Quarterly Report

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

(Mark one)

 

Commission file number: 001-33156

First Solar, Inc.

(Exact name of registrant as specified in its charter)

 

 

350 West Washington Street, Suite 600

Tempe, Arizona 85281

(Address of principal executive offices, including zip code)

 

(602) 414-9300

(Registrant's telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes [x] No [ ]

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [x] No [ ]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ]    No [x]

 

As of October 22, 2010 there were 85,720,049 shares of the registrant's common stock, par value $0.001, outstanding.

 

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FIRST SOLAR, INC. AND SUBSIDIARIES

 

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 25, 2010

 

TABLE OF CONTENTS

 

 

 

PART I. FINANCIAL INFORMATION

 

Item 1. Unaudited Condensed Consolidated Financial Statements

 

FIRST SOLAR, INC. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(Unaudited)

 

 

See accompanying notes to these condensed consolidated financial statements.

 

FIRST SOLAR, INC. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

(Unaudited)

 

See accompanying notes to these condensed consolidated financial statements.

 

FIRST SOLAR, INC. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

See accompanying notes to these condensed consolidated financial statements.

 

 

FIRST SOLAR, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Nine Months Ended September 25, 2010

 

Note 1. Basis of Presentation

 

The accompanying unaudited condensed consolidated financial statements of First Solar, Inc. and its subsidiaries have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and pursuant to the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission (SEC). Accordingly, these interim financial statements do not include all of the information and footnotes required by U.S. GAAP for annual financial statements. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair statement have been included. Operating results for the three months and nine months ended September 25, 2010 are not necessarily indicative of the results that may be expected for the year ending December 31, 2010 , or for any other period. The balance sheet at December 26, 2009 has been derived from the audited consolidated financial statements at that date, but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements. These financial statements and notes should be read in conjunction with the financial statements and notes thereto for the year ended December 26, 2009 included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission.

 

Our fiscal quarters currently end on the Saturday closest to the end of the applicable calendar quarter. In July 2010, our board of directors approved a change in the Company's fiscal year from a 52 or 53 week fiscal year to a calendar year. This change to the calendar year cycle will be effective as of the end of the 2010 fiscal year. As a result, our 2010 fiscal year, which began on December 27, 2009, will end on December 31, 2010 instead of December 25, 2010. In addition, effective January 1, 2011, our fiscal quarters will also coincide with calendar quarters.

 

Unless expressly stated or the context otherwise requires, the terms "the Company," "we," "our," "us," and "First Solar" refer to First Solar, Inc. and its subsidiaries.

 

 

Note 2. Summary of Significant Accounting Policies

 

These condensed consolidated financial statements and accompanying notes should be read in conjunction with our annual consolidated financial statements and notes thereto for the year ended December 26, 2009 included in our Annual Report on Form 10-K filed with the SEC. Our significant accounting policies reflect the adoption of Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic (ASC) 605, Revenue Recognition - Multiple Deliverable Revenue Arrangements , in the first quarter of 2010.

 

 

Note 3. Recent Accounting Pronouncements

 

In July 2010, the FASB issued Accounting Standards Update (ASU) 2010-20, Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses . This ASU enhances the disclosure requirements about the credit quality and related allowance for credit losses of financing receivables. We will adopt ASU 2010-20 in our fourth quarter of fiscal 2010. The adoption of ASU 2010-20 will not impact our financial position, results of operations, or cash flows, as its requirements only pertain to financial statement note disclosure.

 

In August 2010, the FASB issued ASU 2010-21, Accounting for Technical Amendments to Various SEC Rules and Schedules. This update amends various SEC paragraphs in the FASB Accounting Standards Codification pursuant to the SEC Rule, Technical Amendments to Rules Forms, Schedules and Codification of Financial Reporting Policies . The adoption of ASU 2010-21 did not have any impact on our financial position, results of operations, or cash flows.

