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Table of Contents

As filed with the Securities and Exchange Commission on May 12, 2014

Registration No. 333-191052

 

 

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

AMENDMENT NO. 7

TO

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

SUNEDISON SEMICONDUCTOR PTE. LTD.*

(Exact name of registrant as specified in its charter)

 

Singapore

  3674  

Not Applicable

(State or other jurisdiction
of incorporation or organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification No.)

11 Lorong 3 Toa Payoh

Singapore 319579

(65) 6681-9300

(Address, including zip code and telephone number, including area code, of registrant’s principal executive offices)

 

 

C T Corporation System

111 Eighth Avenue

New York, New York 10011

(212) 590-9070

(Name, address, including zip code and telephone number, including area code, of agent for service)

 

 

Copies of all communications, including communications sent to agent for service, should be sent to:

 

Dennis M. Myers
Kirkland & Ellis LLP
300 North LaSalle
Chicago, Illinois 60654
(312) 862-2000
  Christopher L. Kaufman
Tad J. Freese
Latham & Watkins LLP
140 Scott Drive
Menlo Park, California 94025
(650) 328-4600

 

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, check the following box. ¨

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check one):

 

Large accelerated filer ¨   Accelerated filer ¨   Non-accelerated filerx
(Do not check if a
smaller reporting company)
  Smaller reporting company ¨

 

 

CALCULATION OF REGISTRATION FEE

 

 

Title of Each Class of Securities

to be Registered

  Proposed Maximum
Aggregate Offering Price (1) (2)
  Amount of
Registration Fee (3)

Ordinary Shares, no par value

  $250,000,000   $34,100

 

 

(1) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended.

(2) Includes the offering price of any additional ordinary shares that the underwriters have the option to purchase.

(3) This amount was previously paid in connection with the filing of this Registration Statement.

The registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

 

* SunEdison Semiconductor Pte. Ltd. is the successor registrant to SunEdison Semiconductor, Inc. as its ultimate parent company. Prior to the effective date of this Registration Statement, SunEdison Semiconductor Pte. Ltd. will convert from a Singapore private limited company into a Singapore public limited company. Upon such conversion, the registrant will be known as SunEdison Semiconductor Limited.

 

 

 


Table of Contents

The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not

permitted.

 

PROSPECTUS

Subject to Completion

Preliminary Prospectus dated May 12, 2014

7,200,000 shares

 

LOGO

SunEdison Semiconductor Limited

Ordinary Shares

 

 

This is the initial public offering of the ordinary shares of SunEdison Semiconductor Limited. We are selling 7,200,000 of our ordinary shares.

Prior to this offering, there has been no public market for our ordinary shares. The initial public offering price of our ordinary shares is expected to be between $13.00 and $15.00 per share. We have applied to list our ordinary shares on the NASDAQ Global Select Market under the symbol “SEMI.”

Investing in our ordinary shares involves risks that are described in the “Risk Factors” section beginning on page 16 of this prospectus.

We are an “emerging growth company” as defined in Section 2(a)(19) of the Securities Act of 1933, as amended, or the Securities Act, and, as such, are allowed to provide in this prospectus more limited disclosures than an issuer that would not so qualify. In addition, for so long as we remain an emerging growth company, we will qualify for certain limited exceptions from investor protection laws such as the Sarbanes-Oxley Act of 2002. Please read “Risk Factors—Risks Related to this Offering and Ownership of Our Ordinary Shares—We are an ‘emerging growth company’ and may elect to comply with reduced public company reporting requirements, which could make our ordinary shares less attractive to investors.”

 

 

 

     Per Share      Total  

Public offering price

   $                        $                    

Underwriting discounts(1)

   $         $     

Proceeds, before expenses, to us

   $         $     

 

(1) We refer you to “Underwriting” beginning on page 167 of this prospectus for additional information regarding underwriting compensation.

The underwriters may also exercise their option to purchase up to 1,080,000 additional shares from us at the initial public offering price, less the underwriting discount, for a period of 30 days after the date of this prospectus.

Samsung Fine Chemicals Co., Ltd. and Samsung Electronics Co., Ltd. have agreed to purchase $100.0 million and $33.9 million (based on an assumed initial public offering price of $14.00 per share), respectively, of our ordinary shares in separate private placements at a price per share equal to the public offering price. Our parent, SunEdison, Inc., will be our majority shareholder following the completion of this offering and the private placements. Samsung Fine Chemicals Co., Ltd. is a joint venture partner of a subsidiary of SunEdison, Inc. in SMP Ltd. Samsung Electronics Co., Ltd. is one of our customers and our joint venture partner in MEMC Korea Company. As consideration for the issuance of the ordinary shares, Samsung Fine Chemicals Co., Ltd. will make an aggregate cash investment in us of $100.0 million and Samsung Electronics Co., Ltd. will transfer to us its 20% interest in MEMC Korea Company. These share purchases will close concurrently with this offering. The sale of such shares will not be registered under the Securities Act. The private placements are subject to certain closing conditions. See “Prospectus Summary–Private Placements and Related Transactions.”

Neither the Securities and Exchange Commission, or SEC, nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The shares will be ready for delivery on or about                     , 2014.

 

 

 

Deutsche Bank Securities  

Goldman, Sachs & Co.

 

Wells Fargo Securities

    Macquarie Capital    
    Citigroup    

 

 

The date of this prospectus is                     , 2014.

 


Table of Contents

LOGO


Table of Contents

TABLE OF CONTENTS

 

     Page  

PROSPECTUS SUMMARY

     1   

RISK FACTORS

     16   

CAUTIONARY STATEMENT CONCERNING FORWARD–LOOKING STATEMENTS

     38   

ENFORCEMENT OF CIVIL LIABILITIES UNDER UNITED STATES FEDERAL SECURITIES LAWS

     38   

INDUSTRY AND MARKET DATA

     40   

USE OF PROCEEDS

     42   

DIVIDEND POLICY

     44   

CAPITALIZATION

     45   

DILUTION

     47   

UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS

     49   

SELECTED HISTORICAL COMBINED FINANCIAL DATA

     57   

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     60   

BUSINESS

     91   

MANAGEMENT

     104   

EXECUTIVE COMPENSATION

     111   

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     123   

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

     125   

DESCRIPTION OF CERTAIN INDEBTEDNESS

     138   

DESCRIPTION OF SHARE CAPITAL

     139   

COMPARISON OF SHAREHOLDER RIGHTS

     146   

SHARES ELIGIBLE FOR FUTURE SALE

     158   

MATERIAL TAX CONSIDERATIONS

     160   

UNDERWRITING

     167   

LEGAL MATTERS

     174   

EXPERTS

     174   

WHERE YOU CAN FIND MORE INFORMATION

     174   

INDEX TO AUDITED AND UNAUDITED COMBINED FINANCIAL STATEMENTS

     F-1   

We have not and the underwriters have not authorized anyone to provide you with any information other than that contained in this prospectus or in any free writing prospectus prepared by or on behalf of us or to which we have referred you. We are offering to sell, and seeking offers to buy, our ordinary shares only in jurisdictions where such offers and sales are permitted. The information in this prospectus or any free writing prospectus is accurate only as of its date, regardless of its time of delivery or the time of any sale of shares of our ordinary shares. Our business, financial condition, results of operations and prospects may have changed since that date.

The name and mark, SunEdison, Inc., and other trademarks, trade names and service marks of SunEdison, Inc. appearing in this prospectus are the property of SunEdison, Inc. Prior to the completion of this offering, SunEdison Semiconductor Limited and other trademarks, trade names and service marks of SunEdison Semiconductor Limited appearing in this prospectus are the property of SunEdison, Inc., and after the completion of this offering, SunEdison Semiconductor Limited and other trademarks, trade names and service marks of SunEdison Semiconductor Limited appearing in this prospectus will be the property of SunEdison Semiconductor Limited. This prospectus also contains additional trade names, trademarks and service marks belonging to SunEdison, Inc. and to other companies. We do not intend our use or display of other parties’ trademarks, trade names or service marks to imply, and such use or display should not be construed to imply, a relationship with, or endorsement or sponsorship of us by, these other parties.

 

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PROSPECTUS SUMMARY

The following is a summary of material information discussed in this prospectus. This summary may not contain all the details concerning our business, our ordinary shares or other information that may be important to you. You should carefully review this entire prospectus, including the “Risk Factors” section and our financial statements and the related notes included elsewhere in this prospectus, before making an investment decision. As used in this prospectus, unless the context otherwise indicates, the references to (i) “our business,” “we,” “our” or “us” or similar terms refer to the semiconductor materials business as operated as a business segment of SunEdison, Inc., or SunEdison, for periods prior to the Transactions (as described below in “Structure and Formation of Our Company”), and to SunEdison Semiconductor Limited, together with, where appropriate, its consolidated subsidiaries, for periods after the completion of the Transactions, and (ii) “SSL” refer to SunEdison Semiconductor Limited exclusive of its subsidiaries. References in this prospectus to “S$” refer to Singapore dollars. Unless otherwise indicated or the context otherwise requires, the financial and operating data included in this prospectus reflect the combined semiconductor materials business of SunEdison that will be owned by SunEdison Semiconductor Limited after the completion of the Transactions and is otherwise as of March 31, 2014.

Our Company

We are a global leader in the development, manufacture and sale of silicon wafers to the semiconductor industry. Wafers are used as the base substrate for nearly all semiconductor devices, which in turn provide the foundation for the entire electronics industry. Our business was established in 1959 and was known during most of our history as MEMC Electronic Materials, Inc., or MEMC. We have developed a broad product portfolio, an extensive global manufacturing footprint, process technology expertise and supply chain flexibility, while increasing our capital efficiency and maintaining a lean operating culture.

Throughout our over 50 years of operations, we have pioneered a number of semiconductor industry firsts, including the development of the dislocation-free Czochralski, or CZ, silicon crystal growth process and the chemical-mechanical planarization, or CMP, process, as well as the initial production and commercialization of 100mm and 200mm semiconductor wafers. More recently, we have been a leader in the development of advanced substrates such as epitaxial, or EPI, wafers and wafers for the silicon-on-insulator, or SOI, market, which enable advanced computing and communications applications.

We primarily sell our products to all of the major semiconductor manufacturers in the world, including integrated device manufacturers and pure-play semiconductor foundries, and to a lesser extent, leading companies that specialize in wafer customization. During 2013, our largest customers were Samsung, Taiwan Semiconductor Manufacturing Company, or TSMC, and STMicroelectronics. We operate facilities in major semiconductor manufacturing regions throughout the world, including Taiwan, Malaysia, South Korea, Italy, Japan and the United States. We have chosen to locate our manufacturing facilities in regions that offer both low operating costs and close proximity to our customers to facilitate collaboration on product development activities and shorten product delivery times.

The market for semiconductor wafers is large and growing. According to Gartner, Inc., or Gartner, the merchant semiconductor silicon wafer market in 2012 was approximately $9 billion and in 2013 was approximately $8 billion worldwide and is expected to grow at a 4.5% compound annual growth rate, or CAGR, from 2013 to 2017, reaching approximately $9.5 billion by 2017. This growth in semiconductor wafer demand has been largely attributable to the proliferation of mobile devices such as smart phones and tablets. These devices require semiconductors that are energy efficient, low cost, high performance and highly integrated into a small footprint. Semiconductors offering those characteristics increasingly require EPI and SOI wafers. We

 

 

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believe that the combination of our process technology expertise in EPI and SOI wafer manufacturing with our capital efficiency provides us with significant opportunities as the markets for EPI and SOI wafers continue to grow.

The semiconductor wafer industry has undergone significant consolidation over the past 20 years, from more than 20 suppliers in the 1990s to only five major suppliers today, including Shin-Etsu Handotai, SUMCO Corporation, Siltronic AG, LG Siltron and us, which suppliers accounted for approximately 90% of all semiconductor wafer sales in 2012, according to Gartner. This consolidation is due in large part to the significant increase in the capital investment and manufacturing capacity needed to compete effectively. We have expanded our market share by revenue from 8% in 2008 to 10% in 2012, according to Gartner. We believe this improvement is in large part the result of our emphasis on technology and product innovation and customer service, as well as consistently delivering high quality wafers that meet our customers evolving requirements. We believe we are well positioned to continue to expand our market share and capitalize on the increasing demand for more advanced wafer products. We generated net sales of $920.6 million, $934.2 million and $1,198.3 million, net (loss) income attributable to SSL of $(57.7) million, $121.3 million and $(557.9) million and Adjusted EBITDA of $74.6 million, $74.9 million and $170.2 million, in 2013, 2012 and 2011, respectively. For the three months ended March 31, 2014 and 2013, we generated net sales of $206.1 million and $232.4 million, net loss attributable to SSL of $14.6 million and $10.5 million and Adjusted EBITDA of $15.0 million and $26.6 million, respectively. See “Summary Historical and Pro Forma Financial Data” for the definition of Adjusted EBITDA, the reason for its inclusion and a reconciliation from net (loss) income attributable to SSL to Adjusted EBITDA.

Industry Overview

Semiconductor devices are at the core of modern electronics. According to Gartner, the total semiconductor market worldwide was $315 billion in 2013. These devices include microprocessors, memory, analog, mixed-signal and radio frequency, or RF, integrated circuits, discrete, application specific integrated circuits, microelectromechanical systems, or MEMS, and image sensors. Recent semiconductor growth has been largely attributable to the proliferation of mobile devices, which has driven the need for low cost, high performance semiconductors that provide efficient power consumption and a reduced footprint. In order to meet these demands, technology innovation in the semiconductor industry has continued at a strong pace over the past decade, resulting in shrinking process geometries, larger wafer sizes, more stringent technical specifications and the introduction of advanced substrates and device structures. The continual advancement in the connectivity of everyday devices to the internet, such as home automation, smart grid metering and parking meters, represents a significant growth opportunity in the semiconductor industry. In addition to continued growth in the mobile device and internet connectivity markets, future semiconductor industry growth is expected to be further driven by new and emerging markets and applications, such as in the healthcare and automotive industries, which are increasingly incorporating advanced technologies in their services and products.

Semiconductor wafers are increasingly required to meet specific performance characteristics. For example, semiconductors used in applications such as mobile devices and cloud infrastructure are increasingly requiring EPI wafers, which enable lower power consumption due to their near perfect surface characteristics. According to Gartner, the epitaxial semiconductor silicon wafer market is expected to grow from $3.0 billion in 2013 to $3.8 billion in 2017, representing a 6.1% CAGR. Similarly, demand for SOI wafers is growing as a result of the ability of SOI wafers to improve switching speeds and enhance the performance of RF devices such as power amplifiers, switches and sensors. According to the SOI Industry Consortium, the total available market for SOI wafers is expected to double over the next five years, driven by the increased penetration in mobile system-on-chips and RF devices. At the same time, the worldwide polished wafer market is expected to grow by only a 3.9% CAGR from 2013 to 2017, according to Gartner. As a semiconductor wafer manufacturer focused on advanced EPI and SOI product solutions, we believe we are well positioned to capitalize on the growth opportunities resulting from industry consolidation and the increasing demand for EPI and SOI wafers.

 

 

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Our Strengths

Our strengths as a manufacturer of semiconductor wafers include the following:

History of product innovation and process technology expertise.    We have a more than 50 year history, under the MEMC brand, of product innovation, including achieving several major advancements in the semiconductor wafer industry, such as the development of the dislocation-free CZ silicon crystal growth process and the CMP process, as well as the initial production and commercialization of 100mm and 200mm semiconductor wafers. We have developed advanced substrates such as EPI wafers and, more recently, SOI wafers to maintain our history of product innovation. We have also developed significant technology expertise in wafer manufacturing processes, including diamond wire cutting, integrated software-enabled tooling and flexible equipment processes supporting the manufacture of semiconductor wafers with various diameters.

Broad product portfolio.    We have developed a broad product portfolio. Our products include polished, EPI, SOI, perfect silicon and magic denuded zone, or MDZ, wafers ranging in diameter from 100mm to 300mm. Our process capabilities provide us with the ability to customize our products to address the specific performance characteristics required by our customers. For example, as one of only three primary SOI wafer suppliers, we are capable of satisfying all of our customers’ wafer requirements in microprocessors, memory, analog, mixed-signal and RF integrated circuits, discrete, application specific integrated circuits, MEMS and image sensors.

Extensive global footprint with close customer collaboration.    We have an established global manufacturing network consisting of eight facilities located in Taiwan, Malaysia, South Korea, Italy, Japan and the United States. We have located our facilities in areas that offer a combination of low operating costs and highly educated work forces in close proximity to our customers. This “local” presence enables us to collaborate with our customers on product design and development activities and shorten product delivery and response times. Our diverse global footprint also enables us to mitigate risk in the event of natural disasters or other occurrences that can disrupt manufacturing. We estimate that the cost to replicate our current global manufacturing footprint is approximately 3.5 times the net book value of our fixed assets as of December 31, 2013.

Established relationships with blue chip customers.    We work with all of the major semiconductor device manufacturers in the world, including integrated device manufacturers and pure-play semiconductor foundries. Our continued focus on developing strong customer relationships has resulted in several awards from our key customers. For example, we were the only company in 2012 to receive supplier excellence awards from each of Samsung, TSMC and Analog Devices based on our performance, quality, service and support. We also received a supplier excellence award from TSMC in 2013. We collaborate with our customers on their research and development, or R&D, activities, allowing us to develop wafer products that meet their product design expectations rapidly and efficiently.

Company-wide focus on capital efficiency and maintaining a lean operating culture.    We have implemented several initiatives since 2009 designed to rationalize our use of resources, optimize those resources for the most attractive market opportunities and manage our production capacity to meet demand efficiently. Our engineers’ understanding of both the science and operation of the tools within our factories enables us to streamline equipment controls, software interfaces and operational parameters to improve the productivity of our equipment. We have also designed our manufacturing processes to be flexible and scalable with low to moderate additional capital investment necessary to pursue new opportunities or increase capacity. We continue to focus on improving our equipment productivity through our Overall Equipment Effectiveness program, which has improved our safety, customer satisfaction and on-time delivery and reduced facility disruptions. As evidence of these improvements, from 2010 to 2013 our recordable incidences decreased by approximately 50%, our customer complaints decreased by approximately 70%, our customer on-time delivery improved by 13 percentage points and our facility disruptions were reduced by over 90%.

 

 

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Experienced management team with extensive expertise.    Our top eight senior managers average 25 years of relevant experience from multiple segments of the semiconductor industry, having joined us from leading technology companies including General Electric, Intel and Motorola. In addition, we have a large and technologically proficient professional staff with approximately 675 engineers, of whom over 123 focus solely on R&D and approximately 44 have Ph.Ds.

Our Business Strategy

Our goal is to continue to be a market leader and increase our market share in the large and growing semiconductor wafer industry. Key elements of our strategy include:

Extending our product and process technology leadership.    We are focused on developing leading edge technologies for the semiconductor wafer market. As our customers’ needs evolve with decreasing transistor sizes, increasing degrees of integration and ongoing pressures for cost reduction, the requirements and specifications for semiconductor wafers are also evolving. We are investing in new product and process technologies to be able to offer products with enhanced features, such as flatness, uniformity, resistivity and reduced defects. For example, we are making substantial investments to further our product offerings in 300mm EPI and polished wafers for below 20 nanometer process technologies and in 200mm SOI wafers for wireless applications.

Increasing our customer penetration and market share.    We intend to increase our customer penetration and market share by enhancing our global sales, design and technical support organizations and leveraging our broad product portfolio. We are also focused on capitalizing on attractive new opportunities with current and new customers in emerging applications. For example, we are working closely with customers to design product solutions that enable continued transistor scaling and include 3-D transistors and Fully Depleted SOI planner transistors, as well as to address process issues related to the introduction of new materials in wafer fabrication and advanced lithography. In addition, we are developing wafer solutions that enable integration of multiple functions, such as logic, memory and analog, on the same chip.

Continuing to deliver high quality customer service.    We intend to continue our increased focus on delivering high quality customer service and manufacturing flexibility by leveraging our “local” presence that results from our diverse geographic footprint. We are focused on enhancing our established quality assurance programs and dedicated services and support staff in order to continue responding quickly to changing demands and product cycles of our customers.

Maintaining focus on operational improvements.    We intend to continue our focus on maintaining a lean operating environment and capital efficiency. We believe our Overall Equipment Effectiveness program and other operational improvements have enabled us to improve lead times across the supply chain, as well as our performance with respect to safety, customer satisfaction and on-time delivery and reduced facility disruptions. These improvements have freed up capacity, reduced costs and significantly improved equipment reliability. Our lean operating structure positions us to add production capacity as needed at low to moderate incremental capital expense by optimizing equipment utilization.

Capitalizing on the benefits of being an independent entity.    We believe that being a separately traded public company will enable us to be a more focused business with the ability to target our investment and research initiatives solely on semiconductor wafers. We expect our independence will also allow us to align the interests and incentives of our employees exclusively with the success of our business and better position us for further consolidation in the industry.

 

 

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Private Placements and Related Transactions

Samsung Fine Chemicals Co., Ltd., or Samsung Fine Chemicals, and Samsung Electronics Co., Ltd., or Samsung Electronics, have agreed to purchase $100.0 million and $33.9 million (based on an assumed initial public offering price of $14.00 per share), respectively, of our ordinary shares in separate private placements at a price per share equal to the public offering price. Samsung Fine Chemicals is a joint venture partner of a subsidiary of SunEdison in SMP Ltd., or SMP. Samsung Electronics is one of our customers and our joint venture partner in MEMC Korea Company, or MKC. As consideration for the issuance of the ordinary shares, (i) Samsung Fine Chemicals will make an aggregate cash investment in us of $100.0 million and (ii) Samsung Electronics will transfer to us its 20% interest in MKC. These share purchases will close concurrently with this offering. The private placements are subject to certain closing conditions, including the receipt of applicable regulatory approvals, as described in “Certain Relationships and Related Party Transactions–Private Placements and Related Transactions.”

Throughout this prospectus, we collectively refer to Samsung Fine Chemicals and Samsung Electronics as the Samsung Purchasers and to the foregoing transactions as the Samsung Private Placements.

In connection with the Samsung Private Placements, we have also entered into a wafer purchase and sale agreement with Samsung Electronics. See “Certain Relationships and Related Party Transactions—Wafer Purchase and Sale Agreement.”

Following the completion of the Formation Transactions described below in “–Structure and Formation of Our Company,” including the contribution to us by SunEdison of a 35% interest in SMP, and the Samsung Private Placements, SMP will be owned 35% by us, 50% by a subsidiary of SunEdison and 15% by Samsung Fine Chemicals, and MKC will be 100% owned by us. SMP owns a polysilicon manufacturing facility currently under construction in South Korea and MKC owns a manufacturing facility in South Korea that produces 200mm and 300mm semiconductor wafers. The SMP polysilicon facility is expected to be completed in the second half of 2014. We believe these transactions will create financial and strategic value for us by introducing a source of polysilicon that we partially own, and which we expect will provide competitive prices and reduce the risk of supply interruptions. The Samsung Private Placements will also result in us having 100% ownership and control of the silicon wafer manufacturing capabilities at the MKC manufacturing facility, which we believe will give us additional flexibility to respond quickly to changes in the silicon wafer industry.

In addition, pursuant to an agreement we expect to enter into with Samsung Fine Chemicals and SunEdison in connection with the closing of the Samsung Private Placements, we will be obligated to sell additional ordinary shares having an aggregate value (based on the initial public offering price) of up to 3.5 billion South Korean won, or $3.4 million at currency exchange rates as of May 8, 2014, to Samsung Fine Chemicals following the closing of the Samsung Private Placements in the event construction costs associated with the SMP facility exceed a specified amount, subject to a cap. The number of additional ordinary shares that we will be obligated to sell to Samsung Fine Chemicals will depend upon the extent to which the actual construction costs exceed 410 billion South Korean won but are less than 430 billion South Korean won, or approximately $400.8 million to $420.4 million at currency exchange rates as of May 8, 2014. Assuming an initial public offering price of $14.00 per share, which is the midpoint of the price range listed on the cover page of this prospectus, and currency exchange rates as of May 8, 2014, the maximum number of additional ordinary shares that we will be obligated to sell to Samsung Fine Chemicals is 244,415 ordinary shares. The sale of these shares would not be registered under the Securities Act. See “Certain Relationships and Related Party Transactions–Private Placements and Related Transactions.”

 

 

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Structure and Formation of Our Company

Overview

Prior to the completion of this offering, SSL is a wholly-owned subsidiary of SunEdison. Prior to or simultaneously with the completion of this offering, we and SunEdison will engage in a series of transactions which are designed to transfer the ownership of the semiconductor materials business as currently operated by SunEdison to us, facilitate this offering and enable us to raise necessary capital to pay SunEdison for such asset transfers and repay our existing indebtedness, including intercompany indebtedness and certain trade accounts owed to SunEdison. We collectively refer to the transactions undertaken as part of our initial formation as summarized below throughout this prospectus as the Formation Transactions:

 

    SSL was incorporated as a private limited company in the Republic of Singapore on December 20, 2013 under the name SunEdison Semiconductor Pte. Ltd. Prior to the completion of this offering, SunEdison Semiconductor Pte. Ltd. will convert to a Singapore public limited company to be known as SunEdison Semiconductor Limited. SSL is the ultimate parent company of both SunEdison Semiconductor, LLC, which is our only U.S. operating subsidiary, and our non-U.S. subsidiaries.

 

    In exchange for aggregate consideration consisting of 23.6 million ordinary shares, intercompany notes in an aggregate principal amount of $302.9 million and the assumption by us of $336.0 million of liabilities reflected on our balance sheet as of March 31, 2014 (to the extent not subsequently discharged) plus all other liabilities related to the semiconductor materials business, SunEdison has contributed or will contribute, as applicable, the following assets to us:

 

    effective as of December 31, 2013, SunEdison contributed all of the outstanding capital stock of its subsidiaries that own and operate its semiconductor materials business, other than a 40% interest held by a subsidiary of SunEdison in MKC, and all of the assets primarily related to its semiconductor material business held by SunEdison or its subsidiaries to SSL;

 

    in January 2014, SunEdison caused one of its subsidiaries to contribute its 40% interest in MKC to SSL; and

 

    prior to the completion of this offering, SunEdison will contribute to SSL a 35% interest in SMP that SunEdison has agreed to acquire from Samsung Fine Chemicals for a cash purchase price of 140 billion South Korean won, or approximately $136.9 million at currency exchange rates as of May 8, 2014 (subject to increase based on construction costs calculated prior to the closing of that transaction).

 

    We will enter into transition services, intellectual property licensing, tax sharing and other commercial agreements with SunEdison and certain of its subsidiaries. See “Certain Relationships and Related Party Transactions.”

We collectively refer to the transactions undertaken to finance the Formation Transactions and otherwise provide us with future liquidity as summarized below throughout this prospectus as the Financing Transactions:

 

   

We will use approximately $16.8 million of net proceeds from this offering, together with $192.4 million of net proceeds after deducting issuance costs from borrowings under a new senior secured term loan from financial institutions and $93.2 million of net proceeds after deducting

 

 

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private placement commissions from the cash investment by Samsung Fine Chemicals in connection with the Samsung Private Placements, to repay in full the intercompany notes issued to SunEdison in connection with the asset transfers contemplated as part of the Formation Transactions.

 

    We will use approximately $11.1 million of the net proceeds from this offering to repay existing third party indebtedness that we associate with the semiconductor materials business. The third party indebtedness consists of long-term notes bearing a fixed interest rate of 2.2% owed to a bank by our Japanese subsidiary. The notes mature at various times between 2014 and 2017, and the aggregate outstanding principal amount of the notes was $10.6 million as of March 31, 2014.

 

    We will retain approximately $62.3 million of net proceeds from this offering as cash on our balance sheet, which will provide us with additional liquidity and flexibility in our capital structure.

 

    We will enter into a new senior secured revolving credit facility with financial institutions that will provide for up to $50.0 million of borrowings for working capital purposes.

For ease of reference, we sometimes collectively refer to this offering, the Formation Transactions, the Financing Transactions and the Samsung Private Placements throughout this prospectus as the Transactions.

We are pursuing this offering and the other Transactions at the direction of SunEdison. We believe that SunEdison expects that it will be able to use the net proceeds it receives from this offering and related Transactions to accelerate its solar energy development projects. Additionally, we believe SunEdison is undertaking the Transactions in an effort to maximize the value of its businesses by enabling each business to focus on its respective core competencies, key markets and customers, to optimize its capital structure and to enhance its access to capital and provide investors with better transparency into each underlying business. We believe that being a separately traded public company will enable us to: (1) be a more focused business with the ability to target our investment and research initiatives solely on semiconductor wafers; (2) align the interests and incentives of our employees exclusively with the success of our business; and (3) compete more effectively in light of consolidation in the industry. We are entering into the new senior secured term loan and senior secured revolving credit facility in order to provide us with sources of future liquidity for growing our business, as well as to fund a portion of the cash repayment of the intercompany notes issued to SunEdison in connection with the asset transfers contemplated as part of the Formation Transactions.

Upon completion of the Transactions, including the Samsung Private Placements, purchasers of our ordinary shares in this offering will own ordinary shares representing 17.8% of our outstanding ordinary shares (or 20.0% if the underwriters’ option to purchase additional shares is exercised in full), SunEdison will own ordinary shares representing 58.4% of our outstanding ordinary shares (or 56.8% if the underwriters’ option to purchase additional shares is exercised in full), and the Samsung Purchasers will own ordinary shares representing 23.7% of our outstanding ordinary shares (or 23.1% if the underwriters’ option to purchase additional shares is exercised in full).

This offering is conditioned upon the completion of the Samsung Private Placements and our entry into the new senior secured term loan and senior secured revolving credit facility prior to or concurrently with this offering.

 

 

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Sources and Uses of Funds

The following table illustrates the estimated sources and uses of the funds necessary to complete the Transactions, assuming they were completed as of March 31, 2014. Actual amounts may vary from estimated amounts.

