ars
Boulder City,NV, USA (10MW AC);Sempra Generation
Expanding to 58MW AC (2009/2010) |
Clean
Affordabl
Sustainable |
First Solars mission is to create enduring value by enabling a world powered by clean, affordable
solar electricity.
First Solar, Inc. (NASDAQ: FSLR) manufactures solar modules with an advanced semiconductor
technology and provides comprehensive photovoltaic (PV) solutions that significantly reduce solar
electricity costs. Our module manufacturing costs are the lowest in the world due to our
proprietary technology, high-volume, continuous flow manufacturing, large scale production,
operational excellence, and continuous improvement methodologies. We achieved a major solar
industry milestone in the fourth quarter of 2008 by reducing our module manufacturing cost to less
than $1/watt.
From raw material sourcing through end-of-life collection and recycling, First Solar is focused on
providing cost-effective energy solutions that protect and enhance the environment. First Solar
uses a mining byproduct to produce the semiconductor material in its modules, successfully
up-cycling waste to produce solar electricity. First Solars unique product design, material
sourcing strategy, high-volume, continuous flow manufacturing process, and recycling technology
combine to minimize the carbon footprint and energy payback time for solar electricity, providing a
superior solution to climate change. First Solar has set the benchmark for environmentally
responsible product life cycle management by introducing the industrys first prefunded,
comprehensive collection and recycling program for solar modules. By enabling clean, renewable
electricity at affordable prices, First Solar provides an economically and environmentally
responsible alternative to existing peaking fossil-fuel electric generation.
First Solar has grown from about 200 associates in 2002 to over 4,000 today. For more
information about First Solar, please visit www.firstsolar.com.
All financial numbers in this report are based on U.S. Generally Accepted Accounting Principles.
This report contains forward-looking statements within the meaning of the United States federal
securities laws. These forward-looking statements do not constitute guarantees of future
performance. These forward-looking statements are based on current information and expectations,
are subject to uncertainties and changes in circumstances, and involve a number of factors that
could cause actual results to differ materially from those anticipated by these forward-looking
statements, including risks described in the companys most recent annual report on Form 10-K, and
other filings with the Securities and Exchange Commission. First Solar assumes no obligation to
update any forward-looking information contained in this report or with respect to the information
described herein.
To Our Investors
2008 was a year of strong growth and performance.
We advanced our mission of providing clean, affordable
solar electricity while creating enduring value for our
stakeholders. We met our operational goals, developed
new and existing markets in Europe and the U.S., and
delivered strong financial results.
Michael J. Ahearn
CEO, Chairman
Module manufacturing production increased 144%
year over year, to over 500 megawatts (MW), and line
throughput improved 8% year over year. Our new
Malaysian manufacturing center was constructed and
ramped up ahead of original schedules, continuing a
trend of operational excellence established with prior
plant expansions. In March of 2009, First Solar reached a cumulative shipment volume of 1 gigawatt
(GW). Our increased production scale, along with technology and manufacturing process improvements,
contributed to continued reductions in manufacturing costs. Module manufacturing cost/watt
decreased 12% year over year. We achieved $0.98/watt in the fourth quarter of 2008 and are proud to
be the first solar company to reduce manufacturing costs below $1/watt. In the second half of 2009,
we expect our annual capacity to reach 1.1GW which, when combined with our cost advantage,
positions us well to expand our market leadership.
Growth in Germany remained solid and we made further progress in penetrating markets in Italy and
France. German government feed-in tariffs (FIT) and financing support continued to support the
market and Germanys solar manufacturing, equipment, and installation industry. First Solar entered
into additional customer contracts that grew commitments to approximately $6 billion through 2012.
We made progress in developing our presence in the U.S. utility market by creating key customer
relationships, by completing a 10MW AC solar plant for Sempra Generation in Boulder City, Nevada,
and by completing two Southern California Edison (SCE) rooftop pilot projects that are part of
SCEs larger proposed 250MW AC rooftop initiative. What we learned from engineering, designing, and
constructing these U.S. power plants will be used to lower our costs further in the future. In
addition, we signed an agreement with Edison Mission Energy to develop future utility scale
projects in the U.S.
First Solar delivered strong financial results as revenues increased 147% year over year to $1.2
billion, resulting in an increase of our diluted earnings per share (EPS) of 109% year over year,
to $4.24/share. Our operating margin improved to 35.1% of net sales. We grew our cash and
marketable securities balance to $822 million and achieved positive cash flows. We also contributed
to the economies where we operate by employing over 4,000 First Solar associates worldwide to date,
and making capital investments of $459 million in 2008.
In sum, we entered 2009 well positioned for further growth with the lowest-cost technology in the
industry, over 1GW of manufacturing scale, a strong financial position, and strong global customer
partnerships.
Although 2009 will be a more challenging year for the industry, First Solar is well positioned to
grow. The solar industry has moved from under-supply in 2008 to over-supply in 2009. This situation
has been driven by the credit crisis reducing the availability of cost effective financing, reduced
consumer spending, and an industry-wide overbuilding of capacity. In addition, higher costs of
project financing and lower costs of natural gas, both outgrowths of the current economic slump,
have made it more difficult for solar electricity to compete on price with conventional sources of
electricity.
Despite these conditions, we remain confident in First Solars ability to continue to grow and
deliver solid financial results. Our technology, operational excellence, and manufacturing scale
will enable us to continue to reduce costs, allowing us to profitably lower solar module prices as
needed to drive high-volume market demand under challenging financial conditions. First Solars
track record of delivering on its commitments is becoming an important distinguishing factor in the
marketplace as customers, project investors, and lenders increasingly consider financial strength,
product performance history, reliability, and electricity generation system costs in their
decision-making. In addition, our long-term contracts and customer relationships provide a degree
of resiliency during difficult times and our recently announced acquisition of one of the largest
utility-scale solar project development pipelines in the U.S. from OptiSolar provides a multi-year
project development roadmap in the U.S.
By focusing on the needs of our customers, executing on the fundamental drivers of our business,
and leveraging our strengths, we expect to emerge from the current economic slump with a solidified
leadership position in the industry and a strong platform for continued growth.
The world is transforming to a low-carbon infrastructure to reduce greenhouse gases and mitigate
climate change. We continue to focus on reducing the cost of solar electricity to make it a viable
alternative to traditional energy sources. To achieve this objective, we are targeting another 35%
reduction in our PV module manufacturing costs to $0.65/watt by 2012, with further cost reductions
planned beyond 2012. These cost reductions will be achieved by continuing to improve conversion
efficiency and line throughput, reducing material costs, and driving volume scale to further reduce
overhead costs on a cost-per-watt basis. In addition, balance of system costs such as mounting
hardware, installation labor, and inverters represent more than one half of the capital costs of a
PV project. We are striving to reduce these by about 40% by 2012, to $1/watt, by improving module
efficiencies, increasing volume procurement around standardized hardware platforms, and reducing
installation time.
We plan to use these lower costs to reduce electricity prices in order to expand solar electricity
to new markets. Our 10MW AC Sempra Generation solar plant is an early
example of our progress in this regard. Sempras recent decision to expand the site to
58MW AC demonstrates our ability to provide real, cost-effective energy solutions for
utility scale projects.
The market outlook over the next three to five years appears promising as both Europe and the U.S.
have announced aggressive support for renewable energy expansion through incentives and
regulations. The European Union recently reinforced its commitment to renewables with a directive
that commits the EU to a 20% renewable energy goal by 2020. Germany and other European countries
continue to be strong supporters of renewable energy through FIT programs that create markets with
long-term visibility and volume, facilitating scale, cost reduction, and investment of private
capital. To facilitate the realization of Europes renewables mandate as well as the adoption of
renewables in other parts of the world, KfW, the German reconstruction bank, is actively supporting
the financing of and investment in such renewable projects as a matter of priority, helping to
alleviate project financing constraints. We anticipate that other governmental agencies will become
active in facilitating project financing for renewable projects in Europe over the coming months.
In the U.S., the American Recovery and Reinvestment Act stimulus bill of 2009 (ARRA) contains
several provisions designed to alleviate renewable energy project financing constraints resulting
from the economic downturn. The ARRA establishes a temporary grant program that will allow
commercial solar customers to receive a cash payment to cover 30% of the cost of installing solar
equipment in lieu of the federal investment tax credit. The ARRA also appropriated $6 billion for a
new loan guarantee program which the government estimates could support up to $60 billion of loans
specifically for renewable energy and transmission projects. In addition, ARRA includes up to $2.3
billion for a new 30% investment tax credit for U.S. based production facilities of renewable
energy products.
President Obama and Congressional leaders have expressed desire to enact a number of initiatives to
accelerate the U.S. transition to a low-carbon energy infrastructure. These include a cap and trade
mechanism to curb carbon emissions, an expansion of the transmission grid, plus further additional
stimuli for renewable energy and energy efficiency. The extent to which the public sector has
embraced renewable energy as a means of mitigating climate change, enhancing energy independence
and diversity, and stimulating economic growth bodes well for the future of the solar industry.
Conclusion
First Solar made significant progress in all key areas in 2008. We are well positioned for 2009 and
beyond, and we are encouraged about the long-term prospects for the industry. My heartfelt thanks
to all First Solar associates whose passion and dedication are making this journey possible.
Together with our customers, suppliers, market partners, public officials, and board of directors,
we are advancing our mission of providing clean, affordable solar electricity while creating
enduring value for our stakeholders.
Sincerely,
Michael J. Ahearn
Chief Executive Officer, Chairman
ars
$5 -
$4 -
$3 -
$2 -
$1 -
$0 ,- |
Megawatts Produced
2006 2007 2008
Earnings per Diluted Share
4.24
2.03
0.07
2006
2007
2008
$1.60-$1.40-
Module Cost/Watt
Achieved <$1.00/watt
2007
2008
2006
Net & Operating Income
Net Inc.
Opine.
2006
2008
2007
Cash & Mkt. Securities vs Debt
$1000 -
___Total Cash ,^ 822
M Total Debt
$500 -
-198
$0 -$250
2006
2007
2008
First Solar |
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended
December 27, 2008
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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
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Commission file number:
001-33156
First Solar, Inc.
(Exact name of registrant as
specified in its charter)
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Delaware
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20-4623678
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(State or other jurisdiction
of
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(I.R.S. Employer
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incorporation or
organization)
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Identification No.)
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350 West Washington Street, Suite 600
Tempe, Arizona 85281
(Address of principal executive
offices, including zip code)
(602) 414-9300
(Registrants telephone
number, including area code)
Securities registered pursuant to Section 12(b) of the
Act:
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Title of each class
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Name of each exchange on which registered
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Common stock, $0.001 par value
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The NASDAQ Stock Market LLC
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Securities registered pursuant to Section 12(g) of the
Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes þ No o
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Exchange
Act. Yes o No þ
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 þ No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein and will not be contained, to the best
of registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K. o
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):
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Large
accelerated
filer þ
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Accelerated
filer o
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Non-accelerated
filer o
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Smaller
reporting
company o
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(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
The aggregate market value of the registrants common
stock, $0.001 par value per share, held by non-affiliates
of the registrant on June 27, 2008, the last business day
of the registrants most recently completed second fiscal
quarter, was approximately $10,046,225,940 (based on the closing
sales price of the registrants common stock on that date).
Shares of the registrants common stock held by each
officer and director and each person who owns 5% or more of the
outstanding common stock of the registrant are not included in
that amount, because such persons may be deemed to be affiliates
of the registrant. This determination of affiliate status is not
necessarily a conclusive determination for other purposes. As of
February 18, 2009, 81,643,905 shares of the
registrants common stock, $0.001 par value per share,
were issued and outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
The information required by Part III of this Annual Report
on
Form 10-K,
to the extent not set forth herein, is incorporated by reference
from the registrants definitive proxy statement relating
to the Annual Meeting of Shareholders to be held in 2009, which
will be filed with the Securities and Exchange Commission within
120 days after the end of the fiscal year to which this
Annual Report on
Form 10-K
relates.
FIRST
SOLAR, INC.
Form 10-K
for the Fiscal Year Ended December 27, 2008
Index
Throughout this Annual Report on
Form 10-K,
we refer to First Solar, Inc. and its consolidated subsidiaries
as First Solar, the Company,
we, us, and our. Our fiscal
years end on the last Saturday in December. Our last three
fiscal years ended December 27, 2008, December 29,
2007 and December 30, 2006.
2
NOTE REGARDING
FORWARD-LOOKING STATEMENTS
This Annual Report on
Form 10-K
contains forward-looking statements within the meaning of the
Securities Exchange Act of 1934 and the Securities Act of 1933,
which are subject to risks, uncertainties and assumptions that
are difficult to predict. All statements in this Annual Report
on
Form 10-K,
other than statements of historical fact, are forward-looking
statements. These forward-looking statements are made pursuant
to safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. The forward-looking statements include
statements, among other things, concerning our business
strategy, including anticipated trends and developments in and
management plans for, our business and the markets in which we
operate; future financial results, operating results, revenues,
gross profit, operating expenses, products, projected costs and
capital expenditures; research and development programs; sales
and marketing initiatives; and competition. In some cases, you
can identify these statements by forward-looking words, such as
estimate, expect,
anticipate, project, plan,
intend, believe, forecast,
foresee, likely, may,
should, goal, target,
might, will, could,
predict and continue, the negative or
plural of these words and other comparable terminology. Our
forward-looking statements are only predictions based on our
current expectations and our projections about future events.
All forward-looking statements included in this Annual Report on
Form 10-K
are based upon information available to us as of the filing date
of this Annual Report on
Form 10-K.
You should not place undue reliance on these forward-looking
statements. We undertake no obligation to update any of these
forward-looking statements for any reason. These forward-looking
statements involve known and unknown risks, uncertainties and
other factors that may cause our actual results, levels of
activity, performance, or achievements to differ materially from
those expressed or implied by these statements. These factors
include the matters discussed in the section entitled
Item 1A: Risk Factors and elsewhere in this
Annual Report on
Form 10-K.
You should carefully consider the risks and uncertainties
described under this section.
PART I
We design and manufacture solar modules using a proprietary thin
film semiconductor technology that has allowed us to reduce our
average solar module manufacturing costs to among the lowest in
the world. In 2008, our average manufacturing costs were $1.08
per watt, which we believe is significantly less than those of
traditional crystalline silicon solar module manufacturers. By
continuing to expand production and improve our technology and
manufacturing process, we believe that we can further reduce our
manufacturing costs per watt and maintain our cost advantage
over traditional crystalline silicon solar module manufacturers.
We manufacture our solar modules on high-throughput production
lines and perform all manufacturing steps ourselves in an
automated, proprietary, continuous process. Our solar modules
employ a thin layer of cadmium telluride semiconductor material
to convert sunlight into electricity. In less than three hours,
we transform a 2ft × 4ft (60cm × 120cm) sheet of glass
into a complete solar module, using approximately 1% of the
semiconductor material used by other manufacturers to produce
crystalline silicon solar modules. Our manufacturing process
eliminates the multiple supply chain operators and expensive and
time consuming batch processing steps that are used to produce a
crystalline silicon solar module.
We have long-term solar module supply contracts (the Long
Term Supply Contracts) with one U.S. and fifteen
European project developers, system integrators and operators
that in the aggregate allow for approximately $5.8 billion
(4.9 billion denominated in euro at an assumed exchange
rate of $1.15/1.00 and 0.2 billion denominated in
USD) in sales from 2009 to 2013. During 2008, we amended a Long
Term Supply Contract with one customer, which reduced the volume
of solar modules delivered to such customer in 2008 and also
reduced the volume of solar modules to be delivered over the
remaining term of the agreement to such customer. During
February 2009 we amended our Long Term Supply Contracts
with two customers to accelerate the decline in the sales price
per watt under such contracts in 2009 and 2010 in exchange for
increases in the volume of solar modules to be delivered under
such contracts. We are currently in discussions with several
other customers about making similar amendments to their Long
Term Supply Contracts.
3
Our customers typically develop, own and operate solar power
plants or sell turnkey solar power plants to end-users that
include owners of land, owners of agricultural buildings, owners
of commercial warehouses, offices and industrial buildings,
public agencies, municipal government authorities, utility
companies and financial investors that desire to own large scale
solar power plant projects.
In order to satisfy our contractual requirements, we expanded
our manufacturing capacity with the construction of four
plants each with four production lines
at our Malaysian manufacturing center. In August 2006, we
expanded our Ohio plant from one to three production lines. In
April 2007, we started initial production at a four line
manufacturing plant in Germany, which reached its full capacity
in the third quarter of 2007. Also in April 2007, we began
construction of plant one of our Malaysian manufacturing center.
In the third and fourth quarters of 2007, we began construction
of plants two and three, respectively; and in the first quarter
of 2008, we began construction of plant four. We completed the
qualification of plants one and two of our Malaysian
manufacturing center for full volume production in the second
half of 2008. We expect plants three and four of our Malaysian
manufacturing center to reach full capacity in the first half of
2009. Further, in October 2008, we commenced construction of our
Ohio plant expansion, which is expected to include an additional
production line and approximately 500,000 square feet of
manufacturing, research and development and office space. We
expect to complete plant construction in the first half of 2009,
with full volume production expected by the second quarter of
2010. After plant four of our Malaysian manufacturing center and
the Ohio expansion reach full capacity, we expect to have 24
production lines and an annual global manufacturing capacity of
approximately 1145MW by the end of 2010 (based on the fourth
quarter of 2008 average per line run rate at our existing
plants).
Acquisition
of Turner Renewable Energy, LLC
On November 30, 2007, we completed the acquisition of
Turner Renewable Energy, LLC, a privately held company which
designed and deployed commercial solar power system projects for
utilities and Fortune 500 companies in the United States.
We have integrated the operations from this acquisition into our
solar power systems and project development business. This
business sells solar power systems directly to system owners.
These systems include both our solar modules and balance of
system components that we procure from third parties. We also
sell integrated services related to the development of
commercial solar projects in the United States, such as system
design, engineering, procurement of permits and balance of
system components, construction management, monitoring and
maintenance as part of a system solution delivery. This
acquisition has created a platform for our systems business in
North America to deliver solar electricity solutions to utility
companies.
Products
Solar
Modules
Each solar module is approximately 2ft × 4ft (60cm ×
120cm) and had an average rated power of approximately 73 watts,
70 watts and 64 watts for 2008, 2007 and 2006, respectively. Our
solar module is a single-junction polycrystalline thin film
structure that uses cadmium telluride as the absorption layer
and cadmium sulfide as the window layer. Cadmium telluride has
absorption properties that are highly matched to the solar
spectrum and has the potential to deliver competitive conversion
efficiencies with approximately 1% of the semiconductor material
used by traditional crystalline silicon solar modules. Our thin
film technology also has relatively high energy performance in
low light and high temperature environments compared with
traditional crystalline silicon solar modules.
Certifications
We have participated, or are currently participating, in
laboratory and field tests with the National Renewable Energy
Laboratory, the Arizona State University Photovoltaic Testing
Laboratory, the Fraunhofer Institute for Solar Energy, TÜV
Immissionsschutz und Energiesysteme GmbH and the Institute
für Solar Energieversorgungstechnik. Currently, we have
approximately 10,000 solar modules installed worldwide at test
sites designed to collect data for field performance validation.
Using data logging equipment, we also monitor more than one
million solar modules, representing approximately 69MW of
installed photovoltaic systems, in use by end-users that have
purchased
4
systems using our solar modules. The modules in these monitored
systems represent approximately 11% of all the solar modules we
shipped from 2002 through 2008.
We maintain all certifications required to sell solar modules in
the markets we serve or expect to serve, including UL 1703, IEC
61646, Safety Class II and CE.
Solar
Module Warranty
We provide a limited warranty against defects in materials and
workmanship under normal use and service conditions for five
years following delivery to the owners of our solar modules. We
also warrant to the owner of our solar modules that solar
modules installed in accordance with
agreed-upon
specifications will produce at least 90% of their power output
rating during the first 10 years following their
installation and at least 80% of their power output rating
during the following 15 years. In resolving claims under
both the defects and power output warranties, we have the option
of either repairing or replacing the covered solar module or,
under the power output warranty, providing additional solar
modules to remedy the power shortfall. Our warranties are
automatically transferred from the original purchaser of our
solar modules to a subsequent purchaser. As of December 27,
2008, our accrued warranty liability was $11.9 million; of
which, $4.0 million was classified as current and
$7.9 million was classified as non-current.
Collection
and Recycling Program
End-users can return their solar modules to us at any time for
collection and recycling at no cost. We pre-fund the estimated
collection and recycling cost at the time of sale, assuming for
this purpose a minimum service life of approximately
20 years for our solar modules. In addition to achieving
substantial environmental benefits, our solar module collection
and recycling program may provide us the opportunity to resell
or redistribute working modules or recover certain raw materials
and components for reuse in our manufacturing process. We have
developed a recycling process for manufacturing scrap, warranty
returns and end of life modules that produces glass suitable for
use in the production of new glass products and extracts metals
that will be further processed by a third party supplier to
produce semiconductor materials for reuse in our solar modules.
Services
Our solar power systems and project development business
provides a variety of integrated services to our customers as
part of a system solution delivery. These services include solar
power system design, procurement of permits and balance of
system components, construction management, monitoring and
maintenance.
Manufacturing
Manufacturing
Process
We have integrated our manufacturing processes into a
continuous, integrated production line with the following three
stages: the deposition stage, the cell
definition stage, and the assembly and test
stage. In the deposition stage, panels of treated glass are
robotically loaded onto the production line where they are
cleaned, heated and coated with a layer of cadmium sulfide
followed by a layer of cadmium telluride using our proprietary
vapor transport deposition technology, after which the
semiconductor-coated plates are cooled rapidly to increase
strength. In our cell definition stage, we use high speed lasers
to transform the large single semiconductor-coated plate into a
series of interconnected cells that deliver the desired current
and voltage output. Our proprietary laser scribing technology is
capable of accomplishing accurate and complex scribes at high
speeds. Finally, in the assembly and test stage, we apply
busbars, laminate, a rear glass cover sheet and termination
wires, seal the joint box and subject each solar module to a
solar simulator and current leakage test. The final assembly
stage is the only stage in our production line that requires
manual processing.
Historically, all of our solar modules were produced at our
Perrysburg, Ohio facility, which has received both an ISO
9001:2000 quality system certification and ISO 14001:2004
environmental system certification. In April 2007, we started
initial production at our manufacturing facility in
Frankfurt/Oder, Germany which has received all applicable
licenses and permits to operate in accordance with German law
and has received both an ISO 9001:2000
5
quality system certification and ISO 14001:2004 environmental
system certification. In April 2008, we started initial
production at plant one of our manufacturing center in Kulim,
Malaysia which has received an ISO 9001:2000 quality system
certification and we anticipate the Malaysian manufacturing
center will obtain an ISO 14001:2004 environmental system
certification in the second quarter of 2009.
Raw
Materials
Our manufacturing process uses approximately 20 types of raw
materials and components to construct a complete solar module.
Of these raw materials and components, the following nine are
critical to our manufacturing process: TCO coated front glass,
cadmium sulfide, cadmium telluride, photo resist, laminate,
tempered back glass, cord plate/cord plate cap, lead wire (UL
and TÜV) and solar connectors. Before we use these
materials and components in our manufacturing process, a
supplier must undergo a qualification process that can last up
to 12 months, depending on the type of raw material or
component. Although we continually evaluate new suppliers and
currently are qualifying several new suppliers, a few of our
critical materials or components are sole sourced and most
others are supplied by a limited number of suppliers. One
critical raw material in our production process is cadmium
telluride.
Customers
We have Long Term Supply Contracts with sixteen principal
customers for the sale of solar modules. These customers include
solar power system project developers, system integrators and
operators of renewable energy projects that are headquartered
throughout the European Union and the United States. The Long
Term Supply Contracts in the aggregate allow for approximately
$5.8 billion (4.9 billion denominated in euro at an
assumed exchange rate of $1.15/1.00 and 0.2 billion
denominated in USD) in sales from 2009 to 2013. During 2008, we
amended a Long Term Supply Contract with one customer, which
reduced the volume of solar modules delivered to such customer
in 2008 and also reduced the volume of solar modules to be
delivered over the remaining term of the agreement to such
customer. During February 2009 we amended our Long Term
Supply Contracts with two customers to accelerate the decline in
the sales price per watt under such contracts in 2009 and 2010
in exchange for increases in the volume of solar modules to be
delivered under such contracts. We are currently in discussions
with several other customers about making similar amendments to
their Long Term Supply Contracts.
During 2008, our principal customers were Blitzstrom GmbH,
Colexon Energy AG (previously Reinecke + Pohl), Conergy AG, Juwi
Solar GmbH and Phoenix Solar AG. During 2008, each of these five
customers individually accounted for between 11% and 19% of our
net sales. All of our other customers individually accounted for
less than 10% of our net sales during 2008. The loss of any of
our major customers could have an adverse effect on our
business. As we expand our manufacturing capacity, we are
seeking to develop additional customer relationships in other
markets and regions, which would reduce our customer and
geographic concentration and dependence.
Sales and
Marketing
Since 2003, our focus has been on grid-connected ground or large
roof mounted solar power systems in Germany and other European
Union countries with feed-in tariff subsidies that enable solar
power system owners to earn a reasonable rate of return on their
capital. Several of our principal customers were authorized in
2007 and 2008 to sell our solar modules in the United States. In
November 2007, we completed the acquisition of Turner Renewable
Energy, LLC, which has become the basis for developing solar
electricity solutions for utility companies in the United States
that are seeking cost-effective renewable energy solutions for
the purpose of meeting renewable portfolio standard requirements.
Economic
Incentives
Government subsidies, economic incentives and other support for
solar electricity generation generally include feed-in tariffs,
net metering programs, renewable portfolio standards, rebates,
tax incentives and low interest loans.
Under a feed-in tariff subsidy, the government sets prices that
regulated utilities are required to pay for renewable
electricity generated by end-users. The prices are set above
market rates and may differ based on system
6
size or application. Net metering programs enable end-users to
sell excess solar electricity to their local utility in exchange
for a credit against their utility bills. The policies governing
net metering vary by state and utility. Some utilities pay the
end-user upfront, while others credit the end-users bill.
Under a renewable portfolio standard, the government requires
regulated utilities to supply a portion of their total
electricity in the form of renewable electricity. Some programs
further specify that a portion of the renewable energy quota
must be from solar electricity, while others provide no specific
technology requirement for renewable electricity generation.
Tax incentive programs exist in the United States at both the
federal and state level and can take the form of investment tax
credits, accelerated depreciation, sales and property tax
exemptions. At the United States federal level, investment tax
credits for business and residential solar systems have gone
through several cycles of enactment and expiration since the
1980s. Several state governments also facilitate low
interest loans for photovoltaic systems, either through direct
lending, credit enhancement or other programs.
Regulations and policies relating to electricity pricing and
interconnection also encourage distributive generation with
photovoltaic systems. Photovoltaic systems generate most of
their electricity during
mid-day and
the early afternoon hours when the demand for and cost of
electricity is highest. As a result, electricity generated by
photovoltaic systems mainly competes with expensive peak hour
electricity, rather than the lower average price of electricity.
Modifications to the peak hour pricing policies of utilities,
such as to a flat rate, would require photovoltaic systems to
achieve lower prices in order to compete with the price of
electricity. In addition, interconnection policies often enable
the owner of a photovoltaic system to feed solar electricity
into the power grid without interconnection costs or standby
fees.
Research,
Development and Engineering
We continue to devote a substantial amount of resources to
research and development with the objective of lowering the per
watt price of solar electricity generated by photovoltaic
systems. With the objective of reducing the per watt
manufacturing cost of electricity generated by photovoltaic
systems using our solar modules, we focus our research and
development on the following areas:
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Increase the conversion efficiency of our solar
modules. We believe the most promising ways of
increasing the conversion efficiency of our solar modules are
maximizing the number of photons that reach the absorption layer
of the semiconductor material so that they can be converted into
electrons, maximizing the number of electrons that reach the
surface of the semiconductor and minimizing the electrical
losses between the semiconductor layer and the back metal
conductor.
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System optimization. We are also working to
reduce the cost and optimize the effectiveness of the other
components in a photovoltaic system. We maintain a substantial
effort to collect and analyze actual field performance data from
photovoltaic systems that use our modules. We continuously
collect data from test sites comprising approximately 10,000
modules installed in varying climates and applications. We also
monitor more than one million solar modules, representing
approximately 69MW of installed photovoltaic systems, in use by
end-users that have purchased photovoltaic systems using our
modules. We use the data collected from these sources to
correlate field performance to various manufacturing and
laboratory level metrics, identify opportunities for module and
process improvement and improve the performance of systems that
use our modules. In addition, we use this data to enhance
predictive models and simulations for end-users.
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Research and development expenses for the years ended
December 27, 2008, December 29, 2007 and
December 30, 2006 were $33.5 million,
$15.1 million and $6.4 million, respectively.
We typically qualify process and product improvements for full
production at our Ohio plant and then use our Copy
Smart process to propagate them to our other production
lines. Our scientists and engineers collaborate across all
manufacturing plants to drive improvements. We typically
implement, validate and qualify improvements at the Ohio plant
before we deploy them to all of our production lines. We believe
that this systematic approach to research and development will
provide continuous improvements and ensure uniform adoption
across our production lines. In addition, our production lines
are replicas of each other using our Copy Smart
process, and as a result, a process or production improvement on
one line can be rapidly deployed to other production lines.
7
We maintain active collaborations with the National Renewable
Energy Laboratory (a division of the United States Department of
Energy), Brookhaven National Laboratory and several universities.
Intellectual
Property
Our success depends, in part, on our ability to maintain and
protect our proprietary technology and to conduct our business
without infringing on the proprietary rights of others. We rely
primarily on a combination of patents, trademarks and trade
secrets, as well as employee and third party confidentiality
agreements, to safeguard our intellectual property. As of
December 27, 2008, we held 23 patents in the United States,
which will expire at various times between 2009 and 2026, and
had 37 patent applications pending. We also held 17 patents and
had over 70 patent applications pending in foreign
jurisdictions. Our patent applications and any future patent
applications might not result in a patent being issued with the
scope of the claims we seek, or at all, and any patents we may
receive may be challenged, invalidated or declared
unenforceable. We continually assess appropriate occasions for
seeking patent protection for those aspects of our technology,
designs and methodologies and processes that we believe provide
significant competitive advantages.
As of December 27, 2008, we held two trademarks,
First Solar and First Solar and Design,
in the United States. We have also registered our
First Solar and Design mark in China, India, Japan,
Korea and the European Union and we are seeking registration in
other countries.
With respect to proprietary know-how that is not patentable and
processes for which patents are difficult to enforce, we rely
on, among other things, trade secret protection and
confidentiality agreements to safeguard our interests. We
believe that many elements of our photovoltaic manufacturing
process involve proprietary know-how, technology or data that
are not covered by patents or patent applications, including
technical processes, equipment designs, algorithms and
procedures. We have taken security measures to protect these
elements. All of our research and development personnel have
entered into confidentiality and proprietary information
agreements with us. These agreements address intellectual
property protection issues and require our associates to assign
to us all of the inventions, designs and technologies they
develop during the course of employment with us. We also require
our customers and business partners to enter into
confidentiality agreements before we disclose any sensitive
aspects of our solar cells, technology or business plans.
We have not been subject to any material intellectual property
claims.
Competition
The solar energy and renewable energy industries are both highly
competitive and continually evolving as participants strive to
distinguish themselves within their markets and compete within
the larger electric power industry. Within the renewable energy
industry, we compete with other renewable energy technologies
including hydro, wind, geothermal, bio-mass and tidal. Within
the solar energy industry, we believe that our main sources of
competition are crystalline silicon solar module manufacturers,
other thin film solar module manufacturers and companies
developing solar thermal and concentrated photovoltaic
technologies. Among photovoltaic module and cell manufacturers,
the principal methods of competition are price per watt,
production capacity, conversion efficiency and reliability.
At the end of 2008, the global photovoltaic industry consisted
of more than 150 manufacturers of solar cells and modules.
