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EX-10.1 - EXHIBIT 10.1 - FIRST SOLAR, INC.ex101amendedandrestatedllc.htm
EX-10.2 - EXHIBIT 10.2 - FIRST SOLAR, INC.ex102amendedandrestatedllc.htm

 

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

Form 10-Q

(Mark one)
[x]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
 
For the quarterly period ended June 30, 2015
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 85281
(Address of principal executive offices, including zip code)
(602) 414-9300
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes [x] No [ ]
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [x] No [ ]
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer [x]
Accelerated filer [ ]
Non-accelerated filer [ ]
Smaller reporting company [ ]
 
(Do not check if a smaller reporting company)
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [x]

As of July 31, 2015, 100,902,732 shares of the registrant’s common stock, $0.001 par value per share, were outstanding.
 



FIRST SOLAR, INC. AND SUBSIDIARIES

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2015

TABLE OF CONTENTS

 
 
Page
 
 
 
 
 
 
 
 


2


PART I. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements (Unaudited)

FIRST SOLAR, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2015
 
2014
 
2015
 
2014
Net sales
 
$
896,217

 
$
544,353

 
$
1,365,426

 
$
1,494,511

Cost of sales
 
731,734

 
451,628

 
1,161,962

 
1,165,075

Gross profit
 
164,483

 
92,725

 
203,464

 
329,436

Operating expenses:
 
 
 
 
 
 
 
 
Research and development
 
29,479

 
32,659

 
64,235

 
71,432

Selling, general and administrative
 
70,901

 
57,667

 
138,589

 
116,331

Production start-up
 
6,970

 
491

 
13,620

 
491

Total operating expenses
 
107,350

 
90,817

 
216,444

 
188,254

Operating income (loss)
 
57,133

 
1,908

 
(12,980
)
 
141,182

Foreign currency (loss) gain, net
 
(2,352
)
 
21

 
(3,948
)
 
(558
)
Interest income
 
6,058

 
4,533

 
11,122

 
8,854

Interest expense, net
 
(826
)
 
(930
)
 
(1,020
)
 
(1,340
)
Other expense, net
 
(792
)
 
(1,166
)
 
(2,051
)
 
(2,940
)
Income (loss) before taxes and equity in earnings of unconsolidated affiliates
 
59,221

 
4,366

 
(8,877
)
 
145,198

Income tax benefit (expense)
 
33,340

 
2,166

 
39,320

 
(26,687
)
Equity in earnings (loss) of unconsolidated affiliates, net of tax
 
1,929

 
(2,004
)
 
1,755

 
(1,976
)
Net income
 
$
94,490

 
$
4,528

 
$
32,198

 
$
116,535

Net income per share:
 
 
 
 
 
 
 
 
Basic
 
$
0.94

 
$
0.05

 
$
0.32

 
$
1.17

Diluted
 
$
0.93

 
$
0.04

 
$
0.32

 
$
1.14

Weighted-average number of shares used in per share calculations:
 
 
 
 
 
 
 
 
Basic
 
100,852

 
100,148

 
100,615

 
99,871

Diluted
 
101,607

 
101,814

 
101,631

 
101,820


See accompanying notes to these condensed consolidated financial statements.

3


FIRST SOLAR, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
(Unaudited)
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2015
 
2014
 
2015
 
2014
Net income
 
$
94,490

 
$
4,528

 
$
32,198

 
$
116,535

Other comprehensive income, net of tax:
 
 
 
 
 
 
 
 
Foreign currency translation adjustments
 
2,495

 
(1,721
)
 
(12,898
)
 
(1,661
)
Unrealized (loss) gain on marketable securities and restricted investments
 
(60,640
)
 
18,445

 
(22,353
)
 
38,621

Unrealized loss on derivative instruments
 
(341
)
 
(1,410
)
 
(1,901
)
 
(3,755
)
Other comprehensive (loss) income, net of tax
 
(58,486
)
 
15,314

 
(37,152
)
 
33,205

Comprehensive income (loss)
 
$
36,004

 
$
19,842

 
$
(4,954
)
 
$
149,740


See accompanying notes to these condensed consolidated financial statements.

4


FIRST SOLAR, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)
 
 
 
June 30,
2015
 
December 31,
2014
ASSETS
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
1,075,144

 
$
1,482,054

Marketable securities
 
700,017

 
509,032

Accounts receivable trade, net
 
276,819

 
135,434

Accounts receivable, unbilled and retainage
 
70,367

 
76,971

Inventories
 
481,975

 
505,088

Balance of systems parts
 
94,360

 
125,083

Deferred project costs
 
73,739

 
29,354

Deferred tax assets, net
 
77,709

 
91,565

Notes receivable, affiliate
 
43,345

 
12,487

Prepaid expenses and other current assets
 
262,731

 
202,151

Total current assets
 
3,156,206

 
3,169,219

Property, plant and equipment, net
 
1,356,231

 
1,419,988

PV solar power systems, net
 
43,233

 
46,393

Project assets and deferred project costs
 
1,060,780

 
810,348

Deferred tax assets, net
 
262,389

 
222,326

Restricted cash and investments
 
377,401

 
407,053

Investments in unconsolidated affiliates and joint ventures
 
153,508

 
255,029

Goodwill
 
84,985

 
84,985

Other intangibles, net
 
115,454

 
119,236

Inventories
 
108,558

 
115,617

Note receivable, affiliate
 
9,852

 
9,127

Other assets
 
75,208

 
61,670

Total assets
 
$
6,803,805

 
$
6,720,991

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
 
Current liabilities:
 
 

 
 

Accounts payable
 
$
273,280

 
$
214,656

Income taxes payable
 
4,771

 
1,727

Accrued expenses
 
367,354

 
388,156

Current portion of long-term debt
 
41,898

 
51,399

Billings in excess of costs and estimated earnings
 
168,587

 
195,346

Payments and billings for deferred project costs
 

 
60,591

Other current liabilities
 
58,217

 
88,702

Total current liabilities
 
914,107

 
1,000,577

Accrued solar module collection and recycling liability
 
240,972

 
246,307

Long-term debt
 
257,787

 
162,074

Other liabilities
 
349,469

 
284,546

Total liabilities
 
1,762,335

 
1,693,504

Commitments and contingencies
 


 


Stockholders’ equity:
 
 
 
 
Common stock, $0.001 par value per share; 500,000,000 shares authorized; 100,891,055 and 100,288,942 shares issued and outstanding at June 30, 2015 and December 31, 2014, respectively
 
101

 
100

Additional paid-in capital
 
2,716,493

 
2,697,558

Accumulated earnings
 
2,311,888

 
2,279,689

Accumulated other comprehensive income
 
12,988

 
50,140

Total stockholders’ equity
 
5,041,470

 
5,027,487

Total liabilities and stockholders’ equity
 
$
6,803,805

 
$
6,720,991


See accompanying notes to these condensed consolidated financial statements.

