-off of certain inventory of $2.5 million and $1.0 million in
unabsorbed overhead costs.
The combined cost of revenues from product development agreements and product development and
research expenses for the nine months ended March 31, 2010 was $13.0 million, an increase of $3.9
million or 42%, compared to the same period in 2009. The increase was primarily due to $2.7
million in increased product development expenses relating to our PowerTilt and PowerBond solar
products, and $1.2 million in increased research and development activities funded by the U.S. Air
Force and the Department of Energys Solar America Initiative.
37
Preproduction costs (consisting of new employee training, facilities preparation, set-up
materials and supplies) decreased substantially for the nine months ended March 31, 2010, compared
to the same period in 2009, primarily because we paused the expansion of our Michigan and Mexico
facilities.
Selling, general and administrative expenses for the nine months ended March 31, 2010 were
$30.2 million, an increase of $7.6 million or 33%, compared to the same period in 2009. The
increase was primarily due to additional expenses from the newly-acquired SIT business of $9.0
million and an increase in sales and marketing expenses of $4.1 million offset by a $6.2 million
decrease in the allowance for doubtful accounts.
The loss on disposal of property, plant and equipment for the nine months ended March 31, 2010
was $1.3 million, an increase of $0.4 million, compared to the same period in 2009. The increase
was primarily due to disposals of equipment at our Greenville and Auburn Hills, Michigan
facilities, and disposal of equipment as part of the upgrade to our deposition process in our
Auburn Hills 1 facility.
During the nine months ended March 31, 2010, we incurred impairment losses of $1.3 million
related to the December 2009 restructuring plan, of which $1.1 million was related to equipment and
$0.2 million related to intangible assets which will no longer be utilized. During the third
quarter, changing market conditions caused us to evaluate the recoverability of our long-lived
assets and goodwill. As a result, we recorded an additional impairment loss of $358.0 million,
which consisted of $320.7 million for property, plant and equipment, $35.4 million for goodwill and
$1.9 million for intangible assets. See Note 11 Impairment Loss to our Notes to the
Consolidated Financial Statements for additional information.
During the nine months ended March 31, 2010, we incurred restructuring charges related to the
severance of certain employees of $3.2 million and $0.2 million for equipment relocation costs
associated with the consolidation of certain production operations from our Auburn Hills 1
facility. See Note 12 Restructuring Charges to our Notes to the Consolidated Financial
Statements for additional information.
Ovonic Materials Segment
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(in thousands)
|
|
REVENUES
|
|
|
|
|
|
|
|
|
Product sales
|
|
$
|
2,554
|
|
|
$
|
2,559
|
|
Royalties
|
|
|
6,132
|
|
|
|
4,365
|
|
Revenues from product development agreements
|
|
|
1,444
|
|
|
|
2,274
|
|
License and other revenues
|
|
|
3,296
|
|
|
|
1,060
|
|
|
|
|
|
|
|
|
TOTAL REVENUES
|
|
|
13,426
|
|
|
|
10,258
|
|
|
|
|
|
|
|
|
EXPENSES
|
|
|
|
|
|
|
|
|
Cost of product sales
|
|
|
2,172
|
|
|
|
2,555
|
|
Cost of revenues from product development agreements
|
|
|
1,030
|
|
|
|
1,540
|
|
Product development and research
|
|
|
2,397
|
|
|
|
2,854
|
|
Selling, general and administrative expenses
|
|
|
824
|
|
|
|
882
|
|
|
|
|
|
|
|
|
TOTAL EXPENSES
|
|
|
6,423
|
|
|
|
7,831
|
|
|
|
|
|
|
|
|
OPERATING INCOME
|
|
$
|
7,003
|
|
|
$
|
2,427
|
|
|
|
|
|
|
|
|
38
Total revenues for the nine months ended March 31, 2010 were $13.4 million, an increase of
$3.2 million or 31%, compared to the same period in 2009. License and other revenues increased by
$2.2 million primarily due to a consumer nickel metal hydride battery license fee of $2.5 million.
Royalty revenues increased by $1.8 million, primarily due to increased royalties for vehicle nickel
metal hydride batteries. This increase was partially offset by decreased revenues from product
development agreements of $0.8 million.
Cost of product sales for the nine months ended March 31, 2010 was $2.2 million, a decrease of
$0.4 million or 15%, compared to the same period in 2009. The decrease was primarily due to
decreased sales of nickel hydroxide to our main nickel hydroxide customer and increased margin on
sales of nickel hydroxide.
Combined cost of revenues from product development agreements and product development and
research expenses were $3.4 million, a decrease of $1.0 million or 22%, compared to the same period
in 2009. The decrease was due to reduced research and development expenses.
