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 March 31,
	2023		2022
Net sales	$	548,286	$	367,040
Cost of sales	436,235		355,577
Gross profit	112,051		11,463
Operating expenses:
Selling, general and administrative	44,028		36,728
Research and development	30,510		27,108
Production start-up	19,494		7,338
Total operating expenses	94,032		71,174
Gain on sales of businesses, net	(17)		1,907
Operating income (loss)	18,002		(57,804)
Foreign currency loss, net	(5,947)		(4,198)
Interest income	25,822		2,325
Interest expense, net	(748)		(2,865)
Other expense, net	(1,456)		(212)
Income (loss) before taxes	35,673		(62,754)
Income tax benefit	6,888		19,499
Net income (loss)	$	42,561	$	(43,255)

Net income (loss) per share:
Basic	$	0.40	$	(0.41)
Diluted	$	0.40	$	(0.41)
Weighted-average number of shares used in per share calculations:
Basic	106,675		106,412
Diluted	107,154		106,412

See accompanying notes to these condensed consolidated financial statements.

FIRST SOLAR, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)


	Three Months Ended March 31,
	2023		2022
Net income (loss)	$	42,561	$	(43,255)
Other comprehensive income (loss):
Foreign currency translation adjustments	2,655		(10,125)
Unrealized gain (loss) on marketable securities and restricted marketable securities, net of tax of $(402) and $1,246	6,966		(22,521)
Unrealized gain (loss) on derivative instruments, net of tax of $(708) and $94	2,214		(442)
Other comprehensive income (loss)	11,835		(33,088)
Comprehensive income (loss)	$	54,396	$	(76,343)

See accompanying notes to these condensed consolidated financial statements.

FIRST SOLAR, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

(Unaudited)


	March 31, 2023		December 31, 2022
ASSETS
Current assets:
Cash and cash equivalents	$	906,634	$	1,481,269
Marketable securities	1,364,607		1,096,712
Accounts receivable trade, net	298,620		324,337
Accounts receivable unbilled	25,894		30,654
Inventories	751,407		621,376
Other current assets	272,702		237,073
Total current assets	3,619,864		3,791,421
Property, plant and equipment, net	3,858,604		3,536,902
Deferred tax assets, net	136,411		78,680
Restricted marketable securities	196,591		182,070
Government grants receivable	70,114		—
Goodwill	14,462		14,462
Intangible assets, net	28,477		31,106
Inventories	253,353		260,395
Other assets	386,720		356,192
Total assets	$	8,564,596	$	8,251,228
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	285,760	$	341,409
Income taxes payable	77,176		29,397
Accrued expenses	391,912		382,782
Deferred revenue	398,694		263,215
Other current liabilities	20,631		21,245
Total current liabilities	1,174,173		1,038,048
Accrued solar module collection and recycling liability	130,258		128,114
Long-term debt	320,378		184,349
Deferred revenue	949,687		944,725
Other liabilities	121,372		119,937
Total liabilities	2,695,868		2,415,173
Commitments and contingencies
Stockholders’ equity:
Common stock, $0.001 par value per share; 500,000,000 shares authorized; 106,825,067 and 106,609,094 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively	107		107
Additional paid-in capital	2,865,753		2,887,476
Accumulated earnings	3,182,850		3,140,289
Accumulated other comprehensive loss	(179,982)		(191,817)
Total stockholders’ equity	5,868,728		5,836,055
Total liabilities and stockholders’ equity	$	8,564,596	$	8,251,228

See accompanying notes to these condensed consolidated financial statements.

FIRST SOLAR, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands)

(Unaudited)


	Three Months Ended March 31, 2023
	Common Stock			Additional Paid-In Capital		Accumulated Earnings		Accumulated Other Comprehensive Loss		Total Stockholders' Equity
	Shares	Amount
Balance at December 31, 2022	106,609	$	107	$	2,887,476	$	3,140,289	$	(191,817)	$	5,836,055
Net income	—	—		—		42,561		—		42,561
Other comprehensive income	—	—		—		—		11,835		11,835
Common stock issued for share-based compensation	364	—		—		—		—		—
Tax withholding related to vesting of restricted stock	(148)	—		(28,314)		—		—		(28,314)
Share-based compensation expense	—	—		6,591		—		—		6,591
Balance at March 31, 2023	106,825	$	107	$	2,865,753	$	3,182,850	$	(179,982)	$	5,868,728

	Three Months Ended March 31, 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	—	—		—		(43,255)		—		(43,255)
Other comprehensive loss	—	—		—		—		(33,088)		(33,088)
Common stock issued for share-based compensation	414	1		—		—		—		1
Tax withholding related to vesting of restricted stock	(163)	—		(11,505)		—		—		(11,505)
Share-based compensation expense	—	—		3,471		—		—		3,471
Balance at March 31, 2022	106,583	$	107	$	2,863,318	$	3,141,200	$	(129,450)	$	5,875,175

See accompanying notes to these condensed consolidated financial statements.

