UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark one)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, ~~2020~~2021

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 001-33156

First Solar, Inc.

(Exact name of registrant as specified in its charter)


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

350 West Washington Street, Suite 600

Tempe, Arizona 85281

(Address of principal executive offices, including zip code)

(602) 414-9300

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


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

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

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

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

As of July ~~31, 2020, 105,964,982~~23, 2021, 106,319,302 shares of the registrant’s common stock, $0.001 par value per share, were outstanding.

FIRST SOLAR, INC.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, ~~2020~~2021

TABLE OF CONTENTS


		Page
Part I.	Financial Information
Item 1.	Condensed Consolidated Financial Statements (Unaudited)
	Condensed Consolidated Statements of Operations for the three and six months ended June 30, ~~2020~~2021 and ~~2019~~2020	1
	Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 30, ~~2020~~2021 and ~~2019~~2020	2
	Condensed Consolidated Balance Sheets as of June 30, ~~2020~~2021 and December 31, ~~2019~~2020	3
	Condensed Consolidated Statements of Stockholders’ Equity for the three and six months ended June 30, ~~2020~~2021 and ~~2019~~2020	4
	Condensed Consolidated Statements of Cash Flows for the six months ended June 30, ~~2020~~2021 and ~~2019~~2020	6
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	4238
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	6156
Item 4.	Controls and Procedures	6257
Item 5.	Other Information	58
Part II.	Other Information	6358
Item 1.	Legal Proceedings	6358
Item 1A.	Risk Factors	63
~~Item 5.~~	~~Other Information~~	6858
Item 6.	Exhibits	6859
Signature		6860

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements (Unaudited)

FIRST SOLAR, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(Unaudited)

Three Months Ended
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 June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Net sales	$	629,180	$	642,411	$	1,432,554	$	1,174,535
Cost of sales	455,062		504,951		1,073,669		946,737
Gross profit	174,118		137,460		358,885		227,798
Operating expenses:
Selling, general and administrative	36,346		51,770		88,433		110,357
Research and development	23,935		22,483		43,808		48,096
Production start-up	1,715		6,311		13,069		10,793
Litigation loss	0		6,000		0		6,000
Total operating expenses	61,996		86,564		145,310		175,246
Gain on sales of businesses, net	(1,745)		0		149,150		0
Operating income	110,377		50,896		362,725		52,552
Foreign currency loss, net	(1,000)		(1,299)		(3,595)		(1,697)
Interest income	1,288		3,674		2,244		13,004
Interest expense, net	(4,623)		(3,254)		(7,619)		(10,043)
Other (expense) income, net	(3,247)		(3,195)		5,201		(5,417)
Income before taxes and equity in earnings	102,795		46,822		358,956		48,399
Income tax (expense) benefit	(20,346)		(10,214)		(66,836)		79,001
Equity in earnings, net of tax	0		303		0		215
Net income	$	82,449	$	36,911	$	292,120	$	127,615

Net income per share:
Basic	$	0.78	$	0.35	$	2.75	$	1.21
Diluted	$	0.77	$	0.35	$	2.73	$	1.20
Weighted-average number of shares used in per share calculations:
Basic	106,313		105,927		106,201		105,761
Diluted	106,836		106,473		106,866		106,429

See accompanying notes to these condensed consolidated financial statements.

Table of Contents

FIRST SOLAR, INC.

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 June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Net income	$	82,449	$	36,911	$	292,120	$	127,615
Other comprehensive income (loss):
Foreign currency translation adjustments	290		5,374		(9,426)		(2,690)
Unrealized gain (loss) on marketable securities and restricted marketable securities, net of tax of $(34), $(975), $1,087 and $(586)	115		11,826		(16,475)		14,678
Unrealized gain (loss) on derivative instruments, net of tax of $(61), $(7), $(698) and $(86)	784		(810)		4,166		86
Other comprehensive income (loss)	1,189		16,390		(21,735)		12,074
Comprehensive income	$	83,638	$	53,301	$	270,385	$	139,689

See accompanying notes to these condensed consolidated financial statements.

Table of Contents

FIRST SOLAR, INC.

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


	June 30, 2021		December 31, 2020
ASSETS
Current assets:
Cash and cash equivalents	$	1,346,888	$	1,227,002
Marketable securities (amortized cost of $418,450 and $519,844 and allowance for credit losses of $87 and $121 at June 30, 2021 and December 31, 2020, respectively)	418,505		520,066
Accounts receivable trade	585,507		269,095
Less: allowance for credit losses	(2,479)		(3,009)
Accounts receivable trade, net	583,028		266,086
Accounts receivable, unbilled	14,633		26,673
Less: allowance for credit losses	(37)		(303)
Accounts receivable, unbilled, net	14,596		26,370
Inventories	603,057		567,587
Assets held for sale	0		155,685
Prepaid expenses and other current assets	189,402		251,739
Total current assets	3,155,476		3,014,535
Property, plant and equipment, net	2,396,641		2,402,285
PV solar power systems, net	233,370		243,396
Project assets	310,816		373,377
Deferred tax assets, net	107,450		104,099
Restricted marketable securities (amortized cost of $247,628 and allowance for credit losses of $13 at December 31, 2020)	0		265,280
Goodwill	14,462		14,462
Intangible assets, net	50,669		56,138
Inventories	226,719		201,229
Other assets	752,870		434,130
Total assets	$	7,248,473	$	7,108,931
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	148,326	$	183,349
Income taxes payable	21,671		14,571
Accrued expenses	216,556		310,467
Current portion of long-term debt	3,239		41,540
Deferred revenue	237,244		188,813
Liabilities held for sale	0		25,621
Other current liabilities	33,887		83,037
Total current liabilities	660,923		847,398
Accrued solar module collection and recycling liability	129,726		130,688
Long-term debt	276,084		237,691
Other liabilities	398,105		372,226
Total liabilities	1,464,838		1,588,003
Commitments and contingencies	0		0
Stockholders’ equity:
Common stock, $0.001 par value per share; 500,000,000 shares authorized; 106,318,905 and 105,980,466 shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively	106		106
Additional paid-in capital	2,859,108		2,866,786
Accumulated earnings	3,007,882		2,715,762
Accumulated other comprehensive loss	(83,461)		(61,726)
Total stockholders’ equity	5,783,635		5,520,928
Total liabilities and stockholders’ equity	$	7,248,473	$	7,108,931

See accompanying notes to these condensed consolidated financial statements.

Table of Contents

FIRST SOLAR, INC.

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 June 30, 2021
	Common Stock			Additional Paid-In Capital		Accumulated Earnings		Accumulated Other Comprehensive (Loss) Income		Total Stockholders' Equity
	Shares	Amount
Balance at March 31, 2021	106,311	$	106	$	2,853,891	$	2,925,433	$	(84,650)	$	5,694,780
Net income	—	—		—		82,449		—		82,449
Other comprehensive income	—	—		—		—		1,189		1,189
Common stock issued for share-based compensation	10	0		0		—		—		0
Tax withholding related to vesting of restricted stock	(2)	0		(121)		—		—		(121)
Share-based compensation expense	—	—		5,338		—		—		5,338
Balance at June 30, 2021	106,319	$	106	$	2,859,108	$	3,007,882	$	(83,461)	$	5,783,635

	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	0		1,362		—		—		1,362
Tax withholding related to vesting of restricted stock	(1)	0		(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

See accompanying notes to these condensed consolidated financial statements.

Table of Contents

FIRST SOLAR, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (CONTINUED)

(In thousands)

(Unaudited)


															Six Months Ended June 30, 2021
															Common Stock			Additional Paid-In Capital				Accumulated Earnings		Accumulated Other Comprehensive (Loss) Income				Total Stockholders' Equity
															Shares	Amount
Balance at December 31, 2020													Balance at December 31, 2020		105,980	$	106			$	2,866,786			$	2,715,762			$	(61,726)		$	5,520,928
Net income													Net income		—	—		—				292,120		—				292,120
Other comprehensive loss													Other comprehensive loss		—	—		—				—		(21,735)				(21,735)
Common stock issued for share-based compensation													Common stock issued for share-based compensation		546	0		0				—		—				0
Tax withholding related to vesting of restricted stock													Tax withholding related to vesting of restricted stock		(207)	0		(15,810)				—		—				(15,810)
Share-based compensation expense													Share-based compensation expense		—	—		8,132				—		—				8,132
Balance at June 30, 2021													Balance at June 30, 2021		106,319	$	106	$	2,859,108			$	3,007,882	$	(83,461)			$	5,783,635

		Six Months Ended June 30, 2020																										Six Months Ended June 30, 2020
		Common Stock					Additional Paid-In Capital		Accumulated Earnings		Accumulated Other Comprehensive (Loss) Income			Total Equity		Common Stock						Additional Paid-In Capital		Accumulated Earnings				Accumulated Other Comprehensive (Loss) Income			Total Stockholders' Equity
		Shares	Amount															Shares												Total Stockholders' Equity
Balance at December 31, 2019	Balance at December 31, 2019	105,449	$	105	$	2,849,376	$	2,326,620	$	(79,334)	$	5,096,767	Balance at December 31, 2019		105,449	$	105	$	2,849,376			$	2,326,620			$	(79,334)						$	5,096,767
Cumulative-effect adjustment for the adoption of ASU 2016-13	Cumulative-effect adjustment for the adoption of ASU 2016-13	—	—		—		(9,213)		—		(9,213)		Cumulative-effect adjustment for the adoption of ASU 2016-13		—	—		—				(9,213)		—				(9,213)
Net income	Net income	—	—		—		127,615		—		127,615		Net income		—	—		—				127,615		—				127,615
Other comprehensive income	Other comprehensive income	—	—		—		—		12,074		12,074		Other comprehensive income		—	—		—				—		12,074				12,074
Common stock issued for share-based compensation	Common stock issued for share-based compensation	789	1		1,362		—		—		1,363		Common stock issued for share-based compensation		789	1		1,362				—		—				1,363
Tax withholding related to vesting of restricted stock	Tax withholding related to vesting of restricted stock	(277)	—		(12,764)		—		—		(12,764)		Tax withholding related to vesting of restricted stock		(277)	0		(12,764)				—		—				(12,764)
Share-based compensation expense	Share-based compensation expense	—	—		10,954		—		—		10,954		Share-based compensation expense		—	—		10,954				—		—				10,954
Balance at June 30, 2020	Balance at June 30, 2020	105,961	$	106	$	2,848,928	$	2,445,022	$	(67,260)	$	5,226,796	Balance at June 30, 2020		105,961	$	106	$	2,848,928			$	2,445,022	$	(67,260)			$	5,226,796

		Six Months Ended June 30, 2019
		Common Stock					Additional Paid-In Capital		Accumulated Earnings		Accumulated Other Comprehensive (Loss) Income			Total Equity
		Shares	Amount
Balance at December 31, 2018		104,885	$	105	$	2,825,211	$	2,441,553	$	(54,466)	$	5,212,403
Net loss		—	—		—		(86,147)		—		(86,147)
Other comprehensive income		—	—		—		—		7,546		7,546
Common stock issued for share-based compensation		805	1		1,672		—		—		1,673
Tax withholding related to vesting of restricted stock		(300)	(1)		(15,731)		—		—		(15,732)
Share-based compensation expense		—	—		15,381		—		—		15,381
Balance at June 30, 2019		105,390	105		2,826,533		2,355,406		(46,920)		5,135,124

See accompanying notes to these condensed consolidated financial statements.

Table of Contents

FIRST SOLAR, INC.

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


	Six Months Ended June 30,
	2021		2020
Cash flows from operating activities:
Net income	$	292,120	$	127,615
Adjustments to reconcile net income to cash used in operating activities:
Depreciation, amortization and accretion	128,913		113,876
Impairments and net losses on disposal of long-lived assets	5,264		6,611
Share-based compensation	8,545		10,980
Deferred income taxes	(12,317)		(72,706)
Gain on sales of businesses, net	(149,150)		0
Gains on sales of marketable securities and restricted marketable securities	(11,696)		(15,337)
Other, net	(1,459)		16,465
Changes in operating assets and liabilities:
Accounts receivable, trade and unbilled	(255,832)		303,030
Prepaid expenses and other current assets	(43,993)		14,412
Inventories	(61,942)		(80,071)
Project assets and PV solar power systems	40,558		(43,074)
Other assets	(17,750)		(46,720)
Income tax receivable and payable	37,158		(8,533)
Accounts payable	(10,795)		(43,524)
Accrued expenses and other liabilities	(49,694)		(642,793)
Accrued solar module collection and recycling liability	(159)		2,674
Net cash used in operating activities	(102,229)		(357,095)
Cash flows from investing activities:
Purchases of property, plant and equipment	(180,782)		(220,952)
Purchases of marketable securities and restricted marketable securities	(389,352)		(541,266)
Proceeds from sales and maturities of marketable securities and restricted marketable securities	749,447		857,130
Proceeds from sales of businesses	297,403		0
Other investing activities	(6,628)		(13,625)
Net cash provided by investing activities	470,088		81,287
Cash flows from financing activities:
Repayment of long-term debt	(38,471)		(9,101)
Proceeds from borrowings under long-term debt, net of discounts and issuance costs	45,191		0
Payments of tax withholdings for restricted shares	(15,810)		(12,764)
Other financing activities	0		(804)
Net cash used in financing activities	(9,090)		(22,669)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	906		(222)
Net increase (decrease) in cash, cash equivalents and restricted cash	359,675		(298,699)
Cash, cash equivalents and restricted cash, beginning of the period	1,273,594		1,446,510
Cash, cash equivalents and restricted cash, end of the period	$	1,633,269	$	1,147,811
Supplemental disclosure of noncash investing and financing activities:
Property, plant and equipment acquisitions funded by liabilities	$	43,894	$	99,290
Proceeds to be received from sale of business	$	4,482	$	0

See accompanying notes to these condensed consolidated financial statements.

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FIRST SOLAR, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of First Solar, Inc. and its subsidiaries in this Quarterly Report have been prepared in accordance with generally accepted accounting principles 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 six months ended June 30, ~~2020~~2021 are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2020~~2021 or for any other period. The condensed consolidated balance sheet at December 31, ~~2019~~2020 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, ~~2019~~2020 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~~Sales of Businesses

~~In June 2016, the Financial Accounting Standards Board issued 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 replaces the historical incurred loss model with a model that reflects current expected credit losses (“CECL”), which requires considerationSale of a broader range of information to measure credit losses 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 only considered when a security is in an unrealized loss position, is limited to the difference between such security’s fair value and amortized cost basis, and is recorded directly to “Other expense, net.” Any remaining unrealized loss is recorded to “Accumulated other comprehensive loss” until realized.North American O&M operations

~~We adopted ASU 2016-13~~Following an evaluation of the long-term cost structure, competitiveness, and risk-adjusted returns of our O&M services business, we received an offer to purchase certain portions of the business and determined it was in the ~~first quarter~~best interest of our stockholders to pursue the transaction. Accordingly, in August 2020, ~~using~~we entered into an agreement with a subsidiary of Clairvest Group, Inc. (“Clairvest”) for the ~~modified-retrospective approach,~~sale of our North American O&M operations.

On March 31, 2021, we completed the transaction for a closing purchase price of $151.5 million, subject to certain customary post-closing adjustments, of which ~~resulted in the recognition~~$146.0 million was received on March 31, 2021. As a result of ~~an initial allowance for credit losses for our various financial assets through~~this transaction, we recognized a ~~cumulative-effect adjustment that decreased retained earnings by $9.2~~gain of $119.2 million, net of ~~tax,~~transaction costs, during the three months ended March 31, 2021, which was included in “Gain on sales of businesses, net” in our condensed consolidated statements of operations. During the three months ended June 30, 2021, we recorded certain post-closing adjustments that reduced the gain by $1.4 million. The assets and liabilities associated with this business were classified as held for sale in our condensed consolidated balance sheet as of ~~January 1,~~December 31, 2020.

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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 delinquency statusSale 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 loss rates associated with such credit ratings, which we obtain from third parties. Such methods and 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 financial assets are deemed uncollectible.U.S. project development business

~~See Note 3. “Cash, Cash Equivalents,~~Following a separate evaluation of the long-term cost structure, competitiveness, and ~~Marketable Securities,” Note 4. “Restricted Marketable Securities,”~~risk-adjusted returns of our U.S. project development business, we determined it was also in the best interest of our stockholders to pursue the sale of this business. In January 2021, we entered into an agreement with Leeward Renewable Energy Development, LLC (“Leeward”), a subsidiary of the Ontario Municipal Employees Retirement System, for the sale of our U.S. project development business, which included developing, contracting for the construction of, and ~~Note 5. “Consolidated Balance Sheet Details”~~selling utility-scale photovoltaic (“PV”) solar power systems in the United States. The transaction included our approximately 10 GWAC utility-scale solar project pipeline, including the advanced-stage Horizon, Madison, Ridgely, Rabbitbrush, and Oak Trail projects, which are expected to commence construction in the next two years; the 30MWAC Barilla Solar project, which is operational; and certain other equipment. In addition, Leeward agreed to certain module purchase commitments.

On March 31, 2021, we completed the transaction for an aggregate purchase price of $284.0 million, subject to certain customary post-closing adjustments. Such purchase price included $151.4 million for the sale of the U.S. project development business; $117.8 million for the sale of 349 MWDC of solar modules, which is presented in “Net sales” on our condensed consolidated ~~financial~~ statements of operations for ~~further information about~~ the ~~allowance~~six months ended June 30, 2021; and $14.8 million of advanced payments for ~~credit losses~~43 MWDC of solar modules not yet delivered, which is included in “Deferred revenue” in our condensed consolidated balance sheet as of June 30, 2021. Proceeds from the transaction were received in early April 2021.

During the three months ended March 31, 2021, we recognized a gain of $31.8 million, net of transaction costs, from the sale of our U.S. project development business, which is included in “Gain on sales of businesses, net” in our condensed consolidated statements of operations. During the three months ended June 30, 2021, we recorded certain post-closing adjustments that reduced the gain by $0.3 million. The assets and liabilities associated with this business were classified as held for sale in our ~~various financial assets.~~condensed consolidated balance sheet as of December 31, 2020.

