REC Silicon Annual Report 2019

REC Silicon Annual Report 2019 10 government policy decisions to limit financial incentives to encourage PV installation. Overall, lower demand for PV installations resulted in lower module prices which in turn drove PVdemand outside China higher. Late in 2019, demand inside China increased as projects were completed in advance of the expiration of existing programs for solar power feed in tariffs. Solar grade polysilicon prices continued to decline due to lagging demand and increases in supply as polysilicon capacity expansions inside China were commissioned. To limit inventory growth and stabilize polysilicon prices, startup schedules for capacity expansions were delayed, capacity utilization at existing operations was decreased, and higher cost polysilicon capacity was shut down. However, average polysilicon spot prices declined by 15 percent to approximately USD 8.1/kg compared to USD 9.5/kg at the end of 2018. Financial Performance Revenues for the Solar Materials segment were USD 33.4million during 2019 compared to USD 69.2million in 2018. As a result of the shutdown of the FBR facility onMay 15, 2019, sales volumes of solar grade granular polysilicon declined from6,232MT in 2018 to 4,781MT in 2019. Granular polysilicon inventories declined by 3,011MTas remaining inventories were largely depleted by year end (excluding fines and powders). Granular polysilicon production volume decreased from7,548MT in 2018 to 1,770MT in 2019 due to the curtailment of FBR operations on May 15, 2019. In 2019, the FBR plant operated near 25 percent capacity and continued to demonstrate the low-cost capability of the FBR technology despite operating at only a fraction of its production capacity. After the May 15, 2019 shutdown, the Company quickly executed initiatives to reduce spending levels and to maintain the Company’s liquidity. Activities and spending levels at the Moses Lake facility have been reduced to levels which allow the plant to be safely maintained in a long-term, non-operating status while preserving the ability to restart the plant if market conditions improve. The Company has successfully implemented initiatives to continue to reduce net expenses. The Solar Materials segment contributed a loss of USD 26.6million to the Company’s EBITDA loss during 2019 and 2018. Effectively, the costs to shut down the FBR facility in Moses Lake were offset by the decrease in costs to maintain the facility in a non-operating status subsequent to the shutdown. The Company estimates net costs of approximately USD 4.0million per quarter to maintain the FBR facility in Moses Lake in a non-operating status. The loss contributed by the Solar Materials segment represents revenues less production costs for products sold during the period and excludes depreciation, amortization, impairment, and selling, general, and administrative expenses. On January 15, 2020 the Phase I economic and trade agreement was signed by the Government of the United States and the Government of China. This agreement prioritizes polysilicon and contains commitments for China to purchase goods manufactured in the United States during 2020 and 2021 which include solar grade polysilicon. REC Silicon has been advised by US government officials that specific commitments for China to purchase specific quantities of solar grade polysilicon manufactured in the United States are contained in non-public annexes to the agreement and that these commitments override the extension of tariffs on USmade polysilicon announced by the Ministry of Commerce of the People’s Republic of China on January 19, 2020. The Company is evaluating the potential impacts of the Phase I trade agreement. The timing or outcome of any decision to resume operations at the FBR facility in Moses Lake remains uncertain. OTHER AND ELIMINATIONS Other includes general administrative and sales activities in support of the manufacturing facilities in the United States and the Company’s headquarters in Fornebu, Norway. It also includes costs associated with the Company’s representative offices in Taiwan, Korea, China, and the United States. Key financial - Other and Eliminations (USD INMILLION) 2019 2018 Revenues -0.1 -0.9 EBITDA contribution -24.1 -30.5 Polysilicon sales inMT(Siemens and granular) 0 0 Silicon gas sales in MT 1 1 Net operating costs in Other and Eliminations decreased toUSD24.1 million during 2019 compared toUSD30.5million in 2018. Overall, the decrease in costs is a result of costs reduction initiatives, theworkforce Board of Directors’ report USD / kg Polysilicon Spot Price Development 2015 * PV Insights - Avg. of Mono andMulti crystalline polysilicon prices ­