UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
Form
10-Q
(Mark
one)
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R
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QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For
the quarterly period ended March 28, 2009
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or
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£
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For
the transition period
from
to
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Commission
file number: 001-33156
First
Solar, Inc.
(Exact
name of registrant as specified in its charter)
Delaware
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20-4623678
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(State
or other jurisdiction of
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(I.R.S.
Employer
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incorporation
or organization)
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Identification
No.)
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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 posed 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 £ 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
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Accelerated
filer £
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Non-accelerated
filer £
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Smaller
reporting company £
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(Do
not check if a smaller reporting company)
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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 April 24, 2009 there were 84,466,286 shares of the registrant’s common stock,
par value $0.001, outstanding.
FIRST
SOLAR, INC. AND SUBSIDIARIES
FORM
10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 28, 2009
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Page
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3
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4
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5
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6
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19
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26
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27
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28
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28
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28
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29
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30
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31
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Item 1. Unaudited Condensed Consolidated
Financial Statements
FIRST
SOLAR, INC. AND SUBSIDIARIES
(In
thousands, except per share amounts)
(Unaudited)
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Three
Months Ended
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March
28,
2009
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March
29,
2008
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Net
sales
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$ |
418,208 |
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$ |
196,915 |
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Cost
of sales
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182,924 |
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92,591 |
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Gross
profit
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235,284 |
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104,324 |
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Operating
expenses:
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Research
and development
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11,704 |
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4,760 |
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Selling,
general and administrative
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49,315 |
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28,671 |
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Production
start-up
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6,209 |
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12,761 |
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Total
operating expenses
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67,228 |
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46,192 |
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Operating
income
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168,056 |
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58,132 |
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Foreign
currency gain
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1,834 |
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774 |
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Interest
income
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2,103 |
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6,685 |
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Interest
expense, net
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(935 |
) |
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(4 |
) |
Other
expense, net
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(1,326 |
) |
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(378 |
) |
Income
before income taxes
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169,732 |
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65,209 |
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Income
tax expense
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5,137 |
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18,590 |
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Net
income
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$ |
164,595 |
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$ |
46,619 |
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Net
income per share:
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Basic
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$ |
2.01 |
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$ |
0.59 |
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Diluted
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$ |
1.99 |
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$ |
0.57 |
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Weighted-average
number of shares used in per share calculations:
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Basic
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81,685 |
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79,059 |
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Diluted
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82,612 |
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81,607 |
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See
accompanying notes to these condensed consolidated financial
statements.
FIRST
SOLAR, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEETS
(In
thousands, except share data)
(Unaudited)
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March 28,
2009
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December 27,
2008
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ASSETS
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Current
assets:
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Cash
and cash equivalents
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$ |
624,932 |
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$ |
716,218 |
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Marketable
securities — current
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172,176 |
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76,042 |
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Accounts
receivable, net
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184,790 |
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61,703 |
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Inventories
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131,468 |
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121,554 |
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Deferred
project costs
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12,259 |
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710 |
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Economic
development funding receivable
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— |
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668 |
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Deferred
tax asset, net — current
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11,658 |
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9,922 |
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Prepaid
expenses and other current assets
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102,421 |
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90,584 |
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Total
current assets
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1,239,704 |
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1,077,401 |
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Property,
plant and equipment, net
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867,660 |
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842,622 |
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Deferred
tax asset, net — noncurrent
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61,987 |
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61,325 |
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Marketable
securities — noncurrent
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14,460 |
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29,559 |
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Restricted
cash and investments
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30,148 |
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30,059 |
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Investment
in related party
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25,000 |
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25,000 |
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Goodwill
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33,829 |
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33,829 |
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Other
assets — noncurrent
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15,644 |
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14,707 |
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Total
assets
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$ |
2,288,432 |
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$ |
2,114,502 |
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LIABILITIES
AND STOCKHOLDERS’ EQUITY
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Current
liabilities:
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Accounts
payable
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$ |
41,853 |
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$ |
46,251 |
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Income
tax payable
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102,242 |
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99,938 |
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Accrued
expenses
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86,250 |
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140,899 |
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Current
portion of long-term debt
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32,952 |
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34,951 |
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Other
current liabilities
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52,542 |
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59,738 |
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Total
current liabilities
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315,839 |
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381,777 |
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Accrued
collection and recycling liabilities
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45,366 |
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35,238 |
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Long-term
debt
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195,216 |
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163,519 |
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Other
liabilities — noncurrent
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26,339 |
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20,926 |
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Total
liabilities
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582,760 |
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601,460 |
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Stockholders’
equity:
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Common
stock, $0.001 par value per share; 500,000,000 shares
authorized; 81,844,290 and 81,596,810 shares issued and outstanding
at March 28, 2009 and December 27, 2008, respectively
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82 |
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82 |
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Additional
paid-in capital
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1,194,324 |
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1,176,156 |
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Accumulated
earnings
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525,820 |
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361,225 |
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Accumulated
other comprehensive loss
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(14,554 |
) |
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(24,421 |
) |
Total
stockholders’ equity
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1,705,672 |
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1,513,042 |
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Total
liabilities and stockholders’ equity
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$ |
2,288,432 |
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$ |
2,114,502 |
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See
accompanying notes to these condensed consolidated financial
statements.
FIRST
SOLAR, INC. AND SUBSIDIARIES
(In
thousands)
(Unaudited)
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Three
Months Ended
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March
28,
2009
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March
29,
2008
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Cash
flows from operating activities:
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Cash
received from customers
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$ |
325,712 |
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$ |
194,595 |
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Cash
paid to suppliers and associates
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(259,726 |
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(137,779 |
) |
Interest
received
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|
2,885 |
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6,156 |
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Interest
paid, net of amounts capitalized
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(2,208 |
) |
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(4 |
) |
Income
taxes paid, net of refunds
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|
658 |
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4,905 |
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Excess
tax benefit from share-based compensation arrangements
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(3,254 |
) |
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(4,255 |
) |
Other
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(326 |
) |
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|
(348 |
) |
Net
cash provided by operating activities
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63,741 |
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63,270 |
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Cash
flows from investing activities:
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Purchases
of property, plant and equipment
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(86,404 |
) |
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(74,606 |
) |
Purchases
of marketable securities
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(117,554 |
) |
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(57,796 |
) |
Proceeds
from maturities of marketable securities
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7,000 |
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11,250 |
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Proceeds
from sales of marketable securities
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29,787 |
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223,902 |
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Investment
in note receivable
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(13,750 |
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— |
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Increase
in restricted investments
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(313 |
) |
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(12,091 |
) |
Net
cash provided by (used in) investing activities
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(181,234 |
) |
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90,659 |
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Cash
flows from financing activities:
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Proceeds
from issuance of common stock
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1,440 |
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5,935 |
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Repayment
of long-term debt
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(3,858 |
) |
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(25,740 |
) |
Proceeds
from issuance of debt, net of issuance costs
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45,267 |
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57 |
|
Excess
tax benefit from share-based compensation arrangements
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3,254 |
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|
4,255 |
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Proceeds
from economic development funding
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|
615 |
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|
35,661 |
|
Other
financing activities
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|
(1 |
) |
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(2 |
) |
Net
cash provided by financing activities
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46,717 |
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|
20,166 |
|
Effect
of exchange rate changes on cash and cash equivalents
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(20,510 |
) |
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12,175 |
|
Net
increase (decrease) in cash and cash equivalents
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(91,286 |
) |
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186,270 |
|
Cash
and cash equivalents, beginning of the period
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|
716,218 |
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|
404,264 |
|
Cash
and cash equivalents, end of the period
|
|
$ |
624,932 |
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$ |
590,534 |
|
Supplemental
disclosure of noncash investing and financing activities:
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Property,
plant and equipment acquisitions funded by liabilities
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$ |
(30,687 |
) |
|
$ |
26,500 |
|
See
accompanying notes to these condensed consolidated financial
statements.
FIRST
SOLAR, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Three
Months Ended March 28, 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 three months ended March 28, 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 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
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.
Note 2. Summary of Significant
Accounting Policies
Our
significant accounting policies are disclosed in our Annual Report on Form 10-K
for the year ended December 27, 2008 filed with the Securities and Exchange
Commission.
Note 3. Recent Accounting
Pronouncements
In
December 2007, the Financial Accounting Standards Board (FASB) issued
SFAS 141R, Business
Combinations, which replaces SFAS 141, Business Combinations.
SFAS 141R requires most assets acquired and liabilities assumed in a
business combination, contingent consideration and certain acquired
contingencies to be measured at their fair value as of the date of the
acquisition. SFAS 141R also requires that acquisition-related costs and
restructuring costs be recognized separately from the business combination.
SFAS 141R became effective for us for the year ending December 26, 2009 and
therefore applies to any business combinations that we might enter
into after December 27, 2008. SFAS 141R will apply to our recently
completed acquisition of the solar power project development business of
OptiSolar on April 3, 2009, as further described in Note 19 to our condensed
consolidated financial statements.
In
December 2007, the FASB issued SFAS 160, Noncontrolling Interests in
Consolidated Financial
Statements. SFAS 160 amends previous accounting literature to
establish new accounting and reporting standards for the noncontrolling interest
in a subsidiary (formerly referred to as “minority interest”) and for the
deconsolidation of a subsidiary. SFAS 160 became effective for us as of the
year ending December 26, 2009. The adoption of SFAS 160 did not have a material
impact on our financial position, results of operations or cash
flows.
In
February 2008, the FASB issued FASB Staff Position No. FAS 157-2
(FSP 157-2), Effective
Date of FASB Statement No. 157. FSP 157-2 deferred the
effective date of SFAS 157, Fair Value Measurements, for
nonfinancial assets and nonfinancial liabilities, except for items that are
recognized or disclosed at fair value in the financial statements on a recurring
basis, until fiscal years beginning after November 15, 2008. As a result of
FSP 157-2, we adopted SFAS 157 for our nonfinancial assets and
nonfinancial liabilities as of the beginning of the year ending December 26,
2009. The adoption of SFAS 157 for these assets and liabilities did not have a
material impact on our financial position, results of operations or cash
flows.
