UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Commission file number: 001-33156

350 West Washington Street, Suite 600

Tempe,, Arizona85281

(~~602~~) (602) 414-9300

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

FIRST SOLAR, INC. ~~AND SUBSIDIARIES~~

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED ~~SEPTEMBER~~JUNE 30, ~~2019~~2020

TABLE OF CONTENTS



		Page
Part I.	Financial Information
Item 1.	Condensed Consolidated Financial Statements (Unaudited):
	Condensed Consolidated Statements of Operations for the three and ~~nine~~six months ended ~~September~~ June 30, ~~2019~~2020 and ~~2018~~2019	1
	Condensed Consolidated Statements of Comprehensive Income for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019	2
	Condensed Consolidated Balance Sheets as of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018~~2019	3
	Condensed Consolidated Statements of Stockholders’ Equity for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019	4
	Condensed Consolidated Statements of Cash Flows for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019	6
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	42
Item 3.	Quantitative and Qualitative Disclosures ~~About~~about Market Risk	5961
Item 4.	Controls and Procedures	5962
Part II.	Other Information	6163
Item 1.	Legal Proceedings	6163
Item 1A.	Risk Factors	6163
Item 5.	Other Information	6368
Item 6.	Exhibits	6468
Signature		6468

Table of Contents

PART I.FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements (Unaudited)

FIRST SOLAR, INC. ~~AND SUBSIDIARIES~~

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(Unaudited)


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
Net sales	$	642,411	$	584,956	$	1,174,535	$	1,116,934
Cost of sales	504,951		507,774		946,737		1,039,640
Gross profit	137,460		77,182		227,798		77,294
Operating expenses:
Selling, general and administrative	51,770		50,934		110,357		96,286
Research and development	22,483		24,395		48,096		46,272
Production start-up	6,311		10,437		10,793		19,959
Litigation loss	6,000		—		6,000		—
Total operating expenses	86,564		85,766		175,246		162,517
Operating income (loss)	50,896		(8,584)		52,552		(85,223)
Foreign currency (loss) income, net	(1,299)		1,726		(1,697)		1,898
Interest income	3,674		13,510		13,004		27,769
Interest expense, net	(3,254)		(8,921)		(10,043)		(19,042)
Other expense, net	(3,195)		(4,438)		(5,417)		(929)
Income (loss) before taxes and equity in earnings	46,822		(6,707)		48,399		(75,527)
Income tax (expense) benefit	(10,214)		(11,744)		79,001		(10,350)
Equity in earnings, net of tax	303		(97)		215		(270)
Net income (loss)	$	36,911	$	(18,548)	$	127,615	$	(86,147)

Net income (loss) per share:
Basic	$	0.35	$	(0.18)	$	1.21	$	(0.82)
Diluted	$	0.35	$	(0.18)	$	1.20	$	(0.82)
Weighted-average number of shares used in per share calculations:
Basic	105,927		105,369		105,761		105,208
Diluted	106,473		105,369		106,429		105,208

Three Months Ended
September 30, Nine Months Ended
September 30,
2019 2018 2019 2018
Net sales $ 546,806
$ 676,220
$ 1,663,740
$ 1,552,803
Cost of sales 408,443
547,093
1,448,083
1,258,936
Gross profit 138,363
129,127
215,657
293,867
Operating expenses:
Selling, general and administrative 53,542
33,539
149,828
125,519
Research and development 24,912
22,390
71,184
63,084
Production start-up 18,605
14,723
38,564
76,159
Total operating expenses 97,059
70,652
259,576
264,762
Operating income (loss) 41,304
58,475
(43,919 ) 29,105
Foreign currency gain (loss), net 1,209
(2,383 ) 3,107
(2,478 )
Interest income 11,454
16,456
39,223
45,145
Interest expense, net (4,976 ) (3,198 ) (24,018 ) (14,445 )
Other (loss) income, net (3,399 ) (5,971 ) (4,328 ) 7,635
Income (loss) before taxes and equity in earnings 45,592
63,379
(29,935 ) 64,962
Income tax expense (15,035 ) (2,396 ) (25,385 ) (7,857 )
Equity in earnings, net of tax 65
(3,233 ) (205 ) 35,105
Net income (loss) $ 30,622
$ 57,750
$ (55,525 ) $ 92,210

Net income (loss) per share:
Basic $ 0.29
$ 0.55
$ (0.53 ) $ 0.88
Diluted $ 0.29
$ 0.54
$ (0.53 ) $ 0.87
Weighted-average number of shares used in per share calculations:
Basic 105,397
104,804
105,272
104,711
Diluted 106,227
106,163
105,272
106,211

See accompanying notes to these condensed consolidated financial statements.

Table of Contents

FIRST SOLAR, INC. ~~AND SUBSIDIARIES~~

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
Net income (loss)	$	36,911	$	(18,548)	$	127,615	$	(86,147)
Other comprehensive income:
Foreign currency translation adjustments	5,374		1,467		(2,690)		325
Unrealized gain on marketable securities and restricted marketable securities, net of tax of $(975), $(417), $(586), and $560	11,826		11,905		14,678		8,558
Unrealized (loss) gain on derivative instruments, net of tax of $(7), $358, $(86), and $331	(810)		(1,279)		86		(1,337)
Other comprehensive income	16,390		12,093		12,074		7,546
Comprehensive income (loss)	$	53,301	$	(6,455)	$	139,689	$	(78,601)

Three Months Ended
September 30, Nine Months Ended
September 30,
2019 2018 2019 2018
Net income (loss) $ 30,622
$ 57,750
$ (55,525 ) $ 92,210
Other comprehensive income (loss):
Foreign currency translation adjustments (6,570 ) 1,793
(6,245 ) (7,252 )
Unrealized gain (loss) on marketable securities and restricted investments, net of tax of $(376), $273, $184, and $3,424 13,258
(6,688 ) 21,816
(32,106 )
Unrealized gain (loss) on derivative instruments, net of tax of $98, $(22), $429, and $(1,000) 714
(39 ) (623 ) 1,928
Other comprehensive income (loss) 7,402
(4,934 ) 14,948
(37,430 )
Comprehensive income (loss) $ 38,024
$ 52,816
$ (40,577 ) $ 54,780

See accompanying notes to these condensed consolidated financial statements.

Table of Contents

FIRST SOLAR, INC. ~~AND SUBSIDIARIES~~

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

(Unaudited)


	June 30, 2020		December 31, 2019
ASSETS
Current assets:
Cash and cash equivalents	$	1,052,700	$	1,352,741
Marketable securities (amortized cost of $494,000 and allowance for credit losses of $124 at June 30, 2020)	494,080		811,506
Accounts receivable trade	291,018		476,425
Less: allowance for credit losses	(3,334)		(1,386)
Accounts receivable trade, net	287,684		475,039
Accounts receivable, unbilled and retainage	64,773		183,473
Less: allowance for credit losses	(734)		—
Accounts receivable, unbilled and retainage, net	64,039		183,473
Inventories	518,242		443,513
Balance of systems parts	34,536		53,583
Project assets	591		3,524
Prepaid expenses and other current assets	279,304		276,455
Total current assets	2,731,176		3,599,834
Property, plant and equipment, net	2,324,413		2,181,149
PV solar power systems, net	465,543		476,977
Project assets	381,559		333,596
Deferred tax assets, net	204,942		130,771
Restricted marketable securities (amortized cost of $243,367 and allowance for credit losses of $0 at June 30, 2020)	253,236		223,785
Goodwill	14,462		14,462
Intangible assets, net	61,194		64,543
Inventories	185,028		160,646
Other assets	451,065		329,926
Total assets	$	7,072,618	$	7,515,689
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	158,800	$	218,081
Income taxes payable	16,951		17,010
Accrued expenses	310,649		351,260
Current portion of long-term debt	77,029		17,510
Deferred revenue	130,575		323,217
Accrued litigation	19,000		363,000
Other current liabilities	34,032		28,130
Total current liabilities	747,036		1,318,208
Accrued solar module collection and recycling liability	140,539		137,761
Long-term debt	387,727		454,187
Other liabilities	570,520		508,766
Total liabilities	1,845,822		2,418,922
Commitments and contingencies
Stockholders’ equity:
Common stock, $0.001 par value per share; 500,000,000 shares authorized; 105,960,516 and 105,448,921 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively	106		105
Additional paid-in capital	2,848,928		2,849,376
Accumulated earnings	2,445,022		2,326,620
Accumulated other comprehensive loss	(67,260)		(79,334)
Total stockholders’ equity	5,226,796		5,096,767
Total liabilities and stockholders’ equity	$	7,072,618	$	7,515,689

September 30,
2019 December 31,
2018
ASSETS
Current assets:

Cash and cash equivalents $ 878,999
$ 1,403,562
Marketable securities 661,552
1,143,704
Accounts receivable trade, net 367,306
128,282
Accounts receivable, unbilled and retainage 165,013
458,166
Inventories 576,770
387,912
Balance of systems parts 68,858
56,906
Project assets 5,557
37,930
Prepaid expenses and other current assets 319,435
243,061
Total current assets 3,043,490
3,859,523
Property, plant and equipment, net 2,106,968
1,756,211
PV solar power systems, net 484,593
308,640
Project assets 566,517
460,499
Deferred tax assets, net 66,114
77,682
Restricted cash and investments 305,469
318,390
Goodwill 14,462
14,462
Intangible assets, net 66,785
74,162
Inventories 152,574
130,083
Notes receivable, affiliate —
22,832
Other assets 247,715
98,878
Total assets $ 7,054,687
$ 7,121,362
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:

Accounts payable $ 218,088
$ 233,287
Income taxes payable 15,409
20,885
Accrued expenses 377,364
441,580
Current portion of long-term debt 28,240
5,570
Deferred revenue 93,283
129,755
Other current liabilities 28,422
14,380
Total current liabilities 760,806
845,457
Accrued solar module collection and recycling liability 134,985
134,442
Long-term debt 452,064
461,221
Other liabilities 524,349
467,839
Total liabilities 1,872,204
1,908,959
Commitments and contingencies

Stockholders’ equity:
Common stock, $0.001 par value per share; 500,000,000 shares authorized; 105,406,367 and 104,885,261 shares issued and outstanding at September 30, 2019 and December 31, 2018, respectively 105
105
Additional paid-in capital 2,835,868
2,825,211
Accumulated earnings 2,386,028
2,441,553
Accumulated other comprehensive loss (39,518 ) (54,466 )
Total stockholders’ equity 5,182,483
5,212,403
Total liabilities and stockholders’ equity $ 7,054,687
$ 7,121,362

See accompanying notes to these condensed consolidated financial statements.

Table of Contents

FIRST SOLAR, INC. ~~AND SUBSIDIARIES~~

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands)

(Unaudited)


	Three Months Ended June 30, 2020
	Common Stock					Additional Paid-In Capital		Accumulated Earnings		Accumulated Other Comprehensive (Loss) Income		Total Stockholders' Equity
	Shares	Amount
Balance at March 31, 2020	105,906	$	106	$	2,844,055	$	2,408,111	$	(83,650)	$	5,168,622
Net income	—	—		—		36,911		—		36,911
Other comprehensive income	—	—		—		—		16,390		16,390
Common stock issued for share-based compensation	56	—		1,362		—		—		1,362
Tax withholding related to vesting of restricted stock	(1)	—		(85)		—		—		(85)
Share-based compensation expense	—	—		3,596		—		—		3,596
Balance at June 30, 2020	105,961	$	106	$	2,848,928	$	2,445,022	$	(67,260)	$	5,226,796

	Three Months Ended June 30, 2019
	Common Stock					Additional Paid-In Capital		Accumulated Earnings		Accumulated Other Comprehensive (Loss) Income		Total Stockholders' Equity
	Shares	Amount
Balance at March 31, 2019	105,353	$	105	$	2,814,115	$	2,373,954	$	(59,013)	$	5,129,161
Net loss	—	—		—		(18,548)		—		(18,548)
Other comprehensive income	—	—		—		—		12,093		12,093
Common stock issued for share-based compensation	38	—		1,672		—		—		1,672
Tax withholding related to vesting of restricted stock	(1)	—		(68)		—		—		(68)
Share-based compensation expense	—	—		10,814		—		—		10,814
Balance at June 30, 2019	105,390	$	105	$	2,826,533	$	2,355,406	$	(46,920)	$	5,135,124

Three Months Ended September 30, 2019
Common Stock Additional
Paid-In
Capital Accumulated Earnings Accumulated
Other
Comprehensive (Loss) Income Total
Equity
Shares Amount
Balance at June 30, 2019 105,390
$ 105
$ 2,826,533
$ 2,355,406
$ (46,920 ) $ 5,135,124
Net income —
—
—
30,622
—
30,622
Other comprehensive income —
—
—
—
7,402
7,402
Common stock issued for share-based compensation 21
—
—
—
—
—
Tax withholding related to vesting of restricted stock (5 ) —
(339 ) —
—
(339 )
Share-based compensation expense —
—
9,674
—
—
9,674
Balance at September 30, 2019 105,406
$ 105
$ 2,835,868
$ 2,386,028
$ (39,518 ) $ 5,182,483

Three Months Ended September 30, 2018
Common Stock Additional
Paid-In
Capital Accumulated Earnings Accumulated
Other
Comprehensive (Loss) Income Total
Equity
Shares Amount
Balance at June 30, 2018 104,798
$ 105
$ 2,809,272
$ 2,331,687
$ (30,237 ) $ 5,110,827
Net income —
—
—
57,750
—
57,750
Other comprehensive loss —
—
—
—
(4,934 ) (4,934 )
Common stock issued for share-based compensation 21
—
—
—
—
—
Tax withholding related to vesting of restricted stock (5 ) —
(265 ) —
—
(265 )
Share-based compensation expense —
—
7,578
—
—
7,578
Balance at September 30, 2018 104,814
$ 105
$ 2,816,585
$ 2,389,437
$ (35,171 ) $ 5,170,956

See accompanying notes to these condensed consolidated financial statements.

FIRST SOLAR, INC. ~~AND SUBSIDIARIES~~

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (CONTINUED)

See accompanying notes to these condensed consolidated financial statements.

Table of Contents

FIRST SOLAR, INC. ~~AND SUBSIDIARIES~~

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


	Six Months Ended June 30,
	2020		2019
Cash flows from operating activities:
Net income (loss)	$	127,615	$	(86,147)
Adjustments to reconcile net income (loss) to cash used in operating activities:
Depreciation, amortization and accretion	113,876		98,816
Impairments and net losses on disposal of long-lived assets	6,611		1,212
Share-based compensation	10,980		15,782
Equity in earnings, net of tax	(215)		270
Remeasurement of monetary assets and liabilities	487		(917)
Deferred income taxes	(72,706)		1,508
Gains on sales of marketable securities and restricted marketable securities	(15,337)		(15,016)
Liabilities assumed by customer for the sale of systems	—		(88,050)
Other, net	16,193		197
Changes in operating assets and liabilities:
Accounts receivable, trade, unbilled and retainage	303,030		188,300
Prepaid expenses and other current assets	14,412		(36,553)
Inventories and balance of systems parts	(80,071)		(253,028)
Project assets and PV solar power systems	(43,074)		(23,572)
Other assets	(46,720)		(3,231)
Income tax receivable and payable	(8,533)		(22,504)
Accounts payable	(43,524)		5,505
Accrued expenses and other liabilities	(642,793)		(74,393)
Accrued solar module collection and recycling liability	2,674		1,951
Net cash used in operating activities	(357,095)		(289,870)
Cash flows from investing activities:
Purchases of property, plant and equipment	(220,952)		(327,836)
Purchases of marketable securities and restricted marketable securities	(541,266)		(380,900)
Proceeds from sales and maturities of marketable securities and restricted marketable securities	857,130		687,951
Other investing activities	(13,625)		2,899
Net cash provided by (used in) investing activities	81,287		(17,886)
Cash flows from financing activities:
Repayment of long-term debt	(9,101)		(10,583)
Proceeds from borrowings under long-term debt, net of discounts and issuance costs	—		107,396
Payments of tax withholdings for restricted shares	(12,764)		(15,731)
Other financing activities	(804)		(363)
Net cash (used in) provided by financing activities	(22,669)		80,719
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(222)		(2,018)
Net decrease in cash, cash equivalents and restricted cash	(298,699)		(229,055)
Cash, cash equivalents and restricted cash, beginning of the period	1,446,510		1,562,623
Cash, cash equivalents and restricted cash, end of the period	$	1,147,811	$	1,333,568
Supplemental disclosure of noncash investing and financing activities:
Property, plant and equipment acquisitions funded by liabilities	$	99,290	$	148,316

Nine Months Ended
September 30,
2019 2018
Cash flows from operating activities:
Net (loss) income $ (55,525 ) $ 92,210
Adjustments to reconcile net (loss) income to cash used in operating activities:
Depreciation, amortization and accretion 149,970
89,192
Share-based compensation 25,408
26,787
Equity in earnings, net of tax 205
(35,105 )
Distributions received from equity method investments —
12,394
Remeasurement of monetary assets and liabilities 2,097
6,837
Deferred income taxes 11,678
(55,732 )
Gains on sales of marketable securities and restricted investments (15,016 ) (19,473 )
Liabilities assumed by customers for the sale of systems (88,050 ) (116,456 )
Other, net 7,080
7,271
Changes in operating assets and liabilities:
Accounts receivable, trade, unbilled and retainage 51,803
(178,723 )
Prepaid expenses and other current assets (29,311 ) (34,321 )
Inventories and balance of systems parts (223,756 ) (158,311 )
Project assets and PV solar power systems (253,260 ) 50,294
Other assets 18,326
(12,694 )
Income tax receivable and payable (24,585 ) 6,302
Accounts payable (532 ) 28,591
Accrued expenses and other liabilities (185,489 ) 181,328
Accrued solar module collection and recycling liability 1,465
(31,701 )
Net cash used in operating activities (607,492 ) (141,310 )
Cash flows from investing activities:
Purchases of property, plant and equipment (510,571 ) (610,620 )
Purchases of marketable securities and restricted investments (668,052 ) (1,102,440 )
Proceeds from sales and maturities of marketable securities and restricted investments 1,120,961
627,106
Proceeds from sales of equity method investments —
247,595
Payments received on notes receivable, affiliates —
48,459
Other investing activities 3,027
(5,823 )
Net cash used in investing activities (54,635 ) (795,723 )
Cash flows from financing activities:
Repayment of long-term debt (10,583 ) (18,937 )
Proceeds from borrowings under long-term debt, net of discounts and issuance costs 107,396
174,594
Payments of tax withholdings for restricted shares (16,070 ) (10,516 )
Other financing activities 999
(1,958 )
Net cash provided by financing activities 81,742
143,183
Effect of exchange rate changes on cash, cash equivalents and restricted cash (6,732 ) (12,454 )
Net decrease in cash, cash equivalents and restricted cash (587,117 ) (806,304 )
Cash, cash equivalents and restricted cash, beginning of the period 1,562,623
2,330,476
Cash, cash equivalents and restricted cash, end of the period $ 975,506
$ 1,524,172
Supplemental disclosure of noncash investing and financing activities:

Property, plant and equipment acquisitions funded by liabilities $ 111,791
$ 144,928
Sale of system previously accounted for as sale-leaseback financing $ —
$ 31,992

See accompanying notes to these condensed consolidated financial statements.

Table of Contents

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

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Despite our intention to establish accurate estimates and reasonable assumptions, actual results could differ materially from such estimates and assumptions. Operating results for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2019~~2020 or for any other period. The condensed consolidated balance sheet at December 31, ~~2018~~2019 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, ~~2018~~2019 included in our Annual Report on Form 10-K, which has been filed with the SEC.

Unless expressly stated or the context otherwise requires, the terms “the Company,” “we,” “us,” “our,” and “First Solar” refer to First Solar, Inc. and its consolidated subsidiaries, and the term “condensed consolidated financial statements” refers to the accompanying unaudited condensed consolidated financial statements contained in this Quarterly Report.

2. Recent Accounting Pronouncements

~~In August 2017, the FASB issued ASU 2017-12,~~ ~~Derivatives and Hedging (Topic 815) – Targeted Improvements to Accounting for Hedging Activities~~, to simplify certain aspects of hedge accounting for both non-financial and financial risks and better align the recognition and measurement of hedge results with an entity’s risk management activities. ASU 2017-12 also amends certain presentation and disclosure requirements for hedging activities and changes how an entity assesses hedge effectiveness. The adoption of ASU 2017-12 in the first quarter of 2019 did not have a significant impact on our consolidated financial statements and associated disclosures.

In June 2016, the ~~FASB~~Financial Accounting Standards Board issued ~~ASU~~Accounting Standards Update (“ASU”) 2016-13, Financial Instruments – Credit Losses (Topic 326), to provide financial statement users with more useful information about expected credit losses. ASU 2016-13 ~~also changes how entities~~replaces the historical incurred loss model with a model that reflects current expected credit losses (“CECL”), which requires consideration of a broader range of information to measure credit losses ~~on financial instruments~~ and determine the timing of when such losses are recorded. The CECL model is applicable to certain financial assets measured at amortized cost that subject us to credit risk, including cash equivalents, trade accounts receivable, unbilled accounts receivable and retainage, and notes receivable. In addition, ASU 2016-13 amended certain aspects of the accounting for available-for-sale debt securities, including the presentation of credit losses as an allowance against, rather than a write-down of, the fair value of such securities. Furthermore, a credit loss is ~~effective for fiscal years~~only considered when a security is in an unrealized loss position, is limited to the difference between such security’s fair value and ~~interim periods within those years beginning after December 15, 2019,~~amortized cost basis, and ~~early adoption~~ is ~~permitted for periods beginning after December 15, 2018. We are currently evaluating the impact ASU 2016-13 will have on our consolidated financial statements and associated disclosures.~~recorded directly to “Other expense, net.” Any remaining unrealized loss is recorded to “Accumulated other comprehensive loss” until realized.

~~Table of Contents~~

~~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 and disclosing key information about leasing transactions. Leases are classified as either operating or financing, with such classification affecting the pattern of expense recognition in the income statement. In July 2018, the FASB issued ASU 2018-11, ~~Leases (Topic 842) – Targeted Improvements, which provided an optional transition method to apply the new lease requirements through a cumulative-effect adjustment in the period of adoption.~~

We adopted ASU ~~2016-02~~2016-13 in the first quarter of ~~2019~~2020 using the ~~optional transition method and elected certain practical expedients permitted under the transition guidance,~~modified-retrospective approach, which among other things, allowed us to not reassess prior conclusions related to contracts containing leases or lease classification. The adoption primarily affected our condensed consolidated balance sheet throughresulted in the recognition of ~~$140.7~~an initial allowance for credit losses for our various financial assets through a cumulative-effect adjustment that decreased retained earnings by $9.2 million, net of ~~right-of-use assets and $119.9 million of lease liabilities~~tax, as of January 1, ~~2019~~2020.

Table of Contents

The allowance for credit losses is a valuation account that is deducted from a financial asset’s amortized cost to present the net amount we expect to collect from such asset. We estimate allowances for credit losses using relevant available information from both internal and external sources. We monitor the estimated credit losses associated with our trade accounts receivable and unbilled accounts receivable based primarily on our collection history and the ~~derecognition~~delinquency status of amounts owed to us, which we determine based on the aging of such receivables. For our notes receivable, we determine estimated credit losses through an assessment of the borrower’s credit quality based primarily on quarterly reviews of certain financial information, including financial statements and forecasts. We estimate credit losses associated with our marketable securities and restricted marketable securities based on the external credit rating for such investments and the historical ~~prepaid~~loss rates associated with such credit ratings, which we obtain from third parties. Such methods and ~~deferred rent balances. The adoption did not have a significant impact on~~estimates are adjusted, as appropriate, for relevant past events, current conditions, such as the COVID-19 pandemic and related containment measures, and reasonable and supportable forecasts. We recognize writeoffs within the allowance for credit losses when cash receipts associated with our ~~results of operations or cash flows.~~ financial assets are deemed uncollectible.

See Note ~~7. “Leases”~~3. “Cash, Cash Equivalents, and Marketable Securities,” Note 4. “Restricted Marketable Securities,” and Note 5. “Consolidated Balance Sheet Details” to our condensed consolidated financial statements for further ~~discussion of~~information about the ~~effects of the adoption of ASU 2016-02 and the~~allowance for credit losses associated ~~disclosures.~~with our various financial assets.

3. Cash, Cash Equivalents, and Marketable Securities

Cash, cash equivalents, and marketable securities consisted of the following at ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018~~2019 (in thousands):


	June 30, 2020		December 31, 2019
Cash and cash equivalents:
Cash	$	1,052,308	$	1,345,419
Money market funds	392		7,322
Total cash and cash equivalents	1,052,700		1,352,741
Marketable securities:
Foreign debt	261,955		387,820
Foreign government obligations	—		22,011
U.S. debt	48,697		66,134
Time deposits	183,428		335,541
Total marketable securities	494,080		811,506
Total cash, cash equivalents, and marketable securities	$	1,546,780	$	2,164,247

September 30,
2019 December 31,
2018
Cash and cash equivalents:
Cash $ 871,711
$ 1,202,774
Money market funds 7,288
200,788
Total cash and cash equivalents 878,999
1,403,562
Marketable securities:
Foreign debt 361,414
318,646
Foreign government obligations 21,988
98,621
U.S. debt 90,388
44,468
Time deposits 187,762
681,969
Total marketable securities 661,552
1,143,704
Total cash, cash equivalents, and marketable securities $ 1,540,551
$ 2,547,266

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within our condensed consolidated balance sheets as of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018~~2019 to the total of such amounts as presented in the condensed consolidated statement of cash flows (in thousands):


	Balance Sheet Line Item	June 30, 2020		December 31, 2019
Cash and cash equivalents	Cash and cash equivalents	$	1,052,700	$	1,352,741
Restricted cash – current	Prepaid expenses and other current assets	51,306		13,697
Restricted cash – noncurrent	Other assets	43,805		80,072
Total cash, cash equivalents, and restricted cash		$	1,147,811	$	1,446,510

Balance Sheet Line Item September 30,
2019 December 31,
2018
Cash and cash equivalents Cash and cash equivalents $ 878,999
$ 1,403,562
Restricted cash – current (1)
Prepaid expenses and other current assets 32,416
19,671
Restricted cash – noncurrent (1)
Restricted cash and investments 64,091
139,390
Total cash, cash equivalents, and restricted cash $ 975,506
$ 1,562,623

During the three and ~~nine~~six months ended ~~September~~June 30, 2020, we sold marketable securities for proceeds of $29.7 million and $160.5 million, respectively, and realized gains of $0.2 million on such sales. During the three and six months ended June 30, 2019, we sold marketable securities for proceeds of ~~$32.0~~$20.0 million ~~and $52.0 million, respectively,~~ and realized 0 gain or loss on the ~~sales. During the nine months ended September 30, 2018, we sold marketable securities for proceeds of $10.8 million and realized gains of less than $0.1 million on the sales.~~sale. See Note 8. “Fair Value Measurements” to our condensed consolidated financial statements for information about the fair value of our marketable securities.

The following tables summarize the unrealized gains and losses related to our available-for-sale marketable securities, by major security type, as of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018~~2019 (in thousands):


	As of June 30, 2020
	Amortized Cost		Unrealized Gains		Unrealized Losses		Allowance for Credit Losses		Fair Value
Foreign debt	$	261,776	$	429	$	211	$	39	$	261,955
U.S. debt	48,717		135		149		6		48,697
Time deposits	183,507		—		—		79		183,428
Total	$	494,000	$	564	$	360	$	124	$	494,080

As of September 30, 2019

Amortized
Cost

Unrealized
Gains

Unrealized
Losses

Fair
Value
Foreign debt $ 360,923
$ 1,090
$ 599
$ 361,414
Foreign government obligations 21,988
—
—
21,988
U.S. debt 90,250
171
33
90,388
Time deposits 187,762
—
—
187,762
Total $ 660,923
$ 1,261
$ 632
$ 661,552

As of December 31, 2018

Amortized
Cost

Unrealized
Gains

Unrealized
Losses

Fair
Value
Foreign debt $ 320,056
$ 468
$ 1,878
$ 318,646
Foreign government obligations 99,189
—
568
98,621
U.S. debt 44,625
53
210
44,468
Time deposits 681,969
—
—
681,969
Total $ 1,145,839
$ 521
$ 2,656
$ 1,143,704

As of September 30, 2019, we identified 3 investments totaling $38.5 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. As of December 31, 2018, we identified 15 investments totaling $207.2 million that had been in a loss position for a period of time greater than 12 months with unrealized losses of $1.8 million. Such 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.


	As of December 31, 2019
	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
Foreign debt	$	387,775	$	551	$	506	$	387,820
Foreign government obligations	21,991		20		—		22,011
U.S. debt	65,970		176		12		66,134
Time deposits	335,541		—		—		335,541
Total	$	811,277	$	747	$	518	$	811,506

The following ~~tables show unrealized~~table presents the change in the allowance for credit losses ~~and fair values for those~~related to our available-for-sale marketable securities ~~that were in an unrealized loss position as of~~ ~~September~~for the six months ended June 30, ~~2019~~ ~~and~~ ~~December 31, 2018, aggregated by major security type and the length of time the marketable securities have been in a continuous loss position~~2020 (in thousands):


	Marketable Securities
Balance as of December 31, 2019	$	—
Cumulative-effect adjustment for the adoption of ASU 2016-13	207
Provision for credit losses, net	204
Sales and maturities of marketable securities	(287)
Balance as of June 30, 2020	$	124

As of September 30, 2019

In Loss Position for
Less Than 12 Months

In Loss Position for
12 Months or Greater
Total

Fair
Value

Unrealized
Losses

Fair
Value

Unrealized
Losses

Fair
Value

Unrealized
Losses
Foreign debt $ 133,345
$ 541
$ 24,196
$ 58
$ 157,541
$ 599
U.S. debt 25,797
29
14,270
4
40,067
33
Total $ 159,142
$ 570
$ 38,466
$ 62
$ 197,608
$ 632

As of December 31, 2018

In Loss Position for
Less Than 12 Months

In Loss Position for
12 Months or Greater
Total

Fair
Value

Unrealized
Losses

Fair
Value

Unrealized
Losses

Fair
Value

Unrealized
Losses
Foreign debt $ 150,842
$ 802
$ 94,446
$ 1,076
$ 245,288
$ 1,878
Foreign government obligations —
—
98,621
568
98,621
568
U.S. debt 15,356
32
14,085
178
29,441
210
Total $ 166,198
$ 834
$ 207,152
$ 1,822
$ 373,350
$ 2,656

The contractual maturities of our marketable securities as of ~~September~~June 30, ~~2019~~2020 were as follows (in thousands):


	Fair Value
One year or less	$	281,884
One year to two years	159,917
Two years to three years	52,279
Total	$	494,080

Fair
Value
One year or less $ 346,453
One year to two years 182,861
Two years to three years 102,224
Three years to four years 30,014
Total $ 661,552

4. Restricted ~~Cash and Investments~~

Marketable Securities

Restricted ~~cash and investments~~marketable securities consisted of the following at ~~September~~as of June 30, ~~2019~~ ~~and~~ ~~December 31, 2018~~ ~~(in thousands):~~

September 30,
2019 December 31,
2018
Restricted cash $ 64,091
$ 139,390
Restricted investments 241,378
179,000
Total restricted cash and investments (1) $ 305,469
$ 318,390

At ~~September 30, 2019~~2020 and December 31, ~~2018, our~~2019 (in thousands):


	June 30, 2020		December 31, 2019

Foreign government obligations	$	132,883	$	126,066
U.S. government obligations	120,353		97,719
Total restricted marketable securities	$	253,236	$	223,785

Our restricted cash consisted of deposits held by various banks to secure certain of our letters of credit and other deposits designated for the construction or operation of systems projects as well as the payment of amounts related to project specific debt financings. At December 31, 2018, our restricted cash also included certain deposits held in custodial accounts to fund the estimated future costs of our solar module collection and recycling obligations.