FIRST SOLAR, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


	Three Months Ended March 31,
	2023		2022
Cash flows from operating activities:
Net income (loss)	$	42,561	$	(43,255)
Adjustments to reconcile net income (loss) to cash used in operating activities:
Depreciation, amortization and accretion	68,855		65,207

Share-based compensation	6,600		3,503
Deferred income taxes	(55,282)		1,083
Gain on sales of businesses, net	17		(1,907)


Other, net	(698)		2,165
Changes in operating assets and liabilities:
Accounts receivable, trade and unbilled	33,933		144,286
Inventories	(122,996)		(175,990)
Project assets and PV solar power systems	6,099		(98,695)
Government grants receivable	(70,114)		—
Other assets	(66,493)		(30,838)
Income tax receivable and payable	43,646		(23,502)
Accounts payable and accrued expenses	(61,552)		(38,043)
Deferred revenue	139,713		77,042
Other liabilities	1,113		(19,895)
Net cash used in operating activities	(34,598)		(138,839)
Cash flows from investing activities:
Purchases of property, plant and equipment	(370,961)		(154,761)
Purchases of marketable securities and restricted marketable securities	(1,470,600)		(750,220)
Proceeds from maturities of marketable securities	1,196,334		900,165
Proceeds from sales of businesses	—		1,860
Other investing activities	—		12
Net cash used in investing activities	(645,227)		(2,944)
Cash flows from financing activities:
Repayment of long-term debt	—		(737)
Proceeds from borrowings under long-term debt, net of issuance costs	136,000		18,006
Payments of tax withholdings for restricted shares	(28,314)		(11,505)

Net cash provided by financing activities	107,686		5,764
Effect of exchange rate changes on cash, cash equivalents, restricted cash, and restricted cash equivalents	1,495		15,162
Net decrease in cash, cash equivalents, restricted cash, and restricted cash equivalents	(570,644)		(120,857)
Cash, cash equivalents, restricted cash, and restricted cash equivalents, beginning of the period	1,493,462		1,455,837
Cash, cash equivalents, restricted cash, and restricted cash equivalents, end of the period	$	922,818	$	1,334,980
Supplemental disclosure of noncash investing and financing activities:
Property, plant and equipment acquisitions funded by liabilities	$	330,830	$	105,643

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. Certain prior period balances have been reclassified to conform to the current period presentation.

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Despite our intention to establish accurate estimates and reasonable assumptions, actual results could differ materially from such estimates and assumptions. Operating results for the three months ended March 31, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023 or for any other period. The condensed consolidated balance sheet at December 31, 2022 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, 2022 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

Sales of International O&M Operations

In January 2022, we completed the sale of our Chilean operations and maintenance (“O&M”) operations to a subsidiary of Clairvest Group, Inc. (“Clairvest”) and received total consideration of $1.9 million. As a result of this transaction, we recognized a gain of $1.9 million, net of transaction costs and post-closing adjustments, during the three months ended March 31, 2022, which was included in “Gain on sales of businesses, net” in our condensed consolidated statements of operations.

During the three months ended March 31, 2023, we recognized certain post-closing adjustments associated with the prior sale of our O&M operations in a foreign jurisdiction, 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 March 31, 2023 and December 31, 2022 (in thousands):


	March 31, 2023		December 31, 2022
Cash and cash equivalents:
Cash	$	899,537	$	1,476,945
Money market funds	7,097		4,324
Total cash and cash equivalents	906,634		1,481,269
Marketable securities:
Foreign debt	56,499		59,777
U.S. debt	56,731		56,463
U.S. Treasury securities	520,516		—
Time deposits	730,861		980,472
Total marketable securities	1,364,607		1,096,712
Total cash, cash equivalents, and marketable securities	$	2,271,241	$	2,577,981

The following table provides a reconciliation of cash, cash equivalents, restricted cash, and restricted cash equivalents reported within our condensed consolidated balance sheets as of March 31, 2023 and December 31, 2022 to the total of such amounts as presented in the condensed consolidated statements of cash flows (in thousands):


	Balance Sheet Line Item	March 31, 2023		December 31, 2022
Cash and cash equivalents	Cash and cash equivalents	$	906,634	$	1,481,269
Restricted cash – current	Other current assets	12,256		3,175
Restricted cash – noncurrent	Other assets	1,349		2,734
Restricted cash equivalents - noncurrent	Other assets	2,579		6,284
Total cash, cash equivalents, restricted cash, and restricted cash equivalents		$	922,818	$	1,493,462

See Note 9. “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 March 31, 2023 and December 31, 2022 (in thousands):


	As of March 31, 2023
	Amortized Cost		Unrealized Gains		Unrealized Losses		Allowance for Credit Losses		Fair Value
Foreign debt	$	56,952	$	—	$	430	$	23	$	56,499
U.S. debt	58,376		—		1,623		22		56,731
U.S. Treasury securities	520,705		—		189		—		520,516
Time deposits	731,114		—		—		253		730,861
Total	$	1,367,147	$	—	$	2,242	$	298	$	1,364,607


	As of December 31, 2022
	Amortized Cost		Unrealized Gains		Unrealized Losses		Allowance for Credit Losses		Fair Value
Foreign debt	$	59,940	$	—	$	140	$	23	$	59,777
U.S. debt	58,308		—		1,823		22		56,463
Time deposits	980,810		—		—		338		980,472
Total	$	1,099,058	$	—	$	1,963	$	383	$	1,096,712

The following table presents the change in the allowance for credit losses related to our available-for-sale marketable securities for the three months ended March 31, 2023 and 2022 (in thousands):


	Three Months Ended March 31,
	2023		2022
Allowance for credit losses, beginning of period	$	383	$	97
Provision for credit losses, net	253		49
Sales and maturities of marketable securities	(338)		(86)
Allowance for credit losses, end of period	$	298	$	60

The contractual maturities of our marketable securities as of March 31, 2023 were as follows (in thousands):


	Fair Value
One year or less	$	1,259,325
One year to two years	69,886
Two years to three years	31,399
Three years to four years	—
Four years to five years	—
More than five years	3,997
Total	$	1,364,607

4. Restricted Marketable Securities

Restricted marketable securities consisted of the following as of March 31, 2023 and December 31, 2022 (in thousands):


	March 31, 2023		December 31, 2022
Foreign government obligations	$	48,539	$	46,886
Supranational debt	15,614		8,661
U.S. debt	114,283		109,328
U.S. government obligations	18,155		17,195
Total restricted marketable securities	$	196,591	$	182,070

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 March 31, 2023 and December 31, 2022, such custodial accounts also included noncurrent restricted cash and cash equivalents balances of $2.6 million and $6.7 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.

