Edgar Filing: FIRST SOLAR, INC.

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark one)


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

	For the quarterly period ended September 25, 2010
	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	(I.R.S. Employer
incorporation or organization)	Identification No.)

350 West Washington Street, Suite 600

Tempe, Arizona 85281

(Address of principal executive offices, including zip code)

(602) 414-9300

(Registrant's telephone number, including area code)

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

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

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


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

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

As of October 22, 2010 there were 85,720,049 shares of the registrant's common stock, par value $0.001, outstanding.

FIRST SOLAR, INC. AND SUBSIDIARIES

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 25, 2010

TABLE OF CONTENTS


		Page
Part I. Financial Information (Unaudited)		1
Item 1. Condensed Consolidated Financial Statements:		1
Condensed Consolidated Statements of Operations for the three and nine months ended September 25, 2010 and September 26, 2009		1
Condensed Consolidated Balance Sheets as of September 25, 2010 and December 26, 2009		2
Condensed Consolidated Statements of Cash Flows for the nine months ended September 25, 2010 and September 26, 2009		3
Notes to Condensed Consolidated Financial Statements		4
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations		33
Item 3. Quantitative and Qualitative Disclosures About Market Risk		51
Item 4. Controls and Procedures		51
Part II. Other Information		52
Item 1. Legal Proceedings		52
Item 1A. Risk Factors		52
Item 5. Other Information		52
Item 6. Exhibits		54
Signature		55
Exhibit Index		56

PART I. FINANCIAL INFORMATION

Item 1. Unaudited Condensed Consolidated Financial Statements

FIRST SOLAR, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(Unaudited)


	Three Months Ended						Nine Months Ended
	September 25, 2010			September 26, 2009			September 25, 2010			September 26, 2009
Net sales	$	797,899		$	480,851		$	1,953,714		$	1,424,935
Cost of sales	476,007			235,858			1,065,592			646,562
Gross profit	321,892			244,993			888,122			778,373
Operating expenses:
Research and development	21,472			24,136			67,196			54,445
Selling, general and administrative	84,961			53,990			230,422			176,231
Production start-up	3,821			4,076			7,252			12,809
Total operating expenses	110,254			82,202			304,870			243,485
Operating income	211,638			162,791			583,252			534,888
Foreign currency (loss) gain	(1,001		)	114			(4,322		)	2,187
Interest income	2,658			2,398			11,341			6,449
Interest expense, net	—			(89		)	(6		)	(4,851		)
Other expense, net	(380		)	(247		)	(1,553		)	(2,676		)
Income before income taxes	212,915			164,967			588,712			535,997
Income tax expense	36,046			11,623			80,455			37,479
Net income	$	176,869		$	153,344		$	508,257		$	498,518
Net income per share:
Basic	$	2.08		$	1.82		$	5.99		$	5.99
Diluted	$	2.04		$	1.79		$	5.88		$	5.88
Weighted-average number of shares used in per share calculations:
Basic	85,072			84,179			84,810			83,196
Diluted	86,610			85,892			86,368			84,724

See accompanying notes to these condensed consolidated financial statements.

FIRST SOLAR, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

(Unaudited)


	September 25, 2010			December 26, 2009
ASSETS
Current assets:
Cash and cash equivalents	$	621,216		$	664,499
Marketable securities and investments	212,200			120,236
Accounts receivable trade, net	316,172			226,826
Accounts receivable, unbilled	148,452			58
Inventories	184,006			152,821
Project assets	109			1,081
Deferred tax assets, net	256			21,679
Prepaid expenses and other current assets	132,430			164,071
Total current assets	1,614,841			1,351,271
Property, plant and equipment, net	1,244,598			988,782
Project assets	296,521			131,415
Deferred tax assets, net	257,683			130,515
Marketable securities	163,546			329,608
Restricted cash and investments	95,024			36,494
Investment in related party	25,000			25,000
Goodwill	433,288			286,515
Inventories	36,380			21,695
Other assets	34,890			48,217
Total assets	$	4,201,771		$	3,349,512
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	71,135		$	75,744
Income tax payable	17,612			8,740
Accrued expenses	282,832			193,277
Current portion of long-term debt	26,639			28,559
Other current liabilities	59,560			88,607
Total current liabilities	457,778			394,927
Accrued solar module collection and recycling liability	128,664			92,799
Long-term debt	223,756			146,399
Other liabilities	90,227			62,600
Total liabilities	900,425			696,725
Stockholders' equity:
Common stock, $0.001 par value per share; 500,000,000 shares authorized; 85,710,763 and 85,208,199 shares issued and outstanding at September 25, 2010 and December 26, 2009, respectively	86			85
Additional paid-in capital	1,820,268			1,658,091
Contingent consideration	1,607			2,844
Accumulated earnings	1,509,619			1,001,363
Accumulated other comprehensive loss	(30,234		)	(9,596		)
Total stockholders' equity	3,301,346			2,652,787
Total liabilities and stockholders' equity	$	4,201,771		$	3,349,512

See accompanying notes to these condensed consolidated financial statements.

FIRST SOLAR, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


	Nine Months Ended
	September 25, 2010			September 26, 2009
Cash flows from operating activities:
Cash received from customers	$	1,673,064		$	1,169,345
Cash paid to suppliers and associates	(1,170,127		)	(770,985		)
Interest received	17,771			4,266
Interest paid	(3,149		)	(7,527		)
Income taxes paid, net of refunds	(57,948		)	(123,011		)
Excess tax benefit from share-based compensation arrangements	(102,381		)	(9,476		)
Other operating activities	(1,553		)	(1,217		)
Net cash provided by operating activities	355,677			261,395
Cash flows from investing activities:
Purchases of property, plant and equipment	(377,147		)	(210,757		)
Purchases of marketable securities and investments	(401,241		)	(512,116		)
Proceeds from maturities of marketable securities and investments	60,948			124,576
Proceeds from sales of marketable securities and investments	409,790			29,784
Investment in notes receivable	—			(45,495		)
Payments received on notes receivable	61,658			14,871
Increase in restricted investments	(43,064		)	(4,411		)
Acquisitions, net of cash acquired	(296,496		)	318
Other investing activities, net	1,288			(1,756		)
Net cash used in investing activities	(584,264		)	(604,986		)
Cash flows from financing activities:
Proceeds from stock option exercises	6,756			4,685
Repayment of long-term debt	(14,440		)	(63,699		)
Proceeds from borrowings under credit facility, net of issuance costs	100,000			44,820
Excess tax benefit from share-based compensation arrangements	102,381			9,476
Proceeds from economic development funding	—			615
Other financing activities	(28		)	(2		)
Net cash provided by (used in) financing activities	194,669			(4,105		)
Effect of exchange rate changes on cash and cash equivalents	(9,365		)	(3,708		)
Net decrease in cash and cash equivalents	(43,283		)	(351,404		)
Cash and cash equivalents, beginning of the period	664,499			716,218
Cash and cash equivalents, end of the period	$	621,216		$	364,814
Supplemental disclosure of noncash investing and financing activities:
Property, plant and equipment acquisitions funded by liabilities	$	65,581		$	64,119

See accompanying notes to these condensed consolidated financial statements.

FIRST SOLAR, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Nine Months Ended September 25, 2010

Note 1. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of First Solar, Inc. and its subsidiaries have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and pursuant to the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission (SEC). Accordingly, these interim financial statements do not include all of the information and footnotes required by U.S. GAAP for annual financial statements. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair statement have been included. Operating results for the three months and nine months ended September 25, 2010 are not necessarily indicative of the results that may be expected for the year ending December 31, 2010, or for any other period. The balance sheet at December 26, 2009 has been derived from the audited consolidated financial statements at that date, but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements. These financial statements and notes should be read in conjunction with the financial statements and notes thereto for the year ended December 26, 2009 included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission.

Our fiscal quarters currently end on the Saturday closest to the end of the applicable calendar quarter. In July 2010, our board of directors approved a change in the Company's fiscal year from a 52 or 53 week fiscal year to a calendar year. This change to the calendar year cycle will be effective as of the end of the 2010 fiscal year. As a result, our 2010 fiscal year, which began on December 27, 2009, will end on December 31, 2010 instead of December 25, 2010. In addition, effective January 1, 2011, our fiscal quarters will also coincide with calendar quarters.

