Attached files
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
_____________________
FORM
10-Q
_____________________
x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the quarterly period ended September 27, 2009
OR
o
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the transition period from ______________ to ______________
Commission
file number 001-34166
SunPower
Corporation
(Exact
Name of Registrant as Specified in Its Charter)
Delaware
|
94-3008969
|
(State
or Other Jurisdiction of Incorporation or Organization)
|
(I.R.S.
Employer Identification No.)
|
3939
North First Street, San Jose, California 95134
(Address
of Principal Executive Offices and Zip Code)
(408)
240-5500
(Registrant’s
Telephone Number, Including Area Code)
_____________________
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Sections 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 x No ¨
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes ¨ No ¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large
Accelerated Filer T
|
Accelerated
Filer o
|
Non-accelerated
filer o
|
Smaller
reporting company o
|
(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 Act). Yes o No T
The total
number of outstanding shares of the registrant’s class A common stock as of
October 28, 2009 was 54,940,045.
The
total number of outstanding shares of the registrant’s class B common stock as
of October 28, 2009 was
42,033,287.
- 1 -
SunPower
Corporation
INDEX TO FORM 10-Q
Page
|
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3
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Item
1.
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3
|
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3
|
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4
|
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5
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6
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Item
2.
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32
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Item
3.
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44
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Item
4.
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46
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47
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Item
1.
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47
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Item
1A.
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47
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Item
2.
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48
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Item
6.
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49
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50
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51
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PART I. FINANCIAL INFORMATION
Financial
Statements
|
Condensed
Consolidated Balance Sheets
(In
thousands, except share data)
(unaudited)
September
27,
2009
|
December 28,
2008(1)
|
|||||||
Assets
|
||||||||
Current
assets:
|
||||||||
Cash
and cash equivalents
|
$
|
472,126
|
$
|
202,331
|
||||
Restricted
cash and cash equivalents, current portion
|
77,088
|
13,240
|
||||||
Short-term
investments
|
796
|
17,179
|
||||||
Accounts
receivable, net
|
243,528
|
194,222
|
||||||
Costs
and estimated earnings in excess of billings
|
73,519
|
30,326
|
||||||
Inventories
|
239,211
|
251,542
|
||||||
Advances
to suppliers, current portion
|
22,718
|
43,190
|
||||||
Prepaid
expenses and other current assets
|
107,294
|
98,254
|
||||||
Total
current assets
|
1,236,280
|
850,284
|
||||||
Restricted
cash and cash equivalents, net of current portion
|
243,700
|
162,037
|
||||||
Long-term
investments
|
8,426
|
23,577
|
||||||
Property,
plant and equipment, net
|
695,409
|
629,247
|
||||||
Goodwill
|
198,329
|
196,720
|
||||||
Other
intangible assets, net
|
29,115
|
39,490
|
||||||
Advances
to suppliers, net of current portion
|
115,136
|
119,420
|
||||||
Other
long-term assets
|
89,836
|
76,751
|
||||||
Total
assets
|
$
|
2,616,231
|
$
|
2,097,526
|
||||
Liabilities
and Stockholders’ Equity
|
||||||||
Current
liabilities:
|
||||||||
Accounts
payable
|
$
|
232,547
|
$
|
263,241
|
||||
Accrued
liabilities
|
159,695
|
157,049
|
||||||
Billings
in excess of costs and estimated earnings
|
17,484
|
11,806
|
||||||
Convertible
debt, current portion
|
135,518
|
—
|
||||||
Customer
advances, current portion
|
22,406
|
19,035
|
||||||
Total
current liabilities
|
567,650
|
451,131
|
||||||
Long-term
debt
|
188,915
|
54,598
|
||||||
Convertible
debt, net of current portion
|
395,438
|
357,173
|
||||||
Customer
advances, net of current portion
|
74,736
|
91,359
|
||||||
Long-term
deferred tax liability
|
9,468
|
8,141
|
||||||
Other
long-term liabilities
|
26,398
|
25,950
|
||||||
Total
liabilities
|
1,262,605
|
988,352
|
||||||
Commitments
and contingencies (Note 10)
|
||||||||
Stockholders’
equity:
|
||||||||
Preferred
stock, $0.001 par value, 10,042,490 shares authorized; none issued and
outstanding
|
—
|
—
|
||||||
Common
stock, $0.001 par value, 150,000,000 shares of class B common stock
authorized; 42,033,287 shares of class B common stock issued and
outstanding; $0.001 par value, 217,500,000 shares of class A common stock
authorized; 55,186,633 and 44,055,644 shares of class A common stock
issued; 54,858,480 and 43,849,566 shares of class A common stock
outstanding, at September 27, 2009 and December 28, 2008,
respectively
|
97
|
86
|
||||||
Additional
paid-in capital
|
1,287,711
|
1,065,745
|
||||||
Accumulated
other comprehensive loss
|
(31,644
|
)
|
(25,611
|
)
|
||||
Retained
earnings
|
109,827
|
77,611
|
||||||
1,365,991
|
1,117,831
|
|||||||
Less:
shares of class A common stock held in treasury, at cost; 328,153 and
206,078 shares at September 27, 2009 and December 28, 2008,
respectively
|
(12,365
|
)
|
(8,657
|
)
|
||||
Total
stockholders’ equity
|
1,353,626
|
1,109,174
|
||||||
Total
liabilities and stockholders’ equity
|
$
|
2,616,231
|
$
|
2,097,526
|
(1)
|
As
adjusted to reflect the adoption of new accounting guidance for
convertible debt instruments that may be settled in cash upon conversion
(see Note 1).
|
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
Condensed
Consolidated Statements of Operations
(In
thousands, except per share data)
(unaudited)
Three
Months Ended
|
Nine
Months Ended
|
|||||||||||||||
September
27,
2009
|
September
28,
2008(1)
|
September
27,
2009
|
September
28,
2008(1)
|
|||||||||||||
Revenue:
|
||||||||||||||||
Systems
|
$
|
168,412
|
$
|
193,330
|
$
|
383,233
|
$
|
642,774
|
||||||||
Components
|
297,895
|
184,170
|
594,505
|
391,178
|
||||||||||||
Total
revenue
|
466,307
|
377,500
|
977,738
|
1,033,952
|
||||||||||||
Operating
costs and expenses:
|
||||||||||||||||
Cost
of systems revenue
|
144,859
|
158,829
|
325,003
|
511,316
|
||||||||||||
Cost
of components revenue
|
232,164
|
113,358
|
457,240
|
271,288
|
||||||||||||
Research
and development
|
8,250
|
6,049
|
23,067
|
15,504
|
||||||||||||
Sales,
general and administrative
|
46,473
|
46,075
|
130,511
|
123,141
|
||||||||||||
Total
operating costs and expenses
|
431,746
|
324,311
|
935,821
|
921,249
|
||||||||||||
Operating
income
|
34,561
|
53,189
|
41,917
|
112,703
|
||||||||||||
Other
income (expense):
|
||||||||||||||||
Interest
income
|
—
|
2,650
|
1,949
|
9,086
|
||||||||||||
Interest
expense
|
(9,854
|
)
|
(5,743
|
)
|
(25,503
|
)
|
(18,137
|
)
|
||||||||
Gain
on purchased options
|
—
|
—
|
21,193
|
—
|
||||||||||||
Other,
net
|
585
|
(5,691
|
)
|
(3,765
|
)
|
(8,546
|
)
|
|||||||||
Other
income (expense), net
|
(9,269
|
)
|
(8,784
|
)
|
(6,126
|
)
|
(17,597
|
)
|
||||||||
Income
before income taxes and equity in earnings of unconsolidated
investees
|
25,292
|
44,405
|
35,791
|
95,106
|
||||||||||||
Income
tax provision
|
15,088
|
|
21,856
|
10,580
|
31,275
|
|||||||||||
Income
before equity in earnings of unconsolidated
investees
|
10,204
|
22,549
|
25,211
|
63,831
|
||||||||||||
Equity
in earnings of unconsolidated investees
|
2,627
|
2,132
|
7,005
|
4,006
|
||||||||||||
Net
income
|
$
|
12,831
|
$
|
24,681
|
$
|
32,216
|
$
|
67,837
|
||||||||
Net
income per share of class A and class B common
stock:
|
||||||||||||||||
Basic
|
$
|
0.14
|
$
|
0.30
|
$
|
0.36
|
$
|
0.84
|
||||||||
Diluted
|
$
|
0.13
|
$
|
0.29
|
$
|
0.35
|
$
|
0.80
|
||||||||
Weighted-average
shares:
|
||||||||||||||||
Basic
|
94,668
|
80,465
|
89,764
|
79,614
|
||||||||||||
Diluted
|
96,319
|
84,064
|
91,513
|
83,477
|
(1)
|
As
adjusted to reflect the adoption of new accounting guidance for both
convertible debt instruments that may be settled in cash upon conversion
and unvested share-based payment awards that contain rights to
nonforfeitable dividends are participating securities (see Note
1).
|
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
Condensed
Consolidated Statements of Cash Flows
(In
thousands)
(unaudited)
Nine
Months Ended
|
||||||||
September
27,
2009
|
September
28,
2008(1)
|
|||||||
Cash
flows from operating activities:
|
||||||||
Net
income
|
$
|
32,216
|
$
|
67,837
|
||||
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
||||||||
Stock-based
compensation
|
34,204
|
52,026
|
||||||
Depreciation
|
60,348
|
35,741
|
||||||
Amortization
of other intangible assets
|
12,296
|
12,552
|
||||||
Impairment
of investments and long-lived assets
|
1,997
|
3,136
|
||||||
Non-cash
interest expense
|
16,186
|
12,717
|
||||||
Amortization
of debt issuance costs
|
2,454
|
1,611
|
||||||
Gain
on purchased options
|
(21,193
|
)
|
—
|
|||||
Equity
in earnings of unconsolidated investees
|
(7,005
|
)
|
(4,006
|
)
|
||||
Excess
tax benefits from stock-based award activity
|
(14,744
|
)
|
(33,899
|
)
|
||||
Deferred
income taxes and other tax liabilities
|
277
|
29,738
|
||||||
Changes
in operating assets and liabilities, net of effect of
acquisitions:
|
||||||||
Accounts
receivable
|
(43,285
|
)
|
(55,324
|
)
|
||||
Costs
and estimated earnings in excess of billings
|
(41,416
|
)
|
(17,700
|
)
|
||||
Inventories
|
20,914
|
(48,301
|
)
|
|||||
Prepaid
expenses and other assets
|
(9,440
|
)
|
(29,636
|
)
|
||||
Advances
to suppliers
|
24,877
|
19,102
|
||||||
Accounts
payable and other accrued liabilities
|
(31,345
|
)
|
76,513
|
|||||
Billings
in excess of costs and estimated earnings
|
4,877
|
(60,064
|
)
|
|||||
Customer
advances
|
(13,639
|
)
|
45,884
|
|||||
Net
cash provided by operating activities
|
28,579
|
107,927
|
||||||
Cash
flows from investing activities:
|
||||||||
Increase
in restricted cash and cash equivalents
|
(145,583
|
)
|
(42,153
|
)
|
||||
Purchases
of property, plant and equipment
|
(150,093
|
)
|
(150,302
|
)
|
||||
Proceeds
from sale of equipment to third-party
|
9,878
|
—
|
||||||
Purchases
of available-for-sale securities
|
—
|
(65,748
|
)
|
|||||
Proceeds
from sales or maturities of available-for-sale
securities
|
29,545
|
133,948
|
||||||
Cash
paid for acquisitions, net of cash acquired
|
—
|
(18,311
|
)
|
|||||
Cash
paid for investments in joint ventures and other non-public
companies
|
—
|
(24,625
|
)
|
|||||
Net
cash used in investing activities
|
(256,253
|
)
|
(167,191
|
)
|
||||
Cash
flows from financing activities:
|
||||||||
Proceeds
from issuance of long-term debt, net of issuance
costs
|
137,735
|
—
|
||||||
Proceeds
from issuance of convertible debt, net of issuance
costs
|
225,018
|
—
|
||||||
Proceeds
from offering of class A common stock, net of offering
expenses
|
218,781
|
—
|
||||||
Cash
paid for repurchase of convertible debt
|
(75,636
|
)
|
—
|
|||||
Cash
paid for purchased options
|
(97,336
|
)
|
—
|
|||||
Proceeds
from warrant transactions
|
71,001
|
—
|
||||||
Proceeds
from exercises of stock options
|
1,408
|
3,786
|
||||||
Excess
tax benefits from stock-based award activity
|
14,744
|
33,899
|
||||||
Purchases
of stock for tax withholding obligations on vested restricted
stock
|
(3,708
|
)
|
(5,853
|
)
|
||||
Net
cash provided by financing activities
|
492,007
|
31,832
|
||||||
Effect
of exchange rate changes on cash and cash
equivalents
|
5,462
|
(1,166
|
)
|
|||||
Net
increase (decrease) in cash and cash equivalents
|
269,795
|
(28,598
|
)
|
|||||
Cash
and cash equivalents at beginning of period
|
202,331
|
285,214
|
||||||
Cash
and cash equivalents at end of period
|
$
|
472,126
|
$
|
256,616
|
||||
Non-cash
transactions:
|
||||||||
Additions
to property, plant and equipment included in accounts payable and other
accrued liabilities
|
$
|
—
|
$
|
46,780
|
||||
Non-cash
interest expense capitalized and added to the cost of qualified
assets
|
4,456
|
6,367
|
||||||
Issuance
of common stock for purchase acquisition
|
1,471
|
3,054
|
||||||
Change
in goodwill relating to adjustments to acquired net
assets
|
—
|
231
|
(1)
|
As
adjusted to reflect the adoption of new accounting guidance for
convertible debt instruments that may be settled in cash upon conversion
(see Note 1).
|
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
Notes
to Condensed Consolidated Financial Statements
(unaudited)
Note
1. THE COMPANY AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES
The
Company
SunPower
Corporation (together with its subsidiaries, the “Company” or “SunPower”)
designs, manufactures and markets high-performance solar electric power
technologies. The Company’s solar cells and solar panels are manufactured using
proprietary processes, and its technologies are based on more than 15 years of
research and development. The Company operates in two business segments:
systems and components. The Systems Segment generally represents sales
directly to system owners of engineering, procurement, construction and other
services relating to solar electric power systems that integrate the Company’s
solar panels and balance of systems components, as well as materials sourced
from other manufacturers. The Components Segment primarily represents sales of
the Company’s solar panels and inverters to solar systems installers and other
resellers, including the Company’s third-party global dealer
network.
The
Company was a majority-owned subsidiary of Cypress Semiconductor Corporation
(“Cypress”) through September 29, 2008. After the close of trading on September
29, 2008, Cypress completed a spin-off of all of its shares of the Company’s
class B common stock in the form of a pro rata dividend to the holders of
Cypress common stock of record as of September 17, 2008. As a result, the
Company’s class B common stock trades publicly and is listed on the Nasdaq
Global Select Market, along with the Company’s class A common
stock.
On May 4,
2009, the Company completed a public offering of 10.35 million shares of its
class A common stock, at a per share price of $22.00, and received net proceeds
of $218.8 million. Also on May 4, 2009, the Company issued $230.0 million in
principal amount of its 4.75% senior convertible debentures (“4.75% debentures”)
and received net proceeds, before payment of the net cost of the call spread
overlay, of $225.0 million. Concurrent with the issuance of the 4.75%
debentures, the Company paid a net cost of $26.3 million for the call spread
overlay with respect to the Company’s class A common stock which are intended to
effectively increase the conversion price of the 4.75% debentures (see Note
12).
Recently
Adopted Accounting Guidance
Accounting
Standards Codification (“ASC” or the “Codification”)
In June
2009, the Financial Accounting Standards Board (“FASB”) issued the Accounting
Standards Codification and the Hierarchy of Generally Accepted Accounting
Principles (“GAAP”) which became the single source of authoritative,
nongovernmental GAAP in the United States, except for rules and
interpretive releases of the Securities and Exchange Commission (“SEC”), which
are additional sources of authoritative GAAP for SEC registrants. The
Codification did not change GAAP, but it introduced a new indexing structure for
GAAP literature that is organized by topic in an online research system.
Adoption of the Codification in the third quarter of fiscal 2009 had no impact
on the Company’s condensed consolidated financial statements.
Convertible
Debt
On
December 29, 2008, the start of its 2009 fiscal year, the Company adopted new
accounting guidance for convertible debt instruments that may be settled in cash
upon conversion, which requires recognition of both the liability and equity
components of convertible debt instruments with cash settlement features. The
debt component is required to be recognized at the fair value of a similar debt
instrument that does not have an associated equity component. The equity
component is recognized as the difference between the proceeds from the issuance
of the convertible debt and the fair value of the liability, after adjusting for
the deferred tax impact. The new accounting guidance also requires an accretion
of the resulting debt discount over the expected life of the convertible debt.
The new accounting guidance was required to be applied retrospectively to prior
periods and, accordingly, financial statements for prior periods have been
adjusted to reflect its adoption.
In
February 2007, the Company issued $200.0 million in principal amount of its
1.25% senior convertible debentures (“1.25% debentures”). In July 2007, the
Company issued $225.0 million in principal amount of its 0.75% senior
convertible debentures (“0.75% debentures”). The 1.25% debentures and the
0.75% debentures contain partial cash settlement features and are
therefore subject to the aforementioned new accounting guidance. As a
result, the carrying value of the equity and debt components was retrospectively
adjusted. As of December 28, 2008, the carrying value of the equity component
was $61.8 million in the aggregate and the principal amount of the outstanding
debentures, the unamortized discount and the net carrying value were $423.6
million, $66.4 million and $357.2 million in the aggregate, respectively (see
Note 12). On a cumulative basis from the respective issuance dates of the 1.25%
debentures and the 0.75% debentures through December 28, 2008, the Company has
recognized $22.6 million in non-cash interest expense, excluding the related tax
effects.
As a
result of the Company’s adoption of the new accounting guidance, the Company’s
Condensed Consolidated Balance Sheet as of December 28, 2008 has been adjusted
as follows:
(In
thousands)
|
As
Adjusted
in
this
Quarterly
Report
on
Form 10-Q
|
As
Previously Reported in
Annual
Report
on
Form 10-K
|
||||||
Assets
|
||||||||
Inventories
|
$
|
251,542
|
$
|
251,388
|
||||
Prepaid
expenses and other current assets
|
98,254
|
96,104
|
||||||
Property,
plant and equipment, net
|
629,247
|
612,687
|
||||||
Other
long-term assets
|
76,751
|
74,224
|
||||||
Total
assets
|
2,097,526
|
2,076,135
|
||||||
Liabilities
|
||||||||
Convertible
debt, net of current portion
|
357,173
|
423,608
|
||||||
Deferred
tax liability, net of current portion
|
8,141
|
8,115
|
||||||
Total
liabilities
|
988,352
|
1,054,761
|
||||||
Stockholders’
Equity
|
||||||||
Additional
paid-in capital
|
1,065,745
|
1,003,954
|
||||||
Retained
earnings
|
77,611
|
51,602
|
||||||
Total
stockholders’ equity
|
1,109,174
|
1,021,374
|
As a
result of the Company’s adoption of the new accounting guidance, the Company’s
Condensed Consolidated Statements of Operations for the three and nine
months ended September 28, 2008 have been adjusted as follows:
(In thousands)
|
Three
Months Ended
|
Nine
Months Ended
|
||||||||||||||
As
Adjusted
in
this
Quarterly
Report
on
Form 10-Q
|
As
Previously Reported in
Quarterly
Report
on
Form 10-Q
|
As
Adjusted
in
this
Quarterly
Report
on
Form 10-Q
|
As
Previously Reported in
Quarterly
Report
on
Form 10-Q
|
|||||||||||||
Cost
of systems revenue
|
$
|
158,829
|
$
|
158,730
|
$
|
511,316
|
$
|
511,080
|
||||||||
Cost
of components revenue
|
113,358
|
113,149
|
271,288
|
270,901
|
||||||||||||
Operating
income
|
53,189
|
53,497
|
112,703
|
113,326
|
||||||||||||
Interest
expense
|
(5,743
|
)
|
(1,411
|
)
|
(18,137)
|
(4,286
|
)
|
|||||||||
Other,
net
|
(5,691
|
)
|
(5,692
|
)
|
(8,546)
|
(9,519
|
)
|
|||||||||
Income
before income taxes and equity in earnings of unconsolidated
investees
|
44,405
|
49,044
|
95,106
|
108,607
|
||||||||||||
Income
tax provision
|
21,856
|
29,797
|
31,275
|
49,869
|
||||||||||||
Income
before equity in earnings of unconsolidated
investees
|
22,549
|
19,247
|
63,831
|
58,738
|
||||||||||||
Net
income
|
24,681
|
21,379
|
67,837
|
62,744
|
As a
result of the Company’s adoption of the new accounting guidance, the Company’s
Condensed Consolidated Statement of Cash Flows for the nine months ended
September 28, 2008 has been adjusted as follows:
(In
thousands)
|
As
Adjusted
in
this
Quarterly
Report
on
Form 10-Q
|
As
Previously Reported in
Quarterly
Report
on
Form 10-Q
|
||||||
Cash
flows from operating activities:
|
||||||||
Net
income
|
$
|
67,837
|
$
|
62,744
|
||||
Depreciation
|
35,741
|
35,595
|
||||||
Non-cash
interest expense
|
12,717
|
—
|
||||||
Amortization
of debt issuance costs
|
1,611
|
972
|
||||||
Deferred
income taxes and other tax liabilities
|
29,738
|
48,333
|
||||||
Net
cash provided by operating activities
|
107,927
|
107,927
|
Earnings
Per Share
On
December 29, 2008, the Company adopted accounting guidance which clarifies that
all outstanding unvested stock-based payment awards that contain rights to
nonforfeitable dividends are considered participating securities for the purpose
of calculating earnings per share and are subject to the two-class method. In
fiscal 2007, the Company granted restricted stock awards with the same dividend
rights as its other common stockholders. These unvested restricted stock awards
are considered participating securities and the two-class method of computing
basic and diluted earnings per share must be applied (see Note 16). Stock-based
awards granted subsequent to fiscal 2007 do not contain nonforfeitable dividend
rights and are not considered participating securities. The new accounting
guidance was applied retrospectively to the Company’s historical results of
operations and, as a result, the Company’s Condensed Consolidated Statements of
Operations for the three and nine months ended September 28, 2008 have been
adjusted as follows:
(In thousands, except per share data)
|
Three
Months Ended
|
Nine
Months Ended
|
||||||||||||||
As
Adjusted
in
this
Quarterly
Report
on
Form 10-Q
|
As
Previously Reported in
Quarterly
Report
on
Form 10-Q
|
As
Adjusted
in
this
Quarterly
Report
on
Form 10-Q
|
As
Previously Reported in
Quarterly
Report
on
Form 10-Q
|
|||||||||||||
Net
income
|
$
|
24,681
|
$
|
21,379
|
$
|
67,837
|
$
|
62,744
|
||||||||
Net
income per share of class A and class B common
stock:
|
||||||||||||||||
Basic
|
$
|
0.30
|
$
|
0.27
|
$
|
0.84
|
$
|
0.79
|
||||||||
Diluted
|
$
|
0.29
|
$
|
0.25
|
$
|
0.80
|
$
|
0.75
|
||||||||
Weighted-average
shares:
|
||||||||||||||||
Basic
|
80,465
|
80,465
|
79,614
|
79,614
|
||||||||||||
Diluted
|
84,064
|
84,488
|
83,477
|
84,061
|
Disclosures
about Derivative Instruments and Hedging Activities
On
December 29, 2008, the Company adopted new accounting guidance which requires
entities to provide enhanced disclosures addressing the following: (a) how and
why an entity uses derivative instruments; (b) how derivative instruments and
related hedged items are accounted for and related interpretations; and (c) how
derivative instruments and related hedged items affect an entity’s financial
position, financial performance, and cash flows. The new accounting guidance had
no impact on the Company’s condensed consolidated financial statements and only
required additional financial statement disclosures as set forth in Note
14.
Fair
Value of Assets and Liabilities
During
the first quarter of fiscal 2009, the Company adopted accounting guidance for
nonfinancial assets and liabilities that are not measured and recorded at fair
value on a recurring basis. The adoption of this accounting guidance had no
impact on the Company’s condensed consolidated financial
statements.
In
April 2009, the FASB issued additional accounting guidance on how to
determine fair value of financial assets and liabilities when the volume and
level of activity for an asset or liability have significantly decreased and how
to identify transactions that are not orderly in light of the current economic
environment. If the Company were to conclude that there has been a significant
decrease in the volume and level of activity of an asset or liability in
relation to normal market activities, quoted market values may not be
representative of fair value and the Company may conclude that a change in
valuation technique or the use of multiple valuation techniques may be
appropriate. The accounting guidance also clarified the recognition and
presentation of other-than-temporary impairments of securities to bring
consistency to the timing of impairment recognition, and provide clarity to
investors about the credit and noncredit components of impaired debt securities
that are not expected to be sold. In addition, the accounting guidance required
disclosures about fair value of financial instruments in annual financial
statements of publicly traded companies to also be disclosed during interim
reporting periods. The Company’s adoption of the accounting guidance in the
second quarter of fiscal 2009 had no impact on the Company’s condensed
consolidated financial statements and only required additional financial
statement disclosures (see Notes 2, 6 and 8).