Corporate and Other
Selling, general and administrative expenses, which consist primarily of corporate operations,
including human resources, legal, finance, strategy, information technology, business development,
and corporate governance, were $19.1 million for the nine months ended March 31, 2010, a decrease
of $1.1 million or 5%, compared to the same period in 2009. The decrease in selling, general and
administrative expenses was primarily due to severance costs of $1.4 million in 2009 partially
offset by other costs of $0.3 million in 2010.
Other Income (Expense)
Other expense was $19.8 million for the nine months ended March 31, 2010 compared to $6.5
million in the same period in 2009. The $13.3 million increase was principally due to reduced
interest income of $3.8 million due to lower levels of investments in the period, increased
interest expense of $10.9 million which is related to a reduced level of capitalized interest and
incremental foreign currency transaction losses of $1.3 million associated with our newly-acquired
SIT business, offset by a $1.3 million distribution from our previously owned Cobasys joint venture
and other-than-temporary impairment of $1.0 million for our Lehman Bonds in fiscal 2009.
Income Taxes
Income tax benefit was $2.0 million for the nine months ended March 31, 2010 compared to $0.8
million income tax expense in the same period in 2009. The decrease in tax expense is primarily
related to certain federal refundable research expenses and the benefit of the current year net
operating loss which will be carried back to claim a refund of previously paid taxes under the
current tax law.
Liquidity and Capital Resources
Our principal sources of liquidity are cash, cash equivalents and short-term investments, and
borrowings available under our credit facility. We believe that cash, cash equivalents and
investments and borrowings under our credit facility will be sufficient to meet our liquidity needs
for our current operations. At March 31, 2010, we had consolidated net working capital of $305.9
million.
39
As of March 31, 2010, we had $185.5 million in cash, cash equivalents, and short-term
investments
consisting of Floating Rate Corporate Notes (FRNs), corporate notes, U.S. Government
agency notes, auction rate certificates (ARCs), and auction rate securities rights. The
investments have maturities up to 12 months, except for the ARCs which have maturities from 24 to
36 years. Presently, there is an absence of auctions for ARCs. As a result, these investments are
not currently liquid. In October 2008, we agreed to an offer from UBS AG (UBS) to sell at par
value, at anytime from June 30, 2010 through July 2, 2012, the ARCs purchased from UBS (which
represent the entire portfolio of our ARCs). These auction rate securities rights (ARSRs), which
are akin to a freestanding put option, are non-transferable and are not traded on any exchange. We
currently classify the ARCs as short-term investments based upon managements intention to exercise
its right to sell the ARCs to UBS.
Our valuations of ARCs and ARSRs are based on unobservable inputs for which there is little or
no market data and therefore require us to develop our own assumptions. For additional information
about our judgments and assumptions underlying our fair value measurements and details about the
methodology and inputs used see Note 14 Fair Value Measurements to our Notes to the Consolidated
Financial Statements and information about the sensitivity of our measurements in Item 3,
Quantitative and Qualitative Disclosures About Market Risk.
Cash Flows
Net cash (used in) provided by operating activities decreased $98.4 million to $(64.7) million
for the nine months ended March 31, 2010 from $33.7 million for the nine months ended March 31,
2009. This decrease was driven by a reduction in our net income (loss) adjusted for non-cash items
of $106.4 million offset by $8.0 million cash used for changes in net working capital, specifically
due to inventory, accounts receivable, and accounts payable.
Net cash provided by (used in) investing activities increased $340.4 million to $81.2 million
for the nine months ended March 31, 2010 from $(259.2) million for the nine months ended March 31,
2009. This increase was principally due to reduced capital expenditures of $166.6 million and
increased proceeds from maturities and sales of our investments of $182.1 million.
Net cash (used in) provided by financing activities decreased $16.0 million to $(14.8) million
for the nine months ended March 31, 2010 from $1.2 million for the nine months ended March 31,
2009. This decrease was principally due to the $5.7 million repayment of the revolving credit
facility and $8.0 million repayment of the convertible notes assumed by the Company as part of the
SIT acquisition.
Short-term Borrowings
We maintain a $30.0 million revolving line of credit to finance domestic activities and a
separate $25.0 million revolving line of credit provided under the United States Export-Import
Banks fast track working capital guarantee program to finance foreign activities. Availability of
financing under the lines of credit will be determined by reference to a borrowing base comprised
of domestic and foreign inventory and receivables, respectively. At March 31, 2010 there was
approximately $27.0 million of available financing under the agreement based on the borrowing formula. There were no
outstanding borrowings on the line of credit. The credit facilities also contain an aggregate $10.0
million sub-limit for letters of credit, which count against the available financing described
above and there were approximately $7.0 million of standby letters of credit outstanding at March
31, 2010.