Within the photovoltaic industry, we face competition from
numerous crystalline silicon solar cell and module
manufacturers. We also face competition from thin film solar
module manufacturers.
In addition, we expect to compete with future entrants to the
photovoltaic industry that offer new technological solutions. We
may also face competition from semiconductor manufacturers and
semiconductor equipment manufacturers or their customers,
several of which have already announced their intention to start
production of photovoltaic cells, solar modules or turnkey
production lines. Some of these competitors are larger and have
greater financial resources, larger production capacities and
greater brand name recognition than we do and may, as a result,
be better positioned to adapt to changes in the industry or the
economy as a whole.
8
We also face competition from companies that are developing
various solar thermal solutions for utility scale power plant
applications. In addition to manufacturers of solar photovoltaic
equipment, we face competition from companies developing
concentrating photovoltaic systems and other renewable energy
technologies.
Our solar power products and services also compete against other
power generation sources supplied by utilities that burn
conventional fossil fuels.
As we develop our solar power systems and development business
and begin to offer solar electricity solutions to utilities, we
expect to face competition from other providers of renewable
energy solutions, including developers of photovoltaic, solar
thermal and concentrated solar power systems and from developers
of alternate forms of renewable energy projects.
Environmental
Matters
Our manufacturing operations include the use, handling, storage,
transportation, generation and disposal of hazardous materials.
We are subject to various federal, state, local and foreign laws
and regulations relating to the protection of the environment,
including those governing the discharge of pollutants into the
air and water, the use, management and disposal of hazardous
materials and wastes, occupational health and safety and the
cleanup of contaminated sites. Therefore, we could incur
substantial costs, including cleanup costs, fines and civil or
criminal sanctions and costs arising from third party property
damage or personal injury claims, as a result of violations of
or liabilities under environmental laws or non-compliance with
environmental permits required at our facilities. We believe we
are currently in substantial compliance with applicable
environmental requirements and do not expect to incur material
capital expenditures for environmental controls in the
foreseeable future. However, future developments such as more
aggressive enforcement policies, the implementation of new, more
stringent laws and regulations or the discovery of unknown
environmental conditions may require expenditures that could
have a material adverse effect on our business, results of
operations
and/or
financial condition. See Item 1A: Risk
Factors Environmental obligations and liabilities
could have a substantial negative impact on our financial
condition, cash flows and profitability.
Associates
As of December 27, 2008, we had 3,524 associates (our term
for full and part-time employees), including 2,912 in
manufacturing. The remainder of our associates are in research
and development, sales and marketing and general and
administrative positions. None of our associates are represented
by labor unions or covered by a collective bargaining agreement.
As we expand domestically and internationally, however, we may
encounter associates who desire union representation. We believe
that our relations with our associates are good.
Information
About Geographic Areas
We have significant marketing, distribution and manufacturing
operations both within and outside the United States. In
2008, 94% of our net sales were generated from customers
headquartered in the European Union. In the future, we expect to
expand our operations in other European and Asian countries, and
as a result, we will be subject to the legal, tax, political,
social and regulatory requirements, and economic conditions of
many jurisdictions. The international nature of our operations
subject us to a number of risks, including fluctuations in
exchange rates, adverse changes in foreign laws or regulatory
requirements, and tariffs, taxes and other trade restrictions.
See Item 1A: Risk Factors Our substantial
international operations subject us to a number of risks,
including unfavorable political, regulatory, labor and tax
conditions in foreign countries. See also Note 23,
Segment and Geographical Information, to our
consolidated financial statements referenced in Item 15 of
this Annual Report on
Form 10-K
for information about our net sales by geographic region for the
years ended December 27, 2008, December 29, 2007 and
December 30, 2006, and see our Managements Discussion
and Analysis of Financial Condition and Results of Operations in
Item 7 of this Annual Report on
Form 10-K
for other information about our operations and activities in
various geographic regions.
9
Available
Information
We maintain a website at
http://www.firstsolar.com.
We make available free of charge on our website our annual
reports on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K,
proxy statements and any amendments to those reports filed or
furnished pursuant to Section 13(a) or 15(d) of the
Exchange Act, as soon as reasonably practicable after we
electronically file these materials with, or furnish them to,
the SEC. The information contained in or connected to our
website is not incorporated by reference into this report.
The public may also read and copy any materials that we file
with the SEC at the SECs Public Reference Room at
100 F Street, NE, Washington, D.C. 20549. The
public may obtain information on the operation of the Public
Reference Room by calling the SEC at
1-800-SEC-0330.
The SEC also maintains an Internet website that contains reports
and other information regarding issuers, such as First Solar,
that file electronically with the SEC. The SECs Internet
website is located at
http://www.sec.gov.
Executive
Officers of the Registrant
Our executive officers and their ages and positions as of
December 27, 2008 are as follows:
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Name
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Age
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Position
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Michael J. Ahearn
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Chief Executive Officer, Chairman
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Bruce Sohn
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President, Director
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Jens Meyerhoff
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Chief Financial Officer
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John T. Gaffney
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Executive Vice President and Corporate Secretary
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Mary Beth Gustafsson
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Vice President, General Counsel
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John Carrington
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Executive Vice President, Global Marketing and Business
Development
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Michael J. Ahearn has served as the CEO and Chairman of First
Solar since August 2000. Mr. Ahearn also served as
President of First Solar from August 2000 to March 2007. From
1996 until November 2006, he was a Partner and President of the
equity investment firm JWMA Partners, LLC, or JWMA (formerly
True North Partners, LLC). Prior to joining JWMA,
Mr. Ahearn practiced law as a partner in the firm of
Gallagher & Kennedy. He received both a B.A. in
Finance and a J.D. from Arizona State University.
Bruce Sohn was elected a director of First Solar in July 2003
and has served as President of First Solar since March 2007.
Prior to joining First Solar as President, Mr. Sohn worked
at Intel Corporation for 24 years. He is a senior member of
IEEE and a certified Jonah. Mr. Sohn has been a guest
lecturer at several universities, including the Massachusetts
Institute of Technology and Stanford University. He graduated
from the Massachusetts Institute of Technology with a degree in
Materials Science and Engineering.
Jens Meyerhoff joined First Solar in May 2006 as Chief Financial
Officer. Prior to joining First Solar, Mr. Meyerhoff was
the Chief Financial Officer of Virage Logic Corporation, a
provider of embedded memory intellectual property for the design
of integrated circuits, from January 2006 to May 2006.
Mr. Meyerhoff was employed by FormFactor, Inc., a
manufacturer of advanced wafer probe cards, as Chief Operating
Officer from April 2004 to July 2005, Senior Vice President of
Operations from January 2003 to April 2004 and Chief Financial
Officer from August 2000 to March 2005. Mr. Meyerhoff holds
a German Wirtschaftsinformatiker degree, which is the equivalent
of a Finance and Information Technology degree, from Daimler
Benzs Executive Training Program.
John T. Gaffney joined First Solar in January 2008 as Executive
Vice President and Corporate Secretary. Prior to joining First
Solar, Mr. Gaffney practiced law at the firm of Cravath,
Swaine & Moore LLP, where he was a partner since 1993.
During his time at Cravath, Mr. Gaffney served as a key
advisor to First Solar and advised numerous corporate and
financial institution clients on merger, acquisition and capital
markets transactions. Mr. Gaffney holds a B.A. from The
George Washington University and an M.B.A. and J.D. from
New York University.
Mary Beth Gustafsson joined First Solar in October 2008 as Vice
President, General Counsel. Prior to joining First Solar,
Ms. Gustafsson was the Senior Vice President, General
Counsel and Secretary of Trane Inc. (formerly American Standard
Companies Inc.) from January 2005 through June 2008. From June
2008 through September
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2008, Ms. Gustafsson was Vice President and Deputy General
Counsel of Ingersoll-Rand Ltd., following Ingersoll-Rands
acquisition of Trane. From 2001 through 2005,
Ms. Gustafsson held positions of increasing responsibility
at American Standard Companies Inc., including Chief Corporate
Counsel and General Counsel for the companys global air
conditioning business. Ms. Gustafsson holds a B.A. in
English Literature from Boston University, and a J.D. from The
University of Michigan Law School.
John Carrington joined First Solar in May 2008 as Executive Vice
President, Global Marketing & Business Development.
Mr. Carrington brings extensive global marketing experience
from his leadership positions with General Electric spanning
more than 15 years. Mr. Carrington previously served
as general manager and chief marketing officer of General
Electric Plastics (recently sold and re-named SABIC Innovative
Plastics). While at GE, he also served as General Manager of
automotive marketing in Tokyo, Japan; Pacific Marketing Director
in Tokyo; and Commercial Director for GEs Noryl resin
business in Selkirk, New York. Mr. Carrington holds a B.A.
in Economics and Marketing from the University of Colorado.
An investment in our stock involves a high degree of risk. You
should carefully consider the following information, together
with the other information in this Annual Report on
Form 10-K,
before buying shares of our stock. If any of the following risks
or uncertainties occur, our business, financial condition and
results of operations could be materially and adversely affected
and the trading price of our stock could decline.
An
increase in interest rates or lending rates or tightening of the
supply of capital in the global financial markets could make it
difficult for end-users to finance the cost of a PV system and
could reduce the demand for our solar modules and/or lead to a
reduction in the average selling price for photovoltaic
modules.
Many of our end-users depend on debt financing to fund the
initial capital expenditure required to purchase and install a
PV system. As a result, an increase in interest rates or lending
rates could make it difficult for our end-users to secure the
financing necessary to purchase and install a PV system on
favorable terms, or at all and thus lower demand for our solar
modules and reduce our net sales. Due to the overall economic
outlook, our end-users may change their decision or change the
timing of their decision to purchase and install a PV system. In
addition, we believe that a significant percentage of our
end-users install PV systems as an investment, funding the
initial capital expenditure through a combination of equity and
debt. An increase in interest rates and/or lending rates could
lower an investors return on investment in a PV system, or
make alternative investments more attractive relative to
PV systems, and, in each case, could cause these end-users
to seek alternative investments. A reduction in the supply of
project debt financing or tax equity investments could reduce
the number of solar projects that receive financing and thus
lower demand for solar modules.
We currently sell a substantial portion of our solar modules
under Long Term Supply Contracts, and we allocate a significant
amount of our production to satisfy our obligations under these
contracts. These customers buy our modules with the expectation
that they will be able to resell them in connection with the
development of PV systems. As discussed above, many of these
projects depend on the availability of debt and equity
financing. A prolonged, material disruption to the supply of
project finance could adversely affect our customers
ability to perform under these agreements. In the event of
default by one or more of these customers, we may be unable to
sell these modules at the prices specified in our Long Term
Supply Contracts, especially if demand for PV systems softens or
supplies of solar modules increase. Also, we may decide to lower
our average selling price to certain customers in certain
markets in response to changes in economic circumstances of our
customers, their end markets or the capital markets.
We
currently depend on a limited number of customers, with five
customers accounting for substantially all of our net sales last
year. The loss of, or a significant reduction in orders from,
any of these customers could significantly reduce our net sales
and negatively impact our operating results.
We currently sell substantially all of our solar modules to
customers headquartered throughout the European Union. During
2008, our five largest customers each accounted for between 11%
and 19% of our net sales. The loss
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of any of our large customers, their inability to perform under
their contracts, or their default in payment could significantly
reduce our net sales and adversely impact our operating results.
Our customers face significant challenges under current economic
conditions, including lack of capital to finance solar projects
and rising costs associated with leasing or otherwise acquiring
land and rooftops for solar projects. We believe that we can
mitigate this risk by re-allocating modules to other customers
if the need arises, but we may be unable, in whole or in part,
to mitigate the reduced demand for our modules. In the event
that we determine that our planned production of solar modules
exceeds the demand we anticipate, we may decide to reduce or
halt production of solar modules in our manufacturing
facilities. However, we may be unable to anticipate and respond
to the oversupply of solar modules because we have limited
visibility into our customers inventories.
Our
limited operating history may not serve as an adequate basis to
judge our future prospects and results of
operations.
We have a limited operating history. Although we began
developing our predecessor technology in 1987, we did not launch
commercial operations until we qualified our pilot production
line in January 2002. We qualified the first production line at
our Ohio plant in November 2004, the second and third production
lines at our Ohio plant in August 2006, our German plant in the
third quarter of 2007, and portions of our Malaysian plants in
2008. Because these production lines have only been in operation
for a limited period of time, our historical operating results
may not provide a meaningful basis for evaluating our business,
financial performance and prospects. While our net sales grew
from $48.1 million in 2005 to $1,246.3 million in
2008, we may be unable to achieve similar growth, or grow at
all, in future periods. Our ability to achieve similar growth in
future periods is also affected by current economic conditions.
Our past results occurred in an environment where, among other
things, capital was generally more accessible to our customers
to finance the cost of developing solar projects. Accordingly,
you should not rely on our results of operations for any prior
period as an indication of our future performance.
We
face intense competition from manufacturers of crystalline
silicon solar modules, thin film solar modules and solar thermal
and concentrated photovoltaic systems; if global supply exceeds
global demand, it could lead to a reduction in the average
selling price for photovoltaic modules.
The solar energy and renewable energy industries are both highly
competitive and continually evolving as participants strive to
distinguish themselves within their markets and compete with the
larger electric power industry. Within the global photovoltaic
industry, we face competition from crystalline silicon solar
module manufacturers, other thin film solar module manufacturers
and companies developing solar thermal and concentrated
photovoltaic technologies.
Even if demand for solar modules continues to grow, the rapid
expansion plans of many solar cell and module manufacturers
could create periods where supply exceeds demand. In addition,
we believe the significant decrease in the cost of silicon
feedstock will provide significant reductions in the
manufacturing cost of crystalline silicon solar modules and lead
to pricing pressure for solar modules and potentially the
oversupply of solar modules, including in key markets such as
Germany and Spain.
During any such period, our competitors could decide to reduce
their sales price, even below their manufacturing cost, in order
to generate sales. As a result, we may be unable to sell our
solar modules at attractive prices, or for a profit, during any
period of excess supply of solar modules, which would reduce our
net sales and adversely affect our results of operations. Also,
we may decide to lower our average selling price to certain
customers in certain markets in response to competition.
Thin
film technology has a short history and our thin film technology
and solar modules may perform below expectations; problems with
product quality or performance may cause us to incur warranty
expenses, damage our market reputation and prevent us from
maintaining or increasing our market share.
Researchers began developing thin film semiconductor technology
over 20 years ago, but were unable to integrate the
technology into a solar module production line until recently.
Our oldest active production line has only been in operation
since November 2004 and the oldest solar modules manufactured
during the qualification of
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our pilot line have only been in use since 2001. As a result,
our thin film technology and solar modules do not have a
sufficient operating history to confirm how our solar modules
will perform over their estimated
25-year
useful life. We perform a variety of quality and life tests
under different conditions. However, if our thin film technology
and solar modules perform below expectations, we could lose
customers and face substantial warranty expense.
Our solar modules are sold with a five year materials and
workmanship warranty for technical defects and a twenty-five
year warranty against declines of more than 10% of their initial
rated power in the first 10 years following their
installation and 20% of initial rated power in the following
15 years, respectively. As a result, we bear the risk of
extensive warranty claims long after we have sold our solar
modules and recognized net sales. As of December 27, 2008,
our accrued warranty liability was $11.9 million; of which,
$4.0 million was classified as current and
$7.9 million was classified as non-current.
While our power output warranty extends for twenty-five years,
our oldest solar modules manufactured during the qualification
of our pilot production line have only been in use since 2001.
Because of the limited operating history of our solar modules,
we have been required to make assumptions regarding the
durability and reliability of our solar modules. Our assumptions
could prove to be materially different from the actual
performance of our solar modules, causing us to incur
substantial expense to repair or replace defective solar modules
in the future. For example, our
glass-on-glass
solar modules could break, delaminate or experience power
degradation in excess of expectations. Any widespread product
failures may damage our market reputation and cause our sales to
decline and require us to repair or replace the defective
modules, which could have a material adverse effect on our
financial results.
If our
estimates regarding the future cost of collecting and recycling
our solar modules are incorrect, we could be required to accrue
additional expenses at and from the time we realize our
estimates are incorrect and face a significant unplanned cash
burden when our end-users return their solar
modules.
We pre-fund our estimated future obligation for collecting and
recycling our solar modules based on the present value of the
expected future cost of collecting and recycling the modules,
which, includes the cost of packaging the solar modules for
transport, the cost of freight from the solar modules
installation site to a recycling center, the material, labor and
capital costs of the recycling process and an estimated
third-party profit margin and return on risk for collection and
recycling. We base our estimate on our experience collecting and
recycling solar modules that do not pass our quality control
tests and solar modules returned under our warranty and on our
expectations about future developments in recycling technologies
and processes and about economic conditions at the time the
solar modules will be collected and recycled. If our estimates
prove incorrect, we could be required to accrue additional
expenses at and from the time we realize our estimates are
incorrect and also face a significant unplanned cash burden at
the time we realize our estimates are incorrect or end-users
return their solar modules, which could harm our operating
results. In addition, our end-users can return their solar
modules at any time. As a result, we could be required to
collect and recycle our solar modules earlier than we expect and
before recycling technologies and processes improve
Our
failure to further refine our technology and develop and
introduce improved photovoltaic products could render our solar
modules uncompetitive or obsolete and reduce our net sales and
market share.
We will need to invest significant financial resources in
research and development to keep pace with technological
advances in the solar energy industry. However, research and
development activities are inherently uncertain and we could
encounter practical difficulties in commercializing our research
results. Our significant expenditures on research and
development may not produce corresponding benefits. Other
companies are developing a variety of competing photovoltaic
technologies, including copper indium gallium diselenide and
amorphous silicon, which could produce solar modules that prove
more cost-effective or have better performance than our solar
modules. As a result, our solar modules may be rendered obsolete
by the technological advances of our competitors, which could
reduce our net sales and market share.
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If
photovoltaic technology is not suitable for widespread adoption,
or if sufficient demand for solar modules does not develop or
takes longer to develop than we anticipate, our net sales may
flatten or decline and we may be unable to sustain
profitability.
The solar energy market is at a relatively early stage of
development and the extent to which solar modules will be widely
adopted is uncertain. If photovoltaic technology proves
unsuitable for widespread adoption or if demand for solar
modules fails to develop sufficiently, we may be unable to grow
our business or generate sufficient net sales to sustain
profitability. In addition, demand for solar modules in our
targeted markets including Germany, Spain, France,
Italy and the United States may not develop or may
develop to a lesser extent than we anticipate. Many factors may
affect the viability of widespread adoption of photovoltaic
technology and demand for solar modules, including the following:
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cost-effectiveness of solar modules compared to conventional and
other non-solar renewable energy sources and products, including
conventional energy sources such as natural gas that have
experienced recent price reductions making it more difficult for
PV plants to compete on a cost per watt basis;
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performance and reliability of solar modules and thin film
technology compared to conventional and other non-solar
renewable energy sources and products;
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availability and substance of government subsidies and
incentives to support the development of the solar energy
industry;
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success of other renewable energy generation technologies, such
as hydroelectric, tidal, wind, geothermal, solar thermal,
concentrated photovoltaic, and biomass;
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fluctuations in economic and market conditions that affect the
price of, and demand for, conventional and non-solar renewable
energy sources, such as increases or decreases in the price of
oil, natural gas and other fossil fuels;
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fluctuations in capital expenditures by end-users of solar
modules, which tend to decrease when the economy slows and
interest rates increase; and
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deregulation of the electric power industry and the broader
energy industry to permit wide spread adoption of solar
electricity.
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Reduced
growth in or the reduction, elimination or expiration of
government subsidies, economic incentives and other support for
on-grid solar electricity applications could reduce demand for
our solar modules, lead to a reduction in our net sales and
adversely impact our operating results.
Reduced growth in or the reduction, elimination or expiration of
government subsidies, economic incentives and other support for
on-grid solar electricity may result in the diminished
competitiveness of solar energy relative to conventional and
non-solar renewable sources of energy, and could materially and
adversely affect the growth of the solar energy industry and our
net sales. We believe that the near-term growth of the market
for on-grid applications, where solar energy is used to
supplement the electricity a consumer purchases from the utility
network, depends significantly on the availability and size of
government subsidies and economic incentives. Federal, state and
local governmental bodies in many countries, most notably
Germany, Italy, Spain, France, Greece, Portugal, South Korea,
Japan, Canada and the United States, have provided subsidies in
the form of feed-in tariffs, rebates, tax incentives and other
incentives to end-users, distributors, systems integrators and
manufacturers of photovoltaic products. Many of these government
incentives expire, phase out over time or require renewal by the
applicable authority.
For example, the German Renewable Energy Law, or the EEG, has
recently been modified by the German Government.
Feed-in-tariffs
were significantly reduced compared with the former legislation.
The amended law became effective January 1, 2009. German
subsidies now decline at a rate of between 8.0% and 10% in 2009
(based on the type of the photovoltaic system) instead of
between 5% and 6.5% prior to effective date of the amendment.
The rate of decrease is subject to change based on the overall
market growth. For example, the rate of decrease in
feed-in-tariffs
in 2010 will be increased by 1% in case the market will be
larger than 1500 MW or decreased by 1% if it is smaller
than 1000 MW. The next review of
feed-in-tariffs
is scheduled for 2012; however, earlier adjustments
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are possible. If the German government reduces or eliminates the
subsidies under the EEG, demand for photovoltaic products could
significantly decline in Germany.
In Spain, which accounted for approximately 6% of our net sales,
the Spanish government published a new decree for photovoltaics
on September 27, 2008, which became effective on
September 28, 2008. The new legislation replaces the
previous decree, from which it differs in some basic respects.
It distinguishes between system types, namely between
roof-mounted and ground-mounted systems, it implements a
flexible mechanism that links the
feed-in-tariffs
to market development along with annual caps and it introduces a
mechanism of licenses for installations that will be given out
in four quarterly rounds per annum. The decree fixed an initial
annual cap of 400 MW, of which 267 MW is reserved for
roof installations and 133 MW for ground-mounted systems.
For 2009 and 2010, additional volumes of 100 MW and
60 MW, respectively, are reserved for ground-mounted
systems. A decision about a new compensation structure is not
expected before 2012. With the annual market expansion capped
for the next three years and
feed-in-tariffs
significantly reduced under the revised Spanish Royal Decree,
demand for photovoltaic products in Spain is expected to decline
significantly.
In the United States, California has been the State where the
majority of solar installations have taken place during the past
five years. Starting January 1, 2007, the California Solar
Initiative (CSI) has established a goal of installing 3000MW of
solar generation capacity by 2016 with a State budget of
$2.2 billion over 10 years. The incentive level
available to a given project is determined by the currently
available incentive in each utility territory for each customer
class. The CSI was designed so that the incentive level
decreases over ten steps, after which it goes to $0, as the
total demand for solar energy grows.
In October 2008, the United States Congress extended the 30%
federal investment tax credit for both residential and
commercial solar installations for eight years, through
December 31, 2016. On February 17, 2009, the American
Recovery and Reinvestment Act of 2009 was signed into law. In
addition to adopting certain fiscal stimulus measures that could
benefit on-grid solar electricity applications, this act creates
a new program, through the Department of the Treasury, which
provides grants equal to 30% of the cost of solar installations
that are placed into service during 2009 and 2010 or that begin
construction prior to December 31, 2010 and are placed into
service by January 1, 2017. This grant is available in lieu
of receiving the 30% federal investment tax credit. Other
measures adopted by the American Recovery and Reinvestment Act
of 2009 that could benefit on-grid solar electricity generation
include the following: (1) a Department of Energy loan
guarantee program for renewable energy projects, renewable
energy manufacturing facilities and electric power transmission
projects and (2) a 30% investment credit for assets used to
manufacture technology for the production of renewable energy.
Emerging subsidy programs, such as the programs in Italy,
France, Greece, South Korea and Ontario, Canada, may require an
extended period of time to attain effectiveness because the
applicable permitting and grid connection processes associated
with these programs can be lengthy and administratively
burdensome.
In addition, if any of these statutes or regulations is found to
be unconstitutional, or is reduced or discontinued for other
reasons, sales of our solar modules in these countries could
decline significantly, which could have a material adverse
effect on our business and results of operations. For example,
the predecessor to the German EEG was challenged in Germany on
constitutional grounds and in the European Court of Justice as
impermissible state aid. Although the German Federal High Court
of Justice dismissed these constitutional concerns and the
European Court of Justice held that the purchase requirement at
minimum feed-in tariffs did not constitute impermissible state
aid, new proceedings challenging the German EEG or comparable
minimum price regulations in other countries in which we
currently operate or intend to operate may be initiated.
Electric utility companies or generators of electricity from
fossil fuels or other renewable energy sources could also lobby
for a change in the relevant legislation in their markets to
protect their revenue streams. Reduced growth in or the
reduction, elimination or expiration of government subsidies and
economic incentives for on-grid solar energy applications,
especially those in our target markets, could cause our net
sales to decline and materially and adversely affect our
business, financial condition and results of operations.
Many
of our key raw materials and components are either sole-sourced
or sourced by a limited number of third-party suppliers and
their failure to perform could cause manufacturing delays and
impair our
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ability to deliver solar modules to customers in the
required quality and quantities and at a price that is
profitable to us.
Our failure to obtain raw materials and components that meet our
quality, quantity and cost requirements in a timely manner could
interrupt or impair our ability to manufacture our solar modules
or increase our manufacturing cost. Many of our key raw
materials and components are either sole-sourced or sourced by a
limited number of third-party suppliers. As a result, the
failure of any of our suppliers to perform could disrupt our
supply chain and impair our operations. In addition, many of our
suppliers are small companies that may be unable to supply our
increasing demand for raw materials and components as we
implement our planned rapid expansion. We may be unable to
identify new suppliers or qualify their products for use on our
production lines in a timely manner and on commercially
reasonable terms. Raw materials and components from new
suppliers may also be less suited for our technology and yield
solar modules with lower conversion efficiencies, higher failure
rates and higher rates of degradation than solar modules
manufactured with the raw materials from our current suppliers.
A constraint on our production may cause us to be unable to meet
our obligations under our Long Term Supply Contracts, which
would have an adverse impact on our financial results.
A
disruption in our supply chain for cadmium telluride, our
semiconductor material, could interrupt or impair our ability to
manufacture solar modules.
A key raw material we use in our production process is a cadmium
telluride compound. Tellurium is mainly produced as a by-product
of copper refining and its supply is therefore dependent upon
demand for copper. Currently, we purchase these raw materials
from a limited number of suppliers. If our current suppliers or
any of our future suppliers are unable to perform under their
contracts or purchase orders, our operations could be
interrupted or impaired. In addition, because our suppliers must
undergo a lengthy qualification process, we may be unable to
replace a lost supplier in a timely manner and on commercially
reasonable terms. Our supply of cadmium telluride could also be
limited if any of our current suppliers or any of our future
suppliers is unable to acquire an adequate supply of tellurium
in a timely manner or at commercially reasonable prices. If our
competitors begin to use or increase their demand for cadmium
telluride, supply could be reduced and prices could increase. If
our current suppliers or any of our future suppliers cannot
obtain sufficient tellurium, they could substantially increase
prices or be unable to perform under their contracts. We may be
unable to pass increases in the cost of our raw materials
through to our customers because our customer contracts do not
adjust for raw material price increases and are generally for a
longer term than our raw material supply contracts. A reduction
in our production could result in our inability to meet our
commitments under our Long Term Supply Contracts, all of which
would have an adverse impact on our financial results.
Our
future success depends on our ability to build new manufacturing
plants and add production lines in a cost-effective manner, both
of which are subject to risks and uncertainties.
Our future success depends on our ability to significantly
increase both our manufacturing capacity and production
throughput in a cost-effective and efficient manner. If we
cannot do so, we may be unable to expand our business, decrease
our cost per watt, maintain our competitive position, satisfy
our contractual obligations or sustain profitability. Our
ability to expand production capacity is subject to significant
risks and uncertainties, including the following:
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making changes to our production process that are not properly
qualified or that may cause problems with the quality of our
solar modules;
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delays and cost overruns as a result of a number of factors,
many of which may be beyond our control, such as our inability
to secure successful contracts with equipment vendors;
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our custom-built equipment may take longer and cost more to
manufacture than expected and may not operate as designed;
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delays or denial of required approvals by relevant government
authorities;
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being unable to hire qualified staff; and
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failure to execute our expansion plans effectively.
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If our
future production lines are not built in line with our committed
schedules or do not achieve operating metrics similar to our
existing production lines, our solar modules could perform below
expectations and cause us to lose customers.
Currently, our production lines have a limited history of
operating at full capacity. Future production lines could
produce solar modules that have lower efficiencies, higher
failure rates and higher rates of degradation than solar modules
from our existing production lines, and we could be unable to
determine the cause of the lower operating metrics or develop
and implement solutions to improve performance. The second and
third production lines at our Ohio plant, completed in August
2006, represent a standard building block that we
replicated twice to build the four production lines at our
German plant. We are using the same systematic replication
process to build our Malaysian manufacturing center and future
production facilities, including expansion of our existing
production facilities. Our replication risk in connection with
building production lines at our Malaysian manufacturing center
and other future manufacturing plants could be higher than our
replication risk was in expanding the Ohio plant because these
new production lines are located internationally, which could
entail other factors that will lower their operating metrics. If
we are unable to systematically replicate our production lines
to meet our committed schedules and achieve and sustain similar
operating metrics in our Malaysian manufacturing center and
future production lines as we have achieved at our existing
production lines, our manufacturing capacity could be
substantially constrained, our manufacturing costs per watt
could increase, and we could lose customers, causing lower net
sales, higher liabilities and lower net income than we
anticipate. In addition, we might be unable to produce enough
solar modules to satisfy our contractual requirements under our
Long Term Supply Contracts.
Some
of our manufacturing equipment is customized and sole sourced.
If our manufacturing equipment fails or if our equipment
suppliers fail to perform under their contracts, we could
experience production disruptions and be unable to satisfy our
contractual requirements.
Some of our manufacturing equipment is customized to our
production lines based on designs or specifications that we
provide to the equipment manufacturer, which then undertakes a
specialized process to manufacture the custom equipment. As a
result, the equipment is not readily available from multiple
vendors and would be difficult to repair or replace if it were
to become damaged or stop working. If any piece of equipment
fails, production along the entire production line could be
interrupted and we could be unable to produce enough solar
modules to satisfy our contractual requirements under our Long
Term Supply Contracts. In addition, the failure of our equipment
suppliers to supply equipment in a timely manner or on
commercially reasonable terms could delay our expansion plans
and otherwise disrupt our production schedule or increase our
manufacturing costs, all of which would adversely impact our
financial results.
If we
are unable to further increase the number of sellable watts per
solar module and reduce our manufacturing cost per watt, we will
be in default under certain of our Long Term Supply Contracts
and our profitability could decline.
Our Long Term Supply Contracts either (1) require us to
increase the minimum average number of watts per module over the
term of the contract or (2) have a price adjustment for
increases or decreases in the number of watts per module
relative to a base number of watts per module. Our failure to
achieve these metrics could reduce our profitability or allow
some of our customers to terminate their contracts. In addition,
all of our Long Term Supply Contracts specify a sales price per
watt that declines by approximately 6.5% at the beginning of
each year through the expiration date of each contract in 2012.
Our profitability could decline if we are unable to reduce our
manufacturing cost per watt by at least the same rate at which
our contractual prices decrease. Furthermore, our failure to
reduce cost per watt by increasing our efficiency may impair our
ability to enter new markets that we believe will require lower
cost per watt for us to be competitive and may impair our growth
plans.
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Existing
regulations and policies and changes to these regulations and
policies may present technical, regulatory and economic barriers
to the purchase and use of photovoltaic products, which may
significantly reduce demand for our solar modules.
The market for electricity generation products is heavily
influenced by foreign, federal, state and local government
regulations and policies concerning the electric utility
industry, as well as policies promulgated by electric utilities.
These regulations and policies often relate to electricity
pricing and technical interconnection of customer-owned
electricity generation. In the United States and in a number of
other countries, these regulations and policies have been
modified in the past and may be modified again in the future.