See Note 9. “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 March 31, 2023 and December 31, 2022 (in thousands):


	As of March 31, 2023
	Amortized Cost		Unrealized Gains		Unrealized Losses		Allowance for Credit Losses		Fair Value
Foreign government obligations	$	64,647	$	—	$	16,098	$	10	$	48,539
Supranational debt	17,851		—		2,237		—		15,614
U.S. debt	147,842		—		33,531		28		114,283
U.S. government obligations	24,529		—		6,369		5		18,155
Total	$	254,869	$	—	$	58,235	$	43	$	196,591


	As of December 31, 2022
	Amortized Cost		Unrealized Gains		Unrealized Losses		Allowance for Credit Losses		Fair Value
Foreign government obligations	$	64,008	$	—	$	17,112	$	10	$	46,886
Supranational debt	11,146		—		2,485		—		8,661
U.S. debt	148,288		—		38,932		28		109,328
U.S. government obligations	24,551		—		7,352		4		17,195
Total	$	247,993	$	—	$	65,881	$	42	$	182,070

The following table presents the change in the allowance for credit losses related to our restricted marketable securities for the three months ended March 31, 2023 and 2022 (in thousands):


	Three Months Ended March 31,
	2023		2022
Allowance for credit losses, beginning of period	$	42	$	53
Provision for credit losses, net	1		(3)

Allowance for credit losses, end of period	$	43	$	50

As of March 31, 2023, the contractual maturities of our restricted marketable securities were between 8 years and 16 years.

5. Consolidated Balance Sheet Details

Accounts receivable trade, net

Accounts receivable trade, net consisted of the following at March 31, 2023 and December 31, 2022 (in thousands):


	March 31, 2023		December 31, 2022
Accounts receivable trade, gross	$	299,628	$	325,379
Allowance for credit losses	(1,008)		(1,042)
Accounts receivable trade, net	$	298,620	$	324,337

Allowance for credit losses

The following table presents the change in the allowance for credit losses related to our trade accounts receivable for the three months ended March 31, 2023 and 2022 (in thousands):


	Three Months Ended March 31,
	2023		2022
Allowance for credit losses, beginning of period	$	1,042	$	664
Provision for credit losses, net	(34)		(185)
Allowance for credit losses, end of period	$	1,008	$	479

Inventories

Inventories consisted of the following at March 31, 2023 and December 31, 2022 (in thousands):


	March 31, 2023		December 31, 2022
Raw materials	$	403,225	$	397,912
Work in process	75,731		66,641
Finished goods	525,804		417,218
Inventories	$	1,004,760	$	881,771
Inventories – current	$	751,407	$	621,376
Inventories – noncurrent	$	253,353	$	260,395

Other current assets

Other current assets consisted of the following at March 31, 2023 and December 31, 2022 (in thousands):


	March 31, 2023		December 31, 2022
Spare maintenance materials and parts	$	120,542	$	114,428
Operating supplies	59,697		47,492
Prepaid expenses	45,470		43,262
Prepaid income taxes	12,325		8,314
Restricted cash	12,256		3,175
Derivative instruments (1)	2,690		2,018
Other	19,722		18,384
Other current assets	$	272,702	$	237,073

——————————

(1)See Note 7. “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 March 31, 2023 and December 31, 2022 (in thousands):


	March 31, 2023		December 31, 2022
Land	$	35,305	$	35,259
Buildings and improvements	1,009,652		893,049
Machinery and equipment	2,803,499		2,762,801
Office equipment and furniture	155,321		146,467
Leasehold improvements	40,077		40,160
Construction in progress	1,343,541		1,121,938
Property, plant and equipment, gross	5,387,395		4,999,674
Accumulated depreciation	(1,528,791)		(1,462,772)
Property, plant and equipment, net	$	3,858,604	$	3,536,902

Depreciation of property, plant and equipment was $65.9 million and $58.6 million for the three months ended March 31, 2023 and 2022, respectively.

Goodwill

Goodwill for the relevant reporting unit consisted of the following at March 31, 2023 and December 31, 2022 (in thousands):


	December 31, 2022		Acquisitions (Impairments)		March 31, 2023
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 March 31, 2023 and December 31, 2022 (in thousands):


	March 31, 2023
	Gross Amount		Accumulated Amortization		Net Amount
Developed technology	$	97,347	$	(71,150)	$	26,197
Patents	8,970		(6,690)		2,280
Intangible assets, net	$	106,317	$	(77,840)	$	28,477


	December 31, 2022
	Gross Amount		Accumulated Amortization		Net Amount
Developed technology	$	97,347	$	(68,650)	$	28,697
Patents	8,970		(6,561)		2,409
Intangible assets, net	$	106,317	$	(75,211)	$	31,106

Amortization of intangible assets was $2.6 million and $2.7 million for the three months ended March 31, 2023 and 2022.