 

In August 2010, the FASB issued ASU 2010-22, Accounting for Various Topics . This ASU amends various SEC paragraphs in the FASB Accounting Standards Codification based on external comments received and the issuance of Staff Accounting Bulletin (SAB) No. 112, which amended or rescinded a portion of certain SAB topics. SAB 112 was issued to bring existing SEC guidance into conformity with ASC 805, Business Combination, and ASC 810, Consolidation . The adoption of ASU 2010-22 did not have any impact on our financial position, results of operations, or cash flows.

Note 4. Acquisitions

 

NextLight Renewable Power

 

On July 12, 2010 , we completed the acquisition of NextLight Renewable Power, LLC ("NextLight"), a leading developer of utility-scale solar projects in the southwestern United States. NextLight was formed by a private equity firm focused on investing in North America's energy infrastructure. This transaction expands our pipeline of solar power projects in the southwestern United States and supports our expansion in the U.S. utility-scale power market. We have integrated NextLight into our systems business, which provides a complete photovoltaic (PV) solar power solution, including project development, EPC services, O&M services and project finance, when required.

 

Purchase Price Consideration

 

The total consideration for this acquisition was $296.7 million in an all-cash transaction.

 

Preliminary Purchase Price Allocation

 

We accounted for this acquisition using the acquisition method in accordance with ASC 805. Accordingly, we preliminarily allocated the purchase price of the acquired assets and liabilities based on their estimated fair values at the acquisition date (July 12, 2010) as summarized in the following table (in thousands):

 

 

The fair value of net tangible assets acquired on July 12, 2010 consisted of the following (in thousands):

 

 

Our purchase price allocation was substantially complete as of September 25, 2010.

 

Goodwill

 

We recorded the excess of the acquisition date fair value of consideration transferred over the estimated fair value of the net tangible assets and intangible assets acquired as goodwill. Underlying our financial rationale for the price we paid to acquire NextLight was the fact that we would be able to achieve a greater degree of vertical integration by using our own solar modules in the acquired projects. We have preliminarily allocated $142.1 million and $4.7 million of this goodwill to our components segment and systems segment, respectively. We allocated the majority of the goodwill from the NextLight acquisition to the components segment, since the systems segment functions as an "enabler" for the components segment to drive module throughput. This goodwill is deductible for tax purposes.

 

Acquisition Related Costs

 

Acquisition related costs recognized in the three and nine months ended September 25, 2010 included transaction costs, which we have classified in selling, general and administrative expense in our statement of operations. During the three and nine months ended September 25, 2010 , transaction costs such as legal, accounting, valuation, and other professional services were $0.2 million

and $1.9 million , respectively.

 

Pro Forma Information

 

NextLight has been engaged in the development of solar power projects and had not reached the point of sale for any of the projects on the acquisition date. The pre-tax loss of NextLight for the period from January 1 to July 12, 2010 and for the twelve months ended December 31, 2009 was $9.1 million and $13.4 million , respectively. Therefore, had the acquisition of NextLight occurred on December 27, 2009 (the first day of our fiscal year 2010), our reported net sales would not have changed and our reported net income would not have materially changed from the amounts previously reported.

 

OptiSolar

 

On April 3, 2009 , we completed the acquisition of the solar power project development business of OptiSolar Inc. ("OptiSolar"), which included a multi-gigawatt project pipeline. We have integrated the acquired project pipeline of OptiSolar into our systems business, which provides a complete photovoltaic (PV) solar power system solution, including project development, EPC services, O&M services and project finance, when required.

 

Pursuant to an Agreement and Plan of Merger (the Merger Agreement) dated March 2, 2009, by and among First Solar, Inc., First Solar Acquisition Corp. (Merger Sub), OptiSolar and OptiSolar Holdings LLC (OptiSolar Holdings), Merger Sub merged with and into OptiSolar, with OptiSolar surviving as a wholly-owned subsidiary of First Solar, Inc. (the Merger). Pursuant to the Merger, all the outstanding shares of common stock of OptiSolar held by OptiSolar Holdings were exchanged for 2,972,420 shares of First Solar common stock, par value $0.001 per share (the Merger Shares), of which 732,789 shares were issued and deposited with an escrow agent to support certain indemnification obligations of OptiSolar Holdings. On April 16, 2010, 183,197 shares of the common stock deposited with an escrow agent were released.