These regulations and policies could deter end-user purchases of
photovoltaic products and investment in the research and
development of photovoltaic technology. For example, without a
mandated regulatory exception for photovoltaic systems, utility
customers are often charged interconnection or standby fees for
putting distributed power generation on the electric utility
grid. These fees could increase the cost to our end-users of
using photovoltaic systems and make them less desirable, thereby
harming our business, prospects, results of operations and
financial condition. In addition, electricity generated by
photovoltaic systems mostly competes with expensive peak hour
electricity, rather than the less expensive average price of
electricity. Modifications to the peak hour pricing policies of
utilities, such as to a flat rate, would require photovoltaic
systems to achieve lower prices in order to compete with the
price of electricity from other sources.
We anticipate that our solar modules and their installation will
be subject to oversight and regulation in accordance with
national and local ordinances relating to building codes,
safety, environmental protection, utility interconnection and
metering and related matters. It is difficult to track the
requirements of individual states and design equipment to comply
with the varying standards. Any new government regulations or
utility policies pertaining to our solar modules may result in
significant additional expenses to us, our resellers and their
customers and, as a result, could cause a significant reduction
in demand for our solar modules.
Environmental
obligations and liabilities could have a substantial negative
impact on our financial condition, cash flows and
profitability.
Our operations involve the use, handling, generation,
processing, storage, transportation and disposal of hazardous
materials and are subject to extensive environmental laws and
regulations at the national, state, local and international
level. These environmental laws and regulations include those
governing the discharge of pollutants into the air and water,
the use, management and disposal of hazardous materials and
wastes, the cleanup of contaminated sites and occupational
health and safety. We have incurred and will continue to incur
significant costs and capital expenditures in complying with
these laws and regulations. In addition, violations of, or
liabilities under, environmental laws or permits may result in
restrictions being imposed on our operating activities or in our
being subjected to substantial fines, penalties, criminal
proceedings, third party property damage or personal injury
claims, cleanup costs or other costs. While we believe we are
currently in substantial compliance with applicable
environmental requirements, future developments such as more
aggressive enforcement policies, the implementation of new, more
stringent laws and regulations, or the discovery of presently
unknown environmental conditions may require expenditures that
could have a material adverse effect on our business, results of
operations and financial condition.
In addition, our products contain cadmium telluride and cadmium
sulfide. Elemental cadmium and certain of its compounds are
regulated as hazardous due to the adverse health effects that
may arise from human exposure. Although the risks of exposure to
cadmium telluride are not believed to be as serious as those
relating to exposure to elemental cadmium, the chemical,
physical and toxicological properties of cadmium telluride have
not been thoroughly investigated and reported. We maintain
engineering controls to minimize our associates exposure
to cadmium or cadmium compounds and require our associates who
handle cadmium compounds to follow certain safety procedures,
including the use of personal protective equipment such as
respirators, chemical goggles and protective clothing. In
addition, we believe the risk of exposure to cadmium or cadmium
compounds from our end-products is limited by the fully
encapsulated nature of these materials in our products, the
physical properties of cadmium compounds used in our products as
well as the implementation in 2005 of our end of life collection
and recycling program for our solar modules. While we believe
that these factors and procedures are sufficient to protect our
associates, end-users and the general public from cadmium
exposure, we cannot assure that human or
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environmental exposure to cadmium or cadmium compounds used in
our products will not occur. Any such exposure could result in
future third-party claims against us, as well as damage to our
reputation and heightened regulatory scrutiny of our products,
which could limit or impair our ability to sell and distribute
our products. The occurrence of future events such as these
could have a material adverse effect on our business, financial
condition or results of operations.
The use of cadmium in various products is also coming under
increasingly stringent governmental regulation. Future
regulation in this area could impact the manufacture, sale,
collection and recycling of cadmium-containing solar modules and
could require us to make unforeseen environmental expenditures
or limit our ability to sell and distribute our products. For
example, the European Union Directive 2002/96/EC on Waste
Electrical and Electronic Equipment, or the WEEE
Directive, requires manufacturers of certain electrical
and electronic equipment to be financially responsible for the
collection, recycling, treatment and disposal of specified
products sold in the European Union. In addition, European Union
Directive 2002/95/EC on the Restriction of the Use of Hazardous
Substances in electrical and electronic equipment, or the
RoHS Directive, restricts the use of certain
hazardous substances, including cadmium, in specified products.
Other jurisdictions are considering adopting similar
legislation. Currently, photovoltaic solar modules in general
are not subject to the WEEE or RoHS Directives; however, these
directives allow for future amendments subjecting additional
products to their requirements and the scope, applicability and
the products included in the WEEE and RoHS Directives may
change. In December 2008, the European Commission issued
its planned revisions of both the WEEE and RoHS Directives. The
revisions did not include photovoltaic solar modules in the
scope of either directive. The revisions will now be considered
by both the European Parliament and the EU Members States as
part of the normal European Union legislative process, which is
likely to take one to two years. If, in the future, our solar
modules become subject to requirements of the WEEE and RoHS
Directives, we may be required to apply for an exemption. If we
were unable to obtain an exemption, we would be required to
redesign our solar modules in order to continue to offer them
for sale within the European Union, which would be impractical.
Failure to comply with these directives could result in the
imposition of fines and penalties, the inability to sell our
solar modules in the European Union, competitive disadvantages
and loss of net sales, all of which could have a material
adverse effect on our business, financial condition and results
of operations.
We may
not realize the anticipated benefits of past or future
acquisitions, and integration of these acquisitions may disrupt
our business and management.
In November 2007, we acquired Turner Renewable Energy, LLC and
in the future, we may acquire additional companies, products or
technologies. We may not realize the anticipated benefits of an
acquisition and each acquisition has numerous risks. These risks
include the following:
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difficulty in assimilating the operations and personnel of the
acquired company;
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difficulty in effectively integrating the acquired technologies
or products with our current products and technologies;
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difficulty in maintaining controls, procedures and policies
during the transition and integration;
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disruption of our ongoing business and distraction of our
management and employees from other opportunities and challenges
due to integration issues;
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difficulty integrating the acquired companys accounting,
management information and other administrative systems;
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inability to retain key technical and managerial personnel of
the acquired business;
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inability to retain key customers, vendors and other business
partners of the acquired business;
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inability to achieve the financial and strategic goals for the
acquired and combined businesses;
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incurring acquisition-related costs or amortization costs for
acquired intangible assets that could impact our operating
results;
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potential impairment of our relationships with employees,
customers, partners, distributors or third party providers of
technology or products;
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potential failure of the due diligence processes to identify
significant issues with product quality, architecture and
development or legal and financial liabilities, among other
things;
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potential inability to assert that internal controls over
financial reporting are effective;
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potential inability to obtain, or obtain in a timely manner,
approvals from governmental authorities, which could delay or
prevent such acquisitions; and
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potential delay in customer purchasing decisions due to
uncertainty about the direction of our product offerings.
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Mergers and acquisitions of companies are inherently risky, and
ultimately, if we do not complete the integration of acquired
businesses successfully and in a timely manner, we may not
realize the anticipated benefits of the acquisitions to the
extent anticipated, which could adversely affect our business,
financial condition or results of operations.
We may
be unable to manage the expansion of our operations
effectively.
We expect to expand our business significantly in order to meet
our contractual obligations, satisfy demand for our solar
modules and increase market share. In August 2006, we expanded
our Ohio plant from one to three production lines. In April
2007, we started initial production at our four line
manufacturing plant in Germany, which reached full capacity in
the third quarter of 2007. Also in April 2007, we began
construction of plant one of our Malaysian manufacturing center.
In the third and fourth quarters of 2007, we began construction
of plants two and three respectively, and in the first quarter
of 2008, we began construction of plant four. In the second half
of 2008 we started construction of a one line expansion at our
plant in Ohio. Following the completion of plant four of our
Malaysian manufacturing center and the expansion of our Ohio
plant, we will have grown from one production line to 24
production lines with an annual global manufacturing capacity of
approximately 1145MW in four years (based on the fourth quarter
of 2008 average per line run rate at our existing plants).
To manage the rapid expansion of our operations, we will be
required to improve our operational and financial systems,
procedures and controls and expand, train and manage our growing
associate base. Our management will also be required to maintain
and expand our relationships with customers, suppliers and other
third parties and attract new customers and suppliers. In
addition, our current and planned operations, personnel, systems
and internal procedures and controls might be inadequate to
support our future growth. If we cannot manage our growth
effectively, we may be unable to take advantage of market
opportunities, execute our business strategies or respond to
competitive pressures.
Our
substantial international operations subject us to a number of
risks, including unfavorable political, regulatory, labor and
tax conditions in foreign countries.
We have significant marketing, distribution and manufacturing
operations both within and outside the United States. In
2008, 94% of our net sales were generated from customers
headquartered in the European Union. In the future, we expect to
expand our operations in other European and Asian countries; and
as a result, we will be subject to the legal, political, social
and regulatory requirements, and economic conditions of many
jurisdictions. Risks inherent to international operations,
include, but are not limited to, the following:
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difficulty in enforcing agreements in foreign legal systems;
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foreign countries may impose additional withholding taxes or
otherwise tax our foreign income, impose tariffs or adopt other
restrictions on foreign trade and investment, including currency
exchange controls;
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fluctuations in exchange rates may affect product demand and may
adversely affect our profitability in U.S. dollars to the
extent the price of our solar modules and cost of raw materials,
labor and equipment is denominated in a foreign currency;
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inability to obtain, maintain or enforce intellectual property
rights;
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risk of nationalization of private enterprises;
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changes in general economic and political conditions in the
countries in which we operate, including changes in the
government incentives we are relying on;
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unexpected adverse changes in foreign laws or regulatory
requirements, including those with respect to environmental
protection, export duties and quotas;
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difficulty with staffing and managing widespread operations;
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trade barriers such as export requirements, tariffs, taxes and
other restrictions and expenses, which could increase the price
of our solar modules and make us less competitive in some
countries; and
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difficulty of and costs relating to compliance with the
different commercial and legal requirements of the overseas
markets in which we offer and sell our solar modules.
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Our business in foreign markets requires us to respond to rapid
changes in market conditions in these countries. Our overall
success as a global business depends, in part, on our ability to
succeed in differing legal, regulatory, economic, social and
political conditions. We may not be able to develop and
implement policies and strategies that will be effective in each
location where we do business.
Our
future success depends on our ability to retain our key
associates and to successfully integrate them into our
management team.
We are dependent on the services of Michael J. Ahearn, our Chief
Executive Officer, Bruce Sohn, our President, Jens Meyerhoff,
our Chief Financial Officer, John Carrington, our Executive Vice
President Global Marketing and Business Development, John T.
Gaffney, our Executive Vice President, and other members of our
senior management team. The loss of Messrs. Ahearn, Sohn,
Meyerhoff, Carrington, Gaffney, or any other member of our
senior management team could have a material adverse effect on
us. There is a risk that we will not be able to retain or
replace these key associates. Several of our current key
associates, including Messrs. Ahearn, Sohn, Meyerhoff,
Carrington and Gaffney are subject to employment conditions or
arrangements that contain post-employment non-competition
provisions. However, these arrangements permit the associates to
terminate their employment with us upon little or no notice.
If we
are unable to attract, train and retain key personnel, our
business may be materially and adversely affected.
Our future success depends, to a significant extent, on our
ability to attract, train and retain management, operations and
technical personnel. Recruiting and retaining capable personnel,
particularly those with expertise in the photovoltaic industry
and thin film technology, are vital to our success. There is
substantial competition for qualified technical personnel and we
cannot assure you that we will be able to attract or retain our
technical personnel. If we are unable to attract and retain
qualified associates, our business may be materially and
adversely affected.
Our
failure to protect our intellectual property rights may
undermine our competitive position and litigation to protect our
intellectual property rights or defend against third-party
allegations of infringement may be costly.
Protection of our proprietary processes, methods and other
technology, especially our proprietary vapor transport
deposition process and laser scribing process, is critical to
our business. Failure to protect and monitor the use of our
existing intellectual property rights could result in the loss
of valuable technologies. We rely primarily on patents,
trademarks, trade secrets, copyrights and other contractual
restrictions to protect our intellectual property. As of
December 27, 2008, we held 23 patents in the United States,
which will expire at various times between 2009 and 2026, and
had 37 patent applications pending. We also held 17 patents and
had over 70 patent applications pending in foreign
jurisdictions. Our existing patents and future patents could be
challenged, invalidated, circumvented or rendered unenforceable.
We have pending patent applications in the United States and in
foreign jurisdictions. Our pending patent applications may not
result in issued patents, or if patents are issued to us, such
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patents may not be sufficient to provide meaningful protection
against competitors or against competitive technologies.
We also rely upon unpatented proprietary manufacturing
expertise, continuing technological innovation and other trade
secrets to develop and maintain our competitive position. While
we generally enter into confidentiality agreements with our
associates and third parties to protect our intellectual
property, such confidentiality agreements are limited in
duration and could be breached and may not provide meaningful
protection for our trade secrets or proprietary manufacturing
expertise. Adequate remedies may not be available in the event
of unauthorized use or disclosure of our trade secrets and
manufacturing expertise. In addition, others may obtain
knowledge of our trade secrets through independent development
or legal means. The failure of our patents or confidentiality
agreements to protect our processes, equipment, technology,
trade secrets and proprietary manufacturing expertise, methods
and compounds could have a material adverse effect on our
business. In addition, effective patent, trademark, copyright
and trade secret protection may be unavailable or limited in
some foreign countries, especially any developing countries into
which we may expand our operations. In some countries we have
not applied for patent, trademark or copyright protection.
Third parties may infringe or misappropriate our proprietary
technologies or other intellectual property rights, which could
have a material adverse effect on our business, financial
condition and operating results. Policing unauthorized use of
proprietary technology can be difficult and expensive. Also,
litigation may be necessary to enforce our intellectual property
rights, protect our trade secrets or determine the validity and
scope of the proprietary rights of others. We cannot assure you
that the outcome of such potential litigation will be in our
favor. Such litigation may be costly and may divert management
attention and other resources away from our business. An adverse
determination in any such litigation will impair our
intellectual property rights and may harm our business,
prospects and reputation. In addition, we have no insurance
coverage against litigation costs and would have to bear all
costs arising from such litigation to the extent we are unable
to recover them from other parties.
We may
be exposed to infringement or misappropriation claims by third
parties, which, if determined adversely to us, could cause us to
pay significant damage awards or prohibit us from the
manufacture and sale of our solar modules or the use of our
technology.
Our success depends largely on our ability to use and develop
our technology and know-how without infringing or
misappropriating the intellectual property rights of third
parties. The validity and scope of claims relating to
photovoltaic technology patents involve complex scientific,
legal and factual considerations and analysis and, therefore,
may be highly uncertain. We may be subject to litigation
involving claims of patent infringement or violation of
intellectual property rights of third parties. The defense and
prosecution of intellectual property suits, patent opposition
proceedings and related legal and administrative proceedings can
be both costly and time consuming and may significantly divert
the efforts and resources of our technical and management
personnel. An adverse determination in any such litigation or
proceedings to which we may become a party could subject us to
significant liability to third parties, require us to seek
licenses from third parties, which may not be available on
reasonable terms, or at all, or pay ongoing royalties, require
us to redesign our solar module, or subject us to injunctions
prohibiting the manufacture and sale of our solar modules or the
use of our technologies. Protracted litigation could also result
in our customers or potential customers deferring or limiting
their purchase or use of our solar modules until the resolution
of such litigation.
Currency
translation and transaction risk may negatively affect our net
sales, cost of sales and gross margins and could result in
exchange losses.
Although our reporting currency is the U.S. dollar, we
conduct our business and incur costs in the local currency of
most countries in which we operate. As a result, we are subject
to currency translation and transaction risk. For example, 95%
and 98.8% of our net sales were outside the United States and
denominated in euro for the fiscal years ended December 27,
2008 and December 29, 2007, respectively, and we expect a
large percentage of our net sales to be outside the United
States and denominated in foreign currencies in the future. In
addition, with the expansion of our manufacturing operations
into Germany and Malaysia, our operating expenses for the plants
in these countries will be denominated in the local currency.
Changes in exchange rates between foreign currencies and the
U.S. dollar could affect our net sales and cost of sales
and could result in exchange gains or losses. For
22
example, the strengthening euro contributed $68.9 million
to our net sales during fiscal 2008 compared with fiscal 2007.
In addition, we incur currency transaction risk whenever one of
our operating subsidiaries enters into either a purchase or a
sales transaction using a different currency from our reporting
currency. For example, our Long Term Supply Contracts specify
fixed pricing in euro through 2012 and do not adjust for changes
in the U.S. dollar to euro exchange rate. We cannot
accurately predict the impact of future exchange rate
fluctuations on our results of operations.
We could also expand our business into emerging markets, many of
which have an uncertain regulatory environment relating to
currency policy. Conducting business in such emerging markets
could cause our exposure to changes in exchange rates to
increase.
The
Estate of John T. Walton and its affiliates have significant
control over us and their interests may conflict with or differ
from interests of other stockholder.
Our current majority stockholder, the Estate of John T. Walton
and its affiliates, including JCL Holdings, LLC, owned 40.6% of
our outstanding common stock at December 27, 2008. As a
result, the Estate of John T. Walton and its affiliates have
substantial influence over all matters requiring stockholder
approval, including the election of our directors and the
approval of significant corporate transactions such as mergers,
tender offers and the sale of all or substantially all of our
assets. In addition, our amended and restated certificate of
incorporation and by-laws provide that unless and until the
Estate of John T. Walton, JCL Holdings, LLC, John T.
Waltons surviving spouse, descendants, any entity
(including a trust) that is for the benefit of John T.
Waltons surviving spouse or descendants or any entity
(including a trust) over which any of John T. Waltons
surviving spouse, descendants or siblings has voting or
dispositive power (collectively, the Estate)
collectively owns less than 40% of our common stock then
outstanding, stockholders holding 40% or more of our common
stock then outstanding may call a special meeting of the
stockholders, at which our stockholders could replace our board
of directors. In addition, unless and until the Estate
collectively owns less than 40% of our common stock then
outstanding, stockholder action may be taken by written consent.
The interests of the Estate could conflict with or differ from
interests of other stockholders. For example, the concentration
of ownership held by the Estate could delay, defer or prevent a
change of control of our company or impede a merger, takeover or
other business combination which a majority of stockholders may
view favorably.
If our
goodwill or investment in related party becomes impaired we may
be required to record a significant charge to
earnings.
We may be required to record a significant charge to earnings in
our financial statements during the period in which any
impairment of our goodwill or investment in a related party is
determined, resulting in an impact on our results of operations.
Under accounting principles generally accepted in the United
States of America, we review our amortizable intangible assets
and investment in related party for impairment when events or
changes in circumstances indicate the carrying value may not be
recoverable. Goodwill is required to be tested for impairment at
least annually. Factors that may be considered a change in
circumstances indicating that the carrying value of our goodwill
or amortizable intangible assets may not be recoverable include
a decline in stock price and market capitalization, a decline in
projections of future cash flows and slower growth rates in our
industry. Goodwill recorded in connection with the acquisition
of Turner Renewable Energy, LLC in November 2007 was
$33.4 million.
In October 2008, we made an equity investment in a company based
in the United States that supplies solar power plants to
commercial and residential customers at a total cost of
$25.0 million. This investment represents an ownership of
approximately 12% of the voting interest in this company and is
our only equity interest in that entity. Since our ownership
interest in this company is less than 20% and we do not exercise
significant influence over it, we account for this investment
using the cost method of accounting.
|
|
Item 1B:
|
Unresolved
Staff Comments
|
None.
23
Our corporate headquarters is located in Tempe, Arizona and is
leased pursuant to a non-cancellable operating lease that
expires in August 2015. The total space occupied in this
building is approximately 39,000 square feet. We also lease
an additional 86,000 square feet of office space, in the
aggregate, for administrative, business and marketing
development, customer support and government affairs functions
in the United States in New York, New York, Bridgewater,
New Jersey, Perrysburg, Ohio, Denver, Colorado and Mountain
View, California, and internationally in Berlin and Mainz,
Germany, Brussels, Belgium, Paris, France, Madrid, Spain and
Amsterdam, Netherlands. The expiration dates of these leases
range between 2009 and 2018.
We own land and buildings at the sites of our manufacturing
plants in Perrysburg, Ohio and Frankfurt/Oder, Germany, totaling
83 acres of land and approximately 850,000 square feet
of buildings. We conduct research and development at the Ohio
plant and in October 2008, we commenced construction of our Ohio
plant expansion, which will include an additional production
line and approximately 500,000 square feet of
manufacturing, research and development and office space. On
January 24, 2007, we entered into a land lease agreement
for 44 acres in Kulim, Malaysia and on November 1,
2007 we exercised an option to lease an additional 40 acres
on the adjacent land site. This non-cancellable operating lease
expires in 2067. We own 2.0 million square feet of
buildings on this land. We also lease approximately
130,000 square feet of warehouse and storage space near our
manufacturing plants. The expiration dates of these leases range
between 2009 and 2010; however, most of this space is rented on
a month-to-month basis.
|
|
Item 3:
|
Legal
Proceedings
|
General
In the ordinary conduct of our business, we are subject to
periodic lawsuits, investigations and claims, including, but not
limited to, routine employment matters. Although we cannot
predict with certainty the ultimate resolution of lawsuits,
investigations and claims asserted against us, we do not believe
that any currently pending legal proceeding to which we are a
party will have a material adverse effect on our business,
results of operations, cash flows or financial condition.
|
|
Item 4:
|
Submission
of Matters to a Vote of Security Holders
|
None.
PART II
|
|
Item 5:
|
Market
for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
|
Price
Range of Common Stock
Our common stock has been listed on The NASDAQ Global Select
Market under the symbol FSLR since November 17,
2006. Prior to this time, there was no public market for our
common stock. The following table sets
24
forth the range of high and low sales prices per share as
reported on The NASDAQ Global Select Market for the periods
indicated.
|
|
|
|
|
|
|
|
|
|
|
High
|
|
|
Low
|
|
|
Fiscal Year 2008
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
273.73
|
|
|
$
|
143.31
|
|
Second Quarter
|
|
|
317.00
|
|
|
|
225.82
|
|
Third Quarter
|
|
|
301.30
|
|
|
|
186.82
|
|
Fourth Quarter
|
|
|
202.93
|
|
|
|
85.28
|
|
Fiscal Year 2007
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
59.88
|
|
|
$
|
27.54
|
|
Second Quarter
|
|
|
91.10
|
|
|
|
52.08
|
|
Third Quarter
|
|
|
123.21
|
|
|
|
74.77
|
|
Fourth Quarter
|
|
|
283.00
|
|
|
|
119.91
|
|
The closing sales price of our common stock on The NASDAQ Global
Select Market was $129.22 per share on February 18, 2009.
As of February 18, 2009 there were 58 record holders of our
common stock. This figure does not reflect the beneficial
ownership of shares held in nominee names.
Dividend
Policy
We have never paid, and it is our present intention for the
foreseeable future not to pay, dividends on our common stock.
The declaration and payment of dividends is subject to the
discretion of our board of directors and depends on various
factors, including our net income, financial condition, cash
requirements, future prospects and other factors deemed relevant
by our board of directors.
Equity
Compensation Plans
The following table sets forth certain information, as of
December 27, 2008, concerning securities authorized for
issuance under all equity compensation plans of our company:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Securities
|
|
|
|
|
|
|
|
|
|
Remaining Available
|
|
|
|
Number of Securities
|
|
|
|
|
|
for Future Issuance
|
|
|
|
to be Issued
|
|
|
Weighted-Average
|
|
|
Under Equity
|
|
|
|
Upon Exercise of
|
|
|
Price of
|
|
|
Compensation
|
|
|
|
Outstanding Options
|
|
|
Outstanding Options
|
|
|
Plans (Excluding Securities
|
|
Plan Category
|
|
and Rights(a)(1)
|
|
|
and Rights(b)(2)
|
|
|
Reflected in Column(a))(c)
|
|
|
Equity compensation plans approved by our stockholders(3)
|
|
|
2,186,564
|
|
|
$
|
39.63
|
|
|
|
5,291,725
|
|
Equity compensation plans not approved by our stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2,186,564
|
|
|
$
|
39.63
|
|
|
|
5,291,725
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes 650,254 shares issuable upon vesting of RSUs
granted under the 2006 Omnibus Incentive Compensation Plan. The
remaining balance consists of outstanding stock option grants. |
|
(2) |
|
The weighted average exercise price does not take into account
the shares issuable upon vesting of outstanding RSUs, which have
no exercise price. |
|
(3) |
|
Includes our 2003 Unit Option Plan and 2006 Omnibus Incentive
Compensation Plan. |
25
Stock
Price Performance Graph
The following graph compares the cumulative
25-month
total return on our common stock with the cumulative total
returns of the S&P 500 index, the Russell 2000 index and
the NASDAQ Clean Edge U.S. Liquid Series index. An
investment of $100 (with reinvestment of all dividends) is
assumed to have been made in our common stock and in each index
on November 17, 2006 and its relative performance is
tracked through December 27, 2008. No cash dividends have
been declared on shares of our common stock. This performance
graph is not soliciting material, is not deemed
filed with the SEC and is not to be incorporated by reference in
any filing by us under the Securities Act of 1933, as amended
(the Securities Act), or the Exchange Act, whether
made before or after the date hereof and irrespective of any
general incorporation language in any such filing. The stock
price performance shown on the graph represents past performance
and should not be considered an indication of future price
performance.
COMPARISON
OF 25 MONTH CUMULATIVE TOTAL RETURN*
Among First Solar, Inc., The S&P 500 Index,
The Russell 2000 Index and The NASDAQ Clean Edge U.S. Liquid
Series Index
*$100 invested on November 17, 2006 in stock and November 30,
2006 in index, including reinvestment of dividends.
Fiscal year ending December 27, 2008
Copyright©
2009 S&P, a division of The McGraw-Hill Companies Inc. All
rights reserved.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nov. 2006
|
|
|
|
Dec. 2006
|
|
|
|
Mar. 2007
|
|
|
|
Jun. 2007
|
|
|
|
Sep. 2007
|
|
|
|
Dec. 2007
|
|
|
|
Mar. 2008
|
|
|
|
Jun. 2008
|
|
|
|
Sep. 2008
|
|
|
|
Dec. 2008
|
|
First Solar, Inc.
|
|
|
|
100.00
|
|
|
|
|
120.61
|
|
|
|
|
210.23
|
|
|
|
|
360.91
|
|
|
|
|
475.91
|
|
|
|
|
1079.79
|
|
|
|
|
934.28
|
|
|
|
|
1102.75
|
|
|
|
|
763.58
|
|
|
|
|
545.72
|
|
S&P 500
|
|
|
|
100.00
|
|
|
|
|
101.40
|
|
|
|
|
102.05
|
|
|
|
|
108.46
|
|
|
|
|
110.66
|
|
|
|
|
106.97
|
|
|
|
|
96.87
|
|
|
|
|
94.23
|
|
|
|
|
86.34
|
|
|
|
|
67.40
|
|
Russell 2000
|
|
|
|
100.00
|
|
|
|
|
100.33
|
|
|
|
|
102.29
|
|
|
|
|
106.80
|
|
|
|
|
103.50
|
|
|
|
|
98.76
|
|
|
|
|
88.99
|
|
|
|
|
89.51
|
|
|
|
|
88.51
|
|
|
|
|
65.39
|
|
NASDAQ Clean Edge U.S. Liquid Series
|
|
|
|
100.00
|
|
|
|
|
98.85
|
|
|
|
|
115.27
|
|
|
|
|
132.13
|
|
|
|
|
149.01
|
|
|
|
|
199.01
|
|
|
|
|
143.60
|
|
|
|
|
153.91
|
|
|
|
|
117.53
|
|
|
|
|
65.51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The stock price performance included in this graph is not
necessarily indicative of future stock price performance.
26
Recent
Sales of Unregistered Securities
During 2007, we sold unregistered securities to a limited number
of persons, as described below. None of these transactions
involved any underwriters or any public offerings and we believe
that each of these transactions was exempt from registration
requirements. The recipients of the securities in these
transactions represented their intention to acquire the
securities for investment only and not with a view to or for
sale in connection with any distribution thereof, and
appropriate legends were affixed to the share certificates and
instruments issued in these transactions.
On November 30, 2007, we acquired 100% of the outstanding
membership interests of Turner Renewable Energy, LLC
(TRE). In connection with this acquisition, we
issued 118,346 unregistered shares of our common stock to the
members of TRE in satisfaction of a portion of the total
purchase price of $34.3 million (excluding exit and
transaction costs of $0.7 million), of which
$6.3 million was paid in cash. The issuance of our shares
was made in reliance upon an exemption from the registration
requirements of the Securities Act of 1933 provided by
Regulation D. The members who received shares made
representations to us as to their accredited investor status and
as to their investment intent and financial sophistication. The
shares are subject to certain restrictions on transfer,
including a restriction on transfer absent compliance with
Regulation D or other available exemption from our
registration under the Securities Act.
Purchases
of Equity Securities by the Issuer and Affiliate
Purchases
None.
|
|
Item 6:
|
Selected
Consolidated Financial Data
|
The following table sets forth our selected consolidated
financial data for the periods and at the dates indicated.
The selected consolidated financial information for the fiscal
years ended December 27, 2008, December 29, 2007,
December 30, 2006 have been derived from the audited
consolidated financial statements included elsewhere in this
Annual Report on
Form 10-K.
The selected consolidated financial data for the fiscal year
ended December 31, 2005 and December 25, 2004 has been
derived from audited consolidated financial statements not
included in this Annual Report on
Form 10-K.
