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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-Q

(Mark one)

☒    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2022
or
☐    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to

Commission file number: 001-33156
fslr-20220331_g1.jpg
First Solar, Inc.
(Exact name of registrant as specified in its charter)
Delaware 20-4623678
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)

350 West Washington Street, Suite 600
Tempe, Arizona 85281
(Address of principal executive offices, including zip code)

(602) 414-9300
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading symbol(s) Name of each exchange on which registered
Common stock, $0.001 par value FSLR The NASDAQ Stock Market LLC

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

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

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

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

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

As of April 22, 2022, 106,584,190 shares of the registrant’s common stock, $0.001 par value per share, were outstanding.



FIRST SOLAR, INC.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2022

TABLE OF CONTENTS
    Page
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6


PART I. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements (Unaudited)

FIRST SOLAR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended
March 31,
2022 2021
Net sales $ 367,040  $ 803,374 
Cost of sales 355,577  618,607 
Gross profit 11,463  184,767 
Operating expenses:
Selling, general and administrative 36,728  52,087 
Research and development 27,108  19,873 
Production start-up 7,338  11,354 
Total operating expenses 71,174  83,314 
Gain on sales of businesses, net 1,907  150,895 
Operating (loss) income (57,804) 252,348 
Foreign currency loss, net (4,198) (2,595)
Interest income 2,325  956 
Interest expense, net (2,865) (2,996)
Other (expense) income, net (212) 8,448 
(Loss) income before taxes (62,754) 256,161 
Income tax benefit (expense) 19,499  (46,490)
Net (loss) income $ (43,255) $ 209,671 
Net (loss) income per share:
Basic $ (0.41) $ 1.98 
Diluted $ (0.41) $ 1.96 
Weighted-average number of shares used in per share calculations:
Basic 106,412  106,088 
Diluted 106,412  106,890 

See accompanying notes to these condensed consolidated financial statements.
1
FIRST SOLAR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
Three Months Ended
March 31,
2022 2021
Net (loss) income $ (43,255) $ 209,671 
Other comprehensive loss:
Foreign currency translation adjustments
 (10,125) (9,716)
Unrealized loss on marketable securities and restricted marketable securities, net of tax of $1,246 and $1,121 (22,521) (16,590)
Unrealized (loss) gain on derivative instruments, net of tax of $94 and $(637) (442) 3,382 
Other comprehensive loss (33,088) (22,924)
Comprehensive (loss) income $ (76,343) $ 186,747 

See accompanying notes to these condensed consolidated financial statements.

2
FIRST SOLAR, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)
 
 
 March 31,
2022		 December 31,
2021
ASSETS
Current assets:  
Cash $ 1,326,363  $ 1,450,654 
Marketable securities 223,091  375,389 
Accounts receivable trade, net 293,357  429,436 
Accounts receivable unbilled, net 28,764  25,273 
Inventories 840,750  666,299 
Other current assets 282,668  244,192 
Total current assets 2,994,993  3,191,243 
Property, plant and equipment, net 2,785,824  2,649,587 
PV solar power systems, net 214,386  217,293 
Project assets 391,774  315,488 
Deferred tax assets, net 61,794  59,162 
Restricted marketable securities 220,167  244,726 
Goodwill 14,462  14,462 
Intangible assets, net 42,769  45,509 
Inventories 237,854  237,512 
Other assets 435,202  438,764 
Total assets $ 7,399,225  $ 7,413,746 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:    
Accounts payable $ 146,233  $ 193,374 
Income taxes payable 4,759  4,543 
Accrued expenses 334,975  288,450 
Current portion of long-term debt 4,701  3,896 
Deferred revenue 218,923  201,868 
Other current liabilities 25,399  34,747 
Total current liabilities 734,990  726,878 
Accrued solar module collection and recycling liability 137,455  139,145 
Long-term debt 247,354  236,005 
Other liabilities 404,251  352,167 
Total liabilities 1,524,050  1,454,195 
Commitments and contingencies
Stockholders’ equity:
Common stock, $0.001 par value per share; 500,000,000 shares authorized; 106,583,300 and 106,332,315 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively 107  106 
Additional paid-in capital 2,863,318  2,871,352 
Accumulated earnings 3,141,200  3,184,455 
Accumulated other comprehensive loss (129,450) (96,362)
Total stockholders’ equity 5,875,175  5,959,551 
Total liabilities and stockholders’ equity $ 7,399,225  $ 7,413,746 

See accompanying notes to these condensed consolidated financial statements.

