UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark one)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SeptemberJune 30, 20212022
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 001-33156
First Solar, Inc.
(Exact name of registrant as specified in its charter) | | | | | |
Delaware | 20-4623678 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
350 West Washington Street, Suite 600
Tempe, Arizona 8528185288
(Address of principal executive offices, including zip code)
(602) 414-9300
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: | | | | | | | | |
Title of each class | Trading symbol(s) | Name of each exchange on which registered |
Common stock, $0.001 par value | FSLR | The NASDAQ Stock Market LLC |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ 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 | ☒ | Accelerated filer | ☐ | Non-accelerated filer | ☐ |
Smaller reporting company | ☐ | Emerging growth 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 ☒
As of October 29, 2021, 106,326,700July 22, 2022, 106,594,563 shares of the registrant’s common stock, $0.001 par value per share, were outstanding.
FIRST SOLAR, INC.
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBERJUNE 30, 20212022
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (Unaudited)
FIRST SOLAR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited) | | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2021 | | 2020 | | 2021 | | 2020 | | 2022 | | 2021 | | 2022 | | 2021 |
Net sales | Net sales | | $ | 583,504 | | | $ | 927,565 | | | $ | 2,016,058 | | | $ | 2,102,100 | | Net sales | | $ | 620,955 | | | $ | 629,180 | | | $ | 987,995 | | | $ | 1,432,554 | |
Cost of sales | Cost of sales | | 458,924 | | | 634,550 | | | 1,532,593 | | | 1,581,287 | | Cost of sales | | 644,155 | | | 455,062 | | | 999,732 | | | 1,073,669 | |
Gross profit | | 124,580 | | | 293,015 | | | 483,465 | | | 520,813 | | |
Gross (loss) profit | | Gross (loss) profit | | (23,200) | | | 174,118 | | | (11,737) | | | 358,885 | |
Operating expenses: | Operating expenses: | | Operating expenses: | |
Selling, general and administrative | Selling, general and administrative | | 43,476 | | | 49,861 | | | 131,909 | | | 160,218 | | Selling, general and administrative | | 38,894 | | | 36,346 | | | 75,622 | | | 88,433 | |
Research and development | Research and development | | 25,426 | | | 22,972 | | | 69,234 | | | 71,068 | | Research and development | | 25,229 | | | 23,935 | | | 52,337 | | | 43,808 | |
Production start-up | Production start-up | | 2,945 | | | 13,019 | | | 16,014 | | | 23,812 | | Production start-up | | 13,231 | | | 1,715 | | | 20,569 | | | 13,069 | |
Litigation loss | | — | | | — | | | — | | | 6,000 | | |
Total operating expenses | Total operating expenses | | 71,847 | | | 85,852 | | | 217,157 | | | 261,098 | | Total operating expenses | | 77,354 | | | 61,996 | | | 148,528 | | | 145,310 | |
Gain on sales of businesses, net | Gain on sales of businesses, net | | (1,866) | | | — | | | 147,284 | | | — | | Gain on sales of businesses, net | | 245,381 | | | (1,745) | | | 247,288 | | | 149,150 | |
Operating income | Operating income | | 50,867 | | | 207,163 | | | 413,592 | | | 259,715 | | Operating income | | 144,827 | | | 110,377 | | | 87,023 | | | 362,725 | |
Foreign currency loss, net | Foreign currency loss, net | | (1,018) | | | (1,852) | | | (4,613) | | | (3,549) | | Foreign currency loss, net | | (2,984) | | | (1,000) | | | (7,182) | | | (3,595) | |
Interest income | Interest income | | 1,752 | | | 2,109 | | | 3,996 | | | 15,113 | | Interest income | | 2,880 | | | 1,288 | | | 5,205 | | | 2,244 | |
Interest expense, net | Interest expense, net | | (2,958) | | | (10,975) | | | (10,577) | | | (21,018) | | Interest expense, net | | (3,236) | | | (4,623) | | | (6,101) | | | (7,619) | |
Other (expense) income, net | Other (expense) income, net | | (2,603) | | | (3,236) | | | 2,598 | | | (8,653) | | Other (expense) income, net | | (1,883) | | | (3,247) | | | (2,095) | | | 5,201 | |
Income before taxes and equity in earnings | | 46,040 | | | 193,209 | | | 404,996 | | | 241,608 | | |
Income tax (expense) benefit | | (837) | | | (38,107) | | | (67,673) | | | 40,894 | | |
Equity in earnings, net of tax | | — | | | (65) | | | — | | | 150 | | |
Income before taxes | | Income before taxes | | 139,604 | | | 102,795 | | | 76,850 | | | 358,956 | |
Income tax expense | | Income tax expense | | (83,799) | | | (20,346) | | | (64,300) | | | (66,836) | |
Net income | Net income | | $ | 45,203 | | | $ | 155,037 | | | $ | 337,323 | | | $ | 282,652 | | Net income | | $ | 55,805 | | | $ | 82,449 | | | $ | 12,550 | | | $ | 292,120 | |
| Net income per share: | Net income per share: | | Net income per share: | |
Basic | Basic | | $ | 0.43 | | | $ | 1.46 | | | $ | 3.18 | | | $ | 2.67 | | Basic | | $ | 0.52 | | | $ | 0.78 | | | $ | 0.12 | | | $ | 2.75 | |
Diluted | Diluted | | $ | 0.42 | | | $ | 1.45 | | | $ | 3.16 | | | $ | 2.65 | | Diluted | | $ | 0.52 | | | $ | 0.77 | | | $ | 0.12 | | | $ | 2.73 | |
Weighted-average number of shares used in per share calculations: | Weighted-average number of shares used in per share calculations: | | | | | | | | | Weighted-average number of shares used in per share calculations: | | | | | | | | |
Basic | Basic | | 106,320 | | | 105,967 | | | 106,241 | | | 105,830 | | Basic | | 106,586 | | | 106,313 | | | 106,500 | | | 106,201 | |
Diluted | Diluted | | 106,899 | | | 106,751 | | | 106,879 | | | 106,537 | | Diluted | | 107,056 | | | 106,836 | | | 106,965 | | | 106,866 | |
See accompanying notes to these condensed consolidated financial statements.
FIRST SOLAR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited) | | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2021 | | 2020 | | 2021 | | 2020 | | 2022 | | 2021 | | 2022 | | 2021 |
Net income | Net income | | $ | 45,203 | | | $ | 155,037 | | | $ | 337,323 | | | $ | 282,652 | | Net income | | $ | 55,805 | | | $ | 82,449 | | | $ | 12,550 | | | $ | 292,120 | |
Other comprehensive (loss) income: | Other comprehensive (loss) income: | | Other comprehensive (loss) income: | |
Foreign currency translation adjustments | Foreign currency translation adjustments | | (1,915) | | | 3,242 | | | (11,341) | | | 552 | | Foreign currency translation adjustments | | (18,170) | | | 290 | | | (28,295) | | | (9,426) | |
Unrealized (loss) gain on marketable securities and restricted marketable securities, net of tax of $47, $(236), $1,134 and $(822) | | (3,486) | | | 6,148 | | | (19,961) | | | 20,826 | | |
Unrealized gain (loss) on derivative instruments, net of tax of $153, $55, $(545) and $(31) | | 118 | | | (1,827) | | | 4,284 | | | (1,741) | | |
Unrealized (loss) gain on marketable securities and restricted marketable securities, net of tax of $681, $(34), $1,927 and $1,087 | | Unrealized (loss) gain on marketable securities and restricted marketable securities, net of tax of $681, $(34), $1,927 and $1,087 | | (16,967) | | | 115 | | | (39,488) | | | (16,475) | |
Unrealized (loss) gain on derivative instruments, net of tax of $1,541, $(61), $1,635 and $(698) | | Unrealized (loss) gain on derivative instruments, net of tax of $1,541, $(61), $1,635 and $(698) | | (5,643) | | | 784 | | | (6,085) | | | 4,166 | |
Other comprehensive (loss) income | Other comprehensive (loss) income | | (5,283) | | | 7,563 | | | (27,018) | | | 19,637 | | Other comprehensive (loss) income | | (40,780) | | | 1,189 | | | (73,868) | | | (21,735) | |
Comprehensive income | | $ | 39,920 | | | $ | 162,600 | | | $ | 310,305 | | | $ | 302,289 | | |
Comprehensive income (loss) | | Comprehensive income (loss) | | $ | 15,025 | | | $ | 83,638 | | | $ | (61,318) | | | $ | 270,385 | |
See accompanying notes to these condensed consolidated financial statements.
FIRST SOLAR, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited) | | | | September 30, 2021 | | December 31, 2020 | | | June 30, 2022 | | December 31, 2021 |
ASSETS | ASSETS | | | | | ASSETS | | | | |
Current assets: | Current assets: | | | Current assets: | | |
Cash and cash equivalents | | $ | 1,367,464 | | | $ | 1,227,002 | | |
Marketable securities (amortized cost of $554,897 and $519,844 and allowance for credit losses of $133 and $121 at September 30, 2021 and December 31, 2020, respectively) | | 554,601 | | | 520,066 | | |
Accounts receivable trade | | 249,771 | | | 269,095 | | |
Less: allowance for credit losses | | (1,430) | | | (3,009) | | |
Cash | | Cash | | $ | 1,701,217 | | | $ | 1,450,654 | |
Marketable securities | | Marketable securities | | 143,944 | | | 375,389 | |
Accounts receivable trade, net | Accounts receivable trade, net | | 248,341 | | | 266,086 | | Accounts receivable trade, net | | 454,431 | | | 429,436 | |
Accounts receivable, unbilled | | 25,053 | | | 26,673 | | |
Less: allowance for credit losses | | (51) | | | (303) | | |
Accounts receivable, unbilled, net | | 25,002 | | | 26,370 | | |
Accounts receivable unbilled, net | | Accounts receivable unbilled, net | | 35,438 | | | 25,273 | |
Inventories | Inventories | | 647,439 | | | 567,587 | | Inventories | | 810,461 | | | 666,299 | |
Assets held for sale | | — | | | 155,685 | | |
Prepaid expenses and other current assets | | 203,478 | | | 251,739 | | |
Other current assets | | Other current assets | | 237,926 | | | 244,192 | |
Total current assets | Total current assets | | 3,046,325 | | | 3,014,535 | | Total current assets | | 3,383,417 | | | 3,191,243 | |
Property, plant and equipment, net | Property, plant and equipment, net | | 2,505,921 | | | 2,402,285 | | Property, plant and equipment, net | | 2,988,979 | | | 2,649,587 | |
PV solar power systems, net | PV solar power systems, net | | 230,423 | | | 243,396 | | PV solar power systems, net | | 156,215 | | | 217,293 | |
Project assets | Project assets | | 335,259 | | | 373,377 | | Project assets | | 29,589 | | | 315,488 | |
Deferred tax assets, net | Deferred tax assets, net | | 108,387 | | | 104,099 | | Deferred tax assets, net | | 61,732 | | | 59,162 | |
Restricted marketable securities (amortized cost of $254,659 and $247,628 and allowance for credit losses of $53 and $13 at September 30, 2021 and December 31, 2020, respectively) | | 251,379 | | | 265,280 | | |
Restricted marketable securities | | Restricted marketable securities | | 200,266 | | | 244,726 | |
Goodwill | Goodwill | | 14,462 | | | 14,462 | | Goodwill | | 14,462 | | | 14,462 | |
Intangible assets, net | Intangible assets, net | | 47,935 | | | 56,138 | | Intangible assets, net | | 38,728 | | | 45,509 | |
Inventories | Inventories | | 236,446 | | | 201,229 | | Inventories | | 239,025 | | | 237,512 | |
Other assets | Other assets | | 492,093 | | | 434,130 | | Other assets | | 306,956 | | | 438,764 | |
Total assets | Total assets | | $ | 7,268,630 | | | $ | 7,108,931 | | Total assets | | $ | 7,419,369 | | | $ | 7,413,746 | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | |
Current liabilities: | Current liabilities: | | | | | Current liabilities: | | | | |
Accounts payable | Accounts payable | | $ | 170,041 | | | $ | 183,349 | | Accounts payable | | $ | 160,963 | | | $ | 193,374 | |
Income taxes payable | Income taxes payable | | 12,984 | | | 14,571 | | Income taxes payable | | 29,441 | | | 4,543 | |
Accrued expenses | Accrued expenses | | 231,163 | | | 310,467 | | Accrued expenses | | 344,205 | | | 288,450 | |
Current portion of long-term debt | Current portion of long-term debt | | 37,129 | | | 41,540 | | Current portion of long-term debt | | 5,150 | | | 3,896 | |
Deferred revenue | Deferred revenue | | 238,810 | | | 188,813 | | Deferred revenue | | 227,466 | | | 201,868 | |
Liabilities held for sale | | — | | | 25,621 | | |
Other current liabilities | Other current liabilities | | 25,109 | | | 83,037 | | Other current liabilities | | 36,329 | | | 34,747 | |
Total current liabilities | Total current liabilities | | 715,236 | | | 847,398 | | Total current liabilities | | 803,554 | | | 726,878 | |
Accrued solar module collection and recycling liability | Accrued solar module collection and recycling liability | | 140,019 | | | 130,688 | | Accrued solar module collection and recycling liability | | 134,146 | | | 139,145 | |
Long-term debt | Long-term debt | | 241,483 | | | 237,691 | | Long-term debt | | 170,017 | | | 236,005 | |
Other liabilities | Other liabilities | | 341,817 | | | 372,226 | | Other liabilities | | 415,825 | | | 352,167 | |
Total liabilities | Total liabilities | | 1,438,555 | | | 1,588,003 | | Total liabilities | | 1,523,542 | | | 1,454,195 | |
Commitments and contingencies | Commitments and contingencies | | 0 | | 0 | Commitments and contingencies | | 0 | | 0 |
Stockholders’ equity: | Stockholders’ equity: | | Stockholders’ equity: | |
Common stock, $0.001 par value per share; 500,000,000 shares authorized; 106,326,000 and 105,980,466 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively | | 106 | | | 106 | | |
Common stock, $0.001 par value per share; 500,000,000 shares authorized; 106,594,255 and 106,332,315 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively | | Common stock, $0.001 par value per share; 500,000,000 shares authorized; 106,594,255 and 106,332,315 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively | | 107 | | | 106 | |
Additional paid-in capital | Additional paid-in capital | | 2,865,628 | | | 2,866,786 | | Additional paid-in capital | | 2,868,945 | | | 2,871,352 | |
Accumulated earnings | Accumulated earnings | | 3,053,085 | | | 2,715,762 | | Accumulated earnings | | 3,197,005 | | | 3,184,455 | |
Accumulated other comprehensive loss | Accumulated other comprehensive loss | | (88,744) | | | (61,726) | | Accumulated other comprehensive loss | | (170,230) | | | (96,362) | |
Total stockholders’ equity | Total stockholders’ equity | | 5,830,075 | | | 5,520,928 | | Total stockholders’ equity | | 5,895,827 | | | 5,959,551 | |
Total liabilities and stockholders’ equity | Total liabilities and stockholders’ equity | | $ | 7,268,630 | | | $ | 7,108,931 | | Total liabilities and stockholders’ equity | | $ | 7,419,369 | | | $ | 7,413,746 | |
See accompanying notes to these condensed consolidated financial statements.
FIRST SOLAR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands)
(Unaudited) | | | Three Months Ended September 30, 2021 | | Three Months Ended June 30, 2022 |
| | | Common Stock | | Additional Paid-In Capital | | Accumulated Earnings | | Accumulated Other Comprehensive (Loss) Income | | Total Stockholders' Equity | | | Common Stock | | Additional Paid-In Capital | | Accumulated Earnings | | Accumulated Other Comprehensive (Loss) Income | | Total Stockholders' Equity |
| | | Shares | | Amount | | | | Shares | | Amount | |
Balance at June 30, 2021 | | 106,319 | | | $ | 106 | | | $ | 2,859,108 | | | $ | 3,007,882 | | | $ | (83,461) | | | $ | 5,783,635 | | |
Balance at March 31, 2022 | | Balance at March 31, 2022 | | 106,583 | | | $ | 107 | | | $ | 2,863,318 | | | $ | 3,141,200 | | | $ | (129,450) | | | $ | 5,875,175 | |
Net income | Net income | | — | | | — | | | — | | | 45,203 | | | — | | | 45,203 | | Net income | | — | | | — | | | — | | | 55,805 | | | — | | | 55,805 | |
Other comprehensive loss | Other comprehensive loss | | — | | | — | | | — | | | — | | | (5,283) | | | (5,283) | | Other comprehensive loss | | — | | | — | | | — | | | — | | | (40,780) | | | (40,780) | |
Common stock issued for share-based compensation | Common stock issued for share-based compensation | | 8 | | | — | | | — | | | — | | | — | | | — | | Common stock issued for share-based compensation | | 12 | | | — | | | — | | | — | | | — | | | — | |
Tax withholding related to vesting of restricted stock | Tax withholding related to vesting of restricted stock | | (1) | | | — | | | (67) | | | — | | | — | | | (67) | | Tax withholding related to vesting of restricted stock | | (1) | | | — | | | (86) | | | — | | | — | | | (86) | |
Share-based compensation expense | Share-based compensation expense | | — | | | — | | | 6,587 | | | — | | | — | | | 6,587 | | Share-based compensation expense | | — | | | — | | | 5,713 | | | — | | | — | | | 5,713 | |
Balance at September 30, 2021 | | 106,326 | | | $ | 106 | | | $ | 2,865,628 | | | $ | 3,053,085 | | | $ | (88,744) | | | $ | 5,830,075 | | |
Balance at June 30, 2022 | | Balance at June 30, 2022 | | 106,594 | | | $ | 107 | | | $ | 2,868,945 | | | $ | 3,197,005 | | | $ | (170,230) | | | $ | 5,895,827 | |
| | | Three Months Ended September 30, 2020 | | Three Months Ended June 30, 2021 |
| | | Common Stock | | Additional Paid-In Capital | | Accumulated Earnings | | Accumulated Other Comprehensive (Loss) Income | | Total Stockholders' Equity | | | Common Stock | | Additional Paid-In Capital | | Accumulated Earnings | | Accumulated Other Comprehensive (Loss) Income | | Total Stockholders' Equity |
| | | Shares | | Amount | | | | Shares | | Amount | |
Balance at June 30, 2020 | | 105,961 | | | $ | 106 | | | $ | 2,848,928 | | | $ | 2,445,022 | | | $ | (67,260) | | | $ | 5,226,796 | | |
| Balance at March 31, 2021 | | Balance at March 31, 2021 | | 106,311 | | | $ | 106 | | | $ | 2,853,891 | | | $ | 2,925,433 | | | $ | (84,650) | | | $ | 5,694,780 | |
Net income | Net income | | — | | | — | | | — | | | 155,037 | | | — | | | 155,037 | | Net income | | — | | | — | | | — | | | 82,449 | | | — | | | 82,449 | |
Other comprehensive income | Other comprehensive income | | — | | | — | | | — | | | — | | | 7,563 | | | 7,563 | | Other comprehensive income | | — | | | — | | | — | | | — | | | 1,189 | | | 1,189 | |
Common stock issued for share-based compensation | Common stock issued for share-based compensation | | 19 | | | — | | | — | | | — | | | — | | | — | | Common stock issued for share-based compensation | | 10 | | | — | | | — | | | — | | | — | | | — | |
Tax withholding related to vesting of restricted stock | Tax withholding related to vesting of restricted stock | | (5) | | | — | | | (289) | | | — | | | — | | | (289) | | Tax withholding related to vesting of restricted stock | | (2) | | | — | | | (121) | | | — | | | — | | | (121) | |
Share-based compensation expense | Share-based compensation expense | | — | | | — | | | 7,006 | | | — | | | — | | | 7,006 | | Share-based compensation expense | | — | | | — | | | 5,338 | | | — | | | — | | | 5,338 | |
Balance at September 30, 2020 | | 105,975 | | | $ | 106 | | | $ | 2,855,645 | | | $ | 2,600,059 | | | $ | (59,697) | | | $ | 5,396,113 | | |
Balance at June 30, 2021 | | Balance at June 30, 2021 | | 106,319 | | | $ | 106 | | | $ | 2,859,108 | | | $ | 3,007,882 | | | $ | (83,461) | | | $ | 5,783,635 | |
See accompanying notes to these condensed consolidated financial statements.
FIRST SOLAR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (CONTINUED)
(In thousands)
(Unaudited) | | | | Six Months Ended June 30, 2022 |
| | | Common Stock | | Additional Paid-In Capital | | Accumulated Earnings | | Accumulated Other Comprehensive (Loss) Income | | Total Stockholders' Equity |
| | | Shares | | Amount | |
Balance at December 31, 2021 | | Balance at December 31, 2021 | | 106,332 | | | $ | 106 | | | $ | 2,871,352 | | | $ | 3,184,455 | | | $ | (96,362) | | | $ | 5,959,551 | |
Net income | | Net income | | — | | | — | | | — | | | 12,550 | | | — | | | 12,550 | |
Other comprehensive loss | | Other comprehensive loss | | — | | | — | | | — | | | — | | | (73,868) | | | (73,868) | |
Common stock issued for share-based compensation | | Common stock issued for share-based compensation | | 426 | | | 1 | | | — | | | — | | | — | | | 1 | |
Tax withholding related to vesting of restricted stock | | Tax withholding related to vesting of restricted stock | | (164) | | | — | | | (11,591) | | | — | | | — | | | (11,591) | |
Share-based compensation expense | | Share-based compensation expense | | — | | | — | | | 9,184 | | | — | | | — | | | 9,184 | |
Balance at June 30, 2022 | | Balance at June 30, 2022 | | 106,594 | | | $ | 107 | | | $ | 2,868,945 | | | $ | 3,197,005 | | | $ | (170,230) | | | $ | 5,895,827 | |
| | | Nine Months Ended September 30, 2021 | | Six Months Ended June 30, 2021 |
| | | Common Stock | | Additional Paid-In Capital | | Accumulated Earnings | | Accumulated Other Comprehensive (Loss) Income | | Total Stockholders' Equity | | Common Stock | | Additional Paid-In Capital | | Accumulated Earnings | | Accumulated Other Comprehensive (Loss) Income | | Total Stockholders' Equity |
| | | Shares | | Amount | | | Shares | | Amount | |
Balance at December 31, 2020 | Balance at December 31, 2020 | | 105,980 | | | $ | 106 | | | $ | 2,866,786 | | | $ | 2,715,762 | | | $ | (61,726) | | | $ | 5,520,928 | | Balance at December 31, 2020 | | 105,980 | | | $ | 106 | | | $ | 2,866,786 | | | $ | 2,715,762 | | | $ | (61,726) | | | $ | 5,520,928 | |
Net income | Net income | | — | | | — | | | — | | | 337,323 | | | — | | | 337,323 | | Net income | | — | | | — | | | — | | | 292,120 | | | — | | | 292,120 | |
Other comprehensive loss | Other comprehensive loss | | — | | | — | | | — | | | — | | | (27,018) | | | (27,018) | | Other comprehensive loss | | — | | | — | | | — | | | — | | | (21,735) | | | (21,735) | |
Common stock issued for share-based compensation | Common stock issued for share-based compensation | | 554 | | | — | | | — | | | — | | | — | | | — | | Common stock issued for share-based compensation | | 546 | | | — | | | — | | | — | | | — | | | — | |
Tax withholding related to vesting of restricted stock | Tax withholding related to vesting of restricted stock | | (208) | | | — | | | (15,877) | | | — | | | — | | | (15,877) | | Tax withholding related to vesting of restricted stock | | (207) | | | — | | | (15,810) | | | — | | | — | | | (15,810) | |
Share-based compensation expense | Share-based compensation expense | | — | | | — | | | 14,719 | | | — | | | — | | | 14,719 | | Share-based compensation expense | | — | | | — | | | 8,132 | | | — | | | — | | | 8,132 | |
Balance at September 30, 2021 | | 106,326 | | | $ | 106 | | | $ | 2,865,628 | | | $ | 3,053,085 | | | $ | (88,744) | | | $ | 5,830,075 | | |
| | Nine Months Ended September 30, 2020 | |
| | Common Stock | | Additional Paid-In Capital | | Accumulated Earnings | | Accumulated Other Comprehensive (Loss) Income | | Total Stockholders' Equity | |
| | Shares | | Amount | | |
Balance at December 31, 2019 | | 105,449 | | | $ | 105 | | | $ | 2,849,376 | | | $ | 2,326,620 | | | $ | (79,334) | | | $ | 5,096,767 | | |
Cumulative-effect adjustment for the adoption of ASU 2016-13 | | — | | | — | | | — | | | (9,213) | | | — | | | (9,213) | | |
Net income | | — | | | — | | | — | | | 282,652 | | | — | | | 282,652 | | |
Other comprehensive income | | — | | | — | | | — | | | — | | | 19,637 | | | 19,637 | | |
Common stock issued for share-based compensation | | 808 | | | 1 | | | 1,362 | | | — | | | — | | | 1,363 | | |
Tax withholding related to vesting of restricted stock | | (282) | | | — | | | (13,053) | | | — | | | — | | | (13,053) | | |
Share-based compensation expense | | — | | | — | | | 17,960 | | | — | | | — | | | 17,960 | | |
Balance at September 30, 2020 | | 105,975 | | | $ | 106 | | | $ | 2,855,645 | | | $ | 2,600,059 | | | $ | (59,697) | | | $ | 5,396,113 | | |
Balance at June 30, 2021 | | Balance at June 30, 2021 | | 106,319 | | | $ | 106 | | | $ | 2,859,108 | | | $ | 3,007,882 | | | $ | (83,461) | | | $ | 5,783,635 | |
See accompanying notes to these condensed consolidated financial statements.
FIRST SOLAR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited) | | | | Nine Months Ended September 30, | | | Six Months Ended June 30, |
| | 2021 | | 2020 | | 2022 | | 2021 |
Cash flows from operating activities: | Cash flows from operating activities: | | | | | Cash flows from operating activities: | | | | |
Net income | Net income | | $ | 337,323 | | | $ | 282,652 | | Net income | | $ | 12,550 | | | $ | 292,120 | |
Adjustments to reconcile net income to cash provided by (used in) operating activities: | | |
Adjustments to reconcile net income to cash used in operating activities: | | Adjustments to reconcile net income to cash used in operating activities: | |
Depreciation, amortization and accretion | Depreciation, amortization and accretion | | 194,606 | | | 173,277 | | Depreciation, amortization and accretion | | 131,760 | | | 128,913 | |
Impairments and net losses on disposal of long-lived assets | Impairments and net losses on disposal of long-lived assets | | 9,083 | | | 24,600 | | Impairments and net losses on disposal of long-lived assets | | 62,688 | | | 5,264 | |
Share-based compensation | Share-based compensation | | 14,974 | | | 18,189 | | Share-based compensation | | 9,267 | | | 8,545 | |
Deferred income taxes | Deferred income taxes | | (13,450) | | | (77,970) | | Deferred income taxes | | (5,576) | | | (12,317) | |
Gain on sales of businesses, net | Gain on sales of businesses, net | | (147,284) | | | — | | Gain on sales of businesses, net | | (247,288) | | | (149,150) | |
Gains on sales of marketable securities and restricted marketable securities | Gains on sales of marketable securities and restricted marketable securities | | (11,696) | | | (15,346) | | Gains on sales of marketable securities and restricted marketable securities | | — | | | (11,696) | |
Liabilities assumed by customers for the sale of systems | | — | | | (136,745) | | |
| Other, net | Other, net | | (2,909) | | | 16,289 | | Other, net | | (392) | | | (1,459) | |
Changes in operating assets and liabilities: | Changes in operating assets and liabilities: | | Changes in operating assets and liabilities: | |
Accounts receivable, trade and unbilled | Accounts receivable, trade and unbilled | | 79,565 | | | 330,090 | | Accounts receivable, trade and unbilled | | 145,784 | | | (255,832) | |
Prepaid expenses and other current assets | | (52,275) | | | 8,467 | | |
Other current assets | | Other current assets | | (25,472) | | | (43,993) | |
Inventories | Inventories | | (116,017) | | | (142,017) | | Inventories | | (160,456) | | | (61,942) | |
Project assets and PV solar power systems | Project assets and PV solar power systems | | 11,945 | | | 183,163 | | Project assets and PV solar power systems | | (160,300) | | | 40,558 | |
Other assets | Other assets | | (39,264) | | | (30,804) | | Other assets | | (29,682) | | | (17,750) | |
Income tax receivable and payable | Income tax receivable and payable | | 22,615 | | | 9,160 | | Income tax receivable and payable | | 42,679 | | | 37,158 | |
Accounts payable | Accounts payable | | 879 | | | (58,311) | | Accounts payable | | (29,875) | | | (10,795) | |
Accrued expenses and other liabilities | Accrued expenses and other liabilities | | (95,685) | | | (720,756) | | Accrued expenses and other liabilities | | 203,492 | | | (49,853) | |
Accrued solar module collection and recycling liability | | 10,682 | | | (13,136) | | |
Net cash provided by (used in) operating activities | | 203,092 | | | (149,198) | | |
Net cash used in operating activities | | Net cash used in operating activities | | (50,821) | | | (102,229) | |
Cash flows from investing activities: | Cash flows from investing activities: | | | | | Cash flows from investing activities: | | | | |
Purchases of property, plant and equipment | Purchases of property, plant and equipment | | (345,399) | | | (327,284) | | Purchases of property, plant and equipment | | (353,448) | | | (180,782) | |
Purchases of marketable securities and restricted marketable securities | | (1,107,704) | | | (642,993) | | |
Purchases of marketable securities | | Purchases of marketable securities | | (971,205) | | | (389,352) | |
Proceeds from sales and maturities of marketable securities and restricted marketable securities | Proceeds from sales and maturities of marketable securities and restricted marketable securities | | 1,075,768 | | | 1,100,176 | | Proceeds from sales and maturities of marketable securities and restricted marketable securities | | 1,198,254 | | | 749,447 | |
Proceeds from sales of businesses | | 300,499 | | | — | | |
Proceeds from sales of businesses, net of cash and restricted cash sold | | Proceeds from sales of businesses, net of cash and restricted cash sold | | 264,614 | | | 297,403 | |
Other investing activities | Other investing activities | | (6,453) | | | (13,577) | | Other investing activities | | 72 | | | (6,628) | |
Net cash (used in) provided by investing activities | | (83,289) | | | 116,322 | | |
Net cash provided by investing activities | | Net cash provided by investing activities | | 138,287 | | | 470,088 | |
Cash flows from financing activities: | Cash flows from financing activities: | | | | | Cash flows from financing activities: | | | | |
Repayment of long-term debt | Repayment of long-term debt | | (38,471) | | | (224,643) | | Repayment of long-term debt | | (75,879) | | | (38,471) | |
Proceeds from borrowings under long-term debt, net of discounts and issuance costs | Proceeds from borrowings under long-term debt, net of discounts and issuance costs | | 45,138 | | | 140,304 | | Proceeds from borrowings under long-term debt, net of discounts and issuance costs | | 213,086 | | | 45,191 | |
Payments of tax withholdings for restricted shares | Payments of tax withholdings for restricted shares | | (15,877) | | | (13,053) | | Payments of tax withholdings for restricted shares | | (11,591) | | | (15,810) | |
Other financing activities | | — | | | (804) | | |
Net cash used in financing activities | | (9,210) | | | (98,196) | | |
| Net cash provided by (used in) financing activities | | Net cash provided by (used in) financing activities | | 125,616 | | | (9,090) | |
Effect of exchange rate changes on cash, cash equivalents and restricted cash | Effect of exchange rate changes on cash, cash equivalents and restricted cash | | 1,687 | | | 1,251 | | Effect of exchange rate changes on cash, cash equivalents and restricted cash | | 39,934 | | | 906 | |
Net increase (decrease) in cash, cash equivalents and restricted cash | | 112,280 | | | (129,821) | | |
Net increase in cash, cash equivalents and restricted cash | | Net increase in cash, cash equivalents and restricted cash | | 253,016 | | | 359,675 | |
Cash, cash equivalents and restricted cash, beginning of the period | Cash, cash equivalents and restricted cash, beginning of the period | | 1,273,594 | | | 1,446,510 | | Cash, cash equivalents and restricted cash, beginning of the period | | 1,455,837 | | | 1,273,594 | |
Cash, cash equivalents and restricted cash, end of the period | Cash, cash equivalents and restricted cash, end of the period | | $ | 1,385,874 | | | $ | 1,316,689 | | Cash, cash equivalents and restricted cash, end of the period | | $ | 1,708,853 | | | $ | 1,633,269 | |
Supplemental disclosure of noncash investing and financing activities: | Supplemental disclosure of noncash investing and financing activities: | | | | | Supplemental disclosure of noncash investing and financing activities: | | | | |
Property, plant and equipment acquisitions funded by liabilities | Property, plant and equipment acquisitions funded by liabilities | | $ | 50,415 | | | $ | 129,384 | | Property, plant and equipment acquisitions funded by liabilities | | $ | 178,807 | | | $ | 43,894 | |
Proceeds to be received from sales of businesses | | Proceeds to be received from sales of businesses | | $ | 163,966 | | | $ | 4,482 | |
See accompanying notes to these condensed consolidated financial statements.
