Table of Contents




UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549


Form 10-Q


(Mark one)

[x]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2017
or
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from            to
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2020
or
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to

Commission file number: 001-33156

fslr-20200331_g1.jpg
First Solar, Inc.Inc.
(Exact name of registrant as specified in its charter)
Delaware20-4623678
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)


350 West Washington Street, Suite 600
Tempe, Arizona 85281
(Address of principal executive offices, including zip code)


(602) 414-9300
(Registrant’s telephone number, including area code)


Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading symbol(s)Name of each exchange on which registered
Common stock, $0.001 par valueFSLRThe NASDAQ Stock Market LLC

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 (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [x]☒ No [ ]☐


Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [x]☒ No [ ]☐


Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer [x]☒Accelerated filer [ ]☐Non-accelerated filer [ ]☐
Smaller reporting company [ ]☐Emerging growth company [ ](Do not check if a smaller reporting company)☐


If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]☐


Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] ☐ No [x]☒


As of October 20, 2017, 104,432,988May 1, 2020, 105,907,134 shares of the registrant’s common stock, $0.001 par value per share, were outstanding.

FIRST SOLAR, INC. AND SUBSIDIARIES

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2017

TABLE OF CONTENTS




FIRST SOLAR, INC.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2020

TABLE OF CONTENTS
Page
Condensed Consolidated Statements of Operations for the three months ended March 31, 2020 and nine months ended September 30, 2017 and 20162019
31
Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2017March 31, 2020 and 20162019
42
Condensed Consolidated Balance Sheets as of September 30, 2017March 31, 2020 and December 31, 20162019
53
Condensed Consolidated Statements of Stockholders’ Equity for the threemonths ended March 31, 2020 and 2019
4
Condensed Consolidated Statements of Cash Flows for the ninethree months ended September 30, 2017March 31, 2020 and 20162019
65
76
Management’s Discussion and Analysis of Financial Condition and Results of Operations
4739
Quantitative and Qualitative Disclosures Aboutabout Market Risk
6457
6457
6458
6458
6558
6662
6663
6763





Table of Contents
PART I.FINANCIAL INFORMATION


Item 1.Condensed Consolidated Financial Statements (Unaudited)


FIRST SOLAR, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended
March 31,
20202019
Net sales$532,124  $531,978  
Cost of sales441,786  531,866  
Gross profit90,338  112  
Operating expenses:
Selling, general and administrative58,587  45,352  
Research and development25,613  21,877  
Production start-up4,482  9,522  
Total operating expenses88,682  76,751  
Operating income (loss)1,656  (76,639) 
Foreign currency (loss) income, net(398) 172  
Interest income9,330  14,259  
Interest expense, net(6,789) (10,121) 
Other (expense) income, net(2,222) 3,509  
Income (loss) before taxes and equity in earnings1,577  (68,820) 
Income tax benefit89,215  1,394  
Equity in earnings, net of tax(88) (173) 
Net income (loss)$90,704  $(67,599) 
Net income (loss) per share:
Basic$0.86  $(0.64) 
Diluted$0.85  $(0.64) 
Weighted-average number of shares used in per share calculations:
Basic105,595  105,046  
Diluted106,386  105,046  
  Three Months Ended
September 30,		 Nine Months Ended
September 30,
  2017 2016 2017 2016
Net sales $1,087,026
 $681,276
 $2,602,143
 $2,573,768
Cost of sales 795,226
 510,368
 2,115,266
 1,943,198
Gross profit 291,800
 170,908
 486,877
 630,570
Operating expenses:        
Selling, general and administrative 50,546
 60,345
 147,702
 191,624
Research and development 20,850
 32,173
 64,990
 95,291
Production start-up 12,624
 752
 22,155
 807
Restructuring and asset impairments 791
 4,314
 39,108
 89,846
Total operating expenses 84,811
 97,584
 273,955
 377,568
Operating income 206,989
 73,324
 212,922
 253,002
Foreign currency loss, net (3,968) (2,296) (6,166) (8,259)
Interest income 8,392
 5,894
 22,364
 18,829
Interest expense, net (4,149) (5,563) (19,692) (17,356)
Other income, net 2,018
 6,419
 25,180
 48,725
Income before taxes and equity in earnings of unconsolidated affiliates 209,282
 77,778
 234,608
 294,941
Income tax (expense) benefit (7,580) 68,205
 26,769
 32,886
Equity in earnings of unconsolidated affiliates, net of tax 4,045
 4,474
 5,462
 6,851
Net income $205,747
 $150,457
 $266,839
 $334,678
Net income per share:        
Basic $1.97
 $1.46
 $2.56
 $3.27
Diluted $1.95
 $1.45
 $2.54
 $3.25
Weighted-average number of shares used in per share calculations:        
Basic 104,432
 103,339
 104,287
 102,496
Diluted 105,660
 103,684
 104,889
 103,110


See accompanying notes to these condensed consolidated financial statements.

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FIRST SOLAR, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
Three Months Ended
March 31,
20202019
Net income (loss)$90,704  $(67,599) 
Other comprehensive loss:
Foreign currency translation adjustments(8,064) (1,142) 
Unrealized gain (loss) on marketable securities and restricted marketable securities, net of tax of $389 and $9772,852  (3,347) 
Unrealized gain (loss) on derivative instruments, net of tax of $(79) and $(27)896  (58) 
Other comprehensive loss(4,316) (4,547) 
Comprehensive income (loss)$86,388  $(72,146) 
  Three Months Ended
September 30,		 Nine Months Ended
September 30,
  2017 2016 2017 2016
Net income $205,747
 $150,457
 $266,839
 $334,678
Other comprehensive income (loss):        
Foreign currency translation adjustments 4,717
 1,418
 5,320
 4,635
Unrealized gain (loss) on marketable securities and restricted investments, net of tax of $(23), $345, $(373), and $(831) 1,511
 (7,917) 1,244
 27,679
Unrealized (loss) gain on derivative instruments, net of tax of $291, $59, $1,291, and $1 (61) (276) (2,513) 2,070
Other comprehensive income (loss) 6,167
 (6,775) 4,051
 34,384
Comprehensive income $211,914
 $143,682
 $270,890
 $369,062


See accompanying notes to these condensed consolidated financial statements.


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Table of Contents
FIRST SOLAR, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)
 
 
March 31,
2020		December 31,
2019
ASSETS
Current assets:   
Cash and cash equivalents  $929,355  $1,352,741  
Marketable securities (amortized cost of $586,628 and allowance for credit losses of $215 at March 31, 2020)579,340  811,506  
Accounts receivable trade  293,612  476,425  
Less: allowance for credit losses  (3,331) (1,386) 
Accounts receivable trade, net  290,281  475,039  
Accounts receivable, unbilled and retainage  122,332  183,473  
Less: allowance for credit losses  (1,223) —  
Accounts receivable, unbilled and retainage, net  121,109  183,473  
Inventories  479,792  443,513  
Balance of systems parts  44,718  53,583  
Project assets  403  3,524  
Prepaid expenses and other current assets  302,845  276,455  
Total current assets  2,747,843  3,599,834  
Property, plant and equipment, net  2,244,175  2,181,149  
PV solar power systems, net  470,709  476,977  
Project assets  388,511  333,596  
Deferred tax assets, net  213,600  130,771  
Restricted marketable securities (amortized cost of $242,156 and allowance for credit losses of $30 at March 31, 2020)246,410  223,785  
Goodwill  14,462  14,462  
Intangible assets, net  63,918  64,543  
Inventories  182,259  160,646  
Other assets  377,254  329,926  
Total assets  $6,949,141  $7,515,689  
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:        
Accounts payable  $173,762  $218,081  
Income taxes payable  8,287  17,010  
Accrued expenses  296,796  351,260  
Current portion of long-term debt  81,807  17,510  
Deferred revenue  136,998  323,217  
Accrued litigation  13,000  363,000  
Other current liabilities  21,785  28,130  
Total current liabilities  732,435  1,318,208  
Accrued solar module collection and recycling liability  138,009  137,761  
Long-term debt  390,588  454,187  
Other liabilities  519,487  508,766  
Total liabilities  1,780,519  2,418,922  
Commitments and contingencies  
Stockholders’ equity:  
Common stock, $0.001 par value per share; 500,000,000 shares authorized; 105,905,580 and 105,448,921 shares issued and outstanding at March 31, 2020 and December 31, 2019, respectively106  105  
Additional paid-in capital  2,844,055  2,849,376  
Accumulated earnings  2,408,111  2,326,620  
Accumulated other comprehensive loss  (83,650) (79,334) 
Total stockholders’ equity  5,168,622  5,096,767  
Total liabilities and stockholders’ equity  $6,949,141  $7,515,689  
 
 
 September 30,
2017		 December 31,
2016
ASSETS    
Current assets:    
Cash and cash equivalents $2,019,073
 $1,347,155
Marketable securities 699,544
 607,991
Accounts receivable trade, net 344,645
 266,687
Accounts receivable, unbilled and retainage 455,118
 206,739
Inventories 217,555
 363,219
Balance of systems parts 20,892
 62,776
Project assets 67,263
 700,800
Note receivable, affiliate —
 15,000
Prepaid expenses and other current assets 142,404
 217,462
Total current assets 3,966,494
 3,787,829
Property, plant and equipment, net 940,119
 629,142
PV solar power systems, net 454,483
 448,601
Project assets 406,396
 762,148
Deferred tax assets, net 276,423
 255,152
Restricted cash and investments 408,873
 371,307
Investments in unconsolidated affiliates and joint ventures 227,661
 234,610
Goodwill 14,462
 14,462
Other intangibles, net 81,765
 87,970
Inventories 110,412
 100,512
Notes receivable, affiliates 69,432
 54,737
Other assets 98,173
 77,898
Total assets $7,054,693
 $6,824,368
LIABILITIES AND STOCKHOLDERS’ EQUITY    
Current liabilities:  
  
Accounts payable $130,704
 $148,730
Income taxes payable 4,396
 12,562
Accrued expenses 317,325
 262,977
Current portion of long-term debt 13,451
 27,966
Deferred revenue 69,095
 308,704
Other current liabilities 44,046
 146,942
Total current liabilities 579,017
 907,881
Accrued solar module collection and recycling liability 163,707
 166,277
Long-term debt 330,209
 160,422
Other liabilities 469,364
 371,439
Total liabilities 1,542,297
 1,606,019
Commitments and contingencies 

 

Stockholders’ equity:    
Common stock, $0.001 par value per share; 500,000,000 shares authorized; 104,431,990 and 104,034,731 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively 104
 104
Additional paid-in capital 2,788,467
 2,765,310
Accumulated earnings 2,729,681
 2,462,842
Accumulated other comprehensive loss (5,856) (9,907)
Total stockholders’ equity 5,512,396
 5,218,349
Total liabilities and stockholders’ equity $7,054,693
 $6,824,368


See accompanying notes to these condensed consolidated financial statements.

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FIRST SOLAR, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWSSTOCKHOLDERS’ EQUITY
(In thousands)
(Unaudited)
Three Months Ended March 31, 2020
 Common StockAdditional
Paid-In
Capital		Accumulated EarningsAccumulated
Other
Comprehensive (Loss) Income		Total
Stockholders' Equity
 SharesAmount
Balance at December 31, 2019105,449  $105  $2,849,376  $2,326,620  $(79,334) $5,096,767  
Cumulative-effect adjustment for the adoption of ASU 2016-13—  —  —  (9,213) —  (9,213) 
Net income—  —  —  90,704  —  90,704  
Other comprehensive loss—  —  —  —  (4,316) (4,316) 
Common stock issued for share-based compensation733  1  —  —  —  1  
Tax withholding related to vesting of restricted stock(276) —  (12,679) —  —  (12,679) 
Share-based compensation expense—  —  7,358  —  —  7,358  
Balance at March 31, 2020105,906  $106  $2,844,055  $2,408,111  $(83,650) $5,168,622  
Three Months Ended March 31, 2019
 Common StockAdditional
Paid-In
Capital		Accumulated EarningsAccumulated
Other
Comprehensive (Loss) Income		Total
Stockholders' Equity
 SharesAmount
Balance at December 31, 2018104,885  $105  $2,825,211  $2,441,553  $(54,466) $5,212,403  
Net loss—  —  —  (67,599) —  (67,599) 
Other comprehensive loss—  —  —  —  (4,547) (4,547) 
Common stock issued for share-based compensation767  1  —  —  —  1  
Tax withholding related to vesting of restricted stock(299) (1) (15,663) —  —  (15,664) 
Share-based compensation expense—  —  4,567  —  —  4,567  
Balance at March 31, 2019105,353  $105  $2,814,115  $2,373,954  $(59,013) $5,129,161  
  Nine Months Ended
September 30,
  2017 2016
Cash flows from operating activities:    
Net income $266,839
 $334,678
Adjustments to reconcile net income to cash provided by (used in) operating activities:    
Depreciation, amortization and accretion 89,552
 172,221
Impairments and net losses on disposal of long-lived assets 33,171
 85,251
Share-based compensation 25,527
 24,467
Equity in earnings of unconsolidated affiliates, net of tax (5,462) (6,851)
Distributions received from equity method investments 17,024
 —
Remeasurement of monetary assets and liabilities (12,464) (3,711)
Deferred income taxes (38,499) (5,399)
Gain on sales of marketable securities and restricted investments (49) (38,101)
Noncash consideration from the sale of project assets —
 (20,084)
Other, net 2,572
 2,481
Changes in operating assets and liabilities:    
Accounts receivable, trade, unbilled and retainage (328,556) 2,649
Prepaid expenses and other current assets 35,818
 (47,386)
Inventories and balance of systems parts 178,562
 75,308
Project assets 969,264
 (355,767)
Other assets (16,453) (11,045)
Income tax receivable and payable 6,416
 (40,548)
Accounts payable (21,198) (143,663)
Accrued expenses and other liabilities (289,919) (91,709)
Accrued solar module collection and recycling liability (5,426) 5,536
Net cash provided by (used in) operating activities 906,719
 (61,673)
Cash flows from investing activities:    
Purchases of property, plant and equipment (315,129) (175,868)
Purchases of marketable securities and restricted investments (478,324) (422,607)
Proceeds from sales and maturities of marketable securities and restricted investments 386,309
 448,354
Investment in note receivable, affiliate

 —
 (4,760)
Other investing activities 3,185
 (8,893)
Net cash used in investing activities (403,959) (163,774)
Cash flows from financing activities    
Proceeds from borrowings under revolving credit facility —
 550,000
Repayment of long-term debt (23,683) (86,250)
Proceeds from borrowings under long-term debt, net of discounts and issuance costs 158,739
 23,361
Repayment of sale-leaseback financing (4,248) (4,294)
Payments of tax withholdings for restricted shares (5,114) (20,388)
Proceeds from commercial letters of credit 43,025
 —
Contingent consideration payments and other financing activities (17,113) (159)
Net cash provided by financing activities 151,606
 462,270
Effect of exchange rate changes on cash, cash equivalents and restricted cash 9,420
 6,742
Net increase in cash, cash equivalents and restricted cash 663,786
 243,565
Cash, cash equivalents and restricted cash, beginning of the period 1,415,690
 1,207,116
Cash, cash equivalents and restricted cash, end of the period $2,079,476
 $1,450,681
Supplemental disclosure of noncash investing and financing activities:  
  
Property, plant and equipment acquisitions funded by liabilities $128,450
 $29,341
Acquisitions currently or previously funded by liabilities and contingent consideration $12,212
 $23,942
Accrued interest capitalized to long-term debt $16,786
 $—


See accompanying notes to these condensed consolidated financial statements.


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FIRST SOLAR, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

 Three Months Ended
March 31,
20202019
Cash flows from operating activities:  
Net income (loss)$90,704  $(67,599) 
Adjustments to reconcile net income (loss) to cash used in operating activities:
Depreciation, amortization and accretion56,279  48,872  
Impairments and net losses on disposal of long-lived assets1,288  352  
Share-based compensation7,204  5,019  
Equity in earnings, net of tax88  173  
Remeasurement of monetary assets and liabilities(18) 800  
Deferred income taxes(80,404) 397  
Gains on sales of marketable securities and restricted marketable securities(15,088) (15,016) 
Other, net16,606  239  
Changes in operating assets and liabilities:
Accounts receivable, trade, unbilled and retainage242,680  (82,896) 
Prepaid expenses and other current assets(13,387) (28,400) 
Inventories and balance of systems parts(48,896) (87,102) 
Project assets and PV solar power systems(50,756) (73,402) 
Other assets(54,925) 26,481  
Income tax receivable and payable(9,425) (16,512) 
Accounts payable(38,161) (15,066) 
Accrued expenses and other liabilities(609,218) 53  
Accrued solar module collection and recycling liability565  167  
Net cash used in operating activities(504,864) (303,440) 
Cash flows from investing activities:
Purchases of property, plant and equipment(112,546) (149,168) 
Purchases of marketable securities and restricted marketable securities(405,794) (260,715) 
Proceeds from sales and maturities of marketable securities and restricted marketable securities628,936  270,091  
Other investing activities(14,150) 21  
Net cash provided by (used in) investing activities96,446  (139,771) 
Cash flows from financing activities:
Repayment of long-term debt(325) (2,703) 
Proceeds from borrowings under long-term debt, net of discounts and issuance costs—  106,503  
Payments of tax withholdings for restricted shares(12,679) (15,663) 
Other financing activities(436) (299) 
Net cash (used in) provided by financing activities(13,440) 87,838  
Effect of exchange rate changes on cash, cash equivalents and restricted cash(5,774) (625) 
Net decrease in cash, cash equivalents and restricted cash(427,632) (355,998) 
Cash, cash equivalents and restricted cash, beginning of the period1,446,510  1,562,623  
Cash, cash equivalents and restricted cash, end of the period$1,018,878  $1,206,625  
Supplemental disclosure of noncash investing and financing activities:  
Property, plant and equipment acquisitions funded by liabilities$76,298  $135,520  

See accompanying notes to these condensed consolidated financial statements.
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FIRST SOLAR, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1. Basis of Presentation


The accompanying unaudited condensed consolidated financial statements of First Solar, Inc. and its subsidiaries in this Quarterly Report have been prepared in accordance with generally accepted accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and pursuant to the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission (the “SEC”). Accordingly, these interim financial statements do not include all of the information and footnotes required by U.S. GAAP for annual financial statements. In the opinion of First Solar management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair statement have been included. Certain prior period balances have been reclassified to conform to the current period presentation.

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Despite our intention to establish accurate estimates and reasonable assumptions, actual results could differ materially from such estimates and assumptions. Operating results for the three and nine months ended September 30, 2017March 31, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 20172020 or for any other period. The condensed consolidated balance sheet at December 31, 20162019 has been derived from the audited consolidated financial statements at that date, but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements. These interim financial statements and notes should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 20162019 included in our Annual Report on Form 10-K, which has been filed with the SEC.

Certain prior year balances have been reclassified to conform to the current year presentation. Such reclassifications primarily relate to the adoptions of Accounting Standards Update (“ASU”) 2016-18, ASU 2016-09, and ASU 2014-09 as further described in Note 3. “Recent Accounting Pronouncements” and Note 14. “Revenue from Contracts with Customers” to our condensed consolidated financial statements.


Unless expressly stated or the context otherwise requires, the terms “the Company,” “we,” “us,” “our,” and “First Solar” refer to First Solar, Inc. and its subsidiaries.

2. Summary of Significant Accounting Policies

Use of Estimates. The preparation ofconsolidated subsidiaries, and the term “condensed consolidated financial statements” refers to the accompanying unaudited condensed consolidated financial statements contained in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the amounts reported in our condensed consolidated financial statements and the accompanying notes. On an ongoing basis, we evaluate our estimates, including those related to inputs used to recognize revenue over time, accrued solar module collection and recycling liabilities, product warranties, performance guarantees, indemnifications, accounting for income taxes, long-lived asset impairments, and testing goodwill. Despite our intention to establish accurate estimates and reasonable assumptions, actual results could differ materially from such estimates and assumptions.this Quarterly Report.


Accounts Receivable Trade and Allowance for Doubtful Accounts. We record trade accounts receivable for our unconditional rights to consideration arising from our performance under contracts with customers. The carrying value of such receivables, net of the allowance for doubtful accounts, represents their estimated net realizable value. We estimate our allowance for doubtful accounts for specific trade receivable balances based on historical collection trends, the age of outstanding trade receivables, existing economic conditions, and the financial security, if any, associated with the receivables. Past-due trade receivable balances are written off when our internal collection efforts have been unsuccessful.

Our module and other equipment sales generally include up to 45-day payment terms following the transfer of control of the products to the customer. In addition, certain module and equipment sale agreements may require a down payment for a portion of the transaction price upon or shortly after entering into the agreement or related purchase order. Payment terms for sales of our solar power systems; engineering, procurement, and construction services (“EPC”); and operations and maintenance services vary by contract but are generally due upon demand or within several months of satisfying the associated performance obligations. As a practical expedient, we do not adjust the promised amount of consideration for the effects of a significant financing component when we expect, at contract inception, that the period between our transfer of a promised product or service to a customer and when the customer pays for that product or service will be one year or less. We typically do not include extended payment terms in our contracts with customers.


Accounts Receivable, Unbilled. Accounts receivable, unbilled represents a contract asset for revenue that has been recognized in advance of billing the customer, which is common for long-term construction contracts. For example, we typically recognize revenue from contracts for the construction and sale of PV solar power systems over time using cost based input methods, which recognize revenue and gross profit as work is performed based on the relationship between actual costs incurred compared to the total estimated costs of the contract. Accordingly, revenue could be recognized in advance of billing the customer, resulting in an amount recorded to “Accounts receivable, unbilled and retainage.” Once we have an unconditional right to consideration under a construction contract, we typically bill our customer accordingly and reclassify the “Accounts receivable, unbilled and retainage” to “Accounts receivable trade, net.” Billing requirements vary by contract but are generally structured around the completion of certain construction milestones.

Retainage. Certain of our EPC contracts for PV solar power systems we build contain retainage provisions. Retainage represents a contract asset for the portion of the contract price earned by us for work performed, but held for payment by the customer as a form of security until we reach certain construction milestones. We consider whether collectibility of such retainage is reasonably assured in connection with our overall assessment of the collectibility of amounts due or that will become due under our EPC contracts. Retainage included within “Accounts receivable, unbilled and retainage” is expected to be billed and collected within the next 12 months. After we satisfy the EPC contract requirements and have an unconditional right to consideration, we typically bill for retainage and reclassify such amounts to “Accounts receivable trade, net.”

Project Assets. Project assets primarily consist of costs related to solar power projects in various stages of development that are capitalized prior to the completion of the sale of the project, including projects that may have begun commercial operation under power purchase agreements (“PPAs”) and are actively marketed and intended to be sold. These project related costs include costs for land, development, and construction of a PV solar power system. Development costs may include legal, consulting, permitting, transmission upgrade, interconnection, and other similar costs. We typically classify project assets as noncurrent due to the nature of solar power projects (long-lived assets) and the time required to complete all activities to develop, construct, and sell projects, which is typically longer than 12 months. Once we enter into a definitive sales agreement, we classify such project assets as current until the sale is completed and we have met all of the criteria to recognize the sale as revenue. Any income generated by a project while it remains within project assets is accounted for as a reduction to our basis in the project, which at the time of sale and meeting all revenue recognition criteria will be recorded within cost of sales. If a project is completed and begins commercial operation prior to the closing of a sales arrangement, the completed project will remain in project assets until placed in service. We present all expenditures related to the development and construction of project assets, whether fully or partially owned, as a component of cash flows from operating activities.

We review project assets for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. We consider a project commercially viable or recoverable if it is anticipated to be sold for a profit once it is either fully developed or fully constructed. We consider a partially developed or partially constructed project commercially viable or recoverable if the anticipated selling price is higher than the carrying value of the related project assets. We examine a number of factors to determine if the project is expected to be recoverable, including whether there are any changes in environmental, ecological, permitting, market pricing, or regulatory conditions that may impact the project. Such changes could cause the costs of the project to increase or the selling price of the project to decrease. If a project is not considered recoverable, we impair the respective project assets and adjust the carrying value to the estimated fair value, with the resulting impairment recorded within “Selling, general and administrative” expense.

Deferred Revenue. When we receive consideration, or such consideration is unconditionally due, from a customer prior to transferring goods or services to the customer under the terms of a sales contract, we record deferred revenue, which represents a contract liability. We recognize deferred revenue as net sales after we have transferred control of the goods or services to the customer and all revenue recognition criteria are met.

Revenue Recognition – Module and Other Equipment Sales. We recognize revenue for module and other equipment sales (e.g., module plus arrangements) at a point in time following the transfer of control of such products to the customer, which typically occurs upon shipment or delivery depending on the terms of the underlying contracts. For module and other equipment sales contracts that contain multiple performance obligations, such as the shipment or delivery of solar modules and other balance of systems (“BoS”) parts, we allocate the transaction price to each performance obligation identified in the contract based on relative standalone selling prices, or estimates of such prices, and recognize the related revenue as control of each individual product is transferred to the customer, in satisfaction of the corresponding performance obligations.


Revenue Recognition – Solar Power System Sales and/or Engineering, Procurement, and Construction Services. We generally recognize revenue for sales of solar power systems and/or EPC services over time as our performance creates or enhances an energy generation asset controlled by the customer. Furthermore, the sale of a solar power system, including those in which we may receive consideration of a noncontrolling interest, when combined with EPC services represents a single performance obligation for the development and construction of a single generation asset. For such sales arrangements, we recognize revenue using cost based input methods, which recognize revenue and gross profit as work is performed based on the relationship between actual costs incurred compared to the total estimated costs of the contract, after consideration of our customers’ commitment to perform its obligations under the contract, which is typically measured through the receipt of cash deposits or other forms of financial security issued by creditworthy financial institutions or parent entities. For sales of solar power systems in which we obtain an interest in the project sold to the customer, we recognize all of the revenue for the consideration received, including the fair value of the noncontrolling interest we obtained, and defer any profit associated with the interest obtained through “Equity in earnings of unconsolidated affiliates, net of tax.”

In applying cost based input methods of revenue recognition, we use the actual costs incurred relative to the total estimated costs (including solar module costs) to determine our progress towards contract completion and to calculate the corresponding amount of revenue and gross profit to recognize. Cost based input methods of revenue recognition are considered a faithful depiction of our efforts to satisfy long-term construction contracts and therefore reflect the transfer of goods to a customer under such contracts. Costs incurred that do not contribute to satisfying our performance obligations (“inefficient costs”) are excluded from our input methods of revenue recognition as the amounts are not reflective of our transferring control of the system to the customer. Costs incurred towards contract completion may include costs associated with solar modules, direct materials, labor, subcontractors, and other indirect costs related to contract performance. We recognize solar module and direct material costs as incurred when such items have been installed in a system. Cost based input methods of revenue recognition require us to make estimates of net contract revenues and costs to complete our projects. In making such estimates, significant judgment is required to evaluate assumptions related to the amount of net contract revenues, including the impact of any performance incentives, liquidated damages, and other payments to customers. Significant judgment is also required to evaluate assumptions related to the costs to complete our projects, including materials, labor, contingencies, and other system costs.

If estimated total costs on any contract, including any inefficient costs, are greater than the net contract revenues, we recognize the entire estimated loss in the period the loss becomes known. The cumulative effect of revisions to estimates related to net contract revenues or costs to complete contracts are recorded in the period in which the revisions to estimates are identified and the amounts can be reasonably estimated. The effect of the changes on future periods are recognized as if the revised estimates had been used since revenue was initially recognized under the contract. Such revisions could occur in any reporting period, and the effects may be material depending on the size of the contracts or the changes in estimates.

As part of our solar power system sales, we conduct performance testing of a system prior to substantial completion to confirm the system meets its operational and capacity expectations noted in the EPC agreement. In addition, we may provide an energy performance test during the first or second year of a system’s operation to demonstrate that the actual energy generation for the applicable year meets or exceeds the modeled energy expectation, after certain adjustments. In certain instances, a bonus payment may be received at the end of the applicable test period if the system performs above a specified level. Conversely, if there is an underperformance event with regards to these tests, we may incur liquidated damages as a percentage of the EPC contract price. Such performance guarantees represent a form of variable consideration and are estimated at contract inception at their most likely amount and updated at the end of each reporting period as additional performance data becomes available and only to the extent that it is probable that a significant reversal of any incremental revenue will not occur.

Revenue Recognition – Operations and Maintenance. We recognize revenue for standard, recurring operations and maintenance (“O&M”) services over time as customers receive and consume the benefits of such services, which typically include 24/7 system monitoring, certain PPA and other agreement compliance, North American Electric Reliability Corporation (or “NERC”) compliance, large generator interconnection agreement compliance, energy forecasting, performance engineering analysis, regular performance reporting, turn-key maintenance services including spare parts and corrective maintenance repair, warranty management, and environmental services. Other ancillary O&M services, such as equipment replacement, weed abatement, landscaping, or solar module cleaning, are recognized as revenue as the services are provided and billed to the customer. Costs of O&M services are expensed in the period in which they are incurred.

As part of our O&M service offerings, we typically offer an effective availability guarantee, which stipulates that a system will be available to generate a certain percentage of total possible energy during a specific period after adjusting for factors outside of our control as the service provider. If system availability exceeds a contractual threshold, we may receive a bonus payment, or if system availability falls below a separate threshold, we may incur liquidated damages for certain lost energy under the PPA. Such bonuses or liquidated damages represent a form of variable consideration and are estimated and recognized over time as customers receive and consume the benefits of the O&M services.

Revenue Recognition – Energy Generation. We typically recognize revenue for energy generated and sold by PV solar power systems under Accounting Standards Codification (“ASC”) 840, Leases, consistent with the classification of the associated PPAs. Accordingly, we recognize revenue each period based on the volume of energy delivered to the customer (i.e., the PPA offtaker). For energy generated and sold by PV solar power systems on an open contract basis, we recognize revenue at the point in time the energy is delivered to the grid.

Shipping and Handling Costs. We account for shipping and handling activities related to contracts with customers as costs to fulfill our promise to transfer the associated products. Accordingly, we record amounts billed for shipping and handling costs as a component of net sales, and classify such costs as a component of cost of sales.

Taxes Collected from Customers and Remitted to Governmental Authorities.We exclude from our measurement of transaction prices all taxes assessed by governmental authorities that are both (i) imposed on and concurrent with a specific revenue-producing transaction and (ii) collected from customers. Accordingly, such tax amounts are not included as a component of net sales or cost of sales.

See Note 2. “Summary of Significant Accounting Policies” to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2016 for a summary of our other significant accounting policies.

3. Recent Accounting Pronouncements


In August 2017, the Financial Accounting Standard Board (“FASB”) issued ASU 2017-12, Derivatives and Hedging (Topic 815) – Targeted Improvements to Accounting for Hedging Activities, to simplify certain aspects of hedge accounting for both non-financial and financial risks and better align the recognition and measurement of hedge results with an entity’s risk management activities. ASU 2017-12 also amends certain presentation and disclosure requirements for hedging activities and changes how an entity assesses hedge effectiveness. ASU 2017-12 is effective for fiscal years and interim periods within those years beginning after December 15, 2018, and early adoption is permitted. We are currently evaluating the impact ASU 2017-12 will have on our consolidated financial statements and associated disclosures.

In January 2017, the FASB issued ASU 2017-04, Goodwill and Other (Topic 350) – Simplifying the Test for Goodwill Impairment. ASU 2017-04 simplifies the subsequent measurement of goodwill by eliminating Step 2 of the goodwill impairment test. In computing the implied fair value of goodwill under Step 2, an entity had to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities (including unrecognized assets and liabilities) following the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination. Under ASU 2017-04, an entity should perform its goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and then recognize an impairment charge, as necessary, for the amount by which the carrying amount exceeds the reporting unit’s fair value, not to exceed the total amount of goodwill allocated to that reporting unit. As a result of our adoption of ASU 2017-04 in the first quarter of 2017, we will eliminate Step 2 of future goodwill impairment tests.

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230) – Restricted Cash. ASU 2016-18 requires that the statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. As a result of the adoption of ASU 2016-18 in the fourth quarter of 2016, we began including amounts generally described as restricted cash and restricted cash equivalents with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. See the tables at the end of this note for the effects of the adoption of ASU 2016-18 on our condensed consolidated statement of cash flows for the nine months ended September 30, 2016.

In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 230) – Intra-Entity Transfers of Assets Other Than Inventory. ASU 2016-16 requires the recognition of income tax consequences of intra-entity transfers of assets, other than inventory, when the transfer occurs. Two common examples of assets included in the scope of ASU 2016-16 are intellectual property and long-lived assets. ASU 2016-16 is effective for fiscal years and interim periods within those years beginning after December 15, 2017, and early adoption is permitted in annual reporting periods for which financial statements (interim or annual) have not been issued. We are currently evaluating the impact ASU 2016-16 will have on our consolidated financial statements and associated disclosures.


In June 2016, the FASBFinancial Accounting Standards Board issued ASUAccounting Standards Update (“ASU”) 2016-13, Financial Instruments – Credit Losses (Topic 326),to provide financial statement users with more useful information about expected credit losses. ASU 2016-13 also changes how entitiesreplaces the historical incurred loss model with a model that reflects current expected credit losses (“CECL”), which requires consideration of a broader range of information to measure credit losses on financial instruments and determine the timing of when such losses are recorded. The CECL model is applicable to certain financial assets measured at amortized cost that subject us to credit risk, including cash equivalents, trade accounts receivable, unbilled accounts receivable and retainage, and notes receivable. In addition, ASU 2016-13 is effective for fiscal years and interim periods within those years beginning after December 15, 2019, and early adoption is permitted for periods beginning after December 15, 2018. We are currently evaluating the impact ASU 2016-13 will have on our consolidated financial statements and associated disclosures.

In March 2016, the FASB issued ASU 2016-09, Compensation – Stock Compensation (Topic 718) – Improvements to Employee Share-Based Payment Accounting, to simplify severalamended certain aspects of the accounting for share-based payment transactions,available-for-sale debt securities, including the presentation of credit losses as an allowance against, rather than a write-down of, the fair value of such securities. Furthermore, a credit loss is only considered when a security is in an unrealized loss position, is limited to the difference between such security’s fair value and amortized cost basis, and is recorded directly to “Other (expense) income, tax consequences, accounting for forfeitures, classification of awards as either equity or liabilities, and classification on the statement of cash flows. Our adoption ofnet.” Any remaining unrealized loss is recorded to “Accumulated other comprehensive loss” until realized.

We adopted ASU 2016-092016-13 in the fourthfirst quarter of 20162020 using the modified-retrospective approach, which resulted in the recognition of certain deferredan initial allowance for credit losses for our various financial assets through a cumulative-effect adjustment that decreased retained earnings by $9.2 million, net of tax, assetsas of January 1, 2020.

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The allowance for excess tax benefitscredit losses is a valuation account that had previously not been recognized, asis deducted from a financial asset’s amortized cost to present the net amount we expect to collect from such benefits did not reduceasset. We estimate allowances for credit losses using relevant available information from both internal and external sources. We monitor the estimated credit losses associated with our income taxes payable in prior periods,trade accounts receivable and unbilled accounts receivable based primarily on our collection history and the recognitiondelinquency status of amounts for previouslyowed to us, which we determine based on the aging of such receivables. For our notes receivable, we determine estimated forfeitures of share-based awards. As a resultcredit losses through an assessment of the adoption, we also adjusted our condensed consolidated statementborrower’s credit quality based primarily on quarterly reviews of cash flows to eliminate the reclassification of excess tax benefits to cash flows from financing activities and to present payments of tax withholdings for share-based awards as cash flows from financing activities. See the tables at the end of this note for the effects of the adoption of ASU 2016-09 on our condensed consolidatedcertain financial statements for the three and nine months ended September 30, 2016.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842),to increase transparency and comparability among organizations by recognizing a right-of-use asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either operating or financing, with such classification affecting the pattern of expense recognition in the income statement. ASU 2016-02 is effective for fiscal years and interim periods within those years beginning after December 15, 2018, and early adoption is permitted. We are currently evaluating the impact ASU 2016-02 will have on our consolidatedinformation, including financial statements and forecasts. We estimate credit losses associated disclosures.