In
March 2008, the FASB issued SFAS 161, Disclosures About Derivative
Instruments and Hedging
Activities — an amendment of FASB Statement No. 133.
SFAS 161 expands quarterly disclosure requirements in SFAS 133 about
an entity’s derivative instruments and hedging activities. SFAS 161 became
effective for us as of the beginning of the year ending December 26, 2009. The
adoption of SFAS 161 in the first quarter of 2009 did not have a material impact
on our financial position, results of operations or cash flows.
In
September 2008, the FASB issued FSP FAS 133-1 and FIN 45-4, Disclosures About Credit Derivatives
and Certain Guarantees. FSP FAS 133-1 and FIN 45-4 are intended
to improve disclosures about credit derivatives by requiring more information
about the potential adverse effects of changes in credit risk on the financial
position, financial performance and cash flows of the sellers of credit
derivatives. FSP FAS 133-1 and FIN 45-4 became effective for us at the
beginning of the year ending December 26, 2009. The adoption of FSP
FAS 133-1 and FIN 45-4 in the first quarter of 2009 did not have a
material impact on our financial position, results of operations or cash
flows.
In
February 2009, the FASB issued FSP FAS 141R-1, Accounting for Assets Acquired and
Liabilities Assumed in a Business Combination That Arise from Contingencies.
FSP FAS 141R-1 amends the guidance in SFAS 141R about the accounting for
assets acquired and liabilities assumed in a business combination that arise
from contingencies that would be within the scope of SFAS 5 if not acquired or
assumed in a business combination. FSP FAS 141R-1 is effective for us at the
beginning of our year ending December 26, 2009 and therefore will apply to any
business combination that we might enter into after December 27, 2008. FSP FAS
141R-1 will apply to our recently completed acquisition of the solar power
project development business of OptiSolar on April 3, 2009 as further described
in Note 19 to our condensed consolidated financial statements. We do not expect
that the adoption of FSP FAS 141R-1 will have a material impact on our financial
position, results of operations or cash flows.
In
April 2009, the FASB issued FSP FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value
of Financial Instruments. FSP FAS 107-1 and APB 28-1 amend SFAS 107,
Disclosures about Fair Value
of Financial Instruments to require disclosures about fair value of
financial instruments for interim reporting periods as well as in annual
financial statements. This FSP also amends ABP 28 to require those disclosures
in summarized financial information at interim reporting periods. We will adopt
FSP FAS 107-1 and APB 28-1 in our second fiscal quarter ending on June 27, 2009.
We do not expect that the adoption of FSP FAS 107-1 and APB 28-1 will have a
material impact on our financial position, results of operations or cash
flows.
In
April 2009, the FASB issued FSP FAS 115-2 and FAS 124-2, Recognition and Presentation of
Other-Than Temporary Impairments. FSP FAS 115-2 and FAS 124-2 amends the
other-than-temporary impairment guidance for debt securities to make the
guidance more operational and to improve the presentation and disclosure of
other-than-temporary impairments on debt and equity securities in the financial
statements. We are required to adopt FSP FAS 115-2 and FAS 124-2 in our second
fiscal quarter ending on June 27, 2009. We have not yet evaluated the impact, if
any, the adoption of this Statement will have on our financial position, results
of operations or cash flows.
In
April 2009, the FASB issued FSP FAS 157-4, Determining Fair Value When the
Volume and Level of Activity for the Asset or Liability Have Significantly
Decreased and Identifying Transactions That Are not Orderly. FSP FAS
157-4 provides additional guidance for estimating fair value in accordance with
SFAS 157, Fair Value
Measurements, when the volume and level of activity for the asset or
liability have significantly decreased. This FSP also includes guidance on
identifying circumstances that indicate a transaction is not orderly. We are
required to adopt FSP FAS 157-4 in our second fiscal quarter ending on June 27,
2009. We have not yet evaluated the impact, if any, the adoption of this
Statement will have on our financial position, results of operations or cash
flows.
Note 4. 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.
As of March 28, 2009 and December 27, 2008, the carrying amount of goodwill
was $33.8 million.
SFAS 142,
Goodwill and Other Intangible
Assets 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 reporting unit that has goodwill
might be less than its carrying value. We performed our goodwill impairment
tests in the fourth quarter of the year ended December 27, 2008. Based on that
test, we concluded that our goodwill was not impaired. We also concluded that
there were no changes in facts and circumstances since the date of that test,
which 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 at the
time of acquisition and future customer contracts not yet started. 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 is
as follows (in thousands):
|
|
As
of March 28, 2009
(Unaudited)
|
|
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 |
|
|
303 |
|
|
91 |
|
|
394 |
|
|
242 |
|
|
152 |
|
Total
|
|
$ |
456 |
|
$ |
365 |
|
$ |
91 |
|
$ |
456 |
|
$ |
300 |
|
$ |
156 |
|
Amortization
expense for acquisition-related intangible assets was $0.1 million for the three
months ended March 28, 2009 and March 29, 2008, respectively. We expect to
amortize the remaining balance of our acquisition related intangible assets
during the year ending December 26, 2009.
Note
5. Cash and Investments
Cash,
cash equivalents and marketable securities consisted of the following at March
28, 2009 and December 27, 2008 (in thousands):
|
|
March
28,
2009
|
|
December 27,
2008
|
|
Cash
and cash equivalents:
|
|
|
|
|
|
Cash
|
|
$ |
539,642 |
|
$ |
603,434 |
|
Cash
equivalents:
|
|
|
|
|
|
|
|
Federal
agency debt
|
|
|
14,998 |
|
|
38,832 |
|
Money
market mutual fund
|
|
|
70,292 |
|
|
73,952 |
|
Total cash and cash equivalents
|
|
|
624,932 |
|
|
716,218 |
|
Marketable
securities:
|
|
|
|
|
|
|
|
Federal
agency debt
|
|
|
143,527 |
|
|
68,086 |
|
Foreign
agency debt
|
|
|
— |
|
|
6,977 |
|
Corporate
debt securities
|
|
|
43,109 |
|
|
30,538 |
|
Total marketable securities
|
|
|
186,636 |
|
|
105,601 |
|
Total
cash, cash equivalents and marketable securities
|
|
$ |
811,568 |
|
$ |
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 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 March 28, 2009, we
realized an immaterial amount in gains and did not realize any losses on our
marketable securities. During the three months ended March 29, 2008, we realized
$0.4 million in gains and $0.1 million in losses on our marketable securities.
See Note 8 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. Investments identified as being
impaired are subject to further review to determine if the investment is other
than temporarily impaired, in which case we write down the investment through
earnings to its impaired value and a new cost basis is established. We did not
identify any of our marketable securities as other-than-temporarily impaired at
March 28, 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 March 28, 2009
(Unaudited)
|
|
Security Type
|
|
Amortized
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Estimated
Fair
Value
|
|
Federal
agency debt
|
|
$ |
143,209 |
|
$ |
318 |
|
$ |
— |
|
$ |
143,527 |
|
Corporate
debt securities
|
|
|
42,863 |
|
|
246 |
|
|
— |
|
|
43,109 |
|
Total
|
|
$ |
186,072 |
|
$ |
564 |
|
$ |
— |
|
$ |
186,636 |
|
|
|
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 |
|
Contractual
maturities of our available-for-sale marketable securities as of March 28, 2009
and December 27, 2008 were as follows (in thousands):
|
|
As
of March 28, 2009
(Unaudited)
|
|
Maturity
|
|
Amortized
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Estimated
Fair
Value
|
|
One
year or less
|
|
$ |
171,816 |
|
$ |
360 |
|
$ |
— |
|
$ |
172,176 |
|
One
year to two years
|
|
|
14,256 |
|
|
204 |
|
|
— |
|
|
14,460 |
|
Total
|
|
$ |
186,072 |
|
$ |
564 |
|
$ |
— |
|
$ |
186,636 |
|
|
|
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 $0.6 million and $0.4 million as of March 28,
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,
limits the types of acceptable investments, limits the concentration as to
security holder and limits the duration of the investments.
Note 6. Consolidated Balance Sheet
Details
Accounts
receivable, net
Accounts
receivable, net consisted of the following at March 28, 2009 and December 27,
2008 (in thousands):
|
|
March
28,
2009
|
|
December
27,
2008
|
|
Accounts
receivable, gross
|
|
$ |
184,790 |
|
$ |
61,703 |
|
Allowance
for doubtful accounts
|
|
|
— |
|
|
— |
|
Accounts
receivable, net
|
|
$ |
184,790 |
|
$ |
61,703 |
|
The increase in accounts
receivable was mainly due to the amendment of certain customers' long-term
supply contracts, that extended our customers’ payment terms from 10 days to 45
days, net as well as the timing of shipments to customers during the three
months ended March 28, 2009.
