RENESOLA
LTD
September 13,
2010
VIA EDGAR
Mr. Kevin
L. Vaughn, Accounting Branch Chief
Mr. Eric
Atallah, Staff Accountant
Mr.
Timothy Buchmiller, Reviewing Attorney
Ms.
Aslynn Hogue, Staff Attorney
Division
of Corporation Finance
Securities
and Exchange Commission
100 F
Street, N.E.
Washington,
D.C. 20549
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Re:
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ReneSola
Ltd
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Form 20-F
for the fiscal year ended December 31, 2009 filed on June 7,
2010
File
No. 1-33911
Dear
Mr. Vaughn and Mr. Atallah,
This
letter sets forth the responses of ReneSola Ltd (the “Company”) to the comments
contained in the letter dated August 31, 2010 from the staff (the “Staff”) of
the Securities and Exchange Commission (the “Commission”) regarding the
Company’s annual report on Form 20-F for the year ended December 31, 2009
(the “2009 Form 20-F”).
For ease
of review, we have set forth below each of the numbered comments of the Staff’s
letter and the Company’s responses thereto.
Capitalized
terms used in the responses set forth below and not otherwise defined herein
have the meaning set forth in the 2009 Form 20-F.
Form 20-F for the year ended
December 31, 2009
Item 4. Information on
the Company, page 28
D. Property, Plants and
Equipment, page 43
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1.
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Please revise future
filings to
describe major encumbrances on material tangible fixed assets, if any; the
extent of utilization of the facilities; and how the assets were
held. See Form 20-F Item 4.D. For
example, we note your disclosure that some of your short-term and
long-term
borrowings were secured by land use rights, property, plant and equipment
on page 60-61 and F-30, but you did not mention encumbrances on any of
your fixed assets in your property, plants and equipment
section.
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The
Staff's comment is noted. The Company will revise its future filings to describe
major encumbrances on material tangible fixed assets, if any, and how the assets
were held. Our production capacity has been growing fast and is expected to
increase substantially in 2010. For instance, the annual capacity of our
multicrystalline ingots and wafers increased from 320 MW in 2008 to 500 MW in
2009, and is expected to increase to 830 MW in 2010. Consistent with the
industry practice, disclosure of utilization rate of our facilities would,
therefore, not be meaningful to investors.
The
Company proposes the following disclosure, if applicable, in future filings on
Form 20-F: "As of December 31, 20XX, short-term borrowings of $XX and long-term
borrowings of $XX were secured with property, plant and equipment with carrying
amounts of $XX and prepaid land use rights of $XX. We own all the facilities
described above and the underlying land use rights.”
Item 5 – Operating and
Financial Review and Prospectus, page 43
A – Operating Results, page
44
Cost of Revenues, page
49
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2.
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We note your reference to
gross margin excluding inventory write-downs. While disclosure of material
items impacting your gross margin may be meaningful, your current
disclosure results in the presentation of a non-GAAP financial
measure for which
you have not included all of the disclosures required by Item 10(e) of Regulation S-K. Please
revise future filings to remove the non-GAAP financial measures, gross
margin, excluding inventory write-downs, or otherwise provide all of the
disclosures
required by Item 10(e) of Regulation
S-K.
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The
Staff's comment is noted. The Company will revise its future filings to remove
the non-GAAP financial measure, gross margin excluding inventory
write-down.
Critical Accounting
Policies, page 53
Income tax, page
54
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3.
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We see that during the year
ended December 31, 2009 you recognized deferred tax assets of $55,221,403
related to net operating losses of Zhejiang Yuhui and Sichuan
ReneSola. Please revise future filings
to address the factors considered by management in
determining it is more likely than not the referenced deferred tax assets
as December 31, 2009 will be realized. Discuss uncertainties
surrounding the realization of the deferred tax asset and material
assumptions underlying your determination that the net
asset will be realized. If the asset’s realization is dependent on
material improvements over present levels of consolidated pre-tax income,
material changes in the present relationship between income reported for
financial and tax
purposes, or material asset sales or other non-routine transactions,
describe these assumed future events, quantified to the extent
practicable. Refer to paragraphs
740-10-30-16 through 25 of the FASB Accounting Standards
Codification.
