form10-q.htm
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark one) |
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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 June 27, 2009 |
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or |
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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 |
Commission file number: 001-33156
First Solar, Inc.
(Exact name of registrant as specified in its charter)
Delaware |
20-4623678 |
(State or other jurisdiction of |
(I.R.S. Employer |
incorporation or organization) |
Identification No.) |
350 West Washington Street, Suite 600
Tempe, Arizona 85281
(Address of principal executive offices, including zip code)
(602) 414-9300
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90
days. Yes R No £
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such
files). Yes R No £
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer R |
Accelerated filer £ |
Non-accelerated filer £ |
Smaller reporting company £ |
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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 July 24, 2009 there were 84,647,299 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 JUNE 27, 2009
TABLE OF CONTENTS
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Page |
Part I. |
Financial Information (Unaudited) |
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Item 1. |
Condensed Consolidated Financial Statements: |
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Condensed Consolidated Statements of Operations for the three and six months ended June 27, 2009 and June 28, 2008 |
3 |
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Condensed Consolidated Balance Sheets as of June 27, 2009 and December 27, 2008 |
4 |
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Condensed Consolidated Statements of Cash Flows for the six months ended June 27, 2009 and June 28, 2008 |
5 |
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Notes to Condensed Consolidated Financial Statements |
6 |
Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
27 |
Item 3. |
Quantitative and Qualitative Disclosures About Market Risk |
39 |
Item 4. |
Controls and Procedures |
41 |
Part II. |
Other Information |
42 |
Item 1. |
Legal Proceedings |
42 |
Item 1A. |
Risk Factors |
42 |
Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds |
44 |
Item 4. |
Submission of Matters to a Vote of Security Holders |
44 |
Item 5. |
Other Information |
44 |
Item 6. |
Exhibits |
44 |
Signature |
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46 |
Exhibit Index |
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47 |
PART I. FINANCIAL INFORMATION
Item 1. Unaudited Condensed Consolidated Financial Statements
FIRST SOLAR, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
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Three Months Ended |
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Six Months Ended |
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June 27,
2009 |
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June 28,
2008 |
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June 27,
2009 |
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June 28,
2008 |
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Net sales |
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$ |
525,876 |
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$ |
267,041 |
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$ |
944,084 |
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$ |
463,956 |
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Cost of sales |
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227,780 |
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122,341 |
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410,704 |
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214,932 |
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Gross profit |
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298,096 |
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144,700 |
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533,380 |
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249,024 |
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Operating expenses: |
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Research and development |
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18,605 |
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7,725 |
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30,309 |
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12,485 |
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Selling, general and administrative |
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72,926 |
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43,626 |
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122,241 |
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72,297 |
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Production start-up |
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2,524 |
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4,622 |
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8,733 |
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17,383 |
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Total operating expenses |
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94,055 |
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55,973 |
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161,283 |
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102,165 |
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Operating income |
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204,041 |
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88,727 |
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372,097 |
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146,859 |
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Foreign currency gain |
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239 |
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647 |
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2,073 |
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1,421 |
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Interest income |
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1,948 |
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4,923 |
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4,051 |
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11,608 |
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Interest expense, net |
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(3,827 |
) |
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— |
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(4,762 |
) |
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(4 |
) |
Other expense, net |
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(1,103 |
) |
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(441 |
) |
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(2,429 |
) |
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(819 |
) |
Income before income taxes |
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201,298 |
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93,856 |
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371,030 |
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159,065 |
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Income tax expense |
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20,719 |
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24,185 |
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25,856 |
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42,775 |
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Net income |
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$ |
180,579 |
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$ |
69,671 |
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$ |
345,174 |
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$ |
116,290 |
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Net income per share: |
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Basic |
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$ |
2.16 |
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$ |
0.87 |
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$ |
4.17 |
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$ |
1.46 |
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Diluted |
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$ |
2.11 |
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$ |
0.85 |
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$ |
4.10 |
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$ |
1.42 |
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Weighted-average number of shares used in per share calculations: |
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Basic |
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83,723 |
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79,877 |
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82,704 |
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79,468 |
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Diluted |
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85,668 |
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82,004 |
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84,140 |
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81,806 |
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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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June 27,
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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$ |
429,160 |
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$ |
716,218 |
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Marketable securities — current |
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160,714 |
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76,042 |
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Restricted cash and investments — current |
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48,970 |
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— |
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Accounts receivable, net |
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351,266 |
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61,703 |
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Inventories — current |
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162,501 |
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121,554 |
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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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14,880 |
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9,922 |
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Prepaid expenses and other current assets |
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76,996 |
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91,294 |
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Total current assets |
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1,244,487 |
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1,077,401 |
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Property, plant and equipment, net |
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911,869 |
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842,622 |
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Project assets — noncurrent |
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113,680 |
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— |
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Deferred tax asset, net — noncurrent |
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102,673 |
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61,325 |
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Marketable securities — noncurrent |
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138,239 |
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29,559 |
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Restricted cash and investments — noncurrent |
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33,695 |
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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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294,962 |
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33,829 |
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Inventories — noncurrent |
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6,273 |
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— |
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Other assets — noncurrent |
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39,301 |
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14,707 |
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Total assets |
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$ |
2,910,179 |
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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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$ |
55,631 |
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$ |
46,251 |
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Income tax payable |
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57,336 |
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99,938 |
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Accrued expenses |
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106,335 |
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140,899 |
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Current portion of long-term debt |
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76,639 |
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34,951 |
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Other liabilities — current |
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70,187 |
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59,738 |
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Total current liabilities |
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366,128 |
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381,777 |
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Accrued collection and recycling liabilities |
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60,880 |
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35,238 |
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Long-term debt |
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156,935 |
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163,519 |
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Other liabilities — noncurrent |
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41,345 |
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20,926 |
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Total liabilities |
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625,288 |
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601,460 |
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Stockholders’ equity: |
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Common stock, $0.001 par value per share; 500,000,000 shares authorized; 84,633,454 and 81,596,810 shares issued and outstanding at June 27, 2009 and December 27, 2008, respectively |
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85 |
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82 |
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Additional paid-in capital |
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1,576,132 |
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1,176,156 |
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Contingent consideration |
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47,394 |
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— |
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Accumulated earnings |
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706,399 |
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361,225 |
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Accumulated other comprehensive loss |
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(45,119 |
) |
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(24,421 |
) |
Total stockholders’ equity |
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2,284,891 |
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1,513,042 |
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Total liabilities and stockholders’ equity |
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$ |
2,910,179 |
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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
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
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Six Months Ended |
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June 27,
2009 |
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June 28,
2008 |
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Cash flows from operating activities: |
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Cash received from customers |
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$ |
671,786 |
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$ |
429,223 |
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Cash paid to suppliers and associates |
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(503,168 |
) |
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(301,653 |
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Interest received |
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3,294 |
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10,643 |
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Interest paid |
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(4,714 |
) |
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(1,523 |
) |
Income taxes (paid) received, net of refunds |
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(64,597 |
) |
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571 |
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Excess tax benefit from share-based compensation arrangements |
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(15,351 |
) |
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(13,953 |
) |
Other operating activities |
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(970 |
) |
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(818 |
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Net cash provided by operating activities |
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86,280 |
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122,490 |
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Cash flows from investing activities: |
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Purchases of property, plant and equipment |
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(145,966 |
) |
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(234,906 |
) |
Purchases of marketable securities |
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(264,881 |
) |
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(167,771 |
) |
Proceeds from maturities of marketable securities |
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42,000 |
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34,750 |
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Proceeds from sales of marketable securities |
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29,783 |
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278,887 |
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Investment in note receivable |
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(35,383 |
) |
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— |
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Increase in restricted investments |
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(42,439 |
) |
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(14,943 |
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Acquisitions, net of cash acquired |
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318 |
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— |
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Investment in project assets — noncurrent |
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(3,470 |
) |
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— |
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Other investing activities |
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(1,167 |
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— |
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Net cash used in investing activities |
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(421,205 |
) |
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(103,983 |
) |
Cash flows from financing activities: |
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Proceeds from issuance of common stock |
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3,820 |
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7,178 |
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Repayment of long-term debt |
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(14,256 |
) |
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(30,636 |
) |
Proceeds from issuance of debt, net of issuance costs |
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48,622 |
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49,446 |
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Excess tax benefit from share-based compensation arrangements |
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15,351 |
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|
13,953 |
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Proceeds from economic development funding |
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|
615 |
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|
35,661 |
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Other financing activities |
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(2 |
) |
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(4 |
) |
Net cash provided by financing activities |
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|
54,150 |
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|
75,598 |
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Effect of exchange rate changes on cash and cash equivalents |
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(6,283 |
) |
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|
12,875 |
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Net increase (decrease) in cash and cash equivalents |
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(287,058 |
) |
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|
106,980 |
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Cash and cash equivalents, beginning of the period |
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|
716,218 |
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|
404,264 |
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Cash and cash equivalents, end of the period |
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$ |
429,160 |
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$ |
511,244 |
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Supplemental disclosure of noncash investing and financing activities: |
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|
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Property, plant and equipment acquisitions funded by liabilities |
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$ |
(18,216 |
) |
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$ |
26,165 |
|
See accompanying notes to these condensed consolidated financial statements.