Inventories
Inventories
consisted of the following at March 28, 2009 and December 27, 2008 (in
thousands):
|
|
March
28,
2009
|
|
December
27,
2008
|
|
Raw
materials
|
|
$ |
104,763 |
|
$ |
103,725 |
|
Work
in process
|
|
|
7,562 |
|
|
4,038 |
|
Finished
goods
|
|
|
19,143 |
|
|
13,791 |
|
Total
inventories
|
|
$ |
131,468 |
|
$ |
121,554 |
|
Prepaid
expenses and other current assets
Prepaid
expenses and other current assets consisted of the following at March 28, 2009
and December 27, 2008 (in thousands):
|
|
March
28,
2009
|
|
December
27,
2008
|
|
Prepaid
expenses
|
|
$ |
6,193 |
|
$ |
6,699 |
|
Prepaid
supplies
|
|
|
12,984 |
|
|
12,556 |
|
Capitalized
equipment spares
|
|
|
14,204 |
|
|
12,900 |
|
Prepaid
taxes — current
|
|
|
2,028 |
|
|
4 |
|
Derivative
instruments — current
|
|
|
29,690 |
|
|
34,931 |
|
Other
receivable from financial institution
|
|
|
9,232 |
|
|
10,764 |
|
Note
receivable
|
|
|
13,750 |
|
|
— |
|
Costs
and estimated earnings in excess of billings
|
|
|
— |
|
|
114 |
|
Other
current assets
|
|
|
14,340 |
|
|
12,616 |
|
Total
prepaid expenses and other current assets
|
|
$ |
102,421 |
|
$ |
90,584 |
|
Property,
plant and equipment
Property,
plant and equipment consisted of the following at March 28, 2009 and December
27, 2008 (in thousands):
|
|
March
28,
2009
|
|
December
27,
2008
|
|
Buildings
and improvements
|
|
$ |
177,791 |
|
$ |
137,116 |
|
Machinery
and equipment
|
|
|
685,488 |
|
|
559,566 |
|
Office
equipment and furniture
|
|
|
26,732 |
|
|
22,842 |
|
Leasehold
improvements
|
|
|
14,555 |
|
|
11,498 |
|
Depreciable
property, plant and equipment, gross
|
|
|
904,566 |
|
|
731,022 |
|
Accumulated
depreciation
|
|
|
(125,285 |
) |
|
(100,939 |
) |
Depreciable
property, plant and equipment, net
|
|
|
779,281 |
|
|
630,083 |
|
Land
|
|
|
5,658 |
|
|
5,759 |
|
Construction
in progress
|
|
|
82,721 |
|
|
206,780 |
|
Property,
plant and equipment, net
|
|
$ |
867,660 |
|
$ |
842,622 |
|
Depreciation
of property, plant and equipment was $25.8 million and $10.1 million for the
three months ended March 28, 2009 and March 29, 2008, respectively.
We incurred interest cost and capitalized a portion of it (into our property,
plant and equipment) as follows during the three months ended March 28, 2009 and
March 29, 2008 (in thousands):
|
|
Three
Months Ended
|
|
|
|
March
28,
2009
|
|
March
29,
2008
|
|
Interest
cost incurred
|
|
$ |
2,414 |
|
$ |
1,509 |
|
Interest
cost capitalized
|
|
|
(1,479 |
) |
|
(1,505 |
) |
Interest
expense, net
|
|
$ |
935 |
|
$ |
4 |
|
Accrued
expenses
Accrued
expenses consisted of the following at March 28, 2009 and December 27, 2008 (in
thousands):
|
|
March
28,
2009
|
|
December
27,
2008
|
|
Product
warranty liability — current portion
|
|
$ |
5,311 |
|
$ |
4,040 |
|
Accrued
compensation and benefits
|
|
|
11,922 |
|
|
32,145 |
|
Accrued
property, plant and equipment
|
|
|
22,099 |
|
|
44,115 |
|
Accrued
inventory
|
|
|
19,621 |
|
|
31,438 |
|
Accrued
utilities and plant services
|
|
|
6,827 |
|
|
5,100 |
|
Accrued
subcontractor services and materials
|
|
|
582 |
|
|
2,934 |
|
Accrued
taxes — other
|
|
|
1,406 |
|
|
6,182 |
|
Other
accrued expenses
|
|
|
18,482 |
|
|
14,945 |
|
Total
accrued expenses
|
|
$ |
86,250 |
|
$ |
140,899 |
|
Other
current liabilities
Other
current liabilities consisted of the following at March 28, 2009 and December
27, 2008 (in thousands):
|
|
March
28,
2009
|
|
December
27,
2008
|
|
Derivative
instruments — current
|
|
$ |
18,438 |
|
$ |
50,733 |
|
Deferred
revenue (1)
|
|
|
26,550 |
|
|
— |
|
Billings
in excess of costs and estimated earnings
|
|
|
2,919 |
|
|
2,159 |
|
Other
current liabilities
|
|
|
4,635 |
|
|
6,846 |
|
Total
other current liabilities
|
|
$ |
52,542 |
|
$ |
59,738 |
|
(1)
|
Deferred
revenue relates to solar module shipments that have not met the revenue
recognition criteria at March 28, 2009 and are expected to be recognized
in the second fiscal quarter of
2009.
|
Note 7. Derivative Financial
Instruments
As
a global company, we are exposed in the normal course of business to interest
rate risk and foreign currency risk 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 SFAS 133, Accounting for Derivative
Instruments and Hedging Activities, we present 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
SFAS 133 and of others by recording the changes in fair value directly to
current earnings (so-called “economic hedges”). These accounting approaches are
described in more detail where we discuss our various types of derivative
instruments below.
Various
classes of risk that we are exposed to in our business and risk management
systems using derivative instruments that we apply to these risks are described
below. See Note 8 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 March 28, 2009 (in
thousands):
|
Asset
Derivatives
|
|
Liability
Derivatives
|
|
|
Balance Sheet
Location
|
|
Fair Value
|
|
Balance Sheet
Location
|
|
Fair Value
|
|
Derivatives designated as hedging
instruments under SFAS 133:
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange
forward contracts
|
Other current
assets
|
|
$ |
20,696 |
|
Other
liabilities - current
|
|
$ |
12,258 |
|
|
Other non-current
assets
|
|
|
171 |
|
Other
liabilities - non current
|
|
|
278 |
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap
contracts
|
|
|
|
— |
|
Other
liabilities - current
|
|
|
539 |
|
|
|
|
|
|
|
Other
liabilities - non current
|
|
|
1,616 |
|
Total derivatives designated as
hedging instruments under SFAS 133
|
|
$ |
20,867 |
|
|
|
$ |
14,691 |
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as
hedging instruments under SFAS 133:
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange
forward
contracts
|
Other current
assets
|
|
$ |
8,733 |
|
Other
liabilities - current
|
|
$ |
5,502 |
|
Credit default
swaps
|
Other current
assets
|
|
|
261 |
|
|
|
|
— |
|
Total derivatives not designated
as hedging instruments under SFAS 133
|
|
|
8,994 |
|
|
|
|
5,502 |
|
|
|
|
|
|
|
|
|
|
|
|
Total derivative
instruments
|
|
|
$ |
29,861 |
|
|
|
$ |
20,193 |
|
The
following table presents the amounts affecting our condensed consolidated
statement of operations for the three months ended March 28, 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
|
|
Derivatives designated under SFAS
133
|
|
Three Months
Ended
March 28,
2009
|
|
Location of Gain (Loss)
Reclassified from Accumulated Other Comprehensive Income into
Income
|
|
Three Months
Ended
March 28,
2009
|
|
Derivatives designated as cash
flow hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange
forward
contracts
|
|
$ |
23,876 |
|
Net sales
|
|
$ |
22,190 |
|
Interest rate swaps
|
|
|
(777 |
) |
|
|
|
— |
|
Total derivatives designated as cash flow
hedges
|
|
$ |
23,099 |
|
|
|
$ |
22,190 |
|
|
|
Amount of Gain (Loss) on
Derivatives recognized in Income
|
|
|
|
|
Three Months
Ended
March 28,
2009
|
|
Location of Gain (Loss) Recognized
in Income on Derivatives
|
Derivatives designated as cash
flow hedges under SFAS 133:
|
|
|
Foreign
exchange forward contracts
|
|
$ |
22,190 |
|
Net
sales
|
Interest
rate swaps
|
|
$ |
(134 |
) |
Interest income
(expense)
|
|
|
|
|
|
|
Derivatives not designated as
hedging instruments under SFAS 133:
|
|
|
Foreign exchange
forward
contracts
|
|
$ |
(4,889 |
) |
Other income
(expense)
|
Foreign exchange
forward
contracts
|
|
$ |
(1,455 |
) |
Cost of
sales
|
|
|
|
|
|
|
Credit default
swaps
|
|
$ |
(1,000 |
) |
Other income
(expense)
|
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
interest rate swap agreements for speculative or trading purposes. We have
interest rate swap contracts with a financial institution that effectively
converts to fixed rates the floating variable rate of the Euro Interbank Offered
Rate (Euribor) on certain drawdowns taken on the term loan portion of our credit
facility with a consortium of banks for financing our German plant. These
interest rate swap contracts are required under the credit facility agreement.
The total notional value of the interest rate swap contract was
€36.8 million ($48.9 million at the balance sheet close rate on March
28, 2009 of $1.33/€1.00) on March 28, 2009. As of March 28, 2009, the weighted
average interest rate for the interest rate swap contracts was
4.12%.
The notional amounts of the interest rate swap contracts are scheduled to
decline in correspondence to our scheduled principal payments on the hedged term
loan drawdowns. These derivative instruments qualified for accounting as cash
flow hedges in accordance with SFAS 133, Accounting for Derivative
Instruments and Hedging Activities, and we designated
them as such. We determined that our interest rate swap contracts were highly
effective as cash flow hedges at March 28, 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 are denominated in currencies other
than the relevant component’s functional currencies. 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 March 28, 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 SFAS 133, 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 March 28,
2009. In addition, during the three months ended March 28, 2009, we did not
discontinue any cash flow hedges because it was probable that a forecasted
transaction would not occur.
During
the three months ended March 28, 2009, we purchased foreign exchange forward
contracts to hedge the exchange risk on forecasted cash flows denominated in
euro. As of March 28, 2009, the unrealized gain of these contracts was
$8.3 million and the total notional value of the contracts was
€471.5 million ($627.1 million at the balance sheet close rate on
March 28, 2009 of $1.33/€1.00). The weighted average forward exchange rate for
these contracts was $1.35/€1.00 at March 28, 2009.
