Third Quarter 2012 Results
Net Revenues
Net revenues in the third quarter of 2012 were $298.0 million, a decrease of 13.9% sequentially and 38.2% year-over-year. Total shipments were 380.3 MW, compared to 418.8 MW in the second quarter of 2012 and 370.1 MW in the third quarter of 2011. The sequential decrease in shipments was caused by a continued supply-demand imbalance and the decrease in revenue resulted from the effect of this imbalance on market pricing and commercial terms.
Gross Profit and Margin
Gross profit in the third quarter of 2012 was $2.4 million, compared to a gross profit of $29.0 million in the second quarter of 2012 and $52.0 million in the third quarter of 2011. Gross profit during the third quarter of 2012 includes a $25.8 million reversal of prior provisions for AD/CVD in the United States, relating to the ITC's decision to not impose duties retroactively due to the lack of evidence for critical circumstances. Gross profit during the third quarter of 2012 includes a provision of $13.3 million for non-cash inventory write-down.
Gross Margin was 0.8% in the third quarter of 2012, compared to 8.4% in the second quarter of 2012 and 10.8% in the third quarter of 2011. The sequential decrease in gross Margin was due primarily to higher inventory carrying costs and inventory write-down in connection with decreasing average selling price of modules; the year-on-year decrease in gross Margin was due primarily to declines in the average selling price of modules that exceed reductions in cost.
The impact of the inventory write-down on the Company's gross Margin was 4.5% in the third quarter of 2012.
Operating Expense, Income and Margin
Operating expenses in the third quarter of 2012 were $78.3 million, a decrease of 27.2% sequentially and an increase of 3.8% year-over-year. The Company's operating expenses, which included one-time tax and organization restructuring charges totaling $15.2 million, represented 26.3% of its third quarter net revenues, a decrease from 31.1% in the second quarter of 2012 and an increase from 15.7% in the third quarter of 2011. The sequential percentage decrease was primarily due to decrease in provision made to account receivables in the third quarter of 2012 while the year-to-year percentage increase was primarily due to the decrease in net revenues. Operating expenses in the third quarter of 2012 included $1.1 million in share-based compensation expenses, compared to $2.7 million in the second quarter of 2012 and $2.0 million in the third quarter of 2011.
As a result of the foregoing, operating loss in the third quarter of 2012 was $76.0 million, compared to an operating loss of $78.6 million in the second quarter of 2012 and an operating loss of $23.5 million in the third quarter of 2011. Operating Margin was negative 25.5% in the third quarter of 2012, compared to negative 22.7% in the second quarter of 2012 and negative 4.9% in the third quarter of 2011.
Net Interest Expense
Net interest expense in the third quarter of 2012 was $13.8 million, compared to $9.3 million in the second quarter of 2012 and $9.7 million in the third quarter of 2011. The sequential increase in net interest expense was primarily due to an increase in average bank borrowings in the third quarter of 2012.
Foreign Currency Exchange
The Company had a foreign currency exchange gain of $18.2 million in the third quarter of 2012, which included changes in fair Value of derivative instruments, compared to a net loss of $22.5 million in the second quarter of 2012 and a net gain of $0.4 million in the third quarter of 2011. This net gain was primarily due to the appreciation of the Euro against the U.S. dollar during the third quarter of 2012, augmented by gains from foreign currency hedging contracts used by the Company to mitigate its foreign currency risk exposure.
The Company continued to mitigate the effects of Foreign Exchange rate volatility during the third quarter of 2012 by using hedging contracts involving the Euro, Renminbi, and U.S. dollar.
Income Tax Benefit and Expense
Income tax benefit was $11.7 million in the third quarter of 2012, compared to income tax benefit of $16.1 million in the second quarter of 2012 and $2.9 million in the third quarter of 2011. The income tax benefit in the third quarter of 2012 was primarily the result of a deferred tax benefit recognized in connection with the net operating losses incurred in the quarter.
Net Loss and EPS
As a result of the foregoing, net loss was $57.5 million in the third quarter of 2012, compared to net loss of $92.1 million in the second quarter of 2012 and $31.5 million in the third quarter of 2011.
Net Margin was negative 19.3% in the third quarter of 2012, compared to negative 26.6% in the second quarter of 2012 and negative 6.5% in the third quarter of 2011.
Loss per fully diluted ADS were $0.81 in the third quarter of 2012. The impact of the third quarter provision for non-cash inventory write-down was approximately negative $0.19, while the effect of the foreign currency exchange net gain was approximately $0.26, per ADS.
Financial Condition
As of September 30, 2012, the Company had $703.4 million in cash and cash equivalents and restricted cash, and a working capital balance of $360.6 million. Total bank borrowings were $1,120.8 million, of which $431.0 million were long-term borrowings. The Company decreased its short-term borrowings by $44.0 million to approximately $689.7 million as of September 30, 2012.
During the third quarter of 2012, the Company also repurchased $14.9 million of its senior convertible notes due July 2013, which resulted in a gain of $1.8 million.
Shareholders' equity was $969 million as of September 30, 2012, a decrease from $1.02 billion at the end of the second quarter of 2012.
Fourth Quarter and Fiscal Year 2012 Guidance
During the fourth quarter of 2012, the Company expects to ship between 380 MW to 400 MW of PV modules.
The Company believes its overall gross Margin for the fourth quarter, taking into account wafer and cell quantities outsourced from third party suppliers to meet demand in excess of its internal capacity and other needs, will be approximately similar to that in the third quarter of 2012. Such guidance is based on the exchange rate between the Euro and U.S. dollar as of November 22, 2012. For the full year 2012, the Company revises its expectations for total PV module shipments to be between 1.55 GW to 1.6 GW, compared to its previous guidance of 1.75 to 1.8 GW.
