Item 1. Condensed Consolidated Financial Statements (Unaudited)

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Item 1. Condensed Consolidated Financial Statements (Unaudited)

FIRST SOLAR, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(Unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Net sales	$	628,933	$	583,504	$	1,616,928	$	2,016,058
Cost of sales	607,951		458,924		1,607,683		1,532,593
Gross profit	20,982		124,580		9,245		483,465
Operating expenses:
Selling, general and administrative	46,368		43,476		121,990		131,909
Research and development	29,183		25,426		81,520		69,234
Production start-up	19,768		2,945		40,337		16,014
Total operating expenses	95,319		71,847		243,847		217,157
Gain on sales of businesses, net	5,984		(1,866)		253,272		147,284
Operating (loss) income	(68,353)		50,867		18,670		413,592
Foreign currency loss, net	(4,859)		(1,018)		(12,041)		(4,613)
Interest income	9,749		1,752		14,954		3,996
Interest expense, net	(2,991)		(2,958)		(9,092)		(10,577)
Other income (expense), net	4,774		(2,603)		2,679		2,598
(Loss) income before taxes	(61,680)		46,040		15,170		404,996
Income tax benefit (expense)	12,512		(837)		(51,788)		(67,673)
Net (loss) income	$	(49,168)	$	45,203	$	(36,618)	$	337,323

Net (loss) income per share:
Basic	$	(0.46)	$	0.43	$	(0.34)	$	3.18
Diluted	$	(0.46)	$	0.42	$	(0.34)	$	3.16
Weighted-average number of shares used in per share calculations:
Basic	106,596		106,320		106,532		106,241
Diluted	106,596		106,899		106,532		106,879

See accompanying notes to these condensed consolidated financial statements.

FIRST SOLAR, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Net (loss) income	$	(49,168)	$	45,203	$	(36,618)	$	337,323
Other comprehensive loss:
Foreign currency translation adjustments	(12,403)		(1,915)		(40,698)		(11,341)
Unrealized loss on marketable securities and restricted marketable securities, net of tax of $697, $47, $2,624 and $1,134	(13,884)		(3,486)		(53,372)		(19,961)
Unrealized (loss) gain on derivative instruments, net of tax of $905, $153, $2,540 and $(545)	(3,333)		118		(9,418)		4,284
Other comprehensive loss	(29,620)		(5,283)		(103,488)		(27,018)
Comprehensive (loss) income	$	(78,788)	$	39,920	$	(140,106)	$	310,305

See accompanying notes to these condensed consolidated financial statements.

FIRST SOLAR, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

(Unaudited)


	September 30, 2022		December 31, 2021
ASSETS
Current assets:
Cash and cash equivalents	$	1,150,982	$	1,450,654
Marketable securities	776,213		375,389
Accounts receivable trade, net	325,421		429,436
Accounts receivable unbilled, net	35,149		25,273
Inventories	810,660		666,299
Other current assets	240,325		244,192
Total current assets	3,338,750		3,191,243
Property, plant and equipment, net	3,124,079		2,649,587
PV solar power systems, net	153,915		217,293
Project assets	27,827		315,488
Deferred tax assets, net	64,101		59,162
Restricted marketable securities	182,208		244,726
Goodwill	14,462		14,462
Intangible assets, net	36,631		45,509
Inventories	239,644		237,512
Other assets	311,200		438,764
Total assets	$	7,492,817	$	7,413,746
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	188,280	$	193,374
Income taxes payable	25,771		4,543
Accrued expenses	333,140		288,450
Current portion of long-term debt	5,435		3,896
Deferred revenue	235,293		201,868
Other current liabilities	28,349		34,747
Total current liabilities	816,268		726,878
Accrued solar module collection and recycling liability	120,173		139,145
Long-term debt	254,224		236,005
Other liabilities	473,815		352,167
Total liabilities	1,664,480		1,454,195
Commitments and contingencies
Stockholders’ equity:
Common stock, $0.001 par value per share; 500,000,000 shares authorized; 106,605,913 and 106,332,315 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively	107		106
Additional paid-in capital	2,880,243		2,871,352
Accumulated earnings	3,147,837		3,184,455
Accumulated other comprehensive loss	(199,850)		(96,362)
Total stockholders’ equity	5,828,337		5,959,551
Total liabilities and stockholders’ equity	$	7,492,817	$	7,413,746

See accompanying notes to these condensed consolidated financial statements.

FIRST SOLAR, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands)

(Unaudited)


	Three Months Ended September 30, 2022
	Common Stock			Additional Paid-In Capital		Accumulated Earnings		Accumulated Other Comprehensive Loss		Total Stockholders' Equity
	Shares	Amount
Balance at June 30, 2022	106,594	$	107	$	2,868,945	$	3,197,005	$	(170,230)	$	5,895,827
Net loss	—	—		—		(49,168)		—		(49,168)
Other comprehensive loss	—	—		—		—		(29,620)		(29,620)
Common stock issued for share-based compensation	15	—		—		—		—		—
Tax withholding related to vesting of restricted stock	(3)	—		(457)		—		—		(457)
Share-based compensation expense	—	—		11,755		—		—		11,755
Balance at September 30, 2022	106,606	$	107	$	2,880,243	$	3,147,837	$	(199,850)	$	5,828,337

	Three Months Ended September 30, 2021
	Common Stock			Additional Paid-In Capital		Accumulated Earnings		Accumulated Other Comprehensive Loss		Total Stockholders' Equity
	Shares	Amount
Balance at June 30, 2021	106,319	$	106	$	2,859,108	$	3,007,882	$	(83,461)	$	5,783,635
Net income	—	—		—		45,203		—		45,203
Other comprehensive loss	—	—		—		—		(5,283)		(5,283)
Common stock issued for share-based compensation	8	—		—		—		—		—
Tax withholding related to vesting of restricted stock	(1)	—		(67)		—		—		(67)
Share-based compensation expense	—	—		6,587		—		—		6,587
Balance at September 30, 2021	106,326	$	106	$	2,865,628	$	3,053,085	$	(88,744)	$	5,830,075

See accompanying notes to these condensed consolidated financial statements.

FIRST SOLAR, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands)

(Unaudited)


	Nine Months Ended September 30, 2022
	Common Stock			Additional Paid-In Capital		Accumulated Earnings		Accumulated Other Comprehensive Loss		Total Stockholders' Equity
	Shares	Amount
Balance at December 31, 2021	106,332	$	106	$	2,871,352	$	3,184,455	$	(96,362)	$	5,959,551
Net loss	—	—		—		(36,618)		—		(36,618)
Other comprehensive loss	—	—		—		—		(103,488)		(103,488)
Common stock issued for share-based compensation	441	1		—		—		—		1
Tax withholding related to vesting of restricted stock	(167)	—		(12,048)		—		—		(12,048)
Share-based compensation expense	—	—		20,939		—		—		20,939
Balance at September 30, 2022	106,606	$	107	$	2,880,243	$	3,147,837	$	(199,850)	$	5,828,337

	Nine Months Ended September 30, 2021
	Common Stock			Additional Paid-In Capital		Accumulated Earnings		Accumulated Other Comprehensive Loss		Total Stockholders' Equity
	Shares	Amount
Balance at December 31, 2020	105,980	$	106	$	2,866,786	$	2,715,762	$	(61,726)	$	5,520,928
Net income	—	—		—		337,323		—		337,323
Other comprehensive loss	—	—		—		—		(27,018)		(27,018)
Common stock issued for share-based compensation	554	—		—		—		—		—
Tax withholding related to vesting of restricted stock	(208)	—		(15,877)		—		—		(15,877)
Share-based compensation expense	—	—		14,719		—		—		14,719
Balance at September 30, 2021	106,326	$	106	$	2,865,628	$	3,053,085	$	(88,744)	$	5,830,075

See accompanying notes to these condensed consolidated financial statements.