Business
Combinations
On
December 29, 2008, the Company adopted new accounting guidance which
significantly changed the accounting for business combinations in a number of
areas including the treatment of contingent consideration, acquisition costs,
in-process research and development and restructuring costs. In addition,
changes in deferred tax asset valuation allowances and acquired income tax
uncertainties in a business combination after the measurement period affect
income tax expense under the new accounting guidance. As a result of the
Company’s adoption of the new accounting guidance, the Company reflected an
asset for in-process research and development of $1.0 million in connection with
its acquisition of Tilt Solar LLC (“Tilt Solar”) during the second quarter of
fiscal 2009 which would have been expensed under previous accounting guidance
(see Note 5).
In
April 2009, the FASB issued new accounting guidance for the initial
recognition and measurement, subsequent measurement and accounting, and
disclosures for assets and liabilities arising from contingencies in business
combinations. The new accounting guidance eliminates the distinction between
contractual and non-contractual contingencies. The Company’s adoption of the new
accounting guidance for contingent assets and liabilities acquired in business
combinations during the first quarter of fiscal 2009 had no impact on its
condensed consolidated financial statements.
Subsequent
Events
In May
2009, the FASB issued new accounting guidance which established general
standards of accounting for and disclosure of events that occur after the
balance sheet date but before financial statements are issued or are available
to be issued. The new accounting guidance requires the disclosure of the date
through which an entity has evaluated subsequent events and the basis for
selecting that date, that is, whether that date represents the date the
financial statements were issued or were available to be issued. The Company’s
adoption of this accounting guidance in the second quarter of fiscal 2009 had no
impact on its condensed consolidated financial statements and only required
additional financial statement disclosures. The Company evaluated subsequent
events through November 2, 2009, the date this Quarterly Report on Form 10-Q was
filed.
Issued
Accounting Guidance Not Yet Adopted
With the
exception of those discussed below, there has been no issued accounting guidance
not yet adopted by the Company that it believes is of significance, or of
potential significance.
Share
Lending Arrangements
In June 2009,
the FASB issued new accounting guidance that will change how companies account
for share lending arrangements that are executed in connection with convertible
debt offerings or other financings. The new accounting guidance requires all
such share lending arrangements to be valued and amortized to interest expense
in the same manner as debt issuance costs. As a result of the new accounting
guidance, existing share lending arrangements relating to the Company’s class A
common stock will be required to be measured at fair value and amortized to
interest expense in its consolidated financial statements. In addition, in the
event that counterparty default pursuant to the share lending agreement becomes
probable, the Company will be required to recognize an expense equal to the then
fair value of the unreturned loaned shares, net of any probable recoveries. The
new accounting guidance is effective for fiscal years beginning after December
15, 2009 (the Company’s first quarter of fiscal 2010) and retrospective adoption
is required for all periods presented.
In connection
with the issuance of the 1.25% debentures and 0.75% debentures, the Company
loaned approximately 2.9 million shares of its class A common stock to Lehman
Brothers International (Europe) Limited (“LBIE”) and approximately 1.8 million
shares of its class A common stock to Credit Suisse International (“CSI”) under
share lending arrangements. The new accounting guidance will result in higher
non-cash amortization of imputed share lending costs in current and prior
periods, as well as a material non-cash loss resulting from Lehman Brothers
Holding Inc. (“Lehman”) filing of a petition for protection under Chapter 11 of
the U.S. bankruptcy code on September 15, 2008, and LBIE commencing
administration proceedings (analogous to bankruptcy) in the United Kingdom. The
then fair value of the approximately 2.9 million shares of the Company’s class A
common stock loaned and unreturned by LBIE is approximately $241 million, which
will be expensed retrospectively in the third quarter of fiscal 2008, before
consideration of any potential recoveries and related tax effects. The Company
is currently determining the full impact that the January 2010 adoption of this
new accounting guidance will have on its current and prior-period’s consolidated
financial statements.
Variable Interest Entities
In June
2009, the FASB issued new accounting guidance regarding consolidation of
variable interest entities to eliminate the exemption for qualifying special
purpose entities, provide a new approach for determining which entity should
consolidate a variable interest entity, and require an enterprise to regularly
perform an analysis to determine whether the enterprise’s variable interest or
interests give it a controlling financial interest in a variable interest
entity. The new accounting guidance is effective for fiscal years beginning
after November 15, 2009 and earlier application is prohibited. The
Company is currently evaluating the potential impact of the adoption of the new
accounting guidance on its condensed consolidated financial
statements.
Revenue
Arrangements with Multiple Deliverables
In
October 2009, the FASB issued new accounting guidance for revenue arrangements
with multiple deliverables. Specifically, the new guidance requires an entity to
allocate arrangement consideration at the inception of an arrangement to all of
its deliverables based on their relative selling prices. In addition, the
new guidance eliminates the use of the residual method of allocation and
requires the relative-selling-price method in all circumstances in which an
entity recognizes revenue for an arrangement with multiple
deliverables. The new accounting guidance is effective in the fiscal year
beginning on or after June 15, 2010. Early adoption is permitted. The
Company plans to adopt the new accounting guidance in the first quarter of
fiscal 2010 and apply the prospective application for new or materially modified
arrangements with multiple deliverables. The Company does not anticipate the
adoption of the new accounting guidance to have a material impact on its
condensed consolidated financial statements.
Fiscal
Years
The
Company reports on a fiscal-year basis and ends its quarters on the Sunday
closest to the end of the applicable calendar quarter, except in a 53-week
fiscal year, in which case the additional week falls into the fourth quarter of
that fiscal year. Fiscal year 2009 consists of 53 weeks while fiscal year 2008
consists of 52 weeks. The third quarter of fiscal 2009 ended on September 27,
2009 and the third quarter of fiscal 2008 ended on September 28,
2008.
Basis
of Presentation
The
accompanying condensed consolidated interim financial statements have been
prepared pursuant to the rules and regulations of the SEC regarding interim
financial reporting and include the accounts of the Company and all of its
subsidiaries. Intercompany transactions and balances have been eliminated in
consolidation. The year-end Condensed Consolidated Balance Sheet data was
derived from audited financial statements as adjusted for the Company’s adoption
of new accounting guidance for convertible debt instruments that may be settled
in cash upon conversion discussed above. Accordingly, these financial statements
do not include all of the information and footnotes required by GAAP for
complete financial statements and should be read in conjunction with the
financial statements and notes thereto included in the Company’s Annual Report
on Form 10-K for the year ended December 28, 2008.
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America ("United States" or "U.S.")
requires management to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Significant
estimates in these financial statements include percentage-of-completion for
construction projects, allowances for doubtful accounts receivable and sales
returns, inventory write-downs, estimates for future cash flows and economic
useful lives of property, plant and equipment, goodwill, other intangible assets
and other long-term assets, asset impairments, valuation of auction rate
securities, investments in joint ventures, certain accrued liabilities including
accrued warranty reserves, valuation of debt without the conversion feature,
income taxes and tax valuation allowances. Actual results could materially
differ from those estimates.
In the
nine months ended September 27, 2009, the Company identified certain adjustments
related to fiscal 2008, primarily due to systems costs and inventory that
resulted in the recording of additional out of period costs of approximately
$1.8 million. The effect of these items is not material to estimated pre-tax or
net income for the current year.
In the
opinion of management, the accompanying condensed consolidated interim financial
statements contain all adjustments, consisting only of normal recurring
adjustments, which the Company believes are necessary for a fair statement of
the Company’s financial position as of September 27, 2009 and its results of
operations for the three and nine months ended September 27, 2009 and September
28, 2008 and its cash flows for the nine months ended September 27, 2009 and
September 28, 2008. These condensed consolidated interim financial statements
are not necessarily indicative of the results to be expected for the entire
year.
Note
2. BALANCE SHEET
COMPONENTS
(In
thousands)
|
September
27,
2009
|
December 28,
2008
|
||||||
Accounts
receivable, net:
|
||||||||
Accounts
receivable, gross
|
$
|
247,751
|
$
|
196,316
|
||||
Less:
Allowance for doubtful accounts
|
(2,307
|
)
|
(1,863
|
)
|
||||
Less:
Allowance for sales returns
|
(1,916
|
)
|
(231
|
)
|
||||
$
|
243,528
|
$
|
194,222
|
|||||
Prepaid
expenses and other current assets:
|
||||||||
VAT
receivables, current portion
|
$
|
37,867
|
$
|
26,489
|
||||
Deferred
tax assets
|
5,658
|
5,658
|
||||||
Foreign
currency derivatives
|
2,670
|
11,443
|
||||||
Other
receivables(1)
|
30,591
|
36,749
|
||||||
Other
prepaid expenses
|
30,508
|
17,915
|
||||||
$
|
107,294
|
$
|
98,254
|
|||||
(1) Includes
tolling agreements with suppliers in which the Company provides
polysilicon required for silicon ingot manufacturing and procures the
manufactured silicon ingots from the suppliers (see Note
10).
|
||||||||
Other
long-term assets:
|
||||||||
VAT
receivables, net of current portion
|
$
|
7,536
|
$
|
6,692
|
||||
Investments
in joint ventures
|
35,993
|
29,007
|
||||||
Note
receivable(2)
|
10,000
|
10,000
|
||||||
Other
|
36,307
|
31,052
|
||||||
$
|
89,836
|
$
|
76,751
|
|||||
(2) In
June 2008, the Company loaned $10.0 million to a third-party private
company pursuant to a three-year note receivable that is convertible into
equity at the Company’s option.
|
||||||||
Accrued
liabilities:
|
||||||||
VAT
payables
|
$
|
20,796
|
$
|
18,934
|
||||
Income
taxes payable
|
—
|
|
13,402
|
|||||
Short-term
deferred tax liability
|
5,658
|
5,658
|
||||||
Foreign
currency derivatives
|
49,553
|
45,791
|
||||||
Short-term
warranty reserves
|
36,329
|
23,872
|
||||||
Employee
compensation and employee benefits
|
15,229
|
19,018
|
||||||
Other
|
32,130
|
30,374
|
||||||
$
|
159,695
|
$
|
157,049
|
Note
3. INVENTORIES
(In
thousands)
|
September
27,
2009
|
December 28,
2008
|
||||||
Raw
materials(1)
|
$
|
62,137
|
$
|
96,351
|
||||
Work-in-process
(2)
|
38,782
|
26,155
|
||||||
Finished
goods(3)
|
138,292
|
129,036
|
||||||
$
|
239,211
|
$
|
251,542
|
|||||
(1) In
addition to polysilicon and other raw materials for solar cell
manufacturing, raw materials include installation materials for systems
projects.
|
||||||||
(2) In
the Annual Report on Form 10-K for the year ended December 28, 2008, solar
cells to be sold to customers were previously disclosed as finished goods
and solar cells to be manufactured into solar panels at our solar panel
assembly facility were previously disclosed as raw materials. In this
Quarterly Report on Form 10-Q, the balance of work-in-process as of
December 28, 2008 is adjusted to include all solar
cells.
|
||||||||
(3) In
the Annual Report on Form 10-K for the year ended December 28, 2008,
third-party solar panels to be used in the construction of solar power
systems by the Systems Segment were previously disclosed as raw materials.
In this Quarterly Report on Form 10-Q, the balance of finished goods as of
December 28, 2008 is adjusted to include third-party solar panels. In
addition, the balance of finished goods as of December 28, 2008 increased
by $0.2 million for the change in amortization of capitalized non-cash
interest expense capitalized in inventory as a result of the Company’s
adoption of new accounting guidance for convertible debt instruments that
may be settled in cash upon conversion (see Note 1).
|
Note
4. PROPERTY, PLANT AND
EQUIPMENT
(In
thousands)
|
September
27,
2009
|
December 28,
2008(1)
|
||||||
Property,
plant and equipment, net:
|
||||||||
Land
and buildings
|
$
|
17,269
|
$
|
13,912
|
||||
Manufacturing
equipment
|
538,958
|
387,860
|
||||||
Computer
equipment
|
40,087
|
26,957
|
||||||
Furniture
and fixtures
|
4,501
|
4,327
|
||||||
Leasehold
improvements
|
195,532
|
148,190
|
||||||
Construction-in-process
|
60,362
|
149,657
|
||||||
856,709
|
730,903
|
|||||||
Less:
Accumulated depreciation
|
(161,300
|
)
|
(101,656
|
)
|
||||
$
|
695,409
|
$
|
629,247
|
(1)
|
Property,
plant and equipment, net increased $16.6 million for non-cash interest
expense associated with the 1.25% debentures and 0.75% debentures that was
capitalized and added to the cost of qualified assets as a result of the
Company’s adoption of new accounting guidance for convertible debt
instruments that may be settled in cash upon conversion (see Note
1).
|
Certain
manufacturing equipment associated with solar cell manufacturing lines located
at one of the Company’s facilities in the Philippines are collateralized in
favor of a third-party by way of a chattel mortgage, a first ranking mortgage
and a security interest in the property. The Company provided security for
advance payments received from a third-party in fiscal 2008 totaling $40.0
million in the form of collateralized manufacturing equipment with a net book
value of $37.7 million and $43.1 million as of September 27, 2009 and December
28, 2008, respectively (see Note 8).
The
Company evaluates its long-lived assets, including property, plant and equipment
and other intangible assets with finite lives (see Note 5), for impairment
whenever events or changes in circumstances indicate that the carrying value of
such assets may not be recoverable. Factors considered important that could
result in an impairment review include significant underperformance relative to
expected historical or projected future operating results, significant changes
in the manner of use of acquired assets and significant negative industry or
economic trends.
Ongoing
weak global credit market conditions have had a negative impact on the Company’s
earnings during the nine months ended September 27, 2009. From time to time, the
Company may temporarily remove certain long-lived assets from service based on
projections of reduced capacity needs. The Company believes the current adverse
change in its business climate resulting in lower forecasted revenue for fiscal
2009 is temporary in nature and does not indicate that the fair values of its
long-lived assets have fallen below their carrying values as of September 27,
2009.
Note
5. BUSINESS
COMBINATION, GOODWILL
AND OTHER INTANGIBLE ASSETS
Acquisition
of Tilt Solar
On April
14, 2009, the Company completed the acquisition of Tilt Solar, which was not
material to the Company’s financial position or results of
operations.
Goodwill
The
following table presents the changes in the carrying amount of goodwill under
the Company's reportable business segments:
(In
thousands)
|
Systems
|
Components
|
Total
|
|||||||||
As
of December 28, 2008
|
$
|
181,801
|
$
|
14,919
|
$
|
196,720
|
||||||
Goodwill
arising from business combination
|
581
|
—
|
581
|
|||||||||
Translation
adjustment
|
—
|
1,028
|
1,028
|
|||||||||
As
of September 27, 2009
|
$
|
182,382
|
$
|
15,947
|
$
|
198,329
|
The
balance of goodwill within the Systems Segment increased $0.6 million as of
September 27, 2009 due to the Company’s acquisition of Tilt Solar, which
represents the excess of the purchase price over the fair value of the
underlying net tangible and other intangible assets of Tilt Solar. The Company
records a translation adjustment for the revaluation of its Euro and Australian
dollar functional currency subsidiaries’ goodwill and other intangible assets
into U.S. dollar equivalents. For the nine months ended September 27, 2009, the
translation adjustment increased the balance of goodwill within the Components
Segment by $1.0 million.
Goodwill
is tested for impairment at least annually, or more frequently if certain
indicators are present. A two-step process is used to test for goodwill
impairment. The first step is to determine if there is an indication of
impairment by comparing the estimated fair value of each reporting unit to its
carrying value including existing goodwill. Goodwill is considered impaired if
the carrying value of a reporting unit exceeds the estimated fair value. Upon an
indication of impairment, a second step is performed to determine the amount of
the impairment by comparing the implied fair value of the reporting unit’s
goodwill with its carrying value.
The
Company conducts its annual impairment test of goodwill as of the Sunday closest
to the end of the third fiscal quarter of each year. Impairment of goodwill is
tested at the Company’s reporting unit level which in the Company’s case is
consistent with its segments. To estimate the fair value of the Systems Segment
and Components Segment, the Company utilized a combination of income and market
approaches defined as Level 3 inputs under fair value measurement standards (see
Note 6). The income approach, specifically a discounted cash flow analysis,
included assumptions for, among others, forecasted revenue, gross margin,
operating income, working capital cash flow, perpetual growth rates and
long-term discount rates, all of which require significant judgment by
management. These assumptions took into account the current recessionary
environment and its impact on the Company’s business. Based on the impairment
test as of September 27, 2009, the Company determined there was no
impairment. In the event that management determines that the value of goodwill
has become impaired, the Company will incur an accounting charge for the amount
of the impairment during the fiscal quarter in which the determination is
made.
Other
Intangible Assets
The
following tables present details of the Company's acquired other intangible
assets:
(In
thousands)
|
Gross
|
Accumulated
Amortization
|
Net
|
|||||||||
As
of September 27, 2009
|
||||||||||||
Patents
and purchased technology
|
$
|
51,398
|
$
|
(39,341
|
)
|
$
|
12,057
|
|||||
Purchased
in-process research and development
|
1,000
|
—
|
1,000
|
|||||||||
Trade
names
|
2,622
|
(2,094
|
)
|
528
|
||||||||
Customer
relationships and other
|
28,580
|
(13,050
|
)
|
15,530
|
||||||||
$ |
83,600
|
$
|
(54,485
|
)
|
$
|
29,115
|
||||||
As
of December 28, 2008
|
||||||||||||
Patents
and purchased technology
|
$
|
51,398
|
$
|
(31,322
|
)
|
$
|
20,076
|
|||||
Trade
names
|
2,501
|
(1,685
|
)
|
816
|
||||||||
Customer
relationships and other
|
27,456
|
(8,858
|
)
|
18,598
|
||||||||
$
|
81,355
|
$
|
(41,865
|
)
|
$
|
39,490
|
In
connection with the acquisition of Tilt Solar in the second quarter of fiscal
2009, the Company recorded $1.5 million of other intangible assets. All of the
Company’s acquired other intangible assets are subject to amortization.
Amortization expense for other intangible assets totaled $4.1 million and $12.3
million for the three and nine months ended September 27, 2009, respectively,
and $4.2 million and $12.6 million for the three and nine months ended September
28, 2008, respectively. As of September 27, 2009, the estimated future
amortization expense related to other intangible assets is as follows (in
thousands):
2009
(remaining three months)
|
$
|
4,170
|
||
2010
|
15,406
|
|||
2011
|
5,315
|
|||
2012
|
4,119
|
|||
Thereafter
|
105
|
|||
$
|
29,115
|
Note
6. INVESTMENTS
The
Company’s investments are carried at fair value. Fair values are determined
based upon a hierarchy that prioritizes the inputs to valuation techniques by
assigning the highest priority to unadjusted quoted prices in active markets for
identical assets or liabilities ("Level 1") and the lowest priority to
unobservable inputs ("Level 3"). Level 2 measurements are inputs that are
observable for assets or liabilities, either directly or indirectly, other than
quoted prices included within Level 1.
Assets
Measured at Fair Value on a Recurring Basis
The
following tables present information about the Company’s investments in
available-for-sale debt and equity securities that are measured at fair value on
a recurring basis and indicate the fair value hierarchy of the valuation
techniques utilized by the Company to determine such fair value. Information
about the Company’s foreign currency derivatives measured at fair value on a
recurring basis is disclosed in Note 14. The Company does not have any
nonfinancial assets or liabilities that are recognized or disclosed at fair
value in its condensed consolidated financial statements on a recurring
basis.
September
27, 2009
|
||||||||||||||||
(In
thousands)
|
Level
1
|
Level
2
|
Level
3
|
Total
|
||||||||||||
Assets
|
||||||||||||||||
Money
market funds
|
$
|
550,489
|
$
|
—
|
$
|
796
|
$
|
551,285
|
||||||||
Bank
notes
|
24,029
|
—
|
—
|
24,029
|
||||||||||||
Corporate
securities
|
—
|
—
|
8,426
|
8,426
|
||||||||||||
Total
available-for-sale securities
|
$
|
574,518
|
$
|
—
|
$
|
9,222
|
$
|
583,740
|
December
28, 2008
|
||||||||||||||||
(In
thousands)
|
Level
1
|
Level
2
|
Level
3
|
Total
|
||||||||||||
Assets
|
||||||||||||||||
Money
market funds
|
$
|
227,190
|
$
|
—
|
$
|
7,185
|
$
|
234,375
|
||||||||
Bank
notes
|
49,610
|
—
|
—
|
49,610
|
||||||||||||
Corporate
securities
|
—
|
9,994
|
23,577
|
33,571
|
||||||||||||
Total
available-for-sale securities
|
$
|
276,800
|
$
|
9,994
|
$
|
30,762
|
$
|
317,556
|
Available-for-sale
securities utilizing Level 3 inputs to determine fair value are comprised of
investments in money market funds totaling $0.8 million and $7.2 million as of
September 27, 2009 and December 28, 2008, respectively, and auction rate
securities totaling $8.4 million and $23.6 million as of September 27, 2009 and
December 28, 2008, respectively.
Money
Market Funds
Investments
in money market funds utilizing Level 3 inputs consist of the Company’s
investments in the Reserve Primary Fund and the Reserve International Liquidity
Fund (collectively referred to as the "Reserve Funds"). The net asset value per
share for the Reserve Funds fell below $1.00 because the funds had investments
in Lehman, which filed for bankruptcy on September 15, 2008. As a result of this
event, the Reserve Funds wrote down their investments in Lehman to zero and also
announced that the funds would be closed and distributed to holders. The Company
has estimated its loss on the Reserve Funds to be approximately $2.2 million
based upon information publicly disclosed by the Reserve Funds relative to its
holdings and remaining obligations. The Company recorded impairment charges of
zero and $1.2 million in the three and nine months ended September 27, 2009,
respectively, and $0.9 million in both the three and nine months ended September
28, 2008, in “Other, net” in its Condensed Consolidated Statements of
Operations, thereby establishing a new cost basis for each fund. The Company’s
other money market fund instruments are classified within Level 1 of the fair
value hierarchy because they are valued using quoted prices for identical
instruments in active markets.
Auction
Rate Securities
Auction
rate securities in which the Company invested are primarily student loans, the
majority of which are triple-A rated and substantially guaranteed by the U.S.
government under the Federal Family Education Loan Program (“FFELP”).
Historically, these securities have provided liquidity through a Dutch auction
at pre-determined intervals every 7 to 49 days. At the end of each reset period,
investors can continue to hold the securities or sell the securities at par
through an auction process. The “stated” or “contractual” maturities for these
securities generally are between 20 to 30 years. Beginning in February 2008, the
auction rate securities market experienced a significant increase in the number
of failed auctions, resulting from a lack of liquidity, which occurs when sell
orders exceed buy orders, and does not necessarily signify a default by the
issuer.
All
auction rate securities held by the Company have failed to clear at auctions in
subsequent periods. For failed auctions, the Company continues to earn interest
on these investments at the contractual rate. Prior to 2008, failed auctions
rarely occurred, however, such failures could continue to occur in the future.
In the event the Company needs to access funds invested in such auction rate
securities, the Company will not be able to do so until a future auction is
successful, the issuer redeems the securities, a buyer is found outside of the
auction process or the securities mature. Accordingly, auction rate securities
held are classified as “Long-term investments” in the Condensed Consolidated
Balance Sheets, because they are not expected to be used to fund current
operations and such classification is consistent with the stated contractual
maturities of the securities.
The
Company determined that use of a valuation model was the best available
technique for measuring the fair value of its auction rate securities. The
Company used an income approach valuation model to estimate the price that would
be received to sell its securities in an orderly transaction between market
participants ("exit price") as of the balance sheet dates. The exit price was
derived as the weighted average present value of expected cash flows over
various periods of illiquidity, using a risk adjusted discount rate that was
based on the credit risk and liquidity risk of the securities. While the
valuation model was based on both Level 2 (credit quality and interest rates)
and Level 3 inputs, the Company determined that the Level 3 inputs were the most
significant to the overall fair value measurement, particularly the estimates of
risk adjusted discount rates and ranges of expected periods of illiquidity. The
valuation model also reflected the Company's intention to hold its auction rate
securities until they can be liquidated in a market that facilitates orderly
transactions. The following key assumptions were used in the valuation
model:
|
·
|
5
years to liquidity;
|
|
·
|
continued
receipt of contractual interest which provides a premium spread for failed
auctions; and
|
|
·
|
discount
rates ranging from 3.7% to 7.8%, which incorporates a spread for both
credit and liquidity risk.
|
Based on
these assumptions, the Company estimated that the auction rate securities with a
stated par value of $9.9 million as of September 27, 2009 would be valued
at approximately 85% of their stated par value, or $8.4 million, representing a
decline in value of approximately $1.5 million. As of December 28,
2008, the Company estimated that auction rate securities with a stated par value
of $26.1 million would be valued at approximately 91% of their stated par value,
or $23.6 million, representing a decline in value of approximately $2.5 million.