~~At September 30, 2019 and December 31, 2018, our restricted investments consisted of~~marketable securities represent long-term marketable securities ~~that were also~~ held in custodial accounts to fund the estimated future costs of collecting and recycling modules covered under our solar module collection and recycling program. As of June 30, 2020 and December 31, 2019, such custodial accounts also included noncurrent restricted cash balances of $0.7 million and less than $0.1 million, respectively, which were reported within “Other assets.” As necessary, we fund any incremental amounts for our estimated collection and recycling obligations on an annual basis based on the estimated costs of collecting and recycling covered modules, estimated rates of return on our restricted ~~investments,~~marketable securities, and an estimated solar module life of 25 years, less amounts already funded in prior years. To ensure that amounts previously funded will be available in the future regardless of potential adverse changes in our financial condition (even in the case of our own insolvency), we have established a trust under which estimated funds are put into custodial accounts with an established and reputable bank, for which First Solar, Inc.; First Solar Malaysia Sdn. Bhd.; and First Solar Manufacturing GmbH are grantors. Trust funds may be disbursed for qualified module collection and recycling costs (including capital and facility related recycling costs), payments to customers for assuming collection and recycling obligations, and reimbursements of any

overfunded amounts. Investments in the trust must meet certain investment quality criteria comparable to highly rated government or agency bonds.

During the ~~nine~~six months ended ~~September~~June 30, 2020, we sold certain restricted marketable securities for proceeds of $115.2 million, realized gains of $15.1 million on such sales, and repurchased $114.5 million of restricted marketable securities as part of our ongoing management of the custodial accounts. During the six months ended June 30, 2019, we sold certain restricted ~~investments~~marketable securities for proceeds of $47.9 million and realized gains of $15.0 million on such sales as part of efforts to align the currencies of the investments with those of the corresponding collection and recycling liabilities and ~~disburse~~disbursed $14.9 million of overfunded amounts. During the nine months ended September 30, 2018, we sold certain restricted investments for proceeds of $101.6 million, realized gains of $19.5 million on such sales, and withdrew the funds from the trust as a reimbursement of overfunded amounts. See Note 8. “Fair Value Measurements” to our condensed consolidated financial statements for information about the fair value of our restricted ~~investments.~~marketable securities.

The following tables summarize the unrealized gains and losses related to our restricted ~~investments,~~marketable securities, by major security type, as of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018~~2019 (in thousands):


	As of June 30, 2020
	Amortized Cost		Unrealized Gains		Unrealized Losses		Allowance for Credit Losses		Fair Value
Foreign government obligations	$	128,381	$	4,502	$	—	$	—	$	132,883
U.S. government obligations	114,986		5,367		—		—		120,353
Total	$	243,367	$	9,869	$	—	$	—	$	253,236

As of September 30, 2019

Amortized
Cost

Unrealized
Gains

Unrealized
Losses

Fair
Value
Foreign government obligations $ 116,424
$ 17,552
$ —
$ 133,976
U.S. government obligations 98,414
8,988
—
107,402
Total $ 214,838
$ 26,540
$ —
$ 241,378

As of December 31, 2018

Amortized
Cost

Unrealized
Gains

Unrealized
Losses

Fair
Value
Foreign government obligations $ 73,798
$ 14,234
$ 235
$ 87,797
U.S. government obligations 97,223
416
6,436
91,203
Total $ 171,021
$ 14,650
$ 6,671
$ 179,000


	As of December 31, 2019
	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
Foreign government obligations	$	129,499	$	—	$	3,433	$	126,066
U.S. government obligations	99,700		—		1,981		97,719
Total	$	229,199	$	—	$	5,414	$	223,785

Table of September 30, 2019, we had 0 restricted investments in a loss position. As of December 31, 2018, we identified 6 restricted investments totaling $87.4 million that had been in a loss position for a period of time greater than 12 months with unrealized losses of $6.4 million. Such unrealized losses were primarily due to increases in interest rates relative to rates at the time of purchase.Contents

The following table ~~shows unrealized~~presents the change in the allowance for credit losses ~~and fair values~~related to our restricted marketable securities for ~~those restricted investments that were in an unrealized loss position as of December 31, 2018, aggregated by major security type and~~ the ~~length of time the restricted investments have been in a continuous loss position~~six months ended June 30, 2020 (in thousands):


	Restricted Marketable Securities
Balance as of December 31, 2019	$	—
Cumulative-effect adjustment for the adoption of ASU 2016-13	54
Provision for credit losses, net	(29)
Sales of restricted marketable securities	(25)
Balance as of June 30, 2020	$	—

As of December 31, 2018
In Loss Position for
Less Than 12 Months In Loss Position for
12 Months or Greater Total
Fair
Value Unrealized
Losses Fair
Value Unrealized
Losses Fair
Value Unrealized
Losses
Foreign government obligations $ 41,335
$ 235
$ —
$ —
$ 41,335
$ 235
U.S. government obligations —
—
87,401
6,436
87,401
6,436
Total $ 41,335
$ 235
$ 87,401
$ 6,436
$ 128,736
$ 6,671

As of ~~September~~June 30, ~~2019~~,2020, the contractual maturities of our restricted ~~investments~~marketable securities were between 10 years and 2021 years.

5. Consolidated Balance Sheet Details

Accounts receivable trade, net


	June 30, 2020		December 31, 2019
Accounts receivable trade, gross	$	291,018	$	476,425
Allowance for credit losses	(3,334)		(1,386)
Accounts receivable trade, net	$	287,684	$	475,039

At ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018, $63.2~~2019, $44.8 million and ~~$8.5~~$44.9 million, respectively, of our trade accounts receivable ~~trade, net~~ were secured by letters of credit, bank guarantees, surety bonds, or other forms of financial security issued by creditworthy financial institutions.

Accounts receivable, unbilled and retainage,

Accounts receivable, unbilled and retainage, net consisted of the following at ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018~~2019 (in thousands):


	June 30, 2020		December 31, 2019
Accounts receivable, unbilled	$	46,385	$	162,057
Retainage	18,388		21,416
Allowance for credit losses	(734)		—
Accounts receivable, unbilled and retainage, net	$	64,039	$	183,473

September 30,
2019 December 31,
2018
Accounts receivable, unbilled $ 136,734
$ 441,666
Retainage 28,279
16,500
Accounts receivable, unbilled and retainage $ 165,013
$ 458,166

Allowance for credit losses

The following table presents the change in the allowances for credit losses related to our accounts receivable for the six months ended June 30, 2020 (in thousands):


	Accounts Receivable Trade		Accounts Receivable, Unbilled and Retainage
Balance as of December 31, 2019	$	(1,386)	$	—
Cumulative-effect adjustment for the adoption of ASU 2016-13	(171)		(459)
Provision for credit losses, net (1)	(2,235)		(275)
Writeoffs	458		—
Balance as of June 30, 2020	$	(3,334)	$	(734)

(1)Includes credit losses for trade accounts receivable and unbilled accounts receivable of $2.2 million and $0.5 million, respectively, to reflect our estimate of expected credit losses attributable to the current economic conditions resulting from the ongoing COVID-19 pandemic.

Inventories consisted of the following at ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018~~2019 (in thousands):


	June 30, 2020		December 31, 2019
Raw materials	$	260,027	$	248,756
Work in process	68,244		59,924
Finished goods	374,999		295,479
Inventories	$	703,270	$	604,159
Inventories – current	$	518,242	$	443,513
Inventories – noncurrent	$	185,028	$	160,646

Prepaid expenses and other current assets

Prepaid expenses and other current assets consisted of the following at ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018~~2019 (in thousands):

September 30,
2019 December 31,
2018
Prepaid expenses $ 128,776
$ 90,981
Prepaid income taxes 76,613
59,319
Restricted cash 32,416
19,671
Indirect tax receivables 28,238
26,327
Notes receivable (1) 23,440
5,196
Derivative instruments (2) 2,299
2,364
Other current assets 27,653
39,203
Prepaid expenses and other current assets $ 319,435
$ 243,061


	June 30, 2020		December 31, 2019
Prepaid expenses	$	151,746	$	137,927
Prepaid income taxes	52,463		47,811
Restricted cash	51,306		13,697
Indirect tax receivables	3,587		29,908
Derivative instruments (1)	1,641		1,199
Notes receivable, net (2)	—		23,873
Other current assets	18,561		22,040
Prepaid expenses and other current assets	$	279,304	$	276,455

(1)See Note 6. “Derivative Financial Instruments” to our condensed consolidated financial statements for discussion of our derivative instruments.

(2)In November 2014 and February 2016, we entered into a term loan agreement and a convertible loan agreement, respectively, with Clean Energy Collective, LLC (“CEC”). Our term loan bears interest at 16% per annum, and our convertible loan bears interest at 10% per annum. In November 2018, we amended the terms of the loan agreements to (i) extend their maturity to June 2020, (ii) waive the conversion features on our convertible loan, and (iii) increase the frequency of interest payments, subject to certain conditions.

We assess CEC’s credit quality based primarily on certain quarterly financial information, which was last provided during the three months ended June 30, 2020. As of December 31, 2019, the aggregate balance outstanding on the loans was $23.9 million. Upon the adoption of ASU 2016-13, we evaluated the estimated credit losses over the remaining contractual term of the loan agreements based on a discounted cash flow model. As a result of this evaluation, we recorded an allowance for credit losses of $10.8 million as of January 1, 2020. During the six months ended June 30, 2020, we recorded incremental credit losses of $13.1 million based on our expectation that CEC would be unable to repay the loans by their contractual maturity date due to continued liquidity issues, which have adversely affected CEC’s financial condition and results of operations. As of June 30, 2020, the aggregate balance outstanding on the loans had not been paid. In July 2020, certain of CEC’s subsidiaries, including its project development entity, filed for Chapter 11 bankruptcy.

Property, plant and equipment, net

Property, plant and equipment, net consisted of the following at ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018~~2019 (in thousands):


	June 30, 2020		December 31, 2019
Land	$	14,253	$	14,241
Buildings and improvements	669,906		664,266
Machinery and equipment	2,057,247		2,436,997
Office equipment and furniture	155,754		159,848
Leasehold improvements	48,867		48,772
Construction in progress	403,152		243,107
Property, plant and equipment, gross	3,349,179		3,567,231
Accumulated depreciation	(1,024,766)		(1,386,082)
Property, plant and equipment, net	$	2,324,413	$	2,181,149

We periodically assess the estimated useful lives of our property, plant and equipment whenever applicable facts and circumstances indicate a change in the estimated useful life of an asset may have occurred. During the three months ended September 30, 2019, we revised the estimated useful lives of certain core Series 6 manufacturing equipment from 10 years to 15 years. Such revision was primarily due to the validation of certain aspects of our Series 6 module technology, including the nature of the manufacturing process, the operating and maintenance cost profile of the manufacturing equipment, and the technology’s compatibility with our long-term module technology roadmap. We

~~expect the revised useful lives to reduce depreciation by approximately $15 million per year based on the carrying value of the associated equipment as of September 30, 2019.~~ Depreciation of property, plant and equipment was ~~$42.8~~$48.5 million and ~~$129.4~~$95.9 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, respectively, and ~~$29.4~~$43.7 million and ~~$72.6~~$86.6 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, respectively.

PV solar power systems, net

Photovoltaic (“PV”) solar power systems, net consisted of the following at ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018~~2019 (in thousands):


	June 30, 2020		December 31, 2019
PV solar power systems, gross	$	530,098	$	530,004
Accumulated depreciation	(64,555)		(53,027)
PV solar power systems, net	$	465,543	$	476,977

Depreciation of PV solar power systems was ~~$5.9~~$5.8 million and ~~$12.9~~$11.7 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, respectively, and $3.5 million and ~~$11.8~~$7.0 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, respectively.

Project assets consisted of the following at ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018~~2019 (in thousands):


	June 30, 2020		December 31, 2019
Project assets – development costs, including project acquisition and land costs	$	232,626	$	254,466
Project assets – construction costs	149,524		82,654
Project assets	$	382,150	$	337,120
Project assets – current	$	591	$	3,524
Project assets – noncurrent	$	381,559	$	333,596

September 30,
2019 December 31,
2018
Project assets – development costs, including project acquisition and land costs $ 297,753
$ 298,070
Project assets – construction costs 274,321
200,359
Project assets $ 572,074
$ 498,429
Project assets – current $ 5,557
$ 37,930
Project assets – noncurrent $ 566,517
$ 460,499

Capitalized interest

~~The cost of constructing project assets may include interest costs incurred during the development and construction period.~~ The components of interest expense and capitalized interest were as follows during the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019 (in thousands):


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
Interest cost incurred	$	(3,586)	$	(10,161)	$	(10,690)	$	(21,109)

Interest cost capitalized – project assets	332		1,240		647		2,067
Interest expense, net	$	(3,254)	$	(8,921)	$	(10,043)	$	(19,042)

Three Months Ended
September 30, Nine Months Ended
September 30,
2019 2018 2019 2018
Interest cost incurred $ (5,239 ) $ (5,023 ) $ (26,348 ) $ (19,080 )
Interest cost capitalized – project assets 263
1,825
2,330
4,635
Interest expense, net $ (4,976 ) $ (3,198 ) $ (24,018 ) $ (14,445 )

Other assets consisted of the following at ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018~~2019 (in thousands):

(1)See Note 7. “Leases” to our condensed consolidated financial statements for discussion of our lease arrangements.

(2)In April 2009, we entered into a credit facility agreement with a solar power project entity of one of our customers for an available amount of €17.5 million to provide financing for a PV solar power system. The credit facility bears interest at 8.0% per annum, payable quarterly, with the full amount due in December 2026.

In June 2018, we completed the sale of our interests in the Partnership and its subsidiaries to CD Clean Energy and Infrastructure V JV, LLC, an equity fund managed by Capital Dynamics, Inc. and certain other co-investors and other parties, and received net proceeds of $240.0 million after the payment of fees, expenses, and other amounts. We accounted for our interests in OpCo, a subsidiary of the Partnership, under the equity method of accounting as we were able to exercise significant influence over the Partnership due to our representation on the board of directors of its general partner and certain of our associates serving as officers of its general partner. During the nine months ended September 30, 2018, we recognized equity in earnings, net of tax, of $39.7 million from our investment in OpCo, including a gain of $40.3 million, net of tax, for the sale of our interests in the Partnership and its subsidiaries. During the nine months ended September 30, 2018, we received distributions from OpCo of $12.4 million.

~~In connection with the IPO, we also entered into an~~ agreement with a ~~subsidiary~~solar power project entity of ~~the Partnership to lease back~~ one of our ~~originally contributed projects, Maryland Solar, until~~customers for an available amount of €17.5 million to provide financing for a PV solar power system. The credit facility bears interest at 8.0% per annum, payable quarterly, with the full amount due in December 2026. As of June 30, 2020 and December 31, ~~2019. Under~~2019, the ~~terms~~balance outstanding on the credit facility was €7.0 million ($7.9 million and $7.8 million, respectively).

We assess the credit quality of the ~~agreement,~~aforementioned customer based primarily on certain quarterly financial information, which was last provided during the three months ended March 31, 2020. Upon adoption of ASU 2016-13, we ~~make fixed rent payments to~~evaluated the ~~Partnership’s subsidiary and are entitled to all~~estimated credit losses over the remaining contractual term of the ~~energy generated by~~credit facility and determined no allowance for credit losses was necessary as of January 1, 2020. Additionally, based on the ~~project. Due~~customer’s current financial condition and forecasts, we determined no allowance for credit losses was necessary as of June 30, 2020.

(3)See Note 6. “Derivative Financial Instruments” to ~~certain continuing involvement with the project, we accounted~~our condensed consolidated financial statements for ~~the leaseback agreement as a financing transaction until the sale~~discussion of our interests in the Partnership and its subsidiaries in June 2018. Following the sale of such interests, the Maryland Solar project qualified for sale-leaseback accounting, and we recognized net revenue of $32.0 million from the sale of the project.derivative instruments.

Goodwill for the relevant reporting unit consisted of the following at ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018~~2019 (in thousands):


	December 31, 2019		Acquisitions (Impairments)		June 30, 2020
Modules	$	407,827	$	—	$	407,827
Accumulated impairment losses	(393,365)		—		(393,365)
Goodwill	$	14,462	$	—	$	14,462

Intangible assets, net

The following tables summarize our intangible assets at ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018~~2019 (in thousands):


	June 30, 2020
	Gross Amount		Accumulated Amortization		Net Amount
Developed technology	$	99,964	$	(47,179)	$	52,785
Power purchase agreements	6,486		(1,134)		5,352
Patents	7,780		(4,723)		3,057
Intangible assets, net	$	114,230	$	(53,036)	$	61,194

September 30, 2019
Gross Amount Accumulated Amortization Net Amount
Developed technology $ 97,964
$ (39,977 ) $ 57,987
Power purchase agreements 6,486
(892 ) 5,594
Patents 7,408
(4,204 ) 3,204
Intangible assets, net $ 111,858
$ (45,073 ) $ 66,785

December 31, 2018
Gross Amount Accumulated Amortization Net Amount
Developed technology $ 97,714
$ (33,093 ) $ 64,621
Power purchase agreements 6,486
(648 ) 5,838
Patents 7,408
(3,705 ) 3,703
Intangible assets, net $ 111,608
$ (37,446 ) $ 74,162


	December 31, 2019
	Gross Amount		Accumulated Amortization		Net Amount
Developed technology	$	97,964	$	(42,344)	$	55,620
Power purchase agreements	6,486		(972)		5,514
Patents	7,780		(4,371)		3,409
Intangible assets, net	$	112,230	$	(47,687)	$	64,543

Amortization ~~expense for our~~of intangible assets was ~~$2.6~~$2.7 million and ~~$7.6~~$5.3 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, respectively, and $2.5 million and ~~$7.4~~$5.0 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, respectively.

Accrued expenses consisted of the following at ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018~~2019 (in thousands):

(1)See Note 10. “Commitments and Contingencies” to our condensed consolidated financial statements for discussion of our “Product Warranties.”

Other current liabilities

Other current liabilities consisted of the following at ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018~~2019 (in thousands):

(1)See Note 7. “Leases” to our condensed consolidated financial statements for discussion of our lease arrangements.

(2)See Note 10. “Commitments and Contingencies” to our condensed consolidated financial statements for discussion of our “Contingent Consideration” arrangements.

(3)See Note 6. “Derivative Financial Instruments” to our condensed consolidated financial statements for discussion of our derivative instruments.

Other liabilities consisted of the following at ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018~~2019 (in thousands):

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(1)See Note 7. “Leases” to our condensed consolidated financial statements for discussion of our lease arrangements.

(2)See Note 10. “Commitments and Contingencies” to our condensed consolidated financial statements for discussion of our “Product Warranties” and “Contingent Consideration” arrangements.

(3)See Note 6. “Derivative Financial Instruments” to our condensed consolidated financial statements for discussion of our derivative instruments.

6. 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 financial position, results of operations, and cash flows. We use derivative instruments to hedge against these risks and only hold such instruments for hedging purposes, not for speculative or trading purposes.

Depending on the terms of the specific derivative instruments and market conditions, some of our derivative instruments may be assets and others liabilities at any particular balance sheet date. We report all of our derivative instruments at fair value and account for changes in the fair value of derivative instruments within “Accumulated other comprehensive loss” if the derivative instruments qualify for hedge accounting. For those derivative instruments that do not qualify for hedge accounting (i.e., “economic hedges”), we record the changes in fair value directly to earnings. See Note 8. “Fair Value Measurements” to our condensed consolidated financial statements for information about the techniques we use to measure the fair value of our derivative instruments.

The following tables present the fair values of derivative instruments included in our condensed consolidated balance sheets as of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018~~2019 (in thousands):


	June 30, 2020
	Prepaid Expenses and Other Current Assets		Other Assets		Other Current Liabilities		Other Liabilities
Derivatives designated as hedging instruments:
Foreign exchange forward contracts	$	465	$	67	$	141	$	4
Total derivatives designated as hedging instruments	$	465	$	67	$	141	$	4

Derivatives not designated as hedging instruments:
Foreign exchange forward contracts	$	1,176	$	—	$	644	$	—
Interest rate swap contracts	—		—		435		8,562
Total derivatives not designated as hedging instruments	$	1,176	$	—	$	1,079	$	8,562
Total derivative instruments	$	1,641	$	67	$	1,220	$	8,566

September 30, 2019
Prepaid Expenses and Other Current Assets Other Assets Other Current Liabilities Other Liabilities
Derivatives designated as hedging instruments:
Foreign exchange forward contracts $ 230
$ 449
$ 180
$ —
Total derivatives designated as hedging instruments $ 230
$ 449
$ 180
$ —

Derivatives not designated as hedging instruments:
Foreign exchange forward contracts $ 2,069
$ —
$ 2,594
$ —
Interest rate swap contracts —
—
465
8,706
Total derivatives not designated as hedging instruments $ 2,069
$ —
$ 3,059
$ 8,706
Total derivative instruments $ 2,299
$ 449
$ 3,239
$ 8,706

December 31, 2018
Prepaid Expenses and Other Current Assets Other Current Liabilities Other Liabilities
Derivatives designated as hedging instruments:
Foreign exchange forward contracts $ 158
$ —
$ —
Total derivatives designated as hedging instruments $ 158
$ —
$ —

Derivatives not designated as hedging instruments:
Foreign exchange forward contracts $ 2,206
$ 7,096
$ —
Interest rate swap contracts —
198
9,205
Total derivatives not designated as hedging instruments $ 2,206
$ 7,294
$ 9,205
Total derivative instruments $ 2,364
$ 7,294
$ 9,205

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	December 31, 2019
	Prepaid Expenses and Other Current Assets		Other Assets		Other Current Liabilities		Other Liabilities
Derivatives designated as hedging instruments:
Foreign exchange forward contracts	$	226	$	139	$	369	$	230
Total derivatives designated as hedging instruments	$	226	$	139	$	369	$	230

Derivatives not designated as hedging instruments:
Foreign exchange forward contracts	$	973	$	—	$	1,807	$	—
Interest rate swap contracts	—		—		406		7,209
Total derivatives not designated as hedging instruments	$	973	$	—	$	2,213	$	7,209
Total derivative instruments	$	1,199	$	139	$	2,582	$	7,439

The following table presents the pretax amounts related to derivative instruments designated as cash flow hedges affecting accumulated other comprehensive income (loss) and our condensed consolidated statements of operations for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019 (in thousands):

Foreign Exchange Forward Contracts
Balance as of December 31, 2018 $ 1,329
Amounts recognized in other comprehensive income (loss) 153
Amounts reclassified to earnings impacting:
Net sales (124 )
Cost of sales (1,081 )
Balance as of September 30, 2019 $ 277

Balance as of December 31, 2017 $ (1,723 )
Amounts recognized in other comprehensive income (loss) (3,884 )
Amounts reclassified to earnings impacting:
Net sales 1,698
Cost of sales 212
Foreign currency gain (loss), net 5,448
Other (loss) income, net (546 )
Balance as of September 30, 2018 $ 1,205


	Foreign Exchange Forward Contracts
Balance as of December 31, 2019	$	(962)
Amounts recognized in other comprehensive income (loss)	(141)

Amounts reclassified to earnings impacting:

Cost of sales	313



Balance as of June 30, 2020	$	(790)

Balance as of December 31, 2018	$	1,329
Amounts recognized in other comprehensive income (loss)	(463)
Amounts reclassified to earnings impacting:
Net sales	(124)
Cost of sales	(1,081)



Balance as of June 30, 2019	$	(339)

~~We recorded 0 amounts related to ineffective portions of our derivative instruments designated as cash flow hedges during the three and nine months ended September 30, 2018.~~

During the three and ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, we recognized unrealized gains of ~~$0.2~~$0.3 million and ~~$0.3~~$1.1 million, respectively, within “~~Cost~~“Cost of ~~sales~~”sales” for amounts excluded from effectiveness testing for our foreign exchange forward contracts designated as cash flow hedges. During the three and ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, we recognized unrealized gains of ~~$1.0~~$0.1 million ~~and $0.5 million, respectively,~~ within “~~Other (loss) income, net~~”“Cost of sales” for amounts excluded from effectiveness testing for our foreign exchange forward contracts designated as cash flow hedges.

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The following table presents gains and losses related to derivative instruments not designated as hedges affecting our condensed consolidated statements of operations for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019 (in thousands):


		Amount of Gain (Loss) Recognized in Income
		Three Months Ended June 30,						Six Months Ended June 30,
	Income Statement Line Item	2020		2019		2020		2019
Interest rate swap contracts	Cost of sales	$	—	$	(1,656)	$	—	$	(1,656)
Foreign exchange forward contracts	Cost of sales	16		—		122		—
Foreign exchange forward contracts	Foreign currency (loss) income, net	468		(4,652)		193		(2,752)
Interest rate swap contracts	Interest expense, net	1,023		(4,368)		(1,381)		(9,732)

Amount of Gain (Loss) Recognized in Income
Three Months Ended
September 30, Nine Months Ended
September 30,
Income Statement Line Item 2019 2018 2019 2018
Interest rate swap contracts Cost of sales $ —
$ —
$ (1,656 ) $ —
Foreign exchange forward contracts Foreign currency gain (loss), net 3,635
7,098
883
13,477
Interest rate swap contracts Interest expense, net (357 ) 883
(10,089 ) (1,284 )

Interest Rate Risk

We primarily use interest rate swap contracts to mitigate our exposure to interest rate fluctuations associated with certain of our debt instruments. We do not use such swap contracts for speculative or trading purposes. During the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, the majority of our interest rate swap contracts related to project specific debt facilities. Such swap contracts did not qualify for accounting as cash flow hedges in accordance with ~~ASC~~Accounting Standards Codification (“ASC”) 815 due to our expectation to sell the associated projects before the maturity of their project specific debt financings and

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corresponding swap contracts. Accordingly, changes in the fair values of these swap contracts were recorded directly to “~~Interest~~“Interest expense, ~~net~~.net.”

In ~~May 2018,~~December 2019, FS ~~NSW~~Japan Project ~~No 1 Finco Pty Ltd,~~31 GK, our ~~indirect~~indirectly wholly-owned subsidiary and project ~~financing~~ company, entered into ~~various~~an interest rate swap ~~contracts~~contract to hedge ~~the floating rate construction loan facility and~~ a portion of the floating rate term loan facility under the ~~associated~~ project’s ~~Beryl~~Anamizu Credit ~~Facility~~Agreement (as defined in Note 9. “Debt” to our ~~condensed~~ consolidated financial statements). ~~The swaps~~Such swap had an initial ~~aggregate~~ notional value of ~~AUD 42.4 million~~¥0.9 billion and ~~depending on the loan facility being hedged,~~ entitled the project to receive ~~one-month or three-month~~a six-month floating ~~Bank Bill Swap Bid~~Tokyo Interbank Offered Rate (“~~BBSY”~~TIBOR”) plus 0.70% interest ~~rates~~rate while requiring the project to pay a fixed ~~rates~~rate of ~~2.0615% or 3.2020%~~1.1925%. The notional ~~amounts~~amount of the interest rate swap ~~contracts are scheduled to~~contract proportionately ~~adjust~~adjusts with ~~the~~ scheduled draws and principal payments on the underlying hedged debt. ~~In June 2019, we completed the sale of our Beryl project, and its interest rate swap contracts and outstanding loan balance were assumed by the customer.~~ As of June 30, 2020 and December 31, ~~2018,~~2019, the ~~aggregate~~ notional value of the interest rate swap ~~contracts~~contract was ~~AUD 103.4 million~~¥2.0 billion ($~~72.9~~18.3 million). and ¥0.9 billion ($8.0 million), respectively.

In January 2017, FS Japan Project 12 GK, our indirect wholly-owned subsidiary and project company, entered into an interest rate swap contract to hedge a portion of the floating rate senior loan facility under the project’s Ishikawa Credit Agreement (as defined in Note 9. “Debt” to our condensed consolidated financial statements). Such swap had an initial notional value of ¥5.7 billion and entitled the project to receive a six-month floating TIBOR plus 0.75% interest rate while requiring the project to pay a fixed rate of 1.482%. The notional amount of the interest rate swap contract ~~is scheduled to~~ proportionately ~~adjust~~adjusts with ~~the~~ scheduled draws and principal payments on the underlying hedged debt. As of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, the notional value of the interest rate swap contract was ~~¥19.1~~¥18.5 billion ($~~176.7~~172.3 million) and ~~¥19.2~~¥18.7 billion ($~~174.1~~171.7 million), respectively.

Foreign Currency Risk

Cash Flow Exposure

We expect certain of our subsidiaries to have future cash flows that will be denominated in currencies other than the subsidiaries’ functional currencies. Changes in the exchange rates between the functional currencies of our subsidiaries and the other currencies in which they transact will cause fluctuations in the cash flows we expect to receive or pay when these cash flows are realized or settled. Accordingly, we enter into foreign exchange forward contracts to hedge a portion of these forecasted cash flows. As of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, these

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foreign exchange forward contracts hedged our forecasted cash flows for periods up to 1921 months and 622 months, respectively. These foreign exchange forward contracts qualify for accounting as cash flow hedges in accordance with ASC 815, and we designated them as such. We report unrealized gains or losses on such contracts in “Accumulated other comprehensive loss” and subsequently reclassify applicable amounts into earnings when the hedged transaction occurs and impacts earnings. We determined that these derivative financial instruments were highly effective as cash flow hedges as of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018.~~2019.

As of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, 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, 2020

Currency

Notional Amount

USD Equivalent

U.S. dollar (1)

$47.3

September 30, 2019
Currency Notional Amount USD Equivalent
U.S. dollar (1) $31.6 $31.6



	~~December 31, 2018~~
~~Currency~~	~~Notional Amount~~	~~USD Equivalent~~
~~Australian dollar~~	~~AUD 8.8~~	~~$6.2~~

December 31, 2019

Currency

Notional Amount

USD Equivalent

U.S. dollar (1)

$69.9

——————————


~~(1)~~	~~These derivative instruments represent hedges of outstanding payables at certain of our foreign subsidiaries whose functional currencies are other than the U.S. dollar.~~

(1)These derivative instruments represent hedges of outstanding payables denominated in U.S. dollars at certain of our foreign subsidiaries whose functional currencies are other than the U.S. dollar.

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In the following 12 months, we expect to reclassify to earnings ~~$0.1~~$0.5 million of net unrealized ~~losses~~loss related to forward contracts that are included in “Accumulated other comprehensive loss” at ~~September~~June 30, ~~2019~~2020 as we realize the earnings effects of the related forecasted transactions. The amount we ultimately record to earnings will depend on the actual exchange rates when we realize the related forecasted transactions.

Transaction Exposure and Economic Hedging

Many of our subsidiaries have assets and liabilities (primarily cash, receivables, ~~marketable securities,~~ deferred taxes, payables, accrued expenses, and solar module collection and recycling liabilities) that are denominated in currencies other than the subsidiaries’ functional currencies. Changes in the exchange rates between the functional currencies of our subsidiaries and the other currencies in which these assets and liabilities are denominated will create fluctuations in our reported condensed consolidated statements of operations and cash flows. We may enter into foreign exchange forward contracts or other financial instruments to economically hedge assets and liabilities against the effects of currency exchange rate fluctuations. The gains and losses on such foreign exchange forward contracts will economically offset all or part of the transaction gains and losses that we recognize in earnings on the related foreign currency denominated assets and liabilities.

