Table of Contents




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


Form 10-Q


(Mark one)

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

For the quarterly period ended March 31, 2023
or
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to

Commission file number: 001-33156

FSLR_Logo_2021.jpg
fslrlogoa14.jpg
First Solar, Inc.Inc.
(Exact name of registrant as specified in its charter)
Delaware20-4623678
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)


350 West Washington Street, Suite 600
Tempe, Arizona 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 classTrading symbol(s)Name of each exchange on which registered
Common stock, $0.001 par valueFSLRThe NASDAQ Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [x]☒ No [ ]☐


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


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


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


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


As of October 20, 2017, 104,432,988April 21, 2023, 106,825,674 shares of the registrant’s common stock, $0.001 par value per share, were outstanding.

FIRST SOLAR, INC. AND SUBSIDIARIES

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

TABLE OF CONTENTS




FIRST SOLAR, INC.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2023

TABLE OF CONTENTS
Page
1
1
Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2017March 31, 2023 and 20162022
31
Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2017March 31, 2023 and 20162022
42
Condensed Consolidated Balance Sheets as of September 30, 2017March 31, 2023 and December 31, 20162022
53
Condensed Consolidated Statements of Stockholders’ Equity for the three months ended March 31, 2023 and 2022
4
Condensed Consolidated Statements of Cash Flows for the ninethree months ended September 30, 2017March 31, 2023 and 20162022
65
76
Management’s Discussion and Analysis of Financial Condition and Results of Operations
4733
Quantitative and Qualitative Disclosures Aboutabout Market Risk
6451
6451
6452
6452
6552
6652
Exhibits
6653
Signature
67



Throughout this Quarterly Report on Form 10-Q, we refer to First Solar, Inc. and its consolidated subsidiaries as “First Solar,” “the Company,” “we,” “us,” and “our.” 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 “DC”) unless otherwise noted.


Table of Contents
PART I.FINANCIAL INFORMATION


Item 1.Condensed Consolidated Financial Statements (Unaudited)


FIRST SOLAR, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended
March 31,
20232022
Net sales$548,286 $367,040 
Cost of sales436,235 355,577 
Gross profit112,051 11,463 
Operating expenses:
Selling, general and administrative44,028 36,728 
Research and development30,510 27,108 
Production start-up19,494 7,338 
Total operating expenses94,032 71,174 
Gain on sales of businesses, net(17)1,907 
Operating income (loss)18,002 (57,804)
Foreign currency loss, net(5,947)(4,198)
Interest income25,822 2,325 
Interest expense, net(748)(2,865)
Other expense, net(1,456)(212)
Income (loss) before taxes35,673 (62,754)
Income tax benefit6,888 19,499 
Net income (loss)$42,561 $(43,255)
Net income (loss) per share:
Basic$0.40 $(0.41)
Diluted$0.40 $(0.41)
Weighted-average number of shares used in per share calculations:
Basic106,675 106,412 
Diluted107,154 106,412 
  Three Months Ended
September 30,		 Nine Months Ended
September 30,
  2017 2016 2017 2016
Net sales $1,087,026
 $681,276
 $2,602,143
 $2,573,768
Cost of sales 795,226
 510,368
 2,115,266
 1,943,198
Gross profit 291,800
 170,908
 486,877
 630,570
Operating expenses:        
Selling, general and administrative 50,546
 60,345
 147,702
 191,624
Research and development 20,850
 32,173
 64,990
 95,291
Production start-up 12,624
 752
 22,155
 807
Restructuring and asset impairments 791
 4,314
 39,108
 89,846
Total operating expenses 84,811
 97,584
 273,955
 377,568
Operating income 206,989
 73,324
 212,922
 253,002
Foreign currency loss, net (3,968) (2,296) (6,166) (8,259)
Interest income 8,392
 5,894
 22,364
 18,829
Interest expense, net (4,149) (5,563) (19,692) (17,356)
Other income, net 2,018
 6,419
 25,180
 48,725
Income before taxes and equity in earnings of unconsolidated affiliates 209,282
 77,778
 234,608
 294,941
Income tax (expense) benefit (7,580) 68,205
 26,769
 32,886
Equity in earnings of unconsolidated affiliates, net of tax 4,045
 4,474
 5,462
 6,851
Net income $205,747
 $150,457
 $266,839
 $334,678
Net income per share:        
Basic $1.97
 $1.46
 $2.56
 $3.27
Diluted $1.95
 $1.45
 $2.54
 $3.25
Weighted-average number of shares used in per share calculations:        
Basic 104,432
 103,339
 104,287
 102,496
Diluted 105,660
 103,684
 104,889
 103,110


See accompanying notes to these condensed consolidated financial statements.

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FIRST SOLAR, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
Three Months Ended
March 31,
20232022
Net income (loss)$42,561 $(43,255)
Other comprehensive income (loss):
Foreign currency translation adjustments2,655 (10,125)
Unrealized gain (loss) on marketable securities and restricted marketable securities, net of tax of $(402) and $1,2466,966 (22,521)
Unrealized gain (loss) on derivative instruments, net of tax of $(708) and $942,214 (442)
Other comprehensive income (loss)11,835 (33,088)
Comprehensive income (loss)$54,396 $(76,343)
  Three Months Ended
September 30,		 Nine Months Ended
September 30,
  2017 2016 2017 2016
Net income $205,747
 $150,457
 $266,839
 $334,678
Other comprehensive income (loss):        
Foreign currency translation adjustments 4,717
 1,418
 5,320
 4,635
Unrealized gain (loss) on marketable securities and restricted investments, net of tax of $(23), $345, $(373), and $(831) 1,511
 (7,917) 1,244
 27,679
Unrealized (loss) gain on derivative instruments, net of tax of $291, $59, $1,291, and $1 (61) (276) (2,513) 2,070
Other comprehensive income (loss) 6,167
 (6,775) 4,051
 34,384
Comprehensive income $211,914
 $143,682
 $270,890
 $369,062


See accompanying notes to these condensed consolidated financial statements.


2
Table of Contents
FIRST SOLAR, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)
 
 
March 31,
2023		December 31,
2022
ASSETS
Current assets: 
Cash and cash equivalents$906,634 $1,481,269 
Marketable securities1,364,607 1,096,712 
Accounts receivable trade, net298,620 324,337 
Accounts receivable unbilled25,894 30,654 
Inventories751,407 621,376 
Other current assets272,702 237,073 
Total current assets3,619,864 3,791,421 
Property, plant and equipment, net3,858,604 3,536,902 
Deferred tax assets, net136,411 78,680 
Restricted marketable securities196,591 182,070 
Government grants receivable70,114 — 
Goodwill14,462 14,462 
Intangible assets, net28,477 31,106 
Inventories253,353 260,395 
Other assets386,720 356,192 
Total assets$8,564,596 $8,251,228 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:  
Accounts payable$285,760 $341,409 
Income taxes payable77,176 29,397 
Accrued expenses391,912 382,782 
Deferred revenue398,694 263,215 
Other current liabilities20,631 21,245 
Total current liabilities1,174,173 1,038,048 
Accrued solar module collection and recycling liability130,258 128,114 
Long-term debt320,378 184,349 
Deferred revenue949,687 944,725 
Other liabilities121,372 119,937 
Total liabilities2,695,868 2,415,173 
Commitments and contingencies
Stockholders’ equity:
Common stock, $0.001 par value per share; 500,000,000 shares authorized; 106,825,067 and 106,609,094 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively107 107 
Additional paid-in capital2,865,753 2,887,476 
Accumulated earnings3,182,850 3,140,289 
Accumulated other comprehensive loss(179,982)(191,817)
Total stockholders’ equity5,868,728 5,836,055 
Total liabilities and stockholders’ equity$8,564,596 $8,251,228 
 
 
 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.


3
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FIRST SOLAR, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWSSTOCKHOLDERS’ EQUITY
(In thousands)
(Unaudited)
Three Months Ended March 31, 2023
 Common StockAdditional
Paid-In
Capital		Accumulated EarningsAccumulated
Other
Comprehensive Loss		Total
Stockholders' Equity
 SharesAmount
Balance at December 31, 2022106,609 $107 $2,887,476 $3,140,289 $(191,817)$5,836,055 
Net income— — — 42,561 — 42,561 
Other comprehensive income— — — — 11,835 11,835 
Common stock issued for share-based compensation364 — — — — — 
Tax withholding related to vesting of restricted stock(148)— (28,314)— — (28,314)
Share-based compensation expense— — 6,591 — — 6,591 
Balance at March 31, 2023106,825 $107 $2,865,753 $3,182,850 $(179,982)$5,868,728 
Three Months Ended March 31, 2022
 Common StockAdditional
Paid-In
Capital		Accumulated EarningsAccumulated
Other
Comprehensive Loss		Total
Stockholders' Equity
 SharesAmount
Balance at December 31, 2021106,332 $106 $2,871,352 $3,184,455 $(96,362)$5,959,551 
Net loss— — — (43,255)— (43,255)
Other comprehensive loss— — — — (33,088)(33,088)
Common stock issued for share-based compensation414 1 — — — 1 
Tax withholding related to vesting of restricted stock(163)— (11,505)— — (11,505)
Share-based compensation expense— — 3,471 — — 3,471 
Balance at March 31, 2022106,583 $107 $2,863,318 $3,141,200 $(129,450)$5,875,175 
  Nine Months Ended
September 30,
  2017 2016
Cash flows from operating activities:    
Net income $266,839
 $334,678
Adjustments to reconcile net income to cash provided by (used in) operating activities:    
Depreciation, amortization and accretion 89,552
 172,221
Impairments and net losses on disposal of long-lived assets 33,171
 85,251
Share-based compensation 25,527
 24,467
Equity in earnings of unconsolidated affiliates, net of tax (5,462) (6,851)
Distributions received from equity method investments 17,024
 —
Remeasurement of monetary assets and liabilities (12,464) (3,711)
Deferred income taxes (38,499) (5,399)
Gain on sales of marketable securities and restricted investments (49) (38,101)
Noncash consideration from the sale of project assets —
 (20,084)
Other, net 2,572
 2,481
Changes in operating assets and liabilities:    
Accounts receivable, trade, unbilled and retainage (328,556) 2,649
Prepaid expenses and other current assets 35,818
 (47,386)
Inventories and balance of systems parts 178,562
 75,308
Project assets 969,264
 (355,767)
Other assets (16,453) (11,045)
Income tax receivable and payable 6,416
 (40,548)
Accounts payable (21,198) (143,663)
Accrued expenses and other liabilities (289,919) (91,709)
Accrued solar module collection and recycling liability (5,426) 5,536
Net cash provided by (used in) operating activities 906,719
 (61,673)
Cash flows from investing activities:    
Purchases of property, plant and equipment (315,129) (175,868)
Purchases of marketable securities and restricted investments (478,324) (422,607)
Proceeds from sales and maturities of marketable securities and restricted investments 386,309
 448,354
Investment in note receivable, affiliate

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


See accompanying notes to these condensed consolidated financial statements.

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FIRST SOLAR, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 Three Months Ended
March 31,
20232022
Cash flows from operating activities:  
Net income (loss)$42,561 $(43,255)
Adjustments to reconcile net income (loss) to cash used in operating activities:
Depreciation, amortization and accretion68,855 65,207 
Share-based compensation6,600 3,503 
Deferred income taxes(55,282)1,083 
Gain on sales of businesses, net17 (1,907)
Other, net(698)2,165 
Changes in operating assets and liabilities:
Accounts receivable, trade and unbilled33,933 144,286 
Inventories(122,996)(175,990)
Project assets and PV solar power systems6,099 (98,695)
Government grants receivable(70,114)— 
Other assets(66,493)(30,838)
Income tax receivable and payable43,646 (23,502)
Accounts payable and accrued expenses(61,552)(38,043)
Deferred revenue139,713 77,042 
Other liabilities1,113 (19,895)
Net cash used in operating activities(34,598)(138,839)
Cash flows from investing activities:
Purchases of property, plant and equipment(370,961)(154,761)
Purchases of marketable securities and restricted marketable securities(1,470,600)(750,220)
Proceeds from maturities of marketable securities1,196,334 900,165 
Proceeds from sales of businesses— 1,860 
Other investing activities— 12 
Net cash used in investing activities(645,227)(2,944)
Cash flows from financing activities:
Repayment of long-term debt— (737)
Proceeds from borrowings under long-term debt, net of issuance costs136,000 18,006 
Payments of tax withholdings for restricted shares(28,314)(11,505)
Net cash provided by financing activities107,686 5,764 
Effect of exchange rate changes on cash, cash equivalents, restricted cash, and restricted cash equivalents1,495 15,162 
Net decrease in cash, cash equivalents, restricted cash, and restricted cash equivalents(570,644)(120,857)
Cash, cash equivalents, restricted cash, and restricted cash equivalents, beginning of the period1,493,462 1,455,837 
Cash, cash equivalents, restricted cash, and restricted cash equivalents, end of the period$922,818 $1,334,980 
Supplemental disclosure of noncash investing and financing activities:  
Property, plant and equipment acquisitions funded by liabilities$330,830 $105,643 

See accompanying notes to these condensed consolidated financial statements.
5
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FIRST SOLAR, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


1. Basis of Presentation


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

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Despite our intention to establish accurate estimates and reasonable assumptions, actual results could differ materially from such estimates and assumptions. Operating results for the three and nine months ended September 30, 2017March 31, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 20172023 or for any other period. The condensed consolidated balance sheet at December 31, 20162022 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, 20162022 included in our Annual Report on Form 10-K, which has been filed with the SEC.

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


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

2. Summary of Significant Accounting Policies

Use of Estimates. The preparation ofconsolidated subsidiaries, and the term “condensed consolidated financial statements” refers to the accompanying unaudited condensed consolidated financial statements contained in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the amounts reported in our condensed consolidated financial statements and the accompanying notes. On an ongoing basis,this Quarterly Report.

2. Sales of Businesses

Sales of International O&M Operations

In January 2022, 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 solar power systems; engineering, procurement, and construction services (“EPC”); and operations and maintenance services vary by contract but are generally due upon demand or within several months of satisfying the associated performance obligations. As a practical expedient, we do not adjust the promised amount of consideration for the effects of a significant financing component when we expect, at contract inception, that the period between our transfer of a promised product or service to a customer and when the customer pays for that product or service will be one year or less. We typically do not include extended payment terms in our contracts with customers.


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

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

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

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

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

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


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

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

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

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

Revenue Recognition – Operations and Maintenance. We recognize revenue for standard, recurringChilean operations and maintenance (“O&M”) services over time as customers receiveoperations to a subsidiary of Clairvest Group, Inc. (“Clairvest”) and consume the benefitsreceived total consideration 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.$1.9 million. As a result of our adoptionthis transaction, we recognized a gain of ASU 2017-04 in the first quarter of 2017, we will eliminate Step 2 of future goodwill impairment tests.

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

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


In June 2016, the 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,$1.9 million, 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 reducetransaction 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 millionpost-closing adjustments, 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 chargesMarch 31, 2022, which was included in “Gain on sales 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 Acquisitions

Enki Technology

In October 2016,During the three months ended March 31, 2023, we acquired 100% of the shares of Enki Technology, Inc. (“Enki”), a developer of advanced coating materials for the PV solar industry, for cash payments of $10.3 million, net of cash acquired of $0.3 million, and a promise to pay additional consideration of up to $7.0 million contingent on the achievement ofrecognized certain production and module performance milestones. In connection with applying the acquisition method of accounting, $17.3 million of the purchase price consideration was assigned to an in process research and development (“IPR&D”) intangible asset to be amortized over its useful life upon successful completion of the underlying projects, $4.4 million was assigned to a deferred tax liability, and $4.4 million was assigned to goodwill. The acquired IPR&D includes patents, technical information and know-how, and other proprietary informationpost-closing adjustments associated with the development and production of anti-reflective coating material that we expect to use in the productionprior sale of our solar modules. Such technology is expected to improveO&M operations in a foreign jurisdiction, 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.


