UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark one)
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[x] | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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| 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 |
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| 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 June 30, 2022
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
First Solar, Inc.Inc.
(Exact name of registrant as specified in its charter)
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| | | | |
Delaware | 20-4623678 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
350 West Washington Street, Suite 600
Tempe, Arizona 8528185288
(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 class | Trading symbol(s) | Name of each exchange on which registered |
Common stock, $0.001 par value | FSLR | The 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.
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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, 104,432,988July 22, 2022, 106,594,563 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 JUNE 30, 2022
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 June 30, | | Six Months Ended June 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
Net sales | | $ | 620,955 | | | $ | 629,180 | | | $ | 987,995 | | | $ | 1,432,554 | |
Cost of sales | | 644,155 | | | 455,062 | | | 999,732 | | | 1,073,669 | |
Gross (loss) profit | | (23,200) | | | 174,118 | | | (11,737) | | | 358,885 | |
Operating expenses: | | | | | | | | |
Selling, general and administrative | | 38,894 | | | 36,346 | | | 75,622 | | | 88,433 | |
Research and development | | 25,229 | | | 23,935 | | | 52,337 | | | 43,808 | |
Production start-up | | 13,231 | | | 1,715 | | | 20,569 | | | 13,069 | |
Total operating expenses | | 77,354 | | | 61,996 | | | 148,528 | | | 145,310 | |
Gain on sales of businesses, net | | 245,381 | | | (1,745) | | | 247,288 | | | 149,150 | |
Operating income | | 144,827 | | | 110,377 | | | 87,023 | | | 362,725 | |
Foreign currency loss, net | | (2,984) | | | (1,000) | | | (7,182) | | | (3,595) | |
Interest income | | 2,880 | | | 1,288 | | | 5,205 | | | 2,244 | |
Interest expense, net | | (3,236) | | | (4,623) | | | (6,101) | | | (7,619) | |
Other (expense) income, net | | (1,883) | | | (3,247) | | | (2,095) | | | 5,201 | |
Income before taxes | | 139,604 | | | 102,795 | | | 76,850 | | | 358,956 | |
Income tax expense | | (83,799) | | | (20,346) | | | (64,300) | | | (66,836) | |
Net income | | $ | 55,805 | | | $ | 82,449 | | | $ | 12,550 | | | $ | 292,120 | |
| | | | | | | | |
Net income per share: | | | | | | | | |
Basic | | $ | 0.52 | | | $ | 0.78 | | | $ | 0.12 | | | $ | 2.75 | |
Diluted | | $ | 0.52 | | | $ | 0.77 | | | $ | 0.12 | | | $ | 2.73 | |
Weighted-average number of shares used in per share calculations: | | | | | | | | |
Basic | | 106,586 | | | 106,313 | | | 106,500 | | | 106,201 | |
Diluted | | 107,056 | | | 106,836 | | | 106,965 | | | 106,866 | |
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| | | | | | | | | | | | | | | | |
| | 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 |
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Cost of sales | | 795,226 |
| | 510,368 |
| | 2,115,266 |
| | 1,943,198 |
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Gross profit | | 291,800 |
| | 170,908 |
| | 486,877 |
| | 630,570 |
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Operating expenses: | | | | | | | | |
Selling, general and administrative | | 50,546 |
| | 60,345 |
| | 147,702 |
| | 191,624 |
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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 |
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Total operating expenses | | 84,811 |
| | 97,584 |
| | 273,955 |
| | 377,568 |
|
Operating income | | 206,989 |
| | 73,324 |
| | 212,922 |
| | 253,002 |
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Foreign currency loss, net | | (3,968 | ) | | (2,296 | ) | | (6,166 | ) | | (8,259 | ) |
Interest income | | 8,392 |
| | 5,894 |
| | 22,364 |
| | 18,829 |
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Interest expense, net | | (4,149 | ) | | (5,563 | ) | | (19,692 | ) | | (17,356 | ) |
Other income, net | | 2,018 |
| | 6,419 |
| | 25,180 |
| | 48,725 |
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Income before taxes and equity in earnings of unconsolidated affiliates | | 209,282 |
| | 77,778 |
| | 234,608 |
| | 294,941 |
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Income tax (expense) benefit | | (7,580 | ) | | 68,205 |
| | 26,769 |
| | 32,886 |
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Equity in earnings of unconsolidated affiliates, net of tax | | 4,045 |
| | 4,474 |
| | 5,462 |
| | 6,851 |
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Net income | | $ | 205,747 |
| | $ | 150,457 |
| | $ | 266,839 |
| | $ | 334,678 |
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Net income per share: | | | | | | | | |
Basic | | $ | 1.97 |
| | $ | 1.46 |
| | $ | 2.56 |
| | $ | 3.27 |
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Diluted | | $ | 1.95 |
| | $ | 1.45 |
| | $ | 2.54 |
| | $ | 3.25 |
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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.
FIRST SOLAR, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited) | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
Net income | | $ | 55,805 | | | $ | 82,449 | | | $ | 12,550 | | | $ | 292,120 | |
Other comprehensive (loss) income: | | | | | | | | |
Foreign currency translation adjustments | | (18,170) | | | 290 | | | (28,295) | | | (9,426) | |
Unrealized (loss) gain on marketable securities and restricted marketable securities, net of tax of $681, $(34), $1,927 and $1,087 | | (16,967) | | | 115 | | | (39,488) | | | (16,475) | |
Unrealized (loss) gain on derivative instruments, net of tax of $1,541, $(61), $1,635 and $(698) | | (5,643) | | | 784 | | | (6,085) | | | 4,166 | |
Other comprehensive (loss) income | | (40,780) | | | 1,189 | | | (73,868) | | | (21,735) | |
Comprehensive income (loss) | | $ | 15,025 | | | $ | 83,638 | | | $ | (61,318) | | | $ | 270,385 | |
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| | | | | | | | | | | | | | | | |
| | 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 |
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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 |
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Unrealized (loss) gain on derivative instruments, net of tax of $291, $59, $1,291, and $1 | | (61 | ) | | (276 | ) | | (2,513 | ) | | 2,070 |
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Other comprehensive income (loss) | | 6,167 |
| | (6,775 | ) | | 4,051 |
| | 34,384 |
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Comprehensive income | | $ | 211,914 |
| | $ | 143,682 |
| | $ | 270,890 |
| | $ | 369,062 |
|
See accompanying notes to these condensed consolidated financial statements.
FIRST SOLAR, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited) | | | | | | | | | | | | | | |
| | June 30, 2022 | | December 31, 2021 |
ASSETS | | | | |
Current assets: | | | | |
Cash | | $ | 1,701,217 | | | $ | 1,450,654 | |
Marketable securities | | 143,944 | | | 375,389 | |
Accounts receivable trade, net | | 454,431 | | | 429,436 | |
Accounts receivable unbilled, net | | 35,438 | | | 25,273 | |
Inventories | | 810,461 | | | 666,299 | |
Other current assets | | 237,926 | | | 244,192 | |
Total current assets | | 3,383,417 | | | 3,191,243 | |
Property, plant and equipment, net | | 2,988,979 | | | 2,649,587 | |
PV solar power systems, net | | 156,215 | | | 217,293 | |
Project assets | | 29,589 | | | 315,488 | |
Deferred tax assets, net | | 61,732 | | | 59,162 | |
Restricted marketable securities | | 200,266 | | | 244,726 | |
Goodwill | | 14,462 | | | 14,462 | |
Intangible assets, net | | 38,728 | | | 45,509 | |
Inventories | | 239,025 | | | 237,512 | |
Other assets | | 306,956 | | | 438,764 | |
Total assets | | $ | 7,419,369 | | | $ | 7,413,746 | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | |
Current liabilities: | | | | |
Accounts payable | | $ | 160,963 | | | $ | 193,374 | |
Income taxes payable | | 29,441 | | | 4,543 | |
Accrued expenses | | 344,205 | | | 288,450 | |
Current portion of long-term debt | | 5,150 | | | 3,896 | |
Deferred revenue | | 227,466 | | | 201,868 | |
Other current liabilities | | 36,329 | | | 34,747 | |
Total current liabilities | | 803,554 | | | 726,878 | |
Accrued solar module collection and recycling liability | | 134,146 | | | 139,145 | |
Long-term debt | | 170,017 | | | 236,005 | |
Other liabilities | | 415,825 | | | 352,167 | |
Total liabilities | | 1,523,542 | | | 1,454,195 | |
Commitments and contingencies | | 0 | | 0 |
Stockholders’ equity: | | | | |
Common stock, $0.001 par value per share; 500,000,000 shares authorized; 106,594,255 and 106,332,315 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively | | 107 | | | 106 | |
Additional paid-in capital | | 2,868,945 | | | 2,871,352 | |
Accumulated earnings | | 3,197,005 | | | 3,184,455 | |
Accumulated other comprehensive loss | | (170,230) | | | (96,362) | |
Total stockholders’ equity | | 5,895,827 | | | 5,959,551 | |
Total liabilities and stockholders’ equity | | $ | 7,419,369 | | | $ | 7,413,746 | |
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| | | | | | | | |
| | 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.
FIRST SOLAR, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWSSTOCKHOLDERS’ EQUITY
(In thousands)
(Unaudited) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, 2022 |
| | Common Stock | | Additional Paid-In Capital | | Accumulated Earnings | | Accumulated Other Comprehensive (Loss) Income | | Total Stockholders' Equity |
| | Shares | | Amount | | | | |
Balance at March 31, 2022 | | 106,583 | | | $ | 107 | | | $ | 2,863,318 | | | $ | 3,141,200 | | | $ | (129,450) | | | $ | 5,875,175 | |
Net income | | — | | | — | | | — | | | 55,805 | | | — | | | 55,805 | |
Other comprehensive loss | | — | | | — | | | — | | | — | | | (40,780) | | | (40,780) | |
Common stock issued for share-based compensation | | 12 | | | — | | | — | | | — | | | — | | | — | |
Tax withholding related to vesting of restricted stock | | (1) | | | — | | | (86) | | | — | | | — | | | (86) | |
Share-based compensation expense | | — | | | — | | | 5,713 | | | — | | | — | | | 5,713 | |
Balance at June 30, 2022 | | 106,594 | | | $ | 107 | | | $ | 2,868,945 | | | $ | 3,197,005 | | | $ | (170,230) | | | $ | 5,895,827 | |
| | | | | | | | | | | | |
| | Three Months Ended June 30, 2021 |
| | Common Stock | | Additional Paid-In Capital | | Accumulated Earnings | | Accumulated Other Comprehensive (Loss) Income | | Total Stockholders' Equity |
| | Shares | | Amount | | | | |
Balance at March 31, 2021 | | 106,311 | | | $ | 106 | | | $ | 2,853,891 | | | $ | 2,925,433 | | | $ | (84,650) | | | $ | 5,694,780 | |
Net income | | — | | | — | | | — | | | 82,449 | | | — | | | 82,449 | |
Other comprehensive income | | — | | | — | | | — | | | — | | | 1,189 | | | 1,189 | |
Common stock issued for share-based compensation | | 10 | | | — | | | — | | | — | | | — | | | — | |
Tax withholding related to vesting of restricted stock | | (2) | | | — | | | (121) | | | — | | | — | | | (121) | |
Share-based compensation expense | | — | | | — | | | 5,338 | | | — | | | — | | | 5,338 | |
Balance at June 30, 2021 | | 106,319 | | | $ | 106 | | | $ | 2,859,108 | | | $ | 3,007,882 | | | $ | (83,461) | | | $ | 5,783,635 | |
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| | | | | | | | |
| | 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.
FIRST SOLAR, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands)
(Unaudited) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Six Months Ended June 30, 2022 |
| | Common Stock | | Additional Paid-In Capital | | Accumulated Earnings | | Accumulated Other Comprehensive (Loss) Income | | Total Stockholders' Equity |
| | Shares | | Amount | | | | |
Balance at December 31, 2021 | | 106,332 | | | $ | 106 | | | $ | 2,871,352 | | | $ | 3,184,455 | | | $ | (96,362) | | | $ | 5,959,551 | |
Net income | | — | | | — | | | — | | | 12,550 | | | — | | | 12,550 | |
Other comprehensive loss | | — | | | — | | | — | | | — | | | (73,868) | | | (73,868) | |
Common stock issued for share-based compensation | | 426 | | | 1 | | | — | | | — | | | — | | | 1 | |
Tax withholding related to vesting of restricted stock | | (164) | | | — | | | (11,591) | | | — | | | — | | | (11,591) | |
Share-based compensation expense | | — | | | — | | | 9,184 | | | — | | | — | | | 9,184 | |
Balance at June 30, 2022 | | 106,594 | | | $ | 107 | | | $ | 2,868,945 | | | $ | 3,197,005 | | | $ | (170,230) | | | $ | 5,895,827 | |
| | | | | | | | | | | | |
| | Six Months Ended June 30, 2021 |
| | Common Stock | | Additional Paid-In Capital | | Accumulated Earnings | | Accumulated Other Comprehensive (Loss) Income | | Total Stockholders' Equity |
| | Shares | | Amount | | | | |
Balance at December 31, 2020 | | 105,980 | | | $ | 106 | | | $ | 2,866,786 | | | $ | 2,715,762 | | | $ | (61,726) | | | $ | 5,520,928 | |
Net income | | — | | | — | | | — | | | 292,120 | | | — | | | 292,120 | |
Other comprehensive loss | | — | | | — | | | — | | | — | | | (21,735) | | | (21,735) | |
Common stock issued for share-based compensation | | 546 | | | — | | | — | | | — | | | — | | | — | |
Tax withholding related to vesting of restricted stock | | (207) | | | — | | | (15,810) | | | — | | | — | | | (15,810) | |
Share-based compensation expense | | — | | | — | | | 8,132 | | | — | | | — | | | 8,132 | |
Balance at June 30, 2021 | | 106,319 | | | $ | 106 | | | $ | 2,859,108 | | | $ | 3,007,882 | | | $ | (83,461) | | | $ | 5,783,635 | |
See accompanying notes to these condensed consolidated financial statements.
FIRST SOLAR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited) | | | | | | | | | | | | | | |
| | Six Months Ended June 30, |
| | 2022 | | 2021 |
Cash flows from operating activities: | | | | |
Net income | | $ | 12,550 | | | $ | 292,120 | |
Adjustments to reconcile net income to cash used in operating activities: | | | | |
Depreciation, amortization and accretion | | 131,760 | | | 128,913 | |
Impairments and net losses on disposal of long-lived assets | | 62,688 | | | 5,264 | |
Share-based compensation | | 9,267 | | | 8,545 | |
Deferred income taxes | | (5,576) | | | (12,317) | |
Gain on sales of businesses, net | | (247,288) | | | (149,150) | |
Gains on sales of marketable securities and restricted marketable securities | | — | | | (11,696) | |
| | | | |
Other, net | | (392) | | | (1,459) | |
Changes in operating assets and liabilities: | | | | |
Accounts receivable, trade and unbilled | | 145,784 | | | (255,832) | |
Other current assets | | (25,472) | | | (43,993) | |
Inventories | | (160,456) | | | (61,942) | |
Project assets and PV solar power systems | | (160,300) | | | 40,558 | |
Other assets | | (29,682) | | | (17,750) | |
Income tax receivable and payable | | 42,679 | | | 37,158 | |
Accounts payable | | (29,875) | | | (10,795) | |
Accrued expenses and other liabilities | | 203,492 | | | (49,853) | |
Net cash used in operating activities | | (50,821) | | | (102,229) | |
Cash flows from investing activities: | | | | |
Purchases of property, plant and equipment | | (353,448) | | | (180,782) | |
Purchases of marketable securities | | (971,205) | | | (389,352) | |
Proceeds from sales and maturities of marketable securities and restricted marketable securities | | 1,198,254 | | | 749,447 | |
Proceeds from sales of businesses, net of cash and restricted cash sold | | 264,614 | | | 297,403 | |
Other investing activities | | 72 | | | (6,628) | |
Net cash provided by investing activities | | 138,287 | | | 470,088 | |
Cash flows from financing activities: | | | | |
Repayment of long-term debt | | (75,879) | | | (38,471) | |
Proceeds from borrowings under long-term debt, net of discounts and issuance costs | | 213,086 | | | 45,191 | |
Payments of tax withholdings for restricted shares | | (11,591) | | | (15,810) | |
| | | | |
Net cash provided by (used in) financing activities | | 125,616 | | | (9,090) | |
Effect of exchange rate changes on cash, cash equivalents and restricted cash | | 39,934 | | | 906 | |
Net increase in cash, cash equivalents and restricted cash | | 253,016 | | | 359,675 | |
Cash, cash equivalents and restricted cash, beginning of the period | | 1,455,837 | | | 1,273,594 | |
Cash, cash equivalents and restricted cash, end of the period | | $ | 1,708,853 | | | $ | 1,633,269 | |
Supplemental disclosure of noncash investing and financing activities: | | | | |
Property, plant and equipment acquisitions funded by liabilities | | $ | 178,807 | | | $ | 43,894 | |
Proceeds to be received from sales of businesses | | $ | 163,966 | | | $ | 4,482 | |
See accompanying notes to these condensed consolidated financial statements.
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 ninesix months ended SeptemberJune 30, 20172022 are not necessarily indicative of the results that may be expected for the year ending December 31, 20172022 or for any other period. The condensed consolidated balance sheet at December 31, 20162021 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, 20162021 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 conformitythis Quarterly Report.
2. Sales of Businesses
Sale of Japan Project Development Business
In May 2022, we entered into various agreements with U.S. GAAP requires us to make estimates and assumptions that affectcertain subsidiaries of PAG Real Assets (“PAG”), a private investment firm, for 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.
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 Japan project development business. The transaction included our approximately 293 MWDC utility-scale 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 monthsproject development platform, which comprised the business 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 contractsdeveloping, contracting for the construction of, and sale of PVselling utility-scale photovoltaic (“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 comparedsystems. Additionally, PAG has agreed 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.” Oncecertain module purchase commitments.
On June 30, 2022, 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 ofcompleted the sale of theour Japan project including projects that may have begun commercial operation under powerdevelopment business for an aggregate purchase agreements (“PPAs”) and are actively marketed and intendedprice of ¥66.4 billion ($488.4 million), subject 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 tocertain customary post-closing adjustments. On the closing date, we received proceeds of a sales arrangement, the completed project will remain in project assets until placed in service. We present all expenditures related¥44.1 billion ($324.5 million) and transferred cash and restricted cash of ¥8.4 billion ($61.9 million) 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.PAG. As a result of our adoptionthis transaction, we recognized a gain of ASU 2017-04 in the first quarter$245.4 million, net 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 assetstransaction costs, which was 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“Gain on our consolidated financial statements and associated disclosures.
In June 2016, the FASB issued 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 entities measure credit losses on financial instruments and the timing of when such losses are recorded. 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 several aspects of the accounting for share-based payment transactions, including income tax consequences, accounting for forfeitures, classification of awards as either equity or liabilities, and classification on the statement of cash flows. Our adoption of ASU 2016-09 in the fourth quarter of 2016 resulted in the recognition of certain deferred tax assets for excess tax benefits that had previously not been recognized, as such benefits did not reduce our income taxes payable in prior periods, and the recognition of amounts for previously estimated forfeitures of share-based awards. As a result of the adoption, we also adjusted our condensed consolidated statement 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 consolidated 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 consolidated financial statements and associated disclosures.
In January 2016, 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 equity 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 and 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 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.” 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. See Note 2. “Summary of Significant Accounting Policies” to our condensed consolidated financial statements for further discussion of 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 operations 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 net 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 chargesbusinesses, net” 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.
5. Business AcquisitionsSales of North American and International O&M Operations
Enki Technology
In October 2016,August 2020, we acquired 100%entered into an agreement with a subsidiary of the shares of Enki Technology,Clairvest Group, Inc. (“Enki”Clairvest”), a developer of advanced coating materials for the PV solar industry, for cash paymentssale of $10.3our North American operations and maintenance (“O&M”) operations. In March 2021, we completed the transaction and received initial consideration of $146.0 million. As a result of this transaction, we recognized a gain of $117.8 million, net of cash acquiredtransaction costs, during the six months ended June 30, 2021, which was included in “Gain on sales of $0.3 million, andbusinesses, net” in our condensed consolidated statements of operations.
In January 2022, we completed the sale of certain international O&M operations to a promise to pay additionalseparate subsidiary of Clairvest for consideration of up to $7.0$1.9 million. As a result of this transaction, we recognized a gain of $1.6 million, contingentnet of transaction costs and post-closing adjustments, during the six months ended June 30, 2022, which was included in “Gain on the achievementsales of certain production and module performance milestones. businesses, net” in our condensed consolidated statements of operations.
Sale of U.S. Project Development Business
In connectionJanuary 2021, we entered into an agreement with applying the acquisition method of accounting, $17.3 millionLeeward Renewable Energy Development, LLC (“Leeward”), a subsidiary 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 ofOntario Municipal Employees Retirement System, for 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 productionsale of our solar modules. Such technology is expected to improveU.S. project development business. In March 2021, we completed the transaction and received consideration of $151.4 million for the sale of such business. As a result of this transaction, we recognized a gain of $31.5 million, net of transaction costs, during the six months ended June 30, 2021, which was included in “Gain on sales of businesses, net” in our module conversion efficiency and overall durability at a lower cost structure compared to our current production processes.condensed consolidated statements of operations.