3
FIRST SOLAR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands)
(Unaudited)
Three Months Ended March 31, 2022
  Common Stock Additional
Paid-In
Capital		 Accumulated Earnings Accumulated
Other
Comprehensive (Loss) Income		 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 
Three Months Ended March 31, 2021
  Common Stock Additional
Paid-In
Capital		 Accumulated Earnings Accumulated
Other
Comprehensive (Loss) Income		 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 —  —  —  209,671  —  209,671 
Other comprehensive loss —  —  —  —  (22,924) (22,924)
Common stock issued for share-based compensation
 536  —  —  —  —  — 
Tax withholding related to vesting of restricted stock
 (205) —  (15,689) —  —  (15,689)
Share-based compensation expense
 —  —  2,794  —  —  2,794 
Balance at March 31, 2021 106,311  $ 106  $ 2,853,891  $ 2,925,433  $ (84,650) $ 5,694,780 

See accompanying notes to these condensed consolidated financial statements.
4
FIRST SOLAR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
  Three Months Ended
March 31,
2022 2021
Cash flows from operating activities:    
Net (loss) income $ (43,255) $ 209,671 
Adjustments to reconcile net (loss) income to cash used in operating activities:
Depreciation, amortization and accretion 65,207  63,205 
Impairments and net losses on disposal of long-lived assets 1,892  4,501 
Share-based compensation 3,503  3,115 
Deferred income taxes 1,083  (11,538)
Gain on sales of businesses, net (1,907) (150,895)
Gains on sales of marketable securities and restricted marketable securities —  (11,696)
Other, net 273  1,412 
Changes in operating assets and liabilities:
Accounts receivable, trade and unbilled 144,286  (320,461)
Other current assets (15,044) (42,750)
Inventories (175,990) 12,602 
Project assets and PV solar power systems (98,695) 59,623 
Other assets (15,794) (20,814)
Income tax receivable and payable (23,502) 33,278 
Accounts payable (55,371) 7,853 
Accrued expenses and other liabilities 74,475  (116,584)
Net cash used in operating activities (138,839) (279,478)
Cash flows from investing activities:
Purchases of property, plant and equipment (154,761) (90,155)
Purchases of marketable securities (750,220) (292,308)
Proceeds from sales and maturities of marketable securities and restricted marketable securities 900,165  508,289 
Proceeds from sales of businesses 1,860  145,969 
Other investing activities 12  43 
Net cash (used in) provided by investing activities (2,944) 271,838 
Cash flows from financing activities:
Repayment of long-term debt (737) (37,378)
Proceeds from borrowings under long-term debt, net of discounts and issuance costs 18,006  21,616 
Payments of tax withholdings for restricted shares (11,505) (15,689)
Net cash provided by (used in) financing activities 5,764  (31,451)
Effect of exchange rate changes on cash, cash equivalents and restricted cash 15,162  (652)
Net decrease in cash, cash equivalents and restricted cash (120,857) (39,743)
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 $ 1,334,980  $ 1,233,851 
Supplemental disclosure of noncash investing and financing activities:    
Property, plant and equipment acquisitions funded by liabilities $ 105,643  $ 76,095 
Proceeds to be received from sales of businesses $ —  $ 156,965 

See accompanying notes to these condensed consolidated financial statements.
5
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, 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

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 received initial consideration of $146.0 million. As a result of this transaction, we recognized a gain of $119.2 million, net of transaction costs, during the three months ended March 31, 2021, 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 certain international 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 $1.9 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.

6
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 $31.8 million, net of transaction costs, during the three months ended March 31, 2021, which was included in “Gain on sales of businesses, net” in our condensed consolidated statements of operations.

3. Cash and Marketable Securities

Cash and marketable securities consisted of the following at March 31, 2022 and December 31, 2021 (in thousands):
March 31,
2022		 December 31,
2021
Cash $ 1,326,363  $ 1,450,654 
Marketable securities:
Foreign debt 85,010  103,317 
U.S. debt 18,030  18,627 
Time deposits 120,051  253,445 
Total marketable securities 223,091  375,389 
Total cash and marketable securities $ 1,549,454  $ 1,826,043 

The following table provides a reconciliation of cash and restricted cash reported within our condensed consolidated balance sheets as of March 31, 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 March 31,
2022		 December 31,
2021
Cash Cash $ 1,326,363  $ 1,450,654 
Restricted cash – current
 Other current assets 2,353  1,532 
Restricted cash – noncurrent
 Other assets 6,264  3,651 
Total cash and restricted cash $ 1,334,980  $ 1,455,837 

During the three months ended March 31, 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.

