NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of First Solar, Inc. and its subsidiaries in this Quarterly Report have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) for interim financial information and pursuant to the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission (the “SEC”). Accordingly, these interim financial statements do not include all of the information and footnotes required by U.S. GAAP for annual financial statements. In the opinion of First Solar management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair statement have been included. Certain prior period balances have been reclassified to conform to the current period presentation.
The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Despite our intention to establish accurate estimates and reasonable assumptions, actual results could differ materially from such estimates and assumptions. Operating results for the three and six months ended June 30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022 or for any other period. The condensed consolidated balance sheet at December 31, 2021 has been derived from the audited consolidated financial statements at that date, but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements. These interim financial statements and notes should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 2021 included in our Annual Report on Form 10-K, which has been filed with the SEC.
Unless expressly stated or the context otherwise requires, the terms “the Company,” “we,” “us,” “our,” and “First Solar” refer to First Solar, Inc. and its consolidated subsidiaries, and the term “condensed consolidated financial statements” refers to the accompanying unaudited condensed consolidated financial statements contained in this Quarterly Report.
2. Sales of Businesses
Sale of Japan Project Development Business
In May 2022, we entered into various agreements with certain subsidiaries of PAG Real Assets (“PAG”), a private investment firm, for the sale of our Japan project development business. The transaction included our approximately 293 MWDC utility-scale solar project development platform, which comprised the business of developing, contracting for the construction of, and selling utility-scale photovoltaic (“PV”) solar power systems. Additionally, PAG has agreed to certain module purchase commitments.
On June 30, 2022, we completed the sale of our Japan project development business for an aggregate purchase price of ¥66.4 billion ($488.4 million), subject to certain customary post-closing adjustments. On the closing date, we received proceeds of ¥44.1 billion ($324.5 million) and transferred cash and restricted cash of ¥8.4 billion ($61.9 million) to PAG. As a result of this transaction, we recognized a gain of $245.4 million, net of transaction costs, which was included in “Gain on sales of businesses, net” in our condensed consolidated statements of operations.
Sales of North American and International O&M Operations
In August 2020, we entered into an agreement with a subsidiary of Clairvest Group, Inc. (“Clairvest”) for the sale of our North American operations and maintenance (“O&M”) operations. In March 2021, we completed the transaction and received initial consideration of $146.0 million. As a result of this transaction, we recognized a gain of $117.8 million, net of transaction costs, during the six months ended June 30, 2021, which was included in “Gain on sales of businesses, net” in our condensed consolidated statements of operations.
In January 2022, we completed the sale of 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 $1.6 million, net of transaction costs and post-closing adjustments, during the six months ended June 30, 2022, which was included in “Gain on sales of businesses, net” in our condensed consolidated statements of operations.
Sale of U.S. Project Development Business
In January 2021, we entered into an agreement with Leeward Renewable Energy Development, LLC (“Leeward”), a subsidiary of the Ontario Municipal Employees Retirement System, for the sale of our U.S. project development business. In March 2021, we completed the transaction and received consideration of $151.4 million for the sale of such business. As a result of this transaction, we recognized a gain of $31.5 million, net of transaction costs, during the six months ended June 30, 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 June 30, 2022 and December 31, 2021 (in thousands):
| | | | | | | | | | | | | | |
| | June 30,
2022 | | December 31,
2021 |
| Cash | | $ | 1,701,217 | | | $ | 1,450,654 | |
| Marketable securities: | | | | |
| Foreign debt | | 52,161 | | | 103,317 | |
| U.S. debt | | 8,702 | | | 18,627 | |
| Time deposits | | 83,081 | | | 253,445 | |
| Total marketable securities | | 143,944 | | | 375,389 | |
| Total cash and marketable securities | | $ | 1,845,161 | | | $ | 1,826,043 | |
The following table provides a reconciliation of cash and restricted cash reported within our condensed consolidated balance sheets as of June 30, 2022 and December 31, 2021 to the total of such amounts as presented in the condensed consolidated statements of cash flows (in thousands):
| | | | | | | | | | | | | | | | | | | | |
| | Balance Sheet Line Item | | June 30,
2022 | | December 31,
2021 |
| Cash | | Cash | | $ | 1,701,217 | | | $ | 1,450,654 | |
Restricted cash – current | | Other current assets | | 1,130 | | | 1,532 | |
Restricted cash – noncurrent | | Other assets | | 6,506 | | | 3,651 | |
| Total cash and restricted cash | | | | $ | 1,708,853 | | | $ | 1,455,837 | |
During the six months ended June 30, 2021, we sold marketable securities for proceeds of $5.5 million and realized gains of less than $0.1 million on such sales. See Note 8. “Fair Value Measurements” to our condensed consolidated financial statements for information about the fair value of our marketable securities.
The following tables summarize the unrealized gains and losses related to our available-for-sale marketable securities, by major security type, as of June 30, 2022 and December 31, 2021 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | As of June 30, 2022 |
| | Amortized
Cost | | Unrealized
Gains | | Unrealized
Losses | | Allowance for Credit Losses | | Fair
Value |
| Foreign debt | | $ | 52,208 | | | $ | 1 | | | $ | 31 | | | $ | 17 | | | $ | 52,161 | |
| U.S. debt | | 10,000 | | | — | | | 1,296 | | | 2 | | | 8,702 | |
| Time deposits | | 83,102 | | | — | | | — | | | 21 | | | 83,081 | |
| Total | | $ | 145,310 | | | $ | 1 | | | $ | 1,327 | | | $ | 40 | | | $ | 143,944 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 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 six months ended June 30, 2022 and 2021 (in thousands):
| | | | | | | | | | | | | | |
| | Six Months Ended
June 30, |
| | 2022 | | 2021 |
| Allowance for credit losses, beginning of period | | $ | 97 | | | $ | 121 | |
| Provision for credit losses, net | | 64 | | | 201 | |
| Sales and maturities of marketable securities | | (121) | | | (235) | |
| Allowance for credit losses, end of period | | $ | 40 | | | $ | 87 | |
The contractual maturities of our marketable securities as of June 30, 2022 were as follows (in thousands):
| | | | | | | | |
| | Fair
Value |
| One year or less | | $ | 135,242 | |
| One year to two years | | — | |
| Two years to three years | | — | |
| Three years to four years | | 4,548 | |
| Four years to five years | | — | |
| More than five years | | 4,154 | |
| Total | | $ | 143,944 | |
4. Restricted Marketable Securities
Restricted marketable securities consisted of the following as of June 30, 2022 and December 31, 2021 (in thousands):
| | | | | | | | | | | | | | |
| | June 30,
2022 | | December 31,
2021 |
| Foreign government obligations | | $ | 51,355 | | | $ | 64,855 | |
| Supranational debt | | 9,419 | | | 10,997 | |
| U.S. debt | | 120,491 | | | 145,326 | |
| U.S. government obligations | | 19,001 | | | 23,548 | |
| Total restricted marketable securities | | $ | 200,266 | | | $ | 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 June 30, 2022 and December 31, 2021, such custodial accounts also included noncurrent restricted cash balances of $4.0 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 six months ended June 30, 2021, we sold all our restricted marketable securities for proceeds of $258.9 million and realized gains of $11.7 million on such sales. 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 June 30, 2022 and December 31, 2021 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | As of June 30, 2022 |
| | Amortized
Cost | | Unrealized
Gains | | Unrealized
Losses | | Allowance for Credit Losses | | Fair
Value |
| Foreign government obligations | | $ | 63,830 | | | $ | — | | | $ | 12,465 | | | $ | 10 | | | $ | 51,355 | |