In January 2016,with our marketable securities and restricted marketable securities based on the FASB issued ASU 2016-01, Financial Instruments – Overall (Subtopic 825-10) – Recognition and Measurement of Financial Assets and Financial Liabilities. ASU 2016-01 changes how entities measure certain equityexternal credit rating for such investments and present changes in the fair value of financial liabilities measured under the fair value option that are attributable to their own credit. The guidance also changes certain disclosure requirements and other aspects of current U.S. GAAP. ASU 2016-01 is effective for fiscal years and interim periods within those years beginning after December 15, 2017, and early adoption is permitted for certain provisions of the guidance. We are currently evaluating the impact ASU 2016-01 will have on our consolidated financial statements andhistorical loss rates associated disclosures.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), to clarify the principles of recognizing revenue and create common revenue recognition guidance between U.S. GAAP and International Financial Reporting Standards. Under ASU 2014-09, revenue is recognized when a customer obtains control of promised goods or services and is recognized at an amount that reflects the consideration expected to be received in exchange for such goods or services. In addition, ASU 2014-09 requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.

We adopted ASU 2014-09 in the first quarter of 2017 using the full retrospective method. This adoption primarily affected our systems business sales arrangements previously accounted for under ASC 360-20, which had required us to evaluate whether such arrangements had any forms of continuing involvement that may have affected the revenue or profit recognition of the transactions, including arrangements with prohibited forms of continuing involvement. When such forms of continuing involvement were present, we reduced the potential profit on the applicable project sale by our maximum exposure to loss.

Our adoption of ASU 2014-09, which supersedes the real estate sales guidance under ASC 360-20, generally requires us to recognize revenue and profit from our systems business sales arrangements earlier and in a more linear fashion than our historical practice under ASC 360-20, including the estimation of certain profits that would otherwise have been deferred. Additionally, for systems business sales arrangements incredit ratings, which we obtain an interest infrom third parties. Such methods and estimates are adjusted, as appropriate, for relevant past events, current conditions, such as the project sold toCOVID-19 pandemic and related containment measures, and reasonable and supportable forecasts. We recognize writeoffs within the customer, we recognize all of the revenueallowance for the consideration received, including the fair value of the noncontrolling interest we obtained, and defer any profitcredit losses when cash receipts associated with the interest obtained through “Equity in earnings of unconsolidated affiliates, net of tax.” Following the adoption of ASU 2014-09, the revenue recognition for our other sales arrangements, including sales of solar modules and O&M services, remained materially consistent with our historical practice. See the tables at the end of this note for the effects of the adoption of ASU 2014-09 on our condensed consolidated financial statements as of December 31, 2016 and for the three and nine months ended September 30, 2016. assets are deemed uncollectible.

See Note 2. “Summary of Significant Accounting Policies”3. “Cash, Cash Equivalents, and Marketable Securities,” Note 4. “Restricted Marketable Securities,” and Note 5. “Consolidated Balance Sheet Details” to our condensed consolidated financial statements for further discussion ofinformation about the effects of the adoption of ASU 2014-09 on our significant accounting policies.


Adjustments to Previously Reported Financial Statements from the Adoption of Accounting Pronouncements

The following table presents the effect of the adoption of ASU 2014-09 on our condensed consolidated balance sheet as of December 31, 2016 (in thousands):
  December 31, 2016
  As Reported Adoption of ASU 2014-09 As Adjusted
Accounts receivable, unbilled and retainage $205,530
 $1,209
 $206,739
Deferred project costs 701,105
 (701,105) —
Project assets, current —
 700,800
 700,800
Prepaid expenses and other current assets 217,157
 305
 217,462
Total current assets 3,786,620
 1,209
 3,787,829
Project assets and deferred project costs 800,770
 (800,770) —
Project assets, noncurrent —
 762,148
 762,148
Deferred tax assets, net 252,655
 2,497
 255,152
Investments in unconsolidated affiliates and joint ventures 242,361
 (7,751) 234,610
Other assets 78,076
 (178) 77,898
Total assets 6,867,213
 (42,845) 6,824,368
Income taxes payable 5,288
 7,274
 12,562
Billings in excess of costs and estimated earnings 115,623
 (115,623) —
Payments and billings for deferred project costs 284,440
 (284,440) —
Deferred revenue —
 308,704
 308,704
Other current liabilities 54,683
 92,259
 146,942
Total current liabilities 899,707
 8,174
 907,881
Other liabilities 428,120
 (56,681) 371,439
Total liabilities 1,654,526
 (48,507) 1,606,019
Additional paid-in capital 2,759,211
 6,099
 2,765,310
Accumulated earnings 2,463,279
 (437) 2,462,842
Total stockholders’ equity 5,212,687
 5,662
 5,218,349
Total liabilities and stockholders’ equity 6,867,213
 (42,845) 6,824,368

The following table presents the effect of the adoptions of ASU 2016-09 and ASU 2014-09 on our condensed consolidated statements of operationsallowance for the three and nine months ended September 30, 2016 (in thousands, except per share amounts):
  Three Months Ended September 30, 2016
  As Reported Adoption of ASU 2016-09 Adoption of ASU 2014-09 As Adjusted
Net sales $688,029
 $—
 $(6,753) $681,276
Cost of sales 501,749
 —
 8,619
 510,368
Gross profit 186,280
 —
 (15,372) 170,908
Operating income 88,696
 —
 (15,372) 73,324
Income before taxes and equity in earnings of unconsolidated affiliates 93,150
 —
 (15,372) 77,778
Income tax benefit 50,522
 15,170
 2,513
 68,205
Equity in earnings of unconsolidated affiliates, net of tax 10,474
 —
 (6,000) 4,474
Net income 154,146
 15,170
 (18,859) 150,457
Comprehensive income 147,371
 15,170
 (18,859) 143,682
         
Basic net income per share $1.49
 $0.15
 $(0.18) $1.46
Diluted net income per share $1.49
 $0.14
 $(0.18) $1.45

  Nine Months Ended September 30, 2016
  As Reported Adoption of ASU 2016-09 Adoption of ASU 2014-09 As Adjusted
Net sales $2,470,894
 $—
 $102,874
 $2,573,768
Cost of sales 1,830,504
 —
 112,694
 1,943,198
Gross profit 640,390
 —
 (9,820) 630,570
Operating income 262,822
 —
 (9,820) 253,002
Income before taxes and equity in earnings of unconsolidated affiliates 304,761
 —
 (9,820) 294,941
Income tax benefit 7,711
 23,777
 1,398
 32,886
Equity in earnings of unconsolidated affiliates, net of tax 25,647
 —
 (18,796) 6,851
Net income 338,119
 23,777
 (27,218) 334,678
Comprehensive income 372,503
 23,777
 (27,218) 369,062
         
Basic net income per share $3.30
 $0.23
 $(0.26) $3.27
Diluted net income per share $3.28
 $0.23
 $(0.26) $3.25

The following table presents the effect of the adoptions of ASU 2016-18, ASU 2016-09, and ASU 2014-09 on our condensed consolidated statement of cash flows for the nine months ended September 30, 2016 (in thousands):
  Nine Months Ended September 30, 2016
  As Reported Adoption of ASU 2016-18 Adoption of ASU 2016-09 Adoption of ASU 2014-09 As Adjusted
Net income $338,119
 $—
 $23,777
 $(27,218) $334,678
Adjustments to reconcile net income to cash used in operating activities:          
Equity in earnings of unconsolidated affiliates, net of tax (25,647) —
 —
 18,796
 (6,851)
Remeasurement of monetary assets and liabilities (4,054) 343
 —
 —
 (3,711)
Excess tax benefits from share-based compensation arrangements (18,169) —
 18,169
 —
 —
Noncash consideration from the sale of project assets

 —
 —
 —
 (20,084) (20,084)
Changes in operating assets and liabilities:          
Accounts receivable, trade, unbilled and retainage (22,791) —
 —
 25,440
 2,649
Prepaid expenses and other current assets (47,300) —
 —
 (86) (47,386)
Project assets (469,988) —
 —
 114,221
 (355,767)
Other assets (11,234) —
 —
 189
 (11,045)
Income tax receivable and payable (14,798) —
 (24,352) (1,398) (40,548)
Accrued expenses and other liabilities (2,812) —
 20,963
 (109,860) (91,709)
Net cash used in operating activities (100,573) 343
 38,557
 —
 (61,673)
Change in restricted cash 44,171
 (44,171) —
 —
 —
Net cash used in investing activities (119,603) (44,171) —
 —
 (163,774)
Excess tax benefits from share-based compensation arrangements 18,169
 —
 (18,169) —
 —
Payments of tax withholdings for restricted shares —
 —
 (20,388) —
 (20,388)
Net cash provided by financing activities 500,827
 —
 (38,557) —
 462,270
Net increase in cash, cash equivalents and restricted cash 287,393
 (43,828) —
 —
 243,565
Cash, cash equivalents and restricted cash, beginning of the period 1,126,826
 80,290
 —
 —
 1,207,116
Cash, cash equivalents and restricted cash, end of the period 1,414,219
 36,462
 —
 —
 1,450,681


4. Restructuring and Asset Impairments

Cadmium Telluride Module Manufacturing and Corporate Restructuring

In November 2016, our board of directors approved a set of initiatives intended to accelerate our transition to Series 6 module manufacturing and restructure our operations to reduce costs and better align the organization with our long-term strategic plan. Accordingly, we expect to upgrade and replace our existing manufacturing fleet through 2019 with Series 6 manufacturing equipment, thereby enabling the production of solar modules with a larger form factor, better product attributes, and a lower cost structure.

As part of these initiatives, we incurred net charges of $39.1 million during the nine months ended September 30, 2017, which included (i) $25.7 million of charges, primarily related to netcredit losses on the disposition of previously impaired Series 4 and Series 5 manufacturing equipment, (ii) $6.8 million of severance benefits to terminated employees, and (iii) $6.6 million of net miscellaneous charges, primarily related to contract terminations, the write-off of operating supplies, and other Series 4 manufacturing exit costs. During the three months ended September 30, 2017, we incurred net charges of $0.8 million, primarily as a result of net losses on the disposition of the aforementioned manufacturing equipment. Substantially all amounts associated with these restructuring and asset impairment charges related to our components segment and were classified as “Restructuring and asset impairments” on our condensed consolidated statements of operations. We expect to incur up to $5 million of additional charges in 2017 as we continue the transition to Series 6 module manufacturing.

The following table summarizes our cadmium telluride (“CdTe”) module manufacturing and corporate restructuring activity recorded during the nine months ended September 30, 2017 and the remaining liability balances at September 30, 2017 (in thousands):
  Asset Impairments Severance Other Total
Ending liability balance at December 31, 2016 $—
 $7,865
 $550
 $8,415
Charges to income 25,704
 6,781
 6,623
 39,108
Cash payments —
 (14,115) (6,314) (20,429)
Non-cash amounts (25,704) —
 (772) (26,476)
Ending liability balance at September 30, 2017 $—
 $531
 $87
 $618

During the three and nine months ended September 30, 2016, we incurred charges of $2.9 million and $3.8 million, respectively, for severance benefits to terminated employees and certain other actions associated with related restructuring initiatives.

Crystalline Silicon Module Manufacturing Restructuring

In June 2016, our executive management elected to reallocate our crystalline silicon module production capacity to support next generation CdTe module offerings. As a result, we ended production of our crystalline silicon modules to focus on our core CdTe module technology and utility-scale PV solar power systems. The majority of our crystalline silicon module manufacturing associates were expected to be redeployed in other manufacturing operations.

In connection with these restructuring activities, we incurred charges of $86.0 million during the nine months ended September 30, 2016, which included (i) $35.8 million of impairment charges related to certain crystalline silicon module manufacturing equipment considered abandoned for accounting purposes, (ii) $35.8 million of impairment charges for developed technology intangible assets associated with our crystalline silicon module technology, (iii) $6.1 million of goodwill impairment charges from the disposal of our crystalline silicon components reporting unit, and (iv) $8.3 million of miscellaneous charges related to certain contract manufacturing agreements and the write-off of operating supplies. During the three months ended September 30, 2016, we incurred charges of $1.4 million for contract manufacturing agreements and long-lived asset impairments. All amounts associated with these charges related to our components segment and were classified as “Restructuring and asset impairments” on our condensed consolidated statements of operations.various financial assets.



5. Business Acquisitions

Enki Technology

In October 2016, we acquired 100% of the shares of Enki Technology, Inc. (“Enki”), a developer of advanced coating materials for the PV solar industry, for cash payments of $10.3 million, net of cash acquired of $0.3 million, and a promise to pay additional consideration of up to $7.0 million contingent on the achievement of certain production and module performance milestones. In connection with applying the acquisition method of accounting, $17.3 million of the purchase price consideration was assigned to an in process research and development (“IPR&D”) intangible asset to be amortized over its useful life upon successful completion of the underlying projects, $4.4 million was assigned to a deferred tax liability, and $4.4 million was assigned to goodwill. The acquired IPR&D includes patents, technical information and know-how, and other proprietary information associated with the development and production of anti-reflective coating material that we expect to use in the production of our solar modules. Such technology is expected to improve our module conversion efficiency and overall durability at a lower cost structure compared to our current production processes.

6.3. Cash, Cash Equivalents, and Marketable Securities


Cash, cash equivalents, and marketable securities consisted of the following at September 30, 2017March 31, 2020 and December 31, 20162019 (in thousands):
March 31,
2020		December 31,
2019
Cash and cash equivalents:
Cash$929,014  $1,345,419  
Money market funds341  7,322  
Total cash and cash equivalents929,355  1,352,741  
Marketable securities:
Foreign debt292,569  387,820  
Foreign government obligations—  22,011  
U.S. debt54,567  66,134  
Time deposits232,204  335,541  
Total marketable securities579,340  811,506  
Total cash, cash equivalents, and marketable securities$1,508,695  $2,164,247  
 
 
 September 30,
2017		 December 31,
2016
Cash and cash equivalents:    
Cash $1,968,818
 $1,347,155
Money market funds 50,255
 —
Total cash and cash equivalents 2,019,073
 1,347,155
Marketable securities:    
Foreign debt 172,249
 296,819
Foreign government obligations 198,307
 271,172
U.S. debt 73,988
 —
Time deposits 255,000
 40,000
Total marketable securities 699,544
 607,991
Total cash, cash equivalents, and marketable securities $2,718,617
 $1,955,146


The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within our condensed consolidated balance sheets as of March 31, 2020 and December 31, 2019 to the total of such amounts as presented in the condensed consolidated statement of cash flows (in thousands):
We classify our marketable securities as available-for-sale. Accordingly, we record them at fair value and account for the net unrealized gains and losses as part of “Accumulated other comprehensive loss” until realized. We record realized gains and losses on the sale of our marketable securities in “Other income, net” computed using the specific identification method.
Balance Sheet Line ItemMarch 31,
2020		December 31,
2019
Cash and cash equivalents  Cash and cash equivalents  $929,355  $1,352,741  
Restricted cash – current
Prepaid expenses and other current assets  47,915  13,697  
Restricted cash – noncurrent
Other assets  41,608  80,072  
Total cash, cash equivalents, and restricted cash$1,018,878  $1,446,510  

During the ninethree months ended September 30, 2017,March 31, 2020, we sold marketable securities for proceeds of $118.3$130.8 million and realized gainslosses of less than $0.1 million on such sales. During the three and nine months ended September 30, 2016, we sold marketable securities for proceeds of $135.2 million and $159.2 million, respectively, and realized gains of $0.3 million on such sales. See Note 10.8. “Fair Value Measurements” to our condensed consolidated financial statements for information about the fair value of our marketable securities.


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The following tables summarize the unrealized gains and losses related to our available-for-sale marketable securities, by major security type, as of September 30, 2017March 31, 2020 and December 31, 20162019 (in thousands):
 As of March 31, 2020
Amortized
Cost		Unrealized
Gains		Unrealized
Losses		Allowance for Credit LossesFair
Value
Foreign debt$298,861  $55  $6,250  $97  $292,569  
U.S. debt55,462  58  936  17  54,567  
Time deposits232,305  —  —  101  232,204  
Total$586,628  $113  $7,186  $215  $579,340  
  As of September 30, 2017
  
Amortized
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair
Value
Foreign debt $173,111
 $—
 $862
 $172,249
Foreign government obligations 199,009
 —
 702
 198,307
U.S. debt 74,016
 2
 30
 73,988
Time deposits 255,000
 —
 —
 255,000
Total $701,136
 $2
 $1,594
 $699,544


 As of December 31, 2019
Amortized
Cost		Unrealized
Gains		Unrealized
Losses		Fair
Value
Foreign debt$387,775  $551  $506  $387,820  
Foreign government obligations21,991  20  —  22,011  
U.S. debt65,970  176  12  66,134  
Time deposits335,541  —  —  335,541  
Total$811,277  $747  $518  $811,506  

  As of December 31, 2016
  
Amortized
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair
Value
Foreign debt $298,085
 $2
 $1,268
 $296,819
Foreign government obligations 272,357
 —
 1,185
 271,172
Time deposits 40,000
 —
 —
 40,000
Total $610,442
 $2
 $2,453
 $607,991

As of September 30, 2017, we identified eight investments totaling $119.2 million that had beenThe following table presents the change in a loss positionthe allowance for a period of time greater than 12 months with unrealizedcredit losses of $0.9 million. As of December 31, 2016, we identified three investments totaling $51.2 million that had been in a loss position for a period of time greater than 12 months with unrealized losses of $0.1 million. The unrealized losses were primarily duerelated to increases in interest rates relative to rates at the time of purchase. Based on the underlying credit quality of the investments, we do not intend to sell these securities prior to the recovery of our cost basis. Therefore, we did not consider these securities to be other-than-temporarily impaired. All of our available-for-sale marketable securities are subject to a periodic impairment review. We did not identify any of our marketable securities as other-than-temporarily impaired as of September 30, 2017 and Decemberfor the three months ended March 31, 2016.

The following tables show unrealized losses and fair values for those marketable securities that were in an unrealized loss position as of September 30, 2017 and December 31, 2016, aggregated by major security type and the length of time the marketable securities have been in a continuous loss position2020 (in thousands):
Marketable Securities
Balance as of December 31, 2019$— 
Cumulative-effect adjustment for the adoption of ASU 2016-13207 
Provision for credit losses180 
Sales and maturities of marketable securities(172)
Balance as of March 31, 2020$215 
  As of September 30, 2017
  
In Loss Position for
Less Than 12 Months
 
In Loss Position for
12 Months or Greater
 Total
  
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
Foreign debt $102,806
 $288
 $64,443
 $574
 $167,249
 $862
Foreign government obligations 143,546
 422
 54,761
 280
 198,307
 702
U.S. debt 63,981
 30
 —
 —
 63,981
 30
Total $310,333
 $740
 $119,204
 $854
 $429,537
 $1,594
  As of December 31, 2016
  
In Loss Position for
Less Than 12 Months
 
In Loss Position for
12 Months or Greater
 Total
  
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
Foreign debt $234,332
 $1,123
 $51,236
 $145
 $285,568
 $1,268
Foreign government obligations 272,503
 1,185
 —
 —
 272,503
 1,185
Total $506,835
 $2,308
 $51,236
 $145
 $558,071
 $2,453


The contractual maturities of our marketable securities as of September 30, 2017March 31, 2020 were as follows (in thousands):
Fair
Value
One year or less$320,765 
One year to two years157,337 
Two years to three years101,238 
Total$579,340 


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Fair
Value
One year or less $454,961
One year to two years 154,847
Two years to three years 89,736
Total $699,544
4. Restricted Marketable Securities



7. Restricted Cash and Investments

Restricted cash and investmentsmarketable securities consisted of the following at September 30, 2017 and Decemberas of March 31, 2016 (in thousands):
 
 
 September 30,
2017		 December 31,
2016
Restricted cash $43,851
 $31,381
Restricted investments 365,022
 339,926
Total restricted cash and investments (1) $408,873
 $371,307

(1)
There was an additional $16.6 million and $37.2 million of restricted cash included within “Prepaid expenses and other current assets” at September 30, 2017 and December 31, 2016, respectively.

At September 30, 20172020 and December 31, 2016, our2019 (in thousands):
 
 
March 31,
2020		December 31,
2019
Foreign government obligations$126,491  $126,066  
U.S. government obligations119,919  97,719  
Total restricted marketable securities$246,410  $223,785  

Our restricted cash consisted of deposits held by various banks to secure certain of our letters of credit and other deposits designated for the construction or operation of systems projects as well as the payment of amounts related to project specific debt financings. Restricted cash for our letters of credit is classified as current or noncurrent based on the maturity date of the corresponding letter of credit. See Note 13. “Commitments and Contingencies” to our condensed consolidated financial statements for further discussion related to our letters of credit. Restricted cash for project construction, operation, and financing is classified as current or noncurrent based on the projected use of the restricted funds.

At September 30, 2017 and December 31, 2016, our restricted investments consisted ofmarketable securities represent long-term marketable securities that were held in custodial accounts to fund the estimated future costs associated withof collecting and recycling modules covered under our solar module collection and recycling program. We classify ourAs of March 31, 2020 and December 31, 2019, such custodial accounts also included noncurrent restricted investments as available-for-sale. Accordingly, we record them at fair value and account for the net unrealized gains and losses as a partcash balances of “Accumulated other comprehensive loss” until realized. We record realized gains and losses on the sale of our restricted investments in “Other income, net” computed using the specific identification method. During the nine months ended September 30, 2016, we sold certain restricted investments for proceeds of $106.1$0.7 million and realized gains of $37.8less than $0.1 million, on such sales as part of an effort to align the currencies of the investments with those of the corresponding collection and recycling liabilities. Restricted investments are classified as noncurrent as the underlying accrued solar module collection and recycling liability is also noncurrent in nature. See Note 10. “Fair Value Measurements” to our condensed consolidated financial statements for information about the fair value of our restricted investments.

respectively, which were reported within ���Other assets.” As necessary, we fund any incremental amounts for our estimated collection and recycling obligations within 90 days of the end of each year. We determine the funding requirement, if any,on an annual basis based on the estimated costs of collecting and recycling covered modules, estimated rates of return on our restricted investments,marketable securities, and an estimated solar module life of 25 years, less amounts already funded in prior years. During 2016, substantially all of our module sales were not covered under our solar module collection and recycling program, and as a result, no incremental funding for the program was required in 2017. To ensure that amounts previously funded will be available in the future regardless of potential adverse changes in our financial condition (even in the case of our own insolvency), we have established a trust under which estimated funds are put into custodial accounts with an established and reputable bank, for which First Solar, Inc.,; First Solar Malaysia Sdn. Bhd.,; and First Solar Manufacturing GmbH are grantors. Only the trustee can distributeTrust funds from the custodial accounts, and these funds cannotmay be accesseddisbursed for any purpose other than to cover qualified costs of module collection and recycling either by us or a third party performing the requiredcosts (including capital and facility related recycling costs), payments to customers for assuming collection and recycling services.obligations, and reimbursements of any overfunded amounts. Investments in the trust must meet certain investment quality criteria comparable to highly rated government or agency bonds.


During the three months ended March 31, 2020, we sold certain restricted marketable securities for proceeds of $115.2 million, realized gains of $15.1 million on such sales, and repurchased $114.5 million of restricted marketable securities as part of our ongoing management of the custodial accounts. During the three months ended March 31, 2019, we sold certain restricted marketable securities for proceeds of $47.9 million and realized gains of $15.0 million on such sales as part of efforts to align the currencies of the investments with those of the corresponding collection and recycling liabilities and disbursed $14.9 million of overfunded amounts. See Note 8. “Fair Value Measurements” to our condensed consolidated financial statements for information about the fair value of our restricted marketable securities.

The following tables summarize the unrealized gains and losses related to our restricted investments,marketable securities, by major security type, as of September 30, 2017March 31, 2020 and December 31, 20162019 (in thousands):
 As of March 31, 2020
Amortized
Cost		Unrealized
Gains		Unrealized
Losses		Allowance for Credit LossesFair
Value
Foreign government obligations$127,528  $133  $1,140  $30  $126,491  
U.S. government obligations114,628  5,291  —  —  119,919  
Total$242,156  $5,424  $1,140  $30  $246,410  

 As of December 31, 2019
Amortized
Cost		Unrealized
Gains		Unrealized
Losses		Fair
Value
Foreign government obligations$129,499  $—  $3,433  $126,066  
U.S. government obligations99,700  —  1,981  97,719  
Total$229,199  $—  $5,414  $223,785  
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  As of September 30, 2017
  
Amortized
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair
Value
Foreign government obligations $124,083
 $60,279
 $—
 $184,362
U.S. government obligations 173,269
 12,291
 4,900
 180,660
Total $297,352
 $72,570
 $4,900
 $365,022
The following table presents the change in the allowance for credit losses related to our restricted marketable securities for the three months ended March 31, 2020 (in thousands):

Restricted Marketable Securities
Balance as of December 31, 2019$— 
Cumulative-effect adjustment for the adoption of ASU 2016-1354 
Provision for credit losses1 
Sales of restricted marketable securities(25)
Balance as of March 31, 2020$30 

  As of December 31, 2016
  
Amortized
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair
Value
Foreign government obligations $107,604
 $62,350
 $—
 $169,954
U.S. government obligations 169,294
 10,468
 9,790
 169,972
Total $276,898
 $72,818
 $9,790
 $339,926

As of September 30, 2017,March 31, 2020, the contractual maturities of our restricted investmentsmarketable securities were between 1210 years and 1922 years.


8.5. Consolidated Balance Sheet Details


Accounts receivable trade, net


Accounts receivable trade, netconsisted of the following at September 30, 2017March 31, 2020 and December 31, 20162019 (in thousands):
 March 31,
2020		December 31,
2019
Accounts receivable trade, gross$293,612  $476,425  
Allowance for credit losses(3,331) (1,386) 
Accounts receivable trade, net$290,281  $475,039  
  September 30,
2017		 December 31,
2016
Accounts receivable trade, gross $347,209
 $266,687
Allowance for doubtful accounts (2,564) —
Accounts receivable trade, net $344,645
 $266,687


At September 30, 2017March 31, 2020 and December 31, 2016, $51.32019, $48.1 million and $12.2$44.9 million, respectively, of our trade accounts receivable trade, net were secured by letters of credit, bank guarantees, surety bonds, or other forms of financial security issued by creditworthy financial institutions.

Accounts receivable, unbilled and retainage


Accounts receivable, unbilled and retainage, net

Accounts receivable, unbilled and retainage, net consisted of the following at September 30, 2017March 31, 2020 and December 31, 20162019 (in thousands):
 March 31,
2020		December 31,
2019
Accounts receivable, unbilled$96,755  $162,057  
Retainage25,577  21,416  
Allowance for credit losses(1,223) —  
Accounts receivable, unbilled and retainage, net$121,109  $183,473  

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  September 30,
2017		 December 31,
2016
Accounts receivable, unbilled $451,526
 $200,474
Retainage 3,592
 6,265
Accounts receivable, unbilled and retainage $455,118
 $206,739
Allowance for credit losses


The following table presents the change in the allowances for credit losses related to our accounts receivable for the three months ended March 31, 2020 (in thousands):
Accounts Receivable TradeAccounts Receivable, Unbilled and Retainage
Balance as of December 31, 2019$(1,386) $—  
Cumulative-effect adjustment for the adoption of ASU 2016-13(171) (459) 
Provision for credit losses, net (1)(2,026) (764) 
Writeoffs  252  —  
Balance as of March 31, 2020  $(3,331) $(1,223) 
——————————
(1)Includes credit losses for accounts receivable trade, net and accounts receivables, unbilled and retainage, net of $2.2 million and $0.9 million, respectively, to reflect our estimate of expected credit losses attributable to the current economic conditions resulting from the ongoing COVID-19 pandemic.

Inventories


Inventories consisted of the following at September 30, 2017March 31, 2020 and December 31, 20162019 (in thousands):
 March 31,
2020		December 31,
2019
Raw materials$255,849  $248,756  
Work in process63,938  59,924  
Finished goods342,264  295,479  
Inventories  $662,051  $604,159  
Inventories – current$479,792  $443,513  
Inventories – noncurrent$182,259  $160,646  
  September 30,
2017		 December 31,
2016
Raw materials $142,819
 $148,222
Work in process 9,756
 13,204
Finished goods 175,392
 302,305
Inventories $327,967
 $463,731
Inventories – current $217,555
 $363,219
Inventories – noncurrent (1) $110,412
 $100,512

(1)As needed, we may purchase a critical raw material that is used in our core production process in quantities that exceed anticipated consumption within our normal operating cycle, which is 12 months. We classify such raw materials that we do not expect to consume within our normal operating cycle as noncurrent.



Prepaid expenses and other current assets


Prepaid expenses and other current assets consisted of the following at September 30, 2017March 31, 2020 and December 31, 20162019 (in thousands):
 March 31,
2020		December 31,
2019
Prepaid expenses$145,985  $137,927  
Prepaid income taxes51,416  47,811  
Restricted cash47,915  13,697  
Indirect tax receivables29,300  29,908  
Derivative instruments (1)2,846  1,199  
Notes receivable, net (2)—  23,873  
Other current assets25,383  22,040  
Prepaid expenses and other current assets  $302,845  $276,455  
——————————
(1)See Note 6. “Derivative Financial Instruments” to our condensed consolidated financial statements for discussion of our derivative instruments.

(2)In November 2014 and February 2016, we entered into a term loan agreement and a convertible loan agreement, respectively, with Clean Energy Collective, LLC (“CEC”). Our term loan bears interest at 16% per annum, and our convertible loan bears interest at 10% per annum. In November 2018, we amended the terms of the loan agreements to
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  September 30,
2017		 December 31,
2016
Prepaid expenses $33,862
 $42,007
Prepaid income taxes 21,798
 35,336
Restricted cash 16,552
 37,154
Derivative instruments  9,644
 6,078
Value added tax receivables 8,463
 22,308
Other current assets 52,085
 74,579
Prepaid expenses and other current assets $142,404
 $217,462
(i) extend their maturity to June 2020, (ii) waive the conversion features on our convertible loan, and (iii) increase the frequency of interest payments, subject to certain conditions.


We assess CEC’s credit quality based primarily on certain quarterly financial information, which was last provided during the three months ended March 31, 2020. As of December 31, 2019, the aggregate balance outstanding on the loans was $23.9 million. Upon the adoption of ASU 2016-13, we evaluated the estimated credit losses over the remaining contractual term of the loan agreements based on a discounted cash flow model. As a result of this evaluation, we recorded an allowance for credit losses of $10.8 million as of January 1, 2020. During the three months ended March 31, 2020, we recorded incremental credit losses of $13.1 million based on our expectation that CEC will be unable to repay the notes by their contractual maturity date due to continued liquidity issues, which have adversely affected CEC’s financial condition and results of operations.

Property, plant and equipment, net


Property, plant and equipment, net consisted of the following at September 30, 2017March 31, 2020 and December 31, 20162019 (in thousands):
 March 31,
2020		December 31,
2019
Land$14,199  $14,241  
Buildings and improvements666,728  664,266  
Machinery and equipment2,168,688  2,436,997  
Office equipment and furniture154,479  159,848  
Leasehold improvements48,744  48,772  
Construction in progress319,787  243,107  
Property, plant and equipment, gross3,372,625  3,567,231  
Accumulated depreciation(1,128,450) (1,386,082) 
Property, plant and equipment, net  $2,244,175  $2,181,149  
  September 30,
2017		 December 31,
2016
Land $8,135
 $7,839
Buildings and improvements 423,031
 378,981
Machinery and equipment 1,060,654
 1,444,442
Office equipment and furniture 155,351
 147,833
Leasehold improvements 48,938
 53,552
Construction in progress 416,684
 93,164
Stored assets (1) —
 17,995
Property, plant and equipment, gross 2,112,793
 2,143,806
Accumulated depreciation (1,172,674) (1,514,664)
Property, plant and equipment, net $940,119
 $629,142

(1)Consisted of certain machinery and equipment (“stored assets”) that were originally intended for use in previously planned manufacturing capacity expansions. The majority of the stored assets remaining at December 31, 2016 were repurposed for Series 6 module manufacturing.


Depreciation of property, plant and equipment was $22.4$47.4 million and $71.1$42.9 million for the three and nine months ended September 30, 2017, respectively,March 31, 2020 and $51.6 million and $158.6 million for the three and nine months ended September 30, 2016,2019, respectively.


PV solar power systems, net


PVPhotovoltaic (“PV”) solar power systems, net consisted of the following at September 30, 2017March 31, 2020 and December 31, 20162019 (in thousands):
 March 31,
2020		December 31,
2019
PV solar power systems, gross$529,396  $530,004  
Accumulated depreciation(58,687) (53,027) 
PV solar power systems, net  $470,709  $476,977  
  September 30,
2017		 December 31,
2016
PV solar power systems, gross $485,519
 $464,581
Accumulated depreciation (31,036) (15,980)
PV solar power systems, net $454,483
 $448,601


During the nine months ended September 30, 2017, we placed $13.3 million of projects in service, including a project in the Asia-Pacific region. Depreciation of PV solar power systems was $5.1$5.8 million and $14.9$3.5 million for the three and nine months ended September 30, 2017, respectively,March 31, 2020 and $4.4 million2019, respectively.

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Project assets

Project assets consisted of the following at March 31, 2020 and $6.8 million for the three and nine months ended September 30, 2016, respectively.December 31, 2019 (in thousands):

 March 31,
2020		December 31,
2019
Project assets – development costs, including project acquisition and land costs$234,404  $254,466  
Project assets – construction costs154,510  82,654  
Project assets$388,914  $337,120  
Project assets – current$403  $3,524  
Project assets – noncurrent$388,511  $333,596  


Capitalized interest


The cost of constructing facilities, equipment, and project assets includes interest costs incurred during the assets’ construction period. The components of interest expense and capitalized interest were as follows during the three and nine months ended September 30, 2017March 31, 2020 and 2016 (in thousands):
  Three Months Ended
September 30,		 Nine Months Ended
September 30,
  2017 2016 2017 2016
Interest cost incurred $(4,775) $(5,998) $(20,630) $(20,365)
Interest cost capitalized – property, plant and equipment —
 314
 —
 1,381
Interest cost capitalized – project assets 626
 121
 938
 1,628
Interest expense, net $(4,149) $(5,563) $(19,692) $(17,356)

Project assets

Project assets consisted of the following at September 30, 2017 and December 31, 20162019 (in thousands):
Three Months Ended
March 31,
 20202019
Interest cost incurred$(7,104) $(10,948) 
Interest cost capitalized – project assets315  827  
Interest expense, net$(6,789) $(10,121) 
  September 30,
2017		 December 31,
2016
Project assets – development costs, including project acquisition and land costs $282,278
 $444,264
Project assets – construction costs 191,381
 1,018,684
Project assets $473,659
 $1,462,948
Project assets – current $67,263
 $700,800
Project assets – noncurrent $406,396
 $762,148


Other assets


Other assets consisted of the following at September 30, 2017March 31, 2020 and December 31, 20162019 (in thousands):
 March 31,
2020		December 31,
2019
Operating lease assets (1)$160,749  $145,711  
Advanced payments for raw materials105,571  59,806  
Restricted cash41,608  80,072  
Indirect tax receivables10,934  9,446  
Notes receivable (2)8,071  8,194  
Income taxes receivable4,110  4,106  
Equity method investments2,702  2,812  
Derivative instruments (3)746  139  
Other42,763  19,640  
Other assets  $377,254  $329,926  
——————————
(1)See Note 7. “Leases” to our condensed consolidated financial statements for discussion of our lease arrangements.