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

Note 2. Summary of Significant Accounting Policies

These condensed consolidated financial statements and accompanying notes should be read in conjunction with our annual consolidated financial statements and notes thereto for the year ended December 26, 2009 included in our Annual Report on Form 10-K filed with the SEC. Our significant accounting policies reflect the adoption of Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic (ASC) 605, Revenue Recognition - Multiple Deliverable Revenue Arrangements, in the first quarter of 2010.

Note 3. Recent Accounting Pronouncements

In July 2010, the FASB issued Accounting Standards Update (ASU) 2010-20, Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses. This ASU enhances the disclosure requirements about the credit quality and related allowance for credit losses of financing receivables. We will adopt ASU 2010-20 in our fourth quarter of fiscal 2010. The adoption of ASU 2010-20 will not impact our financial position, results of operations, or cash flows, as its requirements only pertain to financial statement note disclosure.

In August 2010, the FASB issued ASU 2010-21, Accounting for Technical Amendments to Various SEC Rules and Schedules. This update amends various SEC paragraphs in the FASB Accounting Standards Codification pursuant to the SEC Rule, Technical Amendments to Rules Forms, Schedules and Codification of Financial Reporting Policies. The adoption of ASU 2010-21 did not have any impact on our financial position, results of operations, or cash flows.

In August 2010, the FASB issued ASU 2010-22, Accounting for Various Topics. This ASU amends various SEC paragraphs in the FASB Accounting Standards Codification based on external comments received and the issuance of Staff Accounting Bulletin (SAB) No. 112, which amended or rescinded a portion of certain SAB topics. SAB 112 was issued to bring existing SEC guidance into conformity with ASC 805, Business Combination, and ASC 810, Consolidation. The adoption of ASU 2010-22 did not have any impact on our financial position, results of operations, or cash flows.

Note 4. Acquisitions

NextLight Renewable Power

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

Purchase Price Consideration

The total consideration for this acquisition was $296.7 million in an all-cash transaction.

Preliminary Purchase Price Allocation

We accounted for this acquisition using the acquisition method in accordance with ASC 805. Accordingly, we preliminarily allocated the purchase price of the acquired assets and liabilities based on their estimated fair values at the acquisition date (July 12, 2010) as summarized in the following table (in thousands):


Tangible assets acquired	$	2,513
Project assets	147,370
Deferred tax assets	84
Goodwill	146,773
Total purchase consideration	$	296,740

The fair value of net tangible assets acquired on July 12, 2010 consisted of the following (in thousands):


Cash	$	244
Prepaid expenses and other current assets	346
Property, plant and equipment	996
Land	3,380
Total identifiable assets acquired	4,966
Accounts payable and other liabilities	(2,453		)
Total liabilities assumed	(2,453		)
Net identifiable assets acquired	$	2,513

Our purchase price allocation was substantially complete as of September 25, 2010.

Goodwill

We recorded the excess of the acquisition date fair value of consideration transferred over the estimated fair value of the net tangible assets and intangible assets acquired as goodwill. Underlying our financial rationale for the price we paid to acquire NextLight was the fact that we would be able to achieve a greater degree of vertical integration by using our own solar modules in the acquired projects. We have preliminarily allocated $142.1 million and $4.7 million of this goodwill to our components segment and systems segment, respectively. We allocated the majority of the goodwill from the NextLight acquisition to the components segment, since the systems segment functions as an "enabler" for the components segment to drive module throughput. This goodwill is deductible for tax purposes.

Acquisition Related Costs

Acquisition related costs recognized in the three and nine months ended September 25, 2010 included transaction costs, which we have classified in selling, general and administrative expense in our statement of operations. During the three and nine months ended September 25, 2010, transaction costs such as legal, accounting, valuation, and other professional services were $0.2 million

and $1.9 million, respectively.

Pro Forma Information

NextLight has been engaged in the development of solar power projects and had not reached the point of sale for any of the projects on the acquisition date. The pre-tax loss of NextLight for the period from January 1 to July 12, 2010 and for the twelve months ended December 31, 2009 was $9.1 million and $13.4 million, respectively. Therefore, had the acquisition of NextLight occurred on December 27, 2009 (the first day of our fiscal year 2010), our reported net sales would not have changed and our reported net income would not have materially changed from the amounts previously reported.

OptiSolar

On April 3, 2009, we completed the acquisition of the solar power project development business of OptiSolar Inc. ("OptiSolar"), which included a multi-gigawatt project pipeline. We have integrated the acquired project pipeline of OptiSolar into our systems business, which provides a complete photovoltaic (PV) solar power system solution, including project development, EPC services, O&M services and project finance, when required.

Pursuant to an Agreement and Plan of Merger (the Merger Agreement) dated March 2, 2009, by and among First Solar, Inc., First Solar Acquisition Corp. (Merger Sub), OptiSolar and OptiSolar Holdings LLC (OptiSolar Holdings), Merger Sub merged with and into OptiSolar, with OptiSolar surviving as a wholly-owned subsidiary of First Solar, Inc. (the Merger). Pursuant to the Merger, all the outstanding shares of common stock of OptiSolar held by OptiSolar Holdings were exchanged for 2,972,420 shares of First Solar common stock, par value $0.001 per share (the Merger Shares), of which 732,789 shares were issued and deposited with an escrow agent to support certain indemnification obligations of OptiSolar Holdings. On April 16, 2010, 183,197 shares of the common stock deposited with an escrow agent were released.

Also, 355,096 shares were holdback shares as further described below under “Contingent Consideration” (the “Holdback Shares”). As of September 25, 2010, 2,960,461 Merger Shares have been issued. The period during which claims for indemnification from the escrow fund may be initiated began on April 3, 2009 and will end on April 3, 2011.

Purchase Price Consideration

The total consideration for this acquisition, based on the closing price of our common stock on April 3, 2009 of $134.38 per share, was $399.4 million.

Contingent Consideration

Pursuant to the Merger Agreement, of the 2,972,420 Merger Shares, as of April 3, 2009, 355,096 shares were Holdback Shares that were issuable to OptiSolar Holdings upon satisfaction of conditions relating to certain then-existing liabilities of OptiSolar. As of September 25, 2010, 343,137 Holdback Shares had been issued to OptiSolar Holdings. The estimated fair value at September 25, 2010 of the 11,959 Holdback Shares remaining to be issued was $1.6 million and has been classified separately within stockholders' equity on our balance sheet.

Acquisition Related Costs

Acquisition related costs recognized in the nine months ended September 26, 2009, included transaction costs and integration costs, which we have classified in selling, general and administrative expense in our statement of operations. During the nine months ended September 26, 2009, transaction costs such as legal, accounting, and other professional services were $1.6 million. Integration related costs during the nine months ended September 26, 2009 were $0.6 million.

Goodwill

We recorded the excess of the acquisition date fair value of consideration transferred over the estimated fair value of the net tangible assets and intangible assets acquired as goodwill. Underlying our financial rationale for the price we paid to acquire OptiSolar were synergies and economies of scale that we expected would benefit our solar module business from our having control over OptiSolar's project pipeline. Subsequent to the acquisition of OptiSolar, we adjusted goodwill downward during 2009 by $8.5 million as additional information relating to acquired deferred tax assets became available. We have allocated $251.3 million and $1.4 million of this goodwill to our components segment and our systems segment, respectively. We allocated the majority of the goodwill from the OptiSolar acquisition to the components segment, since the systems segment functions as an "enabler" for the components segment to drive module throughput. This goodwill is not deductible for tax purposes.

Acquired project assets and Tangible Assets

Through the acquisitions of OptiSolar and NextLight we acquired project assets, which represent solar power projects in various stages of development. Management engaged a third-party valuation firm to assist with the determination of the fair value of the acquired project development businesses. In our determination of the fair value of the project assets acquired, we considered, among other factors, three generally accepted valuation approaches: the income approach, market approach, and cost approach. We selected the approaches that are most indicative of the fair value of the assets acquired. We used the income approach to calculate the fair value of the acquired project assets based on estimates and assumptions of future performance of these project assets provided by OptiSolar and NextLight's management and our management. We used the market approach to determine the fair value of the land and related options acquired with those assets.

