Attached files
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EXCEL - IDEA: XBRL DOCUMENT - FIRST SOLAR, INC. | Financial_Report.xls |
EX-31.01 - 302 CERTIFICATION OF CEO - FIRST SOLAR, INC. | cert31-01.htm |
EX-31.02 - 302 CERTIFICATION OF CFO - FIRST SOLAR, INC. | cert31-02.htm |
EX-32.01 - 906 CERTIFICATION OF CEO AND CFO - FIRST SOLAR, INC. | cert32-01.htm |
UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
Form
10-Q
(Mark
one)
|
|
R
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the quarterly period ended September 26, 2009
|
|
or
|
|
£
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the transition period
from
to
|
Commission
file number: 001-33156
First
Solar, Inc.
(Exact
name of registrant as specified in its charter)
Delaware
|
20-4623678
|
(State
or other jurisdiction of
|
(I.R.S.
Employer
|
incorporation
or organization)
|
Identification
No.)
|
350
West Washington Street, Suite 600
Tempe,
Arizona 85281
(Address
of principal executive offices, including zip code)
(602)
414-9300
(Registrant’s
telephone number, including area code)
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports) and (2) has been subject to such filing requirements for
the past 90 days. Yes R No £
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files). Yes R No £
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large
accelerated filer R
|
Accelerated
filer £
|
Non-accelerated
filer £
|
Smaller
reporting company £
|
(Do
not check if a smaller reporting company)
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes £ No
R
As of
October 23, 2009 there were 85,107,744 shares of the registrant’s common stock,
par value $0.001, outstanding.
FIRST
SOLAR, INC. AND SUBSIDIARIES
FORM
10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 26, 2009
TABLE
OF CONTENTS
|
Page
|
|
Part
I.
|
Financial
Information (Unaudited)
|
|
Item
1.
|
Condensed
Consolidated Financial Statements:
|
|
Condensed
Consolidated Statements of Operations for the three and nine months ended
September 26, 2009 and September 27, 2008
|
3
|
|
Condensed
Consolidated Balance Sheets as of September 26, 2009 and December 27,
2008
|
4
|
|
Condensed
Consolidated Statements of Cash Flows for the nine months ended September
26, 2009 and September 27, 2008
|
5
|
|
Notes
to Condensed Consolidated Financial Statements
|
6
|
|
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
30
|
Item
3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
41
|
Item
4.
|
Controls
and Procedures
|
44
|
Part
II.
|
Other
Information
|
44
|
Item
1.
|
Legal
Proceedings
|
44
|
Item
1A.
|
Risk
Factors
|
45
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
47
|
Item
6.
|
Exhibits
|
48
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Signature
|
49
|
|
Exhibit
Index
|
50
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Page |
2
PART
I. FINANCIAL INFORMATION
Item
1. Unaudited Condensed
Consolidated Financial Statements
FIRST
SOLAR, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(In
thousands, except per share amounts)
(Unaudited)
Three
Months Ended
|
Nine
Months Ended
|
|||||||||||||||
|
September
26,
2009
|
September
27,
2008
|
September
26,
2009
|
September
27,
2008
|
||||||||||||
Net
sales
|
$ | 480,851 | $ | 348,694 | $ | 1,424,935 | $ | 812,650 | ||||||||
Cost
of sales
|
235,858 | 153,251 | 646,562 | 368,183 | ||||||||||||
Gross
profit
|
244,993 | 195,443 | 778,373 | 444,467 | ||||||||||||
Operating
expenses:
|
||||||||||||||||
Research
and development
|
24,136 | 9,952 | 54,445 | 22,437 | ||||||||||||
Selling,
general and administrative
|
53,990 | 48,995 | 176,231 | 121,292 | ||||||||||||
Production
start-up
|
4,076 | 6,344 | 12,809 | 23,727 | ||||||||||||
Total
operating expenses
|
82,202 | 65,291 | 243,485 | 167,456 | ||||||||||||
Operating
income
|
162,791 | 130,152 | 534,888 | 277,011 | ||||||||||||
Foreign
currency gain (loss)
|
114 | (1,889 | ) | 2,187 | (468 | ) | ||||||||||
Interest
income
|
2,398 | 5,323 | 6,449 | 16,931 | ||||||||||||
Interest
expense, net
|
(89 | ) | (127 | ) | (4,851 | ) | (131 | ) | ||||||||
Other
expense, net
|
(247 | ) | (360 | ) | (2,676 | ) | (1,179 | ) | ||||||||
Income
before income taxes
|
164,967 | 133,099 | 535,997 | 292,164 | ||||||||||||
Income
tax expense
|
11,623 | 33,830 | 37,479 | 76,605 | ||||||||||||
Net
income
|
$ | 153,344 | $ | 99,269 | $ | 498,518 | $ | 215,559 | ||||||||
Net
income per share:
|
||||||||||||||||
Basic
|
$ | 1.82 | $ | 1.23 | $ | 5.99 | $ | 2.70 | ||||||||
Diluted
|
$ | 1.79 | $ | 1.20 | $ | 5.88 | $ | 2.63 | ||||||||
Weighted-average
number of shares used in per share calculations:
|
||||||||||||||||
Basic
|
84,179 | 80,430 | 83,196 | 79,789 | ||||||||||||
Diluted
|
85,892 | 82,436 | 84,724 | 82,016 |
See
accompanying notes to these condensed consolidated financial
statements.
Page |
3
FIRST
SOLAR, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEETS
(In
thousands, except share data)
(Unaudited)
|
September
26,
2009
|
December 27,
2008
|
||||||
ASSETS
|
||||||||
Current
assets:
|
||||||||
Cash
and cash equivalents
|
$ | 364,814 | $ | 716,218 | ||||
Marketable
securities — current
|
158,847 | 76,042 | ||||||
Accounts
receivable, net
|
348,965 | 61,703 | ||||||
Inventories —
current
|
178,032 | 121,554 | ||||||
Project
assets — current
|
58,017 | — | ||||||
Economic
development funding receivable
|
— | 668 | ||||||
Deferred
tax asset, net — current
|
15,362 | 9,922 | ||||||
Prepaid
expenses and other current assets
|
79,355 | 91,294 | ||||||
Total
current assets
|
1,203,392 | 1,077,401 | ||||||
Property,
plant and equipment, net
|
962,732 | 842,622 | ||||||
Project
assets — noncurrent
|
102,692 | — | ||||||
Deferred
tax asset, net — noncurrent
|
117,449 | 61,325 | ||||||
Marketable
securities — noncurrent
|
306,415 | 29,559 | ||||||
Restricted
cash and investments — noncurrent
|
37,173 | 30,059 | ||||||
Investment
in related party
|
25,000 | 25,000 | ||||||
Goodwill
|
284,005 | 33,829 | ||||||
Inventories —
noncurrent
|
11,434 | — | ||||||
Other
assets — noncurrent
|
44,780 | 14,707 | ||||||
Total
assets
|
$ | 3,095,072 | $ | 2,114,502 | ||||
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
||||||||
Current
liabilities:
|
||||||||
Accounts
payable
|
$ | 72,338 | $ | 46,251 | ||||
Income
tax payable
|
17,555 | 99,938 | ||||||
Accrued
expenses
|
142,490 | 140,899 | ||||||
Current
portion of long-term debt
|
29,169 | 34,951 | ||||||
Other
liabilities — current
|
85,107 | 59,738 | ||||||
Total
current liabilities
|
346,659 | 381,777 | ||||||
Accrued
collection and recycling liabilities
|
76,932 | 35,238 | ||||||
Long-term
debt
|
163,320 | 163,519 | ||||||
Other
liabilities — noncurrent
|
48,987 | 20,926 | ||||||
Total
liabilities
|
635,898 | 601,460 | ||||||
Stockholders’
equity:
|
||||||||
Common
stock, $0.001 par value per share; 500,000,000 shares
authorized; 85,071,436 and 81,596,810 shares issued and outstanding
at September 26, 2009 and December 27, 2008,
respectively
|
85 | 82 | ||||||
Additional
paid-in capital
|
1,632,911 | 1,176,156 | ||||||
Contingent
consideration
|
2,844 | — | ||||||
Accumulated
earnings
|
859,743 | 361,225 | ||||||
Accumulated
other comprehensive loss
|
(36,409 | ) | (24,421 | ) | ||||
Total
stockholders’ equity
|
2,459,174 | 1,513,042 | ||||||
Total
liabilities and stockholders’ equity
|
$ | 3,095,072 | $ | 2,114,502 |
See
accompanying notes to these condensed consolidated financial
statements.
Page |
4
FIRST
SOLAR, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In
thousands)
(Unaudited)
Nine
Months Ended
|
||||||||
|
September
26,
2009
|
September
27,
2008
|
||||||
Cash
flows from operating activities:
|
||||||||
Cash
received from customers
|
$ | 1,169,345 | $ | 779,209 | ||||
Cash
paid to suppliers and associates
|
(770,985 | ) | (513,583 | ) | ||||
Interest
received
|
4,266 | 15,306 | ||||||
Interest
paid
|
(7,527 | ) | (3,003 | ) | ||||
Income
taxes paid, net of refunds
|
(123,011 | ) | (3,202 | ) | ||||
Excess
tax benefit from share-based compensation arrangements
|
(9,476 | ) | (13,736 | ) | ||||
Other
operating activities
|
(1,217 | ) | (1,179 | ) | ||||
Net
cash provided by operating activities
|
261,395 | 259,812 | ||||||
Cash
flows from investing activities:
|
||||||||
Purchases
of property, plant and equipment
|
(210,757 | ) | (330,610 | ) | ||||
Purchases
of marketable securities
|
(512,116 | ) | (274,262 | ) | ||||
Proceeds
from maturities of marketable securities
|
124,576 | 373,367 | ||||||
Proceeds
from sales of marketable securities
|
29,784 | 49,450 | ||||||
Investment
in note receivable
|
(45,495 | ) | — | |||||
Payments
received on note receivable
|
14,871 | — | ||||||
Increase
in restricted investments
|
(4,411 | ) | (15,254 | ) | ||||
Acquisitions,
net of cash acquired
|
318 | — | ||||||
Other
investing activities
|
(1,756 | ) | — | |||||
Net
cash used in investing activities
|
(604,986 | ) | (197,309 | ) | ||||
Cash
flows from financing activities:
|
||||||||
Proceeds
from issuance of common stock
|
4,685 | 14,107 | ||||||
Repayment
of long-term debt
|
(63,699 | ) | (34,833 | ) | ||||
Proceeds
from issuance of debt, net of issuance costs
|
44,820 | 94,090 | ||||||
Excess
tax benefit from share-based compensation arrangements
|
9,476 | 13,736 | ||||||
Proceeds
from economic development funding
|
615 | 35,661 | ||||||
Other
financing activities
|
(2 | ) | (5 | ) | ||||
Net
cash (used in) provided by financing activities
|
(4,105 | ) | 122,756 | |||||
Effect
of exchange rate changes on cash and cash equivalents
|
(3,708 | ) | (7,744 | ) | ||||
Net
increase (decrease) in cash and cash equivalents
|
(351,404 | ) | 177,515 | |||||
Cash
and cash equivalents, beginning of the period
|
716,218 | 404,264 | ||||||
Cash
and cash equivalents, end of the period
|
$ | 364,814 | $ | 581,779 | ||||
Supplemental
disclosure of noncash investing and financing activities:
|
||||||||
Property,
plant and equipment acquisitions funded by liabilities
|
$ | — | $ | 31,468 |
See
accompanying notes to these condensed consolidated financial
statements.
Page |
5
FIRST
SOLAR, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Nine
Months ended September 26, 2009
Note 1. Basis of
Presentation
The
accompanying unaudited condensed consolidated financial statements of First
Solar, Inc. and its subsidiaries have been prepared in accordance with
accounting principles generally accepted in the United States of America (“U.S.
GAAP”) for interim financial information and pursuant to the instructions to
Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange
Commission. Accordingly, these interim financial statements do not include all
of the information and footnotes required by U.S. GAAP for annual financial
statements. In the opinion of management, all adjustments (consisting only of
normal recurring adjustments) considered necessary for a fair statement have
been included. Operating results for the nine months ended September 26, 2009
are not necessarily indicative of the results that may be expected for the year
ending December 26, 2009, or for any other period. The balance sheet at December
27, 2008 presented in these financial statements has been derived from the
audited consolidated financial statements at that date, but does not include all
of the information and footnotes required by U.S. GAAP for complete financial
statements. These financial statements and accompanying notes should be read in
conjunction with the financial statements and notes thereto for the year ended
December 27, 2008 included in our Annual Report on Form 10-K filed with the
Securities and Exchange Commission.
We report
our results of operations using a 52 or 53 week fiscal year, which ends on the
Saturday on or before December 31. Our fiscal quarters end on the Saturday
closest to the end of the applicable calendar quarter. Fiscal 2009 will end on
December 26, 2009 and will consist of 52 weeks.
Unless
expressly stated or the context otherwise requires, the terms “we,” “our,” “us”
and “First Solar” refer to First Solar, Inc. and its subsidiaries.
Note 2. Summary of Significant
Accounting Policies
These
condensed consolidated financial statements and accompanying notes should be
read in conjunction with our annual consolidated financial statements and notes
thereto for the year ended December 27, 2008 included in our Annual Report on
Form 10-K filed with the Securities and Exchange Commission. Our significant
accounting policies reflect the adoption of Financial Accounting Standards Board
(FASB) Accounting Standards Codification Topic (ASC) 805, Business Combinations, in the
second quarter of fiscal 2009.
During
the third quarter of fiscal 2009, we adopted the provisions of ASC 976, Accounting for Sales of Real
Estate for certain solar power projects.
Note 3. Recent Accounting
Pronouncements
In June
2009, the FASB issued SFAS 166, Accounting for Transfers of
Financial Assets- an amendment of SFAS 140. This standard eliminates the
concept of a “qualifying special-purpose entity,” changes the requirements for
derecognizing financial assets and requires additional disclosures in order to
enhance information to users of financial statements by providing greater
transparency about transfers of financial assets, including securitization
transactions, and an entity’s continuing involvement in and exposure to the
risks related to transferred financial assets. SFAS 166 is effective for fiscal
years ended after November 15, 2009. We do not expect that the adoption of SFAS
166 will have a material impact on our financial position, results of operations
or cash flows.
In June
2009, the FASB issued SFAS 167, Amendments to FASB Interpretation
No. 46(R). This standard changes the consolidation analysis for variable
interest entities. SFAS 167 is effective for fiscal years ending after November
15, 2009. We do not expect that the adoption of SFAS 167 will have a material
impact on our financial position, results of operations or cash
flows.
In
September 2009, the FASB issued FASB Accounting Standards Codification Update
(ASU) 2009-05, Measuring
Liabilities at Fair Value. The fair value measurement of a liability
assumes transfer to a market participant on the measurement date, not a
settlement of the liability with the counterparty. ASU 2009-05 describes various
valuation methods that can be applied to estimating the fair values of
liabilities, requires the use of observable inputs and minimizes the use of
unobservable valuation inputs. ASU 2009-05 is effective for the fourth quarter
of 2009. We do not expect that the adoption of ASU 2009-05 will have a material
impact on our financial position, results of operations or cash
flows.
Page |
6
In
September 2009, the FASB issued ASU 2009-06, Implementation Guidance on
Accounting for Uncertainty in Income Taxes and Disclosure Amendments for
Nonpublic Entities. ASU 2009-06 provides guidance on how to account for
uncertainty in income taxes, especially for tax payments made by an entity
attributable to the entity or attributable to the owners. In addition, ASU
2009-06 clarifies management’s determination of the taxable status of an entity
and amends certain disclosure requirements. ASU 2009-06 is effective for the
third quarter of 2009. The adoption of ASU 2009-06 had no impact on our
financial position, results of operations or cash flows.
In
October 2009, the FASB issued ASU 2009-13, Multiple-Deliverable Revenue
Arrangements. ASU 2009-13 revises certain accounting for revenue
arrangements with multiple deliverables, in particular when vendor specific
objective evidence or third party evidence for deliverables in an arrangement
cannot be determined, a best estimate of the selling price is required to
separate deliverables and to allocate the arrangement consideration. ASU 2009-13
is effective for the first quarter of 2011, with early adoption permitted. We do
not expect that the adoption of ASU 2009-13 will have a material impact on our
financial position, results of operations or cash flows.
Note
4. Acquisition
On
April 3, 2009, we completed the acquisition of the solar power project
development business (the Project Business) of OptiSolar Inc. (OptiSolar).
Pursuant to an Agreement and Plan of Merger (the Merger Agreement) dated March
2, 2009, by and among First Solar, Inc., First Solar Acquisition Corp. (Merger
Sub), OptiSolar and OptiSolar Holdings LLC (OptiSolar Holdings), Merger Sub
merged with and into OptiSolar, with OptiSolar surviving as a wholly-owned
subsidiary of First Solar, Inc. (the Merger). Pursuant to the Merger, all the
outstanding shares of common stock of OptiSolar held by OptiSolar Holdings were
exchanged for 2,972,420 shares of First Solar common stock, par value $0.001 per
share (the Merger Shares), of which 732,789 shares were issued and deposited
with an escrow agent to support certain indemnification obligations of OptiSolar
Holdings. Also, 355,096 shares were holdback shares as further described below
under “Contingent Consideration” (the “Holdback Shares”). As of September 26,
2009, 2,951,256 Merger Shares had been issued. The period during which claims
for indemnification from the escrow fund may be initiated commenced on April 3,
2009 and will end on April 3, 2011.
Purchase
Price Consideration
The total
consideration for this acquisition based on the closing price of our common
stock on April 3, 2009 of $134.38 per share was $399.4 million.
Contingent
Consideration
Pursuant
to the Merger Agreement, of the 2,972,420 Merger Shares, as of April 3, 2009,
355,096 shares were Holdback Shares that were issuable to OptiSolar Holdings
upon satisfaction of conditions relating to certain then-existing liabilities of
OptiSolar. As of September 26, 2009, 333,932 Holdback Shares had been issued to
OptiSolar Holdings, with 331,523 Holdback Shares issued during the three months
ended September 26, 2009. The estimated fair value of this contingent
consideration was $2.8 million at September 26, 2009 (relating to 21,164
Holdback Shares remaining to be issued as of such date) and $47.7 million on
April 3, 2009 (relating to 355,096 Holdback Shares to be issued as of such
date), and has been classified separately within stockholders’ equity on our
balance sheet.
Purchase
Price Allocation
We
accounted for this acquisition using the acquisition method in accordance with
ASC 805. Accordingly, we allocated the purchase price to the acquired assets and
liabilities based on their estimated fair values at the acquisition date of
April 3, 2009, as summarized in the following table (in thousands):
Tangible
assets acquired
|
$ | 10,175 | ||
Project
assets
|
103,888 | |||
Deferred
tax assets
|
43,600 | |||
Deferred
tax liability
|
(8,405 | ) | ||
Goodwill
|
250,176 | |||
Total
purchase consideration
|
$ | 399,434 |
Page |
7
The fair
value of net tangible assets acquired on April 3, 2009 consisted of the
following (in thousands):
Cash
|
$ | 318 | ||
Prepaid
expenses and other current assets
|
5,003 | |||
Property,
plant and equipment
|
165 | |||
Project
assets – Land
|
6,100 | |||
Total
identifiable assets acquired
|
11,586 | |||
Accounts
payable and other liabilities
|
(1,411 | ) | ||
Total
liabilities assumed
|
(1,411 | ) | ||
Net
identifiable assets acquired
|
$ | 10,175 |
Goodwill
We
recorded the excess of the acquisition date fair value of consideration
transferred over the estimated fair value of the net tangible assets and
intangible assets acquired as goodwill. We adjusted goodwill downward during the
third quarter of 2009 by $11.0 million as additional information relating to
deferred tax assets became available. We have allocated $248.8 million and $1.4
million of this goodwill to our components reporting segment and our systems
segment (reported under “Other” in our disclosure of segment operating results),
respectively. This goodwill is not deductible for tax purposes.
Acquired project
assets
Management
engaged a third-party valuation firm to assist in the determination of the fair
value of the acquired project development business. In our determination of the
fair value of the project assets acquired, we considered among other factors,
three generally accepted valuation approaches: the income approach, market
approach and cost approach. We selected the approaches that are most indicative
of fair value of the assets acquired. We used the income approach to calculate
the fair value of the acquired projects assets based on estimates and
assumptions of future performance of these projects assets provided by
OptiSolar’s and our management. We used the market approach to determine the
fair value of the land acquired with those assets.
Pro Forma Information
The acquired OptiSolar
business has been engaged in the development and construction of solar power
projects. The costs related to these activities are largely capitalized, and not
charged against earnings until the respective solar power project is sold to a
customer, constructed for a customer or we determine that the project is not
commercially viable; as of September 26, 2009, we had not yet reached the point
of sale for any of the projects in the portfolio we acquired from OptiSolar.
Therefore, if the OptiSolar acquisition had been completed on December 28, 2008
(the beginning of our fiscal year 2009) our total revenue, net income, and basic
and diluted earnings per common share would have not materially changed from the
amounts that we have previously reported.
Note 5. Goodwill and
Intangible Assets
Goodwill
On
November 30, 2007, we acquired 100% of the outstanding membership interests
of Turner Renewable Energy, LLC. Under the purchase method of accounting, we
allocated $33.4 million to goodwill through December 29, 2007, which
represents the excess of the purchase price over the fair value of the
identifiable net tangible and intangible assets of Turner Renewable Energy, LLC.
All of this goodwill was allocated to our systems segment. At September 26, 2009
and December 27, 2008, the carrying amount of this goodwill was $33.8
million.
Page |
8
On April
3, 2009, we acquired the solar power project development business of OptiSolar.
