FSLR Sept 14 10-Q
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark one)
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[x] | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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| For the quarterly period ended September 30, 2014 |
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[ ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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| For the transition period from to |
Commission file number: 001-33156
First Solar, Inc.
(Exact name of registrant as specified in its charter)
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Delaware | 20-4623678 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
350 West Washington Street, Suite 600
Tempe, Arizona 85281
(Address of principal executive offices, including zip code)
(602) 414-9300
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes [x] No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [x] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
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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 31, 2014, 100,211,174 shares of the registrant’s common stock, $0.001 par value per share, were issued and outstanding.
FIRST SOLAR, INC. AND SUBSIDIARIES
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2014
TABLE OF CONTENTS
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Part I. | Financial Information (Unaudited) | |
Item 1. | Condensed Consolidated Financial Statements: | |
| Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2014 and 2013 | |
| Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2014 and 2013 | |
| Condensed Consolidated Balance Sheets as of September 30, 2014 and December 31, 2013 | |
| Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2014 and 2013 | |
| Notes to Condensed Consolidated Financial Statements | |
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | |
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | |
Item 4. | Controls and Procedures | |
Part II. | Other Information | |
Item 1. | Legal Proceedings | |
Item 1A. | Risk Factors | |
Item 4. | Mine Safety Disclosures | |
Item 5. | Other Information | |
Item 6. | Exhibits | |
Signatures | | |
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)
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| | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2014 | | 2013 | | 2014 | | 2013 |
Net sales | | $ | 889,310 |
| | $ | 1,265,587 |
| | $ | 2,383,821 |
| | $ | 2,540,552 |
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Cost of sales | | 700,023 |
| | 901,553 |
| | 1,865,098 |
| | 1,867,094 |
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Gross profit | | 189,287 |
| | 364,034 |
| | 518,723 |
| | 673,458 |
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Operating expenses: | | | | | | | | |
Research and development | | 37,593 |
| | 34,984 |
| | 109,025 |
| | 95,879 |
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Selling, general and administrative | | 66,528 |
| | 63,870 |
| | 182,859 |
| | 204,600 |
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Production start-up | | 1,406 |
| | — |
| | 1,897 |
| | 2,768 |
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Restructuring and asset impairments | | — |
| | 57,276 |
| | — |
| | 62,004 |
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Total operating expenses | | 105,527 |
| | 156,130 |
| | 293,781 |
| | 365,251 |
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Operating income | | 83,760 |
| | 207,904 |
| | 224,942 |
| | 308,207 |
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Foreign currency gain (loss) | | 169 |
| | (705 | ) | | (389 | ) | | (155 | ) |
Interest income | | 4,297 |
| | 4,197 |
| | 13,151 |
| | 12,549 |
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Interest expense, net | | (89 | ) | | (275 | ) | | (1,429 | ) | | (1,900 | ) |
Other expense, net | | (6,821 | ) | | (2,433 | ) | | (11,737 | ) | | (2,762 | ) |
Income before income taxes | | 81,316 |
| | 208,688 |
| | 224,538 |
| | 315,939 |
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Income tax (benefit) expense | | (7,108 | ) | | 13,650 |
| | 19,579 |
| | 28,161 |
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Net income | | $ | 88,424 |
| | $ | 195,038 |
| | $ | 204,959 |
| | $ | 287,778 |
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Net income per share: | | | | | | | | |
Basic | | $ | 0.88 |
| | $ | 1.98 |
| | $ | 2.05 |
| | $ | 3.14 |
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Diluted | | $ | 0.87 |
| | $ | 1.94 |
| | $ | 2.02 |
| | $ | 3.08 |
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Weighted-average number of shares used in per share calculations: | | | | | | | | |
Basic | | 100,197 |
| | 98,720 |
| | 99,981 |
| | 91,751 |
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Diluted | | 101,415 |
| | 100,378 |
| | 101,686 |
| | 93,517 |
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See accompanying notes to these condensed consolidated financial statements.
FIRST SOLAR, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
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| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2014 | | 2013 | | 2014 | | 2013 |
Net income | | $ | 88,424 |
| | $ | 195,038 |
| | $ | 204,959 |
| | $ | 287,778 |
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Other comprehensive income (loss), net of tax: | | | | | | | | |
Foreign currency translation adjustments | | (9,887 | ) | | 2,781 |
| | (11,548 | ) | | 1,204 |
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Unrealized gain (loss) on marketable securities and restricted investments | | 19,847 |
| | (6,314 | ) | | 58,468 |
| | (33,684 | ) |
Unrealized gain (loss) on derivative instruments | | 5,798 |
| | (2,134 | ) | | 2,043 |
| | (5,071 | ) |
Total other comprehensive income (loss), net of tax | | 15,758 |
| | (5,667 | ) | | 48,963 |
| | (37,551 | ) |
Comprehensive income | | $ | 104,182 |
| | $ | 189,371 |
| | $ | 253,922 |
| | $ | 250,227 |
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See accompanying notes to these condensed consolidated financial statements.
FIRST SOLAR, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)
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| | September 30, 2014 | | December 31, 2013 |
ASSETS | | | | |
Current assets: | | | | |
Cash and cash equivalents | | $ | 622,523 |
| | $ | 1,325,072 |
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Marketable securities | | 492,875 |
| | 439,102 |
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Accounts receivable trade, net | | 282,783 |
| | 136,383 |
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Accounts receivable, unbilled and retainage | | 538,913 |
| | 521,323 |
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Inventories | | 445,201 |
| | 388,951 |
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Balance of systems parts | | 101,120 |
| | 133,731 |
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Deferred project costs | | 546,409 |
| | 556,957 |
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Deferred tax assets, net | | 62,372 |
| | 63,899 |
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Assets held for sale | | 20,728 |
| | 132,626 |
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Note receivable, affiliate | | 7,829 |
| | — |
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Prepaid expenses and other current assets | | 132,273 |
| | 94,720 |
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Total current assets | | 3,253,026 |
| | 3,792,764 |
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Property, plant and equipment, net | | 1,384,429 |
| | 1,385,084 |
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PV solar power systems, net | | 47,901 |
| | — |
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Project assets and deferred project costs | | 645,477 |
| | 720,916 |
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Deferred tax assets, net | | 228,661 |
| | 296,603 |
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Restricted cash and investments | | 489,388 |
| | 279,441 |
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Goodwill | | 84,985 |
| | 84,985 |
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Other intangible assets, net | | 119,448 |
| | 117,416 |
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Inventories | | 113,111 |
| | 129,664 |
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Other assets | | 73,528 |
| | 76,629 |
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Total assets | | $ | 6,439,954 |
| | $ | 6,883,502 |
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LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | |
Current liabilities: | | |
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Accounts payable | | $ | 219,997 |
| | $ | 261,333 |
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Income taxes payable | | 5,346 |
| | 6,707 |
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Accrued expenses | | 348,602 |
| | 320,077 |
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Current portion of long-term debt | | 54,607 |
| | 60,543 |
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Billings in excess of costs and estimated earnings | | 133,779 |
| | 117,766 |
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Payments and billings for deferred project costs | | 100,264 |
| | 642,214 |
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Other current liabilities | | 56,077 |
| | 179,421 |
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Total current liabilities | | 918,672 |
| | 1,588,061 |
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Accrued solar module collection and recycling liability | | 247,441 |
| | 225,163 |
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Long-term debt | | 163,646 |
| | 162,780 |
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Other liabilities | | 316,978 |
| | 404,381 |
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Total liabilities | | 1,646,737 |
| | 2,380,385 |
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Commitments and contingencies | |
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Stockholders’ equity: | | | | |
Common stock, $0.001 par value per share; 500,000,000 shares authorized; 100,209,077 and 99,506,941 shares issued and outstanding at September 30, 2014 and December 31, 2013, respectively | | 100 |
| | 100 |
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Additional paid-in capital | | 2,682,199 |
| | 2,646,022 |
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Accumulated earnings | | 2,087,731 |
| | 1,882,771 |
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Accumulated other comprehensive income (loss) | | 23,187 |
| | (25,776 | ) |
Total stockholders’ equity | | 4,793,217 |
| | 4,503,117 |
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Total liabilities and stockholders’ equity | | $ | 6,439,954 |
| | $ | 6,883,502 |
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See accompanying notes to these condensed consolidated financial statements.