Management has estimated the fair value of tangible assets acquired and concluded that the carrying value approximates the fair value as of the acquisition dates, respectively.

Note 5. Goodwill

On November 30, 2007, we acquired 100% of the outstanding membership interests of Turner Renewable Energy, LLC. Under the purchase method of accounting, we allocated $33.4 million to goodwill through December 29, 2007, which represents the excess of the purchase price over the fair value of the identifiable net tangible and intangible assets of Turner Renewable Energy, LLC. All of this goodwill was allocated to our systems segment. At September 25, 2010 and December 26, 2009, the carrying amount of this goodwill was $33.8 million.

On April 3, 2009 we acquired the solar power project development business of OptiSolar. Under the acquisition method of accounting, we allocated $261.1 million to goodwill (excluding subsequent adjustments of $8.5 million), which primarily represents the synergies and economies of scale expected from acquiring OptiSolar's project pipeline and using our solar modules in the acquired projects.

During 2009, we adjusted goodwill downward by $8.5 million as additional information relating to acquired deferred tax assets became available. We have allocated $251.3 million and $1.4 million of this goodwill to our components segment and systems segment, respectively. At September 25, 2010 and December 26, 2009, the carrying amount of this goodwill was $252.7 million. See Note 4. “Acquisitions,” to these condensed consolidated financial statements for additional information about this acquisition.

On July 12, 2010, we acquired NextLight, a leading developer of utility-scale solar projects in the southwestern United States. Under the acquisition method of accounting, we allocated $146.8 million to goodwill, which primarily represents the synergies and economies of scale expected from acquiring NextLight's project pipeline and using our solar modules in the acquired projects. We have allocated $142.1 million and $4.7 million of this goodwill to our components segment and systems segment, respectively.

The changes in the carrying amount of goodwill for the nine months ended September 25, 2010 were as follows (in thousands):


	Components		Systems		Consolidated
Ending balance, December 26, 2009	$	251,275	$	35,240	$	286,515
NextLight Acquisition	142,090		4,683		146,773
Ending balance, September 25, 2010	$	393,365	$	39,923	$	433,288

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

We performed our goodwill impairment test in the fourth fiscal quarter of the year ended December 26, 2009 and determined that the fair value of our goodwill substantially exceeded the carrying value for each individual reporting unit. Therefore we concluded that our goodwill was not impaired. We have also concluded that there have been no changes in facts and circumstances since the date of that test that would trigger an interim goodwill impairment test.

Note 6. Cash, Marketable Securities, and Investments

Cash, cash equivalents, marketable securities, and investments consisted of the following at September 25, 2010 and December 26, 2009 (in thousands):


	September 25, 2010		December 26, 2009
Cash and cash equivalents:
Cash	$	595,818	$	269,068
Cash equivalents:
Commercial paper	2,899		—
Money market mutual funds	22,499		395,431
Total cash and cash equivalents	621,216		664,499
Marketable securities and investments:
Asset-backed securities	—		5,544
Commercial paper	10,833		—
Corporate debt securities	99,615		115,248
Federal agency debt	49,985		78,911
Foreign agency debt	157,738		168,963
Foreign government obligations	9,196		10,128
Supranational debt	48,379		71,050
Total marketable securities and investments	375,746		449,844
Total cash, cash equivalents, marketable securities, and investments	$	996,962	$	1,114,343

We have classified our marketable securities as “available-for-sale.” Accordingly, we record them at fair value and account for net unrealized gains and losses as a part of accumulated other comprehensive income. We report realized gains and losses on the sale of our marketable securities in earnings, computed using the specific identification method. During the three and nine months ended September 25, 2010, we realized $0.2 million and $0.9 million, respectively, in gains and $0.1 million and $0.6 million, respectively, in losses on our marketable securities. During the three months ended September 26, 2009, we did not realize any gains or losses on our marketable securities. During the nine months ended September 26, 2009, we realized an immaterial amount in gains and did not realize any losses on our marketable securities. See Note 10. “Fair Value Measurement,” to these condensed consolidated financial statements for information about the fair value measurement of our marketable securities.

All of our available-for-sale marketable securities are subject to a periodic impairment review. We consider a marketable debt security to be impaired when its fair value is less than its carrying cost, in which case we would further review the investment to determine whether it is other-than-temporarily impaired. When we evaluate an investment for other-than-temporary impairment, we review factors such as the length of time and extent to which fair value has been below cost basis, the financial condition of the issuer and any changes thereto, our intent to sell, and whether it is more likely than not we will be required to sell the investment before we have recovered its cost basis. If an investment is other-than-temporarily impaired, we write it down through earnings to its impaired value and establish that as a new cost basis for the investment. We did not identify any of our marketable securities as other-than-temporarily impaired at September 25, 2010 and December 26, 2009.

The following table summarizes the unrealized gains and losses related to our investments in marketable securities designated as available-for-sale, by major security type, as of September 25, 2010 and December 26, 2009 (in thousands):


	As of September 25, 2010
Security Type	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Commercial paper	10,831		2		—		10,833
Corporate debt securities	98,892		841		118		99,615
Federal agency debt	49,969		20		4		49,985
Foreign agency debt	157,018		729		9		157,738
Foreign government obligations	9,188		9		1		9,196
Supranational debt	48,149		230		—		48,379
Total	$	374,047	$	1,831	$	132	$	375,746


	As of December 26, 2009
Security Type	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Asset-backed securities	$	5,528	$	19	$	3	$	5,544
Corporate debt securities	114,912		475		139		115,248
Federal agency debt	78,803		108		—		78,911
Foreign agency debt	168,541		588		166		168,963
Foreign government obligations	10,057		71		—		10,128
Supranational debt	70,807		269		26		71,050
Total	$	448,648	$	1,530	$	334	$	449,844

Contractual maturities of our available-for-sale marketable securities and investments as of September 25, 2010 and December 26, 2009 were as follows (in thousands):


	As of September 25, 2010
Maturity	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
One year or less	$	211,512	$	688	$	—	$	212,200
One year to two years	160,043		1,135		132		161,046
Two years to three years	2,492		8		—		2,500
Total	$	374,047	$	1,831	$	132	$	375,746


	As of December 26, 2009
Maturity	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
One year or less	$	119,911	$	327	$	2	$	120,236
One year to two years	269,488		963		185		270,266
Two years to three years	59,249		240		147		59,342
Total	$	448,648	$	1,530	$	334	$	449,844

The net unrealized gain of $1.7 million and $1.2 million as of September 25, 2010 and December 26, 2009, respectively, on our available-for-sale marketable securities and investments was primarily the result of changes in interest rates. We typically invest in highly-rated securities with low probabilities of default. Our investment policy requires investments to be rated single A or higher and limits the security types, issuer concentration, and duration of our investments.

The following table shows gross unrealized losses and estimated fair values for those investments that were in an unrealized loss position as of September 25, 2010 and December 26, 2009, aggregated by investment category and the length of time that individual securities have been in a continuous loss position (in thousands):


	As of September 25, 2010
	In Loss Position for Less Than 12 Months				In Loss Position for 12 Months or Greater				Total
Security Type	Estimated Fair Value		Gross Unrealized Losses		Estimated Fair Value		Gross Unrealized Losses		Estimated Fair Value		Gross Unrealized Losses
Corporate debt securities	$	19,954	$	118	$	—	$	—	$	19,954	$	118
Federal agency debt	12,074		4		—		—		12,074		4
Foreign agency debt	3,966		9		—		—		3,966		9
Foreign government obligations	3,933		1		—		—		3,933		1
Total	$	39,927	$	132	$	—	$	—	$	39,927	$	132


	As of December 26, 2009
	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
Asset-backed securities	$	2,868	$	3	$	—	$	—	$	2,868	$	3
Corporate debt securities	32,303		139		—		—		32,303		139
Foreign agency debt	45,329		166		—		—		45,329		166
Supranational debt	7,201		26		—		—		7,201		26
Total	$	87,701	$	334	$	—	$	—	$	87,701	$	334

Note 7. Restricted Cash and Investments

Restricted cash and investments consisted of the following at September 25, 2010 and December 26, 2009 (in thousands):


	September 25, 2010		December 26, 2009
Restricted cash	$	44	$	27
Restricted investments	94,980		36,467
Total restricted cash and investments - noncurrent	$	95,024	$	36,494

At September 25, 2010 and December 26, 2009, our restricted investments consisted of long-term marketable securities that we hold through a custodial account to fund future costs of our solar module collection and recycling program.

