First Solar, Inc. — Q2 2009 Form 10-Q
Reporting period: Quarter and six months ended June 27, 2009. First Solar designs and manufactures thin-film solar modules and also develops and delivers solar power systems. Amounts below are in U.S. dollars unless noted.
Financial performance
| Metric | Q2 2009 | Q2 2008 | Six months 2009 | Six months 2008 |
|---|---|---|---|---|
| Net sales | $525.9 million | $267.0 million | $944.1 million | $464.0 million |
| Gross profit / margin | $298.1 million / 56.7% | $144.7 million / 54.2% | $533.4 million / 56.5% | $249.0 million / 53.7% |
| Operating income / margin | $204.0 million / 38.8% | $88.7 million / 33.2% | $372.1 million / 39.5% | $146.9 million / 31.7% |
| Net income | $180.6 million | $69.7 million | $345.2 million | $116.3 million |
| Diluted EPS | $2.11 | $0.85 | $4.10 | $1.42 |
- Sales rose 97% in Q2 and 103% for the half, principally as module megawatt volume increased 144% and 143%, respectively, with Malaysian production ramping up.
- Average selling prices fell about 21% in Q2 and 18% for the half, reflecting contract price reductions, amendments, customer mix and euro weakness. Manufacturing cost per watt declined to $0.87 in Q2, down 26% year over year, and $0.89 for the half, down 23%.
- R&D and SG&A increased in dollars; production start-up expense declined. Six-month effective tax rate was 7.0%, aided by the Malaysian tax holiday and an $11.5 million tax benefit recognized in Q1.
Cash, debt and liquidity
- Six-month operating cash flow was $86.3 million, down from $122.5 million. The filing attributes the pressure chiefly to a $278.5 million increase in accounts receivable, higher inventory, and $64.6 million of net income-tax payments.
- Investing cash outflow was $421.2 million, including $146.0 million of capital spending, net purchases of marketable securities, $35.4 million in customer-related notes and increased restricted funds. Financing provided $54.2 million. Cash and equivalents declined to $429.2 million from $716.2 million at year-end.
- Cash, cash equivalents and marketable securities totaled $728.1 million at quarter-end, versus $821.8 million at December 27, 2008. Current assets were $1.244 billion and current liabilities $366.1 million.
- Debt totaled $233.6 million at June 27, including $76.6 million current. First Solar repaid the $48.6 million German term loan and terminated that facility on June 30, after quarter-end. Management stated available liquidity and expected operating cash flows should cover working capital and capital expenditures for at least 12 months.
Material developments, outlook and risks
- OptiSolar acquisition: Completed April 3 for consideration valued at $399.4 million, principally shares. The acquisition added a multi-gigawatt project pipeline, $103.9 million of acquired project assets and preliminary goodwill of $261.1 million. It contributed no material revenue or earnings through June 27.
- Pricing outlook: After quarter-end, the company began developing a limited rebate program for German customers. It anticipated a $40–$60 million reduction in net sales for the remainder of fiscal 2009, depending on usage and market conditions; the program could be expanded if competitive pressures persist. No broader numerical revenue or earnings guidance is stated in the provided filing text.
- Market and execution risks: Management described module oversupply, slow installations, aggressive crystalline-silicon pricing, customer financing constraints and delayed project investment. Project development may require substantial upfront spending and depends on financing, land access, permits and transmission capacity. The planned French manufacturing venture with EDF Energies Nouvelles remained subject to conditions and could be terminated.
- Currency and customer exposure: 93.8% of first-half sales were denominated in euros. Currency movements reduced average selling prices and affected margins; the company hedged forecast cash flows but did not hedge translation exposure. Receivables rose sharply after certain customer payment terms were extended from net 10 to net 45 days. A $7.0 million allowance was recorded for collectability concerns involving one customer.
- Other items: Quarter-end accrued collection and recycling liabilities were $60.9 million. Management reported compliance with Malaysian facility covenants through quarter-end; covenant ratio testing was due to begin at fiscal year-end. The filing says pending legal matters were not expected to have a material adverse effect and reports no material change in listed prior-year risk factors beyond newly described project-development risks.
Investor verification points
- Monitor receivable collections, the identified customer’s credit condition, and the effect of extended payment terms on operating cash flow.
- Check actual use and sales impact of German rebates against the stated $40–$60 million estimate, alongside module prices, volumes and inventory.
- Verify execution and financing of the OptiSolar pipeline, including project asset realizations, required upfront funding and any goodwill valuation changes.
- Track euro exposure and hedge performance, and confirm liquidity after the German loan repayment and continuing project-development investment.
- Review Malaysian tax-holiday compliance, year-end debt covenant testing, and permitting, transmission and financing progress for planned projects and the proposed French plant.