FIRST SOLAR, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Six Months Ended June 27, 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 six months ended June 27, 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 accompanying notes should be read in conjunction with the financial statements and notes thereto for the year ended December 27, 2008, included in our Annual Report on Form 10-K filed with the Securities
and Exchange Commission.
We report our results of operations using a 52 or 53 week fiscal year, which ends on the Saturday on or before December 31. Our fiscal quarters end on the Saturday closest to the end of the applicable calendar quarter. Fiscal 2009 will end on December 26, 2009 and will consist of 52 weeks.
Note 2. Summary of Significant Accounting Policies
These condensed consolidated financial statements and accompanying notes should be read in conjunction with our annual consolidated financial statements and notes thereto for the year ended December 27, 2008, included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission. Our significant accounting policies
reflect the adoption of Statement of Financial Accounting Standards No. (SFAS) 141 (revised 2007), Business Combinations, in the second quarter of fiscal 2009.
Note 3. Recent Accounting Pronouncements
In December 2007, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard (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 acquisition-related costs and restructuring costs to 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. The adoption of SFAS 141R did not have a material impact on our financial position, results of operations or cash flows, and we applied SFAS 141R to our recently completed acquisition of the solar power project development business of OptiSolar Inc. on April 3, 2009, as further described in Note 4 to our condensed consolidated financial statements.
In April 2009, the FASB issued FASB Staff Position (FSP) No. 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 applies to any business combination that we might enter into after December 27, 2008. The adoption of FSP FAS 141R-1 did not have a material impact on our financial position, results of operations or cash flows, and we applied FSP FAS 141R-1 to our recently
completed acquisition of the solar power project development business of OptiSolar Inc. on April 3, 2009 as further described in Note 19 to our condensed consolidated financial statements.
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 Accounting Principles Board Option (ABP) No. 28, Interim Financial Reporting, to require those disclosures in summarized financial information at interim reporting periods. We adopted FSP FAS 107-1 and APB 28-1 in our fiscal quarter ended June 27, 2009. The adoption of FSP FAS 107-1 and APB
28-1 did not 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 amend 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 adopted FSP FAS 115-2 and FAS 124-2 in our fiscal quarter ended June 27, 2009. The adoption of FSP FAS 115-2 and FAS 124-2 did not have a material impact 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 being measured have significantly decreased. This FSP also includes guidance about identifying circumstances that indicate a transaction is not orderly. We adopted FSP FAS 157-4 in our fiscal quarter ended June 27, 2009. The adoption of FSP FAS 157-4 did not have a material impact on our financial position, results of operations or cash
flows.
In May 2009, the FASB issued SFAS 165, Subsequent Events. This standard establishes general standards of accounting for and disclosure of events that occur after the balance sheet date, but before financial statements are issued or available to be issued. Specifically, this standard
codifies in authoritative GAAP standards the subsequent event guidance that was previously located in auditing standards. SFAS 165 is effective for fiscal years and interim periods ended after June 15, 2009 and is applied prospectively. We adopted SFAS 165 in our fiscal quarter ended June 27, 2009. The adoption of SFAS 165 did not have a material impact on our financial position, results of operation or cash flows.
In June 2009, the FASB issued SFAS 166, Accounting for Transfers of Financial Assets- an amendment of SFAS 140. This standard eliminates the concept of a “qualifying special-purpose entity,” changes the requirements for derecognizing financial assets, and requires additional
disclosures in order to enhance information to users of financial statements by providing greater transparency about transfers of financial assets, including securitization transactions, and an entity’s continuing involvement in and exposure to the risks related to transferred financial assets. SFAS 166 is effective for fiscal years ended after November 15, 2009. We do not expect that the adoption of SFAS 166 will have a material impact on our financial position, results of operations or cash flows.
In June 2009, the FASB issued SFAS 167, Amendments to FASB Interpretation No. 46(R). This standard changes the consolidation analysis for variable interest entities. SFAS 167 is effective for fiscal years ending after November 15, 2009. We are currently assessing the impact, if any,
that the adoption of SFAS 167 will have on our financial position, results of operations or cash flows.
In June 2009, the FASB issued SFAS 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles – a replacement of SFAS 162. This standard designates the FASB Accounting
Standards Codification (FASC) as the source of authoritative U.S. GAAP. SFAS 168 is effective for interim or fiscal periods ending after September 15, 2009. We will begin to use the new guidelines and numbering system prescribed by the FASC when referring to GAAP in our fiscal quarter ending September 26, 2009.
Note 4. Acquisition
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 2,972,420 shares of First Solar common stock, par value $0.001
per share (the “Merger Shares”), of which 732,789 shares have been issued and deposited with an escrow agent to support certain indemnification obligations of OptiSolar Holdings, and 355,096 shares were holdback shares as further described below under “Contingent Consideration” (the “Holdback Shares”). As of June 27, 2009, 2,619,733 Merger Shares have been issued. The period during which claims for indemnification from the escrow fund may be initiated commenced on April 3,
2009, and will end on April 3, 2011.
Purchase Price Consideration
The total consideration for this acquisition based on the closing price of our common stock on April 3, 2009 of $134.38 per share was $399.4 million.
Contingent Consideration
Pursuant to the Merger Agreement, of the 2,972,420 Merger Shares, as of April 3, 2009, 355,096 shares were Holdback Shares that were issuable to OptiSolar Holdings upon satisfaction of conditions relating to certain then-existing liabilities of OptiSolar. The estimated fair value of this contingent consideration was $47.4 million
and $47.7 million on June 27, 2009 and April 3, 2009, respectively, and has been classified separately within stockholders equity. As of June 27, 2009, 2,409 Holdback Shares had been issued to OptiSolar Holdings. Subsequent to June 27, 2009, an additional 331,523 Holdback Shares were issued to OptiSolar Holdings.
Preliminary Purchase Price Allocation
We accounted for this acquisition using the acquisition method in accordance with SFAS 141R. Accordingly, we preliminarily allocated the purchase price to the acquired assets and liabilities based on their estimated fair values at the acquisition date as summarized in the following table (in thousands):
The allocation of the purchase price on April 3, 2009 was as follows (in thousands):
Tangible assets acquired |
|
$ |
10,175 |
|
Project assets |
|
|
103,888 |
|
Deferred tax assets |
|
|
32,643 |
|
Deferred tax liability |
|
|
(8,405 |
) |
Goodwill |
|
|
261,133 |
|
Total purchase consideration |
|
$ |
399,434 |
|
The fair value of net tangible assets acquired on April 3, 2009 consisted of the following (in thousands):
Cash |
|
$ |
318 |
|
Prepaid expenses and other current assets |
|
|
5,003 |
|
Property, plant and equipment |
|
|
165 |
|
Project assets – Land |
|
|
6,100 |
|
Total identifiable assets acquired |
|
|
11,586 |
|
Accounts payable and other liabilities |
|
|
(1,411 |
) |
Total liabilities assumed |
|
|
(1,411 |
) |
Net identifiable assets acquired |
|
$ |
10,175 |
|
Our purchase price allocation was substantially complete as of June 27, 2009. However, we may be subject to goodwill adjustments as additional information relating to deferred tax assets and liabilities becomes available.
Goodwill
We recorded the excess of the acquisition date fair value of consideration transferred over the estimated fair value of the net tangible assets and intangible assets acquired as goodwill. We have preliminarily allocated $259.7 million and $1.4 million of this goodwill to our components reporting segment and solar systems segment (reported
under “Other” in our disclosure of segment operating results), respectively. This goodwill is not deductible for tax purposes.
Acquired project assets
Management engaged a third-party valuation firm to assist in the determination of the fair value of the acquired project development business. In our determination of the fair value of the project assets acquired, we considered among other factors, three generally accepted valuation approaches;
the income approach, market approach and cost approach. We selected the approaches that are most indicative of fair value of the assets acquired. We used the income approach to calculate the fair value of the acquired projects assets based on estimates and assumptions of future performance of these projects assets provided by Optisolar’s and our management. We used the market approach to determine the fair value of the land acquired with those assets.
Acquisition Related Costs
Acquisition-related costs recognized in the three and six months ended June 27, 2009 include transaction costs and integration costs, which we have classified in selling, general and administrative expense in our statement of operations. During the three and six months ended June 27, 2009,
transaction costs such as legal, accounting, valuation and other professional services were $0.2 million and $1.6 million, respectively. Integration related costs during the three and six months ended June 27, 2009 were $0.5 million and $0.6 million, respectively.
Pro Forma Information
The acquired OptiSolar business has been engaged in the development and construction of solar power projects. The costs related to these activities are largely capitalized, and not charged against earnings until the project is sold; as of June 27, 2009, OptiSolar had not yet reached the
point of sale for any of the projects is has been developing. Therefore, if the OptiSolar acquisition had been completed on December 28, 2008 (the beginning of our fiscal year 2009) our total revenue, net income, and basic and diluted earnings per common share would have not materially changed from the amounts that we have previously reported.
For the same reasons, the effect of OptiSolar on our condensed consolidated statement of operations from the acquisition date through June 27, 2009 was immaterial.