Other assets

Other assets consisted of the following at March 31, 2023 and December 31, 2022 (in thousands):


	March 31, 2023		December 31, 2022
Advance payments for raw materials	$	137,860	$	91,260
Operating lease assets (1)	91,282		93,185
Income tax receivables	56,993		56,993
Project assets	30,397		30,108
Accounts receivable unbilled, net	10,111		11,498
Restricted cash equivalents	2,579		6,284
Restricted cash	1,349		2,734
Accounts receivable trade, net	—		1,500
Other	56,149		62,630
Other assets	$	386,720	$	356,192

——————————

(1)See Note 8. “Leases” to our condensed consolidated financial statements for discussion of our lease arrangements.

Accrued expenses

Accrued expenses consisted of the following at March 31, 2023 and December 31, 2022 (in thousands):


	March 31, 2023		December 31, 2022
Accrued property, plant and equipment	$	193,399	$	148,777
Accrued freight	69,090		77,136
Accrued inventory	54,463		44,679
Accrued compensation and benefits	17,339		47,939
Accrued other taxes	12,862		19,765
Product warranty liability (1)	10,236		10,660
Other	34,523		33,826
Accrued expenses	$	391,912	$	382,782

——————————

(1)See Note 11. “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 March 31, 2023 and December 31, 2022 (in thousands):


	March 31, 2023		December 31, 2022
Operating lease liabilities (1)	$	9,363	$	9,193
Derivative instruments (2)	6,797		6,668
Other taxes payable	1,180		1,185
Other	3,291		4,199
Other current liabilities	$	20,631	$	21,245

——————————

(1)See Note 8. “Leases” to our condensed consolidated financial statements for discussion of our lease arrangements.

(2)See Note 7. “Derivative Financial Instruments” to our condensed consolidated financial statements for discussion of our derivative instruments.

Other liabilities

Other liabilities consisted of the following at March 31, 2023 and December 31, 2022 (in thousands):


	March 31, 2023		December 31, 2022
Operating lease liabilities (1)	$	38,473	$	40,589
Deferred tax liabilities, net	32,500		28,929
Product warranty liability (2)	23,079		23,127
Other	27,320		27,292
Other liabilities	$	121,372	$	119,937

——————————

(1)See Note 8. “Leases” to our condensed consolidated financial statements for discussion of our lease arrangements.

(2)See Note 11. “Commitments and Contingencies” to our condensed consolidated financial statements for discussion of our “Product Warranties.”

6. Government Grants

Government grants represent benefits provided by federal, state, or local governments that are not subject to the scope of ASC 740. We recognize a grant when we have reasonable assurance that we will comply with the grant’s conditions and that the grant will be received. Government grants whose primary condition is the purchase, construction, or acquisition of a long-lived asset are considered asset-based grants and are recognized as a reduction to such asset’s cost-basis, which reduces future depreciation. Other government grants not related to long-lived assets are considered income-based grants, which are recognized as a reduction to the related cost of activities that generated the benefit.

The following table presents the benefits recognized from income-based government grants in our condensed consolidated statements of operations for the three months ended March 31, 2023 and 2022 (in thousands):


	Three Months Ended March 31,
Income Statement Line Item		2023		2022
Cost of sales		$	70,114	$	—

In August 2022, the U.S. President signed into law the Inflation Reduction Act of 2022 (“IRA”). Among other things, the IRA offers a tax credit, pursuant to Section 45X of the Internal Revenue Code (“IRC”), for solar modules and solar module components manufactured in the United States and sold to third parties. Such credit may be refundable or transferable to a third party and is available from 2023 to 2032, subject to phase down beginning in 2030. For eligible components, the credit is equal to (i) $12 per square meter for a photovoltaic (“PV”) wafer, (ii) 4 cents multiplied by the capacity of a PV cell, and (iii) 7 cents multiplied by the capacity of a PV module. Based on the current form factor of our modules, we expect to qualify for a credit of approximately 17 cents per watt for each module produced in the United States and sold to a third party. We recognize such credit as a reduction to “Cost of sales” in the period the modules are sold to customers. Such credit is also reflected on our condensed consolidated balance sheets within “Government grants receivable.”

7. 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 9. “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.

Table of Contents

The following tables present the fair values of derivative instruments included in our condensed consolidated balance sheets as of March 31, 2023 and December 31, 2022 (in thousands):


	March 31, 2023
	Other Current Assets		Other Current Liabilities
Derivatives designated as hedging instruments:
Commodity swap contracts	$	—	$	2,323
Total derivatives designated as hedging instruments	$	—	$	2,323

Derivatives not designated as hedging instruments:
Foreign exchange forward contracts	$	2,690	$	4,474

Total derivatives not designated as hedging instruments	$	2,690	$	4,474
Total derivative instruments	$	2,690	$	6,797


	December 31, 2022
	Other Current Assets		Other Assets		Other Current Liabilities		Other Liabilities
Derivatives designated as hedging instruments:
Commodity swap contracts	$	—	$	17	$	4,447	$	144
Total derivatives designated as hedging instruments	$	—	$	17	$	4,447	$	144

Derivatives not designated as hedging instruments:
Foreign exchange forward contracts	$	2,018	$	—	$	2,221	$	—
Total derivatives not designated as hedging instruments	$	2,018	$	—	$	2,221	$	—
Total derivative instruments	$	2,018	$	17	$	6,668	$	144

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 three months ended March 31, 2023 and 2022 (in thousands):


	Foreign Exchange Forward Contracts		Commodity Swap Contracts		Total
Balance as of December 31, 2022	$	—	$	(7,242)	$	(7,242)
Amounts recognized in other comprehensive income (loss)	—		254		254

Amounts reclassified to earnings impacting:

Cost of sales	—		2,668		2,668



Balance as of March 31, 2023	$	—	$	(4,320)	$	(4,320)

Balance as of December 31, 2021	$	1,126	$	—	$	1,126
Amounts recognized in other comprehensive income (loss)	426		(402)		24
Amounts reclassified to earnings impacting:

Cost of sales	(560)		—		(560)



Balance as of March 31, 2022	$	992	$	(402)	$	590

During the three months ended March 31, 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.