We also enter into foreign exchange forward contracts to economically hedge balance sheet and other exposures related to transactions between certain of our subsidiaries and transactions with third parties. Such contracts are considered economic hedges and do not qualify for hedge accounting. Accordingly, we recognize gains or losses from the fluctuations in foreign exchange rates and the fair value of these derivative contracts in “~~Foreign~~“Foreign currency ~~gain~~ (loss)~~, net~~” income, net” on our condensed consolidated statements of operations. ~~These contracts mature at various dates within the next three months.~~

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As of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, 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, 2020

Transaction

Currency

Notional Amount

USD Equivalent

Purchase

Australian dollar

AUD 3.2

$2.2

Purchase

Brazilian real

BRL 2.6

$0.5

Sell

Brazilian real

BRL 4.3

$0.8

Sell

Canadian dollar

CAD 4.3

$3.1

Sell

Chilean peso

CLP 2,553.8

$3.1

Purchase

~~September 30, 2019~~Euro

€124.3

$139.9

~~Transaction~~Sell

~~Currency~~Euro

~~Notional Amount~~€72.9

~~USD Equivalent~~$82.1

~~Purchase~~

~~Australian dollar~~

~~AUD 14.2~~

~~$9.6~~

~~Sell~~

~~Australian dollar~~

~~AUD 7.3~~

~~$4.9~~

~~Purchase~~

~~Brazilian real~~

~~BRL 8.5~~

~~$2.0~~

~~Purchase~~

~~Canadian dollar~~

~~CAD 4.5~~

~~$3.4~~

~~Sell~~

~~Canadian dollar~~

~~CAD 1.6~~

~~$1.2~~

~~Purchase~~

~~Chilean peso~~

~~CLP 1,632.3~~

~~$2.2~~

~~Sell~~

~~Chilean peso~~

~~CLP 5,180.1~~

~~$7.1~~

~~Purchase~~

~~Euro~~

~~€138.3~~

~~$151.2~~

~~Sell~~

~~Euro~~

~~€148.8~~

~~$162.7~~

~~Purchase~~

~~Indian rupee~~

~~INR 85.9~~

~~$1.2~~

~~Sell~~

~~Indian rupee~~

~~INR 1,621.4~~

~~$23.0~~

~~Purchase~~

~~Japanese yen~~

~~¥2,462.8~~

~~$22.8~~

~~Sell~~

~~Japanese yen~~

~~¥20,906.6~~

~~$193.5~~

~~Purchase~~

~~Malaysian ringgit~~

~~MYR 65.5~~

~~$15.6~~

~~Sell~~

~~Malaysian ringgit~~

~~MYR 86.0~~

~~$20.5~~

~~Sell~~

~~Mexican peso~~

~~MXN 34.6~~

~~$1.8~~

~~Purchase~~

~~Singapore dollar~~

~~SGD 2.9~~

~~$2.1~~

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~~December 31, 2018~~

~~Transaction~~Sell

~~Currency~~Indian rupee

~~Notional Amount~~INR 766.7

~~USD Equivalent~~$10.1

Purchase

~~Australian dollar~~Japanese yen

~~AUD 2.1~~¥3,032.2

$~~1.5~~28.2

Sell

~~Australian dollar~~Japanese yen

~~AUD 52.9~~¥27,265.9

$~~37.3~~253.6

Purchase

~~Brazilian real~~Malaysian ringgit

~~BRL 8.5~~MYR 15.3

$~~2.2~~3.6

Sell

~~Canadian dollar~~Malaysian ringgit

~~CAD 2.9~~MYR 18.1

$~~2.1~~4.2

~~Sell~~

~~Chilean peso~~

~~CLP 3,506.6~~

~~$5.1~~

~~Purchase~~Sell

~~Euro~~Mexican peso

~~€115.2~~MXN 34.6

$~~131.9~~1.5

~~Sell~~Purchase

~~Euro~~Singapore dollar

~~€191.8~~SGD 2.9

$~~219.7~~2.1

~~Sell~~

~~Indian rupee~~

~~INR 789.2~~

~~$11.3~~

~~Purchase~~

~~Japanese yen~~

~~¥931.6~~

~~$8.4~~

~~Sell~~

~~Japanese yen~~

~~¥23,858.8~~

~~$216.2~~

~~Purchase~~

~~Malaysian ringgit~~

~~MYR 34.3~~

~~$8.3~~

~~Sell~~

~~Malaysian ringgit~~

~~MYR 53.8~~

~~$12.9~~

~~Sell~~

~~Mexican peso~~

~~MXN 37.3~~

~~$1.9~~

~~Purchase~~

~~Singapore dollar~~

~~SGD 3.8~~

~~$2.8~~

December 31, 2019

Transaction

Currency

Notional Amount

USD Equivalent

Purchase

Australian dollar

AUD 14.9

$10.4

Sell

Australian dollar

AUD 11.1

$7.8

Purchase

Brazilian real

BRL 13.2

$3.3

Sell

Brazilian real

BRL 4.3

$1.1

Purchase

Canadian dollar

CAD 4.5

$3.4

Sell

Canadian dollar

CAD 1.6

$1.2

Purchase

Chilean peso

CLP 1,493.1

$2.0

Sell

Chilean peso

CLP 3,866.1

$5.1

Purchase

Euro

€86.1

$96.5

Sell

Euro

€116.3

$130.3

Sell

Indian rupee

INR 1,283.8

$18.0

Purchase

Japanese yen

¥3,625.5

$33.3

Sell

Japanese yen

¥23,089.5

$212.2

Purchase

Malaysian ringgit

MYR 88.6

$21.6

Sell

Malaysian ringgit

MYR 41.3

$10.1

Sell

Mexican peso

MXN 34.6

$1.8

Purchase

Singapore dollar

SGD 2.9

$2.2

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7. Leases

Our lease arrangements include land associated with our systems projects, our corporate and administrative offices, land for our international manufacturing facilities, and certain of our manufacturing equipment. Such leases primarily relate to assets located in the United States, Japan, Malaysia, and Vietnam.

Upon commencement of a lease, we recognize a lease liability for the present value of the lease payments not yet paid, discounted using an interest rate that represents our ability to borrow on a collateralized basis over a period that approximates the lease term. We also recognize a lease asset, which represents our right to control the use of the underlying property, plant or equipment, at an amount equal to the lease liability, adjusted for prepayments and initial direct costs.

We subsequently recognize the cost of the lease on a straight-line basis over the lease term, and any variable lease costs, which represent amounts owed to the lessor that are not fixed per the terms of the contract, are recognized in the period in which they are incurred. Any costs included in our lease arrangements that are not directly related to the leased assets, such as maintenance charges, are included as part of the lease costs. Leases with an initial term of one year or less are considered short-term leases and are not recognized as lease assets and liabilities. We also recognize the cost of such short-term leases on a straight-line basis over the term of the underlying agreement.

Many of our leases, in particular those related to systems project land, contain renewal or termination options that are exercisable at our discretion. At the commencement date of a lease, we include in the lease term any periods covered by a renewal option, and exclude from the lease term any periods covered by a termination option, to the extent we are reasonably certain to exercise such options. In making this determination, we seek to align the lease term with the expected economic life of the underlying asset.

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The following table presents certain quantitative information related to our lease arrangements for the three and ~~nine~~six months ended ~~September~~June 30, 2020 and 2019, and as of ~~September~~June 30, 2020 and December 31, 2019 (in thousands):


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
Operating lease cost	$	4,718	$	5,536	$	8,896	$	10,819
Variable lease cost	625		939		1,291		1,688
Short-term lease cost	744		2,858		1,705		5,700
Total lease cost	$	6,087	$	9,333	$	11,892	$	18,207

Payments of amounts included in the measurement of operating lease liabilities					$	11,770	$	10,632
Lease assets obtained in exchange for operating lease liabilities					$	93,425	$	151,081

					June 30, 2020		December 31, 2019
Operating lease assets					$	237,001	$	145,711
Operating lease liabilities – current					14,453		11,102
Operating lease liabilities – noncurrent					196,877		112,515

Three Months Ended September 30, 2019 Nine Months Ended September 30, 2019
Operating lease cost $ 5,788
$ 16,607
Variable lease cost 904
2,592
Short-term lease cost 1,118
6,818
Total lease cost $ 7,810
$ 26,017

Payments of amounts included in the measurement of operating lease liabilities $ 15,995
Lease assets obtained in exchange for operating lease liabilities $ 172,760

September 30, 2019
Operating lease assets $ 176,785
Operating lease liabilities – current
11,221
Operating lease liabilities – noncurrent
142,256

Weighted-average remaining lease term 17 years
Weighted-average discount rate 4.5 %


Weighted-average remaining lease term	20 years		15 years
Weighted-average discount rate	3.1	%	4.3	%

As of ~~September~~June 30, ~~2019,~~2020, the future payments associated with our lease liabilities were as follows (in thousands):


	Total Lease Liabilities
Remainder of 2020	$	8,021
2021	18,831
2022	17,994
2023	17,486
2024	17,188
Thereafter	187,002
Total future payments	266,522
Less: interest	(55,192)
Total lease liabilities	$	211,330

Total Lease Liabilities
Remainder of 2019 $ 4,534
2020 15,688
2021 15,607
2022 15,124
2023 14,967
Thereafter 156,009
Total future payments 221,929
Less: interest (68,452 )
Total lease liabilities $ 153,477

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8. Fair Value Measurements

The following is a description of the valuation techniques that we use to measure the fair value of assets and liabilities that we measure and report at fair value on a recurring basis:


•	~~Cash Equivalents.~~ ~~At September 30, 2019~~ •Cash Equivalents. At June 30, 2020 and December 31, 2018, our cash equivalents consisted of money market funds. We value our cash equivalents using observable inputs that reflect quoted prices for securities with identical characteristics, and accordingly, we classify the valuation techniques that use these inputs as Level 1.

•

~~Marketable Securities and Restricted Investments.~~ At September 30, 2019 and December 31, 2018, our marketable securities consisted of foreign debt, foreign government obligations, U.S. 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 standing in these fair value measurements.

•

~~Derivative Assets and Liabilities~~. At September 30, 2019 and December 31, 2018, our derivative assets and liabilities consisted of foreign exchange forward contracts involving major currencies and interest rate swap contracts involving major interest rates. Since our derivative assets and liabilities are not traded on an exchange, we value them using standard industry valuation models. As applicable, these models project future cash flows and discount the amounts to a present value using market-based observable inputs, including interest rate curves, credit risk, foreign exchange rates, and forward and spot prices for currencies. 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 ~~September 30, 2019~~ ~~and~~ December 31, ~~2018~~2019, our cash equivalents consisted of money market funds. We value our cash equivalents using observable inputs that reflect quoted prices for securities with identical characteristics, and accordingly, we classify the valuation techniques that use these inputs as Level 1.

•,Marketable Securities and Restricted Marketable Securities. At June 30, 2020 and December 31, 2019, our marketable securities consisted of foreign debt, foreign government obligations, U.S. debt, and time deposits, and our restricted marketable securities consisted of foreign and U.S. government obligations. We value our marketable securities and restricted marketable securities using observable inputs that reflect quoted prices for securities with identical characteristics or quoted prices for securities with similar characteristics and other observable inputs (such as interest rates that are observable at commonly quoted intervals). Accordingly, we classify the valuation techniques that use these inputs as either Level 1 or Level 2 depending on the inputs used. We also consider the effect of our counterparties’ credit standing in these fair value measurements.

•Derivative Assets and Liabilities. At June 30, 2020 and December 31, 2019, our derivative assets and liabilities consisted of foreign exchange forward contracts involving major currencies and interest rate swap contracts involving major interest rates. Since our derivative assets and liabilities are not traded on an exchange, we value them using standard industry valuation models. As applicable, these models project future cash flows and discount the amounts to a present value using market-based observable inputs, including interest rate curves, credit risk, foreign exchange rates, and forward and spot prices for currencies. 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 June 30, 2020 and December 31, 2019, the fair value measurements of our assets and liabilities measured on a recurring basis were as follows (in thousands):


			Fair Value Measurements at Reporting Date Using
	June 30, 2020		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Cash equivalents:
Money market funds	$	392	$	392	$	—	$	—
Marketable securities:
Foreign debt	261,955		—		261,955		—
U.S. debt	48,697		—		48,697		—
Time deposits	183,428		183,428		—		—
Restricted marketable securities	253,236		—		253,236		—
Derivative assets	1,708		—		1,708		—
Total assets	$	749,416	$	183,820	$	565,596	$	—
Liabilities:
Derivative liabilities	$	9,786	$	—	$	9,786	$	—

Fair Value Measurements at Reporting
Date Using

September 30,
2019
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)
Assets:
Cash equivalents:
Money market funds $ 7,288
$ 7,288
$ —
$ —
Marketable securities:
Foreign debt 361,414
—
361,414
—
Foreign government obligations 21,988
—
21,988
—
U.S. debt 90,388
—
90,388
—
Time deposits 187,762
187,762
—
—
Restricted investments 241,378
—
241,378
—
Derivative assets 2,748
—
2,748
—
Total assets $ 912,966
$ 195,050
$ 717,916
$ —
Liabilities:
Derivative liabilities $ 11,945
$ —
$ 11,945
$ —

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			Fair Value Measurements at Reporting Date Using
	December 31, 2019		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Cash equivalents:
Money market funds	$	7,322	$	7,322	$	—	$	—
Marketable securities:
Foreign debt	387,820		—		387,820		—
Foreign government obligations	22,011		—		22,011		—
U.S. debt	66,134		—		66,134		—
Time deposits	335,541		335,541		—		—
Restricted marketable securities	223,785		—		223,785		—
Derivative assets	1,338		—		1,338		—
Total assets	$	1,043,951	$	342,863	$	701,088	$	—
Liabilities:
Derivative liabilities	$	10,021	$	—	$	10,021	$	—

Fair Value Measurements at Reporting
Date Using

December 31,
2018
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)
Assets:
Cash equivalents:
Money market funds $ 200,788
$ 200,788
$ —
$ —
Marketable securities:
Foreign debt 318,646
—
318,646
—
Foreign government obligations 98,621
—
98,621
—
U.S. debt 44,468
—
44,468
—
Time deposits 681,969
681,969
—
—
Restricted investments 179,000
—
179,000
—
Derivative assets 2,364
—
2,364
—
Total assets $ 1,525,856
$ 882,757
$ 643,099
$ —
Liabilities:
Derivative liabilities $ 16,499
$ —
$ 16,499
$ —

Fair Value of Financial Instruments

At ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, the carrying values and fair values of our financial instruments not measured at fair value were as follows (in thousands):

September 30, 2019 December 31, 2018

Carrying
Value

Fair
Value

Carrying
Value

Fair
Value
Assets:
Notes receivable – current (2) $ 23,440
$ 25,319
$ 5,196
$ 5,196
Note receivable – noncurrent 8,003
9,974
8,017
8,010
Notes receivable, affiliate – noncurrent (2) —
—
22,832
24,295
Liabilities:
Long-term debt, including current maturities (1) $ 490,859
$ 511,027
$ 479,157
$ 470,124


	June 30, 2020						December 31, 2019
	Carrying Value		Fair Value		Carrying Value		Fair Value
Assets:
Notes receivable – current (1)	$	—	$	—	$	23,873	$	24,929
Notes receivable – noncurrent (1)	8,231		9,660		8,194		10,276

Liabilities:
Long-term debt, including current maturities (2)	$	475,554	$	480,025	$	482,892	$	504,213

——————————


~~(1)~~	~~Excludes unamortized discounts and issuance costs.~~

(1)See Note 5. “Consolidated Balance Sheet Details” for further information about the allowance for credit losses for our notes receivable.

~~(2)~~

In January 2019, CEC no longer qualified to be accounted for under the equity method, and our loans to the company were no longer classified as notes receivable from an affiliate. As of September 30, 2019, the aggregate balance outstanding on the loans was presented within “Prepaid expenses and other current assets.” As of December 31, 2018, the aggregate balance outstanding on the loans was presented within “Notes receivable, affiliate.”

(2)Excludes unamortized discounts and issuance costs.

The carrying values in our condensed consolidated balance sheets of our trade accounts receivable, unbilled accounts receivable and retainage, restricted cash, accounts payable, and accrued expenses approximated their fair values due to their nature and relatively short maturities; therefore, we excluded them from the foregoing table. The fair value measurements for our notes receivable and long-term debt are considered Level 2 measurements under the fair value hierarchy.

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Credit Risk

We have certain financial and derivative instruments that subject us to credit risk. These consist primarily of cash, cash equivalents, marketable securities, accounts receivable, restricted cash, ~~and investments,~~restricted marketable securities, notes receivable, and foreign exchange forward contracts. We are exposed to credit losses in the event of nonperformance by the counterparties to our financial and derivative instruments. We place cash, cash equivalents, marketable

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securities, restricted cash and ~~investments,~~marketable securities, and foreign exchange forward contracts with various high-quality financial institutions and limit the amount of credit risk from any one counterparty. We continuously evaluate the credit standing of our counterparty financial institutions. Our net sales are primarily concentrated among a limited number of customers. We monitor the financial condition of our customers and perform credit evaluations whenever considered necessary. Depending upon the sales arrangement, we may require some form of payment security from our customers, including advance payments, parent guarantees, letters of credit, bank guarantees, or surety bonds. We also have power purchase agreements (“PPAs”) that subject us to credit risk in the event our ~~offtake~~off-take counterparties are unable to fulfill their contractual obligations, which may adversely affect our project assets and certain receivables. Accordingly, we closely monitor the credit standing of existing and potential ~~offtake~~off-take counterparties to limit such risks.

9. Debt

Our long-term debt consisted of the following at ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018~~2019 (in thousands):


		Balance (USD)
Loan Agreement	Currency	June 30, 2020		December 31, 2019
Revolving Credit Facility	USD	$	—	$	—
Luz del Norte Credit Facilities	USD	186,931		188,017
Ishikawa Credit Agreement	JPY	210,831		215,879
Japan Credit Facility	JPY	1,698		1,678
Tochigi Credit Facility	JPY	37,759		37,304
Anamizu Credit Agreement	JPY	12,286		12,138
Anantapur Credit Facility	INR	14,010		15,123
Tungabhadra Credit Facility	INR	12,039		12,753
Long-term debt principal		475,554		482,892
Less: unamortized discounts and issuance costs		(10,798)		(11,195)
Total long-term debt		464,756		471,697
Less: current portion		(77,029)		(17,510)
Noncurrent portion		$	387,727	$	454,187

Balance (USD)
Loan Agreement Currency September 30,
2019 December 31,
2018
Revolving Credit Facility USD $ —
$ —
Luz del Norte Credit Facilities USD 188,218
188,849
Ishikawa Credit Agreement JPY 236,894
157,834
Japan Credit Facility JPY —
—
Tochigi Credit Facility JPY 37,572
25,468
Anantapur Credit Facility INR 15,285
16,101
Tungabhadra Credit Facility INR 12,890
13,934
Beryl Credit Facility AUD —
76,971
Long-term debt principal 490,859
479,157
Less: unamortized discounts and issuance costs (10,555 ) (12,366 )
Total long-term debt 480,304
466,791
Less: current portion (28,240 ) (5,570 )
Noncurrent portion $ 452,064
$ 461,221

Revolving Credit Facility

Our amended and restated credit agreement with several financial institutions as lenders and JPMorgan Chase Bank, N.A. as administrative agent provides us with a senior secured credit facility (the “Revolving Credit Facility”) with an aggregate borrowing capacity of $500.0 million, which we may increase to $750.0 million, subject to certain conditions. Borrowings under the credit facility bear interest at (i) London Interbank Offered Rate (“LIBOR”), adjusted for Eurocurrency reserve requirements, plus a margin of 2.00% or (ii) a base rate as defined in the credit agreement plus a margin of 1.00% depending on the type of borrowing requested. These margins are also subject to adjustment depending on our consolidated leverage ratio. We had 0 borrowings under our Revolving Credit Facility as of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018~~2019 and had issued ~~$52.7~~$10.8 million and ~~$66.0~~$39.3 million, respectively, of letters of credit using availability under the facility. Loans and letters of credit issued under the Revolving Credit Facility are jointly and severally guaranteed by First Solar, Inc.; First Solar Electric, LLC; First Solar Electric (California), Inc.; and First Solar Development, LLC and are secured by interests in substantially all of the guarantors’ tangible and intangible assets other than certain excluded assets.

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In addition to paying interest on outstanding principal under the Revolving Credit Facility, we are required to pay a commitment fee at a rate of 0.30% per annum, based on the average daily unused commitments under the facility, which may also be adjusted due to changes in our consolidated leverage ratio. We also pay a letter of credit fee based on the applicable margin for Eurocurrency revolving loans on the face amount of each letter of credit and a fronting fee of 0.125%. Our Revolving Credit Facility matures in July 2022.

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Luz del Norte Credit Facilities

In August 2014, Parque Solar Fotovoltaico Luz del Norte SpA (“Luz del Norte”), our indirect wholly-owned subsidiary and project company, entered into credit facilities (the “Luz del Norte Credit Facilities”) with the ~~Overseas Private Investment~~U.S. International Development Finance Corporation (“~~OPIC”~~DFC”) and the International Finance Corporation (“IFC”) to provide limited-recourse senior secured debt financing for the design, development, financing, construction, testing, commissioning, operation, and maintenance of a 141 MW_AC PV solar power plant located near Copiapó, Chile.

In March 2017, we amended the terms of the DFC and IFC credit ~~facilities, which~~facilities. Such amendments (i) allowed for the capitalization of accrued and unpaid interest through March 15, 2017, along with the capitalization of certain future interest payments as variable rate loans under the credit facilities, (ii) allowed for the conversion of certain fixed rate loans to variable rate loans upon scheduled repayment, (iii) extended ~~their~~the maturity of the DFC and IFC loans until June 2037, and (iv) canceled the remaining borrowing capacity under the DFC and IFC credit facilities with the exception of the capitalization of certain future interest payments. As of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, the balance outstanding on the ~~OPIC~~DFC loans was ~~$140.9~~$139.9 million and ~~$141.4~~$140.8 million, respectively. As of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, the balance outstanding on the IFC loans was ~~$47.3~~$47.0 million and ~~$47.4~~$47.2 million, respectively. The ~~credit facilities~~DFC and IFC loans are secured by liens over all of Luz del Norte’s assets and by a pledge of all of the equity interests in the entity.

Ishikawa Credit Agreement

In December 2016, FS Japan Project 12 GK (“Ishikawa”), our indirect wholly-owned subsidiary and project company, entered into a credit agreement (the “Ishikawa Credit Agreement”) with Mizuho Bank, Ltd. for aggregate borrowings up to ¥27.3 billion ($~~247.4~~233.9 million) for the development and construction of a 59 MW_AC PV solar power plant located in Ishikawa, Japan. The credit agreement consists of a ¥24.0 billion ($~~217.5~~205.6 million) senior loan facility, a ¥2.1 billion ($~~19.0~~18.0 million) consumption tax facility, and a ¥1.2 billion ($~~10.9~~10.3 million) letter of credit facility. The senior loan facility matures in October 2036, and the consumption tax facility ~~matures~~matured in April 2020. The credit agreement is secured by pledges of Ishikawa’s assets, accounts, material project documents, and by the equity interests in the entity. As of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, the balance outstanding on the credit agreement was ~~$236.9~~$210.8 million and ~~$157.8~~$215.9 million, respectively.

Japan Credit Facility

In September 2015, First Solar Japan GK, our wholly-owned subsidiary, entered into a construction loan facility with Mizuho Bank, Ltd. for borrowings up to ¥4.0 billion ($~~36.3~~33.4 million) for the development and construction of utility-scale PV solar power plants in Japan (the “Japan Credit Facility”). ~~In September 2018, First Solar Japan GK renewed~~Borrowings under the facility generally mature within 12 months following the completion of construction activities for ~~an additional one-year period until September 2019.~~each financed project. The facility ~~was~~is guaranteed by First Solar, Inc. and secured by pledges of certain projects’ cash accounts and other rights in the projects. As of June 30, 2020 and December 31, ~~2018, there was 0~~2019, the balance outstanding on the ~~facility.~~facility was $1.7 million.

Tochigi Credit Facility

In June 2017, First Solar Japan GK, our wholly-owned subsidiary, entered into a term loan facility with Mizuho Bank, Ltd. for borrowings up to ¥7.0 billion ($~~63.4~~62.2 million) for the development of utility-scale PV solar power plants in Japan (the “Tochigi Credit Facility”). The term loan facility matures in March 2021. The facility is guaranteed by First Solar, Inc. and secured by pledges of certain of First Solar Japan GK’s accounts. As of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, the balance outstanding on the term loan facility was ~~$37.6~~$37.8 million and ~~$25.5~~$37.3 million, respectively.

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Anamizu Credit Agreement

In December 2019, FS Japan Project 31 GK (“Anamizu”), our indirect wholly-owned subsidiary and project company, entered into a credit agreement (the “Anamizu Credit Agreement”) with MUFG Bank, Ltd.; The Iyo Bank, Ltd.; The Hachijuni Bank, Ltd.; The Hyakugo Bank, Ltd.; and The Yamagata Bank, Ltd. for aggregate borrowings up to ¥7.7 billion ($70.8 million) for the development and construction of a 17 MW_AC PV solar power plant located in Ishikawa, Japan. The credit agreement consists of a ¥6.6 billion ($61.0 million) term loan facility, a ¥0.7 billion ($6.5 million) consumption tax facility, and a ¥0.4 billion ($3.3 million) debt service reserve facility. The term loan facility matures in September 2038, the consumption tax facility matures in November 2022, and the debt service reserve facility matures in March 2038. The credit agreement is secured by pledges of Anamizu’s assets, accounts, material project documents, and by the equity interests in the entity. As of June 30, 2020 and December 31, 2019, the balance outstanding on the credit agreement was $12.3 million and $12.1 million, respectively.

Miyagi Credit Facility

In July 2020, GK Marumori Hatsudensho (“Miyagi”), our indirectly wholly-owned subsidiary and project company, entered into a credit agreement (the “Miyagi Credit Facility”) with Shinsei Bank, Ltd. for aggregate borrowings up to ¥17.2 billion ($164.2 million) for the development and construction of a 40 MW_AC PV solar power plant located in Miyagi, Japan. The credit facility consists of a ¥15.2 billion ($145.1 million) term loan facility, a ¥1.5 billion ($14.4 million) consumption tax facility, and a ¥0.5 billion ($4.7 million) debt service reserve facility. The term loan facility and debt service reserve facility mature in June 2039, and the consumption tax facility is expected to mature in 2022. The credit facility is conditionally guaranteed by First Solar, Inc. and First Solar Japan GK, our wholly-owned subsidiary, and secured by pledges of Miyagi’s assets, accounts, material project documents, and by the equity interests in the entity.

Kyoto Credit Facility

In July 2020, First Solar Japan GK, our wholly-owned subsidiary, entered into a construction loan facility with Mizuho Bank, Ltd. for borrowings up to ¥15.0 billion ($142.8 million), which are intended to be used for the construction of a 38 MW_AC PV solar power plant located in Kyoto, Japan (the “Kyoto Credit Facility”). Borrowings under the facility generally mature within 12 months following the completion of construction activities at the project. The facility is guaranteed by First Solar, Inc. and First Solar Japan GK, our wholly-owned subsidiary, and secured by pledges of the project’s cash accounts and certain other assets.

Anantapur Credit Facility

In March 2018, Anantapur Solar Parks Private Limited, our indirect wholly-owned subsidiary and project company, entered into a term loan facility (the “Anantapur Credit Facility”) with J.P. Morgan Securities India Private Limited for borrowings up to INR 1.2 billion ($~~17.1~~18.4 million) for costs related to a 20 MW_AC PV solar power plant located in Karnataka, India. The term loan facility matures in February 2021 and is secured by a letter of credit issued by JPMorgan Chase Bank, N.A., Singapore, in favor of the lender. Such letter of credit is secured by a cash deposit placed by First Solar FE Holdings Pte. Ltd. As of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, the balance outstanding on the term loan facility was ~~$15.3~~$14.0 million and ~~$16.1~~$15.1 million, respectively. In July 2020, we completed the sale of our Anantapur project, and its outstanding term loan balance was assumed by the customer.

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Tungabhadra Credit Facility

In March 2018, Tungabhadra Solar Parks Private Limited, our indirect wholly-owned subsidiary and project company, entered into a term loan facility (the “Tungabhadra Credit Facility”) with J.P. Morgan Securities India Private Limited for borrowings up to INR 1.0 billion ($~~14.3~~15.3 million) for costs related to a 20 MW_AC PV solar power plant located in Karnataka, India. The term loan facility matures in February 2021 and is secured by a letter of credit issued by JPMorgan Chase Bank, N.A., Singapore, in favor of the lender. Such letter of credit is secured by a cash deposit placed by First Solar FE Holdings Pte. Ltd. As of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, the balance outstanding on the term loan facility was ~~$12.9~~$12.0 million and ~~$13.9~~$12.8 million, respectively.

~~Beryl Credit Facility~~

In May 2018, FS NSW Project No 1 Finco Pty Ltd, our wholly-owned subsidiary and project financing company, entered into a term loan facility (the “Beryl Credit Facility”) with MUFG Bank, Ltd.; Société Générale, Hong Kong Branch; and Mizuho Bank, Ltd. for aggregate borrowings up to AUD 146.4 million ($103.2 million) for the development and construction of an 87 MW_AC PV solar power plant located in New South Wales, Australia. In October 2018, the borrowing capacity on the Beryl Credit Facility was reduced to AUD 136.4 million ($96.2 million). Accordingly, the credit facility consisted of an AUD 125.4 million ($88.4 million) construction loan facility, an AUD 7.0 million ($4.9 million) GST facility to fund certain taxes associated with the construction of the project, and an AUD 4.0 million ($2.8 million) letter of credit facility. In June 2019,July 2020, we completed the sale of our ~~Beryl~~Tungabhadra project, and the outstanding term loan balance ~~of the Beryl Credit Facility of $88.0 million~~ was assumed by the customer. ~~As of December 31, 2018, the balance outstanding on the credit facility was $77.0 million.~~

Variable Interest Rate Risk

Certain of our long-term debt agreements bear interest at prime, LIBOR, TIBOR, BBSY, or equivalent variable rates. An increase in these variable rates would increase the cost of borrowing under our Revolving Credit Facility and certain project specific debt financings. Our long-term debt borrowing rates as of ~~September~~June 30, ~~2019~~2020 were as follows:



Loan Agreement	~~September~~June 30, ~~2019~~2020
Revolving Credit Facility	~~4.02%~~2.16%
Luz del Norte Credit Facilities (1)	Fixed rate loans at bank rate plus 3.50%
		Variable rate loans at 91-Day U.S. Treasury Bill Yield or LIBOR plus 3.50%
Ishikawa Credit Agreement	Senior loan facility at 6-month TIBOR plus 0.75% (2)
		Consumption tax facility at 3-month TIBOR plus 0.5%
Japan Credit Facility	1-month TIBOR plus 0.55%
Tochigi Credit Facility	3-month TIBOR plus 1.0%
Anamizu Credit Agreement	Term loan facility at 6-month TIBOR plus 0.70% (2)
		Consumption tax facility at 3-month TIBOR plus 0.5%
		Debt service reserve facility at 6-month TIBOR plus 1.20%
Anantapur Credit Facility	INR overnight indexed swap rate plus 1.5%
Tungabhadra Credit Facility	INR overnight indexed swap rate plus 1.5%

——————————


~~(1)~~	~~Outstanding balance comprised of $156.7 million of fixed rate loans and $31.5 million of variable rate loans as of September 30, 2019.~~

(1)Outstanding balance comprised of $148.6 million of fixed rate loans and $38.3 million of variable rate loans as of June 30, 2020.

