Edgar Filing: FIRST SOLAR, INC.

FSLR March 14 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 March 31, 2014
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 (§232.405 of this chapter) 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 May 2, 2014, 100,124,701 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 MARCH 31, 2014

TABLE OF CONTENTS



		Page
Part I.	Financial Information (Unaudited)
Item 1.	Condensed Consolidated Financial Statements:
	Condensed Consolidated Statements of Operations for the three months ended March 31, 2014 and 2013	3
	Condensed Consolidated Statements of Comprehensive Income (Loss) for the three months ended March 31, 2014 and 2013	4
	Condensed Consolidated Balance Sheets as of March 31, 2014 and December 31, 2013	5
	Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2014 and 2013	6
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	39
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	58
Item 4.	Controls and Procedures	58
Part II.	Other Information	60
Item 1.	Legal Proceedings	60
Item 1A.	Risk Factors	61
Item 4.	Mine Safety Disclosures	61
Item 5.	Other Information	61
Item 6.	Exhibits	61
Signatures		63

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 March 31,
	2014			2013
Net sales	$	950,158		$	755,205
Cost of sales	713,447			585,879
Gross profit	236,711			169,326
Operating expenses:
Research and development	38,773			29,931
Selling, general and administrative	58,664			74,465
Production start-up	—			1,376
Restructuring and asset impairments	—			2,347
Total operating expenses	97,437			108,119
Operating income	139,274			61,207
Foreign currency (loss) gain	(579		)	1,618
Interest income	4,321			4,947
Interest expense, net	(410		)	(750		)
Other expense, net	(1,746		)	(833		)
Income before income taxes	140,860			66,189
Income tax expense	28,853			7,047
Net income	$	112,007		$	59,142
Net income per share:
Basic	$	1.12		$	0.68
Diluted	$	1.10		$	0.66
Weighted-average number of shares used in per share calculations:
Basic	99,591			87,206
Diluted	101,822			89,377

See accompanying notes to these condensed consolidated financial statements.

FIRST SOLAR, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)



	Three Months Ended March 31,
	2014			2013
Net income	$	112,007		$	59,142
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments	60			(3,077		)
Unrealized gain (loss) on marketable securities and restricted investments	20,176			(10,341		)
Unrealized loss on derivative instruments	(2,345		)	(5,846		)
Total other comprehensive income (loss), net of tax	17,891			(19,264		)
Comprehensive income	$	129,898		$	39,878

See accompanying notes to these condensed consolidated financial statements.

FIRST SOLAR, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

(Unaudited)



	March 31, 2014			December 31, 2013
ASSETS
Current assets:
Cash and cash equivalents	$	975,194		$	1,325,072
Marketable securities	404,033			439,102
Accounts receivable trade, net	233,761			136,383
Accounts receivable, unbilled and retainage	532,151			521,323
Inventories	387,050			388,951
Balance of systems parts	82,563			133,731
Deferred project costs	233,075			556,957
Deferred tax assets, net	64,622			63,899
Assets held for sale	20,748			132,626
Prepaid expenses and other current assets	102,840			94,720
Total current assets	3,036,037			3,792,764
Property, plant and equipment, net	1,370,537			1,385,084
Project assets and deferred project costs	1,022,105			720,916
Deferred tax assets, net	233,172			296,603
Restricted cash and investments	304,757			279,441
Goodwill	84,985			84,985
Other intangible assets, net	117,117			117,416
Inventories	128,129			129,664
Other assets	79,514			76,629
Total assets	$	6,376,353		$	6,883,502
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	186,278		$	261,333
Income taxes payable	6,638			6,707
Accrued expenses	321,339			320,077
Current portion of long-term debt	60,656			60,543
Payments and billings for deferred project costs	229,530			642,214
Other current liabilities	193,493			297,187
Total current liabilities	997,934			1,588,061
Accrued solar module collection and recycling liability	241,390			225,163
Long-term debt	138,229			162,780
Other liabilities	365,411			404,381
Total liabilities	1,742,964			2,380,385
Commitments and contingencies
Stockholders’ equity:
Common stock, $0.001 par value per share; 500,000,000 shares authorized; 100,094,905 and 99,506,941 shares issued and outstanding at March 31, 2014 and December 31, 2013, respectively	100			100
Additional paid-in capital	2,646,395			2,646,022
Accumulated earnings	1,994,779			1,882,771
Accumulated other comprehensive loss	(7,885		)	(25,776		)
Total stockholders’ equity	4,633,389			4,503,117
Total liabilities and stockholders’ equity	$	6,376,353		$	6,883,502

See accompanying notes to these condensed consolidated financial statements.

FIRST SOLAR, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)



	Three Months Ended March 31,
	2014			2013
Cash flows from operating activities:
Cash received from customers	$	431,443		$	1,125,886
Cash paid to suppliers and associates	(734,225		)	(1,028,544		)
Interest received	3,617			3,435
Interest paid	(2,305		)	(3,723		)
Income tax payments	(4,043		)	(5,661		)
Excess tax benefit from share-based compensation arrangements	(11,680		)	(24,933		)
Other operating activities	(983		)	(5		)
Net cash (used in) provided by operating activities	(318,176		)	66,455
Cash flows from investing activities:
Purchases of property, plant and equipment	(50,813		)	(71,667		)
Purchases of marketable securities	—			(75,591		)
Proceeds from maturities and sales of marketable securities	33,700			8,775
Payments received on note receivable, affiliate	—			17,075
Change in restricted cash	(1,476		)	5,136
Acquisitions, net of cash acquired	—			(7,934		)
Purchase of equity and cost method investments	(290		)	(14,894		)
Other investing activities	(1,502		)	(2,500		)
Net cash used in investing activities	(20,381		)	(141,600		)
Cash flows from financing activities:
Repayments of long-term debt	(25,110		)	(330,277		)
Proceeds from borrowings under long-term debt, net of discount and issuance costs	—			335,000
Excess tax benefit from share-based compensation arrangements	11,680			24,933
Repayment of economic development funding	—			(8,315		)
Contingent consideration payments and other financing activities	(448		)	14
Net cash (used in) provided by financing activities	(13,878		)	21,355
Effect of exchange rate changes on cash and cash equivalents	2,557			(4,751		)
Net decrease in cash and cash equivalents	(349,878		)	(58,541		)
Cash and cash equivalents, beginning of the period	1,325,072			901,294
Cash and cash equivalents, end of the period	$	975,194		$	842,753
Supplemental disclosure of noncash investing and financing activities:
Property, plant and equipment acquisitions funded by liabilities	$	42,933		$	75,236
Acquisitions funded by liabilities and contingent consideration	$	584		$	14,962

See accompanying notes to these condensed consolidated financial statements.

