REC Silicon Annual Report 2019

REC Silicon Annual Report 2019 11 reduction announced on July 15, 2019, and decreases in activity levels as a result of the shutdown of the FBR facility inMoses Lake. Net operating costs during 2019 included reorganization costs of USD2.2million due to the shutdown of the FBR facility. In addition, net costs for 2018 included USD2.6million due to increases in provisions for estimated impairments of customer accounts receivable. Investment (Yulin JV) During the fourth quarter of 2019, Company management determined that REC Silicon’s 15 percent ownership share of the Yulin JVno longer afforded it the control necessary to justify the use of the equity method of accounting. While REC Silicon continues to exert significant influence over the technical aspects of operating the manufacturing facility, the Company’s ability to influence decisions related to the work force, operational planning, purchasing, finance, and other areas of oversight and control have diminished through time. As a result, the method of accounting for this investment in associates was changed from the equity method to the fair value method during the fourth quarter. This change in accounting method resulted in a loss from investment in associates of USD 23.8million for the fourth quarter which has been reported in profit and loss for the period. The loss from associates included a loss of USD 9.9million in currency losses reclassified from other comprehensive income. This currency loss was caused by a stronger USD since the investment was made in February 2014 and has been reported as a component of other comprehensive income during prior periods. In addition, the loss from associates included a gain of USD 29.7million due to the recognition of deferred income associated with the sale of technology to the Yulin JVand a loss of USD 43.6million due to an impairment loss as a result of the remeasurement of the investment to its estimated market value using discounted future cash flows (see note 9 to the consolidated financial statements). The Yulin JVproduced approximately 6,110MT of total polysilicon during 2019. FBR polysilicon production was 6,016MT for 2019. In addition, the Yulin JV loaded 47MT of silane during 2019. The relatively low utilization rate of the capacity of the Yulin plant in 2019 was due to an incident during the first quarter of 2019 that impacted production for several months and difficult market conditions for solar grade polysilicon. However, the Yulin JVhas demonstrated the production of high purity granular polysilicon and will be installing high purity liners as they are delivered. Both silane units and the FBR reactors have demonstrated design capacities and utilization rates are expected to increase through time. For 2020, the Yulin JV targets FBR polysilicon production of 10,000MT, Siemens polysilicon production of 60MT, and 300MT of loaded silane. FINANCIAL ITEMS Financial items - REC Silicon Group (USD INMILLION) 2019 2018 Financial income 0.7 0.9 Interest expenses on borrowings -13.0 -13.6 Interest expense on leases -5.0 0.0 Capitalized borrowing cost 0.1 -0.0 Expensing of up-front fees and costs -0.3 -0.2 Other financial expenses -1.4 -4.2 Net financial expenses -19.6 -18.0 Net currency gains/losses -1.2 3.1 Net financial items -20.2 -14.0 Net financial items were USD 20.2million in 2019 compared to USD 14.0million in 2018. Net currency gains/losses are primarily related to the impact of exchange rate fluctuations on liabilities and cash deposits denominated in NOK. In addition, net currency gains/losses include fluctuations between transaction currencies and the USD which is the primary currency for the group. Interest expenses on borrowings in 2019 decreased to USD 13.0million compared to USD 13.6million in 2018. This decrease of USD 0.6million is due to lower interest expense on the Company’s debt due to the retirement of NOK bonds (REC03) and the USD convertible bond and the issuance of the senior secured bonds in 2018 which lowered the Company’s debt by approximately USD 61.4million (See note 17 to the consolidated financial statements). Interest expense on leases during 2019 of USD 5.0million is due to the implementation of IFRS 16 Leases by the Company on January 1, 2019 (See Note 7 to the consolidated financial statements). Other financial expenses in 2019 include primarily imputed interest on prepayments from customers and interest on the pension obligation. Other financial expenses declined by USD 2.8million to USD 1.4million in 2019 due primary to the premium paid to redeem the USD convertible bonds and NOK bonds (REC03) in 2018. INCOME TAX The loss before tax of USD127.0million in 2019 resulted in no effective tax impact since it is offset by changes in unrecognized deferred tax assets. These losses represent an increase in the Company’s unrecognized deferred tax asset. The losses will continue to be available to offset taxable income during future periods. Board of Directors’ report