First Solar Annual Report 2016

FY2016 Annual Report · First Solar

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First Solar
2016 Annual Report

About First Solar

First Solar is a leading global provider of comprehensive photovoltaic (PV)
solar systems which use its advanced module and system technology. The
company’s integrated power plant solutions deliver an economically attractive
alternative to fossil-fuel electricity generation today. From raw material
sourcing through end-of-life module recycling, First Solar’s renewable energy
systems protect and enhance the environment. With over 17 gigawatts
installed worldwide, First Solar has developed, financed, engineered,
constructed, and operated some of the world’s largest and most successful
PV power plants in existence, establishing the company as the partner of
choice for customers globally.

Photo Courtesy of AGL Energy
Photo Courtesy of AGL Energy

FIRST SOLAR | ANNUAL REPORT 2016

To Our Shareholders

As First Solar’s new CEO I look forward to leading the
company through this challenging, yet exciting time.
The solar module industry is continuously changing,
and in the second half of 2016 it experienced sudden
and dramatic pricing declines, resulting largely from
a combination of increasing capacity and weakening
demand in certain markets. From an operational
standpoint First Solar continued to perform well, and
we ended the year in a very strong financial position.
However, these challenging market conditions
necessitated that we undertake a strategic review of
our business to determine a path forward that would
allow us to generate, over the long-term, attractive
returns for our shareholders despite challenging
market headwinds.

The outcome of this strategic review was an action
plan that allows us to bring forward production of
our Series 6 product into 2018, a year earlier than
previously expected. The ability to utilize our existing
manufacturing facilities is a key enabler of the Series
6 acceleration; it also reduces the expected capital
spend. However, transitioning to Series 6 requires us
to ramp down our Series 4 production over the next
six quarters, as well as to discontinue development
of our Series 5 module. While these decisions
resulted in significant, primarily non-cash, charges
that impacted our 2016 results, these actions were
necessary in order to accommodate the Series 6
transition.

Based on extensive analysis and
customer feedback, the superiority
of Series 6 has become clear.

MARK WIDMAR
CEO

When we first introduced the Series 6 module in early
2016, we highlighted that we anticipated this product
to have a compelling combination of high efficiency,
low cost, and balance of system compatibility.
The Series 4 module remains a highly competitive
product, with near 17% conversion efficiency and
a low cost per watt. However, based on extensive
analysis and customer feedback, the superiority
of Series 6 has become clear. Firstly, Series 6 is
expected to have improved conversion efficiency,
which combined with the larger module size, results
in a greater than 420 watt panel. Additionally,
scaling of the module size is expected to result in an
approximately 40% lower module cost per watt as
compared to Series 4. Relative to Series 4, we also
expect significant balance of systems savings and
increased field installation velocity. By preserving
our up to 10% energy yield advantage, relative to
silicon based technologies in key solar regions,
the value proposition of our new Series 6 product
becomes even more compelling. Taken together,
these attributes highlight the potential for the Series
6 product to have significant competitive advantages.

FIRST SOLAR | ANNUAL REPORT 2016

While there are certain challenges
inherent in transitioning to this new
product, we are undertaking several
measures to reduce potential risks. Most
significantly, our Series 6 modules will
utilize essentially the same underlying
solar cell technology as our Series 4
product. As a result we believe the core
technology risk involved in the transition
to be low. In addition, we are developing
Series 6 by leveraging more than a
decade of internal R&D capabilities and
learnings, and deploying it in our existing
factories with skilled manufacturing
teams. We are also harnessing the
external expertise of long-trusted
equipment suppliers for our core process
technology tools.

The key steps to enable the
manufacturing of our Series 6 product
are already underway. Towards the end of
2016 we began ramping down a portion
of our Series 4 manufacturing in Ohio,
to prepare for the deployment of our first
Series 6 line. Major equipment for this
first line has already been ordered and
we are targeting first production by the
second half of 2018.

SERIES 6 PV MODULE

While we are still in the early stages of our transition
to Series 6 we are pleased with our progress thus
far, and we will continue to provide regular updates
to our shareholders.

FIRST SOLAR | ANNUAL REPORT 2016

Technology & Operations

In addition to our decision to accelerate our transition to Series 6 we
had a number of notable technology highlights in 2016. In February we
set a new cell efficiency record of 22.1%, which is the ninth substantial
update to our cell roadmap since 2011. Our research improvements
continue to be manifest in our production efficiencies as highlighted
by the new record fleet and lead line efficiency achieved in 2016. Our
full year 2016 conversion efficiency averaged 16.4%, an 80 basis point
improvement from 2015. In addition our lead line efficiency averaged
16.8% in the fourth quarter of 2016, which is a 40 basis point
improvement versus the same quarter in 2015. Series 6 will build
upon these achievements in our Series 4 technology, while continuing
to enable further improvements in conversion efficiency, cost and
installation velocity.

Our operational achievements in 2016 were also notable. Production
volume increased 24% to a record 3.1 gigawatts (GW)DC. Our
Engineering, Procurement and Construction (EPC) group remains
one of the largest global solar installers and reached 7.3GW DC
of cumulative installed capacity by year end. Additionally, at the
end of last year we had nearly 7GW DC of assets under contract in
our portfolio of solar power plants managed by our Operations and
Maintenance (O&M) group. This firmly establishes First Solar as the
largest solar O&M provider in the world. These achievements highlight
the depth of experience behind the fully integrated solutions that we
have to offer our customers.

OPERATIONAL ACHIEVEMENTS
OPERATIONAL ACHIEVEMENTS

3.1GW
2016 PRODUCTION
VOLUME
7.3GW
EPC CUMULATIVE
INSTALLED CAPACITY
7GW
O&M CONTRACTED
ASSETS

FIRST SOLAR | ANNUAL REPORT 2016

Global Markets

With the progress we made in a number of global markets during the past year, we continue to establish
a foundation for future Series 6 product success. In 2016 we shipped over 2.7GW DC of modules and
our EPC group installed 4GW DC. International shipments continued to grow to a total of 870 megawatts
(MW) DC in 2016, based on the strength of shipments to India and the Middle East, two regions where our
technology has a significant energy yield advantage. The following are highlights of new project bookings
from some of our important markets.

UNITED STATES

Despite the challenging market conditions in the second half of 2016
we generated meaningful bookings in the United States during this
past year.

Firstly, in terms of project development we signed PPAs with SCE for
two projects totaling over 145MW AC in the western U.S. In addition,
we signed a PPA for 40MW AC with MCE, a leading Community
Choice Aggregator (CCA) in California. Subject to certain conditions
and based on load increase from a potential MCE expansion,
this PPA may be increased to 160MW AC. CCAs are becoming
increasingly important providers of electricity to customers, both in
California and a growing number of other states. CCAs offer their
customers the benefits of local control, competitive power rates and
access to a higher mix of renewable energy.

The growth of CCAs across the nation also mirrors the growth of
community solar that is occurring across the United States. In
2016 we signed module supply agreements of over 120MW DC for
community solar projects in diverse states ranging from the upper
Midwest to the Southwest. With a much lower cost than rooftop
solar, community solar is a highly compatible model for utilities that
is expected to grow substantially in the coming years.

Module sale activity in the U.S. was also strong during the past year.
In early 2016 we announced an agreement with a leading developer
in the Southeast to supply over 200MW DC to projects in Georgia,
Mississippi, Arkansas and Tennessee, states with emerging solar
markets. Shipments to these projects are expected to take place
in 2017 and 2018. More recently we signed a 200MW DC supply
agreement with a leading independent power producer for a project
located in the Southwest. With other sales in states ranging from
the Intermountain West to the Mid-Atlantic we are seeing increasing
signs of broad acceptance and growth of solar.

With other sales in
With other sales in
With other sales in
states ranging from the
states ranging from the
states ranging from the
Intermountain West to
Intermountain West to
Intermountain West to
the Mid-Atlantic we are
the Mid-Atlantic we are
the Mid-Atlantic we are
seeing increasing signs
seeing increasing signs
seeing increasing signs
of broad acceptance and
of broad acceptance and
of broad acceptance and
growth of solar.
growth of solar.
growth of solar.

FIRST SOLAR | ANNUAL REPORT 2016

63MW DC
KIDSTON
SOLAR PROJECT

49MW AC
MANILDRA
SOLAR FARM

INTERNATIONAL MARKETS

In the Asia-Pacific region, Australia and Japan were
In the Asia-Pacific region, Australia and Japan were
two of our strongest markets during this past year.
two of our strongest markets during this past year.

Australia

In Australia we reached a new milestone early in
In Australia we reached a new milestone early in
2017 with the award of a PPA for our first self-
2017 with the award of a PPA for our first self-
developed project in the country, the 49MW AC
developed project in the country, the 49MW AC
Manildra Solar Farm. In addition, we have recently
Manildra Solar Farm. In addition, we have recently
signed two separate module supply agreements,
which together total more than 200MW DC. The
140MW DC supply agreement with Sun Metals will
provide energy to the company’s zinc refinery and
will be the largest solar power plant in Australia
once completed. In a separate transaction we will
be supplying 63MW DC to the first phase of the
Kidston solar project, which will be co-located with
a pumped storage project. We are pleased with
our recent success in Australia, and the growth
potential of solar in a region where our technology
holds a strong energy yield advantage.

Japan

In Japan we continue to see the growth of our
development pipeline in the country. In 2016 and
early 2017 we added to our contracted development
pipeline, which is now over 180MW DC and includes
10 smaller projects which have commenced
operations. In addition, we have over 350MW DC of
late-stage bookings opportunities that we are working
to close.

FIRST SOLAR | ANNUAL REPORT 2016

200MW AC

MODULE SUPPLIER OF
DUBAI PROJECT

340MW DC

2016 MODULE SALES
IN INDIA

100MW DC

MODULE SUPPLY
AGREEMENTS IN FRANCE

160MW DC

MODULE SUPPLY
AGREEMENTS IN TURKEY

India

In India we crossed the 1,000MW DC module
shipment milestone in early 2016 and have continued
to sign additional volume over the course of the
year. For the entire year we booked over 340MW
DC of module sales and signed a PPA for a 60MW
AC development project. This latest project booking
brings our total contracted development pipeline in
the country to 260MW AC.

Middle East

In the Middle East, in 2016 we supplied modules to
a 200MW AC landmark project in Dubai. Additionally,
we completed the 53MW AC Shams Ma’an project in
Jordan, which accounts for approximately 1% of the
country’s total generating capacity.

Europe

In Europe we continue to see opportunities in sunnier
regions such as France and Turkey. In France we
signed module supply agreements of over 100MW
DC and in Turkey we booked agreements for module
delivery of 160MW DC.

Conclusion

While 2016 saw challenging market conditions that required First Solar to
undertake significant restructuring actions in order to accelerate Series 6,
I feel strongly that the company has the right technology, the talent, and
financial resources necessary to weather the current environment and
emerge stronger. Our CdTe technology has long been a key source of our
competitive advantage; with our Series 6 module we have the opportunity to
realize its full potential.

As a company we will continue to invest in technology, focus on delivering
compelling solutions to our customers, and manage the business in a
financially responsible way. As we execute on these priorities we believe that
we can position First Solar on a path to future growth and success which will
create value for our shareholders. This is an exciting time for First Solar and I
look forward to the opportunities ahead.

Our CdTe technology
has long been
a key source of
our competitive
advantage and
with our Series 6
module we have the
opportunity to realize
its full potential.

FIRST SOLAR | ANNUAL REPORT 2016

2016 Financial Results

$4,000

$3,500

$3,000

$2,500

$2,000

$1,500

$1,000

s
n
o

i
l
l
i

Net Sales

3,579

3,355

3,310

3,391

2,951

2,780

2,564

2,066

1,246

$500

135

504

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Cash & Market Securities vs. Debt

1,991

1,955

1,764

1,830

Total Cash

Total Debt

822

670

308

1,114

1,004

788

-108

-198

-175

-237

-223 -213

-289

-188

-664 -563

2006 2007 2008 2009 2010 2011 2012 2013 2014

2015

2016

Average Module Conversion Efficiency

16.4%

15.6%

14.0%

13.2%

12.6%

11.9%

11.3%

11.0%

10.7%

10.4%

9.5%

$2,000

$1,600

$1,200

$800

$400

-$400

-$800

17.0%

16.0%

15.0%

14.0%

13.0%

12.0%

11.0%

10.0%

9.0%

s
n
o

i
l
l
i

e
g
a
t
n
e
c
r
e
P

n
o
i
s
r
e
v
n
o
C

2006 2007 2008 2009 2010 2011 2012 2013 2014

2015

2016

FIRST SOLAR | ANNUAL REPORT 2016

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

(Mark one)

Form 10-K

(cid:2) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

(cid:3) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2016

For the transition period from

Commission file number: 001-33156

25MAR201715173379

First Solar, Inc.

(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation or organization)

20-4623678
(I.R.S. Employer
Identification No.)

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

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

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Name of each exchange on which registered

Common stock, $0.001 par value

The NASDAQ Stock Market LLC

Securities registered pursuant to Section 12(g) of the Act:

None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes (cid:2) No (cid:3)

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the

Act. Yes (cid:3) No (cid:2)

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 (cid:2) No (cid:3)

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 (cid:2) No (cid:3)

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not
contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated
by reference in Part III of this Form 10-K or any amendment to this Form 10-K. (cid:3)

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.
Large accelerated filer (cid:2)

Smaller reporting company (cid:3)

Accelerated filer (cid:3)

Non-accelerated filer (cid:3)
(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 Act). Yes (cid:3) No (cid:2)

The aggregate market value of the registrant’s common stock, $0.001 par value per share, held by non-affiliates of the registrant on
June 30, 2016, the last business day of the registrant’s most recently completed second fiscal quarter, was approximately $3.4 billion (based on
the closing sales price of the registrant’s common stock on that date). As of February 17, 2017, 104,044,691 shares of the registrant’s common
stock, $0.001 par value per share, were issued and outstanding.

The information required by Part III of this Annual Report on Form 10-K, to the extent not set forth herein, is incorporated by
reference from the registrant’s definitive proxy statement relating to the Annual Meeting of Shareholders to be held in 2017, which will be
filed with the Securities and Exchange Commission within 120 days after the end of the fiscal year to which this Annual Report on
Form 10-K relates.

DOCUMENTS INCORPORATED BY REFERENCE

FIRST SOLAR, INC. AND SUBSIDIARIES

FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2016

TABLE OF CONTENTS

Item 1.

PART I
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Executive Officers of the Registrant
Item 1A. Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1B. Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 2.
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 3.
Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 4.

PART II

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer

Item 6.
Item 7.

Purchases of Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Management’s Discussion and Analysis of Financial Condition and Results of

Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 7A. Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . .
Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 8.
Changes in and Disagreements with Accountants on Accounting and Financial
Item 9.

Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9A. Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9B. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

PART III

Item 10. Directors, Executive Officers, and Corporate Governance . . . . . . . . . . . . . . . . . . . . .
Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 11.
Security Ownership of Certain Beneficial Owners and Management and Related
Item 12.

Item 13.
Item 14.

Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Certain Relationships and Related Transactions, and Director Independence . . . . . . .
Principal Accounting Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

PART IV
Item 15.
Exhibits and Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Financial Statements

Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Comprehensive Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Stockholders’ Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Index to Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Form 10-K Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 16.

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Throughout this Annual Report on Form 10-K, we refer to First Solar, Inc. and its consolidated

subsidiaries as ‘‘First Solar,’’ ‘‘the Company,’’ ‘‘we,’’ ‘‘us,’’ and ‘‘our.’’

NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K contains forward-looking statements within the meaning of the
Securities Exchange Act of 1934, as amended (the ‘‘Exchange Act’’), and the Securities Act of 1933, as
amended (the ‘‘Securities Act’’), which are subject to risks, uncertainties, and assumptions that are
difficult to predict. All statements in this Annual Report on Form 10-K, other than statements of
historical fact, are forward-looking statements. These forward-looking statements are made pursuant to
safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The forward-looking
statements include statements, among other things, concerning: effects resulting from certain module
manufacturing changes and associated restructuring activities; our business strategy, including
anticipated trends and developments in and management plans for our business and the markets in
which we operate; future financial results, operating results, revenues, gross margin, operating expenses,
products, projected costs (including estimated future module collection and recycling costs), warranties,
solar module technology and cost reduction roadmaps, restructuring, product reliability, investments in
unconsolidated affiliates, and capital expenditures; our ability to continue to reduce the cost per watt of
our solar modules; our ability to expand manufacturing capacity worldwide; our ability to reduce the
costs to construct photovoltaic (‘‘PV’’) solar power systems; research and development (‘‘R&D’’)
programs and our ability to improve the conversion efficiency of our solar modules; sales and
marketing initiatives; and competition. In some cases, you can identify these statements by forward-
looking words, such as ‘‘estimate,’’ ‘‘expect,’’ ‘‘anticipate,’’ ‘‘project,’’ ‘‘plan,’’ ‘‘intend,’’ ‘‘seek,’’
‘‘believe,’’ ‘‘forecast,’’ ‘‘foresee,’’ ‘‘likely,’’ ‘‘may,’’ ‘‘should,’’ ‘‘goal,’’ ‘‘target,’’ ‘‘might,’’ ‘‘will,’’ ‘‘could,’’
‘‘predict,’’ ‘‘continue,’’ and the negative or plural of these words, and other comparable terminology.
Forward-looking statements are only predictions based on our current expectations and our projections
about future events. All forward-looking statements included in this Annual Report on Form 10-K are
based upon information available to us as of the filing date of this Annual Report on Form 10-K. You
should not place undue reliance on these forward-looking statements. We undertake no obligation to
update any of these forward-looking statements for any reason. These forward-looking statements
involve known and unknown risks, uncertainties, and other factors that may cause our actual results,
levels of activity, performance, or achievements to differ materially from those expressed or implied by
these statements, including, but not limited to:

• structural imbalances in global supply and demand for PV 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 plan;

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

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

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

relationships;

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

• our ability to convert existing production facilities to support new product lines, such as Series 6

module manufacturing;

• 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 research and development;

• 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.

You should carefully consider the risks and uncertainties described under this section.

Unit of Power

When referring to our manufacturing capacity, total sales, and solar module sales, the unit of
electricity in watts for megawatts (‘‘MW’’) and gigawatts (‘‘GW’’) is direct current (‘‘DC’’) unless
otherwise noted. When referring to our PV solar power systems, the unit of electricity in watts for MW
and GW is alternating current (‘‘AC’’) unless otherwise noted.

Item 1. Business

Company Overview

PART I

We are a leading global provider of comprehensive PV solar energy solutions. We design,

manufacture, and sell PV solar modules with an advanced thin-film semiconductor technology and also
develop, design, construct, and sell PV solar power systems that primarily use the modules we
manufacture. Additionally, we provide operations and maintenance (‘‘O&M’’) services to system owners
that use solar modules manufactured by us or by third-party manufacturers. We have substantial,
ongoing research and development efforts focused on module and system-level innovations. We are the
world’s largest thin-film PV solar module manufacturer and one of the world’s largest PV solar module
manufacturers. Our mission is to create enduring value by enabling a world powered by clean,
affordable solar energy.

In addressing overall global demand for PV solar electricity, our high-efficiency CdTe modules and
fully integrated systems business can provide competitively priced utility-scale PV solar energy solutions
to system owners and low cost electricity to end-users. Our systems business has enabled us to drive
cost reduction across the value chain and deliver compelling solutions to our customers. We are
committed to continually lowering the cost of solar electricity and plan to compete on an economic
basis with conventional fossil-fuel-based power generation.

In furtherance of our goal of delivering affordable solar electricity, we are continually focused on

reducing costs in the following areas: module manufacturing costs, balance of systems (‘‘BoS’’) costs
(consisting of the costs of the components of a system other than the modules that we manufacture),
project development costs, capital costs, and operating costs. First, with respect to our module
manufacturing costs, we believe our advanced CdTe technology has allowed us to reduce our average
module manufacturing costs to among the lowest in the world for modules produced on a commercial
scale, based on publicly available information. We believe that our module manufacturing cost is
competitive, on a comparable basis with, or is lower than, those of traditional crystalline silicon solar
module manufacturers. We also recently introduced our next generation CdTe module technology,
Series 6TM (‘‘Series 6’’), which is expected to enable the production of modules with a larger form
factor, better product attributes, and a lower cost structure. By continuing to make module technology
innovations, improving module conversion efficiency and energy yield, increasing production line
throughput, and lowering raw material and operating costs, we believe that we can further reduce our
manufacturing cost per watt and increase the cost competitiveness of our modules relative to traditional
crystalline silicon solar module manufacturers. Second, with respect to our BoS costs, we have
programs that target key improvements in components and system designs, which, when combined with
continued improvements in module technology, volume procurement around standardized hardware
platforms, the use of innovative installation techniques and know-how, and accelerated installation
times, are expected to result in continued reductions in installed system costs. Third, with respect to
our project development costs, we seek optimal site locations in an effort to maximize solar resources
and minimize transmission and permitting costs, and to accelerate lead times to electricity generation.
Fourth, the remaining primary system cost relates to the actual operating costs of a system, which
include the O&M costs of the plant. We believe that our O&M services are an important driver to
further reductions in the levelized cost of electricity (‘‘LCOE’’) of a PV solar power system through
seamless grid integration, increased reliability, and maximization of the availability of the systems we
operate and maintain for our customers.

In addition to enabling the cost reductions described above, we believe that combining our vertical

integration across the solar value chain enables us to be more competitive, accelerate the adoption of
our technology in PV solar power systems, and successfully sell into key markets around the world. Our
vertically integrated capabilities enable us to maximize value and mitigate risk for our customers and

offer valuable benefits such as grid integration and stabilization, thereby positioning us to deliver
meaningful PV solar energy solutions to varied energy problems worldwide. We seek to offer leadership
across the entire solar value chain, resulting in more reliable and cost effective PV solar energy
solutions for our customers, and furthering our mission to create enduring value by enabling a world
powered by clean, affordable solar electricity.

Market Overview

Solar energy is a growing form of renewable energy with numerous economic and environmental
benefits that make it an attractive complement to, and/or substitute for, traditional forms of electricity
generation. In recent years, the price of PV solar power systems, and accordingly the cost of producing
electricity from such systems, has dropped to levels that are competitive with or even below the
wholesale price of electricity in many markets. The rapid price decline that PV solar energy has
experienced in recent years opens new possibilities to develop systems in some locations with limited or
no financial incentives. The fact that a PV solar power system requires no fuel provides a unique and
valuable hedging benefit to owners of such systems relative to traditional electricity generation assets.
Once installed, PV solar power systems can function for 25 or more years with relatively less
maintenance or oversight compared to traditional forms of electricity generation. In addition to these
economic benefits, solar energy has several environmental benefits. For example, PV solar power
systems do not generate any greenhouse gas or other emissions and use no or minimal amounts of
water compared to traditional forms of electricity generation. Worldwide solar markets continue to
develop, aided by the above factors as well as demand elasticity resulting from declining industry
average selling prices, both at the module and system level, which make solar power more affordable.

The solar industry continues to be characterized by intense pricing competition, both at the
module and system levels. In particular, module average selling prices in the United States and several
other key markets have experienced an accelerated decline in recent months, and module average
selling prices are expected to continue to decline to some degree in the short and medium terms
according to market forecasts. In the aggregate, we believe manufacturers of solar modules and cells
have significant installed production capacity, relative to global demand, and the ability for additional
capacity expansion. We believe the solar industry may, from time to time, experience periods of
structural imbalance between supply and demand (i.e., where production capacity exceeds global
demand), and that such periods will put downward pressure on pricing. We believe the solar industry is
currently in such a period. Additionally, intense competition at the system level may result in an
environment in which pricing falls rapidly, thereby further increasing demand for solar energy solutions
but constraining the ability for project developers; engineering, procurement, and construction (‘‘EPC’’)
companies; and vertically-integrated solar companies such as First Solar to sustain meaningful and
consistent profitability. In light of such market realities, we are executing our long term strategic plan,
as described below, under which we are focusing on our competitive strengths. Such strengths include
our advanced module and system technologies as well as our vertically-integrated business model that
enables us to provide utility-scale PV solar energy solutions to key markets with current electricity
needs.

Strategy and Competitive Strengths

To build upon our leading industry position and to remain one of the preferred providers of PV

solar energy solutions, we are pursuing the following strategies: differentiation, sustainable growth, and
financial viability.

Differentiation

• As a field-proven technology, our CdTe solar modules offer certain advantages over traditional
crystalline silicon based solar modules by delivering competitive efficiency, higher real-world

energy yield, and long-term reliability. Proven to deliver up to 10% more usable energy per
nameplate watt than competing technologies in certain geographic markets, and with a record of
reliable system performance, our CdTe technology delivers more energy, more consistently, over
the lifetime of a PV solar power system. Our recently introduced Series 6 module technology,
with its combination of high conversion efficiencies, low manufacturing costs, larger form factor,
and BoS compatibility, is expected to further enhance our competitive position once production
of such module technology begins in 2018. We expect the transition to Series 6 module
technology will also enable us to maximize the intrinsic cost advantage of CdTe thin-film
technology versus crystalline silicon.

• In terms of energy yield, in many climates, our CdTe solar modules provide a significant energy
production advantage over most crystalline silicon solar modules of equivalent efficiency rating.
For example, our CdTe solar modules provide a superior temperature coefficient, which results
in stronger system performance in typical high insolation climates as the majority of a system’s
generation, on average, occurs when module temperatures are well above 25(cid:4)C (standard test
conditions). In addition, our CdTe solar modules provide a superior spectral response in humid
environments where atmospheric moisture alters the solar spectrum relative to laboratory
standards. Our CdTe solar modules also provide a better shading response than conventional
crystalline silicon solar modules, which may lose up to three times as much power as CdTe solar
modules when shading occurs. As a result of these factors, our PV solar power systems typically
produce more annual energy in real world field conditions than competing systems with the
same nameplate capacity.

• Our modules are manufactured in a high-throughput, automated environment that integrates all

manufacturing steps into a continuous flow line. At the outset, a sheet of glass enters the
production line and in less than 3.5 hours is transformed into a completed module, which is
flash tested, boxed, and ready for shipment. With over 17.0 GW of modules sold worldwide, we
have a demonstrated history of manufacturing success and innovation. We currently have
multiple production lines in our Perrysburg, Ohio and Kulim, Malaysia manufacturing facilities.
As we transition to manufacturing our Series 6 module technology, we expect to ramp down
production of our Series 4TM (‘‘Series 4’’) modules over the next two years. This transition
process, which will result in a temporary reduction in production capacity, allows us to use our
existing manufacturing infrastructure to more quickly deploy our Series 6 module technology to
best position us for long-term competitiveness and growth.

• We are vertically integrated across substantially the entire solar value chain. Many of the

efficiencies, cost reductions, and capabilities that we deliver to our customers are not easily
replicable for other industry participants that are not similarly vertically integrated. Accordingly,
our operational model offers PV solar energy solutions that benefit from our capabilities,
including: advanced PV modules; project development; engineering and plant optimization; grid
integration and plant control systems; procurement and construction consulting; and
O&M services.

• Our systems deliver solar energy that is cost competitive with certain conventional energy

sources, depending on the location and application. Our solutions diversify the energy portfolio
and reduce the risk of fuel-price volatility, while delivering an LCOE that is cost competitive in
many circumstances with electricity generated from fossil fuels. With the absence of commodity
price risk, solar energy has a meaningful value proposition, including a long-term fixed price
with relatively low operating costs and reliable energy. 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.

• We lead all PV solar module manufacturers in R&D investment, maintaining a rate of

innovation enabling efficiency gains three times faster than multi-crystalline silicon technology
(historically our primary competitor) over recent years. Our R&D model differentiates us from
much of our competition due to its vertical integration, from advanced research to product
development, manufacturing, and applications. Our module conversion efficiency has improved
on average more than half a percent every year for the last ten years. We currently hold two
world records for CdTe PV efficiency, achieving an independently certified research cell
efficiency of 22.1% and a full area module efficiency of 18.2%. Our module R&D efforts
generally focus on continually improving the efficiency and energy yield of our modules and
otherwise driving improvements in the lifetime energy production of our modules for cost
effective, productive, and reliable PV solar power systems.

• Our bankability and financial credibility enable us to offer meaningful module and system

warranties after installation, which provide us with a competitive advantage relative to some of
our peers in the solar sector in the context of project financing.

• We have developed advanced grid integration technology, which provides PV plants the ability to

actively stabilize the electricity grid and operate more like traditional electricity generation
plants. Advanced plant features of our grid integration systems include the ability to regulate
voltage, curtail active power when necessary, limit the rate of change of power, prevent trips
during faults and disturbances, and react to changes in grid frequency.

• O&M is a key driver for power plants to deliver on their projected revenues. 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. With more than 7.1 GW DC of
utility-scale PV plants under the O&M program, we maintain a fleet average system effective
availability greater than 99%. Our experienced O&M staff enhances the probability that our
customers’ power plants produce the energy predicted in their energy model. Our products and
services are engineered to maximize 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 goal is to optimize
our customers’ power plants to generate the maximum amount of energy and revenue under
their respective power purchase agreements (‘‘PPA’’) throughout the operational life of the
plants. We have made significant investments in O&M technologies in order to develop and
create a scalable and sustainable O&M platform. Our O&M program is compliant with the
North American Electric Reliability Corporation (‘‘NERC’’) standards and is designed to be
scalable to accommodate the growing O&M needs of customers worldwide. We believe our
O&M expertise and scale are significant differentiators, as it is difficult for many competitors to
replicate this experience.

Sustainable Growth

Our long term strategic plan is a long-term roadmap to achieve our technology, cost leadership,
and growth objectives. In executing our long term strategic plan, we are focusing on providing utility-
scale PV solar energy solutions using our modules in key geographic markets that we believe have a
compelling need for mass-scale PV electricity, including markets throughout the Americas, the
Asia-Pacific region, and the Middle East. As part of our long term strategic plan, we are focusing on
opportunities in which our PV solar energy solutions can compete directly with fossil fuel offerings on
an LCOE or similar basis, or complement such fossil fuel electricity offerings. Execution of the long
term strategic plan entails a prioritization of market opportunities worldwide relative to our core
strengths and a corresponding allocation of resources around the globe. This prioritization involves a
focus on our core module and utility-scale offerings and exists within a current market environment
that includes rooftop and distributed generation solar, particularly in the United States. While it is

unclear how rooftop and distributed generation solar might impact our core utility-scale offerings in the
next several years, we believe that utility-scale solar will continue to be a compelling solar offering for
companies with technology and cost leadership and will continue to represent an increasing portion of
the overall electricity generation mix.

We are closely evaluating and managing the appropriate level of resources required as we pursue

the most advantageous and cost effective projects and partnerships in our target markets. We have
dedicated, and intend to continue to dedicate, significant capital and human resources to reduce the
total installed cost of PV solar energy, to optimize the design and logistics around our PV solar energy
solutions, and to ensure that our solutions integrate well into the overall electricity ecosystem of each
specific market. We expect that, over time, an increasing portion of our consolidated net sales,
operating income, and cash flows may come from solar offerings in the key geographic markets
described above as we execute on our long term strategic plan. The timing, execution, and financial
impacts of our long term strategic plan are subject to risks and uncertainties, as described in
Item 1A. ‘‘Risk Factors.’’ We are focusing our resources in those markets and energy applications in
which solar power can be a least-cost, best-fit energy solution, particularly in regions with high solar
resources, significant current or projected electricity demand, and/or relatively high existing electricity
prices. As part of these efforts, we continue to optimize resources globally, including business
development, sales personnel, and other professional staff supporting target markets.