Under the acquisition method of accounting, we allocated $261.1 million to
goodwill, which primarily represents the synergies and economies of scale
expected from acquiring OptiSolar’s project pipeline and using our solar modules
in the acquired projects. During the three months ended September 26, 2009, we
adjusted goodwill downward by $11.0 million as additional information regarding
deferred tax assets became available. We have allocated $248.8 million and $1.4
million of this goodwill to our components reporting segment and systems segment
(reported under “Other” in our disclosure of segment operating results),
respectively. At September 26, 2009, the carrying amount of this goodwill was
$250.2 million. See Notes 4 and 20 to our condensed consolidated financial
statements for additional information about this acquisition.
The
changes in the carrying amount of goodwill for the nine months ended September
26, 2009 were as follows (in thousands):
Components
|
Other
|
Consolidated
|
||||||||||
Beginning
balance, December 27, 2008
|
$ | — | $ | 33,829 | $ | 33,829 | ||||||
Goodwill
from 2009 acquisitions
|
259,722 | 1,411 | 261,133 | |||||||||
Goodwill
adjustment (1)
|
(10,957 | ) | $ | — | (10,957 | ) | ||||||
Ending
balance, September 26, 2009
|
$ | 248,765 | $ | 35,240 | $ | 284,005 |
(1)
|
The
goodwill adjustment was primarily the result of adjustments to the amount
of acquired deferred tax assets.
|
ASC 350,
Intangibles – Goodwill and
Other, requires us to test goodwill for impairment at least annually, or
sooner, if facts or circumstances between scheduled annual tests indicate that
it is more likely than not that the fair value of a reporting unit that has
goodwill might be less than its carrying value. We performed our goodwill
impairment tests in the fourth fiscal quarter of the year ended December 27,
2008. Based on that test, we concluded that our goodwill was not impaired. We
have also concluded that there have been no changes in facts and circumstances
since the date of that test, and since the April 3, 2009 OptiSolar acquisition,
that would trigger an interim goodwill impairment test.
Acquisition
Related Intangible Assets
In
connection with the acquisition of Turner Renewable Energy, LLC, we identified
intangible assets that represent customer contracts already in progress and
future customer contracts not yet started at the time of acquisition. We
amortize the acquisition date fair values of these assets using the percentage
of completion method.
Information
regarding our acquisition-related intangible assets that are being amortized was
as follows (in thousands):
As
of September 26, 2009
|
As
of December 27, 2008
|
|||||||||||||||||||||||
|
Gross
Carrying
Amount
|
Accumulated
Amortization
|
Net
Carrying
Value
|
Gross
Carrying
Amount
|
Accumulated
Amortization
|
Net
Carrying
Value
|
||||||||||||||||||
Customer
contracts in progress at the acquisition date
|
$ | 62 | $ | 62 | $ | — | $ | 62 | $ | 58 | $ | 4 | ||||||||||||
Customer
contracts executed after the acquisition date
|
394 | 394 | — | 394 | 242 | 152 | ||||||||||||||||||
Total
|
$ | 456 | $ | 456 | $ | — | $ | 456 | $ | 300 | $ | 156 |
Amortization
expense for acquisition-related intangible assets was immaterial for the three
months ended September 26, 2009 and was $0.2 million for the nine months ended
September 26, 2009. Amortization expense for acquisition-related intangible
assets was $22,000 for the three months ended September 27, 2008 and $0.1
million for the nine months ended September 27, 2008.
Project
Assets
In
connection with the acquisition of the solar power project development business
of OptiSolar, we measured at fair value certain project assets based on the
varying development stages of each project asset on the acquisition date. We
will expense these projects assets as each respective solar power project is
sold to a customer, constructed for a customer or if we determine that the
project is not commercially viable. See also Note 8 to our condensed
consolidated financial statements about balances for project
assets.
Page |
9
Note
6. Cash and Investments
Cash,
cash equivalents and marketable securities consisted of the following at
September 26, 2009 and December 27, 2008 (in thousands):
|
September
26,
2009
|
December 27,
2008
|
||||||
Cash
and cash equivalents:
|
||||||||
Cash
|
$ | 136,477 | $ | 603,434 | ||||
Cash
equivalents:
|
||||||||
Federal
agency debt
|
— | 38,832 | ||||||
Money
market mutual fund
|
228,337 | 73,952 | ||||||
Total
cash and cash equivalents
|
364,814 | 716,218 | ||||||
Marketable
securities:
|
||||||||
Federal
agency debt
|
124,390 | 68,086 | ||||||
Foreign
agency debt
|
144,590 | 6,977 | ||||||
Supranational
debt
|
71,240 | — | ||||||
Corporate
debt securities
|
114,926 | 30,538 | ||||||
Foreign
government obligations
|
10,116 | — | ||||||
Total
marketable securities
|
465,262 | 105,601 | ||||||
Total
cash, cash equivalents and marketable securities
|
$ | 830,076 | $ | 821,819 |
We have
classified our marketable securities as “available-for-sale.” Accordingly, we
record them at fair value and account for net unrealized gains and losses as
part of accumulated other comprehensive income until realized. We report
realized gains and losses on the sale of our marketable securities in earnings,
computed using the specific identification method. During the three months ended
September 26, 2009, we did not realize any gains or losses on our marketable
securities. During the nine months ended September 26, 2009, we realized an
immaterial amount in gains and did not realize any losses on our marketable
securities. During the three and nine months ended September 27, 2008, we
realized $0.2 million and $0.6 million in gains and $0.3 million and $0.4
million in losses, respectively, on our marketable securities. See Note 10
to our condensed consolidated financial statements for information about the
fair value measurement of our marketable securities.
All of
our available-for-sale marketable securities are subject to a periodic
impairment review. We consider a marketable debt security to be impaired when
its fair value is less than its carrying cost, in which case we would further
review the investment to determine whether it is other-than-temporarily
impaired. When we evaluate an investment for other-than-temporary impairment, we
review factors such as the length of time and extent to which fair value has
been below cost basis, the financial condition of the issuer and any changes
thereto, our intent to sell, and whether it is more likely than not we will be
required to sell the investment before we have recovered its cost basis. If an
investment is other-than-temporarily impaired, we write it down through earnings
to its impaired value and establish that as a new cost basis for the investment.
We did not identify any of our marketable securities as other-than-temporarily
impaired at September 26, 2009.
The
following table summarizes unrealized gains and losses related to our
investments in marketable securities designated as available-for-sale by major
security type (in thousands):
As
of September 26, 2009
|
||||||||||||||||
Security Type
|
Amortized
Cost
|
Gross
Unrealized
Gains
|
Gross
Unrealized
Losses
|
Estimated
Fair
Value
|
||||||||||||
Federal
agency debt
|
$ | 124,179 | $ | 211 | $ | — | $ | 124,390 | ||||||||
Foreign
agency debt
|
144,051 | 539 | — | 144,590 | ||||||||||||
Supranational
debt
|
71,052 | 273 | 85 | 71,240 | ||||||||||||
Corporate
debt securities
|
114,395 | 572 | 41 | 114,926 | ||||||||||||
Foreign
government obligations
|
10,066 | 50 | — | 10,116 | ||||||||||||
Total
|
$ | 463,743 | $ | 1,645 | $ | 126 | $ | 465,262 |
As
of December 27, 2008
|
||||||||||||||||
Security Type
|
Amortized
Cost
|
Gross
Unrealized
Gains
|
Gross
Unrealized
Losses
|
Estimated
Fair
Value
|
||||||||||||
Federal
agency debt
|
$ | 67,813 | $ | 273 | $ | — | $ | 68,086 | ||||||||
Foreign
agency debt
|
6,990 | — | 13 | 6,977 | ||||||||||||
Corporate
debt securities
|
30,425 | 129 | 16 | 30,538 | ||||||||||||
Total
|
$ | 105,228 | $ | 402 | $ | 29 | $ | 105,601 |
Page |
10
Contractual
maturities of our available-for-sale marketable securities as of September 26,
2009 and December 27, 2008 were as follows (in thousands):
As
of September 26, 2009
|
||||||||||||||||
Maturity
|
Amortized
Cost
|
Gross
Unrealized
Gains
|
Gross
Unrealized
Losses
|
Estimated
Fair
Value
|
||||||||||||
One
year or less
|
$ | 158,515 | $ | 349 | $ | 17 | $ | 158,847 | ||||||||
One
year to two years
|
221,546 | 998 | 109 | 222,435 | ||||||||||||
Two
years to three years
|
83,682 | 298 | — | 83,980 | ||||||||||||
Total
|
$ | 463,743 | $ | 1,645 | $ | 126 | $ | 465,262 |
As
of December 27, 2008
|
||||||||||||||||
Maturity
|
Amortized
Cost
|
Gross
Unrealized
Gains
|
Gross
Unrealized
Losses
|
Estimated
Fair
Value
|
||||||||||||
One
year or less
|
$ | 75,856 | $ | 199 | $ | 13 | $ | 76,042 | ||||||||
One
year to two years
|
29,372 | 203 | 16 | 29,559 | ||||||||||||
Total
|
$ | 105,228 | $ | 402 | $ | 29 | $ | 105,601 |
The net
unrealized gain of $1.5 million and $0.4 million as of September 26,
2009 and December 27, 2008, respectively, on our available-for-sale
marketable securities was primarily the result of changes in interest rates. We
typically invest in highly-rated securities with low probabilities of default.
Our investment policy requires investments to be rated single A or better and
limits the security types, issuer concentration and duration of the
investments.
The
following table shows gross unrealized losses and estimated fair values for
those investments that were in an unrealized loss position as of September 26,
2009 and December 27, 2008, aggregated by investment category and the
length of time that individual securities have been in a continuous loss
position (in thousands):
As
of September 26, 2009
|
||||||||||||||||||||||||
In
Loss Position for
Less
Than 12 Months
|
In
Loss Position for
12
Months or Greater
|
Total
|
||||||||||||||||||||||
Security Type
|
Estimated
Fair
Value
|
Gross
Unrealized
Losses
|
Estimated
Fair
Value
|
Gross
Unrealized
Losses
|
Estimated
Fair
Value
|
Gross
Unrealized
Losses
|
||||||||||||||||||
Supranational
debt
|
$ | 27,214 | $ | 85 | $ | — | $ | — | $ | 27,214 | $ | 85 | ||||||||||||
Corporate
debt securities
|
3,018 | 41 | — | — | 3,018 | 41 | ||||||||||||||||||
Total
|
$ | 30,232 | $ | 126 | $ | — | $ | — | $ | 30,232 | $ | 126 |
As
of December 27, 2008
|
||||||||||||||||||||||||
In
Loss Position for
Less
Than 12 Months
|
In
Loss Position for
12
Months or Greater
|
Total
|
||||||||||||||||||||||
Security Type
|
Estimated
Fair
Value
|
Gross
Unrealized
Losses
|
Estimated
Fair
Value
|
Gross
Unrealized
Losses
|
Estimated
Fair
Value
|
Gross
Unrealized
Losses
|
||||||||||||||||||
Federal
agency debt
|
$ | 6,977 | $ | 13 | $ | — | $ | — | $ | 6,977 | $ | 13 | ||||||||||||
Corporate
debt securities
|
9,088 | 16 | — | — | 9,088 | 16 | ||||||||||||||||||
Total
|
$ | 16,065 | $ | 29 | $ | — | $ | — | $ | 16,065 | $ | 29 |
Page |
11
Note
7. Restricted Cash and Investments
Restricted
cash and investments consisted of the following at September 26, 2009 and
December 27, 2008 (in thousands):
|
September
26,
2009
|
December 27,
2008
|
||||||
Restricted
cash
|
$ | 38 | $ | 4,218 | ||||
Restricted
investments
|
37,135 | — | ||||||
Deposit
with financial services company
|
— | 25,841 | ||||||
Total
restricted cash and investments
|
$ | 37,173 | $ | 30,059 | ||||
Restricted
cash and investments — current
|
$ | — | $ | — | ||||
Restricted
cash and investments — noncurrent
|
$ | 37,173 | $ | 30,059 |
At
September 26, 2009, our restricted investments consisted of long-term marketable
securities that we hold to fund future costs of our solar module collection and
recycling program.
The
following table summarizes unrealized gains and losses related to our restricted
investments in marketable securities designated as available-for-sale by major
security type (in thousands):
As
of September 26, 2009
|
||||||||||||||||
Security Type
|
Amortized
Cost
|
Gross
Unrealized
Gains
|
Gross
Unrealized
Losses
|
Estimated
Fair
Value
|
||||||||||||
U.S.
government obligations
|
$ | 775 | $ | 41 | $ | — | $ | 816 | ||||||||
Foreign
government obligations
|
34,693 | 1,626 | — | 36,319 | ||||||||||||
Total
|
$ | 35,468 | $ | 1,667 | $ | — | $ | 37,135 |
As of
September 26, 2009, the contractual maturities of these available-for-sale
marketable securities were between 18 and 26 years.
Note 8. Consolidated Balance Sheet
Details
Accounts
receivable, net
Accounts
receivable, net consisted of the following at September 26, 2009 and December
27, 2008 (in thousands):
|
September
26,
2009
|
December
27, 2008
|
||||||
Accounts
receivable, gross
|
$ | 352,955 | $ | 61,703 | ||||
Allowance
for doubtful account
|
(3,990 | ) | — | |||||
Accounts
receivable, net
|
$ | 348,965 | $ | 61,703 |
The
increase in accounts receivable was mainly due to the amendment of certain of
our customers’ long-term supply contracts to extend their payment terms from net
10 days to net 45 days at the end of the first quarter of 2009 and due to higher
volumes shipped during the three months ended September 26, 2009.
During
the three months ended September 26, 2009, we amended our Long Term Supply
Contracts with certain of our customers to implement a program which extends a
price rebate to certain of these customers for solar modules purchased from us.
The intent of this program is to enable our customers to successfully compete in
our core segments in Germany. The rebate program applies a specified rebate rate
to solar modules sold for solar power projects in Germany at the beginning of
each quarter for the upcoming quarter. The rebate program is subject to periodic
review and we will adjust the rebate rate quarterly upward or downward as
appropriate. The rebate period commenced during the third quarter of 2009 and
terminates at the end of the fourth quarter of 2010. Customers need to meet
certain requirements in order to be eligible for and benefit from this
program.
We
account for rebates as a reduction to the selling price of our solar modules and
therefore as a reduction in revenue. No rebates granted under this program can
be claimed in cash and all will be applied to reduce outstanding accounts
receivable balances. During the three months ended September 26, 2009 we
extended rebates to customers in the amount of €48.7 million ($71.5 million
at the balance sheet close rate on September 26, 2009 of $1.47/€1.00) which
reduced our accounts receivable from these customers by such amount at September
26, 2009.
During
the three months ended June 27, 2009, we provided an allowance for the
doubtful account receivable in the amount of $7.0 million due to the
collectability of the outstanding accounts receivable from a specific customer.
During the three months ended September 26, 2009 we collected $3.0 million of
the overdue accounts receivable balance from this specific customer and reduced
our allowance for the doubtful account accordingly.
Page |
12
Inventories
Inventories
consisted of the following at September 26, 2009 and December 27, 2008 (in
thousands):
|
September
26,
2009
|
December
27, 2008
|
||||||
Raw
materials
|
$ | 119,400 | $ | 103,725 | ||||
Work
in process
|
10,627 | 4,038 | ||||||
Finished
goods
|
59,439 | 13,791 | ||||||
Total
inventories
|
$ | 189,466 | $ | 121,554 | ||||
Inventory
— current
|
$ | 178,032 | $ | 121,554 | ||||
Inventory
— noncurrent (1)
|
$ | 11,434 | $ | — |
(1)
|
Inventory
– noncurrent represents raw
materials.
|
Prepaid
expenses and other current assets
Prepaid
expenses and other current assets consisted of the following at September 26,
2009 and December 27, 2008 (in thousands):
September
26,
2009
|
December
27, 2008
|
|||||||
Prepaid
expenses
|
$ | 6,280 | $ | 6,699 | ||||
Prepaid
supplies
|
10,696 | 12,556 | ||||||
Capitalized
equipment spares
|
13,998 | 12,900 | ||||||
Derivative
instruments — current
|
8,727 | 34,931 | ||||||
Other
receivable from financial institution
|
— | 10,764 | ||||||
Note
receivable — current (see Note 12)
|
8,574 | — | ||||||
Deferred
project costs
|
3,457 | 710 | ||||||
Other
taxes receivable
|
6,992 | 2,763 | ||||||
Accrued
interest income
|
4,880 | 1,511 | ||||||
Other
customer receivable
|
2,936 | — | ||||||
Other
current assets
|
12,815 | 8,460 | ||||||
Total
prepaid expenses and other current assets
|
$ | 79,355 | $ | 91,294 |
Project
Assets – Current and Noncurrent
Project
assets – current and noncurrent consisted of the following at September 26, 2009
and December 27, 2008 (in thousands):
September
26,
2009
|
December
27, 2008
|
|||||||
Project
assets acquired
|
$ | 103,888 | $ | — | ||||
Project
assets — land
|
8,232 | — | ||||||
Project
assets — other
|
48,589 | — | ||||||
Total
project assets
|
$ | 160,709 | $ | — | ||||
Total
project assets — current
|
$ | 58,017 | $ | — | ||||
Total
project assets — noncurrent
|
$ | 102,692 | $ | — |
Project
assets consist primarily of costs capitalized relating to solar power projects
in various stages of development. They include costs for land and
costs for developing a solar power project, including legal, consulting,
permitting and other costs. Project assets acquired in connection with the
acquisition of OptiSolar were measured at fair value on the acquisition date.
Subsequent to the acquisition of OptiSolar, we incurred additional costs to
further the development of these projects, which we capitalized. We expense
these project assets as each respective solar power project is sold to a
customer, constructed for a customer or if we determine that the project is not
commercially viable. See also Note 5 to our condensed consolidated financial
statements.
Page |
13
Property,
plant and equipment, net
Property,
plant and equipment, net consisted of the following at September 26, 2009 and
December 27, 2008 (in thousands):
September
26,
2009
|
December
27, 2008
|
|||||||
Buildings
and improvements
|
$ | 221,272 | $ | 137,116 | ||||
Machinery
and equipment
|
789,420 | 559,566 | ||||||
Office
equipment and furniture
|
31,077 | 22,842 | ||||||
Leasehold
improvements
|
15,010 | 11,498 | ||||||
Depreciable
property, plant and equipment, gross
|
1,056,779 | 731,022 | ||||||
Accumulated
depreciation
|
(189,907 | ) | (100,939 | ) | ||||
Depreciable
property, plant and equipment, net
|
866,872 | 630,083 | ||||||
Land
|
5,032 | 5,759 | ||||||
Construction
in progress
|
90,828 | 206,780 | ||||||
Property,
plant and equipment, net
|
$ | 962,732 | $ | 842,622 |
Depreciation
of property, plant and equipment was $33.7 million and $16.9 million for the
three months ended September 26, 2009 and September 27, 2008, respectively, and
was $88.0 million and $40.4 million for the nine months ended September 26, 2009
and September 27, 2008, respectively.
Capitalized
Interest
We
incurred interest cost and capitalized a portion of it (into our property, plant
and equipment and project assets) as follows during the three and nine months
ended September 26, 2009 and September 27, 2008 (in thousands):
Three
Months Ended
|
Nine
Months Ended
|
|||||||||||||||
|
September
26,
2009
|
September
27,
2008
|
September
26,
2009
|
September
27,
2008
|
||||||||||||
Interest
cost incurred
|
$ | 2,367 | $ | 2,267 | $ | 9,473 | $ | 5,079 | ||||||||
Interest
cost capitalized – property, plant and equipment
|
(665 | ) | (2,140 | ) | (3,009 | ) | (4,948 | ) | ||||||||
Interest
cost capitalized – project assets
|
(1,613 | ) | — | (1,613 | ) | — | ||||||||||
Interest
expense, net
|
$ | 89 | $ | 127 | $ | 4,851 | $ | 131 |
Accrued
expenses
Accrued
expenses consisted of the following at September 26, 2009 and December 27, 2008
(in thousands):
September
26,
2009
|
December
27, 2008
|
|||||||
Product
warranty liability — current portion
|
$ | 7,667 | $ | 4,040 | ||||
Accrued
compensation and benefits
|
36,607 | 32,145 | ||||||
Accrued
property, plant and equipment
|
31,242 | 44,115 | ||||||
Accrued
inventory
|
23,541 | 31,438 | ||||||
Accrued
utilities and plant services
|
5,051 | 5,100 | ||||||
Accrued
subcontractor services and materials
|
11,461 | 2,934 | ||||||
Accrued
freight and warehouse charges
|
5,118 | 2,549 | ||||||
Accrued
interest
|
2,468 | 2,008 | ||||||
Accrued
taxes — other
|
3,020 | 6,182 | ||||||
Other
accrued expenses
|
16,315 | 10,388 | ||||||
Total
accrued expenses
|
$ | 142,490 | $ | 140,899 |
Page |
14
Other
current liabilities
Other
current liabilities consisted of the following at September 26, 2009 and
December 27, 2008 (in thousands):
September
26,
2009
|
December
27, 2008
|
|||||||
Derivative
instruments — current
|
$ | 57,073 | $ | 50,733 | ||||
Deferred
revenue
|
5,290 | — | ||||||
Billings
in excess of costs and estimated earnings
|
1,711 | 2,159 | ||||||
Other
tax payable
|
2,442 | 6,614 | ||||||
Other
payable to financial institution (1)
|
9,913 | — | ||||||
Other
current liabilities
|
8,679 | 232 | ||||||
Total
other current liabilities
|
$ | 85,107 | $ | 59,738 |
(1)
|
Settled
subsequent to September 26, 2009.
|
Note 9. Derivative
Instruments
As a
global company, we are exposed in the normal course of business to interest rate
and foreign currency risks that could affect our net assets, financial position,
results of operations and cash flows. We use derivative instruments to hedge
against certain risks, such as these, and we only hold derivative instruments
for hedging purposes, not for speculative or trading purposes. Our use of
derivative instruments is subject to strict internal controls based on centrally
defined, performed and controlled policies and procedures.
