FIRST SOLAR, INC. - Annual Report: 2019 (Form 10-K)

☒	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

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•	structural imbalances in global supply and demand for PV solar modules;

•	the market for renewable energy, including solar energy;

•	our competitive position and other key competitive factors;

•	reduction, elimination, or expiration of government subsidies, policies, and support programs for solar energy projects;

•	our ability to execute on our long-term strategic plans;

•	our ability to execute on our solar module technology and cost reduction roadmaps;

•	the loss of any of our large customers, or their inability to perform under their contracts with us;

•	our ability to attract new customers and to develop and maintain existing customer and supplier relationships;

•	interest rate fluctuations and both our and our customers’ ability to secure financing;

•	our ability to successfully develop and complete our systems business projects;

•	our ability to convert existing or construct production facilities to support new product lines;

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•	general economic and business conditions, including those influenced by U.S., international, and geopolitical events;

•	environmental responsibility, including with respect to cadmium telluride (“CdTe”) and other semiconductor materials;

•	claims under our limited warranty obligations;

•	changes in, or the failure to comply with, government regulations and environmental, health, and safety requirements;

•	future collection and recycling costs for solar modules covered by our module collection and recycling program;

•	our ability to protect our intellectual property;

•	our ability to prevent and/or minimize the impact of cyber-attacks or other breaches of our information systems;

•	our continued investment in R&D;

•	the supply and price of components and raw materials, including CdTe;

•	our ability to attract and retain key executive officers and associates; and

•	all other matters discussed in Item 1A. “Risk Factors” and elsewhere in this Annual Report on Form 10-K, our subsequently filed Quarterly Reports on Form 10-Q, and our other filings with the Securities and Exchange Commission (the “SEC”).

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PV Solar Modules. Our modules couple our leading-edge CdTe technology with the manufacturing excellence and quality control that comes from being one of the world’s most experienced producers of advanced PV solar modules. Our technology demonstrates a proven performance advantage over most monofacial crystalline silicon solar modules of equivalent efficiency rating by delivering higher real-world energy yield and long-term reliability. We are able to provide such product performance, quality, and reliability to our customers due, in large part, to our consistent and sustained investments in R&D activities.

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Utility-Scale Power Plants. We have extensive, proven experience in the development, engineering, and construction of reliable grid-connected power systems for utility-scale generation. Our grid-connected systems support a diversified energy portfolio, reduce fossil-fuel consumption, mitigate the risk of fuel price volatility, and save costs, proving that centralized solar generation can deliver dependable and affordable solar electricity to the grid around the world. Our plant control systems provide reliability services, such as frequency control, voltage control, ramping capacity, and automated generation control, which enable expanded integration of PV solar power systems into the power grid. Such reliability services also help balance the grid during times of high renewable energy generation. Our solar energy systems also offer a meaningful value proposition by eliminating commodity price risks thereby providing a long-term fixed price with relatively low operating costs. When compared to the price of power derived from a conventional source of energy, a fixed price cannot be achieved unless the cost of hedging is included. Hedging costs of a commodity such as natural gas, along with the costs of credit support required for a long-term hedge, can significantly increase conventional energy costs. Additional benefits of our grid-connected power systems include reductions of fuel imports and improvements in energy security, enhanced peaking generation and faster time-to-power, and managed variability through accurate forecasting.

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O&M Services. By leveraging our extensive experience in plant optimization and advanced diagnostics, we have developed one of the largest and most advanced O&M programs in the industry, including more than 10 GWDC of utility-scale PV solar power systems, while maintaining an average fleet system effective availability greater than 99%. Utilizing a state of the art global operations center, our team of O&M associates provide a variety of services to optimize system performance and comply with power purchase agreements (“PPA”), other project agreements, and regulations. Our products and services are engineered to enable the maximization of energy output and revenue for our customers while significantly reducing their unplanned maintenance costs. Plant owners benefit from predictable expenses over the life of the contract and reduced risk of energy loss. Our O&M program is compliant with the North American Electric Reliability Corporation (“NERC”) standards and is designed to scale to accommodate the growing O&M needs of customers worldwide. We offer our O&M services to solar power plant owners that use either our solar modules or modules manufactured by third parties.

