Document
 

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, 2019
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

fslrlogoa19.jpg
First Solar, Inc.
(Exact name of registrant as specified in its charter)
Delaware
20-4623678
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)

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

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

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

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

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

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

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

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

As of April 26, 2019, 105,353,185 shares of the registrant’s common stock, $0.001 par value per share, were outstanding.
 


FIRST SOLAR, INC. AND SUBSIDIARIES

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2019

TABLE OF CONTENTS
 
 
Page
 
 
 
 
 
 
 
 
 



Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements (Unaudited)

FIRST SOLAR, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
 
 
Three Months Ended
March 31,
 
 
2019
 
2018
Net sales
 
$
531,978

 
$
567,265

Cost of sales
 
531,866

 
394,467

Gross profit
 
112

 
172,798

Operating expenses:
 
 
 
 
Selling, general and administrative
 
45,352

 
41,126

Research and development
 
21,877

 
20,324

Production start-up
 
9,522

 
37,084

Total operating expenses
 
76,751

 
98,534

Operating (loss) income
 
(76,639
)
 
74,264

Foreign currency gain (loss), net
 
172

 
(2,517
)
Interest income
 
14,259

 
11,824

Interest expense, net
 
(10,121
)
 
(5,182
)
Other income, net
 
3,509

 
17,934

(Loss) income before taxes and equity in earnings
 
(68,820
)
 
96,323

Income tax benefit (expense)
 
1,394

 
(11,625
)
Equity in earnings, net of tax
 
(173
)
 
(1,747
)
Net (loss) income
 
$
(67,599
)
 
$
82,951

 
 
 
 
 
Net (loss) income per share:
 
 
 
 
Basic
 
$
(0.64
)
 
$
0.79

Diluted
 
$
(0.64
)
 
$
0.78

Weighted-average number of shares used in per share calculations:
 
 
 
 
Basic
 
105,046

 
104,550

Diluted
 
105,046

 
106,305


See accompanying notes to these condensed consolidated financial statements.



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Table of Contents

FIRST SOLAR, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
 
 
Three Months Ended
March 31,
 
 
2019
 
2018
Net (loss) income
 
$
(67,599
)
 
$
82,951

Other comprehensive loss:
 
 
 
 
Foreign currency translation adjustments
 
(1,142
)
 
6,014

Unrealized loss on marketable securities and restricted investments, net of tax of $977 and $3,110
 
(3,347
)
 
(25,924
)
Unrealized loss on derivative instruments, net of tax of $(27) and $(64)
 
(58
)
 
(932
)
Other comprehensive loss
 
(4,547
)
 
(20,842
)
Comprehensive (loss) income
 
$
(72,146
)
 
$
62,109


See accompanying notes to these condensed consolidated financial statements.



2
Table of Contents

FIRST SOLAR, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)
 
 
 
March 31,
2019
 
December 31,
2018
ASSETS
 
 
 
 
Current assets:
 

 
 
Cash and cash equivalents
 
$
1,013,402

 
$
1,403,562

Marketable securities
 
1,103,812

 
1,143,704

Accounts receivable trade, net
 
301,669

 
128,282

Accounts receivable, unbilled and retainage
 
367,140

 
458,166

Inventories
 
459,472

 
387,912

Balance of systems parts
 
59,890

 
56,906

Project assets
 
80,278

 
37,930

Prepaid expenses and other current assets
 
277,163

 
243,061

Total current assets
 
3,662,826

 
3,859,523

Property, plant and equipment, net
 
1,859,293

 
1,756,211

PV solar power systems, net
 
305,628

 
308,640

Project assets
 
492,011

 
460,499

Deferred tax assets, net
 
78,283

 
77,682

Restricted cash and investments
 
388,637

 
318,390

Goodwill
 
14,462

 
14,462

Intangible assets, net
 
71,641

 
74,162

Inventories
 
142,192

 
130,083

Notes receivable, affiliate
 
—

 
22,832

Other assets
 
241,953

 
98,878

Total assets
 
$
7,256,926

 
$
7,121,362

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
 
Current liabilities:
 
 

 
 

Accounts payable
 
$
221,738

 
$
233,287

Income taxes payable
 
7,865

 
20,885

Accrued expenses
 
408,031

 
441,580

Current portion of long-term debt
 
12,361

 
5,570

Deferred revenue
 
166,984

 
129,755

Other current liabilities
 
19,537

 
14,380

Total current liabilities
 
836,516

 
845,457

Accrued solar module collection and recycling liability
 
134,228

 
134,442

Long-term debt
 
558,356

 
461,221

Other liabilities
 
598,665

 
467,839

Total liabilities
 
2,127,765

 
1,908,959

Commitments and contingencies
 


 


Stockholders’ equity:
 
 
 
 
Common stock, $0.001 par value per share; 500,000,000 shares authorized; 105,352,685 and 104,885,261 shares issued and outstanding at March 31, 2019 and December 31, 2018, respectively
 
105

 
105

Additional paid-in capital
 
2,814,115

 
2,825,211

Accumulated earnings
 
2,373,954

 
2,441,553

Accumulated other comprehensive loss
 
(59,013
)
 
(54,466
)
Total stockholders’ equity
 
5,129,161

 
5,212,403

Total liabilities and stockholders’ equity
 
$
7,256,926

 
$
7,121,362


See accompanying notes to these condensed consolidated financial statements.



3
Table of Contents

FIRST SOLAR, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands)
(Unaudited)
 
 
Three Months Ended March 31, 2019
 
 
Common Stock
 
Additional
Paid-In
Capital
 
Accumulated Earnings
 
Accumulated
Other
Comprehensive (Loss) Income
 
Total
Equity
 
 
Shares
 
Amount
 
 
 
 
Balance at December 31, 2018
 
104,885

 
$
105

 
$
2,825,211

 
$
2,441,553

 
$
(54,466
)
 
$
5,212,403

Net loss
 
—

 
—

 
—

 
(67,599
)
 
—

 
(67,599
)
Other comprehensive loss
 
—

 
—

 
—

 
—

 
(4,547
)
 
(4,547
)
Common stock issued for share-based compensation
 
767

 
1

 
—

 
—

 
—

 
1

Tax withholding related to vesting of restricted stock
 
(299
)
 
(1
)
 
(15,663
)
 