FIRST SOLAR, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
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| | | | | | | | |
| | Nine Months Ended September 30, |
| | 2014 | | 2013 |
Cash flows from operating activities: | | | | |
Cash received from customers | | $ | 1,714,042 |
| | $ | 3,163,872 |
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Cash paid to suppliers and associates | | (1,926,425 | ) | | (2,464,442 | ) |
Interest received | | 10,447 |
| | 4,874 |
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Interest paid | | (5,598 | ) | | (8,845 | ) |
Income tax (payments) refunds | | (9,166 | ) | | 5,924 |
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Excess tax benefit from share-based compensation arrangements | | (27,849 | ) | | (33,958 | ) |
Other operating activities | | (2,458 | ) | | (3,505 | ) |
Net cash (used in) provided by operating activities | | (247,007 | ) | | 663,920 |
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Cash flows from investing activities: | | | | |
Purchases of property, plant and equipment | | (184,249 | ) | | (226,360 | ) |
Purchases of marketable securities | | (226,087 | ) | | (321,086 | ) |
Proceeds from maturities and sales of marketable securities | | 166,809 |
| | 81,684 |
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Investment in note receivable, affiliate | | (7,926 | ) | | — |
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Payments received on note receivable, affiliate | | — |
| | 17,108 |
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Change in restricted cash | | (189,995 | ) | | 5,136 |
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Acquisitions, net of cash acquired | | (4,306 | ) | | (30,745 | ) |
Purchase of equity and cost method investments | | (2,025 | ) | | (17,871 | ) |
Other investing activities | | (1,019 | ) | | (1,610 | ) |
Net cash used in investing activities | | (448,798 | ) | | (493,744 | ) |
Cash flows from financing activities: | | | | |
Repayments of long-term debt | | (54,839 | ) | | (664,850 | ) |
Proceeds from borrowings under long-term debt, net of discount and issuance costs | | 53,137 |
| | 333,012 |
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Excess tax benefit from share-based compensation arrangements | | 27,849 |
| | 33,958 |
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Repayment of economic development funding | | — |
| | (8,315 | ) |
Proceeds from equity offerings | | — |
| | 428,190 |
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Contingent consideration payments and other financing activities | | (22,557 | ) | | (3,114 | ) |
Net cash provided by financing activities | | 3,590 |
| | 118,881 |
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Effect of exchange rate changes on cash and cash equivalents | | (10,334 | ) | | 2,297 |
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Net (decrease) increase in cash and cash equivalents | | (702,549 | ) | | 291,354 |
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Cash and cash equivalents, beginning of the period | | 1,325,072 |
| | 901,294 |
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Cash and cash equivalents, end of the period | | $ | 622,523 |
| | $ | 1,192,648 |
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Supplemental disclosure of noncash investing and financing activities: | | |
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Property, plant and equipment acquisitions currently or previously funded by liabilities | | $ | 53,601 |
| | $ | 62,943 |
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Acquisitions currently or previously funded by liabilities and contingent consideration | | $ | 73,509 |
| | $ | 109,106 |
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Shares issued for acquisition | | $ | — |
| | $ | 83,755 |
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See accompanying notes to these condensed consolidated financial statements.
FIRST SOLAR, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of First Solar, Inc. and its subsidiaries have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and pursuant to the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission (the “SEC”). Accordingly, these interim financial statements do not include all of the information and footnotes required by U.S. GAAP for annual financial statements. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair statement have been included. Operating results for the three and nine months ended September 30, 2014 are not necessarily indicative of the results that may be expected for the year ending December 31, 2014, or for any other period. The condensed consolidated balance sheet at December 31, 2013 has been derived from the audited consolidated financial statements at that date, but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements. These financial statements and notes should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 2013 included in our Annual Report on Form 10-K filed with the SEC.
Certain prior year balances have been reclassified to conform to the current year’s presentation. Such reclassifications did not affect total cash flows, total net sales, operating income, net income, total assets, total liabilities, or stockholders’ equity.
Unless expressly stated or the context otherwise requires, the terms “the Company,” “we,” “our,” “us,” and “First Solar” refer to First Solar, Inc. and its subsidiaries.
2. Summary of Significant Accounting Policies
Use of Estimates. The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the amounts reported in our condensed consolidated financial statements and the accompanying notes. Significant estimates in these condensed consolidated financial statements include percentage-of-completion revenue recognition, inventory valuation, recoverability of project assets, estimates of future cash flows from and the economic useful lives of long-lived assets, asset retirement obligations, certain accrued liabilities, income taxes and tax valuation allowances, reportable segment allocations, product warranties and manufacturing excursions, accrued collection and recycling expense, and applying the acquisition method of accounting for business combinations and goodwill. Despite our intention to establish accurate estimates and reasonable assumptions, actual results could differ materially from these estimates and assumptions.
Revenue Recognition - Systems Business. We recognize revenue for arrangements entered into by our systems business generally using two revenue recognition models, following the guidance in Accounting Standards Codification (“ASC”) 605, Accounting for Long-term Construction Contracts or, for arrangements which include land or land rights, ASC 360, Accounting for Sales of Real Estate.
For systems business sales arrangements that do not include land or land rights and thus are accounted for under ASC 605, we use the percentage-of-completion method, as described further below, using actual costs incurred over total estimated costs to develop and construct a project (including module costs) as our standard accounting policy, unless we cannot make reasonably dependable estimates of the costs to complete the contract, in which case we would use the completed contract method.
For systems business sales arrangements that are accounted for under ASC 360 where we convey control of land or land rights, we record the sale as revenue using one of the following revenue recognition methods, based upon evaluation of the substance and form of the terms and conditions of such real estate sales arrangements:
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(i) | We apply the percentage-of-completion method, as further described below, to certain real estate sales arrangements where we convey control of land or land rights, when a sale has been consummated, we have transferred the usual risks and rewards of ownership to the buyer, the initial and continuing investment criteria have been met, we have the ability to estimate our costs and progress toward completion, and all other revenue recognition criteria have been met. The initial and continuing investment requirements, which demonstrate a buyer’s commitment to honor their obligations for the sales arrangement, can typically be met through the receipt of cash or an irrevocable letter of credit from a highly credit worthy lending institution. When evaluating whether the usual risks and rewards of ownership have transferred to the buyer, we consider whether we have or may be contingently required to have any prohibited forms of continuing involvement with the project. Prohibited forms of continuing involvement in a real estate sales arrangement may include |
us retaining risks or rewards associated with the project that are not customary with the range of risks or rewards that an engineering, procurement, and construction (“EPC”) contractor may assume.
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(ii) | Depending on whether the initial and continuing investment requirements have been met and whether collectability from the buyer is reasonably assured, we may align our revenue recognition and release of project assets or deferred project costs to cost of sales with the receipt of payment from the buyer if the sale has been consummated and we have transferred the usual risks and rewards of ownership to the buyer. |
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(iii) | We may also record revenue for certain sales arrangements after construction of discrete portions of a project or after the entire project is substantially complete, we have transferred the usual risks and rewards of ownership to the buyer, and we have received substantially all payments due from the buyer or the initial and continuing investment criteria have been met. |
For any systems business sales arrangements containing multiple deliverables (including our solar modules) not required to be accounted for under ASC 360 (real estate) or ASC 605 (long-term construction contracts), we analyze each activity within the sales arrangement to ensure that we adhere to the separation guidelines of ASC 605 for multiple-element arrangements. We allocate revenue for any transactions involving multiple elements to each unit of accounting based on its relative selling price, and recognize revenue for each unit of accounting when all revenue recognition criteria for a unit of accounting have been met.
Revenue Recognition - Percentage-of-Completion. In applying the percentage-of-completion method, we use the actual costs incurred relative to estimated costs to complete (including module costs) in order to estimate the progress towards completion to determine the amount of revenue and profit to recognize. Incurred costs include all installed direct materials, installed solar modules, labor, subcontractor costs, and those indirect costs related to contract performance, such as indirect labor, supplies, and tools. We recognize direct material and solar module costs as incurred costs when the direct materials and solar modules have been installed in the project. When contracts specify that title to direct materials and solar modules transfers to the customer before installation has been performed, we will not recognize revenue or the associated costs until those materials are installed and have met all other revenue recognition requirements. We consider direct materials and solar modules to be installed when they are permanently placed or affixed to the solar power system as required by engineering designs. Solar modules manufactured by us that will be used in our solar power systems, which we still hold title to, remain within inventory until such modules are installed in a solar power system.
The percentage-of-completion method of revenue recognition requires us to make estimates of contract revenues and costs to complete our projects. In making such estimates, management judgments are required to evaluate significant assumptions including the cost of materials and labor, expected labor productivity, the impact of potential variances in schedule completion, the amount of net contract revenues, and the impact of any penalties, claims, change orders, or performance incentives.
If estimated total costs on any contract are greater than the contract revenues, we recognize the entire estimated loss in the period the loss becomes known. The cumulative effect of the revisions to estimates related to contract revenues and costs to complete contracts, including penalties, incentive awards, claims, change orders, anticipated losses, and others are recorded in the period in which the revisions to estimates are identified and the loss can be reasonably estimated. The effect of the changes on future periods are recognized as if the revised estimates had been used since revenue was initially recognized under the contract. Such revisions could occur in any reporting period and the effects may be material depending on the size of the contracts or the changes in estimates.
Revenue Recognition - Components Business. Our components business sells solar modules directly to third party solar power system integrators and operators. We recognize revenue for module sales when persuasive evidence of an arrangement exists, delivery of the module has occurred and title and risk of loss have passed to the customer, the sales price is fixed or determinable, and the collectability of the resulting receivable is reasonably assured. Under this policy, we record a trade receivable for the selling price of our module and reduce inventory for the cost of goods sold when delivery occurs in accordance with the terms of the sales contracts. Our customers typically do not have extended payment terms or rights of return for our products. We account for rebates or other customer incentives as a reduction to the selling price of our solar modules at the time of sale; and therefore, as a reduction to revenue.
