Solyndra – The Little Company That Couldn’t – Something Even Its Employees and External Auditors Knew

The Barometer heard a caller on a talk show discussing two things: (1) She was one of 1,100 employees laid off from the failing solar-panel maker, Solyndra LLC; and (2) She and the other employees knew as the company’s facilities were being built that the business would fail because factories in China were producing the panels at a fraction of Solyndra’s cost. One never knows on talk-show callers. They could be sitting at the computer with tin-foil hats on as they swap conspiracy theories about s’mores. Low and behold, a mere few days later, the FBI did a search and seizure raid of the company’s headquarters in Fremont, California and paid visits to the homes of three Solyndra executives. No one can know for sure what the FBI and Justice Department are looking for or what each knows because investigations are just that, investigations. However, one assumes that the FBI was not invited over by the executives for tea and crumpets, or whatever sustainability business executives have for snacks (arugula and soy milk?) However, here’s what has emerged from public records:

1. The U.S. government invested $527 million in the company under a Department of Energy program created to promote renewable energy firms. Solyndra was the first DOE deal under the 2009 stimulus plan.

2. In a March 2010 S-1 registration statement filing (a registration statement is required by the SEC in order to sell securities), the company included the following disclosure:
“Our average sales price was $3.24 per watt, which was $1.29 per watt, or approximately 66%, higher than the $1.95 average sales price per watt of leading crystalline silicon photovoltaic manufacturers during the same period,” the company stated. “As a result, certain system owners who focus more on the up-front price of solar panels than on achieving the lowest levelized cost of electricity per kilowatt hour, or LCOE, may choose the product offerings of those competitors that have a lower initial panel purchase price.” TRANSLATION: Folks are buying the Chinese solar panels because they are cheaper.

3. Also in March 2010, the company’s external auditor, PricewaterhouseCoopers, added a “going concern” statement to the amended S-1. Going concern statements are added when a company slips into a pattern of non-earnings. PwC included the following qualifier in its audit report:
“The company has suffered recurring losses from operations, negative cash flows since inception and has a net stockholders’ deficit that, among other factors, raise substantial doubt about its ability to continue as a going concern,”

For those of you unschooled in the language of SEC filings and audit reports, the literal translation is – the company is going under. And the numbers bore out PwC’s position. In fiscal 2009, Solyndra lost $172.5 million (following losses of $232.1 million for 2008 and $114 million 2007). Total losses: $557.7 million – more money than the federal government invested. And the March 2010 S-1 registration statement added the following, “We expect to continue to incur significant operating and net losses and negative cash flow from operations for the foreseeable future.”

4. PwC was correct. The company’s S-1 filing was a bust. No one wanted to invest in it.

5. Still, President Obama visited the Fremont, California plant in May 2010 and gave a speech describing the company as a “a model investment” by the U.S. government as well as a “testament to American ingenuity and dynamism.”

6. Flailing about for cash, Solyndra laid off employees in November 2010.

7. In February 2011, Solyndra did secure $75 million in additional funding from a group of investors, but the loan guarantee negotiated with the federal government provided that this group of investors would assume the number one creditor position if Solyndra had to declare bankruptcy. The renegotiation means that, in all likelihood, the U.S. government will not be repaid its $527 million.

8. Since March 2009, a few months after Mr. Obama assumed the presidency, Solyndra executives and investors have been to the White House at least 20 times. One of those investors, the George Kaiser Family Foundation, is named after George Kaiser, a wealthy Oklahoma oil and gas magnate, who worked to raise money for the 2008 Obama campaign.

The House Energy and Commerce Committee is investigating and has issued subpoenas for White House records and other documents. Who can know what will emerge from the investigations? However, the tangled web of interconnections is surely the impetus for the DOE’s Inspector General seeking to find out exactly who did what for whom and when and why.

As part of the September 6, 2011 announcement of a Chapter 11 filing, Solyndra CEO, Brian Harrison stated:

“Regulatory and policy uncertainties in recent months created significant near-term excess supply and price erosion. Raising incremental capital in this environment was not possible. This was an unexpected outcome and is most unfortunate. Customers who have implemented Solyndra solutions can be assured that their systems will generate economical, clean, solar power for decades.”

Well, the little talk-show caller, just a frontline employee, was absolutely correct. What she may not have known were the financial details and investment priorities that make that knowledge of “it won’t work because they won’t sell” critical to a criminal investigation.

The Barometer is as much of an optimist as anyone. Let’s hope nothing nefarious happened. Let’s hope Solyndra can find a buyer, generous creditors, or something to allow it to emerge from Chapter 11. We can hope, but, for those who have had Solyndra systems installed: Begin developing a Plan B for maintenance and repair.

About mmjdiary

Professor Marianne Jennings is an emeritus professor of legal and ethical studies from the W.P. Carey School of Business at Arizona State University, retiring in 2011 after 35 years of teaching undergraduate and graduate courses in ethics and the legal environment of business. During her tenure at ASU, she served as director of the Joan and David Lincoln Center for Applied Ethics from 1995-1999. In 2006, she was appointed faculty director for the W.P. Carey Executive MBA Program. She has done consulting work for businesses and professional groups including AICPA, Boeing, Dial Corporation, Edward Jones, Mattel, Motorola, CFA Institute, Southern California Edison, the Institute of Internal Auditors, AIMR, DuPont, AES, Blue Cross Blue Shield, Motorola, Hy-Vee Foods, IBM, Bell Helicopter, Amgen, Raytheon, and VIAD. The sixth edition of her textbook, Case Studies in Business Ethics, was published in February 2011. The ninth edition of her textbook, Business: lts Legal, Ethical and Global Environment was published in January 2011. The 23rd edition of her book, Business Law: Principles and Cases, will be published in January 2013. The tenth edition of her book, Real Estate Law, will also be published in January 2013. Her book, A Business Tale: A Story of Ethics, Choices, Success, and a Very Large Rabbit, a fable about business ethics, was chosen by Library Journal in 2004 as its business book of the year. A Business Tale was also a finalist for two other literary awards for 2004. In 2000 her book on corporate governance was published by the New York Times MBA Pocket Series. Her book on long-term success, Building a Business Through Good Times and Bad: Lessons from Fifteen Companies, Each With a Century of Dividends, was published in October 2002 and has been used by Booz, Allen, Hamilton for its work on business longevity. Her latest book, The Seven Signs of Ethical Collapse was published by St. Martin’s Press in July 2006 and has been a finalist for two book awards. Her weekly columns are syndicated around the country, and her work has appeared in the Wall Street Journal, the Chicago Tribune, the New York Times, Washington Post, and the Reader's Digest. A collection of her essays, Nobody Fixes Real Carrot Sticks Anymore, first published in 1994 is still being published. She has been a commentator on business issues on All Things Considered for National Public Radio. She has served on four boards of directors, including Arizona Public Service (1987-2000), Zealous Capital Corporation, and the Center for Children with Chronic Illness and Disability at the University of Minnesota. She was appointed to the board of advisors for the Institute of Nuclear Power Operators in 2004 and served on the board of trustees for Think Arizona, a public policy think tank. She has appeared on CNBC, CBS This Morning, the Today Show, and CBS Evening News. In 2010 she was named one of the Top 100 Thought Leaders in Business Ethics by Trust Across America. Her books have been translated into four different languages. She received the British Emerald award for authoring one of their top 50 articles in management publications, chosen from over 15,000 articles. Personal: Married since 1976 to Terry H. Jennings, Maricopa County Attorney’s Office Deputy County Attorney; five children: Sarah, Sam, and John, and the late Claire and Hannah Jennings.
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