5


FIRST SOLAR, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 
 
Six Months Ended June 30,
 
 
2015
 
2014
Cash flows from operating activities:
 
 
 
 
Net income
 
$
32,198

 
$
116,535

Adjustments to reconcile net income to cash used in operating activities:
 
 
 
 
Depreciation, amortization and accretion
 
129,157

 
123,312

Share-based compensation
 
20,933

 
21,452

Remeasurement of monetary assets and liabilities
 
7,053

 
4,416

Deferred income taxes
 
(24,822
)
 
(20,217
)
Excess tax benefits from share-based compensation arrangements
 
(16,352
)
 
(16,165
)
Other, net
 
5,661

 
6,579

Changes in operating assets and liabilities:
 
 
 
 
Accounts receivable trade, unbilled and retainage
 
(135,053
)
 
(145,478
)
Prepaid expenses and other current assets
 
(7,116
)
 
(856
)
Other assets
 
(13,208
)
 
(2,573
)
Inventories and balance of systems parts
 
56,390

 
85,958

Project assets and deferred project costs
 
(421,836
)
 
(92,826
)
Accounts payable
 
70,936

 
(72,423
)
Income taxes payable
 
(54,149
)
 
39,151

Accrued expenses and other liabilities
 
(82,740
)
 
(271,970
)
Accrued solar module collection and recycling liability
 
(2,070
)
 
25,309

Net cash used in operating activities
 
(435,018
)
 
(199,796
)
Cash flows from investing activities:
 
 
 
 
Purchases of property, plant and equipment
 
(94,111
)
 
(113,221
)
Purchases of marketable securities
 
(394,313
)
 
(226,087
)
Proceeds from sales and maturities of marketable securities
 
199,459

 
164,259

Purchases of equity and cost method investments
 
(10,200
)
 
(910
)
Distributions received from equity method investments
 
238,980

 

Investments in notes receivable, affiliate
 
(45,288
)
 

Payments received on notes receivable, affiliate
 
16,277

 

Change in restricted cash
 
(13,551
)
 
(72,405
)
Other investing activities
 
(31
)
 
(1,480
)
Net cash used in investing activities
 
(102,778
)
 
(249,844
)
Cash flows from financing activities:
 
 
 
 
Repayment of long-term debt
 
(25,575
)
 
(30,761
)
Proceeds from borrowings under long-term debt, net of discounts and issuance costs
 
122,942

 

Repayment of sale-leaseback financing
 
(1,904
)
 

Proceeds from sale-leaseback financing
 
44,718

 

Excess tax benefit from share-based compensation arrangements
 
16,352

 
16,165

Contingent consideration payments and other financing activities
 
(12,960
)
 
(12,058
)
Net cash provided by (used in) financing activities
 
143,573

 
(26,654
)
Effect of exchange rate changes on cash and cash equivalents
 
(12,687
)
 
2,568

Net decrease in cash and cash equivalents
 
(406,910
)
 
(473,726
)
Cash and cash equivalents, beginning of the period
 
1,482,054

 
1,325,072

Cash and cash equivalents, end of the period
 
$
1,075,144

 
$
851,346

Supplemental disclosure of noncash investing and financing activities:
 
 

 
 

Equity interests retained from the partial sale of project assets
 
$
126,079

 
$

Property, plant and equipment acquisitions funded by liabilities
 
$
34,022

 
$
48,667

Acquisitions currently or previously funded by liabilities and contingent consideration
 
$
27,398

 
$
84,320


See accompanying notes to these condensed consolidated financial statements.

6


FIRST SOLAR, INC. AND SUBSIDIARIES

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 have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and pursuant to the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission (the “SEC”). Accordingly, these interim financial statements do not include all of the information and footnotes required by U.S. GAAP for annual financial statements. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair statement have been included. Operating results for the three and six months ended June 30, 2015 are not necessarily indicative of the results that may be expected for the year ending December 31, 2015 or for any other period. The condensed consolidated balance sheet at December 31, 2014 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, 2014 included in our Annual Report on Form 10-K, which has been filed with the SEC.

Certain prior year balances have been reclassified to conform to the current year presentation. Such reclassifications did not have a material effect on the interim financial statements. In addition, the method of reporting the condensed consolidated statements of cash flows was changed from the direct to the indirect method.

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

2. Summary of Significant Accounting Policies
  
Use of Estimates. 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 our condensed consolidated financial statements and the accompanying notes. On an ongoing basis, we evaluate our estimates, including those related to percentage-of-completion revenue recognition, inventory valuation, recoverability of project assets, estimates of future cash flows from and the economic useful lives of long-lived assets, asset retirement obligations, certain accrued liabilities, income taxes and tax valuation allowances, reportable segment allocations, product warranties and manufacturing excursions, accrued collection and recycling expense, and applying the acquisition method of accounting for business combinations and goodwill. Despite our intention to establish accurate estimates and reasonable assumptions, actual results could differ materially from these estimates and assumptions.

Revenue Recognition — Systems Business. We recognize revenue for arrangements entered into by our systems business generally using two revenue recognition models, following the guidance in Accounting Standards Codification (“ASC”) 605, Accounting for Long-term Construction Contracts, or ASC 360, Accounting for Sales of Real Estate, for arrangements which include land or land rights.

For systems business sales arrangements that do not include land or land rights and thus are accounted for under ASC 605, we use the percentage-of-completion method, as described further below, using actual costs incurred over total estimated costs to develop and construct a project (including module costs) as our standard accounting policy, unless we cannot make reasonably dependable estimates of the costs to complete the contract, in which case we would use the completed contract method.

For systems business sales arrangements that are accounted for under ASC 360 where we convey control of land or land rights, we record the sale as revenue using one of the following revenue recognition methods, based upon evaluation of the substance and form of the terms and conditions of such real estate sales arrangements:

(i)
We apply the percentage-of-completion method, as further described below, to certain real estate sales arrangements where we convey control of land or land rights, when a sale has been consummated, we have transferred the usual risks and rewards of ownership to the buyer, the initial and continuing investment criteria have been met, we have the ability to estimate our costs and progress toward completion, and all other revenue recognition criteria have been met. When evaluating whether the usual risks and rewards of ownership have transferred to the buyer, we consider whether we have or may be contingently required to have any prohibited forms of continuing involvement with the project. Prohibited forms of continuing involvement in a real estate sales arrangement may include us retaining risks or rewards associated

7


with the project that are not customary with the range of risks or rewards that an engineering, procurement, and construction (“EPC”) contractor may assume. The initial and continuing investment requirements, which demonstrate a buyer’s commitment to honor its obligations for the sales arrangement, can typically be met through the receipt of cash or an irrevocable letter of credit from a highly creditworthy lending institution.

(ii)
Depending on whether the initial and continuing investment requirements have been met and whether collectability from the buyer is reasonably assured, we may align our revenue recognition and release of project assets or deferred project costs to cost of sales with the receipt of payment from the buyer if the sale has been consummated and we have transferred the usual risks and rewards of ownership to the buyer.

For any systems business sales arrangements containing multiple deliverables (including our solar modules) not required to be accounted for under ASC 605 (long-term construction contracts) or ASC 360 (real estate), we analyze each activity within the sales arrangement to adhere to the separation guidelines of ASC 605 for multiple-element arrangements. We allocate revenue for any transactions involving multiple elements to each unit of accounting based on its relative selling price and recognize revenue for each unit of accounting when all revenue recognition criteria for a unit of accounting have been met.

Revenue Recognition — Percentage-of-Completion. In applying the percentage-of-completion method, we use the actual costs incurred relative to the total estimated costs (including module costs) in order to determine the progress towards completion and calculate the corresponding amount of revenue and profit to recognize. Costs incurred include all installed direct materials, installed solar modules, labor, subcontractor costs, and those indirect costs related to contract performance, such as indirect labor and supplies. We recognize direct material and solar module costs as incurred when the direct materials and solar modules have been installed in the project. When contracts specify that title to direct materials and solar modules transfers to the customer before installation has been performed, we will not recognize revenue or the associated costs until those materials are installed and have met all other revenue recognition requirements. We consider direct materials and solar modules to be installed when they are permanently placed or affixed to a photovoltaic (“PV”) solar power system as required by engineering designs. Solar modules manufactured and owned by us that will be used in our systems remain within inventory until such modules are installed in a system.

The percentage-of-completion method of revenue recognition requires us to make estimates of contract revenues and costs to complete our projects. In making such estimates, management judgments are required to evaluate significant assumptions including the amount of net contract revenues, the cost of materials and labor, expected labor productivity, the impact of potential variances in schedule completion, and the impact of any penalties, claims, change orders, or performance incentives. 

