FIRST SOLAR, INC.

(NASDAQ: FSLR)
By Kitty Mak
FI 305

Summer 2011

AGENDA
Background
Key Competitor
Operating Performance
Balance Sheet Analysis

Asset

Ultilization
Liquidity Ratio
Debt Management
Return on Equity

Cash Flow Analysis

Company Value
Analysts Comments
Recommendation

FIRST SOLAR, INC. - BACKGROUND

Manufactures photovoltaic (PV) solar panels
Uses thin semiconductor technology
Products/services includes:

PV

solar system
Project development
Engineering, procurement, and construction
Operating and maintenance
Project finance

Has low production cost through continuous flow

manufacturing and operation efficiency
Operates in US, Europe, and Asia. Headquarter
in Arizona

FIRST SOLAR, INC. 2010

ACHIEVEMENTS
Revenue of $2.6 billion, an increase of 24% from
FY 2009
Operating profit of $749 million, an increase of
10% from FY 2009
Manufacturing cost per watt reduced by 11% to
$0.75 per watt
Operates 24 product lines globally and
manufactures over 2.4GW of power

KEY COMPETITOR
SunPower Corp
Manufactures solar system for residential,
commercial, and power plant.
Products include solar panels, inverters,
photovoltaic rooftop products, and groundmounted solar power systems.
In the same semiconductor industry as FSLR.

OPERATING PERFORMANCE
Net Profit Margin

Operating Profit Margin

35

50

30

40
30

First Solar

25

First Solar

SunPower

20

SunPower

15

20

10

10

0
2006.0 2007.0 2008.0 2009.0 2010.0

0
2006.0 2007.0 2008.0 2009.0 2010.0

Analysis:

In both companies, sales increased by over $2 bil during the 5 year

period.
First Solar was effective in reducing cost which drove up profit margin.

First Solar, Inc.

Annual Income Statement
[As Reported in USD Millions]

31-Dec-2010

26-Dec-2009

27-Dec-2008

29-Dec-2007

30-Dec-2006

Net sales
Total Revenue

2563.5
2563.5

2066.2
2066.2

1246.3
1246.3

504
504

135
135

Cost of Sales
Impairment of Intangibles
Research and Development
Selling, General, and Administrative
One time Charge reld. to management
One time Charge
Production Start-up
Total Operating Expense

1378.7
94.8
321.7
19.4
1814.6

1021.6
0
78.2
250.3
15.7
6.9
13.9
1386.6

566.6
1.3
33.5
174
32.5
808

252.6
0
15.1
82.2
16.9
366.8

80.7
6.4
33.3
11.7
132.2

Foreign currency gain

Interest Income
Interest Cost Incurred
Interest Capitalized
Other Income/Expense, Net
Net Income Before Taxes

-3.5
14.4
-10.1
10.1
2.3
762.1

5.2
9.7
-11.9
6.6
-3
686.3

5.7
21.2
-7.4
6.9
-0.9
463.8

1.9
20.4
-6.1
3.8
-1.2
156

5.5
-4.4
3.3
1.8
9.2

Provision for Income Taxes

Net Income After Taxes

97.9
664.2

46.2
640.1

115.4
348.3

-2.4
158.4

5.2
4

Net Income Before Extra. Items

Cumulative effect of change in accountin
Net Income

664.2
664.2

640.1
640.1

348.3
348.3

158.4
0
158.4

4
0
4

First Solar, Inc.

Annual Balance Sheet
[As Reported in USD Millions]

31-Dec-2010
Cash and Cash Equivalents
Commercial paper
Money market mutual funds
Marketable Securities
Funding Receivable