3. Cash, Cash Equivalents, and Marketable Securities

Cash, cash equivalents, and marketable securities consisted of the following at June 30, ~~2020~~2021 and December 31, ~~2019~~2020 (in thousands):


		June 30, 2020		December 31, 2019			June 30, 2021		December 31, 2020
Cash and cash equivalents:	Cash and cash equivalents:					Cash and cash equivalents:
Cash	Cash	$	1,052,308	$	1,345,419	Cash	$	1,346,886	$	1,227,000
Money market funds	Money market funds	392		7,322		Money market funds	2		2
Total cash and cash equivalents	Total cash and cash equivalents	1,052,700		1,352,741		Total cash and cash equivalents	1,346,888		1,227,002
Marketable securities:	Marketable securities:					Marketable securities:
Foreign debt	Foreign debt	261,955		387,820		Foreign debt	166,612		214,254
Foreign government obligations		—		22,011
U.S. debt	U.S. debt	48,697		66,134		U.S. debt	18,917		14,543
Time deposits	Time deposits	183,428		335,541		Time deposits	232,976		291,269
Total marketable securities	Total marketable securities	494,080		811,506		Total marketable securities	418,505		520,066
Total cash, cash equivalents, and marketable securities	Total cash, cash equivalents, and marketable securities	$	1,546,780	$	2,164,247	Total cash, cash equivalents, and marketable securities	$	1,765,393	$	1,747,068

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The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within our condensed consolidated balance sheets as of June 30, ~~2020~~2021 and December 31, ~~2019~~2020 to the total of such amounts as presented in the condensed consolidated ~~statement~~statements of cash flows (in thousands):


		Balance Sheet Line Item	June 30, 2020		December 31, 2019			Balance Sheet Line Item	June 30, 2021		December 31, 2020
Cash and cash equivalents	Cash and cash equivalents	Cash and cash equivalents	$	1,052,700	$	1,352,741	Cash and cash equivalents	Cash and cash equivalents	$	1,346,888	$	1,227,002
Restricted cash – current	Restricted cash – current	Prepaid expenses and other current assets	51,306		13,697		Restricted cash – current	Prepaid expenses and other current assets	864		1,745
Restricted cash – noncurrent	Restricted cash – noncurrent	Other assets	43,805		80,072		Restricted cash – noncurrent	Other assets	285,517		44,847
Total cash, cash equivalents, and restricted cash	Total cash, cash equivalents, and restricted cash		$	1,147,811	$	1,446,510	Total cash, cash equivalents, and restricted cash		$	1,633,269	$	1,273,594

~~Table~~During the six months ended June 30, 2021, we sold marketable securities for proceeds of ~~Contents~~

$5.5 million and realized gains of less than $0.1 million on such sales. During the three and six months ended 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 $20.0 million and realized 0 gain or loss on the 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 June 30, ~~2020~~2021 and December 31, ~~2019~~2020 (in thousands):


		As of June 30, 2020																			As of June 30, 2021
		Amortized Cost		Unrealized Gains		Unrealized Losses		Allowance for Credit Losses		Fair Value			Amortized Cost		Unrealized Gains		Unrealized Losses		Allowance for Credit Losses		Fair Value
Foreign debt	Foreign debt	$	261,776	$	429	$	211	$	39	$	261,955	Foreign debt	$	166,377	$	242	$	4	$	3	$	166,612
U.S. debt	U.S. debt	48,717		135		149		6		48,697		U.S. debt	19,015		19		115		2		18,917
Time deposits	Time deposits	183,507		—		—		79		183,428		Time deposits	233,058		0		0		82		232,976
Total	Total	$	494,000	$	564	$	360	$	124	$	494,080	Total	$	418,450	$	261	$	119	$	87	$	418,505


		As of December 31, 2019															As of December 31, 2020
		Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value			Amortized Cost		Unrealized Gains		Unrealized Losses		Allowance for Credit Losses		Fair Value
Foreign debt	Foreign debt	$	387,775	$	551	$	506	$	387,820	Foreign debt	$	213,949	$	367	$	46	$	16	$	214,254
Foreign government obligations		21,991		20		—		22,011
U.S. debt	U.S. debt	65,970		176		12		66,134		U.S. debt	14,521		22		0		0		14,543
Time deposits	Time deposits	335,541		—		—		335,541		Time deposits	291,374		0		0		105		291,269
Total	Total	$	811,277	$	747	$	518	$	811,506	Total	$	519,844	$	389	$	46	$	121	$	520,066

The following table presents the change in the allowance for credit losses related to our available-for-sale marketable securities for the six months ended June 30, 2021 and 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~~


	Six Months Ended June 30,
	2021		2020
Allowance for credit losses, beginning of period	$	121	$	0
Cumulative-effect adjustment for the adoption of ASU 2016-13	0		207
Provision for credit losses, net	201		204
Sales and maturities of marketable securities	(235)		(287)
Allowance for credit losses, end of period	$	87	$	124

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The contractual maturities of our marketable securities as of June 30, ~~2020~~2021 were as follows (in thousands):


	Fair Value
One year or less	$	~~281,884~~356,279
One year to two years	~~159,917~~52,343
Two years to three years	~~52,279~~0
Three years to four years	0
Four years to five years	4,974
More than five years	4,909
Total	$	~~494,080~~418,505

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4. Restricted Marketable Securities

Restricted marketable securities consisted of the following as of June 30, ~~2020~~2021 and December 31, ~~2019~~2020 (in thousands):


		June 30, 2020		December 31, 2019
							June 30, 2021		December 31, 2020
Foreign government obligations	Foreign government obligations	$	132,883	$	126,066	Foreign government obligations	$	0	$	149,700
U.S. government obligations	U.S. government obligations	120,353		97,719		U.S. government obligations	0		115,580
Total restricted marketable securities	Total restricted marketable securities	$	253,236	$	223,785	Total restricted marketable securities	$	0	$	265,280

Our restricted marketable securities represent long-term marketable securities held in custodial accounts to fund the estimated future ~~costs~~cost of collecting and recycling modules covered under our solar module collection and recycling program. As of June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, such custodial accounts also included noncurrent restricted cash balances of ~~$0.7~~$257.0 million and ~~less than $0.1~~$0.7 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 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~~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 six months ended June 30, 2021, we sold all our restricted marketable securities for proceeds of $258.9 million and realized gains of $11.7 million on such sales. We intend to reinvest such proceeds and continue to evaluate investments that support the estimated costs of our solar module collection and recycling program. During the six months ended 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 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 disbursed $14.9 million of overfunded amounts. See Note 8. “Fair Value Measurements” to our condensed consolidated financial statements for information about the fair value of our restricted marketable securities.

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


		As of June 30, 2020																			As of December 31, 2020
		Amortized Cost		Unrealized Gains		Unrealized Losses		Allowance for Credit Losses		Fair Value			Amortized Cost		Unrealized Gains		Unrealized Losses		Allowance for Credit Losses		Fair Value
Foreign government obligations	Foreign government obligations	$	128,381	$	4,502	$	—	$	—	$	132,883	Foreign government obligations	$	131,980	$	17,720	$	0	$	0	$	149,700
U.S. government obligations	U.S. government obligations	114,986		5,367		—		—		120,353		U.S. government obligations	115,648		133		188		13		115,580
Total	Total	$	243,367	$	9,869	$	—	$	—	$	253,236	Total	$	247,628	$	17,853	$	188	$	13	$	265,280

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

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The following table presents the change in the allowance for credit losses related to our restricted marketable securities for the six months ended June 30, 2021 and 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 June 30, 2020, the contractual maturities of our restricted marketable securities were between 10 years and 21 years.~~


	Six Months Ended June 30,
	2021		2020
Allowance for credit losses, beginning of period	$	13	$	0
Cumulative-effect adjustment for the adoption of ASU 2016-13	0		54
Provision for credit losses, net	16		(29)
Sales of restricted marketable securities	(29)		(25)
Allowance for credit losses, end of period	$	0	$	0

5. Consolidated Balance Sheet Details

Accounts receivable trade, net

Accounts receivable trade, netconsisted of the following at June 30, ~~2020~~2021 and December 31, ~~2019~~2020 (in thousands):


		June 30, 2020		December 31, 2019			June 30, 2021		December 31, 2020
Accounts receivable trade, gross	Accounts receivable trade, gross	$	291,018	$	476,425	Accounts receivable trade, gross	$	585,507	$	269,095
Allowance for credit losses	Allowance for credit losses	(3,334)		(1,386)		Allowance for credit losses	(2,479)		(3,009)
Accounts receivable trade, net	Accounts receivable trade, net	$	287,684	$	475,039	Accounts receivable trade, net	$	583,028	$	266,086

At June 30, ~~2020~~2021 and December 31, ~~2019, $44.8~~2020, $59.0 million and ~~$44.9~~$24.4 million, respectively, of our trade accounts receivable were secured by letters of credit ~~bank guarantees,~~and surety bonds ~~or other forms of financial security~~ issued by creditworthy financial institutions.

Accounts receivable, unbilled, ~~and retainage,~~ net

Accounts receivable, unbilled, ~~and retainage,~~ net consisted of the following at June 30, ~~2020~~2021 and December 31, ~~2019~~2020 (in thousands):


		June 30, 2020		December 31, 2019			June 30, 2021		December 31, 2020
Accounts receivable, unbilled	Accounts receivable, unbilled	$	46,385	$	162,057	Accounts receivable, unbilled	$	14,633	$	26,673
Retainage		18,388		21,416
Allowance for credit losses	Allowance for credit losses	(734)		—		Allowance for credit losses	(37)		(303)
Accounts receivable, unbilled and retainage, net		$	64,039	$	183,473
Accounts receivable, unbilled, net						Accounts receivable, unbilled, net	$	14,596	$	26,370

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Allowance for credit losses

The following ~~table presents~~tables present the change in the allowances for credit losses related to our accounts receivable for the six months ended June 30, 2021 and 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)


	Six Months Ended June 30,
Accounts receivable, trade	2021		2020
Allowance for credit losses, beginning of period	$	3,009	$	1,386
Cumulative-effect adjustment for the adoption of ASU 2016-13	0		171
Provision for credit losses, net	(433)		2,235
Writeoffs	(97)		(458)
Allowance for credit losses, end of period	$	2,479	$	3,334

~~——————————~~

~~(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.


	Six Months Ended June 30,
Accounts receivable, unbilled	2021		2020
Allowance for credit losses, beginning of period	$	303	$	0
Cumulative-effect adjustment for the adoption of ASU 2016-13	0		459
Provision for credit losses, net	(266)		275
Allowance for credit losses, end of period	$	37	$	734

Inventories

Inventories consisted of the following at June 30, ~~2020~~2021 and December 31, ~~2019~~2020 (in thousands):


		June 30, 2020		December 31, 2019			June 30, 2021		December 31, 2020
Raw materials	Raw materials	$	260,027	$	248,756	Raw materials	$	333,010	$	292,334
Work in process	Work in process	68,244		59,924		Work in process	60,837		64,709
Finished goods	Finished goods	374,999		295,479		Finished goods	435,929		411,773
Inventories	Inventories	$	703,270	$	604,159	Inventories	$	829,776	$	768,816
Inventories – current	Inventories – current	$	518,242	$	443,513	Inventories – current	$	603,057	$	567,587
Inventories – noncurrent	Inventories – noncurrent	$	185,028	$	160,646	Inventories – noncurrent	$	226,719	$	201,229

Prepaid expenses and other current assets

Prepaid expenses and other current assets consisted of the following at June 30, ~~2020~~2021 and December 31, ~~2019~~2020 (in thousands):


		June 30, 2020		December 31, 2019			June 30, 2021		December 31, 2020
Prepaid expenses	Prepaid expenses	$	151,746	$	137,927	Prepaid expenses	$	169,879	$	160,534
Derivative instruments (1)						Derivative instruments (1)	5,702		3,315
Restricted cash						Restricted cash	864		1,745
Prepaid income taxes	Prepaid income taxes	52,463		47,811		Prepaid income taxes	633		71,051
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	Other current assets	18,561		22,040		Other current assets	12,324		15,094
Prepaid expenses and other current assets	Prepaid expenses and other current assets	$	279,304	$	276,455	Prepaid expenses and other current assets	$	189,402	$	251,739

——————————

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

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~~(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 June 30, ~~2020~~2021 and December 31, ~~2019~~2020 (in thousands):


		June 30, 2020		December 31, 2019			June 30, 2021		December 31, 2020
Land	Land	$	14,253	$	14,241	Land	$	14,404	$	14,498
Buildings and improvements	Buildings and improvements	669,906		664,266		Buildings and improvements	692,865		693,762
Machinery and equipment	Machinery and equipment	2,057,247		2,436,997		Machinery and equipment	2,441,410		2,184,236
Office equipment and furniture	Office equipment and furniture	155,754		159,848		Office equipment and furniture	140,791		143,685
Leasehold improvements	Leasehold improvements	48,867		48,772		Leasehold improvements	42,079		41,459
Construction in progress	Construction in progress	403,152		243,107		Construction in progress	186,165		419,766
Property, plant and equipment, gross	Property, plant and equipment, gross	3,349,179		3,567,231		Property, plant and equipment, gross	3,517,714		3,497,406
Accumulated depreciation	Accumulated depreciation	(1,024,766)		(1,386,082)		Accumulated depreciation	(1,121,073)		(1,095,121)
Property, plant and equipment, net	Property, plant and equipment, net	$	2,324,413	$	2,181,149	Property, plant and equipment, net	$	2,396,641	$	2,402,285

Depreciation of property, plant and equipment was $58.8 million and $115.6 million for the three and six months ended June 30, 2021, respectively, and $48.5 million and $95.9 million for the three and six months ended June 30, 2020, ~~respectively, and $43.7 million and $86.6 million for the three and six months ended June 30, 2019,~~ respectively.

PV solar power systems, net

~~Photovoltaic (“PV”)~~PV solar power systems, net consisted of the following at June 30, ~~2020~~2021 and December 31, ~~2019~~2020 (in thousands):


		June 30, 2020		December 31, 2019			June 30, 2021		December 31, 2020
PV solar power systems, gross	PV solar power systems, gross	$	530,098	$	530,004	PV solar power systems, gross	$	291,886	$	298,067
Accumulated depreciation	Accumulated depreciation	(64,555)		(53,027)		Accumulated depreciation	(58,516)		(54,671)
PV solar power systems, net	PV solar power systems, net	$	465,543	$	476,977	PV solar power systems, net	$	233,370	$	243,396

Depreciation of PV solar power systems was $2.9 million and $5.9 million for the three and six months ended June 30, 2021, respectively, and $5.8 million and $11.7 million for the three and six months ended June 30, 2020, ~~respectively,~~respectively.

We evaluate our PV solar power systems for impairment under a held and ~~$3.5 million~~used impairment model whenever events or changes in circumstances arise that may indicate that the carrying amount of a particular system may not be recoverable. Such events or changes may include a significant decrease in the market price of the asset, current-period operating or cash flow losses combined with a history of such losses or a projection of future losses associated with the use of the asset, and ~~$7.0 million~~changes in expectations regarding our intent to hold the asset on a long-term basis or the timing of a potential asset disposition.

As of June 30, 2021 and December 31, 2020, the recoverability of our Luz del Norte PV solar power plant was based, in part, on the likelihood of our continued ownership and operation of the system. However, it is reasonably possible that our intent to hold the asset may change in the near term due to our evaluation of strategic sale opportunities for the ~~three~~system. The pursuit of such opportunities, which require coordination with the system’s lenders, may result in a determination that the carrying value of the system is not recoverable based on the probability-weighted undiscounted future cash flows, which in turn could result in a possible impairment of the system in future periods. Accordingly, any changes in our expected use of the asset or its disposition may result in impairment charges that could be material to our condensed consolidated financial statements and ~~six months ended June 30, 2019, respectively.~~have a significant adverse impact on our results of operations.

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Project assets

Project assets consisted of the following at June 30, ~~2020~~2021 and December 31, ~~2019~~2020 (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

~~Capitalized interest~~

~~The components of interest expense and capitalized interest were as follows during the three and six months ended June 30, 2020 and 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)


	June 30, 2021		December 31, 2020
Project assets – development costs, including project acquisition and land costs	$	132,794	$	176,346
Project assets – construction costs	178,022		197,031
Project assets	$	310,816	$	373,377

Other assets

Other assets consisted of the following at June 30, ~~2020~~2021 and December 31, ~~2019~~2020 (in thousands):


		June 30, 2020		December 31, 2019			June 30, 2021		December 31, 2020
Restricted cash						Restricted cash	$	285,517	$	44,847
Operating lease assets (1)	Operating lease assets (1)	$	237,001	$	145,711	Operating lease assets (1)	217,630		226,664
Advanced payments for raw materials	Advanced payments for raw materials	100,560		59,806		Advanced payments for raw materials	93,364		97,883
Restricted cash		43,805		80,072
Accounts receivable, unbilled, net						Accounts receivable, unbilled, net	59,034		22,722
Income tax receivables						Income tax receivables	39,888		36
Indirect tax receivables	Indirect tax receivables	14,075		9,446		Indirect tax receivables	21,601		14,849
Notes receivable (2)		8,231		8,194
Income taxes receivable		4,124		4,106
Equity method investments		3,097		2,812
Derivative instruments (3)		67		139
Other	Other	40,105		19,640		Other	35,836		27,129
Other assets	Other assets	$	451,065	$	329,926	Other assets	$	752,870	$	434,130

——————————

(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. As of June 30, 2020 and December 31, 2019, the balance outstanding on the credit facility was €7.0 million ($7.9 million and $7.8 million, respectively).

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We assess the credit quality of the 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 evaluated the estimated credit losses over the remaining contractual term of the credit facility and determined no allowance for credit losses was necessary as of January 1, 2020. Additionally, based on the 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 our condensed consolidated financial statements for discussion of our derivative instruments.~~

Goodwill

Goodwill for the relevant reporting unit consisted of the following at June 30, ~~2020~~2021 and December 31, ~~2019~~2020 (in thousands):


		December 31, 2019		Acquisitions (Impairments)		June 30, 2020			December 31, 2020		Acquisitions (Impairments)		June 30, 2021
Modules	Modules	$	407,827	$	—	$	407,827	Modules	$	407,827	$	0	$	407,827
Accumulated impairment losses	Accumulated impairment losses	(393,365)		—		(393,365)		Accumulated impairment losses	(393,365)		0		(393,365)
Goodwill	Goodwill	$	14,462	$	—	$	14,462	Goodwill	$	14,462	$	0	$	14,462

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Intangible assets, net

The following tables summarize our intangible assets at June 30, ~~2020~~2021 and December 31, ~~2019~~2020 (in thousands):


		June 30, 2020											June 30, 2021
		Gross Amount		Accumulated Amortization		Net Amount			Gross Amount		Accumulated Amortization			Net Amount
Developed technology	Developed technology	$	99,964	$	(47,179)	$	52,785	Developed technology	$	99,964	$	(57,050)		$	42,914
Power purchase agreements	Power purchase agreements	6,486		(1,134)		5,352		Power purchase agreements	6,486		(1,458)			5,028
Patents	Patents	7,780		(4,723)		3,057		Patents	8,173		(5,446)			2,727
Intangible assets, net	Intangible assets, net	$	114,230	$	(53,036)	$	61,194	Intangible assets, net	$	114,623	$	(63,954)		$	50,669


		December 31, 2019											December 31, 2020
		Gross Amount		Accumulated Amortization		Net Amount			Gross Amount		Accumulated Amortization			Net Amount
Developed technology	Developed technology	$	97,964	$	(42,344)	$	55,620	Developed technology	$	99,964	$	(52,115)		$	47,849
Power purchase agreements	Power purchase agreements	6,486		(972)		5,514		Power purchase agreements	6,486		(1,296)			5,190
Patents	Patents	7,780		(4,371)		3,409		Patents	8,173		(5,074)			3,099
Intangible assets, net	Intangible assets, net	$	112,230	$	(47,687)	$	64,543	Intangible assets, net	$	114,623	$	(58,485)		$	56,138

Amortization of intangible assets was $2.8 million and $5.5 million for the three and six months ended June 30, 2021, respectively, and $2.7 million and $5.3 million for the three and six months ended June 30, 2020, ~~respectively, and $2.5 million and $5.0 million for the three and six months ended June 30, 2019,~~ respectively.

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Accrued expenses

Accrued expenses consisted of the following at June 30, ~~2020~~2021 and December 31, ~~2019~~2020 (in thousands):


		June 30, 2020		December 31, 2019			June 30, 2021		December 31, 2020
Accrued project costs	Accrued project costs	$	86,025	$	91,971	Accrued project costs	$	44,677	$	81,380
Accrued freight						Accrued freight	41,130		26,580
Accrued inventory						Accrued inventory	30,678		25,704
Accrued property, plant and equipment	Accrued property, plant and equipment	81,530		42,834		Accrued property, plant and equipment	24,129		66,543
Accrued compensation and benefits	Accrued compensation and benefits	37,337		65,170		Accrued compensation and benefits	23,432		51,685
Accrued inventory		23,843		39,366
Product warranty liability (1)	Product warranty liability (1)	21,868		20,291		Product warranty liability (1)	16,846		22,278
Other	Other	60,046		91,628		Other	35,664		36,297
Accrued expenses	Accrued expenses	$	310,649	$	351,260	Accrued expenses	$	216,556	$	310,467

——————————

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

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Other current liabilities

Other current liabilities consisted of the following at June 30, ~~2020~~2021 and December 31, ~~2019~~2020 (in thousands):


		June 30, 2020		December 31, 2019			June 30, 2021		December 31, 2020
Operating lease liabilities (1)	Operating lease liabilities (1)	$	14,453	$	11,102	Operating lease liabilities (1)	13,217		14,006
Contingent consideration (2)		2,004		2,395
Derivative instruments (3)		1,220		2,582
Derivative instruments (2)						Derivative instruments (2)	2,852		5,280
Other taxes payable						Other taxes payable	2,138		30,041
Other	Other	16,355		12,051		Other	15,680		33,710
Other current liabilities	Other current liabilities	$	34,032	$	28,130	Other current liabilities	$	33,887	$	83,037

——————————

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

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

Other liabilities

Other liabilities consisted of the following at June 30, 2021 and December 31, 2020 (in thousands):


	June 30, 2021		December 31, 2020
Operating lease liabilities (1)	$	175,759	$	189,034
Deferred revenue	91,162		44,919
Product warranty liability (2)	74,212		72,818
Deferred tax liabilities, net	14,611		23,671
Other	42,361		41,784
Other liabilities	$	398,105	$	372,226

——————————

(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.~~“Product Warranties.”