Due to one auction rate security’s downgrade from a triple-A rating to a Baa1
rating, the length of time that has passed since the auctions failed and the
ongoing uncertainties regarding future access to liquidity, the Company has
determined the impairment is other-than-temporary and recorded impairment losses
of $0.2 million and $0.8 million in the three and nine months ended September
27, 2009, respectively, and $2.5 million in the fourth quarter of fiscal 2008,
in “Other, net” in its Condensed Consolidated Statements of
Operations.
The
following table provides a summary of changes in fair value of the Company’s
available-for-sale securities utilizing Level 3 inputs for the nine
months ended September 27, 2009:
(In
thousands)
|
Money
Market
Funds
|
Auction
Rate Securities
|
||||||
Balance
as of December 28, 2008
|
$
|
7,185
|
$
|
23,577
|
||||
Sales
and distributions (1)
|
(5,151
|
)
|
(14,392
|
)
|
||||
Impairment
loss recorded in “Other, net”
|
(1,238
|
)
|
(759
|
)
|
||||
Balance
as of September 27, 2009 (2)
|
$
|
796
|
$
|
8,426
|
(1)
|
In
the three and nine months ended September 27, 2009, the Company sold
auction rate securities with a carrying value of $9.9 million and
$14.4 million, respectively, for $9.8 million and $14.4 million,
respectively, to third-parties outside of the auction process and
received distributions of zero and $5.2 million, respectively, from the
Reserve Funds.
|
(2)
|
In
October 2009, the Company sold an auction rate security with a carrying
value of $4.0 million for $4.1 million to a third-party outside of the
auction process and received distributions of $0.5 million from the
Reserve Funds.
|
The
following table provides a summary of changes in fair value of the Company’s
available-for-sale securities utilizing Level 3 inputs for the nine months
ended September 28, 2008:
(In
thousands)
|
Money
Market
Funds
|
Auction
Rate Securities
|
||||||
Balance
as of December 31, 2007
|
$
|
—
|
$
|
—
|
||||
Transfers
from Level 1 to Level 3
|
26,677
|
—
|
||||||
Transfers
from Level 2 to Level 3
|
—
|
29,050
|
||||||
Purchases
|
—
|
10,000
|
||||||
Sales
and distributions (1)
|
—
|
(13,000
|
)
|
|||||
Impairment
loss recorded in “Other, net”
|
(933
|
)
|
—
|
|||||
Unrealized
loss included in “Other comprehensive income”
|
—
|
(1,033
|
)
|
|||||
Balance
as of September 28, 2008
|
$
|
25,744
|
$
|
25,017
|
(1)
|
In
both the three and nine months ended September 28, 2008, the Company sold
auction rate securities with a carrying value of $12.5 million for their
stated par value of $13.0 million to the issuer of the
securities outside of the auction
process.
|
The
following table summarizes unrealized gains and losses by major security type
designated as available-for-sale:
September
27, 2009
|
December 28, 2008
|
|||||||||||||||||||||||||||||||
Unrealized
|
Unrealized
|
|||||||||||||||||||||||||||||||
(In thousands)
|
Cost
|
Gross
Gains
|
Gross
Losses
|
Fair
Value
|
Cost
|
Gross
Gains
|
Gross
Losses
|
Fair
Value
|
||||||||||||||||||||||||
Money
market funds
|
$
|
551,285
|
$
|
—
|
$
|
—
|
$
|
551,285
|
$
|
234,375
|
$
|
—
|
$
|
—
|
$
|
234,375
|
||||||||||||||||
Bank
notes
|
24,029
|
—
|
—
|
24,029
|
49,610
|
—
|
—
|
49,610
|
||||||||||||||||||||||||
Corporate
securities
|
8,426
|
—
|
—
|
8,426
|
33,579
|
2
|
(10
|
)
|
33,571
|
|||||||||||||||||||||||
Total
available-for-sale securities
|
$
|
583,740
|
$
|
—
|
$
|
—
|
$
|
583,740
|
$
|
317,564
|
$
|
2
|
$
|
(10
|
)
|
$
|
317,556
|
The
classification of available-for-sale securities and cash deposits is as
follows:
September 27, 2009
|
December 28, 2008
|
|||||||||||||||||||||||
(In thousands)
|
Available-
For-Sale
|
Cash
Deposits
|
Total
|
Available-
For-Sale
|
Cash
Deposits
|
Total
|
||||||||||||||||||
Cash
and cash equivalents
|
$
|
395,700
|
$
|
76,426
|
$
|
472,126
|
$
|
101,523
|
$
|
100,808
|
$
|
202,331
|
||||||||||||
Short-term
restricted cash(1)
|
77,088
|
—
|
77,088
|
13,240
|
—
|
13,240
|
||||||||||||||||||
Short-term
investments
|
796
|
—
|
796
|
17,179
|
—
|
17,179
|
||||||||||||||||||
Long-term
restricted cash(1, 2)
|
101,730
|
141,970
|
243,700
|
162,037
|
—
|
162,037
|
||||||||||||||||||
Long-term
investments
|
8,426
|
—
|
8,426
|
23,577
|
—
|
23,577
|
||||||||||||||||||
$
|
583,740
|
$
|
218,396
|
$
|
802,136
|
$
|
317,556
|
$
|
100,808
|
$
|
418,364
|
(1)
|
Includes
cash collateralized bank standby letters of credit the Company provided to
securitize advance payments received from
customers.
|
(2)
|
Includes
cash obtained under the Company’s facility agreement with the Malaysian
Government to finance the construction of its planned third solar cell
manufacturing facility in Malaysia.
|
The
contractual maturities of available-for-sale securities is as
follows:
(In thousands)
|
September
27,
2009
|
December
28,
2008(1)
|
||||||
Due
in less than one year
|
$
|
575,314
|
$
|
293,979
|
||||
Due
from one to twenty years
|
8,426
|
23,577
|
||||||
$
|
583,740
|
$
|
317,556
|
(1)
|
Contractual
maturities of available-for-sale securities as of December 28, 2008 is
adjusted in this Quarterly Report on Form 10-Q to reflect the maturities
of the debt and equity securities rather than the maturities of the bank
standby letters of credit, as previously presented in the Annual Report on
Form 10-K for the year ended December 28, 2008. The majority of the
Company’s cash collateralized bank standby letters of credit have longer
maturities than the related debt and equity securities used to
collateralize such customer advance
payments.
|
Assets
Measured at Fair Value on a Non-Recurring Basis
The
Company holds minority investments comprised of common and preferred stock in
certain non-public companies. The Company monitors these minority investments
for impairment which are included in other long-term assets in its Condensed
Consolidated Balance Sheets and records reductions in the carrying values when
necessary. Circumstances that indicate an other-than-temporary decline include
valuation ascribed to the issuing company in subsequent financing rounds,
decreases in quoted market price and declines in operations of the issuer. As of
September 27, 2009 and December 28, 2008, the Company had $36.0 million and
$29.0 million, respectively, in investments in joint ventures accounted for
under the equity method and $4.6 million and $3.1 million, respectively, in
investments accounted for under the cost method (see Note 11). During the fourth
quarter of fiscal 2008, the Company recorded an other-than-temporary impairment
charge of $1.9 million on a non-publicly traded investment accounted for using
the cost method, due to the deterioration of the credit market and economic
environment.
The
following table provides a summary of changes in fair value of the Company’s
investments in non-public companies during the nine months ended September 27,
2009 and September 28, 2008, all of which utilize Level 3 inputs under the fair
value hierarchy:
Common
and
Preferred
Stock
|
||||||||
(In
thousands)
|
September
27,
2009
|
September
28,
2008
|
||||||
Balance
at the beginning of the period
|
$
|
32,066
|
$
|
5,304
|
||||
Purchases
|
1,500
|
14,625
|
||||||
Payments
|
(19
|
)
|
—
|
|||||
Equity
in earnings of unconsolidated investees
|
7,005
|
4,006
|
||||||
Balance
at the end of the period
|
$
|
40,552
|
$
|
23,935
|
Note
7. ADVANCES TO
SUPPLIERS
The
Company has entered into agreements with various polysilicon, ingot, wafer,
solar cell and solar panel vendors that specify future quantities and pricing of
products to be supplied by the vendors for periods up to 12 years. Certain
agreements also provide for penalties or forfeiture of advanced deposits in the
event the Company terminates the arrangements (see Note 10). Under certain
agreements, the Company is required to make prepayments to the vendors over the
terms of the arrangements. During the nine months ended September 27, 2009, the
Company paid advances totaling $11.1 million in accordance with the terms of
existing supply agreements. As of September 27, 2009 and December 28, 2008,
advances to suppliers totaled $137.9 million and $162.6 million, respectively,
the current portion of which is $22.7 million and $43.2 million, respectively.
Three suppliers accounted for 67%, 22% and 8% of total advances to suppliers as
of September 27, 2009, and 57%, 19% and 18% as of December 28,
2008.
The
Company’s future prepayment obligations related to these agreements with
suppliers as of September 27, 2009 are as follows (in thousands):
2009
(remaining three months)
|
$
|
86,996
|
||
2010
|
161,414
|
|||
2011
|
121,564
|
|||
2012
|
72,694
|
|||
$
|
442,668
|
In
October 2009, the Company paid an additional advance of $37.7 million in
accordance with the terms of an existing supply agreement.
Note
8. ADVANCES FROM
CUSTOMERS
From time
to time, the Company enters into agreements where customers make advances for
future purchases of solar power products. In general, the Company pays no
interest on the advances and applies the advances as shipments of products
occur.
In August
2007, the Company entered into an agreement with a third-party to supply
polysilicon. Under the polysilicon agreement, the Company received advances
of $40.0 million in each of fiscal 2008 and 2007 from this third-party.
Commencing in fiscal 2010 and continuing through 2019, these advance payments
are to be applied as a credit against the third-party’s polysilicon purchases
from the Company. Such polysilicon is expected to be used by
the third-party to manufacture ingots, and potentially wafers, which
are to be sold to the Company under an ingot supply agreement. As of September
27, 2009, the outstanding advance was $80.0 million of which $6.0 million had
been classified in short-term customer advances and $74.0 million in long-term
customer advances in the accompanying Condensed Consolidated Balance Sheet,
based on projected product shipment dates. As of December 28, 2008,
the outstanding advance of $80.0 million was classified in long-term
customer advances. The Company provided security for advances of $80.0
million in the form of collateralized manufacturing equipment with a net book
value of $37.7 million and $43.1 million as of September 27, 2009 and December
28, 2008, respectively, and $40.0 million of letters of credit issued by Wells
Fargo Bank, N.A. (“Wells Fargo”) under the uncollateralized letter of credit
subfeature (see Notes 4 and 12).
In April
2005, the Company entered into an agreement with one of its customers to supply
solar cells. As part of this agreement, the customer agreed to fund 30.0 million
Euros (approximately $35.5 million based on the exchange rate as of January 1,
2006) for the expansion of the Company’s manufacturing capacity to support this
customer’s solar cell product demand. Beginning on January 1, 2006, the
Company was obligated to pay interest at a rate of 5.7% per annum on the
remaining unpaid balance. The Company’s settlement of principal on the advance
was recognized over product deliveries at a specified rate on a
per-unit-of-product-delivered basis through the third quarter of fiscal 2009. As
of September 27, 2009, this customer’s remaining outstanding advance was
2.9 million Euros (approximately $4.2 million based on the exchange rate as
of September 27, 2009) and was classified in short-term customer
advances. The value of the customer’s open purchase orders in the fourth
quarter of fiscal 2009 is expected to offset substantially all, if not all, of
the remaining outstanding advance. As of December 28, 2008, this customer’s
remaining outstanding advance was 12.5 million Euros (approximately $17.5
million based on the exchange rate as of December 28, 2008) of which $8.4
million and $9.1 million had been classified in short-term and long-term
customer advances, respectively. The Company utilized all funds advanced by
this customer towards expansion of the Company’s manufacturing
capacity.
The
Company has also entered into other agreements with customers who have made
advance payments for solar power products. These advances will be applied as
shipments of product occur. As of both September 27, 2009 and December 28, 2008,
such customers had made advances of $12.9 million in the aggregate.
The
estimated utilization of advances from customers as of September 27, 2009 is as
follows (in thousands):
2009
(remaining three months)
|
$
|
15,084
|
||
2010
|
9,763
|
|||
2011
|
8,295
|
|||
2012
|
8,000
|
|||
2013
|
8,000
|
|||
Thereafter
|
48,000
|
|||
$
|
97,142
|
Note
9. RESTRUCTURING
COSTS
In
response to deteriorating economic conditions, the Company reduced its global
workforce of regular employees by approximately 80 positions during the
first half of fiscal 2009 in order to reduce its annual operating expenses. The
restructuring actions included charges of zero and $1.7 million in the three and
nine months ended September 27, 2009, respectively, for severance, benefits and
related costs.
A summary
of the charges in the Condensed Consolidated Statements of Operations resulting
from workforce reductions during the three and nine months ended September 27,
2009 is as follows:
(In
thousands)
|
Three
Months
Ended
|
Nine
Months
Ended
|
||||||
Cost
of systems revenue
|
$
|
—
|
$
|
259
|
||||
Cost
of components revenue
|
—
|
49
|
||||||
Research
and development
|
—
|
130
|
||||||
Sales,
general and administrative
|
—
|
1,244
|
||||||
Total
restructuring charges
|
$
|
—
|
$
|
1,682
|
Note
10. COMMITMENTS AND
CONTINGENCIES
Operating
Lease Commitments
The
Company leases its San Jose, California facility under a non-cancelable
operating lease from Cypress, which expires in April 2011. In addition, the
Company leases its Richmond, California facility under a non-cancelable
operating lease from an unaffiliated third-party, which expires in September
2018. The Company also has various lease arrangements, including for its
European headquarters located in Geneva, Switzerland under a lease that expires
in September 2012, as well as sales and support offices in Southern California,
New Jersey, Oregon, Australia, Canada, Germany, Italy, Spain and South Korea,
all of which are leased from unaffiliated third-parties. Future minimum
obligations under all non-cancelable operating leases as of September 27, 2009
are as follows (in thousands):
2009
(remaining three months)
|
$
|
1,440
|
||
2010
|
5,214
|
|||
2011
|
3,790
|
|||
2012
|
2,912
|
|||
2013
|
2,828
|
|||
Thereafter
|
14,707
|
|||
$
|
30,891
|
Purchase
Commitments
The
Company purchases 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, the
Company enters into agreements with contract manufacturers and suppliers that
either allow them to procure goods and services based upon specifications
defined by the Company, or that establish parameters defining the Company’s
requirements. In certain instances, these agreements allow the Company the
option to cancel, reschedule or adjust the Company’s requirements based on its
business needs prior to firm orders being placed. Consequently, only a portion
of the Company’s disclosed purchase commitments arising from these agreements
are firm, non-cancelable and unconditional commitments.
The
Company also has agreements with several suppliers, including joint ventures,
for the procurement of polysilicon, ingots, wafers and solar panels which
specify future quantities and pricing of products to be supplied by the vendors
for periods up to 12 years and provide for certain consequences, such as
forfeiture of advanced deposits and liquidated damages relating to previous
purchases, in the event that the Company terminates the arrangements (see Note
7).
As of
September 27, 2009, total obligations related to non-cancelable purchase orders
totaled approximately $39.5 million and long-term supply agreements totaled
approximately $6,394.5 million. Future purchase obligations under non-cancelable
purchase orders and long-term supply agreements as of September 27, 2009 are as
follows (in thousands):
2009
(remaining three months)
|
$
|
181,483
|
||
2010
|
612,745
|
|||
2011
|
708,974
|
|||
2012
|
635,214
|
|||
2013
|
665,191
|
|||
Thereafter
|
3,630,400
|
|||
$
|
6,434,007
|
Total
future purchase commitments of $6,434.0 million as of September 27, 2009
included tolling agreements with suppliers in which the Company provides
polysilicon required for silicon ingot manufacturing and procures the
manufactured silicon ingots from the supplier. Annual future purchase
commitments in the table above are calculated using the gross price paid by the
Company for silicon ingots and are not reduced by the price paid by suppliers
for polysilicon. Total future purchase commitments as of September 27, 2009
would be reduced by $1,841.9 million to $4,592.1 million had the Company’s
obligations under such tolling agreements been disclosed using net cash
outflows.
Product
Warranties
The
Company generally warrants or guarantees the performance of the solar
panels that it manufactures at certain levels of power output for 25
years. In addition, the Company passes through to customers long-term
warranties from the original equipment manufacturers (“OEMs”) of certain system
components. Warranties of 25 years from solar panels suppliers are standard in
the solar industry, while inverters typically carry warranty periods ranging
from 5 to 10 years. In addition, the Company generally warrants its workmanship
on installed systems for a period of 1, 2, 5 or 10 years. The Company maintains
reserves to cover the expected costs that could result from these warranties.
The Company’s expected costs are generally in the form of product replacement or
repair. Warranty reserves are based on the Company’s best estimate of such costs
and are recognized as a cost of revenue. The Company continuously monitors
product returns for warranty failures and maintains a reserve for the related
warranty expenses based on various factors including historical warranty claims,
results of accelerated lab testing, field monitoring, vendor reliability
estimates, and data on industry averages for similar products. Historically,
warranty costs have been within management’s expectations.
Provisions
for warranty reserves charged to cost of revenue were $6.8 million and
$15.7 million during the three and nine months ended September 27, 2009,
respectively, and $4.2 million and $14.0 million for the three and
nine months ended September 28, 2008, respectively. Activity within accrued
warranty for the three and nine months ended September 27, 2009 and September
28, 2008 is summarized as follows:
Three
Months Ended
|
Nine
Months Ended
|
|||||||||||||||
(In
thousands)
|
September
27,
2009
|
September
28,
2008
|
September
27,
2009
|
September
28,
2008
|
||||||||||||
Balance
at the beginning of the period
|
$
|
34,108
|
$
|
22,521
|
$
|
28,062
|
$
|
17,194
|
||||||||
Accruals
for warranties issued during the period
|
6,756
|
4,163
|
15,749
|
14,003
|
||||||||||||
Settlements
made during the period
|
(1,069
|
)
|
(2,920
|
)
|
(4,016
|
)
|
(7,433
|
)
|
||||||||
Balance
at the end of the period
|
$
|
39,795
|
$
|
23,764
|
$
|
39,795
|
$
|
23,764
|
The
accrued warranty balance at September 27, 2009 and December 28, 2008 includes
$3.5 million and $4.2 million, respectively, of accrued costs primarily related
to servicing the Company’s obligations under long-term maintenance contracts
entered into under the Systems Segment and such balances are included in “Other
long-term liabilities” in the Condensed Consolidated Balance
Sheets.
Tax
Sharing Agreement
To the extent that the Company becomes
entitled to utilize credit or loss carryforwards existing on or before September
29, 2008, the date the Company ceased to be a member of Cypress’s combined group
for all state income tax purposes, on its separate tax returns, the Company will
distribute to Cypress the tax effect, estimated to be 40% for federal and state
income tax purposes, of the amount of such credit or loss carryforwards so
utilized. The Company will distribute these amounts to Cypress in cash or in the
Company’s shares, at Cypress’s option. As of December 28, 2008, the Company
had $44.0 million of federal net operating loss carryforwards and approximately
$27.7 million of California net operating loss carryforwards. The potential
future payments to Cypress, to be made over a period of several years, are
approximately $18.7 million in the aggregate. In October 2009, the Company paid
$15.1 million in cash to Cypress representing the federal component of the
estimated $18.7 million obligation. In November 2009, the Company expects
to pay a portion of the remaining obligation representing the California and
other state net operating loss carryforwards and tax credit
obligations.
Uncertain
Tax Positions
Total
liabilities associated with uncertain tax positions were $12.1 million and $12.8
million as of September 27, 2009 and December 28, 2008, respectively, and are
included in "Other long-term liabilities" in the Company’s Condensed
Consolidated Balance Sheets as they are not expected to be paid within the next
twelve months. Due to the complexity and uncertainty associated with its tax
positions, the Company cannot make a reasonably reliable estimate of the period
in which cash settlement will be made for its liabilities associated with
uncertain tax positions in other long-term liabilities.
The
Company finalized a foreign tax audit during the third quarter of fiscal 2009
which decreased the Company’s total liabilities associated with uncertain tax
positions.
Indemnifications
The
Company is a party to a variety of agreements pursuant to which it may be
obligated to indemnify the other party with respect to certain matters.
Typically, these obligations arise in connection with contracts and license
agreements or the sale of assets, under which the Company customarily agrees to
hold the other party harmless against losses arising from a breach of
warranties, representations and covenants related to such matters as title to
assets sold, negligent acts, damage to property, validity of certain
intellectual property rights, non-infringement of third-party rights and certain
tax related matters. In each of these circumstances, payment by the Company is
typically subject to the other party making a claim to the Company pursuant to
the procedures specified in the particular contract. These procedures usually
allow the Company to challenge the other party’s claims or, in case of breach of
intellectual property representations or covenants, to control the defense or
settlement of any third-party claims brought against the other party. Further,
the Company’s obligations under these agreements may be limited in terms of
activity (typically to replace or correct the products or terminate the
agreement with a refund to the other party), duration and/or amounts. In some
instances, the Company may have recourse against third-parties and/or insurance
covering certain payments made by the Company.
Legal
Matters
From time
to time the Company is a party to litigation matters and claims that are normal
in the course of its operations. While the Company believes that the ultimate
outcome of these matters will not have a material adverse effect on the Company,
the outcome of these matters is not determinable and negative outcomes may
adversely affect its financial position, liquidity or results of
operations.
Note
11. JOINT
VENTURES
Woongjin
Energy Co., Ltd (“Woongjin Energy”)
The
Company and Woongjin Holdings Co., Ltd. (“Woongjin”), a provider of
environmental products located in Korea, formed Woongjin Energy in fiscal 2006,
a joint venture to manufacture monocrystalline silicon ingots. The Company and
Woongjin have funded the joint venture through capital investments. In
January 2008, the Company invested an additional $5.4 million in the joint
venture. Until Woongjin Energy engages in an IPO, Woongjin Energy is required to
refrain from declaring or making any distributions, including dividends, unless
its debt-to-equity ratio immediately following such distribution would not be
greater than 200%. The Company supplies polysilicon, services and technical
support required for silicon ingot manufacturing to the joint venture, and the
Company procures the manufactured silicon ingots from the joint venture under a
nine-year agreement. Payments to Woongjin Energy for manufacturing silicon
ingots totaled $36.0 million and $110.8 million during the three and nine months
ended September 27, 2009, respectively, and $21.7 million and $36.7 million
during the three and nine months ended September 28, 2008, respectively. As
of September 27, 2009 and December 28, 2008, $17.7 million and $22.5 million,
respectively, remained due and payable to Woongjin Energy related to the
procurement of manufactured silicon ingots pursuant to such nine-year
agreement.
As of
September 27, 2009 and December 28, 2008, the Company had a $31.1 million and
$24.0 million, respectively, investment in the joint venture in its Condensed
Consolidated Balance Sheets which represented a 40% equity investment. The
Company periodically evaluates the qualitative and quantitative attributes of
its relationship with Woongjin Energy to determine whether the Company is the
primary beneficiary of the joint venture and needs to consolidate Woongjin
Energy’s results into the Company’s financial statements. The Company has
concluded that it is not the primary beneficiary of the joint venture because
Woongjin Energy supplies only a portion of the Company’s future estimated total
ingot requirement through 2016 and the existing supply agreement is shorter than
the estimated economic life of the joint venture. In addition, the Company
believes that Woongjin is the primary beneficiary of the joint venture because
Woongjin guarantees the initial approximately $33.0 million loan for Woongjin
Energy and exercises significant control over Woongjin Energy’s board of
directors, management, and daily operations.
The
Company accounts for its investment in Woongjin Energy using the equity method
of accounting in which the investment is classified as “Other long-term assets”
in the Condensed Consolidated Balance Sheets and the Company’s share of Woongjin
Energy’s income totaling $2.6 million and $7.1 million for the three and nine
months ended September 27, 2009, respectively, and $2.2 million and $4.1 million
for the three and nine months ended September 28, 2008, respectively, is
included in “Equity in earnings of unconsolidated investees” in the Condensed
Consolidated Statements of Operations. The amount of equity earnings increased
year-over-year due to: (i) increases in production since Woongjin Energy began
manufacturing in the third quarter of fiscal 2007 and (ii) the increase in the
Company’s equity investment from 27.4% to 40% beginning in August 2008 as a
result of converting a $3.3 million convertible note into equity of Woongjin
Energy. Neither party has contractual obligations to provide any additional
funding to the joint venture. The Company’s maximum exposure to loss as a result
of its involvement with Woongjin Energy is limited to the carrying value of its
investment.