26-Dec-2009

27-Dec-2008

29-Dec-2007

30-Dec-2006

742.2

269.1

716.2

404.3

308.1

1.2

22.3

395.4

167.9

120.2

76

232.7

0.3
27.5

35.9

Inventories

243.1

174.5

Accounts Receivable, Gross

305.5

227.8

61.7

18.2

28
0

Allowance for Doubtful Accounts

-1

1.5

0.1

Raw Materials

103.7

22.9

8.2

Work in Process

2.3

1.1

Finished Goods

13.8

15

7.2

Project assets

1.1

Deferred tax asset

0.4

21.7

9.9

3.9

Prepaid Expenses

46

33.1

32.2

9.1

13

14.4

36.7

0.7

2.6

Accounts receivable, unbilled

Prepaid Income Tax

Deferred project costs
Sale of Marketing Securities

28.6

Notes receivable

50.5

21

7.9

34.9

0.1

61.6

35.9

24.2

13.9

8.1

1584.5

1351.3

1077.4

802.5

388.5

Buildings and Improvements

286.6

239.1

137.1

44.7

21.8

Machinery and Equipment

997.5

813.3

559.6

170.1

79.8

Office Equipment and Furniture

70.6

38.8

22.8

7.4

4.4

Leasehold Improvements

25.4

15.9

11.5

3.1

Land

10.4

5.8

2.8

403.7

102.5

206.8

244

85.8
-18.9

Derivative Instruments
Other receivable from financial inst.
Other Current Assets
Prepaid Expenses and Other Current Asset
Total Current Assets

Construction in Progress
Accumulated Depreciation & Amortization

-363.3

-225.8

-100.9

-43.1

Project assets

320.1

131.4

Deferred tax asset

259.2

130.5

61.3

51.8

Marketable Securities

180.3

329.6

29.6

32.7

Restricted Investment

86

36.5

30.1

14.7

8.2

Investment in related party

Goodwill
Other assets
Intangible Assets, Gross
Accumulated Amortization
Total Assets

25

25

433.3

286.5

33.8

33.4

43.1

48

14.4

5.7

2.6

1.6

1.5

1.5

1.5

1.4

-1.3

-1.2

-1.2

-1.2

-1.1

4380.4

3349.5

2114.5

1371.3

578.5

ASSET UTILIZATION RATIOS

Account Receivable Turnover
FSLR

SPWR

Industry

2006

4.78

6.13

8.9

2007

9.23

6.31

10.1

2008

19.64

5.97

10.3

2009

11.82

4.74

12.9

8.65

4.75

12.1

FSLR

SPWR

Industry

2006

6.89

10.36

7.1

2007

8.91

7.68

10.9

2008

7.02

5.47

2009

7.45

5.47

2010

7.81

6.63

8.7

2010

Inventory Turnover

ASSET ULTILIZATION ANALYSIS

AR turnover measures how effective a firm uses
its assets and how efficient it is at collecting
sales.
FSLR has high turnover compared to its
competitor due to low AR.
Inventory turnover indicates the number of times
inventory is sold.
FSLR has high turnover compare to competitor
and comparable to industry, which indicates
strong sales.
Semiconductor industry includes companies such
as Intel and Texas Instrument. Comparison to
direct competitor offers more insight.

10

ASSET UTILIZATION RATIOS CONT.

Total Asset Turnover
1.2

Return on Asset (ROA)

25

1
0.8
0.6

First Solar

20

SunPower

15

Industry

0.4

First Solar
SunPower

10
5

0.2
0
2006.0

2007.0

2008.0

2009.0

2010.0

0
2006.0

2007.0

2008.0

2009.0

2010.0

Analysis:

Asset turnover measures how well a company uses it assets to generate

sale. FSLR has lower turnover because it has more assets on the book.
ROA measures the amount of profit generate by each $1 of asset. FSLR
is more profitable then its competitor.

11

LIQUIDITY RATIOS
Current Ratios
FSLR

SPWR

Industry

2006

7.46

4.78

2.9

2007

4.3

1.13

4.1

2008

2.82

1.88

3.5

2009

3.42

2.4

4.4

2010

3.37

2.28

3.8

FSLR

SPWR

Industry

2006

6.99

3.87

1.9

2007

3.71

0.83

2.8

2008

2.27

1.12

2.2

2009

2.69

1.8

2.9

2010

2.64

1.57

2.2

Quick Ratios

12

LIQUIDITY RATIOS
Current ratio measures whether the company
has enough current asset to cover short term
liabilities.
Quick ratio measures whether the company has
enough liquid asset to meet short term liability.
FSLR is in a better position than its competitors
and the industry at meeting short term
obligations.