FIRST SOLAR, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of First Solar, Inc. and its subsidiaries in this Quarterly Report have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) for interim financial information and pursuant to the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission (the “SEC”). Accordingly, these interim financial statements do not include all of the information and footnotes required by U.S. GAAP for annual financial statements. In the opinion of First Solar management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair statement have been included. Certain prior period balances have been reclassified to conform to the current period presentation.
The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Despite our intention to establish accurate estimates and reasonable assumptions, actual results could differ materially from such estimates and assumptions. Operating results for the three and ninesix months ended SeptemberJune 30, 20212022 are not necessarily indicative of the results that may be expected for the year ending December 31, 20212022 or for any other period. The condensed consolidated balance sheet at December 31, 20202021 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, 20202021 included in our Annual Report on Form 10-K, which has been filed with the SEC.
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 consolidated subsidiaries, and the term “condensed consolidated financial statements” refers to the accompanying unaudited condensed consolidated financial statements contained in this Quarterly Report.
2. Sales of Businesses
Sale of North American O&M operationsJapan Project Development Business
Following an evaluationIn May 2022, we entered into various agreements with certain subsidiaries of PAG Real Assets (“PAG”), a private investment firm, for the long-term cost structure, competitiveness, and risk-adjusted returnssale of our O&M servicesJapan project development business. The transaction included our approximately 293 MWDC utility-scale solar project development platform, which comprised the business of developing, contracting for the construction of, and selling utility-scale photovoltaic (“PV”) solar power systems. Additionally, PAG has agreed to certain module purchase commitments.
On June 30, 2022, we completed the sale of our Japan project development business for an aggregate purchase price of ¥66.4 billion ($488.4 million), subject to certain customary post-closing adjustments. On the closing date, we received an offerproceeds of ¥44.1 billion ($324.5 million) and transferred cash and restricted cash of ¥8.4 billion ($61.9 million) to purchase certain portionsPAG. As a result of the businessthis transaction, we recognized a gain of $245.4 million, net of transaction costs, which was included in “Gain on sales of businesses, net” in our condensed consolidated statements of operations.
Sales of North American and determined it was in the best interest of our stockholders to pursue the transaction. Accordingly, inInternational O&M Operations
In August 2020, we entered into an agreement with a subsidiary of Clairvest Group, Inc. (“Clairvest”) for the sale of our North American operations and maintenance (“O&M&M”) operations.
On In March 31, 2021, we completed the transaction. Following certain customary post-closing adjustments, wetransaction and received totalinitial consideration of $149.1$146.0 million. As a result of this transaction, we recognized a gain of $115.8$117.8 million, net of transaction costs, and post-closing adjustments, during the ninesix months ended SeptemberJune 30, 2021, which was included in “Gain on sales of businesses, net” in our condensed consolidated statements of operations. The assets
In January 2022, we completed the sale of certain international O&M operations to a separate subsidiary of Clairvest for consideration of $1.9 million. As a result of this transaction, we recognized a gain of $1.6 million, net of transaction costs and liabilities associated with this business were classified as held for salepost-closing adjustments, during the six months ended June 30, 2022, which was included in “Gain on sales of businesses, net” in our condensed consolidated balance sheet asstatements of December 31, 2020.operations.
Sale of U.S. project development businessProject Development Business
Following a separate evaluation of the long-term cost structure, competitiveness, and risk-adjusted returns of our U.S. project development business, we determined it was also in the best interest of our stockholders to pursue the sale of this business. In January 2021, we entered into an agreement with Leeward Renewable Energy Development, LLC (“Leeward”), a subsidiary of the Ontario Municipal Employees Retirement System, for the sale of our U.S. project development business, which included developing, contracting for the construction of, and selling utility-scale photovoltaic (“PV”) solar power systems in the United States. The transaction included our approximately 10 GWAC utility-scale solar project pipeline, including the advanced-stage Horizon, Madison, Ridgely, Rabbitbrush, and Oak Trail projects, which are expected to commence construction in the next two years; the 30MWAC Barilla Solar project, which is operational; and certain other equipment.business. In addition, Leeward agreed to certain module purchase commitments.
On March 31, 2021, we completed the transaction for an aggregate purchase priceand received consideration of $284.0 million. Such purchase price included $151.4 million for the sale of the U.S. project development business and $132.6 million for the salesuch business. As a result of 392 MWDC of solar modules, which is presented in “Net sales” on our condensed consolidated statements of operations for the nine months ended September 30, 2021.
During the nine months ended September 30, 2021,this transaction, we recognized a gain of $31.5 million, net of transaction costs, and post-closing adjustments, fromduring the sale of our U.S. project development business,six months ended June 30, 2021, which iswas included in “Gain on sales of businesses, net” in our condensed consolidated statements of operations. The assets and liabilities associated with this business were classified as held for sale in our condensed consolidated balance sheet as of December 31, 2020.
3. Cash Cash Equivalents, and Marketable Securities
Cash cash equivalents, and marketable securities consisted of the following at SeptemberJune 30, 20212022 and December 31, 20202021 (in thousands):
| | | September 30, 2021 | | December 31, 2020 | | June 30, 2022 | | December 31, 2021 |
Cash and cash equivalents: | | | | | |
Cash | Cash | | $ | 1,367,462 | | | $ | 1,227,000 | | Cash | | $ | 1,701,217 | | | $ | 1,450,654 | |
Money market funds | | 2 | | | 2 | | |
Total cash and cash equivalents | | 1,367,464 | | | 1,227,002 | | |
Marketable securities: | Marketable securities: | | | | | Marketable securities: | |
Foreign debt | Foreign debt | | 147,445 | | | 214,254 | | Foreign debt | | 52,161 | | | 103,317 | |
U.S. debt | U.S. debt | | 18,710 | | | 14,543 | | U.S. debt | | 8,702 | | | 18,627 | |
Time deposits | Time deposits | | 388,446 | | | 291,269 | | Time deposits | | 83,081 | | | 253,445 | |
Total marketable securities | Total marketable securities | | 554,601 | | | 520,066 | | Total marketable securities | | 143,944 | | | 375,389 | |
Total cash, cash equivalents, and marketable securities | | $ | 1,922,065 | | | $ | 1,747,068 | | |
Total cash and marketable securities | | Total cash and marketable securities | | $ | 1,845,161 | | | $ | 1,826,043 | |
The following table provides a reconciliation of cash cash equivalents, and restricted cash reported within our condensed consolidated balance sheets as of SeptemberJune 30, 20212022 and December 31, 20202021 to the total of such amounts as presented in the condensed consolidated statements of cash flows (in thousands):
| | | Balance Sheet Line Item | | September 30, 2021 | | December 31, 2020 | | Balance Sheet Line Item | | June 30, 2022 | | December 31, 2021 |
Cash and cash equivalents | | Cash and cash equivalents | | $ | 1,367,464 | | | $ | 1,227,002 | | |
Cash | | Cash | | Cash | | $ | 1,701,217 | | | $ | 1,450,654 | |
Restricted cash – current | Restricted cash – current | | Prepaid expenses and other current assets | | 1,181 | | | 1,745 | | Restricted cash – current | | Other current assets | | 1,130 | | | 1,532 | |
Restricted cash – noncurrent | Restricted cash – noncurrent | | Other assets | | 17,229 | | | 44,847 | | Restricted cash – noncurrent | | Other assets | | 6,506 | | | 3,651 | |
Total cash, cash equivalents, and restricted cash | | $ | 1,385,874 | | | $ | 1,273,594 | | |
Total cash and restricted cash | | Total cash and restricted cash | | $ | 1,708,853 | | | $ | 1,455,837 | |
During the ninesix months ended SeptemberJune 30, 2021, we sold marketable securities for proceeds of $5.5 million and realized gains of less than $0.1 million on such sales. During the three and nine months ended September 30, 2020, we sold marketable securities for proceeds of $27.6 million and $188.1 million, respectively, and realized gains of less than $0.1 million and $0.2 million, respectively, on such sales. See Note 8. “Fair Value Measurements” to our condensed consolidated financial statements for information about the fair value of our marketable securities.
The following tables summarize the unrealized gains and losses related to our available-for-sale marketable securities, by major security type, as of SeptemberJune 30, 20212022 and December 31, 20202021 (in thousands):
| | | | As of September 30, 2021 | | | As of June 30, 2022 |
| | Amortized Cost | | Unrealized Gains | | Unrealized Losses | | Allowance for Credit Losses | | Fair Value | | Amortized Cost | | Unrealized Gains | | Unrealized Losses | | Allowance for Credit Losses | | Fair Value |
Foreign debt | Foreign debt | | $ | 147,312 | | | $ | 133 | | | $ | — | | | $ | — | | | $ | 147,445 | | Foreign debt | | $ | 52,208 | | | $ | 1 | | | $ | 31 | | | $ | 17 | | | $ | 52,161 | |
U.S. debt | U.S. debt | | 19,009 | | | 13 | | | 309 | | | 3 | | | 18,710 | | U.S. debt | | 10,000 | | | — | | | 1,296 | | | 2 | | | 8,702 | |
Time deposits | Time deposits | | 388,576 | | | — | | | — | | | 130 | | | 388,446 | | Time deposits | | 83,102 | | | — | | | — | | | 21 | | | 83,081 | |
Total | Total | | $ | 554,897 | | | $ | 146 | | | $ | 309 | | | $ | 133 | | | $ | 554,601 | | Total | | $ | 145,310 | | | $ | 1 | | | $ | 1,327 | | | $ | 40 | | | $ | 143,944 | |
| | | | As of December 31, 2020 | | | As of December 31, 2021 |
| | Amortized Cost | | Unrealized Gains | | Unrealized Losses | | Allowance for Credit Losses | | Fair Value | | Amortized Cost | | Unrealized Gains | | Unrealized Losses | | Allowance for Credit Losses | | Fair Value |
Foreign debt | Foreign debt | | $ | 213,949 | | | $ | 367 | | | $ | 46 | | | $ | 16 | | | $ | 214,254 | | Foreign debt | | $ | 103,263 | | | $ | 81 | | | $ | 18 | | | $ | 9 | | | $ | 103,317 | |
U.S. debt | U.S. debt | | 14,521 | | | 22 | | | — | | | — | | | 14,543 | | U.S. debt | | 19,003 | | | 10 | | | 384 | | | 2 | | | 18,627 | |
Time deposits | Time deposits | | 291,374 | | | — | | | — | | | 105 | | | 291,269 | | Time deposits | | 253,531 | | | — | | | — | | | 86 | | | 253,445 | |
Total | Total | | $ | 519,844 | | | $ | 389 | | | $ | 46 | | | $ | 121 | | | $ | 520,066 | | Total | | $ | 375,797 | | | $ | 91 | | | $ | 402 | | | $ | 97 | | | $ | 375,389 | |
The following table presents the change in the allowance for credit losses related to our available-for-sale marketable securities for the ninesix months ended SeptemberJune 30, 20212022 and 20202021 (in thousands):
| | | Nine Months Ended September 30, | | Six Months Ended June 30, |
| | 2021 | | 2020 | | 2022 | | 2021 |
Allowance for credit losses, beginning of period | Allowance for credit losses, beginning of period | | $ | 121 | | | $ | — | | Allowance for credit losses, beginning of period | | $ | 97 | | | $ | 121 | |
Cumulative-effect adjustment for the adoption of ASU 2016-13 | | — | | | 207 | | |
Provision for credit losses, net | Provision for credit losses, net | | 329 | | | 215 | | Provision for credit losses, net | | 64 | | | 201 | |
Sales and maturities of marketable securities | Sales and maturities of marketable securities | | (317) | | | (374) | | Sales and maturities of marketable securities | | (121) | | | (235) | |
Allowance for credit losses, end of period | Allowance for credit losses, end of period | | $ | 133 | | | $ | 48 | | Allowance for credit losses, end of period | | $ | 40 | | | $ | 87 | |
The contractual maturities of our marketable securities as of SeptemberJune 30, 20212022 were as follows (in thousands):
| | | | | | | | |
| | Fair Value |
One year or less | | $ | 538,879135,242 | |
One year to two years | | 6,034— | |
Two years to three years | | — | |
Three years to four years | | —4,548 | |
Four years to five years | | 4,813— | |
More than five years | | 4,8754,154 | |
Total | | $ | 554,601143,944 | |
4. Restricted Marketable Securities
Restricted marketable securities consisted of the following as of SeptemberJune 30, 20212022 and December 31, 20202021 (in thousands):
| | | | September 30, 2021 | | December 31, 2020 | | | June 30, 2022 | | December 31, 2021 |
Foreign government obligations | Foreign government obligations | | $ | 71,603 | | | $ | 149,700 | | Foreign government obligations | | $ | 51,355 | | | $ | 64,855 | |
Supranational debt | Supranational debt | | 10,944 | | | — | | Supranational debt | | 9,419 | | | 10,997 | |
U.S. debt | U.S. debt | | 145,151 | | | — | | U.S. debt | | 120,491 | | | 145,326 | |
U.S. government obligations | U.S. government obligations | | 23,681 | | | 115,580 | | U.S. government obligations | | 19,001 | | | 23,548 | |
Total restricted marketable securities | Total restricted marketable securities | | $ | 251,379 | | | $ | 265,280 | | Total restricted marketable securities | | $ | 200,266 | | | $ | 244,726 | |
Our restricted marketable securities represent long-term investments to fund the estimated future cost of collecting and recycling modules covered under our solar module collection and recycling program. 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. As of SeptemberJune 30, 20212022 and December 31, 2020,2021, such custodial accounts also included noncurrent restricted cash balances of $0.6$4.0 million and $0.7$0.9 million, respectively, which were reported within “Other assets.” 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 fund any incremental amounts for our estimated collection and recycling obligations on an annual basis based on the estimated costs of collecting and recycling covered modules, estimated rates of return on our restricted marketable securities, and an estimated solar module life of 25 years, less amounts already funded in prior years.
During the ninesix months ended SeptemberJune 30, 2021, we sold all our restricted marketable securities for proceeds of $258.9 million and realized gains of $11.7 million on such sales, and repurchased $255.6 million of restricted marketable securities as part of our ongoing management of the custodial accounts. During the nine months ended September 30, 2020, we sold certain restricted marketable securities for proceeds of $115.2 million, realized gains of $15.1 million on such sales, and repurchased $114.5 million of restricted marketable securities as part of our ongoing management of the custodial accounts.sales. See Note 8. “Fair Value Measurements” to our condensed consolidated financial statements for information about the fair value of our restricted marketable securities.
The following table summarizestables summarize the unrealized gains and losses related to our restricted marketable securities, by major security type, as of SeptemberJune 30, 20212022 and December 31, 20202021 (in thousands):
| | | | As of September 30, 2021 | | | As of June 30, 2022 |
| | Amortized Cost | | Unrealized Gains | | Unrealized Losses | | Allowance for Credit Losses | | Fair Value | | Amortized Cost | | Unrealized Gains | | Unrealized Losses | | Allowance for Credit Losses | | Fair Value |
Foreign government obligations | Foreign government obligations | | $ | 68,081 | | | $ | 5,280 | | | $ | 1,747 | | | $ | 11 | | | $ | 71,603 | | Foreign government obligations | | $ | 63,830 | | | $ | — | | | $ | 12,465 | | | $ | 10 | | | $ | 51,355 | |
Supranational debt | Supranational debt | | 11,416 | | | — | | | 472 | | | — | | | 10,944 | | Supranational debt | | 11,255 | | | — | | | 1,836 | | | — | | | 9,419 | |
U.S. debt | U.S. debt | | 150,500 | | | — | | | 5,312 | | | 37 | | | 145,151 | | U.S. debt | | 149,179 | | | — | | | 28,658 | | | 30 | | | 120,491 | |
U.S. government obligations | U.S. government obligations | | 24,662 | | | — | | | 976 | | | 5 | | | 23,681 | | U.S. government obligations | | 24,596 | | | — | | | 5,590 | | | 5 | | | 19,001 | |
Total | Total | | $ | 254,659 | | | $ | 5,280 | | | $ | 8,507 | | | $ | 53 | | | $ | 251,379 | | Total | | $ | 248,860 | | | $ | — | | | $ | 48,549 | | | $ | 45 | | | $ | 200,266 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | As of December 31, 2020 |
| | Amortized Cost | | Unrealized Gains | | Unrealized Losses | | Allowance for Credit Losses | | Fair Value |
Foreign government obligations | | $ | 131,980 | | | $ | 17,720 | | | $ | — | | | $ | — | | | $ | 149,700 | |
U.S. government obligations | | 115,648 | | | 133 | | | 188 | | | 13 | | | 115,580 | |
Total | | $ | 247,628 | | | $ | 17,853 | | | $ | 188 | | | $ | 13 | | | $ | 265,280 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | As of December 31, 2021 |
| | Amortized Cost | | Unrealized Gains | | Unrealized Losses | | Allowance for Credit Losses | | Fair Value |
Foreign government obligations | | $ | 66,867 | | | $ | — | | | $ | 2,002 | | | $ | 10 | | | $ | 64,855 | |
Supranational debt | | 11,362 | | | — | | | 365 | | | — | | | 10,997 | |
U.S. debt | | 150,060 | | | — | | | 4,697 | | | 37 | | | 145,326 | |
U.S. government obligations | | 24,640 | | | — | | | 1,086 | | | 6 | | | 23,548 | |
Total | | $ | 252,929 | | | $ | — | | | $ | 8,150 | | | $ | 53 | | | $ | 244,726 | |
The following table presents the change in the allowance for credit losses related to our restricted marketable securities for the ninesix months ended SeptemberJune 30, 20212022 and 20202021 (in thousands):
| | | Nine Months Ended September 30, | | Six Months Ended June 30, |
| | 2021 | | 2020 | | 2022 | | 2021 |
Allowance for credit losses, beginning of period | Allowance for credit losses, beginning of period | | $ | 13 | | | $ | — | | Allowance for credit losses, beginning of period | | $ | 53 | | | $ | 13 | |
Cumulative-effect adjustment for the adoption of ASU 2016-13 | | — | | | 54 | | |
Provision for credit losses, net | Provision for credit losses, net | | 69 | | | (29) | | Provision for credit losses, net | | (8) | | | 16 | |
Sales of restricted marketable securities | Sales of restricted marketable securities | | (29) | | | (25) | | Sales of restricted marketable securities | | — | | | (29) | |
Allowance for credit losses, end of period | Allowance for credit losses, end of period | | $ | 53 | | | $ | — | | Allowance for credit losses, end of period | | $ | 45 | | | $ | — | |
As of SeptemberJune 30, 2021,2022, the contractual maturities of our restricted marketable securities were between 9 years and 1817 years.
5. Consolidated Balance Sheet Details
Accounts receivable trade, net
Accounts receivable trade, net consisted of the following at SeptemberJune 30, 20212022 and December 31, 20202021 (in thousands):
| | | | September 30, 2021 | | December 31, 2020 | | | June 30, 2022 | | December 31, 2021 |
Accounts receivable trade, gross | Accounts receivable trade, gross | | $ | 249,771 | | | $ | 269,095 | | Accounts receivable trade, gross | | $ | 455,038 | | | $ | 430,100 | |
Allowance for credit losses | Allowance for credit losses | | (1,430) | | | (3,009) | | Allowance for credit losses | | (607) | | | (664) | |
Accounts receivable trade, net | Accounts receivable trade, net | | $ | 248,341 | | | $ | 266,086 | | Accounts receivable trade, net | | $ | 454,431 | | | $ | 429,436 | |
At September 30, 2021 and December 31, 2020, $60.7 million and $24.4 million, respectively, of our trade accounts receivable were secured by letters of credit and surety bonds issued by creditworthy financial institutions.
Accounts receivable unbilled, net
Accounts receivable unbilled, net consisted of the following at SeptemberJune 30, 20212022 and December 31, 20202021 (in thousands):
| | | | | | | | | | | | | | |
| | September 30, 2021 | | December 31, 2020 |
Accounts receivable, unbilled | | $ | 25,053 | | | $ | 26,673 | |
Allowance for credit losses | | (51) | | | (303) | |
Accounts receivable, unbilled, net | | $ | 25,002 | | | $ | 26,370 | |
| | | | | | | | | | | | | | |
| | June 30, 2022 | | December 31, 2021 |
Accounts receivable unbilled, gross | | $ | 35,438 | | | $ | 25,336 | |
Allowance for credit losses | | — | | | (63) | |
Accounts receivable unbilled, net | | $ | 35,438 | | | $ | 25,273 | |
Allowance for credit losses
The following tables present the change in the allowances for credit losses related to our accounts receivable for the ninesix months ended SeptemberJune 30, 20212022 and 20202021 (in thousands):
| | | Nine Months Ended September 30, | | Six Months Ended June 30, |
Accounts receivable, trade | | 2021 | | 2020 | |
Accounts receivable trade | | Accounts receivable trade | | 2022 | | 2021 |
Allowance for credit losses, beginning of period | Allowance for credit losses, beginning of period | | $ | 3,009 | | | $ | 1,386 | | Allowance for credit losses, beginning of period | | $ | 664 | | | $ | 3,009 | |
Cumulative-effect adjustment for the adoption of ASU 2016-13 | | — | | | 171 | | |
Provision for credit losses, net | Provision for credit losses, net | | (1,458) | | | 1,421 | | Provision for credit losses, net | | (57) | | | (433) | |
Writeoffs | Writeoffs | | (121) | | | (565) | | Writeoffs | | — | | | (97) | |
Allowance for credit losses, end of period | Allowance for credit losses, end of period | | $ | 1,430 | | | $ | 2,413 | | Allowance for credit losses, end of period | | $ | 607 | | | $ | 2,479 | |
| | | Nine Months Ended September 30, | | Six Months Ended June 30, |
Accounts receivable, unbilled | | 2021 | | 2020 | |
Accounts receivable unbilled | | Accounts receivable unbilled | | 2022 | | 2021 |
Allowance for credit losses, beginning of period | Allowance for credit losses, beginning of period | | $ | 303 | | | $ | — | | Allowance for credit losses, beginning of period | | $ | 63 | | | $ | 303 | |
Cumulative-effect adjustment for the adoption of ASU 2016-13 | | — | | | 459 | | |
Provision for credit losses, net | Provision for credit losses, net | | (252) | | | 635 | | Provision for credit losses, net | | (63) | | | (266) | |
Writeoffs | | — | | | (175) | | |
| Allowance for credit losses, end of period | Allowance for credit losses, end of period | | $ | 51 | | | $ | 919 | | Allowance for credit losses, end of period | | $ | — | | | $ | 37 | |
Inventories
Inventories consisted of the following at SeptemberJune 30, 20212022 and December 31, 20202021 (in thousands):
| | | | September 30, 2021 | | December 31, 2020 | | | June 30, 2022 | | December 31, 2021 |
Raw materials | Raw materials | | $ | 356,109 | | | $ | 292,334 | | Raw materials | | $ | 397,299 | | | $ | 404,727 | |
Work in process | Work in process | | 61,195 | | | 64,709 | | Work in process | | 60,087 | | | 65,573 | |
Finished goods | Finished goods | | 466,581 | | | 411,773 | | Finished goods | | 592,100 | | | 433,511 | |
Inventories | Inventories | | $ | 883,885 | | | $ | 768,816 | | Inventories | | $ | 1,049,486 | | | $ | 903,811 | |
Inventories – current | Inventories – current | | $ | 647,439 | | | $ | 567,587 | | Inventories – current | | $ | 810,461 | | | $ | 666,299 | |
Inventories – noncurrent | Inventories – noncurrent | | $ | 236,446 | | | $ | 201,229 | | Inventories – noncurrent | | $ | 239,025 | | | $ | 237,512 | |
Prepaid expenses and otherOther current assets
Prepaid expenses and otherOther current assets consisted of the following at SeptemberJune 30, 20212022 and December 31, 20202021 (in thousands):
| | | | September 30, 2021 | | December 31, 2020 | | | June 30, 2022 | | December 31, 2021 |
Spare maintenance materials and parts | | Spare maintenance materials and parts | | $ | 111,188 | | | $ | 112,070 | |
Operating supplies | | Operating supplies | | 40,294 | | | 41,034 | |
Prepaid expenses | Prepaid expenses | | $ | 172,112 | | | $ | 160,534 | | Prepaid expenses | | 39,125 | | | 28,232 | |
Prepaid income taxes | | Prepaid income taxes | | 15,791 | | | 41,379 | |
Derivative instruments (1) | Derivative instruments (1) | | 6,682 | | | 3,315 | | Derivative instruments (1) | | 8,535 | | | 5,816 | |
Prepaid income taxes | | 6,206 | | | 71,051 | | |
Restricted cash | Restricted cash | | 1,181 | | | 1,745 | | Restricted cash | | 1,130 | | | 1,532 | |
Other | | Other | | 21,863 | | | 14,129 | |
Other current assets | Other current assets | | 17,297 | | | 15,094 | | Other current assets | | $ | 237,926 | | | $ | 244,192 | |
Prepaid expenses and other current assets | | $ | 203,478 | | | $ | 251,739 | | |
——————————
(1)See Note 6. “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 SeptemberJune 30, 20212022 and December 31, 20202021 (in thousands):
| | | | September 30, 2021 | | December 31, 2020 | | | June 30, 2022 | | December 31, 2021 |
Land | Land | | $ | 17,856 | | | $ | 14,498 | | Land | | $ | 17,924 | | | $ | 18,359 | |
Buildings and improvements | Buildings and improvements | | 693,833 | | | 693,762 | | Buildings and improvements | | 692,785 | | | 693,289 | |
Machinery and equipment | Machinery and equipment | | 2,507,719 | | | 2,184,236 | | Machinery and equipment | | 2,635,862 | | | 2,527,627 | |
Office equipment and furniture | Office equipment and furniture | | 139,034 | | | 143,685 | | Office equipment and furniture | | 140,171 | | | 139,611 | |
Leasehold improvements | Leasehold improvements | | 40,206 | | | 41,459 | | Leasehold improvements | | 40,162 | | | 40,517 | |
Construction in progress | Construction in progress | | 281,715 | | | 419,766 | | Construction in progress | | 803,488 | | | 461,708 | |
Property, plant and equipment, gross | Property, plant and equipment, gross | | 3,680,363 | | | 3,497,406 | | Property, plant and equipment, gross | | 4,330,392 | | | 3,881,111 | |
Accumulated depreciation | Accumulated depreciation | | (1,174,442) | | | (1,095,121) | | Accumulated depreciation | | (1,341,413) | | | (1,231,524) | |
Property, plant and equipment, net | Property, plant and equipment, net | | $ | 2,505,921 | | | $ | 2,402,285 | | Property, plant and equipment, net | | $ | 2,988,979 | | | $ | 2,649,587 | |
Depreciation of property, plant and equipment was $59.1$60.0 million and $174.7$118.6 million for the three and ninesix months ended SeptemberJune 30, 2021,2022, respectively, and $49.7$58.8 million and $145.5$115.6 million for the three and ninesix months ended SeptemberJune 30, 2020,2021, respectively.
PV solar power systems, net
PV solar power systems, net consisted of the following at SeptemberJune 30, 20212022 and December 31, 20202021 (in thousands):
| | | | September 30, 2021 | | December 31, 2020 | | | June 30, 2022 | | December 31, 2021 |
PV solar power systems, gross | PV solar power systems, gross | | $ | 291,898 | | | $ | 298,067 | | PV solar power systems, gross | | $ | 225,530 | | | $ | 281,660 | |
Accumulated depreciation | Accumulated depreciation | | (61,475) | | | (54,671) | | Accumulated depreciation | | (69,315) | | | (64,367) | |
PV solar power systems, net | PV solar power systems, net | | $ | 230,423 | | | $ | 243,396 | | PV solar power systems, net | | $ | 156,215 | | | $ | 217,293 | |
Depreciation of PV solar power systems was $3.0$2.3 million and $8.9$5.1 million for the three and ninesix months ended SeptemberJune 30, 2021,2022, respectively, and $4.8$2.9 million and $16.4$5.9 million for the three and ninesix months ended SeptemberJune 30, 2020,2021, respectively.
We evaluate our PV solar power systems for impairment under a held and used impairment model whenever events or changes in circumstances arise that may indicate that the carrying amount of a particular system may not be recoverable. Such events or changes may include a significant decrease in the market price of the asset, current-period operating or cash flow losses combined with a history of such losses or a projection of future losses associated with the use of the asset, and changes in expectations regarding our intent to hold the asset on a long-term basis or the timing of a potential asset disposition.
As of SeptemberDuring the three months ended June 30, 2021 and December 31, 2020, the recoverability of2022, we received multiple non-binding offers to purchase our Luz del Norte PV solar power plant was based,and elected to pursue such opportunities in part, oncoordination with the likelihood of our continued ownership and operationproject’s lenders. As a result of the system. However, it is reasonably possible that our intent to hold the asset may changeexpected sale in the near term, due to our evaluation of strategic sale opportunities forwe compared the system. The pursuit of such opportunities, which require coordination with the system’s lenders, may result in a determination that the carrying value of the system is not recoverable based on the probability-weighted undiscounted future cash flows which in turn could result in a possible impairmentfor the project to its carrying value and determined that the project was not recoverable. Accordingly, we measured the fair value of the systemproject using a market approach valuation technique and recorded an impairment loss of $57.8 million in future periods. Accordingly, any changes“Cost of sales” in our expected use of the asset or its disposition may result in impairment charges that could be material to our condensed consolidated financial statements and have a significant adverse impact on our results of operations. Such impairment loss was comprised of $55.6 million for PV solar power systems, $1.3 million for intangible assets, and $0.9 million for operating lease assets.