| Supranational debt | | 11,255 | | | — | | | 1,836 | | | — | | | 9,419 | |
| U.S. debt | | 149,179 | | | — | | | 28,658 | | | 30 | | | 120,491 | |
| U.S. government obligations | | 24,596 | | | — | | | 5,590 | | | 5 | | | 19,001 | |
| Total | | $ | 248,860 | | | $ | — | | | $ | 48,549 | | | $ | 45 | | | $ | 200,266 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 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 six months ended June 30, 2022 and 2021 (in thousands):
| | | | | | | | | | | | | | |
| | Six Months Ended
June 30, |
| | 2022 | | 2021 |
| Allowance for credit losses, beginning of period | | $ | 53 | | | $ | 13 | |
| Provision for credit losses, net | | (8) | | | 16 | |
| Sales of restricted marketable securities | | — | | | (29) | |
| Allowance for credit losses, end of period | | $ | 45 | | | $ | — | |
As of June 30, 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 June 30, 2022 and December 31, 2021 (in thousands):
| | | | | | | | | | | | | | |
| | | June 30,
2022 | | December 31,
2021 |
| Accounts receivable trade, gross | | $ | 455,038 | | | $ | 430,100 | |
| Allowance for credit losses | | (607) | | | (664) | |
| Accounts receivable trade, net | | $ | 454,431 | | | $ | 429,436 | |
Accounts receivable unbilled, net
Accounts receivable unbilled, net consisted of the following at June 30, 2022 and December 31, 2021 (in thousands):
| | | | | | | | | | | | | | |
| | | June 30,
2022 | | December 31,
2021 |
| Accounts receivable unbilled, gross | | $ | 35,438 | | | $ | 25,336 | |
| Allowance for credit losses | | — | | | (63) | |
| Accounts receivable unbilled, net | | $ | 35,438 | | | $ | 25,273 | |
Allowance for credit losses
The following tables present the change in the allowances for credit losses related to our accounts receivable for the six months ended June 30, 2022 and 2021 (in thousands):
| | | | | | | | | | | | | | |
| | Six Months Ended
June 30, |
| Accounts receivable trade | | 2022 | | 2021 |
| Allowance for credit losses, beginning of period | | $ | 664 | | | $ | 3,009 | |
| Provision for credit losses, net | | (57) | | | (433) | |
| Writeoffs | | — | | | (97) | |
| Allowance for credit losses, end of period | | $ | 607 | | | $ | 2,479 | |
| | | | | | | | | | | | | | |
| | Six Months Ended
June 30, |
| Accounts receivable unbilled | | 2022 | | 2021 |
| Allowance for credit losses, beginning of period | | $ | 63 | | | $ | 303 | |
| Provision for credit losses, net | | (63) | | | (266) | |
| | | | |
| Allowance for credit losses, end of period | | $ | — | | | $ | 37 | |
Inventories
Inventories consisted of the following at June 30, 2022 and December 31, 2021 (in thousands):
| | | | | | | | | | | | | | |
| | | June 30,
2022 | | December 31,
2021 |
| Raw materials | | $ | 397,299 | | | $ | 404,727 | |
| Work in process | | 60,087 | | | 65,573 | |
| Finished goods | | 592,100 | | | 433,511 | |
| Inventories | | $ | 1,049,486 | | | $ | 903,811 | |
| Inventories – current | | $ | 810,461 | | | $ | 666,299 | |
| Inventories – noncurrent | | $ | 239,025 | | | $ | 237,512 | |
Other current assets
Other current assets consisted of the following at June 30, 2022 and December 31, 2021 (in thousands):
| | | | | | | | | | | | | | |
| | | June 30,
2022 | | December 31,
2021 |
| Spare maintenance materials and parts | | $ | 111,188 | | | $ | 112,070 | |
| Operating supplies | | 40,294 | | | 41,034 | |
| Prepaid expenses | | 39,125 | | | 28,232 | |
| Prepaid income taxes | | 15,791 | | | 41,379 | |
| Derivative instruments (1) | | 8,535 | | | 5,816 | |
| Restricted cash | | 1,130 | | | 1,532 | |
| Other | | 21,863 | | | 14,129 | |
| Other current assets | | $ | 237,926 | | | $ | 244,192 | |
——————————
(1)See Note 6. “Derivative Financial Instruments” to our condensed consolidated financial statements for discussion of our derivative instruments.
Property, plant and equipment, net
Property, plant and equipment, net consisted of the following at June 30, 2022 and December 31, 2021 (in thousands):
| | | | | | | | | | | | | | |
| | | June 30,
2022 | | December 31,
2021 |
| Land | | $ | 17,924 | | | $ | 18,359 | |
| Buildings and improvements | | 692,785 | | | 693,289 | |
| Machinery and equipment | | 2,635,862 | | | 2,527,627 | |
| Office equipment and furniture | | 140,171 | | | 139,611 | |
| Leasehold improvements | | 40,162 | | | 40,517 | |
| Construction in progress | | 803,488 | | | 461,708 | |
| Property, plant and equipment, gross | | 4,330,392 | | | 3,881,111 | |
| Accumulated depreciation | | (1,341,413) | | | (1,231,524) | |
| Property, plant and equipment, net | | $ | 2,988,979 | | | $ | 2,649,587 | |
Depreciation of property, plant and equipment was $60.0 million and $118.6 million for the three and six months ended June 30, 2022, respectively, and $58.8 million and $115.6 million for the three and six months ended June 30, 2021, respectively.
PV solar power systems, net
PV solar power systems, net consisted of the following at June 30, 2022 and December 31, 2021 (in thousands):
| | | | | | | | | | | | | | |
| | | June 30,
2022 | | December 31,
2021 |
| PV solar power systems, gross | | $ | 225,530 | | | $ | 281,660 | |
| Accumulated depreciation | | (69,315) | | | (64,367) | |
| PV solar power systems, net | | $ | 156,215 | | | $ | 217,293 | |
Depreciation of PV solar power systems was $2.3 million and $5.1 million for the three and six months ended June 30, 2022, respectively, and $2.9 million and $5.9 million for the three and six months ended June 30, 2021, respectively.
We evaluate our PV solar power systems for impairment under a held and used impairment model whenever events or changes in circumstances arise that may indicate that the carrying amount of a particular system may not be recoverable. Such events or changes may include a significant decrease in the market price of the asset, current-period operating or cash flow losses combined with a history of such losses or a projection of future losses associated with the use of the asset, and changes in expectations regarding our intent to hold the asset on a long-term basis or the timing of a potential asset disposition.
During the three months ended June 30, 2022, we received multiple non-binding offers to purchase our Luz del Norte PV solar power plant and elected to pursue such opportunities in coordination with the project’s lenders. As a result of the expected sale in the near term, we compared the undiscounted future cash flows for the project to its carrying value and determined that the project was not recoverable. Accordingly, we measured the fair value of the project using a market approach valuation technique and recorded an impairment loss of $57.8 million in “Cost of sales” in our condensed consolidated statements of operations. Such impairment loss was comprised of $55.6 million for PV solar power systems, $1.3 million for intangible assets, and $0.9 million for operating lease assets.
Project assets
Project assets consisted of the following at June 30, 2022 and December 31, 2021 (in thousands):
| | | | | | | | | | | | | | |
| | | June 30,
2022 | | December 31,
2021 |
| Project assets – development costs, including project acquisition and land costs | | $ | 29,589 | | | $ | 117,407 | |
| Project assets – construction costs | | — | | | 198,081 | |
| Project assets | | $ | 29,589 | | | $ | 315,488 | |
In June 2022, we completed the sale of the majority of our project assets to PAG in connection with the sale of our Japan project development business. See Note 2. “Sales of Businesses” to our condensed consolidated financial statements for further information about this transaction.
Goodwill
Goodwill for the relevant reporting unit consisted of the following at June 30, 2022 and December 31, 2021 (in thousands):
| | | | | | | | | | | | | | | | | | | | |
| | December 31,
2021 | | Acquisitions (Impairments) | | June 30,
2022 |
| Modules | | $ | 407,827 | | | $ | — | | | $ | 407,827 | |
| Accumulated impairment losses | | (393,365) | | | — | | | (393,365) | |
| Goodwill | | $ | 14,462 | | | $ | — | | | $ | 14,462 | |
Intangible assets, net
Intangible assets, net consisted of the following at June 30, 2022 and December 31, 2021 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2022 |
| | | Gross Amount | | Accumulated Amortization | | Accumulated Impairments | | Net Amount |
| Developed technology | | $ | 99,964 | | | $ | (66,920) | | | $ | — | | | $ | 33,044 | |
| Power purchase agreements | | 6,486 | | | (1,784) | | | (1,300) | | | 3,402 | |
| Patents | | 8,480 | | | (6,198) | | | — | | | 2,282 | |
| Intangible assets, net | | $ | 114,930 | | | $ | (74,902) | | | $ | (1,300) | | | $ | 38,728 | |
| | | | | | | | | | | | | | | | | | | | | | |
| | 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 $2.8 million and $5.5 million for the three and six months ended June 30, 2022 and 2021, respectively.