6.3. Cash Cash Equivalents, and Marketable Securities
Cash cash equivalents, and marketable securities consisted of the following at SeptemberJune 30, 20172022 and December 31, 20162021 (in thousands):
| | | | | | | | | | | | | | |
| | June 30, 2022 | | December 31, 2021 |
Cash | | $ | 1,701,217 | | | $ | 1,450,654 | |
Marketable securities: | | | | |
Foreign debt | | 52,161 | | | 103,317 | |
U.S. debt | | 8,702 | | | 18,627 | |
Time deposits | | 83,081 | | | 253,445 | |
Total marketable securities | | 143,944 | | | 375,389 | |
Total cash and marketable securities | | $ | 1,845,161 | | | $ | 1,826,043 | |
|
| | | | | | | | |
| | 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 and restricted cash reported within our condensed consolidated balance sheets as of June 30, 2022 and December 31, 2021 to the total of such amounts as presented in the condensed consolidated statements 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 Item | | June 30, 2022 | | December 31, 2021 |
Cash | | Cash | | $ | 1,701,217 | | | $ | 1,450,654 | |
Restricted cash – current | | Other current assets | | 1,130 | | | 1,532 | |
Restricted cash – noncurrent | | Other assets | | 6,506 | | | 3,651 | |
Total cash and restricted cash | | | | $ | 1,708,853 | | | $ | 1,455,837 | |
During the ninesix months ended SeptemberJune 30, 2017,2021, we sold marketable securities for proceeds of $118.3$5.5 million and realized gains 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.
The following tables summarize the unrealized gains and losses related to our available-for-sale marketable securities, by major security type, as of SeptemberJune 30, 20172022 and December 31, 20162021 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | As of June 30, 2022 |
| | Amortized Cost | | Unrealized Gains | | Unrealized Losses | | Allowance for Credit Losses | | Fair Value |
Foreign debt | | $ | 52,208 | | | $ | 1 | | | $ | 31 | | | $ | 17 | | | $ | 52,161 | |
U.S. debt | | 10,000 | | | — | | | 1,296 | | | 2 | | | 8,702 | |
Time deposits | | 83,102 | | | — | | | — | | | 21 | | | 83,081 | |
Total | | $ | 145,310 | | | $ | 1 | | | $ | 1,327 | | | $ | 40 | | | $ | 143,944 | |
| | | | As of September 30, 2017 | | | As of December 31, 2021 |
| | Amortized Cost | | Unrealized Gains | | Unrealized Losses | | Fair Value | | Amortized Cost | | Unrealized Gains | | Unrealized Losses | | Allowance for Credit Losses | | Fair Value |
Foreign debt | | $ | 173,111 |
| | $ | — |
| | $ | 862 |
| | $ | 172,249 |
| Foreign debt | | $ | 103,263 | | | $ | 81 | | | $ | 18 | | | $ | 9 | | | $ | 103,317 | |
Foreign government obligations | | 199,009 |
| | — |
| | 702 |
| | 198,307 |
| |
U.S. debt | | 74,016 |
| | 2 |
| | 30 |
| | 73,988 |
| U.S. debt | | 19,003 | | | 10 | | | 384 | | | 2 | | | 18,627 | |
Time deposits | | 255,000 |
| | — |
| | — |
| | 255,000 |
| Time deposits | | 253,531 | | | — | | | — | | | 86 | | | 253,445 | |
Total | | $ | 701,136 |
| | $ | 2 |
| | $ | 1,594 |
| | $ | 699,544 |
| Total | | $ | 375,797 | | | $ | 91 | | | $ | 402 | | | $ | 97 | | | $ | 375,389 | |
|
| | | | | | | | | | | | | | | | |
| | 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 Septemberfor the six months ended June 30, 20172022 and December 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 position2021 (in thousands):
| | | | | | | | | | | | | | |
| | Six Months Ended June 30, |
| | 2022 | | 2021 |
Allowance for credit losses, beginning of period | | $ | 97 | | | $ | 121 | |
Provision for credit losses, net | | 64 | | | 201 | |
Sales and maturities of marketable securities | | (121) | | | (235) | |
Allowance for credit losses, end of period | | $ | 40 | | | $ | 87 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | 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 SeptemberJune 30, 20172022 were as follows (in thousands):
| | | | | | | | |
| | Fair Value |
One year or less | | $ | 135,242 | |
One year to two years | | — | |
Two years to three years | | — | |
Three years to four years | | 4,548 | |
Four years to five years | | — | |
More than five years | | 4,154 | |
Total | | $ | 143,944 | |
|
| | | | |
| | 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 Septemberas of June 30, 2017 and December 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, 20172022 and December 31, 2016, our2021 (in thousands):
| | | | | | | | | | | | | | |
| | June 30, 2022 | | December 31, 2021 |
Foreign government obligations | | $ | 51,355 | | | $ | 64,855 | |
Supranational debt | | 9,419 | | | 10,997 | |
U.S. debt | | 120,491 | | | 145,326 | |
U.S. government obligations | | 19,001 | | | 23,548 | |
Total restricted marketable securities | | $ | 200,266 | | | $ | 244,726 | |
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 of long-term marketable securities that were held in custodial accountsrepresent long-term investments to fund the estimated future costs associated withcost of collecting and recycling modules covered under our solar module collection and recycling program. We classify our restricted investments as available-for-sale. Accordingly, we record them at fair value and account for the net unrealized gains and losses as a part 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 million and realized gains of $37.8 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.
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, based on estimated costs of collecting and recycling covered modules, estimated rates of return on our restricted investments, 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 distribute funds from theAs of June 30, 2022 and December 31, 2021, such custodial accounts also included noncurrent restricted cash balances of $4.0 million and these$0.9 million, respectively, which were reported within “Other assets.” Trust 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. As necessary, we fund any incremental amounts for our estimated collection and recycling obligations on an annual basis based on the estimated costs of collecting and recycling covered modules, estimated rates of return on our restricted marketable securities, and an estimated solar module life of 25 years, less amounts already funded in prior years.
During the six months ended June 30, 2021, we sold all our restricted marketable securities for proceeds of $258.9 million and realized gains of $11.7 million on such sales. 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 SeptemberJune 30, 20172022 and December 31, 20162021 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | As of June 30, 2022 |
| | Amortized Cost | | Unrealized Gains | | Unrealized Losses | | Allowance for Credit Losses | | Fair Value |
Foreign government obligations | | $ | 63,830 | | | $ | — | | | $ | 12,465 | | | $ | 10 | | | $ | 51,355 | |
Supranational debt | | 11,255 | | | — | | | 1,836 | | | — | | | 9,419 | |
U.S. debt | | 149,179 | | | — | | | 28,658 | | | 30 | | | 120,491 | |
U.S. government obligations | | 24,596 | | | — | | | 5,590 | | | 5 | | | 19,001 | |
Total | | $ | 248,860 | | | $ | — | | | $ | 48,549 | | | $ | 45 | | | $ | 200,266 | |
| | | | As of September 30, 2017 | | | As of December 31, 2021 |
| | Amortized Cost | | Unrealized Gains | | Unrealized Losses | | Fair Value | | Amortized Cost | | Unrealized Gains | | Unrealized Losses | | Allowance for Credit Losses | | Fair Value |
Foreign government obligations | | $ | 124,083 |
| | $ | 60,279 |
| | $ | — |
| | $ | 184,362 |
| Foreign government obligations | | $ | 66,867 | | | $ | — | | | $ | 2,002 | | | $ | 10 | | | $ | 64,855 | |
Supranational debt | | Supranational debt | | 11,362 | | | — | | | 365 | | | — | | | 10,997 | |
U.S. debt | | U.S. debt | | 150,060 | | | — | | | 4,697 | | | 37 | | | 145,326 | |
U.S. government obligations | | 173,269 |
| | 12,291 |
| | 4,900 |
| | 180,660 |
| U.S. government obligations | | 24,640 | | | — | | | 1,086 | | | 6 | | | 23,548 | |
Total | | $ | 297,352 |
| | $ | 72,570 |
| | $ | 4,900 |
| | $ | 365,022 |
| Total | | $ | 252,929 | | | $ | — | | | $ | 8,150 | | | $ | 53 | | | $ | 244,726 | |
The following table presents the change in the allowance for credit losses related to our restricted marketable securities for the six months ended June 30, 2022 and 2021 (in thousands): |
| | | | | | | | | | | | | | | | |
| | 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 |
|
| | | | | | | | | | | | | | |
| | Six Months Ended June 30, |
| | 2022 | | 2021 |
Allowance for credit losses, beginning of period | | $ | 53 | | | $ | 13 | |
Provision for credit losses, net | | (8) | | | 16 | |
Sales of restricted marketable securities | | — | | | (29) | |
Allowance for credit losses, end of period | | $ | 45 | | | $ | — | |
As of SeptemberJune 30, 2017,2022, the contractual maturities of our restricted investmentsmarketable securities were between 129 years and 1917 years.
8.5. Consolidated Balance Sheet Details
Accounts receivable trade, net
Accounts receivable trade, net consisted of the following at SeptemberJune 30, 20172022 and December 31, 20162021 (in thousands):
| | | | | | | | | | | | | | |
| | June 30, 2022 | | December 31, 2021 |
Accounts receivable trade, gross | | $ | 455,038 | | | $ | 430,100 | |
Allowance for credit losses | | (607) | | | (664) | |
Accounts receivable trade, net | | $ | 454,431 | | | $ | 429,436 | |
|
| | | | | | | | |
| | 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, 2017 and December 31, 2016, $51.3 million and $12.2 million, respectively, of our accounts receivable trade, net were secured by letters of credit, bank guarantees, or other forms of financial security issued by creditworthy financial institutions.
Accounts receivable unbilled, and retainagenet
Accounts receivable unbilled, and retainagenet consisted of the following at SeptemberJune 30, 20172022 and December 31, 20162021 (in thousands):
| | | | | | | | | | | | | | |
| | June 30, 2022 | | December 31, 2021 |
Accounts receivable unbilled, gross | | $ | 35,438 | | | $ | 25,336 | |
Allowance for credit losses | | — | | | (63) | |
Accounts receivable unbilled, net | | $ | 35,438 | | | $ | 25,273 | |
|
| | | | | | | | |
| | 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 tables present the change in the allowances for credit losses related to our accounts receivable for the six months ended June 30, 2022 and 2021 (in thousands):
| | | | | | | | | | | | | | |
| | Six Months Ended June 30, |
Accounts receivable trade | | 2022 | | 2021 |
Allowance for credit losses, beginning of period | | $ | 664 | | | $ | 3,009 | |
Provision for credit losses, net | | (57) | | | (433) | |
Writeoffs | | — | | | (97) | |
Allowance for credit losses, end of period | | $ | 607 | | | $ | 2,479 | |
| | | | | | | | | | | | | | |
| | Six Months Ended June 30, |
Accounts receivable unbilled | | 2022 | | 2021 |
Allowance for credit losses, beginning of period | | $ | 63 | | | $ | 303 | |
Provision for credit losses, net | | (63) | | | (266) | |
| | | | |
Allowance for credit losses, end of period | | $ | — | | | $ | 37 | |
Inventories
Inventories consisted of the following at SeptemberJune 30, 20172022 and December 31, 20162021 (in thousands):
| | | | | | | | | | | | | | |
| | June 30, 2022 | | December 31, 2021 |
Raw materials | | $ | 397,299 | | | $ | 404,727 | |
Work in process | | 60,087 | | | 65,573 | |
Finished goods | | 592,100 | | | 433,511 | |
Inventories | | $ | 1,049,486 | | | $ | 903,811 | |
Inventories – current | | $ | 810,461 | | | $ | 666,299 | |
Inventories – noncurrent | | $ | 239,025 | | | $ | 237,512 | |
|
| | | | | | | | |
| | 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 otherOther current assets
Prepaid expenses and otherOther current assets consisted of the following at SeptemberJune 30, 20172022 and December 31, 20162021 (in thousands):
| | | | | | | | | | | | | | |
| | June 30, 2022 | | December 31, 2021 |
Spare maintenance materials and parts | | $ | 111,188 | | | $ | 112,070 | |
Operating supplies | | 40,294 | | | 41,034 | |
Prepaid expenses | | 39,125 | | | 28,232 | |
Prepaid income taxes | | 15,791 | | | 41,379 | |
Derivative instruments (1) | | 8,535 | | | 5,816 | |
Restricted cash | | 1,130 | | | 1,532 | |
Other | | 21,863 | | | 14,129 | |
Other current assets | | $ | 237,926 | | | $ | 244,192 | |
——————————
(1)See Note 6. “Derivative Financial Instruments” to our condensed consolidated financial statements for discussion of our derivative instruments.
|
| | | | | | | | |
| | 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 |
|
Property, plant and equipment, net
Property, plant and equipment, net consisted of the following at SeptemberJune 30, 20172022 and December 31, 20162021 (in thousands):
| | | | | | | | | | | | | | |
| | June 30, 2022 | | December 31, 2021 |
Land | | $ | 17,924 | | | $ | 18,359 | |
Buildings and improvements | | 692,785 | | | 693,289 | |
Machinery and equipment | | 2,635,862 | | | 2,527,627 | |
Office equipment and furniture | | 140,171 | | | 139,611 | |
Leasehold improvements | | 40,162 | | | 40,517 | |
Construction in progress | | 803,488 | | | 461,708 | |
Property, plant and equipment, gross | | 4,330,392 | | | 3,881,111 | |
Accumulated depreciation | | (1,341,413) | | | (1,231,524) | |
Property, plant and equipment, net | | $ | 2,988,979 | | | $ | 2,649,587 | |
|
| | | | | | | | |
| | 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$60.0 million and $71.1$118.6 million for the three and ninesix months ended SeptemberJune 30, 2017,2022, respectively, and $51.6$58.8 million and $158.6$115.6 million for the three and ninesix months ended SeptemberJune 30, 2016,2021, respectively.
PV solar power systems, net
PV solar power systems, net consisted of the following at SeptemberJune 30, 20172022 and December 31, 20162021 (in thousands):
| | | | | | | | | | | | | | |
| | June 30, 2022 | | December 31, 2021 |
PV solar power systems, gross | | $ | 225,530 | | | $ | 281,660 | |
Accumulated depreciation | | (69,315) | | | (64,367) | |
PV solar power systems, net | | $ | 156,215 | | | $ | 217,293 | |
|
| | | | | | | | |
| | 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$2.3 million and $14.9$5.1 million for the three and ninesix months ended SeptemberJune 30, 2017,2022, respectively, and $4.4$2.9 million and $6.8$5.9 million for the three and ninesix months ended SeptemberJune 30, 2016,2021, respectively.
We evaluate our PV solar power systems for impairment under a held and used impairment model whenever events or changes in circumstances arise that may indicate that the carrying amount of a particular system may not be recoverable. Such events or changes may include a significant decrease in the market price of the asset, current-period operating or cash flow losses combined with a history of such losses or a projection of future losses associated with the use of the asset, and changes in expectations regarding our intent to hold the asset on a long-term basis or the timing of a potential asset disposition.
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 duringDuring the three and nine months ended SeptemberJune 30, 20172022, we received multiple non-binding offers to purchase our Luz del Norte PV solar power plant and 2016 (in thousands):elected to pursue such opportunities in coordination with the project’s lenders. As a result of the expected sale in the near term, we compared the undiscounted future cash flows for the project to its carrying value and determined that the project was not recoverable. Accordingly, we measured the fair value of the project using a market approach valuation technique and recorded an impairment loss of $57.8 million in “Cost of sales” in our condensed consolidated statements of operations. Such impairment loss was comprised of $55.6 million for PV solar power systems, $1.3 million for intangible assets, and $0.9 million for operating lease assets.
|
| | | | | | | | | | | | | | | | |
| | 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 SeptemberJune 30, 20172022 and December 31, 20162021 (in thousands):
| | | | | | | | | | | | | | |
| | June 30, 2022 | | December 31, 2021 |
Project assets – development costs, including project acquisition and land costs | | $ | 29,589 | | | $ | 117,407 | |
Project assets – construction costs | | — | | | 198,081 | |
Project assets | | $ | 29,589 | | | $ | 315,488 | |
|
| | | | | | | | |
| | 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 consistedIn June 2022, we completed the sale of the following at September 30, 2017 and December 31, 2016 (in thousands):majority of our project assets to PAG in connection with the sale of our Japan project development business. See Note 2. “Sales of Businesses” to our condensed consolidated financial statements for further information about this transaction.
|
| | | | | | | | |
| | 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 |
|
| |
(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).
|
Goodwill
Goodwill for the relevant reporting unit consisted of the following at SeptemberJune 30, 20172022 and December 31, 20162021 (in thousands):
| | | | | | | | | | | | | | | | | | | | |
| | December 31, 2021 | | Acquisitions (Impairments) | | June 30, 2022 |
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 excessIntangible assets, net consisted of the purchase pricefollowing at June 30, 2022 and December 31, 2021 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2022 |
| | Gross Amount | | Accumulated Amortization | | Accumulated Impairments | | Net Amount |
Developed technology | | $ | 99,964 | | | $ | (66,920) | | | $ | — | | | $ | 33,044 | |
Power purchase agreements | | 6,486 | | | (1,784) | | | (1,300) | | | 3,402 | |
Patents | | 8,480 | | | (6,198) | | | — | | | 2,282 | |
Intangible assets, net | | $ | 114,930 | | | $ | (74,902) | | | $ | (1,300) | | | $ | 38,728 | |
| | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2021 |
| | Gross Amount | | Accumulated Amortization | | | | Net Amount |
Developed technology | | $ | 99,964 | | | $ | (61,985) | | | | | $ | 37,979 | |
Power purchase agreements | | 6,486 | | | (1,621) | | | | | 4,865 | |
Patents | | 8,480 | | | (5,815) | | | | | 2,665 | |
Intangible assets, net | | $ | 114,930 | | | $ | (69,421) | | | | | $ | 45,509 | |
Amortization of acquired businesses overintangible assets was $2.8 million and $5.5 million for the estimated fair values assigned to the individual assets acquiredthree 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 – Goodwillsix months ended June 30, 2022 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 value2021, respectively.
Other intangibles, net
Other intangibles, net consistsassets
Other assets consisted 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 productsfollowing at June 30, 2022 and production processes, and IPR&D related to our Enki acquisition as described inDecember 31, 2021 (in thousands):
| | | | | | | | | | | | | | |
| | June 30, 2022 | | December 31, 2021 |
Operating lease assets (1) | | $ | 101,855 | | | $ | 207,544 | |
Advanced payments for raw materials | | 86,520 | | | 86,962 | |
Income tax receivables | | 47,235 | | | 39,862 | |
Accounts receivable unbilled, net | | 11,488 | | | 20,840 | |
Accounts receivable trade, net | | 9,076 | | | 21,293 | |
Restricted cash | | 6,506 | | | 3,651 | |
Indirect tax receivables | | 348 | | | 21,873 | |
Other | | 43,928 | | | 36,739 | |
Other assets | | $ | 306,956 | | | $ | 438,764 | |
——————————
(1)See Note 5. “Business Acquisitions”7. “Leases” to our condensed consolidated financial statements. We record an assetstatements 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.discussion of our lease arrangements.
The following tables summarize our intangible assets at September 30, 2017 and December 31, 2016 (in thousands):
|
| | | | | | | | | | | | | | | | |
| | 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, 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 our intangible assets was $2.1 million and $6.2 million for the three and nine months ended September 30, 2017, respectively, and $2.1 million and $8.1 million for the three and nine months ended September 30, 2016, respectively.
Accrued expenses
Accrued expenses consisted of the following at SeptemberJune 30, 20172022 and December 31, 20162021 (in thousands):
| | | | | | | | | | | | | | |
| | June 30, 2022 | | December 31, 2021 |
Accrued property, plant and equipment | | $ | 154,552 | | | $ | 42,031 | |
Accrued freight | | 66,199 | | | 61,429 | |
Accrued inventory | | 38,464 | | | 42,170 | |
Accrued compensation and benefits | | 29,476 | | | 34,606 | |
Product warranty liability (1) | | 11,553 | | | 13,598 | |
Accrued other taxes | | 11,307 | | | 23,103 | |
Accrued project costs | | 6,642 | | | 48,836 | |
Other | | 26,012 | | | 22,677 | |
Accrued expenses | | $ | 344,205 | | | $ | 288,450 | |
|
| | | | | | | | |
| | 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 SeptemberJune 30, 20172022 and December 31, 20162021 (in thousands):
| | | | | | | | | | | | | | |
| | June 30, 2022 | | December 31, 2021 |
Other taxes payable | | $ | 13,165 | | | $ | 8,123 | |
Operating lease liabilities (1) | | 9,437 | | | 12,781 | |
Derivative instruments (2) | | 7,371 | | | 3,550 | |
Other | | 6,356 | | | 10,293 | |
Other current liabilities | | $ | 36,329 | | | $ | 34,747 | |
——————————
(1)See Note 7. “Leases” to our condensed consolidated financial statements for discussion of our lease arrangements.