(2)In April 2009, we entered into a credit facility agreement with a solar power project entity of one of our customers for an available amount of €17.5 million to provide financing for a PV solar power system. The credit facility bears interest at 8.0% per annum, payable quarterly, with the full amount due in December 2026. As of March 31, 2020 and December 31, 2019, the balance outstanding on the credit facility was €7.0 million ($7.7 million and $7.8 million, respectively).

We assess the credit quality of the aforementioned customer based primarily on certain quarterly financial information, which was last provided during the three months ended December 31, 2019. Upon adoption of ASU 2016-13, we evaluated the estimated credit losses over the remaining contractual term of the credit facility and determined no
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  September 30,
2017		 December 31,
2016
Deferred rent $26,879
 $27,160
Notes receivable (1) 10,558
 7,385
Income taxes receivable 4,321
 4,230
Other 56,415
 39,123
Other assets $98,173
 $77,898
allowance for credit losses was necessary as of January 1, 2020. Additionally, based on the customer’s current financial condition and forecasts, we determined no allowance for credit losses was necessary as of March 31, 2020.


(1)
In April 2009, we entered into a credit facility agreement with a solar power project entity of one of our customers for an available amount of €17.5 million to provide financing for a PV solar power system. The credit facility bears interest at 8.0% per annum, payable quarterly, with the full amount due in December 2026. As of September 30, 2017 and December 31, 2016, the balance outstanding on the credit facility was €7.0 million ($8.3 million and $7.4 million, respectively).

(3)See Note 6. “Derivative Financial Instruments” to our condensed consolidated financial statements for discussion of our derivative instruments.

Goodwill


Goodwill for the relevant reporting unit consisted of the following at September 30, 2017March 31, 2020 and December 31, 20162019 (in thousands):
December 31,
2019		Acquisitions (Impairments)March 31,
2020
Modules$407,827  $—  $407,827  
Accumulated impairment losses(393,365) —  (393,365) 
Goodwill$14,462  $—  $14,462  
  December 31,
2016
Acquisitions (Impairments)
September 30,
2017
Components $407,827
 $—
 $407,827
Accumulated impairment losses (393,365) —
 (393,365)
Goodwill $14,462
 $—
 $14,462


Intangible assets, net


Goodwill represents the excess of the purchase price of acquired businesses over the estimated fair values assigned to the individual assets acquired and liabilities assumed. We do not amortize goodwill, but instead are required to test goodwill for impairment at least annually. If necessary, we would record any impairment in accordance with ASC 350, Intangibles – Goodwill and Other. We perform impairment tests between scheduled annual tests in the fourth quarter if facts and circumstances indicate that it is more likely than not that the fair value of a reporting unit that has goodwill is less than its carrying value.

Other intangibles, net

Other intangibles, net consists of developed technologies from prior business acquisitions, certain PPAs acquired after the associated PV solar power systems were placed in service, our internally-generated intangible assets, substantially all of which were patents on technologies related to our products and production processes, and IPR&D related to our Enki acquisition as described in Note 5. “Business Acquisitions” to our condensed consolidated financial statements. We record an asset for patents, after the patent has been issued, based on the legal, filing, and other costs incurred to secure them. We amortize intangible assets on a straight-line basis over their estimated useful lives once the intangible assets meet the criteria to be amortized.

The following tables summarize our intangible assets at September 30, 2017March 31, 2020 and December 31, 20162019 (in thousands):
March 31, 2020
 Gross AmountAccumulated AmortizationNet Amount
Developed technology$99,964  $(44,712) $55,252  
Power purchase agreements6,486  (1,053) 5,433  
Patents7,780  (4,547) 3,233  
Intangible assets, net$114,230  $(50,312) $63,918  
  September 30, 2017
  Gross Amount Accumulated Amortization Accumulated Impairments Net Amount
Developed technology $76,959
 $(22,298) $—
 $54,661
Power purchase agreements 6,486
 (243) —
 6,243
Patents 6,538
 (2,932) —
 3,606
In-process research and development 17,255
 —
 —
 17,255
Other intangibles, net $107,238
 $(25,473) $—
 $81,765

December 31, 2019
 Gross AmountAccumulated AmortizationNet Amount
Developed technology$97,964  $(42,344) $55,620  
Power purchase agreements6,486  (972) 5,514  
Patents7,780  (4,371) 3,409  
Intangible assets, net$112,230  $(47,687) $64,543  
  December 31, 2016
  Gross Amount Accumulated Amortization Accumulated Impairments Net Amount
Developed technology $114,612
 $(18,208) $(36,215) $60,189
Power purchase agreements 6,486
 —
 —
 6,486
Patents 6,538
 (2,498) —
 4,040
In-process research and development 17,255
 —
 —
 17,255
Other intangibles, net $144,891
 $(20,706) $(36,215) $87,970


Amortization expense for ourof intangible assets was $2.1$2.6 million and $6.2$2.5 million for the three and nine months ended September 30, 2017, respectively,March 31, 2020 and $2.1 million and $8.1 million for the three and nine months ended September 30, 2016,2019, respectively.


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Accrued expenses


Accrued expenses consisted of the following at September 30, 2017March 31, 2020 and December 31, 20162019 (in thousands):
 March 31,
2020		December 31,
2019
Accrued project costs$81,461  $91,971  
Accrued property, plant and equipment48,233  42,834  
Accrued compensation and benefits39,625  65,170  
Accrued inventory37,198  39,366  
Product warranty liability (1)20,399  20,291  
Other69,880  91,628  
Accrued expenses  $296,796  $351,260  
  September 30,
2017		 December 31,
2016
Accrued property, plant and equipment $112,084
 $14,828
Accrued compensation and benefits 51,731
 47,877
Accrued project assets 48,248
 71,164
Product warranty liability (1) 31,016
 40,079
Accrued inventory 15,211
 13,085
Other 59,035
 75,944
Accrued expenses $317,325
 $262,977
——————————

(1)See Note 13. “Commitments and Contingencies” to our condensed consolidated financial statements for discussion of our “Product warranty liability.”

(1)See Note 10. “Commitments and Contingencies” to our condensed consolidated financial statements for discussion of our “Product Warranties.”


Other current liabilities


Other current liabilities consisted of the following at September 30, 2017March 31, 2020 and December 31, 20162019 (in thousands):
 March 31,
2020		December 31,
2019
Operating lease liabilities (1)$11,824  $11,102  
Derivative instruments (2)1,612  2,582  
Contingent consideration (3)200  2,395  
Other8,149  12,051  
Other current liabilities  $21,785  $28,130  
  September 30,
2017		 December 31,
2016
Derivative instruments  $16,851
 $6,642
Contingent consideration (1) 9,106
 19,620
Financing liability (2) 5,173
 5,219
Indemnification liabilities (1) 2,790
 100,000
Other 10,126
 15,461
Other current liabilities $44,046
 $146,942
——————————

(1)See Note 7. “Leases” to our condensed consolidated financial statements for discussion of our lease arrangements.
(1)See Note 13. “Commitments and Contingencies” to our condensed consolidated financial statements for discussion of our “Indemnification liabilities” and “Contingent consideration” arrangements.


(2)
See Note 11. “Investments in Unconsolidated Affiliates and Joint Ventures” to our condensed consolidated financial statements for discussion of the financing liabilities associated with our leaseback of the Maryland Solar project.

(2)See Note 6. “Derivative Financial Instruments” to our condensed consolidated financial statements for discussion of our derivative instruments.

(3)See Note 10. “Commitments and Contingencies” to our condensed consolidated financial statements for discussion of our “Contingent Consideration” arrangements.

Other liabilities


Other liabilities consisted of the following at September 30, 2017March 31, 2020 and December 31, 20162019 (in thousands):
 March 31,
2020		December 31,
2019
Operating lease liabilities (1)$125,253  $112,515  
Product warranty liability (2)104,102  109,506  
Other taxes payable92,519  90,201  
Transition tax liability70,047  70,047  
Deferred revenue69,505  71,438  
Derivative instruments (3)9,544  7,439  
Contingent consideration (2)4,500  4,500  
Other44,017  43,120  
Other liabilities  $519,487  $508,766  
——————————
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  September 30,
2017		 December 31,
2016
Product warranty liability (1) $212,678
 $212,329
Commercial letter of credit liability (1) 69,951
 26,579
Deferred revenue 63,643
 —
Financing liability (2) 30,378
 33,314
Other taxes payable 25,222
 24,099
Derivative instruments 8,697
 444
Contingent consideration (1) 3,106
 10,472
Other 55,689
 64,202
Other liabilities $469,364
 $371,439
(1)See Note 7. “Leases” to our condensed consolidated financial statements for discussion of our lease arrangements.

(1)See Note 13. “Commitments and Contingencies” to our condensed consolidated financial statements for discussion of our “Product warranty liability,” “Contingent consideration,” and “Commercial letter of credit liability” arrangements.

(2)See Note 11. “Investments in Unconsolidated Affiliates and Joint Ventures” to our condensed consolidated financial statements for discussion of the financing liabilities associated with our leaseback of the Maryland Solar project.


(2)See Note 10. “Commitments and Contingencies” to our condensed consolidated financial statements for discussion of our “Product Warranties” and “Contingent Consideration” arrangements.
9.
(3)See Note 6. “Derivative Financial Instruments” to our condensed consolidated financial statements for discussion of our derivative instruments.

6. Derivative Financial Instruments


As a global company, we are exposed in the normal course of business to interest rate and foreign currency risks that could affect our financial position, results of operations, and cash flows. We use derivative instruments to hedge against these risks and only hold such instruments for hedging purposes, not for speculative or trading purposes.


Depending on the terms of the specific derivative instruments and market conditions, some of our derivative instruments may be assets and others liabilities at any particular balance sheet date. We report all of our derivative instruments at fair value and account for changes in the fair value of derivative instruments within “Accumulated other comprehensive loss” if the derivative instruments qualify for hedge accounting. For those derivative instruments that do not qualify for hedge accounting (“economic(i.e., “economic hedges”), we record the changes in fair value directly to earnings. See Note 10.8. “Fair Value Measurements” to our condensed consolidated financial statements for information about the techniques we use to measure the fair value of our derivative instruments.



The following tables present the fair values of derivative instruments included in our condensed consolidated balance sheets as of September 30, 2017March 31, 2020 and December 31, 20162019 (in thousands):
 March 31, 2020
Prepaid Expenses and Other Current AssetsOther AssetsOther Current LiabilitiesOther Liabilities
Derivatives designated as hedging instruments:
Foreign exchange forward contracts$528  $746  $29  $—  
Total derivatives designated as hedging instruments$528  $746  $29  $—  
Derivatives not designated as hedging instruments:
Foreign exchange forward contracts$2,318  $—  $1,108  $—  
Interest rate swap contracts—  —  475  9,544  
Total derivatives not designated as hedging instruments$2,318  $—  $1,583  $9,544  
Total derivative instruments$2,846  $746  $1,612  $9,544  

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 September 30, 2017 December 31, 2019
 Prepaid Expenses and Other Current Assets Other Current Liabilities Other LiabilitiesPrepaid Expenses and Other Current AssetsOther AssetsOther Current LiabilitiesOther Liabilities
Derivatives designated as hedging instruments:      Derivatives designated as hedging instruments:
Foreign exchange forward contracts $267
 $10,777
 $—
Foreign exchange forward contracts$226  $139  $369  $230  
Total derivatives designated as hedging instruments $267
 $10,777
 $—
Total derivatives designated as hedging instruments$226  $139  $369  $230  
      
Derivatives not designated as hedging instruments:    
  
Derivatives not designated as hedging instruments:
Foreign exchange forward contracts $9,377
 $6,074
 $3,182
Foreign exchange forward contracts$973  $—  $1,807  $—  
Interest rate swap contracts —
 —
 5,515
Interest rate swap contracts—  —  406  7,209  
Total derivatives not designated as hedging instruments $9,377
 $6,074
 $8,697
Total derivatives not designated as hedging instruments$973  $—  $2,213  $7,209  
Total derivative instruments $9,644
 $16,851
 $8,697
Total derivative instruments$1,199  $139  $2,582  $7,439  

  December 31, 2016
  Prepaid Expenses and Other Current Assets Other Current Liabilities Other Liabilities
Derivatives designated as hedging instruments:      
Foreign exchange forward contracts $2,072
 $387
 $444
Total derivatives designated as hedging instruments $2,072
 $387
 $444
       
Derivatives not designated as hedging instruments:    
  
Foreign exchange forward contracts $4,006
 $6,255
 $—
Total derivatives not designated as hedging instruments $4,006
 $6,255
 $—
Total derivative instruments $6,078
 $6,642
 $444

The following tables presenttable presents the effectivepretax amounts related to derivative instruments designated as cash flow hedges affecting accumulated other comprehensive income or loss(loss) and our condensed consolidated statements of operations for the ninethree months ended September 30, 2017March 31, 2020 and 20162019 (in thousands):
Foreign Exchange Forward Contracts
Balance as of December 31, 2019$(962)
Amounts recognized in other comprehensive income (loss)768 
Amounts reclassified to earnings impacting:
Cost of sales207 
Balance as of March 31, 2020$13 
Balance as of December 31, 2018$1,329 
Amounts recognized in other comprehensive income (loss)(31)
Balance as of March 31, 2019$1,298 
  Foreign Exchange Forward Contracts Interest Rate Swap Contract Cross Currency Swap Contract Total
Balance in accumulated other comprehensive income (loss) at December 31, 2016 $2,556
 $—
 $—
 $2,556
Amounts recognized in other comprehensive income (loss) (3,993) —
 —
 (3,993)
Amounts reclassified to earnings impacting:        
Other income, net 189
 —
 —
 189
Balance in accumulated other comprehensive income (loss) at September 30, 2017 $(1,248) $—
 $—
 $(1,248)
         
Balance in accumulated other comprehensive income (loss) at December 31, 2015 $162
 $(16) $(2,017) $(1,871)
Amounts recognized in other comprehensive income (loss) 37
 (2) 5,108
 5,143
Amounts reclassified to earnings impacting:        
Foreign currency loss, net —
 —
 (4,896) (4,896)
Interest expense, net —
 18
 1,805
 1,823
Balance in accumulated other comprehensive income (loss) at September 30, 2016 $199
 $—
 $—
 $199


We recorded no amounts related to ineffective portions of our derivative instruments designated as cash flow hedges duringDuring the three and nine months ended September 30, 2017 and 2016. WeMarch 31, 2020, we recognized unrealized gains of $0.7$0.8 million and $0.5 million related to within “Cost of sales” for amounts excluded from effectiveness testing for our foreign exchange forward contracts designated as cash flow hedges within “Other income, net” during the three and nine months ended September 30, 2017, respectively. We recognized unrealized losses of $0.2 million and $0.6 million related to amounts excluded from effectiveness testing for our foreign exchange forward contracts designated as cash flow hedges within “Other income, net” during the three and nine months ended September 30, 2016, respectively. hedges.

The following table presents amountsgains and losses related to derivative instruments not designated as hedges affecting our condensed consolidated statements of operations for the three and nine months ended September 30, 2017March 31, 2020 and 20162019 (in thousands):
Amount of Gain (Loss) Recognized in Income
Three Months Ended
March 31,
Income Statement Line Item20202019
Foreign exchange forward contractsCost of sales$106  $—  
Foreign exchange forward contractsForeign currency (loss) income, net(275) 1,900  
Interest rate swap contractsInterest expense, net(2,404) (5,364) 

17
    Amount of Gain (Loss) Recognized in Income
    Three Months Ended
September 30,		 Nine Months Ended
September 30,
  Income Statement Line Item 2017 2016 2017 2016
Foreign exchange forward contracts Foreign currency loss, net $6,934
 $(6,763) $(16,724) $(29,740)
Interest rate swap contracts Interest expense, net 167
 —
 (5,515) —
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Interest Rate Risk


We use interest rate swap and cross-currency swap contracts to mitigate our exposure to interest rate fluctuations associated with certain of our debt instruments. We do not use such swap contracts for speculative or trading purposes. During the three months ended March 31, 2020 and 2019, all of our interest rate swap contracts related to project specific debt facilities. Such swap contracts did not qualify for accounting as cash flow hedges in accordance with Accounting Standards Codification (“ASC”) 815 due to our expectation to sell the associated projects before the maturity of their project specific debt financings and corresponding swap contracts. Accordingly, changes in the fair values of these swap contracts were recorded directly to “Interest expense, net.”


In March 2017, Manildra Finco Pty Ltd,December 2019, FS Japan Project 31 GK, our indirectindirectly wholly-owned subsidiary and project financing company, entered into variousan interest rate swap contractscontract to hedge a portion of the floating rate constructionterm loan facility under the associated project’s ManildraAnamizu Credit FacilityAgreement (as defined in Note 12.9. “Debt” to our condensed consolidated financial statements). Such swapsswap had an initial aggregate notional value of AUD 12.8 million¥0.9 billion and entitled the project to receive a one-month or three-monthsix-month floating Bank Bill Swap or “BBSW”Tokyo Interbank Offered Rate (“TIBOR”) plus 0.70% interest rate while requiring the project to pay a fixed rate of 3.13%1.1925%. The aggregate notional amount of the interest rate swap contractscontract proportionately adjusts with the scheduled draws and principal payments on the underlying hedged debt. As of September 30, 2017,March 31, 2020 and December 31, 2019, the aggregate notional value of the interest rate swap contractscontract was AUD 40.6 million¥1.4 billion ($31.712.6 million). These derivative instruments do not qualify for accounting as cash flow hedges in accordance with ASC 815 due to our expectation to sell the associated project before the maturity of its project specific debt financing and corresponding swap contracts. Accordingly, the changes in the fair value of the swap contracts are recorded directly to “Interest expense, net.”¥0.9 billion ($8.0 million), respectively.


In January 2017, FS Japan Project 12 GK, our indirect wholly-owned subsidiary and project company, entered into an interest rate swap contract to hedge a portion of the floating rate senior loan facility under the project’s Ishikawa Credit Agreement (as defined in Note 12.9. “Debt” to our condensed consolidated financial statements). Such swap had an initial notional value of ¥5.7 billion and entitled the project to receive a six-month floating Tokyo Interbank Offered Rate (“TIBOR”)TIBOR plus 0.75% interest rate while requiring the project to pay a fixed rate of 1.482%. The notional amount of the interest rate swap contract proportionately adjusts with the scheduled draws and principal payments on the underlying hedged debt. As of September 30, 2017,March 31, 2020 and December 31, 2019, the notional value of the interest rate swap contract was ¥8.0¥18.7 billion ($71.2173.2 million). This derivative instrument does not qualify for accounting as a cash flow hedge in accordance with ASC 815 due to our expectation to sell the associated project before the maturity of its project specific debt financing and corresponding swap contract. Accordingly, the changes in the fair value of the swap contract are recorded directly to “Interest expense, net.”¥18.7 billion ($171.7 million), respectively.


Foreign Currency Risk


Cash Flow Exposure


We expect certain of our subsidiaries to have future cash flows that will be denominated in currencies other than the subsidiaries’ functional currencies. Changes in the exchange rates between the functional currencies of our subsidiaries and the other currencies in which they transact will cause fluctuations in the cash flows we expect to receive or pay when these cash flows are realized or settled. Accordingly, we enter into foreign exchange forward contracts to hedge a portion of these forecasted cash flows. As of September 30, 2017March 31, 2020 and December 31, 2016,2019, these foreign exchange forward contracts hedged our forecasted cash flows for periods up to 1219 months and 2122 months, respectively. These foreign exchange forward contracts qualify for accounting as cash flow hedges in accordance with ASC 815, and we designated them as such. We initially report the effective portion of a derivative’s unrealized gaingains or losslosses on such contracts in “Accumulated other comprehensive loss” and subsequently reclassify applicable amounts into earnings when the hedged transaction occurs and impacts earnings. We determined that these derivative financial instruments were highly effective as cash flow hedges as of September 30, 2017March 31, 2020 and December 31, 2016.2019.



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As of September 30, 2017March 31, 2020 and December 31, 2016,2019, the notional values associated with our foreign exchange forward contracts qualifying as cash flow hedges were as follows (notional amounts and U.S. dollar equivalents in millions):
March 31, 2020
CurrencyNotional AmountUSD Equivalent
U.S. dollar (1)$66.2$66.2
September 30, 2017
CurrencyNotional AmountUSD Equivalent
Indian rupeeINR 4,730.0$72.5
Euro€31.7$37.4

December 31, 2019
CurrencyNotional AmountUSD Equivalent
U.S. dollar (1)$69.9$69.9
December 31, 2016
CurrencyNotional AmountUSD Equivalent
Indian rupeeINR 860.0$12.7
Australian dollarAUD 55.3$40.0
——————————

(1)These derivative instruments represent hedges of outstanding payables denominated in U.S. dollars at certain of our foreign subsidiaries whose functional currencies are other than the U.S. dollar.

In the following 12 months, we expect to reclassify to earnings $1.2$0.1 million of net unrealized lossesgains related to these forward contracts that are included in “Accumulated other comprehensive loss” at September 30, 2017March 31, 2020 as we realize the earnings effecteffects of the related forecasted transactions. The amount we ultimately record to earnings will depend on the actual exchange rates when we realize the related forecasted transactions.


Transaction Exposure and Economic Hedging


Many of our subsidiaries have assets and liabilities (primarily cash, receivables, marketable securities,deferred taxes, payables, debt,accrued expenses, and solar module collection and recycling liabilities) that are denominated in currencies other than the subsidiaries’ functional currencies. Changes in the exchange rates between the functional currencies of our subsidiaries and the other currencies in which these assets and liabilities are denominated will create fluctuations in our reported condensed consolidated statements of operations and cash flows. We may enter into foreign exchange forward contracts or other financial instruments to economically hedge assets and liabilities against the effects of currency exchange rate fluctuations. The gains and losses on such foreign exchange forward contracts will economically offset all or part of the transaction gains and losses that we recognize in earnings on the related foreign currency denominated assets and liabilities.


We also enter into foreign exchange forward contracts to economically hedge balance sheet and other exposures related to transactions between certain of our subsidiaries and transactions with third parties. Such contracts are considered economic hedges and do not qualify for hedge accounting. Accordingly, we recognize gains or losses from the fluctuations in foreign exchange rates and the fair value of these derivative contracts in “Foreign currency loss,(loss) income, net” on our condensed consolidated statements of operations. These contracts mature at various dates within the next 1.3 years.

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As of September 30, 2017March 31, 2020 and December 31, 2016,2019, the notional values of our foreign exchange forward contracts that do not qualify for hedge accounting were as follows (notional amounts and U.S. dollar equivalents in millions):
March 31, 2020
TransactionCurrencyNotional AmountUSD Equivalent
PurchaseAustralian dollarAUD 14.6$9.0
SellAustralian dollarAUD 12.1$7.4
PurchaseBrazilian realBRL 2.6$0.5
SellBrazilian realBRL 4.3$0.8
SellCanadian dollarCAD 4.3$3.0
SellChilean pesoCLP 3,679.1$4.3
PurchaseSeptember 30, 2017Euro€88.3$97.4
TransactionSellCurrencyEuroNotional Amount€47.4USD Equivalent$52.3
PurchaseEuro€138.4$163.3
SellEuro€132.2$156.0
PurchaseAustralian dollarAUD 66.6$52.1
SellAustralian dollarAUD 54.1$42.3
PurchaseMalaysian ringgitMYR 14.0$3.3
SellMalaysian ringgitMYR 548.1$129.8
SellCanadian dollarCAD 3.9$3.1
SellChilean pesoCLP 9,798.3$15.4
PurchaseChinese yuanCNY 13.8$2.1
SellJapanese yen¥22,747.3$201.9
SellIndian rupeeINR 9,981.2$152.9
SellSingapore dollarSGD 3.1$2.3
PurchaseSouth African randZAR 11.9$0.9
SellSouth African randZAR 58.0$4.3

PurchaseDecember 31, 2016Indian rupeeINR 470.9$6.2
TransactionSellCurrencyIndian rupeeNotional AmountINR 1,349.2USD Equivalent$17.8
PurchaseEuroJapanese yen€64.5¥2,496.3$68.023.1
SellEuroJapanese yen€103.6¥22,990.4$109.3213.1
PurchaseAustralian dollarMalaysian ringgitAUD 1.2MYR 89.1$0.920.5
SellAustralian dollarMalaysian ringgitAUD 19.3MYR 36.3$14.08.4
SellMalaysian ringgitMYR 24.5$5.5
SellCanadian dollarMexican pesoCAD 17.7MXN 34.6$13.21.4
SellPurchaseChilean pesoSingapore dollarCLP 13,611.6SGD 2.9$20.32.0
PurchaseChinese yuanCNY 24.3$3.5
PurchaseJapanese yen¥97.3$0.8
SellJapanese yen¥15,610.4$133.7
SellBritish pound£0.6$0.7
SellIndian rupeeINR 12,753.2$187.7
SellSouth African randZAR 51.2$3.7


December 31, 2019
TransactionCurrencyNotional AmountUSD Equivalent
PurchaseAustralian dollarAUD 14.9$10.4
SellAustralian dollarAUD 11.1$7.8
PurchaseBrazilian realBRL 13.2$3.3
SellBrazilian realBRL 4.3$1.1
PurchaseCanadian dollarCAD 4.5$3.4
SellCanadian dollarCAD 1.6$1.2
PurchaseChilean pesoCLP 1,493.1$2.0
SellChilean pesoCLP 3,866.1$5.1
PurchaseEuro€86.1$96.5
SellEuro€116.3$130.3
SellIndian rupeeINR 1,283.8$18.0
PurchaseJapanese yen¥3,625.5$33.3
SellJapanese yen¥23,089.5$212.2
PurchaseMalaysian ringgitMYR 88.6$21.6
SellMalaysian ringgitMYR 41.3$10.1
SellMexican pesoMXN 34.6$1.8
PurchaseSingapore dollarSGD 2.9$2.2
10.

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7. Leases

Our lease arrangements include land associated with our systems projects, our corporate and administrative offices, land for our international manufacturing facilities, and certain of our manufacturing equipment. Such leases primarily relate to assets located in the United States, Japan, Malaysia, and Vietnam.

The following table presents certain quantitative information related to our lease arrangements for the three months ended March 31, 2020 and 2019, and as of March 31, 2020 and December 31, 2019 (in thousands):
Three Months Ended
March 31,
20202019
Operating lease cost$4,178  $5,283  
Variable lease cost666  749  
Short-term lease cost961  2,842  
Total lease cost$5,805  $8,874  
Payments of amounts included in the measurement of operating lease liabilities$4,897  $4,947  
Lease assets obtained in exchange for operating lease liabilities$17,576  $149,631  
March 31, 2020December 31, 2019
Operating lease assets$160,749  $145,711  
Operating lease liabilities – current
11,824  11,102  
Operating lease liabilities – noncurrent
125,253  112,515  

Weighted-average remaining lease term16 years15 years
Weighted-average discount rate4.0 %4.3 %

As of March 31, 2020, the future payments associated with our lease liabilities were as follows (in thousands):
Total Lease Liabilities
Remainder of 2020$11,534  
202115,473  
202214,507  
202314,017  
202413,731  
Thereafter108,763  
Total future payments178,025  
Less: interest(40,948) 
Total lease liabilities$137,077  


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8. Fair Value Measurements


The following is a description of the valuation techniques that we use to measure the fair value of assets and liabilities that we measure and report at fair value on a recurring basis:


•Cash Equivalents. At September 30, 2017,March 31, 2020 and December 31, 2019, our cash equivalents consisted of money market funds. We value our money market cash equivalents using observable inputs that reflect quoted prices for securities with identical characteristics, and accordingly, we classify the valuation techniques that use these inputs as Level 1.


•Marketable Securities and Restricted Investments.Marketable Securities. At September 30, 2017March 31, 2020 and December 31, 2016,2019, our marketable securities consisted of foreign debt, foreign government obligations, U.S. debt, and time deposits, and our restricted investmentsmarketable securities consisted of foreign and U.S. government obligations. At September 30, 2017, our marketable securities also consisted of U.S. debt. We value our marketable securities and restricted investmentsmarketable securities using observable inputs that reflect quoted prices for securities with identical characteristics or quoted prices for securities with similar characteristics and other observable inputs (such as interest rates that are observable at commonly quoted intervals). Accordingly, we classify the valuation techniques that use these inputs as either Level 1 or Level 2 depending on the inputs used. We also consider the effect of our counterparties’ credit standing in these fair value measurements.


•Derivative Assets and Liabilities. At September 30, 2017March 31, 2020 and December 31, 2016,2019, our derivative assets and liabilities consisted of foreign exchange forward contracts involving major currencies. At September 30, 2017, our derivative assetscurrencies and liabilities also consisted of various interest rate swap contracts involving major interest rates. Since our derivative assets and liabilities are not traded on an exchange, we value them using standard industry valuation models. As applicable, these models project future cash flows and discount the amounts to a present value using market-based observable inputs, including interest rate curves, credit risk, foreign exchange rates, and forward and spot prices for currencies. These inputs are observable in active markets over the contract term of the derivative instruments we hold, and accordingly, we classify the valuation techniques as Level 2. In evaluating credit risk, we consider the effect of our counterparties’ and our own credit standing in the fair value measurements of our derivative assets and liabilities, respectively.



At September 30, 2017March 31, 2020 and December 31, 2016,2019, the fair value measurements of our assets and liabilities that we measuremeasured on a recurring basis were as follows (in thousands):
  Fair Value Measurements at Reporting
Date Using
 
 
 
 
 
 		March 31,
2020		Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)		Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Assets:
Cash equivalents:
Money market funds$341  $341  $—  $—  
Marketable securities:
Foreign debt292,569  —  292,569  —  
U.S. debt54,567  —  54,567  —  
Time deposits232,204  232,204  —  —  
Restricted marketable securities246,410  —  246,410  —  
Derivative assets3,592  —  3,592  —  
Total assets$829,683  $232,545  $597,138  $—  
Liabilities:
Derivative liabilities$11,156  $—  $11,156  $—  

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 September 30, 2017
   
Fair Value Measurements at Reporting
Date Using
  Fair Value Measurements at Reporting
Date Using
 
Total Fair
Value and
Carrying
Value on
Balance Sheet
 
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
 
Significant
Unobservable
Inputs
(Level 3)




December 31,
2019		Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)		Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Assets:        Assets:    
Cash equivalents:        Cash equivalents:
Money market funds $50,255
 $50,255
 $—
 $—
Money market funds$7,322  $7,322  $—  $—  
Marketable securities:        Marketable securities:
Foreign debt 172,249
 —
 172,249
 —
Foreign debt387,820  —  387,820  —  
Foreign government obligations 198,307
 —
 198,307
 —
Foreign government obligations22,011  —  22,011  —  
U.S. debt 73,988
 —
 73,988
 —
U.S. debt66,134  —  66,134  —  
Time deposits 255,000
 255,000
 —
 —
Time deposits335,541  335,541  —  —  
Restricted investments 365,022
 —
 365,022
 —
Restricted marketable securitiesRestricted marketable securities223,785  —  223,785  —  
Derivative assets 9,644
 —
 9,644
 —
Derivative assets1,338  —  1,338  —  
Total assets $1,124,465
 $305,255
 $819,210
 $—
Total assets$1,043,951  $342,863  $701,088  $—  
Liabilities:        Liabilities:
Derivative liabilities $25,548
 $—
 $25,548
 $—
Derivative liabilities$10,021  $—  $10,021  $—  
  December 31, 2016
    
Fair Value Measurements at Reporting
Date Using
 
 
 
 
 
 
 
Total Fair
Value and
Carrying
Value on
Balance Sheet
 
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
 
Significant
Unobservable
Inputs
(Level 3)
Assets:        
Marketable securities:        
Foreign debt $296,819
 $—
 $296,819
 $—
Foreign government obligations 271,172
 —
 271,172
 —
Time deposits 40,000
 40,000
 —
 —
Restricted investments 339,926
 —
 339,926
 —
Derivative assets 6,078
 —
 6,078
 —
Total assets $953,995
 $40,000
 $913,995
 $—
Liabilities:        
Derivative liabilities $7,086
 $—
 $7,086
 $—



Fair Value of Financial Instruments


TheAt March 31, 2020 and December 31, 2019, the carrying values and fair values of our financial and derivative instruments not measured at September 30, 2017 and December 31, 2016fair value were as follows (in thousands):
 March 31, 2020December 31, 2019
 
 		Carrying
Value		Fair
Value		Carrying
Value		Fair
Value
Assets:    
Notes receivable – current (1)$—  $—  $23,873  $24,929  
Notes receivable – noncurrent (1)8,071  8,699  8,194  10,276  
Liabilities:
Long-term debt, including current maturities (2)$483,395  $458,336  $482,892  $504,213  
  September 30, 2017 December 31, 2016
 
 
 
Carrying
Value
 
Fair
Value
 
Carrying
Value
 
Fair
Value
Assets:        
Marketable securities $699,544
 $699,544
 $607,991
 $607,991
Foreign exchange forward contract assets 9,644
 9,644
 6,078
 6,078
Restricted investments 365,022
 365,022
 339,926
 339,926
Note receivable – noncurrent 8,258
 8,311
 7,385
 7,493
Note receivable, affiliate – current —
 —
 15,000
 16,946
Notes receivable, affiliates – noncurrent 69,432
 71,116
 54,737
 53,586
Liabilities:        
Long-term debt, including current maturities (1) $356,735
 $365,955
 $196,691
 $195,160
Interest rate swap contract liabilities 5,515
 5,515
 —
 —
Foreign exchange forward contract liabilities 20,033
 20,033
 7,086
 7,086
——————————

(1)See Note 5. “Consolidated Balance Sheet Details” for further information about the allowance for credit losses for our notes receivable.
(1)Excludes capital lease obligations and unamortized discounts and issuance costs.


(2)Excludes unamortized discounts and issuance costs.

The carrying values in our condensed consolidated balance sheets of our cash and cash equivalents, trade accounts receivable, unbilled accounts receivable and retainage, restricted cash, accounts payable, income taxes payable, and accrued expenses approximated their fair values due to their nature and relatively short maturities; therefore, we excluded them from the foregoing table. We estimated theThe fair value ofmeasurements for our notes receivable and long-term debt using a discounted cash flow approach (an income approach) based on observable market inputs. We incorporated the credit risk of our counterparty for all asset fair value measurements and our own credit risk for all liability fair value measurements. Such fair value measurements are considered Level 2 measurements under the fair value hierarchy.


Credit Risk


We have certain financial and derivative instruments that subject us to credit risk. These consist primarily of cash, cash equivalents, marketable securities, trade accounts receivable, restricted cash, and investments,restricted marketable securities, notes receivable, and foreign exchange forward contracts. We are exposed to credit losses in the event of nonperformance by the counterparties to our financial and derivative instruments. We place cash, cash equivalents, marketable
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securities, restricted cash and investments,marketable securities, and foreign exchange forward contracts with various high-quality financial institutions and limit the amount of credit risk from any one counterparty. We continuously evaluate the credit standing of our counterparty financial institutions. Our net sales are primarily concentrated among a limited number of customers. We monitor the financial condition of our customers and perform credit evaluations whenever considered necessary. Depending upon the sales arrangement, we may require some form of payment security from our customers, including advance payments, parent guarantees, letters of credit, bank guarantees, or parent guarantees.