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Table of Contents
3. Cash, Cash Equivalents, and Marketable Securities


Cash, cash equivalents, and marketable securities consisted of the following at September 30, 2017March 31, 2023 and December 31, 20162022 (in thousands):
March 31,
2023		December 31,
2022
Cash and cash equivalents:
Cash$899,537 $1,476,945 
Money market funds7,097 4,324 
Total cash and cash equivalents906,634 1,481,269 
Marketable securities:
Foreign debt56,499 59,777 
U.S. debt56,731 56,463 
U.S. Treasury securities520,516 — 
Time deposits730,861 980,472 
Total marketable securities1,364,607 1,096,712 
Total cash, cash equivalents, and marketable securities$2,271,241 $2,577,981 
 
 
 September 30,
2017		 December 31,
2016
Cash and cash equivalents:    
Cash $1,968,818
 $1,347,155
Money market funds 50,255
 —
Total cash and cash equivalents 2,019,073
 1,347,155
Marketable securities:    
Foreign debt 172,249
 296,819
Foreign government obligations 198,307
 271,172
U.S. debt 73,988
 —
Time deposits 255,000
 40,000
Total marketable securities 699,544
 607,991
Total cash, cash equivalents, and marketable securities $2,718,617
 $1,955,146


The following table provides a reconciliation of cash, cash equivalents, restricted cash, and restricted cash equivalents reported within our condensed consolidated balance sheets as of March 31, 2023 and December 31, 2022 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. During the nine months ended September 30, 2017, we sold marketable securities for proceeds of $118.3 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.
Balance Sheet Line ItemMarch 31,
2023		December 31,
2022
Cash and cash equivalentsCash and cash equivalents$906,634 $1,481,269 
Restricted cash – current
Other current assets12,256 3,175 
Restricted cash – noncurrent
Other assets1,349 2,734 
Restricted cash equivalents - noncurrentOther assets2,579 6,284 
Total cash, cash equivalents, restricted cash, and restricted cash equivalents$922,818 $1,493,462 

See Note 10.9. “Fair Value Measurements” to our condensed consolidated financial statements for information about the fair value of our marketable securities.


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The following tables summarize the unrealized gains and losses related to our available-for-sale marketable securities, by major security type, as of September 30, 2017March 31, 2023 and December 31, 20162022 (in thousands):
 As of March 31, 2023
Amortized
Cost		Unrealized
Gains		Unrealized
Losses		Allowance for Credit LossesFair
Value
Foreign debt$56,952 $— $430 $23 $56,499 
U.S. debt58,376 — 1,623 22 56,731 
U.S. Treasury securities520,705 — 189 — 520,516 
Time deposits731,114 — — 253 730,861 
Total$1,367,147 $— $2,242 $298 $1,364,607 
 As of September 30, 2017 As of December 31, 2022
 
Amortized
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair
Value
Amortized
Cost		Unrealized
Gains		Unrealized
Losses		Allowance for Credit LossesFair
Value
Foreign debt $173,111
 $—
 $862
 $172,249
Foreign debt$59,940 $— $140 $23 $59,777 
Foreign government obligations 199,009
 —
 702
 198,307
U.S. debt 74,016
 2
 30
 73,988
U.S. debt58,308 — 1,823 22 56,463 
Time deposits 255,000
 —
 —
 255,000
Time deposits980,810 — — 338 980,472 
Total $701,136
 $2
 $1,594
 $699,544
Total$1,099,058 $— $1,963 $383 $1,096,712 


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

As of September 30, 2017, we identified eight investments totaling $119.2 million that had beenThe following table presents the change in a loss positionthe allowance for a period of time greater than 12 months with unrealizedcredit losses of $0.9 million. As of December 31, 2016, we identified three investments totaling $51.2 million that had been in a loss position for a period of time greater than 12 months with unrealized losses of $0.1 million. The unrealized losses were primarily duerelated to increases in interest rates relative to rates at the time of purchase. Based on the underlying credit quality of the investments, we do not intend to sell these securities prior to the recovery of our cost basis. Therefore, we did not consider these securities to be other-than-temporarily impaired. All of our available-for-sale marketable securities are subject to a periodic impairment review. We did not identify any of our marketable securities as other-than-temporarily impaired as of September 30, 2017for the three months ended March 31, 2023 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 position2022 (in thousands):
Three Months Ended
March 31,
20232022
Allowance for credit losses, beginning of period$383 $97 
Provision for credit losses, net253 49 
Sales and maturities of marketable securities(338)(86)
Allowance for credit losses, end of period$298 $60 
  As of September 30, 2017
  
In Loss Position for
Less Than 12 Months
 
In Loss Position for
12 Months or Greater
 Total
  
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
Foreign debt $102,806
 $288
 $64,443
 $574
 $167,249
 $862
Foreign government obligations 143,546
 422
 54,761
 280
 198,307
 702
U.S. debt 63,981
 30
 —
 —
 63,981
 30
Total $310,333
 $740
 $119,204
 $854
 $429,537
 $1,594
  As of December 31, 2016
  
In Loss Position for
Less Than 12 Months
 
In Loss Position for
12 Months or Greater
 Total
  
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
Foreign debt $234,332
 $1,123
 $51,236
 $145
 $285,568
 $1,268
Foreign government obligations 272,503
 1,185
 —
 —
 272,503
 1,185
Total $506,835
 $2,308
 $51,236
 $145
 $558,071
 $2,453


The contractual maturities of our marketable securities as of September 30, 2017March 31, 2023 were as follows (in thousands):
Fair
Value
One year or less$1,259,325 
One year to two years69,886 
Two years to three years31,399 
Three years to four years— 
Four years to five years— 
More than five years3,997 
Total$1,364,607 

8
  
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
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4. Restricted Marketable Securities


7. Restricted Cash and Investments

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

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

At September 30, 20172023 and December 31, 2016, our2022 (in thousands):
 
 
March 31,
2023		December 31,
2022
Foreign government obligations$48,539 $46,886 
Supranational debt15,614 8,661 
U.S. debt114,283 109,328 
U.S. government obligations18,155 17,195 
Total restricted marketable securities$196,591 $182,070 

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 March 31, 2023 and December 31, 2022, such custodial accounts also included noncurrent restricted cash and thesecash equivalents balances of $2.6 million and $6.7 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.


See Note 9. “Fair Value Measurements” to our condensed consolidated financial statements for information about the fair value of our restricted marketable securities.

The following tables summarize the unrealized gains and losses related to our restricted investments,marketable securities, by major security type, as of September 30, 2017March 31, 2023 and December 31, 20162022 (in thousands):

 As of March 31, 2023
Amortized
Cost		Unrealized
Gains		Unrealized
Losses		Allowance for Credit LossesFair
Value
Foreign government obligations$64,647 $— $16,098 $10 $48,539 
Supranational debt17,851 — 2,237 — 15,614 
U.S. debt147,842 — 33,531 28 114,283 
U.S. government obligations24,529 — 6,369 5 18,155 
Total$254,869 $— $58,235 $43 $196,591 
 As of December 31, 2022
Amortized
Cost		Unrealized
Gains		Unrealized
Losses		Allowance for Credit LossesFair
Value
Foreign government obligations$64,008 $— $17,112 $10 $46,886 
Supranational debt11,146 — 2,485 — 8,661 
U.S. debt148,288 — 38,932 28 109,328 
U.S. government obligations24,551 — 7,352 4 17,195 
Total$247,993 $— $65,881 $42 $182,070 

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  As of September 30, 2017
  
Amortized
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair
Value
Foreign government obligations $124,083
 $60,279
 $—
 $184,362
U.S. government obligations 173,269
 12,291
 4,900
 180,660
Total $297,352
 $72,570
 $4,900
 $365,022
The following table presents the change in the allowance for credit losses related to our restricted marketable securities for the three months ended March 31, 2023 and 2022 (in thousands):

Three Months Ended
March 31,
20232022
Allowance for credit losses, beginning of period$42 $53 
Provision for credit losses, net1 (3)
Allowance for credit losses, end of period$43 $50 

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

As of September 30, 2017,March 31, 2023, the contractual maturities of our restricted investmentsmarketable securities were between 128 years and 1916 years.


8.5. Consolidated Balance Sheet Details


Accounts receivable trade, net


Accounts receivable trade, net consisted of the following at September 30, 2017March 31, 2023 and December 31, 20162022 (in thousands):
 March 31,
2023		December 31,
2022
Accounts receivable trade, gross$299,628 $325,379 
Allowance for credit losses(1,008)(1,042)
Accounts receivable trade, net$298,620 $324,337 
  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


Allowance for credit losses
At September 30, 2017 and December 31, 2016, $51.3 million and $12.2 million, respectively, of
The following table presents the change in the allowance for credit losses related to our trade 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, unbilledfor the three months ended March 31, 2023 and retainage

Accounts receivable, unbilled and retainage consisted of the following at September 30, 2017 and December 31, 20162022 (in thousands):
Three Months Ended
March 31,
20232022
Allowance for credit losses, beginning of period$1,042 $664 
Provision for credit losses, net(34)(185)
Allowance for credit losses, end of period$1,008 $479 
  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


Inventories


Inventories consisted of the following at September 30, 2017March 31, 2023 and December 31, 20162022 (in thousands):
 March 31,
2023		December 31,
2022
Raw materials$403,225 $397,912 
Work in process75,731 66,641 
Finished goods525,804 417,218 
Inventories$1,004,760 $881,771 
Inventories – current$751,407 $621,376 
Inventories – noncurrent$253,353 $260,395 

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  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 September 30, 2017March 31, 2023 and December 31, 20162022 (in thousands):
 March 31,
2023		December 31,
2022
Spare maintenance materials and parts$120,542 $114,428 
Operating supplies59,697 47,492 
Prepaid expenses45,470 43,262 
Prepaid income taxes12,325 8,314 
Restricted cash12,256 3,175 
Derivative instruments (1)2,690 2,018 
Other19,722 18,384 
Other current assets$272,702 $237,073 
  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
——————————

(1)See Note 7. “Derivative Financial Instruments” to our condensed consolidated financial statements for discussion of our derivative instruments.

Property, plant and equipment, net


Property, plant and equipment, net consisted of the following at September 30, 2017March 31, 2023 and December 31, 20162022 (in thousands):
 March 31,
2023		December 31,
2022
Land$35,305 $35,259 
Buildings and improvements1,009,652 893,049 
Machinery and equipment2,803,499 2,762,801 
Office equipment and furniture155,321 146,467 
Leasehold improvements40,077 40,160 
Construction in progress1,343,541 1,121,938 
Property, plant and equipment, gross5,387,395 4,999,674 
Accumulated depreciation(1,528,791)(1,462,772)
Property, plant and equipment, net$3,858,604 $3,536,902 
  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$65.9 million and $71.1$58.6 million for the three and nine months ended September 30, 2017, respectively,March 31, 2023 and $51.6 million and $158.6 million for the three and nine months ended September 30, 2016,2022, respectively.

PV solar power systems, net

PV solar power systems, net consisted of the following at September 30, 2017 and December 31, 2016 (in thousands):
  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 million and $14.9 million for the three and nine months ended September 30, 2017, respectively, and $4.4 million and $6.8 million for the three and nine months ended September 30, 2016, respectively.


Capitalized interest

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

Project assets

Project assets consisted of the following at September 30, 2017 and December 31, 2016 (in thousands):
  September 30,
2017		 December 31,
2016
Project assets – development costs, including project acquisition and land costs $282,278
 $444,264
Project assets – construction costs 191,381
 1,018,684
Project assets $473,659
 $1,462,948
Project assets – current $67,263
 $700,800
Project assets – noncurrent $406,396
 $762,148

Other assets

Other assets consisted of the following at September 30, 2017 and December 31, 2016 (in thousands):
  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 September 30, 2017March 31, 2023 and December 31, 20162022 (in thousands):
December 31,
2022		Acquisitions (Impairments)March 31,
2023
Modules$407,827 $— $407,827 
Accumulated impairment losses(393,365)— (393,365)
Goodwill$14,462 $— $14,462 

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  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 March 31, 2023 and December 31, 2022 (in thousands):
March 31, 2023
 Gross AmountAccumulated AmortizationNet Amount
Developed technology$97,347 $(71,150)$26,197 
Patents8,970 (6,690)2,280 
Intangible assets, net$106,317 $(77,840)$28,477 
December 31, 2022
 Gross AmountAccumulated AmortizationNet Amount
Developed technology$97,347 $(68,650)$28,697 
Patents8,970 (6,561)2,409 
Intangible assets, net$106,317 $(75,211)$31,106 

Amortization of acquired businesses overintangible assets was $2.6 million and $2.7 million for the estimated fair values assigned to the individual assets acquiredthree months ended March 31, 2023 and liabilities assumed. We do not amortize goodwill, but instead are required to test goodwill for impairment at least annually. If necessary, we would record any impairment in accordance with ASC 350, Intangibles – Goodwill and Other. We perform impairment tests between scheduled annual tests in the fourth quarter if facts and circumstances indicate that it is more likely than not that the fair value of a reporting unit that has goodwill is less than its carrying value.2022.

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 March 31, 2023 and production processes, and IPR&D related to our Enki acquisition as described inDecember 31, 2022 (in thousands):
 March 31,
2023		December 31,
2022
Advance payments for raw materials$137,860 $91,260 
Operating lease assets (1)91,282 93,185 
Income tax receivables56,993 56,993 
Project assets30,397 30,108 
Accounts receivable unbilled, net10,111 11,498 
Restricted cash equivalents2,579 6,284 
Restricted cash1,349 2,734 
Accounts receivable trade, net— 1,500 
Other56,149 62,630 
Other assets$386,720 $356,192 
——————————
(1)See Note 5. “Business Acquisitions”8. “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):
12
  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
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  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 September 30, 2017March 31, 2023 and December 31, 20162022 (in thousands):
 March 31,
2023		December 31,
2022
Accrued property, plant and equipment$193,399 $148,777 
Accrued freight69,090 77,136 
Accrued inventory54,463 44,679 
Accrued compensation and benefits17,339 47,939 
Accrued other taxes12,862 19,765 
Product warranty liability (1)10,236 10,660 
Other34,523 33,826 
Accrued expenses$391,912 $382,782 
  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 11. “Commitments and Contingencies” to our condensed consolidated financial statements for discussion of our “Product Warranties.”


Other current liabilities


Other current liabilities consisted of the following at September 30, 2017March 31, 2023 and December 31, 20162022 (in thousands):
 March 31,
2023		December 31,
2022
Operating lease liabilities (1)$9,363 $9,193 
Derivative instruments (2)6,797 6,668 
Other taxes payable1,180 1,185 
Other3,291 4,199 
Other current liabilities$20,631 $21,245 
  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 8. “Leases” to our condensed consolidated financial statements for discussion of our lease arrangements.
(1)See Note 13. “Commitments and Contingencies” to our condensed consolidated financial statements for discussion of our “Indemnification liabilities” and “Contingent consideration” arrangements.


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

(2)See Note 7. “Derivative Financial Instruments” to our condensed consolidated financial statements for discussion of our derivative instruments.

Other liabilities


Other liabilities consisted of the following at September 30, 2017March 31, 2023 and December 31, 20162022 (in thousands):
 March 31,
2023		December 31,
2022
Operating lease liabilities (1)$38,473 $40,589 
Deferred tax liabilities, net32,500 28,929 
Product warranty liability (2)23,079 23,127 
Other27,320 27,292 
Other liabilities$121,372 $119,937 
——————————
(1)See Note 8. “Leases” to our condensed consolidated financial statements for discussion of our lease arrangements.

(2)See Note 11. “Commitments and Contingencies” to our condensed consolidated financial statements for discussion of our “Product Warranties.”

13
  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
Table of Contents

(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.

6. Government Grants

9.Government grants represent benefits provided by federal, state, or local governments that are not subject to the scope of ASC 740. We recognize a grant when we have reasonable assurance that we will comply with the grant’s conditions and that the grant will be received. Government grants whose primary condition is the purchase, construction, or acquisition of a long-lived asset are considered asset-based grants and are recognized as a reduction to such asset’s cost-basis, which reduces future depreciation. Other government grants not related to long-lived assets are considered income-based grants, which are recognized as a reduction to the related cost of activities that generated the benefit.