FIRST SOLAR, INC. AND SUBSIDIARIES

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 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 (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 management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair statement have been included. Operating results for the three months ended March 31, 2014 are not necessarily indicative of the results that may be expected for the year ending December 31, 2014, or for any other period. The condensed consolidated balance sheet at December 31, 2013 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 audited financial statements and notes thereto for the year ended December 31, 2013 included in our Annual Report on Form 10-K filed with the SEC.

Certain prior year balances have been reclassified to conform to the current year’s presentation. Such reclassifications did not affect total cash flows, total net sales, operating income, net income, total assets, total liabilities or stockholders’ equity.

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.

2. Summary of Significant Accounting Policies

Use of Estimates. 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 our condensed consolidated financial statements and the accompanying notes. Significant estimates in these condensed consolidated financial statements include percentage-of-completion revenue recognition, inventory valuation, recoverability of project assets, estimates of future cash flows from and the economic useful lives of long-lived assets, asset retirement obligations, certain accrued liabilities, income taxes and tax valuation allowances, reportable segment allocations, product warranties and manufacturing excursions, accrued collection and recycling expense, applying the acquisition method of accounting for business combinations and goodwill. Despite our intention to establish accurate estimates and reasonable assumptions, actual results could differ materially from these estimates and assumptions.

Revenue Recognition — Systems Business. We recognize revenue for arrangements entered into by our systems business generally using two revenue recognition models, following the guidance in Accounting Standards Codification (“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 systems business sales arrangements that do not include land or land rights and thus are accounted for under ASC 605, we use the percentage-of-completion method, as described further below, using actual costs incurred over total estimated costs to develop and construct a project (including module costs) as our standard 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.

For systems business sales arrangements that are accounted for under ASC 360 where we convey control of land or land rights, we record the sale as revenue using one of the following revenue recognition methods, based upon evaluation of the substance and form of the terms and conditions of such real estate sales arrangements:

(i) We apply the percentage-of-completion method, as further described below, to certain real estate sales arrangements where we convey control of land or land rights, when a sale has been consummated, we have transferred the usual risks and rewards of ownership to the buyer, the initial and continuing investment criteria have been met, we have the ability to estimate our costs and progress toward completion, and all other revenue recognition criteria have been met. The initial and continuing investment requirements, which demonstrate a buyer’s commitment to honor their obligations for the sales arrangement, can typically be met through the receipt of cash or an irrevocable letter of credit from a highly credit worthy lending institution. When evaluating whether the usual risks and rewards of ownership have transferred to the buyer, we consider whether we have or may be contingently required to have any prohibited forms of continuing involvement with the project. Prohibited forms of continuing involvement in a real

estate sales arrangement may include us retaining risks or rewards associated with the project that are not customary with the range of risks or rewards that an engineering, procurement and construction (“EPC”) contractor may assume.

(ii) Depending on whether the initial and continuing investment requirements have been met, and whether collectability from the buyer is reasonably assured, we may align our revenue recognition and release of project assets or deferred project costs to cost of sales with the receipt of payment from the buyer if the sale has been consummated and we have transferred the usual risks and rewards of ownership to the buyer.

(iii) We may also record revenue for certain sales arrangements after construction of discrete portions of a project or after the entire project is substantially complete, we have transferred the usual risks and rewards of ownership to the buyer, and we have received substantially all payments due from the buyer or the initial and continuing investment criteria have been met.

For any systems business sales arrangements containing multiple deliverables (including our solar modules) not required to be accounted for under ASC 360 (real estate) or ASC 605 (long-term construction contracts), we analyze each activity within the sales arrangement to ensure that we adhere to the separation guidelines of ASC 605 for multiple-element arrangements. We allocate revenue for any transactions involving multiple elements to each unit of accounting based on its relative selling price, and recognize revenue for each unit of accounting when all revenue recognition criteria for a unit of accounting have been met.

Revenue Recognition - Percentage-of-Completion. In applying the percentage-of-completion method, we use the actual costs incurred relative to estimated costs to complete (including module costs) in order to estimate the progress towards completion to determine the amount of revenue and profit to recognize. Incurred costs include all installed direct materials, installed solar modules, labor, subcontractor costs, and those indirect costs related to contract performance, such as indirect labor, supplies, and tools. We recognize direct material and solar module costs as incurred costs when the direct materials and solar modules have been installed in the project. When contracts specify that title to direct materials and solar modules transfers to the customer before installation has been performed, we will not recognize revenue or associated costs until those materials are installed and have met all other revenue recognition requirements. We consider direct materials and solar modules to be installed when they are permanently placed or affixed to the solar power system as required by engineering designs. Solar modules manufactured by us that will be used in our solar power systems, which we still hold title to, remain within inventory until such modules are installed in a solar power system.

The percentage-of-completion method of revenue recognition requires us to make estimates of contract revenues and costs to complete our projects. In making such estimates, management judgments are required to evaluate significant assumptions including the cost of materials and labor, expected labor productivity, the impact of potential variances in schedule completion, the amount of net contract revenues and the impact of any penalties, claims, change orders, or performance incentives.

If estimated total costs on any contract are greater than the contract revenues, we recognize the entire estimated loss in the period the loss becomes known. The cumulative effect of the revisions to estimates related to contract revenues and costs to complete contracts, including penalties, incentive awards, claims, change orders, anticipated losses and others are recorded in the period in which the revisions to estimates are identified and the loss can be reasonably estimated. The effect of the changes on future periods are recognized as if the revised estimates had been used since revenue was initially recognized under the contract. Such revisions could occur in any reporting period and the effects may be material depending on the size of the contracts or changes in estimates.

Revenue Recognition - Components Business. Our components business sells solar modules directly to third party solar power system integrators and operators. We recognize revenue for module sales when persuasive evidence of an arrangement exists, delivery of the module has occurred and title and risk of loss have passed to the customer, the sales price is fixed or determinable, and the collectability of the resulting receivable is reasonably assured. Under this policy, we record a trade receivable for the selling price of our module and reduce inventory for the cost of goods sold when delivery occurs in accordance with the terms of the sales contracts. Our customers typically do not have extended payment terms or rights of return for our products. We account for rebates or other customer incentives as a reduction to the selling price of our solar modules at the time of sale; and therefore, as a reduction to revenue.

Revenue Recognition — Operations and Maintenance . Our operations and maintenance revenue is billed and recognized as services are performed. Costs of these revenues are expensed in the period in which they are incurred.

Ventures and Variable Interest Entities. In the normal course of business we establish wholly owned project companies which may be considered variable interest entities. We consolidate wholly owned variable interest entities when we are considered the primary beneficiary of such entities. Additionally, we have and may in the future form joint venture type arrangements (“ventures”),

including partnerships and partially owned limited liability companies or similar legal structures, with one or more third parties primarily to develop and build specific or a pipeline of solar power projects. These types of ventures are core to our business and long-term strategy related to providing solar photovoltaic (“PV”) generation solutions using our modules to sustainable geographic markets. We analyze all of our ventures and classify them into two groups: (i) ventures that must be consolidated because they are either not variable interest entities (“VIEs”) and we hold the majority voting interest, or because they are VIEs and we are the primary beneficiary; and (ii) ventures that do not need to be consolidated and are accounted for under either the equity or cost methods of accounting because they are either not VIEs and we hold a minority voting interest, or because they are VIEs and we are not the primary beneficiary.

Ventures are considered VIEs if (i) the total equity investment at risk is not sufficient to permit the entity to finance its activities without additional financial support; (ii) as a group, the holders of the equity investment at risk lack the ability to make certain decisions, the obligation to absorb expected losses or the right to receive expected residual returns; or (iii) an equity investor has voting rights that are disproportionate to its economic interest and substantially all of the entity’s activities are on behalf of the investor. Our venture agreements typically require some form of project development capital or project equity ranging from amounts necessary to obtain a power purchase agreement (or similar power off-take agreement) to a pro-rata portion of the total equity required to develop and complete construction of a project, depending upon the opportunity and the market our ventures are in. Our limited number of ventures as of March 31, 2014 and future ventures of a similar nature are typically VIEs because the total equity investment at risk is not sufficient to permit the ventures to finance their activities without additional financial support.

We are considered the primary beneficiary of and are required to consolidate a VIE if we have the power to direct the activities that most significantly impact that VIE’s economic performance, and the obligation to absorb losses or the right to receive benefits of that VIE that could potentially be significant to the VIE. If we determine that we do not have the power to direct the activities that most significantly impact the venture, then we are not the primary beneficiary of the VIE.

We account for our unconsolidated ventures using either the equity or cost methods of accounting depending upon whether we have the ability to exercise significant influence over a venture. We consider the participating and protective rights we have as well as the legal form of the venture when evaluating whether we have the ability to exercise significant influence, which requires us to apply the equity method of accounting. Income from ventures for the three months ended March 31, 2014 was immaterial to the condensed consolidated statements of operations.

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 year ended December 31, 2013 for a more complete summary of our significant accounting policies.

3. Recent Accounting Pronouncements

In March 2013, the FASB issued ASU 2013-05, Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity, which applies to the release of cumulative translation adjustments into net income when a parent (i) sells a part or all of its investment in a foreign entity (ii) no longer holds a controlling financial interest in a subsidiary or group of assets within a foreign entity, (iii) sells part of an equity method investment of a foreign entity, or (iv) obtains control of a foreign acquiree in which such parent held an equity interest immediately before the acquisition date through a step acquisition. The adoption of ASU 2013-15 in the first quarter of 2014 did not have an impact on our consolidated financial position, results of operations, or cash flows.

In July 2013, the FASB issued ASU 2013-11, Income Taxes (Topic 740), Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward or Tax Credit Carryforward Exists. ASU No. 2013-11 provides that an entity’s unrecognized tax benefit, or a portion of its unrecognized tax benefit, should be presented in its financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, with one exception. That exception states that, to the extent a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position, or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. ASU 2013-11 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. The adoption of ASU 2013-11, in the first quarter of 2014 resulted in netting impacts on our consolidated statement of financial position. See Note 14. “Income Taxes” for further discussion of the impacts to the consolidated statement of financial position.

In April 2014, the FASB issued ASU 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant and Equipment (Topic 360) - Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. ASU 2014-08 defines a discontinued operation as a disposal of a component or group of components that is disposed of or is classified as held for sale and “represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results.” The standard states that a strategic shift could include a disposal of: a major geographic area of operations; a major line of business; a major equity investment; or other major parts of an entity. ASU 2014-08 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2014. We are currently analyzing the impact of ASU 2014-08, which will be effective in the first quarter of 2015, on our consolidated financial position, results of operations, or cash flows.

4. Restructuring and Asset Impairments

In April 2012, our executive management approved a set of restructuring initiatives intended to reduce costs, which was done through a reduction in our European operations.

The following table summarizes the April 2012 European restructuring amounts remaining as of December 31, 2013, amounts recorded to restructuring expense during the three months ended March 31, 2014, and the remaining balance at March 31, 2014 (in thousands):



April 2012 European Restructuring	Severance and Termination Related Costs
Ending Balance at December 31, 2013	$	1,940
Cash Payments	(915		)
Non-Cash Amounts Including Foreign Exchange Impact	(15		)
Ending Balance at March 31, 2014	$	1,010

Expenses recognized for restructuring activities are presented in “Restructuring and asset impairments” on the condensed consolidated statements of operations. Substantially all expenses related to the April 2012 European restructuring were related to our components segment. We do not expect to incur any additional expenses for the April 2012 European restructuring initiatives.

Separately, as of March 31, 2014, $5.8 million remains accrued for charges related to other long-term tax liabilities and a land remediation accrual and are included within “Other Liabilities.”

5. Cash, Cash Equivalents, and Marketable Securities

Cash, cash equivalents, and marketable securities consisted of the following at March 31, 2014 and December 31, 2013 (in thousands):



	March 31, 2014		December 31, 2013
Cash:
Cash	$	952,690	$	1,322,183
Cash equivalents:
Money market funds	22,504		2,889
Total cash and cash equivalents	975,194		1,325,072
Marketable securities:
Foreign debt	350,920		364,046
Foreign government obligations	25,210		25,115
U.S. debt	24,399		46,439
U.S. government obligations	3,504		3,502
Total marketable securities	404,033		439,102
Total cash, cash equivalents, and marketable securities	$	1,379,227	$	1,764,174

During the three months ended March 31, 2014 and 2013, we realized no gains or losses on the sale or maturities of our marketable securities. See Note 9. “Fair Value Measurements,” to our condensed consolidated financial statements for information about the fair value of our marketable securities.

All of our available-for-sale marketable securities are subject to a periodic impairment review. We consider a marketable security to be impaired when its fair value is less than its cost, in which case we would further review the marketable security to determine whether it is other-than-temporarily impaired. When we evaluate a marketable security 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 before we have recovered its cost basis. If a marketable security were other-than-temporarily impaired, we would write it down through other income (expense), net to its impaired value and establish that as a new cost basis. We did not identify any of our marketable securities as other-than-temporarily impaired at March 31, 2014 and December 31, 2013.

