Edgar Filing: FIRST SOLAR, INC.

FSLR Sept11 10q Draft

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark one)



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

	For the quarterly period ended September 30, 2011
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

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)

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 [x] No [ ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [x] No [ ]

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



Large accelerated filer [x]	Accelerated filer [ ]	Non-accelerated filer [ ]	Smaller reporting company [ ]
		(Do not check if a smaller reporting company)

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

As of October 28, 2011, 86,424,881 shares of the registrant’s common stock, $0.001 par value per share, were issued and outstanding.

FIRST SOLAR, INC. AND SUBSIDIARIES

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2011

TABLE OF CONTENTS



		Page
Part I.	Financial Information (Unaudited)
Item 1.	Condensed Consolidated Financial Statements:
	Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2011 and September 25, 2010	3
	Condensed Consolidated Balance Sheets as of September 30, 2011 and December 31, 2010	4
	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2011 and September 25, 2010	5
	Notes to Condensed Consolidated Financial Statements	6
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	35
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	54
Item 4.	Controls and Procedures	55
Part II.	Other Information	55
Item 1.	Legal Proceedings	55
Item 1A.	Risk Factors	56
Item 6.	Exhibits	56
Signature		57

PART I. FINANCIAL INFORMATION

Item 1. Unaudited Condensed Consolidated Financial Statements

FIRST SOLAR, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(Unaudited)



	Three Months Ended						Nine Months Ended
	September 30, 2011			September 25, 2010			September 30, 2011		September 25, 2010
Net sales	$	1,005,788		$	797,899		$	2,105,855	$	1,953,714
Cost of sales	626,624			476,007			1,272,228		1,065,592
Gross profit	379,164			321,892			833,627		888,122
Operating expenses:
Research and development	38,164			21,472			102,617		67,196
Selling, general and administrative	112,743			84,961			286,615		230,422
Production start-up	5,514			3,821			27,739		7,252
Total operating expenses	156,421			110,254			416,971		304,870
Operating income	222,743			211,638			416,656		583,252
Foreign currency (loss) gain	(1,857		)	(1,001		)	752		(4,322		)
Interest income	3,225			2,658			9,665		11,341
Interest expense, net	—			—			—		(6		)
Other (expense) income, net	(1,346		)	(380		)	656		(1,553		)
Income before income taxes	222,765			212,915			427,729		588,712
Income tax expense	26,251			36,046			54,109		80,455
Net income	$	196,514		$	176,869		$	373,620	$	508,257
Net income per share:
Basic	$	2.28		$	2.08		$	4.35	$	5.99
Diluted	$	2.25		$	2.04		$	4.29	$	5.88
Weighted-average number of shares used in per share calculations:
Basic	86,338			85,072			85,946		84,810
Diluted	87,151			86,610			87,114		86,368

See accompanying notes to these condensed consolidated financial statements.

FIRST SOLAR, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

(Unaudited)



	September 30, 2011		December 31, 2010
ASSETS
Current assets:
Cash and cash equivalents	$	678,560	$	765,689
Marketable securities and investments	84,350		167,889
Accounts receivable trade, net	481,978		305,537
Accounts receivable, unbilled	325,641		1,482
Inventories	432,887		195,863
Balance of systems parts	43,287		4,579
Deferred tax assets, net	31,716		388
Prepaid expenses and other current assets	352,049		143,033
Total current assets	2,430,468		1,584,460
Property, plant and equipment, net	1,840,295		1,430,789
Project assets	282,788		320,140
Deferred tax assets, net	278,772		259,236
Marketable securities	31,859		180,271
Restricted cash and investments	203,763		86,003
Goodwill	458,808		433,288
Inventories	48,151		42,728
Other assets	148,408		43,488
Total assets	$	5,723,312	$	4,380,403
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	170,904	$	82,312
Income taxes payable	33,411		16,831
Accrued expenses	271,991		244,271
Current portion of long-term debt	25,597		26,587
Other current liabilities	245,098		99,676
Total current liabilities	747,001		469,677
Accrued solar module collection and recycling liability	185,160		132,951
Long-term debt	582,744		210,804
Other liabilities	182,623		112,026
Total liabilities	1,697,528		925,458
Stockholders’ equity:
Common stock, $0.001 par value per share; 500,000,000 shares authorized; 86,377,679 and 85,843,511 shares issued and outstanding at September 30, 2011 and December 31, 2010, respectively	86		86
Additional paid-in capital	1,965,840		1,815,420
Contingent consideration	—		1,118
Accumulated earnings	2,039,183		1,665,564
Accumulated other comprehensive income (loss)	20,675		(27,243		)
Total stockholders’ equity	4,025,784		3,454,945
Total liabilities and stockholders’ equity	$	5,723,312	$	4,380,403

See accompanying notes to these condensed consolidated financial statements.

FIRST SOLAR, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)



	Nine Months Ended
	September 30, 2011			September 25, 2010
Cash flows from operating activities:
Cash received from customers	$	1,570,183		$	1,673,064
Cash paid to suppliers and associates	(1,488,358		)	(1,170,127		)
Interest received	8,287			17,771
Interest paid	(7,826		)	(3,149		)
Income taxes paid, net of refunds	(44,052		)	(57,948		)
Excess tax benefit from share-based compensation arrangements	(79,741		)	(102,381		)
Other operating activities	(2,690		)	(1,553		)
Net cash (used in) provided by operating activities	(44,197		)	355,677
Cash flows from investing activities:
Purchases of property, plant and equipment	(613,861		)	(377,147		)
Purchases of marketable securities and investments	(195,819		)	(401,241		)
Proceeds from maturities of marketable securities and investments	116,298			60,948
Proceeds from sales of marketable securities and investments	308,669			409,790
Payments received on notes receivable	—			61,658
Increase in restricted investments	(62,748		)	(43,064		)
Increase in restricted cash	(23,358		)	—
Acquisitions, net of cash acquired	(21,105		)	(296,496		)
Other investing activities	(10,239		)	1,288
Net cash used in investing activities	(502,163		)	(584,264		)
Cash flows from financing activities:
Proceeds from stock option exercises	7,993			6,756
Repayment of long-term debt	(327,821		)	(14,440		)
Proceeds from borrowings under long-term debt, net of discount and issuance costs	694,399			100,000
Excess tax benefit from share-based compensation arrangements	79,741			102,381
Proceeds from economic development funding and incentives	4,286			—
Other financing activities	(296		)	(28		)
Net cash provided by financing activities	458,302			194,669
Effect of exchange rate changes on cash and cash equivalents	929			(9,365		)
Net decrease in cash and cash equivalents	(87,129		)	(43,283		)
Cash and cash equivalents, beginning of the period	765,689			664,499
Cash and cash equivalents, end of the period	$	678,560		$	621,216
Supplemental disclosure of noncash investing and financing activities:
Property, plant and equipment acquisitions funded by liabilities	$	81,579		$	65,581

See accompanying notes to these condensed consolidated financial statements.

FIRST SOLAR, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 1. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of First Solar, Inc. and its subsidiaries have been prepared in accordance with accounting principles generally accepted 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 (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 management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair statement have been included. Operating results for the three months and nine months ended September 30, 2011 are not necessarily indicative of the results that may be expected for the year ending December 31, 2011, or for any other period. The condensed consolidated balance sheet at December 31, 2010 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 financial statements and notes should be read in conjunction with the financial statements and notes thereto for the fiscal year ended December 31, 2010 included in our Annual Report on Form 10-K filed with the SEC.