Depending
on the terms of the specific derivative instruments and market conditions, some
of our derivative instruments may be assets and others liabilities at any
particular point in time. As required by FASB ASC 815, Derivatives and Hedging, we
report all of our derivative instruments at fair value on our balance sheet.
Depending on the substance of the hedging purpose for our derivative
instruments, we account for changes in the fair value of some of them using
cash-flow-hedge accounting pursuant to ASC 815 and of others by recording the
changes in fair value directly to current earnings (so-called “economic
hedges”). These accounting approaches and the various classes of risk that we
are exposed to in our business and the risk management systems using derivative
instruments that we apply to these risks are described below. See Note 10
to our condensed consolidated financial statements for information about the
techniques we use to measure the fair value of our derivative
instruments.
The
following table presents the fair values of derivative instruments included in
our condensed consolidated balance sheet as of September 26, 2009 (in
thousands):
September
26, 2009
|
||||||||||||||||
Other
Assets - Current
|
Other
Assets
-
Noncurrent
|
Other
Liabilities - Current
|
Other
Liabilities - Noncurrent
|
|||||||||||||
Derivatives
designated as hedging instruments under ASC 815:
|
||||||||||||||||
Foreign
exchange forward contracts
|
$ | — | $ | — | $ | 51,155 | $ | 815 | ||||||||
Interest
rate swap contracts
|
— | — | 90 | 1,014 | ||||||||||||
Total
derivatives designated as hedging instruments
|
$ | — | $ | — | $ | 51,245 | $ | 1,829 | ||||||||
Derivatives
not designated as hedging instruments under ASC 815:
|
||||||||||||||||
Foreign
exchange forward contracts
|
$ | 8,727 | $ | — | $ | 5,828 | $ | — | ||||||||
Total
derivatives not designated as hedging instruments
|
$ | 8,727 | $ | — | $ | 5,828 | $ | — | ||||||||
Total
derivative instruments
|
$ | 8,727 | $ | — | $ | 57,073 | $ | 1,829 |
Page |
15
The
following tables present the amounts related to derivative instruments affecting
our condensed consolidated statement of operations for the three and nine months
ended September 26, 2009 (in thousands):
Amount
of Gain (Loss) Recognized in Other Comprehensive Income on
Derivatives
|
Amount
of Gain (Loss) Reclassified from Accumulated Other Comprehensive Income
into Income
|
||||||||||||||||
Derivative
Type
|
Three
Months Ended
September
26, 2009
|
Nine
Months Ended
September
26, 2009
|
Location
of Gain (Loss) Reclassified from Accumulated Other Comprehensive Income
into Income
|
Three
Months Ended
September
26, 2009
|
Nine
Months Ended
September
26, 2009
|
||||||||||||
Derivatives
designated as cash flow hedges under ASC 815:
|
|||||||||||||||||
Foreign
exchange forward contracts
|
$ | (9,313 | ) | $ | (36,424 | ) |
Net
sales
|
$ | (22,939 | ) | $ | 8,885 | |||||
Interest
rate swaps
|
(820 | ) | 273 | Interest income (expense) | (102 | ) | (2,627 | ) | |||||||||
Total
derivatives designated as cash flow hedges
|
$ | (10,133 | ) | $ | (36,151 | ) | $ | (23,041 | ) | $ | 6,258 |
Amount
of Gain (Loss) on Derivatives Recognized in Income
|
|||||||||
Derivative
Type
|
Three
Months Ended
September
26, 2009
|
Nine
Months Ended
September
26, 2009
|
Location
of Gain (Loss) Recognized in Income on Derivatives
|
||||||
Derivatives
designated as cash flow hedges under ASC 815:
|
|||||||||
Foreign
exchange forward contracts
|
$ | (22,939 | ) | $ | 8,885 |
Net
sales
|
|||
Interest
rate swaps
|
$ | (102 | ) | $ | (2,627 | ) |
Interest
income (expense)
|
||
Derivatives
not designated as hedging instruments under ASC 815:
|
|||||||||
Foreign
exchange forward contracts
|
$ | (495 | ) | $ | (5,426 | ) |
Other
income (expense)
|
||
Foreign
exchange forward contracts
|
$ | 2,028 | $ | 3,097 |
Cost
of sales
|
||||
Credit
default swaps
|
$ | — | $ | (1,459 | ) |
Other
income (expense)
|
Page |
16
Interest
Rate Risk
We use
interest rate swap agreements to mitigate our exposure to interest rate
fluctuations associated with certain of our debt instruments; we do not use such
swap agreements for speculative or trading purposes. We had interest rate swap
contracts with a financial institution that effectively converted to fixed rates
the variable rate of the Euro Interbank Offered Rate (Euribor) on the term loan
portion of our credit facility with a consortium of banks for the financing of
our German plant. These swap contracts were required under the credit facility
agreement, which we repaid and terminated on June 30, 2009. Therefore, we
terminated these interest rate swap contracts on June 26, 2009 and consequently
recognized an interest expense of €1.7 million ($2.5 million at the
balance sheet close rate on September 26, 2009 of $1.47/€1.00). The termination
of the interest rate swap contracts settled on June 30, 2009.
On May
29, 2009, we entered into an interest rate swap contract to hedge a portion of
the floating rate loans under our Malaysian credit facility, which became
effective on September 30, 2009 with a notional value of €57.3 million
($84.2 million at the balance sheet close rate on September 26, 2009 of
$1.47/€1.00) and pursuant to which we are entitled to receive a six-month
floating interest rate, the Euro Interbank Offered Rate (Euribor), and pay a
fixed rate of 2.80%. The notional amount of the interest rate swap contract is
scheduled to decline in correspondence to our scheduled principal payments on
the underlying hedged debt. This derivative instrument qualifies for accounting
as a cash flow hedge in accordance with FASB ASC 815, Derivatives and Hedging, and
we designated it as such. We determined that our interest rate swap contract was
highly effective as a cash flow hedge at September 26, 2009.
Foreign
Currency Exchange Risk
Cash
Flow Exposure
We expect
many of the components of our business to have material future cash flows,
including revenues and expenses that will be denominated in currencies other
than the component’s functional currency. Our primary cash flow exposures are
customer collections and vendor payments. Changes in the exchange rates between
our components’ functional currencies and the other currencies in which they
transact will cause fluctuations in the cash flows we expect to receive when
these cash flows are realized or settled. Accordingly, we enter into foreign
exchange forward contracts to hedge the value of a portion of these forecasted
cash flows. As of September 26, 2009, these foreign exchange contracts hedge our
forecasted future cash flows for up to 18 months. These foreign exchange
contracts qualified for accounting as cash flow hedges in accordance with ASC
815, and we designated them as such. We initially report the effective portion
of the derivative’s gain or loss in accumulated other comprehensive income
(loss) and subsequently reclassify amounts into earnings when the hedged
transaction is settled. We determined that these derivative financial
instruments were highly effective as cash flow hedges at September 26, 2009. In
addition, during the nine months ended September 26, 2009, we did not
discontinue any cash flow hedges because it was probable that a forecasted
transaction would not occur.
In 2008
and during the nine months ended September 26, 2009, we purchased foreign
exchange forward contracts to hedge the exchange risk on forecasted cash flows
denominated in euro. As of September 26, 2009, the unrealized loss on these
contracts was $52.0 million and the total notional value of the contracts
was €499.5 million ($734.3 million at the balance sheet close rate on
September 26, 2009 of $1.47/€1.00). The weighted average forward exchange rate
for these contracts was $1.36/€1.00 at September 26, 2009.
We expect
to reclassify $51.2 million of net unrealized losses related to these forward
contracts that are included in accumulated other comprehensive loss at September
26, 2009 to earnings in the following 12 months as we realize the earnings
effect of the related forecasted transactions. The amount we ultimately record
to earnings will be contingent upon the actual exchange rate when we realize the
related forecasted transaction.
Page |
17
Transaction
Exposure
Many
components of our business have assets and liabilities (primarily receivables,
investments, accounts payable, debt, solar module collection and recycling
liabilities and inter-company balances) that are denominated in currencies other
than their functional currencies. Changes in the exchange rates between our
components’ functional currencies and the currencies in which these assets and
liabilities are denominated can create fluctuations in our reported consolidated
financial position, results of operations and cash flows. We may enter into
foreign exchange forward contracts or other financial instruments to hedge these
assets and liabilities against the short-term effects of currency exchange rate
fluctuations. The gains and losses on the foreign exchange forward contracts
will offset all or part of the transaction gains and losses that we recognize in
earnings on the related foreign currency assets and liabilities.
During
the nine months ended September 26, 2009, we purchased foreign exchange forward
contracts to hedge balance sheet exposures related to transactions with third
parties. We recognize gains or losses from the fluctuation in foreign exchange
rates and the valuation of these hedging contracts in cost of sales and foreign
currency gain (loss) on our consolidated statements of operations.
As of
September 26, 2009, the total notional value of our foreign exchange forward
contracts to purchase and sell euros with/for U.S. dollars was
€225.9 million and €198.9 million, respectively ($332.1 million and
$292.4 million, respectively, at the balance sheet close rate on September 26,
2009 of $1.47/€1.00); the total notional value of our foreign exchange forward
contracts to purchase and sell U.S. dollars with/for euros was $20.8
million and $38.7 million, respectively; the total notional value of our foreign
exchange forward contracts to purchase and sell Malaysian ringgits with/for
U.S. dollars was MYR 128.2 million and MYR 30.0 million,
respectively ($37.2 million and $8.7 million, respectively, at the
balance sheet close rate on September 26, 2009 of $0.29/MYR1.00); and the total
notional value of our foreign exchange forward contracts to purchase and sell
Canadian dollars with/for U.S. dollars was CAD 5.7 million and CAD
22.1 million, respectively ($5.2 million and $20.1 million, respectively,
at the balance sheet close rate on September 26, 2009 of $0.91/CAD1.00). As of
September 26, 2009, the total unrealized gain on these contracts was
$2.9 million. These contracts have maturities of less than two
months.
Credit
Risk
We have
certain financial and derivative instruments that subject us to credit risk.
These consist primarily of cash, cash equivalents, investments, trade accounts
receivable, interest rate swap contracts and foreign exchange forward contracts.
We are exposed to credit losses in the event of nonperformance by the
counterparties to our financial and derivative instruments. We place cash, cash
equivalents, investments, interest rate swap contracts and foreign exchange
forward contracts with various high-quality financial institutions and limit the
amount of credit risk from any one counterparty. We continuously evaluate the
credit standing of our counterparty financial institutions.
Page |
18
Note 10. Fair Value
Measurement
On
December 30, 2007, the beginning of our 2008 fiscal year, we adopted ASC
820, Fair Value Measurements
and Disclosures. ASC 820 defines fair value, establishes a framework for
measuring fair value in accordance with generally accepted accounting principles
and expands financial statement disclosure requirements for fair value
measurements. Our initial adoption of ASC 820 was limited to our fair value
measurements of financial assets and financial liabilities, as permitted by ASC
820. On December 28, 2008, the beginning of our fiscal year 2009, we adopted ASC
820 for the remainder of our fair value measurements. The implementation of the
fair value measurement guidance of ASC 820 did not result in any material
changes to the carrying values of our assets and liabilities.
ASC 820
defines fair value as the price that would be received from the sale of an asset
or paid to transfer a liability (an exit price) on the measurement date in an
orderly transaction between market participants in the principal or most
advantageous market for the asset or liability. ASC 820 specifies a hierarchy of
valuation techniques, which is based on whether the inputs into the valuation
technique are observable or unobservable. The hierarchy is as
follows:
|
•
|
Level 1 —
Valuation techniques in which all significant inputs are unadjusted quoted
prices from active markets for assets or liabilities that are identical to
the assets or liabilities being
measured.
|
|
•
|
Level 2 —
Valuation techniques in which significant inputs include quoted prices
from active markets for assets or liabilities that are similar to the
assets or liabilities being measured and/or quoted prices for assets or
liabilities that are identical or similar to the assets or liabilities
being measured from markets that are not active. Also, model-derived
valuations in which all significant inputs and significant value drivers
are observable in active markets are Level 2 valuation
techniques.
|
|
•
|
Level 3 —
Valuation techniques in which one or more significant inputs or
significant value drivers are unobservable. Unobservable inputs are
valuation technique inputs that reflect our own assumptions about the
assumptions that market participants would use in pricing an asset or
liability.
|
When
available, we use quoted market prices to determine the fair value of an asset
or liability. If quoted market prices are not available, we measure fair value
using valuation techniques that use, when possible, current market-based or
independently-sourced market parameters, such as interest rates and currency
rates. Following is a description of the valuation techniques that we use to
measure the fair value of assets and liabilities that we measure and report at
fair value on a recurring or one-time basis:
|
•
|
Cash
equivalents. At September 26, 2009, our cash equivalents
consisted of money market mutual funds. We value our cash equivalents
using observable inputs that reflect quoted prices for securities with
identical characteristics, and accordingly, we classify the valuation
techniques that use these inputs as
Level 1.
|
|
•
|
Marketable
securities. At September 26, 2009, our marketable
securities consisted of federal and foreign agency debt, supranational
debt, corporate debt securities and foreign government obligations. We
value our marketable securities using quoted prices for securities with
similar characteristics and other observable inputs (such as interest
rates that are observable at commonly quoted intervals), and accordingly,
we classify the valuation techniques that use these inputs as
Level 2. We also consider the effect of our counterparties’ credit
standings in these fair value
measurements.
|
|
•
|
Derivative assets and
liabilities. At September 26, 2009, our derivative
assets and liabilities consisted of foreign exchange forward contracts
involving major currencies and interest rate swap contracts involving
benchmark interest rates. Since our derivative assets and liabilities are
not traded on an exchange, we value them using valuation models. Interest
rate yield curves, foreign exchange rates and credit default swap spreads
are the significant inputs into these valuation models. These inputs are
observable in active markets over the terms of the instruments we hold,
and accordingly, we classify these valuation techniques as Level 2.
We consider the effect of our own credit standing and that of our
counterparties in our valuations of our derivative assets and
liabilities.
|
|
•
|
Product collection and
recycling liability. We account for our obligation to
collect and recycle the solar modules that we sell in a similar manner to
the accounting for asset retirement obligations that is prescribed by ASC
410, Asset Retirement
and Environmental Obligations. When we sell solar modules, we
initially record our liability for collecting and recycling those
particular solar modules at the fair value of this liability, and then in
subsequent periods, we accrete this fair value to the estimated future
cost of collecting and recycling the solar modules. Therefore, this is a
one-time nonrecurring fair value measurement of the collection and
recycling liability associated with each particular solar module
sold.
|
|
Since
there is not an established market for collecting and recycling our solar
modules, we value our liability using a valuation model (an income
approach). This fair value measurement requires us to use significant
unobservable inputs, which are primarily estimates of collection and
recycling process costs and estimates of future changes in costs due to
inflation and future currency exchange rates. Accordingly, we classify
these valuation techniques as Level 3. We estimate collection and
recycling process costs based on analyses of the collection and recycling
technologies that we are currently developing; we estimate future
inflation costs based on analysis of historical trends; and we estimate
future currency exchange rates based on current rate information. We
consider the effect of our own credit standing in our measurement of the
fair value of this liability.
|
Page |
19
At
September 26, 2009, information about inputs into the fair value measurements of
our assets and liabilities that we make on a recurring basis was as follows (in
thousands):
Fair
Value Measurements at Reporting
Date
Using
|
||||||||||||||||
|
Total
Fair
Value
and
Carrying
Value
on Our
Balance
Sheet
|
Quoted
Prices
in
Active
Markets
for
Identical
Assets
(Level
1)
|
Significant
Other
Observable
Inputs
(Level
2)
|
Significant
Unobservable
Inputs
(Level
3)
|
||||||||||||
Assets:
|
||||||||||||||||
Cash
equivalents:
|
||||||||||||||||
Money
market mutual funds
|
$ | 228,337 | $ | 228,337 | $ | — | $ | — | ||||||||
Marketable
securities:
|
||||||||||||||||
Federal
agency debt
|
124,390 | — | 124,390 | — | ||||||||||||
Foreign
agency debt
|
144,590 | — | 144,590 | — | ||||||||||||
Supranational
debt
|
71,240 | — | 71,240 | — | ||||||||||||
Corporate
debt securities
|
114,926 | — | 114,926 | — | ||||||||||||
Foreign
government obligations
|
10,116 | — | 10,116 | — | ||||||||||||
Derivative
assets
|
8,727 | — | 8,727 | — | ||||||||||||
Total
assets
|
$ | 702,326 | $ | 228,337 | $ | 473,989 | $ | — | ||||||||
Liabilities:
|
||||||||||||||||
Derivative
liabilities
|
$ | 58,902 | $ | — | $ | 58,902 | $ | — |
Fair
Value of Financial Instruments
The
carrying values and fair values of our financial instruments at September 26,
2009 and December 27, 2008 were as follows (in thousands):
September
26, 2009
|
December
27, 2008
|
|||||||||||||||
|
Carrying
Value
|
Fair
Value
|
Carrying
Value
|
Fair
Value
|
||||||||||||
Assets:
|
||||||||||||||||
Marketable
securities, current and noncurrent
|
$ | 465,262 | $ | 465,262 | $ | 105,601 | $ | 105,601 | ||||||||
Note
receivable — current
|
$ | 8,574 | $ | 8,574 | $ | — | $ | — | ||||||||
Credit
default swaps
|
$ | — | $ | — | $ | 896 | $ | 896 | ||||||||
Foreign
exchange forward contract assets
|
$ | 8,727 | $ | 8,727 | $ | 34,035 | $ | 34,035 | ||||||||
Deposit
with financial services company (restricted investment)
|
$ | — | $ | — | $ | 25,841 | $ | 13,039 | ||||||||
Restricted investments
|
$ | 37,135 | $ | 37,135 | $ | — | $ | — | ||||||||
Investment
in related party
|
$ | 25,000 | $ | 25,000 | $ | 25,000 | $ | 25,000 | ||||||||
Note
receivable — noncurrent
|
$ | 25,721 | $ | 25,818 | $ | — | $ | — | ||||||||
Liabilities:
|
||||||||||||||||
Long-term
debt, including current maturities
|
$ | 192,489 | $ | 199,337 | $ | 198,470 | $ | 204,202 | ||||||||
Interest
rate swaps
|
$ | 1,104 | $ | 1,104 | $ | 1,377 | $ | 1,377 | ||||||||
Foreign
exchange forward contract liabilities
|
$ | 57,798 | $ | 57,798 | $ | 50,410 | $ | 50,410 |
The
carrying values on our balance sheet of our cash and cash equivalents, accounts
receivable, restricted cash, accounts payable, income tax payable and accrued
expenses approximate their fair values due to their short maturities; therefore,
we exclude them from the table above.
We
estimated the fair value of our long-term debt in accordance with ASC 820 using
a discounted cash flows approach (an income approach) and incorporated the
credit risk of our counterparty for asset fair value measurements and our credit
risk for liability fair value measurements.
Page |
20
Note
11. Related Party Transactions
In
October 2008, we made an investment, at a total cost of $25.0 million, in the
preferred stock of a company based in the United States that supplies solar
power plants to commercial and residential customers. This investment represents
an ownership of approximately 12% of the voting interest in this company at
September 26, 2009 and is our only equity interest in that entity. Since our
ownership interest in this company is less than 20% and we do not have
significant influence over it, we account for this investment using the cost
method.
In the
fourth fiscal quarter of 2008, we also entered into a long-term solar module
supply agreement with this related party. During the three and nine months ended
September 26, 2009, we recognized $4.0 million and $8.2 million, respectively,
in net sales to this related party. At September 26, 2009 we had accounts
receivable from this related party of $2.6 million.
Note 12. Notes
Receivable
On April
8, 2009 we entered into a credit facility agreement with a solar project entity
of one of our customers for an available amount of €17.5 million
($25.7 million at the balance sheet close rate on September 26, 2009 of
$1.47/€1.00) to provide financing for a photovoltaic power generation facility.
The credit facility replaced a bridge loan that we had made to this customer.
The credit facility bears interest at 8% per annum and is due on December 31,
2026. As of September 26, 2009, this credit facility was fully drawn. The
outstanding amount of this credit facility has been included within Other assets
– noncurrent on our condensed consolidated balance sheets.
On April
21, 2009, we entered into a revolving VAT financing facility agreement for an
available amount of €9.0 million ($13.2 million at the balance sheet close rate
on September 26, 2009 of $1.47/€1.00) with the same solar project entity with
whom we entered into the credit facility agreement on April 8, 2009. The VAT
facility agreement pre-finances the amounts of German value added tax (VAT) and
any other tax obligations of similar nature during the construction phase of the
photovoltaic power generation facility. Borrowings under this facility are
short- term in nature, since the facility is repaid when VAT amounts are
reimbursed by the government. The VAT facility agreement bears interest at the
rate of Euribor plus 1.2% and matures on December 31, 2010. As of September 26,
2009 the balance on this credit facility was €5.8 million ($8.5 million at
the balance sheet close rate on September 26, 2009 of $1.47/€1.00). The
outstanding amount of this credit facility is included within Prepaid expenses
and other current assets on our condensed consolidated balance
sheets.
On June
30, 2009, the available amount under the VAT facility agreement was increased to
€15.0 million ($22.1 million at the balance sheet close rate on September 26,
2009 of $1.47/€1.00). This increase was only temporary and the amounts available
under the facility reverted back to the original amounts on August 31,
2009.