Other assets
Other assets consisted of the following at June 30, 2022 and December 31, 2021 (in thousands):
| | | | | | | | | | | | | | |
| | | June 30,
2022 | | December 31,
2021 |
| Operating lease assets (1) | | $ | 101,855 | | | $ | 207,544 | |
| Advanced payments for raw materials | | 86,520 | | | 86,962 | |
| Income tax receivables | | 47,235 | | | 39,862 | |
| Accounts receivable unbilled, net | | 11,488 | | | 20,840 | |
| Accounts receivable trade, net | | 9,076 | | | 21,293 | |
| Restricted cash | | 6,506 | | | 3,651 | |
| Indirect tax receivables | | 348 | | | 21,873 | |
| Other | | 43,928 | | | 36,739 | |
| Other assets | | $ | 306,956 | | | $ | 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 June 30, 2022 and December 31, 2021 (in thousands):
| | | | | | | | | | | | | | |
| | | June 30,
2022 | | December 31,
2021 |
| Accrued property, plant and equipment | | $ | 154,552 | | | $ | 42,031 | |
| Accrued freight | | 66,199 | | | 61,429 | |
| Accrued inventory | | 38,464 | | | 42,170 | |
| Accrued compensation and benefits | | 29,476 | | | 34,606 | |
| Product warranty liability (1) | | 11,553 | | | 13,598 | |
| Accrued other taxes | | 11,307 | | | 23,103 | |
| Accrued project costs | | 6,642 | | | 48,836 | |
| Other | | 26,012 | | | 22,677 | |
| Accrued expenses | | $ | 344,205 | | | $ | 288,450 | |
——————————
(1)See Note 10. “Commitments and Contingencies” to our condensed consolidated financial statements for discussion of our “Product Warranties.”
Other current liabilities
Other current liabilities consisted of the following at June 30, 2022 and December 31, 2021 (in thousands):
| | | | | | | | | | | | | | |
| | | June 30,
2022 | | December 31,
2021 |
| Other taxes payable | | $ | 13,165 | | | $ | 8,123 | |
| Operating lease liabilities (1) | | 9,437 | | | 12,781 | |
| Derivative instruments (2) | | 7,371 | | | 3,550 | |
| Other | | 6,356 | | | 10,293 | |
| Other current liabilities | | $ | 36,329 | | | $ | 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 June 30, 2022 and December 31, 2021 (in thousands):
| | | | | | | | | | | | | | |
| | | June 30,
2022 | | December 31,
2021 |
| Deferred revenue | | $ | 278,176 | | | $ | 95,943 | |
| Operating lease liabilities (1) | | 47,752 | | | 145,912 | |
| Product warranty liability (2) | | 35,576 | | | 38,955 | |
| Deferred tax liabilities, net | | 23,059 | | | 27,699 | |
| Other | | 31,262 | | | 43,658 | |
| Other liabilities | | $ | 415,825 | | | $ | 352,167 | |
——————————
(1)See Note 7. “Leases” to our condensed consolidated financial statements for discussion of our lease arrangements.
(2)See Note 10. “Commitments and Contingencies” to our condensed consolidated financial statements for discussion of our “Product Warranties.”
6. Derivative Financial Instruments
As a global company, we are exposed in the normal course of business to interest rate, foreign currency, and commodity price risks that could affect our financial position, results of operations, and cash flows. We use derivative instruments to hedge against these risks and only hold such instruments for hedging purposes, not for speculative or trading purposes.
Depending on the terms of the specific derivative instruments and market conditions, some of our derivative instruments may be assets and others liabilities at any particular balance sheet date. We report all of our derivative instruments at fair value and account for changes in the fair value of derivative instruments within “Accumulated other comprehensive loss” if the derivative instruments qualify for hedge accounting. For those derivative instruments that do not qualify for hedge accounting (i.e., “economic hedges”), we record the changes in fair value directly to earnings. See Note 8. “Fair Value Measurements” to our condensed consolidated financial statements for information about the techniques we use to measure the fair value of our derivative instruments.
The following tables present the fair values of derivative instruments included in our condensed consolidated balance sheets as of June 30, 2022 and December 31, 2021 (in thousands):
| | | | | | | | | | | | | | | | | | |
| | | June 30, 2022 |
| | Other Current Assets | | | | Other Current Liabilities | | |
| Derivatives designated as hedging instruments: | | | | | | | | |
| Foreign exchange forward contracts | | $ | 1,605 | | | | | $ | — | | | |
| Commodity swap contracts | | — | | | | | 6,812 | | | |
| Total derivatives designated as hedging instruments | | $ | 1,605 | | | | | $ | 6,812 | | | |
| | | | | | | | |
| Derivatives not designated as hedging instruments: | | | | | | | | |
| Foreign exchange forward contracts | | $ | 6,930 | | | | | $ | 559 | | | |
| | | | | | | | |
| Total derivatives not designated as hedging instruments | | $ | 6,930 | | | | | $ | 559 | | | |
| Total derivative instruments | | $ | 8,535 | | | | | $ | 7,371 | | | |
| | | | | | | | | | | | | | | | |
| | | December 31, 2021 |
| | Other Current Assets | | Other Current Liabilities | | |
| Derivatives designated as hedging instruments: | | | | | | |
| Foreign exchange forward contracts | | $ | 1,336 | | | $ | 139 | | | |
| Total derivatives designated as hedging instruments | | $ | 1,336 | | | $ | 139 | | | |
| | | | | | |
| Derivatives not designated as hedging instruments: | | | | | | |
| Foreign exchange forward contracts | | $ | 4,480 | | | $ | 3,411 | | | |
| Total derivatives not designated as hedging instruments | | $ | 4,480 | | | $ | 3,411 | | | |
| Total derivative instruments | | $ | 5,816 | | | $ | 3,550 | | | |
The following table presents the pretax amounts related to derivative instruments designated as cash flow hedges affecting accumulated other comprehensive income (loss) and our condensed consolidated statements of operations for the six months ended June 30, 2022 and 2021 (in thousands):
| | | | | | | | | | | | | | | | | | | | |
| | Foreign Exchange Forward Contracts | | Commodity Swap Contracts | | Total |
| Balance as of December 31, 2021 | | $ | 1,126 | | | $ | — | | | $ | 1,126 | |
| Amounts recognized in other comprehensive income (loss) | | 545 | | | (6,812) | | | (6,267) | |
| | | | | | |
| Amounts reclassified to earnings impacting: | | | | | | |
| | | | | | |
| Cost of sales | | (1,453) | | | — | | | (1,453) | |
| | | | | | |
| | | | | | |
| | | | | | |
| Balance as of June 30, 2022 | | $ | 218 | | | $ | (6,812) | | | $ | (6,594) | |
| | | | | | |
| Balance as of December 31, 2020 | | $ | (3,644) | | | $ | 1,472 | | | $ | (2,172) | |
| Amounts recognized in other comprehensive income (loss) | | 1,618 | | | 1,531 | | | 3,149 | |
| Amounts reclassified to earnings impacting: | | | | | | |
| | | | | | |
| Cost of sales | | 1,928 | | | (213) | | | 1,715 | |
| | | | | | |
| | | | | | |
| | | | | | |
| Balance as of June 30, 2021 | | $ | (98) | | | $ | 2,790 | | | $ | 2,692 | |
During the three and six months ended June 30, 2022, we recognized unrealized gains of less than $0.1 million and unrealized losses of less than $0.1 million, respectively, within “Cost of sales” for amounts excluded from effectiveness testing for our foreign exchange forward contracts designated as cash flow hedges. During the three and six months ended June 30, 2021, we recognized unrealized gains of less than $0.1 million and unrealized losses of less than $0.1 million, respectively, within “Cost of sales” for amounts excluded from effectiveness testing for our foreign exchange forward contracts designated as cash flow hedges.
