Evergreen Solar Inc. Reports Operating Results (10-Q)

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May 11, 2009
Evergreen Solar Inc. (ESLR, Financial) filed Quarterly Report for the period ended 2009-04-04.

Evergreen Solar Inc. develops manufactures and markets solar power cells panels and systems that provide reliable and environmentally clean electric power throughout the world. The company's sales are composed of primarily solar panels. The company is preparing to begin large-scalemanufacturing of its solar power products in its manufacturing facility. The company believes the proprietary and patented solar power technologiesthat the company has developed and are currently developing will give the company significant cost and product design advantages. Evergreen Solar Inc. has a market cap of $394.06 million; its shares were traded at around $2.39 with and P/S ratio of 3.52.

Highlight of Business Operations:

We expect that production in the initial 100 MW annual capacity facility will begin early in the second quarter of 2010 and reach full capacity of 25 MW per quarter by the end of 2010. Total cost estimated for the initial 100 MW facility is between $40 million and $50 million, the majority of which is for quad wafer furnaces. However, we will seek financing for about two thirds of the total cost, reducing our portion of initial capital required to between $15 million to $20 million. At full capacity of about 25 MW per quarter by the end of 2010, we expect that total manufacturing cost of panels produced in China, including Jiaweis subcontractor fee, will be in the range of $1.40 per watt to $1.50 per watt. This assumes a silicon cost of about $90 per kilogram, which is our current average long-term cost of silicon. As the price of silicon returns to its historic level of about $50 per kilogram and as both we and Jiawei work together to improve technologies and reduce manufacturing costs, we believe that total manufacturing cost could be reduced to approximately $1.00 per watt by the end of 2012.

Revenues. Our product revenues for the quarter ended April 4, 2009 were $54.4 million, an increase of $36.2 million, or 198%, from $18.3 million for the quarter ended March 29, 2008. The increase in product revenues is primarily the result of increased sales volume which was generated from our new Devens facility which began shipping product late in the third quarter of 2008. During the quarter ended April 4, 2009 we shipped approximately 17.3 megawatts compared to 4.8 megawatts for the quarter ended March 29, 2008, an increase of 260%. This increase in volume was offset by lower average selling prices of approximately 16.0% that resulted from continued pricing pressures in the market place in addition to a stronger U.S. dollar during the first quarter of 2009 compared to the first quarter of 2008. In addition, we believe that first quarter 2009 sales were negatively impacted by the credit constraints experienced by our customers in the current economic downturn. Royalty revenue and marketing and selling fees from Sovello for the quarter ended April 4, 2009 were $1.4 million, a decrease of $3.3 million, or 71%, from $4.7 million for the quarter ended March 29, 2008. The decrease in royalty revenue and marketing and selling fees from Sovello was due mainly to lower sales volume at Sovello. The stronger U.S. dollar and lower contractual selling fee rate also contributed to the decline.

Research and development expenses. Our research and development expenses for the quarter ended April 4, 2009 were approximately $4.4 million, a decrease of approximately $497,000 or 10%, from $4.9 million, net of $223,000 of reimbursements from Sovello, for the quarter ended March 29, 2008. The decrease is primarily attributable to lower usage of materials or approximately $465,000 and lower allocated manufacturing support costs of $632,000. This decrease was offset by slightly higher compensation related costs of approximately $151,000 due to additional personnel, higher depreciation expense of approximately $117,000 associated with the expanded R&D facilities and associated equipment, and $81,000 of increased professional fees.

Selling, general and administrative expenses. Our selling, general and administrative expenses for the quarter ended April 4, 2009 were approximately $6.4 million, an increase of $1.4 million, or 28%, from $5.0 million for the quarter ended March 29, 2008. In general, our selling, general and administrative costs have increased as a result of our overall expansion of operations. The increase in selling, general, and administrative expenses was primarily attributable to increased compensation and related costs of approximately $631,000 associated with additional personnel, higher marketing and communication costs of approximately $111,000 associated with increased advertising and trade show costs, increased IT costs of approximately $215,000 to support the growth of our operations, higher insurance costs of $138,000 associated with our expanded facilities, and higher legal and regulatory fees in support of our on-going operations.

approximately $2.2 million in interest income associated with our marketable securities and loans receivable. Other income, net of $6.5 million for the quarter ended March 29, 2008 consisted of $3.8 million in net foreign exchange gains and $3.0 million in interest income offset by $316,000 in net interest expense. The increase in net foreign exchange losses was due primarily to the timing of our Euro denominated transactions in addition to the mark-to-market adjustment on our Euro denominated loan to a silicon supplier. The decrease in interest income is attributable to lower interest rates in addition to our lower average cash balance that resulted primarily from our use of cash for the construction of the Devens and Midland facilities, and our operational requirements driven by the growth of our business. The higher interest expense for the quarter ended April 4, 2009 is attributable to our higher debt obligations which increased by approximately $284 million in the third quarter of 2008 to support our capacity expansion. This increase was partially offset by a slightly lower interest coupon rate on the new borrowings and higher capitalized interest costs that resulted from our on-going construction activities.

Net cash used in operating activities was $47.5 million for the quarter ended April 4, 2009 compared to $18.1 million for the quarter ended March 29, 2008. The use of cash for operating activities in the quarter ended April 4, 2009 was due primarily to losses from our operations of $6.1 million, net of non-cash charges, increases in accounts receivable of approximately $12.4 million associated primarily with our increase in revenue in addition to slightly longer customer payment cycles, an increase in inventory of $6.3 million as we continue to scale Devens, and a reduction in accounts payable and accrued expenses of $24.8 million due to timing of payments including amounts due Sovello. The net cash used in operating activities for the quarter ended March 29, 2008 resulted from an increase in prepaid cost of inventory of $12.0 million the majority of which relates to the second OCI polysilicon supply agreement entered into in January 2008 and required a nonrefundable prepayment of approximately $11.0 million. In addition, a decrease in accounts payable of $8.3 million due to timing of payments, and an increase in accounts receivable of $3.8 million due to higher sales volume contributed to the use of cash for operating activities. These uses of cash were offset by the receipt of $5.3 million of grants associated with Devens.

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