Revenue Recognition - Operations and Maintenance. Our operations and maintenance revenue is billed and recognized as services are performed. Costs of these revenues are expensed in the period in which they are incurred.
Ventures and Variable Interest Entities. In the normal course of business we establish wholly owned project companies which may be considered variable interest entities (“VIEs”). We consolidate wholly owned variable interest entities when we are considered the primary beneficiary of such entities. Additionally, we have and may in the future form joint venture type arrangements
(“ventures”), including partnerships and partially owned limited liability companies or similar legal structures, with one or more third parties primarily to develop and build specific or a pipeline of solar power projects. These types of ventures are core to our business and long-term strategy related to providing solar photovoltaic (“PV”) generation solutions using our modules to sustainable geographic markets. We analyze all of our ventures and classify them into two groups: (i) ventures that must be consolidated because they are either not VIEs and we hold the majority voting interest, or because they are VIEs and we are the primary beneficiary; and (ii) ventures that do not need to be consolidated and are accounted for under either the equity or cost methods of accounting because they are either not VIEs and we hold a minority voting interest, or because they are VIEs and we are not the primary beneficiary.
Ventures are considered VIEs if (i) the total equity investment at risk is not sufficient to permit the entity to finance its activities without additional financial support; (ii) as a group, the holders of the equity investment at risk lack the ability to make certain decisions, the obligation to absorb expected losses, or the right to receive expected residual returns; or (iii) an equity investor has voting rights that are disproportionate to its economic interest and substantially all of the entity’s activities are on behalf of the investor. Our venture agreements typically require some form of project development capital or project equity ranging from amounts necessary to obtain a power purchase agreement (or similar power off-take agreement) to a pro-rata portion of the total equity required to develop and complete construction of a project, depending upon the opportunity and the market our ventures are in. Our limited number of ventures as of September 30, 2014 and future ventures of a similar nature are typically VIEs because the total equity investment at risk is not sufficient to permit the ventures to finance their activities without additional financial support.
We are considered the primary beneficiary of and are required to consolidate a VIE if we have the power to direct the activities that most significantly impact that VIE’s economic performance and the obligation to absorb losses or the right to receive benefits of that VIE that could potentially be significant to the VIE. If we determine that we do not have the power to direct the activities that most significantly impact the venture, then we are not the primary beneficiary of the VIE.
We account for our unconsolidated ventures using either the equity or cost methods of accounting depending upon whether we have the ability to exercise significant influence over a venture. We consider the participating and protective rights we have as well as the legal form of the venture when evaluating whether we have the ability to exercise significant influence, which requires us to apply the equity method of accounting. Income from ventures for the three and nine months ended September 30, 2014 was immaterial to the condensed consolidated statements of operations.
Property, Plant and Equipment. We report our property, plant and equipment at cost, less accumulated depreciation. Cost includes the price paid to acquire or construct the assets, required installation costs, interest capitalized during the construction period, and any expenditure that substantially adds to the value of or substantially extends the useful life of an existing asset. We expense repair and maintenance costs at the time we incur them.
We begin depreciation for such assets when they are placed into service. We consider an asset to be placed into service when the asset is both in the location and condition for its intended use.
We compute depreciation expense using the straight-line method over the estimated useful lives of assets, as presented in the table below. We depreciate leasehold improvements over the shorter of their estimated useful lives or the remaining term of the lease. The estimated useful life of an asset is reassessed whenever applicable facts and circumstances indicate a change in the estimated useful life of such asset has occurred.
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| | Useful Lives in Years |
Buildings and building improvements | | 25 – 40 |
Manufacturing machinery and equipment | | 5 – 7 |
Furniture, fixtures, computer hardware, and computer software | | 3 – 7 |
Leasehold improvements | | up to 15 |
PV solar power systems. PV solar power systems represent solar systems that we hold and operate after being placed into service. We report our PV solar power systems at cost, less accumulated depreciation. When we are entitled to incentive tax credits for our systems, we reduce the related carrying value of the assets by the amount of the tax credits, which reduces future depreciation. Any energy generated by the PV solar power systems prior to being placed into service is also accounted for as a reduction in the related carrying value of the asset. We begin depreciation for such PV solar power systems when they are placed into service at the earlier of management’s determination that we will own and operate the system or one year from the system’s commercial operations date. We compute depreciation expense for PV solar power systems using the straight-line method over the shortest of
the term of the related power purchase agreement (“PPA”), the lease on the land, or 25 years. Our current PV solar power systems have estimated useful lives ranging from 19 to 20 years.
We sell energy generated by our PV solar power systems under PPAs or directly into a competitive wholesale market. We recognize revenue from such sales at the time the energy is delivered to our customers or the grid (in the case of merchant power). For the three and nine months ended September 30, 2014, we recognized revenue from our PV solar power systems of $2.9 million and $3.1 million, respectively.
Refer to Note 2. “Summary of Significant Accounting Policies,” to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2013 for a more complete summary of our significant accounting policies.
3. Recent Accounting Pronouncements
In March 2013, the FASB issued ASU 2013-05, Foreign Currency Matters (Topic 830) - Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity, which applies to the release of cumulative translation adjustments into net income when a parent (i) sells a part or all of its investment in a foreign entity, (ii) no longer holds a controlling financial interest in a subsidiary or group of assets within a foreign entity, (iii) sells part of an equity method investment of a foreign entity, or (iv) obtains control of a foreign acquiree in which such parent held an equity interest immediately before the acquisition date through a step acquisition. The adoption of ASU 2013-15 in the first quarter of 2014 did not have an impact on our consolidated financial position, results of operations, or cash flows.
In July 2013, the FASB issued ASU 2013-11, Income Taxes (Topic 740) - Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward or Tax Credit Carryforward Exists. ASU 2013-11 provides that an entity’s unrecognized tax benefit, or a portion of its unrecognized tax benefit, should be presented in its financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, with one exception. That exception states that, to the extent a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position, or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. The adoption of ASU 2013-11 in the first quarter of 2014 resulted in netting impacts on our consolidated statement of financial position.
In April 2014, the FASB issued ASU 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant and Equipment (Topic 360) - Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. ASU 2014-08 defines a discontinued operation as a disposal of a component or group of components that is disposed of or is classified as held for sale and “represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results.” The standard states that a strategic shift could include a disposal of: a major geographic area of operations, a major line of business, a major equity investment, or other major parts of an entity. The adoption of ASU 2014-08 in the third quarter of 2014 did not have an impact on our consolidated financial position, results of operations, or cash flows. However, in the event that a future disposition meets the revised criteria, we expect that this standard will have an impact on the presentation of our financial statements and associated disclosures.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), to clarify the principles of recognizing revenue and create common revenue recognition guidance between U.S. GAAP and International Financial Reporting Standards. An entity has the option to apply the provisions of ASU 2014-09 either retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying this standard recognized at the date of initial application. ASU 2014-09 is effective for fiscal years and interim periods within those years beginning after December 15, 2016, and early adoption is not permitted. We are currently evaluating the method of adoption and the impact ASU 2014-09 will have on our consolidated financial position, results of operations, cash flows, and associated disclosures.
In June 2014, the FASB issued ASU 2014-12, Compensation-Stock Compensation (Topic 718) - Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period. ASU 2014-12 provides guidance on whether to treat a performance target that could be achieved after the requisite service period as a performance condition that affects vesting or as a nonvesting condition that affects the grant-date fair value of an award. ASU 2014-12 is effective for fiscal years and interim periods within those years beginning after December 15, 2015. We do not expect the adoption of ASU 2014-12 to have an impact on our consolidated financial position, results of operations, or cash flows.
In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements - Going Concern (Subtopic 205-40) - Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. ASU 2014-15 provides guidance regarding management’s responsibility to (i) evaluate whether there is substantial doubt about an organization’s ability to continue as a going concern and (ii) provide related footnote disclosures. ASU 2014-15 is effective for fiscal years and interim periods within those years beginning after December 15, 2016. We do not expect the adoption of ASU 2014-15 to have a significant impact on our financial statement disclosures.
4. Restructuring and Asset Impairments
In April 2012, our executive management approved a set of restructuring initiatives intended to reduce costs, which was done through a reduction in our European operations.