 

Also, 355,096 shares were holdback shares as further described below under “Contingent Consideration” (the “Holdback Shares”). As of September 25, 2010 , 2,960,461 Merger Shares have been issued. The period during which claims for indemnification from the escrow fund may be initiated began on April 3, 2009 and will end on April 3, 2011.

 

Purchase Price Consideration

 

The total consideration for this acquisition, based on the closing price of our common stock on April 3, 2009 of $134.38 per share, was $399.4 million .

 

Contingent Consideration

 

Pursuant to the Merger Agreement, of the 2,972,420 Merger Shares, as of April 3, 2009, 355,096 shares were Holdback Shares that were issuable to OptiSolar Holdings upon satisfaction of conditions relating to certain then-existing liabilities of OptiSolar. As of September 25, 2010 , 343,137 Holdback Shares had been issued to OptiSolar Holdings. The estimated fair value at September 25, 2010 of the 11,959 Holdback Shares remaining to be issued was $1.6 million and has been classified separately within stockholders' equity on our balance sheet.

 

Acquisition Related Costs

 

Acquisition related costs recognized in the nine months ended September 26, 2009 , included transaction costs and integration costs, which we have classified in selling, general and administrative expense in our statement of operations. During the nine months ended September 26, 2009 , transaction costs such as legal, accounting, and other professional services were $1.6 million . Integration related costs during the nine months ended September 26, 2009 were $0.6 million .

 

Goodwill

 

We recorded the excess of the acquisition date fair value of consideration transferred over the estimated fair value of the net tangible assets and intangible assets acquired as goodwill. Underlying our financial rationale for the price we paid to acquire OptiSolar were synergies and economies of scale that we expected would benefit our solar module business from our having control over OptiSolar's project pipeline. Subsequent to the acquisition of OptiSolar, we adjusted goodwill downward during 2009 by $8.5 million as additional information relating to acquired deferred tax assets became available. We have allocated $251.3 million and $1.4 million of this goodwill to our components segment and our systems segment, respectively. We allocated the majority of the goodwill from the OptiSolar acquisition to the components segment, since the systems segment functions as an "enabler" for the components segment to drive module throughput. This goodwill is not deductible for tax purposes.

 

Acquired project assets and Tangible Assets

 

Through the acquisitions of OptiSolar and NextLight we acquired project assets, which represent solar power projects in various stages of development. Management engaged a third-party valuation firm to assist with the determination of the fair value of the acquired project development businesses. In our determination of the fair value of the project assets acquired, we considered, among other factors, three generally accepted valuation approaches: the income approach, market approach, and cost approach. We selected the approaches that are most indicative of the fair value of the assets acquired. We used the income approach to calculate the fair value of the acquired project assets based on estimates and assumptions of future performance of these project assets provided by OptiSolar and NextLight's management and our management. We used the market approach to determine the fair value of the land and related options acquired with those assets.

 

Management has estimated the fair value of tangible assets acquired and concluded that the carrying value approximates the fair value as of the acquisition dates, respectively.

 

Note 5. Goodwill

 

On November 30, 2007 , we acquired 100% of the outstanding membership interests of Turner Renewable Energy, LLC. Under the purchase method of accounting, we allocated $33.4 million to goodwill through December 29, 2007, which represents the excess of the purchase price over the fair value of the identifiable net tangible and intangible assets of Turner Renewable Energy, LLC. All of this goodwill was allocated to our systems segment. At September 25, 2010 and December 26, 2009 , the carrying amount of this goodwill was $33.8 million .

 

On April 3, 2009 we acquired the solar power project development business of OptiSolar. Under the acquisition method of accounting, we allocated $261.1 million to goodwill (excluding subsequent adjustments of $8.5 million ), which primarily represents the synergies and economies of scale expected from acquiring OptiSolar's project pipeline and using our solar modules in the acquired projects.

 

During 2009 , we adjusted goodwill downward by $8.5 million as additional information relating to acquired deferred tax assets became available. We have allocated $251.3 million and $1.4 million of this goodwill to our components segment and systems segment, respectively. At September 25, 2010 and December 26, 2009 , the carrying amount of this goodwill was $252.7 million . See Note 4. “Acquisitions,” to these condensed consolidated financial statements for additional information about this acquisition.