 

Sources of Funds

   

Uses of Funds

 
(in millions)  

New senior secured credit facilities: (1)

    Cash payment to SunEdison to repay in full  

Revolving credit facility

  $ —            intercompany notes (4)   $ 302.9   

Term loan

    200.0     

Repayment of subsidiary bank indebtedness (5)

    10.6   

Cash investment by Samsung Fine Chemicals (2)

    100.0     

Cash to balance sheet (6)

    62.3   

Ordinary shares offered hereby (3)

    100.8     

Estimated fees and expenses (7)

    25.0   
 

 

 

     

 

 

 

Total sources

  $ 400.8     

Total uses

  $ 400.8   
 

 

 

     

 

 

 

 

(1) In connection with the Financing Transactions, we intend to enter into new senior secured credit facilities that will include a senior secured revolving credit facility for borrowings of up to $50.0 million. We do not expect to have any outstanding borrowings under this senior secured revolving credit facility upon completion of this offering. We currently do not have commitments from any prospective lenders with respect to the new senior secured credit facilities but will obtain such commitments prior to the completion of this offering. See “Description of Certain Indebtedness—New Senior Secured Credit Facilities.”

 

(2) Represents the cash investment by Samsung Fine Chemicals in connection with the Samsung Private Placements.

 

(3) Assumes an initial public offering price of $14.00 per ordinary share, which is the midpoint of the price range listed on the cover page of the prospectus.

 

(4) We will use approximately $17.3 million of the net proceeds from this offering, together with $192.4 million of net proceeds after deducting issuance costs from borrowings under our new senior secured term loan and $93.2 million of net proceeds after deducting private placement commissions from the cash investment by Samsung Fine Chemicals in connection with the Samsung Private Placements, to fund the cash payment to SunEdison to repay in full the intercompany notes. The cash repayment of the notes and the 23.6 million ordinary shares to be issued to SunEdison, together with the assumption by SSL of $336.0 million of liabilities reflected on our balance sheet as of March 31, 2014 (to the extent not subsequently discharged) plus all other liabilities related to the semiconductor materials business, represent the consideration paid to SunEdison in exchange for the assets of its semiconductor materials business contributed to SSL.

 

(5) Consists of long-term notes bearing a fixed interest rate of 2.2% owed to the Development Bank of Japan Inc. by our Japanese subsidiary, MEMC Japan Ltd.. The notes mature at various times between 2014 and 2017, and the aggregate outstanding principal amount of the notes was $10.6 million as of March 31, 2014. We expect this amount as of the anticipated closing date of this offering will be approximately $11.1 million due to accrued interest, prepayments and changes in foreign currency exchange rates.

 

(6) We may use such net proceeds for working capital and other general corporate purposes. See “Use of Proceeds.” The actual amount of cash that will be retained by us will vary from what is set forth in the table above based on changes in the actual amount of the intercompany notes as of the closing date of this offering.

 

(7) The estimated fees and expenses include underwriting discounts and commissions, the unamortized original issuance discount on our new senior secured term loan and our estimated legal, accounting and other expenses associated with the Transactions.

 

 

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Risk Factors

There are a number of risks that you should understand before making an investment decision regarding this offering. These risks are discussed more fully in the section entitled “Risk Factors” following this prospectus summary. These risks include, but are not limited to:

 

    our business depends on the semiconductor device industry, and when that industry experiences one of its cyclical downturns, our sales are likely to decrease and we could be forced to reduce our prices without being able to reduce costs, including fixed costs, all of which could materially adversely affect our business, financial condition and results of operations;

 

    if we fail to meet changing customer demands or achieve market acceptance for new products, we may lose customers and our sales could suffer;

 

    a significant reduction in, or loss of, purchases by any of our top customers could materially adversely affect our business, financial condition and results of operations;

 

    semiconductor wafer average selling prices have been volatile in recent years. If we are unable to reduce our manufacturing costs and operating expenses in response to declining prices, we may not be able to compete effectively;

 

    we face intense competition in the industry in which we operate, including from competitors that have a greater market share than we do, which could materially adversely affect our business, financial condition and results of operations;

 

    we are controlled by SunEdison, whose interests may conflict with yours, and this concentrated ownership of our ordinary shares will prevent you and other investors in our shares from influencing significant decisions involving our company; and

 

    we are incorporated in Singapore and our shareholders may have more difficulty in protecting their interests than they would as shareholders of a corporation incorporated in the United States.

Corporate Information

Our principal executive offices are located at 11 Lorong 3 Toa Payoh, Singapore 319579, and our telephone number at that address is +65 6681-9300. Our principal executive offices in the United States are located at 501 Pearl Drive (City of O’Fallon), St. Peters, Missouri 63376, and our telephone number at that address is (636) 474-5000. Our website address upon the completion of this offering will be www.sunedisonsemi.com. The information on our website is not part of this prospectus.

 

 

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The Offering

 

Ordinary shares offered by us

   7,200,000 shares.

Ordinary shares to be sold to the Samsung Purchasers in the Samsung Private Placements

  



9,564,604 shares.

Ordinary shares to be held by SunEdison immediately after this offering

  



23,560,251 shares.

Ordinary shares to be outstanding immediately after this offering and the Samsung Private Placements

   40,362,319 shares.

Option to purchase additional shares

  


We have agreed to allow the underwriters to purchase up to an additional 1,080,000 ordinary shares from us, at the public offering price, less the underwriting discount, within 30 days of the date of this prospectus.

Use of proceeds

  

We estimate that the net proceeds from this offering to us will be approximately $90.2 million, assuming an initial public offering price of $14.00 per ordinary share, which is the midpoint of the price range listed on the cover page of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses payable by us. We expect to use the net proceeds from this offering for the following purposes and in the following amounts:

 

•     approximately $16.8 million will be used to provide a portion of the cash payment to SunEdison to repay in full the intercompany notes issued in connection with the Formation Transactions;

 

•     approximately $11.1 million will be used to repay existing third party indebtedness relating to the semiconductor materials business owed to a bank by our Japanese subsidiary; and

 

•     approximately $62.3 million will be retained as cash on our balance sheet.

 

The remaining portion of the cash payment to SunEdison of $285.6 million to repay in full the intercompany notes issued in connection with the Formation Transactions will be funded from $192.4 million of net proceeds after deducting issuance costs from borrowings under our new senior secured term loan and $93.2 million of net proceeds after deducting private placement commissions from the cash investment by Samsung Fine Chemicals in connection with the Samsung Private Placements.

 

 

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Dividend policy

   We do not currently anticipate declaring or paying any cash dividends on our ordinary shares for the foreseeable future. Any future determination relating to our dividend policy will be made at the discretion of our board of directors and will depend on then existing conditions, including our financial condition, results of operations, contractual restrictions (including in the agreements governing our credit facilities), capital requirements, business prospects and other factors our board of directors may deem relevant. In addition, pursuant to Singapore law and our articles of association, no dividends may be paid except out of our profits. See “Dividend Policy.”

Proposed listing symbol

   We intend to list our ordinary shares on the NASDAQ Global Select Market under the symbol “SEMI.”

Unless otherwise indicated, all information in this prospectus relating to the number of our ordinary shares to be outstanding immediately after this offering:

 

    assumes no exercise by the underwriters of their option to purchase up to 1,080,000 additional ordinary shares from us;

 

    excludes an aggregate of 11,000,000 ordinary shares reserved for issuance under the equity incentive plans we intend to adopt in connection with this offering, including an aggregate of 797,776 shares (at an assumed initial public offering price of $14.00 per share) underlying equity awards to be granted to certain of our executive officers in connection with the completion of this offering as discussed in “Executive Compensation—Our Anticipated Executive Compensation Program Following this Offering—IPO Grants”;

 

    assumes the issuance and sale of an aggregate of 9,564,604 ordinary shares (at an assumed initial public offering price of $14.00 per share) to the Samsung Purchasers in the Samsung Private Placements;

 

    assumes the issuance of 37,464 shares to Mr. Ahmad Chatila, the President and Chief Executive Officer and a director of SunEdison, at an assumed initial offering price of $14.00 per ordinary share, in connection with an agreement between Mr. Chatila and SunEdison pursuant to which Mr. Chatila elected to receive an aggregate number of our ordinary shares equal in value to $1,000,000 at the initial public offering price (before required tax withholdings) in lieu of SunEdison paying him that amount in cash as part of his 2013 annual bonus; and

 

    assumes an initial public offering price of $14.00 per ordinary share, which is the midpoint of the price range listed on the cover of this prospectus.

 

 

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SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA

The following table shows summary historical and pro forma financial data at the dates and for the periods indicated. The summary historical statement of operations data and balance sheet data as of December 31, 2013 and 2012 and for the years ended December 31, 2013, 2012 and 2011 have been derived from our audited combined financial statements included elsewhere in this prospectus. The summary historical statement of operations data and balance sheet data as of March 31, 2014 and for the three months ended March 31, 2014 and 2013 have been derived from our unaudited combined financial statements included elsewhere in this prospectus, which include all adjustments, consisting of normal recurring adjustments, which management considers necessary for a fair presentation of the financial position and the results of operations for such periods. Results for the interim periods are not necessarily indicative of the results for the full year. The historical financial statements as of December 31, 2013 and 2012, for the years ended December 31, 2013, 2012 and 2011, as of March 31, 2014 and for the three months ended March 31, 2014 and 2013 are intended to represent the financial results of SunEdison’s semiconductor materials business that will be contributed to us as part of the Transactions for those periods.

The summary unaudited pro forma financial data have been derived by the application of pro forma adjustments to our historical combined financial statements included elsewhere in this prospectus. The summary unaudited pro forma statements of operations for the year ended December 31, 2013 and for the three months ended March 31, 2014 give effect to the Transactions (as described under “Prospectus Summary—Structure and Formation of Our Company”), including the completion of this offering and the Samsung Private Placements and the application of the estimated net proceeds therefrom, as if they had occurred on January 1, 2013. The summary unaudited pro forma as adjusted balance sheet data as of March 31, 2014 give effect to the Transactions, including the completion of this offering and the Samsung Private Placements and the application of the estimated net proceeds therefrom as if they had occurred on March 31, 2014. See “Unaudited Pro Forma Consolidated Financial Statements” for additional information.

Our historical combined financial statements include expenses of SunEdison that were allocated to us for certain functions, including general corporate expenses related to communications, corporate administration, finance, legal, information technology, human resources, compliance, employee benefits and incentives, operations, research and development and stock compensation. These expenses were allocated in our historical results of operations on the basis of direct usage, where identifiable, with the remainder primarily allocated on the basis of revenue or other related sales metrics, headcount or number of our manufacturing plants. We consider the expense allocation methodology and results to be reasonable for all periods presented. However, these allocations may not necessarily be indicative of the actual expenses we would have incurred as an independent publicly traded company during the periods prior to this offering or of the costs we will incur in the future. No significant restructuring or impairment charges were included in these allocations from SunEdison.

The combined financial statements included in this prospectus may not be indicative of our future performance and do not necessarily reflect what our financial position and results of operations would have been had we operated as a stand-alone public company during the periods presented, including changes that will occur in our operations and capital structure as a result of the Transactions, including this offering. The summary unaudited pro forma financial data are presented for informational purposes only. The pro forma adjustments are based upon available information and certain assumptions that we believe are reasonable. The summary unaudited pro forma financial information does not purport to represent what our results of operations or financial position would have been if we operated as a public company during the periods presented and may not be indicative of our future performance.

The information presented in the following table under the columns identified as “Pro Forma” and “Pro Forma As Adjusted” and the caption “Other Financial Data” is not directly derived from the financial statements.

 

 

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The following tables should be read together with, and are qualified in their entirety by reference to, the historical combined financial statements and the accompanying notes appearing elsewhere in this prospectus. Among other things, the historical combined financial statements include more detailed information regarding the basis of presentation for the information in the following table. The tables should also be read together with “Unaudited Pro Forma Consolidated Financial Statements,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Certain Relationships and Related Party Transactions.”

 

                                                                                                                                                                
     Fiscal Year Ended December 31,     Three Months Ended March 31,  
           Pro Forma                       Pro Forma        
     2013     2013     2012     2011     2014     2014     2013  
           (unaudited)                 (unaudited)     (unaudited)     (unaudited)  
    

(in millions, except per share data)

 

Statement of Operations Data:

              

Net sales to non-affiliates

   $ 911.5      $ 911.5      $ 927.4      $ 1,051.3      $ 205.8      $ 205.8      $ 231.2   

Net sales to affiliates

     9.1        9.1        6.8        147.0        0.3        0.3        1.2   

Cost of goods sold

     838.9        838.9        852.4        1,023.3        197.8        197.8        209.9   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     81.7        81.7        81.8        175.0        8.3        8.3        22.5   

Operating expenses:

              

Marketing and administration

     105.1        105.1        100.7        129.9        21.8        21.8        22.3   

Research and development

     37.0        37.0        33.4        38.2        8.0        8.0        9.3   

Restructuring (reversals) charges

     (75.0     (75.0     (149.6     284.5        (4.6     (4.6     (4.3

Gain on receipt of property, plant and equipment

     —          —          (31.7     —          —          —          —     

Long-lived asset impairment charges

     33.6        33.6        1.5        234.7        —          —          —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating (loss) income

     (19.0     (19.0     127.5        (512.3  

 

 

 

(16.9)

 

  

 

 

 

 

(16.9)

 

  

 

 

 

 

(4.8)

 

  

  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Non-operating expenses (income):

              

Interest expense

     0.8        15.5        1.0        5.9     

 

 

 

0.2

 

  

 

 

 

 

3.9

 

  

 

 

 

 

0.2

 

  

Interest income

     (0.5     (0.5     (0.7     (1.0     (0.1     (0.1     (0.1

Interest (income) expense, net-affiliates

     (4.1     —          (2.2     1.8        (0.1     —          (0.5

Other, net

     (3.9     (3.9     3.1        (0.8     (5.3     (5.3     (3.8
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total non-operating expenses (income)

     (7.7     11.1        1.2        5.9        (5.3)        (1.5)        (4.2)   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) income before income tax expense

     (11.3     (30.1     126.3        (518.2     (11.6)        (15.4)        (0.6)   

Income tax expense (benefit)

     44.0        43.3        3.6        37.4     

 

 

 

3.6

 

  

 

 

 

 

3.6

 

  

 

 

 

 

9.1

 

  

  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) income before equity in (loss) earnings of joint ventures

     (55.3     (73.4     122.7        (555.6     (15.2     (19.0     (9.7

Equity in (loss) earnings of joint ventures, net of tax

     —          (0.9     —          —       

 

 

 

—  

 

  

 

 

 

 

(0.2

 

 

 

 

 

—  

 

  

  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income

     (55.3     (74.3     122.7        (555.6     (15.2     (19.2     (9.7

Net (income) loss attributable to noncontrolling interests(1)

     (2.4     —          (1.4     (2.3  

 

 

 

0.6

 

  

 

 

 

 

—  

 

  

 

 

 

 

(0.8

 

  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income attributable to SSL

   $ (57.7   $ (74.3   $ 121.3      $ (557.9   $ (14.6   $ (19.2   $ (10.5
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Basic (loss) income per share(2)

     N/A      $ (1.84     N/A        N/A        N/A      $ (0.48     N/A   

Diluted (loss) income per share(2)

     N/A      $ (1.84     N/A        N/A     

 

 

 

N/A

 

  

 

 

$

 

(0.48

 

 

 

 

 

N/A

 

  

Other Financial Data:

              

Adjusted EBITDA(3) (unaudited)

   $ 74.6      $ 76.1      $ 74.9      $ 170.2      $ 15.0      $ 14.2      $ 26.6   

 

 

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     As of December 31,      As of March 31, 2014  
     2013     2012      Actual     Pro Forma
As Adjusted
 
                  (unaudited)     (unaudited)  
     (in millions, except share data)  

Balance Sheet Data:

         

Cash and cash equivalents

   $ 40.8      $ 103.2       $ 37.7      $ 100.0   

Working capital(4)

     (35.9     38.1         (51.4     97.9   

Property, plant and equipment, net

     724.9        789.9         714.1        704.2   

Total assets

     1,151.8        1,513.2         1,130.2        1,293.7   

Total liabilities

     440.6        699.2         457.0        534.0   

Total equity

     711.2        814.0         673.2        759.7   

 

(1) Represents the 20% interest held by our partner in MKC that we will acquire in connection with the Samsung Private Placements.

 

(2) The weighted-average number of shares used to compute pro forma basic and diluted earnings per share is 40,362,319, which represents the number of our ordinary shares outstanding immediately following the completion of the Transactions. We calculated this number of shares as follows:

 

Shares issued to SunEdison

     23,560,251   

Shares offered hereby

     7,200,000   

Shares issued to Samsung Purchasers

     9,564,604   

Shares issued to Mr. Chatila

     37,464   
  

 

 

 

Total

     40,362,319   
  

 

 

 

 

(3) Adjusted EBITDA is a non-GAAP financial measure. This measurement should not be viewed as an alternative to GAAP measures of performance. The presentation of Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items.

We define Adjusted EBITDA as earnings before net interest expense, income tax expense, depreciation and amortization, restructuring (reversals) charges, gain on receipt of property, plant and equipment, long-lived asset impairment charges and stock compensation expense. All of the omitted items are either (i) non-cash items or (ii) items that we do not consider in assessing our on-going operating performance. Because it omits non-cash items, we feel that Adjusted EBITDA is less susceptible to variances in actual performance resulting from depreciation, amortization and other non-cash charges and more reflective of other factors that affect our operating performance. Because it omits the other items, we believe Adjusted EBITDA is also more reflective of our on-going operating performance. We believe Adjusted EBITDA is useful to investors in evaluating our operating performance because:

 

    securities analysts and other interested parties use such calculations as a measure of financial performance and debt service capabilities; and

 

    it is used by our management for internal planning purposes, including aspects of our combined operating budget and capital expenditures.

Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations include:

 

    it does not reflect our cash expenditures, future requirements for capital expenditures or contractual commitments;

 

    it does not reflect changes in, or cash requirements for, working capital;

 

    it does not reflect interest expense or the cash requirements necessary to service interest or principal payments on our outstanding debt;

 

    it does not reflect payments made or future requirements for income taxes;

 

 

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    it adjusts for restructuring (reversals) charges, gains on receipt of property, plant equipment, asset impairment charges and stock compensation expense factors that we do not consider indicative of future performance;

 

    although it reflects adjustments for factors that we do not consider indicative of future performance, we may, in the future, incur expenses similar to the adjustments reflected in our calculation of Adjusted EBITDA in this prospectus; and

 

    although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future and Adjusted EBITDA does not reflect cash requirements for such replacements.

Investors are encouraged to evaluate each adjustment and the reasons we consider it appropriate for supplemental analysis. The following table presents a reconciliation from net (loss) income attributable to SSL to Adjusted EBITDA:

 

     Fiscal Year Ended December 31,     Three Months Ended March 31,  
           Pro Forma                 Pro Forma  
     2013     2013     2012     2011     2014     2014     2013  
     (unaudited)     (unaudited)     (unaudited)     (unaudited)     (unaudited)     (unaudited)     (unaudited)  
    

(in millions)

 

Net (loss) income attributable to SSL

   $ (57.7   $ (74.3   $ 121.3      $ (557.9   $ (14.6   $ (19.2   $ (10.5

Add:

              

Interest expense, net

     (3.8     15.0        (1.9     6.7        —          3.8        (0.4

Income tax expense

     44.0        43.3        3.6        37.4        3.6        3.6        9.1   

Depreciation and amortization

     119.6        119.6        118.7        144.3        28.3        28.3        29.3   

Restructuring (reversals) charges

     (75.0     (75.0     (149.6     284.5        (4.6     (4.6     (4.3

Gain on receipt of property, plant and equipment

     —          —          (31.7     —          —          —          —     

Long-lived asset impairment charges

     33.6        33.6        1.5        234.7        —          —          —     

Stock compensation expense

     13.9        13.9        13.0        20.5        2.3        2.3        3.4   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

   $ 74.6      $ 76.1      $ 74.9      $ 170.2      $ 15.0      $ 14.2      $ 26.6   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(4) Working capital is defined as our current assets minus current liabilities. As of March 31, 2014, our current assets included accounts receivable due from SunEdison of $26.3 million and our current liabilities included accounts payable to SunEdison of $110.4 million. All of these intercompany balances and certain trade accounts will be net settled in connection with the Transactions. Excluding these amounts, our working capital would have been $32.7 million as of March 31, 2014.

 

 

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RISK FACTORS

This offering and an investment in our ordinary shares involve a high degree of risk. You should carefully consider the risks described below, together with the financial and other information contained in this prospectus, before you decide to purchase ordinary shares. If any of the following risks actually occurs, our business, financial condition, results of operations and prospects could be materially and adversely affected. As a result, the trading price of our ordinary shares could decline and you could lose all or part of your investment in our ordinary shares.

Risks Related to Our Business

Our business depends on the semiconductor device industry, and when that industry experiences one of its cyclical downturns, our sales are likely to decrease and we could be forced to reduce our prices without being able to reduce costs, including fixed costs, all of which could materially adversely affect our business, financial condition and results of operations.

Our business depends in large part upon the market demand for our customers’ semiconductor devices that are utilized in electronics applications. The semiconductor device industry is subject to cyclical and volatile fluctuations in supply and demand and in the past has periodically experienced significant downturns. These downturns often occur in connection with declines in general economic conditions. For example, in the second half of 2011, demand for wafers for semiconductor applications began to slow and dropped by approximately 15% in the fourth quarter of 2011 as compared to the third quarter of 2011, according to SEMI Silicon Manufacturers Group. Similarly, although demand stabilized during the first half of 2012, it dropped again during the second half of 2012. If the current market softness continues or the semiconductor device industry continues to experience frequent downturns, we will face pressure to reduce our prices, and we may need to further rationalize capacity and attempt to reduce our fixed costs. If we are unable to reduce our costs sufficiently to offset reductions in prices and sales volumes, our business, financial condition and results of operations will be materially adversely affected.

If we fail to meet changing customer demands or achieve market acceptance for new products, we may lose customers and our sales could suffer.

The industry in which we operate changes rapidly. Changes in our customers’ requirements means that we must adapt to new and more demanding technologies, product specifications and sizes, as well as manufacturing processes. Our ability to remain competitive depends upon our ability to continue to differentiate our products based on size, flatness, reduced defects, crystal properties and electrical characteristics and develop technologically advanced products and processes. Although we expect to continue to make significant investments in R&D, we cannot assure you that we will be able to successfully introduce, market and cost-effectively manufacture new products, or that we will be able to develop new or enhanced products and processes that satisfy our customers’ needs. If we are unable to adapt to changing customer demands, or if new products that we develop do not achieve market acceptance, our business, financial condition and results of operations will be materially adversely affected.

A significant reduction in, or loss of, purchases by any of our top customers could materially adversely affect our business, financial condition and results of operations.

Three customers accounted for approximately 21%, 16% and 11%, respectively, of our net sales to non-affiliates in 2013 and our top 10 customers accounted for approximately 70% of our net sales to non-affiliates in 2013. Sales to our customers are generally governed by purchase orders or, in certain cases, short-term agreements that include pricing terms and estimated quantity requirements. We do not generally have long-term agreements with our customers, nor are our customers obligated to purchase a minimum quantity of wafers from us. We are exposed to the risk of reduced sales if our customers reduce their demand for our products,

 

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including as a result of cyclical fluctuations or competitive factors. Our business, financial condition and results of operations could materially suffer if we experience a significant reduction in, or loss of, purchases by any of our top customers.

Semiconductor wafer average selling prices have been volatile in recent years. If we are unable to reduce our manufacturing costs and operating expenses in response to declining prices, we may not be able to compete effectively.

Semiconductor wafer average selling prices have been volatile in recent years. Our semiconductor wafer average selling prices increased by 5.3% in 2011 as compared to our average selling prices in 2010 primarily due to the effects of the earthquake and tsunami in Japan, while our average selling prices decreased by approximately 10.1% in 2012 as compared to prices in 2011. In addition, consolidation within the semiconductor industry has also increased the pricing power of our customers over time, resulting in downward pressure on wafer average selling prices. When average selling prices decline, our net sales and gross profit also decline unless we are able to reduce the cost to manufacture our products or sell more products. As a result, the success of our business depends, in part, on our continuous reduction of manufacturing costs and leveraging of operating expenses to maintain or improve profitability, particularly during times of declining prices. If we are not able to reduce our manufacturing costs and leverage our operating expenses sufficiently to offset any future price erosion, or if we are unable to offset price erosion by increasing our sales and expanding our market share, our business, financial condition and results of operations could be materially adversely affected.

We face intense competition in the industry in which we operate, including from competitors that have a greater market share than we do, which could materially adversely affect our business, financial condition and results of operations.

We face intense competition in the semiconductor wafer industry from established manufacturers throughout the world, including Shin-Etsu Handotai, SUMCO Corporation, Siltronic AG and LG Siltron. Some of our competitors have greater financial, technical, engineering and manufacturing resources than we do, enabling them to develop products that currently, and may in the future, compete favorably against our products in terms of design, quality and performance. Our larger competitors may also be able to produce wafers at a lower per unit cost due to economies of scale and have greater influence than we do on market prices. In addition, certain of our competitors may have a perceived advantage in the market with respect to the quality of their products. We expect that all of our competitors will continue to improve the design and performance of their products and introduce new products with competitive price and performance characteristics. Our failure to compete effectively would have a material adverse effect on our business, financial condition and results of operations.

Our manufacturing processes are highly complex and potentially vulnerable to impurities, disruptions or inefficient implementation of production changes that can significantly increase our costs and delay product shipments to our customers.

Our manufacturing processes are highly complex, require advanced and increasingly costly equipment and are continuously being modified or maintained in an effort to improve yields and product performance. Impurities or other difficulties in the manufacturing process can lower yields, interrupt production, result in losses of products in process and harm our reputation. In addition, as system complexity and production changes have increased, manufacturing tolerances have been reduced and requirements for precision have become even more demanding. We have from time to time experienced bottlenecks and production difficulties that have caused delivery delays and quality control problems. We cannot assure you that we will not experience bottlenecks or production or transition difficulties in the future. Such incidents, if they occur, could have a material adverse effect on our business, financial condition and results of operations.

 

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If we are not able to match our manufacturing capacity and output to demand for our products, our business, financial condition and results of operations could be materially adversely affected.

As a result of the cyclicality and volatility of the semiconductor industry, it is difficult to predict future developments in the markets we serve, making it difficult to estimate future requirements for manufacturing capacity. During periods of high demand for our products, we may experience a shortage of capacity and an increase in lead times for delivery of our products to our customers, or an inability to deliver the required number of products. When our manufacturing facilities are operating at high capacity, we may also experience disruptions, problems or inefficiencies in our manufacturing processes due to over utilization, potentially resulting in loss of sales and damage to relationships with customers. In addition, increases in our manufacturing capacity based on anticipated growth in demand for our products may exceed demand requirements, leading to overcapacity and excessive fixed costs. Lower than expected demand for our products may also lead to excessive inventory, which could result in write-offs of inventory and losses on products. In the past, overcapacity for certain products or technologies and cost optimization have led us to close or shutter manufacturing facilities and, as a result, to incur impairment and restructuring charges and other related closure costs. For example, we implemented a restructuring and cost reduction plan in 2011, which included shuttering our Merano, Italy polysilicon facility in December 2011, and incurred restructuring charges of $284.5 million and long-lived asset impairment charges of $234.7 million in 2011 primarily related thereto. Any of these outcomes could have a material adverse effect on our business, financial condition or results of operations.

Because our customers generally require that they qualify a facility before we can begin manufacturing products for them at that facility, we may not be able to quickly transfer production of specific products from one of our manufacturing facilities to another in the event of an interruption or lack of capacity at any of our facilities, which could result in lost sales and damage to customer relationships.

It typically takes three to six months for our customers to qualify one of our manufacturing facilities to produce a specific product, but it can take up to one year depending upon a customer’s requirements. While in many cases multiple sites are qualified for a particular product to allow flexibility, an interruption of operations or lack of available capacity at any of our manufacturing facilities could result in delays in or cancellations of shipments of products in the event only one facility is qualified to manufacture such products. A number of factors could cause interruptions or lack of capacity at a facility, including extreme weather conditions, such as hurricanes or earthquakes, equipment and power failures, shortages of raw materials or supplies or transportation logistic complications. We have had interruptions of our manufacturing operations for some of these reasons in the past and could have such interruptions again in the future. For example, production at our Japanese facility was disrupted as a result of the March 2011 earthquake and tsunami. If we experience an interruption or lack of capacity at any of our manufacturing facilities for any reason, it could result in lost sales and damage to customer relationships, which could materially and adversely affect our business, financial condition and results of operations.

Our business may be harmed if we fail to properly protect our intellectual property or infringe on the intellectual property rights of third parties.

We believe that the success of our business depends in part on our proprietary technology, information, processes and know-how and on our ability to operate without infringing on the proprietary rights of third parties. We seek to protect our intellectual property rights based on trade secrets and patents as part of our ongoing R&D and manufacturing activities. We cannot be certain, however, that we have adequately protected or will be able to adequately protect our technology, that our competitors will not be able to utilize our existing technology or develop similar technology independently, that the claims allowed with respect to any patents held by us will be broad enough to protect our technology or that foreign intellectual property laws will adequately protect our intellectual property rights.

 

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Any future litigation to enforce patents issued to us, to protect trade secrets or know-how possessed by us or to defend ourselves or to indemnify others against claimed infringement of the rights of others could have a material adverse effect on our business, financial condition and results of operations. From time to time, we receive notices from other companies that allege we may be infringing certain of their patents or other rights. If we are unable to resolve these matters satisfactorily, or to obtain licenses on acceptable terms, we may face litigation. We are presently involved in one case involving allegations of patent infringement by us. See “Business—Legal Proceedings.” Regardless of the validity or successful outcome of that intellectual property claim or any future claims, we may need to expend significant time and expense to protect our intellectual property rights or to defend against claims of infringement by third parties. If we lose any such litigation where we are alleged to infringe the rights of others, we may be required to pay substantial damages, seek licenses from others, or change or stop manufacturing or selling some of our products. Any of these outcomes could have a material adverse effect on our business, financial condition and results of operations.

From time to time, we may become involved in other litigation and regulatory proceedings, which could require significant attention from our management and result in significant expense to us and disruptions in our business.