40
Convertible Senior Notes
Our Convertible Senior Notes (Notes) bear interest at a rate of 3.0% per year, payable on
June 15
and December 15 of each year. If the Notes are not converted, they will mature on June 15,
2013. The Notes are only convertible prior to March 13, 2013 under specific circumstances involving
the price of the Companys common stock, the price of the Notes and certain corporate transactions
including, but not limited to, an offering of common stock at a price less than market, a
distribution of cash or other assets to stockholders, a merger, consolidation or other share
exchange, or a change in control. The holders of the Notes may convert the principal amount of
their notes into cash and, if applicable, shares of the Companys common stock initially at a
conversion rate of 10.8932 shares (equivalent to an initial conversion price of approximately
$91.80 per share) per $1,000 principal amount of the Notes. The holders of the Notes are only
entitled to amounts in excess of the principal amount if shares of the Companys common stock
exceed a market price of $91.80 for a period of 20 consecutive trading days during the applicable
cash settlement averaging period. The applicable conversion rate will be subject to adjustments in
certain circumstances. The notes are senior unsecured obligations of ECD and rank equal in right
of payment with any future senior unsecured debt of ECD, and senior in right of payment to all of
ECDs existing and future debt, if any, that is subordinated to the notes.
Significant Accounting Policies and Critical Accounting Estimates
Our
significant accounting policies and critical accounting estimates are
disclosed in the Companys Annual Report on Form 10-K for the
fiscal year ended June 30, 2009. In addition, new accounting policies
adopted during the period are disclosed in Note 1 Nature of
Operations, Basis of Presentation and Summary of Significant
Accounting Policies and new critical accounting estimates are
disclosed in Note 11 Impairment Loss of the Notes to our
Consolidated Financial Statements.
Forward-Looking Statements
This Quarterly Report on Form 10-Q includes forward-looking statements that involve risks
and uncertainties. These forward-looking statements are made pursuant to safe harbor provisions of
the Private Securities Litigation Reform Act of 1995. Forward-looking statements include
statements concerning our plans, objectives, goals, strategies, future events, future sales or
performance, capital expenditures, financing needs, plans or intentions relating to acquisitions,
business trends and other information that is not historical information. When used in this
report, the words estimates, expects, anticipates, projects, plans, intends,
believes, forecasts, foresees, likely, may, should, goal, target and variations of
such words or similar expressions are intended to identify forward-looking statements. All
forward-looking statements are based upon information available to us on the date of this report.
These forward-looking statements are subject to risks, uncertainties and other factors, many
of which are outside of our control that could cause actual results to differ materially from the
results discussed in the forward-looking statements, including, among other things, the matters
discussed in Item 1A Risk Factors, of this report and in our Annual Report on Form 10-K for
fiscal year ended June 30, 2009, and in other filings with the SEC from time to time. Any or all
of these factors could cause our actual results and financial or legal status for future periods to
differ materially from those expressed or referred to in any forward-looking statement. All
written or oral forward-looking statements attributable to us are expressly qualified in their
entirety by these cautionary statements. Forward-looking statements speak only as of the date on
which they are made. Except as required by law, we undertake no obligation to update, amend or
clarify forward-looking statements, whether as a result of new information, future events or
otherwise.
There may be other factors that could cause our actual results to differ materially from the
results referred to in the forward-looking statements. We undertake no obligation to publicly
update or revise forward-looking statements to reflect events or circumstances after the date made
or to reflect the occurrence of unanticipated events, except as required by law.
41
Item 3
:
Quantitative and Qualitative Disclosures about Market Risk
The following discussion about our exposure to market risk of financial instruments contains
forward-looking statements. Actual results may differ materially from those described.
Interest Rate Risk
Our investments in financial instruments are comprised of debt securities. All such
instruments are classified as securities available-for-sale. We do not invest in portfolio equity
securities, or commodities, or use financial derivatives for trading purposes. Our debt security
portfolio represents funds held temporarily, pending use in our business and operations. The
Company had $142.6 million of these investments as of March 31, 2010. It is the Companys policy
that investments (including cash equivalents) shall be rated A or higher by Moodys or Standard
and Poors, no single investment (excluding cash equivalents) shall represent more than 10% of the
portfolio and at least 10% of the total portfolio shall have maturities of 90 days or less. Our
market risk primarily relates to the risks of changes in the credit quality of issuers. An
interest rate increase or decrease of 1% would increase or decrease the value of our portfolio by
approximately $0.9 million as of March 31, 2010.