The information presented below should be read in conjunction
with Item 7: Managements Discussion and
Analysis of Financial Condition and Results of Operations
and our consolidated financial statements and the related notes.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
|
Dec 27,
|
|
|
Dec 29,
|
|
|
Dec 30,
|
|
|
Dec 31,
|
|
|
Dec 25,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(In thousands, except per share amounts)
|
|
|
Statement of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
1,246,301
|
|
|
$
|
503,976
|
|
|
$
|
134,974
|
|
|
$
|
48,063
|
|
|
$
|
13,522
|
|
Cost of sales
|
|
|
567,908
|
|
|
|
252,573
|
|
|
|
80,730
|
|
|
|
31,483
|
|
|
|
18,851
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit (loss)
|
|
|
678,393
|
|
|
|
251,403
|
|
|
|
54,244
|
|
|
|
16,580
|
|
|
|
(5,329
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
33,517
|
|
|
|
15,107
|
|
|
|
6,361
|
|
|
|
2,372
|
|
|
|
1,240
|
|
Selling, general and administrative
|
|
|
174,039
|
|
|
|
82,248
|
|
|
|
33,348
|
|
|
|
15,825
|
|
|
|
9,312
|
|
Production
start-up
|
|
|
32,498
|
|
|
|
16,867
|
|
|
|
11,725
|
|
|
|
3,173
|
|
|
|
900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
438,339
|
|
|
|
137,181
|
|
|
|
2,810
|
|
|
|
(4,790
|
)
|
|
|
(16,781
|
)
|
Foreign currency gain (loss)
|
|
|
5,722
|
|
|
|
1,881
|
|
|
|
5,544
|
|
|
|
(1,715
|
)
|
|
|
116
|
|
Interest income
|
|
|
21,158
|
|
|
|
20,413
|
|
|
|
2,648
|
|
|
|
316
|
|
|
|
131
|
|
Interest expense, net
|
|
|
(509
|
)
|
|
|
(2,294
|
)
|
|
|
(1,023
|
)
|
|
|
(418
|
)
|
|
|
(100
|
)
|
Other (expense) income
|
|
|
(934
|
)
|
|
|
(1,219
|
)
|
|
|
(799
|
)
|
|
|
56
|
|
|
|
(137
|
)
|
Income tax expense (benefit)
|
|
|
115,446
|
|
|
|
(2,392
|
)
|
|
|
5,206
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before cumulative effect of change in accounting
principle
|
|
|
348,330
|
|
|
|
158,354
|
|
|
|
3,974
|
|
|
|
(6,551
|
)
|
|
|
(16,771
|
)
|
Cumulative effect of change in accounting for share-based
compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
89
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
|
Dec 27,
|
|
|
Dec 29,
|
|
|
Dec 30,
|
|
|
Dec 31,
|
|
|
Dec 25,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(In thousands, except per share amounts)
|
|
|
Net income (loss)
|
|
$
|
348,330
|
|
|
$
|
158,354
|
|
|
$
|
3,974
|
|
|
$
|
(6,462
|
)
|
|
$
|
(16,771
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share
|
|
$
|
4.34
|
|
|
$
|
2.12
|
|
|
$
|
0.07
|
|
|
$
|
(0.13
|
)
|
|
$
|
(0.39
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares
|
|
|
80,178
|
|
|
|
74,701
|
|
|
|
56,310
|
|
|
|
48,846
|
|
|
|
43,198
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share
|
|
$
|
4.24
|
|
|
$
|
2.03
|
|
|
$
|
0.07
|
|
|
$
|
(0.13
|
)
|
|
$
|
(0.39
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares
|
|
|
82,124
|
|
|
|
77,971
|
|
|
|
58,255
|
|
|
|
48,846
|
|
|
|
43,198
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
|
Dec 27,
|
|
|
Dec 29,
|
|
|
Dec 30,
|
|
|
Dec 31,
|
|
|
Dec 25,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(In thousands)
|
|
|
Cash Flow Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
$
|
463,067
|
|
|
$
|
205,951
|
|
|
$
|
(576
|
)
|
|
$
|
5,040
|
|
|
$
|
(15,185
|
)
|
Net cash used in investing activities
|
|
|
(308,441
|
)
|
|
|
(547,250
|
)
|
|
|
(159,994
|
)
|
|
|
(43,832
|
)
|
|
|
(7,790
|
)
|
Net cash provided by financing activities
|
|
|
177,549
|
|
|
|
430,421
|
|
|
|
451,550
|
|
|
|
51,663
|
|
|
|
22,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
|
Dec 27,
|
|
|
Dec 29,
|
|
|
Dec 30,
|
|
|
Dec 31,
|
|
|
Dec 25,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(In thousands)
|
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
716,218
|
|
|
$
|
404,264
|
|
|
$
|
308,092
|
|
|
$
|
16,721
|
|
|
$
|
3,465
|
|
Marketable securities
|
|
|
105,601
|
|
|
|
265,399
|
|
|
|
323
|
|
|
|
312
|
|
|
|
306
|
|
Accounts receivable, net
|
|
|
61,703
|
|
|
|
18,165
|
|
|
|
27,123
|
|
|
|
882
|
|
|
|
4,125
|
|
Inventories
|
|
|
121,554
|
|
|
|
40,204
|
|
|
|
16,510
|
|
|
|
6,917
|
|
|
|
3,686
|
|
Property, plant and equipment, net
|
|
|
842,622
|
|
|
|
430,104
|
|
|
|
178,868
|
|
|
|
73,778
|
|
|
|
29,277
|
|
Total assets
|
|
|
2,114,502
|
|
|
|
1,371,312
|
|
|
|
578,510
|
|
|
|
101,884
|
|
|
|
41,765
|
|
Current debt
|
|
|
34,951
|
|
|
|
39,309
|
|
|
|
19,650
|
|
|
|
20,142
|
|
|
|
|
|
Long-term debt
|
|
|
163,519
|
|
|
|
68,856
|
|
|
|
61,047
|
|
|
|
28,581
|
|
|
|
13,700
|
|
Accrued collection and recycling liabilities
|
|
|
35,238
|
|
|
|
13,079
|
|
|
|
3,724
|
|
|
|
917
|
|
|
|
|
|
Total liabilities
|
|
|
601,460
|
|
|
|
274,045
|
|
|
|
116,844
|
|
|
|
63,490
|
|
|
|
19,124
|
|
Total stockholders equity
|
|
|
1,513,042
|
|
|
|
1,097,267
|
|
|
|
411,440
|
|
|
|
13,129
|
|
|
|
22,641
|
|
|
|
Item 7:
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
The following discussion and analysis of our financial
condition and results of operations should be read in
conjunction with our consolidated financial statements and the
related notes included elsewhere in this Annual Report on
Form 10-K.
In addition to historical consolidated financial information,
the following discussion and analysis contains forward-looking
statements that involve risks, uncertainties, and assumptions as
described under the Note Regarding Forward-Looking
Statements, that appears earlier in this Annual Report on
Form 10-K.
Our actual results could differ materially from those
anticipated by these forward-looking statements as a result of
many factors, including those discussed under
Item 1A: Risk Factors and elsewhere in this
Annual Report on
Form 10-K.
28
Overview
We design and manufacture solar modules using a proprietary thin
film semiconductor technology that has allowed us to reduce our
average solar module manufacturing costs to among the lowest in
the world. Each solar module uses a thin layer of cadmium
telluride semiconductor material to convert sunlight into
electricity. We manufacture our solar modules on high-throughput
production lines and we perform all manufacturing steps
ourselves in an automated, proprietary, continuous process.
During 2006, 2007 and 2008, we sold most of our solar modules to
solar power system developers, system integrators and operators
headquartered in Germany, France and Spain.
Currently, we manufacture our solar modules at our Perrysburg,
Ohio, Frankfurt/Oder, Germany and Kulim, Malaysia manufacturing
facilities and conduct our research and development activities
at our Perrysburg, Ohio manufacturing facility. Our average
manufacturing cost per watt has decreased from $2.94 during 2004
to $1.08 during 2008. We define average manufacturing cost per
watt as the total manufacturing cost incurred during a period
divided by the total watts produced during that period. By
continuing to expand production globally and improve our
technology and manufacturing process, we believe that we can
further reduce our manufacturing costs per watt.
We were founded in 1999 to bring an advanced thin film
semiconductor process into commercial production through the
acquisition of predecessor technologies and the initiation of a
research, development and production program that allowed us to
improve upon the predecessor technologies and launch commercial
operations in January 2002.
On February 22, 2006, we were incorporated as a Delaware
corporation. Prior to that date, we operated as a Delaware
limited liability company.
On November 30, 2007, we completed the acquisition of
Turner Renewable Energy, LLC, a privately held company which
designed and deployed commercial solar projects for utilities
and Fortune 500 companies in the United States. We have
integrated the operations from this acquisition into our solar
power systems and project development business. This business
sells solar power systems directly to system owners. These
systems include both our solar modules and balance of system
components that we procure from third parties. We also sell
integrated services related to the development of commercial
solar projects in the United States, such as the system design,
engineering, procurement of permits and balance of system
components, construction management, monitoring and maintenance
as part of a system solution delivery. This acquisition has
created a platform for our systems business in North America to
deliver solar electricity solutions to utility companies. The
total consideration for the transaction was $34.3 million
(excluding exit and transaction costs of $0.7 million);
consisting of $28.0 million in common stock and
$6.3 million in cash (see Note 5 to our consolidated
financial statements).
Our fiscal year ends on the Saturday on or before
December 31. All references to fiscal year 2008 relate to
the 52 weeks ended December 27, 2008; all references
to fiscal year 2007 relate to the 52 weeks ended
December 29, 2007; and all references to fiscal year 2006
relate to the 52 weeks ended December 30, 2006. We use
a 13 week fiscal quarter.
Manufacturing
Capacity
As of December 27, 2008 we operated 19 production lines at
our plants in Perrysburg, Ohio, Frankfurt/Oder, Germany and
Kulim, Malaysia. After completion of plant four at our Malaysian
manufacturing center and the expansion of our Perrysburg, Ohio
plant we will have 24 production lines with an annual global
manufacturing capacity of approximately 1145 MW (based on the
fourth quarter of 2008 run rate at our existing plants).
Financial
Operations Overview
The following describes certain line items in our statement of
operations and some of the factors that affect our operating
results.
29
Net
Sales
We generate substantially all of our net sales from the sale of
solar modules. We price and sell our solar modules per watt of
power. As a result, our net sales can fluctuate based on our
output of sellable watts or price. We currently sell almost all
of our solar modules to solar power system project developers,
system integrators and operators headquartered in Germany,
France and Spain, which either resell our solar modules to
end-users or integrate them into power plants that they own or
operate or sell.
The solar industry has been moving from a supply driven to a
demand driven industry, with increasing competitive pressure as
the supply of solar modules exceeds current demand. Our
customers face significant challenges under the current economic
conditions, including an increase in interest or lending rates
or tightening of the supply of capital to finance solar
projects. Our net sales could be adversely impacted if
legislation reduces the current subsidy programs in Europe,
North America or Asia or if interest rates increase or financing
is no longer available, which could impact our end-users
ability to either meet their target return on investment or
finance their projects. In addition, subsidies for our
customers, particularly in Germany, are declining at a rate that
is greater than the annual contractual price decline we extend
under our Long Term Supply Contracts. As result, we may be less
competitive and not meet our customers internal rate of return
(IRR) or the profit margin of our customers might decline, which
could lower demand for our solar panels.
Our sales prices under the Long Term Supply Contracts are
denominated in euro, exposing us to risks from currency exchange
rate fluctuations. Approximately 95% of our sales are
denominated in euro and subject to fluctuation in the exchange
rate between the euro and U.S. dollar. For example, the
strengthening of the euro during 2008 increased our net sales by
6% in fiscal 2008 compared to fiscal 2007.
In April 2006, we entered into long-term contracts for the
purchase and sale of our solar modules with six European solar
power system project developers and system integrators, and in
2007, we entered into additional long-term contracts for the
purchase and sale of our solar modules with six other European
project developers that also own and operate renewable energy
projects. In 2008, we entered into long-term contracts with
three European project developers, system integrators and
operators and increased our contracted volume with four
customers. We also entered into a five-year agreement with a
solar power system project developer and system integrator in
the United States, which is a related party. These contracts
account for a significant portion of our planned production over
the period from 2009 through 2013, and therefore, will
significantly affect our overall financial performance.
Our Long Term Supply Contracts entered into in 2006 require us
to deliver solar modules each year that, in total, meet or
exceed a specified minimum average number of watts per module
for the year. Under these Long Term Supply Contracts, we are
required to increase the minimum average number of watts per
module by approximately 5% annually from 2008 to 2009 and then
by 3% for modules delivered in 2012. If we are unable to meet
the minimum average annual number of watts per module in a given
year, we will be in breach of the applicable agreements,
entitling our customers to certain remedies, potentially
including the right to terminate their Long Term Supply
Contracts. Our Long Term Supply Contracts entered into in 2007
do not require a minimum average number of watts per module but
provide for a base number of watts per module that increases
3-4% annually from 2008 to 2010/2011, and then remains fixed
through 2012, and contain a price adjustment per watt if the
watts delivered per module are higher or lower than the base
number of watts per module. As of December 27, 2008, all of our
Long Term Supply Contracts specify a sales price per watt that
declines by approximately 6.5% at the beginning of each year
through the expiration date of the contracts in 2012. Because
the sales prices under our Long Term Supply Contracts are fixed
and have the built-in decline each year, we cannot pass along
any increases in manufacturing costs to these customers.
Although we believe that our total manufacturing costs per watt
will decline at the same rate or more rapidly than our prices
under the Long Term Supply Contracts, our failure to achieve our
manufacturing cost per watt targets could result in a reduction
of our gross profit.
Our Long Term Supply Contracts in the aggregate allow for
approximately $5.8 billion (4.9 billion denominated in
euro at an assumed exchange rate of $1.15/1.00 and
0.2 billion denominated in USD) in sales from 2009 to 2013.
During 2008, we amended a Long Term Supply Contract with one
customer, which reduced the volume of solar modules delivered to
such customer in 2008 and also reduced the volume of solar
modules to be delivered over the remaining term of the agreement
to such customer. During February 2009 we amended our Long Term
Supply Contracts with two customers to accelerate the decline in
the sales price per watt under such contracts in 2009 and
30
2010 in exchange for increases in the volume of solar modules to
be delivered under such contracts. We are currently in
discussions with several other customers about making similar
amendments to their Long Term Supply Contracts.
The annual decline in the sales price under our Long Term Supply
Contracts will reduce our net sales by approximately 5-6% each
year, assuming that the rated power of our solar modules remains
flat, and will impact our cash flow accordingly. As a result,
our profitability could decline if we are unable to reduce our
manufacturing cost per watt by at least the same rate as the
contractual sales prices decrease.
Under our customer contracts, starting in April 2006, we
transfer title and risk of loss to the customer and recognize
revenue upon shipment. Under our customer contracts in effect
prior to April 1, 2006, we did not transfer title or risk
of loss, or recognize revenue, until the solar modules were
received by our customers. Our customers do not have extended
payment terms or rights of return under these contracts.
We have the right to terminate certain Long Term Supply
Contracts upon 12 months notice and the payment of a
termination fee if we determine that certain material adverse
changes have occurred, including, depending on the contract one
or more of the following: new laws, rules or regulations with
respect to our production, distribution, installation or
collection and recycling program have a substantial adverse
impact on our business; unanticipated technical or operational
issues result in our experiencing widespread, persistent quality
problems or the inability to achieve stable conversion
efficiencies at planned levels; or extraordinary events beyond
our control substantially increase the cost of our labor,
materials or utility expenses or significantly reduce our
throughput. The average termination fee under those agreements
is $4.2 million ranging from $0.7 million to
$8.0 million.
Our customers are entitled to certain remedies in the event of
missed deliveries of kilowatt volume. These delivery commitments
are established through rolling four quarter forecasts that are
agreed to with each of the customers within the parameters
established in the Long Term Supply Contracts and define the
specific quantities to be purchased on a quarterly basis and the
schedules of the individual shipments to be made to the
customers. In the case of a late delivery, certain of our
customers are entitled to a maximum charge representing a
percentage of the delinquent revenue. If we do not meet our
annual minimum volume shipments, our customers also have the
right to terminate these contracts on a prospective basis.
With our acquisition of Turner Renewable Energy, LLC on
November 30, 2007, we began accounting for a portion of our
revenues using the percent of completion method of accounting.
Revenues for our solar power systems and project development
business for the years ended December 27, 2008 and
December 29, 2007 were $53.7 million and
$3.7 million, respectively, and were not material to our
consolidated results of operations.
During 2008, our principal customers were Blitzstrom GmbH,
Colexon Energy AG (previously Reinecke + Pohl), Conergy AG, Juwi
Solar GmbH and Phoenix Solar AG. During 2008, each of these five
customers individually accounted for between 11% and 19% of our
net sales. All of our other customers individually accounted for
less than 10% of our net sales during 2008.
Cost
of sales
Our cost of sales includes the cost of raw materials and
components, such as tempered back glass, transparent conductive
oxide (TCO) coated front glass, cadmium telluride, laminate,
connector assemblies, laminate edge seal and others. Other items
contributing to our cost of sales are direct labor and
manufacturing overhead such as engineering expense, equipment
maintenance, environmental health and safety expenses, quality
and production control and procurement. Cost of sales also
includes depreciation of manufacturing plants and equipment and
facility-related expenses. In addition, we accrue warranty and
solar module end-of-life collection and recycling costs to our
cost of sales.
We implemented a program in 2005 to collect and recycle our
solar modules after their use. Under our collection and
recycling program, we enter into an agreement with the end-users
of the solar power systems that use our solar modules. In the
agreement, we commit, at our expense, to remove the solar
modules from the installation site at the end of their life and
transport them to a processing center where the solar module
materials and components will be either refurbished and resold
as used panels or recycled to recover some of the raw materials.
In return, the owner agrees not to dispose of the solar modules
except through our end-of-life collection and recycling
31
program or another program that we approve of, and the solar
power system owner is responsible for disassembling the solar
modules and packaging them in containers that we provide. At the
time we sell a solar module, we record an expense in cost of
sales equal to the fair value of the estimated future
end-of-life collection and recycling obligation. We subsequently
record accretion expense on this future obligation, which we
classify with selling, general and administrative expense.
Overall, we expect our cost of sales per watt to decrease over
the next several years due to an increase of sellable watts per
solar module, an increase in unit output per line, geographic
diversification into lower-cost manufacturing regions and more
efficient absorption of fixed costs driven by economies of scale.
Deferred project costs represent uninstalled materials we have
procured for customer projects. We recognize these costs as
deferred assets until we install the materials. Deferred project
costs were $0.7 million at December 27, 2008.
Gross
profit
Gross profit is affected by numerous factors, including our
average selling prices, foreign exchange rates, our
manufacturing costs and the effective utilization of our
production facilities. For example, our Long Term Supply
Contracts specify a sales price per watt that declines 6.5% at
the beginning of each year. Another factor impacting gross
profits is the ramp of production on new plants due to a reduced
ability to absorb fixed costs until full production volumes are
reached. As a result, gross profits may vary from quarter to
quarter and year to year.
Research
and development
Research and development expense consists primarily of salaries
and personnel-related costs and the cost of products, materials
and outside services used in our process and product research
and development activities. We continually add equipment for
general use in further process developments and record the
depreciation of this equipment as research and development
expense. We may also allocate a portion of the annual operating
cost of the Ohio expansion to research and development expense.
We maintain a number of programs and activities to improve our
technology in order to enhance the performance of our solar
modules and of our manufacturing processes. We maintain active
collaborations with the National Renewable Energy Laboratory (a
division of the United States Department of Energy), Brookhaven
National Laboratory and several universities. We report our
research and development expense net of grant funding. During
the past four years, we received grant funding that we applied
towards our research and development programs. We received
$0.9 million, $1.8 million and $0.9 million
during the years ended December 27, 2008, December 29,
2007 and December 30, 2006, respectively. We expect our
research and development expense to increase in absolute terms
in the future as we increase personnel and research and
development activity. Over time, we expect research and
development expense to decline as a percentage of net sales and
on a cost per watt basis as a result of economies of scale.
Selling,
general and administrative
Selling, general and administrative expense consists primarily
of salaries and other personnel-related costs, professional
fees, insurance costs, travel expense and other selling
expenses. We expect these expenses to increase in the near term,
both in absolute dollars and as a percentage of net sales, in
order to support the growth of our business as we expand our
sales and marketing efforts, improve our information processes
and systems and implement the financial reporting, compliance
and other infrastructure required for a public company. Over
time, we expect selling, general and administrative expense to
decline as a percentage of net sales and on a cost per watt
basis as our net sales and our total watts produced increase.
Production
start-up
Production
start-up
expense consists primarily of salaries and personnel-related
costs and the cost of operating a production line before it has
been qualified for full production, including the cost of raw
materials for solar modules run through the production line
during the qualification phase. It also includes all expenses
related to the
32
selection of a new site and the related legal and regulatory
costs and the costs to maintain our plant replication program,
to the extent we cannot capitalize these expenditures.
Production
start-up
expenses during 2006 were $11.7 million due to the
qualification of our Ohio expansion and the planning and
preparation for operation of our German plant. We incurred
production
start-up
expense of $16.9 million during 2007 in connection with the
qualification of the German plant and the planning and
preparation of our plants at our Malaysian manufacturing center.
Production
start-up
expense during 2008 was $32.5 million relating to the
planning and preparation of our plants at the Malaysian
manufacturing center. In general, we expect production
start-up
expense per production line to be higher when we build an
entirely new manufacturing facility compared with the addition
of new production lines at an existing manufacturing facility,
primarily due to the additional infrastructure investment
required when building an entirely new facility. We also expect
to incur production
start-up
expenses during 2009 related to our expansion of our Perrysburg,
Ohio manufacturing facility and plant four at the Malaysian
manufacturing center. Over time, we expect production
start-up
expense to decline as a percentage of net sales and on a cost
per watt basis as a result of economies of scale.
Interest
income
Interest income is earned on our cash, cash equivalents,
marketable securities and restricted cash.
Interest
expense, net
Interest expense, net of amounts capitalized, is incurred on
various debt financings.
Foreign
currency gain (loss)
Foreign currency gain (loss) consists of gains and losses
resulting from holding assets and liabilities and conducting
transactions denominated in currencies other than our functional
currencies.
Critical
Accounting Policies and Estimates
In preparing our financial statements in conformity with
generally accepted accounting principles in the United States
(GAAP), we make estimates and assumptions about future events
that affect the amounts of reported assets, liabilities,
revenues and expenses, as well as the disclosure of contingent
liabilities in our financial statements and the related notes
thereto. Some of our accounting policies require the application
of significant judgment by management in the selection of
appropriate assumptions for determining these estimates. By
their nature, these judgments are subject to an inherent degree
of uncertainty. As a result, we cannot assure you that actual
results will not differ significantly from estimated results. We
base our judgments and estimates on our historical experience,
on our forecasts and on other available information, as
appropriate. Our significant accounting policies are further
described in Note 2 to our consolidated financial
statements for the year ended December 27, 2008 included
elsewhere in this Annual Report on
Form 10-K.
Our critical accounting policies and estimates, which require
the most significant management estimates and judgment in
determining amounts reported in our consolidated financial
statements included elsewhere in this Annual Report on
Form 10-K
are as follows:
Revenue recognition. We sell our products
directly to solar power system integrators and operators and
recognize revenue when persuasive evidence of an arrangement
exists, delivery of the product has occurred and title and risk
of loss has passed to the customer, the sales price is fixed or
determinable and collectability of the resulting receivable is
reasonably assured. This policy is in accordance with the
requirements of SEC Staff Accounting Bulletin No. (SAB)
101, Revenue Recognition in Financial Statements, as
amended by SAB 104, Revision of Topic 13 (Revenue
Recognition). Under this policy, we record a trade
receivable for the selling price of our product and reduce
inventory for the cost of goods sold when delivery occurs in
accordance with the terms of the sales contract. We do not offer
extended payment terms or rights of return for our sold products.
With our acquisition of Turner Renewable Energy, LLC on
November 30, 2007, a portion of our revenues will be
derived from long-term contracts that we account for under the
provisions of the American Institute of Certified Public
Accountants Statement of Position No. (SOP)
81-1,
Accounting for Performance of Construction-Type and
33
Certain Production-Type Contracts. Accordingly, we
recognize revenue on long-term fixed-price contracts on the
percentage of completion basis using the ratio of costs incurred
to estimated total costs at completion as the measurement basis
for progress toward completion and revenue recognition. If we
identify any losses on contracts, we will recognize those losses
immediately. Contract accounting requires significant judgment
in assessing risks, estimating contract costs and making related
assumptions for schedule and technical issues. Furthermore,
contract change orders, claims and similar items, require us to
use judgment in estimating related amounts and assessing the
potential for realization. We only include contract change
orders, claims and similar items in contract value when we can
reliably estimate their amounts and can conclude that their
realization is probable.
Incurred costs include all direct material, labor, subcontractor
cost, and those indirect costs related to contract performance,
such as indirect labor, supplies and tools. We recognize job
material costs as incurred costs when the job materials have
been installed. When contracts specify that title to job
materials transfers to the customer before installation has been
performed, we defer revenue and recognize it upon installation,
using the percentage-of-completion method of accounting. We
consider job materials to be installed materials when they are
permanently attached or fitted to the solar power systems as
required by the engineering design.
Our liability for billings in excess of costs and
estimated earnings, which is part of the balance sheet
caption Other current liabilities, was
$2.2 million and $2.1 million as of December 27,
2008 and December 29, 2007, respectively. This liability
represents our billings in excess of revenues recognized on our
contracts, which results from differences between contractual
billing schedules and the timing of revenue recognition under
our revenue recognition accounting policies.
We also have a limited number of revenue arrangements that
include multiple deliverables. These are contracts under which
we provide design and consulting services for and we supply
parts and equipment for solar power systems. We follow the
guidance in Emerging Issues Task Force Issue No. (EITF)
00-21,
Revenue Arrangements with Multiple Deliverables, in order
to determine whether these arrangements have more than one unit
of accounting. According to
EITF 00-21,
deliverable elements in a revenue arrangement with multiple
deliverables are separate units of accounting if the elements
have standalone value to the customer, if objective and reliable
evidence of the fair value of undelivered elements is available,
and if the arrangement does not include a general right of
return related to delivered items. We determined that our design
and supply arrangements generally consist of two elements that
qualify as separate units of accounting the
provision of design and consulting services and the supply of
solar power system parts and equipment. We apply the same
revenue recognition principles (from SAB 104) as we
use for our arrangements for the stand-alone sales of products
to the recognition of revenue on the parts and equipment unit of
accounting of our multiple deliverable arrangements. We
recognize revenue from the design and consulting services unit
of accounting using the percentage of completion method in
accordance with
SOP 81-1.
End of life collection and recycling. At the
time of sale, we recognize an expense for the estimated fair
value of our future obligation for collecting and recycling the
solar modules that we have sold. We base our estimate of the
fair value of our collection and recycling obligations on the
present value of the expected future cost of collecting and
recycling the solar modules, which includes the cost of
packaging the solar modules for transport, the cost of freight
from the solar modules installation site to a recycling
center, the material, labor and capital costs of the recycling
process and an estimated third-party profit margin and return on
risk for collection and recycling services. We base this
estimate on our experience collecting and recycling our solar
modules and on our expectations about future developments in
recycling technologies and processes and about economic
conditions at the time the solar modules will be collected and
recycled. In the periods between the time of our sales and our
settlement of the collection and recycling obligations, we
accrete the carrying amount of the associated liability by
applying the discount rate used for its initial measurement. At
December 27, 2008, our estimate of the fair value of our
liability for collecting and recycling solar modules was
$35.2 million. A 10 percent decrease in our estimate
of the future cost of collecting and recycling a solar module
would reduce this estimated liability by $3.5 million, to
$31.7 million; a 10 percent increase in our estimate
of the future cost of collecting and recycling a solar module
would increase this estimated liability by $3.5 million, to
$38.7 million.
Product warranties. We provide a limited
warranty for defects in materials and workmanship under normal
use and service conditions for five years following delivery to
the owner of our solar modules. We also warrant to the
34
owner of our solar modules that solar modules installed in
accordance with
agreed-upon
specifications will produce at least 90% of their initial power
output rating during the first 10 years following their
installation and at least 80% of their initial power output
rating during the following 15 years. Our warranties are
automatically transferred from the original purchaser of our
solar modules to a subsequent purchaser. We accrue warranty
costs when we recognize sales, using amounts estimated based on
our historical experience with warranty claims, our monitoring
of field installation sites and in-house testing. During the
years ended December 30, 2006, December 29, 2007 and
December 27, 2008, our estimate of our product warranty
liability did not require significant adjustments.
Share-based compensation. In December 2004,
the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. (SFAS) 123(R),
Share-Based Payment, which requires companies to
recognize compensation expense for all share-based payments to
employees, including grants of employee stock options, in their
statements of operations based on the fair value of the awards
on their grant dates. We adopted SFAS 123(R) during the
first quarter of the year ended December 31, 2005 using the
modified retrospective method of transition. In
March 2005, the Securities and Exchange Commission (SEC) issued
Staff Accounting Bulletin No. (SAB) 107, which provides
guidance regarding the implementation of SFAS 123(R). In
particular, SAB 107 provides guidance regarding calculating
assumptions used in share-based compensation valuation models,
the classification of share-based compensation expense, the
capitalization of share-based compensation costs and disclosures
in managements discussion and analysis in filings with the
SEC.
Determining the appropriate fair-value model and calculating the
fair value of share-based awards at the date of grant using that
valuation model requires judgment. We use the
Black-Scholes-Merton valuation formula to estimate the fair
value of employee stock options, which is consistent with the
provisions of SFAS No. 123(R). Option pricing models,
including the Black-Scholes-Merton formula, require the use of
input assumptions, including expected volatility, expected term,
expected dividend rate and expected risk-free rate of return.
Because our stock has only recently become publicly traded, we
do not have a meaningful observable share-price volatility;
therefore, we estimate our expected volatility based on that of
similar publicly-traded companies and expect to continue to do
so until such time as we might have adequate historical data to
refer to from our own traded share price. We estimated our
options expected terms using our best estimate of the
period of time from the grant date that we expect the options to
remain outstanding. If we determine another method to estimate
expected volatility or expected term is more reasonable than our
current methods, or if another method for calculating these
input assumptions is prescribed by authoritative guidance, the
fair value calculated for future share-based awards could change
significantly from those used for past awards, even if the
critical terms of the awards are similar. Higher volatility and
expected terms result in an increase to share-based compensation
determined at the date of grant. The expected dividend rate and
expected risk-free rate of return are not as significant to the
calculation of fair value.
In addition, SFAS No. 123(R) requires us to develop an
estimate of the number of share-based awards which we expect to
vest. Quarterly changes in our estimates of award forfeiture
rates and further adjustments when the awards actually vest can
have a significant effect on reported share-based compensation.
Increases to the estimated forfeiture rate will result in a
decrease to the expense recognized in the financial statements
during the quarter of the change and future quarters. Decreases
in the estimated forfeiture rate will result in an increase to
the expense recognized in the financial statements during the
quarter of the change and future quarters. These adjustments
affect our cost of sales, research and development expenses,
selling, general and administrative and production
start-up
expenses. The adjustments to our estimates of the number of
share-based awards that we expect to vest and further
adjustments as certain awards completed their vesting period
reduced our share-based compensation expense by
$0.6 million in the year ended December 30, 2006 and
increased our share-based compensation expense by
$2.9 million and $0.9 million in the years ended
December 29, 2007 and December 27, 2008, respectively.
The expense we recognize in future periods could differ
significantly from the current period
and/or our
forecasts due to adjustments in the estimated number of
share-based awards that we expect to vest and further
adjustments when the awards actually vest.
Valuation of Long-Lived Assets. Our long-lived
assets include manufacturing equipment and facilities. Our
business requires significant investment in manufacturing
facilities that are technologically advanced but that may become
obsolete through changes in our industry or the fluctuations in
demand for our solar modules. We account for any impairment of
our long-lived tangible assets and definite-lived intangible
assets in accordance with SFAS 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. As a result, we
assess long-lived assets
35
classified as held and used, including our property,
plant and equipment, for impairment whenever events or changes
in business circumstances arise that may indicate that the
carrying amount of the long-lived assets may not be recoverable.
These events would include significant current period operating
or cash flow losses combined with a history of such losses,
significant changes in the manner of use of assets and
significant negative industry or economic trends. We evaluated
our long-lived assets for impairment during the years ended
December 27, 2008 and December 29, 2007 and did not
note any events or changes in circumstances indicating that the
carrying values of material long-lived assets are not
recoverable.
Accounting for Income Taxes. We are subject to
the income tax laws of the United States, its states and
municipalities and those of the foreign jurisdictions in which
we have significant business operations. These tax laws are
complex and subject to different interpretations by the taxpayer
and the relevant governmental taxing authorities. We must make
judgments and interpretations about the application of these
inherently complex tax laws when determining our provision for
income taxes and must also make estimates about when in the
future certain items affect taxable income in the various tax
jurisdictions. Disputes over interpretations of the tax laws may
be settled with the taxing authority upon examination or audit.
We regularly assess the likelihood of assessments in each of the
taxing jurisdictions resulting from current and subsequent
years examinations, and we record tax liabilities as
appropriate.
We establish liabilities for potential losses that may arise out
of tax audits in accordance with FASB Interpretation
No. 48, Accounting for Uncertainty in Income Taxes, an
interpretation of FASB Statement No. 109. Once
established, we adjust the liabilities when there is more
information available or when an event occurs requiring an
adjustment. Significant judgment is required in making these
estimates, and the actual cost of a legal claim, tax assessment
or regulatory fine or penalty may ultimately be materially
different from our recorded liabilities, if any.
In preparing our consolidated financial statements, we calculate
our income tax expense based on our interpretation of the tax
laws in the various jurisdictions where we conduct business.
This requires us to estimate our current tax obligations and the
realizability of uncertain tax positions and to assess temporary
differences between the financial statement carrying amounts and
the tax bases of assets and liabilities. These temporary
differences result in deferred tax assets and liabilities, the
net current amount of which we show as a component of current
assets or current liabilities and the net non-current amount of
which we show as other assets or other liabilities on our
consolidated balance sheet. We must also assess the likelihood
that each of our deferred tax assets will be realized.
