Table of Contents

 

 

 

**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, D.C. 20549**

 

**FORM 10-Q**

 
| **x**                                                                                                                                                                                                                                 | ** ** | **QUARTERLY REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**  |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------------------------------------|
| ** **                                                                                                                                                                                                                            |
| **For the  quarterly period ended September 26, 2009**                                                                                                                                                                           |
| ** **                                                                                                                                                                                                                            |
| **or**                                                                                                                                                                                                                                |
| ** **                                                                                                                                                                                                                            |
| **o**                                                                                                                                                                                                                                 | ** ** | **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: 001-34133**

 

**GT Solar International, Inc.**

(Exact name of registrant asspecified in its charter)

 

| **Delaware**                              | ** ** | **03-0606749**                        |
|-------------------------------------------|------------|---------------------------------------|
| (State of incorporation)                  |       | (I.R.S. Employer  Identification No.) |
|                                      |       |                                  |
| **243  Daniel Webster Highway**           | ** ** | ** **                            |
| **Merrimack,  New Hampshire**             | ** ** | **03054**                             |
| (Address of principal  executive offices) |       | (Zip Code)                            |

 

Registrant’s telephonenumber, including area code: **(603) 883-5200**

 

Indicate by check markwhether the registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months, and (2) has been subject to such filing requirements forthe past 90 days. Yes x  No o

 

Indicated by check markwhether the registrant has submitted electronically and posted on its corporateWeb site, if any, every Interactive Data File required to be submitted andposted pursuant to Rule 405 of Regulations S-T during the preceding12 months (or for such shorter period that the registrant was required tosubmit and post such files). Yes o  No o

 

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer or a small reporting company. See definition of “largeaccelerated filer,” “accelerated filer” and “small reporting company” in Rule 12b-2of the Exchange Act. (Check one):

 
| Large accelerated  filer o                |   | Accelerated filer o          |
|------------------------------------------------|--------|-----------------------------------|
|                                           |   |                              |
| Non-accelerated  filer x                  |   | Smaller reporting  company o |
| (Do not check if a smaller  reporting company) |   |                              |

 

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act). Yes o  No x

 

The number of shares of theregistrant’s common stock outstanding asof October 30, 2009, is approximately 143,505,931.

 

 

 

----

Tableof Contents

 

**GT SOLAR INTERNAITONAL, INC. AND SUBSIDIARIES**

**QUARTERLY REPORT ON FORM 10-Q**

**FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 26, 2009**

 

**Table of Contents**

 
| ** **                              | ** **                                                                                                                                           | **Page** |
|-----------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------|----------|
| **PART I.  FINANCIAL INFORMATION** |                                                                                                                                                 |     |
| Item 1.                            | Financial  Statements:                                                                                                                               |     |   |
|                                    | Condensed Consolidated Balance Sheets (unaudited) as  of September 26, 2009 and March 28, 2009                                        |     | 3 |
|                                    | Condensed Consolidated Statements of Operations  (unaudited) for the three and six months ended September 26, 2009 and  September 27, 2008 |     | 4 |
|                                    | Condensed Consolidated Statements of Cash Flows  (unaudited) for the six months ended September 26, 2009 and  September 27, 2008           |     | 5 |
|                                    | Notes to Condensed Consolidated Financial Statements  (unaudited)                                                                                    |     | 6 |
| Item 2.                            | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                                                          |     | 16 |
| Item 3.                            | Quantitative  and Qualitative Disclosures about Market Risk                                                                                          |     | 31 |
| Item 4T.                           | Controls  and Procedures                                                                                                                             |     | 32 |
| **PART II.  OTHER INFORMATION**    |                                                                                                                                                 |     |
| Item 1.                            | Legal  Proceedings                                                                                                                                   |     | 32 |
| Item 1A.                           | Risk Factors                                                                                                                                         |     | 33 |
| Item 2.                            | Unregistered  Sales of Equity Securities and Use of Proceeds                                                                                         |     | 34 |
| Item 3.                            | Defaults  Upon Senior Securities                                                                                                                     |     | 35 |
| Item 4.                            | Submission  of Matters to a Vote of Security Holders                                                                                                 |     | 35 |
| Item 5.                            | Other  Information                                                                                                                                   |     | 36 |
| Item 6.                            | Exhibits                                                                                                                                             |     | 37 |
| Signatures                              |                                                                                                                                                 |     | 38 |

 

2

----

Tableof Contents

 

**PART I—FINANCIAL INFORMATION**

 

**Item 1—*CondensedConsolidated Financial Statements***

 

**GT Solar International, Inc. and Subsidiaries**

 

**Condensed Consolidated Balance Sheets**

 

**(In thousands except per share data)**

 

**(unaudited)**

 
| ** **                                                                                                                                                                             | ** ** | **September 26,  2009** | ** ** | **March 28,  2009** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------|------------|--------------------------|------------|
| **Assets**                                                                                                                                                                             |       |                         |       |                     |       |
| Current assets:                                                                                                                                                                        |       |                         |       |                     |       |
| Cash and cash equivalents                                                                                                                                                              |       | $                            | 204,257    |                     | $          | 107,148 |   |
| Accounts receivable, net                                                                                                                                                               |       | 24,325                       |       | 57,552                   |       |
| Inventories                                                                                                                                                                            |       | 78,665                       |       | 103,476                  |       |
| Advances on inventory  purchases                                                                                                                                                       |       | 50,897                       |       | 120,227                  |       |
| Deferred costs                                                                                                                                                                         |       | 226,461                      |       | 174,961                  |       |
| Deferred income taxes                                                                                                                                                                  |       | 27,164                       |       | 25,498                   |       |
| Refundable and prepaid income  taxes                                                                                                                                                   |       | 677                          |       | 40,329                   |       |
| Prepaid expenses and other  current assets                                                                                                                                             |       | 1,724                        |       | 2,825                    |       |
| Total current assets                                                                                                                                                                   |       | 614,170                      |       | 632,016                  |       |
| Property, plant and  equipment, net                                                                                                                                                    |       | 17,895                       |       | 18,856                   |       |
| Other assets                                                                                                                                                                           |       | 777                          |       | 940                      |       |
| Intangible assets, net                                                                                                                                                                 |       | 4,786                        |       | 6,368                    |       |
| Deferred cost                                                                                                                                                                          |       | 66,538                       |       | 36,643                   |       |
| Advances on inventory  purchases                                                                                                                                                       |       | 15,040                       |       | —                   |       |
| Goodwill                                                                                                                                                                               |       | 42,600                       |       | 42,600                   |       |
| Total assets                                                                                                                                                                           |       | $                            | 761,806    |                     | $          | 737,423 |   |
| **Liabilities  and stockholders’ equity**                                                                                                                                         |       |                         |       |                     |       |
| Current liabilities:                                                                                                                                                                   |       |                         |       |                     |       |
| Accounts payable                                                                                                                                                                       |       | $                            | 13,400     |                     | $          | 50,832 |   |
| Accrued expenses                                                                                                                                                                       |       | 13,644                       |       | 15,695                   |       |
| Customer deposits                                                                                                                                                                      |       | 135,434                      |       | 222,654                  |       |
| Deferred revenue                                                                                                                                                                       |       | 364,232                      |       | 285,005                  |       |
| Accrued income taxes                                                                                                                                                                   |       | —                       |       | 158                      |       |
| Total current liabilities                                                                                                                                                              |       | 526,710                      |       | 574,344                  |       |
| Deferred income taxes                                                                                                                                                                  |       | 20,577                       |       | 15,647                   |       |
| Deferred revenue                                                                                                                                                                       |       | 107,290                      |       | 63,122                   |       |
| Other non-current  liabilities                                                                                                                                                         |       | 965                          |       | 2,405                    |       |
| Total liabilities                                                                                                                                                                      |       | 655,542                      |       | 655,518                  |       |
|                                                                                                                                                                                   |       |                         |       |                     |       |
| Commitments and  contingencies (Note 8)                                                                                                                                           |       | —                       |       | —                   |       |
|                                                                                                                                                                                   |       |                         |       |                     |       |
| Stockholders’ equity:                                                                                                                                                             |       |                         |       |                     |       |
| Preferred stock, 10,000  shares authorized, none issued and outstanding                                                                                                                |       | —                       |       | —                   |       |
| Common stock, $0.01 par  value, 500,000 shares authorized; 143,382 and 143,048 shares issued and  outstanding as of September 26, 2009 and March 28, 2009  respectively |       | 1,434                        |       | 1,431                    |       |
| Additional paid-in capital                                                                                                                                                             |       | 83,636                       |       | 80,070                   |       |
| Accumulated other  comprehensive loss                                                                                                                                                  |       | (4,813                       | )          | (8,389                   | )          |
| Retained earnings                                                                                                                                                                      |       | 26,007                       |       | 8,793                    |       |
| Total stockholders’ equity                                                                                                                                                        |       | 106,264                      |       | 81,905                   |       |
| Total liabilities and  stockholders’ equity                                                                                                                                       |       | $                            | 761,806    |                     | $          | 737,423 |   |

 

See accompanying notes toCondensed Consolidated Financial Statements.

 

3

----

Table of Contents

 

**GT Solar International, Inc. and Subsidiaries**

 

**Condensed Consolidated Statements of Operations**

 

**(In thousands, except per share data)**

 

**(unaudited)**

 
| ** **                                                | ** ** | **Three  Months Ended**      | ** ** | **Six Months  Ended**        | ** ** |
|-----------------------------------------------------------|------------|------------------------------|------------|------------------------------|------------|
| ** **                                                | ** ** | **September 26,  2009** | ** ** | **September 27,  2008** | ** ** | **September 26,  2009** | ** ** | **September 27,  2008** | ** ** |
| Revenue                                                   |       | $                            | 104,193    |                         | $          | 140,192 |   | $ | 176,012 |   | $ | 197,274 |   |
| Cost of revenue                                           |       | 69,934                       |       | 78,821                       |       | 106,788 |   | 111,606 |   |
| Gross profit                                              |       | 34,259                       |       | 61,371                       |       | 69,224 |   | 85,668 |   |
| Operating expenses:                                       |       |                         |       |                         |       |   |   |   |   |
| Research and development                                  |       | 4,637                        |       | 4,049                        |       | 11,036 |   | 7,865 |   |
| Selling and marketing                                     |       | 3,158                        |       | 5,044                        |       | 7,025 |   | 8,828 |   |
| General and administrative                                |       | 10,237                       |       | 8,348                        |       | 18,566 |   | 16,124 |   |
| Amortization of intangible  assets                        |       | 791                          |       | 762                          |       | 1,582 |   | 1,553 |   |
| Total operating expenses                                  |       | 18,823                       |       | 18,203                       |       | 38,209 |   | 34,370 |   |
| Income from operations                                    |       | 15,436                       |       | 43,168                       |       | 31,015 |   | 51,298 |   |
|                                                      |       |                         |       |                         |       |   |   |   |   |
| Interest income (expense):                                |       |                         |       |                         |       |   |   |   |   |
| Interest income                                           |       | 122                          |       | 1,069                        |       | 164 |   | 2,321 |   |
| Interest expense                                          |       | (204                         | )          | (67                          | )          | (381 | ) | (67 | ) |
| Interest component of  forward foreign exchange contracts |       | —                       |       | 1,368                        |       | (639 | ) | 1,944 |   |
| Other income (expense),  net                              |       | 182                          |       | (1,657                       | )          | (2,181 | ) | (3,099 | ) |
| Income before income taxes                                |       | 15,536                       |       | 43,881                       |       | 27,978 |   | 52,397 |   |
| Provision for income taxes                                |       | 6,101                        |       | 15,939                       |       | 10,764 |   | 19,312 |   |
| Net income                                                |       | $                            | 9,435      |                         | $          | 27,942 |   | $ | 17,214 |   | $ | 33,085 |   |
|                                                      |       |                         |       |                         |       |   |   |   |   |
| Income per share:                                         |       |                         |       |                         |       |   |   |   |   |
| Basic                                                     |       | $                            | 0.07       |                         | $          | 0.20 |   | $ | 0.12 |   | $ | 0.23 |   |
| Diluted                                                   |       | $                            | 0.06       |                         | $          | 0.19 |   | $ | 0.12 |   | $ | 0.23 |   |
|                                                      |       |                         |       |                         |       |   |   |   |   |
| Dividend paid per common  share                           |       | —                       |       | $                            | 0.632      |   | — |   | $ | 0.632 |   |
|                                                      |       |                         |       |                         |       |   |   |   |   |
| Weighted average number of  common shares outstanding:    |       |                         |       |                         |       |   |   |   |   |
| Basic                                                     |       | 143,339                      |       | 142,398                      |       | 143,228 |   | 142,344 |   |
| Diluted                                                   |       | 145,198                      |       | 145,075                      |       | 145,265 |   | 145,119 |   |

 

See accompanying notes toCondensed Consolidated Financial Statements.

 

4

----

Table of Contents

 

**GT Solar International, Inc. and Subsidiaries**

 

**Condensed Consolidated Statements of Cash Flows**

 

**(In thousands)**

 

**(unaudited)**

 
| ** **                                                                           | ** ** | **Six Months  Ended**        | ** ** |
|--------------------------------------------------------------------------------------|------------|------------------------------|------------|
| ** **                                                                           | ** ** | **September 26,  2009** | ** ** | **September 27,  2008** | ** ** |
| **Cash  flows from operating activities:**                                           |       |                         |       |   |   |
| Net income                                                                           |       | $                            | 17,214     |   | $ | 33,085 |   |
| *Adjustments  to reconcile net income to net cash provided by operating activities:* |       |                         |       |   |   |
| Amortization expense                                                                 |       | 1,582                        |       | 1,553 |   |
| Depreciation expense                                                                 |       | 1,721                        |       | 783 |   |
| Deferred income taxes  expense (benefit)                                             |       | 1,885                        |       | (32,205 | ) |
| Share-based compensation  expense                                                    |       | 2,456                        |       | 3,070 |   |
| Other adjustments, net                                                               |       | 817                          |       | 107 |   |
| *Changes  in operating assets and liabilities:*                                      |       |                         |       |   |   |
| Restricted cash                                                                      |       | —                       |       | 60,735 |   |
| Accounts receivable                                                                  |       | 32,604                       |       | 16,394 |   |
| Inventories                                                                          |       | 24,811                       |       | (50,513 | ) |
| Deferred costs                                                                       |       | (81,394                      | )          | (57,547 | ) |
| Advances on inventory  purchases                                                     |       | 54,290                       |       | (77,173 | ) |
| Prepaid expenses and other  assets                                                   |       | 4,594                        |       | 3,226 |   |
| Accounts payable and  accrued expenses                                               |       | (34,920                      | )          | 3,039 |   |
| Customer deposits                                                                    |       | (87,220                      | )          | 46,862 |   |
| Deferred revenue                                                                     |       | 123,395                      |       | 110,580 |   |
| Refundable and prepaid  income taxes                                                 |       | 35,307                       |       | (1,803 | ) |
| Accrued income taxes                                                                 |       | (158                         | )          | (11,301 | ) |
| Other, net                                                                           |       | (177                         | )          | (829 | ) |
| *Net cash  provided by operating activities*                                         |       | 96,807                       |       | 48,063 |   |
| **Cash  flows from investing activities:**                                           |       |                         |       |   |   |
| Purchase of property, plant and equipment                                            |       | (774                         | )          | (6,310 | ) |
| *Net cash  used in investing activities*                                             |       | (774                         | )          | (6,310 | ) |
| **Cash  flows from financing activities:**                                           |       |                         |       |   |   |
| Payment of dividends to  stockholders                                                |       | —                       |       | (89,991 | ) |
| Credit facility issuance  costs                                                      |       | —                       |       | (1,060 | ) |
| Minimum tax withholding  payments for employee share-based awards                    |       | (68                          | )          | — |   |
| Proceeds from exercise of  stock options and related excess tax benefits             |       | 1,146                        |       | 809 |   |
| *Net cash  provided by (used in) financing activities*                               |       | 1,078                        |       | (90,242 | ) |
| Effect of foreign exchange  rates on cash                                            |       | (2                           | )          | 94 |   |
| *Increase  (decrease) in cash and cash equivalents*                                  |       | 97,109                       |       | (48,395 | ) |
| Cash and cash equivalents  at beginning of period                                    |       | 107,148                      |       | 54,839 |   |
| Cash and cash equivalents  at end of period                                          |       | $                            | 204,257    |   | $ | 6,444 |   |
| **Non-cash transactions:**                                                           |       |                         |       |   |   |
| Change in goodwill relating to adjustments to  acquired net assets                   |       | $                            | —     |   | $ | 590 |   |

 

See accompanying notes toCondensed Consolidated Financial Statements.

 

5

----

Table ofContents

 

**GT Solar International, Inc. and Subsidiaries**

 

**Notes to Condensed Consolidated Financial Statements**

 

*(In thousands, except per share data)*

 

**1. Summary of Significant Accounting Policies**

 

*Basis of Presentation*

 

These accompanying unauditedcondensed consolidated financial statements of GT Solar International, Inc.and Subsidiaries (“GT Solar” or the “Company”) have been prepared in accordancewith generally accepted accounting principles in the United States andSecurities and Exchange Commission (“SEC”) instructions for interim financialinformation. In the opinion of management, the accompanying financialstatements contain all adjustments consisting of normal recurring accrualsnecessary to present fairly the financial position, results of operations andcash flows for the periods presented. The accompanying unaudited consolidatedfinancial statements as of September 26, 2009 were prepared by the Companyafter evaluating subsequent events through November 10, 2009, the datethese financial statements were issued. The results for the three and sixmonths ended September 26, 2009 are not necessarily indicative of theresults to be expected for the fiscal year ending April 3, 2010 or for anyother interim period or for any future year. The accompanying financialstatements should be read in conjunction with the consolidated financialstatements and footnotes included in the Company’s Annual Report on Form 10-K(“Annual Report”) for the fiscal year ended March 28, 2009, filed with theSecurities and Exchange Commission on June 9, 2009.  Accordingly, significant accounting policiesand other disclosures normally provided have been omitted since such items aredisclosed therein and have not changed materially as of September 26,2009.

 

The condensed consolidatedbalance sheet as of March 28, 2009 has been derived from the auditedfinancial statements as of that date but does not include all of theinformation and footnotes required by generally accepted accounting principlesfor complete financial statements.

 

*Fiscal Year End*

 

Effective April 1,2008, the Company elected to change its reporting period to be based on a 52week year that ends on the Saturday closest to March 31 which in certainyears results in a 53 week fiscal year. The Company’s quarterly reportingwill cover 13 week periods, unless otherwise noted. The fiscal year endingApril 3, 2010 will have 53 weeks with the extra week occurring in thefourth quarter of that year. The six month period ended September 27,2008, includes two fewer days than a 26 week period as a result oftransitioning to the new reporting period. The Company uses the termsquarterly, monthly, and annual in describing its financial results.