FIRST SOLAR, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


	Nine Months Ended September 30,
	2022		2021
Cash flows from operating activities:
Net (loss) income	$	(36,618)	$	337,323
Adjustments to reconcile net (loss) income to cash provided by operating activities:
Depreciation, amortization and accretion	199,183		194,606
Impairments and net losses on disposal of long-lived assets	62,793		9,083
Share-based compensation	21,121		14,974
Deferred income taxes	(4,600)		(13,450)
Gain on sales of businesses, net	(253,272)		(147,284)
Gains on sales of marketable securities and restricted marketable securities	—		(11,696)

Other, net	(6,998)		(2,909)
Changes in operating assets and liabilities:
Accounts receivable, trade and unbilled	177,020		79,565
Other current assets	(28,615)		(52,275)
Inventories	(161,725)		(116,017)
Project assets and PV solar power systems	(160,300)		11,945
Other assets	(22,936)		(39,264)
Income tax receivable and payable	40,902		22,615
Accounts payable	(15,057)		879
Accrued expenses and other liabilities	282,398		(95,685)
Accrued solar module collection and recycling liability	(15,142)		10,682
Net cash provided by operating activities	78,154		203,092
Cash flows from investing activities:
Purchases of property, plant and equipment	(576,704)		(345,399)
Purchases of marketable securities and restricted marketable securities	(2,278,125)		(1,107,704)
Proceeds from sales and maturities of marketable securities and restricted marketable securities	1,870,973		1,075,768
Proceeds from sales of businesses, net of cash and restricted cash sold	363,898		300,499
Other investing activities	(2,561)		(6,453)
Net cash used in investing activities	(622,519)		(83,289)
Cash flows from financing activities:
Repayment of long-term debt	(75,896)		(38,471)
Proceeds from borrowings under long-term debt, net of discounts and issuance costs	297,405		45,138
Payments of tax withholdings for restricted shares	(12,048)		(15,877)

Net cash provided by (used in) financing activities	209,461		(9,210)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	39,866		1,687
Net (decrease) increase in cash, cash equivalents and restricted cash	(295,038)		112,280
Cash, cash equivalents and restricted cash, beginning of the period	1,455,837		1,273,594
Cash, cash equivalents and restricted cash, end of the period	$	1,160,799	$	1,385,874
Supplemental disclosure of noncash investing and financing activities:
Property, plant and equipment acquisitions funded by liabilities	$	163,147	$	50,415
Proceeds to be received from sales of businesses	$	72,689	$	—

See accompanying notes to these condensed consolidated financial statements.

FIRST SOLAR, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Basis of Presentation

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

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Despite our intention to establish accurate estimates and reasonable assumptions, actual results could differ materially from such estimates and assumptions. Operating results for the three and nine months ended September 30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022 or for any other period. The condensed consolidated balance sheet at December 31, 2021 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, 2021 included in our Annual Report on Form 10-K, which has been filed with the SEC.

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

2. Sales of Businesses

Sale of Japan Project Development Business

In May 2022, we entered into various agreements with certain subsidiaries of PAG Real Assets (“PAG”), a private investment firm, for the sale of our Japan project development business. The transaction included our approximately 293 MWDC utility-scale solar project development platform, which comprised the business of developing, contracting for the construction of, and selling utility-scale photovoltaic (“PV”) solar power systems. Additionally, PAG agreed to certain module purchase commitments.

In June 2022, we completed the sale of our Japan project development business for an aggregate purchase price of ¥66.4 billion ($488.4 million), subject to certain customary post-closing adjustments. During the nine months ended September 30, 2022, we received proceeds of ¥56.8 billion ($419.2 million) and transferred cash and restricted cash of ¥8.4 billion ($61.9 million) to PAG. As a result of this transaction, we recognized a gain of $245.2 million, net of transaction costs, during the nine months ended September 30, 2022, which was included in “Gain on sales of businesses, net” in our condensed consolidated statements of operations.

Sales of North American and International O&M Operations

In August 2020, we entered into an agreement with a subsidiary of Clairvest Group, Inc. (“Clairvest”) for the sale of our North American operations and maintenance (“O&M”) operations. In March 2021, we completed the transaction and, following certain customary post-closing adjustments, received total consideration of $149.1 million. As a result of this transaction, we recognized a gain of $115.8 million, net of transaction costs and post-closing adjustments, during the nine months ended September 30, 2021, which was included in “Gain on sales of businesses, net” in our condensed consolidated statements of operations.

In January 2022, we completed the sale of our Chilean O&M operations to a separate subsidiary of Clairvest for consideration of $1.9 million. As a result of this transaction, we recognized a gain of $1.6 million, net of transaction costs and post-closing adjustments, during the nine months ended September 30, 2022, which was included in “Gain on sales of businesses, net” in our condensed consolidated statements of operations.

In September 2022, we completed the sale of our Australian O&M operations to a separate subsidiary of Clairvest for consideration of $6.6 million, subject to certain customary post-closing adjustments. Proceeds from the transaction were received in early October 2022. As a result of this transaction, we recognized a gain of $5.1 million, net of transaction costs, during the three months ended September 30, 2022, which was included in “Gain on sales of businesses, net” in our condensed consolidated statements of operations.

In September 2022, we also completed the sale of our Japanese O&M operations to a subsidiary of PAG for consideration of ¥660.0 million ($4.6 million), subject to certain customary post-closing adjustments. As a result of this transaction, we recognized a gain of $1.2 million, net of transaction costs, during the three months ended September 30, 2022, which was included in “Gain on sales of businesses, net” in our condensed consolidated statements of operations.

Sale of U.S. Project Development 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. In March 2021, we completed the transaction and received consideration of $151.4 million for the sale of such business. As a result of this transaction, we recognized a gain of $31.5 million, net of transaction costs, during the nine months ended September 30, 2021, which was included in “Gain on sales of businesses, net” in our condensed consolidated statements of operations.

3. Cash, Cash Equivalents, and Marketable Securities

Cash, cash equivalents, and marketable securities consisted of the following at September 30, 2022 and December 31, 2021 (in thousands):


	September 30, 2022		December 31, 2021
Cash and cash equivalents:
Cash	$	1,150,787	$	1,450,654
Money market funds	195		—
Total cash and cash equivalents	1,150,982		1,450,654
Marketable securities:
Foreign debt	62,880		103,317
U.S. debt	56,406		18,627
Time deposits	656,927		253,445
Total marketable securities	776,213		375,389
Total cash, cash equivalents, and marketable securities	$	1,927,195	$	1,826,043

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within our condensed consolidated balance sheets as of September 30, 2022 and December 31, 2021 to the total of such amounts as presented in the condensed consolidated statements of cash flows (in thousands):


	Balance Sheet Line Item	September 30, 2022		December 31, 2021
Cash and cash equivalents	Cash and cash equivalents	$	1,150,982	$	1,450,654
Restricted cash – current	Other current assets	989		1,532
Restricted cash – noncurrent	Other assets	8,828		3,651
Total cash, cash equivalents, and restricted cash		$	1,160,799	$	1,455,837

During the nine months ended September 30, 2021, we sold marketable securities for proceeds of $5.5 million and realized gains of less than $0.1 million on such sales. See Note 8. “Fair Value Measurements” to our condensed consolidated financial statements for information about the fair value of our marketable securities.

The following tables summarize the unrealized gains and losses related to our available-for-sale marketable securities, by major security type, as of September 30, 2022 and December 31, 2021 (in thousands):


	As of September 30, 2022
	Amortized Cost		Unrealized Gains		Unrealized Losses		Allowance for Credit Losses		Fair Value
Foreign debt	$	62,932	$	22	$	64	$	10	$	62,880
U.S. debt	58,247		—		1,824		17		56,406
Time deposits	657,162		—		—		235		656,927
Total	$	778,341	$	22	$	1,888	$	262	$	776,213


	As of December 31, 2021
	Amortized Cost		Unrealized Gains		Unrealized Losses		Allowance for Credit Losses		Fair Value
Foreign debt	$	103,263	$	81	$	18	$	9	$	103,317
U.S. debt	19,003		10		384		2		18,627
Time deposits	253,531		—		—		86		253,445
Total	$	375,797	$	91	$	402	$	97	$	375,389

The following table presents the change in the allowance for credit losses related to our available-for-sale marketable securities for the nine months ended September 30, 2022 and 2021 (in thousands):


	Nine Months Ended September 30,
	2022		2021
Allowance for credit losses, beginning of period	$	97	$	121
Provision for credit losses, net	311		329
Sales and maturities of marketable securities	(146)		(317)
Allowance for credit losses, end of period	$	262	$	133

The contractual maturities of our marketable securities as of September 30, 2022 were as follows (in thousands):


	Fair Value
One year or less	$	662,925
One year to two years	73,153
Two years to three years	31,873
Three years to four years	4,384
Four years to five years	—
More than five years	3,878
Total	$	776,213

4. Restricted Marketable Securities

Restricted marketable securities consisted of the following as of September 30, 2022 and December 31, 2021 (in thousands):


	September 30, 2022		December 31, 2021
Foreign government obligations	$	45,448	$	64,855
Supranational debt	8,625		10,997
U.S. debt	110,859		145,326
U.S. government obligations	17,276		23,548
Total restricted marketable securities	$	182,208	$	244,726

Our restricted marketable securities represent long-term investments to fund the estimated future cost of collecting and recycling modules covered under our solar module collection and recycling program. We have established a trust under which estimated funds are put into custodial accounts with an established and reputable bank, for which First Solar, Inc.; First Solar Malaysia Sdn. Bhd.; and First Solar Manufacturing GmbH are grantors. As of September 30, 2022 and December 31, 2021, such custodial accounts also included noncurrent restricted cash balances of $6.3 million and $0.9 million, respectively, which were reported within “Other assets.” Trust funds may be disbursed for qualified module collection and recycling costs (including capital and facility related recycling costs), payments to customers for assuming collection and recycling obligations, and reimbursements of any overfunded amounts. Investments in the trust must meet certain investment quality criteria comparable to highly rated government or agency bonds. As necessary, we fund any incremental amounts for our estimated collection and recycling obligations on an annual basis based on the estimated costs of collecting and recycling covered modules, estimated rates of return on our restricted marketable securities, and an estimated solar module life of 25 years, less amounts already funded in prior years.