13

First Solar, Inc.

Annual Balance Sheet
[As Reported in USD Millions]
Accounts payable

82.3

75.7

46.3

26.4

14

Income tax payable

16.8

8.7

99.9

24.5

5.2

Short Term Debt

24.5

16.3

Current Portion of Long-term Debt

26.6

28.6

35

14.8

3.3

Deferred Revenue

14.7

31.1

23

30.8

50.7

3.6

Deferred tax liabilities

34.6

Other Current Liabilities

27.4

26.7

11.2

0.3

Accrued compensation and benefits

69.4

53.9

32.1

21.9

2.6

Accrued property, plant and equipment

53.7

35.8

Product warranty liability

11.2

8.2

2.1

2.8

Derivative instruments

Note Payable to a Related Party

110

95.4

104.7

52.3

7.5

469.7

394.9

381.8

181.3

52.1

210.8

146.4

163.5

68.9

61

210.8

146.4

163.5

68.9

61

Accrued Recycling

133

92.8

35.2

13.1

3.7

Other liabilities noncurrent

112

62.6

20.9

10.8

925.5

696.7

601.5

274

116.8

Accrued expenses
Total Current Liabilities

Long-term debt
Note Payable to a Related Party
Total Long Term Debt

Total Liabilities

Employee Stock Options

50.2

Common Stock

0.1

0.1

0.1

0.1

0.1

Contingent consideration

1.1

2.8

Additional Paid-in Capital

1815.4

1658.1

1176.2

1079.8

555.7

Accumulated Deficit

1665.6

1001.4

361.2

12.9

-145.4

-27.2

-9.6

-24.4

4.5

Total Equity

Accumulated Other Comprehensive Income

3454.9

2652.8

1513

1097.3

461.7

Total Liabilities & Shareholders' Equity

4380.4

3349.5

2114.5

1371.3

578.5

85.8

85.2

81.6

78.6

72.3

Total Common Shares Outstanding

14

DEBT MANAGEMENT
Debt to Equity

LT Debt to Equity

0.6

0.5

0.5
First Solar

0.4

SunPower

0.3

0.4

First Solar

0.3

SunPower

0.2

0.2

0.1

0.1
0
2006.0

2007.0

2008.0

2009.0

2010.0

0
2006.0

2007.0

2008.0

2009.0

2010.0

Analysis:

Low debt to equity ratio indicates that assets are financed by equity
rather than debt.

15

RETURN ON EQUITY
35
30
25
20

First Solar

15

SunPower

10
5
0
2006.0

2007.0

2008.0

2009.0

2010.0

Analysis:

ROE measures how efficient the company is at generating profit from

each dollar of equity.
FSLR generates higher return for its shareholders than its competitor.
Over the 5 yr period, it also has higher average return than the industry.

16

OTHER MARKET MEASURE

BV/sh
EPS
PE

FSLR

SPWRA

40.25

16.89

7.01

1.36

18.98

15.42

17

First Solar
As Reported Annual Cash Flow
In Thousands
12/31/2010

12/26/2009

12/27/2008

12/29/2007

12/30/2006

Cash received from customers

2,458,088

1,957,604

1,203,822

515,994

110,196

Cash paid to suppliers & employees

(1,614,763)

(1,123,746)

(723,123)

(276,525)

(111,945)

Interest received

20,531

6,147

19,138

19,965

Interest paid

(7,610)

(10,550)

(4,629)

(2,294)

(712)

Income tax paid, net of refunds

(80,064)

(147,843)

(1,975)

(19,002)

Excess tax benefit from share-based compensation arrangements

(69,367)

(4,892)

(28,661)

(30,196)

Other cash flows from operating activities

(1,323)

(1,527)

(1,505)

(1,991)

1,885

Net cash flows from operating activities

705,492

675,193

463,067

205,951

(576)

Purchases of property, plant & equipment

(588,914)

(279,941)

(459,271)

(242,371)

(153,150)

Purchase of marketable securities

(462,070)

(607,356)

(334,818)

(1,081,154)

