Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549

FORM 10-Q

ý

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended December 27, 2008oro

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period
from                             to


Commission file number: 001-34133

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

Delaware

03-0606749(State of Incorporation)

(I.R.S. Employer Identification No.)243 Daniel Webster HighwayMerrimack, New Hampshire

03054(Address of principal executive offices)

(Zip Code)


Registrant's
telephone number, including area code:(603) 883-5200

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

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

Large accelerated filer o

Accelerated filer o

Non-accelerated filer ý (Do not check if a smaller reporting company)

Smaller reporting company o


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

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

As
of January 30, 2009, the Company had 142,866,245 shares of common stock outstanding.



---





Table of Contents

GT SOLAR INTERNATIONAL, INC. AND SUBSIDIARIES  QUARTERLY REPORT ON FORM 10-Q  FOR THE PERIOD ENDED  December 27, 2008        Table of Contents



PagePART I. FINANCIAL INFORMATIONItem 1.

Condensed Consolidated Financial Statements(unaudited):Condensed Consolidated Balance Sheets as of December 27, 2008 and March 31,
2008

1Condensed Consolidated Statements of Operations for the three and nine
months ended December 27, 2008 and December 31, 2007

2Condensed Consolidated Statements of Cash Flows for the nine months ended
December 27, 2008 and December 31, 2007

3Notes to Condensed Consolidated Financial Statements

4Item 2.

Management's Discussion and Analysis of Financial Condition and Results of
Operations

18Item 3.

Quantitative and Qualitative Disclosures about Market Risk

29Item 4.

Controls and Procedures

30PART II. OTHER INFORMATIONItem 1.

Legal Proceedings

30Item 1A.

Risk Factors

31Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

34Item 3.

Defaults Upon Senior Securities

34Item 4.

Submission of Matters to a Vote of Security Holders

34Item 5.

Other Information

34Item 6.

Exhibits

35


---





Table of Contents

PART IFINANCIAL INFORMATION

Item 1Condensed Consolidated Financial Statements

GT Solar International, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(In thousands, except per share data)

(Unaudited)

December 27,
2008

March 31,
2008AssetsCurrent assets:Cash and cash equivalents

$
93,673

$
54,839Restricted cash and cash equivalents


27,617


164,028Accounts receivable, net


83,507


62,407Inventories


127,883


37,518Deferred costs


160,862


105,154Advances on inventory purchases


153,422


77,635Deferred income taxes


68,995


29,684Prepaid expenses and other current assets


4,372


6,625Total current assets


720,331


537,890Property, plant and equipment, net


17,631


10,433Other assets


1,006


74Intangible assets, net


6,709


9,024Goodwill


42,600


43,190Total assets

$
788,277

$
600,611Liabilities and stockholders' equityCurrent liabilities:Accounts payable

$
68,546

$
37,992Accrued expenses


22,163


16,725Customer deposits


306,711


263,628Deferred revenue


292,422


164,190Accrued income taxes


23,718


22,316Total current liabilities


713,560


504,851Deferred income taxes


2,798


3,380Other non-current liabilities


2,461


739Total liabilities


718,819


508,970Commitments and contingencies (Note 7)





Stockholders' equity:Common stock, $0.01 par value, 500,000 shares authorized; 142,862 and 142,375 shares issued and outstanding as of December 27, 2008 and March 31, 2008, respectively


1,429


1,424Additional paid-in capital


76,477


73,817Accumulated other comprehensive (loss) income


(5,483
)

5,584Retained earnings (accumulated deficit)


(2,965
)

10,816Total stockholders' equity


69,458


91,641Total liabilities and stockholders' equity

$
788,277

$
600,611


See accompanying notes to these condensed consolidated financial statements.

1

---





Table of Contents

GT Solar International, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(In thousands, except per share data)

(Unaudited)

Three Months Ended

Nine Months EndedDecember 27,
2008

December 31,
2007

December 27,
2008

December 31,
2007Revenue

$
205,209

$
14,737

$
402,483

$
111,867Cost of revenue


115,668


12,992


227,274


75,216Gross profit


89,541


1,745


175,209


36,651Operating expenses:Research and development


5,328


3,122


13,193


6,051Selling and marketing


5,638


1,502


14,466


7,766General and administrative


6,812


5,248


22,936


14,118Amortization of intangible assets


762


775


2,315


2,227Total operating expenses


18,540


10,647


52,910


30,162Income (loss) from operations


71,001


(8,902
)

122,299


6,489Other income (expense):Interest income


563


1,749


4,533


5,107Interest expense


(329
)

(271
)

(101
)

(1,339
)Other income (expense), net


(1,341
)

209


(4,440
)

(1,042
)Income (loss) before income taxes


69,894


(7,215
)

122,291


9,215Provision (benefit) for income taxes


26,769


(2,756
)

46,081


1,626Net income (loss)

$
43,125

$
(4,459
)
$
76,210

$
7,589Income (loss) per shareBasic

$
0.30

$
(0.03
)
$
0.53

$
0.05Diluted

$
0.30

$
(0.03
)
$
0.52

$
0.05Dividend paid per common share







$
0.632


Average number of common shares outstanding used for basic earnings per share


142,778


142,290


142,590


142,290Dilutive common stock options and awards


1,264





1,883


1,954Average number of common shares outstanding plus dilutive common stock options and awards


144,042


142,290


144,473


144,244


See
accompanying notes to these condensed consolidated financial statements.

2

---





Table of Contents

GT Solar International, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

Nine Months EndedDecember 27,
2008

December 31,
2007Operating activities:Net income

$
76,210

$
7,589Adjustments to reconcile net income to net cash provided by (used in) operating activities:Amortization expense


2,315


2,227Depreciation expense


1,323


671Deferred income tax benefit


(39,893
)

(11,089
)Stock-based compensation expense


1,857


1,127Other adjustments, net


230


Changes in operating assets and liabilities:Restricted cash


136,411


(152,590
)Accounts receivable


(21,100
)

(21,860
)Inventories


(90,365
)

(46,368
)Deferred costs


(55,709
)

(40,228
)Advances on inventory purchases


(75,787
)

(42,758
)Prepaid expenses and other current assets


2,253


(298
)Accounts payable and accrued expenses


30,494


29,412Customer deposits


43,083


165,416Deferred revenue


128,232


73,044Accrued income taxes


1,402


(853
)Other liabilities, net


(3,928
)

(262
)Net cash provided by (used in) operating activities


137,028


(36,820
)Investing activities:Purchase of property, plant and equipment


(8,601
)

(2,241
)Purchase of intangible assets





(350
)Other, net


569


172Net cash used in investing activities


(8,032
)

(2,419
)Financing activities:Payment of note payable





(15,934
)Proceeds from exercises of stock options


808


Payment of dividends to stockholders


(89,991
)

Credit facility issuance costs


(1,060
)

Net cash used in financing activities


(90,243
)

(15,934
)Effect of foreign exchange rates on cash


81


18Increase (decrease) in cash and cash equivalents


38,834


(55,155
)Cash and cash equivalents at beginning of period


54,839


74,059Cash and cash equivalents at end of period

$
93,673

$
18,904


See
accompanying notes to these condensed consolidated financial statements.

3

---





Table of Contents

GT Solar International, Inc. and Subsidiaries        Notes to Condensed Consolidated Financial Statements        December 27, 2008(In thousands, except per share data)

1. Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

The accompanying unaudited consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities
and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of
management, the accompanying financial statements contain all adjustments consisting of normal recurring accruals necessary to present fairly the financial position, results of operations and cash
flows for the periods presented. The results for the nine months ended December 27, 2008 are not necessarily indicative of the results to be expected for the fiscal year ending March 28,
2009 or for any other interim period or for any future year. The accompanying financial statements should be read in conjunction with the consolidated financial statements and footnotes included in
the Company's Prospectus dated July 23, 2008 and filed pursuant to Rule 424(b) under the Securities Act of 1933, as amended (the "Securities Act") with the Securities and Exchange
Commission on July 24, 2008 (the "Prospectus").

The
condensed consolidated balance sheet as of March 31, 2008 has been derived from the audited financial statements as of that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete financial statements.

Effective
April 1, 2008 the Company elected to change its reporting period to be based on a 52-week year that ends on the Saturday closest to March 31, which in
certain years results in a 53-week fiscal year. The Company's quarterly reporting will include 13 week periods, unless otherwise noted. The fiscal year ending March 31, 2010
will have 53 weeks, with the extra week occurring in the fourth quarter of that year. As a result of transitioning to the new reporting
period, the three and nine months ended December 27, 2008 includes one and four fewer days, respectively, than the corresponding three month and nine months ended December 31, 2007. The
Company will continue to use the terms quarterly, monthly, and annual in describing its financial results.

On
July 29, 2008, the Company completed an initial public offering of 30,300 shares of common stock by certain of its stockholders.

Significant Accounting Policies

The Company's significant accounting policies are disclosed in its audited financial statements for the year ended March 31,
2008, included in the Prospectus and have not changed materially as of December 27, 2008.

Reclassifications

Certain reclassifications have been made to prior year financial statements to conform to the current year presentation.

Recently Adopted Accounting Policies

In September 2006, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS")
No. 157,Fair Value Measurements("SFAS No. 157"), which

4

---



Table of Contents

GT Solar International, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

December 27, 2008

(In thousands, except per share data)

1. Significant Accounting Policies (Continued)

defines
fair value, establishes a framework in generally accepted accounting principles for measuring fair value and expands disclosures about fair value measurements. This standard applies only when
other standards require or permit the fair value measurement of assets and liabilities. It does not increase the use of fair value measurement. SFAS No. 157 is effective for fiscal years
beginning after November 15, 2007, except as it relates to nonrecurring fair value measurements of nonfinancial assets
and liabilities for which the standard is effective for fiscal years beginning after November 15, 2008. The adoption of SFAS No. 157 with respect to financial assets and liabilities
effective April 1, 2008 did not have a significant effect on the Company's consolidated results of operations or financial position (see Note 3, Fair Value of Financial Instruments, to
the Condensed Consolidated Financial Statements for additional information). In addition, the Company is currently evaluating the impact that adoption of SFAS No. 157, for measuring
nonfinancial assets and liabilities, will have on its financial position and results of operations.

In
February 2007, FASB released SFAS No. 159,The Fair Value Option for Financial Assets and Financial Liabilities("SFAS
No. 159"). SFAS No. 159 allows entities to measure many financial instruments and certain other items at their fair value. The Company elected not to change the accounting for its
financial instruments and therefore the adoption of SFAS No. 159 effective April 1, 2008 did not have a material impact on its financial position and results of operations.