We pre-fund our estimated solar module collection and recycling costs at the time of module sale through a custodial account with a large bank as the investment advisor in the name of a trust, for which First Solar Inc., First Solar Malaysia Sdn. Bhd., and First Solar Manufacturing GmbH are grantors. We fund this custodial account within 60 days of the beginning of a fiscal year for the prior year module sales, assuming for this purpose a minimum service life of 25 years for our solar modules.

The following table summarizes unrealized gains and losses related to our restricted investments in marketable securities designated as available-for-sale by major security type as of September 25, 2010 and December 26, 2009 (in thousands):


	As of September 25, 2010
Security Type	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Foreign government obligations	$	73,522	$	14,966	$	—	$	88,488
U.S. government obligations	5,519		973		—		6,492
Total	$	79,041	$	15,939	$	—	$	94,980


	As of December 26, 2009
Security Type	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Foreign government obligations	$	34,403	$	1,308	$	—	$	35,711
U.S. government obligations	783		—		27		756
Total	$	35,186	$	1,308	$	27	$	36,467

As of September 25, 2010, the contractual maturities of these available-for-sale marketable securities were between 17 years and 25 years. As of December 26, 2009, the contractual maturities of these available-for-sale marketable securities were between 18 years and 26 years.

Note 8. Consolidated Balance Sheet Details

Accounts receivable trade, net

Accounts receivable trade consisted of the following at September 25, 2010 and December 26, 2009 (in thousands):


	September 25, 2010		December 26, 2009
Accounts receivable trade, gross	$	316,172	$	227,816
Allowance for doubtful accounts	—		(990		)
Accounts receivable trade, net	$	316,172	$	226,826

During the third quarter of 2009, we amended our Long-Term Supply Contracts with certain of our customers to implement a program which provided a price rebate to these customers for solar modules purchased from us. The intent of this program was to enable our customers to successfully compete in our core German market and to adjust for eligible customers the sale price (which was documented in framework agreements entered into several years ago) in light of market conditions. The rebate period was originally structured to end at the end of 2010; however, we have extended the program into 2011 with certain modifications, including applicability to certain European geographies in addition to Germany. As was the case in 2009, the rebate amounts are established so as to enable the sell-through of our products at competitive prices. The amount of rebate earned during a fiscal quarter is based on (i) the volume of solar modules shipped to a customer (measured in watts), (ii) the volume of solar modules registered for eligible projects (measured in watts), provided that those solar modules were invoiced by the buyer to an end customer, and (iii) the rebate rate. The rebate program applies a specified rebate rate to solar modules sold for solar power projects in certain geographies. Customers need to meet certain requirements in order to be eligible for and benefit from this program. As of September 25, 2010, we have experienced approximately 100% participation in this program by eligible customers.

We account for these rebates as a reduction to the selling price of our solar modules and, therefore, as a reduction in revenue at the time of sale and recognize a contra-asset within accounts receivable trade, net. No rebates granted under this program can be claimed as cash; instead, rebates may only be applied to reduce outstanding accounts receivable balances. During the three and nine months ended September 25, 2010, we extended rebates to customers in the amount of €22.9 million and €58.5 million, respectively, ($29.3 million and $77.8 million at the average exchange rate of $1.28/€1.00 and $1.33/€1.00, respectively). At September 25, 2010, we had €26.3 million ($35.5 million at the balance sheet close rate on September 25, 2010 of $1.35/€1.00) of rebate claims accrued, which reduced our accounts receivable accordingly. At December 26, 2009, we had €54.3 million ($73.3 million at the balance sheet close rate on September 25, 2010 of $1.35/€1.00) of rebate claims accrued.

In June 2009, we provided an allowance for doubtful accounts receivable in the amount of $7.0 million due to uncertainty about the collectibility of the outstanding accounts receivable from a specific customer. As of December 26, 2009, we had collected $6.0 million of the overdue accounts receivable from this specific customer and reduced our allowance for the doubtful account accordingly. During the three months ended March 27, 2010, we collected the remaining $1.0 million.

Accounts receivable, unbilled

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

Accounts receivable, unbilled were $148.5 million and $0.1 million at September 25, 2010 and December 26, 2009, respectively. The increase was due to the recognition of revenue related to our systems business projects. We expect to bill and collect these amounts within the next 12 months.

Inventories

Inventories consisted of the following at September 25, 2010 and December 26, 2009 (in thousands):


	September 25, 2010		December 26, 2009
Raw materials	$	140,333	$	122,282
Work in process	22,536		6,248
Finished goods	57,517		45,986
Total inventories	$	220,386	$	174,516
Inventories - current	$	184,006	$	152,821
Inventories - noncurrent (1)	$	36,380	$	21,695

(1) We purchase a critical raw material that is heavily used in our core production process in quantities that anticipate confident, but long-term future demand. We classify the raw materials that we do not expect will be consumed within our operating cycle (which is 12 months), as noncurrent.

Prepaid expenses and other current assets

Prepaid expenses and other current assets consisted of the following at September 25, 2010 and December 26, 2009 (in thousands):


	September 25, 2010		December 26, 2009
Prepaid expenses	$	42,640	$	33,095
Deferred project costs	854		36,670
Notes receivable (See Note 12. "Notes Receivable")	—		50,531
Derivative instruments	28,743		7,909
Other current assets	60,193		35,866
Total prepaid expenses and other current assets	$	132,430	$	164,071

Deferred project costs represent capitalized costs associated with revenue that we have deferred for project development or project construction contracts signed with a third party, typically under an EPC agreement or other contractual arrangements, for

which the revenue recognition criteria have not been met. For systems business arrangements that do not involve real estate, we generally defer project costs prior to entering into a definitive sales arrangement or we recognize revenue based on the completed contract method. For systems business arrangements that we account for as real estate transactions, we generally recognize costs incurred as deferred project costs after we have entered into a definitive sales agreement, until we have met the criteria to recognize the sale as revenue.

Project Assets - Current and Noncurrent

Project assets consist primarily of costs relating to solar power projects in various stages of development that we capitalize prior to the sale of the solar power project to a third party for further project development or the signing of a project construction contract. These costs include costs for land and costs for developing and constructing a solar power plant. Development costs can include legal, consulting, permitting, and other similar costs. Once we enter into a definitive sales agreement, we reclassify these costs to deferred project costs on our balance sheet until we are able to recognize the sale of the project assets as revenue.

Project assets - current and noncurrent consisted of the following at September 25, 2010 and December 26, 2009 (in thousands):


	September 25, 2010		December 26, 2009
Project assets acquired through OptiSolar and NextLight	$	218,407	$	71,037
Project assets - land	13,753		1,452
Project assets - other	64,470		60,007
Total project assets	$	296,630	$	132,496
Total project assets - current	$	109	$	1,081
Total project assets - noncurrent	$	296,521	$	131,415

In connection with the acquisition of the solar power project development businesses of OptiSolar and NextLight, we measured at fair value certain acquired project assets based on the varying development stages of each project asset on the acquisition date. Subsequent to the acquisitions of OptiSolar and NextLight, we incurred additional costs to further develop these projects. Once we enter into a definitive sales agreement, we reclassify these costs to deferred project costs on our balance sheet. We expense these project assets to cost of sales as each respective project asset or solar power system is sold to a customer, since the project is constructed for a customer (matching the underlying revenue recognition method), or if we determine that the project is commercially not viable.

We review project assets for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. We consider a project commercially viable if it is anticipated to be sellable for a profit once it is either fully developed or fully constructed. We consider a partially developed or partially constructed project commercially viable if the anticipated selling price is higher than the carrying value of the related project assets. We examine a number of factors to determine if the project will be profitable, the most notable of which are whether there are any environmental, ecological, permitting, or regulatory conditions that have changed for the project since the start of development. Such changes could cause the cost of the project to increase or the selling price of the project to decrease.