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

~~Other liabilities~~

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

June 30,
2020 December 31,
2019
Operating lease liabilities (1) $ 196,877 $ 112,515
Product warranty liability (2) 101,326 109,506
Other taxes payable 93,566 90,201
Transition tax liability 62,674 70,047
Deferred revenue 57,065 71,438
Derivative instruments (3) 8,566 7,439
Contingent consideration (2) 4,500 4,500
Other 45,946 43,120
Other liabilities $ 570,520 $ 508,766

~~——————————~~

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

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

The following tables present the fair values of derivative instruments included in our condensed consolidated balance sheets as of June 30, ~~2020~~2021 and December 31, ~~2019~~2020 (in thousands):


		June 30, 2020													June 30, 2021
		Prepaid Expenses and Other Current Assets		Other Assets		Other Current Liabilities		Other Liabilities			Prepaid Expenses and Other Current Assets		Other Current Liabilities		Other Liabilities
Derivatives designated as hedging instruments:	Derivatives designated as hedging instruments:									Derivatives designated as hedging instruments:
Foreign exchange forward contracts	Foreign exchange forward contracts	$	465	$	67	$	141	$	4	Foreign exchange forward contracts	$	215	$	147	$	10
Commodity swap contracts										Commodity swap contracts	2,120		0		0
Total derivatives designated as hedging instruments	Total derivatives designated as hedging instruments	$	465	$	67	$	141	$	4	Total derivatives designated as hedging instruments	$	2,335	$	147	$	10

Derivatives not designated as hedging instruments:	Derivatives not designated as hedging instruments:									Derivatives not designated as hedging instruments:
Foreign exchange forward contracts	Foreign exchange forward contracts	$	1,176	$	—	$	644	$	—	Foreign exchange forward contracts	$	3,367	$	2,705	$	0
Interest rate swap contracts	Interest rate swap contracts	—		—		435		8,562		Interest rate swap contracts	0		0		691
Total derivatives not designated as hedging instruments	Total derivatives not designated as hedging instruments	$	1,176	$	—	$	1,079	$	8,562	Total derivatives not designated as hedging instruments	$	3,367	$	2,705	$	691
Total derivative instruments	Total derivative instruments	$	1,641	$	67	$	1,220	$	8,566	Total derivative instruments	$	5,702	$	2,852	$	701


	December 31, 2020
	Prepaid Expenses and Other Current Assets		Other Current Liabilities		Other Liabilities
Derivatives designated as hedging instruments:
Foreign exchange forward contracts	$	0	$	2,504	$	341
Commodity swap contracts	1,478		0		0
Total derivatives designated as hedging instruments	$	1,478	$	2,504	$	341

Derivatives not designated as hedging instruments:
Foreign exchange forward contracts	$	1,837	$	2,776	$	0
Total derivatives not designated as hedging instruments	$	1,837	$	2,776	$	0
Total derivative instruments	$	3,315	$	5,280	$	341

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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 six months ended June 30, ~~2020~~2021 and ~~2019~~2020 (in thousands):


	~~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)~~


	Foreign Exchange Forward Contracts		Commodity Swap Contracts		Total
Balance as of December 31, 2020	$	(3,644)	$	1,472	$	(2,172)
Amounts recognized in other comprehensive income (loss)	1,618		1,531		3,149

Amounts reclassified to earnings impacting:

Cost of sales	1,928		(213)		1,715



Balance as of June 30, 2021	$	(98)	$	2,790	$	2,692

Balance as of December 31, 2019	$	(962)	$	0	$	(962)
Amounts recognized in other comprehensive income (loss)	(141)		0		(141)
Amounts reclassified to earnings impacting:

Cost of sales	313		0		313



Balance as of June 30, 2020	$	(790)	$	0	$	(790)

During the three and six months ended June 30, 2021, we recognized unrealized gains of less than $0.1 million and unrealized losses of less than $0.1 million, respectively, within “Cost of sales” for amounts excluded from effectiveness testing for our foreign exchange forward contracts designated as cash flow hedges. During the three and six months ended June 30, 2020, we recognized unrealized gains of $0.3 million and $1.1 million, respectively, within “Cost of sales” for amounts excluded from effectiveness testing for our foreign exchange forward contracts designated as cash flow hedges. During the three and six months ended June 30, 2019, we recognized unrealized gains of $0.1 million within “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 six months ended June 30, ~~2020~~2021 and ~~2019~~2020 (in thousands):


			Amount of Gain (Loss) Recognized in Income																Amount of Gain (Loss) Recognized in Income
			Three Months Ended June 30,						Six Months Ended June 30,								Three Months Ended June 30,				Six Months Ended June 30,
		Income Statement Line Item	2020		2019		2020		2019			Income Statement Line Item	2021		2020		2021		2020
Interest rate swap contracts		Cost of sales	$	—	$	(1,656)	$	—	$	(1,656)
Foreign exchange forward contracts	Foreign exchange forward contracts	Cost of sales	16		—		122		—		Foreign exchange forward contracts	Cost of sales	$	(446)	$	16	$	(277)	$	122
Foreign exchange forward contracts	Foreign exchange forward contracts	Foreign currency (loss) income, net	468		(4,652)		193		(2,752)		Foreign exchange forward contracts	Foreign currency loss, net	(1,277)		468		9,019		193
Interest rate swap contracts	Interest rate swap contracts	Interest expense, net	1,023		(4,368)		(1,381)		(9,732)		Interest rate swap contracts	Interest expense, net	(691)		1,023		(691)		(1,381)

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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 six months ended June 30, 2021 and 2020, ~~and 2019, the majority~~all of our interest rate swap contracts related to project specific debt facilities. Such swap contracts did not qualify for accounting as cash flow hedges in accordance with Accounting Standards Codification (“ASC”) 815 due to our expectation to sell the associated projects before the maturity of their project specific debt financings and corresponding swap contracts. Accordingly, changes in the fair values of these swap contracts were recorded directly to “Interest expense, net.”

In ~~December 2019,~~June 2021, FS Japan Project 31B4 GK, our ~~indirectly~~indirect wholly-owned subsidiary and project company, entered into an interest rate swap contract to hedge a portion of the floating rate term loan facility under the project’s ~~Anamizu~~Ikeda Credit ~~Agreement~~Facility (as defined in Note 9. “Debt” to our condensed consolidated financial statements). Such swap had an initial notional value of ~~¥0.9~~¥0.7 billion and entitled the project to receive a six-month floating Tokyo Interbank Offered Rate (“TIBOR”) plus 0.70% interest rate while requiring the project to pay a fixed rate of ~~1.1925%~~1.12%. The notional amount of the interest rate swap contract proportionately adjusts with scheduled draws and principal payments on the underlying hedged debt. As of June 30, ~~2020 and December 31, 2019,~~2021, the notional value of the interest rate swap contract was ~~¥2.0 billion ($18.3 million) and~~ ¥0.9 billion ($~~8.0~~7.9 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 proportionately adjusts with scheduled draws and principal payments on the underlying hedged debt. As of June 30, 2020 and December 31, 2019, the notional value of the interest rate swap contract was ¥18.5 billion ($172.3 million) and ¥18.7 billion ($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 June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, these

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foreign exchange forward contracts hedged our forecasted cash flows for periods up to 2114 months and 2220 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 June 30, ~~2020~~2021 and December 31, ~~2019.~~2020.

As of June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, 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

June 30, 2021

Currency

Notional Amount

USD Equivalent

Currency

Notional Amount

USD Equivalent

U.S. dollar (1)

$47.3

U.S. dollar (1)

$16.1

December 31, 2019

December 31, 2020

Currency

Notional Amount

USD Equivalent

Currency

Notional Amount

USD Equivalent

U.S. dollar (1)

$69.9

U.S. dollar (1)

$43.4

——————————

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

In the following 12 months, we expect to reclassify to earnings ~~$0.5~~$0.1 million of net unrealized loss related to foreign exchange forward contracts that are included in “Accumulated other comprehensive loss” at June 30, ~~2020~~2021 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.

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Transaction Exposure and Economic Hedging

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

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

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As of June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, 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~~2021

Transaction

Currency

Notional Amount

USD Equivalent

Purchase

Australian dollar

AUD 3.2

$~~2.2~~2.4

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~~3,358.2

$~~3.1~~4.6

Purchase

Euro

€~~124.3~~84.4

$~~139.9~~100.4

Sell

Euro

€~~72.9~~114.7

$~~82.1~~136.4

Sell

Indian rupee

INR ~~766.7~~356.8

$~~10.1~~4.8

~~Purchase~~

~~Japanese yen~~

~~¥3,032.2~~

~~$28.2~~

Sell

Japanese yen

¥~~27,265.9~~22,320.0

$~~253.6~~201.9

Purchase

Malaysian ringgit

MYR ~~15.3~~35.7

$~~3.6~~8.6

Sell

Malaysian ringgit

MYR ~~18.1~~28.3

$~~4.2~~6.8

Sell

Mexican peso

MXN 34.6

$~~1.5~~1.7

Purchase

Singapore dollar

SGD ~~2.9~~5.5

$~~2.1~~4.1

December 31, ~~2019~~2020

Transaction

Currency

Notional Amount

USD Equivalent

Purchase

Australian dollar

AUD ~~14.9~~3.2

$~~10.4~~

~~Sell~~

~~Australian dollar~~

~~AUD 11.1~~

~~$7.8~~2.5

Purchase

Brazilian real

BRL ~~13.2~~2.6

$~~3.3~~

~~Sell~~

~~Brazilian real~~

~~BRL 4.3~~

~~$1.1~~

~~Purchase~~

~~Canadian dollar~~

~~CAD 4.5~~

~~$3.4~~0.5

Sell

Canadian dollar

CAD ~~1.6~~8.9

$~~1.2~~7.0

Purchase

Chilean peso

CLP ~~1,493.1~~2,006.0

$~~2.0~~2.8

Sell

Chilean peso

CLP ~~3,866.1~~4,476.7

$~~5.1~~6.3

Purchase

Euro

€~~86.1~~140.0

$~~96.5~~172.1

Sell

Euro

€~~116.3~~63.6

$~~130.3~~78.2

Sell

Indian rupee

INR ~~1,283.8~~619.2

$~~18.0~~8.4

Purchase

Japanese yen

¥~~3,625.5~~1,593.7

$~~33.3~~15.5

Sell

Japanese yen

¥~~23,089.5~~20,656.6

$~~212.2~~200.5

Purchase

Malaysian ringgit

MYR ~~88.6~~69.3

$~~21.6~~17.2

Sell

Malaysian ringgit

MYR ~~41.3~~24.9

$~~10.1~~6.2

Sell

Mexican peso

MXN 34.6

$~~1.8~~1.7

Purchase

Singapore dollar

SGD 2.9

$2.2

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Commodity Price Risk

We use commodity swap contracts to mitigate our exposure to commodity price fluctuations for certain raw materials used in the production of our modules. In August 2020, we entered into a commodity swap contract to hedge a portion of our forecasted cash flows for purchases of aluminum frames for a one-year period. Such swap had an initial notional value based on metric tons of forecasted aluminum purchases, equivalent to $24.9 million, and entitles us to receive a three-month average London Metals Exchange price for aluminum while requiring us to pay certain fixed prices. The notional amount of the commodity swap contract proportionately adjusted with forecasted purchases of aluminum frames.

This commodity swap contract qualifies for accounting as a cash flow hedge in accordance with ASC 815, and we designated it as such. We report unrealized gains or losses on such contract in “Accumulated other comprehensive loss” and subsequently reclassify applicable amounts into earnings when the hedged transaction occurs and impacts earnings. We determined that this derivative financial instrument was highly effective as a cash flow hedge as of June 30, 2021 and December 31, 2020. In the following 12 months, we expect to reclassify into earnings $2.8 million of net unrealized gains related to this commodity swap contract that are included in “Accumulated other comprehensive loss” at June 30, 2021 as we realize the earnings effects of the related forecasted transactions. The amount we ultimately record to earnings will depend on the actual commodity pricing when we realize the related forecasted transactions.

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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.

The following table presents certain quantitative information related to our lease arrangements for the three and six months ended June 30, ~~2020~~2021 and ~~2019,~~2020, and as of June 30, ~~2020~~2021 and December 31, ~~2019~~2020 (in thousands):


		Three Months Ended June 30,						Six Months Ended June 30,							Three Months Ended June 30,				Six Months Ended June 30,
		2020		2019		2020		2019			2021		2020		2021		2020
Operating lease cost	Operating lease cost	$	4,718	$	5,536	$	8,896	$	10,819	Operating lease cost	$	4,516	$	4,718	$	8,549	$	8,896
Variable lease cost	Variable lease cost	625		939		1,291		1,688		Variable lease cost	462		625		1,000		1,291
Short-term lease cost	Short-term lease cost	744		2,858		1,705		5,700		Short-term lease cost	236		744		607		1,705
Total lease cost	Total lease cost	$	6,087	$	9,333	$	11,892	$	18,207	Total lease cost	$	5,214	$	6,087	$	10,156	$	11,892

Payments of amounts included in the measurement of operating lease liabilities	Payments of amounts included in the measurement of operating lease liabilities					$	11,770	$	10,632	Payments of amounts included in the measurement of operating lease liabilities					$	13,122	$	11,770
Lease assets obtained in exchange for operating lease liabilities	Lease assets obtained in exchange for operating lease liabilities					$	93,425	$	151,081	Lease assets obtained in exchange for operating lease liabilities					$	17,909	$	93,425

						June 30, 2020		December 31, 2019							June 30, 2021		December 31, 2020
Operating lease assets	Operating lease assets					$	237,001	$	145,711	Operating lease assets					$	217,630	$	226,664
Operating lease liabilities – current	Operating lease liabilities – current					14,453		11,102		Operating lease liabilities – current					13,217		14,006
Operating lease liabilities – noncurrent	Operating lease liabilities – noncurrent					196,877		112,515		Operating lease liabilities – noncurrent					175,759		189,034


Weighted-average remaining lease term	Weighted-average remaining lease term	20 years		15 years		Weighted-average remaining lease term	20 years		20 years
Weighted-average discount rate	Weighted-average discount rate	3.1	%	4.3	%	Weighted-average discount rate	2.6	%	2.9	%

As of June 30, ~~2020,~~2021, the future payments associated with our lease liabilities were as follows (in thousands):


		Total Lease Liabilities			Total Lease Liabilities
Remainder of 2020		$	8,021
2021		18,831
Remainder of 2021				Remainder of 2021	$	6,552
2022	2022	17,994		2022	16,979
2023	2023	17,486		2023	17,065
2024	2024	17,188		2024	16,602
2025				2025	15,973
2026				2026	14,522
Thereafter	Thereafter	187,002		Thereafter	138,816
Total future payments	Total future payments	266,522		Total future payments	226,509
Less: interest	Less: interest	(55,192)		Less: interest	(37,533)
Total lease liabilities	Total lease liabilities	$	211,330	Total lease liabilities	$	188,976

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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 June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, our cash equivalents consisted of money market funds. We value our cash equivalents using observable inputs that reflect quoted prices for securities with identical characteristics and ~~accordingly, we~~ classify the valuation techniques that use these inputs as Level 1.

•Marketable Securities and Restricted Marketable Securities. At June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, our marketable securities consisted of foreign debt, ~~foreign government obligations,~~ U.S. debt, and time ~~deposits, and~~deposits. As of December 31, 2020, 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~~2021 and December 31, ~~2019,~~2020, our derivative assets and liabilities consisted of foreign exchange forward contracts involving major currencies, ~~and~~ interest rate swap contracts involving major interest ~~rates.~~rates, and commodity swap contracts involving major commodity prices. Since our derivative assets and liabilities are not traded on an exchange, we value them using standard industry valuation models. As applicable, these models project future cash flows and discount the amounts to a present value using market-based observable inputs, including interest rate curves, credit risk, foreign exchange rates, ~~and~~ forward and spot prices for ~~currencies.~~currencies, and forward prices for commodities. These inputs are observable in active markets over the contract term of the derivative instruments we hold, and accordingly, we classify the valuation techniques as Level 2. In evaluating credit risk, we consider the effect of our counterparties’ and our own credit standing in the fair value measurements of our derivative assets and liabilities, respectively.

At June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, 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
	June 30, 2021		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	$	2	$	2	$	0	$	0
Marketable securities:
Foreign debt	166,612		0		166,612		0
U.S. debt	18,917		0		18,917		0
Time deposits	232,976		232,976		0		0
Derivative assets	5,702		0		5,702		0
Total assets	$	424,209	$	232,978	$	191,231	$	0
Liabilities:
Derivative liabilities	$	3,553	$	0	$	3,553	$	0

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				Fair Value Measurements at Reporting Date Using													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)			December 31, 2020		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:	Assets:									Assets:
Cash equivalents:	Cash equivalents:									Cash equivalents:
Money market funds	Money market funds	$	7,322	$	7,322	$	—	$	—	Money market funds	$	2	$	2	$	0	$	0
Marketable securities:	Marketable securities:									Marketable securities:
Foreign debt	Foreign debt	387,820		—		387,820		—		Foreign debt	214,254		0		214,254		0
Foreign government obligations		22,011		—		22,011		—

U.S. debt	U.S. debt	66,134		—		66,134		—		U.S. debt	14,543		0		14,543		0
Time deposits	Time deposits	335,541		335,541		—		—		Time deposits	291,269		291,269		0		0
Restricted marketable securities	Restricted marketable securities	223,785		—		223,785		—		Restricted marketable securities	265,280		0		265,280		0
Derivative assets	Derivative assets	1,338		—		1,338		—		Derivative assets	3,315		0		3,315		0
Total assets	Total assets	$	1,043,951	$	342,863	$	701,088	$	—	Total assets	$	788,663	$	291,271	$	497,392	$	0
Liabilities:	Liabilities:									Liabilities:
Derivative liabilities	Derivative liabilities	$	10,021	$	—	$	10,021	$	—	Derivative liabilities	$	5,621	$	0	$	5,621	$	0

Fair Value of Financial Instruments

At June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, the carrying values and fair values of our financial instruments not measured at fair value were as follows (in thousands):

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


	June 30, 2021				December 31, 2020
	Carrying Value		Fair Value		Carrying Value		Fair Value
Assets:
Accounts receivable, unbilled - noncurrent	$	59,034	$	53,374	$	22,722	$	22,096
Liabilities:
Long-term debt, including current maturities (1)	$	288,137	$	294,109	$	287,149	$	297,076

——————————

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

~~(2)~~Excludes unamortized discounts and issuance costs.

The carrying values in our condensed consolidated balance sheets of our trade accounts receivable, current 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~~noncurrent unbilled accounts receivable and long-term debt are considered Level 2 measurements under the fair value hierarchy.

Credit Risk

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

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~~securities, restricted cash and marketable securities, and foreign exchange forward contracts~~these instruments 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,

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bank guarantees, or surety bonds. We also have power purchase agreements (“PPAs”) that subject us to credit risk in the event our off-take counterparties are unable to fulfill their contractual obligations, which may adversely affect our project assets and certain receivables. Accordingly, we closely monitor the credit standing of existing and potential off-take counterparties to limit such risks.