In
September 2007, the Emerging Issues Task Force ("EITF") issued EITF Issue No. 07-03,Accounting for Advance Payments for Goods or Services
to Be Used in Future Research and Development Activities("EITF Issue No. 07-03"). EITF Issue No. 07-03 addresses the diversity which
exists with respect to the accounting for the nonrefundable portion of a payment made by a research and development entity for future research and development activities. Under EITF Issue
No. 07-03 an entity would defer and capitalize nonrefundable advance payments made for research and development activities until the related goods are delivered or the related
services are performed. The Company's adoption of EITF Issue No. 07-03 as of April 1, 2008 did not have a material impact on its financial position or results of operations.

2. Recently Issued Accounting Pronouncements

In December 2007, the FASB issued SFAS No. 141R,Business Combinations("SFAS No. 141R"). This pronouncement establishes
principles and requirements for how the acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any non-controlling interest
in the acquiree and the goodwill acquired in the business combination or a gain from a bargain purchase and also establishes disclosure requirements to enable
users of the financial statements to evaluate the nature and financial effects of the business combination. SFAS No. 141R becomes effective for business combinations entered into during fiscal
years beginning on or after December 31, 2008 and thereafter and does not have any impact on business combinations prior to such date.

In
December 2007, the FASB issued SFAS No. 160,Non-controlling Interests in Consolidated Financial Statementsan Amendment of APB
No. 51("SFAS No. 160"). This pronouncement requires non-controlling interests (previously referred to as minority interests) to be reported as a
component of equity, which changes the accounting for transactions with non-controlling interest holders. SFAS No. 160 becomes effective for fiscal years beginning on or after
December 31, 2008 and interim periods therein.

5

---



Table of Contents

GT Solar International, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

December 27, 2008

(In thousands, except per share data)

2. Recently Issued Accounting Pronouncements (Continued)

The
Company does not expect that the adoption of SFAS No. 160 will have a material impact on its financial statements.

In
March 2008, the FASB issued SFAS No. 161,Disclosures about Derivative Instruments and Hedging Activities("SFAS
No. 161"). SFAS No. 161 changes the disclosure requirements for derivative instruments and hedging activities. Entities are required to provide enhanced disclosures about (a) how
and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under SFAS No. 133,Accounting for
Derivative Instruments and Hedging Activitiesand its related interpretations and (c) how derivative instruments and related hedged items affect an entity's financial
position, financial performance and cash flows. SFAS No. 161 is effective for fiscal years and interim periods beginning after November 15, 2008. Since SFAS No. 161 addresses only
disclosure requirements, the adoption of SFAS No. 161 will have no impact on the Company's combined results of operation or combined financial position.

In
May 2008, the FASB issued SFAS No. 162,The Hierarchy of Generally Accepted Accounting Principles("SFAS No. 162). SFAS
No. 162 identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements that are presented in conformity with
generally accepted accounting principles. SFAS No. 162 becomes effective 60 days following the SEC's approval of the Public Company Accounting Oversight Board amendments to AU
Section 411,The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles.The Company does not expect that the
adoption of SFAS No. 162 will have a material impact on its financial statements.

In
October 2008, the FASB issued FASB Staff Position No. FAS 157-3,Determining the Fair Value of a Financial Asset in a Market That is Not
Active("FSP 157-3"), which clarifies the application of SFAS 157 when the market for a financial asset is inactive. Specifically, FSP 157-3
clarifies how (1) management's internal assumptions should be considered in measuring fair value when observable data are not present, (2) observable market information from an inactive
market should be taken into account and (3) the use of broker quotes or pricing services should be considered in assessing the relevance of observable and unobservable data to measure fair
value.
The guidance in FSP 157-3 is effective immediately. The adoption of FSP 157-3 is not expected to have a material effect on the Company's financial statements.

3. Fair Value of Financial Instruments

The Company's financial instruments are recorded at amounts that reflect the Company's estimate of their fair values. SFAS No. 157 provides a hierarchal disclosure framework
associated with the level of subjectivity used in measuring assets and liabilities at fair value. The three levels defined by the SFAS No. 157 hierarchy are as
follows:



6

---



Table of Contents

GT Solar International, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

December 27, 2008

(In thousands, except per share data)

3. Fair Value of Financial Instruments (Continued)



The
following table provides the assets and liabilities carried at fair value measured on a recurring basis at December 27, 2008:

Fair Value Measurements UsingTotal
Carrying
Value(Level 1)

(Level 2)

(Level 3)Money market mutual funds

$
101,535

$
101,535





Foreign exchange forward contracts assets

$
1,258




$
1,258


Foreign exchange forward contracts liabilities

$
(5,498
)



$
(5,498
)




The
Company's counterparties to foreign exchange forward contracts transactions are major financial institutions with an investment grade or better credit rating. These
foreign exchange forward contracts are measured at fair value using a valuation which represents a good faith estimate of the mid-market value of the position, based on estimated or actual
bids and offers for the positions.

4. Inventories

Inventories consisted of the following:

December 27,
2008

March 31,
2008Raw materials

$
76,270

$
17,729Work-in-process


13,259


10,128Finished goods


38,354


9,661$
127,883

$
37,518


5. Warranty

The Company's photovoltaic products are generally sold with a standard warranty for a period equal to the shorter of (i) twelve months from the date of acceptance by the customer
or (ii) fifteen months from the date of shipment. A provision for estimated future costs related to warranty expense is recorded when products are shipped and accepted by the customer. The
Company's polysilicon products are sold with a standard warranty for a period not exceeding twenty-four months from delivery. The following table presents warranty activities:

Nine Months
Ended
December 27,
2008

Year
Ended
March 31,
2008Product warranty liability, beginning of the period

$
1,957

$
977Accruals for new warranties issued


2,049


1,876Payments under warranty


(1,223
)

(896
)Product warranty liability, end of period

$
2,783

$
1,957


7

---





Table of Contents

GT Solar International, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

December 27, 2008

(In thousands, except per share data)

6. Income Taxes

The Company records on an interim basis a provision for Federal, state and foreign income taxes based on an expected annual effective income tax rate in accordance with SFAS 109, Accounting for Income Taxes. The Company reviews its expected annual effective income tax rates and makes changes on a quarterly basis as necessary
based on certain factors such as changes in forecasted annual operating income; changes to the valuation allowance for net deferred tax assets; changes to actual or forecasted permanent book to tax
differences; impacts from future tax settlements with state, federal or foreign tax authorities; and impacts from tax law changes. In addition, the Company identifies items which are not normal and
recurring in nature and treats these as discrete events. The tax effect of discrete items is booked entirely in the quarter in which the discrete event occurs. Due to the volatility of these factors,
the Company's consolidated effective income tax rate may change significantly on a quarterly basis.

The
Company's consolidated effective income tax rate was 38.3% for the three months ended December 27, 2008, as compared to a rate of 38.2% for the comparable
prior-year period. The Company's consolidated effective income tax rate was 37.7% for the nine months ended December 27, 2008, as compared to 17.6% for the comparable
prior-year period. For the nine months ended December 27, 2008, the effective rate is lower than the statutory rate due primarily to the impact of discrete items of additional tax
benefits based upon recently completed tax studies. The impact of these discrete items on the effective rate was to reduce the effective rate for the nine month period ended December 27, 2008
by a net of 0.9%. In the nine months ended December 31, 2007, the effective rate included the release of a prior valuation allowance against the deferred tax assets of $2.2 million.

In
June 2006, the FASB issued FASB Interpretation No. 48,Accounting for Uncertainties in Income Taxes("FIN 48") which
clarifies the accounting for uncertainty in income taxes by prescribing a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position
taken or expected to be taken in a tax return. The interpretation also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods and disclosure. The
Company adopted the provisions of FIN 48 on April 1, 2007. The Company recognized no increase in tax liabilities as a result of the implementation of FIN 48 and did not have any
unrecognized tax benefits as of March 31, 2008. During the nine months ended December 27, 2008, the Company recorded a long term payable for uncertain tax positions of $143.

The
Company recognizes accrued interest and penalties on unrecognized tax benefits in income tax expense. At December 27, 2008, accrued interest related to uncertain tax positions
was not significant.

7. Commitments and Contingencies

Beginning on August 1, 2008, seven putative securities class action lawsuits were commenced in the United States District Court for the District of New Hampshire (the "Court"),
against the Company, certain of its officers and directors, certain underwriters of the Company's 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 a single action captioned Braun et al. v.
GT Solar International, Inc., et al. The Court selected the lead plaintiff 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 are scheduled to respond to the amended

8

---



Table of Contents

GT Solar International, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

December 27, 2008

(In thousands, except per share data)

7. Commitments and Contingencies (Continued)

consolidated
complaint on or before February 5, 2009. The lead plaintiff asserts claims under various sections of the Securities Act. The amended consolidated complaint alleges, among other
things, that the defendants made false and materially misleading statements and failed to disclose material information in certain SEC filings, including the registration statement and Prospectus for
the Company's July 24, 2008 initial public offering, and other public statements, regarding the Company's business relationship with LDK Solar, Ltd., one of the Company's customers, JYT
Corporation, one of the Company's competitors, and certain of the Company's products, including its DSS furnaces. Among other relief, the amended consolidated complaint seeks class certification,
unspecified compensatory damages, rescission, interest, attorneys' fees, costs and such other relief as the Court should deem just and proper.

In
addition, on September 18, 2008 a putative securities class action was filed in New Hampshire state court in the Superior Court for Hillsborough County, Southern District (the
"State Court"), under the caption Hamel v. GT Solar International, Inc., et al., against the Company, certain of its officers and directors and certain underwriters of the
Company's July 24, 2008 initial public offering (the "state class action"). The Company removed the state class action to the United States District Court for the District of New Hampshire on
October 22, 2008. The state class action was consolidated with the federal class actions on November 25, 2008. On February 2, 2009, the federal Court granted the plantiff's motion
to remand the state class action to New Hampshire State Court. The state class action plaintiff asserts claims under various sections of the Securities Act. The state class action complaint alleges,
among other things, that the defendants made false and materially misleading statements and failed to disclose material information in certain SEC filings, including the registration statement for the
Company's July 24, 2008 initial public offering, and other public statements, regarding the Company's business relationship with LDK Solar, Ltd., one of the Company's customers,
JYT Corporation, one of the Company's competitors, and certain of the Company's products, including its DSS furnaces. Among other relief, the state class action complaint seeks class
certification, unspecified compensatory damages, rescission, interest, attorneys' fees, costs and such other relief as the State Court should deem just and proper.

The
Company intends to defend the federal and state class actions vigorously. There can be no assurance, however, that the Company will be successful, and an adverse resolution of any of
the lawsuits could have a material adverse effect on the Company's consolidated financial position and results of operations. The Company is not presently able to reasonably estimate potential losses,
if any, related to the lawsuits.

