form10-q.htm
 




UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-Q

(Mark one)
 
   
R
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
   
 
For the quarterly period ended June 27, 2009
   
 
or
   
£
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
   
 
For the transition period from                                                         to                   

Commission file number: 001-33156

First Solar, Inc.
(Exact name of registrant as specified in its charter)

Delaware
20-4623678
(State or other jurisdiction of
(I.R.S. Employer
incorporation or organization)
Identification No.)

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 R 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 R 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):

Large accelerated filer R
Accelerated filer £
Non-accelerated filer £
Smaller reporting company £
   
(Do not check if a smaller reporting company)
 

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

As of July 24, 2009 there were 84,647,299 shares of the registrant’s common stock, par value $0.001, outstanding.




 
 
 
 

FIRST SOLAR, INC. AND SUBSIDIARIES

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 27, 2009

TABLE OF CONTENTS

 
 
Page
Part I.
Financial Information (Unaudited)
 
Item 1.
Condensed Consolidated Financial Statements:
 
 
Condensed Consolidated Statements of Operations for the three and six months ended June 27, 2009 and June 28, 2008
3
 
Condensed Consolidated Balance Sheets as of June 27, 2009 and December 27, 2008
4
 
Condensed Consolidated Statements of Cash Flows for the six months ended June 27, 2009 and June 28, 2008
5
 
Notes to Condensed Consolidated Financial Statements
6
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
27
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
39
Item 4.
Controls and Procedures
41
Part II.
Other Information
42
Item 1.
Legal Proceedings
42
Item 1A.
Risk Factors
42
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
44
Item 4.
Submission of Matters to a Vote of Security Holders
44
Item 5.
Other Information
  44
Item 6.
Exhibits
44
Signature
 
46
Exhibit Index
 
47


 
2
 
 


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)

   
Three Months Ended
   
Six Months Ended
 
 
 
 
June 27,
2009
   
June 28,
2008
   
June 27,
2009
   
June 28,
2008
 
Net sales
  $ 525,876     $ 267,041     $ 944,084     $ 463,956  
Cost of sales
    227,780       122,341       410,704       214,932  
Gross profit
    298,096       144,700       533,380       249,024  
Operating expenses:
                               
Research and development
    18,605       7,725       30,309       12,485  
Selling, general and administrative
    72,926       43,626       122,241       72,297  
Production start-up
    2,524       4,622       8,733       17,383  
Total operating expenses
    94,055       55,973       161,283       102,165  
Operating income
    204,041       88,727       372,097       146,859  
Foreign currency gain
    239       647       2,073       1,421  
Interest income
    1,948       4,923       4,051       11,608  
Interest expense, net
    (3,827 )           (4,762 )     (4 )
Other expense, net
    (1,103 )     (441 )     (2,429 )     (819 )
Income before income taxes
    201,298       93,856       371,030       159,065  
Income tax expense
    20,719       24,185       25,856       42,775  
Net income
  $ 180,579     $ 69,671     $ 345,174     $ 116,290  
Net income per share:
                               
Basic
  $ 2.16     $ 0.87     $ 4.17     $ 1.46  
Diluted
  $ 2.11     $ 0.85     $ 4.10     $ 1.42  
Weighted-average number of shares used in per share calculations:
                               
Basic
    83,723       79,877       82,704       79,468  
Diluted
    85,668       82,004       84,140       81,806  

See accompanying notes to these condensed consolidated financial statements.


 
3
 
 


FIRST SOLAR, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)

 
 
 
June 27,
2009
   
December 27,
2008
 
ASSETS
 
Current assets:
           
Cash and cash equivalents
  $ 429,160     $ 716,218  
Marketable securities — current
    160,714       76,042  
Restricted cash and investments  — current
    48,970        
Accounts receivable, net
    351,266       61,703  
Inventories — current
    162,501       121,554  
Economic development funding receivable
          668  
Deferred tax asset, net — current
    14,880       9,922  
Prepaid expenses and other current assets
    76,996       91,294  
Total current assets
    1,244,487       1,077,401  
Property, plant and equipment, net
    911,869       842,622  
Project assets — noncurrent
    113,680        
Deferred tax asset, net — noncurrent
    102,673       61,325  
Marketable securities — noncurrent
    138,239       29,559  
Restricted cash and investments — noncurrent
    33,695       30,059  
Investment in related party
    25,000       25,000  
Goodwill
    294,962       33,829  
Inventories — noncurrent
    6,273        
Other assets — noncurrent
    39,301       14,707  
Total assets
  $ 2,910,179     $ 2,114,502  
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
Current liabilities:
               
Accounts payable
  $ 55,631     $ 46,251  
Income tax payable
    57,336       99,938  
Accrued expenses
    106,335       140,899  
Current portion of long-term debt
    76,639       34,951  
Other liabilities — current
    70,187       59,738  
Total current liabilities
    366,128       381,777  
Accrued collection and recycling liabilities
    60,880       35,238  
Long-term debt
    156,935       163,519  
Other liabilities — noncurrent
    41,345       20,926  
Total liabilities
    625,288       601,460  
Stockholders’ equity:
               
Common stock, $0.001 par value per share; 500,000,000 shares authorized; 84,633,454 and 81,596,810 shares issued and outstanding at June 27, 2009 and December 27, 2008, respectively
    85       82  
Additional paid-in capital
    1,576,132       1,176,156  
Contingent consideration
    47,394        
Accumulated earnings
    706,399       361,225  
Accumulated other comprehensive loss
    (45,119 )     (24,421 )
Total stockholders’ equity
    2,284,891       1,513,042  
Total liabilities and stockholders’ equity
  $ 2,910,179     $ 2,114,502  

See accompanying notes to these condensed consolidated financial statements.


 
4
 
 

 
FIRST SOLAR, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

   
Six Months Ended
 
 
 
 
June 27,
2009
   
June 28,
2008
 
Cash flows from operating activities:
           
Cash received from customers
  $ 671,786     $ 429,223  
Cash paid to suppliers and associates
    (503,168 )     (301,653 )
Interest received
    3,294       10,643  
Interest paid
    (4,714 )     (1,523 )
Income taxes (paid) received, net of refunds
    (64,597 )     571  
Excess tax benefit from share-based compensation arrangements
    (15,351 )     (13,953 )
Other operating activities
    (970 )     (818 )
Net cash provided by operating activities
    86,280       122,490  
Cash flows from investing activities:
               
Purchases of property, plant and equipment
    (145,966 )     (234,906 )
Purchases of marketable securities
    (264,881 )     (167,771 )
Proceeds from maturities of marketable securities
    42,000       34,750  
Proceeds from sales of marketable securities
    29,783       278,887  
Investment in note receivable
    (35,383 )      
Increase in restricted investments
    (42,439 )     (14,943 )
Acquisitions, net of cash acquired
    318        
Investment in project assets — noncurrent
    (3,470 )      
Other investing activities
    (1,167 )      
Net cash used in investing activities
    (421,205 )     (103,983 )
Cash flows from financing activities:
               
Proceeds from issuance of common stock
    3,820       7,178  
Repayment of long-term debt
    (14,256 )     (30,636 )
Proceeds from issuance of debt, net of issuance costs
    48,622       49,446  
Excess tax benefit from share-based compensation arrangements
    15,351       13,953  
Proceeds from economic development funding
    615       35,661  
Other financing activities
    (2 )     (4 )
Net cash provided by financing activities
    54,150       75,598  
Effect of exchange rate changes on cash and cash equivalents
    (6,283 )     12,875  
Net increase (decrease) in cash and cash equivalents
    (287,058 )     106,980  
Cash and cash equivalents, beginning of the period
    716,218       404,264  
Cash and cash equivalents, end of the period
  $ 429,160     $ 511,244  
Supplemental disclosure of noncash investing and financing activities:
               
Property, plant and equipment acquisitions funded by liabilities
  $ (18,216 )   $ 26,165  

See accompanying notes to these condensed consolidated financial statements.



 
5
 
 


FIRST SOLAR, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Six Months Ended June 27, 2009

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. 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 six months ended June 27, 2009 are not necessarily indicative of the results that may be expected for the year ending December 26, 2009, or for any other period. The balance sheet at December 27, 2008 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 accompanying notes should be read in conjunction with the financial statements and notes thereto for the year ended December 27, 2008, included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission.

We report our results of operations using a 52 or 53 week fiscal year, which ends on the Saturday on or before December 31. Our fiscal quarters end on the Saturday closest to the end of the applicable calendar quarter. Fiscal 2009 will end on December 26, 2009 and will consist of 52 weeks.

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 27, 2008, included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission. Our significant accounting policies reflect the adoption of Statement of Financial Accounting Standards No. (SFAS) 141 (revised 2007), Business Combinations, in the second quarter of fiscal 2009.