We report our quarterly results of operations using a calendar convention. Prior to December 31, 2010, our fiscal periods ended on the Saturday closest to the end of the applicable calendar quarter. Fiscal 2011 will end on December 31, 2011.

Certain prior year balances have been reclassified to conform to the current year's presentation. Such reclassifications did not affect total net sales, operating income, or net income.

Unless expressly stated or the context otherwise requires, the terms "the Company," "we," "our," "us," and "First Solar" refer to First Solar, Inc. and its subsidiaries.

Note 2. Summary of Significant Accounting Policies

Product Warranties. We have historically provided a limited warranty against defects in materials and workmanship under normal use and service conditions for 5 years following delivery to the owners of our solar modules. For solar module sales made subsequent to September 30, 2011, we have increased the limited warranty we provide against defects in materials and workmanship under normal use and service conditions from 5 years to 10 years.

We also warrant to our owners that solar modules installed in accordance with agreed-upon specifications will produce at least 90% of their power output rating during the first 10 years following their installation and at least 80% of their power output rating during the following 15 years. In resolving claims under both the defects and power output warranties, we have the option of either repairing or replacing the covered solar module or, under the power output warranty, providing additional solar modules to remedy the power shortfall. We also have the option to make a payment for the then current market module price to resolve claims. Our warranties are automatically transferred from the original purchasers of our solar modules to subsequent purchasers upon resale. When we recognize revenue for module sales, we accrue a liability for the estimated future costs of meeting our limited warranty obligations for those modules. We make and revise this estimate based on the number of our solar modules under warranty at customer locations, our historical experience with warranty claims, our monitoring of field installation sites, our in-house testing of our solar modules, and our estimated per-module replacement cost.

Revenue Recognition — Systems Business. Our systems business provides a complete solar power system solution, which includes project development, engineering, procurement, and construction (EPC) services, operating and maintenance (O&M) services, when applicable, and project finance, when required.

We recognize revenue for arrangements entered into by the systems business generally using two revenue recognition models, following the guidance in ASC 605, Accounting for Long-term Construction Contracts or, for arrangements which include land or land rights, ASC 360, Accounting for Sales of Real Estate.

For construction contracts that do not include land or land rights and thus are accounted for under ASC 605, we use the percentage-of-completion method using actual costs incurred over total estimated costs to complete a project (including module costs) as our basic accounting policy, unless we cannot make reasonably dependable estimates of the costs to complete the contract, in which case we would use the completed contract method. We periodically revise our contract cost and profit estimates and we immediately recognize any losses that we identify on such contracts. Incurred costs include all direct materials, costs for solar

modules, labor, subcontractor costs, and those indirect costs related to contract performance, such as indirect labor, supplies, and tools. We recognize direct material costs and costs for solar modules as incurred costs when the direct materials and solar modules have been installed. When construction contracts or other agreements specify that title to direct materials and solar modules transfers to the customer before installation has been performed, we defer revenue and associated costs and recognize revenue once those materials are installed and have met all other revenue recognition requirements. We consider direct materials to be installed when they are permanently attached or fitted to the solar power systems as required by engineering designs.

For arrangements recognized under ASC 360, typically when we have gained control of land or land rights, we record the sale as revenue using one of the following revenue recognition methods, based upon the substance and the terms and conditions of such arrangements:

We apply the percentage-of-completion method to certain arrangements covered under ASC 360, when the sale has been consummated, when we have transferred the usual risks and rewards of ownership to the buyer, the initial or continuing investment criteria have been met, we have the ability to estimate our costs and progress toward completion, and other revenue recognition criteria have been met. Depending on the value of the initial and continuing payment commitment by the buyer, we may align our revenue recognition and release of project assets to cost of sales with the receipt of payment from the buyer for sales arrangements accounted for under ASC 360.

We record revenue for certain arrangements covered under ASC 360 after construction of a project is complete, we have transferred the usual risks and rewards of ownership to the buyer, and we have received payment from the buyer.

Balance of Systems Parts. Balance of systems parts represent mounting, electrical and other construction parts purchased for solar power plants under construction, which we hold title of and are not yet installed in a solar power plant. These parts include posts, tilt brackets, tables, harnesses, combiner boxes, inverters, cables and any other parts we purchase or assemble for the solar power plants we construct. Balance of systems parts do not include solar modules. We carry these parts at the lower of cost or market, with market being based on either recoverability through installation in a solar power plant under construction or through a sale.

Refer to Note 2. "Summary of Significant Accounting Policies," to our consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2010 for a complete discussion of our significant accounting policies.

Note 3. Recent Accounting Pronouncements

In April 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS. This ASU amends current fair value measurement and disclosure guidance to include increased transparency around valuation input and investment categorization. ASU 2011-04 is effective for fiscal years and interim periods beginning after December 15, 2011, with early adoption not permitted. We do not believe that the adoption of ASU 2011-04 in the first quarter of 2012 will have an impact on our financial position, results of operations, or cash flows.

In June 2011, the FASB issued ASU 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income. ASU 2011-05 allows an entity to present components of net income and other comprehensive income in one continuous statement, referred to as the statement of comprehensive income, or in two separate, but consecutive statements. ASU 2011-05 also requires reclassification adjustments from other comprehensive income be measured and presented by income statement line item in net income and also in other comprehensive income. ASU 2011-05 eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders' equity. While the new guidance changes the presentation of comprehensive income, there are no changes to the components that are recognized in net income or other comprehensive income under current accounting guidance. ASU 2011-05 is effective for fiscal years and interim periods beginning after December 15, 2011 and must be applied retrospectively. We do not believe that the adoption of ASU 2011-05 will have an impact on our financial position, results of operations, or cash flows.

In September 2011, the FASB issued ASU 2011-08, Intangibles - Goodwill and Other (Topic 350): Testing Goodwill for Impairment. ASU 2011-08 permits an entity to make a qualitative assessment of whether it is more-likely-than-not that a reporting unit's fair value is less than its carrying value to determine whether it is necessary to perform the two-step goodwill impairment test. If it is determined through the qualitative assessment that a reporting unit's fair value is more-likely-than-not greater than its carrying value, the two-step impairment tests are not required. The qualitative assessment is optional, allowing entities to go directly to the two-step impairment test. ASU 2011-08 is effective for annual and interim goodwill impairment tests performed in fiscal years beginning after December 15, 2011, with early adoption permitted. We elected to adopt the guidance effective October

1, 2011. The adoption of ASU 2011-08 did not have an impact on our financial position, results of operations, or cash flows.

Note 4. Acquisitions

Fiscal 2011 Acquisition

Ray Tracker

On January 4, 2011, we acquired 100% of the ownership interest of Ray Tracker, Inc., a tracking technology and photovoltaic (PV) balance of systems business in an all-cash transaction, which was not material to our consolidated balance sheets and results of operations. We have included the financial results of Ray Tracker in our condensed consolidated financial statements from the date of acquisition. During the first nine months of 2011, Ray Tracker did not contribute a material amount to our net sales and net income.

Fiscal 2010 Acquisition

NextLight Renewable Power

On July 12, 2010, we completed the acquisition of NextLight Renewable Power, LLC (NextLight), a leading developer of utility-scale solar power projects in the southwestern United States. NextLight was formed by a private equity firm focused on investing in North America's energy infrastructure. This transaction expanded our pipeline of solar power projects in the southwestern United States and supports our expansion in the U.S. utility-scale power market. We have integrated NextLight into our systems business, which provides a complete PV solar power solution, including project development, EPC services, O&M services, when applicable, and project finance, when required.