The following table presents the pretax amounts related to derivative instruments designated as net investment hedges affecting accumulated other comprehensive income (loss) and our condensed consolidated statements of operations for the six months ended June 30, 2022 (in thousands):
| | | | | | | | |
| | Foreign Exchange Forward Contracts |
| Balance as of December 31, 2021 | | $ | — | |
| Amounts recognized in other comprehensive income (loss) | | 1,383 | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| Balance as of June 30, 2022 | | $ | 1,383 | |
During the three months ended June 30, 2022, we recognized unrealized gains of $0.1 million within “Other (expense) income, net” for amounts excluded from effectiveness testing for our derivative instruments designated as net investment hedges.
The following table presents gains and losses related to derivative instruments not designated as hedges affecting our condensed consolidated statements of operations for the three and six months ended June 30, 2022 and 2021 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Amount of Gain (Loss) Recognized in Income |
| | | | Three Months Ended
June 30, | | Six Months Ended
June 30, |
| | Income Statement Line Item | | 2022 | | 2021 | | 2022 | | 2021 |
Foreign exchange forward contracts | | Cost of sales | | $ | 444 | | | $ | (446) | | | $ | 522 | | | $ | (277) | |
Foreign exchange forward contracts | | Foreign currency loss, net | | 44,534 | | | (1,277) | | | 63,515 | | | 9,019 | |
| Interest rate swap contracts | | Interest expense, net | | — | | | (691) | | | — | | | (691) | |
Interest Rate Risk
From time to time, we may use interest rate swap contracts to mitigate our exposure to interest rate fluctuations associated with certain of our debt instruments. We do not use such swap contracts for speculative or trading purposes. During the six months ended June 30, 2021, all of our interest rate swap contracts related to project specific debt facilities. Such swap contracts did not qualify for accounting as cash flow hedges in accordance with Accounting Standards Codification (“ASC”) 815 due to our expectation to sell the associated projects before the maturity of their project specific debt financings and corresponding swap contracts. Accordingly, changes in the fair values of these swap contracts were recorded directly to “Interest expense, net.”
Foreign Currency Risk
Cash Flow Exposure
We expect certain of our subsidiaries to have future cash flows that will be denominated in currencies other than the subsidiaries’ functional currencies. Changes in the exchange rates between the functional currencies of our subsidiaries and the other currencies in which they transact will cause fluctuations in the cash flows we expect to receive or pay when these cash flows are realized or settled. Accordingly, we enter into foreign exchange forward contracts to hedge a portion of these forecasted cash flows. As of June 30, 2022 and December 31, 2021, these foreign exchange forward contracts hedged our forecasted cash flows for periods up to 3 months and 11 months, respectively. These foreign exchange forward contracts qualify for accounting as cash flow hedges in accordance with ASC 815, and we designated them as such. We report unrealized gains or losses on such contracts in “Accumulated other comprehensive loss” and subsequently reclassify applicable amounts into earnings when the hedged transaction occurs and impacts earnings. We determined that these derivative financial instruments were highly effective as cash flow hedges as of June 30, 2022 and December 31, 2021.
As of June 30, 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):
| | | | | | | | | | | | | | |
| | June 30, 2022 |
| Currency | | Notional Amount | | USD Equivalent |
| U.S. dollar (1) | | $2.7 | | $2.7 |
| | | | |
| | | | | | | | | | | | | | |
| | 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 $0.2 million of net unrealized gains related to foreign exchange forward contracts that are included in “Accumulated other comprehensive loss” at June 30, 2022 as we realize the earnings effects of the related forecasted transactions. The amount we ultimately record to earnings will depend on the actual exchange rates when we realize the related forecasted transactions.
Net Investment Exposure
The functional currencies of certain of our foreign subsidiaries are their local currencies. Accordingly, we apply period-end exchange rates to translate their assets and liabilities and daily transaction exchange rates to translate their revenues, expenses, gains, and losses into U.S. dollars. We include the associated translation adjustments as a separate component of “Accumulated other comprehensive loss” within stockholders’ equity. From time to time, we may seek to mitigate the impact of such translation adjustments by entering into foreign exchange forward contracts that are designated as hedges of net investments in certain foreign subsidiaries. In June 2022, we entered into a foreign exchange forward contract with a notional value of ¥8.0 billion ($60.6 million), which qualifies for and was designated as a hedge of our net investment in a certain foreign subsidiary in Japan. As of June 30, 2022, this foreign exchange forward contract hedged such net investment for a period of 6 months. We report unrealized gains or losses on this contract, which are based on spot exchange rates, as a component of our foreign currency translation adjustments within “Accumulated other comprehensive loss” and subsequently reclassify applicable amounts into earnings when the net investments are sold or substantially liquidated. We determined that this derivative financial instrument was highly effective as a net investment hedge as of June 30, 2022.
Transaction Exposure and Economic Hedging
Many of our subsidiaries have assets and liabilities (primarily cash, receivables, deferred taxes, payables, accrued expenses, operating lease liabilities, and solar module collection and recycling liabilities) that are denominated in currencies other than the subsidiaries’ functional currencies. Changes in the exchange rates between the functional currencies of our subsidiaries and the other currencies in which these assets and liabilities are denominated will create fluctuations in our reported condensed consolidated statements of operations and cash flows. We may enter into foreign exchange forward contracts or other financial instruments to economically hedge assets and liabilities against the effects of currency exchange rate fluctuations. The gains and losses on such foreign exchange forward contracts will economically offset all or part of the transaction gains and losses that we recognize in earnings on the related foreign currency denominated assets and liabilities.
We also enter into foreign exchange forward contracts to economically hedge balance sheet and other exposures related to transactions between certain of our subsidiaries and transactions with third parties. Such contracts are considered economic hedges and do not qualify for hedge accounting. Accordingly, we recognize gains or losses from the fluctuations in foreign exchange rates and the fair value of these derivative contracts in “Foreign currency loss, net” on our condensed consolidated statements of operations.
As of June 30, 2022 and December 31, 2021, the notional values of our foreign exchange forward contracts that do not qualify for hedge accounting were as follows (notional amounts and U.S. dollar equivalents in millions):
| | | | | | | | | | | | | | | | | | | | |
| | June 30, 2022 |
| Transaction | | Currency | | Notional Amount | | USD Equivalent |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| Sell | | Chilean peso | | CLP 5,034.5 | | $5.5 |
| | | | | | |
| | | | | | |
| Purchase | | Euro | | €82.1 | | $86.7 |
| Sell | | Euro | | €32.7 | | $34.5 |
| | | | | | |
| Sell | | Indian rupee | | INR 12,495.4 | | $158.8 |
| Purchase | | Japanese yen | | ¥1,615.2 | | $11.9 |
| Sell | | Japanese yen | | ¥62,722.1 | | $461.6 |
| Purchase | | Malaysian ringgit | | MYR 51.6 | | $11.7 |
| Sell | | Malaysian ringgit | | MYR 27.3 | | $6.2 |
| | | | | | |
| Sell | | Mexican peso | | MXN 34.6 | | $1.7 |
| Purchase | | Singapore dollar | | SGD 1.4 | | $1.0 |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | December 31, 2021 |
| Transaction | | Currency | | Notional Amount | | USD Equivalent |
| Purchase | | Australian dollar | | AUD 3.2 | | $2.3 |
| Purchase | | Brazilian real | | BRL 2.6 | | $0.5 |
| Sell | | Brazilian real | | BRL 2.6 | | $0.5 |
| Purchase | | British pound | | GBP 2.5 | | $3.4 |
| Sell | | Chilean peso | | CLP 4,058.6 | | $4.8 |
| Purchase | | Euro | | €77.6 | | $88.0 |
| Sell | | Euro | | €38.6 | | $43.8 |
| Sell | | Indian rupee | | INR 10,943.0 | | $147.1 |
| Purchase | | Japanese yen | | ¥667.5 | | $5.8 |
| Sell | | Japanese yen | | ¥31,524.6 | | $273.9 |
| Purchase | | Malaysian ringgit | | MYR 17.0 | | $4.1 |
| Sell | | Malaysian ringgit | | MYR 24.5 | | $5.9 |
| Sell | | Mexican peso | | MXN 34.6 | | $1.7 |
| Purchase | | Singapore dollar | | SGD 5.5 | | $4.1 |
Commodity Price Risk
We use commodity swap contracts to mitigate our exposure to commodity price fluctuations for certain raw materials used in the production of our modules. During the six months ended June 30, 2022, we entered into various commodity swap contracts to hedge a portion of our forecasted cash flows for purchases of aluminum frames between July 2022 and December 2023. Such swaps had an aggregate initial notional value based on metric tons of forecasted aluminum purchases, equivalent to $62.0 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 contracts proportionately adjusts with forecasted purchases of aluminum frames.