9. Debt

Our long-term debt consisted of the following at June 30, ~~2020~~2021 and December 31, ~~2019~~2020 (in thousands):


			Balance (USD)								Balance (USD)
Loan Agreement	Loan Agreement	Currency	June 30, 2020		December 31, 2019		Loan Agreement	Currency	June 30, 2021		December 31, 2020
Revolving Credit Facility	Revolving Credit Facility	USD	$	—	$	—	Revolving Credit Facility	USD	$	0	$	0
Luz del Norte Credit Facilities	Luz del Norte Credit Facilities	USD	186,931		188,017		Luz del Norte Credit Facilities	USD	184,546		186,230
Ishikawa Credit Agreement		JPY	210,831		215,879
Japan Credit Facility	Japan Credit Facility	JPY	1,698		1,678		Japan Credit Facility	JPY	34,184		13,813
Tochigi Credit Facility	Tochigi Credit Facility	JPY	37,759		37,304		Tochigi Credit Facility	JPY	0		39,400
Anamizu Credit Agreement		JPY	12,286		12,138
Anantapur Credit Facility		INR	14,010		15,123
Tungabhadra Credit Facility		INR	12,039		12,753
Kyoto Credit Facility							Kyoto Credit Facility	JPY	44,462		47,706
Ikeda Credit Facility							Ikeda Credit Facility	JPY	24,945		0
Long-term debt principal	Long-term debt principal		475,554		482,892		Long-term debt principal		288,137		287,149
Less: unamortized discounts and issuance costs	Less: unamortized discounts and issuance costs		(10,798)		(11,195)		Less: unamortized discounts and issuance costs		(8,814)		(7,918)
Total long-term debt	Total long-term debt		464,756		471,697		Total long-term debt		279,323		279,231
Less: current portion	Less: current portion		(77,029)		(17,510)		Less: current portion		(3,239)		(41,540)
Noncurrent portion	Noncurrent portion		$	387,727	$	454,187	Noncurrent portion		$	276,084	$	237,691

Revolving Credit Facility

~~Our amended~~On June 30, 2021, we terminated our Second Amended and ~~restated credit agreement~~Restated Credit Agreement (the “Revolving Credit Facility”) with several financial institutions as lenders and JPMorgan Chase Bank, N.A. as administrative agent, ~~provides~~which was set to mature in July 2022. The Revolving Credit Facility provided us ~~with a senior secured credit facility (the “Revolving Credit Facility”)~~ with an aggregate borrowing capacity of $500.0 ~~million, which~~million. Subject to certain conditions, we ~~may~~had the right to increase the aggregate commitments under the Revolving Credit Facility to $750.0 ~~million, subject to certain conditions.~~million. Borrowings under the ~~credit facility bear~~Revolving Credit Facility bore interest at (i) London Interbank Offered Rate (“LIBOR”), adjusted for Eurocurrency reserve requirements, plus a margin of 2.00% or (ii) a base rate as defined in the credit agreement plus a margin of 1.00% depending on the type of borrowing requested. These margins are also subject to adjustment depending on our consolidated leverage ratio. We had 0 borrowings under our Revolving Credit Facility as of June 30, 2020 and December 31, 2019 and had issued $10.8 million and $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.

In addition to paying interest on outstanding principal under the Revolving Credit Facility, we ~~are required to pay~~paid 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.~~facility. We also ~~pay~~paid a letter of credit fee based on the applicable margin for Eurocurrency revolving loans on the face amount of each letter of credit and a fronting fee of 0.125%. ~~Our~~

Prior to the termination, we had 0 borrowings under the Revolving Credit Facility ~~matures~~and had $3.3 million in ~~July 2022.~~issued and outstanding letters of credits, which were moved to a bilateral facility upon such termination. As of December 31, 2020, we had 0 borrowings under the Revolving Credit Facility and had issued $4.3 million of letters of credit using availability under the facility.

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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 U.S. International Development Finance Corporation (“DFC”) and the International Finance Corporation (“IFC”) to provide limited-recourse senior secured debt financing for the design, development, financing, construction, testing, commissioning, operation, and maintenance of a 141 MW_AC PV solar power plant located near Copiapó, Chile.

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In March 2017, we amended the terms of the DFC and IFC credit facilities. Such amendments (i) allowed for the capitalization of accrued and unpaid interest through March 15, 2017, along with the capitalization of certain future interest payments as variable rate loans under the credit facilities, (ii) allowed for the conversion of certain fixed rate loans to variable rate loans upon scheduled repayment, (iii) extended the maturity of the DFC and IFC loans until June 2037, and (iv) canceled the remaining borrowing capacity under the DFC and IFC credit facilities with the exception of the capitalization of certain future interest payments. As of June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, the balance outstanding on the DFC loans was ~~$139.9~~$138.2 million and ~~$140.8~~$139.4 million, respectively. As of June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, the balance outstanding on the IFC loans was ~~$47.0~~$46.3 million and ~~$47.2~~$46.8 million, respectively. The 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 ($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 ($205.6 million) senior loan facility, a ¥2.1 billion ($18.0 million) consumption tax facility, and a ¥1.2 billion ($10.3 million) letter of credit facility. The senior loan facility matures in October 2036, and the consumption tax facility 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 June 30, 2020 and December 31, 2019, the balance outstanding on the credit agreement was $210.8 million and $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 ($33.4 million) for the development and construction of utility-scale PV solar power plants in Japan (the “Japan Credit Facility”). Borrowings under the facility generally mature within 12 months following the completion of construction activities for each financed project. The facility is guaranteed by First Solar, Inc. and secured by pledges of certain projects’ cash accounts and other rights in the projects. ~~As of June 30, 2020 and December 31, 2019, the balance outstanding on the 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 ($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~~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 June 30, 2020 and December 31, 2019, the balance outstanding on the term loan facility was $37.8 million and $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 on2021, the credit ~~agreement was $12.3~~facility matured and we repaid the remaining $36.8 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.principal balance.

Kyoto Credit Facility

In July 2020, First Solar Japan GK, our wholly-owned subsidiary, entered into a construction loan facility with Mizuho Bank, Ltd. for borrowings up to ¥15.0 billion ($142.8 million), which are intended to be used for the construction of a 38 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~~Ikeda Credit Facility

In March ~~2018, Anantapur Solar Parks Private Limited,~~2021, FS Japan Project B4 GK (“Ikeda”), our indirect wholly-owned subsidiary and project company, entered into a ~~term loan facility~~credit agreement (the ~~“Anantapur~~“Ikeda Credit Facility”) with ~~J.P. Morgan Securities India Private Limited~~MUFG Bank, Ltd.; Japan Post Insurance Co., Ltd.; The Shizuoka Bank, Ltd.; The Hyakugo Bank, Ltd.; The Iyo Bank, Ltd.; and The Yamagata Bank, Ltd. for aggregate borrowings up to ~~INR 1.2~~¥9.8 billion ($~~18.4~~88.6 million) for ~~costs related to~~the development and construction of a 2021 MW_AC PV solar power plant located in ~~Karnataka, India.~~Tochigi, Japan. The credit facility consists of a ¥4.7 billion ($43.1 million) fixed rate term loan facility, a ¥3.8 billion ($34.1 million) variable rate term loan facility, a ¥0.9 billion ($8.2 million) consumption tax facility, and a ¥0.4 billion ($3.2 million) debt service reserve facility. The fixed rate and variable rate term loan facilities mature in April 2040, the consumption tax facility matures in ~~February 2021~~May 2024, and the debt service reserve facility is expected to mature in October 2039. The credit facility is secured by ~~a letter~~pledges of ~~credit issued by JPMorgan Chase Bank, N.A., Singapore, in favor~~certain of ~~the lender. Such letter of credit is secured by a cash deposit placed by First Solar FE Holdings Pte. Ltd. As of June 30, 2020~~Ikeda’s assets, accounts, material project documents, and December 31, 2019, the balance outstanding on the term loan facility was $14.0 million and $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.~~equity interests in the entity.

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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 ($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 June 30, 2020 and December 31, 2019, the balance outstanding on the term loan facility was $12.0 million and $12.8 million, respectively. In July 2020, we completed the sale of our Tungabhadra project, and the outstanding term loan balance was assumed by the customer.

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 June 30, ~~2020~~2021 were as follows:


Loan Agreement	June 30, ~~2020~~
~~Revolving Credit Facility~~	~~2.16%~~2021
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~~Kyoto Credit Facility	~~3-month~~1-month TIBOR plus ~~1.0%~~0.60%
~~Anamizu~~Ikeda Credit ~~Agreement~~Facility (2)	~~Term~~Fixed rate term loan facility at 1.20%
	Variable rate term loan facility at 6-month TIBOR plus 0.70% ~~(2)~~(3)
		Consumption tax facility at 3-month TIBOR plus ~~0.5%~~0.50%
		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%~~

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(1)Outstanding balance comprised of ~~$148.6~~$138.4 million of fixed rate loans and ~~$38.3~~$46.1 million of variable rate loans as of June 30, ~~2020.~~2021.

(2)Outstanding balance comprised of $12.3 million of fixed rate loans and $12.7 million of variable rate loans as of June 30, 2021.

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

Future Principal Payments

At June 30, ~~2020,~~2021, 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 2021	$	717
2022	38,219
2023	6,692
2024	55,583
2025	8,646
2026	9,125
Thereafter	169,155
Total long-term debt future principal payments	$	288,137

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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 June 30, ~~2020, we had $10.8 million in~~2021, the majority of these commercial commitments supported our systems projects. As of June 30, 2021, the issued and outstanding amounts and available capacities under these commitments were as follows (in millions):


	Issued and Outstanding		Available Capacity
Bilateral facilities (1)	$	38.2	$	276.8
Surety bonds	13.1		703.7

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(1)Of the total letters of credit issued under ~~our Revolving Credit Facility, leaving $389.2 million of availability for~~ the issuance of additional letters of credit. As of June 30, 2020, we also had $9.9 million of letters of credit under separate agreements that were posted by certain of our foreign subsidiaries and $142.8 million of letters of credit issued under two bilateral facilities, ~~of which $30.0~~$4.5 million was secured with cash, leaving $620.9 million of aggregate available capacity under such agreements and facilities. We also had $90.0 million of surety bonds outstanding, leaving $626.0 million of available bonding capacity under our surety lines as of June 30, 2020. The majority of these letters of credit and surety bonds supported our systems projects.cash.

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, and our estimated per-module replacement costs. We also monitor our expected future module performance through certain quality and reliability testing and actual performance in certain field installation sites. From time to time, we have taken remediation actions with respect to affected modules beyond our limited warranties and may elect to do so in the future, in which case we would incur additional expenses. Such potential voluntary future remediation actions beyond our limited warranty obligations may be material to our condensed consolidated statements of operations if we commit to any such remediation actions.

Product warranty activities during the three and six months ended June 30, ~~2020~~2021 and ~~2019~~2020 were as follows (in thousands):


		Three Months Ended June 30,						Six Months Ended June 30,							Three Months Ended June 30,				Six Months Ended June 30,
		2020		2019		2020		2019			2021		2020		2021		2020
Product warranty liability, beginning of period	Product warranty liability, beginning of period	$	124,501	$	217,241	$	129,797	$	220,692	Product warranty liability, beginning of period	$	94,073	$	124,501	$	95,096	$	129,797
Accruals for new warranties issued	Accruals for new warranties issued	2,183		4,797		4,468		9,913		Accruals for new warranties issued	4,440		2,183		6,717		4,468
Settlements	Settlements	(2,921)		(2,944)		(9,483)		(6,022)		Settlements	(2,413)		(2,921)		(5,639)		(9,483)
Changes in estimate of product warranty liability	Changes in estimate of product warranty liability	(569)		(1,103)		(1,588)		(6,592)		Changes in estimate of product warranty liability	(5,042)		(569)		(5,116)		(1,588)
Product warranty liability, end of period	Product warranty liability, end of period	$	123,194	$	217,991	$	123,194	$	217,991	Product warranty liability, end of period	$	91,058	$	123,194	$	91,058	$	123,194
Current portion of warranty liability	Current portion of warranty liability	$	21,868	$	41,930	$	21,868	$	41,930	Current portion of warranty liability	$	16,846	$	21,868	$	16,846	$	21,868
Noncurrent portion of warranty liability	Noncurrent portion of warranty liability	$	101,326	$	176,061	$	101,326	$	176,061	Noncurrent portion of warranty liability	$	74,212	$	101,326	$	74,212	$	101,326

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. In general, we expect the return rates for our ~~newer series of module technology~~Series 6 modules to be lower than our older ~~series. We~~series, and we estimate that the return rate for such newer series of module technology will be less than 1%. As of June 30, ~~2020,~~2021, a 1% increase in the return rate across all series of module technology would increase our product warranty liability by ~~$97.5~~$114.7 million, and a 1% increase in the return rate for balance of systems (“BoS”) parts would not have a material impact on the associated warranty liability.

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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~~regard to these tests, we may incur liquidated damages as specified in the applicable EPC agreement. In certain instances, a bonus payment may be received at the end of the applicable test period if the system performs above a specified level. As of ~~June 30, 2020 and~~ December 31, ~~2019,~~2020, we accrued ~~$5.0~~$10.2 million ~~and $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”) 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 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 June 30, 2020 and December 31, 2019, we accrued $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.sheet.

Indemnifications

In certain limited circumstances, we have provided indemnifications to customers or other parties, including project tax equity investors, under which we are contractually obligated to compensate such parties for losses they suffer resulting from a breach of a representation, warranty, or ~~covenant or~~covenant; a reduction in tax benefits received, including investment tax ~~credits.~~credits; the resolution of specific matters associated with a project’s development or construction; or guarantees of a third party’s payment or performance obligations. Project related tax benefits are, in part, based on guidance provided by the Internal Revenue Service and U.S. Treasury Department, which includes assumptions regarding the fair value of qualifying PV solar power systems. For ~~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~~may base these estimates on the cost of insurance ~~policies~~or other instruments that cover the underlying risks being indemnified and may purchase such ~~policies~~instruments to mitigate our exposure to potential indemnification payments. We subsequently measure such liabilities at the greater of the initially estimated premium or the contingent liability required to be recognized under ASC 450. We recognize any indemnification liabilities as a reduction of ~~revenue in~~earnings associated with the related transaction.

After an indemnification liability is recorded, we derecognize such amount pursuant to ASC ~~460-10-35-2~~460 depending on the nature of the indemnity, which derecognition typically occurs upon expiration or settlement of the arrangement, and any contingent aspects of the indemnity are accounted for in accordance with ASC 450. As of June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, we accrued ~~$3.9~~$6.0 million and ~~$0.8~~$3.2 million of current indemnification liabilities, ~~respectively, and $4.2 million of noncurrent indemnification liabilities.~~respectively. As of June 30, ~~2020,~~2021, the maximum potential amount of future payments under our ~~tax related and other~~ indemnifications was ~~$172.8~~$146.8 million, and we held insurance ~~policies~~and other instruments allowing us to recover up to ~~$84.9~~$72.0 million of potential amounts paid under the ~~indemnifications covered~~indemnifications.

In September 2017, we made an indemnification payment in connection with the sale of one of our projects following the underpayment of anticipated cash grants by the ~~policies.~~United States government. In February 2018, the associated project entity commenced legal action against the United States government seeking full payment of the cash grants. In May 2021, the parties reached an agreement, pursuant to which the United States government made a settlement payment to the project entity. Under the terms of the indemnification arrangement, we are entitled to a portion of the settlement payment. Accordingly, during the three months ended June 30, 2021, we recorded revenue of $65.1 million for our portion of the settlement payment. Such amount is included in “Accounts receivable trade” on our condensed consolidated balance sheet as of June 30, 2021.

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~~Contingent Consideration~~

We 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 June 30, 2020 and December 31, 2019, we accrued $2.0 million and $2.4 million of current liabilities, respectively, and $4.5 million of long-term liabilities, 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 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; and by-product credits for certain materials recovered during the recycling ~~process; and an estimated third-party profit margin and return on risk for collection and recycling services.~~process. We base these estimates on our experience collecting and recycling solar modules and certain assumptions regarding costs at the time the solar modules will be collected and recycled. In the periods between the time of sale and the related settlement of the collection and recycling obligation, we accrete the carrying amount of the associated liability ~~by applying~~and classify the ~~discount rate used for its initial measurement. We classify accretion as an operating~~corresponding expense within “Selling, general and administrative” expense on our condensed consolidated statements of operations.

Our module collection and recycling liability was ~~$140.5~~$129.7 million and ~~$137.8~~$130.7 million as of June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively. As of June 30, ~~2020,~~2021, a 1% increase in the annualized inflation rate used in our estimated future collection and recycling cost per module would increase the liability by ~~$26.8~~$22.6 million, and a 1% decrease in that rate would decrease the liability by ~~$22.7~~$17.8 million. See Note 4. “Restricted Marketable Securities” to our condensed consolidated financial statements for more information about our arrangements for funding this liability.

Legal Proceedings

~~Class Action~~

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 alleged that the defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 by making false and misleading statements

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~~regarding the Company’s financial performance and prospects. The action included claims for damages, including interest, and an award of reasonable costs and attorneys’ fees to the putative class.~~

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.

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 in the Class Action brought on behalf of all persons who purchased or otherwise acquired the Company’s shares between April 30, 2008 and 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 in our results of operations for the 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 settlement with certain named plaintiffs on terms and conditions that are consistent with the 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 the settlement and dismissed the Class Action with prejudice.

Opt-Out Action

~~On June 23, 2015,~~First Solar was party to 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~~2015 in the United States District Court for the District of Arizona (hereafter “Arizona District Court”) by putative stockholders that opted out of ~~the Class Action~~a separate class action lawsuit (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 rescissory and actual damages, interest, punitive damages, and an award of reasonable attorneys’ fees, expert fees, and costs.

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

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claim under state law, but otherwise denied defendants’ motion. On June 3, 2020, First Solar and the plaintiffs in the Opt-Out Action entered into an agreement in principle to settle the claims in the Opt-Out Action. On July 17, 2020, the parties executed a definitive settlement agreement pursuant to which First Solar agreed to pay a total of $19 million in exchange for mutual releases and a dismissal with prejudice of the Opt-Out Action. The agreement contains no admission of liability, wrongdoing, or responsibility by any of the defendants. On July 30, 2020, First Solar funded the settlement, and on July 31, 2020, the parties filed a joint stipulation of dismissal. On September 10, 2020, the Arizona District Court entered an order dismissing the case with prejudice. As of December 31, 2019, we accrued $13 million of estimated losses for this action. As a result of the settlement, we accrued an incremental $6 million litigation loss during the three months ended June 30, 2020.

~~Derivative Actions~~

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 (“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 jointly sought and obtained multiple requests to continue the stay in this action. On June 30, 2020, the parties jointly requested that the stay 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 Kaufold derivative action lacks standing to pursue litigation on behalf of First Solar. The 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.~~operations, which are described in Note 13 within our Annual Report on Form 10-K for the year ended December 31, 2020. While we believe the ultimate outcome of ~~such other~~these matters and claims will not have a material adverse effect on our financial position, results of operations, or cash flows, the outcome of such matters and claims is not determinable with certainty, and negative outcomes may adversely affect us.

There have been no material changes to these matters since our Annual Report on Form 10-K for the year ended December 31, 2020 was filed with the SEC on February 26, 2021.

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11. Revenue from Contracts with Customers

The following table ~~represents a~~presents the disaggregation of revenue from contracts with customers for the three and six months ended June 30, ~~2020~~2021 and ~~2019~~2020 along with the reportable segment for each category (in thousands):


			Three Months Ended June 30,						Six Months Ended June 30,								Three Months Ended June 30,				Six Months Ended June 30,
Category	Category	Segment	2020		2019		2020		2019		Category	Segment	2021		2020		2021		2020
Solar modules	Solar modules	Modules	$	371,518	$	228,745	$	765,199	$	427,560	Solar modules	Modules	$	542,956	$	371,518	$	1,077,626	$	765,199
Solar power systems	Solar power systems	Systems	215,474		217,755		305,550		375,049		Solar power systems	Systems	73,977		215,474		300,944		305,550
O&M services	O&M services	Systems	31,701		26,452		61,176		54,152		O&M services	Systems	4,713		31,701		31,948		61,176
Energy generation (1)	Energy generation (1)	Systems	22,576		9,547		40,549		20,122		Energy generation (1)	Systems	7,457		22,576		22,036		40,549
EPC services	EPC services	Systems	1,142		102,457		2,061		240,051		EPC services	Systems	77		1,142		0		2,061
Net sales	Net sales		$	642,411	$	584,956	$	1,174,535	$	1,116,934	Net sales		$	629,180	$	642,411	$	1,432,554	$	1,174,535

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(1)During the three and sixmonths 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.

For ~~certain~~EPC services, or sales of solar power systems ~~and/or~~with 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 toward contract completion. If the estimated total costs on any contract are greater than the net contract revenues, we recognize the entire estimated loss in the period the loss becomes known. 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) changes in estimates of variable consideration, (ii) construction plan accelerations or delays, ~~(ii)~~(iii) module cost forecast changes, ~~(iii)~~(iv) cost related change orders, or ~~(iv)~~(v) changes in other information used to estimate costs. Changes in estimates may have a material effect on our condensed consolidated statements of operations.

