Attached files

file filename
EX-32.01 - EXHIBIT 32.01 - FIRST SOLAR, INC.ex3201ceocfocertificationm.htm
EX-10.2 - EXHIBIT 10.2 - FIRST SOLAR, INC.ex102secondamendmenttoempl.htm
EX-10.1 - EXHIBIT 10.1 - FIRST SOLAR, INC.ex101amendmenttoemployment.htm
EX-31.01 - EXHIBIT 31.01 - FIRST SOLAR, INC.ex3101ceocertificationmarc.htm
EX-31.02 - EXHIBIT 31.02 - FIRST SOLAR, INC.ex3102cfocertificationmarc.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 March 31, 2016
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.
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 April 22, 2016, 102,245,107 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 MARCH 31, 2016

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 March 31,
 
 
2016
 
2015
Net sales
 
$
848,484

 
$
469,209

Cost of sales
 
585,539

 
430,228

Gross profit
 
262,945

 
38,981

Operating expenses:
 
 
 
 
Research and development
 
30,187

 
34,756

Selling, general and administrative
 
67,503

 
67,688

Production start-up
 

 
6,650

Total operating expenses
 
97,690

 
109,094

Operating income (loss)
 
165,255

 
(70,113
)
Foreign currency loss, net
 
(3,240
)
 
(221
)
Interest income
 
6,406

 
5,064

Interest expense, net
 
(4,642
)
 
(194
)
Other income (expense), net
 
35,553

 
(1,259
)
Income (loss) before taxes and equity in earnings of unconsolidated affiliates
 
199,332

 
(66,723
)
Income tax (expense) benefit
 
(33,764
)
 
5,980

Equity in earnings of unconsolidated affiliates, net of tax
 
4,997

 
(174
)
Net income (loss)
 
$
170,565

 
$
(60,917
)
Net income (loss) per share:
 
 
 
 
Basic
 
$
1.67

 
$
(0.61
)
Diluted
 
$
1.66

 
$
(0.61
)
Weighted-average number of shares used in per share calculations:
 
 
 
 
Basic
 
101,853

 
100,375

Diluted
 
102,745

 
100,375


See accompanying notes to these condensed consolidated financial statements.

3


FIRST SOLAR, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
 
 
Three Months Ended March 31,
 
 
2016
 
2015
Net income (loss)
 
$
170,565

 
$
(60,917
)
Other comprehensive income, net of tax:
 
 
 
 
Foreign currency translation adjustments
 
5,542

 
(15,393
)
Unrealized gain on marketable securities and restricted investments
 
5,966

 
38,287

Unrealized gain (loss) on derivative instruments
 
106

 
(1,560
)
Other comprehensive income, net of tax
 
11,614

 
21,334

Comprehensive income (loss)
 
$
182,179

 
$
(39,583
)

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)
 
 
 
March 31,
2016
 
December 31,
2015
ASSETS
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
1,086,280

 
$
1,126,826

Marketable securities
 
794,220

 
703,454

Accounts receivable trade, net
 
349,467

 
500,629

Accounts receivable, unbilled and retainage
 
86,875

 
59,171

Inventories
 
443,777

 
380,424

Balance of systems parts
 
155,233

 
136,889

Deferred project costs
 
131,249

 
187,940

Notes receivable, affiliate
 
389

 
1,276

Prepaid expenses and other current assets
 
226,667

 
248,977

Total current assets
 
3,274,157

 
3,345,586

Property, plant and equipment, net
 
1,278,386

 
1,284,136

PV solar power systems, net
 
102,249

 
93,741

Project assets and deferred project costs
 
1,375,468

 
1,111,137

Deferred tax assets, net
 
359,959

 
357,693

Restricted cash and investments
 
401,703

 
333,878

Investments in unconsolidated affiliates and joint ventures
 
392,169

 
399,805

Goodwill
 
84,985

 
84,985

Other intangibles, net
 
107,020

 
110,002

Inventories
 
106,085

 
107,759

Notes receivable, affiliates
 
17,851

 
17,887

Other assets
 
77,757

 
69,722

Total assets
 
$
7,577,789

 
$
7,316,331

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
 
Current liabilities:
 
 

 
 

Accounts payable
 
$
274,991

 
$
337,668

Income taxes payable
 
7,414

 
1,330

Accrued expenses
 
351,865

 
409,452

Current portion of long-term debt
 
94,080

 
38,090

Billings in excess of costs and estimated earnings
 
148,328

 
87,942

Payments and billings for deferred project costs
 
104,076

 
28,580

Other current liabilities
 
83,375

 
57,738

Total current liabilities
 
1,064,129

 
960,800

Accrued solar module collection and recycling liability
 
167,650

 
163,407

Long-term debt
 
205,262

 
251,325

Other liabilities
 
401,803

 
392,312

Total liabilities
 
1,838,844

 
1,767,844

Commitments and contingencies
 


 


Stockholders’ equity:
 
 
 
 
Common stock, $0.001 par value per share; 500,000,000 shares authorized; 102,219,007 and 101,766,797 shares issued and outstanding at March 31, 2016 and December 31, 2015, respectively
 
102

 
102

Additional paid-in capital
 
2,751,074

 
2,742,795

Accumulated earnings
 
2,960,675

 
2,790,110

Accumulated other comprehensive income
 
27,094

 
15,480

Total stockholders’ equity
 
5,738,945

 
5,548,487

Total liabilities and stockholders’ equity
 
$
7,577,789

 
$
7,316,331


See accompanying notes to these condensed consolidated financial statements.