The total consideration for this acquisition was $296.7 million in an all-cash transaction. In allocating the purchase price based on estimated fair values, we recorded approximately $146.8 million of goodwill, $2.5 million of net tangible assets, and $147.4 million of project assets. We have included the financial results of NextLight in our condensed consolidated financial statements beginning on the acquisition date. For the period from January 1, 2010 to July 12, 2010, NextLight did not recognize any revenue and did not incur a material net loss. Therefore, had the acquisition of NextLight occurred on December 27, 2009 (the first day of our fiscal year 2010), our reported net sales would not have changed and our reported net income would not have materially changed from the amounts previously reported.

Note 5. Goodwill

The changes in the carrying amount of goodwill, which is generally deductible for tax purposes, for our components segment and systems segment for the nine months ended September 30, 2011 were as follows (in thousands):



	Components		Systems		Consolidated
Ending balance, December 31, 2010	$	393,365	$	39,923	$	433,288
Goodwill from acquisition	—		25,520		25,520
Ending balance, September 30, 2011	$	393,365	$	65,443	$	458,808

ASC 350, Intangibles — Goodwill and Other, requires us to test goodwill for impairment at least annually, or sooner, if facts or circumstances between scheduled annual tests indicate that it is more likely than not that the fair value of a reporting unit that has goodwill might be less than its carrying value. Currently our operating segments and reporting units are identical. We estimate the fair value of our reporting units by referring to the price that would be received to sell the unit as whole in an orderly transaction between market participants at the measurement date. For the goodwill assessment of our systems business, we believe that a typical market participant for the sale of our systems reporting unit would be a solar module manufacturer seeking to acquire a systems business with a large pipeline of utility-scale solar power plant projects, with the intent that these projects would provide a captive outlet for additional future solar module production. Therefore, we model the systems reporting unit's future performance for purposes of applying the income method of fair value measurement to include some of the profitability associated with the solar module element of the solar power plants that it builds and sells.

We performed our goodwill impairment test in the fourth fiscal quarter of the year ended December 31, 2010 and determined that the fair value of our goodwill substantially exceeded the carrying value for each individual reporting unit. Therefore, we concluded that our goodwill was not impaired.

We elected to early adopt the guidance issued under ASU 2011-08 and will perform our annual goodwill impairment testing during the fourth quarter of 2011 in accordance with ASU 2011-08. See Note 3. "Recent Accounting Pronouncements," to our condensed consolidated financial statements for details on ASU 2011-08.

We have also concluded that there have been no changes in facts and circumstances since the date of the goodwill impairment test that would trigger an interim goodwill impairment test.

Note 6. Cash, Cash Equivalents, Marketable Securities, and Investments

Cash, cash equivalents, marketable securities, and investments consisted of the following at September 30, 2011 and December 31, 2010 (in thousands):



	September 30, 2011		December 31, 2010
Cash and cash equivalents:
Cash	$	673,798	$	742,200
Cash equivalents:
Commercial paper	—		1,200
Money market mutual funds	4,762		22,289
Total cash and cash equivalents	678,560		765,689
Marketable securities and investments:
Certificates of deposit	1,301		—
Commercial paper	1,400		13,343
Corporate debt securities	29,861		98,602
Federal agency debt	40,233		45,875
Foreign agency debt	13,091		133,165
Foreign government obligations	5,581		9,143
Supranational debt	22,726		48,032
U.S. government obligations	2,016		—
Total marketable securities and investments	116,209		348,160
Total cash, cash equivalents, marketable securities, and investments	$	794,769	$	1,113,849

We have classified our marketable securities and investments as "available-for-sale." Accordingly, we record them at fair value and account for net unrealized gains and losses as a part of accumulated other comprehensive income. We report realized gains and losses on the sale of our marketable securities and investments in earnings, computed using the specific identification method. During the three and nine months ended September 30, 2011, we realized an immaterial amount and $0.9 million, respectively, in gains and an immaterial amount in losses on our marketable securities and investments. During the three and nine months ended September 25, 2010, we realized $0.2 million and $0.9 million, respectively, in gains and $0.1 million and $0.6 million, respectively, in losses on our marketable securities and investments. See Note 10. "Fair Value Measurements," to our condensed consolidated financial statements for information about the fair value of our marketable securities and investments.

All of our available-for-sale marketable securities and investments are subject to a periodic impairment review. We consider a marketable security or investment to be impaired when its fair value is less than its carrying cost, in which case we would further review the marketable security or investment to determine whether it is other-than-temporarily impaired. When we evaluate a marketable security or investment for other-than-temporary impairment, we review factors such as the length of time and extent to which its fair value has been below its cost basis, the financial condition of the issuer and any changes thereto, our intent to sell, and whether it is more likely than not that we will be required to sell the marketable security or investment before we have recovered its cost basis. If a marketable security or investment were other-than-temporarily impaired, we would write it down through earnings to its impaired value and establish that as a new cost basis. We did not identify any of our marketable securities and investments as other-than-temporarily impaired at September 30, 2011 and December 31, 2010.

The following tables summarize the unrealized gains and losses related to our marketable securities and investments, by major security type, as of September 30, 2011 and December 31, 2010 (in thousands):



	As of September 30, 2011
Security Type	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Certificates of deposit	$	1,301	$	—	$	—	$	1,301
Commercial paper	1,400		—		—		1,400
Corporate debt securities	29,868		23		30		29,861
Federal agency debt	40,186		50		3		40,233
Foreign agency debt	13,079		13		1		13,091
Foreign government obligations	5,579		2		—		5,581
Supranational debt	22,721		17		12		22,726
U.S. government obligations	1,998		18		—		2,016
Total	$	116,132	$	123	$	46	$	116,209



	As of December 31, 2010
Security Type	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Commercial paper	$	13,340	$	3	$	—	$	13,343
Corporate debt securities	98,148		592		138		98,602
Federal agency debt	45,858		21		4		45,875
Foreign agency debt	132,860		425		120		133,165
Foreign government obligations	9,137		8		2		9,143
Supranational debt	47,917		115		—		48,032
Total	$	347,260	$	1,164	$	264	$	348,160

Contractual maturities of our marketable securities and investments as of September 30, 2011 and December 31, 2010 were as follows (in thousands):



	As of September 30, 2011
Maturity	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
One year or less	$	84,293	$	65	$	8	$	84,350
One year to two years	28,435		57		35		28,457
Two years to three years	3,404		1		3		3,402
Total	$	116,132	$	123	$	46	$	116,209



	As of December 31, 2010
Maturity	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
One year or less	$	167,499	$	398	$	8	$	167,889
One year to two years	177,268		759		256		177,771
Two years to three years	2,493		7		—		2,500
Total	$	347,260	$	1,164	$	264	$	348,160

The net unrealized gain of $0.1 million and $0.9 million as of September 30, 2011 and December 31, 2010, respectively, on our marketable securities and investments was primarily the result of changes in interest rates. We typically invest in highly-rated securities with low probabilities of default. Our investment policy requires investments to be rated single A or higher and limits the security types, issuer concentration, and duration to maturity of our marketable securities and investments.