The following table presents the benefits recognized from income-based government grants in our condensed consolidated statements of operations for the three months ended March 31, 2023 and 2022 (in thousands):
Three Months Ended
March 31,
Income Statement Line Item20232022
Cost of sales$70,114 $— 

In August 2022, the U.S. President signed into law the Inflation Reduction Act of 2022 (“IRA”). Among other things, the IRA offers a tax credit, pursuant to Section 45X of the Internal Revenue Code (“IRC”), for solar modules and solar module components manufactured in the United States and sold to third parties. Such credit may be refundable or transferable to a third party and is available from 2023 to 2032, subject to phase down beginning in 2030. For eligible components, the credit is equal to (i) $12 per square meter for a photovoltaic (“PV”) wafer, (ii) 4 cents multiplied by the capacity of a PV cell, and (iii) 7 cents multiplied by the capacity of a PV module. Based on the current form factor of our modules, we expect to qualify for a credit of approximately 17 cents per watt for each module produced in the United States and sold to a third party. We recognize such credit as a reduction to “Cost of sales” in the period the modules are sold to customers. Such credit is also reflected on our condensed consolidated balance sheets within “Government grants receivable.”

7. 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 10.9. “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.



14
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The following tables present the fair values of derivative instruments included in our condensed consolidated balance sheets as of September 30, 2017March 31, 2023 and December 31, 20162022 (in thousands):
 March 31, 2023
Other Current AssetsOther Current Liabilities
Derivatives designated as hedging instruments:
Commodity swap contracts$— $2,323 
Total derivatives designated as hedging instruments$— $2,323 
Derivatives not designated as hedging instruments:
Foreign exchange forward contracts$2,690 $4,474 
Total derivatives not designated as hedging instruments$2,690 $4,474 
Total derivative instruments$2,690 $6,797 
 September 30, 2017 December 31, 2022
 Prepaid Expenses and Other Current Assets Other Current Liabilities Other LiabilitiesOther Current AssetsOther AssetsOther Current LiabilitiesOther Liabilities
Derivatives designated as hedging instruments:      Derivatives designated as hedging instruments:
Foreign exchange forward contracts $267
 $10,777
 $—
Commodity swap contractsCommodity swap contracts$— $17 $4,447 $144 
Total derivatives designated as hedging instruments $267
 $10,777
 $—
Total derivatives designated as hedging instruments$— $17 $4,447 $144 
      
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$2,018 $— $2,221 $— 
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$2,018 $— $2,221 $— 
Total derivative instruments $9,644
 $16,851
 $8,697
Total derivative instruments$2,018 $17 $6,668 $144 

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

The following tables presenttable presents the effectivepretax amounts related to derivative instruments designated as cash flow hedges affecting accumulated other comprehensive income or loss(loss) and our condensed consolidated statements of operations for the ninethree months ended September 30, 2017March 31, 2023 and 20162022 (in thousands):
Foreign Exchange Forward ContractsCommodity Swap ContractsTotal
Balance as of December 31, 2022$— $(7,242)$(7,242)
Amounts recognized in other comprehensive income (loss)— 254 254 
Amounts reclassified to earnings impacting:
Cost of sales— 2,668 2,668 
Balance as of March 31, 2023$— $(4,320)$(4,320)
Balance as of December 31, 2021$1,126 $— $1,126 
Amounts recognized in other comprehensive income (loss)426 (402)24 
Amounts reclassified to earnings impacting:
Cost of sales(560)— (560)
Balance as of March 31, 2022$992 $(402)$590 
  Foreign Exchange Forward Contracts Interest Rate Swap Contract Cross Currency Swap Contract Total
Balance in accumulated other comprehensive income (loss) at December 31, 2016 $2,556
 $—
 $—
 $2,556
Amounts recognized in other comprehensive income (loss) (3,993) —
 —
 (3,993)
Amounts reclassified to earnings impacting:        
Other income, net 189
 —
 —
 189
Balance in accumulated other comprehensive income (loss) at September 30, 2017 $(1,248) $—
 $—
 $(1,248)
         
Balance in accumulated other comprehensive income (loss) at December 31, 2015 $162
 $(16) $(2,017) $(1,871)
Amounts recognized in other comprehensive income (loss) 37
 (2) 5,108
 5,143
Amounts reclassified to earnings impacting:        
Foreign currency loss, net —
 —
 (4,896) (4,896)
Interest expense, net —
 18
 1,805
 1,823
Balance in accumulated other comprehensive income (loss) at September 30, 2016 $199
 $—
 $—
 $199


We recorded no amounts related to ineffective portions of our derivative instruments designated as cash flow hedges duringDuring the three and nine months ended September 30, 2017 and 2016. WeMarch 31, 2022, we recognized unrealized gainslosses of $0.7less than $0.1 million and $0.5 million related to within “Cost of sales” for amounts excluded from effectiveness testing for our foreign exchange forward contracts designated as cash flow hedges within “Other income, net” during the three and nine months ended September 30, 2017, respectively. We recognized unrealized losseshedges.

15
Table of $0.2 million and $0.6 million related to amounts excluded from effectiveness testing for our foreign exchange forward contracts designated as cash flow hedges within “Other income, net” during the three and nine months ended September 30, 2016, respectively. Contents
The following table presents the pretax amounts related to derivative instruments designated as net investment hedges affecting accumulated other comprehensive income (loss) and our condensed consolidated statements of operations for the three months ended March 31, 2023 (in thousands):
Foreign Exchange Forward Contracts
Balance as of December 31, 2022$(667)
Amounts recognized in other comprehensive income (loss)— 
Balance as of March 31, 2023$(667)

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 nine months ended September 30, 2017March 31, 2023 and 20162022 (in thousands):
Amount of Gain (Loss) Recognized in Income
Three Months Ended
March 31,
Income Statement Line Item20232022
Foreign exchange forward contractsCost of sales$— $78 
Foreign exchange forward contractsForeign currency loss, net(4,683)18,981 
    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

We use interest rate swap and cross-currency swap contracts to mitigate our exposure to interest rate fluctuations associated with certain of our debt instruments. We do not use such swap contracts for speculative or trading purposes.

In March 2017, Manildra Finco Pty Ltd, our indirect wholly-owned subsidiary and project financing company, entered into various interest rate swap contracts 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). 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 do not qualify for accounting as cash flow hedges in accordance with ASC 815 due to our expectation to sell the associated project before the maturity of its project specific debt financing and corresponding swap contracts. Accordingly, the changes in the fair value of the swap contracts are recorded directly to “Interest expense, net.”

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 September 30, 2017 and December 31, 2016, these foreign exchange forward contracts hedged our forecasted cash flows for periods up to 12 months and 21 months, respectively. These foreign exchange forward contracts qualify for accounting as cash flow hedges in accordance with ASCAccounting Standards Codification (“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.

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 determined that these derivative financial instruments were highly effectiveinclude the associated translation adjustments as cash flow hedges asa separate component of September 30, 2017 and December 31, 2016.


As“Accumulated other comprehensive loss” within stockholders’ equity. From time to time, we may seek to mitigate the impact of September 30, 2017 and December 31, 2016, the notional values associated with oursuch translation adjustments by entering into foreign exchange forward contracts qualifyingthat are designated as cash flow hedges were as follows (notional amounts and U.S. dollar equivalents in millions):
September 30, 2017
CurrencyNotional AmountUSD Equivalent
Indian rupeeINR 4,730.0$72.5
Euro€31.7$37.4
December 31, 2016
CurrencyNotional AmountUSD Equivalent
Indian rupeeINR 860.0$12.7
Australian dollarAUD 55.3$40.0

In the following 12 months, we expect to reclassify to earnings $1.2 million 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 matured in December 2022. Such foreign exchange forward contract qualified for and was designated as a hedge of our net investment in a certain foreign subsidiary in Japan. We report unrealized gains or losses related to these forward contracts thaton this contract, which are included inbased on spot exchange rates, as a component of our foreign currency translation adjustments within “Accumulated other comprehensive loss” at September 30, 2017 as we realizeand subsequently reclassify applicable amounts into earnings when the earnings effectnet investments are sold or substantially liquidated.


16
Table 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.Contents

Transaction Exposure and Economic Hedging


Many of our subsidiaries have assets and liabilities (primarily cash, receivables, marketable securities,deferred taxes, payables, accrued expenses, operating lease liabilities, long-term debt, 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 September 30, 2017March 31, 2023 and December 31, 2016,2022, the notional values of our foreign exchange forward contracts that do not qualify for hedge accounting were as follows (notional amounts and U.S. dollar equivalents in millions):
March 31, 2023
TransactionCurrencyNotional AmountUSD Equivalent
September 30, 2017
TransactionCurrencyNotional AmountUSD Equivalent
PurchaseEuro€138.4$163.3
SellEuro€132.2$156.0
PurchaseAustralian dollarAUD 66.6$52.1
SellAustralian dollarAUD 54.1$42.3
PurchaseMalaysian ringgitMYR 14.0$3.3
SellMalaysian ringgitMYR 548.1$129.8
SellCanadian dollarCAD 3.9$3.1
SellChilean pesoCLP 9,798.3$15.4
PurchaseChinese yuanCNY 13.8$2.1
SellJapanese yen¥22,747.3$201.9
SellIndian rupeeINR 9,981.2$152.9
SellSingapore dollarSGD 3.1$2.3
PurchaseSouth African randZAR 11.9$0.9
SellSouth African randZAR 58.0$4.3

December 31, 2016
TransactionCurrencyNotional AmountUSD Equivalent
PurchaseEuro€64.5$68.0
SellEuroCanadian dollar€103.6CAD 4.2$109.33.1
PurchaseAustralian dollarAUD 1.2$0.9
SellAustralian dollarChilean pesoAUD 19.3CLP 1,979.6$14.02.5
SellMalaysian ringgitMYR 24.5$5.5
SellCanadian dollarCAD 17.7$13.2
SellPurchaseChilean pesoEuroCLP 13,611.6€96.4$20.3104.5
PurchaseSellChinese yuanEuroCNY 24.3€28.8$3.531.2
PurchaseJapanese yenIndian rupee¥97.3INR 12,009.8$0.8146.0
SellJapanese yenIndian rupee¥15,610.4INR 26,911.9$133.7327.1
SellPurchaseBritish poundJapanese yen£0.6¥2,151.6$0.716.3
SellIndian rupeeJapanese yenINR 12,753.2¥1,971.1$187.714.9
SellPurchaseSouth African randMalaysian ringgitZAR 51.2MYR 113.3$3.725.7
SellMalaysian ringgitMYR 35.0$7.9
SellMexican pesoMXN 34.6$1.9
PurchaseSingapore dollarSGD 21.4$16.1

December 31, 2022
TransactionCurrencyNotional AmountUSD Equivalent
SellCanadian dollarCAD 4.2$3.1
SellChilean pesoCLP 5,996.5$7.0
PurchaseEuro€160.2$170.5
SellEuro€38.4$40.9
SellIndian rupeeINR 27,119.5$327.4
PurchaseJapanese yen¥2,982.7$22.4
SellJapanese yen¥8,950.3$67.1
PurchaseMalaysian ringgitMYR 99.8$22.6
SellMalaysian ringgitMYR 13.7$3.1
SellMexican pesoMXN 34.6$1.8
PurchaseSingapore dollarSGD 1.4$1.0

10.
17
Table of Contents
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 year ended December 31, 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 $70.5 million, and entitle 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. As of March 31, 2023, the notional value associated with these contracts was $18.6 million.

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 March 31, 2023 and December 31, 2022. In the following 12 months, we expect to reclassify into earnings $4.2 million of net unrealized losses related to these commodity swap contracts that are included in “Accumulated other comprehensive loss” at March 31, 2023 as we realize the earnings effects of the related forecasted transactions. The amount we ultimately record to earnings will depend on the actual commodity pricing when we realize the related forecasted transactions.

8. Leases

Our lease arrangements include land associated with 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 months ended March 31, 2023 and 2022, and as of March 31, 2023 and December 31, 2022 (in thousands):
Three Months Ended
March 31,
20232022
Operating lease cost$2,937$4,377
Variable lease cost895599
Short-term lease cost7031
Total lease cost$3,902$5,007
Payments of amounts included in the measurement of operating lease liabilities$2,753$4,136
Lease assets obtained in exchange for operating lease liabilities$251$534
March 31,
2023		December 31,
2022
Operating lease assets$91,282$93,185
Operating lease liabilities – current
9,3639,193
Operating lease liabilities – noncurrent
38,47340,589
Weighted-average remaining lease term5 years6 years
Weighted-average discount rate5.1 %5.1 %

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As of March 31, 2023, the future payments associated with our lease liabilities were as follows (in thousands):
Total Lease Liabilities
Remainder of 2023$8,558 
202410,999 
20259,899 
20268,367 
20275,777 
20285,900 
Thereafter5,490 
Total future payments54,990 
Less: interest(7,154)
Total lease liabilities$47,836 

9. 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 and Restricted Cash Equivalents.At September 30, 2017,March 31, 2023 and December 31, 2022, our cash equivalents and restricted cash equivalents consisted of money market funds. We value our money marketcash equivalents and restricted cash equivalents using observable inputs that reflect quoted prices for securities with identical characteristics and accordingly, we classify the valuation techniques that use these inputs as Level 1.


•Marketable Securities and Restricted Investments.Marketable Securities. At September 30, 2017March 31, 2023 and December 31, 2016,2022, our marketable securities consisted of foreign debt, foreign government obligations,U.S. debt, U.S. Treasury securities, 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 September 30, 2017March 31, 2023 and December 31, 2016,2022, our derivative assets and liabilities consisted of foreign exchange forward contracts involving major currencies. At September 30, 2017, our derivative assetscurrencies and liabilities also consisted of various interest ratecommodity 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.

19
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At September 30, 2017March 31, 2023 and December 31, 2016,2022, the fair value measurements of our assets and liabilities that we measuremeasured on a recurring basis were as follows (in thousands):
  Fair Value Measurements at Reporting
Date Using
 
 
 
 
 
 		March 31,
2023		Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)		Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Assets:
Cash equivalents:
Money market funds$7,097 $7,097 $— $— 
Restricted cash equivalents:
Money market funds2,579 2,579 — — 
Marketable securities:
Foreign debt56,499 — 56,499 — 
U.S. debt56,731 — 56,731 — 
U.S. Treasury securities520,516 520,516 — — 
Time deposits730,861 730,861 — — 
Restricted marketable securities196,591 — 196,591 — 
Derivative assets2,690 — 2,690 — 
Total assets$1,573,564 $1,261,053 $312,511 $— 
Liabilities:
Derivative liabilities$6,797 $— $6,797 $— 
  Fair Value Measurements at Reporting
Date Using
 
 
 
 
 
 		December 31,
2022		Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)		Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Assets:    
Cash equivalents:
Money market funds$4,324 $4,324 $— $— 
Restricted cash equivalents:
Money market funds6,284 6,284 — — 
Marketable securities:
Foreign debt59,777 — 59,777 — 
U.S. debt56,463 — 56,463 — 
Time deposits980,472 980,472 — — 
Restricted marketable securities182,070 — 182,070 — 
Derivative assets2,035 — 2,035 — 
Total assets$1,291,425 $991,080 $300,345 $— 
Liabilities:
Derivative liabilities$6,812 $— $6,812 $— 

20
  September 30, 2017
    
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:        
Cash equivalents:        
Money market funds $50,255
 $50,255
 $—
 $—
Marketable securities:        
Foreign debt 172,249
 —
 172,249
 —
Foreign government obligations 198,307
 —
 198,307
 —
U.S. debt 73,988
 —
 73,988
 —
Time deposits 255,000
 255,000
 —
 —
Restricted investments 365,022
 —
 365,022
 —
Derivative assets 9,644
 —
 9,644
 —
Total assets $1,124,465
 $305,255
 $819,210
 $—
Liabilities:        
Derivative liabilities $25,548
 $—
 $25,548
 $—
Table of Contents
  December 31, 2016
    
Fair Value Measurements at Reporting
Date Using
 
 
 
 
 
 
 
Total Fair
Value and
Carrying
Value on
Balance Sheet
 
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
 
Significant
Unobservable
Inputs
(Level 3)
Assets:        
Marketable securities:        
Foreign debt $296,819
 $—
 $296,819
 $—
Foreign government obligations 271,172
 —
 271,172
 —
Time deposits 40,000
 40,000
 —
 —
Restricted investments 339,926
 —
 339,926
 —
Derivative assets 6,078
 —
 6,078
 —
Total assets $953,995
 $40,000
 $913,995
 $—
Liabilities:        
Derivative liabilities $7,086
 $—
 $7,086
 $—


Fair Value of Financial Instruments


TheAt March 31, 2023 and December 31, 2022, the carrying values and fair values of our financial and derivative instruments not measured at September 30, 2017 and December 31, 2016fair value were as follows (in thousands):
 March 31, 2023December 31, 2022
 
 		Carrying
Value		Fair
Value		Carrying
Value		Fair
Value
Assets:    
Government grants receivable - noncurrent$70,114 $69,243 $— $— 
Accounts receivable unbilled, net - noncurrent10,111 9,178 11,498 10,304 
Accounts receivable trade, net - noncurrent— — 1,500 1,339 
Liabilities:
Long-term debt (1)$321,000 $283,996 $185,000 $160,986 
  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 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, government grants 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 cash equivalents, restricted 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 mayWe typically 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.surety bonds.