11. Investments in Unconsolidated Affiliates and Joint Ventures

We have joint ventures or other strategic arrangements with partners in several markets, which are generally used to expedite our penetration of those markets and establish relationships with potential customers.surety bonds. We also enter into joint ventures or strategic arrangements with customers or other entitieshave power purchase agreements (“PPAs”) that subject us to maximize the value of particular projects. Some of these arrangements involve and are expectedcredit risk in the futureevent our off-take counterparties are unable to involve significant investments or other allocations of capital. Investments in unconsolidated entities forfulfill their contractual obligations, which we have significant influence, but not control, over the entities’ operating and financial activities are accounted for under the equity method of accounting. Investments in unconsolidated entities for which we do not have the ability to exert such significant influence are accounted for under the cost method of accounting. The following table summarizesmay adversely affect our equity and cost method investments as of September 30, 2017 and December 31, 2016 (in thousands):
  September 30,
2017		 December 31,
2016
Equity method investments $225,388
 $232,337
Cost method investments 2,273
 2,273
Investments in unconsolidated affiliates and joint ventures $227,661
 $234,610

8point3 Energy Partners LP

In June 2015, 8point3 Energy Partners LP (the “Partnership”), a limited partnership formed by First Solar and SunPower Corporation (the “Sponsors”), completed its initial public offering (the “IPO”) pursuant to a Registration Statement on Form S-1, as amended. As part of the IPO, the Sponsors contributed interests in various projects to 8point3 Operating Company, LLC (“OpCo”) in exchange for voting and economic interests in the entity, and the Partnership acquired an economic interest in OpCo using proceeds from the IPO. Since the formation of the Partnership, the Sponsors have, from time to time, continued to sell interests in solar projects to the Partnership, which owns and operates such portfolio of solar energy generation projects. In April 2017, we announced that we were reviewing alternatives for the sale of our interests in the Partnership.

As of September 30, 2017, we owned an aggregate of 22,116,925 Class B shares representing a 28% voting interest in the Partnership, and an aggregate of 6,721,810 common units and 15,395,115 subordinated units in OpCo together representing a 28% limited liability company interest in the entity. Future quarterly distributions from OpCo are subject to a subordination period in which holders of the subordinated units are not entitled to receive any distributions until the common units have received their minimum quarterly distribution plus any arrearages in the payment of minimum distributions from prior quarters. The subordination period will end after OpCo has earned and paid minimum quarterly distributions for three years ending on or after August 31, 2018 and there are no outstanding arrearages on common units. Notwithstanding the foregoing, the subordination period could end early if OpCo has earned and paid 150% of minimum quarterly distributions, plus the related distributions to incentive distribution right holders, for one year and there are no outstanding arrearages on common units. At the end of the subordination period, all subordinated units will convert to common units on a one-for-one basis. During the nine months ended September 30, 2017, we received distributions from OpCo of $17.0 million. We also hold certain incentive distribution rights in OpCo, which represent a right to incremental distributions after certain distribution thresholds are met.

The Partnership is managed and controlled by its general partner, 8point3 General Partner, LLC (“General Partner”), and we account for our interest in OpCo, a subsidiary of the Partnership, under the equity method of accounting as we are able to exercise significant influence over the Partnership due to our representation on the board of directors of its General Partnerproject assets and certain receivables. Accordingly, we closely monitor the credit standing of our associates serving as officers of its General Partner. Under the equity method of accounting, we recognize equity in earnings for our proportionate share of OpCo’s net income or loss, including adjustments for the amortization of a $40.9 million remaining basis difference, which resulted from the cost of our investment differing from our proportionate share of OpCo’s equity. During the threeexisting and nine months ended September 30, 2017, we recognized equity in earnings, net of tax, of $6.3 million and $10.1 million, respectively, from our investment in OpCo. During the three and nine months ended September 30, 2016, we recognized equity in earnings, net of tax, of $8.6 million and $26.0 million, respectively, from our investment in OpCo. As of September 30, 2017 and December 31, 2016, the carrying value of our investment in OpCo was $206.0 million and $206.8 million, respectively.potential off-take counterparties to limit such risks.


In connection with the IPO, we also entered into an agreement with a subsidiary of the Partnership to lease back one of our originally contributed projects, Maryland Solar, until December 31, 2019. Under the terms of the agreement, we make fixed rent payments to the Partnership’s subsidiary and are entitled to all of the energy generated by the project. Due to our continuing involvement with the project, we account for the leaseback agreement as a financing transaction. As of September 30, 2017 and December 31, 2016, our financing obligation associated with the leaseback was $35.6 million and $38.5 million, respectively.


In December 2016, we completed the sale of our remaining 34% interest in the 300 MW Desert Stateline project located in San Bernardino County, California to OpCo for aggregate consideration of $329.5 million, including a $50.0 million promissory note. The promissory note is unsecured and matures in December 2020. The promissory note bears interest at 4% per annum, which rate may increase to 6% per annum (i) upon the occurrence and during the continuation of a specified event of default and (ii) in respect of amounts accrued as payments-in-kind pursuant to the terms of such promissory note. Subject to certain conditions, OpCo may prepay the promissory note. Until OpCo has paid in full the principal and interest on the promissory note, OpCo is restricted in its ability to: (i) acquire interests in additional projects (other than the acquisition of the balance of the assets associated with a project located in Kern County, California); (ii) use the net proceeds of equity issuances except as prescribed in the promissory note; (iii) incur additional indebtedness to which the promissory note would be subordinate; and (iv) extend the maturity date under OpCo’s existing credit facility. As of September 30, 2017 and December 31, 2016, the balance outstanding on the promissory note was $49.6 million and $50.0 million, respectively.

We provide O&M services to certain of the Partnership’s partially owned project entities, including SG2 Holdings, LLC; Lost Hills Blackwell Holdings, LLC; NS Solar Holdings, LLC; Kingbird Solar A, LLC; Kingbird Solar B, LLC; and Desert Stateline LLC. During the three and nine months ended September 30, 2017, we recognized revenue of $2.9 million and $8.3 million, respectively, for such O&M services. During the three and nine months ended September 30, 2016, we recognized revenue of $1.3 million and $4.0 million, respectively, for such O&M services.

In June 2015, OpCo entered into a $525.0 million senior secured credit facility, consisting of a $300.0 million term loan facility, a $25.0 million delayed draw term loan facility, and a $200.0 million revolving credit facility (the “OpCo Credit Facility”). In September 2016, OpCo amended its senior secured credit facility to include an incremental $250.0 million term loan facility, which increased the maximum borrowing capacity under the OpCo Credit Facility to $775.0 million. The OpCo Credit Facility is secured, in part, by a pledge of the Sponsors’ equity interests in OpCo.

Clean Energy Collective, LLC

In November 2014, we entered into various agreements to purchase a minority ownership interest in Clean Energy Collective, LLC (“CEC”). This investment provided us with additional access to the distributed generation market and a partner to develop and market community solar offerings to North American residential customers and businesses directly on behalf of client utility companies. As part of the investment, we also received a warrant, valued at $1.8 million, to purchase additional ownership interests in CEC.

In addition to our equity investment, we also entered into a term loan agreement and a convertible loan agreement with CEC in November 2014 and February 2016, respectively. In August 2017, we amended the terms of the warrant and loan agreements to (i) fix the exercise price of the warrant at our initial investment price per unit, (ii) extend the maturity of the loans to November 2018, (iii) allow for the capitalization of certain accrued and future interest on the term loan, (iv) require mandatory prepayments on the term loan under certain conditions, and (v) fix the interest rate of the term loan at 16% per annum, payable semiannually. The interest rate of the convertible loan remained at 10% per annum, payable at maturity unless converted earlier pursuant to a qualified equity financing by CEC. As of September 30, 2017 and December 31, 2016, the balance outstanding on the term loan was $15.2 million and $15.0 million, respectively, and the balance outstanding on the convertible loan was $4.6 million.

CEC is considered a variable interest entity, or VIE, and our 26% ownership interest in and loans to the company are considered variable interests. We account for our investment in CEC under the equity method of accounting as we are not the primary beneficiary of the company given that we do not have the power to make decisions over the activities that most significantly impact the company’s economic performance. Under the equity method of accounting, we recognize equity in earnings for our proportionate share of CEC’s net income or loss including adjustments for the amortization of a basis difference resulting from the cost of our investment differing from our proportionate share of CEC’s equity. During the three and nine months ended September 30, 2017, we recognized losses, net of tax, of $0.5 million and $2.7 million, respectively, from our investment in CEC. During the three and nine months ended September 30, 2016, we recognized losses, net of tax, of $0.6 million and $2.9 million, respectively, from our investment in CEC. As of September 30, 2017 and December 31, 2016, the carrying value of our investment was $6.4 million and $10.5 million, respectively.


12.9. Debt


Our long-term debt consisted of the following at September 30, 2017March 31, 2020 and December 31, 20162019 (in thousands):
Balance (USD)
Loan AgreementCurrencyMarch 31,
2020		December 31,
2019
Revolving Credit FacilityUSD$—  $—  
Luz del Norte Credit FacilitiesUSD187,958  188,017  
Ishikawa Credit AgreementJPY217,811  215,879  
Japan Credit FacilityJPY1,693  1,678  
Tochigi Credit FacilityJPY37,638  37,304  
Anamizu Credit AgreementJPY12,246  12,138  
Anantapur Credit FacilityINR14,010  15,123  
Tungabhadra Credit FacilityINR12,039  12,753  
Long-term debt principal483,395  482,892  
Less: unamortized discounts and issuance costs(11,000) (11,195) 
Total long-term debt472,395  471,697  
Less: current portion(81,807) (17,510) 
Noncurrent portion$390,588  $454,187  
    Balance (USD)
Loan Agreement Loan Denomination September 30,
2017		 December 31,
2016
Revolving Credit Facility USD $—
 $—
Luz del Norte Credit Facilities USD 184,060
 180,939
Ishikawa Credit Agreement JPY 99,527
 —
Japan Credit Facility JPY 10,695
 9,477
Marikal and Mahabubnagar Credit Facilities INR 3,628
 4,067
Polepally Credit Facility INR 1,587
 2,208
Hindupur Credit Facility INR 18,551
 —
Manildra Credit Facility AUD 38,687
 —
Capital lease obligations Various 215
 562
Long-term debt principal   356,950
 197,253
Less: unamortized discounts and issuance costs   (13,290) (8,865)
Total long-term debt   343,660
 188,388
Less: current portion   (13,451) (27,966)
Noncurrent portion   $330,209
 $160,422


Revolving Credit Facility


In July 2017, weOur amended and restated our senior secured credit facility (the “Revolving Credit Facility”)agreement with several financial institutions as lenders and JPMorgan Chase Bank, N.A. as administrative agent. Such amendment and restatement extended the maturity of the prioragent provides us with a senior secured credit facility to July 2022 and reduced the(the “Revolving Credit Facility”) with an aggregate borrowing capacity under the facility toof $500.0 million, which we may increase to $750.0 million, subject to certain conditions. Borrowings under the amended and restatedcredit facility bear interest at (i) LIBOR,London Interbank Offered Rate (“LIBOR”), adjusted for Eurocurrency reserve requirements, plus a margin of 2.00% or (ii) a base rate as defined in the credit agreement plus a margin of 1.00% depending on the type of borrowing requested. These margins are also subject to adjustment depending on our consolidated leverage ratio. We had no0 borrowings under our Revolving Credit Facility as of September 30, 2017March 31, 2020 and December 31, 20162019 and had issued $131.4$14.2 million and $125.0$39.3 million, respectively, of letters of credit using availability under the facility. Loans and letters of credit issued under the Revolving Credit Facility are jointly and severally guaranteed by First Solar, Inc.; First Solar Electric, LLC; First Solar Electric (California), Inc.; and First Solar Development, LLC and are secured by interests in substantially all of the guarantors’ tangible and intangible assets other than certain excluded assets.


In addition to paying interest on outstanding principal under the Revolving Credit Facility, we are required to pay a commitment fee at a rate of 0.30% per annum, based on the average daily unused commitments under the facility, which may also be adjusted due to changes in our consolidated leverage ratio. We also pay a letter of credit fee based on the applicable margin for Eurocurrency revolving loans on the face amount of each letter of credit and a fronting fee of 0.125%. Our Revolving Credit Facility matures in July 2022.

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Luz del Norte Credit Facilities


In August 2014, Parque Solar Fotovoltaico Luz del Norte SpA (“Luz del Norte”), our indirect wholly-owned subsidiary and project company, entered into credit facilities (the “Luz del Norte Credit Facilities”) with the Overseas Private InvestmentU.S. International Development Finance Corporation (“OPIC”DFC”) and the International Finance Corporation (“IFC”) to provide limited-recourse senior secured debt financing for the design, development, financing, construction, testing, commissioning, operation, and maintenance of a 141 MWAC PV solar power plant located near Copiapó, Chile. At the same time, Luz del Norte also entered into a Chilean peso facility (“VAT facility” and together with the OPIC and IFC loans, the “Luz del Norte Credit Facilities”) with Banco de Crédito e Inversiones to fund Chilean value added tax associated with the construction of the Luz del Norte project. In March 2017, we repaid the remaining balance on the VAT facility. As of December 31, 2016, the balance outstanding on the VAT facility was $13.7 million.



In March 2017, we amended the terms of the OPICDFC and IFC credit facilities. Such amendments (i) allowed for the capitalization of accrued and unpaid interest through March 15, 2017, along with the capitalization of certain future interest payments as variable rate loans under the credit facilities, (ii) allowed for the conversion of certain fixed rate loans to variable rate loans upon scheduled repayment, (iii) extended the maturity of the OPICDFC and IFC loans until June 2037, and (iv) canceled the remaining borrowing capacity under the OPICDFC and IFC credit facilities with the exception of the capitalization of certain future interest payments. As of September 30, 2017March 31, 2020 and December 31, 2016,2019, the balance outstanding on the OPICDFC loans was $137.8 million and $125.1 million, respectively.$140.8 million. As of September 30, 2017March 31, 2020 and December 31, 2016,2019, the balance outstanding on the IFC loans was $46.2 million and $42.2 million, respectively.$47.2 million. The OPICDFC and IFC loans are secured by liens over all of Luz del Norte’s assets which had an aggregate book value of $332.9 million, including intercompany charges, as of September 30, 2017 and by a pledge of all of the equity interests in the entity.


Ishikawa Credit Agreement


In December 2016, FS Japan Project 12 GK (“Ishikawa”), our indirect wholly-owned subsidiary and project company, entered into a credit agreement (the “Ishikawa Credit Agreement”) with Mizuho Bank, Ltd. for aggregate borrowings of up to ¥27.3 billion ($242.3233.9 million) for the development and construction of a 59 MWAC PV solar power plant located in Ishikawa, Japan. The credit agreement consists of a ¥24.0 billion ($213.0205.6 million) senior loan facility, a ¥2.1 billion ($18.618.0 million) consumption tax facility, and a ¥1.2 billion ($10.710.3 million) letter of credit facility. The senior loan facility matures in October 2036, and the consumption tax facility matures in April 2020. The credit agreement is secured by pledges of Ishikawa’s assets, accounts, material project documents, and by the equity interests in the entity. As of September 30, 2017,March 31, 2020 and December 31, 2019, the balance outstanding on the credit agreement was $99.5 million.$217.8 million and $215.9 million, respectively.


Japan Credit Facility


In September 2015, First Solar Japan GK, our wholly-owned subsidiary, entered into a construction loan facility with Mizuho Bank, Ltd. for borrowings up to ¥4.0 billion ($35.533.4 million) for the development and construction of utility-scale PV solar power plants in Japan (the “Japan Credit Facility”). In September 2017, First Solar Japan GK renewedBorrowings under the facility generally mature within 12 months following the completion of construction activities for an additional one-year period until September 2018.each financed project. The facility is guaranteed by First Solar, Inc. and secured by pledges of certain projects’ cash accounts and other rights in the projects. As of September 30, 2017March 31, 2020 and December 31, 2016,2019, the balance outstanding on the facility was $10.7 million and $9.5 million, respectively.$1.7 million.


Tochigi Credit Facility


In June 2017, First Solar Japan GK, our wholly-owned subsidiary, entered into a term loan facility with Mizuho Bank, Ltd. for borrowings up to ¥7.0 billion ($62.162.2 million) for the development of utility-scale PV solar power plants in Japan (the “Tochigi Credit Facility”). The majority of the facility is available to be drawn by or before November 2018, and the aggregate term loan facility matures in March 2021. The facility is guaranteed by First Solar, Inc. and secured by pledges of certain of First Solar Japan GK’s accounts. As of September 30, 2017, there was noMarch 31, 2020 and December 31, 2019, the balance outstanding on the term loan facility.facility was $37.6 million and $37.3 million, respectively.


Marikal and Mahabubnagar
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Anamizu Credit FacilitiesAgreement


In March 2015, Marikal Solar Parks Private Limited and Mahabubnagar Solar Parks Private Limited,December 2019, FS Japan Project 31 GK (“Anamizu”), our indirect wholly-owned subsidiariessubsidiary and project companies,company, entered into term loan facilitiesa credit agreement (the “Marikal and Mahabubnagar“Anamizu Credit Facilities”Agreement”) with AxisMUFG Bank, as administrative agentLtd.; The Iyo Bank, Ltd.; The Hachijuni Bank, Ltd.; The Hyakugo Bank, Ltd.; and The Yamagata Bank, Ltd. for combined aggregate borrowings up to INR 1.1¥7.7 billion ($16.970.8 million) for the development and construction of two 10a 17 MWAC PV solar power plantsplant located in Telangana, India.Ishikawa, Japan. The credit agreement consists of a ¥6.6 billion ($61.0 million) term loan facility, a ¥0.7 billion ($6.5 million) consumption tax facility, and a ¥0.4 billion ($3.3 million) debt service reserve facility. The term loan facilities have a combined letter offacility matures in September 2038, the consumption tax facility matures in November 2022, and the debt service reserve facility matures in March 2038. The credit sub-limit of INR 0.8 billion ($12.3 million), which may also be used to support construction activities. As of September 30, 2017 and December 31, 2016, we had issued INR 0.8 billion ($12.3 million) and INR 0.8 billion ($11.2 million), respectively, of letters of credit under the term loan facilities. The term loan facilities mature in December 2028 and areagreement is secured by certainpledges of Anamizu’s assets, of the borrowers, which had an aggregate book value of $99.5 million, including intercompany charges, as of September 30, 2017accounts, material project documents, and by a pledge of a portion of the equity interests in the borrowers. In addition, the Marikal term loan facility is guaranteed by First Solar, Inc. until certain conditions are met, including the repayment of an intercompany loan to the project company.entity. As of September 30, 2017March 31, 2020 and December 31, 2016,2019, the balance outstanding on the term loan facilitiescredit agreement was $3.6$12.2 million and $4.1$12.1 million, respectively.



PolepallyAnantapur Credit Facility


In March 2016, Polepally2018, Anantapur Solar Parks Private Limited, our indirect wholly-owned subsidiary and project company, entered into a term loan facility (the “Polepally“Anantapur Credit Facility”) with Axis Bank as administrative agentJ.P. Morgan Securities India Private Limited for borrowings up to INR 1.31.2 billion ($19.918.4 million) for costs related to a 2520 MWAC PV solar power plant located in Telangana,Karnataka, India. The term loan facility has a letter of credit sub-limit of INR 1.1 billion ($16.9 million), which may also be used for project related costs. As of September 30, 2017 and December 31, 2016, we had issued INR 1.0 billion ($15.3 million) and INR 1.0 billion ($15.3 million), respectively, of letters of credit under the term loan facility. The term loan facility matures in September 2029February 2021 and is secured by certain assetsa letter of credit issued by JPMorgan Chase Bank, N.A., Singapore, in favor of the borrower, which had an aggregate book valuelender. Such letter of $32.8 million, including intercompany charges, as of September 30, 2017 andcredit is secured by a pledge of a portion of the equity interests in the borrower. In addition, the term loan facility is guaranteedcash deposit placed by First Solar Inc. until certain conditions are met, including the achievement of commercial operations by the plant and various other compliance and performance metrics.FE Holdings Pte. Ltd. As of September 30, 2017March 31, 2020 and December 31, 2016,2019, the balance outstanding on the term loan facility was $1.6$14.0 million and $2.2$15.1 million, respectively.


HindupurTungabhadra Credit Facility


In November 2016, HindupurMarch 2018, Tungabhadra Solar Parks Private Limited, our indirect wholly-owned subsidiary and project company, entered into a term loan facility (the “Hindupur“Tungabhadra Credit Facility”) with Yes BankJ.P. Morgan Securities India Private Limited for borrowings up to INR 4.31.0 billion ($65.915.3 million) for costs related to an 80a 20 MW portfolio ofAC PV solar power plantsplant located in Andhra Pradesh,Karnataka, India. The term loan facility has a letter of credit sub-limit of INR 3.2 billion ($49.0 million), which may also be used for project related costs. As of September 30, 2017, we had issued INR 2.9 billion ($44.4 million) of letters of credit under the term loan facility. The term loan facility matures in December 2030February 2021 and is secured by certain assetsa letter of credit issued by JPMorgan Chase Bank, N.A., Singapore, in favor of the borrower, which had an aggregate book valuelender. Such letter of $99.7 million, including intercompany charges, as of September 30, 2017 andcredit is secured by a pledge of a portion of the equity interests in the borrower. In addition, the term loan facility is guaranteedcash deposit placed by First Solar Inc. until certain conditions are met, including the achievement of commercial operations by the plants and various other compliance and performance metrics.FE Holdings Pte. Ltd. As of September 30, 2017,March 31, 2020 and December 31, 2019, the balance outstanding on the term loan facility was $18.6 million.$12.0 million and $12.8 million, respectively.


Manildra Credit Facility
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In March 2017, Manildra Finco Pty Ltd, our indirect wholly-owned subsidiary and project financing company, entered into a term loan agreement (the “Manildra Credit Facility”) with Société Générale S.A. and The BankTable of Tokyo-Mitsubishi UFJ, Ltd. for borrowings up to AUD 81.7 million ($63.9 million) for costs related to a 49 MW PV solar power plant located in New South Wales, Australia. The credit facility consists of an AUD 75.7 million ($59.2 million) construction loan facility and an additional AUD 6.0 million ($4.7 million) goods and service tax facility (“GST facility”) to fund certain taxes associated with the construction of the associated project. Upon completion of the project’s construction, the construction loan facility will convert to a term loan facility, which matures in March 2022. The GST facility matures in March 2019. The credit facility is secured by pledges of the borrower’s assets, accounts, material project documents, and by the equity interests in the entity. As of September 30, 2017, the balance outstanding on the term loan facility was $38.7 million.Contents

Variable Interest Rate Risk


Certain of our long-term debt agreements bear interest at prime, LIBOR, TIBOR, Bank Bill Swap Bid Rate (“BBSY”),BBSY, or equivalent variable rates. A disruption of the credit environment, as previously experienced, could negatively impact interbank lending and, therefore, negatively impact these floating rates. An increase in prime, LIBOR, TIBOR, BBSY, or equivalentthese variable rates would increase the cost of borrowing under our Revolving Credit Facility and certain project specific debt financings.


Our long-term debt borrowing rates as of September 30, 2017March 31, 2020 were as follows:
Loan AgreementSeptember 30, 2017March 31, 2020
Revolving Credit Facility3.22%2.99%
Luz del Norte Credit Facilities (1)Fixed rate loans at bank rate plus 3.50%
Variable rate loans at 91-Day U.S. Treasury Bill Yield or LIBOR plus 3.50%
Ishikawa Credit AgreementSenior loan facility at 6-month TIBOR plus 0.75% (2)
Consumption tax facility at 3-month TIBOR plus 0.5%
Japan Credit Facility1-month TIBOR plus 0.5%0.55%
Tochigi Credit Facility3-month TIBOR plus 1.0%
Marikal and MahabubnagarAnamizu Credit FacilitiesAgreementBank rate plus 2.35%
Polepally Credit FacilityBank rate plus 2.35%
Hindupur Credit FacilityBank rate plus 1.0%
Manildra Credit FacilityConstructionTerm loan facility at 1-month BBSY6-month TIBOR plus 1.70%0.70% (2)
GSTConsumption tax facility at 1-month BBSY3-month TIBOR plus 1.60%0.5%
Capital lease obligationsVariousDebt service reserve facility at 6-month TIBOR plus 1.20%
Anantapur Credit FacilityINR overnight indexed swap rate plus 1.5%
Tungabhadra Credit FacilityINR overnight indexed swap rate plus 1.5%

——————————
(1)
Outstanding balance comprised of $166.0 million of fixed rate loans and $18.0 million of variable rate loans as of September 30, 2017.

(1)Outstanding balance comprised of $152.2 million of fixed rate loans and $35.8 million of variable rate loans as of March 31, 2020.
(2)We have entered into interest rate swap contracts to hedge portions of these variable rates. See Note 9. “Derivative Financial Instruments” to our condensed consolidated financial statements for additional information.


(2)We have entered into interest rate swap contracts to hedge portions of these variable rates. See Note 6. “Derivative Financial Instruments” to our condensed consolidated financial statements for additional information.

Future Principal Payments


At September 30, 2017,March 31, 2020, the future principal payments on our long-term debt excluding payments related to capital leases, were due as follows (in thousands):
Total Debt
Remainder of 2020$17,767  
202177,917  
202219,401  
202318,393  
202419,321  
Thereafter330,596  
Total long-term debt future principal payments$483,395  

  Total Debt
Remainder of 2017 $11,327
2018 2,622
2019 10,349
2020 17,216
2021 9,284
Thereafter 305,937
Total long-term debt future principal payments $356,735

13.10. Commitments and Contingencies


Commercial Commitments


During the normal course of business, we enter into commercial commitments in the form of letters of credit, bank guarantees, and surety bonds to provide financial and performance assurance to third parties. Our amended and restated Revolving Credit Facility providedprovides us with a sub-limit of $400.0 million to issue letters of credit, subject to certain additional limits depending on the currencies of the letters of credit, at a fee based on the applicable margin for Eurocurrency revolving loans and a fronting fee. As of September 30, 2017,March 31, 2020, we had $131.4$14.2 million in letters of credit issued under our Revolving Credit Facility, leaving $268.6$385.8 million of availability for the issuance of additional letters of credit. The majority of these letters of credit supported our systems business projects. As of September 30, 2017,March 31, 2020, we also had $1.8$9.9 million of bank guarantees and letters of credit under separate agreements that
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were posted by certain of our foreign subsidiaries $185.5and $148.8 million of letters of credit issued under twothree bilateral facilities, of which $5.1$30.0 million was secured with cash, leaving $614.9 million of aggregate available capacity under such agreements and $258.1facilities. We also had $89.0 million of surety bonds outstanding, primarily for our systems business projects. Theleaving $626.4 million of available bonding capacity under our surety lines was $460.2 million as of September 30, 2017.


In addition to the commercial commitments noted above, we also have certain commercialMarch 31, 2020. The majority of these letters of credit also known as letters of undertaking, which have been issued underand surety bonds supported our Marikal and Mahabubnagar Credit Facilities, Polepally Credit Facility, and Hindupur Credit Facility as discussed in Note 12. “Debt” to our condensed consolidated financial statements. Such commercial letters of credit represent conditional commitments on the part of the issuing financial institution to provide payment to third-party beneficiaries on amounts drawn in accordance with the terms of the individual documents. As part of the financing of the associated systems business projects, we presented these commercial letters of credit to other financial institutions, whereby we received immediate funding and the other financial institutions agreed to draw upon such letters at a future date. At the time of draw, the balance of the commercial letters of credit will be included in the balance outstanding of the respective credit facility. In the periods between the receipt of cash and the subsequent draw on the commercial letters of credit, we accrue interest on the balance or otherwise accrete any discounted value of the letters to their face value and record such amounts as “Interest expense, net” on our condensed consolidated statement of operations. As of September 30, 2017 and December 31, 2016, we accrued $70.0 million and $26.6 million, respectively, for contingent obligations associated with such commercial letters of credit. These amounts were classified as “Other liabilities” on our condensed consolidated balance sheets to align with the timing in which we expect to settle such obligations as payments under the associated credit facilities.projects.


Product Warranties


When we recognize revenue for module or system sales, we accrue liabilities for the estimated future costs of meeting our limited warranty obligations for both modules and the balance of the systems. We make and revise these estimates based primarily on the number of our solar modules under warranty installed at customer locations, our historical experience with and projections of warranty claims, our monitoring of field installation sites, our internal testing and the expected future performance of our solar modules and BoS components, and our estimated per-module replacement costs. We also monitor our expected future module performance through certain quality and reliability testing and actual performance in certain field installation sites. From time to time, we have taken remediation actions with respect to affected modules beyond our limited warranties and may elect to do so in the future, in which case we would incur additional expenses. Such potential voluntary future remediation actions beyond our limited warranty obligations couldmay be material to our condensed consolidated statements of operations if we commit to any such remediation actions.


Product warranty activities during the three and nine months ended September 30, 2017March 31, 2020 and 20162019 were as follows (in thousands):
Three Months Ended
March 31,
 20202019
Product warranty liability, beginning of period$129,797  $220,692  
Accruals for new warranties issued2,285  5,116  
Settlements(6,562) (3,078) 
Changes in estimate of product warranty liability(1,019) (5,489) 
Product warranty liability, end of period$124,501  $217,241  
Current portion of warranty liability$20,399  $31,013  
Noncurrent portion of warranty liability$104,102  $186,228  
  Three Months Ended
September 30,		 Nine Months Ended
September 30,
  2017 2016 2017 2016
Product warranty liability, beginning of period $239,701
 $250,371
 $252,408
 $231,751
Accruals for new warranties issued 8,048
 6,158
 18,334
 26,854
Settlements (2,867) (2,814) (6,783) (9,246)
Changes in estimate of product warranty liability (1,188) 1,169
 (20,265) 5,525
Product warranty liability, end of period $243,694
 $254,884
 $243,694
 $254,884
Current portion of warranty liability $31,016
 $37,552
 $31,016
 $37,552
Noncurrent portion of warranty liability $212,678
 $217,332
 $212,678
 $217,332


We estimate our limited product warranty liability for power output and defects in materials and workmanship under normal use and service conditions based on warranty return rates of approximately 1% to 3% for modules covered under warranty, depending on theeach series of module technology. In general, we expect the return rates for our newer series of module technology to be lower than our older series. We estimate that the return rate for such newer series of module technology will be less than 1%. As of September 30, 2017,March 31, 2020, a 1% changeincrease in estimated warrantythe return ratesrate across all series of module technology would changeincrease our moduleproduct warranty liability by $74.5$94.5 million, and a 1% changeincrease in the estimated warranty return rate for BoS componentsbalance of systems (“BoS”) parts would not have a material impact on the associated warranty liability.


Performance Guarantees


As part of our systems business, we conduct performance testing of a system prior to substantial completion to confirm the system meets its operational and capacity expectations noted in the EPCengineering, procurement, and construction (“EPC”) agreement. In addition, we may provide an energy performance test during the first or second year of a system’s operation to demonstrate that the actual energy generation for the applicable yearperiod meets or exceeds the modeled energy expectation, after certain adjustments. If there is an underperformance event with regards to these tests, we may incur liquidated damages as a percentage ofspecified in the EPC contract price.agreement. In certain instances, a bonus payment may be received at the end of the applicable test period if the system performs above a specified level. As of September 30, 2017March 31, 2020 and December 31, 2016,2019, we accrued $1.9$5.1 million and $6.3$4.6 million, respectively, offor our estimated obligations under such arrangements, which were classified as “Other current liabilities” in our condensed consolidated balance sheets.

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As part of our operations and maintenance (“O&M&M”) service offerings, we typically offer an effective availability guarantee, which stipulates that a system will be available to generate a certain percentage of total possible energy during a specific period after adjusting for factors outside of our control as the service provider, such as weather, curtailment, outages, force majeure, and other conditions that may affect system availability. Effective availability guarantees are only offered as part of our O&M services and terminate at the end of an O&M arrangement. If we fail to meet the contractual threshold for these guarantees, we may incur liquidated damages for certain lost energy under the PPA.energy. Our O&M agreements typically contain provisions limiting our total potential losses under an agreement, including amounts paid for liquidated damages, to a percentage of O&M fees. Many of our O&M agreements also contain provisions whereby we may receive a bonus payment if system availability exceeds a separate threshold. As of September 30, 2017March 31, 2020 and December 31, 2016,2019, we did not accrue any estimated obligationsaccrued $0.5 million and $0.6 million, respectively, of liquidated damages under our effective availability guarantees.guarantees, which were classified as “Other current liabilities” in our condensed consolidated balance sheets.


Indemnifications


In certain limited circumstances, we have provided indemnifications to customers, including project tax equity investors, under which we are contractually obligated to compensate such parties for losses they suffer resulting from a breach of a representation, warranty, or covenant or a reduction in tax benefits received, including investment tax credits. Project related tax benefits are, in part, based on guidance provided by the Internal Revenue Service and U.S. Treasury Department, which includes assumptions regarding the fair value of qualifying PV solar power systems. For any sales contracts that have such indemnification provisions, we initially recognize a liability under ASC 460 Guarantees, for the estimated premium that would be required by a guarantor to issue the same indemnity in a standalone arm’s-length transaction with an unrelated party. We recognize such liabilities at the greater of the fair value of the indemnity or the contingent liability required to be recognized under ASC 450, Contingencies, and reduce the revenue recognized in the related transaction.

As applicable, we initially estimate the fair value of any such indemnities provided basedtypically base these estimates on the cost of insurance policies that cover the underlying risks being indemnified and may purchase such policies to mitigate our exposure to potential indemnification payments. We subsequently measure such liabilities at the greater of the initially estimated premium or the contingent liability required to be recognized under ASC 450. We recognize any indemnification liabilities as a reduction of revenue in the related transaction.

After an indemnification liability is recorded, we derecognize such amount pursuant to ASC 460-10-35-2 depending on the nature of the indemnity, which derecognition typically occurs upon expiration or settlement of the arrangement, and any contingent aspects of the indemnity are accounted for in accordance with ASC 450. Changes to any such indemnification liabilities provided are recorded as adjustments to revenue. In September 2017, we paid $100.0 million to a purchaser of one of our projects pursuant to an indemnification provision following the underpayment of anticipated cash grants for the project. As of September 30, 2017 and December 31, 2016, weWe accrued $2.8 million and $100.0$0.8 million of current indemnification liabilities respectively,as of December 31, 2019 and $4.9 million and $1.9$4.2 million of noncurrent indemnification liabilities respectively, for tax related indemnifications.as of March 31, 2020 and December 31, 2019. As of September 30, 2017,March 31, 2020, the maximum potential amount of future payments under our tax related and other indemnifications was $181.8$152.8 million, and we held insurance policies allowing us to recover up to $60.3$84.9 million of potential amounts paid under the indemnifications covered by the policies.


Contingent Consideration

As part of our Enki acquisition in October 2016, we agreed to pay additional consideration of up to $7.0 million to the selling shareholders contingent upon the achievement of certain production and module performance milestones. See Note 5. “Business Acquisitions” to our condensed consolidated financial statements for further discussion of this acquisition. As of September 30, 2017, we recorded $5.3 million of current liabilities for our contingent obligations associated with the Enki acquisition based on their estimated fair values and the expected timing of payment. As of December 31, 2016, we recorded $7.0 million of long-term liabilities for such obligations.


We continuallymay seek to make additions to our advanced-stage project pipeline by actively developing our early-to-mid-stage project pipeline and by pursuing opportunities to acquire projects at various stages of development. In connection with such project acquisitions, we may agree to pay additional amounts to project sellers upon the achievement of certain milestones, such as obtaining a PPA, obtaining financing, or selling the project to a new owner. We recognize a project acquisition contingent liability when we determine that such a liability is both probable and reasonably estimable, and the carrying amount of the related project asset is correspondingly increased. As of September 30, 2017March 31, 2020 and December 31, 2016,2019, we recorded $3.9accrued $0.2 million and $19.6$2.4 million of current liabilities, respectively, and $3.1 million and $3.5$4.5 million of long-term liabilities respectively, for suchproject related contingent obligations. Any future differences between the acquisition-date contingent obligation estimate and the ultimate settlement of the obligation are recognized as an adjustment to the project asset, as contingent payments are considered direct and incremental to the underlying value of the related project.



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Solar Module Collection and Recycling Liability


We voluntarilypreviously established a module collection and recycling program, which has since been discontinued, to collect and recycle modules sold and covered under such program once the modules reach the end of their usefulservice lives. For legacy customer sales contracts that include moduleswere covered under this program, we agreeagreed to pay the costs for the collection and recycling of qualifying solar modules, and the end-users agreeagreed to notify us, disassemble their solar power systems, package the solar modules for shipment, and revert ownership rights over the modules back to us at the end of the modules’ service lives. Accordingly, we record ourrecorded any collection and recycling obligations within “Cost of sales” at the time of sale based on the estimated cost to collect and recycle the covered solar modules. During the three and nine months ended September 30, 2017 and 2016, substantially all of our modules sold were not covered by our collection and recycling program.