The
Company conducted other related-party transactions with Woongjin Energy during
fiscal 2008. The Company recognized $4.1 million and $4.8 million in components
revenue during the three and nine months ended September 28, 2008, respectively,
related to the sale of solar panels to Woongjin Energy. As of September 27, 2009
and December 28, 2008, zero and $0.8 million, respectively, remained due and
receivable from Woongjin Energy related to the sale of these solar
panels.
Summarized
financial information adjusted to conform to U.S. GAAP for Woongjin Energy, as
it qualifies as a “significant investee” of the Company as defined in SEC
Regulation S-X Rule 1-02(bb) during the nine months ended September 27, 2009, is
as follows:
(In
thousands)
|
Nine
Months
Ended
|
|||
Revenue
|
$
|
67,249
|
||
Gross
margin
|
36,631
|
|||
Operating
income
|
33,121
|
|||
Net
income
|
15,463
|
First
Philec Solar Corporation (“First Philec Solar”)
The
Company and First Philippine Electric Corporation (“First Philec”) formed First
Philec Solar in fiscal 2007, a joint venture to provide wafer slicing services
of silicon ingots to the Company. The Company and First Philec have funded the
joint venture through capital investments. In fiscal 2008, the Company invested
an additional $4.2 million in the joint venture. The Company supplies to the
joint venture silicon ingots and technology required for slicing silicon, and
the Company procures the silicon wafers from the joint venture under a five-year
wafering supply and sales agreement. This joint venture is located in the
Philippines and became operational in the second quarter of fiscal 2008.
Payments to First Philec Solar for wafer slicing services of silicon ingots
totaled $13.8 million and $29.6 million during the three and nine months ended
September 27, 2009, respectively, and zero during both the three and
nine months ended September 28, 2008. As of September 27, 2009 and December
28, 2008, $3.6 million and $1.9 million, respectively, remained due and payable
to First Philec Solar related to the procurement of silicon wafers pursuant to
such five-year wafering supply and sales agreement.
As of
September 27, 2009 and December 28, 2008, the Company had a $4.9 million and
$5.0 million, respectively, investment in the joint venture in its Condensed
Consolidated Balance Sheets which represented a 19% equity investment. The
Company periodically evaluates the qualitative and quantitative attributes of
its relationship with First Philec Solar to determine whether the Company is the
primary beneficiary of the joint venture and needs to consolidate First Philec
Solar’s results into the Company’s financial statements. The Company has
concluded that it is not the primary beneficiary of the joint venture because
the existing five-year agreement is considered a short period compared to the
estimated economic life of the joint venture. In addition, the Company believes
that First Philec is the primary beneficiary of the joint venture because First
Philec exercises significant control over First Philec Solar’s board of
directors, management, and daily operations.
The
Company accounts for this investment using the equity method of accounting since
the Company is able to exercise significant influence over First Philec Solar
due to its board positions. The Company’s investment is classified as “Other
long-term assets” in the Condensed Consolidated Balance Sheets and the Company’s
share of First Philec Solar’s income of zero and loss of $0.1 million during the
three and nine months ended September 27, 2009, respectively, and losses of $0.1
million during both the three and nine months ended September 28, 2008, is
included in “Equity in earnings of unconsolidated investees” in the Condensed
Consolidated Statement of Operations. The Company’s maximum exposure to loss as
a result of its involvement with First Philec Solar is limited to the carrying
value of its investment.
Note
12. DEBT AND CREDIT
SOURCES
Line
of Credit
On July
13, 2007, the Company entered into a credit agreement with Wells Fargo and has
entered into amendments to the credit agreement from time to time. As of
September 27, 2009, the credit agreement provides for a $50.0 million
uncollateralized revolving credit line, with a $50.0 million uncollateralized
letter of credit subfeature, and a separate $200.0 million collateralized letter
of credit facility. The Company may borrow up to $50.0 million and request that
Wells Fargo issue up to $50.0 million in letters of credit under the
uncollateralized letter of credit subfeature through March 27, 2010. Letters of
credit issued under the subfeature reduce the Company’s borrowing capacity under
the uncollateralized revolving credit line. Additionally, the Company may
request that Wells Fargo issue up to $200.0 million in letters of credit under
the collateralized letter of credit facility through March 27, 2014. As detailed
in the credit agreement, the Company pays interest of LIBOR plus 2% on
outstanding borrowings under the uncollateralized revolving credit line, and a
fee of 2% and 0.2% to 0.4% depending on maturity for outstanding letters of
credit under the uncollateralized letter of credit subfeature and collateralized
letter of credit facility, respectively. At any time, the Company can prepay
outstanding loans without penalty. All borrowings under the uncollateralized
revolving credit line must be repaid by March 27, 2010, and all letters of
credit issued under the uncollateralized letter of credit subfeature expire on
or before March 27, 2010 unless the Company provides by such date collateral in
the form of cash or cash equivalents in the aggregate amount available to be
drawn under letters of credit outstanding at such time. All letters of
credit issued under the collateralized letter of credit facility expire no later
than March 27, 2014.
In
connection with the credit agreement, the Company entered into a security
agreement with Wells Fargo, granting a security interest in a securities account
and a deposit account to secure its obligations in connection with any letters
of credit that might be issued under the collateralized letter of credit
facility. SunPower North America, LLC and SunPower Corporation, Systems (“SP
Systems”), both wholly-owned subsidiaries of the Company, also entered into an
associated continuing guaranty with Wells Fargo. The terms of the credit
agreement include certain conditions to borrowings, representations and
covenants, and events of default customary for financing transactions of this
type. Covenants contained in the credit agreement include, but are not limited
to, restrictions on the incurrence of additional indebtedness, pledging of
assets, payment of dividends or distribution on the Company’s common stock, and
purchases of property, plant and equipment and financial covenants with respect
to certain liquidity, net worth and profitability metrics. If the Company fails
to comply with the financial and other restrictive covenants contained in the
credit agreement resulting in an event of default, all debt to Wells Fargo could
become immediately due and payable and the Company’s other debt may become due
and payable in the event there are cross-default provisions in the agreements
governing such other debt.
As of
September 27, 2009 and December 28, 2008, no borrowings were outstanding on the
uncollateralized revolving credit line and letters of credit totaling $49.2
million and $29.9 million, respectively, were issued by Wells Fargo under the
uncollateralized letter of credit subfeature. In addition, letters of credit
totaling $138.7 million and $76.5 million were issued by Wells Fargo under the
collateralized letter of credit facility as of September 27, 2009 and
December 28, 2008, respectively.
Term
Loan with Union Bank, N.A. (“Union Bank”)
On April
17, 2009, the Company entered into a loan agreement with Union Bank under which
the Company borrowed $30.0 million for a term of three years at an interest rate
of LIBOR plus 2%, or approximately 2.3% as of September 27, 2009. The loan is to
be repaid in eight equal quarterly installments of principal plus interest
commencing June 30, 2010. In connection with the loan agreement, the Company
entered into a security agreement with Union Bank, which will grant a security
interest in the deposit account in favor of Union Bank. If the Company has not
converted or exchanged its 0.75% debentures in a manner satisfactory to Union
Bank before April 1, 2010, the Company will be required to deposit 105% of the
outstanding loan amount into this account. SunPower North America, LLC and SP
Systems, both wholly-owned subsidiaries of the Company, have each guaranteed
$30.0 million in principal plus interest of the Company’s obligations under the
loan agreement. The agreements governing the term loan with Union Bank include
certain representations, covenants, and events of default customary for
financing transactions of this type.
Debt
Facility Agreement with the Malaysian Government
On
December 18, 2008, the Company entered into a facility agreement with the
Malaysian Government. In connection with the facility agreement, the Company
executed a debenture and deed of assignment in favor of the Malaysian
Government, granting a security interest in a deposit account and all assets of
SunPower Malaysia Manufacturing Sdn. Bhd., a wholly-owned subsidiary of the
Company, to secure its obligations under the facility agreement.
Under the
terms of the facility agreement, the Company may borrow up to Malaysian Ringgit
1.0 billion (approximately $287.9 million based on the exchange rate as of
September 27, 2009) to finance the construction of its third solar cell
manufacturing facility in Malaysia. The loans within the facility agreement
are divided into two tranches that may be drawn through June
2010. Principal is to be repaid in six quarterly payments starting in July
2015, and a non-weighted average interest rate of approximately 4.4% per annum
accrues and is payable starting in July 2015. The Company has the ability to
prepay outstanding loans without premium or penalty and all borrowings must be
repaid by October 30, 2016. The terms of the facility agreement include certain
conditions to borrowings, representations and covenants, and events of default
customary for financing transactions of this type. As of September 27, 2009 and
December 28, 2008, the Company had borrowed Malaysian Ringgit 565.0 million
(approximately $162.7 million based on the exchange rate as of September 27,
2009) and Malaysian Ringgit 190.0 million (approximately $54.6 million based on
the exchange rate as of December 28, 2008), respectively, under the facility
agreement.
Convertible
Debentures
The
following table summarizes the Company’s outstanding convertible
debt:
September
27, 2009
|
December 28, 2008
|
|||||||||||||||||||||||
(In thousands)
|
Carrying
Value
|
Face
Value
|
Fair
Value(1)
|
Carrying
Value
|
Face
Value
|
Fair
Value(1)
|
||||||||||||||||||
4.75%
debentures
|
$
|
230,000
|
$
|
230,000
|
$
|
314,010
|
$
|
—
|
$
|
—
|
$
|
—
|
||||||||||||
1.25%
debentures
|
165,438
|
198,608
|
179,492
|
156,350
|
198,608
|
143,991
|
||||||||||||||||||
0.75%
debentures
|
135,518
|
143,883
|
138,667
|
200,823
|
225,000
|
166,747
|
||||||||||||||||||
$
|
530,956
|
$
|
572,491
|
$
|
632,169
|
$
|
357,173
|
$
|
423,608
|
$
|
310,738
|
(1)
|
The
fair value of the convertible debt was determined based on quoted market
prices as reported by an independent pricing
source.
|
In May
2009, the Company issued $230.0 million in principal amount of its 4.75% senior
convertible debentures and received net proceeds of $225.0 million, before
payment of the net cost of the call spread overlay described below. Interest on
the 4.75% debentures is payable on April 15 and October 15 of each year,
which commenced October 15, 2009. Holders of the 4.75% debentures are able to
exercise their right to convert the debentures at any time into shares of the
Company’s class A common stock at a conversion price equal to $26.40 per share.
The applicable conversion rate may adjust in certain circumstances, including
upon a fundamental change, as defined in the indenture governing the 4.75%
debentures. If not earlier converted, the 4.75% debentures mature on April 15,
2014. Holders may also require the Company to repurchase all or a portion of
their 4.75% debentures upon a fundamental change at a cash repurchase price
equal to 100% of the principal amount plus accrued and unpaid interest. In the
event of certain events of default, such as the Company’s failure to make
certain payments or perform or observe certain obligations thereunder, Wells
Fargo, the trustee, or holders of a specified amount of then-outstanding 4.75%
debentures will have the right to declare all amounts then outstanding due and
payable.
In
February 2007, the Company issued $200.0 million in principal amount of its
1.25% senior convertible debentures and received net proceeds of $194.0 million.
Interest on the 1.25% debentures is payable on February 15 and
August 15 of each year, which commenced August 15, 2007. The 1.25%
debentures mature on February 15, 2027. Holders may require the Company to
repurchase all or a portion of their 1.25% debentures on each of
February 15, 2012, February 15, 2017 and February 15, 2022,
or if the Company experiences certain types of corporate transactions
constituting a fundamental change, as defined in the indenture governing the
1.25% debentures. In addition, the Company may redeem some or all of the 1.25%
debentures on or after February 15, 2012. The 1.25% debentures are
convertible, subject to certain conditions, into cash up to the lesser of the
principal amount or the conversion value. If the conversion value is greater
than $1,000, then the excess conversion value will be convertible into the
Company’s class A common stock. The initial effective conversion price of the
1.25% debentures is approximately $56.75 per share and is subject to customary
adjustments in certain circumstances.
In July
2007, the Company issued $225.0 million in principal amount of its 0.75% senior
convertible debentures and received net proceeds of $220.1 million. Interest on
the 0.75% debentures is payable on February 1 and August 1 of each
year, which commenced February 1, 2008. The 0.75% debentures mature on
August 1, 2027. Holders may require the Company to repurchase all or a portion
of their 0.75% debentures on each of August 1, 2010, August 1, 2015, August 1,
2020, and August 1, 2025, or if the Company is involved in certain types of
corporate transactions constituting a fundamental change, as defined in the
indenture governing the 0.75% debentures. In addition, the Company may redeem
some or all of the 0.75% debentures on or after August 1, 2010. The 0.75%
debentures were reclassified as short-term liabilities in the Company’s
Condensed Consolidated Balance Sheet as of September 27, 2009 due to the ability
of the holders to require the Company to repurchase its 0.75% debentures
commencing on August 1, 2010. The 0.75% debentures are convertible, subject to
certain conditions, into cash up to the lesser of the principal amount or the
conversion value. If the conversion value is greater than $1,000, then the
excess conversion value will be convertible into cash, class A common stock or a
combination of cash and class A common stock, at the Company’s election. The
initial effective conversion price of the 0.75% debentures is approximately
$82.24 per share and is subject to customary adjustments in certain
circumstances.
The 4.75%
debentures, 1.25% debentures and 0.75% debentures are senior, unsecured
obligations of the Company, ranking equally with all existing and future senior
unsecured indebtedness of the Company. The 4.75% debentures, 1.25% debentures
and 0.75% debentures are effectively subordinated to the Company’s secured
indebtedness to the extent of the value of the related collateral and
structurally subordinated to indebtedness and other liabilities of the Company’s
subsidiaries. The 4.75% debentures, 1.25% debentures and 0.75% debentures do not
contain any sinking fund requirements.
If the
closing price of the Company’s class A common stock equaled or exceeded 125% of
the initial effective conversion price governing the 1.25% debentures and/or
0.75% debentures for 20 out of 30 consecutive trading days in the last month of
the fiscal quarter then holders of the 1.25% debentures and/or 0.75%
debentures have the right to convert the debentures any day in the following
fiscal quarter. For the quarter ended September 28, 2008, the closing price of
the Company’s class A common stock equaled or exceeded 125% of the $56.75 per
share initial effective conversion price governing the 1.25% debentures for 20
out of 30 consecutive trading days ending on September 28, 2008; thus holders of
the 1.25% debentures were able to exercise their right to convert the debentures
any day during the fourth quarter in fiscal 2008. As of December 28, 2008, the
Company received notices for the conversion of approximately $1.4 million in
principal amount of the 1.25% debentures which the Company settled for
approximately $1.2 million in cash and 1,000 shares of class A common
stock.
Because
the closing price of the Company’s class A common stock on at least 20 of the
last 30 trading days during the fiscal quarters ending September 27, 2009, June
28, 2009, March 29, 2009 and December 28, 2008 did not equal or exceed $70.94,
or 125% of the applicable conversion price for its 1.25% debentures, and
$102.80, or 125% of the applicable conversion price for its 0.75% debentures,
holders of the 1.25% debentures and 0.75% debentures are unable to exercise
their right to convert the debentures, based on the market price conversion
trigger, on any day in fiscal 2009. Accordingly, the Company classified its
1.25% debentures as long-term in its Condensed Consolidated Balance Sheet as of
September 27, 2009 and the 1.25% debentures and 0.75% debentures as long-term
debt as of December 28, 2008. This test is repeated each fiscal quarter,
therefore, if the market price conversion trigger is satisfied in a subsequent
quarter, the 1.25% debentures may again be reclassified as
short-term.
The 1.25%
debentures and 0.75% debentures are subject to the new accounting guidance for
convertible debt instruments that may be settled in cash upon conversion adopted
by the Company on December 29, 2008, since the debentures must be settled
at least partly in cash upon conversion. The 4.75% debentures are not subject to
the new accounting guidance since they are only convertible into the Company’s
class A common stock. The Company estimated that the effective interest rate for
similar debt without the conversion feature was 9.25% and 8.125% on the 1.25%
debentures and 0.75% debentures, respectively. The principal amount of the
outstanding debentures, the unamortized discount and the net carrying value as
of September 27, 2009 was $342.5 million, $41.5 million and $301.0 million,
respectively, and as of December 28, 2008 was $423.6 million, $66.4 million and
$357.2 million, respectively. In the three and nine months ended September 27,
2009, the Company repurchased a portion of its 0.75% debentures with a principal
amount of $8.0 million and $81.1 million, respectively, unamortized discount of
$0.5 million and $6.4 million, respectively, and net carrying value of $7.5
million and $74.7 million, respectively, for approximately $7.7 million and
$75.6 million, respectively. The Company recognized $5.3 million and $16.2
million in non-cash interest expense during the three and nine months ended
September 27, 2009, respectively, as compared to $4.0 million and $12.7 million
during the three and nine months ended September 28, 2008, respectively (see
Note 1). As of September 27, 2009, the remaining weighted average period over
which the unamortized discount will be recognized is as follows (in
thousands):
2009
(remaining three months)
|
$
|
5,618
|
||
2010
|
19,332
|
|||
2011
|
14,687
|
|||
2012
|
1,898
|
|||
$
|
41,535
|
Call
Spread Overlay (“CSO”)
Concurrent
with the issuance of the 4.75% debentures, the Company entered into certain
convertible debenture hedge transactions (the “Purchased Options”) with
affiliates of certain of the underwriters of the 4.75% debentures. The Purchased
Options allow the Company to purchase up to approximately 8.7 million shares of
the Company’s class A common stock and are intended to reduce the potential
dilution upon conversion of the 4.75% debentures in the event that the market
price per share of the Company’s class A common stock at the time of exercise is
greater than the conversion price of the 4.75% debentures. The Purchased Options
will be settled on a net share basis. Each convertible debenture hedge
transaction is a separate transaction, entered into by the Company with each
option counterparty, and is not part of the terms of the 4.75% debentures. The
Company paid aggregate consideration of $97.3 million for the Purchased Options
on May 4, 2009. The exercise price of the Purchased Options is $26.40 per share
of the Company’s class A common stock, subject to adjustment for customary
anti-dilution and other events.
The
Purchased Options, which are indexed to the Company’s class A common stock, were
deemed to be mark-to-market derivatives during the period in which the
over-allotment option in favor of the 4.75% debenture underwriters was
unexercised. The Company entered into the debenture underwriting agreement on
April 28, 2009 and the 4.75% debenture underwriters exercised the over-allotment
option in full on April 29, 2009. During the one-day period that the
underwriters’ over-allotment option was outstanding, the Company’s class A
common stock price increased substantially, resulting in a non-cash non-taxable
gain on Purchased Options of $21.2 million during the nine months ended
September 27, 2009 in its Condensed Consolidated Statements of
Operations.
The
Company also entered into certain warrant transactions whereby the Company
agreed to sell to affiliates of certain of the 4.75% debenture underwriters
warrants (the “Warrants”) to acquire up to approximately 8.7 million shares of
the Company’s class A common stock. The Warrants expire in 2014. If the market
price per share of the Company’s class A common stock exceeds the exercise price
of the Warrants, the Warrants will have a dilutive effect on the Company’s
earnings per share. Each warrant transaction is a separate transaction, entered
into by the Company with each option counterparty, and is not part of the terms
of the 4.75% debentures. Holders of the 4.75% debentures do not have any rights
with respect to the Warrants. The Warrants were sold for aggregate cash
consideration of approximately $71.0 million on May 4, 2009. The exercise price
of the Warrants is $38.50 per share of the Company’s class A common stock,
subject to adjustment for customary anti-dilution and other events.
The
Purchased Options and sale of Warrants described above represent a CSO with
respect to the 4.75% debentures. Assuming full performance by the
counterparties, the transactions effectively increase the conversion price of
the 4.75% debentures from $26.40 to $38.50. The Company’s net cost of the
Purchased Options and sale of Warrants for the CSO was $26.3
million.
Note
13. COMPREHENSIVE
INCOME
Comprehensive
income is defined as the change in equity of a business enterprise during a
period from transactions and other events and circumstances from non-owner
sources. Comprehensive income includes unrealized gains and losses on the
Company’s available-for-sale investments, foreign currency derivatives
designated as cash flow hedges and translation adjustments. The components of
comprehensive income were as follows:
Three
Months Ended
|
Nine
Months Ended
|
|||||||||||||||
(In
thousands)
|
September
27,
2009
|
September
28,
2008
|
September
27,
2009
|
September
28,
2008
|
||||||||||||
Net
income
|
$
|
12,831
|
$
|
24,681
|
$
|
32,216
|
$
|
67,837
|
||||||||
Other
comprehensive income:
|
||||||||||||||||
Translation
adjustment
|
4,124
|
(16,570
|
)
|
(9,933
|
)
|
(4,241
|
)
|
|||||||||
Unrealized
gain (loss) on investments, net of tax
|
—
|
(138
|
)
|
8
|
(1,140
|
)
|
||||||||||
Unrealized
gain on derivatives, net of tax
|
327
|
435
|
3,892
|
4,030
|
||||||||||||
Total
comprehensive income
|
$
|
17,282
|
$
|
8,408
|
$
|
26,183
|
$
|
66,486
|
Note
14. FOREIGN CURRENCY
DERIVATIVES
The
Company has non-U.S. subsidiaries that operate and sell the Company’s products
in various global markets, primarily in Europe. As a result, the Company is
exposed to risks associated with changes in foreign currency exchange rates. It
is the Company’s policy to use various hedge instruments to manage the exposures
associated with purchases of foreign sourced equipment, net asset or liability
positions of its subsidiaries and forecasted revenues and expenses. Beginning in
the second quarter of fiscal 2008, the Company changed the flow of transactions
to European subsidiaries that have Euro functional currency, resulting in
greater exposure to changes in the value of the Euro and limiting the Company’s
ability to fully hedge certain Euro-denominated revenue. The Company currently
does not enter into foreign currency derivative financial instruments for
speculative or trading purposes.
Beginning
in the first quarter of fiscal 2009, the Company provided enhanced disclosures
regarding its derivative instruments and hedging activities as required under
new accounting guidance (see Note 1). The Company has applied the requirements
of the new disclosure guidance on a prospective basis and, therefore,
disclosures related to interim periods prior to the date of adoption have not
been presented.
The
Company is required to recognize derivative instruments as either assets or
liabilities at fair value in its Condensed Consolidated Balance Sheets. The
Company calculates the fair value of its option and forward contracts based on
market volatilities, spot rates and interest differentials from published
sources. The following table presents information about the Company’s hedge
instruments measured at fair value on a recurring basis as of September 27, 2009
and indicates the fair value hierarchy of the valuation techniques utilized by
the Company to determine such fair value:
(In
thousands)
|
Balance
Sheet Classification
|
Significant
Other
Observable
Inputs
(Level
2)
|
|||
Assets
|
Prepaid
expenses and other current assets
|
||||
Cash
flow hedges:
|
|||||
Foreign
currency option contracts
|
$
|
1,359
|
|||
Balance
sheet hedges:
|
|||||
Foreign
currency forward exchange contracts
|
$
|
1,311
|
|||
Liabilities
|
Accrued
liabilities
|
||||
Cash
flow hedges:
|
|||||
Foreign
currency forward exchange contracts
|
$
|
40,546
|
|||
Balance
sheet hedges:
|
|||||
Foreign
currency forward exchange contracts
|
$
|
9,007
|
The
following table summarizes the amount of unrealized gain (loss) recognized in
“Accumulated other comprehensive loss” (“OCI”) in “Stockholders’ equity” in the
Condensed Consolidated Balance Sheet:
Unrealized
Loss Recognized in OCI (Effective Portion)
|
Loss
Reclassified from OCI to Cost of Revenue (Effective
Portion)
|
Gain
(Loss) Recognized in Other, Net on Derivatives (Ineffective Portion and
Amount Excluded from Effectiveness Testing)
|
||||||||||||||||||
(In
thousands)
|
As
of
September
27,
2009
|
Three
Months
Ended
September
27,
2009
|
Nine
Months
Ended
September
27,
2009
|
Three
Months
Ended
September
27,
2009
|
Nine
Months
Ended
September
27,
2009
|
|||||||||||||||
Cash
flow hedges:
|
||||||||||||||||||||
Foreign
currency option contracts
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
(2,177
|
)
|
$
|
(3,053
|
)
|
||||||||
Foreign
currency forward exchange contracts
|
(22,193
|
)
|
(10,625
|
)
|
(10,750
|
)
|
812
|
(846
|
)
|
|||||||||||
$
|
(22,193
|
)
|
$
|
(10,650
|
)
|
$
|
(10,775
|
)
|
$
|
(1,365
|
)
|
$
|
(3,899
|
)
|
The
following table summarizes the amount of loss recognized in “Other, net” in
the Condensed Consolidated Statements of Operations in the three and nine months
ended September 27, 2009:
(In
thousands)
|
Three
Months
Ended
September
27,
2009
|
Nine
Months
Ended
September
27,
2009
|
||||||
Balance
sheet hedges:
|
||||||||
Foreign
currency forward exchange contracts
|
$
|
(12,648
|
)
|
$
|
(16,634
|
)
|
Foreign
Currency Exchange Risk
Cash
Flow Exposure
The
Company’s subsidiaries have had and will continue to have material cash flows,
including revenues and expenses, that are denominated in currencies other than
their functional currencies. The Company’s cash flow exposure primarily relates
to trade accounts receivable and accounts payable. Changes in exchange rates
between the Company’s subsidiaries’ functional currencies and other currencies
in which they transact will cause fluctuations in cash flows expectations and
cash flows realized or settled. Accordingly, the Company enters into option and
forward contracts to hedge the value of a portion of these forecasted cash
flows.