Note 3. Recent Accounting Pronouncements

In December 2007, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard (SFAS) 141R, Business Combinations, which replaces SFAS 141, Business Combinations. SFAS 141R requires most assets acquired and liabilities assumed in a business combination, contingent consideration and certain acquired contingencies to be measured at their fair value as of the date of the acquisition. SFAS 141R also requires acquisition-related costs and restructuring costs to be recognized separately from the business combination. SFAS 141R became effective for us for the year ending December 26, 2009 and therefore  applies to any business combinations that we might enter into after December 27, 2008.  The adoption of SFAS 141R did not have a material impact on our financial position, results of operations or cash flows, and we applied SFAS 141R to our recently completed acquisition of the solar power project development business of OptiSolar Inc. on April 3, 2009, as further described in Note 4 to our condensed consolidated financial statements.

In April 2009, the FASB issued FASB Staff Position (FSP) No. FAS 141R-1, Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies. FSP FAS 141R-1 amends the guidance in SFAS 141R about the accounting for assets acquired and liabilities assumed in a business combination that arise from contingencies that would be within the scope of SFAS 5 if not acquired or assumed in a business combination. FSP FAS 141R-1 is effective for us at the beginning of our year ending December 26, 2009 and therefore applies to any business combination that we might enter into after December 27, 2008. The adoption of FSP FAS 141R-1 did not have a material impact on our financial position, results of operations or cash flows, and we applied FSP FAS 141R-1 to our recently completed acquisition of the solar power project development business of OptiSolar Inc. on April 3, 2009 as further described in Note 19 to our condensed consolidated financial statements.

In April 2009, the FASB issued FSP FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments. FSP FAS 107-1 and APB 28-1 amend SFAS 107, Disclosures about Fair Value of Financial Instruments, to require disclosures about fair value of financial instruments for interim reporting periods, as well as in annual financial statements. This FSP also amends Accounting Principles Board Option (ABP) No.  28, Interim Financial Reporting, to require those disclosures in summarized financial information at interim reporting periods. We adopted FSP FAS 107-1 and APB 28-1 in our fiscal quarter ended June 27, 2009. The adoption of FSP FAS 107-1 and APB 28-1 did not have a material impact on our financial position, results of operations or cash flows.
 
6
 
 
        In April 2009, the FASB issued FSP FAS 115-2 and FAS 124-2, Recognition and Presentation of Other-Than Temporary Impairments. FSP FAS 115-2 and FAS 124-2 amend the other-than-temporary impairment guidance for debt securities to make the guidance more operational and to improve the presentation and disclosure of other-than-temporary impairments on debt and equity securities in the financial statements. We adopted FSP FAS 115-2 and FAS 124-2 in our fiscal quarter ended June 27, 2009. The adoption of FSP FAS 115-2 and FAS 124-2 did not have a material impact on our financial position, results of operations or cash flows.

In April 2009, the FASB issued FSP FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are not Orderly. FSP FAS 157-4 provides additional guidance for estimating fair value in accordance with SFAS 157, Fair Value Measurements, when the volume and level of activity for the asset or liability being measured have significantly decreased. This FSP also includes guidance about identifying circumstances that indicate a transaction is not orderly. We adopted FSP FAS 157-4 in our fiscal quarter ended June 27, 2009. The adoption of FSP FAS 157-4 did not have a material impact on our financial position, results of operations or cash flows.

In May 2009, the FASB issued SFAS 165, Subsequent Events. This standard establishes general standards of accounting for and disclosure of events that occur after the balance sheet date, but before financial statements are issued or available to be issued. Specifically, this standard codifies in authoritative GAAP standards the subsequent event guidance that was previously located in auditing standards. SFAS 165 is effective for fiscal years and interim periods ended after June 15, 2009 and is applied prospectively. We adopted SFAS 165 in our fiscal quarter ended June 27, 2009. The adoption of SFAS 165 did not have a material impact on our financial position, results of operation or cash flows.

In June 2009, the FASB issued SFAS 166, Accounting for Transfers of Financial Assets- an amendment of SFAS 140. This standard eliminates the concept of a “qualifying special-purpose entity,” changes the requirements for derecognizing financial assets, and requires additional disclosures in order to enhance information to users of financial statements by providing greater transparency about transfers of financial assets, including securitization transactions, and an entity’s continuing involvement in and exposure to the risks related to transferred financial assets. SFAS 166 is effective for fiscal years ended after November 15, 2009. We do not expect that the adoption of SFAS 166 will have a material impact on our financial position, results of operations or cash flows.

In June 2009, the FASB issued SFAS 167, Amendments to FASB Interpretation No. 46(R). This standard changes the consolidation analysis for variable interest entities. SFAS 167 is effective for fiscal years ending after November 15, 2009. We are currently assessing the impact, if any, that the adoption of SFAS 167 will have on our financial position, results of operations or cash flows.

In June 2009, the FASB issued SFAS 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principlesa replacement of SFAS 162. This standard designates the FASB Accounting Standards Codification (FASC) as the source of authoritative U.S. GAAP. SFAS 168 is effective for interim or fiscal periods ending after September 15, 2009. We will begin to use the new guidelines and numbering system prescribed by the FASC when referring to GAAP in our fiscal quarter ending September 26, 2009.

Note 4. Acquisition

On April 3, 2009, we completed the acquisition of the solar power project development business (the “Project Business”) of OptiSolar Inc., a Delaware corporation (“OptiSolar”). Pursuant to an Agreement and Plan of Merger (the “Merger Agreement”) dated as of March 2, 2009, by and among First Solar, First Solar Acquisition Corp., a Delaware corporation (“Merger Sub”), OptiSolar and OptiSolar Holdings LLC, a Delaware limited liability company (“OptiSolar Holdings”), Merger Sub merged with and into OptiSolar, with OptiSolar surviving as a wholly-owned subsidiary of First Solar (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 have been issued and deposited with an escrow agent to support certain indemnification obligations of OptiSolar Holdings, and 355,096 shares were holdback shares as further described below under “Contingent Consideration” (the “Holdback Shares”). As of June 27, 2009, 2,619,733 Merger Shares have been issued. The period during which claims for indemnification from the escrow fund may be initiated commenced on April 3, 2009, and will end on April 3, 2011.
 
7
 
 
         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. The estimated fair value of this contingent consideration was $47.4 million and $47.7 million on June 27, 2009 and April 3, 2009, respectively, and has been classified separately within stockholders equity. As of June 27, 2009, 2,409 Holdback Shares had been issued to OptiSolar Holdings. Subsequent to June 27, 2009, an additional 331,523 Holdback Shares were issued to OptiSolar Holdings.

Preliminary Purchase Price Allocation

We accounted for this acquisition using the acquisition method in accordance with SFAS 141R. Accordingly, we preliminarily allocated the purchase price to the acquired assets and liabilities based on their estimated fair values at the acquisition date as summarized in the following table (in thousands):

The allocation of the purchase price on April 3, 2009 was as follows (in thousands):

Tangible assets acquired
  $ 10,175  
Project assets
    103,888  
Deferred tax assets
    32,643  
Deferred tax liability
    (8,405 )
Goodwill
    261,133  
Total purchase consideration
  $ 399,434  

The fair value of net tangible assets acquired on April 3, 2009 consisted of the following (in thousands):

Cash
  $ 318  
Prepaid expenses and other current assets
    5,003  
Property, plant and equipment
    165  
Project assets – Land
    6,100  
Total identifiable assets acquired
    11,586  
Accounts payable and other liabilities
    (1,411 )
   Total liabilities assumed
    (1,411 )
        Net identifiable assets acquired
  $ 10,175  

Our purchase price allocation was substantially complete as of June 27, 2009. However, we may be subject to goodwill adjustments as additional information relating to deferred tax assets and liabilities becomes available.

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. We have preliminarily allocated $259.7 million and $1.4 million of this goodwill to our components reporting segment and solar systems segment (reported under “Other” in our disclosure of segment operating results), respectively. This goodwill is not deductible for tax purposes.
 
Acquired project assets

Management engaged a third-party valuation firm to assist in the determination of the fair value of the acquired project development business. 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 fair value of the assets acquired. We used the income approach to calculate the fair value of the acquired projects assets based on estimates and assumptions of future performance of these projects assets provided by Optisolar’s and our management. We used the market approach to determine the fair value of the land acquired with those assets.
 
8
 
 
Acquisition Related Costs

Acquisition-related costs recognized in the three and six months ended June 27, 2009 include transaction costs and integration costs, which we have classified in selling, general and administrative expense in our statement of operations. During the three and six months ended June 27, 2009, transaction costs such as legal, accounting, valuation and other professional services were $0.2 million and $1.6 million, respectively. Integration related costs during the three and six months ended June 27, 2009 were $0.5 million and $0.6 million, respectively.