7
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, 2022 and December 31, 2021 (in thousands):
  As of March 31, 2022
Amortized
Cost		 Unrealized
Gains		 Unrealized
Losses		 Allowance for Credit Losses Fair
Value
Foreign debt $ 85,228  $ 26  $ 220  $ 24  $ 85,010 
U.S. debt 19,000  —  968  2  18,030 
Time deposits 120,085  —  —  34  120,051 
Total $ 224,313  $ 26  $ 1,188  $ 60  $ 223,091 
  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 three months ended March 31, 2022 and 2021 (in thousands):
Three Months Ended
March 31,
2022 2021
Allowance for credit losses, beginning of period $ 97  $ 121 
Provision for credit losses, net 49  122 
Sales and maturities of marketable securities (86) (105)
Allowance for credit losses, end of period $ 60  $ 138 

The contractual maturities of our marketable securities as of March 31, 2022 were as follows (in thousands):
Fair
Value
One year or less $ 214,062 
One year to two years — 
Two years to three years — 
Three years to four years 4,635 
Four years to five years — 
More than five years 4,394 
Total $ 223,091 

8
4. Restricted Marketable Securities

Restricted marketable securities consisted of the following as of March 31, 2022 and December 31, 2021 (in thousands):
 
 
 March 31,
2022		 December 31,
2021
Foreign government obligations $ 57,867  $ 64,855 
Supranational debt 10,085  10,997 
U.S. debt 131,862  145,326 
U.S. government obligations 20,353  23,548 
Total restricted marketable securities $ 220,167  $ 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 March 31, 2022 and December 31, 2021, such custodial accounts also included noncurrent restricted cash balances of $3.5 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 three months ended March 31, 2021, we sold all our restricted marketable securities for proceeds of $258.9 million and realized gains of $11.7 million on such sales. 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 March 31, 2022 and December 31, 2021 (in thousands):

  As of March 31, 2022
Amortized
Cost		 Unrealized
Gains		 Unrealized
Losses		 Allowance for Credit Losses Fair
Value
Foreign government obligations $ 65,733  $ —  $ 7,854  $ 12  $ 57,867 
Supranational debt 11,310  —  1,225  —  10,085 
U.S. debt 149,623  —  17,728  33  131,862 
U.S. government obligations 24,618  —  4,260  5  20,353 
Total $ 251,284  $ —  $ 31,067  $ 50  $ 220,167 
9
  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 three months ended March 31, 2022 and 2021 (in thousands):
Three Months Ended
March 31,
2022 2021
Allowance for credit losses, beginning of period $ 53  $ 13 
Provision for credit losses, net (3) 16 
Sales of restricted marketable securities —  (29)
Allowance for credit losses, end of period $ 50  $ — 

As of March 31, 2022, the contractual maturities of our restricted marketable securities were between 9 years and 17 years.

5. Consolidated Balance Sheet Details

Accounts receivable trade, net

Accounts receivable trade, net consisted of the following at March 31, 2022 and December 31, 2021 (in thousands):
  March 31,
2022		 December 31,
2021
Accounts receivable trade, gross $ 293,836  $ 430,100 
Allowance for credit losses (479) (664)
Accounts receivable trade, net $ 293,357  $ 429,436 

Accounts receivable unbilled, net

Accounts receivable unbilled, net consisted of the following at March 31, 2022 and December 31, 2021 (in thousands):
  March 31,
2022		 December 31,
2021
Accounts receivable unbilled, gross $ 28,764  $ 25,336 
Allowance for credit losses —  (63)
Accounts receivable unbilled, net $ 28,764  $ 25,273 

10
Allowance for credit losses

The following tables present the change in the allowances for credit losses related to our accounts receivable for the three months ended March 31, 2022 and 2021 (in thousands):
Three Months Ended
March 31,
Accounts receivable trade 2022 2021
Allowance for credit losses, beginning of period $ 664  $ 3,009 
Provision for credit losses, net (185) 2,915 
Writeoffs —  (97)
Allowance for credit losses, end of period $ 479  $ 5,827 
Three Months Ended
March 31,
Accounts receivable unbilled 2022 2021
Allowance for credit losses, beginning of period $ 63  $ 303 
Provision for credit losses, net (63) (27)
Allowance for credit losses, end of period $ —  $ 276 

Inventories

Inventories consisted of the following at March 31, 2022 and December 31, 2021 (in thousands):
  March 31,
2022		 December 31,
2021
Raw materials $ 399,138  $ 404,727 
Work in process 57,854  65,573 
Finished goods 621,612  433,511 
Inventories $ 1,078,604  $ 903,811 
Inventories – current $ 840,750  $ 666,299 
Inventories – noncurrent $ 237,854  $ 237,512 

Other current assets

Other current assets consisted of the following at March 31, 2022 and December 31, 2021 (in thousands):
  March 31,
2022		 December 31,
2021
Spare maintenance materials and parts $ 111,651  $ 112,070 
Prepaid income taxes 64,705  41,379 
Operating supplies 40,896  41,034 
Prepaid expenses 30,186  28,232 
Derivative instruments (1) 14,854  5,816 
Restricted cash 2,353  1,532 
Other 18,023  14,129 
Other current assets $ 282,668  $ 244,192 
——————————
(1)See Note 6. “Derivative Financial Instruments” to our condensed consolidated financial statements for discussion of our derivative instruments.