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):
21
  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
Table of Contents

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.


12.10. Debt


Our long-term debt consisted of the following at September 30, 2017March 31, 2023 and December 31, 20162022 (in thousands):
Balance (USD)
Loan AgreementCurrencyMarch 31,
2023		December 31,
2022
India Credit FacilityUSD$321,000 $185,000 
Less: unamortized issuance costs(622)(651)
Total long-term debt$320,378 $184,349 
    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


RevolvingIndia Credit Facility


In July 2017, we amended and restated2022, FS India Solar Ventures Private Limited, our senior secured credit facilityindirect wholly-owned subsidiary, entered into a finance agreement (the “Revolving“India 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 theU.S. International Development Finance Corporation (“DFC”) for aggregate borrowing capacity under the facilityborrowings up 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.

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 with the Overseas Private Investment Corporation (“OPIC”) 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 MW PV solar power plant located near Copiapó, Chile. At the same time, Luz del Norte also entered into a Chilean peso facility (“VAT facility” and together with the OPIC and IFC loans, the “Luz del Norte Credit Facilities”) with Banco de Crédito e Inversiones to fund Chilean value added tax associated with the construction of the Luz del Norte project. In March 2017, we repaid the remaining balance on the VAT facility. As of December 31, 2016, the balance outstanding on the VAT facility was $13.7 million.


In March 2017, we amended the terms of the 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 OPIC loans was $137.8 million and $125.1 million, respectively. As of September 30, 2017 and December 31, 2016, the balance outstanding on the IFC loans was $46.2 million and $42.2 million, respectively. The OPIC and IFC loans are secured by liens over all of Luz del Norte’s assets, which had an aggregate book value of $332.9 million, including intercompany charges, as of September 30, 2017 and by a pledge of all of the equity interests in the entity.

Ishikawa Credit Agreement

In December 2016, FS Japan Project 12 GK (“Ishikawa”), our indirect wholly-owned subsidiary and project company, entered into a credit agreement (the “Ishikawa Credit Agreement”) with Mizuho Bank, Ltd. for aggregate borrowings of up to ¥27.3 billion ($242.3 million) for the development and construction of a 59 MW PV an approximately 3.3 GWDC solar power plant locatedmodule manufacturing facility 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. As of September 30, 2017, the balance outstandingIndia. Principal on the credit agreement was $99.5 million.

JapanIndia Credit Facility

In September 2015, First Solar Japan GK, our wholly-owned subsidiary, entered into a construction loan facility with Mizuho Bank, Ltd. for borrowings up to ¥4.0 billion ($35.5 million) for is payable in scheduled semi-annual installments through the development and construction of utility-scale PV solar power plantsfacility’s expected maturity in Japan (the “JapanAugust 2029. The India Credit Facility”). In September 2017, First Solar Japan GK renewed the facility for an additional one-year period until September 2018. The facilityFacility 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, the balance outstanding on the facility was $10.7 million and $9.5 million, respectively.


Tochigi Credit Facility

In June 2017, First Solar Japan GK, our wholly-owned subsidiary, entered into a term loan facility with Mizuho Bank, Ltd. for borrowings up to ¥7.0 billion ($62.1 million) for the development of utility-scale PV solar power plants in Japan (the “Tochigi Credit Facility”). The majority of the facility is available to be drawn by or before November 2018, and the aggregate term loan facility matures in March 2021. The facility is guaranteed by First Solar, Inc. and secured by pledges of certain of First Solar Japan GK’s accounts. As of September 30, 2017, there was 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 facility (the “Polepally Credit Facility”) with Axis Bank as administrative agent for borrowings up to INR 1.3 billion ($19.9 million) for costs related to a 25 MW PV solar power plant located in Telangana, India. The term loan facility has a letter of credit sub-limit of INR 1.1 billion ($16.9 million), which may also be used for project related costs. As of September 30, 2017 and December 31, 2016, we had issued INR 1.0 billion ($15.3 million) and INR 1.0 billion ($15.3 million), respectively, of letters of credit under the term loan facility. The term loan facility matures in September 2029 and is secured by certain assets 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.

Hindupur Credit Facility

In November 2016, Hindupur Solar Parks Private Limited, our indirect wholly-owned subsidiary and project company, entered into a term loan facility (the “Hindupur Credit Facility”) with Yes Bank Limited for borrowings up to INR 4.3 billion ($65.9 million) for costs related to an 80 MW portfolio of PV solar power plants located in Andhra Pradesh, India. The term loan facility has a letter of credit sub-limit of INR 3.2 billion ($49.0 million), which may also be used for project related costs. As of September 30, 2017, we had issued INR 2.9 billion ($44.4 million) of letters of credit under the term loan facility. The term loan facility matures in December 2030 and is secured by certain assets of 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 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 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


CertainAs of March 31, 2023, our 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 equivalent variable rates would increase the cost of borrowing under our Revolving Credit Facility and certain project specific debt financings.


Our long-term debt borrowing rates as of September 30, 2017 were as follows:
Loan AgreementSeptember 30, 2017Interest RateEffective Interest Rate
RevolvingIndia Credit Facility3.22%
Luz del Norte Credit Facilities (1)Fixed rate loans at bank rate plus 3.50%
Variable rate loans at 91-Day U.S. Treasury BillConstant Maturity Yield or LIBOR plus 3.50%
Ishikawa Credit Agreement1.75%Senior loan facility at 6-month TIBOR plus 0.75% (2)
Consumption tax facility at 3-month TIBOR plus 0.5%
Japan Credit Facility1-month TIBOR plus 0.5%
Tochigi Credit Facility3-month TIBOR plus 1.0%
Marikal and Mahabubnagar Credit FacilitiesBank rate plus 2.35%
Polepally Credit FacilityBank rate plus 2.35%
Hindupur Credit FacilityBank rate plus 1.0%
Manildra Credit FacilityConstruction loan facility at 1-month BBSY plus 1.70% (2)
GST facility at 1-month BBSY plus 1.60%
Capital lease obligationsVarious5.36%

(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.

(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 September 30, 2017,March 31, 2023, 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 2023$— 
202422,759 
202558,358 
202658,358 
202758,390 
202858,422 
Thereafter64,713 
Total long-term debt future principal payments$321,000 

22
  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
Table of Contents

13.11. 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 September 30, 2017, we had $131.4 million inMarch 31, 2023, the majority of these commercial commitments supported our modules business.

As of March 31, 2023, the issued and outstanding amounts and available capacities under these commitments were as follows (in millions):
Issued and OutstandingAvailable Capacity
Bilateral facilities (1)$119.3 $126.1 
Surety bonds8.7 233.1 
——————————
(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$13.0 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 nine months ended September 30, 2017March 31, 2023 and 20162022 were as follows (in thousands):
Three Months Ended
March 31,
 20232022
Product warranty liability, beginning of period$33,787 $52,553 
Accruals for new warranties issued994 848 
Settlements(1,326)(6,002)
Changes in estimate of product warranty liability(140)(383)
Product warranty liability, end of period$33,315 $47,016 
Current portion of warranty liability$10,236 $11,809 
Noncurrent portion of warranty liability$23,079 $35,207 


23
  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 ratesTable 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.Contents

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 including project tax equity investors,or other parties under which we are contractually obligated to compensate such parties for losses they suffer resulting from a breach of a representation, warranty, or covenantcovenant; the resolution of specific matters associated with a project’s development or construction; or guarantees of a reduction in tax benefits received, including investment tax credits. Project related tax benefits are, in part, based on guidance provided by the Internal Revenue Service and U.S. Treasury Department, which includes assumptions regarding the fair value of qualifying PV solar power systems.third party’s payment or performance obligations. 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 September 30, 2017March 31, 2023 and December 31, 2016,2022, we accrued $2.8 million and $100.0$2.5 million of current indemnification liabilities, respectively, and $4.9 million and $1.9 million of noncurrent indemnification liabilities, respectively, for tax related indemnifications.liabilities. As of September 30, 2017,March 31, 2023, the maximum potential amount of future payments under our tax related indemnifications was $181.8$53.8 million, and we held insurance policiesand other instruments allowing us to recover up to $60.3$27.3 million of potential amounts paid under the indemnifications covered by the policies.indemnifications.

Contingent Consideration

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

We 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 amount 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 between the acquisition-date contingent obligation estimate and the ultimate settlement of the obligation are recognized as an adjustment to the project asset, as contingent payments are considered direct and incremental to the underlying value of the related project.



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 modulesare 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$130.3 million and $166.3$128.1 million as of September 30, 2017March 31, 2023 and December 31, 2016,2022, 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.



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Legal Proceedings

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


Class Action


On March 15, 2012,January 7, 2022, a purportedputative class action lawsuit titled SmilovitsCity of Pontiac General Employees’ Retirement System v. First Solar, Inc., et al., Case No. 2:12-cv-00555-DGC,22-cv-00036-MTL, was filed in the United States District Court for the District of Arizona (hereafter “Arizona District Court”) against the Company and certain of our current and former directors and officers.officers (collectively, “Putative Class Action Defendants”). The complaint was filed on behalf of persons who purchased or otherwise acquired the Company’s publicly traded securitiesa purported class consisting of all purchasers of First Solar common stock between April 30, 2008February 22, 2019 and February 28, 2012 (the “Class Action”).20, 2020, inclusive. The complaint generally alleges that the defendants violated Sections 10(b) and 20(a)asserts violations 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 judgment on March 27, 2015. On August 11, 2015, the Arizona District Court granted defendants’ motion in part and denied it in part, and certified an issue for immediate appeal to the Ninth Circuit Court of Appeals (the “Ninth Circuit”). First Solar filed a petition for interlocutory appeal with the Ninth Circuit, and that petition was granted on November 18, 2015. On May 20, 2016, the Pension Schemes moved to vacate the order granting the petition, dismiss the appeal, and stay the merits briefing schedule. On December 13, 2016, the Ninth Circuit denied the Pension Schemes’ motion. Merits briefing and oral argument 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.

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 makingRule 10b-5 based on allegedly false and misleading statements regardingrelated to the Company’s financial performanceSeries 6 solar modules and prospects. The action includes claims for recessionary and actual damages, interest, punitiveits project development business. It seeks unspecified damages and an award of reasonable attorneys’ fees, expert fees,costs and costs. The Company believes it has meritorious defenses and will vigorously defend this action.

Theexpenses. On April 25, 2022, the Arizona District Court has extendedissued an order appointing the deadline for respondingPalm 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 seeks the same relief as the original complaint. On January 10, 2023, the Court granted the Putative Class Action Defendants’ motion to dismiss in full, with leave to amend by February 10, 2023. On February 10, 2023, Lead Plaintiffs filed a Second Amended Complaint. Putative Class Action Defendants filed a motion to dismiss the Second Amended Complaint on February 24, 2023. Lead Plaintiffs filed their opposition to the complaint until aftermotion to dismiss on March 10, 2023, and Putative Class Action Defendants filed a reply in support of their motion to dismiss on March 17, 2023. Given the Ninth Circuit resolvesearly stage of the appeal in the Smilovits matter described above. Accordingly,litigation, at this time we are not in a position to assess whetherthe likelihood of any potential loss or adverse effect on our financial condition is probable or remote or to estimate the amount or range of potentialpossible loss, if any.any, from this action.


Derivative ActionsAction


On April 3, 2012,September 13, 2022, a derivative action titled TsevegmidFederman v. Ahearn,Widmar, et al., Case No. 1:12-cv-00417-CJB,2:22-cv-01541-JAT, was filed by a putative stockholder purportedly on behalf of the Company in the United StatesArizona District Court for the District of Delaware (hereafter “Delaware District Court”) against certainour current and former directors and certain officers of the Company (collectively, “Derivative Action Defendants”), alleging violations of Section 14(a) of the Securities Exchange Act of 1934, breach of fiduciary duties, contribution and unjust enrichment.indemnification, aiding and abetting, and gross mismanagement. The complaint generally alleges that from June 1, 2008, to March 7, 2012, the defendantsDerivative Action Defendants caused or allowed false and misleading statements to be made concerning the Company’s financial performanceSeries 6 modules and prospects.project development business. 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 plaintiffsthe plaintiff in the derivative actions lackaction lacks standing to pursue litigation on behalf of First Solar. On February 17, 2023, the case was transferred to Judge Liburdi, who is also presiding over the related putative class action. On March 10, 2023, the plaintiff filed an Amended Complaint. On April 10, 2023, the Derivative Action Defendants filed a motion to dismiss the Amended Complaint. The derivative actions are still inplaintiff’s deadline to oppose the initial stages and there has been no discovery. Accordingly,Derivative Action Defendants’ motion to dismiss is May 18, 2023. Given the early stage of the litigation, at this time we are not in a position to assess whetherthe likelihood of any potential loss or adverse effect on our financial condition is probable or remote or to estimate the amount or range of possible loss, if any, from this action.

Other Matters and Claims

On July 12, 2021, Southern Power Company and certain of its affiliates (“Southern”) filed an arbitration demand with the American Arbitration Association against two subsidiaries of the Company, alleging breach of the engineering, procurement, and construction (“EPC”) agreements for five projects in the United States, for which the Company’s subsidiaries served as EPC contractor. The arbitration demand asserts breach of obligations to design and engineer the projects in accordance with the EPC agreements, particularly as such obligations relate to the procurement of tracker systems and inverters. The Company and its subsidiaries deny the claims, and defended the claims in arbitration hearings, which concluded in late February 2023. At this time, the Company believes that Southern is seeking damages of approximately $60 million. The parties are in the process of submitting post-hearing briefs and proposals, which are due in early May 2023. The arbitration panel will choose from the parties’ proposals
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by issuing an award later this year. At this time, given the inherent risks and uncertainties involved in arbitration, we believe the likelihood of a potential loss is reasonably possible, but we are unable to estimate the amount or range of potential loss, if any.any, from this arbitration.


During the year ended December 31, 2022, we received several indemnification demands from certain customers, for whom we provided EPC services, regarding claims that such customers’ PV tracker systems infringe, in part, on patents owned by Rovshan Sade (“Sade”), the owner of a company called Trabant Solar, Inc. In January 2023, we were notified by two of our customers that Sade served them with patent infringement complaints, and we have assumed the defense of these claims. We have conducted due diligence on the patents and claims and believe that we will prevail in the actions. Additionally, we anticipate the commencement of an Inter Partes Review before the United States Patent and Trademark Office seeking to invalidate such claims. 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 possible loss, if any, from these actions.
14.
We are party to other legal matters and claims in the normal course of our operations. While we believe 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 such matters and claims is not determinable with certainty, and negative outcomes may adversely affect us. There have been no material changes to these matters since our Annual Report on Form 10-K for the year ended December 31, 2022 was filed with the SEC on February 28, 2023.

12. Revenue from Contracts with Customers


The following table represents apresents the disaggregation of revenue from contracts with customers for the three and nine months ended September 30, 2017March 31, 2023 and 20162022 along with the reportable segment for each category (in thousands):
Three Months Ended
March 31,
CategorySegment20232022
Solar modulesModules$536,590 $354,881 
Solar power systemsOther11,261 1,969 
O&M servicesOther452 3,897 
Energy generationOther(17)6,293 
Net sales$548,286 $367,040 
    Three Months Ended
September 30,		 Nine Months Ended
September 30,
Category Segment 2017 2016 2017 2016
Solar power systems Both $747,579
 $183,784
 $1,840,097
 $1,127,904
EPC services Both 272
 201,114
 40,706
 853,324
Solar modules Components 300,297
 213,046
 599,827
 425,779
O&M services Systems 25,414
 24,775
 75,074
 69,812
Module plus Both 3
 50,366
 3,314
 81,716
Energy generation (1) Systems 13,461
 8,191
 43,125
 15,233
Net sales   $1,087,026
 $681,276
 $2,602,143
 $2,573,768


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


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


We generally recognize revenue for sales of solar powerdevelopment projects or completed systems and/or EPC services over time using cost based input methods, in whichwhen we enter into the associated sales contract. For certain prior project sales, such revenue included estimated amounts of variable 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 and EPC services occur for a variety of reasons, including but not limited During the three months ended March 31, 2023, revenue increased $5.4 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 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 offour 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 percentagewhich represented 23.8% of the aggregate revenue for such projects.