Project assets
Project assets consisted of the following at SeptemberJune 30, 20212022 and December 31, 20202021 (in thousands):
| | | | September 30, 2021 | | December 31, 2020 | | | June 30, 2022 | | December 31, 2021 |
Project assets – development costs, including project acquisition and land costs | Project assets – development costs, including project acquisition and land costs | | $ | 129,844 | | | $ | 176,346 | | Project assets – development costs, including project acquisition and land costs | | $ | 29,589 | | | $ | 117,407 | |
Project assets – construction costs | Project assets – construction costs | | 205,415 | | | 197,031 | | Project assets – construction costs | | — | | | 198,081 | |
Project assets | Project assets | | $ | 335,259 | | | $ | 373,377 | | Project assets | | $ | 29,589 | | | $ | 315,488 | |
In June 2022, we completed the sale of the majority of our project assets to PAG in connection with the sale of our Japan project development business. See Note 2. “Sales of Businesses” to our condensed consolidated financial statements for further information about this transaction.
Goodwill
Goodwill for the relevant reporting unit consisted of the following at June 30, 2022 and December 31, 2021 (in thousands):
| | | | | | | | | | | | | | | | | | | | |
| | December 31, 2021 | | Acquisitions (Impairments) | | June 30, 2022 |
Modules | | $ | 407,827 | | | $ | — | | | $ | 407,827 | |
Accumulated impairment losses | | (393,365) | | | — | | | (393,365) | |
Goodwill | | $ | 14,462 | | | $ | — | | | $ | 14,462 | |
Intangible assets, net
Intangible assets, net consisted of the following at June 30, 2022 and December 31, 2021 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2022 |
| | Gross Amount | | Accumulated Amortization | | Accumulated Impairments | | Net Amount |
Developed technology | | $ | 99,964 | | | $ | (66,920) | | | $ | — | | | $ | 33,044 | |
Power purchase agreements | | 6,486 | | | (1,784) | | | (1,300) | | | 3,402 | |
Patents | | 8,480 | | | (6,198) | | | — | | | 2,282 | |
Intangible assets, net | | $ | 114,930 | | | $ | (74,902) | | | $ | (1,300) | | | $ | 38,728 | |
| | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2021 |
| | Gross Amount | | Accumulated Amortization | | | | Net Amount |
Developed technology | | $ | 99,964 | | | $ | (61,985) | | | | | $ | 37,979 | |
Power purchase agreements | | 6,486 | | | (1,621) | | | | | 4,865 | |
Patents | | 8,480 | | | (5,815) | | | | | 2,665 | |
Intangible assets, net | | $ | 114,930 | | | $ | (69,421) | | | | | $ | 45,509 | |
Amortization of intangible assets was $2.8 million and $5.5 million for the three and six months ended June 30, 2022 and 2021, respectively.
Other assets
Other assets consisted of the following at SeptemberJune 30, 20212022 and December 31, 20202021 (in thousands):
| | | | September 30, 2021 | | December 31, 2020 | | | June 30, 2022 | | December 31, 2021 |
Operating lease assets (1) | Operating lease assets (1) | | $ | 238,508 | | | $ | 226,664 | | Operating lease assets (1) | | $ | 101,855 | | | $ | 207,544 | |
Advanced payments for raw materials | Advanced payments for raw materials | | 89,252 | | | 97,883 | | Advanced payments for raw materials | | 86,520 | | | 86,962 | |
Income tax receivables | Income tax receivables | | 39,888 | | | 36 | | Income tax receivables | | 47,235 | | | 39,862 | |
Indirect tax receivables | | 24,785 | | | 14,849 | | |
Accounts receivable, unbilled, net | | 24,018 | | | 22,722 | | |
Accounts receivable unbilled, net | | Accounts receivable unbilled, net | | 11,488 | | | 20,840 | |
Accounts receivable trade, net | Accounts receivable trade, net | | 23,094 | | | — | | Accounts receivable trade, net | | 9,076 | | | 21,293 | |
Restricted cash | Restricted cash | | 17,229 | | | 44,847 | | Restricted cash | | 6,506 | | | 3,651 | |
Indirect tax receivables | | Indirect tax receivables | | 348 | | | 21,873 | |
Other | Other | | 35,319 | | | 27,129 | | Other | | 43,928 | | | 36,739 | |
Other assets | Other assets | | $ | 492,093 | | | $ | 434,130 | | Other assets | | $ | 306,956 | | | $ | 438,764 | |
——————————
(1)See Note 7. “Leases” to our condensed consolidated financial statements for discussion of our lease arrangements.
Goodwill
Goodwill for the relevant reporting unit consisted of the following at September 30, 2021 and December 31, 2020 (in thousands):
| | | | | | | | | | | | | | | | | | | | |
| | December 31, 2020 | | Acquisitions (Impairments) | | September 30, 2021 |
Modules | | $ | 407,827 | | | $ | — | | | $ | 407,827 | |
Accumulated impairment losses | | (393,365) | | | — | | | (393,365) | |
Goodwill | | $ | 14,462 | | | $ | — | | | $ | 14,462 | |
Intangible assets, net
The following tables summarize our intangible assets at September 30, 2021 and December 31, 2020 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2021 |
| | Gross Amount | | Accumulated Amortization | | | | Net Amount |
Developed technology | | $ | 99,964 | | | $ | (59,518) | | | | | $ | 40,446 | |
Power purchase agreements | | 6,486 | | | (1,539) | | | | | 4,947 | |
Patents | | 8,173 | | | (5,631) | | | | | 2,542 | |
Intangible assets, net | | $ | 114,623 | | | $ | (66,688) | | | | | $ | 47,935 | |
| | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2020 |
| | Gross Amount | | Accumulated Amortization | | | | Net Amount |
Developed technology | | $ | 99,964 | | | $ | (52,115) | | | | | $ | 47,849 | |
Power purchase agreements | | 6,486 | | | (1,296) | | | | | 5,190 | |
Patents | | 8,173 | | | (5,074) | | | | | 3,099 | |
Intangible assets, net | | $ | 114,623 | | | $ | (58,485) | | | | | $ | 56,138 | |
Amortization of intangible assets was $2.7 million and $8.2 million for the three and nine months ended September 30, 2021, respectively, and $2.7 million and $8.1 million for the three and nine months ended September 30, 2020, respectively.
Accrued expenses
Accrued expenses consisted of the following at SeptemberJune 30, 20212022 and December 31, 20202021 (in thousands):
| | | | September 30, 2021 | | December 31, 2020 | | | June 30, 2022 | | December 31, 2021 |
Accrued project costs | | $ | 43,721 | | | $ | 81,380 | | |
Accrued property, plant and equipment | | Accrued property, plant and equipment | | $ | 154,552 | | | $ | 42,031 | |
Accrued freight | Accrued freight | | 42,091 | | | 26,580 | | Accrued freight | | 66,199 | | | 61,429 | |
Accrued inventory | Accrued inventory | | 39,514 | | | 25,704 | | Accrued inventory | | 38,464 | | | 42,170 | |
Accrued compensation and benefits | Accrued compensation and benefits | | 29,030 | | | 51,685 | | Accrued compensation and benefits | | 29,476 | | | 34,606 | |
Accrued property, plant and equipment | | 20,637 | | | 66,543 | | |
Product warranty liability (1) | Product warranty liability (1) | | 16,752 | | | 22,278 | | Product warranty liability (1) | | 11,553 | | | 13,598 | |
Accrued other taxes | | Accrued other taxes | | 11,307 | | | 23,103 | |
Accrued project costs | | Accrued project costs | | 6,642 | | | 48,836 | |
Other | Other | | 39,418 | | | 36,297 | | Other | | 26,012 | | | 22,677 | |
Accrued expenses | Accrued expenses | | $ | 231,163 | | | $ | 310,467 | | Accrued expenses | | $ | 344,205 | | | $ | 288,450 | |
——————————
(1)See Note 10. “Commitments and Contingencies” to our condensed consolidated financial statements for discussion of our “Product Warranties.”
Other current liabilities
Other current liabilities consisted of the following at SeptemberJune 30, 20212022 and December 31, 20202021 (in thousands):
| | | | September 30, 2021 | | December 31, 2020 | | | June 30, 2022 | | December 31, 2021 |
Other taxes payable | | Other taxes payable | | $ | 13,165 | | | $ | 8,123 | |
Operating lease liabilities (1) | Operating lease liabilities (1) | | $ | 13,566 | | | $ | 14,006 | | Operating lease liabilities (1) | | 9,437 | | | 12,781 | |
Derivative instruments (2) | Derivative instruments (2) | | 1,720 | | | 5,280 | | Derivative instruments (2) | | 7,371 | | | 3,550 | |
Other taxes payable | | 1,221 | | | 30,041 | | |
Other | Other | | 8,602 | | | 33,710 | | Other | | 6,356 | | | 10,293 | |
Other current liabilities | Other current liabilities | | $ | 25,109 | | | $ | 83,037 | | Other current liabilities | | $ | 36,329 | | | $ | 34,747 | |
——————————
(1)See Note 7. “Leases” to our condensed consolidated financial statements for discussion of our lease arrangements.
(2)See Note 6. “Derivative Financial Instruments” to our condensed consolidated financial statements for discussion of our derivative instruments.
Other liabilities
Other liabilities consisted of the following at SeptemberJune 30, 20212022 and December 31, 20202021 (in thousands):
| | | | September 30, 2021 | | December 31, 2020 | | | June 30, 2022 | | December 31, 2021 |
Deferred revenue | | Deferred revenue | | $ | 278,176 | | | $ | 95,943 | |
Operating lease liabilities (1) | Operating lease liabilities (1) | | $ | 173,627 | | | $ | 189,034 | | Operating lease liabilities (1) | | 47,752 | | | 145,912 | |
Deferred revenue | | 68,663 | | | 44,919 | | |
Product warranty liability (2) | Product warranty liability (2) | | 41,789 | | | 72,818 | | Product warranty liability (2) | | 35,576 | | | 38,955 | |
Deferred tax liabilities, net | Deferred tax liabilities, net | | 14,305 | | | 23,671 | | Deferred tax liabilities, net | | 23,059 | | | 27,699 | |
Other | Other | | 43,433 | | | 41,784 | | Other | | 31,262 | | | 43,658 | |
Other liabilities | Other liabilities | | $ | 341,817 | | | $ | 372,226 | | Other liabilities | | $ | 415,825 | | | $ | 352,167 | |
——————————
(1)See Note 7. “Leases” to our condensed consolidated financial statements for discussion of our lease arrangements.
(2)See Note 10. “Commitments and Contingencies” to our condensed consolidated financial statements for discussion of our “Product Warranties.”
6. Derivative Financial Instruments
As a global company, we are exposed in the normal course of business to interest rate, 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 (i.e., “economic hedges”), we record the changes in fair value directly to earnings. See Note 8. “Fair Value Measurements” to our condensed consolidated financial statements for information about the techniques we use to measure the fair value of our derivative instruments.
The following tables present the fair values of derivative instruments included in our condensed consolidated balance sheets as of SeptemberJune 30, 20212022 and December 31, 20202021 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2021 |
| | Prepaid Expenses and Other Current Assets | | Other Assets | | Other Current Liabilities | | Other Liabilities |
Derivatives designated as hedging instruments: | | | | | | | | |
Foreign exchange forward contracts | | $ | 628 | | | $ | 18 | | | $ | 36 | | | $ | — | |
Commodity swap contracts | | 633 | | | — | | | — | | | — | |
Total derivatives designated as hedging instruments | | $ | 1,261 | | | $ | 18 | | | $ | 36 | | | $ | — | |
| | | | | | | | |
Derivatives not designated as hedging instruments: | | | | | | | | |
Foreign exchange forward contracts | | $ | 5,421 | | | $ | — | | | $ | 1,684 | | | $ | — | |
Interest rate swap contracts | | — | | | — | | | — | | | 595 | |
Total derivatives not designated as hedging instruments | | $ | 5,421 | | | $ | — | | | $ | 1,684 | | | $ | 595 | |
Total derivative instruments | | $ | 6,682 | | | $ | 18 | | | $ | 1,720 | | | $ | 595 | |
| | | | | | | | | | | | | | | | | | | | |
| | December 31, 2020 |
| | Prepaid Expenses and Other Current Assets | | Other Current Liabilities | | Other Liabilities |
Derivatives designated as hedging instruments: | | | | | | |
Foreign exchange forward contracts | | $ | — | | | $ | 2,504 | | | $ | 341 | |
Commodity swap contracts | | 1,478 | | | — | | | — | |
Total derivatives designated as hedging instruments | | $ | 1,478 | | | $ | 2,504 | | | $ | 341 | |
| | | | | | |
Derivatives not designated as hedging instruments: | | | | | | |
Foreign exchange forward contracts | | $ | 1,837 | | | $ | 2,776 | | | $ | — | |
Total derivatives not designated as hedging instruments | | $ | 1,837 | | | $ | 2,776 | | | $ | — | |
Total derivative instruments | | $ | 3,315 | | | $ | 5,280 | | | $ | 341 | |
| | | | | | | | | | | | | | | | | | |
| | June 30, 2022 |
| | Other Current Assets | | | | Other Current Liabilities | | |
Derivatives designated as hedging instruments: | | | | | | | | |
Foreign exchange forward contracts | | $ | 1,605 | | | | | $ | — | | | |
Commodity swap contracts | | — | | | | | 6,812 | | | |
Total derivatives designated as hedging instruments | | $ | 1,605 | | | | | $ | 6,812 | | | |
| | | | | | | | |
Derivatives not designated as hedging instruments: | | | | | | | | |
Foreign exchange forward contracts | | $ | 6,930 | | | | | $ | 559 | | | |
| | | | | | | | |
Total derivatives not designated as hedging instruments | | $ | 6,930 | | | | | $ | 559 | | | |
Total derivative instruments | | $ | 8,535 | | | | | $ | 7,371 | | | |
| | | | | | | | | | | | | | | | |
| | December 31, 2021 |
| | Other Current Assets | | Other Current Liabilities | | |
Derivatives designated as hedging instruments: | | | | | | |
Foreign exchange forward contracts | | $ | 1,336 | | | $ | 139 | | | |
Total derivatives designated as hedging instruments | | $ | 1,336 | | | $ | 139 | | | |
| | | | | | |
Derivatives not designated as hedging instruments: | | | | | | |
Foreign exchange forward contracts | | $ | 4,480 | | | $ | 3,411 | | | |
Total derivatives not designated as hedging instruments | | $ | 4,480 | | | $ | 3,411 | | | |
Total derivative instruments | | $ | 5,816 | | | $ | 3,550 | | | |
The following table presents the pretax amounts related to derivative instruments designated as cash flow hedges affecting accumulated other comprehensive income (loss) and our condensed consolidated statements of operations for the ninesix months ended SeptemberJune 30, 20212022 and 20202021 (in thousands):
| | | Foreign Exchange Forward Contracts | | Commodity Swap Contracts | | Total | | Foreign Exchange Forward Contracts | | Commodity Swap Contracts | | Total |
Balance as of December 31, 2020 | | $ | (3,644) | | | $ | 1,472 | | | $ | (2,172) | | |
Balance as of December 31, 2021 | | Balance as of December 31, 2021 | | $ | 1,126 | | | $ | — | | | $ | 1,126 | |
Amounts recognized in other comprehensive income (loss) | Amounts recognized in other comprehensive income (loss) | | 2,268 | | | 1,531 | | | 3,799 | | Amounts recognized in other comprehensive income (loss) | | 545 | | | (6,812) | | | (6,267) | |
| Amounts reclassified to earnings impacting: | Amounts reclassified to earnings impacting: | | Amounts reclassified to earnings impacting: | |
| Cost of sales | Cost of sales | | 1,913 | | | (883) | | | 1,030 | | Cost of sales | | (1,453) | | | — | | | (1,453) | |
| Balance as of September 30, 2021 | | $ | 537 | | | $ | 2,120 | | | $ | 2,657 | | |
Balance as of June 30, 2022 | | Balance as of June 30, 2022 | | $ | 218 | | | $ | (6,812) | | | $ | (6,594) | |
| Balance as of December 31, 2019 | | $ | (962) | | | $ | — | | | $ | (962) | | |
Balance as of December 31, 2020 | | Balance as of December 31, 2020 | | $ | (3,644) | | | $ | 1,472 | | | $ | (2,172) | |
Amounts recognized in other comprehensive income (loss) | Amounts recognized in other comprehensive income (loss) | | (2,129) | | | (228) | | | (2,357) | | Amounts recognized in other comprehensive income (loss) | | 1,618 | | | 1,531 | | | 3,149 | |
Amounts reclassified to earnings impacting: | Amounts reclassified to earnings impacting: | | Amounts reclassified to earnings impacting: | |
| Cost of sales | Cost of sales | | 647 | | | — | | | 647 | | Cost of sales | | 1,928 | | | (213) | | | 1,715 | |
| Balance as of September 30, 2020 | | $ | (2,444) | | | $ | (228) | | | $ | (2,672) | | |
Balance as of June 30, 2021 | | Balance as of June 30, 2021 | | $ | (98) | | | $ | 2,790 | | | $ | 2,692 | |
During the three and ninesix months ended SeptemberJune 30, 2021,2022, we recognized unrealized gains of less than $0.1 million and unrealized losses of less than $0.1 million, respectively, within “Cost of sales” for amounts excluded from effectiveness testing for our foreign exchange forward contracts designated as cash flow hedges. During the three and ninesix months ended SeptemberJune 30, 2020,2021, we recognized unrealized gains of less than $0.1 million and $1.2unrealized losses of less than $0.1 million, respectively, within “Cost of sales” for amounts excluded from effectiveness testing for our foreign exchange forward contracts designated as cash flow hedges.
The following table presents the pretax amounts related to derivative instruments designated as net investment hedges affecting accumulated other comprehensive income (loss) and our condensed consolidated statements of operations for the six months ended June 30, 2022 (in thousands):
| | | | | | | | |
| | Foreign Exchange Forward Contracts |
Balance as of December 31, 2021 | | $ | — | |
Amounts recognized in other comprehensive income (loss) | | 1,383 | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
Balance as of June 30, 2022 | | $ | 1,383 | |
During the three months ended June 30, 2022, we recognized unrealized gains of $0.1 million within “Other (expense) income, net” for amounts excluded from effectiveness testing for our derivative instruments designated as net investment hedges.
The following table presents gains and losses related to derivative instruments not designated as hedges affecting our condensed consolidated statements of operations for the three and ninesix months ended SeptemberJune 30, 20212022 and 20202021 (in thousands):
| | | Amount of Gain (Loss) Recognized in Income | | Amount of Gain (Loss) Recognized in Income |
| | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | Income Statement Line Item | | 2021 | | 2020 | | 2021 | | 2020 | | Income Statement Line Item | | 2022 | | 2021 | | 2022 | | 2021 |
Foreign exchange forward contracts | Foreign exchange forward contracts | | Cost of sales | | $ | 103 | | | $ | (195) | | | $ | (174) | | | $ | (73) | | Foreign exchange forward contracts | | Cost of sales | | $ | 444 | | | $ | (446) | | | $ | 522 | | | $ | (277) | |
Foreign exchange forward contracts | Foreign exchange forward contracts | | Foreign currency loss, net | | 1,802 | | | (2,598) | | | 10,821 | | | (2,405) | | Foreign exchange forward contracts | | Foreign currency loss, net | | 44,534 | | | (1,277) | | | 63,515 | | | 9,019 | |
Interest rate swap contracts | Interest rate swap contracts | | Interest expense, net | | 96 | | | (5,878) | | | (595) | | | (7,259) | | Interest rate swap contracts | | Interest expense, net | | — | | | (691) | | | — | | | (691) | |
Interest Rate Risk
WeFrom time to time, we may use interest rate swap contracts to mitigate our exposure to interest rate fluctuations associated with certain of our debt instruments. We do not use such swap contracts for speculative or trading purposes. During the ninesix months ended SeptemberJune 30, 2021, and 2020, all of our interest rate swap contracts related to project specific debt facilities. Such swap contracts did not qualify for accounting as cash flow hedges in accordance with Accounting Standards Codification (“ASC”) 815 due to our expectation to sell the associated projects before the maturity of their project specific debt financings and corresponding swap contracts. Accordingly, changes in the fair values of these swap contracts were recorded directly to “Interest expense, net.”
In June 2021, FS Japan Project B4 GK, our indirect wholly-owned subsidiary and project company, entered into an interest rate swap contract to hedge a portion of the floating rate term loan facility under the project’s Ikeda Credit Facility (as defined in Note 9. “Debt” to our condensed consolidated financial statements). Such swap had an initial notional value of ¥0.7 billion and entitled the project to receive a six-month floating Tokyo Interbank Offered Rate (“TIBOR”) plus 0.70% interest rate while requiring the project to pay a fixed rate of 1.12%. The notional amount of the interest rate swap contract proportionately adjusts with scheduled draws and principal payments on the underlying hedged debt. As of September 30, 2021, the notional value of the interest rate swap contract was ¥1.0 billion ($8.6 million).
Foreign Currency Risk
Cash Flow Exposure
We expect certain of our subsidiaries to have future cash flows that will be denominated in currencies other than the subsidiaries’ functional currencies. Changes in the exchange rates between the functional currencies of our subsidiaries and the other currencies in which they transact will cause fluctuations in the cash flows we expect to receive or pay when these cash flows are realized or settled. Accordingly, we enter into foreign exchange forward contracts to hedge a portion of these forecasted cash flows. As of SeptemberJune 30, 20212022 and December 31, 2020,2021, these foreign exchange forward contracts hedged our forecasted cash flows for periods up to 143 months and 2011 months, respectively. These foreign exchange forward contracts qualify for accounting as cash flow hedges in accordance with ASC 815, and we designated them as such. We report unrealized gains or losses on such contracts in “Accumulated other comprehensive loss” and subsequently reclassify applicable amounts into earnings when the hedged transaction occurs and impacts earnings. We determined that these derivative financial instruments were highly effective as cash flow hedges as of SeptemberJune 30, 20212022 and December 31, 2020.2021.
As of SeptemberJune 30, 20212022 and December 31, 2020,2021, the notional values associated with our foreign exchange forward contracts qualifying as cash flow hedges were as follows (notional amounts and U.S. dollar equivalents in millions):
| | | September 30, 2021 | | June 30, 2022 |
Currency | Currency | | Notional Amount | | USD Equivalent | Currency | | Notional Amount | | USD Equivalent |
U.S. dollar (1) | U.S. dollar (1) | | $39.8 | | $39.8 | U.S. dollar (1) | | $2.7 | | $2.7 |
British pound | | GBP 10.6 | | $14.3 | |
|
| | | December 31, 2020 | | December 31, 2021 |
Currency | Currency | | Notional Amount | | USD Equivalent | Currency | | Notional Amount | | USD Equivalent |
U.S. dollar (1) | U.S. dollar (1) | | $43.4 | | $43.4 | U.S. dollar (1) | | $38.4 | | $38.4 |
British pound | | British pound | | GBP 10.6 | | $14.4 |
——————————
(1)These derivative instruments represent hedges of outstanding payables denominated in U.S. dollars at certain of our foreign subsidiaries whose functional currencies are other than the U.S. dollar.
In the following 12 months, we expect to reclassify to earnings $0.5$0.2 million of net unrealized gains related to foreign exchange forward contracts that are included in “Accumulated other comprehensive loss” at SeptemberJune 30, 20212022 as we realize the earnings effects of the related forecasted transactions. The amount we ultimately record to earnings will depend on the actual exchange rates when we realize the related forecasted transactions.
Net Investment Exposure
The functional currencies of certain of our foreign subsidiaries are their local currencies. Accordingly, we apply period-end exchange rates to translate their assets and liabilities and daily transaction exchange rates to translate their revenues, expenses, gains, and losses into U.S. dollars. We include the associated translation adjustments as a separate component of “Accumulated other comprehensive loss” within stockholders’ equity. From time to time, we may seek to mitigate the impact of such translation adjustments by entering into foreign exchange forward contracts that are designated as hedges of net investments in certain foreign subsidiaries. In June 2022, we entered into a foreign exchange forward contract with a notional value of ¥8.0 billion ($60.6 million), which qualifies for and was designated as a hedge of our net investment in a certain foreign subsidiary in Japan. As of June 30, 2022, this foreign exchange forward contract hedged such net investment for a period of 6 months. We report unrealized gains or losses on this contract, which are based on spot exchange rates, as a component of our foreign currency translation adjustments within “Accumulated other comprehensive loss” and subsequently reclassify applicable amounts into earnings when the net investments are sold or substantially liquidated. We determined that this derivative financial instrument was highly effective as a net investment hedge as of June 30, 2022.
Transaction Exposure and Economic Hedging
Many of our subsidiaries have assets and liabilities (primarily cash, receivables, deferred taxes, payables, accrued expenses, operating lease liabilities, and solar module collection and recycling liabilities) that are denominated in currencies other than the subsidiaries’ functional currencies. Changes in the exchange rates between the functional currencies of our subsidiaries and the other currencies in which these assets and liabilities are denominated will create fluctuations in our reported condensed consolidated statements of operations and cash flows. We may enter into foreign exchange forward contracts or other financial instruments to economically hedge assets and liabilities against the effects of currency exchange rate fluctuations. The gains and losses on such foreign exchange forward contracts will economically offset all or part of the transaction gains and losses that we recognize in earnings on the related foreign currency denominated assets and liabilities.
We also enter into foreign exchange forward contracts to economically hedge balance sheet and other exposures related to transactions between certain of our subsidiaries and transactions with third parties. Such contracts are considered economic hedges and do not qualify for hedge accounting. Accordingly, we recognize gains or losses from the fluctuations in foreign exchange rates and the fair value of these derivative contracts in “Foreign currency loss, net” on our condensed consolidated statements of operations.
As of SeptemberJune 30, 20212022 and December 31, 2020,2021, the notional values of our foreign exchange forward contracts that do not qualify for hedge accounting were as follows (notional amounts and U.S. dollar equivalents in millions):
| | | | | | | | | | | | | | | | | | | | |
| | SeptemberJune 30, 20212022 |
Transaction | | Currency | | Notional Amount | | USD Equivalent |
Purchase | | Australian dollar | | AUD 3.2 | | $2.3 |
| | | | | | |
Purchase | | Brazilian real | | BRL 2.6 | | $0.5 |
| | | | | | |
| | | | | | |
| | | | | | |
Purchase | | Chilean peso | | CLP 985.0 | | $1.2 |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
Sell | | Chilean peso | | CLP 4,240.65,034.5 | | $5.35.5 |
| | | | | | |
| | | | | | |
Purchase | | Euro | | €86.482.1 | | $100.686.7 |
Sell | | Euro | | €32.632.7 | | $37.934.5 |
Purchase | | British pound | | GBP 2.5 | | $3.4 |
| | | | | | |
| | | | | | |
Sell | | Indian rupee | | INR 1,830.012,495.4 | | $24.7158.8 |
Purchase | | Japanese yen | | ¥151.81,615.2 | | $1.411.9 |
Sell | | Japanese yen | | ¥27,325.662,722.1 | | $244.9461.6 |
Purchase | | Malaysian ringgit | | MYR 30.551.6 | | $7.311.7 |
Sell | | Malaysian ringgit | | MYR 26.827.3 | | $6.46.2 |
| | | | | | |
Sell | | Mexican peso | | MXN 34.6 | | $1.7 |
Purchase | | Singapore dollar | | SGD 5.51.4 | | $4.01.0 |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | December 31, 20202021 |
Transaction | | Currency | | Notional Amount | | USD Equivalent |
Purchase | | Australian dollar | | AUD 3.2 | | $2.52.3 |
Purchase | | Brazilian real | | BRL 2.6 | | $0.5 |
Sell | | Canadian dollarBrazilian real | | CAD 8.9BRL 2.6 | | $7.00.5 |
Purchase | | Chilean pesoBritish pound | | CLP 2,006.0GBP 2.5 | | $2.83.4 |
Sell | | Chilean peso | | CLP 4,476.74,058.6 | | $6.34.8 |
Purchase | | Euro | | €140.077.6 | | $172.188.0 |
Sell | | Euro | | €63.638.6 | | $78.243.8 |
Sell | | Indian rupee | | INR 619.210,943.0 | | $8.4147.1 |
Purchase | | Japanese yen | | ¥1,593.7667.5 | | $15.55.8 |
Sell | | Japanese yen | | ¥20,656.631,524.6 | | $200.5273.9 |
Purchase | | Malaysian ringgit | | MYR 69.317.0 | | $17.24.1 |
Sell | | Malaysian ringgit | | MYR 24.924.5 | | $6.25.9 |
Sell | | Mexican peso | | MXN 34.6 | | $1.7 |
Purchase | | Singapore dollar | | SGD 2.95.5 | | $2.24.1 |
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. In August 2020,During the six months ended June 30, 2022, we entered into avarious commodity swap contractcontracts to hedge a portion of our forecasted cash flows for purchases of aluminum frames for a one-year period.between July 2022 and December 2023. Such swapswaps had an aggregate initial notional value based on metric tons of forecasted aluminum purchases, equivalent to $24.9$62.0 million, and entitles us to receive a three-month average London Metals Exchange price for aluminum while requiring us to pay certain fixed prices. The notional amount of the commodity swap contractcontracts proportionately adjustedadjusts with forecasted purchases of aluminum frames.
ThisThese commodity swap contract qualifiescontracts qualify for accounting as a cash flow hedgehedges in accordance with ASC 815, and we designated itthem as such. We report unrealized gains or losses on such contractcontracts in “Accumulated other comprehensive loss” and subsequently reclassify applicable amounts into earnings when the hedged transaction occurstransactions occur and impactsimpact earnings. We determined that thisthese derivative financial instrument wasinstruments were highly effective as a cash flow hedgehedges as of SeptemberJune 30, 2021 and December 31, 2020.2022. In the following 12 months, we expect to reclassify into earnings $2.1$5.8 million of net unrealized gainslosses related to thisthese commodity swap contractcontracts that are included in “Accumulated other comprehensive loss” at SeptemberJune 30, 20212022 as we realize the earnings effects of the related forecasted transactions.
7. Leases
Our lease arrangements include land associated with our PV solar power systems, projects, our corporate and administrative offices, land for our international manufacturing facilities, and certain of our manufacturing equipment. Such leases primarily relate to assets located in the United States, Japan, Malaysia, India, and Vietnam.