5


FIRST SOLAR, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 
 
Three Months Ended March 31,
 
 
2016
 
2015
Cash flows from operating activities:
 
 
 
 
Net income (loss)
 
$
170,565

 
$
(60,917
)
Adjustments to reconcile net income (loss) to cash provided by (used in) operating activities:
 
 
 
 
Depreciation, amortization and accretion
 
58,375

 
63,260

Share-based compensation
 
11,478

 
12,079

Remeasurement of monetary assets and liabilities
 
(4,184
)
 
11,829

Deferred income taxes
 
(1,829
)
 
28,141

Excess tax benefits from share-based compensation arrangements
 
(13,716
)
 
(14,449
)
Gain on sales of marketable securities and restricted investments
 
(37,804
)
 

Other, net
 
(2,961
)
 
2,980

Changes in operating assets and liabilities:
 
 
 
 
Accounts receivable, trade, unbilled and retainage
 
117,343

 
(125,066
)
Prepaid expenses and other current assets
 
(27,536
)
 
(1,985
)
Inventories and balance of systems parts
 
(79,541
)
 
9,433

Project assets and deferred project costs
 
(176,232
)
 
(301,943
)
Other assets
 
(12,644
)
 
(347
)
Accounts payable
 
(59,853
)
 
3,595

Income taxes payable
 
22,418

 
(66,815
)
Accrued expenses and other liabilities
 
83,251

 
21,570

Accrued solar module collection and recycling liability
 
3,364

 
(5,982
)
Net cash provided by (used in) operating activities
 
50,494

 
(424,617
)
Cash flows from investing activities:
 
 
 
 
Purchases of property, plant and equipment
 
(51,754
)
 
(55,342
)
Purchases of marketable securities and restricted investments
 
(268,963
)
 
(374,128
)
Proceeds from sales and maturities of marketable securities and restricted investments
 
179,300

 
176,759

Purchases of equity and cost method investments
 
(5,409
)
 
(1,508
)
Distributions received from equity method investments
 
1,502

 

Investments in notes receivable, affiliates
 

 
(45,288
)
Payments received on notes receivable, affiliate
 

 
11,671

Change in restricted cash
 
34,427

 
(2,109
)
Other investing activities
 
250

 
(688
)
Net cash used in investing activities
 
(110,647
)
 
(290,633
)
Cash flows from financing activities:
 
 
 
 
Repayment of long-term debt
 
(15,424
)
 
(21,122
)
Proceeds from borrowings under long-term debt, net of discounts and issuance costs
 
16,619

 
58,089

Repayment of sale-leaseback financing
 
(1,616
)
 

Excess tax benefits from share-based compensation arrangements
 
13,716

 
14,449

Contingent consideration payments and other financing activities
 
(111
)
 
(24,160
)
Net cash provided by financing activities
 
13,184

 
27,256

Effect of exchange rate changes on cash and cash equivalents
 
6,423

 
(14,152
)
Net decrease in cash and cash equivalents
 
(40,546
)
 
(702,146
)
Cash and cash equivalents, beginning of the period
 
1,126,826

 
1,482,054

Cash and cash equivalents, end of the period
 
$
1,086,280

 
$
779,908

Supplemental disclosure of noncash investing and financing activities:
 
 

 
 

Equity interests retained from the partial sale of project assets
 
$
(25,921
)
 
$
1,308

Property, plant and equipment acquisitions funded by liabilities
 
$
14,406

 
$
38,640

Acquisitions currently or previously funded by liabilities and contingent consideration
 
$
24,813

 
$
29,850


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 First Solar management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair statement have been included. Operating results for the three months ended March 31, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016 or for any other period. The condensed consolidated balance sheet at December 31, 2015 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, 2015 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,” “our,” “us,” and “First Solar” refer to First Solar, Inc. and its subsidiaries.

Revision of Previously Issued Financial Statements

During the three months ended September 30, 2015, we revised our previously issued financial statements, including periods presented in this Quarterly Report on Form 10-Q, to properly record a liability associated with an uncertain tax position, including penalties, related to income of a foreign subsidiary along with corresponding adjustments in each successive period for the effect of changes in foreign currency exchange rates associated with the liability. Additional revisions were made for previously identified errors related to share-based compensation that were corrected in a period subsequent to the period in which the error originated.

We evaluated the aggregate effects of the errors to our previously issued financial statements in accordance with SEC Staff Accounting Bulletins No. 99 and No. 108 and, based upon quantitative and qualitative factors, determined that the errors were not material to our previously issued financial statements. As part of this evaluation, we considered a number of qualitative factors, including, among others, that the errors did not change a net loss into net income or vice versa, did not have an impact on our long-term debt covenant compliance, and did not mask a change in earnings or other trends when considering the overall competitive and economic environment within the industry during the periods. However, the cumulative effect of the errors, including the uncertain tax position matter identified during the three months ended September 30, 2015, was significant to our financial results for the year ended December 31, 2015. Accordingly, all financial information presented in the accompanying notes to these condensed consolidated financial statements was revised to reflect the correction of these errors. Periods not presented herein will be revised, as applicable, as they are included in future filings.