 

*Reclassifications*

 

Certain reclassificationshave been made to prior year financial statements to conform to the currentyear presentation.

 

*Recently Adopted Accounting Pronouncements*

 

In June 2009, theFinancial Accounting Standards Board (“FASB”) issued *Accounting Standards Codification and the Hierarchy of GenerallyAccepted Accounting Principles*. This standard replaces the former *The Hierarchy of Generally Accepted AccountingPrinciples*, and establishes only two levels of U.S. generallyaccepted accounting principles (“GAAP”), authoritative and non-authoritative.The FASB Accounting Standards Codification (the “Codification”) will become thesource of authoritative, nongovernmental GAAP, except for rules andinterpretive releases of the Securities and Exchange Commission (“SEC”), whichare sources of authoritative GAAP for SEC registrants. All othernon-grandfathered, non-SEC accounting literature not included in theCodification will become non-authoritative. This standard is effective forfinancial statements for interim or annual reporting periods ending after September 15,2009. The Company began to use the new guidelines and numbering systemprescribed by the Codification when referring to GAAP in the quarter ending September 26,2009. The new numbering system uses the prefix “ASC” (an abbreviation ofAccounting Standards Codification). As the Codification was not intended tochange or alter existing GAAP, the adoption did not have any impact on theCompany’s consolidated financial statements.

 

6

----

Table of Contents

 

In September 2006, theFASB issued authoritative guidance which defines fair value, establishes aframework in generally accepted accounting principles for measuring fair valueand expands disclosures about fair value measurements. This standard onlyapplies when other standards require or permit the fair value measurement ofassets and liabilities. It does not increase the use of fair value measurement.This guidance became effective for fiscal years beginning after November 15,2007, except as it relates to nonrecurring fair value measurements ofnonfinancial assets and liabilities for which the standard is effective forfiscal years beginning after November 15, 2008. The adoption of thisguidance with respect to financial assets and liabilities effective April 1,2008 did not have a significant effect on the Company’s consolidated results ofoperations or financial position (see Note 3, Fair Value of FinancialInstruments, to the Condensed Consolidated Financial Statements for additionalinformation). In addition, the Company is required to apply the provisions ofthis guidance to nonfinancial assets and nonfinancial liabilities effective forthe interim periods in fiscal years beginning after November 15, 2008. Theadoption during the six months ended September 26, 2009 for measuringnonfinancial assets and liabilities, essentially goodwill and identifiableintangible assets, did not have a material effect on the Company’s consolidatedfinancial statements.

 

In December 2007, theFASB issued authoritative guidance regarding business combinations andestablishes principles and requirements for how the acquirer recognizes andmeasures in its financial statements the identifiable assets acquired, theliabilities assumed, any non-controlling interest in the acquiree and thegoodwill acquired in the business combination or a gain from a bargainpurchase, and also establishes disclosure requirements to enable users of thefinancial statements to evaluate the nature and financial effects of thebusiness combination. This guidance became effective for business combinationsentered into during fiscal years beginning on or after December 15, 2008and thereafter with the exception of the accounting for valuation allowances ondeferred taxes and acquired tax contingencies. This guidance states thatadjustments made to valuation allowances on deferred income taxes and acquiredincome tax contingencies associated with acquisitions that closed prior to theeffective date of this guidance would apply the provisions of this guidance. Theadoption of this guidance during the six months ended September 26, 2009did not have a material impact on the Company’s consolidated financialstatements.

 

In April 2009, the FASBissued authoritative guidance which provides additional guidelines forestimating fair value of financialinstruments, provides additional guidance related to the disclosure ofimpairment losses on securities and the accounting for impairment losses ondebt securities and increases the frequency of fair value disclosures. Thisguidance does not amend existing guidance related to other-than-temporaryimpairments of equity securities. This guidance is effective for fiscal yearsand interim periods ended after June 15, 2009. The adoption of thisguidance during the six months ended September 26, 2009 did not have amaterial impact on the Company’s consolidated financial statements.

 

In May 2009, the FASBissued authoritative guidance to establish general standards of accounting for,and disclosures of events that occur after the balance sheet date but beforefinancial statements are issued or are available to be issued. This guidance iseffective for interim or fiscal periods ending after June 15, 2009. SeeFootnote No. 1 “Basis of Presentation” for the related disclosures. Theadoption of this guidance during the six months ended September 26, 2009did not have a material impact on the Company’s consolidated financialstatements.

 

*Accounting Pronouncements Not YetAdopted*

 

In June 2009, the FASBissued an amendment to the accounting principles relating to the transfer offinancial assets that eliminates the concept of a qualifying special purposeentity, creates more stringent conditions for reporting a transfer of a portionof a financial asset as a sale, clarifies other sale-accounting criteria, andchanges the initial measurement of a transferor’s interest in transferredfinancial assets. This guidance will be effective for transfers of financialassets in fiscal years beginning after November 15, 2009, and in interimperiods within those fiscal years with earlier adoption prohibited. The Companyis currently assessing the potential impacts, if any, the adoption of thisguidance will have on its consolidated financial statements.

 

In June 2009, the FASBissued authoritative guidance that eliminates certain exceptions to theconsolidation of qualifying special purpose entities, contains new criteria fordetermining the primary beneficiary of a variable interest entity, andincreases the frequency of required reassessments to determine whether acompany is the primary beneficiary of a variable interest entity. The amendmentalso contains a new requirement that any term, transaction, or arrangement thatdoes not have a substantive effect on an entity’s status as a variable interestentity, a company’s power over a variable interest entity, or a company’sobligation to absorb losses or its right to receive benefits of an entity mustbe disregarded in applying consolidation provisions. The elimination of thequalifying special purpose entity concept and its consolidation exceptions willbe effective for the fiscal year beginning after November 15, 2009, andfor interim periods within that period, with earlier adoption prohibited. TheCompany is currently assessing the potential impacts, if any, the adoption ofthis amendment will have on its consolidated financial statements.

 

In October 2009, theFASB issued authoritative guidance that provides amendments to the revenuerecognition criteria for separating consideration in multiple-deliverablerevenue arrangements.  It establishes ahierarchy of 

 

7

----

Table of Contents

 

selling prices to determine the selling priceof each specific deliverable which includes vendor-specific objective evidence(if available), third-party evidence (if vendor-specific evidence is notavailable), or estimated selling price if neither of the first two areavailable. This guidance also eliminates the residual method for allocatingrevenue between the elements of an arrangement and requires that arrangementconsideration be allocated at the inception of the arrangement and expands thedisclosure requirements regarding a vendor’s multiple-deliverable revenuearrangements. This guidance is effective for fiscal years beginning on or afterJune 15, 2010 and early adoption is permitted. The Company is currentlyassessing the potential impact, if any, the adoption of this guidance will haveon its consolidated financial statements.

 

**2. Customer Concentrations**

 

The following tablesummarizes revenue and accounts receivable for customers who accounted for 10%or more of accounts receivable or revenue, respectively:

 
| ** **  | ** ** | **Revenue********Three Months Ended** | ** ** | **Revenue********Six Months Ended** | ** ** | **Accounts  Receivable as of** | ** ** |
|-------------|------------|---------------------------------------|------------|-------------------------------------|------------|-------------------------------------|------------|
| ** **  | ** ** | **September 26,  2009**          | ** ** | **September 27,  2008**        | ** ** | **September 26,  2009**        | ** ** | **September 27,  2008** | ** ** | **September 26,  2009** | ** ** | **March 28,  2009** | ** ** |
| Customer    |       |                                  |       |                                |       |                                |       |   |   |   |   |   |   |
| Customer #1 |       | 31                                    | %          | 35                                  | %          | 19                                  | %          | 40 | % | 29 | % | 31 | % |
| Customer #2 |       | 24                                    | %          | *                                   |       | 14                                  | %          | * |   | * |   | * |   |
| Customer #3 |       | *                                     |       | *                                   |       | 27                                  | %          | * |   | * |   | * |   |
| Customer #4 |       | *                                     |       | 25                                  | %          | *                                   |       | 18 | % | * |   | 10 | % |
| Customer #5 |       | *                                     |       | 17                                  | %          | *                                   |       | 12 | % | * |   | * |   |
| Customer #6 |       | *                                     |       | *                                   |       | *                                   |       | * |   | 14 | % | * |   |
| Customer #7 |       | *                                     |       | *                                   |       | *                                   |       | * |   | 11 | % | * |   |
| Customer #8 |       | *                                     |       | *                                   |       | *                                   |       | * |   | * |   | 19 | % |
| Customer #9 |       | *                                     |       | *                                   |       | *                                   |       | * |   | 15 | % | 10 | % |

 

----

*        - amount represents lessthan 10%.

 

Concentration of credit risk with respect to accounts receivable is limitedto certain customers to whom the Company makes substantial sales. To reducerisk, the Company requires that certain customers either post letters of creditor make advance payments prior to delivery.

 

**3. Fair Value of Financial Instruments**

 

The Company’s financialinstruments are recorded at amounts that reflect the Company’s estimate oftheir fair values. Fair value is estimated using a hierarchal frameworkassociated with the level of subjectivity used in measuring assets andliabilities at fair value.

 

·                  Level 1—Inputsare unadjusted, quoted prices in active markets for identical assets orliabilities at the measurement date.

·                  Level 2—Inputsare inputs other than quoted prices included within Level 1 that areobservable for the asset or liability, either directly or indirectly.

·                  Level 3—Inputsare unobservable for the asset or liability and are developed based on the bestinformation available in the circumstances, which might include the Company’sown data.

 

The following table providesthe assets and liabilities carried at fair value measured on a recurring basisat September 26, 2009:

 

8

----

Table ofContents

 
| ** **                                             | ** ** | **Total  Carrying** | ** ** | **Fair Value  Measurements Using** | ** ** |
|--------------------------------------------------------|------------|---------------------|------------|------------------------------------|------------|
| ** **                                             | ** ** | **Value**           | ** ** | **(Level 1)**                 | ** ** | **(Level 2)** | ** ** | **(Level 3)** | ** ** |
| Cash equivalents                                       |       | $                   | 201,908    |                               | $          | 201,908 |   | — |   | — |   |
| Forward foreign exchange  contracts – assets      |       | $                   | 58         |                               | —     |   | $ | 58 |   | — |   |
| Forward foreign exchange  contracts – liabilities |       | $                   | (151       | )                                  | —     |   | $ | (151 | ) | — |   |
|                                                        |            |                     |            |                                    |            |  |  |  |  |  |  |  |

 

The Company’s cashequivalents consist of money market mutual funds valued using readily availablemarket prices. The Company’s counterparties to its forward foreign exchangetransactions are major international financial institutions.

 

The fair value of afinancial instrument is the price that would be received to sell an asset orpaid to transfer a liability in an orderly transaction between marketparticipants at the measurement date. The carrying values of cash and cashequivalents, accounts receivable, accounts payable, and accrued liabilitiesapproximate their respective fair values due to their short-term maturities.Foreign currency derivatives are carried at fair value based on quoted marketprices for financial instruments with similar characteristics.

 

**4. Derivative and Hedging Activities**

 

The Company enters intoforward foreign exchange contracts to hedge portions of foreign currencydenominated inventory purchases. As of September 26, 2009, the Company hadoutstanding contracts with a notional value of euro (“€”)5,430. These contractstypically expire within 12 months.

 

For the six months ended September 26,2009, the Company recognized into earnings losses of $2,054, which hadpreviously been recorded as other comprehensive income. The losses, which wererecognized as other expense of $2,112 during the three months endedJune 26, 2009 and other income of $58 during the three months endedSeptember 26, 2009, related substantially to forward foreign exchangecontracts to purchase euros with notional amounts €41,429 that no longerqualified as cash flow hedges because the hedging relationship was no longerdeemed to be highly effective. At the time they were deemed ineffective, theCompany entered into offsetting forward foreign exchange contracts to selleuros with notional amounts of €26,633 which were not designated as cash flowhedges, to eliminate any further foreign exchange risk related to those foreignexchange contracts.

 

During the three and sixmonths ended September 26, 2009, the Company recognized a loss ofapproximately $26 and a gain of $230, respectively, against cost of revenuewith respect to foreign currency exchange cash flow hedges where the underlyinghedged transaction had affected earnings. During the three and six months endedSeptember 27, 2008, the Company did not recognize any gains or losses toearnings with respect to its derivative cash flow hedges as the underlyinghedged transactions had not yet affected earnings. We estimate that $758 of netderivative losses will be reclassified from accumulated other comprehensiveincome into earnings over the next twelve months.

 

The following table setsforth the balance sheet location and fair value of the Company’s forwardforeign exchange contracts at September 26, 2009 and March 28, 2009:

 
| ** **                                           | ** ** | **Balance  Sheet Location**               | ** ** | **September 26,  2009  Fair Value** | ** ** | **March 28,  2009  Fair Value** | ** ** |
|------------------------------------------------------|------------|-------------------------------------------|------------|------------------------------------------|------------|--------------------------------------|------------|
| *Effective  Cash Flow Hedges*                        |       |                                      |       |                                     |       |                                 |       |
| Forward foreign exchange  contracts—asset       |       | Prepaid expenses and other current assets |       | $                                        | 58         |                                 | $          | 853 |   |
| Forward foreign exchange  contracts—liabilities |       | Accrued expenses                          |       | $                                        | —     |                                 | $          | (4,447 | ) |
| *Other  Derivatives*                                 |       |                                      |       |                                     |       |                                 |       |
| Forward foreign exchange  contracts—liabilities |       | Accrued expenses                          |       | $                                        | (151       | )                                    | $          | (227 | ) |

 

The following table setsforth the effect of the Company’s forward foreign exchange contracts on theCompany’s operating results for the three and six months ended September 26,2009 and September 27, 2008.

 
| ** **              | ** ** | **Amount of (Gain) or  Loss Recognized in  OCI on Derivative  (Effective Portion)** | ** ** | **Location of Gain or  (Loss) Reclassified  from AOCI into  Income  (Effective Portion)** | ** **      | **Amount of Gain or  (Loss) Reclassified  from AOCI into  Income  (Effective Portion)** | ** ** | **Location of Gain or  (Loss) Recognized in  Income on Derivative  (Ineffective Portion)** | ** ** | **Amount of Gain or  (Loss) Recognized in Income on Derivative  (Ineffective Portion)** | ** ** |
|-------------------------|------------|-------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------------|-----------------|-----------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------|------------|
|                    |       |                                                                                |       |                                                                                      |            |                                                                                    |       |                                                                                       |       |                                                                                    |       |
| **Three Months Ended**  |       |                                                                                |       |                                                                                      |            |                                                                                    |       |                                                                                       |       |                                                                                    |       |
| September 26, 2009 |       | $                                                                                   | (233       | )                                                                                         | Cost of revenue |                                                                                    | $          | (26                                                                                        | )          | Other, net                                                                              |       | $ | 58 |   |
| September 27, 2008 |       | $                                                                                   | 9,857      |                                                                                      | Cost of revenue |                                                                                    | $          | —                                                                                     |       | Other, net                                                                              |       | $ | 3 |   |
|                    |       |                                                                                |       |                                                                                      |            |                                                                                    |       |                                                                                       |       |                                                                                    |       |
| **Six Months Ended**    | ** ** | ** **                                                                          | ** ** | ** **                                                                                | ** **      | ** **                                                                              | ** ** | ** **                                                                                 | ** ** | ** **                                                                              | ** ** |
| September 26, 2009 |       | $                                                                                   | (3,131     | )                                                                                         | Cost of revenue |                                                                                    | $          | 230                                                                                        |       | Other, net                                                                              |       | $ | (2,054 | ) |
| September 27, 2008 |       | $                                                                                   | 10,443     |                                                                                      | Cost of revenue |                                                                                    | $          | —                                                                                     |       | Other, net                                                                              |       | $ | 42 |   |

 

9

----

Tableof Contents

 

**5. Inventories**

 

Inventories consisted of thefollowing:

 
| ** **      | ** ** | **September 26,  2009** | ** ** | **March 28,  2009** | ** ** |
|-----------------|------------|------------------------------|------------|--------------------------|------------|
| Raw materials   |       | $                            | 59,754     |                     | $          | 73,347 |   |
| Work-in-process |       | 2,508                        |       | 2,978                    |       |
| Finished goods  |       | 16,403                       |       | 27,151                   |       |
|            |       | $                            | 78,665     |                     | $          | 103,476 |   |

 

**6. Warranty**

 

The Company’s polysiliconproducts are sold with a standard warranty for a period not exceedingtwenty-four months from delivery. The Company’s photovoltaic products aregenerally sold with a standard warranty for a period equal to the shorter of (i) twelvemonths from the date of acceptance by the customer or (ii) fifteen monthsfrom the date of shipment. A provision for estimated future costs related towarranty expense is recorded when products are shipped and accepted by thecustomer. The following table presents warranty activities:

 
| ** **                                           | ** ** | **Six Months  Ended**        | ** ** |
|------------------------------------------------------|------------|------------------------------|------------|
| ** **                                           | ** ** | **September 26,  2009** | ** ** | **September 27,  2008** | ** ** |
| Product warranty  liability, beginning of the period |       | $                            | 2,231      |   | $ | 1,957 |   |
| Warranty expense                                     |       | 286                          |       | 863 |   |
| Payments under warranty                              |       | (1,069                       | )          | (646 | ) |
| Product warranty  liability, end of period           |       | $                            | 1,448      |   | $ | 2,174 |   |

 

**7. Income Taxes**

 

The Company recorded a taxprovision representing federal, state and foreign income taxes based on aneffective tax rate of 39.3% and 36.3% for the three months endedSeptember 26, 2009 and September 27, 2008, respectively and 38.5% and36.9% for the six months ended September 26, 2009 and September 27,2008, respectively. The effective tax rate for the six months ended September 27,2008 is lower than the effective tax rate for the six months ended September 26,2009 primarily due to the impact of discrete items related to tax benefitsrecognized based on prior year tax studies completed during the quarter ended September 27,2008. The Company reviews its expected annual effective income tax rates andmakes changes on a quarterly basis as necessary based on certain factors suchas changes in forecasted annual operating income; changes to the valuationallowance for net deferred tax assets; changes to actual or forecastedpermanent book to tax differences; impacts from future tax settlements withstate, federal or foreign tax authorities; and impacts from tax law changes.Due to the volatility of these factors, the Company’s consolidated effectiveincome tax rate may change significantly on a quarterly basis.