Note 13. Debt
Our
long-term debt at September 26, 2009 and December 27, 2008 consisted of the
following (in thousands):
Type
|
September
26,
2009
|
December
27, 2008
|
||||||
Malaysian
Facility Agreement – Fixed rate term loan
|
$ | 92,786 | $ | 66,975 | ||||
Malaysian
Facility Agreement – Floating rate term loan (1)
|
92,786 | 66,975 | ||||||
Director
of Development of the State of Ohio
|
10,280 | 11,694 | ||||||
Director
of Development of the State of Ohio
|
417 | 1,528 | ||||||
German
Facility Agreement
|
— | 54,982 | ||||||
Capital
lease obligations
|
2 | 5 | ||||||
196,271 | 202,159 | |||||||
Less
unamortized discount
|
(3,782 | ) | (3,689 | ) | ||||
Total
long-term debt
|
192,489 | 198,470 | ||||||
Less
current portion
|
(29,169 | ) | (34,951 | ) | ||||
Noncurrent
portion
|
$ | 163,320 | $ | 163,519 |
(1)
|
We
entered into an interest rate swap contract related to this loan. See Note
9 to our condensed consolidated financial
statements.
|
We did
not have any short-term debt at September 26, 2009 and December 27,
2008.
Page |
21
Revolving
Credit Facility
On
September 4, 2009, we entered into a revolving credit facility pursuant to
a Credit Agreement among First Solar, Inc., certain designated Borrowing
Subsidiaries (consisting of First Solar Manufacturing GmbH, a German subsidiary,
and other subsidiaries of our Company who may in the future be designated as
borrowers pursuant to the Credit Agreement) and several lenders. JPMorgan
Chase Bank, N.A. and Bank of America served as Joint-Lead Arrangers and
Bookrunners, with JPMorgan also acting as Administrative Agent. The Credit
Agreement provides First Solar, Inc. and the Borrowing Subsidiaries with a
senior secured three-year revolving credit facility in an aggregate available
amount of $300.0 million, a portion of which is available for letters of credit
and swingline loans. Subject to certain conditions, we have the right to
request an increase in the aggregate commitments under the Credit Facility up to
$400.0 million. In connection with the Credit Agreement, we also entered into a
guarantee and collateral agreement and foreign security agreements.
Borrowings
under the Credit Agreement currently bear interest at (i) LIBOR (adjusted for
eurocurrency reserve requirements) plus a margin of 2.75% or (ii) a base rate as
defined in the Credit Agreement plus a margin of 1.75%, depending on the type of
borrowing requested by us. These margins are subject to adjustments
depending on the Company’s consolidated leverage ratio and the credit rating of
the facility provided by Moody’s Investors Service, Inc. and Standard and Poor’s
Rating Services.
At
September 26, 2009, we had no borrowings outstanding and $14.0 million
in letters of credit drawn on the revolving credit facility, leaving
approximately $286.0 million in capacity available under the revolving credit
facility, $61.0 million of which may be used for letters of credit. As of
this date, based on the indices, the all-in effective three months LIBOR
borrowing rate was 3.51%.
In
addition to paying interest on outstanding principal under the Credit Agreement,
we are required to pay a commitment fee currently at the rate of 0.375% per
annum to the lenders in respect of the average daily unutilized commitments
thereunder. The commitment fee may also be adjusted due to changes in the
consolidated leverage ratio.
We will
also pay a letter of credit fee equal to the applicable margin for eurocurrency
revolving loans on the face amount of each letter of credit and a fronting
fee. Proceeds from the credit facility may be used for working capital and
other general corporate purposes.
The
Credit Agreement contains various financial condition covenants which we must
comply with, including with respect to a debt to EBITDA ratio, minimum EBITDA
and minimum liquidity. Under the Credit Agreement we are also subject to
customary non-financial covenants including limitations in secured indebtedness
and limitations on dividends and other restricted payments. We were in
compliance with these covenants through September 26, 2009.
Malaysian
Facility Agreement
On
May 6, 2008, in connection with the plant expansion at our Malaysian
manufacturing center, First Solar Malaysia Sdn. Bhd. (FS Malaysia), our indirect
wholly owned subsidiary, entered into an export financing facility agreement
(Malaysian Facility Agreement) with IKB Deutsche Industriebank AG (IKB), as
arranger, NATIXIS Zweigniederlassung Deutschland (NZD), as facility agent and
original lender, AKA Ausfuhrkredit-Gesellschaft mbH (AKA), as original lender,
and NATIXIS Labuan Branch (NLB), as security agent. The total available loan
amount was €134.0 million ($197.0 million at the balance sheet close rate
on September 26, 2009 of $1.47/€1.00). Pursuant to the Malaysia Facility
Agreement, we began semi-annual repayments of the principal balances of these
credit facilities during 2008. Amounts repaid under this credit facility cannot
be re-borrowed. These credit facilities consisted of the following (in
thousands):
Malaysian
Borrowings
|
Denomination
|
Interest
|
Maturity
|
Outstanding
at
September
26,
2009
|
|||||||||||||
Fixed-rate
euro-denominated term loan
|
EUR
|
4.54% | 2016 | $ | 92,786 | ||||||||||||
Floating-rate
euro-denominated term loan
|
EUR
|
Euribor
plus 0.55%
|
2016 | $ | 92,786 | ||||||||||||
Total
|
$ | 185,572 | (1 | ) |
(1)
|
€126.3
million outstanding at September 26, 2009 ($185.6 million at the balance
sheet close rate on September 26, 2009 of
$1.47/€1.00)
|
These
credit facilities are intended to be used by FS Malaysia for the purpose of
(1) partially financing the purchase of certain equipment to be used at our
Malaysian manufacturing center and (2) financing fees to be paid to
Euler-Hermes Kreditversicherungs-AG (Euler-Hermes), the German Export Credit
Agency of Hamburg, Federal Republic of Germany, which guarantees 95% of FS
Malaysia’s obligations related to the Malaysian Facility Agreement (Hermes
Guaranty). In addition, FS Malaysia’s obligations related to the Malaysian
Facility Agreement are guaranteed, on an unsecured basis, by First Solar, Inc.,
pursuant to a guaranty agreement.
Page |
22
FS
Malaysia is obligated to pay commitment fees at an annual rate of 0.375% on the
unused portions of the fixed rate credit facilities and at an annual rate of
0.350% on the unused portions of the floating rate credit facilities. In
addition, FS Malaysia is obligated to pay certain underwriting, management and
agency fees in connection with the credit facilities.
In
connection with the Facility Agreement, First Solar, Inc. entered into a first
demand guaranty agreement dated May 6, 2008 in favor of IKB, NZD, NLB and
the other lenders under the Malaysian Facility Agreement. As noted above, FS
Malaysia’s obligations related to the Malaysian Facility Agreement are
guaranteed, on an unsecured basis, by First Solar, Inc. pursuant to this
guaranty agreement.
In
connection with the Malaysian Facility Agreement, all of FS Malaysia’s
obligations related to the Malaysian Facility Agreement are secured by a first
party, first legal charge over the equipment financed by the credit facilities
and the other documents, contracts and agreements related to that equipment.
Also in connection with the Malaysian Facility Agreement, any payment claims of
First Solar, Inc. against FS Malaysia are subordinated to the claims of IKB,
NZD, NLB and the other lenders under the Malaysian Facility
Agreement.
The
Malaysian Facility Agreement contains various financial covenants with which we
must comply, such as debt to equity ratios, total leverage ratios, interest
coverage ratios and debt service coverage ratios. We must calculate and
subsequently submit these ratios related to the financial covenants for the
first time at the end of fiscal 2009. The Malaysian Facility Agreement also
contains various customary non-financial covenants with which FS Malaysia must
comply, including submitting various financial reports and business forecasts to
the lenders, maintaining adequate insurance, complying with applicable laws and
regulations, and restrictions on FS Malaysia’s ability to sell or encumber
assets or make loan guarantees to third parties. We were in compliance with
these covenants through September 26, 2009.
Certain
of our indebtedness bears interest at rates based on the Euro Interbank Offered
Rate (Euribor). Euribor is the primary interbank lending rate within the Euro
zone, with maturities ranging from one week to one year. A disruption of the
credit environment could negatively impact interbank lending and therefore
negatively impact the Euribor rate. An increase in the Euribor rate would
increase our cost of borrowing.
State
of Ohio Loans
During
the years ended December 25, 2004 and December 31, 2005, we received the
following loans from the Director of Development of the State of Ohio (in
thousands):
Ohio
Borrowings
|
Original
Loan Amount
|
Denomination
|
Interest
|
Maturity
|
Outstanding
at
September
26,
2009
|
||||||||||||
Director
of Development of the State of Ohio
|
$ | 15,000 |
USD
|
2.25% | 2015 | $ | 10,280 | ||||||||||
Director
of Development of the State of Ohio
|
$ | 5,000 |
USD
|
0.25% — 3.25% | 2009 | $ | 417 | ||||||||||
Total
|
$ | 20,000 | $ | 10,697 |
Certain
of our land, buildings and machinery and equipment has been pledged as
collateral for these loans.
German
Facility Agreement
On
July 27, 2006, First Solar Manufacturing GmbH, a wholly owned indirect
subsidiary of First Solar, Inc., entered into a credit facility agreement with a
consortium of banks led by IKB Deutsche Industriebank AG under which First Solar
Manufacturing GmbH could draw up to €102.0 million ($149.9 million at the
balance sheet close rate on September 26, 2009 of $1.47/€1.00) to fund costs of
constructing and starting up our German plant. First Solar Manufacturing GmbH
repaid the entire outstanding principal amount of this credit facility and all
accrued interest on June 30, 2009 and concurrently terminated this
facility.
Page |
23
Note 14. Commitments and
Contingencies
Financial
guarantees
In the
normal course of business, we occasionally enter into agreements with third
parties under which we guarantee the performance of our subsidiaries related to
certain service contracts, which may include services such as development,
engineering, procurement of permits and equipment, construction management and
monitoring and maintenance. These agreements meet the definition of a guarantee
according to ASC 460, Guarantees. As of September
26, 2009, none of these guarantees were material to our financial
position.
Loan
guarantees
In
connection with the Malaysian Facility Agreement, First Solar, Inc. entered into
a first demand guaranty agreement dated May 6, 2008 in favor of IKB, NZD,
NLB and the other lenders under the Malaysian Facility Agreement. FS Malaysia’s
obligations related to the Malaysian Facility Agreement are guaranteed, on an
unsecured basis, by First Solar Inc. pursuant to this guaranty agreement. See
Note 13 to our condensed consolidated financial statements for additional
information.
In
connection with the revolving credit facility, we entered into a guarantee and
collateral agreement and various foreign security agreements. Loans made to
First Solar Manufacturing GmbH (a borrowing subsidiary under the credit
facility) are (i) guaranteed by First Solar, Inc. pursuant to the guarantee and
collateral agreement, (ii) guaranteed by certain of First Solar, Inc.’s direct
and indirect subsidiaries organized under the laws of Germany, pursuant to a
German guarantee agreement, (iii) secured by share pledge agreements, (iv)
secured by a security interest in intercompany receivables held by First Solar
Holdings GmbH, First Solar GmbH, and First Solar Manufacturing GmbH, pursuant to
assignment agreements and (v) subject to a security trust agreement, which sets
forth additional terms regarding the foregoing Germany security documents and
arrangements. See Note 13 to our condensed consolidated financial statements for
additional information.
Commercial
commitments
During
the three months ended September 26, 2009, we entered into two commercial
commitments in the form of letters of credit related to our solar power systems
and project development business in the amount of $5.5 million. We also
increased two of our previously held bank guarantees for energy supply
agreements by MYR 5.6 million ($1.6 million at the balance sheet close rate
on September 26, 2009 of $0.29/MYR1.00), for a total commitment of MYR 11.8
million ($3.4 million at the balance sheet close rate on September 26, 2009
of $0.29/MYR1.00). As of September 26, 2009, we had the following additional
four outstanding commercial commitments: MYR 3.0 million dated September
2008 for Malaysian custom and excise tax ($0.9 million at the balance sheet
close rate on September 26, 2009 of $0.29/MYR1.00) and three letters of credit
related to our solar power systems and project development business in the
aggregate, amount of $4.2 million.
Product
warranties
We offer
warranties on our products and record an estimate of the associated liability
based on the following: number of solar modules under warranty at customer
locations, historical experience with warranty claims, monitoring of field
installation sites, in-house testing of our solar modules and estimated
per-module replacement cost.
Product
warranty activity during the three and nine months ended September 26, 2009 and
September 27, 2008 was as follows (in thousands):
Three
Months Ended
|
Nine
Months Ended
|
|||||||||||||||
|
September
26,
2009
|
September
27,
2008
|
September
26,
2009
|
September
27,
2008
|
||||||||||||
Product
warranty liability, beginning of period
|
$ | 17,413 | $ | 10,865 | $ | 11,905 | $ | 7,276 | ||||||||
Accruals
for new warranties issued (warranty expense)
|
4,360 | 1,776 | 11,349 | 5,619 | ||||||||||||
Settlements
|
(112 | ) | (45 | ) | (466 | ) | (53 | ) | ||||||||
Change
in estimate of warranty liability
|
(1,079 | ) | (2,738 | ) | (2,206 | ) | (2,984 | ) | ||||||||
Product
warranty liability, end of period
|
$ | 20,582 | $ | 9,858 | $ | 20,582 | $ | 9,858 | ||||||||
Current
portion of warranty liability
|
$ | 7,667 | $ | 4,035 | ||||||||||||
Non-current
portion of warranty liability
|
$ | 12,915 | $ | 5,823 |
Page |
24
Note 15. Share-Based
Compensation
We
measure share-based compensation cost at the grant date based on the fair value
of the award and recognize this cost as an expense over the grant recipients’
requisite service periods, in accordance with ASC 718, Compensation-Stock
Compensation. The share-based compensation expense that we recognized in
our consolidated statements of operations for the three and nine months ended
September 26, 2009 and September 27, 2008 was as follows (in
thousands):
Three
Months Ended
|
Nine
Months Ended
|
|||||||||||||||
|
September
26,
2009
|
September
27,
2008
|
September
26,
2009
|
September
27,
2008
|
||||||||||||
Share-based
compensation expense included in:
|
||||||||||||||||
Cost
of sales
|
$ | 4,333 | $ | 3,776 | $ | 10,835 | $ | 9,146 | ||||||||
Research
and development
|
2,254 | 1,688 | 6,173 | 4,154 | ||||||||||||
Selling,
general and administrative
|
15,263 | 11,289 | 36,991 | 28,968 | ||||||||||||
Production
start-up
|
337 | 558 | 1,129 | 1,359 | ||||||||||||
Total
share-based compensation expense
|
$ | 22,187 | $ | 17,311 | $ | 55,128 | $ | 43,627 |
The
increase in share-based compensation expense was primarily the result of new
awards.
The
following table presents our share-based compensation expense by type of award
for the three and nine months ended September 26, 2009 and September 27, 2008
(in thousands):
Three
Months Ended
|
Nine
Months Ended
|
|||||||||||||||
|
September
26,
2009
|
September
27,
2008
|
September
26,
2009
|
September
27,
2008
|
||||||||||||
Stock
options
|
$ | 1,627 | $ | 3,819 | $ | 5,435 | $ | 13,554 | ||||||||
Restricted
stock units
|
21,024 | 13,564 | 51,265 | 30,009 | ||||||||||||
Unrestricted
stock
|
113 | 81 | 338 | 244 | ||||||||||||
Net
amount absorbed into inventory
|
(577 | ) | (153 | ) | (1,910 | ) | (180 | ) | ||||||||
Total
share-based compensation expense
|
$ | 22,187 | $ | 17,311 | $ | 55,128 | $ | 43,627 |
Share-based
compensation cost capitalized in our inventory was $2.3 million and $0.3 million
at September 26, 2009 and December 27, 2008, respectively. As of September 26,
2009, we had $8.6 million of unrecognized share-based compensation cost related
to unvested stock option awards, which we expect to recognize as an expense over
a weighted-average period of approximately 1.0 year, and $134.1 million of
unrecognized share-based compensation cost related to unvested restricted stock
units, which we expect to recognize as an expense over a weighted-average period
of approximately 2.1 years.
Note 16. Income
Taxes
Our
Malaysian subsidiary has been granted a tax holiday for a period of 16.5 years,
which was originally scheduled to commence on January 1, 2009. The tax holiday,
which generally provides for a 100% exemption from Malaysian income tax, is
conditional upon our continued compliance in meeting certain employment and
investment thresholds. On January 9, 2009, we received formal approval granting
our request to pull forward this previously approved tax holiday by one year;
the result of which was an $11.5 million reduction in the amount of income taxes
previously accrued for the year ended December 27, 2008. As a result, we
recognized an income tax benefit of $11.5 million during the three months ended
March 28, 2009.
We
recognized tax expense of $11.6 million and $37.5 million for the three and nine
months ended September 26, 2009, respectively. Our effective tax rate was 7.0%
for both the three and nine months ended September 26, 2009. Without the $11.5
million tax benefit discussed above our effective tax rate would have been 9.1%
for the nine months ended September 26, 2009. Without the beneficial impact of
the Malaysian tax holiday on 2009 operations our effective tax rate would have
been 25.1% for the nine months ended September 26, 2009. The provision for
income taxes differs from the amount computed by applying the statutory U.S.
federal rate primarily due to the benefit associated with foreign income taxed
at lower rates and the beneficial impact of the Malaysian tax
holiday.
Page |
25
Note 17. Net Income per
Share
Basic net
income per share is computed by dividing net income by the weighted-average
number of common shares outstanding for the period. Diluted net income per share
is computed giving effect to all potential dilutive common stock, including
employee stock options and restricted stock units.
The
calculation of basic and diluted net income per share for the three and nine
months ended September 26, 2009 and September 27, 2008 was as follows (in
thousands, except per share amounts):
Three
Months Ended
|
Nine
Months Ended
|
|||||||||||||||
|
September
26,
2009
|
September
27,
2008
|
September
26,
2009
|
September
27,
2008
|
||||||||||||
Basic
net income per share
|
||||||||||||||||
Numerator:
|
||||||||||||||||
Net
income
|
$ | 153,344 | $ | 99,269 | $ | 498,518 | $ | 215,559 | ||||||||
Denominator:
|
||||||||||||||||
Weighted-average
common shares outstanding
|
84,179 | 80,430 | 83,196 | 79,789 | ||||||||||||
Diluted
net income per share
|
||||||||||||||||
Denominator:
|
||||||||||||||||
Weighted-average
common shares outstanding
|
84,179 | 80,430 | 83,196 | 79,789 | ||||||||||||
Effect
of stock options , restricted stock units outstanding and contingent
issuable shares
|
1,713 | 2,006 | 1,528 | 2,227 | ||||||||||||
Weighted-average
shares used in computing diluted net income per share
|
85,892 | 82,436 | 84,724 | 82,016 |
Three
Months Ended
|
Nine
Months Ended
|
|||||||||||||||
|
September
26,
2009
|
September
27,
2008
|
September
26,
2009
|
September
27,
2008
|
||||||||||||
Per
share information – basic:
|
||||||||||||||||
Net
income per share
|
$ | 1.82 | $ | 1.23 | $ | 5.99 | $ | 2.70 | ||||||||
Per
share information - diluted
|
||||||||||||||||
Net
income per share
|
$ | 1.79 | $ | 1.20 | $ | 5.88 | $ | 2.63 |
The
following number of outstanding employee stock options and restricted stock
units were excluded from the computation of diluted net income per share for the
three and nine months ended September 26, 2009 and September 27, 2008 as they
would have had an antidilutive effect (in thousands):
Three
Months Ended
|
Nine
Months Ended
|
|||||||||||||||
|
September
26,
2009
|
September
27,
2008
|
September
26,
2009
|
September
27,
2008
|
||||||||||||
Restricted
stock units and options to purchase common stock
|
188 | 108 | 203 | 113 |
Page |
26
Note
18. Comprehensive Income (Loss)
Comprehensive
income, which includes foreign currency translation adjustments, unrealized
gains and losses on derivative instruments designated and qualifying as cash
flow hedges and unrealized gains and losses on available-for-sale securities,
the impact of which has been excluded from net income and reflected as
components of stockholders’ equity, was as follows (in thousands):
Three
Months Ended
|
Nine
Months Ended
|
|||||||||||||||
|
September
26,
2009
|
September
27,
2008
|
September
26,
2009
|
September
27,
2008
|
||||||||||||
Net
income
|
$ | 153,344 | $ | 99,269 | $ | 498,518 | $ | 215,559 | ||||||||
Foreign
currency translation adjustments
|
16,995 | (16,010 | ) | 22,008 | (6,567 | ) | ||||||||||
Change
in unrealized gain (loss) on marketable securities, net of tax of $(468)
and $(543) for the three and nine months ended September 26, 2009,
respectively
|
1,848 | (134 | ) | 2,219 | (149 | ) | ||||||||||
Change
in unrealized gain (loss) on derivative instruments, net of tax of $0 and
$(65) for the three and nine months ended September 26, 2009,
respectively
|
(10,133 | ) | 34,012 | (36,215 | ) | 14,155 | ||||||||||
Comprehensive
income
|
162,054 | $ | 117,137 | 486,530 | $ | 222,998 |
Components
of accumulated other comprehensive loss were as follows (in
thousands):
|
September
26,
2009
|
December
27,
2008
|
||||||
Foreign
currency translation adjustments
|
$ | 14,183 | $ | (7,825 | ) | |||
Unrealized
gain on marketable securities, net of tax expense of $687 for 2009 and
$144 for 2008
|
2,481 | 262 | ||||||
Unrealized
loss on derivative instruments, net of tax benefit of $0 for 2009 and $65
for 2008
|
(53,073 | ) | (16,858 | ) | ||||
Accumulated
other comprehensive loss
|
$ | (36,409 | ) | $ | (24,421 | ) |
Note 19. Statement of Cash
Flows
The
following table presents a reconciliation of net income to net cash provided by
operating activities for the nine months ended September 26, 2009 and September
27, 2008 (in thousands):
Nine
Months Ended
|
||||||||
|
September
26,
2009
|
September
27,
2008
|
||||||
Net
income
|
$ | 498,518 | $ | 215,559 | ||||
Adjustments
to reconcile net income to cash provided by (used in) operating
activities:
|
||||||||
Depreciation
and amortization
|
90,720 | 38,667 | ||||||
Impairment
of intangible assets
|
— | 1,335 | ||||||
Share-based
compensation
|
55,128 | 43,627 | ||||||
Remeasurement
of monetary assets and liabilities
|
438 | (318 | ) | |||||
Deferred
income taxes
|
(15,888 | ) | 930 | |||||
Excess
tax benefits from share-based compensation arrangements
|
(9,476 | ) | (13,736 | ) | ||||
Loss
on disposal of property and equipment
|
985 | 941 | ||||||
Provision
for doubtful accounts receivable
|
3,990 | 36 | ||||||
Provision
for inventory reserve
|
5,689 | 1,540 | ||||||
Gain
on sales of investments, net
|
(7 | ) | (191 | ) | ||||
Changes
in operating assets and liabilities:
|
||||||||
Accounts
receivable
|
(271,119 | ) | (23,705 | ) | ||||
Inventories
|
(71,184 | ) | (87,743 | ) | ||||
Project
assets
|
(50,398 | ) | ||||||
Deferred
project costs
|
(2,747 | ) | (6,436 | ) | ||||
Prepaid
expenses and other current assets
|
22,922 | (20,138 | ) | |||||
Costs
and estimated earnings in excess of billings
|
80 | (8,538 | ) | |||||
Other
assets
|
(1,951 | ) | (3,239 | ) | ||||
Billings
in excess of costs and estimated earnings
|
— | (307 | ) | |||||
Accounts
payable and accrued expenses
|
5,695 | 121,528 | ||||||
Total
adjustments
|
(237,123 | ) | 44,253 | |||||
Net
cash provided by operating activities
|
$ | 261,395 | $ | 259,812 |
Page |
27
Note 20. Segment
Reporting
ASC 280,
Segment Reporting,
establishes standards for companies to report in their financial statements
information about operating segments, products, services, geographic areas and
major customers. The method of determining what information to report is based
on the way that management organizes the operating segments within the company
for making operating decisions and assessing financial performance.