The following table summarizes the April 2012 European restructuring amounts remaining as of December 31, 2013, amounts recorded to restructuring expense during the three and nine months ended September 30, 2014, and the remaining balance at September 30, 2014 (in thousands):
|
| | | | |
April 2012 European Restructuring | | Severance and Termination Related Costs |
Ending balance at December 31, 2013 | | $ | 1,940 |
|
Cash payments | | (915 | ) |
Noncash amounts including foreign exchange impact | | (15 | ) |
Ending balance at March 31, 2014 | | 1,010 |
|
Change in estimates | | (619 | ) |
Cash payments | | (187 | ) |
Noncash amounts including foreign exchange impact | | (2 | ) |
Ending balance at June 30, 2014 | | 202 |
|
Cash payments | | (138 | ) |
Noncash amounts including foreign exchange impact | | (5 | ) |
Ending balance at September 30, 2014 | | $ | 59 |
|
Expenses recognized for restructuring activities are presented in “Restructuring and asset impairments” on the condensed consolidated statements of operations. Substantially all expenses related to the April 2012 European restructuring were related to our components segment. We do not expect to incur any additional expenses for the April 2012 European restructuring initiatives.
Separately, as of September 30, 2014, $5.6 million remains accrued for charges related to other long-term tax liabilities and a land remediation accrual and are included within other liabilities on the condensed consolidated balance sheets.
5. Cash, Cash Equivalents, and Marketable Securities
Cash, cash equivalents, and marketable securities consisted of the following at September 30, 2014 and December 31, 2013 (in thousands):
|
| | | | | | | | |
| | September 30, 2014 | | December 31, 2013 |
Cash: | | | | |
Cash | | $ | 613,767 |
| | $ | 1,322,183 |
|
Cash equivalents: | | | | |
Money market funds | | 8,756 |
| | 2,889 |
|
Total cash and cash equivalents | | 622,523 |
| | 1,325,072 |
|
Marketable securities: | | | | |
Foreign debt | | 452,565 |
| | 364,046 |
|
Foreign government obligations | | — |
| | 25,115 |
|
Time deposits | | 30,000 |
| | — |
|
U.S. debt | | 6,807 |
| | 46,439 |
|
U.S. government obligations | | 3,503 |
| | 3,502 |
|
Total marketable securities | | 492,875 |
| | 439,102 |
|
Total cash, cash equivalents, and marketable securities | | $ | 1,115,398 |
| | $ | 1,764,174 |
|
During the three and nine months ended September 30, 2014, we realized zero and $0.2 million, respectively, of gains on the sale or maturities of our marketable securities. During the three and nine months ended September 30, 2013, we realized an immaterial amount of gains and losses on the sale or maturities of our marketable securities. See Note 10. “Fair Value Measurements,” to our condensed consolidated financial statements for information about the fair value of our marketable securities.
All of our available-for-sale marketable securities are subject to a periodic impairment review. We consider a marketable security to be impaired when its fair value is less than its cost, in which case we would further review the marketable security to determine whether it is other-than-temporarily impaired. When we evaluate a marketable security for other-than-temporary impairment, we review factors such as the length of time and extent to which its fair value has been below its cost basis, the financial condition of the issuer and any changes thereto, our intent to sell, and whether it is more-likely-than-not that we will be required to sell the marketable security before we have recovered its cost basis. If a marketable security were other-than-temporarily impaired, we would write it down through “Other expense, net” to its impaired value and establish that as a new cost basis. We did not identify any of our marketable securities as other-than-temporarily impaired at September 30, 2014 and December 31, 2013.
The following tables summarize the unrealized gains and losses related to our marketable securities, by major security type, as of September 30, 2014 and December 31, 2013 (in thousands):
|
| | | | | | | | | | | | | | | | |
| | As of September 30, 2014 |
Security Type | | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Estimated Fair Value |
Foreign debt | | $ | 453,076 |
| | $ | 49 |
| | $ | 560 |
| | $ | 452,565 |
|
Time deposits | | 30,000 |
| | — |
| | — |
| | 30,000 |
|
U.S. debt | | 6,803 |
| | 4 |
| | — |
| | 6,807 |
|
U.S. government obligations | | 3,499 |
| | 4 |
| | — |
| | 3,503 |
|
Total | | $ | 493,378 |
| | $ | 57 |
| | $ | 560 |
| | $ | 492,875 |
|
|
| | | | | | | | | | | | | | | | |
| | As of December 31, 2013 |
Security Type | | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Estimated Fair Value |
Foreign debt | | $ | 364,568 |
| | $ | 127 |
| | $ | 649 |
| | $ | 364,046 |
|
Foreign government obligations | | 25,125 |
| | — |
| | 10 |
| | 25,115 |
|
U.S. debt | | 46,430 |
| | 12 |
| | 3 |
| | 46,439 |
|
U.S. government obligations | | 3,498 |
| | 4 |
| | — |
| | 3,502 |
|
Total | | $ | 439,621 |
| | $ | 143 |
| | $ | 662 |
| | $ | 439,102 |
|
Contractual maturities of our marketable securities as of September 30, 2014 and December 31, 2013 were as follows (in thousands):
|
| | | | | | | | | | | | | | | | |
| | As of September 30, 2014 |
Maturity | | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Estimated Fair Value |
One year or less | | $ | 367,111 |
| | $ | 44 |
| | $ | 250 |
| | $ | 366,905 |
|
One year to two years | | 100,965 |
| | 13 |
| | 235 |
| | 100,743 |
|
Two years to three years | | 25,302 |
| | — |
| | 75 |
| | 25,227 |
|
Total | | $ | 493,378 |
| | $ | 57 |
| | $ | 560 |
| | $ | 492,875 |
|
|
| | | | | | | | | | | | | | | | |
| | As of December 31, 2013 |
Maturity | | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Estimated Fair Value |
One year or less | | $ | 161,752 |
| | $ | 57 |
| | $ | 84 |
| | $ | 161,725 |
|
One year to two years | | 270,149 |
| | 81 |
| | 578 |
| | 269,652 |
|
Two years to three years | | 7,720 |
| | 5 |
| | — |
| | 7,725 |
|
Total | | $ | 439,621 |
| | $ | 143 |
| | $ | 662 |
| | $ | 439,102 |
|
The net unrealized loss of $0.5 million and $0.5 million as of September 30, 2014 and December 31, 2013, respectively, on our marketable securities were primarily the result of changes in interest rates. Our investment policy requires marketable securities to be highly rated and limits the security types, issuer concentration, and duration to maturity of our marketable securities portfolio.
The following table shows gross unrealized losses and estimated fair values for those marketable securities that were in an unrealized loss position as of September 30, 2014 and December 31, 2013, aggregated by major security type and the length of time the marketable securities have been in a continuous loss position (in thousands):
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | As of September 30, 2014 |
| | In Loss Position for Less Than 12 Months | | In Loss Position for 12 Months or Greater | | Total |
Security Type | | Estimated Fair Value | | Gross Unrealized Losses | | Estimated Fair Value | | Gross Unrealized Losses | | Estimated Fair Value | | Gross Unrealized Losses |
Foreign debt | | $ | 384,229 |
| | $ | 560 |
| | $ | — |
| | $ | — |
| | $ | 384,229 |
| | $ | 560 |
|
Total | | $ | 384,229 |
| | $ | 560 |
| | $ | — |
| | $ | — |
| | $ | 384,229 |
| | $ | 560 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | As of December 31, 2013 |
| | In Loss Position for Less Than 12 Months | | In Loss Position for 12 Months or Greater | | Total |
Security Type | | Estimated Fair Value | | Gross Unrealized Losses | | Estimated Fair Value | | Gross Unrealized Losses | | Estimated Fair Value | | Gross Unrealized Losses |
Foreign debt | | $ | 212,655 |
| | $ | 649 |
| | $ | — |
| | $ | — |
| | $ | 212,655 |
| | $ | 649 |
|
Foreign government obligations | | 25,161 |
| | 10 |
| | — |
| | — |
| | 25,161 |
| | 10 |
|
U.S. debt | | 21,465 |
| | 3 |
| | — |
| | — |
| | 21,465 |
| | 3 |
|
Total | | $ | 259,281 |
| | $ | 662 |
| | $ | — |
| | $ | — |
| | $ | 259,281 |
| | $ | 662 |
|
6. Restricted Cash and Investments
Restricted cash and investments consisted of the following at September 30, 2014 and December 31, 2013 (in thousands):
|
| | | | | | | | |
| | September 30, 2014 | | December 31, 2013 |
Restricted cash (1) | | $ | 159,192 |
| | $ | 167 |
|
Restricted investments | | 330,196 |
| | 279,274 |
|
Restricted cash and investments | | $ | 489,388 |
| | $ | 279,441 |
|
| |
(1) | There was $31.4 million and zero of restricted cash included within prepaid expenses and other current assets at September 30, 2014 and December 31, 2013, respectively. |
At September 30, 2014, our restricted cash consisted of deposits held by various banks to secure certain of our letters of credit and deposits designated for the construction of systems projects and payments for the related project construction credit facilities. See Note 13. “Commitments and Contingencies,” to our condensed consolidated financial statements for further discussion relating to letters of credit.
At September 30, 2014 and December 31, 2013, our restricted investments consisted of long-term marketable securities that we hold through a custodial account to fund the estimated future costs of collecting and recycling modules covered under our solar module collection and recycling program. We have classified our restricted investments as “available-for-sale.” Accordingly, we record them at fair value and account for the net unrealized gains and losses as a part of “Accumulated other comprehensive income (loss).” We report realized gains and losses on the maturity or sale of our restricted investments in “Other expense, net” computed using the specific identification method. Restricted investments are classified as noncurrent as the underlying accrued solar module collection and recycling liability is also noncurrent in nature.