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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 six months ended June 30, ~~2020~~2021 and ~~2019~~2020 as well as the number of projects that comprise such changes. For purposes of the table, we only include projects with changes in estimates that have a net impact on revenue of at least $1.0 million during the periods presented. Also included in the table is the net change in estimate as a percentage of the aggregate revenue for such projects.


		Three Months Ended June 30,									Six Months Ended June 30,										Three Months Ended June 30,						Six Months Ended June 30,
		2020			2019			2020			2019				2021			2020			2021			2020
Number of projects	Number of projects	5			3			8			5			Number of projects	2			5			5			8

(Decrease) increase in revenue from net changes in transaction prices (in thousands)		$	(8,524)		$	(4,064)		$	(9,435)		$	4,697
Increase (decrease) in revenue from net changes in transaction prices (in thousands) (1)														Increase (decrease) in revenue from net changes in transaction prices (in thousands) (1)	$	63,395		$	(8,524)		$	65,029		$	(9,435)
Decrease in revenue from net changes in input cost estimates (in thousands)	Decrease in revenue from net changes in input cost estimates (in thousands)	(9,576)			(1,749)			(8,750)			(16,736)			Decrease in revenue from net changes in input cost estimates (in thousands)	0			(9,576)			0			(8,750)
Net decrease in revenue from net changes in estimates (in thousands)		$	(18,100)		$	(5,813)		$	(18,185)		$	(12,039)
Net increase (decrease) in revenue from net changes in estimates (in thousands)														Net increase (decrease) in revenue from net changes in estimates (in thousands)	$	63,395		$	(18,100)		$	65,029		$	(18,185)

Net change in estimate as a percentage of aggregate revenue	Net change in estimate as a percentage of aggregate revenue	(1.3)		%	(0.4)		%	(1.0)		%	(0.7)		%	Net change in estimate as a percentage of aggregate revenue	5.3		%	(1.3)		%	2.8		%	(1.0)		%

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(1)During the three months ended June 30, 2021, we recorded revenue of $65.1 million associated with the settlement of an outstanding indemnification arrangement associated with the sale of one of our projects. See Note 10. “Commitments and Contingencies” to our condensed consolidated financial statements for discussion of our indemnification arrangements.

The following table reflects the changes in our contract assets, which we classify as “Accounts receivable, ~~unbilled” or “Retainage,~~unbilled,” and our contract liabilities, which we classify as “Deferred revenue,” for the six months ended June 30, 2021. As of December 31, 2020, these balances excluded any assets or liabilities classified as held for sale (in thousands):


		June 30, 2020		December 31, 2019		Six Month Change							June 30, 2021		December 31, 2020		Six Month Change
Accounts receivable, unbilled (1)	Accounts receivable, unbilled (1)	$	58,323	$	162,057					Accounts receivable, unbilled (1)	$	73,824	$	49,395
Retainage		18,388		21,416
Allowance for credit losses	Allowance for credit losses	(734)		—						Allowance for credit losses	(194)		(303)
Accounts receivable, unbilled and retainage, net		$	75,977	$	183,473	$	(107,496)	(59)	%
Accounts receivable, unbilled, net										Accounts receivable, unbilled, net	$	73,630	$	49,092	$	24,538	50	%

Deferred revenue (2)	Deferred revenue (2)	$	187,640	$	394,655	$	(207,015)	(52)	%	Deferred revenue (2)	$	328,406	$	233,732	$	94,674	41	%

——————————

(1)Includes ~~$11.9~~$59.2 million and $22.7 million of ~~long-term~~non-current accounts receivable, unbilled classified as “Other assets” on our condensed consolidated balance ~~sheet~~sheets as of June 30, ~~2020.~~2021 and December 31, 2020, respectively.

(2)Includes ~~$57.1~~$91.2 million and ~~$71.4~~$44.9 million of ~~long-term~~non-current deferred revenue classified as “Other liabilities” on our condensed consolidated balance sheets as of June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively.

During the six months ended June 30, ~~2020,~~2021, our contract assets ~~decreased~~increased by ~~$107.5~~$24.5 million primarily due to ~~billings~~unbilled receivables associated with ~~ongoing construction activities at~~ the ~~GA Solar 4,~~sale of the Sun Streams 3, Sun Streams 4, and ~~Sunshine Valley projects.~~Sun Streams 5 projects in the current period, partially offset by final billings on other project sales. During the six months ended June 30, ~~2020,~~2021, our contract liabilities ~~decreased~~increased by ~~$207.0~~$94.7 million primarily due to advance payments received for sales of solar modules in the current period, including $14.8 million for solar modules associated with the sale of our U.S. project development business described in Note 2. “Sales of Businesses,” partially offset by the recognition of revenue for sales of solar modules for which payment was received 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 the current period.~~2020. During the six months ended June 30, ~~2020~~2021 and ~~2019,~~2020, we recognized revenue of ~~$285.9~~$111.6 million and ~~$69.8~~$285.9 million, respectively, that was included in the corresponding contract liability balance at the beginning of the periods.

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The following table represents our remaining performance obligations as of June 30, 2020 for sales of solar power systems, including uncompleted sold projects and projects under contracts subject to conditions precedent. Such table excludes remaining performance obligations for 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 $19.7 million of revenue for such contracts through the substantial completion 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 72 Solar power systems Dominion Energy 2020 97%
Total 272

As of June 30, ~~2020,~~2021, we had entered into contracts with customers for the future sale of ~~10.8~~15.4 GW_DC of solar modules for an aggregate transaction price of ~~$3.5~~$4.4 billion. We expect to recognize such amounts as revenue through ~~2023~~2024 as we transfer control of the modules to the customers. While our contracts with customers typically represent firm purchase commitments, these contracts may be subject to amendments made by us or requested by our customers. These amendments may increase or decrease the volume of modules to be sold under the contract, change delivery schedules, or otherwise adjust the expected revenue under these contracts. ~~As of June 30, 2020, we had entered into O&M contracts covering approximately 13 GW~~_DC ~~of utility-scale PV solar power systems. We expect to recognize $0.4 billion of revenue during the noncancelable term of these O&M contracts over a weighted-average period of 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.

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12. Share-Based Compensation

The following table presents share-based compensation expense recognized in our condensed consolidated statements of operations for the three and six months ended June 30, ~~2020~~2021 and ~~2019~~2020 (in thousands):


		Three Months Ended June 30,			Six Months Ended June 30,						Three Months Ended June 30,				Six Months Ended June 30,
		2020	2019	2020	2019		2021		2020		2021		2020
Cost of sales(1)	Cost of sales(1)	243	1,961	1,455	3,801	Cost of sales(1)	$	173	$	243	$	81	$	1,455
Selling, general and administrative(1)	Selling, general and administrative(1)	3,052	7,046	7,761	9,384	Selling, general and administrative(1)	4,737		3,052		9,252		7,761
Research and development(2)	Research and development(2)	481	1,701	1,764	2,542	Research and development(2)	520		481		(788)		1,764
Production start-up		—	55	—	55
Total share-based compensation expense	Total share-based compensation expense	3,776	10,763	10,980	15,782	Total share-based compensation expense	$	5,430	$	3,776	$	8,545	$	10,980

——————————

(1)On March 31, 2021, we completed the sales of our North American O&M operations and U.S. project development business, which resulted in the forfeiture of unvested shares for associates (our term for full and part-time employees) departing the Company as part of the transactions. See Note 2. “Sales of Businesses” to our condensed consolidated financial statements for further information related to these transactions.

(2)Effective March 15, 2021, our former Chief Technology Officer retired from the Company, which resulted in the forfeiture of his unvested shares during the six months ended June 30, 2021.

Share-based compensation expense capitalized in inventory, project assets, and PV solar power systems was ~~$1.2~~$0.7 million as of June 30, ~~2020~~2021 and $1.1 million as of December 31, ~~2019.~~2020. As of June 30, ~~2020,~~2021, we had ~~$39.3~~$30.3 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 ~~1.8~~1.6 years.

In ~~February 2017,~~April 2018, the compensation committee of our board of directors (“the Board”) approved a long-term incentive program for key executive officers and associates. The program iswas 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~~interest of executive management and stockholders. ~~Specifically, the~~The program ~~consists~~consisted of ~~(i)~~ performance ~~stock~~ units to be earned over an approximately three-year performance period, which ended in December ~~2019, and (ii) stub-year~~2020. Vesting of the 2018 grants of ~~separate~~ performance ~~stock~~ units ~~to be earned over an approximately two-year performance period, which ended in December 2018.~~was contingent upon the relative attainment of target gross margin, operating expense, and contracted revenue metrics. In February ~~2019,~~2021, 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. 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, which approximated the target level of ~~performance stock units.~~performance. Accordingly, each participant received one share of 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,~~July 2019, 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 target contracted revenue, module wattage, and return on capital metrics.

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In May 2021, the compensation committee approved additional grants of performance units for key executive officers. Such grants are expected to be earned over a multi-year performance period ending in December 2023. Vesting of the 2021 grants of performance units is contingent upon the relative attainment of target contracted revenue, cost per watt, incremental average selling price, and operating income metrics.

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.

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13. Income Taxes

OnIn 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~~were accounted for as a discrete item in the prior period.

As a result of the CARES Act, we expect to carry back our 2019 and 2020 net operating losses to our 2016 U.S. corporate income tax ~~provision.~~return, which will restore certain foreign tax credits we expect to utilize by amending our 2017 and 2018 U.S. corporate income tax returns. Such amended returns will restore other general business credits we expect to utilize in future tax years before the credits expire and eliminate the transition tax liability for accumulated earnings of foreign subsidiaries resulting from the Tax Cuts and Jobs Act.

Our effective tax rate was ~~(163.2)%~~19% and ~~(13.7)~~(163)% for the six months ended June 30, ~~2020~~2021 and ~~2019,~~2020, respectively. The ~~decrease~~increase in our effective tax rate was primarily driven by a discrete tax benefit in the prior year associated with the net operating loss carryback provisions of the CARES Act described above and the relative size of our pretax income in the ~~current~~prior 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 the ~~effect~~beneficial impact of the Malaysian tax ~~law changes associated with the CARES Act.~~holiday and Vietnamese tax incentive.

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~~ In addition, our Vietnamese subsidiary ~~qualifies for certain~~has been granted a tax ~~incentives, which generally provide~~incentive that provides a two-year tax exemption, which began in 2020, and reduced tax rates ~~for~~through 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~~end 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 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 that jurisdiction. However, the exact timing and amount of such reversal is subject to change depending on our future earnings in Vietnam and other factors.2025.

We account for uncertain tax positions pursuant to the recognition and measurement criteria under ASC 740. It is reasonably possible that ~~$61.9~~$0.4 million of uncertain tax positions will be recognized within the next 12 months due to the expiration of the statute of limitations associated with such positions.

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

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14. Net Income ~~(Loss)~~ per Share

The calculation of basic and diluted net income ~~(loss)~~ per share for the three and six months ended June 30, ~~2020~~2021 and ~~2019~~2020 was as follows (in thousands, except per share amounts):


		Three Months Ended June 30,						Six Months Ended June 30,							Three Months Ended June 30,				Six Months Ended June 30,
		2020		2019		2020		2019			2021		2020		2021		2020
Basic net income (loss) per share
Basic net income per share										Basic net income per share
Numerator:	Numerator:									Numerator:
Net income (loss)		$	36,911	$	(18,548)	$	127,615	$	(86,147)
Net income										Net income	$	82,449	$	36,911	$	292,120	$	127,615
Denominator:	Denominator:									Denominator:
Weighted-average common shares outstanding	Weighted-average common shares outstanding	105,927		105,369		105,761		105,208		Weighted-average common shares outstanding	106,313		105,927		106,201		105,761

Diluted net income (loss) per share
Diluted net income per share										Diluted net income per share
Denominator:	Denominator:									Denominator:
Weighted-average common shares outstanding	Weighted-average common shares outstanding	105,927		105,369		105,761		105,208		Weighted-average common shares outstanding	106,313		105,927		106,201		105,761
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
Effect of restricted and performance units and stock purchase plan shares										Effect of restricted and performance units and stock purchase plan shares	523		546		665		668
Weighted-average shares used in computing diluted net income per share										Weighted-average shares used in computing diluted net income per share	106,836		106,473		106,866		106,429

Net income (loss) per share:
Net income per share:										Net income per share:
Basic	Basic	$	0.35	$	(0.18)	$	1.21	$	(0.82)	Basic	$	0.78	$	0.35	$	2.75	$	1.21
Diluted	Diluted	$	0.35	$	(0.18)	$	1.20	$	(0.82)	Diluted	$	0.77	$	0.35	$	2.73	$	1.20

~~The following table summarizes the~~There were no anti-dilutive common shares ~~of common stock that were excluded from the computation of diluted net income (loss) per share~~ for the three and six months ended June 30, ~~2020~~2021 and ~~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

2020.

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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 six months ended June 30, ~~2020~~2021 (in thousands):


		Foreign Currency Translation Adjustment		Unrealized Gain (Loss) on Marketable Securities and Restricted Marketable Securities		Unrealized Gain (Loss) on Derivative Instruments		Total			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)
Balance as of December 31, 2020										Balance as of December 31, 2020	$	(76,239)	$	16,630	$	(2,117)	$	(61,726)
Other comprehensive (loss) income before reclassifications	Other comprehensive (loss) income before reclassifications	(2,690)		30,601		(141)		27,770		Other comprehensive (loss) income before reclassifications	(9,901)		(5,866)		3,149		(12,618)
Amounts reclassified from accumulated other comprehensive loss	Amounts reclassified from accumulated other comprehensive loss	—		(15,337)		313		(15,024)		Amounts reclassified from accumulated other comprehensive loss	475		(11,696)		1,715		(9,506)
Net tax effect	Net tax effect	—		(586)		(86)		(672)		Net tax effect	0		1,087		(698)		389
Net other comprehensive (loss) income	Net other comprehensive (loss) income	(2,690)		14,678		86		12,074		Net other comprehensive (loss) income	(9,426)		(16,475)		4,166		(21,735)
Balance as of June 30, 2020		$	(76,119)	$	9,649	$	(790)	$	(67,260)
Balance as of June 30, 2021										Balance as of June 30, 2021	$	(85,665)	$	155	$	2,049	$	(83,461)

The following table presents the pretax amounts reclassified from accumulated other comprehensive loss into our condensed consolidated statements of operations for the three and six months ended June 30, ~~2020~~2021 and ~~2019~~2020 (in thousands):


Comprehensive Income Components	Comprehensive Income Components	Income Statement Line Item	Three Months Ended June 30,						Six Months Ended June 30,							Comprehensive Income Components		Income Statement Line Item			Three Months Ended June 30,						Six Months Ended June 30,
					2020		2019		2020			2019		Comprehensive Income Components	Income Statement Line Item						2020			2021			2020

Foreign currency translation adjustment	Foreign currency translation adjustment	Cost of sales	—		1,190		—		1,190		Foreign currency translation adjustment		Other (expense) income, net			$	0		$	0		$	(475)		$	0

Unrealized gain on marketable securities and restricted marketable securities	Unrealized gain on marketable securities and restricted marketable securities	Other expense, net	249		—		15,337		15,016		Unrealized gain on marketable securities and restricted marketable securities		Other (expense) income, net		0			249			11,696			15,337
Unrealized (loss) gain on derivative contracts:	Unrealized (loss) gain on derivative contracts:										Unrealized (loss) gain on derivative contracts:
Foreign exchange forward contracts	Foreign exchange forward contracts	Net sales	—		124		—		124		Foreign exchange forward contracts		Cost of sales		(799)			(106)			(1,928)			(313)
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
Commodity swap contracts											Commodity swap contracts		Cost of sales		220			0			213			0
Total unrealized loss on derivative contracts											Total unrealized loss on derivative contracts				(579)			(106)			(1,715)			(313)
Total (loss) gain reclassified											Total (loss) gain reclassified				$	(579)		$	143		$	9,506		$	15,024

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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 power plant solutions in certain markets, 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,~~From time to time, we may ~~also~~ temporarily own and operate, or retain interests in, certain of our systems for a period of time based on strategic opportunities or market factors. See Note ~~21.~~20. “Segment and Geographical Information” in our Annual Report on Form 10-K for the year ended December 31, ~~2019~~2020 for additional discussion of our segment reporting.

The following tables present certain financial information for our reportable segments for the three and six months ended June 30, ~~2020~~2021 and ~~2019~~2020 and as of June 30, ~~2020~~2021 and December 31, ~~2019~~2020 (in thousands):


		Three Months Ended June 30, 2020										Three Months Ended June 30, 2019											Three Months Ended June 30, 2021				Three Months Ended June 30, 2020
		Modules		Systems		Total		Modules		Systems		Total			Modules		Systems		Total		Modules		Systems		Total
Net sales	Net sales	$	371,518	$	270,893	$	642,411	$	228,745	$	356,211	$	584,956	Net sales	$	542,956	$	86,224	$	629,180	$	371,518	$	270,893	$	642,411
Gross profit	Gross profit	79,941		57,519		137,460		11,483		65,699		77,182		Gross profit	109,347		64,771		174,118		79,941		57,519		137,460
Depreciation and amortization expense	Depreciation and amortization expense	44,719		6,237		50,956		40,850		4,319		45,169		Depreciation and amortization expense	56,688		3,051		59,739		44,719		6,237		50,956

		Six Months Ended June 30, 2020										Six Months Ended June 30, 2019											Six Months Ended June 30, 2021				Six Months Ended June 30, 2020
		Modules		Systems		Total		Modules		Systems		Total			Modules		Systems		Total		Modules		Systems		Total
Net sales	Net sales	$	765,199	$	409,336	$	1,174,535	$	427,560	$	689,374	$	1,116,934	Net sales	$	1,077,626	$	354,928	$	1,432,554	$	765,199	$	409,336	$	1,174,535
Gross profit (loss)		155,293		72,505		227,798		(13,513)		90,807		77,294
Gross profit														Gross profit	209,787		149,098		358,885		155,293		72,505		227,798
Depreciation and amortization expense	Depreciation and amortization expense	89,392		12,495		101,887		80,385		8,578		88,963		Depreciation and amortization expense	107,412		6,148		113,560		89,392		12,495		101,887

		June 30, 2020										December 31, 2019											June 30, 2021				December 31, 2020
		Modules		Systems		Total		Modules		Systems		Total			Modules		Systems		Total		Modules		Systems		Total
Goodwill	Goodwill	$	14,462	$	—	$	14,462	$	14,462	$	—	$	14,462	Goodwill	$	14,462	$	0	$	14,462	$	14,462	$	0	$	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: the length and severity of the ~~recent~~ongoing 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;~~changes; our business strategy, including anticipated trends and developments in and management plans for our business and the markets in which we operate; future financial results, operating results, revenues, gross margin, operating expenses, products, projected costs (including estimated future module collection and recycling costs), warranties, solar module technology and cost reduction roadmaps, restructuring, product reliability, investments, and capital expenditures; our ability to continue to reduce the cost per watt of our solar modules; the impact of public policies, such as tariffs or other trade remedies imposed on solar cells and modules; effects resulting from pending litigation; our ability to expand manufacturing capacity worldwide; our ability to reduce the costs to develop and construct PV solar power systems; research and development (“R&D”) programs and our ability to improve the wattage of our solar modules; sales and marketing initiatives; and competition. In some cases, you can identify these statements by forward-looking words, such as “estimate,” “expect,” “anticipate,” “project,” “plan,” “intend,” “seek,” “believe,” “forecast,” “foresee,” “likely,” “may,” “should,” “goal,” “target,” “might,” “will,” “could,” “predict,” “continue,” “contingent,” and the negative or plural of these words, and other comparable terminology.

Forward-looking statements are only predictions based on our current expectations and our projections about future events. All forward-looking statements included in this Quarterly Report on Form 10-Q are based upon information available to us as of the filing date of this Quarterly Report on Form 10-Q and therefore speak only as of the filing date. You should not place undue reliance on these forward-looking statements. We undertake no obligation to update any of these forward-looking statements for any reason, whether as a result of new information, future developments, or otherwise. These forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause our actual results, levels of activity, performance, or achievements to differ materially from those expressed or implied by these statements. These factors include, but are not limited to, the severity and duration of the COVID-19 pandemic, including its potential impact on the Company’s business, financial condition, and results of operations; structural imbalances in global supply and demand for PV solar modules; the market for renewable energy, including solar energy; our competitive position and other key competitive factors; reduction, elimination, or expiration of government subsidies, policies, and support programs for solar energy projects; the impact of public policies, such as tariffs or other trade remedies imposed on solar cells and modules; 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, ~~2019,~~2020, elsewhere in this Quarterly Report on Form 10-Q, and our other reports filed with the SEC. You should carefully consider the risks and uncertainties described in these reports.