Our
components segment, which is our principal business, involves the design,
manufacture and sale of solar modules which convert sunlight to electricity. We
sell our solar modules to sixteen principal customers with which we have long
term supply contracts. These customers include project developers, system
integrators and operators of renewable energy projects.
Our
systems segment consists of our solar power systems business, which includes
solar power project development and deployment of our solar modules and balance
of system components that we procure from third parties. We sell solar power
systems directly to system owners. These sales may also include fully or
partially developed land for building solar power systems using our technology,
engineering, procurement of permits and equipment, construction management and
monitoring and maintenance. We do not recognize revenue from intercompany sales
by our components segments to our systems segment. Instead, the sale of our
solar modules manufactured by the components segment and used for construction
projects are included in “net sales” of our solar power systems and project
development business. Our systems segment does not currently meet the
quantitative criteria for disclosure as a separate reporting segment, and
therefore, we classify it in the “Other” category in the following
tables.
Financial
information about our segments was as follows (in thousands):
Three
Months Ended
|
Three
Months Ended
|
|||||||||||||||||||||||
September
26, 2009
|
September
27, 2008
|
|||||||||||||||||||||||
Components
|
Other
|
Total
|
Components
|
Other
|
Total
|
|||||||||||||||||||
Net
sales
|
$ | 480,351 | $ | 500 | $ | 480,851 | $ | 333,085 | $ | 15,609 | $ | 348,694 | ||||||||||||
Income
(loss) before income taxes
|
$ | 172,499 | $ | (7,532 | ) | $ | 164,967 | $ | 138,195 | $ | (5,096 | ) | $ | 133,099 | ||||||||||
Goodwill
|
$ | 248,765 | $ | 35,240 | $ | 284,005 | $ | — | $ | 33,829 | $ | 33,829 | ||||||||||||
Assets
|
$ | 2,849,344 | $ | 245,728 | $ | 3,095,072 | $ | 1,797,119 | $ | 62,731 | $ | 1,859,850 |
Nine
Months Ended
|
Nine
Months Ended
|
|||||||||||||||||||||||
September
26, 2009
|
September
27, 2008
|
|||||||||||||||||||||||
Components
|
Other
|
Total
|
Components
|
Other
|
Total
|
|||||||||||||||||||
Net
sales
|
$ | 1,413,880 | $ | 11,055 | $ | 1,424,935 | $ | 792,049 | $ | 20,601 | $ | 812,650 | ||||||||||||
Income
(loss) before income taxes
|
$ | 553,797 | $ | (17,800 | ) | $ | 535,997 | $ | 305,201 | $ | (13,037 | ) | $ | 292,164 | ||||||||||
Goodwill
|
$ | 248,765 | $ | 35,240 | $ | 284,005 | $ | — | $ | 33,829 | $ | 33,829 | ||||||||||||
Assets
|
$ | 2,849,344 | $ | 245,728 | $ | 3,095,072 | $ | 1,797,119 | $ | 62,731 | $ | 1,859,850 |
Page |
28
Note 21. Subsequent
Events
On September 3, 2009, we
announced the appointment of Robert J. Gillette as Chief Executive Officer, and
as a member of the Board of Directors, both appointments effective October 1,
2009. Mr. Gillette succeeded Michael J. Ahearn as our Chief Executive
Officer.
Subsequent to September 26, 2009, Mr. Gillette was granted pursuant to his employment agreement (i) fully vested First Solar shares having an aggregate fair market value on the date of grant equal to $3,250,000; (ii) fully vested First Solar stock options having an aggregate Black-Scholes value on the date of grant equal to $3,250,000; and (iii) restricted stock units having an aggregate fair market value on the date of grant equal to $6,500,000 and subject to cliff-vesting on the second anniversary of the date of grant, with no early acceleration triggers other than change in control. In addition, Mr. Gillette was paid pursuant to his employment agreement 50% of his $5,000,000 sign-on bonus in cash shortly following his start date, with the other 50% to be paid in cash on the first anniversary of Mr. Gillette’s first day of employment with First Solar, regardless of whether Mr. Gillette remains employed with First Solar through such date.
Page |
29
Item 2. Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
Cautionary
Statement Regarding Forward-Looking Statements
This
Quarterly Report on Form 10-Q contains forward-looking statements within the
meaning of the Securities Exchange Act of 1934 and the Securities Act of 1933,
which are subject to risks, uncertainties and assumptions that are difficult to
predict. All statements in this Quarterly Report on Form 10-Q, other than
statements of historical fact, are forward-looking statements. These
forward-looking statements are made pursuant to safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. The forward-looking statements
include statements, among other things, concerning: our business strategy,
including anticipated trends and developments in and management plans for our
business and the markets in which we operate (including the expansion of our
project development business); future financial results, operating results,
revenues, gross margin, operating expenses, products, projected costs and
capital expenditures; our ability to continue to reduce the cost per watt of our
solar modules; research and development programs and our ability to improve the
conversion efficiency of our solar modules; sales and marketing initiatives; and
competition. In some cases, you can identify these statements by forward-looking
words, such as “estimate,” “expect,” “anticipate,” “project,” “plan,” “intend,”
“believe,” “forecast,” “foresee,” “likely,” “may,” “should,” “goal,” “target,”
“might,” “will,” “could,” “predict” and “continue,” the negative or plural of
these words and other comparable terminology. Forward-looking statements are
only predictions based on our current expectations and our projections about
future events. All forward-looking statements included in this Quarterly Report
on Form 10-Q are based upon information available to us as of the filing date of
this Quarterly Report on Form 10-Q. You should not place undue reliance on these
forward-looking statements. We undertake no obligation to update any of these
forward-looking statements for any reason. These forward-looking statements
involve known and unknown risks, uncertainties and other factors that may cause
our actual results, levels of activity, performance, or achievements to differ
materially from those expressed or implied by these statements. These factors
include, but are not limited to, the matters discussed in the section entitled
“Risk Factors” elsewhere in this Quarterly Report on Form 10-Q and in our Annual
Report on Form 10-K. You should carefully consider the risks and uncertainties
described under this section.
The
following discussion and analysis should be read in conjunction with our
condensed consolidated financial statements and the accompanying notes contained
in this Quarterly Report on Form 10-Q. Unless expressly stated or the context
otherwise requires, the terms “we,” “our,” “us” and “First Solar” refer to First
Solar, Inc. and its subsidiaries.
Overview
We design
and manufacture solar modules using a proprietary thin film semiconductor
technology that has allowed us to reduce our average solar module manufacturing
costs to among the lowest in the world. Each solar module uses a thin layer of
cadmium telluride semiconductor material to convert sunlight into electricity.
We manufacture our solar modules on high-throughput production lines and we
perform all manufacturing steps ourselves in an automated, proprietary,
continuous process, which eliminates the multiple supply chain operators and
expensive and time consuming batch processing steps that are used to produce a
crystalline silicon solar module. During 2008 and during the nine months ended
September 26, 2009, we sold most of our solar modules to solar project
developers and system integrators headquartered in Germany, France, Spain and
Italy.
Currently,
we manufacture our solar modules at our Perrysburg, Ohio, Frankfurt/Oder,
Germany and Kulim, Malaysia manufacturing facilities and conduct our research
and development activities primarily at our Perrysburg, Ohio manufacturing
facility. We devote a substantial amount of resources to research and
development with the objective of lowering the per watt price of solar
electricity generated by photovoltaic systems. With the objective of reducing
the per watt manufacturing cost of electricity generated by photovoltaic systems
using our solar modules, we focus our research and development on increasing the
conversion efficiency of our solar modules and on reducing the cost and
optimizing the effectiveness of the other components in a photovoltaic
system.
Through
our solar power systems and project development business, we provide a complete
solar power system solution, which includes solar power project development and
deployment of our modules and balance of system components that we procure from
third parties. We sell solar power systems directly to system owners. These
sales may also include components, such as fully or partially developed land for
building solar power systems using our technology, engineering, procurement of
permits and equipment, construction management, and monitoring and
maintenance.
On April
3, 2009, we completed the acquisition of the project development business of
OptiSolar Inc. which included a multi-gigawatt project pipeline. Each project
reflects a specific solar power project by location in varying stages of
development. We have integrated the acquired project development business into
our solar power systems business.
Page |
30
Market
Overview
In 2009,
the solar industry moved from a supply driven to a demand driven environment,
with increasing competitive pressure as the photovoltaic industry’s total
manufacturing capacity to produce solar modules exceeds current demand for those
products. Our customers have faced significant challenges under the current
economic conditions, including extended cash realization cycles, weakened
balance sheets, constrained working capital, a volatile pricing environment
leading to deferred project equity investments, constrained project finance
outside of Germany and capital preservation within U.S. utilities. Our net sales
could be adversely impacted if legislation reduces the current subsidy programs
in Europe, North America or Asia or if interest rates increase or financing is
no longer available, all of which could impact our end-users’ ability to either
meet their target return on investment or finance their projects. In addition,
subsidies for our customers, particularly in Germany, are declining at a rate
that is greater than the annual contractual price decline we extend under the
long term supply contracts with our customers (Long Term Supply Contracts). As a
result, we may be less competitive and not meet our customers’ internal rate of
return (IRR) requirements or the profit margin of our customers might decline,
or we may decide to lower prices or otherwise create incentives for our
customers so that they remain competitive (including possible further amendments
to our Long Term Supply Contracts), any or all of which could lead to lower
demand and/or lower average selling prices for our solar modules.
During
the three months ended September 26, 2009, German installation activity was
stronger than in the second fiscal quarter, driven by a combination of
anticipation of reduced 2010 German feed-in tariffs, seasonal demand, customer
participation in First Solar’s rebate program and improving project finance, tax
equity and corporate finance conditions. The second fiscal quarter of 2009 in
comparison had been characterized by project and channel competition with
aggressive crystalline silicon module pricing, deferred project equity
investment based on anticipation of further reductions, project debt constraints
or delays, and construction financing delays.
To
the extent the challenging conditions mentioned above return as seasonal
strength subsides, our results of operations could be adversely affected by
declines in the selling prices of our modules, decreases in sales volumes of our
modules and/or increases in our solar module inventories.
We face
intense competition from manufacturers of crystalline silicon solar modules as
well as other types of solar modules and photovoltaic systems. Solar module
manufacturers compete with one another in several product performance
attributes, including module cost per watt and levelized cost of electricity,
meaning the net present value of total life cycle costs of the solar power
project divided by the quantity of energy produced over the system life. We are
one of the lowest cost module manufacturers in the solar industry, as evidenced
by the further reduction in our average manufacturing cost per watt from $0.98
in the three months ended December 27, 2008 to $0.93, $0.87 and $0.85 in the
three months ended March 28, 2009, June 27, 2009 and September 26, 2009,
respectively. This cost advantage is reflected in the price at which we sell our
modules or fully integrated systems and enables our systems to compete favorably
on the levelized cost of electricity generated by our systems. Our cost
competitiveness is based in large part on our proprietary technology (which
enables conversion efficiency improvements and permits a continuous highly
automated industrial manufacturing process), our scale and our operational
excellence. In addition, our modules use approximately 1% of the amount of
semiconductor material that is used to manufacture traditional crystalline
silicon solar modules. The cost of polysilicon is a significant driver of the
manufacturing cost of crystalline silicon solar modules. The current spot market
price of polysilicon of approximately between $55 and $63 per kilogram (Kg) is
at a level that enables us to remain one of the lowest cost module manufacturers
in the solar industry. However, the timing and rate of decrease in the cost of
silicon feedstock could lead to pricing pressure for solar modules. Although we
are not a crystalline silicon module manufacturer, we estimate based on industry
research and public disclosures of our competitors, that a $10 per Kg increase
or decrease in the price of polysilicon could increase or decrease,
respectively, our competitors’ manufacturing cost per watt by approximately
$0.07 to $0.08. Given the lower conversion efficiency of our modules compared to
crystalline silicon modules, there are higher balance-of-system costs associated
with systems using our modules. Thus, to compete effectively on the basis of
levelized cost of electricity our modules need to maintain a certain cost
advantage per watt compared to crystalline silicon based modules. Our cost
reduction roadmap anticipates manufacturing cost per watt reductions for our
product of 10% per year. During the twelve months ended December 27, 2008, we
reduced our manufacturing cost per watt by 12% from our cost per watt in the
fourth quarter of fiscal 2007. In the first nine months of 2009, we further
reduced our manufacturing cost per watt by 13% from our cost per watt in the
fourth quarter of fiscal 2008.
While our
modules currently enjoy competitive advantages in these product performance
attributes, there can be no guarantee that these advantages will continue to
exist in the future to the same extent or at all. Any declines in the
competitiveness of our products could result in margin compression, a decline in
average selling prices of our solar modules, an erosion in our market share for
modules, a decrease in the rate of revenue growth and/or a decline in overall
revenues. We are taking several actions to mitigate the potential impact
resulting from competitive pressures, including adjusting our pricing policies
as necessary in core markets to drive module volumes, continuously making
progress along our cost reduction roadmap and focusing our research and
development on increasing the conversion efficiency of our solar modules. In
addition, we continue to expand our solar power systems and project development
business, including through the recent acquisition of the project development
business of OptiSolar Inc. Through that business we sell solar power systems,
which include our solar modules, directly to systems owners and provide
comprehensive utility-scale photovoltaic systems solutions that significantly
reduce solar electricity costs. Thus, our solar power systems and project
development business allows us to play a much more active role than most of our
competitors in managing the demand for, and manufacturing throughput of, our
solar modules. Finally, we seek to form and develop strong partner relationships
with our customers and continue to develop our range of offerings, including
engineering, procurement and construction (EPC) capabilities and monitoring and
maintenance services, in order to enhance the competitiveness of systems using
our solar modules.
Page |
31
Net
Sales
Currently,
the majority of our net sales is generated from the sale of solar modules. We
price and sell our solar modules per watt of power. As a result, our net sales
can fluctuate based on our output of sellable watts or price. We currently sell
almost all of our solar modules to solar power system project developers, system
integrators and operators headquartered in Germany, France, Spain and Italy,
which either resell our solar modules to end-users or integrate them into power
plants that they own or operate or sell.
Our sales
prices under the Long Term Supply Contracts are denominated in euro, exposing us
to risks from currency exchange rate fluctuations. During the nine months ended
September 26, 2009, 94% of our sales were denominated in euro and subject to
fluctuation in the exchange rate between the euro and
U.S. dollar.
As of
September 26, 2009, we had Long-Term Supply Contracts with fifteen
European solar power system project developers and system integrators. We also
have a five-year agreement with a solar power system project developer and
system integrator in the United States, which is a related party. These
contracts account for a significant portion of our planned production over the
period from 2009 through 2013, and therefore, will significantly affect our
overall financial performance. We have in the past amended pricing and other
terms in our Long Term Supply Contracts in order to remain competitive, as
described below, and we may decide in the future to further amend such contracts
in order to address the highly competitive environment. In addition, we enter
into one-off module sale agreements with customers for specific
projects.
During
the three months ended March 28, 2009, we amended our Long Term Supply Contracts
with certain customers to accelerate the decline in the sales price per watt
under these contracts in 2009 and 2010 in exchange for increases in the volume
of solar modules to be delivered under the contracts. We also extended the
payment terms for certain customers under these contracts from net 10 days to
net 45 days.
During
the third quarter of 2009, we amended our Long Term Supply Contracts with
certain of our customers to implement a program which extends a price rebate to
certain of these customers for solar modules purchased from us. The intent of
this program is to enable our customers to successfully compete in our core
segments in Germany. The rebate program applies a specified rebate rate to solar
modules sold for solar power projects in Germany at the beginning of each
quarter for the upcoming quarter. The rebate program is subject to periodic
review and we will adjust the rebate rate quarterly upward or downward as
appropriate. The rebate period commenced during the third quarter of 2009 and
terminates at the end of the fourth quarter of 2010. Customers need to meet
certain requirements in order to be eligible for and benefit from this
program.
We
account for rebates as a reduction to the selling price of our solar modules and
therefore as a reduction in revenue. No rebates granted under this program can
be claimed in cash and all will be applied to reduce outstanding accounts
receivable balances. During the three months ended September 26, 2009, we
extended rebates to customers in the amount of €48.7 million ($71.5 million
at the balance sheet close rate on Septmber 26, 2009 of $1.47/€1.00).
We estimate that the aggregate amount of rebates extended to customers in the
fourth quarter of 2009 will be a comparable amount.
Net sales
for our solar power systems and project development business for the three and
nine months ended September 26, 2009 were $0.5 million and $11.1 million,
respectively, and $15.6 million and $20.6 million for the three and nine months
ended September 27, 2008, respectively, and were not material to our
consolidated results of operations. On April 3, 2009, we completed the
acquisition of the solar power project development business of OptiSolar Inc.
and have integrated this business into our solar power systems business. For a
given solar power project, we will recognize revenue for our solar power systems
business either after execution of an EPC agreement with a third party,
specifying the terms and conditions of the construction of the solar power
plant; by applying the provisions for real estate accounting; by applying the
percentage-of-completion method of accounting; or upon the sale of the complete
system solution as appropriate. During the three months ended September 26,
2009, we continued the development and construction of certain of the acquired
projects. We did not recognize any revenues derived from the acquired project
development business of OptiSolar during the three and nine months ended
September 26, 2009.
Page |
32
Cost
of sales
Our cost
of sales includes the cost of raw materials and components for manufacturing and
installing solar modules and systems, such as tempered back glass, transparent
conductive oxide (TCO) coated front glass, cadmium telluride, laminate,
connector assemblies, laminate edge seal, inverters and others. Our cost of
sales also include direct labor for the manufacturing of solar modules and
installation of solar systems and manufacturing overhead such as engineering
expense, equipment maintenance, environmental health and safety expenses,
quality and production control and procurement. Cost of sales also includes
depreciation of manufacturing plants and equipment and facility-related
expenses. In addition, we accrue warranty and solar module end-of-life
collection and recycling costs to our cost of sales.
We
implemented a program in 2005 to collect and recycle our solar modules after
their use. Under our collection and recycling program, we enter into an
agreement with the end-users of the solar power systems that use our solar
modules. In the agreement, we commit, at our expense, to remove the solar
modules from the installation site at the end of their life and transport them
to a processing center where the solar module materials and components will be
either refurbished and resold as used solar modules or recycled to recover some
of the raw materials. In return, the owner agrees not to dispose of the solar
modules except through our end-of-life collection and recycling program or any
other program that we might approve of and is responsible for disassembling the
solar modules and packaging them in containers that we provide. At the time we
sell a solar module, we record an expense in cost of sales equal to the fair
value of the estimated future end-of-life collection and recycling obligation.
We subsequently record accretion expense on this future obligation, which we
classify within selling, general and administrative expense.
Overall,
we expect our cost of sales per watt to decrease over the next several years due
to an increase of sellable watts per solar module, an increase in unit output
per line, geographic diversification into lower-cost manufacturing regions and
more efficient absorption of fixed costs driven by economies of
scale.
Deferred
project costs represent internal labor and third party consulting costs related
to certain projects. We recognize these costs as we recognize the revenue for
these projects following the percentage of completion method of accounting under
ASC 605. Deferred project costs at September 26, 2009 and December 27, 2008 were
$3.5 million and $0.7 million, respectively.
Gross
profit
Gross
profit is affected by numerous factors, including our average selling prices,
foreign exchange rates, our manufacturing costs and the effective utilization of
our production facilities. Gross profit is also subject to competitive pressures
and we have in the past and may in the future decide to amend our Long Term
Supply Contracts, which specify our sales price per watt. Other factors
impacting gross profits are the ramp of production on new plants due to a
reduced ability to absorb fixed costs until full production volumes are reached,
the mix of net sales generated by our module and project business coupled with a
geographic factor. Gross profit margin is also affected by our solar power
systems segment, which generally operates at a lower gross profit margin, due to
the pass-through nature of certain balance of system components procured from
third parties.