We fund the estimated collection and recycling obligations incremental to amounts already pre-funded in prior years for the cumulative module sales covered by our solar module collection and recycling program within 90 days of the end of each year, assuming for this purpose a service life of 25 years. To ensure that our collection and recycling program for covered modules is available at all times and the pre-funded amounts are accessible regardless of our financial status in the future (even in the case of our own insolvency), we have established a trust structure (the “Trust”) under which estimated required funds are put into custodial accounts with an established and reputable bank as the investment advisor in the name of the Trust, for which First Solar, Inc. (“FSI”), First Solar Malaysia Sdn. Bhd. (“FS Malaysia”), and First Solar Manufacturing GmbH are grantors. Only the trustee can distribute funds from the custodial accounts, and these funds cannot be accessed for any purpose other than to cover qualified costs of module collection and recycling, either by us or a third party executing the required collection and recycling services. Investments in these custodial accounts must meet the criteria of the highest quality investments, such as highly rated government or agency bonds. We closely monitor our exposure to European markets and maintain holdings primarily consisting of German and French sovereign debt securities that are not currently at risk of default. Under the trust agreements, each year we determine the annual pre-funding requirement (if any) based upon the difference between the current estimated future costs of collecting and recycling all solar modules covered under our program combined with the rate of return restricted investments will earn prior to being utilized to cover qualified collection and recycling costs and amounts already pre-funded in prior years. Based primarily upon reductions in the estimated future costs of collecting and recycling solar modules covered under our program combined with the cumulative amounts pre-funded since the inception of our program, we have determined that no incremental funding will be required during 2014 for all historical covered module sales through December 31, 2013.
The following table summarizes unrealized gains and losses related to our restricted investments by major security type as of September 30, 2014 and December 31, 2013 (in thousands):
|
| | | | | | | | | | | | | | | | |
| | As of September 30, 2014 |
Security Type | | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Estimated Fair Value |
Foreign government obligations | | $ | 195,591 |
| | $ | 69,523 |
| | $ | — |
| | $ | 265,114 |
|
U.S. government obligations | | 57,852 |
| | 7,230 |
| | — |
| | 65,082 |
|
Total | | $ | 253,443 |
| | $ | 76,753 |
| | $ | — |
| | $ | 330,196 |
|
|
| | | | | | | | | | | | | | | | |
| | As of December 31, 2013 |
Security Type | | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Estimated Fair Value |
Foreign government obligations | | $ | 205,484 |
| | $ | 22,295 |
| | $ | 1,489 |
| | $ | 226,290 |
|
U.S. government obligations | | 55,916 |
| | 1,372 |
| | 4,304 |
| | 52,984 |
|
Total | | $ | 261,400 |
| | $ | 23,667 |
| | $ | 5,793 |
| | $ | 279,274 |
|
As of September 30, 2014 and December 31, 2013, the contractual maturities of these restricted investments were between 13 years and 22 years and 14 years and 23 years, respectively.
7. Consolidated Balance Sheet Details
Accounts receivable trade, net
Accounts receivable trade, net consisted of the following at September 30, 2014 and December 31, 2013 (in thousands):
|
| | | | | | | | |
| | September 30, 2014 | | December 31, 2013 |
Accounts receivable trade, gross | | $ | 290,260 |
| | $ | 148,693 |
|
Allowance for doubtful accounts | | (7,477 | ) | | (12,310 | ) |
Accounts receivable trade, net | | $ | 282,783 |
| | $ | 136,383 |
|
At September 30, 2014 and December 31, 2013, $23.1 million and $25.2 million, respectively, of our accounts receivable trade, net, were secured by letters of credit, bank guarantees, or other forms of financial security issued by credit worthy financial institutions.
Accounts receivable, unbilled and retainage
Accounts receivable, unbilled and retainage consisted of the following at September 30, 2014 and December 31, 2013 (in thousands):
|
| | | | | | | | |
| | September 30, 2014 | | December 31, 2013 |
Accounts receivable, unbilled | | $ | 77,631 |
| | $ | 102,953 |
|
Retainage | | 461,282 |
| | 418,370 |
|
Accounts receivable, unbilled and retainage | | $ | 538,913 |
| | $ | 521,323 |
|
Accounts receivable, unbilled represents revenue that has been recognized in advance of billing the customer, which is common for long-term construction contracts. For example, we recognize revenue from contracts for the construction and sale of solar power systems which include the sale of project assets over the construction period using applicable accounting methods. One applicable accounting method is the percentage-of-completion method under which sales and gross profit are recognized as construction work is performed based on the relationship between actual costs incurred compared to the total estimated costs for constructing the project. Under this accounting method, revenue can be recognized in advance of billing the customer, resulting in an amount recorded to accounts receivable, unbilled and retainage. Once we meet the billing criteria under a construction contract, we bill our customers accordingly and reclassify the accounts receivable, unbilled and retainage to accounts receivable trade, net. Billing requirements vary by contract but are generally structured around completion of certain construction milestones.
Also included within accounts receivable, unbilled and retainage is the current portion of retainage. Retainage refers to the portion of the contract price earned by us for work performed, but held for payment by our customer as a form of security until we reach certain construction milestones. Retainage included within accounts receivable, unbilled and retainage is expected to be billed and collected within the next 12 months.
Inventories
Inventories consisted of the following at September 30, 2014 and December 31, 2013 (in thousands):
|
| | | | | | | | |
| | September 30, 2014 | | December 31, 2013 |
Raw materials | | $ | 156,686 |
| | $ | 165,805 |
|
Work in process | | 18,881 |
| | 11,874 |
|
Finished goods | | 382,745 |
| | 340,936 |
|
Inventories | | $ | 558,312 |
| | $ | 518,615 |
|
Inventories — current | | $ | 445,201 |
| | $ | 388,951 |
|
Inventories — noncurrent (1) | | $ | 113,111 |
| | $ | 129,664 |
|
| |
(1) | We purchase a critical raw material that is used in our core production process in quantities that exceed anticipated consumption within our operating cycle (which is 12 months). We classify the raw materials that we do not expect to be consumed within our operating cycle as noncurrent. |
Balance of systems parts
Balance of systems parts, which totaled $101.1 million and $133.7 million as of September 30, 2014 and December 31, 2013, respectively, represent mounting, third-party modules, and electrical and other construction parts purchased for solar power plants to be constructed or currently under construction, which we hold title to and are not yet installed in a solar power plant. These parts include posts, tilt brackets, tables, harnesses, combiner boxes, inverters, cables, tracker equipment, and other parts we purchase or assemble for the solar power plants we construct. Balance of systems parts does not include any solar modules that we manufacture. We carry these parts at the lower of cost or market, with market being based primarily on recoverability through installation in a solar power system.
Prepaid expenses and other current assets
Prepaid expenses and other current assets consisted of the following at September 30, 2014 and December 31, 2013 (in thousands):
|
| | | | | | | | |
| | September 30, 2014 | | December 31, 2013 |
Prepaid expenses | | $ | 54,008 |
| | $ | 24,572 |
|
Derivative instruments | | 6,354 |
| | 7,996 |
|
Deferred costs of goods sold | | — |
| | 753 |
|
Other current assets | | 71,911 |
| | 61,399 |
|
Prepaid expenses and other current assets | | $ | 132,273 |
| | $ | 94,720 |
|
Property, plant and equipment, net
Property, plant and equipment, net consisted of the following at September 30, 2014 and December 31, 2013 (in thousands):
|
| | | | | | | | |
| | September 30, 2014 | | December 31, 2013 |
Buildings and improvements | | $ | 365,549 |
| | $ | 360,504 |
|
Machinery and equipment | | 1,563,827 |
| | 1,445,939 |
|
Office equipment and furniture | | 130,485 |
| | 124,332 |
|
Leasehold improvements | | 49,486 |
| | 47,833 |
|
Depreciable property, plant and equipment, gross | | 2,109,347 |
| | 1,978,608 |
|
Accumulated depreciation | | (1,075,834 | ) | | (940,730 | ) |
Depreciable property, plant and equipment, net | | 1,033,513 |
| | 1,037,878 |
|
Land | | 10,305 |
| | 10,714 |
|
Construction in progress | | 181,357 |
| | 133,223 |
|
Stored assets (1) | | 159,254 |
| | 203,269 |
|
Property, plant and equipment, net | | $ | 1,384,429 |
| | $ | 1,385,084 |
|
| |
(1) | Consists of machinery and equipment (“stored assets”) that were originally purchased for installation in our previously planned manufacturing capacity expansions. We intend to install and place the stored assets into service when such assets are required or beneficial to our existing installed manufacturing capacity or when market demand supports additional or market specific manufacturing capacity. During the three months ended September 30, 2014, we transferred $38.1 million of stored assets to our manufacturing facility in Perrysburg, Ohio for use in the production of solar modules. As the remaining stored assets are neither in the condition or location to produce modules as intended, we will not begin depreciation until such assets are placed into service. The stored assets are evaluated for impairment under a held and used impairment model whenever events or changes in business circumstances arise, including consideration of technological obsolescence, that may indicate that the carrying amount of our long-lived assets may not be recoverable. We ceased the capitalization of interest on such stored assets once they were physically received from the related machinery and equipment vendors. |
Depreciation of property, plant and equipment was $59.7 million and $183.1 million for the three and nine months ended September 30, 2014, respectively, and was $60.0 million and $176.0 million for the three and nine months ended September 30, 2013, respectively.