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 June 30, 2022. In the following 12 months, we expect to reclassify into earnings $5.8 million of net unrealized losses related to these commodity swap contracts that are included in “Accumulated other comprehensive loss” at June 30, 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, our corporate and administrative offices, land for our international manufacturing facilities, and certain of our manufacturing equipment. Such leases primarily relate to assets located in the United States, Malaysia, India, and Vietnam.
The following table presents certain quantitative information related to our lease arrangements for the three and six months ended June 30, 2022 and 2021, and as of June 30, 2022 and December 31, 2021 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended
June 30, | | Six Months Ended
June 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
| Operating lease cost | | $ | 4,232 | | | $ | 4,516 | | | $ | 8,609 | | | $ | 8,549 | |
| Variable lease cost | | 604 | | | 462 | | | 1,203 | | | 1,000 | |
| Short-term lease cost | | 221 | | | 236 | | | 252 | | | 607 | |
| Total lease cost | | $ | 5,057 | | | $ | 5,214 | | | $ | 10,064 | | | $ | 10,156 | |
| | | | | | | | |
Payments of amounts included in the measurement of operating lease liabilities | | | | | | $ | 9,259 | | | $ | 13,122 | |
Lease assets obtained in exchange for operating lease liabilities | | | | | | $ | 3,754 | | | $ | 17,909 | |
| | | | | | | | |
| | | | | | June 30,
2022 | | December 31,
2021 |
| Operating lease assets | | | | | | $ | 101,855 | | | $ | 207,544 | |
Operating lease liabilities – current | | | | | | 9,437 | | | 12,781 | |
Operating lease liabilities – noncurrent | | | | | | 47,752 | | | 145,912 | |
| | | | | | | | | | | | | | |
| Weighted-average remaining lease term | | 7 years | | 19 years |
| Weighted-average discount rate | | 5.0 | % | | 2.8 | % |
In June 2022, we completed the sale of our Japan project development business to PAG, which included the transfer of various land leases associated with the business. As a result, we derecognized lease assets of $87.7 million, current lease liabilities of $3.0 million, and noncurrent lease liabilities of $77.9 million. See Note 2. “Sales of Businesses” to our condensed consolidated financial statements for further information about this transaction.
As of June 30, 2022, the future payments associated with our lease liabilities were as follows (in thousands):
| | | | | | | | |
| | Total Lease Liabilities |
| Remainder of 2022 | | $ | 5,994 | |
| 2023 | | 11,732 | |
| 2024 | | 10,963 | |
| 2025 | | 9,965 | |
| 2026 | | 8,528 | |
| 2027 | | 5,943 | |
| Thereafter | | 14,844 | |
| Total future payments | | 67,969 | |
| Less: interest | | (10,780) | |
| Total lease liabilities | | $ | 57,189 | |
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 June 30, 2022 and December 31, 2021, our marketable securities consisted of foreign debt, U.S. debt, and time deposits, and our restricted marketable securities consisted of foreign and U.S. government obligations, supranational debt, and U.S. debt. We value our marketable securities and restricted marketable securities using observable inputs that reflect quoted prices for securities with identical characteristics or quoted prices for securities with similar characteristics and other observable inputs (such as interest rates that are observable at commonly quoted intervals). Accordingly, we classify the valuation techniques that use these inputs as either Level 1 or Level 2 depending on the inputs used. We also consider the effect of our counterparties’ credit standing in these fair value measurements.
•Derivative Assets and Liabilities. At June 30, 2022 and December 31, 2021, our derivative assets and liabilities consisted of foreign exchange forward contracts involving major currencies. At June 30, 2022, our derivative liabilities also included commodity swap contracts involving major commodity prices. Since our derivative assets and liabilities are not traded on an exchange, we value them using standard industry valuation models. As applicable, these models project future cash flows and discount the amounts to a present value using market-based observable inputs, including credit risk, foreign exchange rates, forward and spot prices for currencies, and forward prices for commodities. These inputs are observable in active markets over the contract term of the derivative instruments we hold, and accordingly, we classify the valuation techniques as Level 2. In evaluating credit risk, we consider the effect of our counterparties’ and our own credit standing in the fair value measurements of our derivative assets and liabilities, respectively.
At June 30, 2022 and December 31, 2021, the fair value measurements of our assets and liabilities measured on a recurring basis were as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Fair Value Measurements at Reporting
Date Using |
| | June 30,
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 | | $ | 52,161 | | | $ | — | | | $ | 52,161 | | | $ | — | |
| U.S. debt | | 8,702 | | | — | | | 8,702 | | | — | |
| Time deposits | | 83,081 | | | 83,081 | | | — | | | — | |
| Restricted marketable securities | | 200,266 | | | — | | | 200,266 | | | — | |
| Derivative assets | | 8,535 | | | — | | | 8,535 | | | — | |
| Total assets | | $ | 352,745 | | | $ | 83,081 | | | $ | 269,664 | | | $ | — | |
| Liabilities: | | | | | | | | |
| Derivative liabilities | | $ | 7,371 | | | $ | — | | | $ | 7,371 | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | 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 June 30, 2022 and December 31, 2021, the carrying values and fair values of our financial instruments not measured at fair value were as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | June 30, 2022 | | December 31, 2021 |
| | Carrying
Value | | Fair
Value | | Carrying
Value | | Fair
Value |
| Assets: | | | | | | | | |
| Accounts receivable unbilled, net - noncurrent | | $ | 11,488 | | | $ | 10,110 | | | $ | 20,840 | | | $ | 18,846 | |
| Accounts receivable trade, net - noncurrent | | 9,076 | | | 7,347 | | | 21,293 | | | 18,605 | |
| Liabilities: | | | | | | | | |
| Long-term debt, including current maturities (1) | | $ | 181,186 | | | $ | 155,888 | | | $ | 246,737 | | | $ | 243,865 | |
——————————
(1)Excludes unamortized discounts and issuance costs.
The carrying values in our condensed consolidated balance sheets of our current trade accounts receivable, current unbilled accounts receivable, restricted cash, accounts payable, and accrued expenses approximated their fair values due to their nature and relatively short maturities; therefore, we excluded them from the foregoing table. The fair value measurements for our noncurrent unbilled accounts receivable, noncurrent trade accounts receivable, and long-term debt are considered Level 2 measurements under the fair value hierarchy.
Credit Risk
We have certain financial and derivative instruments that subject us to credit risk. These consist primarily of cash, marketable securities, accounts receivable, restricted cash, restricted marketable securities, foreign exchange forward contracts, and commodity swap contracts. We are exposed to credit losses in the event of nonperformance by the counterparties to our financial and derivative instruments. We place these instruments with various high-quality financial institutions and limit the amount of credit risk from any one counterparty. We monitor the credit standing of our counterparty financial institutions. Our net sales are primarily concentrated among a limited number of customers. We monitor the financial condition of our customers and perform credit evaluations whenever considered necessary. 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.
9. Debt
Our long-term debt consisted of the following at June 30, 2022 and December 31, 2021 (in thousands):
| | | | | | | | | | | | | | | | | | | | |
| | | | Balance (USD) |
| Loan Agreement | | Currency | | June 30,
2022 | | December 31,
2021 |
| Luz del Norte Credit Facilities | | USD | | $ | 181,186 | | | $ | 183,829 | |
| Kyoto Credit Facility | | JPY | | — | | | 62,908 | |
| Long-term debt principal | | | | 181,186 | | | 246,737 | |
| Less: unamortized discounts and issuance costs | | | | (6,019) | | | (6,836) | |
| Total long-term debt | | | | 175,167 | | | 239,901 | |
| Less: current portion | | | | (5,150) | | | (3,896) | |
| Noncurrent portion | | | | $ | 170,017 | | | $ | 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 June 30, 2022 and December 31, 2021, the balance outstanding on the DFC loans was $135.7 million and $137.7 million, respectively. As of June 30, 2022 and December 31, 2021, the balance outstanding on the IFC loans was $45.5 million and $46.1 million, respectively. The DFC and IFC loans mature in June 2037 and are secured by liens over all of Luz del Norte’s assets, a pledge of all of the equity interests in the entity, and certain letters of credit. As of June 30, 2022, we were seeking a waiver for a technical noncompliance related to the credit facilities.