(2)See Note 6. “Derivative Financial Instruments” to our condensed consolidated financial statements for discussion of our derivative instruments.
|
| | | | | | | | |
| | 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 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.
|
Other liabilities
Other liabilities consisted of the following at SeptemberJune 30, 20172022 and December 31, 20162021 (in thousands):
| | | | | | | | | | | | | | |
| | June 30, 2022 | | December 31, 2021 |
Deferred revenue | | $ | 278,176 | | | $ | 95,943 | |
Operating lease liabilities (1) | | 47,752 | | | 145,912 | |
Product warranty liability (2) | | 35,576 | | | 38,955 | |
Deferred tax liabilities, net | | 23,059 | | | 27,699 | |
Other | | 31,262 | | | 43,658 | |
Other liabilities | | $ | 415,825 | | | $ | 352,167 | |
——————————
(1)See Note 7. “Leases” to our condensed consolidated financial statements for discussion of our lease arrangements.
(2)See Note 10. “Commitments and Contingencies” to our condensed consolidated financial statements for discussion of our “Product Warranties.”
|
| | | | | | | | |
| | 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 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. |
9.6. Derivative Financial Instruments
As a global company, we are exposed in the normal course of business to interest rate, and foreign currency, and commodity price 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 SeptemberJune 30, 20172022 and December 31, 20162021 (in thousands):
| | | | | | | | | | | | | | | | | | |
| | June 30, 2022 |
| | Other Current Assets | | | | Other Current Liabilities | | |
Derivatives designated as hedging instruments: | | | | | | | | |
Foreign exchange forward contracts | | $ | 1,605 | | | | | $ | — | | | |
Commodity swap contracts | | — | | | | | 6,812 | | | |
Total derivatives designated as hedging instruments | | $ | 1,605 | | | | | $ | 6,812 | | | |
| | | | | | | | |
Derivatives not designated as hedging instruments: | | | | | | | | |
Foreign exchange forward contracts | | $ | 6,930 | | | | | $ | 559 | | | |
| | | | | | | | |
Total derivatives not designated as hedging instruments | | $ | 6,930 | | | | | $ | 559 | | | |
Total derivative instruments | | $ | 8,535 | | | | | $ | 7,371 | | | |
| | | | September 30, 2017 | | | December 31, 2021 |
| | Prepaid Expenses and Other Current Assets | | Other Current Liabilities | | Other Liabilities | | Other Current Assets | | Other Current Liabilities | |
Derivatives designated as hedging instruments: | | | | | | | Derivatives designated as hedging instruments: | | | | | |
Foreign exchange forward contracts | | $ | 267 |
| | $ | 10,777 |
| | $ | — |
| Foreign exchange forward contracts | | $ | 1,336 | | | $ | 139 | | |
Total derivatives designated as hedging instruments | | $ | 267 |
| | $ | 10,777 |
| | $ | — |
| Total derivatives designated as hedging instruments | | $ | 1,336 | | | $ | 139 | | |
| | | | | | | | | | | |
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 | | $ | 4,480 | | | $ | 3,411 | | |
Interest rate swap contracts | | — |
| | — |
| | 5,515 |
| |
Total derivatives not designated as hedging instruments | | $ | 9,377 |
| | $ | 6,074 |
| | $ | 8,697 |
| Total derivatives not designated as hedging instruments | | $ | 4,480 | | | $ | 3,411 | | |
Total derivative instruments | | $ | 9,644 |
| | $ | 16,851 |
| | $ | 8,697 |
| Total derivative instruments | | $ | 5,816 | | | $ | 3,550 | | |
|
| | | | | | | | | | | | |
| | 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 ninesix months ended SeptemberJune 30, 20172022 and 20162021 (in thousands):
| | | | | | | | | | | | | | | | | | | | |
| | Foreign Exchange Forward Contracts | | Commodity Swap Contracts | | Total |
Balance as of December 31, 2021 | | $ | 1,126 | | | $ | — | | | $ | 1,126 | |
Amounts recognized in other comprehensive income (loss) | | 545 | | | (6,812) | | | (6,267) | |
| | | | | | |
Amounts reclassified to earnings impacting: | | | | | | |
| | | | | | |
Cost of sales | | (1,453) | | | — | | | (1,453) | |
| | | | | | |
| | | | | | |
| | | | | | |
Balance as of June 30, 2022 | | $ | 218 | | | $ | (6,812) | | | $ | (6,594) | |
| | | | | | |
Balance as of December 31, 2020 | | $ | (3,644) | | | $ | 1,472 | | | $ | (2,172) | |
Amounts recognized in other comprehensive income (loss) | | 1,618 | | | 1,531 | | | 3,149 | |
Amounts reclassified to earnings impacting: | | | | | | |
| | | | | | |
Cost of sales | | 1,928 | | | (213) | | | 1,715 | |
| | | | | | |
| | | | | | |
| | | | | | |
Balance as of June 30, 2021 | | $ | (98) | | | $ | 2,790 | | | $ | 2,692 | |
|
| | | | | | | | | | | | | | | | |
| | 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 ninesix months ended SeptemberJune 30, 2017 and 2016. We2022, we recognized unrealized gains of $0.7less than $0.1 million and $0.5unrealized losses of less than $0.1 million, related torespectively, 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” duringhedges. During the three and ninesix months ended SeptemberJune 30, 2017, respectively. We2021, we recognized unrealized gains of less than $0.1 million and unrealized losses of $0.2less than $0.1 million, and $0.6 million related torespectively, 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, 2016, respectively. hedges.
The following table presents the pretax amounts related to derivative instruments designated as net investment hedges affecting accumulated other comprehensive income (loss) and our condensed consolidated statements of operations for the six months ended June 30, 2022 (in thousands):
| | | | | | | | |
| | Foreign Exchange Forward Contracts |
Balance as of December 31, 2021 | | $ | — | |
Amounts recognized in other comprehensive income (loss) | | 1,383 | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
Balance as of June 30, 2022 | | $ | 1,383 | |
During the three months ended June 30, 2022, we recognized unrealized gains of $0.1 million within “Other (expense) income, net” for amounts excluded from effectiveness testing for our derivative instruments designated as net investment hedges.
The following table presents gains and losses related to derivative instruments not designated as hedges affecting our condensed consolidated statements of operations for the three and ninesix months ended SeptemberJune 30, 20172022 and 20162021 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Amount of Gain (Loss) Recognized in Income |
| | | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | Income Statement Line Item | | 2022 | | 2021 | | 2022 | | 2021 |
Foreign exchange forward contracts | | Cost of sales | | $ | 444 | | | $ | (446) | | | $ | 522 | | | $ | (277) | |
Foreign exchange forward contracts | | Foreign currency loss, net | | 44,534 | | | (1,277) | | | 63,515 | | | 9,019 | |
Interest rate swap contracts | | Interest expense, net | | — | | | (691) | | | — | | | (691) | |
|
| | | | | | | | | | | | | | | | | | |
| | | | 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 | ) | | — |
|
Interest Rate Risk
WeFrom time to time, we may 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.
In March 2017, Manildra Finco Pty Ltd, During the six months ended June 30, 2021, all of our indirect wholly-owned subsidiary and project financing company, entered into various interest rate swap contracts related to hedge a portion of the floating rate construction loan facility under the associated project’s Manildra Credit Facility (as defined in Note 12. “Debt” to our condensed consolidated financial statements).project specific debt facilities. Such swaps had an initial aggregate notional value of AUD 12.8 million and entitled the project to receive a one-month or three-month floating Bank Bill Swap or “BBSW” interest rate while requiring the project to pay a fixed rate of 3.13%. The aggregate notional amount of the interest rate swap contracts proportionately adjusts with the scheduled draws and principal payments on the underlying hedged debt. As of September 30, 2017, the aggregate notional value of the interest rate swap contracts was AUD 40.6 million ($31.7 million). These derivative instruments dodid not qualify for accounting as cash flow hedges in accordance with ASCAccounting Standards Codification (“ASC”) 815 due to our expectation to sell the associated projectprojects before the maturity of itstheir project specific debt financingfinancings and corresponding swap contracts. Accordingly, the changes in the fair valuevalues of thethese swap contracts arewere recorded directly to “Interest expense, net.”
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. “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”) 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, the notional value of the interest rate swap contract was ¥8.0 billion ($71.2 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.”
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 SeptemberJune 30, 20172022 and December 31, 2016,2021, these foreign exchange forward contracts hedged our forecasted cash flows for periods up to 123 months and 2111 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 SeptemberJune 30, 20172022 and December 31, 2016.2021.
As of SeptemberJune 30, 20172022 and December 31, 2016,2021, 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):
| | | | | | | | | | | | | | |
| | June 30, 2022 |
Currency | | Notional Amount | | USD Equivalent |
U.S. dollar (1) | | $2.7 | | $2.7 |
| | | | |
|
| | | | |
| | September 30, 2017 |
Currency | | Notional Amount | | USD Equivalent |
Indian rupee | | INR 4,730.0 | | $72.5 |
Euro | | €31.7 | | $37.4 |
| | | | | | | | | | | | | | |
| | December 31, 2021 |
Currency | | Notional Amount | | USD Equivalent |
U.S. dollar (1) | | $38.4 | | $38.4 |
British pound | | GBP 10.6 | | $14.4 |
|
| | | | |
| | December 31, 2016 |
Currency | | Notional Amount | | USD Equivalent |
Indian rupee | | INR 860.0 | | $12.7 |
Australian dollar | | AUD 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$0.2 million of net unrealized lossesgains related to theseforeign exchange forward contracts that are included in “Accumulated other comprehensive loss” at SeptemberJune 30, 20172022 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.
Net Investment Exposure
The functional currencies of certain of our foreign subsidiaries are their local currencies. Accordingly, we apply period-end exchange rates to translate their assets and liabilities and daily transaction exchange rates to translate their revenues, expenses, gains, and losses into U.S. dollars. We include the associated translation adjustments as a separate component of “Accumulated other comprehensive loss” within stockholders’ equity. From time to time, we may seek to mitigate the impact of such translation adjustments by entering into foreign exchange forward contracts that are designated as hedges of net investments in certain foreign subsidiaries. In June 2022, we entered into a foreign exchange forward contract with a notional value of ¥8.0 billion ($60.6 million), which qualifies for and was designated as a hedge of our net investment in a certain foreign subsidiary in Japan. As of June 30, 2022, this foreign exchange forward contract hedged such net investment for a period of 6 months. We report unrealized gains or losses on this contract, which are based on spot exchange rates, as a component of our foreign currency translation adjustments within “Accumulated other comprehensive loss” and subsequently reclassify applicable amounts into earnings when the net investments are sold or substantially liquidated. We determined that this derivative financial instrument was highly effective as a net investment hedge as of June 30, 2022.
Transaction Exposure and Economic Hedging
Many of our subsidiaries have assets and liabilities (primarily cash, receivables, marketable securities,deferred taxes, payables, debt,accrued expenses, operating lease liabilities, 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, net” on our condensed consolidated statements of operations. These contracts mature at various dates within the next 1.3 years.
As of SeptemberJune 30, 20172022 and December 31, 2016,2021, 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):
| | | | | | | | | | | | | | | | | | | | |
| | June 30, 2022 |
Transaction | | Currency | | Notional Amount | | USD Equivalent |
| | | | | | |
| | | | | | |
| | September 30, 2017 |
Transaction | | Currency | | Notional Amount | | USD Equivalent |
Purchase | | Euro | | €138.4 | | $163.3 |
Sell | | Euro | | €132.2 | | $156.0 |
Purchase | | Australian dollar | | AUD 66.6 | | $52.1 |
Sell | | Australian dollar | | AUD 54.1 | | $42.3 |
Purchase | | Malaysian ringgit | | MYR 14.0 | | $3.3 |
Sell | | Malaysian ringgit | | MYR 548.1 | | $129.8 |
Sell | | Canadian dollar | | CAD 3.9 | | $3.1 |
Sell | | Chilean peso | | CLP 9,798.3 | | $15.4 |
Purchase | | Chinese yuan | | CNY 13.8 | | $2.1 |
Sell | | Japanese yen | | ¥22,747.3 | | $201.9 |
Sell | | Indian rupee | | INR 9,981.2 | | $152.9 |
Sell | | Singapore dollar | | SGD 3.1 | | $2.3 |
Purchase | | South African rand | | ZAR 11.9 | | $0.9 |
Sell | | South African rand | | ZAR 58.0 | | $4.3 |
|
| | | | | | |
| | December 31, 2016 | | | | |
Transaction | | Currency | | Notional Amount | | USD Equivalent |
Purchase | | Euro | | €64.5 | | $68.0 |
Sell | | Euro | | €103.6 | | $109.3 |
Purchase | | Australian dollar | | AUD 1.2 | | $0.9 |
Sell | | Australian dollarChilean peso | | AUD 19.3CLP 5,034.5 | | $14.05.5 |
Sell | | Malaysian ringgit | | MYR 24.5 | | $5.5 |
Sell | | Canadian dollar | | CAD 17.7 | | $13.2 |
SellPurchase | | Chilean pesoEuro | | CLP 13,611.6€82.1 | | $20.386.7 |
PurchaseSell | | Chinese yuanEuro | | CNY 24.3€32.7 | | $3.534.5 |
Purchase | | Japanese yen | | ¥97.3 | | $0.8 |
Sell | | Japanese yenIndian rupee | | ¥15,610.4INR 12,495.4 | | $133.7158.8 |
SellPurchase | | British poundJapanese yen | | £0.6¥1,615.2 | | $0.711.9 |
Sell | | Indian rupeeJapanese yen | | INR 12,753.2¥62,722.1 | | $187.7461.6 |
SellPurchase | | South African randMalaysian ringgit | | ZAR 51.2MYR 51.6 | | $3.711.7 |
Sell | | Malaysian ringgit | | MYR 27.3 | | $6.2 |
| | | | | | |
Sell | | Mexican peso | | MXN 34.6 | | $1.7 |
Purchase | | Singapore dollar | | SGD 1.4 | | $1.0 |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | December 31, 2021 |
Transaction | | Currency | | Notional Amount | | USD Equivalent |
Purchase | | Australian dollar | | AUD 3.2 | | $2.3 |
Purchase | | Brazilian real | | BRL 2.6 | | $0.5 |
Sell | | Brazilian real | | BRL 2.6 | | $0.5 |
Purchase | | British pound | | GBP 2.5 | | $3.4 |
Sell | | Chilean peso | | CLP 4,058.6 | | $4.8 |
Purchase | | Euro | | €77.6 | | $88.0 |
Sell | | Euro | | €38.6 | | $43.8 |
Sell | | Indian rupee | | INR 10,943.0 | | $147.1 |
Purchase | | Japanese yen | | ¥667.5 | | $5.8 |
Sell | | Japanese yen | | ¥31,524.6 | | $273.9 |
Purchase | | Malaysian ringgit | | MYR 17.0 | | $4.1 |
Sell | | Malaysian ringgit | | MYR 24.5 | | $5.9 |
Sell | | Mexican peso | | MXN 34.6 | | $1.7 |
Purchase | | Singapore dollar | | SGD 5.5 | | $4.1 |
10.Commodity Price Risk
We use commodity swap contracts to mitigate our exposure to commodity price fluctuations for certain raw materials used in the production of our modules. During the six months ended June 30, 2022, we entered into various commodity swap contracts to hedge a portion of our forecasted cash flows for purchases of aluminum frames between July 2022 and December 2023. Such swaps had an aggregate initial notional value based on metric tons of forecasted aluminum purchases, equivalent to $62.0 million, and entitles us to receive a three-month average London Metals Exchange price for aluminum while requiring us to pay certain fixed prices. The notional amount of the commodity swap contracts proportionately adjusts with forecasted purchases of aluminum frames.
These commodity swap contracts qualify for accounting as cash flow hedges in accordance with ASC 815, and we designated them as such. We report unrealized gains or losses on such contracts in “Accumulated other comprehensive loss” and subsequently reclassify applicable amounts into earnings when the hedged transactions occur and impact earnings. We determined that these derivative financial instruments were highly effective as cash flow hedges as of June 30, 2022. In the following 12 months, we expect to reclassify into earnings $5.8 million of net unrealized losses related to these commodity swap contracts that are included in “Accumulated other comprehensive loss” at June 30, 2022 as we realize the earnings effects of the related forecasted transactions.
7. Leases
Our lease arrangements include land associated with our PV solar power systems, 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, Malaysia, India, and Vietnam.
The following table presents certain quantitative information related to our lease arrangements for the three and six months ended June 30, 2022 and 2021, and as of June 30, 2022 and December 31, 2021 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
Operating lease cost | | $ | 4,232 | | | $ | 4,516 | | | $ | 8,609 | | | $ | 8,549 | |
Variable lease cost | | 604 | | | 462 | | | 1,203 | | | 1,000 | |
Short-term lease cost | | 221 | | | 236 | | | 252 | | | 607 | |
Total lease cost | | $ | 5,057 | | | $ | 5,214 | | | $ | 10,064 | | | $ | 10,156 | |
| | | | | | | | |
Payments of amounts included in the measurement of operating lease liabilities | | | | | | $ | 9,259 | | | $ | 13,122 | |
Lease assets obtained in exchange for operating lease liabilities | | | | | | $ | 3,754 | | | $ | 17,909 | |
| | | | | | | | |
| | | | | | June 30, 2022 | | December 31, 2021 |
Operating lease assets | | | | | | $ | 101,855 | | | $ | 207,544 | |
Operating lease liabilities – current | | | | | | 9,437 | | | 12,781 | |
Operating lease liabilities – noncurrent | | | | | | 47,752 | | | 145,912 | |
| | | | | | | | | | | | | | |
Weighted-average remaining lease term | | 7 years | | 19 years |
Weighted-average discount rate | | 5.0 | % | | 2.8 | % |
In June 2022, we completed the sale of our Japan project development business to PAG, which included the transfer of various land leases associated with the business. As a result, we derecognized lease assets of $87.7 million, current lease liabilities of $3.0 million, and noncurrent lease liabilities of $77.9 million. See Note 2. “Sales of Businesses” to our condensed consolidated financial statements for further information about this transaction.
As of June 30, 2022, the future payments associated with our lease liabilities were as follows (in thousands):
| | | | | | | | |
| | Total Lease Liabilities |
Remainder of 2022 | | $ | 5,994 | |
2023 | | 11,732 | |
2024 | | 10,963 | |
2025 | | 9,965 | |
2026 | | 8,528 | |
2027 | | 5,943 | |
Thereafter | | 14,844 | |
Total future payments | | 67,969 | |
Less: interest | | (10,780) | |
Total lease liabilities | | $ | 57,189 | |
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, 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 SeptemberJune 30, 20172022 and December 31, 2016,2021, 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 ofobligations, supranational debt, and 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 SeptemberJune 30, 20172022 and December 31, 2016,2021, our derivative assets and liabilities consisted of foreign exchange forward contracts involving major currencies. At SeptemberJune 30, 2017,2022, our derivative assets and liabilities also consisted of various interest rateincluded commodity swap contracts involving major interest rates.commodity prices. 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.currencies, and forward prices for commodities. 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 SeptemberJune 30, 20172022 and December 31, 2016,2021, 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 |
| | June 30, 2022 | | 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 | | $ | 52,161 | | | $ | — | | | $ | 52,161 | | | $ | — | |
U.S. debt | | 8,702 | | | — | | | 8,702 | | | — | |
Time deposits | | 83,081 | | | 83,081 | | | — | | | — | |
Restricted marketable securities | | 200,266 | | | — | | | 200,266 | | | — | |
Derivative assets | | 8,535 | | | — | | | 8,535 | | | — | |
Total assets | | $ | 352,745 | | | $ | 83,081 | | | $ | 269,664 | | | $ | — | |
Liabilities: | | | | | | | | |
Derivative liabilities | | $ | 7,371 | | | $ | — | | | $ | 7,371 | | | $ | — | |
| | | | 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, 2021 | | 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: | | | | | | | | | |
Money market funds | | $ | 50,255 |
| | $ | 50,255 |
| | $ | — |
| | $ | — |
| |
| Marketable securities: | | | | | | | | | Marketable securities: | |
Foreign debt | | 172,249 |
| | — |
| | 172,249 |
| | — |
| Foreign debt | | $ | 103,317 | | | $ | — | | | $ | 103,317 | | | $ | — | |
Foreign government obligations | | 198,307 |
| | — |
| | 198,307 |
| | — |
| |
| U.S. debt | | 73,988 |
| | — |
| | 73,988 |
| | — |
| U.S. debt | | 18,627 | | | — | | | 18,627 | | | — | |
Time deposits | | 255,000 |
| | 255,000 |
| | — |
| | — |
| Time deposits | | 253,445 | | | 253,445 | | | — | | | — | |
Restricted investments | | 365,022 |
| | — |
| | 365,022 |
| | — |
| |
Restricted marketable securities | | Restricted marketable securities | | 244,726 | | | — | | | 244,726 | | | — | |
Derivative assets | | 9,644 |
| | — |
| | 9,644 |
| | — |
| Derivative assets | | 5,816 | | | — | | | 5,816 | | | — | |
Total assets | | $ | 1,124,465 |
| | $ | 305,255 |
| | $ | 819,210 |
| | $ | — |
| Total assets | | $ | 625,931 | | | $ | 253,445 | | | $ | 372,486 | | | $ | — | |
Liabilities: | | | | | | | | | Liabilities: | | | | | | | | |
Derivative liabilities | | $ | 25,548 |
| | $ | — |
| | $ | 25,548 |
| | $ | — |
| Derivative liabilities | | $ | 3,550 | | | $ | — | | | $ | 3,550 | | | $ | — | |
|
| | | | | | | | | | | | | | | | |
| | 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 June 30, 2022 and December 31, 2021, 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):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2022 | | December 31, 2021 |
| | Carrying Value | | Fair Value | | Carrying Value | | Fair Value |
Assets: | | | | | | | | |
Accounts receivable unbilled, net - noncurrent | | $ | 11,488 | | | $ | 10,110 | | | $ | 20,840 | | | $ | 18,846 | |
Accounts receivable trade, net - noncurrent | | 9,076 | | | 7,347 | | | 21,293 | | | 18,605 | |
Liabilities: | | | | | | | | |
Long-term debt, including current maturities (1) | | $ | 181,186 | | | $ | 155,888 | | | $ | 246,737 | | | $ | 243,865 | |
|
| | | | | | | | | | | | | | | | |
| | 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)Excludes unamortized discounts and issuance costs.
| |
(1) | Excludes capital lease obligations and unamortized discounts and issuance costs. |
The carrying values in our condensed consolidated balance sheets of our cash and cash equivalents,current trade accounts receivable, current 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 notesnoncurrent unbilled accounts receivable, noncurrent trade accounts 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, notes receivable, andrestricted marketable securities, foreign exchange forward contracts, and commodity swap 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 securities, restricted cash and investments, and foreign exchange forward contractsthese instruments with various high-quality financial institutions and limit the amount of credit risk from any one counterparty. We continuously evaluatemonitor 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, but not limited to, 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. We also enter into joint ventures or strategic arrangements with customers or other entities to maximize the value of particular projects. Some of these arrangements involve and are expected in the future to involve significant investments or other allocations of capital. Investments in unconsolidated entities for 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 summarizes our equity and cost method investments as of September 30, 2017 and December 31, 2016 (in thousands):surety bonds.
|
| | | | | | | | |
| | 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 Partner and certain 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 three 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.