Note 5. Goodwill and Intangible Assets
Goodwill
On November 30, 2007, we acquired 100% of the outstanding membership interests of Turner Renewable Energy, LLC. Under the purchase method of accounting, we allocated $33.4 million to goodwill through December 29, 2007, which represents the excess of the purchase price over the fair value of the identifiable net tangible
and intangible assets of Turner Renewable Energy, LLC. All of this goodwill was allocated to our systems segment. At June 27, 2009 and December 27, 2008, the carrying amount of goodwill was $33.8 million.
On April 3, 2009, we acquired the solar power project development business of OptiSolar. Under the acquisition method of accounting, we allocated $261.1 million to goodwill, which primarily represents the synergies and economies of scale expected from acquiring this project pipeline and using our solar modules in the acquired projects.
We have allocated $259.7 million and $1.4 million of this goodwill to our components reporting segment and systems segment (reported under “Other” in our disclosure of segment operating results), respectively. At June 27, 2009, the carrying amount of this goodwill was $261.1 million. See Notes 4 and 20 to our condensed consolidated financial statements for additional information about this acquisition.
The changes in the carrying amount of goodwill for the six months ended June 27, 2009 were as follows (in thousands):
|
|
Components |
|
|
Other |
|
|
Consolidated |
|
Beginning balance, December 27, 2008 |
|
$ |
— |
|
|
$ |
33,829 |
|
|
$ |
33,829 |
|
Goodwill from 2009 acquisitions |
|
|
259,722 |
|
|
|
1,411 |
|
|
|
261,133 |
|
Ending Balance, June 27, 2009 |
|
$ |
259,722 |
|
|
$ |
35,240 |
|
|
$ |
294,962 |
|
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 a reporting unit that has goodwill
might be less than its carrying value. We performed our goodwill impairment tests in the fourth fiscal quarter of the year ended December 27, 2008. Based on that test, we concluded that our goodwill was not impaired. We have also concluded that there have been no changes in facts and circumstances since the date of that test that would trigger an interim goodwill impairment test.
Acquisition Related Intangible Assets
In connection with the acquisition of Turner Renewable Energy, LLC, we identified intangible assets that represent customer contracts already in progress and future customer contracts not yet started at the time of acquisition. We amortize the acquisition date fair values of these assets using the percentage of completion method.
Information regarding our acquisition-related intangible assets that are being amortized was as follows (in thousands):
|
|
As of June 27, 2009 |
|
|
As of December 27, 2008 |
|
|
|
Gross
Carrying
Amount |
|
|
Accumulated
Amortization |
|
|
Net
Carrying
Value |
|
|
Gross
Carrying
Amount |
|
|
Accumulated
Amortization |
|
|
Net
Carrying
Value |
|
Customer contracts in progress at the acquisition date |
|
$ |
62 |
|
|
$ |
62 |
|
|
$ |
— |
|
|
$ |
62 |
|
|
$ |
58 |
|
|
$ |
4 |
|
Customer contracts executed after the acquisition date |
|
|
394 |
|
|
|
379 |
|
|
|
15 |
|
|
|
394 |
|
|
|
242 |
|
|
|
152 |
|
Total |
|
$ |
456 |
|
|
$ |
441 |
|
|
$ |
15 |
|
|
$ |
456 |
|
|
$ |
300 |
|
|
$ |
156 |
|
Amortization expense for acquisition-related intangible assets was $0.1 million for both the three and six months ended June 27, 2009 and June 28, 2008, respectively. We expect to amortize the remaining balance of our acquisition related intangible assets during the year ending December 26, 2009.
Project Assets
In connection with the acquisition of the solar power project development business of OptiSolar, we measured at fair value certain project assets based on the varying development stages of each project asset on the acquisition date. At June 27, 2009, the carrying value
of these project assets was $103.9 million. We will expense these projects assets as the solar power projects are sold or constructed.
Note 6. Cash and Investments
Cash, cash equivalents and marketable securities consisted of the following at June 27, 2009 and December 27, 2008 (in thousands):
|
|
June 27,
2009 |
|
|
December 27,
2008 |
|
Cash and cash equivalents: |
|
|
|
|
|
|
Cash |
|
$ |
303,470 |
|
|
$ |
603,434 |
|
Cash equivalents: |
|
|
|
|
|
|
|
|
Federal agency debt |
|
|
— |
|
|
|
38,832 |
|
Money market mutual fund |
|
|
125,690 |
|
|
|
73,952 |
|
Total cash and cash equivalents |
|
|
429,160 |
|
|
|
716,218 |
|
Marketable securities: |
|
|
|
|
|
|
|
|
Federal agency debt |
|
|
132,706 |
|
|
|
68,086 |
|
Foreign agency debt |
|
|
63,885 |
|
|
|
6,977 |
|
Supranational debt |
|
|
62,227 |
|
|
|
— |
|
Corporate debt securities |
|
|
40,135 |
|
|
|
30,538 |
|
Total marketable securities |
|
|
298,953 |
|
|
|
105,601 |
|
Total cash, cash equivalents and marketable securities |
|
$ |
728,113 |
|
|
$ |
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 and six months ended June 27, 2009, we realized an immaterial amount in gains and did not realize any losses on our marketable securities. During the three months ended June 28, 2008, we did not realize any gains or losses on our marketable securities. During the six months ended June 28, 2008, we realized $0.4 million in gains and $0.1 million in losses on our marketable securities. See Note 10 to our condensed consolidated financial statements for information about
the fair value measurement of our marketable securities.
All of our available-for-sale marketable securities are subject to a periodic impairment review. We consider a marketable debt security to be impaired when its fair value is less than its carrying cost. When evaluating our investments for other-than-temporary impairment, we review factors such as the length of time and extent to which
fair value has been below cost basis, the financial condition of the issuer and any changes thereto, and our intent to sell, or whether it is more likely than not we will be required to sell the investment before we have recovered its cost basis. 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 establish a new cost basis for the investment.
We did not identify any of our marketable securities as other-than-temporarily impaired at June 27, 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 June 27, 2009 |
|
Security Type |
|
Amortized
Cost |
|
|
Gross
Unrealized
Gains |
|
|
Gross
Unrealized
Losses |
|
|
Estimated
Fair
Value |
|
Federal agency debt |
|
$ |
132,445 |
|
|
$ |
262 |
|
|
$ |
1 |
|
|
$ |
132,706 |
|
Foreign agency debt |
|
|
63,683 |
|
|
|
202 |
|
|
|
— |
|
|
|
63,885 |
|
Supranational debt |
|
|
62,138 |
|
|
|
97 |
|
|
|
8 |
|
|
|
62,227 |
|
Corporate debt securities |
|
|
39,849 |
|
|
|
316 |
|
|
|
30 |
|
|
|
40,135 |
|
Total |
|
$ |
298,115 |
|
|
$ |
877 |
|
|
$ |
39 |
|
|
$ |
298,953 |
|
|
|
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 June 27, 2009 and December 27, 2008 were as follows (in thousands):
|
|
As of June 27, 2009 |
|
Maturity |
|
Amortized
Cost |
|
|
Gross
Unrealized
Gains |
|
|
Gross
Unrealized
Losses |
|
|
Estimated
Fair
Value |
|
One year or less |
|
$ |
160,315 |
|
|
$ |
399 |
|
|
$ |
— |
|
|
$ |
160,714 |
|
One year to two years |
|
|
137,800 |
|
|
|
478 |
|
|
|
39 |
|
|
|
138,239 |
|
Total |
|
$ |
298,115 |
|
|
$ |
877 |
|
|
$ |
39 |
|
|
$ |
298,953 |
|
|
|
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 $0.8 million and $0.4 million as of June 27, 2009 and December 27, 2008, respectively, on our available for-sale marketable securities was primarily the result of changes in interest rates. We typically invest in highly-rated securities with low probabilities of default. Our investment policy requires
investments to be rated single A or better and limits the security types, issuer concentration and duration of the investments.