Pro Forma Information

The acquired OptiSolar business has been engaged in the development and construction of solar power projects. The costs related to these activities are largely capitalized, and not charged against earnings until the project is sold; as of June 27, 2009, OptiSolar had not yet reached the point of sale for any of the projects is has been developing. Therefore, if the OptiSolar acquisition had been completed on December 28, 2008 (the beginning of our fiscal year 2009) our total revenue, net income, and basic and diluted earnings per common share would have not materially changed from the amounts that we have previously reported.

For the same reasons, the effect of OptiSolar on our condensed consolidated statement of operations from the acquisition date through June 27, 2009 was immaterial.

Note 5. Goodwill and Intangible Assets

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 June 27, 2009 and December 27, 2008, the carrying amount of 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, which primarily represents the synergies and economies of scale expected from acquiring this project pipeline and using our solar modules in the acquired projects. We have allocated $259.7 million and $1.4 million of this goodwill to our components reporting segment and systems segment (reported under “Other” in our disclosure of segment operating results), respectively. At June 27, 2009, the carrying amount of this goodwill was $261.1 million. See Notes 4 and 20 to our condensed consolidated financial statements for additional information about this acquisition.

The changes in the carrying amount of goodwill for the six months ended June 27, 2009 were as follows (in thousands):

   
Components
   
Other
   
Consolidated
 
Beginning balance, December 27, 2008
  $     $ 33,829     $ 33,829  
Goodwill from 2009 acquisitions
    259,722       1,411       261,133  
Ending Balance, June 27, 2009
  $ 259,722     $ 35,240     $ 294,962  

SFAS 142, Goodwill and Other Intangible Assets, 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. We performed our goodwill impairment tests in the fourth fiscal quarter of the year ended December 27, 2008. Based on that test, 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.
 
9
 
 
Acquisition Related Intangible Assets

In connection with the acquisition of Turner Renewable Energy, LLC, we identified intangible assets that represent customer contracts already in progress and future customer contracts not yet started at the time of acquisition. We amortize the acquisition date fair values of these assets using the percentage of completion method.

Information regarding our acquisition-related intangible assets that are being amortized was as follows (in thousands):

   
As of June 27, 2009
   
As of December 27, 2008
 
 
 
 
 
Gross
Carrying
Amount
   
Accumulated
Amortization
   
Net
Carrying
Value
   
Gross
Carrying
Amount
   
Accumulated
Amortization
   
Net
Carrying
Value
 
Customer contracts in progress at the acquisition date
  $ 62     $ 62     $     $ 62     $ 58     $ 4  
Customer contracts executed after the acquisition date
    394       379       15       394       242       152  
Total
  $ 456     $ 441     $ 15     $ 456     $ 300     $ 156  

Amortization expense for acquisition-related intangible assets was $0.1 million for both the three and six months ended June 27, 2009 and June 28, 2008, respectively. We expect to amortize the remaining balance of our acquisition related intangible assets during the year ending December 26, 2009.

Project Assets

In connection with the acquisition of the solar power project development business of OptiSolar, we measured at fair value certain project assets based on the varying development stages of each project asset on the acquisition date. At June 27, 2009, the carrying value of these project assets was $103.9 million. We will expense these projects assets as the solar power projects are sold or constructed.

Note 6. Cash and Investments

Cash, cash equivalents and marketable securities consisted of the following at June 27, 2009 and December 27, 2008 (in thousands):

 
 
 
June 27,
2009
   
December 27,
2008
 
Cash and cash equivalents:
           
Cash
  $ 303,470     $ 603,434  
Cash equivalents:
               
Federal agency debt
          38,832  
Money market mutual fund
    125,690       73,952  
Total cash and cash equivalents
    429,160       716,218  
Marketable securities:
               
Federal agency debt
    132,706       68,086  
Foreign agency debt
    63,885       6,977  
Supranational debt
    62,227        
Corporate debt securities
    40,135       30,538  
Total marketable securities
    298,953       105,601  
Total cash, cash equivalents and marketable securities
  $ 728,113     $ 821,819  

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 part of other comprehensive income until realized. 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 six months ended June 27, 2009, we realized an immaterial amount in gains and did not realize any losses on our marketable securities. During the three months ended June 28, 2008, we did not realize any gains or losses on our marketable securities. During the six months ended June 28, 2008, we realized $0.4 million in gains and $0.1 million in losses on our marketable securities. See Note 10 to our 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. When evaluating our investments 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, and our intent to sell, or whether it is more likely than not we will be required to sell the investment before we have recovered its cost basis. Investments identified as being impaired are subject to further review to determine if the investment is other-than-temporarily impaired; in which case, we write down the investment through earnings to its impaired value and establish a new cost basis for the investment. We did not identify any of our marketable securities as other-than-temporarily impaired at June 27, 2009.
 
10
 
 
The following table summarizes unrealized gains and losses related to our investments in marketable securities designated as available-for-sale by major security type (in thousands):

   
As of June 27, 2009
 
 
 
Security Type
 
Amortized
Cost
   
Gross
Unrealized
Gains
   
Gross
Unrealized
Losses
   
Estimated
Fair
Value
 
Federal agency debt
  $ 132,445     $ 262     $ 1     $ 132,706  
Foreign agency debt
    63,683       202             63,885  
Supranational debt
    62,138       97       8       62,227  
Corporate debt securities
    39,849       316       30       40,135  
Total
  $ 298,115     $ 877     $ 39     $ 298,953  

   
As of December 27, 2008
 
 
 
Security Type
 
Amortized
Cost
   
Gross
Unrealized
Gains
   
Gross
Unrealized
Losses
   
Estimated
Fair
Value
 
Federal agency debt
  $ 67,813     $ 273     $     $ 68,086  
Foreign agency debt
    6,990             13       6,977  
Corporate debt securities
    30,425       129       16       30,538  
Total
  $ 105,228     $ 402     $ 29     $ 105,601  

Contractual maturities of our available-for-sale marketable securities as of June 27, 2009 and December 27, 2008 were as follows (in thousands):

   
As of June 27, 2009
 
 
 
Maturity
 
Amortized
Cost
   
Gross
Unrealized
Gains
   
Gross
Unrealized
Losses
   
Estimated
Fair
Value
 
One year or less
  $ 160,315     $ 399     $     $ 160,714  
One year to two years
    137,800       478       39       138,239  
Total
  $ 298,115     $ 877     $ 39     $ 298,953  

   
As of December 27, 2008
 
 
 
Maturity
 
Amortized
Cost
   
Gross
Unrealized
Gains
   
Gross
Unrealized
Losses
   
Estimated
Fair
Value
 
One year or less
  $ 75,856     $ 199     $ 13     $ 76,042  
One year to two years
    29,372       203       16       29,559  
Total
  $ 105,228     $ 402     $ 29     $ 105,601  

The net unrealized gain of $0.8 million and $0.4 million as of June 27, 2009 and December 27, 2008, respectively, on our available for-sale marketable securities 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 better and limits the security types, issuer concentration and duration of the investments.

 
11
 
 
The following table shows gross unrealized losses and estimated fair values for those investments that were in an unrealized loss position as of June 27, 2009 and December 27, 2008; aggregated by investment category and the length of time that individual securities have been in a continuous loss position (in thousands):

   
As of June 27, 2009
 
 
 
 
In Loss Position for
Less Than 12 Months
   
In Loss Position for
12 Months or Greater
   
Total
 
 
 
 Security Type
 
Estimated
Fair
Value
   
Gross
Unrealized
Losses
   
Estimated
Fair
Value
   
Gross
Unrealized
Losses
   
Estimated
Fair
Value
   
Gross
Unrealized
Losses
 
Federal agency debt
  $ 4,124     $ 1     $     $     $ 4,124     $ 1  
Foreign agency debt
                                   
Supranational debt
    8,715       8                   8,715       8  
Corporate debt securities
    1,997       30                   1,997       30  
Total
  $ 14,836     $ 39     $     $     $ 14,836     $ 39  

 
 
As of December 28, 2008
 
 
 
 
In Loss Position for
Less Than 12 Months
   
In Loss Position for
12 Months or Greater
   
Total
 
 
 
 Security Type
 
Estimated
Fair
Value
   
Gross
Unrealized
Losses
   
Estimated
Fair
Value
   
Gross
Unrealized
Losses
   
Estimated
Fair
Value
   
Gross
Unrealized
Losses
 
Federal agency debt
  $ 6,977     $ 13     $     $     $ 6,977     $ 13  
Corporate debt securities
    9,088       16                   9,088       16  
Total
  $ 16,065     $ 29     $     $     $ 16,065     $ 29  


Note 7. Restricted Cash and Investments

Restricted cash and investments consisted of the following at June 27, 2009 and December 27, 2008 (in thousands):

 
 
 
June 27,
2009
   
December 27,
2008
 
Restricted cash
  $ 48,974     $ 4,218  
Restricted investments
    33,691        
Deposit with financial services company
          25,841  
Total restricted cash and investments
  $ 82,665     $ 30,059  
Restricted cash and investments — current
  $ 48,970     $  
Restricted cash and investments — noncurrent
  $ 33,695     $ 30,059  

At June 27, 2009, our restricted cash consisted of a debt service reserve account for our credit facility with a consortium of banks led by IKB Deutsche Industriebank AG and cash held by a financial institution as collateral for a letter of credit. Our restricted investments consisted of long-term marketable securities that we hold to fund future costs of our solar module collection and recycling program.

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 (in thousands):

   
As of June 27, 2009
(Unaudited)
 
 
 
Security Type
 
Amortized
Cost
   
Gross
Unrealized
Gains
   
Gross
Unrealized
Losses
   
Estimated
Fair
Value
 
U.S. government obligations
  $ 784     $ 13     $     $ 797  
Foreign government obligations
    32,894           $       32,894  
Total
  $ 33,678     $ 13     $     $ 33,691  

As of June 27, 2009, the contractual maturities of these available-for-sale marketable securities were between 19 and 27 years.

 
12
 
 
Note 8. Consolidated Balance Sheet Details

Accounts receivable, net

Accounts receivable, net consisted of the following at June 27, 2009 and December 27, 2008 (in thousands):

 
 
June 27,
2009
   
December 27,
2008
 
Accounts receivable, gross
  $ 358,256     $ 61,703  
Allowance for doubtful accounts
    6,990        
Accounts receivable, net
  $ 351,266     $ 61,703  

The increase in accounts receivable was mainly due to the amendment of certain of our customers’ long-term supply contracts to extend their payment terms from net 10 days to net 45 days in the first quarter of 2009 and due to higher volumes shipped during the three months ended June 27, 2009. We provided an allowance in the amount of $7.0 million due to recent developments concerning the collectability of the outstanding accounts receivable from a specific customer.

Inventories

Inventories consisted of the following at June 27, 2009 and December 27, 2008 (in thousands):

 
 
June 27,
2009
   
December 27,
2008
 
Raw materials
  $ 105,937     $ 103,725  
Work in process
    7,118       4,038  
Finished goods
    55,719       13,791  
Total inventories
  $ 168,774     $ 121,554  
Inventory — current
  $ 162,501     $ 121,554  
Inventory — noncurrent (1)
  $ 6,273     $  

(1)  
Inventory – noncurrent is raw materials.

Prepaid expenses and other current assets

Prepaid expenses and other current assets consisted of the following at June 27, 2009 and December 27, 2008 (in thousands):

   
June 27,
2009
   
December 27,
2008
 
Prepaid expenses
  $ 5,581     $ 6,699  
Prepaid supplies
    11,987       12,556  
Capitalized equipment spares
    14,312       12,900  
Prepaid taxes — current
    453       4  
Derivative instruments — current
    1,705       34,931  
Other receivable from financial institution (1)(2)
    8,989       10,764  
Note receivable — current  (see Note 12)
    12,662        
Costs and estimated earnings in excess of billings
    18       114  
Deferred project costs
    1,377       710  
Other taxes receivable
    4,851       2,763  
Accrued interest income
    2,257       1,511  
Other current assets
    12,804       8,342  
Total prepaid expenses and other current assets
  $ 76,996     $ 91,294  

(1)  
Settled subsequent to June 27, 2009.
(2)  
Settled subsequent to December 27, 2008.

 
13
 
 
Property, plant and equipment, net

Property, plant and equipment consisted of the following at June 27, 2009 and December 27, 2008 (in thousands):

   
June 27,
2009
   
December 27,
2008
 
Buildings and improvements
  $ 201,513     $ 137,116  
Machinery and equipment
    693,711       559,566  
Office equipment and furniture
    29,385       22,842  
Leasehold improvements
    14,616       11,498  
Depreciable property, plant and equipment, gross
    939,225       731,022  
Accumulated depreciation
    (154,958 )     (100,939 )
Depreciable property, plant and equipment, net
    784,267       630,083  
Land
    5,888       5,759  
Construction in progress
    121,714       206,780  
Property, plant and equipment, net
  $ 911,869     $ 842,622  

Depreciation of property, plant and equipment was $28.5 million and $13.4 million for the three months ended June 27, 2009 and June 28, 2008, respectively, and was $54.3 million and $23.5 million for the six months ended June 27, 2009 and June 28, 2008, respectively.
 
We incurred interest cost and capitalized a portion of it (into our property, plant and equipment) as follows during the three and six months ended June 27, 2009 and June 28, 2008 (in thousands):

   
Three Months Ended
   
Six Months Ended
 
 
 
 
June 27,
2009
   
June 28,
2008
   
June 27,
2009
   
June 28,
2008
 
Interest cost incurred
  $ 4,693     $ 1,303     $ 7,107     $ 2,812  
Interest cost capitalized
    (866 )     (1,303 )     (2,345 )     (2,808 )
Interest expense, net
  $ 3,827     $     $ 4,762     $ 4  

Project Assets - Noncurrent

Project assets - noncurrent consisted of the following at June 27, 2009 and December 27, 2008 (in thousands):

   
June 27,
2009
   
December 27,
2008
 
Project assets acquired
  $ 103,888     $  
Project assets — land
    7,102        
Project assets — other
    2,690        
Total project assets — noncurrent
  $ 113,680     $  

Accrued expenses

Accrued expenses consisted of the following at June 27, 2009 and December 27, 2008 (in thousands):

   
June 27,
2009
   
December 27,
2008
 
Product warranty liability — current portion
  $ 6,517     $ 4,040  
Accrued compensation and benefits
    24,903       32,145  
Accrued property, plant and equipment
    25,550       44,115  
Accrued inventory
    19,729       31,438  
Accrued utilities and plant services
    6,662       5,100  
Accrued subcontractor services and materials
    759       2,934  
Accrued freight and warehouse charges
    3,919       2,549  
Accrued interest
    1,793       2,008  
Accrued taxes — other
    1,802       6,182  
Other accrued expenses
    14,701       10,388  
Total accrued expenses
  $ 106,335     $ 140,899  

 
14
 
 
Other current liabilities

Other current liabilities consisted of the following at June 27, 2009 and December 27, 2008 (in thousands):

   
June 27,
2009
   
December 27,
2008
 
Derivative instruments — current
  $ 42,492     $ 50,733  
Deferred revenue (1)
    4,158        
Billings in excess of costs and estimated earnings
    793       2,159  
Other tax payable
    4,509       6,614  
Other payable to financial institution (2)
    7,106        
Other current liabilities
    11,129       232  
Total other current liabilities
  $ 70,187     $ 59,738  

(1)  
Deferred revenue will be recognized once all revenue recognition criteria have been met.
(2)  
Settled subsequent to June 27, 2009.


Note 9. Derivative Financial Instruments

As a global company, we are exposed in the normal course of business to interest rate and foreign currency risks that could affect our net assets, financial position, results of operations and cash flows. We use derivative instruments to hedge against certain risks, such as these, and we only hold derivative instruments for hedging purposes, not for speculative or trading purposes. Our use of derivative instruments is subject to strict internal controls based on centrally defined, performed and controlled policies and procedures.

Depending on the terms of the specific derivative instruments and market conditions, some of our derivative instruments may be assets and others liabilities at any particular point in time. As required by SFAS 133, Accounting for Derivative Instruments and Hedging Activities, we present all of our derivative instruments at fair value on our balance sheet. Depending on the substance of the hedging purpose for our derivative instruments, we account for changes in the fair value of some of them using cash-flow-hedge accounting pursuant to SFAS 133 and of others by recording the changes in fair value directly to current earnings (so-called “economic hedges”). These accounting approaches and the various classes of risk that we are exposed to in our business and the risk management systems using derivative instruments that we apply to these risks are described below. See Note 10 to our condensed consolidated financial statements for information about the techniques we use to measure the fair value of our derivative instruments.

