REC Silicon Annual Report 2019

REC Silicon Annual Report 2019 9 increase in sales prices (4.8 percent) and a higher share of total sales volumes for the highest quality float zone (FZ) polysilicon. Silicon gas sales volumes were 3,379MT, a 6.1 percent decrease compared to 3,599MT in 2018. Average annual prices for silane gas decreased by 3.5 percent. In semiconductor applications, demand for silicon gases continues to grow due to improvements in technology. However, overall demand has been adversely affected by lower manufacturing capacity utilization across the semiconductor device supply chain and the shift of basic flat panel display capacity into China. Prices for lower end segments of demand (PVand basic flat panel) continue to decline due to oversupply of silane gas in Chinesemarkets. Total polysilicon production in the Semiconductor Materials segment decreased by 357MT to 1,339MT in 2019 compared to 1,696MT in 2018. The underlying production volumes of semiconductor grade polysilicon declined by 259MT to 867MT for 2019. As indicated in revenues above, the decline in production volumes are a result of lower than expected demand, customer efforts tomanage excess polysilicon inventory, delays in the start-up of newwafer capacity, and delays in the completion of product qualifications. The Semiconductor Materials segment contributed USD 37.8million of income during 2019 compared to USD 52.2million in 2018. The decrease in earnings reflects lower product prices discussed above as well as lower manufacturing capacity utilization as a result of lower polysilicon and silicon gas sales volumes. In addition, electricity costs increased to approximately USD 40/MWh during 2019 fromUSD 35/ MWh in 2018which had an adverse impact on earnings of an estimated USD 3.3million. Income contributed by the Semiconductor Materials segment represents revenues less production costs for products sold during the period and excludes depreciation, amortization, impairment, and selling, general, and administrative expenses. SOLAR MATERIALS SEGMENT REC Silicon has the capability to manufacture polysilicon for the solar energy markets from its manufacturing facility in Moses Lake, Washington. Key financial - Solar Materials (USD INMILLION) 2019 2018 Revenues 33.4 69.2 EBITDA contribution -26.6 -26.6 Contribution margin -79.7% -38.4% Polysilicon production inMT(Siemens and granular) 1,770 7,584 Polysilicon sales in MT (Siemens and granular) 4,781 6,232 Multicrystalline brick sales in MT 0 2 Impacts of the ongoing solar trade dispute between China and the United States, uncertain market conditions, and reduced demand for the Company’s solar grade polysilicon resulted in the shutdown of the FBR polysilicon plant in Moses Lake, Washington on May 15, 2019. On July 15, 2019 the Company announced that the FBR facility had been placed in a long-term shutdown and that a corresponding workforce reduction was being implemented. This shutdown is intended to retain the liquidity necessary for the Company to meet its ongoing financial obligations and to maintain operations at the Semiconductor Materials facility in Butte, Montana. The FBR facility in Moses Lake will remain in a non-operating status until access to polysilicon markets in China is restored or other significant positive developments in solar grade polysilicon markets occur. Markets End use PVdemand for 2019 is estimated at 120.7GW (PV InfoLink – PV Market Monthly Note – December 2019). This represents an increase of approximately 16 percent from103.9GW in 2018. For most of 2019, PV installations inside China was adversely impacted by Chinese Board of Directors’ report Sales Volumes (MT) Silicon Gas Sales , Q Q Q Q Q Q Q Q Sales Volumes (MT) Semiconductor Polysilicon Sales Q Q Q Q Q Q Q Q