Property, plant and equipment, net

Property, plant and equipment, net consisted of the following at September 25, 2010 and December 26, 2009 (in thousands):


	September 25, 2010			December 26, 2009
Buildings and improvements	$	242,870		$	239,088
Machinery and equipment	855,105			813,281
Office equipment and furniture	67,597			38,845
Leasehold improvements	20,083			15,870
Depreciable property, plant and equipment, gross	1,185,655			1,107,084
Accumulated depreciation	(328,671		)	(225,790		)
Depreciable property, plant and equipment, net	856,984			881,294
Land	9,764			4,995
Construction in progress	377,850			102,493
Property, plant and equipment, net	$	1,244,598		$	988,782

During the nine months ended September 25, 2010, we were granted a $16.3 million tax credit under the Advanced Energy Tax Credit program enacted by the American Reinvestment and Recovery Act of 2009 for the expansion of our Perrysburg, Ohio manufacturing facility, and we reduced the acquisition cost for the expansion of this facility accordingly.

Depreciation of property, plant, and equipment was $36.9 million and $33.7 million for the three months ended September 25, 2010 and September 26, 2009, respectively, and was $109.7 million and $88.0 million for the nine months ended September 25, 2010 and September 26, 2009, respectively.

Capitalized Interest

We capitalized interest costs incurred into our property, plant and equipment or our project assets/deferred project costs as follows during the three and nine months ended September 25, 2010 and September 26, 2009 (in thousands):


	Three Months Ended						Nine Months Ended
	September 25, 2010			September 26, 2009			September 25, 2010			September 26, 2009
Interest cost incurred	$	(2,384	)	$	(2,367	)	$	(6,582	)	$	(9,473	)
Interest cost capitalized - property, plant and equipment	1,771			665			3,472			3,009
Interest cost capitalized - project assets and deferred project costs	613			1,613			3,104			1,613
Interest expense, net	$	—		$	(89	)	$	(6	)	$	(4,851	)

Accrued expenses

Accrued expenses consisted of the following at September 25, 2010 and December 26, 2009 (in thousands):


	September 25, 2010		December 26, 2009
Accrued compensation and benefits	$	55,998	$	53,856
Accrued property, plant and equipment	59,944		35,811
Accrued inventory	26,820		27,542
Product warranty liability - current	10,297		8,216
Nonrecurring expenses in excess of normal product warranty liability and related expenses	27,479		6,595
Accrued taxes - other	46,701		10,179
Other accrued expenses	55,593		51,078
Total accrued expenses	$	282,832	$	193,277

The above-referenced $27.5 million of accrued nonrecurring expenses in excess of normal product liability as of September 25, 2010 consists of the following, each related to the manufacturing excursion described below: (i) $21.5 million (utilization of

accrual during quarter offset by foreign exchange movement) in estimated expenses for certain module replacement efforts voluntarily undertaken by us beyond the normal product warranty (presented in results of operations under “cost of sales”); and (ii) $6.0 million (unchanged from prior periods other than foreign exchange movement) in estimated nonrecurring post-sale expenses (presented in results of operations under “selling, general and administrative”). During the period from June 2008 to June 2009, a manufacturing excursion occurred affecting less than 4% of the total product manufactured within the period. The excursion could result in possible premature power loss in affected modules. The root cause was identified and subsequently mitigated in June 2009. On-going testing confirms the corrective actions are effective. We have been working directly with impacted customers to replace the affected modules and these efforts are well underway and, in some cases, complete. Some of these efforts go beyond our normal warranty coverage.

Other current liabilities

Other current liabilities consisted of the following at September 25, 2010 and December 26, 2009 (in thousands):


	September 25, 2010		December 26, 2009
Deferred revenue (1)	$	—	$	31,127
Derivative instruments	42,941		30,781
Other current liabilities	16,619		26,699
Total other current liabilities	$	59,560	$	88,607

(1) Deferred revenue was recognized in net sales once all revenue recognition criteria were met.

Other liabilities

Other liabilities consisted of the following at September 25, 2010 and December 26, 2009 (in thousands):


	September 25, 2010		December 26, 2009
Other taxes payable	$	44,633	$	28,889
Other noncurrent liabilities	45,594		33,711
Total other liabilities	$	90,227	$	62,600

Note 9. Derivative Financial Instruments

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

Depending on the terms of the specific derivative instruments and market conditions, some of our derivative instruments may be assets and others liabilities at any particular point in time. As required by ASC 815, Derivatives and Hedging, we report all of our derivative instruments that are within the scope of that accounting standard at fair value on our balance sheet. Depending on the substance of the hedging purpose for our derivative instruments, we account for changes in the fair value of some of them using cash-flow-hedge accounting pursuant to ASC 815 and of others by recording the changes in fair value directly to current earnings (so-called “economic hedges”). These accounting approaches and the various classes of risk that we are exposed to in our business and the risk management systems using derivative instruments that we apply to these risks are described below. See Note 10. “Fair Value Measurement,” to these 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 consolidated balance sheet as of September 25, 2010 and December 26, 2009 (in thousands):


	September 25, 2010
	Other Assets - Current		Other Assets - Noncurrent		Other Liabilities - Current		Other Liabilities - Noncurrent
Derivatives designated as hedging instruments under ASC 815:
Foreign exchange forward contracts	$	6,912	$	—	$	26,375	$	2,063
Interest rate swap contracts	—		—		364		1,676
Total derivatives designated as hedging instruments	6,912		—		26,739		3,739

Derivatives not designated as hedging instruments under ASC 815:
Foreign exchange forward contracts	21,831		—		16,202		—
Total derivatives not designated as hedging instruments	21,831		—		16,202		—

Total derivative instruments	$	28,743	$	—	$	42,941	$	3,739


	December 26, 2009
	Other Assets - Current		Other Assets - Noncurrent		Other Liabilities - Current		Other Liabilities - Noncurrent
Derivatives designated as hedging instruments under ASC 815:
Foreign exchange forward contracts	$	3,781	$	—	$	19,723	$	—
Interest rate swap contracts	—		—		178		905
Total derivatives designated as hedging instruments	3,781		—		19,901		905

Derivatives not designated as hedging instruments under ASC 815:
Foreign exchange forward contracts	4,128		—		10,880		—
Total derivatives not designated as hedging instruments	4,128		—		10,880		—

Total derivative instruments	$	7,909	$	—	$	30,781	$	905

The following tables present the amounts related to derivative instruments affecting our consolidated statement of operations for the three and nine months ended September 25, 2010 and September 26, 2009 (in thousands):


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


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

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


	Amount of Gain (Loss) Recognized in Other Comprehensive Income on Derivatives							Amount of Gain (Loss) Reclassified from Accumulated Other Comprehensive Income into Income
	Three Months Ended			Nine Months Ended			Location of Gain (Loss) Reclassified from Accumulated Other Comprehensive Income into Income	Three Months Ended			Nine Months Ended
Derivative Type	September 26, 2009			September 26, 2009				September 26, 2009			September 26, 2009
Derivatives designated as cash flow hedges under ASC 815:
Foreign exchange forward contracts	$	(9,313	)	$	(36,424	)	Net sales	$	(22,939	)	$	8,885
Interest rate swaps	(820		)	273			Interest income (expense)	(102		)	(2,627		)
Total derivatives designated as cash flow hedges	$	(10,133	)	$	(36,151	)		$	(23,041	)	$	6,258


	Amount of Gain (Loss) on Derivatives Recognized in Income
	Three Months Ended			Nine Months Ended			Location of Gain (Loss) on Derivatives Recognized in Income
Derivative Type	September 26, 2009			September 26, 2009			Location of Gain (Loss) on Derivatives Recognized in Income
Derivatives designated as cash flow hedges under ASC 815:
Foreign exchange forward contracts	$	(22,939	)	$	8,885		Net sales
Interest rate swaps	$	(102	)	$	(2,627	)	Interest income (expense)

Derivatives not designated as hedging instruments under ASC 815:
Foreign exchange forward contracts	$	(495	)	$	(5,426	)	Other income (expense)
Foreign exchange forward contracts	$	2,028		$	3,097		Cost of sales

Credit default swaps	$	—		$	(1,459	)	Other income (expense)

Interest Rate Risk

We use interest rate swap agreements to mitigate our exposure to interest rate fluctuations associated with certain of our debt instruments; we do not use such swap agreements for speculative or trading purposes. 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 a notional value of €57.3 million ($77.4 million at the balance sheet close rate on September 25, 2010 of $1.35/€1.00) and pursuant to which we are entitled to receive a six-month floating interest rate, the Euro Interbank Offered Rate (Euribor), and required to pay a fixed rate of 2.80%. The notional amount of the interest rate swap contract is scheduled to decline in correspondence to our scheduled principal payments on the underlying hedged debt. As of September 25, 2010, the notional value of this interest rate swap contract was €52.6 million ($71.0 million at the balance sheet close rate on September 25, 2010 of $1.35/€1.00). This derivative instrument qualifies for accounting as a cash flow hedge in accordance with FASB ASC 815

and we designated it as such. We determined that our interest rate swap contract was highly effective as a cash flow hedge at September 25, 2010.