—

 
—

 
(15,664
)
Share-based compensation expense
 
—

 
—

 
4,567

 
—

 
—

 
4,567

Balance at March 31, 2019
 
105,353

 
$
105

 
$
2,814,115

 
$
2,373,954

 
$
(59,013
)
 
$
5,129,161

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended March 31, 2018
 
 
Common Stock
 
Additional
Paid-In
Capital
 
Accumulated Earnings
 
Accumulated
Other
Comprehensive (Loss) Income
 
Total
Equity
 
 
Shares
 
Amount
 
 
 
 
Balance at December 31, 2017
 
104,468

 
$
104

 
$
2,799,107

 
$
2,297,227

 
$
2,259

 
$
5,098,697

Net income
 
—

 
—

 
—

 
82,951

 
—

 
82,951

Other comprehensive loss
 
—

 
—

 
—

 
—

 
(20,842
)
 
(20,842
)
Common stock issued for share-based compensation
 
444

 
1

 
—

 
—

 
—

 
1

Tax withholding related to vesting of restricted stock
 
(149
)
 
—

 
(10,137
)
 
—

 
—

 
(10,137
)
Share-based compensation expense
 
—

 
—

 
8,701

 
—

 
—

 
8,701

Balance at March 31, 2018
 
104,763

 
$
105

 
$
2,797,671

 
$
2,380,178

 
$
(18,583
)
 
$
5,159,371


See accompanying notes to these condensed consolidated financial statements.




4
Table of Contents

FIRST SOLAR, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 
 
Three Months Ended
March 31,
 
 
2019
 
2018
Cash flows from operating activities:
 
 
 
 
Net (loss) income
 
$
(67,599
)
 
$
82,951

Adjustments to reconcile net (loss) income to cash used in operating activities:
 
 
 
 
Depreciation, amortization and accretion
 
48,872

 
24,419

Impairments and net losses on disposal of long-lived assets
 
352

 
1,047

Share-based compensation
 
5,019

 
8,652

Equity in earnings, net of tax
 
173

 
1,747

Remeasurement of monetary assets and liabilities
 
800

 
(1,458
)
Deferred income taxes
 
397

 
(5,567
)
Gains on sales of marketable securities and restricted investments
 
(15,016
)
 
(19,470
)
Liabilities assumed by customers for the sale of systems
 
—

 
(60,307
)
Other, net
 
239

 
6,097

Changes in operating assets and liabilities:
 
 
 
 
Accounts receivable, trade, unbilled and retainage
 
(82,896
)
 
(37,633
)
Prepaid expenses and other current assets
 
(28,400
)
 
(60,539
)
Inventories and balance of systems parts
 
(87,102
)
 
(40,624
)
Project assets and PV solar power systems
 
(73,402
)
 
131,342

Other assets
 
26,481

 
(8,260
)
Income tax receivable and payable
 
(16,512
)
 
12,208

Accounts payable
 
(15,066
)
 
1,909

Accrued expenses and other liabilities
 
53

 
(84,832
)
Accrued solar module collection and recycling liability
 
167

 
3,032

Net cash used in operating activities
 
(303,440
)
 
(45,286
)
Cash flows from investing activities:
 
 
 
 
Purchases of property, plant and equipment
 
(149,168
)
 
(177,725
)
Purchases of marketable securities and restricted investments
 
(260,715
)
 
(366,429
)
Proceeds from sales and maturities of marketable securities and restricted investments
 
270,091

 
167,134

Proceeds from sales of equity method investments
 
—

 
7,559

Other investing activities
 
21

 
(5,228
)
Net cash used in investing activities
 
(139,771
)
 
(374,689
)
Cash flows from financing activities
 
 
 
 
Repayment of long-term debt
 
(2,703
)
 
(11,282
)
Proceeds from borrowings under long-term debt, net of discounts and issuance costs
 
106,503

 
65,309

Payments of tax withholdings for restricted shares
 
(15,663
)
 
(10,137
)
Contingent consideration payments and other financing activities
 
(299
)
 
(1,734
)
Net cash provided by financing activities
 
87,838

 
42,156

Effect of exchange rate changes on cash, cash equivalents and restricted cash
 
(625
)
 
(5,074
)
Net decrease in cash, cash equivalents and restricted cash
 
(355,998
)
 
(382,893
)
Cash, cash equivalents and restricted cash, beginning of the period
 
1,562,623

 
2,330,476

Cash, cash equivalents and restricted cash, end of the period
 
$
1,206,625

 
$
1,947,583

Supplemental disclosure of noncash investing and financing activities:
 
 

 
 

Property, plant and equipment acquisitions funded by liabilities
 
$
135,520

 
$
162,812

Accrued interest capitalized to long-term debt
 
$
—

 
$
786


See accompanying notes to these condensed consolidated financial statements.



5
Table of Contents

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 in this Quarterly Report have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) for interim financial information and pursuant to the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission (the “SEC”). Accordingly, these interim financial statements do not include all of the information and footnotes required by U.S. GAAP for annual financial statements. In the opinion of First Solar management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair statement have been included. Certain prior period balances have been reclassified to conform to the current period presentation.

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the amounts reported in our condensed consolidated financial statements and the accompanying notes. Despite our intention to establish accurate estimates and reasonable assumptions, actual results could differ materially from such estimates and assumptions. Operating results for the three months ended March 31, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019 or for any other period. The condensed consolidated balance sheet at December 31, 2018 has been derived from the audited consolidated financial statements at that date, but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements. These interim financial statements and notes should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 2018 included in our Annual Report on Form 10-K, which has been filed with the SEC.

Unless expressly stated or the context otherwise requires, the terms “the Company,” “we,” “us,” “our,” and “First Solar” refer to First Solar, Inc. and its consolidated subsidiaries, and the term “condensed consolidated financial statements” refers to the accompanying unaudited condensed consolidated financial statements contained in this Quarterly Report.

2. Recent Accounting Pronouncements

In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815) – Targeted Improvements to Accounting for Hedging Activities, to simplify certain aspects of hedge accounting for both non-financial and financial risks and better align the recognition and measurement of hedge results with an entity’s risk management activities. ASU 2017-12 also amends certain presentation and disclosure requirements for hedging activities and changes how an entity assesses hedge effectiveness. The adoption of ASU 2017-12 in the first quarter of 2019 did not have a significant impact on our consolidated financial statements and associated disclosures.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326), to provide financial statement users with more useful information about expected credit losses. ASU 2016-13 also changes how entities measure credit losses on financial instruments and the timing of when such losses are recorded. ASU 2016-13 is effective for fiscal years and interim periods within those years beginning after December 15, 2019, and early adoption is permitted for periods beginning after December 15, 2018. We are currently evaluating the impact ASU 2016-13 will have on our consolidated financial statements and associated disclosures.