During the nine months ended September 30, 2021, we sold all our restricted marketable securities for proceeds of $258.9 million and realized gains of $11.7 million on such sales, and repurchased $255.6 million of restricted marketable securities as part of our ongoing management of the custodial accounts. See Note 8. “Fair Value Measurements” to our condensed consolidated financial statements for information about the fair value of our restricted marketable securities.

The following tables summarize the unrealized gains and losses related to our restricted marketable securities, by major security type, as of September 30, 2022 and December 31, 2021 (in thousands):


	As of September 30, 2022
	Amortized Cost		Unrealized Gains		Unrealized Losses		Allowance for Credit Losses		Fair Value
Foreign government obligations	$	60,333	$	—	$	14,875	$	10	$	45,448
Supranational debt	11,201		—		2,576		—		8,625
U.S. debt	148,733		—		37,846		28		110,859
U.S. government obligations	24,574		—		7,294		4		17,276
Total	$	244,841	$	—	$	62,591	$	42	$	182,208


	As of December 31, 2021
	Amortized Cost		Unrealized Gains		Unrealized Losses		Allowance for Credit Losses		Fair Value
Foreign government obligations	$	66,867	$	—	$	2,002	$	10	$	64,855
Supranational debt	11,362		—		365		—		10,997
U.S. debt	150,060		—		4,697		37		145,326
U.S. government obligations	24,640		—		1,086		6		23,548
Total	$	252,929	$	—	$	8,150	$	53	$	244,726

The following table presents the change in the allowance for credit losses related to our restricted marketable securities for the nine months ended September 30, 2022 and 2021 (in thousands):


	Nine Months Ended September 30,
	2022		2021
Allowance for credit losses, beginning of period	$	53	$	13
Provision for credit losses, net	(11)		69
Sales of restricted marketable securities	—		(29)
Allowance for credit losses, end of period	$	42	$	53

As of September 30, 2022, the contractual maturities of our restricted marketable securities were between 8 years and 17 years.

5. Consolidated Balance Sheet Details

Accounts receivable trade, net

Accounts receivable trade, net consisted of the following at September 30, 2022 and December 31, 2021 (in thousands):


	September 30, 2022		December 31, 2021
Accounts receivable trade, gross	$	325,991	$	430,100
Allowance for credit losses	(570)		(664)
Accounts receivable trade, net	$	325,421	$	429,436

Accounts receivable unbilled, net

Accounts receivable unbilled, net consisted of the following at September 30, 2022 and December 31, 2021 (in thousands):


	September 30, 2022		December 31, 2021
Accounts receivable unbilled, gross	$	35,149	$	25,336
Allowance for credit losses	—		(63)
Accounts receivable unbilled, net	$	35,149	$	25,273

Allowance for credit losses

The following tables present the change in the allowances for credit losses related to our accounts receivable for the nine months ended September 30, 2022 and 2021 (in thousands):


	Nine Months Ended September 30,
Accounts receivable trade	2022		2021
Allowance for credit losses, beginning of period	$	664	$	3,009
Provision for credit losses, net	81		(1,458)
Writeoffs	(175)		(121)
Allowance for credit losses, end of period	$	570	$	1,430


	Nine Months Ended September 30,
Accounts receivable unbilled	2022		2021
Allowance for credit losses, beginning of period	$	63	$	303
Provision for credit losses, net	(63)		(252)

Allowance for credit losses, end of period	$	—	$	51

Inventories

Inventories consisted of the following at September 30, 2022 and December 31, 2021 (in thousands):


	September 30, 2022		December 31, 2021
Raw materials	$	382,552	$	404,727
Work in process	59,764		65,573
Finished goods	607,988		433,511
Inventories	$	1,050,304	$	903,811
Inventories – current	$	810,660	$	666,299
Inventories – noncurrent	$	239,644	$	237,512

Other current assets

Other current assets consisted of the following at September 30, 2022 and December 31, 2021 (in thousands):


	September 30, 2022		December 31, 2021
Spare maintenance materials and parts	$	112,796	$	112,070
Prepaid expenses	47,289		28,232
Operating supplies	43,458		41,034
Prepaid income taxes	13,550		41,379
Derivative instruments (1)	11,247		5,816
Restricted cash	989		1,532
Other	10,996		14,129
Other current assets	$	240,325	$	244,192

——————————

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

Property, plant and equipment, net

Property, plant and equipment, net consisted of the following at September 30, 2022 and December 31, 2021 (in thousands):


	September 30, 2022		December 31, 2021
Land	$	17,703	$	18,359
Buildings and improvements	874,533		693,289
Machinery and equipment	2,719,789		2,527,627
Office equipment and furniture	144,223		139,611
Leasehold improvements	40,124		40,517
Construction in progress	724,211		461,708
Property, plant and equipment, gross	4,520,583		3,881,111
Accumulated depreciation	(1,396,504)		(1,231,524)
Property, plant and equipment, net	$	3,124,079	$	2,649,587

Depreciation of property, plant and equipment was $61.6 million and $180.2 million for the three and nine months ended September 30, 2022, respectively, and $59.1 million and $174.7 million for the three and nine months ended September 30, 2021, respectively.

PV solar power systems, net

PV solar power systems, net consisted of the following at September 30, 2022 and December 31, 2021 (in thousands):


	September 30, 2022		December 31, 2021
PV solar power systems, gross	$	225,193	$	281,660
Accumulated depreciation	(71,278)		(64,367)
PV solar power systems, net	$	153,915	$	217,293

Depreciation of PV solar power systems was $2.0 million and $7.1 million for the three and nine months ended September 30, 2022, respectively, and $3.0 million and $8.9 million for the three and nine months ended September 30, 2021, respectively.

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

During the nine months ended September 30, 2022, we received multiple non-binding offers to purchase our Luz del Norte PV solar power plant and elected to pursue such opportunities in coordination with the project’s lenders. As a result of the expected sale in the near term, we compared the undiscounted future cash flows for the project to its carrying value and determined that the project was not recoverable. Accordingly, we measured the fair value of the project using a market approach valuation technique and recorded an impairment loss of $57.8 million in “Cost of sales” in our condensed consolidated statements of operations during the nine months ended September 30, 2022. Such impairment loss was comprised of $55.6 million for PV solar power systems, $1.3 million for intangible assets, and $0.9 million for operating lease assets. In October 2022, we entered into an agreement to sell the project, which, subject to Chilean antitrust approval, is expected to be completed in late 2022.

Project assets

Project assets consisted of the following at September 30, 2022 and December 31, 2021 (in thousands):


	September 30, 2022		December 31, 2021
Project assets – development costs, including project acquisition and land costs	$	27,827	$	117,407
Project assets – construction costs	—		198,081
Project assets	$	27,827	$	315,488

In June 2022, we completed the sale of the majority of our project assets to PAG in connection with the sale of our Japan project development business. See Note 2. “Sales of Businesses” to our condensed consolidated financial statements for further information about this transaction.

Goodwill

Goodwill for the relevant reporting unit consisted of the following at September 30, 2022 and December 31, 2021 (in thousands):


	December 31, 2021		Acquisitions (Impairments)		September 30, 2022
Modules	$	407,827	$	—	$	407,827
Accumulated impairment losses	(393,365)		—		(393,365)
Goodwill	$	14,462	$	—	$	14,462

Intangible assets, net

Intangible assets, net consisted of the following at September 30, 2022 and December 31, 2021 (in thousands):


	September 30, 2022
	Gross Amount		Accumulated Amortization		Accumulated Impairments		Net Amount
Developed technology	$	100,606	$	(69,409)	$	—	$	31,197
Power purchase agreements	6,486		(1,842)		(1,300)		3,344
Patents	8,480		(6,390)		—		2,090
Intangible assets, net	$	115,572	$	(77,641)	$	(1,300)	$	36,631


	December 31, 2021
	Gross Amount		Accumulated Amortization		Net Amount
Developed technology	$	99,964	$	(61,985)	$	37,979
Power purchase agreements	6,486		(1,621)		4,865
Patents	8,480		(5,815)		2,665
Intangible assets, net	$	114,930	$	(69,421)	$	45,509

Amortization of intangible assets was $2.7 million and $8.2 million for the three and nine months ended September 30, 2022 and 2021, respectively.