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•	cost-effectiveness of the electricity generated by PV solar power systems compared to conventional energy sources, such as natural gas (which fuel source may be subject to significant price fluctuations from time to time), and other renewable energy sources, such as wind, geothermal, and hydroelectric;

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changes in tax, trade remedies, and other public policy, as well as changes in economic, market, and other conditions that affect the price of, and demand for, conventional energy resources, non-solar renewable energy resources (e.g., wind and hydroelectric), and energy efficiency programs and products, including increases or decreases in the prices of natural gas, coal, oil, and other fossil fuels and in the prices of competing renewable resources;

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•	the extent of competition, barriers to entry, and overall conditions and timing related to the development of solar in new and emerging market segments such as commercial and industrial customers, community solar, community choice aggregators, and other customer segments;

•	availability, substance, and magnitude of support programs including federal, state, and local government subsidies, incentives, targets, and renewable portfolio standards, among other policies and programs, to accelerate the development of the solar industry;

•	performance, reliability, and availability of energy generated by PV solar power systems compared to conventional and other non-solar renewable energy sources and products, particularly conventional energy generation capable of providing 24-hour, non-intermittent baseload power;

•	the development, functionality, scale, cost, and timing of energy storage solutions; and

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changes in the amount and priorities of capital expenditures by end users of solar modules and systems (e.g., utilities), which capital expenditures tend to decrease when the economy slows or when interest rates increase, thereby resulting in redirection away from solar generation to development of competing forms of electric generation and to distribution (e.g., smart grid), transmission, and energy efficiency measures.

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a reduction or removal of clean energy programs and initiatives and the incentives they provide may diminish the market for future solar energy off-take agreements, slow the retirement of aging fossil fuel plants, including the retirements of coal generation plants, and reduce the ability for solar project developers to compete for future solar energy off-take agreements, which may reduce incentives for such parties to develop solar projects and purchase PV solar modules;

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any limitations on the value or availability to potential investors of tax incentives that benefit solar energy projects such as the ITC and accelerated depreciation deductions could result in such investors generating reduced revenues and economic returns and facing a reduction in the availability of affordable financing, thereby reducing demand for PV solar modules. The ITC is a U.S. federal incentive that provides an income tax credit to the owner of the project after the project is placed in service. Among other requirements, such credits require projects to have commenced construction by a certain date, which may be achieved by certain qualifying procurement activities. Accordingly, projects that commenced construction in 2019 were eligible for a 30% ITC. The credit will step down to 26% for projects that commence construction in 2020, 22% for projects that commence construction in 2021, and 10% for projects that commence construction thereafter. Under the Modified Accelerated Cost-Recovery System, owners of equipment used in a solar project may claim all of their depreciation deductions with respect to such equipment over five years, even though the useful life of such equipment is generally greater than five years. In addition, in December 2017, the U.S. government enacted comprehensive tax reform legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). Under the Tax Act, qualified property placed in service after September 22, 2017 and before January 1, 2023 is generally eligible for 100% expensing, and such property placed in service after December 31, 2022 and before January 1, 2027 is generally eligible for expensing at lower percentages. However, the Tax Act also reduced the U.S. corporate income tax rate to 21% effective January 1, 2018, which could diminish the capacity of potential investors to benefit from incentives such as the ITC and reduce the value of accelerated depreciation deductions and expensing, thereby reducing the relative attractiveness of solar projects as an investment; and

•	any effort to overturn federal and state laws, regulations, or policies that are supportive of solar energy generation or that remove costs or other limitations on other types of electricity generation that compete with solar energy projects could negatively impact our ability to compete with traditional forms of electricity generation and materially and adversely affect our business.