The following table shows gross unrealized losses and estimated fair values for those marketable securities and investments that were in an unrealized loss position as of September 30, 2011 and December 31, 2010, aggregated by major security type and the length of time the marketable securities and investments have been in a continuous loss position (in thousands):



	As of September 30, 2011
	In Loss Position for Less Than 12 Months				In Loss Position for 12 Months or Greater				Total
Security Type	Estimated Fair Value		Gross Unrealized Losses		Estimated Fair Value		Gross Unrealized Losses		Estimated Fair Value		Gross Unrealized Losses
Corporate debt securities	$	14,808	$	30	$	—	$	—	$	14,808	$	30
Federal agency debt	3,352		3		—		—		3,352		3
Foreign agency debt	3,689		1		—		—		3,689		1
Supranational debt	5,499		12		—		—		5,499		12
Total	$	27,348	$	46	$	—	$	—	$	27,348	$	46



	As of December 31, 2010
	In Loss Position for Less Than 12 Months				In Loss Position for 12 Months or Greater				Total
Security Type	Estimated Fair Value		Gross Unrealized Losses		Estimated Fair Value		Gross Unrealized Losses		Estimated Fair Value		Gross Unrealized Losses
Corporate debt securities	$	33,018	$	138	$	—	$	—	$	33,018	$	138
Federal agency debt	11,721		4		—		—		11,721		4
Foreign agency debt	46,134		120		—		—		46,134		120
Foreign government obligations	4,515		2		—		—		4,515		2
Total	$	95,388	$	264	$	—	$	—	$	95,388	$	264

Note 7. Restricted Cash and Investments

Restricted cash and investments consisted of the following at September 30, 2011 and December 31, 2010 (in thousands):



	September 30, 2011		December 31, 2010
Restricted cash	$	22,761	$	19
Restricted investments	181,002		85,984
Restricted cash and investments	$	203,763	$	86,003

On May 18, 2011, in connection with the plant expansion at our German manufacturing center, First Solar Manufacturing GmbH (FSM GmbH), our indirect wholly owned subsidiary, entered into a credit facility agreement (German Facility Agreement), as disclosed in Note 13. "Debt," to these condensed consolidated financial statements. Pursuant to the German Facility Agreement, FSM GmbH is required to maintain a euro-denominated debt service reserve account in the amount of €16.6 million ($22.6 million at the balance sheet close rate on September 30, 2011 of $1.36/€1.00) pledged in favor of the lenders. The account is available solely to pay any outstanding interest and principal payments owed under the German Facility Agreement and was a component of our “Restricted cash” balance at September 30, 2011.

At September 30, 2011 and December 31, 2010, our restricted investments consisted of long-term marketable securities that we hold through a custodial account to fund future costs of our solar module collection and recycling program.

We pre-fund our estimated solar module collection and recycling costs at the time of module sale through a custodial account with a large bank as the investment advisor in the name of a trust, for which First Solar, Inc. (FSI), First Solar Malaysia Sdn. Bhd. (FS Malaysia), and FSM GmbH are grantors. We fund this custodial account within 60 days after the beginning of a fiscal year for the prior year's module sales, assuming for this purpose a minimum service life of 25 years for our solar modules. To ensure that our collection and recycling program is available at all times and the pre-funded amounts are accessible regardless of our financial status in the future (even in the case of our own insolvency), we have established a trust structure under which funds are put into custodial accounts in the name of a trustee. Only the trustee can distribute funds from the custodial accounts and these funds cannot be accessed for any purpose other than for administering module collection and recycling, either by us or a third party executing the collection and recycling services. To provide further assurance that sufficient funds will be available, our module collection and recycling program, including the financing arrangement, is audited periodically by an independent third party auditor. Cash invested in this custodial account must meet the criteria of the highest quality investments, such as highly rated government or agency bonds.

The following table summarizes unrealized gains and losses related to our restricted investments by major security type as of September 30, 2011 and December 31, 2010 (in thousands):



	As of September 30, 2011
Security Type	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Foreign government obligations	$	136,489	$	22,159	$	—	$	158,648
U.S. government obligations	15,329		7,025		—		22,354
Total	$	151,818	$	29,184	$	—	$	181,002



	As of December 31, 2010
Security Type	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Foreign government obligations	$	73,729	$	6,529	$	72	$	80,186
U.S. government obligations	5,659		139		—		5,798
Total	$	79,388	$	6,668	$	72	$	85,984

As of September 30, 2011, the contractual maturities of these restricted investments were between 16 years and 24 years. As of December 31, 2010, the contractual maturities of these restricted investments were between 17 years and 25 years.

Note 8. Consolidated Balance Sheet Details

Accounts receivable trade, net

Accounts receivable trade, net consisted of the following at September 30, 2011 and December 31, 2010 (in thousands):



	September 30, 2011			December 31, 2010
Accounts receivable trade, gross	$	492,513		$	305,537
Allowance for doubtful accounts (1)	(10,535		)	—
Accounts receivable trade, net	$	481,978		$	305,537

(1) During the three months ended September 30, 2011, we provided an allowance due to recent developments concerning the collectability of a past due account receivable from a specific customer.

During the third quarter of 2009, we amended our Supply Contracts with certain of our customers to implement a rebate program which provided a price rebate to these customers for solar modules purchased from us. The initial intent of this program was to enable our customers to successfully compete in the German market and to adjust, for eligible customers, the net sales price (which was included in framework agreements entered into several years ago) in light of market conditions.

The rebate program was offered for a defined period, during which customers were able to apply for and claim such rebates. The most recent rebate offering, for solar modules sold on or after December 1, 2010, included certain European geographic areas in addition to Germany.

The rebate program was established to enable the sell-through of our products at competitive prices. The amount of rebate earned during a fiscal quarter was based on (i) the volume of solar modules shipped to a customer (measured in watts), (ii) the volume of solar modules (measured in watts) registered for eligible projects in eligible geographic areas, provided that those solar modules were invoiced by the buyer to an end-user, and (iii) the rebate rate. The rebate program applied a specified rebate rate to solar modules sold for solar power projects in eligible geographic areas. Customers needed to meet certain requirements in order to be eligible for and benefit from this program. During the nine months ended September 30, 2011, we experienced approximately 94% participation in this program by eligible customers.

We account for the rebates offered under this program and other consideration offered to customers as a reduction to the selling price of our solar modules and, therefore, as a reduction in revenue at the time of sale and recognize a contra-asset within

accounts receivable trade, net. No rebates granted under this program can be claimed for cash; instead, rebates may only be applied to reduce outstanding accounts receivable balances after customer eligibility for such rebate claims has been verified.

During the three and nine months ended September 30, 2011, we extended rebates to customers in the amount of €31.8 million and €59.8 million, respectively ($44.5 million and $84.3 million at the average exchange rates of $1.40/€1.00 and $1.41/€1.00, respectively). At September 30, 2011, we had €31.4 million ($42.7 million at the balance sheet close rate on September 30, 2011 of $1.36/€1.00) of rebate claims accrued, which reduced our accounts receivable accordingly. During the three and nine months ended September 25, 2010, we extended rebates to customers in the amount of €22.9 million and €58.5 million, respectively ($29.3 million and $77.8 million at the average exchange rates of $1.28/€1.00 and $1.33/€1.00, respectively).

The rebate program ended as of September 30, 2011 and subsequent sales of solar modules under our Supply Contracts will be based upon a sales price without such rebate program. Through the first quarter of 2012, we will continue to process historical rebate claims against outstanding accounts receivable balances after customer eligibility for such rebate claims has been verified.