(2)We have entered into interest rate swap contracts to hedge portions of these variable rates. See Note 6. “Derivative Financial Instruments” to our condensed consolidated financial statements for additional information.

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~~(2)~~	We have entered into an interest rate swap contract to hedge a portion of this variable rate. See Note 6. “Derivative Financial Instruments” to our condensed consolidated financial statements for additional information.

Future Principal Payments

At ~~September~~June 30, ~~2019~~,2020, the future principal payments on our long-term debt were due as follows (in thousands):


	Total Debt
Remainder of 2020	$	9,114
2021	78,076
2022	19,450
2023	18,433
2024	19,361
Thereafter	331,120
Total long-term debt future principal payments	$	475,554

Total Debt
Remainder of 2019 $ 8,414
2020 29,052
2021 79,746
2022 15,850
2023 18,097
Thereafter 339,700
Total long-term debt future principal payments $ 490,859

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10. Commitments and Contingencies

Commercial Commitments

During the normal course of business, we enter into commercial commitments in the form of letters of credit, bank guarantees, and surety bonds to provide financial and performance assurance to third parties. Our amended and restated Revolving Credit Facility provides us with a sub-limit of $400.0 million to issue letters of credit, subject to certain additional limits depending on the currencies of the letters of credit, at a fee based on the applicable margin for Eurocurrency revolving loans and a fronting fee. As of ~~September~~June 30, ~~2019,~~2020, we had ~~$52.7~~$10.8 million in letters of credit issued under our Revolving Credit Facility, leaving ~~$347.3~~$389.2 million of availability for the issuance of additional letters of credit. As of ~~September~~June 30, ~~2019,~~2020, we also had ~~$10.1~~$9.9 million of letters of credit under separate agreements that were posted by certain of our foreign subsidiaries and ~~$176.7~~$142.8 million of letters of credit issued under ~~three~~two bilateral facilities, of which ~~$33.0~~$30.0 million was secured with cash, leaving ~~$535.7~~$620.9 million of aggregate available capacity under such agreements and facilities. We also had ~~$80.7~~$90.0 million of surety bonds outstanding, leaving ~~$635.2~~$626.0 million of available bonding capacity under our surety lines as of ~~September~~June 30, ~~2019.~~2020. The majority of these letters of credit and surety bonds supported our systems projects.

Product Warranties

When we recognize revenue for module or system sales, we accrue liabilities for the estimated future costs of meeting our limited warranty obligations for both modules and the balance of the systems. We make and revise these estimates based primarily on the number of solar modules under warranty installed at customer locations, our historical experience with and projections of warranty claims, ~~our monitoring of field installation sites, our internal testing and the expected future performance of our solar modules and balance of systems (“BoS”) parts,~~ and our estimated per-module replacement costs. We also monitor our expected future module performance through certain quality and reliability testing and actual performance in certain field installation sites. From time to time, we have taken remediation actions with respect to affected modules beyond our limited warranties and may elect to do so in the future, in which case we would incur additional expenses. Such potential voluntary future remediation actions beyond our limited warranty obligations may be material to our condensed consolidated statements of operations if we commit to any such remediation actions.

~~Table of Contents~~

Product warranty activities during the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019 were as follows (in thousands):


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
Product warranty liability, beginning of period	$	124,501	$	217,241	$	129,797	$	220,692
Accruals for new warranties issued	2,183		4,797		4,468		9,913
Settlements	(2,921)		(2,944)		(9,483)		(6,022)
Changes in estimate of product warranty liability	(569)		(1,103)		(1,588)		(6,592)
Product warranty liability, end of period	$	123,194	$	217,991	$	123,194	$	217,991
Current portion of warranty liability	$	21,868	$	41,930	$	21,868	$	41,930
Noncurrent portion of warranty liability	$	101,326	$	176,061	$	101,326	$	176,061

Three Months Ended
September 30, Nine Months Ended
September 30,
2019 2018 2019 2018
Product warranty liability, beginning of period $ 217,991
$ 225,813
$ 220,692
$ 224,274
Accruals for new warranties issued 1,723
2,954
11,636
8,422
Settlements (4,211 ) (2,423 ) (10,233 ) (7,504 )
Changes in estimate of product warranty liability (77,598 ) (940 ) (84,190 ) 212
Product warranty liability, end of period $ 137,905
$ 225,404
$ 137,905
$ 225,404
Current portion of warranty liability $ 19,526
$ 33,595
$ 19,526
$ 33,595
Noncurrent portion of warranty liability $ 118,379
$ 191,809
$ 118,379
$ 191,809

We estimate our limited product warranty liability for power output and defects in materials and workmanship under normal use and service conditions based on return rates for each series of module technology. During the three months ended September 30, 2019, we revised this estimate downward based on updated information regarding our warranty claims, which reduced our product warranty liability by $80.0 million. This updated information reflected lower-than-expected return rates for our newer series of module technology, the evolving claims profile of each series, and certain changes to our warranty programs. In general, we expect the return rates for our newer series of module technology to be lower than our older series. We estimate that the return rate for such newer series of module technology will be less than 1%. As of ~~September~~June 30, ~~2019,~~2020, a 1% increase in the return rate across all series of module technology would increase our product warranty liability by ~~$83.3~~$97.5 million, and a 1% increase in the return rate for ~~BoS~~balance of systems (“BoS”) parts would not have a material impact on the associated warranty liability.

Performance Guarantees

As part of our systems business, we conduct performance testing of a system prior to substantial completion to confirm the system meets its operational and capacity expectations noted in the engineering, procurement, and construction (“EPC”) agreement. In addition, we may provide an energy performance test during the first or second year of a system’s operation to demonstrate that the actual energy generation for the applicable period meets or exceeds the modeled energy expectation, after certain adjustments. If there is an underperformance event with regards to these tests, we may incur liquidated damages as specified in the EPC agreement. In certain instances, a bonus payment may be received at the end of the applicable test period if the system performs above a specified level. As of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, we accrued ~~$5.3~~$5.0 million and ~~$0.4~~$4.6 million, respectively, for our estimated obligations under such arrangements, which were classified as “Other current liabilities” in our condensed consolidated balance sheets.

As part of our operations and maintenance (“O&M&M”) service offerings, we typically offer an effective availability guarantee, which stipulates that a system will be available to generate a certain percentage of total possible energy during a specific period after adjusting for factors outside of our control as the service provider, such as weather, curtailment, outages, force majeure, and other conditions that may affect system availability. Effective availability guarantees are only offered as part of our O&M services and terminate at the end of an O&M arrangement. If we fail to meet the contractual threshold for these guarantees, we may incur liquidated damages for certain lost energy. Our O&M agreements typically contain provisions limiting our total potential losses under an agreement, including amounts paid for liquidated damages, to a percentage of O&M fees. Many of our O&M agreements also contain provisions whereby we may receive a bonus payment if system availability exceeds a separate threshold. As of ~~September~~June 30, 2020 and December 31, 2019, we accrued ~~$0.1~~$1.1 million and $0.6 million, respectively, of liquidated damages under our effective availability guarantees, which were classified as “Other current liabilities” in our condensed consolidated balance sheets.

In certain limited circumstances, we have provided indemnifications to customers, including project tax equity investors, under which we are contractually obligated to compensate such parties for losses they suffer resulting from a breach of a representation, warranty, or covenant or a reduction in tax benefits received, including investment tax credits. Project related tax benefits are, in part, based on guidance provided by the Internal Revenue Service and U.S. Treasury Department, which includes assumptions regarding the fair value of qualifying PV solar power systems. For any sales contracts that have such indemnification provisions, we initially recognize a liability under ASC 460 for the estimated premium that would be required by a guarantor to issue the same indemnity in a standalone arm’s-length transaction with an unrelated party. We typically base these estimates on the cost of insurance policies that cover the underlying risks being indemnified and may purchase such policies to mitigate our exposure to potential indemnification payments. We subsequently measure such liabilities at the greater of the initially estimated premium or the contingent liability required to be recognized under ASC 450. We recognize any indemnification liabilities as a reduction of revenue in the related transaction.

After an indemnification liability is recorded, we derecognize such amount pursuant to ASC 460-10-35-2 depending on the nature of the indemnity, which derecognition typically occurs upon expiration or settlement of the arrangement, and any contingent aspects of the indemnity are accounted for in accordance with ASC 450. WeAs of June 30, 2020 and December 31, 2019, we accrued ~~$2.1~~$3.9 million and $0.8 million of current indemnification liabilities, ~~as of September 30, 2019~~respectively, and ~~$3.0~~$4.2 million of noncurrent indemnification ~~liabilities as of September 30, 2019 and December 31, 2018.~~liabilities. As of ~~September~~June 30, ~~2019,~~2020, the maximum potential amount of future payments under our tax related and other indemnifications was ~~$135.8~~$172.8 million, and we held insurance policies allowing us to recover up to $84.9 million of potential amounts paid under the indemnifications covered by the policies.

Contingent Consideration

We ~~continually~~may seek to make additions to our advanced-stage project pipeline by actively developing our early-to-mid-stage project pipeline and by pursuing opportunities to acquire projects at various stages of development. In connection with such project acquisitions, we may agree to pay additional amounts to project sellers upon the achievement of certain milestones, such as obtaining a PPA, obtaining financing, or selling the project to a new owner. We recognize a project acquisition contingent liability when we determine that such a liability is both probable and reasonably estimable, and the carrying amount of the related project asset is correspondingly increased. As of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, we accrued ~~$0.4~~$2.0 million and ~~$0.7~~$2.4 million of current liabilities, respectively, and ~~$5.3 million and $2.3~~$4.5 million of long-term liabilities, ~~respectively,~~ for project related contingent obligations. Any future differences between the acquisition-date contingent obligation estimate and the ultimate settlement of the obligation are recognized as an adjustment to the project asset, as contingent payments are considered direct and incremental to the underlying value of the related project.

Solar Module Collection and Recycling Liability

We previously established a module collection and recycling program, which has since been discontinued, to collect and recycle modules sold and covered under such program once the modules reach the end of their ~~useful~~service lives. For legacy customer sales contracts that were covered under this program, we agreed to pay the costs for the collection and recycling of qualifying solar modules, and the end-users agreed to notify us, disassemble their solar power systems, package the solar modules for shipment, and revert ownership rights over the modules back to us at the end of the modules’ service lives. Accordingly, we recorded any collection and recycling obligations within “Cost of sales” at the time of sale based on the estimated cost to collect and recycle the covered solar modules.

We estimate the cost of our collection and recycling obligations based on the present value of the expected probability-weighted future cost of collecting and recycling the solar modules, which includes estimates for the cost of packaging materials; the cost of freight from the solar module installation sites to a recycling center; material, labor, and capital costs; by-product credits for certain materials recovered during the ~~scale of~~ recycling ~~centers;~~process; and an estimated third-party profit margin and return on risk for collection and recycling services. We base these estimates on ~~(i)~~ our experience collecting and recycling ~~our~~ solar modules ~~(ii) the~~

~~expected timing of when our solar modules will be returned for recycling,~~ and ~~(iii) the expected economic factors~~certain assumptions regarding costs at the time the solar modules will be collected and recycled. In the periods between the time of sale and the related settlement of the collection and recycling obligation, we accrete the carrying amount of the associated liability by applying the discount rate used for its initial measurement. We classify accretion as an operating expense within “Selling, general and administrative” expense on our condensed consolidated statements of operations.

We periodically review our estimates of expected future recycling costs and may adjust our liability accordingly. During the three months ended September 30, 2018, we completed our annual cost study of obligations under our module collection and recycling program and reduced the associated liability by $34.2 million primarily due to higher by-product credits for glass, lower capital costs resulting from the expanded scale of our recycling facilities, and adjustments to certain valuation assumptions driven by our increased experience with module recycling.

Our module collection and recycling liability was ~~$135.0~~$140.5 million and ~~$134.4~~$137.8 million as of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively. As of ~~September~~June 30, ~~2019,~~2020, a 1% increase in the annualized inflation rate used in our estimated future collection and recycling cost per module would increase ~~our~~the liability by ~~$25.8~~$26.8 million, and a 1% decrease in that rate would decrease ~~our~~the liability by ~~$21.8~~$22.7 million. See Note 4. “Restricted ~~Cash and Investments”~~Marketable Securities” to our condensed consolidated financial statements for more information about our arrangements for funding this liability.

On March 15, 2012, a purported class action lawsuit titled Smilovits v. First Solar, Inc., et al., Case No. 2:12-cv-00555-DGC, was filed in the United States District Court for the District of Arizona (hereafter “Arizona District Court”) against the Company and certain of our current and former directors and officers. The complaint was filed on behalf of persons who purchased or otherwise acquired the Company’s publicly traded securities between April 30, 2008 and February 28, 2012 (the “Class Action”). The complaint generally ~~alleges~~alleged that the defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 by making false and misleading statements

regarding the Company’s financial performance and prospects. The action ~~includes~~included claims for damages, including interest, and an award of reasonable costs and attorneys’ fees to the putative class. ~~The Company believes it has meritorious defenses and will vigorously defend this action.~~

On July 23, 2012, the Arizona District Court issued an order appointing as lead plaintiffs in the Class Action the Mineworkers’ Pension Scheme and British Coal Staff Superannuation Scheme (collectively, the “Pension Schemes”). The Pension Schemes filed an amended complaint on August 17, 2012, which contains similar allegations and seeks similar relief as the original complaint. Defendants filed a motion to dismiss on September 14, 2012. On December 17, 2012, the court denied defendants’ motion to dismiss. On October 8, 2013, the Arizona District Court granted the Pension Schemes’ motion for class certification and certified a class comprised of all persons who purchased or otherwise acquired publicly traded securities of the Company between April 30, 2008 and February 28, 2012 and were damaged thereby, excluding defendants and certain related parties. Merits discovery closed on February 27, 2015.

Defendants filed a motion for summary judgment on March 27, 2015. On August 11, 2015, the Arizona District Court granted defendants’ motion in part and denied it in part, and certified an issue for immediate appeal to the Ninth Circuit Court of Appeals (the “Ninth Circuit”). First Solar filed a petition for interlocutory appeal with the Ninth Circuit, and that petition was granted on November 18, 2015. On May 20, 2016, the Pension Schemes moved to vacate the order granting the petition, dismiss the appeal, and stay the merits briefing schedule. On December 13, 2016, the Ninth Circuit denied the Pension Schemes’ motion. On January 31, 2018, the Ninth Circuit issued an opinion affirming the Arizona District Court’s order denying in part defendants’ motion for summary judgment. On March 16, 2018, First Solar filed a petition for panel rehearing or rehearing en banc with the Ninth Circuit. On May 7, 2018, the Ninth Circuit denied defendants’ petition. On August 6, 2018, defendants filed a petition for writ of certiorari to the U.S. Supreme Court. Meanwhile, in the Arizona District Court, expert discovery was completed on February 5, 2019. On June 24, 2019, the

U.S. Supreme Court denied the petition. Following the denial of the petition, the Arizona District Court ordered that the trial begin on January 7, 2020.

~~This lawsuit asserts~~On January 5, 2020, First Solar entered into a Memorandum of Understanding (“MOU”) to settle the Class Action. First Solar agreed to pay a total of $350 million to settle the claims ~~that, if resolved against us, could give rise to substantial damages,~~in the Class Action brought on behalf of all persons who purchased or otherwise acquired the Company’s shares between April 30, 2008 and ~~an unfavorable outcome~~February 28, 2012, in exchange for mutual releases and a dismissal with prejudice of the complaint upon court approval of the settlement. The proposed settlement contains no admission of liability, wrongdoing, or responsibility by any of the parties. As a result of the entry into the MOU, we accrued a loss for the above-referenced settlement ~~may result~~ in ~~a significant monetary judgment or award against us or a significant monetary payment by us, and could have a material adverse effect on~~ our ~~business, financial condition, and~~ results of ~~operations. Even if this lawsuit is not resolved against us,~~operations for the ~~costs~~year ended December 31, 2019. On January 24, 2020, First Solar paid $350 million to the settlement escrow agent. On February 13, 2020, First Solar entered into a stipulation of ~~defending~~settlement with certain named plaintiffs on terms and conditions that are consistent with the ~~lawsuit~~MOU. On February 14, 2020, the lead plaintiffs filed a motion for preliminary approval of the settlement. Following a February 27, 2020 hearing, the Arizona District Court entered an order on March 2, 2020 that granted preliminary approval of the settlement and permitted notice to the class. Following a June 30, 2020 hearing, the Arizona District Court entered an order on June 30, 2020 that granted final approval of ~~any~~the settlement ~~may be significant. These costs would likely exceed~~and dismissed the dollar limits of our insurance policies or may not be covered by our insurance policies. Given the uncertainties of trial, at this time we are not in a position to assess the likelihood of any potential loss or adverse effect on our financial condition or to estimate the range of potential loss, if any.Class Action with prejudice.

On June 23, 2015, a suit titled Maverick Fund, L.D.C. v. First Solar, Inc., et al., Case No. 2:15-cv-01156-ROS, was filed in Arizona District Court by putative stockholders that opted out of the Class ~~Action.~~Action (the “Opt-Out Action”). The complaint names the Company and certain of our current and former directors and officers as defendants, and alleges that the defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and violated state law, by making false and misleading statements regarding the Company’s financial performance and prospects. The action includes claims for ~~recessionary~~rescissory and actual damages, interest, punitive damages, and an award of reasonable attorneys’ fees, expert fees, and costs. ~~The Company believes it has meritorious defenses and will vigorously defend this action.~~

First Solar and the individual defendants filed a motion to dismiss the ~~complaint~~Op-Out Action on July 16, 2018. On November 27, 2018, the Court granted defendants’ motion to dismiss the plaintiffs’ negligent misrepresentation

claim under state law, but otherwise denied defendants’ motion. ~~This action is still~~On June 3, 2020, First Solar and the plaintiffs in the ~~initial stages, and~~Opt-Out Action entered into an agreement in principle to settle the claims in the Opt-Out Action. On July 17, 2020, the parties ~~are beginning limited discovery. At~~executed a definitive settlement agreement pursuant to which First Solar agreed to pay a total of $19 million in exchange for mutual releases and a dismissal with prejudice of the Opt-Out Action. The agreement contains no admission of liability, wrongdoing, or responsibility by any of the defendants. On July 30, 2020, First Solar funded the settlement, and on July 31, 2020, the parties filed a joint stipulation of dismissal. As of December 31, 2019, we accrued $13 million of estimated losses for this ~~time~~action. As a result of the settlement, we ~~are not in a position to assess~~accrued an incremental $6 million litigation loss during the ~~likelihood of any potential loss or adverse effect on our financial condition or to estimate the range of potential loss, if any.~~three months ended June 30, 2020.

On July 16, 2013, a derivative complaint was filed in the Superior Court of Arizona, Maricopa County, formerly titled Bargar, et al. v. Ahearn, et al., and now titled Kaufold v. Ahearn, et. al., Case No. CV2013-009938, by a putative stockholder against certain current and former directors and officers of the Company (“~~Bargar”~~Kaufold”). The complaint generally alleges that the defendants caused or allowed false and misleading statements to be made concerning the Company’s financial performance and prospects. The action includes claims for, among other things, breach of fiduciary duties, insider trading, unjust enrichment, and waste of corporate assets. By court order on October 3, 2013, the Superior Court of Arizona, Maricopa County granted the parties’ stipulation to defer defendants’ response to the complaint pending resolution of the Class Action or expiration of a stay issued in certain consolidated derivative actions in the Arizona District Court. On November 5, 2013, the matter was placed on the court’s inactive calendar. The parties ~~have~~ jointly sought and obtained multiple requests to continue the stay in this action. ~~Most recently, on July 9, 2019,~~On June 30, 2020, the ~~court entered an order continuing~~parties jointly requested that the stay ~~until November 27, 2019.~~be lifted. On July 1, 2020, the Superior Court of Arizona, Maricopa County ordered that the stay be lifted. On July 14, 2020, defendants filed a motion to dismiss the complaint with prejudice. Plaintiff’s opposition to the motion to dismiss is due September 2, 2020.

The Company believes that the plaintiff in the ~~Bargar~~Kaufold derivative action lacks standing to pursue litigation on behalf of First Solar. The ~~Bargar~~Kaufold derivative action is still in the initial stages and there has been no discovery. Accordingly, at this time we are not in a position to assess the likelihood of any potential loss or adverse effect on our financial condition or to estimate the amount or range of potential loss, if any.

Other Matters and Claims

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

Table of Contents

11. Revenue from Contracts with Customers

The following table represents a disaggregation of revenue from contracts with customers for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019 along with the reportable segment for each category (in thousands):


		Three Months Ended June 30,						Six Months Ended June 30,
Category	Segment	2020		2019		2020		2019
Solar modules	Modules	$	371,518	$	228,745	$	765,199	$	427,560
Solar power systems	Systems	215,474		217,755		305,550		375,049
O&M services	Systems	31,701		26,452		61,176		54,152
Energy generation (1)	Systems	22,576		9,547		40,549		20,122
EPC services	Systems	1,142		102,457		2,061		240,051
Net sales		$	642,411	$	584,956	$	1,174,535	$	1,116,934

Three Months Ended
September 30, Nine Months Ended
September 30,
Category Segment 2019 2018 2019 2018
Solar modules Modules $ 371,184
$ 119,825
$ 798,744
$ 386,450
Solar power systems Systems 79,792
386,237
454,841
850,306
EPC services Systems 47,219
134,369
287,270
203,941
O&M services Systems 28,245
25,431
82,397
76,572
Energy generation Systems 20,366
10,358
40,488
35,534
Net sales $ 546,806
$ 676,220
$ 1,663,740
$ 1,552,803
——————————

(1)During the three and six months ended June 30, 2020, the majority of energy generated and sold by our PV solar power systems was accounted for under ASC 840 consistent with the classification of the associated PPAs.

We recognize revenue for module sales at a point in time following the transfer of control of the modules to the customer, which typically occurs upon shipment or delivery depending on the terms of the underlying contracts. Such contracts may contain provisions that require us to make liquidated damage payments to the customer if we fail to ship or deliver modules by scheduled dates. We recognize these liquidated damages as a reduction of revenue in the period we transfer control of the modules to the customer.

~~We generally recognize revenue for~~For certain sales of solar power systems and/or EPC services, we recognize revenue over time using cost based input methods, in which significant judgment is required to evaluate assumptions including the amount of net contract revenues and the total estimated costs to determine our progress ~~towards~~toward contract ~~completion and to calculate the corresponding amount of revenue to recognize.~~completion. If the estimated total costs on any contract are greater than the net contract revenues, we recognize the entire estimated loss in the period the loss becomes known. The cumulative effect of revisions to estimates related to net contract revenues or costs to complete contracts are recorded in the period in which the revisions to estimates are identified and the amounts can be reasonably estimated.

Changes in estimates for sales of systems and EPC services occur for a variety of reasons, including but not limited to (i) construction plan accelerations or delays, (ii) module cost forecast changes, (iii) cost related change orders, or (iv) changes in other information used to estimate costs. Changes in estimates may have a material effect on our condensed consolidated statements of operations.

Table of Contents

The following table outlines the impact on revenue of net changes in estimated transaction prices and input costs for systems related sales contracts (both increases and decreases) for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019 as well as the number of projects that comprise such changes. For purposes of the table, we only include projects with changes in estimates that have a net impact on revenue of at least $1.0 million during the periods ~~presented with the exception of the sales and use tax matter described below, for which the aggregate change in estimate has been~~ presented. Also included in the table is the net change in estimate as a percentage of the aggregate revenue for such projects.


	Three Months Ended June 30,									Six Months Ended June 30,
	2020			2019			2020			2019
Number of projects	5			3			8			5

(Decrease) increase in revenue from net changes in transaction prices (in thousands)	$	(8,524)		$	(4,064)		$	(9,435)		$	4,697
Decrease in revenue from net changes in input cost estimates (in thousands)	(9,576)			(1,749)			(8,750)			(16,736)
Net decrease in revenue from net changes in estimates (in thousands)	$	(18,100)		$	(5,813)		$	(18,185)		$	(12,039)

Net change in estimate as a percentage of aggregate revenue	(1.3)		%	(0.4)		%	(1.0)		%	(0.7)		%

Three Months Ended
September 30, Nine Months Ended
September 30,
2019 2018 2019 2018
Number of projects (1) 4
2
4
23

(Decrease) increase in revenue from net changes in transaction prices (in thousands) (1) $ (2,435 ) $ 6,672
$ 3,649
$ 54,653
Decrease in revenue from net changes in input cost estimates (in thousands) (6,676 ) (2,948 ) (15,645 ) (13,070 )
Net (decrease) increase in revenue from net changes in estimates (in thousands) $ (9,111 ) $ 3,724
$ (11,996 ) $ 41,583

Net change in estimate as a percentage of aggregate revenue (0.6 )% 0.3 % (1.6 )% 0.4 %

The following table reflects the changes in our contract assets, which we classify as “Accounts receivable, unbilled” or “Retainage,” and our contract liabilities, which we classify as “Deferred revenue,” for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 (in thousands):

September 30,
2019 December 31,
2018 Nine Month Change
Accounts receivable, unbilled $ 136,734
$ 441,666

Retainage 28,279
16,500

Accounts receivable, unbilled and retainage $ 165,013
$ 458,166
$ (293,153 ) (64 )%

Deferred revenue (1) $ 134,278
$ 177,769
$ (43,491 ) (24 )%


	June 30, 2020		December 31, 2019		Six Month Change
Accounts receivable, unbilled (1)	$	58,323	$	162,057
Retainage	18,388		21,416
Allowance for credit losses	(734)		—
Accounts receivable, unbilled and retainage, net	$	75,977	$	183,473	$	(107,496)	(59)	%

Deferred revenue (2)	$	187,640	$	394,655	$	(207,015)	(52)	%

~~Accounts~~(1)Includes $11.9 million of long-term accounts receivable, unbilled ~~represents a contract asset for revenue that has been recognized in advance~~classified as “Other assets” on our condensed consolidated balance sheet as of ~~billing the customer, which is common for~~June 30, 2020.

(2)Includes $57.1 million and $71.4 million of long-term construction contracts. Billing requirements vary by contract but are generally structured around the completion of certain construction milestones. Some of our EPC contracts for systems we build may also contain retainage provisions. Retainage represents a contract asset for the portion of the contract price earned by us for work performed, but held for payment by the customer as a form of security until we reach certain construction milestones. When we receive consideration, or such consideration is unconditionally due, from a customer prior to transferring goods or services to the customer under the terms of a sales contract, we record deferred revenue ~~which represents a contract liability. Such deferred revenue typically results from billings in excess~~classified as “Other liabilities” on our condensed consolidated balance sheets as of ~~costs incurred on long-term construction contracts~~June 30, 2020 and ~~advance payments received on sales of solar modules.~~December 31, 2019, respectively.

During the ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, our contract assets decreased by ~~$293.2~~$107.5 million primarily due to billings on the California Flats and Willow Springs projects following the completion of substantially all construction activities and final billings on the Manildra project, which we sold in 2018, partially offset by certain unbilled receivables associated with ~~the sale of Seabrook project and also~~ ongoing construction activities at the GA Solar 4, Sun Streams, and ~~Phoebe~~Sunshine Valley projects. During the ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, our contract liabilities decreased by ~~$43.5~~$207.0 million primarily ~~as a result~~due to the recognition of revenue ~~recognized for certain EPC projects in Florida, for which we received a portion of the proceeds in prior years, and revenue recognized~~ for sales of solar modules for which ~~we had~~payment was received ~~advanced~~in 2019 prior to the step down in the U.S. investment tax credit, partially offset by advance payments received for sales of solar modules in ~~2018.~~the current period. During the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, we recognized revenue of ~~$123.2~~$285.9 million and ~~$71.9~~$69.8 million, respectively, that was included in the corresponding contract liability balance at the beginning of the periods.

The following table represents our remaining performance obligations as of ~~September~~June 30, ~~2019~~2020 for sales of solar power systems, including uncompleted sold projects and projects under ~~sales~~ contracts subject to conditions ~~precedent, and EPC agreements for partner developed projects that we may construct.~~precedent. Such table excludes remaining performance obligations for ~~any~~ sales arrangements that had not fully satisfied the criteria to be considered a contract with a customer pursuant to the requirements of ASC 606. We expect to recognize ~~$0.3 billion~~$19.7 million of revenue for such contracts through the ~~later of the~~ substantial completion ~~or the closing~~ dates of the projects.

Project/Location

Project Size in MW_AC

Revenue Category

Customer

Expected Year Revenue Recognition Will Be Completed

Percentage of Revenue Recognized

GA Solar 4, Georgia

200

Solar power systems

Origis Energy USA

2020

92%

Seabrook, South Carolina

Solar power systems

Dominion Energy

2020

97%

Total

272

Project/Location
Project Size in MW_AC
Revenue Category EPC Contract/Partner Developed Project Expected Year Revenue Recognition Will Be Completed Percentage of Revenue Recognized
Phoebe, Texas 250
EPC Innergix Renewable Energy 2019 98%
GA Solar 4, Georgia 200
Solar power systems Origis Energy USA 2020 43%
Seabrook, South Carolina 72
Solar power systems Dominion Energy 2019 41%
Japan (multiple locations) 52
Solar power systems (1) 2020 —%
Troy Solar, Indiana 51
EPC Southern Indiana Gas and Electric Company 2020 —%
Total 625

As of ~~September~~June 30, ~~2019,~~2020, we had entered into contracts with customers for the future sale of ~~11.7~~10.8 GW_DC of solar modules for an aggregate transaction price of ~~$4.0~~$3.5 billion. We expect to recognize such amounts as revenue through 2023 as we transfer control of the modules to the customers. While our contracts with customers typically ~~have certain~~represent firm purchase commitments, these contracts may be subject to amendments made by us or requested by our customers. These amendments may ~~reduce~~increase or decrease the volume of modules to be sold under the contract, ~~adjust~~change delivery schedules, or otherwise ~~decrease~~adjust the expected revenue under these contracts. As of ~~September~~June 30, ~~2019,~~2020, we had entered into O&M contracts covering approximately 1113 GW_DC of utility-scale PV solar power systems. We expect to recognize ~~$0.5~~$0.4 billion of revenue during the noncancelable term of these O&M contracts over a weighted-average period of ~~9.4~~9.1 years.

Following an evaluation of the long-term cost structure, competitiveness, and risk-adjusted returns of our O&M business, we received an offer to purchase certain portions of the business and determined it is in the best interest of our stockholders to pursue this transaction. Accordingly, in August 2020 we entered into an agreement with a subsidiary of Clairvest Group, Inc. (“Clairvest”), pursuant to which Clairvest will acquire our North American O&M operations. The completion of the transaction is contingent on a number of closing conditions, including the receipt of certain third-party consents, the expiration of the mandatory waiting period under U.S. antitrust laws, a review of the transaction by the Committee on Foreign Investment in the United States, and other customary closing conditions. Assuming satisfaction of such closing conditions, we expect the sale to be completed in late 2020.