The
Company accounts for its hedges of forecasted foreign currency purchases as cash
flow hedges. As of September 27, 2009, the Company has outstanding cash flow
hedge option contracts and forward contracts with an aggregate notional value of
$108.4 million and $223.7 million, respectively. As of December 28, 2008, the
Company had outstanding cash flow hedge option contracts and forward contracts
with an aggregate notional value of $147.5 million and $364.5 million,
respectively. The maturity dates of the outstanding contracts as of
September 27, 2009 range from October 2009 to September 2010. Changes in fair
value of the effective portion of hedge contracts are recorded in “Accumulated
other comprehensive loss” in “Stockholders’ equity” in the Condensed
Consolidated Balance Sheets. Amounts deferred in accumulated other comprehensive
loss are reclassified to “Cost of revenue” in the Condensed Consolidated
Statements of Operations in the periods in which the hedged exposure impacts
earnings. The Company expects to reclassify substantially all of its net losses
related to these option and forward contracts that are included in accumulated
other comprehensive loss as of September 27, 2009 to “Cost of revenue” in
the following twelve months as the Company realizes the cost effects of the
related forecasted foreign currency cost of revenue transactions. The amounts
ultimately recorded in the Condensed Consolidated Statements of Operations will
be contingent upon the actual exchange rates when the related forecasted foreign
currency cost of revenue transactions are realized, and therefore, unrealized
losses as of September 27, 2009 could change.
Cash flow
hedges are tested for effectiveness each period on an average to average rate
basis using regression analysis. The change in the time value of the options as
well as the cost of forward points (the difference between forward and spot
rates at inception) on forward exchange contracts are excluded from the
Company’s assessment of hedge effectiveness. The premium paid or time value of
an option whose strike price is equal to or greater than the market price on the
date of purchase is recorded as an asset in the Condensed Consolidated Balance
Sheets. Thereafter, any change to this time value and the cost of forward points
is included in “Other, net” in the Condensed Consolidated Statements of
Operations. Amounts recorded in “Other, net” were losses of $1.4 million
and $3.9 million during the three and nine months ended September 27, 2009,
respectively, due to loss in time value and cost of forward points, as compared
to zero during the comparable periods of 2008.
Transaction
Exposure
Other
derivatives not designated as hedging instruments consist of forward contracts
used to hedge the net balance sheet effect of foreign currency denominated
assets and liabilities primarily for intercompany transactions, receivables from
customers, prepayments to suppliers and advances received from customers.
Changes in exchange rates between the Company’s subsidiaries’ functional
currencies and the currencies in which these assets and liabilities are
denominated can create fluctuations in the Company’s reported consolidated
financial position, results of operations and cash flows. The Company enters
into forward contracts to hedge foreign currency denominated monetary assets and
liabilities against the short-term effects of currency exchange rate
fluctuations. The Company records its derivative contracts that are not
designated as hedging instruments at fair value with the related gains or losses
recorded in “Other, net.” The gains or losses on these contracts are
substantially offset by transaction gains or losses on the underlying balances
being hedged. As of September 27, 2009 and December 28, 2008, the Company held
forward contracts with an aggregate notional value of $349.1 million and $66.6
million, respectively, to hedge balance sheet exposure related to transactions
with third-parties. These forward contracts have maturities of one month or
less.
Credit
Risk
The
Company’s option and forward contracts do not contain any credit-risk-related
contingent features. The Company is exposed to credit losses in the event of
nonperformance by the counterparties of its option and forward contracts. The
Company enters into derivative contracts with high-quality financial
institutions and limits the amount of credit exposure to any one counterparty.
In addition, the derivative contracts are limited to a time period of less than
one year and the Company continuously evaluates the credit standing of its
counterparty financial institutions.
Note
15. INCOME
TAXES
In the
three and nine months ended September 27, 2009, the Company’s effective rate of
income tax provision of 59.7% and 29.6%, respectively, was primarily
attributable to domestic and foreign income taxes in certain jurisdictions where
the Company’s operations were profitable, net of nondeductible amortization of
purchased other intangible assets, discrete stock option deductions and the
discrete non-cash non-taxable gain on purchased options of $21.2 million. The
Company’s income tax provision for the three and nine months ended September 28,
2008 of 49.2% and 32.9%, respectively, was primarily attributable to the
consumption of non-stock net operating loss carryforwards, net of foreign income
taxes in profitable jurisdictions where the tax rates are less than the U.S.
statutory rate, and the spin-off from Cypress (see Note 1). As a result of the
Company’s adoption of new accounting guidance for convertible debt instruments
that may be settled in cash upon conversion, the tax provision during the three
and nine months ended September 28, 2008 was retrospectively adjusted from 58.2%
and 44.3%, respectively, to 49.2% and 32.9%, respectively, to reflect the tax
effect of the adjustments arising from the new accounting guidance (see Note 1).
The Company’s interim period tax provision is estimated based on the expected
annual worldwide tax rate and takes into account the tax effect of discrete
items in the interim period they become known.
Note
16. NET INCOME PER SHARE OF
CLASS A AND CLASS B COMMON STOCK
Effective
December 29, 2008, the Company adopted new accounting guidance which clarifies
that all outstanding unvested stock-based payment awards that contain rights to
nonforfeitable dividends are assumed to participate in undistributed earnings
with the Company’s common stockholders. Such participating securities are
included in the calculation of net income per share under the two-class method.
Under the two-class method, net income per share is computed by dividing
earnings allocated to common stockholders by the weighted-average number of
common shares outstanding for the period. In applying the two-class method,
earnings are allocated to both common stock and other participating securities
based on their respective weighted-average shares outstanding during the period.
No allocation is generally made to other participating securities in the case of
a loss per share. Prior period share data and net income per share has been
retrospectively adjusted to reflect the Company’s adoption of the new accounting
guidance (see Note 1).
Basic
weighted-average shares is computed using the weighted-average of the combined
class A and class B common stock outstanding. Class A and class B common
stock are considered equivalent securities for purposes of the earnings per
share calculation because the holders of each class are legally entitled to
equal per share distributions whether through dividends or in liquidation. The
Company's outstanding unvested restricted stock awards are considered
participating securities as they may participate in dividends, if declared, even
though the awards are not vested. As participating securities, the unvested
restricted stock awards are allocated a proportionate share of net
income, but excluded from the basic weighted-average shares. Diluted
weighted-average shares is computed using basic weighted-average shares plus any
potentially dilutive securities outstanding during the period using the
if-converted method and treasury-stock-type method, except when their effect is
anti-dilutive. Potentially dilutive securities include stock options, restricted
stock units and senior convertible debentures.
The
following is a summary of other outstanding anti-dilutive potential common
stock:
As
of
|
||||||||
(In
thousands)
|
September
27,
2009
|
September
28,
2008
|
||||||
Stock
options
|
394
|
116
|
||||||
Restricted
stock units
|
1,960
|
335
|
The following
table presents the calculation of basic and diluted net income per
share:
Three
Months Ended
|
Nine
Months Ended
|
|||||||||||||||
(In
thousands, except per share data)
|
September
27,
2009
|
September
28,
2008
|
September
27,
2009
|
September
28,
2008
|
||||||||||||
Basic
net income per share:
|
||||||||||||||||
Net
income
|
$
|
12,831
|
$
|
24,681
|
$
|
32,216
|
$
|
67,837
|
||||||||
Less: Undistributed
earnings allocated to unvested restricted stock
awards
|
(40
|
)
|
(259
|
)
|
(124
|
)
|
(879
|
)
|
||||||||
Net
income available to common stockholders
|
$
|
12,791
|
$
|
24,422
|
$
|
32,092
|
$
|
66,958
|
||||||||
Basic
weighted-average common shares
|
94,668
|
80,465
|
89,764
|
79,614
|
||||||||||||
Basic
net income per share
|
$
|
0.14
|
$
|
0.30
|
$
|
0.36
|
$
|
0.84
|
||||||||
Diluted
net income per share:
|
||||||||||||||||
Net
income
|
$
|
12,831
|
$
|
24,681
|
$
|
32,216
|
$
|
67,837
|
||||||||
Less: Undistributed
earnings allocated to unvested restricted stock
awards
|
(39
|
)
|
|
(248
|
)
|
(122
|
)
|
(862
|
)
|
|||||||
Diluted
net income
|
$
|
12,792
|
$
|
24,433
|
$
|
32,094
|
$
|
66,975
|
||||||||
Basic
weighted-average common shares
|
94,668
|
80,465
|
89,764
|
79,614
|
||||||||||||
Effect
of dilutive securities:
|
||||||||||||||||
Stock
options
|
1,436
|
2,438
|
1,612
|
2,708
|
||||||||||||
Restricted
stock units
|
215
|
134
|
137
|
91
|
||||||||||||
1.25%
debentures
|
—
|
1,027
|
—
|
1,044
|
||||||||||||
0.75%
debentures
|
—
|
—
|
—
|
20
|
||||||||||||
Diluted
weighted-average common shares
|
96,319
|
84,064
|
91,513
|
83,477
|
||||||||||||
Diluted
net income per share
|
$
|
0.13
|
$
|
0.29
|
$
|
0.35
|
$
|
0.80
|
In
February 2007, in connection with the sale of its 1.25% debentures, the Company
lent 2.9 million shares of its class A common stock to LBIE. After reviewing the
circumstances of the LBIE administration proceedings regarding the Lehman
bankruptcy, the Company recorded approximately 2.9 million shares of class A
common stock lent to LBIE in connection with the 1.25% debentures as issued and
outstanding starting on September 15, 2008, the date on which LBIE commenced
administration proceedings, for the purpose of computing and reporting the
Company’s basic weighted-average common shares.
Holders
of the Company’s 4.75% debentures may convert the debentures into shares of the
Company’s class A common stock, at the applicable conversion rate, at any time
on or prior to maturity (see Note 12). The 4.75% debentures are included in the
calculation of diluted net income per share if their inclusion is dilutive under
the if-converted method. During the three and nine months ended September 27,
2009, there were no dilutive potential common shares under the 4.75%
debentures.
Holders
of the Company’s 1.25% debentures and 0.75% debentures may, under certain
circumstances at their option, convert the debentures into cash and, if
applicable, shares of the Company’s class A common stock at the applicable
conversion rate, at any time on or prior to maturity (see Note 12). The 1.25%
debentures and 0.75% debentures are included in the calculation of diluted net
income per share if their inclusion is dilutive under the treasury-stock-type
method. For the three and nine months ended September 27, 2009, the Company’s
average stock price for the period did not exceed the conversion price for the
1.25% debentures and 0.75% debentures. During each of the three and nine months
ended September 28, 2008, dilutive potential common shares include approximately
1.0 million shares for the impact of the 1.25% debentures as the Company
experienced a substantial increase in its common stock price during the nine
months ended September 28, 2008 as compared to the conversion price pursuant to
the terms of the 1.25% debentures. Similarly, dilutive potential common shares
include approximately zero and 20,000 shares for the three and nine months
ended September 28, 2008, respectively, for the impact of the 0.75%
debentures. Under the treasury-stock-type method, the Company’s 1.25%
debentures and 0.75% debentures will generally have a dilutive impact on net
income per share if the Company’s average stock price for the period
exceeds the conversion price for the debentures.
Note
17. STOCK-BASED
COMPENSATION
The
following table summarizes the consolidated stock-based compensation expense by
line item in the Condensed Consolidated Statements of Operations:
Three
Months Ended
|
Nine
Months Ended
|
|||||||||||||||
(In
thousands)
|
September
27,
2009
|
September
28,
2008
|
September
27,
2009
|
September
28,
2008
|
||||||||||||
Cost
of systems revenue
|
$
|
1,494
|
$
|
2,911
|
$
|
3,266
|
$
|
7,661
|
||||||||
Cost
of components revenue
|
2,808
|
1,964
|
6,489
|
6,057
|
||||||||||||
Research
and development
|
1,736
|
987
|
4,649
|
2,770
|
||||||||||||
Sales,
general and administrative
|
7,036
|
13,049
|
19,800
|
35,538
|
||||||||||||
Total
stock-based compensation expense
|
$
|
13,074
|
$
|
18,911
|
$
|
34,204
|
$
|
52,026
|
The
following table summarizes the consolidated stock-based compensation expense, by
type of awards:
Three
Months Ended
|
Nine
Months Ended
|
|||||||||||||||
(In
thousands)
|
September
27,
2009
|
September
28,
2008
|
September
27,
2009
|
September
28,
2008
|
||||||||||||
Employee
stock options
|
$
|
1,048
|
$
|
1,072
|
$
|
3,346
|
$
|
3,273
|
||||||||
Restricted
stock awards and units
|
10,955
|
10,053
|
30,470
|
28,183
|
||||||||||||
Shares
and options released from re-vesting restrictions
|
—
|
7,627
|
168
|
21,260
|
||||||||||||
Change
in stock-based compensation capitalized in inventory
|
1,071
|
159
|
220
|
(690
|
)
|
|||||||||||
Total
stock-based compensation expense
|
$
|
13,074
|
$
|
18,911
|
$
|
34,204
|
$
|
52,026
|
In
connection with its acquisition of PowerLight Corporation (now referenced
to as SP Systems) on January 10, 2007, the Company issued 1.1 million shares
of its class A common stock and 0.5 million stock options to employees of
SP Systems. The class A common stock and stock options were valued at $60.4
million and were subject to certain transfer restrictions and a repurchase
option held by the Company. The Company recognized the expense as the re-vesting
restrictions of these shares lapsed over the two-year period beginning on the
date of acquisition. The value of shares released from such re-vesting
restrictions is included in stock-based compensation expense in the table
above.
Note
18. SEGMENT AND GEOGRAPHICAL
INFORMATION
The Chief
Operating Decision Maker (“CODM”) is the Company’s Chief Executive Officer. The
CODM assesses the performance of the Systems Segment and Components Segment
using information about their revenue and gross margin. The following tables
present revenue by geography and segment, gross margin by segment and revenue by
significant customer. Revenue is based on the destination of the
shipments.
Three
Months Ended
|
Nine
Months Ended
|
|||||||||||||||
(As
a percentage of total revenue)
|
September
27,
2009
|
September
28,
2008
|
September
27,
2009
|
September
28,
2008
|
||||||||||||
Revenue
by geography:
|
||||||||||||||||
United
States
|
32
|
%
|
49
|
%
|
46
|
%
|
29
|
%
|
||||||||
Europe:
|
||||||||||||||||
Germany
|
26
|
%
|
10
|
%
|
21
|
%
|
8
|
%
|
||||||||
Italy
|
29
|
%
|
5
|
%
|
20
|
%
|
3
|
%
|
||||||||
Spain
|
3
|
%
|
16
|
%
|
2
|
%
|
44
|
%
|
||||||||
Other
|
5
|
%
|
8
|
%
|
6
|
%
|
7
|
%
|
||||||||
Rest
of world
|
5
|
%
|
12
|
%
|
5
|
%
|
9
|
%
|
||||||||
100
|
%
|
100
|
%
|
100
|
%
|
100
|
%
|
|||||||||
Revenue
by segment:
|
||||||||||||||||
Systems
|
36
|
%
|
51
|
%
|
39
|
%
|
62
|
%
|
||||||||
Components
|
64
|
%
|
49
|
%
|
61
|
%
|
38
|
%
|
||||||||
100
|
%
|
100
|
%
|
100
|
%
|
100
|
%
|
|||||||||
Gross
margin by segment:
|
||||||||||||||||
Systems
|
14
|
%
|
18
|
%
|
15
|
%
|
20
|
%
|
||||||||
Components
|
22
|
%
|
38
|
%
|
23
|
%
|
31
|
%
|
Three
Months Ended
|
Nine
Months Ended
|
|||||||||||||
(As
a percentage of total revenue)
|
September
27,
2009
|
September
28,
2008
|
September
27,
2009
|
September
28,
2008
|
||||||||||
Significant
Customers:
|
Business
Segment
|
|||||||||||||
SunRay
Renewable Energy
|
Systems
|
15%
|
*
|
*
|
*
|
|||||||||
Florida
Power & Light Company
|
Systems
|
*
|
*
|
14%
|
*
|
|||||||||
Naturener
Group
|
Systems
|
*
|
11%
|
*
|
23%
|
|||||||||
Sedwick
Corporate, S.L.
|
Systems
|
*
|
*
|
*
|
15%
|
* denotes
less than 10% during the period
Item 2.
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
Cautionary
Statement Regarding Forward-Looking Statements
This
Quarterly Report on Form 10-Q contains forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking
statements are statements that do not represent historical facts and may be
based on underlying assumptions. We use words such as “may,” “will,” “should,”
“could,” “would,” “expect,” “pipeline,” “believe,” “estimate,” “predict,”
“potential” and “continue” to identify forward-looking statements in this
Quarterly Report on Form 10-Q including our plans and expectations regarding
future financial results, operating results, business strategies, projected
costs, products, competitive positions, management’s plans and objectives for
future operations, our ability to obtain financing and industry trends. Such
forward-looking statements are based on information available to us as of the
date of this Quarterly Report on Form 10-Q and involve a number of risks and
uncertainties, some beyond our control, that could cause actual results to
differ materially from those anticipated by these forward-looking statements.
Please see “PART II. OTHER INFORMATION, Item 1A: Risk Factors” and our
other filings with the Securities and Exchange Commission, including our Annual
Report on Form 10-K for the year ended December 28, 2008, for additional
information on risks and uncertainties that could cause actual results to
differ. These forward-looking statements should not be relied upon as
representing our views as of any subsequent date, and we are under no obligation
to, and expressly disclaim any responsibility to, update or alter our
forward-looking statements, whether as a result of new information, future
events or otherwise.
The
following information should be read in conjunction with the Condensed
Consolidated Financial Statements and the accompanying Notes to Condensed
Consolidated Financial Statements included in this Quarterly Report on Form
10-Q. Our fiscal quarters end on the Sunday closest to the end of the applicable
calendar quarter. All references to fiscal periods apply to our fiscal quarters
or year which ends on the Sunday closest to the calendar month end.
Business
We are a
vertically integrated solar products and services company that designs,
manufactures and markets high-performance solar electric power technologies. Our
solar cells and solar panels are manufactured using proprietary processes, and
our technologies are based on more than 15 years of research and
development. Of all the solar cells available for the mass market, we believe
our solar cells have the highest conversion efficiency, a measurement of the
amount of sunlight converted by the solar cell into electricity. Our solar power
products are sold through our components and systems business
segments.
Business
Segments Overview
Components Segment: Our
Components Segment sells solar power products, including solar panels and
inverters, which convert sunlight to electricity compatible with the utility
network. We believe our solar cells provide the following benefits compared with
conventional solar cells:
|
•
|
superior
performance, including the ability to generate up to 50% more power per
unit area;
|
|
•
|
superior
aesthetics, with our uniformly black surface design that eliminates highly
visible reflective grid lines and metal interconnect ribbons;
and
|
|
•
|
more
efficient use of silicon, a key raw material used in the manufacture of
solar cells.
|
We sell
our solar components products to installers and resellers, including our
third-party global dealer network, for use in residential and commercial
applications where the high efficiency and superior aesthetics of our solar
power products provide compelling customer benefits. We also sell products for
use in multi-megawatt solar power plant applications. In many situations, we
offer a materially lower area-related cost structure for our customers because
our solar panels require a substantially smaller roof or land area than
conventional solar technology and half or less of the roof or land area of
commercial solar thin film technologies. We sell our products primarily in North
America, Europe, Asia and Australia principally in regions where public policy
has accelerated solar power adoption.
We
manufacture our solar cells at our two facilities in the Philippines, and are
developing a third solar cell manufacturing facility, or FAB3, in Malaysia.
Our solar cells are then combined into solar panels at our solar panel assembly
facility located in the Philippines or by third-party
subcontractors.
Systems Segment: Our
Systems Segment generally sells solar power systems directly to system owners
and developers. When we sell a solar power system, it may include services such
as development, engineering, procurement of permits and equipment, construction
management, access to financing, monitoring and maintenance. We believe our
solar systems provide the following benefits compared with competitors’
systems:
|
•
|
superior
performance delivered by maximizing energy delivery and financial return
through systems technology design;
|
|
•
|
superior
systems design to meet customer needs and reduce cost, including
non-penetrating, fast roof installation technologies;
and
|
|
•
|
superior
channel breadth and delivery capability including turnkey
systems.
|
Our
customers include commercial and governmental entities, investors, utilities,
production home builders, dealers and home owners. We work with development,
construction, system integration and financing companies to deliver our solar
power systems to customers. Our solar power systems are designed to generate
electricity over a system life typically exceeding 25 years and are
principally designed to be used in large-scale applications with system ratings
of typically more than 500 kilowatts. Worldwide, we have more than 500 megawatts
of SunPower solar power plant systems operating or under contract.
We have
solar power system projects completed in various countries including Germany,
Italy, Portugal, South Korea, Spain and the United States. We sell distributed
rooftop and ground-mounted solar power systems as well as central-station power
plants. In the United States, distributed solar power systems are typically
rated at more than 500 kilowatts of capacity to provide a supplemental,
distributed source of electricity for a customer’s facility. Many customers
choose to purchase solar electricity under a power purchase agreement with a
financing company which buys the system from us. In Europe, our products and
systems are typically purchased by a financing company and operated as a
central-station solar power plant. These power plants are rated with capacities
of approximately one to twenty megawatts, and generate electricity for sale
under tariff to private and public utilities.
In 2008,
we began serving the utility market in the United States, as regulated utilities
began seeking cost-effective renewable energy to meet governmental renewable
portfolio standard requirements. We believe we are well positioned for long-term
success, despite difficult near-term economic conditions, with our substantial
order pipeline for utility scale projects. While we have contracts for these
projects, there are substantial conditions set forth in such contracts,
including obtaining financing and proper governmental permits, which must be
satisfied in order for the majority of the projects to move
forward.
We
manufacture certain of our solar power system products at our manufacturing
facilities in Richmond, California and at other facilities located close to our
customers. Some of our solar power system products are also manufactured for us
by third-party suppliers.
Restructuring
Costs
In
response to deteriorating economic conditions, we reduced our global workforce
of regular employees by approximately 80 positions during the first half of
fiscal 2009 in order to reduce our annual operating expenses. The restructuring
actions included charges of zero and $1.7 million in the three and nine months
ended September 27, 2009, respectively, for severance, benefits and related
costs. For additional details see Note 9 of Notes to our Condensed
Consolidated Financial Statements.
Accounting
Changes and Issued Accounting Guidance Not Yet Adopted
For a
description of accounting changes and issued accounting guidance not yet
adopted, including the expected dates of adoption and estimated effects, if any,
in our Condensed Consolidated Financial Statements, see Note 1 of Notes to our
Condensed Consolidated Financial Statements.
Results
of Operations for the Three and Nine Months Ended September 27, 2009 and
September 28, 2008
Revenue
Three
Months Ended
|
Nine
Months Ended
|
||||||||||||||
(Dollars
in thousands)
|
September
27,
2009
|
September
28,
2008
|
September
27,
2009
|
September
28,
2008
|
|||||||||||
Systems
revenue
|
$
|
168,412
|
$
|
193,330
|
$
|
383,233
|
$
|
642,774
|
|||||||
Components
revenue
|
297,895
|
184,170
|
594,505
|
391,178
|
|||||||||||
Total
revenue
|
$
|
466,307
|
$
|
377,500
|
$
|
977,738
|
$
|
1,033,952
|
Total
Revenue: During the three and nine months ended September 27,
2009, our total revenue of approximately $466.3 million and $977.7 million,
respectively, represented an increase of 24% and a decrease of 5%, respectively,
from total revenue reported in the comparable periods of 2008. The increase in
our total revenue during the three months ended September 27, 2009 compared to
the same period in 2008 resulted from strong demand in multiple geographies and
market segments. The decrease in our total revenue during the nine months ended
September 27, 2009 compared to the same period in 2008 is attributable to the
difficult economic and credit environment experienced during the first half of
fiscal 2009.