Accounts receivable, unbilled

Accounts receivable, unbilled represents revenue that has been recognized in advance of billing the customer. This is common for construction contracts. For example, we recognize revenue from contracts for the construction and sale of solar power systems which include the sale of project assets over the contractual period using applicable accounting methods. One applicable accounting method is the percentage-of-completion method of accounting, under which sales and gross profit are recognized as work is performed based on the relationship between actual costs incurred compared to the total estimated costs for completing the entire contract. Under this accounting method, revenue could be recognized under applicable revenue recognition criteria in advance of billing the customer, resulting in an amount recorded to Accounts receivable, unbilled. Once we meet the billing criteria under a construction contract, we bill our customer accordingly and reclassify the Accounts receivable, unbilled to Accounts receivable trade, net. Billing requirements vary by contract, but are generally structured around completion of certain construction milestones.

Accounts receivable, unbilled were $325.6 million and $1.5 million at September 30, 2011 and December 31, 2010, respectively. We expect to bill and collect these amounts within the next 12 months.

Inventories

Inventories consisted of the following at September 30, 2011 and December 31, 2010 (in thousands):



	September 30, 2011		December 31, 2010
Raw materials	$	221,941	$	162,190
Work in process	27,128		21,528
Finished goods	231,969		54,873
Inventories	$	481,038	$	238,591
Inventories - current	$	432,887	$	195,863
Inventories - noncurrent (1)	$	48,151	$	42,728

(1) We purchase a critical raw material that is used in our core production process in quantities that exceed anticipated consumption within our operating cycle (which is 12 months). We classify the raw materials that we do not expect to be consumed within our operating cycle as noncurrent.

Prepaid expenses and other current assets

Prepaid expenses and other current assets consisted of the following at September 30, 2011 and December 31, 2010 (in thousands):



	September 30, 2011		December 31, 2010
Prepaid expenses	$	55,744	$	46,016
Deferred project costs (1)	106,918		14,446
Derivative instruments	51,921		20,986
Other assets - current	137,466		61,585
Prepaid expenses and other current assets	$	352,049	$	143,033

(1) Deferred project costs represent (i) costs that we capitalize for arrangements that we account for as real estate transactions after we have entered into a definitive sales arrangement, but before we have met all of the criteria to recognize the sale as revenue, (ii) recoverable pre-contract costs that we capitalize for arrangements accounted for as long-term construction contracts prior to entering into a definitive sales agreement, or (iii) costs that we capitalize for arrangements accounted for as long-term construction contracts after we have signed a definitive sales agreement, but before all revenue recognition criteria have been met.

Property, plant and equipment, net

Property, plant and equipment, net consisted of the following at September 30, 2011 and December 31, 2010 (in thousands):



	September 30, 2011			December 31, 2010
Buildings and improvements	$	397,339		$	286,637
Machinery and equipment	1,438,199			997,510
Office equipment and furniture	104,659			70,569
Leasehold improvements	43,124			25,354
Depreciable property, plant and equipment, gross	1,983,321			1,380,070
Accumulated depreciation	(510,288		)	(363,305		)
Depreciable property, plant and equipment, net	1,473,033			1,016,765
Land	8,218			10,355
Construction in progress	359,044			403,669
Property, plant and equipment, net	$	1,840,295		$	1,430,789

During 2010, we were granted a $16.3 million tax credit under the Advanced Energy Tax Credit program enacted by the American Reinvestment and Recovery Act of 2009 for the expansion of our Perrysburg, Ohio manufacturing facility, and we reduced the acquisition cost for the expansion of this facility accordingly.

Further, we are eligible to receive certain investment incentives related to building the expansion of our manufacturing plant in Frankfurt/Oder, Germany, including costs for the construction of buildings and the purchase of machinery and equipment. We account for these grants as a reduction to the carrying value of the property, plant and equipment they fund when there is reasonable assurance that we comply with the conditions attached to the grants and the grants will be received. See Note 11. "Economic Development Funding," to our condensed consolidated financial statements for further information about these grants.

Depreciation of property, plant and equipment was $60.8 million and $36.9 million for the three months ended September 30, 2011 and September 25, 2010, respectively, and was $162.3 million and $109.7 million for the nine months ended September 30, 2011 and September 25, 2010, respectively.

Capitalized interest

We capitalized interest costs incurred into property, plant and equipment or project assets/deferred project costs as follows during the three and nine months ended September 30, 2011 and September 25, 2010 (in thousands):



	Three Months Ended						Nine Months Ended
	September 30, 2011			September 25, 2010			September 30, 2011			September 25, 2010
Interest expense, gross	$	(4,847	)	$	(2,384	)	$	(8,638	)	$	(6,582	)
Interest cost capitalized – property, plant and equipment	1,442			1,771			4,553			3,472
Interest cost capitalized – project assets and deferred project costs	3,405			613			4,085			3,104
Interest expense, net	$	—		$	—		$	—		$	(6	)

Project assets

Project assets consist primarily of costs relating to solar power projects in various stages of development that we capitalize prior to the sale of the solar power project to a third party for further project development or the signing of a project construction contract. These costs include costs for land and costs for developing and constructing a solar power plant. Development costs can include legal, consulting, permitting, interconnect and other similar costs. Once we enter into a definitive sales agreement, we reclassify project assets to deferred project costs on our balance sheet until we have met the criteria to recognize the sale of the project assets as revenue. We expense these project assets to cost of sales as each respective project asset is sold to a customer, since the project is constructed for a customer (matching the underlying revenue recognition method). We classify project assets generally as noncurrent due to the time required to complete all activities to sell a specific project, which is typically longer than 12 months.

Project assets consisted of the following at September 30, 2011 and December 31, 2010 (in thousands):



	September 30, 2011		December 31, 2010
Project assets acquired through OptiSolar and NextLight	$	5,757	$	217,417
Project assets - land	22,940		13,781
Project assets - other	254,091		88,942
Project assets	$	282,788	$	320,140

In connection with the acquisition of the solar power project development businesses of OptiSolar and NextLight, we measured at fair value certain acquired project assets based on the varying development stages of each project asset on the acquisition date. Subsequent to the acquisitions of OptiSolar and NextLight, we incurred additional costs to further develop these projects.

We review project assets for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. We consider a project commercially viable if it is anticipated to be sellable for a profit once it is either fully developed or fully constructed. We consider a partially developed or partially constructed project commercially viable if the anticipated selling price is higher than the carrying value of the related project assets. We examine a number of factors to determine if the project will be profitable, the most notable of which is whether there are any changes in environmental, ecological, permitting, or regulatory conditions that impact the project. Such changes could cause the cost of the project to increase or the selling price of the project to decrease. If a project is considered not commercially viable, we impair the respective project asset and adjust it to fair value, with the resulting impairment recorded within operations.

Accrued expenses

Accrued expenses consisted of the following at September 30, 2011 and December 31, 2010 (in thousands):



	September 30, 2011		December 31, 2010
Accrued compensation and benefits	$	41,150	$	69,353
Accrued property, plant and equipment	39,260		53,741
Accrued inventory	56,540		25,686
Product warranty liability	12,437		11,226
Accrued expenses in excess of normal product warranty liability and related expenses (1) (2)	50,973		28,921
Other accrued expenses	71,631		55,344
Accrued expenses	$	271,991	$	244,271

(1) $34.8 million of accrued expenses in excess of normal product warranty liability and related expenses as of September 30, 2011 consisted of the following commitments to certain customers, each related to the manufacturing excursion described below: (i) $23.8 million in estimated expenses for certain module replacement efforts committed to and undertaken by us beyond the normal product warranty; and (ii) $11.0 million in estimated nonrecurring post-sale expenses. During the period from June 2008 to June 2009, a manufacturing excursion occurred affecting less than 4% of the total product manufactured within the period. The excursion could result in possible premature power loss in affected modules. The root cause was identified and subsequently mitigated in June 2009. On-going testing confirms that the corrective actions have been effective. We have been working directly with impacted customers to replace the affected modules and these efforts are in most cases complete or well underway for the remaining cases. These efforts go beyond our limited warranty obligation.