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•	difficulty in accurately prioritizing geographic markets that we can most effectively and profitably serve with our PV solar offerings, including miscalculations in overestimating or underestimating addressable market demand;

•	difficulty in competing against companies who may have greater financial resources and/or a more effective or established localized business presence and/or an ability to operate with minimal or negative operating margins for sustained periods of time;

•	difficulty in competing successfully with emerging technologies, such as bifacial modules and n-type mono-crystalline wafers and cells;

•	adverse public policies in countries we operate in and/or are pursuing, including local content requirements, the imposition of trade remedies, or capital investment requirements;

•	business climates, such as that in China, that may have the effect of putting foreign companies at a disadvantage relative to domestic companies;

•	unstable economic, social, and/or operating environments in foreign jurisdictions, including social unrest, currency, inflation, and interest rate uncertainties;

•	the possibility of applying an ineffective commercial approach to targeted markets, including product offerings that may not meet market needs;

•	difficulty in generating sufficient sales volumes at economically sustainable profitability levels;

•	difficulty in timely identifying, attracting, training, and retaining qualified sales, technical, and other personnel in geographies targeted for expansion;

•	difficulty in maintaining proper controls and procedures as we expand our business operations in terms of geographical reach, including transitioning certain business functions to low-cost geographies, with any material control failure potentially leading to reputational damage and loss of confidence in our financial reporting;

•	difficulty in competing successfully for market share in overall solar markets as a result of the success of companies participating in the global rooftop PV solar market, which is a segment in which we do not have significant historical experience;

•	difficulty in establishing and implementing a commercial and operational approach adequate to address the specific needs of the markets we are pursuing;

•	difficulty in identifying effective local partners and developing any necessary partnerships with local businesses on commercially acceptable terms; and

•	difficulty in balancing market demand and manufacturing production in an efficient and timely manner, potentially causing our manufacturing capacity to be constrained in some future periods or over-supplied in others.

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•	failure to reduce manufacturing material, labor, or overhead costs;

•	an inability to increase production throughput or the average power output per module;

•	delays and cost overruns as a result of a number of factors, many of which may be beyond our control, such as our inability to secure successful contracts with equipment vendors;

•	our custom-built equipment taking longer and costing more to manufacture than expected and not operating as designed;

•	delays or denial of required approvals by relevant government authorities;

•	an inability to hire qualified staff;

•	failure to execute our expansion or conversion plans effectively;

•	difficulty in balancing market demand and manufacturing production in an efficient and timely manner, potentially causing our manufacturing capacity to be constrained in some future periods or over-supplied in others; and

•	incurring manufacturing asset write-downs, write-offs, and other charges and costs, which may be significant, during those periods in which we idle, slow down, shut down, convert, or otherwise adjust our manufacturing capacity.

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•	difficulty in enforcing agreements in foreign legal systems;

•	difficulty in forming appropriate legal entities to conduct business in foreign countries and the associated costs of forming and maintaining those legal entities;

•	varying degrees of protection afforded to foreign investments in the countries in which we operate and irregular interpretations and enforcement of laws and regulations in such jurisdictions;

•	foreign countries may impose additional income and withholding taxes or otherwise tax our foreign operations, impose tariffs, or adopt other restrictions on foreign trade and investment, including currency exchange controls;

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fluctuations in exchange rates may affect demand for our products and services and may adversely affect our profitability and cash flows in U.S. dollars to the extent that our net sales or our costs are denominated in a foreign currency and the cost associated with hedging the U.S. dollar equivalent of such exposures is prohibitive; the longer the duration of such foreign currency exposure, the greater the risk;

•	anti-corruption compliance issues, including the costs related to the mitigation of such risk;

•	risk of nationalization or other expropriation of private enterprises;

•	changes in general economic and political conditions in the countries in which we operate, including changes in government incentive provisions;

•	unexpected adverse changes in U.S. or foreign laws or regulatory requirements, including those with respect to environmental protection, import or export duties, and quotas;

•	opaque approval processes in which the lack of transparency may cause delays and increase the uncertainty of project approvals;

•	difficulty in staffing and managing widespread operations;

•	difficulty in repatriating earnings;

•	difficulty in negotiating a successful collective bargaining agreement in applicable foreign jurisdictions;

•	trade barriers such as export requirements, tariffs, taxes, local content requirements, anti-dumping regulations and requirements, and other restrictions and expenses, which could increase the effective price of our solar modules and make us less competitive in some countries; and

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•	difficulty of, and costs relating to, compliance with the different commercial and legal requirements of the overseas countries in which we offer and sell our solar modules.