Table of Contents

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 three months ended March 31, 2023 (in thousands):


	Foreign Exchange Forward Contracts
Balance as of December 31, 2022	$	(667)
Amounts recognized in other comprehensive income (loss)	—







Balance as of March 31, 2023	$	(667)

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 months ended March 31, 2023 and 2022 (in thousands):


		Amount of Gain (Loss) Recognized in Income
		Three Months Ended March 31,
	Income Statement Line Item	2023		2022
Foreign exchange forward contracts	Cost of sales	$	—	$	78
Foreign exchange forward contracts	Foreign currency loss, net	(4,683)		18,981

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. These foreign exchange forward contracts qualify for accounting as cash flow hedges in accordance with Accounting Standards Codification (“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.

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 matured in December 2022. Such foreign exchange forward contract qualified for and was designated as a hedge of our net investment in a certain foreign subsidiary in Japan. 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.

Table of Contents

Transaction Exposure and Economic Hedging

Many of our subsidiaries have assets and liabilities (primarily cash, receivables, deferred taxes, payables, accrued expenses, operating lease liabilities, long-term debt, and solar module collection and recycling liabilities) that are denominated in currencies other than the subsidiaries’ functional currencies. Changes in the exchange rates between the functional currencies of our subsidiaries and the other currencies in which these assets and liabilities are denominated will create fluctuations in our reported condensed consolidated statements of operations and cash flows. We may enter into foreign exchange forward contracts or other financial instruments to economically hedge assets and liabilities against the effects of currency exchange rate fluctuations. The gains and losses on 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 March 31, 2023 and December 31, 2022, the notional values of our foreign exchange forward contracts that do not qualify for hedge accounting were as follows (notional amounts and U.S. dollar equivalents in millions):


	March 31, 2023
Transaction	Currency	Notional Amount	USD Equivalent







Sell	Canadian dollar	CAD 4.2	$3.1

Sell	Chilean peso	CLP 1,979.6	$2.5


Purchase	Euro	€96.4	$104.5
Sell	Euro	€28.8	$31.2
Purchase	Indian rupee	INR 12,009.8	$146.0
Sell	Indian rupee	INR 26,911.9	$327.1
Purchase	Japanese yen	¥2,151.6	$16.3
Sell	Japanese yen	¥1,971.1	$14.9
Purchase	Malaysian ringgit	MYR 113.3	$25.7
Sell	Malaysian ringgit	MYR 35.0	$7.9

Sell	Mexican peso	MXN 34.6	$1.9
Purchase	Singapore dollar	SGD 21.4	$16.1


	December 31, 2022
Transaction	Currency	Notional Amount	USD Equivalent
Sell	Canadian dollar	CAD 4.2	$3.1
Sell	Chilean peso	CLP 5,996.5	$7.0
Purchase	Euro	€160.2	$170.5
Sell	Euro	€38.4	$40.9
Sell	Indian rupee	INR 27,119.5	$327.4
Purchase	Japanese yen	¥2,982.7	$22.4
Sell	Japanese yen	¥8,950.3	$67.1
Purchase	Malaysian ringgit	MYR 99.8	$22.6
Sell	Malaysian ringgit	MYR 13.7	$3.1
Sell	Mexican peso	MXN 34.6	$1.8
Purchase	Singapore dollar	SGD 1.4	$1.0

Table of Contents

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 year ended December 31, 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 March 31, 2023, the notional value associated with these contracts was $18.6 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 March 31, 2023 and December 31, 2022. In the following 12 months, we expect to reclassify into earnings $4.2 million of net unrealized losses related to these commodity swap contracts that are included in “Accumulated other comprehensive loss” at March 31, 2023 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.

8. Leases

Our lease arrangements include land associated with 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 months ended March 31, 2023 and 2022, and as of March 31, 2023 and December 31, 2022 (in thousands):


	Three Months Ended March 31,
		2023			2022
Operating lease cost		$	2,937		$	4,377
Variable lease cost		895			599
Short-term lease cost		70			31
Total lease cost		$	3,902		$	5,007

Payments of amounts included in the measurement of operating lease liabilities		$	2,753		$	4,136
Lease assets obtained in exchange for operating lease liabilities		$	251		$	534

		March 31, 2023			December 31, 2022
Operating lease assets		$	91,282		$	93,185
Operating lease liabilities – current		9,363			9,193
Operating lease liabilities – noncurrent		38,473			40,589

Weighted-average remaining lease term		5 years			6 years
Weighted-average discount rate		5.1		%	5.1		%

Table of Contents

As of March 31, 2023, the future payments associated with our lease liabilities were as follows (in thousands):


	Total Lease Liabilities
Remainder of 2023	$	8,558
2024	10,999
2025	9,899
2026	8,367
2027	5,777
2028	5,900
Thereafter	5,490
Total future payments	54,990
Less: interest	(7,154)
Total lease liabilities	$	47,836

9. 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 and Restricted Cash Equivalents. At March 31, 2023 and December 31, 2022, our cash equivalents and restricted cash equivalents consisted of money market funds. We value our cash equivalents and restricted cash equivalents using observable inputs that reflect quoted prices for securities with identical characteristics and classify the valuation techniques that use these inputs as Level 1.