 

The Company recognizesaccrued interest and penalties on unrecognized tax benefits in income taxexpense. The Company did not have any significant unrecognized tax benefits asof September 26, 2009 and March 28, 2009. As a result, the Companydid not recognize interest expense, and additionally, did not record anypenalties during the six months ended September 26, 2009.

 

During the three monthsended September 27, 2008 and as discussed above, the Company completed taxstudies that resulted in additional tax benefits, of which $590 related toperiods prior to January 1, 2006 and therefore were allocated as areduction to goodwill.

 

**8. Commitments and Contingencies**

 

*Purchase Commitments*

 

The Company enters intocommitments to purchase raw materials, research and development and otherservices from various suppliers and vendors. Some of these commitments expirewithin a few months and others continue into the fiscal year ending April 2,2011. During the six months ended September 26, 2009, the Companyrescheduled and/or cancelled a portion of its commitments to its vendors toprocure materials in the photovoltaic business to reflect a reduced rate ofproduction and as a result recognized losses of $501 and $1,013 during thethree and six months ended September 26, 2009, respectively, fromcommitment terminations which have been included in cost of revenue.

 

10

----

Table of Contents

 

*Contingencies*

 

Beginning on August 1,2008, seven putative securities class action lawsuits were commenced in theUnited States District Court for the District of New Hampshire (the “Court”),against the Company, certain of its officers and directors, certainunderwriters of its July 24, 2008 initial public offering and others,including certain investors in the Company (the “federal class actions”). On October 3,2008, the Court entered an order consolidating the federal class actions into asingle action captioned *Braun et al. v. GTSolar International, Inc., et al*. The Court selected the leadplaintiff and lead plaintiff’s counsel in the consolidated matter on October 29,2008. The lead plaintiff filed an amended consolidated complaint on December 22,2008. The defendants moved to dismiss the amended consolidated complaint on February 5,2009. On September 22, 2009, the Court denied the defendants’ motion.Following the Court’s denial of the motion, the parties submitted a proposedjoint case management order to the Court on November 6, 2009. The leadplaintiff asserts claims under various sections of the Securities Act. Theamended consolidated complaint alleges, among other things, that the defendantsmade false and materially misleading statements and failed to disclose materialinformation in certain SEC filings, including the registration statement andProspectus for the Company’s July 24, 2008 initial public offering, andother public statements, regarding the Company’s business relationship with LDKSolar, Ltd., one of the Company’s customers, JYT Corporation, one of theCompany’s competitors, and certain of the Company’s products, including theCompany’s DSS furnaces. Among other relief, the amended consolidated complaintseeks class certification, unspecified compensatory damages, rescission,interest, attorneys’ fees, costs and such other relief as the Court should deemjust and proper.

 

In addition, on September 18,2008 a putative securities class action was filed in New Hampshire state courtin the Superior Court for Hillsborough County, Southern District (the “StateCourt”), under the caption *Hamel v. GT SolarInternational, Inc., et al.,* against the Company, certain ofthe Company’s officers and directors and certain underwriters of the Company’s July 24,2008 initial public offering (the “state class action”). The Company removedthe state class action to the United States District Court for the District ofNew Hampshire on October 22, 2008. The state class action was consolidatedwith the federal class actions on November 25, 2008. On February 2,2009, the federal Court granted the plaintiff’s motion to remand the stateclass action to New Hampshire State Court. On May 4, 2009, the partiesagreed to a stay of the state class action, pending resolution of the motion todismiss in the consolidated federal case. At a case structuring conference on June 3,2009, the state court endorsed the proposed joint case management order filedby the parties which requires coordination of any discovery to be taken in thestate class action with that taken in the federal class action. With the denialof the motion to dismiss the federal action, the parties submitted a proposedjoint case management order to the State Court on November 6, 2009. Thestate class action plaintiff asserts claims under various sections of theSecurities Act of 1933, as amended. The state class action complaint alleges,among other things, that the defendants made false and materially misleadingstatements and failed to disclose material information in certain SEC filings,including the registration statement for the Company’s July 24, 2008initial public offering, and other public statements, regarding the Company’sbusiness relationship with LDK Solar, Ltd., one of the Company’scustomers, JYT Corporation, one of the Company’s competitors, and certain ofthe Company’s products, including the Company’s DSS furnaces. Among otherrelief, the state class action complaint seeks class certification, unspecifiedcompensatory damages, rescission, interest, attorneys’ fees, costs and suchother relief as the State Court should deem just and proper.

 

A derivative suit, captioned*Fan v. GT Solar Int’l, Inc., et al.*,was filed in New Hampshire State Court on January 14, 2009 (the “derivativeaction”). The derivative complaint is asserted nominally on behalf of theCompany against certain of the Company’s directors and officers and allegesvarious claims for breach of fiduciary duty, unjust enrichment, abuse ofcontrol and gross mismanagement and is premised on the same purportedmisconduct alleged in the federal action. On April 10, 2009, the StateCourt granted the Company’s motion to stay the derivative action, pendingresolution of the motion to dismiss in the federal action. In accordance withthe terms of the stay the parties have conferred regarding a case managementschedule for the derivative action.

 

The Company intends todefend the federal and state class actions, and the derivative action,vigorously. There can be no assurance, however, that the Company will besuccessful, and an adverse resolution of any of the lawsuits could have amaterial adverse effect on the Company’s consolidated financial position andresults of operations. The Company is not presently able to reasonably estimatepotential losses, if any, related to the lawsuits.

 

11

----

Table of Contents

 

The Company is subject tovarious other routine legal proceedings and claims incidental to its business,which the Company believes will not have a material adverse effect on itsfinancial position, results of operations or cash flows.

 

*Customer Indemnifications*

 

In the normal course ofbusiness, the Company indemnifies, under pre-determined conditions andlimitations, its customers for infringement of third-party intellectualproperty rights by the Company’s products or services. The Company seeks tolimit its liability for such indemnity to an amount not to exceed the salesprice of the products or services subject to its indemnification obligations.The Company does not believe, based on information available, that it isprobable that any material amounts will be paid under these indemnificationobligations.

 

**9. Senior Credit Facility**

 

On July 29, 2008, theCompany entered into a senior credit agreement with Bank of America, N.A., assole administrative and collateral agent, and a syndicate of financialinstitutions. The senior credit agreement provides for a three-year revolvingsenior credit facility in an aggregate principal amount of up to $90,000, whichis available for the borrowing of revolving loans and the issuance of standbyletters of credit (“LOCs”) (the “senior credit facility”); provided that theaggregate principal amount of revolving loans may not exceed $50,000 at anytime. The senior credit facility includes a sub-limit of $25,000 for swinglineloans. As of September 26, 2009, the Company had $1,481 of outstandingLOCs and no borrowings under the senior credit facility and $88,519 ofavailability under the senior credit facility. The senior credit facility willmature on July 29, 2011.

 

The aggregate amount ofborrowings and outstanding standby LOCs under the senior credit facility maynot exceed a borrowing base equal to Adjusted EBITDA multiplied by 3.0 plusunrestricted cash on hand. The senior credit facility is guaranteed by all ofthe Company’s existing and future direct and indirect domestic subsidiaries.Obligations under the senior credit facility are secured by a first-prioritylien on substantially all of the tangible and intangible assets and by a pledgeof the capital stock of all of the Company’s domestic subsidiaries and 65% ofthe capital stock of the Company’s foreign subsidiaries owned directly by us orone of the Company’s domestic subsidiaries.

 

The senior credit facilitymay be increased by an aggregate amount of up to $100,000, with additionalcommitments from the lenders under the senior credit facility or from newfinancial institutions, if no default or event of default exists. The Companymay exercise its option to increase the commitments not more than three times,and each increase will be in a minimum aggregate principal amount of $10,000and integral multiples of $5,000 in excess thereof.

 

Borrowings under the seniorcredit facility bear interest at a floating rate equal to, at the Company’soption, LIBOR plus 2.25% per annum or a base rate plus 1.25% per annum. Thebase rate is defined as the higher of the Bank of America prime rate or thefederal funds rate plus 0.50%. The Company pays a commitment fee to the lendersequal to 0.50% per annum on the actual daily unused portions of the seniorcredit facility and letter of credit fees equal to 2.25% per annum on the maximumamount available to be drawn under each standby letter of credit. As of September 26,2009, the three month LIBOR rate, Bank of America prime rate and federal fundsrate were 0.28%, 3.25%, and 0.25% respectively.

 

The senior credit agreementthat governs the senior credit facility contains financial covenants thatrequire the Company to meet certain financial tests, including a maximumconsolidated net leverage ratio and a minimum consolidated fixed chargecoverage ratio, calculated on a consolidated basis for each consecutive fourfiscal quarter period. The senior credit agreement also contains covenants,which, among other things, limit the Company’s ability to: incur indebtedness;make investments; engage in mergers and other fundamental changes; sell orotherwise dispose of property or assets; pay dividends and other restrictedpayments or enter into transactions with affiliates; enter into burdensomeagreements; use proceeds to purchase or carry margin stock or extend credit toothers; make subordinated debt payments; make certain changes to the terms ofmaterial indebtedness; and other covenants customary for such a facility. As ofSeptember 26, 2009, the Company was in compliance with all of thesecovenants.

 

**10. Stockholder’s Equity**

 

A summary of the changes instockholders’ equity for the six months ended September 26, 2009 isprovided below:

 

12

----

Table of Contents

 
| ** **                                                           | ** ** | **Common Stock** | ** ** | **Common Stock** | ** ** | **Additional  Paid-in** | ** ** | **Accumulated  Other  Comprehensive** | ** ** | **Retained** | ** ** | **Total  Stockholders’** | ** ** |
|----------------------------------------------------------------------|------------|-----------------------|------------|-----------------------|------------|-------------------------|------------|---------------------------------------|------------|--------------|------------|-------------------------------|------------|
| ** **                                                           | ** ** | **Shares**            | ** ** | **Par Value**         | ** ** | **Capital**             | ** ** | **Income  (Loss)**                    | ** ** | **Earnings** | ** ** | **Equity**                    | ** ** |
| Balance at March 28,  2009                                      |       | 143,048               |       | $                     | 1,431      |                    | $          | 80,070                                |       | $            | (8,389     | )                             | $          | 8,793 |   | $ | 81,905 |   |
| Net income                                                           |       |                  |       |                  |       |                    |       |                                  |       | 17,214       |       | 17,214                        |       |
| Other comprehensive income (1)                                  |       |                  |       |                  |       |                    |       | 3,576                                 |       |         |       | 3,576                         |       |
| Forfeiture of unvested  restricted stock and dividend                |       | (56                   | )          | (1                    | )          | 36                      |       |                                  |       |         |       | 35                            |       |
| Option exercises and  vesting of restricted stock units              |       | 404                   |       | 4                     |       | 777                     |       |                                  |       |         |       | 781                           |       |
| Stock compensation                                                   |       |                  |       |                  |       | 2,456                   |       |                                  |       |         |       | 2,456                         |       |
| Excess tax benefit from  share-based award activity                  |       |                  |       |                  |       | 365                     |       |                                  |       |         |       | 365                           |       |
| Minimum tax withholding  payments for employee share-based awards(2) |       | (14                   | )          |                  |       | (68                     | )          |                                  |       |         |       | (68                           | )          |
| Balance at  September 26, 2009                                  |       | 143,382               |       | $                     | 1,434      |                    | $          | 83,636                                |       | $            | (4,813     | )                             | $          | 26,007 |   | $ | 106,264 |   |

 

----

(1)                                 SeeNote 13

 

(2)                                 Purchase ofshares surrendered by employees to satisfy minimum tax withholding obligationson the vesting of restricted stock awards and subsequently retired.

 

**11. Share-Based Compensation**

 

The Company recorded $1,404and ($241) of expense (income) related to share-based compensation in the threemonths ended September 26, 2009 and September 27, 2008 respectively.The Company recorded $2,456 and $3,070 of expense related to share-basedcompensation in the six months ended September 26, 2009 and September 27,2008 respectively. Share-based compensation cost capitalized as part ofinventory is insignificant for all periods presented.

 

During the six months ended September 26,2009, the Company granted 1,480 options to purchase shares of the Company’scommon stock to certain employees and non-employees of the Company. The stockoptions are exercisable at $4.81 per share, which was the fair market value ofthe Company’s common stock on the date of grant, and expire on September 1,2019. The fair value of the stock options grant was $3,626, or $2.45 per share.The fair value of the stock options was estimated using the Black-Scholesoption pricing model which uses highly subjective assumptions including theexpected stock price volatility. The fair value of the Company’s stock optionswas estimated using the following assumptions: no expected dividends, risk freeinterest rate of 2.77%, expected average life of 6 years and an expected stockprice volatility of 50.8%.

 

During the six months ended September 26,2009, the Company granted 1,005 restricted stock units of the Company’s commonstock to certain employees, non-employees and directors of the Company. Thefair value of the restricted stock units was $5,045, or $5.02 on a weightedaverage per share basis.

 

As of September 26,2009, the Company had unrecorded deferred stock-based compensation expenserelated to fixed and variable stock options of approximately $6,862, afterestimated forfeitures, which will be recognized over an estimatedweighted-average remaining requisite service period of 2.4 years. Theunrecorded deferred stock-based compensation expense related to restrictedstock units as of September 26, 2009 was approximately $8,554, afterestimated forfeitures, which will be recognized over an estimated weightedaverage remaining requisite service period of 3.2 years.

 

**12. Earnings Per Share**

 

The following table setsforth the computation of the weighted average shares used in computing basicand diluted earnings per share:

 

13

----

Table ofContents

 
| ** **                                                                     | ** ** | **Three Months Ended** | ** ** | **Six Months Ended**     | ** ** |
|--------------------------------------------------------------------------------|------------|----------------------------------|------------|------------------------------------|------------|
| ** **                                                                     | ** ** | **September 26,  2009**     | ** ** | **September 27,********2008** | ** ** | **September 26,  2009** | ** ** | **September 27,  2008** | ** ** |
| Weighted average  shares—basic                                            |       | 143,339                          |       | 142,398                            |       | 143,228 |   | 142,344 |   |
| Dilutive common stock  options and awards                                      |       | 1,859                            |       | 2,677                              |       | 2,037 |   | 2,775 |   |
| Weighted average common  and common equivalent shares—diluted             |       | 145,198                          |       | 145,075                            |       | 145,265 |   | 145,119 |   |
| Weighted average of common stock options and  awards having no dilutive effect |       | 3,142                            |       | 409                                |       | 2,503 |   | 395 |   |

 

**13. Comprehensive Income**

 

The following tablesummarizes components of comprehensive income related to derivatives classifiedas cash flow hedges as well as foreign currency translation adjustments fromthe Company’s subsidiary that does not use the U.S. dollar as its functionalcurrency:

 
| ** **                                                                                                    | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|---------------------------------------------------------------------------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                                                                                                    | ** ** | **September 26,  2009**     | ** ** | **September 27,  2008**   | ** ** | **September 26,  2009** | ** ** | **September 27,  2008** | ** ** |
| Net income                                                                                                    |       | $                                | 9,435      |                           | $          | 27,942 |   | $ | 17,214 |   | $ | 33,085 |   |
| Change in derivative  instruments, net of tax effect of $280, $3,974, ($1,377) and $4,227,  respectively |       | 481                              |       | (5,886                         | )          | 3,578 |   | (6,258 | ) |
| Foreign currency  translation adjustment                                                                      |       | 2                                |       | (4                             | )          | (2 | ) | 108 |   |
| Comprehensive income                                                                                          |       | $                                | 9,918      |                           | $          | 22,052 |   | $ | 20,790 |   | $ | 26,935 |   |

 

The following tablesummarizes the Company’s accumulated other comprehensive income (loss) as of September 26,2009 and March 28, 2009:

 
| ** **                                                                                  | ** ** | **September 26,  2009** | ** ** | **March 28,  2009** | ** ** |
|---------------------------------------------------------------------------------------------|------------|------------------------------|------------|--------------------------|------------|
| Cash flow hedges of  foreign exchange, net of tax effect of $3,352 and $4,730, respectively |       | $                            | (4,925     | )                        | $          | (8,503 | ) |
| Foreign currency  translation adjustment                                                    |       | 112                          |       | 114                      |       |
| Total                                                                                       |       | $                            | (4,813     | )                        | $          | (8,389 | ) |

 

**14. Segment Information**

 

The Company reports its resultsin two segments: the photovoltaic business and polysilicon business.

 

The Company evaluatesperformance and allocates resources based on revenues and operating income(loss). Operating income (loss) for each segment includes selling, general andadministrative expenses directly attributable to the segment including theamortization of acquired intangible assets. Corporate Services includenon-allocable overhead costs, including human resources, legal, finance,general and administrative and corporate marketing expenses. Corporate Servicesassets include deferred tax assets, cash and cash equivalents and othernon-allocated assets.