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

Revenue Recognition — Components Business. Our components business sells solar modules directly to third-party solar power system integrators and operators. We recognize revenue for module sales when persuasive evidence of an arrangement exists, delivery of the module has occurred and title and risk of loss have passed to the customer, the sales price is fixed or determinable, and the collectability of the resulting receivable is reasonably assured. Under this policy, we record a trade receivable for the selling price of our module and reduce inventory for the cost of goods sold when delivery occurs in accordance with the terms of the sales contract. Our customers typically do not have extended payment terms or rights of return for our products.

Revenue Recognition — Operations and Maintenance. Our operations and maintenance (“O&M”) revenue is billed and recognized as services are performed. Costs of these revenues are expensed in the period in which they are incurred.

Ventures and Variable Interest Entities. In the normal course of business we establish wholly owned project companies which may be considered variable interest entities (“VIEs”). We consolidate wholly owned variable interest entities when we are considered the primary beneficiary of such entities. Additionally, we have, and may in the future form, joint venture type arrangements, including partnerships and partially owned limited liability companies or similar legal structures, with one or more third parties primarily to develop and build solar power projects. These types of ventures are core to our business and long-term strategy related to providing solar PV generation solutions using our modules to key geographic markets. We analyze all of our ventures and classify them into two groups: (i) ventures that must be consolidated because they are either not VIEs and we hold a majority voting interest, or because they are VIEs and we are the primary beneficiary and (ii) ventures that do not need to be

8


consolidated and are accounted for under either the cost or equity methods of accounting because they are either not VIEs and we hold a minority voting interest, or because they are VIEs and we are not the primary beneficiary.

Ventures are considered VIEs if (i) the total equity investment at risk is not sufficient to permit the entity to finance its activities without additional subordinated financial support; (ii) as a group, the holders of the equity investment at risk lack the ability to make certain decisions, the obligation to absorb expected losses, or the right to receive expected residual returns; or (iii) an equity investor has voting rights that are disproportionate to its economic interest and substantially all of the entity’s activities are conducted on behalf of that investor. Our venture agreements typically require us to fund some form of capital for the development and construction of a project, depending upon the opportunity and the market in which our ventures are located.

We are considered the primary beneficiary of and are required to consolidate a VIE if we have the power to direct the activities that most significantly impact the VIE’s economic performance and the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the entity. If we determine that we do not have the power to direct the activities that most significantly impact the entity, then we are not the primary beneficiary of the VIE.

Cost and Equity Method Investments. We account for our unconsolidated ventures using either the cost or equity method of accounting depending upon whether we have the ability to exercise significant influence over a venture. We consider the participating and protective rights we have as well as the legal form of the venture when evaluating whether we have the ability to exercise significant influence. Cost method investments are initially recorded and subsequently carried at their historical cost, and income is recorded to the extent we receive dividends. We use the equity method of accounting for our equity investments when we have the ability to significantly influence the operations or financial activities of the investee. We initially record the investment at cost and adjust the carrying amount each period to recognize our share of the earnings or losses of the investee based on our ownership percentage. We monitor these investments, which are included in “Investments in unconsolidated affiliates and joint ventures” in the accompanying condensed consolidated balance sheets, for impairment and record reductions in their carrying values if the carrying amount of the investment exceeds its fair value. An impairment charge is recorded when such impairment is deemed to be other-than-temporary. To determine whether an impairment is other-than-temporary, we consider our ability and intent to hold the investment until the carrying amount is fully recovered. Circumstances that indicate an other-than-temporary impairment may have occurred include factors such as decreases in quoted market prices or declines in operations of the investee. The evaluation of an investment for potential impairment requires us to exercise significant judgment and to make certain assumptions. The use of different judgments and assumptions could result in different conclusions. No impairment losses were recorded during the three and six months ended June 30, 2015 related to our cost and equity method investments. We recorded an impairment loss of $2.1 million during the three and six months ended June 30, 2014 related to our cost and equity method investments.

See Note 2. “Summary of Significant Accounting Policies” to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2014 for a more complete summary of our significant accounting policies.

3. Recent Accounting Pronouncements

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), to clarify the principles of recognizing revenue and create common revenue recognition guidance between U.S. GAAP and International Financial Reporting Standards. An entity has the option to apply the provisions of ASU 2014-09 either retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying this standard recognized at the date of initial application. ASU 2014-09 is effective for fiscal years and interim periods within those years beginning after December 15, 2017, and early adoption is permitted for periods beginning after December 15, 2016. We are currently evaluating the method of adoption and the impact ASU 2014-09 will have on our consolidated financial statements and associated disclosures.

In February 2015, the FASB issued ASU 2015-02, Consolidation (Topic 810) - Amendments to the Consolidation Analysis. ASU 2015-02 modifies existing consolidation guidance related to (i) limited partnerships and similar legal entities, (ii) the evaluation of variable interests for fees paid to decision makers or service providers, (iii) the effect of fee arrangements and related parties on the primary beneficiary determination, and (iv) certain investment funds. These changes are expected to limit the number of consolidation models and place more emphasis on risk of loss when determining a controlling financial interest. ASU 2015-02 is effective for fiscal years and interim periods within those years beginning after December 15, 2015. We are currently evaluating the impact of ASU 2015-02 on our consolidated financial statements and associated disclosures.


9


In April 2015, the FASB issued ASU 2015-03, Interest - Imputation of Interest (Subtopic 835-30) - Simplifying the Presentation of Debt Issuance Costs. ASU 2015-03 simplifies the presentation of debt issuance costs by requiring such costs to be presented in the balance sheet as a reduction to the carrying amount of the corresponding debt liability, consistent with debt discounts, rather than as a deferred charge. The adoption of ASU 2015-03 in the second quarter of 2015 resulted in a reclassification of $0.4 million in unamortized debt issuance costs from “Prepaid expenses and other current assets” to “Current portion of long-term debt” and $2.6 million in unamortized debt issuance costs from “Other assets” to “Long-term debt” on our condensed consolidated balance sheet as of June 30, 2015. In addition, $0.5 million in unamortized debt issuance costs was reclassified from “Prepaid expenses and other current assets” to “Current portion of long-term debt,” and $2.9 million in unamortized debt issuance costs was reclassified from “Other assets” to “Long-term debt” on our condensed consolidated balance sheet as of December 31, 2014.

In July 2015, the FASB issued ASU 2015-11, Inventory (Topic 330) - Simplifying the Measurement of Inventory. ASU 2015-11 simplifies the subsequent measurement of inventory by replacing the current lower of cost or market test with a lower of cost or net realizable value test. ASU 2015-11 is effective for fiscal years and interim periods within those years beginning after December 15, 2016, and early adoption is permitted. We do not expect that ASU 2015-11 will have a significant impact on the subsequent measurement of inventory included in our consolidated financial statements.

4. Cash, Cash Equivalents, and Marketable Securities

Cash, cash equivalents, and marketable securities consisted of the following at June 30, 2015 and December 31, 2014 (in thousands):
 
 
 
June 30,
2015
 
December 31,
2014
Cash and cash equivalents:
 
 
 
 
Cash
 
$
1,072,002

 
$
1,480,452

Cash equivalents:
 
 
 
 
Money market funds
 
3,142

 
1,602

Total cash and cash equivalents
 
1,075,144

 
1,482,054

Marketable securities:
 
  
 
 
Foreign debt
 
660,017

 
462,731

Time deposits
 
40,000

 
40,000

U.S. debt
 

 
2,800

U.S. government obligations
 

 
3,501

Total marketable securities
 
700,017

 
509,032

Total cash, cash equivalents, and marketable securities
 
$
1,775,161

 
$
1,991,086


We classify our marketable securities as available-for-sale. Accordingly, we record them at fair value and account for the net unrealized gains and losses as part of “Accumulated other comprehensive income” until realized. We record realized gains and losses on the sale or maturity of our marketable securities in “Other expense, net” computed using the specific identification method.
 