The following table presents the fair values of derivative instruments included in our condensed consolidated balance sheet as of June 27, 2009 (in thousands):

 
Asset Derivatives
 
Liability Derivatives
 
Derivative Type
Balance Sheet Location
 
Fair Value
 
Balance Sheet Location
 
Fair Value
 
Derivatives designated as hedging instruments under SFAS 133:
             
Foreign exchange forward  contracts
Other current assets
  $ 210  
Other liabilities - current
  $ 40,525  
         
Other liabilities - noncurrent
    2,343  
Interest rate swap contracts
       
Other liabilities - current
    23  
         
Other liabilities - noncurrent
    261  
Total derivatives designated as hedging instruments
  $ 210       $ 43,152  
                     
Derivatives not designated as hedging instruments under SFAS 133:
                 
Foreign exchange forward contracts
Other current assets
  $ 1,495  
Other liabilities - current
  $ 1,944  
Total derivatives not designated as hedging instruments
  $ 1,495       $ 1,944  
                     
Total derivative instruments
    $ 1,705       $ 45,096  

 
15
 
 
The following tables present the amounts affecting our condensed consolidated statement of operations for the three and six months ended June 27, 2009 (in thousands):

   
Amount of Gain (Loss) Recognized in Other Comprehensive Income on Derivatives
     
Amount of Gain (Loss) Reclassified from Accumulated Other Comprehensive Income into Income
 
Derivative Type
 
Three Months Ended
June 27, 2009
   
Six Months Ended
June 27, 2009
 
Location of Gain (Loss) Reclassified from Accumulated Other Comprehensive Income into Income
 
Three Months Ended
June 27, 2009
   
Six Months Ended
June 27, 2009
 
Derivatives designated as cash flow hedges under SFAS 133:
                     
Foreign exchange forward contracts
  $ (50,987 )   $ (27,111 )
Net sales
  $ 9,634     $ 31,824  
Interest rate swaps
    1,870       1,093                
Total derivatives designated as cash flow hedges
  $ (49,117 )   $ (26,018 )     $ 9,634     $ 31,824  


   
Amount of Gain (Loss) on Derivatives Recognized in Income
   
Derivative Type
 
Three Months Ended
June 27, 2009
   
Six Months Ended
June 27, 2009
 
Location of Gain (Loss) Recognized in Income on Derivatives
Derivatives designated as cash flow hedges under SFAS 133:
             
Foreign exchange forward contracts
  $ 9,634     $ 31,824  
Net sales
Interest rate swaps
  $ (2,391 )   $ (2,525 )
Interest income (expense)
                   
Derivatives not designated as hedging instruments under SFAS 133:
                 
Foreign exchange forward contracts
  $ (42 )   $ (4,931 )
Other income (expense)
Foreign exchange forward contracts
  $ 2,524     $ 1,069  
Cost of sales
                   
Credit default swaps
  $ (459 )   $ (1,459 )
Other income (expense)

Interest Rate Risk

We use interest rate swap agreements to mitigate our exposure to interest rate fluctuations associated with certain of our debt instruments; we do not use such swap agreements for speculative or trading purposes. We had interest rate swap contracts with a financial institution that effectively converted to fixed rates the variable rate of the Euro Interbank Offered Rate (Euribor) on the term loan portion of our credit facility with a consortium of banks for the financing of our German plant. These swap contracts were required under the credit facility agreement, which we repaid and terminated on June 30, 2009. As per the credit facility agreement requirements, we terminated these interest rate swap contracts on June 26, 2009 and consequently recognized an interest expense of €1.7 million ($2.4 million at the balance sheet close rate on June 27, 2009 of $1.41/€1.00). The termination of the interest rate swap contracts settled on June 30, 2009.

On May 29, 2009, we entered into an interest rate swap contract, which will become effective on September 30, 2009 with a notional value of €57.3 million ($80.8 million at the balance sheet close rate on June 27, 2009 of $1.41/€1.00) to receive a six-month floating interest rate, the Euro Interbank Offered Rate (Euribor), and pay a fixed rate of 2.80%. The notional amount of the interest rate swap contract is scheduled to decline in correspondence to our scheduled principal payments on the underlying hedged debt as that debt is paid down. This derivative instrument qualifies for accounting as a cash flow hedge in accordance with SFAS 133, Accounting for Derivative Instruments and Hedging Activities, and we designated it as such. We determined that our interest rate swap contract was highly effective as a cash flow hedge at June 27, 2009.
 
16
 
 
Foreign Currency Exchange Risk

Cash Flow Exposure

We expect many of the components of our business to have material future cash flows, including revenues and expenses that are denominated in currencies other than the relevant component’s functional currencies. Our primary cash flow exposures are customer collections and vendor payments. Changes in the exchange rates between our components’ functional currencies and the other currencies in which they transact will cause fluctuations in the cash flows we expect to receive when these cash flows are realized or settled. Accordingly, we enter into foreign exchange forward contracts to hedge the value of a portion of these forecasted cash flows. As of June 27, 2009, these foreign exchange contracts hedge our forecasted future cash flows for up to 18 months. These foreign exchange contracts qualified for accounting as cash flow hedges in accordance with SFAS 133, and we designated them as such. We initially report the effective portion of the derivative’s gain or loss in accumulated other comprehensive income (loss) and subsequently reclassify amounts into earnings when the hedged transaction is settled. We determined that these derivative financial instruments were highly effective as cash flow hedges at June 27, 2009. In addition, during the six months ended June 27, 2009, we did not discontinue any cash flow hedges because it was probable that a forecasted transaction would not occur.

In 2008 and during the six months ended June 27, 2009, we purchased foreign exchange forward contracts to hedge the exchange risk on forecasted cash flows denominated in euro. As of June 27, 2009, the unrealized loss on these contracts was $42.7 million and the total notional value of the contracts was €556.5 million ($784.7 million at the balance sheet close rate on June 27, 2009 of $1.41/€1.00). The weighted average forward exchange rate for these contracts was $1.33/€1.00 at June 27, 2009.

Transaction Exposure

Many components of our business have assets and liabilities (primarily receivables, investments and accounts payable, including solar module collection and recycling liabilities and inter-company balances) that are denominated in currencies other than their functional currencies. Changes in the exchange rates between our components’ functional currencies and the currencies in which these assets and liabilities are denominated can create fluctuations in our reported consolidated financial position, results of operations and cash flows. We may enter into foreign exchange forward contracts or other financial instruments to hedge these assets and liabilities against the short-term effects of currency exchange rate fluctuations. The gains and losses on the foreign exchange forward contracts will offset all or part of the transaction gains and losses that we recognize in earnings on the related foreign currency assets and liabilities.

During the six months ended June 27, 2009, we purchased forward foreign exchange contracts to hedge balance sheet exposure related to transactions with third parties. We recognize gains or losses from the fluctuation in foreign exchange rates and the valuation of these hedging contracts in cost of sales and foreign currency gain (loss) on our consolidated statements of operations.

As of June 27, 2009, the total notional value of our foreign exchange forward contracts to purchase and sell euros with/for U.S. dollars was €124.6 million and €138.4 million, respectively ($175.7 million and $195.1 million, respectively, at the balance sheet close rate on June 27, 2009 of $1.41/€1.00); the total notional value of our foreign exchange forward contracts to sell U.S. dollars with/for euros was $9.8 million; the total notional value of our foreign exchange forward contracts to purchase and sell Malaysian ringgits with/for U.S. dollars was MYR 122.5 million and MYR 10.2 million, respectively ($34.3 million and $2.9 million, respectively, at the balance sheet close rate on June 27, 2009 of $0.28/MYR1.00); and the total notional value of our foreign exchange forward contracts to sell Canadian dollars with/for U.S. dollars was CAD 14.6 million ($12.7 million at the balance sheet close rate on June 27, 2009 of $0.87/CAD1.00). As of June 27, 2009, the total unrealized loss on these contracts was $0.4 million. These contracts have maturities of less than two months.

Credit Risk

We have certain financial and derivative instruments that subject us to credit risk. These consist primarily of cash, cash equivalents, investments, trade accounts receivable, interest rate swap contracts and foreign exchange forward contracts. We are exposed to credit losses in the event of nonperformance by the counterparties to our financial and derivative instruments. We place cash, cash equivalents, investments, interest rate swap contracts and foreign exchange forward contracts with various high-quality financial institutions and limit the amount of credit risk from any one counterparty. We continuously evaluate the credit standing of our counterparty financial institutions.

In addition, we had certain restricted investments that were exposed to credit risk. These consisted primarily of restricted investments, which were held by a financial services company to fund our estimated future product collection and recycling costs. In October 2008, we entered into two credit default swaps (CDS) with J.P. Morgan Chase NA, New York to protect this restricted investment from certain significant pre-defined credit events related to the parent of the financial services company. Under a CDS, a third party assumes, for a fee, a portion of the credit risk related to an investment. The CDSs we entered into provided protection for losses in the event of a pre-defined credit event of the parent of the financial services company up to $25.0 million. Our CDSs expired on March 20, 2009 and June 20, 2009. During the six months ended June 27, 2009, we recorded a loss of $1.5 million related to the fair value adjustments and fees for these CDSs.
 
17
 
 
Note 10. Fair Value Measurement

On December 30, 2007, the beginning of our 2008 fiscal year, we adopted SFAS 157. SFAS 157 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands financial statement disclosure requirements for fair value measurements. Our initial adoption of SFAS 157 was limited to our fair value measurements of financial assets and financial liabilities, as permitted by FSP 157-2, Effective Date of FASB Statement No. 157. On December 28, 2008, the beginning of our fiscal year 2009, we adopted SFAS 157 for the remainder of our fair value measurements. The implementation of the fair value measurement guidance of SFAS 157 did not result in any material changes to the carrying values of our assets and liabilities.