Foreign Currency Exchange Risk

Cash Flow Exposure

We expect many of the components of our business to have material future cash flows, including revenues and expenses, that will be denominated in currencies other than the component's functional currency. Our primary cash flow exposures are customer collections and vendor payments. Changes in the exchange rates between our components' functional currencies and the other currencies in which they transact will cause fluctuations in the cash flows we expect to receive when these cash flows are realized or settled. Accordingly, we enter into foreign exchange forward contracts to hedge the value of a portion of these forecasted cash flows. As of September 25, 2010, these foreign exchange contracts hedge our forecasted future cash flows for up to 18 months. These foreign exchange contracts qualified for accounting as cash flow hedges in accordance with ASC 815, and we designated them as such. We initially report the effective portion of the derivative's gain or loss in “Accumulated other comprehensive income (loss)” and subsequently reclassify amounts into earnings when the hedged transaction is settled. We determined that these derivative financial instruments were highly effective as cash flow hedges at September 25, 2010. In addition, during the nine months ended September 25, 2010, we did not discontinue any cash flow hedges because a hedging relationship was no longer highly effective or it was probable that a forecasted transaction would not occur.

During the nine months ended September 25, 2010, we purchased foreign exchange forward contracts to hedge the exchange risk on forecasted cash flows denominated in euro. As of September 25, 2010, the unrealized loss on these contracts was $21.5 million and the total notional value of the contracts was €597.0 million ($806.0 million at the balance sheet close rate on September 25, 2010 of $1.35/€1.00). The weighted average forward exchange rate for these contracts was $1.31/€1.00 at September 25, 2010.

In the following 12 months, we expect to reclassify to earnings $19.5 million of net unrealized losses related to these forward contracts that are included in accumulated other comprehensive loss at September 25, 2010 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 transaction. During the three and nine months ended September 25, 2010, we realized a gain of $6.3 million and $34.9 million, respectively, related to our cash flow hedges.

Transaction Exposure

Many components of our business have assets and liabilities (primarily receivables, investments, accounts payable, debt, solar module collection and recycling liabilities, and inter-company transactions) that are denominated in currencies other than the component's functional currency. Changes in the exchange rates between our components' functional currencies and the other currencies in which these assets and liabilities are denominated can create fluctuations in our reported consolidated financial position, results of operations, and cash flows. We may enter into foreign exchange forward contracts or other financial instruments to hedge assets and liabilities against the short-term effects of currency exchange rate fluctuations. The gains and losses on the foreign exchange forward contracts will offset all or part of the transaction gains and losses that we recognize in earnings on the related foreign currency assets and liabilities.

During the nine months ended September 25, 2010, we purchased foreign exchange forward contracts to hedge balance sheet exposures related to transactions with third parties. We recognize gains or losses from the fluctuation in foreign exchange rates and the valuation of these derivative contracts in cost of sales and foreign currency gain (loss) on our consolidated statements of operations, depending on where the gain or loss from the hedged item is classified on our consolidated statement of operations. As of September 25, 2010, the total unrealized gain on our foreign exchange forward contracts was $5.6 million. These contracts have maturities of less than two months.

As of September 25, 2010, the notional values of our foreign exchange forward contracts were as follows (notional amounts and U.S. dollar equivalents in millions):


				Balance sheet close rate on
Transaction	Currency	Notional Amount	U.S. Equivalent	September 25, 2010
Purchase	Euro	€ 252.9	$341.4	$1.35/€1.00
Sell	Euro	€ 192.4	$259.7	$1.35/€1.00
Purchase	Malaysian ringgits	MYR 155.2	$49.7	$0.32/MYR1.00
Sell	Malaysian ringgits	MYR 65.0	$20.8	$0.32/MYR1.00
Purchase	Japanese yen	JPY 135.0	$1.4	$0.01/JPY1.00
Sell	Japanese yen	JPY 135.0	$1.4	$0.01/JPY1.00
Purchase	Canadian dollar	CAD 320.0	$313.6	$0.98/CAD1.00
Sell	Canadian dollar	CAD 320.0	$313.6	$0.98/CAD1.00

Credit Risk

We have certain financial and derivative instruments that subject us to credit risk. These consist primarily of cash, cash equivalents, investments, trade accounts receivable, interest rate swap contracts, and foreign exchange forward contracts. We are exposed to credit losses in the event of nonperformance by the counterparties to our financial and derivative instruments. We place cash, cash equivalents, investments, interest rate swap contracts, and foreign exchange forward contracts with various high-quality financial institutions and limit the amount of credit risk from any one counterparty. We continuously evaluate the credit standing of our counterparty financial institutions.

Note 10. Fair Value Measurement

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


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

•

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


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

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

•

Cash equivalents. At September 25, 2010, our cash equivalents consisted of commercial paper and money market mutual funds. 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. We value our commercial paper cash equivalents using quoted prices for securities with similar characteristics and other observable inputs (such as interest rates that are observable at commonly quoted intervals), and accordingly, we classify the valuation techniques that use these inputs as Level 2.


•	Marketable securities and investments. At September 25, 2010, our marketable securities and investments consisted

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

•

Derivative assets and liabilities. At September 25, 2010, our derivative assets and liabilities consisted of foreign exchange forward contracts involving major currencies and interest rate swap contracts involving benchmark interest rates. Since our derivative assets and liabilities are not traded on an exchange, we value them using industry standard valuation models. Where applicable, these models project future cash flows and discount the future amounts to a present value using market-based observable inputs including interest rate curves, credit risk, foreign exchange rates, and forward and spot prices for currencies. These inputs are observable in active markets over the terms of the instruments we hold, and accordingly, we classify these valuation techniques as Level 2. We consider the effect of our own credit standing and that of our counterparties in our valuations of our derivative assets and liabilities.

•

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

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

At September 25, 2010 and December 26, 2009, information about inputs into the fair value measurements of our assets and liabilities that we make on a recurring basis was as follows (in thousands):


	As of September 25, 2010
			Fair Value Measurements at Reporting Date Using
	Total Fair Value and Carrying Value on Our Balance Sheet		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Cash equivalents:
Commercial paper	$	2,899	$	—	$	2,899	$	—
Money market mutual fund	22,499		22,499		—		—
Marketable securities and investments:
Commercial paper	10,833		—		10,833		—
Corporate debt securities	99,615		—		99,615		—
Federal agency debt	49,985		—		49,985		—
Foreign agency debt	157,738		—		157,738		—
Foreign government obligations	9,196		—		9,196		—
Supranational debt	48,379		—		48,379		—
Derivative assets	28,743		—		28,743		—
Total assets	$	429,887	$	22,499	$	407,388	$	—
Liabilities:
Derivative liabilities	$	46,680	$	—	$	46,680	$	—


	As of December 26, 2009
			Fair Value Measurements at Reporting Date Using
	Total Fair Value and Carrying Value on Our Balance Sheet		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Cash equivalents:
Money market mutual funds	$	395,431	$	395,431	$	—	$	—
Marketable securities and investments:
Asset backed securities	5,544		—		5,544		—
Corporate debt securities	115,248		—		115,248		—
Federal agency debt	78,911		—		78,911		—
Foreign agency debt	168,963		—		168,963		—
Foreign government obligations	10,128		—		10,128		—
Supranational debt	71,050		—		71,050		—
Derivative assets	7,909		—		7,909		—
Total assets	$	853,184	$	395,431	$	457,753	$	—
Liabilities:
Derivative liabilities	$	31,686	$	—	$	31,686	$	—