12. Share-Based Compensation

The following table presents share-based compensation expense recognized in our condensed consolidated statements of operations for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019 (in thousands):


	Three Months Ended June 30,			Six Months Ended June 30,
	2020	2019	2020	2019
Cost of sales	243	1,961	1,455	3,801
Selling, general and administrative	3,052	7,046	7,761	9,384
Research and development	481	1,701	1,764	2,542
Production start-up	—	55	—	55
Total share-based compensation expense	3,776	10,763	10,980	15,782

~~The following table presents share-based compensation expense by type of award for the three and nine months ended~~ ~~September 30, 2019~~ ~~and~~ ~~2018~~ ~~(in thousands):~~

Three Months Ended
September 30, Nine Months Ended
September 30,
2019 2018 2019 2018
Restricted and performance stock units $ 9,298
$ 7,200
$ 23,921
$ 25,193
Unrestricted stock 379
379
1,137
1,258
9,677
7,579
25,058
26,451
Net amount (absorbed into) released from inventory (51 ) (28 ) 350
336
Total share-based compensation expense $ 9,626
$ 7,551
$ 25,408
$ 26,787

Share-based compensation expense capitalized in inventory, project assets, and PV solar power ~~generating assets~~systems was ~~$1.4 million and $1.8~~$1.2 million as of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018, respectively.~~2019. As of ~~September~~June 30, ~~2019~~,2020, we had ~~$44.1~~$39.3 million of unrecognized share-based compensation expense related to unvested restricted and performance stock units, which we expect to recognize over a weighted-average period of approximately ~~1.2~~1.8 years.

In February 2017, the compensation committee of our board of directors approved a long-term incentive program for key executive officers and associates. The program is intended to incentivize retention of our key executive talent, provide a smooth transition from our former key senior talent equity performance program, and align the interests of executive management and stockholders. Specifically, the program consists of (i) performance stock units to be earned over an approximately three-year performance period, ~~ending~~which ended in December 2019, and (ii) stub-year grants of separate performance stock units to be earned over an approximately two-year performance period, which ended in December 2018. In February 2019, the compensation committee of our board of directors certified the achievement of the maximum vesting conditions applicable for the stub-year grants. Accordingly, each participant received one share of common stock for each vested performance unit, net of any tax withholdings. ~~Vesting~~In February 2020, the compensation committee of our board of directors certified the achievement of the threshold vesting conditions applicable to the remaining 2017 grants of performance stock ~~units is contingent upon the relative attainment~~units. Accordingly, each participant received one share of ~~target cost per watt and operating expense metrics.~~common stock for each vested performance unit, net of any tax withholdings.

In April 2018, in continuation of our long-term incentive program for key executive officers and associates, the compensation committee of our board of directors approved additional grants of performance stock units to be earned over an approximately three-year performance period ending in December 2020. Vesting of the 2018 grants of performance stock units is contingent upon the relative attainment of target gross margin, operating expense, and contracted revenue metrics.

In July 2019, the compensation committee of our board of directors approved additional grants of performance stock units for key executive officers. Such grants are expected to be earned over a multi-year performance period ending in December 2021. Vesting of the 2019 grants of performance stock units is contingent upon the relative attainment of target cost per watt, module wattage, gross profit, and operating income metrics.

In March 2020, the compensation committee of our board of directors approved additional grants of performance stock units for key executive officers. Such grants are expected to be earned over a multi-year performance period ending in December 2022. Vesting of the 2020 grants of performance stock units is contingent upon the relative attainment of contracted revenue, module wattage, and return on capital metrics.

Vesting of performance stock units is also contingent upon the employment of program participants through the applicable vesting dates, with limited exceptions in case of death, disability, a qualifying retirement, or a change-in-control of First Solar. Outstanding performance stock units are included in the computation of diluted net income per share based on the number of shares that would be issuable if the end of the reporting period were the end of the contingency period.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act (the “CARES Act”) was signed into law. The CARES Act includes a number of federal corporate tax relief provisions that are intended to support the ongoing liquidity of U.S. corporations. Among other provisions, the CARES Act allows net operating losses incurred in 2018, 2019, and 2020 to be carried back to each of the five preceding taxable years. Because changes in tax law are accounted for in the period of enactment, the retroactive effects of such changes are accounted for as a discrete item in our tax provision.

Our effective tax rate was ~~(84.8)~~(163.2)% and ~~12.1%~~(13.7)% for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, respectively. The decrease in our effective tax rate was primarily driven by ~~higher losses in certain jurisdictions for which no~~a discrete tax benefit ~~could be recorded, combined~~associated with the net operating loss carryback provisions of the CARES Act described above and the relative size of our pretax ~~loss~~income in the current period. Our provision for income taxes differed from the amount computed by applying the U.S. statutory federal income tax rate of 21% primarily due to ~~higher losses in certain jurisdictions for which no~~the effect of tax ~~benefit could be recorded, combined with our pretax loss in the current period, certain discrete tax expenses~~law changes associated with ~~filing a tax return in a foreign jurisdiction, interest and penalties related to various uncertain tax positions, and~~ the ~~beneficial impact of our Malaysian tax holiday.~~CARES Act.

Our Malaysian subsidiary has been granted a long-term tax holiday that expires in 2027. The tax holiday, which generally provides for a full exemption from Malaysian income tax, is conditional upon our continued compliance with certain employment and investment thresholds, which we are currently in compliance with and expect to continue to comply with through the expiration of the tax holiday in 2027.

Our Vietnamese subsidiary qualifies for certain tax incentives, which generally provide a two-year tax exemption and reduced tax rates for the subsequent four-year period. These incentives are available in the period an entity first generates taxable profit or, if earlier, four years after an entity’s first taxable sale. Given our anticipated earnings in Vietnam, we expect to receive such benefits in the current year.

In the normal course of business, we establish valuation allowances for our deferred tax assets when the realization of the assets is not more likely than not. We intend to maintain such valuation allowances on our deferred tax assets until there is sufficient evidence to support the reversal of all or some portion of the allowances. Given our anticipated future earnings in ~~a foreign jurisdiction,~~Vietnam, it is reasonably possible that, within the next 12 months, sufficient positive evidence

may become available to allow us to reverse the valuation allowance in ~~such~~that jurisdiction. However, the exact timing and amount of such reversal is subject to change depending on our future earnings in ~~the jurisdiction~~Vietnam and other factors.

We account for uncertain tax positions pursuant to the recognition and measurement criteria under ASC 740. ~~We do not expect any~~It is reasonably possible that $61.9 million of uncertain tax positions will be recognized inwithin the next 12 months due to the expiration of the statute of limitations associated with such ~~tax~~ positions.

We are subject to audit by federal, state, local, and foreign tax authorities. We are currently under examination in Chile, India, Malaysia, ~~Singapore,~~ and the state of California. We believe that adequate provisions have been made for any adjustments that may result from tax examinations. However, the outcome of tax examinations cannot be predicted with certainty. If any issues addressed by our tax examinations are not resolved in a manner consistent with our expectations, we could be required to adjust our provision for income taxes in the period such resolution occurs.

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14. Net Income (Loss) per Share

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

The calculation of basic and diluted net income (loss) per share for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019 was as follows (in thousands, except per share amounts):


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
Basic net income (loss) per share
Numerator:
Net income (loss)	$	36,911	$	(18,548)	$	127,615	$	(86,147)
Denominator:
Weighted-average common shares outstanding	105,927		105,369		105,761		105,208

Diluted net income (loss) per share
Denominator:
Weighted-average common shares outstanding	105,927		105,369		105,761		105,208
Effect of restricted and performance stock units and stock purchase plan shares	546		—		668		—
Weighted-average shares used in computing diluted net income (loss) per share	106,473		105,369		106,429		105,208

Net income (loss) per share:
Basic	$	0.35	$	(0.18)	$	1.21	$	(0.82)
Diluted	$	0.35	$	(0.18)	$	1.20	$	(0.82)

Three Months Ended
September 30, Nine Months Ended
September 30,
2019 2018 2019 2018
Basic net income (loss) per share
Numerator:
Net income (loss) $ 30,622
$ 57,750
$ (55,525 ) $ 92,210
Denominator:
Weighted-average common shares outstanding 105,397
104,804
105,272
104,711

Diluted net income (loss) per share
Denominator:
Weighted-average common shares outstanding 105,397
104,804
105,272
104,711
Effect of restricted and performance stock units and stock purchase plan shares 830
1,359
—
1,500
Weighted-average shares used in computing diluted net income (loss) per share 106,227
106,163
105,272
106,211

Net income (loss) per share:
Basic $ 0.29
$ 0.55
$ (0.53 ) $ 0.88
Diluted $ 0.29
$ 0.54
$ (0.53 ) $ 0.87

The following table summarizes the ~~potential~~ shares of common stock that were excluded from the computation of diluted net income (loss) per share for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019 as such shares would have had an anti-dilutive effect (in thousands):


	Three Months Ended June 30,			Six Months Ended June 30,
	2020	2019	2020	2019
Anti-dilutive shares	—	667	—	766

Three Months Ended
September 30, Nine Months Ended
September 30,
2019 2018 2019 2018
Anti-dilutive shares —
603
787
394

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15. Accumulated Other Comprehensive Loss

The following table presents the changes in accumulated other comprehensive loss, net of tax, for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 (in thousands):


	Foreign Currency Translation Adjustment		Unrealized Gain (Loss) on Marketable Securities and Restricted Marketable Securities		Unrealized Gain (Loss) on Derivative Instruments		Total
Balance as of December 31, 2019	$	(73,429)	$	(5,029)	$	(876)	$	(79,334)
Other comprehensive (loss) income before reclassifications	(2,690)		30,601		(141)		27,770
Amounts reclassified from accumulated other comprehensive loss	—		(15,337)		313		(15,024)
Net tax effect	—		(586)		(86)		(672)
Net other comprehensive (loss) income	(2,690)		14,678		86		12,074
Balance as of June 30, 2020	$	(76,119)	$	9,649	$	(790)	$	(67,260)

Foreign Currency Translation Adjustment Unrealized Gain (Loss) on Marketable Securities and Restricted Investments Unrealized Gain (Loss) on Derivative Instruments Total
Balance as of December 31, 2018 $ (66,380 ) $ 10,641
$ 1,273
$ (54,466 )
Other comprehensive (loss) income before reclassifications (5,055 ) 36,648
153
31,746
Amounts reclassified from accumulated other comprehensive loss (1,190 ) (15,016 ) (1,205 ) (17,411 )
Net tax effect —
184
429
613
Net other comprehensive (loss) income (6,245 ) 21,816
(623 ) 14,948
Balance as of September 30, 2019 $ (72,625 ) $ 32,457
$ 650
$ (39,518 )

The following table presents the pretax amounts reclassified from accumulated other comprehensive loss into our condensed consolidated statements of operations for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019 (in thousands):


Comprehensive Income Components	Income Statement Line Item	Three Months Ended June 30,						Six Months Ended June 30,
				2020		2019		2020		2019
Foreign currency translation adjustment	Cost of sales	—		1,190		—		1,190
Unrealized gain on marketable securities and restricted marketable securities	Other expense, net	249		—		15,337		15,016
Unrealized (loss) gain on derivative contracts:
Foreign exchange forward contracts	Net sales	—		124		—		124
Foreign exchange forward contracts	Cost of sales	(106)		1,081		(313)		1,081
Total unrealized (loss) gain on derivative contracts		(106)		1,205		(313)		1,205
Total amount reclassified		$	143	$	2,395	$	15,024	$	17,411

Comprehensive Income Components Income Statement Line Item Three Months Ended
September 30, Nine Months Ended
September 30,
2019 2018 2019 2018
Foreign currency translation adjustment Cost of sales $ —
$ —
$ 1,190
$ —
Unrealized gain on marketable securities and restricted investments Other (loss) income, net —
—
15,016
19,473
Unrealized gain (loss) on derivative contracts:
Foreign exchange forward contracts Net sales —
46
124
(1,698 )
Foreign exchange forward contracts Cost of sales —
(212 ) 1,081
(212 )
Foreign exchange forward contracts Foreign currency gain (loss), net —
(5,448 ) —
(5,448 )
Foreign exchange forward contracts Other (loss) income, net —
546
—
546
—
(5,068 ) 1,205
(6,812 )
Total amount reclassified $ —
$ (5,068 ) $ 17,411
$ 12,661

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16. Segment Reporting

We operate our business in 2 segments. Our modules segment involves the design, manufacture, and sale of cadmium telluride (“CdTe”) solar modules, which convert sunlight into electricity. Third-party customers of our modules segment include integrators and operators of PV solar power systems. Our second segment is our systems segment, through which we provide ~~integrated~~ power plant solutions, which include (i) project development, (ii) EPC services, and (iii) O&M services. We may provide any combination of individual products and services within such capabilities (including, with respect to EPC services, by contracting with third parties) depending upon the customer and market opportunity. Our systems segment customers include utilities, independent power producers, commercial and industrial companies, and other system owners. As part of our systems segment, we may also temporarily own and operate certain of our systems for a period of time based on strategic opportunities or market factors.

In September 2019, we announced our transition from an internal EPC service model in the United States to an external model, in which we expect to leverage the capabilities of third-party EPC services in providing power plant solutions to our systems segment customers. This transition is scheduled to occur through the rest of 2019 and is not expected to affect any projects to be completed this year. The shift to an external EPC service model in the United States aligns with our typical model in international markets and is facilitated, in part, by our Series 6 module technology and its improved BoS compatibility. See Note ~~22.~~21. “Segment and Geographical Information” in our Annual Report on Form 10-K for the year ended December 31, ~~2018~~2019 for additional discussion of our segment reporting.

The following tables present certain financial information for our reportable segments for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019 and as of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018~~2019 (in thousands):


	Three Months Ended June 30, 2020										Three Months Ended June 30, 2019
	Modules		Systems		Total		Modules		Systems		Total
Net sales	$	371,518	$	270,893	$	642,411	$	228,745	$	356,211	$	584,956
Gross profit	79,941		57,519		137,460		11,483		65,699		77,182
Depreciation and amortization expense	44,719		6,237		50,956		40,850		4,319		45,169

	Six Months Ended June 30, 2020										Six Months Ended June 30, 2019
	Modules		Systems		Total		Modules		Systems		Total
Net sales	$	765,199	$	409,336	$	1,174,535	$	427,560	$	689,374	$	1,116,934
Gross profit (loss)	155,293		72,505		227,798		(13,513)		90,807		77,294
Depreciation and amortization expense	89,392		12,495		101,887		80,385		8,578		88,963

	June 30, 2020										December 31, 2019
	Modules		Systems		Total		Modules		Systems		Total
Goodwill	$	14,462	$	—	$	14,462	$	14,462	$	—	$	14,462

Three Months Ended September 30, 2019 Three Months Ended September 30, 2018
Modules Systems Total Modules Systems Total
Net sales $ 371,184
$ 175,622
$ 546,806
$ 119,825
$ 556,395
$ 676,220
Gross profit (loss) 147,806
(9,443 ) 138,363
(5,654 ) 134,781
129,127
Depreciation and amortization expense 38,063
6,628
44,691
25,539
4,268
29,807

Nine Months Ended September 30, 2019 Nine Months Ended September 30, 2018
Modules Systems Total Modules Systems Total
Net sales $ 798,744
$ 864,996
$ 1,663,740
$ 386,450
$ 1,166,353
$ 1,552,803
Gross (loss) profit 134,293
81,364
215,657
(21,927 ) 315,794
293,867
Depreciation and amortization expense 118,448
15,206
133,654
52,802
14,363
67,165

September 30, 2019 December 31, 2018
Modules Systems Total Modules Systems Total
Goodwill $ 14,462
$ —
$ 14,462
$ 14,462
$ —
$ 14,462

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Cautionary Statement Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the Securities Act of 1933, as amended (the “Securities Act”), which are subject to risks, uncertainties, and assumptions that are difficult to predict. All statements in this Quarterly Report on Form 10-Q, other than statements of historical fact, are forward-looking statements. These forward-looking statements are made pursuant to safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The forward-looking statements include statements concerning, among other ~~things, concerning:~~things: the length and severity of the recent COVID-19 (novel coronavirus) outbreak, including its impacts across our businesses on demand, manufacturing, project development, construction, O&M, financing, and our global supply chains, actions that may be taken by governmental authorities to contain the COVID-19 outbreak or to treat its impacts, and the ability of our customers, suppliers, equipment vendors, and other counterparties to fulfill their contractual obligations to us; effects resulting from certain module manufacturing changes and associated restructuring activities; our business strategy, including anticipated trends and developments in and management plans for our business and the markets in which we operate; future financial results, operating results, revenues, gross margin, operating expenses, products, projected costs (including estimated future module collection and recycling costs), warranties, solar module technology and cost reduction roadmaps, restructuring, product reliability, investments, ~~business acquisitions,~~ and capital expenditures; our ability to continue to reduce the cost per watt of our solar modules; the impact of public policies, such as tariffs or other trade remedies imposed on solar cells and modules; effects resulting from pending ~~litigation, including the class action lawsuit against us;~~litigation; our ability to expand manufacturing capacity worldwide; our ability to reduce the costs to develop and construct PV solar power systems; research and development (“R&D”) programs and our ability to improve the wattage of our solar modules; sales and marketing initiatives; and competition. In some cases, you can identify these statements by forward-looking words, such as “estimate,” “expect,” “anticipate,” “project,” “plan,” “intend,” “seek,” “believe,” “forecast,” “foresee,” “likely,” “may,” “should,” “goal,” “target,” “might,” “will,” “could,” “predict,” “continue,” and the negative or plural of these words, and other comparable terminology.

Forward-looking statements are only predictions based on our current expectations and our projections about future events. All forward-looking statements included in this Quarterly Report on Form 10-Q are based upon information available to us as of the filing date of this Quarterly Report on Form 10-Q and therefore speak only as of the filing date. You should not place undue reliance on these forward-looking statements. We undertake no obligation to update any of these forward-looking statements for any reason, whether as a result of new information, future developments, or otherwise. These forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause our actual results, levels of activity, performance, or achievements to differ materially from those expressed or implied by these statements. These factors include, but are not limited to, the severity and duration of the COVID-19 pandemic, including its potential impact on the Company’s business, financial condition, and results of operations; structural imbalances in global supply and demand for PV solar modules; the market for renewable energy, including solar energy; our competitive position and other key competitive factors; reduction, elimination, or expiration of government subsidies, policies, and support programs for solar energy projects; the impact of public policies, such as tariffs or other trade remedies imposed on solar cells and modules; our ability to execute on our long-term strategic plans; our ability to execute on our solar module technology and cost reduction roadmaps; our ability to improve the wattage of our solar modules; interest rate fluctuations and both our and our customers’ ability to secure financing; the creditworthiness of our off-take counterparties and the ability of our off-take counterparties to fulfill their contractual obligations to us; the ability of our customers and counterparties to perform under their contracts with us; the satisfaction of conditions precedent in our sales agreements; our ability to attract new customers and to develop and maintain existing customer and supplier relationships; our ability to successfully develop and complete our systems business projects; our ability to convert existing production facilities to support new product lines, such as Series 6 module manufacturing; general economic and business conditions, including those influenced by U.S., international, and geopolitical events; environmental responsibility, including with respect to CdTe and other semiconductor materials; claims under our limited warranty obligations; changes in, or the failure to comply with, government regulations and environmental, health, and safety requirements; effects

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resulting from pending litigation; future collection and recycling costs for solar modules covered by our module collection and recycling program; our ability to protect our intellectual property; our ability to prevent and/or minimize the impact of cyber-attacks or other breaches of our information systems; our continued investment in research and development; the supply and price of components and raw materials, including CdTe; our ability to attract and retain key executive officers and associates; and the matters discussed in Item 1A. “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, ~~2018,~~2019, elsewhere in this Quarterly Report on Form 10-Q, and our other reports filed with the SEC. You should carefully consider the risks and uncertainties described in these reports.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and the related notes thereto included in this Quarterly Report on Form 10-Q. When referring to our manufacturing capacity, total sales, and solar module sales, the unit of electricity in watts for megawatts (“MW”) and gigawatts (“GW”) is direct current (“DC” or “_DC”) unless otherwise noted. When referring to our projects or systems, the unit of electricity in watts for MW and GW is alternating current (“AC” or “_AC”) unless otherwise noted.

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Executive Overview

We are a leading global provider of comprehensive PV solar energy solutions. We design, manufacture, and sell PV solar modules with an advanced thin film semiconductor technology and also develop ~~design, construct,~~ and sell PV solar power systems that primarily use the modules we manufacture. Additionally, we provide O&M services to system owners. We have substantial, ongoing R&D efforts focused on ~~module and system-level~~various technology innovations. We are the world’s largest thin film PV solar module manufacturer and one of the world’s largest PV solar module manufacturers.

Certain of our financial results and other key operational developments for the three months ended ~~September~~June 30, ~~2019~~2020 include the following:

•Net sales for the three months ended ~~September~~June 30, ~~2019 decreased~~2020 increased by ~~19%~~10% to ~~$546.8~~$642.4 million compared to ~~$676.2~~$585.0 million for the same period in ~~2018.~~2019. The ~~decrease in net sales~~increase was primarily due to an increase in the volume of modules sold to third parties and the sale of the ~~Manildra~~American Kings project, ~~in 2018 and the completion of substantially all construction activities at the California Flats, Willow Springs, Balm Solar, Rosamond, and Payne Creek projects in late 2018 and early 2019,~~ partially offset by the sale of the ~~Seabrook project,~~Beryl, Cove Mountain, and Muscle Shoals projects and the completion of substantially all construction activities at the Phoebe project ~~and an~~in 2019.

•Gross profit for the three months ended June 30, 2020 increased 8.2 percentage points to 21.4% from 13.2% for the same period in 2019. The increase in gross profit was primarily due to higher gross profit on third-party module ~~sales.~~sales and improved utilization of our manufacturing facilities from the successful ramp of various Series 6 manufacturing lines, partially offset by the mix of lower gross profit projects under construction during the period, including additional costs for weather and COVID-19 related delays at the GA Solar 4 project, and manufacturing related charges associated with the ongoing COVID-19 pandemic.

•

~~Gross profit for~~

•As of June 30, 2020, we had 5.5 GW_DC of total installed Series 6 nameplate production capacity across all our facilities. We produced 1.5 GW_DC of solar modules during the three months ended June 30, 2020, which represented a 7% increase from the same period in 2019. The increase in production was primarily driven by the Series 6 production capacity added in 2019 at our second facility in Ho Chi Minh City, Vietnam and our facility in Lake Township, Ohio as well as improved utilization at various facilities, partially offset by the ramp down of our Series 4 manufacturing lines. We expect to produce 5.9 GW_DC of solar modules during 2020, substantially all of which will be Series 6 modules.

•In response to the COVID-19 pandemic, governmental authorities have recommended or ordered the limitation or cessation of certain business or commercial activities in jurisdictions in which we operate, including the United States, Malaysia, and Vietnam. At this time, such limitations have had a limited effect on our Series 6 manufacturing facilities. However, these orders are subject to continuous revision, and our

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understanding of the applicability of these orders and any potential exemptions may change at any time. To enable the continuity of our operations, we have implemented a wide range of safety measures intended to inhibit the spread of COVID-19 at our manufacturing, administrative, and other sites and facilities.

•In June 2020, we entered into an agreement in principle to settle the claims in the Opt-Out Action filed in 2015 in the Arizona District Court by putative stockholders that opted out of the Class Action. On July 17, 2020, the parties executed a definitive settlement agreement pursuant to which we agreed to pay a total of $19 million in exchange for mutual releases and a dismissal with prejudice of the Opt-Out Action. The agreement contains no admission of liability, wrongdoing, or responsibility by any of the parties. On July 30, 2020, First Solar funded the settlement, and on July 31, 2020, the parties filed a joint stipulation of dismissal. As of December 31, 2019, we had accrued $13 million of estimated losses for this action. As a result of the proposed settlement, we accrued an incremental $6 million litigation loss during the three months ended June 30, 2020.

•In August 2020 we entered into an agreement with a subsidiary of Clairvest, pursuant to which Clairvest will acquire our North American O&M operations. The completion of the transaction is contingent on a number of closing conditions, including the receipt of certain third-party consents, the expiration of the mandatory waiting period under U.S. antitrust laws, a review of the transaction by the Committee on Foreign Investment in the United States, and other customary closing conditions. Assuming satisfaction of such closing conditions, we expect the sale to be completed in late 2020.

~~three~~ months ended September 30, 2019 increased 6.2 percentage points to 25.3% from 19.1% for the same period in 2018. The increase in gross profit was primarily due to a reduction in our product warranty liability due to revised module return rates based on updated information regarding our warranty claims, higher gross profit on third-party module sales, and improved utilization of our manufacturing facilities, partially offset by the mix of lower gross profit projects under construction during the period.

•

~~As of September 30, 2019, we had 6.2 GW~~_DC ~~of installed annual nameplate production capacity across all our facilities in Perrysburg, Ohio; Kulim, Malaysia; and Ho Chi Minh City, Vietnam. We produced 1.5 GW~~_DC of solar modules during the three months ended September 30, 2019, which represented a 108% increase from the same period in 2018. The increase in production was primarily driven by the Series 6 production capacity added at our manufacturing facilities in Kulim, Malaysia and Ho Chi Minh City, Vietnam. We expect to produce between 5.4 GW_DC ~~and 5.5 GW~~_DC ~~of solar modules during 2019, including approximately 2 GW~~_DC ~~of Series 4 modules.~~

Market Overview

The solar industry continues to be characterized by intense pricing competition, both at the module and system levels. In particular, module average selling prices in many global markets have declined in recent years and are expected to continue to decline ~~to some degree~~ in the future. Furthermore, the COVID-19 pandemic has adversely affected certain purchasers of modules and systems, which may result in additional pressure on demand and average selling prices. In the aggregate, we believe manufacturers of solar cells and modules have significant installed production capacity, relative to global demand, and the ability for additional capacity expansion. WeAccordingly, we believe the solar industry may from time to time experience periods of structural imbalance between supply and demand (i.e., where production capacity exceeds global demand), and that such periods will ~~continue to~~also put pressure on ~~pricing.~~pricing, which may be exacerbated by the current COVID-19 disruption in the global economy. Additionally, intense competition at the system level may result in an environment in which pricing falls rapidly, thereby ~~further~~potentially increasing demand for solar energy solutions but constraining the ability for project developers ~~EPC companies,~~ and ~~vertically-integrated companies such as First Solar~~diversified module manufacturers to sustain meaningful and consistent profitability. In light of such market realities, we ~~are focusing~~continue to focus on our strategies and points of differentiation, which include our advanced module ~~and system technologies,~~technology, our manufacturing process, ~~our vertically-integrated business model,~~ our financial viability, and the sustainability advantage of our modules and systems.

Global solar markets continue to expand and develop, in part aided by demand elasticity resulting from declining ~~industry~~ average selling prices, both at the module and system levels, which have promoted the widespread adoption of solar energy. As a result of such market opportunities, we are expanding our manufacturing capacity while also developing ~~constructing,~~ and operating multiple solar projects around the world as we execute on our ~~advanced-stage~~ utility-scale project pipeline. ~~We also continue to develop our early-to-mid-stage project pipeline and evaluate~~

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~~acquisitions of projects to further expand both our early-to-mid-stage and advanced-stage pipelines.~~ See the tables under “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Systems Project Pipeline” for additional information about projects within our advanced-stage pipeline. Although we expect a meaningful portion of our future consolidated net sales, operating income, and cash flows to be derived from such projects, we expect third-party module sales to continue to have a more significant impact on our operating results as we ~~complete~~expand capacity and leverage the benefits of our ~~capacity expansion plans and corresponding transition to~~ Series 6 module ~~manufacturing.~~technology.

Lower industry module and system pricing is expected ~~to continue~~ to contribute to diversification in global electricity generation and further demand for solar ~~energy solutions as such solutions compete economically with traditional forms of energy generation.~~energy. Over time, however, declining average selling prices may adversely affect our results of operations to the extent we have not already entered into contracts for future module or system sales. IfOur results of operations could also be adversely affected if competitors reduce pricing to levels below their ~~costs;~~costs, bid

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aggressively low prices for module sale agreements ~~EPC agreements, and PPAs;~~or PPAs, or are able to operate at minimal or negative operating margins for sustained periods of ~~time,~~time. For certain of our ~~results~~competitors, such actions may be enabled by their direct or indirect access to sovereign capital or other forms of ~~operations could be further adversely affected.~~state-owned support. In certain markets in California and elsewhere, an oversupply imbalance at the grid level may reduce short-to-medium term demand for new solar installations relative to prior years, lower PPA pricing, and lower margins on module and system sales to such markets. However, we believe the effects of such imbalance can be mitigated by modern solar power plants and energy storage solutions that offer a flexible operating profile, thereby promoting greater grid stability and enabling a higher penetration of solar energy. We continue to address these uncertainties, in part, by executing on our module technology improvements, ~~including our transition to Series 6 module manufacturing, continuing the development of key markets,~~ partnering with grid operators and utility companies, and implementing certain other cost reduction initiatives.

We face intense competition from manufacturers of crystalline silicon solar modules and developers of solar power projects. Solar module manufacturers compete with one another on price and on several module value attributes, including wattage (or conversion efficiency), energy yield, and reliability, and developers of systems compete on various factors such as net present value, return on equity, and levelized cost of electricity (“LCOE”), meaning the net present value of a system’s total life cycle costs divided by the quantity of energy that is expected to be produced over the system’s life. Many crystalline silicon cell and wafer manufacturers continue to transition from lower efficiency Back Surface Field ~~(“BSF”)~~ multi-crystalline cells (the legacy technology against which we have generally ~~competed in our markets)~~competed) to higher efficiency Passivated Emitter Rear Contact (“PERC”) ~~multi-crystalline and~~ mono-crystalline cells at competitive cost structures. Additionally, while conventional solar modules, including the solar modules we produce, are monofacial, meaning their ability to produce energy is a function of direct and diffuse irradiance on their front side, certain manufacturers of mono-crystalline PERC modules are ~~pursuing the commercialization of~~promoting bifacial modules that also capture diffuse irradiance on the back side of a module. The cost effective manufacture of bifacial PERC modules has been enabled, in part, by the expansion of inexpensive crystal growth and diamond wire saw capacity in China. Bifaciality compromises nameplate efficiency, but by converting both front and rear side irradiance, such technology may improve the overall energy production of a module relative to nameplate efficiency when applied in certain applications, which, after considering the incremental BoS and other costs, could potentially lower the overall LCOE of a system when compared to systems using conventional solar modules, including the modules we produce.

We believe we are among the lowest cost module manufacturers in the solar industry on a module cost per watt basis, based on publicly available information. This cost competitiveness allows us to compete favorably in markets where pricing for modules and systems is highly competitive. Our cost competitiveness is based in large part on our advanced thin film semiconductor technology, module wattage (or conversion efficiency), proprietary manufacturing ~~technology~~process (which enables us to produce a CdTe module in a matter of hours using a continuous and highly automated industrial manufacturing process, as opposed to a batch process), and our focus on operational excellence. In addition, our CdTe modules use approximately 1-2% of the amount of semiconductor material that is used to manufacture conventional crystalline silicon solar modules. The cost of polysilicon is a significant driver of the manufacturing cost of crystalline silicon solar modules, and the timing and rate of change in the cost of silicon feedstock and polysilicon could lead to changes in solar module pricing levels. In recent years, polysilicon consumption per cell has been reduced through various initiatives, such as the adoption of diamond wire saw technology, which have contributed to declines in our relative manufacturing cost competitiveness over conventional crystalline silicon module manufacturers.

