SunEdison filed for Chapter 11 bankruptcy in 2016. Prior to bankruptcy, the company developed photovoltaic energy solutions, and owned and operated solar power plants
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A company creates wealth for its long-term shareholders in 2 main ways - through dividend payments and through the accumulation of retained earnings. This graph shows the accumulation of per-share equity of long-term shareholders (green bars), which consists of the retained earnings plus all capital invested in the company, and the cumulative dividends the company has paid over time per share of its stock (blue bars).
In the words of Warren Buffett: "We're looking for... businesses earning good returns on equity while employing little or no debt."
Return on equity is a key metric of financial performance, indicating a company's ability to generate earnings using shareholder capital. Over time, ROE is one of the major determinants of the rate at which a company creates shareholder wealth. The average ROE for large U.S. companies is 12%, and many investors use it as a threshold for attractive investments.
Companies can boost ROE by increasing leverage, which reduces the safety of the investment. Therefore, it is useful to look at the return on assets (ROA), which measures a company's earning power regardless of its capital structure. A widening gap between ROE and ROA may be a warning sign that should be thoroughly investigated.
Earnings per share is a popular metric used to value a company (using P/E ratio); growth in EPS is often used to judge company growth potential. However, many investors believe that EPS is an inferior metric to ROE, because it ignores the amount of capital the company used to generate earnings.
Free cash flow shows how much cash a company generates from operations, above and beyond what is required to maintain or expand its productive assets. This cash can be returned to investors, or spent by management on growing the company or paying back its debts.
Balance sheets of many companies contain intangible assets such as goodwill, trademarks, patents, etc. Many investors consider intangibles more difficult to value than physical assets. If intangible assets had been valued incorrectly, they must be impaired, resulting in a loss charged against shareholder equity. This chart demonstrates the potential loss to shareholder equity from such impairments.
Companies often use debt financing to increase their return on equity. However, as the amount of debt financing increases relative to the amount of equity financing, the company becomes more sensitive to down turns and other negative events. As a result, many investors use the ratio of debt to equity as a measure of a company's financial risk, and avoid companies that have this ratio above 1.
This chart shows shareholder equity as a percentage of total assets, allowing investors to judge the overall leverage. Companies with a higher proportion of equity can be viewed as safer investments. This metric is particularly important for highly leveraged institutions, such as banks, where it must be at least 4% according to government regulations.
The ratio of current assets to current liabilities is known as the current ratio. This metric is a quick measure of the company's ability to pay its short-term obligations. A current ratio below 1 is a warning sign that should be investigated, especially for companies that cannot count on adequate cash flow from operations.
This chart shows the cumulative dilution of investor ownership in a company over time. Dilution reduces an investor's participation in the future earnings. Dilution increases when a company issues new shares, and decreases when a company buys its shares back. Many investors avoid companies with large chronic dilution.
analysis provides insight into factors affecting the Return On Equity of a company.
The DuPont equation decomposes ROE as follows:
ROE = (Net margin) * (Asset turnover) * (Asset to equity ratio)
Net margin indicates operating efficiency, Asset turnover measures the total asset use efficiency, and the Asset to equity ratio is a measure of financial leverage.
The dividend payout ratio tells investors what percentage of earnings a company returns to shareholders, and what percentage it retains and reinvests. This ratio represents a major capital allocation decision by the company, and can be used to judge management rationality. Rational management should pay out all earnings that cannot be productively reinvested. Therefore, a low dividend payout ratio for a profitable company with a low growth potential may be a warning sign.
Many investors use the P/B ratio as a quick way of judging company valuation. Value investors - followers of Graham and Dodd - specifically seek out companies with low P/B ratios. However, investors should be careful not to make investment decisions on this metric alone, without considering a company's earning and growth potential, since a low P/B ratio can be a sign of a bleak future for the business.
P/E ratio is a popular way of making a quick judgment of a company valuation. Value investors - followers of Graham and Dodd - often seek solid companies with low P/E ratios as investment opportunities. However, P/E ratio represents an oversimplified approach to business valuation, and can often lead to incorrect investment decisions.