We estimate the cost of our collection and recycling obligations based on the present value of the expected probability-weighted future cost of collecting and recycling the solar modules, which includes estimates for the cost of packaging materials; the cost of freight from the solar module installation sites to a recycling center; material, labor, and capital costs; by-product credits for certain materials recovered during the scale of recycling centers;process; and an estimated third-party profit margin and return on risk for collection and recycling services. We base these estimates on (i) our experience collecting and recycling our solar modules (ii) the expected timing of when our solar modules will be returned for recycling, and (iii) the expected economic conditionscertain assumptions regarding costs at the time the solar modules will be collected and recycled. In the periods between the time of sale and the related settlement of the collection and recycling obligation, we accrete the carrying amount of the associated liability by applying the discount rate used for its initial measurement. We classify accretion as an operating expense within “Selling, general and administrative” expense on our condensed consolidated statements of operations.


We periodically review our estimates of expected future recycling costs and may adjust our liability accordingly. During the three months ended September 30, 2017, we completed our annual cost study of obligations under our module collection and recycling program and reduced our associated liability by $15.8 million as a result of updates to several valuation assumptions, including a decrease in certain inflation rates. Our module collection and recycling liability was $163.7$138.0 million and $166.3$137.8 million as of September 30, 2017March 31, 2020 and December 31, 2016,2019, respectively. As of September 30, 2017,March 31, 2020, a 1% increase in the annualized inflation rate used in our estimated future collection and recycling cost per module would increase ourthe liability by $32.9$25.4 million, and a 1% decrease in that rate would decrease ourthe liability by $27.6$22.3 million.

See Note 7.4. “Restricted Cash and Investments”Marketable Securities” to our condensed consolidated financial statements for more information about our arrangements for funding this liability.


Legal Proceedings

We are party to legal matters and claims in the normal course of our operations. While we believe that the ultimate outcome of these matters will not have a material adverse effect on our financial position, results of operations, or cash flows, the outcome of these matters is not determinable with certainty, and negative outcomes may adversely affect us.


Class Action


On March 15, 2012, a purported class action lawsuit titled Smilovits v. First Solar, Inc., et al., Case No. 2:12-cv-00555-DGC, was filed in the United States District Court for the District of Arizona (hereafter “Arizona District Court”) against the Company and certain of our current and former directors and officers. The complaint was filed on behalf of persons who purchased or otherwise acquired the Company’s publicly traded securities between April 30, 2008 and February 28, 2012 (the “Class Action”). The complaint generally allegesalleged that the defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 by making false and misleading statements regarding the Company’s financial performance and prospects. The action includesincluded claims for damages, including interest, and an award of reasonable costs and attorneys’ fees to the putative class. The Company believes it has meritorious defenses and will vigorously defend this action.


On July 23, 2012, the Arizona District Court issued an order appointing as lead plaintiffs in the Class Action the Mineworkers’ Pension Scheme and British Coal Staff Superannuation Scheme (collectively, the “Pension Schemes”). The Pension Schemes filed an amended complaint on August 17, 2012, which contains similar allegations and seeks similar relief as the original complaint. Defendants filed a motion to dismiss on September 14, 2012. On December 17, 2012, the court denied defendants’ motion to dismiss. On October 8, 2013, the Arizona District Court granted the Pension Schemes’ motion for class certification and certified a class comprised of all persons who purchased or otherwise acquired publicly traded securities of the Company between April 30, 2008 and February 28, 2012 and were damaged thereby, excluding defendants and certain related parties. Merits discovery closed on February 27, 2015.



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Defendants filed a motion for summary judgment on March 27, 2015. On August 11, 2015, the Arizona District Court granted defendants’ motion in part and denied it in part, and certified an issue for immediate appeal to the Ninth Circuit Court of Appeals (the “Ninth Circuit”). First Solar filed a petition for interlocutory appeal with the Ninth Circuit, and that petition was granted on November 18, 2015. On May 20, 2016, the Pension Schemes moved to vacate the order granting the petition, dismiss the appeal, and stay the merits briefing schedule. On December 13, 2016, the Ninth Circuit denied the Pension Schemes’ motion. Merits briefing and oral argument onOn January 31, 2018, the appeal are now complete and the parties are awaitingNinth Circuit issued an opinion fromaffirming the Arizona District Court’s order denying in part defendants’ motion for summary judgment. On March 16, 2018, First Solar filed a petition for panel rehearing or rehearing en banc with the Ninth Circuit. TheOn May 7, 2018, the Ninth Circuit denied defendants’ petition. On August 6, 2018, defendants filed a petition for writ of certiorari to the U.S. Supreme Court. Meanwhile, in the Arizona District Court, has entered a stayexpert discovery was completed on February 5, 2019. On June 24, 2019, the U.S. Supreme Court denied the petition. Following the denial of the proceedingspetition, the Arizona District Court ordered that the trial begin on January 7, 2020.

On January 5, 2020, First Solar entered into a Memorandum of Understanding (“MOU”) to settle the Class Action. First Solar agreed to pay a total of $350 million to settle the claims in districtthe Class Action brought on behalf of all persons who purchased or otherwise acquired the Company’s shares between April 30, 2008 and February 28, 2012, in exchange for mutual releases and a dismissal with prejudice of the complaint upon court untilapproval of the appealsettlement. The proposed settlement contains no admission of liability, wrongdoing, or responsibility by any of the parties. As a result of the entry into the MOU, we accrued a loss for the above-referenced settlement in our results of operations for the year ended December 31, 2019. On January 24, 2020, First Solar paid $350 million to the settlement escrow agent. On February 13, 2020, First Solar entered into a stipulation of settlement with certain named plaintiffs on terms and conditions that are consistent with the MOU. On February 14, 2020, the lead plaintiffs filed a motion for preliminary approval of the settlement. Following a February 27, 2020 hearing, the Arizona District Court entered an order on March 2, 2020 that granted preliminary approval of the settlement and permitted notice to the class. Under that order, among other matters, written objections from any objectors are due by June 9, 2020 and a final approval hearing is decided. Given the pending appeal, the needscheduled for further expert discovery, and the uncertainties of trial, we are not in a position to assess whether any loss or adverse effect on our financial condition is probable or remote or to estimate the range of potential loss, if any.June 30, 2020.


Opt-Out Action


On June 23, 2015, a suit titled Maverick Fund, L.D.C. v. First Solar, Inc., et al., Case No. 2:15-cv-01156-ROS, was filed in Arizona District Court by putative stockholders that opted out of the Class Action. The complaint names the Company and certain of our current and former directors and officers as defendants, and alleges that the defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and violated state law, by making false and misleading statements regarding the Company’s financial performance and prospects. The action includes claims for recessionaryrescissory and actual damages, interest, punitive damages, and an award of reasonable attorneys’ fees, expert fees, and costs. The Company believes it has meritorious defenses and willis vigorously defenddefending this action.


The Arizona District Court has extended the deadline for responding to the complaint until after the Ninth Circuit resolves the appeal in the Smilovits matter described above. Accordingly, we are not in a position to assess whether any loss or adverse effect on our financial condition is probable or remote or to estimate the range of potential loss, if any.

Derivative Actions

On April 3, 2012, a derivative action titled Tsevegmid v. Ahearn, et al., Case No. 1:12-cv-00417-CJB, was filed by a putative stockholder on behalf of the Company in the United States District Court for the District of Delaware (hereafter “Delaware District Court”) against certain current and former directors and officers of the Company, alleging breach of fiduciary duties and unjust enrichment. The complaint generally alleges that from June 1, 2008, to March 7, 2012, the defendants caused or allowed false and misleading statements to be made concerning the Company’s financial performance and prospects. The action includes claims for, among other things, damages in favor of the Company, certain corporate actions to purportedly improve the Company’s corporate governance, and an award of costs and expenses to the putative plaintiff stockholder, including attorneys’ fees. On April 10, 2012, a second derivative complaint was filed in the Delaware District Court. The complaint, titled Brownlee v. Ahearn, et al., Case No. 1:12-cv-00456-CJB, contains similar allegations and seeks similar relief to the Tsevegmid action. By court order on April 30, 2012, pursuant to the parties’ stipulation, the Tsevegmid actionFirst Solar and the Brownlee action were consolidated into a single action in the Delaware District Court. On May 15, 2012, defendants filed a motion to challenge Delaware as the appropriate venue for the consolidated action. On March 4, 2013, the magistrate judge issued a Report and Recommendation recommending to the court that defendants’ motion be granted and that the case be transferred to the Arizona District Court. On July 12, 2013, the court adopted the magistrate judge’s Report and Recommendation and ordered the case transferred to the Arizona District Court. The transfer was completed on July 15, 2013.

On April 12, 2012, a derivative complaint was filed in the Arizona District Court, titled Tindall v. Ahearn, et al., Case No. 2:12-cv-00769-ROS. In addition to alleging claims and seeking relief similar to the claims and relief asserted in the Tsevegmid and Brownlee actions, the Tindall complaint alleges violations of Sections 14(a) and 20(b) of the Securities Exchange Act of 1934. On April 19, 2012, a second derivative complaint was filed in the Arizona District Court, titled Nederhood v. Ahearn, et al., Case No. 2:12-cv-00819-JWS. The Nederhood complaint contains similar allegations and seeks similar relief to the Tsevegmid and Brownlee actions. On May 17, 2012 and May 30, 2012, respectively, two additional derivative complaints, containing similar allegations and seeking similar relief as the Nederhood complaint, were filed in Arizona District Court: Morris v. Ahearn, et al., Case No. 2:12-cv-01031-JAT and Tan v. Ahearn, et al., 2:12-cv-01144-NVW.


On July 17, 2012, the Arizona District Court issued an order granting First Solar’s motion to transfer the derivative actions to Judge David Campbell, the judge to whom the Smilovits class action is assigned. On August 8, 2012, the court consolidated the four derivative actions pending in Arizona District Court, and on August 31, 2012, plaintiffs filed an amended complaint. Defendants filed a motion to stay the action on September 14, 2012. On December 17, 2012, the Arizona District Court granted defendants’ motion to stay pending resolution of the Smilovits class action. On August 13, 2013, Judge Campbell consolidated the two derivative actions transferred from the Delaware District Court with the stayed Arizona derivative actions. On February 19, 2016, the Arizona District Court issued an order lifting the stay in part. Pursuant to the February 19, 2016 order, the plaintiffs filed an amended complaint on March 11, 2016, andindividual defendants filed a motion to dismiss the amended complaint on April 1, 2016.July 16, 2018. On June 30, 2016,November 27, 2018, the Arizona District Court granted defendants’ motion to dismiss the insider tradingplaintiffs’ negligent misrepresentation claim under state law, but otherwise denied defendants’ motion. The plaintiffs have argued that the action is unique from the Class Action and unjust enrichment claims with prejudice,have sought additional discovery. Following an April 7, 2020 order modifying the case schedule, fact discovery is scheduled to be complete by August 5, 2020, expert discovery is scheduled to be complete by December 23, 2020, and further granted defendants’ motion to dismiss the claimsdispositive motions are due by January 20, 2021. As of March 31, 2020 and December 31, 2019, we accrued $13 million of estimated losses for alleged breaches of fiduciary duties with leave to amend. On July 15, 2016, plaintiffs filed a motion to reconsider certain aspectsthis action, which represents our best estimate of the order granting defendants’ motion to dismiss. The Arizona District Court denied the plaintiffs’ motion for reconsideration on August 4, 2016. On July 15, 2016, plaintiffs filed a motion to intervene, lift the stay, and unseal documents in the securities Class Action. On September 30, 2016, the Arizona District Court denied plaintiffs’ motion. On October 17, 2016, plaintiffs filed a notice of appeal to the Ninth Circuitlower bound of the September 30, 2016 order. On October 27, 2016, plaintiffs filed a motioncosts to extend the October 31, 2016 deadline to file an amended complaint. On November 29, 2016, the Arizona District Court denied plaintiffs’ request and directed the clerk to terminate the action. On January 23, 2017, the Arizona District Court entered judgment in favorresolve this case. The ultimate amount of defendants and terminated the action. On January 27, 2017, plaintiffs filed a notice of appeal to the Ninth Circuit. Merits briefing on plaintiffs’ appeals is ongoing.loss may be materially higher.


Derivative Actions

On July 16, 2013, a derivative complaint was filed in the Superior Court of Arizona, Maricopa County, formerly titled Bargar, et al. v. Ahearn, et al., and now titled Kaufold v. Ahearn, et. al., Case No. CV2013-009938, by a putative stockholder against certain current and former directors and officers of the Company.Company (“Kaufold”). The complaint contains similar allegationsgenerally alleges that the defendants caused or allowed false and misleading statements to be made
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concerning the DelawareCompany’s financial performance and Arizona derivative cases, andprospects. The action includes claims for, among other things, breach of fiduciary duties, insider trading, unjust enrichment, and waste of corporate assets. By court order on October 3, 2013, the Superior Court of Arizona, Maricopa County granted the parties’ stipulation to defer defendants’ response to the complaint pending resolution of the Smilovits class actionClass Action or expiration of thea stay issued in thecertain consolidated derivative actions in the Arizona District Court. On November 5, 2013, the matter was placed on the court’s inactive calendar. The parties have jointly sought and obtained multiple requests to continue the stay in this action. Most recently, on July 6, 2017,March 5, 2020, the court entered an order continuing the stay until November 30, 2017.July 31, 2020. On December 5, 2019, the court granted a motion by one of two named plaintiffs to voluntarily dismiss that plaintiff’s claims; one named plaintiff remains in the case.


The Company believes that plaintiffsthe plaintiff in the Kaufold derivative actions lackaction lacks standing to pursue litigation on behalf of First Solar. The Kaufold derivative actions areaction is still in the initial stages and there has been no discovery. Accordingly, at this time we are not in a position to assess whetherthe likelihood of any potential loss or adverse effect on our financial condition is probable or remote or to estimate the amount or range of potential loss, if any.


Other Matters and Claims
14.
We are party to other legal matters and claims in the normal course of our operations. While we believe the ultimate outcome of such other matters and claims will not have a material adverse effect on our financial position, results of operations, or cash flows, the outcome of such matters and claims is not determinable with certainty, and negative outcomes may adversely affect us.

11. Revenue from Contracts with Customers


The following table represents a disaggregation of revenue from contracts with customers for the three and nine months ended September 30, 2017March 31, 2020 and 20162019 along with the reportable segment for each category (in thousands):
Three Months Ended
March 31,
CategorySegment20202019
Solar modulesModules$393,681  $198,815  
Solar power systemsSystems90,076  157,294  
EPC servicesSystems919  137,594  
O&M servicesSystems29,475  27,700  
Energy generationSystems17,973  10,575  
Net sales$532,124  $531,978  
    Three Months Ended
September 30,		 Nine Months Ended
September 30,
Category Segment 2017 2016 2017 2016
Solar power systems Both $747,579
 $183,784
 $1,840,097
 $1,127,904
EPC services Both 272
 201,114
 40,706
 853,324
Solar modules Components 300,297
 213,046
 599,827
 425,779
O&M services Systems 25,414
 24,775
 75,074
 69,812
Module plus Both 3
 50,366
 3,314
 81,716
Energy generation (1) Systems 13,461
 8,191
 43,125
 15,233
Net sales   $1,087,026
 $681,276
 $2,602,143
 $2,573,768


(1)Substantially all energy generated and sold by our PV solar power systems is accounted for under ASC 840 consistent with the classification of the associated PPAs.


In our reportable segment financial disclosures,We recognize revenue for module sales at a point in time following the transfer of control of the modules to the customer, which typically occurs upon shipment or delivery depending on the terms of the underlying contracts. Such contracts may contain provisions that require us to make liquidated damage payments to the customer if we include an allocationfail to ship or deliver modules by scheduled dates. We recognize these liquidated damages as a reduction of net sales value for all solar modules manufactured by our components segment and installed in projects sold or built by our systems segmentrevenue in the net sales of our components segment. Accordingly, the solar module portion of net sales of solar power systems, EPC services, and module plus arrangements is included in the net sales of our components segment along with solar module sales to third parties. The remaining portionperiod we transfer control of the net sales of solar power systems, EPC services, and module plus arrangements is included inmodules to the net sales of our systems segment along with revenue from O&M services and energy generation.customer.


We generally recognize revenue forFor certain sales of solar power systems and/or EPC services, we recognize revenue over time using cost based input methods, in which significant judgment is required to evaluate assumptions including the amount of net contract revenues and the total estimated costs to determine our progress towardstoward contract completion and to calculatecompletion. If the corresponding amount of revenue to recognize. If estimated total costs on any contract are greater than the net contract revenues, we recognize the entire estimated loss in the period the loss becomes known. The cumulative effect of revisions to estimates related to net contract revenues or costs to complete contracts are recorded in the period in which the revisions to estimates are identified and the amounts can be reasonably estimated.


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Changes in estimates for sales of systems and EPC services occur for a variety of reasons, including but not limited to (i) construction plan accelerations or delays, (ii) module cost forecast changes, (iii) cost related change orders, or (iv) changes in other information used to estimate costs. Changes in estimates may have a material effect on our condensed consolidated statements of operations.

The following table below outlines the impact on revenue of net changes in estimated transaction prices and input costs for systems related sales contracts (both increases and decreases) for the three and nine months ended September 30, 2017March 31, 2020 and 20162019 as well as the number of projects that comprise such changes. For purposes of the following table, we only include projects with changes in estimates that have a net impact on revenue of at least $1.0 million during the periods presented. Also included in the table is the net change in estimate as a percentage of the aggregate revenue for such projects.
Three Months Ended
March 31,
 20202019
Number of projects2  8  
(Decrease) increase in revenue from net changes in transaction prices (in thousands)$(762) $6,114  
Increase (decrease) in revenue from net changes in input cost estimates (in thousands)1,885  (15,950) 
Net increase (decrease) in revenue from net changes in estimates (in thousands)$1,123  $(9,836) 
Net change in estimate as a percentage of aggregate revenue0.3 %(0.5)%
  Three Months Ended
September 30,		 Nine Months Ended
September 30,
  2017 2016 2017 2016
Number of projects 2
 10
 4
 11
         
Increase (decrease) in revenue from net changes in transaction prices (in thousands) $1,153
 $273
 $(14) $(46,969)
Increase in revenue from net changes in input cost estimates (in thousands) 2,874
 46,215
 4,994
 169,398
Net increase in revenue from net changes in estimates (in thousands) $4,027
 $46,488
 $4,980
 $122,429
         
Net change in estimate as a percentage of aggregate revenue for associated projects 1.1% 1.2% 0.8% 2.0%


The following table reflects the changes in our contract assets, which we classify as “Accounts receivable, unbilled” or “Retainage,” and our contract liabilities, which we classify as “Deferred revenue,” for the ninethree months ended September 30, 2017March 31, 2020 (in thousands):
 March 31,
2020		December 31,
2019		Three Month Change
Accounts receivable, unbilled (1)$109,054  $162,057  
Retainage25,577  21,416  
Allowance for credit losses(1,223) —  
Accounts receivable, unbilled and retainage, net$133,408  $183,473  $(50,065) (27)%
Deferred revenue (2) $206,503  $394,655  $(188,152) (48)%
  September 30,
2017		 December 31,
2016		 Nine Months Change
Accounts receivable, unbilled $451,526
 $200,474
 
 
Retainage 3,592
 6,265
 
 
Accounts receivable, unbilled and retainage $455,118
 $206,739
 $248,379
 120 %
         
Deferred revenue (1) $132,738
 $308,704
 $(175,966) (57)%
——————————

(1)Includes $63.6 million of long-term deferred revenue classified as “Other liabilities” on our condensed consolidated balance sheet as of September 30, 2017.

Accounts(1)Includes $12.3 million of long-term accounts receivable, unbilled represents a contract asset for revenue that has been recognized in advanceclassified as “Other assets” on our condensed consolidated balance sheet as of billing the customer, which is common forMarch 31, 2020.

(2)Includes $69.5 million and $71.4 million of long-term construction contracts. Billing requirements vary by contract but are generally structured around the completion of certain construction milestones. Some of our EPC contracts for systems we build may also contain retainage provisions. Retainage represents a contract asset for the portion of the contract price earned by us for work performed, but held for payment by the customer as a form of security until we reach certain construction milestones.

When we receive consideration, or such consideration is unconditionally due, from a customer prior to transferring goods or services to the customer under the terms of a sales contract, we record deferred revenue which represents a contract liability. Such deferred revenue typically results from billings in excessclassified as “Other liabilities” on our condensed consolidated balance sheets as of costs incurred on long-term construction contractsMarch 31, 2020 and advance payments received on sales of solar modules.December 31, 2019, respectively.


During the ninethree months ended September 30, 2017,March 31, 2020, our contract assets increaseddecreased by $248.4$50.1 million primarily due to unbilled receivablesbillings associated with ongoing construction activities at the sale of the California Flats project in August 2017Sun Streams and the sale of the Switch StationSunshine Valley projects, in June 2017, partially offset by final billings oncertain unbilled receivables from ongoing construction activities at the East Pecos project following the completion of substantially all construction activities.GA Solar 4 project. During the ninethree months ended September 30, 2017,March 31, 2020, our contract liabilities decreased by $176.0$188.2 million primarily as a resultdue to the recognition of revenue for sales of solar modules for which payment was received in 2019 prior to the completion ofstep down in the sale of the Moapa project, on which we had received a significant portion of the proceeds in 2016, and revenue recognized from construction on the Helios project following the partial billing of such services in 2016,U.S. investment tax credit, partially offset by advance payments received onfor sales of solar modules.

modules in the current period. During the ninethree months ended September 30, 2017March 31, 2020 and 2016,2019, we recognized revenue of $308.6$268.2 million and $98.3$46.7 million, respectively, that was included in the corresponding contract liability balance at the beginning of the periods.


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The following table represents our remaining performance obligations as of September 30, 2017March 31, 2020 for sales of solar power systems, including uncompleted sold projects and projects under sales contracts subject to conditions precedent, and EPC agreements for partner developed projects that we are constructing or expect to construct.precedent. Such table excludes remaining performance obligations for any sales arrangements that had not fully satisfied the criteria to be considered a contract with a customer pursuant to the requirements of ASC 606. We expect to recognize $0.3 billion$45.2 million of revenue for such contracts through the later of the substantial completion or the closing dates of the projects.
Project/Location
Project Size in MWAC
Revenue CategoryCustomerExpected Year Revenue Recognition Will Be CompletedPercentage of Revenue Recognized
GA Solar 4, Georgia200  Solar power systemsOrigis Energy USA202089%
Sun Streams, Arizona150  Solar power systems(1)202096%
Sunshine Valley, Nevada100  Solar power systems(1)202097%
Seabrook, South Carolina72  Solar power systemsDominion Energy202097%
Total522  
Project/Location
Project Size in MWac
Revenue CategoryEPC Contract/Partner Developed ProjectExpected Year Revenue Recognition Will Be CompletedPercentage of Revenue Recognized
California Flats, California280
Solar power systemsCapital Dynamics201868%
Cuyama, California40
Solar power systemsD.E. Shaw Renewable Investments201778%
Total320
    
——————————

(1)EDP Renewables and ConnectGen

As of September 30, 2017,March 31, 2020, we had entered into contracts with customers for the future sale of 5.611.1 GWdcDC of solar modules for an aggregate transaction price of $2.0$3.7 billion. We expect to recognize such amounts as revenue through 20202023 as we transfer control of the modules to the customers. While our contracts with customers which typically occurs upon shipmentrepresent firm purchase commitments, these contracts may be subject to amendments made by us or requested by our customers. These amendments may increase or decrease the volume of modules to be sold under the contract, change delivery depending onschedules, or otherwise adjust the terms of the underlyingexpected revenue under these contracts. As of September 30, 2017,March 31, 2020, we had also entered into long-term O&M contracts covering approximately 712 GWdcDC of utility-scale PV solar power systems. We expect to recognize $0.6$0.4 billion of revenue during the noncancelable term of these O&M contracts over a weighted-average period of 11.99.3 years.


As part of our adoption of ASU 2014-09 in the first quarter of 2017, we have elected to use the practical expedient under ASC 606-10-65-1(f)(3), pursuant to which we have excluded disclosures of transaction prices allocated to remaining performance obligations and when we expect to recognize such revenue for all periods prior to the date of initial application of ASU 2014-09.


15.12. Share-Based Compensation


We measure share-based compensation expense at the grant date based on the fair value of the award and recognize such expense over the required or estimated service period for awards that vest. The following table presents the share-based compensation expense recognized in our condensed consolidated statements of operations for the three and nine months ended September 30, 2017March 31, 2020 and 20162019 (in thousands):
Three Months Ended
March 31,
 20202019
Cost of sales$1,212  $1,840  
Selling, general and administrative4,709  2,338  
Research and development1,283  841  
Total share-based compensation expense$7,204  $5,019  
  Three Months Ended
September 30,		 Nine Months Ended
September 30,
  2017 2016 2017 2016
Cost of sales $1,674
 $1,612
 $4,778
 $6,255
Research and development 1,641
 849
 4,230
 2,704
Selling, general and administrative 6,678
 3,435
 16,375
 15,508
Production start-up 112
 —
 144
 —
Total share-based compensation expense $10,105
 $5,896
 $25,527
 $24,467


The following table presents share-based compensation expense by type of award for the three and nine months ended September 30, 2017 and 2016 (in thousands):
  Three Months Ended
September 30,		 Nine Months Ended
September 30,
  2017 2016 2017 2016
Restricted and performance stock units $9,581
 $4,939
 $23,791
 $21,969
Unrestricted stock 459
 420
 1,297
 1,258
Stock purchase plan —
 377
 394
 1,071
  10,040
 5,736
 25,482
 24,298
Net amount released from inventory 65
 160
 45
 169
Total share-based compensation expense $10,105
 $5,896
 $25,527
 $24,467

Share-based compensation expense capitalized in inventory, project assets, and PV solar power systems was $2.7$1.3 million and $1.2 million as of September 30, 2017March 31, 2020 and December 31, 2016.2019, respectively. As of September 30, 2017,March 31, 2020, we had $46.7$48.8 million of unrecognized share-based compensation expense related to unvested restricted and performance stock units, which we expect to recognize over a weighted-average period of approximately 1.8 years. In April 2017, we amended our stock purchase plan to reduce the purchase discount from 15% to 4%, effective for the next six-month offering period. Accordingly, the plan is considered noncompensatory and no longer results in the recognition of share-based compensation expense.


In February 2017, the compensation committee of our board of directors approved a new long-term incentive program for key executive officers and associates. The new program is intended to incentivize retention of our key executive talent, provide a smooth transition from our former key senior talent equity performance program, and align the interests of executive management and stockholders. Specifically, the new program consists of:of (i) performance stock units to be earned over aan approximately three-year performance period, beginningwhich ended in March 2017December 2019, and (ii) stub-year grants of separate performance stock units to be earned over aan approximately two-year performance period, also beginningwhich ended in March 2017.December 2018. In February 2019, the compensation committee of our board of directors certified the
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achievement of the maximum vesting conditions applicable for the stub-year grants. Accordingly, each participant received one share of common stock for each vested performance unit, net of any tax withholdings. In February 2020, the compensation committee of our board of directors certified the achievement of the threshold vesting conditions applicable to the remaining 2017 grants of performance stock units. Accordingly, each participant received one share of common stock for each vested performance unit, net of any tax withholdings.

In April 2018, in continuation of our long-term incentive program for key executive officers and associates, the compensation committee of our board of directors approved additional grants of performance stock units to be earned over an approximately three-year performance period ending in December 2020. Vesting of the 2018 grants of performance stock units is contingent upon the achievementrelative attainment of certaintarget gross margin, operating expense, and contracted revenue metrics.

In July 2019, the compensation committee of our board of directors approved additional grants of performance objectives, includingstock units for key executive officers. Such grants are expected to be earned over a multi-year performance period ending in December 2021. Vesting of the 2019 grants of performance stock units is contingent upon the relative attainment of target cost per watt, module wattage, gross profit, and operating expense metricsincome metrics.

In March 2020, the compensation committee of our board of directors approved additional grants of performance stock units for key executive officers. Such grants are expected to be earned over a multi-year performance period ending in December 2022. Vesting of the 2020 grants of performance stock units is contingent upon the relative attainment of contracted revenue, module wattage, and return on capital metrics.

Vesting of performance stock units is also contingent upon the continued employment of program participants through the applicable vesting dates, exceptwith limited exceptions in limited cases, such ascase of death, disability, a qualifying retirement, or a change-in-control of First Solar. SuchOutstanding performance stock units wereare included in the computation of diluted net income per share for the three and nine months ended September 30, 2017 based on the number of shares if any, that would be issuable if the end of the reporting period were the end of the contingency period.



16.13. Income Taxes


On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act (the “CARES Act”) was signed into law. The CARES Act includes a number of federal corporate tax relief provisions that are intended to support the ongoing liquidity of U.S. corporations. Among other provisions, the CARES Act allows net operating losses incurred in 2018, 2019, and 2020 to be carried back to each of the five preceding taxable years. Because changes in tax law are accounted for in the period of enactment, the retroactive effects of such changes are accounted for as a discrete item in our tax provision.

Our effective tax rate was (11.4)(5,657)% and (11.2)%2% for the ninethree months ended September 30, 2017March 31, 2020 and 2016,2019, respectively. The decrease in our effective tax rate was primarily driven by a discrete tax benefit associated with the May 2017 acceptancenet operating loss carryback provisions of the CARES Act described above and the relative size of our election to classify certain of our German subsidiaries as disregarded entities of First Solar, Inc., partially offset by a July 2016 private letter rulingpretax income in a foreign jurisdiction related to the timing of the deduction for certain of our obligations.current period. Our provision for income taxes differed from the amount computed by applying the U.S. statutory federal income tax rate of 35.0%21% primarily due to the aforementioned discreteeffect of tax benefit related tolaw changes associated with the acceptance of our disregarded entity election and the beneficial impact of our Malaysian tax holiday, partially offset by additional tax expense attributable to losses in jurisdictions for which no tax benefit could be recorded.CARES Act.


Our Malaysian subsidiary has been granted a long-term tax holiday that expires in 2027. The tax holiday, which generally provides for a full exemption from Malaysian income tax, is conditional upon our continued compliance with meeting certain employment and investment thresholds, which we are currently in compliance with and expect to continue to comply with through the expiration of the tax holiday in 2027.


In the normal course of business, we establish valuation allowances for our deferred tax assets when the realization of the assets is not more likely than not. We intend to maintain such valuation allowances on our deferred tax assets until there is sufficient evidence to support the reversal of all or some portion of the allowances. Given our anticipated future earnings in a foreign jurisdiction, it is reasonably possible that, within the next 12 months,
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sufficient positive evidence may become available to allow us to reverse the valuation allowance in such jurisdiction. However, the exact timing and amount of such reversal is subject to change depending on our future earnings in the jurisdiction and other factors.

We account for uncertain tax positions pursuant to the recognition and measurement criteria under ASC 740, Income Taxes. During the three months ended September 30, 2017, we recognized a benefit of $11.0 million from the expiration of the statute of limitations for various uncertain tax positions.740. It is reasonably possible that an additional $10.0$58.6 million of uncertain tax positions will also be recognized within the next 12 months due to the expiration of the statute of limitations associated with such positions.

In May 2017, the U.S. federal income tax authority accepted our election to classify certain of our German subsidiaries as disregarded entities of First Solar, Inc. effective as of January 1, 2017. Accordingly, we recorded an estimated benefit of $42.1 million through the tax provision to establish a deferred tax asset for excess foreign tax credits generated as a result of the associated election.

In July 2016, we received a letter from a foreign tax authority confirming our residency status in that jurisdiction. In accordance with the letter, we reversed a liability associated with an uncertain tax position related to the income of a foreign subsidiary. Accordingly, we recorded a benefit of $35.4 million through the tax provision from the reversal of such liability during the three months ended September 30, 2016.


We are subject to audit by U.S. federal, state, local, and foreign tax authorities. We are currently under examination in Chile, India, Chile, Germany,Malaysia, and the state of California. We believe that adequate provisions have been made for any adjustments that may result from tax examinations. However, the outcome of tax auditsexaminations cannot be predicted with certainty. If any issues addressed by our tax auditsexaminations are not resolved in a manner consistent with our expectations, we could be required to adjust our provision for income taxes in the period such resolution occurs.



17.14. Net Income (Loss) per Share


Basic net income per share is computed by dividing net income by the weighted-average number of common shares outstanding for the period. Diluted net income per share is computed giving effect to all potentially dilutive common shares, including restricted and performance stock units and stock purchase plan shares, unless there is a net loss for the period. In computing diluted net income per share, we utilize the treasury stock method.

The calculation of basic and diluted net income (loss) per share for the three and nine months ended September 30, 2017March 31, 2020 and 20162019 was as follows (in thousands, except per share amounts):
Three Months Ended
March 31,
20202019
Basic net income (loss) per share
Numerator:
Net income (loss)$90,704  $(67,599) 
Denominator:
Weighted-average common shares outstanding105,595  105,046  
Diluted net income (loss) per share
Denominator:
Weighted-average common shares outstanding105,595  105,046  
Effect of restricted and performance stock units and stock purchase plan shares791  —  
Weighted-average shares used in computing diluted net income (loss) per share106,386  105,046  
Net income (loss) per share:
Basic$0.86  $(0.64) 
Diluted$0.85  $(0.64) 
  Three Months Ended
September 30,		 Nine Months Ended
September 30,
  2017 2016 2017 2016
Basic net income per share        
Numerator:        
Net income $205,747
 $150,457
 $266,839
 $334,678
Denominator:        
Weighted-average common shares outstanding 104,432
 103,339
 104,287
 102,496
         
Diluted net income per share        
Denominator:        
Weighted-average common shares outstanding 104,432
 103,339
 104,287
 102,496
Effect of restricted and performance stock units and stock purchase plan shares 1,228
 345
 602
 614
Weighted-average shares used in computing diluted net income per share 105,660
 103,684
 104,889
 103,110
         
Net income per share:        
Basic $1.97
 $1.46
 $2.56
 $3.27
Diluted $1.95
 $1.45
 $2.54
 $3.25


The following table summarizes the potential shares of common stock that were excluded from the computation of diluted net income (loss) per share for the three and nine months ended September 30, 2017March 31, 2020 and 20162019 as theysuch shares would have had an anti-dilutive effect (in thousands):
Three Months Ended
March 31,
20202019
Anti-dilutive shares—  864  

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  Three Months Ended
September 30,		 Nine Months Ended
September 30,
  2017 2016 2017 2016
Anti-dilutive shares 2
 411
 195
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18.15. Accumulated Other Comprehensive Loss


Accumulated other comprehensive loss includes foreign currency translation adjustments, unrealized gains and losses on available-for-sale securities, and unrealized gains and losses on derivative instruments designated and qualifying as cash flow hedges. The following table presents the changes in accumulated other comprehensive loss, net of tax, for the ninethree months ended September 30, 2017March 31, 2020 (in thousands):
Foreign Currency Translation AdjustmentUnrealized Gain (Loss) on Marketable Securities and Restricted Marketable SecuritiesUnrealized Gain (Loss) on Derivative InstrumentsTotal
Balance as of December 31, 2019$(73,429) $(5,029) $(876) $(79,334) 
Other comprehensive (loss) income before reclassifications(8,064) 17,551  768  10,255  
Amounts reclassified from accumulated other comprehensive loss—  (15,088) 207  (14,881) 
Net tax effect—  389  (79) 310  
Net other comprehensive (loss) income(8,064) 2,852  896  (4,316) 
Balance as of March 31, 2020$(81,493) $(2,177) $20  $(83,650) 
  Foreign Currency Translation Adjustment Unrealized Gain (Loss) on Marketable Securities and Restricted Investments Unrealized Gain (Loss) on Derivative Instruments Total
Balance as of December 31, 2016 $(77,178) $65,171
 $2,100
 $(9,907)
Other comprehensive income (loss) before reclassifications 5,320
 1,666
 (3,993) 2,993
Amounts reclassified from accumulated other comprehensive loss —
 (49) 189
 140
Net tax effect —
 (373) 1,291
 918
Net other comprehensive income (loss) 5,320
 1,244
 (2,513) 4,051
Balance as of September 30, 2017 $(71,858) $66,415
 $(413) $(5,856)


The following table presents the pretax amounts reclassified from accumulated other comprehensive loss into our condensed consolidated statements of operations for the three and nine months ended September 30, 2017March 31, 2020 and 20162019 (in thousands):
Comprehensive Income ComponentsIncome Statement Line ItemThree Months Ended
March 31,
20202019
Unrealized gain on marketable securities and restricted marketable securitiesOther (expense) income, net15,088  15,016  
Unrealized loss on derivative contracts:
Foreign exchange forward contractsCost of sales(207) —  
(207) —  
Total amount reclassified$14,881  $15,016  


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Comprehensive Income Components Income Statement Line Item Amount Reclassified for the Three Months Ended
September 30,		 Amount Reclassified for the Nine Months Ended
September 30,
  2017 2016 2017 2016
Unrealized gain on marketable securities and restricted investments Other income, net $—
 $296
 $49
 $38,101
Unrealized (loss) gain on derivative contracts:          
Cross currency swap contract Foreign currency loss, net —
 —
 —
 4,896
Interest rate and cross currency swap contracts Interest expense, net —
 —
 —
 (1,823)
Foreign exchange forward contracts Other income, net (189) —
 (189) —
    (189) —
 (189) 3,073
Total amount reclassified   $(189) $296
 $(140) $41,174

19.16. Segment Reporting


We operate our business in two2 segments. Our componentsmodules segment involves the design, manufacture, and sale of CdTecadmium telluride (“CdTe”) solar modules, which convert sunlight into electricity. Third-party customers of our componentsmodules segment include integrators and operators of PV solar power systems. Our second segment is our fully integrated systems business (“systems segment”),segment, through which we provide complete turn-key PV solar power systems, or solarplant solutions, that draw upon our capabilities, which include (i) project development, (ii) EPC services, and (iii) O&M services. We may provide our full EPC services or any combination of individual products and services within oursuch capabilities (including, with respect to EPC capabilitiesservices, by contracting with third parties) depending upon the customer and market opportunity. All of ourOur systems segment products and services are for PV solar power systems, which primarily use our solar modules, and we sell such products and services tocustomers include utilities, independent power producers, commercial and industrial companies, and other system owners. Additionally, withinAs part of our systems segment, we may also temporarily own and operate certain of our PV solar power systems for a period of time based on strategic opportunities.