Research
and development
Research
and development expense consists primarily of salaries and personnel-related
costs and the cost of products, materials and outside services used in our
process and product research and development activities. We acquire equipment
for general use in further process developments and record the depreciation of
this equipment as research and development expense.
Selling,
general and administrative
Selling,
general and administrative expense consists primarily of salaries and other
personnel-related costs, professional fees, insurance costs, travel expense and
other selling expenses. We expect these expenses to increase in the near term,
both in absolute dollars and as a percentage of net sales, in order to support
the growth of our business as we expand our sales and marketing efforts, improve
our information processes and systems and implement the financial reporting,
compliance and other infrastructure required for an expanding public company.
Over time, we expect selling, general and administrative expense to decline as a
percentage of net sales and on a cost per watt basis as our net sales and our
total watts produced increase.
Production
start-up
Production
start-up expense consists primarily of salaries and personnel-related costs and
the cost of operating a production line before it has been qualified for full
production, including the cost of raw materials for solar modules run through
the production line during the qualification phase. It also includes all
expenses related to the selection of a new site and the related legal and
regulatory costs and the costs to maintain our plant replication program, to the
extent we cannot capitalize these expenditures. We incurred production start-up
expense of $32.5 million during the year ended December 27, 2008 in
connection with the planning and preparation of our plants at the Malaysian
manufacturing center. Production start-up expense for the nine months ended
September 26, 2009 was $12.8 million and related to plant four of our Malaysian
manufacturing center and our Ohio plant expansion. In general, we expect
production start-up expense per production line to be higher when we build an
entirely new manufacturing facility compared with the addition of new production
lines at an existing manufacturing facility, primarily due to the additional
infrastructure investment required when building an entirely new facility. Over
time, we expect production start-up expense to decline as a percentage of net
sales and on a cost per watt basis as a result of economies of
scale.
Interest
income
Interest
income is earned on our cash, cash equivalents, marketable securities and
restricted cash and investments.
Page |
33
Interest
expense, net
Interest
expense, net of amounts capitalized, is incurred on various debt
financings.
Foreign
currency gain (loss)
Foreign
currency gain (loss) consists of gains and losses resulting from holding assets
and liabilities and conducting transactions denominated in currencies other than
our functional currencies.
Use
of estimates
Our
discussion and analysis of our financial condition and results of operations are
based upon our unaudited condensed consolidated financial statements, which have
been prepared in accordance with U.S. GAAP for interim financial information.
The preparation of these financial statements requires us to make estimates and
judgments that affect the reported amount of assets, liabilities, net sales and
expenses and related disclosures of contingent assets and liabilities. On an
on-going basis, we evaluate our estimates, including those related to
inventories, intangible assets, income taxes, warranty obligations, marketable
securities valuation, customer rebates, derivative instrument
valuation, product collection and recycling, contingencies and litigation
and share-based compensation. We base our estimates on historical experience and
on various other assumptions that we believe to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources.
Results
of Operations
The
following table sets forth our consolidated statements of operations as a
percentage of net sales for the periods indicated:
Three
Months Ended
|
Nine
Months Ended
|
|||||||||||||||
|
September
26,
2009
|
September
27,
2008
|
September
26,
2009
|
September
27,
2008
|
||||||||||||
Net
sales
|
100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||
Cost
of sales
|
49.1 | % | 43.9 | % | 45.4 | % | 45.3 | % | ||||||||
Gross
profit
|
50.9 | % | 56.1 | % | 54.6 | % | 54.7 | % | ||||||||
Research
and development
|
5.0 | % | 2.9 | % | 3.8 | % | 2.8 | % | ||||||||
Selling,
general and administrative
|
11.2 | % | 14.1 | % | 12.4 | % | 14.9 | % | ||||||||
Production
start-up
|
0.8 | % | 1.8 | % | 0.9 | % | 2.9 | % | ||||||||
Operating
income
|
33.9 | % | 37.3 | % | 37.5 | % | 34.1 | % | ||||||||
Foreign
currency gain (loss)
|
0.0 | % | (0.5 | )% | 0.2 | % | (0.1 | )% | ||||||||
Interest
income
|
0.5 | % | 1.5 | % | 0.5 | % | 2.1 | % | ||||||||
Interest
expense, net
|
(0.0 | )% | (0.0 | )% | (0.3 | )% | (0.0 | )% | ||||||||
Other
expense, net
|
(0.1 | )% | (0.1 | )% | (0.2 | )% | (0.1 | )% | ||||||||
Income
tax expense
|
2.4 | % | 9.7 | % | 2.6 | % | 9.4 | % | ||||||||
Net
income
|
31.9 | % | 28.5 | % | 35.1 | % | 26.6 | % |
Three
Months Ended September 26, 2009 and September 27, 2008
Net
sales
|
Three
Months Ended
|
|||||||||||||||
(Dollars
in thousands)
|
September
26, 2009
|
September
27, 2008
|
Three
Month Period Change
|
|||||||||||||
Net
sales
|
$ | 480,851 | $ | 348,694 | $ | 132,157 | 37.9 | % |
The
increase in our net sales was primarily due to strong demand for our solar
modules resulting in a 102.8% increase in the MW volume of solar modules sold
during the three months ended September 26, 2009 compared with the three months
ended September 27, 2008. The increase in MW volume of solar modules sold is
attributable to the full production ramp of all four plants at our Malaysian
manufacturing center and continued improvements to our global copy smart
manufacturing process. In addition, we increased the average number of sellable
watts per solar module by approximately 3% during the three months ended
September 26, 2009 compared with the three months ended September 27, 2008. Our
average selling price decreased by approximately 22% during the three months
ended September 26, 2009 compared with the three months ended September 27,
2008, primarily due to competitive pressure, including the implementation of a
customer rebate program during the three months ended September 26, 2009. In
addition, our average selling price during the three months ended September 26,
2009 was adversely impacted by 10% due to a decrease in the foreign exchange
rate between the U.S. dollar and the euro and a shift in customer mix compared
with the three months ended September 27, 2008. During the three months ended
September 26, 2009 and September 27, 2008, 77% and 66%, respectively, of our net
sales resulted from sales of solar modules to customers headquartered in
Germany.
Page |
34
Cost
of sales
|
Three
Months Ended
|
|||||||||||||||
(Dollars
in thousands)
|
September
26, 2009
|
September
27, 2008
|
Three
Month Period Change
|
|||||||||||||
Cost
of sales
|
$ | 235,858 | $ | 153,251 | $ | 82,607 | 53.9 | % | ||||||||
%
of net sales
|
49.1 | % | 43.9 | % |
The
increase in our cost of sales was due to higher production and sales volumes,
which resulted from the commencement of production at all of our four plants at
our Malaysian manufacturing center. This increase in production and sales volume
had the following effects: a $47.9 million increase in direct material expense,
a $10.4 million increase in warranty expense and accruals for the costs of
the product collection and recycling of our solar modules,
$4.3 million increase in sales freight and other costs, and
$20.0 million increase in manufacturing overhead costs. The increase in
manufacturing overhead costs was due to a $4.3 million increase in salaries
and personnel related expenses (including a $1.0 million increase in
share-based compensation expense) due to increased headcount and additional
share-based compensation awards, a $4.3 million increase in facility and
related expenses and an $11.4 million increase in depreciation expense.
Each of these manufacturing overhead cost increases primarily resulted from
increased infrastructure associated with the build out of our Malaysian
manufacturing center. Our average manufacturing cost per watt declined by $0.23
per watt, or 21.3%, from $1.08 in the three months ended September 27, 2008 to
$0.85 in the three months ended September 26, 2009 and included $0.02 of
non-cash stock based compensation expense.
Gross
profit
|
Three
Months Ended
|
|||||||||||||||
(Dollars
in thousands)
|
September
26, 2009
|
September
27, 2008
|
Three
Month Period Change
|
|||||||||||||
Gross
profit
|
$ | 244,993 | $ | 195,443 | $ | 49,550 | 25.4 | % | ||||||||
%
of net sales
|
50.9 | % | 56.1 | % |
Gross
profit as a percentage of net sales decreased by 5.2 percentage points during
the three months ended September 26, 2009 compared with the three months ended
September 27, 2008 mainly due to a decline in our average selling prices and an
adverse foreign currency exchange rate impact. During the three months ended
September 26, 2009, increased leverage of our fixed cost infrastructure,
continued variable cost reductions and scalability associated with our Malaysian
expansions drove a 102.8% increase in the number of megawatts sold and
contributed approximately 8.4% to our gross profit, which was more
than offset by a 9.4% margin decline attributed to the decrease in our
average selling price, compared with the three months ended September 27,
2008. Additionally, a decrease in the exchange rate between the U.S.
dollar and the euro adversely impacted our gross profit by 4.2%. We expect that
gross profit will be impacted in future periods by the volatility of the
exchange rate between the U.S. dollar and the euro and product mix between our
systems and components business segments.
Research
and development
|
Three
Months Ended
|
|||||||||||||||
(Dollars
in thousands)
|
September
26, 2009
|
September
27, 2008
|
Three
Month Period Change
|
|||||||||||||
Research
and development
|
$ | 24,136 | $ | 9,952 | $ | 14,184 | 142.5 | % | ||||||||
%
of net sales
|
5.0 | % | 2.9 | % |
The
increase in our research and development expense was due to a $3.3 million
increase in personnel related expense (including a $0.6 million increase in
share-based compensation expense) due to increased headcount devoted to working
on various projects intended to increase the efficiency of our solar modules at
converting sunlight into electricity. In addition, testing and qualification
material costs increased by $8.9 million, consulting and other expenses
increased by $1.9 million and grants received decreased by
$0.1 million during the three months ended September 26, 2009 compared with
the three months ended September 27, 2008.
Page |
35
Selling,
general and administrative
|
Three
Months Ended
|
|||||||||||||||
(Dollars
in thousands)
|
September
26, 2009
|
September
27, 2008
|
Three
Month Period Change
|
|||||||||||||
Selling,
general and administrative
|
$ | 53,990 | $ | 48,995 | $ | 4,995 | 10.2 | % | ||||||||
%
of net sales
|
11.2 | % | 14.1 | % |
The
increase in selling, general and administrative expense was primarily due to a
$11.9 million increase in salaries and personnel-related expenses
(including a $4.0 million increase in share-based compensation), a $1.4 million
increase in legal and professional service fees and a $8.3 million decrease in
other expense during the three months ended September 26, 2009 compared with the
three months ended September 27, 2008. Selling, general and administrative
includes a non-recurring benefit of $9.6 million, including a reduction of a
previously established reserve for doubtful accounts receivable of $3.0
million.
Production
start-up
|
Three
Months Ended
|
|||||||||||||||
(Dollars
in thousands)
|
September
26, 2009
|
September
27, 2008
|
Three
Month Period Change
|
|||||||||||||
Production
start-up
|
$ | 4,076 | $ | 6,344 | $ | (2,268 | ) | (35.8 | )% | |||||||
%
of net sales
|
0.8 | % | 1.8 | % |
During
the three months ended September 26, 2009, we incurred $4.1 million of
production start-up expenses for our Perrysburg manufacturing expansion,
including legal, regulatory and personnel costs, compared with $6.3 million
of production start-up expenses for our Malaysian manufacturing expansion during
the three months ended September 27, 2008. Production start-up expenses are
comprised of the cost of labor and material and depreciation expense to run and
qualify the production lines, related facility expenses, management of our
replication process and legal and regulatory costs.
Foreign
currency gain (loss)
|
Three
Months Ended
|
|||||||||||||||
(Dollars
in thousands)
|
September
26, 2009
|
September
27, 2008
|
Three
Month Period Change
|
|||||||||||||
Foreign
currency gain (loss)
|
$ | 114 | $ | (1,889 | ) | $ | 2,003 | 106.0 | % |
Foreign
currency exchange resulted in a gain primarily due to a significant decrease in
our net foreign currency denominated assets and liabilities.
Interest
income
|
Three
Months Ended
|
|||||||||||||||
(Dollars
in thousands)
|
September
26, 2009
|
September
27, 2008
|
Three
Month Period Change
|
|||||||||||||
Interest
income
|
$ | 2,398 | $ | 5,323 | $ | (2,925 | ) | (55.0 | )% |
Interest
income decreased primarily due to a substantial decline in interest
rates.
Interest
expense, net
|
Three
Months Ended
|
|||||||||||||||
(Dollars
in thousands)
|
September
26, 2009
|
September
27, 2008
|
Three
Month Period Change
|
|||||||||||||
Interest
expense, net
|
$ | 89 | $ | 127 | $ | (38 | ) | (29.9 | )% |
Interest
expense, net of amounts capitalized decreased primarily due to higher amounts of
interest expense capitalized during the three months ended September 26,
2009.
Page |
36
Other
expense, net
|
Three
Months Ended
|
|||||||||||||||
(Dollars
in thousands)
|
September
26, 2009
|
September
27, 2008
|
Three
Month Period Change
|
|||||||||||||
Other
expense, net
|
$ | 247 | $ | 360 | $ | (113 | ) | (31.4 | )% |
Other
expense, net decreased primarily due to lower financing fees.
Income
tax expense
|
Three
Months Ended
|
|||||||||||||||
(Dollars
in thousands)
|
September
26, 2009
|
September
27, 2008
|
Three
Month Period Change
|
|||||||||||||
Income
tax expense
|
$ | 11,623 | $ | 33,830 | $ | (22,207 | ) | (65.6 | )% | |||||||
Effective
tax rate (%)
|
7.0 | % | 25.4 | % |
Income
tax expense decreased primarily due to the tax benefit that relates to the
Malaysian tax holiday granted to our Malaysian subsidiary, offset by an increase
in pre-tax income of $31.9 million. See also Note 16 to our condensed
consolidated financial statements for more information.
Nine
Months ended September 26, 2009 and September 27, 2008
Net
sales
|
Nine
Months Ended
|
|||||||||||||||
(Dollars
in thousands)
|
September
26, 2009
|
September
27, 2008
|
Nine
Month Period Change
|
|||||||||||||
Net
sales
|
$ | 1,424,935 | $ | 812,650 | $ | 612,285 | 75.3 | % |
The
increase in our net sales was primarily due to strong demand for our solar
modules resulting in a 129.4% increase in the MW volume of solar modules sold
during the nine months ended September 26, 2009 compared with the nine months
ended September 27, 2008. The increase in MW volume of solar modules sold is
attributable to the full production ramp of all four plants at our Malaysian
manufacturing center and continued improvements to our manufacturing process. In
addition, we increased the average number of sellable watts per solar module by
approximately 3% during the nine months ended September 26, 2009 compared with
the nine months ended September 27, 2008. Our average selling price decreased by
approximately 15% during the nine months ended September 26, 2009 compared with
the nine months ended September 27, 2008 primarily due to competitive pressure,
including the implementation of a customer rebate program during the three
months ended September 26, 2009. In addition, our average selling price was
adversely impacted by approximately 9% due to a decrease in the foreign exchange
rate between the U.S. dollar and the euro and a shift in customer mix. During
the nine months ended September 26, 2009 and September 27, 2008, 71% and 75%,
respectively, of our net sales resulted from sales of solar modules to customers
headquartered in Germany.
Cost
of sales
|
Nine
Months Ended
|
|||||||||||||||
(Dollars
in thousands)
|
September
26, 2009
|
September
27, 2008
|
Nine
Month Period Change
|
|||||||||||||
Cost
of sales
|
$ | 646,562 | $ | 368,183 | $ | 278,379 | 75.6 | % | ||||||||
%
of net sales
|
45.4 | % | 45.3 | % |
The
increase in our cost of sales was due to higher production and sales volumes,
which resulted from the commencement of production at all of our four plants at
our Malaysian manufacturing center. This increase in production and sales volume
had the following effects: a $165.2 million increase in direct material expense,
a $26.5 million increase in warranty expense and accruals for the costs of
the product collection and recycling of our solar modules, a
$11.2 million increase in sales freight and other costs, and a
$75.5 million increase in manufacturing overhead costs. The increase in
manufacturing overhead costs was due to a $18.8 million increase in
salaries and personnel related expenses (including a $3.5 million increase
in share-based compensation expense), a $22.5 million increase in facility and
related expenses and a $34.2 million increase in depreciation expense. Each
of these manufacturing overhead cost increases primarily resulted from increased
infrastructure associated with the build out of our Malaysian manufacturing
center. Our average manufacturing cost per watt declined by $0.25 per watt, or
22.1%, from $1.13 in the nine months ended September 27, 2008 to $0.88 in the
nine months ended September 26, 2009 and included $0.01 of ramp penalty
associated with the ramp and qualification of our Malaysian and Perrysburg
manufacturing facilities and $0.01 of non-cash stock based
compensation.
Page |
37
Gross
profit
|
Nine
Months Ended
|
|||||||||||||||
(Dollars
in thousands)
|
September
26, 2009
|
September
27, 2008
|
Nine
Month Period Change
|
|||||||||||||
Gross
profit
|
$ | 778,373 | $ | 444,467 | $ | 333,906 | 75.1 | % | ||||||||
%
of net sales
|
54.6 | % | 54.7 | % |
Gross
profit as a percentage of net sales decreased by 0.1 percentage points in
the nine months ended September 26, 2009 compared with the nine months ended
September 27, 2008 due to a decline in our average selling prices and an adverse
foreign currency exchange rate impact. During the nine months ended September
26, 2009, increased leverage of our fixed cost infrastructure, continued
variable cost reductions and scalability associated with our Malaysian
expansions drove a 129.4% increase in the number of megawatts sold and
contributed approximately 8.1% to our gross profit. The decrease in our average
selling prices and a decline in the exchange rate between the U.S. dollar
and the euro adversely impacted our gross profit by 8.2%. We expect that gross
profit will be impacted in future periods by the volatility of the exchange rate
between the U.S. dollar and the euro and product mix between our systems and
components business segment.
Research
and development
|
Nine
Months Ended
|
|||||||||||||||
(Dollars
in thousands)
|
September
26, 2009
|
September
27, 2008
|
Nine
Month Period Change
|
|||||||||||||
Research
and development
|
$ | 54,445 | $ | 22,437 | $ | 32,008 | 142.7 | % | ||||||||
%
of net sales
|
3.8 | % | 2.8 | % |
The
increase in our research and development expense was due to a $11.0 million
increase in personnel related expense (including a $2.0 million increase in
share-based compensation expense) due to increased headcount devoted to working
on various projects intended to increase the efficiency of our solar modules at
converting sunlight into electricity. In addition, testing and qualification
material costs increased by $17.7 million, consulting and other expenses
increased by $2.4 million and grants received decreased by $0.9 million
during the nine months ended September 26, 2009, compared with the nine months
ended September 27, 2008. Throughout the fiscal period, we continued the
development of solar modules with increased efficiencies at converting sunlight
into electricity.
Selling,
general and administrative
|
Nine
Months Ended
|
|||||||||||||||
(Dollars
in thousands)
|
September
26, 2009
|
September
27, 2008
|
Nine
Month Period Change
|
|||||||||||||
Selling,
general and administrative
|
$ | 176,231 | $ | 121,292 | $ | 54,939 | 45.3 | % | ||||||||
%
of net sales
|
12.4 | % | 14.9 | % |
The
increase in selling, general and administrative expense was due to a
$37.5 million increase in salaries and personnel-related expenses
(including an $8.1 million increase in share-based compensation expense). In
addition, legal and professional service fees increased by $9.8 million, and
other expenses increased by $7.6 million during the nine months ended
September 26, 2009 compared with the nine months ended September 27, 2008.
Selling, general and administrative expense for the nine months ended September
26, 2009 includes $5.5 million of costs related to the acquisition, integration
and operation of the solar power project development business of OptiSolar,
which we acquired on April 3, 2009.
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38
Production
start-up
|
Nine
Months Ended
|
|||||||||||||||
(Dollars
in thousands)
|
September
26, 2009
|
September
27, 2008
|
Nine
Month Period Change
|
|||||||||||||
Production
start-up
|
$ | 12,809 | $ | 23,727 | $ | (10,918 | ) | (46.0 | )% | |||||||
%
of net sales
|
0.9 | % | 2.9 | % |
During
the nine months ended September 26, 2009, we incurred $12.8 million of
production start-up expenses for our Malaysian and Perrysburg manufacturing
expansions, including legal, regulatory and personnel costs, compared with
$23.7 million of production start-up expenses for our Malaysian
manufacturing expansion during the nine months ended September 27, 2008.
Production start-up expenses are comprised of the cost of labor and material and
depreciation expense to run and qualify the production lines, related facility
expenses, management of our replication process and legal and regulatory
costs.
Foreign
currency gain (loss)
|
Nine
Months Ended
|
|||||||||||||||
(Dollars
in thousands)
|
September
26, 2009
|
September
27, 2008
|
Nine
Month Period Change
|
|||||||||||||
Foreign
currency gain (loss)
|
$ | 2,187 | $ | (468 | ) | $ | 2,655 | N.M | . |
Foreign currency gain increased primarily due to the high volatility of the
U.S. dollar relative to other currencies, in particular, the
euro.
Interest
income
|
Nine
Months Ended
|
|||||||||||||||
(Dollars
in thousands)
|
September
26, 2009
|
September
27, 2008
|
Nine
Month Period Change
|
|||||||||||||
Interest
income
|
$ | 6,449 | $ | 16,931 | $ | (10,482 | ) | (61.9 | )% |
Interest
income decreased primarily due to a substantial decline in interest
rates.
Interest
expense, net
|
Nine
Months Ended
|
|||||||||||||||
(Dollars
in thousands)
|
September
26, 2009
|
September
27, 2008
|
Nine
Month Period Change
|
|||||||||||||
Interest
expense, net
|
$ | 4,851 | $ | 131 | $ | 4,720 | N.M | . |
Interest
expense, net of amounts capitalized, increased primarily due to lower amounts of
interest expense capitalized during the nine months ended September 26, 2009 as
we completed the construction of our Malaysian manufacturing center. In
addition, interest expense, net for the nine months ended September 26, 2009
includes an expense of $2.4 million related to the termination of the interest
rate swaps for our German debt facility. We fully repaid this facility on June
30, 2009.