Transaction
Exposure
Many
components of our business have assets and liabilities (primarily receivables,
investments and accounts payable, including 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 three months ended March 28, 2009, we purchased forward foreign exchange
contracts to hedge balance sheet exposure 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 foreign currency gain
(loss) on our consolidated statements of operations. As of March 28, 2009, the
total notional value of our foreign exchange forward contracts to purchase and
sell euros with/for U.S. dollars was €162.2 million and
€128.5 million, respectively ($215.7 million and $170.9 million,
respectively at the balance sheet close rate on March 28, 2009 of $1.33/€1.00);
the total notional value of our foreign exchange forward contracts to purchase
and sell U.S. dollars with/for euros was $4.3 million and $1.3 million,
respectively; the total notional value of our foreign exchange forward contracts
to purchase and sell Malaysian ringgit with/for U.S. dollars was MYR
91.0 million and MYR 41.0 million, respectively ($25.5 million
and $11.5 million, respectively at the balance sheet close rate on March
28, 2009 of $0.28/MYR1.00); and the total notional value of our foreign exchange
forward contracts to purchase and sell Japanese yen with/for U.S. dollars
was JPY 140.0 million and JPY 50.0 million, respectively
($1.4 million and $0.5 million, respectively at the balance sheet
close rate on March 28, 2009 of $0.01/JPY1.00). As of March 28, 2009, the
unrealized gain of these contracts was $3.2 million. These contracts have
maturities of two months or less.
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
counter parties 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.
In
addition, we have certain restricted investments that are exposed to credit
risk. These consist primarily of restricted investments, which are held by a
financial services company to fund our estimated future product collection and
recycling costs. As of March 28, 2009 our restricted investments with a
subsidiary of this financial services company were $26.2 million. In
October 2008, we entered into credit default swaps (CDS) with J.P. Morgan
Chase NA, New York to protect this restricted investment from a significant
pre-defined credit event related to the parent of the financial services
company. Under a CDS, a third party assumes, for a fee, a portion of the credit
risk related to an investment. The CDSs we entered into provide protection for
losses in the event of a pre-defined credit event of the parent of the financial
services company up to $25.0 million. At March 28, 2009, we had recorded
losses related to fair value adjustments on the CDSs of $1.0 million. One
of our CDSs expired on March 20, 2009 and the other one will expire on
June 20, 2009.
Note 8. Fair Value
Measurement
On
December 30, 2007, the beginning of our fiscal year 2008, we adopted
SFAS 157. SFAS 157 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 SFAS 157 was limited to our fair
value measurements of financial assets and financial liabilities, as permitted
by FSP 157-2. On December 28, 2008, the beginning of our fiscal year 2009,
we adopted SFAS 157 for the remainder of our fair value measurements. The
implementation of the fair value measurement guidance of SFAS 157 did not
result in any material changes to the carrying values of our assets and
liabilities.
SFAS 157
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. SFAS 157 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 on
our balance sheet at fair value on a recurring basis:
|
•
|
Cash
Equivalents. At March 28, 2009, our cash equivalents
consisted of federal agency debt and money market mutual funds. We value
some of 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.
We also have cash equivalents which we value using 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 consider the effect of our counterparties’
credit standings in our valuations of our marketable securities
holdings.
|
|
•
|
Marketable
securities. At March 28, 2009, our marketable securities
consisted of federal agency debt and corporate debt securities. 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 March 28, 2009, our derivative assets
and liabilities consist of foreign exchange forward contracts involving
major currencies, interest rate swap contracts involving a benchmark
interest rate and credit default swaps. 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 financial 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
SFAS 143, Accounting for Asset
Retirement 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.
|
For
the three months ended March 28, 2009, information about inputs into the fair
value measurements of our assets and liabilities that we make on a recurring
basis is 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:
|
|
|
|
|
|
|
|
|
|
Federal
agency debt
|
|
$ |
14,998 |
|
$ |
— |
|
$ |
14,998 |
|
$ |
— |
|
Money
market mutual funds
|
|
|
70,292 |
|
|
70,292 |
|
|
— |
|
|
— |
|
Marketable
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
agency debt
|
|
|
143,527 |
|
|
— |
|
|
143,527 |
|
|
— |
|
Corporate
debt securities
|
|
|
43,109 |
|
|
— |
|
|
43,109 |
|
|
— |
|
Derivative
assets
|
|
|
29,861 |
|
|
— |
|
|
29,861 |
|
|
— |
|
Total
assets
|
|
$ |
301,787 |
|
$ |
70,292 |
|
$ |
231,495 |
|
$ |
— |
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
liabilities
|
|
$ |
20,193 |
|
$ |
— |
|
$ |
20,193 |
|
$ |
— |
|
Note
9. Related Party Transactions
In
October 2008, we made an investment in preferred stock of a company based in the
United States that supplies solar power plants to commercial and
residential customers at a total cost of $25.0 million. This investment
represents an ownership of approximately 12% of the voting interest in this
company 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 of
accounting.
In
the fourth quarter of 2008, we also entered into a long-term solar module supply
agreement with this related party. During the three months ended March 28, 2009
we recognized $2.2 million in net sales to this related party. At March 28, 2009
we had accounts receivable from this related party of $1.0 million.
Note 10. Note
Receivable
On
April 8, 2009 we entered into a credit facility agreement with a solar project
entity of one of our customers for an amount of €17.5 million
($23.3 million at the balance sheet close rate on March 28, 2009 of
$1.33/€1.00) to provide financing of a photovoltaic facility. The credit
facility replaces the outstanding bridge loan of €10.3 million as of March 28,
2009 ($13.7 million at the balance sheet close rate on March 28, 2009 of
$1.33/€1.00). The bridge loan matured on April 15, 2009. The credit facility
bears interest at 8% per annum and is due on December 31, 2026. The remaining
balance of the credit facility is expected to be drawn in the second quarter of
2009.
Note 11. Debt
Our
long-term debt at March 28, 2009 and December 27, 2008 consisted of the
following (in thousands):
|
|
March
28,
2009
|
|
December 27,
2008
|
|
Euro
denominated loan, variable interest Euribor plus 1.6%, due 2008 through
2012
|
|
$ |
48,993 |
|
$ |
54,982 |
|
Euro
denominated loan, variable interest Euribor plus 0.55%, due 2008 through
2016
|
|
|
85,702 |
|
|
66,975 |
|
Euro
denominated 4.54% loan, due 2008 through 2016
|
|
|
85,702 |
|
|
66,975 |
|
2.25%
loan, due 2006 through 2015
|
|
|
11,133 |
|
|
11,694 |
|
0.25% —
3.25% loan, due 2007 through 2009
|
|
|
1,250 |
|
|
1,528 |
|
Capital
lease obligations
|
|
|
4 |
|
|
5 |
|
|
|
|
232,784 |
|
|
202,159 |
|
Less
unamortized discount
|
|
|
(4,616 |
) |
|
(3,689 |
) |
Total
long-term debt
|
|
|
228,168 |
|
|
198,470 |
|
Less
current portion
|
|
|
32,952 |
|
|
34,951 |
|
Noncurrent
portion
|
|
$ |
195,216 |
|
$ |
163,519 |
|
As
of March 28, 2009 and December 27, 2008, we did not have any short-term
debt.
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
(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. Pursuant to the terms of the Facility
Agreement, the lenders will furnish up to €134.0 million
($178.2 million at the balance sheet close rate on March 28, 2009 of
$1.33/€1.00) of credit facilities consisting of the following:
(1) Five
fixed-rate euro-denominated term loan facilities, which have the following
maximum aggregate amounts:
a) €16.9 million
($22.5 million at the balance sheet close rate on March 28, 2009 of
$1.33/€1.00);
b) €16.3 million
($21.7 million at the balance sheet close rate on March 28, 2009 of
$1.33/€1.00);
c) €16.3 million
($21.7 million at the balance sheet close rate on March 28, 2009 of
$1.33/€1.00);
d) €16.3 million
($21.7 million at the balance sheet close rate on March 28, 2009 of
$1.33/€1.00);
e) €1.2 million
($1.6 million at the balance sheet close rate on March 28, 2009 of
$1.33/€1.00); and
(2) Five
floating-rate euro-denominated term loan facilities, which have the following
maximum aggregate amounts:
a) €16.9 million
($22.5 million at the balance sheet close rate on March 28, 2009 of
$1.33/€1.00);
b) €16.3 million
($21.7 million at the balance sheet close rate on March 28, 2009 of
$1.33/€1.00);
c) €16.3 million
($21.7 million at the balance sheet close rate on March 28, 2009 of
$1.33/€1.00);
d) €16.3 million
($21.7 million at the balance sheet close rate on March 28, 2009 of
$1.33/€1.00); and
e) €1.2 million
($1.6 million at the balance sheet close rate on March 28, 2009 of
$1.33/€1.00).
The
loans under the fixed rate credit facilities bear interest on the outstanding
unpaid principal amount at an annual rate of 4.54%. The loans under the floating
rate credit facilities bear interest on the outstanding unpaid principal amount
at Euribor plus a margin of 0.55%.
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 will guaranty 95% of FS
Malaysia’s obligations related to the Facility Agreement (Hermes Guaranty). In
addition, FS Malaysia’s obligations related to the Facility Agreement are
guaranteed, on an unsecured basis, by First Solar, Inc., pursuant to a guaranty
agreement described below.
The
Facility Agreement requires FS Malaysia to make 14 equal semi-annual repayments
of the total principal borrowed under each of the ten credit facilities. The
first of these repayments commences on the earlier of (1) the day that is
six months after the date that the Malaysian manufacturing center plant to which
the credit facility relates becomes ready for operation and (2) a date
specified for each credit facility, the earliest of which is September 30,
2008 for the credit facilities listed as (1) a) and
(2) a) above. Principal repayments commenced on September 30,
2008.
FS
Malaysia may voluntarily cancel commitments of the credit facilities and may
make prepayments of amounts outstanding in whole or in part, subject to minimum
prepayment requirements and the payment of break costs. Subject to a limited
exception, in the event that the Euler-Hermes Guaranty is (1) fully or
partially withdrawn, or otherwise ceases to be in full force and effect or
(2) repudiated by Euler-Hermes (or its intention to repudiate is evidenced
in writing), or if any of the obligations of Euler-Hermes under the Euler-Hermes
Guaranty ceases to be legal, valid, binding or in full force and effect, the
loans made by any lender under any of the credit facilities may, at the
direction of the lender, be declared immediately due and payable.