In addition to litigation related to our intellectual property rights, we have in the past and may in the future be named as a defendant from time to time in other lawsuits and regulatory actions relating to our business, such as commercial contract claims, employment claims and tax examinations, some of which may claim significant damages or cause us reputational harm. Due to the inherent uncertainties of litigation and regulatory proceedings, we cannot accurately predict the ultimate outcome of any such proceeding. An unfavorable outcome could have a material adverse impact on our business, financial condition and results of operations or limit our ability to engage in certain of our business activities. In addition, regardless of the outcome of any litigation or regulatory proceeding, such proceedings are often expensive, time-consuming, disruptive to normal business operations and require significant attention from our management.

SSL is incorporated outside of the United States and a substantial portion of our operations and sales are outside of the United States. As a result, we are subject to the risks of doing business internationally, including periodic foreign economic downturns and political instability, which may adversely affect our sales and cost of doing business in those regions of the world.

Foreign economic downturns have affected our results of operations in the past and could affect our results of operations in the future. In addition, other factors relating to the operation of our business outside of the United States may have a material adverse effect on our business, financial condition and results of operations in the future, including:

 

    fluctuations in exchange rates;

 

    the imposition of governmental controls or changes in government regulations, including tax regulations;

 

    difficulties in enforcing our intellectual property rights;

 

    export license requirements;

 

    restrictions on the export of technology;

 

    compliance with U.S. and Singapore laws, as well as applicable laws governing our international operations, including the Foreign Corrupt Practices Act and export control laws;

 

    difficulties in achieving headcount reductions due to unionized labor and works councils;

 

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    restrictions on transfers of funds and assets between jurisdictions;

 

    geo-political instability; and

 

    trade restrictions, import/export duties and changes in tariffs.

In the future we may seek to expand our presence in certain foreign markets or enter emerging markets. Evaluating or entering into an emerging market may require considerable management time, as well as start-up expenses for market development before any significant sales and earnings are generated. Operations in new foreign markets may achieve low margins or may be unprofitable, and expansion in existing markets may be affected by local political, economic and market conditions. As we continue to operate our business globally, our success will depend, in part, on our ability to anticipate and effectively manage these and the other risks noted above. The impact of any one or more of these factors could materially adversely affect our business, financial condition and results of operations.

In addition, we currently operate under tax holidays and/or favorable tax incentives and rates in Taiwan and Malaysia. These tax holidays and incentives require us to meet certain minimum employment and investment criteria or thresholds in these jurisdictions. We cannot assure you that we will be able to continue to meet these criteria or thresholds or realize any net tax benefits from these tax holidays or incentives. If any of our tax holidays or incentives are terminated, our business, financial condition and results of operations could be materially adversely effected.

We are subject to periodic fluctuations in foreign currency exchange rates which could cause operating results and reported financial results to vary significantly from period to period.

Net sales to non-affiliates generated from outside of the United States, which represented approximately 87% and 86% of our net sales to non-affiliates for the three months ended March 31, 2014 and 2013, respectively, and approximately 86%, 84% and 83% of our net sales to non-affiliates for the years ended December 31, 2013, 2012 and 2011, respectively, expose us to currency exchange rate fluctuations. Our risk exposure from these sales is primarily related to the Japanese yen, New Taiwan dollar, Euro, South Korean won and Malaysian ringgit. Because the majority of our sales are denominated in the U.S. dollar, if one or more competitors sells to our customers in a different currency than the U.S. dollar, we are subject to the risk that the competitors’ products will be relatively less expensive than our products due to exchange rate effects. In addition, a substantial portion of manufacturing and operating costs at our non-U.S. facilities are incurred in foreign currencies, principally the Japanese yen, New Taiwan dollar, Euro, South Korean won and Malaysian ringgit. Unfavorable exchange rate fluctuations in any or all of these currencies may adversely affect the cost of our products and/or related operating expenditures.

Our results of operations are also impacted by currency exchange rate fluctuations to the extent that we are unable to match net sales received in foreign currencies with expenses incurred in the same currency. For example, where we have significantly more expenses than net sales generated in a foreign currency, our profit from operations in that location would be adversely affected in the event that the U.S. dollar depreciates against that foreign currency. To protect against reductions in value and volatility of future cash flows caused by changes in foreign currency exchange rates, we have established transaction-based hedging programs. Our hedging programs reduce, but do not always eliminate, the impact of foreign currency exchange rate movements. We recognized net currency income (losses) totaling approximately $5.5 million and $3.1 million for the three months ended March 31, 2014 and 2013, respectively, and approximately $3.7 million, ($4.2) million and $0.2 million for the years ended December 31, 2013, 2012 and 2011, respectively. Foreign currency exchange risks inherent in doing business in foreign countries could have a material adverse effect on our business, financial condition and results of operations.

In addition, we present our financial statements in U.S. dollars. As a result, we must translate the assets, liabilities, net sales and expenses of a substantial portion of our foreign operations into U.S. dollars at applicable exchange rates. Consequently, increases or decreases in the value of the U.S. dollar may affect the

 

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value of these items with respect to our non-U.S. dollar businesses in our financial statements, even if their value has not changed in their local currency. These translations could significantly affect the comparability of our results between financial periods or result in significant changes to the carrying value of our assets, liabilities and equity.

Our ability to operate our business effectively could be impaired if we fail to attract and retain key personnel.

Our ability to operate our business and implement our strategies effectively depends, in part, on the efforts of our executive officers and other key employees. Our management team has significant industry experience and would be difficult to replace. These individuals possess sales, marketing, engineering, manufacturing, financial and administrative skills that are critical to the operation of our business. In addition, the market for engineers and other individuals with the required technical expertise to succeed in our business is highly competitive, and we may be unable to attract and retain qualified personnel to replace or succeed key employees should the need arise. The loss of the services of any of our key employees or the failure to attract or retain other qualified personnel could have a material adverse effect on our business, financial condition and results of operations.

We have in the past and may in the future implement initiatives designed to rationalize our use of resources, optimize those resources for the most attractive market opportunities and manage our production capacity to meet demand efficiently. We may fail to realize the full benefits of, and could incur significant costs relating to, any such initiatives, which could materially adversely affect our business, financial condition and results of operations.

We have implemented several initiatives since 2009 designed to rationalize our use of resources, optimize those resources for the most attractive market opportunities and manage our production capacity to meet demand efficiently. Similar to the workforce reductions and facility realignment in 2009, during the fourth quarter of 2011, SunEdison committed to a series of actions to reduce its global workforce, right size its production capacity and accelerate operating cost reductions. In connection with that plan, we reduced our workforce by approximately 11% and shuttered our Merano, Italy polysilicon facility. Primarily as a result of these actions, we incurred restructuring charges of $284.5 million and long-lived asset impairment charges of $234.7 million in 2011. In addition, in 2012, we completed the transfer of certain of our manufacturing operations from our St. Peters, Missouri facility to our facility in Ipoh, Malaysia.

In the fourth quarter of 2013, management concluded an analysis as to whether to restart the Merano, Italy polysilicon facility and determined that, based on recent developments and current market conditions, restarting the facility was not aligned with our business strategy. Accordingly, we have decided to indefinitely close the previously shuttered Merano, Italy polysilicon facility and the related chlorosilanes facility. As a result, during the three months ended December 31, 2013, we recorded $33.6 million of non-cash impairment charges to write-down these assets to their current estimated salvage value. In connection with our decision to indefinitely close these facilities, we also made insignificant revisions to other estimated liabilities that were previously accrued as part of our 2011 Global Plan. In addition, on February 7, 2014, we determined to commence a plan to consolidate our crystal operations. The consolidation will include transitioning small diameter crystal activities from our St. Peters, Missouri facility to other crystal facilities in Korea, Taiwan and Italy. The consolidation of crystal activities will affect approximately 120 employees in St. Peters and will be implemented over the 12 months following commencement of the plan. We estimate that we will incur approximately $4.0 million to $6.0 million of expense as a result of this action, primarily related to termination costs of the affected employees, of which we incurred approximately $4.0 million in the three months ended March 31, 2014 and the balance over the next 12 to 18 months.

We cannot assure you that we will realize the cost savings and productivity improvements we expect as a result of these or any future restructuring and cost improvement initiatives. Future initiatives to transfer or consolidate manufacturing operations could also involve significant start-up or qualification costs for new or

 

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repurposed facilities. The failure to realize the full benefits of, or the incurrence of significant costs relating to, restructuring initiatives could materially adversely affect our business, financial condition and results of operations.

Our dependence on single or a limited number of suppliers for polysilicon and other raw materials, equipment and supplies could harm our production output and increase our costs, which could have a material adverse effect on our business, financial condition and results of operations.

Our ability to meet our customers’ demand for our products depends upon obtaining adequate supplies of quality raw materials on a timely basis. We obtain several raw materials, equipment and supplies from sole suppliers. In addition, we have historically obtained our requirements for polysilicon primarily from SunEdison’s Pasadena, Texas facility. Following the completion of this offering, we expect SunEdison to continue to commit to supplying us with our polysilicon requirements. However, following the Transactions, we will also own a 35% interest in SMP, which owns a polysilicon manufacturing facility in South Korea that is currently under construction. The SMP facility is expected to be completed in the second half of 2014. We expect to purchase polysilicon from SunEdison on a purchase order basis at competitive market prices until SMP achieves commercial capabilities to produce electronic grade polysilicon. After SMP achieves such commercial capabilities, we expect to purchase a portion of our polysilicon from SMP on a purchase order basis at prices lower than our historical cost for polysilicon. If for any reason SunEdison or SMP is unwilling or unable to meet our demand for polysilicon, we will be required to seek other suppliers, which could result in manufacturing delays, an increase in our costs relating to obtaining polysilicon or a decrease in our manufacturing throughput or yields. Such an occurrence could have a material adverse effect on our business, financial condition and results of operations.

From time to time we have experienced limited supplies of certain other raw materials, equipment and supplies and may experience shortages in the future. A prolonged inability to manufacture or obtain raw materials, equipment or supplies, or increases in prices resulting from shortages of these materials, could have a material adverse effect on our business, financial condition and results of operations.

We may never realize the expected benefits from SMP, and the SMP facility may require additional capital investments, which could obligate us to sell ordinary shares to Samsung Fine Chemicals and dilute the ownership interests of our shareholders.

SMP was established to construct and operate a polysilicon manufacturing facility for the benefit of the joint venture partners of SMP. The SMP facility is not currently operational and is not expected to be completed until the second half of 2014. Commencement of operations at the facility could be delayed for a variety of reasons, including weather, natural disasters, labor shortages or strikes or other factors beyond our control. Once the facility commences operations, we expect to purchase a portion of our polysilicon requirements from SMP.

However, we may not realize all of the expected benefits of the SMP manufacturing facility due to, among other things:

 

    the facility may never achieve the commercial capabilities to produce electronic grade polysilicon;

 

    the facility may operate less efficiently than we expect or may not become commercially viable at all, including for reasons beyond our control;

 

    we may become involved in disputes with our joint venture partners regarding additional capital investments or operations, such as how to best deploy assets, and such disagreements could disrupt or halt the operations of the facility or negatively impact the facility’s efficiency;

 

    the facility may not receive appropriate regulatory approvals to manufacture polysilicon or such approvals may be delayed;

 

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    general political and economic uncertainty could impact completion of construction of the facility or, following completion, operations at the facility, including multiple regulatory requirements that are subject to change, any future implementation of trade protection measures and import or export licensing requirements between the United States and South Korea, labor regulations or work stoppages, fluctuations in foreign currency exchange rates, and complying with U.S. regulations that apply to international operations, including trade laws and the U.S. Foreign Corrupt Practices Act;

 

    we may be required to make unexpected and substantial additional capital investments in SMP; and

 

    operations at the facility may be disrupted, including by natural disasters, equipment failures or environmental factors.

Any of these or other actions or factors could adversely affect the supply of polysilicon to us or our ability to otherwise realize any return on our investment in the joint venture, which could have a material adverse effect on our business, financial condition and results of operations.

In addition, pursuant to an agreement we expect to enter into with Samsung Fine Chemicals and SunEdison in connection with the closing of the Samsung Private Placements, we will be obligated to sell additional ordinary shares having an aggregate value (based on the initial public offering price) of up to 3.5 billion South Korean won, or $3.4 million at currency exchange rates as of May 8, 2014, to Samsung Fine Chemicals following the closing of the Samsung Private Placements in the event construction costs associated with the SMP facility exceed a specified amount. The number of additional ordinary shares that we will be obligated to sell to Samsung Fine Chemicals will depend upon the extent to which the actual construction costs exceed 410 billion South Korean won but are less than 430 billion South Korean won, or approximately $400.8 million to $420.4 million at currency exchange rates as of May 8, 2014. Assuming an initial public offering price of $14.00 per share, which is the midpoint of the price range listed on the cover page of this prospectus, and currency exchange rates as of May 8, 2014, the maximum number of additional ordinary shares that we will be obligated to sell to Samsung Fine Chemicals is 244,415 ordinary shares. Any such issuance would dilute the ownership interest of holders of our ordinary shares.

Payments required from us under leases and pursuant to minimum purchase obligations could have a material adverse effect on our business, financial condition and results of operations.

We have long-term annual lease obligations for certain facilities and minimum purchase requirements with certain suppliers of precursor raw materials, such as chemicals used in our production processes. In 2013, we made payments of approximately $43.4 million in the aggregate to fulfill minimum purchase and lease obligations. Our failure to satisfy required purchase and lease obligations, or our need to terminate any such contracts as a result of declining market demand or otherwise, could have a material adverse effect on our business, financial condition and results of operations.

Restrictive covenants under our credit facilities may limit our current and future operations, and if we fail to comply with those covenants, the lenders could cause outstanding amounts to become immediately due and payable, and we might not have sufficient funds and assets to pay such loans.

In connection with the Transactions, we will enter into a $200.0 million senior secured term loan facility, issued at a 1% discount, and an up to $50.0 million senior secured revolving credit facility. These facilities will contain certain restrictive covenants and conditions, including limitations on our ability to, among other things:

 

    incur additional indebtedness and guarantee indebtedness;

 

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    pay dividends on or make distributions in respect of capital stock or make certain other restricted payments or investments;

 

    enter into certain agreements that restrict distributions from restricted subsidiaries;

 

    sell or otherwise dispose of assets, including capital stock of restricted subsidiaries;

 

    enter into transactions with affiliates;

 

    create or incur liens;

 

    merge, consolidate or sell substantially all of our assets;

 

    make acquisitions or other investments; and

 

    make certain payments on indebtedness.

As a result of these covenants, we may be restricted in our ability to pursue new business opportunities or strategies or to respond quickly to changes in the semiconductor industry. A violation of any of these covenants would be deemed an event of default under our credit facilities. In such event, upon the election of the lenders, the loan commitments under our credit facilities would terminate and the loans and accrued interest then outstanding would be due and payable immediately. A default may also result in the acceleration of any other debt to which a cross-acceleration or cross-default provision applies. In the event our lenders accelerate the repayment of our borrowings, we cannot assure you that we and our subsidiaries would have sufficient funds to repay such indebtedness or be able to obtain replacement financing on a timely basis or at all. These events could have a material adverse effect on our business, financial condition and results of operations. We also may need to negotiate changes to the covenants in our credit agreements in the future if there are material changes in our business, operations or financial condition, but we cannot assure you that we will be able to do so on terms favorable to us or at all.

We may not be able to generate sufficient cash to service all of our indebtedness and may be forced to take other actions to satisfy our obligations under our indebtedness, which may not be successful.

Our ability to make scheduled payments on or to refinance our indebtedness, including the credit facilities we will enter into in connection with the Transactions, depends on our financial condition and operating performance, which are subject to economic and competitive conditions and other factors beyond our control. We may be unable to maintain a level of cash flows from operating activities sufficient to permit us to fund our day-to-day operations or to pay the principal, premium, if any, and interest on our indebtedness. If our cash flows and capital resources are insufficient to fund our debt service obligations, we could face substantial liquidity problems and could be forced to reduce or delay investments and capital expenditures or to sell assets or operations, seek additional capital or restructure or refinance our indebtedness. If we cannot make scheduled payments on our debt, we will be in default and, as a result, the lenders under our credit facilities or other indebtedness could terminate their commitments to loan money, or foreclose against the assets securing such borrowings, and we could be forced into bankruptcy or liquidation, in each case, which would have a material adverse effect on our business, financial condition and results of operations.

We are subject to numerous environmental laws and regulations, which could require us to incur environmental liabilities, increase our manufacturing and related compliance costs or otherwise adversely affect our business.

We are subject to a variety of federal, state, local and foreign laws and regulations governing the protection of the environment. These environmental laws and regulations include those relating to the use,

 

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storage, handling, discharge, emission, disposal and reporting of toxic, volatile or otherwise hazardous materials used in our manufacturing processes. These materials may have been or could be released into the environment at properties currently or previously owned or operated by us, at other locations during the transport of the materials or at properties to which we send substances for treatment or disposal. If we were to violate or become liable under environmental laws and regulations or become non-compliant with permits required at some of our facilities, we could be held financially responsible and incur substantial costs, including cleanup costs, fines and civil or criminal sanctions, third-party property damage or personal injury claims.

Groundwater and/or soil contamination has been detected at our facilities in St. Peters, Missouri and Merano, Italy, and we previously had contamination at two other facilities which has now been remediated. We believe we are taking all necessary remedial steps at the two facilities where contamination still exists and continue to monitor the other two facilities. We do not expect the costs of the ongoing monitoring at these sites to be material. In connection with our decision to indefinitely close the Merano, Italy polysilicon and chlorosilanes facilities, during the three months ended December 31, 2013, we recorded an additional $3.4 million of environmental expense to reflect revised estimated liabilities relating to remediation activities that would be required to be undertaken at our Merano, Italy facilities. As of March 31, 2014, we believe we have adequately accrued all estimated required expenses with respect to our current decision to indefinitely close the Merano, Italy facilities. However, actual future expenses could differ from our estimates. In addition, if we decide to close other facilities in the future, we could be subject to additional costs related to cleanup and/or remediation. These additional costs could be material. Environmental issues relating to presently known or unknown matters could require additional investigation, assessment or expenditures. In addition, new laws and regulations or stricter enforcement of existing laws and regulations could give rise to additional compliance costs and liabilities.

Labor disruptions could materially and adversely affect our business, financial condition and results of operations.

As of March 31, 2014, we had approximately 4,100 employees, approximately 1,400 of whom were unionized at our manufacturing facilities in St. Peters, Missouri; Merano, Italy; Novara, Italy; Utsunomiya, Japan; and Chonan, South Korea. In various countries, local law also requires our participation in works councils. While we have not experienced any material work stoppages at any of our facilities due to labor union activities in recent years, any stoppage or slowdown at any of these facilities could cause material interruptions in manufacturing, and we cannot be certain that alternate qualified capacity would be available on a timely basis or at all. As a result, labor disruptions at any of our facilities could materially and adversely affect our business, financial condition and results of operations.

We may incur unexpected product performance claims that could materially and adversely affect our business, financial condition and results of operations.

Product performance claims against us relating to defective products could cause us to incur significant repair or replacement expense. In addition, quality issues can have various other ramifications, including delays in the recognition of net sales, loss of net sales, loss of future sales opportunities, increased costs associated with repairing or replacing products, and a negative impact on our reputation, all of which could materially and adversely affect our business, financial condition and results of operations.

Future acquisitions may present integration challenges, and if the goodwill, indefinite-lived intangible assets and other long-term assets recorded in connection with such acquisitions become impaired, we would be required to record impairment charges, which may be significant.

If we find appropriate opportunities in the future, we may acquire businesses, products or technologies that we believe are strategic. If we acquire a business, product or technology, the process of integration may produce unforeseen operating difficulties and expenditures, fail to result in expected synergies or other benefits

 

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and absorb significant attention of our management that would otherwise be available for the ongoing development of our business.

In the event of any future acquisitions, we may record a portion of the assets we acquire as goodwill, other indefinite-lived intangible assets or finite-lived intangible assets. We do not amortize goodwill and indefinite-lived intangible assets, but rather review them for impairment on an annual basis or whenever events or changes in circumstances indicate that their carrying value may not be recoverable. The recoverability of these assets is dependent on our ability to generate sufficient future earnings and cash flows. Changes in estimates, circumstances or conditions, resulting from both internal and external factors, could have a significant impact on our fair valuation determination, which could then result in a material impairment charge negatively affecting our results of operations.

Risks Related to Our Separation from and Our Relationship with SunEdison

We are controlled by SunEdison, whose interests may conflict with yours, and this concentrated ownership of our ordinary shares will prevent you and other investors in our shares from influencing significant decisions involving our company.

Immediately following the completion of this offering and the Samsung Private Placements, SunEdison will own 23,560,251 shares, or 58.4%, of our outstanding ordinary shares (or 56.8% if the underwriters exercise in full their option to purchase additional ordinary shares). Accordingly, SunEdison will continue to exercise significant influence over our business policies and affairs, including the composition of our board of directors and any action requiring the approval of our shareholders, including the adoption of amendments to our memorandum and articles of association, the issuance of additional shares or other equity securities, the declaration and payment of dividends and the approval of mergers, reorganizations and disposals of a substantial part of our assets or business undertakings. The concentration of ownership may also make some transactions, including mergers or other changes in control, more difficult or impossible without the support of SunEdison. SunEdison’s interests may conflict with your interests as an investor in our shares. For additional information about our relationships with SunEdison, you should read the information in “Certain Relationships and Related Party Transactions.”

Conflicts of interest between SunEdison and us could be resolved in a manner unfavorable to us.

Various conflicts of interest between SunEdison and us could arise. Many of our officers currently own stock in SunEdison, which in some cases are in excess of their ownership interests in our shares. In addition, upon the completion of this offering, two of our directors will be an officer or director of SunEdison. Ownership interests of officers or directors of SunEdison in our ordinary shares, or a person’s service as either an officer or director of both companies, could create actual or potential conflicts of interest when those officers or directors are faced with decisions that could have different implications for SunEdison and us. These decisions could, for example, relate to:

 

    our financing and dividend policy;

 

    compensation and benefit programs and other human resources policy decisions;

 

    termination of, changes to or determinations under our agreements with SunEdison entered into in connection with the Transactions; and

 

    determinations with respect to our tax returns.

Actual or potential conflicts of interest could also arise if we enter into any new commercial arrangements with SunEdison in the future. Our directors who are also directors or officers of SunEdison may also face conflicts of interest with regard to the allocation of their time between SunEdison and us.

 

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The corporate opportunity provisions in our memorandum and articles of association could enable SunEdison to benefit from corporate opportunities that might otherwise be available to us, and SunEdison and its representatives will have the right to engage or invest in the same or similar businesses as us.

Our memorandum and articles of association provide that we renounce any interest or expectancy in, or in being offered an opportunity to participate in, any business opportunity in the solar energy field, including the manufacture of solar wafers, that may from time to time be presented to SunEdison or any of its officers, directors, agents, stockholders, members, partners, affiliates and subsidiaries (other than us and our subsidiaries) and that may be a business opportunity for SunEdison, even if the opportunity is one that we might reasonably have pursued or had the ability or desire to pursue if granted the opportunity to do so. Further, our memorandum and articles of association provide that no such person will be liable to us for breach of any fiduciary or other duty, as a director or officer or otherwise, by reason of the fact that such person, acting in good faith, pursues or acquires any such business opportunity, directs any such business opportunity to another person or fails to present any such business opportunity, or information regarding any such business opportunity, to us unless, in the case of any such person who is our director or officer, such business opportunity is expressly offered to such director or officer solely in his or her capacity as our director or officer.

SunEdison has other investments and business activities in addition to their ownership of us, including in industries similar to the industry in which we operate. Neither SunEdison nor any of its representatives has any duty to refrain from engaging directly or indirectly in business activities or lines of business other than the growth, processing and manufacture of semiconductor crystals for use as a substrate for semiconductor wafer production, the processing and manufacture of semiconductor wafers for the semiconductor industry, and similar uses solely within the semiconductor industry.

We have no recent operating history as an independent company upon which you can evaluate our performance and, accordingly, our prospects must be considered in light of the risks that any newly independent company encounters.

Following the acquisition of SunEdison LLC in November 2009, we have operated as a business segment of SunEdison. Accordingly, we have no recent experience operating as an independent company and performing various corporate functions which were previously undertaken on a centralized basis by SunEdison, including human resources, tax administration, legal, treasury administration, investor relations, business development, internal audit, insurance, information technology and telecommunications services, as well as the accounting for many items such as equity compensation, income taxes, derivatives and pensions. Our prospects must be considered in light of the risks, expenses and difficulties encountered by companies in the early stages of independent business operations, particularly companies such as ours in highly competitive markets.

Our historical combined financial statements may not be necessarily representative of the results we would have achieved as a stand-alone company and may not be a reliable indicator of our future results.

Our historical combined financial statements and unaudited pro forma consolidated financial data included elsewhere in this prospectus have been created from SunEdison’s financial statements using our historical results of operations and bases of assets and liabilities as a business segment of SunEdison. In connection with the preparation of the historical combined financial statements and unaudited pro forma consolidated financial data, we made certain estimates, assumptions and allocations based on current facts, historical experience and various other factors. While we believe that these estimates, assumptions and allocations are reasonable under the circumstances, they are subject to significant uncertainties. This is primarily the result of the following factors:

 

   

our historical combined financial statements reflect expense allocations for certain support functions that are provided on a centralized basis within SunEdison, such as expenses for business technology, facilities, legal, finance, human resources, investor relations, business development,

 

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public affairs and procurement, as well as certain manufacturing and supply costs incurred by manufacturing sites that are shared with other SunEdison business units that may be higher or lower than the comparable expenses we would have actually incurred, or will incur in the future, as a stand-alone company;

 

    our cost of debt and our capital structure will be different from that reflected in our historical combined financial statements;

 

    increases will occur in our cost structure as a result of being a stand-alone public company, including costs related to public company reporting, investor relations and compliance with the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act; and

 

    our effective income tax rate as reflected in our historical financial information may not be indicative of our future effective income tax rate.

Accordingly, the historical and pro forma financial information included elsewhere in this prospectus may not necessarily reflect the financial condition, results of operations or cash flows we would have achieved as a stand-alone company during the periods presented or that we will achieve in the future.

Our failure to achieve and maintain effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act as a stand-alone company could have a material adverse effect on our business and share price.

Prior to the acquisition of SunEdison LLC in 2009, we were required to maintain internal control over financial reporting in a manner that met the standards of publicly traded companies as required by Section 404(a) of the Sarbanes-Oxley Act. However, since that time, we have not operated as a stand-alone public company and have not had to independently comply with Section 404(a) of the Sarbanes-Oxley Act. We anticipate being required to meet these standards in the course of preparing our financial statements as of and for the year ended December 31, 2014, and our management will be required to report on the effectiveness of our internal control over financial reporting for such year. Additionally, once we are no longer an emerging growth company, as defined by the Jumpstart Our Business Startups Act, or the JOBS Act, our independent registered public accounting firm will be required pursuant to Section 404(b) of the Sarbanes-Oxley Act to attest to the effectiveness of our internal control over financial reporting on an annual basis. The rules governing the standards that must be met for our management to assess our internal control over financial reporting are complex and require significant documentation, testing and possible remediation.

Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with generally accepted accounting principles. We are currently in the process of reviewing, documenting and testing our internal control over financial reporting, but we are not currently in compliance with, and we cannot be certain when we will be able to implement the requirements of Section 404(a). We may encounter problems or delays in implementing any changes necessary to make a favorable assessment of our internal control over financial reporting. In addition, we may encounter problems or delays in completing the implementation of any requested improvements and receiving a favorable attestation in connection with the attestation to be provided by our independent registered public accounting firm after we cease to be an emerging growth company. If we cannot favorably assess the effectiveness of our internal control over financial reporting, or if our independent registered public accounting firm is unable to provide an unqualified attestation report on our internal controls after we cease to be an emerging growth company, investors could lose confidence in our financial information and the price of our ordinary shares could decline.

Additionally, the existence of any material weakness or significant deficiency would require management to devote significant time and incur significant expense to remediate any such material weaknesses or significant deficiencies and management may not be able to remediate any such material weaknesses or significant deficiencies in a timely manner. The existence of any material weakness in our internal control over

 

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financial reporting could also result in errors in our financial statements that could require us to restate our financial statements, cause us to fail to meet our reporting obligations and cause shareholders to lose confidence in our reported financial information, all of which could materially and adversely affect our business and share price.

We may not achieve some or all of the expected benefits of the Transactions.

We may not be able to achieve the full strategic and financial benefits expected to result from the Transactions, or such benefits may be delayed. These expected benefits include, but are not limited to, the following:

 

    improving strategic and operational flexibility and increasing management focus on our business;

 

    allowing us to adopt the capital structure and investment policy best suited to our financial profile and business needs; and

 

    improving the alignment of management and employee incentives with performance and growth objectives of our business.

If we are unable to achieve the strategic and financial benefits expected to result from the Transactions, our business, financial condition and results of operations could be materially adversely affected.

Future sales or distributions of our shares by SunEdison or the Samsung Purchasers could depress the price of our ordinary shares.

After this offering, and subject to the lock-up period described below, SunEdison and the Samsung Purchasers may sell all or a portion of our ordinary shares that they own or SunEdison may distribute those shares to its shareholders. Sales by SunEdison or the Samsung Purchasers in the public market or distributions by SunEdison to its shareholders of substantial amounts of our ordinary shares, or the filing by SunEdison or the Samsung Purchasers of a registration statement relating to a substantial amount of our ordinary shares, could depress the price of our ordinary shares. SunEdison and the Samsung Purchasers have informed us that, at some time in the future, but no earlier than the expiration of the lock-up period, they may sell all or a portion of their ownership interest in us. Neither SunEdison nor the Samsung Purchasers are subject to any contractual obligation to maintain their ownership position in our shares, except that they have agreed not to sell or otherwise dispose of any of our ordinary shares for a period ending 180 days after the date of the final prospectus without the prior written consent of Deutsche Bank Securities Inc. and Goldman, Sachs & Co., on behalf of the underwriters, subject to specified limited exceptions described in “Underwriting.” Consequently, SunEdison or the Samsung Purchasers may decide not to maintain their ownership of our ordinary shares once the lock-up period expires.