The following table shows gross unrealized losses and estimated fair values for those investments that were in an unrealized loss position as of June 27, 2009 and December 27, 2008; aggregated by investment category and the length of time that individual securities have been in a continuous loss position (in thousands):
|
|
As of June 27, 2009 |
|
|
|
In Loss Position for
Less Than 12 Months |
|
|
In Loss Position for
12 Months or Greater |
|
|
Total |
|
Security Type |
|
Estimated
Fair
Value |
|
|
Gross
Unrealized
Losses |
|
|
Estimated
Fair
Value |
|
|
Gross
Unrealized
Losses |
|
|
Estimated
Fair
Value |
|
|
Gross
Unrealized
Losses |
|
Federal agency debt |
|
$ |
4,124 |
|
|
$ |
1 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
4,124 |
|
|
$ |
1 |
|
Foreign agency debt |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Supranational debt |
|
|
8,715 |
|
|
|
8 |
|
|
|
— |
|
|
|
— |
|
|
|
8,715 |
|
|
|
8 |
|
Corporate debt securities |
|
|
1,997 |
|
|
|
30 |
|
|
|
— |
|
|
|
— |
|
|
|
1,997 |
|
|
|
30 |
|
Total |
|
$ |
14,836 |
|
|
$ |
39 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
14,836 |
|
|
$ |
39 |
|
|
|
As of December 28, 2008 |
|
|
|
In Loss Position for
Less Than 12 Months |
|
|
In Loss Position for
12 Months or Greater |
|
|
Total |
|
Security Type |
|
Estimated
Fair
Value |
|
|
Gross
Unrealized
Losses |
|
|
Estimated
Fair
Value |
|
|
Gross
Unrealized
Losses |
|
|
Estimated
Fair
Value |
|
|
Gross
Unrealized
Losses |
|
Federal agency debt |
|
$ |
6,977 |
|
|
$ |
13 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
6,977 |
|
|
$ |
13 |
|
Corporate debt securities |
|
|
9,088 |
|
|
|
16 |
|
|
|
— |
|
|
|
— |
|
|
|
9,088 |
|
|
|
16 |
|
Total |
|
$ |
16,065 |
|
|
$ |
29 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
16,065 |
|
|
$ |
29 |
|
Note 7. Restricted Cash and Investments
Restricted cash and investments consisted of the following at June 27, 2009 and December 27, 2008 (in thousands):
|
|
June 27,
2009 |
|
|
December 27,
2008 |
|
Restricted cash |
|
$ |
48,974 |
|
|
$ |
4,218 |
|
Restricted investments |
|
|
33,691 |
|
|
|
— |
|
Deposit with financial services company |
|
|
— |
|
|
|
25,841 |
|
Total restricted cash and investments |
|
$ |
82,665 |
|
|
$ |
30,059 |
|
Restricted cash and investments — current |
|
$ |
48,970 |
|
|
$ |
— |
|
Restricted cash and investments — noncurrent |
|
$ |
33,695 |
|
|
$ |
30,059 |
|
At June 27, 2009, our restricted cash consisted of a debt service reserve account for our credit facility with a consortium of banks led by IKB Deutsche Industriebank AG and cash held by a financial institution as collateral for a letter of credit. Our restricted investments consisted of long-term marketable securities that we hold to
fund future costs of our solar module collection and recycling program.
The following table summarizes unrealized gains and losses related to our restricted investments in marketable securities designated as available-for-sale by major security type (in thousands):
|
|
As of June 27, 2009
(Unaudited) |
|
Security Type |
|
Amortized
Cost |
|
|
Gross
Unrealized
Gains |
|
|
Gross
Unrealized
Losses |
|
|
Estimated
Fair
Value |
|
U.S. government obligations |
|
$ |
784 |
|
|
$ |
13 |
|
|
$ |
— |
|
|
$ |
797 |
|
Foreign government obligations |
|
|
32,894 |
|
|
|
— |
|
|
$ |
— |
|
|
|
32,894 |
|
Total |
|
$ |
33,678 |
|
|
$ |
13 |
|
|
$ |
— |
|
|
$ |
33,691 |
|
As of June 27, 2009, the contractual maturities of these available-for-sale marketable securities were between 19 and 27 years.
Note 8. Consolidated Balance Sheet Details
Accounts receivable, net
Accounts receivable, net consisted of the following at June 27, 2009 and December 27, 2008 (in thousands):
|
|
June 27,
2009 |
|
|
December 27,
2008 |
|
Accounts receivable, gross |
|
$ |
358,256 |
|
|
$ |
61,703 |
|
Allowance for doubtful accounts |
|
|
6,990 |
|
|
|
— |
|
Accounts receivable, net |
|
$ |
351,266 |
|
|
$ |
61,703 |
|
The increase in accounts receivable was mainly due to the amendment of certain of our customers’ long-term supply contracts to extend their payment terms from net 10 days to net 45 days in the first quarter of 2009 and due to higher volumes shipped during the three months ended June 27, 2009. We provided an allowance in the amount of
$7.0 million due to recent developments concerning the collectability of the outstanding accounts receivable from a specific customer.
Inventories
Inventories consisted of the following at June 27, 2009 and December 27, 2008 (in thousands):
|
|
June 27,
2009 |
|
|
December 27,
2008 |
|
Raw materials |
|
$ |
105,937 |
|
|
$ |
103,725 |
|
Work in process |
|
|
7,118 |
|
|
|
4,038 |
|
Finished goods |
|
|
55,719 |
|
|
|
13,791 |
|
Total inventories |
|
$ |
168,774 |
|
|
$ |
121,554 |
|
Inventory — current |
|
$ |
162,501 |
|
|
$ |
121,554 |
|
Inventory — noncurrent (1) |
|
$ |
6,273 |
|
|
$ |
— |
|
(1) |
Inventory – noncurrent is raw materials. |
Prepaid expenses and other current assets
Prepaid expenses and other current assets consisted of the following at June 27, 2009 and December 27, 2008 (in thousands):
|
|
June 27,
2009 |
|
|
December 27,
2008 |
|
Prepaid expenses |
|
$ |
5,581 |
|
|
$ |
6,699 |
|
Prepaid supplies |
|
|
11,987 |
|
|
|
12,556 |
|
Capitalized equipment spares |
|
|
14,312 |
|
|
|
12,900 |
|
Prepaid taxes — current |
|
|
453 |
|
|
|
4 |
|
Derivative instruments — current |
|
|
1,705 |
|
|
|
34,931 |
|
Other receivable from financial institution (1)(2) |
|
|
8,989 |
|
|
|
10,764 |
|
Note receivable — current (see Note 12) |
|
|
12,662 |
|
|
|
— |
|
Costs and estimated earnings in excess of billings |
|
|
18 |
|
|
|
114 |
|
Deferred project costs |
|
|
1,377 |
|
|
|
710 |
|
Other taxes receivable |
|
|
4,851 |
|
|
|
2,763 |
|
Accrued interest income |
|
|
2,257 |
|
|
|
1,511 |
|
Other current assets |
|
|
12,804 |
|
|
|
8,342 |
|
Total prepaid expenses and other current assets |
|
$ |
76,996 |
|
|
$ |
91,294 |
|
(1) |
Settled subsequent to June 27, 2009. |
(2) |
Settled subsequent to December 27, 2008. |
Property, plant and equipment, net
Property, plant and equipment consisted of the following at June 27, 2009 and December 27, 2008 (in thousands):
|
|
June 27,
2009 |
|
|
December 27,
2008 |
|
Buildings and improvements |
|
$ |
201,513 |
|
|
$ |
137,116 |
|
Machinery and equipment |
|
|
693,711 |
|
|
|
559,566 |
|
Office equipment and furniture |
|
|
29,385 |
|
|
|
22,842 |
|
Leasehold improvements |
|
|
14,616 |
|
|
|
11,498 |
|
Depreciable property, plant and equipment, gross |
|
|
939,225 |
|
|
|
731,022 |
|
Accumulated depreciation |
|
|
(154,958 |
) |
|
|
(100,939 |
) |
Depreciable property, plant and equipment, net |
|
|
784,267 |
|
|
|
630,083 |
|
Land |
|
|
5,888 |
|
|
|
5,759 |
|
Construction in progress |
|
|
121,714 |
|
|
|
206,780 |
|
Property, plant and equipment, net |
|
$ |
911,869 |
|
|
$ |
842,622 |
|
Depreciation of property, plant and equipment was $28.5 million and $13.4 million for the three months ended June 27, 2009 and June 28, 2008, respectively, and was $54.3 million and $23.5 million for the six months ended June 27, 2009 and June 28, 2008, respectively.