SFAS 157 defines fair value as the price that would be received from the sale of an asset or paid to transfer a liability (an exit price) on the measurement date in an orderly transaction between market participants in the principal or most advantageous market for the asset or liability. SFAS 157 specifies a hierarchy of valuation techniques, which is based on whether the inputs into the valuation technique are observable or unobservable. The hierarchy is as follows:

 
Level 1 — Valuation techniques in which all significant inputs are unadjusted quoted prices from active markets for assets or liabilities that are identical to the assets or liabilities being measured.

 
Level 2 — Valuation techniques in which significant inputs include quoted prices from active markets for assets or liabilities that are similar to the assets or liabilities being measured and/or quoted prices for assets or liabilities that are identical or similar to the assets or liabilities being measured from markets that are not active. Also, model-derived valuations in which all significant inputs and significant value drivers are observable in active markets are Level 2 valuation techniques.

 
Level 3 — Valuation techniques in which one or more significant inputs or significant value drivers are unobservable. Unobservable inputs are valuation technique inputs that reflect our own assumptions about the assumptions that market participants would use in pricing an asset or liability.

When available, we use quoted market prices to determine the fair value of an asset or liability. If quoted market prices are not available, we measure fair value using valuation techniques that use, when possible, current market-based or independently-sourced market parameters, such as interest rates and currency rates. Following is a description of the valuation techniques that we use to measure the fair value of assets and liabilities that we measure and report at fair value on a recurring or one-time basis:

 
Cash Equivalents.  At June 27, 2009, our cash equivalents consisted of money market mutual funds. We value some of our cash equivalents using observable inputs that reflect quoted prices for securities with identical characteristics, and accordingly, we classify the valuation techniques that use these inputs as Level 1.

 
Marketable securities.  At June 27, 2009, our marketable securities consisted of federal and foreign agency debt, supranational debt and corporate debt securities. We value our marketable securities using quoted prices for securities with similar characteristics and other observable inputs (such as interest rates that are observable at commonly quoted intervals), and accordingly, we classify the valuation techniques that use these inputs as Level 2. We also consider the effect of our counterparties’ credit standings in these fair value measurements.

 
Derivative assets and liabilities.  At June 27, 2009, our derivative assets and liabilities consisted of foreign exchange forward contracts involving major currencies and interest rate swap contracts involving benchmark interest rates. Since our derivative assets and liabilities are not traded on an exchange, we value them using valuation models. Interest rate yield curves, foreign exchange rates and credit default swap spreads are the significant inputs into these valuation models. These inputs are observable in active markets over the terms of the instruments we hold, and accordingly, we classify these valuation techniques as Level 2. We consider the effect of our own credit standing and that of our counterparties in our valuations of our derivative assets and liabilities.

 
Product collection and recycling liability.  We account for our obligation to collect and recycle the solar modules that we sell in a similar manner to the accounting for asset retirement obligations that is prescribed by SFAS 143, Accounting for Asset Retirement Obligations. When we sell solar modules, we initially record our liability for collecting and recycling those particular solar modules at the fair value of this liability, and then in subsequent periods, we accrete this fair value to the estimated future cost of collecting and recycling the solar modules. Therefore, this is a one-time nonrecurring fair value measurement of the collection and recycling liability associated with each particular solar module sold.

 
Since there is not an established market for collecting and recycling our solar modules, we value our liability using a valuation model (an income approach). This fair value measurement requires us to use significant unobservable inputs, which are primarily estimates of collection and recycling process costs and estimates of future changes in costs due to inflation and future currency exchange rates. Accordingly, we classify these valuation techniques as Level 3. We estimate collection and recycling process costs based on analyses of the collection and recycling technologies that we are currently developing; we estimate future inflation costs based on analysis of historical trends; and we estimate future currency exchange rates based on current rate information. We consider the effect of our own credit standing in our measurement of the fair value of this liability.

 
18
 
 
At June 27, 2009, information about inputs into the fair value measurements of our assets and liabilities that we make on a recurring basis was as follows (in thousands):

         
Fair Value Measurements at Reporting
Date Using
 
 
 
 
 
 
 
 
Total Fair
Value and
Carrying
Value on Our
Balance Sheet
   
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
   
Significant
Other
Observable
Inputs
(Level 2)
   
 
Significant
Unobservable
Inputs
(Level 3)
 
Assets:
                       
Cash equivalents:
                       
Money market mutual funds
  $ 125,690     $ 125,690     $     $  
Marketable securities:
                               
Federal agency debt
    132,706             132,706        
Foreign agency debt
    63,885             63,885        
Supranational debt
    62,227             62,227        
Corporate debt securities
    40,135             40,135        
Derivative assets
    1,705             1,705        
Total assets
  $ 426,348     $ 125,690     $ 300,658     $  
Liabilities:
                               
Derivative liabilities
  $ 45,096     $     $ 45,096     $  

Fair Value of Financial Instruments

The carrying amounts and fair values of our financial instruments at June 27, 2009 and December 27, 2008 were as follows (in thousands):

   
June 27, 2009
   
December 27, 2008
 
 
 
 
Carrying
Value
   
Fair
Value
   
Carrying
Value
   
Fair
Value
 
Assets:
                       
Marketable securities, current and noncurrent
  $ 298,953     $ 298,953     $ 105,601     $ 105,601  
Note receivable — current
  $ 12,662     $ 12,662     $     $  
Credit default swaps
  $     $     $ 896     $ 896  
Foreign exchange forward contract assets
  $ 1,705     $ 1,705     $ 34,035     $ 34,035  
Deposit with financial services company (restricted investment)
  $     $     $ 25,841     $ 13,039  
Restricted  investments
  $ 33,691     $ 33,691     $     $  
Investment in related party
  $ 25,000     $ 25,000     $ 25,000     $ 25,000  
Note receivable — noncurrent
  $ 24,649     $ 24,632     $     $  
Liabilities:
                               
Long-term debt, including current maturities
  $ 233,574     $ 238,501     $ 198,470     $ 204,202  
Interest rate swaps
  $ 284     $ 284     $ 1,377     $ 1,377  
Foreign exchange forward contract liabilities
  $ 44,812     $ 44,812     $ 50,410     $ 50,410  

The carrying values on our balance sheet of our cash and cash equivalents, accounts receivable, restricted cash, accounts payable, income tax payable and accrued expenses approximate their fair values due to their short maturities; thus, we exclude them from the table above.

We estimated the fair value of our long-term debt in accordance with SFAS 157 using a discounted cash flows approach (“income approach”) and incorporated the credit risk of our counterparty for the asset measurement and our credit risk for the liability measurement.
 
19
 
 
Note 11.  Related Party Transactions

In October 2008, we made an investment, at a total cost of $25.0 million, in the preferred stock of a company based in the United States that supplies solar power plants to commercial and residential customers. This investment represents an ownership of approximately 12% of the voting interest in this company and is our only equity interest in that entity. Since our ownership interest in this company is less than 20% and we do not have significant influence over it, we account for this investment using the cost method.

In the fourth fiscal quarter of 2008, we also entered into a long-term solar module supply agreement with this related party. During the three and six months ended June 27, 2009, we recognized $2.0 million and $4.2 million, respectively, in net sales to this related party. At June 27, 2009 we had accounts receivable from this related party of $0.8 million.

Note 12.  Notes Receivable

On April 8, 2009 we entered into a credit facility agreement with a solar project entity of one of our customers for an amount of €17.5 million ($24.7 million at the balance sheet close rate on June 27, 2009 of $1.41/€1.00) to provide financing of a photovoltaic power generation facility. The credit facility replaced a bridge loan that we had made to this customer. The balance of the bridge loan was €10.3 million as of March 28, 2009 ($14.5 million at the balance sheet close rate on June 27, 2009 of $1.41/€1.00) and matured on April 15, 2009. The credit facility bears interest at 8% per annum and is due on December 31, 2026. As of June 27, 2009, this credit facility was fully drawn. The outstanding amount of this credit facility is included within Other assets – noncurrent on our condensed consolidated balance sheets.

On April 21, 2009, we entered into a revolving VAT financing facility agreement for an amount of €9.0 million ($12.7 million at the balance sheet close rate on June 27, 2009 of $1.41/€1.00) with the same solar project entity with whom we entered into the credit facility agreement on April 8, 2009. The VAT facility agreement pre-finances the amounts of German value added tax (VAT) and any other tax obligations of similar nature during the construction phase of the photovoltaic power generation facility, and this additional credit facility was referenced within the April 8, 2009 credit facility arrangement. Borrowings under this facility are short- term in nature, since the facility is repaid when VAT amounts are reimbursed by the government. The VAT facility agreement bears interest at the rate of Euribor plus 1.2% and matures on December 31, 2010. As of June 27, 2009, this credit facility was fully drawn down. The outstanding amount of this credit facility is included within Prepaid expenses and other current assets on our condensed consolidated balance sheets.