 

Financial information forthe Company’s business segments is as follows:

 

14

----

Table of Contents

 
| ** **                                  | ** ** | **Photovoltaic  Business** | ** ** | **Polysilicon  Business** | ** ** | **Corporate  Services** | ** ** | **Total** | ** ** |
|---------------------------------------------|------------|----------------------------|------------|---------------------------|------------|-------------------------|------------|-----------|------------|
| Three months ended  September 26, 2009 |       |                       |       |                      |       |                    |       |      |       |
| Revenue                                     |       | $                          | 62,402     |                      | $          | 41,791                  |       | $         | —     |   | $ | 104,193 |   |
| Gross profit                                |       | 18,421                     |       | 15,838                    |       | —                  |       | 34,259    |       |
| Depreciation and  amortization              |       | 753                        |       | 387                       |       | 520                     |       | 1,660     |       |
| Income (loss) from  operations              |       | $                          | 12,270     |                      | $          | 12,280                  |       | $         | (9,114     | ) | $ | 15,436 |   |
| Three months ended  September 27, 2008 |       |                       |       |                      |       |                    |       |      |       |
| Revenue                                     |       | $                          | 140,192    |                      | $          | —                  |       | $         | —     |   | $ | 140,192 |   |
| Gross profit                                |       | 61,629                     |       | (258                      | )          | —                  |       | 61,371    |       |
| Depreciation and  amortization              |       | 775                        |       | 102                       |       | 346                     |       | 1,223     |       |
| Income (loss) from  operations              |       | $                          | 55,676     |                      | $          | (5,350                  | )          | $         | (7,158     | ) | $ | 43,168 |   |
|                                        |       |                       |       |                      |       |                    |       |      |       |
| Six months ended  September 26, 2009   |       |                       |       |                      |       |                    |       |      |       |
| Revenue                                     |       | $                          | 82,336     |                      | $          | 93,676                  |       | $         | —     |   | $ | 176,012 |   |
| Gross profit                                |       | 25,104                     |       | 44,120                    |       | —                  |       | 69,224    |       |
| Depreciation and  amortization              |       | 1,474                      |       | 789                       |       | 1,040                   |       | 3,303     |       |
| Income (loss) from  operations              |       | $                          | 13,325     |                      | $          | 33,896                  |       | $         | (16,206    | ) | $ | 31,015 |   |
| Six months ended  September 27, 2008   |       |                       |       |                      |       |                    |       |      |       |
| Revenue                                     |       | $                          | 197,274    |                      | $          | —                  |       | $         | —     |   | $ | 197,274 |   |
| Gross profit                                |       | 85,491                     |       | 177                       |       | —                  |       | 85,668    |       |
| Depreciation and  amortization              |       | 1,665                      |       | 111                       |       | 560                     |       | 2,336     |       |
| Income (loss) from  operations              |       | $                          | 74,494     |                      | $          | (9,425                  | )          | $         | (13,771    | ) | $ | 51,298 |   |
|                                        |       |                       |       |                      |       |                    |       |      |       |
| Assets                                      |       |                       |       |                      |       |                    |       |      |       |
| September 26, 2009                     |       | $                          | 196,076    |                      | $          | 322,562                 |       | $         | 243,168    |   | $ | 761,806 |   |
| March 28, 2009                         |       | $                          | 240,904    |                      | $          | 310,768                 |       | $         | 185,751    |   | $ | 737,423 |   |

 

The following table presentsnet sales by geographic region, which is based on the destination of theshipments:

 
| ** **    | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|---------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **    | ** ** | **September 26,  2009**     | ** ** | **September 27,  2008**   | ** ** | **September 26,  2009** | ** ** | **September 27,  2008** | ** ** |
| China         |       | $                                | 45,775     |                           | $          | 127,225 |   | $ | 63,739 |   | $ | 163,380 |   |
| Korea         |       | 7,491                            |       | 280                            |       | 12,083 |   | 962 |   |
| Other Asia    |       | 10,157                           |       | 1,319                          |       | 10,294 |   | 8,361 |   |
| Europe        |       | 33,059                           |       | 7,337                          |       | 81,719 |   | 14,282 |   |
| United States |       | 7,711                            |       | 716                            |       | 8,167 |   | 6,965 |   |
| Other         |       | —                           |       | 3,315                          |       | 10 |   | 3,324 |   |
| Total         |       | $                                | 104,193    |                           | $          | 140,192 |   | $ | 176,012 |   | $ | 197,274 |   |

 

A summary of long-livedassets, consisting of net property and equipment, intangible assets andgoodwill, by geographical region is as follows:

 
| ** **    | ** ** | **September 26,  2009** | ** ** | **March 28,  2009** | ** ** |
|---------------|------------|------------------------------|------------|--------------------------|------------|
| United States |       | $                            | 64,753     |                     | $          | 67,752 |   |
| China         |       | 528                          |       | 72                       |       |
| Total         |       | $                            | 65,281     |                     | $          | 67,824 |   |

 

**15. Supplemental Information**

 

***Other income (expense), net***

 

The components of other income (expense), net are as follows:

 
| ** **                                                        | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|-------------------------------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                                                        | ** ** | **September 26,  2009**     | ** ** | **September 27,  2008**   | ** ** | **September 26,  2009** | ** ** | **September 27,  2008** | ** ** |
| Foreign currency loss                                             |       | $                                | (45        | )                              | $          | (467 | ) | $ | (305 | ) | $ | (452 | ) |
| Initial public offering  expenses                                 |       | —                           |       | (1,193                         | )          | — |   | (2,689 | ) |
| Gain (loss) on derivatives-ineffective  portion (See Note 4) |       | 58                               |       | 3                              |       | (2,054 | ) | 42 |   |
| Other                                                             |       | 169                              |       | —                         |       | 178 |   | — |   |
| Total other expense, net                                          |       | $                                | 182        |                           | $          | (1,657 | ) | $ | (2,181 | ) | $ | (3,099 | ) |

 

15

----

Table of Contents

 

**Item 2.  Management’s Discussion and Analysis ofFinancial Condition and Results of Operations**

 

*This quarterly report on Form 10-Qcontains “forward-looking statements” that involve risks and uncertainties, aswell as assumptions that, if they never materialize or prove incorrect, couldcause our results to differ materially from those expressed or implied by suchforward-looking statements. The statements contained in this Quarterly Reporton Form 10-Q that are not purely historical are forward-looking statementswithin the meaning of Section 27A of the Securities Act of 1933, asamended, and Section 21E of the Securities Exchange Act of 1934, asamended. Forward-looking statements are often identified by the use of wordssuch as, but not limited to, “anticipate,” “believe,” “continue,” “could,” “estimate,”“expect,” “intend,” “may,” “will,” “plan,” “target,” “continue,” and similarexpressions or variations intended to identify forward-looking statements.These statements are based on the beliefs and assumptions of our managementbased on information currently available to management. Such forward-lookingstatements are subject to risks, uncertainties and other important factors thatcould cause actual results and the timing of certain events to differmaterially from future results expressed or implied by such forward-lookingstatements. Factors that could cause or contribute to such differences include,but are not limited to, the following factors and any other factors discussedunder the heading titled “Risk Factors” included in our Annual Report on Form 10-Kfor the fiscal year ended March 28, 2009 filed on June 9, 2009, andour Quarterly Report Form 10-Q for the quarter ended June 27, 2009,filed on August 5, 2009:*

 

·                  *thepotential adverse impact of general economic conditions on demand for ourproducts;*

·                  *currentfuture credit and financial market conditions;*

·                  *thefailure of amounts in our order backlog to result in actual revenue or totranslate into profits;*

·                  *ourdependence on a small number of customers;*

·                  *ourdependence on the sale of a limited number of products;*

·                  *ourdependence on a limited number of third party suppliers;*

·                  *productliability claims and/or claims in relation to third party equipment;*

·                  *loss ofany of our management team or our inability to attract and retain key employeesor integrate new employees into our management team;*

·                  *ourinability to attract, train and retain technical personnel;*

·                  *ourinability to protect our intellectual property and the possibility oflitigation to protect our intellectual property rights;*

·                  *risksassociated with the international nature of our business, including ofunfavorable political, regulatory, labor and tax conditions in foreigncountries;*

·                  *compliancewith legal systems in other countries in which we offer and sell our products;*

·                  *commercial,jurisdictional and legal risks associated with our business in China;*

·                  *claimsrelating to the infringement, misappropriation or other violation ofproprietary manufacturing expertise, technological innovation and otherintellectual property rights;*

·                  *concentrationof credit risk related to our cash equivalents;*

·                  *ourinability to comply with covenants in our credit facilities;*

·                  *ourexposure to warranty claims;*

·                  *our exposureto exchange rate fluctuations;*

·                  *the effectof increases in interest rates or the reduced availability of financing ondemand for our products;*

·                  *thesecurities class action lawsuits relating to our initial public offering;*

·                  *ourinability to implement the requirements of Section 404 of the Sarbanes-OxleyAct in a timely manner;*

·                  *ourinability to recognize revenue on sales of new products;*

·                  *our lackof ownership of the technology underlying our CVD reactor;*

·                  *cyclicalityin the market for polysilicon and variation in demand for products sold in ourpolysilicon business;*

·                  *direct andindirect competition for our polysilicon production equipment;*

·                  *ourreliance on a limited number of suppliers and manufacturers for our polysiliconbusiness;*

·                  *competitionfrom other manufacturers of photovoltaic products;*

·                  *the lossof government subsidiaries or economic incentives for on-grid solar electricityapplications;*

·                  *existingregulations and policies or changes to regulations and policies relating to theelectric utility industry;*

·                  *inabilityof the photovoltaic industry to compete successfully with conventional powergeneration or other sources of renewable energy; and*

·                  *technologicalchanges in the photovoltaic industry that render existing products and technologiesuncompetitive or obsolete.*

 

*The foregoing factorsshould not be construed as exhaustive and should be read in conjunction withthe other statements that are included under the heading “Risk Factors”included in our Quarterly Report on Form 10-Q for the quarter ended June 27,2009, filed on August 5, 2009, our Annual Report on Form 10-K for thefiscal year ended March 28, 2009 filed on June 9, 2009 and in thisreport. Forward-looking statements speak only as of the date of this report. We*

 

16

----

Table of Contents

 

*undertake no obligation to publicly update or reviewany forward-looking statements to reflect events or circumstances after thedate of such statements.*

 

**Company Overview**

 

GT Solar International, Inc. and itssubsidiaries (referred to herein collectively as “we”, “us”, and “our”) is aprovider of specialized manufacturing equipment and services for the productionof photovoltaic wafers, cells and modules and polysilicon. Our principalproducts are directional solidification systems, or DSS units, and chemicalvapor deposition, or CVD, reactors and related equipment. DSS units arespecialized furnaces used to melt polysilicon and cast multicrystalline ingotsfrom which solar wafers are made. CVD reactors are used to react gases at hightemperatures and pressures to produce polysilicon, the key raw material used insolar cells. Our customers include several of the world’s largest solarcompanies as well as companies in the chemical industry. We operate through twosegments: our photovoltaic business and our polysilicon business. We arefocusing on strategies to enhance and accelerate the growth of our business.

 

Our photovoltaic business manufactures andsells DSS units and related ancillary equipment, as well as, spare parts andconsumables. We sell our products separately and as part of “turnkey solutions,”where we bundle equipment, including third party equipment, with design andintegration expertise.

 

Our polysilicon business offers CVD reactorsand related equipment specifically designed for the efficient production ofpolysilicon. Polysilicon is a highly purified form of silicon that is used tomake semiconductor wafers for microelectronics applications and is the key rawmaterial used to produce solar wafers. The CVD process involved in theproduction of polysilicon takes place in a specialized CVD reactor using avariety of complex chemical processes, the most widely used being the Siemensprocess, which has been in existence for nearly fifty years. Our CVD reactorsutilize the Siemens process. Our polysilicon business also recently beganoffering design and engineering solutions for the manufacturing oftrichlorosilane and silane gases, which are used in both the silicon andsemiconductor industries.

 

Our business was founded in 1994. Effective January 1,2006, our business was acquired by GT Solar Holdings, LLC, a newly formedcompany controlled by GFI Energy Ventures LLC, a private equity investmentfirm focused on the energy sector, and Oaktree Capital Management, L.P., aglobal alternative and non-traditional investment manager. We refer to thistransaction as the “Acquisition.” On July 29, 2008, we completed an initialpublic offering of 30,300,000 shares of common stock by certain of ourstockholders (the “IPO”).

 

**Factors Affecting Our Results of Operations**

 

Demand for our products and services isdriven by end-user demand for solar power. Key drivers of the growing demandfor solar power include volatile prices of conventional energy sources, thedesire for energy security/energy independence to counter perceivedgeopolitical supply risks surrounding fossil fuels, environmental pollutionfrom fossil fuels and the resulting tightening of emission controls, theincreasingly competitive cost of energy from renewable energy sources,government incentive programs for the development of solar energy making solarenergy more cost competitive and changing consumer preferences towardsrenewable energy sources.

 

In addition, our results of operations areaffected by a number of external factors including the availability and priceof polysilicon in the market, availability of raw materials, foreign exchangerates, interest rates, commodity prices (particularly steel and graphiteprices) and macroeconomic factors, including the availability of capital thatmay be needed by our customers, and political, regulatory and legal conditionsin the international markets in which we conduct business (including China).

 

Our results of operations are affected by anumber of other factors including, among other things, the size of newcontracts and when we are able to recognize the related revenue (especiallywith respect to our polysilicon products), delays in customer acceptances ofour products, delays of deliveries of ordered products and our rate of progressin the fulfillment of our obligations under our contracts. A delay indeliveries or cancellations of orders would cause us to have inventories inexcess of our short-term needs, and may delay our ability to recognize, orprevent us from recognizing revenue on contracts in our order backlog.

 

Disruptions in the global capital marketshave resulted in reduced availability of capital worldwide and have contributedto a slower rate of spending by our customers. Although we continue to believethat the effect of these uncertainties is somewhat mitigated by our requirementof substantial non-refundable deposits on most orders, we have negotiatedextensions of the delivery schedules and other modifications under some of ourexisting contracts. In addition, some of our customers failed to make depositswhen due under their contracts and we terminated those contracts.

 

17

----

Table of Contents

 

Current economic conditions and excesscapacity have negatively impacted the availability of financing for major solarprojects and, as a result, solar market demand has slowed and certain customershave requested delays in delivery and other contract modifications. Although webelieve our long term prospects are in line with solar industry forecasts, thecurrent underutilization of both solar cell and polysilicon manufacturingcapacity is expected to impact our results for future periods. Due to thesecurrent economic conditions, we have reduced our production plans for the yearended April 3, 2010, as compared to March 28, 2009.

 

We have rescheduled and/or cancelled commitmentsto our vendors to procure materials in our photovoltaic business to reflect ourreduced production plan. As a result, we had recorded charges for expecteddeposit forfeitures and reserves against vendor advances totaling$11.3 million during the fiscal year ended March 28, 2009 andrecorded charges of $1.0 million from commitment terminations during the sixmonths ended September 26, 2009. We anticipate recording additionalcharges with respect to vendor commitments of up to $0.4 million duringthe remaining portion of fiscal year ending April 3, 2010.

 

Due to requested delays from our polysilicon customers,we recently began discussions with certain of our polysilicon suppliers todelay or otherwise modify certain of our euro denominated purchase commitments.As a result, during the six months ended September 26, 2009, we recorded acharge of $2.1 million in connection with forward foreign exchangecontracts that were no longer deemed highly effective as a cash flow hedge.

 

We continue to negotiate with our customersand vendors and are unable to estimate the additional impact, if any, on ourfinancial statements until such negotiations conclude and the timing ofdeliveries and other terms are finalized. Our quarterly results have fluctuatedsignificantly in the past and we expect that our quarterly results willcontinue to fluctuate significantly in the future.

 

**Order Backlog**

 

Our order backlog consists of signed purchaseorders or other written contractual commitments. The table below sets forth ourorder backlog as of September 26, 2009 and March 28, 2009 by productcategory:

 
| ** **            | ** ** | **As of  September 26, 2009** | ** ** | **As of  March 28, 2009** | ** ** |
|-----------------------|------------|------------------------------------|------------|--------------------------------|------------|
| **Product Category**  | ** ** | **Amount**                         | ** ** | **% of  Backlog**              | ** ** | **Amount** | ** ** | **% of  Backlog** | ** ** |
| ** **            | ** ** | **(dollars in millions)**          | ** ** |
| Photovoltaic business |       | $                                  | 279        |                           | 27         | % | $ | 341 |   | 29 | % |
| Polysilicon business  |       | 752                                |       | 73                             | %          | 836 |   | 71 | % |
| Total                 |       | $                                  | 1,031      |                           | 100        | % | $ | 1,177 |   | 100 | % |

 

Our order backlog as of September 26,2009 and March 28, 2009, included deferred revenue of $471.5 millionand $348.1 million, respectively, representing equipment that had beenshipped to customers but not yet recognized as revenue. Cash deposits relatedto our order backlog were $135.4 million as of September 26, 2009,and substantially all of the contracts in our order backlog require thecustomer to either post a letter of credit in our favor or make advance paymentprior to shipment of equipment covering most of the purchase price. Wegenerally would expect to deliver the photovoltaic products included in ourorder backlog over a period ranging from three to nine months and thepolysilicon products included in our order backlog over a period ranging fromtwelve to eighteen months, although portions of the related revenue areexpected to be recognized over longer periods in some cases. We expect toconvert approximately 30% of our order backlog as of September 26, 2009 torevenue through the period ending April 3, 2010.  Due to recent requests from customers to delayshipments of their products, we expect the remainder to be converted to revenueduring fiscal years 2011 and 2012. Although, most of our orders requiresubstantial non-refundable deposits, our order backlog as of any particulardate should not be relied upon as indicative of our revenues for any futureperiod. We began tracking our backlog as a performance measure on a consistentbasis during 2007.

 

If a customer fails to perform itscontractual obligations and we do not reasonably expect such customer toperform its obligation, we may terminate such contract. As a result of such terminationsand other contract revisions, our order backlog was reduced by approximately $17 millionduring the six months ended September 26, 2009 as compared to a reductionof $11 million during the six months ended September 27, 2008. During the sixmonths ended September 26, 2009 we recorded revenues of approximately $2million from forfeited deposits.

 

18

----

Table of Contents

 

We are continuing negotiations with a numberof customers who have requested that we extend their delivery schedules and/ormake other contract modifications, or, in some cases have failed to provideletters of credit or to make payments in accordance with the terms of theircontracts. Although we continue to have a reasonable expectation that most ofthese customers will substantially perform on their obligations, we believeapproximately 20% of our total order backlog as of September 26, 2009 is at riskto varying degrees.  This amount includes contracts with customers to whomwe have sent notices of breach for failure to provide letters of credit or tomake payments when due. If we cannot come to an agreement with these customers,our order backlog could be reduced.

 

In addition, as of September 26, 2009 wehave agreed to an extension of the delivery of the equipment under apolysilicon contract representing 17% of our order backlog as of September 26,2009, which we do not consider at risk, but for which we have not yet finalizeda revised delivery schedule. We have previously received a deposit representingapproximately 30% of the contract total.

 

Other customers with contracts in our orderbacklog that are not currently under negotiation may approach us with similarrequests in the future, or may fail to provide letters of credit or to makepayments when due, which could further reduce our order backlog.

 

If a customer fails to perform on a timelybasis, and such failure continues after notice of breach and a cure period, wemay terminate the contract.  Our contracts do not contain cancellationprovisions and in the event of a customer breach, the customer may be liablefor contractual damages.

 

As of September 26, 2009, our orderbacklog consisted of contracts with 28 photovoltaic customers, 13 of which haveorders of $3 million or greater, and 9 polysilicon customers, 8 of whichhave orders of $3 million or greater. Our order backlog as of September 26,2009 included $685 million attributed to three customers with no othercustomer representing more than 10% of our order backlog.

 

**Results of Operations**

 

The following tables set forth the results ofoperations as a percentage of revenue for the three and six months ended September 26,2009 and September 27, 2008:

 
| ** **                          | ** ** | **Three Months Ended**       | ** ** | **Six Months Ended**         | ** ** |
|-------------------------------------|------------|------------------------------|------------|------------------------------|------------|
| ** **                          | ** ** | **September 26,  2009** | ** ** | **September 27,  2008** | ** ** | **September 26,  2009** | ** ** | **September 27,  2008** | ** ** |
| **Statement of Operations  Data:*** |       |                         |       |                         |       |   |   |   |   |
| Revenue                             |       | 100                          | %          | 100                          | %          | 100 | % | 100 | % |
| Cost of revenue                     |       | 67                           |       | 56                           |       | 61 |   | 57 |   |
| Gross profit                        |       | 33                           |       | 44                           |       | 39 |   | 43 |   |
| Research and development            |       | 4                            |       | 3                            |       | 6 |   | 4 |   |
| Selling and marketing               |       | 3                            |       | 4                            |       | 4 |   | 4 |   |
| General and administrative          |       | 10                           |       | 6                            |       | 10 |   | 8 |   |
| Amortization of intangible assets   |       | 1                            |       | 1                            |       | 1 |   | 1 |   |
| Income from operations              |       | 15                           |       | 31                           |       | 18 |   | 26 |   |
| Interest income (expense), net      |       | —                       |       | 2                            |       | (1 | ) | 2 |   |
| Other expense, net                  |       | —                       |       | (1                           | )          | (1 | ) | (1 | ) |
| Income before income taxes          |       | 15                           |       | 31                           |       | 16 |   | 27 |   |
| Provision for income taxes          |       | 6                            |       | 11                           |       | 6 |   | 10 |   |
| Net income                          |       | 9                            | %          | 20                           | %          | 10 | % | 17 | % |

 

----

****                                        **percentagessubject to rounding.*

 

***Three Months Ended September 26,2009 compared to Three Months Ended September 27, 2008.***

 

*Revenue.*  The following table sets forth total revenuefor the three months ended September 26, 2009 and September 27, 2008:

 
| ** **                             | ** ** | **Three Months Ended**       | ** ** | ** **                   | ** ** | ** ** | ** ** |
|----------------------------------------|------------|------------------------------|------------|------------------------------|------------|------------|------------|
| **Business Category**                  | ** ** | **September 26,  2009** | ** ** | **September 27,  2008** | ** ** | **Change** | ** ** | **% Change** | ** ** |
| ** **                             | ** ** | **(dollars in thousands)**   | ** ** | ** **                   | ** ** | ** ** | ** ** |
| Photovoltaic equipment                 |       | $                            | 60,687     |                         | $          | 135,006    |       | $ | (74,319 | ) |   |   |
| Photovoltaic services, parts and other |       | 1,715                        |       | 5,186                        |       | (3,471     | )          |   |   |
| Total photovoltaic business            |       | 62,402                       |       | 140,192                      |       | (77,790    | )          |   |   |
| Polysilicon business                   |       | 41,791                       |       | —                       |       | 41,791     |       |   |   |
| Total revenue                          |       | $                            | 104,193    |                         | $          | 140,192    |       | $ | (35,999 | ) | (26 | )% |

 

Our total revenue decreased 26% to $104.2 millionfor the three months ended September 26, 2009 from $140.2 million forthe three months ended September 27, 2008.

 

Our revenue from photovoltaic equipment salesdecreased 55% to $60.7 million for the three months ended September 26,2009 from $135.0 million for the three months ended September 27,2008. Photovoltaic equipment revenue includes sales of DSS units as well as otherphotovoltaic equipment. During the three months ended September 26, 2009,revenue from DSS sales were $34.8 million as compared to $129.1 millionin the same quarter last year. Sales of other

 

19

----

Table of Contents

 

photovoltaic equipment accounted for $25.9 million and $5.9 millionof our revenue for the three months ended September 26, 2009 and September 27,2008, respectively. Revenue from other photovoltaic equipment can fluctuatebased upon specific customer requirements. During the three months ended September 26,2009, revenue from other photovoltaic equipment increased as a result ofincreased turnkey revenue as described below. Revenue from photovoltaicservices, parts and other decreased to $1.7 million for the three monthsended September 26, 2009 from $5.2 million for the three months endedSeptember 27, 2008. The overall decrease in our photovoltaic business issubstantially related to delays in deliveries requested by our customers onexisting contracts as a result of the economic downturn.

 

Many of our DSS contracts include both thedelivery of DSS furnaces as well as ancillary equipment. We do not often sellancillary equipment separately from our DSS furnaces and therefore we have notbeen able to establish stand-alone objective evidence of their fair value inall cases. For revenue recognition purposes, we defer the revenue for shippedand accepted equipment until all equipment and services for which we have beenunable to establish objective evidence of fair value have been shipped andaccepted. When negotiating contracts with our customers, we attempt toestablish delivery schedules so that we deliver ancillary equipment in theearlier stages of the contract to facilitate revenue recognition.

 

During the three months ended September 26,2009 we recorded $25.5 million of turnkey revenue, of which $5.8 million wasrecorded as sales of DSS units and $19.7 million was recorded as otherphotovoltaic equipment. We recorded no revenue from turnkey contracts duringthe three months ended September 27, 2008. Turnkey revenue is recordedafter final production line acceptance and therefore is periodic in nature.

 

During the three months ended September 26,2009, we recognized polysilicon revenue of $41.8 million related to ourCVD reactors and related equipment. We did not recognize any polysiliconrevenue in the three months ended September 27, 2008.

 

In both the three months ended September 26,2009 and September 27, 2008, a substantial percentage of our revenueresulted from sales to a small number of customers. Two of our customersaccounted for 55% of our revenue for the three months ended September 26,2009 and three customers accounted for 77% of our revenue for the three monthsended September 27, 2008. No other customer accounted for more than 10% ofour revenue during the respective periods. For the fiscal year ending April 3,2010, we believe that no one customer will account for more than 35% of ourtotal annual revenue.

 

*Cost of Revenue, GrossProfit and Gross Margins.*  Thefollowing table sets forth total cost of revenue and gross profit for the threemonths ended September 26, 2009 and September 27, 2008:

 
| ** **            | ** ** | **Three Months Ended**      | ** ** | ** **                  | ** ** | ** ** | ** ** |
|-----------------------|------------|-----------------------------|------------|-----------------------------|------------|------------|------------|
| ** **            | ** ** | **September 26, 2009** | ** ** | **September 27, 2008** | ** ** | **Change** | ** ** | **% Change** | ** ** |
| ** **            | ** ** | **(dollars in thousands)**  | ** ** | ** **                  | ** ** | ** ** | ** ** |
| Cost of revenue       |       |                        |       |                        |       |       |       |   |   |
| Photovoltaic business |       | $                           | 43,981     |                        | $          | 78,563     |       | $ | (34,582 | ) |   |   |
| Polysilicon business  |       | 25,953                      |       | 258                         |       | 25,695     |       |   |   |
| Total                 |       | $                           | 69,934     |                        | $          | 78,821     |       | $ | (8,887 | ) | (11 | )% |
|                  |       |                        |       |                        |       |       |       |   |   |
| Gross profit          |       |                        |       |                        |       |       |       |   |   |
| Photovoltaic business |       | $                           | 18,421     |                        | $          | 61,629     |       | $ | (43,208 | ) |   |   |
| Polysilicon business  |       | 15,838                      |       | (258                        | )          | 16,096     |       |   |   |
| Total                 |       | $                           | 34,259     |                        | $          | 61,371     |       | $ | (27,112 | ) | (44 | )% |

 

Our photovoltaic cost of revenue decreased $34.6 million,or 44%, and our photovoltaic gross profit decreased $43.2 million, or 70% forthe three months ended September 26, 2009 compared to the three monthsended September 27, 2008. This decrease reflects the delays in deliverieson existing contracts requested by our customers as a result of the recenteconomic downturn. Our polysilicon cost of revenue increased by $25.7 millionand our polysilicon gross profit increased by $16.1 million for the threemonths ended September 26, 2009 compared to the three months ended September 27,2008. This increase relates to polysilicon revenue that was recognized duringthe three months ended September 26, 2009 which is periodic in nature. Wedid not recognize any polysilicon revenue in the three months ended September 27,2008.

 

The following table sets forth total grossmargins for the three months ended September 26, 2009 and September 27,2008 and, for comparative purposes, the fiscal year ended March 28, 2009:

 

20

----

Table of Contents

 
| ** **            | ** ** | **Three Months Ended**      | ** ** | **Fiscal  Year Ended**      | ** ** |
|-----------------------|------------|-----------------------------|------------|-----------------------------|------------|
| ** **            | ** ** | **September 26, 2009** | ** ** | **September 27, 2008** | ** ** | **March 28, 2009** | ** ** |
| Gross margins         |       |                        |       |                        |       |   |   |
| Photovoltaic business |       | 30                          | %          | 44                          | %          | 40 | % |
| Polysilicon business  |       | 38                          | %          | —                      |       | 38 | % |
| Overall               |       | 33                          | %          | 44                          | %          | 40 | % |

 

Overall gross profit as a percentage ofrevenue, or gross margin, decreased to 33% for the three months ended September 26,2009 from 44% for the three months ended September 27, 2008 as compared to40% for the fiscal year ended March 28, 2009. Our gross margins tend to varydepending on our manufacturing volume, as well as the mix and pricing of ourcontracts.

 

Gross margins for the photovoltaic businessduring the three months ended September 26, 2009 were 30% as compared togross margins of 44% during the three months ended September 27, 2008 and40% for the fiscal year ended March 28, 2009. As a result of lower levels ofproduction during the three months ended September 28, 2009, gross marginswere adversely impacted by increases of approximately $0.9 million of underabsorbed manufacturing costs, increases in inventory reserves of approximately$1.1 million and $0.5 million of charges as we rescheduled and/orcancelled a portion of our commitments to our vendors to procure materials. Grossmargins for the three months ended September 26, 2009 were favorably impactedas a result of recording approximately $1.8 million of revenue without anyrelated costs as a result of  theretention of a non-refundable deposit associated with a cancelled photovoltaiccontract. Gross margins for the three months ended September 26, 2009 werealso adversely impacted as a result of recognizing approximately $25.5 millionof turnkey revenue at gross margin of 28%.

 

Gross margins for the photovoltaic businessduring the three months ended September 27, 2008 were 44% and were favorably impactedby the higher gross margins on our DSS units that were introduced during thesecond quarter of fiscal 2008 and represented a significant portion of thetotal photovoltaic revenue during the period. We did not recognize any revenuefrom turnkey contracts during the three months ended September 27, 2008. 

 

Gross margins within our polysilicon businessduring the three months ended September 26, 2009 were 38% as compared togross margins of 38% during the year ended March 28, 2009. We did notrecognize any polysilicon revenue during the three months ended September 27,2008.

 

*Research and Development.*  The following table sets forth total researchand development expenses for the three months ended September 26, 2009 andSeptember 27, 2008:

 
| ** **               | ** ** | **Three Months Ended**      | ** ** | ** **                  | ** ** | ** ** | ** ** |
|--------------------------|------------|-----------------------------|------------|-----------------------------|------------|------------|------------|
| ** **               | ** ** | **September 26, 2009** | ** ** | **September 27, 2008** | ** ** | **Change** | ** ** | **% Change** | ** ** |
| ** **               | ** ** | **(dollars in thousands)**  | ** ** | ** **                  | ** ** | ** ** | ** ** |
| Research and development |       |                        |       |                        |       |       |       |   |   |
| Photovoltaic business    |       | $                           | 3,126      |                        | $          | 2,066      |       | $ | 1,060 |   |   |   |
| Polysilicon business     |       | 1,511                       |       | 1,983                       |       | (472       | )          |   |   |
| Total                    |       | $                           | 4,637      |                        | $          | 4,049      |       | $ | 588 |   | 15 | % |

 

Research and development expenses were $4.6 millionfor the three months ended September 26, 2009, compared to $4.0 millionfor the three months ended September 27, 2008, an increase of 15%. Ourresearch and development expenses include labor, subcontracting costs andmaterial spending associated with the continuing development of our polysiliconbusiness products, particularly our CVD reactor and trichlorosilanetechnologies, as well as costs associated with the development of our next-generationDSS product. We expect the level of R&D spending incurred during the threemonths ended September 26, 2009 to increase for the remainder of ourfiscal year ending April 3, 2010, as we continue to invest in new productdevelopment and expand our product base in both our polysilicon andphotovoltaic businesses.

 

*Selling and Marketing.*  The following table sets forth total sellingand marketing expenses for the three months ended September 26, 2009 and September 27,2008:

 
| ** **            | ** ** | **Three Months Ended**      | ** ** | ** **                  | ** ** | ** ** | ** ** |
|-----------------------|------------|-----------------------------|------------|-----------------------------|------------|------------|------------|
| ** **            | ** ** | **September 26, 2009** | ** ** | **September 27, 2008** | ** ** | **Change** | ** ** | **% Change** | ** ** |
| ** **            | ** ** | **(dollars in thousands)**  | ** ** | ** **                  | ** ** | ** ** | ** ** |
| Selling and marketing |       |                        |       |                        |       |       |       |   |   |
| Photovoltaic business |       | $                           | 1,710      |                        | $          | 2,677      |       | $ | (967 | ) |   |   |
| Polysilicon business  |       | 1,448                       |       | 2,367                       |       | (919       | )          |   |   |
| Total                 |       | $                           | 3,158      |                        | $          | 5,044      |       | $ | (1,886 | ) | (37 | )% |

 

Selling and marketingexpenses decreased 37% to $3.2 million for the three months ended September 26,2009 from $5.0 million for the three months ended September 27, 2008.Photovoltaic business selling and marketing expenses decreased approximately $1.0 millionsubstantially due to decreased sales commissions of $1.4 million. Polysiliconbusiness selling and marketing expenses decreased by $0.9 million which wassubstantially related to decreased sales commissions and payroll related costs.Sales commissions are accrued based on operational factors such as deposits,shipments and final acceptances

 

21

----

Table of Contents

 

received from customers rather than whenrevenue is recognized.During the three months ended September 26,2009 we initiated a review of our outside sales relationships and began aprocess of transferring more of that activity internally with the goal ofreducing overall commission expense in the future.

 

*General and Administrative.*  General and administrative expenses increasedby $1.9 million or 23% to $10.2 million for the three months ended September 26,2009 from $8.3 million for the three months ended September 27, 2008.These increases were attributable to higher stock compensation expense of $1.5 milliondue to the variable nature of the stock options awarded to non-employees thevalue of which is adjusted to reflect changes in the market value of our commonstock until the award vests and higher payroll related costs of $0.5 million. Theseincreases were offset by lower information technology consulting expense of $0.5million.

 

*Amortization of IntangibleAssets.*  Amortization expense attributedto intangible assets has remained essentially unchanged for the three monthsended September 26, 2009 as compared to the three months ended September 27,2008.

 

*Interest Income.*  We typically invest our excess cash inexchange traded money market mutual funds. During the three months ended September 26,2009, interest income was not significant. During the three months ended September 27,2008, we recorded $1.1 million of interest income. Interest incomedecreased due to substantially lower interest rates earned on our investments.

 

*Interest Expense.*  During the three months ended September 26,2009 and September 27, 2008, we recorded interest expense of $0.2 millionand $0.1 million which was primarily attributed to the expensing of deferreddebt costs in connection with our credit facility and other related creditfacility fees.

 

*Interest Component ofForward Foreign Exchange Contracts.*  During the three months ended September 27,2008, we recorded interest income of $1.4 million on forward foreignexchange contracts. This amount represent the interest rate differentialbetween the two countries involved in our forward foreign exchange contract forthe specified period of time and can be either a premium or discount at thebeginning of the contract and is adjusted to reflect interest rate marketcondition changes. Such changes can result in interest income or interestexpense over the life of the contract.

 

*Other Expense, net.*  During the three months ended September 26,2009, other income, net was $0.2 million. During the three months ended September 27,2008, other expense, net was $1.7 million of which $1.2 millionrelated to expenses associated with our initial public offering.

 

*Provision for Income Taxes.*  Our effective income tax expense rate was 39.3%for the three months ended September 26, 2009 compared to 36.3% for the threemonths ended September 27, 2008. The effective tax rate for the threemonths ended September 27, 2008 was lower than the effective tax rate forthe three months ended September 26, 2009 primarily due to the impact ofdiscrete items related to tax benefits recognized based on prior year taxstudies completed during the quarter ended September 27, 2008. We reviewthe expected annual effective income tax rates and makes changes on a quarterlybasis as necessary based on certain factors such as changes in forecastedannual operating income; changes to the valuation allowance for net deferredtax assets; changes to actual or forecasted permanent book to tax differences;impacts from future tax settlements with state, federal or foreign taxauthorities; and impacts from tax law changes. Due to the volatility of thesefactors, our consolidated effective income tax rate can fluctuate on aquarterly basis.

 

*Net Income.*  As a result of the foregoing factors, for thethree months ended September 26, 2009, we recorded net income of $9.4 millioncompared to a net income of $27.9 million for the three months ended September 27,2008.

 

22

----

Table of Contents

 

***Six Months Ended September 26,2009 compared to Six Months Ended September 27, 2008.***

 

*Revenue.*  The following table sets forth total revenuefor the six months ended September 26, 2009 and September 27, 2008:

 
| ** **                             | ** ** | **Six Months Ended**         | ** ** | ** **                  | ** ** | ** ** | ** ** |
|----------------------------------------|------------|------------------------------|------------|-----------------------------|------------|------------|------------|
| **Business Category**                  | ** ** | **September 26,  2009** | ** ** | **September 27, 2008** | ** ** | **Change** | ** ** | **%  Change** | ** ** |
| ** **                             | ** ** | **(dollars in thousands)**   | ** ** | ** **                  | ** ** | ** ** | ** ** |
| Photovoltaic equipment                 |       | $                            | 79,726     |                        | $          | 189,510    |       | (109,784 | ) |   |   |
| Photovoltaic services, parts and other |       | 2,610                        |       | 7,764                       |       | (5,154     | )          |   |   |
| Total photovoltaic business            |       | 82,336                       |       | 197,274                     |       | (114,938   | )          |   |   |
| Polysilicon business                   |       | 93,676                       |       | —                      |       | 93,676     |       |   |   |
| Total revenue                          |       | $                            | 176,012    |                        | $          | 197,274    |       | $ | (21,262 | ) | (11 | )% |
|                                        |            |                              |            |                             |            |            |            |  |  |  |  |  |

 

Our total revenue decreased 11% to $176.0 millionfor the six months ended September 26, 2009 from $197.3 million forthe six months ended September 27, 2008.