11
Property, plant and equipment, net

Property, plant and equipment, net consisted of the following at March 31, 2022 and December 31, 2021 (in thousands):
  March 31,
2022		 December 31,
2021
Land $ 18,041  $ 18,359 
Buildings and improvements 693,740  693,289 
Machinery and equipment 2,566,495  2,527,627 
Office equipment and furniture 140,292  139,611 
Leasehold improvements 40,594  40,517 
Construction in progress 614,845  461,708 
Property, plant and equipment, gross 4,074,007  3,881,111 
Accumulated depreciation (1,288,183) (1,231,524)
Property, plant and equipment, net $ 2,785,824  $ 2,649,587 

Depreciation of property, plant and equipment was $58.6 million and $56.8 million for the three months ended March 31, 2022 and 2021, respectively.

PV solar power systems, net

PV solar power systems, net consisted of the following at March 31, 2022 and December 31, 2021 (in thousands):
  March 31,
2022		 December 31,
2021
PV solar power systems, gross $ 281,498  $ 281,660 
Accumulated depreciation (67,112) (64,367)
PV solar power systems, net $ 214,386  $ 217,293 

Depreciation of PV solar power systems was $2.8 million and $3.0 million for the three months ended March 31, 2022 and 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.

As of March 31, 2022 and December 31, 2021, the recoverability of our Luz del Norte PV solar power plant was based, in part, on the likelihood of our continued ownership and operation of the system. However, it is reasonably possible that our intent to hold the asset may change in the near term due to our evaluation of strategic sale opportunities for the system. The pursuit of such opportunities, which require coordination with the system’s lenders, may result in a determination that the carrying value of the system is not recoverable based on the probability-weighted undiscounted future cash flows, which in turn could result in a possible impairment of the system in future periods. Accordingly, any changes in our expected use of the asset or its disposition may result in impairment charges that could be material to our condensed consolidated financial statements and have a significant adverse impact on our results of operations.

12
Project assets

Project assets consisted of the following at March 31, 2022 and December 31, 2021 (in thousands):
  March 31,
2022		 December 31,
2021
Project assets – development costs, including project acquisition and land costs $ 107,609  $ 117,407 
Project assets – construction costs 284,165  198,081 
Project assets $ 391,774  $ 315,488 

Goodwill

Goodwill for the relevant reporting unit consisted of the following at March 31, 2022 and December 31, 2021 (in thousands):
December 31,
2021		 Acquisitions (Impairments) March 31,
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 March 31, 2022 and December 31, 2021 (in thousands):
March 31, 2022
  Gross Amount Accumulated Amortization Net Amount
Developed technology $ 99,964  $ (64,451) $ 35,513 
Power purchase agreements 6,486  (1,703) 4,783 
Patents 8,480  (6,007) 2,473 
Intangible assets, net $ 114,930  $ (72,161) $ 42,769 
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 for the three months ended March 31, 2022 and 2021.

13
Other assets

Other assets consisted of the following at March 31, 2022 and December 31, 2021 (in thousands):
  March 31,
2022		 December 31,
2021
Operating lease assets (1) $ 197,058  $ 207,544 
Advanced payments for raw materials 91,854  86,962 
Income tax receivables 39,862  39,862 
Indirect tax receivables 28,980  21,873 
Accounts receivable unbilled, net 19,387  20,840 
Accounts receivable trade, net 9,376  21,293 
Restricted cash 6,264  3,651 
Other 42,421  36,739 
Other assets $ 435,202  $ 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 March 31, 2022 and December 31, 2021 (in thousands):
  March 31,
2022		 December 31,
2021
Accrued property, plant and equipment $ 77,101  $ 42,031 
Accrued freight 76,855  61,429 
Accrued project costs 63,333  48,836 
Accrued inventory 49,543  42,170 
Accrued compensation and benefits 21,295  34,606 
Product warranty liability (1) 11,809  13,598 
Accrued other taxes 11,597  23,103 
Other 23,442  22,677 
Accrued expenses $ 334,975  $ 288,450 
——————————
(1)See Note 10. “Commitments and Contingencies” to our condensed consolidated financial statements for discussion of our “Product Warranties.”