To the extent we believe that realization is not more likely
than not, we establish a valuation allowance. When we establish
a valuation allowance or increase this allowance in a reporting
period, we generally record a corresponding tax expense in our
consolidated statement of income. Conversely, to the extent
circumstances indicate that a valuation allowance is no longer
necessary, that portion of the valuation allowance is reversed,
which generally reduces our overall income tax expense. See
Note 19 to our consolidated financial statements for
additional information about income taxes.
Goodwill. Goodwill represents the excess of
the purchase price of acquired companies over the estimated fair
value assigned to the identifiable assets acquired and
liabilities assumed. We do not amortize goodwill, but instead
test goodwill for impairment at least annually in the fourth
quarter and, if necessary, we would record any impairment in
accordance with SFAS 142, Goodwill and Other Intangible
Assets. We will perform an impairment review between
scheduled annual tests if facts and circumstances indicate that
it is more likely than not that the fair value of a reporting
unit that has goodwill is less than its carrying value. In the
process of our annual impairment review, we primarily use the
income approach methodology of valuation, which includes the
discounted cash flow method, and the market approach methodology
of valuation, which considers values of comparable businesses,
to determine the fair value of our goodwill. Significant
management judgment is required in the forecasts of future
operating results and the discount rates that we used in the
discounted cash flow method of valuation and in the selection of
comparable businesses that we used in the market approach.
We reported $33.8 million of goodwill at December 27,
2008, which represents the excess of the purchase price over the
fair value of the identifiable net tangible and intangible
assets that we acquired from Turner Renewable Energy, LLC. In
accordance with SFAS 142, Goodwill and Other Intangible
Assets, we performed our annual test of our goodwill for
impairment in the fourth quarter of the year ended
December 27, 2008 and concluded
36
that it was not impaired. Testing goodwill for impairment
involves two steps. The first step is comparing the fair value
of a reporting unit containing goodwill to its carrying value.
If the fair value of the reporting unit is less than its
carrying value, impairment is indicated and step two of the test
must be performed. That step involves determining the implied
fair value of the reporting units goodwill by allocating
the fair value of the reporting unit to the fair values of its
identifiable assets and liabilities. Any excess of the fair
value of the reporting unit over the net fair values of its
identifiable assets and liabilities is attributed to goodwill,
and any amount by which the carrying value of goodwill exceeds
this implied fair value is written off as an impairment loss. In
our test during the fourth quarter of 2008, we determined that
the fair value of our solar power systems reporting unit, which
contains all of our goodwill, exceeded its carrying value by
approximately 80 percent. As a result, we concluded that
there was no indication that our goodwill was impaired and that
performing step two of the goodwill impairment test was not
applicable.
Marketable Securities. We have classified our
marketable securities as available-for-sale and
present them at fair value on our balance sheet, with gains and
losses recorded to accumulated other comprehensive income (loss)
until realized. We determine the realized gains and losses on
sales of marketable securities using the specific identification
cost method. All of our available-for-sale marketable securities
are subject to a periodic impairment review. We consider our
marketable debt securities impaired when their fair value is
less than their carrying value. We subject investments
identified as being impaired to further review to determine if
the investment is other than-temporarily impaired, in which case
we would write down the investment to its impaired value and
establish that amount as its new cost basis. We measure the fair
value of 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 we consider the effect of our
counterparties credit standings in these fair value
measurements. Determining the observable market values most
relevant to the measurement of the fair value of marketable
securities and the further counterparty credit risk adjustment
to those values, if needed, requires significant judgment.
Changes in market conditions can also significantly affect the
fair value measurements from period to period and can cause
realized values to vary significantly from previous estimates.
Valuation of Derivative Instruments. We use
derivative instruments to manage a variety of risks, including
currency exchange rate risk, interest rate risk and credit risk;
we do not use derivative instruments for speculative or trading
purposes. We believe that there are two aspects of accounting
for our derivative instruments that require us to make
significant estimates and judgments: measuring the fair values
of the derivative instruments and applying special hedge
accounting rules to some of them.
We report our derivative instruments on our consolidated balance
sheet at their fair values. See Note 11 to our consolidated
financial statements for information about how we measure the
fair values of our derivative instruments. We believe that the
types of derivative instruments that we use are commonly used by
many companies outside the financial services industry and have
well-established valuation models, which we apply. Also, we
believe that there are readily available, reliable sources for
the information that we need as inputs to these valuation
models. However, the selection of the valuation models and the
inputs we use in them still does require us to exercise
significant judgment about their relevance to our measurement,
any adjustments that they may require to properly measure our
particular derivative instruments and their reliability. We also
note that the amounts that we use as valuation model inputs can
change significantly from one period to another as markets
fluctuate. This can cause the fair value that we estimate for
any specific derivative instrument to vary significantly from
one period to another.
We designate some of our derivative instruments as cash-flow
hedges pursuant to SFAS 133, Accounting for Derivative
Instruments and Hedging Activities. Under cash-flow hedge
accounting, we record the portion of the change in the fair
value of a derivative instrument that offsets, within a
specified range, the change in the fair value of the specified
future cash flow that it hedges as a component of other
comprehensive income until the hedged cash flow affects the
computation of our current income. At that time, we reclassify
this effective portion of the net change in the fair
value of the derivative instrument to current income.
Among other things, cash-flow hedge accounting requires us to
test each hedging derivative instrument at the inception of the
hedging relationship and at the end of each reporting period
thereafter for its effectiveness in offsetting changes in the
fair value of the hedged cash flow. If we determine that the
overall hedging relationship is
37
ineffective, we must discontinue cash-flow hedge accounting for
the derivative instrument and record all its future fair value
changes in current income. SFAS 133 also requires us to
measure any portion of the change in the fair value of the
derivative instrument that is not effective in offsetting
changes in the fair value of the hedged cash flow and record
that measured ineffectiveness in our current income. Because of
these requirements, our estimates and judgments that affect the
amounts that we measure for the fair value of our derivative
instruments, and the hedged cash flows, can also have a
significant impact on how we present changes in those fair
values in our financial statements (current income versus other
comprehensive income).
Results
of Operations
The following table sets forth our consolidated statements of
operations as a percentage of net sales for the years ended
December 27, 2008, December 29, 2007 and
December 30, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
|
December 27,
|
|
|
December 29,
|
|
|
December 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Net sales
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Cost of sales
|
|
|
45.6
|
%
|
|
|
50.1
|
%
|
|
|
59.8
|
%
|
Gross profit
|
|
|
54.4
|
%
|
|
|
49.9
|
%
|
|
|
40.2
|
%
|
Research and development
|
|
|
2.7
|
%
|
|
|
3.0
|
%
|
|
|
4.7
|
%
|
Selling, general and administrative
|
|
|
14.0
|
%
|
|
|
16.4
|
%
|
|
|
24.7
|
%
|
Production
start-up
|
|
|
2.6
|
%
|
|
|
3.3
|
%
|
|
|
8.7
|
%
|
Operating income
|
|
|
35.1
|
%
|
|
|
27.2
|
%
|
|
|
2.1
|
%
|
Foreign currency gain (loss)
|
|
|
0.5
|
%
|
|
|
0.4
|
%
|
|
|
4.1
|
%
|
Interest income
|
|
|
1.7
|
%
|
|
|
4.1
|
%
|
|
|
2.0
|
%
|
Interest expense, net
|
|
|
0.0
|
%
|
|
|
(0.5
|
)%
|
|
|
(0.8
|
)%
|
Other income (expense), net
|
|
|
(0.1
|
)%
|
|
|
(0.3
|
)%
|
|
|
(0.6
|
)%
|
Income tax expense (benefit)
|
|
|
9.3
|
%
|
|
|
(0.5
|
)%
|
|
|
3.9
|
%
|
Net income
|
|
|
27.9
|
%
|
|
|
31.4
|
%
|
|
|
2.9
|
%
|
Fiscal
Years Ended December 27, 2008 and December 29,
2007
Net
sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
Year Over
|
|
|
|
2008
|
|
|
2007
|
|
|
Year Change
|
|
|
|
(Dollars in thousands)
|
|
|
Net sales
|
|
$
|
1,246,301
|
|
|
$
|
503,976
|
|
|
$
|
742,325
|
|
|
|
147
|
%
|
The increase in our net sales was due primarily to a 148%
increase in the MW volume of solar modules sold during 2008
compared with 2007 due to strong demand for our solar modules in
Europe. The increase in MW volume of solar modules sold is
attributable to the full production ramp of our German plant,
commencement of product shipments at the first two plants at our
Malaysian manufacturing center and continued improvements to our
manufacturing process. In addition, we increased the average
number of sellable watts per solar module by approximately 4%
during 2008 compared with 2007. Our average selling price
decreased by approximately 1% during 2008 compared with 2007,
mainly due to a 6.5% contractual price decline, partially offset
by a 6% increase related to a favorable foreign exchange rate
between the U.S. dollar and the euro. Approximately 74% of
our net sales during 2008 resulted from sales of solar modules
to customers headquartered in Germany.
38
Cost of
sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
Year Over
|
|
|
|
2008
|
|
|
2007
|
|
|
Year Change
|
|
|
|
(Dollars in thousands)
|
|
|
Cost of sales
|
|
$
|
567,908
|
|
|
$
|
252,573
|
|
|
$
|
315,335
|
|
|
|
125
|
%
|
% of net sales
|
|
|
45.6
|
%
|
|
|
50.1
|
%
|
|
|
|
|
|
|
|
|
The increase in our cost of sales was due to higher production
and sales volumes, which resulted from the full production ramp
of our German facility and commencement of production at our
first three plants at our Malaysian manufacturing center. These
factors caused a $191.1 million increase in direct material
expense, a $13.8 million increase in warranty and end of
life costs relating to the collection and recycling of our solar
modules, a $9.4 million increase in sales freight and other
costs and a $101.0 million increase in manufacturing
overhead costs. The increase in manufacturing overhead costs was
due to a $40.5 million increase in salaries and personnel
related expenses, including a $2.4 million increase in
share-based compensation expense, a $30.7 million increase
in facility and related expenses and a $29.8 million
increase in depreciation expense, in each case primarily
resulting from increased infrastructure associated with our
German and Malaysian expansions. Our cost of sales during 2008
reflects a benefit of $2.0 million resulting from a change
in the estimated amount of our warranty obligation.
Gross
profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
Year Over
|
|
|
|
2008
|
|
|
2007
|
|
|
Year Change
|
|
|
|
(Dollars in thousands)
|
|
|
Gross profit
|
|
$
|
678,393
|
|
|
$
|
251,403
|
|
|
$
|
426,990
|
|
|
|
170
|
%
|
% of net sales
|
|
|
54.4
|
%
|
|
|
49.9
|
%
|
|
|
|
|
|
|
|
|
As a percentage of sales, gross profit increased
4.5 percentage points from 2007 to 2008, representing
increased leverage of our fixed cost infrastructure and
scalability associated with our German and Malaysian expansions,
which drove a 148% increase in the number of megawatts sold. Our
average manufacturing cost per watt decreased by 9% during 2008,
while our average selling prices decreased by 1%. During 2008,
foreign exchange gains due to a favorable exchange rate between
the U.S. dollar and the euro and increased leverage of our
fixed cost infrastructure contributed approximately 1.9% and
5.6%, respectively, to our gross profit, partially offset by a
3.0% decline in our average selling prices.
Research
and development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
Year Over
|
|
|
|
2008
|
|
|
2007
|
|
|
Year Change
|
|
|
|
(Dollars in thousands)
|
|
|
Research and development
|
|
$
|
33,517
|
|
|
$
|
15,107
|
|
|
$
|
18,410
|
|
|
|
122
|
%
|
% of net sales
|
|
|
2.7
|
%
|
|
|
3.0
|
%
|
|
|
|
|
|
|
|
|
The increase in our research and development expense was due to
a $13.7 million increase in personnel related expense,
including a $1.2 million increase in share-based
compensation expense, due to increased headcount and additional
share-based compensation awards. In addition, consulting and
other expenses increased by $3.8 million and grant revenue
increased by $0.9 million during 2008 compared with 2007.
Throughout 2008, we continued the development of solar modules
with increased efficiencies at converting sunlight into
electricity.
Selling,
general and administrative
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
Year Over
|
|
|
|
2008
|
|
|
2007
|
|
|
Year Change
|
|
|
|
(Dollars in thousands)
|
|
|
Selling, general and administrative
|
|
$
|
174,039
|
|
|
$
|
82,248
|
|
|
$
|
91,791
|
|
|
|
112
|
%
|
% of net sales
|
|
|
14.0
|
%
|
|
|
16.4
|
%
|
|
|
|
|
|
|
|
|
39
The increase in selling, general and administrative expense was
due to a $62.0 million increase in salaries and
personnel-related expenses, including a $15.5 million
increase in share-based compensation. In addition, legal and
professional service fees increased by $13.0 million and
other expenses increased by $16.8 million during 2008. The
increase resulted primarily from the expansion of our solar
power system and project development business as well as
operating a global manufacturing business.
Production
start-up
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
Year Over
|
|
|
|
2008
|
|
|
2007
|
|
|
Year Change
|
|
|
|
(Dollars in thousands)
|
|
|
Production
start-up
|
|
$
|
32,498
|
|
|
$
|
16,867
|
|
|
$
|
15,631
|
|
|
|
93
|
%
|
% of net sales
|
|
|
2.6
|
%
|
|
|
3.3
|
%
|
|
|
|
|
|
|
|
|
During 2008, we incurred $32.5 million of production
start-up
expenses for our Ohio and Malaysian manufacturing expansion,
including legal, regulatory and personnel costs, compared with
$16.9 million of production
start-up
expenses for our German and Malaysian plant expansions during
2007. Production
start-up
expenses are primarily the cost of labor and material and
depreciation expense to run and qualify the production lines,
related facility expenses, management of our replication process
and legal and regulatory costs.
Foreign
exchange gain
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
Year Over
|
|
|
|
2008
|
|
|
2007
|
|
|
Year Change
|
|
|
|
(Dollars in thousands)
|
|
|
Foreign exchange gain
|
|
$
|
5,722
|
|
|
$
|
1,881
|
|
|
$
|
3,841
|
|
|
|
204
|
%
|
Foreign exchange gain increased by $3.8 million during 2008
due to a substantial increase in our foreign currency
denominated assets and liabilities and high volatility of the
U.S. dollar relative to other currencies, in particular the
euro.
Interest
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
Year Over
|
|
|
|
2008
|
|
|
2007
|
|
|
Year Change
|
|
|
|
(Dollars in thousands)
|
|
|
Interest income
|
|
$
|
21,158
|
|
|
$
|
20,413
|
|
|
$
|
745
|
|
|
|
4
|
%
|
Interest income remained relatively flat primarily as a result
of higher cash, cash equivalents and marketable securities
balances during 2008, offset by a decline in interest rates.
Interest
expense, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
Year Over
|
|
|
|
2008
|
|
|
2007
|
|
|
Year Change
|
|
|
|
(Dollars in thousands)
|
|
|
Interest expense, net
|
|
$
|
509
|
|
|
$
|
2,294
|
|
|
$
|
(1,785
|
)
|
|
|
(78
|
)%
|
Interest expense, net of amounts capitalized, decreased
primarily as a result of higher amounts of interest expense
capitalized due to the construction of our Malaysian
manufacturing center.
Other
expense, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
Year Over
|
|
|
|
2008
|
|
|
2007
|
|
|
Year Change
|
|
|
|
(Dollars in thousands)
|
|
|
Other expense, net
|
|
$
|
934
|
|
|
$
|
1,219
|
|
|
$
|
(285
|
)
|
|
|
(23
|
)%
|
40
Other expense, net consisted mainly of financing fees related to
our credit facilities. During 2008, other expense was reduced by
a mark-to-market gain of $0.6 million associated with our
credit default swap.
Income
tax expense (benefit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
Year Over
|
|
|
|
2008
|
|
|
2007
|
|
|
Year Change
|
|
|
|
(Dollars in thousands)}
|
|
|
Income tax expense (benefit)
|
|
$
|
115,446
|
|
|
$
|
(2,392
|
)
|
|
$
|
117,838
|
|
|
|
N.M.
|
|
Effective tax rate
|
|
|
24.9
|
%
|
|
|
(1.5
|
%)
|
|
|
|
|
|
|
|
|
Income tax expense increased by $117.8 million, primarily
due to the increase in pre-tax income of $307.8 million, as
well as the reversal of a valuation allowance in 2007 of
$54.9 million.
Our Malaysian subsidiary has been granted a tax holiday for a
period of 16.5 years, which was originally scheduled to
commence on January 1, 2009, which generally provides for a
100% exemption from Malaysian income tax. Subsequent to year end
we received formal approval granting our request to pull forward
this previously approved tax holiday by one year. Due to the
fact that this approval was granted subsequent to the end of
2008, we concluded that the financial impact will be reflected
in our first quarter of 2009 financial results. As a result we
will recognize an income tax benefit of $11.6 million in
the first quarter of 2009. Had the exemption from Malaysian tax
against our 2008 income been granted during 2008, our 2008
income tax expense would have been reduced by $11.6 million
to $103.8 million. The effective tax rate would have been
22.4% rather than 24.9%.
Fiscal
Years Ended December 29, 2007 and December 30,
2006
Net
sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
Year Over
|
|
|
|
2007
|
|
|
2006
|
|
|
Year Change
|
|
|
|
(Dollars in thousands)
|
|
|
Net sales
|
|
$
|
503,976
|
|
|
$
|
134,974
|
|
|
$
|
369,002
|
|
|
|
273
|
%
|
The increase in our net sales was due primarily to a 259%
increase in the MW volume of solar modules sold in 2007 compared
to 2006. We were able to increase the MW volume of solar modules
sold primarily as a result of the production ramp at our German
plant, the full production of our Ohio expansion and continued
improvements to our overall process. In addition, we increased
the average number of sellable watts per solar module by
approximately 11% in 2007 compared with 2006. Our average
selling price increased by 4% during 2007 compared with 2006,
mainly due to a 9% increase related to a favorable foreign
exchange rate between the U.S. dollar and the euro,
partially offset by a 5% annual contractual price decline.
Approximately 91% of our net sales in 2007 resulted from sales
of solar modules to customers headquartered in Germany.
Cost of
sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
Year Over
|
|
|
|
2007
|
|
|
2006
|
|
|
Year Change
|
|
|
|
(Dollars in thousands)
|
|
|
Cost of sales
|
|
$
|
252,573
|
|
|
$
|
80,730
|
|
|
$
|
171,843
|
|
|
|
213
|
%
|
% of net sales
|
|
|
50.1
|
%
|
|
|
59.8
|
%
|
|
|
|
|
|
|
|
|
Direct material expense increased by $87.3 million,
warranty and end of life costs relating to the collection and
recycling of our solar modules increased by $9.1 million,
sales freight and other costs increased by $3.2 million, in
each case, primarily as a result of higher production volumes in
2007 compared with 2006. In addition, manufacturing overhead
costs increased by $72.2 million, which was primarily
composed of an increase in salaries and personnel related
expenses of $43.0 million, including an increase in
share-based compensation expense from $4.2 million in 2006
to $9.5 million in 2007, resulting from the infrastructure
associated with our Ohio expansion and German plant build-out,
facility and related expenses of $16.0 million and
depreciation expense of $13.2 million, primarily as a
result of additional equipment becoming operational at our Ohio
and German plants.
41
Gross
profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
Year Over
|
|
|
|
2007
|
|
|
2006
|
|
|
Year Change
|
|
|
|
(Dollars in thousands)
|
|
|
Gross profit
|
|
$
|
251,403
|
|
|
$
|
54,244
|
|
|
$
|
197,159
|
|
|
|
363
|
%
|
% of net sales
|
|
|
49.9
|
%
|
|
|
40.2
|
%
|
|
|
|
|
|
|
|
|
As a percentage of sales, gross profit increased
9.7 percentage points from 2006 to 2007, representing
increased leverage of our fixed cost infrastructure and
scalability associated with our plant expansions, which drove a
259% increase in the number of megawatts sold. During 2007,
foreign exchange gains due to a favorable exchange rate between
the U.S. dollar and the euro and increased leverage of our
fixed cost infrastructure contributed 3.0% and 9.8%,
respectively, to our gross profit, partially offset by a 3.1%
annual contractual price decline. Additionally, we incurred
$7.6 million of costs, or 1.5% of revenues, associated with
the ramp of our German plant in 2007, compared with
$1.1 million of costs, or 0.8% of revenues, incurred in
2006 related to the ramp of our Ohio expansion.
Research
and development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
Year Over
|
|
|
|
2007
|
|
|
2006
|
|
|
Year Change
|
|
|
|
(Dollars in thousands)
|
|
|
Research and development
|
|
$
|
15,107
|
|
|
$
|
6,361
|
|
|
$
|
8,746
|
|
|
|
137
|
%
|
% of net sales
|
|
|
3.0
|
%
|
|
|
4.7
|
%
|
|
|
|
|
|
|
|
|
The increase in research and development expense was primarily
the result of a $7.9 million increase in personnel related
expense, including an increase in share-based compensation
expense from $2.3 million in 2006 to $4.7 million in
2007, due to increased headcount and additional share-based
compensation awards. Consulting and other expenses also
increased by $1.7 million and grant revenue increased by
$0.9 million in 2007 compared to 2006.
Selling,
general and administrative
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
Year Over
|
|
|
|
2007
|
|
|
2006
|
|
|
Year Change
|
|
|
|
(Dollars in thousands)
|
|
|
Selling, general and administrative
|
|
$
|
82,248
|
|
|
$
|
33,348
|
|
|
$
|
48,900
|
|
|
|
147
|
%
|
% of net sales
|
|
|
16.4
|
%
|
|
|
24.7
|
%
|
|
|
|
|
|
|
|
|
Selling, general and administrative expense increased primarily
as a result of an increase in salaries and personnel-related
expenses of $36.1 million, due to increased headcount and
an increase in share-based compensation from $5.3 million
in 2006 to $23.4 million in 2007. In addition, legal and
professional service fees increased by $11.3 million and
other expenses increased by $1.5 million during 2007,
primarily resulting from costs incurred in connection with being
a public company and infrastructure build out to support our
growth.
Production
start-up
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
Year Over
|
|
|
|
2007
|
|
|
2006
|
|
|
Year Change
|
|
|
|
(Dollars in thousands)
|
|
|
Production
start-up
|
|
$
|
16,867
|
|
|
$
|
11,725
|
|
|
$
|
5,142
|
|
|
|
44
|
%
|
% of net sales
|
|
|
3.3
|
%
|
|
|
8.7
|
%
|
|
|
|
|
|
|
|
|
In 2007, we incurred $16.9 million of production
start-up
expenses related to our German and Malaysia expansions,
including legal, regulatory and personnel costs, compared with
$11.7 million of production
start-up
expenses for our Ohio and German plant expansions during 2006.
Production
start-up
expenses are primarily attributable to the cost of labor and
material and depreciation expense to run and qualify the line,
related facility expenses, management of our replication process
and legal and regulatory costs.
42
Foreign
exchange gain
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
Year Over
|
|
|
|
2007
|
|
|
2006
|
|
|
Year Change
|
|
|
|
(Dollars in thousands)
|
|
|
Foreign exchange gain
|
|
$
|
1,881
|
|
|
$
|
5,544
|
|
|
$
|
(3,663
|
)
|
|
|
N.M.
|
|
Foreign exchange gain decreased by $3.7 million from 2006
to 2007 primarily as a result of hedging the foreign exchange
exposure in 2007 to mitigate some of the impact on the
fluctuating dollar.
Interest
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
Year Over
|
|
|
|
2007
|
|
|
2006
|
|
|
Year Change
|
|
|
|
(Dollars in thousands)
|
|
|
Interest income
|
|
$
|
20,413
|
|
|
$
|
2,648
|
|
|
$
|
17,765
|
|
|
|
N.M.
|
|
The increase in interest income of $17.8 million was
primarily due to increased interest income resulting from higher
cash, cash equivalent and marketable securities balances
throughout 2007. We completed an initial public offering in the
fourth quarter of 2006 which resulted in net proceeds of
$302.7 million and an equity follow-on public offering in
the third quarter of 2007, which provided us with net proceeds
of $366.0 million. We also had higher investments in 2007
compared to 2006 that generated interest at higher rates.
Interest
expense, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
Year Over
|
|
|
|
2007
|
|
|
2006
|
|
|
Year Change
|
|
|
|
(Dollars in thousands)
|
|
|
Interest expense, net
|
|
$
|
2,294
|
|
|
$
|
1,023
|
|
|
$
|
1,271
|
|
|
|
124
|
%
|
Interest expense, net of amounts capitalized, increased by
$1.3 million from 2006 to 2007 primarily as a result of
increased borrowings associated with our German plant financing.
In 2007, we capitalized $3.8 million of interest expense to
construction in progress compared to $3.3 million in 2006.
Other
expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
Year Over
|
|
|
|
2007
|
|
|
2006
|
|
|
Year Change
|
|
|
|
(Dollars in thousands)
|
|
|
Other expense
|
|
$
|
1,219
|
|
|
$
|
799
|
|
|
$
|
420
|
|
|
|
N.M.
|
|
The increase in other expense of $0.4 million was primarily
due to increased financing fees related to the IKB loans.
Income
tax expense (benefit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
Year Over
|
|
|
|
2007
|
|
|
2006
|
|
|
Year Change
|
|
|
|
(Dollars in thousands)
|
|
|
Income tax expense (benefit)
|
|
$
|
(2,392
|
)
|
|
$
|
5,206
|
|
|
$
|
(7,598
|
)
|
|
|
N.M.
|
|
Our 2007 tax rate was a benefit of 1.5% which primarily reflects
the net of a tax rate of 33.7% and a rate benefit of 35.2% due
to the reversal of a valuation allowance on our deferred tax
assets of $54.9 million. The reversal was based upon our
updated assessment of the future realization of our deferred
income tax assets. The available positive evidence during fiscal
2007 included cumulative taxable income for the previous twelve
quarters and a projection of future taxable income. The income
tax expense for 2006 was the result of a change in corporate
form from a limited liability company to a corporation,
profitability in 2006 and a full valuation allowance against our
deferred tax assets.
43
Liquidity
and Capital Resources
As of December 27, 2008, we had $821.8 million in
cash, cash equivalents and marketable securities, compared with
$669.7 million as of December 29, 2007. We believe
that our current cash, cash equivalents, marketable securities,
cash flows from operating activities, government grants and low
interest debt financings for our German and Malaysian plant will
be sufficient to meet our working capital and capital
expenditures needs for at least the next 12 months.
However, if our financial results or operating plans change from
our current assumptions, we may not have sufficient resources to
support our business plan. As a result, we may engage in one or
more debt or equity financings in the future, which could result
in increased expenses or dilution to our existing stockholders.
If we are unable to obtain debt or equity financing on
reasonable terms, we may be unable to execute our expansion
strategy. See Item 1A: Risk Factors Our
future success depends on our ability to build new manufacturing
plants and add production lines in a cost-effective manner, both
of which are subject risks and uncertainties.
The recent and unprecedented disruption in the current credit
markets has had a significant adverse impact on a number of
financial institutions. As of December 27, 2008, our
liquidity and investments have not been materially adversely
impacted by the current credit environment and we believe that
they will not be materially adversely impacted in the near
future. We will continue to closely monitor our liquidity and
the credit markets. However, we cannot predict with any
certainty the impact to us of any further disruption in the
credit environment.
Cash
Flows
Cash provided (used) was as follows for the twelve months ended
December 27, 2008, December 29, 2007, and
December 30, 2006 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Operating activities
|
|
$
|
463,067
|
|
|
$
|
205,951
|
|
|
$
|
(576
|
)
|
Investing activities
|
|
|
(308,441
|
)
|
|
|
(547,250
|
)
|
|
|
(159,994
|
)
|
Financing activities
|
|
|
177,549
|
|
|
|
430,421
|
|
|
|
451,550
|
|
Effect of exchange rates on cash flows
|
|
|
(20,221
|
)
|
|
|
7,050
|
|
|
|
391
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
$
|
311,954
|
|
|
$
|
96,172
|
|
|
$
|
291,371
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
activities
Cash provided by operating activities was $463.1 million
during 2008 compared with $206.0 million during 2007. Net
cash provided by operating activities during 2008 resulted
primarily from an increase in net income, accounts payable and
accrued expenses in this period as well as the impact of
non-cash items that were recorded on the statements of income,
primarily depreciation and amortization expense and stock-based
compensation expense, offset by investments in accounts
receivable and inventories to support growth. Our inventories
increased by $84.8 million during 2008 compared with 2007
primarily due to an increase in raw materials and work in
process as a result of revenue growth. Income taxes paid, net of
refunds during 2008 were $2.0 million.
Cash received from customers increased to $1,203.8 million
during 2008 from $516.0 million during 2007 primarily due
to an increase in net sales. Our net sales increased from
$504.0 million during 2007 to $1,246.3 million in
2008. This increase was partially offset by cash paid to
suppliers and employees of $723.1 million during 2008
compared with cash paid to suppliers and associates of
$276.5 million during 2007, mainly due to an increase in
raw material and component purchases, an increase in
personnel-related costs due to higher headcount and other costs
supporting our global expansion.
Cash provided by operating activities was $206.0 million
during 2007 compared to cash used in operating activities of
$0.6 million during 2006. Cash provided by interest earned
increased to $20.0 million during 2007 from
$2.6 million during 2006 mainly due to the increased cash
from the initial public offering and the follow-on offering.
Cash received from customers increased to $516.0 million
during 2007 from $110.2 million during 2006 mainly due to
an increase in net sales and shorter payment terms. This
increase was partially offset by an increase in cash paid to
suppliers and employees of $276.5 million compared to cash
paid to suppliers and employees of
44
$111.9 million during 2006, mainly due to an increase in
raw materials, an increase in personnel related costs due to
higher headcount and other costs supporting our global
expansion. Also, we paid cash of $19.0 million for income
taxes during 2007.
Investing
activities
Cash used in investing activities was $308.4 million during
2008 compared with $547.3 million during 2007. Cash used in
investing activities during 2008 resulted primarily from capital
expenditures of $459.3 million, an equity investment of
$25.0 million and an increase of $15.5 million in
restricted accounts, offset by the net sale of marketable
securities of $191.4 million.
During 2008, we placed $15.5 million of cash in restricted
accounts to fund our solar module collection and recycling
program and in October 2008, we made an equity investment of
$25.0 million in a U.S based company that will supply solar
power plants to residential and commercial customers. The
increase in capital expenditures was primarily due to our
investments related to the construction of our new plants in
Malaysia and Germany.
We expect to spend approximately $300.0 million in capital
expenditures for 2009 mainly related to the build-out of our
Malaysian manufacturing center and the expansion of our
Perrysburg, Ohio plant. A majority of our capital expenditures
for 2009 will be incurred in foreign currency and therefore are
subject to fluctuations in currency exchange rates.
Cash used in investing activities was $547.3 million during
2007 compared with $160.0 million during 2006. Cash used in
investing activities resulted primarily from capital
expenditures of $242.4 million during 2007 and
$153.2 million during 2006 and the net purchase of
marketable securities of $293.4 million during 2007. The
increase in capital expenditures was primarily due to our
investments related to the construction of our new plants in
Germany and Malaysia. Our cash outlays for the German plant were
partially recovered through the receipt of $9.5 million and
$16.8 million in 2007 and 2006, respectively, of economic
development funding from various German governmental entities,
which we classify as a cash flow from financing activities. Cash
paid for the acquisition of Turner Renewable Energy, LLC, net of
cash acquired during 2007 was $5.5 million. During 2007 and
2006, we deposited $6.0 million and $6.8 million of
cash into restricted accounts to fund our solar module
collection and recycling program.