The following table presents certain quantitative information related to our lease arrangements for the three and ninesix months ended SeptemberJune 30, 20212022 and 2020,2021, and as of SeptemberJune 30, 20212022 and December 31, 20202021 (in thousands):
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2021 | | 2020 | | 2021 | | 2020 | | 2022 | | 2021 | | 2022 | | 2021 |
Operating lease cost | Operating lease cost | | $ | 4,622 | | | $ | 4,798 | | | $ | 13,171 | | | $ | 13,694 | | Operating lease cost | | $ | 4,232 | | | $ | 4,516 | | | $ | 8,609 | | | $ | 8,549 | |
Variable lease cost | Variable lease cost | | 575 | | | 628 | | | 1,575 | | | 1,919 | | Variable lease cost | | 604 | | | 462 | | | 1,203 | | | 1,000 | |
Short-term lease cost | Short-term lease cost | | 104 | | | 1,112 | | | 711 | | | 2,817 | | Short-term lease cost | | 221 | | | 236 | | | 252 | | | 607 | |
Total lease cost | Total lease cost | | $ | 5,301 | | | $ | 6,538 | | | $ | 15,457 | | | $ | 18,430 | | Total lease cost | | $ | 5,057 | | | $ | 5,214 | | | $ | 10,064 | | | $ | 10,156 | |
| Payments of amounts included in the measurement of operating lease liabilities | Payments of amounts included in the measurement of operating lease liabilities | | $ | 16,813 | | | $ | 15,756 | | Payments of amounts included in the measurement of operating lease liabilities | | $ | 9,259 | | | $ | 13,122 | |
Lease assets obtained in exchange for operating lease liabilities | Lease assets obtained in exchange for operating lease liabilities | | $ | 19,769 | | | $ | 93,992 | | Lease assets obtained in exchange for operating lease liabilities | | $ | 3,754 | | | $ | 17,909 | |
| | | September 30, 2021 | | December 31, 2020 | | June 30, 2022 | | December 31, 2021 |
Operating lease assets | Operating lease assets | | $ | 238,508 | | | $ | 226,664 | | Operating lease assets | | $ | 101,855 | | | $ | 207,544 | |
Operating lease liabilities – current | Operating lease liabilities – current | | 13,566 | | | 14,006 | | Operating lease liabilities – current | | 9,437 | | | 12,781 | |
Operating lease liabilities – noncurrent | Operating lease liabilities – noncurrent | | 173,627 | | | 189,034 | | Operating lease liabilities – noncurrent | | 47,752 | | | 145,912 | |
| Weighted-average remaining lease term | Weighted-average remaining lease term | | 20 years | | 20 years | Weighted-average remaining lease term | | 7 years | | 19 years |
Weighted-average discount rate | Weighted-average discount rate | | 2.6 | % | | 2.9 | % | Weighted-average discount rate | | 5.0 | % | | 2.8 | % |
In June 2022, we completed the sale of our Japan project development business to PAG, which included the transfer of various land leases associated with the business. As a result, we derecognized lease assets of $87.7 million, current lease liabilities of $3.0 million, and noncurrent lease liabilities of $77.9 million. See Note 2. “Sales of Businesses” to our condensed consolidated financial statements for further information about this transaction.
As of SeptemberJune 30, 2021,2022, the future payments associated with our lease liabilities were as follows (in thousands):
| | | Total Lease Liabilities | | Total Lease Liabilities |
Remainder of 2021 | | $ | 3,292 | | |
2022 | | 17,051 | | |
Remainder of 2022 | | Remainder of 2022 | | $ | 5,994 | |
2023 | 2023 | | 17,100 | | 2023 | | 11,732 | |
2024 | 2024 | | 16,608 | | 2024 | | 10,963 | |
2025 | 2025 | | 15,979 | | 2025 | | 9,965 | |
2026 | 2026 | | 14,489 | | 2026 | | 8,528 | |
2027 | | 2027 | | 5,943 | |
Thereafter | Thereafter | | 140,192 | | Thereafter | | 14,844 | |
Total future payments | Total future payments | | 224,711 | | Total future payments | | 67,969 | |
Less: interest | Less: interest | | (37,518) | | Less: interest | | (10,780) | |
Total lease liabilities | Total lease liabilities | | $ | 187,193 | | Total lease liabilities | | $ | 57,189 | |
8. Fair Value Measurements
The following is a description of the valuation techniques that we use to measure the fair value of assets and liabilities that we measure and report at fair value on a recurring basis:
•Cash Equivalents. At September 30, 2021 and December 31, 2020, our cash equivalents consisted of money market funds. We value our cash equivalents using observable inputs that reflect quoted prices for securities with identical characteristics and classify the valuation techniques that use these inputs as Level 1.
•Marketable Securities and Restricted Marketable Securities. At SeptemberJune 30, 20212022 and December 31, 2020,2021, our marketable securities consisted of foreign debt, U.S. debt, and time deposits, and our restricted marketable securities consisted of foreign and U.S. government obligations, supranational debt, and U.S. debt. We value our marketable securities and restricted marketable securities using observable inputs that reflect quoted prices for securities with identical characteristics or quoted prices for securities with similar characteristics and other observable inputs (such as interest rates that are observable at commonly quoted intervals). Accordingly, we classify the valuation techniques that use these inputs as either Level 1 or Level 2 depending on the inputs used. We also consider the effect of our counterparties’ credit standing in these fair value measurements.
•Derivative Assets and Liabilities. At SeptemberJune 30, 20212022 and December 31, 2020,2021, our derivative assets and liabilities consisted of foreign exchange forward contracts involving major currencies, interest rate swap contracts involving major interest rates, andcurrencies. At June 30, 2022, our derivative liabilities also included commodity swap contracts involving major 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, forward and spot prices for currencies, and forward prices for commodities. These inputs are observable in active markets over the contract term of the derivative instruments we hold, and accordingly, we classify the valuation techniques as Level 2. In evaluating credit risk, we consider the effect of our counterparties’ and our own credit standing in the fair value measurements of our derivative assets and liabilities, respectively.
At SeptemberJune 30, 20212022 and December 31, 2020,2021, the fair value measurements of our assets and liabilities measured on a recurring basis were as follows (in thousands):
| | | | | | Fair Value Measurements at Reporting Date Using | | | | | Fair Value Measurements at Reporting Date Using |
| | | September 30, 2021 | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | | June 30, 2022 | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
Assets: | Assets: | | | | | | | | | Assets: | | | | | | | | |
Cash equivalents: | | |
Money market funds | | $ | 2 | | | $ | 2 | | | $ | — | | | $ | — | | |
| Marketable securities: | Marketable securities: | | Marketable securities: | |
Foreign debt | Foreign debt | | 147,445 | | | — | | | 147,445 | | | — | | Foreign debt | | $ | 52,161 | | | $ | — | | | $ | 52,161 | | | $ | — | |
U.S. debt | U.S. debt | | 18,710 | | | — | | | 18,710 | | | — | | U.S. debt | | 8,702 | | | — | | | 8,702 | | | — | |
Time deposits | Time deposits | | 388,446 | | | 388,446 | | | — | | | — | | Time deposits | | 83,081 | | | 83,081 | | | — | | | — | |
Restricted marketable securities | Restricted marketable securities | | 251,379 | | | — | | | 251,379 | | | — | | Restricted marketable securities | | 200,266 | | | — | | | 200,266 | | | — | |
Derivative assets | Derivative assets | | 6,700 | | | — | | | 6,700 | | | — | | Derivative assets | | 8,535 | | | — | | | 8,535 | | | — | |
Total assets | Total assets | | $ | 812,682 | | | $ | 388,448 | | | $ | 424,234 | | | $ | — | | Total assets | | $ | 352,745 | | | $ | 83,081 | | | $ | 269,664 | | | $ | — | |
Liabilities: | Liabilities: | | | | | | | | | Liabilities: | | | | | | | | |
Derivative liabilities | Derivative liabilities | | $ | 2,315 | | | $ | — | | | $ | 2,315 | | | $ | — | | Derivative liabilities | | $ | 7,371 | | | $ | — | | | $ | 7,371 | | | $ | — | |
| | | | | | Fair Value Measurements at Reporting Date Using | | | | | Fair Value Measurements at Reporting Date Using |
| | | December 31, 2020 | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | | December 31, 2021 | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
Assets: | Assets: | | | | | | | | | Assets: | | | | | | | | |
Cash equivalents: | | |
Money market funds | | $ | 2 | | | $ | 2 | | | $ | — | | | $ | — | | |
| Marketable securities: | Marketable securities: | | Marketable securities: | |
Foreign debt | Foreign debt | | 214,254 | | | — | | | 214,254 | | | — | | Foreign debt | | $ | 103,317 | | | $ | — | | | $ | 103,317 | | | $ | — | |
| U.S. debt | U.S. debt | | 14,543 | | | — | | | 14,543 | | | — | | U.S. debt | | 18,627 | | | — | | | 18,627 | | | — | |
Time deposits | Time deposits | | 291,269 | | | 291,269 | | | — | | | — | | Time deposits | | 253,445 | | | 253,445 | | | — | | | — | |
Restricted marketable securities | Restricted marketable securities | | 265,280 | | | — | | | 265,280 | | | — | | Restricted marketable securities | | 244,726 | | | — | | | 244,726 | | | — | |
Derivative assets | Derivative assets | | 3,315 | | | — | | | 3,315 | | | — | | Derivative assets | | 5,816 | | | — | | | 5,816 | | | — | |
Total assets | Total assets | | $ | 788,663 | | | $ | 291,271 | | | $ | 497,392 | | | $ | — | | Total assets | | $ | 625,931 | | | $ | 253,445 | | | $ | 372,486 | | | $ | — | |
Liabilities: | Liabilities: | | | | | | | | | Liabilities: | | | | | | | | |
Derivative liabilities | Derivative liabilities | | $ | 5,621 | | | $ | — | | | $ | 5,621 | | | $ | — | | Derivative liabilities | | $ | 3,550 | | | $ | — | | | $ | 3,550 | | | $ | — | |
Fair Value of Financial Instruments
At SeptemberJune 30, 20212022 and December 31, 2020,2021, the carrying values and fair values of our financial instruments not measured at fair value were as follows (in thousands):
| | | | September 30, 2021 | | December 31, 2020 | | | June 30, 2022 | | December 31, 2021 |
| | | Carrying Value | | Fair Value | | Carrying Value | | Fair Value | | | Carrying Value | | Fair Value | | Carrying Value | | Fair Value |
Assets: | Assets: | | | | | | | | | Assets: | | | | | | | | |
Accounts receivable, unbilled, net - noncurrent | | $ | 24,018 | | | $ | 21,498 | | | $ | 22,722 | | | $ | 22,096 | | |
Accounts receivable unbilled, net - noncurrent | | Accounts receivable unbilled, net - noncurrent | | $ | 11,488 | | | $ | 10,110 | | | $ | 20,840 | | | $ | 18,846 | |
Accounts receivable trade, net - noncurrent | Accounts receivable trade, net - noncurrent | | 23,094 | | | 20,111 | | | — | | | — | | Accounts receivable trade, net - noncurrent | | 9,076 | | | 7,347 | | | 21,293 | | | 18,605 | |
Liabilities: | Liabilities: | | Liabilities: | |
Long-term debt, including current maturities (1) | Long-term debt, including current maturities (1) | | $ | 287,185 | | | $ | 290,457 | | | $ | 287,149 | | | $ | 297,076 | | Long-term debt, including current maturities (1) | | $ | 181,186 | | | $ | 155,888 | | | $ | 246,737 | | | $ | 243,865 | |
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(1)Excludes unamortized discounts and issuance costs.
The carrying values in our condensed consolidated balance sheets of our current trade accounts receivable, current unbilled accounts receivable, restricted cash, accounts payable, and accrued expenses approximated their fair values due to their nature and relatively short maturities; therefore, we excluded them from the foregoing table. The fair value measurements for our noncurrent unbilled accounts receivable, noncurrent trade accounts receivable, and long-term debt 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, accounts receivable, restricted cash, restricted marketable securities, foreign exchange forward contracts, interest rate swap 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 these instruments with various high-quality financial institutions and limit the amount of credit risk from any one counterparty. We continuously evaluatemonitor the credit standing of our counterparty financial institutions. Our net sales are primarily concentrated among a limited number of customers. We monitor the financial condition of our customers and perform credit evaluations whenever considered necessary. Depending upon the sales arrangement,
we may require some form of payment security from our customers, including, but not limited to, advance payments, parent guarantees, letters of credit, bank guarantees, or surety bonds. We also have power purchase agreements (“PPAs”) that subject us to credit risk in the event our off-take counterparties are unable to fulfill their contractual obligations, which may adversely affect our project assets and certain receivables. Accordingly, we closely monitor the credit standing
Contents
9. Debt
Our long-term debt consisted of the following at SeptemberJune 30, 20212022 and December 31, 20202021 (in thousands):
| | | Balance (USD) | | Balance (USD) |
Loan Agreement | Loan Agreement | | Currency | | September 30, 2021 | | December 31, 2020 | Loan Agreement | | Currency | | June 30, 2022 | | December 31, 2021 |
Revolving Credit Facility | | USD | | $ | — | | | $ | — | | |
Luz del Norte Credit Facilities | Luz del Norte Credit Facilities | | USD | | 184,546 | | | 186,230 | | Luz del Norte Credit Facilities | | USD | | $ | 181,186 | | | $ | 183,829 | |
Japan Credit Facility | | JPY | | 33,870 | | | 13,813 | | |
Tochigi Credit Facility | | JPY | | — | | | 39,400 | | |
Kyoto Credit Facility | Kyoto Credit Facility | | JPY | | 44,053 | | | 47,706 | | Kyoto Credit Facility | | JPY | | — | | | 62,908 | |
Ikeda Credit Facility | | JPY | | 24,716 | | | — | | |
Long-term debt principal | Long-term debt principal | | 287,185 | | | 287,149 | | Long-term debt principal | | 181,186 | | | 246,737 | |
Less: unamortized discounts and issuance costs | Less: unamortized discounts and issuance costs | | (8,573) | | | (7,918) | | Less: unamortized discounts and issuance costs | | (6,019) | | | (6,836) | |
Total long-term debt | Total long-term debt | | 278,612 | | | 279,231 | | Total long-term debt | | 175,167 | | | 239,901 | |
Less: current portion | Less: current portion | | (37,129) | | | (41,540) | | Less: current portion | | (5,150) | | | (3,896) | |
Noncurrent portion | Noncurrent portion | | $ | 241,483 | | | $ | 237,691 | | Noncurrent portion | | $ | 170,017 | | | $ | 236,005 | |
Revolving Credit Facility
On June 30, 2021, we terminated our Second Amended and Restated Credit Agreement (the “Revolving Credit Facility”) with several financial institutions as lenders and JPMorgan Chase Bank, N.A. as administrative agent, which was set to mature in July 2022. The Revolving Credit Facility provided us with an aggregate borrowing capacity of $500.0 million. Subject to certain conditions, we had the right to increase the aggregate commitments under the Revolving Credit Facility to $750.0 million. Borrowings under the Revolving Credit Facility bore interest at (i) London Interbank Offered Rate (“LIBOR”), adjusted for Eurocurrency reserve requirements, plus a margin of 2.00% or (ii) a base rate as defined in the credit agreement plus a margin of 1.00% depending on the type of borrowing requested.
In addition to paying interest on outstanding principal under the Revolving Credit Facility, we paid a commitment fee at a rate of 0.30% per annum, based on the average daily unused commitments under the facility. We also paid 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%.
Prior to the termination, we had no borrowings under the Revolving Credit Facility and had $3.3 million in issued and outstanding letters of credits, which were moved to a bilateral facility upon such termination. As of December 31, 2020, we had no borrowings under the Revolving Credit Facility and had issued $4.3 million of letters of credit using availability under the facility.
Luz del Norte Credit Facilities
In August 2014, Parque Solar Fotovoltaico Luz del Norte SpA (“Luz del Norte”), our indirect wholly-owned subsidiary and project company, entered into credit facilities (the “Luz del Norte Credit Facilities”) with the U.S. International Development Finance Corporation (“DFC”) and the International Finance Corporation (“IFC”) to provide limited-recourse senior secured debt financing for the design, development, financing, construction, testing, commissioning, operation, and maintenance of a 141 MWAC PV solar power plant located near Copiapó, Chile.
In March 2017, we amended the terms of the DFC 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 DFC and IFC loans until June 2037, and (iv) canceled the remaining borrowing capacity under the DFC and IFC credit facilities with the exception of the capitalization of certain future interest payments. As of SeptemberJune 30, 20212022 and December 31, 2020,2021, the balance outstanding on the DFC loans was $138.2$135.7 million and $139.4$137.7 million, respectively. As of SeptemberJune 30, 20212022 and December 31, 2020,2021, the balance outstanding on the IFC loans was $46.3$45.5 million and $46.8$46.1 million, respectively. The DFC and IFC loans mature in June 2037 and are secured by liens over all of Luz del Norte’s assets, and by a pledge of all of the equity interests in the entity. In October 2021,entity, and certain letters of credit. As of June 30, 2022, we receivedwere seeking a waiver for a technical noncompliance related to the credit facilities as of September 30, 2021.
facilities.
Japan Credit Facility
In September 2015, First Solar Japan GK, our wholly-owned subsidiary, entered into a construction loan facility with Mizuho Bank, Ltd. for borrowings up to ¥4.0 billion ($33.4 million) for the development and construction of utility-scale PV solar power plants in Japan (the “Japan Credit Facility”). Borrowings under the facility generally mature within 12 months following the completion of construction activities for each financed project. The facility is guaranteed by First Solar, Inc. and secured by pledges of certain projects’ cash accounts and other rights in the projects.
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 ($62.2 million) for the development of utility-scale PV solar power plants in Japan (the “Tochigi Credit Facility”). In March 2021, the credit facility matured and we repaid the remaining $36.8 million principal balance.
Kyoto Credit Facility
In July 2020, First Solar Japan GK, our wholly-owned subsidiary, entered into a construction loan facility with Mizuho Bank, Ltd. for borrowings up to ¥15.0 billion ($142.8 million), which are intended to be used for the construction of a 38 MWAC PV solar power plant located in Kyoto, Japan (the “Kyoto Credit Facility”). Borrowings underIn May 2022, we repaid the facility generally mature within 12 months followingremaining $73.2 million principal balance on the completion of construction activities at the project. The facility is guaranteed by First Solar, Inc. and First Solar Japan GK, our wholly-owned subsidiary, and secured by pledges of the project’s cash accounts and certain other assets.credit facility.
IkedaMomura Credit Facility
In March 2021,May 2022, FS Japan Project B425 GK (“Ikeda”Momura”), our indirect wholly-owned subsidiary and project company, entered into a credit agreement (the “Ikeda“Momura Credit Facility”) with MUFG Bank, Ltd.; Japan Post InsuranceNomura Capital Investment Co., Ltd.; The Shizuoka Bank, Ltd.; The Hyakugo Bank, Ltd.; The Iyo Bank, Ltd.; and The YamagataAozora Bank, Ltd. for aggregate borrowings up to ¥9.8¥21.5 billion ($88.6168.1 million) for the development and construction of a 2153 MWAC PV solar power plant located in Tochigi, Japan. The credit facility consistsconsisted of a ¥4.7an ¥18.8 billion ($43.1146.6 million) fixed rate term loan facility, a ¥3.8¥1.9 billion ($34.115.1 million) variable rateconsumption tax facility, and a ¥0.8 billion ($6.4 million) debt service reserve facility. In June 2022, we completed the sale of our Japan project development business, and the credit facility’s outstanding balance of $107.2 million was assumed by PAG. See Note 2. “Sales of Businesses” to our condensed consolidated financial statements for further information about this transaction.
Yatsubo Credit Facility
In May 2022, FS Japan Project 24 GK (“Yatsubo”), our indirect wholly-owned subsidiary and project company, entered into a credit agreement (the “Yatsubo Credit Facility”) with Nomura Capital Investment Co., Ltd. and Aozora Bank, Ltd. for aggregate borrowings up to ¥10.9 billion ($85.0 million) for the development and construction of a 26 MWAC PV solar power plant located in Tochigi, Japan. The credit agreement consisted of a ¥9.5 billion ($74.2 million) term loan facility, a ¥0.9¥1.0 billion ($8.27.6 million) consumption tax facility, and a ¥0.4 billion ($3.2 million) debt service reserve facility. In June 2022, we completed the sale of our Japan project development business, and the credit facility’s outstanding balance of $70.0 million was assumed by PAG. See Note 2. “Sales of Businesses” to our condensed consolidated financial statements for further information about this transaction.
Orido Credit Facility
In May 2022, FS Japan Project B5 GK (“Orido”), our indirect wholly-owned subsidiary and project company, entered into a credit agreement (the “Orido Credit Facility”) with Nomura Capital Investment Co., Ltd. and Aozora Bank, Ltd. for aggregate borrowings up to ¥5.3 billion ($41.3 million) for the development and construction of a 14 MWAC PV solar power plant located in Tochigi, Japan. The fixed rate and variable ratecredit agreement consisted of a ¥4.6 billion ($36.0 million) term loan facilities mature in April 2040, thefacility, a ¥0.5 billion ($3.6 million) consumption tax facility, matures in May 2024, and thea ¥0.2 billion ($1.7 million) debt service reserve facility. In June 2022, we completed the sale of our Japan project development business, and the credit facility’s outstanding balance of $18.0 million was assumed by PAG. See Note 2. “Sales of Businesses” to our condensed consolidated financial statements for further information about this transaction.
India Credit Facility
In July 2022, FS India Solar Ventures Private Limited, our indirect wholly-owned subsidiary entered into a finance agreement (the “India Credit Facility”) with DFC for aggregate borrowings up to $500.0 million for the development and construction of an approximately 3.3 GWDC solar module manufacturing facility located in Tamil Nadu, India. The India Credit Facility incurs interest at the U.S. Treasury Constant Maturity Yield plus 1.75% per annum, which is payable semi-annually. Principal on the Credit Facility is payable in scheduled semi-annual installments through the facility’s expected to maturematurity in October 2039.August 2029. The credit facilityCredit Facility is securedguaranteed by pledges of certain of Ikeda’s assets, accounts, material project documents, and by the equity interests in the entity.First Solar, Inc.
Variable Interest Rate Risk
Certain of ourOur long-term debt agreements bear interest at LIBOR TIBOR, or equivalent variable rates. An increase in these variable rates would increase the cost of borrowing under certain project specificthe debt financings.agreements. Our long-term debt borrowing rates as of SeptemberJune 30, 20212022 were as follows:
| | | | | | | | |
Loan Agreement | | SeptemberJune 30, 20212022 |
Luz del Norte Credit Facilities (1) | | Fixed rate loans at bank rate plus 3.50% |
| Variable rate loans at 91-Day U.S. Treasury Bill Yield or LIBOR plus 3.50% |
Japan Credit Facility | | 1-month TIBOR plus 0.55% |
Kyoto Credit Facility | | 1-month TIBOR plus 0.60% |
Ikeda Credit Facility (2) | | Fixed rate term loan facility at 1.20% |
| Variable rate term loan facility at 6-month TIBOR plus 0.70% (3) |
| Consumption tax facility at 3-month TIBOR plus 0.50% |
| Debt service reserve facility at 6-month TIBOR plus 1.20% |
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(1)Outstanding balance comprised of $135.9$125.3 million of fixed rate loans and $48.6$55.9 million of variable rate loans as of SeptemberJune 30, 2021.2022.
(3)We have entered into an interest rate swap contract to hedge a portion of this variable rate. See Note 6. “Derivative Financial Instruments” to our condensed consolidated financial statements for additional information.
Future Principal Payments
At SeptemberJune 30, 2021,2022, the future principal payments on our long-term debt were due as follows (in thousands):
| | | Total Debt | | Total Debt |
Remainder of 2021 | | $ | 717 | | |
2022 | | 37,905 | | |
Remainder of 2022 | | Remainder of 2022 | | $ | 1,392 | |
2023 | 2023 | | 6,687 | | 2023 | | 6,085 | |
2024 | 2024 | | 55,137 | | 2024 | | 7,020 | |
2025 | 2025 | | 8,636 | | 2025 | | 7,560 | |
2026 | 2026 | | 9,114 | | 2026 | | 7,965 | |
2027 | | 2027 | | 9,199 | |
Thereafter | Thereafter | | 168,989 | | Thereafter | | 141,965 | |
Total long-term debt future principal payments | Total long-term debt future principal payments | | $ | 287,185 | | Total long-term debt future principal payments | | $ | 181,186 | |
10. Commitments and Contingencies
Commercial Commitments
During the normal course of business, we enter into commercial commitments in the form of letters of credit and surety bonds to provide financial and performance assurance to third parties. As of SeptemberJune 30, 2021,2022, the majority of these commercial commitments supported our systems projects.module business. As of SeptemberJune 30, 2021,2022, the issued and outstanding amounts and available capacities under these commitments were as follows (in millions):
| | | Issued and Outstanding | | Available Capacity | | Issued and Outstanding | | Available Capacity |
Bilateral facilities (1) | Bilateral facilities (1) | | $ | 27.4 | | | $ | 287.6 | | Bilateral facilities (1) | | $ | 77.6 | | | $ | 137.4 | |
Surety bonds | Surety bonds | | 12.6 | | | 703.8 | | Surety bonds | | 9.3 | | | 232.8 | |
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(1)Of the total letters of credit issued under the bilateral facilities, $2.6$2.4 million was secured with cash.
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 solar modules under warranty installed at customer locations, our historical experience with and projections of warranty claims, 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 may 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, 2021 and 2020 were as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2021 | | 2020 | | 2021 | | 2020 |
Product warranty liability, beginning of period | | $ | 91,058 | | | $ | 123,194 | | | $ | 95,096 | | | $ | 129,797 | |
Accruals for new warranties issued | | 1,680 | | | 3,435 | | | 8,397 | | | 7,903 | |
Settlements | | (1,091) | | | (9,289) | | | (6,730) | | | (18,772) | |
Changes in estimate of product warranty liability | | (33,106) | | | (19,987) | | | (38,222) | | | (21,575) | |
Product warranty liability, end of period | | $ | 58,541 | | | $ | 97,353 | | | $ | 58,541 | | | $ | 97,353 | |
Current portion of warranty liability | | $ | 16,752 | | | $ | 22,325 | | | $ | 16,752 | | | $ | 22,325 | |
Noncurrent portion of warranty liability | | $ | 41,789 | | | $ | 75,028 | | | $ | 41,789 | | | $ | 75,028 | |
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. During the three months ended September 30, 2021, we revised this estimate based on updated information regarding our warranty claims, which reduced our product warranty liability by $33.1 million. This updated information reflected lower-than-expected warranty claims for our older series of module technology as well as the evolving claims profile of our newest series of module technology, resulting in reductions to our projected module return rates. During the three months ended September 30, 2020, we revised this estimate based on updated information regarding our warranty claims, which reduced our product warranty liability by $19.7 million. This updated information reflected lower-than-expected settlements for our older series of module technology and revisions to projected settlements, resulting in a lower projected return rate.
In general, we expect the return rates for our Series 6 modules to be lower than our older series, and we estimate that the return rate for such newer series of module technology will be less than 1%. As of September 30, 2021, a 1% increase in the return rate across all series of module technology would increase our productProduct warranty liability by $112.2 million, and a 1% increase in the return rate for balance of systems (“BoS”) parts would not have a material impact on the associated warranty liability.
Performance Guarantees
As part of our systems business, we conduct performance testing of a system prior to substantial completion to confirm the system meets its operational and capacity expectations noted in the engineering, procurement, and construction (“EPC”) agreement. In addition, we may provide an energy performance testactivities during the first or second year of a system’s operation to demonstrate that the actual energy generation for the applicable period meets or exceeds the modeled energy expectation, after certain adjustments. If there is an underperformance event with regard to these tests, we may incur liquidated damagesthree and six months ended June 30, 2022 and 2021 were as specified in the applicable EPC agreement. In certain instances, a bonus payment may be received at the end of the applicable test period if the system performs above a specified level. As of December 31, 2020, we accrued $10.2 million for our estimated obligations under such arrangements, which were classified as “Other current liabilities” in our condensed consolidated balance sheet.follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
Product warranty liability, beginning of period | | $ | 47,016 | | | $ | 94,073 | | | $ | 52,553 | | | $ | 95,096 | |
Accruals for new warranties issued | | 1,425 | | | 4,440 | | | 2,273 | | | 6,717 | |
Settlements | | (1,252) | | | (2,413) | | | (7,254) | | | (5,639) | |
Changes in estimate of product warranty liability | | (60) | | | (5,042) | | | (443) | | | (5,116) | |
Product warranty liability, end of period | | $ | 47,129 | | | $ | 91,058 | | | $ | 47,129 | | | $ | 91,058 | |
Current portion of warranty liability | | $ | 11,553 | | | $ | 16,846 | | | $ | 11,553 | | | $ | 16,846 | |
Noncurrent portion of warranty liability | | $ | 35,576 | | | $ | 74,212 | | | $ | 35,576 | | | $ | 74,212 | |
Indemnifications
In certain limited circumstances, we have provided indemnifications to customers or other parties, including project tax equity investors, under which we are contractually obligated to compensate such parties for losses they suffer resulting from a breach of a representation, warranty, or covenant; a reduction in tax benefits received, including investment tax credits; the resolution of specific matters associated with a project’s development or construction; or guarantees of a third party’s payment or performance obligations. Project related tax benefits are, in part, based on guidance provided by the Internal Revenue Service and U.S. Treasury Department, which includes assumptions regarding the fair value of qualifying PV solar power systems. For contracts that have such indemnification provisions, we initially recognize a liability under ASC 460 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 may base these estimates on the cost of insurance or other instruments that cover the underlying risks being indemnified and may purchase such instruments 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 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. As of SeptemberJune 30, 20212022 and December 31, 2020,2021, we accrued $3.8$3.7 million and $3.2$3.8 million of current indemnification liabilities, respectively. As of SeptemberJune 30, 2021,2022, the maximum potential amount of future payments under our indemnifications was $101.8$102.3 million, and we held insurance and other instruments allowing us to recover up to $28.2 million of potential amounts paid under the indemnifications.
In September 2017, we made an indemnification payment in connection with the sale of one of our projects following the underpayment of anticipated cash grants by the United States government. In February 2018, the associated project entity commenced legal action against the United States government seeking full payment of the cash grants. In May 2021, the parties reached an agreement, pursuant to which the United States government made a settlement payment to the project entity. Under the terms of the indemnification arrangement, we receivedwere entitled to a portion of the settlement payment. Accordingly, during the three months ended June 30, 2021, we recorded revenue of $65.1 million for our portion of the settlement payment, which we recorded as revenue during the nine months ended September 30, 2021.payment.
Solar Module Collection and Recycling Liability
We previously 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 service lives. For legacy customer sales contracts that were covered under this program, we agreed to pay the costs for the collection and recycling of qualifying solar modules, and the end-users agreed 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 recorded 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.
We estimate the cost of our collection and recycling obligations based on the present value of the expected 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 recycling process. We base these estimates on our experience collecting and recycling solar modules and certain 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 and classify the corresponding 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, 2021, we completed our annual cost study of obligations under our module collection and recycling program and increased the associated liability by $10.8 million primarily due to lower estimated by-product credits for certain semiconductor materials recovered during the recycling process and updates to certain valuation assumptions. During the three months ended September 30, 2020, we completed our annual cost study of obligations under our module collection and recycling program and reduced the associated liability by $18.9 million primarily due to changes to the estimated timing of cash flows associated with capital, labor, and maintenance costs and updates to certain valuation assumptions.
Our module collection and recycling liability was $140.0$134.1 million and $130.7$139.1 million as of SeptemberJune 30, 20212022 and December 31, 2020,2021, respectively. As of September 30, 2021, a 10% increase in the expected future recycling costs would increase the liability by $14.0 million. See Note 4. “Restricted Marketable Securities” to our condensed consolidated financial statements for more information about our arrangements for funding this liability.
Legal Proceedings
Opt-OutClass Action
First Solar was party toOn January 7, 2022, a suitputative class action lawsuit titled Maverick Fund, L.D.C.City of Pontiac General Employees’ Retirement System v. First Solar, Inc., et al., Case No. 2:15-cv-01156-ROS,22-cv-00036-MTL, was filed in 2015 in the United States District Court for the District of Arizona (hereafter “Arizona District Court”) by putative stockholders that opted out of a separate class action lawsuit (the “Opt-Out Action”).