The following table presents the effect of the aforementioned revisions on our condensed consolidated statement of operations for the three months ended March 31, 2015 (in thousands, except per share amounts):
 
 
Three Months Ended March 31, 2015
 
 
As Reported
 
Adjustment
 
As Revised
Foreign currency loss, net
 
(1,596
)
 
1,375

 
(221
)
Loss before taxes and equity in earnings of unconsolidated affiliates
 
(68,098
)
 
1,375

 
(66,723
)
Net loss
 
(62,292
)
 
1,375

 
(60,917
)
Comprehensive loss
 
(40,958
)
 
1,375

 
(39,583
)
 
 
 
 
 
 
 
Basic net loss per share
 
$
(0.62
)
 
$
0.01

 
$
(0.61
)
Diluted net loss per share
 
$
(0.62
)
 
$
0.01

 
$
(0.61
)


7


The following table presents the effect of the aforementioned revisions on our condensed consolidated statement of cash flows for the three months ended March 31, 2015 (in thousands):
 
 
Three Months Ended March 31, 2015
 
 
As Reported
 
Adjustment
 
As Revised
Net loss
 
$
(62,292
)
 
$
1,375

 
$
(60,917
)
Adjustments to reconcile net loss to cash used in operating activities:
 
 
 
 
 
 
Remeasurement of monetary assets and liabilities
 
13,204

 
(1,375
)
 
11,829

Excess tax benefits from share-based compensation arrangements
 
(7,747
)
 
(6,702
)
 
(14,449
)
Net cash used in operating activities
 
(417,915
)
 
(6,702
)
 
(424,617
)
Excess tax benefits from share-based compensation arrangements
 
7,747

 
6,702

 
14,449

Net cash provided by financing activities
 
20,554

 
6,702

 
27,256


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 and photovoltaic (“PV”) solar power systems, 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, solar module collection and recycling liabilities, 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 either Accounting Standards Codification (“ASC”) 605-35, Construction-Type and Production-Type Contracts, or ASC 360-20, Real Estate Sales, for arrangements which include land or land rights.

Systems business sales arrangements in which we construct a PV solar power system for a specific customer on land that is controlled by the customer, and has not been previously controlled by First Solar, are accounted for under ASC 605-35. For such sales arrangements, we use the percentage-of-completion method, as described further below, using actual costs incurred over total estimated costs to develop and construct the system (including module costs) as our standard accounting policy.

Systems business sales arrangements in which we convey control of land or land rights as part of the transaction are accounted for under ASC 360-20. Accordingly, we use one of the following revenue recognition methods, based upon an evaluation of the substance and form of the terms and conditions of such real estate sales:

(i)
We apply the percentage-of-completion method, as further described below, to certain real estate sales arrangements in which 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 pursuant to ASC 360-20. 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.


8


For any systems business sales arrangements containing multiple deliverables (including our solar modules) not required to be accounted for under ASC 605-35 (long-term construction contracts) or ASC 360-20 (real estate sales), we analyze each activity within the sales arrangement to adhere to the separation guidelines of ASC 605-25 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 direct materials, 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 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 net 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 net 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 net contract revenues and costs to complete contracts, including penalties, claims, change orders, performance incentives, anticipated losses, and others are recorded in the period in which the revisions to estimates are identified and the amounts can be reasonably estimated. The effect of the changes on future periods are recognized as if the revised estimates had been used since revenue was initially recognized under the contract. Such revisions could occur in any reporting period, and the effects may be material depending on the size of the contracts or the changes in estimates.

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.

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 modules 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.

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, construct, own, and/or sell solar power projects. These types of ventures are core to our business and long-term strategy related to providing PV solar 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 consolidated and are accounted for under either the cost or equity method 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.


9


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 the venture. As part of this evaluation, we consider our participating and protective rights in the venture as well as its legal form. We record our cost method investments at their historical cost and subsequently record any dividends received from the net accumulated earnings of the investee as income. Dividends received in excess of earnings are considered a return of investment and are recorded as reductions in the cost of the investment. We use the equity method of accounting for our investments when we have the ability to significantly influence the operations or financial activities of the investee. We record our equity method investments at cost and subsequently adjust their carrying amount each period for our share of the earnings or losses of the investee and other adjustments required by the equity method of accounting. Dividends received from our equity method investments are recorded as reductions in the carrying value of such investments.

We monitor our 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 the 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 related to our cost and equity method investments during the three months ended March 31, 2016 and 2015.

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, 2015 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 our 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. The adoption of ASU 2015-02 in the first quarter of 2016 did not have a significant impact on our consolidated financial statements and associated disclosures.

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


10


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

In March 2016, the FASB issued ASU 2016-09, Compensation – Stock Compensation (Topic 718) – Improvements to Employee Share-Based Payment Accounting. ASU 2016-09 simplifies several aspects of the accounting for share-based payment transactions, including income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. ASU 2016-09 is effective for fiscal years and interim periods within those years beginning after December 15, 2016, and early adoption is permitted. We are currently evaluating the impact ASU 2016-09 will have on our consolidated financial statements and associated disclosures.

