REC Silicon Annual Report 2019

REC Silicon Annual Report 2019 12 The income tax benefit of USD6.5million in 2018was related to the anticipated refund of AlternativeMinimumTax in the United States for USD6.0million andUSD0.4million associatedwith the settlement of RECSilicon’s commitment to contribute equity to theYulin JV. See note 18 to the consolidated financial statements. PROFIT AND LOSS The loss from total operations was USD 127.0million in 2019 compared to USD 341.6million in 2018. CASH FLOW Net cash outflows from operating activities were USD 13.0million in 2019 compared to net cash outflows of USD 10.1million in 2018. Cash outflows during 2019 were primarily a result of an EBITDA loss of USD 12.9million, interest payments of USD 17.6million, a payment of USD 3.1million associated with the settlement of REC Silicon’s obligation to contribute additional equity to the Yulin JV (See note 9 to the consolidated financial statements in this report), and USD 1.8million contribution to the frozen defined benefit pension plan in the United States. These were offset by a decrease in working capital of USD 20.2 million and a refund of USD 2.7million in alternative minimum tax in the United States. The remaining USD 0.5million cash outflow can be attributed to changes in other assets and liabilities and the impact of changes in exchanges rates. The decrease in working capital of USD 20.2million consisted of customer collections in excess of sales of USD 5.3million and a decrease in the value of inventories of USD 21.5million. These were offset by a decrease in accounts payable of USD 6.6million. The decline in working capital is largely due to the shutdown of the FBR facility in Moses Lake as remaining inventories are drawn down and accounts receivable are collected. Finished inventories decreased by 2,783MT of which 3,011MTwas FBR granular polysilicon. Net cash outflows from investing activities was USD 0.6million in 2019 compared to USD 1.2million in 2018. Capital spending continues to include only the capital necessary to maintain safe and reliable operations. All expansion projects have been halted due to market conditions. Capital expenditures were USD 2.0million in 2019 compared to USD 1.7million in 2018. In 2019, this was offset by sales of land adjacent to the plant in Moses Lake, Washington for USD 1.5 million. The remaining cash outflow in 2019 is a result of an increase in restricted cash balances. In 2019, cash inflows fromfinancing activities were USD 11.2million and were primarily a result of the private placement of the Company’s stock (25,438,187 shares at NOK 6.70 per share) resulting in net proceeds of USD 19.0million. This was offset by a reduction of USD 7.8million in lease liabilities which have been imputed based upon the requirements of IFRS 16 Leases (see note 7 to the consolidated financial statements). In 2018, cash outflows fromfinancing activities were USD 61.4million and were a result of the Company’s successful efforts to refinance its debt. The Company issued a USD Senior Secured bond for USD 110million and retired existing bonds that were nearing their maturity (see note 17 to the consolidated financial statements). In total, cash balances decreased by USD 2.4million in 2019 to USD 29.4million at December 31, 2019. FINANCIAL POSITION Shareholders’ equity decreased to USD 0.8million (0.3 percent equity ratio) at December 31, 2019 compared to USD 106.7million (29.9 percent equity ratio) at December 31, 2018. This decrease was a primarily result of the loss from operations of USD 45.5million. In 2019, the loss from operations included impairment charges of USD 20.4million and USD 24.2million loss from investment in associates. In addition, other comprehensive income in 2019 was USD 2.1million and included a loss of USD 5.9million due to the re- measurement of defined benefit pension plans and net currency losses of USD 1.9million which were more than offset by the transfer of USD 9.9million in currency losses associated with the Yulin JV (see note 9 to the consolidated financial statements). Net debt increased by USD 51.1million to USD 150.6million at December 31, 2019 fromUSD 99.4million at December 31, 2018. This increase was primarily a result of the implementation of IFRS 16 Leases which resulted in the recognition of lease liabilities of USD 48.6million at December 31, 2019. In addition, cash balances decreased by USD 2.4 million as discussed above. The remaining USD 0.1million increase can be attributed to the amortization of capitalized borrowing costs partially offset by changes in the NOK denominated indemnification loan caused by a stronger USD relative to the NOK. Net debt includes convertible bonds at fair value and unamortized loan fees. Including bonds at fair value and excluding unamortized capitalized borrowing costs, nominal net debt was USD 152.0million at December 31, 2019 which represents an increase of USD 50.8million fromUSD 101.2million at December 31, 2018 (See note 17 to the consolidated financial statements). GOING CONCERN Current market conditions and the solar trade dispute between the United States and China have forced the curtailment of production at the FBR facility in Moses Lake, Washington. Management and the Board of Directors have placed the FBR plant in a long-term shutdown to reduce spending and to maintain the Company’s liquidity. This shutdown of the FBR facility is intended to retain the liquidity necessary to maintain operations at the semiconductor materials facility in Butte, Montana. The timing and length of the shutdown are dependent on whether REC Silicon is able to regain access to the Chinese market for polysilicon or other significant positive developments in solar grade polysilicon markets. Additional impairments and provisions would be required if the FBR facility is not restarted. In addition, general economic conditions and the effects of the trade war between China and the United States is having an adverse impact on markets served by the semiconductor materials facility in Butte, Montana. In response, the Company has implemented plans to reduce spending and activity levels to conserve cash. Board of Directors’ report