During the three and six months ended June 30, 2015 we realized no gains or losses on the sale or maturity of our marketable securities. During the three and six months ended June 30, 2014, we realized $0.2 million of gains on the sale or maturity of our marketable securities. See Note 8. “Fair Value Measurements” to our condensed consolidated financial statements for information about the fair value of our marketable securities.

As of June 30, 2015, we identified three investments totaling $35.7 million that had been in a loss position for a period of time greater than 12 months with unrealized losses of less than $0.1 million. As of December 31, 2014, we identified two investments totaling $41.1 million that had been in a loss position for a period of time greater than 12 months with unrealized losses of less than $0.1 million. The unrealized losses were primarily due to increases in interest rates relative to rates at the time of purchase. Based on the underlying credit quality of the investments, we do not intend to sell these securities prior to the recovery of our cost basis. Therefore, we did not consider these securities to be other-than-temporarily impaired. All of our available-for-sale marketable securities are subject to a periodic impairment review. We did not identify any of our marketable securities as other-than-temporarily impaired at June 30, 2015 and December 31, 2014.


10


The following tables summarize the unrealized gains and losses related to our available-for-sale marketable securities, by major security type, as of June 30, 2015 and December 31, 2014 (in thousands):
 
 
As of June 30, 2015
 
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair
Value
Foreign debt
 
$
660,859

 
$
138

 
$
980

 
$
660,017

Time deposits
 
40,000

 

 

 
40,000

Total
 
$
700,859

 
$
138

 
$
980

 
$
700,017

 
 
As of December 31, 2014
 
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair
Value
Foreign debt
 
$
463,466

 
$
18

 
$
753

 
$
462,731

Time deposits
 
40,000

 

 

 
40,000

U.S. debt
 
2,800

 

 

 
2,800

U.S. government obligations
 
3,500

 
1

 

 
3,501

Total
 
$
509,766

 
$
19

 
$
753

 
$
509,032


The contractual maturities of our marketable securities as of June 30, 2015 and December 31, 2014 were as follows (in thousands):
 
 
As of June 30, 2015
 
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair
Value
One year or less
 
$
254,446

 
$
26

 
$
167

 
$
254,305

One year to two years
 
267,807

 
4

 
592

 
267,219

Two years to three years
 
178,606

 
108

 
221

 
178,493

Total
 
$
700,859

 
$
138

 
$
980

 
$
700,017

 
 
As of December 31, 2014
 
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair
Value
One year or less
 
$
329,974

 
$
14

 
$
174

 
$
329,814

One year to two years
 
125,892

 
5

 
380

 
125,517

Two years to three years
 
53,900

 

 
199

 
53,701

Total
 
$
509,766

 
$
19

 
$
753

 
$
509,032


The net unrealized losses of $0.8 million and $0.7 million as of June 30, 2015 and December 31, 2014, respectively, on our marketable securities were primarily the result of increases in interest rates relative to rates at the time of purchase. Our investment policy requires marketable securities to be highly rated and limits the security types, issuer concentration, and duration to maturity of our marketable securities portfolio.

The following tables show gross unrealized losses and estimated fair values for those marketable securities that were in an unrealized loss position as of June 30, 2015 and December 31, 2014, aggregated by major security type and the length of time the marketable securities have been in a continuous loss position (in thousands):
 
 
As of June 30, 2015
 
 
In Loss Position for
Less Than 12 Months
 
In Loss Position for
12 Months or Greater
 
Total
 
 
Estimated
Fair
Value
 
Gross
Unrealized
Losses
 
Estimated
Fair
Value
 
Gross
Unrealized
Losses
 
Estimated
Fair
Value
 
Gross
Unrealized
Losses
Foreign debt
 
$
466,201

 
$
936

 
$
35,732

 
$
44

 
$
501,933

 
$
980

Total
 
$
466,201

 
$
936

 
$
35,732

 
$
44

 
$
501,933

 
$
980


11


 
 
As of December 31, 2014
 
 
In Loss Position for
Less Than 12 Months
 
In Loss Position for
12 Months or Greater
 
Total
 
 
Estimated
Fair
Value
 
Gross
Unrealized
Losses
 
Estimated
Fair
Value
 
Gross
Unrealized
Losses
 
Estimated
Fair
Value
 
Gross
Unrealized
Losses
Foreign debt
 
$
391,840

 
$
740

 
$
41,060

 
$
13

 
$
432,900

 
$
753

Total
 
$
391,840

 
$
740

 
$
41,060

 
$
13

 
$
432,900

 
$
753


5. Restricted Cash and Investments

Restricted cash and investments consisted of the following at June 30, 2015 and December 31, 2014 (in thousands):
 
 
 
June 30,
2015
 
December 31,
2014
Restricted cash
 
$
61,613

 
$
49,818

Restricted investments
 
315,788

 
357,235

Restricted cash and investments (1)
 
$
377,401

 
$
407,053


(1)
There was an additional $76.4 million and $74.7 million of restricted cash included within prepaid expenses and other current assets at June 30, 2015 and December 31, 2014, respectively.

At June 30, 2015, our restricted cash consisted of deposits held by various banks to secure certain of our letters of credit and deposits designated for the construction of systems projects and payment of amounts related to project construction credit facilities. Restricted cash for our letters of credit is classified as current or noncurrent based on the maturity date of the corresponding letter of credit. See Note 12. “Commitments and Contingencies” to our condensed consolidated financial statements for further discussion relating to letters of credit. Restricted cash for project construction and financing is classified as current or noncurrent based on the projected use of the restricted funds.

At June 30, 2015 and December 31, 2014, our restricted investments consisted of long-term marketable securities that we hold through custodial accounts to fund the estimated future costs of collecting and recycling modules covered under our solar module collection and recycling program. We classify our restricted investments as available-for-sale. Accordingly, we record them at fair value and account for the net unrealized gains and losses as a part of “Accumulated other comprehensive income” until realized. We record realized gains and losses on the sale or maturity of our restricted investments in “Other expense, net” computed using the specific identification method. Restricted investments are classified as noncurrent as the underlying accrued solar module collection and recycling liability is also noncurrent in nature.

As necessary, we fund any incremental amounts for our estimated collection and recycling obligations within 90 days of the end of each year. We determine the funding requirement, if any, based on estimated costs of collecting and recycling covered modules, estimated rates of return on our restricted investments, and an estimated solar module life of 25 years less amounts already funded in prior years. To ensure that these funds will be available in the future regardless of any potential adverse changes in our financial condition (even in the case of our own insolvency), we have established a trust (the “Trust”) under which estimated funds are put into custodial accounts with an established and reputable bank, for which First Solar, Inc. (“FSI”), First Solar Malaysia Sdn. Bhd. (“FS Malaysia”), and First Solar Manufacturing GmbH are grantors. Only the trustee can distribute funds from the custodial accounts, and these funds cannot be accessed for any purpose other than to cover qualified costs of module collection and recycling, either by us or a third party performing the required collection and recycling services. Investments in these custodial accounts must meet certain investment quality criteria comparable to highly rated government or agency bonds. We closely monitor our exposure to European markets and maintain holdings primarily consisting of German and French sovereign debt securities that are not currently at risk of default. During the six months ended June 30, 2015, no incremental funding was required for covered module sales through December 31, 2014.


12


The following tables summarize the unrealized gains and losses related to our restricted investments, by major security type, as of June 30, 2015 and December 31, 2014 (in thousands):
 
 
As of June 30, 2015
 
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair
Value
Foreign government obligations
 
$
176,738

 
$
70,375

 
$

 
$
247,113

U.S. government obligations
 
59,813

 
8,862

 

 
68,675

Total
 
$
236,551

 
$
79,237

 
$

 
$
315,788

 
 
As of December 31, 2014
 
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair
Value
Foreign government obligations
 
$
189,455

 
$
93,280

 
$

 
$
282,735

U.S. government obligations
 
58,510

 
15,990

 

 
74,500

Total
 
$
247,965

 
$
109,270

 
$

 
$
357,235


As of June 30, 2015 and December 31, 2014, the contractual maturities of these restricted investments were between 13 years and 22 years.