Joint ventures or other strategic arrangements with partners are a key part of our long term
strategic plan, and we generally use such arrangements to expedite our penetration of various key
markets and establish relationships with potential customers. We also enter into joint ventures or
strategic arrangements with customers or other entities to maximize the value of particular projects.
Some of these arrangements involve and are expected in the future to involve significant investments or
other allocations of capital. We continue to develop relationships with customers in these strategic
markets with a view to creating opportunities for utility-scale PV solar power systems. We sell such
systems directly to end customers, including utilities, independent power producers, commercial and
industrial companies, and other system owners. Depending on the market opportunity, our sales
offerings may range from module-only sales, to module sales with a range of development, EPC
services, and other solutions, to full turn-key PV solar power system sales. We expect these offerings to
continue to evolve over time as we work with our customers to optimize how our PV solar energy
solutions can best meet our customers’ energy and economic needs.

Financial Viability

First Solar’s commitment is to create long-term shareholder value and generate returns on invested

capital in excess of its weighted average cost of capital over that time horizon. Despite substantial
downward pressure on the price of solar modules due to pricing competition and significant capacity in
the industry, we have continued to deliver strong financial performance and liquidity. As planned, we
expect to continue to drive operating expense efficiencies and improvements while still investing in
growth, the continued development of our global sales capabilities, and our R&D roadmap. We seek to
balance our incentive compensation and decision-making processes to ensure we direct our efforts and
investments towards long-term profitable and sustainable growth with appropriate returns on invested
capital and reinvest excess returns back into the business.

Offerings and Capabilities

Offerings

We are focusing on markets and energy applications in which solar power can be a least-cost,
best-fit energy solution, particularly in regions with high solar resources, significant current or projected
electricity demand, and/or relatively high existing electricity prices. We differentiate our product

offerings by geographic market and localize the solution, as needed. Our consultative approach to our
customers’ solar energy needs and capabilities results in customized solutions to meet their economic
goals. We have designed our customer solutions according to the needs of the following different
business areas. Although we have substantial experience with the advanced PV module and utility-scale
power plant offerings described below, certain other offerings are in various stages of development.

• PV Modules. Our modules couple 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 modules. Our technology demonstrates a proven performance
advantage over most crystalline silicon solar modules of equivalent efficiency rating by delivering
competitive efficiency, 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
investing more in R&D than any other solar company in the world.

• Utility-Scale Power Plant. We have extensive, proven experience in delivering reliable

grid-connected bulk power systems for utility-scale generation. Our grid-connected PV solar
power systems diversify the energy portfolio, reduce fossil-fuel consumption, reduce the risk of
fuel price volatility, and save costs, proving that centralized solar generation can deliver reliable
and affordable solar electricity to the grid in many places around the world. Benefits of our
grid-connected bulk power system solutions include reduction of fuel imports and improvements
in energy security; diversification of the energy portfolio and reductions of risk related to
fuel-price volatility; enhanced peaking generation and faster time-to-power; improved grid
reliability and stability with advanced PV plant controls; and managed PV variability through
accurate forecasting.

• Commercial and Industrial. The wholesale commercial and industrial market is a promising

opportunity for First Solar given our large-scale PV system expertise. The demand for corporate
renewables is accelerating, with corporations worldwide committing to the RE100 campaign, a
collaborative, global initiative of influential businesses committed to 100% renewable electricity.
We believe we have a competitive advantage in the commercial and industrial market due to
customers’ sensitivity to reputational risk, as well as their desire to cover their operations
globally. With our financial strength, solid development record, and global footprint, we are well
positioned to meet their needs. As one recent example, Apple Inc. (‘‘Apple’’) committed to
purchase electricity from our California Flats solar project under construction in Monterey
County, California. Apple will receive electricity from 130 MW AC of the project under a
25-year PPA.

• Community Solar. Our community solar offering addresses the residential and small business

sectors, providing a broad range of customers with access to competitively priced solar energy
regardless of the suitability of their rooftops. Community solar utilizes relatively small ground-
mounted installations that provide clean energy to utilities, which then offer consumers the
ability to buy into a specific community installation and benefit from the solar power generated
by that resource. While the initial growth in community solar was limited to certain states, the
momentum continues to build as states across the country are beginning to enact community
solar policies, and utilities are looking to diversify their energy generation portfolio in order to
meet customer demand for affordable, clean energy. Our expertise in utility-scale generation and
module technology, paired with the community solar experience of our partner Clean Energy
Collective, allows residential power consumers to ‘‘go solar,’’ including those who live in
apartment buildings or whose home rooftops cannot accommodate solar panels. We continue to
work with strategic partners to develop commercially scalable community solar offerings.

Full Suite of Capabilities

Our operational model offers PV solar energy solutions with superior value and less risk with our

expertise across substantially the entire solar value chain, including:

• Project Development. During project development, we typically obtain land and land rights for
the development of PV solar power systems incorporating our modules, negotiate long-term
PPAs with potential purchasers of the electricity to be generated by such systems or develop
systems in regulated markets where feed-in-tariff (‘‘FiT’’) or similar structures are in place,
manage the interconnection and transmission process, negotiate agreements to interconnect the
systems to the electricity grid, and obtain the permits that are required prior to the construction
of the systems, including applicable environmental and land-use permits. The sequence of such
development activities varies by international location and, in certain locations, may begin by
initially bidding for PPA or offtake agreements. We also buy projects in various stages of
development and continue developing those projects with system designs incorporating our own
modules. We sell developed systems to utilities, independent power producers, commercial and
industrial companies, and other system owners, such as investors who are looking for long-term
investment vehicles that are expected to generate consistent returns.

• EPC Services. We provide EPC services to projects developed by us and other system owners

such as utilities, independent power producers and commercial and industrial companies. EPC
services include engineering design and related services, BoS procurement, advanced
development of grid integration solutions, and construction contracting and management.
Depending on the customer and market need, we may provide our full EPC services or any
combination of individual products and services within our EPC capabilities. An example of such
combination of individual services would be providing engineering design and procurement of
BoS parts (‘‘EP’’ services) for a third-party constructing a PV solar power system. Our vertical
integration combined with our partner collaboration enables us to identify and make system-level
innovations, which creates further value for our customers.

• O&M Services. We have a comprehensive O&M service offering covering more than 7.1 GW DC
of utility-scale PV solar power systems. Utilizing a state of the art Global Operations Center,
our team of O&M experts provide a variety of services to optimize system performance and
comply with PPAs, other agreements, and regulations. We offer our O&M services to solar
power plant owners that use either our solar modules or modules manufactured by third-party
manufacturers.

Global Markets

We have established and are continuing to develop a business presence on six continents, as
described below. Energy markets are by their nature localized, with different drivers and market forces
impacting electricity generation and demand in a particular region or for a particular application.
Accordingly, our business is evolving worldwide and is shaped by the varying ways in which our PV
solar energy solutions can be a compelling and economically viable solution to energy needs in different
markets and applications.

The Americas

• United States. Multiple PV markets in the United States, which accounted for 83% of our 2016
net sales, exemplify several of the criteria critical for a sustainable solar market: (i) sizeable
electricity demand, particularly around growing population centers and industrial areas, (ii) high
existing power prices, and (iii) abundant solar resources. In those areas and applications in
which these factors are more pronounced, our PV solar energy solutions compete favorably on
an economic basis with more traditional forms of energy generation. The market penetration of

PV solar is impacted by certain state and federal support programs, including the current 30%
federal investment tax credit, as described under ‘‘Support Programs.’’ We have significant
experience and a market leadership position in developing, engineering, constructing, and
maintaining utility-scale power plants in the United States, particularly in California and other
southwestern states, and increasingly in southeastern states. Currently, our solar projects in the
United States account for a majority of the advanced-stage pipeline of projects that we are
either currently constructing or expect to construct. See Item 7. ‘‘Management’s Discussion and
Analysis of Financial Condition and Results of Operations—Systems Project Pipeline’’ for more
information about these projects.

• Other Americas. We are developing our business in other countries in the Americas including

Brazil, Mexico, and certain Central American countries. For example, we recently completed the
construction of a 26 MW solar project in Honduras and also commenced construction on an
additional 25 MW project in the country.

Europe, the Middle East, and Africa

• Europe. While PV solar adoption in the past was driven to a large degree by FiTs and other
incentive programs in Germany, France, the United Kingdom (‘‘U.K.’’), Italy, and Spain, PV
solar has entered its next phase in which growth will ultimately be determined by the degree to
which PV solar energy solutions can compete economically with more traditional forms of
electricity generation, particularly in areas with high prevailing electricity prices, strong electricity
demand, and strong solar resources. In particular, Germany, France, and the Netherlands are all
running tenders in which utility-scale PV solar projects can bid for capacity. While the declining
industry average selling prices for PV solar systems has accelerated the demand for solar energy
solutions in some regions, the capacity for utility-scale PV solar in Europe remains limited due
to market constraints and government regulations. We have been engaged in business
development and module sales activities in France, the U.K., and Germany and are actively
evaluating additional sales opportunities in other markets, such as Turkey, where we are
collaborating with certain local partners for the distribution of our modules or select project
development opportunities.

• The Middle East. The market potential for solar energy in the Middle East continues to be

driven by a combination of strong economic fundamentals, aggressive tariff pricing, abundant
solar resources, and robust policy. The United Arab Emirates (‘‘UAE’’), Saudi Arabia, Egypt,
and Jordan have established utility-scale solar programs, which are at varying degrees of
maturity. The UAE and Jordan lead the region with policy mechanisms designed to ramp up the
share of renewable energy in their generation portfolios. Oman, Qatar, and Kuwait are also
promising markets with indicators of future potential for solar energy. While there are several
motives for investing in solar energy, including energy security, diversification of generation
portfolios, and the minimization of domestic consumption of hydrocarbons, the common factor is
that the economics of PV solar have made it a compelling choice as a generation source.

Jordan, the UAE, and Saudi Arabia are actively facilitating the development of the independent
power production sector in their countries. For example, Jordan has committed to installing
1.0 GW of PV solar capacity by 2020, while the UAE has tendered over 1.0 GW of independent
power production owned utility-scale solar in 2016 alone. Saudi Arabia has also solicited
100 MW of utility-scale solar as part of the inaugural solar independent power production
tender, in what is expected to be a 9.5 GW renewable energy program. Across the Arabian Gulf,
the region’s state-owned hydrocarbon companies continue to be involved in driving regional
solar programs. Examples include initiatives spearheaded by Saudi Aramco and the Kuwait Oil
Company. However, as with any emerging market, challenges remain, including those related to
evolving policy and legislation, infrastructure, the availability of financing, the level of

competition, and geopolitical risk. While energy subsidies also remain a challenge, declining
hydrocarbon revenues have led some regional governments, specifically the UAE and Saudi
Arabia, to move towards reducing government support for conventional fuels, thereby paving the
way for solar to become even more cost competitive.

Since establishing a presence in the Middle East in 2013, First Solar has focused on the region’s
utility-scale segment while pursuing a range of opportunities. In addition to constructing the
13 MW DC first phase of the Mohammed bin Rashid Al Maktoum Solar Park in Dubai, First
Solar also supplied modules for the Park’s 200 MW AC second phase. In Jordan, First Solar
completed construction of the 53 MW AC Shams Ma’an PV solar power system, which accounts
for approximately 1% of Jordan’s annual energy output. As a result of these and other projects,
First Solar has become a leading provider of PV solutions in the Middle East, with an expected
installed capacity of nearly 300 MW AC across the region by the end of 2017.

• Africa. Africa offers strong potential for PV solar, which can play a useful role in meeting the
region’s diversified energy needs. The market’s potential revolves around certain established
renewable energy programs in countries like Morocco and development-led initiatives in other
markets. As the overall African market matures, the engagement of experienced project
developers and support from international lenders are expected to further the adoption and
growth of utility-scale PV solutions. Our primary focus in Africa is the sale of modules for
utility-scale projects. Additionally, we are working with our channel partners, such as
Caterpillar Inc., to provide hybrid diesel and/or PV solutions to the distributed generation and
commercial and industrial markets.

Asia-Pacific (‘‘APAC’’) and India

• Australia. Australia is a promising region for PV solar. The Australian PV solar market

experienced strong growth in 2016, which is expected to continue in 2017. This growth is being
driven by an increased demand for PPAs from Australian utilities and large industrial off-takers.
In 2016, we redirected our strategy in Australia away from EPC to focus more on utility-scale
project development and PV module sales. Moving into 2017, we expect to pursue a robust
Australian development pipeline, including self-developed projects in Queensland, New South
Wales, and Victoria. In addition to this growing development pipeline, we plan to deliver
modules to various third-party developers in Australia in 2017.

• Japan. Japan has evolving electricity market characteristics, particularly after the 2011

Fukushima Daiichi nuclear disaster, which make it an attractive market for PV solar. One such
characteristic is the announcement of new safety standards following the failure of the
Fukushima Daiichi nuclear power station, which resulted in the idling of Japan’s nuclear
reactors, which had historically generated nearly 30% of the country’s electricity. Japan has few
domestic fossil fuel resources and relies heavily on fossil fuel imports. Accordingly, the Japanese
government has announced a long-term goal of dramatically increasing installed solar power
capacity and has provided various incentives for solar power installations. As a result, strong
solar demand is expected to continue in Japan over the next several years.

In 2016, we completed the construction of six solar projects and commenced the construction of
three additional projects, including the 59 MW AC solar project we acquired the rights to
develop in 2015. We are partnering with local companies to develop, construct, and operate PV
solar power systems, which will further mitigate Japan’s dependence on nuclear power and fossil
fuel imports. Our sales offerings in Japan also include our CdTe modules and O&M services.

• India. There is significant potential for PV solar in India due to its growing energy needs,

substantial population centers, lack of electrification to many parts of the country, high energy
costs, strong irradiance, and aggressive renewable energy targets set by the government, which

include increasing the country’s solar capacity to 100 GW by the year 2022. To support this
initiative, several key regulations have been announced relating to ramping up renewable
purchase obligations, implementing penal provisions for non-compliance with the obligations
under the Indian Electricity Act, budgetary allocations under the Central Government for
establishing the Green Transmission Corridor, and the creation of numerous solar parks in
various states with dedicated transmission infrastructure to be installed by the government. In
addition to these measures, the Central Government also introduced the Renewable Generation
Obligations, which mandate that all thermal power generators must implement new renewable
energy generation capacity to match 10% of their new thermal generation capacity. Overall,
these policy and regulatory measures have been introduced with an objective of creating
significant and sustained demand for PV solar in India. Accordingly, we are working to sell
modules and develop utility-scale PV solar projects in India to address the energy and renewable
purchase obligation needs of utilities and target the open access industrial and commercial
power demand.

In 2016, we secured rights through a competitive auction to sell power under a 25-year PPA for
a cumulative capacity of 60 MW AC to the state owned electricity distribution companies in
Karnataka and were in the advanced stages of construction of a 50 MW AC project in
Telangana. In 2015, we successfully achieved commercial operation of 130 MW AC of projects in
Andhra Pradesh and Telangana. We continue to maintain our strong PV module presence in
India with over 1,300 MW DC of installed modules.

• Other APAC. We are developing our business in other APAC countries including Indonesia,
Malaysia, Thailand, and the Philippines. Each of these regions has one or more market
characteristics or trends (such as an environment of declining fuel subsidies in Indonesia) which
can make PV solar electricity attractive. In China, we are primarily working through certain of
our indirect channel partners to develop sales opportunities in the market.

Support Programs

Although our long term strategic plan provides for First Solar to compete in key markets that do

not require solar-specific government subsidies or support programs, in the near term our net sales and
profits remain subject to regulation and variability based on the availability and size of government
subsidies and economic incentives. Support programs for PV solar electricity generation, depending on
the jurisdiction, include FiTs, quotas (including renewable portfolio standards and tendering systems),
and net energy metering programs. In addition to these support programs, financial incentives for PV
solar electricity generation include tax incentives, grants, loans, rebates, and production incentives.
Although we expect to become less impacted by, and less dependent on, support programs as we
execute our long term strategic plan, support programs will continue to play varying roles in
accelerating the adoption of PV solar systems around the world.

In Europe, renewable energy targets, in conjunction with FiTs, Renewable Obligation Certificates,

and other schemes such as tenders for utility-scale PV solar, have contributed to the growth in PV
solar markets. Renewable energy targets prescribe how much energy consumption must come from
renewable sources, while incentive policies and competitive tender policies are intended to support new
supply development by providing certainty to investors. A 2009 European Union (‘‘EU’’) directive on
renewable energy, which replaced an earlier 2001 directive, sets varying targets for all EU member
states in support of the directive’s goal of a 20% share of energy from renewable sources in the EU by
2020, and requires national action plans that establish clear pathways for the development of renewable
energy sources. A renewal of such directive is currently under discussion in Europe.

Tax incentive programs exist in the United States at both the federal and state level and can take

the form of investment and production tax credits, accelerated depreciation, and sales and property tax

exemptions and abatements. At the federal level, investment tax credits for business and residential
solar systems have gone through several cycles of enactment and expiration since the 1980s. In 2015,
the U.S. Congress extended the 30% federal energy investment tax credit (‘‘ITC’’) for both residential
and commercial solar installations through 2019. The credit will step down to 26% in 2020, 22% in
2021, and remain at 10% permanently beginning in 2022. The ITC has been an important economic
driver of solar installations in the United States, and its extension is expected to contribute to greater
medium-term demand visibility in the United States. The positive impact of the ITC has depended to a
large degree on the availability of tax equity for project financing, and any significant reduction in the
availability of tax equity in the future could make it more difficult to develop and construct projects
requiring financing. The eventual step-down of the ITC to 10% underscores the need for the LCOE
from solar systems to continue to decline and remain competitive with other sources of energy
generation.

At the federal level, the Environmental Protection Agency’s adoption of a final Clean Power Plan

Rule (the ‘‘Rule’’) and implementation of the Rule through state plans offered the possibility of
increasing the demand for PV solar generating capacity in certain regions of the United States in which
PV solar has not historically received significant state-level policy support. However, the adoption and
implementation of the Rule has been impacted by litigation against the Rule initiated by states and
other stakeholders which has not yet been resolved, and in February 2016, the U.S. Supreme Court
stayed implementation of the Rule while such legal challenges are pending. It is therefore premature to
assess what the effects of the Rule will be on PV solar markets.

The majority of states in the United States have enacted legislation adopting Renewable Portfolio

Standard (‘‘RPS’’) mechanisms. Under an RPS, regulated utilities and other load serving entities are
required to procure a specified percentage of their total retail electricity sales to end-user customers
from eligible renewable resources, such as solar generating facilities, by a specified date. Some
programs may further require that a specified portion of the total percentage of renewable energy must
come from solar generating facilities or other technologies. RPS legislation and implementing
regulations vary significantly from state to state, particularly with respect to the percentage of
renewable energy required to achieve the state’s RPS, the definition of eligible renewable energy
resources, and the extent to which renewable energy credits (certificates representing the generation of
renewable energy) qualify for RPS compliance. Measured in terms of the volume of renewable
electricity required to meet its RPS mandate, California’s RPS program is the most significant in the
United States, and the California market for renewable energy has dominated the western United
States region for the past several years. First enacted in 2002, California’s RPS statute has been
amended several times to increase the overall percentage requirement as well as to accelerate the
target date for program compliance. Pursuant to amendments enacted by the California Legislature in
2015, the California RPS program now requires utilities and other obligated load serving entities to
procure 50% of their total retail electricity demand from eligible renewable resources by 2030. In 2016,
approximately 45% of our total net sales were derived from our systems projects or third-party module
sales to solar power systems in California.

The current U.S. administration’s proposed and contemplated environmental and tax policies may

create regulatory uncertainty in the renewable energy sector, including the solar energy sector, and may
lead to a reduction or removal of various clean energy programs and initiatives designed to curtail
climate change. For more information about the risks associated with these potential government
actions, see Item 1A. ‘‘Risk Factors—The reduction, elimination, or expiration of government subsidies,
economic incentives, tax incentives, renewable energy targets, and other support for on-grid solar
electricity applications, or other adverse public policies, could reduce demand and/or price levels for
our solar modules and systems and limit our growth or lead to a reduction in our net sales, thereby
adversely impacting our operating results.’’

Business Segments

We operate our business in two segments. Our components segment involves the design,
manufacture, and sale of CdTe solar modules, which convert sunlight into electricity. Third-party
customers of our components segment include integrators and operators of PV solar power systems.
Our second segment is our fully integrated systems business (‘‘systems segment’’), through which we
provide complete turn-key PV solar power systems, or solar solutions, that draw upon our capabilities,
which include (i) project development, (ii) EPC services, and (iii) O&M services, as described in more
detail below. We may provide our full EPC services or any combination of individual products and
services within our EPC capabilities depending upon the customer and market opportunity. All of our
systems segment products and services are for PV solar power systems, which primarily use our solar
modules, and we sell such products and services to utilities, independent power producers, commercial
and industrial companies, and other system owners. Additionally, within our systems segment we may
temporarily own and operate, or retain interests in, certain of our PV solar power systems for a period
of time based on strategic opportunities.

See Note 23 ‘‘Segment and Geographical Information’’ to our consolidated financial statements for

the year ended December 31, 2016 included in this Annual Report on Form 10-K for further
information on our business segments.

Components Business

Our components business involves the design, manufacture, and sale of CdTe solar modules which

convert sunlight into electricity.

Solar Modules

Our flagship module since the inception of First Solar has been manufactured using our advanced

CdTe thin-film technology. Each Series 4 solar module is a glass laminate approximately 2ft (cid:5) 4ft
(60cm (cid:5) 120cm) in size that encapsulates a CdTe thin-film semiconductor. Our solar modules had an
average rated power per module of approximately 114 watts, 107 watts, and 95 watts for 2016, 2015,
and 2014, respectively. Our Series 4 module, which offers up to 10% more energy than conventional
crystalline silicon modules with the same efficiency rating in certain geographic markets, is compatible
with advanced 1500-volt plant architectures. Our Series 4ATM module variant features anti-reflective
coated glass, which further enhances energy production. Our semiconductor structure is a single-
junction polycrystalline thin-film that uses CdTe as the absorption layer. CdTe has absorption properties
that are well matched to the solar spectrum and can deliver competitive conversion efficiencies using
approximately 1-2% of the amount of semiconductor material that is used to manufacture traditional
crystalline silicon solar modules. One of the drivers of First Solar modules’ performance advantage over
traditional crystalline silicon modules is a lower temperature coefficient of peak power, delivering
higher energy yields at elevated operating temperatures typical of utility-scale solar power plants in
sunny regions.

We recently announced plans for the introduction of our Series 6 solar module, which will be over
two square meters in active area. Series 6 modules will be manufactured using the same materials and
processes as our legacy module technologies, which have been proven in high volume production and
have been in the field for over a decade. In 2016, we also elected to reallocate our previous crystalline
silicon module production capacity to support next generation CdTe module offerings. As a result, we
ended production of our crystalline silicon modules to focus on our core CdTe module technology.

Manufacturing Process

We manufacture our CdTe solar modules on high-throughput integrated production lines in an

automated, proprietary, and continuous process. Our solar modules employ a thin layer of
semiconductor material to convert sunlight into electricity. Our manufacturing process eliminates the
multiple supply chain operators and expensive and time-consuming batch processing steps that are used
to produce crystalline silicon solar modules. We manufacture solar modules at our Perrysburg, Ohio
and Kulim, Malaysia manufacturing facilities. As we transition to manufacturing our Series 6 module
technology, we expect to ramp down production of our Series 4 related modules over the next two
years. Such temporary reduction in production capacity allows us to use our existing manufacturing
infrastructure to more quickly deploy our Series 6 module technology to best position us for long-term
competitiveness and growth.

We have integrated our CdTe manufacturing processes into a continuous production line with the
following three stages: the deposition stage, the cell definition and treatment stage, and the assembly
and test stage. In the deposition stage, panels of transparent oxide-coated glass are robotically loaded
onto the production line where they are cleaned, laser etch identified with a serial number, heated, and
coated with thin layers of CdTe and other semiconductor materials using our proprietary vapor
transport deposition technology, after which the semiconductor-coated plates are cooled rapidly to
increase glass strength. In the cell definition and treatment stage, we use high speed lasers to transform
the large single semiconductor coating on the glass plate into a series of interconnected cells that
deliver the desired current and voltage output. In this stage, we also treat the semiconductor film using
proprietary chemistries and processes to improve the device performance, and we apply a metal
sputtered back contact. Finally, in the assembly and test stage, we apply busbars, inter-layer material,
and a rear glass cover sheet that is laminated to encapsulate the device. A junction box and
termination wires are then applied to complete the assembly. The final assembly stage is the only stage
in our production line that requires manual processing.

We maintain a robust quality and reliability assurance program that monitors critical process

parameters and measures product performance to ensure that industry and more stringent internal
standards are met. Acceptance testing for electrical leakage, visual quality, and power measurement on
a solar simulator are conducted prior to a module being boxed for shipment. The quality and reliability
tests complement production surveillance with an ongoing monitoring program, subjecting production
modules to accelerated life stress testing to help ensure ongoing conformance to requirements of the
International Electrotechnical Commission and Underwriters Laboratories Inc. These programs help
assure delivery of power and performance in the field with a high level of product quality and
reliability.

Research, Development, and Engineering

We continue to devote substantial resources to R&D with the primary objective of lowering the
lifecycle cost of electricity generated by our PV solar power systems. We conduct our R&D activities
primarily in the United States. Within our components business, we focus our R&D activities on,
among other areas, continuing to increase the conversion efficiency and energy yield of our solar
modules and continuously improving module durability and manufacturing efficiencies, including
throughput improvement, volume ramp, and material cost reduction.

In the course of our R&D activities, we continuously explore technologies in our efforts to sustain
competitive differentiation in our modules. We typically qualify process and product improvements for
full production at our Perrysburg, Ohio plant and then use a systematic process to propagate them to
our other production lines. We believe that our systematic approach to technology change management
provides continuous improvements and ensures uniform adoption across our production lines. In
addition, our CdTe production lines are replicas or near replicas of each other and, as a result, a
process or production improvement on one line can be rapidly and reliably deployed to other
production lines.

We regularly produce research cells in our laboratories, some of which are tested for performance

and certified by independent labs such as the National Renewable Energy Laboratory. Cell efficiency
measures the proportion of light converted in a single solar cell at standard test conditions. Our
research cells are produced using laboratory equipment and methods and are not intended to be
representative of our manufacturing capability. We believe that our record cells demonstrate a potential
long-term module efficiency entitlement of over 19% using our commercial-scale manufacturing
equipment.

For information regarding our research and development expense for the years ended

December 31, 2016, 2015, and 2014, See Item 7. ‘‘Management’s Discussion and Analysis of Financial
Condition and Results of Operations—Results of Operations.’’

Customers

With respect to our components business, during 2016 we sold the majority of our solar modules

(not included in our systems projects) to integrators and operators of systems in India, the United
States, and the UAE. Third-party module sales represented approximately 23% of our total 2016 net
sales. Additionally, we develop, design, construct, and sell PV solar power systems that use the solar
modules we manufacture.

During 2016, Southern Power Company and NextEra Energy, Inc. each accounted for more than

10% of our components segment’s net sales, which includes the solar modules used in our systems
projects. We are investing in key geographic markets, particularly in areas with abundant solar
resources and sizable electricity demand, and as part of such efforts, we are seeking to develop
additional customer relationships, which has reduced and is expected to continue to reduce our
customer and geographic concentration and dependence.

Competition

The renewable energy, solar energy, and solar module sectors are highly competitive and

continually evolving as participants in these sectors strive to distinguish themselves within their markets
and compete within the larger electric power industry. We face intense competition for sales of solar
modules, which has resulted in and may continue to result in reduced margins and loss of market
share. With respect to our components business, our primary sources of competition are crystalline
silicon solar module manufacturers, as well as other thin-film module manufacturers. We believe many
crystalline silicon module manufacturers are currently transitioning from multi-crystalline wafer
technology (historically our primary competitor) to more efficient mono-crystalline wafer technology.
Such transition is being facilitated by the emergence of new and low cost mono wafer suppliers,
primarily from China, coupled with the gradual industry transition to Passivated Emitter Rear Contact
(‘‘PERC’’) cell technology. As a result, we expect that in the future, our primary competition might
transition from multi-crystalline to mono-crystalline PERC with higher conversion efficiencies.

Certain of our existing or future competitors may be part of larger corporations that have greater

financial resources and greater brand name recognition than we do and, as a result, may be better
positioned to adapt to changes in the industry or the economy as a whole. Certain competitors may
have direct or indirect access to sovereign capital, which could enable such competitors to operate at
minimal or negative operating margins for sustained periods of time. Among PV solar module
manufacturers, the principal methods of competition include sales price per watt, conversion efficiency,
energy yield, reliability, warranty terms, and customer payment terms. If competitors reduce module
pricing to levels near or below their manufacturing costs, or are able to operate at minimal or negative
operating margins for sustained periods of time, our results of operations could be adversely affected.
At December 31, 2016, the global PV industry consisted of more than 50 manufacturers of solar
modules. In the aggregate, these manufacturers have significant installed production capacity, relative

to global demand, and the ability for additional capacity expansion. We believe the solar industry may
from time to time experience periods of structural imbalance between supply and demand (i.e., where
production capacity exceeds global demand), and that such periods will put pressure on pricing, which
could adversely affect our results of operations. We believe the solar industry is currently in such a
period.

In addition, we expect to compete with future entrants into the PV solar industry that offer new

technological solutions. We also face competition from semiconductor manufacturers and
semiconductor equipment manufacturers or their customers that produce PV solar cells, solar modules,
or turn-key production lines. We also compete with companies that currently offer or are developing
other renewable energy technologies (including wind, hydropower, geothermal, biomass, and tidal
technologies) and other power generation sources that employ conventional fossil fuels.

Raw Materials

Our CdTe module manufacturing process uses approximately 30 types of raw materials and

components to construct a complete solar module. One critical raw material in our production process
is CdTe. Of the other raw materials and components, the following are also critical to our
manufacturing process: front glass coated with transparent conductive oxide, other semiconductor
materials, organics such as photo resist, tempered back glass, packaging components such as interlayer,
cord plate/cord plate cap, junction box, lead wire, and solar connectors. Before we use these materials
and components in our manufacturing process, a supplier must undergo a rigorous qualification
process. We continually evaluate new suppliers and currently are qualifying several new suppliers and
materials. When possible, we attempt to use suppliers that can provide a raw material supply source
that is near our manufacturing locations, reducing the cost and lead times for such materials. Several of
our key raw materials and components are either single-sourced or sourced from a limited number of
third-party suppliers.