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

8. Debt



On July 29, 2008, the Company entered into a senior credit agreement with Bank of America, N.A., as sole administrative and
collateral agent, and a syndicate of financial institutions. The senior credit agreement provides for a three-year revolving senior credit facility in an aggregate principal amount of up
to $90,000, which is available for the borrowing of revolving loans and the issuance of standby letters of

9

---



Table of Contents

GT Solar International, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

December 27, 2008

(In thousands, except per share data)

8. Debt (Continued)

credit
(the "senior credit facility"); provided that the aggregate principal amount of revolving loans shall not exceed $50,000 at any time. The senior credit facility includes a sub-limit of $25,000
for swingline loans. The senior credit facility will mature on July 29, 2011.

The
aggregate amount of borrowings and outstanding standby letters of credit under the senior credit facility may not exceed a borrowing base equal to Adjusted EBITDA multiplied by 3.0
plus unrestricted cash on hand. The senior credit facility is guaranteed by all of the Company's existing and future direct and indirect domestic subsidiaries. Obligations under the senior credit
facility are secured by a first-priority lien on substantially all of the Company's tangible and intangible assets and by a pledge of the capital stock of all domestic subsidiaries and 65% of the
capital stock of foreign subsidiaries owned directly by the Company or one of its domestic subsidiaries.

The
senior credit facility may be increased by an aggregate amount of up to $100,000, with additional commitments from the lenders under the senior credit facility or from new financial
institutions, if no default or event of default exists. The Company may exercise its option to increase the commitments not more than three times, and each increase will be in a minimum aggregate
principal amount of $10,000 and integral multiples of $5,000 in excess thereof. As of December 27, 2008, the Company had approximately $19,167 of outstanding standby letters of credit and no
borrowings against this facility, resulting in $70,833 of available credit under the senior credit agreement.

Borrowings
under the senior credit facility bear interest at a floating rate equal to, at the Company's option, either LIBOR plus 2.25% per annum or a base rate plus 1.25% per annum. The
base rate is defined as the higher of the Bank of America prime rate and the federal funds rate plus 0.50%. The Company pays a commitment fee to the lenders equal to 0.50% per annum on the actual
daily unused portions of the senior credit facility and letter of credit fees equal to 2.25% per annum on the maximum amount available to be drawn under each standby letter of credit.

The
senior credit agreement that governs the senior credit facility contains customary covenants, which among other things limit the Company's ability to: incur indebtedness; make
investments; engage in mergers and other fundamental changes; sell or otherwise dispose of property or assets; pay dividends
and other restricted payments; enter into transactions with affiliates; use proceeds to purchase or carry margin stock or extend credit to others; make subordinated debt payments; make certain changes
to the terms of material indebtedness; and other covenants customary for such a facility. The senior credit agreement contains financial covenants that require the Company to meet certain financial
tests, including a maximum consolidated net leverage ratio and a minimum consolidated fixed charge coverage ratio, calculated on a consolidated basis for each consecutive four fiscal quarter period.
The Company was in compliance with all of these covenants as of December 27, 2008.



On July 29, 2008, the Company entered into a letter of credit agreement with Bank of America, N.A., as sole administrative and
collateral agent, and a syndicate of financial institutions. The letter of credit agreement provides for a three-year cash-collateralized letter of credit facility in an
aggregate principal amount of up to $150,000, which is available for the issuance of cash-collateralized standby letters of credit (the "letter of credit facility"). The letter of credit
facility may be increased by an aggregate amount of up

10

---



Table of Contents

GT Solar International, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

December 27, 2008

(In thousands, except per share data)

8. Debt (Continued)

to
$50,000, with additional commitments from the lenders under the letter of credit facility or from new financial institutions, if no default or event of default exists under the letter of credit
facility. The Company may exercise its option to increase the commitments not more than three times, and each increase will be in a minimum aggregate principal amount of $10,000 and integral multiples
of $5,000 in excess thereof. The Company pays letter of credit fees equal to 0.25% per annum on the maximum amount available to be drawn under each standby letter of credit.

The
letter of credit facility is secured by an amount of cash equal to the maximum aggregate amount available to be drawn under the outstanding standby letters of credit, which amount is
pledged and delivered by the Company to the administrative agent for the benefit of all lenders. The letter of credit facility contains customary covenants, which among other things limit the
Company's ability to incur liens on the cash collateral; engage in mergers or other fundamental changes; sell or otherwise dispose of the registrant's or its subsidiaries' assets; use proceeds to
purchase or carry margin stock or extend credit to others; and other covenants customary for such a facility. As of December 27, 2008, the Company was in compliance with all of these covenants
and had no outstanding letters of credit under this facility.

9. Stockholder's Equity

A summary of the changes in stockholders' equity for the nine months ended December 27, 2008 is provided below:

Common
Stock
Shares

Common
Stock
Par Value

Additional
Paid-in
Capital

Retained
Earnings
(Accumulated
Deficit)

Accumulated
Other
Comprehensive
Income (Loss)

Total
Stockholders'
EquityBalance at March 31, 2008


142,375

$
1,424

$
73,817

$
10,816

$
5,584

$
91,641Net income











76,210





76,210Other comprehensive loss(1)














(11,067
)

(11,067
)Common stock dividend











(89,991
)




(89,991
)Option exercises


487


5


803








808Stock compensation








1,857








1,857Balance at December 27, 2008


142,862

$
1,429

$
76,477

$
(2,965
)
$
(5,483
)
$
69,458


---

Stock Split

The financial statements give retroactive effect to a July 23, 2008 increase in the number of authorized shares of common stock
from 10,000 to 500,000 and a 17-for-one stock split of the Company's common stock in connection with the Company's initial public offering.

11

---



Table of Contents

GT Solar International, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

December 27, 2008

(In thousands, except per share data)

9. Stockholder's Equity (Continued)

Preferred Stock

In connection with the Company's initial public offering, the Company filed an amended and restated certificate of incorporation that
permits the board of directors, from time to time, to direct the issuance of up to 10,000 shares of preferred stock in series and may, at the time of issuance, determine the rights, preferences and
limitations of each series.

Common Stock Dividend

On June 30, 2008, the Company declared a cash dividend of approximately $90 million to the stockholders of record as of
June 30, 2008 that was subsequently paid on August 1, 2008.

10. Share-Based Payments

On June 30, 2008, in connection with the Company's initial public offering, the Company adopted the 2008 Equity Incentive Plan (the "2008 Plan."). The 2008 Plan provides for
grants of stock options, restricted stock, stock appreciation rights and other equity based awards to directors, officers and
employees of the Company, as well as independent contractors performing services for the Company. The Company anticipates that all future option grants will be made under the 2008 Plan and does not
intend to issue any further stock options under the 2006 Stock Option Plan.

Stock
option activity for the nine months ended December 27, 2008 was as follows:

Options OutstandingNumber
of Shares

Weighted Average
Exercise PriceBalance March 31, 2008


6,533

$
3.86Options granted





Options exercised


(487
)
$
1.66Options canceled/expired


(490
)
$
4.41Balance December 27, 2008


5,554

$
3.93


The
following summarizes outstanding and exercisable stock options as of December 27, 2008:

Stock Options Outstanding

Stock Options ExercisableExercise Price
Per Share

Number

Weighted-Average
Remaining Life
(in years)

Intrinsic
Value

Number

Intrinsic
Value$
1.66


2,387


7.5

$
2,291


1,387

$
1,331$
5.64


3,167


9.0





686


5,554




$
2,291


2,073

$
1,331


12

---



Table of Contents

GT Solar International, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

December 27, 2008

(In thousands, except per share data)

10. Share-Based Payments (Continued)

The
Company also grants restricted stock and restricted stock units (collectively, "restricted shares") at the discretion of the Board of Directors, to certain key employees and certain
members of the Board of Directors. Unvested restricted shares are forfeited in the event of termination of employment or engagement with the Company. A holder of restricted stock generally has all of
the rights of a stockholder. Restricted stock is common stock that is considered issued and outstanding but is not fully transferable until certain conditions have been met, primarily the passage of
time and continued employment or engagement with the Company during a predetermined vesting period set by the compensation committee (the "restricted period"). A restricted stock unit is a grant
representing the right to receive a share of common stock upon vesting of the restricted stock unit and satisfaction of other conditions but for which no share of common stock is issued until the
restricted stock unit vests and any other applicable conditions are satisfied. A holder of a restricted stock unit does not have any rights of a stockholder until the restricted stock unit vests and
is converted to common stock. The fair value of restricted shares are based on the market price of the Company's stock on the date of grant and are recorded as compensation expense ratably over the
applicable service period, which is generally two to four years.

A
summary of activity related to the restricted shares for the nine months ended December 27, 2008 is as follows:

Number of
Non-Vested
Restricted
Shares

Weighted
Average
Grant-Date
Fair ValueBalance at March 31, 2008


85

$
5.64Granted


1,846


3.00Vested





Forfeited





Balance at December 27, 2008


1,931

$
3.12


The
Company accounts for equity instruments issued in accordance with SFAS No. 123, EITF No. 96-18,Accounting for Equity Instruments
That are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling Goods or Servicesand FASB Interpretation No. 28, Accounting for Stock Appreciation Rights and Other Variable
Stock Option or Award Plans. Accordingly, the Company will be required to measure the fair
value of such equity instruments at each reporting period prior to vesting and finally at the vesting date of the equity instruments.

13

---



Table of Contents

GT Solar International, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

December 27, 2008

(In thousands, except per share data)

10. Share-Based Payments (Continued)

Stock-based
compensation expense with respect to fixed and variable equity instruments issued to employees and non-employees is as follows:

Three Months Ended

Nine Months EndedDecember 27,
2008

December 31,
2007

December 27,
2008

December 31,
2007Stock optionsfixed

$
470

$
210

$
1,815

$
593Stock optionsvariable


(1,759
)

124


(524
)

474Restricted stock and restricted stock units


33





442


Other awards


41


(144
)

124


60Total

$
(1,215
)
$
190

$
1,857

$
1,127


Stock-based
compensation expense recognized for the three and nine months ended December 27, 2008 and December 31, 2007 was recorded as follows:

Three Months Ended

Nine Months EndedDecember 27,
2008

December 31,
2007

December 27,
2008

December 31,
2007Cost of revenues

$
145

$
35

$
372

$
126Research and development


196


51


456


189Selling and marketing


39


59


99


337General and administrative


(1,595
)

45


930


475Total

$
(1,215
)
$
190

$
1,857

$
1,127


As
of December 27, 2008, the Company had unrecorded deferred stock-based compensation expense related to fixed and variable stock options of approximately $7,072, after estimated
forfeitures, which will be recognized over an estimated weighted-average remaining requisite service period of 3.0 years. The unrecorded deferred stock-based compensation expense related to
restricted shares was approximately $7,431, after estimated forfeitures, as of December 27, 2008 which will be recognized over an estimated weighted-average remaining requisite service period
of 3.9 years.