Other assets

Other assets consisted of the following at September 30, 2022 and December 31, 2021 (in thousands):


	September 30, 2022		December 31, 2021
Operating lease assets (1)	$	97,861	$	207,544
Advance payments for raw materials	81,619		86,962
Income tax receivables	47,235		39,862
Accounts receivable unbilled, net	11,488		20,840
Accounts receivable trade, net	9,645		21,293
Restricted cash	8,828		3,651
Indirect tax receivables	351		21,873
Other	54,173		36,739
Other assets	$	311,200	$	438,764

——————————

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

Accrued expenses

Accrued expenses consisted of the following at September 30, 2022 and December 31, 2021 (in thousands):


	September 30, 2022		December 31, 2021
Accrued property, plant and equipment	$	124,950	$	42,031
Accrued freight	77,482		61,429
Accrued compensation and benefits	37,138		34,606
Accrued inventory	37,037		42,170
Accrued other taxes	12,472		23,103
Product warranty liability (1)	11,039		13,598
Accrued project costs	5,618		48,836
Other	27,404		22,677
Accrued expenses	$	333,140	$	288,450

——————————

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

Other current liabilities

Other current liabilities consisted of the following at September 30, 2022 and December 31, 2021 (in thousands):


	September 30, 2022		December 31, 2021
Derivative instruments (1)	$	12,892	$	3,550
Operating lease liabilities (2)	8,907		12,781
Other taxes payable	1,813		8,123
Other	4,737		10,293
Other current liabilities	$	28,349	$	34,747

——————————

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

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

Other liabilities

Other liabilities consisted of the following at September 30, 2022 and December 31, 2021 (in thousands):


	September 30, 2022		December 31, 2021
Deferred revenue	$	348,940	$	95,943
Operating lease liabilities (1)	44,655		145,912
Deferred tax liabilities, net	24,812		27,699
Product warranty liability (2)	23,946		38,955
Other	31,462		43,658
Other liabilities	$	473,815	$	352,167

——————————

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

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

6. Derivative Financial Instruments

As a global company, we are exposed in the normal course of business to interest rate, foreign currency, and commodity price risks that could affect our financial position, results of operations, and cash flows. We use derivative instruments to hedge against these risks and only hold such instruments for hedging purposes, not for speculative or trading purposes.

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

The following tables present the fair values of derivative instruments included in our condensed consolidated balance sheets as of September 30, 2022 and December 31, 2021 (in thousands):


	September 30, 2022
	Other Current Assets		Other Current Liabilities		Other Liabilities
Derivatives designated as hedging instruments:
Foreign exchange forward contracts	$	4,341	$	—	$	—
Commodity swap contracts	—		9,133		840
Total derivatives designated as hedging instruments	$	4,341	$	9,133	$	840

Derivatives not designated as hedging instruments:
Foreign exchange forward contracts	$	6,906	$	3,759	$	—

Total derivatives not designated as hedging instruments	$	6,906	$	3,759	$	—
Total derivative instruments	$	11,247	$	12,892	$	840


	December 31, 2021
	Other Current Assets		Other Current Liabilities
Derivatives designated as hedging instruments:
Foreign exchange forward contracts	$	1,336	$	139
Total derivatives designated as hedging instruments	$	1,336	$	139

Derivatives not designated as hedging instruments:
Foreign exchange forward contracts	$	4,480	$	3,411
Total derivatives not designated as hedging instruments	$	4,480	$	3,411
Total derivative instruments	$	5,816	$	3,550

The following table presents the pretax amounts related to derivative instruments designated as cash flow hedges affecting accumulated other comprehensive income (loss) and our condensed consolidated statements of operations for the nine months ended September 30, 2022 and 2021 (in thousands):


	Foreign Exchange Forward Contracts		Commodity Swap Contracts		Total
Balance as of December 31, 2021	$	1,126	$	—	$	1,126
Amounts recognized in other comprehensive income (loss)	545		(10,832)		(10,287)

Amounts reclassified to earnings impacting:

Cost of sales	(1,671)		—		(1,671)



Balance as of September 30, 2022	$	—	$	(10,832)	$	(10,832)

Balance as of December 31, 2020	$	(3,644)	$	1,472	$	(2,172)
Amounts recognized in other comprehensive income (loss)	2,268		1,531		3,799
Amounts reclassified to earnings impacting:

Cost of sales	1,913		(883)		1,030



Balance as of September 30, 2021	$	537	$	2,120	$	2,657

During the nine months ended September 30, 2022, we recognized unrealized losses of less than $0.1 million 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 nine months ended September 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.

The following table presents the pretax amounts related to derivative instruments designated as net investment hedges affecting accumulated other comprehensive income (loss) and our condensed consolidated statements of operations for the nine months ended September 30, 2022 (in thousands):


	Foreign Exchange Forward Contracts
Balance as of December 31, 2021	$	—
Amounts recognized in other comprehensive income (loss)	4,341







Balance as of September 30, 2022	$	4,341

During the three and nine months ended September 30, 2022, we recognized unrealized gains of $0.4 million and $0.5 million, respectively, within “Other income (expense), net” for amounts excluded from effectiveness testing for our derivative instruments designated as net investment hedges.

The following table presents gains and losses related to derivative instruments not designated as hedges affecting our condensed consolidated statements of operations for the three and nine months ended September 30, 2022 and 2021 (in thousands):


		Amount of Gain (Loss) Recognized in Income
		Three Months Ended September 30,				Nine Months Ended September 30,
	Income Statement Line Item	2022		2021		2022		2021
Foreign exchange forward contracts	Cost of sales	$	55	$	103	$	577	$	(174)
Foreign exchange forward contracts	Foreign currency loss, net	7,905		1,802		71,420		10,821
Interest rate swap contracts	Interest expense, net	—		96		—		(595)

Interest Rate Risk

From time to time, we may use interest rate swap contracts to mitigate our exposure to interest rate fluctuations associated with certain of our debt instruments. We do not use such swap contracts for speculative or trading purposes. During the nine months ended September 30, 2021, 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.”

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 December 31, 2021, these foreign exchange forward contracts hedged our forecasted cash flows for periods up to 11 months. 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 December 31, 2021.

As of December 31, 2021, the notional values associated with our foreign exchange forward contracts qualifying as cash flow hedges were as follows (notional amounts and U.S. dollar equivalents in millions):


	December 31, 2021
Currency	Notional Amount	USD Equivalent
U.S. dollar (1)	$38.4	$38.4
British pound	GBP 10.6	$14.4

——————————

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

Net Investment Exposure

The functional currencies of certain of our foreign subsidiaries are their local currencies. Accordingly, we apply period-end exchange rates to translate their assets and liabilities and daily transaction exchange rates to translate their revenues, expenses, gains, and losses into U.S. dollars. We include the associated translation adjustments as a separate component of “Accumulated other comprehensive loss” within stockholders’ equity. From time to time, we may seek to mitigate the impact of such translation adjustments by entering into foreign exchange forward contracts that are designated as hedges of net investments in certain foreign subsidiaries. In June 2022, we entered into a foreign exchange forward contract with a notional value of ¥8.0 billion ($60.6 million), which qualifies for and was designated as a hedge of our net investment in a certain foreign subsidiary in Japan. As of September 30, 2022, this foreign exchange forward contract hedged such net investment for a remaining period of 3 months. We report unrealized gains or losses on this contract, which are based on spot exchange rates, as a component of our foreign currency translation adjustments within “Accumulated other comprehensive loss” and subsequently reclassify applicable amounts into earnings when the net investments are sold or substantially liquidated. We determined that this derivative financial instrument was highly effective as a net investment hedge as of September 30, 2022.

Transaction Exposure and Economic Hedging

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

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

As of September 30, 2022 and December 31, 2021, the notional values of our foreign exchange forward contracts that do not qualify for hedge accounting were as follows (notional amounts and U.S. dollar equivalents in millions):


	September 30, 2022
Transaction	Currency	Notional Amount	USD Equivalent









Sell	Chilean peso	CLP 5,996.5	$6.2


Purchase	Euro	€89.0	$85.7
Sell	Euro	€29.4	$28.3

Sell	Indian rupee	INR 18,611.5	$227.8
Purchase	Japanese yen	¥1,820.9	$12.6
Sell	Japanese yen	¥11,674.4	$80.8
Purchase	Malaysian ringgit	MYR 38.2	$8.3
Sell	Malaysian ringgit	MYR 28.1	$6.1

Sell	Mexican peso	MXN 34.6	$1.7
Purchase	Singapore dollar	SGD 1.4	$1.0


	December 31, 2021
Transaction	Currency	Notional Amount	USD Equivalent
Purchase	Australian dollar	AUD 3.2	$2.3
Purchase	Brazilian real	BRL 2.6	$0.5
Sell	Brazilian real	BRL 2.6	$0.5
Purchase	British pound	GBP 2.5	$3.4
Sell	Chilean peso	CLP 4,058.6	$4.8
Purchase	Euro	€77.6	$88.0
Sell	Euro	€38.6	$43.8
Sell	Indian rupee	INR 10,943.0	$147.1
Purchase	Japanese yen	¥667.5	$5.8
Sell	Japanese yen	¥31,524.6	$273.9
Purchase	Malaysian ringgit	MYR 17.0	$4.1
Sell	Malaysian ringgit	MYR 24.5	$5.9
Sell	Mexican peso	MXN 34.6	$1.7
Purchase	Singapore dollar	SGD 5.5	$4.1

Commodity Price Risk

We use commodity swap contracts to mitigate our exposure to commodity price fluctuations for certain raw materials used in the production of our modules. During the nine months ended September 30, 2022, we entered into various commodity swap contracts to hedge a portion of our forecasted cash flows for purchases of aluminum frames between July 2022 and December 2023. Such swaps had an aggregate initial notional value based on metric tons of forecasted aluminum purchases, equivalent to $70.5 million, and entitle 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 contracts proportionately adjusts with forecasted purchases of aluminum frames. As of September 30, 2022, the notional value associated with these contracts were $42.5 million.