In July 2020, the parties executed a definitive settlement agreement pursuant to which First Solar agreed to pay a total of $19 million in exchange for mutual releases and a dismissal with prejudice of the Opt-Out Action. The agreement contains no admission of liability, wrongdoing, or responsibility by any of the defendants. On July 30, 2020, First Solar funded the settlement, and on July 31, 2020, the parties filed a joint stipulation of dismissal. On September 10, 2020, the Arizona District Court enteredagainst the Company and certain of our current officers. The complaint was filed on behalf of a purported class consisting of all purchasers of First Solar common stock between February 22, 2019 and February 20, 2020, inclusive. The complaint asserts violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 based on allegedly false and misleading statements related to the Company’s Series 6 solar modules and its project development business. It seeks unspecified damages and an award of costs and expenses. On April 25, 2022, the Arizona District Court issued an order dismissingappointing the case with prejudice. As of December 31, 2019, we accrued $13 million of estimated losses forPalm Harbor Special Fire Control & Rescue District Firefighters’ Pension Plan and the Greater Pennsylvania Carpenters’ Pension Fund as Lead Plaintiffs. On June 23, 2022, Lead Plaintiffs filed an Amended Complaint that brings the same claims, and Defendants’ deadline to file a motion to dismiss the Amended Complaint is August 22, 2022. The Company and its officers intend to vigorously defend this action. As a resultaction in all respects. Given the early stage of the settlement,litigation, at this time we accrued an incremental $6 million litigationare not in a position to assess the likelihood of any potential loss duringor adverse effect on our financial condition or to estimate the nine months ended September 30, 2020.amount or range of potential loss, if any, from this action.
Other Matters and Claims
We are party to legal matters and claims in the normal course of our operations, which are described in Note 13 within our Annual Report on Form 10-K for the year ended December 31, 2020.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, 20202021 was filed with the SEC on February 26, 2021.March 1, 2022.
11. Revenue from Contracts with Customers
The following table presents the disaggregation of revenue from contracts with customers for the three and ninesix months ended SeptemberJune 30, 20212022 and 20202021 along with the reportable segment for each category (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Three Months Ended September 30, | | Nine Months Ended September 30, |
Category | | Segment | | 2021 | | 2020 | | 2021 | | 2020 |
Solar modules | | Modules | | $ | 562,810 | | | $ | 422,480 | | | $ | 1,640,436 | | | $ | 1,187,679 | |
Solar power systems | | Systems | | 10,132 | | | 471,174 | | | 311,076 | | | 776,724 | |
O&M services | | Systems | | 5,262 | | | 28,061 | | | 37,210 | | | 89,237 | |
Energy generation (1) | | Systems | | 7,339 | | | 14,335 | | | 29,375 | | | 54,884 | |
EPC services (2) | | Systems | | (2,039) | | | (8,485) | | | (2,039) | | | (6,424) | |
Net sales | | | | $ | 583,504 | | | $ | 927,565 | | | $ | 2,016,058 | | | $ | 2,102,100 | |
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(1)During the three and ninemonths ended September 30, 2020, the majority of energy generated and sold by our PV solar power systems was accounted for under ASC 840 consistent with the classification of the associated PPAs.
(2)For certain of our EPC agreements, we 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 period meets or exceeds the modeled energy expectation, after certain adjustments. If there is an underperformance event with regard to these tests, we may incur liquidated damages as specified in the applicable EPC agreement. During the three months ended September 30, 2020, we accrued liquidated damages for certain of these agreements, which we recognized as a reduction to revenue. See Note 10. “Commitments and Contingencies” to our condensed consolidated financial statements for discussion of our performance guarantee arrangements. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Three Months Ended June 30, | | Six Months Ended June 30, |
Category | | Segment | | 2022 | | 2021 | | 2022 | | 2021 |
Solar modules | | Modules | | $ | 607,445 | | | $ | 542,956 | | | $ | 962,326 | | | $ | 1,077,626 | |
Energy generation | | Other | | 8,956 | | | 7,457 | | | 15,249 | | | 22,036 | |
O&M services | | Other | | 4,180 | | | 4,713 | | | 8,077 | | | 31,948 | |
Solar power systems | | Other | | 374 | | | 73,977 | | | 2,343 | | | 300,944 | |
EPC services | | Other | | — | | | 77 | | | — | | | — | |
Net sales | | | | $ | 620,955 | | | $ | 629,180 | | | $ | 987,995 | | | $ | 1,432,554 | |
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 fail to ship or deliver modules by scheduled dates. We recognize these liquidated damages as a reduction of revenue in the period we transfer control of the modules to the customer.
We recognize revenue for sales of development projects or completed systems when we enter into the associated sales contract. For EPC services, orcertain prior project sales, including sales of solar power systems with EPCengineering, procurement, and construction (“EPC”) services, we recognizesuch revenue over time using cost based input methods, in whichincluded 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 toward contract completion. If the estimated total costs on any contract are greater than the net contract revenues, we recognize the entire estimated loss in the period the loss becomes known.revenues. The cumulative effect of revisions to estimates related to net contract revenues or costs to complete contracts areis recorded in the period in which the revisions to estimates are identified and the amounts can be reasonably estimated.
Changes in estimates for sales of systems During the three and EPC services occur for a variety of reasons, including but not limitedsix months ended June 30, 2021, respectively, revenue increased $63.4 million and $65.0 million due to (i) changes in estimates of variable consideration, (ii) construction plan accelerations or delays, (iii) module cost forecast changes, (iv) cost related change orders, or (v) changes in other information used to estimate costs. Changes in estimates may have a material effect on our condensed consolidated statements of operations.
The following table outlines the impact on revenue of net changes in estimated transaction prices for certain projects we previously sold, which represented 5.3% and input costs for systems related sales contracts (both increases and decreases) for the three and nine months ended September 30, 2021 and 2020 as well as the number of projects that comprise such changes. For purposes of the table, we only include projects with changes in estimates that have a net impact on revenue of at least $1.0 million during the periods presented. Also included in the table is the net change in estimate as a percentage2.8% of the aggregate revenue for such projects.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2021 | | 2020 | | 2021 | | 2020 |
Number of projects | | 4 | | | 6 | | | 9 | | | 12 | |
| | | | | | | | |
Increase (decrease) in revenue from net changes in transaction prices (in thousands) (1) | | $ | 7,818 | | | $ | (16,319) | | | $ | 72,950 | | | $ | (25,470) | |
Increase (decrease) in revenue from net changes in input cost estimates (in thousands) | | — | | | 24 | | | — | | | (2,483) | |
Net increase (decrease) in revenue from net changes in estimates (in thousands) | | $ | 7,818 | | | $ | (16,295) | | | $ | 72,950 | | | $ | (27,953) | |
| | | | | | | | |
Net change in estimate as a percentage of aggregate revenue | | 0.9 | % | | (1.3) | % | | 2.3 | % | | (1.3) | % |
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(1)During the ninemonths ended September 30, 2021, we recorded revenue of Such changes were primarily due to a $65.1 million associated with the settlement offor an outstanding indemnification arrangement associated with the prior sale of one of our projects.projects, which we recorded as revenue during the three months ended June 30, 2021. See Note 10. “Commitments and Contingencies” to our condensed consolidated financial statements for discussion of our indemnification arrangements.
The following table reflects the changes in our contract assets, which we classify as “Accounts receivable unbilled,” net” and our contract liabilities, which we classify as “Deferred revenue,” for the ninesix months ended SeptemberJune 30, 2021. As of December 31, 2020, these balances excluded any assets or liabilities classified as held for sale2022 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2021 | | December 31, 2020 | | Nine Month Change |
Accounts receivable, unbilled (1) | | $ | 49,204 | | | $ | 49,395 | | | | | |
Allowance for credit losses | | (184) | | | (303) | | | | | |
Accounts receivable, unbilled, net | | $ | 49,020 | | | $ | 49,092 | | | $ | (72) | | | — | % |
| | | | | | | | |
Deferred revenue (2) | | $ | 307,473 | | | $ | 233,732 | | | $ | 73,741 | | | 32 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2022 | | December 31, 2021 | | Six Month Change |
Accounts receivable unbilled, net (1) | | $ | 46,926 | | | $ | 46,113 | | | $ | 813 | | | 2 | % |
Deferred revenue (2) | | $ | 505,642 | | | $ | 297,811 | | | $ | 207,831 | | | 70 | % |
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(1)Includes $24.2$11.5 million and $22.7$20.8 million of noncurrent accounts receivable unbilled, net classified as “Other assets” on our condensed consolidated balance sheets as of SeptemberJune 30, 20212022 and December 31, 2020,2021, respectively.
(2)Includes $68.7$278.2 million and $44.9$95.9 million of noncurrent deferred revenue classified as “Other liabilities” on our condensed consolidated balance sheets as of SeptemberJune 30, 20212022 and December 31, 2020,2021, respectively.
During the ninesix months ended SeptemberJune 30, 2021, our contract assets decreased by $0.1 million primarily due to final billings for certain project sales, offset by unbilled receivables associated with the sale of the Sun Streams 4 and Sun Streams 5 projects in the current period. During the nine months ended September 30, 2021,2022, our contract liabilities increased by $73.7$207.8 million primarily due to advance payments received for sales of solar modules in the current period, partially offset by the recognition of revenue for sales of solar modules for which payment was received in 2020.2021. During the ninesix months ended SeptemberJune 30, 20212022 and 2020,2021, we recognized revenue of $169.5$114.4 million and $296.7$111.6 million, respectively, that was included in the corresponding contract liability balance at the beginning of the periods.
As of SeptemberJune 30, 2021,2022, we had entered into contracts with customers for the future sale of 16.437.3 GWDC of solar modules for an aggregate transaction price of $4.6 billion. We$10.0 billion, which we expect to recognize such amounts as revenue through 20242026 as we transfer control of the modules to the customers. Such aggregate transaction price excludes estimates of variable consideration for certain contracts with customers that are associated with future module technology improvements, including new product designs and enhancements to certain energy related attributes. Certain other price adjustments associated with the proposed extension of the U.S. investment tax credit (“ITC”), sales freight, and potential changes to certain commodity prices have also been excluded. While our contracts with customers typically represent firm purchase commitments, these contracts may be subject to amendments made by us or requested by our customers. These amendments may increase or decrease the volume of modules to be sold under the contract, change delivery schedules, or otherwise adjust the expected revenue under these contracts.
12. Share-Based Compensation
The following table presents share-based compensation expense recognized in our condensed consolidated statements of operations for the three and ninesix months ended SeptemberJune 30, 20212022 and 20202021 (in thousands):
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2021 | | 2020 | | 2021 | | 2020 | | 2022 | | 2021 | | 2022 | | 2021 |
Cost of sales (1) | Cost of sales (1) | | $ | 154 | | | $ | 1,099 | | | $ | 235 | | | $ | 2,554 | | Cost of sales (1) | | $ | 446 | | | $ | 173 | | | $ | 944 | | | $ | 81 | |
Selling, general and administrative (1) | Selling, general and administrative (1) | | 5,746 | | | 5,562 | | | 14,998 | | | 13,323 | | Selling, general and administrative (1) | | 4,754 | | | 4,737 | | | 7,328 | | | 9,252 | |
Research and development (2) | Research and development (2) | | 529 | | | 548 | | | (259) | | | 2,312 | | Research and development (2) | | 561 | | | 520 | | | 992 | | | (788) | |
Production start-up | | Production start-up | | 3 | | | — | | | 3 | | | — | |
Total share-based compensation expense | Total share-based compensation expense | | $ | 6,429 | | | $ | 7,209 | | | $ | 14,974 | | | $ | 18,189 | | Total share-based compensation expense | | $ | 5,764 | | | $ | 5,430 | | | $ | 9,267 | | | $ | 8,545 | |
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(1)On March 31, 2021, we completed the sales of our North American O&M operations and U.S. project development business, which resulted in the forfeiture of unvested shares for associates (our term for fullfull- and part-time employees) departing the Company as part of the transactions. See Note 2. “Sales of Businesses” to our condensed consolidated financial statements for further information related to these transactions.
(2)Effective March 15, 2021, our former Chief Technology Officer retired from the Company, which resulted in the forfeiture of his unvested shares during the ninesix months ended SeptemberJune 30, 2021.
Share-based compensation expense capitalized in inventory project assets, and PV solar power systems was $0.8$0.7 million as of SeptemberJune 30, 20212022 and $1.1 million as of December 31, 2020.2021. As of SeptemberJune 30, 2021,2022, we had $29.3$29.2 million of unrecognized share-based compensation expense related to unvested restricted and performance units, which we expect to recognize over a weighted-average period of approximately 1.41.5 years.
In April 2018,July 2019, the compensation committee of our board of directors (“the Board”) approved a long-term incentive programgrants of performance units for key executive officers and associates. The program was intended to incentivize retention of our key executive talent and align the interest of executive management and stockholders. The program consisted of performance units to be earned over an approximately three-yeara multi-year performance period, which ended in December 2020.2021. Vesting of the 20182019 grants of performance units was contingent upon the relative attainment of target cost per watt, module wattage, gross margin,profit, and operating expense, and contracted revenueincome metrics. In February 2021,March 2022, the compensation committee certified the achievement of the vesting conditions applicable to the grants, which approximated the targetmaximum level of performance. Accordingly, each participant received one share of common stock for each vested performance unit granted, net of any tax withholdings.
In July 2019, the compensation committee approved additional grants
In March 2020, the compensation committee approved additional grants of performance units for key executive officers. Such grants are expected to be earned over a multi-year performance period ending in December 2022. Vesting of the 2020 grants of performance units is contingent upon the relative attainment of target contracted revenue, module wattage, and return on capital metrics.
In May 2021, the 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 2023. Vesting of the 2021 grants of performance units is contingent upon the relative attainment of target contracted revenue, cost per watt, incremental average selling price, and operating income metrics.
In March 2022, the compensation committee approved additional grants of performance units for key executive officers. Such grants are expected to be earned over a multi-year performance period ending in December 2024. Vesting of the 2022 grants of performance units is contingent upon the relative attainment of target contracted revenue, cost per watt, and return on capital metrics.
Vesting of performance units is also contingent upon the employment of program participants through the applicable vesting dates, with limited exceptions in case of death, disability, a qualifying retirement, or a change-in-control of First Solar. Outstanding performance units are included in the computation of diluted net income per share based on the number of shares that would be issuable if the end of the reporting period were the end of the contingency period.
In February 2022, First Solar adopted a Clawback Policy (“the Policy”) that applies to the Company’s current and former Section 16 officers. The Policy applies to all incentive compensation, including any performance-based annual incentive awards and performance-based equity compensation. The Policy was adopted to ensure that incentive compensation is paid or awarded based on accurate financial results and the correct calculation of performance against incentive targets.
13. Income Taxes
In March 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act (the “CARES Act”) was signed into law. The CARES Act includes a number of federal corporate tax relief provisions that are intended to support the ongoing liquidity of U.S. corporations. Among other provisions, the CARES Act allows net operating losses incurred in 2018, 2019, and 2020 to be carried back to each of the five preceding taxable years. Because changes in tax law are accounted for in the period of enactment, the retroactive effects of such changes were accounted for as a discrete item in the prior period.
As a result of the CARES Act, we expect to carry back our 2019 and 2020 net operating losses to our 2016 U.S. corporate income tax return, which will restore certain foreign tax credits we expect to utilize by amending our 2017 and 2018 U.S. corporate income tax returns. Such amended returns will restore other general business credits we expect to utilize in future tax years before the credits expire and eliminate the transition tax liability for accumulated earnings of foreign subsidiaries resulting from the Tax Cuts and Jobs Act.
Our effective tax rate was 16.7%83.7% and (16.9)%18.6% for the ninesix months ended SeptemberJune 30, 20212022 and 2020,2021, respectively. The increase in our effective tax rate was primarily driven by a discretehigher losses in certain jurisdictions for which no tax benefit could be recorded, the remeasurement of our net deferred tax assets in Vietnam as a result of the prior yearnew long-term tax incentive described below, the effect of tax law changes associated with the net operating loss carryback provisionsforeign tax credit (“FTC”) regulations described below, and lower relative amounts of the CARES Act described above.income earned in foreign jurisdictions with lower tax rates. Our provision for income taxes differed from the amount computed by applying the U.S. statutory federal income tax rate of 21% primarily due to higher losses in certain jurisdictions for which no tax benefit could be recorded, the beneficial impactremeasurement of our net deferred tax assets in Vietnam mentioned above, the effect of the FTC regulations described below, and changes in our deferred income taxes related to our Malaysian tax holidayholiday.
In December 2021, the U.S. Treasury released final FTC regulations addressing various aspects of the U.S. FTC regime. Among other items, these regulations revised the definition of a creditable foreign income tax and Vietnamesethe time at which foreign taxes accrued can be claimed as a credit. These regulations are applicable for tax incentive.years beginning on or after December 28, 2021. As a result of these regulations, foreign taxes, which were previously creditable, are now treated as foreign tax deductions at the U.S. statutory federal income tax rate of 21%.
Our Malaysian subsidiary has been granted a long-term tax holiday that expires in 2027. The tax holiday, which generally provides for a full exemption from Malaysian income tax, is conditional upon our continued compliance with certain employment and investment thresholds, which we are currently in compliance with and expect to continue to comply with through the expiration of the tax holiday in 2027. In addition, our
Our Vietnamese subsidiary hashad previously been granted a tax incentive that providesprovided a two-year tax exemption, which began in 2020, and reduced annual tax rates through the end of 2025. In May 2022, our Vietnamese subsidiary was granted a new long-term tax incentive that provides an additional two-year tax exemption and reduced annual tax rates through 2036, conditional upon our continued compliance with certain revenue and research and development (“R&D”) spending thresholds, which we are currently in compliance with and expect to continue to comply with through the expiration of the tax holiday.
We account for uncertain tax positions pursuant to the recognition and measurement criteria under ASC 740. It is reasonably possible that $0.4$0.3 million of uncertain tax positions will be recognized within the next 12 months due to the expiration of the statute of limitations associated with such positions.
We are subject to audit by federal, state, local, and foreign tax authorities. We are currently under examination in India, Malaysia, and the state of California. We believe that adequate provisions have been made for any adjustments that may result from tax examinations. However, the outcome of tax examinations cannot be predicted with certainty. If any issues addressed by our tax examinations 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.
14. Net Income per Share
The calculation of basic and diluted net income per share for the three and ninesix months ended SeptemberJune 30, 20212022 and 20202021 was as follows (in thousands, except per share amounts):
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2021 | | 2020 | | 2021 | | 2020 | | 2022 | | 2021 | | 2022 | | 2021 |
Basic net income per share | Basic net income per share | | | | | | | | | Basic net income per share | | | | | | | | |
Numerator: | Numerator: | | Numerator: | |
Net income | Net income | | $ | 45,203 | | | $ | 155,037 | | | $ | 337,323 | | | $ | 282,652 | | Net income | | $ | 55,805 | | | $ | 82,449 | | | $ | 12,550 | | | $ | 292,120 | |
Denominator: | Denominator: | | Denominator: | |
Weighted-average common shares outstanding | Weighted-average common shares outstanding | | 106,320 | | | 105,967 | | | 106,241 | | | 105,830 | | Weighted-average common shares outstanding | | 106,586 | | | 106,313 | | | 106,500 | | | 106,201 | |
| Diluted net income per share | Diluted net income per share | | Diluted net income per share | |
Denominator: | Denominator: | | Denominator: | |
Weighted-average common shares outstanding | Weighted-average common shares outstanding | | 106,320 | | | 105,967 | | | 106,241 | | | 105,830 | | Weighted-average common shares outstanding | | 106,586 | | | 106,313 | | | 106,500 | | | 106,201 | |
Effect of restricted and performance units and stock purchase plan shares | | 579 | | | 784 | | | 638 | | | 707 | | |
Effect of restricted stock and performance units | | Effect of restricted stock and performance units | | 470 | | | 523 | | | 465 | | | 665 | |
Weighted-average shares used in computing diluted net income per share | Weighted-average shares used in computing diluted net income per share | | 106,899 | | | 106,751 | | | 106,879 | | | 106,537 | | Weighted-average shares used in computing diluted net income per share | | 107,056 | | | 106,836 | | | 106,965 | | | 106,866 | |
| Net income per share: | Net income per share: | | Net income per share: | |
Basic | Basic | | $ | 0.43 | | | $ | 1.46 | | | $ | 3.18 | | | $ | 2.67 | | Basic | | $ | 0.52 | | | $ | 0.78 | | | $ | 0.12 | | | $ | 2.75 | |
Diluted | Diluted | | $ | 0.42 | | | $ | 1.45 | | | $ | 3.16 | | | $ | 2.65 | | Diluted | | $ | 0.52 | | | $ | 0.77 | | | $ | 0.12 | | | $ | 2.73 | |
The following table summarizes the potential shares of common stock that were excluded from the computation of diluted net income per share for the three and ninesix months ended SeptemberJune 30, 20212022 and 20202021 as such shares would have had an anti-dilutive effect (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2021 | | 2020 | | 2021 | | 2020 |
Anti-dilutive shares | | 8 | | | 1 | | | 3 | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
Anti-dilutive shares | | 45 | | | — | | | 45 | | | — | |
15. Accumulated Other Comprehensive Loss
The following table presents the changes in accumulated other comprehensive loss, net of tax, for the ninesix months ended SeptemberJune 30, 20212022 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Foreign Currency Translation Adjustment | | Unrealized Gain (Loss) on Marketable Securities and Restricted Marketable Securities | | Unrealized Gain (Loss) on Derivative Instruments | | Total |
Balance as of December 31, 2020 | | $ | (76,239) | | | $ | 16,630 | | | $ | (2,117) | | | $ | (61,726) | |
Other comprehensive (loss) income before reclassifications | | (12,544) | | | (9,399) | | | 3,799 | | | (18,144) | |
Amounts reclassified from accumulated other comprehensive loss | | 1,203 | | | (11,696) | | | 1,030 | | | (9,463) | |
Net tax effect | | — | | | 1,134 | | | (545) | | | 589 | |
Net other comprehensive (loss) income | | (11,341) | | | (19,961) | | | 4,284 | | | (27,018) | |
Balance as of September 30, 2021 | | $ | (87,580) | | | $ | (3,331) | | | $ | 2,167 | | | $ | (88,744) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Foreign Currency Translation Adjustment | | Unrealized Gain (Loss) on Marketable Securities and Restricted Marketable Securities | | Unrealized Gain (Loss) on Derivative Instruments | | Total |
Balance as of December 31, 2021 | | $ | (89,452) | | | $ | (8,036) | | | $ | 1,126 | | | $ | (96,362) | |
Other comprehensive loss before reclassifications | | (24,386) | | | (41,415) | | | (6,267) | | | (72,068) | |
Amounts reclassified from accumulated other comprehensive loss | | (3,909) | | | — | | | (1,453) | | | (5,362) | |
Net tax effect | | — | | | 1,927 | | | 1,635 | | | 3,562 | |
Net other comprehensive loss | | (28,295) | | | (39,488) | | | (6,085) | | | (73,868) | |
Balance as of June 30, 2022 | | $ | (117,747) | | | $ | (47,524) | | | $ | (4,959) | | | $ | (170,230) | |
The following table presents the pretax amounts reclassified from accumulated other comprehensive loss into our condensed consolidated statements of operations for the three and ninesix months ended SeptemberJune 30, 20212022 and 20202021 (in thousands):
| Comprehensive Income Components | Comprehensive Income Components | | Income Statement Line Item | | Three Months Ended September 30, | | Nine Months Ended September 30, | Comprehensive Income Components | | Income Statement Line Item | | Three Months Ended June 30, | | Six Months Ended June 30, |
| 2021 | | 2020 | | 2021 | | 2020 | | 2022 | | 2021 | | 2022 | | 2021 |
Foreign currency translation adjustment: | Foreign currency translation adjustment: | | | | | | | | | | | Foreign currency translation adjustment: | | | | | | | | | | |
Foreign currency translation adjustment | Foreign currency translation adjustment | | Cost of sales | | $ | — | | | $ | 370 | | | $ | — | | | $ | 370 | | Foreign currency translation adjustment | | Gain on sales of businesses, net | | $ | 3,756 | | | $ | — | | | $ | 3,756 | | | $ | — | |
Foreign currency translation adjustment | Foreign currency translation adjustment | | Other (expense) income, net | | (728) | | | — | | | (1,203) | | | — | | Foreign currency translation adjustment | | Other (expense) income, net | | 158 | | | — | | | 153 | | | (475) | |
Total foreign currency translation adjustment | Total foreign currency translation adjustment | | (728) | | | 370 | | | (1,203) | | | 370 | | Total foreign currency translation adjustment | | 3,914 | | | — | | | 3,909 | | | (475) | |
Unrealized gain on marketable securities and restricted marketable securities | Unrealized gain on marketable securities and restricted marketable securities | | Other (expense) income, net | | — | | | 9 | | | 11,696 | | | 15,346 | | Unrealized gain on marketable securities and restricted marketable securities | | Other (expense) income, net | | — | | | — | | | — | | | 11,696 | |
Unrealized gain (loss) on derivative contracts: | | |
Unrealized gain (loss) on derivative instruments: | | Unrealized gain (loss) on derivative instruments: | |
Foreign exchange forward contracts | Foreign exchange forward contracts | | Cost of sales | | 15 | | | (334) | | | (1,913) | | | (647) | | Foreign exchange forward contracts | | Cost of sales | | 893 | | | (799) | | | 1,453 | | | (1,928) | |
Commodity swap contracts | Commodity swap contracts | | Cost of sales | | 670 | | | — | | | 883 | | | — | | Commodity swap contracts | | Cost of sales | | — | | | 220 | | | — | | | 213 | |
Total unrealized gain (loss) on derivative contracts | | 685 | | | (334) | | | (1,030) | | | (647) | | |
Total (loss) gain reclassified | | $ | (43) | | | $ | 45 | | | $ | 9,463 | | | $ | 15,069 | | |
| Total unrealized gain (loss) on derivative instruments | | Total unrealized gain (loss) on derivative instruments | | 893 | | | (579) | | | 1,453 | | | (1,715) | |
Total gain (loss) reclassified | | Total gain (loss) reclassified | | $ | 4,807 | | | $ | (579) | | | $ | 5,362 | | | $ | 9,506 | |
16. Segment Reporting
We operateOur primary segment is our modules business, in 2 segments. Our modules segmentwhich involves the design, manufacture, and sale of cadmium telluride (“CdTe”) solar modules, which convert sunlight into electricity. Third-party customers of our modules segment include integratorsdevelopers and operators of PV solar power systems. Our second segment is ourresidual business operations include certain project development activities and O&M services, which are primarily concentrated in Japan, as well as the results of operations from PV solar power systems segment, through which we provide power plant solutionsown and operate in certain markets,international regions.
For the year ended December 31, 2021, we changed our reportable segments to align with revisions to our internal reporting structure and long-term strategic plans. Following this change, our modules business represents our only reportable segment. We previously operated our business in two segments, which includeincluded our modules and systems businesses. Systems business activities primarily involved (i) project development, (ii) EPC services, and (iii) O&M services. We may provide any combination of individual productsservices, which now comprise our residual business operations and services within such capabilities (including, with respectare categorized as “Other” in the tables below. All prior year balances were revised to EPC services, by contracting with third parties) depending uponconform to the customer and market opportunity. Our systems segment customers include utilities, independent power producers, commercial and industrial companies, and other system owners. From time to time, we may temporarily own and operate, or retain interests in, certain of our systems for a period of time based on strategic opportunities or market factors. current year presentation.
See Note 20. “Segment and Geographical Information” in our Annual Report on Form 10-K for the year ended December 31, 20202021 for additional discussion of our segment reporting.