11. Earning Per Share

Basic earnings per share is computed based on only the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed using the weighted
average number of common shares and, when dilutive, the weighted average number of potential common shares outstanding during the period, as determined using the treasury stock method. Potential
common shares consist of nonvested restricted common stock and common stock issuable upon the exercise of outstanding stock options and the vesting of restricted stock units.

Outstanding
common stock options and awards having no dilutive effect on earnings per share during the three and nine months ended December 27, 2008 were 1,693 and 271,
respectively, compared to 120 and 43 during the three and nine months ended December 31, 2007, respectively.

14

---



Table of Contents

GT Solar International, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

December 27, 2008

(In thousands, except per share data)

12. Comprehensive Income (Loss)

The following table summarizes components of comprehensive income that relate to derivatives classified as cash flow hedges as well as foreign currency translation adjustments from the
Company's subsidiary that does not use the U.S. dollar as its functional currency:

Three Months Ended

Nine Months EndedDecember 27,
2008

December 31,
2007

December 27,
2008

December 31,
2007Net income (loss)

$
43,125

$
(4,459
)
$
76,210

$
7,589Net gains (losses) on derivative instruments designated as cash flow hedges, net of tax effects


(4,889
)

1,263


(11,149
)

2,310Foreign currency translation adjustment


1


15


82


11Comprehensive income (loss)

$
38,237

$
(3,181
)
$
65,143

$
9,910


The
following table summarizes the Company's accumulated other comprehensive income (loss) as of December 27, 2008 and March 31, 2008:

December 27,
2008

March 31,
2008Cash flow hedges of foreign exchange (net of tax)

$
(5,592
)
$
5,557Foreign currency translation adjustment


109


27Total

$
(5,483
)
$
5,584


Substantially
all of the accumulated gain (loss) related to cash flow hedges of foreign exchange will be reclassified into earnings over the next twelve months.

13. Segment Information

During the year ended March 31, 2008, the Company began reporting its results in two segments: the photovoltaic business and polysilicon business. The Company evaluates
performance and allocates resources based on revenues and operating income (loss). Operating income (loss) for each segment includes selling, general and administrative expenses directly attributable
to the segment including the amortization of acquired intangible assets. Corporate services include non-allocable overhead costs, including human resources, legal, finance, general and
administrative and corporate marketing expenses. Corporate services assets include deferred tax assets, cash and cash equivalents and other non-allocated assets.

15

---



Table of Contents

GT Solar International, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

December 27, 2008

(In thousands, except per share data)

13. Segment Information (Continued)

Financial
information for the Company's business segments is as follows:

Photovoltaic
Business

Polysilicon
Business

Corporate
Services

TotalThree months ended December 27, 2008Revenue

$
109,424


95,785




$
205,209Gross profit


53,580


35,961





89,541Depreciation and amortization


773


120


409


1,302Income (loss) from operations


44,757


31,609


(5,365
)

71,001Three months ended December 31, 2007Revenue

$
14,737







$
14,737Gross profit


2,601


(856
)




1,745Depreciation and amortization


8


52


939


999Income (loss) from operations


(180
)

(3,107
)

(5,615
)

(8,902
)Nine months ended December 27, 2008Revenue

$
306,698


95,785




$
402,483Gross profit


139,071


36,138





175,209Depreciation and amortization


2,339


319


980


3,638Income (loss) from operations


119,839


21,604


(19,144
)

122,299Nine months ended December 31, 2007Revenue

$
111,867







$
111,867Gross profit


37,507


(856
)




36,651Depreciation and amortization


1,642


55


1,201


2,898Income (loss) from operations


27,545


(7,094
)

(13,962
)

6,489AssetsDecember 27, 2008

$
384,165

$
234,339

$
169,773

$
788,277March 31, 2008

$
281,303

$
230,865

$
88,443

$
600,611


The
following table presents revenue by geographic region, which is based on the destination of the shipments:

Three Months Ended

Nine Months EndedDecember 27,
2008

December 31,
2007

December 27,
2008

December 31,
2007Asia

$
193,585

$
13,362

$
366,291

$
107,907Europe


4,534


238


18,813


1,869North America


7,090


1,137


17,379


2,091Total revenue

$
205,209

$
14,737

$
402,483

$
111,867


16

---



Table of Contents

GT Solar International, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

December 27, 2008

(In thousands, except per share data)

13. Segment Information (Continued)

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

December 27,
2008

March 31,
2008United States

$
66,857

$
62,561Asia


83


86Total

$
66,940

$
62,647


14. Supplemental Financial Statement Information

Goodwill

During the three months ended September 27, 2008 the Company completed tax studies that resulted in additional tax benefits, of
which $590 related to periods prior to January 1, 2006. Therefore, such amount has been allocated as a reduction to goodwill.

Other Income (Expense), net

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

Three Months Ended

Nine Months EndedDecember 27,
2008

December 31,
2007

December 27,
2008

December 31,
2007Initial public offering expenses

$
13

$
(3
)
$
(2,675
)
$
(1,147
)Foreign currency gain (loss)


(1,275
)

(12
)

(1,686
)

13Other


(79
)

224


(79
)

92Total other income (expense), net

$
(1,341
)
$
209

$
(4,440
)
$
(1,042
)


17

---





Table of Contents

Item 2.    Management's Discussion and Analysis of Financial Condition and Results of Operations

This quarterly report on Form 10-Q contains "forward-looking statements" that involve risks
and uncertainties, as well as assumptions that, if they prove incorrect or never materialize, could cause our results to differ materially from those expressed or implied by such forward-looking
statements. The statements contained in this Quarterly Report on Form 10-Q that are not purely historical are forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933, as amended, (the "Securities Act") or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are often
identified by the use of words such as, but not limited to, "anticipate," "believe," "continue," "could," "estimate," "expect," "intend," "may," "will," "plan," "target," "continue," and similar
expressions or variations intended to identify forward-looking statements. These statements are based on the beliefs and assumptions of our management
based on information currently available to management. Such forward-looking statements are subject to risks, uncertainties and other important factors that could cause actual results and the timing
of certain events to differ materially from future results expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not
limited to, those identified under the section titled "Risk Factors" below, and those discussed in the section titled "Risk Factors" included in our Prospectus dated July 23, 2008 filed
pursuant to Rule 424(b) under the Securities Act with the Securities and Exchange Commission on July 24, 2008. Furthermore, such forward-looking statements speak only as of the date of
this report. All forward-looking statements are qualified in their entirety by this cautionary statement, and we undertake no obligation to update any forward-looking statements to reflect events or
circumstances after the date of such statements.

Company Overview

GT Solar International, Inc., through its subsidiaries (referred to herein collectively as "we", "us", and "our"), is a provider
of specialized manufacturing equipment and services essential for the production of photovoltaic wafers, cells and modules and polysilicon. Our principal products are directional solidification
systems, or DSS units, and chemical vapor deposition, or CVD, reactors and related equipment. DSS units are specialized furnaces used to melt polysilicon and cast multicrystalline ingots from which
solar wafers are made. CVD reactors are used to react gases at high temperatures and pressures to produce polysilicon, the key raw material used in solar cells. Our customers include several of the
world's largest solar companies as well as companies in the chemical industry. The use of our products requires substantial technical know-how and most of our customers rely on us to
design and optimize their production processes as well as train their employees in the use of our equipment. We operated through two segments: our photovoltaic business and our polysilicon business.

Our
photovoltaic business manufactures and sells DSS units, wafer cleaning and etch systems, slurry recovery systems, cell testing and sorting equipment and tabber/stringer machines, as
well as other related parts and consumables. We sell our products separately and as part of "turnkey solutions," where we bundle equipment, including third party equipment, with design and integration
expertise.

Our
polysilicon business offers CVD reactors and related equipment specifically designed for the production of polysilicon.

Our
business was founded in 1994. Effective January 1, 2006, our business was acquired by GT Solar Holdings, LLC, a newly formed company controlled by GFI Energy
Ventures LLC, a private equity investment firm focused on the energy sector, and Oaktree Capital Management, L.P., a global alternative and non-traditional investment
manager. We refer to this transaction as the "Acquisition."

On
July 29, 2008, we completed an initial public offering of 30,300,000 shares of common stock by certain of our stockholders.

18

---



Table of Contents

Factors Affecting Our Results of Operations

Demand for our products and services is driven primarily by end-user demand for solar power. Key drivers of the growing
demand for solar power include increasing scarcity and prices of conventional energy sources, the desire for energy security or energy independence to counter perceived geopolitical supply risks
surrounding fossil fuels, environmental pollution from fossil fuels and the resulting tightening of emission controls, the increasingly competitive cost of energy from renewable energy sources,
government incentive programs for the development of solar energy making solar energy more cost competitive and changing consumer preferences towards renewable energy sources.

In
addition, our results of operations are affected by a number of external factors including the availability and price of polysilicon in the market, availability of raw materials,
foreign exchange rates, interest rates, commodity prices (particularly steel and graphite prices), macro economic factors, including the availability of capital that may be needed by our customers,
and political, regulatory and legal conditions in the markets in which we conduct business (including China).

Our
results of operations are also affected by a number of other factors including, among other things, the size of new contracts and when we are able to recognize the related revenue
(especially with respect to our polysilicon products), delays in customer acceptances of our products, delays in deliveries of ordered products and our rate of progress in the fulfillment of our
obligations under our contracts. A delay in deliveries or cancellations of orders would cause us to have inventories in excess of our short-term needs, and may delay our ability to recognize, or
prevent us from recognizing, revenue on contracts in our order backlog.

Recent
disruptions in the global capital markets have resulted in reduced availability of funding worldwide and a higher level of uncertainty experienced by some end-user
solar cell module manufacturers. Although we continue to believe that our backlog is somewhat insulated from these recent trends due to our requirement for substantial non-refundable
deposits on most orders, we have negotiated extensions of the delivery schedules and other modifications under some of our existing contracts. Recently we have made reductions in our direct labor
workforce as well as adjustments to the procurement of materials from vendors in our photovoltaic business. As of the
date of this filing, we have not had any significant cancellations of contracts in our backlog. However, certain contingent contracts have been terminated in accordance with their terms, only a
minimal portion of which was included in our order backlog.

Our
quarterly results have fluctuated significantly in the past and we expect that our quarterly results will continue to fluctuate significantly in the future.

Order Backlog

Our order backlog consists of signed purchase orders or other written contractual commitments. The table below sets forth our order
backlog as of December 27, 2008 and March 31, 2008 by product category:

As of
December 27, 2008

As of
March 31, 2008Product Category

Amount

% of
Backlog

Amount

% of
Backlog(dollars in millions)Photovoltaic business

$
493


37
%
$
648


50
%Polysilicon business


837


63
%

659


50
%Total

$
1,330


100
%
$
1,307


100
%


Our
order backlog as of December 27, 2008 included deferred revenue of $292.4 million, representing equipment that had been shipped to customers but not yet recognized as
revenue. In addition, 59% of our

19

---



Table of Contents

order
backlog as of December 27, 2008 was attributed to three customers. We generally would expect to deliver the photovoltaic products included in our order backlog over a period ranging from
six to twelve months and the polysilicon products included in our order backlog over a period ranging from twelve to eighteen months, although portions of the related revenue are expected to be
recognized over a longer period. Based upon the current status of our contracts, we expect to convert approximately 60% of our order backlog as of December 27, 2008 to revenue by the end of
fiscal 2010. Order backlog as of any particular date should not be relied upon as indicative of our revenues for any future period and we have only recently begun to track our order backlog on a
consistent basis. Refer to Factors Affecting Our Results of Operations as noted above.

Results of Operations

The following tables set forth the results of operations as a percentage of revenue for the three and nine months ended
December 27, 2008 and December 31, 2007:

Three Months Ended

Nine Months EndedDecember 27,
2008

December 31,
2007

December 27,
2008

December 31,
2007Statement of Operations Data:*Revenue


100
%

100
%

100
%

100
%Cost of revenue


56


88


56


67Gross profit


44


12


44


33Research and development


3


21


3


5Selling and marketing


3


10


4


7General and administrative


3


36


6


13Amortization of intangible assets


0


5


1


2Income (loss) from operations


35


(60
)

30


6Interest income, net


0


10


1


3Other income (expense), net


(1
)

1


(1
)

(1
)Income (loss) before income taxes


34


(49
)

30


8Provision (benefit) for income taxes


13


(19
)

11


1Net income (loss)


21
%

(30
)%

19
%

7
%


---

Three and Nine Months ended December 27, 2008 compared to Three and Nine Months ended December 31, 2007.

Revenue.The following table sets forth total revenue for the three and nine months ended December 27, 2008 and December 31,
2007:

Three Months Ended

Nine Months EndedBusiness Category

December 27,
2008

December 31,
2007

December 27,
2008

December 31,
2007(dollars in thousands)

(dollars in thousands)Photovoltaic business:Photovoltaic equipment

$
102,423

$
13,117

$
291,933

$
101,603Photovoltaic services, parts and other


7,001


1,620


14,765


10,264Photovoltaic business

$
109,424

$
14,737

$
306,698

$
111,867Polysilicon business


95,785





95,785


Total revenue

$
205,209

$
14,737

$
402,483

$
111,867


20

---



Table of Contents

During
the three months ended December 27, 2008, our total revenue increased to $205.2 million from $14.7 million for the three months ended
December 31, 2007. During the three months ended December 27, 2008, our revenue from DSS sales was $86.5 million compared to $12.7 million, in the three months ended December 31,
2007. During the three months ended December 31, 2007, in our photovoltaic business, we introduced and began shipping our DSS 450 furnaces for which revenue was recognized in subsequent
periods, primarily the fourth quarter of fiscal year 2008, due to our revenue recognition policy. During the three months ended December 27, 2008, in our polysilicon business, we also
recognized $95.8 million of revenue related primarily to our first installation of our 36-rod CVD reactor that was shipped during fiscal year 2008 and was deferred in accordance
with our revenue recognition policy until the three months ended December 27, 2008, when
pre-established reactor output performance criteria were achieved and final acceptance by the respective customer was received. We also recognized a $4.0 million fee related to
engineering services and a non-refundable deposit we retained due to a customer's inability to obtain financing for the potential start up of a polysilicon plant.

For
the nine months ended December 27, 2008 compared to the nine months ended December 31, 2007, our total revenue increased 259.8%, or $290.6 million primarily
related to continued revenue growth within both our photovoltaic and polysilicon business lines specifically our DSS 450 furnaces and the recognition of revenue associated with our 36-rod
CVD reactor within the polysilicon business. During the nine months ended December 27, 2008, our revenue from DSS sales was $256.7 million compared to $85.3 million, in the nine
months ended December 31, 2007. As of December 27, 2008, we had deferred revenue balances of $148.0 million attributable to photovoltaic contracts and $144.4 million
attributable to polysilicon contracts.

During
the three and nine months ended December 27, 2008, revenue from photovoltaic services, parts and other sales, increased by approximately $5.4 million and
$4.5 million, respectively, compared to the three and nine months ended December 31, 2007. These revenues can fluctuate based upon specific customer requirements and were primarily
driven by continued demand from our expanded installed base. Sales of other solar parts and services accounted for 3.7% and 9.2% of our total revenue for the nine months ended December 27,
2008, and December 31, 2007, respectively. We anticipate sales from our parts and service business to continue to slightly increase in the near term based on future expansion of our operations
in China.

In
the three and nine months ended December 27, 2008 and three and nine months ended December 31, 2007, a substantial percentage of our revenue resulted from sales to a
small number of customers. Four of our customers accounted for 82.0% and three of our customers accounted for 63.8% of our revenue for the three and nine months ended December 27, 2008,
respectively, while three of our customers accounted for 86.1% and two of our customers accounted for 82.1% of our revenue for the three and nine months ended December 31, 2007, respectively.
No other customer accounted for more than 10% of our revenue during the respective periods. For the fiscal year ended March 28, 2009, we believe that no one customer will account for more than
25% of our total annual revenue.

21

---



Table of Contents

Gross Profit and Gross Margin.The following table sets forth total gross profit and gross margin for the three and nine months ended
December 27, 2008 and December 31, 2007:

Three Months Ended

Nine Months EndedDecember 27,
2008

December 31,
2007

December 27,
2008

December 31,
2007(dollars in thousands)

(dollars in thousands)Gross profitPhotovoltaic business

$
53,580

$
2,601

$
139,071

$
37,507Polysilicon business


35,961


(856
)

36,138


(856
)Total

$
89,541

$
1,745

$
175,209

$
36,651Gross marginPhotovoltaic business


49.0
%

17.6
%

45.3
%

33.6
%Polysilicon business


37.5
%




37.7
%

Total


43.6
%

11.8
%

43.5
%

32.8
%


Gross
profit as a percentage of revenue, or gross margin, increased to 43.6% for the three months ended December 27, 2008 from 11.8% for the three months ended December 31,
2007. Gross margin from our photovoltaic business for the three months ended December 31, 2007 was significantly lower than for the three months ended December 27, 2008, due to normal
period costs as a result of shipments of our then-new DSS 450 furnaces for which revenue was not recognized until subsequent periods. During the three months ended December 27,
2008, we recognized revenue on our first 36-rod CVD reactor in the polysilicon business. We also recognized a $4.0 million fee for engineering services and a
non-refundable deposit we retained due to a customer's inability to obtain financing for the potential start up of a polysilicon plant. Offsetting this in part was a charge of
$1.4 million related to an increase in our inventory obsolescence reserve for specific material used within our polysilicon business.

For
the nine months ended December 27, 2008, gross margin increased to 45.3% from our photovoltaic business from 33.6% for the nine months ended December 31, 2007. Gross
margins increased primarily due to the higher gross margins on our DSS units introduced during the third quarter of fiscal 2008. In addition, during the nine months ended December 31, 2007 we
incurred expense of approximately $6.5 million, due to the impact of a non-recurring purchase accounting fair value adjustment and higher than expected costs on a completed
contract. For the nine months ended December 27, 2008, gross margin for our polysilicon business was 37.7%. During the nine months ended December 31, 2007, we did not recognize any
revenue on products shipped in our polysilicon business due to our revenue recognition policy.

For
the balance of the fiscal year ending March 28, 2009, we expect the mix of revenue recognized on our polysilicon and turnkey projects to slightly reduce overall annual gross
margins compared to higher gross margins earned on traditional photovoltaic products. Our gross margins tend to vary depending on the volume and pricing of our contracts.

22

---



Table of Contents

Research and Development.The following table sets forth total research and development expenses for the three and nine months ended
December 27, 2008 and December 31, 2007:

Three Months Ended

Nine Months EndedDecember 27,
2008

December 31,
2007

December 27,
2008

December 31,
2007(dollars in thousands)

(dollars in thousands)Research and developmentPhotovoltaic business

$
4,314

$
1,268

$
7,836

$
2,446Polysilicon business


1,014


1,854


5,357


3,605Total

$
5,328

$
3,122

$
13,193

$
6,051


Research
and development expenses increased 70.6%, or $2.2 million, during the three months ended December 27, 2008 compared to the three months ended December 31,
2007. Of our total expense for the three months ended December 27, 2008, approximately $1.0 million was related to the development of our next generation rod reactor in our polysilicon
business and approximately $4.3 million related to the development of a next generation DSS furnace as well as other photovoltaic projects.

During
the nine months ended December 27, 2008 compared to the nine months ended December 31, 2007, research and development expenses increased by approximately 118.0%, or
$7.1 million. Of our total expense for the nine months ended December 27, 2008, approximately $5.4 million was related to the development of our next generation rod reactor in our
polysilicon business and approximately $7.8 million was related to the development of a next generation DSS furnace as well as other photovoltaic projects. We expect our research and
development spending to continue to increase as we continue to invest in new product development and expand our product base in both our polysilicon and photovoltaic businesses.

Selling and Marketing.The following table sets forth total selling and marketing expenses for the three and nine months ended
December 27,
2008 and December 31, 2007:

Three Months Ended

Nine Months EndedDecember 27,
2008

December 31,
2007

December 27,
2008

December 31,
2007(dollars in thousands)

(dollars in thousands)Selling and marketingPhotovoltaic business

$
2,788

$
1,153

$
7,704

$
5,182Polysilicon business


2,850


349


6,762


2,584Total

$
5,638

$
1,502

$
14,466

$
7,766


Selling
and marketing expenses increased 275.4%, or $4.1 million, during the three months ended December 27, 2008 compared to the three months ended December 31,
2007 primarily related to increased sales commissions. Sales commissions are accrued based on operational factors such as deposits, shipments and final acceptances received from customers rather than
when revenue is recognized.

During
the nine months ended December 27, 2008 compared to the nine months ended December 31, 2007, selling and marketing expenses increased 86.3%, or $6.7 million,
of which the majority, or approximately $3.4 million, can be attributed to increased sales commissions. Additionally, during the nine months ended December 27, 2008, we also incurred
increased costs of approximately $3.3 million related to sales commissions and other expenses related to continued growth in our polysilicon business. As previously noted, sales commissions do
not directly correlate to increases in revenue.

General and Administrative.General and administrative expenses include costs for human resources, legal, finance, and other corporate
overhead that
are not allocated to each business segment. General and administrative expenses increased 29.9%, or $1.6 million during the three months ended December 27,

23

---



Table of Contents

2008
compared to December 31, 2007. Of this increase incremental spending related to legal and tax consulting services was approximately $1.0 million, increased software consulting costs
was $0.7 million related to the implementation of a new ERP system and salary and wages increased by approximately $0.7 during the three months ended December 27, 2008. Stock
compensation expense decreased $1.6 million due to the variable nature of the stock options awarded to non-employees.