6. Consolidated Balance Sheet Details

Accounts receivable trade, net

Accounts receivable trade, net consisted of the following at June 30, 2015 and December 31, 2014 (in thousands):
 
 
June 30,
2015
 
December 31,
2014
Accounts receivable trade, gross
 
$
276,850

 
$
142,542

Allowance for doubtful accounts
 
(31
)
 
(7,108
)
Accounts receivable trade, net
 
$
276,819

 
$
135,434


At June 30, 2015 and December 31, 2014, $69.7 million and $21.4 million, respectively, of our accounts receivable trade, net were secured by letters of credit, bank guarantees, or other forms of financial security issued by creditworthy financial institutions.

Accounts receivable, unbilled and retainage
 
Accounts receivable, unbilled and retainage consisted of the following at June 30, 2015 and December 31, 2014 (in thousands):
 
 
June 30,
2015
 
December 31,
2014
Accounts receivable, unbilled
 
$
40,238

 
$
41,868

Retainage
 
30,129

 
35,103

Accounts receivable, unbilled and retainage
 
$
70,367

 
$
76,971

 
Accounts receivable, unbilled represents revenue that has been recognized in advance of billing the customer, which is common for long-term construction contracts. For example, we recognize revenue from contracts for the construction and sale of PV solar power systems, which include the sale of such assets over the construction period using applicable accounting methods. One such method is the percentage-of-completion method, which recognizes revenue and gross profit as work is performed based on the relationship between actual costs incurred compared to the total estimated costs for the contract. Under this accounting method, revenue could be recognized under applicable revenue recognition criteria in advance of billing the customer, resulting in an amount recorded to “Accounts receivable, unbilled and retainage.” Once we meet the billing criteria under a construction contract, we bill our customer accordingly and reclassify the “Accounts receivable, unbilled and retainage” to “Accounts receivable trade, net.” Billing requirements vary by contract but are generally structured around completion of certain construction milestones.


13


The current portion of retainage is included within “Accounts receivable, unbilled and retainage.” Retainage refers to the portion of the contract price earned by us for work performed, but held for payment by our customer as a form of security until we reach certain construction milestones. Retainage included within “Accounts receivable, unbilled and retainage” is expected to be billed and collected within the next 12 months.

Inventories

Inventories consisted of the following at June 30, 2015 and December 31, 2014 (in thousands):
 
 
June 30,
2015
 
December 31,
2014
Raw materials
 
$
163,918

 
$
157,468

Work in process
 
23,340

 
20,829

Finished goods
 
403,275

 
442,408

Inventories
 
$
590,533

 
$
620,705

Inventories — current
 
$
481,975

 
$
505,088

Inventories — noncurrent (1)
 
$
108,558

 
$
115,617


(1)
We purchase a critical raw material that is used in our core production process in quantities that exceed anticipated consumption within our operating cycle (which is 12 months). We classify the raw materials that we do not expect to be consumed within our operating cycle as noncurrent.

Balance of systems parts

Balance of systems parts were $94.4 million and $125.1 million as of June 30, 2015 and December 31, 2014, respectively, and represented mounting, third-party modules, and electrical and other construction parts purchased for PV solar power systems to be constructed or currently under construction, which we held title to and were not yet installed in a system. These parts included items such as posts, tilt brackets, tables, harnesses, combiner boxes, inverters, cables, tracker equipment, and other parts we may purchase or assemble for the systems we construct. Balance of systems parts does not include any solar modules that we manufacture. We carry these parts at the lower of cost or market, with market being based primarily on recoverability through installation in a solar power plant or recoverability through a sales agreement.

Prepaid expenses and other current assets

Prepaid expenses and other current assets consisted of the following at June 30, 2015 and December 31, 2014 (in thousands):
 
 
June 30,
2015
 
December 31,
2014
Prepaid expenses
 
$
107,355

 
$
42,193

Derivative instruments 
 
6,721

 
9,791

Restricted cash
 
76,362

 
74,695

Other current assets
 
72,293

 
75,472

Prepaid expenses and other current assets
 
$
262,731

 
$
202,151



14


Property, plant and equipment, net

Property, plant and equipment, net consisted of the following at June 30, 2015 and December 31, 2014 (in thousands):
 
 
June 30,
2015
 
December 31,
2014
Land
 
$
12,128

 
$
12,378

Buildings and improvements (1)
 
400,899

 
397,087

Machinery and equipment (1)
 
1,769,932

 
1,649,363

Office equipment and furniture
 
136,920

 
134,268

Leasehold improvements
 
50,406

 
50,096

Construction in progress
 
74,267

 
154,497

Stored assets (2)
 
152,153

 
155,389

Property, plant and equipment, gross
 
2,596,705

 
2,553,078

Less: accumulated depreciation
 
(1,240,474
)
 
(1,133,090
)
Property, plant and equipment, net
 
$
1,356,231

 
$
1,419,988


(1)
In June 2015, we reclassified $15.2 million and $2.5 million from "Assets held for sale" to "Building and improvements" and "Machinery and equipment," respectively, as these assets no longer met the criteria to be classified as held for sale.

(2)
Consists of machinery and equipment (“stored assets”) that were originally purchased for installation in our previously planned manufacturing capacity expansions. We intend to install and place the stored assets into service when such assets are required or beneficial to our existing installed manufacturing capacity or when market demand supports additional or market-specific manufacturing capacity. During the six months ended June 30, 2015, we transferred $3.2 million of stored assets to our manufacturing facility in Perrysburg, Ohio for use in the production of solar modules. As the remaining stored assets are neither in the condition nor location to produce modules as intended, we will not begin depreciation until such assets are placed into service. The stored assets are evaluated for impairment under a held and used impairment model whenever events or changes in business circumstances arise, including consideration of technological obsolescence, that may indicate that the carrying amount of our long-lived assets may not be recoverable. We ceased the capitalization of interest on our stored assets once they were physically received from the related machinery and equipment vendors.

Depreciation of property, plant and equipment was $62.5 million and $124.0 million for the three and six months ended June 30, 2015, respectively, and $62.6 million and $123.4 million for the three and six months ended June 30, 2014, respectively.

PV solar power systems, net

PV solar power systems, net consisted of the following at June 30, 2015 and December 31, 2014 (in thousands):
 
 
June 30,
2015
 
December 31,
2014
PV solar power systems, gross
 
$
45,727

 
$
47,727

Accumulated depreciation
 
(2,494
)
 
(1,334
)
PV solar power systems, net
 
$
43,233

 
$
46,393


Depreciation of PV solar power systems was $0.6 million and $1.2 million for the three and six months ended June 30, 2015, respectively, and $0.1 million for the three and six months ended June 30, 2014.


15


Capitalized interest

The cost of constructing facilities, equipment, and project assets includes interest costs incurred during the assets’ construction period. The components of interest expense and capitalized interest were as follows during the three and six months ended June 30, 2015 and 2014 (in thousands):
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2015
 
2014
 
2015
 
2014
Interest cost incurred
 
$
(4,749
)
 
$
(2,385
)
 
$
(8,226
)
 
$
(5,036
)
Interest cost capitalized — property, plant and equipment
 
295

 
444

 
862

 
1,022

Interest cost capitalized — project assets
 
3,628

 
1,011

 
6,344

 
2,674

Interest expense, net
 
$
(826
)
 
$
(930
)
 
$
(1,020
)
 
$
(1,340
)

Project assets and deferred project costs

Project assets primarily consist of costs relating to solar power projects in various stages of development that are capitalized prior to entering into a definitive sales agreement for the projects, including projects that have begun commercial operation under PPAs and are actively marketed and intended to be sold. These project related costs include costs for land, development, and construction of a PV solar power system. Development costs may include legal, consulting, permitting, interconnection, and other similar costs. Once we enter into a definitive sales agreement, we reclassify project assets to deferred project costs on our condensed consolidated balance sheet until the sale is completed and we have met all of the criteria to recognize the sale as revenue, which is typically subject to real estate revenue recognition requirements. We expense project assets and deferred project costs to cost of sales after each respective project is sold to a customer and all revenue recognition criteria have been met (matching the expensing of costs to the underlying revenue recognition method). We classify project assets as noncurrent due to the nature of solar power projects (long-lived assets) and the time required to complete all activities to develop, construct, and sell projects, which is typically longer than 12 months.