 

On July 12, 2010 , we acquired NextLight, a leading developer of utility-scale solar projects in the southwestern United States. Under the acquisition method of accounting, we allocated $146.8 million to goodwill, which primarily represents the synergies and economies of scale expected from acquiring NextLight's project pipeline and using our solar modules in the acquired projects. We have allocated $142.1 million and $4.7 million of this goodwill to our components segment and systems segment, respectively.

 

The changes in the carrying amount of goodwill for the nine months ended September 25, 2010 were as follows (in thousands):

 

 

ASC 350, Intangibles - Goodwill and Other, requires us to test goodwill for impairment at least annually, or sooner, if facts or circumstances between scheduled annual tests indicate that it is more likely than not that the fair value of a reporting unit that has goodwill might be less than its carrying value. Currently our operating segments and reporting units are identical. We determine fair value for our reporting units referring to the price that would be received to sell the unit as whole in an orderly transaction between market participants at the measurement date. For the goodwill assessment of our systems business, we believe that a typical market participant for the sale of our systems reporting unit would be a solar module manufacturer seeking to acquire a systems business with a large pipeline of utility-scale solar power plant projects, with the intent that these projects would provide a captive outlet for additional future solar module production. Therefore, we model the systems reporting unit's future performance for purposes of applying the income method of fair value measurement to include some of the profitability associated with the solar module element of the solar power plant that it builds and sells.

 

We performed our goodwill impairment test in the fourth fiscal quarter of the year ended December 26, 2009 and determined that the fair value of our goodwill substantially exceeded the carrying value for each individual reporting unit. Therefore we concluded that our goodwill was not impaired. We have also concluded that there have been no changes in facts and circumstances since the date of that test that would trigger an interim goodwill impairment test.

 

 

Note 6. Cash, Marketable Securities, and Investments

 

Cash, cash equivalents, marketable securities, and investments consisted of the following at September 25, 2010 and December 26, 2009 (in thousands):

 

 

We have classified our marketable securities as “available-for-sale.” Accordingly, we record them at fair value and account for net unrealized gains and losses as a part of accumulated other comprehensive income. We report realized gains and losses on the sale of our marketable securities in earnings, computed using the specific identification method. During the three and nine months ended September 25, 2010 , we realized $0.2 million and $0.9 million , respectively, in gains and $0.1 million and $0.6 million , respectively, in losses on our marketable securities. During the three months ended September 26, 2009, we did not realize any gains or losses on our marketable securities. During the nine months ended September 26, 2009, we realized an immaterial amount in gains and did not realize any losses on our marketable securities. See Note 10. “Fair Value Measurement,” to these condensed consolidated financial statements for information about the fair value measurement of our marketable securities.

 

All of our available-for-sale marketable securities are subject to a periodic impairment review. We consider a marketable debt security to be impaired when its fair value is less than its carrying cost, in which case we would further review the investment to determine whether it is other-than-temporarily impaired. When we evaluate an investment for other-than-temporary impairment, we review factors such as the length of time and extent to which fair value has been below cost basis, the financial condition of the issuer and any changes thereto, our intent to sell, and whether it is more likely than not we will be required to sell the investment before we have recovered its cost basis. If an investment is other-than-temporarily impaired, we write it down through earnings to its impaired value and establish that as a new cost basis for the investment. We did not identify any of our marketable securities as other-than-temporarily impaired at September 25, 2010 and December 26, 2009 .

 

The following table summarizes the unrealized gains and losses related to our investments in marketable securities designated as available-for-sale, by major security type, as of September 25, 2010 and December 26, 2009 (in thousands):

 

 

 

Contractual maturities of our available-for-sale marketable securities and investments as of September 25, 2010 and December 26, 2009 were as follows (in thousands):

 

 

 

The net unrealized gain of $1.7 million and $1.2 million as of September 25, 2010 and December 26, 2009 , respectively, on our available-for-sale marketable securities and investments was primarily the result of changes in interest rates. We typically invest in highly-rated securities with low probabilities of default. Our investment policy requires investments to be rated single A or higher and limits the security types, issuer concentration, and duration of our investments.