In our reportable segment financial disclosures, we include an allocation of net sales value for all solar modules manufactured by our components segment and installed in projects soldopportunities or built by our systems segment in the net sales of our components segment. In the gross profit of our reportable segment disclosures, we include the corresponding cost of sales value for the solar modules installed in projects sold or built by our systems segment in the components segment. The cost of solar modules is comprised of the manufactured cost incurred by our components segment.


market factors. See Note 23.21. “Segment and Geographical Information” in our Annual Report on Form 10-K for the year ended December 31, 20162019 for a completeadditional discussion of our segment reporting.


FinancialThe following tables present certain financial information aboutfor our reportable segments during the three and nine months ended September 30, 2017 and 2016 was as follows (in thousands):
  Three Months Ended September 30, 2017 Three Months Ended September 30, 2016
  Components Systems Total Components Systems Total
Net sales $410,470
 $676,556
 $1,087,026
 $427,940
 $253,336
 $681,276
Gross profit 75,202
 216,598
 291,800
 139,239
 31,669
 170,908
Depreciation and amortization expense 17,323
 4,168
 21,491
 46,134
 4,490
 50,624
             
  Nine Months Ended September 30, 2017 Nine Months Ended September 30, 2016
  Components Systems Total Components Systems Total
Net sales $1,039,834
 $1,562,309
 $2,602,143
 $1,209,081
 $1,364,687
 $2,573,768
Gross profit 211,273
 275,604
 486,877
 343,551
 287,019
 630,570
Depreciation and amortization expense 59,177
 13,006
 72,183
 143,723
 8,660
 152,383
             
  September 30, 2017 December 31, 2016
  Components Systems Total Components Systems Total
Goodwill $14,462
 $—
 $14,462
 $14,462
 $—
 $14,462

Product Revenue

The following table sets forth the total amounts of solar module and solar power system net sales recognized for the three and nine months ended September 30, 2017March 31, 2020 and 2016. For the purposes2019 and as of the following table, (i) solar module revenue is composed of revenue from the sale of solar modules to third parties, which does not include any modules sold as part of our PV solar power systems,March 31, 2020 and (ii) solar power system revenue is composed of revenues from the sale of PV solar power systems and related products and services, including any modules installed in such systems and any revenue generated by such systemsDecember 31, 2019 (in thousands):
 Three Months Ended March 31, 2020Three Months Ended March 31, 2019
 ModulesSystemsTotalModulesSystemsTotal
Net sales$393,681  $138,443  $532,124  $198,815  $333,163  $531,978  
Gross profit (loss)75,352  14,986  90,338  (24,996) 25,108  112  
Depreciation and amortization expense44,673  6,258  50,931  39,535  4,259  43,794  
March 31, 2020December 31, 2019
ModulesSystemsTotalModulesSystemsTotal
Goodwill$14,462  $—  $14,462  $14,462  $—  $14,462  

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  Three Months Ended
September 30,		 Nine Months Ended
September 30,
  2017 2016 2017 2016
Solar module revenue $300,297
 $213,046
 $599,827
 $425,779
Solar power system revenue 786,729
 468,230
 2,002,316
 2,147,989
Net sales $1,087,026
 $681,276
 $2,602,143
 $2,573,768

Table of Contents

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


Cautionary Statement Regarding Forward-Looking Statements


This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the Securities Act of 1933, as amended (the “Securities Act”), which are subject to risks, uncertainties, and assumptions that are difficult to predict. All statements in this Quarterly Report on Form 10-Q, other than statements of historical fact, are forward-looking statements. These forward-looking statements are made pursuant to safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The forward-looking statements include statements concerning, among other things, concerning:things: the length and severity of the recent COVID-19 (novel coronavirus) outbreak, including its impacts across our businesses on demand, manufacturing, project development, construction, O&M, financing, and our global supply chains, actions that may be taken by governmental authorities to contain the COVID-19 outbreak or to treat its impacts, and the ability of our customers, suppliers, equipment vendors, and other counterparties to fulfill their contractual obligations to us; effects resulting from certain module manufacturing changes and associated restructuring activities; our business strategy, including anticipated trends and developments in and management plans for our business and the markets in which we operate; future financial results, operating results, revenues, gross margin, operating expenses, products, projected costs (including estimated future module collection and recycling costs), warranties, solar module technology and cost reduction roadmaps, restructuring, product reliability, investments, in unconsolidated affiliates, and capital expenditures; our ability to continue to reduce the cost per watt of our solar modules; the impact of public policies, such as tariffs or other trade remedies imposed on solar cells and modules; effects resulting from pending litigation, including the opt-out action against us; our ability to expand manufacturing capacity worldwide; our ability to reduce the costs to develop and construct photovoltaic (“PV”)PV solar power systems; research and development (“R&D”) programs and our ability to improve the conversion efficiencywattage of our solar modules; sales and marketing initiatives; and competition. In some cases, you can identify these statements by forward-looking words, such as “estimate,” “expect,” “anticipate,” “project,” “plan,” “intend,” “seek,” “believe,” “forecast,” “foresee,” “likely,” “may,” “should,” “goal,” “target,” “might,” “will,” “could,” “predict,” “continue,” and the negative or plural of these words, and other comparable terminology.

Forward-looking statements are only predictions based on our current expectations and our projections about future events. All forward-looking statements included in this Quarterly Report on Form 10-Q are based upon information available to us as of the filing date of this Quarterly Report on Form 10-Q.10-Q and therefore speak only as of the filing date. You should not place undue reliance on these forward-looking statements. We undertake no obligation to update any of these forward-looking statements for any reason.reason, whether as a result of new information, future developments, or otherwise. These forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause our actual results, levels of activity, performance, or achievements to differ materially from those expressed or implied by these statements. These factors include, but are not limited to, the severity and duration of the COVID-19 pandemic, including its potential impact on the Company’s business, financial condition, and results of operations; structural imbalances in global supply and demand for PV solar modules; the market for renewable energy, including solar energy; our competitive position and other key competitive factors; reduction, elimination, or expiration of government subsidies, policies, and support programs for solar energy projects; the impact of public policies, such as tariffs or other trade remedies imposed on solar cells and modules; our ability to execute on our long-term strategic plans; our ability to execute on our solar module technology and cost reduction roadmaps; our ability to improve the wattage of our solar modules; interest rate fluctuations and both our and our customers’ ability to secure financing; the creditworthiness of our off-take counterparties and the ability of our off-take counterparties to fulfill their contractual obligations to us; the ability of our customers and counterparties to perform under their contracts with us; the satisfaction of conditions precedent in our project sales agreements; our ability to attract new customers and to develop and maintain existing customer and supplier relationships; our ability to successfully develop and complete our systems business projects; our ability to convert existing production facilities to support new product lines, such as Series 6 module manufacturing; general economic and business conditions, including those influenced by U.S., international, and geopolitical events; environmental responsibility, including with respect to CdTe and other semiconductor materials; claims under our limited warranty obligations;
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changes in, or the failure to comply with, government regulations and environmental, health, and safety requirements; effects resulting from pending litigation, including the opt-out action against us; future collection and recycling costs for solar modules covered by our module collection and recycling program; our ability to protect our intellectual property; our ability to prevent and/or minimize the impact of cyber-attacks or other breaches of our information systems; our continued investment in research and development; the supply and price of components and raw materials, including CdTe; our ability to attract and retain key executive officers and associates; and the matters discussed in Part I, Item 1A. “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2016,2019, elsewhere in this Quarterly Report on Form 10-Q, and our other reports filed with the Securities and Exchange Commission (the “SEC”).SEC. You should carefully consider the risks and uncertainties described underin these sections.reports.


The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and the related notes thereto included in this Quarterly Report on Form 10-Q. Unless expressly stated or the context otherwise requires, the terms “the Company,” “we,” “us,” “our,” and “First Solar” refer to First Solar, Inc. and its subsidiaries. When referring to our manufacturing capacity, total sales, and solar module sales, the unit of electricity in watts for megawatts (“MW”) and gigawatts (“GW”) is direct current (“DC” or “dcDC”) unless otherwise noted. When referring to our PV solar powerprojects or systems, the unit of electricity in watts for MW and GW is alternating current (“AC” or “acAC”) unless otherwise noted.



Executive Overview


We are a leading global provider of comprehensive PV solar energy solutions. We design, manufacture, and sell PV solar modules with an advanced thin-filmthin film semiconductor technology and also develop design, construct, and sell PV solar power systems that primarily use the modules we manufacture. Additionally, we provide operations and maintenance (“O&M”)&M services to system owners that use solar modules manufactured by us or by other third-party manufacturers.owners. We have substantial, ongoing research and developmentR&D efforts focused on module and system-levelvarious technology innovations. We are the world’s largest thin-filmthin film PV solar module manufacturer and one of the world’s largest PV solar module manufacturers. Our mission is to create enduring value by enabling a world powered by clean, affordable solar energy.


Certain highlights of our financial results and other key operational developments for the three months ended September 30, 2017March 31, 2020 include the following:


•Net sales for the three months ended September 30, 2017 increased by 60% to $1.1 billion compared to $0.7 billionMarch 31, 2020 were $532.1 million, which was consistent with net sales for the same period in 2016.2019. The increase in net sales was primarily due to the sale of the California Flats and Cuyama projects and an increase infrom the volume of modules sold to third parties partiallyand ongoing construction activities at the GA Solar 4 project was offset by the decrease in net sales due to the completion of substantially all construction activities onat the East Pecos, Taylor, Astoria,Rosamond, Phoebe, and Desert StatelineLake Hancock projects in 2016.2019.


•Gross profit for the three months ended September 30, 2017March 31, 2020 increased 1.7 percentage points to 26.8%17.0% from 25.1%0.0% for the same period in 2016.2019. The increase in gross profit was primarily driven by a mix ofdue to higher gross profit on third-party module sales and improved utilization of our manufacturing facilities from the successful ramp of various Series 6 manufacturing lines, partially offset by the mix of lower gross profit projects sold and under construction during the period and a reduction in our module collection and recycling liability, partially offset by reductions in the average selling price per watt of our modules sold to third parties.
period.


•As of September 30, 2017,March 31, 2020, we had 185.5 GWDC of total installed Series 6 nameplate production lines atcapacity across all our manufacturing facilities in Perrysburg, Ohio and Kulim, Malaysia.facilities. We produced 0.51.5 GWDC of solar modules during the three months ended September 30, 2017,March 31, 2020, which represented a 32% decrease34% increase from the same period in 2016.2019. The decreaseincrease in production was primarily driven by the Series 6 production capacity added in 2019 at our previously announced plans tosecond facility in Ho Chi Minh City, Vietnam and our facility in Lake Township, Ohio as well as improved utilization at various facilities, partially offset by the ramp down production of our Series 4 modules and transition to Series 6 module manufacturing through 2019. Such transition is expected to include the commencement of operations at our previously announced manufacturing plant in Vietnam.lines. We expect to produce approximately 2.35.9 GWDC of solar modules during 2017.2020, substantially all of which will be Series 6 modules.


During•In response to the three months ended September 30, 2017,COVID-19 pandemic, governmental authorities have recommended or ordered the limitation or cessation of certain business or commercial activities in jurisdictions in which we ranoperate, including the United States, Malaysia, and Vietnam. At this time, such limitations have had a limited effect on our remaining manufacturing facilitiesfacilities. However, these orders are subject to continuous revision, and our
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understanding of the applicability of these orders and any potential exemptions may change at 98% capacity utilization, which representedany time. To enable the continuity of our operations, we have implemented a 1 percentage point increase fromwide range of safety measures intended to inhibit the samespread of COVID-19 at our manufacturing, administrative, and other sites and facilities.

•In January 2020, we entered into an MOU to settle a class action lawsuit filed in 2012 in the Arizona District Court against the Company and certain of our current and former officers and directors. Pursuant to the MOU, we paid a total of $350 million to settle the claims brought on behalf of all persons who purchased or otherwise acquired the Company’s shares during a specified period, in 2016.exchange for mutual releases and a dismissal with prejudice of the complaint upon court approval of the settlement. The settlement contained no admission of liability, wrongdoing, or responsibility by any of the parties.

The average conversion efficiency of our modules was 17.0% for the three months ended September 30, 2017, which was an improvement of 0.5 percentage points from the three months ended September 30, 2016.


Market Overview


The solar industry continues to be characterized by intense pricing competition, both at the module and system levels. In particular, module average selling prices in the United States and several other keymany global markets have experienced an accelerated declinedeclined in recent years and module average selling prices are expected to continue to decline to some degree in the future. Furthermore, the COVID-19 pandemic has adversely affected certain purchasers of modules and systems, which may result in additional pressure on demand and average selling prices. In the aggregate, we believe manufacturers of solar cells and modules have significant installed production capacity, relative to global demand, and the ability for additional capacity expansion. WeAccordingly, we believe the solar industry may from time to time experience periods of structural imbalance between supply and demand (i.e., where production capacity exceeds global demand), and that such periods will also put pressure on pricing.pricing, which may be exacerbated by the current COVID-19 disruption in the global economy. Additionally, intense competition at the system level may result in an environment in which pricing falls rapidly, thereby furtherpotentially increasing demand for solar energy solutions but constraining the ability for project developers; engineering, procurement,developers and construction (“EPC”) companies; and vertically-integrated solar companies such as First Solardiversified module manufacturers to sustain meaningful and consistent profitability. In light of such market realities, we are executing our long-term strategic plan, under which we are focusingcontinue to focus on our competitive strengths. Such strengthsstrategies and points of differentiation, which include our advanced module technology, our manufacturing process, our financial viability, and system technologies as well asthe sustainability advantage of our vertically-integrated business model that enables us to provide utility-scale PV solar energy solutions to key markets.modules and systems.



WorldwideGlobal solar markets continue to expand and develop, in part aided by demand elasticity resulting from declining industry average selling prices, both at the module and system levels, which makehave promoted the widespread adoption of solar power more affordable. Weenergy. As a result of such market opportunities, we are expanding our manufacturing capacity while also developing constructing, and operating multiple solar projects around the world as we continue to execute on our advanced-stage utility-scale project pipeline. We expect a substantial portion of our future consolidated net sales, operating income, and cash flows to be derived from such projects. We also continue to develop our early-to-mid-stage project pipeline and evaluate acquisitions of projects to further expand both our early-to-mid-stage and advanced-stage project pipelines. See the tables under “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Systems Project Pipeline” for additional information about projects within our advanced-stage project pipeline. Although we expect a meaningful portion of our future consolidated net sales, operating income, and cash flows to be derived from such projects, we expect third-party module sales to continue to have a more significant impact on our operating results as we expand capacity and leverage the benefits of our Series 6 module technology.


Lower industry module and system pricing while currently challenging for certain solar manufacturers (particularly manufacturers with higher cost structures), is expected to continue to contribute to diversification in global electricity generation and further demand for solar energy solutions.energy. Over time, we believe that solar energy generation will experience widespread adoption in those applications where it competes economically with traditional forms of energy generation. In the near term, however, declining average selling prices are expected tomay adversely affect our results of operations relative to prior years.the extent we have not already entered into contracts for future module or system sales. If competitors reduce pricing to levels below their costs; bid aggressively low prices for module sale agreements EPC agreements, or power purchase agreements (“PPAs”);PPAs; or are able to operate at minimal or negative operating margins for sustained periods of time, our results of operations could be further adversely affected. In certain markets in California and elsewhere, an oversupply imbalance at the grid level may further contribute to reducedreduce short-to-medium term demand for new solar installations relative to prior years, lower PPA pricing, and lower margins on module and system sales to such markets. However, we believe the effects of such imbalance can be mitigated by modern solar power plants that offer a flexible operating profile, thereby promoting greater grid stability and enabling a higher penetration of solar energy. We continue to mitigateaddress these uncertainties, in part, by executing on our module technology improvements, including our transition to Series 6 module manufacturing, continuing the development of key markets,partnering with grid operators and utility companies, and implementing certain other cost reduction initiatives, including both manufacturing, balanceinitiatives.

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Table of systems (“BoS”), and other operating costs.Contents

We face intense competition from manufacturers of crystalline silicon solar modules and developers of PV solar power systems.projects. Solar module manufacturers compete with one another on price and on several module value attributes, including wattage (or conversion efficiency,efficiency), energy yield, and reliability, and developers of systems compete on various factors such as net present value, return on equity, and levelized cost of electricity (“LCOE”), meaning the net present value of a system’s total life cycle costs divided by the quantity of energy that is expected to be produced over the system’s life. As noted above, competition on the basis of selling price per watt has intensified in recent years, which has contributed to declines in module average selling prices in several key markets. Many crystalline silicon cell and wafer manufacturers are transitioningcontinue to transition from lower efficiency Back Surface Field (“BSF”) multi-crystalline cells (the legacy technology against which we have generally competed in our markets)competed) to higher efficiency Passivated Emitter Rear Contact (“PERC”) multi-crystalline and mono-crystalline cells at competitive cost structures. Additionally, while conventional solar modules, including the solar modules we produce, are monofacial, meaning their ability to produce energy is a function of direct and diffuse irradiance on their front side, certain manufacturers of mono-crystalline PERC solar modules are pursuing the commercialization ofpromoting bifacial modules that also capture diffuse irradiance on the back side of a module. We believe theThe cost effective manufacture of bifacial PERC modules is beinghas been enabled, in part, by the expansion of inexpensive crystal growth and diamond wire saw capacity in China. Bifaciality compromises nameplate efficiency, but by converting both front and rear side irradiance, such technology canmay improve the overall energy production of a module relative to nameplate efficiency when applied in certain applications, which, after considering the incremental BoS and BoS configurations, whichother costs, could potentially lower the overall LCOE of a system when compared to systems using conventional solar modules, including the modules we produce.


We believe we are among the lowest cost PV module manufacturers in the solar industry on a module cost per watt basis, based on publicly available information. This cost competitiveness allows us to compete favorably in markets where pricing for modules and fully integrated PV solar power systems is highly competitive. Our cost competitiveness is based in large part on our advanced thin film semiconductor technology, module wattage (or conversion efficiency,efficiency), proprietary manufacturing technologyprocess (which enables us to produce a cadmium telluride (“CdTe”)CdTe module in less than 3.5a matter of hours using a continuous and highly automated industrial manufacturing process, as opposed to a batch process), and our focus on operational excellence. In addition, our CdTe modules use approximately 1-2% of the amount of semiconductor material that is used to manufacture traditionalconventional crystalline silicon solar modules. The cost of polysilicon is a significant driver of the manufacturing cost of crystalline silicon solar modules, and the timing and rate of change in the cost of silicon feedstock and polysilicon could lead to changes in solar module pricing levels. Polysilicon costs have had periods of decline over the past severalIn recent years, and polysilicon consumption per cell has been reduced through various initiatives, such as the adoption of diamond wire saw technology, contributingwhich have contributed to a declinedeclines in our relative manufacturing cost competitiveness over traditionalconventional crystalline silicon module manufacturers.


Given the smaller size (sometimes referred to as form factor) of our current Series 4 CdTe modules compared to certain types of crystalline silicon modules, we may incur higher labor and BoS costs associated with the construction of systems using our Series 4 modules. Thus, to compete effectively on a LCOE basis, our Series 4 modules may need to maintain a certain cost advantage per watt compared to crystalline silicon-based modules with larger form factors. We recently introduced our next generation Series 6 module technology, which is expected to enable the production of modules with a larger form factor along with better product attributes and a lower manufacturing cost structure. Accordingly, the larger form factor of our Series 6 modules is expected to reduce the number of electrical connections and hardware required for system installation. The resulting labor and material savings are expected to represent a significant improvement compared to current technologies and a substantial reduction in total installed system costs resulting in improved project returns as BoS costs represent a significant portion of the costs associated with the construction of a typical utility-scale system.


In terms of energy yield, in many climates our CdTe solar modules provide a significantan energy production advantage over most conventionalmonofacial crystalline silicon solar modules (including BSF and PERC technologies) of equivalent efficiency rating. For example, our CdTe solar modules provide a superior temperature coefficient, which results in stronger system performance in typical high insolation climates as the majority of a system’s generation, on average, occurs when module temperatures are well above 25°C (standard test conditions). In addition, our CdTe solar modules provide a superior spectral response in humid environments where atmospheric moisture alters the solar spectrum relative to laboratory standards. Our CdTe solar modules also provide a better shading response than conventional crystalline silicon solar modules, which may lose up to three times as much power asexperience significantly lower energy generation than CdTe solar modules when shading occurs. As a result of these and other factors, our PV solar power systemsmodules typically produce more annual energy in real world field conditions than competing systemsconventional modules with the same nameplate capacity. Furthermore, our thin-film CdTe semiconductor technology is immune to cell cracking and its resulting power output loss, a common failure often observed in crystalline silicon modules caused by adverse manufacturing, handling, weather, or other conditions.


While our modules and PV solar power systems are generally competitive in cost, reliability, and performance attributes, there can be no guarantee such competitiveness will continue to exist in the future to the same extent or at all. Any declines in the competitiveness of our products could result in additional margin compression, further declines in the average selling prices of our modules and systems erosion in our market share for modules and systems, and/or declines in overall net sales.additional margin compression. We continue to focus on enhancing the competitiveness of our solar modules and PV solar power systems by accelerating progress along our module technology and cost reduction roadmaps, continuing to make technological advances at the system level, using innovative installation techniques and know-how, and leveraging volume procurement around standardized hardware platforms.roadmaps.

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Certain Trends and Uncertainties


We believe that our business, financial condition, and results of operations may be favorably or unfavorably impacted by the following trends and uncertainties that may affect our financial condition and results of operations.uncertainties. See Part I, Item 1A. “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 20162019 and Part II, Item 1A. of this Quarterly Report on Form 10-Q for discussiondiscussions of other risks (the “Risk Factors”) that may affect our financial condition and results of operations.us.


Long-Term Strategic Plan

Our long-term strategic plan isplans are focused on our goal to create long-term shareholder value through a long-term roadmap to achieve our technology,balance of growth, profitability, and cost leadership objectives.liquidity. In executing our long-term strategic plan,such plans, we are focusing on providing utility-scale PV solar energy solutions using our modules in key geographic markets that we believe have a compelling need for mass-scale PV solar electricity, including markets throughout the Americas, the Asia-Pacific region, Europe, and certain other strategic markets. While these markets are expected to exhibit strong long-term demand for solar energy, the Middle East.economic disruption caused by the COVID-19 pandemic has adversely affected near-term demand for electricity at the grid level. As parta result, such temporary decline in load may adversely affect demand for specific forms of generation, such as our long-term strategic plan,PV solar energy solutions, depending on the severity and duration of the economic disruption. Given these market dynamics, we are focusing on opportunities in which our PV solar energy solutions can compete directly with traditional forms of energy generation on an LCOE or similar basis, or complement such generation offerings. SuchThese opportunities include the retirement and replacement of aging fossil fuel-based generation resources with utility-scale PV solar energy solutions. For example, cumulative global retirements of coal generation plants are expected to approximate 900 GWDC by 2040, representing a significant increase in the potential market for solar energy.

This focus on our core module and utility-scale offerings exists within a current market environment that includes rooftop and distributed generation solar, particularly in the United States. While it is unclear how rooftop and distributed generation solar might impact our core utility-scale based offerings inover the next several years, we believe that utility-scale solar will continue to be a compelling solar offering for companies with technology and cost leadership and will continue to represent an increasing portion of the overall electricity generation mix. However, our module offerings in certain international markets may be driven, in part, by future demand for rooftop and distributed generation solar solutions.


Our ability to provide utility-scale offerings on economically attractive terms depends, in part, on market factors outside our control, such as the availability of debt and/or equity financing (including, in the United States, tax equity financing), interest rate fluctuations, domestic or international trade policies, and government support programs. Adverse changes in these factors could increase the cost of utility-scale systems, which could reduce demand for such systems and limit the number of potential buyers. For example, we generally sell projects we have developed within our systems business, including projects in the United States, Japan, and elsewhere, to purchasers that depend on financing to fund the initial capital expenditures required to develop, build, and/or purchase a system. Although governments and central banks around the world have implemented significant measures to support capital markets, the economic disruption caused by the COVID-19 pandemic may result in a long-term tightening of the supply of capital in global financial markets (including, in the United States, a reduction in total tax equity availability). A reduction in the supply of project debt or equity financing (including, in the United States, tax equity financing) caused by the COVID-19 pandemic could make it difficult for our customers to secure the financing necessary to develop, build, purchase, or install systems. Similarly, purchasers of modules may cease or significantly reduce business operations, cease or delay module procurement, encounter an inability to obtain financing, including due to a reduction in the supply of project debt financing or equity investments (including, in the United States, tax equity financing), conserve capital resources, or take other actions in response to the COVID-19 pandemic, which may reduce demand and average selling prices for our modules.

We are focusing our resources in those markets and energy applications in which solar power can be a least-cost, best-fit energy solution, particularly in regions with significant current or projected electricity demand, relatively high existing electricity prices, strong demand for renewable energy generation, and high solar resources. As a result, we closely evaluatingevaluate and managingmonitor the appropriate level of resources required as we pursue the most advantageousto support such markets and cost effective projects and partnerships in our target markets.their
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associated sales opportunities. We have dedicated, and intend to continue to dedicate, significant capital and human resources to reduce the total installed cost of PV solar energy to optimize the design and logistics around our PV solar energy solutions, and to ensure that our solutions integrate well into the overall electricity ecosystem of each specific market. We expect that, over time, the majority of our consolidated net sales, operating income, and cash flows will come from solar offerings in the key geographic markets described above. The timing, execution, and financial impacts of our long-term strategic plan are subject to risks and uncertainties, as described in the Risk Factors. We are focusing our resources on those markets and energy applications in which solar power can be a least-cost, best-fit energy solution, particularly in regions with high solar resources, significant current

Creating or projected electricity demand, and/or relatively high existing electricity prices.


In order to create or maintainmaintaining a market position in certain strategically targeted markets our offerings from timeand energy applications also requires us to time may needadapt to be competitively priced at levels associated with minimal gross profit margins, which may adversely affect our results of operations. We expect the profitability associated with our various sales offerings to vary from one another over time,new and possibly vary from our internal long-range profitability expectations and targets, depending on thechanging market opportunity and the relative competitiveness of our offerings compared with other energy solutions, traditional or otherwise, that are available to potential customers. In addition, asconditions. For example, we execute on our long-term strategic plan, we will continue to monitor and adapt to anythe dynamics of emerging technologies, such as commercially viable energy storage solutions, which are expected to further enable PV solar power systems to compete with traditional forms of energy generation by shifting the delivery of energy generated by such systems to periods of greater demand. Storage solutions continue to evolve in terms of technology and cost, and cumulative global deployments of storage capacity are expected to exceed 900 GWDC by 2040, representing a significant increase in the potential market for renewable energy. We also continue to monitor and adapt to changing dynamics in the market set of potential buyers of solar projects. Market environments with few potential project buyers and a higher cost of capital would generally exert downward pressure on the potential revenue from the solar projects we are developing, whereas, conversely, market environments with many potential project buyers and a lower cost of capital would likely have a favorable impact on the potential revenue from such solar projects.

From time For example, the emergence of utility-owned generation has increased the number of potential project buyers as such utility customers benefit from a potentially low cost of capital available through rate-based utility investments. Given their long-term ownership profile, utility-owned generation customers typically seek to time, we may temporarily ownpartner with diversified and operate certainstable companies that can provide a broad spectrum of utility-scale generation solutions, including reliable PV solar power systems with the intention to sell such systems at a later date. Wetechnology, thereby mitigating their long-term ownership risks.

On occasion, we may also elect to construct and temporarily retain ownership interests indevelop partially contracted or uncontracted systems for which there is a partial or no PPA with an off-taker, such as a utility, but rather an intent to sell some portion of the electricity produced by the system on an open contract basis until the system is sold. Expected revenue from projects without a PPA for the full off-take of the system is subject to greater variability and uncertainty based on market factors and is typically lower thenthan projects with a PPA. Additionally,PPA for the full off-take of the system. Furthermore, all system pricing is affected by the pricing of energy to be sold on an open contract basis following the termination of the PPA (i.e., merchant pricing curves), and changes in market assumptions regarding future open contract sales, including potential changes in energy demand caused by the COVID-19 pandemic, may also result in significant variability and uncertainty in the value of our joint venturessystems projects.

As previously disclosed, following an evaluation of the long-term sustainable cost structure, competitiveness, and risk-adjusted returns of our U.S. project development business, we have determined it is in the best interest of our stockholders to explore options for this business line. This exploration may result in, among other possibilities, a partnership with a third-party who possesses complimentary competencies or a sale of all or a portion of our U.S. project development business. These potential third-party partners or purchasers of interests in our U.S. project development business arrangements with strategic partners have and may now, or in the future, be impacted by the global business disruption caused by the COVID-19 pandemic, and may consequently focus on their own operations and/or delay considering potential partnerships or other arrangements with respect to our U.S. project development business. While we have previously disclosed that the exploration of options for our U.S. project development business is not subject to any definitive timetable and there can be no assurances that this process will result in us temporarily retaining a noncontrolling ownership interest inany transaction, the underlying systems projects we develop, supply modules to,COVID-19 pandemic may have the effect of delaying or construct potentially for a periodpreventing the consummation of up to several years. In each of the above mentioned examples, we may retainany such ownership interests in a consolidated or unconsolidated separate entity.transaction.


We continually evaluate forecasted global demand, competition, and our addressable market and seek to effectively balance manufacturing capacity with market demand and the nature and extent of our competition. In July 2017,During 2019, we announced our plans to utilize our idled Vietnamese manufacturing plant forcommenced commercial production of Series 6 modules at our next generationsecond manufacturing facility in Ho Chi Minh City, Vietnam and our manufacturing facility in Lake Township, Ohio. In 2020, we expect to transition certain legacy Series 4 manufacturing facilities in Kulim, Malaysia to our Series 6 module technology. This decision is expectedtechnology and continue to provide us with several operational benefits, including (i) the ability to addexpand capacity and throughput at our other existing manufacturing facilities. Such additional Series 6 production lines without ramping down current Series 4 production, (ii) flexibility in production capacity, during our Series 6 transition period, and (iii) installing Series 6 production lines in a facility that is substantially identical to our Malaysian manufacturing plant where such lines are currently being installed, which is expected to accelerate and facilitate a cost-effective installation. Our Vietnamese plant and any other potential investments to add or otherwise modify our existing manufacturing capacity in response to market demand
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and competition, may require significant internal and possibly external sources of liquiditycapital, and may be subject to certain risks and uncertainties described in the Risk Factors, including those described underFactors.

In response to the headings “Our future success depends onCOVID-19 pandemic, governmental authorities have recommended or ordered the limitation or cessation of certain business or commercial activities in jurisdictions in which we do business or have operations. While some of these orders permit the continuation of essential business operations, or permit the performance of minimum business activities, these orders are subject to continuous revision or may be revoked or superseded, or our abilityunderstanding of the applicability of these orders and exemptions, may change at any time. In addition, due to effectively balance manufacturing production with market demand, convert existing production facilities to support new product lines,contraction of the virus, or concerns about becoming ill from the virus, we may experience reductions in the availability of our operational workforce, such as our transitionmanufacturing personnel. As a result, we may at any time be ordered by governmental authorities, or we may determine, based on our understanding of the recommendations or orders of governmental authorities or the availability of our personnel, that we have to Series 6 modulecurtail or cease business operations or activities altogether, including manufacturing, fulfillment, project development, construction, operating or maintenance operations, or research and when necessary, continue to build new manufacturing plants overdevelopment activities. At this time, in response to such demand and add production lines in a cost-effective manner, all of which are subject to risks and uncertainties” and “If any future production lines are not built in line with our committed schedules it may impair any future growth plans. If any future production lines do not achieve operating metrics similar to our existing production lines, our solar modules could perform below expectations and cause us to lose customers.”

8point3 Energy Partners LP

In June 2015, 8point3 Energy Partners LP (the “Partnership”),limitations have had a limited partnership formed by First Solareffect on our manufacturing facilities, and SunPower Corporation (the “Sponsors”), completed its initial public offering (the “IPO”). As partwe have implemented a wide range of safety measures intended to enable the IPO, we contributed interests in various projects to a subsidiarycontinuity of our operations and inhibit the Partnership in exchange for an ownership interestspread of COVID-19 at our manufacturing, administrative, and other sites and facilities, including those in the entity. Since the formation of the Partnership, the Sponsors have, from time to time, continued to sell interests in solar projects to the Partnership, which ownsUnited States, Malaysia, and operates a portfolio of solar energy generation projects. In April 2017, we announced that we were reviewing alternatives for the sale of our interests in the Partnership. For additional information on the Partnership, see the Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2016 and “Note 11. Investments in Unconsolidated Affiliates and Joint Ventures – 8point3 Energy Partners LP” of our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.Vietnam.