(2) $16.2 million of accrued expenses in excess of normal product warranty liability and related expenses as of September 30, 2011 represents the estimated expenses based upon information available during the third quarter for commitments made to certain customers to perform work including module replacement and related efforts primarily for modules that had been subjected to certain installation and maintenance procedures by our customers outside of our recommended procedures at the time of sale, resulting in underperformance of such modules. Such replacement efforts are not part of the manufacturing excursion discussed in (1) and are not part of our limited warranty obligation as discussed further in Note 2. "Summary of Significant Accounting Policies," to our condensed consolidated financial statements.

Other current liabilities

Other current liabilities consisted of the following at September 30, 2011 and December 31, 2010 (in thousands):



	September 30, 2011		December 31, 2010
Deferred revenue (1)	$	12,267	$	14,718
Derivative instruments	20,094		22,996
Deferred tax liabilities	7,447		34,601
Payments and billings for deferred project costs (2)	192,028		—
Other liabilities - current	13,262		27,361
Other current liabilities	$	245,098	$	99,676

(1) Deferred revenue will be recognized in net sales once all revenue recognition criteria are met.


(2)	Payments and billings for deferred project costs represent customer payments received or customer billings made under the terms of certain systems project sales contracts for which all revenue recognition criteria under ASC 360 have not yet been met. Such systems project costs are included as a component of deferred project costs.

Other liabilities

Other liabilities consisted of the following at September 30, 2011 and December 31, 2010 (in thousands):



	September 30, 2011		December 31, 2010
Product warranty liability	$	30,068	$	16,668
Other taxes payable	70,706		59,148
Other liabilities - noncurrent	81,849		36,210
Other liabilities	$	182,623	$	112,026

Note 9. Derivative Financial Instruments

As a global company, we are exposed in the normal course of business to interest rate and foreign currency risks that could affect our net assets, financial position, results of operations, and cash flows. We use derivative instruments to hedge against certain risks such as these, and we only hold derivative instruments for hedging purposes, not for speculative or trading purposes. Our use of derivative instruments is subject to internal controls based on centrally defined, performed, and controlled policies and procedures.

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. As required by ASC 815, Derivatives and Hedging, we report all of our derivative instruments that are within the scope of that accounting standard at fair value. Depending on the substance of the hedging purpose for our derivative instruments, we account for changes in the fair value of some of them within accumulated other comprehensive income (loss) using cash flow hedge accounting pursuant to ASC 815 and of others by recording the changes in fair value directly to current earnings (so-called “economic hedges”). These accounting approaches, the various risk classes that we are exposed to in our business, and the risk management systems using derivative instruments that we apply to these risks are described below. See Note 10. "Fair Value Measurements," to our condensed consolidated financial statements for information about the techniques we use to measure the fair value of our derivative instruments.

The following tables present the fair values of derivative instruments included in our condensed consolidated balance sheets as of September 30, 2011 and December 31, 2010 (in thousands):



	September 30, 2011
	Other Assets – Current		Other Assets – Noncurrent		Other Liabilities – Current		Other Liabilities – Noncurrent
Derivatives designated as hedging instruments under ASC 815:
Foreign exchange forward contracts	$	28,121	$	408	$	3,560	$	—
Cross currency swap contracts	—		—		—		—
Interest rate swap contracts	—		—		350		1,085
Total derivatives designated as hedging instruments	$	28,121	$	408	$	3,910	$	1,085

Derivatives not designated as hedging instruments under ASC 815:
Foreign exchange forward contracts	$	23,800	$	—	$	16,184	$	—
Total derivatives not designated as hedging instruments	$	23,800	$	—	$	16,184	$	—
Total derivative instruments	$	51,921	$	408	$	20,094	$	1,085



	December 31, 2010
	Other Assets – Current		Other Assets – Noncurrent		Other Liabilities – Current		Other Liabilities – Noncurrent
Derivatives designated as hedging instruments under ASC 815:
Foreign exchange forward contracts	$	10,115	$	880	$	12,384	$	58
Interest rate swap contracts	—		—		239		980
Total derivatives designated as hedging instruments	$	10,115	$	880	$	12,623	$	1,038

Derivatives not designated as hedging instruments under ASC 815:
Foreign exchange forward contracts	$	10,871	$	—	$	10,373	$	—
Total derivatives not designated as hedging instruments	$	10,871	$	—	$	10,373	$	—
Total derivative instruments	$	20,986	$	880	$	22,996	$	1,038

The following tables present the amounts related to derivative instruments affecting accumulated other comprehensive income (loss) and our condensed consolidated statements of operations for the three and nine months ended September 30, 2011 and September 25, 2010 (in thousands):



	Amount of Gain (Loss) Recognized in Other Comprehensive Income on Derivatives							Amount of Loss Reclassified from Accumulated Other Comprehensive Income into Income
	Three Months Ended			Nine Months Ended			Location of Loss Reclassified from Accumulated Other Comprehensive Income into Income	Three Months Ended			Nine Months Ended
Derivative Type	September 30, 2011			September 30, 2011				September 30, 2011			September 30, 2011
Derivatives designated as cash flow hedges under ASC 815:
Foreign exchange forward contracts	$	54,925		$	(13,219	)	Net sales	$	(6,308	)	$	(44,842	)
Cross currency swap contracts	—			—			Other income (expense)	—			—
Cross currency swap contracts	—			—			Interest expense	—			—
Interest rate swap contracts	(987		)	(804		)	Interest expense	(183		)	(588		)
Total derivatives designated as cash flow hedges	$	53,938		$	(14,023	)		$	(6,491	)	$	(45,430	)



	Amount of Gain (Loss) Recognized in Income on Derivatives
	Three Months Ended			Nine Months Ended
Derivative Type	September 30, 2011			September 30, 2011			Location of Gain (Loss) Recognized in Income on Derivatives
Derivatives designated as cash flow hedges under ASC 815:
Foreign exchange forward contracts	$	(6,308	)	$	(44,842	)	Net sales
Cross currency swap contracts	$	—		$	—		Other income (expense)
Cross currency swap contracts	$	—		$	—		Interest expense
Interest rate swap contracts	$	(183	)	$	(588	)	Interest expense

Derivatives not designated as hedging instruments under ASC 815:
Foreign exchange forward contracts	$	1,872		$	2,340		Other income (expense)
Foreign exchange forward contracts	$	(2,894	)	$	1,008		Cost of sales



	Amount of Loss Recognized in Other Comprehensive Income on Derivatives							Amount of Gain (Loss) Reclassified from Accumulated Other Comprehensive Income into Income
	Three Months Ended			Nine Months Ended			Location of Gain (Loss) Reclassified from Accumulated Other Comprehensive Income into Income	Three Months Ended			Nine Months Ended
Derivative Type	September 25, 2010			September 25, 2010				September 25, 2010			September 25, 2010
Derivatives designated as cash flow hedges under ASC 815:
Foreign exchange forward contracts	$	(60,538	)	$	(5,584	)	Net sales	$	6,652		$	35,885
Interest rate swap contracts	(136		)	(957		)	Interest expense	(358		)	(991		)
Total derivatives designated as cash flow hedges	$	(60,674	)	$	(6,541	)		$	6,294		$	34,894



	Amount of Gain (Loss) Recognized in Income on Derivatives
	Three Months Ended			Nine Months Ended
Derivative Type	September 25, 2010			September 25, 2010			Location of Gain (Loss) Recognized in Income on Derivatives
Derivatives designated as cash flow hedges under ASC 815:
Foreign exchange forward contracts	$	6,652		$	35,885		Net sales
Interest rate swap contracts	$	(358	)	$	(991	)	Interest expense

Derivatives not designated as hedging instruments under ASC 815:
Foreign exchange forward contracts	$	5,703		$	(4,818	)	Other income (expense)
Foreign exchange forward contracts	$	4,144		$	(3,084	)	Cost of sales

Interest Rate Risk

We use cross currency swap contracts and 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.