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Given the smaller size (sometimes referred to as form factor) of our legacy Series 4 modules compared to certain types of crystalline silicon modules, we may incur higher labor and BoS costs associated with the construction of systems using our Series 4 modules. Thus, to compete effectively on an LCOE basis, our Series 4 modules may need to maintain a certain cost advantage per watt compared to crystalline silicon-based modules with larger form factors. Our next generation Series 6 modules have a larger form factor along with better product attributes and a lower manufacturing cost structure. Accordingly, the larger form factor and design of our Series 6 modules reduces the number of electrical connections, hardware, and labor required for system installation compared to current module technologies, including our Series 4 modules. The resulting cost savings are expected to improve project returns as BoS and labor costs represent a significant portion of the overall costs associated with the construction of a typical utility-scale system.

In terms of energy yield, in many climates our CdTe solar modules provide an energy production advantage over most ~~conventional~~monofacial crystalline silicon solar modules ~~(including monofacial PERC technologies)~~ of equivalent efficiency rating. For example, our CdTe solar modules provide a superior temperature coefficient, which results in stronger system performance in typical high insolation climates as the majority of a system’s generation, on average, occurs when module temperatures are well above 25°C (standard test conditions). In addition, our CdTe solar modules provide a superior spectral response in humid environments where atmospheric moisture alters the solar spectrum relative to laboratory standards. Our CdTe solar modules also provide a better shading response than conventional crystalline silicon solar modules, which may ~~lose up to three times as much power as~~experience significantly lower energy generation than CdTe solar modules when shading occurs. As a result of these and other factors, our PV solar ~~power systems~~modules typically produce more annual energy in real world field

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conditions than ~~competing systems~~conventional modules with the same nameplate capacity. Furthermore, our thin-film CdTe semiconductor technology is immune to cell cracking and its resulting power output loss, a common failure often observed in crystalline silicon modules caused by adverse manufacturing, handling, weather, or other conditions.

While our modules and systems are generally competitive in cost, reliability, and performance attributes, there can be no guarantee such competitiveness will continue to exist in the future to the same extent or at all. Any declines in the competitiveness of our products could result in ~~additional margin compression,~~ further declines in the average selling prices of our modules and systems ~~erosion in our market share for modules~~ and ~~systems, and/or declines in overall net sales.~~additional margin compression. We continue to focus on enhancing the competitiveness of our solar modules and systems by accelerating progress along our module technology and cost reduction ~~roadmaps, including advances at the system level.~~roadmaps.

Certain Trends and Uncertainties

We believe that our business, financial condition, and results of operations may be favorably or unfavorably impacted by the following trends and ~~uncertainties that may affect our financial condition and results of operations.~~uncertainties. See Item 1A. “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, ~~2018~~2019 and Item 1A. of this Quarterly Report on Form 10-Q for discussions of other risks (the “Risk Factors”) that may affect ~~our business, financial condition, results of operations, and cash flows.~~us.

Our long-term strategic plans are focused on our goal to create long-term shareholder value through a balance of growth, profitability, and liquidity. In executing such plans, we are focusing on providing utility-scale PV solar energy solutions ~~using our modules~~ in key geographic markets that we believe have a compelling need for mass-scale PV solar electricity, including markets throughout the Americas, the Asia-Pacific region, Europe, and certain other strategic markets. ~~Additionally,~~While these markets are expected to exhibit strong long-term demand for solar energy, the economic disruption caused by the COVID-19 pandemic has adversely affected near-term demand for electricity at the grid level. As a result, such temporary decline in load may adversely affect demand for specific forms of generation, such as our PV solar energy solutions, depending on the severity and duration of the economic disruption. Given these market dynamics, we ~~are focusing~~continue to focus on opportunities in which our PV solar energy solutions ~~can~~ compete directly with traditional forms of energy generation on an LCOE or similar basis, or complement such generation offerings. ~~Such~~These opportunities include the retirement and replacement of aging fossil fuel-based generation resources with utility-scale PV solar energy solutions. For example, cumulative global retirements of coal generation plants are expected to approximate 900 GW_DC by 2040, representing a significant increase in the potential market for solar energy.

~~Such~~This focus on our core module and utility-scale offerings exists within a current market environment that includes rooftop and distributed generation solar, particularly in the United States. While it is unclear how rooftop and distributed generation solar might impact our core utility-scale based offerings over the next several years, we believe that utility-scale solar will continue to be a compelling offering for companies with technology and cost leadership and will continue to represent an increasing portion of the overall electricity generation mix. However, our module offerings in certain international markets may be driven, in part, by future demand for rooftop and distributed generation solar solutions.

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Our ability to provide utility-scale offerings on economically attractive terms depends, in part, on market factors outside of our control, such as the availability of debt and/or equity financing (including, in the United States, tax equity financing), interest rate fluctuations, domestic or international trade policies, and government support programs. Adverse changes in these factors could increase the cost of utility-scale systems, which could reduce demand for such systems and limit the number of potential buyers. For example, we generally sell projects we have developed within our systems business, including projects in the United States, Japan, and elsewhere, to purchasers that depend on financing to fund the initial capital expenditures required to develop, build, and/or purchase a system. Although governments and central banks around the world have implemented significant measures to support capital markets, the economic disruption caused by the COVID-19 pandemic may result in a long-term tightening of the supply of capital in global financial markets (including, in the United States, a reduction in total tax equity availability). A reduction in the supply of project debt or equity financing (including, in the United States, tax equity financing) caused by the COVID-19 pandemic could make it difficult for our customers to secure the financing

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necessary to develop, build, purchase, or install systems. Similarly, purchasers of modules may cease or significantly reduce business operations, cease or delay module procurement, encounter an inability to obtain financing, including due to a reduction in the supply of project debt financing or equity investments (including, in the United States, tax equity financing), conserve capital resources, or take other actions in response to the COVID-19 pandemic, which may reduce demand and average selling prices for our modules.

In certain markets, demand for our utility-scale offerings may be affected by specific regulations or policies of governmental bodies or utility regulators. For example, in June 2020, the Japanese legislature enacted an amendment to the Electricity Business Law Enforcement Order for the Ministry of Economy, Trade and Industry (“METI”) of Japan which, among other things, is expected to invalidate the feed-in-tariff certificates for projects that fail to achieve construction plan acceptance and/or commercial operation within a set period of time following dates specified in their respective certificates. The amendment, which becomes effective in April 2022, applies to all projects regardless of generation type and is intended to release grid capacity reserved for delayed projects to enable other newly developed projects to utilize such capacity at a lower cost of electricity to consumers. The deadline period by which a project must achieve construction plan acceptance and/or commercial operation will be proposed at a later date by METI. Any deadlines that precede the expected construction plan acceptance and/or commercial operation dates of our various projects in Japan could adversely affect the value of such projects and our ability to secure any related project financing.

We ~~closely evaluate and monitor the appropriate level of resources required as we pursue the most advantageous and cost effective projects and partnerships in our key markets. We have dedicated, and~~ intend to continue to dedicate, significant capital and human resources to reduce the total installed cost of PV solar energy and to ensure that our solutions integrate well into the overall electricity ecosystem of each specific market. We expect that, over time, the majority of our consolidated net sales, operating income, and cash flows will come from solar offerings in the key geographic markets described above. The timing, execution, and financial impacts of our long-term strategic plans are subject to risks and uncertainties, as described in the Risk Factors. We are focusingfocus our resources in those markets and energy applications in which solar power can be a least-cost, best-fit energy solution, particularly in regions with significant current or projected electricity demand, relatively high existing electricity prices, strong demand for renewable energy generation, and high solar resources. As a result, we closely evaluate and monitor the appropriate level of resources required to support such markets and their associated sales opportunities. We have dedicated, and intend to continue to dedicate, significant capital and human resources to reduce the total installed cost of PV solar energy and to ensure that our solutions integrate well into the overall electricity ecosystem of each specific market.

Creating or maintaining a market position in certain strategically targeted markets and energy applications also requires us to adapt to new and changing market conditions. For example, our offerings from time to time may need to be competitively priced at levels associated with minimal gross profit margins, which may adversely affect our results of operations. We expect the profitability associated with our various sales offerings to vary from one another over time, and possibly vary from our internal long-range profitability expectations and targets, depending on the market opportunity and the relative competitiveness of our offerings compared with other energy solutions, traditional or otherwise, that are available to potential customers. In addition, as we ~~execute on our long-term strategic plans, we will~~ continue to monitor and adapt to ~~any changing~~the dynamics inof emerging technologies, such as commercially viable energy storage solutions, which are expected to further enable PV solar power systems to compete with traditional forms of energy generation by shifting the delivery of energy generated by such systems to periods of greater demand. Storage solutions continue to evolve in terms of technology and cost, and cumulative global deployments of storage capacity are expected to exceed 900 GW_DC by 2040, representing a significant increase in the potential market for renewable energy. We ~~will~~ also continue to monitor and adapt to changing dynamics in the market set of potential buyers of solar projects. Market environments with few potential project buyers and a higher cost of capital would generally exert downward pressure on the potential revenue from the solar projects we are developing, whereas, conversely, market environments with many potential project buyers and a lower cost of capital would likely have a favorable impact on the potential revenue from such solar projects. For example, the emergence of utility-owned generation has increased the number of potential project buyers as such utility customers benefit from a potentially low cost of capital available through rate-based utility investments. Given their long-term ownership profile, utility-owned generation customers typically seek to partner with diversified and stable companies that can provide a broad spectrum of utility-scale generation solutions, including reliable PV solar technology, thereby mitigating their long-term ownership risks.

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On occasion, we may temporarily own and operate certain systems with the intention to sell them at a later date. We may also enter into business arrangements with strategic partners that result in us temporarily retaining an ownership interest in the underlying systems projects we develop, supply modules to, or construct, potentially for a period of up to several years. In these situations, we may retain such ownership interests in a consolidated or unconsolidated separate entity. We may also elect to ~~construct and temporarily retain ownership interests in~~develop partially contracted or uncontracted systems for which there is a partial or no PPA with an off-taker, such as a utility, but rather an intent to sell some portion of the electricity produced by the system on an open contract basis until the system is sold. Expected revenue from projects without a PPA for the full ~~offtake~~off-take of the system is subject to greater variability and uncertainty based on market factors and is typically lower than projects with a PPA for the full ~~offtake~~off-take of the system. Furthermore, all system pricing is ~~effected~~affected by the pricing of energy to be sold on an open contract basis following the termination of the PPA (i.e., merchant pricing curves), and changes in market assumptions regarding future open contract sales, including potential changes in energy demand caused by the COVID-19 pandemic, may also result in significant variability and uncertainty in the value of our systems projects.

As previously disclosed, following an evaluation of the long-term sustainable cost structure, competitiveness, and risk-adjusted returns of our U.S. project development business, we have determined it is in the best interest of our stockholders to explore options for this business line. This exploration may result in, among other possibilities, a partnership with a third-party who possesses complimentary competencies or a sale of all or a portion of our U.S. project development business. These potential third-party partners or purchasers of interests in our U.S. project development business may now, or in the future, be impacted by the global business disruption caused by the COVID-19 pandemic, and may consequently focus on their own operations and/or delay considering potential partnerships or other arrangements with respect to our U.S. project development business. While we have previously disclosed that the exploration of options for our U.S. project development business is not subject to any definitive timetable and there can be no assurances that this process will result in any transaction, the COVID-19 pandemic may have the effect of delaying or preventing the consummation of any such transaction.

We continually evaluate forecasted global demand, competition, and our addressable market and seek to effectively balance manufacturing capacity with market demand and the nature and extent of our competition. ~~In early~~During 2019, we commenced commercial production of Series 6 modules at our second manufacturing facility in Ho Chi Minh City, Vietnam and our manufacturing facility in Lake Township, Ohio. We are ~~also~~currently in the process of ~~constructing an additional~~transitioning our legacy Series 4 manufacturing facilities in Kulim, Malaysia to our Series 6 module technology and continue to expand capacity and throughput at our other existing manufacturing ~~plant in Lake Township, Ohio, a short distance from our plant in Perrysburg, Ohio. These~~facilities. Such additional ~~manufacturing plants,~~capacity, and any other potential

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investments to add or otherwise modify our existing manufacturing capacity in response to market demand and competition, may require significant internal and possibly external sources of capital, and may be subject to certain risks and uncertainties described in the Risk ~~Factors, including those described under~~Factors.

In response to the ~~headings “Our future success depends on~~COVID-19 pandemic, governmental authorities have recommended or ordered the limitation or cessation of certain business or commercial activities in jurisdictions in which we do business or have operations. While some of these orders permit the continuation of essential business operations, or permit the performance of minimum business activities, these orders are subject to continuous revision or may be revoked or superseded, or our ~~ability~~understanding of the applicability of these orders and exemptions, may change at any time. In addition, due to ~~effectively balance manufacturing production with market demand, convert existing production facilities to support new product lines,~~contraction of the virus, or concerns about becoming ill from the virus, we may experience reductions in the availability of our operational workforce, such as our ~~transition~~manufacturing personnel. As a result, we may at any time be ordered by governmental authorities, or we may determine, based on our understanding of the recommendations or orders of governmental authorities or the availability of our personnel, that we have to ~~Series 6 module~~curtail or cease business operations or activities altogether, including manufacturing, fulfillment, project development, construction, operating or maintenance operations, or research and ~~when necessary, continue~~development activities. At this time, such limitations have had a limited effect on our manufacturing facilities and certain project construction activities, and we have implemented a wide range of safety measures intended to ~~build new~~enable the continuity of our operations and inhibit the spread of COVID-19 at our manufacturing, ~~plants over time~~administrative, and other sites and facilities, including those in ~~response to such demand~~the United States, Malaysia, and ~~add production lines in a cost-effective manner, all~~Vietnam.

Table of which are subject to risks and uncertainties” and “If any future production lines are not built in line with committed schedules, it may adversely affect our future growth plans. If any future production lines do not achieve operating metrics similar to our existing production lines, our solar modules could perform below expectations and cause us to lose customers.”Contents

Systems Project Pipeline

The following tables summarize, as of ~~October 24, 2019,~~August 6, 2020, our approximately ~~1.7~~1.6 GW_AC advanced-stage project pipeline. The actual volume of modules installed in our projects will be greater than the project size in MW_AC as module volumes required for a project are based upon MW_DC, which will be greater than the MW_AC size pursuant to a DC-AC ratio typically ranging from ~~1.2~~1.1 to ~~1.3.~~1.4. Such ratio varies across different projects due to ~~various system~~many factors, including PPA pricing and the location, design, ~~factors.~~and costs of the system. Projects are typically removed from our advanced-stage project pipeline tables below once we substantially complete construction of the project and after substantially all of the associated project revenue is recognized. ~~Projects,~~A project, or ~~portions~~a portion of ~~projects,~~a project, may also be removed from the tables below in the event ~~an EPC-contracted or partner-developed project does not obtain permitting or financing, a~~the project is not able to be sold due to the changing economics of the project or other factors or we decide to temporarily own and operate ~~or retain interests in, such~~the project based on strategic opportunities or market factors.

~~In July 2019, in connection with the voluntary petitions by PG&E Corporation and Pacific Gas and Electric Company, the previous off-taker to our 75 MW~~_AC Willow Springs 3 project, for relief under chapter 11 of title 11 of the United States Code, we filed a motion with the United States Bankruptcy Court for the Northern District of California (the “Bankruptcy Court”) to terminate the PPA of the Willow Springs 3 project. In August 2019, the Bankruptcy Court granted the motion, and we terminated the PPA, thereby permitting us to remarket the energy related to the project to another off-taker. As of October 24, 2019, we had not contracted the offtake for this project. Accordingly, we have removed the Willow Springs 3 project from the tables below until we obtain another PPA for the project.

Projects under Sales Agreements

~~(Includes~~

The following table includes uncompleted sold projects and projects under ~~sales~~ contracts subject to conditions ~~precedent, and EPC agreements, including partner developed projects that we may be constructing.)~~precedent:


Project/Location	Project Size in MW_AC	PPA Contracted Partner	Customer	Expected Year Revenue Recognition Will Be Completed	% of Revenue Recognized as of June 30, 2020
GA Solar 4, Georgia	200	Georgia Power Company	Origis Energy USA	2020	92%
Seabrook, South Carolina	72	South Carolina Electric and Gas Company	Dominion Energy	2020	97%
India (multiple locations)	40	(1)	Ayana Renewable Power	2020	—%
Total	312

Project/Location
Project Size in MW_AC
PPA Contracted Partner EPC Contract/Partner Developed Project Expected Year Revenue Recognition Will Be Completed % of Revenue Recognized as of September 30, 2019
Phoebe, Texas 250
Shell Energy North America Innergix Renewable Energy 2019 98%
GA Solar 4, Georgia 200
Georgia Power Company Origis Energy USA 2020 43%
Sun Streams, Arizona 150
SCE (1) 2019 —%
Sunshine Valley, Nevada 100
SCE (1) 2019 —%
Seabrook, South Carolina 72
South Carolina Electric and Gas Company Dominion Energy 2019 41%
Japan (multiple locations) 52
TEPCO Energy (1) 2020 —%
Troy Solar, Indiana 51
(2) Southern Indiana Gas and Electric Company 2020 —%
Windhub A, California 20
SCE (1) 2019 —%
Total 895

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Projects with Executed PPAs Not ~~Under~~under Sales Agreements


Project/Location	Project Size in MW_AC	PPA Contracted Partner	Fully Permitted	Expected or Actual Substantial Completion Year	% Complete as of September 30, 2019	Project/Location	Project Size in MW_AC	PPA Contracted Partner	Fully Permitted	Expected or Actual Substantial Completion Year	% Complete as of June 30, 2020
Little Bear, California	160	Marin Clean Energy	Yes	2020	12%
Horizon, Texas						Horizon, Texas	200	(2)	No	2022	—%
Big Plain Solar, Ohio						Big Plain Solar, Ohio	196	(3)	No	2022	—%
Ridgely, Tennessee						Ridgely, Tennessee	177	Tennessee Valley Authority	No	2023	—%
Sun Streams 2, Arizona	150	Microsoft Corporation	Yes	2020/2021	7%	Sun Streams 2, Arizona	150	Microsoft Corporation	Yes	2021	13%
Luz del Norte, Chile	141	(3)	Yes	2016	100%	Luz del Norte, Chile	141	(4)	Yes	2016	100%
American Kings Solar, California	123	SCE	Yes	2020	18%
Rabbitbrush, California						Rabbitbrush, California	100	(5)	No	2022	5%
Oak Trail, North Carolina						Oak Trail, North Carolina	100	(3)	No	2022	—%
Sun Streams PVS, Arizona	65	APS	No	2020	2%	Sun Streams PVS, Arizona	65	APS	No	2022	7%
Ishikawa, Japan	59	Hokuriku Electric Power Company	Yes	2018	100%	Ishikawa, Japan	59	Hokuriku Electric Power Company	Yes	2018	100%
Japan (multiple locations)	55	(4)	No	2021/2022	12%	Japan (multiple locations)	55	(6)	Yes	2021/2022	24%
Miyagi, Japan	40	Tohoku Electric Power Company	Yes	2021	29%	Miyagi, Japan	40	Tohoku Electric Power Company	Yes	2021	57%
India (multiple locations)	40	(5)	Yes	2017	100%
Total	833					Total	1,283

——————————


~~(1)~~	~~Contracted but not specified~~


~~(2)~~	~~Utility-owned generation~~


~~(3)~~	~~Approximately 70~~(1)Gulbarga Electricity Supply Co. – 20 MW_AC and Chamundeshwari Electricity Supply Co. – 20 MW_AC ~~of the plant’s capacity is contracted under various PPAs~~


~~(4)~~	~~Chubu Electric Power Company – 38 MW~~_AC ~~and Hokuriku Electric Power Company – 17 MW~~_AC


~~(5)~~	~~Gulbarga Electricity Supply Co. – 20 MW~~_AC ~~and Chamundeshwari Electricity Supply Co. – 20 MW~~_AC

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(2)150 MW_AC of the plant’s capacity is contracted with Dow Pipeline Company; remaining capacity to be sold on an open contract basis

(3)Contracted but not specified

(4)Approximately 70 MW_AC of the plant’s capacity is contracted under various PPAs; remaining capacity to be sold on an open contract basis

(5)Monterey Bay Community Power – 60 MW_AC and Silicon Valley Clean Energy – 40 MW_AC

(6)Chubu Electric Power Company – 38 MW_AC and Hokuriku Electric Power Company – 17 MW_AC

Results of Operations

The following table sets forth our condensed consolidated statements of operations as a percentage of net sales for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018:~~2019:


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
Net sales	100.0	%	100.0	%	100.0	%	100.0	%
Cost of sales	78.6	%	86.8	%	80.6	%	93.1	%
Gross profit	21.4	%	13.2	%	19.4	%	6.9	%
Selling, general and administrative	8.1	%	8.7	%	9.4	%	8.6	%
Research and development	3.5	%	4.2	%	4.1	%	4.1	%
Production start-up	1.0	%	1.8	%	0.9	%	1.8	%
Litigation loss	0.9	%	—	%	0.5	%	—	%
Operating income (loss)	7.9	%	(1.5)	%	4.5	%	(7.6)	%
Foreign currency (loss) income, net	(0.2)	%	0.3	%	(0.1)	%	0.2	%
Interest income	0.6	%	2.3	%	1.1	%	2.5	%
Interest expense, net	(0.5)	%	(1.5)	%	(0.9)	%	(1.7)	%
Other expense, net	(0.5)	%	(0.8)	%	(0.5)	%	(0.1)	%
Income tax (expense) benefit	(1.6)	%	(2.0)	%	6.7	%	(0.9)	%
Equity in earnings, net of tax	—	%	—	%	—	%	—	%
Net income (loss)	5.7	%	(3.2)	%	10.9	%	(7.7)	%

Three Months Ended
September 30, Nine Months Ended
September 30,
2019 2018 2019 2018
Net sales 100.0 % 100.0 % 100.0 % 100.0 %
Cost of sales 74.7 % 80.9 % 87.0 % 81.1 %
Gross profit 25.3 % 19.1 % 13.0 % 18.9 %
Selling, general and administrative 9.8 % 5.0 % 9.0 % 8.1 %
Research and development 4.6 % 3.3 % 4.3 % 4.1 %
Production start-up 3.4 % 2.2 % 2.3 % 4.9 %
Operating income (loss) 7.6 % 8.6 % (2.6 )% 1.9 %
Foreign currency gain (loss), net 0.2 % (0.4 )% 0.2 % (0.2 )%
Interest income 2.1 % 2.4 % 2.4 % 2.9 %
Interest expense, net (0.9 )% (0.5 )% (1.4 )% (0.9 )%
Other (loss) income, net (0.6 )% (0.9 )% (0.3 )% 0.5 %
Income tax expense (2.7 )% (0.4 )% (1.5 )% (0.5 )%
Equity in earnings, net of tax — % (0.5 )% — % 2.3 %
Net income (loss) 5.6 % 8.5 % (3.3 )% 5.9 %

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Segment Overview

We operate our business in two segments. Our modules segment involves the design, manufacture, and sale of CdTe solar modules to third parties, and our systems segment includes the development, construction, operation, maintenance, and sale of PV solar power systems, including any modules installed in such systems and any revenue from energy generated by such systems.

In September 2019, we announced our transition from an internal EPC service model in the United States to an external model, in which we expect to leverage the capabilities of third-party EPC services in providing power plant solutions to our systems segment customers. This transition is scheduled to occur through the rest of 2019 and is not expected to affect any projects to be completed this year. The shift to an external EPC service model in the United States aligns with our typical model in international markets and is facilitated, in part, by our Series 6 module technology and its improved BoS compatibility. See Note 16. “Segment Reporting” to our condensed consolidated financial statements for more information on our operating segments.

Net sales

Modules Business

We generally price and sell ~~the energy from~~ our solar modules on a per watt basis. During the three and ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, we sold the majority of our solar modules to integrators and operators of systems in the United States, ~~and France,~~ and substantially all of our modules business net sales were denominated in U.S. dollars. We recognize revenue for module sales at a point in time following the transfer of control of the modules to the customer, which typically occurs upon shipment or delivery depending on the terms of the underlying contracts.

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Systems Business

During the three and six months ended ~~September~~June 30, ~~2019,~~2020, the majority of our systems business net sales were in the United States and were denominated in U.S. dollars. ~~During the nine months ended September 30, 2019, the majority of our systems business net sales were in the United States and Australia and were denominated in U.S. dollars and Australian dollars.~~ We ~~typically~~ recognize revenue for the sale of a development project, which excludes EPC services, or for the sale of a completed system when we enter into the associated sales contract with the customer. For other sales of solar power systems and/or EPC services, we generally recognize revenue over time as our performance creates or enhances an energy generation asset controlled by the customer. Furthermore, the sale of a solar power system combined with EPC services represents a single performance obligation for the development and construction of a single generation asset. For such arrangements, we recognize revenue as work is performed using cost based input methods, which result in revenue being recognized as work is performed based on the relationship between actual costs incurred compared to the total estimated costs for a given contract. ~~We may also recognize revenue for the sale of a system after the project has been completed due to the timing of when we enter into the associated sales contract with the customer.~~

The following table shows net sales by reportable segment for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018:~~2019:


	Three Months Ended June 30,												Six Months Ended June 30,
(Dollars in thousands)	2020		2019		Three Month Change						2020		2019		Six Month Change
Modules	$	371,518	$	228,745	$	142,773	62	%	$	765,199	$	427,560	$	337,639	79	%
Systems	270,893		356,211		(85,318)		(24)	%	409,336		689,374		(280,038)		(41)	%
Net sales	$	642,411	$	584,956	$	57,455	10	%	$	1,174,535	$	1,116,934	$	57,601	5	%

Three Months Ended
September 30, Nine Months Ended
September 30,
(Dollars in thousands) 2019 2018 Three Month Change 2019 2018 Nine Month Change
Modules $ 371,184
$ 119,825
$ 251,359
210 % $ 798,744
$ 386,450
$ 412,294
107 %
Systems 175,622
556,395
(380,773 ) (68 )% 864,996
1,166,353
(301,357 ) (26 )%
Net sales $ 546,806
$ 676,220
$ (129,414 ) (19 )% $ 1,663,740
$ 1,552,803
$ 110,937
7 %

Net sales from our modules segment increased ~~$251.4~~$142.8 million for the three months ended ~~September~~June 30, ~~2019~~2020 compared to the three months ended ~~September~~June 30, ~~2018~~2019 primarily due to a 221% increase in the volume of watts sold, partially offset by a 3% decrease in the average selling price per watt. Net sales from our systems segment decreased $380.8 million for the three months ended September 30, 2019 compared to the three months ended September 30, 2018 primarily due to the sale of the Manildra project in 2018 and the completion of substantially all construction activities at the California Flats, Willow Springs, Balm Solar, Rosamond, and Payne Creek projects in late 2018 and early 2019, partially offset by the sale of the Seabrook project and the completion of substantially all construction activities at the Phoebe project in 2019.

~~Net sales from our modules segment increased $412.3 million for the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018 primarily due to a 100%~~59% increase in the volume of watts sold and a 3%2% increase in the average selling price per watt. Net sales from our systems segment decreased ~~$301.4~~$85.3 million for the ~~nine~~three months ended ~~September~~June 30, ~~2019~~2020 compared to the ~~nine~~three months ended ~~September~~June 30, ~~2018~~2019 primarily due to the sale of the ~~Manildra~~Beryl, Cove Mountain, and ~~certain India~~Muscle Shoals projects ~~in 2018~~ and the completion of substantially all construction activities at the ~~California Flats, Willow Springs, Balm Solar, and Payne Creek projects~~Phoebe project in ~~late 2018 and early~~ 2019, partially offset by the sale of the American Kings project in the current period.

Net sales from our modules segment increased $337.6 million for the six months ended June 30, 2020 compared to the six months ended June 30, 2019 primarily due to a 76% increase in the volume of watts sold and a 2% increase in the average selling price per watt. Net sales from our systems segment decreased $280.0 million for the six months ended June 30, 2020 compared to the six months ended June 30, 2019 primarily due to the sale of the Beryl, Cove Mountain, and ~~Seabrook~~Muscle Shoals projects and the completion of substantially all construction activities at the Rosamond, Phoebe, and Lake Hancock projects in 2019, partially offset by the sale of the American Kings project and ongoing construction activities at the ~~Phoebe and~~ GA Solar 4 ~~projects~~project in ~~2019.~~the current period.

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Cost of sales

Modules Business

Our modules business cost of sales includes the cost of raw materials and components for manufacturing solar modules, such as glass, transparent conductive coatings, CdTe, and other thin film semiconductors, laminate materials, connector assemblies, edge seal materials, and frames. In addition, our cost of sales includes direct labor for the manufacturing of solar modules and manufacturing overhead, such as engineering, equipment maintenance, quality and production control, and information technology. Our cost of sales also includes depreciation of manufacturing plant and equipment, facility-related expenses, environmental health and safety costs, and costs associated with shipping, warranties, and solar module collection and recycling (excluding accretion).

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Systems Business

For our systems business, project-related costs include development costs (legal, consulting, transmission upgrade, interconnection, permitting, and other similar costs), EPC costs (consisting primarily of solar modules, inverters, electrical and mounting hardware, project management and engineering, and construction labor), and site specific costs.

The following table shows cost of sales by reportable segment for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018:~~2019:


	Three Months Ended June 30,																Six Months Ended June 30,
(Dollars in thousands)	2020			2019			Three Month Change							2020			2019		Six Month Change
Modules	$	291,577		$	217,262		$	74,315	34	%	$	609,906		$	441,073		$	168,833	38	%
Systems	213,374			290,512			(77,138)		(27)	%	336,831			598,567			(261,736)		(44)	%
Total cost of sales	$	504,951		$	507,774		$	(2,823)	(1)	%	$	946,737		$	1,039,640		$	(92,903)	(9)	%
% of net sales	78.6		%	86.8		%					80.6		%	93.1		%

Three Months Ended
September 30, Nine Months Ended
September 30,
(Dollars in thousands) 2019 2018 Three Month Change 2019 2018 Nine Month Change
Modules $ 223,378
$ 125,479
$ 97,899
78 % $ 664,451
$ 408,377
$ 256,074
63 %
Systems 185,065
421,614
(236,549 ) (56 )% 783,632
850,559
(66,927 ) (8 )%
Total cost of sales $ 408,443
$ 547,093
$ (138,650 ) (25 )% $ 1,448,083
$ 1,258,936
$ 189,147
15 %
% of net sales 74.7 % 80.9 %

87.0 % 81.1 %

Our cost of sales decreased ~~$138.7~~$2.8 million, or ~~25%~~1%, and decreased ~~6.2~~8.2 percentage points as a percent of net sales for the three months ended ~~September~~June 30, ~~2019~~2020 compared to the three months ended ~~September~~June 30, ~~2018.~~2019. The decrease in cost of sales was driven by a ~~$236.5~~$77.1 million decrease in our systems segment cost of sales primarily due to the lower volume of projects under construction during the ~~period.~~period, partially offset by the size of projects sold and the timing of when revenue recognition criteria were met. Such decrease was partially offset by a ~~$97.9~~$74.3 million increase in our modules segment cost of sales primarily due to higher costs of ~~$219.8~~$116.0 million from an increase in the volume of modules sold and manufacturing related charges of $8.8 million associated with the ongoing COVID-19 pandemic, partially offset by ~~a reduction~~continued cost reductions in the cost per watt of our ~~product warranty liability~~solar modules, which decreased cost of ~~$80.0~~sales by $46.5 million, ~~due to revised module return rates~~ and lower under-utilization and certain other charges associated with the initial ramp of certain Series 6 manufacturing lines, which decreased cost of sales by ~~$42.6~~$16.2 million compared to ~~2018.~~2019.