During
the nine months ended December 27, 2008 compared to the nine months ended December 31, 2007, general and administrative expenses increased by 62.5%, or approximately
$8.8 million. During the nine months ended December 27, 2008, we incurred increased expenses of approximately $3.0 million related to legal and tax consulting services as well as
increased software consulting costs of $3.2 million related to the implementation of a new ERP system. Additionally, stock compensation expense increased $0.5 million due to the variable
nature of the stock options awarded to non-employees.

Amortization of Intangible Assets.Amortization expense attributed to intangible assets has remained essentially unchanged for all
periods presented.

Interest Income and Interest Expense.We typically invest our excess cash in exchange-traded money market mutual funds. During the
three months ended
December 27, 2008 and December 31, 2007, we recorded $0.6 million and $1.7 million of interest income, respectively, and during the nine months ended December 27,
2008 and December 31, 2007, we recorded $4.5 million and $5.1 million of interest income, respectively. During the three months ended December 27, 2008 and
December 31, 2007, we recorded interest expense of $0.3 million and $0.3 million and, respectively, and during the nine months ended December 27, 2008 and
December 31, 2007, we recorded interest expense of $0.1 million and $1.3 million, respectively, in each case related to the interest component of foreign exchange forward
contracts.

Other (Income) Expense, net.During the three months ended December 27, 2008, other expense included $1.3 million of foreign
exchange
losses. During the nine months ended December 27, 2008, compared to
December 31, 2007, other expense included costs of $2.7 million and $1.1 million, respectively, related to our initial public offering which was completed on July 29, 2008.

Provision for Income Taxes.Our effective income tax rate was 38.3% for the three months ended December 27, 2008, compared to 38.2%
for the
comparable prior-year period. For the nine months ended December 27, 2008, our effective tax rate was 37.7%, compared to 17.6% for the same period ended December 31, 2007.
The effective rate for the nine months ended December 27, 2008 was lower than the statutory rate due primarily to the impact of discrete items attributed to expected tax benefits based upon
recently completed tax studies. The impact of these discrete items reduced the effective rate for the nine month period ended December 27, 2008 by a net of 0.9%. In the nine month period ended
December 31, 2007, the effective rate included the reversal of a prior valuation allowance against the deferred tax assets of $2.2 million.

Net Income.As a result of the foregoing factors, for the three and nine months ended December 27, 2008, we recorded net income of
$43.1 million and $76.2 million, respectively, compared to net loss of $4.5 million and net income of $7.6 million for the three and nine months ended December 31,
2007 respectively.

Liquidity and Capital Resources

Overview

Our combined cash and cash equivalents and restricted cash balances decreased by $97.6 million during the nine months ended
December 27, 2008, from $218.9 million as of March 31, 2008 to $121.3 million. Of this amount, restricted cash declined by $136.4 million due to a change in the
required collateral necessary to secure existing standby letters of credit, or standby LOCs, as a result of our senior credit facility discussed below.

24

---





Table of Contents

In connection with deposits we receive from our customers, we may be required to provide a standby LOC as security for their deposit. From September 24,
2007 to July 29, 2008, we collateralized our standby letters of credit with restricted cash. The practice of using cash to collateralize our standby LOCs had a negative impact on the working
capital available to us and, therefore, on July 29, 2008, we entered into a senior credit facility with a syndicate of financial institutions, which permits revolving credit borrowings as well
as the issuance of standby letters of credit without providing cash collateral. (See "Senior Credit Facility" below). The restrictions on our cash balances began to decrease during fiscal 2009 as we
began utilizing this new facility. As of December 27, 2008, we had $27.6 million of restricted cash used to collateralize outstanding standby LOCs that were not collateralized by our
senior credit facility, primarily as a result of the expiry dates of the existing standby LOCs. We anticipate that all standby LOCs will be issued under our senior credit facility by the end of fiscal
2009 therefore eliminating the restrictions on our cash.

We
manage our cash inflows through the use of customer deposits and milestone billings that allow us in turn to meet our cash outflow requirements that consist primarily of vendor
payments and prepayments for contract related costs (raw material and components costs) and payroll and overhead costs as we perform on our customer contracts. The following discussion of the changes
in our cash
balance refers to the various sections of our Condensed Consolidated Statements of Cash Flows, which appears in Item 1 of this Quarterly Report on Form 10-Q.

We
believe that cash generated from operations together with our existing cash and customer deposits and our senior credit facility will be sufficient to satisfy working capital
requirements, commitments for capital expenditures, and other operating cash requirements for the foreseeable future, including at least the next twelve months.

Cash Flows from Operating Activities

Our cash provided by operations was $137.0 million for the nine months ended December 27, 2008 and was significantly
increased by the reduction in our restricted cash balance of $136.4 million. Other significant sources of cash included $76.2 million of net income, $72.5 million of a net
increase in deferred revenue less deferred costs primarily related to shipments of our polysilicon reactors, an increase in customer deposits of $43.1 million and an increase in accounts
payable and accrued expenses of $30.5 million. The significant uses of cash were an increase in inventory and advance payments on inventory purchases of $166.2 million as we continue to
ramp production to fulfill our backlog, an increase in accounts receivable of $21.1 million and an increase in deferred taxes of $39.9 million. We continue to manage our cash flows from
operations by balancing the receipt of customer deposits with advances made to our vendors for inventory purchases.

For
the nine months ended December 31, 2007, our operations used $36.8 million in cash. Our restricted cash balances increased by $152.6 million during this period
as we were required to cash collateralize our standby LOCs, which reduced cash provided by operations. The significant sources of cash included $7.6 million of net income, $32.8 million
of an increase in deferred revenue less deferred costs related primarily to the shipment of our recently introduced DSS 450 furnace, an increase in our customer deposits of $165.4 million and
an increase in accounts payable and accrued expenses of $29.4 million. Other significant uses of cash were an increase in inventory and advance payments on inventory purchases of
$89.1 million as we continued to ramp production to fulfill our backlog, an increase in accounts receivable of $21.9 million and an increase in deferred taxes of $11.1 million.

Cash Flows from Investing Activities

Cash used in investing activities was $8.0 million for the nine months ended December 27, 2008, consisting primarily of
capital expenditures as we completed the expansion of our New Hampshire headquarters and manufacturing facility as well as our initial installation of our ERP system.

25

---



Table of Contents

We
outsource a significant portion of our manufacturing, and therefore we require minimal capital expenditures to meet our production demands. We expect total capital expenditures in the
fiscal year ending March 28, 2009 to be approximately $12.0 to $15.0 million, consisting primarily of improvements to our business information systems and expansion of our facilities
both in New Hampshire and Montana.

Cash
used in investing activities was $2.4 million for the nine months ended December 31, 2007, consisting primarily of capital expenditures.

Cash Flows from Financing Activities

Cash used in financing activities was $90.2 million for the nine months ended December 27, 2008 which was primarily for
the payment of a dividend to shareholders of record at June 30, 2008.

Cash
used in financing activities was $15.9 million for the nine months ended December 31, 2007, which was for the full repayment of borrowings under a senior secured
exchangeable promissory note.

Derivatives and Hedging Activities

We enter into forward foreign exchange contracts to offset certain operational exposures from the impact of changes on foreign currency
exchange rates. These foreign exchange contracts are entered into to support purchases made in the normal course of business and accordingly are not speculative in nature.

The
notional amount of our Euro-denominated cash flow hedges was € 76.1 million at December 27, 2008. These contracts had a net
fair value liability of $4.2 million at December 27, 2008 due primarily to a result of changes in the Euro to U.S. dollar
exchange rates. Changes in the fair value of these contracts are recognized in stockholders' equity as a component of accumulated other comprehensive income as these financial instruments qualify for
hedge accounting.

Senior Credit Facility

On July 29, 2008, we entered into a senior credit agreement with Bank of America, N.A., as sole administrative and collateral
agent, and a syndicate of financial institutions. The senior credit agreement provides for a three-year revolving senior credit facility in an aggregate principal amount of up to
$90.0 million, which is available for the borrowing of revolving loans and the issuance of standby LOCs (the "senior credit facility"); provided that the aggregate principal amount of revolving
loans may not exceed $50.0 million at any time. The senior credit facility includes a sub-limit of $25.0 million for swingline loans. As of December 27, 2008, we had approximately
$19.2 million of outstanding letters of credit and no borrowings under the senior credit facility and $70.8 million of availability under the senior credit facility. The senior credit
facility will mature on July 29, 2011.

The
aggregate amount of borrowings and outstanding standby LOCs under the senior credit facility may not exceed a borrowing base equal to Adjusted EBITDA multiplied by 3.0 plus
unrestricted cash on hand. The senior credit facility is guaranteed by all of our existing and future direct and indirect domestic subsidiaries. Obligations under the senior credit facility are
secured by a first-priority lien on substantially all of the tangible and intangible assets and by a pledge of the capital stock of all of our domestic subsidiaries and 65% of the capital stock of our
foreign subsidiaries owned directly by us or one of our domestic subsidiaries.

The
senior credit facility may be increased by an aggregate amount of up to $100.0 million, with additional commitments from the lenders under the senior credit facility or from
new financial institutions, if no default or event of default exists. We may 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.

26

---



Table of Contents

Borrowings
under the senior credit facility bear interest at a floating rate equal to, at our option, LIBOR plus 2.25% per annum or a base rate plus 1.25% per annum. The base rate is
defined as the higher of the Bank of America prime rate and the federal funds rate plus 0.50%. We pay a commitment fee to the lenders equal to 0.50% per annum on the actual daily unused portions of
the
senior credit facility and letter of credit fees equal to 2.25% per annum on the maximum amount available to be drawn under each standby LOC.

The
senior credit agreement that governs the senior credit facility contains customary covenants, which, among other things, limit our ability to: incur indebtedness; make investments;
engage in mergers and other fundamental changes; sell or otherwise dispose of property or assets; pay dividends and other restricted payments; enter into transactions with affiliates; enter into
burdensome agreements; use proceeds to purchase or carry margin stock or extend credit to others; make subordinated debt payments; make certain changes to the terms of material indebtedness; and other
covenants customary for such a facility. The senior credit agreement contains financial covenants that require us to meet certain financial tests, including a maximum consolidated net leverage ratio
and a minimum consolidated fixed charge coverage ratio, calculated on a consolidated basis for each consecutive four fiscal quarter period. We were in compliance with all of these covenants as of
December 27, 2008.

