FIRST SOLAR, INC. annual report, FY2012

全文

First Solar, Inc. — FY2012 Form 10-K

Business context and reporting period. The filing covers the fiscal year ended December 31, 2012; the fourth-quarter figures below are unaudited. First Solar manufactures thin-film photovoltaic modules and develops, builds, sells, and services utility-scale solar power systems. Its two segments are Components and Systems. In May 2012, the company announced a plan to shift toward primarily sustainable markets by the end of 2016, with greater emphasis on integrated systems solutions.

Key financial metrics

  • Revenue: FY2012 net sales were $3.369 billion, up 22% from $2.766 billion in 2011. Systems revenue rose 165% to $2.183 billion; Components revenue fell 39% to $1.186 billion. Solar power system revenue was $3.043 billion, while third-party module revenue was $325 million.
  • Profit and margins: Gross profit was $853 million, down 12%; gross margin contracted to 25.3% from 35.1%. Operating loss was $38 million, versus a $69 million loss in 2011. Net loss was $96 million, or $1.11 per diluted share, compared with a $39 million loss, or $0.46 per share. The 2012 result included $469 million of restructuring charges. Components segment pre-tax loss was $688 million; Systems segment pre-tax income was $648 million.
  • Cash flow: Cash provided by operations was $762 million, versus cash used of $33 million in 2011. Investing activities used $384 million, including $379 million of capital expenditures. Financing activities used $89 million. Cash and cash equivalents increased by $296 million during the year.
  • Liquidity: Cash, cash equivalents, and marketable securities totaled $1.004 billion at year-end, compared with $788 million a year earlier. The company said available resources and expected cash flows should meet needs for at least 12 months. Accounts receivable, unbilled, was $401 million; noncurrent retainage was $270 million.
  • Debt: Long-term debt carrying value was $563 million, including $270 million drawn under the revolving credit facility. Revolver availability was $199 million; the company reported compliance with debt covenants. Debt principal due in 2015 was $329 million.
  • Other metrics: Average module manufacturing cost declined to $0.73 per watt from $0.75 in 2011. Commercial module conversion efficiency increased to 12.6% from 11.9%. The accrued module warranty liability was $192 million, and the collection and recycling liability was $213 million.
  • Q4 2012: Net sales were $1.075 billion, gross profit $294 million, operating income $172 million, and net income $154 million, or $1.77 basic and $1.74 diluted per share. The quarter followed a $449 million net loss in Q1, which included $401 million of restructuring expense.

Material changes versus prior period

  • Growth came from Systems, while module pricing and volume pressured Components: component average selling prices, including modules used in systems projects, declined 33%, and watts sold declined 8%.
  • Gross margin fell 9.8 percentage points, driven mainly by lower module selling prices and volumes and manufacturing underutilization. Higher Systems gross profit partly offset these pressures.
  • FY2012 restructuring expense increased to $469 million from $60 million in 2011. Actions included closing the Frankfurt, Germany manufacturing operations, abandoning the planned Vietnam plant and French expansion, and reducing capacity and headcount. The company expected a workforce reduction of about 2,000 associates as actions were completed.
  • Cash from operations improved substantially from 2011, while capital spending fell to $379 million from $732 million. Long-term debt declined to $563 million from $664 million; year-end cash and marketable securities increased.
  • Sales mix shifted sharply toward systems. Systems revenue was $3.043 billion versus $1.243 billion in 2011; module revenue was $325 million versus $1.524 billion.

Outlook, management commentary, risks, and unusual items

  • Outlook: The company expected annual savings of $70 million to $120 million from restructuring in 2013 and beyond, subject partly to capacity utilization and potentially offset by costs of entering new markets. It expected up to $400 million of 2013 capital expenditures, principally for equipment upgrades and efficiency improvements. No specific 2013 revenue or earnings guidance is stated in the supplied filing text.
  • Projects and sales visibility: The advanced-stage Systems pipeline was approximately 2.9 GW AC as of February 26, 2013. About $4.4 billion of revenue remained to be recognized on sold or contracted projects, with most expected through substantial completion. The company expected four large North American projects to contribute substantially to sales, operating income, and cash flow through 2014; recognition timing can be uneven.
  • Market and execution risks: Global PV manufacturing capacity exceeded demand, continuing to pressure module prices and margins. Other major risks include changes to subsidies and local-content rules, financing availability and interest rates, execution of the strategy in new markets, project permitting and construction delays, customer concentration, and reliance on limited-source suppliers and tellurium availability.
  • Warranty and recycling exposure: First Solar had expensed $271 million through 2012 for remediation of a 2008–2009 manufacturing excursion. A one-percentage-point change in the estimated warranty return rate would change the warranty liability by about $46 million. Outside the EU, the company prospectively changed its recycling program in Q4: customers would be responsible for end-of-life recycling or disposal, with First Solar offering paid services. Earlier covered sales and EU obligations remain subject to the prior commitment.
  • Other unusual items: The company recorded a $393 million Components goodwill impairment in 2011, but none in 2012. Closing the German plants triggered grant repayment costs and a $30 million expense related to economic development funding. The company also disclosed an immaterial correction of prior-period errors that reduced 2011 net loss by $7.8 million and increased 2012 net loss by the same amount.
  • Contingencies: A securities class action survived a motion to dismiss; related derivative actions were consolidated or stayed. The company said it could not estimate potential loss. An SEC investigation related to a possible Regulation FD matter was ongoing. A Department of Labor compliance review of the Agua Caliente project was also disclosed, with outcome uncertain.

Most important facts for investors to verify

  1. Whether the contracted project pipeline converts to timely customer billings, collections, and project sales, especially given $401 million of unbilled receivables and $270 million of noncurrent retainage.
  2. Whether restructuring savings are achieved without underutilization, additional impairments, or materially higher costs to establish operations in new markets.
  3. Whether module pricing, manufacturing utilization, and cost reductions can support margins amid industry oversupply and intense competition.
  4. Whether warranty and excursion remediation estimates, including the $192 million accrued warranty liability, prove adequate.
  5. Whether the company can fund project development, construction, up to $400 million of planned 2013 capital expenditures, and debt maturities while maintaining covenant compliance.
  6. Developments in the securities litigation, SEC investigation, India trade proceedings, and other project, regulatory, and environmental contingencies.