4. Cash, Cash Equivalents, and Marketable Securities

Cash, cash equivalents, and marketable securities consisted of the following at March 31, 2016 and December 31, 2015 (in thousands):
 
 
 
March 31,
2016
 
December 31,
2015
Cash and cash equivalents:
 
 
 
 
Cash
 
$
1,017,334

 
$
1,126,496

Cash equivalents:
 
 
 
 
Money market funds
 
68,946

 
330

Total cash and cash equivalents
 
1,086,280

 
1,126,826

Marketable securities:
 
  
 
 
Foreign debt
 
754,220

 
663,454

Time deposits
 
40,000

 
40,000

Total marketable securities
 
794,220

 
703,454

Total cash, cash equivalents, and marketable securities
 
$
1,880,500

 
$
1,830,280


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 of our marketable securities in “Other income (expense), net” computed using the specific identification method. During the three months ended March 31, 2016 and 2015, we realized no gains or losses on the sale 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 March 31, 2016, we identified three investments totaling $60.3 million that had been in a loss position for a period of time greater than 12 months with unrealized losses of $0.1 million. As of December 31, 2015, we identified two investments totaling $31.5 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 as of March 31, 2016 and December 31, 2015.

The following tables summarize the unrealized gains and losses related to our available-for-sale marketable securities, by major security type, as of March 31, 2016 and December 31, 2015 (in thousands):
 
 
As of March 31, 2016
 
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair
Value
Foreign debt
 
$
754,020

 
$
840

 
$
640

 
$
754,220

Time deposits
 
40,000

 

 

 
40,000

Total
 
$
794,020

 
$
840

 
$
640

 
$
794,220


11


 
 
As of December 31, 2015
 
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair
Value
Foreign debt
 
$
665,900

 
$
9

 
$
2,455

 
$
663,454

Time deposits
 
40,000

 

 

 
40,000

Total
 
$
705,900

 
$
9

 
$
2,455

 
$
703,454


The contractual maturities of our marketable securities as of March 31, 2016 and December 31, 2015 were as follows (in thousands):
 
 
As of March 31, 2016
 
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair
Value
One year or less
 
$
291,072

 
$
23

 
$
134

 
$
290,961

One year to two years
 
238,008

 
104

 
365

 
237,747

Two years to three years
 
264,940

 
713

 
141

 
265,512

Total
 
$
794,020

 
$
840

 
$
640

 
$
794,220

 
 
As of December 31, 2015
 
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair
Value
One year or less
 
$
290,377

 
$
9

 
$
406

 
$
289,980

One year to two years
 
228,492

 

 
1,183

 
227,309

Two years to three years
 
187,031

 

 
866

 
186,165

Total
 
$
705,900

 
$
9

 
$
2,455

 
$
703,454


The net unrealized gains of $0.2 million and the net unrealized losses of $2.4 million on our marketable securities as of March 31, 2016 and December 31, 2015, respectively, were primarily the result of changes 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 March 31, 2016 and December 31, 2015, aggregated by major security type and the length of time the marketable securities have been in a continuous loss position (in thousands):
 
 
As of March 31, 2016
 
 
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
 
$
352,151

 
$
536

 
$
60,325

 
$
104

 
$
412,476

 
$
640

Total
 
$
352,151

 
$
536

 
$
60,325

 
$
104

 
$
412,476

 
$
640

 
 
As of December 31, 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
 
$
629,033

 
$
2,386

 
$
31,491

 
$
69

 
$
660,524

 
$
2,455

Total
 
$
629,033

 
$
2,386

 
$
31,491

 
$
69

 
$
660,524

 
$
2,455



12


5. Restricted Cash and Investments

Restricted cash and investments consisted of the following at March 31, 2016 and December 31, 2015 (in thousands):
 
 
 
March 31,
2016
 
December 31,
2015
Restricted cash
 
$
25,246

 
$
7,764

Restricted investments
 
376,457

 
326,114

Total restricted cash and investments (1)
 
$
401,703

 
$
333,878


(1)
There was an additional $23.2 million and $72.5 million of restricted cash included within prepaid expenses and other current assets at March 31, 2016 and December 31, 2015, respectively.

At March 31, 2016, 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 March 31, 2016 and December 31, 2015, our restricted investments consisted of long-term marketable securities that were held in 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 of our restricted investments in “Other income (expense), net” computed using the specific identification method. During the three months ended March 31, 2016, we realized gains of $37.8 million on the sale of certain restricted investments as part of an effort to align the currencies of the investments with those of the corresponding collection and recycling liabilities. Restricted investments are classified as noncurrent as the underlying accrued solar module collection and recycling liabilities are also noncurrent in nature. See Note 8. “Fair Value Measurements” to our condensed consolidated financial statements for information about the fair value of our restricted investments.

As necessary, we fund any incremental amounts for our estimated collection and recycling obligations within 90 days of the end of each year. We determine the funding requirement, if any, based on estimated costs of collecting and recycling covered modules, estimated rates of return on our restricted investments, and an estimated solar module life of 25 years less amounts already funded in prior years. 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 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 three months ended March 31, 2016, no incremental funding was required for covered module sales in 2015.

The following tables summarize the unrealized gains and losses related to our restricted investments, by major security type, as of March 31, 2016 and December 31, 2015 (in thousands):
 
 
As of March 31, 2016
 
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair
Value
Foreign government obligations
 
$
117,767

 
$
74,362

 
$

 
$
192,129

U.S. government obligations
 
165,681

 
18,856

 
209

 
184,328

Total
 
$
283,448

 
$
93,218

 
$
209

 
$
376,457


13


 
 
As of December 31, 2015
 
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair
Value
Foreign government obligations
 
$
177,507

 
$
75,670

 
$

 
$
253,177

U.S. government obligations
 
61,228

 
11,709

 

 
72,937

Total
 
$
238,735

 
$
87,379

 
$

 
$
326,114


As of March 31, 2016 and December 31, 2015, the contractual maturities of our restricted investments were between 12 years and 21 years.