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 Facility Agreement. As stated above, FS Malaysia’s
obligations related to the Facility Agreement are guaranteed, on an unsecured
basis, by First Solar pursuant to this guaranty agreement.
In
connection with the Facility Agreement, all of FS Malaysia’s obligations related
to the 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
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
Facility Agreement.
The
Facility Agreement contains various financial covenants which we must comply
with, such as debt to equity ratios, total leverage ratios, interest coverage
ratios and debt service coverage ratios. We must submit these ratios related to
the financial covenants for the first time at the end of fiscal 2009. The
Facility Agreement also contains various customary non-financial covenants which
FS Malaysia must comply with, including, submitting various financial reports
and business forecasts to the lenders, maintaining adequate insurance, complying
with applicable laws and regulations, restrictions on FS Malaysia’s ability to
sell or encumber assets and make loan guarantees to third parties. We were in
compliance with these covenants through March 28, 2009.
As
of March 28, 2009, we had outstanding borrowings of €126.1 million
($167.7 million at the balance sheet close rate on March 28, 2009 of
$1.33/€1.00) under the Facility Agreement.
Certain
of our debt-financing agreements bear 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 as currently experienced could negatively
impact interbank lending and therefore negatively impact the Euribor rate. An
increase in the Euribor rate would increase our cost of borrowing.
Note 12. Commitments and
Contingencies
Financial
guarantees
In
the normal course of business, we occasionally enter into agreements with third
parties where 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 FASB Interpretation No. (FIN) 45, Guarantor’s Accounting and
Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Other. As of March 28, 2009, none of these
guarantees were material to our financial position.
Commercial
commitments
As
of March 28, 2009, we had the following three outstanding commercial commitments
in the form of letters of credit and bank guarantees: MYR 4.0 million dated
June 2008 for an energy supply agreement ($1.1 million at the balance sheet
close rate on March 28, 2009 of $0.28/MYR1.00); MYR 3.0 million dated
September 2008 for Malaysian custom and excise tax ($0.8 million at the
balance sheet close rate on March 28, 2009 of $0.28/MYR1.00); and MYR
2.2 million dated December 2007 for an energy supply agreement
($0.6 million at the balance sheet close rate on March 28, 2009 of
$0.28/MYR1.00).
Product
warranties
We
offer warranties on our products and record an estimate of the associated
liability based on the number of solar modules under warranty at customer
locations, our historical experience with warranty claims, our monitoring of
field installation sites, our in-house testing of our solar modules and our
estimated per-module replacement cost.
Product
warranty activity during the three months ended March 28, 2009 and March 29,
2008 was as follows (in thousands):
|
|
Three
Months Ended
|
|
|
|
March
28,
2009
|
|
March
29,
2008
|
|
Product
warranty liability, beginning of period
|
|
$ |
11,905 |
|
$ |
7,276 |
|
Accruals
for new warranties issued (warranty expense)
|
|
|
3,091 |
|
|
1,992 |
|
Settlements
|
|
|
(208 |
) |
|
(8 |
) |
Change
in estimate of warranty liability
|
|
|
(1,231 |
) |
|
1 |
|
Product
warranty liability, end of period
|
|
$ |
13,557 |
|
$ |
9,261 |
|
Current
portion of warranty liability
|
|
$ |
5,311 |
|
$ |
3,921 |
|
Non-current
portion of warranty liability
|
|
$ |
8,246 |
|
$ |
5,340 |
|
Note 13. 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 SFAS 123(R), Share-Based Payment. The
share-based compensation expense that we recognized in our consolidated
statements of operations for the three months ended March 28, 2009 and March 29,
2008 was as follows (in thousands):
|
|
Three
Months Ended
|
|
|
|
March
28,
2009
|
|
March
29,
2008
|
|
Share-based
compensation expense included in:
Cost
of sales
|
|
$ |
3,019 |
|
$ |
2,208 |
|
Research
and development
|
|
|
1,819 |
|
|
965 |
|
Selling,
general and administrative
|
|
|
9,874 |
|
|
7,400 |
|
Production
start-up
|
|
|
472 |
|
|
286 |
|
Total
share-based compensation expense
|
|
$ |
15,184 |
|
$ |
10,859 |
|
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 months ended March 28, 2009 and March 29, 2008 (in
thousands):
|
|
Three
Months Ended
|
|
|
|
March
28,
2009
|
|
March
29,
2008
|
|
Stock
options
|
|
$ |
2,054 |
|
$ |
5,060 |
|
Restricted
stock units
|
|
|
13,243 |
|
|
5,528 |
|
Unrestricted
stock
|
|
|
113 |
|
|
81 |
|
Net
amount absorbed into inventory
|
|
|
(226 |
) |
|
190 |
|
Total
share-based compensation expense
|
|
$ |
15,184 |
|
$ |
10,859 |
|
Share-based
compensation cost capitalized in our inventory was $0.6 million and $0.4 million
at March 28, 2009 and March 29, 2008, respectively. As of March 28, 2009, we had
$12.6 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 1.2 years, and $85.1 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 1.9 years.
Note 14. 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, which generally
provides for a 100% exemption from Malaysian income tax. 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.
Our
effective tax rate was 3.0% for the three months ended March 28, 2009. Without
the $11.5 million tax benefit discussed above, our effective tax rate would have
been 9.8%. Without the beneficial impact of the Malaysian tax holiday on 2009
operations, our effective tax rate would have been 20.8%. 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 discussed
above.
Note 15. 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 months ended
March 28, 2009 and March 29, 2008 is as follows (in thousands, except per share
amounts):
|
|
Three
Months Ended
|
|
|
|
March
28,
2009
|
|
March
29,
2008
|
|
Basic
net income per share
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
Net
income
|
|
$ |
164,595 |
|
$ |
46,619 |
|
Denominator:
|
|
|
|
|
|
|
|
Weighted-average
shares used in computing basic net income per share
|
|
|
81,685 |
|
|
79,059 |
|
Diluted
net income per share
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
Weighted-average
shares used in computing basic net income per share
|
|
|
81,685 |
|
|
79,059 |
|
Effect
of stock options and restricted stock units outstanding
|
|
|
927 |
|
|
2,548 |
|
Weighted-average
shares used in computing diluted net income per share
|
|
|
82,612 |
|
|
81,607 |
|
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
for the three months ended March 28, 2009 and March 29, 2008 as they would have
had an antidilutive effect (in thousands):
|
|
Three
Months Ended
|
|
|
|
March
28,
2009
|
|
March
29,
2008
|
|
Restricted
stock units and options to purchase common stock
|
|
|
261 |
|
|
131
|
|
Note
16. Accumulated Other 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, is as follows (in thousands):
|
|
Three
Months Ended
|
|
|
|
March
28,
2009
|
|
March
29,
2008
|
|
Net
income
|
|
$ |
164,595 |
|
$ |
46,619 |
|
Foreign
currency translation adjustments
|
|
|
(13,886 |
) |
|
9,442 |
|
Change
in unrealized gain on marketable securities, net of tax of $(59) for
2009
|
|
|
103 |
|
|
288 |
|
Change
in unrealized gain (loss) on derivative instruments, net of tax of $550
for 2009
|
|
|
23,650 |
|
|
(23,298 |
) |
Comprehensive
income
|
|
$ |
174,462 |
|
$ |
33,051 |
|
Components
of accumulated other comprehensive loss were as follows (in
thousands):
|
|
March
28,
2009
|
|
December
27,
2008
|
|
Foreign
currency translation adjustments
|
|
$ |
(21,711 |
) |
$ |
(7,825 |
) |
Unrealized
gain on marketable securities, net of tax of $203 for 2009 and $(144) for
2008
|
|
|
365 |
|
|
262 |
|
Unrealized
gain (loss) on derivative instruments, net of tax of $(615) for 2009 and
$65 for 2008
|
|
|
6,792 |
|
|
(16,858 |
) |
Accumulated
other comprehensive loss
|
|
$ |
(14,554 |
) |
$ |
(24,421 |
) |
Note 17. Statement of Cash
Flows
The
following table presents a reconciliation of net income to net cash provided by
operating activities for the three months ended March 28, 2009 and March 29,
2008 (in thousands):
|
|
Three
Months Ended
|
|
|
|
March
28,
2009
|
|
March
29,
2008
|
|
Net
income
|
|
$ |
164,595 |
|
$ |
46,619 |
|
Adjustments
to reconcile net income to cash provided by (used in) operating
activities:
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
26,085 |
|
|
9,064 |
|
Share-based
compensation
|
|
|
15,184 |
|
|
10,859 |
|
Remeasurement
of debt
|
|
|
(255 |
) |
|
— |
|
Deferred
income taxes
|
|
|
(1,874 |
) |
|
1,027 |
|
Excess
tax benefits from share-based compensation arrangements
|
|
|
(3,254 |
) |
|
(4,255 |
) |
Loss
on disposal of property and equipment
|
|
|
294 |
|
|
30 |
|
Provision
for doubtful accounts receivable
|
|
|
— |
|
|
669 |
|
Provision
for excess and obsolete inventories
|
|
|
2,165 |
|
|
82 |
|
Gain
on sales of investments, net
|
|
|
(7 |
) |
|
(280 |
) |
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(93,204 |
) |
|
(3,000 |
) |
Inventories
|
|
|
(12,649 |
) |
|
(17,254 |
) |
Deferred
project costs
|
|
|
(11,370 |
) |
|
1,424 |
|
Prepaid
expenses and other current assets
|
|
|
(6,723 |
) |
|
(2,031 |
) |
Costs
and estimated earnings in excess of billings
|
|
|
114 |
|
|
6 |
|
Other
noncurrent assets
|
|
|
(1,888 |
) |
|
(1,761 |
) |
Billings
in excess of costs and estimated earnings
|
|
|
951 |
|
|
(909 |
) |
Accounts
payable and accrued expenses
|
|
|
(14,423 |
) |
|
22,980 |
|
Total
adjustments
|
|
|
(100,854 |
) |
|
16,651 |
|
Net
cash provided by operating activities
|
|
$ |
63,741 |
|
$ |
63,270 |
|
Note 18. Segment
Reporting
SFAS 131,
Disclosure about Segments of
an Enterprise and Related Information, 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.