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

Executive Overview

We are a leading American solar technology company and global provider of ~~comprehensive~~ PV solar energy solutions. ~~We design,~~Developed at our R&D labs in California and Ohio, we manufacture and sell PV solar modules with an advanced thin film semiconductor technology that provide a high-performance, lower-carbon alternative to conventional crystalline silicon PV solar modules. From raw material sourcing through end-of-life module recycling, we are committed to reducing the environmental impacts and enhancing the social and economic benefits of our products across their life cycle. In certain markets, we also develop and sell PV solar power systems that ~~primarily~~ use the modules we ~~manufacture. Additionally, we~~manufacture and provide O&M services to system owners. ~~We have substantial, ongoing R&D efforts focused on 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.~~manufacturer in the Western Hemisphere.

Certain of our financial results and other key operational developments for the three months ended June 30, ~~2020~~2021 include the following:

•Net sales for the three months ended June 30, ~~2020 increased~~2021 decreased by ~~10%~~2% to ~~$642.4~~$629.2 million compared to ~~$585.0~~$642.4 million for the same period in ~~2019.~~2020. The ~~increase~~decrease was primarily ~~due to~~driven by the sale of the American Kings project in the prior period and the completion of substantially all construction activities at the GA Solar 4 project in 2020, partially offset by an increase in the volume of modules sold to third parties and the ~~sale~~settlement of ~~the American Kings project, partially offset by~~an outstanding indemnification arrangement associated with the sale of ~~the Beryl, Cove Mountain,~~one of our projects. See Note 10. “Commitments and ~~Muscle Shoals projects and the completion~~Contingencies” to our condensed consolidated financial statements for discussion of ~~substantially all construction activities at the Phoebe project in 2019.~~our indemnification arrangements.

•Gross profit for the three months ended June 30, ~~2020~~2021 increased ~~8.2~~6.3 percentage points to ~~21.4%~~27.7% from ~~13.2%~~21.4% for the same period in ~~2019.~~2020. The increase in gross profit was primarily due to ~~higher gross profit on third-party~~the settlement of the indemnification matter mentioned above and continued module ~~sales and improved utilization of our manufacturing facilities from the successful ramp of various Series 6 manufacturing lines,~~cost reductions, partially offset by ~~the mix~~a higher volume of ~~lower gross profit~~ projects ~~under construction~~sold during the prior 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.~~an increase in logistics costs.

•As of June 30, ~~2020,~~2021, we had ~~5.5~~7.9 GW_DC of total installed Series 6 nameplate production capacity across all our facilities. We produced ~~1.5~~2.0 GW_DC of solar modules during the three months ended June 30, ~~2020,~~2021, which represented a 7%38% increase in Series 6 module production from the same period in ~~2019.~~2020. The increase in Series 6 production was primarily driven by the incremental Series 6 production capacity added in ~~2019~~Malaysia in early 2021 and higher throughput 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.~~facilities. We expect to produce ~~5.9~~between 7.4 GW_DC and 7.6 GWDC of ~~solar~~Series 6 modules during ~~2020, substantially all of which will be Series 6 modules.~~2021.

•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.

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~~over several years. Recent crystalline silicon module spot pricing has temporarily increased due to elevated polysilicon, commodity, and ~~are~~freight costs. While the duration of this elevated period of spot pricing is uncertain, pricing is expected to continue to decline 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, particularly those in China, have significant installed production capacity, relative to global demand, and the ability for additional capacity expansion. Accordingly, we believe the solar industry may ~~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 also put pressure on pricing, which may be exacerbated by the ~~current~~ COVID-19 pandemic’s disruption inof the global economy. Additionally, intense competition at the system level may result in an environment in which pricing falls rapidly, thereby potentially increasing demand for solar energy solutions but constraining the ability for project developers and diversified module manufacturers to sustain meaningful and consistent profitability. In light of such market realities, we continue to focus on our strategies and points of differentiation, which include our advanced module technology, our manufacturing process, our diversified capabilities, 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 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~~recently announced our plans to expand our manufacturing capacity ~~while also~~by 6.6 GWDC by constructing our third U.S. manufacturing facility in Lake Township, Ohio, contingent upon obtaining certain permits, and our first manufacturing facility in India, contingent upon permitting and pending approval of Indian government incentives that are satisfactory to us. These new facilities are expected to commence operations in the first half of 2023 and the second half of 2023, respectively. Additionally, we are developing ~~and operating multiple~~ solar projects ~~around the world~~in Japan as we execute on our utility-scale project pipeline. See the ~~tables~~table under “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Systems Project Pipeline” for additional information about the projects ~~within our advanced-stage pipeline.~~we are developing. 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 expand our manufacturing capacity and leverage the benefits of our ~~Series 6~~ module technology.

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

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aggressively low prices for module sale agreements or PPAs, or are able to operate at minimal or negative operating margins for sustained periods of time. For certain of our competitors, ~~such actions~~including many in China, these practices may be enabled by their direct or indirect access to sovereign capital or other forms of state-owned support. 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, 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~~(through a larger form factor or an improved conversion efficiency), energy yield, degradation, sustainability, and reliability, and developers of systems compete on various factors such as net present value, return

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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~~Most crystalline silicon cell and wafer manufacturers ~~continue to transition~~have transitioned from lower efficiency Back Surface Field multi-crystalline cells (the legacy technology against which we have generally competed) to higher efficiency Passivated Emitter Rear Contact (“PERC”) mono-crystalline cells at competitive cost structures. Additionally, 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 promoting~~offer 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~~thin-film semiconductor technology, module wattage (or conversion efficiency), proprietary manufacturing process (which enables us to produce a CdTe module in a matter of hours using a continuous and highly automated industrial manufacturing process, as opposed to a batch process), and our focus on operational excellence. In addition, our CdTe modules use approximately 1-2% of the amount of semiconductor material that is used to manufacture conventional crystalline silicon solar modules. The cost of polysilicon is a significant driver of the manufacturing cost of crystalline silicon solar modules, and the timing and rate of change in the cost of silicon feedstock and polysilicon could lead to changes in solar module pricing levels. In recent years, polysilicon consumption per cell has been reduced through various initiatives, such as the adoption of diamond wire saw technology, which have contributed to declines in our relative manufacturing cost competitiveness over conventional crystalline silicon module manufacturers.

In terms of ~~energy yield,~~performance, in many climates our CdTe solar modules provide ancertain energy production ~~advantage over most monofacial~~advantages relative to competing crystalline silicon solar ~~modules of equivalent efficiency rating.~~modules. For example, our CdTe solar ~~modules provide~~ technology provides:

•a superior temperature coefficient, which results in stronger system performance in typical high insolation climates as the majority of a system’s generation, on average, occurs when module temperatures are well above 25°C (standard test conditions)~~. In addition, our CdTe 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~~ standard test conditions;

•a better partial shading response than ~~conventional~~competing crystalline silicon ~~solar modules,~~technologies, which may experience significantly lower energy generation than CdTe solar modules when partial shading ~~occurs. As a result of these~~occurs; and ~~other factors, our PV solar modules typically produce more annual energy in real world field~~

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

In addition to these technological advantages, we also warrant that our PV solar modules will produce at least 98% of their labeled power output rating during the first year, with the warranty coverage reducing by 0.5% every year thereafter throughout the limited power output warranty period of up to 30 years. Based on the implementation of our Copper Replacement (“CuRe”) program, which replaces copper with certain other elements that enhance module performance, we expect the warranted degradation of our CdTe solar modules to decline to 0.2% per year in the near term. As a result of these and other factors, our PV solar modules can produce more annual energy in real world operating conditions than conventional modules with the same nameplate capacity.

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

Certain Trends and Uncertainties

We believe that our business, financial condition, and results of operations may be favorably or unfavorably impacted by the following trends and uncertainties. See Item 1A. “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, ~~2019 and Item 1A. of this Quarterly Report on Form 10-Q~~2020 for discussions of other risks (the “Risk Factors”) that may affect us.

Our long-term strategic plans are focused on our goal to create long-term ~~shareholder~~stockholder value through a balance of growth, profitability, and liquidity. In executing such plans, we are focusing on providing utility-scale PV solar energy solutions 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,~~United States, Japan, Europe, India, and certain other strategic markets. 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 continue to focus on opportunities in which our PV solar energy solutions compete directly with traditional forms of energy generation on an LCOE or similar basis, or complement such generation offerings. 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~~based on publicly available information, retirements of coal generation plants in the United States alone are expected to approximate ~~900~~50 GW_DC ~~by 2040,~~over the next ten years, representing a significant increase in the potential market for solar energy.

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.

~~Our ability to provide utility-scale offerings on economically attractive terms~~Demand for our solar energy solutions depends, in part, on market factors outside 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.~~our solar energy solutions. For example, ~~we generally sell projects we have developed within our systems business, including projects~~a reduction in the supply of project debt or equity financing (including, in the United States, ~~Japan,~~tax equity financing) caused by the COVID-19 pandemic could make it difficult for our customers to secure the financing necessary to purchase modules and ~~elsewhere, to purchasers that depend on financing to fund the initial capital expenditures required to~~ develop, build, ~~and/~~or ~~purchase a system.~~install systems. 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,~~As a result, 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.

Our ability to provide solar energy solutions on economically attractive terms may also be affected by logistics costs associated with the procurement of raw materials used in our manufacturing process and the shipping, handling, storage, and distribution of our modules. For example, the cost of ocean freight throughout many parts of the world has continued to increase due to the limited availability of shipping containers, increased port congestion resulting

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from labor shortages, an increase in cancellations of shipments by logistics providers, and elevated fuel costs. In response to these cost increases, we have accommodated certain customer requests for delayed module shipments in an effort to manage our shipping routes and mitigate our exposure to uncontracted freight rates. Additionally, due to ongoing schedule reliability issues with many operating ships, we are adjusting our shipping plans to include additional lead time for module deliveries to better meet our customer commitments. While it is currently unclear how long these elevated prices will persist, such costs may be further exacerbated by the disruption of major shipping routes or economic disruptions caused by the COVID-19 pandemic.

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, submit an interconnection application, and/or achieve commercial operation within a set period of time following dates specified in their respective certificates. The amendment, which becomes effective in 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, submit an interconnection application, and/or achieve commercial operation ~~will be proposed at a later date~~varies by ~~METI.~~project, but is no earlier than March 2023. 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.

Many governments have also proposed policies or support programs intended to encourage renewable energy investments. Such support programs may include additional incentives over several years for renewable energy projects, including PV solar power systems, or manufacturers of renewable energy products. For example, in June 2021, certain U.S. senators introduced legislation intended to increase domestic solar manufacturing and accelerate the transition to clean energy by providing tax credits for U.S. solar manufacturers. If such legislation is successfully signed into law, or other similar policies or support programs are enacted, it could positively impact our business, financial condition, and results of operations. While we compete in many markets that do not require solar-specific government subsidies or support programs, our net sales and profits remain subject to variability based on the availability and size of government subsidies and economic incentives.

We intend to focus our resources in those markets and energy applications in which solar power can be a least-cost, best-fit energy solution, particularly in regions with significant current or projected electricity demand, relatively high existing electricity prices, strong demand for renewable energy generation, and high solar resources. 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, we continue to monitor and adapt to the dynamics of 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 also continue to monitor and adapt to changing dynamics~~conditions, including changes in the market set of potential buyers of our modules and solar projects. Market environments with few potential project buyers and a higher cost of capital would generally exert downward pressure on the potential revenue from ~~the solar projects we are developing,~~such offerings, whereas, conversely, market environments with many potential project buyers and a lower cost of capital would likely have a favorable impact on the potential revenue from such ~~solar projects.~~offerings. For example, the emergence of utility-owned generation has increased the number of potential project buyers as such utility customers benefit from a potentially low cost of capital available through rate-based utility investments. Given their long-term ownership profile, utility-owned generation customers typically seek to partner with diversified and stable companies that can provide a broad spectrum of utility-scale generation solutions, including reliable PV solar technology, thereby mitigating their long-term ownership risks.

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On occasion, we may ~~also elect~~temporarily own and operate certain systems with the intention to ~~develop partially contracted or uncontracted systems for which there~~sell them at a later date. As of June 30, 2021 and December 31, 2020, the recoverability of our Luz del Norte PV solar power plant was based, in part, on the likelihood of our continued ownership and operation of the system. However, it is ~~a partial or no PPA with an off-taker, such as a utility, but rather an~~reasonably possible that our intent to ~~sell some portion~~hold the asset may change in the near term due to our evaluation of ~~the electricity produced by the system on an open contract basis until the system is sold. Expected revenue from projects without a PPA~~strategic sale opportunities for the ~~full off-take~~system. The pursuit of such opportunities, which require coordination with the system’s lenders, may result in a determination that the carrying value of the system is ~~subject to greater variability and uncertainty~~not recoverable based on ~~market factors and is typically lower than projects with~~the probability-weighted undiscounted future cash flows, which in turn could result in a ~~PPA for the full off-take~~possible impairment of the ~~system. Furthermore, all~~ system ~~pricing is affected by the pricing of energy to be sold on an open contract basis following the termination~~in future periods. Accordingly, any changes in our expected use 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,~~asset or its disposition may ~~also~~ result in impairment charges that could be material to our condensed consolidated financial statements and have a significant ~~variability and uncertainty in the value~~adverse impact on our results of ~~our systems projects.~~operations.

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. ~~During 2019,~~We continue to increase the nameplate production capacity of our existing manufacturing facilities by improving our production throughput, increasing module wattage (or conversion efficiency), and improving manufacturing yield losses. Additionally, we ~~commenced commercial production of Series 6 modules at~~recently announced plans to expand our ~~second~~ manufacturing ~~facility in Ho Chi Minh City, Vietnam and~~capacity by 6.6 GWDC by constructing our third U.S. manufacturing facility in Lake Township, ~~Ohio. We~~Ohio, contingent upon obtaining certain permits, and our first manufacturing facility in India, contingent upon permitting and pending approval of Indian government incentives that are ~~currently in the process of transitioning our legacy Series 4 manufacturing facilities in Kulim, Malaysia~~satisfactory to ~~our Series 6 module technology and continue to expand capacity and throughput at our other existing manufacturing facilities.~~us. Such additional capacity, and any other potential investments to add or otherwise modify our existing manufacturing capacity in response to market demand and competition, may require significant internal and possibly external sources of capital, and may be subject to certain risks and uncertainties described in the Risk Factors.

In response to the COVID-19 pandemic, governmental authorities have recommended or ordered the limitation or cessation of certain business or commercial activities in jurisdictions in which we do business or have operations. While some of these orders permit the continuation of essential business operations, or permit the performance of minimum business activities, these orders are subject to continuous revision or may be revoked or superseded, or our understanding of the applicability of these orders and exemptions may change at any time. In addition, due to contraction of the virus, or concerns about becoming ill from the virus, we may experience reductions in the availability of our operational workforce, such as our manufacturing personnel. As a result, we may at any time be ordered by governmental authorities, or we may determine, based on our understanding of the recommendations or orders of governmental authorities or the availability of our personnel, that we have to curtail or cease business operations or activities altogether, including manufacturing, fulfillment, project development, construction, operating or maintenance operations, or research and development ~~activities.~~activities, or the implementation of our technology roadmap (such as our CuRe program). At this time, such limitations have had a ~~limited~~minimal effect on our manufacturing facilities and certain project construction activities, and we have implemented a wide range of safety measures intended to enable the continuity of our operations and inhibit the spread of COVID-19 at our manufacturing, administrative, and other sites and facilities, including those in the United States, Malaysia, and Vietnam. While we continue to work with relevant government agencies in Malaysia and Vietnam to allow the essential travel of personnel that support the implementation of our technology roadmap (such as our CuRe program), such implementation may be delayed due to travel restrictions, quarantine requirements, other government orders, or increases in COVID-19 infection rates.

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Systems Project Pipeline

The following ~~tables summarize,~~table summarizes, as of ~~August 6, 2020,~~July 29, 2021, our approximately ~~1.6 GW~~384 MW_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 1.1 to ~~1.4.~~1.6. Such ratio varies across different projects due to many factors, including PPA pricing and the location, design, and costs of the system. Projects are typically removed from our advanced-stage project pipeline tables below once we substantially complete construction of the project and after substantially all of the associated project revenue is recognized. A project, or a portion of a project, may also be removed from the tables below in the event the project is not able to be sold due to the changing economics of the project or other factors, or we decide to temporarily own and operate the project based on strategic opportunities or market factors.

~~Projects under Sales Agreements~~

The following table includes ~~uncompleted sold~~ projects ~~and~~with confirmed offtake agreements or projects under contracts with customers subject to ~~conditions precedent:~~certain closing conditions:

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

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

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


Project/Location	Project Size in MWAC	Project under Sales Agreement	Primary Permits Obtained	PPA Contracted Partner	Expected or Actual Substantial Completion Year	% Complete as of June 30, 2021
Luz del Norte, Chile	141	No	Yes	(1)	2016	100%
Kyoto, Japan	38	No	Yes	Chubu Electric Power Company	2022	33%
Ikeda, Japan	21	No	Yes	(2)	2023	41%


Japan (multiple locations)	184	No	Yes	(3)	2021/2023	29%
Total	384

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(1)~~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~~basis.

~~(5)~~(2)~~Monterey Bay Community Power – 60 MW~~_ACProject has secured feed-in-tariff rights, and ~~Silicon Valley Clean Energy – 40 MW~~the related PPA will be executed at a later date._AC

~~(6)~~(3)~~Chubu~~11 MWAC has been contracted with Tokyo Electric Power ~~Company – 38~~Company. The remaining 173 MW_AC has secured feed-in-tariff rights, and ~~Hokuriku Electric Power Company – 17 MW~~the related PPAs for such projects will be executed at a later date._AC

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Results of Operations

The following table sets forth our condensed consolidated statements of operations as a percentage of net sales for the three and six months ended June 30, ~~2020~~2021 and ~~2019:~~2020:


		Three Months Ended June 30,						Six Months Ended June 30,							Three Months Ended June 30,				Six Months Ended June 30,
		2020		2019		2020		2019			2021		2020		2021		2020
Net sales	Net sales	100.0	%	100.0	%	100.0	%	100.0	%	Net sales	100.0	%	100.0	%	100.0	%	100.0	%
Cost of sales	Cost of sales	78.6	%	86.8	%	80.6	%	93.1	%	Cost of sales	72.3	%	78.6	%	74.9	%	80.6	%
Gross profit	Gross profit	21.4	%	13.2	%	19.4	%	6.9	%	Gross profit	27.7	%	21.4	%	25.1	%	19.4	%
Selling, general and administrative	Selling, general and administrative	8.1	%	8.7	%	9.4	%	8.6	%	Selling, general and administrative	5.8	%	8.1	%	6.2	%	9.4	%
Research and development	Research and development	3.5	%	4.2	%	4.1	%	4.1	%	Research and development	3.8	%	3.5	%	3.1	%	4.1	%
Production start-up	Production start-up	1.0	%	1.8	%	0.9	%	1.8	%	Production start-up	0.3	%	1.0	%	0.9	%	0.9	%
Litigation loss	Litigation loss	0.9	%	—	%	0.5	%	—	%	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	%
Gain on sales of businesses, net										Gain on sales of businesses, net	(0.3)	%	—	%	10.4	%	—	%
Operating income										Operating income	17.5	%	7.9	%	25.3	%	4.5	%
Foreign currency loss, net										Foreign currency loss, net	(0.2)	%	(0.2)	%	(0.3)	%	(0.1)	%
Interest income	Interest income	0.6	%	2.3	%	1.1	%	2.5	%	Interest income	0.2	%	0.6	%	0.2	%	1.1	%
Interest expense, net	Interest expense, net	(0.5)	%	(1.5)	%	(0.9)	%	(1.7)	%	Interest expense, net	(0.7)	%	(0.5)	%	(0.5)	%	(0.9)	%
Other expense, net		(0.5)	%	(0.8)	%	(0.5)	%	(0.1)	%
Other (expense) income, net										Other (expense) income, net	(0.5)	%	(0.5)	%	0.4	%	(0.5)	%
Income tax (expense) benefit	Income tax (expense) benefit	(1.6)	%	(2.0)	%	6.7	%	(0.9)	%	Income tax (expense) benefit	(3.2)	%	(1.6)	%	(4.7)	%	6.7	%
Equity in earnings, net of tax		—	%	—	%	—	%	—	%
Net income (loss)		5.7	%	(3.2)	%	10.9	%	(7.7)	%

Net income										Net income	13.1	%	5.7	%	20.4	%	10.9	%

~~Table of Contents~~

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 contracting and management, 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.