CdTe Solar Module Collection and Recycling Program

We are committed to extended producer responsibility and take into account the environmental

impact of our products over their entire life cycle. As part of such efforts, we established the solar
industry’s first comprehensive module collection and recycling program. Our module recycling process
is designed to enable the recovery of valuable materials, including the glass and encapsulated
semiconductor material, for use in new modules or other products and minimizes the environmental
impacts associated with our modules at the end of their useful lives. Approximately 90% of each
collected First Solar module can be recycled into materials for reuse. For customer sales contracts that
include modules covered under this program, we agree to pay the costs for the collection and recycling
of qualifying solar modules, and the end-users agree to notify us, disassemble their solar power systems,
package the solar modules for shipment, and revert ownership rights over the modules back to us at
the end of the modules’ service lives.

The European Union’s Waste Electronics and Electrical Equipment (‘‘WEEE’’) Directive places

the obligation of recycling (including collection, treatment, and environmentally sound disposal) of
electrical and electronic equipment products upon producers, and such directive is applicable to
PV solar modules in EU member states. For modules covered under our program that were previously
sold into and installed in the EU, we continue to maintain a commitment to cover the estimated
collection and recycling costs consistent with our historical program. In addition, as a result of the
transposition of the WEEE Directive by the EU member states, we have adjusted our offerings, as
required, in various EU member states to ensure compliance with specific EU member state WEEE
regulations.

In addition to achieving substantial environmental benefits, our solar module collection and

recycling program may provide us the opportunity to recover certain raw materials and components for
reuse in our manufacturing process. We currently have recycling facilities operating at each of our
current manufacturing facilities in the United States and Malaysia and at our former manufacturing
facility location in Germany that produce glass cullet suitable for use in the production of new glass
products by a third-party supplier and unrefined semiconductor materials that are further processed by
a third-party supplier and then used to produce semiconductor materials for use in new solar modules.

Solar Module Warranties

We provide a limited PV solar module warranty covering defects in materials and workmanship
under normal use and service conditions for generally 10 years. We also typically warrant that modules
installed in accordance with agreed-upon specifications will produce at least 97% of their labeled power
output rating during the first year, with the warranty coverage reducing by 0.7% every year thereafter
throughout the 25-year performance warranty period. In resolving claims under both the limited defect
and power output warranties, we typically have the option of either repairing or replacing the covered
modules or, under the limited power output warranty, providing additional modules to remedy the
power shortfall. We also have the option to make a payment for the then-current market price of
modules to resolve the claims. Such limited module warranties are standard for module sales and may
be transferred from the original purchasers of the solar modules to subsequent purchasers upon resale.

As an alternative form of our standard limited module power output warranty, we also offer an

aggregated or system-level limited module performance warranty. This system-level limited module
performance warranty is designed for utility-scale systems and provides 25-year system-level energy
degradation protection. In addition, this warranty represents a practical expedient to address the
challenge of identifying, from the potential millions of modules installed in a utility-scale system,
individual modules that may be performing below warranty thresholds by focusing on the aggregate
energy generated by the system rather than the power output of individual modules. The system-level
limited module performance warranty typically is calculated as a percentage of a system’s expected
energy production, adjusted for certain actual site conditions, with the warranted level of performance
declining each year in a linear fashion, but never falling below 80% during the term of the warranty. In
resolving claims under the system-level limited module performance warranty to restore the system to
warranted performance levels, we first must validate that the root cause of the issue is due to module
performance; we then have the option of either repairing or replacing the covered modules, providing
supplemental modules, or making a cash payment. Consistent with our limited module power output
warranty, when we elect to satisfy a warranty claim by providing replacement or supplemental modules
under the system-level module performance warranty, we do not have any obligation to pay for the
labor to remove or install modules.

In December 2016, we introduced an update to the limited module warranties to be offered on
future sales of our PV solar modules. Under the update to the limited module power output warranty,
we will warrant that modules installed in accordance with agreed-upon specifications will produce at
least 98% of their labeled power output rating during the first year, with the warranty coverage
reducing by 0.5% every year thereafter throughout the 25-year performance warranty period. Our
limited module warranties will also include an option for us to remedy claims under such warranties,
generally exercisable only after the second year of the warranty period, by making certain cash
payments. Under the update to the limited workmanship warranty, the optional cash payment will be
equal to the original purchase price of the module, reduced by a degradation factor, and under the
update to the limited power output warranty, the cash payment will be equal to the shortfall in power
output.

Systems Business

Through our fully integrated systems business, we provide complete turn-key PV solar power

systems, or solar solutions, which may include project development, EPC services, and/or O&M
services.

Project Development

Project development activities include: site selection and securing rights to acquire or use the site,

obtaining the requisite interconnection and transmission studies, executing an interconnection
agreement, obtaining environmental and land-use permits, maintaining effective site control, and
entering into a PPA with an off-taker of the power to be generated by the project. These activities
culminate in receiving the right to construct and operate a PV solar power system. Depending on the
market opportunity or geographic location, we may acquire projects in various stages of development or
acquire project companies from developers in order to complete the development process, construct a
system incorporating our modules, and sell the system to a long-term owner. We may also collaborate
with local partners in connection with these project development activities. Depending on the type of
project or geographic location, PPAs or FiT structures define the price and terms the utility customer
or investor will pay for power produced from the project. Entering into a PPA generally provides the
underlying economics needed to finalize development including permitting, beginning construction,
arranging financing, and marketing the project for sale to a long-term owner. Depending primarily on
the location, stage of development upon our acquisition of the project, and other site attributes, the
development cycle typically ranges from one to two years but can be as long as five years. We may be
required to incur significant costs for preliminary engineering, permitting, legal, and other expenses
before we can determine whether a project is feasible, economically attractive, or capable of being
built. If there is a delay in obtaining any required regulatory approvals, we may be forced to incur
additional costs, write-down capitalized project assets, and the right of the off-taker under the PPA to
terminate may be triggered.

EPC Services

EPC services include engineering design and related services, BoS procurement, advanced

development of grid integration solutions, and construction contracting and management. We provide
the majority of our EPC services to our self-developed projects intended to be sold; however, we also
provide EPC services to other system owners such as utilities, independent power producers, and
commercial and industrial companies. Depending on the customer and market need, we may provide
our full EPC services or any combination of individual products and services within our EPC
capabilities.

For PV solar power systems built by us, we typically provide a limited product warranty on BoS

parts for defects in engineering design, installation, and workmanship for a period of one to two years
following the substantial completion of a system. In resolving claims under such BoS warranties, we
have the option of remedying the defect through repair or replacement.

As part of our systems business, we conduct performance testing of a system prior to substantial

completion to confirm the system meets its operational and capacity expectations noted in the EPC
agreement. In addition, we may provide an energy performance test during the first or second year of a
system’s operation. Such a test is designed to demonstrate that the actual energy generation for the
applicable year meets or exceeds the modeled energy expectation, after certain adjustments. These
adjustments include factors, such as irradiance, weather, module degradation, soiling, curtailment, and
other conditions that may affect a system’s energy output but are unrelated to the quality, design, or
construction.

O&M Services

Our typical O&M service arrangements involve the performance of standard activities associated
with operating and maintaining a PV solar power system. We perform such activities pursuant to the
scope of services outlined in the underlying contract. These activities are considered necessary to
optimize system performance and comply with PPAs, other agreements, and regulations. Although the
scope of our services may vary by contract, our O&M service arrangements generally include 24/7
system monitoring, certain PPA and other agreement compliance, NERC compliance, large generator
interconnection agreement compliance, energy forecasting, performance engineering analysis, regular
performance reporting, turn-key maintenance services including spare parts and corrective maintenance
repair, warranty management, and environmental services. As part of our O&M services, we also
typically provide an effective availability guarantee, which stipulates that a system will be available to
generate a certain percentage of total possible energy during a specific period after adjusting for factors
outside of our control as the service provider, such as weather, curtailment, outages, force majeure, and
other conditions that may affect system availability.

Customers

With respect to our systems business, our customers consist of utilities, independent power

producers, commercial and industrial companies, and other system owners. These customers may
purchase completed PV solar power systems, which include our solar modules, or any combination of
development, EPC services, and/or O&M services. During 2016, the substantial majority of our systems
business sales were in North America, and the principal customers of our systems business were
Southern Power Company; NextEra Energy, Inc.; and Recurrent Energy, LLC, each of which also
accounted for more than 10% of the segment’s net sales.

Competition

With respect to our systems business, we face competition from other providers of renewable
energy solutions, including developers of PV solar power systems and developers of other forms of
renewable energy projects, such as wind, hydropower, geothermal, biomass, and tidal projects. To the
extent other solar module manufacturers become more vertically integrated, we expect to face increased
competition from such companies as well. We also face competition from other EPC companies and
joint venture type arrangements between EPC companies and solar companies. Certain current or
potential future competitors may also have a low cost of capital and/or access to foreign capital. While
the decline in PV module prices over the last several years has increased interest in solar electricity
worldwide, there are limited barriers to entry in many parts of the PV solar value chain, depending on
the geographic market. Accordingly, competition at the system level can be intense, thereby exerting
downward pressure on system-level profit margins industry-wide, to the extent competitors are willing
and able to bid aggressively low prices for new projects and PPAs, using low cost assumptions for
modules, BoS components, installation, maintenance, and other costs. Please see Item 1A. ‘‘Risk
Factors—Competition at the system level can be intense, thereby potentially exerting downward
pressure on system-level profit margins industry-wide, which could reduce our profitability and
adversely affect our results of operations.’’

Research, Development, and Engineering

Our systems business R&D activities are primarily focused on the objective of lowering the LCOE
of a PV solar power system through reductions in BoS costs, improved system design, and energy yield
enhancements associated with systems that use our modules. These R&D efforts are also focused on
continuing to improve our systems in terms of grid integration and reliability. We conduct our R&D
activities for the systems business primarily in the United States. Innovations related to system design,
inverters and power converters, hardware platforms and installation techniques, and know-how, among

other things, can and are expected in the future to continue to reduce BoS costs, which can represent a
significant portion of the costs associated with the construction of a typical utility-scale PV solar power
system.

For information regarding our research and development expense for the years ended

December 31, 2016, 2015, and 2014, see Item 7. ‘‘Management’s Discussion and Analysis of Financial
Condition and Results of Operations—Results of Operations.’’

Own and Operate

From time to time, we may temporarily own and operate, or retain interests in, certain of our
PV solar power systems, often with the intention to sell at a later date. The ability to do so allows us to
gain control of the sales process, provide a lower risk profile to a future buyer of a system, and
improve our ability to drive higher eventual sale values. As of December 31, 2016, we owned and
operated a number of systems in various geographic markets, including Chile, India, and the United
States. As an owner and operator for certain of these systems, we may be subject to the authority of
the Federal Energy Regulatory Commission (‘‘FERC’’), as well as various other local, state, and federal
regulatory bodies. For more information about risks related to owning and operating such systems,
please see Item 1A. ‘‘Risk Factors—As an owner and operator of PV solar power systems that deliver
electricity to the grid, certain of our affiliated entities may be regulated as public utilities under U.S.
federal and state law, which could adversely affect the cost of doing business and limit our growth.’’
For more information about the economics of such ownership and the impacts on our liquidity see
Item 7. ‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations—
Liquidity and Capital Resources.’’

Intellectual Property

Our success depends, in part, on our ability to maintain and protect our proprietary technology
and to conduct our business without infringing on the proprietary rights of others. We rely primarily on
a combination of patents, trademarks, and trade secrets, as well as associate and third-party
confidentiality agreements, to safeguard our intellectual property. We regularly file patent applications
to protect inventions arising from our R&D activities and are currently pursuing patent applications in
the United States and other countries. Our patent applications and any future patent applications might
not result in a patent being issued with the scope of the claims we seek, or at all, and any patents we
may receive may be challenged, invalidated, or declared unenforceable. In addition, we have registered
and/or have applied to register trademarks and service marks in the United States and a number of
foreign countries for ‘‘First Solar’’ and ‘‘First Solar and Design.’’

With respect to proprietary know-how that is not patentable and processes for which patents are

difficult to enforce, we rely on, among other things, trade secret protection and confidentiality
agreements to safeguard our interests. We believe that many elements of our PV module
manufacturing process, including our unique materials sourcing, involve proprietary know-how,
technology, or data that are not covered by patents or patent applications, including technical
processes, equipment designs, algorithms, and procedures. We have taken security measures to protect
these elements. Our R&D personnel have entered into confidentiality and proprietary information
agreements with us. These agreements address intellectual property protection issues and require our
associates to assign to us all of the inventions, designs, and technologies they develop during the course
of employment with us. We also require our customers and business partners to enter into
confidentiality agreements before we disclose sensitive aspects of our modules, technology, or business
plans.

We have not been subject to any material intellectual property infringement or misappropriation

claims.

Environmental, Health, and Safety Matters

Our operations include the use, handling, storage, transportation, generation, and disposal of
hazardous materials and wastes. We are subject to various national, state, local, and international laws
and regulations relating to the protection of the environment, including those governing the discharge
of pollutants into the air and water; the use, management, and disposal of hazardous materials and
wastes; occupational health and safety; and the cleanup of contaminated sites. Therefore, we could
incur substantial costs, including cleanup costs, fines, and civil or criminal sanctions and costs arising
from third-party property damage or personal injury claims as a result of violations of, or liabilities
under, environmental and occupational health and safety laws and regulations or non-compliance with
environmental permits required for our operations. We believe we are currently in substantial
compliance with applicable environmental and occupational health and safety requirements and do not
expect to incur material expenditures for environmental and occupational health and safety controls in
the foreseeable future. However, future developments such as the implementation of new, more
stringent laws and regulations, more aggressive enforcement policies, or the discovery of unknown
environmental conditions may require expenditures that could have a material adverse effect on our
business, financial condition, or results of operations. See Item 1A. ‘‘Risk Factors—Environmental
obligations and liabilities could have a substantial negative impact on our financial condition, cash
flows, and results of operations.’’

Corporate History

In February 2006, we were incorporated as a Delaware corporation. Our common stock has been

listed on The NASDAQ Global Select Market under the symbol ‘‘FSLR’’ since our initial public
offering in November 2006. In October 2009, our common stock was added to the S&P 500 Index,
making First Solar the first, and currently only, pure-play renewable energy company in the index.

Associates

As of December 31, 2016, we had approximately 5,400 associates (our term for full and part-time

employees), including approximately 4,100 in our module manufacturing business and approximately
400 associates that work directly in our systems business. The remainder of our associates are in R&D,
sales and marketing, and general and administrative positions. None of our associates are currently
represented by labor unions or covered by a collective bargaining agreement. As we expand
domestically and internationally, we may encounter either regional laws that mandate union
representation or associates who desire union representation or a collective bargaining agreement. We
believe that our relations with our associates are good.

Information About Geographic Areas

We have significant development, construction, sales, marketing, and manufacturing operations

both within and outside the United States. Currently, we manufacture our solar modules at our
Perrysburg, Ohio and Kulim, Malaysia manufacturing facilities.

During 2016, the foreign countries with the greatest concentration of customer risk were India and
Spain (for a large project located in the UAE), which accounted for a total of 10% of our consolidated
net sales. As part of our long term strategic plan, we conduct business in various countries across the
world, including countries in the Americas, the Asia-Pacific region, and the Middle East. As a result,
we are subject to the legal, tax, political, social, regulatory, and economic conditions of an increasing
number of foreign jurisdictions. The international nature of our operations also subjects us to a number
of risks, including fluctuations in exchange rates, adverse changes in foreign laws or regulatory
requirements, and tariffs, taxes, and other trade restrictions. See Item 1A. ‘‘Risk Factors—Our
substantial international operations subject us to a number of risks, including unfavorable political,
regulatory, labor, and tax conditions in the United States and/or foreign countries’’ and ‘‘Risk

Factors—We may be unable to fully execute on our long term strategic plan, which could have a
material adverse effect on our business, financial condition, or results of operations.’’ See Note 23
‘‘Segment and Geographical Information’’ to our consolidated financial statements included in this
Annual Report on Form 10-K for information about our net sales and long-lived assets by geographic
region.

Available Information

We maintain a website at www.firstsolar.com. We make available free of charge on our website our

annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy
statements, and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of
the Exchange Act, as soon as reasonably practicable after we electronically file such materials with, or
furnish them to, the Securities and Exchange Commission (‘‘SEC’’). The information contained in or
connected to our website is not incorporated by reference into this report. We use our website as one
means of disclosing material non-public information and for complying with our disclosure obligations
under the SEC’s Regulation FD. Such disclosures will typically be included within the Investor Relations
section of our website at investor.firstsolar.com. Accordingly, investors should monitor such portions of our
website in addition to following our press releases, SEC filings, and public conference calls and webcasts.

The public may also read and copy any materials that we file with the SEC at the SEC’s Public
Reference Room at 100 F Street, N.E., Washington, D.C. 20549. The public may obtain information on
the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also
maintains a website at www.sec.gov that contains reports and other information regarding issuers, such
as First Solar, that file electronically with the SEC.

Executive Officers of the Registrant

Our executive officers and their ages and positions as of February 22, 2017, were as follows:

Name

Age

Position

Mark R. Widmar . . . . . . . . . . . . . . . . . . . . . . . .
Alexander R. Bradley . . . . . . . . . . . . . . . . . . . . .
Georges Antoun . . . . . . . . . . . . . . . . . . . . . . . . .
Philip Tymen deJong . . . . . . . . . . . . . . . . . . . . . .
Raffi Garabedian . . . . . . . . . . . . . . . . . . . . . . . .
Paul Kaleta . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Christopher R. Bueter . . . . . . . . . . . . . . . . . . . . .

51 Chief Executive Officer
35 Chief Financial Officer
54 Chief Commercial Officer
57 Chief Operations Officer
50 Chief Technology Officer
61 Executive Vice President & General Counsel
53 Executive Vice President, Human Resources

Mark R. Widmar was appointed Chief Executive Officer in July 2016. He joined First Solar in April
2011 as Chief Financial Officer and served as First Solar’s Chief Accounting Officer from February 2012
through June 2015. Mr. Widmar also serves as a director on the board of the general partner of 8point3
Energy Partners LP, the joint yieldco formed by First Solar and SunPower Corporation in 2015 to own and
operate a portfolio of selected solar generation assets. From March 2015 to June 2016, Mr. Widmar served
as the Chief Financial Officer of the general partner of 8point3 Energy Partners LP. Prior to joining First
Solar, Mr. Widmar served as Chief Financial Officer of GrafTech International Ltd., a leading global
manufacturer of advanced carbon and graphite materials, from May 2006 through March 2011. Prior to
joining GrafTech, Mr. Widmar served as Corporate Controller of NCR Inc. from 2005 to 2006, and was a
Business Unit Chief Financial Officer for NCR from November 2002 to his appointment as Controller. He
also served as a Division Controller at Dell, Inc. from August 2000 to November 2002 prior to joining
NCR. Mr. Widmar also held various financial and managerial positions with Lucent Technologies Inc.,
Allied Signal, Inc., and Bristol Myers/Squibb, Inc. He began his career in 1987 as an accountant with
Ernst & Young. Mr. Widmar holds a Bachelor of Science in Business Accounting and a Masters of
Business Administration from Indiana University.

Alexander R. Bradley was appointed interim Chief Financial Officer in July 2016 and confirmed as
Chief Financial Officer in October 2016. Mr. Bradley previously served as Vice President, Treasury and
Project Finance for First Solar. Mr. Bradley also serves as a director on the board for the general
partner of 8point3 Energy Partners LP. From June 2015 to June 2016, Mr. Bradley served as a vice
president of operations of the general partner of 8point3 Energy Partners LP. Mr. Bradley has led or
supported the structuring, sale, and financing of over $10 billion and approximately 2.7 GW of the
Company’s worldwide development assets, including several of the largest PV power plant projects in
North America. Mr. Bradley’s professional experience includes more than 10 years in investment
banking, mergers and acquisitions, project finance, and business development in the United States and
internationally. Prior to joining the Company in May 2008, Mr. Bradley worked at HSBC in investment
banking and leveraged finance, in London and New York, covering the energy and utilities sector. He
received his Master of Arts from the University of Edinburgh, Scotland.

Georges Antoun was appointed Chief Commercial Officer in July 2016. He joined First Solar in

July 2012 as Chief Operating Officer before being appointed as President, U.S. in July 2015.
Mr. Antoun has over 20 years of operational and technical experience, including leadership positions at
several global technology companies. Prior to joining First Solar, Mr. Antoun served as Venture Partner
at Technology Crossover Ventures (‘‘TCV’’), a private equity and venture firm that he joined in July
2011. Before joining TCV, Mr. Antoun was the Head of Product Area IP & Broadband Networks for
Ericsson, based in San Jose, California. Mr. Antoun joined Ericsson in 2007, when Ericsson acquired
Redback Networks, a telecommunications equipment company, where Mr. Antoun served as the Senior
Vice President of World Wide Sales & Operations. After the acquisition, Mr. Antoun was promoted to
Chief Executive Officer of the Redback Networks subsidiary. Prior to Redback Networks, Mr. Antoun
spent five years at Cisco Systems, where he served as Vice President of Worldwide Systems Engineering
and Field Marketing, Vice President of Worldwide Optical Operations, and Vice President of Carrier
Sales. He has also held senior management positions at Newbridge Networks, a data and voice
networking company, and Nynex (now Verizon Communications), where he was part of its Science and
Technology Division. Mr. Antoun is a member of the board of directors of Ruckus Wireless, Inc. and
Violin Memory, Inc., both publicly-traded companies. Mr. Antoun earned a Bachelor of Science degree
in Engineering from the University of Louisiana at Lafayette and a Master’s degree in Information
Systems Engineering from NYU Poly.

Philip Tymen deJong was appointed Chief Operating Officer in July 2015. Mr. deJong has

comprehensive leadership responsibility for areas including manufacturing, EPC, quality and reliability,
supply chain, and product management. Mr. deJong joined First Solar in January 2010 as Vice
President, Plant Management and served in several Senior Vice President roles in manufacturing and
operations prior to being appointed Senior Vice President, Manufacturing & EPC in January 2015.
Prior to joining First Solar, Mr. deJong was Vice President of Assembly/Test Manufacturing for
Numonyx Corporation. Prior to that, he worked for 25 years at Intel Corporation, holding various
positions in engineering, manufacturing, wafer fabrication management, and assembly/test
manufacturing. Mr. deJong holds a Bachelor of Science degree in Industrial Engineering/Mechanical
Engineering from Oregon State University and has completed advanced study at the University of New
Mexico Anderson School of Management.

Raffi Garabedian has been the Chief Technology Officer of First Solar, Inc. since May 2012 and

manages the Company’s technology, PV module, and power plant system products and roadmaps.
Mr. Garabedian joined First Solar in June 2008 as Director of Disruptive Technologies. Prior to First
Solar, Mr. Garabedian spent over 15 years in the MEMS (micro-electro-mechanical systems) industry,
developing new products ranging from automotive engine control sensors to fiber optic
telecommunications switching systems. He was the founding CEO of Touchdown Technologies, Inc.,
which was acquired by Verigy, as well as Micromachines Inc., which was acquired by Kavlico.
Mr. Garabedian is named on approximately 28 issued U.S. patents. Mr. Garabedian earned a Bachelor
of Science degree in Electrical Engineering from Rensselaer Polytechnic Institute and a Master of
Science degree in Electrical Engineering with a focus on semiconductor and microsystems technology
from the University of California Davis.

Paul Kaleta joined First Solar in March 2014 as Executive Vice President & General Counsel.

Prior to joining First Solar, Mr. Kaleta was Executive Vice President, General Counsel, Shared
Services & Secretary, and Chief Compliance Officer for NV Energy, Inc., which was acquired by
Berkshire Hathaway’s Energy Group in December 2013. Before that, he was Vice President and
General Counsel for Koch Industries, Inc., one of the world’s largest privately held companies with
diverse businesses worldwide, including refining, petrochemicals, and commodity trading, among others.
He also served in a number of legal and other leadership roles for Koch companies. Before joining
Koch, he was Vice President and General Counsel of Niagara Mohawk Power Corporation (now part
of National Grid). In private practice, Mr. Kaleta was an equity partner in the Washington D.C. law
firm Swidler Berlin LLP and an associate in the Washington D.C. office of Skadden, Arps, Slate,
Meagher & Flom LLP. He also served as a federal judicial clerk. Mr. Kaleta is the founding chair of
the Southern Nevada Chapter of the ‘‘I Have a Dream Foundation’’ (now ‘‘Core Academy-powered by
The Rogers Foundation’’), a member of the Client Advisory Council of Lex Mundi, and has taught
both energy law and business ethics and leadership, as an adjunct professor, among other professional
and community activities. Mr. Kaleta holds a juris doctor degree from Georgetown University Law
Center and a bachelor’s degree from Hamilton College.

Christopher R. Bueter was appointed Executive Vice President, Human Resources in February
2016. Mr. Bueter joined First Solar in November 2009 as Global Director for Industrial Relations and
also served as Vice President, Human Resources Global Business Development and Corporate Services,
Vice President, Global Human Resources and Labor Relations, and Senior Vice President, Human
Resources. Prior to joining First Solar, Mr. Bueter served as the Vice President of Global Employee
Relations at Dana Corporation, an American-based worldwide supplier of powertrain components. In
his 24 years at Dana Corporation, he served in a variety of roles, including Corporate Director of
Employee Relations and Distribution Services Division Human Resources Manager. Mr. Bueter holds a
Bachelor of Science in human resources management from the University of Toledo, and a juris doctor
degree from the University of Toledo Law School.

Item 1A. Risk Factors

An investment in our stock involves a high degree of risk. You should carefully consider the

following information, together with the other information in this Annual Report on Form 10-K, before
buying shares of our stock. If any of the following risks or uncertainties occur, our business, financial
condition, and results of operations could be materially and adversely affected and the trading price of
our stock could decline.

Risks Related to Our Markets and Customers

Competition in solar markets globally and across the solar value chain is intense, and could remain that
way for an extended period of time. An increased global supply of PV modules has caused and may continue
to cause structural imbalances in which global PV module supply exceeds demand, which could have a
material adverse effect on our business, financial condition, and results of operations.

In the aggregate, we believe manufacturers of solar modules and cells have significant installed
production capacity, relative to global demand, and the ability for additional capacity expansion. For
example, we estimate that in 2016, over 20 GW of capacity was added by solar module manufacturers,
particularly but not exclusively in Asia. We believe the solar industry may from time to time experience
periods of structural imbalance between supply and demand (i.e., where production capacity exceeds
global demand), and that such periods will put intense pressure on pricing. We believe the solar
industry is currently in such a period. During the past several years, industry average sales prices per
watt (‘‘ASPs’’) have declined, at times significantly, both at the module and system levels, as
competitors have reduced ASPs to sell-through inventories worldwide. In the U.S., for example, we
believe that declines in ASPs have resulted, in substantial part, from solar module manufacturers

undertaking actions to circumvent existing tariffs and duty structures. In addition, we believe that lower
demand in the Chinese market, such as we believe occurred in the second half of 2016, was a key
catalyst to the most recent decline in ASPs. There may be additional pressure on global demand and
ASPs in the future resulting from fluctuating demand in certain major solar markets such as China. If
our competitors reduce module pricing to levels near or below their manufacturing costs, or are able to
operate at minimal or negative operating margins for sustained periods of time, or if demand for PV
modules does not grow sufficiently to justify the current production supply, our business, financial
condition, and results of operations could be adversely affected.

If PV and related technologies are not suitable for widespread adoption at economically attractive rates of
return or if sufficient additional demand for solar modules, related technologies, and systems does not develop
or takes longer to develop than we anticipate, our net sales and profit may flatten or decline and we may be
unable to sustain profitability.

In comparison to fossil fuel-based electricity generation, the solar energy market continues to be at

a relatively early stage of development. If utility-scale PV technology proves unsuitable for widespread
adoption at economically attractive rates of return or if additional demand for solar modules and
systems fails to develop sufficiently or takes longer to develop than we anticipate, we may be unable to
grow our business or generate sufficient net sales to sustain profitability. In addition, demand for solar
modules, related technologies, and systems in our targeted markets may develop to a lesser extent than
we anticipate. Many factors may affect the viability of widespread adoption of utility-scale PV
technology in our targeted markets, as well as the demand for solar modules and systems generally,
including the following:

• cost-effectiveness of the electricity generated by PV solar power systems compared to

conventional energy sources, such as natural gas and coal (which fuel sources may be subject to
significant price fluctuations from time to time), and other non-solar renewable energy sources,
such as wind, geothermal, hydroelectric, and other such resources;

• 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 storage solutions;

• the extent of competition, barriers to entry, and overall conditions and timing relating to the

development of solar in new and emerging market segments such as commercial and industrial
customers, community solar, microgrids, community choice aggregators, among other customer
segments;

• changes in tax and other public policy, as well as 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, hydropower), 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;

• 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 and
when interest rates increase, which may result 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; and which otherwise may cause decreases in the
market response to declining electricity demand and other pressing needs; and

• 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.

The reduction, elimination, or expiration of government subsidies, economic incentives, tax incentives,

renewable energy targets, and other support for on-grid solar electricity applications, or other adverse public
policies, could reduce demand and/or price levels for our solar modules and systems and limit our growth or
lead to a reduction in our net sales, thereby adversely impacting our operating results.

Although we believe that solar energy will experience widespread adoption in those applications

where it competes economically with traditional forms of energy without any support programs, in
certain markets our net sales and profit remain subject to variability based on the availability and size
of government subsidies and economic incentives. Federal, state, and local governmental bodies in
many countries have provided subsidies in the form of FiTs, rebates, tax incentives, and other incentives
to end-users, distributors, system integrators, and manufacturers of PV solar products. Many of these
support programs expire, phase out over time, require renewal by the applicable authority, or may be
amended. A summary of certain recent developments in the major government support programs that
may impact our business appears under Item 1. ‘‘Business—Support Programs.’’ To the extent these
support programs are reduced earlier than previously expected or are changed retroactively, or
free-field or conversion land applications are disadvantaged, such changes could reduce demand and/or
price levels for our solar modules and systems, lead to a reduction in our net sales, and adversely
impact our operating results. Another consideration in the U.S. market, and to a lesser extent in other
global markets, is the effect of governmental land-use planning policies and environmental policies on
utility-scale PV solar development. The adoption of restrictive land-use designations or environmental
regulations that proscribe or restrict the siting of utility-scale solar facilities could adversely affect the
marginal cost of such development.

In addition, the results of the 2016 U.S. presidential election may create regulatory uncertainty in

the renewable energy industry, including the solar energy industry, and our business, financial
condition, and results of operations could be adversely affected as a result. Members of the current
U.S. administration have made public statements that indicate that the administration may not be
supportive of various clean energy programs and initiatives designed to curtail climate change and that
it may be supportive of reducing the corporate tax rate and overturning or modifying policies of or
regulations enacted by the prior administration that placed limitations on coal and gas electricity
generation, mining, and/or exploration. If the current U.S. administration and/or the U.S. Congress
takes action, or continues to publicly speak out about the need to take action, in furtherance of any
such policies, we would be subject to significant risks, including the following:

• A reduction or removal of clean energy programs and initiatives and the incentives they provide
may diminish the market for future solar energy offtake agreements and reduce the ability for
solar developers to compete for future solar energy offtake agreements, which may reduce
incentives for project developers to develop solar projects and purchase PV modules;

• 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 modules. The ITC is a U.S.
federal incentive that provides an income tax credit to the owner of the project after the project
commences construction of up to 30% of eligible basis. A solar energy project must commence
construction prior to January 1, 2020 and be placed in service prior to January 1, 2024 to qualify
for the 30% ITC. A solar project that commences construction during 2020 and is placed in
service prior to January 1, 2024 may qualify for an ITC equal to 26% of eligible basis. Under
the Modified Accelerated Cost-Recovery System, owners of equipment used in a solar project

generally 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.