Sales
outside the United States represented approximately 68% and 54% of our total
revenue for the three and nine months ended September 27, 2009, respectively,
compared to 51% and 71% in the three and nine months ended September 28, 2008,
respectively. The change in geography mix during the three months ended
September 27, 2009 as compared to the same period in 2008 is primarily due to:
(i) the ongoing construction of a 24 megawatt solar power plant in Montalto di
Castro, Italy; and (ii) the expansion of our third-party global dealer network
in Germany and Italy. The change in geography mix during the nine months ended
September 27, 2009 as compared to the same period is 2008 is primarily due to:
(i) the expiration of an attractive governmental feed-in tariff in Spain in
September 2008; (ii) the construction of a 25 megawatt solar power plant in
Desoto County, Florida in the nine months ended September 27, 2009; and (iii)
revenue growth from our Components Segment in the United States, particularly in
California, due to federal, state and local government incentives and the growth
of our third-party global dealer network.
Concentrations: We
have four customers that each accounted for more than 10 percent of our total
revenue in one period during the three and nine months ended September 27, 2009
and September 28, 2008 as follows:
Three
Months Ended
|
Nine
Months Ended
|
|||||||||||||
(As
a percentage of total revenue)
|
September
27,
2009
|
September
28,
2008
|
September
27,
2009
|
September
28,
2008
|
||||||||||
Significant
Customers:
|
Business
Segment
|
|||||||||||||
SunRay
Renewable Energy (“SunRay”)
|
Systems
|
15%
|
*
|
*
|
*
|
|||||||||
Florida
Power & Light Company (“FPL”)
|
Systems
|
*
|
*
|
14%
|
*
|
|||||||||
Naturener
Group
|
Systems
|
*
|
11%
|
*
|
23%
|
|||||||||
Sedwick
Corporate, S.L.
|
Systems
|
*
|
*
|
*
|
15%
|
* denotes
less than 10% during the period
We
generate revenue from two business segments, as follows:
Systems
Segment Revenue: Our systems revenue for the three and nine months ended
September 27, 2009 was $168.4 million and $383.2 million, respectively, which
accounted for 36% and 39%, respectively, of our total revenue. The majority of
systems revenue recognized in the third quarter of fiscal 2009 resulted from the
ongoing construction of a 24 megawatt solar power plant for SunRay in Montalto
di Castro, Italy, in which approximately 48% of the project’s revenue was earned
in the three months ended September 27, 2009. Also during the third quarter of
fiscal 2009, our Systems Segment completed the construction of a 25 megawatt
solar power plant for FPL in Desoto County, Florida, the largest solar power
plant in North America, and began the construction of a 10 megawatt solar power
plant for FPL at the Kennedy Space Center in Florida as well as a 8 megawatt
solar power plant for Exelon Corporation in Chicago. Systems revenue for the
three and nine months ended September 28, 2008 was $193.3 million and
$642.8 million, respectively, which accounted for 51% and 62%, respectively, of
our total revenue. In the three and nine months ended September 28, 2008, our
Systems Segment benefited from strong power plant scale demand in Europe,
primarily in Spain, and reflected the installation of more than 40 megawatts of
Spain based projects before the expiration of a governmental feed-in tariff in
September 2008. During the three and nine months ended September 27, 2009, our
systems revenue decreased 13% and 40%, respectively, as compared to revenue
earned in the comparable periods of 2008, due to difficult economic conditions
resulting in near-term challenges in financing system projects. However, we are
beginning to see improvements in the financial markets as exemplified by an
international consortium of banks financing the ongoing construction of the 24
megawatt solar power plant in Montalto di Castro, Italy, our $100 million
commercial project financing agreement with Wells Fargo Bank, or Wells Fargo,
providing financing for system projects under power purchase agreements with
customers, and our progress on financing a number of other solar power
plants.
Components
Segment Revenue: Components revenue for the three and nine months
ended September 27, 2009 was $297.9 million and $594.5 million, respectively, or
64% and 61%, respectively, of our total revenue. Components revenue for the
three and nine months ended September 28, 2008 was $184.2 million and
$391.2 million, respectively, or 49% and 38%, respectively, of our total
revenue. During the three and nine months ended September 27, 2009, our
components revenue increased 62% and 52%, respectively, as compared to revenue
earned in the comparable periods of 2008, primarily due to growing demand in
Germany, Italy and the United States, particularly in California, due to
federal, state and local government incentives and the growth of our third-party
global dealer network. In the three and nine months ended September 28, 2008,
our Components Segment benefited from strong demand in the residential and small
commercial roof-top markets through our third-party dealer network in both
Europe and the United States.
Cost
of Revenue
Details
to cost of revenue by segment:
Three
Months Ended
|
||||||||||||||||||||||
Systems
|
Components
|
Consolidated
|
||||||||||||||||||||
(Dollars
in thousands)
|
September
27,
2009
|
September
28,
2008
|
September
27,
2009
|
September
28,
2008
|
September
27,
2009
|
September
28,
2008
|
||||||||||||||||
Amortization
of other intangible assets
|
$
|
1,841
|
$
|
1,841
|
$
|
961
|
$
|
1,106
|
$
|
2,802
|
$
|
2,947
|
||||||||||
Stock-based
compensation
|
1,494
|
2,911
|
2,808
|
1,964
|
4,302
|
4,875
|
||||||||||||||||
Impairment
of long-lived assets
|
—
|
(1,343
|
)
|
—
|
(1,943
|
)
|
—
|
(3,286
|
)
|
|||||||||||||
Non-cash
interest expense
|
87
|
100
|
278
|
144
|
365
|
244
|
||||||||||||||||
Materials
and other cost of revenue
|
141,437
|
155,320
|
228,117
|
112,087
|
369,554
|
267,407
|
||||||||||||||||
Total
cost of revenue
|
$
|
144,859
|
$
|
158,829
|
$
|
232,164
|
$
|
113,358
|
$
|
377,023
|
$
|
272,187
|
||||||||||
Total
cost of revenue as a percentage of revenue
|
86
|
%
|
82
|
%
|
78
|
%
|
62
|
%
|
81
|
%
|
72
|
%
|
||||||||||
Total
gross margin percentage
|
14
|
%
|
18
|
%
|
22
|
%
|
38
|
%
|
19
|
%
|
28
|
%
|
Nine
Months Ended
|
||||||||||||||||||||||
Systems
|
Components
|
Consolidated
|
||||||||||||||||||||
(Dollars
in thousands)
|
September
27,
2009
|
September
28,
2008
|
September
27,
2009
|
September
28,
2008
|
September
27,
2009
|
September
28,
2008
|
||||||||||||||||
Amortization
of other intangible assets
|
$
|
5,523
|
$
|
5,850
|
$
|
2,867
|
$
|
3,216
|
$
|
8,390
|
$
|
9,066
|
||||||||||
Stock-based
compensation
|
3,266
|
7,661
|
6,489
|
6,057
|
9,755
|
13,718
|
||||||||||||||||
Impairment
of long-lived assets
|
—
|
—
|
—
|
2,203
|
—
|
2,203
|
||||||||||||||||
Non-cash
interest expense
|
664
|
201
|
1,441
|
276
|
2,105
|
477
|
||||||||||||||||
Materials
and other cost of revenue
|
315,550
|
497,604
|
446,443
|
259,536
|
761,993
|
757,140
|
||||||||||||||||
Total
cost of revenue
|
$
|
325,003
|
$
|
511,316
|
$
|
457,240
|
$
|
271,288
|
$
|
782,243
|
$
|
782,604
|
||||||||||
Total
cost of revenue as a percentage of revenue
|
85
|
%
|
80
|
%
|
77
|
%
|
69
|
%
|
80
|
%
|
76
|
%
|
||||||||||
Total
gross margin percentage
|
15
|
%
|
20
|
%
|
23
|
%
|
31
|
%
|
20
|
%
|
24
|
%
|
Total
Cost of Revenue: We had 16 and 10 active solar cell manufacturing
lines in our two solar cell manufacturing facilities as of September 27, 2009
and September 28, 2008, respectively, with a total rated annual solar cell
manufacturing capacity of 574 megawatts and 334 megawatts, respectively. During
the three and nine months ended September 27, 2009, our two solar
cell manufacturing facilities operated at approximately 74% and 66%
capacity, respectively, producing 109.9 megawatts and 267.2 megawatts,
respectively, as compared to the three and nine months ended September 28, 2008
when our facilities operated at approximately 75% and 73% capacity,
respectively, producing 65.8 megawatts and 154.1 megawatts, respectively. During
the three and nine months ended September 27, 2009, our total cost of revenue
was $377.0 million and $782.2 million, respectively, which represented an
increase of 39% and zero, respectively, compared to the total cost of revenue
reported in the comparable periods of 2008. As a percentage of total revenue,
our total cost of revenue increased to 81% and 80% in the three and nine months
ended September 27, 2009, respectively, compared to 72% and 76% in the three and
nine months ended September 28, 2008, respectively. This increase in total cost
of revenue as a percentage of total revenue is reflective of: (i) the sale and
write-down of inventory to its estimated market value in the third quarter of
fiscal 2009 based upon our assumptions about future demand and market
conditions; and (ii) higher amortization of capitalized non-cash interest
expense in the three and nine months ended September 27, 2009 as compared to the
same periods in 2008. This increase in total cost of revenue as a percentage of
total revenue was partially offset by: (i) decreased costs of polysilicon; (ii)
reduced expenses associated with the amortization of other intangible assets and
stock-based compensation; and (iii) an asset impairment charge of $2.2 million
in the nine months ended September 28, 2008 relating to the wind down of our
imaging detector product line (the costs associated with the $3.3 million
write-down of certain solar product manufacturing equipment taken in the first
quarter of fiscal 2008 was recovered from the vendor in the third quarter of
fiscal 2008).
Systems
Segment Cost of Revenue: Our cost of systems revenue consists primarily of
solar panels, mounting systems, inverters and subcontractor costs. The cost of
solar panels is the single largest cost element in our cost of systems
revenue. Our Systems Segment sourced substantially all of its solar
panel installations with SunPower solar panels in the three and nine months
ended September 27, 2009, as compared to 69% and 58% for the three and
nine months ended September 28, 2008, respectively. Our Systems Segment
generally experiences higher gross margin on construction projects that utilize
SunPower solar panels compared to construction projects that utilize solar
panels purchased from third-parties.
Systems
Segment Gross Margin: Gross margin was $23.6 million and $58.2 million for
the three and nine months ended September 27, 2009, respectively, or 14%
and 15%, respectively, of systems revenue. Gross margin was $34.5 million and
$131.5 million for the three and nine months ended September 28,
2008, respectively, or 18% and 20%, respectively, of systems revenue. Gross
margin decreased due to: (i) lower average selling prices for our solar power
systems; (ii) the sale and write-down of aged third-party solar panels to its
estimated market value in the third quarter of fiscal 2009 based upon our
assumptions about future demand and market conditions; and (iii) our inability
to reduce system group department overhead costs incurred that are fixed in
nature when systems revenue decreased 13% and 40% in the three and nine months
ended September 27, 2009, respectively, as compared to the same periods in
2008.
Components
Segment Cost of Revenue: Our cost of components revenue consists primarily
of silicon ingots and wafers used in the production of solar cells, along with
other materials such as chemicals and gases that are needed to transform silicon
wafers into solar cells. For our solar panels, our cost of revenue includes the
cost of solar cells and raw materials such as glass, frame, backing and other
materials, as well as the assembly costs we pay to our third-party
subcontractors in China and Mexico. Our Components Segment’s gross margin each
quarter is affected by a number of factors, including average selling prices for
our solar power products, our product mix, our actual manufacturing costs and
the utilization rate of our solar cell manufacturing facilities.
Components
Segment Gross Margin: Gross margin was $65.7 million and $137.3 million for
the three and nine months ended September 27, 2009, respectively, or 22% and
23%, respectively, of components revenue. Gross margin was $70.8 million and
$119.9 million for the three and nine months ended September 28,
2008, respectively, or 38% and 31%, respectively, of components
revenue. Gross margin decreased due to: (i) lower average selling prices
for our solar power products; and (ii) the sale and write-down of inventory to
its estimated market value in the third quarter of fiscal 2009 based upon our
assumptions about future demand and market conditions. This decrease in gross
margin was partially offset by continued reduction in silicon costs. Over the
next several years, we expect average selling prices for our solar power
products to decline as the market becomes more competitive, as financial
incentives for solar power decline as typically planned by local, state, and
national policy programs designed to accelerate solar power adoption, as certain
products mature and as manufacturers are able to lower their manufacturing costs
and pass on some of the savings to their customers.
Other
Cost of Revenue Factors: Other factors contributing to cost of
revenue include amortization of other intangible assets, stock-based
compensation, depreciation, provisions for estimated warranty, salaries,
personnel-related costs, freight, royalties, facilities expenses and
manufacturing supplies associated with contracting revenue and solar cell
fabrication as well as factory pre-operating costs associated with our
second solar cell manufacturing facility, or FAB2, and our solar panel assembly
facility. Such pre-operating costs included compensation and training costs for
factory workers as well as utilities and consumable materials associated with
preproduction activities. From fiscal 2005 through 2008, demand for our solar
power products was robust and our production output increased allowing us to
spread a significant amount of our fixed costs over relatively high production
volume, thereby reducing our per unit fixed cost. During the first half of
fiscal 2009, we responded to the oversupply of solar power products in the
market by temporarily reducing manufacturing output to better match the current
demand environment.
Research and
Development
Three
Months Ended
|
Nine
Months Ended
|
||||||||||||||
(Dollars
in thousands)
|
September
27,
2009
|
September
28,
2008
|
September
27,
2009
|
September
28,
2008
|
|||||||||||
Research
and development
|
$
|
8,250
|
$
|
6,049
|
$
|
23,067
|
$
|
15,504
|
|||||||
As
a percentage of revenue
|
2
|
%
|
2
|
%
|
2
|
%
|
1
|
%
|
During
the three and nine months ended September 27, 2009, our research and development
expense was $8.3 million and $23.1 million, respectively, which represented
increases of 36% and 49%, respectively, from research and development expense
reported in the comparable periods of fiscal 2008. As a percentage of total
revenue, research and development expense totaled 2% in each of the three
and nine months ended September 27, 2009, compared to 2% and 1% in the three and
nine months ended September 28, 2008, respectively. Research and
development expense consists primarily of salaries and related personnel costs,
depreciation and the cost of solar cell and solar panel materials and services
used for the development of products, including experiment and testing. The
increase in spending during the three and nine months ended September 27, 2009
compared to the same periods in fiscal 2008 resulted primarily from costs
related to the improvement of our current generation solar cell manufacturing
technology, development of our third generation of solar cells, development of
next generation solar panels, development of next generation trackers and
rooftop systems, and development of systems performance monitoring products.
These increases were partially offset by grants and cost reimbursements received
from various government entities in the United States totaling approximately
$3.8 million and $6.1 million in the three and nine months ended September 27,
2009, respectively, compared to approximately $1.6 million and $5.3 million in
the three and nine months ended September 28, 2008,
respectively.
Sales,
General and Administrative
Three
Months Ended
|
Nine
Months Ended
|
|||||||||||||||
(Dollars
in thousands)
|
September
27,
2009
|
September
28,
2008
|
September
27,
2009
|
September
28,
2008
|
||||||||||||
Sales,
general and administrative
|
$
|
46,473
|
$
|
46,075
|
$
|
130,511
|
$
|
123,141
|
||||||||
As
a percentage of revenue
|
10
|
%
|
12
|
%
|
13
|
%
|
12
|
%
|
During
the three and nine months ended September 27, 2009, our sales, general and
administrative expense, or SG&A expense, was $46.5 million and $130.5
million, respectively, which represents an increase of 1% and 6%, respectively,
from SG&A expense reported in the comparable periods of fiscal 2008. As a
percentage of total revenue, SG&A expense decreased to 10% and
increased to 13% in the three and nine months ended September 27, 2009,
respectively, as compared to 12% in each of the three and nine months ended
September 28, 2008. SG&A expense for our business consists primarily of
salaries and related personnel costs, professional fees, insurance and other
selling and marketing expenses. The increase in our SG&A expense during
the three and nine months ended September 27, 2009 compared to the same periods
of fiscal 2008 resulted primarily from higher spending in all areas of sales,
marketing, finance and information technology to support the growth of our
business, particularly sales and marketing costs to launch our new marketing
campaign and expand our third-party dealer network to nearly 900 dealers
worldwide. During the three and nine months ended September 27, 2009,
stock-based compensation included in SG&A expense was approximately $7.0
million and $19.8 million, respectively, compared to $13.0 million and $35.5
million in the three and nine months ended September 28, 2008,
respectively.
Other
Income (Expense), Net
Three
Months Ended
|
Nine
Months Ended
|
|||||||||||||||
(Dollars
in thousands)
|
September
27,
2009
|
September
28,
2008
|
September
27,
2009
|
September
28,
2008
|
||||||||||||
Interest
income
|
$
|
—
|
$
|
2,650
|
$
|
1,949
|
$
|
9,086
|
||||||||
As
a percentage of revenue
|
—
|
%
|
1
|
%
|
—
|
%
|
1
|
%
|
||||||||
Interest
expense
|
$
|
(9,854
|
)
|
$
|
(5,743
|
)
|
$
|
(25,503
|
)
|
$
|
(18,137
|
)
|
||||
As
a percentage of revenue
|
2
|
%
|
2
|
%
|
3
|
%
|
2
|
%
|
||||||||
Gain
on purchased options
|
$
|
—
|
$
|
—
|
$
|
21,193
|
$
|
—
|
||||||||
As
a percentage of revenue
|
—
|
%
|
—
|
%
|
2
|
%
|
—
|
%
|
||||||||
Other,
net
|
$
|
585
|
$
|
(5,691
|
)
|
$
|
(3,765
|
)
|
$
|
(8,546
|
)
|
|||||
As
a percentage of revenue
|
—
|
%
|
2
|
%
|
—
|
%
|
1
|
%
|
Interest
income represents interest income earned on our cash, cash equivalents,
restricted cash, restricted cash equivalents and available-for-sale
securities. The decrease in interest income of 100% and 79% during the
three and nine months ended September 27, 2009, respectively, as compared to the
same periods in fiscal 2008, resulted from lower interest rates earned on cash
holdings during the three and nine months ended September 27, 2009 as compared
to the same periods in fiscal 2008.
Interest
expense during the three and nine months ended September 27, 2009 relates to
borrowings under our senior convertible debentures, the facility agreement with
the Malaysian Government, the term loan with Union Bank, N.A., or Union Bank,
and customer advance payments. Interest expense during the three and nine
months ended September 28, 2008 relates to borrowings under our senior
convertible debentures and customer advance payments. Non-cash interest expense
was $4.9 million and $14.1 million in the three and nine months ended September
27, 2009, respectively, compared to $3.8 and $12.2 in the three and nine months
ended September 28, 2008, respectively. The increase in interest expense of 72%
and 41% in the three and nine months ended September 27, 2009, respectively,
compared to the same periods in fiscal 2008, is primarily due to additional
indebtedness related to our $230.0 million in principal amount of 4.75% senior
convertible debentures, or 4.75% debentures, approximately $162.7 million
outstanding loans under the facility agreement with the Malaysian Government and
$30.0 million under the term loan with Union Bank, as well as lower capitalized
interest of $0.9 million and $4.5 million in the three and nine months ended
September 27, 2009, respectively, compared to $2.6 million and $6.4 million in
the three and nine months ended September 28, 2008, respectively. This increase
was partially offset by the repurchase of a portion of our 0.75% senior
convertible debentures, or 0.75% debentures, during the three and nine months
ended September 27, 2009, with a principal amount of $8.0 million and $81.1
million, respectively, unamortized discount of $0.5 million and $6.4 million,
respectively, and net carrying value of $7.5 million and $74.7 million,
respectively. For additional details see Notes 1 and 12 of Notes to our
Condensed Consolidated Financial Statements.
In
connection with the issuance of our 4.75% debentures, we entered into certain
convertible debenture hedge transactions, or the Purchased Options, intended to
reduce the potential dilution that would occur upon conversion of the
debentures. The Purchased Options, which are indexed to our class A common
stock, were deemed to be mark-to-market derivatives during the period in which
the over-allotment option in favor of the 4.75% debenture underwriters was
unexercised. We entered into the debenture underwriting agreement on April 28,
2009 and the 4.75% debenture underwriters exercised the over-allotment option in
full on April 29, 2009. During the one-day period that the underwriters’
over-allotment option was outstanding, our class A common stock price increased
substantially, resulting in a non-cash non-taxable gain on Purchased Options of
$21.2 million in the nine months ended September 27, 2009 in our Condensed
Consolidated Statements of Operations. For additional details see Note 12
of Notes to our Condensed Consolidated Financial Statements.
In June
2009, the FASB issued new accounting guidance that will change how companies
account for share lending arrangements that are executed in connection with
convertible debt offerings or other financings. The new accounting guidance
requires all such share lending arrangements to be valued and amortized to
interest expense in the same manner as debt issuance costs. As a result of the
new accounting guidance, existing share lending arrangements relating to our
class A common stock will be required to be measured at fair value and amortized
to interest expense in our consolidated financial statements. In addition, in
the event that counterparty default pursuant to the share lending agreement
becomes probable, we will be required to recognize an expense equal to the then
fair value of the unreturned loaned shares, net of any probable recoveries. The
new accounting guidance is effective for fiscal years beginning after December
15, 2009 (our first quarter of fiscal 2010) and retrospective adoption is
required for all periods presented.
In connection
with the issuance of our 1.25% senior convertible debentures, or 1.25%
debentures, and 0.75% debentures, we loaned approximately 2.9 million shares of
our class A common stock to Lehman Brothers International (Europe) Limited, or
LBIE, and approximately 1.8 million shares of our class A common stock to Credit
Suisse International, or CSI, under share lending arrangements. The new
accounting guidance will result in higher non-cash amortization of imputed share
lending costs in current and prior periods, as well as a material non-cash loss
resulting from Lehman Brothers Holding Inc., or Lehman, filing of a petition for
protection under Chapter 11 of the U.S. bankruptcy code on September 15, 2008,
and LBIE commencing administration proceedings (analogous to bankruptcy) in the
United Kingdom. The then fair value of the approximately 2.9 million shares of
our class A common stock loaned and unreturned by LBIE is approximately $241
million, which will be expensed retrospectively in the third quarter of fiscal
2008, before consideration of any potential recoveries and related tax effects.
We are currently determining the full impact that the January 2010 adoption of
this new accounting guidance will have on our current and prior-period’s
consolidated financial statements.
The
following table summarizes the components of other, net:
Three
Months Ended
|
Nine
Months Ended
|
|||||||||||||||
(Dollars
in thousands)
|
September
27,
2009
|
September
28,
2008
|
September
27,
2009
|
September
28,
2008
|
||||||||||||
Gain
(loss) on derivatives and foreign exchange
|
$
|
696
|
$
|
(4,579
|
)
|
$
|
(1,852
|
)
|
$
|
(7,407
|
)
|
|||||
Impairment
of investments
|
(190
|
)
|
(933
|
)
|
(1,997
|
)
|
(933
|
)
|
||||||||
Other
income (expense), net
|
79
|
(179
|
)
|
84
|
(206
|
)
|
||||||||||
Total
other, net
|
$
|
585
|
$
|
(5,691
|
)
|
$
|
(3,765
|
)
|
$
|
(8,546
|
)
|
Other,
net was comprised of $0.6 million of income and $3.8 million of expenses during
the three and nine months ended September 27, 2009, respectively, consisting
primarily of $0.7 million of gains and $1.9 million of losses, respectively, on
derivatives and changes in foreign exchange rates largely due to the volatility
in the current markets as well as impairment charges of $0.2 million and $2.0
million, respectively, for certain money market funds and auction rate
securities. Other, net was comprised of $5.7 million and $8.5 million of
expenses during the three and nine months ended September 28, 2008,
respectively, consisting primarily of $4.6 million and $7.4 million,
respectively, of losses on foreign exchange and derivatives as well as
impairment charges of $0.9 million for certain money market securities. For
additional details see Notes 6 and 14 of Notes to our Condensed
Consolidated Financial Statements.