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The
Staff's comment is noted. The Company will revise in its future filings to
include the following language to address the factors considered by management
in determining it is more likely than not the referenced deferred tax assets
will be realized: "The Company considers positive and negative evidence to
determine whether some portion or all of the deferred tax assets will not be
realized. The ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income during the periods in which those temporary
differences become deductible for tax purposes. A valuation allowance is
required to reduce the carrying amounts of deferred tax assets if, based on the
available evidence, it is more likely than not that such assets will not be
realized. Accordingly, the need to establish valuation allowances for deferred
tax assets is assessed periodically based on a more-likely-than-not realization
threshold. This assessment considers, among other matters, the nature, frequency
and severity of current and cumulative losses, forecasts of future
profitability, the duration of statutory carry forward periods, our experience
with operating losses in the China solar industry, tax planning strategies
implemented and other tax planning alternatives. If our operating results are
less than currently projected and there is no objectively verifiable evidence to
support the realization of our deferred tax asset, additional valuation
allowance may be required to further reduce our deferred tax asset. The
reduction of the deferred tax asset could increase our income tax expenses and
have an adverse effect on our results of operations and tangible net worth in
the period in which the allowance is recorded."
Additionally,
in assessing the realizability of the deferred tax assets and the need for a
valuation allowance as of December 31, 2009, management considered the
sufficiency of future taxable income. Our actual 2010 operations have generated
significant profits to support the realizability of deferred tax assets going
forward.
2
Liquidity and Capital
Resource, page 60
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4.
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We note that as of December
31, 2009, you had outstanding short-term borrowings of $358.6 million that
were due within one year. We further note that a portion
of these borrowings is trade financing and can be rolled
over. Please revise future filings
to quantify the amount of outstanding short-term financing that can be
rolled over and how this could impact your
liquidity.
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The
Staff's comment is noted. The Company will revise in its future filings to
quantify the amount of outstanding short-term financing that can be rolled over
and how this could impact the Company's liquidity with the following language:
“As of December 31, 20XX, we had outstanding short-term borrowings of $XX, part
of which is trade financing amounting to $XX and can be rolled over. We have
historically been able to obtain extensions of our short-term credit facilities
before they mature. The majority of our short-term borrowings are provided by
some of the largest banks in China which remain financially sound. Historically,
most of these Chinese banks, when requested, have extended the terms of their
credit facilities before the maturity dates of the outstanding borrowings. We
believe our ability to extend our short-term credit facilities prior to their
maturity remains strong in the current credit environment, and do not believe
such conditions will impact our ability to obtain extensions or alternative
financing from our Chinese bank lenders. In the event we are unable to obtain
extensions of these facilities or alternative funding in the future, we plan to
repay these short-term bank borrowings with our cash on hand, short term
investments, cash generated by our operating activities as well as other equity
or debt issuances.”
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5.
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We note that some of your
long-term loan agreements contain financial covenants. Please revise future filings
to quantify your most restrictive
covenants.
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The
Staff's comment is noted. The Company will revise in its future filings the
quantification of our most restrictive covenants to include the following
language: "Our most restrictive covenants require us to maintain minimum levels
of net assets and debt to asset ratios of XX and XX, and gross profit margin of
our subsidiary Sichuan ReneSola was above the lowest gross profit margin of
companies in the global polysilicon industry, which was XX for the year ended
December 31, 20X0, as required by our loan agreement.
E. Off-balance Sheet
Arrangements, page 67
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6.
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We note your
disclosure that
there were no material off-balance sheet arrangements. “other than those discussed
under ‘Item 5. Operating and
Financial Review and Prospectus – F. Tabular Disclosure of
Contractual Obligations.’” However, we also note that
your tabular disclosure of contractual obligations
does not appear to discuss any off-balance sheet arrangements. Please tell us whether you had
any material off-balance sheet arrangements. If you had off-balance sheet
arrangements, please tell us how they are disclosed in the tabular disclosure of
contractual obligations.