Net Revenues
Net revenues in the third quarter of 2012 were $298.0 million, a decrease of 13.9% sequentially and 38.2% year-over-year. Total shipments were 380.3 MW, compared to 418.8 MW in the second quarter of 2012 and 370.1 MW in the third quarter of 2011. The sequential decrease in shipments was caused by a continued supply-demand imbalance and the decrease in revenue resulted from the effect of this imbalance on market pricing and commercial terms.
Gross Profit and Margin
Gross profit in the third quarter of 2012 was $2.4 million, compared to a gross profit of $29.0 million in the second quarter of 2012 and $52.0 million in the third quarter of 2011. Gross profit during the third quarter of 2012 includes a $25.8 million reversal of prior provisions for AD/CVD in the United States, relating to the ITC's decision to not impose duties retroactively due to the lack of evidence for critical circumstances. Gross profit during the third quarter of 2012 includes a provision of $13.3 million for non-cash inventory write-down.
Gross Margin was 0.8% in the third quarter of 2012, compared to 8.4% in the second quarter of 2012 and 10.8% in the third quarter of 2011. The sequential decrease in gross Margin was due primarily to higher inventory carrying costs and inventory write-down in connection with decreasing average selling price of modules; the year-on-year decrease in gross Margin was due primarily to declines in the average selling price of modules that exceed reductions in cost.
The impact of the inventory write-down on the Company's gross Margin was 4.5% in the third quarter of 2012.
Operating Expense, Income and Margin
Operating expenses in the third quarter of 2012 were $78.3 million, a decrease of 27.2% sequentially and an increase of 3.8% year-over-year. The Company's operating expenses, which included one-time tax and organization restructuring charges totaling $15.2 million, represented 26.3% of its third quarter net revenues, a decrease from 31.1% in the second quarter of 2012 and an increase from 15.7% in the third quarter of 2011. The sequential percentage decrease was primarily due to decrease in provision made to account receivables in the third quarter of 2012 while the year-to-year percentage increase was primarily due to the decrease in net revenues. Operating expenses in the third quarter of 2012 included $1.1 million in share-based compensation expenses, compared to $2.7 million in the second quarter of 2012 and $2.0 million in the third quarter of 2011.
As a result of the foregoing, operating loss in the third quarter of 2012 was $76.0 million, compared to an operating loss of $78.6 million in the second quarter of 2012 and an operating loss of $23.5 million in the third quarter of 2011. Operating Margin was negative 25.5% in the third quarter of 2012, compared to negative 22.7% in the second quarter of 2012 and negative 4.9% in the third quarter of 2011.
Net Interest Expense
Net interest expense in the third quarter of 2012 was $13.8 million, compared to $9.3 million in the second quarter of 2012 and $9.7 million in the third quarter of 2011. The sequential increase in net interest expense was primarily due to an increase in average bank borrowings in the third quarter of 2012.
Foreign Currency Exchange
The Company had a foreign currency exchange gain of $18.2 million in the third quarter of 2012, which included changes in fair Value of derivative instruments, compared to a net loss of $22.5 million in the second quarter of 2012 and a net gain of $0.4 million in the third quarter of 2011. This net gain was primarily due to the appreciation of the Euro against the U.S. dollar during the third quarter of 2012, augmented by gains from foreign currency hedging contracts used by the Company to mitigate its foreign currency risk exposure.
The Company continued to mitigate the effects of Foreign Exchange rate volatility during the third quarter of 2012 by using hedging contracts involving the Euro, Renminbi, and U.S. dollar.
Income Tax Benefit and Expense
Income tax benefit was $11.7 million in the third quarter of 2012, compared to income tax benefit of $16.1 million in the second quarter of 2012 and $2.9 million in the third quarter of 2011. The income tax benefit in the third quarter of 2012 was primarily the result of a deferred tax benefit recognized in connection with the net operating losses incurred in the quarter.
Net Loss and EPS
As a result of the foregoing, net loss was $57.5 million in the third quarter of 2012, compared to net loss of $92.1 million in the second quarter of 2012 and $31.5 million in the third quarter of 2011.
Net Margin was negative 19.3% in the third quarter of 2012, compared to negative 26.6% in the second quarter of 2012 and negative 6.5% in the third quarter of 2011.
Loss per fully diluted ADS were $0.81 in the third quarter of 2012. The impact of the third quarter provision for non-cash inventory write-down was approximately negative $0.19, while the effect of the foreign currency exchange net gain was approximately $0.26, per ADS.
Financial Condition
As of September 30, 2012, the Company had $703.4 million in cash and cash equivalents and restricted cash, and a working capital balance of $360.6 million. Total bank borrowings were $1,120.8 million, of which $431.0 million were long-term borrowings. The Company decreased its short-term borrowings by $44.0 million to approximately $689.7 million as of September 30, 2012.
During the third quarter of 2012, the Company also repurchased $14.9 million of its senior convertible notes due July 2013, which resulted in a gain of $1.8 million.
Shareholders' equity was $969 million as of September 30, 2012, a decrease from $1.02 billion at the end of the second quarter of 2012.
Fourth Quarter and Fiscal Year 2012 Guidance
During the fourth quarter of 2012, the Company expects to ship between 380 MW to 400 MW of PV modules.
The Company believes its overall gross Margin for the fourth quarter, taking into account wafer and cell quantities outsourced from third party suppliers to meet demand in excess of its internal capacity and other needs, will be approximately similar to that in the third quarter of 2012. Such guidance is based on the exchange rate between the Euro and U.S. dollar as of November 22, 2012. For the full year 2012, the Company revises its expectations for total PV module shipments to be between 1.55 GW to 1.6 GW, compared to its previous guidance of 1.75 to 1.8 GW.