Income
Taxes
Three
Months Ended
|
Nine
Months Ended
|
|||||||||||||||
(Dollars
in thousands)
|
September
27,
2009
|
September
28,
2008
|
September
27,
2009
|
September
28,
2008
|
||||||||||||
Income
tax provision
|
$
|
15,088
|
$
|
21,856
|
$
|
10,580
|
$
|
31,275
|
||||||||
As
a percentage of revenue
|
3
|
%
|
6
|
%
|
1
|
%
|
3
|
%
|
In the
three and nine months ended September 27, 2009, our effective rate of income tax
provision of 59.7% and 29.6%, respectively, was primarily due to domestic and
foreign income taxes in certain jurisdictions where our operations are
profitable, net of nondeductible amortization of purchased other intangible
assets, discrete stock option deductions and the discrete non-cash non-taxable
gain on purchased options of $21.2 million. Our income tax provision for the
three and nine months ended September 28, 2008 of 49.2% and 32.9%, respectively,
was primarily attributable to the consumption of non-stock net operating loss
carryforwards, net of foreign income taxes in profitable jurisdictions where the
tax rates are less than the U.S. statutory rate, and the spin-off from Cypress
Semiconductor Corporation, or Cypress. As a result of our adoption of new
accounting guidance for convertible debt instruments that may be settled in cash
upon conversion, the tax provision during the three and nine months ended
September 28, 2008 was retrospectively adjusted from 58.2% and 44.3%,
respectively, to 49.2% and 32.9%, respectively, to reflect the tax effects of
adjustments from the aforementioned accounting guidance. Our interim period tax
provision is estimated based on the expected annual worldwide tax rate and takes
into account the tax effect of discrete items in the period they become known.
For additional details see Note 15 of Notes to our Condensed Consolidated
Financial Statements.
A
significant amount of our total revenue is generated from customers located
outside the U.S., and a substantial portion of our assets and employees are
located outside the U.S. U.S. income taxes and foreign withholding taxes have
not been provided on much of the undistributed earnings of our non-U.S.
subsidiaries as such earnings are intended to be indefinitely reinvested in
operations outside the U.S. The federal government recently announced several
proposals pertaining to the taxation of non-U.S. earnings of U.S.
multinationals, including proposals that may result in a reduction or
elimination of the deferral of U. S. income tax on un-repatriated foreign
earnings. If enacted, these proposals could potentially require those earnings
to be taxed at the U. S. federal income tax rate. Our future reported financial
results may be adversely affected if the tax or accounting rules regarding
un-repatriated earnings change.
Equity in earnings of unconsolidated
investees
Three
Months Ended
|
Nine
Months Ended
|
|||||||||||||||
(Dollars
in thousands)
|
September
27,
2009
|
September
28,
2008
|
September
27,
2009
|
September
28,
2008
|
||||||||||||
Equity
in earnings of unconsolidated investees
|
$
|
2,627
|
$
|
2,132
|
$
|
7,005
|
$
|
4,006
|
||||||||
As
a percentage of revenue
|
1
|
%
|
1
|
%
|
1
|
%
|
—
|
%
|
During
the three and nine months ended September 27, 2009, our equity in earnings of
unconsolidated investees were gains of $2.6 million and $7.0 million,
respectively, compared to gains of $2.1 million and $4.0 million in the three
and nine months ended September 28, 2008, respectively. Our share of Woongjin
Energy Co., Ltd’s, or Woongjin Energy’s, income totaled $2.6 million and $7.1
million in the three and nine months ended September 27, 2009, respectively,
compared to $2.2 million and $4.1 million in the three and nine months ended
September 28, 2008, respectively, due to: (i) increases in production since
Woongjin Energy began manufacturing in the third quarter of fiscal 2007 and (ii)
our equity investment increased from 27.4% to 40% in August 2008. First Philec
Solar Corporation, or First Philec Solar, became operational in the second
quarter of fiscal 2008 and our share of the joint venture’s income totaled zero
and loss totaled $0.1 million during the three and nine months ended September
27, 2009, respectively, compared to losses of $0.1 million in each of the three
and nine months ended September 28, 2008. For additional details see Note 11 of
Notes to our Condensed Consolidated Financial Statements.
Liquidity
and Capital Resources
Cash
Flows
A summary
of the sources and uses of cash and cash equivalents is as follows:
Nine
Months Ended
|
||||||||
(In
thousands)
|
September
27,
2009
|
September
28,
2008
|
||||||
Net
cash provided by operating activities
|
$
|
28,579
|
$
|
107,927
|
||||
Net
cash used in investing activities
|
(256,253
|
)
|
(167,191
|
)
|
||||
Net
cash provided by financing activities
|
492,007
|
31,832
|
Operating
Activities
Net cash
provided by operating activities of $28.6 million in the nine months ended
September 27, 2009 reflects our focus on working capital management and was
primarily the result of net income of $32.2 million, plus non-cash charges
totaling $127.5 million for depreciation, amortization, impairment of
investments, stock-based compensation and non-cash interest expense, less
non-cash income of $28.2 million related to a gain on Purchased Options and our
equity share in earnings of joint ventures, as well as decreases in advances to
suppliers of $24.9 million and inventories of $20.9 million due to improved
inventory turns under management’s demand-driven manufacturing model. The
increase was partially offset by an increase in accounts receivable of $43.3
million and costs and estimated earnings in excess of billings of $41.4 million
related to contractual timing of system project billings, decreases in accounts
payable and other accrued liabilities of $31.3 million, as well as other changes
in operating assets and liabilities of $32.7 million.
Net cash
provided by operating activities of $107.9 million in the nine months ended
September 28, 2008 was primarily the result of net income of $67.8 million, plus
non-cash charges totaling $117.8 million for depreciation, amortization,
impairment of investments and long-lived assets, stock-based compensation
expense and non-cash interest expense, less non-cash income of $4.0 million for
our equity share in earnings of joint ventures, as well as increases in accounts
payable and other accrued liabilities of $76.5 million and customer advances of
$45.9 million, primarily for future polysilicon purchases by a third-party that
manufactures ingots which are sold back to us under an ingot supply agreement.
These items were partially offset by decreases in billings in excess of costs
and estimated earnings of $60.1 million related to contractual timing of system
project billings, as well as increases in accounts receivable of $55.3 million,
inventories of $48.3 million and other changes in operating assets and
liabilities totaling $32.4 million. The significant increases in substantially
all of our operating assets and liabilities resulted from our substantial
revenue increase in the nine months ended September 28, 2008 compared to
previous periods which impacted net income and working capital.
Investing
Activities
Net cash
used in investing activities during the nine months ended September 27, 2009 was
$256.3 million, of which $150.1 million relates to capital expenditures
primarily associated with the completion of FAB2 in the Philippines and the
continued construction of FAB3 in Malaysia and $145.6 million relates to
increases in restricted cash and cash equivalents for the drawdown under
the facility agreement with the Malaysian government. Cash used in investing
activities was partially offset by $29.5 million in proceeds received from the
sales or maturities of available-for-sale securities and $9.9 million in
proceeds received from the sale of equipment to a third-party
subcontractor.
Net cash
used in investing activities during the nine months ended September 28, 2008 was
$167.2 million, of which $150.3 million relates to capital expenditures
primarily associated with manufacturing capacity expansion in the Philippines.
Also during the nine months ended September 28, 2008: (i) restricted cash and
cash equivalents increased by $42.2 million for advanced payments received from
customers that we provided security in the form of cash collateralized bank
standby letters of credit; (ii) we paid $18.3 million in cash for the
acquisition of Solar Solutions, a division of Combigas S.r.l. in Italy, and
Solar Sales Pty. Ltd. in Australia, net of cash acquired; and (iii) we invested
an additional $24.6 million in joint ventures and other non-public companies.
Cash used in investing activities was partially offset by $68.2 million in
proceeds received from the sales or maturities of available-for-sale securities,
net of available-for-sale securities purchased during the period and investment
in the Reserve Primary Fund and the Reserve International Liquidity Fund, or
collectively referred to as the Reserve Funds, re-designated
from cash and cash equivalents to short-term investments at adjusted
cost.
Financing
Activities
Net cash
provided by financing activities during the nine months ended September 27, 2009
reflects cash received of: (i) $218.8 million in net proceeds from our public
offering of 10.35 million shares of our class A common stock; (ii) $198.7
million in net proceeds from the issuance of $230.0 million in principal amount
of 4.75% debentures, after reflecting the payment of the net cost of the call
spread overlay; (iii) Malaysian Ringgit 375.0 million (approximately $107.9
million based on the exchange rate as of September 27, 2009) from the Malaysian
Government under our facility agreement; (iv) $29.8 million in net proceeds from
Union Bank under our $30.0 million term loan; (v) $14.7 million in excess tax
benefits from stock-based award activity; and (vi) $1.4 million from stock
option exercises. Cash received during the nine months ended September 27, 2009
was partially offset by cash paid of $75.6 million to repurchase approximately
$81.1 million in principal amount of our 0.75% debentures and $3.7 million for
treasury stock purchases that were used to pay withholding taxes on vested
restricted stock.
Net cash
provided by financing activities during the nine months ended September 28, 2008
reflects $3.8 million from stock option exercises and $33.9 million in excess
tax benefits from stock-based award activity, partially offset by cash paid of
$5.9 million for treasury stock purchases that were used to pay withholding
taxes on vested restricted stock.
Debt
and Credit Sources
Line
of Credit
As of
September 27, 2009 and December 28, 2008, no borrowings were outstanding on the
uncollateralized revolving credit line and letters of credit totaling $49.2
million and $29.9 million, respectively, were issued by Wells Fargo under the
uncollateralized letter of credit subfeature. In addition, letters of credit
totaling $138.7 million and $76.5 million were issued by Wells Fargo under the
collateralized letter of credit facility as of September 27, 2009 and December
28, 2008, respectively. As of September 27, 2009 and December 28, 2008, cash
available to be borrowed under the uncollateralized revolving credit line was
$0.8 million and $20.1 million, respectively, and includes letter of credit
capacities available to be issued by Wells Fargo under the uncollateralized
letter of credit subfeature. Letters of credit available under the
collateralized letter of credit facility as of September 27, 2009 and December
28, 2008 totaled $61.3 million and $73.5 million, respectively. As detailed in
the agreement, we pay fees of 2% and 0.2% to 0.4% depending on maturity for
outstanding letters of credit under the uncollateralized letter of credit
subfeature and collateralized letter of credit facility, respectively. All
letters of credit issued under the uncollateralized letter of credit subfeature
expire on or before March 27, 2010 unless we provide by such date collateral in
the form of cash or cash equivalents in the aggregate amount available to be
drawn under letters of credit outstanding at such time. All letters of
credit issued under the collateralized letter of credit facility expire no later
than March 27, 2014. For additional details see Note 12 of Notes to our
Condensed Consolidated Financial Statements.
Term
Loan
On April
17, 2009, we entered into a loan agreement with Union Bank under which we
borrowed $30.0 million for a three year term at an interest rate of LIBOR plus
2%, or approximately 2.3% as of September 27, 2009. The loan is to be repaid in
eight equal quarterly installments of principal plus interest commencing June
30, 2010. For additional details see Note 12 of Notes to our Condensed
Consolidated Financial Statements.
Debt
Facility Agreement with the Malaysian Government
As of
September 27, 2009 and December 28, 2008, we borrowed Malaysian Ringgit 565.0
million, or approximately $162.7 million based on the exchange rate as of
September 27, 2009, and Malaysian Ringgit 190.0 million, or approximately $54.6
million based on the exchange rate as of December 28, 2008, respectively, under
the facility agreement with the Malaysian Government to finance the construction
of FAB3 in Malaysia. An additional Malaysian Ringgit 435.0 million, or
approximately $125.2 million based on the exchange rate as of September 27,
2009, may be drawn through June 2010. Principal is to be repaid in six quarterly
payments starting in July 2015, and a non-weighted average interest rate of
approximately 4.4% per annum accrues and is payable starting in July 2015. We
have the ability to prepay outstanding loans without premium or penalty and all
borrowings must be repaid by October 30, 2016. For additional details see Note
12 of Notes to our Condensed Consolidated Financial Statements.
Convertible
Debentures
In May
2009, we issued $230.0 million in principal amount of our 4.75% debentures and
received net proceeds of $225.0 million, before payment of the net cost of
the call spread overlay of $26.3 million. Interest on the 4.75% debentures is
payable on April 15 and October 15 of each year, which commenced October 15,
2009. Holders of the 4.75% debentures are able to exercise their right to
convert the debentures at any time into shares of our class A common stock at a
conversion price equal to $26.40 per share. The applicable conversion rate may
adjust in certain circumstances, including upon a fundamental change, as defined
in the indenture governing the 4.75% debentures. If not earlier converted, the
4.75% debentures mature on April 15, 2014. Holders may also require us to
repurchase all or a portion of their 4.75% debentures upon a fundamental change
at a cash repurchase price equal to 100% of the principal amount plus accrued
and unpaid interest. In the event of certain events of default, such as our
failure to make certain payments or perform or observe certain obligations
thereunder, Wells Fargo (the trustee) or holders of a specified amount of
then-outstanding 4.75% debentures will have the right to declare all amounts
then outstanding due and payable. For additional details see Note 12 of Notes to
our Condensed Consolidated Financial Statements.
In
February 2007, we issued $200.0 million in principal amount of our 1.25%
debentures and received net proceeds of $194.0 million. In the fourth quarter of
fiscal 2008, we received notices for the conversion of approximately $1.4
million in principal amount of the 1.25% debentures which we settled for
approximately $1.2 million in cash and 1,000 shares of class A common stock.
Interest on the 1.25% debentures is payable on February 15 and August 15 of each
year, which commenced August 15, 2007. The 1.25% debentures mature on February
15, 2027. Holders may require us to repurchase all or a portion of their 1.25%
debentures on each of February 15, 2012, February 15, 2017 and February 15,
2022, or if we experience certain types of corporate transactions constituting a
fundamental change, as defined in the indenture governing the 1.25% debentures.
Any repurchase of the 1.25% debentures pursuant to these provisions will be for
cash at a price equal to 100% of the principal amount of the 1.25% debentures to
be repurchased plus accrued and unpaid interest. In addition, we may redeem some
or all of the 1.25% debentures on or after February 15, 2012 for cash at a
redemption price equal to 100% of the principal amount of the 1.25% debentures
to be redeemed plus accrued and unpaid interest. For additional details see Note
12 of Notes to our Condensed Consolidated Financial Statements.
In July
2007, we issued $225.0 million in principal amount of our 0.75% debentures and
received net proceeds of $220.1 million. In the three and nine months ended
September 27, 2009, we repurchased approximately $8.0 million and $81.1 million,
respectively, in principal amount of the 0.75% debentures for $7.7 million and
$75.6 million, respectively, in cash. Interest on the 0.75% debentures is
payable on February 1 and August 1 of each year, which commenced February 1,
2008. The 0.75% debentures mature on August 1, 2027. Holders may require us to
repurchase all or a portion of their 0.75% debentures on each of August 1, 2010,
August 1, 2015, August 1, 2020 and August 1, 2025, or if we experience certain
types of corporate transactions constituting a fundamental change, as defined in
the indenture governing the 0.75% debentures. Therefore, the 0.75% debentures
were reclassified as short-term liabilities in our Condensed Consolidated
Balance Sheet as of September 27, 2009 due to the ability of the holders to
require us to repurchase our 0.75% debentures commencing on August 1, 2010. Any
repurchase of the 0.75% debentures pursuant to these provisions will be for cash
at a price equal to 100% of the principal amount of the 0.75% debentures to be
repurchased plus accrued and unpaid interest. In addition, we may redeem some or
all of the 0.75% debentures on or after August 1, 2010 for cash at a redemption
price equal to 100% of the principal amount of the 0.75% debentures to be
redeemed plus accrued and unpaid interest. For additional details see Note 12 of
Notes to our Condensed Consolidated Financial Statements.
Commercial
Project Financing Agreement with Wells Fargo
On June
29, 2009, we signed a commercial project financing agreement with Wells Fargo to
fund up to $100 million of commercial-scale solar system projects during
2009. Pursuant to the financing agreement, we would design and build the
systems, and upon completion of each system, sell the systems to Wells Fargo,
who would, in turn, lease back the systems to us. Separately, we would
enter into power purchase agreements with end customers, who would host the
systems and buy the electricity directly from us.
Liquidity
As of
September 27, 2009, we had cash and cash equivalents of $472.1 million as
compared to $202.3 million as of December 28, 2008. The increase in the balance
of our cash and cash equivalents as of September 27, 2009 compared to the
balance as of December 28, 2008 was primarily due to the receipt of aggregate
net proceeds of $417.5 million from the public offering of 10.35 million shares
of our class A common stock and the issuance of $230.0 million in principal
amount of our 4.75% debentures, after deducting the underwriters’ discounts and
commissions and offering expenses payable by us (including approximately $26.3
million paid as the net cost of the call spread overlay entered into in
connection with the 4.75% debenture offering). For additional details see Notes
1 and 12 of Notes to our Condensed Consolidated Financial
Statements.
Our cash
balances are held in numerous locations throughout the world, including
substantial amounts held outside of the U.S. Most of the amounts held outside of
the U.S. could be repatriated to the U.S. but, under current law, would be
subject to U.S. federal income taxes, less applicable foreign tax credits. We
have accrued U.S. federal taxes on the earnings of our foreign subsidiaries
except when the earnings are considered indefinitely reinvested outside of the
U.S. Repatriation could result in additional U.S. federal income tax payments in
future years.
In
addition, we had short-term investments and long-term investments of $0.8
million and $8.4 million as of September 27, 2009, respectively, as compared to
$17.2 million and $23.6 million as of December 28, 2008, respectively. Long-term
investments are made up of auction rate securities that failed to clear at
auctions in subsequent periods and have stated contractual maturities between 20
to 30 years. Due to the illiquidity associated with recent failed auctions, we
estimate that auction rate securities we hold with a stated par value of $9.9
million and $26.1 million at September 27, 2009 and December 28, 2008,
respectively, would be valued at approximately 85% and 91%, respectively, of
their stated par value, or $8.4 million and $23.6 million, respectively,
representing a decline in value of approximately $1.5 million and $2.5 million,
respectively. Due to one auction rate security’s downgrade from a triple-A
rating to a Baa1 rating, the length of time that has passed since the auction
rate securities failed to clear at auctions and the ongoing uncertainties
regarding future access to liquidity, we have determined the impairment is
other-than-temporary and recorded impairment losses of $0.2 million and $0.8
million in the three and nine months ended September 27, 2009, respectively, and
$2.5 million in the fourth quarter of fiscal 2008, in “Other, net” in our
Condensed Consolidated Statements of Operations. If market conditions were to
deteriorate even further such that the current fair value were not achievable,
we could realize additional impairment losses related to our auction rate
securities. In the three and nine months ended September 27, 2009, we sold
auction rate securities with a carrying value of $9.9 million and $14.4
million, respectively, for $9.8 million and $14.4 million, respectively,
to third-parties outside of the auction process. In
addition, we sold an auction rate security with a carrying value of $4.0
million for $4.1 million to a third-party outside of the auction process in
October 2009. For additional details see Note 6 of Notes to our Condensed
Consolidated Financial Statements.
If the
closing price of our class A common stock equaled or exceeded 125% of the
initial effective conversion price governing the 1.25% debentures and/or 0.75%
debentures for 20 out of 30 consecutive trading days in the last month of the
fiscal quarter, then holders of the 1.25% debentures and/or 0.75%
debentures have the right to convert the debentures any day in the following
fiscal quarter. Because the closing price of our class A common stock on at
least 20 of the last 30 trading days during the fiscal quarters ending September
27, 2009, June 28, 2009, March 29, 2009 and December 28, 2008 did not equal or
exceed $70.94, or 125% of the applicable conversion price for our
1.25% debentures, and $102.80, or 125% of the applicable conversion price
for our 0.75% debentures, holders of the 1.25% debentures and 0.75%
debentures are unable to exercise their right to convert the debentures, based
on the market price conversion trigger, on any day in fiscal 2009. Accordingly,
we classified our 1.25% debentures as long-term in our Condensed Consolidated
Balance Sheet as of September 27, 2009 and the 1.25% debentures and 0.75%
debentures as long-term as of December 28, 2008. This test is repeated each
fiscal quarter, therefore, if the market price conversion trigger is satisfied
in a subsequent quarter, the 1.25% debentures may again be reclassified as
short-term. For additional details see Note 12 of Notes to our Condensed
Consolidated Financial Statements.
In
addition, the holders of our 1.25% debentures and 0.75% debentures would be able
to exercise their right to convert the debentures during the five consecutive
business days immediately following any five consecutive trading days in which
the trading price of our 1.25% debentures and 0.75% debentures is less than 98%
of the average of the closing sale price of a share of class A common stock
during the five consecutive trading days, multiplied by the applicable
conversion rate. As of September 27, 2009 and December 28, 2008, our 1.25%
debentures and 0.75% debentures traded significantly below their historic
trading prices. If the trading prices of our debentures continue to decline,
holders of the 1.25% debentures and 0.75% debentures may have the right to
convert the debentures in the future.
We have
used, and intend to continue to use, the net proceeds from the public offering
of 10.35 million shares of our class A common stock and the issuance of the
4.75% debentures for general corporate purposes, including working capital and
capital expenditures as well as for the purposes described below. From time to
time, we will evaluate potential acquisitions and strategic transactions of
business, technologies, or products, and may use a portion of the net proceeds
for such acquisitions or transactions. Currently, however, we do not have
any agreements with respect to any such material acquisitions or strategic
transactions.
In the
three and nine months ended September 27, 2009, we used $7.7 million and $75.6
million, respectively, in cash to repurchase approximately $8.0 million and
$81.1 million, respectively, in principal amount of our 0.75% debentures. We may
use a portion of the net proceeds from the public offering of 10.35 million
shares of our class A common stock and the issuance of our 4.75%
debentures to repurchase more of our outstanding 1.25% debentures or 0.75%
debentures. We expect that holders of our outstanding 1.25% debentures or
0.75% debentures from whom we may repurchase such debentures (which holders may
include one or more of the underwriters of such debentures) may have outstanding
short hedge positions in our class A common stock relating to such debentures.
Upon repurchase, we expect that such holders will unwind or offset those hedge
positions by purchasing class A common stock in secondary market transactions,
including purchases in the open market, and/or entering into various derivative
transactions with respect to our class A common stock. These activities could
have the effect of increasing, or preventing a decline in, the market price of
our class A common stock. The effect, if any, of any of these transactions and
activities on the market price of our class A common stock or the debentures
will depend in part on market conditions and cannot be ascertained at this time,
but may be material.
We
believe that our current cash and cash equivalents, cash generated from
operations, and funds available from the credit agreement with Wells Fargo and
facility agreement with the Malaysian Government will be sufficient to meet our
working capital and capital expenditure commitments for at least the next
12 months. However, there can be no assurance that our liquidity will be
adequate over time. We expect total capital expenditures in the range of
$200 million to $225 million in 2009 as we continue to increase our solar cell
and solar panel manufacturing capacity in the Philippines and Malaysia. These
expenditures would be greater if we decide to bring capacity on line more
rapidly. If our capital resources are insufficient to satisfy our liquidity
requirements, we may seek to sell additional equity securities or debt
securities or obtain other debt financing. However, after the tax-free
distribution of our shares by Cypress on September 29, 2008, our ability to sell
additional equity securities to obtain additional financing is subject to
Cypress’s consent in certain circumstances to ensure the tax-free nature of its
distribution of our class B common stock. The sale of additional equity
securities or convertible debt securities would result in additional dilution to
our stockholders and may not be available on favorable terms or at all,
particularly in light of the current crises in the financial and credit markets.
Additional debt would result in increased expenses and would likely impose new
restrictive covenants like the covenants under the credit agreement with Wells
Fargo, the facility agreement with the Malaysian Government, the term loan with
Union Bank, the 4.75% debentures, 1.25% debentures and the 0.75% debentures.
Financing arrangements may not be available to us, or may not be available
in amounts or on terms acceptable to us.