On September 30, 2011, we entered into a cross currency swap contract to hedge the floating rate foreign currency denominated loan under our Malaysian Ringgit Facility Agreement. This swap has an initial notional value of MYR465.0 million and entitles us to receive a three-month floating Kuala Lumpur Interbank Offered Rate (KLIBOR) interest rate, and requires us to pay a fixed U.S. dollar rate of 3.495%. Additionally, this swap hedges the foreign currency risk of the Malaysian Ringgit denominated principal and interest payments. The notional amount of the swap is scheduled to decline in correspondence to our scheduled principal payments on the underlying hedged debt. As of September 30, 2011, the notional value of this cross currency swap agreement was MYR465.0 million. This swap is a derivative instrument that qualifies for accounting as a cash flow hedge in accordance with ASC 815 and we designated it as such. We determined that this swap was highly effective as a cash flow hedge at September 30, 2011. For the three and nine months ended September 30, 2011, there was no ineffectiveness from this cash flow hedge.

On May 29, 2009, we entered into an interest rate swap contract to hedge a portion of the floating rate loans under our Malaysian credit facility, which became effective on September 30, 2009 with an initial notional value of €57.3 million and pursuant to which we are entitled to receive a six-month floating interest rate, the Euro Interbank Offered Rate (EURIBOR), and are required to pay a fixed rate of 2.80%. The notional amount of the interest rate swap contract is scheduled to decline in correspondence to our scheduled principal payments on the underlying hedged debt. As of September 30, 2011, the notional value of this interest rate swap contract was €38.5 million. This derivative instrument qualifies for accounting as a cash flow hedge in accordance with ASC 815 and we designated it as such. We determined that our interest rate swap contract was highly effective as a cash flow hedge at September 30, 2011 and December 31, 2010. For the three and nine months ended September 30, 2011, there was no ineffectiveness from this cash flow hedge.

In the following 12 months, we expect to reclassify to earnings $0.4 million of net unrealized losses related to the interest rate swap contracts that are included in accumulated other comprehensive income (loss) at September 30, 2011 as we realize the earnings effect of the related forecasted transactions. The amount we ultimately record to earnings will depend on the actual interest

rates when we realize the related forecasted transactions.

Foreign Currency Exchange Risk

Cash Flow Exposure

We expect many of the components of our business to have material future cash flows, including revenues and expenses that will be denominated in currencies other than the component's functional currency. Our primary cash flow exposures are revenues and expenses. Changes in the exchange rates between our components' functional currencies 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 September 30, 2011 and December 31, 2010, these foreign exchange contracts hedged our forecasted cash flows for up to 15 months and 18 months, respectively. These foreign exchange contracts qualify for accounting as cash flow hedges in accordance with ASC 815, and we designated them as such. We initially report the effective portion of the derivative's gain or loss in accumulated other comprehensive income (loss) and subsequently reclassify amounts into earnings when the hedged transaction occurs and impacts earnings. For cash flow hedges, ineffectiveness in the hedging relationship and changes in fair value that are not included in the measurement of effectiveness are included in other operating income (expense). We determined that these derivative financial instruments were highly effective as cash flow hedges at September 30, 2011 and December 31, 2010. During the three and nine months ended September 30, 2011, there were immaterial amounts of ineffectiveness and amounts excluded from effectiveness testing for these cash flow hedges. In addition, during the three and nine months ended September 30, 2011, we did not discontinue any cash flow hedges because a hedging relationship was no longer highly effective.

During the three and nine months ended September 30, 2011, we purchased foreign exchange forward contracts to hedge the exchange risk on forecasted cash flows denominated in Euro, Canadian dollar, and Australian dollar. As of September 30, 2011 and December 31, 2010, the notional values associated with our foreign exchange contracts were as follows (notional amounts and U.S. dollar equivalents in millions):



			Weighted Average Forward Exchange Rate	Balance sheet close rate on
Currency	Notional Amount	USD Equivalent	September 30, 2011	September 30, 2011
Euro	€118.0	$160.5	$1.35/€1.00	$1.36/€1.00
Canadian dollar	CAD 340.0	$329.8	$1.05/CAD1.00	$0.97/CAD1.00
Australian dollar	AUD 8.0	$7.9	$1.03/AUD1.00	$0.99/AUD1.00



			Weighted Average Forward Exchange Rate	Balance sheet close rate on
Currency	Notional Amount	USD Equivalent	December 31, 2010	September 30, 2011
Euro	€742.0	$1,009.1	$1.33/€1.00	$1.36/€1.00

As of September 30, 2011, the unrealized gain on these contracts was $27.1 million. As of December 31, 2010, the unrealized loss on these contracts was $1.4 million.

During the three and nine months ended September 30, 2011, we determined that certain forecasted transactions were probable of not occurring and we discontinued hedge accounting for those foreign exchange forward contracts in accordance with ASC 815. Discontinuance of these hedges resulted in a net gain of $6.2 million and $4.0 million for the three and nine months ended September 30, 2011, respectively.

In the following 12 months, we expect to reclassify to earnings $26.7 million of net unrealized gains related to these forward contracts that are included in accumulated other comprehensive income (loss) at September 30, 2011 as we realize the earnings effect of the related forecasted transactions. The amount we ultimately record to earnings will depend on the actual exchange rate when we realize the related forecasted transactions.

Transaction Exposure

Many components of our business have assets and liabilities (primarily receivables, investments, accounts payable, debt, solar module collection and recycling liabilities, and inter-company transactions) that are denominated in currencies other than the component's functional currency. Changes in the exchange rates between our components' functional currencies and the other currencies in which these assets and liabilities are denominated can create fluctuations in our reported consolidated financial

position, results 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 the foreign exchange forward contracts will offset all or part of the transaction gains and losses that we recognize in earnings on the related foreign currency assets and liabilities.

During the three and nine months ended September 30, 2011, we purchased foreign exchange forward contracts to hedge balance sheet and other exposures related to transactions with third parties. Such contracts are considered economic hedges and do not qualify for hedge accounting under ASC 815. We recognize gains or losses from the fluctuation in foreign exchange rates and the fair value of these derivative contracts in "Net sales," "Cost of sales," and "Foreign currency gain (loss)" on our consolidated statements of operations, depending on where the gain or loss from the economically hedged item is classified on our condensed consolidated statements of operations. As of September 30, 2011, the total unrealized loss on our foreign exchange forward contracts was $2.4 million. These contracts have maturities of less than nine months.

