Trina Solar Announces Third Quarter 2016 Results

Trina Solar Limited today announced its unaudited financial results for the quarter ended September 30, 2016.
Third Quarter 2016 Financial and Operating Highlights
- Total module shipments were 1,361.2MW, compared with 1,658.3MW in the second quarter of 2016, and 1,703.2MW in the third quarter of 2015.
- Net revenues were $741.1 million, compared with $961.6 million in the second quarter of 2016 and $792.6 million in the third quarter of 2015.
- Gross profit was $125.6 million, compared with $176.3 million in the second quarter of 2016 and $138.2 million in the third quarter of 2015.
- Gross margin was 16.9%, compared with 18.3% in the second quarter of 2016 and 17.4% in the third quarter of 2015.
- Operating income was $54.9 million, compared with $83.7 million in the second quarter of 2016 and $5.8 million in the third quarter of 2015.
- Net income attributable to Trina Solar's ordinary shareholders was $27.1 million, compared with $40.3 million in the second quarter of 2016 and a net loss attributable to ordinary shareholders of $20.0 million in the third quarter of 2015.
- Earnings per fully diluted American Depositary Share ("ADS"; each ADS representing 50 ordinary shares) were $0.29, compared with $0.42 in the second quarter of 2016 and a loss per fully diluted ADS of $0.24 in the third quarter of 2015.
Mr. Jifan Gao, Chairman and CEO of Trina Solar, commented, "Largely as expected, we had a slowdown in the third quarter as a result of an oversupply and increasing inventory levels of modules in the market, as well as weak demand in China following a strong first half of the year as developers rushed to place orders prior to a subsidy policy adjustment. As a result, our total shipments of 1.36GW came in lower than the bottom end of our guidance. Despite the headwinds, we were pleased that we were able to maintain our leading position in the U.S. and achieve record shipments to Europe. Moreover, shipments to India grew substantially and accounted for nearly 30% of our total shipments.
"On the downstream business side, we connected 26.0MW of projects in China, of which 24.6MW were DG projects. We will continue to execute our strategic initiatives to develop our downstream business in a prudent manner.
"We remain committed to pushing the technological boundary and commercializing high-efficiency cells. Recently, our R&D team set a world record of 19.86% aperture efficiency for our high-efficiency 'Honey Plus' multicrystalline silicon modules. This achievement brought the total number of world records that we have set to 14."
Third Quarter 2016 Results
Net Revenues
Net revenues were $741.1 million, which includes $60.6 million in revenues from electricity generated by the Company's operational downstream solar power projects recorded as property, plant and equipment (PP&E) on its balance sheet, EPC services and other downstream business activities. Total net revenues declined 22.9% sequentially and 6.5% year-over-year. Total shipments were 1,361.2MW, consisting of 1,340.6MW of external shipments which were recognized in revenue and 20.6MW of shipments to the Company's downstream power projects. This compares with total shipments of 1,658.3MW in the second quarter of 2016, consisting of 1,619.0MW of external shipments and 39.3MW of shipments to the Company's own downstream power projects, and total shipments of 1,703.2MW in the third quarter of 2015, consisting of 1,353.2MW of external shipments and 350.0MW of shipments to the Company's own downstream projects. The sequential decreases in revenues and shipments were primarily attributable to an overall decline in average selling prices (ASP) and a decrease of shipments in China following a rush of orders prior to June 30 in anticipation of a subsidy policy adjustment.
Gross Profit and Margin
Gross profit was $125.6 million, compared with $176.3 million in the second quarter of 2016 and $138.2 million in the third quarter of 2015.
Gross margin was 16.9%, compared with 18.3% in the second quarter of 2016 and 17.4% in the third quarter of 2015. The sequential and year-over-year decreases in gross margin were mainly because ASP declined at a faster rate than the Company's reduction of costs.
Operating Expenses, Income and Margin
Operating expenses were $70.6 million, compared with $92.6 million in the second quarter of 2016 and $132.3 million in the third quarter of 2015. Operating expenses included a reversal of accounts receivable provision of $2.8 million in the third quarter of 2016, compared with an accounts receivable provision of $2.4 million in the second quarter of 2016, and $1.5 million in the third quarter of 2015.