Subsequent to June 27, 2009, the loan amount under the VAT facility agreement was increased to €15.0 million ($21.2 million at the balance sheet close rate on June 27, 2009 of $1.41/€1.00). This increase is only temporary and the amounts available under the facility will revert back to their original amounts on August 31, 2009.

Note 13. Debt

Our long-term debt at June 27, 2009 and December 27, 2008 consisted of the following (in thousands):

Type
 
June 27,
2009
   
December 27,
2008
 
Facility Agreement Malaysia – Fixed rate term loan
  $ 88,918     $ 66,975  
Facility Agreement Malaysia – Floating rate term loan (1)
    88,918       66,975  
Director of Development of the State of Ohio
    10,709       11,694  
Director of Development of the State of Ohio
    833       1,528  
Facility Agreement Germany
    48,586       54,982  
Capital lease obligations
    3       5  
      237,967       202,159  
Less unamortized discount
    (4,393 )     (3,689 )
Total long-term debt
    233,574       198,470  
Less current portion
    (76,639 )     (34,951 )
Noncurrent portion
  $ 156,935     $ 163,519  

(1)  
We entered into an interest rate swap contract related to this loan. See Note 9 to our condensed consolidated financial statements.

We did not have any short-term debt at June 27, 2009 and December 27, 2008.

 
20
 
 
Malaysian Facility Agreement

On May 6, 2008, in connection with the plant expansion at our Malaysian manufacturing center, First Solar Malaysia Sdn. Bhd. (FS Malaysia), our indirect wholly owned subsidiary entered into an export financing facility agreement (Malaysian Facility Agreement) with IKB Deutsche Industriebank AG (IKB) as arranger, NATIXIS Zweigniederlassung Deutschland (NZD) as facility agent and original lender, AKA Ausfuhrkredit-Gesellschaft mbH (AKA), as original lender and NATIXIS Labuan Branch (NLB) as security agent. Pursuant to the terms of the Malaysian Facility Agreement, the lenders will furnish up to €134.0 million ($188.9 million at the balance sheet close rate on June 27, 2009 of $1.41/€1.00) of credit facilities consisting of the following (in thousands):

Malaysian Borrowings
Denomination
 
Interest
   
Maturity
   
Outstanding at
June 27,
2009
 
Fixed-rate euro-denominated term loan
EUR
    4.54 %     2016     $ 88,918  
Floating-rate euro-denominated term loan
EUR
 
Euribor plus 0.55%
      2016     $ 88,918  
Total
                    $ 177,836  

These credit facilities are intended to be used by FS Malaysia for the purpose of (1) partially financing the purchase of certain equipment to be used at our Malaysian manufacturing center and (2) financing fees to be paid to Euler-Hermes Kreditversicherungs-AG (Euler-Hermes), the German Export Credit Agency of Hamburg, Federal Republic of Germany, which will guaranty 95% of FS Malaysia’s obligations related to the Malaysian Facility Agreement (Hermes Guaranty). In addition, FS Malaysia’s obligations related to the Malaysian Facility Agreement are guaranteed, on an unsecured basis, by First Solar, Inc., pursuant to a guaranty agreement described below.

FS Malaysia is obligated to pay commitment fees at an annual rate of 0.375% on the unused portions of the fixed rate credit facilities and at an annual rate of 0.350% on the unused portions of the floating rate credit facilities. In addition, FS Malaysia is obligated to pay certain underwriting, management and agency fees in connection with the credit facilities.

In connection with the Facility Agreement, First Solar, Inc. entered into a first demand guaranty agreement dated May 6, 2008 in favor of IKB, NZD, NLB and the other lenders under the Malaysian Facility Agreement. As noted above, FS Malaysia’s obligations related to the Malaysian Facility Agreement are guaranteed, on an unsecured basis, by First Solar pursuant to this guaranty agreement.

In connection with the Malaysian Facility Agreement, all of FS Malaysia’s obligations related to the Malaysian Facility Agreement are secured by a first party, first legal charge over the equipment financed by the credit facilities and the other documents, contracts and agreements related to that equipment. Also in connection with the Malaysian Facility Agreement, any payment claims of First Solar, Inc. against FS Malaysia are subordinated to the claims of IKB, NZD, NLB and the other lenders under the Malaysian Facility Agreement.

The Malaysian Facility Agreement contains various financial covenants which we must comply with, such as debt to equity ratios, total leverage ratios, interest coverage ratios and debt service coverage ratios. We must submit these ratios related to the financial covenants for the first time at the end of fiscal 2009. The Malaysian Facility Agreement also contains various customary non-financial covenants which FS Malaysia must comply with, including, submitting various financial reports and business forecasts to the lenders, maintaining adequate insurance, complying with applicable laws and regulations, restrictions on FS Malaysia’s ability to sell or encumber assets and make loan guarantees to third parties. We were in compliance with these covenants through June 27, 2009.

Certain of our debt-financing agreements bear interest at rates based on the Euro Interbank Offered Rate (Euribor). Euribor is the primary interbank lending rate within the Euro zone, with maturities ranging from one week to one year. A disruption of the credit environment as currently being experienced could negatively impact interbank lending and therefore negatively impact the Euribor rate. An increase in the Euribor rate would increase our cost of borrowing.
 
21
 
 
State of Ohio Loans

During the years ended December 25, 2004 and December 31, 2005, we received the following loans from the Director of Development of the State of Ohio (in thousands):

Ohio Borrowings
 
Original Loan Amount
 
Denomination
 
Interest
   
Maturity
   
Outstanding at
June 27,
2009
 
Director of Development of the State of Ohio
  $ 15,000  
USD
    2.25 %     2015     $ 10,709  
Director of Development of the State of Ohio
  $ 5,000  
USD
    0.25% — 3.25 %     2009     $ 833  
Total
  $ 20,000                       $ 11,542  

Certain of our land, buildings and machinery and equipment has been pledged as collateral for these loans.

German Facility Agreement

On July 27, 2006, First Solar Manufacturing GmbH, a wholly owned indirect subsidiary of First Solar, Inc., entered into a credit facility agreement with a consortium of banks led by IKB Deutsche Industriebank AG under which we could draw up to €102.0 million ($143.8 million at the balance sheet close rate on June 27, 2009 of $1.41/€1.00) to fund costs of constructing and starting up our German plant. This credit facility consisted of the following borrowings (in thousands):

German Borrowings
 
Original Loan Amount
 
Denomination
Interest
 
Maturity
   
Outstanding at
June 27,
2009
 
Term Loan
  53,000  
EUR
Euribor plus 1.6%
    2012     $ 48,586  
Revolver
  27,000  
EUR
Euribor plus 1.8%
    2012     $  
Bridge Loan
  22,000  
EUR
Euribor plus 2.0%
    2008     $  
Total
  102,000                 $ 48,586  

We repaid the entire outstanding principal amount of the term loan and all accrued interest subsequent to quarter end on June 30, 2009, and we concurrently terminated this facility. Based on the loan agreement with IKB Deutsche Industriebank AG, the amount to be repaid was transferred into a restricted account, which we classified with our restricted investments on our balance sheet as of June 27, 2009.

Note 14. Commitments and Contingencies

Financial guarantees

In the normal course of business, we occasionally enter into agreements with third parties under which we guarantee the performance of our subsidiaries related to certain service contracts, which may include services such as development, engineering, procurement of permits and equipment, construction management and monitoring and maintenance. These agreements meet the definition of a guarantee according to FASB Interpretation No. (FIN) 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Other. As of June 27, 2009, none of these guarantees were material to our financial position.

Loan guarantees

In connection with the Malaysian Facility Agreement, First Solar, Inc. entered into a first demand guaranty agreement dated May 6, 2008 in favor of IKB, NZD, NLB and the other lenders under the Malaysian Facility Agreement. First Solar Malaysia’s obligations related to the Malaysian Facility Agreement are guaranteed, on an unsecured basis, by First Solar, pursuant to this guaranty agreement. See Note 13 to our condensed consolidated financial statements for additional information.
 
22
 
 
Commercial commitments

During the three months ended June 27, 2009, we entered into three commercial commitments in the form of letters of credit and bank guarantees related to our solar power systems and project development business in the amount of $4.2 million. We also had the following three outstanding commercial commitments as of June 27, 2009: MYR 4.0 million dated June 2008 for an energy supply agreement ($1.1 million at the balance sheet close rate on June 27, 2009 of $0.28/MYR1.00); MYR 3.0 million dated September 2008 for Malaysian custom and excise tax ($0.8 million at the balance sheet close rate on June 27, 2009 of $0.28/MYR1.00); and MYR 2.2 million dated December 2007 for an energy supply agreement ($0.6 million at the balance sheet close rate on June 27, 2009 of $0.28/MYR1.00).