Systems Project Pipeline


The following tables summarize, as of October 26, 2017,May 7, 2020, our approximately 1.61.7 GWAC advanced-stage project pipeline. The actual volume of modules installed in our projects will be greater than the project size in MWacAC as module volumes required for a project are based upon MWdcDC, which will be greater than the MWacAC size pursuant to a DC-AC ratio typically ranging from 1.21.1 to 1.3.1.4. Such ratio varies across different projects due to various systemmany factors, including PPA pricing and the location, design, factors.and costs of the system. Projects are typically removed from our advanced-stage project pipeline tables below once we substantially complete construction of the project and after substantially all of the associated project revenue is recognized. Projects,A project, or portionsa portion of projects,a project, may also be removed from the tables below in the event an EPC-contracted or partner-developed project does not obtain permitting or financing, a project is not able to be sold due to the changing economics of the project or other factors or we decide to temporarily own and operate or retain interests in, sucha project based on strategic opportunities or market factors.


Projects Underunder Sales Agreements
(Includes
The following table includes uncompleted sold projects and projects under sales contracts subject to conditions precedent, and EPC agreements, including partner developed projects that we will be or are constructing.)precedent:
Project/Location
Project Size in MWAC
PPA Contracted PartnerCustomerExpected Year Revenue Recognition Will Be Completed% of Revenue Recognized as of March 31, 2020
GA Solar 4, Georgia200  Georgia Power CompanyOrigis Energy USA202089%
Sun Streams, Arizona150  SCE(1)202096%
Sunshine Valley, Nevada100  SCE(1)202097%
Seabrook, South Carolina72  South Carolina Electric and Gas CompanyDominion Energy202097%
Total522  

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Project/Location
Project Size in MWac
PPA Contracted PartnerEPC Contract/Partner Developed ProjectExpected Year Revenue Recognition Will Be CompletedPercentage of Revenue Recognized as of September 30, 2017
California Flats, California280
PG&E / Apple (1)Capital Dynamics201868%
India (multiple locations)190
(2)(5)2017/2018—%
Florida70
(3)(3)2018—%
Cuyama, California40
PG&ED.E. Shaw Renewable Investments201778%
Japan (multiple locations)9
(4)Contracted but not specified2017—%
Total589
    
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Projects with Executed PPAs Not Underunder Sales Agreements
Project/Location
Project Size in MWAC
PPA Contracted PartnerFully PermittedExpected or Actual Substantial Completion Year% Complete as of March 31, 2020
Horizon, Texas200  (2)No2022—%
Ridgely, Tennessee177  Tennessee Valley AuthorityNo2023—%
Sun Streams 2, Arizona150  Microsoft CorporationYes2020/202110%
Luz del Norte, Chile141  (3)Yes2016100%
American Kings Solar, California123  SCEYes202042%
Rabbitbrush, California100  (4)No20225%
Sun Streams PVS, Arizona65  APSNo20226%
Ishikawa, Japan59  Hokuriku Electric Power CompanyYes2018100%
Japan (multiple locations)55  (5)Yes2021/202221%
Miyagi, Japan40  Tohoku Electric Power CompanyYes202142%
India (multiple locations)40  (6)Yes2017100%
Total1,150  
——————————
(1)EDP Renewables and ConnectGen

(2)150 MWAC of the plant’s capacity is contracted with an unspecified counterparty; remaining capacity to be sold on an open contract basis

(3)Approximately 70 MWAC of the plant’s capacity is contracted under various PPAs; remaining capacity to be sold on an open contract basis

(4)Monterey Bay Community Power – 60 MWAC and Silicon Valley Clean Energy – 40 MWAC

(5)Chubu Electric Power Company – 38 MWAC and Hokuriku Electric Power Company – 17 MWAC

(6)Gulbarga Electricity Supply Co. – 20 MWAC and Chamundeshwari Electricity Supply Co. – 20 MWAC


Project/Location
Project Size in MWac
Fully PermittedPPA Contracted PartnerExpected or Actual Substantial Completion YearPercentage Complete as of September 30, 2017
Rosamond, California150
YesSCE201815%
Sun Streams, Arizona150
YesSCE201910%
Luz del Norte, Chile141
Yes(6)2016100%
American Kings Solar, California126
NoSCE202016%
Willow Springs, California100
YesSCE201821%
Sunshine Valley, Nevada100
YesSCE20193%
Ishikawa, Japan59
YesHokuriku Electric Power Company201848%
Japan (multiple locations)58
No(4)2019/202011%
Manildra, Australia49
YesEnergyAustralia201819%
Little Bear, California40
NoMarin Clean Energy (7)20205%
Miyagi, Japan40
NoTohoku Electric Power Company2018/201912%
India (multiple locations)40
Yes(8)201862%
Total1,053
    
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(1)
PG&E 150 MWac and Apple Energy, LLC 130 MWac

(2)
Southern Power Distribution Company of Telangana State Ltd – 110 MWac and Andhra Pradesh Southern Power Distribution Company Ltd – 80 MWac

(3)Contracted but not specified

(4)Hokuriku Electric Power Company and Tokyo Electric Power Company

(5)Vector Green Energy Private Limited and India Infrastructure Fund II

(6)
PPAs executed for approximately 70 MWac of capacity; remaining electricity to be sold on an open contract basis

(7)
Expandable to 160 MWac, subject to satisfaction of certain PPA contract conditions

(8)
Gulbarga Electricity Supply Co. – 20 MWac and Chamundeshwari Electricity Supply Co. – 20 MWac

Results of Operations


The following table sets forth our condensed consolidated statements of operations as a percentage of net sales for the three and nine months ended September 30, 2017March 31, 2020 and 2016:2019:
Three Months Ended
March 31,
20202019
Net sales100.0 %100.0 %
Cost of sales83.0 %100.0 %
Gross profit17.0 %— %
Selling, general and administrative11.0 %8.5 %
Research and development4.8 %4.1 %
Production start-up0.8 %1.8 %
Operating income (loss)0.3 %(14.4)%
Foreign currency (loss) income, net(0.1)%— %
Interest income1.8 %2.7 %
Interest expense, net(1.3)%(1.9)%
Other (expense) income, net(0.4)%0.7 %
Income tax benefit16.8 %0.3 %
Equity in earnings, net of tax— %— %
Net income (loss)17.0 %(12.7)%
  Three Months Ended
September 30,		 Nine Months Ended
September 30,
  2017 2016 2017 2016
Net sales 100.0 % 100.0 % 100.0 % 100.0 %
Cost of sales 73.2 % 74.9 % 81.3 % 75.5 %
Gross profit 26.8 % 25.1 % 18.7 % 24.5 %
Selling, general and administrative 4.6 % 8.9 % 5.7 % 7.4 %
Research and development 1.9 % 4.7 % 2.5 % 3.7 %
Production start-up 1.2 % 0.1 % 0.9 % — %
Restructuring and asset impairments 0.1 % 0.6 % 1.5 % 3.5 %
Operating income 19.0 % 10.8 % 8.2 % 9.8 %
Foreign currency loss, net (0.4)% (0.3)% (0.2)% (0.3)%
Interest income 0.8 % 0.9 % 0.9 % 0.7 %
Interest expense, net (0.4)% (0.8)% (0.8)% (0.7)%
Other income, net 0.2 % 0.9 % 1.0 % 1.9 %
Income tax (expense) benefit (0.7)% 10.0 % 1.0 % 1.3 %
Equity in earnings of unconsolidated affiliates, net of tax 0.4 % 0.7 % 0.2 % 0.3 %
Net income 18.9 % 22.1 % 10.3 % 13.0 %


Segment Overview


We operate our business in two segments. Our componentsmodules segment involves the design, manufacture, and sale of CdTe solar modules which convert sunlight into electricity,to third parties, and our systems segment includes the development, construction, operation, and maintenance, of PV solar power systems, which primarily use our solar modules. See Note 19. “Segment Reporting” to our condensed consolidated financial statements included with this Quarterly Report on Form 10-Q for more information. See also Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Systems Project Pipeline” for a description of the system projects in our advanced-stage project pipeline.


Product Revenue

The following table sets forth the total amounts of solar module and solar power system net sales for the three and nine months ended September 30, 2017 and 2016. For the purpose of the following table, (i) solar module revenue is composed of revenue from the sale of solar modules to third parties, which does not include any modules sold as part of our PV solar power systems, and (ii) solar power system revenue is composed of revenue from the sale of PV solar power systems, and related products and services, including any modules installed in such systems and any revenue from energy generated by such systems:systems.
  Three Months Ended
September 30,		   Nine Months Ended
September 30,		  
(Dollars in thousands) 2017 2016 Three Month Change 2017 2016 Nine Month Change
Solar module revenue $300,297
 $213,046
 $87,251
 41% $599,827
 $425,779
 $174,048
 41 %
Solar power system revenue 786,729
 468,230
 318,499
 68% 2,002,316
 2,147,989
 (145,673) (7)%
Net sales $1,087,026
 $681,276
 $405,750
 60% $2,602,143
 $2,573,768
 $28,375
 1 %

Solar module revenue increased $87.3 million for the three months ended September 30, 2017 compared to the three months ended September 30, 2016 primarily as a result of a 110% increase in the volume of watts sold, partially offset by a 33% decrease in the average selling price per watt. Solar power system revenue increased $318.5 million for the three months ended September 30, 2017 compared to the three months ended September 30, 2016 primarily due to the sale of the California Flats and Cuyama projects in 2017, partially offset by completion of substantially all construction activities on the East Pecos, Taylor, Astoria, and Desert Stateline projects in 2016.

Solar module revenue increased $174.0 million for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016 primarily as a result of a 105% increase in the volume of watts sold, partially offset by a 31% decrease in the average selling price per watt. Solar power system revenue decreased $145.7 million for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016 primarily due to the completion of substantially all construction activities on a number of projects in 2016, including the Desert Stateline, Astoria, Taylor, Silver State South, East Pecos, Butler, and McCoy projects, partially offset by the sale of the Moapa, California Flats, and Switch Station projects in 2017.

Three and Nine Months Ended September 30, 2017 and 2016


Net sales


ComponentsModules Business


We generally price and sell our solar modules on a per watt of nameplate power.basis. During the three and nine months ended September 30, 2017,March 31, 2020, we sold the majority of our solar modules to integrators and operators of systems in the United States, India, and Turkey. Other than the modules sold to such third parties, net sales for our components business also included modules installed in our PV solar power systems described below under “Net Sales – Systems Business.” During the three and nine months ended September 30, 2017, substantially all of our componentsmodules business net sales excluding modules installed in our systems, were denominated in U.S. dollars. We recognize revenue for module sales at a point in time following the transfer of control of such productsthe modules to the customer, which typically occurs upon shipment or delivery depending on the terms of the underlying contracts, and our customers generally do not have extended payment terms. The revenue recognition policies for module sales are further described in Note 2. “Summary of Significant Accounting Policies” to our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.contracts.


Systems Business


ThroughDuring the three months ended March 31, 2020, the majority of our fully integrated systems business we provide complete turn-key PV solar power systems, or solar solutions,net sales were in the United States and were denominated in U.S. dollars. We recognize revenue for the sale of a development project, which may include project development,excludes EPC services, and O&M services. Additionally,or for the sale of a completed system when we may temporarily own and operate, or retain interests in, certain of our PV solar power systems, which are also included within our systems business. We typically recognize revenue forenter into the associated sales contract with the customer. For other sales of solar power systems and/or EPC services, we generally recognize revenue over time as our performance creates or enhances an energy generation asset controlled by the customer. Furthermore, the sale of a solar power system combined with EPC services represents a single performance obligation for the development and construction of a single generation asset. For such arrangements, we recognize revenue as work is performed using cost based input methods, which result in revenue being recognized as work is performed based on the relationship between actual costs incurred compared to the total estimated costs for a given contract. We may also recognize revenue for the sale

47

The following table shows net sales by reportable segment for the three and nine months ended September 30, 2017March 31, 2020 and 2016:2019:
 Three Months Ended
March 31,
(Dollars in thousands)20202019Three Month Change
Modules$393,681  $198,815  $194,866  98 %
Systems138,443  333,163  (194,720) (58)%
Net sales$532,124  $531,978  $146  — %
  Three Months Ended
September 30,		   Nine Months Ended
September 30,		  
(Dollars in thousands) 2017 2016 Three Month Change 2017 2016 Nine Month Change
Components $410,470
 $427,940
 $(17,470) (4)% $1,039,834
 $1,209,081
 $(169,247) (14)%
Systems 676,556
 253,336
 423,220
 167 % 1,562,309
 1,364,687
 197,622
 14 %
Net sales $1,087,026
 $681,276
 $405,750
 60 % $2,602,143
 $2,573,768
 $28,375
 1 %


Net sales from our componentsmodules segment which includes solar modules used in our systems projects, decreased $17.5increased $194.9 million for the three months ended September 30, 2017March 31, 2020 compared to the three months ended September 30, 2016March 31, 2019 primarily due to a 29% decrease in the average selling price per watt, partially offset by a 36%96% increase in the volume of watts sold. Net sales from our systems segment which excludes solar modules used in our systems projects, increased $423.2decreased $194.7 million for the three months ended September 30, 2017March 31, 2020 compared to the three months ended September 30, 2016 primarily as a result of the sale of the California Flats and Cuyama projects in 2017, partially offset by completion of substantially all construction activities on the East Pecos, Taylor, Astoria, and Desert Stateline projects in 2016.

Net sales from our components segment, which includes solar modules used in our systems projects, decreased $169.2 million for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016March 31, 2019 primarily due to a 27% decrease in the average selling price per watt, partially offset by an 18% increase in the volume of watts sold. Net sales from our systems segment, which excludes solar modules used in our systems projects, increased $197.6 million for the nine months ended September 30, 2016 primarily as a result of the sale of the Moapa, California Flats, and Switch Station projects in 2017, partially offset by the completion of substantially all construction activities on a number ofat the Rosamond, Phoebe, and Lake Hancock projects in 2016, including2019, partially offset by ongoing construction activities at the Desert Stateline, Astoria, Taylor, Silver State South, East Pecos, Butler, and McCoy projects.GA Solar 4 project.


Cost of sales


ComponentsModules Business



Our modules business cost of sales includes the cost of raw materials and components for manufacturing solar modules, such as glass, transparent conductive coatings, CdTe, and other thin-filmthin film semiconductors, laminate materials, connector assemblies, and edge seal materials.materials, and frames. In addition, our cost of sales includes direct labor for the manufacturing of solar modules and manufacturing overhead, such as engineering, equipment maintenance, environmental health and safety, quality and production control, and information technology, and procurement costs.technology. Our cost of sales also includes depreciation of manufacturing plant and equipment, facility-related expenses, environmental health and safety costs, and costs associated with shipping, warranties, and solar module collection and recycling (excluding accretion).

We include the sale of solar modules manufactured by our components business and used by our systems business within net sales of our components business. Therefore, the related cost of sales is also included within our components business.


Systems Business


For our systems business, project-related costs include development costs (legal, consulting, transmission upgrade, interconnection, permitting, and other similar costs), EPC costs (consisting primarily of BoS costs forsolar modules, inverters, electrical and mounting hardware, project management and engineering, costs, and construction labor costs)labor), and site specific costs.


The following table shows cost of salesby reportable segment for the three and nine months ended September 30, 2017March 31, 2020 and 2016:2019:
 Three Months Ended
March 31,
(Dollars in thousands)20202019Three Month Change
Modules$318,329  $223,811  $94,518  42 %
Systems123,457  308,055  (184,598) (60)%
Total cost of sales$441,786  $531,866  $(90,080) (17)%
% of net sales83.0 %100.0 %
  Three Months Ended
September 30,		   Nine Months Ended
September 30,		  
(Dollars in thousands) 2017 2016 Three Month Change 2017 2016 Nine Month Change
Components $335,268
 $288,701
 $46,567
 16% $828,561
 $865,530
 $(36,969) (4)%
Systems 459,958
 221,667
 238,291
 107% 1,286,705
 1,077,668
 209,037
 19 %
Total cost of sales $795,226
 $510,368
 $284,858
 56% $2,115,266
 $1,943,198
 $172,068
 9 %
% of net sales 73.2% 74.9%  
  
 81.3% 75.5%    



Our cost of sales increased $284.9decreased $90.1 million, or 56%17%, and decreased 1.717.0 percentage points as a percent of net sales for the three months ended September 30, 2017March 31, 2020 compared to the three months ended September 30, 2016.March 31, 2019. The increasedecrease in cost of sales was driven by a $238.3$184.6 million increasedecrease in our systems segment cost of sales primarily due to the sizelower volume of projects sold or under construction during the period and the timing of when all revenue recognition criteria were met,period. Such decrease was partially offset by a mix of higher gross profit projects. The increase in cost of sales was also driven by a $46.6$94.5 million increase in our components segment cost of sales primarily as a result of higher costs of $101.0 million from the increased volume of modules sold directly to third parties, partially offset by continued reductions in the cost per watt of our solar modules, which decreased cost of sales by $45.4 million, and a reduction in our module collection and recycling liability of $13.5 million from updates to several valuation assumptions, including a decrease in certain inflation rates.

Our cost of sales increased $172.1 million, or 9%, and increased 5.8 percentage points as a percent of net sales for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016. The increase in cost of sales was driven by a $209.0 million increase in our systems segment cost of sales primarily due to a mixhigher costs of lower gross profit projects. This$178.4 million from an increase in costthe volume of sales wasmodules sold, partially offset by a $37.0 million decrease in our components segment cost of sales primarily as a result of continued cost reductions in the cost per watt of our solar modules, which decreased cost of sales by $151.0$64.6 million, the $13.5 million reduction in our module collection and recycling liability described above, a $12.5 million reduction in our product warranty liability due to lower legacy module replacement costs, and lower inventory write-downsunder-utilization and certain other charges associated with
48
the initial ramp of certain Series 6 manufacturing lines, which decreased cost of sales by $28.1 million partially offset by higher costs of $153.1 million from the increased volume of modules sold directlycompared to third parties.2019.


Gross profit


Gross profit may be affected by numerous factors, including the selling prices of our modules and systems, our manufacturing costs, project development costs, BoS costs, the capacity utilization of our manufacturing facilities, and foreign exchange rates. Gross profit may also be affected by the mix of net sales generated byfrom our componentsmodules and systems businesses.


The following table shows gross profit for the three and nine months ended September 30, 2017March 31, 2020 and 2016:2019:
 Three Months Ended
March 31,
(Dollars in thousands)20202019Three Month Change
Gross profit$90,338  $112  $90,226  >100%  
% of net sales17.0 %— %
  Three Months Ended
September 30,		   Nine Months Ended
September 30,		    
(Dollars in thousands) 2017 2016 Three Month Change 2017 2016 Nine Month Change
Gross profit $291,800
 $170,908
 $120,892
 71% $486,877
 $630,570
 $(143,693) (23)%
% of net sales 26.8% 25.1%  
  
 18.7% 24.5%    


Gross profit for the three months ended March 31, 2020 increased 1.7 percentage points to 26.8%17.0% from 0.0% during the three months ended September 30, 2017 from 25.1% during the three months ended September 30, 2016March 31, 2019 primarily due to a mix of higher gross profit projects soldon third-party module sales and under construction duringimproved utilization of our manufacturing facilities from the period and the reduction in our module collection and recycling liability described above,successful ramp of various Series 6 manufacturing lines, partially offset by reductions in the average selling price per watt of our modules sold directly to third parties. Gross profit decreased 5.8 percentage points to 18.7% during the nine months ended September 30, 2017 from 24.5% during the nine months ended September 30, 2016 primarily as a result of a mix of lower gross profit projects sold and under construction during the period and reductions in the average selling price per watt of our modules sold directly to third parties.period.


Selling, general and administrative


Selling, general and administrative expense consists primarily of salaries and other personnel-related costs, professional fees, insurance costs, travel expenses, and other business development and selling expenses.


The following table shows selling, general and administrative expense for the three and nine months ended September 30, 2017March 31, 2020 and 2016:2019:
 Three Months Ended
March 31,
(Dollars in thousands)20202019Three Month Change
Selling, general and administrative$58,587  $45,352  $13,235  29 %
% of net sales11.0 %8.5 %
  Three Months Ended
September 30,		   Nine Months Ended
September 30,		    
(Dollars in thousands) 2017 2016 Three Month Change 2017 2016 Nine Month Change
Selling, general and administrative $50,546
 $60,345
 $(9,799) (16)% $147,702
 $191,624
 $(43,922) (23)%
% of net sales 4.6% 8.9%  
  
 5.7% 7.4%    



Selling, general and administrative expense for the three months ended September 30, 2017 decreasedMarch 31, 2020 increased compared to the three months ended September 30, 2016March 31, 2019 primarily due to lower business development expenses, lower professional fees, and lower accretion expense associated with the reduction in our module collection and recycling liability described above. Selling, general and administrative expense for the nine months ended September 30, 2017 decreased compared to the nine months ended September 30, 2016 primarily as a result of lowerhigher employee compensation expense, including higher severance and share-based compensation; an increase in professional fees; and higher expected credit losses for our accounts receivable due to the various restructuring activities described incurrent economic conditions resulting from the COVID-19 pandemic. See Note 4. “Restructuring and Asset Impairments” to5. “Consolidated Balance Sheet Details” for further information about the allowance for credit losses associated with our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q, lower professional fees, lower infrastructure related expenses, and lower business development expenses.accounts receivable.


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Research and development


Research and development expense consists primarily of salaries and other personnel-related costs; the cost of products, materials, and outside services used in our process and product R&D activities; and depreciation and amortization expense associated with R&D specific facilities and equipment. We maintain a number of programs and activities to improve our technology and processes in order to enhance the performance and reduce the costs of our solar modules and PV solar power systems.modules.


The following table shows research and development expense for the three and nine months ended September 30, 2017March 31, 2020 and 2016:2019:
 Three Months Ended
March 31,
(Dollars in thousands)20202019Three Month Change
Research and development$25,613  $21,877  $3,736  17 %
% of net sales4.8 %4.1 %
  Three Months Ended
September 30,		   Nine Months Ended
September 30,		    
(Dollars in thousands) 2017 2016 Three Month Change 2017 2016 Nine Month Change
Research and development $20,850
 $32,173
 $(11,323) (35)% $64,990
 $95,291
 $(30,301) (32)%
% of net sales 1.9% 4.7%  
  
 2.5% 3.7%    


The decrease in researchResearch and development expense for the three and nine months ended September 30, 2017March 31, 2020 increased compared to the three and nine months ended September 30, 2016 wasMarch 31, 2019 primarily due to lower costs for third-party contracted services, reducedincreased material and module testing costs and lowerhigher employee compensation expense resulting from reductions to our R&D headcount as part of the restructuring activities further described in Note 4. “Restructuring and Asset Impairments” to our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q. The decrease in research and development expense for the nine months ended September 30, 2017 was also attributable to the termination of certain R&D programs for legacy module technologies.expense.

During the three months ended September 30, 2017, the average conversion efficiency of our CdTe solar modules produced was 17.0% compared to 16.5% for the three months ended September 30, 2016. During the nine months ended September 30, 2017, the average conversion efficiency of our CdTe solar modules produced was 16.8% compared to 16.3% for the nine months ended September 30, 2016.


Production start-up


Production start-up expense consists primarily of employee compensation and other costs associated with operating a production line before it has beenis qualified for full production, including the cost of raw materials for solar modules run through the production line during the qualification phase and applicable facility related costs. Costs related to equipment upgrades and implementation of manufacturing process improvements are also included in production start-up expense as well as costs related to the selection of a new site, related legal and regulatory costs, and costs to maintain our plant replication program to the extent we cannot capitalize these expenditures. In general, we expect production start-up expense per production line to be higher when we build an entirely new manufacturing facility compared with the addition or replacement of production lines at an existing manufacturing facility, primarily due to the additional infrastructure investment required when building an entirely new facility.


The following table shows production start-up expense for the three and nine months ended September 30, 2017March 31, 2020 and 2016:2019:
 Three Months Ended
March 31,
(Dollars in thousands)20202019Three Month Change
Production start-up$4,482  $9,522  $(5,040) (53)%
% of net sales0.8 %1.8 %
  Three Months Ended
September 30,		   Nine Months Ended
September 30,		    
(Dollars in thousands) 2017 2016 Three Month Change 2017 2016 Nine Month Change
Production start-up $12,624
 $752
 $11,872
 1,579% $22,155
 $807
 $21,348
 2,645%
% of net sales 1.2% 0.1%  
  
 0.9% —%    


During the three and nine months ended September 30, 2017,March 31, 2020, we incurred production start-up expense for the transition to Series 6 module manufacturing at our facilitiessecond facility in Kulim, Malaysia and the capacity expansion of our manufacturing facility in Perrysburg, Ohio; Kulim, Malaysia;Ohio. During the three months ended March 31, 2019, we incurred production start-up expense at our facility in Lake Township, Ohio, and our second facility in Ho Chi Minh City, Vietnam.Vietnam, which commenced commercial production in early 2019.

Restructuring and asset impairments

Restructuring and asset impairments consists of expenses incurred related to material restructuring initiatives and includes any associated asset impairments, costs for employee termination benefits, costs for contract terminations and penalties, and other restructuring related costs. Such restructuring initiatives are generally intended to align the organization with then current business conditions and to reduce costs.

The following table shows restructuring and asset impairments for the three and nine months ended September 30, 2017 and 2016:
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  Three Months Ended
September 30,		   Nine Months Ended
September 30,		    
(Dollars in thousands) 2017 2016 Three Month Change 2017 2016 Nine Month Change
Restructuring and asset impairments $791
 $4,314
 $(3,523) (82)% $39,108
 $89,846
 $(50,738) (56)%
% of net sales 0.1% 0.6%  
  
 1.5% 3.5%    

During the three and nine months ended September 30, 2017 we incurred $0.8 million and $39.1 million, respectively,Table of restructuring and asset impairment charges associated with our transition to Series 6 module manufacturing. Such charges included net losses on the disposition of previously impaired Series 4 and Series 5 manufacturing equipment, severance benefits to terminated employees, and net miscellaneous charges, primarily related to contract terminations, the write-off of operating supplies, and other Series 4 manufacturing exit costs. See Note 4. “Restructuring and Asset Impairments” to our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for additional information. We expect to incur up to $5 million of additional charges in 2017 as we continue the transition to Series 6 module manufacturing.Contents

During the three and nine months ended September 30, 2016, we incurred $4.3 million and $89.8 million, respectively, of restructuring and asset impairment charges primarily related to our decision to end our crystalline silicon module production. These charges included impairments of certain crystalline silicon module manufacturing equipment, impairments of developed technology intangible assets for our crystalline silicon module technology, impairments of goodwill from the disposal of our crystalline silicon components reporting unit, and other miscellaneous charges. See Note 4. “Restructuring and Asset Impairments” to our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for additional information.

Foreign currency loss,(loss) income, net


Foreign currency loss,(loss) income, net consists of the net effect of gains and losses resulting from holding assets and liabilities and conducting transactions denominated in currencies other than our subsidiaries’ functional currencies.


The following table shows foreign currency loss, net for the three and nine months ended September 30, 2017 and 2016:
  Three Months Ended
September 30,		   Nine Months Ended
September 30,		    
(Dollars in thousands) 2017 2016 Three Month Change 2017 2016 Nine Month Change
Foreign currency loss, net $(3,968) $(2,296) $(1,672) 73% $(6,166) $(8,259) $2,093
 (25)%

Foreign currency loss,(loss) income, net for the three months ended September 30, 2017 increased compared toMarch 31, 2020 and 2019:
 Three Months Ended
March 31,
(Dollars in thousands)20202019Three Month Change
Foreign currency (loss) income, net$(398) $172  $(570) >100%  

Foreign currency loss for the three months ended September 30, 2016 primarily due toMarch 31, 2020 was consistent with the weakening of the Indian rupee relative to the U.S. dollar and differences between our economic hedge positions and the underlying exposures. Foreign currency loss, net for the ninethree months ended September 30, 2017 decreased compared to the nine months ended September 30, 2016 primarily as a result of lower costs associated with hedging activities related to our subsidiaries in India, the weakening of the U.S. dollar relative to certain foreign currencies, and differences between our economic hedge positions and the underlying exposures.March 31, 2019.



Interest income


Interest income is earned on our cash, cash equivalents, marketable securities, and restricted cash, and investments.restricted marketable securities. Interest income also includes interest earned from notes receivable and late customer payments.


The following table shows interest income for the three and nine months ended September 30, 2017March 31, 2020 and 2016:2019:
 Three Months Ended
March 31,
(Dollars in thousands)20202019Three Month Change
Interest income$9,330  $14,259  $(4,929) (35)%
  Three Months Ended
September 30,		   Nine Months Ended
September 30,		    
(Dollars in thousands) 2017 2016 Three Month Change 2017 2016 Nine Month Change
Interest income $8,392
 $5,894
 $2,498
 42% $22,364
 $18,829
 $3,535
 19%


Interest income for the three and nine months ended September 30, 2017 increasedMarch 31, 2020 decreased compared to the three and nine months ended September 30, 2016March 31, 2019 primarily due to higher cashlower average balances during the period, increasedof time deposits and lower interest rates associated with ouron cash and marketable securities, and a promissory note with an affiliate issued in late 2016.cash equivalents.


Interest expense, net


Interest expense, netis primarily comprised of interest incurred on long-term debt, settlements of interest rate swap contracts, and changes in the fair value of interest rate swap contracts that do not qualify for hedge accounting in accordance with ASC 815. We may capitalize interest expense onto our project assets or property, plant and equipment when such costs qualify for interest capitalization, which reduces the amount of net interest expense reported in any given period.


The following table shows interest expense, netfor the three and nine months ended September 30, 2017March 31, 2020 and 2016:2019:
 Three Months Ended
March 31,
(Dollars in thousands)20202019Three Month Change
Interest expense, net$(6,789) $(10,121) $3,332  (33)%
  Three Months Ended
September 30,		   Nine Months Ended
September 30,		    
(Dollars in thousands) 2017 2016 Three Month Change 2017 2016 Nine Month Change
Interest expense, net $(4,149) $(5,563) $1,414
 (25)% $(19,692) $(17,356) $(2,336) 13%


Interest expense, net for the three months ended September 30, 2017 was consistent withMarch 31, 2020 decreased compared to the three months ended September 30, 2016. Interest expense, net for the nine months ended September 30, 2017 increased compared to the nine months ended September 30, 2016March 31, 2019 primarily due to changes in the fair value of interest rate swap contracts, thatwhich do not qualify for hedge accounting, and higher levels of project specific debt financings, partially offset by lowerhigher interest expense associated with certain Malaysian credit facilities that were fully repaid in 2016.project debt.


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Other (expense) income, net


Other (expense) income, net is primarily comprised of miscellaneous items and realized gains and losses on the sale of marketable securities and cost method investments.restricted marketable securities.


The following table shows other income, net for the three and nine months ended September 30, 2017March 31, 2020 and 2016:2019:
 Three Months Ended
March 31,
(Dollars in thousands)20202019Three Month Change
Other (expense) income, net$(2,222) $3,509  $(5,731) >(100)% 
  Three Months Ended
September 30,		   Nine Months Ended
September 30,		    
(Dollars in thousands) 2017 2016 Three Month Change 2017 2016 Nine Month Change
Other income, net $2,018
 $6,419
 $(4,401) (69)% $25,180
 $48,725
 $(23,545) (48)%


Other (expense) income, net decreased for the three months ended September 30, 2017March 31, 2020 decreased compared to the three months ended September 30, 2016March 31, 2019 primarily due to the resolution of an outstanding matter with a former customer in 2016. Other income, net decreased for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016 primarily due to realized gains of $37.8 million in early 2016 from the sale of certain restricted investments as part of an effort to align the currencies of the investments with those of the corresponding collection and recycling liabilities and a $7.4 million reversal of the outstanding contingent considerationexpected credit losses associated with our TetraSun acquisition as a result of our executive management’s decision to end production of our crystalline silicon modules in June 2016,certain notes receivable, partially offset by an incremental settlement in 2017prior period charges associated with certain letter of credit arrangements and the resolutionimpairment of a strategic investment. See Note 5. “Consolidated Balance Sheet Details” for further information about the customer matter describe above.allowance for credit losses for our notes receivable.



Income tax (expense) benefit


Income tax expense or benefit, deferred tax assets and liabilities, and liabilities for unrecognized tax benefits reflect our best estimate of current and future taxes to be paid. We are subject to income taxes in both the United States and numerous foreign jurisdictions in which we operate, principally Australia, India,Japan, and Malaysia. Significant judgments and estimates are required in determiningto determine our consolidated income tax expense. The statutory federal corporate income tax rate in the United States is 35.0%21%, whileand the tax rates in Australia, India,Japan, and Malaysia are 30.0%30%, 34.6%30.6%, and 24.0%24%, respectively. In Malaysia, we have been granted a long-term tax holiday, scheduled to expire in 2027, pursuant to which substantially all of our income earned in Malaysia is exempt from income tax.tax, conditional upon our continued compliance with certain employment and investment thresholds.


The following table shows income tax (expense) benefit for the three and nine months ended September 30, 2017March 31, 2020 and 2016:2019:
 Three Months Ended
March 31,
(Dollars in thousands)20202019Three Month Change
Income tax benefit$89,215  $1,394  $87,821  >100%  
Effective tax rate(5,657.3)%2.0 %
  Three Months Ended
September 30,		   Nine Months Ended
September 30,		    
(Dollars in thousands) 2017 2016 Three Month Change 2017 2016 Nine Month Change
Income tax (expense) benefit $(7,580) $68,205
 $(75,785) 111% $26,769
 $32,886
 $(6,117) (19)%
Effective tax rate 3.6% (87.7)%  
  
 (11.4)% (11.2)%    


Our tax rate is affected by recurring items, such as tax rates in foreign jurisdictions and the relative amounts of income we earn in those jurisdictions. The rate is also affected by discrete items that may occur in any given period, but are not consistent from period to period. Income tax expensebenefit increased by $75.8$87.8 million during the three months ended September 30, 2017March 31, 2020 compared to the three months ended September 30, 2016 primarily as a result of a $35.4 million reversal of a liability associated with an uncertain tax position in 2016, higher pretax income, and lower excess tax benefits associated with share-based compensation.

Income tax benefit decreased by $6.1 million during the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016March 31, 2019 primarily due to a $35.4 million reversal of a liability associated with an uncertain tax position in 2016 and lower excess tax benefits associated with share-based compensation, partially offset by a $42.1$88.7 million discrete tax benefit from the effect of tax law changes associated with the acceptanceCARES Act.

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Equity in earnings, of unconsolidated affiliates, net of tax


Equity in earnings, of unconsolidated affiliates, net of tax represents our proportionate share of the earnings or losses of unconsolidated affiliates with whom we have madefrom equity method investments as well as any gains or losses on the sale or disposal of such investments.


The following table shows equity in earnings, of unconsolidated affiliates, net of tax for the three and nine months ended September 30, 2017March 31, 2020 and 2016:2019:
 Three Months Ended
March 31,
(Dollars in thousands)20202019Three Month Change
Equity in earnings, net of tax$(88) $(173) $85  49 %
  Three Months Ended
September 30,		   Nine Months Ended
September 30,		    
(Dollars in thousands) 2017 2016 Three Month Change 2017 2016 Nine Month Change
Equity in earnings of unconsolidated affiliates, net of tax $4,045
 $4,474
 $(429) (10)% $5,462
 $6,851
 $(1,389) (20)%


Equity in earnings, of unconsolidated affiliates, net of tax for the three and nine months ended September 30, 2017 decreased compared toMarch 31, 2020 was consistent with the three and nine months ended September 30, 2016 primarily due to lower equity in earnings of 8point3 Operating Company, LLC, partially offset by the deferral of certain profit on the sale of the Stateline project during the three and nine months ended September 30, 2016.March 31, 2019.