Deferred project costs represent (i) costs that we capitalize as project assets for arrangements that we account for as real estate transactions after we have entered into a definitive sales arrangement, but before the sale is completed or before we have met all criteria to recognize the sale as revenue, (ii) recoverable pre-contract costs that we capitalize for arrangements accounted for as long-term construction contracts prior to entering into a definitive sales agreement, or (iii) costs that we capitalize for arrangements accounted for as long-term construction contracts after we have signed a definitive sales agreement, but before all revenue recognition criteria have been met. We classify deferred project costs as current if completion of the sale and the meeting of all revenue recognition criteria are expected within the next 12 months.

If a project is completed and begins commercial operation prior to entering into or the closing of a sales arrangement, the completed project will remain in project assets or deferred project costs until the earliest of the closing of the sale of such project, our decision to hold such project, or one year from the project’s commercial operations date. Any income generated by a project while it remains within project assets or deferred project costs is accounted for as a reduction to our basis in the project, which at the time of sale and meeting all revenue recognition criteria will be recorded within cost of sales.

Project assets and deferred project costs consisted of the following at June 30, 2015 and December 31, 2014 (in thousands):
 
 
June 30,
2015
 
December 31,
2014
Project assets — land
 
$
23,213

 
$
20,170

Project assets — development costs including project acquisition costs
 
535,710

 
359,203

Project assets — construction costs
 
499,918

 
408,402

Project assets 
 
1,058,841

 
787,775

Deferred project costs — current
 
73,739

 
29,354

Deferred project costs — noncurrent
 
1,939

 
22,573

Deferred project costs
 
75,678

 
51,927

Total project assets and deferred project costs
 
$
1,134,519

 
$
839,702



16


Other assets

Other assets consisted of the following at June 30, 2015 and December 31, 2014 (in thousands):
 
 
June 30,
2015
 
December 31,
2014
Notes receivable (1)
 
$
11,281

 
$
12,096

Income taxes receivable
 
4,268

 
4,850

Deferred rent
 
23,556

 
23,823

Other
 
36,103

 
20,901

Other assets
 
$
75,208

 
$
61,670


(1)
On April 8, 2009, we entered into a credit facility agreement with a solar power project entity of one of our customers for an available amount of €17.5 million to provide financing for a PV solar power system. The credit facility replaced a bridge loan that we had made to this entity. The credit facility bears interest at 8.0% per annum payable quarterly with the full amount due on December 31, 2026. As of June 30, 2015 and December 31, 2014, the balance on the credit facility was €7.0 million ($7.8 million and $8.5 million, respectively, at the balance sheet dates). On February 7, 2014, we entered into a convertible loan agreement with a strategic entity for an available amount of up to $5.0 million. The loan bears interest at 8.0% per annum. As of June 30, 2015 and December 31, 2014, the balance outstanding on the convertible loan was $3.5 million.

Goodwill

Goodwill, summarized by relevant reporting unit, consisted of the following as of June 30, 2015 and December 31, 2014 (in thousands):
 
 
December 31,
2014

Acquisitions

June 30, 2015
CdTe components
 
$
403,420

 
$

 
$
403,420

Crystalline silicon components
 
6,097

 

 
6,097

Systems
 
68,833

 

 
68,833

Accumulated impairment losses
 
(393,365
)
 

 
(393,365
)
Total
 
$
84,985

 
$

 
$
84,985


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

Other intangibles, net

Other intangibles, net consisted of intangible assets acquired as part of our GE and TetraSun acquisitions and our internally-generated intangible assets, substantially all of which were patents on technologies related to our products and production processes. We record an asset for patents, after the patent has been issued, based on the legal, filing, and other costs incurred to secure them. We amortize intangible assets on a straight-line basis over their estimated useful lives once the intangible assets meet the criteria to be amortized. At June 30, 2015, $39.1 million of the $120.3 million of intangible assets, gross consisted of in-process research and development from the TetraSun acquisition. These assets will be amortized over their estimated useful lives upon successful completion of the project or expensed earlier if impaired. During the six months ended June 30, 2015, $73.7 million of in-process research and development from the GE acquisition was reclassified to development technology and began amortizing over its useful life of 10 years.


17


The following tables summarize our intangible assets at June 30, 2015 and December 31, 2014 (in thousands):
 
 
June 30, 2015
 
 
Gross Amount
 
Accumulated Amortization
 
Net Amount
Patents
 
$
5,747

 
$
(1,621
)
 
$
4,126

Developed technology
 
75,495

 
(3,267
)
 
72,228

In-process research and development
 
39,100

 

 
39,100

Total
 
$
120,342

 
$
(4,888
)
 
$
115,454

 
 
December 31, 2014
 
 
Gross Amount
 
Accumulated Amortization
 
Net Amount
Patents
 
5,347

 
$
(1,208
)
 
$
4,139

Developed technology
 
2,757

 
(460
)
 
2,297

In-process research and development
 
112,800

 

 
112,800

Total
 
$
120,904

 
$
(1,668
)
 
$
119,236


Amortization expense for our intangible assets was $2.2 million and $3.2 million for the three and six months ended June 30, 2015, respectively, and $0.2 million and $0.5 million for the three and six months ended and June 30, 2014, respectively.

Accrued expenses

Accrued expenses consisted of the following at June 30, 2015 and December 31, 2014 (in thousands):
 
 
June 30,
2015
 
December 31,
2014
Accrued compensation and benefits
 
$
37,559

 
$
43,072

Accrued property, plant and equipment
 
15,436

 
30,723

Accrued inventory
 
63,333

 
36,233

Accrued project assets and deferred project costs
 
109,811

 
113,012

Product warranty liability (1)
 
50,973

 
69,656

Accrued expenses in excess of normal product warranty liability and related expenses (1)
 
6,706

 
7,800

Other
 
83,536

 
87,660

Accrued expenses
 
$
367,354

 
$
388,156


(1)
See Note 12. “Commitments and Contingencies” to our condensed consolidated financial statements for further discussion of “Product warranty liability” and “Accrued expenses in excess of normal product warranty liability and related expenses.”

Billings in excess of costs and estimated earnings

Billings in excess of costs and estimated earnings was $168.6 million and $195.3 million at June 30, 2015 and December 31, 2014, respectively, and represented billings made or payments received in excess of revenue recognized on contracts accounted for under the percentage-of-completion method. Typically, billings are made based on the completion of certain construction milestones as provided for in the sales arrangement, and the timing of revenue recognition may be different from when we can bill or collect from a customer.

Payments and billings for deferred project costs

Payments and billings for deferred project costs was zero and $60.6 million at June 30, 2015 and December 31, 2014, respectively, and represented customer payments received or customer billings made under the terms of solar power project related sales contracts for which all revenue recognition criteria for real estate transactions have not yet been met. The associated solar power project related costs are included as deferred project costs. We classify such amounts as current or noncurrent depending on when all revenue recognition criteria are expected to be met, consistent with the classification of the associated deferred project costs.