Product warranties

We offer warranties on our products and record an estimate of the associated liability based on the following: number of solar modules under warranty at customer locations, historical experience with warranty claims, monitoring of field installation sites, in-house testing of our solar modules and estimated per-module replacement cost.

Product warranty activity during the three and six months ended June 27, 2009 and June 28, 2008 was as follows (in thousands):

 
Three Months Ended
 
Six Months Ended
 
 
June 27,
2009
 
June 28,
2008
 
June 27,
2009
 
June 28,
2008
Product warranty liability, beginning of period
$    13,557
 
$   9,261
 
$    11,905
 
$   7,276
Accruals for new warranties issued (warranty expense)
3,898
 
1,851
 
6,989
 
3,843
Settlements
(146)
 
 
(354)
 
(8)
Change in estimate of warranty liability
104
 
(247)
 
(1,127)
 
(246)
Product warranty liability, end of period
$   17,413
 
$ 10,865
 
$   17,413
 
$ 10,865
Current portion of warranty liability
       
$     6,517
 
$   4,402
Non-current portion of warranty liability
       
 $   10,896
 
$   6,463

Note 15. Share-Based Compensation

We measure share-based compensation cost at the grant date based on the fair value of the award and recognize this cost as an expense over the grant recipients’ requisite service periods, in accordance with SFAS 123(R), Share-Based Payment. The share-based compensation expense that we recognized in our consolidated statements of operations for the three and six months ended June 27, 2009 and June 28, 2008 was as follows (in thousands):

   
Three Months Ended
   
Six Months Ended
 
 
 
 
June 27,
2009
   
June 28,
2008
   
June 27,
2009
   
June 28,
2008
 
Share-based compensation expense included in:
                       
Cost of sales
  $ 3,483     $ 3,162     $ 6,502     $ 5,370  
Research and development
    2,100       1,501       3,919       2,466  
Selling, general and administrative
    11,854       10,279       21,728       17,679  
Production start-up
    320       515       792       801  
Total share-based compensation expense
  $ 17,757     $ 15,457     $ 32,941     $ 26,316  

The increase in share-based compensation expense was primarily the result of new awards.
 
The following table presents our share-based compensation expense by type of award for the three and six months ended June 27, 2009 and June 28, 2008 (in thousands):

   
Three Months Ended
   
Six Months Ended
 
 
 
 
June 27,
2009
   
June 28,
2008
   
June 27,
2009
   
June 28,
2008
 
Stock options
  $ 1,754     $ 4,675     $ 3,808     $ 9,735  
Restricted stock units
    16,998       10,917       30,241       16,445  
Unrestricted stock
    112       82       225       163  
Net amount absorbed into inventory
    (1,107 )     (217 )     (1,333 )     (27 )
Total share-based compensation expense
  $ 17,757     $ 15,457     $ 32,941     $ 26,316  

 
23
 
 
Share-based compensation cost capitalized in our inventory was $1.7 million and $0.3 million at June 27, 2009 and December 27, 2008, respectively. As of June 27, 2009, we had $10.5 million of unrecognized share-based compensation cost related to unvested stock option awards, which we expect to recognize as an expense over a weighted-average period of approximately 1.1 years, and $154.6 million of unrecognized share-based compensation cost related to unvested restricted stock units, which we expect to recognize as an expense over a weighted-average period of approximately 2.2 years.

Note 16. Income Taxes

Our Malaysian subsidiary has been granted a tax holiday for a period of 16.5 years, which was originally scheduled to commence on January 1, 2009. The tax holiday which generally provides for a 100% exemption from Malaysian income tax is conditional upon our continued compliance in meeting certain employment and investment thresholds. On January 9, 2009, we received formal approval granting our request to pull forward this previously approved tax holiday by one year; the result of which was an $11.5 million reduction in the amount of income taxes previously accrued for the year ended December 27, 2008.  As a result, we recognized an income tax benefit of $11.5 million during the three months ended March 28, 2009.

We recorded tax provisions of $20.7 million and $25.9 million for the three and six months ended June 27, 2009, respectively. Our effective tax rates were 10.3% and 7.0% for the three and six months ended June 27, 2009, respectively. Without the $11.5 million tax benefit discussed above our effective tax rate would have been 10.1% for the six months ended June 27, 2009. Without the beneficial impact of the Malaysian tax holiday on 2009 operations our effective tax rate would have been 26% for the six months ended June 27, 2009. The provision for income taxes differs from the amount computed by applying the statutory U.S. federal rate primarily due to the benefit associated with foreign income taxed at lower rates and the beneficial impact of the Malaysian tax holiday.

Note 17. Net Income per Share

Basic net income per share is computed by dividing net income by the weighted-average number of common shares outstanding for the period. Diluted net income per share is computed giving effect to all potential dilutive common stock, including employee stock options and restricted stock units.

The calculation of basic and diluted net income per share for the three and six months ended June 27, 2009 and June 28, 2008 was as follows (in thousands, except per share amounts):

   
Three Months Ended
   
Six Months Ended
 
 
 
 
June 27,
2009
   
June 28,
2008
   
June 27,
2009
   
June 28,
2008
 
Basic net income per share
                       
Numerator:
                       
  Net income
  $ 180,579     $ 69,671     $ 345,174     $ 116,290  
  Denominator:
                               
  Weighted-average common stock outstanding
    83,723       79,877       82,704       79,468  
Diluted net income per share
                               
Denominator:
                               
  Weighted-average common stock outstanding
    83,723       79,877       82,704       79,468  
  Effect of stock options , restricted stock units outstanding and contingent issuable shares
    1,945       2,127       1,436       2,338  
  Weighted-average shares used in computing diluted net income per share
    85,668       82,004       84,140       81,806  

The following number of outstanding employee stock options and restricted stock units were excluded from the computation of diluted net income per share for the three and six months ended June 27, 2009 and June 28, 2008 as they would have had an antidilutive effect (in thousands):

   
Three Months Ended
   
Six Months Ended
 
 
 
 
June 27,
2009
   
June 28,
2008
   
June 27,
2009
   
June 28,
2008
 
Restricted stock units and options to purchase common stock
    158       101       210       116  

 
24
 
 
Note 18. Accumulated Other Comprehensive Income (Loss)

Comprehensive income, which includes foreign currency translation adjustments, unrealized gains and losses on derivative instruments designated and qualifying as cash flow hedges and unrealized gains and losses on available-for-sale securities, the impact of which has been excluded from net income and reflected as components of stockholders’ equity, was as follows (in thousands):

   
Three Months Ended
   
Six Months Ended
 
 
 
 
June 27,
2009
   
June 28,
2008
   
June 27,
2009
   
June 28,
2008
 
Net income
  $ 180,579     $ 69,671     $ 345,174     $ 116,290  
Foreign currency translation adjustments
    18,899       1       5,013       9,443  
Change in unrealized gain (loss) on marketable securities, net of tax of $(16) and $(75) for the three and six months ended June 27, 2009, respectively
    268       (303 )     371       (15 )
Change in unrealized gain (loss) on derivative instruments, net of tax of $(615) and $(65) for the three and six months ended June 27, 2009, respectively
    (49,732 )     3,441       (26,082 )     (19,857 )
Comprehensive income
  $ 150,014     $ 72,810     $ 324,476     $ 105,861  

Components of accumulated other comprehensive loss were as follows (in thousands):

 
 
 
June 27,
2009
   
December 27,
2008
 
Foreign currency translation adjustments
  $ (2,812 )   $ (7,825 )
Unrealized gain on marketable securities, net of tax expense of $219 for 2009 and $144 for 2008
    633       262  
Unrealized gain (loss) on derivative instruments, net of tax benefit of $0 for 2009 and $65 for 2008
    (42,940 )     (16,858 )
Accumulated other comprehensive loss
  $ (45,119 )   $ (24,421 )

Note 19. Statement of Cash Flows

The following table presents a reconciliation of net income to net cash provided by operating activities for the six months ended June 27, 2009 and June 28, 2008 (in thousands):

   
Six Months Ended
 
 
 
 
June 27,
2009
   
June 28,
2008
 
Net income
  $ 345,174     $ 116,290  
Adjustments to reconcile net income to cash provided by (used in) operating activities:
               
Depreciation and amortization
    56,113       21,869  
Impairment of intangible assets
          1,334  
Share-based compensation
    32,941       26,316  
Remeasurement of debt
    280        
Deferred income taxes
    (12,098 )     (6,113 )
Excess tax benefits from share-based compensation arrangements
    (15,351 )     (13,953 )
Loss on disposal of property and equipment