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  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%
Table of Contents

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 ninethree months ended September 30, 2017March 31, 2023 (in thousands):
 March 31,
2023		December 31,
2022		Three Month Change
Accounts receivable unbilled, net (1)$36,005 $42,152 $(6,147)(15)%
Deferred revenue$1,348,381 $1,207,940 $140,441 12 %
  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 $10.1 million and $11.5 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 completion of certain construction milestones. Some of our EPC contracts for systems we build may also contain retainage provisions. Retainage represents a contract asset for the portion of the contract price earned by us for work performed, but held for payment by the customer as a form of security until we reach certain construction milestones.March 31, 2023 and December 31, 2022, respectively.

When we receive consideration, or such consideration is unconditionally due, from a customer prior to transferring goods or services to the customer under the terms of a sales contract, we record deferred revenue, which represents a contract liability. Such deferred revenue typically results from billings in excess of costs incurred on long-term construction contracts and advance payments received on sales of solar modules.


During the ninethree months ended September 30, 2017,March 31, 2023, our contract assets increaseddecreased by $248.4$6.1 million primarily due to billings for a certain prior project sale, offset by unbilled receivables associated with variable consideration recognized for the sale of the California Flats project in August 2017 and the sale of the Switch Stationcertain development projects in June 2017,a prior period. During the three months ended March 31, 2023, our contract liabilities increased by $140.4 million primarily due to advance payments received for sales of solar modules in the 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 prior years. During the ninethree months ended September 30, 2017March 31, 2023 and 2016,2022, we recognized revenue of $308.6$90.4 million and $98.3$43.7 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 CategoryEPC Contract/Partner Developed ProjectExpected Year Revenue Recognition Will Be CompletedPercentage of Revenue Recognized
California Flats, California280
Solar power systemsCapital Dynamics201868%
Cuyama, California40
Solar power systemsD.E. Shaw Renewable Investments201778%
Total320
    

As of September 30, 2017,March 31, 2023, we had entered into contracts with customers for the future sale of 5.669.4 GWdcDC of solar modules for an aggregate transaction price of $2.0 billion. We$20.4 billion, which we expect to recognize such amounts as revenue through 20202029 as we transfer control of the modules to customers, which typically occurs upon shipment or delivery depending on the termscustomers. Such aggregate transaction price excludes estimates of variable consideration associated with (i) future module technology improvements, including new product designs and enhancements to certain energy related attributes, (ii) the extension of the underlying contracts.investment tax credit (“ITC”), (iii) sales freight in excess of a defined threshold, (iv) changes to certain commodity prices, and (v) the module wattage committed for delivery, among other things. As of September 30, 2017, we had also entered into long-term O&Ma result, the revenue recognized from such 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 2014-09may increase or decrease 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 allfuture periods priorrelative to the dateoriginal transaction price. These contracts may also be subject to amendments made by us or requested by our customers and approved by us. These amendments may increase or decrease the volume of initial applicationmodules to be sold under the contract, change delivery schedules, or otherwise adjust the expected revenue under these contracts.

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15.13. Share-Based Compensation


We measure share-based compensation expense at the grant date based on the fair value of the award and recognize such expense over the required or estimated service period for awards that vest. The following table presents the share-based compensation expense recognized in our condensed consolidated statements of operations for the three and nine months ended September 30, 2017March 31, 2023 and 20162022 (in thousands):
Three Months Ended
March 31,
20232022
Cost of sales$926 $498 
Selling, general and administrative4,782 2,574 
Research and development877 431 
Production start-up15 — 
Total share-based compensation expense$6,600 $3,503 
  Three Months Ended
September 30,		 Nine Months Ended
September 30,
  2017 2016 2017 2016
Cost of sales $1,674
 $1,612
 $4,778
 $6,255
Research and development 1,641
 849
 4,230
 2,704
Selling, general and administrative 6,678
 3,435
 16,375
 15,508
Production start-up 112
 —
 144
 —
Total share-based compensation expense $10,105
 $5,896
 $25,527
 $24,467


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

Share-based compensation expense capitalized in inventory was $2.7 million as of September 30, 2017 and December 31, 2016. As of September 30, 2017,March 31, 2023, we had $46.7$53.8 million of unrecognized share-based compensation expense related to unvested restricted stock and performance stock units, which we expect to recognize over a weighted-average period of approximately 1.8 years. In April 2017, we amended our stock purchase plan to reduce the purchase discount from 15% to 4%, effective for the next six-month offering period. Accordingly, the plan is considered noncompensatory and no longer results in the recognition of share-based compensation expense.


In February 2017,March 2020, 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-yearDecember 2022. Vesting of the 2020 grants of separate performance units was contingent upon the relative attainment of target contracted revenue, module wattage, and return on capital metrics. In March 2023, the compensation committee certified the achievement of the vesting conditions applicable to the grants, which approximated the target level of performance. Accordingly, each participant received one share of common stock for each vested performance unit granted, net of any tax withholdings.

In May 2021, the compensation committee approved additional grants of performance units for key executive officers. Such grants are expected to be earned over a two-yearmulti-year performance period also beginningending in March 2017.December 2023. Vesting of the 2021 grants of performance stock units is contingent upon the achievementrelative attainment of certaintarget contracted revenue, cost per watt, incremental average selling price, and operating income metrics.

In March 2022, the compensation committee approved additional grants of performance objectives, includingunits 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.

In March 2023, 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 2025. Vesting of the 2023 grants of performance units is contingent upon the relative attainment of target contracted revenue, production, and operating expense metrics andmargin metrics.

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



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16.
14. Income Taxes


In August 2022, the U.S. President signed into law the IRA, which revised U.S. tax law by, among other things, including a new corporate alternative minimum tax of 15% on certain large corporations, imposing a 1% excise tax on stock buybacks, and providing various incentives to address climate change, including the introduction of the advanced manufacturing production credit. The provisions of the IRA are generally effective for tax years beginning after 2022. Given the complexities of the IRA, which is pending technical guidance and regulations from the Internal Revenue Service (“IRS”) and U.S. Treasury Department, we will continue to monitor these developments and evaluate the potential future impact to our results of operations.

In November 2022, the U.S. Treasury Department released proposed foreign tax credit (“FTC”) regulations addressing various aspects of the U.S. FTC regime. Among other items, these proposed regulations provide certain exceptions for determining creditable foreign withholding taxes. Taxpayers may rely on these proposed regulations, which apply to tax years beginning on or after December 28, 2021. As a result of these proposed regulations, foreign withholding taxes will continue to be creditable.

Our effective tax rate was (11.4)(19.3)% and (11.2)%31.1% for the ninethree months ended September 30, 2017March 31, 2023 and 2016,2022, respectively. The decrease in our effective tax rate was primarily driven by a discretehigher excess tax benefitbenefits associated with share-based compensation and the May 2017 acceptance 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 ruling in a foreign jurisdiction related to the timingeffect of the deduction for certain ofadvanced manufacturing production credit described in Note 6. “Government Grants” to our obligations.condensed consolidated financial statements. 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 discreteexcess tax benefit related to the acceptance of our disregarded entity electionbenefits associated with share-based compensation and the beneficial impacteffect of our Malaysian tax holiday,law changes associated with the IRA described above, partially offset by additional tax expense attributable to losses in certain jurisdictions for which no tax benefit could be recorded.


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.


We account for uncertainOur Vietnamese subsidiary had previously been granted a tax positions pursuantincentive 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 through 2023, followed by reduced annual tax rates of 5% through 2032 and 10% through 2036. Such long-term tax incentive is 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 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 fromcontinue to comply with through the expiration of the statute of limitations for various uncertain tax positions. It is reasonably possible that an additional $10.0 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.holiday.

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,Singapore, 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.



29
17.
15. Net Income (Loss) per Share


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

The calculation of basic and diluted net income (loss) per share for the three and nine months ended September 30, 2017March 31, 2023 and 20162022 was as follows (in thousands, except per share amounts):
Three Months Ended
March 31,
20232022
Basic net income (loss) per share
Numerator:
Net income (loss)$42,561 $(43,255)
Denominator:
Weighted-average common shares outstanding106,675 106,412 
Diluted net income (loss) per share
Denominator:
Weighted-average common shares outstanding106,675 106,412 
Effect of restricted stock and performance units479 — 
Weighted-average shares used in computing diluted net income (loss) per share107,154 106,412 
Net income (loss) per share:
Basic$0.40 $(0.41)
Diluted$0.40 $(0.41)
  Three Months Ended
September 30,		 Nine Months Ended
September 30,
  2017 2016 2017 2016
Basic net income per share        
Numerator:        
Net income $205,747
 $150,457
 $266,839
 $334,678
Denominator:        
Weighted-average common shares outstanding 104,432
 103,339
 104,287
 102,496
         
Diluted net income per share        
Denominator:        
Weighted-average common shares outstanding 104,432
 103,339
 104,287
 102,496
Effect of restricted and performance stock units and stock purchase plan shares 1,228
 345
 602
 614
Weighted-average shares used in computing diluted net income per share 105,660
 103,684
 104,889
 103,110
         
Net income per share:        
Basic $1.97
 $1.46
 $2.56
 $3.27
Diluted $1.95
 $1.45
 $2.54
 $3.25


The following table summarizes the potential shares of common stock that were excluded from the computation of diluted net income (loss) per share for the three and nine months ended September 30, 2017March 31, 2023 and 20162022 as theysuch shares would have had an anti-dilutive effect (in thousands):
Three Months Ended
March 31,
20232022
Anti-dilutive shares11 504 

30
  Three Months Ended
September 30,		 Nine Months Ended
September 30,
  2017 2016 2017 2016
Anti-dilutive shares 2
 411
 195
 282


18.16. Accumulated Other Comprehensive Loss


Accumulated other comprehensive loss includes foreign currency translation adjustments, unrealized gains and losses on available-for-sale securities, and unrealized gains and losses on derivative instruments designated and qualifying as cash flow hedges. The following table presents the changes in accumulated other comprehensive loss, net of tax, for the ninethree months ended September 30, 2017March 31, 2023 (in thousands):
Foreign Currency Translation AdjustmentUnrealized (Loss) Gain on Marketable Securities and Restricted Marketable SecuritiesUnrealized (Loss) Gain on Derivative InstrumentsTotal
Balance as of December 31, 2022$(121,473)$(64,780)$(5,564)$(191,817)
Other comprehensive income before reclassifications2,791 7,368 254 10,413 
Amounts reclassified from accumulated other comprehensive loss(136)— 2,668 2,532 
Net tax effect— (402)(708)(1,110)
Net other comprehensive income2,655 6,966 2,214 11,835 
Balance as of March 31, 2023$(118,818)$(57,814)$(3,350)$(179,982)
  Foreign Currency Translation Adjustment Unrealized Gain (Loss) on Marketable Securities and Restricted Investments Unrealized Gain (Loss) on Derivative Instruments Total
Balance as of December 31, 2016 $(77,178) $65,171
 $2,100
 $(9,907)
Other comprehensive income (loss) before reclassifications 5,320
 1,666
 (3,993) 2,993
Amounts reclassified from accumulated other comprehensive loss —
 (49) 189
 140
Net tax effect —
 (373) 1,291
 918
Net other comprehensive income (loss) 5,320
 1,244
 (2,513) 4,051
Balance as of September 30, 2017 $(71,858) $66,415
 $(413) $(5,856)


The following table presents the pretax amounts reclassified from accumulated other comprehensive loss into our condensed consolidated statements of operations for the three and nine months ended September 30, 2017March 31, 2023 and 20162022 (in thousands):
Comprehensive Income ComponentsIncome Statement Line ItemThree Months Ended
March 31,
20232022
Foreign currency translation adjustment:
Foreign currency translation adjustmentCost of sales$146 $— 
Foreign currency translation adjustmentOther expense, net(10)(5)
Total foreign currency translation adjustment136 (5)
Unrealized (loss) gain on derivative contracts:
Foreign exchange forward contractsCost of sales— 560 
Commodity swap contractsCost of sales(2,668)— 
Total unrealized (loss) gain on derivative contracts(2,668)560 
Total (loss) gain reclassified$(2,532)$555 

31
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

19.17. 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 systems, business (“systems segment”), through which we provide complete turn-key PV solar power systems, or solar solutions, that draw upon our capabilities, which include (i) project development, (ii) EPC services, and (iii) O&M services. We may provide our full EPC services or any combination of individual products and services within 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 operateOur residual business operations include certain project development activities, O&M services, the results of ouroperations from PV solar power systems for a periodwe owned and operated in certain international regions, and the sale of time based on strategic opportunities.such systems to third-party customers.


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


See Note 23.19. “Segment and Geographical Information” in our Annual Report on Form 10-K for the year ended December 31, 20162022 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 nine months ended September 30, 2017March 31, 2023 and 2016. For the purposes2022 and as of the following table, (i) solar module revenue is composed of revenue from the sale of solar modules to third parties, which does not include any modules sold as part of our PV solar power systems,March 31, 2023 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, 2022 (in thousands):
 Three Months Ended March 31, 2023Three Months Ended March 31, 2022
 ModulesOtherTotalModulesOtherTotal
Net sales$536,590 $11,696 $548,286 $354,881 $12,159 $367,040 
Gross profit106,894 5,157 112,051 11,189 274 11,463 
Depreciation and amortization expense61,583 2 61,585 56,199 2,846 59,045 
March 31, 2023December 31, 2022
ModulesOtherTotalModulesOtherTotal
Goodwill$14,462 $— $14,462 $14,462 $— $14,462 

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


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: 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, module volumes produced, module volumes sold, 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;policies; the potential impact of legislation intended to encourage renewable energy investments through tax credits; our ability to expand manufacturing capacity worldwide; the impact of supply chain disruptions, which may affect the procurement of raw materials used in our ability to reducemanufacturing process and the costs to construct photovoltaic (“PV”) solar power systems; research and development (“distribution of our modules; R&D”)&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:

•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;

•the reduction, elimination, or expiration of government subsidies, policies, and support programs for solar energy projects and other renewable energy projects;

•the impact of public policies, such as tariffs or other trade remedies imposed on solar cells and modules;

•the passage of legislation intended to encourage renewable energy investments through tax credits, such as the IRA;

•our ability to execute on our long-term strategic plans, including our ability to secure financing;

•our ability to execute on our solar module technology and cost reduction roadmaps;

33
•our ability to incorporate technology improvements into our manufacturing process, including the implementation of our Copper Replacement (“CuRe”) program, the production of bifacial solar modules, and next generation Series 7 modules;

•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 severity and duration of public health threats (including pandemics such as COVID-19), including its potential impact on the Company’s business, financial condition, and results of operations;

•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 construct new 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 arising from and results of pending litigation;

•future collection and recycling costs for solar modules covered by our module collection and recycling program;

•supply chain disruptions, including demurrage and detention charges;

•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 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

•all other matters discussed in Part I, Item 1A. “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2016,2022, elsewhere in this Quarterly Report on Form 10-Q, and our other reports filed with the Securities and Exchange Commission (the “SEC”). SEC.
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You should carefully consider the risks and uncertainties described under these sections.

in this section. 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 “dc”) unless otherwise noted. When referring to our PV solar power systems, the unit of electricity in watts for MW and GW is alternating current (“AC” or “ac”) 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 September 30, 2017March 31, 2023 include the following:


•Net sales for the three months ended September 30, 2017March 31, 2023 increased by 60%49% to $1.1 billion$548.3 million compared to $0.7 billion$367.0 million for the same period in 2016.2022. The increase in net sales was primarily due to the sale of the California Flats and Cuyama projects anddriven by an increase in the volume of modules sold to third parties, partially offset by completion of substantially all construction activities on the East Pecos, Taylor, Astoria, and Desert Stateline projects in 2016.parties.