• A reduction in the corporate tax rate could diminish the capacity of potential investors to
benefit from incentives such as the ITC and reduce the value of accelerated depreciation
deductions, thereby reducing the relative attractiveness of solar projects as an investment.

• 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.

These examples show that established markets for PV solar development, such as the U.S. market,

face uncertainties arising from policy, regulatory, and governmental constraints. While the expected
potential of the emerging markets we are targeting is significant, policy promulgation and market
development are especially vulnerable to governmental inertia, political instability, geopolitical risk, fossil
fuel subsidization, potentially stringent localization requirements, and limited available infrastructure.

We may be unable to fully execute on our long term strategic plan, which could have a material adverse

effect on our business, financial condition, or results of operations.

We face numerous difficulties in executing on our long term strategic plan, particularly in new

foreign jurisdictions, including the following:

• difficulty in accurately prioritizing geographic markets which we can most effectively and
profitably serve with our PV offerings, including miscalculations in overestimating or
underestimating the 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 overcoming the inertia involved in changing local electricity ecosystems as necessary

to accommodate large-scale PV solar deployment and integration;

• adverse public policies in countries we operate in and/or are pursuing, including local content

requirements 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;

• the possibility of having insufficient capital resources necessary to achieve an effective localized

business presence in targeted jurisdictions;

• difficulty in maintaining proper controls and procedures as we expand our business operations
both in terms of complexity and 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 accuracy;

• 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 us to be manufacturing capacity constrained in some future periods
or over-supplied in others.

In addition, please see the Risk Factors entitled ‘‘Our substantial international operations subject

us to a number of risks, including unfavorable political, regulatory, labor, and tax conditions in the
United States and/or foreign countries,’’ and ‘‘The reduction, elimination, or expiration of government
subsidies, economic incentives, tax incentives, renewable energy targets, and other support for on-grid
solar electricity applications, or other adverse public policies, could reduce demand and/or price levels
for our solar modules and systems and limit our growth or lead to a reduction in our net sales, thereby
adversely impacting our operating results.’’

We may be unable to profitably provide new solar offerings or achieve sufficient market penetration with

such offerings.

We may expand our portfolio of offerings to include solutions that build upon our core competencies

but for which we have not had significant historical experience, including variations in our traditional
product offerings or other offerings related to commercial and industrial customers and community solar.
We cannot be certain that we will be able to ascertain and allocate the appropriate financial and human
resources necessary to grow these business areas. We could invest capital into growing these businesses
but fail to address market or customer needs or otherwise not experience a satisfactory level of financial
return. Also, in expanding into these areas, we may be competing against companies that previously have
not been significant competitors, such as companies that currently have substantially more experience
than we do in the rooftop, commercial and industrial, or other targeted offerings. If we are unable to
achieve growth in these areas, our overall growth and financial performance may be limited relative to
our competitors and our operating results could be adversely impacted.

An increase in interest rates or tightening of the supply of capital in the global financial markets

(including a reduction in total tax equity availability) could make it difficult for customers to finance the cost
of a PV solar power system and could reduce the demand for our modules or systems and/or lead to a
reduction in the average selling price for such offerings.

Many of our customers and our systems business depend on debt and/or equity financing to fund
the initial capital expenditure required to develop, build, and/or purchase a PV solar power system. As
a result, an increase in interest rates, or a reduction in the supply of project debt financing or tax
equity investments (including due to a change in tax related incentives that benefit tax equity investors),
could reduce the number of solar projects that receive financing or otherwise make it difficult for our
customers or our systems business to secure the financing necessary to develop, build, purchase, or
install a PV solar power system on favorable terms, or at all, and thus lower demand for our solar
modules which could limit our growth or reduce our net sales. See the Risk Factor entitled ‘‘The
reduction, elimination, or expiration of government subsidies, economic incentives, tax incentives,
renewable energy targets, and other support for on-grid solar electricity applications, or other adverse

public policies, could reduce demand and/or price levels for our solar modules and systems and limit
our growth or lead to a reduction in our net sales, thereby adversely impacting our operating results’’
for additional information. In addition, we believe that a significant percentage of our end-users install
systems as an investment, funding the initial capital expenditure through a combination of equity and
debt. An increase in interest rates could lower an investor’s return on investment in a system, increase
equity return requirements, or make alternative investments more attractive relative to PV solar power
systems and, in each case, could cause these end-users to seek alternative investments.

We could be adversely affected by any violations of the U.S. Foreign Corrupt Practices Act (‘‘FCPA’’), the

U.K. Bribery Act, and other foreign anti-bribery laws.

The FCPA generally prohibits companies and their intermediaries from making improper payments to
non-U.S. government officials for the purpose of obtaining or retaining business. Other countries in which
we operate also have anti-bribery laws, some of which prohibit improper payments to government and
non-government persons and entities, and others (e.g., the FCPA and the U.K. Bribery Act) extend their
application to activities outside of their country of origin. Our policies mandate compliance with all
applicable anti-bribery laws. We currently operate in, and pursuant to our long term strategic plan may
further expand into, key parts of the world that have experienced governmental corruption to some degree
and, in certain circumstances, strict compliance with anti-bribery laws may conflict with local customs and
practices. In addition, due to the level of regulation in our industry, our operation in certain jurisdictions,
including India, China, South America, and the Middle East, requires substantial government contact,
either directly by us, or through intermediaries over whom we have less direct control, such as
subcontractors, agents, and partners (such as joint venture partners), where norms can differ from U.S.
standards. Although we have implemented policies, procedures, and, in certain cases, contractual
arrangements designed to facilitate compliance with these anti-bribery laws, our officers, directors,
associates, subcontractors, agents, and partners may take actions in violation of our policies, procedures,
contractual arrangements, and anti-bribery laws. Any such violation, even if prohibited by our policies, could
subject us and such persons to criminal and/or civil penalties or other sanctions, which could have a
material adverse effect on our business, financial condition, cash flows, and reputation.

Risks Related to Regulations

Existing regulations and policies, changes thereto, and new regulations and policies may present
technical, regulatory, and economic barriers to the purchase and use of PV products or systems, which may
significantly reduce demand for our modules, systems, or services.

The market for electricity generation products is heavily influenced by foreign, federal, state, and

local government regulations and policies concerning the electric utility industry, as well as policies
promulgated by electric utilities. These regulations and policies often relate to electricity pricing and
technical interconnection of customer-owned electricity generation. In the United States and in a
number of other countries, these regulations and policies have been modified in the past and may be
modified again in the future. These regulations and policies could deter end-user purchases of PV
products or systems and investment in the R&D of PV technology. For example, without a mandated
regulatory exception for PV solar power systems, utility customers are often charged interconnection or
standby fees for putting distributed power generation on the electric utility grid. If these
interconnection standby fees were applicable to PV solar power systems, it is likely that they would
increase the cost of using such systems for end-users, which could make the systems less desirable,
thereby adversely affecting our business, financial condition, and results of operations. In addition, with
respect to utilities that utilize a peak hour pricing policy or time-of-use pricing methods whereby the
price of electricity is adjusted based on electricity supply and demand, electricity generated by PV solar
power systems currently benefits from competing primarily with expensive peak hour electricity, rather
than the less expensive average price of electricity. Modifications to the peak hour pricing policies of

utilities, such as to a flat rate for all times of the day, would require PV solar power systems to achieve
lower prices in order to compete with the price of electricity from other sources and would adversely
impact our operating results.

Our modules, systems, and services (such as O&M) are subject to oversight and regulation in

accordance with national and local ordinances relating to building codes, safety, environmental
protection, utility interconnection and metering, and other matters, and tracking the requirements of
individual jurisdictions is complex. Any new government regulations or utility policies pertaining to our
modules, systems, or services may result in significant additional expenses to us or our customers and,
as a result, could cause a significant reduction in demand for our modules, systems, or services. In
addition, any regulatory compliance failure could result in significant management distraction,
unplanned costs, and/or reputational damage.

Environmental obligations and liabilities could have a substantial negative impact on our financial

condition, cash flows, and results of operations.

Our operations involve the use, handling, generation, processing, storage, transportation, and disposal

of hazardous materials and are subject to extensive environmental laws and regulations at the national,
state, local, and international levels. These environmental laws and regulations include those governing the
discharge of pollutants into the air and water, the use, management, and disposal of hazardous materials
and wastes, the cleanup of contaminated sites, and occupational health and safety. As we execute our long
term strategic plan and expand our business into foreign jurisdictions worldwide, our environmental
compliance burden may continue to increase both in terms of magnitude and complexity. We have incurred
and may continue to incur significant costs in complying with these laws and regulations. In addition,
violations of, or liabilities under, environmental laws or permits may result in restrictions being imposed on
our operating activities or in our being subjected to substantial fines, penalties, criminal proceedings, third-
party property damage or personal injury claims, cleanup costs, or other costs. Such solutions could also
result in substantial delay or termination of projects under construction within our systems business, which
could adversely impact our results of operations. While we believe we are currently in substantial
compliance with applicable environmental requirements, future developments such as more aggressive
enforcement policies, the implementation of new, more stringent laws and regulations, or the discovery of
presently unknown environmental conditions may require expenditures that could have a material adverse
effect on our business, financial condition, and results of operations.

Our solar modules contain CdTe and other semiconductor materials. Elemental cadmium and

certain of its compounds are regulated as hazardous materials due to the adverse health effects that
may arise from human exposure. Based on existing research, the risks of exposure to CdTe are not
believed to be as serious as those relating to exposure to elemental cadmium. In our manufacturing
operations, we maintain engineering controls to minimize our associates’ exposure to cadmium or
cadmium compounds and require our associates who handle cadmium compounds to follow certain
safety procedures, including the use of personal protective equipment such as respirators, chemical
goggles, and protective clothing. Relevant studies and third-party peer review of our technology have
concluded that the risk of exposure to cadmium or cadmium compounds from our end-products is
negligible. In addition, the risk of exposure is further minimized by the encapsulated nature of these
materials in our products, the physical properties of cadmium compounds used in our products, and the
recycling or responsible disposal of our modules. While we believe that these factors and procedures
are sufficient to protect our associates, end-users, and the general public from adverse health effects
that may arise from cadmium exposure, we cannot ensure that human or environmental exposure to
cadmium or cadmium compounds used in our products will not occur. Any such exposure could result
in future third-party claims against us, damage to our reputation, and heightened regulatory scrutiny,
which could limit or impair our ability to sell and distribute our products. The occurrence of future
events such as these could have a material adverse effect on our business, financial condition, and
results of operations.

The use of cadmium or cadmium compounds in various products is also coming under increasingly
stringent governmental regulation. Future regulation in this area could impact the manufacturing, sale,
collection, and recycling of solar modules and could require us to make unforeseen environmental
expenditures or limit our ability to sell and distribute our products. For example, European Union
Directive 2011/65/EU on the Restriction of the Use of Hazardous Substances in electrical and
electronic equipment (recast RoHS Directive) restricts the use of certain hazardous substances,
including cadmium and its compounds, in specified products. Other jurisdictions, such as China, have
adopted similar legislation or are considering doing so. Currently, PV modules are explicitly excluded
from the scope of recast RoHS (Article 2), as adopted by the European Parliament and the Council in
June 2011. The next general review of the RoHS Directive is scheduled for 2021, involving a broader
discussion of the existing scope. A scope review focusing on additional exclusions is expected to be
proposed by the European Commission in 2017 under the EU’s co-decision process which allows the
European Parliament and the European Council to amend the European Commission’s proposal on
exclusions. The co-decision procedure is expected to be completed in 2018. If PV modules were to be
included in the scope of future RoHS revisions without an exemption or exclusion, we would be
required to redesign our solar modules to reduce cadmium and other affected hazardous substances to
the maximum allowable concentration thresholds in the RoHS Directive in order to continue to offer
them for sale within the EU. As such actions would be impractical, this type of regulatory development
would effectively close the EU market to us, which could have a material adverse effect on our
business, financial condition, and results of operations.

As an owner and operator of PV solar power systems that deliver electricity to the grid, certain of our

affiliated entities may be regulated as public utilities under U.S. federal and state law, which could adversely
affect the cost of doing business and limit our growth.

As an owner and operator of PV solar power systems that deliver electricity to the grid, certain of

our affiliated entities may be considered public utilities for purposes of the Federal Power Act, as
amended (the ‘‘FPA’’), and public utility companies for purposes of the Public Utility Holding Company
Act of 2005 (‘‘PUHCA 2005’’), and are subject to regulation by the FERC, as well as various local and
state regulatory bodies.

Some of our affiliated entities may be exempt wholesale generators or qualifying facilities under
the Public Utility Regulatory Policies Act of 1978, as amended (‘‘PURPA’’), and as such are exempt
from regulation under PUHCA 2005. In addition, our affiliated entities may be exempt from most
provisions of the FPA, as well as state laws regarding the financial or organizational regulation of
public utilities. We are not directly subject to FERC regulation under the FPA. However, we are
considered to be a ‘‘holding company’’ for purposes of Section 203 of the FPA, which regulates certain
transactions involving public utilities, and such regulation could adversely affect our ability to grow the
business through acquisitions. Likewise, investors seeking to acquire our public utility subsidiaries or
acquire ownership interests in our securities sufficient to give them control over us and our public
utility subsidiaries may require prior FERC approval to do so. Such approval could result in transaction
delays or uncertainties.

Public utilities under the FPA are required to obtain FERC acceptance of their rate schedules for

wholesale sales of electricity and to comply with various regulations. The FERC may grant our
affiliated entities the authority to sell electricity at market-based rates and may also grant them certain
regulatory waivers, such as waivers from compliance with FERC’s accounting regulations. These FERC
orders reserve the right to revoke or revise market-based sales authority if the FERC subsequently
determines that our affiliated entities can exercise market power in the sale of generation products, the
provision of transmission services, or if it finds that any of the entities can create barriers to entry by
competitors. In addition, if the entities fail to comply with certain reporting obligations, the FERC may
revoke their power sales tariffs. Finally, if the entities were deemed to have engaged in manipulative or

deceptive practices concerning their power sales transactions, they would be subject to potential fines,
disgorgement of profits, and/or suspension or revocation of their market-based rate authority. If our
affiliated entities were to lose their market-based rate authority, such companies would be required to
obtain the FERC’s acceptance of a cost-of-service rate schedule and could become subject to the
accounting, record-keeping, and reporting requirements that are imposed on utilities with cost-based
rate schedules, which would impose cost and compliance burdens on us and have an adverse effect on
our results of operations. In addition to the risks described above, we may be subject to additional
regulatory regimes at state or foreign levels to the extent we own and operate PV solar power systems
in such jurisdictions.

Risks Related to our Operations, Manufacturing, and Technology

Our future success depends on our ability to effectively balance manufacturing production with market

demand, convert existing production facilities to support new product lines, such as our transition to Series 6
module manufacturing, and, when necessary, continue to build new manufacturing plants over time in
response to such demand and add production lines in a cost-effective manner, all of which are subject to risks
and uncertainties.

Our future success depends on our ability to effectively balance manufacturing production with

market demand, convert existing production facilities to support new product lines, such as our
transition to Series 6 module manufacturing, and increase both our manufacturing capacity and
production throughput over time in a cost-effective and efficient manner. If we cannot do so, we may
be unable to expand our business, decrease our manufacturing cost per watt, maintain our competitive
position, satisfy our contractual obligations, sustain profitability, or realize our expected return on
invested capital. Our ability to expand production capacity, or to convert existing production facilities to
support new product lines, such as our transition to Series 6 module manufacturing, is subject to
significant risks and uncertainties, including the following:

• 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;

• being unable to hire qualified staff;

• failure to execute our expansion or conversion plans effectively;

• manufacturing concentration risk resulting from a majority of our production lines worldwide
being located in one geographic area, Malaysia, and the possible inability to meet customer
demand in the event of compromises to shipping processes, supply chain, or other aspects of
such facility;

• 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.

Our operating history to date may not serve as an adequate basis to judge our future prospects and

results of operations.

Our historical operating results may not provide a meaningful basis for evaluating our business,
financial performance, and prospects. We may be unable to achieve similar growth, or grow at all, in
future periods. Our ability to achieve similar growth in future periods is also affected by current
economic conditions. Our past results occurred in an environment where, among other things, capital
was at times more accessible to our customers to finance the cost of developing solar projects and
economic incentives for solar power in certain markets were more favorable. Accordingly, you should
not rely on our results of operations for any prior period as an indication of our future performance.

We face intense competition from manufacturers of crystalline silicon solar modules, as well as other

thin-film solar modules; if global supply continues to exceed global demand, it could lead to a further
reduction in the average selling price for PV modules, which could reduce our net sales and adversely affect
our results of operations.

The solar and renewable energy industries are highly competitive and are continually evolving as
participants strive to distinguish themselves within their markets and compete with the larger electric
power industry. Within the global PV solar industry, we face intense competition from crystalline silicon
solar module manufacturers and other thin-film solar module manufacturers. Existing or future solar
module manufacturers might be acquired by larger companies with significant capital resources, thereby
further intensifying competition with us. In addition, the introduction of a low cost disruptive
technology, such as commercially viable energy storage, could adversely affect our ability to compete,
which could reduce our net sales and adversely affect our results of operations.

Even if demand for solar modules continues to grow, the rapid manufacturing capacity expansion
undertaken by many solar module manufacturers, particularly manufacturers of crystalline silicon solar
modules, has created and may continue to cause periods of structural imbalance in which supply
exceeds demand. We believe the solar industry is currently in such a period. See the Risk Factor
entitled ‘‘Competition in solar markets globally and across the solar value chain is intense, and could
remain that way for an extended period of time. An increased global supply of PV modules has caused
and may continue to cause structural imbalances in which global PV module supply exceeds demand,
which could have a material adverse effect on our business, financial condition, and results of
operations,’’ for additional information. In addition, we believe any significant decrease in the cost of
silicon feedstock or polysilicon would reduce the manufacturing cost of crystalline silicon solar modules
and lead to further pricing pressure for solar modules and potentially an oversupply of solar modules.
We also believe the crystalline silicon module manufacturers are currently transitioning from multi-
crystalline wafer technology (historically our primary competitor) to more efficient mono-crystalline
wafer technology. Such transition is being facilitated by the emergence of new and low cost mono wafer
suppliers, primarily from China, coupled with the gradual industry transition to Passivated Emitter Rear
Contact (‘‘PERC’’) cell technology. As a result, we expect that in the future, our primary competition
might transition from multi-crystalline to mono-crystalline PERC with higher conversion efficiencies.

During any such period, our competitors could decide to reduce their sales prices in response to

competition, even below their manufacturing costs, in order to generate sales, and may do so for a
sustained period. Other competitors may have direct or indirect access to sovereign capital, which could
enable such competitors to operate at minimal or negative operating margins for sustained periods of
time. As a result, we may be unable to sell our solar modules or systems at attractive prices, or for a
profit, during any period of excess supply of solar modules, which would reduce our net sales and
adversely affect our results of operations. Also, we may decide to lower our average selling prices to
certain customers in certain markets in response to competition, which could also reduce our net sales
and adversely affect our results of operations.

Problems with product quality or performance may cause us to incur significant and/or unexpected
warranty and related expenses, damage our market reputation, and prevent us from maintaining or increasing
our market share.

We perform a variety of module quality and life tests under different conditions upon which we
base our assessments and warranty of module performance over the duration of the warranty. However,
if our thin-film solar modules perform below expectations, we could experience significant warranty and
related expenses, damage to our market reputation, and erosion of our market share. With respect to
our modules, we provide a limited warranty covering defects in materials and workmanship under
normal use and service conditions for generally 10 years. We also typically warrant that modules
installed in accordance with agreed-upon specifications will produce at least 97% of their labeled power
output rating during the first year, with the warranty coverage reducing by 0.7% every year thereafter
throughout the 25-year performance warranty period. As an alternative form of our module power
output warranty, we also offer an aggregated or system-level module performance warranty. This
system-level module performance warranty is designed for utility-scale systems and also provides
25-year system-level energy degradation protection. The system-level module performance warranty
typically is calculated as a percentage of a system’s expected energy production, adjusted for certain
actual site conditions, with the warranted level of performance declining each year in a linear fashion,
but never falling below 80% during the term of the warranty. As a result of these programs, we bear
the risk of product warranty claims long after we have sold our solar modules and recognized net sales.

If any of the assumptions used in estimating our module warranties prove incorrect, we could be
required to accrue additional expenses, which could adversely impact our financial position, operating
results, and cash flows. Although we have taken significant precautions to avoid a manufacturing
excursion from occurring, any manufacturing excursions, including any commitments made by us to take
remediation actions in respect of affected modules beyond our warranties, could adversely impact our
reputation, financial position, operating results, and cash flows.

Although our module performance warranties extend for 25 years, our oldest solar modules
manufactured during the qualification of our pilot production line have only been in use since 2001.
Accordingly, our warranties are based on a variety of quality and life tests that enable predictions of
durability and future performance. These predictions, however, could prove to be materially different
from the actual performance during the warranty period, causing us to incur substantial expense to
repair or replace defective solar modules or provide financial remuneration in the future. For example,
our solar modules could suffer various failure modes, including breakage, delamination, corrosion, or
performance degradation in excess of expectations, and our manufacturing operations or supply chain
could be subject to materials or process variations that could cause affected modules to fail or
underperform compared to our expectations. These risks could be amplified as we implement design
and process changes in connection with our efforts to improve our products and accelerate module
conversion efficiencies as part of our long term strategic plan. In addition, as we increase the number
of installations in extreme climates, we may experience increased failure rates due to deployment into
such field conditions. Any widespread product failures may damage our market reputation, cause our
net sales to decline, require us to repair or replace the defective modules or provide financial
remuneration, and result in us taking voluntary remedial measures beyond those required by our
standard warranty terms to enhance customer satisfaction, which could have a material adverse effect
on our operating results.

In resolving claims related to defective modules, we typically have the option to repair or replace
the covered modules, provide additional modules, or make a cash payment equal to the then-current
market price of the modules; however, historical versions of our module warranty did not provide a
refund remedy. Consequently, we may be obligated to repair or replace the covered modules under
such historical programs. As our manufacturing process may change from time-to-time in accordance
with our technology roadmap, we may elect to stop production of older versions of our modules that

would constitute compatible replacement modules. In some jurisdictions, our inability to provide
compatible replacement modules could potentially expose us to liabilities beyond the limitations of our
module warranties, which could adversely impact our reputation, financial position, operating results,
and cash flows.

In addition to our solar module warranties, we also provide warranties for our BoS equipment,

including, but not limited to, mounting structures, solar trackers, electronics, and cabling. These
warranties cover defects in materials and workmanship for one to five years for most equipment and up
to 10 years for mounting structures. As with our modules, these warranties are based on a variety of
quality and life tests that enable predictions of durability and future performance. For PV solar power
systems we construct, we also typically provide a limited warranty against defects in engineering design,
installation, and workmanship for a period of one to two years following the substantial completion of
a system. Any failures in BoS equipment or system construction beyond our expectations may also
adversely impact our reputation, financial position, operating results, and cash flows.

As part of our systems business, we may provide an energy performance test during the first year

or two of a system’s operation. Such a test is designed to demonstrate that the actual energy generation
for the applicable year meets or exceeds the modeled energy expectation, after certain adjustments,
such as irradiance, weather, module degradation, soiling, curtailment, and other conditions that may
affect a system’s energy output but are unrelated to quality, design, or construction. If there is an
underperformance event, determined at the end of the first or second year after substantial completion,
we may incur liquidated damages as a percentage of the contract price, which may adversely impact our
financial position, operating results, and cash flows.

If our estimates regarding the future costs of collecting and recycling CdTe solar modules covered by our

solar module collection and recycling program are incorrect, we could be required to accrue additional
expenses and face a significant unplanned cash burden.

As necessary, we fund any incremental amounts for our estimated collection and recycling
obligations each year. We determine the funding requirement, if any, based on estimated costs of
collecting and recycling covered modules, estimated rates of return on our restricted investments, and
an estimated solar module life of 25 years less amounts already funded in prior years. We estimate the
cost of our collection and recycling obligations based on the present value of the expected probability
weighted future cost of collecting and recycling the solar modules, which includes estimates for the cost
of packaging materials, the cost of freight from the solar module installation sites to a recycling center,
the material, labor, capital costs, and scale of recycling centers, and an estimated third-party profit
margin and return on risk for collection and recycling services. We base these estimates on (i) our
experience collecting and recycling our solar modules, (ii) the expected timing of when our solar
modules will be returned for recycling, and (iii) expected economic conditions at the time the solar
modules will be collected and recycled. If our estimates prove incorrect, we could be required to accrue
additional expenses and could also face a significant unplanned cash burden at the time we realize our
estimates are incorrect or end-users return their modules, which could adversely affect our operating
results. In addition, participating end-users can return their modules covered under the collection and
recycling program at any time. As a result, we could be required to collect and recycle covered CdTe
solar modules earlier than we expect.

Our failure to further refine our technology, reduce module manufacturing and BoS costs, and develop
and introduce improved PV products could render our solar modules or systems uncompetitive and reduce our
net sales, profitability, and/or market share.

We need to continue to invest significant financial resources in R&D to continue to improve our
module conversion efficiencies, lower the LCOE of our PV solar power systems, and otherwise keep
pace with technological advances in the solar industry. However, R&D activities are inherently

uncertain, and we could encounter practical difficulties in commercializing our research results. We
seek to continuously improve our products and processes, including, for example, through our recently
announced intention to accelerate our transition to Series 6 module manufacturing, and the resulting
changes carry potential risks in the form of delays, additional costs, or other unintended contingencies.
In addition, our significant expenditures on R&D may not produce corresponding benefits. Other
companies are developing a variety of competing PV technologies, including advanced multi-crystalline
silicon cells, PERC or advanced p-type crystalline silicon cells, high-efficiency n-type crystalline silicon
cells, copper indium gallium diselenide thin films, amorphous silicon thin films, and new emerging
technologies such as hybrid perovskites, which could produce solar modules or systems that prove more
cost-effective or have better performance than our solar modules or systems. In addition, other
companies could potentially develop a highly reliable renewable energy system that mitigates the
intermittent power generation drawback of many renewable energy systems, or offer other value-added
improvements from the perspective of utilities and other system owners, in which case such companies
could compete with us even if the LCOE associated with such new systems is higher than that of our
systems. As a result, our solar modules or systems may be negatively differentiated or rendered
obsolete by the technological advances of our competitors, which would reduce our net sales,
profitability, and/or market share. In addition, we often forward price our products and services in
anticipation of future cost reductions and technology improvements, and thus, an inability to further
refine our technology and execute our module conversion efficiency and cost reduction roadmaps could
adversely affect our operating results.

Our failure to protect our intellectual property rights may undermine our competitive position, and
litigation to protect our intellectual property rights or defend against third-party allegations of infringement
may be costly.

Protection of our proprietary processes, methods, and other technology is critical to our business.

Failure to protect and monitor the use of our existing intellectual property rights could result in the
loss of valuable technologies. We rely primarily on patents, trademarks, trade secrets, copyrights, and
contractual restrictions to protect our intellectual property. We regularly file patent applications to
protect certain inventions arising from our R&D and are currently pursuing such patent applications in
various countries in accordance with our strategy for intellectual property in that jurisdiction. Our
existing patents and future patents could be challenged, invalidated, circumvented, or rendered
unenforceable. Our pending patent applications may not result in issued patents, or if patents are
issued to us, such patents may not be sufficient to provide meaningful protection against competitors or
against competitive technologies.

We also rely upon unpatented proprietary manufacturing expertise, continuing technological
innovation, and other trade secrets to develop and maintain our competitive position. Although we
generally enter into confidentiality agreements with our associates and third parties to protect our
intellectual property, such confidentiality agreements are limited in duration and could be breached and
may not provide meaningful protection for our trade secrets or proprietary manufacturing expertise.
Adequate remedies may not be available in the event of unauthorized use or disclosure of our trade
secrets and manufacturing expertise. In addition, others may obtain knowledge of our trade secrets
through independent development or legal means. The failure of our patents or confidentiality
agreements to protect our processes, equipment, technology, trade secrets, and proprietary
manufacturing expertise, methods, and compounds could have a material adverse effect on our
business. In addition, effective patent, trademark, copyright, and trade secret protection may be
unavailable or limited in some foreign countries, especially any developing countries into which we may
expand our operations. In some countries we have not applied for patent, trademark, or copyright
protection.

Third parties may infringe or misappropriate our proprietary technologies or other intellectual
property rights, which could have a material adverse effect on our business, financial condition, and
operating results. Policing unauthorized use of proprietary technology can be difficult and expensive.
Also, litigation may be necessary to enforce our intellectual property rights, protect our trade secrets,
or determine the validity and scope of the proprietary rights of others. We cannot ensure that the
outcome of such potential litigation will be in our favor, and such litigation may be costly and may
divert management attention and other resources away from our business. An adverse determination in
any such litigation may impair our intellectual property rights and may harm our business, prospects,
and reputation. In addition, we have no insurance coverage against such litigation costs and would have
to bear all costs arising from such litigation to the extent we are unable to recover them from other
parties.

Several of our key raw materials and components are either single-sourced or sourced from a limited

number of third-party suppliers, and their failure to perform could cause manufacturing delays and impair
our ability to deliver solar modules to customers in the required quality and quantities and at a price that is
profitable to us.

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 cost. Several of our key raw materials and components are
either single-sourced or sourced from a limited number of third-party suppliers. As a result, the failure
of any of our suppliers to perform could disrupt our supply chain and adversely impact our operations.
In addition, some of our suppliers are small companies that may be unable to supply our increasing
demand for raw materials and components as we expand our business. We may be unable to identify
new suppliers or qualify their products for use on our production lines in a timely manner and on
commercially reasonable terms. A constraint on our production may cause us to be unable to meet our
capacity plans and/or our obligations under our customer contracts, which would have an adverse
impact on our business. Additionally, reductions in our production volume may put pressure on
suppliers, resulting in increased material and component costs.

A disruption in our supply chain for CdTe could interrupt or impair our ability to manufacture solar

modules and could adversely impact our profitability and long-term growth prospects.

A key raw material used in our module production process is a CdTe compound. Tellurium, one of
the main components of CdTe, is mainly produced as a by-product of copper refining, and therefore, its
supply is largely dependent upon demand for copper. Our supply of CdTe could be limited if any of
our current suppliers or any of our future suppliers are unable to acquire an adequate supply of
tellurium in a timely manner or at commercially reasonable prices. If our current suppliers or any of
our future suppliers cannot obtain sufficient tellurium, they could substantially increase prices or be
unable to perform under their contracts. Furthermore, if our competitors begin to use or increase their
demand for tellurium, our requirements for tellurium increase, or new applications for tellurium
become available, the supply of tellurium and related CdTe compounds could be reduced and prices
could increase. As we may be unable to pass such increases in the costs of our raw materials through to
our customers, a substantial increase in tellurium prices or any limitations in the supply of tellurium
could adversely impact our profitability and long-term growth objectives.