*•*Marketable Securities and Restricted Marketable Securities. At March 31, 2023 and December 31, 2022, our marketable securities consisted of foreign debt, U.S. debt, U.S. Treasury securities, 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 March 31, 2023 and December 31, 2022, our derivative assets and liabilities consisted of foreign exchange forward contracts involving major currencies and commodity swap contracts involving major commodity prices. Since our derivative assets and liabilities are not traded on an exchange, we value them using standard industry valuation models. As applicable, these models project future cash flows and discount the amounts to a present value using market-based observable inputs, including 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.

Table of Contents

At March 31, 2023 and December 31, 2022, 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
	March 31, 2023		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Cash equivalents:
Money market funds	$	7,097	$	7,097	$	—	$	—
Restricted cash equivalents:
Money market funds	2,579		2,579		—		—
Marketable securities:
Foreign debt	56,499		—		56,499		—
U.S. debt	56,731		—		56,731		—
U.S. Treasury securities	520,516		520,516		—		—
Time deposits	730,861		730,861		—		—
Restricted marketable securities	196,591		—		196,591		—
Derivative assets	2,690		—		2,690		—
Total assets	$	1,573,564	$	1,261,053	$	312,511	$	—
Liabilities:
Derivative liabilities	$	6,797	$	—	$	6,797	$	—


			Fair Value Measurements at Reporting Date Using
	December 31, 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	$	4,324	$	4,324	$	—	$	—
Restricted cash equivalents:
Money market funds	6,284		6,284		—		—
Marketable securities:
Foreign debt	59,777		—		59,777		—

U.S. debt	56,463		—		56,463		—
Time deposits	980,472		980,472		—		—
Restricted marketable securities	182,070		—		182,070		—
Derivative assets	2,035		—		2,035		—
Total assets	$	1,291,425	$	991,080	$	300,345	$	—
Liabilities:
Derivative liabilities	$	6,812	$	—	$	6,812	$	—

Table of Contents

Fair Value of Financial Instruments

At March 31, 2023 and December 31, 2022, the carrying values and fair values of our financial instruments not measured at fair value were as follows (in thousands):


	March 31, 2023				December 31, 2022
	Carrying Value		Fair Value		Carrying Value		Fair Value
Assets:
Government grants receivable - noncurrent	$	70,114	$	69,243	$	—	$	—
Accounts receivable unbilled, net - noncurrent	10,111		9,178		11,498		10,304
Accounts receivable trade, net - noncurrent	—		—		1,500		1,339

Liabilities:
Long-term debt (1)	$	321,000	$	283,996	$	185,000	$	160,986

——————————

(1)Excludes unamortized 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, government grants receivable, and long-term debt are considered Level 2 measurements under the fair value hierarchy.

Credit Risk

We have certain financial and derivative instruments that subject us to credit risk. These consist primarily of cash, cash equivalents, marketable securities, accounts receivable, restricted cash, restricted cash equivalents, 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.

Table of Contents

10. Debt

Our long-term debt consisted of the following at March 31, 2023 and December 31, 2022 (in thousands):


		Balance (USD)
Loan Agreement	Currency	March 31, 2023		December 31, 2022
India Credit Facility	USD	$	321,000	$	185,000
Less: unamortized issuance costs		(622)		(651)
Total long-term debt		$	320,378	$	184,349

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 the U.S. International Development Finance Corporation (“DFC”) for aggregate borrowings up to $500.0 million for the development and construction of an approximately 3.3 GWDC solar module manufacturing facility in 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.

Interest Rate Risk

As of March 31, 2023, our long-term debt borrowing rates were as follows:


Loan Agreement						Interest Rate						Effective Interest Rate
India Credit Facility						U.S. Treasury Constant Maturity Yield plus 1.75%						5.36%

Future Principal Payments

At March 31, 2023, the future principal payments on our long-term debt were due as follows (in thousands):


	Total Debt
Remainder of 2023	$	—
2024	22,759
2025	58,358
2026	58,358
2027	58,390
2028	58,422
Thereafter	64,713
Total long-term debt future principal payments	$	321,000

Table of Contents

11. 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 March 31, 2023, the majority of these commercial commitments supported our modules business.

As of March 31, 2023, the issued and outstanding amounts and available capacities under these commitments were as follows (in millions):


	Issued and Outstanding		Available Capacity
Bilateral facilities (1)	$	119.3	$	126.1
Surety bonds	8.7		233.1

——————————

(1)Of the total letters of credit issued under the bilateral facilities, $13.0 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 months ended March 31, 2023 and 2022 were as follows (in thousands):


	Three Months Ended March 31,
	2023		2022
Product warranty liability, beginning of period	$	33,787	$	52,553
Accruals for new warranties issued	994		848
Settlements	(1,326)		(6,002)
Changes in estimate of product warranty liability	(140)		(383)
Product warranty liability, end of period	$	33,315	$	47,016
Current portion of warranty liability	$	10,236	$	11,809
Noncurrent portion of warranty liability	$	23,079	$	35,207

Table of Contents

Indemnifications

In certain limited circumstances, we have provided indemnifications to customers or other parties under which we are contractually obligated to compensate such parties for losses they suffer resulting from a breach of a representation, warranty, or covenant; the resolution of specific matters associated with a project’s development or construction; or guarantees of a third party’s payment or performance obligations. 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 March 31, 2023 and December 31, 2022, we accrued $2.5 million of current indemnification liabilities. As of March 31, 2023, the maximum potential amount of future payments under our indemnifications was $53.8 million, and we held insurance and other instruments allowing us to recover up to $27.3 million of potential amounts paid under the indemnifications.

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 are 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.