 

Our revenue from photovoltaic equipment salesdecreased 58% to $79.7 million for the six months ended September 26,2009 from $189.5 million for the six months ended September 27, 2008.Photovoltaic equipment revenue includes sales of DSS units as well as otherphotovoltaic equipment. During the six months ended September 26, 2009,our revenue from DSS sales were $51.8 million as compared to $180.1 millionin the same quarters last year. Sales of other photovoltaic equipment accountedfor $27.9 million and $9.4 million of our revenue for the six monthsended September 26, 2009 and September 27, 2008, respectively. Revenuefrom other photovoltaic equipment can fluctuate based upon specific customerrequirements. During the six months ended September 26, 2009, revenue fromother photovoltaic equipment increased as a result of increased turnkey revenueas discussed below. Revenue from photovoltaic services, parts and otherdecreased to $2.6 million for the six months ended September 26, 2009from $7.8 million for the six months ended September 27, 2008. Theoverall decrease in our photovoltaic business is substantially related todelays in deliveries requested by our customers on existing contracts as aresult of the economic downturn.

 

Many of our DSS contracts include both thedelivery of DSS furnaces as well as ancillary equipment. We do not often sellancillary equipment separately from our DSS furnaces and therefore we have notbeen able to establish stand-alone objective evidence of their fair value inall cases. For revenue recognition purposes, we defer the revenue for shippedand accepted equipment until all equipment and services for which we have beenunable to establish objective evidence of fair value have been shipped andaccepted. When negotiating contracts with our customers, we attempt toestablish delivery schedules so that we deliver ancillary equipment in theearlier stages of the contract to facilitate revenue recognition.

 

During the six months ended September 26,2009 we recorded $25.5 million of turnkey revenue of which $5.8 million wasrecorded as sales of DSS units and $19.7 million was recorded as sales of otherphotovoltaic equipment. Revenue from turnkey contracts accounted for none ofour revenue for the six months ended September 27, 2008. Turnkey revenueis recorded after final production line acceptance and therefore is periodic innature.

 

During the six months ended September 26,2009, we recognized polysilicon revenue of $93.7 million related to ourCVD reactors and related equipment. We did not recognize any polysiliconrevenue in the six months ended September 27, 2008.

 

In both the six months ended September 26,2009 and September 27, 2008, a substantial percentage of our revenueresulted from sales to a small number of customers. Three of our customers accountedfor 60% of our revenue for the six months ended September 26, 2009 andthree customers accounted for 71% of our revenue for the six months ended September 27,2008. No other customer accounted for more than 10% of our revenue during therespective periods. For the fiscal year ending April 3, 2010, we believethat no one customer will account for more than 35% of our total annualrevenue.

 

*Cost of Revenue, GrossProfit and Gross Margins.*  Thefollowing table sets forth total cost of revenue and gross profit for the sixmonths ended September 26, 2009 and September 27, 2008:

 

23

----

Table of Contents

 
| ** **            | ** ** | **Six Months Ended**        | ** ** | ** **                  | ** ** | ** ** | ** ** |
|-----------------------|------------|-----------------------------|------------|-----------------------------|------------|------------|------------|
| ** **            | ** ** | **September 26, 2009** | ** ** | **September 27, 2008** | ** ** | **Change** | ** ** | **% Change** | ** ** |
| ** **            | ** ** | **(dollars in thousands)**  | ** ** | ** **                  | ** ** | ** ** | ** ** |
| Cost of revenue       |       |                        |       |                        |       |       |       |   |   |
| Photovoltaic business |       | $                           | 57,232     |                        | $          | 111,783    |       | $ | (54,551 | ) |   |   |
| Polysilicon business  |       | 49,556                      |       | (177                        | )          | 49,733     |       |   |   |
| Total                 |       | $                           | 106,788    |                        | $          | 111,606    |       | $ | (4,818 | ) | (4 | )% |
|                  |       |                        |       |                        |       |       |       |   |   |
| Gross profit          |       |                        |       |                        |       |       |       |   |   |
| Photovoltaic business |       | $                           | 25,104     |                        | $          | 85,491     |       | $ | (60,387 | ) |   |   |
| Polysilicon business  |       | 44,120                      |       | 177                         |       | 43,943     |       |   |   |
| Total                 |       | $                           | 69,224     |                        | $          | 85,668     |       | $ | (16,444 | ) | (19 | )% |

 

Our photovoltaic cost of revenue decreased $54.6 million,or 49%, and our photovoltaic gross profit decreased $60.4 million, or 71%, forthe six months ended September 26, 2009 compared to the six months ended September 27,2008. This decrease reflects the delays in deliveries on existing contractsrequested by our customers as a result of the recent economic downturn. Ourpolysilicon cost of revenue increased by $49.7 million and our polysilicongross profit increased by $43.9 million, for the six months ended September 26,2009 compared to the six months ended September 27, 2008. This increaserelates to polysilicon revenue that was recognized during the six months ended September 26,2009 which is periodic in nature. We did not recognize any polysilicon revenuein the six months ended September 27, 2008.

 

The following table sets forth total grossmargins for the six months ended September 26, 2009 and September 27,2008 and, for comparative purposes, the fiscal year ended March 28, 2009:

 
| ** **            | ** ** | **Six Months Ended**        | ** ** | **Fiscal  Year Ended**      | ** ** |
|-----------------------|------------|-----------------------------|------------|-----------------------------|------------|
| ** **            | ** ** | **September 26, 2009** | ** ** | **September 27, 2008** | ** ** | **March 28, 2009** | ** ** |
| Gross margins         |       |                        |       |                        |       |   |   |
| Photovoltaic business |       | 30                          | %          | 43                          | %          | 40 | % |
| Polysilicon business  |       | 47                          | %          | —                      |       | 38 | % |
| Overall               |       | 39                          | %          | 43                          | %          | 40 | % |

 

Overall gross profit as a percentage ofrevenue, or gross margin, decreased to 39% for the six months ended September 26,2009 from 43% for the six months ended September 27, 2008 as compared to40% for the fiscal year ended March 28, 2009. Our gross margins tend to varydepending on our manufacturing volume, as well as the mix and pricing of ourcontracts.

 

Gross margins for our photovoltaic businessduring the six month ended September 26, 2009 were 30% as compared to 43%during the six months ended September 27, 2008 and 40% for the fiscal yearended March 28, 2009. As a result of lower levels of production during the sixmonths ended September 28, 2009, gross margins were adversely impacted by increasesof approximately $1.9 million of under absorbed manufacturing costs, increasesin inventory reserves of approximately $1.4 million and $1.0 million ofcharges incurred as we rescheduled and/or cancelled a portion of ourcommitments to our vendors to procure materials. Gross margins for the sixmonths ended September 26, 2009 were favorably impacted as a result ofrecording approximately $1.8 million of revenue without any related costs as aresult of the retention of a non-refundable deposit associated with a cancelledphotovoltaic contract. Gross margins for the six months ended September 26,2009 were also adversely impacted as a result of recognizing approximately $25.5million of turnkey revenue at a gross margin of 28%.

 

Gross margins for the photovoltaic businessduring the six months ended September 27, 2008 were 43% and were favorablyimpacted by the higher gross margins on our DSS units that were introduced duringthe second quarter of fiscal 2008 and represented a significant portion of therevenue during the period. We did not recognize any revenue from turnkeycontracts during the six months ended September 27, 2008. 

 

Gross margins for our polysilicon businessduring the six months ended September 26, 2009 were 47% as compared togross margins of 38% during the year ended March 28, 2009. We did notrecognize any polysilicon revenue during the six months ended September 27,2008. Gross margins for the six months ended September 26, 2009 werefavorably impacted by higher gross margins on a polysilicon contract on whichrevenue was recognized in the three months ended June 28, 2009.

 

24

----

Table of Contents

 

Based on both the anticipated manufacturingvolumes and the mix of revenue to be recognized for the remaining portion of April 3,2010 we expect our overall annual gross margins to be comparable to overallgross margins earned through the six months ended September 26, 2009.

 

*Research and Development.*  The following table sets forth total researchand development expenses for the six months ended September 26, 2009 and September 27,2008:

 
| ** **               | ** ** | **Six Months Ended**        | ** ** | ** **                  | ** ** | ** ** | ** ** |
|--------------------------|------------|-----------------------------|------------|-----------------------------|------------|------------|------------|
| ** **               | ** ** | **September 26, 2009** | ** ** | **September 27, 2008** | ** ** | **Change** | ** ** | **% Change** | ** ** |
| ** **               | ** ** | **(dollars in thousands)**  | ** ** | ** **                  | ** ** | ** ** | ** ** |
| Research and development |       |                        |       |                        |       |       |       |   |   |
| Photovoltaic business    |       | $                           | 6,366      |                        | $          | 3,522      |       | $ | 2,844 |   |   |   |
| Polysilicon business     |       | 4,670                       |       | 4,343                       |       | 327        |       |   |   |
| Total                    |       | $                           | 11,036     |                        | $          | 7,865      |       | $ | 3,171 |   | 40 | % |

 

Research and development expenses were $11.0 millionfor the six months ended September 26, 2009, compared to $7.9 millionfor the six months ended September 27, 2008, an increase of 40%. Theincrease was a result of increased labor, subcontracting costs and materialspending associated with the continuing development of our polysilicon businessproducts, particularly our CVD reactor and trichlorsilane technologies, as wellas costs associated with the development of our next-generation DSS product. Weexpect our R&D spending for the remainder of our fiscal year ending April 3,2010 to remain at similar levels as compared to the six months ended September 26,2009, as we continue to invest in new product development and expand ourproduct base in both our polysilicon and photovoltaic businesses.

 

*Selling and Marketing.*  The following table sets forth total sellingand marketing expenses for the six months ended September 26, 2009 and September 27,2008:

 
| ** **            | ** ** | **Six Months Ended**        | ** ** | ** **                  | ** ** | ** ** | ** ** |
|-----------------------|------------|-----------------------------|------------|-----------------------------|------------|------------|------------|
| ** **            | ** ** | **September 26, 2009** | ** ** | **September 27, 2008** | ** ** | **Change** | ** ** | **% Change** | ** ** |
| ** **            | ** ** | **(dollars in thousands)**  | ** ** | ** **                  | ** ** | ** ** | ** ** |
| Selling and marketing |       |                        |       |                        |       |       |       |   |   |
| Photovoltaic business |       | $                           | 2,680      |                        | $          | 4,916      |       | $ | (2,236 | ) |   |   |
| Polysilicon business  |       | 4,345                       |       | 3,912                       |       | 433        |       |   |   |
| Total                 |       | $                           | 7,025      |                        | $          | 8,828      |       | $ | (1,803 | ) | (20 | )% |

 

Selling and marketing expenses decreased 20%to $7.0 million for the six months ended September 26, 2009 from $8.8 millionfor the six months ended September 27, 2008. Photovoltaic business sellingand marketing expenses decreased approximately $2.2 million substantiallyrelated to decreased sales commissions. Polysilicon business selling and marketingexpenses increased by $0.4 million which was substantially related toincreased sales commissions. Sales commissions are accrued based on operationalfactors such as deposits, shipments and final acceptances received fromcustomers rather than when revenue is recognized.

 

*General and Administrative.*  General and administrative expenses increased $2.4million, or 15%, to $18.6 million for the six months ended September 26,2009 from $16.1 million for the six months ended September 27, 2008.Increased general and administrative expenses were primarily related to payrolland payroll related costs of $2.4 million, as well as, higher bad debtexpense of $0.6 million, higher depreciation expense of $0.5 million andother general costs of $0.8 million. These increases were partially offsetby lower information technology consulting costs of $1.0 million and lowerstock compensation expense of $0.9 million due to the variable nature ofthe stock options awarded to non-employees the value of which is adjusted toreflect changes in the market value of our common stock until the award vests.

 

*Amortization of IntangibleAssets.*  Amortization expense attributedto intangible assets has remained essentially unchanged for the six monthsended September 26, 2009 as compared to the six months ended September 27,2008.

 

*Interest Income.*  We typically invest our excess cash inexchange traded money market mutual funds. During the six months ended September 26,2009, interest income was not significant. During the six months ended September 27,2008,

 

25

----

Table of Contents

 

we recorded $2.3 million of interest income. Interest incomedecreased due to substantially lower interest rates earned on our investments.

 

*Interest Expense.*  During the six months ended September 26,2009, we recorded interest expense of $0.4 million which was primarilyattributed to the expensing of deferred debt costs in connection with ourcredit facility and other related credit facility fees. During the six monthsended September 27, 2008 interest expense was not significant.

 

*Interest Component ofForward Foreign Exchange Contracts.*  During the six months ended September 26,2009 and September 27, 2008, we recorded interest expense of $0.6 millionand interest income of $1.9 million, respectively on forward foreignexchange contracts. These amounts represent the interest rate differentialbetween the two countries involved in our forward foreign exchange contractsfor the specified period of time and can be either a premium or discount at thebeginning of the contract and are adjusted to reflect interest rate marketcondition changes. Such changes can result in interest income or interestexpense over the life of the contract.

 

*Other Expense, net.*  During the six months ended September 26,2009, other expense, net was $2.2 million, which included a loss of $2.1 millionrecognized due to fair value adjustments on certain forward foreign exchangecontracts that no longer qualified as a cash flow hedge because the hedgingrelationship was no longer deemed to be highly effective. During the six monthsended September 27, 2008, other expense, net was $3.1 million ofwhich $2.7 million related to expenses associated with our initial publicoffering.

 

*Provision for Income Taxes.*  Our effective income tax expense rate was 38.5%for the six months ended September 26, 2009 compared to 36.9% for the sixmonths ended September 27, 2008. The effective tax rate for the six monthsended September 27, 2008 was lower than the effective tax rate for the sixmonths ended September 26, 2009 primarily due to the impact of discreteitems related to tax benefits recognized based on prior year tax studiescompleted during the quarter ended September 27, 2008. We review theexpected annual effective income tax rates and makes changes on a quarterlybasis as necessary based on certain factors such as changes in forecastedannual operating income; changes to the valuation allowance for net deferredtax assets; changes to actual or forecasted permanent book to tax differences;impacts from future tax settlements with state, federal or foreign taxauthorities; and impacts from tax law changes. Due to the volatility of thesefactors, our consolidated effective income tax rate can fluctuate on aquarterly basis.

 

*Net Income.*  As a result of the foregoing factors, for thesix months ended September 26, 2009, we recorded net income of $17.2 millioncompared to a net income of $33.1 million for the six months ended September 27,2008.

 

**Liquidity and Capital Resources**

 

***Overview***

 

Our cash balances increased by $97.1 millionduring the six months ended September 26, 2009, from $107.1 millionas of March 28, 2009 to $204.2 million as of September 26, 2009primarily related to increases in cash flow from operating activities. Duringthe same period of fiscal 2009, our cash balance decreased $48.4 million,from $54.8 million as of March 31, 2008 to $6.4 million as of September 27,2008, primarily related to the payment of a dividend in the amount ofapproximately $90 million. We manage our cash inflows through the use ofcustomer deposits and milestone billings that allow us in turn to meet our cashoutflow requirements, which primarily consist of vendor payments andprepayments for contract related costs (raw material and components costs) andpayroll and overhead costs as we perform on our customer contracts. Thefollowing discussion of the changes in our cash balance refers to the varioussections of our Condensed Consolidated Statements of Cash Flows, which appearsin Item 1 of this quarterly report on Form 10-Q.

 

The following table summarizes our primarycash flows in the periods presented:

 
|                                                  |   | **Six Months Ended**        |       |
|-------------------------------------------------------|--------|-----------------------------|------------|
|                                                  |   | **September 26, 2009** | ** ** | **September 27, 2008** |   |
|                                                  |   | **(dollars in thousands)**  |       |
| **Cash provided by (used in):**                       |   |                        |       |   |   |
| Operating activities                                  |   | $                           | 96,807     |   | $ | 48,063 |   |
| Investing activities                                  |   | (774                        | )          | (6,310 | ) |
| Financing activities                                  |   | 1,078                       |       | (90,242 | ) |
| Effect of foreign exchange rates on cash              |   | (2                          | )          | 94 |   |
| Net increase (decrease) in cash and cash  equivalents |   | $                           | 97,109     |   | $ | (48,395 | ) |

 

26

----

Tableof Contents

 

***Cash Flows from Operating Activities***

*** ***

For the six months ended September 26, 2009, our cashprovided by operations was $96.8 million which was significantly impactedby the receipt of cash of approximately $35.3 million for refundableincome taxes due to an election of a change in accounting method for taxpurposes. Other significant sources of cash included $17.2 million of netincome, and $42.0 million of a net increase in deferred revenue lessdeferred costs primarily related to the shipment of our polysilicon reactorswhere we are not yet able to recognize revenue. During the six months endedSeptember 26, 2009, we managed our operations through a continuing slow down incustomer orders and deliveries due to the recent worldwide economic downturn.As a result we experienced decreases in accounts receivable of $32.6 million,reductions in inventory and advance payments on inventory purchases of $79.1 million,decrease in customer deposits of $87.2 million and a decrease in accountspayable and accrued expenses of $34.9 million.

 

For the six months ended September 27, 2008, our cashprovided by operations was $48.1 million which was impacted by the effectof increases in customer orders and by the release of restricted cash of$60.7 million as discussed below. Significant sources of cash included$33.1 million of net income, $53.0 million of a net increase indeferred revenue less deferred costs along with a increase in accountsreceivable of $16.4 million and an increase in customer deposits of$46.9 million, all reflecting the increased activity in our business asour customers were actively placing new orders for equipment at the time. Thesignificant uses of cash included increases in inventory and advance paymentson inventory purchases of $127.7 million in order to fund the growth andexpansion anticipated at the time.

 

In connection with customer deposits, customers mayrequire us to provide a standby letter of credit, or standby LOC, as securityfor their deposit. During the period of September 24, 2007 toJuly 29, 2008 we had been issuing standby letters of credit on a cashcollateralized basis. This cash collateral was classified as restricted cash inthe consolidated balance sheet and decreased by $60.7 million for the sixmonths ended September 27, 2008. The practice of using cash to collateralizeour standby LOCs had a negative impact on the working capital available to us.On July 29, 2008, we entered into a new senior credit facility and a newletter of credit facility, in each case with a syndicate of financialinstitutions. (See “Senior Credit Facility” and “Cash-Collateralized Letter ofCredit Facility” below). In our more recent customer contracts, we have hadfewer requirements to provide standby LOC’s.

 

***Cash Flows from Investing Activities***

 

We outsource a significantportion of our manufacturing and therefore, we require minimal capitalexpenditures to meet our production demands. Our capital expenditures for thesix months ended September 26, 2009 and September 27, 2008, wereapproximately $0.8 million and $6.3 million, respectively. Ourcapital expenditures for the six months ended September 26, 2009 wereprimarily used for improving our business information systems and improving ourprincipal facility. We expect total capital expenditures in the fiscal yearending April 3, 2010 to be approximately $5.0 million, consistingprimarily of improvements to our business information systems and expansion ofour facilities in China and Montana.