The following tables presentprovide a reconciliation of certain financial information for our reportable segmentssegment to information presented in our condensed consolidated financial statements for the three and ninesix months ended SeptemberJune 30, 20212022 and 20202021 and as of SeptemberJune 30, 20212022 and December 31, 20202021 (in thousands):
| | | | Three Months Ended September 30, 2021 | | Three Months Ended September 30, 2020 | | | Three Months Ended June 30, 2022 | | Three Months Ended June 30, 2021 |
| | | Modules | | Systems | | Total | | Modules | | Systems | | Total | | | Modules | | Other | | Total | | Modules | | Other | | Total |
Net sales | Net sales | | $ | 562,810 | | | $ | 20,694 | | | $ | 583,504 | | | $ | 422,480 | | | $ | 505,085 | | | $ | 927,565 | | Net sales | | $ | 607,445 | | | $ | 13,510 | | | $ | 620,955 | | | $ | 542,956 | | | $ | 86,224 | | | $ | 629,180 | |
Gross profit | | 118,260 | | | 6,320 | | | 124,580 | | | 124,822 | | | 168,193 | | | 293,015 | | |
Gross profit (loss) | | Gross profit (loss) | | 31,167 | | | (54,367) | | | (23,200) | | | 109,347 | | | 64,771 | | | 174,118 | |
Depreciation and amortization expense | Depreciation and amortization expense | | 56,335 | | | 3,045 | | | 59,380 | | | 43,137 | | | 4,982 | | | 48,119 | | Depreciation and amortization expense | | 57,810 | | | 2,355 | | | 60,165 | | | 56,688 | | | 3,051 | | | 59,739 | |
| | | | Nine Months Ended September 30, 2021 | | Nine Months Ended September 30, 2020 | | | Six Months Ended June 30, 2022 | | Six Months Ended June 30, 2021 |
| | | Modules | | Systems | | Total | | Modules | | Systems | | Total | | | Modules | | Other | | Total | | Modules | | Other | | Total |
Net sales | Net sales | | $ | 1,640,436 | | | $ | 375,622 | | | $ | 2,016,058 | | | $ | 1,187,679 | | | $ | 914,421 | | | $ | 2,102,100 | | Net sales | | $ | 962,326 | | | $ | 25,669 | | | $ | 987,995 | | | $ | 1,077,626 | | | $ | 354,928 | | | $ | 1,432,554 | |
Gross profit | | 328,047 | | | 155,418 | | | 483,465 | | | 280,115 | | | 240,698 | | | 520,813 | | |
Gross profit (loss) | | Gross profit (loss) | | 42,356 | | | (54,093) | | | (11,737) | | | 209,787 | | | 149,098 | | | 358,885 | |
Depreciation and amortization expense | Depreciation and amortization expense | | 163,747 | | | 9,193 | | | 172,940 | | | 132,529 | | | 17,477 | | | 150,006 | | Depreciation and amortization expense | | 114,009 | | | 5,201 | | | 119,210 | | | 107,412 | | | 6,148 | | | 113,560 | |
| | | September 30, 2021 | | December 31, 2020 | | June 30, 2022 | | December 31, 2021 |
| | Modules | | Systems | | Total | | Modules | | Systems | | Total | | Modules | | Other | | Total | | Modules | | Other | | Total |
Goodwill | Goodwill | | $ | 14,462 | | | $ | — | | | $ | 14,462 | | | $ | 14,462 | | | $ | — | | | $ | 14,462 | | Goodwill | | $ | 14,462 | | | $ | — | | | $ | 14,462 | | | $ | 14,462 | | | $ | — | | | $ | 14,462 | |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Cautionary Statement Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the Securities Act of 1933, as amended (the “Securities Act”), which are subject to risks, uncertainties, and assumptions that are difficult to predict. All statements in this Quarterly Report on Form 10-Q, other than statements of historical fact, are forward-looking statements. These forward-looking statements are made pursuant to safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The forward-looking statements include statements, concerning, among other things:things, concerning: the length and severity of the ongoing COVID-19 (novel coronavirus) outbreak, including its impacts across our businesses on demand, manufacturing project development,operations, construction activities associated with our expanding manufacturing capacity, O&M, financing, and our global supply chains, actions that may be taken by governmental authorities to contain the COVID-19 outbreak or to treat its impacts, and the ability of our customers, suppliers, equipment vendors, and other counterparties to fulfill their contractual obligations to us; effects resulting from certain module manufacturing changes; our business strategy, including anticipated trends and developments in and management plans for our business and the markets in which we operate; future financial results, operating results, revenues, gross margin, operating expenses, products, projected costs (including estimated future module collection and recycling costs), warranties, solar module technology and cost reduction roadmaps, currently anticipated delays in the implementation of our CuRe program and related estimated impacts, restructuring, product reliability, investments, and capital expenditures; our ability to continue to reduce the cost per watt of our solar modules; the impact of public policies, such as tariffs or other trade remedies imposed on solar cells and modules; the potential impact of proposed legislation intended to encourage renewable energy investments through tax credits; effects resulting from pending litigation; our ability to expand manufacturing capacity worldwide; our ability to reduce the costs to develop and construct PV solar power systems; the impact of supply chain disruptions, further exacerbated by the COVID-19 pandemic, that may affect the procurement of raw materials used in our manufacturing process and the distribution of our modules; research and development (“R&D”) programs and our ability to improve the wattage 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 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, whether as a result of new information, future developments, or otherwise. These forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause our actual results, levels of activity, performance, or achievements to differ materially from those expressed or implied by these statements. These factors include, but are not limited to, the severity and duration of the COVID-19 pandemic, including its potential impact on the Company’s business, financial condition, and results of operations; structural imbalances in global supply and demand for PV solar modules; the market for renewable energy, including solar energy; our competitive position and other key competitive factors; reduction, elimination, or expiration of government subsidies, policies, and support programs for solar energy projects; the impact of public policies, such as tariffs or other trade remedies imposed on solar cells and modules; the passage of proposed legislation intended to encourage renewable energy investments through tax credits; our ability to execute on our long-term strategic plans; our ability to execute on our solar module technology and cost reduction roadmaps; our ability to improve the wattage of our solar modules; interest rate fluctuations and both our and our customers’ ability to secure financing; the creditworthiness of our off-take counterparties and the ability of our off-take counterparties to fulfill their contractual obligations to us; the loss of any of our large customers, or the ability of our customers and counterparties to perform under their contracts with us; the satisfaction of conditions precedent in our sales agreements; our ability to attract new customers and to develop and maintain existing customer and supplier
relationships; our ability to successfully develop and complete our systems business projects; our ability to convert existing or construct production facilities to support new product lines; general economic and business conditions, including those influenced by U.S., international, and geopolitical events; environmental responsibility, including with respect
to CdTe and other semiconductor materials; claims under our limited warranty obligations; changes in, or the failure to comply with, government regulations and environmental, health, and safety requirements; effects resulting from pending litigation; future collection and recycling costs for solar modules covered by our module collection and recycling program; supply chain disruption, including the availability of shipping containers, port congestion, cancelled shipments by logistic providers, and the cost of fuel, all of which may be exacerbated by the COVID-19 pandemic; our ability to protect our intellectual property; our ability to prevent and/or minimize the impact of cyber-attacks or other breaches of our information systems; our continued investment in research and development;development (“R&D”); the supply and price of components and raw materials, including CdTe; our ability to attract and retain key executive officers and associates; and the matters discussed in Item 1A. “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2020,2021, elsewhere in this Quarterly Report on Form 10-Q, and our other reports filed with the SEC. You should carefully consider the risks and uncertainties described in these reports.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and the related notes thereto included in this Quarterly Report on Form 10-Q. 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 projects or 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 PV solar energy solutions. Developed at our R&D labs in California and Ohio, we manufacture and sell PV solar modules with an advanced thin film semiconductor technology that provide a high-performance, lower-carbon alternative to conventional crystalline silicon PV solar modules. From raw material sourcing through end-of-life module recycling, we are committed to reducing the environmental impacts and enhancing the social and economic benefits of our products across their life cycle. In certain markets, we also develop and sell PV solar power systems that use the modules we manufacture and provide O&M services to system owners. We are the world’s largest thin film PV solar module manufacturer and the largest PV solar module manufacturer in the Western Hemisphere.
Certain of our financial results and other key operational developments for the three months ended SeptemberJune 30, 20212022 include the following:
•Net sales for the three months ended SeptemberJune 30, 20212022 decreased by 37%1% to $583.5$621.0 million compared to $927.6$629.2 million for the same period in 2020.2021. The decrease was primarily driven by the salesprior period settlement of an outstanding indemnification arrangement associated with the Ishikawa, Miyagi, Anamizu, Tungabhadra,sale of one of our projects and Anantapur projects in the prior period,a lower average selling price per watt, partially offset by an increase in the volume of modules sold to third parties. See Note 10. “Commitments and Contingencies” to our condensed consolidated financial statements for further discussion of our indemnification arrangements.
•Gross profit for the three months ended SeptemberJune 30, 20212022 decreased 10.231.4 percentage points to 21.4%(3.7)% from 31.6%27.7% for the same period in 2020.2021. The decrease in gross profit was primarily due to the volume of higher gross profit projects sold during the prior period, a decrease in the average selling price per watt of our modules, the prior period settlement of the indemnification matter mentioned above, an impairment loss for our Luz del Norte PV solar power plant, and an increase in logistics costs, and an increase to our module collection and recycling liability due to lower estimated by-product credits for certain semiconductor materials recovered during the recycling process,sales freight, partially offset by continued module cost reductions and athe higher benefit from reductionsvolume of modules sold. See Note 5. “Consolidated Balance Sheet Details” to our product warranty liability incondensed consolidated financial statements for further discussion of the current period due to lower-than-expected claims for our older series of module technology and the evolving claims profileimpairment of our newest series of module technology.Luz del Norte project.
•As of SeptemberJune 30, 2021,2022, we had 7.98.4 GWDC of total installed Series 6 nameplate production capacity across all our facilities. We produced 2.02.2 GWDC of solar modules during the three months ended SeptemberJune 30, 2021,2022, which represented a 33%12% increase in Series 6 module production from the same period in 2020.2021. The increase in Series 6 production was primarily driven by the incremental Series 6 production capacity added in Malaysia in early 2021 and higher throughput at our manufacturing facilities. We expect to produce between 7.68.5 GWDC and 7.89.0 GWDC of Series 6 and Series 6 Plus modules during 2021.2022.
•In May 2022, we entered into various agreements with certain subsidiaries of PAG for the sale of our Japan project development business. In June 2022, we completed the sale for an aggregate purchase price of ¥66.4 billion ($488.4 million), subject to certain customary post-closing adjustments. On the closing date, we received proceeds of ¥44.1 billion ($324.5 million) and transferred cash and restricted cash of ¥8.4 billion ($61.9 million) to PAG. As a result of this transaction, we recognized a gain of $245.4 million, net of transaction costs, which was included in “Gain on sales of businesses, net” in our condensed consolidated statements of operations. In May 2022, we also entered into an agreement with PAG for the sale of our Japan O&M business. The completion of this transaction is contingent upon the achievement of certain customary closing conditions. Assuming satisfaction of such closing conditions, we expect this portion of the sale to be completed in the second half of 2022.
Market Overview
The solar industry continuesSolar energy is one of the fastest growing forms of renewable energy with numerous economic and environmental benefits that make it an attractive complement to be characterized by intense pricing competition, both at the module and system levels. Although module average selling prices in many global markets have declined over severaland/or substitute for traditional forms of energy generation. In recent years, recent module spot pricing has increased due to elevated commodity and freight costs. For example, the price of polysiliconPV solar power systems, and accordingly the cost of producing electricity from such systems, has significantly increaseddecreased to levels that are competitive with or below the wholesale price of electricity in recent months duemany markets. This price decline has opened new possibilities to develop systems in many locations with limited or no financial incentives, thereby promoting the widespread adoption of solar energy. As a coal shortage in China, which resulted in higher energy prices and Chinese government mandated power restrictions that led to curtailmentsresult of silicon metal production. Given the majority of global polysilicon capacity is located in China, such higher energy prices and reduced operating capacities have further exacerbated the supply and demand imbalancemarket opportunities, we are in the polysilicon market, contributingprocess of expanding our manufacturing capacity by 6.6 GWDC by constructing our third manufacturing facility in the U.S. and our first manufacturing facility in India. These new facilities, which we expect to the increase in polysilicon pricing. While the duration of this elevated period of spot pricing is uncertain, module average selling prices in global marketsproduce our next generation Series 7 modules, are currently under construction and are expected to continue to declinecommence operations in the long-term.first half of 2023 and the second half of 2023, respectively. 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. Accordingly, we believe the solar industry may experience periods of structural imbalance between supply and demand (i.e., where production capacity exceeds global demand), and that such periodsexcess capacity will also put pressure on pricing. Additionally, intense competition at the system level may result in an environment in which pricing falls rapidly, thereby potentially increasing demand for solar energy solutions but constraining the ability for project developers and diversified module manufacturers to sustain meaningful and consistent profitability. 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 diversifiedR&D capabilities, our financial viability, and the sustainability advantage of our modules, and systems.our financial stability.
GlobalThe solar markets continueindustry continues to expand and develop, in part aidedbe characterized by demand elasticity resulting from declining average selling prices,intense pricing competition, both at the module and system levels,levels. This competition may result in an environment in which pricing falls rapidly, thereby potentially increasing demand for solar energy solutions but constraining the ability for project developers and module manufacturers to sustain meaningful and consistent profitability. Although module average selling prices in many global markets have declined for several years, recent module spot pricing has promotedincreased, in part, due to elevated commodity and freight costs. For example, polysilicon pricing has been on the widespread adoptionrise and, in June 2022, reached its highest level in the past decade due to higher energy prices and reduced operating capacities of solar energy. As a resultsilicon metal production in China and rising global demand for polysilicon. Several other commodities, including aluminum, steel, natural gas, and lumber have recently experienced significant price volatility. While the duration of such market opportunities, we recently announced plans to expand our manufacturing capacity by 6.6 GWDC by constructing our third U.S. manufacturing facilitythis elevated period of pricing is uncertain, module average selling prices in Lake Township, Ohio and our first manufacturing facility in India. These new facilitiesglobal markets are expected to commence operationscontinue to decline in the first half of 2023 and the second half of 2023, respectively. Additionally, we are developing solar projects in Japan as we execute on our utility-scale project pipeline. See the table under “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Systems Project Pipeline” for additional information about the projects we are developing. Although we expect a portion of our future consolidated net sales, operating income, and cash flows to be derived from such projects, we expect third-party module sales to continue to have a more significant impact on our operating results as we expand our manufacturing capacity and leverage the benefits of our module technology.long-term.
Competitive pricing for modules and systems, relative to the cost of traditional forms of energy generation, is expected to contribute to diversification in global electricity generation and further demand for solar energy. Over time, however, declining average selling prices may adversely affect our results of operations to the extent we have not already entered into contracts for future module or system sales.operations. Our results of operations could also be adversely affected if competitors reduce pricing to levels below their costs, bid aggressively low prices for module sale agreements, or PPAs, or are able to operate at minimal or negative operating margins for sustained periods of time. For certain of our competitors, including many in China, these practices may be enabled by their direct or indirect access to sovereign capital or other forms of state-owned support. InAdditionally, in certain markets in California and elsewhere, an oversupply imbalance at the grid level may reduce short-to-medium term demand for new solar installations relative to prior years, lower PPA pricing for power purchase agreements (“PPAs”), and lower margins on module and system sales to such
markets. However, we believe the effects of such imbalance can be mitigated by modern solar
power plants and energy storage solutions that offer a flexible operating profile, thereby promoting greater grid stability and enabling a higher penetration of solar energy. We continue to address these uncertainties, in part, by executing on our module technology improvements partnering with grid operators and utility companies, and implementing certain other cost reduction initiatives.
We face intense competition from manufacturers of crystalline silicon solar modules and developers of solar power projects.modules. Solar module manufacturers compete with one another on sales price and onper watt, which may be influenced by several module value attributes, including wattage (through a larger form factor or an improved conversion efficiency), energy yield, degradation, sustainability, and reliability,reliability. Sales price per watt may also be influenced by warranty terms 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 operational life. Most crystalline silicon cell and wafer manufacturers have transitioned from lower efficiency Back Surface Field multi-crystalline cells (the legacy technology against which we have generally competed) to higher efficiency Passivated Emitter Rear Contact (“PERC”) mono-crystalline cells at competitive cost structures. Additionally, whilecustomer payment terms. While conventional solar modules, including the solar modules we currently produce, are monofacial, meaning their ability to produce energy is a function of direct and diffuse irradiance on their front side, severalmost module manufacturers of mono-crystalline PERC modules offer bifacial modules that also capture diffuse irradiance on the back side of a module. Bifaciality compromises nameplate efficiency, but by converting both front and rear side irradiance, such technology may improve the overall energy production of a module relative to nameplate efficiency when applied in certain applications, which after considering the incremental BoS and other costs, could potentially lower the overall LCOElevelized cost of electricity (“LCOE”) of a system when compared to systems using conventional solar modules, including the modules we currently produce. Additionally, certain module manufacturers have introduced n-type mono-crystalline modules, such as tunnel oxide passivated contact modules, which are expected to provide certain improvements to module efficiency, temperature coefficient, and bifacial performance, and claim to provide certain degradation advantages compared to other mono-crystalline modules.
We believe we are among the lowest cost 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 systems is highly competitive. Our cost competitiveness is based in large part on our advanced thin-filmthin film semiconductor technology, module wattage (or conversion efficiency), proprietary manufacturing process (which enables us to produce a CdTe module in a matter of hours using a continuous and highly automated industrial manufacturing process, as opposed to a batch process), and our focus on operational excellence. In addition, our CdTe modules use approximately 1-2%2% of the amount of semiconductor material that is used to manufacture conventional 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. In recent years, polysilicon consumption per cell has been reduced through various initiatives, such as the adoption of diamond wire saw technology, which have contributed to declines in our relative manufacturing cost competitiveness over conventional crystalline silicon module manufacturers.
In terms of performance, in many climates our CdTe solar modules provide certain energy production advantages relative to competing crystalline silicon solar modules. For example, our CdTe solar 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);
•a superior spectral response in humid environments where atmospheric moisture alters the solar spectrum relative to standard test conditions;
•a better partial shading response than competing crystalline silicon technologies, which may experience significantly lower energy generation than CdTe solar modules when partial shading 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 PV 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 of 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. Based on the implementation of our Copper Replacement (“CuRe”) program, which replaces copper with certain other elements that are expected to enhance module performance, we expect the warranted degradation of our CdTe solar modules to decline to 0.2% per year in the near term. As a result of these and other factors, our PV solar modules can produce more annual energy in real world operating conditions than conventional crystalline silicon modules with the same nameplate capacity.
While our modules and 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 further declines in the average selling prices of our modules and systems and additional margin compression. We continue to focus on enhancing the competitiveness of our solar modules and systems by accelerating progress along our module technology and cost reduction 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. See Item 1A. “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 20202021 for discussions of other risks (the “Risk Factors”) that may affect us.
Our long-term strategic plansbusiness is evolving worldwide and is shaped by the varying ways in which our offerings can be compelling and economically viable solutions to energy needs in various markets. In addressing electricity demands, we are focused on our goal to create long-term stockholder value through a balance of growth, profitability, and liquidity. In executing such plans, we are focusing on providing utility-scale PV solar energy solutionsmodule offerings in key geographic markets that we believe have a compelling need for mass-scale PV solar electricity, including markets throughout the United States, Japan,India, Europe, India, and certain other strategic markets. Additionally, we continueJapan. We closely evaluate and monitor the appropriate level of resources required to focus on opportunitiessupport such markets and their associated sales opportunities. When deployed in whichutility-scale applications, our PV solarmodules provide energy solutions compete directly withat a lower LCOE compared to traditional forms of energy generation, onmaking them an LCOEattractive alternative to or similar basis, or complement such generation offerings. These opportunities include the retirement and replacement offor aging fossil fuel-based generation resources with utility-scale PV solar energy solutions. For example, based on publicly available information,resources. Accordingly, future retirements of coal generation plants in the United States alone are expected to approximate 50 GWDC over the next ten years, representingrepresent a significant increase in the potential market for solar energy.
This focus on our coreutility-scale module and utility-scale offerings exists within a current market environment that includes rooftop and distributed generation solar, particularly in the United States. While it is unclear how rooftop and distributed generation solar might impact our core offerings over the next several years, wesolar. We believe that utility-scale solar will continue to be a compelling offering for companies with technology and cost leadership and will continue to represent an increasing portion of the overall electricity generation mix. However, our module offerings in certain international markets may be driven, in part, by future demand for rooftop and distributed generation solar solutions. For example, we continue to evaluate opportunities to develop and leverage other solar cell technologies in multi-junction applications that utilize our thin film CdTe semiconductor as the base layer. We believe such applications have the potential to improve module conversion efficiency up to 25% in the mid-term.
Demand for our solar energy solutions depends, in part, on market factors outside our control, such ascontrol. For example, many governments have proposed policies or support programs intended to encourage renewable energy investments to achieve decarbonization objectives and/or establish greater energy independence. While we compete in many markets that do not require solar-specific government subsidies or support programs, our net sales and profits remain subject to variability based on the availability and size of debt and/or equity financing (including, in the United States, tax equity financing), interest rate fluctuations, domestic or international trade policies,government subsidies and government support programs.economic incentives. Adverse changes in these factors could increase the cost of utility-scale systems, which could reduce demand for our solar modules. Recently proposed government support programs include the following:
•United States. Legislation was recently introduced in the U.S. Congress to incentivize domestic solar manufacturing and accelerate the transition to clean energy solutions.by providing tax credits for U.S. solar manufacturers and project developers. Among other things, such proposed legislation is expected to (i) extend the ITC up to 40% for 10 years for solar projects that satisfy certain domestic content, labor, and wage requirements; (ii) introduce certain refundable tax credits for solar module components manufactured in the U.S.; (iii) revive certain tax credits for capital investments in the manufacturing of solar module
components; and (iv) expand the scope of production tax credits for energy storage projects. At this time, it is unclear whether and to what extent such measures will be enacted into law. If such legislation is successfully signed into law, or other similar policies or support programs are enacted, it could positively impact our business, financial condition, and results of operations.
•India. In early 2022, the government of India announced an expansion to its Production Linked Incentive (“PLI”) scheme to INR 195 billion ($2.5 billion), which is intended to promote the manufacturing of high efficiency solar modules in India and to reduce India’s dependency on foreign imports of solar modules. Under the PLI scheme, manufacturers are selected through a competitive bid process and receive certain cash incentives over a five-year period following the commissioning of their manufacturing facilities. Such incentives are expected to be based on, among other things, the efficiency and temperature coefficient of the modules produced, the value of raw materials sourced from the domestic market, the extent to which the manufacturer’s operations are fully integrated within India, and the quantity of modules sold from such manufacturing operations. At this time, it is uncertain whether and to what extent we may qualify for such incentives.
Demand for our solar energy solutions also depends on domestic or international trade policies and government regulations, which may be proposed, revised, and/or enacted across short- and long-term time horizons with varying degrees of impact to our net sales, profit, and manufacturing operations. Changes in these policies and regulations could adversely impact the competitive landscape of solar markets, which could reduce demand for our solar modules. Recent revisions or proposed changes to trade policy and government regulations include the following:
•United States. In June 2022, the U.S. President authorized the U.S. Secretary of Commerce to provide a 24-month antidumping and countervailing duty tariff exemption for imported solar panels from certain Southeast Asian countries. For more information about this development, see Item 1A. “Risk Factors.” Separately, the U.S. President also authorized the use of the Defense Production Act (“DPA”) to expand domestic production of clean energy technologies. At this time, it is uncertain what impact, if any, these developments will have on future investments in solar module manufacturing in the United States.
•United States. In June 2022, the U.S. Supreme Court issued a ruling in West Virginia, et al. v. Environmental Protection Agency, et al., which limited the Environmental Protection Agency’s (“EPA”) ability to regulate greenhouse gas (“GHG”) emissions under the Clean Air Act using a “generation shifting” approach from coal-fired power plants to renewable energy sources over time. At this time, it is unclear what effect this ruling will have on future EPA regulation of GHG emissions, the U.S. President’s climate change initiatives, internationally agreed-upon climate goals, the extent and timing of future coal plant retirements in the United States, and/or future investments in renewable energy.
•India. In May 2022, the government of India, through its Ministry of Environment, Forest and Climate Change and Ministry of New and Renewable Energy (“MNRE”), proposed legislation intended to regulate electronic waste (“e-waste”). Among other things, such proposed legislation expands the scope of India’s existing e-waste regulations to include PV solar modules, including certain recycling obligations for solar module manufacturers, and limits the use of certain hazardous substances, such as cadmium. The MNRE has engaged various stakeholders, including First Solar, in an effort to propose modifications intended to closely align this policy with the European Union’s Waste Electrical and Electronic Equipment Directive. At this time, it is unclear whether and to what extent such policy will be enacted into law. If such legislation is successfully signed into law without modification, it could negatively impact our business, financial condition, and results of operations.
Our ability to provide solar energy solutionsmodules on economically attractive terms is also affected by the availability and cost of logistics services associated with the procurement of raw materials or equipment used in our manufacturing process and the shipping, handling, storage, and distribution of our modules. For example, the cost of ocean freight throughout many parts of the world has continued to increaseremains at elevated levels due to the limited availability of shipping containers, increased
port congestion, resulting from labor shortages, an increase in cancellations of shipments by logistics providers, and elevated fuel costs. Such factors may disrupt our supply chain and adversely impact our manufacturing operations as several of our key raw materials and components are either single-sourced or sourced from a limited number of international suppliers. In response to these disruptions, we have accommodated certain requests for delayed shipments in an effort to manage our shipping
routes and mitigate our exposure to uncontracted freight rates. Additionally, dueDue to ongoing schedule reliability issues with many operating ships, we are adjusting our shipping plans to include additional lead time for module deliveries and utilizing our U.S. distribution network to better meet our customer commitments. We are also employing module contract structures that provide additional consideration to us if the cost of logistics services exceeds a defined threshold. Additionally, our 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. While it is currently unclear how long these issues will persist, they may be further exacerbated by the disruption of major shipping routes or other economic disruptions caused by the COVID-19 pandemic.
In certain markets, demandWe generally price and sell our solar modules on a per watt basis. As of June 30, 2022, we had entered into contracts with customers for our utility-scale offerings may be affected by specific regulations or policiesthe future sale of governmental bodies or utility regulators. For example, in June 2020,37.3 GWDC of solar modules for an aggregate transaction price of $10.0 billion, which we expect to recognize as revenue through 2026 as we transfer control of the Japanese legislature enacted an amendmentmodules to the Electricity Business Law Enforcement Ordercustomers. Such volume includes contracts for the Ministrysale of Economy, Trade20.5 GWDC of solar modules that include transaction price adjustments associated with future module technology improvements, including new product designs and Industryenhancements to certain energy related attributes. Based on these potential technology improvements, the contracted module volumes as of Japan which, among other things, is expected to invalidate the feed-in-tariff certificates for projects that fail to achieve construction plan acceptance, submit an interconnection application, and/or achieve commercial operation within a set period of time following dates specified in their respective certificates. The amendment, which becomes effective in AprilJune 30, 2022, applies to all projects regardless of generation type and is intended to release grid capacity reserved for delayed projects to enable other newly developed projects to utilize such capacity at a lower cost of electricity to consumers. The deadline by which a project must achieve construction plan acceptance, submit an interconnection application, and/or achieve commercial operation varies by project, but is no earlier than March 2023. Any deadlines that precede the expected construction plan acceptance and/or commercial operation datestiming of module deliveries, such adjustments, if realized, could result in additional revenue of up to $0.4 billion, the majority of which would be recognized in 2024 and 2025. In addition to these price adjustments, certain of our various projects in Japan could adversely affectcontracts with customers may also include favorable price adjustments for the valueproposed extension of such projects and our ability to secure any related project financing.
Many governments have also proposed policies or support programs intended to encourage renewable energy investments. Such support programs may include additional incentives over several years for renewable energy projects, including PV solar power systems, or manufacturers of renewable energy products. For example, legislation was recently introduced in the U.S. Congress that is intended to increase domestic solar manufacturing and accelerate the transition to clean energy by providing tax credits for U.S. solar manufacturers and project developers. Among other things, such proposed legislation extends the investment tax credit up to 40% for 10 years for solar projects that satisfy certain domestic content, labor, and wage requirements; introduces certain refundable tax credits for solar module components manufactured in the U.S.; revives certain tax credits for capital investments in the manufacturing of solar module components; and expands the scope of production tax credits for energy storage projects. If such legislation is successfully signed into law, or other similar policies or support programs are enacted, it could positively impact our business, financial condition, and results of operations. While we compete in many markets that do not require solar-specific government subsidies or support programs, our net sales and profits remain subject to variability based on the availability and size of government subsidies and economic incentives.
We intend to focus our resources in those markets and energy applications in which solar power can be a least-cost, best-fit energy solution, particularly in regions with significant current or projected electricity demand, relatively high existing electricity prices, strong demand for renewable energy generation, and high solar resources, such as the United States, Japan, Europe, and India. As a result, we closely evaluate and monitor the appropriate level of resources required to support such markets and their associated sales opportunities. We have dedicated, and intend to continue to dedicate, significant capital and human resources to reduce the total installed cost of PV solar energy and to ensure that our solutions integrate well into the overall electricity ecosystem of each specific market.
Creating or maintaining a market position in certain strategically targeted markets and energy applicationsfreight described above. Such contracts may also requires us to adapt to new and changing market conditions, including changes in the market set of potential buyers of our modules and 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 such offerings, 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 offerings. For example, the emergence of utility-owned generation has increased the number of potential project buyers as such utility customers benefit from a potentially low cost of capital available through rate-based utility investments. Given their long-term ownership profile, utility-owned generation customers typically seek to partner with diversified and stable companies that can provide a broad spectrum of utility-scale generation solutions, including reliable PV solar technology, thereby mitigating their long-term ownership risks.
We continue to invest significant financial resources in R&D initiatives, including in efforts to enhance module performance such as our CuRe program. However, our CuRe program has encountered challenges in achieving its full performance entitlement in high volume manufacturing conditions, which, together with travel restrictions, quarantine requirements, and government orders impacting our ability to upgrade tooling to support our CuRe program at our manufacturing facilities in Malaysia and Vietnam, has resulted in delays in implementing our CuRe program. As a result, we are revising our expected integration schedule from the end of 2021 to early 2022 for our lead line implementation. In connection with these challenges, we have amended or will endeavor to amend certain customer contracts for modules utilizing CuRe technology, including by substituting our other modules for the modules with CuRe technology that were expected to be delivered under the terms of the original customer contracts. In connection with these customer contract amendments, we may make certaininclude price concessions. Based on the information available to us at this time, including our present assessment of the challenges with our CuRe program and the relative performance characteristics of the substitute modules we can provide to customers, we currently estimate that the price concessions that we potentially will make across the impacted customer contracts described above will not exceed approximately $100 million of 2022 revenue. See Item 1A. “Risk Factors” of this Quarterly Report on Form 10-Q for more informationadjustments related to the delayspotential changes to our CuRe program.
On occasion, we may temporarily own and operate certain systems with the intention to sell them at a later date. As of September 30, 2021 and December 31, 2020, the recoverability of our Luz del Norte PV solar power plant was based, in part, on the likelihood of our continued ownership and operation of the system. However, it is reasonably possible that our intent to hold the asset may change in the near term due to our evaluation of strategic sale opportunities for the system. The pursuit of such opportunities, which require coordination with the system’s lenders, may result in a determination that the carrying value of the system is not recoverable based on the probability-weighted undiscounted future cash flows, which in turn could result in a possible impairment of the system in future periods. Accordingly, any changes in our expected use of the asset or its disposition may result in impairment charges that could be material to our condensed consolidated financial statements and have a significant adverse impact on our results of operations.commodity prices.
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. 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 improving manufacturing yield losses. Additionally, we recently announced plans to expandare in the process of expanding our manufacturing capacity by 6.6 GWDC by constructing our third U.S. manufacturing facility in Lake Township, Ohiothe U.S. and our first manufacturing facility in India. Such additional capacity, and any other potential investments to add or otherwise modify our existing manufacturing capacity in response to market demand and competition, may require significant internal and possibly external sources of capital, and may be subject to certain risks and uncertainties described in the Risk Factors.
In response to the COVID-19 pandemic, governmental authorities have recommended or ordered the limitation or cessation of certain business or commercial activities in jurisdictions in which we do business or have operations. While some of these orders permit the continuation of essential business operations, or permit the performance of minimum business activities, these orders are subject to continuous revision or may be revoked or superseded, or our understanding of the applicability of these orders and exemptions may change at any time. In addition, due to contraction of the virus, or concerns about becoming ill from the virus, we may experience reductions in the availability of our operational workforce, such as our manufacturing personnel. As a result, we may at any time be ordered by governmental authorities, or we may determine, based on our understanding of the recommendations or orders of governmental authorities or the availability of our personnel, that we have to curtail or cease business operations or activities altogether, including manufacturing, fulfillment, project development, construction, operating or maintenance operations, research and developmentR&D activities, or the implementation of our technology roadmap, (such asor construction activities associated with our CuRe program).expanding manufacturing capacity. At this time, such limitations have had a minimal effect on our manufacturing facilities, with the exception of the aforementioned delay in the implementation of our CuRe program, and we have implemented a wide range of safety measures intended to enable the continuity of our operations and inhibit the spread of COVID-19 at our manufacturing, administrative, and other sites and facilities, including those in the
United States, Malaysia, and Vietnam.facilities. While we continue to work with relevant government agencies in Malaysia and Vietnam to allow the essential travel of personnel that support the implementation of our technology roadmap, such implementation may be delayed and in the case of our CuRe program has been delayed, due to travel restrictions, quarantine requirements, other government orders, or increases in COVID-19 infection rates.
Systems Project Pipeline
The following table summarizes, as of November 4, 2021, our approximately 386 MWAC 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 1.1 to 1.6. Such ratio varies across different projects due to many factors, including PPA pricing and the location, design, and costs of the system. Projects are typically removed from our advanced-stage project pipeline tables below once we substantially complete construction of the project and after substantially all of the associated project revenue is recognized. A project, or a portion of a project, may also be removed from the tables below in the event the project is not able to be sold due Refer to the changing economicsRisk Factors for more information related to impacts of the project or other factors, or we decide to temporarily own and operate the project basedCOVID-19 on strategic opportunities or market factors.