•	obtaining financeable land rights, including land rights for the project site, transmission lines, and environmental mitigation;

•	entering into financeable arrangements for the purchase of the electrical output, capacity, ancillary services, and renewable energy attributes generated by the project;

•	receipt from governmental agencies of required environmental, land-use, and construction and operation permits and approvals;

•	receipt of tribal government approvals for projects on tribal land;

•	receipt of governmental approvals related to the presence of any protected or endangered species or habitats, migratory birds, wetlands or other jurisdictional water resources, and/or cultural resources;

•	negotiation of development agreements, public benefit agreements, and other agreements to compensate local governments for project impacts;

•	negotiation of state and local tax abatement and incentive agreements;

•	receipt of rights to interconnect the project to the electric grid or to transmit energy;

•	negotiation of satisfactory EPC agreements;

•	securing necessary rights of way for access and transmission lines;

•	securing necessary water rights for project construction and operation;

•	securing appropriate title coverage, including coverage for mineral rights, mechanics’ liens, etc.;

•	obtaining financing, including debt, equity, and funds associated with the monetization of tax credits and other tax benefits;

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•	payment of PPA, interconnection, and other deposits (some of which are non-refundable);

•	providing required payment and performance security for the development of the project, such as through the provision of letters of credit; and

•	timely implementation and satisfactory completion of construction.

•	delays in obtaining and maintaining required governmental permits and approvals, including appeals of approvals obtained;

•	potential permit and litigation challenges from project stakeholders, including local residents, environmental organizations, labor organizations, tribes, and others who may oppose the project;

•	in connection with any such permit and litigation challenges, grants of injunctive relief to stop development and/or construction of a project;

•	discovery of unknown impacts to protected or endangered species or habitats, migratory birds, wetlands or other jurisdictional water resources, and/or cultural resources at project sites;

•	discovery of unknown title defects;

•	discovery of unknown environmental conditions;

•	unforeseen engineering problems;

•	construction delays and contractor performance shortfalls;

•	work stoppages;

•	cost over-runs;

•	labor, equipment, and material supply shortages, failures, or disruptions;

•	cost or schedule impacts arising from changes in federal, state, or local land-use or regulatory policies;

•	changes in electric utility procurement practices;

•	risks arising from potential transmission grid congestion, limited transmission capacity, and grid reliability constraints;

•	project delays that could adversely impact our ability to maintain interconnection rights;

•	additional complexities when conducting project development or construction activities in foreign jurisdictions (either on a stand-alone basis or in collaboration with local business partners), including operating in accordance with the U.S. Foreign Corrupt Practices Act (the “FCPA”) and applicable local laws and customs;

•	unfavorable tax treatment or adverse changes to tax policy;

•	adverse weather conditions;

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•	water shortages;

•	adverse environmental and geological conditions;

•	force majeure and other events out of our control;

•	climate change; and

•	change in law risks.

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•	difficulty in assimilating the operations and personnel of the acquired or partner company;

•	difficulty in effectively integrating the acquired products or technologies with our current products or technologies;

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•	difficulty in achieving profitable commercial scale from acquired technologies;

•	difficulty in maintaining controls, procedures, and policies during the transition and integration;

•	disruption of our ongoing business and distraction of our management and associates from other opportunities and challenges due to integration issues;

•	difficulty integrating the acquired or partner company’s accounting, management information, and other administrative systems;

•	difficulty managing joint ventures with our partners, potential litigation with joint venture partners, and reliance upon joint ventures that we do not control;

•	inability to retain key technical and managerial personnel of the acquired business;

•	inability to retain key customers, vendors, and other business partners of the acquired business;

•	inability to achieve the financial and strategic goals for the acquired and combined businesses, as a result of insufficient capital resources or otherwise;

•	incurring acquisition-related costs or amortization costs for acquired intangible assets that could impact our operating results;

•	potential impairment of our relationships with our associates, customers, partners, distributors, or third-party providers of products or technologies;

•	potential failure of the due diligence processes to identify significant issues with product quality, legal and financial liabilities, among other things;

•	potential inability to assert that internal controls over financial reporting are effective;

•	potential inability to obtain, or obtain in a timely manner, approvals from governmental authorities, which could delay or prevent such acquisitions; and

•	potential delay in customer purchasing decisions due to uncertainty about the direction of our product offerings.