14
Other current liabilities

Other current liabilities consisted of the following at March 31, 2022 and December 31, 2021 (in thousands):
  March 31,
2022		 December 31,
2021
Operating lease liabilities (1) $ 12,834  $ 12,781 
Derivative instruments (2) 3,790  3,550 
Other taxes payable 1,875  8,123 
Other 6,900  10,293 
Other current liabilities $ 25,399  $ 34,747 
——————————
(1)See Note 7. “Leases” to our condensed consolidated financial statements for discussion of our lease arrangements.

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

Other liabilities

Other liabilities consisted of the following at March 31, 2022 and December 31, 2021 (in thousands):
  March 31,
2022		 December 31,
2021
Deferred revenue $ 154,885  $ 95,943 
Operating lease liabilities (1) 136,526  145,912 
Product warranty liability (2) 35,207  38,955 
Deferred tax liabilities, net 30,117  27,699 
Other 47,516  43,658 
Other liabilities $ 404,251  $ 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.”

15
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 March 31, 2022 and December 31, 2021 (in thousands):
  March 31, 2022
Other Current Assets Other Current Liabilities
Derivatives designated as hedging instruments:
Foreign exchange forward contracts $ 1,026  $ — 
Commodity swap contracts —  402 
Total derivatives designated as hedging instruments $ 1,026  $ 402 
Derivatives not designated as hedging instruments:
Foreign exchange forward contracts $ 13,828  $ 3,388 
Total derivatives not designated as hedging instruments $ 13,828  $ 3,388 
Total derivative instruments $ 14,854  $ 3,790 
  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 

16
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, 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) 426  (402) 24 
Amounts reclassified to earnings impacting:
Cost of sales (560) —  (560)
Balance as of March 31, 2022 $ 992  $ (402) $ 590 
Balance as of December 31, 2020 $ (3,644) $ 1,472  $ (2,172)
Amounts recognized in other comprehensive income (loss) 1,859  1,024  2,883 
Amounts reclassified to earnings impacting:
Cost of sales 1,129  7  1,136 
Balance as of March 31, 2021 $ (656) $ 2,503  $ 1,847 

During the three months ended March 31, 2022 and 2021, we recognized unrealized losses of less than $0.1 million and $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 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, 2022 and 2021 (in thousands):
Amount of Gain (Loss) Recognized in Income
Three Months Ended
March 31,
Income Statement Line Item 2022 2021
Foreign exchange forward contracts
 Cost of sales $ 78  $ 169 
Foreign exchange forward contracts
 Foreign currency loss, net 18,981  10,296 

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 March 31, 2022 and December 31, 2021, these foreign exchange forward contracts hedged our forecasted cash flows for periods up to 8 months and 11 months, respectively. 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. We determined that these derivative financial instruments were highly effective as cash flow hedges as of March 31, 2022 and December 31, 2021.

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As of March 31, 2022 and 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):
March 31, 2022
Currency Notional Amount USD Equivalent
U.S. dollar (1) $17.4 $17.4
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.

In the following 12 months, we expect to reclassify to earnings $1.0 million of net unrealized gains related to foreign exchange forward contracts that are included in “Accumulated other comprehensive loss” at March 31, 2022 as we realize the earnings effects of the related forecasted transactions. The amount we ultimately record to earnings will depend on the actual exchange rates when we realize the related forecasted transactions.

Transaction Exposure and Economic Hedging

Many of our subsidiaries have assets and liabilities (primarily cash, receivables, 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.

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As of March 31, 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):
March 31, 2022
Transaction Currency Notional Amount USD Equivalent
Purchase Australian dollar AUD 3.2 $2.4
Purchase British pound GBP 11.5 $15.1
Sell British pound GBP 14.0 $18.3
Sell Chilean peso CLP 3,206.6 $4.1
Purchase Euro €85.4 $94.4
Sell Euro €68.8 $76.0
Sell Indian rupee INR 11,172.9 $147.7
Sell Japanese yen ¥35,758.9 $290.3
Purchase Malaysian ringgit MYR 42.0 $10.0
Sell Malaysian ringgit MYR 39.9 $9.5
Sell Mexican peso MXN 34.6 $1.7
Purchase Singapore dollar SGD 1.5 $1.1
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. In March 2022, we entered into a commodity swap contract to hedge a portion of our forecasted cash flows for purchases of aluminum frames for a six-month period. Such swap had an initial notional value based on metric tons of forecasted aluminum purchases, equivalent to $9.8 million, and entitles us to receive a three-month average London Metals Exchange price for aluminum while requiring us to pay certain fixed prices. The notional amount of the commodity swap contract proportionately adjusts with forecasted purchases of aluminum frames.