We incurred interest cost and capitalized a portion of it (into our property, plant and equipment) as follows during the three and six months ended June 27, 2009 and June 28, 2008 (in thousands):
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 27,
2009 |
|
|
June 28,
2008 |
|
|
June 27,
2009 |
|
|
June 28,
2008 |
|
Interest cost incurred |
|
$ |
4,693 |
|
|
$ |
1,303 |
|
|
$ |
7,107 |
|
|
$ |
2,812 |
|
Interest cost capitalized |
|
|
(866 |
) |
|
|
(1,303 |
) |
|
|
(2,345 |
) |
|
|
(2,808 |
) |
Interest expense, net |
|
$ |
3,827 |
|
|
$ |
— |
|
|
$ |
4,762 |
|
|
$ |
4 |
|
Project Assets - Noncurrent
Project assets - noncurrent consisted of the following at June 27, 2009 and December 27, 2008 (in thousands):
|
|
June 27,
2009 |
|
|
December 27,
2008 |
|
Project assets acquired |
|
$ |
103,888 |
|
|
$ |
— |
|
Project assets — land |
|
|
7,102 |
|
|
|
— |
|
Project assets — other |
|
|
2,690 |
|
|
|
— |
|
Total project assets — noncurrent |
|
$ |
113,680 |
|
|
$ |
— |
|
Accrued expenses
Accrued expenses consisted of the following at June 27, 2009 and December 27, 2008 (in thousands):
|
|
June 27,
2009 |
|
|
December 27,
2008 |
|
Product warranty liability — current portion |
|
$ |
6,517 |
|
|
$ |
4,040 |
|
Accrued compensation and benefits |
|
|
24,903 |
|
|
|
32,145 |
|
Accrued property, plant and equipment |
|
|
25,550 |
|
|
|
44,115 |
|
Accrued inventory |
|
|
19,729 |
|
|
|
31,438 |
|
Accrued utilities and plant services |
|
|
6,662 |
|
|
|
5,100 |
|
Accrued subcontractor services and materials |
|
|
759 |
|
|
|
2,934 |
|
Accrued freight and warehouse charges |
|
|
3,919 |
|
|
|
2,549 |
|
Accrued interest |
|
|
1,793 |
|
|
|
2,008 |
|
Accrued taxes — other |
|
|
1,802 |
|
|
|
6,182 |
|
Other accrued expenses |
|
|
14,701 |
|
|
|
10,388 |
|
Total accrued expenses |
|
$ |
106,335 |
|
|
$ |
140,899 |
|
Other current liabilities
Other current liabilities consisted of the following at June 27, 2009 and December 27, 2008 (in thousands):
|
|
June 27,
2009 |
|
|
December 27,
2008 |
|
Derivative instruments — current |
|
$ |
42,492 |
|
|
$ |
50,733 |
|
Deferred revenue (1) |
|
|
4,158 |
|
|
|
— |
|
Billings in excess of costs and estimated earnings |
|
|
793 |
|
|
|
2,159 |
|
Other tax payable |
|
|
4,509 |
|
|
|
6,614 |
|
Other payable to financial institution (2) |
|
|
7,106 |
|
|
|
— |
|
Other current liabilities |
|
|
11,129 |
|
|
|
232 |
|
Total other current liabilities |
|
$ |
70,187 |
|
|
$ |
59,738 |
|
(1) |
Deferred revenue will be recognized once all revenue recognition criteria have been met. |
(2) |
Settled subsequent to June 27, 2009. |
Note 9. Derivative Financial Instruments
As a global company, we are exposed in the normal course of business to interest rate and foreign currency risks that could affect our net assets, financial position, results of operations and cash flows. We use derivative instruments to hedge against certain risks, such as these, and we only hold derivative instruments for hedging purposes,
not for speculative or trading purposes. Our use of derivative instruments is subject to strict internal controls based on centrally defined, performed and controlled policies and procedures.
Depending on the terms of the specific derivative instruments and market conditions, some of our derivative instruments may be assets and others liabilities at any particular point in time. As required by 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 and the various classes of risk that we are exposed to in our business and the risk
management systems using derivative instruments that we apply to these risks are described below. See Note 10 to our condensed consolidated financial statements for information about the techniques we use to measure the fair value of our derivative instruments.
The following table presents the fair values of derivative instruments included in our condensed consolidated balance sheet as of June 27, 2009 (in thousands):
|
Asset Derivatives |
|
Liability Derivatives |
|
Derivative Type |
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 |
|
$ |
210 |
|
Other liabilities - current |
|
$ |
40,525 |
|
|
|
|
|
— |
|
Other liabilities - noncurrent |
|
|
2,343 |
|
Interest rate swap contracts |
|
|
|
— |
|
Other liabilities - current |
|
|
23 |
|
|
|
|
|
— |
|
Other liabilities - noncurrent |
|
|
261 |
|
Total derivatives designated as hedging instruments |
|
$ |
210 |
|
|
|
$ |
43,152 |
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments under SFAS 133: |
|
|
|
|
|
|
|
|
|
Foreign exchange forward contracts |
Other current assets |
|
$ |
1,495 |
|
Other liabilities - current |
|
$ |
1,944 |
|
Total derivatives not designated as hedging instruments |
|
$ |
1,495 |
|
|
|
$ |
1,944 |
|
|
|
|
|
|
|
|
|
|
|
|
Total derivative instruments |
|
|
$ |
1,705 |
|
|
|
$ |
45,096 |
|
The following tables present the amounts affecting our condensed consolidated statement of operations for the three and six months ended June 27, 2009 (in thousands):
|
|
Amount of Gain (Loss) Recognized in Other Comprehensive Income on Derivatives |
|
|
|
Amount of Gain (Loss) Reclassified from Accumulated Other Comprehensive Income into Income |
|
Derivative Type |
|
Three Months Ended
June 27, 2009 |
|
|
Six Months Ended
June 27, 2009 |
|
Location of Gain (Loss) Reclassified from Accumulated Other Comprehensive Income into Income |
|
Three Months Ended
June 27, 2009 |
|
|
Six Months Ended
June 27, 2009 |
|
Derivatives designated as cash flow hedges under SFAS 133: |
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange forward contracts |
|
$ |
(50,987 |
) |
|
$ |
(27,111 |
) |
Net sales |
|
$ |
9,634 |
|
|
$ |
31,824 |
|
Interest rate swaps |
|
|
1,870 |
|
|
|
1,093 |
|
|
|
|
— |
|
|
|
— |
|
Total derivatives designated as cash flow hedges |
|
$ |
(49,117 |
) |
|
$ |
(26,018 |
) |
|
|
$ |
9,634 |
|
|
$ |
31,824 |
|
|
|
Amount of Gain (Loss) on Derivatives Recognized in Income |
|
|
Derivative Type |
|
Three Months Ended
June 27, 2009 |
|
|
Six Months Ended
June 27, 2009 |
|
Location of Gain (Loss) Recognized in Income on Derivatives |
Derivatives designated as cash flow hedges under SFAS 133: |
|
|
|
|
|
|
|
Foreign exchange forward contracts |
|
$ |
9,634 |
|
|
$ |
31,824 |
|
Net sales |
Interest rate swaps |
|
$ |
(2,391 |
) |
|
$ |
(2,525 |
) |
Interest income (expense) |
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments under SFAS 133: |
|
|
|
|
|
|
|
|
|
Foreign exchange forward contracts |
|
$ |
(42 |
) |
|
$ |
(4,931 |
) |
Other income (expense) |
Foreign exchange forward contracts |
|
$ |
2,524 |
|
|
$ |
1,069 |
|
Cost of sales |
|
|
|
|
|
|
|
|
|
|
Credit default swaps |
|
$ |
(459 |
) |
|
$ |
(1,459 |
) |
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 such swap agreements for speculative or trading purposes. We had interest rate swap contracts with a financial institution that effectively converted to fixed rates the variable rate
of the Euro Interbank Offered Rate (Euribor) on the term loan portion of our credit facility with a consortium of banks for the financing of our German plant. These swap contracts were required under the credit facility agreement, which we repaid and terminated on June 30, 2009. As per the credit facility agreement requirements, we terminated these interest rate swap contracts on June 26, 2009 and consequently recognized an interest expense of €1.7 million ($2.4 million at the balance sheet close
rate on June 27, 2009 of $1.41/€1.00). The termination of the interest rate swap contracts settled on June 30, 2009.
On May 29, 2009, we entered into an interest rate swap contract, which will become effective on September 30, 2009 with a notional value of €57.3 million ($80.8 million at the balance sheet close rate on June 27, 2009 of $1.41/€1.00) to receive a six-month floating interest rate, the Euro Interbank Offered Rate
(Euribor), and pay a fixed rate of 2.80%. The notional amount of the interest rate swap contract is scheduled to decline in correspondence to our scheduled principal payments on the underlying hedged debt as that debt is paid down. This derivative instrument qualifies for accounting as a cash flow hedge in accordance with SFAS 133, Accounting for Derivative Instruments and Hedging Activities, and we designated it as such. We determined that our interest
rate swap contract was highly effective as a cash flow hedge at June 27, 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 June 27, 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 June 27, 2009. In addition, during the six months ended June 27, 2009, we did not discontinue any cash flow hedges because
it was probable that a forecasted transaction would not occur.
In 2008 and during the six months ended June 27, 2009, we purchased foreign exchange forward contracts to hedge the exchange risk on forecasted cash flows denominated in euro. As of June 27, 2009, the unrealized loss on these contracts was $42.7 million and the total notional value of the contracts was €556.5 million ($784.7 million
at the balance sheet close rate on June 27, 2009 of $1.41/€1.00). The weighted average forward exchange rate for these contracts was $1.33/€1.00 at June 27, 2009.
Transaction Exposure
Many components of our business have assets and liabilities (primarily receivables, investments and accounts payable, including solar module collection and recycling liabilities and inter-company balances) that are denominated in currencies other than their functional currencies. Changes in the exchange rates between our components’
functional currencies and the currencies in which these assets and liabilities are denominated can create fluctuations in our reported consolidated financial position, results of operations and cash flows. We may enter into foreign exchange forward contracts or other financial instruments to hedge these assets and liabilities against the short-term effects of currency exchange rate fluctuations. The gains and losses on the foreign exchange forward contracts will offset all or part of the transaction gains and
losses that we recognize in earnings on the related foreign currency assets and liabilities.
During the six months ended June 27, 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 cost of sales and foreign currency gain (loss)
on our consolidated statements of operations.
