SUNEDISON, INC. 8-K 2012
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AND EXCHANGE COMMISSION
MEMC Electronic Materials, Inc.
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Item 2.02. Results of Operations and Financial Condition.
On May 9, 2012, MEMC Electronic Materials, Inc. (the “Company” or “MEMC”) issued a press release reporting results of operations for the first quarter ended March 31, 2012. A copy of the press release is furnished with this Form 8-K as Exhibit 99.1. Also furnished as Exhibit 99.2 to this Form 8-K is a slide presentation that will be presented by the Company on its earnings call on May 9, 2012.
MEMC makes reference to certain non-GAAP financial measures including non-GAAP revenue, non-GAAP gross margin, adjusted non-GAAP gross margin, non-GAAP income (loss) per share, non-GAAP operating income, non-GAAP net loss, adjusted non-GAAP net loss and non-GAAP free cash flow use. The press release contains a reconciliation of each non-GAAP measure to the directly comparable GAAP measure.
These non-GAAP measures of non-GAAP revenue, non-GAAP gross margin, non-GAAP income (loss) per share, non-GAAP operating income, non-GAAP net loss and non-GAAP free cash flow use include adjustments to revenue in the Company’s Solar Energy (SunEdison) segment from direct sales of solar energy systems where we have received upfront partial payments and, absent real estate accounting requirements, we would have recognized revenues under the percentage of completion accounting method. The non-GAAP measures also include adjustments to non-GAAP revenue and/or profit deferred related to SunEdison’s maximum exposure for power warranties, system uptime guarantees and breach of contract provisions offered to the direct sale customers for these systems that are considered continuing involvement by SunEdison in the sold solar energy systems. This revenue is not recognized as of the reporting date under GAAP real estate accounting rules because the solar energy systems are considered integral to the real estate on which they were built. Absent real estate accounting requirements, deferred revenues related to continuing involvement would be recognized under GAAP during the reporting period because SunEdison has historically experienced minimal losses related to these guarantees. For these direct sales, the sales contracts have been executed and SunEdison has either received payment in full or maintains a valid and legal note receivable for the full sales price that SunEdison expects to collect within a short period after completion of the project.
The non-GAAP measures also include revenue related to SunEdison sale-leaseback transactions accounted for as financings. This includes cash received for the legal sale of the solar energy system to the purchaser that will not be recognized under GAAP. Non-GAAP operating income includes the upfront cash margin in an amount equal to the difference between (a) the cash received as of the reporting date from SunEdison’s financing partners in sale-leaseback transactions considered financings and (b) SunEdison’s total costs to construct the solar energy systems sold under the sale-leaseback transactions. These sale-leaseback transactions are classified as financing transactions under GAAP because the system is considered integral to the land or building on which it resides and because SunEdison has continuing involvement with the system through a purchase option. This system development margin will be recognized under GAAP upon termination of the related lease through the non-cash extinguishment of the debt offset by any remaining net book value of the solar energy system asset.
The Company believes that these non-GAAP measures represent important internal measures of performance for the SunEdison business, and better reflect SunEdison’s income and near-term cash flows. Accordingly, where these measures are provided, it is done so that investors have the same financial data that management uses to evaluate the operational and financial performance of the SunEdison business unit. MEMC management uses these measures to manage the SunEdison business because it believes these measures are more representative of the operational health and performance of that business. These non-GAAP measures should not be considered as a substitute for, and should only be read in conjunction with, measures of financial performance prepared in accordance with GAAP and the reconciliation of each non-GAAP measure to the directly comparable GAAP measure set forth in the press release.
The non-GAAP measures shown for the fourth quarter of 2011 also include special adjustments related to non-cash charges (goodwill and deferred tax asset impairments), restructuring and other costs (primarily non-cash) to streamline future operations recorded in the 2011 fourth quarter. Management believes it is useful and more representative of the results of the continuing operations in the reporting period to have non-GAAP earnings per share reflect exclusion of these charges and unfavorable tax consequences related to world-wide income distribution.
The tables included with the press release refer to the Company’s EBITDA for the first quarters of 2012 and 2011 as well as the quarter ended December 31, 2011. EBITDA is a non-GAAP disclosure consisting of net income plus interest expense, net, provision for income taxes and depreciation and amortization. The Company believes that EBITDA is useful to an investor in evaluating the Company’s operating performance and liquidity because (i) it is widely used to measure a company’s operating performance without regard to items such as depreciation and amortization, which can vary depending upon accounting methods and the book value of assets, (ii) it presents a meaningful measure of corporate performance exclusive of the Company’s capital structure and the method by which the assets were acquired, and (iii) it is a widely accepted financial indicator of a company’s ability to service its debt, as the Company is required to comply with certain covenants and limitations that are based on variations of EBITDA in the Company’s financing documents.
The press release also references the Company’s free cash flow and free cash flow use for the first quarter of 2012. The Company also believes that the non-GAAP measure of “free cash flow” is useful to help investors better understand the capital intensity of our business, including our project financing operations. In addition to other key performance indicators, the Company evaluates the performance of the solar project business on the cash generation abilities of the projects, which are typically financed at the inception of the leases, resulting in a gain on sale that is deferred and not immediately included in net income.
Finally, because the impairment charges for the fourth quarter of 2011 described in the press release are non-cash charges unrelated to ongoing operations, management determined that including among the non-GAAP financial performance measures the non-GAAP earnings per share excluding this charge would be useful as more representative of the results of the reporting period.
Item 9.01. Financial Statements and Exhibits.
(d) Exhibits Item
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.