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This commodity swap contract qualifies for accounting as a cash flow hedge in accordance with ASC 815, and we designated it as such. We report unrealized gains or losses on such contract in “Accumulated other comprehensive loss” and subsequently reclassify applicable amounts into earnings when the hedged transaction occurs and impacts earnings. We determined that this derivative financial instrument was highly effective as a cash flow hedge as of March 31, 2022. In the following 12 months, we expect to reclassify into earnings $0.4 million of net unrealized losses related to this commodity swap contract that are included in “Accumulated other comprehensive loss” at March 31, 2022 as we realize the earnings effects of the related forecasted transactions.

7. Leases

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

The following table presents certain quantitative information related to our lease arrangements for the three months ended March 31, 2022 and 2021, and as of March 31, 2022 and December 31, 2021 (in thousands):
Three Months Ended
March 31,
2022 2021
Operating lease cost $ 4,377  $ 4,033 
Variable lease cost 599  538 
Short-term lease cost 31  371 
Total lease cost $ 5,007  $ 4,942 
Payments of amounts included in the measurement of operating lease liabilities
 $ 4,136  $ 4,113 
Lease assets obtained in exchange for operating lease liabilities
 $ 534  $ 13,598 
March 31,
2022		 December 31,
2021
Operating lease assets $ 197,058  $ 207,544 
Operating lease liabilities – current
 12,834  12,781 
Operating lease liabilities – noncurrent
 136,526  145,912 
Weighted-average remaining lease term 19 years 19 years
Weighted-average discount rate 2.8  % 2.8  %

As of March 31, 2022, the future payments associated with our lease liabilities were as follows (in thousands):
Total Lease Liabilities
Remainder of 2022 $ 11,618 
2023 15,579 
2024 15,111 
2025 14,295 
2026 12,814 
2027 10,149 
Thereafter 98,584 
Total future payments 178,150 
Less: interest (28,790)
Total lease liabilities $ 149,360 

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8. Fair Value Measurements

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

•Marketable Securities and Restricted Marketable Securities. At March 31, 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 March 31, 2022 and December 31, 2021, our derivative assets and liabilities consisted of foreign exchange forward contracts involving major currencies. At March 31, 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 March 31, 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
 
 
 
 
 
 		 March 31,
2022		 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 $ 85,010  $ —  $ 85,010  $ — 
U.S. debt 18,030  —  18,030  — 
Time deposits 120,051  120,051  —  — 
Restricted marketable securities 220,167  —  220,167  — 
Derivative assets 14,854  —  14,854  — 
Total assets $ 458,112  $ 120,051  $ 338,061  $ — 
Liabilities:
Derivative liabilities $ 3,790  $ —  $ 3,790  $ — 
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    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 March 31, 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):
  March 31, 2022 December 31, 2021
 
 		 Carrying
Value		 Fair
Value		 Carrying
Value		 Fair
Value
Assets:        
Accounts receivable unbilled, net - noncurrent $ 19,387  $ 17,590  $ 20,840  $ 18,846 
Accounts receivable trade, net - noncurrent 9,376  7,462  21,293  18,605 
Liabilities:
Long-term debt, including current maturities (1) $ 258,672  $ 242,551  $ 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 continuously evaluate the credit standing of our counterparty financial institutions. Our net sales are primarily concentrated among a limited number of customers. We monitor the financial condition of our customers and perform credit evaluations whenever considered necessary. Depending upon the sales arrangement, we may require some form of payment security from our customers, including, but not limited to, advance payments, parent guarantees, letters of credit, bank guarantees, or surety bonds.
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9. Debt

Our long-term debt consisted of the following at March 31, 2022 and December 31, 2021 (in thousands):
Balance (USD)
Loan Agreement Currency March 31,
2022		 December 31,
2021
Luz del Norte Credit Facilities USD $ 183,092  $ 183,829 
Kyoto Credit Facility JPY 75,580  62,908 
Long-term debt principal 258,672  246,737 
Less: unamortized discounts and issuance costs (6,617) (6,836)
Total long-term debt 252,055  239,901 
Less: current portion (4,701) (3,896)
Noncurrent portion $ 247,354  $ 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 March 31, 2022 and December 31, 2021, the balance outstanding on the DFC loans was $137.1 million and $137.7 million, respectively. As of March 31, 2022 and December 31, 2021, the balance outstanding on the IFC loans was $46.0 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.

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”). Borrowings under the facility generally mature within 12 months following the completion of construction activities at the project. The facility is guaranteed by First Solar, Inc. and First Solar Japan GK and secured by pledges of the project’s cash accounts and certain other assets.

Variable Interest Rate Risk

Certain of our long-term debt agreements bear interest at LIBOR, TIBOR, or equivalent variable rates. An increase in these variable rates would increase the cost of borrowing under certain project specific debt financings. Our long-term debt borrowing rates as of March 31, 2022 were as follows:
Loan Agreement March 31, 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%
Kyoto Credit Facility 1-month TIBOR plus 0.60%
——————————
(1)Outstanding balance comprised of $129.3 million of fixed rate loans and $53.8 million of variable rate loans as of March 31, 2022.