If any future production lines are not built in line with our committed schedules it may impair any

future growth plans. If any future production lines do not achieve operating metrics similar to our existing
production lines, our solar modules could perform below expectations and cause us to lose customers.

If we are unable to systematically replicate our production lines as necessary over time and achieve
and sustain similar operating metrics in our future production lines as we have achieved at our existing

production lines, our manufacturing capacity could be substantially constrained, our manufacturing
costs per watt could increase, and our growth could be limited. Such factors may result in lower net
sales and lower net income than we anticipate. For instance, future production lines could produce
solar modules that have lower conversion efficiencies, higher failure rates, and higher rates of
degradation than solar modules from our existing production lines, and we could be unable to
determine the cause of the lower operating metrics or develop and implement solutions to improve
performance.

Some of our manufacturing equipment is customized and sole sourced. If our manufacturing equipment

fails or if our equipment suppliers fail to perform under their contracts, we could experience production
disruptions and be unable to satisfy our contractual requirements.

Some of our manufacturing equipment, including manufacturing equipment related to the
production of our Series 6 modules, is customized to our production lines based on designs or
specifications that we provide to equipment manufacturers, which then undertake a specialized process
to manufacture the custom equipment. As a result, the equipment is not readily available from multiple
vendors and would be difficult to repair or replace if it were to become damaged or stop working. If
any piece of equipment fails, production along the entire production line could be interrupted. In
addition, the failure of our equipment manufacturers to supply equipment in a timely manner or on
commercially reasonable terms could delay our expansion or conversion plans, otherwise disrupt our
production schedule, and/or increase our manufacturing costs, all of which would adversely impact our
operating results.

We may be unable to manage the expansion of our operations effectively.

We expect to continue to expand our business in order to provide utility-scale PV solar energy
solutions to existing and new geographic markets and to maintain or increase our market share. To
manage the continued expansion of our operations, we would be required to continue to improve our
operational and financial systems as well as our procedures and controls. Our management would also
be required to maintain and expand our relationships with customers, suppliers, and other third parties
and attract new customers and suppliers. In addition, our current and planned operations, personnel,
systems, and internal controls and procedures might be inadequate to support our future growth. The
effectiveness of our controls and procedures could be adversely impacted to the extent we transfer
more business functions to lower cost geographies as part of our cost reduction initiatives. If we cannot
manage our growth effectively, we may be unable to take advantage of market opportunities, execute
our business strategies, or respond to competitive pressures.

Our substantial international operations subject us to a number of risks, including unfavorable political,

regulatory, labor, and tax conditions in the United States and/or foreign countries.

We have significant development, construction, sales, marketing, and manufacturing operations
both within and outside the United States and expect to continue to expand our operations worldwide.
As a result, we are subject to the legal, political, social, tax, and regulatory requirements, and economic
conditions, of many jurisdictions. Risks inherent to international operations include, but are not limited
to, the following:

• 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 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;

• fluctuations in exchange rates may affect demand for our products and services and may

adversely affect our profitability and cash flow 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;

• inability to obtain, maintain, or enforce intellectual property rights;

• 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

• 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.

Our business in foreign markets requires us to respond to rapid changes in market conditions in
these countries. Our overall success as a global business depends, in part, on our ability to succeed in
differing legal, regulatory, economic, social, and political conditions. We may not be able to develop
and implement policies and strategies that will be effective in each location where we do business.

Risks Related to Our Systems Business

Project development or construction activities may not be successful; projects under development may not

receive required permits, real property rights, PPAs, interconnection, and transmission arrangements; or
financing or construction may not commence or proceed as scheduled, which could increase our costs and
impair our ability to recover our investments.

The development and construction of solar energy generation facilities and other energy

infrastructure projects involve numerous risks. We may be required to spend significant sums for land
and interconnection rights, preliminary engineering, permitting, legal services, and other expenses
before we can determine whether a project is feasible, economically attractive, or capable of being
built. Success in developing a particular project is contingent upon, among other things:

• 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 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;

• 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.

Successful completion of a particular project may be adversely affected, delayed and/or rendered

infeasible by numerous factors, including:

• 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 materials 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 transmission grid congestion issues;

• 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 FCPA and applicable local laws and customs;

• unfavorable tax treatment or adverse changes to tax policy;

• adverse weather conditions;

• water shortages;

• adverse environmental and geological conditions; and

• force majeure and other events out of our control.

If we fail to complete the development of a solar energy project, fail to meet one or more agreed
upon target construction milestone dates, fail to achieve system-level capacity, or fail to meet other contract
terms, we may be subject to forfeiture of significant deposits under PPAs or interconnection agreements or
termination of such agreements, incur significant liquidated damages, penalties, and/or other obligations
under other project related agreements, and may not be able to recover our investment in the project.
Some of these investments are included as assets on our consolidated balance sheets under the line item
‘‘Project assets and deferred project costs.’’ If we are unable to complete the development of a solar energy
project, we may write-down or write-off some or all of these capitalized investments, which would have an
adverse impact on our net income in the period in which the loss is recognized.

We may be unable to acquire or lease land, obtain necessary interconnection and transmission rights,
and/or obtain the approvals, licenses, permits, and electric transmission grid interconnection and transmission
rights necessary to build and operate PV solar power systems in a timely and cost effective manner, and
regulatory agencies, local communities, labor unions, tribes, or other third parties may delay, prevent, or
increase the cost of construction and operation of the system we intend to build.

In order to construct and operate our PV solar power systems, we need to acquire or lease land

and rights of way, obtain interconnection rights, negotiate agreements with affected transmission
systems, and obtain all necessary local, county, state, federal, and foreign approvals, licenses, and
permits, as well as rights to interconnect the systems to the transmission grid and transmit energy
generated from the system. We may be unable to acquire the land or lease interests needed, may not
obtain or maintain satisfactory interconnection rights, may have difficulty reaching agreements with
affected transmission systems and/or incur unexpected network upgrade costs, may not receive or retain
the requisite approvals, permits, licenses, and interconnection and transmission rights, or may encounter
other problems that could delay or prevent us from successfully constructing and operating such
systems.

Many of our proposed projects are located on or require access through public lands administered

by federal and state agencies pursuant to competitive public leasing and right-of-way procedures and
processes. Other of our proposed projects are located on tribal land pursuant to land agreements that
must be approved by tribal governments and federal agencies. The authorization for the use,
construction, and operation of systems and associated transmission facilities on federal, tribal, state, and

private lands will also require the assessment and evaluation of mineral rights, private rights-of-way,
and other easements; environmental, agricultural, cultural, recreational, and aesthetic impacts; and the
likely mitigation of adverse impacts to these and other resources and uses. The inability to obtain the
required permits and other federal, tribal, state and local approvals, and potentially, any excessive
delays in obtaining such permits and approvals due, for example, to litigation or third-party appeals,
could prevent us from successfully constructing and operating such systems in a timely manner and
could result in the potential forfeiture of any deposit we have made with respect to a given project.
Moreover, project approvals subject to project modifications and conditions, including mitigation
requirements and costs, could affect the financial success of a given project. Changing regulatory
requirements and the discovery of unknown site conditions could also affect the financial success of a
given project.

In addition, local labor unions may increase the cost of, and/or lower the productivity of, project

development in California and elsewhere. We may also be subject to labor unavailability and/or
increased union labor requirements due to multiple simultaneous projects in a geographic region.

Competition at the system level can be intense, thereby potentially exerting downward pressure on system-

level profit margins industry-wide, which could reduce our profitability and adversely affect our results of
operations.

The significant decline in PV module prices over the last several years continues to create a
challenging environment for module manufacturers, but it has also increased interest in solar electricity
worldwide by eroding one of the primary historical constraints to widespread solar market penetration,
namely its affordability. Aided by such lower module prices, our customers and potential customers
have in many cases been willing and able to bid aggressively for new projects and PPAs, using low cost
assumptions for modules, BoS components, installation, maintenance, and other costs as the basis for
such bids. Relatively low barriers to entry for solar project developers and EPC companies, including
those we compete with, have led to, depending on the market and other factors, intense competition at
the system level. Intense competition at the system level can result in an environment in which system-
level pricing falls rapidly, thereby further increasing demand for solar solutions but constraining the
ability for project developers, EPC companies, and/or vertically-integrated solar companies such as First
Solar to sustain meaningful and consistent profitability. Accordingly, while we believe our system
offerings and experience are positively differentiated in many cases from that of our competitors, we
may fail to correctly identify our competitive position, we may be unable to develop or maintain a
sufficient magnitude of new system projects worldwide at economically attractive rates of return, and
we may not otherwise be able to achieve meaningful profitability under our long term strategic plan.

Depending on the market opportunity, we may be at a disadvantage compared to potential system-
level competitors. For example, certain of our competitors may have a stronger and/or more established
localized business presence in a particular geographic region. Certain of our competitors may be larger
entities that have greater financial resources and greater overall brand name recognition than we do
and, as a result, may be better positioned to impact customer behavior or adapt to changes in the
industry or the economy as a whole. Certain competitors may also have direct or indirect access to
sovereign capital and/or other incentives, which could enable such competitors to operate at minimal or
negative operating margins for sustained periods of time.

Additionally, large-scale solar systems are still in their relatively early stages of existence, and,
depending on the geographic area, certain potential customers may still be in the process of educating
themselves about the points of differentiation among various available providers of PV solar solutions,
including a company’s proven overall experience and bankability, system design and optimization
expertise, grid interconnection and stabilization expertise, and proven O&M capabilities. If we are
unable over time to meaningfully differentiate our offerings at scale, or if available competitive pricing
is prioritized over the value we believe is added through our system offerings and experience, from the
viewpoint of our potential customer base, our business, financial condition, and results of operations
could be adversely affected.

We may not be able to obtain long-term contracts for the sale of power produced by our projects at prices

and on other terms favorable to attract financing and other investments; with regard to projects for which
electricity is or will be sold on an open-contract basis rather than under a PPA, our results of operations
could be adversely affected to the extent prevailing spot electricity prices decline in an unexpected manner.

Obtaining long-term contracts for the sale of power produced by our projects at prices and on
other terms favorable to us is essential for obtaining financing and commencing construction of our
projects. We must compete for PPAs against other developers of solar and renewable energy projects.
This intense competition for PPAs has resulted in downward pressure on PPA pricing for newly
contracted projects. In addition, we believe the solar industry is currently experiencing a period of
structural imbalance between supply and demand that is putting downward pressure on module pricing.
This downward pressure on module pricing also creates downward pressure on PPA pricing for newly
contracted projects. See the Risk Factor entitled ‘‘Competition at the system level can be intense,
thereby potentially exerting downward pressure on system-level profit margins industry-wide, which
could reduce our profitability and adversely affect our results of operations’’ for additional information.
If falling PPA pricing results in projected project revenue that is insufficient to generate returns
anticipated to be demanded in the project sale market, our business, financial condition, and results of
operations could be adversely affected.

Other sources of power, such as natural gas-fired power plants, have historically been cheaper than
the cost of solar power, and certain types of generation projects, such as natural gas-fired power plants,
can deliver power on a firm basis. The inability to compete successfully against other power producers
or otherwise enter into PPAs favorable to us would negatively affect our ability to develop and finance
our projects and negatively impact our revenue. In addition, the availability of PPAs is dependent on
utility and corporate energy procurement practices that could evolve and shift allocation of market risks
over time. In addition, PPA availability and terms are a function of a number of economic, regulatory,
tax, and public policy factors, which are also subject to change. Also, certain of our projects may be
scheduled for substantial completion prior to the commencement of a long-term PPA with a major
off-taker, in which case we would be required to enter into a stub-period PPA for the intervening time
period or sell down the project. We may not be able to do either on terms that are commercially
attractive to us. Finally, the electricity from certain of our projects is or is expected to be sold on an
open-contract basis for a period of time rather than under a PPA. If prevailing spot electricity prices
relating to any such project were to decline in an unexpected manner, such project may decline in value
and our results of operations could otherwise be adversely affected.

Lack of transmission capacity availability, potential upgrade costs to the transmission grid, and other

systems constraints could significantly impact our ability to build PV solar power systems and generate solar
electricity power sales.

In order to deliver electricity from our PV solar power systems to our customers, our projects
generally need to connect to the transmission grid. The lack of available capacity on the transmission
grid could substantially impact our projects and cause reductions in project size, delays in project
implementation, increases in costs from transmission upgrades, and potential forfeitures of any deposit
we have made with respect to a given project. In addition, there could be unexpected costs required to
complete transmission and network upgrades that adversely impact the economic viability of our PV
solar power systems. These transmission and network issues and costs, as well as issues relating to the
availability of large equipment such as transformers and switch gear, could significantly impact our
ability to interconnect our systems to the transmission grid, build such systems and generate solar
electricity sales.

Our systems business is largely dependent on us and third parties arranging financing from various

sources, which may not be available or may only be available on unfavorable terms or in insufficient
amounts.

The construction of large utility-scale solar power projects in many cases requires project financing,

including non-recourse project debt financing in the bank loan market and institutional debt capital
markets. Uncertainties exist as to whether our planned projects will be able to access the debt markets
in a magnitude sufficient to finance their construction. If we are unable to arrange such financing or if
it is only available on unfavorable terms, we may be unable to fully execute our systems business plan.
In addition, we generally expect to sell interests in our projects by raising project equity capital from
tax-oriented, strategic industry, and other equity investors. Such equity sources may not be available or
may only be available in insufficient amounts or on unfavorable terms, in which case our ability to sell
interests in our projects may be delayed or limited, and our business, financial condition, and results of
operations may be adversely affected. Uncertainty in or adverse changes to tax policy, including the
amount of ITC, accelerated depreciation and marginal corporate tax rate may reduce project value or
negatively affect our ability to timely secure equity investment for our projects. Even if such financing
sources are available, the counterparty to many of our fixed-price EPC contracts, which own the project
we are constructing, are often special purpose vehicles that do not have significant assets other than
their interests in the project and have pledged all or substantially all of these assets to secure the
project-related debt and certain other sources of financing. If the owner defaults on its payments or
other obligations to us, we may face difficulties in collecting payment of amounts due to us for the
costs previously incurred or for the amounts previously expended or committed to be expended to
purchase equipment or supplies (including intercompany purchases of PV modules), or for termination
payments we are entitled to under the terms of the related EPC contract. If we are unable to collect
the amounts owed to us, or are unable to complete the project because of an owner default, we may be
required to record a charge against earnings related to the project, which could result in a material
loss.

In addition, for projects to which we provide EPC services but are not the project developer, our

EPC activities are in many cases dependent on the ability of third parties to finance their system
projects on acceptable terms. Depending on prevailing conditions in the credit markets, interest rates
and other factors, such financing may not be available or may only be available on unfavorable terms
or in insufficient amounts. If third parties are limited in their ability to access financing to support their
purchase of PV solar power system construction services from us, we may not realize the cash flows
that we expect from such sales, which could adversely affect our ability to invest in our business and/or
generate revenue. See also the Risk Factor above entitled ‘‘An increase in interest rates or tightening of
the supply of capital in the global financial markets (including a reduction in total tax equity
availability) could make it difficult for customers to finance the cost of a PV solar power system and
could reduce the demand for our modules or systems and/or lead to a reduction in the average selling
price for such offerings.’’

Developing solar power projects may require significant upfront investment prior to the signing of an
EPC contract and commencing construction, or the signing of a module sale agreement, which could adversely
affect our business and results of operations.

Our solar power project development cycles, which span the time between the identification of a

site location and the construction of a system, vary substantially and can take years to mature. As a
result of these long project development cycles, we may need to make significant up-front investments
of resources (including, for example, payments for land rights, large transmission and PPA deposits, or
other payments, which may be non-refundable) in advance of the signing of EPC contracts,
commencing construction, the signing of a module sale agreement, receiving cash proceeds, or
recognizing any revenue, which may not be recognized for several additional months or years following

contract signing. Our potential inability to enter into sales contracts with potential customers on
favorable terms after making such upfront investments could cause us to forfeit certain nonrefundable
payments or otherwise adversely affect our business and results of operations. Furthermore, we may
become constrained in our ability to simultaneously fund our other business operations and these
systems investments through our long project development cycles.

Our liquidity may also be adversely affected to the extent the project sales market weakens and we

are unable to sell interests in our solar projects on pricing, timing, and other terms commercially
acceptable to us. In such a scenario, we may choose to continue to temporarily own and operate
certain solar projects for a period of time, after which interests in the projects may be sold to third
parties.

We may be unable to accurately estimate costs under fixed-price EPC agreements in which we act as the

general contractor for our customers in connection with the construction and installation of their PV solar
power systems.

We may enter into fixed-price EPC contracts in which we act as the general contractor for our
customers in connection with the installation of their PV solar power systems. All essential costs are
estimated at the time of entering into the EPC contract for a particular project, and these are reflected
in the overall fixed-price that we charge our customers for the project. These cost estimates are
preliminary and may or may not be covered by contracts between us or the subcontractors, suppliers,
and other parties to the project. In addition, we require qualified, licensed subcontractors to install
many of our systems. Shortages of such skilled labor could significantly delay a project or otherwise
increase our costs. Should actual results prove different from our estimates (including those due to
unexpected increases in inflation, commodity prices, or labor costs) or we experience delays in
execution and we are unable to commensurately increase the EPC sales price, we may not achieve our
expected margins or we may be required to record a loss in the relevant fiscal period.

We may be subject to unforeseen costs, liabilities, or obligations when providing O&M services. In

addition, certain of our O&M agreements include provisions permitting the counterparty to terminate the
agreement without cause.

We may provide ongoing O&M services to system owners under separate service agreements,
pursuant to which we generally perform standard activities associated with operating a PV solar power
system, including 24/7 monitoring and control, compliance activities, energy forecasting, and scheduled
and unscheduled maintenance. Our costs to perform these services are estimated at the time of
entering into the O&M agreement for a particular project, and these are reflected in the price we
charge our customers, including certain agreements which feature fixed pricing. Should our estimates of
O&M costs prove inaccurate (including any unexpected increases in inflation, labor, or BoS costs), our
growth strategy and results of operations could be adversely affected. Because of the potentially
long-term nature of these O&M agreements, the adverse impacts on our results of operations could be
significant, particularly if our costs are not capped under the terms of the agreements. In addition,
certain of our O&M agreements include provisions permitting the counterparty to terminate the
agreement without cause or for convenience. The exercise of such termination rights, or the use of such
rights as leverage to re-negotiate terms and conditions of the O&M agreement, including pricing terms,
could adversely impact our results of operations. We may also be subject to substantial costs in the
event we do not achieve certain thresholds under the effective availability guarantees included in our
O&M agreements.

Our systems business is subject to regulatory oversight and liability if we fail to operate our PV solar

power systems in compliance with electric reliability rules.

The ongoing O&M services that we provide for system owners may subject us to regulation by the

NERC, or its designated regional representative, as a ‘‘generator operator,’’ or ‘‘GOP,’’ under electric
reliability rules filed with FERC. Our failure to comply with the reliability rules applicable to GOPs
could subject us to substantial fines by NERC, subject to FERC’s review. In addition, the system
owners that receive our O&M services may be regulated by NERC as ‘‘generator owners,’’ or ‘‘GOs’’
and we may incur liability for GO violations and fines levied by NERC, subject to FERC’s review,
based on the terms of our O&M agreements. Finally, as a system owner and operator, we may in the
future be subject to regulation by NERC as a GO.

Other Risks

We may not realize the anticipated benefits of past or future business combinations or transactions, and

integration of these business combinations may disrupt our business and management.

We have made several acquisitions in prior years and in the future we may acquire additional

companies, project pipelines, products, or technologies or enter into joint ventures or other strategic
initiatives. We may not realize the anticipated benefits of such business combinations or other
investments, and each transaction has numerous risks. These risks include the following:

• 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;

• 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 which we do not control; for example, our ability to
effectively manage 8point3 Energy Partners, LP (the ‘‘YieldCo’’ or the ‘‘Partnership’’), the
limited partnership formed with SunPower Corporation (‘‘SunPower’’ and together with First
Solar, the ‘‘Sponsors’’);

• 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.

Mergers and acquisitions of companies are inherently risky, and ultimately, if we do not complete

the integration of acquired businesses successfully and in a timely manner, we may not realize the
anticipated benefits of the acquisitions to the extent anticipated, which could adversely affect our
business, financial condition, or results of operations.

We may not be able to achieve the full strategic and financial benefits expected to result from the

formation of 8point3 Energy Partners LP, on a timely basis or at all.

In June 2015, the Partnership formed by the Sponsors completed its initial public offering (the

‘‘IPO’’). The YieldCo is a joint venture vehicle into which we and SunPower each contributed a
portfolio of selected solar generation assets from our existing portfolios of assets. Since the formation
of the Partnership, we and SunPower have, from time to time, continued to sell interests in solar
projects to the Partnership. We launched the YieldCo to enable a competitive cost of capital and
greater optionality in the project sales process for a portion of our future project interest sales. Given
the broader economic factors currently impacting the yieldco sector in general, including yieldco equity
valuations generally, the timing and execution of project sales to the Partnership are subject to market
conditions. We believe that the viability of the YieldCo strategy will depend on, among other things,
such market conditions, the YieldCo’s ability to finance project interest acquisitions, and our ability to
continue to develop revenue-generating solar assets, which is subject to the same project-level, business,
and industry risks described in the other Risk Factors and elsewhere in this Annual Report on
Form 10-K. The viability of the YieldCo strategy is also subject to the risks described in the YieldCo’s
Annual Report on Form 10-K. In addition, due to the joint venture nature of the YieldCo, we do not
exercise control over the YieldCo in the same manner that we could over our wholly-owned
subsidiaries, and, as such, the viability of the YieldCo strategy will also depend in part on our ability to
effectively manage our business relationships with SunPower. Furthermore, the value of our investment
in the YieldCo will fluctuate over time and may decline. As a result, we may never recover the value of
the assets we contributed to the YieldCo, and we may realize less of a return on such contributions
than if we had retained or operated the assets. In addition, our stock price may be impacted by
fluctuations in the price of YieldCo shares and market perceptions about the value of our interest in
the YieldCo. If we are unable to achieve the strategic and financial benefits expected to result from the
YieldCo strategy, we would pursue traditional and other pathways in the project sales process, but our
business, financial condition, and results of operations could be materially adversely affected. See
Note 12 ‘‘Investments in Unconsolidated Affiliates and Joint Ventures’’ to our consolidated financial
statements included in this Annual Report on Form 10-K for additional information regarding the
Partnership.

Our future success depends on our ability to retain our key associates and to successfully integrate them

into our management team.

We are dependent on the services of our executive officers and other members of our senior
management team. The loss of one or more of these key associates or any other member of our senior
management team could have a material adverse effect on our business. We may not be able to retain
or replace these key associates and may not have adequate succession plans in place. Several of our
current key associates including our executive officers are subject to employment conditions or
arrangements that contain post-employment non-competition provisions. However, these arrangements
permit the associates to terminate their employment with us upon little or no notice and the
enforceability of the non-competition provisions in certain jurisdictions is uncertain.

If we are unable to attract, train, and retain key personnel, our business may be materially and adversely
affected; any regulatory compliance failure with respect to applicable labor laws and regulations, including the
Davis-Bacon and Related Acts, could have an adverse effect on us.

Our future success depends, to a significant extent, on our ability to attract, train, and retain
management, operations, sales, training, and technical personnel, including in foreign jurisdictions.
Recruiting and retaining capable personnel, particularly those with expertise in the PV industry across a
variety of technologies, are vital to our success. There is substantial competition for qualified technical
personnel and while we continue to benchmark our organization against the broad spectrum of business
in our market space to remain economically competitive, there can be no assurances that we will be
able to attract and retain our technical personnel. If we are unable to attract and retain qualified
associates, or otherwise experience unexpected labor disruptions within our business, we may be
materially and adversely affected.

Labor used on some of our job sites that are completed or under construction are subject to the

Davis-Bacon and Related Acts (collectively, ‘‘Davis-Bacon’’). Davis-Bacon requires that personnel
assigned to the project be paid at least the prevailing wage and fringe benefits, as established by and in
accordance with the regulations promulgated by the U.S. Department of Labor (‘‘DOL’’). We have an
established policy pursuant to which we evaluate Davis-Bacon requirements in conjunction with our
subcontractors on the project and ensure our collective compliance with these requirements. If it was
ultimately determined that any person working under Davis-Bacon requirements on First Solar projects
was not properly classified, was being paid the incorrect prevailing wage, or had not been paid fringe
benefits to which he or she was entitled, we could incur additional liability with respect to such worker
or be exposed to other adverse outcomes. For example, in March 2015, the Wage and Hour Division of
the DOL notified our wholly-owned subsidiary First Solar Electric, LLC (‘‘FSE’’) of the DOL’s findings
following a labor standards compliance review under Davis-Bacon at the Agua Caliente project in
southwestern Arizona. FSE served as the general contractor for the project. The DOL alleges that
certain workers at the project were misclassified and, as a result of that misclassification, were not paid
the required prevailing wage. We disagree with certain of the DOL’s investigative findings and are
currently reviewing those issues of disagreement with the DOL. Possible adverse outcomes include the
payment of back wages to certain project workers. We do not expect the outcome of the DOL
proceeding to have a material adverse effect on our business, financial condition, or results of
operations.

We may be exposed to infringement or misappropriation claims by third parties, which, if determined
adversely to us, could cause us to pay significant damage awards or prohibit us from the manufacture and
sale of our solar modules or the use of our technology.

Our success depends largely on our ability to use and develop our technology and know-how
without infringing or misappropriating the intellectual property rights of third parties. The validity and
scope of claims relating to PV technology patents involve complex scientific, legal, and factual
considerations and analysis and, therefore, may be highly uncertain. We may be subject to litigation
involving claims of patent infringement or violation of intellectual property rights of third parties. The
defense and prosecution of intellectual property suits, patent opposition proceedings, and related legal
and administrative proceedings can be both costly and time consuming and may significantly divert the
efforts and resources of our technical and management personnel. An adverse determination in any
such litigation or proceedings to which we may become a party could subject us to significant liability
to third parties, require us to seek licenses from third parties, which may not be available on
reasonable terms, or at all, or pay ongoing royalties, require us to redesign our solar modules, or
subject us to injunctions prohibiting the manufacture and sale of our solar modules or the use of our
technologies. Protracted litigation could also result in our customers or potential customers deferring or
limiting their purchase or use of our solar modules until the resolution of such litigation.

Currency translation and transaction risk may negatively affect our results of operations.

Although our reporting currency is the U.S. dollar, we conduct certain business and incur costs in

the local currency of most countries in which we operate. As a result, we are subject to currency
translation and transaction risk. For example, certain of our net sales in 2016 were denominated in
foreign currencies, such as Euros, Australian dollars, and Indian rupees, and we expect to continue to
have net sales denominated in foreign currencies in the future. In addition, our operating expenses for
our manufacturing plants located outside the United States and our operations for our systems business
in foreign countries will generally be denominated in local currencies. Joint ventures or other business
arrangements with strategic partners outside of the United States have involved, and are expected in
the future to involve, significant investments denominated in local currencies. Changes in exchange
rates between foreign currencies and the U.S. dollar could affect our results of operations and result in
exchange gains or losses. We cannot accurately predict the impact of future exchange rate fluctuations
on our results of operations.

We could also expand our business into emerging markets, many of which have an uncertain
regulatory environment relating to currency policy. Conducting business in such emerging markets
could cause our exposure to changes in exchange rates to increase, due to the relatively high volatility
associated with emerging market currencies and potentially longer payment terms for our proceeds.

Our ability to hedge foreign currency exposure is dependent on our credit profile with the banks

that are willing and able to do business with us. Deterioration in our credit position or a significant
tightening of the credit market conditions could limit our ability to hedge our foreign currency
exposures; and therefore, result in exchange gains or losses.

Sustained declines in worldwide oil prices could adversely affect trading prices of our common shares.

Worldwide oil prices have declined over the last few years and may continue to decline or remain

low. Oil is used as a fuel for electricity generation in only a small percentage of applications worldwide,
compared to natural gas or coal-fired electricity generation and other forms of electricity generation,
and accordingly, fluctuations in oil prices generally do not have a significant direct causal effect on
prevailing competitive electricity prices, including electricity from solar sources. Nonetheless, there can
be an observed market correlation effect between declining oil prices and depressed equity valuations
of solar companies. If oil prices remain low or continue to decline, the trading price of our common
shares may suffer.

We are subject to litigation risks, including securities class actions and stockholder derivative actions,

which may be costly to defend and the outcome of which is uncertain.

From time to time, we are subject to legal claims, with and without merit, that may be costly and

which may divert the attention of our management and our resources in general. In addition, our
projects may be subject to litigation or other adverse proceedings that may adversely impact our ability
to proceed with construction or sell a given project, which may adversely affect our ability to recognize
revenue with respect to such project. The results of complex legal proceedings are difficult to predict.
Moreover, many of the complaints filed against us do not specify the amount of damages that plaintiffs
seek, and we therefore are unable to estimate the possible range of damages that might be incurred
should these lawsuits be resolved against us. Certain of these lawsuits assert types of claims that, if
resolved against us, could give rise to substantial damages, and an unfavorable outcome or settlement
of one or more of these lawsuits, or any future lawsuits, may result in a significant monetary judgment
or award against us or a significant monetary payment by us, and could have a material adverse effect
on our business, financial condition, or results of operations. Even if these lawsuits, or any future
lawsuits, are not resolved against us, the costs of defending such lawsuits may be significant and may
not be covered by our insurance policies. Because the price of our common stock has been, and may

continue to be, volatile, we can provide no assurance that additional securities or other litigation will
not be filed against us in the future. For more information on our legal proceedings, including our
securities class action and derivative actions, see ‘‘Note 16 ‘‘Commitments and Contingencies’’ under
the heading ‘‘Legal Proceedings’’ of our consolidated financial statements included in this Annual
Report on Form 10-K.

Our largest stockholder has significant influence over us and its interests may conflict with or differ from

interests of other stockholders.

Our largest stockholder, Lukas T. Walton (the ‘‘Significant Stockholder’’), owned approximately

22% of our outstanding common stock at December 31, 2016. As a result, the Significant Stockholder
has substantial influence over all matters requiring stockholder approval, including the election of our
directors and the approval of significant corporate transactions such as mergers, tender offers, and the
sale of all or substantially all of our assets. The interests of the Significant Stockholder could conflict
with or differ from interests of other stockholders. For example, the concentration of ownership held by
the Significant Stockholder could delay, defer, or prevent a change of control of our company or
impede a merger, takeover, or other business combination, which other stockholders may view
favorably.

If our goodwill, long-lived assets, or project related assets become impaired, we may be required to record

a significant charge to earnings.

We may be required to record a significant charge to earnings should we determine that our
goodwill, long-lived assets, or project related assets are impaired. Such a charge may have a material
impact on our financial position and results of operations. During the year ended December 31, 2016,
we recorded significant impairment charges associated with the end of our crystalline silicon module
manufacturing operations and expected transition to Series 6 module manufacturing as discussed
further in Note 4 ‘‘Restructuring and Asset Impairments’’ to our consolidated financial statements
included in this Annual Report on Form 10-K.