6. Consolidated Balance Sheet Details

Accounts receivable trade, net

Accounts receivable trade, net consisted of the following at March 31, 2016 and December 31, 2015 (in thousands):
 
 
March 31,
2016
 
December 31,
2015
Accounts receivable trade, gross
 
$
349,467

 
$
500,631

Allowance for doubtful accounts
 

 
(2
)
Accounts receivable trade, net
 
$
349,467

 
$
500,629


At March 31, 2016 and December 31, 2015, $12.1 million and $21.5 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 March 31, 2016 and December 31, 2015 (in thousands):
 
 
March 31,
2016
 
December 31,
2015
Accounts receivable, unbilled
 
$
68,500

 
$
40,205

Retainage
 
18,375

 
18,966

Accounts receivable, unbilled and retainage
 
$
86,875

 
$
59,171

 
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.

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.


14


Inventories

Inventories consisted of the following at March 31, 2016 and December 31, 2015 (in thousands):
 
 
March 31,
2016
 
December 31,
2015
Raw materials
 
$
165,229

 
$
159,078

Work in process
 
20,620

 
19,736

Finished goods
 
364,013

 
309,369

Inventories
 
$
549,862

 
$
488,183

Inventories – current
 
$
443,777

 
$
380,424

Inventories – noncurrent (1)
 
$
106,085

 
$
107,759


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

Balance of systems parts

Balance of systems parts were $155.2 million and $136.9 million as of March 31, 2016 and December 31, 2015, respectively, and represented mounting, 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. Such construction 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. We carry these parts at the lower of cost or net realizable value, with such value being based primarily on recoverability through installation in a solar power system or recoverability through a sales agreement. Balance of systems parts do not include any solar modules that we manufacture.

Prepaid expenses and other current assets

Prepaid expenses and other current assets consisted of the following at March 31, 2016 and December 31, 2015 (in thousands):
 
 
March 31,
2016
 
December 31,
2015
Value added tax receivables
 
$
65,505

 
$
51,473

Prepaid expenses
 
60,322

 
74,990

Derivative instruments 
 
3,130

 
2,691

Restricted cash
 
23,206

 
72,526

Other current assets
 
74,504

 
47,297

Prepaid expenses and other current assets
 
$
226,667

 
$
248,977


Property, plant and equipment, net

Property, plant and equipment, net consisted of the following at March 31, 2016 and December 31, 2015 (in thousands):
 
 
March 31,
2016
 
December 31,
2015
Land
 
$
12,158

 
$
12,063

Buildings and improvements
 
413,318

 
410,898

Machinery and equipment
 
1,831,275

 
1,824,717

Office equipment and furniture
 
148,286

 
144,773

Leasehold improvements
 
50,818

 
50,546

Construction in progress
 
72,008

 
37,734

Stored assets (1)
 
138,727

 
138,954

Property, plant and equipment, gross
 
2,666,590

 
2,619,685

Less: accumulated depreciation
 
(1,388,204
)
 
(1,335,549
)
Property, plant and equipment, net
 
$
1,278,386

 
$
1,284,136


15



(1)
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 three months ended March 31, 2016, we transferred $0.2 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 $54.6 million and $61.6 million for the three months ended March 31, 2016 and 2015, respectively.

PV solar power systems, net

PV solar power systems, net consisted of the following at March 31, 2016 and December 31, 2015 (in thousands):
 
 
March 31,
2016
 
December 31,
2015
PV solar power systems, gross
 
$
107,685

 
$
97,991

Accumulated depreciation
 
(5,436
)
 
(4,250
)
PV solar power systems, net
 
$
102,249

 
$
93,741


During the three months ended March 31, 2016, we placed $9.2 million of projects into service, which included a project in India. Depreciation of PV solar power systems was $1.2 million and $0.6 million for the three months ended March 31, 2016 and 2015, respectively.

Capitalized interest

The cost of constructing facilities, equipment, and project assets includes interest costs incurred during the assets’ construction period. The components of interest expense and capitalized interest were as follows during the three months ended March 31, 2016 and 2015 (in thousands):
 
 
Three Months Ended March 31,
 
 
2016
 
2015
Interest cost incurred
 
$
(5,894
)
 
$
(3,477
)
Interest cost capitalized – property, plant and equipment
 
236

 
567

Interest cost capitalized – project assets
 
1,016

 
2,716

Interest expense, net
 
$
(4,642
)
 
$
(194
)

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 power purchase agreements (“PPAs”) and are actively marketed and intended to be sold. These project related costs include costs for land, development, and construction of a PV solar power system. Development costs may include legal, consulting, permitting, 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 sheets 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). In addition, we present all expenditures related to the development and construction of project assets or deferred project costs, whether fully or partially owned, as a component of cash flows from operating activities. 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.