These commodity swap 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 transactions occur and impact earnings. We determined that these derivative financial instruments were highly effective as cash flow hedges as of September 30, 2022. In the following 12 months, we expect to reclassify into earnings $7.7 million of net unrealized losses related to these commodity swap contracts that are included in “Accumulated other comprehensive loss” at September 30, 2022 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.

7. Leases

Our lease arrangements include land associated with our PV solar power systems, 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, Malaysia, India, and Vietnam.

The following table presents certain quantitative information related to our lease arrangements for the three and nine months ended September 30, 2022 and 2021, and as of September 30, 2022 and December 31, 2021 (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Operating lease cost	$	3,034	$	4,622	$	11,643	$	13,171
Variable lease cost	635		575		1,838		1,575
Short-term lease cost	48		104		300		711
Total lease cost	$	3,717	$	5,301	$	13,781	$	15,457

Payments of amounts included in the measurement of operating lease liabilities					$	11,867	$	16,813
Lease assets obtained in exchange for operating lease liabilities					$	3,992	$	19,769

					September 30, 2022		December 31, 2021
Operating lease assets					$	97,861	$	207,544
Operating lease liabilities – current					8,907		12,781
Operating lease liabilities – noncurrent					44,655		145,912


Weighted-average remaining lease term						7 years						19 years
Weighted-average discount rate						5.0		%				2.8		%

In June 2022, we completed the sale of our Japan project development business to PAG, which included the transfer of various land leases associated with the business. As a result, we derecognized lease assets of $87.7 million, current lease liabilities of $3.0 million, and noncurrent lease liabilities of $77.9 million. See Note 2. “Sales of Businesses” to our condensed consolidated financial statements for further information about this transaction.

As of September 30, 2022, the future payments associated with our lease liabilities were as follows (in thousands):


	Total Lease Liabilities
Remainder of 2022	$	2,872
2023	11,122
2024	10,708
2025	9,830
2026	8,418
2027	5,923
Thereafter	14,618
Total future payments	63,491
Less: interest	(9,929)
Total lease liabilities	$	53,562

8. Fair Value Measurements

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

*•*Cash equivalents. At September 30, 2022, our cash equivalents consisted of money market funds. We value our cash equivalents using observable inputs that reflect quoted prices for securities with identical characteristics and classify the valuation techniques that uses these inputs as Level 1.

*•*Marketable Securities and Restricted Marketable Securities. At September 30, 2022 and December 31, 2021, our marketable securities consisted of foreign debt, U.S. debt, and time deposits, and our restricted marketable securities consisted of foreign and U.S. government obligations, supranational debt, and U.S. debt. We value our marketable securities and restricted marketable securities using observable inputs that reflect quoted prices for securities with identical characteristics or quoted prices for securities with similar characteristics and other observable inputs (such as interest rates that are observable at commonly quoted intervals). Accordingly, we classify the valuation techniques that use these inputs as either Level 1 or Level 2 depending on the inputs used. We also consider the effect of our counterparties’ credit standing in these fair value measurements.

Derivative Assets and Liabilities. At September 30, 2022 and December 31, 2021, our derivative assets and liabilities consisted of foreign exchange forward contracts involving major currencies. At September 30, 2022, our derivative liabilities also included commodity swap contracts involving major commodity prices. Since our derivative assets and liabilities are not traded on an exchange, we value them using standard industry valuation models. As applicable, these models project future cash flows and discount the amounts to a present value using market-based observable inputs, including credit risk, foreign exchange rates, forward and spot prices for currencies, and forward prices for commodities. These inputs are observable in active markets over the contract term of the derivative instruments we hold, and accordingly, we classify the valuation techniques as Level 2. In evaluating credit risk, we consider the effect of our counterparties’ and our own credit standing in the fair value measurements of our derivative assets and liabilities, respectively.

At September 30, 2022 and December 31, 2021, the fair value measurements of our assets and liabilities measured on a recurring basis were as follows (in thousands):


			Fair Value Measurements at Reporting Date Using
	September 30, 2022		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	$	195	$	195	$	—	$	—
Marketable securities:
Foreign debt	62,880		—		62,880		—
U.S. debt	56,406		—		56,406		—
Time deposits	656,927		656,927		—		—
Restricted marketable securities	182,208		—		182,208		—
Derivative assets	11,247		—		11,247		—
Total assets	$	969,863	$	657,122	$	312,741	$	—
Liabilities:
Derivative liabilities	$	13,732	$	—	$	13,732	$	—


			Fair Value Measurements at Reporting Date Using
	December 31, 2021		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:


Marketable securities:
Foreign debt	$	103,317	$	—	$	103,317	$	—

U.S. debt	18,627		—		18,627		—
Time deposits	253,445		253,445		—		—
Restricted marketable securities	244,726		—		244,726		—
Derivative assets	5,816		—		5,816		—
Total assets	$	625,931	$	253,445	$	372,486	$	—
Liabilities:
Derivative liabilities	$	3,550	$	—	$	3,550	$	—

Fair Value of Financial Instruments

At September 30, 2022 and December 31, 2021, the carrying values and fair values of our financial instruments not measured at fair value were as follows (in thousands):


	September 30, 2022				December 31, 2021
	Carrying Value		Fair Value		Carrying Value		Fair Value
Assets:
Accounts receivable unbilled, net - noncurrent	$	11,488	$	10,207	$	20,840	$	18,846
Accounts receivable trade, net - noncurrent	9,645		7,852		21,293		18,605
Liabilities:
Long-term debt, including current maturities (1)	$	266,169	$	229,673	$	246,737	$	243,865

——————————

(1)Excludes unamortized discounts and issuance costs.

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

Credit Risk

We have certain financial and derivative instruments that subject us to credit risk. These consist primarily of cash, marketable securities, accounts receivable, restricted cash, restricted marketable securities, foreign exchange forward contracts, and commodity swap contracts. We are exposed to credit losses in the event of nonperformance by the counterparties to our financial and derivative instruments. We place these instruments with various high-quality financial institutions and limit the amount of credit risk from any one counterparty. We monitor 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. We typically require some form of payment security from our customers, including, but not limited to, advance payments, parent guarantees, letters of credit, bank guarantees, or surety bonds.

9. Debt

Our long-term debt consisted of the following at September 30, 2022 and December 31, 2021 (in thousands):


		Balance (USD)
Loan Agreement	Currency	September 30, 2022		December 31, 2021
Luz del Norte Credit Facilities	USD	$	181,169	$	183,829
India Credit Facility	USD	85,000		—
Kyoto Credit Facility	JPY	—		62,908
Long-term debt principal		266,169		246,737
Less: unamortized discounts and issuance costs		(6,510)		(6,836)
Total long-term debt		259,659		239,901
Less: current portion		(5,435)		(3,896)
Noncurrent portion		$	254,224	$	236,005

Luz del Norte Credit Facilities

In August 2014, Parque Solar Fotovoltaico Luz del Norte SpA (“Luz del Norte”), our indirect wholly-owned subsidiary and project company, entered into credit facilities (the “Luz del Norte Credit Facilities”) with the U.S. International Development Finance Corporation (“DFC”) and the International Finance Corporation (“IFC”) to provide limited-recourse senior secured debt financing for the design, development, financing, construction, testing, commissioning, operation, and maintenance of a 141 MWAC PV solar power plant located near Copiapó, Chile. As of September 30, 2022 and December 31, 2021, the balance outstanding on the DFC loans was $135.7 million and $137.7 million, respectively. As of September 30, 2022 and December 31, 2021, the balance outstanding on the IFC loans was $45.5 million and $46.1 million, respectively. The DFC and IFC loans mature in June 2037 and are secured by liens over all of Luz del Norte’s assets, a pledge of all of the equity interests in the entity, and certain letters of credit.