6
Table of Contents

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), to increase transparency and comparability among organizations by recognizing a right-of-use asset and a lease liability on the balance sheet for all leases with terms longer than 12 months and disclosing key information about leasing transactions. Leases are classified as either operating or financing, with such classification affecting the pattern of expense recognition in the income statement. In July 2018, the FASB issued ASU 2018-11, Leases (Topic 842) – Targeted Improvements, which provided an optional transition method to apply the new lease requirements through a cumulative-effect adjustment in the period of adoption.

We adopted ASU 2016-02 in the first quarter of 2019 using the optional transition method and elected certain practical expedients permitted under the transition guidance, which, among other things, allowed us to not reassess prior conclusions related to contracts containing leases or lease classification. The adoption primarily affected our condensed consolidated balance sheet through the recognition of $140.7 million of right-of-use assets and $119.9 million of lease liabilities as of January 1, 2019 and the derecognition of historical prepaid and deferred rent balances. The adoption did not have a significant impact on our results of operations or cash flows. See Note 7. “Leases” to our condensed consolidated financial statements for further discussion of the effects of the adoption of ASU 2016-02 and the associated disclosures.

3. Cash, Cash Equivalents, and Marketable Securities

Cash, cash equivalents, and marketable securities consisted of the following at March 31, 2019 and December 31, 2018 (in thousands):
 
 
March 31,
2019
 
December 31,
2018
Cash and cash equivalents:
 
 
 
 
Cash
 
$
812,422

 
$
1,202,774

Money market funds
 
200,980

 
200,788

Total cash and cash equivalents
 
1,013,402

 
1,403,562

Marketable securities:
 
 
 
 
Foreign debt
 
345,950

 
318,646

Foreign government obligations
 
60,124

 
98,621

U.S. debt
 
59,622

 
44,468

Time deposits
 
638,116

 
681,969

Total marketable securities
 
1,103,812

 
1,143,704

Total cash, cash equivalents, and marketable securities
 
$
2,117,214

 
$
2,547,266


The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within our condensed consolidated balance sheets as of March 31, 2019 and December 31, 2018 to the total of such amounts as presented in the condensed consolidated statement of cash flows (in thousands):
 
 
Balance Sheet Line Item
 
March 31,
2019
 
December 31,
2018
Cash and cash equivalents
 
Cash and cash equivalents
 
$
1,013,402

 
$
1,403,562

Restricted cash – current (1)
 
Prepaid expenses and other current assets
 
23,694

 
19,671

Restricted cash – noncurrent (1)
 
Restricted cash and investments
 
169,529

 
139,390

Total cash, cash equivalents, and restricted cash
 
 
 
$
1,206,625

 
$
1,562,623

——————————
(1)
See Note 4. “Restricted Cash and Investments” to our condensed consolidated financial statements for discussion of our “Restricted cash” arrangements.

See Note 8. “Fair Value Measurements” to our condensed consolidated financial statements for information about the fair value of our marketable securities.




7
Table of Contents

The following tables summarize the unrealized gains and losses related to our available-for-sale marketable securities, by major security type, as of March 31, 2019 and December 31, 2018 (in thousands):
 
 
As of March 31, 2019
 
 
Amortized
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair
Value
Foreign debt
 
$
346,931

 
$
213

 
$
1,194

 
$
345,950

Foreign government obligations
 
60,385

 
—

 
261

 
60,124

U.S. debt
 
59,641

 
76

 
95

 
59,622

Time deposits
 
638,116

 
—

 
—

 
638,116

Total
 
$
1,105,073

 
$
289

 
$
1,550

 
$
1,103,812

 
 
As of December 31, 2018
 
 
Amortized
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair
Value
Foreign debt
 
$
320,056

 
$
468

 
$
1,878

 
$
318,646

Foreign government obligations
 
99,189

 
—

 
568

 
98,621

U.S. debt
 
44,625

 
53

 
210

 
44,468

Time deposits
 
681,969

 
—

 
—

 
681,969

Total
 
$
1,145,839

 
$
521

 
$
2,656

 
$
1,143,704


As of March 31, 2019, we identified 15 investments totaling $183.3 million that had been in a loss position for a period of time greater than 12 months with unrealized losses of $0.9 million. As of December 31, 2018, we identified 15 investments totaling $207.2 million that had been in a loss position for a period of time greater than 12 months with unrealized losses of $1.8 million. Such unrealized losses were primarily due to increases in interest rates relative to rates at the time of purchase. Based on the underlying credit quality of the investments, we do not intend to sell these securities prior to the recovery of our cost basis. Therefore, we did not consider these securities to be other-than-temporarily impaired.

The following tables show unrealized losses and fair values for those marketable securities that were in an unrealized loss position as of March 31, 2019 and December 31, 2018, 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, 2019
 
 
In Loss Position for
Less Than 12 Months
 
In Loss Position for
12 Months or Greater
 
Total
 
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
Foreign debt
 
$
136,198

 
$
482

 
$
130,807

 
$
712

 
$
267,005

 
$
1,194

Foreign government obligations
 
21,804

 
177

 
38,320

 
84

 
60,124

 
261

U.S. debt
 
10,018

 
10

 
14,183

 
85

 
24,201

 
95

Total
 
$
168,020

 
$
669

 
$
183,310

 
$
881

 
$
351,330

 
$
1,550




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Table of Contents

 
 
As of December 31, 2018
 
 
In Loss Position for
Less Than 12 Months
 
In Loss Position for
12 Months or Greater
 
Total
 
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
Foreign debt
 
$
150,842

 
$
802

 
$
94,446

 
$
1,076

 
$
245,288

 
$
1,878

Foreign government obligations
 
—

 
—

 
98,621

 
568

 
98,621

 
568

U.S. debt
 
15,356

 
32

 
14,085

 
178

 
29,441

 
210

Total
 
$
166,198

 
$
834

 
$
207,152

 
$
1,822

 
$
373,350

 
$
2,656


The contractual maturities of our marketable securities as of March 31, 2019 were as follows (in thousands):
 
 
Fair
Value
One year or less
 
$
817,992

One year to two years
 
196,142

Two years to three years
 
89,678

Total
 
$
1,103,812


4. Restricted Cash and Investments

Restricted cash and investments consisted of the following at March 31, 2019 and December 31, 2018 (in thousands):
 
 
 
March 31,
2019
 
December 31,
2018
Restricted cash
 
$
169,529

 
$
139,390

Restricted investments
 
219,108

 
179,000

Total restricted cash and investments (1)
 
$
388,637

 
$
318,390

——————————
(1)
There was an additional $23.7 million and $19.7 million of restricted cash included within “Prepaid expenses and other current assets” at March 31, 2019 and December 31, 2018, respectively.

At March 31, 2019 and December 31, 2018, our restricted cash consisted of deposits held by various banks to secure certain of our letters of credit and other deposits designated for the construction or operation of systems projects as well as the payment of amounts related to project specific debt financings. Restricted cash also included certain deposits held in custodial accounts to fund the estimated future costs of our solar module collection and recycling obligations.

At March 31, 2019 and December 31, 2018, our restricted investments consisted of long-term marketable securities that were also held in custodial accounts to fund the estimated future costs of collecting and recycling modules covered under our solar module collection and recycling program. As necessary, we fund any incremental amounts for our estimated collection and recycling obligations on an annual basis based on the estimated costs of collecting and recycling covered modules, estimated rates of return on our restricted investments, and an estimated solar module life of 25 years less amounts already funded in prior years. To ensure that amounts previously funded will be available in the future regardless of potential adverse changes in our financial condition (even in the case of our own insolvency), we have established a trust under which estimated funds are put into custodial accounts with an established and reputable bank, for which First Solar, Inc.; First Solar Malaysia Sdn. Bhd.; and First Solar Manufacturing GmbH are grantors. Trust funds may be disbursed for qualified module collection and recycling costs (including capital and facility related recycling costs), payments to customers for assuming collection and recycling obligations, and reimbursements of any overfunded amounts. Investments in the trust must meet certain investment quality criteria comparable to highly rated government or agency bonds.




9
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During the three months ended March 31, 2019, we sold certain restricted investments for proceeds of $47.9 million and realized gains of $15.0 million on such sales as part of efforts to align the currencies of the investments with those of the corresponding collection and recycling liabilities and disburse $14.9 million of overfunded amounts. During the three months ended March 31, 2018, we sold certain restricted investments for proceeds of $101.6 million, realized gains of $19.5 million on such sales, and withdrew the funds from the trust as a reimbursement of overfunded amounts. See Note 8. “Fair Value Measurements” to our condensed consolidated financial statements for information about the fair value of our restricted investments.

The following tables summarize the unrealized gains and losses related to our restricted investments, by major security type, as of March 31, 2019 and December 31, 2018 (in thousands):
 
 
As of March 31, 2019
 
 
Amortized
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair
Value
Foreign government obligations
 
$
119,161

 
$
5,505

 
$
—

 
$
124,666

U.S. government obligations
 
97,171

 
424

 
3,153

 
94,442

Total
 
$
216,332

 
$
5,929

 
$
3,153

 
$
219,108

 
 
As of December 31, 2018
 
 
Amortized
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair
Value
Foreign government obligations
 
$
73,798

 
$
14,234

 
$
235

 
$
87,797

U.S. government obligations
 
97,223

 
416

 
6,436

 
91,203

Total
 
$
171,021

 
$
14,650

 
$
6,671

 
$
179,000


As of March 31, 2019, we identified six restricted investments totaling $91.3 million that had been in a loss position for a period of time greater than 12 months with unrealized losses of $3.2 million. As of December 31, 2018, we identified six restricted investments totaling $87.4 million that had been in a loss position for a period of time greater than 12 months with unrealized losses of $6.4 million. The unrealized losses were primarily due to increases in interest rates relative to rates at the time of purchase. Based on the underlying credit quality of the investments, we do not intend to sell these securities prior to the recovery of our cost basis. Therefore, we did not consider these investments to be other-than-temporarily impaired.

The following tables show unrealized losses and fair values for those restricted investments that were in an unrealized loss position as of March 31, 2019 and December 31, 2018, aggregated by major security type and the length of time the restricted investments have been in a continuous loss position (in thousands):
 
 
As of March 31, 2019
 
 
In Loss Position for
Less Than 12 Months
 
In Loss Position for
12 Months or Greater
 
Total
 
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
U.S. government obligations
 
$
—

 
$
—

 
$
91,266

 
$
3,153

 
$
91,266

 
$
3,153

Total
 
$
—

 
$
—

 
$
91,266

 
$
3,153

 
$
91,266

 
$
3,153




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Table of Contents

 
 
As of December 31, 2018
 
 
In Loss Position for
Less Than 12 Months
 
In Loss Position for
12 Months or Greater
 
Total
 
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
Foreign government obligations
 
$
41,335

 
$
235

 
$
—

 
$
—

 
$
41,335

 
$
235

U.S. government obligations
 
—

 
—

 
87,401

 
6,436

 
87,401

 
6,436

Total
 
$
41,335

 
$
235

 
$
87,401

 
$
6,436

 
$
128,736

 
$
6,671


As of March 31, 2019, the contractual maturities of our restricted investments were between 10 years and 20 years.

5. Consolidated Balance Sheet Details

Accounts receivable trade, net

Accounts receivable trade, net consisted of the following at March 31, 2019 and December 31, 2018 (in thousands):
 
 
March 31,
2019
 
December 31,
2018
Accounts receivable trade, gross
 
$
303,062

 
$
129,644

Allowance for doubtful accounts
 
(1,393
)
 
(1,362
)
Accounts receivable trade, net
 
$
301,669

 
$
128,282


At March 31, 2019 and December 31, 2018, $45.5 million and $8.5 million, respectively, of our accounts receivable trade, net were secured by letters of credit, bank guarantees, surety bonds, or other forms of financial security issued by creditworthy financial institutions.

Accounts receivable, unbilled and retainage

Accounts receivable, unbilled and retainage consisted of the following at March 31, 2019 and December 31, 2018 (in thousands):
 
 
March 31,
2019
 
December 31,
2018
Accounts receivable, unbilled
 
$
347,726

 
$
441,666

Retainage
 
19,414

 
16,500

Accounts receivable, unbilled and retainage
 
$
367,140

 
$
458,166


Inventories

Inventories consisted of the following at March 31, 2019 and December 31, 2018 (in thousands):
 
 
March 31,
2019
 
December 31,
2018
Raw materials
 
$
244,409

 
$
224,329

Work in process
 
48,530

 
41,294

Finished goods
 
308,725

 
252,372

Inventories
 
$
601,664

 
$
517,995

Inventories – current
 
$
459,472

 
$
387,912

Inventories – noncurrent
 
$
142,192

 
$
130,083





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Prepaid expenses and other current assets

Prepaid expenses and other current assets consisted of the following at March 31, 2019 and December 31, 2018 (in thousands):
 
 
March 31,
2019
 
December 31,
2018
Prepaid expenses
 
$
110,085

 
$
90,981

Prepaid income taxes
 
64,726

 
59,319

Indirect tax receivables
 
39,765

 
26,327

Restricted cash
 
23,694

 
19,671

Derivative instruments 
 
1,313

 
2,364

Other current assets
 
37,580

 
44,399

Prepaid expenses and other current assets
 
$
277,163

 
$
243,061


Property, plant and equipment, net

Property, plant and equipment, net consisted of the following at March 31, 2019 and December 31, 2018 (in thousands):
 
 
March 31,
2019
 
December 31,
2018
Land
 
$
14,330

 
$
14,382

Buildings and improvements
 
571,345

 
567,605

Machinery and equipment
 
2,063,042

 
1,826,434

Office equipment and furniture
 
179,013

 
178,011

Leasehold improvements
 
49,007

 
49,055

Construction in progress
 
299,694

 
405,581

Property, plant and equipment, gross
 
3,176,431

 
3,041,068

Accumulated depreciation
 
(1,317,138
)
 
(1,284,857
)
Property, plant and equipment, net
 
$
1,859,293

 
$
1,756,211


Depreciation of property, plant and equipment was $42.9 million and $18.6 million for the three months ended March 31, 2019 and 2018, respectively.

PV solar power systems, net

Photovoltaic (“PV”) solar power systems, net consisted of the following at March 31, 2019 and December 31, 2018 (in thousands):
 
 
March 31,
2019
 
December 31,
2018
PV solar power systems, gross
 
$
343,543

 
$
343,061

Accumulated depreciation
 
(37,915
)
 
(34,421
)
PV solar power systems, net
 
$
305,628

 
$
308,640


Depreciation of PV solar power systems was $3.5 million and $4.3 million for the three months ended March 31, 2019 and 2018, respectively.




12
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Capitalized interest

The cost of constructing project assets may include interest costs incurred during the construction period. The components of interest expense and capitalized interest were as follows during the three months ended March 31, 2019 and 2018 (in thousands):
 
 
Three Months Ended
March 31,
 
 
2019
 
2018
Interest cost incurred
 
$
(10,948
)
 
$
(6,465
)
Interest cost capitalized – project assets
 
827

 
1,283

Interest expense, net
 
$
(10,121
)
 
$
(5,182
)

Project assets

Project assets consisted of the following at March 31, 2019 and December 31, 2018 (in thousands):
 
 
March 31,
2019
 
December 31,
2018
Project assets – development costs, including project acquisition and land costs
 
$
323,539

 
$
298,070

Project assets – construction costs
 
248,750

 
200,359

Project assets
 
$
572,289

 
$
498,429

Project assets – current
 
$
80,278

 
$
37,930

Project assets – noncurrent
 
$
492,011

 
$
460,499


Other assets

Other assets consisted of the following at March 31, 2019 and December 31, 2018 (in thousands):
 
 
March 31,
2019
 
December 31,
2018
Operating lease assets (1)
 
$
168,213

 
$
—

Notes receivable (2) (3)
 
31,059

 
8,017

Indirect tax receivables
 
9,247

 
22,487

Income taxes receivable
 
4,444

 
4,444

Equity method investments
 
2,960

 
3,186

Deferred rent
 
—

 
27,249

Other
 
26,030

 
33,495

Other assets
 
$
241,953

 
$
98,878

——————————
(1)
See Note 7. “Leases” to our condensed consolidated financial statements for discussion of our lease arrangements.

(2)
In April 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 bears interest at 8.0% per annum, payable quarterly, with the full amount due in December 2026. As of March 31, 2019 and December 31, 2018, the balance outstanding on the credit facility was €7.0 million ($7.9 million and $8.0 million, respectively).

(3)
In November 2014 and February 2016, we entered into a term loan agreement and a convertible loan agreement, respectively, with Clean Energy Collective, LLC (“CEC”). Our term loan bears interest at 16% per annum, and our convertible loan bears interest at 10% per annum. In November 2018, we amended the terms of the loan agreements to (i) extend their maturity to June 2020, (ii) waive the conversion features on our convertible loan, and (iii) increase the frequency of interest payments, subject to certain conditions. In January 2019, CEC finalized certain restructuring arrangements, which resulted in a dilution of our ownership interest in CEC and the loss of our representation on the company’s board of managers. As a result of such restructuring, CEC no longer qualified to be accounted for under the equity method. As of March 31, 2019,



13
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the aggregate balance outstanding on the loans was $23.2 million and was presented within “Other assets.” As of December 31, 2018, the aggregate balance outstanding on the loans was $22.8 million and was presented within “Notes receivable, affiliate.”

Goodwill

Goodwill for the relevant reporting unit consisted of the following at March 31, 2019 and December 31, 2018 (in thousands):
 
 
December 31,
2018

Acquisitions (Impairments)

March 31,
2019
Modules
 
$
407,827

 
$
—

 
$
407,827

Accumulated impairment losses
 
(393,365
)
 
—

 
(393,365
)
Goodwill
 
$
14,462

 
$
—

 
$
14,462


Intangible assets, net

The following tables summarize our intangible assets at March 31, 2019 and December 31, 2018 (in thousands):
 
 
March 31, 2019
 
 
Gross Amount
 
Accumulated Amortization
 
Net Amount
Developed technology
 
$
97,714

 
$
(35,367
)
 
$
62,347

Power purchase agreements
 
6,486

 
(729
)
 
5,757

Patents
 
7,408

 
(3,871
)
 
3,537

Intangible assets, net
 
$
111,608

 
$
(39,967
)
 
$
71,641

 
 
December 31, 2018
 
 
Gross Amount
 
Accumulated Amortization
 
Net Amount
Developed technology
 
$
97,714

 
$
(33,093
)
 
$
64,621

Power purchase agreements
 
6,486

 
(648
)
 
5,838

Patents
 
7,408

 
(3,705
)
 
3,703

Intangible assets, net
 
$
111,608

 
$
(37,446
)
 
$
74,162


Amortization expense for our intangible assets was $2.5 million and $2.4 million for the three months ended March 31, 2019 and 2018, respectively.

Accrued expenses

Accrued expenses consisted of the following at March 31, 2019 and December 31, 2018 (in thousands):
 
 
March 31,
2019
 
December 31,
2018
Accrued project costs
 
$
130,002

 
$
147,162

Accrued property, plant and equipment
 
83,409

 
89,905

Accrued inventory
 
58,476

 
53,075

Product warranty liability (1)
 
31,013

 
27,657

Accrued compensation and benefits
 
29,761

 
41,937

Other
 
75,370

 
81,844

Accrued expenses
 
$
408,031

 
$
441,580

——————————



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Table of Contents

(1)
See Note 10. “Commitments and Contingencies” to our condensed consolidated financial statements for discussion of our “Product warranty liability.”

Other current liabilities

Other current liabilities consisted of the following at March 31, 2019 and December 31, 2018 (in thousands):
 
 
March 31,
2019
 
December 31,
2018
Operating lease liabilities (1)
 
$
12,736

 
$
—

Derivative instruments 
 
2,105

 
7,294

Contingent consideration (2)
 
414

 
665

Other
 
4,282

 
6,421

Other current liabilities
 
$
19,537

 
$
14,380

——————————
(1)
See Note 7. “Leases” to our condensed consolidated financial statements for discussion of our lease arrangements.

(2)
See Note 10. “Commitments and Contingencies” to our condensed consolidated financial statements for discussion of our “Contingent consideration” arrangements.

Other liabilities

Other liabilities consisted of the following at March 31, 2019 and December 31, 2018 (in thousands):
 
 
March 31,
2019
 
December 31,
2018
Product warranty liability (1)
 
$
186,228

 
$
193,035

Operating lease liabilities (2)
 
132,551

 
—

Other taxes payable
 
84,817

 
83,058

Transition tax liability
 
77,016

 
77,016

Deferred revenue
 
50,451

 
48,014

Derivative instruments
 
14,257

 
9,205

Contingent consideration (1)
 
2,250

 
2,250

Other
 
51,095

 
55,261

Other liabilities
 
$
598,665

 
$
467,839

——————————
(1)
See Note 10. “Commitments and Contingencies” to our condensed consolidated financial statements for discussion of our “Product warranty liability” and “Contingent consideration” arrangements.

(2)
See Note 7. “Leases” to our condensed consolidated financial statements for discussion of our lease arrangements.




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6. 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 financial position, results of operations, and cash flows. We use derivative instruments to hedge against these risks and only hold such instruments for hedging purposes, not for speculative or trading purposes.

Depending on the terms of the specific derivative instruments and market conditions, some of our derivative instruments may be assets and others liabilities at any particular balance sheet date. We report all of our derivative instruments at fair value and account for changes in the fair value of derivative instruments within “Accumulated other comprehensive loss” if the derivative instruments qualify for hedge accounting. For those derivative instruments that do not qualify for hedge accounting (“economic hedges”), we record the changes in fair value directly to earnings. See Note 8. “Fair Value Measurements” to our condensed consolidated financial statements for information about the techniques we use to measure the fair value of our derivative instruments.

The following tables present the fair values of derivative instruments included in our condensed consolidated balance sheets as of March 31, 2019 and December 31, 2018 (in thousands):
 
 
March 31, 2019
 
 
Prepaid Expenses and Other Current Assets
 
Other Current Liabilities
 
Other Liabilities
Derivatives designated as hedging instruments:
 
 
 
 
 
 
Foreign exchange forward contracts
 
$
129

 
$
—

 
$
—

Total derivatives designated as hedging instruments
 
$
129

 
$
—

 
$
—

 
 
 
 
 
 
 
Derivatives not designated as hedging instruments:
 
 
 
 

 
 

Foreign exchange forward contracts
 
$
1,184

 
$
1,595

 
$
—

Interest rate swap contracts
 
—

 
510

 
14,257

Total derivatives not designated as hedging instruments
 
$
1,184

 
$
2,105

 
$
14,257

Total derivative instruments
 
$
1,313

 
$
2,105

 
$
14,257

 
 
December 31, 2018
 
 
Prepaid Expenses and Other Current Assets
 
Other Current Liabilities
 
Other Liabilities
Derivatives designated as hedging instruments:
 
 
 
 
 
 
Foreign exchange forward contracts
 
$
158

 
$
—

 
$
—

Total derivatives designated as hedging instruments
 
$
158

 
$
—

 
$
—

 
 
 
 
 
 
 
Derivatives not designated as hedging instruments:
 
 
 
 

 
 

Foreign exchange forward contracts
 
$
2,206

 
$
7,096

 
$
—

Interest rate swap contracts
 
—

 
198

 
9,205

Total derivatives not designated as hedging instruments
 
$
2,206

 
$
7,294

 
$
9,205

Total derivative instruments
 
$
2,364

 
$
7,294

 
$
9,205





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The following table presents the pretax amounts related to derivative instruments designated as cash flow hedges affecting accumulated other comprehensive income or loss and our condensed consolidated statements of operations for the three months ended March 31, 2019 and 2018 (in thousands):
 
 
Foreign Exchange Forward Contracts
Balance in accumulated other comprehensive (loss) income at December 31, 2018
 
$
1,329

Amounts recognized in other comprehensive (loss) income
 
(31
)
Balance in accumulated other comprehensive (loss) income at March 31, 2019
 
$
1,298

 
 
 
Balance in accumulated other comprehensive (loss) income at December 31, 2017
 
$
(1,723
)
Amounts recognized in other comprehensive (loss) income
 
(868
)
Balance in accumulated other comprehensive (loss) income at March 31, 2018
 
$
(2,591
)

We recorded no amounts related to ineffective portions of our derivative instruments designated as cash flow hedges during the three months ended March 31, 2018. We recognized unrealized losses of $0.2 million related to amounts excluded from effectiveness testing for our foreign exchange forward contracts designated as cash flow hedges within “Other income, net” during the three months ended March 31, 2018.