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Future Principal Payments

At March 31, 2022, the future principal payments on our long-term debt were due as follows (in thousands):
Total Debt
Remainder of 2022 $ 3,298 
2023 6,085 
2024 82,600 
2025 7,560 
2026 7,965 
2027 9,199 
Thereafter 141,965 
Total long-term debt future principal payments $ 258,672 

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 March 31, 2022, the majority of these commercial commitments supported our module business. As of March 31, 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) $ 43.4  $ 171.6 
Surety bonds 12.9  229.9 
——————————
(1)Of the total letters of credit issued under the bilateral facilities, $2.6 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.

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Product warranty activities during the three months ended March 31, 2022 and 2021 were as follows (in thousands):
Three Months Ended
March 31,
  2022 2021
Product warranty liability, beginning of period $ 52,553  $ 95,096 
Accruals for new warranties issued 848  2,277 
Settlements (6,002) (3,226)
Changes in estimate of product warranty liability (383) (74)
Product warranty liability, end of period $ 47,016  $ 94,073 
Current portion of warranty liability $ 11,809  $ 22,275 
Noncurrent portion of warranty liability $ 35,207  $ 71,798 

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 March 31, 2022 and December 31, 2021, we accrued $3.8 million of current indemnification liabilities. As of March 31, 2022, the maximum potential amount of future payments under our indemnifications was $98.8 million, and we held insurance and other instruments allowing us to recover up to $28.2 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 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.

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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 $137.5 million and $139.1 million as of March 31, 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 Arizona District Court against the Company and certain of our current officers. 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 intend to vigorously defend this action in all respects. 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.

Other Matters and Claims

We are party to 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.

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11. Revenue from Contracts with Customers

The following table presents the disaggregation of revenue from contracts with customers for the three months ended March 31, 2022 and 2021 along with the reportable segment for each category (in thousands):
Three Months Ended
March 31,
Category Segment 2022 2021
Solar modules Modules $ 354,881  $ 534,670 
Energy generation Other 6,293  14,579 
O&M services Other 3,897  27,235 
Solar power systems Other 1,969  226,967 
EPC services (1) Other —  (77)
Net sales $ 367,040  $ 803,374 
——————————
(1)For certain of our engineering, procurement, and construction (“EPC”) agreements, we provide an energy performance test during the first or second year of a system’s operation to demonstrate that the actual energy generation for the applicable period meets or exceeds the modeled energy expectation, after certain adjustments. If there is an underperformance event with regard to these tests, we may incur liquidated damages as specified in the applicable EPC agreement. During the three months ended March 31, 2021, we accrued liquidated damages for certain of these agreements, which we recognized as a reduction to revenue.

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 months ended March 31, 2021, revenue increased $1.6 million due to net changes in transaction prices for four projects, which represented 0.1% of the aggregate revenue for such projects.

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, 2022 (in thousands):
  March 31,
2022		 December 31,
2021		 Three Month Change
Accounts receivable unbilled, net (1) $ 48,151  $ 46,113  $ 2,038  4  %
Deferred revenue (2) $ 373,808  $ 297,811  $ 75,997  26  %
——————————
(1)Includes $19.4 million and $20.8 million of noncurrent accounts receivable unbilled, net classified as “Other assets” on our condensed consolidated balance sheets as of March 31, 2022 and December 31, 2021, respectively.

(2)Includes $154.9 million and $95.9 million of noncurrent deferred revenue classified as “Other liabilities” on our condensed consolidated balance sheets as of March 31, 2022 and December 31, 2021, respectively.


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During the three months ended March 31, 2022, our contract liabilities increased by $76.0 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 three months ended March 31, 2022 and 2021, we recognized revenue of $43.7 million and $72.0 million, respectively, that was included in the corresponding contract liability balance at the beginning of the periods.

As of March 31, 2022, we had entered into contracts with customers for the future sale of 25.4 GWDC of solar modules for an aggregate transaction price of $6.9 billion, which we expect to recognize as revenue through 2025 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 price adjustments associated with the proposed extension of the U.S. investment tax credit, sales freight, and potential 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 months ended March 31, 2022 and 2021 (in thousands):
Three Months Ended
March 31,
2022 2021
Cost of sales (1) $ 498  $ (92)
Selling, general and administrative (1) 2,574  4,515 
Research and development (2) 431  (1,308)
Total share-based compensation expense $ 3,503  $ 3,115 
——————————
(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 three months ended March 31, 2021.