As required by accounting rules, we review our goodwill for impairment at least annually in the
fourth quarter or more frequently 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. Factors that may be
considered a change in circumstances indicating that the carrying value of our goodwill might not be
recoverable include a deterioration in general economic conditions, a deterioration in the environment
in which we operate, declines in our actual or projected financial performance, certain company-specific
events, or a sustained decrease in our stock price and market capitalization. We review long-lived and
project related assets for impairment whenever events or changes in business circumstances arise that
may indicate that the carrying amount of such assets may not be recoverable. We consider a project
commercially viable and recoverable if it is anticipated to be sellable for a profit once it is either fully
developed or constructed or if the expected operating cash flows from future power generation exceed
the cost basis of the asset. If our projects are not considered commercially viable, we would be required
to impair the respective assets.

Unanticipated changes in our tax provisions, the enactment of new tax legislation, or exposure to

additional income tax liabilities could affect our profitability.

We are subject to income taxes in the jurisdictions in which we operate. Our tax liabilities are

affected by the amounts we charge for our modules, systems, services, licenses, funding, and
intercompany transactions. We are subject to potential tax examinations in various jurisdictions, and
taxing authorities may disagree with our interpretations of U.S. and foreign tax laws and may assess
additional taxes. We regularly assess the likely outcomes of these examinations in order to determine
the appropriateness of our tax provision; however, the outcome of tax examinations cannot be

predicted with certainty. Therefore, the amounts ultimately paid upon resolution of such examinations
could be materially different from the amounts previously included in our income tax provision, which
could have a material impact on our results of operations and cash flows. In addition, our future
effective tax rate could be adversely affected by changes to our operating structure, losses of tax
holidays, changes in the mix of earnings in countries with tax holidays or differing statutory tax rates,
changes in the valuation of deferred tax assets and liabilities, changes in tax laws, and the discovery of
new information in the course of our tax return preparation process. A number of proposals for broad
reform of the corporate tax system in the United States are under evaluation by various legislative and
administrative bodies, but it is not possible to accurately determine the overall impact of such proposals
on our effective tax rate at this time. Changes in tax laws or regulations, including multijurisdictional
changes enacted in response to the guidelines provided by the Organization for Economic Co-operation
and Development to address base erosion and profit sharing, may also increase tax uncertainty and
adversely affect our results of operations.

Cyber attacks or other breaches of our information systems, or those of third parties with which we do

business, could have a material adverse effect on our financial condition and results of operations.

Our operations rely on our computer systems, hardware, software, and networks, as well as those

of the third parties with which we do business, to securely process, store, and transmit proprietary,
confidential, and other information, including intellectual property. Such information systems may be
compromised by cyber attacks, computer viruses, and other events that could be materially disruptive to
our business operations and could put the security of our information, and that of the third parties with
which we do business, at risk of misappropriation or destruction. In recent years, such cyber incidents
have become increasingly frequent and sophisticated, targeting or otherwise affecting a wide range of
companies. While we have instituted security measures to minimize the likelihood and impact of a
cyber incident, there is no assurance that these measures, or those of the third parties with which we
do business, will be adequate in the future. If these measures fail, valuable information may be lost,
our manufacturing, development, construction, O&M, and other operations may be disrupted, and our
reputation may suffer. We may also be subject to litigation, regulatory action, remedial expenses, and
financial losses beyond the scope or limits of our insurance coverage. These consequences of a failure
of security measures could, individually or in the aggregate, have a material adverse effect on our
financial condition and results of operations.

Changes in, or any failure to comply with, privacy laws, regulations, and standards may adversely affect

our business.

Personal privacy and data security have become significant issues in the United States, Europe, and

in many other jurisdictions in which we operate. The regulatory framework for privacy and security
issues worldwide is rapidly evolving and is likely to remain uncertain for the foreseeable future. For
example, in 2015 the Court of Justice of the European Union ruled that the U.S.-EU Safe Harbor
framework, which provided U.S. companies with a streamlined means of complying with the European
Union’s Data Protection Directive regarding the treatment of customers’ and employees’ personal
information and other privacy matters, and upon which we relied for the transfer of personal data from
the EU to the U.S., was invalid. As a result of such invalidation, we have been required to implement
data transfer agreements between certain of our U.S. and EU based entities. Furthermore, federal,
state, or foreign government bodies or agencies have in the past adopted, and may in the future adopt,
laws and regulations affecting data privacy, all of which may be subject to invalidation by relevant
foreign judicial bodies. Industry organizations also regularly adopt and advocate for new standards in
this area. In the United States, these include rules and regulations promulgated under the authority of
federal agencies and state attorneys general and legislatures and consumer protection agencies.
Internationally, many jurisdictions in which we operate have established their own data security and
privacy legal framework with which we or our customers must comply, including but not limited to, the

Data Protection Directive established in the European Union and data protection legislation of the
individual member states subject to such directive. The Data Protection Directive will be replaced in
2018 with the pending European General Data Protection Regulation, which will impose additional
obligations, penalties and risk upon our business. In many jurisdictions, enforcement actions and
consequences for noncompliance are also rising. In addition to government regulation, privacy
advocates and industry groups may propose new and different self-regulatory standards that either
legally or contractually apply to us. Any inability or perceived inability to adequately address privacy
and security concerns, even if unfounded, or comply with applicable privacy and data security laws,
regulations, and policies, could result in additional cost and liability to us, damage our reputation,
inhibit sales, and adversely affect our business.

Our credit agreements contain covenant restrictions that may limit our ability to operate our business.

We may be unable to respond to changes in business and economic conditions, engage in

transactions that might otherwise be beneficial to us, and obtain additional financing, if needed,
because the senior secured credit facility made available under our amended and restated credit
agreement with several financial institutions as lenders and JPMorgan Chase Bank, N.A. as
administrative agent (the ‘‘Revolving Credit Facility’’) and certain of our project financing arrangements
contain, and other future debt agreements may contain, covenant restrictions that limit our ability to,
among other things:

• 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.

Under our Revolving Credit Facility and certain of our project financing arrangements, we are also
subject to certain financial covenants. Our ability to comply with covenants under our credit agreements
is dependent on our future performance or the performance of specifically financed projects, which will
be subject to many factors, some of which are beyond our control, including prevailing economic
conditions. In addition, our failure to comply with these covenants could result in a default under these
agreements and any of our other future debt agreements, which if not cured or waived, could permit
the holders thereof to accelerate such debt and could cause cross-defaults under our other facility
agreements and the possible acceleration of debt under such other facility agreements, as well as cross-
defaults under certain of our key project and operational agreements and could also result in
requirements to post additional security instruments to secure future obligations. In addition, we cannot
assure you that events that occur within the Company, or in the industry or the economy as a whole,
will not constitute material adverse effects under these agreements. If it is determined that a material
adverse effect has occurred, the lenders can, under certain circumstances, restrict future borrowings or
accelerate the due date of outstanding loan balances. If any of our debt is accelerated, we may not
have sufficient funds available to repay such debt and may experience cross-defaults under our other
debt agreements or project and key operational agreements, which could materially and negatively
affect our business, financial condition, and results of operations.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

As of December 31, 2016, our principal properties consisted of the following:

Nature

Manufacturing plant, research
and development facility,
and administrative offices

Manufacturing plant and
administrative offices

Administrative offices
Manufacturing plant(1)
Manufacturing plant(2)
Corporate headquarters
Administrative offices
Research and development

facility

Primary Segment(s)
Using Property

Location

Components

Perrysburg, Ohio, United States

Held

Own

Components

Kulim, Kedah, Malaysia

Lease land, own buildings

Components & Systems Georgetown, Penang, Malaysia

Components
Components
Components & Systems
Systems
Components & Systems

Frankfurt/Oder, Germany
Ho Chi Minh City, Vietnam
Tempe, Arizona, United States
San Francisco, California, United States
Santa Clara, California, United States

Lease
Own
Lease land, own buildings
Lease
Lease
Lease

(1) Manufacturing ceased in December 2012, and such property is being actively marketed for sale.

(2) Although we did not proceed with our previously announced manufacturing plant in Vietnam, we continue to evaluate

potential uses for the unfinished facility, including its use in future manufacturing capacity expansions.

In addition, we lease small amounts of office and warehouse space in several other U.S. and

international locations.

Item 3. Legal Proceedings

In the ordinary conduct of our business, we are subject to periodic lawsuits, investigations, and
claims, including, but not limited to, routine employment matters. Although we cannot predict with
certainty the ultimate resolution of lawsuits, investigations, and claims asserted against us, we do not
believe that any currently pending legal proceeding to which we are a party will have a material adverse
effect on our business, financial condition, results of operations, or cash flows.

See Note 16 ‘‘Commitments and Contingencies’’ under the heading ‘‘Legal Proceedings’’ of our
consolidated financial statements for the year ended December 31, 2016 included in this Annual Report
on Form 10-K for information regarding legal proceedings and related matters.

Item 4. Mine Safety Disclosures

None.

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of

PART II

Equity Securities

Price Range of Common Stock

Our common stock has been listed on The NASDAQ Global Select Market under the symbol
‘‘FSLR’’ since November 17, 2006. Prior to this time, there was no public market for our common
stock. The following table sets forth the range of high and low closing prices per share as reported on
The NASDAQ Global Select Market for the periods indicated:

Fiscal year 2016

First quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Fiscal year 2015

High

Low

$73.21
$67.48
$49.24
$42.25

$62.52
$64.75
$53.48
$66.99

$60.99
$44.23
$34.00
$29.21

$39.83
$46.98
$40.81
$42.68

The closing price of our common stock on The NASDAQ Global Select Market was $34.84 per
share on February 17, 2017. As of February 17, 2017, there were 49 record holders of our common
stock, which does not reflect the beneficial ownership of shares held in nominee names.

Dividend Policy

We have never paid, and it is our present intention for the foreseeable future not to pay, dividends

on our common stock. Our Revolving Credit Facility imposes restrictions on our ability to declare or
pay dividends. The declaration and payment of dividends is subject to the discretion of our board of
directors and depends on various factors, including the continued applicability of the above-referenced
restrictions under our Revolving Credit Facility, our net income, financial condition, cash requirements,
future prospects, and other factors considered relevant by our board of directors.

Stock Price Performance Graph

The following graph compares the five-year cumulative total return on our common stock relative

to the cumulative total returns of the S&P 500 Index and the Guggenheim Solar ETF, which represents
a peer group of solar companies. In the stock price performance graph included below, an investment
of $100 (with reinvestment of all dividends) is assumed to have been made in our common stock, the
S&P 500 Index, and the Guggenheim Solar ETF on December 31, 2011, and its relative performance is
tracked through December 31, 2016. No cash dividends have been declared on shares of our common
stock. This performance graph is not ‘‘soliciting material,’’ is not deemed filed with the SEC, and is not
to be incorporated by reference in any filing by us under the Securities Act or the Exchange Act,
whether made before or after the date hereof, and irrespective of any general incorporation language
in any such filing. The stock price performance shown on the graph represents past performance and
should not be considered an indication of future price performance.

COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN*
Among First Solar, the S&P 500 Index,
and the Guggenheim Solar ETF

$250

$200

$150

$100

$50

12/11

12/12

12/13

12/14

12/15

12/16

First Solar, Inc.

S&P 500

Guggenheim Solar ETF

23MAR201722104092

$100 invested on December 31, 2011 in stock or index, including reinvestment of dividends. Index
calculated on a month-end basis.

Recent Sales of Unregistered Securities

None.

Purchases of Equity Securities by the Issuer and Affiliate Purchases

None.

Item 6. Selected Financial Data

The following tables set forth our selected financial data for the periods and at the dates indicated.
The selected financial data from the consolidated statements of operations and consolidated statements
of cash flows for the years ended December 31, 2016, 2015, and 2014 and the selected financial data
from the consolidated balance sheets as of December 31, 2016 and 2015 have been derived from the
audited consolidated financial statements included in this Annual Report on Form 10-K. The selected
financial data from the consolidated balance sheets as of December 31, 2014, 2013, and 2012 and
selected financial data from the consolidated statements of operations and consolidated statements of
cash flows for the years ended December 31, 2013 and 2012 have been derived from audited
consolidated financial statements not included in this Annual Report on Form 10-K. The information
presented below should also be read in conjunction with Item 7. ‘‘Management’s Discussion and
Analysis of Financial Condition and Results of Operations’’ and our consolidated financial statements
and the related notes thereto.

For the years ended December 31, 2015 and 2014, we have recast certain of the following cash

flow financial data as a result of the adoption of ASU 2016-09. See Note 3 ‘‘Recent Accounting

Pronouncements’’ to our consolidated financial statements for the year ended December 31, 2016
included in this Annual Report on Form 10-K for further information regarding these changes.

Net sales . . . . . . . . . . . . . . . . . . . . . . . $2,951,328
703,979
Gross profit . . . . . . . . . . . . . . . . . . . . .
(502,590)
Operating (loss) income . . . . . . . . . . . .
(357,964)
Net (loss) income . . . . . . . . . . . . . . . . .
Net (loss) income per share:

2015

2016

Years Ended
December 31, December 31, December 31, December 31, December 31,
2014
(In thousands, except per share amounts)
$3,309,616
$3,391,187
$3,578,995
864,632
824,941
919,267
370,407
421,999
516,664
350,718
395,964
546,421

$3,354,920
847,820
(42,933)
(106,909)

2012

2013

Basic . . . . . . . . . . . . . . . . . . . . . . . . $
Diluted . . . . . . . . . . . . . . . . . . . . . . . $

(3.48) $
(3.48) $

5.42
5.37

$
$

3.96
3.90

$
$

3.74
3.67

$
$

(1.23)
(1.23)

Cash dividends declared per common

share . . . . . . . . . . . . . . . . . . . . . . . . $

— $

—

Net cash provided by (used in)

operating activities . . . . . . . . . . . . . . $ 206,753

$ (325,209) $ 735,516

$ 856,126

$ 762,209

Net cash provided by (used in) investing
activities . . . . . . . . . . . . . . . . . . . . . .
Net cash (used in) provided by financing
activities . . . . . . . . . . . . . . . . . . . . . .

144,520

(156,177)

(387,818)

(537,106)

(383,732)

(136,393)

101,207

(46,907)

101,164

(89,109)

Cash and cash equivalents . . . . . . . . . . . $1,347,155
607,991
Marketable securities . . . . . . . . . . . . . .
6,867,213
Total assets
. . . . . . . . . . . . . . . . . . . . .
188,388
Total long-term debt . . . . . . . . . . . . . . .
1,654,526
Total liabilities . . . . . . . . . . . . . . . . . . .
5,212,687
Total stockholders’ equity . . . . . . . . . . .

2016

2013

2015

December 31, December 31, December 31, December 31, December 31,
2014
(In thousands)
$1,482,054
509,032
6,720,991
213,473
1,729,504
4,991,487

$ 901,294
102,578
6,356,975
562,572
2,783,681
3,573,294

$1,325,072
439,102
6,876,586
223,323
2,408,516
4,468,070

$1,126,826
703,454
7,316,331
289,415
1,767,844
5,548,487

2012

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be
read in conjunction with our consolidated financial statements and the related notes thereto included in
this Annual Report on Form 10-K. Unless expressly stated or the context otherwise requires, the terms
‘‘First Solar,’’ ‘‘the Company,’’ ‘‘we,’’ ‘‘us,’’ and ‘‘our’’ refer to First Solar, Inc. and its consolidated
subsidiaries. In addition to historical consolidated financial information, the following discussion and
analysis contains forward-looking statements that involve risks, uncertainties, and assumptions as
described under the ‘‘Note Regarding Forward-Looking Statements’’ that appears earlier in this Annual
Report on Form 10-K. Our actual results could differ materially from those anticipated by these
forward-looking statements as a result of many factors, including those discussed under Item 1A. ‘‘Risk
Factors,’’ and elsewhere in this Annual Report on Form 10-K.

Executive Overview

We are a leading global provider of comprehensive PV solar energy solutions. We design,

manufactured by us or by third-party manufacturers. We have substantial, ongoing R&D efforts focused
on module and system-level innovations. We are the world’s largest thin-film PV solar module
manufacturer and one of the world’s largest PV solar module manufacturers. Our mission is to create
enduring value by enabling a world powered by clean, affordable solar energy.

Certain highlights of our financial results and other key operational developments for the year

ended December 31, 2016 include the following:

• Net sales for 2016 decreased by 18% to $3.0 billion compared to $3.6 billion in 2015. The

decrease in net sales was primarily attributable to the sale of majority interests in the North Star
and Lost Hills projects in 2015, the completion of substantially all construction activities on the
Imperial Solar Energy Center West and Decatur projects in 2015, the completion of substantially
all construction activities on the Silver State South and McCoy projects in the first half of 2016,
and lower revenue from ‘‘module plus’’ transactions, which are transactions in which we sell both
our modules plus selected BoS parts. This decrease in revenue was partially offset by an increase
in the volume of modules sold to third parties, higher revenue from the commencement of
construction of the Taylor and Butler projects in late 2015, and the commencement of
construction of the East Pecos project in early 2016.

• Gross profit decreased 1.8 percentage points to 23.9% during 2016 from 25.7% during 2015,
primarily due to the mix of lower gross profit projects sold and under construction, higher
inventory write-downs, and the reduction in our module collection and recycling obligation in
2015 resulting from certain recycling technology advancements, partially offset by the higher
gross margins on modules sales to third parties.

• As of December 31, 2016, we had 28 installed production lines at our manufacturing facilities in

Perrysburg, Ohio and Kulim, Malaysia. We produced 3.1 GW of solar modules during 2016,
which represented a 24% increase from 2015. The increase in production was primarily driven by
increased throughput and higher module conversion efficiencies. We expect to produce
approximately 2.2 GW of solar modules during 2017 as we ramp down production of our
Series 4 modules and continue the transition to Series 6 module manufacturing.

• During 2016, we ran our manufacturing facilities at approximately 97% capacity utilization,

which represented a 5.0 percentage point increase from 2015.

• The average conversion efficiency of our modules produced in 2016 was 16.4%, which

represented an improvement of 0.8 percentage points from our average conversion efficiency of
15.6% in 2015.

Market Overview

The solar industry continues to be characterized by intense pricing competition, both at the
module and system levels. In particular, module average selling prices in the United States and several
other key markets have experienced an accelerated decline in recent months, and module average
selling prices are expected to continue to decline to some degree in the short and medium terms
according to market forecasts. In the aggregate, we believe manufacturers of solar modules and cells
have significant installed production capacity, relative to global demand, and the ability for additional
capacity expansion. We believe the solar industry may from time to time experience periods of
structural imbalance between supply and demand (i.e., where production capacity exceeds global
demand), and that such periods will put pressure on pricing. We believe the solar industry is currently
in such a period. Additionally, intense competition at the system level may result in an environment in
which pricing falls rapidly, thereby further increasing demand for solar energy solutions but
constraining the ability for project developers; EPC companies; and vertically-integrated solar
companies such as First Solar to sustain meaningful and consistent profitability. In light of such market

realities, we are executing our long term strategic plan, under which we are focusing on our competitive
strengths. Such strengths include our advanced module and system technologies as well as our
vertically-integrated business model that enables us to provide utility-scale PV solar energy solutions to
key markets with current electricity needs.

Worldwide solar markets continue to develop, in part aided by demand elasticity resulting from
declining industry average selling prices, both at the module and system level, which make solar power
more affordable to new markets. We are developing, constructing, or operating multiple solar projects
around the world, many of which are the largest or among the largest in their regions. We continue to
execute on our advanced-stage utility-scale project pipeline, which includes the construction of some of
the world’s largest PV solar power systems. We expect a substantial portion of our consolidated net
sales, operating income, and cash flows through the end of 2018 to be derived from these projects. We
continue to advance the development and selling efforts for the other projects included in our
advanced-stage utility-scale project pipeline, develop our early-to-mid stage project pipeline, and
evaluate acquisitions of projects to expand our advanced-stage utility-scale project pipeline. See the
tables under ‘‘Management’s Discussion and Analysis of Financial Condition and Results of
Operations—Systems Project Pipeline’’ for additional information about these and other projects within
our systems business advanced-stage project pipeline.

Lower industry module and system pricing, while currently challenging for certain solar
manufacturers (particularly manufacturers with high cost structures), is expected to continue to
contribute to global market diversification and volume elasticity. Over time, declining average selling
prices are consistent with the erosion of one of the primary historical constraints to widespread solar
market penetration, its affordability. In the near term, however, declining average selling prices are
expected to adversely affect our results of operations relative to prior years. If competitors reduce
pricing to levels below their costs, bid aggressively low prices for module sale agreements, EPC
agreements, and PPAs, or are able to operate at minimal or negative operating margins for sustained
periods of time, our results of operations could be further adversely affected. In certain markets in
California and elsewhere, an oversupply imbalance at the grid level may further contribute to reduced
short-to-medium term demand for new solar installations relative to prior years, lower PPA pricing, and
lower margins on module and systems sales to such markets. We continue to mitigate these
uncertainties in part by executing on our module technology improvements, including our transition to
Series 6 module manufacturing, continuing the development of key markets, and implementing certain
other cost reduction initiatives, including both manufacturing and BoS costs.

We continue to face intense competition from manufacturers of crystalline silicon solar modules
and other types of solar modules and PV solar power systems. Solar module manufacturers compete
with one another on price and on several module value attributes, including conversion efficiency,
energy yield, and reliability, and, with respect to PV solar power systems, net present value, return on
equity, and LCOE, meaning the net present value of total life cycle costs of the system divided by the
quantity of energy which is expected to be produced over the system’s life. As noted above, competition
on the basis of selling price per watt has intensified in recent months, resulting in sharp declines in
module average selling prices in several key markets. In addition, we believe crystalline silicon cell and
wafer manufacturers have begun transitioning from lower efficiency Back Surface Field (‘‘BSF’’) multi-
crystalline cells (the legacy technology against which we generally compete in our markets) to higher
efficiency PERC multi-crystalline and mono-crystalline cells at potentially competitive cost structures.

We believe we are among the lowest cost PV module manufacturers in the solar industry on a

module cost per watt basis, based on publicly available information. This cost competitiveness is
reflected in the price at which we sell our modules and fully integrated PV solar power systems and
enables our systems to compete favorably. Our cost competitiveness is based in large part on our
module conversion efficiency, proprietary manufacturing technology (which enables us to produce a
CdTe module in less than 3.5 hours using a continuous and highly automated industrial manufacturing

process, as opposed to a batch process), and our operational excellence. In addition, our CdTe modules
use approximately 1-2% of the amount of the semiconductor material that is used to manufacture
traditional crystalline silicon solar modules. The cost of polysilicon is a significant driver of the
manufacturing cost of crystalline silicon solar modules, and the timing and rate of change in the cost of
silicon feedstock and polysilicon could lead to changes in solar module pricing levels. Polysilicon costs
have had periods of decline over the past several years, and polysilicon consumption per cell has been
reduced through the adoption of diamond wafer saw technology, contributing to a decline in our
relative manufacturing cost competitiveness over traditional crystalline silicon module manufacturers.

Given the smaller size (sometimes referred to as form factor) of our current Series 4 CdTe
modules compared to certain types of crystalline silicon modules, we may incur higher labor and BoS
costs associated with the construction of systems using our modules. Thus, to compete effectively on an
LCOE basis, our Series 4 modules may need to maintain a certain cost advantage per watt compared
to crystalline silicon-based modules with larger form factors. We recently introduced our next
generation Series 6 module technology, which is expected to enable the production of modules with a
larger form factor along with better product attributes and a lower manufacturing cost structure.
Accordingly, the larger form factor of our Series 6 modules is expected to reduce the number of
electrical connections and hardware required for system installation. The resulting labor and material
savings are expected to represent a significant improvement compared to current technologies and a
substantial reduction in total installed costs resulting in improved project returns as BoS costs represent
a significant portion of the costs associated with the construction of a typical utility-scale system. See
Note 4 ‘‘Restructuring and Asset Impairments’’ to our consolidated financial statements for the year
ended December 31, 2016 included in this Annual Report on Form 10-K for additional information
regarding the transition to Series 6 module manufacturing.

In terms of energy yield, in many climates, our CdTe modules provide a significant energy
production advantage over most conventional crystalline silicon solar modules (including BSF and
PERC technologies) of equivalent efficiency rating. For example, our CdTe solar modules provide a
superior temperature coefficient, which results in stronger system performance in typical high insolation
climates as the majority of a system’s generation, on average, occurs when module temperatures are
well above 25(cid:4)C (standard test conditions). In addition, our CdTe modules provide a superior spectral
response in humid environments where atmospheric moisture alters the solar spectrum relative to
laboratory standards. Our CdTe solar modules also provide a better shading response than conventional
crystalline silicon solar modules, which may lose up to three times as much power as CdTe solar
modules when shading occurs. As a result of these and other factors, our PV solar power systems
typically produce more annual energy in real world field conditions than competing systems with the
same nameplate capacity.

While our modules and PV solar power systems are generally competitive in cost, reliability, and

performance attributes, there can be no guarantee such competitiveness will continue to exist in the
future to the same extent or at all. Any declines in the competitiveness of our products could result in
additional margin compression, further declines in the average selling prices of our modules and
systems, erosion in our market share for modules and systems, decreases in the rate of net sales
growth, and/or declines in overall net sales. We continue to focus on enhancing the competitiveness of
our solar modules and PV solar power systems by accelerating progress along our module technology
and cost reduction roadmaps, continuing to make technological advances at the system level, using
innovative installation techniques and know-how, and leveraging volume procurement around
standardized hardware platforms. Such procurement efforts include the use of high-quality,
conventional BoS components as we have phased out the use of our proprietary trackers and fixed
mounting structures to further reduce system costs and streamline our operations.

Certain Trends and Uncertainties

We believe that our operations may be favorably or unfavorably impacted by the following trends
and uncertainties that may affect our financial condition and results of operations. See Item 1A. ‘‘Risk
Factors’’ and elsewhere in this Annual Report on Form 10-K for a discussion of other risks that may
affect our financial condition and results of operations.

Long Term Strategic Plan

Our long term strategic plan is a long-term roadmap to achieve our technology, growth, and cost

leadership objectives. In executing our long term strategic plan, we are focusing on providing utility-
scale PV solar energy solutions using our modules in key geographic markets that we believe have a
compelling need for mass-scale PV electricity, including markets throughout the Americas, the
Asia-Pacific region, and the Middle East. As part of our long term strategic plan, we are focusing on
opportunities in which our PV solar energy solutions can compete directly with fossil fuel offerings on
an LCOE or similar basis, or complement such fossil fuel electricity offerings. Execution of the long
term strategic plan entails a prioritization of market opportunities worldwide relative to our core
strengths and a corresponding allocation of resources around the globe. This prioritization involves a
focus on our core module and utility-scale offerings and exists within a current market environment
that includes rooftop and distributed generation solar, particularly in the United States. While it is
unclear how rooftop and distributed generation solar might impact our core utility-scale offerings in the
next several years, we believe that utility-scale solar will continue to be a compelling solar offering for
companies with technology and cost leadership and will continue to represent an increasing portion of
the overall electricity generation mix.

We are closely evaluating and managing the appropriate level of resources required as we pursue

the most advantageous and cost effective projects and partnerships in our target markets. We have
dedicated, and intend to continue to dedicate, significant capital and human resources to reduce the
total installed cost of PV solar energy, to optimize the design and logistics around our PV solar energy
solutions, and to ensure that our solutions integrate well into the overall electricity ecosystem of each
specific market. We expect that, over time, an increasing portion of our consolidated net sales,
operating income, and cash flows may come from solar offerings in the key geographic markets
described above as we execute on our long term strategic plan. The timing, execution, and financial
impacts of our long term strategic plan are subject to risks and uncertainties, as described in
Item 1A. ‘‘Risk Factors,’’ and elsewhere in this Annual Report on Form 10-K. We are focusing our
resources in those markets and energy applications in which solar power can be a least-cost, best-fit
energy solution, particularly in regions with high solar resources, significant current or projected
electricity demand, and/or relatively high existing electricity prices. As part of these efforts, we continue
to optimize resources globally, including business development, sales personnel, and other supporting
professional staff in target markets.

In order to create or maintain a market position in certain strategically targeted markets, our
offerings from time to time may need to be competitively priced at levels associated with minimal gross
profit margins, which may adversely affect our results of operations. We expect the profitability
associated with our various sales offerings to vary from one another over time, and possibly vary from
our internal long-range profitability expectations and targets, depending on the market opportunity and
the relative competitiveness of our offerings compared with other energy solutions, fossil fuel-based or
otherwise, that are available to potential customers. In addition, as we execute on our long term
strategic plan, we will continue to monitor and adapt to any changing dynamics in the market set of
potential buyers of solar project assets. Market environments with few potential project buyers and a
higher cost of capital would generally exert downward pressure on the potential revenue from the
uncontracted solar project assets we are developing, whereas, conversely, market environments with
many potential project buyers and a lower cost of capital would likely have a favorable impact on the
potential revenue from such uncontracted solar project assets.

We expect to use our working capital, project financing arrangements, or availability under our
Revolving Credit Facility to finance the construction of certain PV solar power systems for strategic
purposes or to maximize the value of such systems at the time of sale. From time to time, we may
temporarily own and operate certain PV solar power systems, often with the intention to sell at a later
date. We may also elect to construct and temporarily retain ownership interests in systems for which
there is no PPA with an off-taker, such as a utility, but rather an intent to sell the electricity produced
by the system on an open contract basis until the system is sold. Additionally, our joint ventures and
other business arrangements with strategic partners have and may in the future result in us temporarily
retaining a noncontrolling ownership interest in the underlying systems projects we develop, supply
modules to, or construct potentially for a period of up to several years. Such business arrangements
could become increasingly important to our competitive profile in markets globally, including North
America. In each of the above mentioned examples, we may retain such ownership interests in a
consolidated or unconsolidated separate entity.

We continually evaluate forecasted global demand, competition, and our addressable market, and
seek to effectively balance manufacturing capacity with market demand and the nature and extent of
our competition. To the extent we make investments to add or otherwise modify our manufacturing
capacity in response to market demand and competition, such investments would require significant
internal and possibly external sources of liquidity and would be subject to certain risks and
uncertainties described in Item 1A. Risk Factors, including those entitled ‘‘Our future success depends
on our ability to effectively balance manufacturing production with market demand, convert existing
production facilities to support new product lines, such as our transition to Series 6 module
manufacturing, and, when necessary, continue to build new manufacturing plants over time in response
to such demand and add production lines in a cost-effective manner, all of which are subject to risks
and uncertainties’’ and ‘‘If any future production lines are not built in line with our committed
schedules it may impair any future growth plans. If any future production lines do not achieve
operating metrics similar to our existing production lines, our solar modules could perform below
expectations and cause us to lose customers.’’