The
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 thirteen principal customers, with which we have long
term supply contracts. These customers include project developers, system
integrators and operators of renewable energy projects.
We
also sell solar power systems directly to system owners. These systems include
both our solar modules and balance of system components that we procure from
third parties. These sales may also include services such as development,
engineering, procurement of permits and equipment, construction management,
monitoring and maintenance. We do not recognize revenue from intercompany sales
by our components segments to our solar power systems and project development
business. Instead, the sale of our solar panels manufactured by the components
segment and used for construction projects are included in “net sales” of our
solar power system and project development business. Our solar power systems and
project development business 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 is as follows (in thousands):
|
|
Three
Months Ended
|
|
Three
Months Ended
|
|
|
|
March
28, 2009
|
|
March
29, 2008
|
|
|
|
Components
|
|
Other
|
|
Total
|
|
Components
|
|
Other
|
|
Total
|
|
Net
sales
|
|
$ |
413,062 |
|
$ |
5,146 |
|
$ |
418,208 |
|
$ |
193,862 |
|
$ |
3,053 |
|
$ |
196,915 |
|
Income
(loss) before income taxes
|
|
$ |
173,124 |
|
$ |
(3,392 |
) |
$ |
169,732 |
|
$ |
68,116 |
|
$ |
(2,907 |
) |
$ |
65,209 |
|
Goodwill
|
|
$ |
— |
|
$ |
33,829 |
|
$ |
33,829 |
|
$ |
— |
|
$ |
33,829 |
|
$ |
33,829 |
|
Assets
|
|
$ |
2,240,394 |
|
$ |
48,038 |
|
$ |
2,288,432 |
|
$ |
1,427,316 |
|
$ |
49,843 |
|
$ |
1,477,159 |
|
Note 19. Subsequent
Events
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 (as defined below). The
Merger Shares consist of 2,972,420 shares of First Solar common stock, including
(i) 732,789 shares that have been deposited with an escrow agent to support
certain indemnification obligations of OptiSolar Holdings, and (ii) 355,096
shares that may be issued upon satisfaction of conditions relating to the
satisfaction of certain existing liabilities of OptiSolar (the “Holdback
Shares”). 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. The Merger Shares were issued, and any 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 (the “Securities Act”). We have 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. We
expect to complete our purchase price allocation under SFAS 141R during the
second quarter of 2009.
On
April 15, 2009, we entered into an agreement with Sempra Generation to build a
48 megawatt (MW) AC ground-mounted photovoltaic (PV) power plant. This project
will expand the 10 MW AC power plant completed for Sempra Generation in 2008,
which is located near Boulder City, Nevada. We will design, engineer and
construct the PV power plant and expect to begin construction in
2009.
On
April 21, 2009, we entered into a VAT facility agreement in accordance with the
credit facility agreement (as further described in Note 10 to our condensed
consolidated financial statements) with the same customer for an amount of €9.0
million ($12.0 million at the balance sheet close rate on March 28, 2009 of
$1.33/€1.00). The VAT facility agreement is to pre-finance the amounts of German
value added tax (VAT) and any other tax obligations of similar nature during the
construction phase of the photovoltaic facility. The VAT facility agreement
bears interest at the aggregate of Euribor plus 1.2% and matures on December 31,
2010. A portion of the VAT facility is expected to be drawn in the second
quarter of 2009.
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; future financial results,
operating results, revenues, gross margin, operating expenses, products,
projected costs and capital expenditures; research and development programs;
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 the matters discussed in the section entitled “Risk Factors” elsewhere
in this Quarterly Report on Form 10-Q. 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. In 2008 and during the three months ended
March 28, 2009, we sold most of our solar modules to solar project developers
and system integrators headquartered in Germany, France and Spain.
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 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 also
provide comprehensive utility-scale photovoltaic systems solutions that
significantly reduce solar electricity costs. We sell solar power systems, which
include both our solar modules and balance of system components that we procure
from third parties, directly to systems owners. We also provide utility-scale
engineering, procurement and construction (EPC) capabilities related to the
development of commercial solar projects, including monitoring and maintenance
as part of a turnkey system solution delivery.
Market
Overview
The
solar industry has been moving 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 face significant challenges under the current
economic conditions, including an increase in interest or lending rates or
tightening of the supply of capital to finance solar projects. 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, 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 our
Long Term Supply Contracts. As 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, which could lower demand for our solar
modules.
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 in the three months ended March 28, 2009. 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
on our proprietary technology, which provides lower cost from 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 $80 and $100 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 velocity 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. In 2008, we reduced our manufacturing cost per watt by
12%.
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 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 related 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 our competitors in managing the demand for,
and manufacturing throughput of, our solar modules. Finally, we have formed and
continue to develop deep 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 incorporating our solar
modules.
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 and Spain, 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 three
months ended March 28, 2009, 93.3% of our sales were denominated in euro and
subject to fluctuation in the exchange rate between the euro and
U.S. dollar.
In
April 2006, we entered into long-term contracts for the purchase and sale of our
solar modules with six European solar power system project developers and system
integrators, and in 2007, we entered into additional long-term contracts for the
purchase and sale of our solar modules with six other European project
developers that also own and operate renewable energy projects. In 2008, we
entered into long-term contracts with three European project developers, system
integrators and operators and increased our contracted volume with four
customers. We also entered into 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.
During
the three months ended March 28, 2009 we amended our Long Term Supply Contracts
for certain customers to accelerate the decline in the sales price per watt
under such contracts in 2009 and 2010 in exchange for increases in the volume of
solar modules to be delivered under such contracts. We also extended the payment
terms for certain customers under these contracts from 10 days to 45 days,
net.
With
our acquisition of Turner Renewable Energy, LLC on November 30, 2007, we
began accounting for a portion of our revenues using the percent of completion
method of accounting. Net sales for our solar power systems and project
development business for the three months ended March 28, 2009 and March 29,
2008 were $5.1 million and $3.1 million, respectively, and were not material to
our consolidated results of operations.
Cost
of sales
Our
cost of sales includes the cost of raw materials and components for
manufacturing and installing solar modules, 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 panels 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 another
program that we 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 with 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 uninstalled materials we have procured for customer
projects. We recognize these costs as deferred assets until we install the
materials. Deferred project costs were $12.3 million and $1.2 million at March
28, 2009 and March 29, 2008, 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. For example, our Long Term Supply Contracts specify a
sales price per watt that declines 6.5% annually. 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 as well as the mix
of net sales generated by our module and project business coupled with a
geographic factor. As a result, gross profits may vary from quarter to quarter
and year to year.
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 continually 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 three months ended
March 28, 2009 was $6.2 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.
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 disclosure 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, derivative instrument valuation, end-of-life 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
|
|
|
|
March
28,
2009
|
|
|
March
29,
2008
|
|
Net
sales
|
|
|
100.0 |
% |
|
|
100.0 |
% |
Cost
of sales
|
|
|
43.7 |
% |
|
|
47.0 |
% |
Gross
profit
|
|
|
56.3 |
% |
|
|
53.0 |
% |
Research
and development
|
|
|
2.8 |
% |
|
|
2.4 |
% |
Selling,
general and administrative
|
|
|
11.8 |
% |
|
|
14.6 |
% |
Production
start-up
|
|
|
1.5 |
% |
|
|
6.5 |
% |
Operating
income
|
|
|
40.2 |
% |
|
|
29.5 |
% |
Foreign
currency gain
|
|
|
0.4 |
% |
|
|
0.4 |
% |
Interest
income
|
|
|
0.5 |
% |
|
|
3.4 |
% |
Interest
expense, net
|
|
|
(0.2) |
% |
|
|
0.0 |
% |
Other
expense, net
|
|
|
(0.3) |
% |
|
|
(0.2) |
% |
Income
tax expense
|
|
|
1.2 |
% |
|
|
9.4 |
% |
Net
income
|
|
|
39.4 |
% |
|
|
23.7 |
% |
Three
Months Ended March 28, 2009 and March 29, 2008
Net
sales
|
|
Three
Months Ended
|
|
|
|
(Dollars
in thousands)
|
|
March
28, 2009
|
|
March
29, 2008
|
|
Three
Month Period Change
|
|
Net
sales
|
|
$ |
418,208 |
|
$ |
196,915 |
|
$ |
221,293 |
|
|
112 |
% |
The
increase in our net sales was due to a 147% increase in the MW volume of solar
modules sold during the three months ended March 28, 2009 compared with the
three months ended March 29, 2008 due to strong demand for our solar modules in
both the U.S. and European markets. The increase in MW volume of solar modules
sold is attributable to the full production ramp of the first two plants at our
Malaysian manufacturing center, commencement of product shipments at the third
plant of 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 2.5% during the three months ended March 28, 2009
compared with the three months ended March 29, 2008. Our average selling price
decreased by approximately 13% during the three months ended March 28, 2009
compared with the three months ended March 29, 2008, mainly due to an 8%
reduction in our average selling price due to annual contractual price declines
that took effect in the first quarter of 2009 and amendments made to our Long
Term Supply contracts with certain customers in the first quarter of 2009. In
addition, our average selling price was adversely impacted by 5% due to an
unfavorable decline in the foreign exchange rate between the U.S. dollar and the
euro. During the three months ended March 29, 2008, 61.8% of our net sales
resulted from sales of solar modules to customers headquartered in
Germany.