Proceeds from maturities of marketable securities

62,648

149,076

107,450

787,783

Proceeds from sales of marketable securities

494,256

115,805

418,762

Investment in notes receivable

(99,637)

Payments received on notes receivable

61,658

25,447

Increase in restricted investments

(43,064)

(4,150)

(15,564)

(6,008)

(6,804)

Sales of (purchase of) investment in related party

28,596

(25,000)

Acquisitions, net of cash acquired

(296,496)

318

(5,500)

Other investing activities

1,301

(1,252)

(40)

Net cash flows from investing activities

(742,085)

(701,690)

(308,441)

(547,250)

(159,994)

Proceeds from stock options exercises

9,379

5,961

16,036

10,173

100

Proceeds from issuance of common stock

365,969

302,650

Repayment of notes payable to a related party

(28,700)

Repayment of long-term debt

(27,879)

(78,224)

(41,691)

(34,757)

(135)

Equity contributions

30,000

Proceeds from issuance of debt, net of issuance costs

100,000

44,739

138,887

49,368

132,330

Debt issuance costs

(1,497)

Excess tax benefit from share-based compensation arrangements

69,367

4,892

28,661

30,196

45

Proceeds from economic development funding

615

35,661

9,475

16,766

Other financing activities

(416)

(4)

(5)

(3)

(9)

Net cash flows from financing activities

150,451

(22,021)

177,549

430,421

451,550

Effect of exchange rate changes on cash & cash equivalents

(12,668)

(3,201)

(20,221)

7,050

391

Net increase (decrease) in cash & cash equivalents

101,190

(51,719)

311,954

96,172

291,371

Cash & cash equivalents, beginning of year

664,499

716,218

404,264

308,092

16,721

Cash & cash equivalents, end of year

765,689

664,499

716,218

404,264

308,092

18

CASH FLOW ANALYSIS

Major sources of cash are through operations, the
issuance of common stocks, and loans.
Major uses of cash are operating expenses, PPE
purchases, and investment in marketable
securities.
Year over year, there are an increase in CF due to
increase in sales. Credit sales are small.
The company was started with equity
contributions.
According to the Annual Report, only 15% of
acquired PPE was funded by liability.
Very little debt is used. Cash primarily from
operations and equity.

19

COMPANY VALUE ECONOMIC

PROFIT VAL
Year
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020

NOPLAT
788.33
861.97
969.62
1,062.29
1,148.22
1,224.81
1,298.30
1,363.22
1,431.38
1,488.63

Invested cap (beg)

3,939.90
5,141.30
5,925.22
6,446.79
7,017.30
7,641.48
8,324.52
12,486.78
12,861.39
13,247.23

Continuing value

ROIC
17.36%
15.58%
15.67%
15.78%
15.67%
15.34%
12.48%
10.76%
10.96%
11.07%

WACC

Eco Profit
11%
11%
11%
11%
11%
11%
11%
11%
11%
11%

250.64
235.37
276.97
308.13
327.42
331.85
122.94
-30.48
-4.53
9.44

PV of Eco Profit
225.81
191.03
202.52
202.98
194.31
177.42
59.22
(13.22)
(1.77)
3.32

14722.46

5,185.02

PV of economic profit

6,426.63

Invested Cap 2010

3,939.90

PV of economic profit + invested cap

mid year adjustment
Enterprise Value of operations

Value of debt 2010

10,366.53
1.04
10,791.56

(210.80)

20
Equity value

10,580.76

COMPANY VALUE

Market price per share: $99.70

Economic Profit base Valuation: $122

21

ANALYSTS COMMENTS
UBS analyst offered a buy rating following news
that FSLR received conditional loan guarantee
from US Dept of Energy in three projects, which is
estimated to increase EPS by 45% in the next 3
years.
Goldman Sach offered a buy rating indicating that
the company has upside potential due to cost
reduction, project pipeline, strong balance sheet,
and global demand.
FSLR entered into a collaborative agreement with
China Power International Holding to explore
investment opportunities and PV projects.

22

RECOMMENDATION

BUY
FSLR out performs competitors in all financial
comparisons and the industry in most areas. The
company is clearly a leader in the industry.
23