8point3 Energy Partners LP

In June 2015, the Partnership completed the IPO. As part of the IPO, we contributed interests in
various projects to a subsidiary of the Partnership in exchange for an ownership interest in the entity.
Since the formation of the Partnership, we and SunPower have, from time to time, continued to sell
interests in solar projects to the Partnership. The Partnership owns and operates a portfolio of solar
energy generation projects and is expected to acquire additional interests in projects from the Sponsors.
In addition, the Partnership is expected to provide the Sponsors with optionality in the project sales
process. Given the broader economic factors currently impacting the yieldco sector in general, including

yieldco equity valuations generally, the timing and execution of project sales to the Partnership are
subject to market conditions. For additional information, see Item 1A. ‘‘Risk Factors—We may not be
able to achieve the full strategic and financial benefits expected to result from the formation of 8point3
Energy Partners LP, on a timely basis or at all’’ and ‘‘Note 12 ‘‘Investments in Unconsolidated Affiliates
and Joint Ventures—8point3 Energy Partners LP’’ of our consolidated financial statements included in
this Annual Report on Form 10-K.

Construction of Some of the World’s Largest PV Solar Power Systems

We continue to execute on our advanced-stage utility-scale project pipeline and expect a

substantial portion of our consolidated net sales, operating income, and cash flows through the end of
2018 to be derived from several large projects in this pipeline, including the following contracted
projects which will be among the world’s largest PV solar power systems: the 280 MW California Flats
project, located in Monterey County, California; the 250 MW Moapa project, located in Clark County,
Nevada; the 150 MW Rosamond project located in Kern County, California; and the 150 MW Sun
Streams project, located in Maricopa County, Arizona. Please see the tables under ‘‘Management’s
Discussion and Analysis of Financial Condition and Results of Operations—Systems Project Pipeline’’
for additional information about these and other projects within our systems business advanced-stage
project pipeline. The construction progress of these projects is subject to risks and delays as described
in Item 1A. ‘‘Risk Factors,’’ and elsewhere in this Annual Report on Form 10-K. Revenue recognition
for these and other system projects is in many cases not linear in nature due to the timing of when all
revenue recognition criteria are met, and consequently, period-over-period comparisons of results of
operations may not be meaningful. Expected revenue from projects without a PPA, for which electricity
will be sold on an open contract basis, may be subject to greater variability and uncertainty based on
market factors compared to projects with a PPA.

Systems Project Pipeline

The following tables summarize, as of February 22, 2017, our approximately 2.0 GW systems
business advanced-stage project pipeline. As of December 31, 2016, for the Projects Sold/Under
Contract in our advanced-stage project pipeline of 275 MW, we have not recognized any significant
amount of revenue. The remaining revenue to be recognized subsequent to December 31, 2016 for the
Projects Sold/Under Contract is expected to be approximately $0.8 billion. The majority of such
revenue is expected to be recognized through the later of the substantial completion or closing dates of
the projects. The remaining revenue to be recognized does not have a direct correlation to expected
remaining module shipments for such Projects Sold/Under Contract as expected module shipments do
not represent total systems revenues and do not consider the timing of when all revenue recognition
criteria are met, including the timing of module installation. The actual volume of modules installed in
our Projects Sold/Under Contract will be greater than the project size in MW AC as module volumes
required for a project are based upon MW DC, which will be greater than the MW AC size pursuant
to a DC-AC ratio typically ranging from 1.2 to 1.3. Such ratio varies across different projects due to
various system design factors. Projects are removed from our advanced-stage project pipeline tables
below once we have substantially completed construction and after substantially all revenue has been
recognized. Projects, or portions of projects, may also be removed from the tables below in the event
an EPC-contracted or partner-developed project does not obtain permitting or financing, an unsold or
uncontracted project is not sold or contracted due to the changing economics of the project or other
factors, or we decide to temporarily own and operate, or retain interests in, such projects based on
strategic opportunities or market factors.

In January 2017, we discontinued development of the 310 MW AC Tribal Solar project. The
development of solar energy projects, such as the Tribal Solar project, involves numerous risks, and
typically requires developers, such as First Solar, to spend significant sums and devote substantial

resources to a project before a determination can be made whether the project is feasible, economically
attractive, or capable of being built. For more information about the risks associated with project
development, see Item 1A. ‘‘Risk Factors—Project development or construction activities may not be
successful; projects under development may not receive required permits, real property rights, PPAs,
interconnection, and transmission arrangements; or financing or construction may not commence or
proceed as scheduled, which could increase our costs and impair our ability to recover our
investments.’’ In light of significant uncertainties and risks related to the land use rights and obtaining
the required permits and approvals, among other factors, and our experience developing over 6 GW of
solar energy projects, we made the determination that it would not be prudent to continue
development of the Tribal Solar project. We therefore notified SCE that we were unwilling to pay the
excess costs related to certain transmission upgrades and new transmission facilities, and the PPA was
terminated pursuant to its terms. Accordingly, SCE has released to us the full amount of the
performance security, and we have ceased development activities related to the Tribal Solar project. As
of December 31, 2016, we estimated that the Tribal Solar project was 2% completed and had a likely
substantial completion date, if any, in 2021.

We continually seek to make additions to our advanced-stage project pipeline. We are actively

developing our early to mid-stage project pipeline in order to secure PPAs and are also pursuing
opportunities to acquire advanced-stage projects, which already have PPAs in place. New additions to
our project pipeline during the period from February 24, 2016 to February 22, 2017 included a 126 MW
AC solar power project in California, 60 MW AC of solar power projects in India, a 49 MW AC solar
power project in Australia, 41 MW AC of solar power projects in Japan, a 40 MW AC solar power
project in California, and a 25 MW AC solar power project in Honduras.

Projects Sold/Under Contract

(Includes uncompleted sold projects, projects under sales contracts subject to conditions precedent,

and EPC agreements including partner developed projects that we will be or are constructing.)

Project/Location

Project

Percentage
Size in MW PPA Contracted EPC Contract/Partner Recognition Will Percentage of Revenue
Be Completed By Complete Recognized

Developed Project

Partner

AC(1)

As of December 31,
2016

Expected Year
Revenue

Moapa, Nevada . . . . . . . .
Helios, Honduras . . . . . .

Total . . . . . . . . . . . . . .

250
25

275

LADWP
ENEE(3)

(2)
Grupo Terra

2017
2017

99%
7%

—%
7%

Projects with Executed PPA Not Sold/Not Contracted

Project/Location

California Flats, California .
India (multiple locations)
.
Rosamond, California . . . .
Sun Streams, Arizona . . . .
Luz del Norte, Chile . . . . .
American Kings Solar,

California . . . . . . . . . .
Willow Springs, California .
Sunshine Valley, Nevada . .
Switch Station 1, Nevada . .
Switch Station 2, Nevada . .

Ishikawa, Japan . . . . . . . .

Manildra, Australia . . . . . .
Japan (multiple locations) .

Little Bear, California . . . .
Miyagi, Japan . . . . . . . . .

Cuyama, California . . . . . .

Project
Size in MW
AC(1)

Fully
Permitted

280
250
150
150
141

126
100
100
100
79

49
41

40
40

No
No
Yes
Yes
Yes

No
Yes
Yes
Yes
Yes

Yes

Yes
No

No
No

Yes

Total . . . . . . . . . . . . . .

1,745

PPA Contracted Partner

PG&E/Apple Inc.(4)
(5)
SCE
SCE
(6)

SCE
SCE
SCE
Nevada Power Company
Nevada Power Company /
Sierra Pacific Power
Company
Hokuriku Electric Power
Company
EnergyAustralia
Tokyo Electric Power
Company
Marin Clean Energy(7)
Tohoku Electric Power
Company
PG&E

Percentage
Complete
as of

Expected or

Actual Substantial December 31,
Completion Year

2016

2018
2016/2017
2018
2019
2016

2020
2018
2019
2017
2017

2018

2018
2019/2020

2020
2018/2019

2017

45%
69%
11%
4%
100%

5%
16%
2%
45%
6%

13%

1%
7%

4%
10%

30%

(1) The volume of modules installed in MW DC will be higher than the MW AC size pursuant to a DC-AC ratio
typically ranging from 1.2 to 1.3; such ratio varies across different projects due to various system design
factors

(2) Contracted but not specified

(3) ENEE is defined as Empresa Nacional de Energ´ıa El´ectrica

(4) PG&E 150 MW AC and Apple Energy, LLC 130 MW AC

(5) Southern Power Distribution Company of Telangana State Ltd—110 MW AC; Andhra Pradesh Southern
Power Distribution Company Ltd—80 MW AC; Gulbarga Electricity Supply Co.—20 MW AC; Bengaluru
Electricity Supply Co.—20 MW AC; and Chamundeshwari Electricity Supply Co.—20 MW AC

(6) PPAs executed for approximately 70 MW AC of capacity; remaining electricity to be sold on an open contract

basis

(7) Expandable to 160 MW AC, subject to satisfaction of certain PPA contract conditions

Results of Operations

The following table sets forth our consolidated statements of operations as a percentage of net

sales for the years ended December 31, 2016, 2015, and 2014:

Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Research and development . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative . . . . . . . . . . . . . . . . . .
Production start-up . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring and asset impairments . . . . . . . . . . . . . . . . .
Operating (loss) income . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency loss, net . . . . . . . . . . . . . . . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income (expense), net . . . . . . . . . . . . . . . . . . . . . . .
Income tax (expense) benefit
. . . . . . . . . . . . . . . . . . . . . .
Equity in earnings of unconsolidated affiliates, net of tax . .
Net (loss) income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Years Ended December 31,
2014
2015
2016

100.0% 100.0% 100.0%
76.1% 74.3% 75.7%
23.9% 25.7% 24.3%
4.2% 3.6% 4.2%
8.9% 7.1% 7.5%
—% 0.5% 0.2%
27.7%
—%
—%
(17.0)% 14.4% 12.4%
(0.5)% (0.2)% —%
0.9% 0.6% 0.5%
(0.7)% (0.2)% (0.1)%
1.4% (0.2)% (0.1)%
(2.0)% 0.2% (0.9)%
5.8% 0.6% (0.1)%
(12.1)% 15.3% 11.7%

Segment Overview

We operate our business in two segments. Our components segment involves the design,

manufacture, and sale of CdTe solar modules, which convert sunlight into electricity, and our systems
segment includes the development, construction, operation, and maintenance of PV solar power
systems, which primarily use our solar modules.

See Note 23 ‘‘Segment and Geographical Information’’ to our consolidated financial statements for
the year ended December 31, 2016 included in this Annual Report on Form 10-K for more information
on our operating segments. See also Item 7 ‘‘Management’s Discussion and Analysis of Financial
Condition and Results of Operations—Systems Project Pipeline’’ for a description of the system
projects in our advanced-stage project pipeline.

Product Revenue

The following table sets forth the total amounts of solar module and solar power system net sales

for the years ended December 31, 2016, 2015, and 2014. For the purpose of the following table,
(i) solar module revenue is composed of revenue from the sale of solar modules to third parties, which
does not include any modules sold as part of our PV solar power systems, and (ii) solar power system
revenue is composed of revenue from the sale of PV solar power systems and related products and
services, including any modules installed in such systems and any revenue generated by such systems
(in thousands):

Solar module revenue . . . . . . . . . . . . . . . . . .
Solar power system revenue . . . . . . . . . . . . . .

$ 675,453
2,275,875

$ 227,461
3,351,534

$ 228,319
3,162,868

Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . .

$2,951,328

$3,578,995

$3,391,187

2016

2015

2014

Solar module revenue to third parties increased by $448.0 million during 2016 compared to 2015
primarily as a result of a 211% increase in the volume of watts sold, partially offset by a 5% decrease
in the average selling price per watt. Solar power system revenue decreased by $1,075.7 million during
2016 compared to 2015 primarily from the sale of majority interests in the North Star and Lost Hills
projects in 2015, the completion of substantially all construction activities on the Imperial Solar Energy
Center West and Decatur projects in 2015, the completion of substantially all construction activities on
the Silver State South and McCoy projects in the first half of 2016, and lower revenue from module
plus transactions. This decrease in revenue was partially offset by higher revenue from the
commencement of construction on the Taylor and Butler projects in late 2015 and the commencement
of construction on the East Pecos project in early 2016.

Solar module revenue to third parties decreased by $0.9 million during 2015 compared to 2014

primarily due to a 10% decrease in the average selling price per watt, partially offset by an 11%
increase in the volume of watts sold. Solar power system revenue increased by $188.7 million during
2015 compared to 2014 primarily due to higher revenue from module plus transactions. Our net sales
for 2015 also included the sale of majority interests in the partially constructed Desert Stateline project
and North Star project and higher revenue from the Silver State South, McCoy, and Imperial Energy
Center West projects, which commenced construction in late 2014. These 2015 net sales were offset by
lower revenue from the completion, or substantial completion, of the Desert Sunlight, Solar Gen 2,
Topaz, and Campo Verde projects in 2014.

Net sales

Components Business

We generally price and sell our solar modules per watt of nameplate power. During 2016, a

significant portion of net sales for our components business included modules installed in our PV solar
power systems described below under ‘‘Net Sales—Systems Business.’’ Other than the modules included
in our systems, we sold the majority of our solar modules to integrators and operators of systems in
India, the United States, and the UAE.

From time to time, we enter into module sales agreements with customers worldwide for specific

projects or volumes of modules. Such agreements are generally short-term in nature. During 2016,
substantially all of our components business net sales, excluding modules installed in our systems, were
denominated in U.S. dollars.

We transfer title and risk of loss to the customer and recognize revenue upon shipment or delivery,

depending on the terms of the underlying sales contracts. Pricing is typically fixed or determinable at
the time of shipment, and our customers generally do not have extended payment terms or rights of
return under these contracts. The revenue recognition policies for our components business are
described further in Note 2 ‘‘Summary of Significant Accounting Policies’’ to our consolidated financial
statements for the year ended December 31, 2016 included in this Annual Report on Form 10-K.

During 2016, Southern Power Company and NextEra Energy, Inc. each accounted for more than

10% of our components business’ net sales, which includes the solar modules used in our systems
projects.

Systems Business

Through our fully integrated systems business, we provide complete turn-key PV solar power
systems, or solar solutions, which may include project development, EPC services, and O&M services.
Additionally, we may temporarily own and operate, or retain interests in, certain of our PV solar power
systems, which are also included within our systems business. We typically use the percentage-of-
completion method using actual costs incurred over total estimated costs to construct a project

(including module costs) as our standard accounting policy and apply this method after all revenue
recognition criteria have been met. There are also instances in which we recognize revenue after a
project has been completed, primarily due to a project not being sold prior to completion or because
all revenue recognition criteria have not been met. The revenue recognition policies for our systems
business are described in further detail in Note 2 ‘‘Summary of Significant Accounting Policies’’ to our
consolidated financial statements for the year ended December 31, 2016 included in this Annual Report
on Form 10-K.

During 2016, the majority of our systems business net sales were generated in North America, and
the principal customers of our systems business were Southern Power Company; NextEra Energy, Inc.;
and Recurrent Energy, LLC, each of which accounted for more than 10% of the segment’s net sales.

The following table shows net sales by reportable segment for the years ended December 31, 2016,

2015, and 2014:

(Dollars in thousands)
Components . . . . . . . . . . . . . . . . . $1,484,300 $1,389,579 $1,102,674 $ 94,721
Systems . . . . . . . . . . . . . . . . . . . . .

1,467,028

2,288,513

2,189,416

7% $286,905 26%
(722,388) (33)% (99,097) (4)%

2014

2016 over 2015

2015 over 2014

2016

Years Ended
2015

Change

Net sales . . . . . . . . . . . . . . . . . . . . $2,951,328 $3,578,995 $3,391,187 $(627,667) (18)% $187,808

Net sales from our components segment, which includes solar modules used in our systems
projects, increased by $94.7 million in 2016 primarily as a result of a 17% increase in the volume of
watts sold, partially offset by a 9% decrease in the average selling price per watt. Net sales from our
systems segment, which excludes solar modules used in our systems projects, decreased by
$722.4 million in 2016 primarily from the sale of majority interests in the North Star and Lost Hills
projects in 2015, the completion of substantially all construction activities on the Imperial Solar Energy
Center West and Decatur projects in 2015, and the completion of substantially all construction activities
on the Silver State South and McCoy projects in the first half of 2016. This decrease in revenue was
partially offset by higher revenue from the commencement of construction on the Taylor and Butler
projects in late 2015 and the commencement of construction on the East Pecos project in early 2016.

Net sales from our components segment, which includes solar modules used in our systems
projects, increased by $286.9 million in 2015 primarily due to a 33% increase in the volume of watts
sold, partially offset by a 5% decrease in the average selling price per watt. Net sales from our systems
segment, which excludes solar modules used in our systems projects, decreased by $99.1 million in 2015
primarily as a result of lower revenue from the completion, or substantial completion, of the Desert
Sunlight, Solar Gen 2, Topaz, and Campo Verde projects in 2014. These decreases were partially offset
by the sale of majority interests in the partially constructed Desert Stateline project and North Star
project, and higher revenue from the Silver State South, McCoy, and Imperial Solar Energy Center
West projects, which commenced construction in late 2014.

Cost of sales

Components Business

Our cost of sales includes the cost of raw materials and components for manufacturing solar
modules, such as glass, transparent conductive coatings, CdTe and other thin-film semiconductors,
laminate materials, connector assemblies, edge seal materials, and other materials and components. In
addition, our cost of sales includes direct labor for the manufacturing of solar modules and
manufacturing overhead such as engineering, equipment maintenance, environmental health and safety,
quality and production control, information technology, and procurement costs. Our cost of sales also
includes depreciation of manufacturing plant and equipment, facility-related expenses, and costs

associated with shipping, warranties, and our solar module collection and recycling obligation (excluding
accretion).

As further described in Note 23 ‘‘Segment and Geographical Information’’ to our consolidated

financial statements for the year ended December 31, 2016 included in this Annual Report on
Form 10-K, we include the sale of solar modules manufactured by our components business and used
by our systems business within net sales of our components business. Therefore, the related cost of
sales is also included within our components business.

Systems Business

For our systems business, project-related costs include development costs (legal, consulting,
transmission upgrade, interconnection, permitting, and other similar costs), standard EPC costs
(consisting primarily of BoS costs for inverters, electrical and mounting hardware, project management
and engineering costs, and construction labor costs), and site specific costs.

The following table shows cost of sales by reportable segment for the years ended December 31,

2016, 2015, and 2014:

(Dollars in thousands)
Components . . . . . . . . . . . .
Systems . . . . . . . . . . . . . . . .

2016

Years Ended
2015

2014

2016 over 2015

2015 over 2014

Change

$1,105,414
1,141,935

$1,041,726
1,618,002

$1,009,164
1,557,082

$ 63,688
(476,067)

6% $32,562
(29)% 60,920

3%
4%

Cost of sales . . . . . . . . . . . .

$2,247,349

$2,659,728

$2,566,246

$(412,379)

(16)% $93,482

% of net sales . . . . . . . . . . .

76.1%

74.3%

75.7%

Our cost of sales decreased $412.4 million, or 16%, and increased 1.8 percentage points as a
percentage of net sales when comparing 2016 with 2015. The decrease in cost of sales was primarily the
result of a $476.1 million decrease in our systems segment cost of sales primarily due to the volume of
projects under construction and the timing of when all revenue recognition criteria were met. This net
decrease was partially offset by a $63.7 million increase in our components segment cost of sales
primarily due to the following:

• Higher costs of $190.8 million associated with the increased volume of modules sold directly to

third parties and as part of our systems business projects;

• A reduction in our module collection and recycling obligation of $69.6 million during 2015
resulting from certain recycling technology advancements, which significantly increased the
throughput of modules able to be recycled at a point in time, along with other material and
labor cost reductions; and

• Higher inventory write-downs of $22.3 million primarily related to our remaining crystalline

silicon module inventories; partially offset by

• Continued reductions in the cost per watt of our solar modules, which decreased our

components segment cost of sales by $246.5 million.

Our cost of sales increased $93.5 million, or 4%, and decreased 1.4 percentage points as a
percentage of net sales when comparing 2015 with 2014. The increase in cost of sales was driven by a
$60.9 million increase in our systems segment cost of sales primarily due to a mix of lower gross profit
system projects sold or under construction during the period. Our components segment cost of sales
increased by $32.6 million primarily as a result of the following:

• Higher costs of $309.4 million associated with the increased volume of modules sold as part of

our systems business projects; partially offset by

• Continued manufacturing cost reductions of $135.1 million;

• A reduction in our module collection and recycling obligation of $69.6 million, as described

above; and

• Lower underutilization penalties of $55.0 million due to the improved capacity utilization of our

manufacturing facilities. During 2015, we ran our factories at approximately 92% capacity
utilization, which represented an 11.0 percentage point increase from 2014.

Gross profit

Gross profit is affected by numerous factors, including the selling prices of our modules and
systems, our manufacturing costs, BoS costs, project development costs, the capacity utilization of our
manufacturing facilities, and foreign exchange rates. Gross profit is also affected by the mix of net sales
generated by our components and systems businesses.

The following table shows gross profit for the years ended December 31, 2016, 2015, and 2014:

(Dollars in thousands)
Gross profit . . . . . . . . . . . . . . . . .
% of net sales . . . . . . . . . . . . . . .

Years Ended
2015

2016

2014

2016 over 2015

2015 over 2014

Change

$703,979

$919,267

$824,941

$(215,288)

(23)% $94,326

11%

23.9%

25.7%

24.3%

Gross profit as a percentage of net sales decreased by 1.8 percentage points during 2016 compared

with 2015 primarily due to the mix of lower gross profit projects sold and under construction, higher
inventory write-downs, and the reduction in our module collection and recycling obligation in 2015 as
described above, partially offset by the higher gross margins on modules sold to third parties. Gross
profit as a percentage of net sales increased by 1.4 percentage points during 2015 compared with 2014
primarily due to a reduction in our module collection and recycling obligation and improved utilization
of our manufacturing facilities.

Research and development

Research and development expense consists primarily of salaries and personnel-related costs, the
cost of products, materials, and outside services used in our process and product R&D activities, and
depreciation and amortization expense associated with R&D specific facilities and equipment. We
maintain a number of programs and activities to improve our technology and processes in order to
enhance the performance and reduce the costs of our solar modules and PV solar power systems using
our modules.

The following table shows research and development expense for the years ended December 31,

2016, 2015, and 2014:

(Dollars in thousands)
. . . . . . .
Research and development
% of net sales . . . . . . . . . . . . . . . . .

Years Ended

Change

2016

2015

2014

2016 over 2015

2015 over 2014

$124,762

$130,593

$143,969

$(5,831)

(4)% $(13,376)

(9)%

4.2%

3.6%

4.2%

The decrease in our research and development expense during 2016 compared to 2015 was

primarily due to reductions in our R&D headcount and employee compensation expense resulting from
the restructuring activities further discussed in Note 4 ‘‘Restructuring and Asset Impairments’’ to our
consolidated financial statements for the year ended December 31, 2016 included in this Annual Report
on Form 10-K. During 2016, the average conversion efficiency of our CdTe solar modules produced was
16.4% compared to 15.6% in 2015.

The decrease in our research and development expense during 2015 compared to 2014 was
primarily due to reduced material and module testing costs associated with the development of
next-generation CdTe solar modules and lower costs for outside services, partially offset by higher
employee compensation expense. During 2015, the average conversion efficiency of our CdTe solar
modules was 15.6% compared to 14.0% in 2014.

Selling, general and administrative

Selling, general and administrative expense consists primarily of salaries and other personnel-
related costs, professional fees, insurance costs, travel expenses, and other business development and
selling expenses.

The following table shows selling, general and administrative expense for the years ended

December 31, 2016, 2015, and 2014:

(Dollars in thousands)
Selling, general and administrative . . .
% of net sales . . . . . . . . . . . . . . . . . .

Years Ended
2015

2016

2014

2016 over 2015

2015 over 2014

Change

$261,994

$255,192

$253,827

$6,802

3% $1,365

8.9%

7.1%

7.5%

Our selling, general and administrative expense increased by $6.8 million, or 3%, and was 8.9%
and 7.1% as a percentage of net sales, when comparing 2016 with 2015, respectively. The increase was
primarily attributable to higher development costs for early-stage projects and impairments of certain
project assets, partially offset by lower employee compensation expense due to the various restructuring
activities described in Note 4 ‘‘Restructuring and Asset Impairments’’ to our consolidated financial
statements for the year ended December 31, 2016 included in this Annual Report on Form 10-K, and
lower professional fees associated with the formation and IPO of the Partnership.

Our selling, general and administrative expense increased by $1.4 million, or 1%, and was 7.1%
and 7.5% as a percentage of net sales, when comparing 2015 with 2014, respectively. The increase was
primarily due to higher employee compensation expense and higher professional fees associated with
the formation and IPO of the Partnership, partially offset by lower project development expense and
lower accretion expense associated with the reduction in our module collection and recycling obligation.

Production start-up

Production start-up expense consists primarily of employee compensation and other costs

associated with operating a production line before it has been qualified for full production, including
the cost of raw materials for solar modules run through the production line during the qualification
phase and applicable facility related costs. Costs related to equipment upgrades and implementation of
manufacturing process improvements are also included in production start-up expense as well as costs
related to the selection of a new site, including related legal and regulatory costs, to the extent we
cannot capitalize these expenditures. In general, we expect production start-up expense per production
line to be higher when we build an entirely new manufacturing facility compared with the addition of
new production lines at an existing manufacturing facility, primarily due to the additional infrastructure
investment required when building an entirely new facility.

The following table shows production start-up expense for the years ended December 31, 2016,

2015, and 2014:

(Dollars in thousands)
Production start-up . . . . . . . . . . . . . . . .
% of net sales . . . . . . . . . . . . . . . . . . . .

Years Ended
2015

2016

2014

2016 over 2015

2015 over 2014

Change

$1,021

$16,818

$5,146

$(15,797)

(94)% $11,672

227%

—%

0.5% 0.2%

During 2016, we incurred certain production start-up expense related to our next generation CdTe
module offerings. Production start-up expense for 2015 was primarily related to our previous crystalline
silicon manufacturing operations at our facility in Kulim, Malaysia, which commenced during the third
quarter of 2014.

Restructuring and asset impairments

Restructuring and asset impairments includes those expenses incurred related to material

restructuring initiatives and includes any associated asset impairments, costs for employee termination
benefits, costs for contract terminations and penalties, and other restructuring related costs. Such
restructuring initiatives are intended to align the organization with current business conditions and to
reduce costs.

The following table shows restructuring and asset impairments for the years ended December 31,

2016, 2015, and 2014:

(Dollars in thousands)
Restructuring and asset impairments . . . . . .
% of net sales . . . . . . . . . . . . . . . . . . . . . .

Years Ended
2015

2016

2014

2015 over 2014

2014 over 2013

Change

$818,792

$— $— $818,792

100% $—

—%

27.7% —% —%

During 2016, our restructuring and asset impairments included $662.5 million of charges primarily

related to our November 2016 decision to accelerate our transition to Series 6 module manufacturing
and restructure our operations, $87.5 million of charges associated with the end of our crystalline
silicon module manufacturing operations, and $68.8 million of goodwill impairment charges. See Note 4
‘‘Restructuring and Asset Impairments’’ to our consolidated financial statements for the year ended
December 31, 2016 included in this Annual Report on Form 10-K for additional information. We
expect to incur up to $80 million of additional charges related to these actions as we complete the
transition to Series 6 modules manufacturing in 2017 and 2018. As a result of these actions, we also
expect to reduce our annual cost of sales and operating expenses by approximately $80 million and
$60 million, respectively.

Foreign currency loss, net

Foreign currency loss, net consists of the net effect of gains and losses resulting from holding
assets and liabilities and conducting transactions denominated in currencies other than our subsidiaries’
functional currencies.

The following table shows foreign currency loss, net for the years ended December 31, 2016, 2015,

and 2014:

(Dollars in thousands)
Foreign currency loss, net . . . . . . . . . .

Years Ended
2015

2016

2014

2016 over 2015

2015 over 2014

Change

$(14,007) $(6,868) $(1,461) $(7,139) 104% $(5,407) 370%

Foreign currency loss, net increased during 2016 compared with 2015 primarily as a result of
hedging activities related to our subsidiaries in India as well as differences between our economic
hedge positions and the underlying exposures along with changes in foreign currency rates. Foreign
currency loss, net increased during 2015 compared with 2014 primarily due to differences between our
economic hedge positions and the underlying exposure along with changes in foreign currency rates.

Interest income

Interest income is earned on our cash, cash equivalents, marketable securities, and restricted cash
and investments. Interest income also includes interest earned from notes receivable and late customer
payments.

The following table shows interest income for the years ended December 31, 2016, 2015, and 2014:

(Dollars in thousands)
Interest income . . . . . . . . . . . . . . . . . . .

Years Ended
2015

2016

2014

2016 over 2015

2015 over 2014

Change

$25,193

$22,516

$18,030

$2,677

12% $4,486

25%

Interest income during 2016 increased compared to 2015 primarily as a result of improved yields

on our fixed income marketable securities. Interest income during 2015 increased compared to 2014
primarily as a result of higher average balances of notes receivable due from affiliates.

Interest expense, net

Interest expense is incurred on various debt financings. We capitalize interest expense into our

project assets or property, plant and equipment when such costs qualify for interest capitalization,
which reduces the amount of net interest expense reported in any given period.

The following table shows interest expense, net for the years ended December 31, 2016, 2015, and

2014:

(Dollars in thousands)
Interest expense, net . . . . . . . . . . . . .

Years Ended
2015

2016

2014

2016 over 2015

2015 over 2014

Change

$(20,538) $(6,975) $(1,982) $(13,563) 194% $(4,993) 252%

Interest expense, net of amounts capitalized, increased in 2016 compared to 2015 primarily due to
lower interest costs capitalized to certain projects that were substantially completed in 2016 and higher
levels of project specific debt financings outstanding during 2016. Interest expense, net of amounts
capitalized, increased in 2015 compared to 2014 primarily as a result of higher levels of project specific
debt financings.

Other income (expense), net

Other income (expense), net is primarily comprised of miscellaneous items, and realized gains and

losses on the sale of marketable securities and cost method investments.

The following table shows other expense, net for the years ended December 31, 2016, 2015, and

2014:

(Dollars in thousands)
Other income (expense), net . . . . . . . . .

Years Ended
2015

2016

2014

2016 over 2015

2015 over 2014

Change

$40,252

$(5,502) $(4,485) $45,754

(832)% $(1,017) 23%

Other income (expense), net increased in 2016 compared to 2015 primarily due to realized gains of

$41.3 million on the sale of certain restricted investments driven by an effort to align the currencies of

the investments with those of the corresponding collection and recycling liabilities, the resolution of an
outstanding matter with a former customer, and the reversal of the outstanding contingent
consideration associated with our TetraSun acquisition as the result of our executive management’s
decision to end production of our crystalline silicon modules, which adversely affected the likelihood of
achieving certain module shipment volume milestones, partially offset by the impairment of a cost
method investment. See Note 4 ‘‘Restructuring and Asset Impairments’’ to our consolidated financial
statements for further discussion relating to these restructuring activities. Other income (expense), net
in 2015 was consistent with other income (expense), net in 2014.