The Companys investments in ARCs are Student Loan Asset-Backed Securities guaranteed by the
Federal Family Education Loan Program (FFELP). The payments of principal and interest on these
student loans are guaranteed by the state or not-for-profit-guaranty agency and the U.S. Department
of Education. At the time of our initial investment and through the date of this filing, all of
our ARCs are rated as AAA. The ARCs mature at various dates between December 2033 and December
2045. The ARCs bear interest at rates determined every 28 or 35 days through an auction process.
Presently, there is an absence of auctions for ARCs. As a result, these investments are not
currently liquid. These funds will not be accessible until a successful auction occurs, the issuer
redeems the ARC, a buyer is found outside the auction process or the securities mature. In October
2008, the Company agreed to an offer from UBS AG (UBS) to sell at par value, at anytime from June
30, 2010 through July 2, 2012, the ARCs purchased from UBS (which represent the entire portfolio of
our ARCs). These ARSRs, which are akin to a freestanding put option, are non-transferable and are
not traded on any exchange. The Company classifies the ARCs as short-term investments based upon
its intention to exercise its right to sell the ARCs to UBS.
Our investments in ARCs are not valued using a market model due to the recent absence of
auctions. The valuation analyses utilized discount rates based on the reported rates for comparable
securities (i.e., similar student loan portfolios and holding periods) in active markets, plus a
factor for the present market illiquidity associated with the ARCs. The reported rate for a
comparable security was the sum of (1) the base rate that is used in the reporting of that
security, in this case the three month LIBOR, and (2) the interest rate spread above the base rate,
as reported from the active markets for that security. The illiquidity factor was established
based on the credit quality of the ARC determined by the percentage of the underlying loans
guaranteed by FFELP. The resulting discount rates used in the valuation analyses ranged from 2.4%
to 6.3% based on the ARC. At March 31, 2010, we held $29.6 million of ARCs and have included them
in short term investments on our Consolidated Balance Sheets.
Foreign Exchange Risk
We primarily conduct our business in U.S. Dollars which may impact our foreign customers and
suppliers as a result of changes in currency exchange rates. These factors may adversely impact
our
42
existing or future sales agreements and require us to reallocate product shipments or pursue
other remedies.
The majority of SITs sales in Europe are denominated in Euros while the related costs of
sales are denominated in Euros and U.S. Dollars. For the quarter ended March 31, 2010, an increase
or a decrease in exchange rates of 1% would increase or decrease our foreign currency transaction
gain by approximately $0.3 million.
We recognized a foreign currency transaction loss of $1.3 million for the three month period
ended March 31, 2010 and $0.5 million for the three month period ended March 31, 2009. We
recognized a foreign currency transaction loss of $1.4 million for nine month period ended March
31, 2010 and $0.5 million for the nine month period ended March 31, 2009.
Item 4
:
Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our Chief Executive Officer and our Chief Financial Officer, with the participation of
management, have reviewed and evaluated the effectiveness of our disclosure controls and procedures
as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Securities Exchange Act of 1934, as
amended (the Exchange Act) as of the end of the period covered by this Report. Based upon this
evaluation, we have concluded that our disclosure controls and procedures were effective.
Changes in Internal Control over Financial Reporting
There was no change in the Companys internal control over financial reporting that occurred
during the Companys most recently completed fiscal quarter that has materially affected, or is
reasonably likely to materially affect, the Companys internal control over financial reporting.
43
PART II OTHER INFORMATION
Item 1
:
Legal Proceedings
We are involved in certain legal actions and claims arising in the ordinary course of
business, including, without limitation, commercial disputes, intellectual property matters,
personal injury claims, tax claims and employment matters. Although the outcome of any legal
matter cannot be predicted with certainty, we do not believe that any of these other legal
proceedings or matters in which we are currently involved, either individually or in the aggregate,
will have a material adverse effect on our business, liquidity, consolidated financial position or
results of operations.
Item 1A:
Risk Factors
There were no material changes from the risk factors previously disclosed in Item 1A: Risk
Factors, included in our Annual Report on Form 10-K for the year ended June 30, 2009.
Item 2
:
Unregistered Sales of Equity Securities and Use of Proceeds
Not applicable.
Item 3
:
Defaults Upon Senior Securities
Not applicable.
44
Item 4
:
Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5
:
Other Information
Not applicable.
Item 6
:
Exhibits
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31.1
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Certificate of Chief Executive Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
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|
|
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31.2
|
|
Certificate of Chief Financial Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
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|
|
|
32
|
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Certifications of Chief Executive Officer and Chief Financial Officer
Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002
|
45
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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ENERGY CONVERSION DEVICES, INC.
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Dated: May 10, 2010
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By:
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/S/ William C. Andrews
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William C. Andrews
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Chief Financial Officer
(Principal Financial and Accounting Officer)
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Dated: May 10, 2010
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By:
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/S/ Mark D. Morelli
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Mark D. Morelli
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President and Chief Executive Officer
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46
Accretion Acquisition (NASDAQ:ENER)
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