18


Other current liabilities

Other current liabilities consisted of the following at June 30, 2015 and December 31, 2014 (in thousands):
 
 
June 30,
2015
 
December 31,
2014
Deferred revenue
 
$
20,374

 
$
21,879

Derivative instruments 
 
8,527

 
7,657

Contingent consideration (1)
 
10,204

 
36,817

Financing liability (2)
 
5,299

 

Other
 
13,813

 
22,349

Other current liabilities
 
$
58,217

 
$
88,702


(1)
See Note 12. “Commitments and Contingencies” to our condensed consolidated financial statements for further discussion.

(2)
See Note 9. “Investments in Unconsolidated Affiliates and Joint Ventures” to our condensed consolidated financial statements for further discussion of the financing liabilities associated with our leaseback of the Maryland Solar project.

Other liabilities

Other liabilities consisted of the following at June 30, 2015 and December 31, 2014 (in thousands):
 
 
June 30,
2015
 
December 31,
2014
Product warranty liability (1)
 
$
171,331

 
$
153,401

Other taxes payable
 
34,425

 
46,555

Contingent consideration (1)
 
17,194

 
17,077

Liability in excess of normal product warranty liability and related expenses (1)
 
19,907

 
23,139

Financing liability (2)
 
37,514

 

Other
 
69,098

 
44,374

Other liabilities
 
$
349,469

 
$
284,546


(1)
See Note 12. “Commitments and Contingencies” to our condensed consolidated financial statements for further discussion on “Product warranty liability,” “Contingent consideration,” and “Liability in excess of normal product warranty liability and related expenses.”

(2)
See Note 9. “Investments in Unconsolidated Affiliates and Joint Ventures” to our condensed consolidated financial statements for further discussion of the financing liabilities associated with our leaseback of the Maryland Solar project.

7. Derivative Financial Instruments

As a global company, we are exposed in the normal course of business to interest rate and foreign currency risks that could affect our consolidated net assets, 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 income” if the derivative instruments qualify for hedge accounting. For those derivative instruments that do not qualify for hedge accounting (“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.


19


The following tables present the fair values of derivative instruments included in our condensed consolidated balance sheets as of June 30, 2015 and December 31, 2014 (in thousands):
 
 
June 30, 2015
 
 
Prepaid Expenses and Other Current Assets
 
Other Current Liabilities
 
Other Liabilities
Derivatives designated as hedging instruments:
 
 
 
 
Foreign exchange forward contracts
 
$

 
$
59

 
$

Cross-currency swap contract
 

 
4,604

 
11,521

Interest rate swap contract
 

 
78

 

Total derivatives designated as hedging instruments
 
$

 
$
4,741

 
$
11,521

 
 
 
 
 
 
 
Derivatives not designated as hedging instruments:
 
 

 
 

Foreign exchange forward contracts
 
$
6,721

 
$
3,786

 
$

Total derivatives not designated as hedging instruments
 
$
6,721

 
$
3,786

 
$

Total derivative instruments
 
$
6,721

 
$
8,527

 
$
11,521

 
 
December 31, 2014
 
 
Prepaid Expenses and Other Current Assets
 
Other Current Liabilities
 
Other Liabilities
Derivatives designated as hedging instruments:
 
 
 
 
Foreign exchange forward contracts
 
$
1,213

 
$

 
$

Cross-currency swap contract
 

 
2,996

 
8,995

Interest rate swap contract
 

 
164

 
46

Total derivatives designated as hedging instruments
 
$
1,213

 
$
3,160

 
$
9,041

 
 
 
 
 
 
 
Derivatives not designated as hedging instruments:
 
 

 
 

Foreign exchange forward contracts
 
$
8,578

 
$
4,497

 
$

Total derivatives not designated as hedging instruments
 
$
8,578

 
$
4,497

 
$

Total derivative instruments
 
$
9,791

 
$
7,657

 
$
9,041


The impact of offsetting balances associated with derivative instruments designated as hedging instruments is shown below (in thousands):
 
 
June 30, 2015
 
 
 
 
 
 
 
 
Gross Amounts Not Offset in Consolidated Balance Sheet
 
 
 
 
Gross Asset (Liability)
 
Gross Offset in Consolidated Balance Sheet
 
Net Amount Recognized in Financial Statements
 
Financial Instruments
 
Cash Collateral Pledged
 
Net Amount
Foreign exchange forward contracts
 
$
(59
)
 

 
(59
)
 

 

 
$
(59
)
Cross-currency swap contract
 
$
(16,125
)
 

 
(16,125
)
 

 

 
$
(16,125
)
Interest rate swap contract
 
$
(78
)
 

 
(78
)
 

 

 
$
(78
)

20


 
 
December 31, 2014
 
 
 
 
 
 
 
 
Gross Amounts Not Offset in Consolidated Balance Sheet
 
 
 
 
Gross Asset (Liability)
 
Gross Offset in Consolidated Balance Sheet
 
Net Amount Recognized in Financial Statements
 
Financial Instruments
 
Cash Collateral Pledged
 
Net Amount
Foreign exchange forward contracts
 
$
1,213

 

 
1,213

 

 

 
$
1,213

Cross-currency swap contract
 
$
(11,991
)
 

 
(11,991
)
 

 

 
$
(11,991
)
Interest rate swap contract
 
$
(210
)
 

 
(210
)
 

 

 
$
(210
)

The following tables present the effective amounts related to derivative instruments designated as cash flow hedges affecting accumulated other comprehensive income and our condensed consolidated statements of operations for the six months ended June 30, 2015 and 2014 (in thousands):
 
 
Foreign Exchange Forward Contracts
 
Interest Rate Swap Contract
 
Cross Currency Swap Contract
 
Total
Balance in accumulated other comprehensive income (loss) at December 31, 2014
 
$
6,621

 
$
(210
)
 
$
(3,399
)
 
$
3,012

Amounts recognized in other comprehensive income (loss)
 
973

 
23

 
(4,268
)
 
(3,272
)
Amounts reclassified to earnings impacting:
 
 
 
 
 
 
 
 
Net sales
 
(352
)
 

 

 
(352
)
Cost of sales
 
(4,599
)
 

 

 
(4,599
)
Foreign currency (loss) gain, net
 

 

 
4,766

 
4,766

Interest expense, net
 

 
109

 
134

 
243

Balance in accumulated other comprehensive income (loss) at June 30, 2015
 
$
2,643

 
$
(78
)
 
$
(2,767
)
 
$
(202
)
 
 
Foreign Exchange Forward Contracts
 
Interest Rate Swap Contract
 
Cross Currency Swap Contract
 
Total
Balance in accumulated other comprehensive income (loss) at December 31, 2013
 
$
4,351

 
$
(703
)
 
$
(5,820
)
 
$
(2,172
)
Amounts recognized in other comprehensive income (loss)
 
(7,193
)
 
(26
)
 
3,625

 
(3,594
)
Amounts reclassified to earnings impacting:
 
 
 
 
 
 
 
 
Foreign currency (loss) gain, net
 

 

 
(2,748
)
 
(2,748
)
Interest expense, net
 

 
288

 
160

 
448

Balance in accumulated other comprehensive income (loss) at June 30, 2014
 
$
(2,842
)
 
$
(441
)
 
$
(4,783
)
 
$
(8,066
)

We recorded no amounts related to ineffective portions of our derivative instruments designated as cash flow hedges during the three and six months ended June 30, 2015 and 2014. We recognized unrealized gains of $0.2 million and $0.5 million related to amounts excluded from effectiveness testing for our foreign exchange forward contracts designated as cash flow hedges within “Other expense, net” during the three and six months ended June 30, 2015, respectively. We recognized unrealized gains of $0.2 million and $0.1 million related to amounts excluded from effectiveness testing for our foreign exchange forward contracts designated as cash flow hedges within “Other expense, net” during the three and six months ended June 30, 2014, respectively.