 

The following table shows gross unrealized losses and estimated fair values for those investments that were in an unrealized loss position as of September 25, 2010 and December 26, 2009 , aggregated by investment category and the length of time that individual securities have been in a continuous loss position (in thousands):

 

 

 

 

Note 7. Restricted Cash and Investments

 

Restricted cash and investments consisted of the following at September 25, 2010 and December 26, 2009 (in thousands):

 

 

At September 25, 2010 and December 26, 2009 , our restricted investments consisted of long-term marketable securities that we hold through a custodial account to fund future costs of our solar module collection and recycling program.

 

We pre-fund our estimated solar module collection and recycling costs at the time of module sale through a custodial account with a large bank as the investment advisor in the name of a trust, for which First Solar Inc., First Solar Malaysia Sdn. Bhd., and First Solar Manufacturing GmbH are grantors. We fund this custodial account within 60 days of the beginning of a fiscal year for the prior year module sales, assuming for this purpose a minimum service life of 25 years for our solar modules.

 

The following table summarizes unrealized gains and losses related to our restricted investments in marketable securities designated as available-for-sale by major security type as of September 25, 2010 and December 26, 2009 (in thousands):

 

 

 

As of September 25, 2010 , the contractual maturities of these available-for-sale marketable securities were between 17 years and 25 years . As of December 26, 2009 , the contractual maturities of these available-for-sale marketable securities were between 18 years and 26 years .

 

 

Note 8. Consolidated Balance Sheet Details

 

Accounts receivable trade, net

 

Accounts receivable trade consisted of the following at September 25, 2010 and December 26, 2009 (in thousands):

 

 

During the third quarter of 2009, we amended our Long-Term Supply Contracts with certain of our customers to implement a program which provided a price rebate to these customers for solar modules purchased from us. The intent of this program was to enable our customers to successfully compete in our core German market and to adjust for eligible customers the sale price (which was documented in framework agreements entered into several years ago) in light of market conditions. The rebate period was originally structured to end at the end of 2010; however, we have extended the program into 2011 with certain modifications, including applicability to certain European geographies in addition to Germany.  As was the case in 2009, the rebate amounts are established so as to enable the sell-through of our products at competitive prices. The amount of rebate earned during a fiscal quarter is based on (i) the volume of solar modules shipped to a customer (measured in watts), (ii) the volume of solar modules registered for eligible projects (measured in watts), provided that those solar modules were invoiced by the buyer to an end customer, and (iii) the rebate rate. The rebate program applies a specified rebate rate to solar modules sold for solar power projects in certain geographies. Customers need to meet certain requirements in order to be eligible for and benefit from this program. As of September 25, 2010 , we have experienced approximately 100% participation in this program by eligible customers.

 

We account for these rebates as a reduction to the selling price of our solar modules and, therefore, as a reduction in revenue at the time of sale and recognize a contra-asset within accounts receivable trade, net. No rebates granted under this program can be claimed as cash; instead, rebates may only be applied to reduce outstanding accounts receivable balances. During the three and nine months ended September 25, 2010 , we extended rebates to customers in the amount of €22.9 million and €58.5 million , respectively, ( $29.3 million and $77.8 million at the average exchange rate of $1.28 /€1.00 and $1.33 /€1.00, respectively). At September 25, 2010 , we had €26.3 million ( $35.5 million at the balance sheet close rate on September 25, 2010 of $1.35 /€1.00) of rebate claims accrued, which reduced our accounts receivable accordingly. At December 26, 2009, we had €54.3 million ( $73.3 million at the balance sheet close rate on September 25, 2010 of $1.35 /€1.00) of rebate claims accrued.

 

In June 2009, we provided an allowance for doubtful accounts receivable in the amount of $7.0 million due to uncertainty about the collectibility of the outstanding accounts receivable from a specific customer. As of December 26, 2009, we had collected $6.0 million of the overdue accounts receivable from this specific customer and reduced our allowance for the doubtful account accordingly. During the three months ended March 27, 2010, we collected the remaining $1.0 million .