16



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 temporarily 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 March 31, 2016 and December 31, 2015 (in thousands):
 
 
March 31,
2016
 
December 31,
2015
Project assets – development costs, including project acquisition and land costs
 
$
286,206

 
$
436,375

Project assets – construction costs
 
1,050,131

 
674,762

Project assets 
 
1,336,337

 
1,111,137

Deferred project costs – current
 
131,249

 
187,940

Deferred project costs – noncurrent
 
39,131

 

Deferred project costs
 
170,380

 
187,940

Total project assets and deferred project costs
 
$
1,506,717

 
$
1,299,077


Other assets

Other assets consisted of the following at March 31, 2016 and December 31, 2015 (in thousands):
 
 
March 31,
2016
 
December 31,
2015
Notes receivable (1)
 
$
7,927

 
$
12,648

Income taxes receivable
 
4,287

 
4,071

Deferred rent
 
23,244

 
23,317

Other
 
42,299

 
29,686

Other assets
 
$
77,757

 
$
69,722


(1)
In April 2009, we entered into a credit facility agreement with a solar power project entity of one of our customers for an available amount of €17.5 million to provide financing for a PV solar power system. The credit facility 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 March 31, 2016 and December 31, 2015, the balance on the credit facility was €7.0 million ($7.9 million and $7.6 million, respectively, at the balance sheet dates). In February 2014, we entered into a convertible loan agreement with a strategic entity for an available amount of up to $5.0 million. As of December 31, 2015, the balance outstanding on the convertible loan was $5.0 million, which we converted into an equity interest in the entity in January 2016.


17


Goodwill

Goodwill, summarized by relevant reporting unit, consisted of the following as of March 31, 2016 and December 31, 2015 (in thousands):
 
 
December 31,
2015

Acquisitions

March 31, 2016
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 General Electric 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.

The following tables summarize our intangible assets at March 31, 2016 and December 31, 2015 (in thousands):
 
 
March 31, 2016
 
 
Gross Amount
 
Accumulated Amortization
 
Net Amount
Patents
 
$
6,070

 
$
(2,050
)
 
$
4,020

Developed technology
 
114,630

 
(11,630
)
 
103,000

Total
 
$
120,700

 
$
(13,680
)
 
$
107,020

 
 
December 31, 2015
 
 
Gross Amount
 
Accumulated Amortization
 
Net Amount
Patents
 
6,070

 
$
(1,824
)
 
$
4,246

Developed technology
 
114,565

 
(8,809
)
 
105,756

Total
 
$
120,635

 
$
(10,633
)
 
$
110,002


Amortization expense for our intangible assets was $3.0 million and $1.0 million for the three months ended March 31, 2016 and 2015, respectively.


18


Accrued expenses

Accrued expenses consisted of the following at March 31, 2016 and December 31, 2015 (in thousands):
 
 
March 31,
2016
 
December 31,
2015
Accrued compensation and benefits
 
$
33,253

 
$
63,699

Accrued property, plant and equipment
 
7,545

 
7,808

Accrued inventory and balance of systems parts
 
42,374

 
53,542

Accrued project assets and deferred project costs
 
141,795

 
145,695

Product warranty liability (1)
 
41,174

 
38,468

Accrued expenses in excess of normal product warranty liability and related expenses (1)
 
3,943

 
5,040

Other
 
81,781

 
95,200

Accrued expenses
 
$
351,865

 
$
409,452


(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 $148.3 million and $87.9 million at March 31, 2016 and December 31, 2015, 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 $104.1 million and $28.6 million at March 31, 2016 and December 31, 2015, 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 costs are included within deferred project costs. We classify such amounts as current if all revenue recognition criteria are expected to be met within the next 12 months, consistent with the classification of the associated deferred project costs.

Other current liabilities

Other current liabilities consisted of the following at March 31, 2016 and December 31, 2015 (in thousands):
 
 
March 31,
2016
 
December 31,
2015
Deferred revenue
 
$
28,861

 
$
17,957

Derivative instruments 
 
18,182

 
16,450

Contingent consideration (1)
 
14,495

 
9,233

Financing liability (2)
 
5,260

 
5,277

Other
 
16,577

 
8,821

Other current liabilities
 
$
83,375

 
$
57,738


(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.


19


Other liabilities

Other liabilities consisted of the following at March 31, 2016 and December 31, 2015 (in thousands):
 
 
March 31,
2016
 
December 31,
2015
Product warranty liability (1)
 
$
200,962

 
$
193,283

Other taxes payable
 
67,203

 
66,549

Contingent consideration (1)
 
10,319

 
8,756

Liability in excess of normal product warranty liability and related expenses (1)
 
20,279

 
19,565

Financing liability (2)
 
35,582

 
36,706

Other
 
67,458

 
67,453

Other liabilities
 
$
401,803

 
$
392,312


(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.

The following tables present the fair values of derivative instruments included in our condensed consolidated balance sheets as of March 31, 2016 and December 31, 2015 (in thousands):
 
 
March 31, 2016
 
 
Prepaid Expenses and Other Current Assets
 
Other Current Liabilities
 
Other Liabilities
Derivatives designated as hedging instruments:
 
 
 
 
Foreign exchange forward contracts
 
$

 
$
225

 
$
400

Cross-currency swap contract
 

 
4,497

 
9,005

Total derivatives designated as hedging instruments
 
$

 
$
4,722

 
$
9,405

 
 
 
 
 
 
 
Derivatives not designated as hedging instruments:
 
 

 
 

Foreign exchange forward contracts
 
$
3,130

 
$
13,460

 
$

Total derivatives not designated as hedging instruments
 
$
3,130

 
$
13,460

 
$

Total derivative instruments
 
$
3,130

 
$
18,182

 
$
9,405


20


 
 