India Credit Facility

In July 2022, FS India Solar Ventures Private Limited, our indirect wholly-owned subsidiary, entered into a finance agreement (the “India Credit Facility”) with DFC for aggregate borrowings up to $500.0 million for the development and construction of an approximately 3.3 GWDC solar module manufacturing facility located in Tamil Nadu, India. Principal on the India Credit Facility is payable in scheduled semi-annual installments through the facility’s expected maturity in August 2029. The India Credit Facility is guaranteed by First Solar, Inc.

Kyoto Credit Facility

In July 2020, First Solar Japan GK, our wholly-owned subsidiary, entered into a construction loan facility with Mizuho Bank, Ltd. for borrowings up to ¥15.0 billion ($142.8 million), which are intended to be used for the construction of a 38 MWAC PV solar power plant located in Kyoto, Japan (the “Kyoto Credit Facility”). In May 2022, we repaid the remaining $73.2 million principal balance on the credit facility.

Momura Credit Facility

In May 2022, FS Japan Project 25 GK (“Momura”), our indirect wholly-owned subsidiary and project company, entered into a credit agreement (the “Momura Credit Facility”) with Nomura Capital Investment Co., Ltd. and Aozora Bank, Ltd. for aggregate borrowings up to ¥21.5 billion ($168.1 million) for the development and construction of a 53 MWAC PV solar power plant located in Tochigi, Japan. The credit facility consisted of an ¥18.8 billion ($146.6 million) term loan facility, a ¥1.9 billion ($15.1 million) consumption tax facility, and a ¥0.8 billion ($6.4 million) debt service reserve facility. In June 2022, we completed the sale of our Japan project development business, and the credit facility’s outstanding balance of $107.2 million was assumed by PAG. See Note 2. “Sales of Businesses” to our condensed consolidated financial statements for further information about this transaction.

Yatsubo Credit Facility

In May 2022, FS Japan Project 24 GK (“Yatsubo”), our indirect wholly-owned subsidiary and project company, entered into a credit agreement (the “Yatsubo Credit Facility”) with Nomura Capital Investment Co., Ltd. and Aozora Bank, Ltd. for aggregate borrowings up to ¥10.9 billion ($85.0 million) for the development and construction of a 26 MWAC PV solar power plant located in Tochigi, Japan. The credit agreement consisted of a ¥9.5 billion ($74.2 million) term loan facility, a ¥1.0 billion ($7.6 million) consumption tax facility, and a ¥0.4 billion ($3.2 million) debt service reserve facility. In June 2022, we completed the sale of our Japan project development business, and the credit facility’s outstanding balance of $70.0 million was assumed by PAG. See Note 2. “Sales of Businesses” to our condensed consolidated financial statements for further information about this transaction.

Orido Credit Facility

In May 2022, FS Japan Project B5 GK (“Orido”), our indirect wholly-owned subsidiary and project company, entered into a credit agreement (the “Orido Credit Facility”) with Nomura Capital Investment Co., Ltd. and Aozora Bank, Ltd. for aggregate borrowings up to ¥5.3 billion ($41.3 million) for the development and construction of a 14 MWAC PV solar power plant located in Tochigi, Japan. The credit agreement consisted of a ¥4.6 billion ($36.0 million) term loan facility, a ¥0.5 billion ($3.6 million) consumption tax facility, and a ¥0.2 billion ($1.7 million) debt service reserve facility. In June 2022, we completed the sale of our Japan project development business, and the credit facility’s outstanding balance of $18.0 million was assumed by PAG. See Note 2. “Sales of Businesses” to our condensed consolidated financial statements for further information about this transaction.

Variable Interest Rate Risk

Certain of our long-term debt agreements bear interest at London Interbank Offered Rate (“LIBOR”) or equivalent variable rates. An increase in these variable rates would increase the cost of borrowing under the debt agreements. Our long-term debt borrowing rates as of September 30, 2022 were as follows:


Loan Agreement		September 30, 2022
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%
India Credit Facility		U.S. Treasury Constant Maturity Yield plus 1.75%

——————————

(1)Outstanding balance comprised of $122.4 million of fixed rate loans and $58.8 million of variable rate loans as of September 30, 2022.

Future Principal Payments

At September 30, 2022, the future principal payments on our long-term debt were due as follows (in thousands):


	Total Debt
Remainder of 2022	$	1,375
2023	6,085
2024	13,047
2025	23,013
2026	23,418
2027	24,661
Thereafter	174,570
Total long-term debt future principal payments	$	266,169

10. Commitments and Contingencies

Commercial Commitments

During the normal course of business, we enter into commercial commitments in the form of letters of credit and surety bonds to provide financial and performance assurance to third parties. As of September 30, 2022, the majority of these commercial commitments supported our modules business. As of September 30, 2022, the issued and outstanding amounts and available capacities under these commitments were as follows (in millions):


	Issued and Outstanding		Available Capacity
Bilateral facilities (1)	$	95.8	$	119.2
Surety bonds	8.8		232.8

——————————

(1)Of the total letters of credit issued under the bilateral facilities, $2.3 million was secured with cash.

Product Warranties

When we recognize revenue for sales of modules or projects, we accrue liabilities for the estimated future costs of meeting our limited warranty obligations for both modules and the balance of the systems. We estimate our limited product warranty liability for power output and defects in materials and workmanship under normal use and service conditions based on return rates for each series of module technology. We make and revise these estimates based primarily on the number of solar modules under warranty installed at customer locations, our historical experience with and projections of warranty claims, and our estimated per-module replacement costs. We also monitor our expected future module performance through certain quality and reliability testing and actual performance in certain field installation sites. From time to time, we have taken remediation actions with respect to affected modules beyond our limited warranties and may elect to do so in the future, in which case we would incur additional expenses. Such potential voluntary future remediation actions beyond our limited warranty obligations may be material to our condensed consolidated statements of operations if we commit to any such remediation actions.

Product warranty activities during the three and nine months ended September 30, 2022 and 2021 were as follows (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Product warranty liability, beginning of period	$	47,129	$	91,058	$	52,553	$	95,096
Accruals for new warranties issued	1,376		1,680		3,649		8,397
Settlements	(3,160)		(1,091)		(10,414)		(6,730)
Changes in estimate of product warranty liability	(10,360)		(33,106)		(10,803)		(38,222)
Product warranty liability, end of period	$	34,985	$	58,541	$	34,985	$	58,541
Current portion of warranty liability	$	11,039	$	16,752	$	11,039	$	16,752
Noncurrent portion of warranty liability	$	23,946	$	41,789	$	23,946	$	41,789

We estimate our limited product warranty liability for power output and defects in materials and workmanship under normal use and service conditions based on return rates for each series of module technology. During the three months ended September 30, 2022 and 2021, we revised this estimate based on updated information regarding our warranty claims, which reduced our product warranty liability by $10.2 million and $33.1 million, respectively. This updated information reflected lower-than-expected warranty claims for our older series of module technology as well as the evolving claims profile of our newest series of module technology, resulting in reductions to our projected module return rates.

Indemnifications

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

After an indemnification liability is recorded, we derecognize such amount pursuant to ASC 460 depending on the nature of the indemnity, which derecognition typically occurs upon expiration or settlement of the arrangement, and any contingent aspects of the indemnity are accounted for in accordance with ASC 450. As of September 30, 2022 and December 31, 2021, we accrued $3.7 million and $3.8 million of current indemnification liabilities, respectively. As of September 30, 2022, the maximum potential amount of future payments under our indemnifications was $102.3 million, and we held insurance and other instruments allowing us to recover up to $28.2 million of potential amounts paid under the indemnifications.

In September 2017, we made an indemnification payment in connection with the sale of one of our projects following the underpayment of anticipated cash grants by the United States government. In February 2018, the associated project entity commenced legal action against the United States government seeking full payment of the cash grants. In May 2021, the parties reached an agreement, pursuant to which the United States government made a settlement payment to the project entity. Under the terms of the indemnification arrangement, we received $65.1 million for our portion of the settlement payment, which we recorded as revenue during the nine months ended September 30, 2021.

Solar Module Collection and Recycling Liability

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

We estimate the cost of our collection and recycling obligations based on the present value of the expected future cost of collecting and recycling the solar modules, which includes estimates for the cost of packaging materials; the cost of freight from the solar module installation sites to a recycling center; material, labor, and capital costs; and by-product credits for certain materials recovered during the recycling process. We base these estimates on our experience collecting and recycling solar modules and certain assumptions regarding costs at the time the solar modules will be collected and recycled. In the periods between the time of sale and the related settlement of the collection and recycling obligation, we accrete the carrying amount of the associated liability and classify the corresponding expense within “Selling, general and administrative” expense on our condensed consolidated statements of operations.

We periodically review our estimates of expected future recycling costs and may adjust our liability accordingly. During the three months ended September 30, 2022, we completed our annual cost study of obligations under our module collection and recycling program and reduced the associated liability by $7.5 million primarily due to lower estimated capital and chemical costs resulting from improvements to our module recycling technology. During the three months ended September 30, 2021, we completed our annual cost study of obligations under our module collection and recycling program and increased the associated liability by $10.8 million primarily due to lower estimated by-product credits for certain semiconductor materials recovered during the recycling process and updates to certain valuation assumptions.