In addition, SunEdison and the Samsung Purchasers will have the right, subject to some conditions, to require us to file registration statements covering their shares or to include their shares in other registration statements that we may file. See “Certain Relationships and Related Party Transactions—Registration Rights Agreement with SunEdison” and “—Registration Rights Agreements with Samsung Purchasers.” By exercising their registration rights or selling a large number of shares, SunEdison or the Samsung Purchasers could cause the price of our ordinary shares to decline.

SunEdison has pledged our ordinary shares that it owns to its lenders under its credit facility. If the lenders foreclose on these shares, the market price of our ordinary shares could be materially adversely affected.

SunEdison has pledged all of our ordinary shares that it owns to its lenders as security under its credit facility with Wells Fargo Bank, National Association, as administrative agent, Goldman Sachs Bank USA and Deutsche Bank Securities Inc., as joint lead arrangers and joint syndication agents, Goldman Sachs Bank USA, Deutsche Bank Securities Inc., Wells Fargo Securities, LLC and Macquarie Capital (USA) Inc., as joint bookrunners, and the lenders identified in the credit agreement. If SunEdison breaches certain covenants and

 

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obligations in its credit facility, an event of default could result and the lenders could exercise their right to accelerate all the debt under the credit facility and foreclose on the pledged shares. While the pledged shares are subject to the 180-day lock-up restrictions described in “Shares Eligible for Future Sale—Lock-Up Agreements,” any future sale of pledged shares after foreclosure could cause the market price of our ordinary shares to decline. In addition, because SunEdison owns a majority of our ordinary shares, the occurrence of an event of default, foreclosure, and a subsequent sale of all, or substantially all, of the pledged shares could result in a change of control, even when such change may not be in the best interest of our shareholders.

If SunEdison sells a controlling interest in our company to a third party in a private transaction, you may not realize any change-of-control premium on shares of our ordinary shares and we may become subject to the control of a presently unknown third party.

Following this offering, SunEdison will have the ability, should it choose to do so, to sell some or all of our ordinary shares that it owns in a privately negotiated transaction, which, if sufficient in size, could result in a change of control of our company. In addition, the Samsung Purchasers will have certain rights to participate in any such sale by SunEdison pursuant to tag-along agreements to be entered into between SunEdison and the Samsung Purchasers in connection with the Samsung Private Placements. The Singapore Code on Takeovers and Mergers, or the Singapore Takeover Code, requires a general offer to be made to all shareholders of our company in certain specific circumstances; however, there can be no assurance that any divestment by SunEdison of its ordinary shares in us would trigger the requirement to make a concurrent general offer, or that the new controlling shareholder would not be able to obtain a waiver from compliance with the provisions of the Singapore Takeover Code from the applicable Singapore regulatory authorities, which may prevent you from realizing any change-of-control premium on your investment in our shares. Additionally, if SunEdison privately sells a significant equity interest in our company, we may become subject to the control of a presently unknown third party. Such third party may have actual or potential conflicts of interest with those of other shareholders. If SunEdison sells a controlling interest in us to a third party, our indebtedness may be subject to acceleration and our commercial agreements (or terms thereof) and relationships may be adversely impacted, any of which may materially and adversely affect our ability to run our business as described herein and may have a material adverse effect on our business, financial condition and results of operations.

The agreements we have entered or will enter into with SunEdison in connection with the Transactions were not negotiated on an arm’s length basis and may include terms and provisions that are less favorable than terms and provisions we could have obtained in arm’s length negotiations with unaffiliated third parties.

In connection with the Formation Transactions, we have entered into a series of agreements with SunEdison (including certain of its subsidiaries) relating to the contribution of all of the outstanding capital stock of SunEdison’s subsidiaries that own and operate its semiconductor materials business and all of the assets primarily related to its semiconductor materials business held by SunEdison or its subsidiaries in exchange for aggregate consideration of 23.6 million ordinary shares, intercompany notes in an aggregate principal amount of $302.9 million and the assumption by us of $336.0 million of liabilities reflected on our balance sheet as of March 31, 2014 (to the extent not subsequently discharged) plus all other liabilities related to the semiconductor materials business. Additionally, prior to the consummation of this offering, we will enter into agreements that will provide a framework for our ongoing relationship with SunEdison, including intellectual property licensing agreements, a transition services agreement and a tax matters agreement. See “Certain Relationships and Related Party Transactions.” The terms of these agreements, including the prices paid for services provided by SunEdison to us or by us to SunEdison following this offering, the number of ordinary shares to be issued to SunEdison and the consideration paid by us to SunEdison in connection with the Formation Transactions, were not determined by arm’s length negotiations. No independent third-party appraisal of the semiconductor materials business of SunEdison was obtained on our behalf, nor has any independent third party determined that the pricing terms under the agreements with SunEdison that will be in effect following this offering are equivalent to fair market value. Accordingly, there can be no assurance that the terms and provisions of any of these agreements are or will be as favorable to us as those that we could have obtained in arm’s length negotiations with unaffiliated third parties which were not controlling shareholders of our company.

 

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SunEdison will provide a number of services to us pursuant to a transition services agreement. When such agreement terminates, we will be required to replace the services, and the economic terms of the new arrangements may be less favorable to us.

Under the terms of a transition services agreement that we will enter into with SunEdison in connection with the Transactions, SunEdison will provide us, for a fee, specified support services related to corporate functions such as risk management, communications, corporate administration, finance, accounting, audit, legal, information technology, human resources, compliance, employee benefits and stock compensation administration for an initial term of one to two years following the Transactions, unless earlier terminated or extended according to the terms of the agreement. When the transition services agreement terminates, we will be required to either enter into a new agreement with SunEdison or another services provider or assume the responsibility for these functions ourselves. We cannot assure you that the economic terms of the new arrangements will be similar to those under our current arrangements with SunEdison. If we are unable to renew or replace such arrangements on a comparable basis, our business, financial condition and results of operations may be materially and adversely affected.

For a summary of the material terms of the transition services agreement, see “Certain Relationships and Related Party Transactions—Transition Services Agreement.”

SunEdison’s rights as licensor under the intellectual property license agreements we will enter into in connection with the Transactions could limit our ability to develop and commercialize certain products if we fail to comply with our obligations under such agreements.

Under the intellectual property licensing agreements we will enter into in connection with the Transactions, SunEdison will license to us certain of its retained intellectual property rights applicable to manufacturing semiconductor wafers, including certain rights related to continuous Czochralski, or CCZ, diamond wire cutting. If we fail to comply with our obligations under this license agreement and SunEdison exercises its right to terminate it, our ability to continue to research, develop and commercialize products incorporating that intellectual property will be limited. These termination rights may make it more difficult, time consuming or expensive for us to develop and commercialize certain new products, or may result in our products being later to market than those of our competitors.

For a summary of the material terms of the intellectual property license agreements, see “Certain Relationships and Related Party Transactions—Intellectual Property Licensing Agreements.”

We are dependent on SunEdison to prosecute, maintain and enforce certain intellectual property.

Under the intellectual property license agreements, we expect that SunEdison will be responsible for filing, prosecuting and maintaining patents that SunEdison licenses to us. SunEdison also has the first right, and in some cases the sole right, to enforce such patents. In addition, with respect to the patents that we license to SunEdison, SunEdison will have the sole right to enforce the licensed patents if the enforcement relates to SunEdison’s solar energy business, subject to certain exceptions. If SunEdison fails to fulfill its obligations or chooses to not enforce the licensed patents under these agreements, we may not be able to prevent competitors from making, using and selling competitive products.

Risks Relating to Investments in Singapore Companies

We are incorporated in Singapore and our shareholders may have more difficulty in protecting their interests than they would as shareholders of a corporation incorporated in the United States.

Our corporate affairs are governed by our memorandum and articles of association and by the laws governing companies incorporated in Singapore. The rights of our shareholders and the responsibilities of the

 

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members of our board of directors under Singapore law are different from those applicable to a corporation incorporated in the United States. Therefore, our public shareholders may have more difficulty in protecting their interest in connection with actions taken by us, our management, members of our board of directors or our controlling shareholder than they would as shareholders of a corporation incorporated in the United States. For example, controlling shareholders, such as SunEdison immediately following this offering, in corporations incorporated in Delaware are subject to fiduciary duties while controlling shareholders in Singapore companies are not subject to such duties.

In addition, only persons who are registered as shareholders in our shareholder register are recognized under Singapore law as shareholders of our company. Only registered shareholders have legal standing to institute shareholder actions against us or otherwise seek to enforce their rights as shareholders. Investors in our shares who are not specifically registered as shareholders in our shareholder register (for example, where such shareholders hold shares indirectly through The Depository Trust Company) are required to become registered as shareholders in our shareholder register in order to institute or enforce any legal proceedings or claims against us, our directors or our executive officers relating to shareholder rights. Holders of book-entry interests in our shares may become registered shareholders by exchanging their book-entry interests in our shares for certificated shares and being registered in our shareholder register. Please see “Comparison of Shareholder Rights” for a discussion of certain differences between Singapore and Delaware corporation law.

You may have difficulty enforcing judgments against us or certain of our directors and officers.

We are a Singapore-incorporated company, and a majority of our assets are located outside of the United States. Although we are incorporated outside the United States, we have agreed to accept service of process in the United States through our agent designated for that purpose. Nevertheless, since a majority of the consolidated assets owned by us are located outside the United States, any judgment obtained in the United States against us may not be collectible within the United States. In addition, certain of our officers and directors are or will be resident outside the United States.

As a result, it may be difficult for you to effect service of process within the United States upon these persons. It may also be difficult for you to enforce judgments obtained in the United States in the Singapore, Malaysia, Taiwan, Japan or South Korean courts based upon the civil liability provisions of the U.S. federal securities laws against us and our non-U.S. resident officers and directors. In addition, there is uncertainty as to whether these courts would recognize or enforce judgments of U.S. courts against us or such persons predicated upon the civil liability provisions of the securities laws of the United States. It is also uncertain whether such courts would be competent to hear original actions brought against us or other persons predicated on the securities laws of the United State or any other state.

With respect to Singapore, there is no treaty between the United States and Singapore providing for the reciprocal recognition and enforcement of judgments in civil and commercial matters and a final judgment for the payment of money rendered by any federal or state court in the United States based on civil liability, whether or not predicated solely upon the federal securities laws, would, therefore, not be automatically enforceable in Singapore. It is not clear whether a Singapore court may impose civil liability on us or our directors and officers who reside in Singapore in a suit brought in the Singapore courts against us or such persons with respect to a violation solely of the federal securities laws of the United States. In addition, holders of book-entry interests in our shares will be required to be registered shareholders as reflected in our shareholder register in order to have standing to bring a shareholder suit and, if successful, to enforce a foreign judgment against us, our directors or our executive officers in the Singapore courts. The administrative process of becoming a registered shareholder could result in delays prejudicial to any legal proceeding or enforcement action. In making a determination as to enforceability of a foreign judgment, the Singapore courts would have regard to whether the judgment was final and conclusive, given by a court of competent jurisdiction, and was expressed to be for a fixed sum of money. In general, a foreign judgment would be enforceable in Singapore unless it was procured by fraud, or the proceedings in which such judgment was obtained were not conducted in accordance with principles of natural

 

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justice, or the enforcement thereof would be contrary to public policy. Accordingly, there can be no assurance that the Singapore courts would enforce against us, our directors or our officers resident in Singapore judgments obtained in the United States which are predicated upon the civil liability provisions of the federal securities laws of the United States.

We are subject to the laws of Singapore, which differ in certain material respects from the laws of the United States.

As a Singapore-incorporated public company, we are required to comply with the laws of Singapore, certain of which are capable of extra-territorial application, as well as our memorandum and articles of association. In particular, we are required to comply with certain provisions of the Securities and Futures Act of Singapore, or the SFA, which prohibit certain forms of market conduct and information disclosures, and impose criminal and civil penalties on corporations, directors and officers in respect of any breach of such provisions. We are also required to comply with the Singapore Takeover Code, which specifies, among other things, certain circumstances in which a general offer is to be made upon a change in control, and further specifies the manner and price at which voluntary and mandatory general offers are to be made.

The laws of Singapore and of the United States differ in certain significant respects. The rights of our shareholders and the obligations of our directors and officers under Singapore law are different from those applicable to a U.S.-incorporated company in material respects, and our shareholders may have more difficulty and less clarity in protecting their interests in connection with actions taken by our management, members of our board of directors or our controlling shareholders than would otherwise apply to a U.S.-incorporated company. See “Comparison of Shareholder Rights” for a discussion of certain differences between Singapore and Delaware corporation law.

In addition, the application of Singapore law, in particular, the Singapore Takeover Code, may in certain circumstances impose more restrictions on us, our shareholders, directors and officers than would otherwise be applicable to a U.S.-incorporated company. For example, the Singapore Companies Act requires directors to act with a reasonable degree of diligence and, in certain circumstances, imposes criminal liability for specified contraventions of particular statutory requirements or prohibitions. In addition, pursuant to the provisions of the Singapore Companies Act, minority shareholders holding 10% or more of our issued and outstanding voting rights may require the convening of an extraordinary general meeting of shareholders by our directors. If our directors fail to comply with such request within 21 days of the receipt thereof, minority shareholders holding 50% of the voting rights represented by the original requisitioning shareholders may proceed to convene such meeting, and we will be liable for the reasonable costs incurred by such requisitioning shareholders. We are also required by the Singapore Companies Act to deduct corresponding amounts from fees or other remuneration payable by us to such non-complying directors.

For a limited period of time, our directors have general authority to allot and issue new shares on terms and conditions and with any preferences, rights or restrictions as may be determined by our board of directors in its sole discretion.

Under Singapore law, we may only allot and issue new shares with the prior approval of our shareholders in a general meeting. We expect that prior to the completion of this offering, SunEdison, as our sole shareholder, will provide our directors with a general authority to allot and issue any number of new shares (whether as ordinary shares or preference shares) until the earlier of (i) the conclusion of our 2015 annual general meeting of shareholders, (ii) the expiration of the period within which the next annual general meeting is required to be held (i.e., within 18 months from our incorporation) or (iii) the subsequent revocation or modification of such general authority by our shareholders acting at an extraordinary general meeting duly convened for such purpose. Subject to the general requirements of the Singapore Companies Act and our memorandum and articles of association, the general authority given to our directors by SunEdison to allot and issues shares may be exercised by our directors to allot and issue shares on terms and subject to conditions as they deem fit to impose.

 

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Any additional issuances of new shares by our directors may adversely impact the market price of our ordinary shares.

Risks Related to this Offering and Ownership of Our Ordinary Shares

An active trading market for our ordinary shares may not develop, and you may not be able to sell your ordinary shares at or above the initial public offering price.

Prior to the completion of this offering, there has been no public market for our ordinary shares. An active trading market for our ordinary shares may never develop or be sustained following this offering. If an active trading market does not develop, you may have difficulty selling your ordinary shares at an attractive price, or at all. The price for our ordinary shares in this offering will be determined by negotiations among SunEdison, us and representatives of the underwriters, and it may not be indicative of prices that will prevail in the open market following this offering. Consequently, you may not be able to sell your ordinary shares at or above the initial public offering price or at any other price or at the time that you would like to sell. An inactive market may also impair our ability to raise capital by selling our ordinary shares, and it may impair our ability to attract and motivate our employees through equity incentive awards.

The price of our ordinary shares may fluctuate substantially.

You should consider an investment in our ordinary shares to be risky, and you should invest in our ordinary shares only if you can withstand a significant loss and wide fluctuations in the market value of your investment. Some factors that may cause the market price of our ordinary shares to fluctuate, in addition to the other risks mentioned in this section of the prospectus, are:

 

    our announcements or our competitors’ announcements regarding new products or services, enhancements, significant contracts, acquisitions or strategic investments;

 

    changes in earnings estimates or recommendations by securities analysts, if any, who cover our ordinary shares;

 

    failures to meet external expectations or management guidance;

 

    fluctuations in our quarterly financial results or the quarterly financial results of companies perceived to be similar to us;

 

    changes in our capital structure or dividend policy, future issuances of securities, sales of large blocks of ordinary shares by our shareholders, including SunEdison, our incurrence of additional debt or our failure to comply with the agreements governing our credit facilities;

 

    reputational issues;

 

    changes in general economic and market conditions in or any of the regions in which we conduct our business;

 

    changes in industry conditions or perceptions;

 

    changes in applicable laws, rules or regulations; and

 

    announcements or actions taken by SunEdison as our principal shareholder.

 

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In addition, if the market for stocks in our industry or industries related to our industry, or the stock market in general, experiences a loss of investor confidence, the trading price of our ordinary shares could decline for reasons unrelated to our business, financial condition and results of operations. If any of the foregoing occurs, it could cause our share price to fall and may expose us to lawsuits that, even if unsuccessful, could be costly to defend and a distraction to management.

Future sales of our ordinary shares, or the perception in the public markets that these sales may occur, may depress our share price.

Sales of substantial amounts of our ordinary shares in the public market after this offering, or the perception that these sales could occur, could adversely affect the price of our ordinary shares and could impair our ability to raise capital through the sale of additional shares. Upon completion of this offering and the Samsung Private Placements, we will have 40,362,319 ordinary shares outstanding. The ordinary shares offered in this offering will be freely tradable without restriction under the Securities Act, except that any ordinary shares that may be acquired by our directors, executive officers and other affiliates, as that term is defined in the Securities Act, may be sold only in compliance with the limitations described in “Shares Eligible for Future Sale.”

The remaining ordinary shares, representing 82.2% of our total outstanding ordinary shares following this offering, will be “restricted securities” within the meaning of Rule 144 and subject to certain restrictions on resale following the consummation of this offering. Restricted securities may be sold in the public market only if they are registered under the Securities Act or are sold pursuant to an exemption from registration such as Rule 144 or Rule 701, as described in “Shares Eligible for Future Sale.”

We, each of our executive officers and directors, SunEdison and the Samsung Purchasers have agreed, subject to certain exceptions, with the underwriters not to dispose of or hedge any of our ordinary shares or securities convertible into or exchangeable for our ordinary shares during the period from the date of this prospectus continuing through the date that is 180 days after the date of this prospectus. Deutsche Bank Securities Inc. and Goldman, Sachs & Co. may, in their sole discretion, release any of these shares from these restrictions at any time without notice. See “Underwriting.”

After this offering, SunEdison and the Samsung Purchasers will have the right to require us to register the sales of their shares under the Securities Act, under the terms of agreements between us and SunEdison and us and the Samsung Purchasers. See “Certain Relationships and Related Party Transactions—Registration Rights Agreement with SunEdison” and “—Registration Rights Agreements with the Samsung Purchasers” for a more detailed description of these rights.

In the future, we may also issue our securities in connection with investments or acquisitions. The number of ordinary shares issued in connection with an investment or acquisition could constitute a material portion of our then-outstanding ordinary shares.

We are an “emerging growth company” and may elect to comply with reduced public company reporting requirements, which could make our ordinary shares less attractive to investors.

We are an emerging growth company, as defined in the JOBS Act. For as long as we continue to be an emerging growth company, we may choose to take advantage of exemptions from various public company reporting requirements. These exemptions include, but are not limited to, (i) not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, (ii) reduced disclosure obligations regarding executive compensation in our periodic reports, proxy statements and registration statements, and (iii) exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. We could be an emerging growth company for up to five years after the first sale of our equity securities pursuant to an effective registration statement under the Securities Act, which fifth anniversary will occur in 2018. However, if certain

 

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events occur prior to the end of such five-year period, including if we become a “large accelerated filer,” our annual gross revenues exceed $1.0 billion or we issue more than $1.0 billion of non-convertible debt in any three-year period, we would cease to be an emerging growth company prior to the end of such five-year period. We have taken advantage of certain of the reduced disclosure obligations in this prospectus regarding executive compensation and the number of years included in our historical financial statements and may elect to take advantage of other reduced burdens in future filings. As a result, the information that we provide to holders of our ordinary shares may be different than you might receive from other public reporting companies in which you hold equity interests. We cannot predict if investors will find our ordinary shares less attractive as a result of our reliance on these exemptions. If some investors find our ordinary shares less attractive as a result of any choice we make to reduce disclosure, there may be a less active trading market for our ordinary shares and the price for our ordinary shares may be more volatile.

Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have elected to avail ourselves of this extended transition period for complying with new or revised accounting standards and, therefore, we will not be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.

We are a “controlled company” and, as a result, we are exempt from obligations to comply with certain corporate governance requirements.

Since SunEdison will own 58.4% of our outstanding ordinary shares (or 56.8% if the underwriters exercise in full their option to purchase additional shares), we are a “controlled company” under the rules of the NASDAQ Global Select Market. As a result, we are exempt from the obligation to comply with certain corporate governance requirements, including the requirements that a majority of our board of directors consists of “independent directors,” as defined under the rules of the NASDAQ Global Select Market, and that we have nominating and compensation committees that are each composed entirely of independent directors. These exemptions do not modify the requirement for a fully independent audit committee, which is permitted to be phased-in as follows: (1) one independent committee member at the time of our initial public offering; (2) a majority of independent committee members within 90 days of our initial public offering; and (3) all independent committee members within one year of our initial public offering. Similarly, once we are no longer a “controlled company,” we must comply with the independent board committee requirements as they relate to the nominating and compensation committees, on the same phase-in schedule as set forth above, with the trigger date being the date we are no longer a “controlled company” as opposed to our initial public offering date. Additionally, we will have 12 months from the date we cease to be a “controlled company” to have a majority of independent directors on our board of directors. It is possible that the interests of SunEdison may in some circumstances conflict with our interests and the interests of holders of our ordinary shares. See “Risks Related to Our Separation from and Our Relationship with SunEdison—We are controlled by SunEdison, whose interests may conflict with yours. The concentrated ownership of our ordinary shares will prevent you and other investors in our shares from influencing significant decisions involving our company.”

We do not currently expect to pay any cash dividends for the foreseeable future.

We do not currently anticipate that we will pay any cash dividends on our ordinary shares for the foreseeable future. Any determination to pay dividends in the future will be at the discretion of our board of directors and will depend upon our financial condition, results of operations, contractual restrictions (including those under the our credit facilities and any potential indebtedness we may incur in the future), restrictions imposed by applicable law, tax considerations and other factors our board of directors deems relevant. In addition, pursuant to Singapore law and our articles of association, no dividends may be paid except out of our profits. There can be no assurance that we will pay a dividend in the future or continue to pay any dividend if we do commence paying dividends. Accordingly, if you purchase ordinary shares in this offering, realization of a gain on your investment will depend on the appreciation of the price of our ordinary shares, which may never occur. Investors seeking cash dividends in the foreseeable future should not purchase our ordinary shares.

 

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Certain provisions of the agreements we have entered or will enter into with SunEdison in connection with the Transactions may discourage a takeover of our company by a third party or reduce the consideration our shareholders would receive in a sale of our company, each of which could adversely affect the price at which our ordinary shares will trade in the market following completion of this offering.

Prior to the consummation of this offering, we will enter into agreements that will provide a framework for our ongoing relationship with SunEdison, including intellectual property licensing agreements, a transition services agreement and a tax matters agreement. See “Certain Relationships and Related Party Transactions.” Each of these agreements provides that the agreement will automatically terminate upon a change in control of us. Under these agreements, a change of control is generally defined as (i) a person becoming the beneficial owner, directly or indirectly, of equity representing 50% or more of the total voting power of our outstanding equity, (ii) us merging or consolidating with another person whereby less than 50% of the total voting power of the surviving entity is represented by equity held, directly or indirectly, by our former equity holders, or (iii) us selling, transferring or exchanging all or substantially all of our assets to another person, unless more than 50% of the total voting power of the transferee receiving such assets is, directly, or indirectly, owned by our equity holders. Because these agreements are material to our business and operations, these provisions may discourage a takeover of our company by a third party. In addition, a potential acquiror which needed these agreements to continue in effect following its purchase could be required to negotiate new terms for these agreements with SunEdison. In either event, the result may reduce the consideration our shareholders would receive in a sale of us, which in turn could adversely affect the price at which our ordinary shares will trade in the market following completion of the offering.

The Singapore Takeover Code may impede a takeover of our company by a third party, which could adversely affect the value of our ordinary shares.

The Singapore Takeover Code contains provisions that may delay, deter or prevent a future takeover or change in control of our company for so long as we remain a public company with more than 50 shareholders and net tangible assets of S$5 million or more. Under the Singapore Takeover Code, any person acquiring, whether by a series of transactions over a period of time or not, either on his own or together with parties acting in concert with such person, 30% or more of our voting shares, or, if such person holds, either on his own or together with parties acting in concert with such person, between 30% and 50% (both inclusive) of our voting shares, and such person (or parties acting in concert with such person) acquires additional voting shares representing more than 1% of our voting shares in any six-month period, must, except with the consent of the Securities Industry Council in Singapore, extend a mandatory takeover offer for the remaining voting shares in accordance with the provisions of the Singapore Takeover Code. While the Singapore Takeover Code seeks to ensure fair and equal treatment of all shareholders in a takeover or merger situation, its provisions may discourage or prevent certain types of transactions involving an actual or threatened change of control of our company. These legal requirements may impede or delay a takeover of our company by a third-party, which could adversely affect the value of our ordinary shares. While public companies that are not listed on a Singapore exchange may apply to the Securities Industry Council in Singapore for a waiver with respect to compliance with the Singapore Takeover Code, we currently do not intend to seek such a waiver.

 

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CAUTIONARY STATEMENT CONCERNING FORWARD–LOOKING STATEMENTS

This prospectus contains forward-looking statements within the meaning of the federal securities laws. All statements other than statements of historical fact included in this prospectus are forward-looking statements. These statements relate to analyses and other information, which are based on forecasts of future results and estimates of amounts not yet determinable. These statements also relate to our future prospects, developments and business strategies. These forward-looking statements are identified by the use of terms and phrases such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “will” and similar terms and phrases, including references to assumptions. However, these words are not the exclusive means of identifying such statements. These statements are contained in many sections of this prospectus, including those entitled “Prospectus Summary,” “Business” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Although we believe that our plans, intentions and expectations reflected in or suggested by such forward-looking statements are reasonable, we cannot assure you that we will achieve those plans, intentions or expectations. All forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those that we expected.

Important factors that could cause actual results to differ materially from our expectations, or cautionary statements, are disclosed under the sections entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this prospectus. All written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by the cautionary statements contained in this prospectus under the heading “Risk Factors,” as well as other cautionary statements that are made from time to time in our other SEC filings and public communications. You should evaluate all forward-looking statements made in this prospectus in the context of these risks and uncertainties.

We caution you that the important factors referenced above may not contain all of the factors that are important to you. In addition, we cannot assure you that we will realize the results or developments we expect or anticipate or, even if substantially realized, that they will result in the consequences or affect us or our operations in the way we expect. The forward-looking statements included in this prospectus are made only as of the date hereof. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law.

ENFORCEMENT OF CIVIL LIABILITIES UNDER UNITED STATES FEDERAL SECURITIES LAWS

We are incorporated under the laws of the Republic of Singapore, and certain of our officers and directors are or will be residents outside the United States. Moreover, a majority of our consolidated assets are located outside the United States. Although we are incorporated outside the United States, we have agreed to accept service of process in the United States through our agent designated for that purpose. Nevertheless, since a majority of the consolidated assets owned by us are located outside the United States, any judgment obtained in the United States against us may not be collectible within the United States. There is no treaty between the United States and Singapore providing for the reciprocal recognition and enforcement of judgments in civil and commercial matters and a final judgment for the payment of money rendered by any federal or state court in the United States based on civil liability, whether or not predicated solely upon the federal securities laws, would, therefore, not be automatically enforceable in Singapore. It is not clear whether a Singapore court may impose civil liability on us or our directors and officers who reside in Singapore in a suit brought in the Singapore courts against us or such persons with respect to a violation solely of the federal securities laws of the United States. In making a determination as to enforceability of a foreign judgment, the Singapore courts would have regard to whether the judgment was final and conclusive, given by a court of competent jurisdiction, and was expressed to be for a fixed sum of money. In general, such foreign judgments would be enforceable in Singapore unless it was procured by fraud, or the proceedings in which such judgment was obtained were not conducted in accordance with principles of natural justice, or the enforcement thereof would be contrary to public policy. Accordingly, there can be no assurance that the Singapore courts would enforce against us, our directors or our officers resident in Singapore judgments obtained in the United States which are predicated upon the civil liability

 

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provisions of the federal securities laws of the United States. In addition, holders of book-entry interests in our shares will be required to exchange such interests for certificated shares and to be registered as shareholders in our shareholder register in order to have standing to bring a shareholder suit and, if successful, to enforce a foreign judgment against us, our directors or our executive officers in the Singapore courts. A holder of book-entry interests in our shares may become a registered shareholder of our company by exchanging its interest in our shares for certificated shares and being registered in our shareholder register. The administrative process of becoming a registered shareholder could result in delays prejudicial to any legal proceeding or enforcement action.

 

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INDUSTRY AND MARKET DATA

We obtained the market and industry data and other statistical information used throughout this prospectus from our own research, surveys or studies conducted by third parties, independent industry or general publications and other published independent sources. In particular, we have based much of our discussion concerning the industry and market in which we operate on independent data, research opinions and viewpoints published by Gartner. We have based certain statements with respect to the SOI market on information from the SOI Industry Consortium, an organization comprised of leading companies from the electronics industry. We have also based certain statements with respect to demand for semiconductors and semiconductor applications on information from SEMI Silicon Manufacturers Group, a trade association serving the manufacturing supply chains for the microelectronics and photovoltaic industries, as well as Semiconductor Industry Association and World Semiconductor Trade Statistics, a trade association serving the U.S. semiconductor industry. Industry publications and surveys generally state that they have obtained information from sources believed to be reliable, but do not guarantee the accuracy and completeness of such information.

The following table identifies those statements included in this prospectus that are based on data published by Gartner together with the specific source of such data:

 

Statement

  

Source

“According to Gartner, Inc., or Gartner, the merchant semiconductor silicon wafer market in 2012 was approximately $9 billion and in 2013 was approximately $8 billion worldwide and is expected to grow at a 4.5% compound annual growth rate, or CAGR, from 2013 to 2017, reaching approximately $9.5 billion by 2017.”    Gartner, Forecast: Semiconductor Silicon Wafers, Worldwide, 4Q13 Update, December 2013 (for 2013 data); Gartner, Forecast: Semiconductor Silicon Wafers, Worldwide, 2Q13 Update, June 2013 (for 2012 data).
“The semiconductor wafer industry has undergone significant consolidation over the past 20 years, from more than 20 suppliers in the 1990s to only five major suppliers today, including Shin-Etsu Handotai, SUMCO Phoenix Corporation, Siltronic AG, LG Siltron, and us, which suppliers accounted for approximately 90% of all semiconductor wafer sales in 2012, according to Gartner.”    Gartner, Market Share: Silicon Wafers, Worldwide, 2012, June 2013.
“We have expanded our market share by revenue from 8% in 2008 to 10% in 2012, according to Gartner.”    Gartner, Market Share: Silicon Wafers, Worldwide, 2012, June 2013.
“According to Gartner, the total semiconductor market worldwide was $315 billion in 2013.”    Gartner, Market Share Analysis: Semiconductor Revenue, Worldwide, 2013, March 27, 2014.
“According to Gartner, the epitaxial semiconductor silicon wafer market is expected to grow from $3.0 billion worldwide in 2013 to $3.8 billion in 2017, representing a 6.1% CAGR.”    Gartner, Forecast: Semiconductor Silicon Wafers, Worldwide, 4Q13 Update, December 2013.
“For example, according to Gartner, overall unit sales volumes for semiconductor silicon wafers worldwide declined in 2011 and 2012.”    Gartner, Forecast: Semiconductor Silicon Wafers, Worldwide, 2Q13 Update, June 2013.
“For example, in 2011, merchant semiconductor silicon wafer average selling prices worldwide increased by 12.8% as compared to prices in 2010, while average prices decreased by approximately 8.8% in 2012 as compared to prices in 2011, according to Gartner.    Gartner, Forecast: Semiconductor Silicon Wafers, Worldwide, 2Q13 Update, June 2013.
“At the same time, the worldwide polished wafer market is expected to grow by only a 3.9% CAGR from 2013 to 2017, according to Gartner.”    Gartner, Forecast: Semiconductor Silicon Wafers, Worldwide, 1Q14 Update.

 

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Statement

  

Source

“For example, the average selling price for wafers across the semiconductor wafer industry declined by 13.4% from 2012 to 2013, according to Gartner.”    Gartner, Forecast: Semiconductor Silicon Wafers, Worldwide, 4Q13 Update.

The Gartner reports described above, or the Gartner Reports, represent data, research opinion or viewpoints published, as part of a syndicated subscription service, by Gartner, and are not representations of fact. Each Gartner Report speaks as of its original publication date (and not as of the date of this prospectus) and the opinions expressed in the Gartner Reports are subject to change without notice. At the request of Gartner, we have in certain circumstances used the term “epitaxial” instead of our defined term “EPI” in Gartner market data statements.

 

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USE OF PROCEEDS

We estimate that the net proceeds from this offering and sale by us of 7,200,000 ordinary shares in this offering will be approximately $90.2 million, assuming an initial public offering price of $14.00 per share, which is the midpoint of the price range listed on the cover page of this prospectus, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. We will also receive net proceeds of $93.2 million from the sale of 7,142,857 ordinary shares to Samsung Fine Chemicals in connection with the Samsung Private Placements, assuming an initial public offering price of $14.00 per share, which is the midpoint of the range listed on the cover page of this prospectus, and after deducting commissions.

We expect to use the net proceeds from this offering for the following purposes and in the following amounts:

 

    approximately $16.8 million will be used to provide a portion of the cash necessary to repay in full the intercompany notes issued to SunEdison in connection with the asset transfers contemplated as part of the Formation Transactions;

 

    approximately $11.1 million will be used to repay existing third party indebtedness relating to the semiconductor materials business owed to a bank by our Japanese subsidiary; and

 

    approximately $62.3 million will be retained as cash on our balance sheet, which will provide us with additional liquidity and flexibility in our capital structure.

A $1.00 increase (decrease) in the assumed initial public offering price of $14.00 per share would increase (decrease) our net proceeds from this offering by approximately $6.7 million, assuming that the number of ordinary shares offered by us, as listed on the cover page of this prospectus, remains the same and after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

The remaining portion of the cash payment to SunEdison of $285.6 million to repay in full the intercompany notes issued in connection with the Formation Transactions will be funded from the $192.4 million of net proceeds after deducting issuance costs from borrowings under our new senior secured term loan and $93.2 million of net proceeds after deducting private placement commissions from the cash investment by Samsung Fine Chemicals in connection with the Samsung Private Placements.

The following table illustrates the estimated sources and uses of the funds necessary to complete the Transactions, assuming they were completed as of March 31, 2014. Actual amounts may vary from estimated amounts.

 

 Sources of Funds

    

 Uses of Funds

 
(in millions)  

New senior secured credit facilities: (1)

     

Cash payment to SunEdison to repay in full intercompany notes (4)

   $ 302.9   

Revolving credit facility

   $ —           

Term Loan

     200.0      

Repayment of subsidiary bank

  

Cash investment by Samsung Fine

     

indebtedness (5)

     10.6   

Chemicals (2)

     100.0      

Cash to balance sheet (6)

     62.3   

Ordinary shares offered hereby (3)

     100.8      

Estimated fees and expenses (7)

     25.0   
  

 

 

       

 

 

 

Total sources

   $ 400.8      

Total uses

   $ 400.8   
  

 

 

       

 

 

 

 

 

(1) In connection with the Financing Transactions, we will enter into new senior secured credit facilities that will include a senior secured revolving credit facility for borrowings of up to $50.0 million. We do not expect to have any outstanding borrowings under this senior secured revolving credit facility upon completion of this offering. We currently do not have commitments from any prospective lenders with respect to the new senior secured credit facilities but will obtain such commitments prior to the completion of this offering. See “Description of Certain Indebtedness—New Senior Secured Credit Facilities.”

 

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(2) Represents the cash investment by Samsung Fine Chemicals in connection with the Samsung Private Placements.

 

(3) Assumes an initial public offering price of $14.00 per ordinary share, which is the midpoint of the price range listed on the cover page of this prospectus.

 

(4) We will use approximately $17.3 million of the net proceeds from this offering, together with $192.4 million of net proceeds after deducting issuance costs from borrowings under our new senior secured term loan and $93.2 million of net proceeds after deducting private placement commissions from the cash investment by Samsung Fine Chemicals in connection with the Samsung Private Placements, to fund the cash payment to SunEdison to repay in full the intercompany notes. The cash repayment of the notes and the 23.6 million ordinary shares to be issued to SunEdison, together with the assumption by SSL of $336.0 million of liabilities reflected on our balance sheet as of March 31, 2014 (to the extent not subsequently discharged) plus all other liabilities related to the semiconductor materials business, represent the consideration paid to SunEdison in exchange for the assets of its semiconductor materials business contributed to SSL.

 

(5) Consists of long-term notes bearing a fixed interest rate of 2.2% owed to the Development Bank of Japan Inc. by our Japanese subsidiary, MEMC Japan Ltd. The notes mature at various times between 2014 and 2017, and the aggregate outstanding principal amount of the notes was $10.6 million as of March 31, 2014. We expect this amount as of the anticipated closing date of this offering will be approximately $11.1 million due to accrued interest, prepayments and changes in foreign currency exchange rates.

 

(6) We may use such net proceeds for working capital and other general corporate purposes. The actual amount of cash that will be retained by us will vary from what is set forth in the table above based on changes in the actual amount of the intercompany notes as of the closing date of this offering.

 

(7) The estimated fees and expenses include underwriting discounts and commissions, the unamortized original issuance discount on our new senior secured term loan and our estimated legal, accounting and other expenses associated with the Transactions.

 

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DIVIDEND POLICY

We currently anticipate that we will retain any future earnings for the operation and expansion of our business. Accordingly, we do not currently anticipate declaring or paying any cash dividends on our ordinary shares for the foreseeable future. Any future determination relating to our dividend policy will be made at the discretion of our board of directors and will depend on then existing conditions, including our financial condition, results of operations, contractual restrictions (including in the agreements governing our credit facilities), capital requirements, business prospects and other factors our board of directors may deem relevant. We may, by ordinary resolution, declare dividends at a general meeting of shareholders, but we are restricted from paying dividends in excess of the amount recommended by our board of directors. In addition, pursuant to Singapore law and our articles of association, no dividends may be paid except out of our profits.

Because we are a holding company, our ability to pay cash dividends on our ordinary shares may be limited by restrictions on our ability to obtain sufficient funds through dividends from subsidiaries. In particular, the agreements governing our senior secured credit facilities that we will enter into in connection with the Transactions contain restrictions on the ability of our subsidiaries to make cash dividends to us.

 

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CAPITALIZATION

The following table sets forth our consolidated capitalization as of March 31, 2014 on (i) a historical basis and (ii) a pro forma as adjusted basis to give effect to the Transactions, including our issuance and sale of 7,200,000 ordinary shares in this offering at an assumed initial public offering price of $14.00 per share, which is the midpoint of the price range listed on the cover page of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses payable by us, and our issuance and sale of 9,564,604 ordinary shares to the Samsung Purchasers in connection with the Samsung Private Placements and 37,464 ordinary shares to Mr. Ahmad Chatila at that assumed initial public offering price.

You should read the following table in conjunction with the sections entitled “Use of Proceeds,” “Unaudited Pro Forma Consolidated Financial Statements,” “Selected Historical Combined Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our historical combined financial statements and related notes included elsewhere in this prospectus.

 

    March 31, 2014  
    Actual     Pro Forma
As
Adjusted
 
   

(in millions, except

share data)

(unaudited)

 

Long-term debt (including current portion):

   

New senior secured credit facilities: (1)

   

Revolving credit facility

  $ —        $ —     

Term loan (excluding unamortized original issuance discount of $2.0 million)

    —          200.0   

Intercompany borrowings (2)

    —          —     

Bank indebtedness of Japanese subsidiary

    10.6        —     
 

 

 

   

 

 

 

Total long-term debt

  $ 10.6      $ 200.0   

Equity:

   

Net SunEdison investment

  $ 730.6      $  —     

Ordinary shares, no par value, no shares issued and outstanding, actual; 40,362,319 shares issued and outstanding, pro forma as adjusted

    —          860.4   

Accumulated other comprehensive loss

    (100.7     (100.7

Noncontrolling interest (3)

    43.3        —     
 

 

 

   

 

 

 

Total equity

    673.2        759.7   
 

 

 

   

 

 

 

Total capitalization (4)

  $       683.8      $ 959.7   
 

 

 

   

 

 

 

 

 

(1) In connection with the Financing Transactions, we intend to enter into new senior secured credit facilities that will include a senior secured revolving credit facility for borrowings of up to $50.0 million. We do not expect to have any borrowings outstanding under the senior secured revolving credit facility upon completion of this offering. We currently do not have commitments from any prospective lenders with respect to the new senior secured credit facilities but will obtain such commitments prior to the completion of this offering. See “Description of Certain Indebtedness—New Senior Secured Credit Facilities.”

 

(2) As of March 31, 2014, we held notes receivable from certain of SunEdison’s subsidiaries in an aggregate amount of $3.8 million. All intercompany indebtedness and certain trade accounts will be net settled in connection with the Transactions.

 

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(3) Represents the 20% interest held by our partner in MKC that we will acquire in connection with the Samsung Private Placements.

 

(4) In addition to the consolidated capitalization reflected in this table, as of March 31, 2014, we had $37.7 million of cash and cash equivalents on an actual basis and $100.0 million of cash and cash equivalents on a pro forma as adjusted basis.

A $1.00 increase (decrease) in the assumed initial public offering price of $14.00 per share, the midpoint of the price range listed on the cover of this prospectus, would increase (decrease) the adjusted amount for each of cash and cash equivalents, total equity and total capitalization by approximately $6.7 million, assuming that the number of shares offered by us, as listed on the cover of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

 

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DILUTION

This offering will not be dilutive to new investors. Dilution per share represents the difference between the amount per share paid by purchasers of our ordinary shares in this offering and the pro forma net tangible book value per share after giving effect to the Transactions. Pro forma net tangible book value per share represents, after giving effect to the Transactions (other than this offering):

 

    total assets less intangible assets;

 

    reduced by our total liabilities; and

 

    divided by the number of ordinary shares outstanding.

Because the pro forma net tangible book value per share is greater than the initial public offering price per share, investors purchasing our ordinary shares in this offering will not experience dilution, as illustrated in the table below, assuming an initial public offering price of $14.00 per share, which is the midpoint of the price range listed on the cover page of this prospectus:

 

Assumed initial public offering price per share

    $ 14.00   

Pro forma net tangible book value per share as of March 31, 2014 after giving effect to the Transactions (other than this offering)

  $ 18.42     

Decrease per share attributable to this offering

    (1.48  
 

 

 

   

Pro forma net tangible book value per share as of March 31, 2014 after giving effect to this offering

      16.94   
   

 

 

 

Dilution per share to new investors

    $ (2.94
   

 

 

 

The following table summarizes, as of March 31, 2014, after giving effect to the Transactions, the number of ordinary shares we issued and sold, the total consideration paid and the average price per share paid by (i) SunEdison, our sole shareholder prior to this offering, (ii) the Samsung Purchasers in connection with the Samsung Private Placements and Mr. Ahmad Chatila in connection with his election to receive ordinary shares in lieu of a portion of his cash bonus from SunEdison and (iii) new investors purchasing ordinary shares in this offering. The table assumes an initial public offering price of $14.00 per share, which is the midpoint of the price range listed on the cover page of this prospectus, before deducting underwriting discounts and commissions and estimated expenses payable by us.

 

    Shares Purchased     Total Consideration     Average
Price

Per
Share
 
    Number     Percentage     Amount     Percentage    

SunEdison

    23,560,251        58.4%      $ 370,200,000  (1)      61.2%      $ 15.71   

Samsung Purchasers and Ahmad Chatila

    9,602,068        23.8           134,428,952        22.2           14.00   

New investors

    7,200,000        17.8           100,800,000        16.6           14.00   
 

 

 

   

 

 

   

 

 

   

 

 

   

Total

    40,362,319                100.0%      $ 605,428,952                100.0%     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

(1) We calculated the consideration we received from SunEdison based on the pro forma net book value of the assets that it contributed to us, less all assumed liabilities as of March 31, 2014, net borrowings incurred in order to effect the Formation Transactions and any cash payments we will make to SunEdison in connection with the Formation Transactions.

 

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Except as otherwise indicated, the discussion and tables above assume no exercise of the underwriters’ option to purchase additional shares. If the underwriters’ option to purchase additional shares is exercised in full, SunEdison would own approximately 56.8%, the Samsung Purchasers would own approximately 23.1% and our new investors would own approximately 20.0% of the total number of our ordinary shares outstanding after this offering.

To the extent that any options or other equity incentive grants are issued in the future (including pursuant to the equity incentive plans we expect to adopt in connection with the completion of this offering) with an exercise price or purchase price below the initial public offering price, new investors may experience dilution.

 

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UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS

The unaudited pro forma consolidated financial statements are presented to show how we might have looked if the Formation Transactions, Financing Transactions and Samsung Private Placements (collectively referred to herein as the Transactions) described below had occurred on the dates and for the periods indicated below. We derived the following unaudited pro forma consolidated financial statements by applying pro forma adjustments to the historical combined financial statements of SunEdison’s semiconductor materials business included elsewhere in this prospectus. The historical financial statements as of December 31, 2013 and 2012 and for the years ended December 31, 2013, 2012 and 2011 and as of March 31, 2014 and for the three months ended March 31, 2014 and 2013 appearing elsewhere in this prospectus are intended to represent the financial results of SunEdison’s semiconductor materials business that will be contributed to us as part of the Transactions for those periods.

The unaudited pro forma consolidated statements of operations for the year ended December 31, 2013 and the three months ended March 31, 2014 have been derived from the financial data of SunEdison’s semiconductor materials business (as derived from the combined financial statements appearing elsewhere in this prospectus) and give pro forma effect to the Transactions, including the use of the estimated net proceeds from this offering and the Samsung Private Placements, as if they had occurred on January 1, 2013. The unaudited pro forma consolidated balance sheet as of March 31, 2014 gives effect to the Transactions, including the use of the estimated net proceeds from this offering and the Samsung Private Placements, as if they had occurred on March 31, 2014.

The unaudited pro forma consolidated financial statements reflect certain adjustments that are necessary to present fairly our unaudited pro forma consolidated results of operations and our unaudited pro forma consolidated balance sheet as of and for the periods indicated. The pro forma adjustments give effect to events that are (i) directly attributable to the Transactions, (ii) factually supportable and (iii) with respect to the statement of operations, expected to have a continuing impact on us, and are based on assumptions that management believes are reasonable given the best information currently available.

The Formation Transactions for which we have made pro forma adjustments are as follows:

 

    The contribution by SunEdison to SSL of all of the outstanding capital stock of its subsidiaries that own and operate its semiconductor materials business and all of the assets primarily related to its semiconductor materials business and held by SunEdison or its subsidiaries, together with the contribution to us by SunEdison of the 35% interest in SMP it has agreed to acquire from Samsung Fine Chemicals, in exchange for aggregate consideration consisting of 23.6 million ordinary shares, intercompany notes in an aggregate principal amount of $302.9 million and the assumption by SSL of $336.0 million of liabilities reflected on our balance sheet as of March 31, 2014 (to the extent not subsequently discharged) plus all other liabilities related to the semiconductor materials business.

 

    The net settlement of all outstanding intercompany balances and indebtedness and certain trade accounts (other than the $302.9 million intercompany notes, which will be repaid in full in connection with the Formation Transactions and the Financing Transactions discussed below) between us and SunEdison.

The Financing Transactions and Samsung Private Placements for which we have made pro forma adjustments are as follows:

 

   

The sale of 7,200,000 ordinary shares of SSL in this offering and the use of $17.3 million of the net proceeds therefrom, together with net proceeds of $192.4 million after deducting issuance costs from the borrowings under our new senior secured term loan and $93.2 million of net proceeds after deducting private placement commissions from the cash investment by Samsung Fine Chemicals in connection with the Samsung Private Placements, to repay in full the

 

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intercompany notes issued to SunEdison in connection with the asset transfers contemplated as part of the Formation Transactions.

 

    The sale of 2,421,747 ordinary shares of SSL in this offering to Samsung Electronics (based on an assumed initial public offering price of $14.00 per share) in exchange for the transfer to us of its 20% interest in MKC.

 

    The use of approximately $10.6 million of the net proceeds of the Financing Transactions to repay existing third party indebtedness that we associate with the semiconductor materials business and the retention of approximately $62.3 million as cash on our balance sheet. The third party indebtedness consists of long-term notes bearing a fixed interest rate of 2.2% owed to a bank by our Japanese subsidiary. The notes mature at various times between 2014 and 2017, and the aggregate outstanding principal amount of the notes was $10.6 million as of March 31, 2014.

 

    The execution of a new senior secured revolving credit facility with financial institutions that will provide us with up to $50.0 million of borrowings for working capital purposes.

The unaudited pro forma consolidated financial information is presented for informational purposes only. The unaudited pro forma consolidated financial information does not purport to represent what our results of operations or financial condition would have been had the transactions to which the pro forma adjustments relate actually occurred on the dates indicated, and they do not purport to project our results of operations or financial condition for any future period or as of any future date.

Our historical combined financial statements include expenses of SunEdison that were allocated to us for certain functions, including general corporate expenses related to communications, corporate administration, finance, legal, information technology, human resources, compliance, employee benefits and incentives, operations, research and development and stock compensation. These expenses were allocated in our historical results of operations on the basis of direct usage, where identifiable, with the remainder primarily allocated on the basis of revenue or other related sales metrics, headcount or number of our manufacturing plants. We consider the expense allocation methodology and results to be reasonable for all periods presented. However, these allocations may not necessarily be indicative of the actual expenses we would have incurred as an independent publicly traded company during the periods prior to this offering or of the costs we will incur in the future. Following this offering, SunEdison will continue to provide us with some of the services related to these functions on a transitional basis pursuant to a transition services agreement, and we expect to incur other costs to replace the services and resources that will not be provided by SunEdison. We generally expect to use these services for approximately one to two years following the completion of this offering, depending on the type of service and the location at which such service is provided. However, we may agree with SunEdison to extend the service periods or may terminate such service periods by providing prior written notice. We have not made any adjustments in these unaudited pro forma consolidated financial statements to reflect any potential changes to these allocated expenses as a result of the Transactions as we believe any such changes are not factually supportable at this time.

The unaudited pro forma consolidated statements of operations do not reflect certain non-recurring costs and expenses that we expect to incur in connection with the Transactions, including those related to the creation of a stand-alone infrastructure, facility separation costs, certain legal registration and patent assignment costs and professional fees. We expect these costs and expenses will range between approximately $3.0 million to $5.0 million and will be recorded by us in the period in which the Transactions are completed.

The unaudited pro forma consolidated balance sheet and statements of operations should be read in conjunction with the sections entitled “Prospectus Summary—Structure and Formation of Our Company,” “Use of Proceeds,” “Capitalization,” “Selected Historical Combined Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our historical combined financial statements and related notes thereto included elsewhere in this prospectus.

 

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SunEdison Semiconductor Limited

(Semiconductor Materials Business of SunEdison)

Unaudited Pro Forma Consolidated Statement of Operations

For the Three Months Ended March 31, 2014

 

                                                           
    Actual     Pro Forma Adjustments     Pro Forma  
      Financing
Transactions

and
Samsung
Private
Placements
    Formation
Transactions
   
    (in millions, except per share data)  

Statement of Operations Data:

       

Net sales to non-affiliates

  $ 205.8      $ —        $ —        $ 205.8   

Net sales to affiliates

    0.3        —          —          0.3   

Cost of goods sold

    197.8        —          —          197.8   
 

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

    8.3        —          —          8.3   

Operating expenses:

       

Marketing and administration

    21.8        —          —          21.8   

Research and development

    8.0        —          —          8.0   

Restructuring (reversals) charges

    (4.6     —          —          (4.6

Gain on receipt of property, plant and equipment

    —          —          —          —     

Long-lived asset impairment charges

    —          —          —          —     
 

 

 

   

 

 

   

 

 

   

 

 

 

Operating (loss) income

    (16.9     —          —          (16.9
 

 

 

   

 

 

   

 

 

   

 

 

 

Non-operating expenses (income):

       

Interest expense

    0.2        3.7  A,B      —          3.9   

Interest income

    (0.1     —          —          (0.1

Interest (income) expense, net-affiliates

    (0.1     —          0.1  A      —     

Other, net

    (5.3     —          —          (5.3
 

 

 

   

 

 

   

 

 

   

 

 

 

Total non-operating expenses (income)

    (5.3     3.7        0.1        (1.5
 

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) income before income tax expense

    (11.6     (3.7     (0.1     (15.4

Income tax expense (benefit)

    3.6        —          —    E      3.6   
 

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) income before equity in (loss) earnings of joint ventures

    (15.2     (3.7     (0.1     (19.0

Equity in (loss) earnings of joint ventures, net of tax

    —          —          (0.2 ) F      (0.2
 

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income

    (15.2     (3.7     (0.3     (19.2

Net (income) loss attributable to noncontrolling interests

    0.6        (0.6 ) C      —          —     
 

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income attributable to SSL

  $ (14.6   $ (4.3   $ (0.3   $ (19.2
 

 

 

   

 

 

   

 

 

   

 

 

 

Basic (loss) income per share

    N/A      $ (0.11 ) D    $ (0.01 ) D    $ (0.48 ) D 

Diluted (loss) income per share

    N/A      $ (0.11 ) D    $ (0.01 ) D    $ (0.48 ) D 

See Notes to Unaudited Pro Forma Consolidated Financial Statements

 

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SunEdison Semiconductor Limited

(Semiconductor Materials Business of SunEdison)

Unaudited Pro Forma Consolidated Statement of Operations

For the Year Ended December 31, 2013

 

                                                           
    Actual     Pro Forma Adjustments     Pro Forma  
      Financing
Transactions

and
Samsung
Private
Placements
    Formation
Transactions
   
    (in millions, except per share data)  

Statement of Operations Data:

       

Net sales to non-affiliates

  $ 911.5      $ —        $ —        $ 911.5   

Net sales to affiliates

    9.1        —          —          9.1   

Cost of goods sold

    838.9        —          —          838.9   
 

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

    81.7        —          —          81.7   

Operating expenses:

       

Marketing and administration

    105.1        —          —          105.1   

Research and development

    37.0        —          —          37.0   

Restructuring (reversals) charges

    (75.0     —          —          (75.0

Gain on receipt of property, plant and equipment

    —          —          —          —     

Long-lived asset impairment charges

    33.6        —          —          33.6   
 

 

 

   

 

 

   

 

 

   

 

 

 

Operating (loss) income

    (19.0     —          —          (19.0
 

 

 

   

 

 

   

 

 

   

 

 

 

Non-operating expenses (income):

       

Interest expense

    0.8        14.7  A,B      —          15.5   

Interest income

    (0.5     —          —          (0.5

Interest (income) expense, net-affiliates

    (4.1     —          4.1  A      —     

Other, net

    (3.9     —          —          (3.9
 

 

 

   

 

 

   

 

 

   

 

 

 

Total non-operating expenses (income)

    (7.7     14.7        4.1        11.1   
 

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) income before income tax expense

    (11.3     (14.7     (4.1     (30.1

Income tax expense (benefit)

    44.0        —          (0.7 ) E      43.3   
 

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) income before equity in (loss) earnings of joint ventures

    (55.3     (14.7     (3.4     (73.4

Equity in (loss) earnings of joint ventures, net of tax

    —          —          (0.9 ) F      (0.9
 

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income

    (55.3     (14.7     (4.3     (74.3

Net (income) loss attributable to noncontrolling interests

    (2.4     2.4  C      —          —     
 

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income attributable to SSL

  $ (57.7   $ (12.3   $ (4.3   $ (74.3
 

 

 

   

 

 

   

 

 

   

 

 

 

Basic (loss) income per share

    N/A      $ (0.30 ) D    $ (0.11 ) D    $ (1.84 ) D 

Diluted (loss) income per share

    N/A      $ (0.30 ) D    $ (0.11 ) D    $ (1.84 ) D 

See Notes to Unaudited Pro Forma Consolidated Financial Statements

 

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SunEdison Semiconductor Limited

(Semiconductor Materials Business of SunEdison)

Unaudited Pro Forma As Adjusted Consolidated Balance Sheet

As of March 31, 2014

 

                                                           
     Actual     Pro Forma Adjustments        Pro Forma
As Adjusted
 
       Financing
Transactions

and Samsung
Private
Placements
     Formation
Transactions
      
     (in millions, except share data)  

Assets

            

Current assets:

            

Cash and cash equivalents

   $ 37.7      $ 365.2   G     $ (302.9 ) J       $ 100.0   

Accounts receivable, net

     100.3        —           —             100.3   

Accounts receivable, affiliate

     26.3        —           (26.3 ) I         —     

Inventories

     122.5        —           —             122.5   

Deferred tax assets

     8.4        —           —             8.4   

Prepaid and other current assets

     20.0        —           0.1   K         20.1   
  

 

 

   

 

 

    

 

 

      

 

 

 

Total current assets

     315.2        365.2         (329.1        351.3   

Investments

     —          —           135.6   F         135.6   

Property, plant and equipment, net

     714.1        —           (9.9 ) L         704.2   

Notes receivable, affiliate

     3.8        —           (3.8 ) I         —     

Other assets

     97.1        5.6   H       (0.1 ) K         102.6   
  

 

 

   

 

 

    

 

 

      

 

 

 

Total assets

   $ 1,130.2      $ 370.8       $ (207.3      $ 1,293.7   
  

 

 

   

 

 

    

 

 

      

 

 

 

Liabilities and Equity

            

Current liabilities:

            

Current portion of long-term debt

   $ 2.8      $ (2.8 ) G,I     $ —           $ —     

Accounts payable

     115.4        —           —             115.4   

Accounts payable, affiliate

     110.4        —           (110.4 ) I         —     

Accrued liabilities

     57.7        —           —             57.7   

Accrued wages and salaries

     37.7        —           —             37.7   

Restructuring liabilities

     42.6        —           —             42.6   
  

 

 

   

 

 

    

 

 

      

 

 

 

Total current liabilities

     366.6        (2.8      (110.4        253.4   

Long-term debt, less current portion

     7.8        (7.8 ) G,I       —             —     
       198.0   H       —             198.0   

Pension and post-employment liabilities

     47.8        —           —             47.8   

Restructuring liabilities

     8.7        —           —             8.7   

Other liabilities

     26.1        —           —             26.1   
  

 

 

   

 

 

    

 

 

      

 

 

 

Total liabilities

     457.0        187.4         (110.4        534.0   
  

 

 

   

 

 

    

 

 

      

 

 

 

Equity:

            

Net SunEdison investment

     730.6        —           26.1   I      
          (746.8 ) J      
          (9.9 ) L      
       

 

 

      

 

 

 
          (730.6        —     

Ordinary shares, no par value, 40,362,319 shares issued and outstanding on a pro forma as adjusted basis

     —          43.3   C         
       90.2   G         
       93.2   G         
    

 

 

         
       226.7         633.7   J         860.4   

Accumulated other comprehensive loss

     (100.7     —           —             (100.7
  

 

 

   

 

 

    

 

 

      

 

 

 

Total SSL equity

     629.9        226.7         (96.9        759.7   

Noncontrolling interests

     43.3        (43.3 ) C       —             —     
  

 

 

   

 

 

    

 

 

      

 

 

 

Total equity

     673.2        183.4         (96.9        759.7   
  

 

 

   

 

 

    

 

 

      

 

 

 

Total liabilities and equity

   $ 1,130.2      $ 370.8       $ (207.3      $ 1,293.7   
  

 

 

   

 

 

    

 

 

      

 

 

 

See Notes to Unaudited Pro Forma Consolidated Financial Statements

 

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SunEdison Semiconductor Limited

(Semiconductor Materials Business of SunEdison)

Notes to Unaudited Pro Forma Consolidated Financial Statements

 

A. Reflects the elimination of interest expense of $0.2 million and $0.8 million, respectively, for the three months ended March 31, 2014 and for the year ended December 31, 2013 associated with the third party indebtedness of $10.6 million and the elimination of $0.1 million and $4.1 million, respectively, of interest income, affiliates associated with the intercompany indebtedness for the three months ended March 31, 2014 and for the year ended December 31, 2013. All of this indebtedness will be repaid or net settled in connection with the completion of the Transactions.

 

B. Reflects the addition of interest expense (which includes amortization of debt issuance discount and deferred issuance costs) of $3.9 million and $15.5 million, respectively, for the three months ended March 31, 2014 and for the year ended December 31, 2013, related to borrowings in an aggregate amount of $200.0 million under a new five-year senior secured term loan, issued at a 1% discount, in connection with the Transactions at an assumed weighted-average effective interest rate of 7.4%, and the costs associated with our new $50.0 million three-year senior secured revolving credit facility. The actual interest rate on the senior secured term loan may vary from that assumed in the calculation of the pro forma amount and a 1/8 % variance in the interest rate associated with the senior secured term loan would result in a $0.1 million and $0.3 million change in pro forma cash interest expense for the three months ended March 31, 2014 and for the year ended December 31, 2013.

 

C. Reflects the acquisition, in connection with the Samsung Private Placements, of the 20% interest in MKC recorded at $43.3 million of noncontrolling interest not previously held by us.

 

D. The weighted-average number of shares used to compute pro forma basic and diluted earnings per share is 40.4 million, which will be the number of our ordinary shares outstanding immediately following the completion of the Transactions. We calculated the number of shares as follows:

 

Shares issued to SunEdison

     23,560,251   

Shares offered hereby

     7,200,000   

Shares issued to Samsung Purchasers

     9,564,604   

Shares issued to Mr. Chatila

     37,464   
  

 

 

 

Total

     40,362,319   
  

 

 

 

 

E. Reflects the tax effect of the pro forma adjustments to our consolidated statement of operations, as well as the estimated annual effective statutory tax rate in our new tax domicile, Singapore, which is offset by a full valuation allowance.

 

F. Reflects the contribution to us by SunEdison of the 35% interest in SMP it has agreed to acquire from Samsung Fine Chemicals for $135.6 million (which is subject to adjustment based on fluctuations in currency exchange rates). Our investment in SMP will be accounted for under the equity method of accounting, which reflects our pro rata share in loss of joint ventures, net of tax, of $0.2 million and $0.9 million, respectively, for the three months ended March 31, 2014 and for the year ended December 31, 2013.

 

     No separate financial statements for SMP are required since this acquisition is not considered significant under applicable regulatory rules.

 

G. Reflects the net cash received (paid) for the following transactions:

 

(in millions)

   Debit/
(Credit)
 

Net proceeds from this offering

   $ 90.2   

Net proceeds from the $100.0 million cash investment by Samsung Fine Chemicals in connection with the Samsung Private Placements

     93.2   

Net proceeds from borrowings in an aggregate amount of $200.0 million under a new five-year senior secured term loan, issued at a 1% discount, or $2.0 million, and the $50 million three-year senior secured revolving credit facility after deducting issuance costs for the senior secured facilities of $5.6 million

     192.4   

Cash used to repay the short-term portion of existing third party indebtedness

     (2.8

Cash used to repay the long-term portion of existing third party indebtedness

     (7.8
  

 

 

 

Total

   $ 365.2   
  

 

 

 

 

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H. Reflects borrowings of $200.0 million aggregate amount under a new senior secured term loan, issued at a 1% discount, in connection with the Transactions at an assumed weighted-average stated interest rate of 7.4%, as well as the deferred costs associated with both the incurrence of the senior secured term loan and the establishment of $50.0 million senior secured revolving credit facility. The senior secured revolving credit facility will have a three-year maturity. The adjustment follows:

 

(in millions)

   Debit/
(Credit)
 

Cash and cash equivalents

   $ 192.4   

Other assets

     5.6   

Long-term debt

     (198.0
  

 

 

 
   $ —     
  

 

 

 

 

I. Reflects the elimination of third party and intercompany indebtedness and certain trade accounts, accrued interest receivable, accrued interest payable and unamortized deferred debt issuance costs that will be repaid or net settled by us in connection with the completion of the Transactions. These assets and liabilities are included in the historical combined balance sheet. The adjustment follows:

 

(in millions)

   Debit/
(Credit)
 

Cash used to repay the short-term portion of long-term debt

   $ (2.8

Cash used to repay the long-term debt, less current portion

     (7.8

Cash used to repay intercompany indebtedness as of March 31, 2014

     (54.2

Accounts receivable, affiliate

     (26.3

Note receivable, affiliate

     (3.8

Accounts payable, affiliate

     110.4   

Current portion of long-term debt

     2.8   

Long-term debt, less current portion

     7.8   

Increase in net SunEdison investment arising from forgiveness of SunEdison indebtedness

     (26.1
  

 

 

 
   $ —     
  

 

 

 

 

J. Reflects the transfer to us of SunEdison’s subsidiaries holding substantially all of the assets and liabilities of SunEdison’s semiconductor materials business in consideration for (i) all of our issued and outstanding ordinary shares prior to this offering; and (ii) intercompany notes in an aggregate amount of $113.1 million, which will be repaid as part of the $305.9 million cash payment to SunEdison. The adjustment follows:

 

(in millions)

   Debit/
(Credit)
 

Cash and cash equivalents

   $ (113.1

Net SunEdison investment

     746.8   

Ordinary shares*

     (633.7
  

 

 

 
   $ —     
  

 

 

 

 

  * Represents 23.6 million ordinary shares at no par value per share.

 

   The reconciliation of the $302.9 million cash payment to SunEdison is as follows:

 

(in millions)

   Debit/
(Credit)
 

Cash used to repay intercompany indebtedness as of December 31, 2013

   $ (54.2

Cash used to repay intercompany notes created in connection with the Formation Transactions

     (113.1

Cash used to repay the contribution to us by SunEdison of the 35% interest in SMP

     (135.6
  

 

 

 

Total

   $ (302.9
  

 

 

 

 

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K. The income tax provisions and related deferred tax assets and liabilities that have been reflected in our historical combined financial statements have been computed as if we were a separate taxpayer using the “separate return” method. However, in connection with the preparation of the pro forma consolidated financial statements, we have eliminated deferred income tax assets related to tax credit carryforwards which have or will be realized by SunEdison.

 

L. Reflects the elimination of certain fixed assets that will be transferred to SunEdison as part of the Formation Transactions, which is reflected as a capital contribution. No depreciation or amortization is reflected with respect to these assets because they have been permanently idled.

 

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SELECTED HISTORICAL COMBINED FINANCIAL DATA

The following table shows selected historical combined financial data at the dates and for the periods indicated. The selected historical combined statement of operations data and balance sheet data as of December 31, 2013 and 2012 and for the years ended December 31, 2013, 2012 and 2011 have been derived from our audited combined financial statements included elsewhere in this prospectus. The selected historical combined statement of operations data and balance sheet data as of March 31, 2014 and for the three months ended March 31, 2014 and 2013 have been derived from our unaudited combined financial statements included elsewhere in this prospectus, which include all adjustments, consisting of normal recurring adjustments, which management considers necessary for a fair presentation of the financial position and the results of operations for such periods. Results for the interim periods are not necessarily indicative of the results for the full year. The historical financial statements as of December 31, 2013 and 2012, for the years ended December 31, 2013, 2012 and 2011, as of March 31, 2014 and for the three months ended March 31, 2014 and 2013 are intended to represent the financial results of SunEdison’s semiconductor materials business that will be contributed to us as part of the Transactions for those periods.

Our historical combined financial statements include expenses of SunEdison that were allocated to us for certain functions, including general corporate expenses related to communications, corporate administration, finance, legal, information technology, human resources, compliance, employee benefits and incentives, operations, research and development and stock compensation. These expenses were allocated in our historical results of operations on the basis of direct usage, where identifiable, with the remainder primarily allocated on the basis of revenue or other related sales metrics, headcount or number of our manufacturing plants. We consider the expense allocation methodology and results to be reasonable for all periods presented. However, these allocations may not necessarily be indicative of the actual expenses we would have incurred as an independent publicly traded company during the periods prior to this offering or of the costs we will incur in the future. No significant restructuring or impairment charges were included in these allocations from SunEdison.

The combined financial statements included in this prospectus may not be indicative of our future performance and do not necessarily reflect what our financial position and results of operations would have been had we operated as a stand-alone public company during the periods presented, including changes that will occur in our operations and capital structure as a result of the Transactions, including this offering.

The following tables should be read together with, and are qualified in their entirety by reference to, the historical combined financial statements and the related notes appearing elsewhere in this prospectus. Among other things, the historical combined financial statements include more detailed information regarding the basis of presentation for the information in the following table. The tables should also be read together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Certain Relationships and Related Party Transactions.”

 

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The information presented in the following table under the caption “Other Financial Data” is not directly derived from the financial statements.

 

     Fiscal Year Ended December 31,     Three Months Ended
March 31,
 
     2013     2012     2011     2014     2013  
           (unaudited)     (unaudited)  
    

(in millions)

 

Statement of Operations Data:

          

Net sales to non-affiliates

   $ 911.5      $ 927.4      $ 1,051.3      $ 205.8      $ 231.2   

Net sales to affiliates

     9.1        6.8        147.0        0.3        1.2   

Cost of goods sold

     838.9        852.4        1,023.3        197.8        209.9   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     81.7        81.8        175.0        8.3        22.5   

Operating expenses:

          

Marketing and administration

     105.1        100.7        129.9        21.8        22.3   

Research and development

     37.0        33.4        38.2        8.0        9.3   

Restructuring (reversals) charges

     (75.0     (149.6     284.5        (4.6     (4.3

Gain on receipt of property, plant and equipment

     —          (31.7     —          —          —     

Long-lived asset impairment charges

     33.6        1.5        234.7        —          —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating (loss) income

     (19.0     127.5        (512.3     (16.9     (4.8
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Non-operating expenses (income):

          

Interest expense

     0.8        1.0        5.9        0.2        0.2   

Interest income

     (0.5     (0.7     (1.0     (0.1     (0.1

Interest (income) expense, net-affiliates

     (4.1     (2.2     1.8        (0.1     (0.5

Other, net

     (3.9     3.1        (0.8     (5.3     (3.8
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total non-operating expenses (income)

     (7.7     1.2        5.9        (5.3     (4.2
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) income before income tax expense

     (11.3     126.3        (518.2     (11.6     (0.6

Income tax expense

     44.0        3.6        37.4        3.6        9.1   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income

     (55.3     122.7        (555.6     (15.2     (9.7

Net (income) loss attributable to noncontrolling interests(1)

     (2.4     (1.4     (2.3     0.6        (0.8
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income attributable to SSL

   $ (57.7   $ 121.3      $ (557.9   $ (14.6   $ (10.5
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other Financial Data:

          

Adjusted EBITDA(2) (unaudited)

   $ 74.6      $ 74.9      $ 170.2      $ 15.0      $ 26.6   
     As of December 31,      As of
March 31,
2014
 
     2013     2012     
                  (unaudited)  

Balance Sheet Data:

       

Cash and cash equivalents

   $ 40.8      $ 103.2       $ 37.7   

Working capital (3)

     (35.9     38.1         (51.4

Property, plant and equipment, net

     724.9        789.9         714.1   

Total assets

     1,151.8        1,513.2         1,130.2   

Total liabilities

     440.6        699.2         457.0   

Total equity

     711.2        814.0         673.2   

 

(1) Represents the 20% interest held by our partner in MKC that we will acquire in connection with the Samsung Private Placements.

 

(2) Adjusted EBITDA is a non-GAAP financial measure. This measurement should not be viewed as an alternative to GAAP measures of performance. The presentation of Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items.

We define Adjusted EBITDA as earnings before net interest expense, income tax expense, depreciation and amortization, restructuring (reversals) charges, gain on receipt of property, plant and equipment, long-lived asset impairment charges and stock compensation expense. All of the omitted items are either (i) non-cash items or (ii) items that we do not consider in assessing our on-going operating performance. Because it omits non-cash items, we feel that Adjusted EBITDA is less susceptible to variances in actual performance resulting from depreciation, amortization and other non-cash charges and more reflective of other factors that affect our operating performance. Because it omits the other items,

 

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we believe Adjusted EBITDA is also more reflective of our on-going operating performance. We believe Adjusted EBITDA is useful to investors in evaluating our operating performance because:

 

    securities analysts and other interested parties use such calculations as a measure of financial performance and debt service capabilities; and

 

    it is used by our management for internal planning purposes, including aspects of our combined operating budget and capital expenditures.

Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations include:

 

    it does not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments;

 

    it does not reflect changes in, or cash requirements for, working capital;

 

    it does not reflect interest expense or the cash requirements necessary to service interest or principal payments on our outstanding debt;

 

    it does not reflect payments made or future requirements for income taxes;

 

    it adjusts for restructuring (reversals) charges, gains on receipt of property, plant equipment, asset impairments and stock compensation expense factors that we do not consider indicative of future performance;

 

    although it reflects adjustments for factors that we do not consider indicative of future performance, we may, in the future, incur expenses similar to the adjustments reflected in our calculation of Adjusted EBITDA in this prospectus; and

 

    although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future and Adjusted EBITDA does not reflect cash requirements for such replacements.

Investors are encouraged to evaluate each adjustment and the reasons we consider it appropriate for supplemental analysis. The following table presents a reconciliation from net (loss) income attributable to SSL to Adjusted EBITDA:

 

                                                                                                        
     Fiscal Year Ended December 31,      Three Months Ended
March 31,
 
   2013      2012      2011      2014      2013  
     (unaudited)      (unaudited)      (unaudited)      (unaudited)      (unaudited)  
    

(in millions)

 

Net (loss) income attributable to SSL

   $ (57.7    $ 121.3       $ (557.9    $ (14.6    $ (10.5

Add:

              

Interest expense, net

     (3.8      (1.9      6.7         —           (0.4

Income tax expense

     44.0         3.6         37.4         3.6         9.1   

Depreciation and amortization

     119.6         118.7         144.3         28.3         29.3   

Restructuring (reversals) charges

     (75.0      (149.6      284.5         (4.6      (4.3

Gain on receipt of property, plant and equipment

     —           (31.7      —           —           —     

Long-lived asset impairment charges

     33.6         1.5         234.7         —           —     

Stock compensation expense

     13.9         13.0         20.5         2.3         3.4   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted EBITDA

   $ 74.6       $ 74.9       $ 170.2       $ 15.0       $ 26.6   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(3) Working capital is defined as our current assets minus current liabilities. As of March 31, 2014, our current assets included accounts receivable due from SunEdison of $26.3 million and our current liabilities included accounts payable to SunEdison of $110.4 million. All of these intercompany balances and certain trade accounts will be net settled in connection with the Transactions. Excluding these amounts, our working capital would have been $32.7 million as of March 31, 2014.

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

The following discussion analyzes the historical financial condition and results of operations of the semiconductor materials business operated by SunEdison. The historical combined financial statements of the semiconductor materials business as of December 31, 2013 and 2012, for the years ended December 31, 2013, 2012 and 2011, as of March 31, 2014 and for the three months ended March 31, 2014 and 2013 appearing elsewhere in this prospectus were prepared on a ‘‘carve-out’’ basis from SunEdison and are intended to represent the financial results during those periods of SunEdison’s semiconductor materials business that will be contributed to SunEdison Semiconductor Limited as part of the Transactions. However, these combined financial statements do not purport to reflect what the results of operations, comprehensive (loss) income, financial position, equity or cash flows would have been had we operated as a standalone public company during the periods presented.

You should read the following discussion of the historical financial condition and results of operations of our business in conjunction with the historical combined financial statements and accompanying notes of our combined financial statements included elsewhere in this prospectus. This discussion includes forward-looking statements that are subject to risks and uncertainties that may result in actual results differing from statements we make. See ‘‘Cautionary Statement Concerning Forward-Looking Statements.’’ Factors that could cause actual results to differ include those risks and uncertainties that are discussed in ‘‘Risk Factors.’’

Executive Overview

We are a global leader in the development, manufacture and sale of silicon wafers to the semiconductor industry. Wafers are used as the base substrate for nearly all semiconductor devices, which in turn provide the foundation for the entire electronics industry. Our business was established in 1959 and was known during most of our history as MEMC. We have developed a broad product portfolio, an extensive global manufacturing footprint, process technology expertise and supply chain flexibility, while increasing our capital efficiency and maintaining a lean operating culture.

We primarily sell our products to all of the major semiconductor manufacturers in the world, including integrated device manufacturers and pure-play semiconductor foundries, and to a lesser extent, leading companies that specialize in wafer customization. During 2013, our largest customers were Samsung, TSMC and STMicroelectronics. We operate facilities in major semiconductor manufacturing regions throughout the world, including Taiwan, Malaysia, South Korea, Italy, Japan and the United States.

The semiconductor wafer industry has undergone significant consolidation over the past 20 years, from more than 20 suppliers in the 1990s to only 5 major suppliers today, including Shin-Etsu Handotai, SUMCO Corporation, Siltronic AG, LG Siltron and us, which suppliers accounted for approximately 90% of all semiconductor wafer sales in 2012, according to Gartner. This consolidation is due in large part to the significant increase in the capital investment and manufacturing capacity needed to compete effectively. We have expanded our market share by revenue from 8% in 2008 to 10% in 2012, according to Gartner. The table below sets forth our net sales, net (loss) income attributable to SSL and Adjusted EBITDA for the years ended December 31, 2013, 2012 and 2011 and for the three months ended March 31, 2014 and 2013:

 

    For the Year Ended December 31,     For the Three Months Ended
March 31,
 
    2013     2012     2011     2014     2013  
    (in millions)  

Net sales

  $       920.6       $       934.2       $       1,198.3       $       206.1       $       232.4    

Net (loss) income attributable to SSL

  $ (57.7)      $ 121.3       $ (557.9)      $ (14.6)      $ (10.5)   

Adjusted EBITDA (1) (unaudited)

  $ 74.6       $ 74.9       $ 170.2       $ 15.0       $ 26.6    

 

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(1)  See “—How We Assess the Performance of Our Business—Adjusted EBITDA” for the definition of Adjusted EBITDA and a reconciliation from net (loss) income attributable to SSL to Adjusted EBITDA.

Factors Affecting Our Results of Operations

Semiconductor Market Cyclicality

Overall demand for semiconductors has generally increased over time. For example, according to the Semiconductor Industry Association and World Semiconductor Trade Statistics, between 2007 and 2012, semiconductor unit sales and the overall semiconductor market revenue grew at CAGRs of 3.1% and 2.7%, respectively. Despite this long-term growth for semiconductors, short-term demand for semiconductor wafers is subject to considerable volatility and cyclicality due to changes in the supply and demand for semiconductor devices, which is impacted by general economic conditions, including consumer spending levels. For example, according to Gartner, overall unit sales volumes for semiconductor silicon wafers worldwide declined in 2011 and 2012. Our wafer unit sales volume experienced a similar decline in 2011, but remained flat in 2012 and increased 6.4% in 2013 compared to 2012.

Manufacturing Capacity Utilization and Efficiency

The semiconductor wafer industry is capital-intensive due to the investments in manufacturing capacity needed to compete effectively. Our semiconductor wafer manufacturing processes are highly complex, require advanced and increasingly costly equipment and need to be continuously modified or maintained in response to our customer requirements. As a result of these significant fixed costs, changes in our manufacturing plant utilization and efficiency have a significant impact on our results of operations in any particular period. In 2013 and 2012 and for the three months ended March 31, 2014 and December 31, 2013, we spent $30.4 million, $26.8 million, $9.5 million and $9.0 million, respectively, on capital expenditures to maintain our manufacturing facilities. Fluctuations in demand for silicon devices often result in periods of manufacturing over- or under-capacity within the semiconductor wafer industry. We focus on maximizing our manufacturing capacity utilization throughout periods of fluctuating demand for semiconductor devices through close collaboration with our customers to understand their anticipated product requirements. In addition, our engineers’ understanding of both the science and operation of the tools within our factories enables us to streamline equipment controls, software interfaces and operational parameters, allowing us to utilize our manufacturing capacity more efficiently. We have also designed our manufacturing processes to be flexible and scalable with low to moderate additional capital investment necessary to pursue new opportunities or increase capacity, and we continuously review our global manufacturing footprint to manage our existing capacity in light of current industry conditions. As a result of increased operational efficiency and improved supply chain productivity, the cost per square inch equivalent of manufacturing our semiconductor wafers decreased by 6% in 2013 as compared to 2012 and by 5% in 2012 as compared to 2011.

Semiconductor Wafer Pricing Fluctuations

Semiconductor wafer average selling prices have fluctuated in recent years based on changes in the supply and demand for semiconductor devices. For example, in 2011, merchant semiconductor silicon wafer average selling prices worldwide increased by 12.8% as compared to prices in 2010, while average prices decreased by approximately 8.8% in 2012 as compared to prices in 2011, according to Gartner. The average selling price increase in 2011 was primarily due to the supply impacts of the earthquake and tsunami in Japan. Semiconductor wafer price fluctuations can have a significant impact on our net sales and gross margins. In addition, consolidation within the semiconductor industry has also increased the purchasing power of our customers over time, resulting in downward pressure on wafer average selling prices. In response to the recent price declines, we have focused on reducing our manufacturing costs, improving our product mix and expanding our market share in an effort to minimize the adverse impact on our sales and gross profit. As a result of our focus to improve our product mix, quality and customer service, we have been able to expand our market share and hold our pricing better than the overall semiconductor wafer industry. For example, the average selling price for wafers across the semiconductor wafer industry declined by 13.4% from 2012 to 2013, according to Gartner. However, during the same period, our average selling price decline was only 7%, which was 6.4 percentage points better than the industry average.

 

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Introduction of New Products and Product Mix

Recent growth in semiconductor demand has been largely attributable to the proliferation of mobile devices, such as smart phones and tablets. Semiconductors used in applications such as mobile devices and cloud infrastructure are increasingly requiring EPI wafers, which enable lower power consumption due to their near perfect surface characteristics. According to Gartner, the epitaxial semiconductor silicon wafer market is expected to grow from $3.0 billion in 2013 to $3.8 billion in 2017, representing a 6.1% CAGR. Similarly, demand for SOI wafers is growing as a result of the ability of SOI wafers to improve switching speeds and enhance the performance of RF devices such as power amplifiers, switches and sensors. According to the SOI Industry Consortium, the total available market for SOI wafers is expected to double over the next five years, driven by the increased penetration in mobile system-on-chips and RF devices. We have been a leader in the development of these advanced substrates and believe we are well-positioned to capitalize on the growth opportunities resulting from the increasing demand for EPI and SOI wafers. In 2013 and 2012, EPI and SOI wafer sales represented approximately one-third of our net sales to non-affiliates. We typically realize greater gross margin on our more highly engineered wafers, such as our EPI and SOI wafers, and the mix of products sold by us in any given period will impact our overall gross profits.

Restructuring and Cost-Improvement Initiatives

We have implemented several initiatives since 2009 designed to rationalize our use of resources, optimize those resources for the most attractive market opportunities and manage our production capacity to efficiently meet demand. During the fourth quarter of 2011, SunEdison committed to a series of actions to reduce its global workforce, right size its production capacity and accelerate operating cost reductions across each of its business segments in 2012 and beyond, or the 2011 Global Plan. In connection with the 2011 Global Plan, we reduced our workforce by approximately 11% and shuttered our Merano, Italy polysilicon facility. Primarily as a result of these actions, we incurred restructuring charges of $284.5 million and long-lived asset impairment charges of $234.7 million in 2011. We have achieved significant annualized cost savings and productivity improvements as a result of these restructuring actions and other cost improvement initiatives. We implemented similar cost and significant workforce reductions and a facility realignment in 2009. For more information regarding these restructuring and impairment activities, see Note 3 to our audited combined financial statements included elsewhere in this prospectus.

As part of our efforts to implement the 2011 Global Plan, we executed two settlement agreements with Evonik Industries AG, or Evonik, in September 2012 to settle disputes arising from our early termination of two take-or-pay supply agreements related to our Merano, Italy polysilicon facility. Pursuant to the settlement, we forfeited a deposit of $10.2 million and agreed to pay Evonik a total of 70.0 million Euro, of which 25.0 million Euro was paid in 2012 and 45.0 million Euro was paid in 2013. As a result of this restructuring-related settlement, a favorable adjustment to our 2011 Global Plan liabilities was made during the third quarter of 2012 resulting in $65.8 million of income within restructuring charges (reversals) since we settled the take-or-pay obligations for less than what we previously estimated and accrued. Additionally, in December 2012, as part of the settlement with Evonik, we obtained title to a chlorosilanes plant, which resulted in the recognition of a $31.7 million gain in the fourth quarter of 2012.

As a result of shuttering our Merano, Italy polysilicon facility, we executed a letter of agreement pertaining to a polysilicon supply agreement on December 14, 2012 with a subsidiary of SunEdison. This letter agreement required the subsidiary of SunEdison to reimburse us 57.9 million Euro related to damages paid to suppliers and lost profits. As a result of this letter of agreement, we recorded approximately $75.7 million of income within restructuring charges (reversals) in 2012. Similarly, in September 2013, we executed a letter of agreement with the SunEdison subsidiary related to damages paid to suppliers and lost profits in 2013 and recorded approximately $62.9 million of income within restructuring charges (reversals) for the year ended December 31, 2013.

A majority of our polysilicon assets at our Merano, Italy polysilicon facility were previously written down to their estimated salvage value. We established the carrying value of the chlorosilanes assets obtained

 

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from Evonik at our Merano, Italy polysilicon facility based upon management’s estimate of the probability as to whether this facility would be re-opened or permanently closed.

In the fourth quarter of 2013, management concluded an analysis as to whether to restart the Merano, Italy polysilicon facility and determined that, based on recent developments and current market conditions, restarting the facility was not aligned with our business strategy. Accordingly, we have decided to indefinitely close the previously shuttered Merano, Italy polysilicon facility and chlorosilanes facilities obtained from Evonik. As a result, during the three months ended December 31, 2013, we recorded $33.6 million of non-cash impairment charges to write-down these assets to their current estimated salvage value. In connection with our decision to indefinitely close the facilities, we also made insignificant revisions to other estimated liabilities that were previously accrued as part of our 2011 Global Plan. While we do not currently expect to revisit this decision absent a significant change, such as a material increase in the market price of polysilicon, significantly increased internal demand for polysilicon or unexpected supply constraints, we will continue to periodically assess the impairment of long-lived assets/asset groups when conditions indicate a possible loss. As of March 31, 2014, we believe we have adequately accrued all estimated expenses we expect to incur in the future with respect to this facility. However, actual future expenses could differ from our estimates.

On February 7, 2014, we determined to commence a plan to consolidate our crystal operations. The consolidation will include transitioning small diameter crystal activities from our St. Peters, Missouri facility to other crystal facilities in Korea, Taiwan and Italy. The consolidation of crystal activities will affect approximately 120 employees in St. Peters and will be implemented over the 12 months following the commencement of the plan. We estimate that we will incur approximately $4.0 million to $6.0 million of expense as a result of this action, primarily related to termination costs of the affected employees, of which we incurred approximately $4.0 million in the three months ended March 31, 2014 and the balance over the next 12 to 18 months.

In May 2014, SunEdison received an informal notice from the Pension Benefit Guaranty Corporation, or PBGC, that it intends to require an additional contribution to SunEdison’s U. S. pension plan, which will be transferred to us in connection with the Formation Transactions, under the U.S. Employee Retirement Income Security Act due to our restructuring of certain operations at our U.S. facilities, as well as the occurrence of this offering. We have not received a formal assessment or concluded the negotiation process with the PBGC. As a result, we have not yet made any modifications to our U.S. pension plan assets. As of December 31, 2013, SunEdison’s U.S. pension plan was in an overfunded status on a U.S. GAAP basis, and we have not recorded any additional amounts to fund the pension plan as a result of the PBGC notice because we believe the overfunded amount is sufficient to cover the request for contribution by the PBGC. See Note 9 to our audited combined financial statements included elsewhere in this prospectus for additional information regarding SunEdison’s U.S. pension plan. We do not expect any final resolution with the PBGC to have a material impact on our financial condition or results of operations.

Foreign Currency Exchange Rates

As a result of our international operations, we generate a portion of our net sales and incur a portion of our expenses in currencies other than the U.S. dollar, including the Japanese Yen, New Taiwan Dollar, Euro, Korean Won and Malaysian Ringgit. Our results of operations are impacted by currency exchange rate fluctuations to the extent that we are unable to match net sales received in foreign currencies with expenses incurred in the same currency. For example, where we have significantly more expenses than net sales generated in a foreign currency, our profit from operations in that location would be adversely affected in the event that the U.S. dollar depreciates against that foreign currency. To protect against reductions in value and volatility of future cash flows caused by changes in foreign exchange rates, we have established transaction-based hedging programs. Our hedging programs reduce, but do not always eliminate, the impact of foreign currency exchange rate movements. We record the effects from changes in foreign currency exchange rates in our combined statement of operations in other, net.

In addition, since we present our combined financial statements in U.S. dollars, we must translate the assets, liabilities, net sales and expenses of a substantial portion of our foreign operations into U.S. dollars at applicable exchange rates. Consequently, increases or decreases in the value of the U.S. dollar may affect the value of these items with respect to our non-U.S. dollar businesses in our combined financial statements, even if their

 

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value has not changed in their local currency. For example, a stronger U.S. dollar will reduce the relative value of reported results of non-U.S. dollar operations and, conversely, a weaker U.S. dollar will increase the relative value of the non-U.S. dollar operations. These translations could significantly affect the comparability of our results between financial periods or result in significant changes to the carrying value of our assets, liabilities and equity.

Comparability of Historical Results and Our Relationship with SunEdison

We currently operate as a business segment of SunEdison. Our combined financial statements included in this prospectus have been derived from the consolidated financial statements and accounting records of SunEdison and include allocations for direct costs and indirect costs attributable to the operations of the semiconductor materials business of SunEdison. These combined financial statements do not purport to reflect what the results of operations, comprehensive (loss) income, financial position, equity or cash flows would have been had we operated as a standalone public company during the periods presented. For a detailed description of the basis of presentation and an understanding of the limitations of the predictive value of the historical combined financial statements, see Notes 1 and 2 to our audited combined financial statements included elsewhere in this prospectus.

Our historical combined financial statements may also not be reflective of what our results of operations, comprehensive (loss) income, financial position, equity or cash flows might be in the future as a standalone public company as a result of the following matters.

For the impact of certain of these anticipated differences, see “Unaudited Pro Forma Consolidated Financial Statements.” For additional information regarding the agreements that we will enter into with SunEdison to provide a framework for our ongoing relationship, see “Certain Relationships and Related Party Transactions.”

Centralized Support Functions

Our historical combined financial statements include expense allocations for certain support functions that were provided on a centralized basis within SunEdison, such as general corporate expenses related to communications, corporate administration, finance, legal, information technology, human resources, compliance, employee benefits and incentives, operations, research and development and stock compensation. These allocated costs are not necessarily indicative of the costs that we may incur in the future as a standalone public company. Following this offering, SunEdison will continue to provide us with some of the services related to these functions on a transitional basis pursuant to a transition services agreement, and we expect to incur other costs to replace the services and resources that will not be provided by SunEdison. We generally expect to use these services for approximately one to two years following the completion of this offering, depending on the type of service and the location at which such service is provided. However, we may agree with SunEdison to extend the service periods or may terminate such service periods by providing prior written notice. For additional information on the Transition Services Agreement, see “Certain Relationships and Related Party Transactions—Transition Services Agreement.”

During the period that SunEdison will provide services for us pursuant to the Transition Services Agreement, we expect to incur higher costs for certain services than the allocated costs included in our historical combined financial statements because we will incur additional expenses to build up our organization to perform such functions internally in addition to the amounts we will pay SunEdison for such services. After the termination of the Transition Services Agreement, we expect certain costs incurred to be lower than the allocated costs included in our historical combined financial statements because we believe we will be able to perform such functions at a lower cost than the allocated amounts.

Compensation and Benefit Plan Matters

During the periods presented, most of our employees were eligible to participate in various SunEdison benefit programs. Our historical combined financial statements include an allocation of the costs of such employee benefit plans. These costs were allocated based on our employee population for each of the periods presented. The allocated costs included in our historical combined financial statements could differ from amounts

 

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that would have been incurred by us had we operated on a stand-alone basis and are not necessarily indicative of costs to be incurred in the future. Since substantially all of SunEdison’s pension and other post-employment benefit plans relate solely to our employees, our combined balance sheets include net benefit obligations related to those plans and those benefit plans in certain foreign locations that are our direct obligations.

We expect to institute competitive compensation policies and programs as a standalone public company, the expenses for which may differ from the compensation expense allocated by SunEdison in our combined financial statements. For a detailed description of our current compensation policies as a business segment of SunEdison and anticipated compensation policies following this offering, see “Executive Compensation.”

Public Company Expenses

As a result of this offering, we will become subject to the reporting requirements of the Exchange Act and the Sarbanes-Oxley Act. We will be required to establish procedures and practices as a standalone public company in order to comply with our obligations under those laws and the related rules and regulations. As a result, we will incur additional costs, including internal audit, investor relations, stock administration and regulatory compliance costs. These additional costs may differ from the costs that were historically allocated to us from SunEdison.

Polysilicon Costs

We have historically obtained our requirements for polysilicon primarily from SunEdison’s facility in Pasadena, Texas, as well as from other external polysilicon suppliers. We have reflected the price of polysilicon obtained from SunEdison in our historical cost of goods sold at prices which have historically trended above prevailing market prices. During 2013, the average price per kilogram for polysilicon allocated to us from SunEdison was $55, and we purchased a total of approximately 2,700 metric tons of polysilicon, of which approximately 2,200 metric tons was sourced from SunEdison’s facility. SunEdison has agreed to sell us polysilicon at a price of $30 per kilogram during 2014. Our cost of goods sold for the three months ended March 31, 2014 reflected polysilicon sourced from SunEdison both in periods prior to 2014 at $55 per kilogram and in the current period at $30 per kilogram, resulting in a weighted average price for polysilicon of approximately $44 per kilogram. During the three months ended March 31, 2014, a majority of the polysilicon we purchased was sourced from SunEdison. We expect SunEdison to continue to commit to supplying us with our polysilicon requirements at $30 per kilogram. In addition, following the Transactions, we will own a 35% interest in SMP, which owns a polysilicon manufacturing facility in South Korea that is currently under construction. The SMP facility is expected to be completed in the second half of 2014. After SMP achieves commercial capabilities to produce electronic grade polysilicon, we expect to purchase a portion of our polysilicon from SMP on a purchase order basis at prices lower than our historical cost for polysilicon. As a result, it is likely that our costs to obtain polysilicon will differ from the costs that were historically allocated to us from SunEdison.

Income Taxes

The operations of our business have been included in the consolidated U.S. federal income tax return and certain foreign income tax returns of SunEdison. The income tax provisions and related deferred tax assets and liabilities that have been reflected in our historical combined financial statements have been computed as if we were a separate taxpayer using the “separate return” method. These amounts are not necessarily indicative of what our income tax provisions and related deferred tax assets and liabilities will be in the future following the completion of this offering. We intend to enter into a tax matters agreement with SunEdison immediately prior to the completion of this offering that will govern the parties’ respective rights, responsibilities and obligations with respect to tax liabilities and benefits, tax attributes, the preparation and filing of tax returns, the control of audits and other tax proceedings and other matters regarding taxes. For additional information on the tax matters agreement, see “Certain Relationships and Related Party Transactions—Tax Matters Agreement.”

 

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Indebtedness

Our historical balance sheets include intercompany loans to and from SunEdison and long-term notes owed to a bank by our Japanese subsidiary. We did not have any long-term intercompany borrowings from SunEdison as of March 31, 2014. Our long-term debt totaled $10.6 million as of March 31, 2014. We also have $3.8 million of various note receivables due from SunEdison as of March 31, 2014. Our total indebtedness and certain trade accounts will be net settled in connection with the Transactions. In connection with the Financing Transactions, we expect to incur a significant amount of additional indebtedness under a $200.0 million term loan, issued at a 1% discount. As a result, our interest expense after completion of the Transactions will increase significantly from those amounts reflected in our historical combined financial statements.

Key Components of our Combined Statement of Operations

Net Sales

We generate sales to non-affiliates primarily through the manufacture and sale of semiconductor wafers. Depending on market conditions, we also sell intermediate products, such as polysilicon, trichlorosilane, or TCS, gas, ingots and scrap wafers to semiconductor device and equipment makers. These sales have not been material to our results of operations following the shuttering of our Merano, Italy polysilicon facility in December 2011. In 2013, Samsung, TSMC and STMicroelectronics accounted for approximately 21%, 16% and 11%, respectively, of our net sales to non-affiliates.

Sales to our customers are generally governed by purchase orders or, in certain cases, agreements with durations of one year or less that include pricing terms and estimated quantity requirements. Our customer agreements generally do not require that a customer purchase a minimum quantity of wafers. We also sell silicon wafers to certain customers under consignment arrangements. These consignment arrangements generally require us to maintain a certain quantity of wafers in inventory at the customer’s facility or at a storage facility designated by the customer.

Sales to affiliates mainly represent polysilicon sales made to subsidiaries of SunEdison, which are subsequently sold to external parties. We sold these polysilicon products on a cost plus basis primarily from our Merano, Italy polysilicon facility. Following the shuttering of our Merano, Italy polysilicon facility, our sales to affiliates are insignificant.

We recognize revenue for semiconductor wafer and other product sales when title transfers, the risks and rewards of ownership have been transferred to the customer, the fee is fixed or determinable and collection of the related receivable is reasonably assured, which is generally at the time of shipment for non-consignment orders. In the case of consignment orders, title passes when the customer pulls the product from the assigned storage facility or if the customer does not pull the product within a contractually stated period of time (generally 60–90 days) at the end of that period, or when the customer otherwise agrees to take title to the product.

Costs and Expenses

Cost of Goods Sold

Our cost of goods sold consists principally of the following:

 

    Production Materials Costs. The cost of production materials relates to our cost of acquiring raw materials, components and semi-finished goods. While we purchase much of the raw materials used in production on a global basis, these costs can be impacted by local market conditions.

 

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    Employee Costs. Employee costs include the salary and benefit charges, including stock-based compensation expense, for employees involved in manufacturing our products. We rely heavily on temporary employees in certain geographies, which gives us improved flexibility to meet shifts in demand.

 

    Other. Our remaining cost of goods sold consists of production engineering activities, customer-related customization costs, depreciation of fixed assets, freight costs, operating lease expenses, outsourcing or subcontracting costs relating to services used by us on an occasional basis during periods of excess demand and other general manufacturing expenses, such as expenses for energy consumption.

Marketing and Administration

Our marketing and administration expense consists of all expenditures incurred in connection with the sales and marketing of our products, as well as non-manufacturing related administrative overhead costs, including:

 

    Salary and Benefit Costs. These costs relate to salaries and benefits, including stock-based compensation expense, for sales personnel and administrative staff. Expenses relating to our sales personnel generally increase or decrease with changes in sales volume due to the need to increase or decrease sales personnel to meet changes in demand. Aggregate expenses relating to our administrative staff are generally less influenced by changes in sales volumes. We have reduced our administrative headcount over the past few years in connection with our restructuring activities.

 

    Maintenance. Maintenance expenses relate to the use and maintenance of our administrative offices.

 

    Other Administrative Expenses. These costs include expenses relating to logistics and information systems, legal, compliance, audit and accounting expenses.

 

    Other. Our remaining marketing and administration expenses consist of other selling and general advertising costs, such as expenses incurred in connection with travel and communications.

Changes in marketing and administration expenses as a percent of net sales have historically been impacted by a number of factors, including:

 

    Volume Changes. Higher volumes enable us to spread the fixed portion of our marketing and administration expense over more net sales.

 

    Product Mix. Some products require more customer support and sales efforts than others so a change in product mix may affect marketing and administrative expenses.

 

    Customer Base. Changes in our customer base may affect the required level of sales and marketing support as new customers require more attention.

 

    New Products. New product launches in existing and new markets typically involve more intense sales and marketing activity before they are integrated into customer applications.

Research and Development

Research and development, or R&D, expense consists primarily of costs related to direct product development and application engineering. Development expense is typically associated with engineering labor, technology costs, capital expenditures and re-tooling costs for the development and advancement in the design of

 

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new products or processes to align our technology innovation efforts with our customers’ requirements for new and evolving applications. The level of R&D expense is related to the number of products in development, the stage of development process, the complexity of the underlying technology and the potential scale of the product upon successful commercialization. All R&D costs are expensed as incurred.

Restructuring (Reversals) Charges

Restructuring (reversals) charges consist primarily of (i) employee termination costs, including severance, outplacement and other one-time separation benefits, (ii) estimated liabilities and subsequent adjustments related to contract settlement, cancellation or termination payments and penalties and (iii) facility closure and other exit costs. See “—Factors Affecting Our Results of Operations—Restructuring and Cost-Improvement Initiatives.”

Long-Lived Asset Impairment Charges

When indicators of impairment exist, we perform reviews to determine whether the carrying value of an asset is impaired, based on comparisons to undiscounted expected future cash flows. If this comparison indicates that there is impairment, the impaired asset is written down to its estimated fair value, which is typically calculated using: (i) quoted market prices, including appraisals or (ii) discounted expected future cash flows utilizing an appropriate discount rate. Impairment is based on the excess of the carrying amount over the fair value of those assets. During 2011, due to the significance of the market downturn, we performed an asset impairment analysis of the polysilicon production assets at our Merano, Italy polysilicon facility. As a result of that analysis, we reduced the net carrying value of the Merano assets to its net realizable salvage value and incurred a charge of $221.9 million. In addition, in the fourth quarter of 2013, management concluded an analysis as to whether to restart the Merano, Italy polysilicon facility and determined that, based on recent developments and current market conditions, restarting the facility was not aligned with our business strategy. Accordingly we have decided to indefinitely close the Merano, Italy polysilicon and chlorosilanes facilities. As a result, during the three months ended December 31, 2013, we recorded $33.6 million of non-cash impairment charges to write-down these assets to their current estimated salvage value.

Non-Operating Expense (Income)

Non-operating expense (income) represents interest expense, interest income and other expenses, such as the effects from changes in foreign currency exchange rates and settlements of derivative foreign currency forward contracts. Interest expense has consisted primarily of interest expense on intercompany loans from SunEdison and other financing obligations. Interest expense also includes interest expense on liabilities arising from uncertain tax positions. Interest income represents interest earned on cash, cash equivalents and short-term money market investments and intercompany loans to SunEdison.

Income Taxes

The operations of our business have been included in the consolidated U.S. federal income tax return and certain foreign income tax returns of SunEdison. The income tax provisions and related deferred tax assets and liabilities that have been reflected in our historical combined financial statements have been estimated as if we were a separate taxpayer. We are subject to taxation in all geographies in which we operate, and as a standalone entity, will file tax returns in each jurisdiction in which we operate.

Deferred income taxes arise because of a different tax basis of assets or liabilities between financial accounting and tax accounting, which are known as temporary differences. We record the tax effect of these temporary differences as deferred tax assets (generally items that can be used as a tax deduction or credit in future periods) and deferred tax liabilities (generally items for which we received a tax deduction, but have not yet been recorded in the combined statement of operations). We regularly review our deferred tax assets for realizability, taking into consideration all available evidence, both positive and negative, including historical and

 

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projected pre-tax and taxable income (losses) and the expected timing of the reversals of existing temporary differences. In arriving at these judgments, the weight given to the potential effect of all positive and negative evidence is commensurate with the extent to which it can be objectively verified.

Our business consists of the combined operations of certain entities currently owned by SunEdison, which is incorporated in the State of Delaware. We have historically been included in SunEdison’s consolidated U.S. federal income tax return and our income taxes are computed and reported under the “separate return” method. In connection with the Formation Transactions, our tax structure will change prospectively but there will be no changes to our historical financial statements.

How We Assess the Performance of Our Business

In assessing the performance of our business, we consider a variety of performance and financial measures. Our principal performance measures include net sales and Adjusted EBITDA.

Net Sales

We evaluate net sales because it helps us measure the impact of general economic and industry trends and conditions, changes in our production volumes and product pricing, the effectiveness of our sales and marketing and R&D activities, the impact of new product introductions and technological innovations and the effect of competition over a given period. Our net sales from products include total sales less estimates of returns due to product quality reasons and pricing allowances. Our overall net sales are generally impacted by the following factors, among others:

 

    fluctuations in overall economic activity within the geographic markets in which we operate;

 

    changes in production capacity within the semiconductor wafer industry;

 

    changes in wafer average selling prices;

 

    the number of semiconductors used within existing applications and the development of new applications requiring semiconductors;

 

    the “mix” of products sold, including the proportion of new or upgraded products and their pricing relative to existing products;

 

    changes in product sales prices (including quantity discounts, rebates and cash discounts for prompt payment);

 

    changes in the level of competition faced by our products, including the launch of new products by competitors;

 

    our ability to successfully develop and launch new products and applications; and

 

    fluctuations in exchange rates.

Adjusted EBITDA

We believe that Adjusted EBITDA is a useful performance measure and we use it to facilitate a comparison of our operating performance on a consistent basis from period-to-period and to provide for a more complete understanding of factors and trends affecting our business. For example, the Adjusted EBITDA for the three months ended March 31, 2014 was $15.0 million, which represented a $12.2 million increase from $2.8 million for the three months ended December 31, 2013. We also use Adjusted EBITDA as one of the primary methods for planning and forecasting overall expected performance and for evaluating on a quarterly and annual basis actual results against such expectations, and is likely to be used as a performance evaluation metric in determining achievement of certain compensation programs and plans for employees, including our senior executives.

 

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We define Adjusted EBITDA as earnings before net interest expense, income tax expense, depreciation and amortization, restructuring (reversals) charges, gain on receipt of property, plant and equipment, long-lived asset impairment charges and stock compensation expense. All of the omitted items are either (i) non-cash items or (ii) items that we do not consider reflective of our on-going operating performance. Because it omits non-cash items, we feel that Adjusted EBITDA is less susceptible to variances in actual performance resulting from depreciation, amortization and other non-cash charges and more reflective of our on-going operating performance.

The table below presents a reconciliation of net (loss) income attributable to SSL to Adjusted EBITDA for the years ended December 31, 2013, 2012 and 2011 and for the three months ended March 31, 2014 and 2013:

 

    For the Year Ended December 31,     Three Months Ended  
          2013                     2012                     2011             March 31,
2014
    December 31,
2013
    March 31,
2013
 
    (unaudited)     (unaudited)     (unaudited)     (unaudited)     (unaudited)     (unaudited)  
    (in millions)  

Net (loss) income attributable to SSL

  $ (57.7)       $ 121.3        $ (557.9)       $ (14.6)       $ (43.3)       $ (10.5)    

Add:

         

Interest expense, net

    (3.8)         (1.9)         6.7          —            (0.9)         (0.4)    

Income tax expense

    44.0          3.6          37.4          3.6          12.6          9.1     

Depreciation and amortization

    119.6          118.7          144.3          28.3          31.4          29.3     

Restructuring (reversals) charges

    (75.0)         (149.6)         284.5          (4.6)         (33.9)         (4.3)    

Gain on receipt of property, plant and equipment

    —            (31.7)         —            —            —            —       

Long-lived asset impairment charges

    33.6          1.5          234.7          —            33.6          —       

Stock compensation expense

    13.9          13.0          20.5          2.3          3.3          3.4     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

  $         74.6        $         74.9        $       170.2        $         15.0        $         2.8        $         26.6     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA is a non-GAAP financial measure. This measure should not be viewed as an alternative to GAAP measures of performance. The presentation of Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items. Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for an analysis of our results as reported under GAAP. For a discussion of these limitations, see Note 3 in “Summary Historical and Pro Forma Financial Data.”

Results of Operations

Three Months Ended March 31, 2014, Compared with the Three Months Ended March 31, 2013

Net Sales

 

     For the Three Months
Ended March 31,
     Change  
             2014                      2013                      Dollars                     Percent          

(dollars in millions)

          

Net sales to non-affiliates

   $ 205.8         $ 231.2         $ (25.4     (11.0 )% 

Net sales to affiliates

     0.3           1.2           (0.9     (75.0 )% 
  

 

 

    

 

 

    

 

 

   

Net sales

   $         206.1         $         232.4         $         (26.3     (11.3 )% 
  

 

 

    

 

 

    

 

 

   

Net sales to non-affiliates decreased in the three months ended March 31, 2014 compared to the prior year comparable period primarily due to semiconductor wafer price decreases totaling $20.2 million driven by competitive pressures arising from softness in the semiconductor industry, as well as an aggregate amount of $7.4 million due to decreases in volume and a less favorable product mix as a result of higher sales of lower priced wafers. These factors were offset in part by an increase in net sales of intermediate byproducts of

 

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polysilicon and scrap wafers of $2.2 million. Average selling price decreases occurred primarily in 300mm semiconductor wafers due to a competitive market environment. The average selling prices of our wafers for the three months ended March 31, 2014 were approximately 10% lower than the average selling prices for the comparable period in 2013.

Gross Profit

 

     For the Three Months
Ended March 31,
    Change  
             2014                     2013                     Dollars                     Percent          

(dollars in millions)

        

Cost of goods sold

   $         197.8      $         209.9      $         (12.1     (5.8 )% 

Gross profit

   $ 8.3      $ 22.5      $ (14.2     (63.1 )% 

Gross margin

     4.0     9.7    

Gross profit decreased in the three months ended March 31, 2014 compared to the prior year comparable period primarily due to lower average selling prices for our wafers, decreases in volume and a less favorable product mix, offset slightly by improved operational efficiencies, continued focus on manufacturing cost reductions and lower polysilicon costs. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Comparability of Historical Results and Our Relationship with SunEdison—Polysilicon Costs.”

Marketing and Administration

 

     For the Three Months
Ended March 31,
    Change  
             2014                     2013                     Dollars                     Percent          

(dollars in millions)

        

Marketing and administration

   $         21.8      $         22.3      $          (0.5)      (2.2 )% 

As a percentage of net sales

     10.6     9.6    

Marketing and administration expenses decreased in the three months ended March 31, 2014 compared to the prior year comparable period primarily due to lower spending on salary, benefits and other administrative costs arising from our plan to consolidate the semiconductor crystal operations that we announced on February 7, 2014.

Research and Development

 

     For the Three Months
Ended March 31,
    Change  
             2014                     2013                     Dollars                     Percent          

(dollars in millions)

        

Research and development

   $         8.0      $         9.3      $          (1.3)      (14.0 )% 

As a percentage of net sales

     3.9     4.0    

R&D expenses decreased in the three months ended March 31, 2014 compared to the prior year comparable period primarily due to lower spending on R&D activities arising from our plan to consolidate the semiconductor crystal operations that we announced on February 7, 2014. The decrease in R&D spending primarily relates to fewer engineers and purchasing smaller amounts of test equipment compared to the prior year comparable period.

 

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Restructuring Reversals

 

     For the Three Months
Ended March 31,
    Change  
             2014                     2013                     Dollars                     Percent          

(dollars in millions)

        

Restructuring reversals

   $         (4.6   $         (4.3   $         (0.3     7.0

We recorded net restructuring reversals in the three months ended March 31, 2014 due to a $7.2 million favorable settlement of a polysilicon supply agreement executed in 2013 with a subsidiary of SunEdison and $1.4 million of other net favorable revisions to our estimated restructuring liabilities based on actual results differing from our previous estimates related to the restructuring actions associated with our 2011 Global Plan, which offset approximately $4.0 million of restructuring expenses related to our plan to consolidate our semiconductor crystal operations that was announced on February 7, 2014.

We recorded restructuring reversals in the three months ended March 31, 2013 as a result of net favorable revisions to our estimated restructuring liabilities, primarily due to the settlement of certain contractual obligations and changes in estimates related to the restructuring actions associated with our 2011 Global Plan.

Non-Operating Expense (Income)

 

     For the Three Months
Ended March 31,
    Change  
             2014                     2013                     Dollars                     Percent          

(dollars in millions)

        

Interest expense

   $ 0.2      $ 0.2      $       

Interest income

     (0.1     (0.1           

Interest, net—affiliates

     (0.1     (0.5     0.4        (80.0 )% 

Other, net

     (5.3     (3.8     (1.5     n/m   
  

 

 

   

 

 

   

 

 

   

Total non-operating income

   $         (5.3   $         (4.2   $         (1.1     n/m   
  

 

 

   

 

 

   

 

 

   

Non-operating income increased in the three months ended March 31, 2014 compared to the prior year comparable period primarily due to the effects of changes in foreign currency exchange rates and related gains and losses on settlements of derivative foreign currency forward contracts, which is recorded in other, net.

Income Taxes

 

     For the Three Months
Ended March 31,
    Change  
             2014                     2013                     Dollars                     Percent          

(dollars in millions)

        

Income tax expense

   $ 3.6      $ 9.1      $         (5.5     (60.4 )% 

Income tax rate as a percentage of loss before income taxes

             (31.0 )%              (1,516.7 )%     

Income tax expense decreased in the three months ended March 31, 2014 compared to the prior year comparable period primarily due to lower income in certain tax jurisdictions as a result of changes in the geographical mix of earnings from operations.

 

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Year Ended December 31, 2013, Compared with Year Ended December 31, 2012

Net Sales

 

     For the Year Ended December 31,      Change
             2013                      2012                  Dollars             Percent    

(dollars in millions)

    

Net sales to non-affiliates

   $ 911.5         $ 927.4         $ (15.9   (1.7)%

Net sales to affiliates

     9.1           6.8           2.3      33.8%
  

 

 

    

 

 

    

 

 

   

Net sales

   $           920.6         $           934.2         $ (13.6   (1.5)%
  

 

 

    

 

 

    

 

 

   

Net sales to non-affiliates decreased for the year ended December 31, 2013 compared to the prior year primarily due to semiconductor wafer price decreases totaling $65.0 million driven by softness in the semiconductor industry in 2013, as well as an aggregate amount of $9.5 million due to a less favorable product mix as a result of higher sales of lower priced wafers and a decrease in net sales of intermediate byproducts of polysilicon and scrap wafers offset in large part by volume increases of $58.6 million. Unit volume increased across all wafer diameters as a result of increased sales to certain existing customers and improved market demand. Average selling price decreases occurred primarily with 300mm semiconductor wafers due to a competitive market environment, overcapacity and the weakening of the Japanese Yen, which lowered the relative prices charged by Japanese semiconductor wafer manufacturers in markets outside Japan. The average selling prices of our wafers for the year ended December 31, 2013 were approximately 7.0% lower than the average selling prices for the same period in 2012.

Gross Profit

 

     For the Year Ended December 31,      Change
             2013                      2012                  Dollars              Percent    

(dollars in millions)

  

Cost of goods sold

   $         838.9          $ 852.4          $ (13.5)       (1.6)%

Gross profit

   $ 81.7          $ 81.8          $ (0.1)       (0.1)%

Gross margin

     8.9%         8.8%         

Gross margin remained relatively consistent for the year ended December 31, 2013 compared to the prior year period primarily due to lower average selling prices for our wafers offset entirely by reduced unit costs on higher product volume, improved operational efficiencies and continued focus on manufacturing cost reductions.

Marketing and Administration

 

     For the Year Ended December 31,      Change
             2013                      2012                  Dollars            Percent    

(dollars in millions)

     

Marketing and administration

   $             105.1          $             100.7          $            4.4     4.4%

As a percentage of net sales

     11.4%         10.8%         

Marketing and administration expenses increased for the year ended December 31, 2013 compared to the prior year primarily as a result of the absence of $4.0 million in insurance recoveries related to the earthquake and tsunami in Japan which reduced marketing and administration expense in 2012. We had no similar insurance recoveries during the year ended December 31, 2013.

 

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Research and Development

 

     For the Year Ended December 31,      Change
             2013                      2012                  Dollars            Percent    

(dollars in millions)

  

Research and development

   $             37.0          $             33.4          $                3.6    10.8%

As a percentage of net sales

     4.0%         3.6%         

R&D expenses increased for the year ended December 31, 2013 compared to the prior year primarily due to spending to enhance our capabilities in advanced substrates and to broaden our product offerings. This increase in R&D spending primarily related to hiring additional engineers and purchasing test equipment to support advancing crystal capabilities in support of customer requirements, especially on larger diameter products.

Restructuring Reversals

 

     For the Year Ended December 31,    Change
             2013                    2012                Dollars            Percent    

(dollars in millions)

     

Restructuring reversals

   $              (75.0)    $             (149.6)        $            74.6     (49.9)%

We recorded restructuring reversals for the year ended December 31, 2013 due to a $62.9 million favorable settlement of a polysilicon supply agreement with a subsidiary of SunEdison. We also had $12.1 million of other net favorable revisions to our estimated restructuring liabilities, primarily due to the settlement of certain contractual obligations and changes in estimates related to the restructuring actions associated with our 2011 Global Plan.

We recorded restructuring reversals for the year ended December 31, 2012 as a result of our settlement agreement with Evonik, which resulted in $65.8 million of income within restructuring charges. In addition, we recorded approximately $75.7 million of income within restructuring charges due to the favorable settlement of a polysilicon supply agreement with a subsidiary of SunEdison. We also had $8.1 million of other net favorable revisions to our estimated restructuring liabilities based on actual results differing from our previous estimates.

Gain on Receipt of Property, Plant and Equipment

 

     For the Year Ended December 31,      Change
             2013                     2012                  Dollars              Percent    

(dollars in millions)

          

Gain on receipt of property, plant and equipment

   $                 —      $             (31.7)       $             31.7       n/m

We recognized $31.7 million of gain on receipt of property, plant and equipment for the year ended December 31, 2012 as a result of the chlorosilanes plant we received in connection with our settlement with Evonik. No similar amounts were recorded for the year ended December 31, 2013.

Long-lived Asset Impairment Charges

 

     For the Year Ended December 31,      Change
             2013                     2012                  Dollars              Percent    

(dollars in millions)

          

Long-lived asset impairment charges

   $                 33.6      $             1.5        $             32.1       n/m

In the fourth quarter of 2013, management concluded an analysis as to whether to restart the Merano, Italy polysilicon facility and determined that, based on recent developments and current market conditions, restarting the facility was not aligned with our business strategy. Accordingly, we decided to indefinitely close that facility and the related chlorosilanes facility obtained from Evonik. As a result, in the fourth quarter of 2013,

 

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we recorded approximately $33.6 million of non-cash impairment charges to write down these assets to their current estimated salvage value.

We recorded asset impairment charges of $1.5 million for the year ended December 31, 2012 primarily related to elements of our enterprise software that we no longer use.

Non-Operating Expense (Income)

 

     For the Year Ended December 31,      Change
             2013                     2012                  Dollars              Percent    

(dollars in millions)

          

Interest expense

   $ 0.8       $ 1.0        $ (0.2)       (20.0)%

Interest income

     (0.5)        (0.7)         0.2        (28.6)%

Interest income, net-affiliates

     (4.1)        (2.2)         (1.9)       86.4%

Other, net

     (3.9)        3.1          (7.0)       n/m 
  

 

 

   

 

 

    

 

 

    

Total non-operating expense (income)

   $                 (7.7)      $                     1.2        $               (8.9)       n/m 
  

 

 

   

 

 

    

 

 

    

Non-operating expense (income) decreased for the year ended December 31, 2013 compared to the prior year primarily due to the effects of changes in foreign currency exchange rates and related gains and losses on settlements of derivative foreign currency forward contracts, which are recorded in other, net.

Income Taxes

 

     For the Year Ended December 31,      Change
                 2013                              2012                      Dollars              Percent    

(dollars in millions)

           

Income tax expense

   $ 44.0           $ 3.6          $               40.4        1,122.2%

Income tax rate as a percentage of (loss) income before income taxes

                 (389.4)%                     2.9%         

The 2013 net expense was primarily the result of the worldwide operational earnings mix at various rates.

Certain of our subsidiaries have been granted a concessionary tax rate of zero percent on all qualifying income for a period of up to five to ten years based on investments in certain plant and equipment and other development and expansion activities, resulting in a tax benefit for 2013 and 2012 of approximately $2.2 million and $4.6 million, respectively. Under these incentive programs, the income tax rate for qualifying income will be taxed at an incentive tax rate lower than the corporate tax rate. As of December 31, 2013, we were in compliance with the qualifying condition of the tax incentives. The last of these incentives will expire between 2017 and 2022.