The following table includes projects with confirmed offtake agreements or projects under contracts with customers subject to certain closing conditions:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Project/Location | | Project Size in MWAC | | Project under Sales Agreement | | Primary Permits Obtained | | PPA Contracted Partner | | Expected or Actual Substantial Completion Year | | % Complete as of September 30, 2021 |
Luz del Norte, Chile | | 141 | | | No | | Yes | | (1) | | 2016 | | 100% |
Momura, Japan | | 53 | | | No | | Yes | | (2) | | 2023 | | 20% |
Kyoto, Japan | | 38 | | | No | | Yes | | Chubu Electric Power Company | | 2022 | | 36% |
Yatsubo, Japan | | 26 | | | No | | Yes | | (2) | | 2023 | | 49% |
Ikeda, Japan | | 21 | | | No | | Yes | | (2) | | 2023 | | 41% |
Japan (multiple locations) | | 107 | | | No | | Yes | | (3) | | 2021/2023 | | 38% |
Total | | 386 | | | | | | | | | | | |
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(1)Approximately 70 MWAC of the plant’s capacity is contracted under various PPAs; remaining capacity to be sold on an open contract basis.
(2)Project has secured feed-in-tariff rights, and the related PPA will be executed at a later date.
(3)11 MWAC has been contracted with Tokyo Electric Power Company. The remaining 96 MWAC has secured feed-in-tariff rights, and the related PPAs for such projects will be executed at a later date.our business.
Results of Operations
The following table sets forth our condensed consolidated statements of operations as a percentage of net sales for the three and ninesix months ended SeptemberJune 30, 20212022 and 2020:2021:
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2021 | | 2020 | | 2021 | | 2020 | | 2022 | | 2021 | | 2022 | | 2021 |
Net sales | Net sales | | 100.0 | % | | 100.0 | % | | 100.0 | % | | 100.0 | % | Net sales | | 100.0 | % | | 100.0 | % | | 100.0 | % | | 100.0 | % |
Cost of sales | Cost of sales | | 78.6 | % | | 68.4 | % | | 76.0 | % | | 75.2 | % | Cost of sales | | 103.7 | % | | 72.3 | % | | 101.2 | % | | 74.9 | % |
Gross profit | | 21.4 | % | | 31.6 | % | | 24.0 | % | | 24.8 | % | |
Gross (loss) profit | | Gross (loss) profit | | (3.7) | % | | 27.7 | % | | (1.2) | % | | 25.1 | % |
Selling, general and administrative | Selling, general and administrative | | 7.5 | % | | 5.4 | % | | 6.5 | % | | 7.6 | % | Selling, general and administrative | | 6.3 | % | | 5.8 | % | | 7.7 | % | | 6.2 | % |
Research and development | Research and development | | 4.4 | % | | 2.5 | % | | 3.4 | % | | 3.4 | % | Research and development | | 4.1 | % | | 3.8 | % | | 5.3 | % | | 3.1 | % |
Production start-up | Production start-up | | 0.5 | % | | 1.4 | % | | 0.8 | % | | 1.1 | % | Production start-up | | 2.1 | % | | 0.3 | % | | 2.1 | % | | 0.9 | % |
Litigation loss | | — | % | | — | % | | — | % | | 0.3 | % | |
Gain on sales of businesses, net | Gain on sales of businesses, net | | (0.3) | % | | — | % | | 7.3 | % | | — | % | Gain on sales of businesses, net | | 39.5 | % | | (0.3) | % | | 25.0 | % | | 10.4 | % |
Operating income | Operating income | | 8.7 | % | | 22.3 | % | | 20.5 | % | | 12.4 | % | Operating income | | 23.3 | % | | 17.5 | % | | 8.8 | % | | 25.3 | % |
Foreign currency loss, net | Foreign currency loss, net | | (0.2) | % | | (0.2) | % | | (0.2) | % | | (0.2) | % | Foreign currency loss, net | | (0.5) | % | | (0.2) | % | | (0.7) | % | | (0.3) | % |
Interest income | Interest income | | 0.3 | % | | 0.2 | % | | 0.2 | % | | 0.7 | % | Interest income | | 0.5 | % | | 0.2 | % | | 0.5 | % | | 0.2 | % |
Interest expense, net | Interest expense, net | | (0.5) | % | | (1.2) | % | | (0.5) | % | | (1.0) | % | Interest expense, net | | (0.5) | % | | (0.7) | % | | (0.6) | % | | (0.5) | % |
Other (expense) income, net | Other (expense) income, net | | (0.4) | % | | (0.3) | % | | 0.1 | % | | (0.4) | % | Other (expense) income, net | | (0.3) | % | | (0.5) | % | | (0.2) | % | | 0.4 | % |
Income tax (expense) benefit | | (0.1) | % | | (4.1) | % | | (3.4) | % | | 1.9 | % | |
Income tax expense | | Income tax expense | | (13.5) | % | | (3.2) | % | | (6.5) | % | | (4.7) | % |
| Net income | Net income | | 7.7 | % | | 16.7 | % | | 16.7 | % | | 13.4 | % | Net income | | 9.0 | % | | 13.1 | % | | 1.3 | % | | 20.4 | % |
Segment Overview
We operateOur primary segment is our modules business, in two segments. Our modules segmentwhich involves the design, manufacture, and sale of CdTe solar modules, to third parties,which convert sunlight into electricity. Third-party customers of our modules segment include developers and our systems segment includes the development, construction contracting and management, operation, maintenance, and saleoperators of PV solar power systems. Our residual business operations include certain project development activities and O&M services, which are primarily concentrated in Japan, as well as the results of operations from PV solar power systems including anywe own and operate in certain international regions.
For the year ended December 31, 2021, we changed our reportable segments to align with revisions to our internal reporting structure and long-term strategic plans. Following this change, our modules installedbusiness represents our only reportable segment. We previously operated our business in suchtwo segments, which included our modules and systems businesses. Systems business activities primarily involved (i) project development, (ii) EPC services, and any revenue from energy generated by such systems.(iii) O&M services, which now comprise our residual business operations and are categorized as “Other” in the tables below. All prior year balances were revised to conform to the current year presentation.
Net sales
Modules Business
We generally price and sell our solar modules on a per watt basis. During the three and ninesix months ended SeptemberJune 30, 2021,2022, we sold the majority of our solar modules to integratorsdevelopers and operators of systems in the United States, and substantially all of our modules business net sales were denominated in U.S. dollars. 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. Net sales from our residual business operations primarily consists of revenue recognized for sales of development projects or completed systems, including any modules installed in such systems and any revenue from energy generated by such systems. In certain prior periods, our residual business operations also included EPC services we provided to third parties.
Systems Business
During the three and nine months ended September 30, 2021, the majority of our systems business net sales were in the United States and Chile and were denominated in U.S. dollars. We recognize revenue for the sale of a development project, which excludes EPC services, or for the sale of a completed system when we enter into the associated sales contract with the customer. For other sales of solar power systems and/or EPC services, we generally recognize revenue over time as our performance creates or enhances an energy generation asset controlled by the customer. Furthermore, the sale of a solar power system combined with EPC services represents a single performance obligation for the development and construction of a single generation asset. For such arrangements, we recognize revenue as work is performed using cost based input methods, which result in revenue being
recognized as work is performed based on the relationship between actual costs incurred compared to the total estimated costs for a given contract.
The following table shows net sales by reportable segment for the three and ninesix months ended SeptemberJune 30, 20212022 and 2020:2021:
| | | | Three Months Ended September 30, | | | | Nine Months Ended September 30, | | | | | Three Months Ended June 30, | | | | Six Months Ended June 30, | | |
(Dollars in thousands) | (Dollars in thousands) | | 2021 | | 2020 | | Three Month Change | | 2021 | | 2020 | | Nine Month Change | (Dollars in thousands) | | 2022 | | 2021 | | Three Month Change | | 2022 | | 2021 | | Six Month Change |
Modules | Modules | | $ | 562,810 | | | $ | 422,480 | | | $ | 140,330 | | | 33 | % | | $ | 1,640,436 | | | $ | 1,187,679 | | | $ | 452,757 | | | 38 | % | Modules | | $ | 607,445 | | | $ | 542,956 | | | $ | 64,489 | | | 12 | % | | $ | 962,326 | | | $ | 1,077,626 | | | $ | (115,300) | | | (11) | % |
Systems | | 20,694 | | | 505,085 | | | (484,391) | | | (96) | % | | 375,622 | | | 914,421 | | | (538,799) | | | (59) | % | |
Other | | Other | | 13,510 | | | 86,224 | | | (72,714) | | | (84) | % | | 25,669 | | | 354,928 | | | (329,259) | | | (93) | % |
Net sales | Net sales | | $ | 583,504 | | | $ | 927,565 | | | $ | (344,061) | | | (37) | % | | $ | 2,016,058 | | | $ | 2,102,100 | | | $ | (86,042) | | | (4) | % | Net sales | | $ | 620,955 | | | $ | 629,180 | | | $ | (8,225) | | | (1) | % | | $ | 987,995 | | | $ | 1,432,554 | | | $ | (444,559) | | | (31) | % |
Net sales from our modules segment increased $140.3$64.5 million for the three months ended SeptemberJune 30, 20212022 compared to the three months ended SeptemberJune 30, 20202021 primarily due to a 51%27% increase in the volume of watts sold, partially offset by a 12% decrease in the average selling price per watt. Net sales from our systems segmentresidual business operations decreased $484.4$72.7 million for the three months ended SeptemberJune 30, 20212022 compared to the three months ended SeptemberJune 30, 20202021 primarily due to the sales of the Ishikawa, Miyagi, Anamizu, Tungabhadra, and Anantapur projects in the prior period.
Net sales from our modules segment increased $452.8 million for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020 primarily due to a 54% increase in the volume of watts sold, partially offset by a 10% decrease in the average selling price per watt. Net sales from our systems segment decreased $538.8 million for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020 primarily due to the sales of the Ishikawa, American Kings, Miyagi, Anamizu, Tungabhadra, and Anantapur projects in the prior period and the completion of substantially all construction activities at the GA Solar 4 project in 2020, partially offset by the sales of the Sun Streams 2, Sun Streams 4, and Sun Streams 5 projects in the current period and the settlement of an outstanding indemnification arrangement associated with the sale of one of our projects. Under the terms of the indemnification arrangement, we received $65.1 million for our portion of the settlement payment, which we recorded as revenue duringin the nine months ended September 30, 2021.prior period. See Note 10. “Commitments and Contingencies” to our condensed consolidated financial statements for discussion of our indemnification arrangements.
CostNet sales from our modules segment decreased $115.3 million for the six months ended June 30, 2022 compared to the six months ended June 30, 2021 primarily due to a 13% decrease in the average selling price per watt, partially offset by a 3% increase in the volume of watts sold. Net sales from our residual business operations decreased $329.3 million for the six months ended June 30, 2022 compared to the six months ended June 30, 2021 primarily due to sales of certain projects in the United States in the prior period and the settlement of the indemnification matter in the prior period described above.
Modules BusinessCost of sales
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 film semiconductors, laminate materials, connector assemblies, edge seal 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, quality and production control, and information 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).
Systems Business
Our systems business cost Cost of sales includesfor our residual business operations primarily consists of project-related costs, such as development costs (legal, consulting, transmission upgrade, interconnection, permitting, and other similar costs), EPC costs (consisting primarily of solar modules, inverters, electrical and mounting hardware, project management and engineering, and construction labor), and site specificsite-specific costs.
The following table shows cost of sales by reportable segment for the three and ninesix months ended SeptemberJune 30, 20212022 and 2020:2021:
| | | | Three Months Ended September 30, | | | | Nine Months Ended September 30, | | | | | Three Months Ended June 30, | | | | Six Months Ended June 30, | | |
(Dollars in thousands) | (Dollars in thousands) | | 2021 | | 2020 | | Three Month Change | | 2021 | | 2020 | | Nine Month Change | (Dollars in thousands) | | 2022 | | 2021 | | Three Month Change | | 2022 | | 2021 | | Six Month Change |
Modules | Modules | | $ | 444,550 | | | $ | 297,658 | | | $ | 146,892 | | | 49 | % | | $ | 1,312,389 | | | $ | 907,564 | | | $ | 404,825 | | | 45 | % | Modules | | $ | 576,278 | | | $ | 433,609 | | | $ | 142,669 | | | 33 | % | | $ | 919,970 | | | $ | 867,839 | | | $ | 52,131 | | | 6 | % |
Systems | | 14,374 | | | 336,892 | | | (322,518) | | | (96) | % | | 220,204 | | | 673,723 | | | (453,519) | | | (67) | % | |
Other | | Other | | 67,877 | | | 21,453 | | | 46,424 | | | 216 | % | | 79,762 | | | 205,830 | | | (126,068) | | | (61) | % |
Total cost of sales | Total cost of sales | | $ | 458,924 | | | $ | 634,550 | | | $ | (175,626) | | | (28) | % | | $ | 1,532,593 | | | $ | 1,581,287 | | | $ | (48,694) | | | (3) | % | Total cost of sales | | $ | 644,155 | | | $ | 455,062 | | | $ | 189,093 | | | 42 | % | | $ | 999,732 | | | $ | 1,073,669 | | | $ | (73,937) | | | (7) | % |
% of net sales | % of net sales | | 78.6 | % | | 68.4 | % | | | | | | 76.0 | % | | 75.2 | % | | | | % of net sales | | 103.7 | % | | 72.3 | % | | | | | | 101.2 | % | | 74.9 | % | | | |
Cost of sales decreased $175.6increased $189.1 million, or 28%42%, and increased 10.231.4 percentage points as a percent of net sales for the three months ended SeptemberJune 30, 20212022 compared to the three months ended SeptemberJune 30, 2020.2021. The increase in cost of sales was driven by a $142.7 million increase in our modules segment cost of sales primarily due to higher costs of $109.5 million from an increase in the volume of modules sold and higher sales freight of $31.4 million. The increase in cost of sales was also driven by a $46.4 million increase in our residual business operations cost of sales primarily due to the impairment loss in the current period for our Luz del Norte PV solar power plant, partially offset by sales of certain projects in the United States in the prior period. See Note 5. “Consolidated Balance Sheet Details” to our condensed consolidated financial statements for discussion of the impairment of our Luz del Norte project.
Cost of sales decreased $73.9 million, or 7%, and increased 26.3 percentage points as a percent of net sales for the six months ended June 30, 2022 compared to the six months ended June 30, 2021. The decrease in cost of sales was driven by a $322.5$126.1 million decrease in our systems segmentresidual business operations cost of sales primarily due to sales of certain projects in the lower volume of projects sold duringUnited States in the period. Suchprior period, partially offset by the impairment loss for our Luz del Norte PV solar power plant described above. The decrease in our systems segment cost of sales was partially offset by a $146.9$52.1 million increase in our modules segment cost of sales primarily as a resultdue to higher sales freight of the following:
•$52.4 million and higher costs of $155.9$22.7 million from an increase in the volume of modules sold;
•higher logistics costs of $30.3 million;
•a reduction to our product warranty liability of $19.7 million in 2020 due to lower-than-expected settlements for our older series of module technology and revisions to projected settlements, resulting in a lower projected return rate;
•a reduction to our module collection and recycling liability of $18.9 million in 2020 due to changes to the estimated timing of cash flows associated with capital, labor, and maintenance costs and updates to certain valuation assumptions; and
•an increase to our module collection and recycling liability of $10.8 million in 2021 due to lower estimated by-product credits for certain semiconductor materials recovered during the recycling process and updates to certain valuation assumptions;sold, partially offset by
•continued module cost reductions, which decreased cost of sales by $46.0 million;
•a reduction to our product warranty liability$21.4 million, and manufacturing related charges of $33.1$7.3 million in 2021 due to lower-than-expected claims for our older series of module technology as well as the evolving claims profile of our newest series of module technology, resulting in reductions to our projected module return rates; and
•an impairment loss of $17.4 million in 2020 for certain module manufacturing equipment, including framing and assembly tools, which were no longer compatibleprior period associated with our long-term module technology roadmap.the ongoing COVID-19 pandemic.
Our cost of sales decreased $48.7 million, or 3%, and increased 0.8 percentage points as a percent of net sales for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. The decrease in cost of sales was driven by a $453.5 million decrease in our systems segment cost of sales primarily due to the lower volume of projects sold and under construction during the period. Such decrease in our systems segment cost of sales was partially offset by a $404.8 million increase in our modules segment cost of sales primarily as a result of the following:
•higher costs of $466.5 million from an increase in the volume of modules sold;
•higher logistics costs of $47.6 million;
•the reduction to our product warranty liability of $19.7 million in 2020 described above;
•the reduction to our module collection and recycling liability of $18.9 million in 2020 described above; and
•the increase to our module collection and recycling liability of $10.8 million in 2021 described above; partially offset by
•continued module cost reductions, which decreased cost of sales by $123.5 million;
•the reduction to our product warranty liability of $33.1 million in 2021 described above; and
•the impairment loss of $17.4 million in 2020 described above.
Gross (loss) profit
Gross (loss) profit may be affected by numerous factors, including the selling prices of our modules and systems,the selling prices of projects and services included in our residual business operations, our manufacturing costs, project development costs, BoS costs, the capacity utilization and downtime of our manufacturing facilities, and foreign exchange rates. Gross (loss) profit may also be affected by the mix of net sales from our modules business and systems businesses.residual business operations.
The following table shows gross (loss) profit for the three and ninesix months ended SeptemberJune 30, 20212022 and 2020:2021:
| | | | Three Months Ended September 30, | | | | Nine Months Ended September 30, | | | | Three Months Ended June 30, | | | | Six Months Ended June 30, | |
(Dollars in thousands) | (Dollars in thousands) | | 2021 | | 2020 | | Three Month Change | | 2021 | | 2020 | | Nine Month Change | (Dollars in thousands) | | 2022 | | 2021 | | Three Month Change | | 2022 | | 2021 | | Six Month Change |
Gross profit | | $ | 124,580 | | | $ | 293,015 | | | $ | (168,435) | | | (57) | % | | $ | 483,465 | | | $ | 520,813 | | | $ | (37,348) | | | (7) | % | |
Gross (loss) profit | | Gross (loss) profit | | $ | (23,200) | | | $ | 174,118 | | | $ | (197,318) | | | (113) | % | | $ | (11,737) | | | $ | 358,885 | | | $ | (370,622) | | | (103) | % |
% of net sales | % of net sales | | 21.4 | % | | 31.6 | % | | | | | | 24.0 | % | | 24.8 | % | | % of net sales | | (3.7) | % | | 27.7 | % | | | | | | (1.2) | % | | 25.1 | % | |
Gross profit decreased 10.231.4 percentage points to 21.4%(3.7)% during the three months ended SeptemberJune 30, 20212022 from 31.6%27.7% during the three months ended SeptemberJune 30, 2020 primarily due to the volume of higher gross profit projects sold during the prior period, a decrease in the average selling price per watt of our modules, an increase in logistics costs, and the increase to our module collection and recycling liability in the current period compared to a reduction in the prior period described above, partially offset by the higher benefit from reductions to our product warranty liability described above and continued module cost reductions.
Gross profit decreased 0.8 percentage points to 24.0% during the nine months ended September 30, 2021 from 24.8% during the nine months ended September 30, 2020 primarily due to a decrease in the average selling price per watt of our modules, the $65.1 million prior period indemnification matter described above, the impairment loss in the current period for our Luz del Norte PV solar power plant described above, and an increase in sales freight, partially offset by the higher volume of modules sold.
Gross profit decreased 26.3 percentage points to (1.2)% during the six months ended June 30, 2022 from 25.1% during the six months ended June 30, 2021 primarily due to a decrease in the average selling price per watt of our modules, the impairment of our Luz del Norte PV solar power plant described above, the higher gross profitvolume of projects sold during the prior period, the indemnification matter described above, and an increase in logistics costs,sales freight, partially offset by continued module cost reductions and the indemnification matter described above.reductions.
Selling, general and administrative
Selling, general and administrative expense consists primarily of salaries and other personnel-related costs, professional fees, insurance costs, and other business development and selling expenses.
The following table shows selling, general and administrative expense for the three and ninesix months ended SeptemberJune 30, 20212022 and 2020:2021:
| | | | Three Months Ended September 30, | | | | Nine Months Ended September 30, | | | | Three Months Ended June 30, | | | | Six Months Ended June 30, | |
(Dollars in thousands) | (Dollars in thousands) | | 2021 | | 2020 | | Three Month Change | | 2021 | | 2020 | | Nine Month Change | (Dollars in thousands) | | 2022 | | 2021 | | Three Month Change | | 2022 | | 2021 | | Six Month Change |
Selling, general and administrative | Selling, general and administrative | | $ | 43,476 | | | $ | 49,861 | | | $ | (6,385) | | | (13) | % | | $ | 131,909 | | | $ | 160,218 | | | $ | (28,309) | | | (18) | % | Selling, general and administrative | | $ | 38,894 | | | $ | 36,346 | | | $ | 2,548 | | | 7 | % | | $ | 75,622 | | | $ | 88,433 | | | $ | (12,811) | | | (14) | % |
% of net sales | % of net sales | | 7.5 | % | | 5.4 | % | | | | | | 6.5 | % | | 7.6 | % | | % of net sales | | 6.3 | % | | 5.8 | % | | | | | | 7.7 | % | | 6.2 | % | |
Selling, general and administrative expense for the three months ended SeptemberJune 30, 20212022 was consistent with the three months ended June 30, 2021. Selling, general and administrative expense for the six months ended June 30, 2022 decreased compared to the threesix months ended SeptemberJune 30, 20202021 primarily due to a decrease in employee compensation expense driven by reductions in headcount from the sales of our North American O&M operations and U.S. project development business in the prior period, lower professional fees, partially offset bylower expected credit losses for our accounts receivable, and higher charges for impairments of certain project assets.assets in the prior period.
Selling, general and administrative expense for the nine months ended September 30, 2021 decreased compared to the nine months ended September 30, 2020 primarily due to a decrease in employee compensation expense driven by reductions in headcount, lower professional fees, and lower expected credit losses for our accounts receivable.
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 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.
The following table shows research and development expense for the three and ninesix months ended SeptemberJune 30, 20212022 and 2020:2021:
| | | | Three Months Ended September 30, | | | | Nine Months Ended September 30, | | | | Three Months Ended June 30, | | | | Six Months Ended June 30, | |
(Dollars in thousands) | (Dollars in thousands) | | 2021 | | 2020 | | Three Month Change | | 2021 | | 2020 | | Nine Month Change | (Dollars in thousands) | | 2022 | | 2021 | | Three Month Change | | 2022 | | 2021 | | Six Month Change |
Research and development | Research and development | | $ | 25,426 | | | $ | 22,972 | | | $ | 2,454 | | | 11 | % | | $ | 69,234 | | | $ | 71,068 | | | $ | (1,834) | | | (3) | % | Research and development | | $ | 25,229 | | | $ | 23,935 | | | $ | 1,294 | | | 5 | % | | $ | 52,337 | | | $ | 43,808 | | | $ | 8,529 | | | 19 | % |
% of net sales | % of net sales | | 4.4 | % | | 2.5 | % | | | | | | 3.4 | % | | 3.4 | % | | % of net sales | | 4.1 | % | | 3.8 | % | | | | | | 5.3 | % | | 3.1 | % | |
Research and development expense for the three months ended SeptemberJune 30, 20212022 increased compared to the three months ended SeptemberJune 30, 20202021 primarily due to higher employee compensation expense resulting from increases in headcount and increased material and module testing costs.
Research and development expense for the six months ended June 30, 2022 increased compared to the six months ended June 30, 2021 primarily due to increased material and module testing costs, partially offset by lower employee compensation expense resulting from reductions in R&D headcount.
Research and development expense for the nine months ended September 30, 2021 decreased compared to the nine months ended September 30, 2020 primarily due to lower employee compensation expense resulting from reductions in R&D headcount, lower share-based compensation expense in the prior period driven by the forfeiture of unvested shares by our former Chief Technology Officer, who retired effectivein March 15, 2021, and lower impairment charges for certain equipment, partially offset by increased material and module testingfreight costs.
Production start-up
Production start-up expense consists of costs associated with operating a production line before it is qualified for commercial 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. Production start-up expense also includes costs related to the selection of a new site and implementation costs for manufacturing process improvements to the extent we cannot capitalize these expenditures.
The following table shows production start-up expense for the three and ninesix months ended SeptemberJune 30, 20212022 and 2020:2021:
| | | | Three Months Ended September 30, | | | | Nine Months Ended September 30, | | | | Three Months Ended June 30, | | | | Six Months Ended June 30, | |
(Dollars in thousands) | (Dollars in thousands) | | 2021 | | 2020 | | Three Month Change | | 2021 | | 2020 | | Nine Month Change | (Dollars in thousands) | | 2022 | | 2021 | | Three Month Change | | 2022 | | 2021 | | Six Month Change |
Production start-up | Production start-up | | $ | 2,945 | | | $ | 13,019 | | | $ | (10,074) | | | (77) | % | | $ | 16,014 | | | $ | 23,812 | | | $ | (7,798) | | | (33) | % | Production start-up | | $ | 13,231 | | | $ | 1,715 | | | $ | 11,516 | | | >100% | | $ | 20,569 | | | $ | 13,069 | | | $ | 7,500 | | | 57 | % |
% of net sales | % of net sales | | 0.5 | % | | 1.4 | % | | | | | | 0.8 | % | | 1.1 | % | | % of net sales | | 2.1 | % | | 0.3 | % | | | | | | 2.1 | % | | 0.9 | % | |
During the three and six months ended SeptemberJune 30, 2021,2022, we incurred production start-up expense primarily for our third manufacturing facility in the U.S. and for certain manufacturing upgrades at our facilities in Kulim, Malaysia.Malaysian facilities. During the ninesix months ended SeptemberJune 30, 2021, we incurred production start-up expense primarily for the transition to Series 6 module manufacturing at our second facility in Kulim, Malaysia, which commenced commercial production in early 2021. During the three and nine months ended September 30, 2020, we incurred production start-up expense for the transition to Series 6 module manufacturing at our second facility in Kulim, Malaysia and the capacity expansion of our manufacturing facility in Perrysburg, Ohio.
Litigation loss
The following table shows litigation loss for the three and nine months ended September 30, 2021 and 2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | | | Nine Months Ended September 30, | | | | |
(Dollars in thousands) | | 2021 | | 2020 | | Three Month Change | | 2021 | | 2020 | | Nine Month Change |
Litigation loss | | $ | — | | | $ | — | | | $ | — | | | — | % | | $ | — | | | $ | 6,000 | | | $ | (6,000) | | | (100) | % |
% of net sales | | — | % | | — | % | | | | | | — | % | | 0.3 | % | | | | |
In July 2020, we executed a definitive agreement to settle the claims in the Opt-Out Action filed in 2015 in the Arizona District Court by putative stockholders that opted out of a separate class action lawsuit. Pursuant to the settlement, we agreed to pay a total of $19 million in exchange for mutual releases and a dismissal with prejudice of the Opt-Out Action. The agreement contains no admission of liability, wrongdoing, or responsibility by any of the defendants. On July 30, 2020, First Solar funded the settlement, and on July 31, 2020, the parties filed a joint stipulation of dismissal. On September 10, 2020, the Arizona District Court entered an order dismissing the case with prejudice. As of December 31, 2019, we accrued $13 million of estimated losses for this action. As a result of the settlement, we accrued an incremental $6 million litigation loss during the nine months ended September 30, 2020.
Gain on sales of businesses, net
The following table shows gain on sales of businesses, net for the three and ninesix months ended SeptemberJune 30, 20212022 and 2020:2021:
| | | | Three Months Ended September 30, | | | | Nine Months Ended September 30, | | | | Three Months Ended June 30, | | | | Six Months Ended June 30, | |
(Dollars in thousands) | (Dollars in thousands) | | 2021 | | 2020 | | Three Month Change | | 2021 | | 2020 | | Nine Month Change | (Dollars in thousands) | | 2022 | | 2021 | | Three Month Change | | 2022 | | 2021 | | Six Month Change |
Gain on sales of businesses, net | Gain on sales of businesses, net | | $ | (1,866) | | | $ | — | | | $ | (1,866) | | | (100) | % | | $ | 147,284 | | | $ | — | | | $ | 147,284 | | | 100 | % | Gain on sales of businesses, net | | $ | 245,381 | | | $ | (1,745) | | | $ | 247,126 | | | >100% | | $ | 247,288 | | | $ | 149,150 | | | $ | 98,138 | | | 66 | % |
% of net sales | % of net sales | | (0.3) | % | | — | % | | | | | | 7.3 | % | | — | % | | % of net sales | | 39.5 | % | | (0.3) | % | | | | | | 25.0 | % | | 10.4 | % | |
In August 2020,May 2022, we entered into various agreements with certain subsidiaries of PAG for the sale of our Japan project development business. In June 2022, we completed the sale for an agreement withaggregate purchase price of ¥66.4 billion ($488.4 million), subject to certain customary post-closing adjustments. On the closing date, we received proceeds of ¥44.1 billion ($324.5 million) and transferred cash and restricted cash of ¥8.4 billion ($61.9 million) to PAG. As a result of this transaction, we recognized a gain of $245.4 million, net of transaction costs, during the three months ended June 30, 2022. In January 2022, we completed the sale of certain international O&M operations to a subsidiary of Clairvest for the sale of our North American O&M operations. On March 31, 2021, we completed the transaction. Following certain customary post-closing adjustments, we received total consideration of $149.1$1.9 million. As a result of this transaction, we recognized a gain of $115.8$1.6 million, net of transaction costs and post-closing adjustments, during the ninesix months ended SeptemberJune 30, 2021.2022.
In JanuaryMarch 2021, we entered into an agreement with Leeward forcompleted the sale of our North American O&M Operations to a subsidiary of Clairvest and received initial consideration of $146.0 million. As a result of this transaction, we recognized a gain of $117.8 million, net of transaction costs, during the six months ended June 30, 2021. In March 2021, we also completed the sale of our U.S. project development business. On March 31, 2021, we completed the transaction for an aggregate purchase pricebusiness to Leeward and received consideration of $284.0 million. Such purchase price included $151.4 million for the sale of the U.S. project development business and $132.6 million for the sale of 392 MWDC of solar modules, which is presented in “Net sales” on our condensed consolidated statements of operations for the nine months ended September 30, 2021.such business. As a result of this transaction, we recognized a gain of $31.5 million, net of transaction costs, and post-closing adjustments, during the ninesix months ended SeptemberJune 30, 2021.
See Note 2. “Sales of Businesses” to our condensed consolidated financial statements for further information related to these transactions.
Foreign currency loss, net
Foreign currency loss, net consists of the net effect of gains and losses resulting from holding assets and liabilities and conducting transactions denominated in currencies other than our subsidiaries’ functional currencies.
The following table shows foreign currency loss, net for the three and ninesix months ended SeptemberJune 30, 20212022 and 2020:2021:
| | | | Three Months Ended September 30, | | | | Nine Months Ended September 30, | | | | Three Months Ended June 30, | | | | Six Months Ended June 30, | |
(Dollars in thousands) | (Dollars in thousands) | | 2021 | | 2020 | | Three Month Change | | 2021 | | 2020 | | Nine Month Change | (Dollars in thousands) | | 2022 | | 2021 | | Three Month Change | | 2022 | | 2021 | | Six Month Change |
Foreign currency loss, net | Foreign currency loss, net | | $ | (1,018) | | | $ | (1,852) | | | $ | 834 | | | (45) | % | | $ | (4,613) | | | $ | (3,549) | | | $ | (1,064) | | | 30 | % | Foreign currency loss, net | | $ | (2,984) | | | $ | (1,000) | | | $ | (1,984) | | | 198 | % | | $ | (7,182) | | | $ | (3,595) | | | $ | (3,587) | | | 100 | % |
Foreign currency loss, net for the three and ninesix months ended SeptemberJune 30, 2021 was consistent with2022 increased compared to the three and ninesix months ended SeptemberJune 30, 2020.2021 primarily due to higher costs associated with hedging activities related to our subsidiaries in India and the differences between our economic hedge positions and the underlying exposures.