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•	incur additional debt, assume obligations in connection with letters of credit, or issue guarantees;

•	create liens;

•	enter into certain transactions with our affiliates;

•	sell certain assets; and

•	declare or pay dividends, make other distributions to stockholders, or make other restricted payments.

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(1)	Includes our manufacturing plant located in Lake Township, Ohio, a short distance from our plant in Perrysburg, Ohio.

(2)	In December 2012, we ceased manufacturing at our German plant. Since its closure, we have continued to market such property for sale.

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*	$100 invested on December 31, 2014 in stock or index, including reinvestment of dividends. Index calculated on a month-end basis.

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Net sales for 2019 increased by 36% to $3.1 billion compared to $2.2 billion in 2018. The increase in net sales was primarily attributable to an increase in third-party module sales, the sale of the Sun Streams, Sunshine Valley, and Beryl projects, and ongoing construction activities at the Phoebe and GA Solar 4 projects, partially offset by the sale of the Mashiko and certain Indian projects in 2018 and the completion of substantially all construction activities at the California Flats, Willow Springs, and various other projects in Florida in late 2018 and early 2019.

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Gross profit increased 0.4 percentage points to 17.9% during 2019 from 17.5% during 2018 primarily as a result of higher gross profit on third-party module sales, improved utilization of our manufacturing facilities, and a reduction to our product warranty liability due to revised module return rates, partially offset by the mix of lower gross profit projects sold or under construction during the period and the settlement of a tax examination with the state of California in 2018, which affected our estimates of sales and use taxes due for certain projects.

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During 2019, we commenced commercial production of Series 6 modules at our second manufacturing facility in Ho Chi Minh City, Vietnam and our manufacturing facility in Lake Township, Ohio, bringing our total installed Series 6 nameplate production capacity across all our facilities to 5.5 GWDC. We produced 5.7 GWDC of Series 4 and Series 6 modules during 2019, which represented a 111% increase from 2018. The increase in production was primarily driven by the incremental Series 6 production capacity added at our manufacturing facilities as described above. We expect to produce approximately 5.7 GWDC of solar modules during 2020, substantially all of which will be Series 6 modules.

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In September 2019, we announced our transition from an internal EPC service model in the United States to an external model, in which we expect to leverage the capabilities of third-party EPC services in providing power plant solutions to our systems segment customers. This transition is not expected to affect any projects currently under construction. The shift to an external EPC service model in the United States aligns with our typical model in international markets and is facilitated, in part, by our Series 6 module technology and its

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Following an evaluation of the long-term sustainable cost structure, competitiveness, and risk-adjusted returns of our U.S. project development business, we have determined it is in the best interest of our stockholders to explore options for this business line. This exploration may result in, among other possibilities, a partnership with a third party who possesses complimentary competencies or a sale of all or a portion of our U.S. project development business. This exploration of options for our U.S. project development business is not subject to any definitive timetable and there can be no assurances that this process will result in any transaction.

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In January 2020, we entered into a Memorandum of Understanding (“MOU”) to settle a class action lawsuit filed in 2012 in the United States District Court for the District of Arizona (hereafter “Arizona District Court”) against the Company and certain of our current and former officers and directors. Pursuant to the MOU, we agreed to pay a total of $350 million to settle the claims brought on behalf of all persons who purchased or otherwise acquired the Company’s shares during a specified period, in exchange for mutual releases and a dismissal with prejudice of the complaint upon court approval of the settlement. The proposed settlement contains no admission of liability, wrongdoing, or responsibility by any of the parties.