Share-based compensation expense capitalized in inventory, project assets, and PV solar power systems was $0.7 million as of March 31, 2022 and December 31, 2021. As of March 31, 2022, we had $32.6 million of unrecognized share-based compensation expense related to unvested restricted and performance units, which we expect to recognize over a weighted-average period of approximately 1.7 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.

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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

Our effective tax rate was 31.1% and 18.1% for the three months ended March 31, 2022 and 2021, respectively. The increase in our effective tax rate was primarily driven by the effect of tax law changes associated with the foreign tax credit (“FTC”) regulations described below and lower relative amounts of income earned in foreign jurisdictions with lower tax rates. Our provision for income taxes differed from the amount computed by applying the U.S. statutory federal income tax rate of 21% primarily due to the effect of the FTC regulations described below and changes in our deferred income taxes related to our Malaysian tax holiday, partially offset by lower relative amounts of income earned in foreign jurisdictions with lower tax rates.

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. In addition, our Vietnamese subsidiary has been granted a tax incentive that provides a two-year tax exemption, which began in 2020, and reduced annual tax rates through the end of 2025.

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

14. Net (Loss) Income per Share

The calculation of basic and diluted net (loss) income per share for the three months ended March 31, 2022 and 2021 was as follows (in thousands, except per share amounts):
Three Months Ended
March 31,
2022 2021
Basic net (loss) income per share
Numerator:
Net (loss) income $ (43,255) $ 209,671 
Denominator:
Weighted-average common shares outstanding 106,412  106,088 
Diluted net (loss) income per share
Denominator:
Weighted-average common shares outstanding 106,412  106,088 
Effect of restricted stock and performance units —  802 
Weighted-average shares used in computing diluted net (loss) income per share 106,412  106,890 
Net (loss) income per share:
Basic $ (0.41) $ 1.98 
Diluted $ (0.41) $ 1.96 

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 months ended March 31, 2022 and 2021 as such shares would have had an anti-dilutive effect (in thousands):
Three Months Ended
March 31,
2022 2021
Anti-dilutive shares 504  — 

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15. Accumulated Other Comprehensive Loss

The following table presents the changes in accumulated other comprehensive loss, net of tax, for the three months ended March 31, 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) income before reclassifications (10,130) (23,767) 24  (33,873)
Amounts reclassified from accumulated other comprehensive loss 5  —  (560) (555)
Net tax effect
 —  1,246  94  1,340 
Net other comprehensive loss (10,125) (22,521) (442) (33,088)
Balance as of March 31, 2022 $ (99,577) $ (30,557) $ 684  $ (129,450)

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, 2022 and 2021 (in thousands):
Comprehensive Income Components Income Statement Line Item Three Months Ended
March 31,
2022 2021
Foreign currency translation adjustment Other (expense) income, net $ (5) $ (475)
Unrealized gain on marketable securities and restricted marketable securities
 Other (expense) income, net —  11,696 
Unrealized gain (loss) on derivative contracts:
Foreign exchange forward contracts
 Cost of sales 560  (1,129)
Commodity swap contracts Cost of sales —  (7)
Total unrealized gain (loss) on derivative contracts 560  (1,136)
Total gain reclassified $ 555  $ 10,085 

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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 certain project development activities and O&M services, which are primarily concentrated in Japan, as well as the results of operations from PV solar power systems we own and operate in certain international regions.

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 months ended March 31, 2022 and 2021 and as of March 31, 2022 and December 31, 2021 (in thousands):
  Three Months Ended March 31, 2022 Three Months Ended March 31, 2021
  Modules Other Total Modules Other Total
Net sales $ 354,881  $ 12,159  $ 367,040  $ 534,670  $ 268,704  $ 803,374 
Gross profit 11,189  274  11,463  100,440  84,327  184,767 
Depreciation and amortization expense
 56,199  2,846  59,045  50,724  3,097  53,821 
March 31, 2022 December 31, 2021
Modules Other Total Modules Other Total
Goodwill $ 14,462  $ —  $ 14,462  $ 14,462  $ —  $ 14,462 

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

Cautionary Statement Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the Securities Act of 1933, as amended (the “Securities Act”), which are subject to risks, uncertainties, and assumptions that are difficult to predict. All statements in this Quarterly Report on Form 10-Q, other than statements of historical fact, are forward-looking statements. These forward-looking statements are made pursuant to safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The forward-looking statements include statements, among other things, concerning: the length and severity of the ongoing COVID-19 (novel coronavirus) outbreak, including its impacts across our businesses on demand, manufacturing, project development, O&M, construction, financing, and our global supply chains, actions that may be taken by governmental authorities to contain the COVID-19 outbreak or to treat its impacts, and the ability of our customers, supplie