Interest income
Interest income is earned on our cash, cash equivalents, marketable securities, restricted cash, and restricted marketable securities. Interest income also includes interest earned from notes receivable and late customer payments.
The following table shows interest income for the three and ninesix months ended SeptemberJune 30, 20212022 and 2020:2021:
| | | | Three Months Ended September 30, | | | | Nine Months Ended September 30, | | | | Three Months Ended June 30, | | | | Six Months Ended June 30, | |
(Dollars in thousands) | (Dollars in thousands) | | 2021 | | 2020 | | Three Month Change | | 2021 | | 2020 | | Nine Month Change | (Dollars in thousands) | | 2022 | | 2021 | | Three Month Change | | 2022 | | 2021 | | Six Month Change |
Interest income | Interest income | | $ | 1,752 | | | $ | 2,109 | | | $ | (357) | | | (17) | % | | $ | 3,996 | | | $ | 15,113 | | | $ | (11,117) | | | (74) | % | Interest income | | $ | 2,880 | | | $ | 1,288 | | | $ | 1,592 | | | 124 | % | | $ | 5,205 | | | $ | 2,244 | | | $ | 2,961 | | | 132 | % |
Interest income for the three and six months ended SeptemberJune 30, 2021 was consistent with the three months ended September 30, 2020. Interest income for the nine months ended September 30, 2021 decreased2022 increased compared to the ninethree and six months ended SeptemberJune 30, 20202021 primarily due to lowerhigher interest rates on restricted marketable securities, time deposits, and cash, and cash equivalents andpartially offset by lower average balances associated with marketable securities.
Interest expense, net
Interest expense, net is primarily comprised of interest incurred on long-term debt, settlements of interest rate swap contracts, and changes in the fair value of interest rate swap contracts that do not qualify for hedge accounting in accordance with ASC 815. We may capitalize interest expense to 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, net for the three and ninesix months ended SeptemberJune 30, 20212022 and 2020:2021:
| | | | Three Months Ended September 30, | | | | Nine Months Ended September 30, | | | | Three Months Ended June 30, | | | | Six Months Ended June 30, | |
(Dollars in thousands) | (Dollars in thousands) | | 2021 | | 2020 | | Three Month Change | | 2021 | | 2020 | | Nine Month Change | (Dollars in thousands) | | 2022 | | 2021 | | Three Month Change | | 2022 | | 2021 | | Six Month Change |
Interest expense, net | Interest expense, net | | $ | (2,958) | | | $ | (10,975) | | | $ | 8,017 | | | (73) | % | | $ | (10,577) | | | $ | (21,018) | | | $ | 10,441 | | | (50) | % | Interest expense, net | | $ | (3,236) | | | $ | (4,623) | | | $ | 1,387 | | | (30) | % | | $ | (6,101) | | | $ | (7,619) | | | $ | 1,518 | | | (20) | % |
Interest expense, net for the three and ninesix months ended SeptemberJune 30, 20212022 decreased compared to the three and ninesix months ended SeptemberJune 30, 20202021 primarily due to unfavorable changes in the fair value of interest rate swap contracts in the prior period, which did not qualify for hedge accounting, lower interest expense associated with project debt, and lower amortization of debt discounts and issuance costs in the current period primarily driven by the repayment of the Ishikawa credit agreement in the prior period, and lower interest expense associated with project debt.period.
Other (expense) income, net
Other (expense) income, net is primarily comprised of miscellaneous items and realized gains and losses on the sale of marketable securities and restricted marketable securities.
The following table shows other (expense) income, net for the three and ninesix months ended SeptemberJune 30, 20212022 and 2020:2021:
| | | | Three Months Ended September 30, | | | | Nine Months Ended September 30, | | | | Three Months Ended June 30, | | | | Six Months Ended June 30, | |
(Dollars in thousands) | (Dollars in thousands) | | 2021 | | 2020 | | Three Month Change | | 2021 | | 2020 | | Nine Month Change | (Dollars in thousands) | | 2022 | | 2021 | | Three Month Change | | 2022 | | 2021 | | Six Month Change |
Other (expense) income, net | Other (expense) income, net | | $ | (2,603) | | | $ | (3,236) | | | $ | 633 | | | 20 | % | | $ | 2,598 | | | $ | (8,653) | | | $ | 11,251 | | | 130 | % | Other (expense) income, net | | $ | (1,883) | | | $ | (3,247) | | | $ | 1,364 | | | (42) | % | | $ | (2,095) | | | $ | 5,201 | | | $ | (7,296) | | | 140 | % |
Other expense, net for the three months ended SeptemberJune 30, 20212022 was consistent with the three months ended SeptemberJune 30, 2020.2021. Other income,expense, net for the ninesix months ended SeptemberJune 30, 20212022 increased compared to the ninesix months ended SeptemberJune 30, 2020,2021 primarily due to expected credit losses associated with certain notes receivable in the prior period, partially offset by lowerhigher realized gains from sales of restricted marketable securities in the current period when compared to the prior period.
Income tax (expense) benefitexpense
Income tax expense or benefit, deferred tax assets and liabilities, and liabilities for unrecognized tax benefits reflect our best estimate of current and future taxes to be paid. We are subject to income taxes in both the United States and numerous foreign jurisdictions in which we operate, principally Japan, Malaysia, and Vietnam. Significant judgments and estimates are required to determine our consolidated income tax expense. The statutory federal corporate income tax rate in the United States is 21%, and the tax rates in Japan, Malaysia, and Vietnam are 30.6%, 24%, and 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, 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 2025,2036, pursuant to which income earned in Vietnam is subject to reduced annual tax rates.rates, conditional upon our continued compliance with certain revenue and R&D spending thresholds.
The following table shows income tax (expense) benefitexpense for the three and ninesix months ended SeptemberJune 30, 20212022 and 2020:2021:
| | | | Three Months Ended September 30, | | | | Nine Months Ended September 30, | | | | Three Months Ended June 30, | | | | Six Months Ended June 30, | |
(Dollars in thousands) | (Dollars in thousands) | | 2021 | | 2020 | | Three Month Change | | 2021 | | 2020 | | Nine Month Change | (Dollars in thousands) | | 2022 | | 2021 | | Three Month Change | | 2022 | | 2021 | | Six Month Change |
Income tax (expense) benefit | | $ | (837) | | | $ | (38,107) | | | $ | 37,270 | | | (98) | % | | $ | (67,673) | | | $ | 40,894 | | | $ | (108,567) | | | 265 | % | |
Income tax expense | | Income tax expense | | $ | (83,799) | | | $ | (20,346) | | | $ | (63,453) | | | 312 | % | | $ | (64,300) | | | $ | (66,836) | | | $ | 2,536 | | | (4) | % |
Effective tax rate | Effective tax rate | | 1.8 | % | | 19.7 | % | | | | | | 16.7 | % | | (16.9) | % | | Effective tax rate | | 60.0 | % | | 19.8 | % | | | | | | 83.7 | % | | 18.6 | % | |
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 decreasedincreased by $37.3$63.5 million during the three months ended SeptemberJune 30, 20212022 compared to the three months ended SeptemberJune 30, 20202021 primarily due to losses in certain jurisdictions for which no tax benefit could be recorded, higher pretax income in the current period, and the remeasurement of our net deferred tax assets in Vietnam as a result of a new long-term tax incentive granted in May 2022. Income tax expense decreased by $2.5 million during the six months ended June 30, 2022 compared to the six months ended June 30, 2021 primarily due to lower pretax income in the current period. Income tax expense increasedperiod, partially offset by $108.6 million during the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020 primarily due to a discretelosses in certain jurisdictions for which no tax benefit could be recorded and the remeasurement of our net deferred tax assets in the prior year from the effect of tax law changes associated with the CARES Act and higher pretax income in the current period.Vietnam mentioned above.
Critical Accounting Policies and Estimates
In preparing our condensed consolidated financial statements in conformity with 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 the judgments and estimates involved in over time revenue recognition, accrued solar module collection and recycling, product warranties, accounting for income taxes, and long-lived asset impairments 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 the accounting policies that require the most significant judgment and estimates in the preparation of our condensed consolidated financial statements, refer to our Annual Report on Form 10-K for the year ended December 31, 2020.2021. There have been no material changes to our accounting policies during the ninesix months ended SeptemberJune 30, 2021.2022.
Recent Accounting Pronouncements
None.
Liquidity and Capital Resources
As of SeptemberJune 30, 2021,2022, we believe that our cash, cash equivalents, marketable securities, cash flows from operating activities, and contracts with customers for the future sale of solar modules and advanced-stage project pipeline will be sufficient to meet our working capital and capital expenditure and systems project investment needs for at least the next 12 months. As needed,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, such as construction activities and purchases of manufacturing equipment for our recently announced manufacturing facility in India and systems project development activities in certain international regions.India. 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 broader market concerns. Any incremental debt financings could result in increased debt service expenses and/or restrictive covenants, which could limit our ability to pursue our strategic plans. Additionally, given the duration of these and other capital investments and the currency risk relative to the U.S. dollar in certain international markets in which we operate, we continue to explore local financing alternatives. Should these financing alternatives be unavailable or too cost prohibitive, we could be exposed to significant currency risk and our liquidity could be adversely impacted.
As of SeptemberJune 30, 2022 and December 31, 2021, we had $1.9$1.8 billion in cash cash equivalents, and marketable securities compared to $1.7 billion as of December 31, 2020. The increase in cash, cash equivalents, and marketable securities was primarily driven by cashsecurities. Cash receipts from module sales, to customers; cash proceeds from the sale of our North American O&M operations and U.S.Japan project development business;business, and cashnet proceeds from the salesales and constructionmaturities of systems projects; partiallymarketable securities were offset by purchases of property, plant and equipment;equipment, expenditures for the construction of certain projects in Japan, and other operating expenditures. As of SeptemberJune 30, 2021, $0.72022, $1.0 billion of our cash cash equivalents, and marketable securities was held by our foreign subsidiaries and was primarily based in U.S. dollar, Japanese yen, and Indian rupee denominated holdings.
We utilize a variety of tax planning and financing strategies in an effort to ensure that our worldwide cash is available in the locations in which it is needed. If certain international funds were needed for our operations in the United States, we may be required to accrue and pay certain U.S. and foreign taxes to repatriate such funds. We maintain the intent and ability to permanently reinvest our accumulated earnings outside the United States, with the exception of our subsidiaries in Canada and 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.
We continually evaluate forecasted global demand and seek to balance our manufacturing capacity with such demand. We recentlypreviously announced our plans to invest approximately $1.3$1.4 billion to expand our solar manufacturing capacity by 6.6 GWDC by constructing our third U.S. manufacturing facility in Lake Township, Ohiothe U.S. and our first manufacturing facility in India. These new facilities are currently under construction and are expected to commence operations in the first half of 2023 and the second half of 2023, respectively. In addition, 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 improving manufacturing yield losses. During 2021,2022, we expect to spend $675 million$0.9 billion to $725 million$1.1 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.
We have also committed and expect to commit significant working capital to purchase various raw materials used in our module manufacturing process. Our failure to obtain raw materials and components that meet our quality, quantity, and cost requirements in a timely manner could interrupt or impair our ability to manufacture our solar modules or increase our manufacturing costs. Accordingly, we may enter into long-term supply agreements to mitigate potential risks related to the procurement of key raw materials and components, and such agreements may be noncancelable or cancelable with a significant penalty. For example, we have entered into long-term supply agreements for the purchase of certain specified minimum volumes of substrate glass and cover glass for our PV solar modules. Our remaining purchases under these supply agreements are expected to be approximately $1.7$1.6 billion of substrate glass and approximately $380$346 million of cover glass. We have the right to terminate these agreements upon payment of specified termination penalties (which, in aggregate, are up to $338$292 million as of SeptemberJune 30, 20212022 and decline over the remaining supply periods).
Our systems business is expectedWe have also committed certain financial resources to continue tofulfill our solar module collection and recycling obligations, and have significant liquidity requirements in the future. From time to time, we enterestablished a trust under which these funds are put into commercial commitments in the form of letters of credit, bank guarantees,custodial accounts with an established and surety bonds to provide financial and performance assurance to third parties, the majority of which support our systems projects. The net amount of our project assets and related portions of deferred revenue and long-term debt, which approximates our net capital investment in the development and construction of systems projects, was $221.7 million as of September 30, 2021. Solar power project development 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 development 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 or in completing the sale of our systems projects that we are self-financing may also impact our liquidity. 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 develop projects in certain markets around the world 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 system at economics that are attractive to us or potential customers are unwilling to assume the risks and rewards typical of system ownership, we may instead elect to temporarily own and operate such system until we can sell it on more economically attractive terms. The decision to retain ownership of a system impacts our liquidity depending upon the size and cost of the project.reputable bank. As of SeptemberJune 30, 2021, we had $230.4 million of net PV solar power systems
placed in service in international markets. We have elected, and may in the future elect, to enter into temporary or long-term project financing to reduce the impact on our liquidity and working capital with regard to2022, such systems.
Cash Flows
The following table summarizes key cash flow activity for the nine months ended September 30, 2021 and 2020 (in thousands):
| | | | | | | | | | | | | | |
| | Nine Months Ended September 30, |
| | 2021 | | 2020 |
Net cash provided by (used in) operating activities | | $ | 203,092 | | | $ | (149,198) | |
Net cash (used in) provided by investing activities | | (83,289) | | | 116,322 | |
Net cash used in financing activities | | (9,210) | | | (98,196) | |
Effect of exchange rate changes on cash, cash equivalents and restricted cash | | 1,687 | | | 1,251 | |
Net increase (decrease) in cash, cash equivalents and restricted cash | | $ | 112,280 | | | $ | (129,821) | |
Operating Activities
The increase in net cash provided by operating activities was primarily driven by higher cash receipts from module sales and the $350 million settlement payment in 2020 associated with our prior class action lawsuit, partially offset by lower cash proceeds from sales of systems projects in the current period.
Investing Activities
The increase in net cash used in investing activities was primarily due to higher purchasesfunds were comprised of restricted marketable securities of $200.3 million and lower proceeds from salesrestricted cash balances of $4.0 million. As of June 30, 2022, our module collection and maturitiesrecycling liability was $134.1 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 on an annual basis based on the estimated costs of collecting and recycling covered modules, estimated rates of return on our restricted marketable securities, partially offset by proceeds from the saleand an estimated solar module life of our North American O&M operations and U.S. project development business.
Financing Activities
The decrease25 years, less amounts already funded in net cash used in financing activities was primarily due to the repayment of the Ishikawa credit agreement in the prior period, partially offset by higher proceeds from borrowings under project specific debt financings in the prior period for the construction of certain projects in Japan.
Contractual Obligations
Our contractual obligations have not materially changed since December 31, 2020 with the exception of borrowings under project specific debt financings and other changes in the ordinary course of business. See Note 9. “Debt” to our condensed consolidated financial statements 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, 2020 for additional information regarding our contractual obligations.
Off-Balance Sheet Arrangementsyears.
As of SeptemberJune 30, 2021,2022, we had no off-balance sheet debt or similar obligations, other than financial assurance related instruments, which are not classified as debt. We do not guarantee any third-party debt. See Note 10. “Commitments and Contingencies” to our condensed consolidated financial statements for further information about our financial assurance related instruments.
Cash Flows
The following table summarizes key cash flow activity for the six months ended June 30, 2022 and 2021 (in thousands):
| | | | | | | | | | | | | | |
| | Six Months Ended June 30, |
| | 2022 | | 2021 |
Net cash used in operating activities | | $ | (50,821) | | | $ | (102,229) | |
Net cash provided by investing activities | | 138,287 | | | 470,088 | |
Net cash provided by (used in) financing activities | | 125,616 | | | (9,090) | |
Effect of exchange rate changes on cash, cash equivalents and restricted cash | | 39,934 | | | 906 | |
Net increase in cash, cash equivalents and restricted cash | | $ | 253,016 | | | $ | 359,675 | |
Operating Activities
The decrease in net cash used in operating activities was primarily driven by higher cash receipts from module sales in the current period and higher operating expenditures in the prior period, partially offset by higher expenditures for the construction of certain projects in Japan and certain advance payments for raw materials in the current period.
Investing Activities
The decrease in net cash provided by investing activities was primarily due to higher purchases of property, plant and equipment, lower net sales and maturities of marketable securities and restricted marketable securities, and proceeds from the sales of our North American O&M operations and U.S. project development business in the prior period, partially offset by proceeds from the sale of our Japan project development business in the current period.
Financing Activities
The increase in net cash provided by financing activities was primarily due to higher net borrowings under project specific debt financings for the construction of certain projects in Japan. Such project specific debt financings were assumed by PAG when we completed the sale of our Japan project development business.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
There have been no material changes to the information previously provided under Item 7A. of our Annual Report on Form 10-K for the year ended December 31, 2020.2021.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our “disclosure controls and procedures” as defined in Exchange Act Rule 13a-15(e) and 15d-15(e). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that as of SeptemberJune 30, 20212022 our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
We also carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of our “internal control over financial reporting” as defined in Exchange Act Rule 13a-15(f) and 15d-15(f) to determine whether any changes in our internal control over financial reporting occurred during the three months ended SeptemberJune 30, 20212022 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 occurred during the three months ended SeptemberJune 30, 2021 despite the fact that many of our associates continue to work remotely due to the COVID-19 pandemic. We continue to monitor and assess the COVID-19 situation on our internal controls to minimize potential impacts on their design and operating effectiveness.2022.
CEO and CFO Certifications
We have attached as exhibits to this Quarterly Report on Form 10-Q the certifications of our Chief Executive Officer and Chief Financial Officer, which are required in accordance with the Exchange Act. We recommend that this Item 4. be read in conjunction with those certifications for a more complete understanding of the subject matter presented.
Limitations on the Effectiveness of Controls
Control systems, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control systems’ objectives are being met. Further, the design of any system of controls must reflect the fact that there are resource constraints, and the benefits of all controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of error or mistake. Control systems can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
See Note 10. “Commitments and Contingencies” under the heading “Legal Proceedings” of our condensed consolidated financial statements 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 Item 1A. “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2020,2021, which could materially affect our business, financial condition, results of operations, or cash flows. The risks described in our Annual Report on Form 10-K 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 risk factorsfactor set forth below, there have been no material changes in the risk factors contained in our Annual Report on Form 10-K.
Our failure to further refine our technology, reduce module manufacturingThe reduction, elimination, or expiration of government subsidies, economic incentives, tax incentives, renewable energy targets, and BoS costs,other support for on-grid solar electricity applications, or other public policies, such as tariffs or other trade remedies imposed on solar cells and develop and introduce improved PV products, including as a result of delays in implementing planned advancements,modules, could rendernegatively impact demand and/or price levels for our solar modules and limit our growth or systems uncompetitive and reducelead to a reduction in our net sales profitability, and/or market share.increase our costs, thereby adversely impacting our operating results.
We needAlthough 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 profits remain subject to continue to invest significant financial resourcesvariability based on the availability and size of government subsidies and economic incentives. Federal, state, and local governmental bodies in R&D to continue to improve our module conversion efficiencies, lower the LCOE of our PV solar power systems, and otherwise keep pace with technological advances in the solar industry. However, R&D activities are inherently uncertain, and we could encounter practical difficulties in commercializing our research results. We seek to continuously improve our products and processes, including, for example, certain planned improvements to our Series 6 module technology and manufacturing capabilities, such as the implementation of our copper replacement (or “CuRe”) program or the increase to our module form factor (which we refer to as “Series 6 Plus”), and the resulting changes carry potential risksmany countries have provided subsidies in the form of delays, performance, additionalfeed-in-tariff structures, 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. To the extent these support programs are reduced earlier than previously expected, are changed retroactively, or are not renewed, such changes could negatively impact demand and/or price levels for our solar modules, lead to a reduction in our net sales, and adversely impact our operating results. Another consideration 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.
Changes or threatened changes in U.S. regulatory policy may subject us 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 off-take agreements, slow the retirement of aging fossil fuel plants, including the retirements of coal generation plants, and reduce the ability for solar project developers to compete for off-take agreements, which may reduce PV solar module sales;
•any limitations on the value or availability to potential investors of tax incentives that benefit solar energy projects, such as the ITC, which is currently scheduled to decrease to 22% in 2023 and 10% in 2024, and accelerated depreciation deductions, could result in reducing such investors’ economic returns, causing a reduction in the availability of affordable financing, thereby reducing demand for PV solar modules; and
•any effort to overturn federal and state laws, regulations, or policies that are supportive of solar energy generation or that remove costs or other unintended contingencies. For example, implementationlimitations on other types of our CuRe program has been delayed as a result of certain challenges, including in achieving its full performance entitlement in high volume manufacturing conditions and certain impediments toelectricity generation that compete with solar energy projects could negatively impact our ability to upgrade tooling to supportcompete with traditional forms of electricity generation and materially and adversely affect our CuRe program. As a result, we have amended or will endeavor to amend certain related customer contracts, including by potentially making certain price concessions and substituting other modules. While we believe our CuRe program remains promising and that we will be able to resolve the challenges described above, we may encounter unanticipated technological, logistical, or other challenges that could result in further delays to our CuRe program. Any such additional challenges or other circumstances beyond our knowledge or control could cause actual pricing concessions in potential amended customer contracts to exceed, potentially materially, our currently anticipated estimate of approximately $100 million of 2022 revenue. See Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Certain Trends and Uncertainties” of this Quarterly Report on Form 10-Q for additional information on our CuRe program.business.
Our significant expenditures for R&DApplication of U.S. trade laws, or trade laws of other countries, may not produce corresponding benefits. Other companies are developing a varietyalso impact, either directly or indirectly, our operating results. In some instances, the application of competing PV technologies, including advanced multi-crystalline silicon cells, PERC or advanced p-type crystalline silicon cells, high-efficiency n-type crystalline silicon cells, bifacial solar modules, copper indium gallium diselenide thin films, amorphous silicon thin films,trade laws is currently beneficial to the Company, and new emerging technologies such as hybrid perovskites, whichchanges in their application could produce solar modules or systems that prove more cost-effective or have better performance than our solar modules or systems.an adverse impact.
In addition, other companies could potentially develop a highly reliable renewable energy system that mitigates the intermittent power generation drawback of many renewable energy systems, or offer other value-added improvements from the perspective of utilities and other system owners, in which case such companies could compete with us even if the LCOE associated with such new systems is higher than that of our systems. As a result, our solar modules or systems may be negatively differentiated or rendered obsolete by the technological advances of
our competitors, which would reduce our net sales, profitability,For example, the United States currently imposes different types of tariffs and/or market share.other trade remedies on certain imported crystalline silicon PV modules and cells from various countries. In addition, we often forward priceFebruary 2022, the U.S. President proclaimed a four-year extension of a global safeguard measure imposed pursuant to Section 201 of the Trade Act of 1974 that provides for tariffs on imported crystalline silicon solar modules and a tariff-rate quota on imported crystalline silicon solar cells. Thin film solar cell products, such as our products and servicesCdTe technology, are specifically excluded from the tariffs. Moreover, the extension measure does not apply tariffs to imports of bifacial modules. The extension measure imposes a 14.75% tariff in anticipationthe first year, which is scheduled to phase down annually in 0.25 percentage point increments over the four-year term. The extension measure also provides an annual tariff-rate quota, whereby tariffs apply to imported crystalline silicon solar cells above the first 5.0 GWDC of future cost reductions and technology improvements, and thus, an inability to further refine our technology and execute our module technology and cost reduction roadmaps could adversely affect our operating results.imports.
In addition, the United States currently imposes antidumping and countervailing duties on certain imported crystalline silicon PV cells and modules from China and Taiwan. Such antidumping and countervailing duties can change over time pursuant to annual reviews conducted by the U.S. Department of Commerce (“USDOC”), and a decline in duty rates and USDOC refusals to fully enforce U.S. antidumping and countervailing duty laws could have an adverse impact on our operating results. In March 2022, USDOC initiated inquiries concerning alleged circumvention of antidumping and countervailing duties on Chinese imports by crystalline silicon PV cells and module imports assembled and completed in Cambodia, Malaysia, Thailand, and Vietnam. In June 2022, the U.S. President declared an emergency with respect to threats to electricity generation capacity and authorized the U.S. Secretary of Commerce to consider permitting the importation of crystalline silicon PV products from those four countries free of antidumping and countervailing duties for 24 months, or until the emergency has terminated. USDOC has issued proposed regulations designed to implement that moratorium on antidumping and countervailing duties in the event that it finds circumvention with respect to crystalline silicon PV products assembled and completed in those four countries. We cannot predict what further actions USDOC will take with respect to these circumvention inquiries. Our Amendedoperating results could be adversely impacted if USDOC makes negative circumvention determinations or refrains from imposing antidumping and Restated Bylaws designatecountervailing duties on imports covered by affirmative circumvention determinations. Conversely, affirmative circumvention determinations could positively impact our operating results, including if they result in immediate imposition of antidumping and countervailing duty cash deposit requirements.
Moreover, the United States currently imposes tariffs on various articles imported from China at a state or federal court located withinrate of 25%, including crystalline silicon solar cells and modules, based on an investigation under Section 301 of the StateTrade Act of Delaware as1974. In May 2022, the exclusive forum for substantially all disputes between us and our stockholders, and the federal district courtsOffice of the United States as the exclusive forum for the resolutionTrade Representative initiated a statutory four-year review of any complaint asserting a cause of action under the Securities Act of 1933,those tariff actions, which could limit our stockholders’ ability to chooseresult in the judicial forum for disputes with ustermination or our directors, officers, employees, agentsmodification of the tariffs. The review remains pending, and we cannot predict its outcome. Our operating results could be adversely impacted if the review results in a termination or stockholders.reduction in tariffs on crystalline silicon solar cells and modules from China.
Our Amended and Restated Bylaws (“Bylaws”) provide that, unless we consent in writing toIn other instances, the selectionapplication of U.S. trade laws has had, or could have, an alternative forum, the Court of Chancery of the State of Delaware (or, if the Court of Chancery of the State of Delaware lacks subject matter jurisdiction, the federal district court for the District of Delaware) is the sole and exclusive forum for (i) any derivative action or proceeding broughtadverse impact on our behalf, (ii) any actionoperating results by increasing our costs or proceeding asserting a claim of breach of a fiduciary duty owed by anylimiting the competitiveness of our directors, officers, other employees, agents or stockholders to us or our stockholders, (iii) any action or proceeding against us or any of our directors, officers, other employees, agents or stockholders arising pursuant to any provision of the Delaware General Corporation Law (“DGCL”), our Amended and Restated Certificate of Incorporation or our Bylaws, (iv) any action or proceeding against us or any of our directors, officers or other employees asserting a claim that is governed by the internal affairs doctrine, or (v) any action or proceeding asserting an “internal corporate claim,” as defined in the DGCL. Our Bylaws also provide that, unless we consent in writing to the selection of an alternative forum, the federal district courts ofproducts. For example, the United States areimposes tariffs on certain imported aluminum and steel articles from certain foreign jurisdictions, generally at rates of 10% and 25%, respectively, under Section 232 of the exclusive forumTrade Expansion Act of 1962. Such tariffs and policies, or any other U.S. or global trade remedies or other trade barriers, may directly or indirectly affect U.S. or global markets for resolving any complaint asserting a cause of action under the Securities Act. Nothing in our Bylaws precludes stockholders that assert claims under the Exchange Act from bringing such claims in any court, subject to applicable law.
Any person or entity holding, owning or otherwise acquiring any interest in any of our securities shall be deemed to have notice of and consented to these provisions. These exclusive forum provisions may limit a stockholder’s ability to bring a claim in a judicial forum of its choosing for disputes with us or our directors, officers, other employees, agents or stockholders, which may discourage lawsuits against ussolar energy and our directors, officers, other employees, agents or stockholders. The enforceabilitybusiness, financial condition, and results of similar choice of forum provisions in other companies’ governing documents has been challenged in legal proceedings,operations. These examples show that established markets for PV solar development face uncertainties arising from policy, regulatory, and it is possible that a court could find these types of provisions to be inapplicable or unenforceable. For example, in December 2018,governmental constraints. While the Court of Chanceryexpected potential of the Statemarkets we are targeting is significant, policy promulgation and market development are especially vulnerable to governmental inertia, political instability, the imposition or lowering of Delaware determined that a provision stating that federal district courts of the United States are the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act is not enforceable. Although this decision was reversed by the Delaware Supreme Court in March 2020, courts intrade remedies and other states may still find these provisions to be inapplicable or unenforceable. If a court were to find the exclusive forum provisions in our Bylaws to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving the dispute in other jurisdictions, which could adversely affect our results of operations.trade barriers, geopolitical risk, fossil fuel subsidization, potentially stringent localization requirements, and limited available infrastructure.
Item 6. Exhibits
The following exhibits are filed with this Quarterly Report on Form 10-Q: | | | | | | | | |
Exhibit Number | | Exhibit Description |
3.1 | | |
3.2 | | |
10.1*+§ | | |
10.2*+§ | | |
10.3*+§ | | Membership Interests Purchase and Sale Agreement, dated May 12, 2022, among First Solar Japan GK,Kyoto Solar Plant L.P., Yatsubo Solar Plant L.P., Momura Solar Plant L.P., Iwaki Solar Plant L.P., Hita Solar Plant L.P., Shimo Onuki Solar Plant L.P., Orido Solar Plant L.P., Handa Solar Plant L.P. and Tochigi Solar Plant L.P. |
10.4*+§ | | First Amendment to Membership Interests Purchase and Sale Agreement, dated June 24, 2022, among First Solar Japan GK,Kyoto Solar Plant L.P., Yatsubo Solar Plant L.P., Momura Solar Plant L.P., Iwaki Solar Plant L.P., Hita Solar Plant L.P., Shimo Onuki Solar Plant L.P., Orido Solar Plant L.P., Handa Solar Plant L.P. and Tochigi Solar Plant L.P. |
10.5*+§ | | |
10.6*+§ | | |
10.7*+§ | | |
31.1* | | |
31.2* | | |
32.1† | | |
101.INS | | XBRL Instance Document – the instance document does not appear in the Interactive Data file because its XBRL tags are embedded within the Inline XBRL document |
101.SCH | | XBRL Taxonomy Extension Schema Document |
101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF | | XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB | | XBRL Taxonomy Label Linkbase Document |
101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document |
104 | | Cover page formatted as Inline XBRL and contained in Exhibit 101 |
——————————
* Filed herewith.
+ Portions of this exhibit have been redacted in compliance with Item 601(b)(10) of Regulation S-K.
§ Exhibits and schedules have been omitted pursuant to Item 601(a)(5) of Regulation S-K.
† Furnished herewith. This exhibit shall not be deemed “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act or the Exchange Act, whether made before or after the date hereof and irrespective of any general incorporation language in such filings.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | | | | | | | | | | |
| FIRST SOLAR, INC. |
| | | |
Date: November 4, 2021July 28, 2022 | By: | | /s/ BYRON JEFFERS |
| Name: | | Byron Jeffers |
| Title: | | Chief Accounting Officer |