Our module collection and recycling liability was $120.2 million and $139.1 million as of September 30, 2022 and December 31, 2021, respectively. 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 January 7, 2022, a putative class action lawsuit titled City of Pontiac General Employees’ Retirement System v. First Solar, Inc., et al., Case No. 2:22-cv-00036-MTL, 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 officers (collectively, “Putative Class Action Defendants”). The complaint was filed on behalf of a purported class consisting of all purchasers of First Solar common stock between February 22, 2019 and February 20, 2020, inclusive. The complaint asserts violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 based on allegedly false and misleading statements related to the Company’s Series 6 solar modules and its project

development business. It seeks unspecified damages and an award of costs and expenses. The Company and its officers believe they have meritorious defenses and intend to vigorously defend this action. On April 25, 2022, the Arizona District Court issued an order appointing the Palm Harbor Special Fire Control & Rescue District Firefighters’ Pension Plan and the Greater Pennsylvania Carpenters’ Pension Fund as Lead Plaintiffs. On June 23, 2022, Lead Plaintiffs filed an Amended Complaint that brings the same claims and seeks the same relief as the original complaint. Putative Class Action Defendants filed a motion to dismiss on August 22, 2022. Plaintiffs filed their opposition to the motion to dismiss on October 21, 2022. Given the early stage of the litigation, 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, from this action.

Derivative Action

On September 13, 2022, a derivative action titled Federman v. Widmar, et al., Case No. 2:22-cv-01541-MTM, was filed by a putative stockholder purportedly on behalf of the Company in the Arizona District Court against certain current directors and officers of the Company (collectively, “Derivative Action Defendants”), alleging violations of Section 14(a) of the Securities Exchange Act of 1934, breach of fiduciary duties, contribution and indemnification, aiding and abetting, and gross mismanagement. The complaint generally alleges that the Derivative Action Defendants caused or allowed false and misleading statements to be made concerning the Company’s Series 6 modules and project development business. The action includes claims for, among other things, damages in favor of the Company and an award of costs and expenses to the putative plaintiff stockholder, including attorneys’ fees. The Company believes that the plaintiff in the derivative action lacks standing to pursue litigation on behalf of First Solar. The derivative action is still in the initial stages and there has been no discovery. Accordingly, we are not in a position to assess the likelihood of any loss or adverse effect on our financial condition or to estimate the amount or range of potential loss, if any, from this action.

Other Matters and Claims

On July 12, 2021, Southern Power Company and certain of its affiliates (“Southern”) filed an arbitration demand with the American Arbitration Association against two subsidiaries of the Company, alleging breach of the engineering, procurement, and construction (“EPC”) agreements for five projects in the United States, for which the Company’s subsidiaries served as EPC contractor. The arbitration demand asserts breach of obligations to design and engineer the projects in accordance with the EPC agreements, particularly as such obligations relate to the procurement of tracker systems and inverters. In September 2022, the Company received additional details in the discovery process of the arbitration, based upon which we believe Southern is seeking damages of approximately $55 million and an award of costs and expenses. Prior to September 2022, no such damages were specified by Southern. The Company and its subsidiaries deny the claims and intend to vigorously defend this arbitration in all respects. Arbitration hearings are scheduled for early 2023. Given the stage of proceedings and inherent risks involved in arbitration, at this time we are unable 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, from this arbitration.

During the three months ended September 30, 2022, we received various indemnification demands from certain customers, for whom we provided EPC services, regarding claims that such customers’ PV tracker systems infringe, in part, on patents owned by Trabant Solar, Inc. We have conducted due diligence on the patents and claims and believe that we will prevail, to the extent we are obligated to defend any matter or commence an Inter Partes Review before the United States Patent and Trademark Office.

We are party to other legal matters and claims in the normal course of our operations. While we believe the ultimate outcome of these matters and claims will not have a material adverse effect on our financial position, results of operations, or cash flows, the outcome of such matters and claims is not determinable with certainty, and negative outcomes may adversely affect us. There have been no material changes to these matters since our Annual Report on Form 10-K for the year ended December 31, 2021 was filed with the SEC on March 1, 2022.

11. Revenue from Contracts with Customers

The following table presents the disaggregation of revenue from contracts with customers for the three and nine months ended September 30, 2022 and 2021 along with the reportable segment for each category (in thousands):


		Three Months Ended September 30,				Nine Months Ended September 30,
Category	Segment	2022		2021		2022		2021
Solar modules	Modules	$	619,922	$	562,810	$	1,582,248	$	1,640,436
Energy generation	Other	5,440		7,339		20,689		29,375
O&M services	Other	3,481		5,262		11,558		37,210
Solar power systems	Other	90		10,132		2,433		311,076
EPC services	Other	—		(2,039)		—		(2,039)
Net sales		$	628,933	$	583,504	$	1,616,928	$	2,016,058

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

We recognize revenue for sales of development projects or completed systems when we enter into the associated sales contract. For certain prior project sales, including sales of solar power systems with EPC services, such revenue included estimated amounts of variable consideration. These estimates may require significant judgment to determine the most likely amount of net contract revenues. The cumulative effect of revisions to estimates is recorded in the period in which the revisions are identified and the amounts can be reasonably estimated. During the three and nine months ended September 30, 2021, respectively, revenue increased $7.8 million and $73.0 million due to net changes in transaction prices for certain projects we previously sold, which represented 0.9% and 2.3% of the aggregate revenue for such projects. Changes for the nine months ended September 30, 2021 were primarily due to a $65.1 million settlement for an outstanding indemnification arrangement associated with the prior sale of one of our projects, which we recorded as revenue during that period. See Note 10. “Commitments and Contingencies” to our condensed consolidated financial statements for discussion of our indemnification arrangements.

The following table reflects the changes in our contract assets, which we classify as “Accounts receivable unbilled, net” and our contract liabilities, which we classify as “Deferred revenue,” for the nine months ended September 30, 2022 (in thousands):


	September 30, 2022		December 31, 2021		Nine Month Change
Accounts receivable unbilled, net (1)	$	46,637	$	46,113	$	524	1	%
Deferred revenue (2)	$	584,233	$	297,811	$	286,422	96	%

——————————

(1)Includes $11.5 million and $20.8 million of noncurrent accounts receivable unbilled, net classified as “Other assets” on our condensed consolidated balance sheets as of September 30, 2022 and December 31, 2021, respectively.

(2)Includes $348.9 million and $95.9 million of noncurrent deferred revenue classified as “Other liabilities” on our condensed consolidated balance sheets as of September 30, 2022 and December 31, 2021, respectively.

During the nine months ended September 30, 2022, our contract liabilities increased by $286.4 million primarily due to advance payments received for sales of solar modules in the current period, partially offset by the recognition of revenue for sales of solar modules for which payment was received in 2021. During the nine months ended September 30, 2022 and 2021, we recognized revenue of $186.2 million and $169.5 million, respectively, that was included in the corresponding contract liability balance at the beginning of the periods.

As of September 30, 2022, we had entered into contracts with customers for the future sale of 50.0 GWDC of solar modules for an aggregate transaction price of $14.0 billion, which we expect to recognize as revenue through 2027 as we transfer control of the modules to the customers. Such aggregate transaction price excludes estimates of variable consideration for certain contracts with customers that are associated with future module technology improvements, including new product designs and enhancements to certain energy related attributes. Certain other potential price adjustments associated with the extension of the U.S. investment tax credit (“ITC”), sales freight, and changes to certain commodity prices have also been excluded. While our contracts with customers typically represent firm purchase commitments, these contracts may be subject to amendments made by us or requested by our customers. These amendments may increase or decrease the volume of modules to be sold under the contract, change delivery schedules, or otherwise adjust the expected revenue under these contracts.

12. Share-Based Compensation

The following table presents share-based compensation expense recognized in our condensed consolidated statements of operations for the three and nine months ended September 30, 2022 and 2021 (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Cost of sales (1)	$	1,044	$	154	$	1,988	$	235
Selling, general and administrative (1)	9,572		5,746		16,900		14,998
Research and development (2)	1,227		529		2,219		(259)
Production start-up	11		—		14		—
Total share-based compensation expense	$	11,854	$	6,429	$	21,121	$	14,974

——————————

(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 nine months ended September 30, 2021.

Share-based compensation expense capitalized in inventory and PV solar power systems was $0.6 million and $0.7 million as of September 30, 2022 and December 31, 2021, respectively. As of September 30, 2022, we had $43.4 million of unrecognized share-based compensation expense related to unvested restricted stock and performance units, which we expect to recognize over a weighted-average period of approximately 1.4 years.