On October 22, 1998, we filed a registration statement with the Securities and Exchange Commission (the "SEC") for the sale of our common stock in a rights offering to existing stockholders except VEBA AG and its affiliates (the "Offering"). We expect to sell approximately 13,628,446 shares in the Offering.
On March 22, 1999, we sold 15,399,130 shares of common stock to VEBA Zweite Verwaltungsgesellschaft mbH ("VEBA Zweite"), a subsidiary of VEBA AG, in a private placement.
On November 13, 2001, TPG Wafer Holdings and its assignees, including MEMC Holdings Corporation, purchased all of E.ON's debt in MEMC of approximately $910 million and all of E.ON's equity holdings in MEMC of 49,959,970 shares of MEMC common stock, representing approximately 72% of the outstanding shares of MEMC common stock. MEMC Holdings Corporation acquired approximately $411 million of the total $910 million debt. In connection with the transactions contemplated by the purchase agreement, on November 13, 2001, MEMC and TPG Wafer Holdings entered into a restructuring agreement. Pursuant to the restructuring agreement, the following steps were taken: (a) TPG Wafer Holdings exchanged with MEMC all of the shares of the Class A Common Stock of MEMC Holdings Corporation for 260,000 shares of our Series A Cumulative Convertible Preferred Stock, having an aggregate stated value of $260 million. (b) TPG exchanged with MEMC approximately $449 million of the acquired debt, all of which was then cancelled, for $50 million in principal amount of our senior subordinated secured notes, with detachable warrants to acquire up to 16,666,667 shares of our common stock. (c) TPG retained an existing 55 million Euro (approximately $50 million) note from our Italian subsidiary. (d) TPG established a five-year revolving credit facility to make available to us up to $150 million in senior secured loans (which facility was replaced in December 2001 by a substantially similar $150 million Citibank revolving credit facility). (e) We entered into other agreements, including a registration rights agreement and an agreement and plan of merger relating to the merger agreement between MEMC and TPG Wafer Holdings. (f) All of the E.ON affiliated members and two independent members resigned from the MEMC Board of Directors, and the Board appointed four nominees designated by TPG Wafer Holdings. Shortly thereafter, the Board appointed two additional persons to the Board. The size of the Board was subsequently increased to ten persons and the Board appointed two additional directors to fill the vacancies. (g) TPG Wafer Holdings subsequently exchanged with MEMC the one outstanding share of Class B Common Stock of MEMC Holdings Corporation held by TPG Wafer Holdings for a promissory note from MEMC having a principal amount of $250. MEMC Holdings Corporation, the holder of approximately $411 million of MEMC debt previously owed to E.ON, is now a wholly owned subsidiary of MEMC. As a result of these transactions, approximately $860 million of the MEMC debt acquired from E.ON has been exchanged for our preferred stock, notes and warrants and TPG now beneficially owns approximately 72% of the outstanding MEMC common stock. Subject to the approval of our stockholders, the preferred stock is convertible into shares of our common stock at a price of $2.25 per share. The preferred stock bears dividends at a rate of 10% per annum if paid in cash or 12% if paid in kind. Subject to the approval of our stockholders, the preferred stock will have voting rights with the holders of the common stock. Shares of preferred stock not converted by November 13, 2009, are redeemable for cash at the holder's option. The warrants will be exercisable until November 13, 2011 at an exercise price of $3.00 per share, but only after we have obtained stockholder approval.
On July 10, 2002, our stockholders approved the issuance of the preferred stock and warrants, and the common stock underlying those securities, at a special meeting of our stockholders. Thereafter on July 10, 2002, TPG converted 260,000 shares of preferred stock plus cumulative unpaid preferred dividends into approximately 125 million newly issued common shares. The conversion brings our total outstanding shares to approximately 196 million, of which TPG owns approximately 90%. As a result of the conversion, effective July 11, 2002 we will no longer accrue dividends on these preferred shares. Cumulative preferred dividends of $8,166 and $16,093 were recognized in the three and six months ended June 30, 2002, respectively.