Our cost of sales ~~increased $189.1~~decreased $92.9 million, or ~~15%~~9%, and ~~increased 5.9~~decreased 12.5 percentage points as a percent of net sales for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 compared to the ~~nine~~six months ended ~~September~~June 30, ~~2018.~~2019. The ~~increase~~decrease in cost of sales was driven by a $256.1 million increase in our modules segment cost of sales primarily due to higher costs of $354.9 million from an increase in the volume of modules sold, partially offset by the reduction in our product warranty liability described above. This increase in cost of sales was partially offset by a $66.9$261.7 million decrease in our systems segment cost of sales primarily due to the lower volume of projects under construction during the period, partially offset by the size of projects sold and the timing of when ~~all~~ revenue recognition criteria were met. Such decrease was partially offset by a $168.8 million increase in our modules segment cost of sales primarily due to higher costs of $291.6 million from an increase in the volume of modules sold and manufacturing related charges of $8.8 million associated with the ongoing COVID-19 pandemic, partially offset by continued cost reductions in the cost per watt of our solar modules, which decreased cost of sales by $108.2 million, and lower under-utilization and certain other charges associated with the initial ramp of certain Series 6 manufacturing lines, which decreased cost of sales by $44.2 million compared to 2019.

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Gross profit

Gross profit may be affected by numerous factors, including the selling prices of our modules and systems, our manufacturing costs, project development costs, BoS costs, the capacity utilization of our manufacturing facilities, and foreign exchange rates. Gross profit may also be affected by the mix of net sales from our modules and systems businesses.

The following table shows gross profit for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018:~~2019:

�� Three Months Ended
September 30, Nine Months Ended
September 30,
(Dollars in thousands) 2019 2018 Three Month Change 2019 2018 Nine Month Change
Gross profit $ 138,363
$ 129,127
$ 9,236
7 % $ 215,657
$ 293,867
$ (78,210 ) (27 )%
% of net sales 25.3 % 19.1 %

13.0 % 18.9 %


	Three Months Ended June 30,																Six Months Ended June 30,
(Dollars in thousands)	2020			2019			Three Month Change							2020			2019		Six Month Change
Gross profit	$	137,460		$	77,182		$	60,278	78	%	$	227,798		$	77,294		$	150,504	195	%
% of net sales	21.4		%	13.2		%					19.4		%	6.9		%

Gross profit increased ~~by 6.2~~8.2 percentage points to ~~25.3%~~21.4% during the three months ended ~~September~~June 30, ~~2019~~2020 from ~~19.1%~~13.2% during the three months ended ~~September~~June 30, ~~2018~~2019 primarily due to ~~the reduction in our product warranty liability described above,~~ higher gross profit on third-party module sales and improved utilization of our manufacturing facilities from the successful ramp of various Series 6 manufacturing lines, partially offset by the mix of lower gross profit projects under construction during the ~~period.~~period, including additional costs for weather and COVID-19 related delays at the GA Solar 4 project, and manufacturing related charges associated with the ongoing COVID-19 pandemic.

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Gross profit ~~decreased 5.9~~ increased 12.5 percentage points to ~~13.0%~~19.4% during the ~~nine~~six months ended ~~September~~June 30, 2020 from 6.9% during the six months ended June 30, 2019 ~~from 18.9% during the nine months ended September 30, 2018~~primarily due to higher gross profit on third-party module sales and improved utilization of our manufacturing facilities from the successful ramp of various Series 6 manufacturing lines, partially offset by the mix of lower gross profit projects under construction during the period and the ~~settlement of a tax examination with~~additional costs for the ~~state of California in 2018, which affected our estimates of sales and use taxes due for certain projects, partially offset by the reduction in our product warranty liability~~GA Solar 4 project described ~~above and higher gross profit on third-party module sales.~~above.

Selling, general and administrative

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

The following table shows selling, general and administrative expense for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018:~~2019:

Three Months Ended
September 30, Nine Months Ended
September 30,
(Dollars in thousands) 2019 2018 Three Month Change 2019 2018 Nine Month Change
Selling, general and administrative $ 53,542
$ 33,539
$ 20,003
60 % $ 149,828
$ 125,519
$ 24,309
19 %
% of net sales 9.8 % 5.0 %

9.0 % 8.1 %


	Three Months Ended June 30,																Six Months Ended June 30,
(Dollars in thousands)	2020			2019			Three Month Change							2020			2019		Six Month Change
Selling, general and administrative	$	51,770		$	50,934		$	836	2	%	$	110,357		$	96,286		$	14,071	15	%
% of net sales	8.1		%	8.7		%					9.4		%	8.6		%

Selling, general and administrative expense for the three ~~and nine~~ months ended ~~September~~June 30, ~~2019~~2020 was consistent with the three months ended June 30, 2019. Selling, general and administrative expense for the six months ended June 30, 2020 increased compared to the ~~three and nine~~six months ended ~~September~~June 30, ~~2018~~2019 primarily due to ~~lower accretion expense~~an increase in ~~2018 associated with a reduction in our module collection and recycling liability in that period,~~professional fees; higher employee compensation expense, including higher severance; higher charges for impairments of certain project assets; and higher ~~professional fees.~~expected credit losses for our accounts receivable due to the current economic conditions resulting from the COVID-19 pandemic. See Note 5. “Consolidated Balance Sheet Details” for further information about the allowance for credit losses associated with our accounts receivable.

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Research and development

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

The following table shows research and development expense for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018:~~2019:

Three Months Ended
September 30, Nine Months Ended
September 30,
(Dollars in thousands) 2019 2018 Three Month Change 2019 2018 Nine Month Change
Research and development $ 24,912
$ 22,390
$ 2,522
11 % $ 71,184
$ 63,084
$ 8,100
13 %
% of net sales 4.6 % 3.3 %

4.3 % 4.1 %


	Three Months Ended June 30,																Six Months Ended June 30,
(Dollars in thousands)	2020			2019			Three Month Change							2020			2019		Six Month Change
Research and development	$	22,483		$	24,395		$	(1,912)	(8)	%	$	48,096		$	46,272		$	1,824	4	%
% of net sales	3.5		%	4.2		%					4.1		%	4.1		%

Research and development expense for the three ~~and nine~~ months ended ~~September~~June 30, 2020 decreased compared to the three months ended June 30, 2019 primarily as a result of lower employee compensation expense due to reductions in R&D headcount, partially offset by increased material and module testing costs.

Research and development expense for the six months ended June 30, 2020 increased compared to the ~~three and nine~~six months ended ~~September~~June 30, ~~2018~~2019 primarily due to higher impairment charges for certain equipment and increased material and module testing costs, ~~and higher~~partially offset by lower employee compensation ~~expense.~~expense due to reductions in R&D headcount.

Production start-up

Production start-up expense consists primarily of employee compensation and other costs associated with operating a production line before it ~~has been~~is qualified for full production, including the cost of raw materials for solar modules run through the production line during the qualification phase and applicable facility related costs. Costs related to equipment upgrades and implementation of manufacturing process improvements are also included in production start-up expense as well as costs related to the selection of a new site, related legal and regulatory costs, and costs to maintain our plant replication program to the extent we cannot capitalize these expenditures. In general, we expect production

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start-up expense per production line to be higher when we build an entirely new manufacturing facility compared with the addition or replacement of production lines at an existing manufacturing facility, primarily due to the additional infrastructure investment required when building an entirely new facility.

The following table shows production start-up expense for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018:~~2019:


	Three Months Ended June 30,																Six Months Ended June 30,
(Dollars in thousands)	2020			2019			Three Month Change							2020			2019		Six Month Change
Production start-up	$	6,311		$	10,437		$	(4,126)	(40)	%	$	10,793		$	19,959		$	(9,166)	(46)	%
% of net sales	1.0		%	1.8		%					0.9		%	1.8		%

Three Months Ended
September 30, Nine Months Ended
September 30,
(Dollars in thousands) 2019 2018 Three Month Change 2019 2018 Nine Month Change
Production start-up $ 18,605
$ 14,723
$ 3,882
26 % $ 38,564
$ 76,159
$ (37,595 ) (49 )%
% of net sales 3.4 % 2.2 %

2.3 % 4.9 %

During the three and ~~nine~~six months ended ~~September~~June 30, 2019, we incurred production start-up expense at our new facility in Lake Township, Ohio. We also incurred production start-up expense at our second facility in Ho Chi Minh City, Vietnam in early 2019. During the three and nine months ended September 30, 2018,2020, we incurred production start-up expense for the transition to Series 6 module manufacturing at our ~~facilities~~second facility in Kulim, Malaysia and the capacity expansion of our manufacturing facility in Perrysburg, Ohio. During the three and six months ended June 30, 2019, we incurred production start-up expense at our facility in Lake Township, Ohio, and our second facility in Ho Chi Minh City, ~~Vietnam. We also incurred~~Vietnam, which commenced commercial production ~~start-up expense~~in early 2019.

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Litigation loss

The following table shows litigation loss for the ~~transition~~three and six months ended June 30, 2020 and 2019:


	Three Months Ended June 30,																Six Months Ended June 30,
(Dollars in thousands)	2020			2019			Three Month Change							2020			2019		Six Month Change
Litigation loss	$	6,000		$	—		$	6,000	100	%	$	6,000		$	—		$	6,000	100	%
% of net sales	0.9		%	—		%					0.5		%	—		%

In June 2020, we entered into an agreement in principle to ~~Series 6 module manufacturing at our facility~~settle the claims in ~~Perrysburg, Ohio~~the Opt-Out Action filed in ~~early 2018.~~2015 in the Arizona District Court by putative stockholders that opted out of the Class Action. On July 17, 2020, the parties executed a definitive settlement agreement pursuant to which we agreed to pay a total of $19 million in exchange for mutual releases and a dismissal with prejudice of the Opt-Out Action. The agreement contains no admission of liability, wrongdoing, or responsibility by any of the parties. On July 30, 2020, First Solar funded the settlement, and on July 31, 2020, the parties filed a joint stipulation of dismissal.

As of December 31, 2019, we had accrued $13 million of estimated losses for this action. As a result of the settlement, we accrued an incremental $6 million litigation loss during the three months ended June 30, 2020. See Note 10. “Commitments and Contingencies” for further information about the Opt-Out Action.

Foreign currency ~~gain~~ (loss), income, net

Foreign currency ~~gain~~ (loss), income, net consists of the net effect of gains and losses resulting from holding assets and liabilities and conducting transactions denominated in currencies other than our subsidiaries’ functional currencies.

The following table shows foreign currency (loss) ~~gain,~~income, net for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018:~~2019:


	Three Months Ended June 30,												Six Months Ended June 30,
(Dollars in thousands)	2020		2019		Three Month Change						2020		2019		Six Month Change
Foreign currency (loss) income, net	$	(1,299)	$	1,726	$	(3,025)	175	%	$	(1,697)	$	1,898	$	(3,595)	189	%

Three Months Ended
September 30, Nine Months Ended
September 30,
(Dollars in thousands) 2019 2018 Three Month Change 2019 2018 Nine Month Change
Foreign currency gain (loss), net $ 1,209
$ (2,383 ) $ 3,592
151 % $ 3,107
$ (2,478 ) $ 5,585
225 %

Foreign currency ~~gain~~loss for the three and six months ended ~~September~~June 30, ~~2019~~2020 increased compared to the three and six months ended ~~September~~June 30, ~~2018~~2019 primarily due to ~~differences between our economic hedge positions and the underlying exposures and lower~~higher costs associated with hedging activities related to our subsidiaries in ~~India~~Europe and Japan. Foreign currency gain for the nine months ended September 30, 2019 increased compared to the nine months ended September 30, 2018 primarily due to lower costs associated with hedging activities related to our subsidiaries in India and Japan, partially offset by the differences between our economic hedge positions and the underlying exposures.

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Interest income

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

The following table shows interest income for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018:~~2019:

Three Months Ended
September 30, Nine Months Ended
September 30,
(Dollars in thousands) 2019 2018 Three Month Change 2019 2018 Nine Month Change
Interest income $ 11,454
$ 16,456
$ (5,002 ) (30 )% $ 39,223
$ 45,145
$ (5,922 ) (13 )%

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	Three Months Ended June 30,												Six Months Ended June 30,
(Dollars in thousands)	2020		2019		Three Month Change						2020		2019		Six Month Change
Interest income	$	3,674	$	13,510	$	(9,836)	(73)	%	$	13,004	$	27,769	$	(14,765)	(53)	%

Interest income for the three and six months ended ~~September~~June 30, ~~2019~~2020 decreased compared to the three and six months ended ~~September~~June 30, ~~2018~~2019 primarily due to lower ~~average balances of time deposits and lower~~ interest rates ~~associated with restricted investments.~~ ~~Interest income~~ ~~for the nine months ended September 30, 2019 decreased compared to the nine months ended September 30, 2018 primarily as a result of~~on cash and cash equivalents and lower average balances and interest rates associated with ~~restricted investments, partially offset by higher interest rates on~~time deposits and marketable securities.

Interest expense, net

Interest expense, net is primarily comprised of interest incurred on long-term debt, settlements of interest rate swap contracts, and changes in the fair value of interest rate swap contracts that do not qualify for hedge accounting in accordance with ASC 815. We may capitalize interest expense ~~into~~to our project assets or property, plant and equipment when such costs qualify for interest capitalization, which reduces the amount of net interest expense reported in any given period.

The following table shows interest expense, net for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018:~~2019:

Three Months Ended
September 30, Nine Months Ended
September 30,
(Dollars in thousands) 2019 2018 Three Month Change 2019 2018 Nine Month Change
Interest expense, net $ (4,976 ) $ (3,198 ) $ (1,778 ) 56 % $ (24,018 ) $ (14,445 ) $ (9,573 ) 66 %


	Three Months Ended June 30,												Six Months Ended June 30,
(Dollars in thousands)	2020		2019		Three Month Change						2020		2019		Six Month Change
Interest expense, net	$	(3,254)	$	(8,921)	$	5,667	(64)	%	$	(10,043)	$	(19,042)	$	8,999	(47)	%

Interest expense, net for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019 increased~~2020 decreased compared to the three and ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 primarily due to changes in the fair value of interest rate swap contracts, which do not qualify for hedge accounting, and lower interest expense associated with project debt, partially offset by a decrease in capitalized ~~to certain projects under construction.~~interest.

Other ~~(loss) income,~~expense, net

Other ~~(loss) income,~~expense, net is primarily comprised of miscellaneous items and realized gains and losses on the sale of marketable securities and restricted ~~investments.~~marketable securities.

The following table shows other ~~income,~~expense, net for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018:~~2019:


	Three Months Ended June 30,												Six Months Ended June 30,
(Dollars in thousands)	2020		2019		Three Month Change						2020		2019		Six Month Change
Other expense, net	$	(3,195)	$	(4,438)	$	1,243	(28)	%	$	(5,417)	$	(929)	$	(4,488)	483	%

Three Months Ended
September 30, Nine Months Ended
September 30,
(Dollars in thousands) 2019 2018 Three Month Change 2019 2018 Nine Month Change
Other (loss) income, net $ (3,399 ) $ (5,971 ) $ 2,572
(43 )% $ (4,328 ) $ 7,635
$ (11,963 ) 157 %

Other ~~loss,~~expense, net for the three months ended ~~September~~June 30, ~~2019 decreased compared to~~2020 was consistent with the three months ended ~~September~~June 30, ~~2018 primarily due to the prior period impairment of our warrant to purchase additional ownership interests in CEC.~~2019. Other ~~loss,~~expense, net for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 increased compared to the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 primarily due to ~~the impairment of a strategic investment, lower realized gains from sales of restricted investments, and net~~expected credit losses associated with certain notes receivable, partially offset by prior period charges associated with certain letter of credit ~~arrangements.~~arrangements and the impairment of a strategic

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investment. See Note 5. “Consolidated Balance Sheet Details” for further information about the allowance for credit losses for our notes receivable.

Income tax ~~expense~~(expense) benefit

Income tax expense or benefit, deferred tax assets and liabilities, and liabilities for unrecognized tax benefits reflect our best estimate of current and future taxes to be paid. We are subject to income taxes in both the United States and numerous foreign jurisdictions in which we operate, principally Australia, ~~India,~~Japan, and Malaysia. Significant judgments and estimates are required to determine our consolidated income tax expense. The statutory federal corporate income tax rate in the United States is 21%, and the tax rates in Australia, ~~India,~~Japan, and Malaysia are 30%, ~~34.9%~~30.6%, and 24%, respectively. In Malaysia, we have been granted a long-term tax holiday, scheduled to expire in 2027, pursuant to which substantially all of our income earned in Malaysia is exempt from income tax, conditional upon our continued compliance with certain employment and investment thresholds.

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The following table shows income tax ~~expense~~benefit for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018:~~2019:


	Three Months Ended June 30,																Six Months Ended June 30,
(Dollars in thousands)	2020			2019			Three Month Change							2020			2019		Six Month Change
Income tax (expense) benefit	$	(10,214)		$	(11,744)		$	1,530	(13)	%	$	79,001		$	(10,350)		$	89,351	>100%
Effective tax rate	21.8		%	(175.1)		%					(163.2)		%	(13.7)		%

Three Months Ended
September 30, Nine Months Ended
September 30,
(Dollars in thousands) 2019 2018 Three Month Change 2019 2018 Nine Month Change
Income tax expense $ (15,035 ) $ (2,396 ) $ (12,639 ) 528 % $ (25,385 ) $ (7,857 ) $ (17,528 ) 223 %
Effective tax rate 33.0 % 3.8 %

(84.8 )% 12.1 %

Our tax rate is affected by recurring items, such as tax rates in foreign jurisdictions and the relative amounts of income we earn in those jurisdictions. The rate is also affected by discrete items that may occur in any given period, but are not consistent from period to period. Income tax expense ~~increased~~decreased by ~~$12.6~~$1.5 million during the three months ended ~~September~~June 30, ~~2019~~2020 compared to the three months ended ~~September~~June 30, ~~2018~~2019 primarily due to a lower benefit from the expiration of the statute of limitations on uncertain tax positions. Income tax expense increased by $17.5 million during the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018 primarily due to a lower tax benefit from the expiration of the statute of limitations on uncertain tax positions and certain discrete tax expenses associated with filing a ~~tax~~ return in a foreign ~~jurisdiction.~~jurisdiction, partially offset by higher pretax income. Income tax benefit increased by $89.4 million during the six months ended June 30, 2020 compared to the six months ended June 30, 2019 primarily due to a $90.7 million discrete tax benefit from the effect of tax law changes associated with the CARES Act.

Equity in earnings, net of tax

Equity in earnings, net of tax represents our proportionate share of the earnings or losses from equity method investments as well as any gains or losses on the sale or disposal of such investments.

The following table shows equity in earnings, net of tax for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018:~~2019:

Three Months Ended
September 30, Nine Months Ended
September 30,
(Dollars in thousands) 2019 2018 Three Month Change 2019 2018 Nine Month Change
Equity in earnings, net of tax $ 65
$ (3,233 ) $ 3,298
102 % $ (205 ) $ 35,105
$ (35,310 ) (101 )%


	Three Months Ended June 30,												Six Months Ended June 30,
(Dollars in thousands)	2020		2019		Three Month Change						2020		2019		Six Month Change
Equity in earnings, net of tax	$	303	$	(97)	$	400	412	%	$	215	$	(270)	$	485	180	%

Equity in earnings, net of tax for the three and six months ended ~~September~~June 30, ~~2019 increased compared to~~2020 was consistent with the three and six months ended ~~September~~June 30, ~~2018 primarily due to higher losses in 2018 from our investment in CEC.~~ 2019.

~~Equity in earnings, net of tax~~ for the nine months ended September 30, 2019 decreased compared to the nine months ended September 30, 2018 primarily as a result of the sale of our ownership interests in 8point3 Operating Company, LLC, which resulted in a gain of $40.3 million, net of tax in 2018. See Note 5. “Consolidated Balance Sheet Details” to our condensed consolidated financial statements for additional information.

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Critical Accounting Policies and Estimates

In preparing our condensed consolidated financial statements in conformity with U.S. GAAP, we make estimates and assumptions that affect the amounts of reported assets, liabilities, revenues, and expenses, as well as the disclosure of contingent liabilities. Some of our accounting policies require the application of significant judgment in the selection of the appropriate assumptions for making these estimates. By their nature, these judgments are subject to an inherent degree of uncertainty. We base our judgments and estimates on our historical experience, our forecasts, and other available information as appropriate. We believe the judgments and estimates involved in over time revenue recognition, accrued solar module collection and recycling, product warranties, accounting for income taxes, and long-lived asset impairments ~~and testing goodwill for impairment~~ have the greatest potential impact on our condensed consolidated financial statements. The actual results experienced by us may differ materially and adversely from our estimates. To the extent there are material differences between our estimates and the actual results, our future results of operations will be affected.

For a description of the accounting policies that require the most significant judgment and estimates in the preparation of our condensed consolidated financial statements, refer to our Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019. There have been no material changes to our accounting policies during the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 with the exception of certain changes to our ~~lease~~allowance for credit losses accounting policies as part of the adoption of ASU ~~2016-02~~2016-13 as described in Note ~~7. “Leases”~~2. “Recent Accounting Pronouncements” to our condensed consolidated financial statements.

Recent Accounting Pronouncements

See Note 2. “Recent Accounting Pronouncements” to our condensed consolidated financial statements for a summary of recent accounting pronouncements.

Liquidity and Capital Resources

As of ~~September~~June 30, ~~2019~~,2020, we believe that our cash, cash equivalents, marketable securities, cash flows from operating activities, contracts with customers for the future sale of solar modules, and advanced-stage project pipeline ~~availability under our Revolving Credit Facility (considering the minimum liquidity covenant requirements therein), and access to the capital markets~~ will be sufficient to meet our working capital, systems project investment, and capital expenditure needs for at least the next 12 months. As needed, we also believe we will have adequate access to the capital markets. We monitor our working capital to ensure we have adequate liquidity, both domestically and internationally.

We intend to maintain appropriate debt levels based upon cash flow expectations, our overall cost of capital, and expected cash requirements for our operations, ~~capital expenditures, and strategic discretionary spending. In the future, we may also engage~~such as systems project development activities in ~~additional debt or equity financings, including project specific debt financings. We believe that when necessary, we will have adequate access to the capital markets, although~~certain international regions. However, our ability to raise capital on terms commercially acceptable to us could be constrained if there is insufficient lender or investor interest due to company-specific, industry-wide, or ~~company-specific concerns. Such~~broader market concerns, such as a tightening of the supply of capital due to the COVID-19 pandemic and related containment measures. Any incremental debt financings could result in increased debt service expenses ~~dilution to our existing stockholders,~~ and/or restrictive covenants, which could limit our ability to pursue our strategic plans.

As of ~~September~~June 30, ~~2019,~~2020, we had $1.5 billion of cash, cash equivalents, and marketable securities compared to ~~$2.5~~$2.2 billion as of December 31, ~~2018. Cash,~~2019. The decrease in cash, cash equivalents, and marketable securities ~~as of September 30, 2019 decreased~~was primarily ~~as a result of~~driven by the $350 million settlement payment associated with our prior class action lawsuit; purchases of property, plant and ~~equipment,~~equipment; the timing of cash receipts from certain third-party module sales, for which proceeds were received in late 2019 prior to the step down in the U.S. investment tax credit; and other operating ~~expenditures associated with~~expenditures; partially offset by cash proceeds from the ~~initial ramp of certain Series 6 manufacturing lines,~~sale and ~~expenditures for the~~ construction of ~~certain~~systems projects. As of ~~September~~June 30, ~~2019, $0.8~~2020, $0.7 billion of our cash, cash equivalents, and marketable securities was held by our foreign subsidiaries and was primarily based in U.S. dollar, Japanese yen, and ~~Euro~~Indian rupee denominated holdings.

We utilize a variety of tax planning and financing strategies in an effort to ensure that our worldwide cash is available in the locations in which it is needed. If certain international funds were needed for our operations in the United States, we may be required to accrue and pay certain U.S. and foreign taxes to repatriate such funds. We

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maintain the intent

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and ability to permanently reinvest our accumulated earnings outside of the United States, with the exception of our subsidiaries in Canada and Germany. In addition, changes to foreign government banking regulations may restrict our ability to move funds among various jurisdictions under certain circumstances, which could negatively impact our ~~access to capital, resulting in an adverse effect on our~~ liquidity and capital resources.

Our systems business requires significant liquidity and is expected to continue to have significant liquidity requirements in the future. The net amount of our project assets and related portion of deferred revenue, which approximates our net capital investment in the development and construction of systems projects, was ~~$557.3~~$375.5 million as of ~~September~~June 30, ~~2019.~~2020. Solar power project development ~~and construction~~ cycles, which span the time between the identification of a site location and the commercial operation of a system, vary substantially and can take many years to mature. As a result of these long project cycles and strategic decisions to finance the development ~~and construction~~ of certain projects using our working capital, we may need to make significant up-front investments of resources in advance of the receipt of any cash from the sale of such projects. Delays in construction or in completing the sale of our systems projects that we are self-financing may also impact our liquidity. In certain circumstances, we may need to finance construction costs exclusively using working capital, if project financing becomes unavailable due to regional, market-wide, ~~regional,~~ or other concerns.

From time to time, we may develop projects in certain markets around the world where we may hold all or a significant portion of the equity in a project for several years. Given the duration of these investments and the currency risk relative to the U.S. dollar in some of these markets, we continue to explore local financing alternatives. Should these financing alternatives be unavailable or too cost prohibitive, we could be exposed to significant currency risk and our liquidity could be adversely impacted.

Additionally, we may elect to retain an ownership interest in certain systems projects after they become operational if we determine it would be of economic and strategic benefit to do so. If, for example, we cannot sell a ~~systems project~~system at economics that are attractive to us or potential customers are unwilling to assume the risks and rewards typical of ~~PV solar power~~ system ownership, we may instead elect to temporarily own and operate such system until we can sell it on economically attractive terms. The decision to retain ownership of a system impacts our liquidity depending upon the size and cost of the project. As of ~~September~~June 30, ~~2019,~~2020, we had ~~$484.6~~$465.5 million of net PV solar power systems that had been placed in service, primarily in international markets. We have elected, and may in the future elect, to enter into temporary or long-term project financing to reduce the impact on our liquidity and working capital with regards to such ~~projects and~~ systems. We may also consider entering into tax equity or other arrangements with respect to ownership interests in certain of our projects, which could cause a portion of the economics of such projects to be realized over time.

The following additional considerations have impacted or may impact our liquidity for ~~2019~~2020 and beyond:

•We expect to spend $450 million to $550 million for capital expenditures, including amounts related to the transition of our second manufacturing facility in Kulim, Malaysia from Series 4 to Series 6 module technology and upgrades to other machinery and equipment, which we believe will further increase our module wattage and expand capacity and throughput at our other manufacturing facilities.

•In January 2020, we entered into an MOU to settle a class action lawsuit filed in the Arizona District Court. Pursuant to the MOU, among other things, we agreed to pay a total of $350 million to settle the claims in the lawsuit in exchange for mutual releases and dismissal with prejudice of the complaint upon court approval of the settlement. In February 2020, we subsequently entered into a Stipulation and Agreement of Settlement (the “Settlement Agreement”) with certain named plaintiffs on terms and conditions that were consistent with the MOU. Pursuant to the Settlement Agreement, among other things, (i) we contributed $350 million in cash to a settlement fund that will be used to pay all settlement fees and expenses, attorneys’ fees and expenses, and cash payments to members of the settlement class and (ii) the settlement class has agreed to release us, the other defendants named in the class action, and certain of their respective related parties from any and all claims concerning, based on, arising out of, or in connection with the class action. The Settlement Agreement contained no admission of liability, wrongdoing, or responsibility by any

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of the parties. On June 30, 2020, the Arizona District Court entered an order granting final approval of the settlement and dismissed the Class Action with prejudice.

•

We expect to continue to make significant capital investments as we transition our production to Series 6 module technology and purchase the related manufacturing equipment and infrastructure, including expenditures for our additional U.S. manufacturing plant in Lake Township, Ohio. We expect the aggregate capital investment for currently planned Series 6 related programs to be approximately $2.0 billion, including $1.6 billion of capital expenditures already made as of September 30, 2019. These capital investments are expected to provide an annual Series 6 manufacturing capacity of approximately 6.6 GW_DC ~~once completed. During the remainder of 2019, we expect to spend $150 million to $250 million for capital expenditures, the majority of which is associated with our Series 6 transition.~~

Our failure to obtain raw materials and components that meet our quality, quantity, and cost requirements in a timely manner could interrupt or impair our ability to manufacture our solar modules or increase our manufacturing costs. Accordingly, we may enter into long-term supply agreements to mitigate potential risks related to the procurement of key raw materials and components, and such agreements may be noncancelable or cancelable with a significant penalty. For example, we have entered into long-term supply agreements for the purchase of certain specified minimum volumes of substrate glass and cover glass for our PV solar modules.

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Our actual purchases under these supply agreements are expected to be approximately $2.4 billion of substrate glass and $500 million of cover glass. We have the right to terminate these agreements upon payment of specified termination penalties (which are up to $430 million in the aggregate and decline over time during the respective supply periods).

•The balance of our solar module inventories and BoS parts was ~~$505.0~~$409.5 million as of ~~September~~June 30, ~~2019.~~2020. As we continue to develop ~~and construct~~ our advanced-stage project pipeline, we must produce solar modules ~~and potentially procure BoS parts~~ in volumes sufficient to support our planned construction schedules. As part of this development and construction cycle, we typically produce ~~or procure~~ these inventories in advance of receiving payment for such materials, which may temporarily reduce our liquidity. Once solar modules and BoS parts are installed in a project, they are classified as either project assets, PV solar power systems, or cost of sales depending on whether the project is subject to a definitive sales contract and whether other revenue recognition criteria have been met. We also produce significant volumes of modules for sale directly to third-parties, which requires us to carry inventories at levels sufficient to satisfy the demand of our customers and the needs of their projects, which may also temporarily reduce our liquidity.

•We may commit significant working capital over the next several years to advance the construction of various U.S. systems projects or procure the associated modules or BoS parts, by specified dates, for such projects to qualify for certain federal investment tax credits (“ITC”). Among other requirements, such credits require projects to ~~commence~~have commenced construction in ~~2019,~~2020, which may be achieved by certain qualifying procurement activities, to receive a ~~30%~~26% investment tax credit. The credit will step down to ~~26% for projects that commence construction in 2020,~~ 22% for projects that commence construction in 2021, and will further step down to 10% for projects that commence construction thereafter. Such federal investment tax credits have been an important economic driver of solar installations and qualifying procurement activities in the United States, and have historically contributed to increased demand. In July 2020, the U.S. House of Representatives passed the Moving Forward Act, which includes, among other things, provisions to extend these credits by five years. Such extension, if successfully passed by the U.S. Senate and signed into law, is expected to contribute to greater demand for renewable energy investments in the United States.

•We may also commit working capital to acquire solar power projects in various stages of development, including advanced-stage projects with PPAs, and to continue developing those ~~projects and our existing~~ projects, as necessary. Depending upon the size and stage of development, the costs to acquire such solar power projects could be significant. When evaluating project acquisition opportunities, we consider both the strategic and financial benefits of any such acquisitions.