Cost
of sales
|
|
Three
Months Ended
|
|
|
|
(Dollars
in thousands)
|
|
March
28, 2009
|
|
March
29, 2008
|
|
Three
Month Period Change
|
|
Cost
of sales
|
|
$ |
182,924 |
|
$ |
92,591 |
|
$ |
90,333 |
|
|
98 |
% |
%
of net sales
|
|
|
43.7 |
% |
|
47.0 |
% |
|
|
|
|
|
|
The
increase in our cost of sales was due to higher production and sales volumes,
which resulted from the commencement of production at our four plant Malaysian
manufacturing center. This increase in production and sales volume caused a
$48.1 million increase in direct material expense, a $7.5 million
increase in warranty expense and accruals for the costs of the end of life
collection and recycling of our solar modules, a $2.2 million increase in
sales freight and other costs and a $32.5 million increase in manufacturing
overhead costs. The increase in manufacturing overhead costs was due to a
$8.3 million increase in salaries and personnel related expenses, including
a $1.3 million increase in share-based compensation expense, a
$10.8 million increase in facility and related expenses and a
$13.4 million increase in depreciation expense, in each case primarily
resulting from increased infrastructure associated with the build out of our
Malaysian manufacturing center. Our average manufacturing cost per watt declined
by $0.21 per watt, or 18%, from $1.14 in the three months ended March 29, 2008
to $0.93 in the three months ended March 28, 2009 and included $0.02 of ramp
penalty associated with the ramp and qualification of Malaysian manufacturing
center and $0.01 of non-cash stock based compensation.
Gross
profit
|
|
Three
Months Ended
|
|
|
|
|
(Dollars
in thousands)
|
|
March
28, 2009
|
|
|
March
29, 2008
|
|
|
Three
Month Period Change
|
|
Gross
profit
|
|
$ |
235,284 |
|
|
$ |
104,324 |
|
|
$ |
130,960 |
|
|
126 |
% |
%
of net sales
|
|
|
56.3 |
% |
|
|
53.0 |
% |
|
|
|
|
|
|
|
As
a percentage of sales, gross profit increased 3.3 percentage points for the
three months ended March 28, 2009 compared with the three months ended March 29,
2008, representing increased leverage of our fixed cost infrastructure and
scalability associated with our Malaysian expansions, which drove a 147%
increase in the number of megawatts sold. During the three months ended March
28, 2009, increased leverage of our fixed cost infrastructure contributed
approximately 7.4% to our gross profit, which was partially offset by a 13%
decline in our average selling prices. Additionally, a decline in the exchange
rate between the U.S. dollar and the euro adversely impacted our gross
profit by 1.1%. 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 when
compared to the same period a year ago.
Research
and development
|
|
Three
Months Ended
|
|
|
|
(Dollars
in thousands)
|
|
March
28, 2009
|
|
March
29, 2008
|
|
Three
Month Period Change
|
|
Research
and development
|
|
$ |
11,704 |
|
$ |
4,760 |
|
$ |
6,944 |
|
|
146 |
% |
%
of net sales
|
|
|
2.8 |
% |
|
2.4 |
% |
|
|
|
|
|
|
The
increase in our research and development expense was due to a $5.6 million
increase in personnel related expense, including a $0.9 million increase in
share-based compensation expense, due to increased headcount and additional
share-based compensation awards. In addition, consulting and other expenses
increased by $0.9 million and grants received decreased by
$0.4 million during the three months ended March 28, 2009, compared with
the three months ended March 29, 2008. Throughout the fiscal period, we
continued the development of solar modules with increased efficiencies at
converting sunlight into electricity.
Selling,
general and administrative
|
|
Three
Months Ended
|
|
|
|
(Dollars
in thousands)
|
|
March
28, 2009
|
|
March
29, 2008
|
|
Three
Month Period Change
|
|
Selling,
general and administrative
|
|
$ |
49,315 |
|
$ |
28,671 |
|
$ |
20,644 |
|
|
72 |
% |
%
of net sales
|
|
|
11.8 |
% |
|
14.6 |
% |
|
|
|
|
|
|
The
increase in selling, general and administrative expense was due to a
$12.1 million increase in salaries and personnel-related expenses,
including a $2.5 million increase in share-based compensation. In addition,
legal and professional service fees increased by $5.3 million, including
$1.5 million of expenses associated with the acquisition of the solar power
project development business of OptiSolar, and other expenses increased by
$3.2 million during the three months ended March 28, 2009 compared with the
three months ended March 29, 2008. The increase resulted primarily from the
expansion of our solar power system and project development business and
operating a global manufacturing business.
Production
start-up
|
|
Three
Months Ended
|
|
|
|
(Dollars
in thousands)
|
|
March
28, 2009
|
|
March
29, 2008
|
|
Three
Month Period Change
|
|
Production
start-up
|
|
$ |
6,209 |
|
$ |
12,761 |
|
$ |
(6,552 |
) |
|
(51 |
)% |
%
of net sales
|
|
|
1.5 |
% |
|
6.5 |
% |
|
|
|
|
|
|
During
the three months ended March 28, 2009, we incurred $6.2 million of
production start-up expenses for our Malaysian manufacturing expansion,
including legal, regulatory and personnel costs, compared with
$12.8 million of production start-up expenses for our Malaysian
manufacturing expansion during the three months ended March 29, 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
|
|
Three
Months Ended
|
|
|
|
(Dollars
in thousands)
|
|
March
28, 2009
|
|
March
29, 2008
|
|
Three
Month Period Change
|
|
Foreign
currency gain
|
|
$ |
1,834 |
|
$ |
774 |
|
$ |
1,060 |
|
|
137 |
%. |
Foreign
exchange gain increased by $1.1 million during the three months ended March
28, 2009 compared with the three months ended March 29, 2008 due to a
substantial increase in our foreign currency denominated assets and liabilities
and the high volatility of the U.S. dollar relative to other currencies, in
particular the euro.
Interest
income
|
|
Three
Months Ended
|
|
|
|
(Dollars
in thousands)
|
|
March
28, 2009
|
|
March
29, 2008
|
|
Three
Month Period Change
|
|
Interest
income
|
|
$ |
2,103 |
|
$ |
6,685 |
|
$ |
(4,582 |
) |
|
(69 |
)% |
Interest
income decreased by $4.6 million during the three months ended March 28,
2009 compared with the three months ended March 29, 2008 as a result of a
decline in interest rates.
Interest
expense, net
|
|
Three
Months Ended
|
|
|
|
(Dollars
in thousands)
|
|
March
28, 2009
|
|
March
29, 2008
|
|
Three
Month Period Change
|
|
Interest
expense, net
|
|
$ |
935 |
|
$ |
4 |
|
$ |
931 |
|
|
N.M. |
|
Interest
expense, net of amounts capitalized, increased by $0.9 million during the three
months ended March 28, 2009 compared with the three months ended March 29, 2008,
primarily as a result of higher amounts of interest expense capitalized during
three months ended March 29, 2008 due to the construction of our Malaysian
manufacturing center.
Other
expense
|
|
Three
Months Ended
|
|
|
|
(Dollars
in thousands)
|
|
March
28, 2009
|
|
March
29, 2008
|
|
Three
Month Period Change
|
|
Other
expense
|
|
$ |
1,326 |
|
$ |
378 |
|
$ |
948 |
|
|
251 |
% |
Other
expense, net, increased by $0.9 million during the three months ended March 28,
2009 compared with the three months ended March 29, 2008, due to losses
associated with our credit default swaps, as described further in “Item 3.
Qualitative and Quantitative Disclosures About Market Risk – Credit
Risk.”
Income
tax expense
|
|
Three
Months Ended
|
|
|
|
(Dollars
in thousands)
|
|
March
28, 2009
|
|
March
29, 2008
|
|
Three
Month Period Change
|
|
Income
tax expense
|
|
$ |
5,137 |
|
$ |
18,590 |
|
$ |
(13,453 |
) |
|
(72 |
)% |
Effective
tax rate (%)
|
|
|
3.0 |
% |
|
28.5 |
% |
|
|
|
|
|
|
Income
tax expense decreased by $13.5 million during the three months ended March 28,
2009 compared with the three months ended March 29, 2008, substantially all of
which relates to tax benefits from the Malaysian tax holiday granted to our
Malaysian subsidiary, including an $11.5 million tax benefit related to the
approval of our request to pull forward the previously approved Malaysian tax
holiday to 2008. Please refer also to Note 14 to our consolidated financial
statements (Income Taxes) for more information.
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. There have been no changes to our critical accounting policies since
December 27, 2008.
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
As
of March 28, 2009, we had $811.6 million in cash, cash equivalents and
marketable securities, compared with $821.8 million as of December 27,
2008. We believe that our current cash, cash equivalents, marketable securities,
cash flows from operating activities, government grants and low interest debt
financings for our German and Malaysian plants will be sufficient to meet our
working capital and capital expenditures 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. As a result, we may engage in one or more debt or equity
financings in the future, which 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 current credit markets has had a
significant adverse impact on a number of financial institutions. As of March
28, 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
provided by operating activities was $63.7 million during the three months ended
March 28, 2009 compared with $63.3 million during the three months ended March
29, 2008. Net cash by operating activities during the three months ended March
28, 2009 resulted primarily from an increase in net income, as well as the
impact of non-cash items that were recorded on the statements of operations,
primarily depreciation and amortization expense and stock-based compensation
expense, offset by investments in accounts receivable, deferred project costs
and other current assets. Accounts receivable increased by $93.2 million during
the three months ended March 28, 2009 mainly due to the amendment of
certain customers’ long-term solar supply contracts, that extended our
customers’ payment terms from 10 days to 45 days, net as well as the timing of
shipments to customers during the three months ended March 28,
2009.
Cash
received from customers increased to $325.7 million during the three months
ended March 28, 2009 compared with $194.6 million during the three months ended
March 29, 2008 primarily due to an increase in net sales. Our net sales
increased from $196.9 million during the three months ended March 29, 2008 to
$418.2 million during the three months ended March 28, 2009. This increase was
partially offset by cash paid to suppliers and associates of $259.7 million
during the three months ended March 28, 2009 compared with cash paid to
suppliers and associates of $137.8 million during the three months ended March
29, 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.