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(1)	EDP Renewables and ConnectGen

(2)	Contracted but not specified

(3)	Approximately 70 MWAC of the plant’s capacity is contracted under various PPAs

(4)	Chubu Electric Power Company – 38 MWAC and Hokuriku Electric Power Company – 17 MWAC

(5)	Gulbarga Electricity Supply Co. – 20 MWAC and Chamundeshwari Electricity Supply Co. – 20 MWAC

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•	higher costs of $817.5 million from an increase in the volume of modules sold; and

•	a reduction in our module collection and recycling liability of $25.4 million in 2018 due to higher by-product credits for glass, lower capital costs, and adjustments to certain valuation assumptions; partially offset by

•	a reduction to our product warranty liability of $80.0 million due to revised module return rates;

•	lower under-utilization and certain other charges associated with the initial ramp of certain Series 6 manufacturing lines, which decreased cost of sales by $40.3 million; and

•	continued reductions in the cost per watt of our solar modules, which decreased cost of sales by $107.1 million.

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•	During 2020, we expect to spend $450 million to $550 million for capital expenditures, including amounts related to the conversion of our second manufacturing facility in Kulim, Malaysia from Series 4 to Series 6 module technology and upgrades to other machinery and equipment, which we believe will further increase our module wattage and/or production cost structure.

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As described above, in January 2020, we entered into an MOU to settle a class action lawsuit filed in the Arizona District Court. Pursuant to the MOU, among other things, we agreed to pay a total of $350 million to settle the claims in the lawsuit in exchange for mutual releases and dismissal with prejudice of the complaint upon court approval of the settlement. In February 2020, we subsequently entered into a Stipulation and Agreement of Settlement (the “Settlement Agreement”) with certain named plaintiffs on terms and conditions that were consistent with the MOU. Pursuant to the Settlement Agreement, among other things, (i) we contributed $350 million in cash to a settlement fund that will be used to pay all settlement fees and expenses, attorneys’ fees and expenses, and cash payments to members of the settlement class and (ii) the settlement class has agreed to release us, the other defendants named in the class action, and certain of their respective related parties from any and all claims concerning, based on, arising out of, or in connection with the class action. The Settlement Agreement contained no admission of liability, wrongdoing, or responsibility by any of the parties.

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Our failure to obtain raw materials and components that meet our quality, quantity, and cost requirements in a timely manner could interrupt or impair our ability to manufacture our solar modules or increase our manufacturing costs. Accordingly, we may enter into long-term supply agreements to mitigate potential risks related to the procurement of key raw materials and components, and such agreements may be noncancelable or cancelable with a significant penalty. For example, we have entered into long-term supply agreements for the purchase of certain specified minimum volumes of substrate glass and cover glass for our PV solar modules. Our actual purchases under these supply agreements are expected to be approximately $2.4 billion of substrate glass and $500 million of cover glass. We have the right to terminate these agreements upon payment of specified termination penalties (which are up to $430 million in the aggregate and decline over time during the respective supply periods).

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The balance of our solar module inventories and BoS parts was $349.1 million as of December 31, 2019. As we continue to develop our advanced-stage project pipeline, we must produce solar modules in volumes sufficient to support our planned construction schedules. As part of this construction cycle, we typically produce these inventories in advance of receiving payment for such materials, which may temporarily reduce our

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We may commit significant working capital over the next several years to advance the construction of various U.S. systems projects or procure the associated modules or BoS parts, by specified dates, for such projects to qualify for certain federal investment tax credits. Among other requirements, such credits require projects to have commenced construction in 2019, which may have been achieved by certain qualifying procurement activities, to receive a 30% investment tax credit. Such credits will step down to 26% for projects that commence construction in 2020, and will further step down to 22% for projects that commence construction in 2021 and 10% for projects that commence construction thereafter.

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We may also commit working capital to acquire solar power projects in various stages of development, including advanced-stage projects with PPAs, and to continue developing those projects, as necessary. Depending upon the size and stage of development, the costs to acquire such solar power projects could be significant. When evaluating project acquisition opportunities, we consider both the strategic and financial benefits of any such acquisitions.