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 SeptemberJune 30, 2017 and December 31, 2016 (in thousands):
|
| | | | | | | | | | |
| | | | 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, we amended and restated our senior secured credit facility (the “Revolving Credit Facility”) with several financial institutions as lenders and JPMorgan Chase Bank, N.A. as administrative agent. Such amendment and restatement extended the maturity of the prior facility to July 2022 and reduced the aggregate borrowing capacity under the facility to $500.0 million, which we may increase to $750.0 million, subject to certain conditions. Borrowings under the amended and restated facility bear interest at (i) 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 no borrowings under our Revolving Credit Facility as of September 30, 2017 and December 31, 2016 and had issued $131.4 million and $125.0 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.2021 (in thousands):
| | | | | | | | | | | | | | | | | | | | |
| | | | Balance (USD) |
Loan Agreement | | Currency | | June 30, 2022 | | December 31, 2021 |
Luz del Norte Credit Facilities | | USD | | $ | 181,186 | | | $ | 183,829 | |
Kyoto Credit Facility | | JPY | | — | | | 62,908 | |
Long-term debt principal | | | | 181,186 | | | 246,737 | |
Less: unamortized discounts and issuance costs | | | | (6,019) | | | (6,836) | |
Total long-term debt | | | | 175,167 | | | 239,901 | |
Less: current portion | | | | (5,150) | | | (3,896) | |
Noncurrent portion | | | | $ | 170,017 | | | $ | 236,005 | |
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%.
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 June 30, 2022 and December 31, 2016,2021, the balance outstanding on the VAT facility was $13.7 million.
In March 2017, we amended the terms of the OPIC 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 OPIC and IFC loans until June 2037, and (iv) canceled the remaining borrowing capacity under the OPIC and IFC credit facilities with the exception of the capitalization of certain future interest payments. As of September 30, 2017 and December 31, 2016, the balance outstanding on the OPICDFC loans was $137.8$135.7 million and $125.1$137.7 million, respectively. As of SeptemberJune 30, 20172022 and December 31, 2016,2021, the balance outstanding on the IFC loans was $46.2$45.5 million and $42.2$46.1 million, respectively. The OPICDFC and IFC loans mature in June 2037 and 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 subsidiaryentity, and project company, entered into a credit agreement (the “Ishikawa Credit Agreement”) with Mizuho Bank, Ltd. for aggregate borrowingscertain letters of up to ¥27.3 billion ($242.3 million) for the development and construction of a 59 MW PV solar power plant located in Ishikawa, Japan. The credit agreement consists of a ¥24.0 billion ($213.0 million) senior loan facility, a ¥2.1 billion ($18.6 million) consumption tax facility, and a ¥1.2 billion ($10.7 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.credit. As of SeptemberJune 30, 2017, the balance outstanding on2022, we were seeking a waiver for a technical noncompliance related to the credit agreement was $99.5 million.facilities.
JapanKyoto Credit Facility
In September 2015,July 2020, First Solar Japan GK, our wholly-owned subsidiary, entered into a construction loan facility with Mizuho Bank, Ltd. for borrowings up to ¥4.0¥15.0 billion ($35.5142.8 million), which are intended to be used for the development and construction of utility-scalea 38 MWAC PV solar power plantsplant located in Kyoto, Japan (the “Japan“Kyoto Credit Facility”). In September 2017, First Solar Japan GK renewedMay 2022, we repaid the facility for an additional one-year period until September 2018. 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, 2017 and December 31, 2016, theremaining $73.2 million principal balance outstanding on the facility was $10.7 million and $9.5 million, respectively.credit facility.
TochigiMomura Credit Facility
In June 2017, First SolarMay 2022, FS Japan Project 25 GK our wholly-owned subsidiary, entered into a term loan facility with Mizuho Bank, Ltd. for borrowings up to ¥7.0 billion ($62.1 million) for the development of utility-scale PV solar power plants in Japan (the “Tochigi Credit Facility”(“Momura”). 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 no balance outstanding on the term loan facility.
Marikal and Mahabubnagar Credit Facilities
In March 2015, Marikal Solar Parks Private Limited and Mahabubnagar Solar Parks Private Limited, our indirect wholly-owned subsidiaries and project companies, entered into term loan facilities (the “Marikal and Mahabubnagar Credit Facilities”) with Axis Bank as administrative agent for combined aggregate borrowings up to INR 1.1 billion ($16.9 million) for the development and construction of two 10 MW PV solar power plants located in Telangana, India. The term loan facilities have a combined letter of 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 are secured by certain assets of the borrowers, which had an aggregate book value of $99.5 million, including intercompany charges, as of September 30, 2017 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. As of September 30, 2017 and December 31, 2016, the balance outstanding on the term loan facilities was $3.6 million and $4.1 million, respectively.
Polepally Credit Facility
In March 2016, Polepally Solar Parks Private Limited, our indirect wholly-owned subsidiary and project company, entered into a term loan facilitycredit agreement (the “Polepally“Momura Credit Facility”) with AxisNomura Capital Investment Co., Ltd. and Aozora Bank, as administrative agentLtd. for aggregate borrowings up to INR 1.3¥21.5 billion ($19.9168.1 million) for costs related tothe development and construction of a 2553 MWAC PV solar power plant located in Telangana, India.Tochigi, Japan. The credit facility consisted of an ¥18.8 billion ($146.6 million) term loan facility, has a letter of credit sub-limit of INR 1.1¥1.9 billion ($16.915.1 million), which may also be used for project related costs. As of September 30, 2017 consumption tax facility, and December 31, 2016, we had issued INR 1.0a ¥0.8 billion ($15.36.4 million) debt service reserve facility. In June 2022, we completed the sale of our Japan project development business, and INR 1.0 billion ($15.3 million), respectively,the credit facility’s outstanding balance of letters$107.2 million was assumed by PAG. See Note 2. “Sales of credit under the term loan facility. The term loan facility matures in September 2029 and is secured by certain assetsBusinesses” to our condensed consolidated financial statements for further information about this transaction.
Table of the borrower, which had an aggregate book value of $32.8 million, including intercompany charges, as of September 30, 2017 and by a pledge of a portion of the equity interests in the borrower. In addition, the term loan facility is guaranteed 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. As of September 30, 2017 and December 31, 2016, the balance outstanding on the term loan facility was $1.6 million and $2.2 million, respectively.Contents
HindupurYatsubo Credit Facility
In November 2016, Hindupur Solar Parks Private Limited,May 2022, FS Japan Project 24 GK (“Yatsubo”), our indirect wholly-owned subsidiary and project company, entered into a term loan facilitycredit agreement (the “Hindupur“Yatsubo Credit Facility”) with YesNomura Capital Investment Co., Ltd. and Aozora Bank, LimitedLtd. for aggregate borrowings up to INR 4.3¥10.9 billion ($65.985.0 million) for costs related to an 80the development and construction of a 26 MW portfolio ofAC PV solar power plantsplant located in Andhra Pradesh, India.Tochigi, Japan. The credit agreement consisted of a ¥9.5 billion ($74.2 million) term loan facility, has a letter of credit sub-limit of INR 3.2¥1.0 billion ($49.07.6 million), which may also be used for project related costs. As of September 30, 2017, we had issued INR 2.9 consumption tax facility, and a ¥0.4 billion ($44.43.2 million) debt service reserve facility. In June 2022, we completed the sale of lettersour Japan project development business, and the credit facility’s outstanding balance of $70.0 million was assumed by PAG. See Note 2. “Sales of Businesses” to our condensed consolidated financial statements for further information about this transaction.
Orido Credit Facility
In May 2022, FS Japan Project B5 GK (“Orido”), our indirect wholly-owned subsidiary and project company, entered into a credit underagreement (the “Orido Credit Facility”) with Nomura Capital Investment Co., Ltd. and Aozora Bank, Ltd. for aggregate borrowings up to ¥5.3 billion ($41.3 million) for the term loan facility.development and construction of a 14 MWAC PV solar power plant located in Tochigi, Japan. The credit agreement consisted of a ¥4.6 billion ($36.0 million) term loan facility, maturesa ¥0.5 billion ($3.6 million) consumption tax facility, and a ¥0.2 billion ($1.7 million) debt service reserve facility. In June 2022, we completed the sale of our Japan project development business, and the credit facility’s outstanding balance of $18.0 million was assumed by PAG. See Note 2. “Sales of Businesses” to our condensed consolidated financial statements for further information about this transaction.
India Credit Facility
In July 2022, FS India Solar Ventures Private Limited, our indirect wholly-owned subsidiary entered into a finance agreement (the “India Credit Facility”) with DFC for aggregate borrowings up to $500.0 million for the development and construction of an approximately 3.3 GWDC solar module manufacturing facility located in December 2030 andTamil Nadu, India. The India Credit Facility incurs interest at the U.S. Treasury Constant Maturity Yield plus 1.75% per annum, which is secured by certain assets ofpayable semi-annually. Principal on the borrower, which had an aggregate book value of $99.7 million, including intercompany charges, as of September 30, 2017 and by a pledge of a portion ofCredit Facility is payable in scheduled semi-annual installments through the equity interestsfacility’s expected maturity in the borrower. In addition, the term loan facilityAugust 2029. The Credit Facility is guaranteed 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. As of September 30, 2017, the balance outstanding on the term loan facility was $18.6 million.
Manildra Credit Facility
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 Bank 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.
Variable Interest Rate Risk
Certain of ourOur long-term debt agreements bear interest at prime, LIBOR TIBOR, Bank Bill Swap Bid Rate (“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 specificthe debt financings.
agreements. Our long-term debt borrowing rates as of SeptemberJune 30, 20172022 were as follows:
|
| | | | | | | |
Loan Agreement | | SeptemberJune 30, 20172022 |
Revolving Credit Facility | | 3.22% |
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 Agreement | | Senior loan facility at 6-month TIBOR plus 0.75% (2) |
| Consumption tax facility at 3-month TIBOR plus 0.5% |
Japan Credit Facility | | 1-month TIBOR plus 0.5% |
Tochigi Credit Facility | | 3-month TIBOR plus 1.0% |
Marikal and Mahabubnagar Credit Facilities | | Bank rate plus 2.35% |
Polepally Credit Facility | | Bank rate plus 2.35% |
Hindupur Credit Facility | | Bank rate plus 1.0% |
Manildra Credit Facility | | Construction loan facility at 1-month BBSY plus 1.70% (2) |
| GST facility at 1-month BBSY plus 1.60% |
Capital lease obligations | | Various |
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| |
(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 $125.3 million of fixed rate loans and $55.9 million of variable rate loans as of June 30, 2022.
|
| |
(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. |
Future Principal Payments
At SeptemberJune 30, 2017,2022, 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 2022 | | $ | 1,392 | |
2023 | | 6,085 | |
2024 | | 7,020 | |
2025 | | 7,560 | |
2026 | | 7,965 | |
2027 | | 9,199 | |
Thereafter | | 141,965 | |
Total long-term debt future principal payments | | $ | 181,186 | |
|
| | | | |
| | 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 provided 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 SeptemberJune 30, 2017, we had $131.4 million in2022, the majority of these commercial commitments supported our module business. As of June 30, 2022, the issued and outstanding amounts and available capacities under these commitments were as follows (in millions):
| | | | | | | | | | | | | | |
| | Issued and Outstanding | | Available Capacity |
Bilateral facilities (1) | | $ | 77.6 | | | $ | 137.4 | |
Surety bonds | | 9.3 | | | 232.8 | |
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(1)Of the total letters of credit issued under our Revolving Credit Facility, leaving $268.6 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, we also had $1.8 million of bank guarantees and letters of credit under separate agreements that were posted by certain of our foreign subsidiaries, $185.5 million of letters of credit issued under two bilateral facilities, of which $5.1$2.4 million was secured with cash, and $258.1 million of surety bonds outstanding primarily for our systems business projects. The available bonding capacity under our surety lines was $460.2 million as of September 30, 2017.cash.
In addition to the commercial commitments noted above, we also have certain commercial letters of credit, also known as letters of undertaking, which have been issued under 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.
Product Warranties
When we recognize revenue for modulesales of modules or system sales,projects, we accrue liabilities for the estimated future costs of meeting our limited warranty obligations for both modules and the balance of the systems. We estimate our limited product warranty liability for power output and defects in materials and workmanship under normal use and service conditions based on return rates for each series of module technology. 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 ninesix months ended SeptemberJune 30, 20172022 and 20162021 were as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
Product warranty liability, beginning of period | | $ | 47,016 | | | $ | 94,073 | | | $ | 52,553 | | | $ | 95,096 | |
Accruals for new warranties issued | | 1,425 | | | 4,440 | | | 2,273 | | | 6,717 | |
Settlements | | (1,252) | | | (2,413) | | | (7,254) | | | (5,639) | |
Changes in estimate of product warranty liability | | (60) | | | (5,042) | | | (443) | | | (5,116) | |
Product warranty liability, end of period | | $ | 47,129 | | | $ | 91,058 | | | $ | 47,129 | | | $ | 91,058 | |
Current portion of warranty liability | | $ | 11,553 | | | $ | 16,846 | | | $ | 11,553 | | | $ | 16,846 | |
Noncurrent portion of warranty liability | | $ | 35,576 | | | $ | 74,212 | | | $ | 35,576 | | | $ | 74,212 | |
|
| | | | | | | | | | | | | | | | |
| | 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 the series of module technology. As of September 30, 2017, a 1% change in estimated warranty return rates would change our module warranty liability by $74.5 million, and a 1% change in the estimated warranty return rate for BoS components 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 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. If there is an underperformance event with regards to these tests, we may incur liquidated damages as a percentage of the EPC contract price. 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, 2017 and December 31, 2016, we accrued $1.9 million and $6.3 million, respectively, of estimated obligations under such arrangements, which were classified as “Other current liabilities” in our condensed consolidated balance sheets.
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, 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. 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, 2017 and December 31, 2016, we did not accrue any estimated obligations under our effective availability guarantees.
Indemnifications
In certain limited circumstances, we have provided indemnifications to customers or other parties, 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 orcovenant; a reduction in tax benefits received, including investment tax credits.credits; the resolution of specific matters associated with a project’s development or construction; or guarantees of a third party’s payment or performance obligations. 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 460Guarantees, 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 basedmay base these estimates on the cost of insurance policiesor other instruments that cover the underlying risks being indemnified and may purchase such policiesinstruments 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 earnings associated with the related transaction.
After an indemnification liability is recorded, we derecognize such amount pursuant to ASC 460-10-35-2460 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 SeptemberJune 30, 20172022 and December 31, 2016,2021, we accrued $2.8$3.7 million and $100.0$3.8 million of current indemnification liabilities, respectively, and $4.9 million and $1.9 million of noncurrent indemnification liabilities, respectively, for tax related indemnifications.respectively. As of SeptemberJune 30, 2017,2022, the maximum potential amount of future payments under our tax related indemnifications was $181.8$102.3 million, and we held insurance policiesand other instruments allowing us to recover up to $60.3$28.2 million of potential amounts paid under the indemnifications coveredindemnifications.
In September 2017, we made an indemnification payment in connection with the sale of one of our projects following the underpayment of anticipated cash grants 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 toUnited States government. In February 2018, the selling shareholders contingent uponassociated project entity commenced legal action against 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 continually 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 amountUnited States government seeking full payment of the related project asset is correspondingly increased. As of September 30, 2017 and December 31, 2016, we recorded $3.9 million and $19.6 million of current liabilities, respectively, and $3.1 million and $3.5 million of long-term liabilities, respectively, for such contingent obligations. Any future differences betweencash grants. In May 2021, the acquisition-date contingent obligation estimate andparties reached an agreement, pursuant to which the ultimateUnited States government made a settlement of the obligation are recognized as an adjustmentpayment to the project asset, as contingent payments are considered direct and incremental toentity. Under the underlying valueterms of the related project.indemnification arrangement, we were entitled to a portion of the settlement payment. Accordingly, during the three months ended June 30, 2021, we recorded revenue of $65.1 million for our portion of the settlement payment.
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; and by-product credits for certain materials recovered during the scale of recycling centers; and an estimated third-party profit margin and return on risk for collection and recycling services.process. 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 applyingand classify the discount rate used for its initial measurement. We classify accretion as an operatingcorresponding 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$134.1 million and $166.3$139.1 million as of SeptemberJune 30, 20172022 and December 31, 2016,2021, respectively. As of September 30, 2017, a 1% increase in the annualized inflation rate used in our estimated future collection and recycling cost per module would increase our liability by $32.9 million, and a 1% decrease in that rate would decrease our liability by $27.6 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
Class Action
On January 7, 2022, a putative class action lawsuit titled City of Pontiac General Employees’ Retirement System v. First Solar, Inc., et al., Case No. 2:22-cv-00036-MTL, was filed in the Arizona District Court against the Company and certain of our current officers. The complaint was filed on behalf of a purported class consisting of all purchasers of First Solar common stock between February 22, 2019 and February 20, 2020, inclusive. The complaint asserts violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 based on allegedly false and misleading statements related to the Company’s Series 6 solar modules and its project development business. It seeks unspecified damages and an award of costs and expenses. On April 25, 2022, the Arizona District Court issued an order appointing the Palm Harbor Special Fire Control & Rescue District Firefighters’ Pension Plan and the Greater Pennsylvania Carpenters’ Pension Fund as Lead Plaintiffs. On June 23, 2022, Lead Plaintiffs filed an Amended Complaint that brings the same claims, and Defendants’ deadline to file a motion to dismiss the Amended Complaint is August 22, 2022. The Company and its officers intend to vigorously defend this action in all respects. Given the early stage of the litigation, at this time we are not in a position to assess the likelihood of any potential loss or adverse effect on our financial condition or to estimate the amount or range of potential loss, if any, from this action.
Other Matters and Claims
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 and claims will not have a material adverse effect on our financial position, results of operations, or cash flows, the outcome of thesesuch matters and claims 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, There have been no material changes to these matters since our Annual Report on Form 10-K for the year ended December 31, 2021 was filed inwith 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 alleges 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 includes 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 “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.
Defendants filed a motion for summary judgmentSEC 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 Court1, 2022.
Table 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 on the appeal are now complete and the parties are awaiting an opinion from the Ninth Circuit. The Arizona District Court has entered a stay of the proceedings in district court until the appeal is decided. Given the pending appeal, the need 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.Contents
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 recessionary 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 will vigorously defend 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 action 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, and defendants filed a motion to dismiss the amended complaint on April 1, 2016. On June 30, 2016, the Arizona District Court granted defendants’ motion to dismiss the insider trading and unjust enrichment claims with prejudice, and further granted defendants’ motion to dismiss the claims for alleged breaches of fiduciary duties with leave to amend. On July 15, 2016, plaintiffs filed a motion to reconsider certain aspects 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 Circuit of the September 30, 2016 order. On October 27, 2016, plaintiffs filed a motion 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 favor 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.
On July 16, 2013, a derivative complaint was filed in the Superior Court of Arizona, Maricopa County, titled Bargar, et al. v. Ahearn, et al., Case No. CV2013-009938, by a putative stockholder against certain current and former directors and officers of the Company. The complaint contains similar allegations to the Delaware and Arizona derivative cases, and 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 action or expiration of the stay issued in the 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, the court entered an order continuing the stay until November 30, 2017.
The Company believes that plaintiffs in the derivative actions lack standing to pursue litigation on behalf of First Solar. The derivative actions are still in the initial stages and there has been no discovery. 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.