Other
expense, net
|
Nine
Months Ended
|
|||||||||||||||
(Dollars
in thousands)
|
September
26, 2009
|
September
27, 2008
|
Nine
Month Period Change
|
|||||||||||||
Other
expense, net
|
$ | 2,676 | $ | 1,179 | $ | 1,497 | 127.0 | % |
Other
expense, net, increased primarily due to expenses associated with our credit
default swaps, which expired in the second quarter of 2009.
Income
tax expense
|
Nine
Months Ended
|
|||||||||||||||
(Dollars
in thousands)
|
September
26, 2009
|
September
27, 2008
|
Nine
Month Period Change
|
|||||||||||||
Income
tax expense
|
$ | 37,479 | $ | 76,605 | $ | (39,126 | ) | (51.1 | )% | |||||||
Effective
tax rate (%)
|
7.0 | % | 26.2 | % |
Income
tax expense decreased primarily due to the tax benefit that relates to the
Malaysian tax holiday granted to our Malaysian subsidiary, offset by an increase
in pre-tax income of $243.8 million. See also Note 16 to our condensed
consolidated financial statements for more information.
Page |
39
Critical
Accounting Policies and Estimates
For a
description of the critical accounting policies that affect our more significant
judgments and estimates used in the preparation of our condensed consolidated
financial statements, refer to our Annual Report on Form 10-K for the year ended
December 27, 2008 filed with the Securities and Exchange Commission. Our
critical accounting policies reflect the adoption of Financial Accounting
Standards Board (FASB) Accounting Standards Codification Topic (ASC)
805, Business
Combinations, in the second quarter of fiscal 2009.
During
the third quarter of fiscal 2009, we adopted the provisions of ASC 976, Accounting for Sales of Real
Estate for certain solar power projects.
Recent
Accounting Pronouncements
See Note
3 to our condensed consolidated financial statements included with this
Quarterly Report on Form 10-Q for a summary of recent accounting
pronouncements.
Liquidity
and Capital Resources
At
September 26, 2009, we had $830.1 million in cash, cash equivalents and
marketable securities, compared with $821.8 million at December 27,
2008. We believe that our current cash, cash equivalents, marketable securities,
cash flows from operating activities, our revolving credit facility and debt
financings for our Malaysian plants will be sufficient to meet our working
capital and capital expenditure needs for at least the next 12 months.
However, if our financial results or operating plans change from our current
assumptions, we may not have sufficient resources to support our business
plan.
On
September 4, 2009, we entered into a revolving credit facility pursuant to a
Credit Agreement among First Solar, Inc., certain of its subsidiaries
(consisting of First Solar Manufacturing GmbH, a German subsidiary, and other
subsidiaries who may in the future be designated as borrowers pursuant to the
Credit Agreement) and several lenders, including JPMorgan Chase Bank, N.A., as
administrative agent. The Credit Agreement provides First Solar, Inc. and the
borrowing subsidiaries with a senior secured three-year revolving credit
facility with an aggregate available amount of $300.0 million, a portion of
which is available for letters of credit and swingline loans. See Note 13 to our
condensed consolidated financial statements for additional
information.
Our
expanding project development business is expected to have increasing liquidity
requirements in the future. Solar power project development cycles, which span
the time between the identification of land and the commercial operation of a
photovoltaic power plant project, vary substantially and can take many months or
years to mature. As a result of these long project cycles, we may need to make
significant up front investments of resources in advance of the signing of power
purchase agreements (PPAs) and EPC contracts and the receipt of any revenue. We
have historically financed these up front investments primarily using working
capital and cash on hand. In the future, we may also engage in one or more debt
or equity financings. Such financings could result in increased expenses or
dilution to our existing stockholders. If we are unable to obtain debt or equity
financing on reasonable terms, we may be unable to execute our expansion
strategy.
The
recent and unprecedented disruption in the credit markets has had a significant
adverse impact on a number of financial institutions. As of September 26, 2009,
our liquidity and investments have not been materially adversely impacted by the
current credit environment and we believe that they will not be materially
adversely impacted in the near future. We will continue to closely monitor our
liquidity and the credit markets. However, we cannot predict with any certainty
the impact to us of any further disruption in the credit
environment.
Cash
Flows
Operating
Activities
Cash
received from customers increased to $1,169.3 million during the nine months
ended September 26, 2009 compared with $779.2 million during the nine months
ended September 27, 2008 primarily due to an increase in net sales, offset by an
increase in accounts receivable of $271.1 million. The increase in accounts
receivable was primarily due to the amendment of certain of our customers’ Long
Term Supply Contracts to extend their payment terms from net 10 days to net 45
days and due to additional volume shipped during the nine months ended September
26, 2009. Our net sales increased from $812.7 million during the nine months
ended September 27, 2008 to $1,424.9 million during the nine months ended
September 26, 2009.
Cash paid
to suppliers and associates increased to $771.0 million during the nine months
ended September 26, 2009 from $513.6 million during the nine months ended
September 27, 2008, mainly due to an increase in raw material and component
purchases, an increase in personnel-related costs due to higher headcount and
other costs supporting our growth. Inventory increased by $71.2 million, of
which $45.6 million related to an increase in finished goods inventory as a
result of increased inventory requirements for utility scale projects in North
America.
We
also had a net payment of $123.0 million relating to income taxes during the
nine months ended September 26, 2009, compared with a net payment of $3.2
million during the nine months ended September 27, 2008.
Page |
40
Investing
Activities
Cash used
in investing activities was $605.0 million during the nine months ended
September 26, 2009 compared with $197.3 million during the nine months ended
September 27, 2008. Cash used in investing activities during the nine months
ended September 26, 2009 resulted primarily from capital expenditures of $210.8
million, the net purchase of marketable securities of $357.7 million, net
investments in notes receivable of $30.6 million and an increase in our
restricted cash and investments of $4.4 million.
The
increase in capital expenditures was primarily due to the construction of our
new plants in Malaysia and the expansion of our plant in Perrysburg, Ohio.
Further, we extended loans in the amount of $30.6 million under an existing
credit facility and revolving VAT facility agreement to a customer to provide
financing of a photovoltaic facility and pre-finance the amounts of German value
added tax (VAT) and other tax obligations. See Note 12 to our condensed
consolidated financial statements for more information about these credit
facilities.
On April
3, 2009, we completed the acquisition of the solar power project development
business of OptiSolar. The total consideration consisted of 2,972,420 shares of
our common stock, of which 355,096 shares represented a contingent
consideration. The total purchase price based on the closing price of our common
stock on April 3, 2009 of $134.38 per share was $399.4 million. See also Note 4
to our condensed consolidated financial statements.
Since
2005, we have pre-funded our estimated solar module collection and recycling
costs through depository-type agreements with a financial services company.
During the nine months ended September 26, 2009, we terminated this agreement
and commuted all the funds to a custodial account with a large bank as
investment advisor, in the name of a trust, for which First Solar, Inc., First
Solar Malaysia Sdn. Bhd., and First Solar Manufacturing GmbH are grantors. At
September 26, 2009, we had $37.2 million in this account, which we classified in
our restricted investments on our balance sheet. See Note 7 to our condensed
consolidated financial statements for additional information.
Cash used
in investing activities was $197.3 million in the nine months ended September
27, 2008 primarily due to capital expenditures of $330.6 million related to the
construction of our plants in Malaysia and an increase in our restricted
investments of $15.3 million to fund our solar module collection and recycling
program. Cash provided by investing activities during the nine months ended
September 27, 2008 resulted primarily from the net proceeds of marketable
securities of $148.6 million.
Financing
Activities
Cash used
in financing activities was $4.1 million during the nine months ended September
26, 2009 compared with cash provided by financing activities of $122.8 million
during the nine months ended September 27, 2008. Cash provided by financing
activities during the nine months ended September 26, 2009 resulted primarily
from proceeds from the issuance of debt, net of issuance cost, of $44.8 million
related to the equipment export financing agreement for our Malaysian
manufacturing center. These cash proceeds were offset by the repayment of
long-term debt of $63.7 million. Proceeds from the issuance of common stock of
$4.7 million during the nine months ended September 26, 2009 were mainly due to
proceeds received from the exercise of employee stock options. Excess tax
benefits from share-based compensation arrangements during the nine months ended
September 26, 2009 were $9.5 million.
Cash
provided by financing activities for the nine months ended September 27, 2008
resulted primarily from an increase in investment incentives related to the
construction of our plant in Frankfurt/Oder, Germany of $35.7 million and
proceeds from the issuance of debt, net of issuance cost, of $94.1 million
related to the equipment export facility agreement for our Malaysian
manufacturing center. See Note 13 to our condensed consolidated financial
statements for more information about these credit facilities. This increase was
partially offset by the repayment of long-term debt of $34.8 million in the nine
months ended September 27, 2008. Proceeds from the issuance of common stock of
$14.1 million during the nine months ended September 27, 2008 were mainly due to
proceeds received from the exercise of employee stock options. Excess tax
benefits from share-based compensation arrangements during the nine months ended
September 27, 2008 were $13.7 million.
Off-Balance
Sheet Arrangements
We had no
off-balance sheet arrangements as of September 26, 2009.
Item
3. Quantitative and
Qualitative Disclosures About Market Risk
Foreign
Currency Exchange Risk
Our
international operations accounted for 97% of our net sales in the nine months
ended September 26, 2009 and September 27, 2008, of which 94% and 100% of these
sales, respectively, were denominated in euro. As a result, we have exposure to
foreign exchange risk with respect to almost all of our net sales. Fluctuations
in exchange rates, particularly in the U.S. dollar to euro exchange rate,
affect our gross and net profit margins and could result in foreign exchange and
operating losses. In the past, most of our exposure to foreign exchange risk has
related to currency gains and losses between the times we sign and settle our
sales contracts. For example, our Long Term Supply Contracts obligate us to
deliver solar modules at a fixed price in euros per watt and do not adjust for
fluctuations in the U.S. dollar to euro exchange rate. For the nine months
ended September 26, 2009, a 10% change in the euro exchange rates would have
impacted our net euro sales by $140.8 million. With the expansion of our
manufacturing operations into Germany and Malaysia, many of our operating
expenses for the plants in these countries are denominated in the local
currency.
Page |
41
Our
primary foreign currency exposures are transaction exposure, cash flow exposure
and earnings translation exposure:
Transaction
Exposure: Many components of our business have assets and
liabilities (primarily receivables, investments, accounts payable, debt, solar
module collection and recycling liabilities and inter-company transactions) that
are denominated in currencies other than the relevant entity’s functional
currency. Changes in the exchange rates between our components’ functional
currencies and the currencies in which these assets and liabilities are
denominated can create fluctuations in our reported consolidated financial
position, results of operations and cash flows. We may enter into foreign
exchange forward contracts or other financial instruments to hedge assets and
liabilities against the short-term effects of currency exchange rate
fluctuations. The gains and losses on the foreign exchange forward contracts
will offset all or part of the transaction gains and losses that we recognize in
earnings on the related foreign currency assets and liabilities.
Since our
acquisition of the solar power project development business of OptiSolar on
April 3, 2009, we have become exposed to currency exchange rate fluctuations
between the U.S. dollar and Canadian dollar.
As of
September 26, 2009, the total notional value of our foreign exchange forward
contracts to purchase and sell euros with/for U.S. dollars was
€225.9 million and €198.9 million, respectively ($332.1 million and
$292.4 million, respectively, at the balance sheet close rate on September 26,
2009 of $1.47/€1.00); the total notional value of our foreign exchange forward
contracts to purchase and sell U.S. dollars with/for euros was $20.8
million and $38.7 million, respectively; the total notional value of our foreign
exchange forward contracts to purchase and sell Malaysian ringgits with/for
U.S. dollars was MYR 128.2 million and MYR 30.0 million,
respectively ($37.2 million and $8.7 million, respectively, at the
balance sheet close rate on September 26, 2009 of $0.29/MYR1.00); and the total
notional value of our foreign exchange forward contracts to purchase and sell
Canadian dollars with/for U.S. dollars was CAD 5.7 million and CAD
22.1 million, respectively ($5.2 million and $20.1 million, respectively,
at the balance sheet close rate on September 26, 2009 of $0.91/CAD1.00). As of
September 26, 2009, the total unrealized gain on these contracts was
$2.9 million. These contracts have maturities of less than two
months.
If the
U.S. dollar would have weakened by 10% against the euro, Malaysian ringgit
and Canadian dollar, the adverse impact on our income before income taxes
related to our foreign exchange contracts to purchase and sell euro, Malaysian
ringgit and Canadian dollar would have been $2.3 million.
Cash Flow
Exposure: We expect many of the components of our business to
have material future cash flows, including revenues and expenses, that will be
denominated in currencies other than the components’ functional currency. Our
primary cash flow exposures are future customer collections and vendor payments.
Changes in the exchange rates between our components’ functional currency and
the other currencies in which they transact will cause fluctuations in the cash
flows we expect to receive when these cash flows are realized or settled.
Accordingly, we may enter into foreign exchange forward contracts to hedge the
value of a portion of these forecasted cash flows. We account for these foreign
exchange contracts as cash flow hedges. We initially report the effective
portion of the derivative’s gain or loss in accumulated other comprehensive
income (loss) and subsequently reclassify amounts into earnings when the hedged
transaction is settled.
Most of
our German plant’s operating expenses are denominated in euros, creating natural
hedges against the currency risk in our net sales. In addition, we purchased
forward contracts to hedge the exchange risk on forecasted cash flows
denominated in euro. As of September 26, 2009, the total notional value of these
forward contracts was €499.5 million ($734.3 million at the balance
sheet close rate on September 26, 2009 of $1.47/€1.00).
Earnings Translation
Exposure: Fluctuations in foreign currency exchange rates
create volatility in our reported results of operations because we are required
to consolidate financial statements of our foreign currency denominated
subsidiaries. We may decide to purchase forward exchange contracts or other
instruments to offset this impact from currency fluctuations. These contracts
would be marked-to-market on a monthly basis and any unrealized gain or loss
would be recorded in interest and other income, net. We do not hedge translation
exposure at this time, but may do so in the future.
In the
past, currency exchange rate fluctuations have had an impact on our business and
results of operations. For example, currency exchange rate fluctuations
negatively impacted our cash flows by $3.7 million and $7.7 million in
the nine months ended September 26, 2009 and September 27, 2008, respectively.
Although we cannot predict the impact of future currency exchange rate
fluctuations on our business or results of operations, we believe that we will
continue to have risk associated with currency exchange rate fluctuations in the
future.
Page |
42
Interest
Rate Risk
We are
exposed to interest rate risk because many of our customers depend on debt and
equity financing to purchase and install a solar power system. Although the
useful life of a solar electricity generation system is considered to be
approximately 25 years, end-users of our solar modules must pay the entire
cost of the system at the time of installation. As a result, many of our
customers rely on debt financing to fund their up-front capital expenditures. An
increase in interest rates could make it difficult for our end-users to secure
the financing necessary to purchase and install a system. This could lower
demand for our solar modules and system development services and reduce our net
sales. In addition, we believe that a significant percentage of our end-users
install solar power systems as an investment, funding the initial capital
expenditure through a combination of equity and debt. An increase in interest
rates could lower an investor’s return on investment in a system or make
alternative investments more attractive relative to solar power systems, which,
in each case, could cause these end-users to seek alternative investments that
promise higher returns.
During
2006, we entered into a credit facility with a consortium of banks for the
financing of our German plant, which bore interest at the Euro Interbank Offered
Rate (Euribor) plus 1.6%. We had interest rate swap contracts with a financial
institution that effectively converted to fixed rates the variable rate of
Euribor on the term loan portion of this credit facility. These swap contracts
were required under the credit facility agreement which we repaid and terminated
on June 30, 2009. Therefore, we terminated these interest rate swap contracts on
June 26, 2009 and consequently recognized interest expense of €1.7 million
($2.5 million at the balance sheet close rate on September 26, 2009 of
$1.47/€1.00). The termination of the interest rate swap contracts settled on
June 30, 2009.
During
May 2008, we entered into an euro-denominated credit facility to finance some of
the equipment cost for our Malaysian manufacturing center. The loans under the
fixed-rate portion of the credit facility bear interest on the outstanding
unpaid principal balance at an annual rate of 4.54%. The loans under the
floating-rate portion of the credit facility bear interest on the outstanding
unpaid principal balance at Euribor plus a margin of 0.55%. On May 29, 2009, we
entered into an interest rate swap contract with a notional value of
€57.3 million ($84.2 million at the balance sheet close rate on
September 26, 2009 of $1.47/€1.00) to receive a six-month floating interest
rate, equal to Euribor, and pay a fixed rate of 2.80%. This contract became
effective on September 30, 2009. The notional amount of the interest rate swap
contract is scheduled to decline in correspondence to our scheduled principal
payments on the underlying hedged debt.
In
addition, we invest in debt securities, which exposes us to interest rate risk.
The primary objective of our investment activities is to preserve principal and
provide liquidity on demand, while at the same time maximizing the income we
receive from our investments without significantly increasing risk. Some of the
securities in which we invest may be subject to market risk. This means that a
change in prevailing interest rates may cause the market value of the investment
to fluctuate. For example, if we hold a security that was issued with an
interest rate fixed at the then-prevailing rate and the prevailing interest rate
later rises, the market value of our investment will probably decline. To
minimize this risk, we maintain our portfolio of cash equivalents and marketable
securities in a variety of securities, including money market mutual funds,
government and non-government debt securities and certificates of deposit. As of
September 26, 2009, our fixed-income investments earned a pretax yield of 1.2%,
with a weighted average maturity of 10.0 months. If interest rates were to
instantaneously increase (decrease) by 100 basis points, the market value
of our total investment portfolio could decrease (increase) by
$5.5 million. The direct risk to us associated with fluctuating interest
rates is limited to our investment portfolio and we do not believe that a 10%
change in interest rates would have a significant impact on our financial
position, results of operations or cash flows. As of September 26, 2009, all of
our investments were in money market mutual funds, federal and foreign agency
debt, supranational debt, corporate debt securities and foreign government
obligations.
Commodity
and Component Risk
We are
exposed to price risks for the raw materials, components and energy costs used
in the manufacture and transportation of our solar modules. Also, some of our
raw materials and components are sourced from a limited number of suppliers or a
sole supplier. We endeavor to qualify multiple suppliers, a process which could
take up to 12 months if successful, but some suppliers are unique and it
may not be feasible to qualify second source suppliers. In some cases, we also
enter into long term supply contracts for raw materials and components, but
these arrangements are normally of shorter duration than the term of our Long
Term Supply Contracts with our customers. As a result, we remain exposed to
price changes in the raw materials and components used in our solar modules. In
addition, a failure by a key supplier could disrupt our supply chain which could
result in higher prices for our raw materials and components and even a
disruption in our manufacturing process. Since our selling price under our Long
Term Supply Contracts does not adjust in the event of price changes in our
underlying raw materials or components and since our Long Term Supply Contracts
require minimum deliveries of our products during their term, we are unable to
pass along changes in the cost of the raw materials and components for our
products and may be in default of our delivery obligations if we experience a
manufacturing disruption.
Page |
43
Credit
Risk
We have
certain financial and derivative instruments that subject us to credit risk.
These consist primarily of cash, cash equivalents, investments, trade accounts
receivable, interest rate swap contracts and foreign exchange forward contracts.
We are exposed to credit losses in the event of nonperformance by the
counterparties to our financial and derivative instruments. We place cash, cash
equivalents, investments, interest rate swap contracts and foreign exchange
forward contracts with various high-quality financial institutions and limit the
amount of credit risk from any one counterparty. We continuously evaluate the
credit standing of our counterparty financial institutions.
Item
4. Controls and
Procedures
Evaluation
of Disclosure Controls and Procedures
Our
management, including our Chief Executive Officer and Chief Financial Officer,
conducted an evaluation as of September 26, 2009 of the effectiveness of our
“disclosure controls and procedures” as defined in Exchange Act Rule 13a-15(e).
Based on that evaluation, our Chief Executive Officer and Chief Financial
Officer concluded that as of September 26, 2009 our disclosure controls and
procedures were effective to ensure that information we are required to disclose
in reports that we file or submit under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in rules and forms of
the SEC and is accumulated and communicated to our management as appropriate to
allow timely decisions regarding required disclosure.
Changes
in Internal Control Over Financial Reporting
Our
management, including our Chief Executive Officer and Chief Financial Officer,
conducted an evaluation of our “internal control over financial reporting” as
defined in Exchange Act Rule 13a-15(f) to determine whether any changes in our
internal control over financial reporting occurred during the fiscal quarter
ended September 26, 2009 that materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting. Based on that
evaluation, there have been no such changes in our internal control over
financial reporting during the fiscal quarter ended September 26,
2009.
CEO
and CFO Certifications
We have
attached as exhibits to this Quarterly Report on Form 10-Q the certifications of
our Chief Executive Officer and Chief Financial Officer which are required in
accordance with the Exchange Act. We recommend that this Item 4 be read in
conjunction with those certifications for a more complete understanding of the
subject matter presented.
Limitations
on the Effectiveness of Controls
Control
systems, no matter how well designed and operated, can provide only reasonable,
not absolute, assurance that the control systems’ objectives are being met.
Further, the design of any control systems must reflect the fact that there are
resource constraints, and the benefits of all controls must be considered
relative to their costs. Because of the inherent limitations in all control
systems, no evaluation of controls can provide absolute assurance that all
control issues and instances of fraud, if any, within our company have been
detected. These inherent limitations include the realities that judgments in
decision-making can be faulty and that breakdowns can occur because of simple
error or mistake. Control systems can also be circumvented by the individual
acts of some persons, by collusion of two or more people, or by management
override of the controls. The design of any system of controls is based in part
on certain assumptions about the likelihood of future events, and there can be
no assurance that any design will succeed in achieving its stated goals under
all potential future conditions. Over time, controls may become inadequate
because of changes in conditions or deterioration in the degree of compliance
with policies or procedures.