During the second half of 2011, the semiconductor and solar industries experienced downturns, which downturn was more dramatic in the solar industry. In December 2011, MEMC committed to reducing total workforce by approximately 1,400 persons worldwide, representing approximately 20% of the company's employees, primarily within the Semiconductor Materials and Solar Materials segments; shuttering the company's Merano, Italy polysilicon facility as of December 31, 2011; reducing production capacity at the company's Portland, Oregon crystal facility and slowing the ramp of the Kuching, Malaysia wafering facility; and consolidating the operations of the Solar Materials segment and Solar Energy segment into a single Solar Energy business unit, effective January 1, 2012. In addition, based on the market capitalization of MEMC compared to book value and the adverse market conditions, MEMC incurred charges associated with the restructuring, impairment of long-lived assets, impairments of goodwill and certain investments, write-downs of inventory and the realizability of deferred tax assets. Charges included $339.5M for restructuring, $365.4M for long-lived asset impairment, and $384.1M for goodwill impairment.
On September 18, 2013, we completed the issuance and sale in a registered public offering of 34,500,000 shares of the Company's common stock, par value $0.01 per share, at a public offering price of $7.25 per share, less discounts and commissions of $0.29 per share. All of the shares of common stock previously held as treasury stock were issued in connection with the Offering. We received net proceeds of approximately $239.6 million, after deducting underwriting discounts and commissions and related offering costs.
On January 29, 2015, we and TerraForm First Wind ACQ, LLC, a subsidiary of TerraForm Power Operating, LLC, as assignee of Terra LLC under the Purchase Agreement, completed the previously announced acquisition of First Wind Holdings, LLC ("Parent," together with its subsidiaries, "First Wind"), pursuant to a purchase and sale agreement, dated as of November 17, 2014, as amended by the First Amendment to the Purchase and Sale Agreement, dated as of January 28, 2015, among SunEdison, TerraForm Power, Terra LLC, First Wind, the members of First Wind and certain other persons party thereto. In the Acquisition, TerraForm First Wind ACQ, LLC purchased from First Wind 500 MW of operating wind power assets and 21 MW of operating solar power assets, and SunEdison purchased all of the equity interests of Parent and all of the outstanding equity interests in certain subsidiaries of Parent that own, directly or indirectly, 306 MW of operating wind power assets, wind and solar development projects representing 1.6 GW of pipeline and backlog and development opportunities representing more than 6.4 GW of wind and solar projects. Pursuant to the terms of the Purchase Agreement, SunEdison and TerraForm Operating paid total consideration of $2,442 million, which was comprised of cash consideration of $762 million paid by SunEdison and $863 million paid by TerraForm, the issuance of 336 million in aggregate principal amount of 3.75% Guaranteed Exchangeable Senior Secured Notes due 2020, and contingent consideration measured at fair value of $481 million. The maximum undiscounted potential payout of contingent consideration is $510 million over the three year period following the date of acquisition and we believe it is probable the maximum amount will be paid.
On May 12, 2015, we entered into privately negotiated exchange agreements (the "2018/2021 Exchange Agreements") with a limited number of holders of our outstanding 2018/2021 Notes. Pursuant to the 2018/2021 Exchange Agreements, we exchanged $600 million aggregate principal amount of outstanding 2018 Notes and 2021 Notes ($300 million of the 2018 Notes and $300 million of the 2021 Notes) for 41 million shares of common stock underlying the 2018/2021 Notes to be exchanged and $63 million in cash. We recognized a loss on the extinguishment of debt of $75 million and the write-off of the related unamortized debt issuance costs.
On June 26, 2015, we and TerraForm AP Acquisitions Holdings, LLC, a subsidiary of SunEdison, completed the acquisition of all membership interests of Atlantic Power Transmission, Inc., an independent power producer with a diversified fleet of power generation assets located throughout the U.S. and Canada, pursuant to a membership interest purchase agreement. In connection with the acquisition, we have acquired interests in five operating wind power generation assets located in Oklahoma and Idaho, which generate 521 MW of renewable power in proportion to our ownership interests. The aggregate consideration paid for this acquisition was $347 million in cash.
On April 21, 2016, SunEdison, Inc. and 25 affiliated debtors filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Southern District of New York.