Kyoto Credit Facility
In July 2020, First Solar Japan GK, our wholly-owned subsidiary, entered into a construction loan facility with Mizuho Bank, Ltd. for borrowings up to ¥15.0 billion ($142.8 million), which are intended to be used for the construction of a 38 MWAC PV solar power plant located in Kyoto, Japan (the “Kyoto Credit Facility”). In May 2022, we repaid the remaining $73.2 million principal balance on the credit facility.
Momura Credit Facility
In May 2022, FS Japan Project 25 GK (“Momura”), our indirect wholly-owned subsidiary and project company, entered into a credit agreement (the “Momura Credit Facility”) with Nomura Capital Investment Co., Ltd. and Aozora Bank, Ltd. for aggregate borrowings up to ¥21.5 billion ($168.1 million) for the development and construction of a 53 MWAC PV solar power plant located in Tochigi, Japan. The credit facility consisted of an ¥18.8 billion ($146.6 million) term loan facility, a ¥1.9 billion ($15.1 million) consumption tax facility, and a ¥0.8 billion ($6.4 million) debt service reserve facility. In June 2022, we completed the sale of our Japan project development business, and the credit facility’s outstanding balance of $107.2 million was assumed by PAG. See Note 2. “Sales of Businesses” to our condensed consolidated financial statements for further information about this transaction.
Yatsubo Credit Facility
In May 2022, FS Japan Project 24 GK (“Yatsubo”), our indirect wholly-owned subsidiary and project company, entered into a credit agreement (the “Yatsubo Credit Facility”) with Nomura Capital Investment Co., Ltd. and Aozora Bank, Ltd. for aggregate borrowings up to ¥10.9 billion ($85.0 million) for the development and construction of a 26 MWAC PV solar power plant located in Tochigi, Japan. The credit agreement consisted of a ¥9.5 billion ($74.2 million) term loan facility, a ¥1.0 billion ($7.6 million) consumption tax facility, and a ¥0.4 billion ($3.2 million) debt service reserve facility. In June 2022, we completed the sale of our Japan project development business, and the credit facility’s outstanding balance of $70.0 million was assumed by PAG. See Note 2. “Sales of Businesses” to our condensed consolidated financial statements for further information about this transaction.
Orido Credit Facility
In May 2022, FS Japan Project B5 GK (“Orido”), our indirect wholly-owned subsidiary and project company, entered into a credit agreement (the “Orido Credit Facility”) with Nomura Capital Investment Co., Ltd. and Aozora Bank, Ltd. for aggregate borrowings up to ¥5.3 billion ($41.3 million) for the development and construction of a 14 MWAC PV solar power plant located in Tochigi, Japan. The credit agreement consisted of a ¥4.6 billion ($36.0 million) term loan facility, a ¥0.5 billion ($3.6 million) consumption tax facility, and a ¥0.2 billion ($1.7 million) debt service reserve facility. In June 2022, we completed the sale of our Japan project development business, and the credit facility’s outstanding balance of $18.0 million was assumed by PAG. See Note 2. “Sales of Businesses” to our condensed consolidated financial statements for further information about this transaction.
India Credit Facility
In July 2022, FS India Solar Ventures Private Limited, our indirect wholly-owned subsidiary entered into a finance agreement (the “India Credit Facility”) with DFC for aggregate borrowings up to $500.0 million for the development and construction of an approximately 3.3 GWDC solar module manufacturing facility located in Tamil Nadu, India. The India Credit Facility incurs interest at the U.S. Treasury Constant Maturity Yield plus 1.75% per annum, which is payable semi-annually. Principal on the Credit Facility is payable in scheduled semi-annual installments through the facility’s expected maturity in August 2029. The Credit Facility is guaranteed by First Solar, Inc.
Variable Interest Rate Risk
Our long-term debt agreements bear interest at LIBOR or equivalent variable rates. An increase in these variable rates would increase the cost of borrowing under the debt agreements. Our long-term debt borrowing rates as of June 30, 2022 were as follows:
| | | | | | | | |
| Loan Agreement | | June 30, 2022 |
| Luz del Norte Credit Facilities (1) | | Fixed rate loans at bank rate plus 3.50% |
| Variable rate loans at 91-Day U.S. Treasury Bill Yield or LIBOR plus 3.50% |
——————————
(1)Outstanding balance comprised of $125.3 million of fixed rate loans and $55.9 million of variable rate loans as of June 30, 2022.
Future Principal Payments
At June 30, 2022, the future principal payments on our long-term debt were due as follows (in thousands):
| | | | | | | | |
| | Total Debt |
| Remainder of 2022 | | $ | 1,392 | |
| 2023 | | 6,085 | |
| 2024 | | 7,020 | |
| 2025 | | 7,560 | |
| 2026 | | 7,965 | |
| 2027 | | 9,199 | |
| Thereafter | | 141,965 | |
| Total long-term debt future principal payments | | $ | 181,186 | |
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 June 30, 2022, the majority of these commercial commitments supported our module business. As of June 30, 2022, the issued and outstanding amounts and available capacities under these commitments were as follows (in millions):
| | | | | | | | | | | | | | |
| | Issued and Outstanding | | Available Capacity |
| Bilateral facilities (1) | | $ | 77.6 | | | $ | 137.4 | |
| Surety bonds | | 9.3 | | | 232.8 | |
——————————
(1)Of the total letters of credit issued under the bilateral facilities, $2.4 million was secured with cash.
Product Warranties
When we recognize revenue for sales of modules or projects, we accrue liabilities for the estimated future costs of meeting our limited warranty obligations for both modules and the balance of the systems. We estimate our limited product warranty liability for power output and defects in materials and workmanship under normal use and service conditions based on return rates for each series of module technology. We make and revise these estimates based primarily on the number of solar modules under warranty installed at customer locations, our historical experience with and projections of warranty claims, and our estimated per-module replacement costs. We also monitor our expected future module performance through certain quality and reliability testing and actual performance in certain field installation sites. From time to time, we have taken remediation actions with respect to affected modules beyond our limited warranties and may elect to do so in the future, in which case we would incur additional expenses. Such potential voluntary future remediation actions beyond our limited warranty obligations may be material to our condensed consolidated statements of operations if we commit to any such remediation actions.
Product warranty activities during the three and six months ended June 30, 2022 and 2021 were as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended
June 30, | | Six Months Ended
June 30, |
| | | 2022 | | 2021 | | 2022 | | 2021 |
| Product warranty liability, beginning of period | | $ | 47,016 | | | $ | 94,073 | | | $ | 52,553 | | | $ | 95,096 | |
| Accruals for new warranties issued | | 1,425 | | | 4,440 | | | 2,273 | | | 6,717 | |
| Settlements | | (1,252) | | | (2,413) | | | (7,254) | | | (5,639) | |
| Changes in estimate of product warranty liability | | (60) | | | (5,042) | | | (443) | | | (5,116) | |
| Product warranty liability, end of period | | $ | 47,129 | | | $ | 91,058 | | | $ | 47,129 | | | $ | 91,058 | |
| Current portion of warranty liability | | $ | 11,553 | | | $ | 16,846 | | | $ | 11,553 | | | $ | 16,846 | |
| Noncurrent portion of warranty liability | | $ | 35,576 | | | $ | 74,212 | | | $ | 35,576 | | | $ | 74,212 | |
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 June 30, 2022 and December 31, 2021, we accrued $3.7 million and $3.8 million of current indemnification liabilities, respectively. As of June 30, 2022, the maximum potential amount of future payments under our indemnifications was $102.3 million, and we held insurance and other instruments allowing us to recover up to $28.2 million of potential amounts paid under the indemnifications.
In September 2017, we made an indemnification payment in connection with the sale of one of our projects following the underpayment of anticipated cash grants by the United States government. In February 2018, the associated project entity commenced legal action against the United States government seeking full payment of the cash grants. In May 2021, the parties reached an agreement, pursuant to which the United States government made a settlement payment to the project entity. Under the terms of the indemnification arrangement, we were entitled to a portion of the settlement payment. Accordingly, during the three months ended June 30, 2021, we recorded revenue of $65.1 million for our portion of the settlement payment.