PV solar power systems, net
PV solar power systems, net consisted of the following at September 30, 2014 and December 31, 2013 (in thousands):
|
| | | | | | | | |
| | September 30, 2014 | | December 31, 2013 |
PV solar power systems, gross | | $ | 48,623 |
| | $ | — |
|
Accumulated depreciation | | (722 | ) | | — |
|
PV solar power systems, net | | $ | 47,901 |
| | $ | — |
|
Depreciation of PV solar power systems was $0.6 million and $0.7 million for the three and nine months ended September 30, 2014, respectively.
Capitalized interest
The cost of constructing facilities, equipment, and project assets includes interest costs incurred during the asset’s construction period. The components of interest expense and capitalized interest are as follows during the three and nine months ended September 30, 2014 and 2013 (in thousands):
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2014 | | 2013 | | 2014 | | 2013 |
Interest cost incurred | | $ | (2,415 | ) | | $ | (2,907 | ) | | $ | (7,451 | ) | | $ | (9,349 | ) |
Interest cost capitalized —– property, plant and equipment | | 544 |
| | 836 |
| | 1,566 |
| | 1,882 |
|
Interest cost capitalized —– project assets | | 1,782 |
| | 1,796 |
| | 4,456 |
| | 5,567 |
|
Interest expense, net | | $ | (89 | ) | | $ | (275 | ) | | $ | (1,429 | ) | | $ | (1,900 | ) |
Project assets and deferred project costs
Project assets consist primarily of costs relating to solar power projects in various stages of development and construction that we capitalize prior to entering into a definitive sales agreement for the solar power project including projects that have begun commercial operation under the project PPAs. These costs include costs for land and costs for developing and constructing a PV solar power system. Development costs can include legal, consulting, permitting, interconnection, and other similar costs. Once we enter into a definitive sales agreement, we reclassify project assets to deferred project costs on our condensed consolidated balance sheet until the sale is completed and we have met all of the criteria to recognize the sale as revenue, which is typically subject to real estate revenue recognition requirements. We expense project assets to cost of sales after each respective project asset is sold to a customer and all revenue recognition criteria have been met (matching the expensing of costs to the underlying revenue recognition method). We classify project assets as noncurrent due to the nature of solar power projects (long-lived assets) and the time required to complete all activities to develop, construct, and sell projects, which is typically longer than 12 months. From time to time, we may determine it necessary to hold projects based on the economics of such projects. In those cases where we deem it necessary to hold such projects, we reclassify the project assets to PV solar power systems.
Deferred project costs represent (i) costs that we capitalize as project assets for arrangements that we account for as real estate transactions after we have entered into a definitive sales arrangement, but before the sale is completed or before we have met all criteria to recognize the sale as revenue, (ii) recoverable pre-contract costs that we capitalize for arrangements accounted for as long-term construction contracts prior to entering into a definitive sales agreement, or (iii) costs that we capitalize for arrangements accounted for as long-term construction contracts after we have signed a definitive sales agreement, but before all revenue recognition criteria have been met. We classify deferred project costs as current if completion of the sale and the meeting of all revenue recognition criteria is expected within the next 12 months.
If a project asset is completed and begins commercial operations prior to entering into or the closing of a sales arrangement, the completed project will remain in project assets until the earliest of the closing of the sale of such project, our decision to hold such project, or one year from the system’s commercial operations date.
Project assets and deferred project costs consisted of the following at September 30, 2014 and December 31, 2013 (in thousands):
|
| | | | | | | | |
| | September 30, 2014 | | December 31, 2013 |
Project assets — land | | $ | 13,146 |
| | $ | 4,150 |
|
Project assets — development costs including project acquisition costs | | 465,797 |
| | 465,316 |
|
Project assets — construction costs | | 132,672 |
| | 156,824 |
|
Project assets — projects in pre-COD operation under project PPAs | | — |
| | 66,240 |
|
Project assets | | 611,615 |
| | 692,530 |
|
Deferred project costs — current | | 546,409 |
| | 556,957 |
|
Deferred project costs — noncurrent | | 33,862 |
| | 28,386 |
|
Deferred project costs | | 580,271 |
| | 585,343 |
|
Total project assets and deferred project costs | | $ | 1,191,886 |
| | $ | 1,277,873 |
|
Other assets
Other assets consisted of the following at September 30, 2014 and December 31, 2013 (in thousands):
|
| | | | | | | | |
| | September 30, 2014 | | December 31, 2013 |
Note receivable (1) | | $ | 8,893 |
| | $ | 9,655 |
|
Income taxes receivable | | 5,090 |
| | 7,656 |
|
Deferred rent | | 20,878 |
| | 21,175 |
|
Investments in unconsolidated affiliates and joint ventures (2) | | 12,114 |
| | 17,321 |
|
Retainage | | — |
| | 992 |
|
Other | | 26,553 |
| | 19,830 |
|
Other assets | | $ | 73,528 |
| | $ | 76,629 |
|
| |
(1) | On April 8, 2009, we entered into a credit facility agreement with a solar power project entity of one of our customers for an available amount of €17.5 million to provide financing for a PV solar power system. The credit facility replaced a bridge loan that we had made to this entity. The credit facility bears interest at 8% per annum payable quarterly, with the full amount due on December 31, 2026. As of September 30, 2014 and December 31, 2013, the balance on this credit facility was €7.0 million ($8.9 million and $9.7 million, respectively). |
| |
(2) | We have joint ventures or other business arrangements with strategic partners in several markets using such arrangements to expedite our penetration of those markets and establish relationships with potential customers and policymakers. Some of these business arrangements have and are expected in the future to involve significant investments or other allocations of capital on our part. Investments in unconsolidated entities over which we have significant influence are accounted for under the equity method of accounting. Investments in entities in which we do not have the ability to exert significant influence over the investees’ operating and financing activities are accounted for under the cost method of accounting. The following table summarizes our equity and cost method investments as of September 30, 2014 and December 31, 2013 (in thousands): |
|
| | | | | | | | |
| | September 30, 2014 | | December 31, 2013 |
Equity method investments | | $ | 10,325 |
| | $ | 12,148 |
|
Cost method investments | | 1,789 |
| | 5,173 |
|
Investments in unconsolidated affiliates and joint ventures | | $ | 12,114 |
| | $ | 17,321 |
|
Goodwill
Goodwill, summarized by relevant reporting unit, consisted of the following as of September 30, 2014 and December 31, 2013 (in thousands):
|
| | | | | | | | | | | | |
Reporting Unit | | December 31, 2013 |
| Acquisitions |
| September 30, 2014 |
CdTe components | | $ | 403,420 |
| | $ | — |
| | $ | 403,420 |
|
Crystalline silicon components | | 6,097 |
| | — |
| | 6,097 |
|
Systems | | 68,833 |
| | — |
| | 68,833 |
|
Accumulated impairment losses | | (393,365 | ) | | — |
| | (393,365 | ) |
Total | | $ | 84,985 |
| | $ | — |
| | $ | 84,985 |
|
Goodwill represents the excess of the purchase price of acquired businesses over the estimated fair value assigned to the individual assets acquired and liabilities assumed. We do not amortize goodwill, but instead are required to test goodwill for impairment at least annually in the fourth quarter, and if necessary, we would record any impairment in accordance with ASC 350, Intangibles - Goodwill and Other. We will perform an impairment test between scheduled annual tests if facts and circumstances indicate that it is more-likely-than-not that the fair value of a reporting unit that has goodwill is less than its carrying value.