In July 2019, the compensation committee of our board of directors approved grants of performance units for key executive officers to be earned over a multi-year performance period, which ended in December 2021. Vesting of the 2019 grants of performance units was contingent upon the relative attainment of target cost per watt, module wattage, gross profit, and operating income metrics. In March 2022, the compensation committee certified the achievement of the vesting conditions applicable to the grants, which approximated the maximum level of performance. Accordingly, each participant received one share of common stock for each vested performance unit granted, net of any tax withholdings.

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

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

In March 2022, the compensation committee approved additional grants of performance units for key executive officers. Such grants are expected to be earned over a multi-year performance period ending in December 2024. Vesting of the 2022 grants of performance units is contingent upon the relative attainment of target contracted revenue, cost per watt, and return on capital metrics.

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

In February 2022, First Solar adopted a Clawback Policy (“the Policy”) that applies to the Company’s current and former Section 16 officers. The Policy applies to all incentive compensation, including any performance-based annual incentive awards and performance-based equity compensation. The Policy was adopted to ensure that incentive compensation is paid or awarded based on accurate financial results and the correct calculation of performance against incentive targets.

13. Income Taxes

In August 2022, the U.S. President signed into law the Inflation Reduction Act of 2022 (the “IRA”), which revised U.S. tax law by, among other things, including a new corporate alternative minimum tax (the “CAMT”) of 15% on certain large corporations, imposing a 1% excise tax on stock buybacks, and providing incentives to address climate change, including the introduction of advanced manufacturing production tax credits. The provisions of the IRA are generally effective for tax years beginning after 2022. Given the complexities of the IRA, which is pending technical guidance and regulations from the Internal Revenue Service and U.S. Treasury Department, we will continue to monitor these developments and evaluate the potential future impact to our results of operations.

Our effective tax rate was 341.4% and 16.7% for the nine months ended September 30, 2022 and 2021, respectively. The increase in our effective tax rate was primarily driven by the relative size of our pretax income in the current period, higher losses in certain jurisdictions for which no tax benefit could be recorded, the remeasurement of our net deferred tax assets in Vietnam as a result of the new long-term tax incentive described below, lower relative amounts of income earned in foreign jurisdictions with lower tax rates, and the effect of tax law changes associated with the foreign tax credit (“FTC”) regulations described below. Our provision for income taxes differed from the amount computed by applying the U.S. statutory federal income tax rate of 21% primarily due to higher losses in certain jurisdictions for which no tax benefit could be recorded, the remeasurement of our net deferred tax assets in Vietnam mentioned above, and the effect of the FTC regulations described below.

In December 2021, the U.S. Treasury released final FTC regulations addressing various aspects of the U.S. FTC regime. Among other items, these regulations revised the definition of a creditable foreign income tax and the time at which foreign taxes accrued can be claimed as a credit. These regulations are applicable for tax years beginning on or after December 28, 2021. As a result of these regulations, foreign taxes, which were previously creditable, are now treated as foreign tax deductions at the U.S. statutory federal income tax rate of 21%.

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

Our Vietnamese subsidiary had previously been granted a tax incentive that provided a two-year tax exemption, which began in 2020, and reduced annual tax rates through the end of 2025. In May 2022, our Vietnamese subsidiary was granted a new long-term tax incentive that provides an additional two-year tax exemption and reduced annual tax rates through 2036, conditional upon our continued compliance with certain revenue and research and development (“R&D”) spending thresholds, which we are currently in compliance with and expect to continue to comply with through the expiration of the tax holiday.

We account for uncertain tax positions pursuant to the recognition and measurement criteria under ASC 740. It is reasonably possible that $0.3 million of uncertain tax positions will be recognized within the next 12 months due to the expiration of the statute of limitations associated with such positions.

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

14. Net (Loss) Income per Share

The calculation of basic and diluted net (loss) income per share for the three and nine months ended September 30, 2022 and 2021 was as follows (in thousands, except per share amounts):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Basic net (loss) income per share
Numerator:
Net (loss) income	$	(49,168)	$	45,203	$	(36,618)	$	337,323
Denominator:
Weighted-average common shares outstanding	106,596		106,320		106,532		106,241

Diluted net (loss) income per share
Denominator:
Weighted-average common shares outstanding	106,596		106,320		106,532		106,241
Effect of restricted stock and performance units	—		579		—		638
Weighted-average shares used in computing diluted net (loss) income per share	106,596		106,899		106,532		106,879

Net (loss) income per share:
Basic	$	(0.46)	$	0.43	$	(0.34)	$	3.18
Diluted	$	(0.46)	$	0.42	$	(0.34)	$	3.16

The following table summarizes the potential shares of common stock that were excluded from the computation of diluted net (loss) income per share for the three and nine months ended September 30, 2022 and 2021 as such shares would have had an anti-dilutive effect (in thousands):


	Three Months Ended September 30,		Nine Months Ended September 30,
	2022	2021	2022	2021
Anti-dilutive shares	626	8	523	3

15. Accumulated Other Comprehensive Loss

The following table presents the changes in accumulated other comprehensive loss, net of tax, for the nine months ended September 30, 2022 (in thousands):


	Foreign Currency Translation Adjustment		Unrealized Gain (Loss) on Marketable Securities and Restricted Marketable Securities		Unrealized Gain (Loss) on Derivative Instruments		Total
Balance as of December 31, 2021	$	(89,452)	$	(8,036)	$	1,126	$	(96,362)
Other comprehensive loss before reclassifications	(36,386)		(55,996)		(10,287)		(102,669)
Amounts reclassified from accumulated other comprehensive loss	(4,312)		—		(1,671)		(5,983)
Net tax effect	—		2,624		2,540		5,164
Net other comprehensive loss	(40,698)		(53,372)		(9,418)		(103,488)
Balance as of September 30, 2022	$	(130,150)	$	(61,408)	$	(8,292)	$	(199,850)

The following table presents the pretax amounts reclassified from accumulated other comprehensive loss into our condensed consolidated statements of operations for the three and nine months ended September 30, 2022 and 2021 (in thousands):


Comprehensive Income Components	Income Statement Line Item	Three Months Ended September 30,				Nine Months Ended September 30,
	2022	2021		2022		2021
Foreign currency translation adjustment:
Foreign currency translation adjustment	Gain on sales of businesses, net	$	—	$	—	$	3,756	$	—
Foreign currency translation adjustment	Other income (expense), net	403		(728)		556		(1,203)
Total foreign currency translation adjustment		403		(728)		4,312		(1,203)
Unrealized gain on marketable securities and restricted marketable securities	Other income (expense), net	—		—		—		11,696
Unrealized gain (loss) on derivative instruments:
Foreign exchange forward contracts	Cost of sales	218		15		1,671		(1,913)
Commodity swap contracts	Cost of sales	—		670		—		883

Total unrealized gain (loss) on derivative instruments		218		685		1,671		(1,030)
Total gain (loss) reclassified		$	621	$	(43)	$	5,983	$	9,463

16. Segment Reporting

Our primary segment is our modules business, which 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 developers and operators of PV solar power systems. Our residual business operations include the results of operations from PV solar power systems we own and operate in certain international regions, as well as certain O&M services and project development activities.

For the year ended December 31, 2021, we changed our reportable segments to align with revisions to our internal reporting structure and long-term strategic plans. Following this change, our modules business represents our only reportable segment. We previously operated our business in two segments, which included our modules and systems businesses. Systems business activities primarily involved (i) project development, (ii) EPC services, and (iii) O&M services, which now comprise our residual business operations and are categorized as “Other” in the tables below. All prior year balances were revised to conform to the current year presentation.

See Note 20. “Segment and Geographical Information” in our Annual Report on Form 10-K for the year ended December 31, 2021 for additional discussion of our segment reporting.

The following tables provide a reconciliation of certain financial information for our reportable segment to information presented in our condensed consolidated financial statements for the three and nine months ended September 30, 2022 and 2021 and as of September 30, 2022 and December 31, 2021 (in thousands):


	Three Months Ended September 30, 2022						Three Months Ended September 30, 2021
	Modules		Other		Total		Modules		Other		Total
Net sales	$	619,922	$	9,011	$	628,933	$	562,810	$	20,694	$	583,504
Gross profit (loss)	24,040		(3,058)		20,982		118,260		6,320		124,580
Depreciation and amortization expense	58,287		2,075		60,362		56,335		3,045		59,380

	Nine Months Ended September 30, 2022						Nine Months Ended September 30, 2021
	Modules		Other		Total		Modules		Other		Total
Net sales	$	1,582,248	$	34,680	$	1,616,928	$	1,640,436	$	375,622	$	2,016,058
Gross profit (loss)	66,396		(57,151)		9,245		328,047		155,418		483,465
Depreciation and amortization expense	172,296		7,276		179,572		163,747		9,193		172,940

	September 30, 2022						December 31, 2021
	Modules		Other		Total		Modules		Other		Total
Goodwill	$	14,462	$	—	$	14,462	$	14,462	$	—	$	14,462

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