PART
II. OTHER INFORMATION
Item
1. Legal
Proceedings
In the
ordinary conduct of our business, we are subject to periodic lawsuits,
investigations and claims, including, but not limited to, routine employment
matters. Although we cannot predict with certainty the ultimate resolution of
lawsuits, investigations and claims asserted against us, we do not believe that
any currently pending legal proceeding to which we are a party will have a
material adverse effect on our business, results of operations, cash flows or
financial condition.
Page |
44
Item 1A. Risk
Factors
In
addition to the other information set forth in this report, you should carefully
consider the factors discussed in Part I, “Item 1A: Risk Factors” in our Annual
Report on Form 10-K for the year ended December 27, 2008, which could materially
affect our business, financial condition or future results. The risks described
in our Annual Report on Form 10-K are not the only risks facing our company.
Additional risks and uncertainties not currently known to us or that we
currently deem to be immaterial also may materially adversely affect our
business, financial condition or future results. There have been no material
changes in the risk factors contained in our Annual Report on Form 10-K, other
than those set forth below.
We
may be unable to acquire or lease land and/or obtain the approvals, licenses and
permits necessary to build and operate photovoltaic (PV) power plants in a
timely and cost effective manner, and regulatory agencies, local communities or
labor unions may delay, prevent or increase the cost of construction and
operation of the PV plants we intend to build.
In order
to construct and operate our PV plants, we need to acquire or lease land and
obtain all necessary local, county, state and federal approvals, licenses and
permits. We may be unable to acquire the land or lease interests needed, may not
receive or retain the requisite approvals, permits and licenses or may encounter
other problems which could delay or prevent us from successfully constructing
and operating PV plants. For instance, the California Independent System
Operator has recently modified its transmission interconnection rules, phasing
out a serial process in favor of a cluster process for new projects, and may
further modify its rules in a manner that could negatively impact our favorable
position in transmission queues. Certain of our projects under development
will remain subject to the serial process while other projects in earlier stages
of development, as well as new projects on a going-forward basis, will be
subject to the cluster process. Although the transition to the cluster
process is still evolving and its ultimate impact is not yet fully known, our
project transmission costs could be materially higher than previously estimated
under the serial process, and our projects could be delayed or subject to
transmission planning timing uncertainties.
Many of
our proposed PV plants are located on or require access through public lands
administered by federal and state agencies pursuant to competitive public
leasing and right-of-way procedures and processes. The authorization for the
use, construction and operation of PV plants and associated transmission
facilities on federal, state and private lands will also require the assessment
and evaluation of mineral rights, private rights-of-way and other easements;
environmental, agricultural, cultural, recreational and aesthetic impacts; and
the likely mitigation of adverse impacts to these and other resources and uses.
The inability to obtain the required permits and, potentially, excessive delay
in obtaining such permits due, for example, to litigation, could prevent us from
successfully constructing and operating PV plants and could result in a
potential forfeiture of any deposit we have made with respect to a given
project. Moreover, project approvals subject to project modifications and
conditions, including mitigation requirements and costs, could affect the
financial success of a given project.
In
addition, local labor unions may increase the cost of, and/or lower the
productivity of, project development in Canada and California.
Lack
of transmission capacity availability, potential upgrade costs to the
transmission grid and other systems constraints could significantly impact our
ability to build PV plants and generate solar electricity power
sales.
In order
to deliver electricity from our PV plants to our customers, our projects need to
connect to the transmission grid. The lack of available capacity on the
transmission grid could substantially impact our projects, including causing
reductions in project size, delays in project implementation, increased costs
from transmission upgrades and potential forfeitures of any deposit we have made
with respect to a given project. These transmission issues, as well as issues
relating to the availability of large systems such as transformers and switch
gear, could significantly impact our ability to build PV plants and generate
solar electricity sales.
Our
project development business and our engineering, procurement and construction
(EPC) business are dependent upon us and third parties obtaining financing from
various sources which may not be available or may only be available on
unfavorable terms or in insufficient amounts.
Our
project development business is dependent on our ability to finance the
development of our PV plants. If we are unable to secure such financing or if it
is not available on terms that we determine are acceptable to us, we may be
unable to fully execute our project development business plan, and our business,
financial condition or results of operations may be adversely
affected.
Our EPC
business is dependent on the ability of third parties to purchase our PV plant
projects, which, in turn, is dependent on their ability to obtain financing for
such purchases. Depending on prevailing conditions in the credit markets and
other factors, such financing may not be available or may only be available on
unfavorable terms or in insufficient amounts. If third parties are limited in
their ability to access financing to support their purchase of PV plant projects
from us, we may not realize the cash flows that we expect from such sales, and
this could adversely affect our ability to generate revenue.
Page |
45
Developing
solar power projects may require significant upfront investment prior to the
signing of a power purchase agreement (PPA) or an EPC contract, which could
adversely affect our business and results of operations.
Our solar
power project development cycles, which span the time between the identification
of land and the commercial operation of a PV power plant project, vary
substantially and can take many months or years to mature. As a result of these
long project cycles, we may need to make significant upfront investments of
resources in advance of the signing of PPAs and EPC contracts and the receipt of
any revenue, much of which is not recognized for several additional months or
years following contract signing. Our potential inability to enter into sales
contracts with potential customers after making such upfront investments could
adversely affect our business and results of operations.
German feed-in-tariffs may be
adjusted earlier than previously expected, and any downward adjustment could
reduce demandfor our solar
modules, lead to a reduction in our net sales and adversely impact our operating
results.
Reduced growth in or the reduction, elimination or expiration of government
subsidies, economic incentives and other support for on-grid solar electricity
may result in the diminished competitiveness of solar energy relative to
conventional and non-solar renewable sources of energy, and could materially and
adversely affect the growth of the solar energy industry and our net sales.
Federal, state and local governmental bodies in many countries, most notably
Germany, Italy, Spain, France, Greece, Portugal, South Korea, Japan, Canada and
the United States, have provided subsidies in the form of feed-in tariffs,
rebates, tax incentives and other incentives to end-users, distributors, systems
integrators and manufacturers of photovoltaic products. Many of these government
incentives, such as feed-in-tariffs under the German Renewable Energy Law, or
the EEG, expire, phase out over time or require renewal by the applicable
authority. Germany is currently one of our core geographic markets,
and a substantial majority of our net sales result from sales of solar modules
to customers headquartered in Germany. The EEG was modified as of
January 1, 2009 by the German Government, and feed-in-tariffs were significantly
reduced compared with the former legislation. The next review of German
feed-in-tariffs is scheduled for 2012. However, an earlier adjustment
is highly likely following the recent election of a new center-right/liberal
government. If the German government reduces or eliminates the subsidies under
the EEG, demand for photovoltaic products could significantly decline in
Germany, which could have a material adverse effect on our business, financial
condition and results of operations.
Our ability to pursue an
expansion strategy in Ontario, Canada beyond certain existing projects may be
adversely affected byrestrictions
contained in the new Ontario feed-in-tariff program.
In Ontario, Canada, a
new feed-in-tariff program was introduced in September 2009 and replaced the
Renewable Energy Standard Offer Program (RESOP) as the primary subsidy program
for future renewable energy projects. In order to participate in the
Ontario feed-in-tariff program, certain provisions relating to minimum required
domestic content and land use restrictions for solar installations must be
satisfied. The new domestic content and land restriction rules do not apply
to the Sarnia solar projects and the other projects governed by RESOP contracts
that we acquired in connection with our acquisition of the solar power project
development business of OptiSolar Inc. in April 2009. However, our Ontario
projects in earlier stages of development that are not governed by RESOP
contracts, as well as any potential new projects in Ontario, will be subject to
such domestic content and land restriction rules. As these rules are
currently written, we will be unable to fully satisfy such rules (in particular
the domestic content requirement rules) and thus qualify for the Ontario
feed-in-tariff. In the event the Ontario domestic content and land use
restriction rules are not sufficiently modified, our ability to participate in
the Ontario feed-in-tariff program for future projects will be substantially
reduced and possibly completely eliminated, and thus our ability to pursue an
expansion strategy in Ontario, Canada beyond our existing RESOP projects would
be adversely affected.
If
our goodwill, investment in a related party or project assets become impaired,
we may be required to record a significant charge to earnings.
We may be
required to record a significant charge to earnings in our financial statements
should we determine that our goodwill, investment in a related party or project
assets are impaired. Such a charge might have a significant impact on our
financial position and results of operations.
As
required by accounting rules, we review our goodwill, investment in related
party and project assets for impairment when events or changes in our business
or circumstances indicate that their fair value might be less than their
carrying value. Factors that may be considered a change in circumstances
indicating that the carrying value of our goodwill might not be recoverable
include a significant decline in our stock price and market capitalization, a
significant decline in projections of future cash flows and significantly slower
growth rates in our industry. We are also required to test goodwill for
impairment at least annually. We would write down project assets, which are
capitalized on the balance sheet for certain solar power projects, should we
determine that the project is not commercially viable.
Page |
46
Item 2.
Unregistered Sales of Equity
Securities and Use of Proceeds
Recent Sales of Unregistered
Securities
As
previously reported in a Current Report on Form 8-K filed with the Securities
and Exchange Commission on April 9, 2009, on April 3, 2009, we completed the
acquisition of the solar power project development business (the Project
Business) of OptiSolar Inc., a Delaware corporation (OptiSolar). Pursuant to an
Agreement and Plan of Merger (the Merger Agreement) dated as of March 2, 2009 by
and among First Solar, First Solar Acquisition Corp., a Delaware corporation
(Merger Sub), OptiSolar and OptiSolar Holdings LLC, a Delaware limited liability
company (OptiSolar Holdings), Merger Sub merged with and into OptiSolar, with
OptiSolar surviving as a wholly-owned subsidiary of First Solar (the Merger).
Pursuant to the Merger, all the outstanding shares of common stock of OptiSolar
held by OptiSolar Holdings were exchanged for the Merger Shares. The Merger
Shares consisted of 2,972,420 shares of First Solar common stock, par value
$0.001 per share, including (i) 732,789 shares that have been issued and
deposited with an escrow agent to support certain indemnification obligations of
OptiSolar Holdings, and (ii) 355,096 shares that were issuable upon satisfaction
of conditions relating to the satisfaction of certain then existing liabilities
of OptiSolar (the Holdback Shares). The Merger Shares and certain Holdback
Shares were issued, and any remaining Holdback Shares will be issued in a
private placement exempt from registration pursuant to Section 4(2) of the
Securities Act of 1933, as amended. First Solar has prepared and filed with the
Securities and Exchange Commission a registration statement under the Securities
Act covering the resale of 2,801,435 of the Merger Shares.
As of
September 26, 2009, 333,932 Holdback Shares had been issued to OptiSolar
Holdings. Of this amount, 331,523 Holdback shares were issued to OptiSolar
Holdings during the three months ended September 26, 2009. As of September 26,
2009, a total of 2,951,256 Merger Shares had been issued. The period during
which claims for indemnification from the escrow fund may be inititated
commenced on April 3, 2009 and will end on April 3,
2011.
Page |
47
Item
6. Exhibits
The
following exhibits are filed with this Quarterly Report on Form
10-Q:
|
Incorporated by Reference
|
|
|
|||
Exhibit
Number
|
Exhibit
Description
|
Form
|
File
No.
|
Date of
Filing
|
Exhibit
Number
|
Filed or Furnished
Herewith
|
10.1
|
Credit
Agreement, dated as of September 4, 2009, among First Solar, Inc.,
First Solar Manufacturing GmbH, the lenders party thereto, JPMorgan Chase
Bank, N.A., as Administrative Agent, Bank of America and The Royal Bank of
Scotland plc, as Documentation Agents, and Credit Suisse, Cayman Islands
Branch, as Syndication Agent
|
8-K
|
001-33156
|
09/10/09
|
10.1
|
|
10.2
|
Charge
of Company Shares, dated as of September 4, 2009, between First
Solar, Inc., as Chargor, and JPMorgan Chase Bank, N.A., as Security Agent,
relating to 66% of the shares of First Solar FE Holdings Pte. Ltd.
(Singapore)
|
8-K
|
001-33156
|
09/10/09
|
10.2
|
|
10.3
|
German
Share Pledge Agreements, dated as of September 4, 2009, between First
Solar, Inc., First Solar Holdings GmbH, First Solar Manufacturing GmbH,
First Solar GmbH, and JPMorgan Chase Bank, N.A., as Administrative
Agent
|
8-K
|
001-33156
|
09/10/09
|
10.3
|
|
10.4
|
Guarantee
and Collateral Agreement, dated as of September 4, 2009, by First
Solar, Inc. in favor of JPMorgan Chase Bank, N.A., as Administrative
Agent
|
8-K
|
001-33156
|
09/10/09
|
10.4
|
|
10.5
|
Guarantee,
dated as of September 8, 2009, between First Solar Holdings GmbH,
First Solar GmbH, First Solar Manufacturing GmbH, as German Guarantors,
and JPMorgan Chase Bank, N.A., as Administrative Agent
|
8-K
|
001-33156
|
09/10/09
|
10.5
|
|
10.6
|
Assignment
Agreement, dated as of September 4, 2009, between First Solar
Holdings GmbH and JPMorgan Chase Bank, N.A., as Administrative
Agent
|
8-K
|
001-33156
|
09/10/09
|
10.6
|
|
10.7
|
Assignment
Agreement, dated as of September 4, 2009, between First Solar GmbH
and JPMorgan Chase Bank, N.A., as Administrative Agent
|
8-K
|
001-33156
|
09/10/09
|
10.7
|
|
10.8
|
Assignment
Agreement, dated as of September 8, 2009, between First Solar
Manufacturing GmbH and JPMorgan Chase Bank, N.A., as Administrative
Agent
|
8-K
|
001-33156
|
09/10/09
|
10.8
|
|
10.9
|
Security
Trust Agreement, dated as of September 4, 2009, between First Solar,
Inc., First Solar Holdings GmbH, First Solar GmbH, First Solar
Manufacturing GmbH, as Security Grantors, JPMorgan Chase Bank, N.A., as
Administrative Agent, and the other Secured Parties party
thereto
|
8-K
|
001-33156
|
09/10/09
|
10.9
|
|
10.10
|
Employment
Agreement and Change in Control Severance Agreement dated September 9,
2009 between First Solar, Inc. and Robert J. Gillette
|
8-K
|
001-33156
|
09/10/09
|
10.1
|
|
10.11
|
Memorandum
of Understanding, dated September 8, 2009, between First Solar, Inc. and
Ordos City Government
|
8-K
|
001-33156
|
09/08/09
|
99.2
|
|
31.01
|
Certification
of Chief Executive Officer pursuant to 15 U.S.C. Section 7241, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
—
|
—
|
—
|
—
|
X
|
—
|
—
|
—
|
—
|
X
|
||
31.02
|
Certification
of Chief Financial Officer pursuant to 15 U.S.C. Section 7241, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
—
|
—
|
—
|
—
|
X
|
32.01*
|
Certification
of Chief Executive Officer and Chief Financial Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
|
—
|
—
|
—
|
—
|
X
|
101.INS**
|
XBRL
Instance Document
|
—
|
—
|
—
|
—
|
X
|
101.SCH**
|
XBRL
Taxonomy Extension Schema Document
|
—
|
—
|
—
|
—
|
X
|
101.DEF**
|
XBRL Definition
Linkbase Document
|
—
|
—
|
—
|
—
|
X
|
101.CAL**
|
XBRL
Taxonomy Extension Calculation Linkbase Document
|
—
|
—
|
—
|
—
|
X
|
101.LAB**
|
XBRL
Taxonomy Label Linkbase Document
|
—
|
—
|
—
|
—
|
X
|
101.PRE**
|
XBRL
Taxonomy Extension Presentation Linkbase Document
|
—
|
—
|
—
|
—
|
X
|
*
|
This
exhibit shall not be deemed “filed” for purposes of Section 18 of the
Securities Exchange Act of 1934 or otherwise subject to the liabilities of
that section, nor shall it be deemed incorporated by reference in any
filing under the Securities Act of 1933 or the Securities Exchange Act of
1934, whether made before or after the date hereof and irrespective of any
general incorporation language in any
filings.
|
**
|
Furnished
herewith.
|
Page |
48
SIGNATURE
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
FIRST SOLAR, INC.
By: /s/ JENS
MEYERHOFF
Jens Meyerhoff
Chief Financial Officer
(Principal Financial Officer
and
Duly Authorized
Officer)
October
29, 2009
Page |
49
EXHIBIT
INDEX
|
Incorporated by Reference
|
|
|
|||
Exhibit
Number
|
Exhibit
Description
|
Form
|
File
No.
|
Date of
Filing
|
Exhibit
Number
|
Filed or Furnished
Herewith
|
10.1
|
Credit
Agreement, dated as of September 4, 2009, among First Solar, Inc.,
First Solar Manufacturing GmbH, the lenders party thereto, JPMorgan Chase
Bank, N.A., as Administrative Agent, Bank of America and The Royal Bank of
Scotland plc, as Documentation Agents, and Credit Suisse, Cayman Islands
Branch, as Syndication Agent
|
8-K
|
001-33156
|
09/10/09
|
10.1
|
|
10.2
|
Charge
of Company Shares, dated as of September 4, 2009, between First
Solar, Inc., as Chargor, and JPMorgan Chase Bank, N.A., as Security Agent,
relating to 66% of the shares of First Solar FE Holdings Pte. Ltd.
(Singapore)
|
8-K
|
001-33156
|
09/10/09
|
10.2
|
|
10.3
|
German
Share Pledge Agreements, dated as of September 4, 2009, between First
Solar, Inc., First Solar Holdings GmbH, First Solar Manufacturing GmbH,
First Solar GmbH, and JPMorgan Chase Bank, N.A., as Administrative
Agent
|
8-K
|
001-33156
|
09/10/09
|
10.3
|
|
10.4
|
Guarantee
and Collateral Agreement, dated as of September 4, 2009, by First
Solar, Inc. in favor of JPMorgan Chase Bank, N.A., as Administrative
Agent
|
8-K
|
001-33156
|
09/10/09
|
10.4
|
|
10.5
|
Guarantee,
dated as of September 8, 2009, between First Solar Holdings GmbH,
First Solar GmbH, First Solar Manufacturing GmbH, as German Guarantors,
and JPMorgan Chase Bank, N.A., as Administrative Agent
|
8-K
|
001-33156
|
09/10/09
|
10.5
|
|
10.6
|
Assignment
Agreement, dated as of September 4, 2009, between First Solar
Holdings GmbH and JPMorgan Chase Bank, N.A., as Administrative
Agent
|
8-K
|
001-33156
|
09/10/09
|
10.6
|
|
10.7
|
Assignment
Agreement, dated as of September 4, 2009, between First Solar GmbH
and JPMorgan Chase Bank, N.A., as Administrative Agent
|
8-K
|
001-33156
|
09/10/09
|
10.7
|
|
10.8
|
Assignment
Agreement, dated as of September 8, 2009, between First Solar
Manufacturing GmbH and JPMorgan Chase Bank, N.A., as Administrative
Agent
|
8-K
|
001-33156
|
09/10/09
|
10.8
|
|
10.9
|
Security
Trust Agreement, dated as of September 4, 2009, between First Solar,
Inc., First Solar Holdings GmbH, First Solar GmbH, First Solar
Manufacturing GmbH, as Security Grantors, JPMorgan Chase Bank, N.A., as
Administrative Agent, and the other Secured Parties party
thereto
|
8-K
|
001-33156
|
09/10/09
|
10.9
|
|
10.10
|
Employment
Agreement and Change in Control Severance Agreement dated September 9,
2009 between First Solar, Inc. and Robert J. Gillette
|
8-K
|
001-33156
|
09/10/09
|
10.1
|
|
10.11
|
Memorandum
of Understanding, dated September 8, 2009, between First Solar, Inc. and
Ordos City Government
|
8-K
|
001-33156
|
09/08/09
|
99.2
|
|
31.01
|
Certification
of Chief Executive Officer pursuant to 15 U.S.C. Section 7241, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
—
|
—
|
—
|
—
|
X
|
—
|
—
|
—
|
—
|
X
|
||
31.02
|
Certification
of Chief Financial Officer pursuant to 15 U.S.C. Section 7241, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
—
|
—
|
—
|
—
|
X
|
32.01*
|
Certification
of Chief Executive Officer and Chief Financial Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
|
—
|
—
|
—
|
—
|
X
|
101.INS**
|
XBRL
Instance Document
|
—
|
—
|
—
|
—
|
X
|
101.SCH**
|
XBRL
Taxonomy Extension Schema Document
|
—
|
—
|
—
|
—
|
X
|
101.DEF**
|
XBRL Definition
Linkbase Document
|
—
|
—
|
—
|
—
|
X
|
101.CAL**
|
XBRL
Taxonomy Extension Calculation Linkbase Document
|
—
|
—
|
—
|
—
|
X
|
101.LAB**
|
XBRL
Taxonomy Label Linkbase Document
|
—
|
—
|
—
|
—
|
X
|
101.PRE**
|
XBRL
Taxonomy Extension Presentation Linkbase Document
|
—
|
—
|
—
|
—
|
X
|
*
|
This
exhibit shall not be deemed “filed” for purposes of Section 18 of the
Securities Exchange Act of 1934 or otherwise subject to the liabilities of
that section, nor shall it be deemed incorporated by reference in any
filing under the Securities Act of 1933 or the Securities Exchange Act of
1934, whether made before or after the date hereof and irrespective of any
general incorporation language in any
filings.
|
**
|
Furnished
herewith.
|
Page |
50