The following table presents gains and losses related to derivative instruments not designated as hedges affecting our condensed consolidated statements of operations for the three months ended March 31, 2019 and 2018 (in thousands):
 
 
 
 
Amount of Gain (Loss) Recognized in Income
 
 
 
 
Three Months Ended
March 31,
 
 
Income Statement Line Item
 
2019
 
2018
Foreign exchange forward contracts
 
Foreign currency gain (loss), net
 
$
1,900

 
$
(12,656
)
Interest rate swap contracts
 
Interest expense, net
 
(5,364
)
 
(660
)

Interest Rate Risk

We use interest rate swap contracts to mitigate our exposure to interest rate fluctuations associated with certain of our debt instruments. We do not use such swap contracts for speculative or trading purposes. During the three months ended March 31, 2019 and 2018, all of our interest rate swap contracts related to project specific debt facilities. Such swap contracts did not qualify for accounting as cash flow hedges in accordance with ASC 815 due to our expectation to sell the associated projects before the maturity of their project specific debt financings and corresponding swap contracts. Accordingly, changes in the fair values of the swap contracts were recorded directly to “Interest expense, net.”

In May 2018, FS NSW Project No 1 Finco Pty Ltd, our indirect wholly-owned subsidiary and project financing company, entered into various interest rate swap contracts to hedge the floating rate construction loan facility and a portion of the floating rate term loan facility under the associated project’s Beryl Credit Facility (as defined in Note 9. “Debt” to our condensed consolidated financial statements). The swaps had an initial aggregate notional value of AUD 42.4 million and, depending on the loan facility being hedged, entitled the project to receive one-month or three-month floating Bank Bill Swap Bid (“BBSY”) interest rates while requiring the project to pay fixed rates of 2.0615% or 3.2020%. The notional amounts of the interest rate swap contracts are scheduled to proportionately adjust with the scheduled draws and principal payments on the underlying hedged debt. As of March 31, 2019 and December 31, 2018, the aggregate notional value of the interest rate swap contracts was AUD 135.2 million ($95.9 million) and AUD 103.4 million ($73.4 million), respectively.




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In January 2017, FS Japan Project 12 GK, our indirect wholly-owned subsidiary and project company, entered into an interest rate swap contract to hedge a portion of the floating rate senior loan facility under the project’s Ishikawa Credit Agreement (as defined in Note 9. “Debt” to our condensed consolidated financial statements). Such swap had an initial notional value of ¥5.7 billion and entitled the project to receive a six-month floating TIBOR plus 0.75% interest rate while requiring the project to pay a fixed rate of 1.482%. The notional amount of the interest rate swap contract is scheduled to proportionately adjust with the scheduled draws and principal payments on the underlying hedged debt. As of March 31, 2019 and December 31, 2018, the notional value of the interest rate swap contract was ¥19.2 billion ($173.5 million).

Foreign Currency Risk

Cash Flow Exposure

We expect certain of our subsidiaries to have future cash flows that will be denominated in currencies other than the subsidiaries’ functional currencies. Changes in the exchange rates between the functional currencies of our subsidiaries and the other currencies in which they transact will cause fluctuations in the cash flows we expect to receive or pay when these cash flows are realized or settled. Accordingly, we enter into foreign exchange forward contracts to hedge a portion of these forecasted cash flows. As of March 31, 2019 and December 31, 2018, these foreign exchange forward contracts hedged our forecasted cash flows for periods up to three months and six 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 a derivative’s unrealized gain or loss in “Accumulated other comprehensive 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 as of March 31, 2019 and December 31, 2018.

As of March 31, 2019 and December 31, 2018, 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, 2019
Currency
 
Notional Amount
 
USD Equivalent
Australian dollar
 
AUD 8.8
 
$6.2
 
 
December 31, 2018
Currency
 
Notional Amount
 
USD Equivalent
Australian dollar
 
AUD 8.8
 
$6.2

In the following 12 months, we expect to reclassify to earnings $1.3 million of net unrealized gains related to forward contracts that are included in “Accumulated other comprehensive loss” at March 31, 2019 as we realize the earnings effects of the related forecasted transactions. The amount we ultimately record to earnings will depend on the actual exchange rates when we realize the related forecasted transactions.

Transaction Exposure and Economic Hedging

Many of our subsidiaries have assets and liabilities (primarily cash, receivables, marketable securities, deferred taxes, payables, accrued expenses, and solar module collection and recycling liabilities) that are denominated in currencies other than the subsidiaries’ functional currencies. Changes in the exchange rates between the functional currencies of our subsidiaries and the other currencies in which these assets and liabilities are denominated will create fluctuations in our reported condensed consolidated statements of operations and cash flows. We may enter into foreign exchange forward contracts or other financial instruments to economically hedge assets and liabilities against the effects of currency exchange rate fluctuations. The gains and losses on such foreign exchange forward contracts will economically offset all or part of the transaction gains and losses that we recognize in earnings on the related foreign currency denominated assets and liabilities.



18
Table of Contents

We also enter into foreign exchange forward contracts to economically hedge balance sheet and other exposures related to transactions between certain of our subsidiaries and transactions with third parties. Such contracts are considered economic hedges and do not qualify for hedge accounting. Accordingly, we recognize gains or losses from the fluctuations in foreign exchange rates and the fair value of these derivative contracts in “Foreign currency gain (loss), net” on our condensed consolidated statements of operations. These contracts mature at various dates within the next three months.