The following tables summarize the unrealized gains and losses related to our marketable securities, by major security type, as of March 31, 2014 and December 31, 2013 (in thousands):



	As of March 31, 2014
Security Type	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Foreign debt	$	351,125	$	264	$	469	$	350,920
Foreign government obligations	25,103		107		—		25,210
U.S. debt	24,402		10		13		24,399
U.S. government obligations	3,499		5		—		3,504
Total	$	404,129	$	386	$	482	$	404,033



	As of December 31, 2013
Security Type	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Foreign debt	$	364,568	$	127	$	649	$	364,046
Foreign government obligations	25,125		—		10		25,115
U.S. debt	46,430		12		3		46,439
U.S. government obligations	3,498		4		—		3,502
Total	$	439,621	$	143	$	662	$	439,102

Contractual maturities of our marketable securities as of March 31, 2014 and December 31, 2013 were as follows (in thousands):



	As of March 31, 2014
Maturity	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
One year or less	$	319,000	$	144	$	469	$	318,675
One year to two years	85,129		242		13		85,358
Two years to three years	—		—		—		—
Total	$	404,129	$	386	$	482	$	404,033



	As of December 31, 2013
Maturity	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
One year or less	$	161,752	$	57	$	84	$	161,725
One year to two years	270,149		81		578		269,652
Two years to three years	7,720		5		—		7,725
Total	$	439,621	$	143	$	662	$	439,102

The net unrealized loss of $0.1 million and $0.5 million as of March 31, 2014 and December 31, 2013, respectively, on our marketable securities were primarily the result of changes in interest rates. Our investment policy requires marketable securities to be highly rated and limits the security types, issuer concentration, and duration to maturity of our marketable securities portfolio.

The following table shows gross unrealized losses and estimated fair values for those marketable securities that were in an unrealized loss position as of March 31, 2014 and December 31, 2013, aggregated by major security type and the length of time the marketable securities have been in a continuous loss position (in thousands):



	As of March 31, 2014
	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
Foreign debt	$	94,048	$	423	$	20,444	$	46	$	114,492	$	469
U.S. debt	16,378		13		—		—		16,378		13
Total	$	110,426	$	436	$	20,444	$	46	$	130,870	$	482



	As of December 31, 2013
	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
Foreign debt	$	212,655	$	649	$	—	$	—	$	212,655	$	649
Foreign government obligations	25,161		10		—		—		25,161		10
U.S. debt	21,465		3		—		—		21,465		3
Total	$	259,281	$	662	$	—	$	—	$	259,281	$	662

6. Restricted Cash and Investments

Restricted cash and investments consisted of the following at March 31, 2014 and December 31, 2013 (in thousands):



	March 31, 2014		December 31, 2013
Restricted cash (1)	$	1,645	$	167
Restricted investments	303,112		279,274
Restricted cash and investments	$	304,757	$	279,441


(1)	There was $0.5 million and zero of restricted cash included within prepaid expenses and other current assets at March 31, 2014 and December 31, 2013, respectively, primarily related to required cash collateral for certain letters of credit provided for projects under development in foreign jurisdictions.

At March 31, 2014 and December 31, 2013, our restricted investments consisted of long-term marketable securities that we hold through a custodial account to fund the estimated future costs of our collecting and recycling modules covered under our solar module collection and recycling program. We have classified our restricted 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 (loss). We report realized gains and losses on the maturity or sale of our restricted investments in other income (expense), net computed using the specific identification method. Restricted investments are classified as noncurrent as the underlying accrued solar module collection and recycling liability is also noncurrent in nature.

We fund the estimated collection and recycling obligations incremental to amounts already pre-funded in prior years for the cumulative module sales covered by our solar module collection and recycling program within 90 days of the end of each year, assuming for this purpose a service life of 25 years. To ensure that our collection and recycling program for covered modules 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 (the “Trust”) under which estimated required funds are put into custodial accounts with an established and reputable bank as the investment advisor in the name of the Trust, for which First Solar, Inc. (“FSI”), First Solar Malaysia Sdn. Bhd. (“FS Malaysia”), and First Solar Manufacturing GmbH are grantors. Only the trustee

can distribute funds from the custodial accounts and these funds cannot be accessed for any purpose other than to cover qualified costs of module collection and recycling, either by us or a third party executing the required collection and recycling services. Investments in this custodial account must meet the criteria of the highest quality investments, such as highly rated government or agency bonds. We closely monitor our exposure to European markets and maintain holdings primarily consisting of German and French sovereign debt securities which are not currently at risk of default. Under the trust agreements, each year we determine the annual pre-funding requirement (if any) based upon the difference between the current estimated future costs of collecting and recycling all solar modules covered under our program combined with the rate of return restricted investments will earn prior to being utilized to cover qualified collection and recycling costs and amounts already pre-funded in prior years. Based primarily upon reductions in the estimated future costs of collecting and recycling solar modules covered under our program combined with the cumulative amounts pre-funded since the inception of our program, we have determined that no incremental funding will be required in the first quarter of 2014 for all historical covered module sales through December 31, 2013.

The following table summarizes unrealized gains and losses related to our restricted investments by major security type as of March 31, 2014 and December 31, 2013 (in thousands):



	As of March 31, 2014
Security Type	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Foreign government obligations	$	207,189	$	37,465	$	—	$	244,654
U.S. government obligations	56,551		2,945		1,038		58,458
Total	$	263,740	$	40,410	$	1,038	$	303,112



	As of December 31, 2013
Security Type	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Foreign government obligations	$	205,484	$	22,295	$	1,489	$	226,290
U.S. government obligations	55,916		1,372		4,304		52,984
Total	$	261,400	$	23,667	$	5,793	$	279,274

As of March 31, 2014 and December 31, 2013, the contractual maturities of these restricted investments were between 14 years and 23 years. As of March 31, 2014, the gross unrealized loss of $1.0 million had been in a continuous loss position for less than 12 months.

7. Consolidated Balance Sheet Details

Accounts receivable trade, net

Accounts receivable trade, net consisted of the following at March 31, 2014 and December 31, 2013 (in thousands):



	March 31, 2014			December 31, 2013
Accounts receivable trade, gross	$	241,931		$	148,693
Allowance for doubtful accounts	(8,170		)	(12,310		)
Accounts receivable trade, net	$	233,761		$	136,383

At March 31, 2014 and December 31, 2013, $18.3 million and $25.2 million, respectively, of our accounts receivable trade, net, were secured by letters of credit, bank guarantees or other forms of financial security issued by credit worthy financial institutions.

Accounts receivable, unbilled and retainage

Accounts receivable, unbilled and retainage consisted of the following at March 31, 2014 and December 31, 2013 (in thousands):



	March 31, 2014		December 31, 2013
Accounts receivable, unbilled	$	71,918	$	102,953
Retainage	460,233		418,370
Accounts receivable, unbilled and retainage	$	532,151	$	521,323

Accounts receivable, unbilled represents revenue that has been recognized in advance of billing the customer. This is common for long-term 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 construction period using applicable accounting methods. One applicable accounting method is the percentage-of-completion method under which sales and gross profit are recognized as construction work is performed based on the relationship between actual costs incurred compared to the total estimated costs for constructing the project. Under this accounting method, revenue can be recognized in advance of billing the customer, resulting in an amount recorded to accounts receivable, unbilled and retainage. Once we meet the billing criteria under a construction contract, we bill our customers accordingly and reclassify the accounts receivable, unbilled and retainage to accounts receivable trade, net. Billing requirements vary by contract, but are generally structured around completion of certain construction milestones.