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Cash Flows

The following table summarizes ~~the~~ key cash flow activity for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019 (in thousands):


	Six Months Ended June 30,
	2020		2019
Net cash used in operating activities	$	(357,095)	$	(289,870)
Net cash provided by (used in) investing activities	81,287		(17,886)
Net cash (used in) provided by financing activities	(22,669)		80,719
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(222)		(2,018)
Net decrease in cash, cash equivalents and restricted cash	$	(298,699)	$	(229,055)

Nine Months Ended
September 30,
2019 2018
Net cash used in operating activities $ (607,492 ) $ (141,310 )
Net cash used in investing activities (54,635 ) (795,723 )
Net cash provided by financing activities 81,742
143,183
Effect of exchange rate changes on cash, cash equivalents and restricted cash (6,732 ) (12,454 )
Net decrease in cash, cash equivalents and restricted cash $ (587,117 ) $ (806,304 )

Operating Activities

The increase in net cash used in operating activities was primarily driven by the $350 million settlement payment associated with our prior class action lawsuit as described above and the timing of cash receipts from certain third-party module sales, for which proceeds were received in late 2019 prior to the step down in the U.S. investment tax credit. Such increases were partially offset by higher cash proceeds from the sale and construction of systems projects and lower operating expenditures associated with our ~~ongoing~~ transition to Series 6 module ~~manufacturing and expenditures for the construction of certain projects.~~manufacturing.

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Investing Activities

The ~~decrease~~increase in net cash ~~used in~~provided by investing activities was primarily due to ~~higher net sales of marketable securities and restricted investments and~~ lower purchases of property, plant and ~~equipment, partially offset by proceeds associated with the sale of our interests in the Partnership and its subsidiaries in 2018.~~equipment.

Financing Activities

The decrease in net cash provided by financing activities was primarily ~~the result of lower~~due to higher net ~~proceeds from~~ borrowings under project specific debt financings in 2019 associated with the construction of certain projects in ~~Australia~~Japan and ~~India.~~Australia.

Contractual Obligations

~~Our~~There have been no material changes in our contractual obligations ~~have not materially changed since December 31, 2018 with the exception of borrowings under project specific debt financings and other changes in~~outside the ordinary course of ~~business.~~business since December 31, 2019. See ~~Note 9. “Debt” to our condensed consolidated financial statements for more information related to the changes in our long-term debt. See also~~ our Annual Report on Form 10-K for the year ended December 31, ~~2018~~2019 for additional information regarding our contractual obligations.

Off-Balance Sheet Arrangements

As of ~~September~~June 30, ~~2019~~,2020, we had no off-balance sheet debt or similar obligations, other than financial assurance related instruments, which are not classified as debt. We do not guarantee any third-party debt. See Note 10. “Commitments and Contingencies” to our condensed consolidated financial statements for further information about our financial assurance related instruments.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

There have been no material changes to the information previously provided under Item 7A. of our Annual Report on Form 10-K for the year ended December 31, ~~2018~~2019.

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Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our “disclosure controls and procedures” as defined in Exchange Act Rule 13a-15(e) and 15d-15(e). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that as of ~~September~~June 30, ~~2019~~2020 our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

We also carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of our “internal control over financial reporting” as defined in Exchange Act Rule 13a-15(f) and 15d-15(f) to determine whether any changes in our internal control over financial reporting occurred during the three months ended ~~September~~June 30, ~~2019~~2020 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Based on that evaluation, there were no such changes in our internal control over financial reporting that occurred during the three months ended ~~September~~June 30, ~~2019.~~2020 despite the fact that many of our associates are working remotely due to the COVID-19 pandemic. We continue to monitor and assess the COVID-19 situation on our internal controls to minimize potential impacts on their design and operating effectiveness.

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CEO and CFO Certifications

We have attached as exhibits to this Quarterly Report on Form 10-Q the certifications of our Chief Executive Officer and Chief Financial Officer, which are required in accordance with the Exchange Act. We recommend that this Item 4. be read in conjunction with those certifications for a more complete understanding of the subject matter presented.

Limitations on the Effectiveness of Controls

Control systems, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control systems’ objectives are being met. Further, the design of any system of controls must reflect the fact that there are resource constraints, and the benefits of all controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of error or mistake. Control systems can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.

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PART II. OTHER INFORMATION

~~PART II.OTHER INFORMATION~~

Item 1. Legal Proceedings

See Note 10. “Commitments and Contingencies” under the heading “Legal Proceedings” of our condensed consolidated financial statements for legal proceedings and related matters.

Item 1A. Risk Factors

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Item 1A. “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, ~~2018,~~2019, which could materially affect our business, financial condition, results of operations, or cash flows. The risks described in our Annual Report on Form 10-K are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently consider immaterial may also materially adversely affect our business, financial condition, results of operations, or cash flows. Except for the ~~updated~~ risk ~~factor appearing~~factors set forth below, there have been no material changes in the risk factors contained in our Annual Report on Form 10-K.

COVID-19 and other public health crises could materially impact our business, financial condition, and results of operations.

The COVID-19 pandemic has continued to have an unprecedented impact on the United States, Malaysia, and other countries throughout the world, including those in which we do business or have operations. Although as of the date of this filing, we have not been materially impacted by COVID-19, the pandemic could materially impact our business, financial condition, and results of operations in the future. The extent to which the pandemic could impact us continues to be highly uncertain and cannot be predicted, and will depend largely on subsequent developments, including the severity and duration of the pandemic, measures taken to contain the spread of the virus, such as restrictions on travel and gatherings of people and temporary closures of or limitations on businesses and other commercial activities, and policies implemented by governmental authorities to ease restrictions in a phased manner.

As a result of the COVID-19 pandemic and these related containment measures and reopening policies, we may be subject to significant risks, which have the potential to materially and adversely impact our business, financial condition, and results of operations, including the following:

•The continued economic disruption caused by the COVID-19 pandemic may result in a long-term tightening of the supply of capital in global financial markets (including, in the United States, a reduction in total tax equity availability), which could make it difficult for purchasers of our modules or our development projects to secure the debt or equity capital necessary to finance a PV solar power system, thereby delaying or reducing demand for our modules or these projects;

•Purchasers of PV modules may delay module procurement in response to the COVID-19 pandemic, which may result in additional pressure on global demand and average selling prices for modules, and may exacerbate structural imbalances between global PV module supply and demand;

•We may at any time be ordered by governmental authorities, or we may determine, based on our understanding of the recommendations or orders of governmental authorities, that we have to curtail or cease business operations or activities, including manufacturing;

•The failure of our suppliers or vendors to supply materials or equipment, or the failure of our vendors to install, repair, or replace our specialized equipment, due to the COVID-19 pandemic, related containment measures, or limitations on logistics providers’ ability to operate, may idle, slowdown, shutdown, or otherwise cause us to adjust our manufacturing capacity. We have incurred manufacturing charges associated with the ongoing COVID-19 pandemic;

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•The COVID-19 pandemic and related containment measures may result in us incurring delays in obtaining, or failing to obtain, the approvals or rights that are required for our development projects to proceed, such as permitting, interconnection, or land usage approvals or rights, and the COVID-19 pandemic and related containment measures may delay or prevent the performance by third parties of activities related to the development of these projects, such as interconnection, engineering, procurement, construction, and other activities;

•We perform substantial R&D to continue to improve our module wattage (or conversion efficiency), lower our module cost per watt, lower the LCOE of our PV solar power systems, and otherwise keep pace with technological advances in the solar industry. The COVID-19 pandemic and related containment measures, including the unavailability of our personnel and third-party partners who are engaged in R&D activities, may inhibit our R&D efforts or our ability to timely advance or commercialize these efforts; and

•In response to the COVID-19 pandemic, the vast majority of our associates who are capable of performing their function remotely are telecommuting (i.e., working from home). While we have instituted security measures to minimize the likelihood and impact of a cybersecurity incident with respect to associates utilizing technological communications tools, these measures may be inadequate to prevent a cybersecurity breach because of the unprecedented number of associates continuously using these tools. Recently, there have been reports of a surge in widespread cyber-attacks during the COVID-19 pandemic. Any increase in the frequency or scope of cyber-attacks during the COVID-19 pandemic may exacerbate the aforementioned cybersecurity risks.

If the severity and duration of the COVID-19 pandemic does not abate and related containment measures are not lifted, are eased more slowly than anticipated, or are reinstituted, many of the other risks described in Item 1A. “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2019 may have a significant impact on our business, financial condition, and results of operations.

The reduction, elimination, or expiration of government subsidies, economic incentives, tax incentives, renewable energy targets, and other support for on-grid solar electricity applications, or other adverse public policies, such as tariffs or other trade remedies imposed on solar cells and modules, could negatively impact demand and/or price levels for our solar modules and systems and limit our growth or lead to a reduction in our net sales, thereby adversely impacting our operating results.

Although we believe that solar energy will experience widespread adoption in those applications where it competes economically with traditional forms of energy without any support programs, in certain markets our net sales and profits remain subject to variability based on the availability and size of government subsidies and economic incentives. Federal, state, and local governmental bodies in many countries have provided subsidies in the form of feed-in-tariffs, rebates, tax incentives, and other incentives to ~~end-users,~~end users, distributors, system integrators, and manufacturers of PV solar products. Many of these support programs expire, phase out over time, require renewal by the applicable authority, or may be amended. A summary of certain recent developments in the major government support programs that may impact our business appears under Item 1. “Business – Support Programs” of our Annual Report on Form 10-K. To the extent these support programs are reduced earlier than previously expected or are changed retroactively, such changes could negatively impact demand and/or price levels for our solar modules and systems, lead to a reduction in our net sales, and adversely impact our operating results. Another consideration in the U.S. market, and to a lesser extent in other global markets, is the effect of governmental land-use planning policies and environmental policies on utility-scale PV solar development. The adoption of restrictive land-use designations or environmental regulations that proscribe or restrict the siting of utility-scale solar facilities could adversely affect the marginal cost of such development.

In addition, policies of the U.S. presidential administration may create regulatory uncertainty in the renewable energy industry, including the solar industry, and our business, financial condition, and results of operations could be adversely affected. Members of the U.S. presidential administration, including representatives of the U.S.

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Department of Energy, have made public statements that indicate that the administration may not be supportive of various clean energy programs and initiatives designed to curtail climate change. For example, in June 2017, the U.S. President announced that the United States would withdraw from participation in the 2015 Paris Agreement on climate change mitigation. In addition, the administration has indicated that it may be supportive of overturning or modifying policies of or regulations enacted by the prior administration that placed limitations on gas and coal electricity generation, mining, and/or exploration. Additionally, in October 2017, the United States Environmental Protection Agency (“U.S. EPA”) issued a Notice of Proposed Rulemaking, proposing to repeal the previous U.S. presidential administration’s Clean Power Plan (“CPP”), which established standards to limit carbon dioxide emissions from existing power generation facilities. In June 2019, the U.S. EPA issued the final Affordable Clean Energy (“ACE”) rule and repealed the CPP. Under the ACE rule, emissions from electric utility generation facilities would be regulated only through the use of various “inside the fence” or onsite efficiency improvements and emission control technologies. In contrast, the CPP allowed facility owners to

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reduce emissions with “outside the fence” measures, including those associated with renewable energy projects. While the ACE rule is currently subject to legal challenges and may be subject to future challenges, the ultimate resolution of such challenges, and the ultimate impact of the ACE rule, is uncertain. As a result of the new ACE rule and other policies or actions of the current U.S. administration and/or the U.S. Congress, we may be subject to significant risks, including the following:

•a reduction or removal of clean energy programs and initiatives and the incentives they provide may diminish the market for future solar energy off-take agreements, slow the retirement of aging fossil fuel plants, including the retirements of coal generation plants, and reduce the ability for solar project developers to compete for future solar energy off-take agreements, which may reduce incentives for such parties to develop solar projects and purchase PV solar modules;

•any limitations on the value or availability to potential investors of tax incentives that benefit solar energy projects such as the ITC and accelerated depreciation deductions could result in such investors generating reduced revenues and economic returns and facing a reduction in the availability of affordable financing, thereby reducing demand for PV solar modules. The ITC is a U.S. federal incentive that provides an income tax credit to the owner of the project after the project is placed in ~~service of up~~service. Among other requirements, such credits require projects to have commenced construction by a certain date, which may be achieved by certain qualifying procurement activities. Accordingly, projects that commenced construction in 2019 were eligible for a 30% ~~of eligible basis.~~ITC. The credit will step down to 26% for projects that commence construction in 2020, 22% for projects that commence construction in 2021, and 10% for projects that commence construction thereafter. Under the Modified Accelerated Cost-Recovery System, owners of equipment used in a solar project may claim all of their depreciation deductions with respect to such equipment over five years, even though the useful life of such equipment is generally greater than five years. In addition, in December 2017, the U.S. government enacted comprehensive tax reform legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). Under the Tax Act, qualified property placed in service after September 22, 2017 and before January 1, 2023 is generally eligible for 100% expensing, and such property placed in service after December 31, 2022 and before January 1, 2027 is generally eligible for expensing at lower percentages. However, the Tax Act also reduced the U.S. corporate income tax rate to 21% effective January 1, 2018, which could diminish the capacity of potential investors to benefit from incentives such as the ITC and reduce the value of accelerated depreciation deductions and expensing, thereby reducing the relative attractiveness of solar projects as an investment; and

•any effort to overturn federal and state laws, regulations, or policies that are supportive of solar energy generation or that remove costs or other limitations on other types of electricity generation that compete with solar energy projects could negatively impact our ability to compete with traditional forms of electricity generation and materially and adversely affect our business.

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Application of U.S. trade laws, or trade laws of other countries, may also impact, either directly or indirectly, our operating results. For example, in January 2018, following a petition filed by a U.S.-based manufacturer of solar cells under Sections 201 and 202 of the Trade Act of 1974 for global safeguard relief with the U.S. International Trade Commission (the “USITC”), requesting, among other things, the imposition of certain tariffs on crystalline silicon solar cells imported into the United States and the establishment of a minimum price per watt on imported crystalline silicon solar modules, the U.S. President proclaimed tariffs on imported crystalline silicon modules, and a tariff-rate quota on imported crystalline silicon cells, over a four-year period, with the tariff on modules, and the tariff on cells above the first 2.5 GW_DC of imports, starting at 30% for the February 2018 to February 2019 period and declining by five percentage points in each subsequent 12-month period. Thin film solar cell products, such as our CdTe technology, are expressly excluded from the tariffs. The Office of the United States Trade Representative (the “USTR”) has also granted certain requests that particular types of solar products be excluded from the tariffs. Among these iswas an exclusion for bifacial solar modules that was issued on June 13, 2019. ~~However, in~~In a notice published on October 9, 2019, the USTR announced that it ~~will~~would withdraw the exclusion for bifacial solar modules, effective October 28, 2019. However, on December 5, 2019, the United States Court of International Trade overturned the announcement by issuing a preliminary injunction ordering the exclusion of bifacial solar modules from the tariffs. On January 27, 2020, the USTR announced a public comment process regarding the possible retention or withdrawal of the exclusion for bifacial solar modules, and the USTR received public comments in February 2020. On April 14, 2020, the U.S. Government informed the United States Court of International Trade that, on or about the same day, the USTR issued a determination for publication in the U.S. Federal Register that the USTR would withdraw the exclusion for bifacial solar modules if the court lifts the preliminary injunction, but in no case earlier than 30 days from the determination’s publication in the Federal Register (i.e., no earlier than May 18, 2020). On May 27, 2020, the United States Court of International Trade denied the U.S. Government’s motions to dismiss the action challenging the October 2019 withdrawal of the exclusion for bifacial solar modules and to dissolve the preliminary injunction. In a Federal Register notice published on June 12, 2020, the USTR announced that the October 2019 withdrawal had been rescinded and superseded by the USTR’s April 2020 determination to withdraw the exclusion for bifacial solar modules. Also on June 12, 2020, the U.S. Government filed a renewed motion requesting that the United States Court of International Trade dissolve the preliminary injunction, arguing that the October 2019 withdrawal is moot and that there is no basis to enjoin the April 2020 determination to withdraw the exclusion for bifacial solar modules. On July 23, 2020, the United States Court of International Trade scheduled oral argument for August 10, 2020, regarding the U.S. Government’s renewed motion to dissolve the preliminary injunction and other pending motions. On July 24, 2020, the U.S. Government notified the United States Court of International Trade that it is appealing that court’s order and decision of May 27, 2020 denying the U.S. Government’s initial motion to dissolve the preliminary injunction. It is unknown whether, or when, the USTR would be permitted to implement the April 2020 determination to withdraw the exclusion for bifacial solar modules. In addition, the USITC ~~is expected to review~~has reviewed developments regarding the relevant domestic industry (including its efforts to adjust to import competition), and ~~issue~~it provided a report to the U.S. President byin February 2020. ~~Such report~~The USITC has also reviewed the probable effects of increasing the tariff-rate quota for solar cells from 2.5 GW_DC to 4, 5, or 6 GW_DC, and it reported its advice to the USTR in March 2020. These reports could serve as a basis for the U.S. President to reduce, modify, or terminate the safeguard tariffs.

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The United States has also imposed import tariffs in connection with other proceedings during 2018, 2019, and ~~2019.~~2020. In March 2018, the U.S. President proclaimed tariffs on certain imported aluminum and steel articles, generally at rates of 10% and 25%, respectively, under Section 232 of the Trade Expansion Act of 1962. Currently, all countries except Argentina, Australia, Canada, and Mexico are covered by the aluminum tariff, and all countries except Argentina, Australia, Brazil, Canada, Mexico, and South Korea are covered by the steel tariff. In addition, in May 2018, the U.S. President proclaimed absolute quotas for the import of aluminum articles from Argentina and the import of steel articles from Argentina, Brazil, and South Korea. In January 2020, the U.S. President announced the expansion of tariffs under Section 232 to cover certain derivative steel and aluminum articles. Separately, in a series of actions during 2018 and 2019 that followed an investigation under Section 301 of the Trade Act of 1974, the United States imposed tariffs on various articles imported from China at a rate of 25%, including crystalline silicon solar cells and modules and various other articles. In August 2019, the U.S. President announced that the Section 301 tariff on various products, including crystalline silicon solar cells and modules, would increase to 30%,

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but such increase was later postponed in connection with U.S.-China negotiations. In December 2019, the United States and China announced a “Phase One” economic and trade agreement, whereby the U.S. Section 301 tariffs on various products, including crystalline silicon solar cells and modules, remained at 25%, while Section 301 tariffs on certain other products were lowered from 15% to 7.5%. In March 2020, the USTR granted Section 301 tariff exclusions for certain medical-care products related to the U.S. response to COVID-19, and it has ~~been postponed~~requested public comments on possible exclusions for additional medical-care products. Since then, the USTR has announced additional Section 301 tariff exclusions, including for non-medical care products, although most exclusions are set to expire by the end of 2020.

In May 2020, the United States undertook new initiatives relating to trade and ~~may be reversed~~commerce in the energy sector. On May 1, 2020, the U.S. President issued an executive order prohibiting various types of transactions (including acquisition, importation, and transfer) that are initiated after May 1, 2020 and involve bulk-power system electric equipment and any property in which any foreign country or a national thereof has any interest. The prohibition applies where the U.S. Secretary of Energy, in consultation with other officials, has determined that a transaction (i) involves bulk-power system electric equipment designed, developed, manufactured, or supplied by persons owned by, controlled by, or subject to the jurisdiction or direction of a ~~tentative agreement reached with China.~~foreign adversary, and (ii) poses certain types of risks to U.S. interests. The May 1, 2020 executive order instructs the U.S. Secretary of Energy to publish implementing rules or regulations by September 28, 2020. We are evaluating the potential impact on our business of the May 1, 2020 executive order and the U.S. government actions it contemplates, and our evaluation will be informed by the implementing rules or regulations to be published by the U.S. Secretary of Energy. In addition, on May 4, 2020, the U.S. Secretary of Commerce announced the initiation of an investigation, under Section 232 of the Trade Expansion Act of 1962, into whether laminations for stacked cores for incorporation into transformers, stacked and wound cores for incorporation into transformers, electrical transformers, and transformer regulators are being imported into the United States so as to threaten to impair U.S. national security. The U.S. Secretary of Commerce has 270 days from the initiation of the investigation to report findings and any recommendations to the U.S. President, and if a threat to national security is found, the U.S. President then has 90 days to decide whether to take action, such as the imposition of tariffs, to adjust imports of the products at issue. We are evaluating the potential impact on our business of U.S. government action that could result from this U.S. Secretary of Commerce investigation.

Internationally, in July 2018, the Indian government imposed a safeguard duty regime on solar cells and modules imported from various countries, including member countries of the Organisation for Economic Co-operation and Development (“OECD”), China, and Malaysia, for a two-year period, starting at 25% through July 2019 and declining by five percentage points in each subsequent six-month period. In July 2020, the Indian government announced an extension to the safeguard duty regime at a revised rate of 14.9% through December 2020 and declining to 14.5% through July 2021. These duties are applicable to imports from member countries of the OECD, China, Vietnam, and Thailand. In addition, in March 2019, the Indian government issued technical guidelines related to the enlistment of approved models and manufacturers of PV solar ~~modules. Pursuant~~modules, pursuant to ~~the regulations, after March 2020,~~which all projects owned by the Indian government or from which energy would be supplied to the government would be required to procure eligible components from ~~these~~such enlisted manufacturers. The enlistment procedures have certain distinguishing criteria depending on whether a manufacturer is located inside or outside of India, which may inhibit or restrict our ability to access the Indian market. While the effective date of this regulation was due to take effect in March 2020, in response to the COVID-19 pandemic, the effective date of this regulation has been deferred to September 2020. Such tariffs and policies, or any other U.S. or global trade remedies or other trade barriers, may directly or indirectly affect U.S. or global markets for solar energy and our business, financial condition, and results of operations.

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

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Item 5. Other Information

None.

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Item 6. Exhibits

The following exhibits are filed with this Quarterly Report on Form 10-Q:



Exhibit Number		Exhibit Description
~~10.1~~31.01		~~Form of Grant Notice for 2019-2021 Executive Performance Equity Plan~~
~~31.01~~	Certification of Chief Executive Officer pursuant to 15 U.S.C. Section 7241, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.02		Certification of Chief Financial Officer pursuant to 15 U.S.C. Section 7241, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.01*		Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS		XBRL Instance Document – the instance document does not appear in the Interactive Data file because its XBRL tags are embedded within the Inline XBRL document
101.SCH		XBRL Taxonomy Extension Schema Document
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document
101.LAB		XBRL Taxonomy Label Linkbase Document
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document
104		Cover page formatted as Inline XBRL and contained in Exhibit 101

——————————


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

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

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

FIRST SOLAR, INC.

Date: August 6, 2020

~~FIRST SOLAR, INC.~~

By:

~~Date: October 24, 2019~~

~~By:~~

/s/ BYRON JEFFERS

Name:

Byron Jeffers

Title:

~~Interim~~ Chief Accounting Officer

6468



Delaware			20-4623678
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)



Title of each class	Trading symbol(s)	Name of each exchange on which registered
Common stock, $0.001 par value	FSLR	The NASDAQ Stock Market LLC



	September 30, 2019			December 31, 2018
Land	$	14,176		$	14,382
Buildings and improvements	658,510			567,605
Machinery and equipment	2,166,391			1,826,434
Office equipment and furniture	186,852			178,011
Leasehold improvements	49,018			49,055
Construction in progress	406,056			405,581
Property, plant and equipment, gross	3,481,003			3,041,068
Accumulated depreciation	(1,374,035		)	(1,284,857		)
Property, plant and equipment, net	$	2,106,968		$	1,756,211



	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Net sales	$	546,806		$	676,220		$	1,663,740		$	1,552,803
Cost of sales	408,443			547,093			1,448,083			1,258,936
Gross profit	138,363			129,127			215,657			293,867
Operating expenses:
Selling, general and administrative	53,542			33,539			149,828			125,519
Research and development	24,912			22,390			71,184			63,084
Production start-up	18,605			14,723			38,564			76,159
Total operating expenses	97,059			70,652			259,576			264,762
Operating income (loss)	41,304			58,475			(43,919		)	29,105
Foreign currency gain (loss), net	1,209			(2,383		)	3,107			(2,478		)
Interest income	11,454			16,456			39,223			45,145
Interest expense, net	(4,976		)	(3,198		)	(24,018		)	(14,445		)
Other (loss) income, net	(3,399		)	(5,971		)	(4,328		)	7,635
Income (loss) before taxes and equity in earnings	45,592			63,379			(29,935		)	64,962
Income tax expense	(15,035		)	(2,396		)	(25,385		)	(7,857		)
Equity in earnings, net of tax	65			(3,233		)	(205		)	35,105
Net income (loss)	$	30,622		$	57,750		$	(55,525	)	$	92,210

Net income (loss) per share:
Basic	$	0.29		$	0.55		$	(0.53	)	$	0.88
Diluted	$	0.29		$	0.54		$	(0.53	)	$	0.87
Weighted-average number of shares used in per share calculations:
Basic	105,397			104,804			105,272			104,711
Diluted	106,227			106,163			105,272			106,211



	Three Months Ended September 30, 2019
	Common Stock				Additional Paid-In Capital			Accumulated Earnings		Accumulated Other Comprehensive (Loss) Income			Total Equity
	Shares		Amount		Additional Paid-In Capital			Accumulated Earnings		Accumulated Other Comprehensive (Loss) Income			Total Equity
Balance at June 30, 2019	105,390		$	105	$	2,826,533		$	2,355,406	$	(46,920	)	$	5,135,124
Net income	—		—		—			30,622		—			30,622
Other comprehensive income	—		—		—			—		7,402			7,402
Common stock issued for share-based compensation	21		—		—			—		—			—
Tax withholding related to vesting of restricted stock	(5	)	—		(339		)	—		—			(339		)
Share-based compensation expense	—		—		9,674			—		—			9,674
Balance at September 30, 2019	105,406		$	105	$	2,835,868		$	2,386,028	$	(39,518	)	$	5,182,483

	Three Months Ended September 30, 2018
	Common Stock				Additional Paid-In Capital			Accumulated Earnings		Accumulated Other Comprehensive (Loss) Income			Total Equity
	Shares		Amount		Additional Paid-In Capital			Accumulated Earnings		Accumulated Other Comprehensive (Loss) Income			Total Equity
Balance at June 30, 2018	104,798		$	105	$	2,809,272		$	2,331,687	$	(30,237	)	$	5,110,827
Net income	—		—		—			57,750		—			57,750
Other comprehensive loss	—		—		—			—		(4,934		)	(4,934		)
Common stock issued for share-based compensation	21		—		—			—		—			—
Tax withholding related to vesting of restricted stock	(5	)	—		(265		)	—		—			(265		)
Share-based compensation expense	—		—		7,578			—		—			7,578
Balance at September 30, 2018	104,814		$	105	$	2,816,585		$	2,389,437	$	(35,171	)	$	5,170,956


~~(1)~~	~~See Note 4. “Restricted Cash and Investments” to our condensed consolidated financial statements for discussion of our “Restricted cash” arrangements.~~



	As of September 30, 2019
	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
Foreign debt	$	360,923	$	1,090	$	599	$	361,414
Foreign government obligations	21,988		—		—		21,988
U.S. debt	90,250		171		33		90,388
Time deposits	187,762		—		—		187,762
Total	$	660,923	$	1,261	$	632	$	661,552



	As of December 31, 2018
	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
Foreign debt	$	320,056	$	468	$	1,878	$	318,646
Foreign government obligations	99,189		—		568		98,621
U.S. debt	44,625		53		210		44,468
Time deposits	681,969		—		—		681,969
Total	$	1,145,839	$	521	$	2,656	$	1,143,704



	As of September 30, 2019
	In Loss Position for Less Than 12 Months				In Loss Position for 12 Months or Greater				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Foreign debt	$	133,345	$	541	$	24,196	$	58	$	157,541	$	599
U.S. debt	25,797		29		14,270		4		40,067		33
Total	$	159,142	$	570	$	38,466	$	62	$	197,608	$	632



	Fair Value
One year or less	$	346,453
One year to two years	182,861
Two years to three years	102,224
Three years to four years	30,014
Total	$	661,552


~~(1)~~	~~There was an additional $32.4 million and $19.7 million of restricted cash included within “Prepaid expenses and other current assets” at September 30, 2019 and December 31, 2018, respectively.~~


~~(2)~~	~~See Note 6. “Derivative Financial Instruments” to our condensed consolidated financial statements for discussion of our derivative instruments.~~


~~(1)~~	~~See Note 7. “Leases” to our condensed consolidated financial statements for discussion of our lease arrangements.~~



	September 30, 2019
	Gross Amount		Accumulated Amortization			Net Amount
Developed technology	$	97,964	$	(39,977	)	$	57,987
Power purchase agreements	6,486		(892		)	5,594
Patents	7,408		(4,204		)	3,204
Intangible assets, net	$	111,858	$	(45,073	)	$	66,785



	December 31, 2018
	Gross Amount		Accumulated Amortization			Net Amount
Developed technology	$	97,714	$	(33,093	)	$	64,621
Power purchase agreements	6,486		(648		)	5,838
Patents	7,408		(3,705		)	3,703
Intangible assets, net	$	111,608	$	(37,446	)	$	74,162


~~(1)~~	~~See Note 10. “Commitments and Contingencies” to our condensed consolidated financial statements for discussion of our “Product warranty liability.”~~



	Three Months Ended September 30, 2019		Nine Months Ended September 30, 2019
Operating lease cost	$	5,788	$	16,607
Variable lease cost	904		2,592
Short-term lease cost	1,118		6,818
Total lease cost	$	7,810	$	26,017

Payments of amounts included in the measurement of operating lease liabilities			$	15,995
Lease assets obtained in exchange for operating lease liabilities			$	172,760

			September 30, 2019
Operating lease assets			$	176,785
Operating lease liabilities – current			11,221
Operating lease liabilities – noncurrent			142,256

Weighted-average remaining lease term			17 years
Weighted-average discount rate			4.5		%



	Total Lease Liabilities
Remainder of 2019	$	4,534
2020	15,688
2021	15,607
2022	15,124
2023	14,967
Thereafter	156,009
Total future payments	221,929
Less: interest	(68,452		)
Total lease liabilities	$	153,477



	Total Debt
Remainder of 2019	$	8,414
2020	29,052
2021	79,746
2022	15,850
2023	18,097
Thereafter	339,700
Total long-term debt future principal payments	$	490,859



	September 30, 2019		December 31, 2018		Nine Month Change
Accounts receivable, unbilled	$	136,734	$	441,666
Retainage	28,279		16,500
Accounts receivable, unbilled and retainage	$	165,013	$	458,166	$	(293,153	)	(64	)%

Deferred revenue (1)	$	134,278	$	177,769	$	(43,491	)	(24	)%


~~(1)~~	Includes $41.0 million and $48.0 million of long-term deferred revenue classified as “Other liabilities” on our condensed consolidated balance sheets as of September 30, 2019 and December 31, 2018, respectively.



��	Three Months Ended September 30,										Nine Months Ended September 30,
(Dollars in thousands)	2019			2018			Three Month Change				2019			2018			Nine Month Change
Gross profit	$	138,363		$	129,127		$	9,236	7	%	$	215,657		$	293,867		$	(78,210	)	(27	)%
% of net sales	25.3		%	19.1		%					13.0		%	18.9		%