As of March 31, 2019 and December 31, 2018, 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, 2019
Transaction
 
Currency
 
Notional Amount
 
USD Equivalent
Purchase
 
Australian dollar
 
AUD 4.5
 
$3.2
Sell
 
Australian dollar
 
AUD 8.8
 
$6.2
Purchase
 
Brazilian real
 
BRL 8.5
 
$2.2
Purchase
 
Canadian dollar
 
CAD 4.6
 
$3.4
Sell
 
Chilean peso
 
CLP 3,407.8
 
$5.0
Purchase
 
Euro
 
€113.1
 
$127.1
Sell
 
Euro
 
€151.5
 
$170.2
Sell
 
Indian rupee
 
INR 789.2
 
$11.4
Purchase
 
Japanese yen
 
¥497.9
 
$4.5
Sell
 
Japanese yen
 
¥21,822.1
 
$197.0
Purchase
 
Malaysian ringgit
 
MYR 33.3
 
$8.2
Sell
 
Malaysian ringgit
 
MYR 69.0
 
$16.9
Sell
 
Mexican peso
 
MXN 34.6
 
$1.8
Purchase
 
Singapore dollar
 
SGD 4.0
 
$3.0
Sell
 
Singapore dollar
 
SGD 1.4
 
$1.0
 
 
December 31, 2018
Transaction
 
Currency
 
Notional Amount
 
USD Equivalent
Purchase
 
Australian dollar
 
AUD 2.1
 
$1.5
Sell
 
Australian dollar
 
AUD 52.9
 
$37.3
Purchase
 
Brazilian real
 
BRL 8.5
 
$2.2
Sell
 
Canadian dollar
 
CAD 2.9
 
$2.1
Sell
 
Chilean peso
 
CLP 3,506.6
 
$5.1
Purchase
 
Euro
 
€115.2
 
$131.9
Sell
 
Euro
 
€191.8
 
$219.7
Sell
 
Indian rupee
 
INR 789.2
 
$11.3
Purchase
 
Japanese yen
 
¥931.6
 
$8.4
Sell
 
Japanese yen
 
¥23,858.8
 
$216.2
Purchase
 
Malaysian ringgit
 
MYR 34.3
 
$8.3
Sell
 
Malaysian ringgit
 
MYR 53.8
 
$12.9
Sell
 
Mexican peso
 
MXN 37.3
 
$1.9
Purchase
 
Singapore dollar
 
SGD 3.8
 
$2.8




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7. Leases

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

Upon commencement of a lease, we recognize a lease liability for the present value of the lease payments not yet paid, discounted using an interest rate that represents our ability to borrow on a collateralized basis over a period that approximates the lease term. We also recognize a lease asset, which represents our right to control the use of the underlying property, plant or equipment, at an amount equal to the lease liability adjusted for prepayments and initial direct costs.

We subsequently recognize the cost of the lease on a straight-line basis over the lease term, and any variable lease costs, which represent amounts owed to the lessor that are not fixed per the terms of the contract, are recognized in the period in which they are incurred. Any costs included in our lease arrangements that are not directly related to the leased assets, such as maintenance charges, are included as part of the lease costs. Leases with an initial term of one year or less are considered short-term leases and are not recognized as lease assets and liabilities. We also recognize the cost of such short-term leases on a straight-line basis over the term of the underlying agreement.

Many of our leases, in particular those related to systems project land, contain renewal or termination options that are exercisable at our discretion. At the commencement date of a lease, we include in the lease term any periods covered by a renewal option, and exclude from the lease term any periods covered by a termination option, to the extent we are reasonably certain to exercise such options. In making this determination, we seek to align the lease term with the expected economic life of the underlying asset.

The following table presents certain quantitative information related to our lease arrangements for the three months ended March 31, 2019 and as of March 31, 2019 (in thousands):
 
 
Three Months Ended
March 31, 2019
Operating lease cost
 
$
5,283

Variable lease cost
 
749

Short-term lease cost
 
2,842

Total lease cost
 
$
8,874

 
 
 
Payments of amounts included in the measurement of operating lease liabilities
 
$
4,947

Lease assets obtained in exchange for operating lease liabilities
 
$
149,631

 
 
 
 
 
March 31, 2019
Weighted-average remaining lease term
 
18 years

Weighted-average discount rate
 
4.7
%




20
Table of Contents

As of March 31, 2019, the future payments associated with our lease liabilities were as follows (in thousands):
 
 
Total Lease Liabilities
Remainder of 2019
 
$
13,838

2020
 
14,436

2021
 
13,656

2022
 
13,255

2023
 
13,000

Thereafter
 
151,562

Total future payments
 
219,747

Less: interest
 
(74,460
)
Total lease liabilities
 
$
145,287


8. Fair Value Measurements

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

•
Cash Equivalents. At March 31, 2019 and December 31, 2018, our cash equivalents consisted of money market funds. We value our 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, 2019 and December 31, 2018, our marketable securities consisted of foreign debt, foreign government obligations, U.S. debt, and time deposits, and our restricted investments consisted of foreign and U.S. government obligations. We value our marketable securities and restricted investments using observable inputs that reflect quoted prices for securities with identical characteristics or quoted prices for securities with similar characteristics and other observable inputs (such as interest rates that are observable at commonly quoted intervals). Accordingly, we classify the valuation techniques that use these inputs as either Level 1 or Level 2 depending on the inputs used. We also consider the effect of our counterparties’ credit standing in these fair value measurements.

•
Derivative Assets and Liabilities. At March 31, 2019 and December 31, 2018, our derivative assets and liabilities consisted of foreign exchange forward contracts involving major currencies and interest rate swap contracts involving major interest rates. Since our derivative assets and liabilities are not traded on an exchange, we value them using standard industry valuation models. As applicable, these models project future cash flows and discount the amounts to a present value using market-based observable inputs, including 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 the valuation techniques as Level 2. In evaluating credit risk, we consider the effect of our counterparties’ and our own credit standing in the fair value measurements of our derivative assets and liabilities, respectively.




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Table of Contents

At March 31, 2019 and December 31, 2018, the fair value measurements of our assets and liabilities measured on a recurring basis were as follows (in thousands):
 
 
 
 
Fair Value Measurements at Reporting
Date Using
 
 
 
 
 
 
 
March 31,
2019
 
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
 
$
200,980

 
$
200,980

 
$
—

 
$
—

Marketable securities:
 
 
 
 
 
 
 
 
Foreign debt
 
345,950

 
—

 
345,950

 
—

Foreign government obligations
 
60,124

 
—

 
60,124

 
—

U.S. debt
 
59,622

 
—

 
59,622

 
—

Time deposits
 
638,116

 
638,116

 
—

 
—

Restricted investments
 
219,108

 
—

 
219,108

 
—

Derivative assets
 
1,313

 
—

 
1,313

 
—

Total assets
 
$
1,525,213

 
$
839,096

 
$
686,117

 
$
—

Liabilities:
 
 
 
 
 
 
 
 
Derivative liabilities
 
$
16,362

 
$
—

 
$
16,362

 
$
—

 
 
 
 
Fair Value Measurements at Reporting
Date Using
 
 
 
 
 
 
 
December 31,
2018
 
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
 
$
200,788

 
$
200,788

 
$
—