14.11. Revenue from Contracts with Customers
The following table represents apresents the disaggregation of revenue from contracts with customers for the three and ninesix months ended SeptemberJune 30, 20172022 and 20162021 along with the reportable segment for each category (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Three Months Ended June 30, | | Six Months Ended June 30, |
Category | | Segment | | 2022 | | 2021 | | 2022 | | 2021 |
Solar modules | | Modules | | $ | 607,445 | | | $ | 542,956 | | | $ | 962,326 | | | $ | 1,077,626 | |
Energy generation | | Other | | 8,956 | | | 7,457 | | | 15,249 | | | 22,036 | |
O&M services | | Other | | 4,180 | | | 4,713 | | | 8,077 | | | 31,948 | |
Solar power systems | | Other | | 374 | | | 73,977 | | | 2,343 | | | 300,944 | |
EPC services | | Other | | — | | | 77 | | | — | | | — | |
Net sales | | | | $ | 620,955 | | | $ | 629,180 | | | $ | 987,995 | | | $ | 1,432,554 | |
|
| | | | | | | | | | | | | | | | | | |
| | | | 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 netperiod we transfer control of the modules to the customer.
We recognize revenue for sales of our components segment. Accordingly,development projects or completed systems when we enter into the solar module portion of netassociated sales contract. For certain prior project sales, including sales of solar power systems EPCwith engineering, procurement, and construction (“EPC”) services, and module plus arrangements issuch revenue included in the net salesestimated amounts of our components segment along with solar module sales to third parties. The remaining portion of the net sales of solar power systems, EPC services, and module plus arrangements is included in the net sales of our systems segment along with revenue from O&M services and energy generation.
We generally recognize revenue for sales of solar power systems and/or EPC services over time using cost based input methods, in whichvariable consideration. These estimates may require significant judgment is required to evaluate assumptions includingdetermine the most likely amount of net contract revenues and the total estimated costs to determine our progress towards contract completion and to calculate 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.revenues. The cumulative effect of revisions to estimates related to net contract revenues or costs to complete contracts areis recorded in the period in which the revisions to estimates are identified and the amounts can be reasonably estimated.
Changes in estimates for sales of systems During the three and EPC services occur for a variety of reasons, including but not limitedsix months ended June 30, 2021, respectively, revenue increased $63.4 million and $65.0 million due 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 table below outlines the impact on revenue of net changes in estimated transaction prices for certain projects we previously sold, which represented 5.3% and input costs for systems related sales contracts (both increases and decreases) for the three and nine months ended September 30, 2017 and 2016 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 percentage2.8% of the aggregate revenue for such projects. Such changes were primarily due to a $65.1 million settlement for an outstanding indemnification arrangement associated with the prior sale of one of our projects, which we recorded as revenue during the three months ended June 30, 2021. See Note 10. “Commitments and Contingencies” to our condensed consolidated financial statements for discussion of our indemnification arrangements.
|
| | | | | | | | | | | | | | | | |
| | 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,”unbilled, net” and our contract liabilities, which we classify as “Deferred revenue,” for the ninesix months ended SeptemberJune 30, 20172022 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2022 | | December 31, 2021 | | Six Month Change |
Accounts receivable unbilled, net (1) | | $ | 46,926 | | | $ | 46,113 | | | $ | 813 | | | 2 | % |
Deferred revenue (2) | | $ | 505,642 | | | $ | 297,811 | | | $ | 207,831 | | | 70 | % |
|
| | | | | | | | | | | | | | | |
| | 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 $11.5 million and $20.8 million of noncurrent accounts receivable unbilled, represents a contract asset for revenue that has been recognized in advancenet classified as “Other assets” on our condensed consolidated balance sheets as of billing the customer, which is common for long-term construction contracts. Billing requirements vary by contract but are generally structured around the completionJune 30, 2022 and December 31, 2021, respectively.
(2)Includes $278.2 million and $95.9 million 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 recordnoncurrent 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 contractsJune 30, 2022 and advance payments received on salesDecember 31, 2021, respectively.
During the ninesix months ended SeptemberJune 30, 2017,2022, our contract assetsliabilities increased by $248.4$207.8 million primarily due to unbilled receivables associated withadvance payments received for sales of solar modules in the sale of the California Flats project in August 2017 and the sale of the Switch Station projects in June 2017,current period, partially offset by final billings on the East Pecos project following the completionrecognition of substantially all construction activities. During the nine months ended September 30, 2017, our contract liabilities decreased by $176.0 million primarily as a result of the completion of 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, partially offset by advance payments received onfor sales of solar modules.
modules for which payment was received in 2021. During the ninesix months ended SeptemberJune 30, 20172022 and 2016,2021, we recognized revenue of $308.6$114.4 million and $98.3$111.6 million, respectively, that was included in the corresponding contract liability balance at the beginning of the periods.
The following table represents our remaining performance obligations as of September 30, 2017 for sales of solar power systems, including uncompleted sold projects, projects under sales contracts subject to conditions precedent, and EPC agreements for partner developed projects that we are constructing or expect to construct. 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 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 Category | EPC Contract/Partner Developed Project | Expected Year Revenue Recognition Will Be Completed | Percentage of Revenue Recognized |
California Flats, California | 280 |
| Solar power systems | Capital Dynamics | 2018 | 68% |
Cuyama, California | 40 |
| Solar power systems | D.E. Shaw Renewable Investments | 2017 | 78% |
Total | 320 |
| | | | |
As of SeptemberJune 30, 2017,2022, we had entered into contracts with customers for the future sale of 5.637.3 GWdcDC of solar modules for an aggregate transaction price of $2.0 billion. We$10.0 billion, which we expect to recognize such amounts as revenue through 20202026 as we transfer control of the modules to the customers. Such aggregate transaction price excludes estimates of variable consideration for certain contracts with customers which typically occurs upon shipment or delivery depending onthat are associated with future module technology improvements, including new product designs and enhancements to certain energy related attributes. Certain other price adjustments associated with the termsproposed extension of the underlyingU.S. investment tax credit (“ITC”), sales freight, and potential changes to certain commodity prices have also been excluded. While our contracts with customers typically represent 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 schedules, or otherwise adjust the expected revenue under these contracts. As of September 30, 2017, we had also entered into long-term O&M contracts covering approximately 7 GWdc of utility-scale PV solar power systems. We expect to recognize $0.6 billion of revenue during the noncancelable term of these O&M contracts over a weighted-average period of 11.9 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 ninesix months ended SeptemberJune 30, 20172022 and 20162021 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
Cost of sales (1) | | $ | 446 | | | $ | 173 | | | $ | 944 | | | $ | 81 | |
Selling, general and administrative (1) | | 4,754 | | | 4,737 | | | 7,328 | | | 9,252 | |
Research and development (2) | | 561 | | | 520 | | | 992 | | | (788) | |
Production start-up | | 3 | | | — | | | 3 | | | — | |
Total share-based compensation expense | | $ | 5,764 | | | $ | 5,430 | | | $ | 9,267 | | | $ | 8,545 | |
|
| | | | | | | | | | | | | | | | |
| | 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 |
|
——————————
(1)On March 31, 2021, we completed the sales of our North American O&M operations and U.S. project development business, which resulted in the forfeiture of unvested shares for associates (our term for full- and part-time employees) departing the Company as part of the transactions. See Note 2. “Sales of Businesses” to our condensed consolidated financial statements for further information related to these transactions.
The following table presents share-based compensation expense by type
(2)Effective March 15, 2021, our former Chief Technology Officer retired from the Company, which resulted in the forfeiture of award forhis unvested shares during the three and ninesix months ended SeptemberJune 30, 2017 and 2016 (in thousands):2021.
|
| | | | | | | | | | | | | | | | |
| | 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 and PV solar power systems was $2.7$0.7 million as of SeptemberJune 30, 20172022 and December 31, 2016.2021. As of SeptemberJune 30, 2017,2022, we had $46.7$29.2 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 1.81.5 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,July 2019, the compensation committee of our board of directors approved a new long-term incentive programgrants of performance units 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: (i) performance stock units to be earned over a three-yearmulti-year performance period, beginningwhich ended in March 2017 and (ii) stub-year grants of separate performance stock units to be earned over a two-year performance period also beginning in March 2017.December 2021. Vesting of the 2019 grants of performance stock units iswas contingent upon the achievement of certain performance objectives, including the relative attainment of target cost per watt, module wattage, gross profit, and operating expense metricsincome metrics. In March 2022, the compensation committee certified the achievement of the vesting conditions applicable to the grants, which approximated the maximum level of performance. Accordingly, each participant received one share of common stock for each vested performance unit granted, net of any tax withholdings.
In March 2020, the compensation committee approved additional grants of performance 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 units is contingent upon the relative attainment of target contracted revenue, module wattage, and return on capital metrics.
In May 2021, the continuedcompensation committee approved additional grants of performance units for key executive officers. Such grants are expected to be earned over a multi-year performance period ending in December 2023. Vesting of the 2021 grants of performance units is contingent upon the relative attainment of target contracted revenue, cost per watt, incremental average selling price, and operating income metrics.
In March 2022, the compensation committee approved additional grants of performance units for key executive officers. Such grants are expected to be earned over a multi-year performance period ending in December 2024. Vesting of the 2022 grants of performance units is contingent upon the relative attainment of target contracted revenue, cost per watt, and return on capital metrics.
Vesting of performance units is also contingent upon the 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.
In February 2022, First Solar adopted a Clawback Policy (“the Policy”) that applies to the Company’s current and former Section 16 officers. The Policy applies to all incentive compensation, including any performance-based annual incentive awards and performance-based equity compensation. The Policy was adopted to ensure that incentive compensation is paid or awarded based on accurate financial results and the correct calculation of performance against incentive targets.
16.
13. Income Taxes
Our effective tax rate was (11.4)%83.7% and (11.2)%18.6% for the ninesix months ended SeptemberJune 30, 20172022 and 2016,2021, respectively. The decreaseincrease in our effective tax rate was primarily driven by a discretehigher losses in certain jurisdictions for which no tax benefit could be recorded, the remeasurement of our net deferred tax assets in Vietnam as a result of the new long-term tax incentive described below, the effect of tax law changes associated with the May 2017 acceptanceforeign tax credit (“FTC”) regulations described below, and lower relative amounts 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 rulingincome earned in a foreign jurisdiction related to the timing of the deduction for certain of our obligations.jurisdictions with lower tax rates. 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 discrete tax benefit related to the acceptance of our disregarded entity election and the beneficial impact of our Malaysian tax holiday, partially offset by additional tax expense attributable tohigher losses in certain jurisdictions for which no tax benefit could be recorded.recorded, the remeasurement of our net deferred tax assets in Vietnam mentioned above, the effect of the FTC regulations described below, and changes in our deferred income taxes related to our Malaysian tax holiday.
In December 2021, the U.S. Treasury released final FTC regulations addressing various aspects of the U.S. FTC regime. Among other items, these regulations revised the definition of a creditable foreign income tax and the time at which foreign taxes accrued can be claimed as a credit. These regulations are applicable for tax years beginning on or after December 28, 2021. As a result of these regulations, foreign taxes, which were previously creditable, are now treated as foreign tax deductions at the U.S. statutory federal income tax rate of 21%.
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.
Our Vietnamese subsidiary had previously been granted a tax incentive that provided a two-year tax exemption, which began in 2020, and reduced annual tax rates through the end of 2025. In May 2022, our Vietnamese subsidiary was granted a new long-term tax incentive that provides an additional two-year tax exemption and reduced annual tax rates through 2036, conditional upon our continued compliance with certain revenue and research and development (“R&D”) spending thresholds, which we are currently in compliance with and expect to continue to comply with through the expiration of the tax holiday.
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$0.3 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 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 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 per share for the three and ninesix months ended SeptemberJune 30, 20172022 and 20162021 was as follows (in thousands, except per share amounts):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
Basic net income per share | | | | | | | | |
Numerator: | | | | | | | | |
Net income | | $ | 55,805 | | | $ | 82,449 | | | $ | 12,550 | | | $ | 292,120 | |
Denominator: | | | | | | | | |
Weighted-average common shares outstanding | | 106,586 | | | 106,313 | | | 106,500 | | | 106,201 | |
| | | | | | | | |
Diluted net income per share | | | | | | | | |
Denominator: | | | | | | | | |
Weighted-average common shares outstanding | | 106,586 | | | 106,313 | | | 106,500 | | | 106,201 | |
Effect of restricted stock and performance units | | 470 | | | 523 | | | 465 | | | 665 | |
Weighted-average shares used in computing diluted net income per share | | 107,056 | | | 106,836 | | | 106,965 | | | 106,866 | |
| | | | | | | | |
Net income per share: | | | | | | | | |
Basic | | $ | 0.52 | | | $ | 0.78 | | | $ | 0.12 | | | $ | 2.75 | |
Diluted | | $ | 0.52 | | | $ | 0.77 | | | $ | 0.12 | | | $ | 2.73 | |
|
| | | | | | | | | | | | | | | | |
| | 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 per share for the three and ninesix months ended SeptemberJune 30, 20172022 and 20162021 as theysuch shares would have had an anti-dilutive effect (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
Anti-dilutive shares | | 45 | | | — | | | 45 | | | — | |
|
| | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
Anti-dilutive shares | | 2 |
| | 411 |
| | 195 |
| | 282 |
|
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 ninesix months ended SeptemberJune 30, 20172022 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Foreign Currency Translation Adjustment | | Unrealized Gain (Loss) on Marketable Securities and Restricted Marketable Securities | | Unrealized Gain (Loss) on Derivative Instruments | | Total |
Balance as of December 31, 2021 | | $ | (89,452) | | | $ | (8,036) | | | $ | 1,126 | | | $ | (96,362) | |
Other comprehensive loss before reclassifications | | (24,386) | | | (41,415) | | | (6,267) | | | (72,068) | |
Amounts reclassified from accumulated other comprehensive loss | | (3,909) | | | — | | | (1,453) | | | (5,362) | |
Net tax effect | | — | | | 1,927 | | | 1,635 | | | 3,562 | |
Net other comprehensive loss | | (28,295) | | | (39,488) | | | (6,085) | | | (73,868) | |
Balance as of June 30, 2022 | | $ | (117,747) | | | $ | (47,524) | | | $ | (4,959) | | | $ | (170,230) | |
|
| | | | | | | | | | | | | | | | |
| | 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 ninesix months ended SeptemberJune 30, 20172022 and 20162021 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Comprehensive Income Components | | Income Statement Line Item | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
Foreign currency translation adjustment: | | | | | | | | | | |
Foreign currency translation adjustment | | Gain on sales of businesses, net | | $ | 3,756 | | | $ | — | | | $ | 3,756 | | | $ | — | |
Foreign currency translation adjustment | | Other (expense) income, net | | 158 | | | — | | | 153 | | | (475) | |
Total foreign currency translation adjustment | | | | 3,914 | | | — | | | 3,909 | | | (475) | |
Unrealized gain on marketable securities and restricted marketable securities | | Other (expense) income, net | | — | | | — | | | — | | | 11,696 | |
Unrealized gain (loss) on derivative instruments: | | | | | | | | | | |
Foreign exchange forward contracts | | Cost of sales | | 893 | | | (799) | | | 1,453 | | | (1,928) | |
Commodity swap contracts | | Cost of sales | | — | | | 220 | | | — | | | 213 | |
| | | | | | | | | | |
Total unrealized gain (loss) on derivative instruments | | | | 893 | | | (579) | | | 1,453 | | | (1,715) | |
Total gain (loss) reclassified | | | | $ | 4,807 | | | $ | (579) | | | $ | 5,362 | | | $ | 9,506 | |
|
| | | | | | | | | | | | | | | | | | |
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 operateOur primary segment is our modules business, in two segments. Our components segmentwhich 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 integratorsdevelopers and operators of PV solar power systems. Our second segment is our fully integrated systemsresidual business (“systems segment”), throughoperations include certain project development activities and O&M services, which we provide complete turn-keyare primarily concentrated in Japan, as well as the results of operations from PV solar power systems or solar solutions, that draw uponwe own and operate in certain international regions.
For the year ended December 31, 2021, we changed our capabilities,reportable segments to align with revisions to our internal reporting structure and long-term strategic plans. Following this change, our modules business represents our only reportable segment. We previously operated our business in two segments, which includeincluded our modules and systems businesses. Systems business activities primarily involved (i) project development, (ii) EPC services, and (iii) O&M services. We may provideservices, which now comprise our full EPC services or any combination of individual productsresidual business operations and services within our EPC capabilities depending upon the customer and market opportunity. All of our systems segment products and services are for PV solar power systems, which primarily use our solar modules, and we sell such products and services to utilities, independent power producers, commercial and industrial companies, and other system owners. Additionally, within our systems segment, we may 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 sold or built by our systems segmentcategorized as “Other” in the net sales of our components segment. Intables below. All prior year balances were revised to conform to 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.current year presentation.
See Note 23.20. “Segment and Geographical Information” in our Annual Report on Form 10-K for the year ended December 31, 20162021 for a completeadditional discussion of our segment reporting.
FinancialThe following tables provide a reconciliation of 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 recognizedsegment to information presented in our condensed consolidated financial statements for the three and ninesix months ended SeptemberJune 30, 20172022 and 2016. For the purposes2021 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,June 30, 2022 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, 2021 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, 2022 | | Three Months Ended June 30, 2021 |
| | Modules | | Other | | Total | | Modules | | Other | | Total |
Net sales | | $ | 607,445 | | | $ | 13,510 | | | $ | 620,955 | | | $ | 542,956 | | | $ | 86,224 | | | $ | 629,180 | |
Gross profit (loss) | | 31,167 | | | (54,367) | | | (23,200) | | | 109,347 | | | 64,771 | | | 174,118 | |
Depreciation and amortization expense | | 57,810 | | | 2,355 | | | 60,165 | | | 56,688 | | | 3,051 | | | 59,739 | |
| | | | | | | | | | | | |
| | Six Months Ended June 30, 2022 | | Six Months Ended June 30, 2021 |
| | Modules | | Other | | Total | | Modules | | Other | | Total |
Net sales | | $ | 962,326 | | | $ | 25,669 | | | $ | 987,995 | | | $ | 1,077,626 | | | $ | 354,928 | | | $ | 1,432,554 | |
Gross profit (loss) | | 42,356 | | | (54,093) | | | (11,737) | | | 209,787 | | | 149,098 | | | 358,885 | |
Depreciation and amortization expense | | 114,009 | | | 5,201 | | | 119,210 | | | 107,412 | | | 6,148 | | | 113,560 | |
| | | | | | | | | | | | |
| | June 30, 2022 | | December 31, 2021 |
| | Modules | | Other | | Total | | Modules | | Other | | Total |
Goodwill | | $ | 14,462 | | | $ | — | | | $ | 14,462 | | | $ | 14,462 | | | $ | — | | | $ | 14,462 | |
|
| | | | | | | | | | | | | | | | |
| | 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 |
|
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, among other things, concerning: the length and severity of the ongoing COVID-19 (novel coronavirus) outbreak, including its impacts across our businesses on demand, manufacturing operations, construction activities associated with our expanding manufacturing capacity, 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;changes; 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; the potential impact of proposed legislation intended to encourage renewable energy investments through tax credits; effects resulting from pending litigation; our ability to expand manufacturing capacity worldwide; the impact of supply chain disruptions, further exacerbated by the COVID-19 pandemic, that may affect the procurement of raw materials used in our ability to reducemanufacturing process and the costs to construct photovoltaic (“PV”) solar power systems;distribution of our modules; 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,” “contingent,” 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; the passage of proposed legislation intended to encourage renewable energy investments through tax credits; 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 our customers’ ability to secure financing; the loss of any of our large customers, or the ability of our customers and counterparties to perform under their contracts with us; the satisfaction of conditions precedent in our sales agreements; our ability to attract new customers and to develop and maintain existing customer and supplier relationships; our ability to convert existing or construct production facilities to support new product lines; 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; changes in, or the failure to comply with, government regulations and environmental, health, and safety requirements; effects resulting from pending litigation; future collection and recycling costs for solar modules covered by our module collection and recycling program; supply chain disruption, including the availability of shipping containers, port congestion, cancelled shipments by logistic providers, and the cost of fuel, all of which may be exacerbated by the COVID-19 pandemic; 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 (“R&D”); 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, 2016,2021, 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 American solar technology company and global provider of comprehensive PV solar energy solutions. We design,Developed at our R&D labs in California and Ohio, we manufacture and sell PV solar modules with an advanced thin-filmthin film semiconductor technology and also develop, design, construct, and sellthat provide a high-performance, lower-carbon alternative to conventional crystalline silicon PV solar power systems that primarily usemodules. From raw material sourcing through end-of-life module recycling, we are committed to reducing the modules we manufacture. Additionally, we provide operationsenvironmental impacts and maintenance (“O&M”) services to system owners that use solar modules manufactured by us or by other third-party manufacturers. We have substantial, ongoing researchenhancing the social and development efforts focused on module and system-level innovations.economic benefits of our products across their life cycle. 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.manufacturer in the Western Hemisphere.
Certain highlights of our financial results and other key operational developments for the three months ended SeptemberJune 30, 20172022 include the following:
•Net sales for the three months ended SeptemberJune 30, 2017 increased2022 decreased by 60%1% to $1.1 billion$621.0 million compared to $0.7 billion$629.2 million for the same period in 2016.2021. The increase in net salesdecrease was primarily due todriven by the prior period settlement of an outstanding indemnification arrangement associated with the sale of the California Flatsone of our projects and Cuyama projects anda lower average selling price per watt, partially offset by an increase in the volume of modules sold to third parties, partially offset by completionparties. See Note 10. “Commitments and Contingencies” to our condensed consolidated financial statements for further discussion of substantially all construction activities on the East Pecos, Taylor, Astoria, and Desert Stateline projects in 2016.our indemnification arrangements.