Critical Accounting Policies and Estimates


In preparing our condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States,U.S. GAAP, we make estimates and assumptions that affect the amounts of reported assets, liabilities, revenues, and expenses, as well as the disclosure of contingent liabilities. Some of our accounting policies require the application of significant judgment in the selection of the appropriate assumptions for making these estimates. By their nature, these judgments are subject to an inherent degree of uncertainty. We base our judgments and estimates on our historical experience, our forecasts, and other available information as appropriate. We believe that the judgments and estimates involved in over time revenue recognition, accrued solar module collection and recycling, product warranties, performance guarantees, indemnifications, accounting for income taxes, and long-lived asset impairments and testing goodwill for impairment have the greatest potential impact on our condensed consolidated financial statements. The actual results experienced by us may differ materially and adversely from our estimates. To the extent there are material differences between our estimates and the actual results, our future results of operations will be affected.

For a description of our critical accounting policies and estimates affecting revenue recognition, see Note 2. “Summary of Significant Accounting Policies” to our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q. For a description of other criticalthe accounting policies that affect our morerequire the most significant judgmentsjudgment and estimates used in the preparation of our condensed consolidated financial statements, refer to our Annual Report on Form 10-K for the year ended December 31, 2016 filed with the SEC. With the exception of the changes to our revenue recognition policies referenced above, there2019. There have been no material changes to our critical accounting policies during the ninethree months ended September 30, 2017.March 31, 2020 with the exception of certain changes to our allowance for credit losses accounting policies as part of the adoption of ASU 2016-13 as described in Note 2. “Recent Accounting Pronouncements” to our condensed consolidated financial statements.


Recent Accounting Pronouncements


See Note 3.2. “Recent Accounting Pronouncements” to our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for a summary of recent accounting pronouncements.


Liquidity and Capital Resources


As of September 30, 2017,March 31, 2020, we believe that our cash, cash equivalents, marketable securities, cash flows from operating activities, contracts with customers for the future sale of solar modules, and advanced-stage project pipeline availability under our senior secured revolving credit facility considering minimum liquidity covenant requirements, and access to the capital markets will be sufficient to meet our working capital, systems project investment, and capital expenditure needs for at least the next 12 months. As needed, we also believe we will have adequate access to the capital markets. We monitor our working capital to ensure we have adequate liquidity, both domestically and internationally.


We intend to maintain appropriate debt levels based upon cash flow expectations, our overall cost of capital, and expected cash requirements for our operations, capital expenditures, and strategic discretionary spending. In the future, we may also engagesuch as systems project development activities in additional debt or equity financings, including project specific debt financings. We believe that when necessary, we will have adequate access to the capital markets, althoughcertain international regions. However, our ability to raise capital on terms commercially acceptable to us could be constrained if there is insufficient lender or investor interest due to company-specific, industry-wide, or company-specific concerns. Suchbroader market concerns, such as a tightening of the supply of capital due to the COVID-19 pandemic and related
53
containment measures. Any incremental debt financings could result in increased debt service expenses dilution to our existing stockholders, and/or restrictive covenants, which require uscould limit our ability to maintain certain financial conditions. pursue our strategic plans.

As of September 30, 2017, we were in compliance with the covenants for all of our long-term debt facilities.

As of September 30, 2017,March 31, 2020, we had $2.7$1.5 billion inof cash, cash equivalents, and marketable securities compared to $2.0$2.2 billion as of December 31, 2016. Cash,2019. The decrease in cash, cash equivalents, and marketable securities aswas primarily driven by the $350 million settlement payment associated with our prior class action lawsuit; the timing of September 30, 2017 increased primarilycash receipts from certain third-party module sales, for which proceeds were received in late 2019 prior to the sale ofstep down in the Moapa and California Flats projects and proceeds from borrowings under project specific debt financings, partially offset byU.S. investment tax credit; purchases of property, plant and equipment.equipment; and other operating expenditures. As of September 30, 2017 and DecemberMarch 31, 2016, $1.52020, $0.9 billion and $1.2 billion, respectively, of our cash, cash equivalents, and marketable securities was held by our foreign subsidiaries and was generallyprimarily based in U.S. dollar, Malaysian ringgit,Euro, and EuroJapanese yen denominated holdings.


We utilize a variety of tax planning and financing strategies in an effort to ensure that our worldwide cash is available in the locations in which it is needed. If thesecertain international funds were needed for our operations in the U.S.,United States, we couldmay be required to accrue and pay certain U.S. and foreign taxes to repatriate such funds. We intendmaintain the intent and ability to permanently reinvest our unremittedaccumulated earnings outside of the U.S.,United States, with the exception of our subsidiaries in Canada and Germany, and our future plans do not demonstrate a need to repatriate additional amounts to fund our domestic operations. Furthermore,Germany. In addition, changes to foreign government banking regulations may restrict our ability to move funds among various jurisdictions under certain circumstances, which could negatively impact our access to capital, resulting in an adverse effect on our liquidity and capital resources.



Our systems business requires significant liquidity and is expected to continue to have significant liquidity requirements in the future. The net amount of our project assets and related portion of deferred revenue, which approximates our net capital investment in the development and construction of systems projects, was $0.5 billion$363.7 million as of September 30, 2017.March 31, 2020. Solar power project development and construction cycles, which span the time between the identification of a site location and the commercial operation of a system, vary substantially and can take many years to mature. As a result of these long project cycles and strategic decisions to finance the constructiondevelopment of certain projects using our working capital, we may need to make significant up-front investments of resources in advance of the receipt of any cash from the sale of such projects. Delays in construction progress or in completing the sale of our systems projects that we are self-financing may also impact our liquidity. We have historically financed these up-front systems project investments primarily using working capital. In certain circumstances, we may need to finance construction costs exclusively using working capital, if project financing becomes unavailable due to regional, market-wide, regional, or other concerns.


From time to time, we may partner with local developers on project developmentdevelop projects in certain markets around the world where we may take an equity stake in a project for a number of years. We are also self-developing projects in certain markets where we may hold all or a significant portion of the equity in a project for several years. Given the duration of these investments and the currency risk relative to the U.S. dollar in some of these markets, we continue to explore local financing alternatives. Should these financing alternatives be unavailable or too cost prohibitive, we could be exposed to significant currency risk and our liquidity could be adversely impacted.


Additionally, we may elect to retain an ownership interest in certain systems projects after they become operational if we determine it would be of economic and strategic benefit to do so. If, for example, we cannot sell a systems projectsystem at economics that are attractive to us or potential customers are unwilling to assume the risks and rewards typical of PV solar power system ownership, we may instead elect to temporarily own and operate such systemssystem until we can sell the systemsit on economically attractive terms. The decision to retain ownership of a system impacts our liquidity depending upon the size and cost of the project. As of September 30, 2017,March 31, 2020, we had $0.5 billion$470.7 million of net PV solar power systems that had been placed in service, primarily in international markets. We have elected, and may in the future elect, to enter into temporary or long-term project financing to reduce the impact on our liquidity and working capital with regards to such projects and systems. We may also consider entering into tax equity or other arrangements with respect to ownership interests in certain of our projects, which could cause a portion of the economics of such projects to be realized over time.


The following additional considerations have impacted or may impact our liquidity for the remainder of 20172020 and beyond:


•We expect to make significantspend $450 million to $550 million for capital investments through 2019 as weexpenditures, including amounts related to the transition of our productionsecond manufacturing facility in Kulim, Malaysia from Series 4 to Series 6 module
54
technology and purchase the related manufacturingupgrades to other machinery and equipment, which we believe will further increase our module wattage and infrastructure. Such investments include the commencement of operationsexpand capacity and throughput at our previously announcedother manufacturing plantfacilities.

•In January 2020, we entered into an MOU to settle a class action lawsuit filed in Vietnam. We expect the aggregate capital investmentArizona District Court. Pursuant to the MOU, among other things, we agreed to pay a total of $350 million to settle the claims in the lawsuit in exchange for Series 6mutual releases and dismissal with prejudice of the compliant upon court approval of the settlement. In February 2020, we subsequently entered into a Stipulation and Agreement of Settlement (the “Settlement Agreement”) with certain named plaintiffs on terms and conditions that were consistent with the MOU. Pursuant to the Settlement Agreement, among other things, (i) we contributed $350 million in cash to a settlement fund that will be used to pay all settlement fees and expenses, attorneys’ fees and expenses, and cash payments to members of the settlement class and (ii) the settlement class has agreed to release us, the other defendants named in the class action, and certain of their respective related programsparties from any and all claims concerning, based on, arising out of, or in connection with the class action. The Settlement Agreement contained no admission of liability, wrongdoing, or responsibility by any of the parties.

The settlement, including the payment and release described above, is subject to court approval. Following a February 27, 2020 hearing, the Arizona District Court entered an order on March 2, 2020 that granted preliminary approval of the settlement and permitted notice to the class. Under that order, among other matters, written objections from any objectors are due by June 9, 2020 and a final approval hearing is scheduled for June 30, 2020. If the court approves the settlement and enters such order and final judgement, and such judgement is no longer subject to further appeal or other review, the settlement fund will be disbursed in accordance with a plan of allocation approved by the court and the release will be effective to all members of the settlement class.

•Our failure to obtain raw materials and components that meet our quality, quantity, and cost requirements in a timely manner could interrupt or impair our ability to manufacture our solar modules or increase our manufacturing costs. Accordingly, we may enter into long-term supply agreements to mitigate potential risks related to the procurement of key raw materials and components, and such agreements may be noncancelable or cancelable with a significant penalty. For example, we have entered into long-term supply agreements for the purchase of certain specified minimum volumes of substrate glass and cover glass for our PV solar modules. Our actual purchases under these supply agreements are expected to be approximately $1.1$2.4 billion which is expectedof substrate glass and $500 million of cover glass. We have the right to provide an annual Series 6 manufacturing capacityterminate these agreements upon payment of approximately 4 GW. Duringspecified termination penalties (which are up to $430 million in the remainder of 2017, we expect to spend $100 million to $200 million for capital expenditures,aggregate and decline over time during the majority of which is associated with the Series 6 transition. We believe these capital expenditures will increase our aggregate manufacturing capacity, increase our solar module conversion efficiencies, reduce our manufacturing costs, and reduce the overall cost of systems using our modules.respective supply periods).


•The balance of our solar module inventories and BoS parts was $196.3$387.0 million as of September 30, 2017.March 31, 2020. As we continue with the construction ofto develop our advanced-stage project pipeline, we must produce solar modules and procure BoS parts in the required volumes sufficient to support our planned construction schedules. As part of this development and construction cycle, we typically must manufacture modules or acquire the necessary BoS parts for construction activitiesproduce these inventories in advance of receiving payment for such materials, which may temporarily reduce our liquidity. Once solar modules and BoS parts are installed in a project, they are classified as either project assets, PV solar power systems, or cost of sales depending uponon whether the project is subject to a definitive sales contract and whether other revenue recognition criteria have been met. We also produce significant volumes of modules for sale directly to integrators and operators of PV solar power systems. Such sales may requirethird-parties, which requires us to carry inventories at levels sufficient to satisfy the demand of our customers and the needs of their utility-scale projects, which may also temporarily reduce our liquidity.


•We may commit significant working capital duringover the remaindernext several years to advance the construction of 2017various U.S. systems projects or procure the associated modules or BoS parts, by specified dates, for such projects to qualify for certain federal investment tax credits (“ITC”). Among other requirements, such credits require projects to have commenced construction in 2020, which may be achieved by certain qualifying procurement activities, to receive a 26% investment tax credit. The credit will step down to 22%
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for projects that commence construction in 2021, and beyondwill further step down to 10% for projects that commence construction thereafter.

•We may also commit working capital to acquire solar power projects in various stages of development, including advanced-stage projects with PPAs, and to continue developing those projects, as necessary. Depending upon the size and stage of development, the costs to acquire such solar power projects could be significant. When evaluating project acquisition opportunities, we consider both the strategic and financial benefits of any such acquisitions.


We have initiatives in several markets to expedite our penetration of those markets and establish relationships with potential customers. Some of these arrangements involve and are expected to involve significant investments or other allocations of capital that could reduce our liquidity or require us to pursue additional sources of financing, assuming such sources are available to us. Additionally, we have elected and may in the future elect or be required to temporarily retain a noncontrolling ownership interest in certain underlying systems projects we develop, supply modules to, or construct. Any such retained ownership interest is expected to impact our liquidity to the extent we do not obtain new sources of capital to fund such investments.


Cash Flows


The following table summarizes the key cash flow metricsactivity for the ninethree months ended September 30, 2017March 31, 2020 and 20162019 (in thousands):
 Three Months Ended
March 31,
 20202019
Net cash used in operating activities$(504,864) $(303,440) 
Net cash provided by (used in) investing activities96,446  (139,771) 
Net cash (used in) provided by financing activities(13,440) 87,838  
Effect of exchange rate changes on cash, cash equivalents and restricted cash(5,774) (625) 
Net decrease in cash, cash equivalents and restricted cash$(427,632) $(355,998) 
  Nine Months Ended
September 30,
  2017 2016
Net cash provided by (used in) operating activities $906,719
 $(61,673)
Net cash used in investing activities (403,959) (163,774)
Net cash provided by financing activities 151,606
 462,270
Effect of exchange rate changes on cash, cash equivalents and restricted cash 9,420
 6,742
Net increase in cash, cash equivalents and restricted cash $663,786
 $243,565


Operating Activities

The increase in net cash provided by operating activities was primarily driven by the sale of the Moapa and California Flats projects during the nine months ended September 30, 2017, partially offset by expenditures for the construction of certain project assets.

Investing Activities


The increase in net cash used in operating activities was primarily driven by the $350 million settlement payment associated with our prior class action lawsuit as described above and the timing of cash receipts from certain third-party module sales, for which proceeds were received in late 2019 prior to the step down in the U.S. investment tax credit. Such increases were partially offset by higher cash proceeds from projects sold in prior periods.

Investing Activities

The increase in net cash from investing activities was primarily due to an increase inhigher net sales and maturities of marketable securities and restricted marketable securities and lower purchases of property, plant and equipment driven by our transition to Series 6 module manufacturing and net purchases of marketable securities and restricted investments of $92.0 million during the nine months ended September 30, 2017 compared to net sales of $25.7 million during the same period in 2016.equipment.


Financing Activities


The decrease in net cash provided by financing activities was primarily the result of $550.0 million of proceeds fromdue to higher net borrowings under our Revolving Credit Facilityproject specific debt financings in 2016, partially offset by higher net proceeds from borrowings under our long-term debt arrangements2019 associated with the construction of certain projects in Japan India, and Australia and proceeds from commercial letters of credit for the construction of certain projects in India.Australia.


Contractual Obligations


OurThere have been no material changes in our contractual obligations have not materially changed since December 31, 2016 with the exception of borrowings under project specific debt financings and other changes inoutside the ordinary course of business.business since December 31, 2019. See Note 12. “Debt” to our condensed consolidated financial statements included with this Quarterly Report on Form 10-Q for more information related to the changes in our long-term debt. See also our Annual Report on Form 10-K for the year ended December 31, 20162019 for additional information regarding our contractual obligations.


Off-Balance Sheet Arrangements


As of September 30, 2017,March 31, 2020, we havehad no off-balance sheet debt or similar obligations, other than financial assurance related instruments, and operating leases, which are not classified as debt. We do not guarantee any third-party debt. See Note 13.10. “Commitments
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and Contingencies” to our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for further information about our financial assurance related instruments.



Item 3.Quantitative and Qualitative Disclosures about Market Risk


There have been no material changes to the information previously provided under Item 7A. of our Annual Report on Form 10-K for the year ended December 31, 2016.2019.


Item 4.Controls and Procedures


Evaluation of Disclosure Controls and Procedures


We carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our “disclosure controls and procedures” as defined in Exchange Act Rule 13a-15(e) and 15d-15(e). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that as of September 30, 2017March 31, 2020 our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.


Changes in Internal Control over Financial Reporting


We also carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of our “internal control over financial reporting” as defined in Exchange Act Rule 13a-15(f) and 15d-15(f) to determine whether any changes in our internal control over financial reporting occurred during the three months ended September 30, 2017March 31, 2020 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Based on that evaluation, there were no such changes in our internal control over financial reporting that materially affected, or are reasonably likely to materially affect, our internal control over financial reportingoccurred during the three months ended September 30, 2017.March 31, 2020 despite the fact that many of our associates are working remotely due to the COVID-19 pandemic. We continue to monitor and assess the COVID-19 situation on our internal controls to minimize potential impacts on their design and operating effectiveness.


CEO and CFO Certifications


We have attached as exhibits to this Quarterly Report on Form 10-Q the certifications of our Chief Executive Officer and Chief Financial Officer, which are required in accordance with the Exchange Act. We recommend that this Item 4. be read in conjunction with those certifications for a more complete understanding of the subject matter presented.


Limitations on the Effectiveness of Controls


Control systems, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control systems’ objectives are being met. Further, the design of any system of controls must reflect the fact that there are resource constraints, and the benefits of all controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of error or mistake. Control systems can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become
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inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.


PART II.OTHER INFORMATION


Item 1.Legal Proceedings


See Note 13.10. “Commitments and Contingencies” under the heading “Legal Proceedings” of our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for legal proceedings and related matters.



Item 1A.Risk Factors


In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, Item 1A. “Risk Factors” inof our Annual Report on Form 10-K for the year ended December 31, 2016,2019, which could materially affect our business, financial condition, results of operations, or cash flows. The risks described in our Annual Report on Form 10-K for the year ended December 31, 2016 are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently consider immaterial may also materially adversely affect our business, financial condition, results of operations, or cash flows. Except for the updated risk factor appearingfactors set forth below, there have been no material changes in the risk factors contained in our Annual Report on Form 10-K.

COVID-19 and other public health crises could materially impact our business, financial condition, and results of operations.

The COVID-19 pandemic has had an unprecedented impact on the United States, Malaysia, and other countries throughout the world, including those in which we do business or have operations. Although as of the date of this filing, we have not been materially impacted by COVID-19, the pandemic could materially impact our business, financial condition, and results of operations in the future. The extent to which the pandemic could impact us is highly uncertain and cannot be predicted, and will depend largely on subsequent developments, including the severity and duration of the pandemic, and measures taken to contain the spread of the virus, such as restrictions on travel and gatherings of people and temporary closures of or limitations on businesses and other commercial activities.

As a result of the COVID-19 pandemic and these related containment measures, we may be subject to significant risks, which have the potential to materially and adversely impact our business, financial condition, and results of operations, including the following:

•The economic disruption caused by the COVID-19 pandemic may result in a long-term tightening of the supply of capital in global financial markets (including, in the United States, a reduction in total tax equity availability), which could make it difficult for purchasers of our development projects to secure the debt or equity capital necessary to finance a PV solar power system, thereby delaying or reducing demand for these projects;

•Purchasers of PV modules may delay module procurement in response to the COVID-19 pandemic, which may result in additional pressure on global demand and average selling prices for modules, and may exacerbate structural imbalances between global PV module supply and demand;

•We may at any time be ordered by governmental authorities, or we may determine, based on our understanding of the recommendations or orders of governmental authorities, that we have to curtail or cease business operations or activities, including manufacturing;

•The failure of our suppliers or vendors to supply materials or equipment, or the failure of our vendors to repair or replace our specialized equipment, due to the COVID-19 pandemic, related containment
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measures, or limitations on logistics providers’ ability to operate, may idle, slowdown, shutdown, or otherwise cause us to adjust our manufacturing capacity;

•The COVID-19 pandemic and related containment measures may result in us incurring delays in obtaining, or failing to obtain, the approvals or rights that are required for our development projects to proceed, such as permitting, interconnection, or land usage approvals or rights, and the COVID-19 pandemic and related containment measures may delay or prevent the performance by third parties of activities related to the development of these projects, such as interconnection, engineering, procurement, construction, and other activities;

•We perform substantial R&D to continue to improve our module wattage (or conversion efficiency), lower our module cost per watt, lower the LCOE of our PV solar power systems, and otherwise keep pace with technological advances in the solar industry. The COVID-19 pandemic and related containment measures, including the unavailability of our personnel and third-party partners who are engaged in R&D activities, may inhibit our R&D efforts or our ability to timely advance or commercialize these efforts; and

•In response to the COVID-19 pandemic, the vast majority of our associates who are capable of performing their function remotely are telecommuting (i.e., working from home). While we have instituted security measures to minimize the likelihood and impact of a cybersecurity incident with respect to associates utilizing technological communications tools, these measures may be inadequate to prevent a cybersecurity breach because of the unprecedented number of associates continuously using these tools. Recently, there have been reports of a surge in widespread cyber-attacks during the COVID-19 pandemic. Any increase in the frequency or scope of cyber-attacks during the COVID-19 pandemic may exacerbate the aforementioned cybersecurity risks.

If the severity and duration of the COVID-19 pandemic and related containment measures do not abate, many of the other risks described in Item 1A. “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2016.2019 may have a significant impact on our business, financial condition, and results of operations.


The reduction, elimination, or expiration of government subsidies, economic incentives, tax incentives, renewable energy targets, and other support for on-grid solar electricity applications, or other adverse public policies, such as tariffs or other trade remedies imposed on solar cells and modules, could negatively impact demand and/or price levels for our solar modules and systems and limit our growth or lead to a reduction in our net sales, thereby adversely impacting our operating results.


Although we believe that solar energy will experience widespread adoption in those applications where it competes economically with traditional forms of energy without any support programs, in certain markets our net sales and profitprofits remain subject to variability based on the availability and size of government subsidies and economic incentives. Federal, state, and local governmental bodies in many countries have provided subsidies in the form of feed-in-tariffs, rebates, tax incentives, and other incentives to end-users,end users, distributors, system integrators, and manufacturers of PV solar products. Many of these support programs expire, phase out over time, require renewal by the applicable authority, or may be amended. A summary of certain recent developments in the major government support programs that may impact our business appears under Part I, Item 1. “Business – Support Programs” inof our Annual Report on Form 10-K for the year ended December 31, 2016.10-K. To the extent these support programs are reduced earlier than previously expected or are changed retroactively, such changes could reducenegatively impact demand and/or price levels for our solar modules and systems, lead to a reduction in our net sales, and adversely impact our operating results. Another consideration in the U.S. market, and to a lesser extent in other global markets, is the effect of governmental land-use planning policies and environmental policies on utility-scale PV solar development. The adoption of restrictive land-use designations or environmental regulations that proscribe or restrict the siting of utility-scale solar facilities could adversely affect the marginal cost of such development.


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In addition, policies of the U.S. presidential administration may create regulatory uncertainty in the renewable energy industry, including the solar industry, and our business, financial condition, and results of operations could be adversely affected. Members of the U.S. presidential administration, including representatives of the U.S. Department of Energy, have made public statements that indicate that the administration may not be supportive of various clean energy programs and initiatives designed to curtail climate change. For example, in June 2017, the U.S. President Donald Trump announced that the U.S.United States would withdraw from participation in the 2015 Paris Agreement on climate change mitigation. In addition, the administration has indicated that it may be supportive of reducing the corporate tax rate and overturning or modifying policies of or regulations enacted by the prior administration that placed limitations on coalgas and gascoal electricity generation, mining, and/or exploration. For example,Additionally, in October 2017, the U.S.United States Environmental Protection Agency Administrator(“U.S. EPA”) issued a Notice of Proposed Rulemaking, proposing to repeal the previous U.S. presidential administration’s Clean Power Plan (“CPP”), which establishesestablished standards to limit carbon dioxide emissions from existing power generation facilities. IfIn June 2019, the U.S. EPA issued the final Affordable Clean Energy (“ACE”) rule and repealed the CPP. Under the ACE rule, emissions from electric utility generation facilities would be regulated only through the use of various “inside the fence” or onsite efficiency improvements and emission control technologies. In contrast, the CPP allowed facility owners to reduce emissions with “outside the fence” measures, including those associated with renewable energy projects. While the ACE rule is currently subject to legal challenges and may be subject to future challenges, the ultimate resolution of such challenges, and the ultimate impact of the ACE rule, is uncertain. As a result of the new ACE rule and other policies or actions of the current U.S. administration and/or the U.S. Congress, takes action, or continues to publicly speak out about the need to take action, in furtherance of any such policies, we wouldmay be subject to significant risks, including the following:


A•a reduction or removal of clean energy programs and initiatives and the incentives they provide may diminish the market for future solar energy offtakeoff-take agreements, slow the retirement of aging fossil fuel plants, including the retirements of coal generation plants, and reduce the ability for solar project developers to compete for future solar energy offtakeoff-take agreements, which may reduce incentives for project developerssuch parties to develop solar projects and purchase PV solar modules;


Any•any limitations on the value or availability to potential investors of tax incentives that benefit solar energy projects such as the investment tax credit (“ITC”)ITC and accelerated depreciation deductions could result in such investors generating reduced revenues and economic returns and facing a reduction in the availability of affordable financing, thereby reducing demand for PV solar modules. The ITC is a U.S. federal incentive that provides an income tax credit to the owner of the project after the project commences construction of up to 30% of eligible basis. A solar energy project must commence construction prior to January 1, 2020 and be placed in service prior to January 1, 2024 to qualify for the 30% ITC. A solar project that commences construction during 2020 and is placed in service priorservice. Among other requirements, such credits require projects to January 1, 2024have commenced construction by a certain date, which may qualifybe achieved by certain qualifying procurement activities. Accordingly, projects that commenced construction in 2019 were eligible for an ITC equala 30% ITC. The credit will step down to 26% of eligible basis.for projects that commence construction in 2020, 22% for projects that commence construction in 2021, and 10% for projects that commence construction thereafter. Under the Modified Accelerated Cost-Recovery System, owners of equipment used in a solar project generallymay claim all of their depreciation deductions with respect to such equipment over five years, even though the useful life of such equipment is generally greater than five years.


A reduction In addition, in December 2017, the U.S. government enacted comprehensive tax reform legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). Under the Tax Act, qualified property placed in service after September 22, 2017 and before January 1, 2023 is generally eligible for 100% expensing, and such property placed in service after December 31, 2022 and before January 1, 2027 is generally eligible for expensing at lower percentages. However, the Tax Act also reduced the U.S. corporate income tax rate to 21% effective January 1, 2018, which could diminish the capacity of potential investors to benefit from incentives such as the ITC and reduce the value of accelerated depreciation deductions and expensing, thereby reducing the relative attractiveness of solar projects as an investment.investment; and


Any•any effort to overturn federal and state laws, regulations, or policies that are supportive of solar energy generation or that remove costs or other limitations on other types of electricity generation that compete
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with solar energy projects could negatively impact our ability to compete with traditional forms of electricity generation and materially and adversely affect our business.


Application of U.S. trade laws, or trade laws of other countries, may also impact, either directly or indirectly, our operating results. For example, in April 2017,January 2018, following a petition filed by a U.S.-based manufacturer of solar cells filed a petition under Sections 201 and 202 of the Trade Act of 1974 for global safeguard relief with the U.S. International Trade Commission (the “USITC”). Such petition requested,, requesting, among other things, the imposition of certain tariffs on crystalline silicon solar cells imported into the United States and the establishment of a minimum price per watt on imported crystalline silicon solar modules. In September 2017, the USITC determined such products are being imported into the United States in such increased quantities as to be a substantial cause of serious injury to the relevant domestic industry. The USITC has proceeded to the remedy phase of its investigation, following which it may recommend remedies, such as tariffs, quotas, or trade adjustment assistance, tomodules, the U.S. presidential administration. In October 2017, we submittedPresident proclaimed tariffs on imported crystalline silicon modules, and a lettertariff-rate quota on imported crystalline silicon cells, over a four-year period, with the tariff on modules, and the tariff on cells above the first 2.5 GWDC of imports, starting at 30% for the February 2018 to February 2019 period and declining by five percentage points in a non-party capacity to provide the USITC with information to inform its remedy recommendation. Thin-filmeach subsequent 12-month period. Thin film solar cell products, such as our CdTe technology, are expressly excluded from the petition.tariffs. The Office of the United States Trade Representative (the “USTR”) has also granted certain requests that particular types of solar products be excluded from the tariffs. Among these was an exclusion for bifacial solar modules that was issued on June 13, 2019. In a notice published on October 9, 2019, the USTR announced that it would withdraw the exclusion for bifacial solar modules, effective October 28, 2019. However, on December 5, 2019, the United States Court of International Trade overturned the announcement by issuing a preliminary injunction ordering the exclusion of bifacial solar modules from the tariffs. On January 27, 2020, the USTR announced a public comment process regarding the possible retention or withdrawal of the exclusion for bifacial solar modules, and the USTR received public comments in February 2020. On April 14, 2020, the U.S. Government informed the United States Court of International Trade that, on or about the same day, the USTR issued a determination for publication in the U.S. Federal Register that the USTR would withdraw the exclusion for bifacial solar modules if the court lifts the preliminary injunction, but in no case earlier than 30 days from the determination’s publication in the Federal Register (i.e., no earlier than May 18, 2020). The United States Court of International Trade has before it the U.S. Government’s motions to dismiss the action challenging the October 2019 withdrawal of the exclusion for bifacial solar modules and to dissolve the preliminary injunction so that the USTR can implement the April 2020 determination to withdraw the exclusion for bifacial solar modules. The United States Court of International Trade has scheduled oral argument for May 13, 2020, regarding the U.S. Government’s motion to dissolve the preliminary injunction. It is unknown howwhether, or when, the resolutionUSTR would be permitted to implement the April 2020 determination to withdraw the exclusion for bifacial solar modules. In addition, the USITC has reviewed developments regarding the relevant domestic industry (including its efforts to adjust to import competition), and it provided a report to the U.S. President in February 2020. The USITC has also reviewed the probable effects of increasing the tariff-rate quota for solar cells from 2.5 GWDC to 4, 5, or 6 GWDC, and it reported its advice to the USTR in March 2020. These reports could serve as a basis for the U.S. President to reduce, modify, or terminate the safeguard tariffs.

The United States has also imposed import tariffs in connection with other proceedings during 2018, 2019, and 2020. In March 2018, the U.S. President proclaimed tariffs on certain imported aluminum and steel articles, generally at rates of 10% and 25%, respectively, under Section 232 of the petition,Trade Expansion Act of 1962. Currently, all countries except Argentina, Australia, Canada, and Mexico are covered by the scopealuminum tariff, and all countries except Argentina, Australia, Brazil, Canada, Mexico, and South Korea are covered by the steel tariff. In addition, in May 2018, the U.S. President proclaimed absolute quotas for the import of aluminum articles from Argentina and the import of steel articles from Argentina, Brazil, and South Korea. In January 2020, the U.S. President announced the expansion of tariffs under Section 232 to cover certain derivative steel and aluminum articles. Separately, in a series of actions during 2018 and 2019 that followed an investigation under Section 301 of the Trade Act of 1974, the United States imposed tariffs on various articles imported from China at a rate of 25%, including crystalline silicon solar cells and modules and various other articles. In August 2019, the U.S. President announced that the Section 301 tariff on various products, including crystalline silicon solar cells and modules, would increase to 30%, but such increase was later postponed in connection with U.S.-China negotiations. In December 2019, the United States and China announced a “Phase One” economic and trade agreement, whereby the U.S. Section 301 tariffs on various products, including crystalline silicon solar cells and modules, remained at 25%, while Section 301 tariffs on certain other products were lowered from 15% to 7.5%. In March 2020, the USTR granted Section 301 tariff
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exclusions for certain medical-care products related to the U.S. response to COVID-19, and it has requested public comments on possible exclusions for additional medical-care products.

In May 2020, the United States undertook new initiatives relating to trade and commerce in the energy sector. On May 1, 2020, the U.S. President issued an executive order prohibiting various types of transactions (including acquisition, importation, and transfer) that are initiated after May 1, 2020 and involve bulk-power system electric equipment and any property in which any foreign country or forma national thereof has any interest. The prohibition applies where the U.S. Secretary of any resulting remedial action takenEnergy, in consultation with other officials, has determined that a transaction (i) involves bulk-power system electric equipment designed, developed, manufactured, or supplied by persons owned by, controlled by, or subject to the jurisdiction or direction of a foreign adversary, and (ii) poses certain types of risks to U.S. interests. The May 1, 2020 executive order instructs the U.S. Secretary of Energy to publish implementing rules or regulations by September 28, 2020. We are evaluating the potential impact on our business of the May 1, 2020 executive order and the U.S. government actions it contemplates, and our evaluation will be informed by the implementing rules or regulations to be published by the U.S. presidential administration,Secretary of Energy. In addition, on May 4, 2020, the U.S. Secretary of Commerce announced the initiation of an investigation, under Section 232 of the Trade Expansion Act of 1962, into whether laminations for stacked cores for incorporation into transformers, stacked and wound cores for incorporation into transformers, electrical transformers, and transformer regulators are being imported into the United States so as to threaten to impair U.S. national security. The U.S. Secretary of Commerce has 270 days from the initiation of the investigation to report findings and any recommendations to the U.S. President, and if a threat to national security is found, the U.S. President then has 90 days to decide whether to take action, such as the imposition of tariffs, to adjust imports of the products at issue. We are evaluating the potential impact on our business of U.S. government action that could result from this U.S. Secretary of Commerce investigation.

Internationally, in July 2018, the Indian government imposed a safeguard duty regime on solar cells and modules imported from various countries, including member countries of the Organisation for Economic Co-operation and Development, China, and Malaysia, for a two-year period, starting at 25% through July 2019 and declining by five percentage points in each subsequent six-month period. Recently, the Indian government announced its intent to replace such current safeguard duty regime with a permanent base customs duty, the rate of which is yet to be determined, on solar cells and modules, which may be effective immediately upon the expiry of such safeguard duty regime. In addition, in March 2019, the Indian government issued technical guidelines related to the enlistment of approved models and manufacturers of PV solar modules, pursuant to which all projects owned by the Indian government or from which energy would be supplied to the government would be required to procure eligible components from such enlisted manufacturers. The enlistment procedures have certain distinguishing criteria depending on whether a manufacturer is located inside or outside of India, which may inhibit or restrict our ability to access the Indian market. While the effective date of this regulation was due to take effect in March 2020, in response to the COVID-19 pandemic, the effective date of this regulation has been deferred to September 2020. Such tariffs and policies, or any other U.S. or global trade remedies or other trade barriers, may directly or indirectly affect U.S. or global markets for solar energy and First Solar’sour business, financial condition, and results of operations.


These examples show that established markets for PV solar development such as the U.S. market, face uncertainties arising from policy, regulatory, and governmental constraints. While the expected potential of the emerging markets we are targeting is significant, policy promulgation and market development are especially vulnerable to governmental inertia, political instability, the imposition of trade remedies and other trade barriers, geopolitical risk, fossil fuel subsidization, potentially stringent localization requirements, and limited available infrastructure.


Item 5.Other Information


None.


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Table of Contents
Item 6.Exhibits


The following exhibits are filed with or incorporated by reference into this Quarterly Report on Form 10-Q:
Exhibit NumberExhibit Description
10.1
Form of Grant Notice for 2020-2022 Executive Performance Equity Plan
31.01
Certification of Chief Executive Officer pursuant to 15 U.S.C. Section 7241, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.02
Certification of Chief Financial Officer pursuant to 15 U.S.C. Section 7241, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.01*
Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INSXBRL Instance Document – the instance document does not appear in the Interactive Data file because its XBRL tags are embedded within the Inline XBRL document
101.SCHXBRL Taxonomy Extension Schema Document
101.CALXBRL Taxonomy Extension Calculation Linkbase Document
101.DEFXBRL Taxonomy Extension Definition Linkbase Document
101.LABXBRL Taxonomy Label Linkbase Document
101.PREXBRL Taxonomy Extension Presentation Linkbase Document
104Cover page formatted as Inline XBRL and contained in Exhibit 101

——————————
*This exhibit shall not be deemed “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act or the Exchange Act, whether made before or after the date hereof and irrespective of any general incorporation language in any filings.

*This exhibit shall not be deemed “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act or the Exchange Act, whether made before or after the date hereof and irrespective of any general incorporation language in such filings.

SIGNATURE


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.


FIRST SOLAR, INC.
Date: May 7, 2020FIRST SOLAR, INC.By:/s/ BYRON JEFFERS
Name:Byron Jeffers
Date: October 26, 2017By:Title:/s/ BRYAN SCHUMAKER
Name:Bryan Schumaker
Title:Chief Accounting Officer



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