•Gross profit for the three months ended September 30, 2017March 31, 2023 increased 1.717.3 percentage points to 26.8%20.4% from 25.1%3.1% for the same period in 2016.2022. The increase in gross profit was primarily driven by a mixdue to the initial recognition of the advanced manufacturing production credit under Section 45X of the IRC, continued module cost reductions, and the higher gross profit projectsvolume of modules sold and under construction duringin the current period, and a reduction in our module collection and recycling liability, partially offset by reductions inhigher under-utilization charges associated with the average selling price per wattinitial ramp of our modules sold to third parties.
first Series 7 manufacturing facility in Ohio.


As of September 30, 2017, we had 18 installed production lines at our manufacturing facilities in Perrysburg, Ohio and Kulim, Malaysia. We produced 0.5 GW of solar modules during the three months ended September 30, 2017, which represented a 32% decrease from the same period in 2016. The decrease 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 operations at our previously announced manufacturing plant in Vietnam. We expect to produce approximately 2.3 GW of solar modules during 2017.

•During the three months ended September 30, 2017,March 31, 2023, we commenced commercial production of Series 7 modules at our third facility in Ohio, bringing our total installed nameplate module production capacity across all our Series 6 and Series 7 facilities to approximately 13 GWDC. During the three months ended March 31, 2023, we produced 2.5 GWDC and sold 1.9 GWDC of solar modules. During 2023, we expect to produce between 11.5 GWDC and 12.2 GWDC and sell between 11.8 GWDC and 12.3 GWDC of solar modules.

•During the three months ended March 31, 2023, we ran our remainingSeries 6 manufacturing facilities at 98% capacity utilization, which represented a 1seven percentage point increase from the same period in 2016.2022.


The average conversion efficiency of our modules was 17.0% for•During the three months ended September 30, 2017,March 31, 2023, we established a new world record CdTe research cell conversion efficiency of 22.3%, which was an improvementcertified by the U.S. Department of 0.5 percentage points fromEnergy’s National Renewable Energy Laboratory. Such record cell conversion efficiency is based on our CuRe program, which replaces copper with certain other elements that are expected to enhance module performance. Among other things, the three months ended September 30, 2016.anticipated future implementation of our CuRe program is expected to improve the temperature coefficient and reduce the warranted degradation of our modules, thereby enabling our PV solar modules to produce more energy in real world operating conditions over their estimated useful life than crystalline silicon modules with the same nameplate capacity.



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Market Overview


TheSolar 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 cost of producing electricity from PV solar power 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. Other technological developments in the industry, continuessuch as the advancement of energy storage capabilities, have further enhanced the prospects of solar energy as an alternative to be characterizedtraditional forms of energy generation. In addition to these economic benefits, solar energy has substantial environmental benefits. For example, PV solar power systems generate no greenhouse gas or other emissions and use minimal amounts of water compared to traditional energy generation assets. As a result of these and other factors, worldwide solar markets continue to develop and expand.

Recently enacted government support programs, such as the IRA, have contributed and are expected to continue to contribute to this momentum by intense pricing competition, both atproviding solar module manufacturers, project developers, and project owners with tax incentives to accelerate the ongoing transition to clean energy. Based on recent U.S. Treasury Department estimates, the IRA is expected to provide aggregate funding of $369 billion to address climate change, of which $270 billion is expected in the form of various tax incentives. Among other things, the IRA (i) reinstates the 30% investment tax credit for qualifying solar projects that meet certain wage and apprenticeship requirements, (ii) extends the production tax credit to include energy generated from solar projects, (iii) provides incremental investment and production tax credits for solar projects that meet certain domestic content and location requirements, and (iv) offers tax credits for solar modules and solar module and system levels. In particular, module average selling pricescomponents manufactured in the United States and several other key markets have experienced an accelerated declinesold to third parties.

Supply and demand. As a result of the market opportunities and increased demand described above, we are in recent years, and module average selling prices arethe process of expanding our manufacturing capacity by approximately 7.7 GWDC, including the construction of our first manufacturing facility in India, which is expected to commence operations in the second half of 2023; our fourth manufacturing facility in the United States, which is expected to commence operations in late 2024; and the expansion of our manufacturing footprint at our existing facilities in Ohio. We continue to decline to some degree inevaluate opportunities for future expansion, particularly within the future.United States. In the aggregate, we believe 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. WeAccordingly, we believe the solar industry may from time to time experience periods of structural imbalance between supply and demand, (i.e., wherewhich could lead to periods of pricing volatility. In light of such market realities, we continue to focus on our strategies and points of differentiation, which include our advanced module technology, our manufacturing process, our R&D capabilities, the sustainability advantage of our modules, and our financial stability. As a result of this focus, we recently commenced commercial production capacity exceeds global demand), and that such periods will put pressure on pricing. Additionally,of Series 7 modules at our third manufacturing facility in Ohio.

Pricing competition. The solar industry has been characterized by intense pricing competition, both at the module and system levellevels. This competition 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 advanced 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 at the module and system levels, which make solar power more affordable. We are developing, constructing, and operating multiple solar projects around the world as we continue to execute on our advanced-stage utility-scale project pipeline. We expect a substantial portion of our future consolidated net sales, operating income, and cash flows to be derived from such projects. We also continue to develop our early-to-mid-stage project pipeline and evaluate acquisitions of projects to further expand both our early-to-mid-stage and advanced-stage project pipelines. See the tables under “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Systems Project Pipeline” for additional information about projects within our advanced-stage project pipeline.

Lower industry module and system pricing, while currently challenging for certain solar manufacturers (particularly manufacturers with higher cost structures), is expected to continue to contribute to diversification in global electricity generation and further demand for solar energy solutions. 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 to adversely affect ourOur results of operations relative to prior years. Ifcould 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. In certainstate support. Although module average selling prices in many global markets have declined for several years, recent module spot pricing has increased, in Californiapart, due to trade measures and elsewhere, an oversupply imbalance atpolicies, government regulations, raw material availability, and supply chain disruptions. For example, module spot pricing in the grid level may further contributeUnited States has increased primarily due to reduced short-to-medium termthe rising demand for new solar installations relative to prior years, lower PPA pricing,modules manufactured in the United States as a result of the IRA and, lower margins on module and system sales to such markets. We continue to mitigate these uncertainties in part, by executing on our module technology improvements, including our transitiondue to Series 6 module manufacturing, continuing the developmentelevated commodity and logistics costs. The duration of key markets, and implementing certain other cost reduction initiatives, including both manufacturing, balancethis elevated period of systems (“BoS”), and other operating costs.pricing is uncertain.

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Diverse offerings. We face intense competition from manufacturers of crystalline silicon solar modules and developers of PV solar power systems.other emerging technologies. 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 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 believecurrently produce monofacial solar modules and, based on recent R&D activities, expect to produce bifacial solar modules in 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.near term. 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 conventionalmonofacial solar modules. Additionally, certain module manufacturers have introduced n-type mono-crystalline modules, including thesuch as tunnel oxide passivated contact modules, we produce.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.


Product efficiencies. 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% to 3% 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.

Energy performance. In terms of energy yield, 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.


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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 alongthrough 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-Q2022 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 compellingsignificant need for mass-scale PV solar electricity, including markets throughout the Americas,United States, India, and Europe. 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. Such focus on our core module and utility-scale offerings exists withinresources. Accordingly, future retirements of aging energy generation resources represent a current market environment that includes rooftop and distributed generation solar, particularlysignificant increase in the United States. While it is unclear how rooftop and distributed generationpotential market for solar might impact our core utility-scale offerings in the next several years, weenergy.

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, this focus on utility-scale module offerings exists within a current market environment that includes rooftop and managing the appropriate level of resources required asdistributed generation solar. Consequently, our future module offerings in certain markets may be driven, in part, by demand for rooftop and distributed 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 PV technology. We believe such applications have the potential to reduce the total installed cost of PV solar energy,enable our module conversion efficiency to optimize the design and logistics aroundreach 28% by 2030.

Demand for our PV solar module offerings depends, in part, on market factors outside our control. For example, many governments have proposed or enacted policies or support programs intended to encourage renewable energy solutions,investments to achieve decarbonization objectives and/or establish greater energy independence. While we compete in markets that do not require solar-specific government subsidies or support programs, our net sales and profits remain subject to ensure thatvariability 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 solutions integrate wellsolar modules. Recent developments to government support programs include the following:

•United States. In August 2022, the U.S. President signed the IRA into law, which is intended to accelerate the overall electricity ecosystemcountry’s ongoing transition to clean energy. Among other things, the financial incentives provided by the IRA are expected to significantly increase demand for modules manufactured in the United States. Accordingly, the demand for these solar modules is expected to increase domestic manufacturing in the near term, which may result in localized supply chain constraints and periods of each specific market. We expect that, over time, the majorityinflationary pricing for certain of our consolidated net sales, operating income,key raw materials, including substrate glass and cash flowscover glass. The financial incentives provided by the IRA are also expected to significantly increase demand for solar modules in general due to the incremental tax credit available for the qualified production of clean hydrogen that is powered by renewable resources. Given the complexities of the IRA, which is pending technical guidance and regulations from the IRS and U.S. Treasury Department, we continue to evaluate the extent of benefits available to us, which we expect will come from solar offerings in the key geographic markets described above. The timing, execution, and financial impacts of our long-term strategic plan are subject to risks and uncertainties, as described in the Risk Factors. We are focusing our resources on those markets and energy applications in which solar power can be a least-cost, best-fit energy solution, particularly in regions with high solar resources, significant current 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 time may need to be competitively priced at levels associated with minimal gross profit margins, which may adversely affectfavorably impact our results of operations. Weoperations in future periods. For example, we currently expect to qualify for the profitability associated withadvanced manufacturing production credit under Section 45X of the IRC, which provides certain specified benefits for solar modules and solar module components
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manufactured in the United States and sold to third parties. See Note 6. "Government Grants" to 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 competitivenesscondensed consolidated financial statements for discussion of our offerings compared with other energy solutions, traditional or otherwise, that areexpectation of the financial benefits available to potential customers. us under the IRA.

•India. In addition, as we execute on our long-term strategic plan, we will continueMarch 2023, the government of India allocated financial incentives under the Production Linked Incentive (“PLI”) scheme 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.

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 plans to utilize our idled Vietnamese manufacturing plant for production of our next generation Series 6 module technology. This decisionmanufacturers, including First Solar. The PLI scheme is expected to provide usaggregate funding of INR 185 billion ($2.3 billion), of which INR 11.8 billion ($143 million) was allocated to First Solar, 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 were selected through a competitive bid process and may be entitled to receive certain cash incentives over a five-year period following the commissioning of their manufacturing facilities. Among other things, such incentives are subject to attaining certain minimum thresholds for module efficiency and temperature coefficient and require that a certain proportion of raw materials be sourced from the domestic market. Such conditions will be evaluated on a quarterly basis from 2026 through 2031. At this time, it is uncertain 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 several operational benefits, including (i)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. The U.S. Department of Commerce (“USDOC”) has issued regulations implementing that moratorium on antidumping and countervailing duties in the event that it finds circumvention with respect to such Southeast Asian countries. In December 2022, the USDOC issued affirmative preliminary determinations finding “country-wide” circumvention with respect to certain countries, but it also found that certain companies were not circumventing the antidumping and countervailing duties. The USDOC is scheduled to issue its final circumvention determinations in May 2023, subject to possible extension. Our operating results could be adversely impacted if the USDOC makes negative circumvention determinations or refrains from imposing antidumping and countervailing duties on imports covered by affirmative circumvention determinations. Conversely, affirmative final circumvention determinations could positively impact our operating results. Separately, the U.S. President has also authorized the use of the Defense Production Act 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.

•India. The Approved List of Module Manufacturers (“ALMM”) was introduced in 2021 as a non-tariff barrier to incentivize domestic manufacturing of PV modules by approving the list of models and manufacturers who can participate in certain solar development projects. The ALMM is approved by the Ministry of New and Renewable Energy, and any modifications to the ALMM and its application may affect future investments in solar module manufacturing in India. Our ability to addsell modules in the Indian market depends on the inclusion of our modules on the ALMM, and we currently expect that we will be included in the ALMM once we begin manufacturing solar panels in India in the second half of 2023. In March 2023, the government of India temporarily suspended the ALMM, thereby exempting solar project developers from procuring modules from companies included in the ALMM through March 2024. Our operating results could be adversely impacted if such suspension is extended in future periods or if the ALMM restriction is significantly relaxed to allow modules to be imported from countries that are part of the Association of Southeast Asian Nations.

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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, although the cost of ocean freight throughout many parts of the world has recently decreased, certain logistics costs remain at elevated levels relative to pre-COVID-19 pandemic rates. 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. 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. We may also incur additional Series 6 production lines without ramping down current Series 4 production, (ii) flexibilitylogistics costs, such as demurrage and detention, to the extent we are unable to retrieve or return our shipping containers in a timely manner. To mitigate such costs and better meet our customer commitments, we may adjust our shipping plans to include additional lead times for module deliveries and/or utilize our network of U.S. distribution centers. We are also employing module contract structures that provide additional consideration to us if the cost of logistics services, excluding demurrage and detention, exceeds a defined threshold. Additionally, our manufacturing 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.

We generally price and sell our solar modules on a per watt basis. As of March 31, 2023, we had entered into contracts with customers for the future sale of 69.4 GWDC of solar modules for an aggregate transaction price of $20.4 billion, which we expect to recognize as revenue through 2029 as we transfer control of the modules to the customers. Such volume includes contracts for the sale of 34.5 GWDC of solar modules that 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 March 31, 2023, the expected timing such technology improvements are incorporated into our manufacturing process, and the expected timing of module deliveries, such adjustments, if realized, could result in additional revenue of up to $0.7 billion, the majority of which would be recognized in 2025, 2026, and 2027. In addition to these price adjustments, certain of our contracts with customers may include favorable price adjustments associated with the extension of the ITC and/or sales freight in excess of a defined threshold. Certain of our contracts with customers may also include favorable or unfavorable price adjustments associated with changes to certain commodity prices and/or the module wattage committed for delivery. As a result, the revenue recognized from such contracts may increase or decrease in future periods relative to the original transaction price.

We continue to increase the nameplate production capacity duringof our existing manufacturing facilities by improving our production throughput, increasing module wattage (or conversion efficiency), and reducing manufacturing yield losses. Additionally, we recently commenced commercial production of Series 6 transition period,7 modules at our third manufacturing facility in Ohio, and (iii) installing Series 6 production linesare in athe process of expanding our manufacturing capacity by approximately 7.7 GWDC, including the construction of our first manufacturing facility that is substantially identical to our Malaysian manufacturing plant where such lines are currently being installed,in India, which is expected to acceleratecommence operations in the second half of 2023; our fourth manufacturing facility in the United States, which is expected to commence operations in late 2024; and facilitate a cost-effective installation. Our Vietnamese plantthe expansion of our manufacturing footprint at our existing facilities in Ohio. This additional capacity, and any other potential investments to add to 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 in response to such demand and add production lines in a cost-effective manner, allItem 1A. “Risk Factors” of which are subject to risks and uncertainties” and “If any future production lines are not built in line with our committed schedules it may impair any future growth plans. If any future production lines do not achieve operating metrics similar to our existing production lines, our solar modules could perform below expectations and cause us to lose customers.”

8point3 Energy Partners LP

In June 2015, 8point3 Energy Partners LP (the “Partnership”), a limited partnership formed by First Solar and SunPower Corporation (the “Sponsors”), completed its initial public offering (the “IPO”). As part of 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 sale of our interests in the Partnership. For additional information on the Partnership, see the Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2016 and “Note 11. Investments in Unconsolidated Affiliates and Joint Ventures – 8point3 Energy Partners LP”2022.