 

Accounts receivable, unbilled

 

Accounts receivable, unbilled represents revenue that has been recognized in advance of billing the customer. Typically, this is common for long-term construction contracts. For example, we recognize revenue from long-term contracts for the construction and sale of solar power systems which include the sale of project assets over the contractual period using applicable accounting methods. One applicable accounting method is the percentage-of-completion method of accounting, where sales and gross profit are recognized as work is performed based on the relationship between actual costs incurred to the total estimated costs for completing the entire contract. Under this accounting method, it is possible that revenue could be recognized under applicable revenue recognition criteria in advance of billing the customer, resulting in an amount recorded to "accounts receivable, unbilled." Once we meet the billing criteria under a contract, we bill our customer accordingly and reclassify the “accounts receivable, unbilled” to “accounts receivable trade, net.” Billing criteria vary by contract, but are generally structured around completion of certain construction milestones.

 

Accounts receivable, unbilled were $148.5 million and $0.1 million at September 25, 2010 and December 26, 2009 , respectively. The increase was due to the recognition of revenue related to our systems business projects. We expect to bill and collect these amounts within the next 12 months.

 

Inventories

 

Inventories consisted of the following at September 25, 2010 and December 26, 2009 (in thousands):

 

 

(1)    We purchase a critical raw material that is heavily used in our core production process in quantities that anticipate confident, but long-term future demand. We classify the raw materials that we do not expect will be consumed within our operating cycle (which is 12 months), as noncurrent.

 

Prepaid expenses and other current assets

 

Prepaid expenses and other current assets consisted of the following at September 25, 2010 and December 26, 2009 (in thousands):

 

 

Deferred project costs represent capitalized costs associated with revenue that we have deferred for project development or project construction contracts signed with a third party, typically under an EPC agreement or other contractual arrangements, for

which the revenue recognition criteria have not been met. For systems business arrangements that do not involve real estate, we generally defer project costs prior to entering into a definitive sales arrangement or we recognize revenue based on the completed contract method. For systems business arrangements that we account for as real estate transactions, we generally recognize costs incurred as deferred project costs after we have entered into a definitive sales agreement, until we have met the criteria to recognize the sale as revenue.

 

Project Assets - Current and Noncurrent

 

Project assets consist primarily of costs relating to solar power projects in various stages of development that we capitalize prior to the sale of the solar power project to a third party for further project development or the signing of a project construction contract. These costs include costs for land and costs for developing and constructing a solar power plant. Development costs can include legal, consulting, permitting, and other similar costs. Once we enter into a definitive sales agreement, we reclassify these costs to deferred project costs on our balance sheet until we are able to recognize the sale of the project assets as revenue.

 

Project assets - current and noncurrent consisted of the following at September 25, 2010 and December 26, 2009 (in thousands):

 

 

In connection with the acquisition of the solar power project development businesses of OptiSolar and NextLight, we measured at fair value certain acquired project assets based on the varying development stages of each project asset on the acquisition date. Subsequent to the acquisitions of OptiSolar and NextLight, we incurred additional costs to further develop these projects. Once we enter into a definitive sales agreement, we reclassify these costs to deferred project costs on our balance sheet. We expense these project assets to cost of sales as each respective project asset or solar power system is sold to a customer, since the project is constructed for a customer (matching the underlying revenue recognition method), or if we determine that the project is commercially not viable.

 

We review project assets for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. We consider a project commercially viable if it is anticipated to be sellable for a profit once it is either fully developed or fully constructed. We consider a partially developed or partially constructed project commercially viable if the anticipated selling price is higher than the carrying value of the related project assets. We examine a number of factors to determine if the project will be profitable, the most notable of which are whether there are any environmental, ecological, permitting, or regulatory conditions that have changed for the project since the start of development. Such changes could cause the cost of the project to increase or the selling price of the project to decrease.

 

Property, plant and equipment, net

 

Property, plant and equipment, net consisted of the following at September 25, 2010 and December 26, 2009 (in thousands):