 

***Cash Flows from Financing Activities***

 

During the six months ended September 26,2009, we received $1.1 million from financing activities, primarilyrelated to the exercise of stock options. During the six months ended September 27, 2008, we paid a cashdividend of approximately $90 million to shareholders of record at June 30,2008.

 

As of September 26,2009, we had $1.5 million of standby LOCs outstanding under our seniorcredit facility. Generally, a letter of credit expires upon shipment to thecustomer.

 

We believe that cashgenerated from operations together with our existing cash, customer depositsand our senior credit facility (see below) will be sufficient to satisfyworking capital requirements, commitments for capital expenditures, and othercash requirements for the foreseeable future, including at least the nexttwelve months.

 

***Senior Credit Facility***

 

On July 29, 2008, weentered into a senior credit agreement with Bank of America, N.A., as soleadministrative and collateral agent, and a syndicate of financial institutions.The senior credit agreement provides for a three-year revolving senior creditfacility in an aggregate principal amount of up to $90.0 million, which isavailable for the borrowing of revolving loans and the issuance of standby LOCs(the “senior credit facility”); provided that the aggregate principal amount 

 

27

----

Table of Contents

 

of revolving loans may not exceed$50.0 million at any time. The senior credit facility includes a sub-limitof $25.0 million for swingline loans. As of September 26, 2009, wehad approximately $1.5 million of outstanding LOCs and no borrowings underthe senior credit facility and $88.5 million of availability under thesenior credit facility. The senior credit facility will mature on July 29,2011.

 

The aggregate amount ofborrowings and outstanding standby LOCs under the senior credit facility maynot exceed a borrowing base equal to Adjusted EBITDA multiplied by 3.0 plusunrestricted cash on hand. The senior credit facility is guaranteed by all ofour existing and future direct and indirect domestic subsidiaries. Obligationsunder the senior credit facility are secured by a first-priority lien onsubstantially all of the tangible and intangible assets and by a pledge of thecapital stock of all of our domestic subsidiaries and 65% of the capital stockof our foreign subsidiaries owned directly by us or one of our domesticsubsidiaries.

 

The senior credit facilitymay be increased by an aggregate amount of up to $100.0 million, withadditional commitments from the lenders under the senior credit facility orfrom new financial institutions, if no default or event of default exists. Wemay exercise our option to increase the commitments not more than three times,and each increase will be in a minimum aggregate principal amount of$10.0 million and integral multiples of $5.0 million in excess thereof.

 

Borrowings under the seniorcredit facility bear interest at a floating rate equal to, at our option, LIBORplus 2.25% per annum or a base rate plus 1.25% per annum. The base rate isdefined as the higher of the Bank of America prime rate or the federal fundsrate plus 0.50%. We pay a commitment fee to the lenders equal to 0.50% perannum on the actual daily unused portions of the senior credit facility andletter of credit fees equal to 2.25% per annum on the maximum amount availableto be drawn under each standby letter of credit. As of September 26, 2009,the three month LIBOR rate, Bank of America prime rate and federal funds ratewere 0.28%, 3.25%, and 0.25% respectively.

 

The senior credit agreementthat governs the senior credit facility contains financial covenants thatrequire us to meet certain financial tests, including a maximum consolidatednet leverage ratio and a minimum consolidated fixed charge coverage ratio,calculated on a consolidated basis for each consecutive four fiscal quarterperiod. The senior credit agreement also contains covenants, which, among otherthings, limit our ability to: incur indebtedness; make investments; engage inmergers and other fundamental changes; sell or otherwise dispose of property orassets; pay dividends and other restricted payments or enter into transactionswith affiliates; enter into burdensome agreements; use proceeds to purchase orcarry margin stock or extend credit to others; make subordinated debt payments;make certain changes to the terms of material indebtedness; and other covenantscustomary for such a facility. We were in compliance with all of thesecovenants as of September 26, 2009.

 

Recent volatility in thefinancial markets has severely diminished liquidity and capital availability worldwide.We believe the risk that we will not be able to use the facility in the futuredue to these recent events is mitigated to some degree by the fact that thereare several banks participating in the facility. However, we cannot fullypredict the long-term impact on the facility of a continued credit crisis.

 

***Cash-Collateralized Letter of CreditFacility***

 

On July 29, 2008, wealso entered into a letter of credit agreement with Bank of America, N.A., assole administrative and collateral agent, and a syndicate of financialinstitutions. The letter of credit agreement provides for a three-yearcash-collateralized letter of credit facility in an aggregate principal amountof up to $150.0 million, which is available for the issuance ofcash-collateralized standby LOCs. The letter of credit facility may beincreased by an aggregate amount of up to $50.0 million, at our election,with additional commitments from the lenders under the letter of creditfacility or from new financial institutions, if no default or event of defaultexists under the letter of credit facility. We may exercise the option toincrease the commitments not more than three times, and each increase will bein a minimum aggregate principal amount of $10.0 million and integralmultiples of $5.0 million in excess thereof. We pay letter of credit feesequal to 0.25% per annum on the maximum amount available to be drawn under eachstandby letter of credit. As of September 26, 2009, we had no letters ofcredit outstanding under this facility.

 

The letter of creditfacility is secured by an amount of cash equal to the dollar amount ofoutstanding standby letters of credit. The letter of credit facility containscustomary covenants, which among other things limit our ability to: incur lienson the cash collateral; engage in mergers or other fundamental changes; sell orotherwise dispose of the registrant’s or its subsidiaries’ assets; use proceedsto purchase or carry margin stock or extend credit to others; and othercovenants customary for such a facility. We were in compliance with all ofthese covenants as of September 26, 2009.

 

28

----

Table of Contents

 

**Off-Balance Sheet Arrangements**

 

We do not have anyrelationships with unconsolidated entities or financial partnerships, such asentities often referred to as structured finance or special purpose entitiesthat would have been established for the purpose of facilitating off-balancesheet arrangements or other contractually narrow or limited purposes. As such,we are not exposed to any financing, liquidity, market or credit risk thatcould arise if we had engaged in such relationships.

 

As of September 26,2009, we had approximately $1.5 million of standby letters of creditoutstanding representing primarily performance guarantees issued againstcustomer deposits. These letters of credit have been issued under our securedcredit facility and have not been included in the consolidated financialstatements included herein.

 

29

----

Tableof Contents

 

**Contractual Obligations and Commercial Commitments**

 

There have been no significantchanges to our “Contractual Obligations and Commercial Commitments” table in Part II,Item 7, “Management’s Discussion and Analysis of Financial Condition andResults of Operations” of our Form 10-K for the year ended March 28,2009, other than the amount of purchase commitments under agreement asdescribed below.

 

Since June 26, 2009, wecontinue to negotiate with our vendors to reschedule and/or cancel a portion ofour commitments to procure materials in our photovoltaic and polysilicon businessesto reflect reduced rates of production and/or shipment delays. As a result werecognized losses of $501 and $1,013 during the three and six months ended September 26,2009, respectively, from commitment terminations which have been included incost of revenue. We estimate our purchase agreement under commitment to beapproximately $220 million as of September 26, 2009; however we are innegotiations with several of our vendors and we expect discussion to continuethrough the remainder of fiscal 2010.

 

***Recently Adopted Accounting Pronouncements***

 

In June 2009, theFinancial Accounting Standards Board (“FASB”) issued *Accounting Standards Codification and the Hierarchy of GenerallyAccepted Accounting Principles*. This standard replaces the former *The Hierarchy of Generally Accepted AccountingPrinciples*, and establishes only two levels of U.S. generallyaccepted accounting principles (“GAAP”), authoritative and non-authoritative.The FASB Accounting Standards Codification (the “Codification”) will become thesource of authoritative, nongovernmental GAAP, except for rules andinterpretive releases of the Securities and Exchange Commission (“SEC”), whichare sources of authoritative GAAP for SEC registrants. All othernon-grandfathered, non-SEC accounting literature not included in theCodification will become non-authoritative. This standard is effective forfinancial statements for interim or annual reporting periods ending after September 15,2009. We began to use the new guidelines and numbering system prescribed by theCodification when referring to GAAP in the quarter ending September 26,2009. The new numbering system uses the prefix “ASC” (an abbreviation ofAccounting Standards Codification). As the Codification was not intended tochange or alter existing GAAP, the adoption did not have any impact on ourconsolidated financial statements.

 

In September 2006, theFASB issued authoritative guidance which defines fair value, establishes aframework in generally accepted accounting principles for measuring fair valueand expands disclosures about fair value measurements. This standard onlyapplies when other standards require or permit the fair value measurement ofassets and liabilities. It does not increase the use of fair value measurement.This guidance became effective for fiscal years beginning after November 15,2007, except as it relates to nonrecurring fair value measurements ofnonfinancial assets and liabilities for which the standard is effective forfiscal years beginning after November 15, 2008. The adoption of thisguidance with respect to financial assets and liabilities effective April 1,2008 did not have a significant effect on our consolidated results ofoperations or financial position (see Note 3, Fair Value of FinancialInstruments, to the Condensed Consolidated Financial Statements for additionalinformation). In addition, we are required to apply the provisions of thisguidance to nonfinancial assets and nonfinancial liabilities effective for theinterim periods in fiscal years beginning after November 15, 2008. Theadoption during the six months ended September 26, 2009 for measuringnonfinancial assets and liabilities, essentially goodwill and identifiableintangible assets, did not have a material effect on our consolidated financialstatements.

 

In December 2007, theFASB issued authoritative guidance regarding business combinations andestablishes principles and requirements for how the acquirer recognizes andmeasures in its financial statements the identifiable assets acquired, the liabilitiesassumed, any non-controlling interest in the acquiree and the goodwill acquiredin the business combination or a gain from a bargain purchase, and alsoestablishes disclosure requirements to enable users of the financial statementsto evaluate the nature and financial effects of the business combination. Thisguidance became effective for business combinations entered into during fiscalyears beginning on or after December 15, 2008 and thereafter with the exceptionof the accounting for valuation allowances on deferred taxes and acquired taxcontingencies.  This guidance states thatadjustments made to valuation allowances on deferred income taxes and acquiredincome tax contingencies associated with acquisitions that closed prior to theeffective date of this guidance would apply the provisions of this guidance.The adoption of this guidance during the six months ended September 26,2009 did not have a material impact on our consolidated financial statements.

 

In April 2009, the FASBissued authoritative guidance which provides additional guidelines forestimating fair value of financialinstruments, provides additional guidance related to the disclosure ofimpairment losses on securities and the accounting for impairment losses ondebt securities and increases the frequency of fair value disclosures. Thisguidance does not amend existing guidance related to other-than-temporaryimpairments of equity securities.  Thisguidance is effective for fiscal years and interim periods ended after June 15,2009. The adoption of this guidance during the six months ended September 26,2009 did not have a material impact on our consolidated financial statements.

 

In May 2009, the FASBissued authoritative guidance to establish general standards of accounting for,and disclosures of events that occur after the balance sheet date but beforefinancial statements are issued or are available to be issued. This guidance iseffective for interim or fiscal periods ending after June 15, 2009. SeeFootnote No. 1 “Basis of 

 

30

----

Table of Contents

 

Presentation” for the related disclosures.The adoption of this guidance during the six months ended September 26,2009 did not have a material impact on our consolidated financial statements.

 

***Accounting Pronouncements Not YetAdopted***

 

In June 2009, the FASBissued an amendment to the accounting principles relating to the transfer offinancial assets that eliminates the concept of a qualifying special purposeentity, creates more stringent conditions for reporting a transfer of a portionof a financial asset as a sale, clarifies other sale-accounting criteria, andchanges the initial measurement of a transferor’s interest in transferredfinancial assets. This guidance will be effective for transfers of financialassets in fiscal years beginning after November 15, 2009, and in interimperiods within those fiscal years with earlier adoption prohibited. We arecurrently assessing the potential impacts, if any, the adoption of thisguidance will have on our consolidated financial statements.

 

In June 2009, the FASBissued authoritative guidance that eliminates certain exceptions to theconsolidation of qualifying special purpose entities, contains new criteria fordetermining the primary beneficiary of a valuable interest entity, andincreases the frequency of required reassessments to determine whether acompany is the primary beneficiary of a variable interest entity. The amendmentalso contains a new requirement that any term, transaction, or arrangement thatdoes not have a substantive effect on an entity’s status as a variable interestentity, a company’s power over a variable interest entity, or a company’sobligation to absorb losses or its right to receive benefits of an entity mustbe disregarded in applying consolidation provisions. The elimination of thequalifying special purpose entity concept and its consolidation exceptions willbe effective for the first fiscal year beginning after November 15, 2009,and for interim periods within that first period, with earlier adoptionprohibited. We are currently assessing the potential impacts, if any, theadoption of this amendment will have on our consolidated financial statements.

 

In October 2009, theFASB issued authoritative guidance that provides amendments to the revenuerecognition criteria for separating consideration in multiple-deliverablerevenue arrangements. It establishes a hierarchy of selling prices to determinethe selling price of each specific deliverable which includes vendor-specificobjective evidence (if available), third-party evidence (if vendor-specificevidence is not available), or estimated selling price if neither of the firsttwo are available. This guidance also eliminates the residual method forallocating revenue between the elements of an arrangement and requires thatarrangement consideration be allocated at the inception of the arrangement andexpands the disclosure requirements regarding a vendor’s multiple-deliverablerevenue arrangements. This guidance is effective for fiscal years beginning onor after June 15, 2010 and earlier adoption is permitted. We are currentlyassessing the potential impact, if any, the adoption of this guidance will haveon our consolidated financial statements.

 

**Critical Accounting Policies and Estimates**

 

For the six months ended September 26,2009, there were no significant changes to our critical accounting policies asidentified in our consolidated financial statements for the year ended March 28,2009 included in our Annual Report on Form 10-K for the fiscal year ended March 28,2009, filed on June 9, 2009.

 

**Item 3. Quantitative and Qualitative Disclosures about Market Risk**

 

**ForeignCurrency Risk**

 

Although, our reportingcurrency is the U.S. dollar and substantially all of our sales contracts arecurrently denominated in U.S. dollars, we may incur costs denominated in othercurrencies. In addition, we maintain our cash balances primarily in the U.S.dollar. However, from time to time, we may maintain cash balances in currenciesother than the U.S. dollar. As a result, we will be subject to currencytranslation risk. Exchange rates between a number of currencies and U.S.dollars have fluctuated significantly over the last few years and futureexchange rate fluctuations may occur.

 

31

----

Table of Contents

 

Our primary foreign currencyexposure relates to fluctuations in foreign currency exchange rates, primarilythe euro for polysilicon inventory purchases from vendors located in Europe.Fluctuations in exchange rates could affect our gross and net profit marginsand could result in foreign exchange and operating losses. Changes in thecustomer’s delivery schedules can affect related payments to our vendors whichwill cause fluctuations in the cash flows and when we expect to make paymentswhen these cash flows are realized or settled.

 

Due to recent delays indeliveries requested by our polysilicon customers, we requested our vendors todelay deliveries. As a result, certain of our forward foreign exchangecontracts to purchase euros no longer qualified as cash flow hedges because thehedging relationship was no longer deemed to be highly effective. During thethree months ended June 27, 2009, we entered into offsetting forwardforeign exchange contracts to sell euros with notional amounts of€26.6 million to eliminate any further foreign exchange risk related tothose foreign exchange contracts.

 

As of September 26,2009, we had unhedged euro denominated purchase commitments of approximately€31.7 million, net of advances on inventory purchases and available eurosin our ending cash balances. A 10% appreciation or depreciation of the euroagainst the U.S. dollar would increase or decrease the costs of the relatedinventory to be purchased by approximately $4.7 million. We will evaluatewhether or not to initiate new foreign forward exchange contracts against thesepurchase commitments when negotiations with such vendors are finalized.

 

As of September 26,2009, we had outstanding forward foreign exchange contracts of€5.4 million which generally expire within 12 months. Consistent withthe nature of the economic hedges provided by these forward foreign exchangecontracts, increases or decreases in their fair values would be effectivelyoffset by corresponding decreases or increases in the U.S. dollar value of ourfuture foreign currency denominated inventory purchases (the “hedged items”). A10% appreciation or depreciation of the euro against the U.S. dollar would nothave a material impact on the fair value of these derivative financialinstruments.

 

**Item 4T. Controls and Procedures**

 

**Evaluation of Disclosure Controls and Procedures**

 

Our management, with theparticipation of our Chief Executive Officer, Thomas Gutierrez, who joined asof October 28, 2009, and our Principal Financial Officer, evaluated theeffectiveness of our disclosure controls and procedures as of September 26,2009. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and15d-15(e) under the Exchange Act, means controls and other procedures of acompany that are designed to ensure that information required to be disclosedby a company in the reports that it files or submits under the Exchange Act isrecorded, processed, summarized and reported, within the time periods specifiedin the SEC’s rules and forms. Disclosure controls and procedures include,without limitation, controls and procedures designed to ensure that informationrequired to be disclosed by a company in the reports that it files or submitsunder the Exchange Act is accumulated and communicated to the company’smanagement, including its principal executive and principal financial officers,as appropriate to allow timely decisions regarding required disclosure.Management recognizes that any controls and procedures, no matter how welldesigned and operated, can provide only reasonable assurance of achieving theirobjectives and management necessarily applies its judgment in evaluating thecost-benefit relationship of possible controls and procedures. Based on theevaluation of our disclosure controls and procedures as of September 26,2009, our Chief Executive Officer and Principal Financial Officer concludedthat, as of such date, our disclosure controls and procedures were effective atthe reasonable assurance level.

 

**Changes in Internal Control Over Financial Reporting**

 

There have been nosignificant changes in our internal controls or other factors during the threemonths ended September 26, 2009 that have materially affected, or arereasonably likely to materially affect, our internal control over financialreporting.

 

**PART II. OTHER INFORMATION**

 

**Item 1. Legal Proceedings**

 

***General***

 

Beginning on August 1,2008, seven putative securities class action lawsuits were commenced in theUnited States District Court for the District of New Hampshire (the “Court”),against us, certain of our officers and directors, certain 

 

32

----

Table of Contents

 

underwriters of our July 24, 2008initial public offering and others, including certain investors in us (the “federalclass actions”). On October 3, 2008, the Court entered an orderconsolidating the federal class actions into a single action captioned *Braun et al. v. GT Solar International, Inc., etal*. The Court selected the lead plaintiff and lead plaintiff’scounsel in the consolidated matter on October 29, 2008. The lead plaintifffiled an amended consolidated complaint on December 22, 2008. Thedefendants moved to dismiss the amended consolidated complaint on February 5,2009. On September 22, 2009, the Court denied the defendants’ motion.Following the Court’s denial of the motion, the parties submitted a proposedjoint case management order to the Court on November 6, 2009.The leadplaintiff asserts claims under various sections of the Securities Act. Theamended consolidated complaint alleges, among other things, that the defendantsmade false and materially misleading statements and failed to disclose materialinformation in certain SEC filings, including the registration statement andProspectus for our July 24, 2008 initial public offering, and other publicstatements, regarding our business relationship with LDK Solar, Ltd., oneof our customers, JYT Corporation, one of our competitors, and certain of ourproducts, including our DSS furnaces. Among other relief, the amendedconsolidated complaint seeks class certification, unspecified compensatorydamages, rescission, interest, attorneys’ fees, costs and such other relief asthe Court should deem just and proper.