Our module collection and recycling liability was $130.3 million and $128.1 million as of March 31, 2023 and December 31, 2022, respectively. See Note 4. “Restricted Marketable Securities” to our condensed consolidated financial statements for more information about our arrangements for funding this liability.

Table of Contents

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. 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. On January 10, 2023, the Court granted the Putative Class Action Defendants’ motion to dismiss in full, with leave to amend by February 10, 2023. On February 10, 2023, Lead Plaintiffs filed a Second Amended Complaint. Putative Class Action Defendants filed a motion to dismiss the Second Amended Complaint on February 24, 2023. Lead Plaintiffs filed their opposition to the motion to dismiss on March 10, 2023, and Putative Class Action Defendants filed a reply in support of their motion to dismiss on March 17, 2023. 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 possible 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-JAT, was filed by a putative stockholder purportedly on behalf of the Company in the Arizona District Court against our current directors and certain 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. On February 17, 2023, the case was transferred to Judge Liburdi, who is also presiding over the related putative class action. On March 10, 2023, the plaintiff filed an Amended Complaint. On April 10, 2023, the Derivative Action Defendants filed a motion to dismiss the Amended Complaint. The plaintiff’s deadline to oppose the Derivative Action Defendants’ motion to dismiss is May 18, 2023. 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 possible 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. The Company and its subsidiaries deny the claims, and defended the claims in arbitration hearings, which concluded in late February 2023. At this time, the Company believes that Southern is seeking damages of approximately $60 million. The parties are in the process of submitting post-hearing briefs and proposals, which are due in early May 2023. The arbitration panel will choose from the parties’ proposals

Table of Contents

by issuing an award later this year. At this time, given the inherent risks and uncertainties involved in arbitration, we believe the likelihood of a potential loss is reasonably possible, but we are unable to estimate the amount or range of potential loss, if any, from this arbitration.

During the year ended December 31, 2022, we received several 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 Rovshan Sade (“Sade”), the owner of a company called Trabant Solar, Inc. In January 2023, we were notified by two of our customers that Sade served them with patent infringement complaints, and we have assumed the defense of these claims. We have conducted due diligence on the patents and claims and believe that we will prevail in the actions. Additionally, we anticipate the commencement of an Inter Partes Review before the United States Patent and Trademark Office seeking to invalidate such claims. 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 possible loss, if any, from these actions.

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, 2022 was filed with the SEC on February 28, 2023.

12. Revenue from Contracts with Customers

The following table presents the disaggregation of revenue from contracts with customers for the three months ended March 31, 2023 and 2022 along with the reportable segment for each category (in thousands):


		Three Months Ended March 31,
Category	Segment	2023		2022
Solar modules	Modules	$	536,590	$	354,881
Solar power systems	Other	11,261		1,969
O&M services	Other	452		3,897
Energy generation	Other	(17)		6,293



Net sales		$	548,286	$	367,040

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, 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 months ended March 31, 2023, revenue increased $5.4 million due to net changes in transaction prices for four projects, which represented 23.8% of the aggregate revenue for such projects.

Table of Contents

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 three months ended March 31, 2023 (in thousands):


	March 31, 2023		December 31, 2022		Three Month Change
Accounts receivable unbilled, net (1)	$	36,005	$	42,152	$	(6,147)	(15)	%
Deferred revenue	$	1,348,381	$	1,207,940	$	140,441	12	%

——————————

(1)Includes $10.1 million and $11.5 million of noncurrent accounts receivable unbilled, net classified as “Other assets” on our condensed consolidated balance sheets as of March 31, 2023 and December 31, 2022, respectively.

During the three months ended March 31, 2023, our contract assets decreased by $6.1 million primarily due to billings for a certain prior project sale, offset by unbilled receivables associated with variable consideration recognized for the sale of certain development projects in a prior period. During the three months ended March 31, 2023, our contract liabilities increased by $140.4 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 prior years. During the three months ended March 31, 2023 and 2022, we recognized revenue of $90.4 million and $43.7 million, respectively, that was included in the corresponding contract liability balance at the beginning of the periods.

As of March 31, 2023, we had entered into contracts with customers for the future sale of 69.4 GWDC of solar modules for an aggregate transaction price of $20.4 billion, which we expect to recognize as revenue through 2029 as we transfer control of the modules to the customers. Such aggregate transaction price excludes estimates of variable consideration associated with (i) future module technology improvements, including new product designs and enhancements to certain energy related attributes, (ii) the extension of the investment tax credit (“ITC”), (iii) sales freight in excess of a defined threshold, (iv) changes to certain commodity prices, and (v) the module wattage committed for delivery, among other things. As a result, the revenue recognized from such contracts may increase or decrease in future periods relative to the original transaction price. These contracts may also be subject to amendments made by us or requested by our customers and approved by us. 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.

Table of Contents

13. Share-Based Compensation

The following table presents share-based compensation expense recognized in our condensed consolidated statements of operations for the three months ended March 31, 2023 and 2022 (in thousands):


	Three Months Ended March 31,
	2023		2022
Cost of sales	$	926	$	498
Selling, general and administrative	4,782		2,574
Research and development	877		431
Production start-up	15		—
Total share-based compensation expense	$	6,600	$	3,503

As of March 31, 2023, we had $53.8 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 1.8 years.

In March 2020, 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 2022. Vesting of the 2020 grants of performance units was contingent upon the relative attainment of target contracted revenue, module wattage, and return on capital metrics. In March 2023, the compensation committee certified the achievement of the vesting conditions applicable to the grants, which approximated the target level of performance. Accordingly, each participant received one share of common stock for each vested performance unit granted, net of any tax withholdings.