•Gross profit for the three months ended SeptemberJune 30, 2017 increased 1.72022 decreased 31.4 percentage points to 26.8%(3.7)% from 25.1%27.7% for the same period in 2016.2021. The increasedecrease in gross profit was primarily driven bydue to a mix of higher gross profit projects sold and under construction during the period and a reduction in our module collection and recycling liability, partially offset by reductionsdecrease in the average selling price per watt of our modules, soldthe prior period settlement of the indemnification matter mentioned above, an impairment loss for our Luz del Norte PV solar power plant, and an increase in sales freight, partially offset by the higher volume of modules sold. See Note 5. “Consolidated Balance Sheet Details” to third parties.
our condensed consolidated financial statements for further discussion of the impairment of our Luz del Norte project.
•As of SeptemberJune 30, 2017,2022, we had 188.4 GWDC of total installed Series 6 nameplate production lines atcapacity across all our manufacturing facilities in Perrysburg, Ohio and Kulim, Malaysia.facilities. We produced 0.52.2 GWDC of solar modules during the three months ended SeptemberJune 30, 2017,2022, which represented a 32% decrease12% increase in Series 6 module production from the same period in 2016.2021. The decreaseincrease in production was primarily driven by our previously announced plans to 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 operationshigher throughput at our previously announced manufacturing plant in Vietnam.facilities. We expect to produce approximately 2.3between 8.5 GWDC and 9.0 GWDC of Series 6 and Series 6 Plus modules during 2022.
•In May 2022, we entered into various agreements with certain subsidiaries of PAG for the sale of our Japan project development business. In June 2022, we completed the sale for an aggregate purchase price of ¥66.4 billion ($488.4 million), subject to certain customary post-closing adjustments. On the closing date, we received proceeds of ¥44.1 billion ($324.5 million) and transferred cash and restricted cash of ¥8.4 billion ($61.9 million) to PAG. As a result of this transaction, we recognized a gain of $245.4 million, net of transaction costs, which was included in “Gain on sales of businesses, net” in our condensed consolidated statements of operations. In May 2022, we also entered into an agreement with PAG for the sale of our Japan O&M business. The completion of this transaction is contingent upon the achievement of certain customary closing conditions. Assuming satisfaction of such closing conditions, we expect this portion of the sale to be completed in the second half of 2022.
Market Overview
Solar energy is one of the fastest growing forms of renewable energy with numerous economic and environmental benefits that make it an attractive complement to and/or substitute for traditional forms of energy generation. In recent years, the price of PV solar power systems, and accordingly the cost of producing electricity from such systems, has decreased to levels that are competitive with or below the wholesale price of electricity in many markets. This price decline has opened new possibilities to develop systems in many locations with limited or no financial incentives, thereby promoting the widespread adoption of solar energy. As a result of such market opportunities, we are in the process of expanding our manufacturing capacity by 6.6 GWDC by constructing our third manufacturing facility in the U.S. and our first manufacturing facility in India. These new facilities, which we expect to produce our next generation Series 7 modules, during 2017.
Duringare currently under construction and are expected to commence operations in the three months ended September 30, 2017,first half of 2023 and the second half of 2023, respectively. In the aggregate, we ranbelieve manufacturers of solar cells and modules, particularly those in China, have significant installed production capacity, relative to global demand, and the ability for additional capacity expansion. Accordingly, we believe the solar industry may experience periods of structural imbalance between supply and demand (i.e., where production capacity exceeds global demand), and that excess capacity will also put pressure on pricing. In light of such market realities, we continue to focus on our remainingstrategies and points of differentiation, which include our advanced module technology, our manufacturing facilities at 98% capacity utilization, which represented a 1 percentage point increase fromprocess, our R&D capabilities, the same period in 2016.
The average conversion efficiencysustainability advantage 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.and our financial stability.
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 key markets have experienced an accelerated decline in recent years, and module average selling prices are expected to continue to decline to some degree in the future. 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. 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 put pressure on pricing. Additionally, intenseThis 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 Solarmodule 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 focusing on our competitive strengths. Such strengths include our advancedAlthough module and system technologies as well as our vertically-integrated business model that enables us to provide utility-scale PV solar energy solutions to key markets.
Worldwide solar markets continue to develop, in part aided by demand elasticity resulting from declining industry average selling prices both atin many global markets have declined for several years, recent module spot pricing has increased, in part, due to elevated commodity and freight costs. For example, polysilicon pricing has been on the rise and, in June 2022, reached its highest level in the past decade due to higher energy prices and reduced operating capacities of silicon metal production in China and rising global demand for polysilicon. Several other commodities, including aluminum, steel, natural gas, and lumber have recently experienced significant price volatility. While the duration of this elevated period of pricing is uncertain, module and system levels, which make solar power more affordable. Weaverage selling prices in global markets are developing, constructing, and operating multiple solar projects around the world as weexpected to continue to execute on our advanced-stage utility-scale project pipeline. We expect a substantial portiondecline in the long-term.
Competitive pricing for modules and systems, relative to the cost 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 acquisitionstraditional forms 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.
Lower industry module and system pricing, while currently challenging for certain solar manufacturers (particularly manufacturers with higher cost structures),energy generation, 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. Our results of operations relative to prior years. Ifcould also be adversely affected if competitors reduce pricing to levels below their costs;costs, bid aggressively low prices for module sale agreements, EPC agreements, or power purchase agreements (“PPAs”); or are able to operate at minimal or negative operating margins for sustained periods of time,time. For certain of our resultscompetitors, including many in China, these practices may be enabled by their direct or indirect access to sovereign capital or other forms of operations could be further adversely affected. Instate-owned support. Additionally, 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 for power purchase agreements (“PPAs”), 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 and energy storage solutions 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, and implementing certain other cost reduction initiatives, including both manufacturing, balance of systems (“BoS”), and other operating costs.initiatives.
We face intense competition from manufacturers of crystalline silicon solar modules and developers of PV solar power systems.modules. Solar module manufacturers compete with one another on sales price and onper watt, which may be influenced by several module value attributes, including wattage (through a larger form factor or an improved conversion efficiency,efficiency), energy yield, degradation, sustainability, 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 sellingreliability. Sales 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 cellmay also be influenced by warranty terms and wafer manufacturers are transitioning from lower efficiency Back Surface Field (“BSF”) multi-crystalline cells (the legacy technology against which we have generally competed in our markets) to higher efficiency Passivated Emitter Rear Contact (“PERC”) multi-crystalline and mono-crystalline cells at competitive cost structures. Additionally, whilecustomer payment terms. While conventional solar modules, including the solar modules we currently produce, are monofacial, meaning their ability to produce energy is a function of direct and diffuse irradiance on their front side, certainmost module manufacturers of mono-crystalline PERC solar modules are pursuing the commercialization ofoffer bifacial modules that also capture diffuse irradiance on the back side of a module. We believe the cost effective manufacture of bifacial PERC modules is being enabled 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, and BoS configurations, which could potentially lower the overall LCOElevelized cost of electricity (“LCOE”) of a system when compared to systems using conventional solar modules, including the modules we currently produce. Additionally, certain module manufacturers have introduced n-type mono-crystalline modules, such as tunnel oxide passivated contact modules, which are expected to provide certain improvements to module efficiency, temperature coefficient, and bifacial performance, and claim to provide certain degradation advantages compared to other mono-crystalline modules.
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%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,performance, in many climates our CdTesolar modules provide a significantcertain energy production advantage over most conventionaladvantages relative to competing crystalline silicon solar modules (including BSF and PERC technologies) of equivalent efficiency rating.modules. For example, our CdTe solar modules provide technology provides:
•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 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 standard test conditions;
•a better partial shading response than conventionalcompeting crystalline silicon solar modules,technologies, which may lose up to three times as much power asexperience significantly lower energy generation than CdTe solar modules when partial shading occurs.occurs; and
•an immunity to cell cracking and its resulting power output loss, a common failure often observed in crystalline silicon modules caused by poor manufacturing, handling, weather, or other conditions.
In addition to these technological advantages, we also warrant that our solar modules will produce at least 98% of their labeled power output rating during the first year, with the warranty coverage reducing by a degradation factor between 0.3% and 0.5%, depending on the module series, every year thereafter throughout the limited power output warranty period of up to 30 years. As a result of these and other factors, our PV solar power systems typicallymodules can produce more annual energy in real world fieldoperating conditions than competing systemsconventional crystalline silicon modules with the same nameplate capacity.
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.
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, 2016 and Part II, Item 1A. of this Quarterly Report on Form 10-Q2021 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 planbusiness is a long-term roadmapevolving worldwide and is shaped by the varying ways in which our offerings can be compelling and economically viable solutions to achieve our technology, growth, and cost leadership objectives.energy needs in various markets. In executing our long-term strategic plan,addressing electricity demands, we are focusingfocused on providing utility-scale PV solar energy solutions using our modulesmodule offerings in key geographic markets that we believe have a compelling need for mass-scale PV solar electricity, including markets throughout the Americas,United States, India, Europe, and Japan. We closely evaluate and monitor the Asia-Pacific region,appropriate level of resources required to support such markets and the Middle East. As part oftheir associated sales opportunities. When deployed in utility-scale applications, our long-term strategic plan, we are focusing on opportunities in which our PV solarmodules provide energy solutions can compete directly withat a lower LCOE compared to traditional forms of energy generation, onmaking them an LCOEattractive alternative to or similar basis, or complement suchreplacement for aging fossil fuel-based generation offerings. Suchresources. Accordingly, future retirements of coal generation plants represent a significant increase in the potential market for solar energy.
This focus on our coreutility-scale 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 offerings in the next several years, wesolar. 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.
We are closely evaluating However, our module offerings in certain markets may be driven, in part, by future demand for rooftop and managing the appropriate level of resources required asdistributed generation solar solutions. For example, we pursue the most advantageous and cost effective projects and partnerships in our target markets. We have dedicated, and intend to continue to dedicate, significant capitalevaluate opportunities to develop and human resourcesleverage other solar cell technologies in multi-junction applications that utilize our thin film CdTe semiconductor as the base layer. We believe such applications have the potential to reduceimprove module conversion efficiency up to 25% in the total installed cost of PV solar energy, to optimize the design and logistics aroundmid-term.
Demand for our PV solar energy solutions depends, in part, on market factors outside our control. For example, many governments have proposed policies or support programs intended to encourage renewable energy investments to achieve decarbonization objectives and/or establish greater energy independence. While we compete in many markets that do not require solar-specific government subsidies or support programs, our net sales and profits remain subject to variability based on the availability and size of government subsidies and economic incentives. Adverse changes in these factors could increase the cost of utility-scale systems, which could reduce demand for our solar modules. Recently proposed government support programs include the following:
•United States. Legislation was recently introduced in the U.S. Congress to incentivize domestic solar manufacturing and accelerate the transition to clean energy by providing tax credits for U.S. solar manufacturers and project developers. Among other things, such proposed legislation is expected to (i) extend the ITC up to 40% for 10 years for solar projects that satisfy certain domestic content, labor, and wage requirements; (ii) introduce certain refundable tax credits for solar module components manufactured in the U.S.; (iii) revive certain tax credits for capital investments in the manufacturing of solar module
components; and (iv) expand the scope of production tax credits for energy storage projects. At this time, it is unclear whether and to ensurewhat extent such measures will be enacted into law. If such legislation is successfully signed into law, or other similar policies or support programs are enacted, it could positively impact our business, financial condition, and results of operations.
•India. In early 2022, the government of India announced an expansion to its Production Linked Incentive (“PLI”) scheme to INR 195 billion ($2.5 billion), which is intended to promote the manufacturing of high efficiency solar modules in India and to reduce India’s dependency on foreign imports of solar modules. Under the PLI scheme, manufacturers are selected through a competitive bid process and receive certain cash incentives over a five-year period following the commissioning of their manufacturing facilities. Such incentives are expected to be based on, among other things, the efficiency and temperature coefficient of the modules produced, the value of raw materials sourced from the domestic market, the extent to which the manufacturer’s operations are fully integrated within India, and the quantity of modules sold from such manufacturing operations. At this time, it is uncertain whether and to what extent we may qualify for such incentives.
Demand for our solar energy solutions also depends on domestic or international trade policies and government regulations, which may be proposed, revised, and/or enacted across short- and long-term time horizons with varying degrees of impact to our net sales, profit, and manufacturing operations. Changes in these policies and regulations could adversely impact the competitive landscape of solar markets, which could reduce demand for our solar modules. Recent revisions or proposed changes to trade policy and government regulations include the following:
•United States. In June 2022, the U.S. President authorized the U.S. Secretary of Commerce to provide a 24-month antidumping and countervailing duty tariff exemption for imported solar panels from certain Southeast Asian countries. For more information about this development, see Item 1A. “Risk Factors.” Separately, the U.S. President also authorized the use of the Defense Production Act (“DPA”) to expand domestic production of clean energy technologies. At this time, it is uncertain what impact, if any, these developments will have on future investments in solar module manufacturing in the United States.
•United States. In June 2022, the U.S. Supreme Court issued a ruling in West Virginia, et al. v. Environmental Protection Agency, et al., which limited the Environmental Protection Agency’s (“EPA”) ability to regulate greenhouse gas (“GHG”) emissions under the Clean Air Act using a “generation shifting” approach from coal-fired power plants to renewable energy sources over time. At this time, it is unclear what effect this ruling will have on future EPA regulation of GHG emissions, the U.S. President’s climate change initiatives, internationally agreed-upon climate goals, the extent and timing of future coal plant retirements in the United States, and/or future investments in renewable energy.
•India. In May 2022, the government of India, through its Ministry of Environment, Forest and Climate Change and Ministry of New and Renewable Energy (“MNRE”), proposed legislation intended to regulate electronic waste (“e-waste”). Among other things, such proposed legislation expands the scope of India’s existing e-waste regulations to include PV solar modules, including certain recycling obligations for solar module manufacturers, and limits the use of certain hazardous substances, such as cadmium. The MNRE has engaged various stakeholders, including First Solar, in an effort to propose modifications intended to closely align this policy with the European Union’s Waste Electrical and Electronic Equipment Directive. At this time, it is unclear whether and to what extent such policy will be enacted into law. If such legislation is successfully signed into law without modification, it could negatively impact our business, financial condition, and results of operations.
Our ability to provide solar modules on economically attractive terms is also affected by the availability and cost of logistics services associated with the procurement of raw materials or equipment used in our manufacturing process and the shipping, handling, storage, and distribution of our modules. For example, the cost of ocean freight throughout many parts of the world remains at elevated levels due to the limited availability of shipping containers,
port congestion, cancellations of shipments by logistics providers, and elevated fuel costs. Such factors may disrupt our supply chain and adversely impact our manufacturing operations as several of our key raw materials and components are either single-sourced or sourced from a limited number of international suppliers. Due to ongoing schedule reliability issues with many ships, we are adjusting our shipping plans to include additional lead time for module deliveries and utilizing our U.S. distribution network to better meet our customer commitments. We are also employing module contract structures that provide additional consideration to us if the cost of logistics services exceeds a defined threshold. Additionally, our solutions integrate wellmanufacturing capacity expansions in the U.S. and India are expected to bring manufacturing activities closer to customer demand, further mitigating our exposure to the cost of ocean freight. While it is currently unclear how long these issues will persist, they may be further exacerbated by the disruption of major shipping routes or other economic disruptions caused by the COVID-19 pandemic.
We generally price and sell our solar modules on a per watt basis. As of June 30, 2022, we had entered into contracts with customers for the overall electricity ecosystemfuture sale of each specific market. We37.3 GWDC of solar modules for an aggregate transaction price of $10.0 billion, which we expect to recognize as revenue through 2026 as we transfer control of the modules to the customers. Such volume includes contracts for the sale of 20.5 GWDC of solar modules that over time,include transaction price adjustments associated with future module technology improvements, including new product designs and enhancements to certain energy related attributes. Based on these potential technology improvements, the contracted module volumes as of June 30, 2022, and the expected timing of module deliveries, such adjustments, if realized, could result in additional revenue of up to $0.4 billion, the majority of which would be recognized in 2024 and 2025. In addition to these price adjustments, certain of our consolidated netcontracts with customers may also include favorable price adjustments for the proposed extension of the U.S. investment tax credit and sales operating income, and cash flows will come from solar offerings in the key geographic marketsfreight 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 or projected electricity demand, and/or relatively high existing electricity prices.
In order to create or maintain a market position in certain strategically targeted markets, our offerings from time to timeSuch contracts may need 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, and possibly vary from our internal long-range profitability expectations and targets, depending on the market opportunity and the relative competitiveness of our offerings compared with other energy solutions, traditional or otherwise, that are availablealso include price adjustments related to potential customers. In addition, as we execute on our long-term strategic plan, we will continuechanges to monitor and adapt to any 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.certain commodity prices.
From time to time, we may temporarily own and operate certain PV solar power systems with the intention to sell such systems at a later date. We may also elect to construct and temporarily retain ownership interests in systems for which there is no PPA with an off-taker, such as a utility, but rather an intent to sell the electricity produced by the system on an open contract basis until the system is sold. Expected revenue from projects without a PPA is subject to greater variability and uncertainty based on market factors and is typically lower then projects with a PPA. Additionally, our joint ventures and other business arrangements with strategic partners have and may in the future result in us temporarily retaining a noncontrolling ownership interest in the underlying systems projects we develop, supply modules to, or construct potentially for a period of up to several years. In each of the above mentioned examples, we may retain such ownership interests in a consolidated or unconsolidated separate entity.
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, we announced our plansWe continue to utilize our idled Vietnamese manufacturing plant forincrease the nameplate production capacity of our next generation Series 6existing manufacturing facilities by improving our production throughput, increasing module technology. This decision is expected to provide us with several operational benefits, including (i)wattage (or conversion efficiency), and improving manufacturing yield losses. Additionally, we are in the ability to addprocess of expanding our manufacturing capacity by 6.6 GWDC by constructing our third manufacturing facility in the U.S. and our first manufacturing facility in India. 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 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 under the headings “Our future success depends on our ability to effectively balance manufacturing production with market demand, convert existing production facilities to support new product lines, such as our transition to Series 6 module manufacturing, and, when necessary, continue to build new manufacturing plants over time inFactors.
In response to such demand and add production linesthe COVID-19 pandemic, governmental authorities have recommended or ordered the limitation or cessation of certain business or commercial activities in a cost-effective manner, alljurisdictions in which we do business or have operations. While some of whichthese orders permit the continuation of essential business operations, or permit the performance of minimum business activities, these orders are subject to riskscontinuous revision or may be revoked or superseded, or our understanding of the applicability of these orders and uncertainties” and “Ifexemptions may change at any future production lines are not built in linetime. 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 curtail or cease business operations or activities altogether, including manufacturing, fulfillment, R&D activities, the implementation of our technology roadmap, or construction activities associated with our committed schedules it may impair any future growth plans. If any future production lines do not achieve operating metrics similarexpanding manufacturing capacity. At this time, such limitations have had a minimal effect on our manufacturing facilities, and we have implemented a wide range of safety measures intended 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”), a limited partnership formed by First Solar and SunPower Corporation (the “Sponsors”), completed its initial public offering (the “IPO”). As part ofenable the IPO, we contributed interests in various projects to a subsidiary of the Partnership in exchange for an ownership interest 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 owns and operates a portfolio of solar energy generation projects. In April 2017, we announced that we were reviewing alternatives for the salecontinuity of our interestsoperations and inhibit the spread of COVID-19 at our manufacturing, administrative, and other sites and facilities. While we continue to work with relevant government agencies in Malaysia and Vietnam to allow the Partnership. For additional information onessential travel of personnel that support the Partnership, seeimplementation of our technology roadmap, such implementation may be delayed due to travel restrictions, quarantine requirements, other government orders, or increases in COVID-19 infection rates. Refer to the Risk Factors infor more information related to impacts of COVID-19 on 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”business.
Systems Project Pipeline
The following tables summarize, as of October 26, 2017, our approximately 1.6 GW advanced-stage project pipeline. The actual volume of modules installed in our projects will be greater than the project size in MWac as module volumes required for a project are based upon MWdc, which will be greater than the MWac size pursuant to a DC-AC ratio typically ranging from 1.2 to 1.3. Such ratio varies across different projects due to various system design factors. 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, or portions of projects, 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, such project based on strategic opportunities or market factors.
Projects Under Sales Agreements
(Includes uncompleted sold projects, projects under sales contracts subject to conditions precedent, and EPC agreements, including partner developed projects that we will be or are constructing.)
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Project/Location | Project Size in MWac | PPA Contracted Partner | EPC Contract/Partner Developed Project | Expected Year Revenue Recognition Will Be Completed | Percentage of Revenue Recognized as of September 30, 2017 |
California Flats, California | 280 |
| PG&E / Apple (1) | Capital Dynamics | 2018 | 68% |
India (multiple locations) | 190 |
| (2) | (5) | 2017/2018 | —% |
Florida | 70 |
| (3) | (3) | 2018 | —% |
Cuyama, California | 40 |
| PG&E | D.E. Shaw Renewable Investments | 2017 | 78% |
Japan (multiple locations) | 9 |
| (4) | Contracted but not specified | 2017 | —% |
Total | 589 |
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Projects with Executed PPAs Not Under Sales Agreements
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Project/Location | Project Size in MWac | Fully Permitted | PPA Contracted Partner | Expected or Actual Substantial Completion Year | Percentage Complete as of September 30, 2017 |
Rosamond, California | 150 |
| Yes | SCE | 2018 | 15% |
Sun Streams, Arizona | 150 |
| Yes | SCE | 2019 | 10% |
Luz del Norte, Chile | 141 |
| Yes | (6) | 2016 | 100% |
American Kings Solar, California | 126 |
| No | SCE | 2020 | 16% |
Willow Springs, California | 100 |
| Yes | SCE | 2018 | 21% |
Sunshine Valley, Nevada | 100 |
| Yes | SCE | 2019 | 3% |
Ishikawa, Japan | 59 |
| Yes | Hokuriku Electric Power Company | 2018 | 48% |
Japan (multiple locations) | 58 |
| No | (4) | 2019/2020 | 11% |
Manildra, Australia | 49 |
| Yes | EnergyAustralia | 2018 | 19% |
Little Bear, California | 40 |
| No | Marin Clean Energy (7) | 2020 | 5% |
Miyagi, Japan | 40 |
| No | Tohoku Electric Power Company | 2018/2019 | 12% |
India (multiple locations) | 40 |
| Yes | (8) | 2018 | 62% |
Total | 1,053 |
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(1) | PG&E 150 MWac and Apple Energy, LLC 130 MWac
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(2) | Southern Power Distribution Company of Telangana State Ltd – 110 MWac and Andhra Pradesh Southern Power Distribution Company Ltd – 80 MWac
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(3) | Contracted but not specified |
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(4) | Hokuriku Electric Power Company and Tokyo Electric Power Company |
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(5) | Vector Green Energy Private Limited and India Infrastructure Fund II |
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(6) | PPAs executed for approximately 70 MWac of capacity; remaining electricity to be sold on an open contract basis
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| |
(7) | Expandable to 160 MWac, subject to satisfaction of certain PPA contract conditions
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| |
(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 ninesix months ended SeptemberJune 30, 20172022 and 2016:2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
Net sales | | 100.0 | % | | 100.0 | % | | 100.0 | % | | 100.0 | % |
Cost of sales | | 103.7 | % | | 72.3 | % | | 101.2 | % | | 74.9 | % |
Gross (loss) profit | | (3.7) | % | | 27.7 | % | | (1.2) | % | | 25.1 | % |
Selling, general and administrative | | 6.3 | % | | 5.8 | % | | 7.7 | % | | 6.2 | % |
Research and development | | 4.1 | % | | 3.8 | % | | 5.3 | % | | 3.1 | % |
Production start-up | | 2.1 | % | | 0.3 | % | | 2.1 | % | | 0.9 | % |
Gain on sales of businesses, net | | 39.5 | % | | (0.3) | % | | 25.0 | % | | 10.4 | % |
Operating income | | 23.3 | % | | 17.5 | % | | 8.8 | % | | 25.3 | % |
Foreign currency loss, net | | (0.5) | % | | (0.2) | % | | (0.7) | % | | (0.3) | % |
Interest income | | 0.5 | % | | 0.2 | % | | 0.5 | % | | 0.2 | % |
Interest expense, net | | (0.5) | % | | (0.7) | % | | (0.6) | % | | (0.5) | % |
Other (expense) income, net | | (0.3) | % | | (0.5) | % | | (0.2) | % | | 0.4 | % |
Income tax expense | | (13.5) | % | | (3.2) | % | | (6.5) | % | | (4.7) | % |
| | | | | | | | |
Net income | | 9.0 | % | | 13.1 | % | | 1.3 | % | | 20.4 | % |
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| | | | | | | | | | | | |
| | 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 operateOur primary segment is our modules business, in two segments. Our components segmentwhich involves the design, manufacture, and sale of CdTe solar modules, which convert sunlight into electricity,electricity. Third-party customers of our modules segment include developers and our systems segment includes the development, construction, operation, and maintenanceoperators of PV solar power systems,systems. Our residual business operations include certain project development activities and O&M services, which are 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 Analysisconcentrated in Japan, as well as the results 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 revenueoperations from the sale of solar modules to third parties, which does not include any modules sold as part of our PV solar power systems we own and operate in certain international regions.
For the year ended December 31, 2021, we changed our reportable segments to align with revisions to our internal reporting structure and long-term strategic plans. Following this change, our modules business represents our only reportable segment. We previously operated our business in two segments, which included our modules and systems businesses. Systems business activities primarily involved (i) project development, (ii) solar power system revenue is composed of revenue fromEPC services, and (iii) O&M services, which now comprise our residual business operations and are categorized as “Other” in 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 systems:
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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 |
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 comparedtables below. All prior year balances were revised to conform 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.current year presentation.
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
Components Business
We generally price and sell our solar modules on a per watt of nameplate power.basis. During the three and ninesix months ended SeptemberJune 30, 2017,2022, we sold the majority of our solar modules to integratorsdevelopers 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, andcontracts. Net sales from our customers generally do not have extended payment terms. Theresidual business operations primarily consists of 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.
Systems Business
Through our fully integrated systems business, we provide complete turn-key PV solar power systems, or solar solutions, which may include project development, EPC services, and O&M services. Additionally, 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 revenuerecognized for sales of solar powerdevelopment projects or completed systems, using cost based input methods, which resultincluding any modules installed in such systems and any revenue being recognized as work is performed based on the relationship between actual costs incurred comparedfrom energy generated by such systems. In certain prior periods, our residual business operations also included EPC services we provided to the total estimated costs for a given contract. We may also recognize revenue for the salethird parties.
The following table shows net sales by reportable segment for the three and ninesix months ended SeptemberJune 30, 20172022 and 2016:2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | | | Six Months Ended June 30, | | |
(Dollars in thousands) | | 2022 | | 2021 | | Three Month Change | | 2022 | | 2021 | | Six Month Change |
Modules | | $ | 607,445 | | | $ | 542,956 | | | $ | 64,489 | | | 12 | % | | $ | 962,326 | | | $ | 1,077,626 | | | $ | (115,300) | | | (11) | % |
Other | | 13,510 | | | 86,224 | | | (72,714) | | | (84) | % | | 25,669 | | | 354,928 | | | (329,259) | | | (93) | % |
Net sales | | $ | 620,955 | | | $ | 629,180 | | | $ | (8,225) | | | (1) | % | | $ | 987,995 | | | $ | 1,432,554 | | | $ | (444,559) | | | (31) | % |
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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 |
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 $64.5 million for the three months ended SeptemberJune 30, 20172022 compared to the three months ended SeptemberJune 30, 20162021 primarily due to a 29%27% increase in the volume of watts sold, partially offset by a 12% decrease in the average selling price per watt. Net sales from our residual business operations decreased $72.7 million for the three months ended June 30, 2022 compared to the three months ended June 30, 2021 primarily due to the prior period settlement of an outstanding indemnification arrangement associated with the sale of one of our projects. Under the terms of the indemnification arrangement, we received $65.1 million for our portion of the settlement payment, which we recorded as revenue in the prior period. See Note 10. “Commitments and Contingencies” to our condensed consolidated financial statements for discussion of our indemnification arrangements.
Net sales from our modules segment decreased $115.3 million for the six months ended June 30, 2022 compared to the six months ended June 30, 2021 primarily due to a 13% decrease in the average selling price per watt, partially offset by a 36%3% increase in the volume of watts sold. Net sales from our systems segment, which excludes solar modules used in our systems projects, increased $423.2residual business operations decreased $329.3 million for the threesix months ended SeptemberJune 30, 20172022 compared to the threesix months ended SeptemberJune 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, 20162021 primarily due to a 27% decreasesales of certain projects in the average selling price per watt, partially offset by an 18% increaseUnited States 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 forprior period and the nine months ended September 30, 2016 primarily as a resultsettlement of the sale ofindemnification matter in the Moapa, California Flats, and Switch Station projects in 2017, partially offset by 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.prior period described above.
Cost of sales
Components 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 Cost of sales is also included withinfor our components business.
Systems Business
For our systemsresidual business operations primarily consists of project-related costs, includesuch as 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 specificsite-specific costs.
The following table shows cost of salesby reportable segment for the three and ninesix months ended SeptemberJune 30, 20172022 and 2016:2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | | | Six Months Ended June 30, | | |
(Dollars in thousands) | | 2022 | | 2021 | | Three Month Change | | 2022 | | 2021 | | Six Month Change |
Modules | | $ | 576,278 | | | $ | 433,609 | | | $ | 142,669 | | | 33 | % | | $ | 919,970 | | | $ | 867,839 | | | $ | 52,131 | | | 6 | % |
Other | | 67,877 | | | 21,453 | | | 46,424 | | | 216 | % | | 79,762 | | | 205,830 | | | (126,068) | | | (61) | % |
Total cost of sales | | $ | 644,155 | | | $ | 455,062 | | | $ | 189,093 | | | 42 | % | | $ | 999,732 | | | $ | 1,073,669 | | | $ | (73,937) | | | (7) | % |
% of net sales | | 103.7 | % | | 72.3 | % | | | | | | 101.2 | % | | 74.9 | % | | | | |
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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 |
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 costCost of sales increased $284.9$189.1 million, or 56%42%, and decreased 1.7increased 31.4 percentage points as a percent of net sales for the three months ended SeptemberJune 30, 20172022 compared to the three months ended SeptemberJune 30, 2016.2021. The increase in cost of sales was driven by a $238.3$142.7 million increase in our systemsmodules segment cost of sales primarily due to higher costs of $109.5 million from an increase in the sizevolume of projectsmodules sold or under construction during the period and the timinghigher sales freight of when all revenue recognition criteria were met, partially offset by a mix of higher gross profit projects.$31.4 million. The increase in cost of sales was also driven by a $46.6$46.4 million increase in our components segmentresidual business operations cost of sales primarily as a result of higher costs of $101.0 million fromdue to the increased volume of modules sold directly to third parties,impairment loss in the current period for our Luz del Norte PV solar power plant, partially offset by continued reductionssales of certain projects in the cost per wattUnited States in the prior period. See Note 5. “Consolidated Balance Sheet Details” to our condensed consolidated financial statements for discussion of the impairment of our solar modules, which decreased costLuz del Norte project.
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 $172.1decreased $73.9 million, or 9%7%, and increased 5.826.3 percentage points as a percent of net sales for the ninesix months ended SeptemberJune 30, 20172022 compared to the ninesix months ended SeptemberJune 30, 2016.2021. The increasedecrease in cost of sales was driven by a $209.0$126.1 million increasedecrease in our systems segmentresidual business operations cost of sales primarily due to a mixsales of lower gross profit projects. This increasecertain projects in the United States in the prior period, partially offset by the impairment loss for our Luz del Norte PV solar power plant described above. The decrease in cost of sales was partially offset by a $37.0$52.1 million decreaseincrease in our componentsmodules segment cost of sales primarily as a resultdue to higher sales freight of continued cost reductions$52.4 million and higher costs of $22.7 million from an increase in the volume of modules sold, partially offset by continued module cost per watt of our solar modules,reductions, which decreased cost of sales by $151.0$21.4 million, and manufacturing related charges of $7.3 million in 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-downs of $11.0 million, partially offset by higher costs of $153.1 million fromprior period associated with the increased volume of modules sold directly to third parties.ongoing COVID-19 pandemic.
Gross (loss) profit
Gross (loss) profit may be affected by numerous factors, including the selling prices of our modules and systems,the selling prices of projects and services included in our residual business operations, our manufacturing costs, project development costs, BoS costs, the capacity utilization of our manufacturing facilities, and foreign exchange rates. Gross (loss) profit may also be affected by the mix of net sales generated byfrom our componentsmodules business and systems businesses.residual business operations.
The following table shows gross (loss) profit for the three and ninesix months ended SeptemberJune 30, 20172022 and 2016:2021:
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| | Three Months Ended June 30, | | | | Six Months Ended June 30, | | | | |
(Dollars in thousands) | | 2022 | | 2021 | | Three Month Change | | 2022 | | 2021 | | Six Month Change |
Gross (loss) profit | | $ | (23,200) | | | $ | 174,118 | | | $ | (197,318) | | | (113) | % | | $ | (11,737) | | | $ | 358,885 | | | $ | (370,622) | | | (103) | % |
% of net sales | | (3.7) | % | | 27.7 | % | | | | | | (1.2) | % | | 25.1 | % | | | | |
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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 |
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 increased 1.7decreased 31.4 percentage points to 26.8%(3.7)% during the three months ended SeptemberJune 30, 20172022 from 25.1%27.7% during the three months ended SeptemberJune 30, 20162021 primarily due to a mix of higher gross profit projects sold and under construction during the period and the reduction in our module collection and recycling liability described above, partially offset by reductionsdecrease in the average selling price per watt of our modules, sold directly to third parties. the $65.1 million prior period indemnification matter described above, the impairment loss in the current period for our Luz del Norte PV solar power plant described above, and an increase in sales freight, partially offset by the higher volume of modules sold.
Gross profit decreased 5.826.3 percentage points to 18.7%(1.2)% during the ninesix months ended SeptemberJune 30, 20172022 from 24.5%25.1% during the ninesix months ended SeptemberJune 30, 20162021 primarily asdue to a result of a mix of lower gross profit projects sold and under construction during the period and reductionsdecrease in the average selling price per watt of our modules, the impairment of our Luz del Norte PV solar power plant described above, the higher volume of projects sold directly to third parties.during the prior period, the indemnification matter described above, and an increase in sales freight, partially offset by continued module cost reductions.
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 ninesix months ended SeptemberJune 30, 20172022 and 2016:2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | | | Six Months Ended June 30, | | | | |
(Dollars in thousands) | | 2022 | | 2021 | | Three Month Change | | 2022 | | 2021 | | Six Month Change |
Selling, general and administrative | | $ | 38,894 | | | $ | 36,346 | | | $ | 2,548 | | | 7 | % | | $ | 75,622 | | | $ | 88,433 | | | $ | (12,811) | | | (14) | % |
% of net sales | | 6.3 | % | | 5.8 | % | | | | | | 7.7 | % | | 6.2 | % | | | | |
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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 |
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 SeptemberJune 30, 2017 decreased compared to2022 was consistent with the three months ended SeptemberJune 30, 2016 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.2021. Selling, general and administrative expense for the ninesix months ended SeptemberJune 30, 20172022 decreased compared to the ninesix months ended SeptemberJune 30, 20162021 primarily asdue to a result of lowerdecrease in employee compensation expense due todriven by reductions in headcount from the various restructuring activities describedsales of our North American O&M operations and U.S. project development business in Note 4. “Restructuring and Asset Impairments” to our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q,the prior period, lower professional fees, lower infrastructure related expenses,expected credit losses for our accounts receivable, and lower business development expenses.higher charges for impairments of certain project assets in the prior period.
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 ninesix months ended SeptemberJune 30, 20172022 and 2016:2021:
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| | Three Months Ended June 30, | | | | Six Months Ended June 30, | | | | |
(Dollars in thousands) | | 2022 | | 2021 | | Three Month Change | | 2022 | | 2021 | | Six Month Change |
Research and development | | $ | 25,229 | | | $ | 23,935 | | | $ | 1,294 | | | 5 | % | | $ | 52,337 | | | $ | 43,808 | | | $ | 8,529 | | | 19 | % |
% of net sales | | 4.1 | % | | 3.8 | % | | | | | | 5.3 | % | | 3.1 | % | | | | |
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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 |
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 SeptemberJune 30, 20172022 increased compared to the three and nine months ended SeptemberJune 30, 2016 was2021 primarily due to lower costshigher employee compensation expense resulting from increases in headcount and increased material and module testing costs.
Research and development expense for third-party contracted services, reducedthe six months ended June 30, 2022 increased compared to the six months ended June 30, 2021 primarily due to increased material and module testing costs, and lower employeeshare-based compensation expense resulting from reductions toin the prior period driven by the forfeiture of unvested shares by our R&D headcount as partformer Chief Technology Officer, who retired in March 2021, and increased freight costs.
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 fullcommercial production, including the cost of raw materials for solar modules run through the production line during the qualification phase, employee compensation for individuals supporting production start-up activities, and applicable facility related costs. Costs related to equipment upgrades and implementation of manufacturing process improvements are also included in productionProduction start-up expense as well asalso includes costs related to the selection of a new site related legal and regulatoryimplementation costs and costs to maintain our plant replication programfor manufacturing process improvements 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 ninesix months ended SeptemberJune 30, 20172022 and 2016:2021:
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| | Three Months Ended June 30, | | | | Six Months Ended June 30, | | | | |
(Dollars in thousands) | | 2022 | | 2021 | | Three Month Change | | 2022 | | 2021 | | Six Month Change |
Production start-up | | $ | 13,231 | | | $ | 1,715 | | | $ | 11,516 | | | >100% | | $ | 20,569 | | | $ | 13,069 | | | $ | 7,500 | | | 57 | % |
% of net sales | | 2.1 | % | | 0.3 | % | | | | | | 2.1 | % | | 0.9 | % | | | | |
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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 |
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 ninesix months ended SeptemberJune 30, 2017,2022, we incurred production start-up expense primarily for our third manufacturing facility in the U.S. and for certain manufacturing upgrades at our Malaysian facilities. During the six months ended June 30, 2021, we incurred production start-up expense primarily for the transition to Series 6 module manufacturing at our facilitiessecond facility in Perrysburg, Ohio; Kulim, Malaysia; and Ho Chi Minh City, Vietnam.Malaysia, which commenced commercial production in early 2021.
Restructuring and asset impairmentsGain on sales of businesses, net
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 impairmentsgain on sales of businesses, net for the three and ninesix months ended SeptemberJune 30, 20172022 and 2016:2021:
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| | Three Months Ended June 30, | | | | Six Months Ended June 30, | | | | |
(Dollars in thousands) | | 2022 | | 2021 | | Three Month Change | | 2022 | | 2021 | | Six Month Change |
Gain on sales of businesses, net | | $ | 245,381 | | | $ | (1,745) | | | $ | 247,126 | | | >100% | | $ | 247,288 | | | $ | 149,150 | | | $ | 98,138 | | | 66 | % |
% of net sales | | 39.5 | % | | (0.3) | % | | | | | | 25.0 | % | | 10.4 | % | | | | |
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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 | % | | | | |
DuringIn May 2022, we entered into various agreements with certain subsidiaries of PAG for the sale of our Japan project development business. In June 2022, we completed the sale for an aggregate purchase price of ¥66.4 billion ($488.4 million), subject to certain customary post-closing adjustments. On the closing date, we received proceeds of ¥44.1 billion ($324.5 million) and transferred cash and restricted cash of ¥8.4 billion ($61.9 million) to PAG. As a result of this transaction, we recognized a gain of $245.4 million, net of transaction costs, during the three and nine months ended SeptemberJune 30, 20172022. In January 2022, we incurred $0.8completed the sale of certain international O&M operations to a subsidiary of Clairvest for consideration of $1.9 million. As a result of this transaction, we recognized a gain of $1.6 million, net of transaction costs and $39.1post-closing adjustments, during the six months ended June 30, 2022.
In March 2021, we completed the sale of our North American O&M Operations to a subsidiary of Clairvest and received initial consideration of $146.0 million. As a result of this transaction, we recognized a gain of $117.8 million, respectively,net of restructuringtransaction costs, during the six months ended June 30, 2021. In March 2021, we also completed the sale of our U.S. project development business to Leeward and asset impairment charges associated with our transition to Series 6 module manufacturing. Such charges includedreceived consideration of $151.4 million for the sale of such business. As a result of this transaction, we recognized a gain of $31.5 million, net losses onof transaction costs, during 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. six months ended June 30, 2021.
See Note 4. “Restructuring and Asset Impairments”2. “Sales of Businesses” 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.
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 primarilyfurther information related to our decision to end our crystalline silicon module production. These charges included impairmentsthese transactions.
Foreign currency loss, net
Foreign currency loss, 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 ninesix months ended SeptemberJune 30, 20172022 and 2016:2021:
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| | Three Months Ended June 30, | | | | Six Months Ended June 30, | | | | |
(Dollars in thousands) | | 2022 | | 2021 | | Three Month Change | | 2022 | | 2021 | | Six Month Change |
Foreign currency loss, net | | $ | (2,984) | | | $ | (1,000) | | | $ | (1,984) | | | 198 | % | | $ | (7,182) | | | $ | (3,595) | | | $ | (3,587) | | | 100 | % |
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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 |
Foreign currency loss, net | | $ | (3,968 | ) | | $ | (2,296 | ) | | $ | (1,672 | ) | | 73 | % | | $ | (6,166 | ) | | $ | (8,259 | ) | | $ | 2,093 |
| | (25 | )% |
Foreign currency loss, net for the three and six months ended SeptemberJune 30, 20172022 increased compared to the three and six months ended SeptemberJune 30, 20162021 primarily due to 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 nine months ended September 30, 2017 decreased compared to the nine months ended September 30, 2016 primarily as a result of lowerhigher costs associated with hedging activities related to our subsidiaries in India and the weakening of the U.S. dollar relative to certain foreign currencies, and differences between our economic hedge positions and the underlying exposures.