December 31, 2015
 
 
Prepaid Expenses and Other Current Assets
 
Other Current Liabilities
 
Other Liabilities
Derivatives designated as hedging instruments:
 
 
 
 
Foreign exchange forward contracts
 
$

 
$
132

 
$
285

Cross-currency swap contract
 

 
6,909

 
13,835

Interest rate swap contract
 

 
16

 

Total derivatives designated as hedging instruments
 
$

 
$
7,057

 
$
14,120

 
 
 
 
 
 
 
Derivatives not designated as hedging instruments:
 
 

 
 

Foreign exchange forward contracts
 
$
2,691

 
$
9,393

 
$

Total derivatives not designated as hedging instruments
 
$
2,691

 
$
9,393

 
$

Total derivative instruments
 
$
2,691

 
$
16,450

 
$
14,120


The impact of offsetting balances associated with derivative instruments designated as hedging instruments is shown below (in thousands):
 
 
March 31, 2016
 
 
 
 
 
 
 
 
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
 
$
(625
)
 

 
(625
)
 

 

 
$
(625
)
Cross-currency swap contract
 
$
(13,502
)
 

 
(13,502
)
 

 

 
$
(13,502
)
 
 
December 31, 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
 
$
(417
)
 

 
(417
)
 

 

 
$
(417
)
Cross-currency swap contract
 
$
(20,744
)
 

 
(20,744
)
 

 

 
$
(20,744
)
Interest rate swap contract
 
$
(16
)
 

 
(16
)
 

 

 
$
(16
)


21


The following tables present the effective 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 three months ended March 31, 2016 and 2015 (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, 2015
 
$
162

 
$
(16
)
 
$
(2,017
)
 
$
(1,871
)
Amounts recognized in other comprehensive income (loss)
 
(2
)
 
(2
)
 
7,163

 
7,159

Amounts reclassified to earnings impacting:
 
 
 
 
 
 
 
 
Foreign currency loss, net
 

 

 
(7,162
)
 
(7,162
)
Interest expense, net
 

 
18

 
80

 
98

Balance in accumulated other comprehensive income (loss) at March 31, 2016
 
$
160

 
$

 
$
(1,936
)
 
$
(1,776
)
 
 
 
 
 
 
 
 
 
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)
 
(5,370
)
 
29

 
(3,345
)
 
(8,686
)
Amounts reclassified to earnings impacting:
 
 
 
 
 
 
 
 
Net sales
 
(352
)
 

 

 
(352
)
Cost of sales
 
3,213

 

 

 
3,213

Foreign currency loss, net
 

 

 
3,346

 
3,346

Interest expense, net
 

 
63

 
49

 
112

Balance in accumulated other comprehensive income (loss) at March 31, 2015
 
$
4,112

 
$
(118
)
 
$
(3,349
)
 
$
645


We recorded no amounts related to ineffective portions of our derivative instruments designated as cash flow hedges during the three months ended March 31, 2016 and 2015. We recognized unrealized losses of $0.2 million and unrealized gains of $0.3 million related to amounts excluded from effectiveness testing for our foreign exchange forward contracts designated as cash flow hedges within “Other income (expense), net” during the three months ended March 31, 2016 and 2015, respectively.

The following table presents amounts related to derivative instruments not designated as hedges affecting our condensed consolidated statements of operations for the three months ended March 31, 2016 and 2015 (in thousands):
 
 
 
 
Amount of Gain (Loss) Recognized in Income
 
 
 
 
Three Months Ended March 31,
Derivatives Not Designated as Hedging Instruments
 
Location of Gain (Loss) Recognized in Income
 
2016
 
2015
Foreign exchange forward contracts
 
Foreign currency loss, net
 
$
(17,381
)
 
$
(8,317
)
Foreign exchange forward contracts
 
Cost of sales
 
$

 
$
14,516


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 March 31, 2016 and December 31, 2015, the notional value of this cross-currency swap contract was MYR 232.6 million ($59.0 million) and MYR 232.6 million ($54.2 million), respectively. This swap is a derivative instrument that qualifies for accounting as a cash flow hedge in accordance

22


with ASC 815, and we designated it as such. We determined that this swap was highly effective as a cash flow hedge as of March 31, 2016 and December 31, 2015. For the three months ended March 31, 2016 and 2015, 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 were 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 derivative instrument qualified for accounting as a cash flow hedge in accordance with ASC 815, and we designated it as such. The notional amount of the interest rate swap contract declined in line with our scheduled principal payments on the underlying hedged debt. During the three months ended March 31, 2016, we paid the remaining principal on the Malaysian Credit Facility and closed the corresponding interest rate swap contract. As of December 31, 2015, the notional value of the interest rate swap contract was €2.2 million ($2.4 million).