Also included within accounts receivable, unbilled and retainage is the current portion of retainage. Retainage refers to the portion of the contract price earned by us for work performed, but held for payment by our customer as a form of security until we reach certain construction milestones. Retainage included within accounts receivable, unbilled and retainage is expected to be billed and collected within the next 12 months.

Inventories

Inventories consisted of the following at March 31, 2014 and December 31, 2013 (in thousands):



	March 31, 2014		December 31, 2013
Raw materials	$	162,925	$	165,805
Work in process	17,233		11,874
Finished goods	335,021		340,936
Inventories	$	515,179	$	518,615
Inventories — current	$	387,050	$	388,951
Inventories — noncurrent (1)	$	128,129	$	129,664

(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.

Balance of systems parts

Balance of systems parts, which totaled $82.6 million and $133.7 million as of March 31, 2014 and December 31, 2013, respectively, represent mounting, third-party modules, electrical and other construction parts purchased for solar power plants to be constructed or currently under construction, which we hold title to and are not yet installed in a solar power plant. These parts include posts, tilt brackets, tables, harnesses, combiner boxes, inverters, cables, tracker equipment and other parts we purchase or assemble for the solar power plants we construct. Balance of systems parts does not include any solar modules that we manufacture. We carry these parts at the lower of cost or market, with market being based primarily on recoverability through installation in a solar power system.

Prepaid expenses and other current assets

Prepaid expenses and other current assets consisted of the following at March 31, 2014 and December 31, 2013 (in thousands):



	March 31, 2014		December 31, 2013
Prepaid expenses	$	30,733	$	24,572
Derivative instruments	1,486		7,996
Deferred costs of goods sold	—		753
Other current assets	70,621		61,399
Prepaid expenses and other current assets	$	102,840	$	94,720

Property, plant and equipment, net

Property, plant and equipment, net consisted of the following at March 31, 2014 and December 31, 2013 (in thousands):



	March 31, 2014			December 31, 2013
Buildings and improvements	$	363,601		$	360,504
Machinery and equipment	1,454,125			1,445,939
Office equipment and furniture	125,698			124,332
Leasehold improvements	48,140			47,833
Depreciable property, plant and equipment, gross	1,991,564			1,978,608
Accumulated depreciation	(965,233		)	(940,730		)
Depreciable property, plant and equipment, net	1,026,331			1,037,878
Land	10,534			10,714
Construction in progress	131,741			133,223
Stored assets (1)	201,931			203,269
Property, plant and equipment, net	$	1,370,537		$	1,385,084

(1)

Consists of machinery and equipment (“stored assets”) that were originally purchased for installation in our previously planned manufacturing capacity expansions. We intend to install and place the stored assets into service when such assets are required or beneficial to our existing installed manufacturing capacity or when market demand supports additional or market specific manufacturing capacity. As the stored assets are neither in the condition or location to produce modules as intended, we will not begin depreciation until such assets are placed into service. The stored assets are evaluated for impairment under a held and used impairment model whenever events or changes in business circumstances arise, including consideration of technological obsolescence, that may indicate that the carrying amount of our long-lived assets may not be recoverable. We ceased the capitalization of interest on such stored assets once they were physically received from the related machinery and equipment vendors.

Depreciation of property, plant and equipment was $60.8 million and $58.2 million for the three months ended March 31, 2014 and 2013, respectively.

Capitalized interest

The cost of constructing facilities, equipment and project assets includes interest costs incurred during the asset’s construction period. The components of interest expense and capitalized interest are as follows during the three months ended March 31, 2014 and 2013 (in thousands):



	Three Months Ended March 31,
	2014			2013
Interest cost incurred	$	(2,651	)	$	(3,275	)
Interest cost capitalized —– property, plant and equipment	578			310
Interest cost capitalized —– project assets	1,663			2,215
Interest expense, net	$	(410	)	$	(750	)

Project assets and deferred project costs

Project assets consist primarily of costs relating to solar power projects in various stages of development and construction that we capitalize prior to entering into a definitive sales agreement for the solar power project including projects that have begun commercial operation under the project PPAs. These costs include costs for land and costs for developing and constructing a PV solar power system. Development costs can include legal, consulting, permitting, interconnection, and other similar costs. Once we enter into a definitive sales agreement, we reclassify project assets to deferred project costs on our condensed consolidated balance sheet until the sale is completed and we have met all of the criteria to recognize the sale as revenue, which is typically subject to real estate revenue recognition requirements. We expense project assets to cost of sales after each respective project asset is sold to a customer and all revenue recognition criteria have been met (matching the expensing of costs to the underlying revenue recognition method). We classify project assets generally as noncurrent due to the nature of solar power projects (long-lived assets) and the time required to complete all activities to develop, construct, and sell projects, which is typically longer than 12 months.

Deferred project costs represent (i) costs that we capitalize as project assets for arrangements that we account for as real estate transactions after we have entered into a definitive sales arrangement, but before the sale is completed or before we have met all 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. We classify deferred project costs as current if completion of the sale and the meeting of all revenue recognition criteria is expected within the next 12 months.

If a project asset is completed and begins commercial operation prior to entering into or the closing of a sales arrangement, the completed project will remain in project assets until the sale of such project closes.

Project assets and deferred project costs consisted of the following at March 31, 2014 and December 31, 2013 (in thousands):



	March 31, 2014		December 31, 2013
Project assets — land	$	14,507	$	4,150
Project assets — development costs including project acquisition costs	485,828		465,316
Project assets — construction costs	422,159		156,824
Project assets — projects in pre-COD operation under project PPAs	—		66,240
Project assets — projects in commercial operation under project PPAs	64,218		—
Project assets	$	986,712	$	692,530
Deferred project costs — current	$	233,075	$	556,957
Deferred project costs — non-current	35,393		28,386
Deferred project costs	$	268,468	$	585,343
Total project assets and deferred project costs	$	1,255,180	$	1,277,873

Other assets

Other assets consisted of the following at March 31, 2014 and December 31, 2013 (in thousands):



	March 31, 2014		December 31, 2013
Note receivable (1)	$	9,629	$	9,655
Income taxes receivable	7,959		7,656
Deferred rent	21,076		21,175
Investments in unconsolidated affiliates and joint ventures (2)	18,090		17,321
Retainage	992		992
Other	21,768		19,830
Other assets	$	79,514	$	76,629

(1) On April 8, 2009, we entered into a credit facility agreement with a solar power project entity of one of our customers for an available amount of €17.5 million to provide financing for a PV solar power system. The credit facility replaced a bridge loan that we had made to this entity. The credit facility bears interest at 8% per annum payable quarterly, with

the full amount due on December 31, 2026. As of March 31, 2014 and December 31, 2013, the balance on this credit facility was €7.0 million ($9.6 million and $9.7 million, respectively).