Other intangible assets, net
Intangible assets includes those assets acquired primarily as part of our GE and TetraSun acquisitions and our internally-generated intangible assets, substantially all of which are patents on technologies related to our products and production processes. We record an asset for patents, after the patent has been issued, based on the legal, filing, and other costs incurred to secure them. We amortize intangible assets on a straight-line basis over their estimated useful lives once the intangible assets meet the criteria to be amortized. At September 30, 2014, $112.8 million of the $121.5 million of intangible assets, gross consisted of in-process research and development related to assets that were acquired as part of the TetraSun and GE acquisitions. Such assets will be amortized over their estimated useful lives upon successful completion of the project or expensed earlier if impaired. The following table summarizes our intangible assets at September 30, 2014 and December 31, 2013 (in thousands):
|
| | | | | | | | | | | | |
| | September 30, 2014 |
| | Gross Amount | | Accumulated Amortization | | Net Amount |
Patents | | $ | 5,094 |
| | $ | (1,142 | ) | | $ | 3,952 |
|
Trade names | | 700 |
| | (642 | ) | | 58 |
|
Developed technology | | 2,878 |
| | (240 | ) | | 2,638 |
|
In-process research and development | | 112,800 |
| | — |
| | 112,800 |
|
Total | | $ | 121,472 |
| | $ | (2,024 | ) | | $ | 119,448 |
|
|
| | | | | | | | | | | | |
| | December 31, 2013 |
| | Gross Amount | | Accumulated Amortization | | Net Amount |
Patents | | 10,180 |
| | $ | (5,797 | ) | | $ | 4,383 |
|
Trade names | | 700 |
| | (467 | ) | | 233 |
|
In-process research and development | | 112,800 |
| | — |
| | 112,800 |
|
Total | | $ | 123,680 |
| | $ | (6,264 | ) | | $ | 117,416 |
|
Amortization expense for our intangible assets was $0.4 million and $0.3 million for the three and nine months ended September 30, 2014, respectively, and was $0.9 million and $0.6 million for the three and nine months ended September 30, 2014, respectively.
Accrued expenses
Accrued expenses consisted of the following at September 30, 2014 and December 31, 2013 (in thousands):
|
| | | | | | | | |
| | September 30, 2014 | | December 31, 2013 |
Accrued compensation and benefits | | $ | 36,136 |
| | $ | 50,148 |
|
Accrued property, plant and equipment | | 32,515 |
| | 19,834 |
|
Accrued inventory | | 66,854 |
| | 43,966 |
|
Accrued project assets and deferred project costs | | 72,320 |
| | 80,528 |
|
Product warranty liability (1) | | 68,021 |
| | 67,097 |
|
Accrued expenses in excess of normal product warranty liability and related expenses (1) | | 6,461 |
| | 12,516 |
|
Other | | 66,295 |
| | 45,988 |
|
Accrued expenses | | $ | 348,602 |
| | $ | 320,077 |
|
(1) See Note 13. “Commitments and Contingencies,” to our condensed consolidated financial statements for further discussion of “Product warranty liability” and “Accrued expenses in excess of normal product warranty liability and related expenses.”
Billings in excess of costs and estimated earnings
Billings in excess of costs and estimated earnings totaling $133.8 million and $117.8 million at September 30, 2014 and December 31, 2013, respectively, represent billings made or payments received in excess of revenue recognized on contracts accounted for under the percentage-of-completion method. Typically, billings are made based on the completion of certain construction milestones as provided for in the sales arrangement, and the timing of revenue recognition may be different from when we can bill or collect from a customer.
Payments and billings for deferred project costs
Payments and billings for deferred project costs - current totaling $100.3 million and $642.2 million at September 30, 2014 and December 31, 2013, respectively, represent customer payments received or customer billings made under the terms of solar power project related sales contracts for which all revenue recognition criteria for real estate transactions have not yet been met. The associated solar power project related costs are included as deferred project costs. We classify such amounts as current or noncurrent depending upon when all revenue recognition criteria are expected to be met, consistent with the classification of the associated deferred project costs.
Other current liabilities
Other current liabilities consisted of the following at September 30, 2014 and December 31, 2013 (in thousands):
|
| | | | | | | | |
| | September 30, 2014 | | December 31, 2013 |
Deferred revenue | | $ | 14,213 |
| | $ | 1,193 |
|
Derivative instruments | | 4,770 |
| | 8,096 |
|
Deferred tax liabilities | | — |
| | 138 |
|
Contingent consideration (1) | | 19,321 |
| | 37,775 |
|
Other (2) | | 17,773 |
| | 132,219 |
|
Other current liabilities | | $ | 56,077 |
| | $ | 179,421 |
|
(1) See Note 13. “Commitments and Contingencies,” to our condensed consolidated financial statements for further discussion on “Contingent consideration.”
(2) At December 31, 2013, the balance consisted primarily of proceeds received for our Mesa facility that were classified as “Assets held for sale” on the condensed consolidated balance sheet. Due to our continuing involvement with the Mesa facility, we deferred recognition of the sale transaction until certain risks and rewards of ownership were fully transferred to the buyer, which occurred in the first quarter of 2014.
Other liabilities
Other liabilities consisted of the following at September 30, 2014 and December 31, 2013 (in thousands):
|
| | | | | | | | |
| | September 30, 2014 | | December 31, 2013 |
Product warranty liability (1) | | $ | 146,325 |
| | $ | 130,944 |
|
Other taxes payable | | 31,565 |
| | 119,124 |
|
Contingent consideration (1) | | 54,188 |
| | 58,969 |
|
Liability in excess of normal product warranty liability and related expenses (1) | | 34,273 |
| | 39,565 |
|
Other (1) | | 50,627 |
| | 55,779 |
|
Other liabilities | | $ | 316,978 |
| | $ | 404,381 |
|
(1) See Note 13. “Commitments and Contingencies,” to our condensed consolidated financial statements for further discussion on “Product warranty liability,” “Contingent consideration,” “Liability in excess of normal product warranty liability and related expenses,” and “Energy test guarantees.”
8. Note Receivable, Affiliate
In September 2013, we contributed an immaterial amount for a 50% ownership interest in a newly formed joint venture, which was established to develop solar power projects in Europe, North Africa, the United States, and the Middle East. One of our customers also contributed an immaterial amount for the remaining 50% ownership interest in the joint venture. The project development and related activities of the entity are governed by a joint venture agreement. The intent of this agreement is to outline the general parameters of the arrangement with our customer, whereby we will supply solar modules for various solar power projects and our customer will develop and construct the projects. The joint venture agreement also requires each party to consent to all decisions made for the most significant activities of the entity. There are no requirements for us to make further contributions to the joint venture, and the proceeds from the sale of any future projects are to be divided equally between us and our customer after the repayment of any project financing and project development related costs.
In September 2014, we subsequently entered into a loan agreement with a solar power project entity of the joint venture pursuant to which the project entity may borrow up to £34.5 million ($56.0 million) for the construction of a PV solar power system in the United Kingdom. The loan bears interest at 6% per annum and is payable at the earlier of the sale of the project entity or maturity on June 30, 2015. As of September 30, 2014, the balance outstanding on the loan was £4.8 million ($7.8 million).
As part of this financing arrangement, we also entered into a second loan agreement with the same project entity pursuant to which the entity may borrow up to £2.3 million ($3.7 million) for the payment of value added taxes (“VAT”) related to the construction of the PV solar power system. The VAT loan is payable at the earlier of the sale of the project entity, the receipt of related VAT refunds, or maturity on June 30, 2015. As of September 30, 2014, no balance was outstanding on the VAT loan.
The joint venture is considered a variable interest entity, and our ownership interest in and loans to the project entity of the joint venture are considered variable interests. We accounted for our investment in the joint venture under the equity method of accounting as we concluded we are not the primary beneficiary of the joint venture given that we currently share the power to make the decisions that most significantly impact the entity’s economic performance. The variable interest model may require a reconsideration as to whether we are the primary beneficiary of the variable interest entity due to changes in facts and circumstances. A failure of the project entity to repay the loan agreements by June 30, 2015 would be an event of default that triggers our ability to take over key decisions that would significantly impact the project entity’s economic performance. Our specific rights in the event of default would include (i) a unilateral right to terminate the EPC contractor, (ii) a unilateral right to negotiate the sale of the project, and (iii) an ability to enforce our rights over all of the project entity’s shares, which have been pledged as a form of security. Such a development would be a reconsideration event that could result in us concluding that we are the primary beneficiary of the project entity.
During the three months ended September 30, 2014, there was no material income or losses generated by the joint venture as substantially all costs incurred were capital in nature.
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 consolidated net assets, financial position, results of operations, and cash flows. We use derivative instruments to hedge against such risks, and we only hold derivative instruments for hedging purposes, not for speculative or trading purposes.
Depending on the terms of the specific derivative instruments and market conditions, some of our derivative instruments may be assets and others liabilities at any particular consolidated balance sheet date. We report all of our derivative instruments at fair value and account for changes in the fair value of derivative instruments within accumulated other comprehensive income (loss) if the derivative instruments qualify for hedge accounting. For those derivative instruments that do not qualify for hedge accounting (“economic hedges”), we record the changes in fair value directly to earnings. See Note 10. “Fair Value Measurements,” to our condensed consolidated financial statements for information about the techniques we use to measure the fair value of our derivative instruments.