40


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.)
Project/Location
Project Size in MWac
PPA Contracted PartnerEPC Contract/Partner Developed ProjectExpected Year Revenue Recognition Will Be CompletedPercentage of Revenue Recognized as of September 30, 2017
California Flats, California280
PG&E / Apple (1)Capital Dynamics201868%
India (multiple locations)190
(2)(5)2017/2018—%
Florida70
(3)(3)2018—%
Cuyama, California40
PG&ED.E. Shaw Renewable Investments201778%
Japan (multiple locations)9
(4)Contracted but not specified2017—%
Total589
    

Projects with Executed PPAs Not Under Sales Agreements
Project/Location
Project Size in MWac
Fully PermittedPPA Contracted PartnerExpected or Actual Substantial Completion YearPercentage Complete as of September 30, 2017
Rosamond, California150
YesSCE201815%
Sun Streams, Arizona150
YesSCE201910%
Luz del Norte, Chile141
Yes(6)2016100%
American Kings Solar, California126
NoSCE202016%
Willow Springs, California100
YesSCE201821%
Sunshine Valley, Nevada100
YesSCE20193%
Ishikawa, Japan59
YesHokuriku Electric Power Company201848%
Japan (multiple locations)58
No(4)2019/202011%
Manildra, Australia49
YesEnergyAustralia201819%
Little Bear, California40
NoMarin Clean Energy (7)20205%
Miyagi, Japan40
NoTohoku Electric Power Company2018/201912%
India (multiple locations)40
Yes(8)201862%
Total1,053
    


(1)
PG&E 150 MWac and Apple Energy, LLC 130 MWac

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

(3)Contracted but not specified

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

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

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

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

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

Results of Operations


The following table sets forth our condensed consolidated statements of operations as a percentage of net sales for the three and nine months ended September 30, 2017March 31, 2023 and 2016:2022:
Three Months Ended
March 31,
20232022
Net sales100.0 %100.0 %
Cost of sales79.6 %96.9 %
Gross profit20.4 %3.1 %
Selling, general and administrative8.0 %10.0 %
Research and development5.6 %7.4 %
Production start-up3.6 %2.0 %
Gain on sales of businesses, net— %0.5 %
Operating income (loss)3.3 %(15.7)%
Foreign currency loss, net(1.1)%(1.1)%
Interest income4.7 %0.6 %
Interest expense, net(0.1)%(0.8)%
Other expense, net(0.3)%(0.1)%
Income tax benefit1.3 %5.3 %
Net income (loss)7.8 %(11.8)%
  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 ouroperators of systems, segment includesutilities, independent power producers, commercial and industrial companies, and other system owners. Our residual business operations include certain project development activities, O&M services, the development, construction, operation, and maintenanceresults of operations from PV solar power systems which primarily use our solar modules. See Note 19. “Segment Reporting” to our condensed consolidated financial statements included with this Quarterly Report on Form 10-Q for more information. See also Item 2. “Management’s Discussionwe owned and Analysis of Financial Conditionoperated in certain international regions, and Results of Operations – Systems Project Pipeline” for a description of the system projects in our advanced-stage project pipeline.


Product Revenue

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

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

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

Three and Nine Months Ended September 30, 2017 and 2016


Net sales


Components Business

We generally price and sell our solar modules on a per watt of nameplate power.basis. During the three and nine months ended September 30, 2017,March 31, 2023, 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 compared to the total estimated costs for a given contract. We may also recognize revenue for the sale of a system after the project has been completed due to the timing of when we enter into the associated sales contract with the customer. The revenue recognition policies for our systems business 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.from energy generated by such systems.


The following table shows net sales by reportable segment for the three and nine months ended September 30, 2017March 31, 2023 and 2016:2022:
 Three Months Ended
March 31,
(Dollars in thousands)20232022Three Month Change
Modules$536,590 $354,881 $181,709 51 %
Other11,696 12,159 (463)(4)%
Net sales$548,286 $367,040 $181,246 49 %

41
  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 $17.5 million for the three months ended September 30, 2017 compared to the three months ended September 30, 2016 primarily due to a 29% decrease in the average selling price per watt, partially offset by a 36% increase in the volume of watts sold. Net sales from our systems segment, which excludes solar modules used in our systems projects, increased $423.2$181.7 million for the three months ended September 30, 2017March 31, 2023 compared to the three months ended September 30, 2016 primarily as a result of the sale of the California Flats and Cuyama projects in 2017, partially offset by completion of substantially all construction activities on the East Pecos, Taylor, Astoria, and Desert Stateline projects in 2016.

Net sales from our components segment, which includes solar modules used in our systems projects, decreased $169.2 million for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016March 31, 2022 primarily due to a 27% decrease in the average selling price per watt, partially offset by an 18%51% increase in the volume of watts sold.modules sold to third parties. Net sales from our systems segment, which excludes solar modules used in our systems projects, increased $197.6 million forresidual business operations during the ninethree months ended September 30, 2016 primarily as a result ofMarch 31, 2023 was consistent with the sale of the Moapa, California Flats, and Switch Station projects in 2017, partially offset by the completion of substantially all construction activities on a number of projects in 2016, including the Desert Stateline, Astoria, Taylor, Silver State South, East Pecos, Butler, and McCoy projects.three months ended March 31, 2022.


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 specific costs.


The following table shows cost of salesby reportable segment for the three and nine months ended September 30, 2017March 31, 2023 and 2016:2022:
 Three Months Ended
March 31,
(Dollars in thousands)20232022Three Month Change
Modules$429,696 $343,692 $86,004 25 %
Other6,539 11,885 (5,346)(45)%
Cost of sales$436,235 $355,577 $80,658 23 %
% of net sales79.6 %96.9 %  
  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$80.7 million, or 56%23%, and decreased 1.717.3 percentage points as a percent of net sales for the three months ended September 30, 2017March 31, 2023 compared to the three months ended September 30, 2016.March 31, 2022. The increase in cost of sales was driven by a $238.3an $86.0 million increase in our systemsmodules segment cost of sales primarily due to the size of projects sold or under construction during the period and the timing of when all revenue recognition criteria were met, partially offset by a mix of higher gross profit projects. The increase in cost of sales was also driven by a $46.6 million increase in our components segment cost of sales primarily as a result of higher costs of $101.0$163.6 million from an increase in the increased volume of modules sold directly to third parties,and higher under-utilization charges associated with the initial ramp of our first Series 7 manufacturing facility in Ohio, which increased cost of sales by $18.9 million, partially offset by continued reductions inour initial recognition of the cost per wattadvanced manufacturing production credit under Section 45X of our solar modules,the IRC, which decreased cost of sales by $45.4$70.1 million, and a reduction in ourcontinued module collection and recycling liability of $13.5 million from updates to several valuation assumptions, including a decrease in certain inflation rates.

Ourcost reductions, which decreased cost of sales increased $172.1 million, or 9%, and increased 5.8 percentage points as a percent of net sales for the nine months ended September 30, 2017 comparedby $32.6 million. Such increase to the nine months ended September 30, 2016. The increase in cost of sales was driven by a $209.0 million increase in our systemsmodules segment cost of sales primarily due to a mix of lower gross profit projects. This increase in cost of sales was partially offset by a $37.0$5.3 million decrease in our components segmentresidual business operations cost of sales primarily as a result of continued cost reductions in the cost per watt of our solar modules, which decreased cost of sales by $151.0 million, the $13.5 million reduction in our module collection and recycling liability described above, a $12.5 million reduction in our product warranty liability due to lower legacy module replacement costs associated with operating PV solar power systems and lower inventory write-downsproviding O&M services in certain international jurisdictions following the sale of $11.0 million, partially offset by higher costssuch systems and businesses in the prior period.


42

Gross profit


Gross 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 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 profit for the three and nine months ended September 30, 2017March 31, 2023 and 2016:2022:
 Three Months Ended
March 31,
(Dollars in thousands)20232022Three Month Change
Gross profit$112,051 $11,463 $100,588 >100%
% of net sales20.4 %3.1 %  
  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 1.717.3 percentage points to 26.8%20.4% during the three months ended September 30, 2017March 31, 2023 from 25.1%3.1% during the three months ended September 30, 2016March 31, 2022 primarily due to a mix of higher gross profit projects sold and under construction during the periodadvanced manufacturing production credit described above, continued module cost reductions, and the reductionhigher volume of modules sold in our module collection and recycling liability described above,the current period, partially offset by reductions inhigher under-utilization charges associated with the average selling price per wattinitial ramp of our modules sold directly to third parties. Gross profit decreased 5.8 percentage points to 18.7% during the nine months ended September 30, 2017 from 24.5% during the nine months ended September 30, 2016 primarily as a result of a mix of lower gross profit projects sold and under construction during the period and reductions in the average selling price per watt of our modules sold directly to third parties.first Series 7 manufacturing facility mentioned above.


Selling, general and administrative


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


The following table shows selling, general and administrative expense for the three and nine months ended September 30, 2017March 31, 2023 and 2016:2022:
 Three Months Ended
March 31,
(Dollars in thousands)20232022Three Month Change
Selling, general and administrative$44,028 $36,728 $7,300 20 %
% of net sales8.0 %10.0 %  
  Three Months Ended
September 30,		   Nine Months Ended
September 30,		    
(Dollars in thousands) 2017 2016 Three Month Change 2017 2016 Nine Month Change
Selling, general and administrative $50,546
 $60,345
 $(9,799) (16)% $147,702
 $191,624
 $(43,922) (23)%
% of net sales 4.6% 8.9%  
  
 5.7% 7.4%    



Selling, general and administrative expense for the three months ended September 30, 2017 decreasedMarch 31, 2023 increased compared to the three months ended September 30, 2016March 31, 2022 primarily due to lower business development expenses, lowerhigher professional fees, and lower accretion expense associated with the reduction in our module collection and recycling liability described above. Selling, general and administrative expense for the nine months ended September 30, 2017 decreased compared to the nine months ended September 30, 2016 primarily as a result of lowerhigher employee share-based compensation expense, due to the various restructuring activities described in Note 4. “Restructuring and Asset Impairments” to our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q, lower professional fees, lower infrastructure related expenses,higher employee travel and lower business developmenttraining expenses.


Research and development


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


The following table shows research and development expense for the three and nine months ended September 30, 2017March 31, 2023 and 2016:2022:
 Three Months Ended
March 31,
(Dollars in thousands)20232022Three Month Change
Research and development$30,510 $27,108 $3,402 13 %
% of net sales5.6 %7.4 %  

43
  Three Months Ended
September 30,		   Nine Months Ended
September 30,		    
(Dollars in thousands) 2017 2016 Three Month Change 2017 2016 Nine Month Change
Research and development $20,850
 $32,173
 $(11,323) (35)% $64,990
 $95,291
 $(30,301) (32)%
% of net sales 1.9% 4.7%  
  
 2.5% 3.7%    

The decrease in researchResearch and development expense for the three and nine months ended September 30, 2017March 31, 2023 increased compared to the three and nine months ended September 30, 2016 wasMarch 31, 2022 primarily due to lower costs for third-party contracted services, reduced material and module testing costs, and loweran increase in employee compensation expense resulting from reductions to our R&Dan increase in headcount as part of the restructuring activities further described in Note 4. “Restructuring and Asset Impairments” to our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q. The decrease in research and development expense for the nine months ended September 30, 2017 was also attributable to the termination of certain R&D programs for legacy module technologies.higher employee share-based compensation expense.

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


Production start-up


Production start-up expense consists primarily of employee compensation and other costs associated with operating a production line before it has beenis qualified for 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 nine months ended September 30, 2017March 31, 2023 and 2016:2022:
 Three Months Ended
March 31,
(Dollars in thousands)20232022Three Month Change
Production start-up$19,494 $7,338 $12,156 166 %
% of net sales3.6 %2.0 %  
  Three Months Ended
September 30,		   Nine Months Ended
September 30,		    
(Dollars in thousands) 2017 2016 Three Month Change 2017 2016 Nine Month Change
Production start-up $12,624
 $752
 $11,872
 1,579% $22,155
 $807
 $21,348
 2,645%
% of net sales 1.2% 0.1%  
  
 0.9% —%    


During the three and nine months ended September 30, 2017,March 31, 2023, we incurred production start-up expense primarily for our first manufacturing facility in India, which is expected to commence operations in the transition to Series 6 modulesecond half of 2023, our third manufacturing facility in the U.S., which commenced commercial production of modules in early 2023, and for certain manufacturing upgrades at our facilitiesMalaysian facilities. During the three months ended March 31, 2022, we incurred production start-up expense primarily for our third manufacturing facility in Perrysburg, Ohio; Kulim, Malaysia;the U.S. and Ho Chi Minh City, Vietnam.for certain manufacturing upgrades at our Malaysian facilities.


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 nine months ended September 30, 2017March 31, 2023 and 2016:2022:
 Three Months Ended
March 31,
(Dollars in thousands)20232022Three Month Change
Gain on sales of businesses, net$(17)$1,907 $(1,924)(101)%
% of net sales— %0.5 %  
  Three Months Ended
September 30,		   Nine Months Ended
September 30,		    
(Dollars in thousands) 2017 2016 Three Month Change 2017 2016 Nine Month Change
Restructuring and asset impairments $791
 $4,314
 $(3,523) (82)% $39,108
 $89,846
 $(50,738) (56)%
% of net sales 0.1% 0.6%  
  
 1.5% 3.5%    


During the three and nine months ended September 30, 2017March 31, 2023, we incurred $0.8 million and $39.1 million, respectively, of restructuring and asset impairment chargesrecognized certain post-closing adjustments associated with the prior sale of our transitionO&M operations in a foreign jurisdiction, which was included in “Gain on sales of businesses, net” in our condensed consolidated statements of operations.

In January 2022, we completed the sale of our Chilean O&M operations to Series 6 module manufacturing. Such charges includeda subsidiary of Clairvest for consideration of $1.9 million. As a result of this transaction, we recognized a gain of $1.9 million, net losses onof transaction costs and post-closing adjustments, 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.three months ended March 31, 2022. 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 impairmentsthis transaction.

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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 nine months ended September 30, 2017March 31, 2023 and 2016:2022:
 Three Months Ended
March 31,
(Dollars in thousands)20232022Three Month Change
Foreign currency loss, net$(5,947)$(4,198)$(1,749)42 %
  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 months ended September 30, 2017March 31, 2023 increased compared to the three months ended September 30, 2016March 31, 2022 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, the weakening of the U.S. dollar relative to certain foreign currencies, and differences between our economic hedge positions and the underlying exposures.India.



Interest income


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


The following table shows interest income for the three and nine months ended September 30, 2017March 31, 2023 and 2016:2022:
 Three Months Ended
March 31,
(Dollars in thousands)20232022Three Month Change
Interest income$25,822 $2,325 $23,497 >100%
  Three Months Ended
September 30,		   Nine Months Ended
September 30,		    
(Dollars in thousands) 2017 2016 Three Month Change 2017 2016 Nine Month Change
Interest income $8,392
 $5,894
 $2,498
 42% $22,364
 $18,829
 $3,535
 19%


Interest income for the three and nine months ended September 30, 2017March 31, 2023 increased compared to the three and nine months ended September 30, 2016March 31, 2022 primarily due to higher cash balances during the period, increased interest rates associated with ouron cash and marketable securities and a promissory notehigher average balances associated with an affiliate issued in late 2016.marketable 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.debt. We may capitalize interest expense onto our project assets or property, plant and equipment when such costs qualify for interest capitalization, which reduces the amount of net interest expense reported in any given period.


The following table shows interest expense, netfor the three and nine months ended September 30, 2017March 31, 2023 and 2016:2022:
 Three Months Ended
March 31,
(Dollars in thousands)20232022Three Month Change
Interest expense, net$(748)$(2,865)$2,117 (74)%
  Three Months Ended
September 30,		   Nine Months Ended
September 30,		    
(Dollars in thousands) 2017 2016 Three Month Change 2017 2016 Nine Month Change
Interest expense, net $(4,149) $(5,563) $1,414
 (25)% $(19,692) $(17,356) $(2,336) 13%


Interest expense, net for the three months ended September 30, 2017 was consistent withMarch 31, 2023 decreased compared to the three months ended September 30, 2016. Interest expense, net for the nine months ended September 30, 2017 increased compared to the nine months ended September 30, 2016March 31, 2022 primarily due to changesthe assumption of our Luz del Norte project loans by a subsidiary of Toesca Asset Management in connection with the fair valuesale of interest rate swap contracts that do not qualify for hedge accounting and higher levelsthe project in late 2022.