As of June 27, 2009, the total notional value of our foreign exchange forward contracts to purchase and sell euros with/for U.S. dollars was €124.6 million and €138.4 million, respectively ($175.7 million and $195.1 million, respectively, at the balance sheet close rate on June 27, 2009 of $1.41/€1.00);
the total notional value of our foreign exchange forward contracts to sell U.S. dollars with/for euros was $9.8 million; the total notional value of our foreign exchange forward contracts to purchase and sell Malaysian ringgits with/for U.S. dollars was MYR 122.5 million and MYR 10.2 million, respectively ($34.3 million and $2.9 million, respectively, at the balance sheet close rate on June 27, 2009 of $0.28/MYR1.00); and the total notional value of our foreign exchange forward contracts
to sell Canadian dollars with/for U.S. dollars was CAD 14.6 million ($12.7 million at the balance sheet close rate on June 27, 2009 of $0.87/CAD1.00). As of June 27, 2009, the total unrealized loss on these contracts was $0.4 million. These contracts have maturities of less than two months.
Credit Risk
We have certain financial and derivative instruments that subject us to credit risk. These consist primarily of cash, cash equivalents, investments, trade accounts receivable, interest rate swap contracts and foreign exchange forward contracts. We are exposed to credit losses in the event of nonperformance by the counterparties to our
financial and derivative instruments. We place cash, cash equivalents, investments, interest rate swap contracts and foreign exchange forward contracts with various high-quality financial institutions and limit the amount of credit risk from any one counterparty. We continuously evaluate the credit standing of our counterparty financial institutions.
In addition, we had certain restricted investments that were exposed to credit risk. These consisted primarily of restricted investments, which were held by a financial services company to fund our estimated future product collection and recycling costs. In October 2008, we entered into two credit default swaps (CDS) with J.P. Morgan
Chase NA, New York to protect this restricted investment from certain significant pre-defined credit events 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 provided 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. Our CDSs expired on March 20, 2009 and June 20, 2009. During the
six months ended June 27, 2009, we recorded a loss of $1.5 million related to the fair value adjustments and fees for these CDSs.
Note 10. Fair Value Measurement
On December 30, 2007, the beginning of our 2008 fiscal year, 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, Effective Date of FASB Statement No. 157. 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 at fair value on a recurring or one-time basis:
|
• |
Cash Equivalents. At June 27, 2009, our cash equivalents consisted of 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. |
|
• |
Marketable securities. At June 27, 2009, our marketable securities consisted of federal and foreign agency debt, supranational 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 June 27, 2009, our derivative assets and liabilities consisted of foreign exchange forward contracts involving major currencies and interest rate swap contracts involving benchmark interest rates. Since our derivative assets and liabilities are not traded on an exchange, we value them using valuation models.
Interest rate yield curves, foreign exchange rates and credit default swap spreads are the significant inputs into these valuation models. These inputs are observable in active markets over the terms of the instruments we hold, and accordingly, we classify these valuation techniques as Level 2. We consider the effect of our own credit standing and that of our counterparties in our valuations of our derivative assets and liabilities. |
|
• |
Product collection and recycling liability. We account for our obligation to collect and recycle the solar modules that we sell in a similar manner to the accounting for asset retirement obligations that is prescribed by 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. |
At June 27, 2009, information about inputs into the fair value measurements of our assets and liabilities that we make on a recurring basis was as follows (in thousands):
|
|
|
|
|
Fair Value Measurements at Reporting
Date Using |
|
|
|
Total Fair
Value and
Carrying
Value on Our
Balance Sheet |
|
|
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1) |
|
|
Significant
Other
Observable
Inputs
(Level 2) |
|
|
Significant
Unobservable
Inputs
(Level 3) |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
Money market mutual funds |
|
$ |
125,690 |
|
|
$ |
125,690 |
|
|
$ |
— |
|
|
$ |
— |
|
Marketable securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal agency debt |
|
|
132,706 |
|
|
|
— |
|
|
|
132,706 |
|
|
|
— |
|
Foreign agency debt |
|
|
63,885 |
|
|
|
— |
|
|
|
63,885 |
|
|
|
— |
|
Supranational debt |
|
|
62,227 |
|
|
|
— |
|
|
|
62,227 |
|
|
|
— |
|
Corporate debt securities |
|
|
40,135 |
|
|
|
— |
|
|
|
40,135 |
|
|
|
— |
|
Derivative assets |
|
|
1,705 |
|
|
|
— |
|
|
|
1,705 |
|
|
|
— |
|
Total assets |
|
$ |
426,348 |
|
|
$ |
125,690 |
|
|
$ |
300,658 |
|
|
$ |
— |
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities |
|
$ |
45,096 |
|
|
$ |
— |
|
|
$ |
45,096 |
|
|
$ |
— |
|
Fair Value of Financial Instruments
The carrying amounts and fair values of our financial instruments at June 27, 2009 and December 27, 2008 were as follows (in thousands):
|
|
June 27, 2009 |
|
|
December 27, 2008 |
|
|
|
Carrying
Value |
|
|
Fair
Value |
|
|
Carrying
Value |
|
|
Fair
Value |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Marketable securities, current and noncurrent |
|
$ |
298,953 |
|
|
$ |
298,953 |
|
|
$ |
105,601 |
|
|
$ |
105,601 |
|
Note receivable — current |
|
$ |
12,662 |
|
|
$ |
12,662 |
|
|
$ |
— |
|
|
$ |
— |
|
Credit default swaps |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
896 |
|
|
$ |
896 |
|
Foreign exchange forward contract assets |
|
$ |
1,705 |
|
|
$ |
1,705 |
|
|
$ |
34,035 |
|
|
$ |
34,035 |
|
Deposit with financial services company (restricted investment) |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
25,841 |
|
|
$ |
13,039 |
|
Restricted investments |
|
$ |
33,691 |
|
|
$ |
33,691 |
|
|
$ |
— |
|
|
$ |
— |
|
Investment in related party |
|
$ |
25,000 |
|
|
$ |
25,000 |
|
|
$ |
25,000 |
|
|
$ |
25,000 |
|
Note receivable — noncurrent |
|
$ |
24,649 |
|
|
$ |
24,632 |
|
|
$ |
— |
|
|
$ |
— |
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt, including current maturities |
|
$ |
233,574 |
|
|
$ |
238,501 |
|
|
$ |
198,470 |
|
|
$ |
204,202 |
|
Interest rate swaps |
|
$ |
284 |
|
|
$ |
284 |
|
|
$ |
1,377 |
|
|
$ |
1,377 |
|
Foreign exchange forward contract liabilities |
|
$ |
44,812 |
|
|
$ |
44,812 |
|
|
$ |
50,410 |
|
|
$ |
50,410 |
|
The carrying values on our balance sheet of our cash and cash equivalents, accounts receivable, restricted cash, accounts payable, income tax payable and accrued expenses approximate their fair values due to their short maturities; thus, we exclude them from the table above.
We estimated the fair value of our long-term debt in accordance with SFAS 157 using a discounted cash flows approach (“income approach”) and incorporated the credit risk of our counterparty for the asset measurement and our credit risk for the liability measurement.
Note 11. Related Party Transactions
In October 2008, we made an investment, at a total cost of $25.0 million, in the preferred stock of a company based in the United States that supplies solar power plants to commercial and residential customers. This investment represents an ownership of approximately 12% of the voting interest in this company and is our only
equity interest in that entity. Since our ownership interest in this company is less than 20% and we do not have significant influence over it, we account for this investment using the cost method.
In the fourth fiscal quarter of 2008, we also entered into a long-term solar module supply agreement with this related party. During the three and six months ended June 27, 2009, we recognized $2.0 million and $4.2 million, respectively, in net sales to this related party. At June 27, 2009 we had accounts receivable from this related party
of $0.8 million.
Note 12. Notes Receivable
On April 8, 2009 we entered into a credit facility agreement with a solar project entity of one of our customers for an amount of €17.5 million ($24.7 million at the balance sheet close rate on June 27, 2009 of $1.41/€1.00) to provide financing of a photovoltaic power generation facility. The credit facility replaced a
bridge loan that we had made to this customer. The balance of the bridge loan was €10.3 million as of March 28, 2009 ($14.5 million at the balance sheet close rate on June 27, 2009 of $1.41/€1.00) and matured on April 15, 2009. The credit facility bears interest at 8% per annum and is due on December 31, 2026. As of June 27, 2009, this credit facility was fully drawn. The outstanding amount of this credit facility is included within Other assets – noncurrent on our condensed consolidated
balance sheets.
On April 21, 2009, we entered into a revolving VAT financing facility agreement for an amount of €9.0 million ($12.7 million at the balance sheet close rate on June 27, 2009 of $1.41/€1.00) with the same solar project entity with whom we entered into the credit facility agreement on April 8, 2009. The VAT facility agreement
pre-finances the amounts of German value added tax (VAT) and any other tax obligations of similar nature during the construction phase of the photovoltaic power generation facility, and this additional credit facility was referenced within the April 8, 2009 credit facility arrangement. Borrowings under this facility are short- term in nature, since the facility is repaid when VAT amounts are reimbursed by the government. The VAT facility agreement bears interest at the rate of Euribor plus 1.2% and matures on
December 31, 2010. As of June 27, 2009, this credit facility was fully drawn down. The outstanding amount of this credit facility is included within Prepaid expenses and other current assets on our condensed consolidated balance sheets.