(2) We have joint ventures or other business arrangements with strategic partners in several markets using such arrangements to expedite our penetration of those markets and establish relationships with potential customers and policymakers. Some of these business arrangements have and are expected in the future to involve significant investments or other allocations of capital on our part. Investments in unconsolidated entities over which we have significant influence are accounted for under the equity method of accounting. Investments in entities in which we do not have the ability to exert significant influence over the investees’ operating and financing activities are accounted for under the cost method of accounting. The following table summarizes our equity and cost method investments as of March 31, 2014 and December 31, 2013 (in thousands):



	March 31, 2014		December 31, 2013
Equity method investments	$	12,629	$	12,148
Cost method investments	5,461		5,173
Investments in unconsolidated affiliates and joint ventures	$	18,090	$	17,321

Goodwill

Goodwill, summarized by relevant reporting unit, consisted of the following as of March 31, 2014 and December 31, 2013 (in thousands):



Reporting Unit	December 31, 2013			Acquisitions		March 31, 2014
CdTe Components	$	403,420		$	—	$	403,420
Crystalline Silicon Components	6,097			—		6,097
Systems	68,833			—		68,833
Accumulated impairment losses	(393,365		)	—		(393,365		)
Total	$	84,985		$	—	$	84,985

Goodwill represents the excess of the purchase price of acquired business over the estimated fair value assigned to the individual assets acquired and liabilities assumed. We do not amortize goodwill, but instead are required to test goodwill for impairment at least annually in the fourth quarter, and if necessary, we would record any impairment in accordance with ASC 350, Intangibles - Goodwill and Other. We will perform an impairment test between scheduled annual tests if facts and circumstances indicate that it is more-likely-than-not that the fair value of a reporting unit that has goodwill is less than its carrying value.

Other intangible assets, net

Intangible assets includes those assets acquired primarily as part of our GE and TetraSun acquisitions and our internally-generated intangible assets, substantially all of which are patents on technologies related to our products and production processes. We record an asset for patents, after the patent has been issued, based on the legal, filing, and other costs incurred to secure them. We amortize intangible assets on a straight-line basis over their estimated useful lives once the intangible assets meet the criteria to be amortized. $112.8 million of the $118.6 million of intangible assets, gross as of March 31, 2014 consists of IPR&D related to assets that were acquired as part of the TetraSun and GE acquisitions. Such assets will be amortized over their estimated useful lives upon successful completion of the project or expensed earlier if impaired. The following table summarizes our intangible assets at March 31, 2014 and December 31, 2013 (in thousands):



	Gross Intangible Assets							Accumulated Amortization
	December 31, 2013		Write-off of fully amortized intangibles			March 31, 2014		December 31, 2013			Additions Charged to Expense			Write-off of fully amortized intangibles		March 31, 2014			Net Intangibles March 31, 2014
Patents	$	10,180	$	(5,086	)	$	5,094	$	(5,797	)	$	(124	)	$	5,086	$	(835	)	$	4,259
Trade names	700		—			700		(467		)	(175		)	—		(642		)	58
In-process research and development	112,800		—			112,800		—			—			—		—			112,800
Total	$	123,680	$	(5,086	)	$	118,594	$	(6,264	)	$	(299	)	$	5,086	$	(1,477	)	$	117,117

Accrued expenses

Accrued expenses consisted of the following at March 31, 2014 and December 31, 2013 (in thousands):



	March 31, 2014		December 31, 2013
Accrued compensation and benefits	$	25,607	$	50,148
Accrued property, plant and equipment	26,351		19,834
Accrued inventory	62,668		43,966
Accrued project assets and deferred project costs	65,603		80,528
Product warranty liability (1)	68,266		67,097
Accrued expenses in excess of normal product warranty liability and related expenses (1)	11,818		12,516
Other	61,026		45,988
Accrued expenses	$	321,339	$	320,077

(1) See Note 12. “Commitments and Contingencies,” for further discussion of “Product warranty liability” and “Accrued expenses in excess of normal product warranty liability and related expenses.”

Other current liabilities

Other current liabilities consisted of the following at March 31, 2014 and December 31, 2013 (in thousands):



	March 31, 2014		December 31, 2013
Deferred revenue	$	318	$	1,193
Derivative instruments	6,255		8,096
Deferred tax liabilities	143		138
Billings in excess of costs and estimated earnings (1)	123,397		117,766
Contingent consideration (2)	37,954		37,775
Other (3)	25,426		132,219
Other current liabilities	$	193,493	$	297,187

(1) Billings in excess of costs and estimated earnings represents billings made or payments received in excess of revenue recognized on contracts accounted for under the percentage-of-completion method. Typically, billings are made based on the completion of certain construction milestones as provided for in the sales arrangement and the timing of revenue recognition may be different from when we can bill or collect from a customer.

(2) See Note 12. “Commitments and Contingencies,” for further discussion on “Contingent consideration.”

(3) December 31, 2013 balance consists primarily of proceeds received for our Mesa facility that were classified as “Assets held for sale” on the condensed consolidated balance sheet. Due to our continuing involvement with the Mesa facility, we deferred recognition of the sale transaction until certain risks and rewards of ownership were fully transferred to the buyer, which occurred in the first quarter of 2014.

Other liabilities

Other liabilities consisted of the following at March 31, 2014 and December 31, 2013 (in thousands):



	March 31, 2014		December 31, 2013
Product warranty liability (1)	$	140,028	$	130,944
Other taxes payable	71,391		119,124
Contingent consideration (1)	59,080		58,969
Liability in excess of normal product warranty liability and related expenses (1)	37,945		39,565
Other (1)	56,967		55,779
Other liabilities	$	365,411	$	404,381

(1) See Note 12. “Commitments and Contingencies,” for further discussion on “Product warranty liability,” “Contingent consideration,” “Energy test guarantees,” and “Liability in excess of normal product warranty liability and related expenses.”

Payments and billings for deferred project costs

Payments and billings for deferred project costs - current totaling $229.5 million and $642.2 million at March 31, 2014 and December 31, 2013, respectively, represent customer payments received or customer billings made under the terms of solar power project related sales contracts for which all revenue recognition criteria for real estate transactions have not yet been met. The associated solar power project related costs are included as deferred project costs. We classify such amounts as current or non current depending upon when all revenue recognition criteria are expected to be met, consistent with the classification of the associated deferred project costs.