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

Cash-Collateralized Letter of Credit Facility

On July 29, 2008, we also entered into a letter of credit agreement with Bank of America, N.A., as sole administrative and
collateral agent, and a syndicate of financial institutions. The letter of credit agreement provides for a three-year cash-collateralized letter of credit facility in an
aggregate principal amount of up to $150.0 million, which is available for the issuance of cash-collateralized standby LOCs. The letter of credit facility may be increased by an
aggregate amount of up to $50.0 million, at our election, with additional commitments from the lenders under the letter of credit facility or from new financial institutions, if no default or
event of default exists under the letter of credit facility. We may exercise the 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. We pay letter of credit fees equal to 0.25% per annum on the maximum amount available to be
drawn under each standby letter of credit. As of December 27, 2008, we had no letters of credit outstanding under this facility.

The
letter of credit facility is secured by an amount of cash equal to the maximum aggregate amount available to be drawn under the outstanding standby letters of credit, which amount is
pledged and delivered by us to the administrative agent for the benefit of all lenders. The letter of credit facility contains customary covenants, which among other things limit our ability to: incur
liens on the cash collateral; engage in mergers or other fundamental changes; sell or otherwise dispose of the registrant's or its subsidiaries' assets; use proceeds to purchase or carry margin stock
or extend credit to others;
and other covenants customary for such a facility. We were in compliance with all of these covenants as of December 27, 2008.

Off-Balance Sheet Arrangements

We do not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as
structured finance or special purpose entities that would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited

27

---



Table of Contents

purposes.
As such, we are not exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such relationships.

As
of December 27, 2008, we had approximately $46.8 million of standby letters of credit outstanding representing primarily performance guarantees issued against customer
deposits, of this amount $19.2 million was issued under our senior credit facility and $27.6 million was collateralized with restricted cash. These letters of credit as of
December 27, 2008 have not been included in the consolidated financial statements included herein. Letters of credit entered into prior to July 29, 2008, the effective date of our
security credit facility, are secured by restricted cash.

Recent Accounting Pronouncements

In September 2006, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS")
No. 157,Fair Value Measurements("SFAS No. 157") which defines fair value, establishes a framework in generally accepted accounting
principles for measuring fair value and expands disclosures about fair value measurements. This standard applies only when other standards require or permit the fair value measurement of assets and
liabilities. It does not increase the use of fair value measurement. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007, except as it relates to nonrecurring
fair value measurements of nonfinancial assets and liabilities for which the standard is effective for fiscal years beginning after November 15, 2008. The adoption of SFAS No. 157 with
respect to financial assets and liabilities effective April 1, 2008 did not have a significant effect on our consolidated results of operations or financial position. In addition, we are
currently evaluating the impact of SFAS No. 157 for measuring nonfinancial assets and liabilities will have on our financial position and results of operations.

In
February 2007, the FASB released SFAS No. 159,The Fair Value Option for Financial Assets and Financial Liability("SFAS
No. 159"). SFAS No. 159 allows entities to measure many financial instruments and certain other items at their fair value. We elected not to change the accounting for our financial
instruments and therefore the adoption of SFAS No. 159 effective April 1, 2008 did not have a material impact on our financial position and results of operations.

In
September 2007, the Emerging Issues Task Force ("EITF") issued EITF Issue No. 07-03,Accounting for Advance Payments for Goods or Services
to Be Used in Future Research and Development Activities("EITF Issue No. 07-03"). EITF Issue No. 07-03 addresses the diversity which
exists with respect to the accounting for the nonrefundable portion of a payment made by a research and development entity for future research and development activities. Under EITF Issue
No. 07-03 an entity would defer and capitalize nonrefundable advance payments made for research and development activities until the related goods are delivered or the related
services are performed. EITF Issue No. 07-03 is effective for fiscal years beginning after December 15, 2007 and interim periods within those years. We adopted EITF Issue
No. 07-03 effective April 1, 2008 with no material impact on our financial position or results of operations.

In
December 2007, the FASB issued SFAS No. 141R,Business Combinations("SFAS No. 141R"). This pronouncement establishes
principles and requirements for how the acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any non-controlling interest
in the acquiree and the goodwill acquired in the business combination or a gain from a bargain purchase, and also establishes disclosure requirements to enable users of the financial statements to
evaluate the nature and financial effects of the business combination. SFAS No. 141R becomes effective for business combinations entered into during fiscal years beginning on or after
December 31, 2008 and thereafter and does not have any impact on business combinations prior to such date.

In
December 2007, the FASB issued SFAS No. 160,Non-controlling Interests in Consolidated Financial Statementsan Amendment of APB
No. 51, or ("SFAS No. 160"). This pronouncement requires non-controlling interests (previously referred to as minority interests) to be reported as a
component of equity, which changes the accounting for transactions with non-controlling interest holders. SFAS No. 160

28

---



Table of Contents

becomes
effective for fiscal years beginning on or after December 31, 2008 and interim periods therein. We have not yet completed our evaluation of the impact of SFAS No. 160.

In
March 2008, the FASB issued SFAS No. 161,Disclosures about Derivative Instruments and Hedging Activities("SFAS
No. 161"). SFAS No. 161 changes the disclosure requirements for derivative instruments and hedging activities. Entities are required to provide enhanced disclosures about (a) how
and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items
are accounted for under SFAS No. 133 and its related interpretations and (c) how derivative instruments and related hedged items affect an entity's financial position, financial
performance and cash flows. SFAS No. 161 is effective for fiscal years and interim periods beginning after November 15, 2008. Since SFAS No. 161 addresses only disclosure
requirements, the adoption of SFAS No. 161 will have no impact on our combined results of operation or combined financial position.

In
May 2008, FASB issued SFAS No. 162,The Hierarchy of Generally Accepted Accounting Principles("SFAS No. 162"). SFAS
No. 162 identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements that are presented in conformity with
generally accepted accounting principles. SFAS No. 162 becomes effective 60 days following the SEC's approval of the Public Company Accounting Oversight Board amendments to AU
Section 411, "The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles." We do not expect that the adoption of SFAS No. 162 will have a material impact
on our financial statements.

In
October 2008, the FASB issued FASB Staff Position No. FAS 157-3,Determining the Fair Value of a Financial Asset in a Market That is Not
Active("FSP 157-3"), which clarifies the application of SFAS 157 when the market for a financial asset is inactive. Specifically, FSP 157-3
clarifies how (1) our internal assumptions should be considered in measuring fair value when observable data are not present, (2) observable market information from an inactive market
should be taken into account, and (3) the use of broker quotes or pricing services should be considered in assessing the relevance of observable and unobservable data to measure fair value. The
guidance in FSP 157-3 is effective immediately. The adoption of FSP 157-3 is not expected to have a material effect on our financial statements.

Critical Accounting Policies and Estimates

For the three months ended December 27, 2008, there were no changes to our critical accounting policies as identified in our
consolidated financial statements for the year ended March 31, 2008 included in our Prospectus dated July 23, 2008 filed pursuant to Rule 424(b) under the Securities Act with the
Securities and Exchange Commission on July 24, 2008.

Item 3.    Quantitative and Qualitative Disclosures about Market Risk



Although our reporting currency is the U.S. dollar and almost all of our sales contracts are currently denominated in U.S. dollars, we
do incur costs in foreign currencies. In addition, although we maintain our cash balances primarily in the U.S. dollar, from time to time, we will maintain cash balances in currencies other than the
U.S. dollar. As a result, we may be subject to currency translation risk. Exchange rates between a number of currencies and U.S. dollars have fluctuated significantly over the last few years and
future exchange rate fluctuations may occur.

We
enter into foreign exchange forward contracts that qualify as cash flow hedges under SFAS No. 133,Accounting for Derivative Instruments and Hedging
Activities,to hedge portions of our anticipated foreign currency denominated inventory purchases. These contracts typically expire within 12 months. Consistent with the
nature of the economic hedges provided by these foreign exchange forward contracts, increases or decreases in their fair values would be effectively offset by corresponding decreases or increases in
the U.S. dollar value of our future foreign currency denominated inventory purchases

29

---



Table of Contents

(i.e., "hedged
items"). The information provided below relates only to the hedging instruments and does not represent the corresponding changes in the underlying hedged items.

Currently,
our largest foreign currency exposure is the Euro, primarily from foreign currency denominated purchases of third party equipment from vendors located in Europe. Relative to
our foreign currency exposures existing at December 27, 2008, a 10% appreciation of the Euro against the U.S. dollar would result in an increase in the fair value of $10.6 million of
these derivative financial instruments. Conversely, a 10% appreciation of the U.S. dollar against the Euro would result in a decrease in the fair value of approximately $10.6 million of these
instruments.

Item 4.    Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of
our disclosure controls and procedures as of December 27, 2008. The term "disclosure controls and procedures," as defined in Rules 13a-15(e) and 15d-15(e) under
the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the
Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls
and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company's
management, 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 well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the
cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of December 27, 2008, our Chief Executive Officer
and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control Over Financial Reporting

We have implemented new company-wide enterprise resource planning software. As of May 5, 2008 we have completed the
conversion to this new platform in our business locations other than at our Shanghai location. In January 2009, we began the conversion of our Shanghai location to the new platform. We continue to
enhance the processing and reporting capabilities of this software. As a result, certain changes have been made to our internal controls, which management believes will strengthen our internal control
structure. There have been no other significant changes in our internal controls during the fiscal quarter ended December 27, 2008 that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1.    Legal Proceedings

Beginning on August 1, 2008, seven putative securities class action lawsuits were commenced in the United States District Court
for the District of New Hampshire (the "Court"), against us, certain of our officers and directors, certain underwriters of our July 24, 2008 initial public offering and others, including
certain investors in us (the "federal class actions"). On October 3, 2008, the Court entered an order consolidating the federal class actions into a single action captioned Braun
et al. v. GT Solar International, Inc., et al. The Court selected the lead plaintiff 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 are scheduled to respond to the amended consolidated complaint on

30

---



Table of Contents

or
before February 5, 2009. The lead plaintiff asserts claims under various sections of the Securities Act. The amended consolidated complaint alleges, among other things, that the defendants
made false and materially misleading statements and failed to disclose material information in certain SEC filings, including the registration statement and Prospectus for our July 24, 2008
initial public offering, and other public statements, regarding our business relationship with LDK Solar, Ltd., one of our customers, JYT Corporation, one of our competitors, and certain
of our products, including our DSS furnaces. Among other relief, the amended consolidated complaint seeks class certification, unspecified compensatory damages, rescission, interest, attorneys'
fees, costs and such other relief as the Court should deem just and proper.