The following tables present the fair values of derivative instruments included in our condensed consolidated balance sheets as of September 30, 2014 and December 31, 2013 (in thousands):
|
| | | | | | | | | | | | |
| | September 30, 2014 |
| | Prepaid Expenses and Other Current Assets | | Other Current Liabilities | | Other Liabilities |
Derivatives designated as hedging instruments: | | | | |
Foreign exchange forward contracts | | $ | 1,138 |
| | $ | — |
| | $ | — |
|
Cross-currency swap contract | | — |
| | 1,526 |
| | 4,580 |
|
Interest rate swap contract | | — |
| | 240 |
| | 67 |
|
Total derivatives designated as hedging instruments | | $ | 1,138 |
| | $ | 1,766 |
| | $ | 4,647 |
|
| | | | | | |
Derivatives not designated as hedging instruments: | | |
| | |
|
Foreign exchange forward contracts | | $ | 5,216 |
| | $ | 3,004 |
| | $ | — |
|
Total derivatives not designated as hedging instruments | | $ | 5,216 |
| | $ | 3,004 |
| | $ | — |
|
Total derivative instruments | | $ | 6,354 |
| | $ | 4,770 |
| | $ | 4,647 |
|
|
| | | | | | | | | | | | | | | | |
| | December 31, 2013 |
| | Prepaid Expenses and Other Current Assets | | Other Assets | | Other Current Liabilities | | Other Liabilities |
Derivatives designated as hedging instruments: | | | | | | |
Foreign exchange forward contracts | | $ | 2,357 |
| | $ | 282 |
| | $ | — |
| | $ | — |
|
Cross-currency swap contract | | — |
| | — |
| | 1,934 |
| | 7,739 |
|
Interest rate swap contract | | — |
| | — |
| | 334 |
| | 369 |
|
Total derivatives designated as hedging instruments | | $ | 2,357 |
| | $ | 282 |
| | $ | 2,268 |
| | $ | 8,108 |
|
| | | | | | | | |
Derivatives not designated as hedging instruments: | | |
| | |
| | |
|
Foreign exchange forward contracts | | $ | 5,639 |
| | $ | — |
| | $ | 5,828 |
| | $ | — |
|
Total derivatives not designated as hedging instruments | | $ | 5,639 |
| | $ | — |
| | $ | 5,828 |
| | $ | — |
|
Total derivative instruments | | $ | 7,996 |
| | $ | 282 |
| | $ | 8,096 |
| | $ | 8,108 |
|
The impact of offsetting balances associated with derivative instruments designated as hedging instruments is shown below (in thousands):
|
| | | | | | | | | | | | | | | | | | | | |
| | September 30, 2014 |
| | | | | | | | Gross Amounts Not Offset in Consolidated Balance Sheet | | |
| | Gross Asset (Liability) | | Gross Offset in Consolidated Balance Sheet | | Net Amount Recognized in Financial Statements | | Financial Instruments | | Cash Collateral Pledged | | Net Amount |
Foreign exchange forward contracts | | $ | 1,138 |
| | — |
| | 1,138 |
| | — |
| | — |
| | $ | 1,138 |
|
Cross-currency swap contract | | $ | (6,106 | ) | | — |
| | (6,106 | ) | | — |
| | — |
| | $ | (6,106 | ) |
Interest rate swap contract | | $ | (307 | ) | | — |
| | (307 | ) | | — |
| | — |
| | $ | (307 | ) |
|
| | | | | | | | | | | | | | | | | | | | |
| | December 31, 2013 |
| | | | | | | | Gross Amounts Not Offset in Consolidated Balance Sheet | | |
| | Gross Asset (Liability) | | Gross Offset in Consolidated Balance Sheet | | Net Amount Recognized in Financial Statements | | Financial Instruments | | Cash Collateral Pledged | | Net Amount |
Foreign exchange forward contracts | | $ | 2,639 |
| | — |
| | 2,639 |
| | — |
| | — |
| | $ | 2,639 |
|
Cross-currency swap contract | | $ | (9,673 | ) | | — |
| | (9,673 | ) | | — |
| | — |
| | $ | (9,673 | ) |
Interest rate swap contract | | $ | (703 | ) | | — |
| | (703 | ) | | — |
| | — |
| | $ | (703 | ) |
The following tables present the effective amounts related to derivative instruments designated as cash flow hedges affecting accumulated other comprehensive income (loss) before tax and our condensed consolidated statements of operations for the three and nine months ended September 30, 2014 and 2013 (in thousands):
|
| | | | | | | | | | | | | | | | |
| | Foreign Exchange Forward Contracts | | Interest Rate Swap Contract | | Cross Currency Swap Contract | | Total |
Balance in accumulated other comprehensive income (loss) at December 31, 2013 | | $ | 4,351 |
| | $ | (703 | ) | | $ | (5,820 | ) | | $ | (2,172 | ) |
Amounts recognized in other comprehensive income (loss) | | (4,878 | ) | | (8 | ) | | 1,552 |
| | (3,334 | ) |
Amounts reclassified to earnings impacting: | | | | | | | | |
Foreign currency gain | | — |
| | — |
| | (732 | ) | | (732 | ) |
Interest expense | | — |
| | 164 |
| | 95 |
| | 259 |
|
Balance in accumulated other comprehensive income (loss) at March 31, 2014 | | (527 | ) | | (547 | ) | | (4,905 | ) | | (5,979 | ) |
Amounts recognized in other comprehensive income (loss) | | (1,689 | ) | | (18 | ) | | 2,073 |
| | 366 |
|
Amounts reclassified to earnings impacting: | | | | | | | | |
Foreign currency gain | | — |
| | — |
| | (2,016 | ) | | (2,016 | ) |
Interest expense | | — |
| | 124 |
| | 65 |
| | 189 |
|
Balance in accumulated other comprehensive income (loss) at June 30, 2014 | | (2,216 | ) | | (441 | ) | | (4,783 | ) | | (7,440 | ) |
Amounts recognized in other comprehensive income (loss) | | 5,663 |
| | 26 |
| | (554 | ) | | 5,135 |
|
Amounts reclassified to earnings impacting: | | | | | | | | |
Foreign currency loss | | — |
| | — |
| | 1,868 |
| | 1,868 |
|
Interest expense | | — |
| | 108 |
| | 25 |
| | 133 |
|
Balance in accumulated other comprehensive income (loss) at September 30, 2014 | | $ | 3,447 |
| | $ | (307 | ) | | $ | (3,444 | ) | | $ | (304 | ) |
|
| | | | | | | | | | | | | | | | |
| | Foreign Exchange Forward Contracts | | Interest Rate Swap Contract | | Cross Currency Swap Contract | | Total |
Balance in accumulated other comprehensive income (loss) at December 31, 2012 | | $ | 8,980 |
| | $ | (1,467 | ) | | $ | (8,031 | ) | | $ | (518 | ) |
Amounts recognized in other comprehensive income (loss) | | 4,135 |
| | 100 |
| | (1,604 | ) | | 2,631 |
|
Amounts reclassified to net sales as a result of forecasted transactions being probable of not occurring | | (13,115 | ) | | $ | — |
| | — |
| | (13,115 | ) |
Amounts reclassified to earnings impacting: | | | | | | | | |
Foreign currency loss | | — |
| | — |
| | 1,974 |
| | 1,974 |
|
Interest expense | | — |
| | 209 |
| | 85 |
| | 294 |
|
Balance in accumulated other comprehensive income (loss) at March 31, 2013 | | — |
| | (1,158 | ) | | (7,576 | ) | | (8,734 | ) |
Amounts recognized in other comprehensive income (loss) | | — |
| | 2 |
| | (313 | ) | | (311 | ) |
Amounts reclassified to earnings impacting: | | | | | | | | |
Foreign currency loss | | — |
| | — |
| | 2,912 |
| | 2,912 |
|
Interest expense | | — |
| | 196 |
| | 106 |
| | 302 |
|
Balance in accumulated other comprehensive income (loss) at June 30, 2013 | | — |
| | (960 | ) | | (4,871 | ) | | (5,831 | ) |
Amounts recognized in other comprehensive income (loss) | | (1,753 | ) | | (89 | ) | | (2,422 | ) | | (4,264 | ) |
Amounts reclassified to earnings impacting: | | | | | | | | |
Foreign currency loss | | — |
| | — |
| | 1,247 |
| | 1,247 |
|
Interest expense | | — |
| | 216 |
| | 129 |
| | 345 |
|
Balance in accumulated other comprehensive (loss) income at September 30, 2013 | | $ | (1,753 | ) | | $ | (833 | ) | | $ | (5,917 | ) | | $ | (8,503 | ) |
We recorded immaterial amounts related to ineffective portions of our derivative instruments designated as cash flow hedges during the three and nine months ended September 30, 2014 and 2013 directly to other income (expense), net. In addition, we recognized unrealized gains of $1.0 million and $1.1 million related to amounts excluded from effectiveness testing for our foreign exchange forward contracts designated as cash flow hedges within other income (expense), net during the three and nine months ended September 30, 2014, respectively. We recognized unrealized losses of $1.0 million and $1.4 million related to amounts excluded from effectiveness testing for our foreign exchange forward contracts designated as cash flow hedges within other income (expense), net during the three and nine months ended September 30, 2013, respectively.
The following table presents the amounts related to derivative instruments not designated as hedges affecting our condensed consolidated statements of operations for the three and nine months ended September 30, 2014 and 2013 (in thousands):
|
| | | | | | | | | | | | | | | | | |
| | | Amount of Gain (Loss) Recognized in Income on Derivatives |
| | | Three Months Ended September 30, | | Nine Months Ended |