Energy Conversion Devices Continues Execution of Restructuring Plan
Energy Conversion Devices, Inc. (ECD) announced several actions to further management’s restructuring of the business in response to the dynamic and challenging solar market conditions.
First, the company has temporarily suspended all manufacturing operations as an inventory control measure. Second, ECD continues to execute on its restructuring plan focusing on reducing cost, expanding addressable markets and enhancing its technology. Finally, management has begun discussions with representatives of certain holders of the company’s outstanding Senior Convertible Notes due 2013. In light of these actions, ECD will postpone its quarterly financial results conference call until further notice. The company has provided preliminary operating results and cash holdings as stated below.
The company announced today that it will temporarily idle its manufacturing facilities as an inventory management measure. As a result of this temporary suspension, approximately 400 manufacturing associates will be furloughed. The affected associates are located across the company’s Michigan, Mexico and Ontario manufacturing facilities.
ECD will continue to serve its customers through its direct sales force and its global network of solar integrators and building materials suppliers. The company expects to resume production in its manufacturing facilities as soon as possible once the existing inventory has been sold and market conditions warrant. The company can return to normal production levels within 60 days.
Begun in May of 2011, ECD has embarked on a strategic corporate restructuring in which every aspect of the company’s strategy is being reassessed in light of the near-term disruptions in the solar industry. Among other efforts, the focus of this restructuring is to reduce cost, expand addressable markets through globalization and Open Solar(TM), and enhance the core solar technology by executing the technology roadmap. To those ends, the company has taken and is taking several significant steps.
To reduce cost and manage cash, ECD took personnel and other actions in June 2011 with an estimated annualized cash savings of $20 million. In addition, the company will further reduce its workforce by approximately 500 full-time associates by the end of the calendar year.
The company is starting to get traction in its efforts to enter new geographic markets. ECD has recently completed shipments to Brazil, South Korea, India, the Caribbean and China. Solar sales to customers outside of Europe and North America now account for about 40% of total shipments in the quarter, compared to 4% in the prior year’s first quarter.
ECD’s Open Solar initiative is designed to foster innovation around the unique UNI-SOLAR(R) technology through collaboration with third parties. Examples of Open Solar partners include Marcegaglia, one of Europe’s largest steel producers, and GP Solar, a Hong Kong-based manufacturer of solar-powered rechargeable battery technology. Other products that are part of the Open Solar initiative include military products and consumer goods.
Consistent with the technology roadmap previously announced by the company, ECD is committed to enhancing its core thin-film solar technology by commercializing its patented Nano-Crystalline™ technology. Upgrades to existing capital equipment are underway at its Greenville, Michigan plant and the retrofitted line is expected to begin pre-production testing and optimization in mid-2012. With the successful implementation of this new technology, ECD expects to improve its products’ sunlight-to-electricity conversion efficiency by up to 50%. This will provide the benefit of increasing marketability of the products with added value to customers, while significantly reducing ECD’s production costs.
For the first quarter of fiscal year 2012 ended September 30, 2011, the company expects to report total revenue of approximately $22 million.
This compares to consolidated revenue of $65 million in the first fiscal quarter of 2011. In the first quarter, ECD’s United Solar subsidiary shipped 11 megawatts (MW) of its unique UNI-SOLAR brand solar products in the face of sharp price declines and excess module supply across the industry.
As of September 30, 2011, the company held $130.2 million of cash, cash-equivalents, restricted cash and short-term investments, a reduction of $10.5 million during the quarter.
"These operating results highlight the challenges facing us and the solar industry today," said Jay Knoll, ECD’s Interim President. "With reductions in incentives in our core European markets and a volatile credit market, solar projects are having tremendous difficulty closing. These factors combined with a flood of cheap modules from foreign manufacturers have created an environment where very few projects are getting completed without self-financing and steep discounts. The economics of this environment require us to rethink our approach to the sales process and rationalize our cost structure, both of which are currently underway."
ECD believes that a successful repositioning of its United Solar business will require refinancing or restructuring of its outstanding Senior Convertible Notes due 2013. ECD intends to invest the proceeds from the sale of OBC in its United Solar business to support funding of its technology roadmap and Open Solar initiatives. ECD is considering a range of strategies to attract additional investment that may be required and has retained the financial advisory firm of AlixPartners to assist it in evaluating such strategies.
In connection with the foregoing, ECD has begun discussions with representatives of an informal group of holders of ECD’s outstanding
Senior Convertible Notes due 2013, regarding its repositioning efforts to explore the group’s interest in restructuring the notes.