In
addition, on September 18, 2008 a putative securities class action was filed in New Hampshire state court in the Superior Court for Hillsborough County, Southern District (the
"State Court"), under the caption Hamel v. GT Solar International, Inc., et al., against us, certain of our officers and directors and certain underwriters of our
July 24, 2008 initial public offering (the "state class action"). The Company removed the state class action to the United States District Court for the District of New Hampshire on
October 22, 2008. The state class action was consolidated with the federal class actions on November 25, 2008. On February 2, 2009, the federal Court granted the plaintiff's
motion to remand the state class action to New Hampshire State Court. The state class action plaintiff asserts claims under various sections of the Securities Act of 1933, as amended. The state class
action complaint alleges, among other things, that the defendants made false and materially misleading statements and failed to disclose material information in certain SEC filings, including the
registration statement for our July 24, 2008 initial public offering, and other public statements, regarding our business relationship with LDK Solar, Ltd., one of our customers,
JYT Corporation, one of our competitors, and certain of our products, including our DSS furnaces. Among other relief, the state class action complaint seeks class certification, unspecified
compensatory damages, rescission, interest, attorneys' fees, costs and such other relief as the State Court should deem just and proper.

We
intend to defend the federal and state class actions vigorously. There can be no assurance, however, that we will be successful, and an adverse resolution of any of the lawsuits could
have a material
adverse effect on our consolidated financial position and results of operations. We are not presently able to reasonably estimate potential losses, if any, related to the lawsuits.

We
are subject to various other routine legal proceedings and claims incidental to our business, which we believe 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 other information set forth in this quarterly report on Form 10-Q, you should carefully consider
the risk factors discussed under the caption "Risk Factors" in our Prospectus dated July 23, 2008 (the "Prospectus") filed pursuant to Rule 424(b) under the Securities Act with the
Securities and Exchange Commission on July 24, 2008. Except as set forth below, there have been no material changes to the risk factors previously disclosed under the caption "Risk Factors" in
the Prospectus.

Current or future credit and financial market conditions could materially and adversely affect our business and results of operations in several ways.

As widely reported, financial markets in the United States, Europe and Asia have been experiencing extreme disruption in recent months,
including, among other things, extreme volatility in security prices, severely diminished liquidity and credit availability, rating downgrades of certain investments and declining valuations of
others. There can be no assurance that there will not be further deterioration in credit and financial markets and confidence in economic conditions. These economic developments affect businesses such
as ours in a number of ways. The current tightening of credit in financial markets may delay or

31

---



Table of Contents

prevent
our customers from securing funding adequate to honor their existing contracts with us or to enter into new contracts to purchase our products and could result in a decrease of orders for our
products. The high level of economic uncertainty increases the risk of cancellation of orders for our products. Some of our customers have requested to defer delivery of our equipment under their
existing contracts with us, and we have extended the delivery schedules and in some cases modified our existing contracts at our customers' request. We have negotiated extensions of the delivery
schedules and other modifications under some of our existing contracts. A delay in deliveries or cancellation of orders would cause us to have inventories in excess of our short-term needs, and may
delay our ability to recognize, or prevent us from recognizing, revenue on contracts in our order backlog. In addition, if
any of our customers have liquidity problems, they may be unable to pay us. These conditions may similarly affect our suppliers. The inability of our suppliers to obtain credit to finance development
and/or manufacture our products could result in delivery delays or prevent us from delivering our products to our customers. We also have an exposure due to advance payments made to our suppliers who
may become financially distressed.

In
addition, the volatility in the credit markets has severely diminished liquidity and capital availability. While the ultimate outcome of the disruptions in the credit markets cannot
be predicted, they may result in events that could prevent us from borrowing money from our existing lenders under our senior credit facility. If the credit crisis continues, the senior credit
facility may not continue to be available to us in accordance with terms of the agreement.

We
are unable to predict the likely duration and severity of the current disruption in financial markets and adverse economic conditions in the U.S. and other countries, and any
resulting effects or changes, including those described above, may have a material and adverse effect on our business, results of operations and financial condition.

General economic conditions may have an adverse impact on demand for our products.

The global economy has recently experienced a downturn. Demand for products requiring significant capital expenditures, such as our DSS
units and CVD reactors, are affected by general economic conditions. Uncertainty about economic conditions, negative financial news, tighter credit markets and declines in asset values may cause our
customers to postpone making purchases of capital equipment. Increasing budgetary pressures could reduce or eliminate government subsidies and economic incentives for on-grid solar
electricity applications. A downturn in the global construction market could reduce demand for solar panels in new residential and commercial buildings. Reduced demand for our customers' products
would, in turn, reduce demand for our products that are used in the manufacture of photovoltaic wafers, cells and modules and polysilicon for the solar power industry. Some economists are predicting
that the United States economy, and possibly the global economy, could enter into a prolonged recession or even a depression. A prolonged downturn in the global economy could have a material adverse
effect on our business in a number of ways, including decreased demand for our products, which would result in lower sales and reduced backlog.

The
current economic conditions and uncertainty about future economic conditions make it challenging for us to forecast our operating results, make business decisions and identify the
risks that may affect our business. If we are not able to timely and appropriately adapt to changes resulting from the difficult macroeconomic environment, our business, results of operations and
financial condition may be materially and adversely affected.

Uncertainty
about economic conditions could also increase the volatility of our stock price.

32

---



Table of Contents

We are subject to securities class action lawsuits that could adversely affect our business. This litigation, and potential similar or related litigation, could result in
substantial damages and may divert management's time and attention from our business.

Beginning on August 1, 2008, a series of putative securities class action lawsuits were commenced in both the United States
District Court for the District of New Hampshire as well as New Hampshire state court in the Superior Court for Hillsborough County, Southern District, alleging that we, certain of our officers and
directors, the underwriters in our July 2008 initial public offering and others, including certain of our investors, violated various sections of the Securities Act. The complaints, among other
things, allege that the registration statement for our July 2008 initial public offering contained material misstatements and omissions regarding our business relationship with LDK Solar, Ltd.,
one of our customers, JYT Corporation, one of our competitors, and certain of our products, including DSS furnaces. The lawsuits seek, among other things, unspecified compensatory damages plus
rescission, interest, attorneys' fees and costs. All of the federal lawsuits have been consolidated. See Item 1Legal Proceedings.

We
intend to defend these claims vigorously. Nonetheless, the lawsuits discussed above may result in costly and protracted litigation, which may require significant commitment of our
financial and management resources and time. The ultimate outcome of any litigation is uncertain and could result in substantial damages. Either favorable or unfavorable outcomes could have a material
negative impact on our financial condition or results of operations, due to defense costs, diversion of management resources and other factors. In addition, we may in the future be the target of
securities class action lawsuits similar to those described above.

We may potentially be subject to concentration of credit risk related to our cash equivalents.

We may potentially be exposed to losses in the event of nonperformance by the financial counterparties to our cash investments. This
risk may be heightened as a result of the current financial crisis and volatility in the markets. We manage the concentration risk by making investments that comply with our investment policy.
Currently, our cash equivalents are invested in exchange traded money market mutual funds. Although we do not currently believe the principal amounts of these investments are subject to any material
risk of loss, the recent volatility in the financial markets is likely to significantly impact the investment income we receive from these
investments. In general, increases of credit risk related to our cash equivalents could have a material adverse effect on our financial condition, results of operations, business and/or prospects.

Our actual operating results may differ significantly from our guidance.

From time to time, we release guidance in our quarterly earnings releases, quarterly earnings conference call or otherwise, regarding
our future performance that represent our management's estimates as of the date of release. This guidance, which includes forward-looking statements, is based on projections prepared by our
management. These projections are not prepared with a view toward compliance with published guidelines of the American Institute of Certified Public Accountants, and neither our registered public
accountants nor any other independent expert or outside party compiles or examines the projections and, accordingly, no such person expresses any opinion or any other form of assurance with respect
thereto.

Projections
are based upon a number of assumptions and estimates that, while presented with numerical specificity, are inherently subject to significant business, economic and
competitive uncertainties and contingencies, many of which are beyond our control and are based upon specific assumptions with respect to future business decisions, some of which will change. We
generally state possible outcomes as high and low ranges which are intended to provide a sensitivity analysis as variables are changed but are not intended to represent that actual results could not
fall outside of the suggested ranges. The principal reason that we release guidance is to provide a basis for our management to discuss our business outlook

33

---



Table of Contents

with
analysts and investors. We do not accept any responsibility for any projections or reports published by any such persons.

Guidance
is necessarily speculative in nature, and it can be expected that some or all of the assumptions of the guidance furnished by us will not materialize or will vary significantly
from actual results. Accordingly, our guidance is only an estimate of what management believes is realizable as of the date of release. Actual results will vary from our guidance and the variations
may be material. In light of the foregoing, investors are urged not to rely upon, or otherwise consider, our guidance in making an investment decision in respect of our common stock.

Any
failure to successfully implement our operating strategy or the occurrence of any of the events or circumstances set forth in our "Risk Factors" in the Prospectus for our initial
public offering and in this quarterly report on Form 10-Q could result in the actual operating results being different from our guidance, and such differences may be adverse and
material.

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



Item 3.    Defaults Upon Senior Securities



Item 4.    Submission of Matter to a Vote of Security Holders



Item 5.    Other Information



34

---



Table of Contents

Item 6.    Exhibits

Exhibit No.

Description10.1

Fiscal Year 2009 Executive Incentive Plan (incorporated by reference to Exhibit 10.1 to the registrant's current report on Form 8-K (File No. 001-34133) filed on October 30, 2008).10.2

Letter Agreement, dated as of November 10, 2008, by and between the registrant and Noel G. Watson (incorporated by reference to Exhibit 10.1 to the registrant's current report on Form 8-K (File
No. 001-34133) filed on November 12, 2008).10.3

Confidentiality Agreement, dated as of November 11, 2008, by and between the registrant and Noel G. Watson (incorporated by reference to Exhibit 10.1 to the registrant's current report on Form 8-K
(File No. 001-34133) filed on December 3, 2008).10.4

Restricted Stock Unit Agreement, dated as of September 12, 2008, by and between the registrant and Matthew E. Massengill.10.5

Restricted Stock Unit Agreement, dated as of November 11, 2008, by and between the registrant and Noel G. Watson.10.6

Form of Restricted Stock Unit Agreement for employees.10.7

Form of Restricted Stock Unit Agreement for executive officers.10.8

Employment Agreement, dated as of January 27, 2009, by and between the registrant and Hoil Kim.10.9

Offer Letter, dated as of November 24, 2008, by and between the registrant and Hoil Kim.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.31.2

Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, Rule 13a-14(a)/15d-14(a), by Chief Financial Officer.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.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 Chief Financial Officer.


35

---





Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.

|                       |  |                              |  |                                                                    
|---------------------- |  | ---------------------------- |  | -------------------------------------------------------------------
|                       |  | GT Solar International, Inc.
|                       |  | By:                          |  | /s/ THOMAS M. ZARRELLA Thomas M. Zarrella                          
|Date: February 6, 2009 |  |                              |  | President and Chief Executive Officer
(Principal Executive Officer)
|                       |  | By:                          |  | /s/ ROBERT W. WOODBURY, JR. Robert W. Woodbury, Jr.                
|Date: February 6, 2009 |  |                              |  | Chief Financial Officer
(Principal Financial Officer)              

36

---