Net sales

Modules Business

We generally price and sell our solar modules on a per watt basis. During the three and six months ended June 30, ~~2020,~~2021, we sold the majority of our solar modules to integrators and operators of systems in the United States, and substantially all of our modules business net sales were denominated in U.S. dollars. We recognize revenue for module sales at a point in time following the transfer of control of the modules to the customer, which typically occurs upon shipment or delivery depending on the terms of the underlying contracts.

Systems Business

During the three and six months ended June 30, ~~2020,~~2021, the majority of our systems business net sales were in the United States and were denominated in U.S. dollars. We recognize revenue for the sale of a development project, which excludes EPC services, or for the sale of a completed system when we enter into the associated sales contract with the customer. For other sales of solar power systems and/or EPC services, we generally recognize revenue over time as our performance creates or enhances an energy generation asset controlled by the customer. Furthermore, the sale of a solar power system combined with EPC services represents a single performance obligation for the development and construction of a single generation asset. For such arrangements, we recognize revenue as work is performed using cost based input methods, which result in revenue being recognized as work is performed based on the relationship between actual costs incurred compared to the total estimated costs for a given contract.

Table of Contents

The following table shows net sales by reportable segment for the three and six months ended June 30, ~~2020~~2021 and ~~2019:~~2020:


		Three Months Ended June 30,												Six Months Ended June 30,													Three Months Ended June 30,								Six Months Ended June 30,
(Dollars in thousands)	(Dollars in thousands)	2020		2019		Three Month Change						2020		2019		Six Month Change						(Dollars in thousands)	2021		2020		Three Month Change				2021		2020		Six Month Change
Modules	Modules	$	371,518	$	228,745	$	142,773	62	%	$	765,199	$	427,560	$	337,639	79	%	Modules	$	542,956	$	371,518	$	171,438	46	%	$	1,077,626	$	765,199	$	312,427	41	%
Systems	Systems	270,893		356,211		(85,318)		(24)	%	409,336		689,374		(280,038)		(41)	%	Systems	86,224		270,893		(184,669)		(68)	%	354,928		409,336		(54,408)		(13)	%
Net sales	Net sales	$	642,411	$	584,956	$	57,455	10	%	$	1,174,535	$	1,116,934	$	57,601	5	%	Net sales	$	629,180	$	642,411	$	(13,231)	(2)	%	$	1,432,554	$	1,174,535	$	258,019	22	%

Net sales from our modules segment increased ~~$142.8~~$171.4 million for the three months ended June 30, ~~2020~~2021 compared to the three months ended June 30, ~~2019~~2020 primarily due to a ~~59%~~64% increase in the volume of watts sold, ~~and a 2% increase~~partially offset by an 11% decrease in the average selling price per watt. Net sales from our systems segment decreased ~~$85.3~~$184.7 million for the three months ended June 30, ~~2020~~2021 compared to the three months ended June 30, ~~2019~~2020 primarily due to the sale of the ~~Beryl, Cove Mountain, and Muscle Shoals projects~~American Kings project in the prior period and the completion of substantially all construction activities at the ~~Phoebe~~GA Solar 4 project in ~~2019,~~2020, partially offset by the settlement of an outstanding indemnification arrangement associated with the sale of one of our projects. Under the ~~American Kings project in~~terms of the ~~current period.~~indemnification arrangement, we are entitled to receive $65.1 million of the settlement payment, which we recorded as revenue during the three months ended June 30, 2021. See Note 10. “Commitments and Contingencies” to our condensed consolidated financial statements for discussion of our indemnification arrangements.

Net sales from our modules segment increased ~~$337.6~~$312.4 million for the six months ended June 30, ~~2020~~2021 compared to the six months ended June 30, ~~2019~~2020 primarily due to a ~~76%~~55% increase in the volume of watts sold, ~~and~~partially offset by a ~~2% increase~~9% decrease in the average selling price per watt. Net sales from our systems segment decreased ~~$280.0~~$54.4 million for the six months ended June 30, ~~2020~~2021 compared to the six months ended June 30, ~~2019~~2020 primarily due to the sale of the ~~Beryl, Cove Mountain, and Muscle Shoals projects~~American Kings project in the prior period and the completion of substantially all construction activities at the ~~Rosamond, Phoebe, and Lake Hancock projects~~GA Solar 4 project in ~~2019,~~2020, partially offset by the sale of the ~~American Kings project~~Sun Streams 2, Sun Streams 4, and ~~ongoing construction activities at the GA Solar 4 project~~Sun Streams 5 projects in the current ~~period.~~period and the $65.1 million indemnification matter described above.

~~Table of Contents~~

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).

Systems Business

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

Table of Contents

The following table shows cost of sales by reportable segment for the three and six months ended June 30, ~~2020~~2021 and ~~2019:~~2020:


		Three Months Ended June 30,																Six Months Ended June 30,															Three Months Ended June 30,										Six Months Ended June 30,
(Dollars in thousands)	(Dollars in thousands)	2020			2019			Three Month Change							2020			2019		Six Month Change							(Dollars in thousands)		2021		2020		Three Month Change						2021		2020		Six Month Change
Modules	Modules	$	291,577		$	217,262		$	74,315	34	%	$	609,906		$	441,073		$	168,833	38	%	Modules	$	433,609		$	291,577		$	142,032	49	%	$	867,839		$	609,906		$	257,933	42	%
Systems	Systems	213,374			290,512			(77,138)		(27)	%	336,831			598,567			(261,736)		(44)	%	Systems	21,453			213,374			(191,921)		(90)	%	205,830			336,831			(131,001)		(39)	%
Total cost of sales	Total cost of sales	$	504,951		$	507,774		$	(2,823)	(1)	%	$	946,737		$	1,039,640		$	(92,903)	(9)	%	Total cost of sales	$	455,062		$	504,951		$	(49,889)	(10)	%	$	1,073,669		$	946,737		$	126,932	13	%
% of net sales	% of net sales	78.6		%	86.8		%					80.6		%	93.1		%					% of net sales	72.3		%	78.6		%					74.9		%	80.6		%

Our cost of sales decreased ~~$2.8~~$49.9 million, or 1%10%, and decreased ~~8.2~~6.3 percentage points as a percent of net sales for the three months ended June 30, ~~2020~~2021 compared to the three months ended June 30, ~~2019.~~2020. The decrease in cost of sales was driven by a ~~$77.1~~$191.9 million decrease in our systems segment cost of sales primarily due to the lower volume of projects sold and under construction during the ~~period, partially offset by the size of projects sold and the timing of when revenue recognition criteria were met. Such~~period. This decrease was partially offset by a ~~$74.3~~$142.0 million increase in our modules segment cost of sales primarily due to higher costs of ~~$116.0~~$172.0 million from an increase in the volume of modules sold and ~~manufacturing related charges of $8.8~~$15.9 million ~~associated with the ongoing COVID-19 pandemic,~~from an increase in logistics costs, partially offset by continued module cost reductions, ~~in the cost per watt of our solar modules,~~ which decreased cost of sales by $46.5 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 $16.2 million compared to 2019.$43.6 million.

Our cost of sales ~~decreased $92.9~~increased $126.9 million, or 9%13%, and decreased ~~12.5~~5.7 percentage points as a percent of net sales for the six months ended June 30, ~~2020~~2021 compared to the six months ended June 30, ~~2019.~~2020. The ~~decrease~~increase in cost of sales was driven by a ~~$261.7~~$257.9 million increase in our modules segment cost of sales primarily due to higher costs of $310.9 million from an increase in the volume of modules sold and $17.3 million from an increase in logistics costs, partially offset by continued module cost reductions, which decreased cost of sales by $77.8 million. This increase was partially offset by a $131.0 million decrease in our systems segment cost of sales primarily due to the lower volume of projects sold and under construction during the 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 $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.period.

~~Table of Contents~~

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 and downtime 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 six months ended June 30, ~~2020~~2021 and ~~2019:~~2020:


		Three Months Ended June 30,																Six Months Ended June 30,													Three Months Ended June 30,										Six Months Ended June 30,
(Dollars in thousands)	(Dollars in thousands)	2020			2019			Three Month Change							2020			2019		Six Month Change							(Dollars in thousands)		2021		2020		Three Month Change						2021		2020		Six Month Change
Gross profit	Gross profit	$	137,460		$	77,182		$	60,278	78	%	$	227,798		$	77,294		$	150,504	195	%	Gross profit	$	174,118		$	137,460		$	36,658	27	%	$	358,885		$	227,798		$	131,087	58	%
% of net sales	% of net sales	21.4		%	13.2		%					19.4		%	6.9		%					% of net sales	27.7		%	21.4		%					25.1		%	19.4		%

Gross profit increased ~~8.2~~6.3 percentage points to 27.7% during the three months ended June 30, 2021 from 21.4% during the three months ended June 30, 2020 ~~from 13.2% during the three months ended June 30, 2019~~ primarily due to ~~higher gross profit on third-party~~the $65.1 million indemnification matter described above and continued module ~~sales and improved utilization of our manufacturing facilities from the successful ramp of various Series 6 manufacturing lines,~~cost reductions, partially offset by ~~the mix~~a higher volume of ~~lower gross profit~~ projects ~~under construction~~sold during the prior 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.~~an increase in logistics costs.

Gross profit increased ~~12.5~~5.7 percentage points to 25.1% during the six months ended June 30, 2021 from 19.4% during the six months ended June 30, 2020 ~~from 6.9% during the six months ended June 30, 2019~~ primarily due to ~~higher gross profit on third-party~~the indemnification matter described above and continued module ~~sales and improved utilization of our manufacturing facilities from the successful ramp of various Series 6 manufacturing lines,~~cost reductions, partially offset by a decrease in the ~~mix~~average selling price per watt of ~~lower gross profit projects under construction during the period and the additional costs for the GA Solar 4 project described above.~~our modules.

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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 six months ended June 30, ~~2020~~2021 and ~~2019:~~2020:


		Three Months Ended June 30,																Six Months Ended June 30,													Three Months Ended June 30,										Six Months Ended June 30,
(Dollars in thousands)	(Dollars in thousands)	2020			2019			Three Month Change							2020			2019		Six Month Change							(Dollars in thousands)		2021		2020		Three Month Change						2021		2020		Six Month Change
Selling, general and administrative	Selling, general and administrative	$	51,770		$	50,934		$	836	2	%	$	110,357		$	96,286		$	14,071	15	%	Selling, general and administrative	$	36,346		$	51,770		$	(15,424)	(30)	%	$	88,433		$	110,357		$	(21,924)	(20)	%
% of net sales	% of net sales	8.1		%	8.7		%					9.4		%	8.6		%					% of net sales	5.8		%	8.1		%					6.2		%	9.4		%

Selling, general and administrative expense for the three months ended June 30, ~~2020 was consistent with~~2021 decreased compared to the three months ended June 30, ~~2019.~~ 2020 primarily due to a decrease in employee compensation expense driven by reductions in headcount, lower project development expenses, and lower expected credit losses for our accounts receivable.

Selling, general and administrative expense for the six months ended June 30, ~~2020 increased~~2021 decreased compared to the six months ended June 30, ~~2019~~2020 primarily due to ~~an increase~~a decrease in ~~professional fees; higher~~ employee compensation expense ~~including higher severance; higher charges for impairments of certain project assets; and higher~~driven by reductions in headcount, lower 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.and lower professional fees.

~~Table of Contents~~

Research and development

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

The following table shows research and development expense for the three and six months ended June 30, ~~2020~~2021 and ~~2019:~~2020:


		Three Months Ended June 30,																Six Months Ended June 30,													Three Months Ended June 30,										Six Months Ended June 30,
(Dollars in thousands)	(Dollars in thousands)	2020			2019			Three Month Change							2020			2019		Six Month Change							(Dollars in thousands)		2021		2020		Three Month Change						2021		2020		Six Month Change
Research and development	Research and development	$	22,483		$	24,395		$	(1,912)	(8)	%	$	48,096		$	46,272		$	1,824	4	%	Research and development	$	23,935		$	22,483		$	1,452	6	%	$	43,808		$	48,096		$	(4,288)	(9)	%
% of net sales	% of net sales	3.5		%	4.2		%					4.1		%	4.1		%					% of net sales	3.8		%	3.5		%					3.1		%	4.1		%

Research and development expense for the three months ended June 30, ~~2020 decreased~~2021 increased compared to the three months ended June 30, ~~2019~~2020 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.~~costs, partially offset by lower employee compensation expense resulting from reductions in R&D headcount.

Research and development expense for the six months ended June 30, ~~2020 increased~~2021 decreased compared to the six months ended June 30, ~~2019~~2020 primarily due to ~~higher~~lower employee compensation expense resulting from reductions in R&D headcount, lower share-based compensation expense driven by the forfeiture of unvested shares by our former Chief Technology Officer, who retired effective March 15, 2021, and lower impairment charges for certain equipment, ~~and~~partially offset by increased material and module testing ~~costs, partially offset by lower employee compensation expense due to reductions in R&D headcount.~~costs.

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Production start-up

Production start-up expense consists primarily of employee compensation and other costs associated with operating a production line before it 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 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 six months ended June 30, ~~2020~~2021 and ~~2019:~~2020:


		Three Months Ended June 30,																Six Months Ended June 30,													Three Months Ended June 30,										Six Months Ended June 30,
(Dollars in thousands)	(Dollars in thousands)	2020			2019			Three Month Change							2020			2019		Six Month Change							(Dollars in thousands)		2021		2020		Three Month Change						2021		2020		Six Month Change
Production start-up	Production start-up	$	6,311		$	10,437		$	(4,126)	(40)	%	$	10,793		$	19,959		$	(9,166)	(46)	%	Production start-up	$	1,715		$	6,311		$	(4,596)	(73)	%	$	13,069		$	10,793		$	2,276	21	%
% of net sales	% of net sales	1.0		%	1.8		%					0.9		%	1.8		%					% of net sales	0.3		%	1.0		%					0.9		%	0.9		%

During the ~~three and~~ six months ended June 30, 2021 and 2020, we incurred production start-up expense primarily for the transition to Series 6 module manufacturing at our second facility in Kulim, ~~Malaysia~~Malaysia. which commenced commercial production in early 2021. During the three and six months ended June 30, 2020, we also incurred production start-up expense for 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, which commenced commercial production in early 2019.

~~Table of Contents~~

Litigation loss

The following table shows litigation loss for the three and six months ended June 30, ~~2020~~2021 and ~~2019:~~2020:


		Three Months Ended June 30,																Six Months Ended June 30,													Three Months Ended June 30,										Six Months Ended June 30,
(Dollars in thousands)	(Dollars in thousands)	2020			2019			Three Month Change							2020			2019		Six Month Change							(Dollars in thousands)		2021		2020		Three Month Change						2021		2020		Six Month Change
Litigation loss	Litigation loss	$	6,000		$	—		$	6,000	100	%	$	6,000		$	—		$	6,000	100	%	Litigation loss	$	—		$	6,000		$	(6,000)	(100)	%	$	—		$	6,000		$	(6,000)	(100)	%
% of net sales	% of net sales	0.9		%	—		%					0.5		%	—		%					% of net sales	—		%	0.9		%					—		%	0.5		%

In ~~June~~July 2020, we ~~entered into an~~executed a definitive 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 a separate class action lawsuit. Pursuant to 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.~~defendants. On July 30, 2020, First Solar funded the settlement, and on July 31, 2020, the parties filed a joint stipulation of dismissal.

On September 10, 2020, the Arizona District Court entered an order dismissing the case with prejudice. As of December 31, 2019, we 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.

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Gain on sales of businesses, net

The following table shows gain on sales of businesses, net for the three and six months ended June 30, 2021 and 2020:


	Three Months Ended June 30,										Six Months Ended June 30,
(Dollars in thousands)	2021			2020			Three Month Change				2021			2020			Six Month Change
Gain on sales of businesses, net	$	(1,745)		$	—		$	(1,745)	(100)	%	$	149,150		$	—		$	149,150	100	%
% of net sales	(0.3)		%	—		%					10.4		%	—		%

In August 2020, we entered into an agreement with a subsidiary of Clairvest for the sale of our North American O&M services business. On March 31, 2021, we completed the sale for a closing purchase price of $151.5 million, subject to certain customary post-closing adjustments, of which $146.0 million was received on March 31, 2021. As a result of this transaction, we recognized a gain of $119.2 million, net of transaction costs, during the three months ended March 31, 2021. During the three months ended June 30, 2021, we recorded certain post-closing adjustments that reduced the gain by $1.4 million.

In January 2021, we entered into an agreement with Leeward for the sale of our U.S. project development business. On March 31, 2021, we completed the transaction for an aggregate purchase price of $284.0 million, subject to certain customary post-closing adjustments. Such purchase price included $151.4 million for the sale of the U.S. project development business; $117.8 million for the sale of 349 MWDC of solar modules, which is presented in “Net sales” on our condensed consolidated statements of operations; and $14.8 million of advanced payments for 43 MWDC of solar modules not yet delivered, which is included in “Deferred revenue” on our condensed consolidated balance sheet as of June 30, 2021. Proceeds from the transaction were received in early April 2021. As a result of this transaction, we recognized a gain of $31.8 million, net of transaction costs, during the three months ended March 31, 2021. During the three months ended June 30, 2021, we recorded certain post-closing adjustments that reduced the gain by $0.3 million.

See Note ~~10. “Commitments and Contingencies”~~2. “Sales of Businesses” to our condensed consolidated financial statements for further information ~~about the Opt-Out Action.~~related to these transactions.

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

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

The following table shows foreign currency ~~(loss) income,~~loss, net for the three and six months ended June 30, ~~2020~~2021 and ~~2019:~~2020:


		Three Months Ended June 30,												Six Months Ended June 30,											Three Months Ended June 30,								Six Months Ended June 30,
(Dollars in thousands)	(Dollars in thousands)	2020		2019		Three Month Change						2020		2019		Six Month Change						(Dollars in thousands)	2021		2020		Three Month Change				2021		2020		Six Month Change
Foreign currency (loss) income, net		$	(1,299)	$	1,726	$	(3,025)	175	%	$	(1,697)	$	1,898	$	(3,595)	189	%
Foreign currency loss, net																		Foreign currency loss, net	$	(1,000)	$	(1,299)	$	299	(23)	%	$	(3,595)	$	(1,697)	$	(1,898)	112	%

Foreign currency loss, net for the three ~~and~~months ended June 30, 2021 was consistent with the three months ended June 30, 2020. Foreign currency loss, net for the six months ended June 30, 2021 increased compared to the six months ended June 30, 2020 ~~increased compared to the three and six months ended June 30, 2019~~ primarily due to differences between our economic hedge positions and the underlying exposures and higher costs associated with hedging activities related to our subsidiaries in ~~Europe and differences between our economic hedge positions and the underlying exposures.~~

Japan.