Fair Value of Financial Instruments

The carrying values and fair values of our financial instruments at September 25, 2010 and December 26, 2009 were as follows (in thousands):


	September 25, 2010				December 26, 2009
	Carrying Value		Fair Value		Carrying Value		Fair Value
Assets:
Marketable securities, current and noncurrent	$	375,746	$	375,746	$	449,844	$	449,844
Notes receivable - current	$	—	$	—	$	50,531	$	50,531
Foreign exchange forward contract assets	$	28,743	$	28,743	$	7,909	$	7,909
Restricted investments (excluding restricted cash)	$	94,980	$	94,980	$	36,467	$	36,467
Investment in related party	$	25,000	$	25,000	$	25,000	$	25,000
Notes receivable - noncurrent	$	9,425	$	8,575	$	25,241	$	25,332
Liabilities:
Long-term debt, including current maturities	$	250,395	$	256,431	$	174,958	$	178,900
Interest rate swaps	$	2,040	$	2,040	$	1,083	$	1,083
Foreign exchange forward contract liabilities	$	44,640	$	44,640	$	30,603	$	30,603

The carrying values on our balance sheet of our cash and cash equivalents, accounts receivable, restricted cash, accounts payable, income tax payable, and accrued expenses approximate their fair values due to their short maturities; therefore, we exclude them from the foregoing table.

We estimated the fair value of our long-term debt in accordance with ASC 820 using a discounted cash flows approach (an income approach), and we incorporated the credit risk of our counterparty for all asset fair value measurements and our credit risk for all liability fair value measurements.

Note 11. Related Party Transactions

During 2008, we entered into a long-term solar module supply agreement with a company based in the United States that supplies and installs solar power systems to commercial and residential customers and that also qualifies as a related party. During the three months ended September 25, 2010, we did not have any net sales to this related party and during the nine months ended September 25, 2010, we recognized $9.6 million in net sales to this related party. At September 25, 2010, we did not have any accounts receivable from this related party.

Note 12. Notes Receivable

On April 8, 2009, we entered into a credit facility agreement with a solar project entity of one of our customers for an available amount of €17.5 million ($23.6 million at the balance sheet close rate on September 25, 2010 of $1.35/€1.00) to provide financing for a photovoltaic power generation facility. The credit facility replaced a bridge loan that we had made to this entity. The credit facility bears interest at 8% per annum and is due on December 31, 2026. As of September 25, 2010 and December 26, 2009, the balance on this credit facility was €7.0 million and €17.5 million, respectively ($9.5 million and $23.6 million at the balance sheet close rate on September 25, 2010 of $1.35/€1.00). The outstanding amount of this credit facility is included within “Other assets” on our consolidated balance sheets.

On April 21, 2009, we entered into a revolving VAT financing facility agreement for an available amount of €9.0 million ($12.2 million at the balance sheet close rate on September 25, 2010 of $1.35/€1.00) with the same solar project entity with which we entered into the credit facility agreement on April 8, 2009. The VAT facility agreement pre-financed the amounts of German value added tax (VAT) and any other tax obligations of similar nature during the construction phase of the photovoltaic power generation facility. Borrowings under this facility were short-term in nature, since the facility was to be repaid when VAT amounts were reimbursed by the government. The VAT facility agreement bears interest at the rate of Euribor plus 1.2% and matures on December 31, 2010. As of September 25, 2010, the facility was fully repaid, including interest, and there was no balance outstanding. As of December 26, 2009, the balance on this financing agreement was €1.4 million ($1.9 million at the balance sheet close rate on September 25, 2010 of $1.35/€1.00). The outstanding amount of this financing agreement was included within “Prepaid expenses and other current assets” on our consolidated balance sheets during the year ended December 26, 2009.

In October 2009, we entered into a fixed rate note with a solar power project entity to finance construction and start-up costs of a photovoltaic facility in Germany. This note provided funding in the amount of €19.2 million ($25.9 million at the balance sheet close rate on September 25, 2010 of $1.35/€1.00). The fixed rate note was due on May 31, 2010 and bore interest at 7% per

annum. The fixed rate note was collateralized by a bank account pledge agreement, a security assignment agreement, a partnership interest pledge agreement, and a share pledge agreement. As of September 25, 2010, the fixed rate note was fully repaid, including interest, and there was no balance outstanding. As of December 26, 2009, the full available amount under this fixed rate note was outstanding. The outstanding amount of this fixed rate note was included within “Prepaid expenses and other current assets” on our consolidated balance sheets during the year ended December 26, 2009.

In October 2009, we entered into a fixed rate note with another solar power project entity to finance construction and start-up costs of a photovoltaic facility in Germany. This note provided funding in the amount of €14.5 million ($19.6 million at the balance sheet close rate on September 25, 2010 of $1.35/€1.00). The fixed rate note was due on May 31, 2010 and bore interest at 7% per annum. This fixed rate note was collateralized by a bank account pledge agreement, a security assignment agreement, a guarantee agreement, and share pledge agreement. As of September 25, 2010, the fixed rate note was fully repaid, including interest, and there was no balance outstanding. As of December 26, 2009, the full available amount under this fixed rate note was outstanding. The outstanding amount of this fixed rate note was included within “Prepaid expenses and other current assets” on our consolidated balance sheets during the year ended December 26, 2009.

Note 13. Debt

Our long-term debt at September 25, 2010 and December 26, 2009 consisted of the following (in thousands):


Type	September 25, 2010			December 26, 2009
Revolving Credit Facility	$	100,000		$	—
Malaysian Facility Agreement - Fixed rate term loan	72,219			84,166
Malaysian Facility Agreement - Floating rate term loan (1)	72,219			84,166
Director of Development of the State of Ohio	8,550			9,994
Director of Development of the State of Ohio	—			139
Capital lease obligations	132			2
	253,120			178,467
Less unamortized discount	(2,725		)	(3,509		)
Total long-term debt	250,395			174,958
Less current portion	(26,639		)	(28,559		)
Noncurrent portion	$	223,756		$	146,399

(1) We entered into an interest rate swap contract related to this loan. See Note 9. "Derivative Instruments," to these condensed consolidated financial statements.

We did not have any short-term debt at September 25, 2010 and December 26, 2009.

Revolving Credit Facility

On September 4, 2009, we entered into a revolving credit facility pursuant to a credit agreement among First Solar, Inc., certain designated Borrowing Subsidiaries (consisting of First Solar Manufacturing GmbH, a German subsidiary, and other subsidiaries of our Company who may in the future be designated as borrowers pursuant to the credit agreement), and several lenders. JPMorgan Chase Bank, N.A. and Bank of America served as Joint-Lead Arrangers and Bookrunners, with JPMorgan also acting as Administrative Agent. The credit agreement provides First Solar, Inc. and the Borrowing Subsidiaries with a senior secured three-year revolving credit facility in an aggregate available amount of $300.0 million, a portion of which is available for letters of credit. Proceeds from the credit facility may be used for working capital and other general corporate purposes. Subsequent to September 25, 2010, we entered into an amended and restated revolving credit facility which provides First Solar, Inc. and the Borrowing Subsidiaries with a senior secured five-year revolving credit facility in an aggregate available amount of $600.0 million, all of which is available for letters of credit. Subject to certain conditions, we have the right to request an increase in the aggregate commitments under the credit facility up to $750.0 million. See also Note 21. "Subsequent Events," for further information about this amendment and restatement. In connection with the credit agreement, we also entered into a guarantee and collateral agreement and foreign security agreements.

Borrowings under the amended and restated credit agreement currently bear interest at (i) London Interbank Offered Rate

(LIBOR) (adjusted for eurocurrency reserve requirements) plus a margin of 2.25% or (ii) a base rate as defined in the credit agreement plus a margin of 1.25%, depending on the type of borrowing requested by us. These margins are subject to adjustments depending on our consolidated leverage ratio.