Financing
activities
Cash provided by financing activities was $177.5 million
during 2008 compared with $430.4 million during 2007. Cash
provided by financing activities during 2008 resulted primarily
from investment incentives related to the construction of our
plant in Frankfurt/Oder, Germany of $35.7 million and
proceeds from the issuance of debt, net of issuance costs, of
$138.9 million related to the equipment export financing
agreement for our Malaysian manufacturing center. See
Note 14 to our consolidated financial statements for more
information about these credit facilities. These cash proceeds
were partially offset by the repayment of long-term debt of
$41.7 million during 2008. Proceeds from the issuance of
common stock during 2008 were $16.0 million mainly due to
proceeds received from the exercise of employee stock options.
Proceeds from the issuance of common stock during 2007 were
$376.1 million mainly due to the receipt of
$366.0 million in net proceeds from the issuance of our
common stock as a result of our follow-on offering and
$10.2 million of proceeds received from the exercise of
employee stock options. Excess tax benefits from share-based
compensation arrangements during 2008 were $28.7 million.
Cash provided by financing activities was $430.4 million
during 2007 compared with $451.6 million during 2006.
During 2007 we received $366.0 million in net proceeds
primarily from the issuance of our common stock as a result of
our follow-on offering and $49.4 million from additional
draws under debt facilities. Net proceeds from the exercise of
stock options were $10.2 million. Tax benefits related to
the exercise of stock options during 2007 were
$30.2 million. In addition, we received $9.5 million
in economic development funding from various German governmental
entities related to the construction of our plant in
Frankfurt/Oder, Germany. These receipts were partially offset by
$34.8 million in net repayments of long-term debt. During
2006, we received $302.7 million in net proceeds from an
initial public offering of our common stock, $130.8 million
in net proceeds from debt issued to third parties,
$36.0 million in loans from related parties, equity
contributions from our sole owner prior to our IPO of
$30.0 million and receipt of $16.8 million of economic
development funding from various German governmental
45
entities. Partially offsetting these cash receipts was the
repayment of $64.7 million of loans from related parties.
On February 22, 2006, we issued $74.0 million
aggregate principal amount of convertible senior subordinated
notes due 2011 to Goldman, Sachs & Co. On May 10,
2006, we extinguished these notes by payment of
4,261,457 shares of our common stock.
On November 30, 2007, we completed the acquisition of
Turner Renewable Energy, LLC, a privately held company which
designed and deployed commercial solar power system projects for
utilities in the United States. We have integrated the
operations from this acquisition into our solar power systems
and project development business. This business sells solar
power systems directly to system owners. These systems include
both our solar modules and balance of system components that we
procure from third parties. We also sell integrated services
related to the development of commercial solar projects in the
United States, such as the system design, engineering,
procurement of permits and balance of system components,
construction management, monitoring and maintenance as part of a
system solution delivery. This acquisition has created a
platform for our systems business in North America for solar
electricity solutions to utility companies. The total
consideration for the transaction was $34.3 million
(excluding exit and transaction costs of $0.7 million);
consisting of $28.0 million in common stock and
$6.3 million in cash (see Note 5 to our consolidated
financial statements).
On October 24, 2006, we amended our articles of
incorporation to authorize us to issue up to
500,000,000 shares of common stock at a par value of $0.001
and up to 30,000,000 shares of preferred stock at a par
value of $0.001. These amended and restated articles of
incorporation permit our board of directors to establish the
voting powers, preferences, and other rights of any series of
preferred stock that we issue. On October 30, 2006, our
board of directors approved a 4.85 to 1 stock split of our
issued and outstanding common shares, which was effective
November 1, 2006; the par value of our common shares
remained $0.001 per share, and the number of authorized shares
of common and preferred stock remained the same. All share and
per share amounts presented in this Annual Report on
Form 10-K
and the accompanying consolidated financial statements have been
retroactively adjusted to reflect the stock split.
Contractual
Obligations
The following table presents our contractual obligations as of
December 27, 2008, which consists of legal commitments
requiring us to make fixed or determinable cash payments,
regardless of contractual requirements with the vendor to
provide future goods or services. We purchase raw materials for
inventory, services and manufacturing equipment from a variety
of vendors. During the normal course of business, in order to
manage manufacturing lead times and help assure adequate supply,
we enter into agreements with suppliers that either allow us to
procure goods and services when we choose or that establish
purchase requirements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Year
|
|
|
|
|
|
|
Less Than
|
|
|
1 - 3
|
|
|
3 - 5
|
|
|
More Than
|
|
Contractual Obligations
|
|
Total
|
|
|
1 Year
|
|
|
Years
|
|
|
Years
|
|
|
5 Years
|
|
|
|
(In thousands)
|
|
|
Long-term debt obligations(1)
|
|
$
|
232,130
|
|
|
$
|
46,503
|
|
|
$
|
84,012
|
|
|
$
|
61,699
|
|
|
$
|
39,916
|
|
Capital lease obligations
|
|
|
5
|
|
|
|
3
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
Operating lease obligations
|
|
|
41,675
|
|
|
|
9,383
|
|
|
|
10,146
|
|
|
|
7,963
|
|
|
|
14,183
|
|
Purchase obligations(2)
|
|
|
1,072,374
|
|
|
|
353,221
|
|
|
|
575,625
|
|
|
|
143,528
|
|
|
|
|
|
Recycling obligations
|
|
|
35,238
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35,238
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,381,422
|
|
|
$
|
409,110
|
|
|
$
|
669,785
|
|
|
$
|
213,190
|
|
|
$
|
89,337
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes estimated cash interest to be paid over the remaining
terms of the debt. |
|
(2) |
|
Purchase obligations are agreements to purchase goods or
services that are enforceable and legally binding on us and that
specify all significant terms, including fixed or minimum
quantities to be purchased, fixed minimum, or variable price
provisions and the approximate timing of transactions. |
In addition to the amounts shown in the table above, we have
recorded $7.5 million of unrecognized tax benefits as
liabilities in accordance with FIN 48, and we are uncertain
as to if or when such amounts may be settled.
46
Debt
and Credit Sources
On May 6, 2008, in connection with the plant expansion at
our Malaysian manufacturing center, First Solar Malaysia Sdn.
Bhd. (FS Malaysia), our indirect wholly-owned
subsidiary entered into an export financing facility agreement
(Facility Agreement) with IKB Deutsche Industriebank
AG (IKB) as arranger NATIXIS Zweigniederlassung
Deutschland (NZD) as facility agent and original
lender, AKA Ausfuhrkredit-Gesellschaft mbH (AKA), as
original lender and NATIXIS Labuan Branch (NLB) as
security agent. Pursuant to the terms of the Facility Agreement,
the lenders will furnish up to 134.0 million
($187.6 million at the balance sheet close rate on
December 27, 2008 of $1.40/1.00) of credit facilities
consisting of the following:
|
|
|
|
(1)
|
Five fixed-rate euro-denominated term loan facilities, which
have the following maximum aggregate amounts:
|
|
|
|
|
a)
|
16.9 million ($23.7 million at the balance sheet
close rate on December 27, 2008 of $1.40/1.00);
|
|
|
b)
|
16.3 million ($22.8 million at the balance sheet
close rate on December 27, 2008 of $1.40/1.00);
|
|
|
c)
|
16.3 million ($22.8 million at the balance sheet
close rate on December 27, 2008 of $1.40/1.00);
|
|
|
d)
|
16.3 million ($22.8 million at the balance sheet
close rate on December 27, 2008 of $1.40/1.00);
|
|
|
e)
|
1.2 million ($1.7 million at the balance sheet
close rate on December 27, 2008 of
$1.40/1.00); and
|
|
|
|
|
(2)
|
Five floating-rate euro-denominated term loan facilities, which
have the following maximum aggregate amounts:
|
|
|
|
|
a)
|
16.9 million ($23.7 million at the balance sheet
close rate on December 27, 2008 of $1.40/1.00);
|
|
|
b)
|
16.3 million ($22.8 million at the balance sheet
close rate on December 27, 2008 of $1.40/1.00);
|
|
|
c)
|
16.3 million ($22.8 million at the balance sheet
close rate on December 27, 2008 of $1.40/1.00);
|
|
|
d)
|
16.3 million ($22.8 million at the balance sheet
close rate on December 27, 2008 of $1.40/1.00);
|
and
|
|
|
|
e)
|
1.2 million ($1.7 million at the balance sheet
close rate on December 27, 2008 of $1.40/1.00).
|
The loans under the fixed rate credit facilities will bear
interest on the outstanding unpaid principal amount at an annual
rate of 4.54%. The loans under the floating rate credit
facilities will bear interest on the outstanding unpaid
principal amount at Euribor plus a margin of 0.55%.
These credit facilities are intended to be used by FS Malaysia
for the purpose of (1) partially financing the purchase of
certain equipment to be used at our Malaysian manufacturing
center and (2) financing fees to be paid to Euler-Hermes
Kreditversicherungs- AG (Euler-Hermes), the German
Export Credit Agency of Hamburg, Federal Republic of Germany,
which will guaranty 95% of FS Malaysias obligations
related to the Facility Agreement (Hermes Guaranty).
In addition, FS Malaysias obligations related to the
Facility Agreement are guaranteed, on an unsecured basis, by
First Solar, Inc., pursuant to a guaranty agreement described
below.
The Facility Agreement requires FS Malaysia to make 14 equal
semi-annual repayments of the total principal borrowed under
each of the credit facilities listed above. The first of these
repayments commences on the earlier of (1) the day that is
nine months after the date that the Malaysian manufacturing
center plant to which the credit facility relates becomes ready
for operation and (2) a date specified for each credit
facility, the earliest of which is
47
September 30, 2008 for the credit facilities listed as
(1) a) and (2) a) above. Principal
repayments commenced on September 30, 2008.
FS Malaysia may voluntarily cancel commitments under the credit
facilities and may make prepayments of amounts outstanding, in
whole or in part, subject to minimum prepayment requirements and
the payment of break costs. Subject to a limited exception, in
the event that the Euler-Hermes Guaranty is (1) fully or
partially withdrawn, or otherwise ceases to be in full force and
effect or (2) repudiated by Euler-Hermes (or its intention
to repudiate is evidenced in writing), or if any of the
obligations of Euler-Hermes under the Euler-Hermes Guaranty
ceases to be legal, valid, binding or in full force and effect,
the loans made by any lender under any of the credit facilities
may, at the direction of the lender, be declared immediately due
and payable.
FS Malaysia is obligated to pay commitment fees at an annual
rate of 0.375% on the unused portions of the fixed rate credit
facilities and at an annual rate of 0.350% on the unused
portions of the floating rate credit facilities. In addition, FS
Malaysia is obligated to pay certain underwriting, management
and agency fees in connection with the credit facilities.
In connection with the Facility Agreement, First Solar, Inc.
entered into a first demand guaranty agreement dated May 6,
2008 in favor of IKB, NZD, NLB and the other lenders under the
Facility Agreement. As stated above, FS Malaysias
obligations related to the Facility Agreement are guaranteed, on
an unsecured basis, by First Solar pursuant to this guaranty
agreement.
In connection with the Facility Agreement, all of FS
Malaysias obligations related to the Facility Agreement
are secured by a first party, first legal charge over the
equipment financed by the credit facilities and the other
documents, contracts and agreements related to that equipment.
Also in connection with the Facility Agreement, any payment
claims of First Solar, Inc. against FS Malaysia are subordinated
to the claims of IKB, NZD, NLB and the other lenders under the
Facility Agreement.
The Facility Agreement contains various financial covenants with
which we must comply, such as debt to equity ratios, total
leverage ratios, interest coverage ratios and debt service
coverage ratios. We must submit these ratios related to the
financial covenants for the first time at the end of fiscal
2009. The Facility Agreement also contains various customary
non-financial covenants with which FS Malaysia must comply,
including, submitting various financial reports and business
forecasts to the lenders, maintaining adequate insurance,
complying with applicable laws and regulations and restricting
on FS Malaysias ability to sell or encumber assets and
make loan guarantees to third parties. We were in compliance
with these covenants through December 27, 2008.
As of December 27, 2008, we had outstanding borrowings of
93.3 million ($130.6 million at the balance
sheet close rate on December 27, 2008 of $1.40/1.00)
under the 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 ($142.8 million at the balance
sheet close rate on December 27, 2008 of $1.40/1.00)
to fund costs of constructing and starting up our German plant.
This credit facility consisted of a term loan of up to
53.0 million ($74.2 million at the balance sheet
close rate on December 27, 2008 of $1.40/1.00) and a
revolving credit facility of 27.0 million
($37.8 million at the balance sheet close rate on
December 27, 2008 of $1.40/1.00). The facility also
provided for a bridge loan, which we drew against to fund
construction costs that were later reimbursed through funding
from the Federal Republic of Germany under the Investment Grant
Act of 2005 (Investitionszulagen), of up to
22.0 million ($30.8 million at the balance sheet
close rate on December 27, 2008 of $1.40/1.00). We
can no longer make draw downs against the term loan and the
bridge loan, and we can make drawdowns against the revolving
credit facility until September 30, 2012. We incurred costs
related to the credit facility totaling $2.2 million
through December 29, 2007, which we recognized as interest
and other financing expenses over the time that the borrowings
were outstanding under the credit facility. We did not incur any
costs related to the credit facility during fiscal 2008. We also
pay an annual commitment fee of 0.6% of any amounts not drawn
down on the credit facility.
At December 27, 2008, we had outstanding borrowings of
$55.0 million under the term loan, $42.0 million of
which we classify as long-term debt and $13.0 million of
which we classify as the current portion of long-term debt. We
had no outstanding borrowings under the bridge loan at
December 27, 2008. We repaid the bridge loan in
48
February 2008 with funding we received from the Federal Republic
of Germany under the Investment Grant of 2005 and we cannot make
any more draws against the bridge loan facility. We also had no
outstanding borrowings under the revolving credit facility at
December 27, 2008. At December 27, 2008 and
December 29, 2007, interest rates were 6.7% and 6.3%,
respectively, for the term loan; however, on January 1,
2009, the interest rate reset to 4.6%.
We must repay the term loan in twenty quarterly payments
beginning on March 31, 2008 and ending on December 31,
2012. Once repaid, we may not draw again against the term loan
facility. The revolving credit facility expires on and must be
completely repaid by December 31, 2012. In certain
circumstances, we must also use proceeds from fixed asset sales
or insurance claims to make additional principal payments.
We pay interest at the annual rate of the Euro interbank offered
rate (Euribor) plus 1.6% on the term loan and Euribor plus 1.8%
on the revolving credit facility. Each time we make a draw
against the revolving credit facility, we may choose to pay
interest on that drawdown every one, three, or six months. The
credit facility requires us to mitigate our interest rate risk
on the term loan by entering into pay-fixed, receive-floating
interest rate swaps covering at least 75% of the balance
outstanding under the term loan.
The Federal Republic of Germany is guaranteeing 48% of our
combined borrowings on the term loan and revolving credit
facility and the State of Brandenburg is guaranteeing another
32%. We pay an annual fee, not to exceed 0.5 million
($0.7 million at the balance sheet close rate on
December 27, 2008 of $1.40/1.00) for these
guarantees. In addition, we must maintain a debt service reserve
of 3.0 million ($4.2 million at the balance
sheet close rate on December 27, 2008 of $1.40/1.00)
in a restricted investment account, which the lenders may access
if we are unable to make required payments on the credit
facility. Substantially all of our assets in Germany, including
the German plant, have been pledged as collateral for the credit
facility and the government guarantees.
The credit facility contains various financial covenants with
which we must comply. First Solar Manufacturing GmbHs cash
flow available for debt service must be at least 1.1 times its
required principal and interest payments for all its liabilities
and the ratio of its total noncurrent liabilities to earnings
before interest, taxes, depreciation and amortization may not
exceed 3.0:1 from January 1, 2008, through
December 31, 2008, 2.5:1 from January 1, 2009 through
December 31, 2009 and 1.5:1 from January 1, 2010
through the remaining term of the credit facility.
The credit facility also contains various non-financial
covenants with which we must comply. We must submit various
financial reports, financial calculations and statistics,
operating statistics and financial and business forecasts to the
lender. We must adequately insure our German operation, and we
may not change the type or scope of its business operations.
First Solar Manufacturing GmbH must maintain adequate accounting
and information technology systems. Also, First Solar
Manufacturing GmbH cannot open any bank accounts (other than
those required by the credit facility), sell any assets to third
parties outside the normal course of business, make any loans or
guarantees to third parties or allow any of its assets to be
encumbered to the benefit of third parties without the consent
of the lenders and government guarantors. We were in compliance
with these covenants through December 27, 2008.
Our ability to withdraw cash from First Solar Manufacturing GmbH
for use in other parts of our business is restricted while we
have outstanding obligations under the credit facility and
associated government guarantees. First Solar Manufacturing GmbH
generally cannot make any payments to affiliates if doing so
would cause its cash flow available for debt service to fall
below 1.3 times its required principal and interest payments for
all its liabilities for any one year period or cause the amount
of its equity to fall below 30% of the amount of its total
assets. First Solar Manufacturing GmbH also cannot pay
commissions of greater than 2% to First Solar affiliates that
sell or distribute its products. Furthermore, we may be required
under certain circumstances to contribute more funds to First
Solar Manufacturing GmbH, such as if all or part of the
government guarantees are withdrawn.
During the year ended December 31, 2005, we received a
$15.0 million loan from the Director of Development of the
State of Ohio, $11.7 million of which was outstanding at
December 27, 2008. Interest is payable monthly at the
annual rate of 2.25%; principal payments commenced on
December 1, 2006 and end on July 1, 2015. Land and
buildings at our Ohio plant with a net book value of
$21.1 million at December 27, 2008 have been pledged
as collateral for this loan.
During the year ended December 25, 2004, we received a
$5.0 million loan from the Director of Development of the
State of Ohio, of which $1.5 million was outstanding at
December 27, 2008. Interest is payable monthly at
49
annual rates starting at 0.25% during the first year the loan is
outstanding, increasing to 1.25% during the second and third
years, increasing to 2.25% during the fourth and fifth years and
increasing to 3.25% for each subsequent year; principal payments
commenced on January 1, 2007 and end on December 1,
2009. Machinery and equipment at our Ohio plant with a net book
value of $7.7 million at December 27, 2008 have been
pledged as collateral for this loan.
Our debt-financing agreements bear interest based on the Euro
Interbank Offered Rate (Euribor). Euribor is the primary
interbank lending rate within the Euro zone, with maturities
ranging from one week to one year. A disruption of the credit
environment as currently experienced could negatively impact
interbank lending and therefore negatively impact the Euribor
rate. An increase in the Euribor rate would increase our cost of
borrowing.
On December 30, 2007, the beginning of our fiscal year
2008, we adopted SFAS 157. Our adoption of SFAS 157
was limited to our financial assets and financial liabilities,
as permitted by
FSP 157-2.
We do not have any nonfinancial assets or nonfinancial
liabilities that we recognize or disclose at fair value in our
financial statements on a recurring basis. Our adoption of
SFAS 157 did not have a material effect on our financial
position and results of operations, and our fair value models do
not make material use of unobservable inputs. See Note 11
to our consolidated financial statements for further information
about our adoption of SFAS 157.
Off-Balance
Sheet Arrangements
We had no off-balance sheet arrangements as of December 27,
2008.
Recent
Accounting Pronouncements
See Note 2 to our consolidated financial statements filed
with this Annual Report on
Form 10-K
for a summary of recent accounting pronouncements.
|
|
Item 7A:
|
Quantitative
and Qualitative Disclosures about Market Risk
|
Foreign
Currency Exchange Risk
Our international operations accounted for 95% of our net sales
during 2008 and 98.8% of our net sales during 2007; all of these
international sales were denominated in euro. As a result, we
have exposure to foreign exchange risk with respect to almost
all of our net sales. Fluctuations in exchange rates,
particularly in the U.S. dollar to euro exchange rate,
affect our gross and net profit margins and could result in
foreign exchange and operating losses. In the past, most of our
exposure to foreign exchange risk has related to currency gains
and losses between the times we sign and settle our sales
contracts. For example, our Long Term Supply Contracts obligate
us to deliver solar modules at a fixed price in euros per watt
and do not adjust for fluctuations in the U.S. dollar to
euro exchange rate. For the year ended December 27, 2008, a
10% change in the euro exchange rates would have impacted our
net euro sales by $118.3 million. With the expansion of our
manufacturing operations into Germany and the current expansion
into Malaysia, many of our operating expenses for the plants in
these countries will be denominated in the local currency.
Our primary foreign currency exposures are transaction, cash
flow and translation:
Transaction Exposure: We have certain assets
and liabilities, primarily receivables, investments, accounts
payable (including inter-company transactions) and debt that are
denominated in currencies other than the relevant entitys
functional currency. In certain circumstances, changes in the
functional currency value of these assets and liabilities create
fluctuations in our reported consolidated financial position,
results of operations and cash flows. We may enter into foreign
exchange forward contracts or other instruments to minimize the
effect of short-term foreign currency fluctuations on these
assets and liabilities. The gains and losses on the foreign
exchange forward contracts offset all or part of the transaction
gains and losses that we recognize in earnings on these assets
and liabilities.
As of December 27, 2008, the total notional value of
foreign exchange contracts to purchase euros with
U.S. dollars was 175.2 million
($245.3 million at the balance sheet close rate on
December 27, 2008 of $1.40/1.00); the total notional
value of foreign exchange contracts to sell euros for
U.S. dollars was 123.0 million
50
($172.2 million at the balance sheet close rate on
December 27, 2008 of $1.40/1.00); and the total
notional value of foreign exchange contracts to purchase
Malaysian ringgit with U.S. dollars was MYR
148.0 million ($42.9 million at the balance sheet
close rate on December 27, 2008 of $0.29/MYR1.00). As of
December 27, 2008, the unrealized loss of these forward
contracts was $0.8 million. These foreign exchange forward
contracts have maturities of 24 months or less. These
currency forward contracts hedge third party balance sheet
exposure.
If the U.S. dollar would have weakened by 10%, the adverse
impact on our income before income taxes related to our foreign
exchange contracts to purchase and sell euro and Malaysian
ringgit would have been $7.3 million and $4.3 million,
respectively.
Cash Flow Exposure: We have forecasted future
cash flows, including revenues and expenses, denominated in
currencies other than the relevant entitys functional
currency. Our primary cash flow exposures include future
customer collections and vendor payments. Changes in the
relevant entitys functional currency value will cause
fluctuations in the cash flows we expect to receive when these
cash flows are realized or settled. We may enter into foreign
exchange forward contracts or other derivatives to hedge the
value of a portion of these cash flows. We account for these
foreign exchange contracts as cash flow hedges. We initially
report the effective portion of the derivatives gain or
loss as a component of accumulated other comprehensive income
(loss) and subsequently reclassify it into earnings when the
hedged transaction is settled.
Most of our German plants operating expenses are
denominated in euros, creating natural hedges against the
currency risk in our net sales. In addition, we purchased
forward contracts to hedge the exchange risk on forecasted cash
flows denominated in euro. As of December 27, 2008, the
total notional value of these forward contracts was
625.1 million ($875.1 million at the balance
sheet close rate on December 27, 2008 of $1.40/1.00).
Earnings Translation Exposure: Fluctuations in
foreign currency exchange rates create volatility in our
reported results of operations because we are required to
consolidate financial statements of our foreign currency
denominated subsidiaries. We may decide to purchase forward
exchange contracts or other instruments to offset this impact
from currency fluctuations. These contracts would be
marked-to-market on a monthly basis and any unrealized gain or
loss would be recorded in interest and other income, net. We do
not hedge translation exposure at this time but may do so in the
future.
In the past, currency exchange rate fluctuations have had an
impact on our business and results of operations. For example,
currency exchange rate fluctuations negatively impacted our cash
flows by $20.2 million during 2008 and positively impacted
our cash flows by $7.1 million during 2007. Although we
cannot predict the impact of future currency exchange rate
fluctuations on our business or results of operations, we
believe that we have increased risk associated with currency
exchange rate fluctuations in the future.
Interest
Rate Risk
We are exposed to interest rate risk because many of our
customers depend on debt and equity financing to purchase and
install a solar power system. Although the useful life of a
solar electricity generation system is approximately
25 years, end-users of our solar modules must pay the
entire cost of the system at the time of installation. As a
result, many of our customers rely on debt financing to fund
their up-front capital expenditure. An increase in interest
rates could make it difficult for our end-users to secure the
financing necessary to purchase and install a system. This could
lower demand for our solar modules and system development
services and reduce our net sales. In addition, we believe that
a significant percentage of our end-users install solar power
systems as an investment, funding the initial capital
expenditure through a combination of equity and debt. An
increase in interest rates could lower an investors return
on investment in a system or make alternative investments more
attractive relative to solar power systems, which, in each case,
could cause these end-users to seek alternative investments that
promise higher returns.
During 2006, we entered into a credit facility with a consortium
of banks, which bears interest at Euribor plus 1.6%. As of
December 27, 2008, we hedged our exposure to changes in
Euribor using interest rate swaps with a combined notional value
of 39.1 million ($54.7 million at the balance
sheet close rate on December 27, 2008 of $1.40/1.00).
51
During May of 2008, we entered into a credit facility with IKB,
Natixis, Natixis Labuan Branch and Ausfuhrkredit-Gesellschaft
mbH which is denominated in euro. The loans under fixed-rate
credit facility will bear interest on the outstanding unpaid
principal balance at an annual rate of 4.54%. The loans under
the floating-rate credit facility will bear interest on the
outstanding unpaid principal balance at Euribor plus a margin of
0.55%.
In addition, we invest some of our cash in debt securities,
which exposes us to interest rate risk. The primary objective of
our investment activities is to preserve principal and provide
liquidity on demand, while at the same time maximizing the
income we receive from our investments without significantly
increasing risk. Some of the securities in which we invest may
be subject to market risk. This means that a change in
prevailing interest rates may cause the market value of the
investment to fluctuate. For example, if we hold a security that
was issued with an interest rate fixed at the then-prevailing
rate and the prevailing interest rate later rises, the market
value of our investment will probably decline. To minimize this
risk, we maintain our portfolio of cash equivalents and
marketable securities in a variety of securities, including
money market funds, government and non-government debt
securities and certificates of deposit. As of December 27,
2008, our fixed-income investments earned a pretax yield of
approximately 1.6%, with a weighted average maturity of
6.1 months. If interest rates were to instantaneously
increase (decrease) by 100 basis points, the market value
of our total investment portfolio could decrease (increase) by
approximately $0.9 million. The direct risk to us
associated with fluctuating interest rates is limited to our
investment portfolio and we do not believe that a 10% change in
interest rates will have a significant impact on our financial
position, results of operations or cash flows. As of
December 27, 2008, all of our investments were in money
market accounts, federal and foreign agency debt and corporate
debt securities.
Commodity
and Component Risk
We are exposed to price risks for the raw materials, components
and energy costs used in the manufacture and transportation of
our solar modules. Also, some of our raw materials and
components are sourced from a limited number of suppliers or a
sole supplier. We endeavor to qualify multiple suppliers, a
process which could take up to 12 months if successful, but
some suppliers are unique and it may not be feasible to qualify
second source suppliers. In some cases, we also enter into long
term supply contracts for raw materials and components, but
these arrangements are normally of shorter duration than the
term of our Long Term Supply Contracts with our customers. As a
result, we remain exposed to price changes in the raw materials
and components used in our modules. In addition, a failure by a
key supplier could disrupt our supply chain which could result
in higher prices for our raw materials and components and even a
disruption in our manufacturing process. Since our selling price
under our Long Term Supply Contracts does not adjust in the
event of price changes in our underlying raw materials or
components and since our Long Term Supply Contracts require
minimum deliveries of our products during their term, we are
unable to pass along changes in the cost of the raw materials
and components for our products and may be in default of our
delivery obligations if we experience a manufacturing disruption.
Credit
Risk
We have certain financial and derivative instruments that
potentially subject us to credit risk. These consist primarily
of cash, cash equivalents, investments, trade accounts
receivable, interest rate swap agreements and forward foreign
exchange contracts. We are exposed to credit losses in the event
of nonperformance by the counter parties to our financial and
derivative instruments. We place cash, cash equivalents,
investments, interest rate swap agreements and enter into
derivative contracts with high-quality financial institutions,
and limit the amount of credit risk from any one counterparty.
We continuously evaluate the credit standing of our counterparty
financial institutions.
In addition, we have certain restricted investments that are
exposed to credit risk. These consist primarily of restricted
investments, which are held by a subsidiary of a financial
services company to fund our estimated future product collection
and recycling costs. As of December 27, 2008 our restricted
investments with this financial services company were
$25.8 million. In October 2008 we entered into credit
default swaps (CDS) against the parent company of this financial
services company to protect our investment from a significant
pre-defined credit event to our counter party. Under a CDS, a
third party assumes for a fee, a portion of the credit risk
related to the investment. The CDS we entered into provides
protection for losses in the event of a pre-defined credit event
of the parent company of the financial services company up to
$25.0 million. These CDS expire on March 20, 2009 and
June 20, 2009, respectively.
52
|
|
Item 8:
|
Financial
Statements and Supplementary Data
|
Consolidated
Financial Statements
The consolidated financial statements of First Solar required by
this item are included in the section entitled
Consolidated Financial Statements of this Annual
Report on
Form 10-K.
See Item 15(a)(1) for a list of our consolidated financial
statements.