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(1)	Includes estimated cash interest to be paid over the remaining terms of the underlying debt. Interest payments are based on fixed and floating rates as of December 31, 2019.

(2)

Purchase obligations represent agreements to purchase goods or services, including open purchase orders and contracts with fixed volume commitments, that are noncancelable or cancelable with a significant penalty. Purchase obligations for our long-term supply agreements for the purchase of substrate glass and cover glass represent specified termination penalties, which are up to $430 million in the aggregate under the agreements. Our actual purchases under these supply agreements are expected to be approximately $2.4 billion of substrate glass and $500 million of cover glass.

(3)	In connection with business or project acquisitions, we may agree to pay additional amounts to the selling parties upon achievement of certain milestones. See Note 14. “Commitments and Contingencies” to our consolidated financial statements for further information.

(4)	Transition tax obligations represent estimated payments for U.S. federal taxes associated with accumulated earnings and profits of our foreign corporate subsidiaries. See Note 18. “Income Taxes” to our consolidated financial statements for further information.

(5)	Includes expected letter of credit fees and unused revolver fees.

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(1)	Includes 2,411,436 shares issuable upon vesting of restricted stock units (“RSUs”) granted under our 2015 Omnibus Incentive Compensation Plan.

(2)	The weighted-average exercise price does not take into account the shares issuable upon vesting of outstanding RSUs, which have no exercise price.

(3)	Includes 515,288 shares of common stock reserved for future issuance under our stock purchase plan for employees.

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(a)	Documents. The following documents are filed as part of this Annual Report on Form 10-K:

(b)	Exhibits. Unless otherwise noted, the exhibits listed on the accompanying Index to Exhibits are filed with or incorporated by reference into this Annual Report on Form 10-K.

(c)	Financial Statement Schedules. All financial statement schedules have been omitted as the required information is not applicable or is not material to require presentation of the schedule, or because the information required is included in the consolidated financial statements and notes thereto of this Annual Report on Form 10-K.

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•	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.

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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 are observable in active markets are Level 2 valuation techniques.

•	Level 3 – Valuation techniques in which one or more significant inputs are unobservable. Such inputs reflect our estimate of assumptions that market participants would use to price an asset or liability.

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(1)	See Note 7. “Restricted Cash and Investments” to our consolidated financial statements for discussion of our “Restricted cash” arrangements.

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(1)	There was an additional $13.7 million and $19.7 million of restricted cash included within “Prepaid expenses and other current assets” at December 31, 2019 and 2018, respectively.

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(1)

In November 2014 and February 2016, we entered into a term loan agreement and a convertible loan agreement, respectively, with Clean Energy Collective, LLC (“CEC”). Our term loan bears interest at 16% per annum, and our convertible loan bears interest at 10% per annum. In November 2018, we amended the terms of the loan agreements to (i) extend their maturity to June 2020, (ii) waive the conversion features on our convertible loan, and (iii) increase the frequency of interest payments, subject to certain conditions. In January 2019, CEC finalized certain restructuring arrangements, which resulted in a dilution of our ownership interest in CEC and the loss of our representation on the company’s board of managers. As a result of such restructuring, CEC no longer qualified to be accounted for under the equity method. As of December 31, 2019, the aggregate balance outstanding on the loans was $23.9 million and was presented within “Prepaid expenses and other current assets.” As of December 31, 2018, the aggregate balance outstanding on the loans was $22.8 million and was presented within “Notes receivable, affiliate.”

(2)	See Note 9. “Derivative Financial Instruments” to our consolidated financial statements for discussion of our derivative instruments.

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(1)	See Note 10. "Leases" to our consolidated financial statements for discussion of our lease arrangements.

(2)

In April 2009, we entered into a credit facility agreement with a solar power project entity of one of our customers for an available amount of €17.5 million to provide financing for a PV solar power system. The credit facility bears interest at 8.0% per annum, payable quarterly, with the full amount due in December 2026. As of December 31, 2019 and 2018, the balance outstanding on the credit facility was €7.0 million ($7.8 million and $8.0 million, respectively).