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We
respectfully advise the Staff that for the fiscal year ended December 31, 2009,
we did not have any off-balance sheet arrangements that had or were reasonably
likely to have a current or future effect on our financial condition, changes in
financial condition, revenues or expenses, results of operations, liquidity,
capital expenditures or capital resources and that were material to investors.
In future filings, we will undertake to either state expressly that we did not
have any off-balance sheet arrangements that had or were reasonably likely to
have a current or future effect on our financial condition, changes in financial
condition, revenues or expenses, results of operations, liquidity, capital
expenditures or capital resources and that is material to investors or, in the
alternative to provide all required disclosures for the period under
consideration.
Note 2 – Summary of
Principal Accounting Policies, page F-11
U – Warranty Costs, page
F-17
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7.
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We note that you provide
product warranties for 10 to 25 years, and that your record an estimated
warranty liability based on “an assessment of the
Company’s and competitors’ accrual history,
industry-standard testing, estimates of failure rates from quality review and other
assumptions that are considered to be reasonable under the
circumstances.” Please revise future filings
to clearly disclose the significant “other assumptions that are
considered reasonable under the circumstances.” Additionally please disclose your warranty
accrual rate.
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The
Staff's comment is noted. The Company will revise its future filings to clearly
include the following language: "Other assumptions are additional factors that
affect estimates of warranty costs, including industry data for warranty claim
activities for themselves and competitors and academic research. Such data is
widely available. We acknowledge that such estimates are subjective, and we will
continue to analyze our claim history and the performance of our products
compared to our competitors, industry data for warranty claims and other
assumptions such as academic research to determine whether our accrual is
adequate. In addition, as a recent entrant in the market, the Company has
adopted a warranty accrual rate of 1.0% of PV module revenues."
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Note 3 – Acquisition of JC
Solar, page F-21
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8.
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We note that the intangible
assets you acquired were recognized based on a valuation conducted by an
independent valuation firm. Please describe for us the
nature and extent
of the independent valuation firm’s involvement in the
determination of the fair value of these assets and tell us how you
considered the guidance in Rule 436(b) of Regulation C regarding reference
to a specialist. Please see Question 141.02 of
our Compliance
and Disclosure Interpretations available at http://www.sec.gov/divisions/corpfin/guidance/sasinterp.htm for
guidance.
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The
Company respectfully advises the Staff that an independent valuation firm
provided assistance in the analysis as to the estimated fair values of the
tangible and intangible assets as at the acquisition date. The independent
valuation firm prepared their analysis under the income approach, a commonly
adopted valuation methodology. Management prepared the purchase price
allocations and in doing so considered and relied in part upon a report of a
third party expert. Under the circumstances, we do not believe a written consent
letter of the independent valuation firm is required under the guidance of Rule
436(b) of Regulation C and Question 141.02 of the Staff’s Compliance and
Disclosure Interpretations.
The
Company will revise in its future filings to clearly disclose that the
attributes of the purchase price allocation are those of management with the
following language: "The Company recognized order backlog and customer
relationships as acquired intangibles".
Note 7 – Fair Value
Measurements, page F-24
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9.
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We note that October 22, 2009
you settled a supplier advance of $19,019,325
in exchange for common shares of that supplier. We further note that during
the period ending December 31, 2009 you recorded an other than temporary
impairment on these securities of $13,366,936. Please tell us how you
valued the shares
you received from the supplier at October 22, 2009. Describe to us the
circumstances that led to the significant other than temporary impairment
of the investment from October 22, 2009 to December 31,
2009.
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The
Company respectfully advises the Staff that the supplier is a publicly traded
entity on the Canadian Exchange and, as such, we recorded our investment on
October 22, 2009, at the then closing price on the day we received the shares.
The stock price then severely declined from October 22, 2009 to December 31,
2009, as the investment was experiencing significant liquidity issues. The
investment was a going concern at December 31, 2009 and continues to be a going
concern subsequent to year end. The investment has continued to restructure debt
and equity to improve its financial condition but the stock price had not
recovered in 2010. As a result, we gave consideration to ASC 320-10-35, and as
the loss in value was severe, it did not recover but continued to decline in
value subsequent to the balance sheet date, and the investment was and continues
to be a going concern (as the opinion on the financial statements included an
explanatory paragraph regarding substantial doubt about the entity’s ability to
continue as a going concern), with continued liquidity issues, we concluded that
the impairment was other than temporary.