Selected
Quarterly Financial Data (Unaudited)
The following selected quarterly financial date should be read
in conjunction with our consolidated financial statements, the
related notes and Item 7: Managements
Discussion and Analysis of Financial Condition and Results of
Operations. This information has been derived from our
unaudited consolidated financial statements that, in our
opinion, reflect all recurring adjustments necessary to fairly
present this information when read in conjunction with our
consolidated financial statements and the related notes
appearing in the section entitled Consolidated Financial
Statements. The results of operations for any quarter are
not necessarily indicative of the results to be expected for any
future period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dec 27,
|
|
|
Sep 27,
|
|
|
Jun 28,
|
|
|
Mar 29,
|
|
|
Dec 29,
|
|
|
Sep 29,
|
|
|
Jun 30,
|
|
|
Mar 31,
|
|
|
|
2008
|
|
|
2008
|
|
|
2008
|
|
|
2008
|
|
|
2007
|
|
|
2007
|
|
|
2007
|
|
|
2007
|
|
|
|
(In thousands, except per share amounts)
|
|
|
Net sales
|
|
$
|
433,651
|
|
|
$
|
348,694
|
|
|
$
|
267,041
|
|
|
$
|
196,915
|
|
|
$
|
200,797
|
|
|
$
|
159,007
|
|
|
$
|
77,223
|
|
|
$
|
66,949
|
|
Cost of sales
|
|
|
199,725
|
|
|
|
153,251
|
|
|
|
122,341
|
|
|
|
92,591
|
|
|
|
89,847
|
|
|
|
76,967
|
|
|
|
48,852
|
|
|
|
36,907
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
233,926
|
|
|
|
195,443
|
|
|
|
144,700
|
|
|
|
104,324
|
|
|
|
110,950
|
|
|
|
82,040
|
|
|
|
28,371
|
|
|
|
30,042
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
11,080
|
|
|
|
9,952
|
|
|
|
7,725
|
|
|
|
4,760
|
|
|
|
4,432
|
|
|
|
3,854
|
|
|
|
3,763
|
|
|
|
3,058
|
|
Selling, general and administrative
|
|
|
52,747
|
|
|
|
48,995
|
|
|
|
43,626
|
|
|
|
28,671
|
|
|
|
24,191
|
|
|
|
27,082
|
|
|
|
17,285
|
|
|
|
13,690
|
|
Production
start-up
|
|
|
8,771
|
|
|
|
6,344
|
|
|
|
4,622
|
|
|
|
12,761
|
|
|
|
4,065
|
|
|
|
2,805
|
|
|
|
1,523
|
|
|
|
8,474
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
72,598
|
|
|
|
65,291
|
|
|
|
55,973
|
|
|
|
46,192
|
|
|
|
32,688
|
|
|
|
33,741
|
|
|
|
22,571
|
|
|
|
25,222
|
|
Operating income
|
|
|
161,328
|
|
|
|
130,152
|
|
|
|
88,727
|
|
|
|
58,132
|
|
|
|
78,262
|
|
|
|
48,299
|
|
|
|
5,800
|
|
|
|
4,820
|
|
Foreign currency gain (loss)
|
|
|
6,190
|
|
|
|
(1,889
|
)
|
|
|
647
|
|
|
|
774
|
|
|
|
1,165
|
|
|
|
965
|
|
|
|
21
|
|
|
|
(270
|
)
|
Interest and other income , net
|
|
|
4,094
|
|
|
|
4,836
|
|
|
|
4,482
|
|
|
|
6,303
|
|
|
|
6,713
|
|
|
|
4,385
|
|
|
|
2,043
|
|
|
|
3,759
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
171,612
|
|
|
|
133,099
|
|
|
|
93,856
|
|
|
|
65,209
|
|
|
|
86,140
|
|
|
|
53,649
|
|
|
|
7,864
|
|
|
|
8,309
|
|
Income tax expense (benefit)
|
|
|
38,841
|
|
|
|
33,830
|
|
|
|
24,185
|
|
|
|
18,590
|
|
|
|
23,266
|
|
|
|
7,615
|
|
|
|
(36,554
|
)
|
|
|
3,281
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
132,771
|
|
|
$
|
99,269
|
|
|
$
|
69,671
|
|
|
$
|
46,619
|
|
|
$
|
62,874
|
|
|
$
|
46,034
|
|
|
$
|
44,418
|
|
|
$
|
5,028
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.63
|
|
|
$
|
1.23
|
|
|
$
|
0.87
|
|
|
$
|
0.59
|
|
|
$
|
0.80
|
|
|
$
|
0.61
|
|
|
$
|
0.61
|
|
|
$
|
0.07
|
|
Diluted
|
|
$
|
1.61
|
|
|
$
|
1.20
|
|
|
$
|
0.85
|
|
|
$
|
0.57
|
|
|
$
|
0.77
|
|
|
$
|
0.58
|
|
|
$
|
0.58
|
|
|
$
|
0.07
|
|
Weighted-average number of shares used in per share calculations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
81,345
|
|
|
|
80,430
|
|
|
|
79,877
|
|
|
|
79,059
|
|
|
|
78,192
|
|
|
|
75,666
|
|
|
|
72,596
|
|
|
|
72,347
|
|
Diluted
|
|
|
82,450
|
|
|
|
82,436
|
|
|
|
82,004
|
|
|
|
81,607
|
|
|
|
81,318
|
|
|
|
79,088
|
|
|
|
76,089
|
|
|
|
75,392
|
|
53
Item 9: Changes
in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
|
|
Item 9A:
|
Controls
and Procedures
|
|
|
(a)
|
Evaluation
of Disclosure Controls and Procedures
|
We maintain disclosure controls and procedures, as
such term is defined in
Rule 13a-15(e)
and
15d-15(e)
under the Exchange Act, that are designed to ensure that
information required to be disclosed by us in reports that we
file or submit under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in SEC
rules and forms, and that such information is accumulated and
communicated to our management, including our Chief Executive
Officer and Chief Financial Officer, as appropriate to allow
timely decisions regarding required disclosure. In designing and
evaluating our disclosure controls and procedures, management
recognized that disclosure controls and procedures, no matter
how well conceived and operated, can provide only reasonable,
not absolute, assurance that the objectives of the disclosure
controls and procedures are met. Additionally, in designing
disclosure controls and procedures, our management was required
to apply its judgment in evaluating the cost-benefit
relationship of possible disclosure controls and procedures. The
design of any disclosure control and procedure also is based in
part upon certain assumptions about the likelihood of future
events, and there can be no assurance that any design will
succeed in achieving its stated goals under all potential future
conditions.
Based on their evaluation as of the end of the period covered by
this Annual Report on
Form 10-K,
our Chief Executive Officer and Chief Financial Officer have
concluded that our disclosure controls and procedures were
effective at the reasonable assurance level.
|
|
(b)
|
Managements
Report on Internal Control over Financial Reporting
|
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting,
as such term is defined in Exchange Act
Rules 13a-15(f)
and
15d-15(f).
Under the supervision and with the participation of our
management, including our Chief Executive Officer and Chief
Financial Officer, we conducted an evaluation of the
effectiveness of our internal control over financial reporting
as of December 27, 2008 based on the criteria established
in Internal Control Integrated Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). Our internal control over financial
reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in
accordance with generally accepted accounting principles in the
United States of America.
Based on the results of our evaluation, our management concluded
that our internal control over financial reporting was effective
as of December 27, 2008.
The effectiveness of our internal control over financial
reporting as of December 27, 2008 has been audited by
PricewaterhouseCoopers LLP, an independent registered public
accounting firm, as stated in their report which appears herein.
|
|
(c)
|
Changes
in Internal Control over Financial Reporting
|
There was no change in our internal control over financial
reporting that occurred during the fourth quarter ended
December 27, 2008 covered by this Annual Report on
Form 10-K
that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
|
|
(d)
|
Inherent
Limitations on Effectiveness of Controls
|
Our management, including our Chief Executive Officer and Chief
Financial Officer, do not expect that our disclosure controls or
our internal control over financial reporting will prevent all
errors and all fraud. A control system, no matter how well
conceived and operated, can provide only reasonable, not
absolute, assurance that the objectives of the control system
are met. Further, the design of a control system must reflect
the fact that there are
54
resource constraints, and the benefits of controls must be
considered relative to their costs. Because of the inherent
limitations in all control systems, no evaluation of controls
can provide absolute assurance that all control issues and
instances of fraud, if any, within our Company have been
detected. These inherent limitations include the realities that
judgments in decision-making can be faulty, and that breakdowns
can occur because of a simple error or mistake. Additionally,
controls can be circumvented by the individual acts of some
persons, by collusion of two or more people or by management
override of the controls. The design of any system of controls
also is based in part upon certain assumptions about the
likelihood of future events, and there can be no assurance that
any design will succeed in achieving its stated goals under all
potential future conditions; over time, controls may become
inadequate because of changes in conditions, or the degree of
compliance with policies or procedures may deteriorate. Because
of the inherent limitations in a cost-effective control system,
misstatements due to error or fraud may occur and not be
detected.
|
|
Item 9B:
|
Other
Information
|
None.
PART III
|
|
Item 10:
|
Directors
and Executive Officers of the Registrant
|
Information concerning our board of directors and audit
committee appears in our 2009 Proxy Statement, under the section
entitled Directors. The information in that portion
of the Proxy Statement is incorporated in this Annual Report on
Form 10-K
by reference.
For information with respect to our executive officers, see
Part I, Item 1 of this Annual Report on
Form 10-K
under the heading entitled Executive Officers of the
Registrant.
Information concerning Section 16(a) beneficial ownership
reporting compliance appears in our 2009 Proxy Statement under
the section entitled Section 16(a) Beneficial
Ownership Reporting Compliance. The information in that
portion of the Proxy Statement is incorporated in this Annual
Report on
Form 10-K
by reference.
We have adopted a Statement of Corporate Code of Business
Conduct and Ethics that applies to all directors, officers and
employees of First Solar. Information concerning this code
appears in our 2009 Proxy Statement under the section entitled
Proposal No. 1 Election of
Directors Corporate Governance. The
information in that portion of the Proxy Statement is
incorporated in this Annual Report on
Form 10-K
by reference.
|
|
Item 11:
|
Executive
Compensation
|
Information concerning executive compensation and related
information appears in our 2009 Proxy Statement under the
section entitled Executive Compensation and Related
Information. The information in that portion of the Proxy
Statement is incorporated in this Annual Report on
Form 10-K
by reference.
|
|
Item 12:
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
|
Information concerning the security ownership of certain
beneficial owners and management and related stockholder
matters, including information regarding our equity compensation
plans, appears in our 2009 Proxy Statement under the section
entitled Security Ownership of Certain Beneficial Owners
and Management and Related Stockholder Matters. The
information in that portion of the Proxy Statement is
incorporated in this Annual Report on
Form 10-K
by reference.
|
|
Item 13:
|
Certain
Relationships and Related Transactions, and Director
Independence
|
Information concerning certain relationships and related party
transactions appears in our 2009 Proxy Statement under the
section entitled Certain Relationships and Related Party
Transactions. The information in that portion of the Proxy
Statement is incorporated in this Annual Report on
Form 10-K
by reference.
55
|
|
Item 14:
|
Principal
Accountant Fees and Services
|
Information concerning principal accountant fees and services
and the audit committees pre-approval policies and
procedures appears in our 2009 Proxy Statement under the section
entitled Principal Accountant Fees and Services. The
information in that portion of the Proxy Statement is
incorporated in this Annual Report on
Form 10-K
by reference.
PART IV
|
|
Item 15:
|
Exhibits
and Financial Statement Schedules
|
(a) The following documents are filed as part of this
Annual Report on
Form 10-K:
(1) Consolidated Financial Statements
|
|
Financial Statements
|
|
|
|
|
|
|
(2) Financial Statement Schedule:
|
|
|
SCHEDULE II:
VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended December 30, 2006,
December 29, 2007 and December 27, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
|
|
|
|
|
|
Balance
|
|
|
|
Beginning
|
|
|
|
|
|
|
|
|
at End of
|
|
Description
|
|
of Year
|
|
|
Additions
|
|
|
Deductions
|
|
|
Year
|
|
|
|
(In thousands)
|
|
|
Allowance for doubtful accounts receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 30, 2006
|
|
$
|
4
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
4
|
|
Year ended December 29, 2007
|
|
$
|
4
|
|
|
$
|
5
|
|
|
$
|
(4
|
)
|
|
$
|
5
|
|
Year ended December 27, 2008
|
|
$
|
5
|
|
|
$
|
711
|
|
|
$
|
(716
|
)
|
|
$
|
|
|
Reserve for excess and obsolete inventory
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 30, 2006
|
|
$
|
|
|
|
$
|
48
|
|
|
$
|
(37
|
)
|
|
$
|
11
|
|
Year ended December 29, 2007
|
|
$
|
11
|
|
|
$
|
45
|
|
|
$
|
(11
|
)
|
|
$
|
45
|
|
Year ended December 27, 2008
|
|
$
|
45
|
|
|
$
|
2,548
|
|
|
$
|
(1,617
|
)
|
|
$
|
976
|
|
Valuation allowance against our deferred tax assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 30, 2006
|
|
$
|
1,865
|
|
|
$
|
53,025
|
|
|
$
|
|
|
|
$
|
54,890
|
|
Year ended December 29, 2007
|
|
$
|
54,890
|
|
|
$
|
596
|
|
|
$
|
(54,890
|
)
|
|
$
|
596
|
|
Year ended December 27, 2008
|
|
$
|
596
|
|
|
$
|
1,097
|
|
|
$
|
(596
|
)
|
|
$
|
1,097
|
|
(3) Exhibits: See Item 15(b) below.
(b) Exhibits: The exhibits listed on the accompanying Index
to Exhibits on this
Form 10-K
are filed, or incorporated into this
Form 10-K
by reference.
(c) Financial Statement Schedule: See Item 15(a) above.
56
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended, the registrant has
duly caused this Annual Report to be signed on its behalf by the
undersigned, thereunto duly authorized on February 24, 2009.
FIRST SOLAR, INC.
Jens Meyerhoff
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the Registrant and in the capacities and on the
dates indicated.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
Principal Executive Officer and Director:
|
|
|
|
|
|
|
|
|
|
/s/ MICHAEL
J. AHEARN
Michael
J. Ahearn
|
|
Chief Executive Officer and Director
|
|
February 24, 2009
|
|
|
|
|
|
Principal Financial Officer and Principal Accounting Officer:
|
|
|
|
|
|
|
|
|
|
/s/ JENS
MEYERHOFF
Jens
Meyerhoff
|
|
Chief Financial Officer
|
|
February 24, 2009
|
|
|
|
|
|
Additional Directors:
|
|
|
|
|
|
|
|
|
|
*
JAMES F. NOLAN
James
F. Nolan
|
|
Director
|
|
February 24, 2009
|
|
|
|
|
|
*
J. THOMAS PRESBY
J.
Thomas Presby
|
|
Director
|
|
February 24, 2009
|
|
|
|
|
|
/s/ BRUCE
SOHN
Bruce
Sohn
|
|
Director
|
|
February 24, 2009
|
|
|
|
|
|
*
PAUL H. STEBBINS
Paul
H. Stebbins
|
|
Director
|
|
February 24, 2009
|
|
|
|
|
|
*
MICHAEL SWEENEY
Michael
Sweeney
|
|
Director
|
|
February 24, 2009
|
|
|
|
|
|
*
CRAIG KENNEDY
Craig
Kennedy
|
|
Director
|
|
February 24, 2009
|
57
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
*
JOSE VILLAREAL
Jose
Villareal
|
|
Director
|
|
February 24, 2009
|
|
|
|
|
|
|
|
* By:
|
|
/s/ JENS
MEYERHOFF
Jens
Meyerhoff, as Attorney-In-Fact
for each of the persons indicated
|
|
|
|
|
58
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To Board of Directors and Stockholders of First Solar, Inc.
In our opinion, the accompanying consolidated balance sheets and
the related consolidated statements of operations, of
members/stockholders equity and comprehensive income
(loss), and of cash flows present fairly, in all material
respects, the financial position of First Solar, Inc. and its
subsidiaries at December 27, 2008 and December 29,
2007, and the results of their operations and their cash flows
for each of the three years in the period ended
December 27, 2008 in conformity with accounting principles
generally accepted in the United States of America. In addition,
in our opinion, the financial statement schedule appearing under
Item 15(a)(2) presents fairly, in all material respects,
the information set forth therein when read in conjunction with
the related consolidated financial statements. Also in our
opinion, the Company maintained, in all material respects,
effective internal control over financial reporting as of
December 27, 2008, based on criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). The Companys management is responsible
for these financial statements and financial statement schedule,
for maintaining effective internal control over financial
reporting and for its assessment of the effectiveness of
internal control over financial reporting, included in
Managements Report on Internal Control over Financial
Reporting appearing under Item 9A. Our responsibility is to
express opinions on these financial statements, on the financial
statement schedule, and on the Companys internal control
over financial reporting based on our integrated audits. We
conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial
statements are free of material misstatement and whether
effective internal control over financial reporting was
maintained in all material respects. Our audits of the financial
statements included examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the
overall financial statement presentation. Our audit of internal
control over financial reporting included obtaining an
understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, and testing
and evaluating the design and operating effectiveness of
internal control based on the assessed risk. Our audits also
included performing such other procedures as we considered
necessary in the circumstances. We believe that our audits
provide a reasonable basis for our opinions.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (i) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of
management and directors of the company; and (iii) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
PricewaterhouseCoopers LLP
Phoenix, Arizona
February 24, 2009
59
|
|
|
|
|
|
|
|
|
|
|
December 27,
|
|
|
December 29,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands, except share data)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
716,218
|
|
|
$
|
404,264
|
|
Marketable securities current
|
|
|
76,042
|
|
|
|
232,686
|
|
Accounts receivable, net
|
|
|
61,703
|
|
|
|
18,165
|
|
Inventories
|
|
|
121,554
|
|
|
|
40,204
|
|
Deferred project costs
|
|
|
710
|
|
|
|
2,643
|
|
Economic development funding receivable
|
|
|
668
|
|
|
|
35,877
|
|
Deferred tax asset, net current
|
|
|
9,922
|
|
|
|
3,890
|
|
Prepaid expenses and other current assets
|
|
|
90,584
|
|
|
|
64,780
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
1,077,401
|
|
|
|
802,509
|
|
Property, plant and equipment, net
|
|
|
842,622
|
|
|
|
430,104
|
|
Deferred tax asset, net noncurrent
|
|
|
61,325
|
|
|
|
51,811
|
|
Marketable securities noncurrent
|
|
|
29,559
|
|
|
|
32,713
|
|
Restricted cash and investments
|
|
|
30,059
|
|
|
|
14,695
|
|
Investment in related party
|
|
|
25,000
|
|
|
|
|
|
Goodwill
|
|
|
33,829
|
|
|
|
33,449
|
|
Other assets noncurrent
|
|
|
14,707
|
|
|
|
6,031
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,114,502
|
|
|
$
|
1,371,312
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
46,251
|
|
|
$
|
26,441
|
|
Income tax payable
|
|
|
99,938
|
|
|
|
24,487
|
|
Accrued expenses
|
|
|
140,899
|
|
|
|
76,256
|
|
Short-term debt
|
|
|
|
|
|
|
24,473
|
|
Current portion of long-term debt
|
|
|
34,951
|
|
|
|
14,836
|
|
Other current liabilities
|
|
|
59,738
|
|
|
|
14,803
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
381,777
|
|
|
|
181,296
|
|
Accrued collection and recycling liabilities
|
|
|
35,238
|
|
|
|
13,079
|
|
Long-term debt
|
|
|
163,519
|
|
|
|
68,856
|
|
Other liabilities noncurrent
|
|
|
20,926
|
|
|
|
10,814
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
601,460
|
|
|
|
274,045
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Common stock, $0.001 par value per share;
500,000,000 shares authorized; 81,596,810 and
78,575,211 shares issued and outstanding at
December 27, 2008 and December 29, 2007, respectively
|
|
|
82
|
|
|
|
79
|
|
Additional paid-in capital
|
|
|
1,176,156
|
|
|
|
1,079,775
|
|
Accumulated earnings
|
|
|
361,225
|
|
|
|
12,895
|
|
Accumulated other comprehensive income (loss)
|
|
|
(24,421
|
)
|
|
|
4,518
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
1,513,042
|
|
|
|
1,097,267
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
2,114,502
|
|
|
$
|
1,371,312
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to these consolidated financial
statements.
60
FIRST
SOLAR, INC. AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
December 27,
|
|
|
December 29,
|
|
|
December 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands, except per share amounts)
|
|
|
Net sales
|
|
$
|
1,246,301
|
|
|
$
|
503,976
|
|
|
$
|
134,974
|
|
Cost of sales
|
|
|
567,908
|
|
|
|
252,573
|
|
|
|
80,730
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
678,393
|
|
|
|
251,403
|
|
|
|
54,244
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
33,517
|
|
|
|
15,107
|
|
|
|
6,361
|
|
Selling, general and administrative
|
|
|
174,039
|
|
|
|
82,248
|
|
|
|
33,348
|
|
Production
start-up
|
|
|
32,498
|
|
|
|
16,867
|
|
|
|
11,725
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
240,054
|
|
|
|
114,222
|
|
|
|
51,434
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
438,339
|
|
|
|
137,181
|
|
|
|
2,810
|
|
Foreign currency gain
|
|
|
5,722
|
|
|
|
1,881
|
|
|
|
5,544
|
|
Interest income
|
|
|
21,158
|
|
|
|
20,413
|
|
|
|
2,648
|
|
Interest expense, net
|
|
|
(509
|
)
|
|
|
(2,294
|
)
|
|
|
(1,023
|
)
|
Other income (expense), net
|
|
|
(934
|
)
|
|
|
(1,219
|
)
|
|
|
(799
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
463,776
|
|
|
|
155,962
|
|
|
|
9,180
|
|
Income tax expense (benefit)
|
|
|
115,446
|
|
|
|
(2,392
|
)
|
|
|
5,206
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
348,330
|
|
|
$
|
158,354
|
|
|
$
|
3,974
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
4.34
|
|
|
$
|
2.12
|
|
|
$
|
0.07
|
|
Diluted
|
|
$
|
4.24
|
|
|
$
|
2.03
|
|
|
$
|
0.07
|
|
Weighted-average number of shares used in per share calculations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
80,178
|
|
|
|
74,701
|
|
|
|
56,310
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
82,124
|
|
|
|
77,971
|
|
|
|
58,255
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to these consolidated financial
statements.
61
FIRST
SOLAR, INC. AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Accumulated
|
|
|
Other
|
|
|
|
|
|
|
Membership Equity
|
|
|
Common Stock
|
|
|
Paid-In
|
|
|
Earnings
|
|
|
Comprehensive
|
|
|
Total
|
|
|
|
Units
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
(Deficit)
|
|
|
Income (Loss)
|
|
|
Equity
|
|
|
|
(In thousands)
|
|
|
Balance, December 31, 2005
|
|
|
45,214
|
|
|
$
|
162,307
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(149,377
|
)
|
|
$
|
199
|
|
|
$
|
13,129
|
|
Components of comprehensive income, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,974
|
|
|
|
|
|
|
|
3,974
|
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
803
|
|
|
|
803
|
|
Change in unrealized gain on derivative instruments designated
and qualifying as cash flow hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,797
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash contributions from owner
|
|
|
6,613
|
|
|
|
30,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,000
|
|
Proceeds from sales of shares through share-based compensation
plans, net of excess tax benefits
|
|
|
|
|
|
|
|
|
|
|
49
|
|
|
|
|
|
|
|
143
|
|
|
|
|
|
|
|
|
|
|
|
143
|
|
Conversion of membership units into common shares
|
|
|
(51,827
|
)
|
|
|
(192,307
|
)
|
|
|
51,827
|
|
|
|
11
|
|
|
|
192,296
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued upon conversion of convertible notes
|
|
|
|
|
|
|
|
|
|
|
4,261
|
|
|
|
1
|
|
|
|
73,999
|
|
|
|
|
|
|
|
|
|
|
|
74,000
|
|
Common stock issued in initial public offering, net of offering
costs
|
|
|
|
|
|
|
|
|
|
|
16,193
|
|
|
|
16
|
|
|
|
302,634
|
|
|
|
|
|
|
|
|
|
|
|
302,650
|
|
Share-based compensation
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
11,682
|
|
|
|
|
|
|
|
|
|
|
|
11,682
|
|
Reclassifications to employee stock options on redeemable shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(24,961
|
)
|
|
|
|
|
|
|
|
|
|
|
(24,961
|
)
|
Effect of stock split
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44
|
|
|
|
(44
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 30, 2006
|
|
|
|
|
|
|
|
|
|
|
72,332
|
|
|
|
72
|
|
|
|
555,749
|
|
|
|
(145,403
|
)
|
|
|
1,022
|
|
|
|
411,440
|
|
Components of comprehensive income, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
158,354
|
|
|
|
|
|
|
|
158,354
|
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,116
|
|
|
|
5,116
|
|
Unrealized loss on derivative instruments, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,648
|
)
|
|
|
(1,648
|
)
|
Unrealized gain on marketable securities, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28
|
|
|
|
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
161,850
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative effect of the adoption of FIN 48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(56
|
)
|
|
|
|
|
|
|
(56
|
)
|
Proceeds from sales of shares through share-based compensation
plans, net of excess tax benefits
|
|
|
|
|
|
|
|
|
|
|
2,125
|
|
|
|
2
|
|
|
|
40,367
|
|
|
|
|
|
|
|
|
|
|
|
40,369
|
|
Common stock issued for acquisition
|
|
|
|
|
|
|
|
|
|
|
118
|
|
|
|
1
|
|
|
|
28,066
|
|
|
|
|
|
|
|
|
|
|
|
28,067
|
|
Common stock issued in secondary offering, net of offering costs
|
|
|
|
|
|
|
|
|
|
|
4,000
|
|
|
|
4
|
|
|
|
365,965
|
|
|
|
|
|
|
|
|
|
|
|
365,969
|
|
Share-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39,402
|
|
|
|
|
|
|
|
|
|
|
|
39,402
|
|
Reclassifications from employee stock options on redeemable
shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,226
|
|
|
|
|
|
|
|
|
|
|
|
50,226
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 29, 2007
|
|
|
|
|
|
|
|
|
|
|
78,575
|
|
|
|
79
|
|
|
|
1,079,775
|
|
|
|
12,895
|
|
|
|
4,518
|
|
|
|
1,097,267
|
|
Components of comprehensive income, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
348,330
|
|
|
|
|
|
|
|
348,330
|
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13,943
|
)
|
|
|
(13,943
|
)
|
Unrealized loss on derivative instruments, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15,230
|
)
|
|
|
(15,230
|
)
|
Unrealized gain on marketable securities, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
234
|
|
|
|
234
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
319,391
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sales of shares through share-based compensation
plans, net of excess tax benefits
|
|
|
|
|
|
|
|
|
|
|
3,022
|
|
|
|
3
|
|
|
|
37,654
|
|
|
|
|
|
|
|
|
|
|
|
37,657
|
|
Share-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
58,727
|
|
|
|
|
|
|
|
|
|
|
|
58,727
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 27, 2008
|
|
|
|
|
|
|
|
|
|
|
81,597
|
|
|
|
82
|
|
|
|
1,176,156
|
|
|
|
361,225
|
|
|
|
(24,421
|
)
|
|
|
1,513,042
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to these consolidated financial
statements.
62
FIRST
SOLAR, INC. AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
December 27,
|
|
|
December 29,
|
|
|
December 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash received from customers
|
|
|
|
|
|
$
|
1,203,822
|
|
|
$
|
515,994
|
|
|
$
|
110,196
|
|
Cash paid to suppliers and associates
|
|
|
|
|
|
|
(723,123
|
)
|
|
|
(276,525
|
)
|
|
|
(111,945
|
)
|
Interest received
|
|
|
|
|
|
|
19,138
|
|
|
|
19,965
|
|
|
|
2,640
|
|
Interest paid, net of amounts capitalized
|
|
|
|
|
|
|
(4,629
|
)
|
|
|
(2,294
|
)
|
|
|
(712
|
)
|
Income taxes paid, net of refunds
|
|
|
|
|
|
|
(1,975
|
)
|
|
|
(19,002
|
)
|
|
|
|
|
Excess tax benefit from share-based compensation arrangements
|
|
|
|
|
|
|
(28,661
|
)
|
|
|
(30,196
|
)
|
|
|
(45
|
)
|
Other
|
|
|
|
|
|
|
(1,505
|
)
|
|
|
(1,991
|
)
|
|
|
(710
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
|
|
|
|
463,067
|
|
|
|
205,951
|
|
|
|
(576
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property, plant and equipment
|
|
|
|
|
|
|
(459,271
|
)
|
|
|
(242,371
|
)
|
|
|
(153,150
|
)
|
Purchase of marketable securities
|
|
|
|
|
|
|
(334,818
|
)
|
|
|
(1,081,154
|
)
|
|
|
|
|
Proceeds from maturities of marketable securities
|
|
|
|
|
|
|
107,450
|
|
|
|
787,783
|
|
|
|
|
|
Proceeds from sales of marketable securities
|
|
|
|
|
|
|
418,762
|
|
|
|
|
|
|
|
|
|
Increase in restricted investments
|
|
|
|
|
|
|
(15,564
|
)
|
|
|
(6,008
|
)
|
|
|
(6,804
|
)
|
Investment in related party
|
|
|
|
|
|
|
(25,000
|
)
|
|
|
|
|
|
|
|
|
Acquisitions, net of cash acquired
|
|
|
|
|
|
|
|
|
|
|
(5,500
|
)
|
|
|
|
|
Other investments in long-term assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(40
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
|
|
|
|
(308,441
|
)
|
|
|
(547,250
|
)
|
|
|
(159,994
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock
|
|
|
|
|
|
|
|
|
|
|
365,969
|
|
|
|
302,650
|
|
Proceeds from notes payable to a related party
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36,000
|
|
Repayment of notes payable to a related party
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(64,700
|
)
|
Repayment of long-term debt
|
|
|
|
|
|
|
(41,691
|
)
|
|
|
(34,757
|
)
|
|
|
(135
|
)
|
Other equity contributions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,000
|
|
Proceeds from stock options exercised
|
|
|
|
|
|
|
16,036
|
|
|
|
10,173
|
|
|
|
100
|
|
Proceeds from issuance of debt, net of issuance costs
|
|
|
|
|
|
|
138,887
|
|
|
|
49,368
|
|
|
|
130,833
|
|
Excess tax benefit from share-based compensation arrangements
|
|
|
|
|
|
|
28,661
|
|
|
|
30,196
|
|
|
|
45
|
|
Proceeds from economic development funding
|
|
|
|
|
|
|
35,661
|
|
|
|
9,475
|
|
|
|
16,766
|
|
Other financing activities
|
|
|
|
|
|
|
(5
|
)
|
|
|
(3
|
)
|
|
|
(9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
|
|
|
|
177,549
|
|
|
|
430,421
|
|
|
|
451,550
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
|
|
|
|
(20,221
|
)
|
|
|
7,050
|
|
|
|
391
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
|
|
|
|
311,954
|
|
|
|
96,172
|
|
|
|
291,371
|
|
Cash and cash equivalents, beginning of year
|
|
|
|
|
|
|
404,264
|
|
|
|
308,092
|
|
|
|
16,721
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year
|
|
|
|
|
|
$
|
716,218
|
|
|
$
|
404,264
|
|
|
$
|
308,092
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of noncash investing and financing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment acquisitions funded by liabilities
|
|
|
|
|
|
$
|
19,449
|
|
|
$
|
38,320
|
|
|
$
|
2,304
|
|
Non-cash conversion of debt and accrued interest to equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
74,000
|
|
Issuance of common stock for purchase acquisition
|
|
|
|
|
|
|
|
|
|
|
28,066
|
|
|
|
|
|
See accompanying notes to these consolidated financial
statements.
63
FIRST
SOLAR, INC. AND SUBSIDIARIES
|
|
Note 1.
|
First
Solar and Its Business
|
We design, manufacture and sell solar electric power modules,
which we produce at our plants in Perrysburg, Ohio,
Frankfurt/Oder, Germany and Kulim, Malaysia. First Solar
Holdings, LLC was formed as a Delaware limited liability company
in May 2003 to act as the holding company for First Solar,
LLC which was formed in 1999 and renamed First Solar
US Manufacturing, LLC in the second quarter of 2006, and other
subsidiaries formed during 2003 and later. On February 22,
2006, First Solar Holdings, LLC was incorporated in Delaware as
First Solar Holdings, Inc. and, also during the first quarter of
2006, was renamed First Solar, Inc. Upon our change in corporate
organization on February 22, 2006, our membership units
became common stock shares and our unit options became share
options on a one-for-one basis. For clarity of presentation, we
refer to our ownership interests as shares or
stock in the remainder of these notes to our
consolidated financial statements, although prior to
February 22, 2006 they were membership units. First Solar,
Inc. has wholly owned subsidiaries in Delaware, Germany,
Singapore, Mexico and Malaysia.
On October 30, 2006, our board of directors approved a 4.85
to 1 stock split of our common shares, which was effective
November 1, 2006; the par value of our common shares
remained $0.001 per share. All share and per share amounts
presented in these consolidated financial statements have been
retroactively adjusted to reflect the stock split.
On November 30, 2007, we acquired 100% of the outstanding
membership interests of Turner Renewable Energy, LLC for
$6.3 million in cash and 118,346 shares of our common
stock. See Note 5 to our consolidated financial statements
for more information about this acquisition.
|
|
Note 2.
|
Summary
of Significant Accounting Policies
|
Principles of consolidation. These
consolidated financial statements are prepared in accordance
with accounting principles generally accepted in the United
States of America (U.S. GAAP) and include the accounts of
First Solar, Inc. and all of its subsidiaries. We eliminated all
intercompany transactions and balances during consolidation.
Fiscal periods. We report the results of our
operations using a 52 or 53 week fiscal year, which ends on
the Saturday on or before December 31. Fiscal 2008 ended on
December 27, 2008; fiscal 2007 ended on December 29,
2007; and fiscal 2006 ended on December 30, 2006; all of
these fiscal years included 52 weeks. Our fiscal quarters
end on the Saturday closest to the end of the applicable
calendar quarter.
Use of estimates. The preparation of
consolidated financial statements in conformity with
U.S. GAAP requires us to make estimates and assumptions
that affect the amounts reported in our consolidated financial
statements and the accompanying notes. Significant estimates in
these consolidated financial statements include allowances for
doubtful accounts receivable, inventory write-downs, estimates
of future cash flows from and the economic useful lives of
long-lived assets, asset impairments, certain accrued
liabilities, income taxes and tax valuation allowances, accrued
warranty expenses, accrued collection and recycling expense,
share-based compensation costs and fair value estimates. Actual
results could differ materially from these estimates under
different assumptions and conditions.