 

In addition, on September 18,2008 a putative securities class action was filed in New Hampshire state courtin the Superior Court for Hillsborough County, Southern District (the “StateCourt”), under the caption *Hamel v. GT SolarInternational, Inc., et al*., against us, certain of ourofficers and directors and certain underwriters of our July 24, 2008initial public offering (the “state class action”). We removed the state classaction to the United States District Court for the District of New Hampshire onOctober 22, 2008. The state class action was consolidated with the federalclass actions on November 25, 2008. On February 2, 2009, the federalCourt granted the plaintiff’s motion to remand the state class action to NewHampshire State Court. On May 4, 2009, the parties agreed to a stay of thestate class action, pending resolution of the motion to dismiss in theconsolidated federal case. At a case structuring conference on June 3,2009, the state court endorsed the proposed joint case management order filedby the parties which requires coordination of any discovery to be taken in thestate class action with that taken in the federal class action. With the denialof the motion to dismiss the federal action, the parties submitted a proposedjoint case management order to the State Court on November 6, 2009.  The state class action plaintiff assertsclaims under various sections of the Securities Act of 1933, as amended. Thestate class action complaint alleges, among other things, that the defendantsmade false and materially misleading statements and failed to disclose materialinformation in certain SEC filings, including the registration statement forour July 24, 2008 initial public offering, and other public statements,regarding our business relationship with LDK Solar, Ltd., one of ourcustomers, JYT Corporation, one of our competitors, and certain of ourproducts, including our DSS furnaces. Among other relief, the state classaction complaint seeks class certification, unspecified compensatory damages,rescission, interest, attorneys’ fees, costs and such other relief as the StateCourt should deem just and proper.

 

A derivative suit, captioned*Fan v. GT Solar Int’l, Inc., et al.*,was filed in New Hampshire State Court on January 14, 2009 (the “derivativeaction”). The derivative complaint is asserted nominally on behalf of theCompany against certain of our directors and officers and alleges variousclaims for breach of fiduciary duty, unjust enrichment, abuse of control andgross mismanagement and is premised on the same purported misconduct alleged inthe federal action. On April 10, 2009, the State Court granted our motionto stay the derivative action, pending resolution of the motion to dismiss inthe federal action. In accordance with the terms of the stay  the parties have conferred regarding a casemanagement schedule for the derivative action.

 

We intend to defend thefederal and state class actions, and the derivative action, vigorously. Therecan be no assurance, however, that we will be successful, and an adverseresolution of any of the lawsuits could have a material adverse effect on ourconsolidated financial position and results of operations. We are not presentlyable to reasonably estimate potential losses, if any, related to the lawsuits.

 

We are subject to variousother routine legal proceedings and claims incidental to our business, which webelieve will not have a material adverse effect on our financial position,results of operations or cash flows.

 

**Item 1A. Risk Factors**

 

In addition to the otherinformation set forth in this quarterly report on Form 10-Q, you shouldcarefully consider the risk factors discussed under the caption “Risk Factors”in our Annual Report on Form 10-K for the fiscal year ended March 28,2009 filed with the Securities and Exchange Commission on June 9, 2009.Except as noted below, there have been no material changes to the risk factorspreviously disclosed under the caption “Risk Factors” in the Annual Report on Form 10-K.These are the risks and uncertainties we believe are most important for you toconsider. Additional risks and 

 

33

----

Table of Contents

 

uncertainties not presently known to us,which we currently deem immaterial or which are similar to those faced by othercompanies in our industry or business in general, may also impair our businessoperations. If any of these risks or uncertainties actually occurs, ourbusiness, financial condition and operating results would likely suffer. Anyfailure to successfully implement our operating strategy or the occurrence ofany of the events or circumstances set forth in our “Risk Factors” in theAnnual Report on Form 10-K could result in the actual operating resultsbeing different from our guidance, and such differences may be adverse andmaterial.

 

Under the heading “Item 1A.Risk Factors — Risks Related to Our Business Generally — Current or futurecredit and financial market conditions could materially and adversely affectour business and result of operations in several ways” in our Annual Report on Form 10-Kfor the fiscal year ended March 28, 2009 filed on June 9, 2009, weincluded a discussion about the effects of recent developments in the creditfinancial markets on our business, and on our customers’ businesses.  These credit and financial market conditionshave affected our customers who have been delayed in securing or prevented fromsecuring funding adequate to honor their existing contracts with us or to enterinto new contracts to purchase our products. Some of our customers who have become financially distressed and havefailed to provide letters of credit or to make payments in accordance with theterms of their existing contracts. If customers fail to post letters of creditor make payments, and we do not agree to revised terms, it could have a significantimpact on our business, results of operations and financial condition.

 

Under the heading “Item 1A.Risk Factors—Risks Related to Our Business Generally—Amounts included in ourorder backlog may not result in actual revenue or translate into profits” inour Annual Report on Form 10-K for the fiscal year ended March 28,2009 filed on June 9, 2009, we included a discussion about customercontract terminations and revisions and requests from certain of our largecustomers who have requested that we extend the delivery schedules under theircontracts in our order backlog.  Thenegotiations are continuing.  Certain ofour large customers that have requested that we extend the delivery schedulesand make other modifications under their contracts in our order backlog, or, insome cases, have failed to provide letters of credit on to make payments inaccordance with the terms of these contracts. We believe approximately 20% of our order backlog as of September 26,2009 is at risk to varying degrees. This amount includes contracts withcustomers to whom we have sent notices of breach for failure to provide lettersof credit or to make payments when due. If we cannot come to an agreement withthese customers, our order backlog could be reduced by this amount or more.

 

Other customers withcontracts in our order backlog that are not currently under negotiation mayapproach us with similar requests in the future, or may fail to make paymentswhen due, which could further reduce our order backlog.  If our order backlog fails to result inrevenue in a timely manner, or at all, we would experience a reduction inrevenue, profitability and liquidity.

 

Under the heading “Item 1A.Risk Factors—Risk Related to Our Business Generally—Our future success dependson our management team and on our ability to attract and retain key employeesand to integrate new employees into our management team successfully” in ourAnnual Report on Form 10-K for the fiscal year ended March 28, 2009filed on June 9, 2009, we included a discussion about the potentialadverse impact to us of losing a member of our senior management team. On May 22,2009, Robert Woodbury, our Chief Financial Officer and a member of our seniormanagement team, resigned. We are in the process of recruiting a new ChiefFinancial Officer but are unable to predict how long the selection process,which could be challenging, will take and when we will name a new ChiefFinancial Officer. In the meantime, our finance organization is being led byRichard Johnson, our Vice President, Finance and Corporate Controller, on whomwe will be more dependent during this transition period. On October 28, 2009, Mr.Thomas Gutierrez succeeded Mr. Thomas Zarrella as our President and Chief ExecutiveOfficer.

 

Under the heading “Item 1A.Risk Factors—Risk Related to Our Business Generally—Exchange rate fluctuationsmay make our products less attractive to non-U.S. customers and otherwise havea negative impact on our operating results” in our Annual Report on Form 10-Kfor the fiscal year ended March 28, 2009 filed on June 9, 2009, weincluded a discussion of the potential adverse effect of future exchange ratefluctuations and the related material effect these fluctuations could have onour financial condition. Our largest foreign currency exposure is the euro. Inorder to mitigate foreign currency fluctuations, we typically enter intoforward foreign exchange contracts to hedge portions of equipment purchasesfrom vendors located in primarily Europe. Due to recent delays in deliveries requestedby our polysilicon customers, we began negotiations with vendors to delaydeliveries under certain of our inventory purchase commitments. As a result,during the six months ended September 26, 2009, certain of our forwardforeign exchange contracts to purchase euros no longer qualified as cash flowhedges because the hedging relationship was no longer deemed to be highlyeffective. We entered into offsetting forward foreign exchange contracts tosell euros to mitigate any further foreign exchange risk related to thoseforeign exchange contracts. As a result, we had euro denominated purchasecommitments of approximately €31.7 million, net of advances on inventorypurchases and available euro in our ending cash balances that were unhedged at September 26,2009. Once negotiations with these vendors have been finalized, we willevaluate whether or not to initiate new foreign forward exchange contractsagainst these purchase commitments.

 

Under the heading “Item 1A. RiskFactors—Risks Related to Our Polysilicon Business—Our CVD reactor is a newproduct from which we have only recently begun to recognize revenue” in ourAnnual Report on Form 10-K for the fiscal year ended March 28, 2009filed in June 9, 2009, we had included a discussion on the status of our  48 rod CVD reactor and that pre-establishedreactor performance criteria for that product had not been met. We have sincehad two contracts where such pre-established reactor performance criteria havebeen met for some of the reactors delivered to those customers. However, due tothe nature of our CVD contracts, there continues to be a risk that if we failto perform our obligations in respect of the CVD reactor orders we havereceived, such orders may be terminated and/or we may be required to paydamages or refund all or a portion of the purchase price. Failure tosuccessfully develop our polysilicon products and/or to perform our obligationsin respect of orders for CVD reactors could have a material adverse effect onour financial conditions, results of operations, business and/or prospects.

 

**Item 2. Unregistered Sales of Equity Securities and Use of Proceeds**

 

Item 2(b) is not applicable

 

(a)                                  UnregisteredSales of Equity Securities

 

On August 7, 2009, thedate of our 2009 Annual Meeting, we issued restricted stock units to GFI EnergyVentures LLC in lieu of issuing restricted stock units to J. Bradford Forth andRichard K. Landers, two of our directors. The restricted stock units were issued in reliance upon applicableexemptions from registration under Section 4(2) of the Securities Actand Section 506 of Regulation D promulgated thereunder.

 

Each restricted stock unitrepresents the right to receive one share of common stock of GT SolarInternational, Inc. and will vest one year from the date of grant, subjectto the continued service of Messrs. Forth and Landers as directors.

 

(c)                                  StockRepurchases.

 

The following table setsforth information in connection with purchases made by, or on behalf of, us orany affiliated purchaser, of shares of our common stock during the three monthsended June 27, 2009 and the three months ended September 26, 2009:

 

34

----

Table ofContents

 
| ** **                           | ** ** | **(a)  Total Number of  Shares  Purchased** | ** ** | **(b)  Average Price  Paid per Share** | ** ** | **(c)  Total Number of  Shares Purchased  as Part of Publicly  Announced Plans  or Programs** | ** ** | **(d)  Maximum Number  (or Approximate Dollar  Value) of Shares that  May Yet Be Purchased  Under the Plans  or Programs** | ** ** |
|--------------------------------------|------------|---------------------------------------------|------------|----------------------------------------|------------|----------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------------------------------|------------|
| **First Quarter:**                   |       |                                        |       |                                   |       |                                                                                               |       |                                                                                                                            |       |
| Month ended May 2,  2009        |       | 9,726                                       |       | $                                      | 6.78       |                                                                                               | —     |                                                                                                                            | —     |   |
| Month ended May 30,  2009       |       | —                                      |       | —                                 |       | —                                                                                             |       | —                                                                                                                          |       |
| Month ended June 27,  2009      |       | 622                                         |       | $                                      | 6.42       |                                                                                               | —     |                                                                                                                            | —     |   |
| **Second Quarter:**                  |       |                                        |       |                                   |       |                                                                                               |       |                                                                                                                            |       |
| Month ended August 1,  2009     |       | 2,930                                       |       | $                                      | 6.02       |                                                                                               | —     |                                                                                                                            | —     |   |
| Month ended August 29,  2009    |       | —                                      |       | —                                 |       | —                                                                                             |       | —                                                                                                                          |       |
| Month ended  September 26, 2009 |       | 820                                         |       | $                                      | 5.12       |                                                                                               | —     |                                                                                                                            | —     |   |

 

We did not repurchase any ofour common stock on the open market as part of a stock repurchase programduring the six months ended September 26, 2009; however, our employees surrendered,and we subsequently retired, shares of our common stock to satisfy the taxwithholding obligations on the vesting of restricted stock awards issued underour 2008 Equity Incentive Plan.

 

**Item 3. Defaults Upon Senior Securities**

 

None

 

**Item 4.  Submissionof Matter to a Vote of Security Holders**

 

**Annual Meeting**

 

An annual meeting of stockholders of the Company was held on August 7,2009. The stockholders approved each of the proposals on the agenda, whichincluded the following:

 

1.  Election ofeight persons as directors to serve on the Company’s Board of Directors untilthe Company’s annual meeting in 2010;

2.  Approval of theGT Solar International, Inc., Section 162 (m) PerformanceIncentive Plan

3.  Ratification ofthe appointment of Ernst & Young LLP as the Company’s independentregistered public accounting firm for fiscal year 2010.

 

Each of these proposals is fully described in the Company’s proxystatement filed with the SEC on July 2, 2009. Only holders of our commonstock were entitled to vote at the meeting. A total of 138,477,098 shares of common stock were represented in personor by proxy at the meeting.

 

*Proposal 1 - Election of Directors*

 

Each of the nominees listed below was elected as a director to serve onthe Company’s Board of Directors until the Company’s annual meeting in 2010.The votes “for” and the abstentions with respect to each nominee were asfollows:

 
| **Directors**         | ** ** | **Votes FOR** | ** ** | **Abstentions** | ** ** |
|-----------------------|------------|--------------------|------------|-----------------|------------|
| Fusen E. Chen         |       | 137,910,015        |       | 567,083         |       |
| J. Michal Conaway     |       | 137,925,735        |       | 551,363         |       |
| J. Bradford Forth     |       | 129,114,444        |       | 9,362,654       |       |
| Ernst L. Godshalk     |       | 137,918,515        |       | 558,583         |       |
| Richard K. Landers    |       | 137,927,803        |       | 549,295         |       |
| Matthew E. Massengill |       | 137,907,315        |       | 569,783         |       |
| Noel G. Watson        |       | 137,904,888        |       | 572,210         |       |
| Thomas M. Zarrella    |       | 137,920,970        |       | 556,128         |       |

 

There were no broker non-votes.

 

35

----

Tableof Contents

 

*Proposal 2 — Approval of GT Solar International, Inc., Section 162(m) PerformanceIncentive Plan*

 

The approval of the GT Solar International, Inc., Section 162(m) PerformanceIncentive Plan received 123,372,751 votes “for,” 6,991,623 votes “against” and48,541 abstentions. There were 8,064,183 broker non-votes.

 

*Proposal 3 - Ratification of Independent Registered Public AccountingFirm*

 

The appointment of Ernst & Young LLP, as the Company’sindependent registered public accounting firm for fiscal year ending April 3,2010, received 138,301,780 votes “for,” 93,418 votes “against” and 81,900abstentions. There were no broker non-votes.

 

**Item 5. Other Information**

 

None

 

36

----

Tableof Contents

 

**Item 6. Exhibits**

 

Exhibits are incorporated byreference or are filed with this report as indicated below (numbered inaccordance with Item 601 of Regulation S-K).

 
| ** **          | ** ** | ** **                                                                                                                                                          | ** ** | **Incorporated by Reference** | ** ** | ** **      |
|---------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------|------------|-----------------|
| **Exhibit  Number** | ** ** | **Description of Document**                                                                                                                               | ** ** | **Form**                      | ** ** | **Date  Filed** | ** ** | **Exhibit #** | ** ** | **Filed  Herewith** |
| 10.1*               |       | Fiscal Year 2010  Executive Incentive Program.                                                                                                                      |       | 8-K                           |       | 8/12/09         |   | 10.1 |   |   |
| 10.2*               |       | Section 162(m) Performance  Incentive Plan.                                                                                                               |       | 8-K                           |       | 8/12/09         |   | 10.2 |   |   |
| 10.3*               |       | Form of  restricted stock unit agreement for GFI Energy Ventures LLC.                                                                                          |       | 8-K                           |       | 8/12/09         |   | 10.3 |   |   |
| 10.4*               |       | Form of restricted stock unit agreement for executive officers.                                                                                                |       |                          |       |            |   |   |   | X |
| 10.5*               |       | Form of stock option agreement for executive officers.                                                                                                         |       |                          |       |            |   |   |   | X |
| 10.6*               |       | Form of restricted stock unit agreement for directors                                                                                                          |       |                          |       |            |   |   |   | X |
| 31.1                |       | Certification pursuant to Section 302 of the Sarbanes-Oxley Act  of 2002, Rule 13a-14(a)/15d- 14(a), by Chief Executive Officer.                          |       |                          |       |            |   |   |   | X |
| 31.2                |       | Certification pursuant to Section 302 of the Sarbanes-Oxley Act  of 2002, Rule 13a-14(a)/15d-14(a), by Principal Financial Officer.                       |       |                          |       |            |   |   |   | X |
| 32.1                |       | Certification pursuant to 18 U.S.C. Section 1350, as adopted  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, by Chief  Executive Officer.     |       |                          |       |            |   |   |   | X |
| 32.2                |       | Certification pursuant to 18 U.S.C. Section 1350, as adopted  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, by Principal  Financial Officer. |       |                          |       |            |   |   |   | X |

 

----

*                                         Indicatesmanagement contract or compensatory plan or arrangement.

 

37

----

Tableof Contents

 

**SIGNATURES**

 

Pursuant to the requirementsof the Securities Exchange Act of 1934, the Registrant has duly caused thisReport to be signed on its behalf by the undersigned, thereunto dulyauthorized.

 
|                          | GT Solar International, Inc. |
|-------------------------------|-----------------------------------|
|                          |                              |
|                          |                              |
|                          | By:                               | /s/ Thomas Gutierrez |
|                          |                              |
| Date: November 10, 2009  |                              | Thomas Gutierrez |
|                          |                              | President and Chief Executive Officer |
|                          |                              | (Principal Executive Officer) |
|                          |                              |   |
|                          |                              |   |
|                          | By:                               | /s/  Richard E. Johnson |
|                          |                              |
| Date:  November 10, 2009 |                              | Richard  E. Johnson |
|                          |                              | Vice  President of Finance and |
|                          |                              | Corporate  Controller |
|                          |                              | (Principal  Financial and Accounting Officer) |

 

38

----