8. 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 consolidated net assets, financial position, results of operations, and cash flows. We use derivative instruments to hedge against such risks, and we only hold derivative 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 consolidated balance sheet date. We report all of our derivative instruments at fair value and we account for changes in the fair value of derivative instruments within accumulated other comprehensive income (loss) if the derivative instruments qualify for hedge accounting. For those derivative instruments that do not qualify for hedge accounting (“economic hedges”), we record the changes in fair value directly to earnings. See Note 9. “Fair Value Measurements,” for information about the techniques we use to measure the fair value of our derivative instruments.

The following tables present the fair values of derivative instruments included in our condensed consolidated balance sheets as of March 31, 2014 and December 31, 2013 (in thousands):



	March 31, 2014
	Prepaid Expenses and Other Current Assets		Other Current Liabilities		Other Liabilities
Derivatives designated as hedging instruments:
Foreign exchange forward contracts	$	—	$	2,172	$	131
Cross-currency swap contract	—		1,713		6,000
Interest rate swap contracts	—		342		206
Total derivatives designated as hedging instruments	$	—	$	4,227	$	6,337

Derivatives not designated as hedging instruments:
Foreign exchange forward contracts	$	1,486	$	2,028	$	—
Total derivatives not designated as hedging instruments	$	1,486	$	2,028	$	—
Total derivative instruments	$	1,486	$	6,255	$	6,337



	December 31, 2013
	Prepaid Expenses and Other Current Assets		Other Assets		Other Current Liabilities		Other Liabilities
Derivatives designated as hedging instruments:
Foreign exchange forward contracts	$	2,357	$	282	$	—	$	—
Cross-currency swap contract	—		—		1,934		7,739
Interest rate swap contracts	—		—		334		369
Total derivatives designated as hedging instruments	$	2,357	$	282	$	2,268	$	8,108

Derivatives not designated as hedging instruments:
Foreign exchange forward contracts	$	5,639	$	—	$	5,828	$	—
Total derivatives not designated as hedging instruments	$	5,639	$	—	$	5,828	$	—
Total derivative instruments	$	7,996	$	282	$	8,096	$	8,108

The impact of offsetting balances associated with derivative instruments designated as hedging instruments is shown below (in thousands):



	March 31, 2014
							Gross Amounts Not Offset in Consolidated Balance Sheet
	Gross Asset (Liability)			Gross Offset in Consolidated Balance Sheet	Net Amount Recognized in Financial Statements		Financial Instruments	Cash Collateral Pledged	Net Amount
Foreign exchange forward contracts	$	(2,303	)	—	(2,303	)	—	—	$	(2,303	)
Cross-currency swap contracts	$	(7,713	)	—	(7,713	)	—	—	$	(7,713	)
Interest rate swap contracts	$	(548	)	—	(548	)	—	—	$	(548	)



	December 31, 2013
							Gross Amounts Not Offset in Consolidated Balance Sheet
	Gross Asset (Liability)			Gross Offset in Consolidated Balance Sheet	Net Amount Recognized in Financial Statements		Financial Instruments	Cash Collateral Pledged	Net Amount
Foreign exchange forward contracts	$	2,639		—	2,639		—	—	$	2,639
Cross-currency swap contracts	$	(9,673	)	—	(9,673	)	—	—	$	(9,673	)
Interest rate swap contracts	$	(703	)	—	(703	)	—	—	$	(703	)

The following tables present the effective amounts related to derivative instruments designated as cash flow hedges affecting accumulated other comprehensive income (loss) before tax and our condensed consolidated statements of operations for the three months ended March 31, 2014 and 2013 (in thousands):



	Foreign Exchange Forward Contracts			Interest Rate Swap Contract			Cross Currency Swap Contract			Total
Balance in other comprehensive income (loss) at December 31, 2013	$	4,351		$	(703	)	$	(5,820	)	$	(2,172	)
Amounts recognized in other comprehensive income (loss)	(4,878		)	(8		)	1,552			(3,334		)
Amounts reclassified to net sales as a result of forecasted transactions being probable of not occurring	—			—			—			—
Amounts reclassified to earnings impacting:
Foreign currency gain	—			—			(732		)	(732		)
Interest expense	—			164			95			259
Balance in other comprehensive income (loss) at March 31, 2014	$	(527	)	$	(547	)	$	(4,905	)	$	(5,979	)



	Foreign Exchange Forward Contracts			Interest Rate Swap Contracts			Cross Currency Swap Contract			Total
Balance in other comprehensive income (loss) at December 31, 2012	$	8,980		$	(1,467	)	$	(8,031	)	$	(518	)
Amounts recognized in other comprehensive income (loss)	4,135			100			(1,604		)	2,631
Amounts reclassified to net sales as a result of forecasted transactions being probable of not occurring	(13,115		)	$	—		—			(13,115		)
Amounts reclassified to earnings impacting:
Foreign currency loss	—			—			1,974			1,974
Interest expense	—			209			85			294
Balance in other comprehensive income (loss) at March 31, 2013	$	—		$	(1,158	)	$	(7,576	)	$	(8,734	)

We recorded immaterial amounts related to ineffective portions of our derivative instruments designated as cash flow hedges during the three months ended March 31, 2014 and 2013 directly to other income (expense), net. In addition, we recognized unrealized gains of $0.3 million and unrealized losses of $0.4 million related to amounts excluded from effectiveness testing for our foreign exchange forward contracts designated as cash flow hedges within other income (expense), net during the three months ended March 31, 2014 and 2013, respectively.

The following table presents the amounts related to derivative instruments not designated as hedges affecting our condensed consolidated statements of operations for the three months ended March 31, 2014 and 2013 (in thousands):



		Amount of Gain (Loss) Recognized in Income on Derivatives
		Three Months Ended March 31,
Derivatives not designated as hedging instruments under ASC 815:	Location of Gain (Loss) Recognized in Income on Derivatives	2014			2013
Foreign exchange forward contracts	Foreign currency gain (loss)	$	(669	)	$	1,117
Foreign exchange forward contracts	Cost of sales	$	503		$	(88	)

Interest Rate Risk

We use cross-currency swap 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 had an initial notional value of Malaysian Ringgit (“MYR”) MYR 465.0 million and entitles us to receive a three-month floating Kuala Lumpur Interbank Offered Rate (“KLIBOR”) interest rate, and requires us to pay a U.S. dollar fixed rate of 3.495%. Additionally, this swap hedges the foreign currency risk of the Malaysian Ringgit denominated principal and interest payments as we make swap payments in U.S. dollars and receive swap payments in Malaysian Ringgits at a fixed exchange rate 3.19 MYR to USD. The notional amount of the swap is scheduled to decline in correspondence to our scheduled principal payments on the underlying hedged debt. As of March 31, 2014 and

December 31, 2013, the notional value of this cross-currency swap agreement was MYR 348.8 million and MYR 387.5 million, respectively. 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 March 31, 2014 and December 31, 2013. For the three months ended March 31, 2014 and 2013, there were immaterial amounts of 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 Euro Interbank Offered Rate (“EURIBOR”) interest rate, 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 March 31, 2014 and December 31, 2013, the notional value of this interest rate swap contract was €15.0 million and €19.7 million, respectively. 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 March 31, 2014 and December 31, 2013. For the three months ended March 31, 2014 and 2013, there were immaterial amounts of ineffectiveness from this cash flow hedge.