Business Combinations. We account for business
acquisitions using the purchase method of accounting and record
definite lived intangible assets separate from goodwill.
Intangible assets are recorded at their fair value based on
estimates as at the date of acquisition. Goodwill is recorded as
the residual amount of the purchase price less the fair value
assigned to the individual assets acquired and liabilities
assumed as of the date of acquisition.
Goodwill. Goodwill represents the excess of
the purchase price of acquired companies over the estimated fair
value assigned to the individual assets acquired and liabilities
assumed. We do not amortize goodwill, but instead test goodwill
for impairment at least annually in the fourth quarter, and, if
necessary, we would record any impairment in accordance with
SFAS 142, Goodwill and Other Intangible Assets. We
will perform an impairment
64
FIRST
SOLAR, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
test between scheduled annual tests if facts and circumstances
indicate that it is more likely than not that the fair value of
a reporting unit that has goodwill is less than its carrying
value. In the process of our annual impairment review, we
primarily use the income approach methodology of valuation,
which includes the discounted cash flow method, and the market
approach methodology of valuation, which considers values of
comparable businesses, to determine the fair value of our
goodwill. Significant management judgment is required in the
forecasts of future operating results and the discount rates
that we used in the discounted cash flow method of valuation and
in the selection of comparable businesses that we used in the
market approach.
Investment in related party. We may acquire
equity investments of another company in an amount that is not
sufficient to provide us with significant influence over the
investees operations. If the fair values of these equity
investments are not readily determinable, they are not within
the scope of the accounting guidance at SFAS 115,
Accounting for Certain Investments in Debt and Equity
Securities, and we account for these equity investments
using the cost method of accounting. Under the cost method of
accounting, we report these investments at their acquisition
cost on our consolidated balance sheet and would only adjust
these carrying values if we sell the investments or acquire
more, if we receive dividends on the investments, or if the
investments become other-than-temporarily impaired.
Fair Value of Financial Instruments. The
carrying amounts of our financial instruments, including cash
and cash equivalents, accounts receivable, economic development
funding receivable, restricted investments other than the
deposit with the financial services company, accounts payable,
income tax payable accrued expenses and short-term debt
approximate their fair values due to their short maturities. See
Note 11 to our consolidated financial statements for more
information about our fair value measurements.
Foreign currency translation. The functional
currencies of our German and Mexican subsidiaries are their
local currency. Accordingly, we apply the period end exchange
rate to translate their assets and liabilities and the weighted
average exchange rate for the period to translate their
revenues, expenses, gains and losses into U.S. dollars. We
include the translation adjustments as a separate component of
accumulated other comprehensive income within stockholders
equity. The functional currency of our subsidiaries in Malaysia
and Singapore is the U.S. dollar, so we do not need to
translate their financial statements.
Cash and cash equivalents. We consider all
highly liquid investments with original or remaining maturities
of 90 days or less when purchased to be cash equivalents.
Marketable securities
current. Marketable securities with maturities
greater than 90 days, but less than one-year at purchase
are recorded as marketable securities current. We
have classified our marketable securities as
available-for-sale. Such marketable securities are
recorded at fair value and unrealized gains and losses are
recorded to accumulated other comprehensive income (loss) until
realized. Realized gains and losses on sales of all such
securities are reported in earnings, computed using the specific
identification cost method. All of our available-for-sale
marketable securities are subject to a periodic impairment
review. We consider our marketable debt securities impaired,
when its fair value is less than its carrying cost. Investments
identified as being impaired are subject to further review to
determine if the investment is other than temporarily impaired,
in which case the investment is written down to its impaired
value and a new cost basis is established.
Inventories. We report our inventories at the
lower of cost or market. We determine cost on a
first-in,
first-out basis and include both the costs of acquisition and
the costs of manufacturing in our inventory costs. These costs
include direct material, direct labor and fixed and variable
indirect manufacturing costs, including depreciation and
amortization.
We also regularly review the cost of inventory against its
estimated market value and record a lower of cost or market
write-down if any inventories have a cost in excess of estimated
market value. For example, we regularly evaluate the quantity
and value of our inventory in light of current market conditions
and market trends and record write-downs for any quantities in
excess of demand and for any product obsolescence. This
evaluation considers historic usage, expected demand,
anticipated sales price, new product development schedules, the
effect new
65
FIRST
SOLAR, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
products might have on the sale of existing products, product
obsolescence, customer concentrations, product merchantability
and other factors. Market conditions are subject to change and
actual consumption of our inventory could differ from forecast
demand. Our inventories have a long life cycle and obsolescence
has not historically been a significant factor in their
valuation.
Deferred project costs. Deferred project costs
represent uninstalled materials we have procured for projects.
We recognize these costs as deferred assets until we install the
materials. Deferred project costs were $0.7 million and
$2.6 million as of December 27, 2008 and
December 29, 2007, respectively.
Property, plant and equipment. We report our
property, plant and equipment at cost, less accumulated
depreciation. Cost includes the price paid to acquire or
construct the assets, including interest capitalized during the
construction period and any expenditures that substantially add
to the value of or substantially extend the useful life of an
existing asset. We expense repair and maintenance costs at the
time we incur them.
We compute depreciation expense using the straight-line method
over the estimated useful lives of the assets, as presented in
the table below. We amortize leasehold improvements over the
shorter of their estimated useful lives or the remaining term of
the lease.
|
|
|
|
|
|
|
|
|
Useful Lives
|
|
|
|
|
in Years
|
|
Buildings
|
|
|
|
40
|
Manufacturing machinery and equipment
|
|
|
|
5 7
|
Furniture, fixtures, computer hardware and computer software
|
|
|
|
3 5
|
Leasehold improvements
|
|
|
|
up to 15
|
Long-lived assets. We account for any
impairment of our long-lived, tangible assets and definite-lived
intangible assets in accordance with SFAS 144,
Accounting for the Impairment or Disposal of Long-Lived
Assets. As a result, we assess long-lived assets classified
as held and used, including our property, plant and
equipment, for impairment whenever events or changes in business
circumstances arise that may indicate that the carrying amount
of the long-lived asset may not be recoverable. These events
would include significant current period operating or cash flow
losses associated with the use of a long-lived asset or group of
assets combined with a history of such losses, significant
changes in the manner of use of assets and significant negative
industry or economic trends. We evaluated our long-lived assets
for impairment during 2008 and did not note any events or
changes in circumstances indicating that the carrying values of
material long-lived asset are not recoverable.
Marketable securities
noncurrent. Marketable securities with maturities
greater than one year are recorded as marketable
securities noncurrent. We have classified our
marketable securities as available-for-sale. Such
marketable securities are recorded at fair value and unrealized
gains and losses are recorded to accumulated other comprehensive
income (loss) until realized. Realized gains and losses on sales
of all such securities are reported in earnings, computed using
the specific identification cost method. All of our
available-for-sale marketable securities are subject to a
periodic impairment review. We consider our marketable debt
securities impaired, when a significant decline in the
issuers credit quality is likely to have a significant
adverse effect on the fair value of the investment. Investments
identified as being impaired are subject to further review to
determine if the investment is other than temporarily impaired,
in which case the investment is written down to its impaired
value and a new cost basis is established.
Economic development funding. We are eligible
for economic development funding from various German
governmental entities for certain of our capital expenditures.
We record a receivable for these funds when our legal right to
them exists and all criteria for receiving the funds have been
met. We deduct the amount of the funds from the acquisition
costs of the related assets, which will reduce the depreciation
expense that we otherwise would have to recognize in future
periods. See Note 6 to our consolidated financial
statements for a description of this economic development
funding.
66
FIRST
SOLAR, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
Product warranties. We provide a limited
warranty to the original purchasers of our solar modules for
five years against defects in materials and workmanship under
normal use and service conditions following the date of sale,
and we provide a warranty that the modules will produce at least
90% of their power output rating during the first 10 years
following the date of sale and at least 80% of their power
output rating during the following 15 years. In resolving
claims under both the defects and power output warranties, we
have the option of either repairing or replacing the covered
module or, under the power output warranty, providing additional
modules to remedy the power shortfall. Our warranties are
automatically transferred from the original purchaser of our
modules to a subsequent purchaser. When we recognize revenue for
module sales, we accrue a liability for the estimated future
costs of meeting our warranty obligations for those modules. We
make and revise this estimate based on the number of solar
modules under warranty at customer locations, our historical
experience with warranty claims, our monitoring of field
installation sites, our in-house testing of our solar modules
and our estimated per-module replacement cost.
Environmental remediation liabilities. We
record environmental remediation liabilities when environmental
assessments
and/or
remediation efforts are probable and the costs can be reasonably
estimated. We estimate these costs based on current laws and
regulations, existing technology and the most likely method of
remediation. We do not discount these costs and we exclude the
effects of possible inflation and other economic factors. If our
cost estimates result in a range of equally probable amounts, we
accrue the lowest amount in the range.
End of life collection and recycling. We
recognize an expense for the estimated fair value of our future
obligations for collecting and recycling the solar modules that
we have sold at the time they reach the end of their useful
lives. See Note 13 to our consolidated financial statements
for further information about this obligation and how we account
for it.
Derivative Instruments. We recognize
derivative instruments on our balance sheet at their fair value.
On the date that we enter into a derivative contract, we
designate the derivative instrument as a hedge of the fair value
of a recognized asset or liability or an unrecognized firm
commitment (a fair-value hedge); a hedge of a
forecasted transaction or the variability of cash flows that are
to be received or paid in connection with a recognized asset or
liability (a cash-flow hedge); a foreign currency
fair-value or cash-flow hedge; a hedge of a net investment in a
foreign operation or a derivative instrument that will not be
accounted for using any of the specialized
hedge-accounting methods specified in SFAS 133,
Accounting for Derivative Instruments and Hedging
Activities. As of December 27, 2008 and
December 29, 2007, all of our derivative instruments were
designated either as cash-flow hedges or as derivative
instruments not accounted for using hedge-accounting methods.
We record changes in the fair value of a derivative instrument
that is highly effective as and that is designated and qualifies
as a cash flow hedge, to the extent that the hedge is effective,
in other comprehensive income until our earnings are affected by
the variability of cash flows of the hedged transaction (that
is, until we record periodic settlements of a variable-rate
asset or liability in earnings). We record any hedge
ineffectiveness, which represents the amount by which the
changes in the fair value of the derivative instrument exceed
the variability in the cash flows of the forecasted transaction,
in current-period earnings. We also record changes in the fair
value of a derivative instrument that is highly effective as and
that is designated and qualifies as a foreign-currency cash-flow
hedge in other comprehensive income. We report changes in the
fair values of derivative instruments not accounted for using
hedge-accounting in current-period earnings.
We formally document all relationships between hedging
instruments and hedged items, as well as our risk-management
objective and strategy for undertaking various hedge
transactions. This process includes linking all derivative
instruments that are designated as fair value, cash flow or
foreign-currency hedges to specific assets and liabilities on
our balance sheet or specific firm commitments or forecasted
transactions. We also formally assesses (both at the
hedges inception and on an ongoing basis) whether the
derivative instruments that we use in hedging transactions have
been highly effective in offsetting changes in the fair value or
cash flows of hedged items and whether those derivatives are
expected to remain highly effective in future periods. When we
determine that a
67
FIRST
SOLAR, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
derivative instrument is not (or has ceased to be) highly
effective as a hedge, we discontinue hedge accounting
prospectively, as discussed below.
We discontinue hedge accounting prospectively when one of the
following events occurs: we determine that a derivative
instrument is no longer effective in offsetting changes in the
fair value or cash flows of a hedged item (including hedged
items such as firm commitments or forecasted transactions); the
derivative instrument expires or is sold, terminated or
exercised; we conclude that it is no longer probable that the
forecasted transaction will occur; a hedged firm commitment no
longer meets the definition of a firm commitment or we determine
that designating the derivative instrument as a hedging
instrument is no longer appropriate or desired.
If we discontinue hedge accounting because it is no longer
probable that the forecasted transaction will occur in the
originally expected period, we will retain the gain or loss to
date on the derivative instrument in accumulated other
comprehensive income and reclassify it into earnings when the
forecasted transaction affects earnings. However, if it is
probable that a forecasted transaction will not occur by the end
of the originally specified time period or within an additional
two-month period of time thereafter, we will recognize the gains
and losses that were accumulated in other comprehensive income
immediately in earnings. In all situations in which we
discontinue hedge accounting and the derivative instrument
remains outstanding, we will carry the derivative instrument at
its fair value on our balance sheet and recognize subsequent
changes in its fair value in our current period earnings.
Revenue recognition. We sell our products
directly to solar power system integrators and operators and
recognize revenue when persuasive evidence of an arrangement
exists, delivery of the product has occurred and title and risk
of loss have passed to the customer, the sales price is fixed or
determinable and collectability of the resulting receivable is
reasonably assured. This policy is in accordance with the
requirements of SEC Staff Accounting Bulletin No. (SAB)
101, Revenue Recognition in Financial Statements, as
amended by SAB 104, Revision of Topic 13 (Revenue
Recognition). Under this policy, we record a trade
receivable for the selling price of our product and reduce
inventory for the cost of goods sold when delivery occurs in
accordance with the terms of the sales contracts. We do not
offer extended payment terms or rights of return for our
products.
With our acquisition of Turner Renewable Energy, LLC on
November 30, 2007, a portion of our revenues has been
derived from long-term contracts that we account for under the
provisions of the American Institute of Certified Public
Accountants Statement of Position No. (SOP)
81-1,
Accounting for Performance of Construction-Type and Certain
Production-Type Contracts. Accordingly, we recognize
revenues and estimated profits on performance contracts, which
are cost-type or fixed-fee contracts to design and develop solar
power systems, under the percentage of completion method of
accounting using the cost-to-cost methodology. We use this
method because we consider costs incurred to be the best
available measure of progress on these contracts. We make
estimates of the costs to complete a contract and recognize
revenue based on the estimated progress to completion. We
periodically revise our profit estimates based on changes in
facts, and we will immediately recognize any losses that we may
identify on contracts.
Incurred costs include all direct material, labor, subcontractor
cost, and those indirect costs related to contract performance,
such as indirect labor, supplies and tools. We recognize job
material costs as incurred costs when the job materials have
been installed. When contracts specify that title to job
materials transfers to the customer before installation has been
performed, we defer revenue and recognize it upon installation,
using the percentage-of-completion method of accounting. We
consider job materials to be installed materials when they are
permanently attached or fitted to the solar power systems as
required by the engineering design.
Our liability for billings in excess of costs and
estimated earnings, which is part of the balance sheet
caption Other current liabilities, was
$2.2 million and $2.1 million as of December 27,
2008 and December 29, 2007, respectively. This liability
represents our billings in excess of revenues recognized on our
contracts, which results from differences between contractual
billing schedules and the timing of revenue recognition under
our revenue recognition accounting policies.
68
FIRST
SOLAR, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
We also have a limited number of revenue arrangements that
include multiple deliverables. These are contracts under which
we provide design and consulting services for and supply parts
and equipment for solar power systems. We follow the guidance in
Emerging Issues Task Force Issue No. (EITF)
00-21,
Revenue Arrangements with Multiple Deliverables, when
accounting for these arrangements in order to determine whether
they have more than one unit of accounting. According to
EITF 00-21,
deliverable elements in a revenue arrangement with multiple
deliverables are separate units of accounting if the elements
have standalone value to the customer, if objective and reliable
evidence of the fair value of undelivered elements is available,
and if the arrangement does not include a general right of
return related to delivered items. We determined that our design
and supply arrangements generally consist of two elements that
qualify as separate units of accounting, the provision of design
and consulting services and the supply of solar power system
parts and equipment. We apply the same revenue recognition
principles (from SAB 104) as we use for our
arrangements for the stand-alone sales of products to the
recognition of revenue on the parts and equipment unit of
accounting of our multiple deliverable arrangements. We
recognize revenue from the design and consulting services unit
of accounting using the percentage of completion method in
accordance with
SOP 81-1.
In accordance with EITF
No. 06-3,
How Taxes Collected from Customers and Remitted to
Governmental Authorities Should Be Presented in the Income
Statement (That Is, Gross versus Net Presentation), we
present taxes assessed by governmental authorities that are both
imposed on and concurrent with specific revenue-producing
transactions between us and our customers (such as sales, use
and value-added taxes) on a net basis and excluded from revenues.
Shipping and handling costs. We classify
shipping and handling costs as a component of cost of sales. We
record customer payments of shipping and handling costs as a
component of net sales.
Share-based compensation. We account for
share-based compensation arrangements in accordance with
SFAS 123 (revised 2004) (SFAS 123(R)), Share-Based
Payments, which we adopted during the first quarter of the
year ended December 31, 2005 using the modified
retrospective method of transition. Our significant
accounting policies related to share-based compensation
arrangements are described at Note 17 to our consolidated
financial statements.
Research and development expense. We incur
research and development costs during the process of researching
and developing new products and enhancing our existing products,
technologies and manufacturing processes. Our research and
development costs consist primarily of compensation and related
costs for personnel, materials, supplies, equipment depreciation
and consultant and laboratory testing costs. We expense these
costs as incurred until the resulting product has been completed
and tested and is ready for commercial manufacturing.
We are party to several research grant contracts with the United
States federal government under which we receive reimbursements
for specified costs incurred for certain of our research
projects. We record amounts recoverable from these grants as an
offset to research and development expense when the related
research and development costs are incurred, which is consistent
with the timing of our contractual right to receive the cost
reimbursements. We have included grant proceeds of
$0.9 million, $1.8 million and $0.9 million as
offsets to research and development expense during the years
ended December 27, 2008, December 29, 2007 and
December 30, 2006, respectively.
Production
start-up. Production
start-up
expense consists primarily of salaries and personnel-related
costs and the cost of operating a production line before it has
been qualified for full production, including the cost of raw
materials for solar modules run through the production line
during the qualification phase. It also includes all expenses
related to the selection of a new site and the related legal and
regulatory costs, to the extent we cannot capitalize the
expenditure.
Income taxes. We account for income taxes in
accordance with SFAS 109, Accounting for Income Taxes,
which prescribes the use of the asset and liability method
whereby we calculate the deferred tax asset or liability account
balances at the balance sheet date using current tax laws and
rates in effect. We establish valuation
69
FIRST
SOLAR, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
allowances, when necessary, to reduce deferred tax assets to the
extent it is more likely than not that such deferred tax
assets will not be realized. We do not provide deferred taxes
related to the U.S. GAAP basis in excess of the
U.S. tax basis in the investment in our foreign
subsidiaries to the extent such amounts relate to permanently
reinvested earnings and profits of such foreign subsidiaries.
In accordance with SFAS 109, income tax expense includes
(i) deferred tax expense, which generally represents the
net change in the deferred tax asset or liability balance during
the year plus any change in valuation allowances and
(ii) current tax expense, which represents the amount of
tax currently payable to or receivable from a taxing authority.
We only recognize tax benefits related to uncertain tax
positions to the extent they satisfy the recognition and
measurement criteria under FASB Interpretation (FIN)
No. 48, Accounting for Uncertainty in Income Taxes.
Only those uncertain tax positions that are more likely than not
of being sustained upon examination satisfy the recognition
criteria. For those positions that satisfy the recognition
criteria, the amount of tax benefit that we recognize is the
largest amount of tax benefit that is more than fifty percent
likely of being sustained on ultimate settlement of such
uncertain tax position. See Note 19 to our consolidated
financial statements for more information about the impact of
income taxes on our financial position and results of operations.
Per share data. Basic income per share is
based on the weighted effect of all common shares outstanding
and is calculated by dividing net income by the weighted average
number of common shares outstanding during the period. Diluted
income per share is based on the weighted effect of all common
shares and dilutive potential common shares outstanding and is
calculated by dividing net income by the weighted average number
of common shares and dilutive potential common shares
outstanding during the period.
Advertising Costs. Advertising costs are
expensed as incurred. Advertising costs during 2008, 2007 and
2006 were $1.0 million, $0.6 million and
$0.1 million respectively.
Comprehensive income. Our comprehensive income
consists of our net income, changes in unrealized gains or
losses on derivative instruments that we hold and that qualify
as and that we have designated as cash flow hedges and the
effects on our consolidated financial statements of translating
the financial statements of our subsidiaries that operate in
foreign currencies. In addition, other comprehensive income
includes unrealized gains or losses on available-for-sale
securities, the impact of which has been excluded from net
income. We present our comprehensive income (loss) in combined
consolidated statements of members/stockholders
equity and comprehensive income. Our accumulated other
comprehensive income is presented as a component of equity in
our consolidated balance sheets and consists of the cumulative
amount of net financial statement translation adjustments,
unrealized gains or losses on cash flow hedges and unrealized
gains or losses on available for sale marketable securities that
we have incurred since the inception of our business.
Recent accounting pronouncements. In December
2007, the Financial Accounting Standards Board (FASB) issued
SFAS 141R, Business Combinations, which replaces
SFAS 141. SFAS 141R requires most assets acquired and
liabilities assumed in a business combination, contingent
consideration and certain acquired contingencies to be measured
at their fair value as of the date of the acquisition.
SFAS 141R also requires that acquisition-related costs and
restructuring costs be recognized separately from the business
combination. SFAS 141R will be effective for us for our
fiscal year 2009 and therefore will apply to any business
combinations that we might enter into after December 27,
2008.
In December 2007, the FASB issued SFAS 160,
Noncontrolling Interests in Consolidated Financial
Statements. SFAS 160 amends previous accounting
literature to establish new accounting and reporting standards
for the noncontrolling interest in a subsidiary and for the
deconsolidation of a subsidiary. SFAS 160 will become
effective for us as of the beginning of fiscal 2009. We do not
expect that the adoption of SFAS 160 will have a material
impact on our financial position, results of operations or cash
flows.
In February 2008, the FASB issued FASB Staff Position
No. FAS 157-2
(FSP 157-2),
Effective Date of FASB Statement No. 157.
FSP 157-2
deferred the effective date of SFAS 157 for nonfinancial
assets and nonfinancial liabilities, except for items that are
recognized or disclosed at fair value in the financial
statements on a recurring
70
FIRST
SOLAR, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
basis, until fiscal years beginning after November 15,
2008. As a result of
FSP 157-2,
we will adopt SFAS 157 for our nonfinancial assets and
nonfinancial liabilities beginning with the first interim period
of our fiscal year 2009. We do not expect that the adoption of
SFAS 157 for our nonfinancial assets and nonfinancial
liabilities will have a material impact on our financial
position, results of operations or cash flows.
In March 2008, the FASB issued SFAS 161, Disclosures
About Derivative Instruments and Hedging Activities
an amendment of FASB Statement No. 133. SFAS 161
expands quarterly disclosure requirements in SFAS 133 about
an entitys derivative instruments and hedging activities.
SFAS 161 is effective for fiscal years beginning after
November 15, 2008. We do not expect SFAS 161 will have
a material impact on our financial position, results of
operations or cash flows.
In May 2008, the FASB issued SFAS 162, The Hierarchy of
Generally Accepted Accounting Principles. SFAS 162
identifies the sources of accounting principles and a
prioritized framework for selecting the principles to be used
for preparation of the financial statements of nongovernmental
entities that are presented in conformity with U.S. GAAP.
SFAS 162 replaces the U.S. GAAP hierarchy specified in
the American Institute of Certified Public Accountants (AICPA)
Statement on Auditing Standards No. 69, The Meaning of
Present Fairly in Conformity With Generally Accepted Accounting
Principles. SFAS 162 was effective 60 days
following the SECs approval on September 16, 2008 of
the Public Company Oversight Board amendments to remove the
U.S. GAAP hierarchy from the auditing standards. As a
result, we adopted SFAS 162 in the fourth quarter of our
fiscal year 2008. The adoption of SFAS 162 did not have a
material impact on our financial position, results of operations
or cash flows.
In September 2008, the FASB issued FSP
FAS 133-1
and
FIN 45-4,
Disclosures About Credit Derivatives and Certain Guarantees.
FSP
FAS 133-1
and
FIN 45-4
is intended to improve disclosures about credit derivatives by
requiring more information about the potential adverse effects
of changes in credit risk on the financial position, financial
performance and cash flows of the sellers of credit derivatives.
FSP
FAS 133-1
and
FIN 45-4
is effective for fiscal years beginning after November 15,
2008. We do not expect that the adoption of FSP
FAS 133-1
and
FIN 45-4
will have a material impact on our financial position, results
of operations or cash flows.
In September 2008, the FASB ratified EITF
No. 08-5,
Issuers Accounting for Liabilities Measured at Fair
Value With a Third-Party Credit Enhancement.
EITF 08-5
provides guidance for measuring liabilities issued with an
attached third-party credit enhancement (such as a guarantee).
It clarifies that the issuer of a liability with a third-party
credit enhancement should not include the effect of the credit
enhancement in the fair value measurement of the liability.
EITF 08-5
is effective for reporting periods beginning after
December 15, 2008, with early adoption allowed. We adopted
EITF 08-5
in the fourth quarter of fiscal 2008. Our adoption of
EITF 08-5
did not have an impact on our financial position, results of
operations or cash flows.
In October 2008, the FASB issued FSP
FAS 157-3,
Determining Fair Value of a Financial Asset When the Market
for That Asset Is Not Active. FSP
FAS 157-3
provides guidance and illustrates key considerations for
determining fair value in markets that are not active. FSP
FAS 157-3
is effective upon issuance and must be applied to all periods
for which financial statements have not been issued. Our
adoption of FSP
FAS 157-3
did not have an impact on our financial position, results of
operations or cash flows.
In December 2008, the FASB issued FSP
SFAS 140-4
and FIN 46(R)-8, Disclosures by Public Entities
(Enterprises) about Transfers of Financial Assets and Interests
in Variable Interest Entities.
FSP 140-4
and FIN 46(R)-8 amends SFAS 140, Accounting for
Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities and FIN 46(R) Consolidation of
Variable Interest Entities (revised December 2003)
an interpretation of ARB No. 51 to require public
entities to provide additional disclosures about transfers of
financial assets and their involvement with variable interest
entities.
FSP 140-4
and FIN 46(R)-8 is effective for the first interim or
annual reporting period ending after December 15, 2008. Our
adoption of
FSP 140-4
and FIN 46(R) did not have a material impact on our
financial position, results of operations or cash flows.
71
FIRST
SOLAR, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
|
|
Note 3.
|
Initial
Public Offering and Follow-On Public Offering
|
The Securities and Exchange Commission declared our first
registration statements effective on November 16, 2006,
which we filed on
Form S-1
(Registration
No. 333-135574)
and pursuant to Rule 462(b) (Registration
No. 333-138779)
under the Securities Act of 1933 in connection with the initial
public offering of our common stock. Under these registration
statements, we registered 22,942,500 shares of our common
stock, including 2,942,500 subject to an underwriters
over-allotment option. We registered 16,192,500 of these shares
on our own behalf and 6,750,000 of these shares on behalf of
certain of our stockholders, including one of our executive
officers. In November 2006, we completed our initial public
offering, in which we sold all of these shares that we
registered on our behalf and on behalf of the selling
stockholders, for an aggregate public offering price of
$458.9 million, which included $58.9 million from the
underwriters exercise of their over-allotment option. Of
the $458.9 million of total gross proceeds, we received
gross proceeds of $323.9 million, against which we charged
$16.6 million of underwriting discounts and commissions and
$4.6 million of other costs of the offering, resulting in a
net increase in our paid-in capital of $302.7 million. The
remaining $135.0 million of gross proceeds went to selling
stockholders; they applied $8.4 million to underwriting
discounts and commissions and received $126.6 million of
the offering proceeds. During the year ended December 29,
2007 we received reimbursement for $0.2 million of offering
costs of our initial public offering. We recorded this
reimbursement to our additional paid-in capital.
The Securities and Exchange Commission declared our follow-on
registration statement effective on August 9, 2007, which
we filed on
Form S-1
(Registration
No. 333-144714)
under the Securities Act of 1933 in connection with the
follow-on public offering of our common stock. Under this
registration statement, we and certain of our stockholders
offered 6,500,000 shares of our common stock, with an
aggregate public offering price of $617.5 million. We
registered 4,000,000 of these shares on our behalf and 2,500,000
of these shares on behalf of certain of our stockholders,
including certain of our executive officers, two of which are
also directors of ours. In addition, a selling stockholder had
granted the underwriters the right to purchase up to an
additional 975,000 shares of common stock to cover
over-allotments.
On August 13, 2007, we completed our follow-on offering in
which we sold 4,000,000 shares of our common stock and the
selling stockholders sold 2,500,000 shares of our common
stock. The sale of shares of our common stock resulted in
aggregate gross proceeds of $380.0 million,
$14.0 million of which we applied to underwriting discounts
and commissions. As a result, we received $366.0 million of
the offering proceeds.
|
|
Note 4.
|
Related
Party Transactions
|
In October 2008, we made an equity investment acquiring
preferred stock in a company based in the United States
that supplies solar power plants to commercial and residential
customers at a total cost of $25.0 million. This investment
represents an ownership of approximately 12% of the voting
interest in this company and is our only equity interest in that
entity. Since our ownership interest in this company is less
than 20% and we do not have significant influence over it, we
account for this investment using the cost method of accounting.
We performed a valuation assessment and have determined that the
carrying value of this investment equals the fair value at
December 27, 2008. See Note 11 to our consolidated
financial statements for information about the fair value
measurement of our investment in a related party.
In the fourth quarter of 2008, we have also entered into a
long-term supply contract with this related party that in the
aggregate allows for approximately $0.2 billion in sales
from 2009 to 2013. During 2008 we did not have any material
revenue transactions with this related party.
72
FIRST
SOLAR, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
|
|
Note 5.
|
Business
Combination
|
Turner
Renewable Energy, LLC Acquisition
On November 30, 2007, we acquired 100% of the outstanding
membership interests of Turner Renewable Energy, LLC. The
acquisition provided us with solar power project engineering and
project management skills that enables us to begin deploying
cost effective solar electricity solutions for utility companies
seeking to meet renewable energy portfolio standard requirements
in markets in the United States. In connection with this
acquisition we issued an aggregate of 118,346 shares of our
common stock to the members of Turner Renewable Energy, LLC in
satisfaction of a portion of the purchase price. The fair value
of our common stock issued was determined based on the closing
price of our common stock on November 30, 2007. The results
of Turner Renewable Energy, LLC have been included in our
consolidated results of operations from December 1, 2007.
The total consideration related to the acquisition is as follows
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value at
|
|
|
|
Shares
|
|
|
November 30, 2007
|
|
|
Purchase consideration:
|
|
|
|
|
|
|
|
|
Cash
|
|
|
|
|
|
$
|
6,261
|
|
Common stock
|
|
|
118,346
|
|
|
|
28,066
|
|
Exit costs
|
|
|
|
|
|
|
177
|
|
Direct transaction costs
|
|
|
|
|
|
|
506
|
|
|
|
|
|
|
|
|
|
|
Total purchase consideration
|
|
|
|
|
|
$
|
35,010
|
|
|
|
|
|
|
|
|
|
|
Purchase
Price Allocation
Under the purchase method of accounting, we allocated the total
purchase price shown in the table above to Turner Renewable
Energy, LLCs net tangible and intangible assets based on
their estimated fair values as of November 30, 2007. The
fair values assigned are based on our estimates and assumptions.
The allocation of the purchase price and the estimated useful
lives associated with certain assets on November 30, 2007
was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
|
|
|
Amount
|
|
|
Useful Life
|
|
Net liabilities assumed
|
|
$
|
(176
|
)
|
|
N.A.
|
Customer contracts in progress
|
|
|
170
|
|
|
6 months
|
Customer contracts not started
|
|
|
1,620
|
|
|
12 months
|
Deferred tax liability
|
|
|
(53
|
)
|
|
N.A.
|
Goodwill
|
|
|
33,449
|
|
|
N.A.
|
|
|
|
|
|
|
|
Total purchase consideration
|
|
$
|
35,010
|
|
|
|
|
|
|
|
|
|
|
73