Contractual
Obligations
The
following summarizes our contractual obligations at September 27,
2009:
Payments
Due by Period
|
||||||||||||||||||||
(In
thousands)
|
Total
|
2009
(remaining
3
months)
|
2010
–2011
|
2012
–2013
|
Beyond
2013
|
|||||||||||||||
Convertible
debt, including interest
|
$
|
684,488
|
$
|
3,622
|
$
|
28,973
|
$
|
28,973
|
$
|
622,920
|
||||||||||
Term
loan from Union Bank, including interest
|
31,121
|
172
|
27,177
|
3,772
|
—
|
|||||||||||||||
Loan
from Malaysian Government
|
162,665
|
—
|
—
|
—
|
162,665
|
|||||||||||||||
Customer
advances
|
97,142
|
15,084
|
18,058
|
16,000
|
48,000
|
|||||||||||||||
Lease
commitments
|
30,891
|
1,440
|
9,004
|
5,740
|
14,707
|
|||||||||||||||
Utility
obligations
|
750
|
—
|
—
|
—
|
750
|
|||||||||||||||
Non-cancelable
purchase orders
|
39,460
|
38,810
|
650
|
—
|
—
|
|||||||||||||||
Purchase
commitments under agreements
|
6,394,547
|
142,673
|
1,321,069
|
1,300,405
|
3,630,400
|
|||||||||||||||
Total
|
$
|
7,441,064
|
$
|
201,801
|
$
|
1,404,931
|
$
|
1,354,890
|
$
|
4,479,442
|
Convertible
debt and interest on convertible debt relate to the aggregate of $572.5 million
in outstanding principal amount of our senior convertible debentures. For the
purpose of the table above, we assume that all holders of the 4.75% debentures
will hold the debentures through the date of maturity in fiscal 2014 and all
holders of the 1.25% debentures and 0.75% debentures will hold the debentures
through the date of maturity in fiscal 2027 and upon conversion, the values of
the 1.25% debentures and 0.75% debentures are equal to the aggregate principal
amount of $342.5 million with no premiums. The term loan from Union Bank
including interest relates to borrowings totaling $30.0 million for three years
at an interest rate of LIBOR plus 2%. The loan from the Malaysian Government
relates to amounts borrowed for the financing and operation of FAB3 to be
constructed in Malaysia. Customer advances relate to advance payments received
from customers for future purchases of solar power products. Lease commitments
primarily relate to our 5-year lease agreement with Cypress for our headquarters
in San Jose, California, an 11-year lease agreement with an unaffiliated
third-party for our administrative, research and development offices in
Richmond, California and other leases for various office space. Utility
obligations relate to our 11-year lease agreement with an unaffiliated
third-party for our administrative, research and development offices in
Richmond, California. Non-cancelable purchase orders relate to purchases of raw
materials for inventory, services and manufacturing equipment from a variety of
vendors. Purchase commitments under agreements relate to arrangements entered
into with suppliers of polysilicon, ingots, wafers and solar panels as well as
agreements to purchase solar renewable energy certificates from solar
installation owners in New Jersey. These agreements specify future quantities
and pricing of products to be supplied by the vendors for periods up to twelve
years and there are certain consequences, such as forfeiture of advanced
deposits and liquidated damages relating to previous purchases, in the event
that we terminate the arrangements. For additional details see Notes 10 and
12 of Notes to our Condensed Consolidated Financial Statements.
As of
September 27, 2009 and December 28, 2008, total liabilities associated with
uncertain tax positions were $12.1 million and $12.8 million, respectively, and
are included in “Other long-term liabilities” in our Condensed Consolidated
Balance Sheets as they are not expected to be paid within the next twelve
months. Due to the complexity and uncertainty associated with our tax positions,
we cannot make a reasonably reliable estimate of the period in which cash
settlement will be made for our liabilities associated with uncertain tax
positions in other long-term liabilities, therefore, they have been excluded
from the table above. We finalized a foreign tax audit during the third quarter
of fiscal 2009 which decreased our total liabilities associated with uncertain
tax positions. For additional details see Note 10 of Notes to our Condensed
Consolidated Financial Statements.
Quantitative
and Qualitative Disclosure About Market
Risk
|
Foreign
Currency Exchange Risk
Our
exposure to adverse movements in foreign currency exchange rates is primarily
related to sales to European customers that are denominated in Euros. In the
second quarter of fiscal 2008, we changed the functional currency of certain
European subsidiaries from U.S. dollar to Euro, resulting in greater exposure to
changes in the value of the Euro and limiting our ability to fully hedge certain
Euro-denominated revenue. Revenue generated from European customers represented
63% and 49% of our total revenue for the three and nine months ended September
27, 2009, respectively, compared to 39% and 62% of our total revenue for the
three and nine months ended September 28, 2008, respectively. A 10% change in
the Euro exchange rate would have impacted our revenue by approximately $29.4
million and $47.9 million for the three and nine months ended September 27,
2009, respectively, compared to $14.7 million and $64.1 million for the three
and nine months ended September 28, 2008, respectively.
In the
past, we have experienced an adverse impact on our revenue, gross margin and
profitability as a result of foreign currency fluctuations. When foreign
currencies appreciate against the U.S. dollar, inventories and expenses
denominated in foreign currencies become more expensive. Strengthening of the
Korean Won against the U.S. dollar could result in a foreign currency
translation loss by our joint venture, Woongjin Energy, which in turn negatively
impacts our equity in earnings of the unconsolidated investee. In addition,
strengthening of the Malaysian Ringgit against the U.S. dollar will increase our
liability under the facility agreement with the Malaysian Government. An
increase in the value of the U.S. dollar relative to foreign currencies could
make our solar power products more expensive for international customers, thus
potentially leading to a reduction in demand, our sales and profitability.
Furthermore, many of our competitors are foreign companies that could benefit
from such a currency fluctuation, making it more difficult for us to compete
with those companies. We currently conduct hedging activities which involve the
use of option and forward contracts to address our exposure to changes in the
foreign exchange rate between the U.S. dollar and other currencies. As of
September 27, 2009, we held option and forward contracts totaling $108.4 million
and $223.7 million, respectively. As of December 28, 2008, we held option and
forward contracts totaling $147.5 million and $364.5 million, respectively. Due
to the volatility in the current markets, we experienced gains of $0.7 million
and losses of $1.9 million on derivatives and changes in foreign exchange rates
during the three and nine months ended September 27, 2009, respectively,
compared to losses of $4.6 million and $7.4 million in the three and nine months
ended September 28, 2008, respectively. We cannot predict the impact of future
exchange rate fluctuations on our business and operating results. In the past,
we have experienced an adverse impact on our revenue, gross margin and
profitability as a result of foreign currency fluctuations. We believe that we
may have increased risk associated with currency fluctuations in the future. For
additional details see Note 14 of Notes to our Condensed Consolidated Financial
Statements.
Credit
Risk
We have
certain financial and derivative instruments that subject us to credit risk.
These consist primarily of cash and cash equivalents, restricted cash and cash
equivalents, investments, trade accounts receivable, advances to suppliers,
foreign currency option contracts, foreign currency forward contracts and
purchased options for our class A common stock. We are exposed to credit losses
in the event of nonperformance by the counterparties to our financial and
derivative instruments such as suppliers which we have provided advanced
deposits for future deliveries of polysicon as well as the counterparties of our
class A common stock purchased options to purchase up to approximately 8.7
million shares of our class A common stock, as convertible debenture hedge
transactions intended to reduce the potential dilution upon conversion of our
4.75% debentures. We enter into agreements with vendors that specify future
quantities and pricing of polysilicon to be supplied for periods up to 12 years.
Under certain agreements, we are required to make prepayments to the vendors
over the terms of the arrangements. As of September 27, 2009 and December 28,
2008, advances to suppliers totaled $137.9 million and $162.6 million,
respectively. Three suppliers accounted for 67%, 22% and 8% of total advances to
suppliers as of September 27, 2009, and 57%, 19% and 18% as of December 28,
2008.
In
addition, we enter into foreign currency derivative contracts and convertible
debenture hedge transactions with high-quality financial institutions and limit
the amount of credit exposure to any one counterparty. The foreign currency
derivative contracts are limited to a time period of less than one year, while
the purchased options for our class A common stock will expire in 2014. We
continuously evaluate the credit standing of our counterparty financial
institutions. For additional details see Notes 7, 12 and 14 of Notes
to our Condensed Consolidated Financial Statements.
Interest
Rate Risk
We are
exposed to interest rate risk because many of our customers depend on debt
financing to purchase our solar power systems. An increase in interest rates
could make it difficult for our customers to secure the financing necessary to
purchase our solar power systems on favorable terms, or at all, and thus lower
demand for our solar power products, reduce revenue and adversely impact our
operating results. An increase in interest rates could lower a customer’s return
on investment in a system or make alternative investments more attractive
relative to solar power systems, which, in each case, could cause our customers
to seek alternative investments that promise higher returns or demand higher
returns from our solar power systems, reduce gross margin and adversely impact
our operating results. This risk is more significant to our Systems Segment,
which may engage in direct sales to financial institutions that sell electricity
to end customers under a power purchase agreement. This sales model is highly
sensitive to interest rate fluctuations and the availability of liquidity, and
would be adversely affected by increases in interest rates or liquidity
constraints.
In
addition, our investment portfolio consists of a variety of financial
instruments that exposes us to interest rate risk including, but not limited to,
money market funds, bank notes and corporate securities. These investments are
generally classified as available-for-sale and, consequently, are recorded on
our balance sheet at fair market value with their related unrealized gain or
loss reflected as a component of accumulated other comprehensive loss in
stockholders’ equity. Due to the relatively short-term nature of our investment
portfolio, we do not believe that an immediate 10% increase in interest rates
would have a material effect on the fair market value of our portfolio. Since we
believe we have the ability to liquidate substantially all of this portfolio, we
do not expect our operating results or cash flows to be materially affected to
any significant degree by a sudden change in market interest rates on our
investment portfolio.
Reserve
Funds
As of
September 27, 2009 and December 28, 2008, we had $0.8 million and $7.2 million,
respectively, invested in the Reserve Funds. The net asset value per share for
the Reserve Funds fell below $1.00 because the funds had investments in Lehman,
which filed for bankruptcy on September 15, 2008. As a result of this event, the
Reserve Funds wrote down their investments in Lehman to zero and also announced
that the funds would be closed and distributed to holders. We have estimated our
loss on the Reserve Funds to be approximately $2.2 million based upon
information publicly disclosed by the Reserve Funds relative to our holdings and
remaining obligations. We recorded impairment charges of zero and $1.2 million
during the three and nine months ended September 27, 2009, respectively, and
$0.9 million in both the three and nine months ended September 28, 2008, in
“Other, net” in our Condensed Consolidated Statements of Operations, thereby
establishing a new cost basis for each fund.
In
October 2009, we received distributions of $0.5 million from the Reserve Funds.
We expect that the remaining distribution of $0.3 million from the Reserve Funds
will occur over the remaining twelve months as the investments held in the funds
mature. While we expect to receive substantially all of the
current carrying value of our holdings in the Reserve Funds within the
next twelve months, it is possible that we may encounter difficulties in
receiving distributions given the current credit market conditions. If market
conditions were to deteriorate even further such that the current fair value was
not achievable, we could realize additional losses in our holdings with the
Reserve Funds and distributions could be further delayed. For additional details
see Note 6 of Notes to our Condensed Consolidated Financial
Statements.
Auction
Rate Securities
Auction
rate securities are variable rate debt instruments with interest rates that,
unless they fail to clear at auctions, are reset in pre-determined intervals
every 7 to 49 days. The “stated” or “contractual” maturities for these
securities generally are between 20 to 30 years. We estimated that the auction
rate securities held with a stated par value of $9.9 million and $26.1 million
as of September 27, 2009 and December 28, 2008, respectively, would be
valued at approximately 85% and 91%, respectively, of their stated par value, or
$8.4 million and $23.6 million, respectively, representing a decline in value of
approximately $1.5 million and $2.5 million, respectively. Due to one auction
rate security’s downgrade from a triple-A rating to a Baa1 rating, the length of
time that has passed since the auctions failed and the ongoing uncertainties
regarding future access to liquidity, we have determined the impairment is
other-than-temporary and recorded impairment losses of $0.2 million and $0.8
million in the three and nine months ended September 27, 2009, respectively, and
$2.5 million in the fourth quarter of fiscal 2008, in “Other, net” in our
Condensed Consolidated Statements of Operations. If market conditions were to
deteriorate even further such that the current fair value was not achievable, we
could realize additional impairment losses related to our auction rate
securities. All of our auction rate securities as of September 27, 2009 and
December 28, 2008 have failed to clear at auctions in subsequent periods. In the
three and nine months ended September 27, 2009, we sold auction rate
securities with a carrying value of $9.9 million and $14.4 million,
respectively, for $9.8 million and $14.4 million, respectively,
to third-parties outside of the auction process. In addition, we sold an
auction rate security with a carrying value of $4.0 million for $4.1
million to a third-party outside of the auction process in October 2009.
For additional details see Note 6 of Notes to our Condensed Consolidated
Financial Statements.
Investments
in Non-Public Companies
Our
investments held in non-public companies expose us to equity price risk. As of
September 27, 2009 and December 28, 2008, non-publicly traded investments of
$36.0 million and $29.0 million, respectively, are accounted for using the
equity method, and $4.6 million and $3.1 million, respectively, are accounted
for using the cost method. These strategic investments in third-parties are
subject to risk of changes in market value, which if determined to be
other-than-temporary, could result in realized impairment losses. We generally
do not attempt to reduce or eliminate our market exposure in equity and cost
method investments. We monitor these non-publicly traded investments for
impairment and record reductions in the carrying values when necessary.
Circumstances that indicate an other-than-temporary decline include valuation
ascribed to the issuing company in subsequent financing rounds, decreases in
quoted market price and declines in operations of the issuer. During the fourth
quarter of fiscal 2008, we recorded an other-than-temporary impairment charge of
$1.9 million in our Condensed Consolidated Statement of Operations related to a
non-publicly traded investment accounted for using the cost method, due to the
deterioration of the credit market and economic environment. If the recent
credit market conditions continue or worsen, we may be required to record an
additional impairment charge, which could be material. There can be no assurance
that our equity and cost method investments will not face additional risks of
loss. For additional details see Notes 6 and 11 of Notes to our Condensed
Consolidated Financial Statements.
Convertible
Debt
The fair
market value of our convertible debentures is subject to interest rate risk,
market price risk and other factors due to the convertible feature of the
debentures. The fair market value of the debentures will generally increase as
interest rates fall and decrease as interest rates rise. In addition, the fair
market value of the debentures will generally increase as the market price of
our class A common stock increases and decrease as the market price of our class
A common stock falls. The interest and market value changes affect the fair
market value of the debentures but do not impact our financial position, cash
flows or results of operations due to the fixed nature of the debt obligations
except to the extent increases in the value of our class A common stock may
provide the holders of our 1.25% debentures and/or 0.75% debentures the right to
convert such debentures in certain instances. The aggregate estimated fair value
of the 4.75% debentures, 1.25% debentures and 0.75% debentures was approximately
$632.2 million as of September 27, 2009 and the aggregate estimated fair value
of the 1.25% debentures and 0.75% debentures was approximately $310.7 million as
of December 28, 2008, based on quoted market prices as reported by an
independent pricing source. A 10% increase in quoted market prices would
increase the estimated fair value of our then-outstanding debentures to
approximately $695.4 million and $341.8 million as of September 27, 2009 and
December 28, 2008, respectively, and a 10% decrease in the quoted market prices
would decrease the estimated fair value of our then-outstanding debentures to
approximately $569.0 million and $279.7 million as of September 27, 2009 and
December 28, 2008, respectively. For additional details see Note 12 of
Notes to our Condensed Consolidated Financial Statements.
Item 4. Controls
and Procedures
Evaluation
of Disclosure Controls and Procedures
We
maintain “disclosure controls and procedures,” as such term is defined in Rules
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended
(“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 Securities and Exchange Commission 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 is required to apply its judgment in evaluating
the cost-benefit relationship of possible disclosure controls and procedures.
The design of any disclosure controls and procedures 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 Quarterly Report on
Form 10-Q and subject to the foregoing, our Chief Executive Officer and Chief
Financial Officer have concluded that our disclosure controls and procedures
were effective.
Changes
in Internal Control over Financial Reporting
We
maintain a system of internal control over financial reporting that is designed
to provide reasonable assurance that our books and records accurately reflect
our transactions and that our established policies and procedures are followed.
There were no changes in our internal control over financial reporting that
occurred during the three months ended September 27, 2009 that materially
affected, or are reasonably likely to materially affect, our internal control
over financial reporting.
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
From time
to time, we are a party to litigation matters and claims that are normal in the
course of our operations. While we believe that the ultimate outcome of these
matters will not have a material adverse effect on us, the outcome of these
matters is not determinable and negative outcomes may adversely affect our
financial position, liquidity or results of operations.
Item 1A: RISK
FACTORS
In
addition to the other information set forth in this report, you should carefully
consider the risk factors discussed in “PART I. Item 1A: Risk
Factors” in our Annual Report on Form 10-K for the year ended December
28, 2008, which could materially affect our business, financial condition or
future results. The risks described in our Annual Report on Form 10-K are not
the only risks facing our company. Additional risks and uncertainties not
currently known to us or that we currently deem to be immaterial also may
materially adversely affect our business, financial condition or future results.
We have updated these risk factors to reflect changes during the nine months
ended September 27, 2009.
Risks
Related to Our Sales Channels
Our
operating results will be subject to fluctuations and are inherently
unpredictable.
We do not
know if our revenue will grow, or if it will grow sufficiently to outpace our
expenses, which we expect to increase as we expand our manufacturing capacity.
We may not be profitable on a quarterly or an annual basis. Our quarterly
revenue and operating results will be difficult to predict and have in the past
fluctuated from quarter to quarter. In particular, our Systems Segment is
difficult to forecast and is susceptible to large fluctuations in financial
results. The amount, timing and mix of sales of our Systems Segment, often for a
single medium or large-scale project, may cause large fluctuations in our
revenue and other financial results. Further, our revenue mix of high margin
materials sales versus lower margin projects in the Systems Segment can
fluctuate dramatically from quarter to quarter, which may adversely affect our
revenue and financial results in any given period. Finally, our ability to meet
project completion schedules for an individual project and the corresponding
revenue impact under the percentage-of-completion method of recognizing revenue
may similarly cause large fluctuations in our revenue and other financial
results. This may cause us to miss any future guidance announced by
us.
We base
our planned operating expenses in part on our expectations of future revenue,
and a significant portion of our expenses is fixed in the short-term. If revenue
for a particular quarter is lower than we expect, we likely will be unable to
proportionately reduce our operating expenses for that quarter, which would harm
our operating results for that quarter. This may cause us to miss any guidance
announced by us.
Risks
Related to Our Operations
We
depend on third-party subcontractors to assemble a significant
portion of our solar cells into solar panels and any failure to obtain
sufficient assembly and test capacity could significantly delay our ability to
ship our solar panels and damage our customer relationships.
Historically,
we have relied on Jiawei SolarChina Co., Ltd., a third-party subcontractor in
China, to assemble a significant portion of our solar cells into solar
panels and perform panel testing and to manage packaging, warehousing and
shipping of our solar panels. In May 2009, we entered into an arrangement with
Jabil Circuit, Inc. for similar services that are provided in Mexico. As a
result of outsourcing a significant portion of this final step in our
production, we face several significant risks, including limited control over
assembly and testing capacity, delivery schedules, quality assurance,
manufacturing yields and production costs. If the operations of Jiawei or Jabil
were disrupted or their financial stability impaired, or if they were unable or
unwilling to devote capacity to our solar panels in a timely manner, our
business could suffer as we might be unable to produce finished solar panels on
a timely basis. We also risk customer delays resulting from an inability to move
module production to an alternate provider or to complete production
internationally, and it may not be possible to obtain sufficient capacity or
comparable production costs at another facility in a timely manner. In addition,
migrating our design methodology to a new third-party subcontractor or to a
captive panel assembly facility could involve increased costs, resources and
development time, and utilizing additional third-party subcontractors could
expose us to further risk of losing control over our intellectual property and
the quality of our solar panels. Any reduction in the supply of solar panels
could impair our revenue by significantly delaying our ability to ship products
and potentially damage our relationships with new and existing customers, any of
which could have a material and adverse effect on our financial condition and
results of operation.
Risks
Related to Our Liquidity
A
change in our effective tax rate can have a significant adverse impact on our
business.
A number
of factors may adversely impact our future effective tax rates, such as the
jurisdictions in which our profits are determined to be earned and taxed;
changes in the valuation of our deferred tax assets and liabilities; adjustments
to estimated taxes upon finalization of various tax returns; changes in
available tax credits; changes in stock-based compensation expense; changes in
tax laws or the interpretation of such tax laws (for example, proposals for
fundamental U.S. international tax reform, such as the recent proposal by the
federal government, if enacted); changes in generally accepted accounting
principles; expiration or the inability to renew tax rulings or tax holiday
incentives; and the repatriation of non-U.S. earnings for which we have not
previously provided for U.S. taxes. A change in our effective tax rate due to
any of these factors may adversely impact our future results from
operations.
Item 2: UNREGISTERED SALES OF EQUITY
SECURITIES AND USE OF PROCEEDS
Issuer
Purchases of Equity Securities
The
following table sets forth all purchases made by or on behalf of the Company or
any “affiliated purchaser,” as defined in Rule 10b-18(a)(3) under the
Securities Exchange Act of 1934, of shares of our class A common stock during
each of the indicated months.
Period
|
Total
Number of
Shares
Purchased
(in
thousands)(1)
|
Average
Price
Paid
Per Share
|
Total
Number of Shares Purchased as Part of Publicly Announced Plans or
Programs
|
Maximum
Number of Shares That May Yet Be Purchased Under the Publicly Announced
Plans or Programs
|
|||
June
29, 2009 through July 26, 2009
|
7
|
$25.96
|
—
|
—
|
|||
July
27, 2009 through August 23, 2009
|
11
|
$30.08
|
—
|
—
|
|||
August
24, 2009 through September 27, 2009
|
8
|
$27.53
|
—
|
—
|
|||
|
26
|
$28.15
|
—
|
—
|
(1)
|
The
total number of shares purchased includes only shares surrendered to
satisfy tax withholding obligations in connection with the vesting of
restricted stock issued to employees.
|
Item
6: EXHIBITS
Exhibit
Number
|
Description
|
||
10.1*† |
Amendment
No. 1 to Supply Agreement, dated September 22, 2006, by and between
SunPower Philippines Manufacturing, Ltd. and OCI Company Ltd. (formerly
known as DC Chemical Co., Ltd.).
|
||
10.2*† |
Amendment
No. 2 to Ingot Supply Agreement, dated August 1, 2009, by and between
SunPower Corporation and Woongjin Energy Co. Ltd.
|
||
10.3*† |
Amendment
No. 3 to Polysilicon Supply Agreement, dated August 1, 2009, by and
between SunPower Philippines Manufacturing, Ltd. and Woongjin Energy Co.
Ltd.
|
||
10.4* |
Second
Amendment to Amended and Restated Credit Agreement, dated August 31, 2009,
by and between SunPower Corporation and Wells Fargo Bank, National
Association.
|
||
10.5* |
First
Amendment to Loan Agreement, dated August 31, 2009, by and among SunPower
Corporation; SunPower Corporation, Systems; SunPower North America, LLC;
and Union Bank, N.A.
|
||
10.6* |
Form
of Employment Agreement for Executive Officers.
|
||
10.7*† |
Amendment
Four to Turnkey Engineering, Procurement and Construction Agreement, dated
September 25, 2009, by and between SunPower Corporation, Systems and
Florida Power and Light Company.
|
||
31.1* |
Certification
by Chief Executive Officer Pursuant to Rule
13a-14(a)/15d-14(a).
|
||
31.2* |
Certification
by Chief Financial Officer Pursuant to Rule
13a-14(a)/15d-14(a).
|
||
32.1* |
Certification
Furnished Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of
2002.
|
Exhibits
marked with an asterisk (*) are filed herewith.
Exhibits
marked with a cross (†) are subject to a request for confidential treatment
filed with the Securities and Exchange Commission.
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereto duly authorized.
SUNPOWER
CORPORATION
|
||
Dated: November
2, 2009
|
By:
|
/s/ DENNIS
V. ARRIOLA
|
Dennis
V. Arriola
|
||
Senior
Vice President and
|
||
Chief
Financial Officer
|
Index
to Exhibits
Exhibit
Number
|
Description
|
||
10.1*† |
Amendment
No. 1 to Supply Agreement, dated September 22, 2006, by and between
SunPower Philippines Manufacturing, Ltd. and OCI Company Ltd. (formerly
known as DC Chemical Co., Ltd.).
|
||
10.2*† |
Amendment
No. 2 to Ingot Supply Agreement, dated August 1, 2009, by and between
SunPower Corporation and Woongjin Energy Co. Ltd.
|
||
10.3*† |
Amendment
No. 3 to Polysilicon Supply Agreement, dated August 1, 2009, by and
between SunPower Philippines Manufacturing, Ltd. and Woongjin Energy Co.
Ltd.
|
||
10.4* |
Second
Amendment to Amended and Restated Credit Agreement, dated August 31, 2009,
by and between SunPower Corporation and Wells Fargo Bank, National
Association.
|
||
10.5* |
First
Amendment to Loan Agreement, dated August 31, 2009, by and among SunPower
Corporation; SunPower Corporation, Systems; SunPower North America, LLC;
and Union Bank, N.A.
|
||
10.6* |
Form
of Employment Agreement for Executive Officers.
|
||
10.7*† |
Amendment
Four to Turnkey Engineering, Procurement and Construction Agreement, dated
September 25, 2009, by and between SunPower Corporation, Systems and
Florida Power and Light Company.
|
||
31.1* |
Certification
by Chief Executive Officer Pursuant to Rule
13a-14(a)/15d-14(a).
|
||
31.2* |
Certification
by Chief Financial Officer Pursuant to Rule
13a-14(a)/15d-14(a).
|
||
32.1* |
Certification
Furnished Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of
2002.
|
Exhibits
marked with an asterisk (*) are filed herewith.
Exhibits
marked with a cross (†) are subject to a request for confidential treatment
filed with the Securities and Exchange Commission.
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