Investing
Activities
Cash
used in investing activities was $181.2 million during the three months ended
March 28, 2009 compared with cash provided by investing activities of $90.7
million during the three months ended March 29, 2008. Cash used in investing
activities during the three months ended March 28, 2009 resulted primarily from
capital expenditures of $86.4 million and the net purchase of marketable
securities of $80.8 million. Further, we entered into a loan agreement for an
amount of $13.7 million with one of our customers to finance a photovoltaic
project. See Note 10 to our condensed consolidated financial statements for
further information. The increase in capital expenditures was primarily due to
our investments related to the construction of our new plants in Malaysia and
the expansion of our plant in Perrysburg, Ohio.
Cash
provided by investing activities during the three months ended March 29, 2008
resulted primarily from the net sale of marketable securities of $177.4 million,
partially offset by capital expenditures of $74.6 million and an increase in our
restricted investments of $12.1 million.
Financing
Activities
Cash
provided by financing activities was $46.7 million during the three months ended
March 28, 2009 compared with $20.2 million during the three months ended March
29, 2008. Cash provided by financing activities during the three months ended
March 28, 2009 resulted primarily from proceeds from the issuance of debt, net
of issuance costs, of $45.3 million related to the equipment export financing
agreement for our Malaysian manufacturing center. These cash proceeds were
partially offset by the repayment of long-term debt of $3.9 million. Proceeds
from the issuance of common stock during the three months ended March 28, 2009
were $1.4 million, mainly due to proceeds received from the exercise of employee
stock options. Excess tax benefits from share-based compensation arrangements
during the three months ended March 28, 2009 were $3.3 million.
Cash
provided by financing activities during the three months ended March 29, 2008
resulted primarily from investment incentives related to the construction of our
plant in Frankfurt/Oder, Germany of $35.7 million, offset by the repayment of
long-term debt of $25.7 million. Proceeds from the issuance of common stock
during the three months ended March 29, 2008 were $5.9 million mainly due to
proceeds received from the exercise of employee stock options. Excess tax
benefits from share-based compensation arrangements during the three months
ended March 29, 2008 were $4.3 million.
Off-Balance
Sheet Arrangements
We
had no off-balance sheet arrangements as of March 28, 2009.
Item 3. Quantitative and Qualitative
Disclosures About Market Risk
Foreign
Currency Exchange Risk
Our
international operations accounted for 93.3% of our net sales in the three
months ended March 28, 2009 and 98.4% of our net sales in the three months ended
March 29, 2008; all of these international sales 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 three months ended March 28, 2009, a 10% change in
the euro exchange rates would have impacted our net euro sales by
$39.0 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.
Our
primary foreign currency exposures are transaction, cash flow and
translation:
Transaction
Exposure: We have certain assets and liabilities, primarily
receivables, investments, accounts payable (including inter-company
transactions) and debt that are denominated in currencies other than the
relevant entity’s functional currency. In certain circumstances, changes in the
functional currency value of these assets and liabilities create fluctuations in
our reported consolidated financial position, results of operations and cash
flows. We may enter into foreign exchange forward contracts or other instruments
to minimize the effect of short-term foreign currency fluctuations on these
assets and liabilities. The gains and losses on the foreign exchange forward
contracts offset all or part of the transaction gains and losses that we
recognize in earnings on these assets and liabilities.
As
of March 28, 2009, the total notional value of our foreign exchange forward
contracts to purchase and sell euros with/for U.S. dollars was
€162.2 million and €128.5 million, respectively ($215.7 million
and $170.9 million, respectively at the balance sheet close rate on March
28, 2009 of $1.33/€1.00); the total notional value of our foreign exchange
forward contracts to purchase and sell U.S. dollars with/for euros was $4.3
million and $1.3 million, respectively; the total notional value of our foreign
exchange forward contracts to purchase and sell Malaysian ringgit with/for
U.S. dollars was MYR 91.0 million and MYR 41.0 million,
respectively ($25.5 million and $11.5 million, respectively at the
balance sheet close rate on March 28, 2009 of $0.28/MYR1.00); and the total
notional value of our foreign exchange forward contracts to purchase and sell
Japanese yen with/for U.S. dollars was JPY 140.0 million and JPY
50.0 million, respectively ($1.4 million and $0.5 million,
respectively at the balance sheet close rate on March 28, 2009 of
$0.01/JPY1.00). As of March 28, 2009, the unrealized gain of these contracts was
$3.2 million. These contracts have maturities of two months or
less.
If
the U.S. dollar would have weakened by 10% against the euro, Malaysian
ringgit and the Japanese yen, the adverse impact on our income before income
taxes related to our foreign exchange contracts to purchase and sell euro,
Malaysian ringgit and Japanese yen would have been
$5.7 million.
With
the acquisition of OptiSolar on April 3, 2009, we will become exposed to
currency exchange rate fluctuations between the U.S. dollar and the Canadian
dollar in the future.
Cash Flow
Exposure: We have forecasted future cash flows, including
revenues and expenses, denominated in currencies other than the relevant
entity’s functional currency. Our primary cash flow exposures include future
customer collections and vendor payments. Changes in the relevant entity’s
functional currency value will cause fluctuations in the cash flows we expect to
receive when these cash flows are realized or settled. We may enter into foreign
exchange forward contracts or other derivatives to hedge the value of a portion
of these 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 as a component of accumulated other comprehensive income (loss) and
subsequently reclassify it 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 March 29, 2008, the total notional value of these
forward contracts was €471.5 million ($627.1 million the balance sheet
close rate on March 29, 2008 of $1.33/€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 $20.5 million in the three months
ended March 28, 2009 and positively impacted our cash flows by
$12.2 million during the three months ended March 29, 2008. Although we
cannot predict the impact of future currency exchange rate fluctuations on our
business or results of operations, we believe that we have increased risk
associated with currency exchange rate fluctuations in the future.
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 expenditure. 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, which bears
interest at Euribor plus 1.6%. As of March 28, 2009, we hedged our exposure to
changes in Euribor using interest rate swaps with a combined notional value of
€36.8 million ($48.9 million at the balance sheet close rate on March
28, 2009 of $1.33/€1.00).
During
May 2008, we entered into an euro-denominated credit facility with IKB, Natixis,
Natixis Labuan Branch and Ausfuhrkredit-Gesellschaft mbH. The loans under
fixed-rate credit facility will bear interest on the outstanding unpaid
principal balance at an annual rate of 4.54%. The loans under the floating-rate
credit facility bears interest on the outstanding unpaid principal balance at
Euribor plus a margin of 0.55%.
In
addition, we invest some of our cash 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 funds, government and non-government debt securities and
certificates of deposit. As of March 28, 2009, our fixed-income investments
earned a pretax yield of 1.2%, with a weighted average maturity of
5.3 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 $1.0 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 will have a significant impact
on our financial position, results of operations or cash flows. As of March 28,
2009, all of our investments were in money market accounts, federal agency debt
and corporate debt securities.
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.
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
counter parties to our financial and derivative instruments. We place cash, cash
equivalents, investments, interest rate swap contracts and enter into derivative
contracts with 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.
In
addition, we have certain restricted investments that are exposed to credit
risk. These consist primarily of restricted investments, which are held by a
financial services company to fund our estimated future product collection and
recycling costs. As of March 28, 2009 our restricted investments with this
financial services company were $26.2 million. In October 2008, we entered
into credit default swaps (CDS) with J.P. Morgan Chase NA, New York to
protect this restricted investment from a significant pre-defined credit event
related to the parent of the financial services company. Under a CDS, a third
party assumes for a fee, a portion of the credit risk related to an investment.
The CDSs we entered into provide protection for losses in the event of a
pre-defined credit event of the parent of the financial services company up to
$25.0 million. At March 28, 2009, we had recorded losses related to fair
value adjustments on the CDSs of $1.0 million. One of our CDSs expired on
March 20, 2009, and the other one will expire on June 20,
2009.
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 March 28, 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 March 28, 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 three months ended
March 28, 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 three months ended March 28, 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.
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.
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 may modify its rules in a
manner that could negatively impact our favorable position in transmission
queues, and local labor unions may increase the cost of, and/or lower the
productivity of, project development in Canada and
California.
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 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.
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.
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 multiple 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.
Item
6. Exhibits
The
following exhibits are filed with this Quarterly Report on Form
10-Q:
Exhibit
|
|
Number
|
Exhibit Description
|
10.1
|
Agreement
and Plan of Merger, dated as of March 2, 2009, by and among First Solar,
Inc., First Solar Acquisition Corp., OptiSolar Inc. and OptiSolar
Holdings, LLC
|
10.2*
|
Amended
and Restated 2006 Omnibus Incentive Compensation Plan
|
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
|
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
|
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
|
*
|
This
exhibit is being filed solely to reflect the current share maximum amounts
under the Plan. A stock split effective November1, 2006 (prior to
the initial public offering of the Company later in November 2006)
resulted in a commensurate increase in theshare maximum amounts set forth
in Section 4(a) of the Plan. Such split-adjusted share maximum
amounts have been previously disclosed by the Company, including in the
Company’s Annual Report on Form 10-K for the year ended December 27, 2008,
and are now reflected in the attached
exhibit.
|
**
|
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.
|
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)
April
30, 2009
EXHIBIT
INDEX
Exhibit
|
|
Number
|
Exhibit
Description
|
10.1
|
Agreement
and Plan of Merger, dated as of March 2, 2009, by and among First Solar,
Inc., First Solar Acquisition Corp., OptiSolar Inc. and OptiSolar
Holdings, LLC
|
10.2*
|
Amended
and Restated 2006 Omnibus Incentive Compensation Plan
|
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
|
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
|
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
|
*
|
This
exhibit is being filed solely to reflect the current share maximum amounts
under the Plan. A stock split effective November1, 2006 (prior to
the initial public offering of the Company later in November 2006)
resulted in a commensurate increase in theshare maximum amounts set forth
in Section 4(a) of the Plan. Such split-adjusted share maximum
amounts have been previously disclosed by the Company, including in the
Company’s Annual Report on Form 10-K for the year ended December 27, 2008,
and are now reflected in the attached
exhibit.
|
**
|
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.
|