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Other income,expense, net


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


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

Other income, net decreased for the three months ended September 30, 2017March 31, 2023 and 2022:
 Three Months Ended
March 31,
(Dollars in thousands)20232022Three Month Change
Other expense, net$(1,456)$(212)$(1,244)>100%

Other expense, net for the three months ended March 31, 2023 increased compared to the three months ended September 30, 2016March 31, 2022 primarily due to the resolution of an outstanding matter with a former customer in 2016. Other income, net decreased for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016 primarily due to realized gains of $37.8 million in early 2016 from the salereduction of certain restricted investments as part of an effort to alignwithholding taxes in a foreign jurisdiction in 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) benefit


Income tax expense or benefit, deferred tax assets and liabilities, and liabilities for unrecognized tax benefits reflect our best estimate of current and future taxes to be paid. We are subject to income taxes in both the United States and numerous foreign jurisdictions in which we operate, principally Australia, India,Singapore, 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,Singapore, Malaysia, and MalaysiaVietnam are 30.0%17%, 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) benefit for the three and nine months ended September 30, 2017March 31, 2023 and 2016:2022:
 Three Months Ended
March 31,
(Dollars in thousands)20232022Three Month Change
Income tax benefit$6,888 $19,499 $(12,611)(65)%
Effective tax rate(19.3)%31.1 %  
  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 increasedbenefit decreased by $75.8$12.6 million during the three months ended September 30, 2017March 31, 2023 compared to the three months ended September 30, 2016March 31, 2022 primarily as a result of a $35.4 million reversal of a liability associated with an uncertain tax position in 2016,due to higher pretax income and lower excess tax benefits associated with share-based compensation.

Income tax benefit decreasedin the current period, partially offset by $6.1 million during the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016 primarily due to a $35.4 million reversal of a liability associated with an uncertain tax position in 2016 and lowerhigher excess tax benefits associated with share-based compensation partially offset by a $42.1 million discreteand the beneficial effect of tax benefitlaw changes associated with the acceptanceIRA.

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Equity in earnings of unconsolidated affiliates, net of tax

Equity in earnings of unconsolidated affiliates, net of tax represents our proportionate share of the earnings or losses of unconsolidated affiliates with whom we have 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:
  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, 2016 primarily due to lower equity in earnings of 8point3 Operating Company, LLC, partially offset by the deferral of certain profit on the sale of the Stateline project during the three and nine months ended September 30, 2016.


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, long-lived asset impairments, and testing goodwill for impairmentgovernment grants (described in further detail below) 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, there2022. There have been no material changes to our critical accounting policies during the ninethree months ended September 30, 2017.March 31, 2023.


Government Grants. We continue to evaluate the extent of benefits available to us pursuant to the IRA, which we expect will favorably impact our results of operations in future periods. For example, we currently expect to qualify for the advanced manufacturing production credit under Section 45X of the IRC, which provides certain specified benefits for solar modules and solar module components manufactured in the United States and sold to third parties. For eligible components, the credit is equal to (i) $12 per square meter for a PV wafer, (ii) 4 cents multiplied by the capacity of a PV cell, and (iii) 7 cents multiplied by the capacity of a PV module. Based on the current form factor of our modules, we expect to qualify for a credit of approximately 17 cents per watt for each module produced in the United States and sold to a third party.

There are currently several critical and complex aspects of the IRA pending technical guidance and regulations from the IRS and U.S. Treasury Department that could affect the estimated benefits we have recognized and expect to recognize from the advanced manufacturing production credit. Such pending guidance is described in Item 1A. “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2022. Any modifications to the law or its effects arising, for example, through (i) technical guidance and regulations from the IRS and U.S. Treasury Department, (ii) subsequent amendments to or interpretations of the law, and/or (iii) future laws or regulations rendering certain provisions of the IRA less effective or ineffective, in whole or in part, could result in material adverse changes to the benefits we have recognized and expect to recognize.

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 summaryNone.

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Liquidity and Capital Resources


As of September 30, 2017,March 31, 2023, 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,including near-term construction activities and strategic discretionary spending. Inpurchases of manufacturing equipment for our newest manufacturing and R&D facilities in India and the future, we may also engage 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, althoughUnited States. 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 maintain certain financial conditions. pursue our strategic plans.

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

As of September 30, 2017,March 31, 2023, we had $2.7$2.3 billion in cash, cash equivalents, and marketable securities compared to $2.0$2.6 billion as of December 31, 2016. Cash,2022. The decrease in cash, cash equivalents, and marketable securities as of September 30, 2017 increasedwas primarily from the sale of the Moapa and California Flats projects and proceeds from borrowings under project specific debt financings, partially offsetdriven by purchases of property, plant and equipment.equipment, various operating expenditures, and certain advance payments of raw materials, partially offset by proceeds from borrowings under long-term debt agreements and cash receipts from module sales, including advance payments for future sales. As of September 30, 2017 and DecemberMarch 31, 2016, $1.52023, $1.4 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,Indian rupee, and Euro denominated holdings. Our investment policy seeks to preserve our investment principal and maintain adequate liquidity to meet our cash flow requirements, while at the same time optimizing the return on our investments. Such policy applies to all invested funds, whether managed internally or externally. Pursuant to such policy, we place our investments with a diversified group of high-quality financial institutions and limit the concentration of such investments with any one counterparty. We place significant emphasis on the creditworthiness of financial institutions and assess the credit ratings and financial health of our counterparty financial institutions when making investment decisions.


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



Our systems business requires significant liquidity and isAlthough we compete in markets that do not require solar-specific government subsidies or support programs, such incentives continue to influence the demand for PV solar energy around the world. For example, the financial incentives provided by the IRA are expected to increase both the demand for and the domestic manufacturing of solar modules in the United States. We continue to have significant liquidity requirements inevaluate the future. The net amountextent 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 location and the commercial operation of a system, vary substantially and can take many years to mature. As a result of these long project cycles and strategic decisions to finance the 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. 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, 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 attractivebenefits available to us or potential customersby the IRA, which are unwillingexpected to assume 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 thefavorably impact on our liquidity and working capital with regardsresources in future periods. For example, we currently expect to such projectsqualify for the advanced manufacturing production credit under Section 45X of the IRC, which provides certain specified benefits for solar modules and systems. Wesolar module components manufactured in the United States and sold to third parties. Such credit may also consider entering into tax equitybe refundable or other arrangements with respecttransferable to ownership interestsa third party and is available from 2023 to 2032, subject to phase down beginning in certain2030. Based on the current form factor 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 transition our production to Series 6 module technology and purchase the related 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. During the remainder of 2017,modules, we expect to spend $100 millionqualify for a credit of approximately 17 cents per watt for each module produced in the United States and sold to $200 million for capital expenditures,a third party. Accordingly, we expect the majorityadvanced manufacturing production credit will provide us with a significant source of which isfunding throughout its 10-year period. For more information about certain risks associated with the Series 6 transition. We believe these capital expenditures will increase our aggregate manufacturing capacity, increase our solar module conversion efficiencies, reduce our manufacturing costs, and reduce the overall cost of systems using our modules.

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 parts in the required volumes to support our planned construction schedules. As part of this construction cycle, we typically must manufacture modules or acquire the necessary BoS parts for construction activities in advance of receiving payment for such materials, which may temporarily reduce our liquidity. Once solar modules and BoS parts are installed in a project, they are classified as either project assets, PV solar power systems, or cost of sales depending 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 inus under 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 sourcesIRA, see Item 1A. “Risk Factors” 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 of marketable securities and restricted investments of $92.0 million during the nine months ended September 30, 2017 compared to net sales of $25.7 million during the same period in 2016.

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, 20162022.

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As a result of such market opportunities and increased demand for additional information regarding our contractual obligations.

Off-Balance Sheet Arrangements

products, we recently commenced commercial production of Series 7 modules at our third manufacturing facility in Ohio, and are in the process of expanding our manufacturing capacity by approximately 7.7 GWDC, including the construction of our first manufacturing facility in India, which is expected to commence operations in the second half of 2023; our fourth manufacturing facility in the United States, which is expected to commence operations in late 2024; and the expansion of our manufacturing footprint at our existing facilities in Ohio. In aggregate, we currently expect to invest approximately $2.0 billion for these remaining facilities and upgrades. As we expand our manufacturing capacity, we expect to continue to receive advance payments from customers for the future sale of modules. Such advance payments are reflected as deferred revenue in our consolidated balance sheets. As of September 30, 2017March 31, 2023, our deferred revenue was approximately $1.3 billion. Accordingly, the capital expenditures necessary to expand our capacity in the near term are expected to be financed, in part, by advance payments for module sales in future periods and by the advanced manufacturing production credit described above.

In addition to the expansion plans described above, we continue to increase the nameplate production capacity of our existing manufacturing facilities by improving our production throughput, increasing module wattage (or conversion efficiency), and reducing manufacturing yield losses. We have a demonstrated history of innovation, continuous improvement, and manufacturing success driven by our significant investments in various R&D initiatives. We continue to invest significant financial resources in such initiatives, including approximately $0.4 billion for a dedicated R&D facility in the United States to support the implementation of our technology roadmap. We expect such R&D facility to feature a high-tech pilot manufacturing line, allowing for the production of full-sized prototypes of thin film and tandem PV modules. Such R&D facility is expected to be completed in 2024. During 2023, we expect to spend $1.9 billion to $2.1 billion for capital expenditures, including the new facilities mentioned above and upgrades to machinery and equipment that we believe will further increase our module wattage and expand capacity and throughput at our manufacturing facilities. These capital investments, and any other potential investments to implement our technology roadmap, may require significant internal and possibly external sources of capital, and may be subject to certain risks and uncertainties described in Item 1A. “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2022.

We have also committed and expect to continue committing 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 $3.7 billion of substrate glass and approximately $279 million of cover glass. We have the right to terminate these agreements upon payment of specified termination penalties (which, in aggregate, are up to $240 million as of March 31, 2023 and decline over the remaining supply periods). Additionally, for certain strategic suppliers, we have made, and may in the future be required to make, certain advance payments to secure the raw materials necessary for our module manufacturing.

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We have also committed certain financial resources to fulfill our solar module collection 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 March 31, 2023, such funds were comprised of restricted marketable securities of $196.6 million and restricted cash and cash equivalents balances of $2.6 million. As of March 31, 2023, our module collection and recycling liability was $130.3 million. Trust funds may be disbursed for qualified module collection and recycling costs (including capital and facility related recycling costs), payments to customers for assuming collection and recycling 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 adjust the funded amounts for our estimated collection and recycling obligations 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.

As of March 31, 2023, we had 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 13.11. “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 three months ended March 31, 2023 and 2022 (in thousands):
 Three Months Ended
March 31,
 20232022
Net cash used in operating activities$(34,598)$(138,839)
Net cash used in investing activities(645,227)(2,944)
Net cash provided by financing activities107,686 5,764 
Effect of exchange rate changes on cash, cash equivalents, restricted cash, and restricted cash equivalents1,495 15,162 
Net decrease in cash, cash equivalents, restricted cash, and restricted cash equivalents$(570,644)$(120,857)

Operating Activities

The decrease in net cash used in operating activities was primarily driven by higher expenditures for the construction of certain projects in Japan in the prior period and higher cash receipts from module sales in the current period, including advance payments for future sales, partially offset by certain advance payments for raw materials in the current period.

Investing Activities

The increase in net cash used in investing activities was primarily due to higher net purchases of marketable securities and restricted marketable securities and higher purchases of property, plant and equipment.

Financing Activities

The increase in net cash provided by financing activities was primarily due to higher borrowings under the India Credit Facility for the development and construction of our first manufacturing facility in India.

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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, 2016.2022.


Item 4.Controls and Procedures


Evaluation of Disclosure Controls and Procedures


We carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our “disclosure controls and procedures” as defined in Exchange Act Rule 13a-15(e) and 15d-15(e). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that as of September 30, 2017March 31, 2023 our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.


Changes in Internal Control over Financial Reporting


We also carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of our “internal control over financial reporting” as defined in Exchange Act Rule 13a-15(f) and 15d-15(f) to determine whether any changes in our internal control over financial reporting occurred during the three months ended September 30, 2017March 31, 2023 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Based on that evaluation, there were no such changes in our internal control over financial reporting that materially affected, or are reasonably likely to materially affect, our internal control over financial reportingoccurred during the three months ended September 30, 2017.March 31, 2023.


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 Companycompany 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.


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PART II.OTHER INFORMATION


Item 1.Legal Proceedings


See Note 13.11. “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, 2016,2022, 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 appearing below, thereThere 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, 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 profit remain subject to variability based on the availability and size of government subsidies and economic incentives. Federal, state, and local governmental bodies in many countries have provided subsidies in the form of feed-in-tariffs, rebates, tax incentives, and other incentives to end-users, 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, such changes could reduce 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 the U.S. presidential administration may create regulatory uncertainty in the renewable energy industry, including the solar industry, and our business, financial condition, and results of operations could be adversely affected. Members of the U.S. presidential administration, including representatives of the U.S. Department of Energy, have made public statements that indicate that the administration may not be supportive of various clean energy programs and initiatives designed to curtail climate change. For example, in June 2017, 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 to significant risks, including the following:

A reduction or removal of clean energy programs and initiatives and the incentives they provide may diminish the market for future solar energy offtake agreements and reduce the ability for solar developers to compete for future solar energy offtake agreements, which may reduce incentives for project developers to develop solar projects and purchase PV solar modules;

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”) and accelerated depreciation deductions could result in such investors generating reduced revenues and economic returns and facing a reduction in the availability of affordable financing, thereby reducing demand for PV solar modules. The ITC is a U.S. federal incentive that provides an income tax credit to the owner of the project after the project commences construction of up to 30% of eligible basis. A solar energy project must commence construction prior to January 1, 2020 and be placed in service prior to January 1, 2024 to qualify for the 30% ITC. A solar project that commences construction during 2020 and is placed in service 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 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. For example, in April 2017, a U.S.-based manufacturer of solar cells filed a petition under Sections 201 and 202 of the Trade Act of 1974 for global safeguard relief with the U.S. International Trade Commission (the “USITC”). Such petition requested, among other things, the imposition of certain tariffs on crystalline silicon solar cells imported into the United States and the establishment of a minimum price per watt on imported crystalline silicon solar modules. In September 2017, the USITC determined such products are being imported into the United States in such increased quantities as to be a substantial cause of serious injury to the relevant domestic industry. The USITC has proceeded to the remedy phase of its investigation, following which it may recommend remedies, such as tariffs, quotas, or trade adjustment assistance, 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-film solar cell products, such as our CdTe technology, are expressly excluded from the petition. However, it is unknown how the resolution of the petition, the scope or form of any resulting remedial action taken by the U.S. presidential administration, 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’s business, financial condition, and results of operations.

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

Item 5.Other Information

None.

Item 6.Exhibits


The following exhibits are filed with or incorporated by reference into this Quarterly Report on Form 10-Q:
Exhibit NumberExhibit Description
31.01
3.1
Amended and Restated Certificate of Incorporation of First Solar, Inc. (incorporated by reference to Exhibit 3.1 to First Solar, Inc.’s Registration Statement on Form S-1 filed on October 25, 2006)
3.2
Amended and Restated Bylaws of First Solar, Inc. (incorporated by reference to Exhibit 3.1 to First Solar, Inc.’s Form 8-K filed on July 23, 2021)
10.1*
Form of Grant Notice for 2023-2025 Executive Performance Equity Plan
10.2*
Form of Grant Notice for Restricted Stock Unit Award
31.1*
Certification of Chief Executive Officer pursuant to 15 U.S.C. Section 7241, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.02
31.2*
Certification of Chief Financial Officer pursuant to 15 U.S.C. Section 7241, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.01*32.1†
Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INSXBRL Instance Document – the instance document does not appear in the Interactive Data file because its XBRL tags are embedded within the Inline XBRL document
101.SCHXBRL Taxonomy Extension Schema Document
101.CALXBRL Taxonomy Extension Calculation Linkbase Document
101.DEFXBRL Taxonomy Extension Definition Linkbase Document
101.LABXBRL Taxonomy Label Linkbase Document
101.PREXBRL Taxonomy Extension Presentation Linkbase Document
104Cover page formatted as Inline XBRL and contained in Exhibit 101

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

*    Filed herewith.

†    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.

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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: April 27, 2023FIRST SOLAR, INC.By:/s/ BYRON JEFFERS
Name:Byron Jeffers
Date: October 26, 2017By:Title:/s/ BRYAN SCHUMAKER
Name:Bryan Schumaker
Title:Chief Accounting Officer



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