As of September 30, 2011, the notional values of our foreign exchange forward contracts that do not qualify for hedge accounting under ASC 815 were as follows (notional amounts and U.S. dollar equivalents in millions):



				Balance sheet close rate on
Transaction	Currency	Notional Amount	USD Equivalent	September 30, 2011
Purchase	Euro	€644.4	$876.4	$1.36/€1.00
Sell	Euro	€666.7	$906.7	$1.36/€1.00
Purchase	Australian dollar	AUD 1.4	$1.4	$0.99/AUD1.00
Sell	Australian dollar	AUD 2.3	$2.3	$0.99/AUD1.00
Purchase	Malaysian ringgit	MYR 151.5	$47.0	$0.31/MYR1.00
Sell	Malaysian ringgit	MYR 14.3	$4.4	$0.31/MYR1.00
Purchase	Japanese yen	JPY 527.7	$5.3	$0.01/JPY1.00
Sell	Japanese yen	JPY 262.7	$2.6	$0.01/JPY1.00
Purchase	Canadian dollar	CAD 12.3	$11.9	$0.97/CAD1.00
Sell	Canadian dollar	CAD 17.0	$16.5	$0.97/CAD1.00

Note 10. Fair Value Measurements

ASC 820, Fair Value Measurements and Disclosures, defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles, and provides financial statement disclosure requirements for fair value measurements. ASC 820 defines fair value as the price that would be received from the sale of an asset or paid to transfer a liability (an exit price) on the measurement date in an orderly transaction between market participants in the principal or most advantageous market for the asset or liability. ASC 820 specifies a hierarchy of valuation techniques, which is based on whether the inputs into the valuation technique are observable or unobservable. The hierarchy is as follows:


•	Level 1 — Valuation techniques in which all significant inputs are unadjusted quoted prices from active markets for assets or liabilities that are identical to the assets or liabilities being measured.

•

Level 2 — Valuation techniques in which significant inputs include quoted prices from active markets for assets or liabilities that are similar to the assets or liabilities being measured and/or quoted prices for assets or liabilities that are identical or similar to the assets or liabilities being measured from markets that are not active. Also, model-derived valuations in which all significant inputs and significant value drivers are observable in active markets are Level 2 valuation techniques.


•	Level 3 — Valuation techniques in which one or more significant inputs or significant value drivers are unobservable. Unobservable inputs are valuation technique inputs that reflect our own assumptions about the assumptions that market participants would use to price an asset or liability.

When available, we use quoted market prices to determine the fair value of an asset or liability. If quoted market prices are not available, we measure fair value using valuation techniques that use, when possible, current market-based or independently-sourced market parameters, such as interest rates and currency rates. 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 or one-time basis:

•

Cash equivalents. At September 30, 2011, our cash equivalents consisted of money market mutual funds. At December 31, 2010, our cash equivalents consisted of commercial paper and money market mutual funds. We value our commercial paper cash equivalents using quoted prices for securities with similar characteristics and other observable inputs (such as interest rates that are observable at commonly quoted intervals), and accordingly, we classify the valuation techniques that use these inputs as Level 2. We value our money market cash equivalents using observable inputs that reflect quoted prices for securities with identical characteristics, and accordingly, we classify the valuation techniques that use these inputs as Level 1.

•

Marketable securities, investments, and restricted investments. At September 30, 2011, our marketable securities and investments consisted of certificates of deposit, commercial paper, corporate debt securities, federal and foreign agency debt, foreign government obligations, supranational debt, and U.S. government obligations, and our restricted investments consisted of foreign and U.S. government obligations. At December 31, 2010, our marketable securities consisted of commercial paper, corporate debt securities, federal and foreign agency debt, foreign government obligations, and supranational debt, and our restricted investments consisted of foreign and U.S. government obligations. We value our marketable securities, investments, and restricted investments using quoted prices for securities with similar characteristics and other observable inputs (such as interest rates that are observable at commonly quoted intervals), and accordingly, we classify the valuation techniques that use these inputs as Level 2. We also consider the effect of our counterparties' credit standings in these fair value measurements.

•

Derivative assets and liabilities. At September 30, 2011 and December 31, 2010, our derivative assets and liabilities consisted of foreign exchange forward contracts involving major currencies and interest rate swap contracts involving benchmark interest rates. Since our derivative assets and liabilities are not traded on an exchange, we value them using industry standard valuation models. Where applicable, these models project future cash flows and discount the future amounts to a present value using market-based observable inputs including interest rate curves, credit risk, foreign exchange rates, and forward and spot prices for currencies. These inputs are observable in active markets over the terms of the instruments we hold, and accordingly, we classify these valuation techniques as Level 2. We consider the effect of our own credit standing and that of our counterparties in our valuations of our derivative assets and liabilities.

•

Solar module collection and recycling liability. We account for our obligation to collect and recycle the solar modules that we sell in a similar manner to the accounting for asset retirement obligations that is prescribed by ASC 410, Asset Retirement and Environmental Obligations. When we sell solar modules, we initially record our liability for collecting and recycling those particular solar modules at the fair value of this liability, and then in subsequent periods, we accrete this fair value to the estimated future cost of collecting and recycling the solar modules. Therefore, this is a one-time nonrecurring fair value measurement of the collection and recycling liability associated with each particular solar module sold.

Since there is not an established market for collecting and recycling our solar modules, we value our liability using a valuation model (an income approach). This fair value measurement requires us to use significant unobservable inputs, which are primarily estimates of collection and recycling process costs and estimates of future changes in costs due to inflation and future currency exchange rates. Accordingly, we classify these valuation techniques as Level 3. We estimate collection and recycling process costs based on analyses of the collection and recycling technologies that we are currently developing; we estimate future inflation costs based on analysis of historical trends; and we estimate future currency exchange rates based on current rate information. We consider the effect of our own credit standing in our measurement of the fair value of this liability.

At September 30, 2011 and December 31, 2010, information about inputs into the fair value measurements of our assets and liabilities that we make on a recurring basis was as follows (in thousands):



	As of September 30, 2011
			Fair Value Measurements at Reporting Date Using
	Total Fair Value and Carrying Value on Our Balance Sheet		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Cash equivalents:
Money market mutual funds	$	4,762	$	4,762	$	—	$	—
Marketable securities and investments:
Certificates of deposit	1,301		—		1,301		—
Commercial paper	1,400		—		1,400		—
Corporate debt securities	29,861		—		29,861		—
Federal agency debt	40,233		—		40,233		—
Foreign agency debt	13,091		—		13,091		—
Foreign government obligations	5,581		—		5,581		—
Supranational debt	22,726		—		22,726		—
U.S. government obligations	2,016		—		2,016		—
Restricted investments (excluding restricted cash)	181,002		—		181,002		—
Derivative assets	52,329		—		52,329		—
Total assets	$	354,302	$	4,762	$	349,540	$	—
Liabilities:
Derivative liabilities	$	21,179	$	—	$	21,179	$	—



	As of December 31, 2010
			Fair Value Measurements at Reporting Date Using
	Total Fair Value and Carrying Value on Our Balance Sheet		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Cash equivalents:
Commercial paper	$	1,200	$	—	$	1,200	$	—
Money market mutual funds	22,289		22,289		—		—
Marketable securities:
Commercial paper	13,343		—		13,343		—
Corporate debt securities	98,602		—		98,602		—
Federal agency debt	45,875		—		45,875		—
Foreign agency debt	133,165		—		133,165		—
Foreign government obligations	9,143		—		9,143		—
Supranational debt	48,032		—		48,032		—
Restricted investments (excluding restricted cash)	85,984		—		85,984		—
Derivative assets	21,866		—		21,866		—
Total assets	$	479,499	$	22,289	$	457,210	$	—
Liabilities:
Derivative liabilities	$	24,034	$	—	$	24,034	$	—

Fair Value of Financial Instruments

The carrying values and fair values of our financial instruments at September 30, 2011 and December 31, 2010 were as