Year Ended December 31, 2012, Compared with Year Ended December 31, 2011

Net Sales

 

     For the Year Ended December 31,      Change
             2012                      2011                  Dollars              Percent    

(dollars in millions)

           

Net sales to non-affiliates

   $             927.4         $         1,051.3         $         (123.9)         (11.8)%

Net sales to affiliates

     6.8           147.0           (140.2)         (95.4)%
  

 

 

    

 

 

    

 

 

    

Net sales

   $ 934.2         $ 1,198.3         $ (264.1)         (22.0)%
  

 

 

    

 

 

    

 

 

    

 

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Net sales to non-affiliates decreased for the year ended December 31, 2012 compared to the prior year period primarily due to semiconductor wafer price decreases totaling $101.3 million caused by softness in the semiconductor industry in 2012, as well as an aggregate amount of $22.6 million due to a decrease in net sales of intermediate byproducts of polysilicon and scrap wafers and, to a lesser extent, a less favorable product mix. Price decreases occurred across all wafer diameters. Our 2012 unit volumes were flat as compared to 2011, as unit volume increases for 300mm diameter wafers were offset by lower demand for 200mm and smaller diameter wafers. The average selling prices of our wafers for the year ended December 31, 2012 were approximately 10.0% lower than the average selling prices for the prior year.

Net sales to affiliates decreased for the year ended December 31, 2012 compared to the prior year primarily due to the shuttering of our Merano, Italy polysilicon facility during the fourth quarter of 2011.

Gross Profit

 

     For the Year Ended December 31,      Change
             2012                      2011                  Dollars              Percent    

(dollars in millions)

           

Cost of goods sold

   $          852.4          $       1,023.3          $           (170.9)       (16.7)%

Gross profit

   $ 81.8          $ 175.0          $ (93.2)       (53.3)%

Gross margin

     8.8%         14.6%         

Gross margin decreased for the year ended December 31, 2012 compared to the prior year primarily due to declines in the average selling prices of our wafers and sales of intermediate byproducts of polysilicon and scrap wafers, partially offset by lower overhead costs as a result of our restructuring efforts under the 2011 Global Plan.

Marketing and Administration

 

     For the Year Ended December 31,      Change
             2012                      2011                  Dollars              Percent    

(dollars in millions)

           

Marketing and administration

   $         100.7          $         129.9          $         (29.2)       (22.5)%

As a percentage of net sales

     10.8%         10.8%         

Marketing and administration expenses decreased for the year ended December 31, 2012 compared to the prior year primarily as a result of lower spending on salary, benefits and other administrative costs as a result of our restructuring efforts under the 2011 Global Plan, as well as the absence of $11.3 million of incremental costs related to repair and maintenance as a consequence of the earthquake and tsunami in Japan and $4.7 million of charges associated with an unfavorable litigation outcome which we incurred in 2011. For the years ended December 31, 2012 and 2011, we recorded $4.0 million and $4.0 million, respectively, of insurance recoveries related to the earthquake and tsunami charges referenced above.

Research and Development

 

     For the Year Ended December 31,      Change  
             2012                      2011                  Dollars              Percent      

(dollars in millions)

           

Research and development

     $              33.4            $            38.2            $            (4.8)           (12.6)%   

As a percentage of net sales

     3.6%         3.2%         

R&D expenses decreased for the year ended December 31, 2012 compared to the prior year primarily due to our restructuring efforts under the 2011 Global Plan, which included a reduction in R&D overhead allocation as a result of the reduced manufacturing footprint at our St. Peters, Missouri facility. R&D expenses increased as a percentage of net sales due to the decrease in net sales.

 

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Restructuring (Reversals) Charges

 

     For the Year Ended December 31,      Change  
             2012                      2011                  Dollars              Percent      

(dollars in millions)

           

Restructuring (reversals) charges

     $        (149.6)           $          284.5           $      (434.1)           n/m   

We recorded restructuring reversals for the year ended December 31, 2012 as a result of our settlement agreement with Evonik, which resulted in $65.8 million of income within restructuring charges. In addition, we recorded approximately $75.7 million of income within restructuring charges due to the favorable settlement of a polysilicon supply agreement with a subsidiary of SunEdison. We also had $8.1 million of other net favorable revisions to our estimated restructuring liabilities based on actual results differing from our previous estimates.

We recorded $284.5 million of restructuring charges in 2011 in connection with the 2011 Global Plan which consisted of $182.9 million of contract settlements, $54.5 million of severance and other one-time benefits for terminated employees, cancellation or termination payments and penalties, as well as $44.5 million of other one-time charges as a result of our committed actions. We also recorded $2.7 million of additional restructuring charges relating to other restructuring activities.

Gain on Receipt of Property, Plant and Equipment

 

     For the Year Ended December 31,      Change  
             2012                      2011                  Dollars              Percent      

(dollars in millions)

           

Gain on receipt of property, plant and equipment

     $            (31.7)           $             —             $        (31.7)           n/m   

We recognized $31.7 million of gain on receipt of property, plant and equipment for the year ended December 31, 2012 as a result of the chlorosilanes plant we received in connection with our settlement with Evonik. No similar amounts were recorded for the year ended December 31, 2011.

Long-lived Asset Impairment Charges

 

     For the Year Ended December 31,      Change  
             2012                      2011                  Dollars              Percent      

(dollars in millions)

           

Long-lived asset impairment charges

     $               1.5           $            234.7           $      (233.2)           n/m   

We recorded asset impairment charges of $1.5 million for the year ended December 31, 2012, primarily related to elements of our enterprise software that we no longer use. We reduced the net carrying value of our Merano, Italy polysilicon facility to its net realizable salvage value for the year ended December 31, 2011 due to the significant market downturn and our decision to shutter its operations which accounted for the majority of the long-lived asset impairments charges in 2011.

Non-operating Expense (Income)

 

     For the Year Ended December 31,      Change
     2012      2011      Dollars      Percent
(dollars in millions)                          

Interest expense

   $ 1.0          $ 5.9          $ (4.9)         (83.1)%

Interest income

     (0.7)           (1.0)           0.3          (30.0)%

Interest (income) expense, net - affiliates

     (2.2)           1.8            (4.0)         n/m

Other, net

     3.1            (0.8)           3.9          n/m
  

 

 

    

 

 

    

 

 

    

Total non-operating expense

   $           1.2          $         5.9          $         (4.7)         (79.7)%
  

 

 

    

 

 

    

 

 

    

Total non-operating expense decreased for the year ended December 31, 2012 compared to the prior year primarily due to lower interest expense as a result of the cancellation of a capitalized lease arrangement

 

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during the fourth quarter of 2011 as part of the 2011 Global Plan. For the year ended December 31, 2011, we incurred $5.4 million of capitalized lease interest expense pertaining to this lease arrangement. In addition, the interest expense to affiliates was reduced in 2012 as a result of changes in intercompany loans to and from SunEdison. This decrease in non-operating expense was offset in part by the effects of changes in foreign currency exchange rates and related gains and losses on settlements of derivative foreign currency forward contracts as reflected in other, net.

Income Taxes

 

     For the Year Ended December 31,      Change
     2012      2011      Dollars      Percent
(dollars in millions)                          

Income tax expense

   $             3.6          $           37.4          $         (33.8)         (90.4)%

Income tax rate as a percentage of income (loss) before income taxes

     2.9%         (7.2)%         

Income tax expense decreased for the year ended December 31, 2012 compared to the prior year primarily due to a net decrease in the reserve for uncertain tax positions of $4.2 million, which offset the tax effects of changes in the mix of worldwide operational earnings. Although we recognized restructuring and impairment charges of $519.2 million for the year ended December 31, 2011, we were not able to record the tax benefit because the majority of the deferred tax assets related to those losses cannot be utilized for the foreseeable future.

Certain of our Asian subsidiaries have been granted a concessionary tax rate of 0% on all qualifying income for a period of up to five to ten years based on investments in certain plant and equipment and other development and expansion activities, resulting in a tax benefit for 2012 and 2011 of approximately $4.6 million and $6.6 million, respectively. Under the awards, the income tax rate for qualifying income will be taxed at an incentive tax rate lower than the corporate tax rate. We are in compliance with the qualifying condition of the tax incentives. The last of these incentives will expire between 2013 and 2022.

Unaudited Quarterly Financial Information

The table below presents selected unaudited historical results of operations for the eight fiscal quarters ended December 31, 2013. In the opinion of management, the table includes all adjustments, consisting only of normal recurring adjustments, necessary for the fair presentation of our operating results for the quarters presented. This information should be read in conjunction with our financial statements and related notes included elsewhere in this prospectus. These quarterly operating results are not necessarily indicative of our operating results for any future period.

 

    For the Three Months Ended  
    March 31,
2012
    June 30,
2012
    September 30,
2012
    December 31,
2012
    March 31,
2013
    June 30,
2013
    September 30,
2013
    December 31,
2013
 
    (unaudited)  
In millions                                                

Net sales

  $ 221.8      $ 236.0      $ 244.3      $ 232.1      $ 232.4      $ 244.0      $ 232.6      $ 211.6   

Gross profit

    5.5        26.5        28.3        21.5        22.5        31.4        21.1        6.7   

Total operating expenses

    32.5        35.8        (34.8     (79.2     27.3        35.6        (0.2     38.0   

Net (loss) income attributable to SSL

    (40.7     (11.4     59.9        113.5        (10.5     (13.2     9.3        (43.3

Historically, our net sales have been impacted by the competitive market environment, industry overcapacity and currency fluctuations, specifically fluctuations in the Japanese Yen, which can affect the pricing offered by our major Japanese competitors. During the quarters presented, our net sales were impacted by changes in wafer volume, pricing and diameter mix. Net sales in the first quarter of 2012 were negatively

 

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impacted by a decrease in wafer volumes, which was only partly offset by higher average selling prices of our wafers. Net sales in the fourth quarter of 2013 were negatively impacted by decreases in both wafer volume and average selling prices of our wafers. The decline in volumes resulted from lower overall market demand for silicon wafers. Other than the fourth quarter of 2013, our wafer volumes have generally been stable or increasing during the periods presented above. However, these increases were offset by lower average wafer selling prices due to industry pricing pressures.

Our gross profit fluctuated over the eight quarters presented above primarily due to changes in wafer volume and pricing. Our gross margin for all periods presented other than the first quarter of 2012 and fourth quarter of 2013 were between approximately 9% and 13%.

Our total operating expenses for the quarters presented above, excluding restructuring (reversals) charges, gain on receipt of property, plant and equipment and long-lived asset impairment charges, have ranged between approximately 13% to 18% of net sales. However, our operating expenses and net (loss) income attributable to SSL were significantly affected during the periods presented by restructuring (reversals) charges, gain on receipt of property, plant and equipment and long-lived asset impairment charges.

Net income attributable to SSL was positively impacted for the quarter ended September 30, 2012 primarily due to our settlement agreement with Evonik, which resulted in $65.8 million of income within restructuring charges. Net income attributable to SSL was similarly positively impacted for the quarter ended December 31, 2012 primarily due to $75.7 million of income within restructuring charges due to the favorable settlement of a polysilicon supply agreement with a subsidiary of SunEdison, a $31.7 million gain on receipt of property, plant and equipment as a result of the chlorosilanes plant we received in connection with our settlement with Evonik and $7.1 million of other net favorable revisions to our estimated restructuring liabilities based on actual results differing from our previous estimates. Net income attributable to SSL was positively impacted for the quarter ended September 30, 2013 primarily attributable to a $33.3 million favorable settlement of a polysilicon supply agreement with a subsidiary of SunEdison and a $2.3 million net reversal of liabilities primarily related to the costs associated with the shuttering of our Merano, Italy polysilicon facility. Net income attributable to SSL was negatively impacted for the quarter ended December 31, 2013 primarily attributable to our decision to indefinitely close the Merano, Italy polysilicon and chlorosilanes facilities. As a result, during the three months ended December 31, 2013, we recorded $33.6 million of non-cash impairment charges to write-down those assets to their current estimated salvage value. The $33.6 million of non-cash impairment charges in the fourth quarter of 2013 was more than offset by a $29.6 million favorable settlement of a polysilicon supply agreement with a subsidiary of SunEdison and $4.3 million of other net favorable revisions to our estimated restructuring liabilities primarily due to the settlement of certain contractual obligations and changes in estimates related to the restructuring actions associated with our 2011 Global Plan. For the three months ended December 31, 2013, we paid approximately $1.0 million pertaining to our 2011 Global Plan and 2009 restructuring plan.

Liquidity and Capital Resources

During all of the periods presented, our operations and other liquidity requirements were funded on a collective basis along with those of SunEdison’s solar energy business. We participated in SunEdison’s centralized cash management system, and generally all of our excess cash was transferred to SunEdison on a daily basis. We funded our cash disbursements for operations and/or investing activities with advances from SunEdison.

In connection with the Transactions, we intend to enter into new senior secured credit facilities with a syndicate of banks providing for (i) a 3-year up to $50.0 million senior secured revolving credit facility and (ii) a 5-year $200.0 million senior secured term loan, issued at a 1% discount. The new senior secured credit facilities will contain customary financial and other covenants. Proceeds from borrowings under the term loan will be used to fund a portion of the payment we will make to SunEdison in connection with the Transactions. The remainder of the proceeds from borrowings under the term loan will be retained on our balance sheet to provide future liquidity as

 

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needed. We do not expect to have any borrowings outstanding under the senior secured revolving credit facility upon completion of this offering. We currently do not have commitments from any prospective lenders with respect to the new senior secured credit facilities but will obtain such commitments prior to the completion of this offering and this offering will be conditioned on the execution of the credit facilities and the funding of the senior secured term loan. See “Description of Certain Indebtedness—New Senior Secured Credit Facilities.”

We expect our primary sources of liquidity in the future will be cash generated from operations, available borrowings under our new senior secured credit facilities and other future financing arrangements, if necessary. Our principal uses of liquidity will be to fund our working capital and capital expenditures and service our outstanding indebtedness. We believe our liquidity will be sufficient to fund our operations for at least the next twelve months. Our ability to continue to fund these items may be affected by general economic, competitive and other factors, many of which are outside of our control. If our future cash flows from operations and other capital resources are insufficient to fund our liquidity needs, we may be forced to reduce or delay our capital expenditures, sell assets, obtain additional debt or equity capital or refinance all or a portion of our debt.

The cash and cash equivalents presented in this section are historical amounts recorded by SunEdison subsidiaries dedicated to the semiconductor materials business. Cash and cash equivalents as of March 31, 2014 totaled $37.7 million. Cash and cash equivalents as of December 31, 2013 totaled $40.8 million, compared to $103.2 million as of December 31, 2012. Cash and cash equivalents decreased primarily due to the 45.0 million Euro paid in 2013 pertaining to the Evonik settlement. The cash and cash equivalents for both periods were all held by our foreign subsidiaries and a portion may be subject to repatriation tax effects. We believe that any repatriation tax effects would have minimal impacts on future cash flows.

We will be domiciled in Singapore. We plan foreign remittance amounts based on projected cash flow needs as well as the working capital and long-term investment requirements of our worldwide subsidiaries and operations. Following the completion of this offering, we expect that cash generated from our Singapore operations and borrowings under our new senior secured term loan, together with borrowings under our new senior secured revolving credit facility as needed, will provide sufficient liquidity to fund our Singapore operations. Management has concluded that the undistributed earnings of all subsidiaries are not expected to be remitted to Singapore in the foreseeable future.

For a discussion of our cash and cash equivalents on a pro forma basis as of March 31, 2014 giving effect to the Transactions, see “Unaudited Pro Forma Consolidated Financial Statements.”

As of December 31, 2013, we had approximately $21.4 million of committed capital expenditures. Capital expenditures in 2013 and committed capital expenditures for 2014 primarily relate to increasing our manufacturing capacity and expanding capability for our next generation projects.

The table below sets forth our summary cash flow information for the three months ended March 31, 2014 and 2013 and for the years ended December 31, 2013, 2012 and 2011.

 

     For the three months ended
March 31,
    For the Year Ended December 31,  
     2014     2013     2013     2012     2011  
(in millions)                               

Net cash provided by (used in):

          

Operating activities

   $           44.3      $           21.3      $           60.4      $ 46.1      $         171.8   

Investing activities

   $ (16.6   $ (53.0   $ (113.7   $ (145.5   $ (297.1

Financing activities

   $ (30.7   $ 6.7      $ 1.1      $         153.1      $ (53.3

Net Cash Provided by Operating Activities

Net cash provided by operating activities for the three months ended March 31, 2014 was $44.3 million, which represents a $17.4 million increase from $26.9 million for the three months ended December 31, 2013. Net cash provided by operating activities for the three months ended March 31, 2014 was

 

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attributable in part to our net loss of $15.2 million adjusted for non-cash items, including $28.3 million of depreciation and amortization and $2.3 million of stock compensation expense. Uses of cash included a $10.7 million decrease in restructuring liabilities driven primarily by cash payments to settle supply contract obligations and a $5.0 million increase in affiliate accounts receivable driven by timing of intercompany collections from SunEdison determined by intercompany operational needs. We generated cash from a $20.0 million increase in accounts payable due to the timing of vendor payments, a $16.1 million increase in affiliate accounts payable attributable to timing of intercompany payments to SunEdison determined by our operational needs, a $4.9 million decrease in inventory due to improvements in inventory management for the three months ended March 31, 2014 and a $4.6 million change in other assets and liabilities primarily due to an increase in accrued income taxes that have not yet been paid.

Net cash provided by operating activities for the three months ended March 31, 2013 was attributable in part to our net loss of $9.7 million adjusted for non-cash items, including $29.3 million of depreciation and amortization, $3.4 million of stock compensation expense and $2.4 million provision for deferred income taxes. Uses of cash included a $15.5 million decrease in restructuring liabilities arising from cash payments and contract settlements associated with the 2011 Global Plan, a $6.9 million decrease in accounts payable and accrued liabilities related to timing of payments to suppliers determined by operational needs, a $6.7 million increase in accounts receivable due to the timing of customer collections and a $3.2 million increase in inventory to supply our customer needs as a result of increases in net sales. We generated cash from a $18.1 million decrease in affiliate accounts receivable driven by timing of the intercompany collections from SunEdison determined by our operational needs, a $7.5 million change in other assets and liabilities primarily due to an increase in accrued income taxes that have not yet been paid and a $2.8 million increase in affiliate accounts payable attributable to timing of intercompany payments to SunEdison determined by our operational needs.

Net cash provided by operating activities for the year ended December 31, 2013 was attributable in part to our net loss of $55.3 million adjusted for non-cash items, including $119.6 million of depreciation and amortization, $34.8 million of long-lived asset impairment charges and $13.9 million of stock compensation expense. Uses of cash included a decrease of a $67.9 million decrease in restructuring liabilities driven primarily by cash payments to settle supply contract obligations and a $18.6 million decrease in accounts payable and accrued liabilities due to timing. Also included in the uses of cash is a decrease of $80.3 million for affiliate accounts receivable driven primarily by a favorable settlement of the polysilicon supply agreement we had with a SunEdison subsidiary, which resulted in $62.9 million of restructuring reversals in 2013. The impact of the favorable settlement is reflected in the “amounts due from affiliates” in the combined statement of cash flows. We generated cash from a $100.8 million increase in affiliate accounts payable attributable to timing of intercompany payments to SunEdison determined by our operational needs and a $29.6 million decrease in accounts receivable driven by the timing of collections of customer receivables.

Net cash provided by operating activities for the year ended December 31, 2012 was attributable in part to our net income of $122.7 million adjusted for non-cash items, including $118.7 million of depreciation and amortization and a $31.7 million gain on receipt of property, plant and equipment. Uses of cash included a $146.5 million decrease in restructuring liabilities driven by payments to settle supply contract obligations and an increase of $71.6 million for affiliate accounts receivable driven by the timing of intercompany collections from SunEdison determined by intercompany operational needs. We generated cash from a $41.3 million increase in accounts payable payments to SunEdison determined by our operational needs and a $34.0 million decrease in inventory primarily attributable to improved inventory management.

Net cash provided by operating activities for the year ended December 31, 2011 was attributable in part to our net loss of $555.6 million adjusted for non-cash items, including $248.8 million of long-lived asset impairment charges, $144.3 million of depreciation and amortization, $20.5 million of stock compensation expense and a $15.1 million provision for deferred income taxes. Uses of cash included a $42.9 million increase in inventory primarily as a result of reduced demand. We generated cash from a $280.5 million increase in restructuring liabilities related to the 2011 Global Plan and a $58.2 million decrease in accounts receivable related to timing of collections of customer receivables.

 

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Net Cash Used in Investing Activities

Notes receivable from SunEdison are reflected as investing activities in the combined cash flow statements.

Net cash used in investing activities for the three months ended March 31, 2014 consisted of $19.6 million of capital expenditures, which represents a $2.0 million increase from capital expenditures of $17.6 million for the three months ended December 31, 2013, to further the advancement of our next generation products offset by a $3.0 million decrease in affiliate notes receivable. Net cash used in investing activities for the three months ended March 31, 2013 primarily consisted of $30.6 million of capital expenditures to further the advancement of our next generation products and a $22.4 million increase in affiliate notes receivable.

Net cash used in investing activities for the year ended December 31, 2013 consisted of capital expenditures of $101.0 million to further the advancement of our next generation products and a $12.7 million decrease in affiliate notes receivable. Net cash used in investing activities for the year ended December 31, 2012 primarily consisted of $95.2 million in capital expenditures to further the advancement of our next generation products and a $46.7 million increase in affiliate notes receivable. Net cash used in investing activities for the year ended December 31, 2011 consisted of $187.1 million in capital expenditures and a $110.0 million increase in affiliate notes receivable. The increased capital expenditures for the year ended December 31, 2011 were primarily related to expansion activities undertaken at our Merano, Italy polysilicon facility.

Net Cash Provided by (Used in) Financing Activities

Borrowings from SunEdison are reflected as financing activities in the combined cash flow statements.

Net cash used in financing activities for the three months ended March 31, 2014 primarily consisted of $30.7 million net parent investment contributions from us to SunEdison. Net cash provided by financing activities for the three months ended March 31, 2013 primarily consisted of $6.7 million net parent investment proceeds to us from SunEdison.

Net cash provided by financing activities for the year ended December 31, 2013 primarily consisted of $4.0 million of net parent investment contributions from SunEdison offset in part by $2.9 million of principal payments on our long term debt. Net cash provided by financing activities for the year ended December 31, 2012 primarily consisted of $154.6 million of net parent investment proceeds from SunEdison. Net cash used in financing activities for the year ended December 31, 2011 primarily consisted of $50.6 million of contributions from us to SunEdison.

Debt Obligations

We had an aggregate of $10.6 million, $10.4 million and $16.0 million of indebtedness outstanding as of March 31, 2014, December 31, 2013 and 2012, respectively, which indebtedness was owed to a bank by our Japanese subsidiary. The indebtedness is guaranteed by SunEdison and is secured by the property, plant and equipment of our Japanese subsidiary. The guarantees require SunEdison to satisfy the loan obligations in the event that the Japanese subsidiary fails to pay such debt in accordance with its stated terms. The cost of borrowing is a fixed 2.2% interest rate and the notes mature in 2017. There are no debt covenants related to this loan. We will repay all of this indebtedness and terminate these loans in connection with the Transactions.

Indebtedness – Affiliates

We have various note receivables from certain SunEdison subsidiaries. As of March 31, 2014 and December 31, 2013 and 2012, we had $3.8 million, $18.7 million and $158.5 million, respectively, of note receivables due from affiliates. Interest is calculated based on fixed rates ranging from 2% to 3%. The notes have maturities of one year or less but are usually renewed and are therefore considered long-term. We had long-term intercompany borrowings with SunEdison of $129.4 million as of December 31, 2012. The weighted-average cost of borrowing was 0.5% as of December 31, 2012. Interest was determined based on the Euribor one year

 

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rate. These borrowings were settled during 2013 by offsetting the long-term loan from a SunEdison subsidiary against the accounts receivable, affiliate balance pertaining to a polysilicon supply agreement settlement we had with a SunEdison subsidiary. As a result, we have no long-term borrowings from SunEdison as of March 31, 2014 and December 31, 2013. The favorable settlement of the polysilicon supply agreement we had with a SunEdison subsidiary resulted in $62.9 million of income in 2013, which is included in restructuring reversals in the combined statement of operations. The impact of the favorable settlement is reflected in the “amounts due from affiliates” in the combined statement of cash flows. There are no guarantees or debt covenants related to these intercompany borrowings. All intercompany indebtedness and certain trade accounts will be net settled in connection with the Transactions.

Contractual Obligations and Commitments

Except as otherwise noted, our contractual obligations as of December 31, 2013 were as follows:

 

     Payments Due by Period  

Contractual obligations:

   Total      Less than
1 Year
     1-3
Years
     3-5
Years
     5 Years
or More
 
(in millions)       

Long-term debt (1)

   $ 10.4       $ 2.8       $       $ 7.6       $   

Debt-affiliates, net (2)

                                       

Operating leases

     24.7         7.1         12.5         3.9         1.2   

Purchase obligations (3)

     84.9         55.1         21.5         5.4         2.9   

Employee related liabilities (4)

     55.1                                   

Other long-term liabilities—uncertain tax positions (5)

     1.6         1.6                           

Customer deposits (6)

     7.0         7.0                           
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total contractual obligations

   $         183.7       $         73.6       $         34.0       $         16.9       $         4.1   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Amounts exclude accrued interest. In connection with the Transactions, we will incur a senior secured term loan in an aggregate principal amount of $200.0 million. See “Capitalization” and “Unaudited Pro Forma Consolidated Financial Statements.”

 

(2) As of December 31, 2013, our notes receivable, affiliate was greater than our long-term debt, affiliate. As a result, we were in a net receivable position. See Note 13 to our audited combined financial statements included elsewhere in this prospectus.

 

(3) Represents obligations for agreements to purchase goods or services that are enforceable and legally binding on us, including minimum quantities at fixed prices to be purchased and outstanding purchases for goods or services as of December 31, 2013. In addition to the above purchase obligations, we have accrued $10.5 million related to take-or-pay contract penalties for supplies or materials we will no longer take. These agreements either do not have stated fixed quantities and prices, have termination provisions, or require the vendor to mitigate losses by selling the materials to other parties. The actual amounts ultimately settled with these vendors could vary significantly, which could have a material adverse impact on our future earnings and cash flows.

 

(4) Employee related liabilities include pension, health and welfare benefits and other post-employment benefits. Other than pensions, the employee related liabilities are paid as incurred and accordingly, specific future years’ payments are not reasonably estimable. Funding projections beyond the next 12 months as of December 31, 2013 are not practical to estimate due to the rules affecting tax-deductible contributions and the impact from the plan asset performance, interest rates and potential U.S. and international legislation.

 

(5) As of December 31, 2013, $1.6 million of unrecognized tax benefits were included as a component of other long-term liabilities. Due to the inherent uncertainty of the underlying tax positions, we are unable to reasonably estimate in which future periods these unrecognized tax benefits will be settled.

 

(6) Customer deposits consist of amounts provided in connection with long-term supply agreements which must be returned to the customers according to the terms of the agreements.

 

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The contractual commitments shown above, except for our debt obligations, employee related liabilities, uncertain tax positions and customer deposits, are not recorded on our combined balance sheet.

We have agreed to indemnify some of our customers against claims of infringement of the intellectual property rights of others in our sales contracts with these customers. The terms of most of these indemnification obligations generally do not provide for a limitation of our liability. We have not had any claims related to these indemnification obligations as of March 31, 2014.

Our pension expense and pension liability are actuarially determined. See “—Critical Accounting Policies and Estimates.” Effective January 2, 2002, SunEdison amended its defined benefit plan to discontinue future benefit accruals for certain participants. In addition, effective January 2, 2002, no new participants were added to that plan. Effective January 1, 2012, SunEdison amended the defined benefit pension plan to freeze the accumulation of new benefits for all participants. This change did not have a material impact on our historical combined financial statements.

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and assumptions in certain circumstances that affect amounts reported in our combined financial statements and related footnotes. In preparing these combined financial statements, we have made our best estimates of certain amounts included in the combined financial statements. Application of accounting policies and estimates, however, involves the exercise of judgment and use of assumptions as to future uncertainties and, as a result, actual results could differ from these estimates. In arriving at our critical accounting estimates, factors we consider include how accurate the estimate or assumptions have been in the past, how much the estimate or assumptions have changed and how reasonably likely such change may have a material impact. Our significant accounting policies are more fully described in Note 2 to the audited combined financial statements herein.

Revenue Recognition

We recognize revenue for wafer and other product sales when title transfers, the risks and rewards of ownership have been transferred to the customer, the fee is fixed or determinable and collection of the related receivable is reasonably assured, which is generally at the time of shipment for non-consignment orders. In the case of consignment orders, title passes when the customer pulls the product from the assigned storage facility or storage area or, if the customer does not pull the product within a contractually stated period of time (generally 60–90 days) at the end of that period, or when the customer otherwise agrees to take title to the product. Our wafers are generally made to customer specifications, and we conduct rigorous quality control and testing procedures to ensure that the finished wafers meet the customer’s specifications before the product is shipped. We consider international shipping term definitions in our determination of when title passes.

Expense Allocations

Our combined financial statements include expenses of SunEdison that were allocated to us for certain functions, including general corporate expenses related to communications, corporate administration, finance, legal, information technology, human resources, compliance, employee benefits and incentives, operations, research and development and stock compensation. These expenses were allocated in our historical results of operations on the basis of direct usage, where identifiable, with the remainder primarily allocated on the basis of revenue or other related sales metrics, headcount or number of our manufacturing plants. We consider the expense allocation methodology and results to be reasonable for all periods presented. However, these allocations may not necessarily be indicative of the actual expenses we would have incurred as an independent publicly traded company during the periods prior to this offering or of the costs we will incur in the future. No significant restructuring or impairment charges were included in these allocations from SunEdison.

 

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Inventories

Inventories consist of raw materials, labor and manufacturing overhead and are valued at the lower of cost or market. Fixed overheads are allocated to the costs of conversion based on the normal capacity of our production facilities. Unallocated overheads during periods of abnormally low production levels are recognized as cost of goods sold in the p