In the following 12 months, we expect to reclassify to earnings $0.6 million of net unrealized losses related to swap contracts that are included in “Accumulated other comprehensive income” at March 31, 2016 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 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 March 31, 2016 and December 31, 2015, these foreign exchange forward contracts hedged our forecasted cash flows for 30 months and 33 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 derivative financial instruments were highly effective as cash flow hedges as of March 31, 2016 and December 31, 2015. During the three months ended March 31, 2016 and 2015, we did not discontinue any cash flow hedges because a hedging relationship was no longer highly effective. As of March 31, 2016 and December 31, 2015, the notional values associated with our foreign exchange forward contracts qualifying as cash flow hedges were as follows (notional amounts and U.S. dollar equivalents in millions):
 
 
March 31, 2016
Currency
 
Notional Amount
 
USD Equivalent
Indian rupee
 
INR1,290.0
 
$19.4
 
 
December 31, 2015
Currency
 
Notional Amount
 
USD Equivalent
Indian rupee
 
INR 1,290.0
 
$19.4

As of March 31, 2016 and December 31, 2015, the unrealized gains on these contracts were $0.2 million.

In the following 12 months, we expect to reclassify to earnings less than $0.1 million of net unrealized gains related to these forward contracts that are included in “Accumulated other comprehensive income” at March 31, 2016 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 cash, receivables, marketable securities, payables, 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

23


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 purchase 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. 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, net” on our condensed consolidated statements of operations, depending on where the gain or loss from the economically hedged item is classified. As of March 31, 2016 and December 31, 2015, the total net unrealized loss on our economic hedge foreign exchange forward contracts was $10.3 million and $6.7 million, respectively. 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 mature at various dates within the next two years.

As of March 31, 2016 and December 31, 2015, the notional values of our foreign exchange forward contracts that do not qualify for hedge accounting were as follows (notional amounts and U.S. dollar equivalents in millions):
 
 
March 31, 2016
Transaction
 
Currency
 
Notional Amount
 
USD Equivalent
Purchase
 
Euro
 
€40.5
 
$45.9
Sell
 
Euro
 
€166.3
 
$188.3
Purchase
 
Australian dollar
 
AUD 1.5
 
$1.2
Sell
 
Australian dollar
 
AUD 39.3
 
$30.2
Purchase
 
Malaysian ringgit
 
MYR 39.7
 
$10.1
Sell
 
Malaysian ringgit
 
MYR 259.0
 
$65.7
Sell
 
Canadian dollar
 
CAD 18.9
 
$14.6
Sell
 
Japanese yen
 
JPY 9,221.8
 
$81.9
Purchase
 
British pound
 
GBP 11.1
 
$16.0
Sell
 
British pound
 
GBP 14.4
 
$20.8
Purchase
 
Singapore dollar
 
SGD 58.0
 
$42.9
Sell
 
Singapore dollar
 
SGD 8.6
 
$6.4
Sell
 
Indian rupee
 
INR 14,433.2
 
$217.4
Purchase
 
South African rand
 
ZAR 41.4
 
$2.8
Sell
 
South African rand
 
ZAR 103.7
 
$7.0
 
 
December 31, 2015
Transaction
 
Currency
 
Notional Amount
 
USD Equivalent
Purchase
 
Euro
 
€42.0
 
$45.9
Sell
 
Euro
 
€150.1
 
$164.0
Purchase
 
Australian dollar
 
AUD 41.1
 
$29.9
Sell
 
Australian dollar
 
AUD 89.0
 
$64.8
Purchase
 
Malaysian ringgit
 
MYR 61.4
 
$14.3
Sell
 
Malaysian ringgit
 
MYR 80.7
 
$18.8
Sell
 
Canadian dollar
 
CAD 4.5
 
$3.2
Sell
 
Japanese yen
 
JPY 8,448.7
 
$70.1
Purchase
 
British pound
 
GBP 11.1
 
$16.5
Sell
 
British pound
 
GBP 16.0
 
$23.7
Sell
 
Indian rupee
 
INR 8,939.0
 
$134.6
Purchase
 
South African rand
 
ZAR 41.1
 
$2.7
Sell
 
South African rand
 
ZAR 81.5
 
$5.3


24


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 March 31, 2016 and December 31, 2015, our cash equivalents consisted of money market funds. We value our money market cash equivalents using observable inputs that reflect quoted prices for securities with identical characteristics, and accordingly, we classify the valuation techniques that use these inputs as Level 1.

Marketable securities and restricted investments. At March 31, 2016 and December 31, 2015, our marketable securities consisted of foreign debt and time deposits, and our restricted investments consisted of foreign and U.S. government obligations. We value our marketable securities and restricted investments 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 standings in these fair value measurements.

Derivative assets and liabilities. At March 31, 2016 and December 31, 2015, our derivative assets and liabilities consisted of foreign exchange forward contracts involving major currencies and a cross-currency swap contract involving certain currencies and interest rates. At December 31, 2015, our derivative assets and liabilities also consisted of an interest rate swap. Since our derivative assets and liabilities are not traded on an exchange, we value them using standard industry valuation models. Where applicable, these models project future cash flows and discount the amounts to a present value using market-based observable inputs including interest rate curves, credit risk, foreign exchange rates, and forward and spot prices for currencies. These inputs are observable in active markets over the contract term of the derivative instruments we hold, and accordingly, we classify the valuation techniques as Level 2. In evaluating credit risk, we consider the effect of our counterparties’ and our own credit standing in the fair value measurements of our derivative assets and liabilities, respectively.

At March 31, 2016 and December 31, 2015, the fair value measurements of our assets and liabilities that we measure on a recurring basis were as follows (in thousands):
 
 
March 31, 2016
 
 
 
 
Fair Value Measurements at Reporting
Date Using
 
 
 
 
 
 
 
Total Fair
Value and
Carrying
Value on Our
Balance Sheet
 
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
 
Significant