The Company's operating expenses accounted for 9.5% of net revenues during the third quarter of 2016, a decrease from 9.6% in the second quarter of 2016 and from 16.7% in the third quarter of 2015. The year-over-year decrease was primarily attributable to other operating income, which offsets operating expenses. Other operating income, mainly representing income from electricity generated from the Company's downstream solar power projects that are recorded as current assets on the balance sheet prior to the sale of the projects, was $17.2 million in the third quarter of 2016, $7.1 million in the second quarter of 2016 and nil in the third quarter of 2015. In addition, the Company booked a provision of $45.0 million for the settlement of a lawsuit with Solyndra in the third quarter of 2015. Excluding other operating income and the Solyndra settlement provision, the Company's operating expenses accounted for 11.9% of net revenues during the third quarter of 2016, an increase from 10.4% in the second quarter of 2016 and 11.0% in the third quarter of 2015.This sequential and year-over-year increase was mainly due to the decline of revenues in the third quarter of 2016, from the second quarter of 2016 and the third quarter of 2015.
As a result, operating income was $54.9 million, compared with $83.7 million in the second quarter of 2016 and $5.8 million in the third quarter of 2015. Operating margin was 7.4%, compared with 8.7% in the second quarter of 2016 and 0.7% in the third quarter of 2015.
Net Interest Expense
Net interest expense was $28.6 million, compared with $25.5 million in the second quarter of 2016 and $13.1 million in the third quarter of 2015. The sequential increase in net interest expense was mainly due to less interest expense being capitalized in the third quarter of 2016 and the year-over-year increase in net interest expenses was mainly due to the increase in bank borrowings.
Foreign Currency Exchange Gain (Loss)
The Company recorded a net foreign currency exchange gain of $2.3 million, which included a gain on the change in fair value of foreign exchange derivative instruments of $2.4 million. This compares with a net loss of $2.9 million in the second quarter of 2016 and a net loss of $13.1 million in the third quarter of 2015. The foreign currency exchange gain in the third quarter of 2016 was primarily because the appreciation of the Euro and the Japanese Yen against the USD offset the depreciation of the RMB and the British pound against the USD.
Income Tax Expense
Income tax expense was $5.9 million, compared with $16.5 million in the second quarter of 2016 and an income tax benefit of $3.1 million in the third quarter of 2015. The sequential decrease in income tax expense was mainly due to the decrease in taxable profits in the third quarter of 2016, compared with the second quarter of 2016. 
Net Income and Earnings per ADS
Net income attributable to ordinary shareholders of Trina Solar was $27.1 million, compared with $40.3 million in the second quarter of 2016, and a net loss attributable to ordinary shareholders of $20.0 million in the third quarter of 2015. Net margin was 3.7%, compared with 4.2% in the second quarter of 2016 and negative 2.5% in the third quarter of 2015.
Earnings per fully diluted ADS were $0.29, compared with $0.42 in the second quarter of 2016 and a loss per fully diluted ADS of $0.24 in the third quarter of 2015.
Financial Condition
As of September 30, 2016, the Company had $625.2 million in cash and cash equivalents, and restricted cash. Total borrowings were $1,757.4 million, of which $1,108.3 million were short-term borrowings.
In the first quarter of 2016, the Company adopted Financial Accounting Standards Board Accounting Standards Update 2015-03, Interest - Imputation of Interest, which requires that debt issuance costs be presented on the balance sheet as a direct deduction from the carrying amount of the related debt liability, instead of being reported on the balance sheet as an asset. Accordingly, debt issuance costs with an amortized balance of $9.6 million, which used to be reported as an asset, have been retrospectively reclassified as a direct deduction from the carrying amount of the related debt liability as of September 30, 2015.
Shareholders' equity was $1,140.7 million as of September 30, 2016, an increase from $1,113.8 million as of June 30, 2016 and $1,011.9 million as of September 30, 2015.
Operations and Business Updates
Manufacturing Capacity
As of September 30, 2016, the Company had the following annualized in-­house manufacturing capacities:
- Ingot production capacity of approximately 2.3GW;
- Wafer capacity of approximately 1.8GW;
- PV cell capacity of approximately 5.0GW; and
- PV module capacity of approximately 6.0GW.
Project Development
In the third quarter of 2016, the Company connected a total of 26.0MW of PV projects to the grid in China, including 1.4MW of utility projects and 24.6MW of DG projects.
As of September 30, 2016, the Company had a total of 1,302.8MW downstream solar projects in grid-connected operation, including 1,267.6MW in China, 4.2MW in the U.S., and 31.0MW in Europe. The 1,267.6MW of projects in China consisted of 1,017.1MW of utility projects and 250. 5MW of DG projects.
Going Private Transaction and the Extraordinary General Meeting of Shareholders
On August 1, 2016, the Company entered into a definitive agreement and plan of merger, pursuant to which the Company will be acquired by an investor consortium in an all-cash transaction implying an equity value of the Company of approximately $1.1 billion (the "Merger"). The Company has called an extraordinary general meeting of shareholders, to be held at 10:00 a.m. Beijing Time on December 16, 2016, to consider and vote on the Merger.