(3)

In June 2015, 8point3 Energy Partners LP (the “Partnership”), a limited partnership formed by First Solar and SunPower Corporation (collectively the “Sponsors”), completed its initial public offering (the “IPO”). As part of the IPO, the Sponsors contributed interests in various projects to OpCo in exchange for voting and economic interests in the entity, and the Partnership acquired an economic interest in OpCo using proceeds from the IPO.

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(4)	See Note 9. “Derivative Financial Instruments” to our consolidated financial statements for discussion of our derivative instruments.

(1)	See Note 14. “Commitments and Contingencies” to our consolidated financial statements for discussion of our “Product warranty liability.”

(1)	See Note 10. "Leases" to our consolidated financial statements for discussion of our lease arrangements.

(2)	See Note 9. “Derivative Financial Instruments” to our consolidated financial statements for discussion of our derivative instruments.

(3)	See Note 14. “Commitments and Contingencies” to our consolidated financial statements for discussion of our “Contingent consideration” arrangements.

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(1)	See Note 10. "Leases" to our consolidated financial statements for discussion of our lease arrangements.

(2)	See Note 14. “Commitments and Contingencies” to our consolidated financial statements for discussion of our “Product warranty liability” and “Contingent consideration” arrangements.

(3)	See Note 18. “Income Taxes” to our consolidated financial statements for discussion of the one-time transition tax on accumulated earnings of foreign subsidiaries as a result of the Tax Act.

(4)	See Note 9. “Derivative Financial Instruments” to our consolidated financial statements for discussion of our derivative instruments.

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(1)	These derivative instruments represent hedges of outstanding payables denominated in U.S. dollars at certain of our foreign subsidiaries whose functional currencies are other than the U.S. dollar.

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•	Cash Equivalents. At December 31, 2019 and 2018, our cash equivalents consisted of money market funds. We value our cash equivalents using observable inputs that reflect quoted prices for securities with identical characteristics, and accordingly, we classify the valuation techniques that use these inputs as Level 1.

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

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

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(1)

In January 2019, CEC no longer qualified to be accounted for under the equity method, and our loans to the company were no longer classified as notes receivable from an affiliate. As of December 31, 2019, the aggregate balance outstanding on the loans was presented within “Prepaid expenses and other current assets.” As of December 31, 2018, the aggregate balance outstanding on the loans was presented within “Notes receivable, affiliate.”

(2)	Excludes unamortized discounts and issuance costs.

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(1)	Outstanding balance comprised of $155.8 million of fixed rate loans and $32.2 million of variable rate loans as of December 31, 2019.

(2)	We have entered into interest rate swap contracts to hedge portions of these variable rates. See Note 9. “Derivative Financial Instruments” to our consolidated financial statements for additional information.

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(1)	During the year ended December 31, 2017, the majority of energy generated and sold by our PV solar power systems was accounted for under ASC 840 consistent with the classification of the associated PPAs.

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(1)

During the year ended December 31, 2018, we settled a tax examination with the state of California regarding several matters, including certain sales and use tax payments due under lump sum EPC contracts. Accordingly, we revised our estimates of sales and use taxes due for projects in the state of California, which affected the estimated transaction prices for such contracts, and recorded an increase to revenue of $54.6 million.

(1)	Includes $71.4 million and $48.0 million of long-term deferred revenue classified as “Other liabilities” on our consolidated balance sheets as of December 31, 2019 and 2018, respectively.

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(1)	EDP Renewables and ConnectGen

(2)	Contracted but not specified

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(1)	Restricted stock units granted include the maximum amount of performance stock units available for issuance under our long-term incentive program for key executive officers and associates. The actual number of shares to be issued will depend on the relative attainment of the performance metrics described above.

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*	Net sales for these customers were less than 10% of our total net sales for the period.

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*	Filed herewith.

†

This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, whether made before or after the date hereof and irrespective of any general incorporation language in any filings.

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