During earnings season, it's important to remember that companies' quarterly numbers, as reported, do not represent "truth." They're merely a standardized way of presenting the data. Hence, the name GAAP -- generally accepted accounting principles. It's up to us to tease out the meaning.
In order to do just that, I often find myself starting with a firm's net income figure and then backing out insurance benefits, one-time tax windfalls, and the like. The number that gets so much press -- earnings per share beat analyst estimates by three cents! -- often distorts a firm's operational performance one way or another. But in the case of Evergreen Solar
In late 2006, Evergreen's European joint venture, EverQ, got divvied up equally between its three principals. Silicon and wafer whiz REC took a bigger slice, while Evergreen relinquished its majority share in exchange for bounteous silicon. Accounting conventions dictate that minority interests below a certain threshold be reported as equity investments, so EverQ's results got pulled out of the top of the income statement and now appear toward the bottom as a simple gain or loss.
Why is this important? Well, for one, Evergreen's revenues look like they got sliced in half this year, which would be a disaster for the up-and-comer. Including the EverQ numbers, however, sales of Evergreen's String Ribbon solar products soared. EverQ, which has a bigger production capacity, topped Evergreen's revenues severalfold.
Beyond mere appearances, the EverQ numbers also help us see the profitability of Evergreen's manufacturing technique, given adequate scale. Stand-alone Evergreen, which is just now bulking up its production base in America, reported an operating loss, while EverQ posted a solid 17% operating margin.
The Devens, Mass., factory ought to be formidable in 2009, and that's when I expect to see the stateside portion of this business starting to pull its own weight. For those wondering whether Evergreen would ever join Suntech Power