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.

In March 2023, 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 2025. Vesting of the 2023 grants of performance units is contingent upon the relative attainment of target contracted revenue, production, and operating margin 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.

Table of Contents

14. Income Taxes

In August 2022, the U.S. President signed into law the IRA, which revised U.S. tax law by, among other things, including a new corporate alternative minimum tax of 15% on certain large corporations, imposing a 1% excise tax on stock buybacks, and providing various incentives to address climate change, including the introduction of the advanced manufacturing production credit. 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 (“IRS”) and U.S. Treasury Department, we will continue to monitor these developments and evaluate the potential future impact to our results of operations.

In November 2022, the U.S. Treasury Department released proposed foreign tax credit (“FTC”) regulations addressing various aspects of the U.S. FTC regime. Among other items, these proposed regulations provide certain exceptions for determining creditable foreign withholding taxes. Taxpayers may rely on these proposed regulations, which apply to tax years beginning on or after December 28, 2021. As a result of these proposed regulations, foreign withholding taxes will continue to be creditable.

Our effective tax rate was (19.3)% and 31.1% for the three months ended March 31, 2023 and 2022, respectively. The decrease in our effective tax rate was primarily driven by higher excess tax benefits associated with share-based compensation and the effect of the advanced manufacturing production credit described in Note 6. “Government Grants” to our condensed consolidated financial statements. 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 excess tax benefits associated with share-based compensation and the effect of tax law changes associated with the IRA described above, partially offset by losses in certain jurisdictions for which no tax benefit could be recorded.

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 through 2023, followed by reduced annual tax rates of 5% through 2032 and 10% through 2036. Such long-term tax incentive is 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 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.

Table of Contents

15. Net Income (Loss) per Share

The calculation of basic and diluted net income (loss) per share for the three months ended March 31, 2023 and 2022 was as follows (in thousands, except per share amounts):


	Three Months Ended March 31,
	2023		2022
Basic net income (loss) per share
Numerator:
Net income (loss)	$	42,561	$	(43,255)
Denominator:
Weighted-average common shares outstanding	106,675		106,412

Diluted net income (loss) per share
Denominator:
Weighted-average common shares outstanding	106,675		106,412
Effect of restricted stock and performance units	479		—
Weighted-average shares used in computing diluted net income (loss) per share	107,154		106,412

Net income (loss) per share:
Basic	$	0.40	$	(0.41)
Diluted	$	0.40	$	(0.41)

The following table summarizes the potential shares of common stock that were excluded from the computation of diluted net income (loss) per share for the three months ended March 31, 2023 and 2022 as such shares would have had an anti-dilutive effect (in thousands):


	Three Months Ended March 31,
	2023	2022
Anti-dilutive shares	11	504

Table of Contents

16. Accumulated Other Comprehensive Loss

The following table presents the changes in accumulated other comprehensive loss, net of tax, for the three months ended March 31, 2023 (in thousands):


	Foreign Currency Translation Adjustment		Unrealized (Loss) Gain on Marketable Securities and Restricted Marketable Securities		Unrealized (Loss) Gain on Derivative Instruments		Total
Balance as of December 31, 2022	$	(121,473)	$	(64,780)	$	(5,564)	$	(191,817)
Other comprehensive income before reclassifications	2,791		7,368		254		10,413
Amounts reclassified from accumulated other comprehensive loss	(136)		—		2,668		2,532
Net tax effect	—		(402)		(708)		(1,110)
Net other comprehensive income	2,655		6,966		2,214		11,835
Balance as of March 31, 2023	$	(118,818)	$	(57,814)	$	(3,350)	$	(179,982)

The following table presents the pretax amounts reclassified from accumulated other comprehensive loss into our condensed consolidated statements of operations for the three months ended March 31, 2023 and 2022 (in thousands):


Comprehensive Income Components	Income Statement Line Item	Three Months Ended March 31,
	2023	2022
Foreign currency translation adjustment:
Foreign currency translation adjustment	Cost of sales	$	146	$	—
Foreign currency translation adjustment	Other expense, net	(10)		(5)
Total foreign currency translation adjustment		136		(5)

Unrealized (loss) gain on derivative contracts:
Foreign exchange forward contracts	Cost of sales	—		560
Commodity swap contracts	Cost of sales	(2,668)		—
Total unrealized (loss) gain on derivative contracts		(2,668)		560
Total (loss) gain reclassified		$	(2,532)	$	555

Table of Contents

17. 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 systems, utilities, independent power producers, commercial and industrial companies, and other system owners. Our residual business operations include certain project development activities, O&M services, the results of operations from PV solar power systems we owned and operated in certain international regions, and the sale of such systems to third-party customers.

See Note 19. “Segment and Geographical Information” in our Annual Report on Form 10-K for the year ended December 31, 2022 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 months ended March 31, 2023 and 2022 and as of March 31, 2023 and December 31, 2022 (in thousands):


	Three Months Ended March 31, 2023						Three Months Ended March 31, 2022
	Modules		Other		Total		Modules		Other		Total
Net sales	$	536,590	$	11,696	$	548,286	$	354,881	$	12,159	$	367,040
Gross profit	106,894		5,157		112,051		11,189		274		11,463
Depreciation and amortization expense	61,583		2		61,585		56,199		2,846		59,045







	March 31, 2023						December 31, 2022
	Modules		Other		Total		Modules		Other		Total
Goodwill	$	14,462	$	—	$	14,462	$	14,462	$	—	$	14,462

Table of Contents

Previous: Cover and table of contents · Next: Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations