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Canadian Solar Hit With SEC Investigation

Canadian Solar, already under the gun for pre-reporting an expected big hit to first quarter earnings, says it is now delaying the earnings report as it faces an SEC investigation.



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Canadian Solar

(CSIQ) - Get Report

is down close to 20% in the pre-market on Wednesday morning after announcing late on Tuesday that it was delaying its first quarter earnings as a result of a Securities and Exchange Commission investigation into sales.

Canadian Solar

(CSIQ) - Get Report

had already pre-reported that its first quarter earnings would take a big hit as a result of foreign exchange charges. On top of that, the deterioration of the euro further drove down Canadian Solar stock, along with all the stocks in the solar sector.

>>CSIQ's Reputation; a Weakened Currency

Canadian Solar received a subpoena from the SEC related to 2009 sales, and began its big slide in the afterhours session on Tuesday.

Canadian Solar first quarter results are delayed as the solar company's audit committee launches an investigation. Canadian Solar was supposed to release its result in the pre-market on Wednesday morning.

Canadian Solar said it may have to revise earnings from the fourth quarter 2009, based on an accounting change being made to recognize sales only after receiving full cash payments "from certain customers and due to certain subsequent return of goods after the quarter end." The solar company said that sales transactions would be deferred to the first two quarters or 2010 and the full year 2009 net revenue may need to be revised also.

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Oppenheimer & Co. analyst Gary Hseuh released a research note alluding to one important question not covered by Canadian Solar in admitting the SEC investigation: why did customers return goods shipped?

"To us, the SEC subpoena, and pending revision to Q4 rev, both appear to center on sales in Q4 to customers who returned modules in Q1. Our key concern is: what instigated the returns? In a tight demand environment, this rates as paranormal activity."

Canadian Solar noted in its release late on Tuesday that it had entered into a new insurance agreement related to a customer warranty for solar modules.

The Oppenheimer analyst also described the revenue recognition issue as "out of left field."

Another disturbing issue that the Oppenheimer analyst noted is that second quarter shipment guidance of 170-180 MW represented a decrease from the previous shipment forecast for CSIQ, and is in sharp contrast to recent checks in Asia suggestive of 10% to 15% quarter over quarter growth.

Oppenheimer wrote that with more questions, "the more convinced we are that several overhangs will likely dog CSIQ for some time."

-- Reported by Eric Rosenbaum in New York.


>>CSIQ's Reputation: a Weakened Currency

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