Renewable Energy

Canadian Solar Reports Third Quarter 2011 Financial Results

Canadian Solar Inc. announced financial results for the third quarter ended September 30, 2011.

Net revenue for the third quarter of 2011 was $499.6 million, up 3.7% from $481.8 million for the second quarter of 2011 and up 32.5% from $377.2 million for the third quarter of 2010. Total solar module shipments for the third quarter of 2011 were 355 MW, compared to total module shipments of 287 MW for the second quarter 2011 and 200 MW for the third quarter of 2010. Total solar module shipments for the third quarter of 2011 included 19.4 MW used in the Company’s total solutions business.

By geography, in the third quarter of 2011, sales to European markets represented 61.7% of revenue, sales to North America represented 16.1% of revenue, and sales to Asia and others represented 22.2% of revenue, compared to 76.6%, 15.2% and 8.2%, respectively, in the second quarter of 2011 and 77.0%, 6.8% and 16.2%, respectively, in the third quarter of 2010.

Gross profit in the third quarter of 2011 was $11.9 million, compared to $63.7 million in the second quarter of 2011 and $65.3 million in the third quarter of 2010. Gross margin was 2.4% in the third quarter of 2011, compared to 13.2% in the second quarter of 2011 and 17.3% in the third quarter of 2010. The sequential and year-over-year declines in gross profit and gross margin were primarily due to lower average selling prices and approximately $36.1 million in non-cash inventory write-offs and non-cash loss on firm purchase commitment in the third quarter of 2011.

Total operating expenses were $42.6 million in the third quarter of 2011, compared to $38.7 million in the second quarter of 2011 and $25.3 million in the third quarter of 2010.

Selling expenses were $18.7 million in the third quarter of 2011, up 10.2% from the second quarter of 2011 and up 81.3% from the third quarter of 2010. The sequential and year-over-year increases in selling expenses were primarily due to increases in freight and other export-related expenses associated with higher shipment volumes.

General and administrative expenses were $16.0 million in the third quarter of 2011, compared to $16.8 million in the second quarter of 2011 and $13.7 million in the third quarter of 2010. The sequential decrease was primarily due to lower legal expenses and a partial reversal in taxes accrued in the second quarter of 2011, largely offset by increases in salaries and other expenses.

Research and development expenses were $7.9 million in the third quarter of 2011, compared to $4.9 million in the second quarter of 2011 and $1.3 million in the third quarter of 2010. The sequential and year-over-year increases were due to the company’s continued investment in advanced solar technologies, which are able to offer customers higher efficiency cells, and Commercial ac modules, among other innovative product initiatives.

Operating margin was negative 6.1% in the third quarter of 2011, compared to positive 5.2% in the second quarter of 2011 and positive 10.6% in the third quarter of 2010. The sequential and year-over-year decreases in operating margin were due to lower gross margin and higher operating expenses.

Interest expense in the third quarter of 2011 was $10.8 million, compared to $11.4 million in the second quarter of 2011 and $5.4 million in the third quarter of 2010. The sequential decrease in interest expense was primarily due to a decrease in bank borrowings during the third quarter of 2011. The year-over-year increase in interest expense was due to additional bank borrowings and higher interest rates. Interest income in the third quarter of 2011 was $3.0 million, compared to $2.2 million in the second quarter of 2011 and $2.5 million in the third quarter of 2010.

The company recorded a gain on change in fair value of derivatives of $14.5 million in the third quarter of 2011, compared to a loss of $5.4 million in the second quarter of 2011 and a loss of $23.6 million in the third quarter of 2010. Foreign exchange loss in the third quarter of 2011 was $24.0 million, compared to a foreign exchange loss of $1.5 million in the second quarter of 2011 and foreign exchange gain of $11.9 million in the third quarter of 2010.

Income tax benefit in the third quarter of 2011 was $3.4 million, compared to income tax expense of $1.9 million in the second quarter of 2011 and income tax expense of $4.9 million in the third quarter of 2010. The third quarter income tax benefit reflects the truing up of the year-to-date effective tax rate to reflect the loss incurred during the quarter.

Net loss attributable to Canadian Solar in the third quarter of 2011 was $43.9 million, or $1.02 per diluted share, compared to net income of $7.1 million, or $0.16 per diluted share, in the second quarter 2011, and net income of $20.3 million, or $0.47 per diluted share, in the third quarter of 2010.

Dr. Shawn Qu, Chairman and Chief Executive Officer of Canadian Solar, remarked: "This was another challenging quarter as the solar industry continues to navigate pricing pressures, financing restrictions and fluctuating subsidies. I am proud that Canadian Solar’s team remained focused despite the potential distractions. We met our shipment guidance for the quarter, reduced inventory levels and further improved our balance sheet. Customers continue to partner with Canadian Solar because of our global brand, strong track record of execution, the proven high-quality and performance of our modules, and our dedicated service. Based on our results, we believe that Canadian Solar is benefiting from the flight to quality and continues to gain market share."

Canadian Solar Inc.
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