Subsequent to June 27, 2009, the loan amount under the VAT facility agreement was increased to €15.0 million ($21.2 million at the balance sheet close rate on June 27, 2009 of $1.41/€1.00). This increase is only temporary and the amounts available under the facility will revert back to their original amounts on August 31, 2009.
Note 13. Debt
Our long-term debt at June 27, 2009 and December 27, 2008 consisted of the following (in thousands):
Type |
|
June 27,
2009 |
|
|
December 27,
2008 |
|
Facility Agreement Malaysia – Fixed rate term loan |
|
$ |
88,918 |
|
|
$ |
66,975 |
|
Facility Agreement Malaysia – Floating rate term loan (1) |
|
|
88,918 |
|
|
|
66,975 |
|
Director of Development of the State of Ohio |
|
|
10,709 |
|
|
|
11,694 |
|
Director of Development of the State of Ohio |
|
|
833 |
|
|
|
1,528 |
|
Facility Agreement Germany |
|
|
48,586 |
|
|
|
54,982 |
|
Capital lease obligations |
|
|
3 |
|
|
|
5 |
|
|
|
|
237,967 |
|
|
|
202,159 |
|
Less unamortized discount |
|
|
(4,393 |
) |
|
|
(3,689 |
) |
Total long-term debt |
|
|
233,574 |
|
|
|
198,470 |
|
Less current portion |
|
|
(76,639 |
) |
|
|
(34,951 |
) |
Noncurrent portion |
|
$ |
156,935 |
|
|
$ |
163,519 |
|
(1) |
We entered into an interest rate swap contract related to this loan. See Note 9 to our condensed consolidated financial statements. |
We did not have any short-term debt at June 27, 2009 and December 27, 2008.
Malaysian Facility Agreement
On May 6, 2008, in connection with the plant expansion at our Malaysian manufacturing center, First Solar Malaysia Sdn. Bhd. (FS Malaysia), our indirect wholly owned subsidiary entered into an export financing facility agreement (Malaysian Facility Agreement) with IKB Deutsche Industriebank AG (IKB) as arranger, NATIXIS Zweigniederlassung
Deutschland (NZD) as facility agent and original lender, AKA Ausfuhrkredit-Gesellschaft mbH (AKA), as original lender and NATIXIS Labuan Branch (NLB) as security agent. Pursuant to the terms of the Malaysian Facility Agreement, the lenders will furnish up to €134.0 million ($188.9 million at the balance sheet close rate on June 27, 2009 of $1.41/€1.00) of credit facilities consisting of the following (in thousands):
Malaysian Borrowings |
Denomination |
|
Interest |
|
|
Maturity |
|
|
Outstanding at
June 27,
2009 |
|
Fixed-rate euro-denominated term loan |
EUR |
|
|
4.54 |
% |
|
|
2016 |
|
|
$ |
88,918 |
|
Floating-rate euro-denominated term loan |
EUR |
|
Euribor plus 0.55% |
|
|
|
2016 |
|
|
$ |
88,918 |
|
Total |
|
|
|
|
|
|
|
|
|
|
$ |
177,836 |
|
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 Malaysian Facility Agreement (Hermes Guaranty). In addition, FS Malaysia’s obligations related to the Malaysian Facility Agreement are guaranteed, on an unsecured basis, by First Solar, Inc., pursuant to a guaranty agreement described below.
FS Malaysia is obligated to pay commitment fees at an annual rate of 0.375% on the unused portions of the fixed rate credit facilities and at an annual rate of 0.350% on the unused portions of the floating rate credit facilities. In addition, FS Malaysia is obligated to pay certain underwriting, management and agency fees in connection
with the credit facilities.
In connection with the Facility Agreement, First Solar, Inc. entered into a first demand guaranty agreement dated May 6, 2008 in favor of IKB, NZD, NLB and the other lenders under the Malaysian Facility Agreement. As noted above, FS Malaysia’s obligations related to the Malaysian Facility Agreement are guaranteed, on an unsecured
basis, by First Solar pursuant to this guaranty agreement.
In connection with the Malaysian Facility Agreement, all of FS Malaysia’s obligations related to the Malaysian Facility Agreement are secured by a first party, first legal charge over the equipment financed by the credit facilities and the other documents, contracts and agreements related to that equipment. Also in connection with
the Malaysian Facility Agreement, any payment claims of First Solar, Inc. against FS Malaysia are subordinated to the claims of IKB, NZD, NLB and the other lenders under the Malaysian Facility Agreement.
The Malaysian Facility Agreement contains various financial covenants 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 Malaysian 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 June 27, 2009.
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 being 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.
State of Ohio Loans
During the years ended December 25, 2004 and December 31, 2005, we received the following loans from the Director of Development of the State of Ohio (in thousands):
Ohio Borrowings |
|
Original Loan Amount |
|
Denomination |
|
Interest |
|
|
Maturity |
|
|
Outstanding at
June 27,
2009 |
|
Director of Development of the State of Ohio |
|
$ |
15,000 |
|
USD |
|
|
2.25 |
% |
|
|
2015 |
|
|
$ |
10,709 |
|
Director of Development of the State of Ohio |
|
$ |
5,000 |
|
USD |
|
|
0.25% — 3.25 |
% |
|
|
2009 |
|
|
$ |
833 |
|
Total |
|
$ |
20,000 |
|
|
|
|
|
|
|
|
|
|
|
$ |
11,542 |
|
Certain of our land, buildings and machinery and equipment has been pledged as collateral for these loans.
German Facility Agreement
On July 27, 2006, First Solar Manufacturing GmbH, a wholly owned indirect subsidiary of First Solar, Inc., entered into a credit facility agreement with a consortium of banks led by IKB Deutsche Industriebank AG under which we could draw up to €102.0 million ($143.8 million at the balance sheet close rate on June 27,
2009 of $1.41/€1.00) to fund costs of constructing and starting up our German plant. This credit facility consisted of the following borrowings (in thousands):
German Borrowings |
|
Original Loan Amount |
|
Denomination |
Interest |
|
Maturity |
|
|
Outstanding at
June 27,
2009 |
|
Term Loan |
|
€ |
53,000 |
|
EUR |
Euribor plus 1.6% |
|
|
2012 |
|
|
$ |
48,586 |
|
Revolver |
|
€ |
27,000 |
|
EUR |
Euribor plus 1.8% |
|
|
2012 |
|
|
$ |
— |
|
Bridge Loan |
|
€ |
22,000 |
|
EUR |
Euribor plus 2.0% |
|
|
2008 |
|
|
$ |
— |
|
Total |
|
€ |
102,000 |
|
|
|
|
|
|
|
|
$ |
48,586 |
|
We repaid the entire outstanding principal amount of the term loan and all accrued interest subsequent to quarter end on June 30, 2009, and we concurrently terminated this facility. Based on the loan agreement with IKB Deutsche Industriebank AG, the amount to be repaid was transferred into a restricted account, which we classified with
our restricted investments on our balance sheet as of June 27, 2009.
Note 14. Commitments and Contingencies
Financial guarantees
In the normal course of business, we occasionally enter into agreements with third parties under which we guarantee the performance of our subsidiaries related to certain service contracts, which may include services such as development, engineering, procurement of permits and equipment, construction management and monitoring and maintenance.
These agreements meet the definition of a guarantee according to FASB Interpretation No. (FIN) 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Other. As of June 27, 2009, none of these guarantees were material to our financial position.
Loan guarantees
In connection with the Malaysian Facility Agreement, First Solar, Inc. entered into a first demand guaranty agreement dated May 6, 2008 in favor of IKB, NZD, NLB and the other lenders under the Malaysian Facility Agreement. First Solar Malaysia’s obligations related to the Malaysian Facility Agreement are guaranteed, on an unsecured
basis, by First Solar, pursuant to this guaranty agreement. See Note 13 to our condensed consolidated financial statements for additional information.
Commercial commitments
During the three months ended June 27, 2009, we entered into three commercial commitments in the form of letters of credit and bank guarantees related to our solar power systems and project development business in the amount of $4.2 million. We also had the following three outstanding commercial commitments as of June 27, 2009: MYR 4.0 million
dated June 2008 for an energy supply agreement ($1.1 million at the balance sheet close rate on June 27, 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 June 27, 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 June 27, 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 following: number of solar modules under warranty at customer locations, historical experience with warranty claims, monitoring of field installation sites, in-house testing of our solar modules and estimated per-module replacement cost.