Note 8 – Income Taxes, page
F-26
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10.
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Please revise future filings
to include disclosure of the components of income (loss) before income tax
expense (benefit) as either domestic or foreign as
required by Rule 408(h)(1)(i) of Regulation
S-X.
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The
Staff's comment is noted. The Company will revise its future filings to include
the disclosure of components of income (loss) before income tax expense
(benefit) as either domestic or foreign.
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Note 11 – Convertible Bond,
page F-31
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11.
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We note that you repurchased
about RMB 713,900,000 par value convertible bond for $84,121,078 and
4,000,000 common shares. We further note that you
recognized an aggregate gain of $7,995,337 on this
transaction. Please explain to us how you
accounted for the transaction and provide us with your calculation of the
gain you recognized. Please cite any authoritative
literature upon which you are
relying.
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The
Company respectfully advises the Staff that we accounted for the repurchase of
convertible bonds by taking reference of 470-50-40 for the cash consideration
portion paid to holders to extinguish their convertible bonds and 470-20-05-10
for the additional consideration paid to holders to induce them to convert their
bonds.
The
Company respectfully advises the Staff that we accounted for the repurchase of
convertible bonds pursuant to ASC 470-50-40-4 and recognized the difference
between the cash consideration paid to holders and the carrying amount of the
convertible bonds as a gain. Cash consideration of US$84,121,078 was paid for
repurchasing the convertible bonds with the carrying amount of US$97,165,524,
including the unamortized premium, accrued interests, and associated unamortized
deferred issuance costs of $543,789 (which was recorded as a separate line item
on balance sheet). As a result, the Company recognized a gain of US$12,500,657
(97,165,524 - 543,789 – 84,121,078). The entries are:
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Dr:
Convertible bonds
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US$97,165,524 | |||
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Cr:
Deferred issuance costs
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US$543,789 | |||
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Cr:
Cash
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US$84,121,078 | |||
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Cr:
Gain on repurchase of CB
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US$12,500,657 |
The
Company made an inducement offer in 2009 and issued 4,000,000 common shares to
extinguish the convertible bonds with a carrying value of $10,578,872 and
deferred issuance costs of $104,723. The inducement offer qualified for
inducement as defined by ASC 470-20-40-16 as the transaction conversion
privilege was exercisable only for a limited period of time and included all
equity securities issuable pursuant to the conversion privileges included in the
original debt term. As such, pursuant to ASC 470-20-40-16, the Company accounted
for the fair value of the common shares issued in excess of the common shares
issuable pursuant to the original conversion terms, in the amount of $4,505,320,
as an inducement expense in the current period, reported in Gain on repurchase
of convertible bond in the consolidated financial statements. The entries
are:
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Dr:
Convertible bonds
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US$10,578,872 | |||
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Dr:
Loss (netted with gain on repurchase of CB)
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US$4,505,320 | |||
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Cr:
Deferred issuance costs
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US$104,723 | |||
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Cr:
Common shares
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US$14,979,469 |
* * *
The
Company hereby acknowledges that:
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•
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the
Company is responsible for the adequacy and accuracy of the disclosure in
the filing;
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•
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staff
comments or changes to disclosure in response to staff comments do not
foreclose the Commission from taking any action with respect to the
filing; and
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•
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the
Company may not assert staff comments as a defense in any proceeding
initiated by the Commission or any person under the federal securities
laws of the United States.
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If you
have any additional questions or comments regarding the 2009 Form 20-F, please
contact the undersigned at +86 573 8477 3372, or our U.S. counsel, Latham &
Watkins LLP, attention: Benjamin Su at +86 10 5965 7016.
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Very
truly yours,
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By:
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/s/ Julia Xu
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Name:
Julia Xu
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Title:
Chief Financial Officer
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cc:
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David
Zhang, Latham & Watkins LLP
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Benjamin
Su, Latham & Watkins LLP
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