21


The following table presents amounts related to derivative instruments not designated as hedges affecting our condensed consolidated statements of operations for the three and six months ended June 30, 2015 and 2014 (in thousands):
 
 
 
 
Amount of Gain (Loss) Recognized in Income
 
 
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
Derivatives Not Designated as Hedging Instruments
 
Location of Gain (Loss) on Derivatives Recognized in Income
 
2015
 
2014
 
2015
 
2014
Foreign exchange forward contracts
 
Foreign currency (loss) gain, net
 
$
333

 
$
(2,371
)
 
$
(7,984
)
 
$
(3,040
)
Foreign exchange forward contracts
 
Cost of sales
 
$
(4,553
)
 
$
840

 
$
9,963

 
$
1,343


Interest Rate Risk

We use cross-currency swap and 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.

On September 30, 2011, we entered into a cross-currency swap contract to hedge the floating rate foreign currency denominated loan under our Malaysian Ringgit Facility Agreement. This swap had an initial notional value of Malaysian Ringgit (“MYR”) MYR 465.0 million and entitled us to receive a three-month floating Kuala Lumpur Interbank Offered Rate (“KLIBOR”) interest rate while requiring us to pay a U.S. dollar fixed rate of 3.495%. Additionally, this swap hedges the foreign currency risk of the Malaysian Ringgit denominated principal and interest payments as we make swap payments in U.S. dollars and receive swap payments in Malaysian Ringgits at a fixed exchange rate of 3.19 MYR to USD. The notional amount of the swap is scheduled to decline in line with our scheduled principal payments on the underlying hedged debt. As of June 30, 2015 and December 31, 2014, the notional value of this cross-currency swap contract was MYR 271.3 million ($71.7 million) and MYR 310.1 million ($88.6 million), respectively. This swap is a derivative instrument that qualifies for accounting as a cash flow hedge in accordance with ASC 815, and we designated it as such. We determined that this swap was highly effective as a cash flow hedge at June 30, 2015 and December 31, 2014. For the three and six months ended June 30, 2015 and 2014, there were no amounts of ineffectiveness from this cash flow hedge.

On May 29, 2009, we entered into an interest rate swap contract to hedge a portion of the floating rate loans under our Malaysian Credit Facility, which became effective on September 30, 2009 with an initial notional value of €57.3 million and pursuant to which we are entitled to receive a six-month floating Euro Interbank Offered Rate (“EURIBOR”) interest rate while being required to pay a fixed rate of 2.80%. The notional amount of the interest rate swap contract is scheduled to decline in line with our scheduled principal payments on the underlying hedged debt. As of June 30, 2015 and December 31, 2014, the notional value of this interest rate swap contract was €5.7 million ($6.3 million) and €10.3 million ($12.5 million), respectively. This derivative instrument qualifies for accounting as a cash flow hedge in accordance with ASC 815, and we designated it as such. We determined that our interest rate swap contract was highly effective as a cash flow hedge at June 30, 2015 and December 31, 2014. For the three and six months ended June 30, 2015 and 2014, there were no amounts of ineffectiveness from this cash flow hedge.

In the following 12 months, we expect to reclassify to earnings $4.7 million of net unrealized losses related to swap contracts that are included in “Accumulated other comprehensive income” at June 30, 2015 as we realize the earnings effect of the underlying loans. The amount we ultimately record to earnings will depend on the actual interest rates and foreign exchange rates when we realize the earnings effect of the underlying loans.

Foreign Currency Exchange Risk

Cash Flow Exposure

We expect many of our subsidiaries to have material future cash flows that will be denominated in currencies other than the subsidiaries’ functional currencies. Our primary cash flow exposures are net sales and expenses. 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 June 30, 2015 and December 31, 2014, these foreign exchange forward contracts hedged our forecasted cash flows for 1 month and 6 months, respectively. These foreign exchange forward contracts qualify for accounting as cash flow hedges in accordance with ASC 815, and we designated them as such. We initially report the effective portion of a derivatives unrealized gain or loss in “Accumulated other comprehensive income” and subsequently reclassify amounts into earnings when the hedged transaction occurs and impacts earnings. We determined that these

22


derivative financial instruments were highly effective as cash flow hedges at June 30, 2015 and December 31, 2014. During the three and six months ended June 30, 2015 and 2014, we did not discontinue any cash flow hedges because a hedging relationship was no longer highly effective.

During the three and six months ended June 30, 2015, we purchased foreign exchange forward contracts to hedge the exchange risk on forecasted cash flows denominated in Australian dollars and Japanese yen. As of June 30, 2015 and December 31, 2014, the notional values associated with our foreign exchange forward contracts qualifying as cash flow hedges were as follows (notional amounts and U.S. dollar equivalents in millions):
 
 
June 30, 2015
Currency
 
Notional Amount
 
USD Equivalent
Japanese yen
 
JPY 961.9
 
$7.8
 
 
December 31, 2014
Currency
 
Notional Amount
 
USD Equivalent
Australian dollar
 
AUD 38.4
 
$31.5
Japanese yen
 
JPY 1,223.2
 
$10.3

As of June 30, 2015 and December 31, 2014, the unrealized gains on these contracts were $2.6 million and $6.6 million, respectively.

In the following 12 months, we expect to reclassify to earnings $2.6 million of net unrealized gains related to these forward contracts that are included in “Accumulated other comprehensive income” at June 30, 2015 as we realize the earnings effect of the related forecasted transactions. The amount we ultimately record to earnings will depend on the actual exchange rates when we realize the related forecasted transactions.

Transaction Exposure and Economic Hedging

Many of our subsidiaries have assets and liabilities (primarily receivables, marketable securities, accounts payable, debt, and solar module collection and recycling liabilities) that are denominated in currencies other than the subsidiaries’ functional currencies. Changes in the exchange rates between the functional currencies of our subsidiaries and the other currencies in which these assets and liabilities are denominated will create fluctuations in our reported condensed consolidated statements of operations and cash flows. We may enter into foreign exchange forward contracts or other financial instruments to economically hedge assets and liabilities against the effects of currency exchange rate fluctuations. The gains and losses on the 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 purchase foreign exchange forward contracts to economically hedge balance sheet and other exposures related to transactions with third parties. Such contracts are considered economic hedges and do not qualify for hedge accounting. We recognize gains or losses from the fluctuation in foreign exchange rates and the fair value of these derivative contracts in “Net sales,” “Cost of sales,” and “Foreign currency (loss) gain, net” on our condensed consolidated statements of operations, depending on where the gain or loss from the economically hedged item is classified. As of June 30, 2015, the total net unrealized gain on our economic hedge foreign exchange forward contracts was $2.9 million. As of December 31, 2014, the total net unrealized gain on our economic hedge foreign exchange forward contracts was $4.1 million. As these amounts do not qualify for hedge accounting, changes in the fair value of such derivative instruments are recorded directly to earnings. These contracts have maturities of less than three months.


23


As of June 30, 2015 and December 31, 2014, the notional values of our foreign exchange forward contracts that do not qualify for hedge accounting were as follows (notional amounts and U.S. dollar equivalents in millions):
 
 
June 30, 2015
Transaction
 
Currency
 
Notional Amount
 
USD Equivalent
Purchase
 
Euro
 
€69.5
 
$77.3
Sell
 
Euro
 
€148.1
 
$164.6
Sell
 
Australian dollar
 
AUD 72.4
 
$55.4
Purchase
 
Malaysian ringgit
 
MYR 155.7
 
$41.1
Sell
 
Malaysian ringgit
 
MYR 229.7
 
$60.7
Sell
 
Canadian dollar
 
CAD 7.1
 
$5.7
Purchase
 
Japanese yen
 
JPY 737.2
 
$6.0
Sell
 
Japanese yen
 
JPY 2,746.1
 
$22.3
Sell
 
British pound
 
GBP 30.3
 
$47.6
Purchase
 
Chinese yuan
 
CNY 64.6
 
$10.4
Purchase
 
Indian rupee
 
INR 929.5
 
$14.6
Sell