Solar Module Collection and Recycling Liability
We previously established a module collection and recycling program, which has since been discontinued, to collect and recycle modules sold and covered under such program once the modules reach the end of their service lives. For legacy customer sales contracts that were covered under this program, we agreed to pay the costs for the collection and recycling of qualifying solar modules, and the end-users agreed to notify us, disassemble their solar power systems, package the solar modules for shipment, and revert ownership rights over the modules back to us at the end of the modules’ service lives. Accordingly, we recorded any collection and recycling obligations within “Cost of sales” at the time of sale based on the estimated cost to collect and recycle the covered solar modules.
We estimate the cost of our collection and recycling obligations based on the present value of the expected future cost of collecting and recycling the solar modules, which includes estimates for the cost of packaging materials; the cost of freight from the solar module installation sites to a recycling center; material, labor, and capital costs; and by-product credits for certain materials recovered during the recycling process. We base these estimates on our experience collecting and recycling solar modules and certain assumptions regarding costs at the time the solar modules will be collected and recycled. In the periods between the time of sale and the related settlement of the collection and recycling obligation, we accrete the carrying amount of the associated liability and classify the corresponding expense within “Selling, general and administrative” expense on our condensed consolidated statements of operations.
Our module collection and recycling liability was $134.1 million and $139.1 million as of June 30, 2022 and December 31, 2021, respectively. See Note 4. “Restricted Marketable Securities” to our condensed consolidated financial statements for more information about our arrangements for funding this liability.
Legal Proceedings
Class Action
On January 7, 2022, a putative class action lawsuit titled City of Pontiac General Employees’ Retirement System v. First Solar, Inc., et al., Case No. 2:22-cv-00036-MTL, was filed in the 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. 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 Defendants’ deadline to file a motion to dismiss the Amended Complaint is August 22, 2022. 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.
11. Revenue from Contracts with Customers
The following table presents the disaggregation of revenue from contracts with customers for the three and six months ended June 30, 2022 and 2021 along with the reportable segment for each category (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Three Months Ended
June 30, | | Six Months Ended
June 30, |
| Category | | Segment | | 2022 | | 2021 | | 2022 | | 2021 |
| Solar modules | | Modules | | $ | 607,445 | | | $ | 542,956 | | | $ | 962,326 | | | $ | 1,077,626 | |
| Energy generation | | Other | | 8,956 | | | 7,457 | | | 15,249 | | | 22,036 | |
| O&M services | | Other | | 4,180 | | | 4,713 | | | 8,077 | | | 31,948 | |
| Solar power systems | | Other | | 374 | | | 73,977 | | | 2,343 | | | 300,944 | |
| EPC services | | Other | | — | | | 77 | | | — | | | — | |
| Net sales | | | | $ | 620,955 | | | $ | 629,180 | | | $ | 987,995 | | | $ | 1,432,554 | |
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 engineering, procurement, and construction (“EPC”) services, such revenue included estimated amounts of variable consideration. These estimates may require significant judgment to determine the most likely amount of net contract revenues. The cumulative effect of revisions to estimates is recorded in the period in which the revisions are identified and the amounts can be reasonably estimated. During the three and six months ended June 30, 2021, respectively, revenue increased $63.4 million and $65.0 million due to net changes in transaction prices for certain projects we previously sold, which represented 5.3% and 2.8% of the aggregate revenue for such projects. Such changes were primarily due to a $65.1 million settlement for an outstanding indemnification arrangement associated with the prior sale of one of our projects, which we recorded as revenue during the three months ended June 30, 2021. See Note 10. “Commitments and Contingencies” to our condensed consolidated financial statements for discussion of our indemnification arrangements.
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 six months ended June 30, 2022 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | June 30,
2022 | | December 31,
2021 | | Six Month Change |
| Accounts receivable unbilled, net (1) | | $ | 46,926 | | | $ | 46,113 | | | $ | 813 | | | 2 | % |
| Deferred revenue (2) | | $ | 505,642 | | | $ | 297,811 | | | $ | 207,831 | | | 70 | % |
——————————
(1)Includes $11.5 million and $20.8 million of noncurrent accounts receivable unbilled, net classified as “Other assets” on our condensed consolidated balance sheets as of June 30, 2022 and December 31, 2021, respectively.
(2)Includes $278.2 million and $95.9 million of noncurrent deferred revenue classified as “Other liabilities” on our condensed consolidated balance sheets as of June 30, 2022 and December 31, 2021, respectively.
During the six months ended June 30, 2022, our contract liabilities increased by $207.8 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 six months ended June 30, 2022 and 2021, we recognized revenue of $114.4 million and $111.6 million, respectively, that was included in the corresponding contract liability balance at the beginning of the periods.
As of June 30, 2022, we had entered into contracts with customers for the future sale of 37.3 GWDC of solar modules for an aggregate transaction price of $10.0 billion, which we expect to recognize as revenue through 2026 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 (“ITC”), 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 and six months ended June 30, 2022 and 2021 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended
June 30, | | Six Months Ended
June 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
| Cost of sales (1) | | $ | 446 | | | $ | 173 | | | $ | 944 | | | $ | 81 | |
| Selling, general and administrative (1) | | 4,754 | | | 4,737 | | | 7,328 | | | 9,252 | |
| Research and development (2) | | 561 | | | 520 | | | 992 | | | (788) | |
| Production start-up | | 3 | | | — | | | 3 | | | — | |
| Total share-based compensation expense | | $ | 5,764 | | | $ | 5,430 | | | $ | 9,267 | | | $ | 8,545 | |
——————————
(1)On March 31, 2021, we completed the sales of our North American O&M operations and U.S. project development business, which resulted in the forfeiture of unvested shares for associates (our term for full- and part-time employees) departing the Company as part of the transactions. See Note 2. “Sales of Businesses” to our condensed consolidated financial statements for further information related to these transactions.
(2)Effective March 15, 2021, our former Chief Technology Officer retired from the Company, which resulted in the forfeiture of his unvested shares during the six months ended June 30, 2021.
Share-based compensation expense capitalized in inventory and PV solar power systems was $0.7 million as of June 30, 2022 and December 31, 2021. As of June 30, 2022, we had $29.2 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 1.5 years.
In July 2019, the compensation committee of our board of directors approved grants of performance units for key executive officers to be earned over a multi-year performance period, which ended in December 2021. Vesting of the 2019 grants of performance units was contingent upon the relative attainment of target cost per watt, module wattage, gross profit, and operating income metrics. In March 2022, the compensation committee certified the achievement of the vesting conditions applicable to the grants, which approximated the maximum level of performance. Accordingly, each participant received one share of common stock for each vested performance unit granted, net of any tax withholdings.
In March 2020, the compensation committee approved additional grants of performance units for key executive officers. Such grants are expected to be earned over a multi-year performance period ending in December 2022. Vesting of the 2020 grants of performance units is contingent upon the relative attainment of target contracted revenue, module wattage, and return on capital metrics.
In May 2021, the compensation committee approved additional grants of performance units for key executive officers. Such grants are expected to be earned over a multi-year performance period ending in December 2023. Vesting of the 2021 grants of performance units is contingent upon the relative attainment of target contracted revenue, cost per watt, incremental average selling price, and operating income metrics.
In March 2022, the compensation committee approved additional grants of performance units for key executive officers. Such grants are expected to be earned over a multi-year performance period ending in December 2024. Vesting of the 2022 grants of performance units is contingent upon the relative attainment of target contracted revenue, cost per watt, and return on capital metrics.
Vesting of performance units is also contingent upon the employment of program participants through the applicable vesting dates, with limited exceptions in case of death, disability, a qualifying retirement, or a change-in-control of First Solar. Outstanding performance units are included in the computation of diluted net income per share based on the number of shares that would be issuable if the end of the reporting period were the end of the contingency period.
In February 2022, First Solar adopted a Clawback Policy (“the Policy”) that applies to the Company’s current and former Section 16 officers. The Policy applies to all incentive compensation, including any performance-based annual incentive awards and performance-based equity compensation. The Policy was adopted to ensure that incentive compensation is paid or awarded based on accurate financial results and the correct calculation of performance against incentive targets.