At September 25, 2010, we had $100.0 million in borrowings outstanding and $73.2 million in letters of credit issued under the revolving credit facility. As of September 25, 2010, based on the outstanding borrowing, the all-in effective three month LIBOR borrowing rate was 3.51%. At December 26, 2009, we had no borrowings outstanding and $46.0 million in letters of credit issued under the revolving credit facility.

In addition to paying interest on outstanding principal under the credit agreement, we are required to pay a commitment fee, currently at the rate of 0.375% per annum, to the lenders based on the average daily unused commitments under the facility. The commitment fee may also be adjusted due to changes in our consolidated leverage ratio. We also pay a letter of credit fee equal to the applicable margin for eurocurrency revolving loans on the face amount of each letter of credit and a fronting fee.

In connection with our revolving credit facility, we entered into a guarantee and collateral agreement and various foreign security agreements. Loans made to First Solar Manufacturing GmbH (a borrowing subsidiary under the credit facility) are (i) guaranteed by First Solar, Inc. pursuant to the guarantee and collateral agreement, (ii) guaranteed by certain of First Solar, Inc.'s direct and indirect subsidiaries organized under the laws of Germany, pursuant to a German guarantee agreement, (iii) secured by share pledge agreements, (iv) secured by a security interest in intercompany receivables held by First Solar Holdings GmbH, First Solar GmbH, and First Solar Manufacturing GmbH, pursuant to assignment agreements, and (v) subject to a security trust agreement, which sets forth additional terms regarding the foregoing German security documents and arrangements.

The credit agreement contains various financial condition covenants with which we must comply, including a debt to EBITDA ratio covenant, a minimum EBITDA covenant, and a minimum liquidity covenant. Under the credit agreement, we are also subject to customary non-financial covenants, including limitations in secured indebtedness and limitations on dividends and other restricted payments. We were in compliance with these covenants at September 25, 2010.

Malaysian Facility Agreement

On May 6, 2008, in connection with the plant expansion at our Malaysian manufacturing center, First Solar Malaysia Sdn. Bhd. (FS Malaysia), our indirect wholly owned subsidiary, entered into an export financing facility agreement (Malaysian Facility Agreement) with a consortium of banks. The total available loan amount was €134.0 million ($180.9 million at the balance sheet close rate on September 25, 2010 of $1.35/€1.00). Pursuant to the Malaysian Facility Agreement, we began semi-annual repayments of the principal balances of these credit facilities during 2008. Amounts repaid under this credit facility cannot be re-borrowed. These credit facilities consisted of the following (in thousands):


				Outstanding at
Malaysian Borrowings	Denomination	Interest Rate	Maturity	September 25, 2010
Fixed-rate euro-denominated term loan	EUR	4.54%	2016	$	72,219
Floating-rate euro-denominated term loan	EUR	Euribor plus 0.55%	2016	72,219
Total (1)				$	144,438

(1) €107.0 million outstanding at September 25, 2010 ($144.4 million at the balance sheet close rate on September 25, 2010 of $1.35/€1.00).

These credit facilities were used by FS Malaysia for the purpose of (1) partially financing the purchase of certain equipment to be used at our Malaysian manufacturing center and (2) financing fees to be paid to Euler-Hermes Kreditversicherungs-AG (Euler-Hermes), the German Export Credit Agency of Hamburg, Federal Republic of Germany, which guarantees 95% of FS Malaysia's obligations related to the Malaysian credit facilities (Hermes Guaranty).

In addition to paying interest on outstanding principal under the facility, FS Malaysia is obligated to pay annual agency fees and security agency fees.

In connection with the Malaysian credit facilities, First Solar, Inc. entered into a first demand guaranty agreement dated May 6, 2008 in favor of the lenders. Thereby FS Malaysia's obligations related to the Malaysian Facility Agreement are guaranteed, on an unsecured basis, by First Solar, Inc. In connection with the Malaysian credit facilities, all of FS Malaysia's obligations are

secured by a first party, first legal charge over the equipment financed by the Malaysian credit facilities and the other documents, contracts, and agreements related to that equipment. Also in connection with the Malaysian credit facilities, any payment claims of First Solar, Inc. against FS Malaysia are subordinated to the claims of the lenders.

The Malaysian Facility Agreement contains various financial covenants with which we must comply, such as debt-to-equity ratios, total leverage ratios, interest coverage ratios, and debt service coverage ratios. The Malaysian Facility Agreement also contains various customary non-financial covenants with which FS Malaysia must comply, including submitting various financial reports and business forecasts to the lenders, maintaining adequate insurance, complying with applicable laws and regulations, and restrictions on FS Malaysia's ability to sell or encumber assets, or make loan guarantees to third parties. We were in compliance with these covenants at September 25, 2010.

Certain of our indebtedness under the Malaysian credit facilities bears interest at rates based on the Euro Interbank Offered Rate (Euribor). Euribor is the primary interbank lending rate within the Euro zone, with maturities ranging from one week to one year. A disruption of the credit environment could negatively impact interbank lending and, therefore, negatively impact the Euribor rate. An increase in the Euribor rate would not impact our cost of borrowing under the Malaysian Facility Agreement since we entered into an interest rate swap agreement to mitigate such risk.

State of Ohio Loans

During the years ended December 25, 2004 and December 31, 2005, we received the following loans from the Director of Development of the State of Ohio (in thousands):


						Outstanding at
Ohio Borrowings	Original Loan Amount		Denomination	Interest Rate	Maturity	September 25, 2010
Director of Development of the State of Ohio	$	15,000	USD	2.25%	2015	$	8,550
Director of Development of the State of Ohio	5,000		USD	0.25% — 3.25%	2009	—
Total	$	20,000				$	8,550

France Facility Agreement

On March 30, 2010, in connection with the construction of our planned manufacturing facility in Blanquefort, France, First Solar France Manufacturing SAS (FS France), our indirect wholly owned subsidiary, entered into a facility agreement with EDF Energies Nouvelles SA (EDF-EN) for the purpose of partially financing the construction of the manufacturing facility. The total available loan amount under this non-revolving credit facility is a maximum principal amount of €50.0 million ($67.5 million at the balance sheet close rate on September 25, 2010 of $1.35/€1.00). Pursuant to the terms and conditions set forth in the facility agreement, advances will be made available commencing on the start of construction of the French plant and ending June 15, 2012. Advances must be repaid in quarterly installments through the tenth anniversary of the first commercial shipments from the French plant, subject to accelerated mandatory prepayment in the event of a default under the facility or the termination of the related venture agreement or off-take agreement with EDF-EN and affiliated entities. Amounts repaid under this credit facility cannot be re-borrowed. The borrowings will bear interest at a rate of 4%. Any advances drawn under this facility will be unsecured. As of September 25, 2010, there have been no borrowings under this facility.

Note 14. Commitments and Contingencies

Financial guarantees

In the normal course of business, we occasionally enter into agreements with third parties under which we guarantee the performance of our subsidiaries related to certain service contracts, which may include services such as development, engineering, procurement of permits and equipment, construction management, and monitoring and maintenance related to solar power plants. These agreements meet the definition of a guarantee according to ASC 460, Guarantees. As of September 25, 2010, none of these guarantees were material to our financial position.

Loan guarantees

At September 25, 2010, our only loan guarantees were guarantees of our own debt, as disclosed in Note 13. "Debt,” to these

condensed consolidated financial statements.

Commercial commitments

During the normal course of business, we enter into commercial commitments in the form of letters of credit and bank guarantees to provide financial and performance assurance to third parties. Our revolving credit facility as of September 25, 2010 provided us the capacity to issue up to $75.0 million in letters of credit at a fee equal to the applicable margin for eurocurrency revolving loans and a fronting fee. As of September 25, 2010, we had issued $115.1 million in letters of credit, the majority of which were related to supporting our systems business. Of these, $73.2 million were issued under the revolving credit facility. Subsequent to September 25, 2010 we entered into an amended and restated revolving credit facility, which increased our borrowing capacity under this agreement to $600.0 million, all of which can be used for the issuance of letters of credit.

Product warranties

We offer warranties on our products and record an estimate of the associated liability based on the number of solar modules under warranty, our historical experience with warranty claims, our monitoring of field installation sites, our in-house testing of our solar modules, and our estimated per-module replacement cost.

Product warranty activity during the three and