Product warranty activity during the three and six months ended June 27, 2009 and June 28, 2008 was as follows (in thousands):
|
Three Months Ended |
|
Six Months Ended |
|
June 27,
2009 |
|
June 28,
2008 |
|
June 27,
2009 |
|
June 28,
2008 |
Product warranty liability, beginning of period |
$ 13,557 |
|
$ 9,261 |
|
$ 11,905 |
|
$ 7,276 |
Accruals for new warranties issued (warranty expense) |
3,898 |
|
1,851 |
|
6,989 |
|
3,843 |
Settlements |
(146) |
|
— |
|
(354) |
|
(8) |
Change in estimate of warranty liability |
104 |
|
(247) |
|
(1,127) |
|
(246) |
Product warranty liability, end of period |
$ 17,413 |
|
$ 10,865 |
|
$ 17,413 |
|
$ 10,865 |
Current portion of warranty liability |
|
|
|
|
$ 6,517 |
|
$ 4,402 |
Non-current portion of warranty liability |
|
|
|
|
$ 10,896 |
|
$ 6,463 |
Note 15. Share-Based Compensation
We measure share-based compensation cost at the grant date based on the fair value of the award and recognize this cost as an expense over the grant recipients’ requisite service periods, in accordance with SFAS 123(R), Share-Based Payment. The share-based compensation expense
that we recognized in our consolidated statements of operations for the three and six months ended June 27, 2009 and June 28, 2008 was as follows (in thousands):
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 27,
2009 |
|
|
June 28,
2008 |
|
|
June 27,
2009 |
|
|
June 28,
2008 |
|
Share-based compensation expense included in: |
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales |
|
$ |
3,483 |
|
|
$ |
3,162 |
|
|
$ |
6,502 |
|
|
$ |
5,370 |
|
Research and development |
|
|
2,100 |
|
|
|
1,501 |
|
|
|
3,919 |
|
|
|
2,466 |
|
Selling, general and administrative |
|
|
11,854 |
|
|
|
10,279 |
|
|
|
21,728 |
|
|
|
17,679 |
|
Production start-up |
|
|
320 |
|
|
|
515 |
|
|
|
792 |
|
|
|
801 |
|
Total share-based compensation expense |
|
$ |
17,757 |
|
|
$ |
15,457 |
|
|
$ |
32,941 |
|
|
$ |
26,316 |
|
The increase in share-based compensation expense was primarily the result of new awards.
The following table presents our share-based compensation expense by type of award for the three and six months ended June 27, 2009 and June 28, 2008 (in thousands):
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 27,
2009 |
|
|
June 28,
2008 |
|
|
June 27,
2009 |
|
|
June 28,
2008 |
|
Stock options |
|
$ |
1,754 |
|
|
$ |
4,675 |
|
|
$ |
3,808 |
|
|
$ |
9,735 |
|
Restricted stock units |
|
|
16,998 |
|
|
|
10,917 |
|
|
|
30,241 |
|
|
|
16,445 |
|
Unrestricted stock |
|
|
112 |
|
|
|
82 |
|
|
|
225 |
|
|
|
163 |
|
Net amount absorbed into inventory |
|
|
(1,107 |
) |
|
|
(217 |
) |
|
|
(1,333 |
) |
|
|
(27 |
) |
Total share-based compensation expense |
|
$ |
17,757 |
|
|
$ |
15,457 |
|
|
$ |
32,941 |
|
|
$ |
26,316 |
|
Share-based compensation cost capitalized in our inventory was $1.7 million and $0.3 million at June 27, 2009 and December 27, 2008, respectively. As of June 27, 2009, we had $10.5 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 1.1 years, and $154.6 million of unrecognized share-based compensation cost related to unvested restricted stock units, which we expect to recognize as an expense over a weighted-average period of approximately 2.2 years.
Note 16. Income Taxes
Our Malaysian subsidiary has been granted a tax holiday for a period of 16.5 years, which was originally scheduled to commence on January 1, 2009. The tax holiday which generally provides for a 100% exemption from Malaysian income tax is conditional upon our continued compliance in meeting certain employment and investment thresholds.
On January 9, 2009, we received formal approval granting our request to pull forward this previously approved tax holiday by one year; the result of which was an $11.5 million reduction in the amount of income taxes previously accrued for the year ended December 27, 2008. As a result, we recognized an income tax benefit of $11.5 million during the three months ended March 28, 2009.
We recorded tax provisions of $20.7 million and $25.9 million for the three and six months ended June 27, 2009, respectively. Our effective tax rates were 10.3% and 7.0% for the three and six months ended June 27, 2009, respectively. Without the $11.5 million tax benefit discussed above our effective tax rate would have been 10.1% for
the six months ended June 27, 2009. Without the beneficial impact of the Malaysian tax holiday on 2009 operations our effective tax rate would have been 26% for the six months ended June 27, 2009. The provision for income taxes differs from the amount computed by applying the statutory U.S. federal rate primarily due to the benefit associated with foreign income taxed at lower rates and the beneficial impact of the Malaysian tax holiday.
Note 17. Net Income per Share
Basic net income per share is computed by dividing net income by the weighted-average number of common shares outstanding for the period. Diluted net income per share is computed giving effect to all potential dilutive common stock, including employee stock options and restricted stock units.
The calculation of basic and diluted net income per share for the three and six months ended June 27, 2009 and June 28, 2008 was as follows (in thousands, except per share amounts):
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 27,
2009 |
|
|
June 28,
2008 |
|
|
June 27,
2009 |
|
|
June 28,
2008 |
|
Basic net income per share |
|
|
|
|
|
|
|
|
|
|
|
|
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
180,579 |
|
|
$ |
69,671 |
|
|
$ |
345,174 |
|
|
$ |
116,290 |
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common stock outstanding |
|
|
83,723 |
|
|
|
79,877 |
|
|
|
82,704 |
|
|
|
79,468 |
|
Diluted net income per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common stock outstanding |
|
|
83,723 |
|
|
|
79,877 |
|
|
|
82,704 |
|
|
|
79,468 |
|
Effect of stock options , restricted stock units outstanding and contingent issuable shares |
|
|
1,945 |
|
|
|
2,127 |
|
|
|
1,436 |
|
|
|
2,338 |
|
Weighted-average shares used in computing diluted net income per share |
|
|
85,668 |
|
|
|
82,004 |
|
|
|
84,140 |
|
|
|
81,806 |
|
The following number of outstanding employee stock options and restricted stock units were excluded from the computation of diluted net income per share for the three and six months ended June 27, 2009 and June 28, 2008 as they would have had an antidilutive effect (in thousands):
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 27,
2009 |
|
|
June 28,
2008 |
|
|
June 27,
2009 |
|
|
June 28,
2008 |
|
Restricted stock units and options to purchase common stock |
|
|
158 |
|
|
|
101 |
|
|
|
210 |
|
|
|
116 |
|
Note 18. 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, was as follows (in thousands):
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 27,
2009 |
|
|
June 28,
2008 |
|
|
June 27,
2009 |
|
|
June 28,
2008 |
|
Net income |
|
$ |
180,579 |
|
|
$ |
69,671 |
|
|
$ |
345,174 |
|
|
$ |
116,290 |
|
Foreign currency translation adjustments |
|
|
18,899 |
|
|
|
1 |
|
|
|
5,013 |
|
|
|
9,443 |
|
Change in unrealized gain (loss) on marketable securities, net of tax of $(16) and $(75) for the three and six months ended June 27, 2009, respectively |
|
|
268 |
|
|
|
(303 |
) |
|
|
371 |
|
|
|
(15 |
) |
Change in unrealized gain (loss) on derivative instruments, net of tax of $(615) and $(65) for the three and six months ended June 27, 2009, respectively |
|
|
(49,732 |
) |
|
|
3,441 |
|
|
|
(26,082 |
) |
|
|
(19,857 |
) |
Comprehensive income |
|
$ |
150,014 |
|
|
$ |
72,810 |
|
|
$ |
324,476 |
|
|
$ |
105,861 |
|
Components of accumulated other comprehensive loss were as follows (in thousands):
|
|
June 27,
2009 |
|
|
December 27,
2008 |
|
Foreign currency translation adjustments |
|
$ |
(2,812 |
) |
|
$ |
(7,825 |
) |
Unrealized gain on marketable securities, net of tax expense of $219 for 2009 and $144 for 2008 |
|
|
633 |
|
|
|
262 |
|
Unrealized gain (loss) on derivative instruments, net of tax benefit of $0 for 2009 and $65 for 2008 |
|
|
(42,940 |
) |
|
|
(16,858 |
) |
Accumulated other comprehensive loss |
|
$ |
(45,119 |
) |
|
$ |
(24,421 |
) |
Note 19. Statement of Cash Flows
The following table presents a reconciliation of net income to net cash provided by operating activities for the six months ended June 27, 2009 and June 28, 2008 (in thousands):
|
|
Six Months Ended |
|
|
|
June 27,
2009 |
|
|
June 28,
2008 |
|
Net income |
|
$ |
345,174 |
|
|
$ |
116,290 |
|
Adjustments to reconcile net income to cash provided by (used in) operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
56,113 |
|
|
|
21,869 |
|
Impairment of intangible assets |
|
|
— |
|
|
|
1,334 |
|
Share-based compensation |
|
|
32,941 |
|
|
|
26,316 |
|
Remeasurement of debt |
|
|
280 |
|
|
|
— |
|
Deferred income taxes |
|
|
(12,098 |
) |
|
|
(6,113 |
) |
Excess tax benefits from share-based compensation arrangements |
|
|
(15,351 |
) |
|
|
(13,953 |
) |
Loss on disposal of property and equipment |
|
|
4,426 |
|
|
|
133 |
|
Provision for doubtful accounts receivable |
|
|
6,990 |
|
|
|
465 |
|
Provision for inventory reserve |
|
|
2,432 |
|
|
|
483 |
|
Gain on sales of investments, |