13. Income Taxes
Our effective tax rate was 83.7% and 18.6% for the six months ended June 30, 2022 and 2021, respectively. The increase in our effective tax rate was primarily driven by higher losses in certain jurisdictions for which no tax benefit could be recorded, the remeasurement of our net deferred tax assets in Vietnam as a result of the new long-term tax incentive described below, 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 higher losses in certain jurisdictions for which no tax benefit could be recorded, the remeasurement of our net deferred tax assets in Vietnam mentioned above, the effect of the FTC regulations described below, and changes in our deferred income taxes related to our Malaysian tax holiday.
In December 2021, the U.S. Treasury released final FTC regulations addressing various aspects of the U.S. FTC regime. Among other items, these regulations revised the definition of a creditable foreign income tax and the time at which foreign taxes accrued can be claimed as a credit. These regulations are applicable for tax years beginning on or after December 28, 2021. As a result of these regulations, foreign taxes, which were previously creditable, are now treated as foreign tax deductions at the U.S. statutory federal income tax rate of 21%.
Our Malaysian subsidiary has been granted a long-term tax holiday that expires in 2027. The tax holiday, which generally provides for a full exemption from Malaysian income tax, is conditional upon our continued compliance with certain employment and investment thresholds, which we are currently in compliance with and expect to continue to comply with through the expiration of the tax holiday in 2027.
Our Vietnamese subsidiary had previously been granted a tax incentive that provided a two-year tax exemption, which began in 2020, and reduced annual tax rates through the end of 2025. In May 2022, our Vietnamese subsidiary was granted a new long-term tax incentive that provides an additional two-year tax exemption and reduced annual tax rates through 2036, conditional upon our continued compliance with certain revenue and research and development (“R&D”) spending thresholds, which we are currently in compliance with and expect to continue to comply with through the expiration of the tax holiday.
We account for uncertain tax positions pursuant to the recognition and measurement criteria under ASC 740. It is reasonably possible that $0.3 million of uncertain tax positions will be recognized within the next 12 months due to the expiration of the statute of limitations associated with such positions.
We are subject to audit by federal, state, local, and foreign tax authorities. We are currently under examination in India, 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 Income per Share
The calculation of basic and diluted net income per share for the three and six months ended June 30, 2022 and 2021 was as follows (in thousands, except per share amounts):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended
June 30, | | Six Months Ended
June 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
| Basic net income per share | | | | | | | | |
| Numerator: | | | | | | | | |
| Net income | | $ | 55,805 | | | $ | 82,449 | | | $ | 12,550 | | | $ | 292,120 | |
| Denominator: | | | | | | | | |
| Weighted-average common shares outstanding | | 106,586 | | | 106,313 | | | 106,500 | | | 106,201 | |
| | | | | | | | |
| Diluted net income per share | | | | | | | | |
| Denominator: | | | | | | | | |
| Weighted-average common shares outstanding | | 106,586 | | | 106,313 | | | 106,500 | | | 106,201 | |
| Effect of restricted stock and performance units | | 470 | | | 523 | | | 465 | | | 665 | |
| Weighted-average shares used in computing diluted net income per share | | 107,056 | | | 106,836 | | | 106,965 | | | 106,866 | |
| | | | | | | | |
| Net income per share: | | | | | | | | |
| Basic | | $ | 0.52 | | | $ | 0.78 | | | $ | 0.12 | | | $ | 2.75 | |
| Diluted | | $ | 0.52 | | | $ | 0.77 | | | $ | 0.12 | | | $ | 2.73 | |
The following table summarizes the potential shares of common stock that were excluded from the computation of diluted net income per share for the three and six months ended June 30, 2022 and 2021 as such shares would have had an anti-dilutive effect (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended
June 30, | | Six Months Ended
June 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
| Anti-dilutive shares | | 45 | | | — | | | 45 | | | — | |
15. Accumulated Other Comprehensive Loss
The following table presents the changes in accumulated other comprehensive loss, net of tax, for the six months ended June 30, 2022 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Foreign Currency Translation Adjustment | | Unrealized Gain (Loss) on Marketable Securities and Restricted Marketable Securities | | Unrealized Gain (Loss) on Derivative Instruments | | Total |
| Balance as of December 31, 2021 | | $ | (89,452) | | | $ | (8,036) | | | $ | 1,126 | | | $ | (96,362) | |
| Other comprehensive loss before reclassifications | | (24,386) | | | (41,415) | | | (6,267) | | | (72,068) | |
| Amounts reclassified from accumulated other comprehensive loss | | (3,909) | | | — | | | (1,453) | | | (5,362) | |
Net tax effect | | — | | | 1,927 | | | 1,635 | | | 3,562 | |
| Net other comprehensive loss | | (28,295) | | | (39,488) | | | (6,085) | | | (73,868) | |
| Balance as of June 30, 2022 | | $ | (117,747) | | | $ | (47,524) | | | $ | (4,959) | | | $ | (170,230) | |
The following table presents the pretax amounts reclassified from accumulated other comprehensive loss into our condensed consolidated statements of operations for the three and six months ended June 30, 2022 and 2021 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Comprehensive Income Components | | Income Statement Line Item | | Three Months Ended
June 30, | | Six Months Ended
June 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
| Foreign currency translation adjustment: | | | | | | | | | | |
| Foreign currency translation adjustment | | Gain on sales of businesses, net | | $ | 3,756 | | | $ | — | | | $ | 3,756 | | | $ | — | |
| Foreign currency translation adjustment | | Other (expense) income, net | | 158 | | | — | | | 153 | | | (475) | |
| Total foreign currency translation adjustment | | | | 3,914 | | | — | | | 3,909 | | | (475) | |
Unrealized gain on marketable securities and restricted marketable securities | | Other (expense) income, net | | — | | | — | | | — | | | 11,696 | |
| Unrealized gain (loss) on derivative instruments: | | | | | | | | | | |
Foreign exchange forward contracts | | Cost of sales | | 893 | | | (799) | | | 1,453 | | | (1,928) | |
| Commodity swap contracts | | Cost of sales | | — | | | 220 | | | — | | | 213 | |
| | | | | | | | | | |
| Total unrealized gain (loss) on derivative instruments | | | | 893 | | | (579) | | | 1,453 | | | (1,715) | |
| Total gain (loss) reclassified | | | | $ | 4,807 | | | $ | (579) | | | $ | 5,362 | | | $ | 9,506 | |
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 and six months ended June 30, 2022 and 2021 and as of June 30, 2022 and December 31, 2021 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended June 30, 2022 | | Three Months Ended June 30, 2021 |
| | | Modules | | Other | | Total | | Modules | | Other | | Total |
| Net sales | | $ | 607,445 | | | $ | 13,510 | | | $ | 620,955 | | | $ | 542,956 | | | $ | 86,224 | | | $ | 629,180 | |
| Gross profit (loss) | | 31,167 | | | (54,367) | | | (23,200) | | | 109,347 | | | 64,771 | | | 174,118 | |
| Depreciation and amortization expense | | 57,810 | | | 2,355 | | | 60,165 | | | 56,688 | | | 3,051 | | | 59,739 | |
| | | | | | | | | | | | |
| | | Six Months Ended June 30, 2022 | | Six Months Ended June 30, 2021 |
| | | Modules | | Other | | Total | | Modules | | Other | | Total |
| Net sales | | $ | 962,326 | | | $ | 25,669 | | | $ | 987,995 | | | $ | 1,077,626 | | | $ | 354,928 | | | $ | 1,432,554 | |
| Gross profit (loss) | | 42,356 | | | (54,093) | | | (11,737) | | | 209,787 | | | 149,098 | | | 358,885 | |
| Depreciation and amortization expense | | 114,009 | | | 5,201 | | | 119,210 | | | 107,412 | | | 6,148 | | | 113,560 | |
| | | | | | | | | | | | |
| | June 30, 2022 | | December 31, 2021 |
| | Modules | | Other | | Total | | Modules | | Other | | Total |
| Goodwill | | $ | 14,462 | | | $ | — | | | $ | 14,462 | | | $ | 14,462 | | | $ | — | | | $ | 14,462 | |