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Interest income

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

The following table shows interest income for the three and six months ended June 30, ~~2020~~2021 and ~~2019:~~2020:


		Three Months Ended June 30,												Six Months Ended June 30,											Three Months Ended June 30,								Six Months Ended June 30,
(Dollars in thousands)	(Dollars in thousands)	2020		2019		Three Month Change						2020		2019		Six Month Change						(Dollars in thousands)	2021		2020		Three Month Change				2021		2020		Six Month Change
Interest income	Interest income	$	3,674	$	13,510	$	(9,836)	(73)	%	$	13,004	$	27,769	$	(14,765)	(53)	%	Interest income	$	1,288	$	3,674	$	(2,386)	(65)	%	$	2,244	$	13,004	$	(10,760)	(83)	%

Interest income for the three and six months ended June 30, ~~2020~~2021 decreased compared to the three and six months ended June 30, ~~2019~~2020 primarily due to lower interest rates on cash and cash equivalents and time deposits and lower average balances and interest rates associated with ~~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 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 six months ended June 30, ~~2020~~2021 and ~~2019:~~2020:


		Three Months Ended June 30,												Six Months Ended June 30,											Three Months Ended June 30,								Six Months Ended June 30,
(Dollars in thousands)	(Dollars in thousands)	2020		2019		Three Month Change						2020		2019		Six Month Change						(Dollars in thousands)	2021		2020		Three Month Change				2021		2020		Six Month Change
Interest expense, net	Interest expense, net	$	(3,254)	$	(8,921)	$	5,667	(64)	%	$	(10,043)	$	(19,042)	$	8,999	(47)	%	Interest expense, net	$	(4,623)	$	(3,254)	$	(1,369)	42	%	$	(7,619)	$	(10,043)	$	2,424	(24)	%

Interest expense, net for the three ~~and six~~months ended June 30, 2021 increased compared to the three months ended June 30, 2020 ~~decreased compared to the three and six months ended June 30, 2019~~ primarily due to favorable changes in the fair value of interest rate swap contracts in the prior period compared to the current period, which dodid not qualify for hedge accounting, and higher amortization of debt discounts and issuance costs.

Interest expense, net for the six months ended June 30, 2021 decreased compared to the six months ended June 30, 2020 primarily due to lower interest expense associated with project debt ~~partially offset by a decrease~~and favorable changes in ~~capitalized interest.~~the fair value of interest rate swap contracts in the prior period compared to the current period, which did not qualify for hedge accounting.

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

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

The following table shows other ~~expense,~~(expense) income, net for the three and six months ended June 30, ~~2020~~2021 and ~~2019:~~2020:


		Three Months Ended June 30,												Six Months Ended June 30,											Three Months Ended June 30,								Six Months Ended June 30,
(Dollars in thousands)	(Dollars in thousands)	2020		2019		Three Month Change						2020		2019		Six Month Change						(Dollars in thousands)	2021		2020		Three Month Change				2021		2020		Six Month Change
Other expense, net		$	(3,195)	$	(4,438)	$	1,243	(28)	%	$	(5,417)	$	(929)	$	(4,488)	483	%
Other (expense) income, net																		Other (expense) income, net	$	(3,247)	$	(3,195)	$	(52)	(2)	%	$	5,201	$	(5,417)	$	10,618	196	%

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Other expense, net for the three months ended June 30, ~~2020~~2021 was consistent with the three months ended June 30, ~~2019.~~2021. Other ~~expense,~~income, net for the six months ended June 30, ~~2020~~2021 increased compared to the six months ended June 30, ~~2019~~2020, primarily due to expected credit losses associated with certain notes receivable in the prior period, partially offset by lower realized gains from sales of restricted marketable securities in the current period when compared to the prior ~~period charges associated with certain letter of credit 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.~~period.

Income tax (expense) benefit

Income tax expense or benefit, deferred tax assets and liabilities, and liabilities for unrecognized tax benefits reflect our best estimate of current and future taxes to be paid. We are subject to income taxes in both the United States and numerous foreign jurisdictions in which we operate, principally ~~Australia,~~ Japan, Malaysia, and ~~Malaysia.~~Vietnam. Significant judgments and estimates are required to determine our consolidated income tax expense. The statutory federal corporate income tax rate in the United States is 21%, and the tax rates in ~~Australia,~~ Japan, Malaysia, and ~~Malaysia~~Vietnam are ~~30%,~~ 30.6%, 24%, and ~~24%~~20%, respectively. In Malaysia, we have been granted a long-term tax holiday, scheduled to expire in 2027, pursuant to which substantially all of our income earned in Malaysia is exempt from income tax, conditional upon our continued compliance with certain employment and investment thresholds. In Vietnam, we have been granted a tax incentive, scheduled to expire at the end of 2025, pursuant to which income earned in Vietnam is subject to reduced tax rates.

The following table shows income tax (expense) benefit for the three and six months ended June 30, ~~2020~~2021 and ~~2019:~~2020:


		Three Months Ended June 30,																Six Months Ended June 30,												Three Months Ended June 30,										Six Months Ended June 30,
(Dollars in thousands)	(Dollars in thousands)	2020			2019			Three Month Change							2020			2019		Six Month Change						(Dollars in thousands)		2021		2020		Three Month Change						2021		2020		Six Month Change
Income tax (expense) benefit	Income tax (expense) benefit	$	(10,214)		$	(11,744)		$	1,530	(13)	%	$	79,001		$	(10,350)		$	89,351	>100%	Income tax (expense) benefit	$	(20,346)		$	(10,214)		$	(10,132)	99	%	$	(66,836)		$	79,001		$	(145,837)	185	%
Effective tax rate	Effective tax rate	21.8		%	(175.1)		%					(163.2)		%	(13.7)		%				Effective tax rate	19.8		%	21.8		%					18.6		%	(163.2)		%

Our tax rate is affected by recurring items, such as tax rates in foreign jurisdictions and the relative amounts of income we earn in those jurisdictions. The rate is also affected by discrete items that may occur in any given period, but are not consistent from period to period. Income tax expense ~~decreased~~increased by ~~$1.5~~$10.1 million during the three months ended June 30, ~~2020~~2021 compared to the three months ended June 30, ~~2019~~2020 primarily due to ~~lower discrete tax expenses associated with filing a return in a foreign jurisdiction, partially offset by~~ higher pretax ~~income.~~income in the current period. Income tax ~~benefit~~expense increased by ~~$89.4~~$145.8 million during the six months ended June 30, ~~2020~~2021 compared to the six months ended June 30, ~~2019~~2020 primarily due to a ~~$90.7 million~~ discrete tax benefit in the prior year from the effect of tax law changes associated with the CARES ~~Act.~~Act and higher pretax income in the current period.

~~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 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
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 June 30, 2020 was consistent with the three and six months ended June 30, 2019.~~

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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 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, ~~2019.~~2020. There have been no material changes to our accounting policies during the six months ended June 30, 2020 with the exception of certain changes to our allowance for credit losses accounting policies as part of the adoption of ASU 2016-13 as described in Note 2. “Recent Accounting Pronouncements” to our condensed consolidated financial statements.2021.

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Recent Accounting Pronouncements

~~See Note 2. “Recent Accounting Pronouncements” to our condensed consolidated financial statements for a summary of recent accounting pronouncements.~~None.

Liquidity and Capital Resources

As of June 30, ~~2020,~~2021, 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 will be sufficient to meet our working capital, capital expenditure, and 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, such as systems project development activities in 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 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 and/or restrictive covenants, which could limit our ability to pursue our strategic plans.

As of June 30, ~~2020,~~2021, we had ~~$1.5~~$1.8 billion ofin cash, cash equivalents, and marketable securities compared to ~~$2.2~~$1.7 billion as of December 31, ~~2019.~~2020. The ~~decrease~~increase in cash, cash equivalents, and marketable securities was primarily driven by cash proceeds from the ~~$350 million settlement payment associated with~~sale of our ~~prior class action lawsuit;~~North American O&M operations and U.S. project development business and cash receipts from module sales to customers; partially offset by purchases of property, plant and equipment; expenditures for the ~~timing~~construction 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;~~projects; and other operating ~~expenditures; partially offset by cash proceeds from the sale and construction of systems projects.~~expenditures. As of June 30, ~~2020, $0.7~~2021, $0.8 billion of our cash, cash equivalents, and marketable securities was held by our foreign subsidiaries and was primarily based in U.S. dollar, Japanese yen, and Indian rupee denominated holdings.

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

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

We continually evaluate forecasted global demand and seek to balance our manufacturing capacity with such demand. We recently announced our plans to invest approximately $1.4 billion to expand our solar manufacturing capacity by 6.6 GWDC by constructing our third U.S. manufacturing facility in Lake Township, Ohio, contingent upon obtaining certain permits, and our first manufacturing facility in India, contingent upon permitting and pending approval of Indian government incentives that are satisfactory to us. These new facilities are expected to commence operations in the first half of 2023 and the second half of 2023, respectively. In addition, we continue to increase the nameplate production capacity of our existing manufacturing facilities by improving our production throughput, increasing module wattage (or conversion efficiency), and improving manufacturing yield losses. During 2021, we expect to spend $825 million to $875 million for capital expenditures, including the new facilities mentioned above and upgrades to machinery and equipment that we believe will further increase our module wattage and expand capacity and throughput at our manufacturing facilities.

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We also expect to commit significant working capital to purchase various raw materials used in our module manufacturing process. Our failure to obtain raw materials and components that meet our quality, quantity, and cost requirements in a timely manner could interrupt or impair our ability to manufacture our solar modules or increase our manufacturing costs. Accordingly, we may enter into long-term supply agreements to mitigate potential risks related to the procurement of key raw materials and components, and such agreements may be noncancelable or cancelable with a significant penalty. For example, we have entered into long-term supply agreements for the purchase of certain specified minimum volumes of substrate glass and cover glass for our PV solar modules. Our remaining purchases under these supply agreements are expected to be approximately $1.7 billion of substrate glass and approximately $390 million of cover glass. We have the right to terminate these agreements upon payment of specified termination penalties (which, in aggregate, are up to $353 million as of June 30, 2021 and decline over the remaining supply periods).

Our systems business ~~requires significant liquidity and~~ is expected to continue to have significant liquidity requirements in the future. From time to time, 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, the majority of which support our systems projects. The net amount of our project assets and related ~~portion~~portions of deferred revenue and long-term debt, which approximates our net capital investment in the development and construction of systems projects, was ~~$375.5~~$196.1 million as of June 30, ~~2020.~~2021. Solar power project development cycles, which span the time between the identification of a site location and the commercial operation of a system, vary substantially and can take many years to mature. As a result of these long project cycles and strategic decisions to finance the development of certain projects using our working capital, we may need to make significant up-front investments of resources in advance of the receipt of any cash from the sale of such projects. Delays in construction or in completing the sale of our systems projects that we are self-financing may also impact our liquidity. In certain circumstances, we may need to finance construction costs exclusively using working capital, if project financing becomes unavailable due to market-wide, regional, ~~market-wide,~~ or other concerns.

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

Additionally, we may elect to retain an ownership interest in certain systems projects after they become operational if we determine it would be of economic and strategic benefit to do so. If, for example, we cannot sell a system at economics that are attractive to us or potential customers are unwilling to assume the risks and rewards typical of system ownership, we may instead elect to temporarily own and operate such system until we can sell it on more economically attractive terms. The decision to retain ownership of a system impacts our liquidity depending upon the size and cost of the project. As of June 30, ~~2020,~~2021, we had ~~$465.5~~$233.4 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~~regard to such systems.

~~The following additional considerations have impacted or may impact our liquidity for 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.~~

•Our failure to obtain raw materials and components that meet our quality, quantity, and cost requirements in a timely manner could interrupt or impair our ability to manufacture our solar modules or increase our manufacturing costs. Accordingly, we may enter into long-term supply agreements to mitigate potential risks related to the procurement of key raw materials and components, and such agreements may be noncancelable or cancelable with a significant penalty. For example, we have entered into long-term supply agreements for the purchase of certain specified minimum volumes of substrate glass and cover glass for our PV solar modules. Our 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 $409.5 million as of June 30, 2020. As we continue to develop our advanced-stage project pipeline, we must produce solar modules in volumes sufficient to support our planned construction schedules. As part of this development and construction cycle, we typically produce 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 have commenced construction in 2020, which may be achieved by certain qualifying procurement activities, to receive a 26% investment tax credit. The credit will step down to 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, 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 key cash flow activity for the six months ended June 30, ~~2020~~2021 and ~~2019~~2020 (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)


	Six Months Ended June 30,
	2021		2020
Net cash used in operating activities	$	(102,229)	$	(357,095)
Net cash provided by investing activities	470,088		81,287
Net cash used in financing activities	(9,090)		(22,669)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	906		(222)
Net increase (decrease) in cash, cash equivalents and restricted cash	$	359,675	$	(298,699)

Operating Activities

The ~~increase~~decrease 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~~in 2020 and the timing of cash receipts from certain third-party module sales in the prior period, for which proceeds were received in late 2019 prior to the step down in the U.S. investment tax ~~credit. Such increases were~~credit, partially offset by ~~higher~~lower cash proceeds from the ~~sale and construction~~sales of systems projects ~~and lower operating expenditures associated with our transition to Series 6 module manufacturing.~~in the current period.

Investing Activities

The increase in net cash provided by investing activities was primarily due to ~~lower purchases~~proceeds from the sale of ~~property, plant~~our North American O&M operations and ~~equipment.~~U.S. project development business.

Financing Activities

The decrease in net cash ~~provided by~~used in financing activities was primarily due to ~~higher net~~proceeds from borrowings under ~~project specific debt financings in 2019 associated with~~the Japan Credit Facility and Ikeda Credit Facility for the construction of certain projects in Japan, ~~and Australia.~~partially offset by the repayment of the Tochigi Credit Facility.

Contractual Obligations

~~There have been no material changes in our~~Our contractual obligations ~~outside~~have not materially changed since December 31, 2020 with the exception of borrowings under project specific debt financings and other changes in the ordinary course of ~~business since December 31, 2019.~~business. See Note 9. “Debt” to our condensed consolidated financial statements for more information related to the changes in our long-term debt. See also our Annual Report on Form 10-K for the year ended December 31, ~~2019~~2020 for additional information regarding our contractual obligations.

Off-Balance Sheet Arrangements

As of June 30, ~~2020,~~2021, 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, ~~2019.~~2020.

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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 June 30, ~~2020~~2021 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 June 30, ~~2020~~2021 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 June 30, ~~2020~~2021 despite the fact that many of our associates ~~are working~~continue to work remotely due to the COVID-19 pandemic. We continue to monitor and assess the COVID-19 situation on our internal controls to minimize potential impacts on their design and operating effectiveness.

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~~

Item 5. Other Information

On July 22, 2021, the Board established the position of Lead Independent Director and adopted a Lead Independent Director Charter setting forth the duties and responsibilities of the position. The Lead Independent Director’s primary duties and responsibilities include (i) presiding at executive sessions of the Board, (ii) calling meetings of the independent directors of the Board, (iii) approving Board agendas, and (iv) serving as a liaison between the Company’s stockholders and the Board and between the independent directors and management. Molly E. Joseph was selected unanimously by the independent directors of the Board to serve as the Company’s first Lead Independent Director. Ms. Joseph will continue to serve as a member of the Board’s audit committee and nominating and governance committee. This disclosure is not required pursuant to Item 5(a) of Form 10-Q.

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, ~~2019,~~2020, which could materially affect our business, financial condition, results of operations, or cash flows. The risks described in our Annual Report on Form 10-K are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently consider immaterial may also materially adversely affect our business, financial condition, results of operations, or cash flows. Except for the risk ~~factors~~factor set forth below, there have been no material changes in the risk factors contained in our Annual Report on Form 10-K.

~~COVID-19~~Our Amended and ~~other public health crises~~Restated Bylaws designate a state or federal court located within the State of Delaware as the exclusive forum for substantially all disputes between us and our stockholders, and the federal district courts of the United States as the exclusive forum for the resolution of any complaint asserting a cause of action under the Securities Act of 1933, which could ~~materially impact~~limit our ~~business, financial condition, and results of operations.~~stockholders’ ability to choose the judicial forum for disputes with us or our directors, officers, employees, agents or stockholders.

~~The COVID-19 pandemic has continued~~Our Amended and Restated Bylaws (“Bylaws”) provide that, unless we consent in writing to ~~have~~the selection of an ~~unprecedented impact~~alternative forum, the Court of Chancery of the State of Delaware (or, if the Court of Chancery of the State of Delaware lacks subject matter jurisdiction, the federal district court for the District of Delaware) is the sole and exclusive forum for (i) any derivative action or proceeding brought on our behalf, (ii) any action or proceeding asserting a claim of breach of a fiduciary duty owed by any of our directors, officers, other employees, agents or stockholders to us or our stockholders, (iii) any action or proceeding against us or any of our directors, officers, other employees, agents or stockholders arising pursuant to any provision of the Delaware General Corporation Law (“DGCL”), our Amended and Restated Certificate of Incorporation or our Bylaws, (iv) any action or proceeding against us or any of our directors, officers or other employees asserting a claim that is governed by the internal affairs doctrine, or (v) any action or proceeding asserting an “internal corporate claim,” as defined in the DGCL. Our Bylaws also provide that, unless we consent in writing to the selection of an alternative forum, the federal district courts of the United States ~~Malaysia, and other countries throughout~~are the ~~world, including those~~exclusive forum for resolving any complaint asserting a cause of action under the Securities Act. Nothing in ~~which we do business or have operations. Although as of~~our Bylaws precludes stockholders that assert claims under 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~~Exchange Act from bringing such claims in ~~the future. The extent~~any court, subject 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.applicable law.

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~~Any person or entity holding, owning or otherwise acquiring any interest 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~~any of our ~~PV solar power systems,~~securities shall be deemed to have notice of and ~~otherwise keep pace~~consented to these provisions. These exclusive forum provisions may limit a stockholder’s ability to bring a claim in a judicial forum of its choosing for disputes with 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 effortsus or our ~~ability~~directors, officers, other employees, agents or stockholders, which may discourage lawsuits against us and our directors, officers, other employees, agents or stockholders. The enforceability of similar choice of forum provisions in other companies’ governing documents has been challenged in legal proceedings, and it is possible that a court could find these types of provisions to ~~timely advance~~be inapplicable or ~~commercialize these efforts; and~~

•~~In response to~~unenforceable. For example, in December 2018, the ~~COVID-19 pandemic, the vast majority~~Court 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 becauseChancery of the ~~unprecedented number~~State of ~~associates continuously using these tools. Recently, there have been reports of~~Delaware determined that 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~~provision stating that federal district courts of the ~~COVID-19 pandemic does~~United States are the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act is not ~~abate and related containment measures are not lifted, are eased more slowly than anticipated,~~enforceable. Although this decision was reversed by the Delaware Supreme Court in March 2020, courts in other states may still find these provisions to be inapplicable or ~~are reinstituted, many of~~unenforceable. If a court were to find the exclusive forum provisions in our Bylaws to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving the dispute in other ~~risks described in Item 1A. “Risk Factors” of~~jurisdictions, which could adversely affect 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, 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 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. 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% 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 was an exclusion for bifacial solar modules that was issued on June 13, 2019. In a notice published on October 9, 2019, the USTR announced that it 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 has reviewed developments regarding the relevant domestic industry (including its efforts to adjust to import competition), and it provided a report to the U.S. President in February 2020. 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.~~

The United States has also imposed import tariffs in connection with other proceedings during 2018, 2019, and 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 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 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 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 to 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 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.~~

Item 6. Exhibits

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


Exhibit Number						Exhibit Description
3.1						~~31.01~~Amended and Restated Certificate of Incorporation of First Solar, Inc. (incorporated by reference to Exhibit 3.1 to First Solar, Inc.’s Registration Statement on Form S-1 filed on October 25, 2006)
3.2						Amended and Restated Bylaws of First Solar, Inc. (incorporated by reference to Exhibit 3.1 to First Solar, Inc.’s Form 8-K filed on July 23, 2021)
10.1*						Form of Grant Notice for 2021-2023 Executive Performance Equity Plan
31.1*						Certification of Chief Executive Officer pursuant to 15 U.S.C. Section 7241, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
~~31.02~~31.2*						Certification of Chief Financial Officer pursuant to 15 U.S.C. Section 7241, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.01*32.1†						Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS						XBRL Instance Document – the instance document does not appear in the Interactive Data file because its XBRL tags are embedded within the Inline XBRL document
101.SCH						XBRL Taxonomy Extension Schema Document
101.CAL						XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF						XBRL Taxonomy Extension Definition Linkbase Document
101.LAB						XBRL Taxonomy Label Linkbase Document
101.PRE						XBRL Taxonomy Extension Presentation Linkbase Document
104						Cover page formatted as Inline XBRL and contained in Exhibit 101

——————————

* Filed herewith.

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

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SIGNATURE

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

FIRST SOLAR, INC.

Date: ~~August 6, 2020~~July 29, 2021

By:

/s/ BYRON JEFFERS

Name:

Byron Jeffers

Title:

Chief Accounting Officer

6860


	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


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