First Solar announced an acceleration of Series 6 production into 2018, with approximately 3 Gigawatts of production expected in 2019. Over the course of 2017 and 2018 the Company’s existing production facilities will be converted to Series 6 production and the current Series 4 product will be phased out. As a result of the change in roadmap the Company will cancel its Series 5 product.
First Solar will reduce its workforce at its manufacturing facilities both domestically and internationally as a result of the transition from Series 4 to Series 6 production. Additional reductions in administrative and other staff are also planned.
Resulting from the transition to Series 6 from Series 4 and other competitive factors, the Company expects to incur restructuring and asset impairment charges of 0 to 0 million, which includes a cash impact of to 0 million. The charges are anticipated primarily in 2016 and are comprised of the following:
- $475 to $585 million, including asset impairments related to Series 4, Series 5 and stored manufacturing equipment, and charges for cancellation of open purchase orders. The cash impact is anticipated to range from $50 to $70 million.
- Up to $80 million for a non-cash impairment of goodwill
- $10 to $15 million in cash severance charges, expected primarily in 2016
- $15 to $20 million of other charges, expected primarily in 2017
These pre-tax restructuring and asset impairment charges are expected to have an offsetting tax benefit of $50 to $100 million.
In addition to the restructuring and asset impairment charges, First Solar also expects to incur $220 to $250 million of tax expense in 2016 associated with the distribution of between $700 and $750 million of cash to the United States from a foreign subsidiary. This distribution will provide liquidity for the restructuring of U.S. operations and Series 6 investment. The cash tax impact related to this transfer is expected to be between $8 and $10 million.
As a result of the restructuring and other related charges, the Company has updated 2016 GAAP guidance in the table below. 2016 non-GAAP guidance has also been updated to reflect the sale of the entire remaining interest in the Stateline project and excludes the impact of the current or previously announced restructuring actions.
|2016 Guidance||Prior GAAP||Current GAAP||Prior Non-GAAP||Current Non-GAAP|
|Net Sales||$2.8B to $2.9B||Unchanged|
|Gross Margin %||25.5% to 26.0%||Unchanged|
|Operating Expenses||$480M to $500M||$965M to $1,160M||$375M to $385M||Unchanged|
|Operating Income (Loss)||$235M to $255M||($445M) to ($210M)||$340M to $370M||Unchanged|
Tax (Benefit) Expense1
|($15M) to ($10M)||$145M to $175M||$30M to $40M||Unchanged|
|Earnings per Share2||$3.75 to $3.90||($4.00) to ($2.00)||$4.30 to $4.50||$4.60 to $4.80|
|Net Cash Balance3||$1.4B to $1.5B||Unchanged|
|Operating Cash Flow4||($100M) to $0M||Unchanged|
|Capital Expenditures||$225M to $275M||Unchanged|
|Shipments||2.8GW to 2.9GW||Unchanged|
|1.||Includes $220 to $250 million of tax expense associated with distribution of cash to the U.S. from a foreign jurisdiction|
|2.||Includes a gain of approximately $145 million, net of tax, from the expected sale of an equity method investment, our share of 8point3 earnings and a gain in other income of approximately $20 million, net of tax, from the sale of restricted investments in Q1 2016|
|3.||Defined as cash and marketable securities less expected debt at the end of 2016|
|4.||Excludes cash from the sale of an equity method investment treated as an investing cash flow|
First Solar also provided full year 2017 financial guidance. Forecasted net sales for 2017 are $2.5 to $2.6 billion, with solar power systems net sales expected to comprise 70% to 75% of the total net sales and third party module sales the remainder. GAAP earnings per share is forecasted to be between ($0.10) and $0.45, with non-GAAP EPS of breakeven to $0.50 per share. The ending net cash balance is projected in the range of $1.4 to $1.6 billion. Capital expenditures of $525 to $625 million are higher than 2016 expected levels resulting from investment in Series 6 production equipment.
The complete guidance is as follows:
|Net Sales||$2.5B to $2.6B|
|Gross Margin %||12.5% to 14.5%|
|Operating Expenses||$290M to $305M||$280M to $300M|
|Operating Income||$30M to $75M||$40M to $80M|
|Earnings per Share||($0.10) to $0.45||$0.00 to $0.50|
|Net Cash Balance1||$1.4B to $1.6B|
|Operating Cash Flow||$550M to $650M|
|Capital Expenditures||$525M to $625M|
|Shipments||2.4GW to 2.6GW|
|1.||Cash and marketable securities less expected debt at the end of 2017|