The U.S. Securities and Exchange Commission staff doesn’t plan to recommend any enforcement action against LDK Solar (NYSE: LDK), according to the company’s annual report filed Monday.
LDK in October said the commission was inquiring into allegations from the company’s former financial controller, Charley Situ, that it had overstated its silicon inventories (see LDK Says SEC Is Inquiring Into Inventory Discrepancy Allegations).
An independent audit in December found "no material errors" in the company’s accounting, but some analysts remained skeptical (see Independent LDK Audit Finds ’No Material Errors’ and Inventory Concerns Keep Haunting LDK).
According to the annual report, the company found out about the commission’s staff decision on March 24.
LDK, along with several of its officers and directors, still faces a federal class-action lawsuit in the Northern District of California, as well as a lawsuit alleging "breach of fiduciary duty and unjust enrichment," to be heard in California’s Santa Clara County Superior Court, based on the same allegations.
The company said it plans to file motions to dismiss the complaints this month and anticipates judgments on the motions by June.
"Based on the results of this independent investigation," the annual report stated, "the decision by the SEC staff not to recommend any enforcement action against us and consultation with our legal counsel, we believe it is not probable that an unfavorable outcome will occur upon the ultimate resolution of the pending litigation for this matter."
"It is not possible, however, for us to reasonably estimate the amount of loss, if any, we would incur in the event of an unfavorable outcome from the resolution of this uncertainty."
LDK added the lawsuits to its list of risks, along with new risks pertaining to its silicon plants and its debt.
According to the company, risks related to the 1,000-ton and 15,000-ton silicon plants being built by LDK include:
- Failure to complete its polysilicon production plant and bring it up to full operation within budget and on schedule could "adversely affect" its operating results and business expansion strategies.
- LDK "may not be successful in producing polysilicon cost-effectively."
- The manufacture of polysilicon "presents operational difficulties and dangers" that could "materially adversely affect its business, operating results and financial condition."
The company also said it has "substantial existing indebtedness" and may incur more debt in the future, which could "adversely affect" its financial condition and its ability to generate the cash it needs to satisfy its debt obligations.
LDK last week said it might need to raise up to $300 million to build its silicon plants and to expand its solar-wafer production after tapping into the money it expects to generate from operations and from customer prepayments (see LDK Seeks Big-Time Capital).
According to cash-flow data from the report, LDK raised $462.3 million in financing activities in 2007, including issuing $369.5 million in shares, used $328.6 million in "investing activities," including purchasing about $305.2 million worth of property and equipment, and used $80.7 million in operating activities. That would leave the company with $53 million in cash from 2007, up from $18.3 million in 2006.
The company also added the risk that customers might not prepay for their orders in the future if market conditions change, although it said that it currently requires most of its customers to pay part of the price of their orders in advance.
In spite of the news about the SEC, shares of LDK fell 10.9 percent Monday to close at $32.43 per share. Other solar stocks also were down Monday, however.
Trina Solar (NYSE: TSL) fell 9.6 percent to close at $35.07 per share, Yingli Green Energy Holding Co. (NYSE: YGE) fell 11.3 percent to close at $20.13 per share, Canadian Solar (NSDQ: CSIQ) fell 6 percent to close at $23.72 per share and SunPower Corp. (NSDQ: SPWR) fell 4.4 percent to close at $86.44 per share.
Evergreen Solar (NSDQ: ESLR) was among those to buck the trend Monday, rising 1.5 percent to $10.85 per share on news that the company is expanding its factory in Devens, Mass., doubling capacity at the site to 160 megawatts worth of wafers.