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Notes to the consolidated financial
statements, REC Group
REC Annual Report 2011
CONTINGENT LIABILITIES AND CONTINGENT ASSETS
RECWafer has in 2011 settled its legal disputes with Moser Baer Photo Voltaic Limited (Moser Baer) and China Sunergy (Nanjing)
PV-Tech Co. Ltd. related to long-term contracts for supply of wafers. REC Silicon in the US settled its legal dispute with Shaw Group Inc. and
Shaw Process Fabricators Inc. in 2011. The total net effect of these settlements is not material on the statement of income for 2011.
REC is involved in some legal proceedings and disputes related to various contracts.
Some disputes relate to claims submitted by REC for damages, reimbursement of costs, compensation for breach of contract, etc. REC has
not recognized any contingent assets related to these disputes.
Some disputes concern claims against REC submitted by vendors and other parties, the largest one being a claim for damages in the amount
of approximately NOK 165million from a supplier against RECWafer after RECWafer terminated the long-term supply agreement for
material breach. REC contests these claims and has not recognized any liability for these claims. As a consequence of the close-downs of
the cell and parts of the wafer production in Norway, further disputes can be expected relating to existing purchase contracts. Contract
discussions have started with some of the suppliers, the largest being related to the recycling, mixing and supply of slurry for RECWafer
(see notes 6, 20 and 29). Provisions have been made for REC’s current best estimate of the present values of the potential obligations
(see note 20). This also relates to other contracts and asset retirement obligations. The timing and amount of any outcome is uncertain.
REC has received claims for annual property taxes in Singapore and inWashington State (USA). REC is contesting the size of the claims and
believes the original claims are significantly overestimated. In 2011, the claim in Singapore was nearly halved, but REC is still contesting its
size. Per December 31, 2011 REC has expensed all amounts in dispute both in Singapore and in the USA.
SHARE-BASED COMPENSATION
REC ASA has from2008 had share option programs for management and key personnel in REC ASA and subsidiaries. In addition, REC ASA
has had employee share purchase programs from2008 to 2010.
SHARE OPTION PROGRAM
Each program is a six year programwith a lock up period in the first three years. Each of the programs has a profit cap of one to two years
fixed base salary. The number of share option awarded is limited to a maximum profit gain in each calendar year of the exercising period
relative to annual fixed base salary effective at January 1 in the year of exercise. The profit gain is calculated as the difference between the
exercise price and the market price at the time of exercise.
PROGRAM
NO. OF
EMPLOYEES
GRANTED
OPTIONS
NO. OF OPTIONS
GRANTED
EXPECTED
VOLATILITY
RISK FREE
INTEREST
RATES
AVERAGE
EXPECTED LIFE
TIME (YEAR)
AVERAGE
ESTIMATED
VESTING
PERIOD (YEAR)
WEIGHTED AVERAGE REMAINING
CONTRACTUAL LIFE (YEAR) AT DEC 31
2008
2009
2010
2011
2008
71
638 464
59% 4.9% - 5.3%
3.5
6.2
5.6
4.6
3.6
2.6
2009
85 3 250 094
77% 3.4% - 3.9%
3.3
6.0
5.6
4.6
3.6
2010
68 7 245 411
81%
2.4%
3.3
6.0
5.6
4.6
2011
59 8 600 083
79% 2.55%
3.3
3.1
5.6
Fair value was estimated based on the Black-Scholes option price model. Expected volatility is based on historical volatility and no dividends
are expected in the periods. Expected lifetime has been set at the time of allocation based on expectations that employees will exercise the
options early due to the structure of the programs, including the annual profit cap, and the high volatility of the REC share price. This also
determined the expected vesting period. In 2011, due to the continued low share price compared to the exercise prices the expected
vesting periods were changed from approximately three years to approximately six years for the 2008, 2009 and 2010 programs. This has
reduced the accumulated expense recognized for these programs.
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