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 ninesix months ended SeptemberJune 30, 20172022 and 2016:2021:
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| | Three Months Ended June 30, | | | | Six Months Ended June 30, | | | | |
(Dollars in thousands) | | 2022 | | 2021 | | Three Month Change | | 2022 | | 2021 | | Six Month Change |
Interest income | | $ | 2,880 | | | $ | 1,288 | | | $ | 1,592 | | | 124 | % | | $ | 5,205 | | | $ | 2,244 | | | $ | 2,961 | | | 132 | % |
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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 |
Interest income | | $ | 8,392 |
| | $ | 5,894 |
| | $ | 2,498 |
| | 42 | % | | $ | 22,364 |
| | $ | 18,829 |
| | $ | 3,535 |
| | 19 | % |
Interest income for the three and ninesix months ended SeptemberJune 30, 20172022 increased compared to the three and ninesix months ended SeptemberJune 30, 20162021 primarily due to higher cash balances during the period, increased interest rates on restricted marketable securities, time deposits, and cash, partially offset by lower average balances associated with our cash and marketable securities, and a promissory note with an affiliate issued in late 2016.securities.
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 ninesix months ended SeptemberJune 30, 20172022 and 2016:2021:
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| | Three Months Ended June 30, | | | | Six Months Ended June 30, | | | | |
(Dollars in thousands) | | 2022 | | 2021 | | Three Month Change | | 2022 | | 2021 | | Six Month Change |
Interest expense, net | | $ | (3,236) | | | $ | (4,623) | | | $ | 1,387 | | | (30) | % | | $ | (6,101) | | | $ | (7,619) | | | $ | 1,518 | | | (20) | % |
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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 |
Interest expense, net | | $ | (4,149 | ) | | $ | (5,563 | ) | | $ | 1,414 |
| | (25 | )% | | $ | (19,692 | ) | | $ | (17,356 | ) | | $ | (2,336 | ) | | 13 | % |
Interest expense, net for the three and six months ended SeptemberJune 30, 2017 was consistent with the three months ended September 30, 2016. Interest expense, net for the nine months ended September 30, 2017 increased2022 decreased compared to the ninethree and six months ended SeptemberJune 30, 20162021 primarily due to changes in the fair value of interest rate swap contracts that doin the prior period, which did not qualify for hedge accounting, and higher levels of project specific debt financings, partially offset by lower interest expense associated with certain Malaysian credit facilities that were fully repaidproject debt, and lower amortization of debt discounts and issuance costs in 2016.the current period.
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 (expense) income, net for the three and ninesix months ended SeptemberJune 30, 20172022 and 2016:2021:
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| | Three Months Ended June 30, | | | | Six Months Ended June 30, | | | | |
(Dollars in thousands) | | 2022 | | 2021 | | Three Month Change | | 2022 | | 2021 | | Six Month Change |
Other (expense) income, net | | $ | (1,883) | | | $ | (3,247) | | | $ | 1,364 | | | (42) | % | | $ | (2,095) | | | $ | 5,201 | | | $ | (7,296) | | | 140 | % |
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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 |
Other income, net | | $ | 2,018 |
| | $ | 6,419 |
| | $ | (4,401 | ) | | (69 | )% | | $ | 25,180 |
| | $ | 48,725 |
| | $ | (23,545 | ) | | (48 | )% |
Other income,expense, net decreased for the three months ended SeptemberJune 30, 2017 compared to2022 was consistent with the three months ended SeptemberJune 30, 20162021. Other expense, net for the six months ended June 30, 2022 increased compared to the six months ended June 30, 2021 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 tohigher realized gains from sales of $37.8 millionrestricted marketable securities 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 consideration 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, partially offset by an incremental settlement in 2017 associated with the resolution of the customer matter describe above.prior period.
Income tax (expense) benefitexpense
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, Malaysia, and Malaysia.Vietnam. 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, Malaysia, and MalaysiaVietnam are 30.0%30.6%, 34.6%24%, and 24.0%20%, 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. In Vietnam, we have been granted a long-term tax incentive, scheduled to expire at the end of 2036, pursuant to which income earned in Vietnam is subject to reduced annual tax rates, conditional upon our continued compliance with certain revenue and R&D spending thresholds.
The following table shows income tax (expense) benefitexpense for the three and ninesix months ended SeptemberJune 30, 20172022 and 2016:2021:
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| | Three Months Ended June 30, | | | | Six Months Ended June 30, | | | | |
(Dollars in thousands) | | 2022 | | 2021 | | Three Month Change | | 2022 | | 2021 | | Six Month Change |
Income tax expense | | $ | (83,799) | | | $ | (20,346) | | | $ | (63,453) | | | 312 | % | | $ | (64,300) | | | $ | (66,836) | | | $ | 2,536 | | | (4) | % |
Effective tax rate | | 60.0 | % | | 19.8 | % | | | | | | 83.7 | % | | 18.6 | % | | | | |
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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 |
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 expense increased by $75.8$63.5 million during the three months ended SeptemberJune 30, 20172022 compared to the three months ended SeptemberJune 30, 20162021 primarily due to losses in certain jurisdictions for which no tax benefit could be recorded, higher pretax income in the current period, and the remeasurement of our net deferred tax assets in Vietnam as a result of a $35.4 million reversal of a liability associated with an uncertainnew long-term tax positionincentive granted in 2016, higher pretax income, and lower excess tax benefits associated with share-based compensation.
May 2022. Income tax benefitexpense decreased by $6.1$2.5 million during the ninesix months ended SeptemberJune 30, 20172022 compared to the ninesix months ended SeptemberJune 30, 2016 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 million discrete tax benefit associated with the acceptance of our election to classify certain of our German subsidiaries as disregarded entities of First Solar, Inc. and lower pre-tax income.
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 made equity method investments.
The following table shows equity in earnings of unconsolidated affiliates, net of tax 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 |
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 to the three and nine months ended September 30, 20162021 primarily due to lower equitypretax income in earnings of 8point3 Operating Company, LLC,the current period, partially offset by losses in certain jurisdictions for which no tax benefit could be recorded and the deferralremeasurement of certain profit on the saleour net deferred tax assets in Vietnam mentioned above.
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, there2021. There have been no material changes to our critical accounting policies during the ninesix months ended SeptemberJune 30, 2017.2022.
Recent Accounting Pronouncements
See Note 3. “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.None.
Liquidity and Capital Resources
As of SeptemberJune 30, 2017,2022, we believe that our cash, cash equivalents, marketable securities, cash flows from operating activities, advanced-stage project pipeline, availability under our senior secured revolving credit facility considering minimum liquidity covenant requirements, and access tocontracts with customers for the capital marketsfuture sale of solar modules will be sufficient to meet our working capital systems project investment, and capital expenditure needs for at least the next 12 months. As necessary, 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 operations, capital expenditures,such as construction activities and strategic discretionary spending. In the future, we may also engagepurchases of manufacturing equipment for our manufacturing facility 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, althoughIndia. 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-specificbroader market concerns. SuchAny 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 maintainpursue our strategic plans. Additionally, given the duration of these and other capital investments and the currency risk relative to the U.S. dollar in certain financial conditions. international markets in which we operate, 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.
As of SeptemberJune 30, 2017, we were in compliance with the covenants for all of our long-term debt facilities.
As of September 30, 2017,2022 and December 31, 2021, we had $2.7$1.8 billion in cash cash equivalents, and marketable securities compared to $2.0 billion as of December 31, 2016.securities. Cash cash equivalents, and marketable securities as of September 30, 2017 increased primarilyreceipts from module sales, proceeds from the sale of the Moapaour Japan project development business, and California Flats projects andnet proceeds from borrowings under project specific debt financings, partiallysales and maturities of marketable securities were offset by purchases of property, plant and equipment.equipment, expenditures for the construction of certain projects in Japan, and other operating expenditures. As of SeptemberJune 30, 2017 and December 31, 2016, $1.52022, $1.0 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,Japanese yen, and EuroIndian rupee 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 liquidityWe continually evaluate forecasted global demand and isseek to balance our manufacturing capacity with such demand. We previously announced our plans to invest approximately $1.4 billion to expand our solar manufacturing capacity by 6.6 GWDC by constructing our third manufacturing facility in the U.S. and our first manufacturing facility in India. These new facilities are currently under construction and are expected to continue to have significant liquidity requirementscommence operations in the future. The net amountfirst half 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 as of September 30, 2017. Solar power project development and construction cycles, which span the time between the identification of a site location2023 and the commercial operationsecond half 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 construction 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.2023, respectively. In certain circumstances, we may need to finance construction costs exclusively using working capital, if project financing becomes unavailable due to market-wide, regional, or other concerns.
From time to time, we may partner with local developers on project development in 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,addition, 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 project at economics that are attractive to us or potential customers are unwilling to assumeincrease the risks and rewards typical of PV solar power system ownership, we may instead elect to temporarily own and operate such systems until we can sell the systems on economically attractive terms. The decision to retain ownership of a system impacts liquidity depending upon the size and cost of the project. As of September 30, 2017, we had $0.5 billion of net PV solar power systems that had been placed in service, primarily in international markets. We may 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 certainnameplate production capacity 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 2017 and beyond:
We expect to make significant capital investments through 2019 as we transitionexisting manufacturing facilities by improving our production to Series 6throughput, increasing module technologywattage (or conversion efficiency), and purchase the relatedimproving manufacturing equipment and infrastructure. Such investments include the commencement of operations at our previously announced manufacturing plant in Vietnam. We expect the aggregate capital investment for Series 6 related programs to be approximately $1.1 billion, which is expected to provide an annual Series 6 manufacturing capacity of approximately 4 GW.yield losses. During the remainder of 2017,2022, we expect to spend $100 million$0.9 billion to $200 million$1.1 billion for capital expenditures, including the majority of which is associated with the Series 6 transition. Wenew facilities mentioned above and upgrades to machinery and equipment that we believe these capital expenditures will further increase our module wattage and expand capacity and throughput at our manufacturing facilities.
We have also committed and expect to commit significant working capital to purchase various raw materials used in our module manufacturing process. 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 remaining purchases under these supply agreements are expected to be approximately $1.6 billion of substrate glass and approximately $346 million of cover glass. We have the right to terminate these agreements upon payment of specified termination penalties (which, in aggregate, manufacturing capacity, increaseare up to $292 million as of June 30, 2022 and decline over the remaining supply periods).
We have also committed certain financial resources to fulfill our solar module conversion efficiencies, reducecollection and recycling obligations, and have established a trust under which these funds are put into custodial accounts with an established and reputable bank. As of June 30, 2022, such funds were comprised of restricted marketable securities of $200.3 million and restricted cash balances of $4.0 million. As of June 30, 2022, our manufacturingmodule collection and recycling liability was $134.1 million. Trust funds may be disbursed for qualified module collection and recycling costs (including capital and reduce the overall costfacility related recycling costs), payments to customers for assuming collection and recycling obligations, and reimbursements of systems using our modules.
The balance of our solar module inventories and BoS parts was $196.3 million as of September 30, 2017. As we continue with the construction of our advanced-stage project pipeline, we must produce solar modules and procure BoS partsany overfunded amounts. Investments in the required volumestrust must meet certain investment quality criteria comparable to supporthighly rated government or agency bonds. As necessary, we adjust the funded amounts for our planned construction schedules. As partestimated collection and recycling obligations on an annual basis based on the estimated costs of this construction cycle, we typically must manufacturecollecting and recycling covered modules, or acquire the necessary BoS parts for construction activities in advanceestimated rates of receiving payment for such materials, which may temporarily reducereturn on 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 upon 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 require 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 working capital during the remainder of 2017 and beyond 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, 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 metrics for the nine months ended September 30, 2017 and 2016 (in thousands):
|
| | | | | | | | |
| | 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 investing activities was primarily due to an increase in purchases of property, plant and equipment driven by our transition to Series 6 module manufacturing and net purchases ofrestricted marketable securities, and restricted investmentsan estimated solar module life of $92.0 million during the nine months ended September 30, 2017 compared to net sales of $25.7 million during the same period25 years, less amounts already funded in 2016.prior years.
Financing Activities
The decrease in net cash provided by financing activities was primarily the result of $550.0 million of proceeds from borrowings under our Revolving Credit Facility in 2016, partially offset by higher net proceeds from borrowings under our long-term debt arrangements 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.
Contractual Obligations
Our contractual obligations have not materially changed since December 31, 2016 with the exception of borrowings under project specific debt financings and other changes in the ordinary course of business. 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, 2016 for additional information regarding our contractual obligations.
Off-Balance Sheet Arrangements
As of SeptemberJune 30, 2017,2022, 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 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.
Cash Flows
The following table summarizes key cash flow activity for the six months ended June 30, 2022 and 2021 (in thousands):
| | | | | | | | | | | | | | |
| | Six Months Ended June 30, |
| | 2022 | | 2021 |
Net cash used in operating activities | | $ | (50,821) | | | $ | (102,229) | |
Net cash provided by investing activities | | 138,287 | | | 470,088 | |
Net cash provided by (used in) financing activities | | 125,616 | | | (9,090) | |
Effect of exchange rate changes on cash, cash equivalents and restricted cash | | 39,934 | | | 906 | |
Net increase in cash, cash equivalents and restricted cash | | $ | 253,016 | | | $ | 359,675 | |
Operating Activities
The decrease in net cash used in operating activities was primarily driven by higher cash receipts from module sales in the current period and higher operating expenditures in the prior period, partially offset by higher expenditures for the construction of certain projects in Japan and certain advance payments for raw materials in the current period.
Investing Activities
The decrease in net cash provided by investing activities was primarily due to higher purchases of property, plant and equipment, lower net sales and maturities of marketable securities and restricted marketable securities, and proceeds from the sales of our North American O&M operations and U.S. project development business in the prior period, partially offset by proceeds from the sale of our Japan project development business in the current period.
Financing Activities
The increase in net cash provided by financing activities was primarily due to higher net borrowings under project specific debt financings for the construction of certain projects in Japan. Such project specific debt financings were assumed by PAG when we completed the sale of our Japan project development business.
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, 2016.2021.
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 SeptemberJune 30, 20172022 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 SeptemberJune 30, 20172022 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 SeptemberJune 30, 2017.2022.
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 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, 2016,2021, 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 appearingset forth below, there have been no material changes in the risk factors contained in our Annual Report on Form 10-K for the year ended December 31, 2016.10-K.
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 or increase our costs, 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,feed-in-tariff structures, 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” in our Annual Report on Form 10-K for the year ended December 31, 2016. To the extent these support programs are reduced earlier than previously expected, or are changed retroactively, or are not renewed, 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.
In addition, policies of theChanges or threatened changes in U.S. presidential administrationregulatory policy 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, U.S. President Donald Trump announced that the U.S. 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 coal and gas electricity generation, mining, and/or exploration. For example, in October 2017, the U.S. Environmental Protection Agency Administrator issued a Notice of Proposed Rulemaking, proposing to repeal the Clean Power Plan, which establishes standards to limit carbon dioxide emissions from existing power generation facilities. If 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 would be subject us 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 developers to develop solar projects and purchase PV solar modules;module sales;
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, which is currently scheduled to decrease to 22% in 2023 and 10% in 2024, and accelerated depreciation deductions, could result in reducing such investors generating reduced revenues andinvestors’ economic returns, and facingcausing 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, 2020modules; 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 prior to January 1, 2024 may qualify for an ITC equal to 26% of eligible basis. Under the Modified Accelerated Cost-Recovery System, owners of equipment used in a solar project generally 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 the corporate tax rate could diminish the capacity of potential investors to benefit from incentives such as the ITC and reduce the value of accelerated depreciation deductions, thereby reducing the relative attractiveness of solar projects as an investment.
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 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. In some instances, the application of trade laws is currently beneficial to the Company, and changes in their application could have an adverse impact.
For example, in April 2017,the United States currently imposes different types of tariffs and/or other trade remedies on certain imported crystalline silicon PV modules and cells from various countries. In February 2022, the U.S. President proclaimed a U.S.-based manufacturerfour-year extension of solar cells filed a petition under Sectionsglobal safeguard measure imposed pursuant to Section 201 and 202 of the Trade Act of 1974 that provides for global safeguard relief with the U.S. International Trade Commission (the “USITC”). Such petition requested, 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 beingmodules and a tariff-rate quota on 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, to the U.S. presidential administration. In October 2017, we submitted a letter in a non-party capacity to provide the USITC with information to inform its remedy recommendation. Thin-filmcrystalline silicon solar cells. Thin film solar cell products, such as our CdTe technology, are expresslyspecifically excluded from the petition. However, ittariffs. Moreover, the extension measure does not apply tariffs to imports of bifacial modules. The extension measure imposes a 14.75% tariff in the first year, which is unknown howscheduled to phase down annually in 0.25 percentage point increments over the resolutionfour-year term. The extension measure also provides an annual tariff-rate quota, whereby tariffs apply to imported crystalline silicon solar cells above the first 5.0 GWDC of imports.
In addition, the petition, the scope or form of any resulting remedial action takenUnited States currently imposes antidumping and countervailing duties on certain imported crystalline silicon PV cells and modules from China and Taiwan. Such antidumping and countervailing duties can change over time pursuant to annual reviews conducted by the U.S. presidential administration,Department of Commerce (“USDOC”), and a decline in duty rates and USDOC refusals to fully enforce U.S. antidumping and countervailing duty laws could have an adverse impact on our operating results. In March 2022, USDOC initiated inquiries concerning alleged circumvention of antidumping and countervailing duties on Chinese imports by crystalline silicon PV cells and module imports assembled and completed in Cambodia, Malaysia, Thailand, and Vietnam. In June 2022, the U.S. President declared an emergency with respect to threats to electricity generation capacity and authorized the U.S. Secretary of Commerce to consider permitting the importation of crystalline silicon PV products from those four countries free of antidumping and countervailing duties for 24 months, or until the emergency has terminated. USDOC has issued proposed regulations designed to implement that moratorium on antidumping and countervailing duties in the event that it finds circumvention with respect to crystalline silicon PV products assembled and completed in those four countries. We cannot predict what further actions USDOC will take with respect to these circumvention inquiries. Our operating results could be adversely impacted if USDOC makes negative circumvention determinations or refrains from imposing antidumping and countervailing duties on imports covered by affirmative circumvention determinations. Conversely, affirmative circumvention determinations could positively impact our operating results, including if they result in immediate imposition of antidumping and countervailing duty cash deposit requirements.
Moreover, the United States currently imposes tariffs on various articles imported from China at a rate of 25%, including crystalline silicon solar cells and modules, based on an investigation under Section 301 of the Trade Act of 1974. In May 2022, the Office of the United States Trade Representative initiated a statutory four-year review of those tariff actions, which could result in the termination or modification of the tariffs. The review remains pending, and we cannot predict its outcome. Our operating results could be adversely impacted if the review results in a termination or reduction in tariffs on crystalline silicon solar cells and modules from China.
In other instances, the application of U.S. trade laws has had, or could have, an adverse impact on our operating results by increasing our costs or limiting the competitiveness of our products. For example, the United States imposes tariffs on certain imported aluminum and steel articles from certain foreign jurisdictions, generally at rates of 10% and 25%, respectively, under Section 232 of the Trade Expansion Act of 1962. 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 or lowering 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.
Item 6.Exhibits
The following exhibits are filed with or incorporated by reference into this Quarterly Report on Form 10-Q:
|
| | | | | | | |
Exhibit Number | | Exhibit Description |
3.1 | | |
3.2 | | |
10.1*+§ | | |
10.2*+§ | | |
10.3*+§ | | Membership Interests Purchase and Sale Agreement, dated May 12, 2022, among First Solar Japan GK,Kyoto Solar Plant L.P., Yatsubo Solar Plant L.P., Momura Solar Plant L.P., Iwaki Solar Plant L.P., Hita Solar Plant L.P., Shimo Onuki Solar Plant L.P., Orido Solar Plant L.P., Handa Solar Plant L.P. and Tochigi Solar Plant L.P. |
10.4*+§ | | First Amendment to Membership Interests Purchase and Sale Agreement, dated June 24, 2022, among First Solar Japan GK,Kyoto Solar Plant L.P., Yatsubo Solar Plant L.P., Momura Solar Plant L.P., Iwaki Solar Plant L.P., Hita Solar Plant L.P., Shimo Onuki Solar Plant L.P., Orido Solar Plant L.P., Handa Solar Plant L.P. and Tochigi Solar Plant L.P. |
10.5*+§ | | |
10.6*+§ | | |
10.7*+§ | | |
31.1* | | |
31.2* | | |
| | |
101.INS | | XBRL 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.SCH | | XBRL Taxonomy Extension Schema Document |
101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF | | XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB | | XBRL Taxonomy Label Linkbase Document |
101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document |
104 | | Cover 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. |
* Filed herewith.
+ Portions of this exhibit have been redacted in compliance with Item 601(b)(10) of Regulation S-K.
§ Exhibits and schedules have been omitted pursuant to Item 601(a)(5) of Regulation S-K.
† Furnished herewith. 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: July 28, 2022 | FIRST SOLAR, INC.By: | | /s/ BYRON JEFFERS |
| Name: | | Byron Jeffers |
Date: October 26, 2017 | By:Title: | | /s/ BRYAN SCHUMAKER |
| Name: | | Bryan Schumaker |
| Title: | | Chief Accounting Officer |