In the following 12 months, we expect to reclassify to earnings $2.1 million of net unrealized losses related to swap contracts that are included in accumulated other comprehensive income (loss) at March 31, 2014 as we realize the earnings effect of the underlying loans. The amount we ultimately record to earnings will depend on the actual interest rates and foreign exchange rate when we realize the earnings effect of the underlying loans.

Foreign Currency Exchange Risk

Cash Flow Exposure

We expect many of the subsidiaries of our business to have material future cash flows, including net sales and expenses that will be denominated in currencies other than a subsidiary’s functional currency. Our primary cash flow exposures are net sales and expenses. Changes in the exchange rates between the functional currency of our subsidiaries and the other currencies in which they transact will cause fluctuations in the cash flows we expect to receive or pay when these cash flows are realized or settled. Accordingly, we enter into foreign exchange forward contracts to hedge a portion of these forecasted cash flows. As of March 31, 2014 and December 31, 2013, these foreign exchange forward contracts hedged our forecasted cash flows for up to 15 months and 18 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 initially report the effective portion of the derivative’s unrealized gain or loss in accumulated other comprehensive income (loss) and subsequently reclassify 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 at March 31, 2014 and at December 31, 2013. During the three months ended March 31, 2014 and 2013, we did not discontinue any cash flow hedges because a hedging relationship was no longer highly effective.

During the three months ended March 31, 2014 we purchased foreign exchange forward contracts to hedge the exchange risk on forecasted cash flows denominated in Australian dollars. As of March 31, 2014 and December 31, 2013, the notional values associated with our foreign exchange forward contracts qualifying as cash flow hedges were as follows (notional amounts and U.S. dollar equivalents in millions):



March 31, 2014
Currency	Notional Amount	USD Equivalent
Australian dollar	AUD 141.6	$130.9



December 31, 2013
Currency	Notional Amount	USD Equivalent
Australian dollar	AUD 148.9	$132.4

As of March 31, 2014, the net unrealized loss on these contracts was $0.5 million. As of December 31, 2013, the net unrealized gain on these contracts was $4.4 million.

In the following 12 months, we expect to reclassify to earnings $0.5 million of net unrealized losses related to these forward contracts that are included in accumulated other comprehensive income (loss) at March 31, 2014 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 and Economic Hedging

Many subsidiaries of our business have assets and liabilities (primarily receivables, marketable securities and investments, accounts payable, debt, and solar module collection and recycling liabilities) that are denominated in currencies other than the subsidiaries’ functional currencies. Changes in the exchange rates between our subsidiaries’ functional currencies and the other currencies in which these assets and liabilities are denominated can 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 the 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 purchase foreign exchange forward contracts to economically 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. 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 condensed 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 March 31, 2014 and December 31, 2013 the total net unrealized loss on our economic hedge foreign exchange forward contracts was $0.5 million and $0.2 million, respectively. As these amounts do not qualify for hedge accounting, changes in fair value related to such derivative instruments are recorded directly to earnings. These contracts have maturities of less than three months.

As of March 31, 2014 and December 31, 2013, the notional values of our foreign exchange forward contracts that do not qualify for hedge accounting were as follows (notional amounts and U.S. dollar equivalents in millions):



March 31, 2014
Transaction	Currency	Notional Amount	USD Equivalent
Purchase	Euro	€103.2	$142.0
Sell	Euro	€115.5	$158.9
Purchase	Australian dollar	AUD 17.2	$15.9
Sell	Australian dollar	AUD 27.0	$25.0
Purchase	Malaysian ringgit	MYR 100.5	$31.2
Sell	Malaysian ringgit	MYR 40.0	$12.4
Sell	Canadian dollar	CAD 16.4	$14.9
Purchase	Japanese yen	JPY 489.2	$4.9
Sell	Japanese yen	JPY 1,275.0	$12.8



December 31, 2013
Transaction	Currency	Notional Amount	USD Equivalent
Purchase	Euro	€108.2	$149.2
Sell	Euro	€116.7	$161.0
Purchase	Australian dollar	AUD 7.3	$6.5
Sell	Australian dollar	AUD 14.6	$13.0
Purchase	Malaysian ringgit	MYR 185.1	$55.5
Sell	Malaysian ringgit	MYR 95.0	$28.5
Purchase	Canadian dollar	CAD 24.0	$22.6
Sell	Canadian dollar	CAD 40.3	$37.9
Sell	Japanese yen	JPY 775.0	$5.9

9. Fair Value Measurements

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

•

Cash equivalents. At March 31, 2014 and December 31, 2013, our cash equivalents consisted of commercial paper and money market 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). 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 and restricted investments. At March 31, 2014 and December 31, 2013, our marketable securities consisted of foreign debt, foreign government obligations, U.S. debt and U.S. government obligations, and our restricted investments consisted of foreign and U.S. government obligations. We value our marketable securities 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.

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Derivative assets and liabilities. At March 31, 2014 and December 31, 2013, our derivative assets and liabilities consisted of foreign exchange forward contracts involving major currencies, interest rate swap contracts involving a benchmark of interest rates, and a cross-currency swap including both. 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 contract term of the derivative 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 fair value measurements of our derivative assets and liabilities, respectively.

At March 31, 2014 and December 31, 2013, the fair value measurements of our assets and liabilities that we measure on a recurring basis were as follows (in thousands):



	As of March 31, 2014
			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 funds	$	22,504	$	22,504	$	—	$	—
Marketable securities:
Foreign debt	350,920		—		350,920		—
Foreign government obligations	25,210		—		25,210		—
U.S. debt	24,399		—		24,399		—
U.S. government obligations	3,504		—		3,504		—
Restricted investments (excluding restricted cash)	303,112		—		303,112		—
Derivative assets	1,486		—		1,486		—
Total assets	$	731,135	$	22,504	$	708,631	$	—
Liabilities:
Derivative liabilities	$	12,592	$	—	$	12,592	$	—



	As of December 31, 2013
			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 funds	$	2,889	$	2,889	$	—	$	—
Marketable securities:
Foreign debt	364,046		—		364,046		—
Foreign government obligations	25,115		—		25,115		—
U.S. debt	46,439