Income tax (expense) benefit

Income tax expense or benefit, deferred tax assets and liabilities, and liabilities for unrecognized
tax benefits reflect our best estimate of current and future taxes to be paid. We are subject to income
taxes in both the United States and numerous foreign jurisdictions in which we operate; principally
Australia, India, and Malaysia. Significant judgments and estimates are required in determining our
consolidated income tax expense. The statutory federal corporate income tax rate in the United States
is 35.0%, while the tax rates in Australia, India, and Malaysia are 30.0%, 34.6%, and 24.0%,
respectively. In Malaysia, we have been granted a long-term tax holiday, scheduled to expire in 2027,
pursuant to which substantially all of our income earned in Malaysia is exempt from income tax.

The following table shows income tax (expense) benefit for the years ended December 31, 2016,

2015, and 2014:

(Dollars in thousands)
Income tax (expense) benefit . . . . .
Effective tax rate . . . . . . . . . . . . . .

Years Ended
2015

2016

2014

2016 over 2015

2015 over 2014

Change

$(58,219)

$6,156

$(31,188) $(64,375) (1,046)% $37,344 (120)%

(12.3)% (1.2)%

7.2%

Our tax rate is affected by recurring items, such as tax rates in foreign jurisdictions and the relative

amounts of income we earn in those jurisdictions. The rate is also affected by discrete items that may
occur in any given year, but are not consistent from year to year. Income tax expense increased by
$64.4 million during 2016 compared to 2015 primarily due to certain U.S. taxes on a cash distribution
received from our foreign subsidiary, partially offset by tax benefits from restructuring charges and a
$35.4 million reversal of an uncertain tax position related to the income of a foreign subsidiary. Income
tax expense decreased by $37.3 million during 2015 compared with 2014. The decrease in income tax
expense was primarily the result of a $41.7 million discrete tax benefit associated with the receipt of a
private letter ruling during 2015. See Note 20 ‘‘Income Taxes’’ to our consolidated financial statements
included in this Annual Report on Form 10-K for additional information.

Equity in earnings of unconsolidated affiliates, net of tax

Equity in earnings of unconsolidated affiliates, net of tax represents our proportionate share of the

earnings or losses of unconsolidated affiliates with whom we have made equity method investments as
well as any gains or losses on the sale or disposal of such investments.

The following table shows equity in earnings of unconsolidated affiliates, net of tax for the years

ended December 31, 2016, 2015, and 2014:

(Dollars in thousands)
Equity in earnings, net of tax . . . . .

Years Ended

Change

2016

2015

2014

2016 over 2015

2015 over 2014

$171,945

$20,430

$(4,949) $151,515

742% $25,379

(513)%

Equity in earnings of unconsolidated affiliates, net of tax increased during 2016 compared to 2015

primarily due to the recognition of a gain of $125.1 million, net of tax, on the sale of our residual

interest in the Desert Stateline project to 8point3 Operating Company, LLC (‘‘OpCo’’), a subsidiary of
the Partnership; higher equity in earnings from our investments in OpCo; and higher equity in earnings
from our investment in the Desert Stateline project prior to its sale. Equity in earnings of
unconsolidated affiliates, net of tax increased during 2015 compared to 2014 primarily as a result of our
investment in OpCo, along with the impairment of certain equity method investments during 2014.

Liquidity and Capital Resources

As of December 31, 2016, we believe that our cash, cash equivalents, marketable securities, cash

flows from operating activities including the contracted portion of our advanced-stage project pipeline,
availability under our Revolving Credit Facility considering minimum liquidity covenant requirements,
and access to the capital markets will be sufficient to meet our working capital, systems project
investment, and capital expenditure needs for at least the next 12 months. We monitor our working
capital to ensure we have adequate liquidity, both domestically and internationally.

We intend to maintain appropriate debt levels based upon cash flow expectations, our overall cost

of capital, and expected cash requirements for operations, capital expenditures, and strategic
discretionary spending. In the future, we may also engage in additional debt or equity financings,
including project specific debt financings. We believe that when necessary, we will have adequate access
to the capital markets, although our ability to raise capital on terms commercially acceptable to us
could be constrained if there is insufficient lender or investor interest due to industry-wide or company-
specific concerns. Such financings could result in increased debt service expenses or dilution to our
existing stockholders.

As of December 31, 2016, we had $2.0 billion in cash, cash equivalents, and marketable securities
compared to $1.8 billion as of December 31, 2015. Cash, cash equivalents, and marketable securities as
of December 31, 2016 increased primarily as the result of proceeds from the sale of certain equity
method investments and cash generated from operating activities, partially offset by expenditures for
property, plant, and equipment. As of December 31, 2016, $1.2 billion of our cash, cash equivalents,
and marketable securities were held by foreign subsidiaries and were primarily based in U.S. dollar,
Euro, and Malaysian ringgit denominated holdings. As of December 31, 2015, $1.5 billion of our cash,
cash equivalents, and marketable securities were held by foreign subsidiaries and were primarily based
in U.S. dollar and Euro denominated holdings.

We utilize a variety of tax planning and financing strategies in an effort to ensure that our
worldwide cash is available in the locations in which it is needed. If these funds were needed for our
operations in the U.S., we could be required to accrue and pay U.S. taxes to repatriate such funds. In
November 2016, we distributed $750.0 million of cash to the U.S. to fund capital investments associated
with our transition to Series 6 module manufacturing. Other than this distribution, we intend to
permanently reinvest our unremitted earnings outside of the U.S., with the exception of Canada and
Germany, and our future plans do not demonstrate a need to repatriate additional amounts to fund
our domestic operations. Furthermore, changes to foreign government banking regulations may restrict
our ability to move funds among various jurisdictions under certain circumstances, which could
negatively impact our access to capital, resulting in an adverse effect on our liquidity and capital
resources.

Our systems business requires significant liquidity and is expected to continue to have significant

liquidity requirements in the future. The net amount of our project assets, deferred project costs,
billings in excess of costs and estimated earnings, and payments and billings for deferred project costs,
which approximates our net capital investment in the development and construction of systems projects
was $1.1 billion as of December 31, 2016. Solar power project development and construction cycles,
which span the time between the identification of a site location and the commercial operation of a
system, vary substantially and can take many years to mature. As a result of these long project cycles

and strategic decisions to finance the construction of certain projects, we may need to make significant
up-front investments of resources in advance of the receipt of any cash from the sale of such projects.
These up-front investments may include using our working capital, project financing arrangements, or
availability under our Revolving Credit Facility to finance the construction of such projects. For
example, we may have to complete, or substantially complete, the construction of a systems project
before such project is sold. Delays in construction progress or in completing the sale of our systems
projects that we are self-financing may also impact our liquidity. We have historically financed these
up-front systems project investments primarily using working capital. In certain circumstances, we may
need to finance construction costs exclusively using working capital, if project financing becomes
unavailable due to market-wide, regional, or other concerns.

We are partnering with local developers on project development in markets around the world
where we may take an equity stake in a project for a number of years. We are also self-developing
projects in such markets where we may hold all or a significant portion of the equity in the projects for
several years. Given the duration of these investments and the currency risk relative to the U.S. dollar
in some of these new markets, we continue to explore local financing alternatives. Should these
financing alternatives be unavailable or too cost prohibitive, we could be exposed to significant currency
risk and our liquidity could be adversely impacted.

Additionally, we may elect to retain an ownership interest in certain systems projects after they

become operational if we determine it would be of economic and strategic benefit to do so. If, for
example, we cannot sell a systems project at economics that are attractive to us or potential customers
are unwilling to assume the risks and rewards typical of PV solar power system ownership, we may
instead elect to temporarily own and operate such systems until we can sell the systems on
economically attractive terms. As with traditional electricity generation assets, the selling price of a
PV solar power system could be higher at or post-completion to reflect the elimination of construction
and performance risks and other uncertainties. The decision to retain ownership of a system impacts
liquidity depending upon the size and cost of the project. As of December 31, 2016, we had
$448.6 million of PV solar power systems that have been placed in service, primarily in international
markets. We may elect to enter into temporary or long-term project financing to reduce the impact on
our liquidity and working capital with regards to such projects and systems. We may also consider
entering into tax equity or other arrangements with respect to ownership interests in certain of our
projects, including selling interests in our projects to the Partnership described under ‘‘Management’s
Discussion and Analysis of Financial Condition and Results of Operations—Certain Trends and
Uncertainties—8point3 Energy Partners LP,’’ which could cause a portion of the economics of such
projects to be recognized over time.

The following additional considerations have impacted or may impact our liquidity in 2017 and

beyond:

• The amount of accounts receivable, unbilled and retainage as of December 31, 2016 was

$205.5 million, which included $199.3 million of unbilled amounts. These unbilled accounts
receivable represent revenue that has been recognized in advance of billing the customer under
the terms of the underlying construction contracts. Such construction costs have been funded
with working capital, and the unbilled amounts are expected to be billed and collected from
customers during the next 12 months. 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. The amount of accounts receivable, unbilled and
retainage as of December 31, 2016 also included $6.3 million of retainage, which represents the
portion of a systems project 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.
Such retainage amounts relate to construction costs incurred and construction work already
performed.

• The amount of solar module inventory and BoS parts as of December 31, 2016 was

$365.1 million. As we continue with the construction of our advanced-stage project pipeline, we
must produce solar modules and procure BoS parts in the required volumes to support our
planned construction schedules. As part of this construction cycle, we typically must manufacture
modules or acquire the necessary BoS parts for construction activities in advance of receiving
payment for such materials, which may temporarily reduce our liquidity. Once solar modules and
BoS parts are installed in a project, such installed amounts are classified as either project assets,
deferred project costs, PV solar power systems, or cost of sales depending upon whether the
project is subject to a definitive sales contract and whether all revenue recognition criteria have
been met. As of December 31, 2016, $104.9 million, or 35%, of our solar module inventory was
either on-site or in-transit to our systems projects. All BoS parts are for our systems business
projects.

• We may commit working capital during 2017 and beyond 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, 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.

• Joint ventures or other strategic arrangements with partners are a key part of our strategy. We
have initiatives in several markets to expedite our penetration of those markets and establish
relationships with potential customers. Some of these arrangements involve and are expected to
involve significant investments or other allocations of capital that could reduce our liquidity or
require us to pursue additional sources of financing, assuming such sources are available to us.
Additionally, we have elected and may in the future elect or be required to temporarily retain a
noncontrolling ownership interest in certain underlying systems projects we develop, supply
modules to, or construct. Any such retained ownership interest is expected to impact our
liquidity to the extent we do not obtain new sources of capital to fund such investments.

• We expect to make significant capital investments over the next two years as we transition our
production to Series 6 module technology and purchase the related manufacturing equipment.
We expect the aggregate capital investment for this program to be approximately $1 billion.
During 2017, we expect to spend $525 million to $625 million for capital expenditures, the
majority of which is associated with the Series 6 transition. We believe these capital expenditures
will further increase our solar module conversion efficiencies, reduce manufacturing costs, and
reduce the overall cost of systems employing our modules.

Cash Flows

The following table summarizes the key cash flow metrics for the years ended December 31, 2016,

2015, and 2014 (in thousands):

Net cash provided by (used in) operating activities . . . . . . . . . . . .
Net cash provided by (used in) investing activities . . . . . . . . . . . . .
Net cash (used in) provided by financing activities . . . . . . . . . . . . .
Effect of exchange rate changes on cash, cash equivalents and

Years Ended

2016

2015

2014

$ 206,753
144,520
(136,393)

$(325,209) $ 735,516
(387,818)
(156,177)
(46,907)
101,207

restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(6,306)

(19,272)

(19,487)

Net increase (decrease) in cash, cash equivalents and restricted

cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 208,574

$(399,451) $ 281,304

Operating Activities

The increase in cash provided by operating activities during 2016 was primarily driven by the lower
volume of solar power projects under development and construction, which generally require significant
liquidity when such projects are financed using working capital. Specifically, the reduction in the
volume of our system business affected our trade accounts receivable, project assets, deferred project
costs, and certain current liabilities. The increase in cash provided by operating activities was also
driven by the sale of certain other solar power projects at or near substantial completion. The decrease
in cash provided by operating activities during 2015 was primarily driven by the increase in project
assets and deferred project costs resulting from our financing the construction of certain projects with
our working capital and increases in our trade accounts receivable.

Investing Activities

The increase in cash provided by investing activities during 2016 was primarily due to proceeds
from sales of equity and cost method investments of $291.5 million, including the sale of our remaining
interest in the Desert Stateline project, and higher net proceeds from sales and maturities of
marketable securities and restricted investments of $102.9 million during 2016 compared to
$203.1 million of net purchases of marketable securities and restricted investments in 2015. The effects
of these items were partially offset by lower distributions received from equity method investments in
2016. The decrease in cash used in investing activities during 2015 was driven by the receipt of
$239.0 million from the IPO of the Partnership, and lower purchases of property, plant and equipment.
The effects of these items were partially offset by net purchases of marketable securities of
$203.1 million during 2015 compared to $77.5 million during 2014.

Financing Activities

Cash used in financing activities during 2016 was mainly driven by payments of long-term debt of
$137.4 million. Cash provided by financing activities during 2015 primarily resulted from $146.0 million
of proceeds from borrowings under our project construction credit facilities in Chile, India, and Japan
and $44.7 million of proceeds from the leaseback financing associated with the Maryland Solar project,
partially offset by $47.1 million of payments of long-term debt.

Contractual Obligations

The following table presents our contractual obligations as of December 31, 2016 (in thousands),

which consists of legal commitments requiring us to make fixed or determinable cash payments. We
purchase raw materials for inventory, manufacturing equipment, construction materials, and various
services from a variety of vendors. During the normal course of business, in order to manage
manufacturing and construction lead times and help assure an adequate supply of certain items, we

enter into agreements with suppliers that either allow us to procure goods and services when we choose
or that establish purchase requirements over the term of the agreement.

Long-term debt obligations . . . . . . . . . . . . . .
Interest payments(1) . . . . . . . . . . . . . . . . . . .
Capital lease obligations . . . . . . . . . . . . . . . .
Operating lease obligations . . . . . . . . . . . . . .
Sale-leaseback payments(2) . . . . . . . . . . . . . .
Purchase obligations(3) . . . . . . . . . . . . . . . . .
Recycling obligations . . . . . . . . . . . . . . . . . . .
Contingent consideration(4) . . . . . . . . . . . . .
Other obligations(5) . . . . . . . . . . . . . . . . . . .

Total

$ 196,691
102,173
582
192,536
14,334
524,962
166,277
30,092
38,952

Less Than
1 Year

$ 27,958
22,469
420
16,847
5,219
464,271
—
19,620
7,763

Payments Due by Year

1 - 3
Years

3 - 5
Years

More Than
5 Years

$ 10,574
21,718
162
26,605
9,115
33,611
—
10,472
9,675

$23,070
19,600
—
14,249
—
8,725

$135,089
38,386
—
134,835
—
18,355
— 166,277
—
—
12,882
8,632

Total

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$1,266,599

$564,567

$121,932

$74,276

$505,824

(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 in effect at December 31, 2016.

(2) Sale-leaseback payments represent the fixed rent payments associated with our leaseback of the
Maryland Solar project from a subsidiary of the Partnership. See Note 12 ‘‘Investments in
Unconsolidated Affiliates and Joint Ventures’’ to our consolidated financial statements for the year
ended December 31, 2016 included in this Annual Report on Form 10-K for further information.

(3) Purchase obligations are agreements to purchase goods or services that are noncancelable,

enforceable, and legally binding and that specify all significant terms, including fixed or minimum
quantities to be purchased; fixed, minimum, or variable price provisions; and the approximate
timing of the transactions.

(4) In connection with business or project acquisitions, we may agree to pay additional amounts to the
sellers upon achievement of certain milestones. See Note 16 ‘‘Commitments and Contingencies’’ to
our consolidated financial statements for the year ended December 31, 2016 included in this
Annual Report on Form 10-K for further information.

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

In addition to the amounts shown in the table above, we have recorded $89.3 million of
unrecognized tax benefits as liabilities in accordance with Accounting Standards Codification
(‘‘ASC’’) 740, Income Taxes, and we are uncertain as to if or when such amounts may be settled.

Off-Balance Sheet Arrangements

We have no off-balance sheet debt or similar obligations, other than financial assurance related
instruments and operating leases, which are not classified as debt. We do not guarantee any third-party
debt. See Note 16 ‘‘Commitments and Contingencies’’ to our consolidated financial statements for the
year ended December 31, 2016 included in this Annual Report on Form 10-K for further information
about our financial assurance related instruments.

Recent Accounting Pronouncements

See Note 3 ‘‘Recent Accounting Pronouncements’’ to our consolidated financial statements for the
year ended December 31, 2016 included in this Annual Report on Form 10-K for a summary of recent
accounting pronouncements.

Critical Accounting Estimates

In preparing our consolidated financial statements in conformity with accounting principles

generally accepted in the United States, we make estimates and assumptions that affect the amounts of
reported assets, liabilities, revenues, and expenses, as well as the disclosure of contingent liabilities.
Some of our accounting policies require the application of significant judgment in the selection of the
appropriate assumptions for making these estimates. By their nature, these judgments are subject to an
inherent degree of uncertainty. We base our judgments and estimates on our historical experience, our
forecasts, and other available information, as appropriate. The actual results experienced by us may
differ materially and adversely from our estimates. To the extent there are material differences between
our estimates and the actual results, our future results of operations will be affected. Our significant
accounting policies are described in Note 2 ‘‘Summary of Significant Accounting Policies’’ to our
consolidated financial statements for the year ended December 31, 2016 included in this Annual Report
on Form 10-K. Our critical accounting estimates, which require the most significant management
estimates and judgment in determining the amounts reported in our consolidated financial statements
included in this Annual Report on Form 10-K, are as follows:

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 either
ASC 605-35, Construction-Type and Production-Type Contracts, or ASC 360-20, Real Estate Sales, for
arrangements which include land or land rights.

Systems business sales arrangements in which we construct a PV solar power system for a specific

customer on land that is controlled by the customer, and has not been previously controlled by First
Solar, are accounted for under ASC 605-35. For such sales arrangements, we use the percentage-of-
completion method, as described further below, using actual costs incurred over total estimated costs to
develop and construct the system (including module costs) as our standard accounting policy.

Systems business sales arrangements in which we convey control of land or land rights as part of

the transaction are accounted for under ASC 360-20. Accordingly, we use one of the following revenue
recognition methods, based upon an evaluation of the substance and form of the terms and conditions
of such real estate sales:

(i) We apply the percentage-of-completion method, as further described below, to certain real
estate sales arrangements in which 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. 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 pursuant to ASC 360-20.
The initial and continuing investment requirements, which demonstrate a buyer’s commitment
to honor its obligations for the sales arrangement, can typically be met through the receipt of
cash or an irrevocable letter of credit from a highly creditworthy lending institution.

(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.

For any systems business sales arrangements containing multiple deliverables not required to be

accounted for under ASC 605-35 (long-term construction contracts) or ASC 360-20 (real estate sales),
we analyze each activity within the sales arrangement to adhere to the separation guidelines of

ASC 605-25 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.

Our system business sales arrangements within the scope of ASC 360-20 involve a range of
standard product warranties, which include limited solar module warranties, limited BoS warranties,
and system capacity and energy performance testing. Each standard product warranty program
represents a risk of the module manufacturer or system EPC contractor, and is not an obligation or
risk of a system owner. These programs do not represent any guarantee of energy output and relate to
the underlying performance of the system assets. Consequently, our product warranty programs do not
represent any guarantees of cash flows related to the systems, and we have not assumed any of the
risks and rewards of ownership with respect to such programs. Separately, our system customers may
also engage us to provide O&M services, which would typically include an effective availability
guarantee. Our availability guarantees are an incremental offering within separate arrangements for
O&M services. Availability guarantees are guarantees of our own service performance and do not
represent guarantees of a system’s output or cash flows. Accordingly, our product warranties and
market based service contracts are not forms of continuing involvement that would indicate that
substantially all of the risks and rewards of ownership have not been transferred to the system owner.

Revenue Recognition—Percentage-of-Completion.

In applying the percentage-of-completion method,

we use the actual costs incurred relative to the total estimated costs (including module costs) in order
to determine the progress towards completion and calculate the corresponding amount of revenue and
profit to recognize. Costs incurred include solar modules, direct materials, labor, subcontractor costs,
and those indirect costs related to contract performance, such as indirect labor and supplies. We
recognize solar module and direct material costs as incurred when such items have been installed in a
system. When contracts specify that title to solar modules and direct materials 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
solar modules and direct materials to be installed when they are permanently placed or affixed to a
PV solar power system as required by engineering designs. Solar modules manufactured and owned by
us that will be used in our systems remain within inventory until such modules are installed in a system.

The percentage-of-completion method of revenue recognition requires us to make estimates of net

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

If estimated total costs on any contract are greater than the net 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 net contract revenues and costs to complete contracts, including penalties,
claims, change orders, performance incentives, anticipated losses, and others are recorded in the period
in which the revisions to estimates are identified and the amounts 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.

Accrued Solar Module Collection and Recycling Liability. We recognize expense at the time of sale

for the estimated cost of our future obligations for collecting and recycling solar modules covered by
our solar module collection and recycling program. We estimate the cost of our collection and recycling
obligations based on the present value of the expected probability-weighted future cost of collecting

and recycling the solar modules, which includes estimates for the cost of packaging materials, the cost
of freight from the solar module installation sites to a recycling center, the material, labor, capital costs,
and scale of recycling centers, and an estimated third-party profit margin and return on risk for
collection and recycling services. We base these estimates on (i) our experience collecting and recycling
our solar modules, (ii) the expected timing of when our solar modules will be returned for recycling,
and (iii) expected economic conditions at the time the solar modules will be collected and recycled. In
the periods between the time of sale and the related settlement of the collection and recycling
obligation, we accrete the carrying amount of the associated liability by applying the discount rate used
for its initial measurement. We periodically review our estimates of expected future recycling costs and
may adjust our liability accordingly.

At December 31, 2016, our estimated liability for collecting and recycling solar modules covered by
our collection and recycling program was $166.3 million. A 1% increase in the annualized inflation rate
used in our estimated future collection and recycling cost per module would increase our liability by
$37.5 million, and a 1% decrease in that rate would decrease our liability by $31.0 million.

Product Warranties. We provide a limited PV solar module warranty covering defects in materials

and workmanship under normal use and service conditions for generally 10 years. We also typically
warrant that modules installed in accordance with agreed-upon specifications will produce at least 97%
of their labeled power output rating during the first year, with the warranty coverage reducing by 0.7%
every year thereafter throughout the 25-year performance warranty period. In resolving claims under
both the limited defect and power output warranties, we typically have the option of either repairing or
replacing the covered modules or, under the limited power output warranty, providing additional
modules to remedy the power shortfall. We also have the option to make a payment for the
then-current market price of modules to resolve the claims. Such limited module warranties are
standard for module sales and may be transferred from the original purchasers of the solar modules to
subsequent purchasers upon resale.

As an alternative form of our standard limited module power output warranty, we also offer an

aggregated or system-level limited module performance warranty. This system-level limited module
performance warranty is designed for utility-scale systems and provides 25-year system-level energy
degradation protection. In addition, this warranty represents a practical expedient to address the
challenge of identifying, from the potential millions of modules installed in a utility-scale system,
individual modules that may be performing below warranty thresholds by focusing on the aggregate
energy generated by the system rather than the power output of individual modules. The system-level
module performance warranty typically is calculated as a percentage of a system’s expected energy
production, adjusted for certain actual site conditions, with the warranted level of performance
declining each year in a linear fashion, but never falling below 80% during the term of the warranty. In
resolving claims under the system-level limited module performance warranty to restore the system to
warranted performance levels, we first must validate that the root cause of the issue is due to module
performance; we then have the option of either repairing or replacing the covered modules, providing
supplemental modules, or making a cash payment. Consistent with our limited module power output
warranty, when we elect to satisfy a warranty claim by providing replacement or supplemental modules
under the system-level module performance warranty, we do not have any obligation to pay for the
labor to remove or install modules.

In addition to our limited solar module warranties described above, for PV solar power systems

built by us, we typically provide a limited product warranty on BoS parts for defects in engineering
design, installation, and workmanship for a period of one to two years following the substantial
completion of a system. In resolving claims under such BoS warranties, we have the option of
remedying the defect through repair or replacement.

When we recognize revenue for module or systems sales, we accrue liabilities for the estimated
future costs of meeting our limited warranty obligations. We make and revise these estimates based
primarily on the number of our solar modules under warranty installed at customer locations, our
historical experience with warranty claims, our monitoring of field installation sites, our internal testing
of and the expected future performance of our solar modules and BoS components, and our estimated
per-module replacement costs.

At December 31, 2016, our accrued liabilities for product warranties was $252.4 million. We

estimate our limited product warranty liability for power output and defects in materials and
workmanship under normal use and service conditions based on a warranty return rate of
approximately 1% to 3% for modules covered under warranty. As of December 31, 2016, 1% change in
the estimated warranty return rate would change our module warranty liability by $83.5 million, and a
1% change in the estimated warranty return rate for BoS components would not have a material
impact on the associated warranty liability.

Performance Testing. For systems sales arrangements, we also conduct performance testing of a

system prior to substantial completion to confirm the system meets its operational and capacity
expectations noted in the EPC agreement. In addition, we may provide an energy performance test
during the first or second year of a system’s operation to demonstrate that the actual energy generation
for the applicable year meets or exceeds the modeled energy expectation, after certain adjustments.
These tests are based on meteorological, energy, and equipment performance data measured at the
system’s location as well as certain projections of such data over the remaining measurement period. If
there is an underperformance event with regards to these tests, we may incur liquidated damages as a
percentage of the EPC contract price. If necessary, we accrue estimates for liquidated damages at the
end of each reporting period based on our performance testing. In certain instances, a bonus payment
may be received at the end of the first year if the system performs above a specified level.

As part of our O&M service offerings, we typically offer an effective availability guarantee, which

stipulates that a system will be available to generate a certain percentage of total possible energy
during a specific period after adjusting for factors outside of our control as the service provider, such
as weather, curtailment, outages, force majeure, and other conditions that may affect system
availability. Effective availability guarantees are only offered as part of our O&M services and
terminate at the end of an O&M arrangement. These guarantees are based on meteorological, energy,
and equipment performance data measured at the system’s location as well as certain projections of
such data over the remaining measurement period. If we fail to meet the contractual threshold for
these guarantees, we may incur liquidated damages for certain lost energy under the PPA. If necessary,
we accrue estimates for liquidated damages at the end of each reporting period based on our effective
availability calculations. Conversely, many of our O&M agreements contain provisions whereby we may
receive a bonus payment if system availability exceeds a separate threshold.

Accounting for Income Taxes. We are subject to the income tax laws of the United States, and its

states and municipalities, and those of the foreign jurisdictions in which we have significant business
operations. These tax laws are complex and subject to different interpretations by the taxpayer and the
relevant governmental taxing authorities. We must make judgments and interpretations about the
application of these inherently complex tax laws when determining our provision for income taxes and
must also make estimates about when in the future certain items affect taxable income in the various
tax jurisdictions. Disputes over interpretations of the tax laws may be settled with the taxing authority
upon examination or audit. We regularly evaluate the likelihood of assessments in each of the taxing
jurisdictions resulting from current and future examinations, and we record tax liabilities as appropriate.

We establish liabilities for potential additional taxes based on our assessment of the outcome of

our tax positions. Once established, we adjust the liabilities when additional information becomes
available or when an event occurs requiring an adjustment. Significant judgment is required in making

these estimates and the actual cost of a tax assessment, fine, or penalty may ultimately be materially
different from our recorded liabilities, if any.

In preparing our consolidated financial statements, we calculate our income tax expense based on

our interpretation of the tax laws and regulations in the various jurisdictions where we conduct
business. This requires us to estimate our current tax obligations, assess uncertain tax positions, and
assess temporary differences between the financial statement carrying amounts and the tax basis of
assets and liabilities. These temporary differences result in deferred tax assets and liabilities.

We must also assess the likelihood that each of our deferred tax assets will be realized. To the
extent we believe that realization of any of our deferred tax assets is not more likely than not, we
establish a valuation allowance. When we establish a valuation allowance or increase this allowance in a
reporting period, we generally record a corresponding tax expense in our consolidated statement of
operations. Conversely, to the extent circumstances indicate that a valuation allowance is no longer
necessary, that portion of the valuation allowance is reversed, which generally reduces our overall
income tax expense.

We also consider the unremitted earnings of our foreign subsidiaries and determine whether such
amounts are indefinitely reinvested. No additional U.S. or non-U.S. taxes have been accrued that may
be incurred if such amounts were repatriated to the United States. We have concluded that, except for
the earnings of our Canadian and German subsidiaries and with respect to previously taxed income, all
such accumulated earnings are currently indefinitely reinvested or that if upon repatriation no
additional U.S. or non-U.S. tax would be due. If our intention to indefinitely reinvest the earnings of
our foreign subsidiaries changes, additional U.S. and non-U.S. taxes may be required to be accrued.

We continually explore initiatives to better align our tax and legal entity structure with the

footprint of our non-U.S. operations and recognize the tax impact of these initiatives, including changes
in the assessment of uncertain tax positions, indefinite reinvestment exception assertions, and the
realizability of deferred tax assets, in the period when we believe all necessary internal and external
approvals associated with such initiatives have been obtained, or when the initiatives are materially
complete. It is possible that the completion of one or more of these initiatives may occur within the
next 12 months.

Long-Lived Asset Impairment. We assess long-lived assets classified as ‘‘held and used,’’ including

our property, plant and equipment, project assets, and PV solar power systems, for impairment
whenever events or changes in circumstances arise, including consideration of technological
obsolescence, that may indicate that the carrying amount of such assets may not be recoverable, and
these assessments require significant judgment in determining whether such events or changes have
occurred. Relevant considerations may include a significant decrease in the market price of a long-lived
asset; a significant adverse change in the extent or manner in which a long-lived asset is being used or
in its physical condition; a significant adverse change in the business climate that could affect the value
of a long-lived asset; an accumulation of costs significantly in excess of the amount originally expected
for the acquisition or construction of a long-lived asset; a current-period operating or cash flow loss
combined with a history of such losses or a projection of future losses associated with the use of a
long-lived asset; or a current expectation that, more likely than not, a long-lived asset will be sold or
otherwise disposed of significantly before the end of its previously estimated useful life. For purposes of
recognition and measurement of an impairment loss, long-lived assets are grouped with other assets
and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash
flows of other assets and liabilities, and we must exercise judgment in assessing such groupings and
levels.

When impairment indicators are present, we compare undiscounted future cash flows, including

the eventual disposition of the asset group at market value, to the asset group’s carrying value to
determine if the asset group is recoverable. If the carrying value of the asset group exceeds the

undiscounted future cash flows, we measure any impairment by comparing the fair value of the asset
group to its carrying value. Fair value is generally determined by considering (i) internally developed
discounted cash flows for the asset group, (ii) actual third-party valuations, and/or (iii) information
available regarding the current market value for such assets. If the fair value of an asset group is
determined to be less than its the carrying value, an impairment in the amount of the difference is
recorded in the period that the impairment indicator occurs. Estimating future cash flows requires
significant judgment, and such projections may vary from the cash flows eventually realized.

Goodwill. 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. If
necessary, we would record any impairment in accordance with ASC 350, Intangibles—Goodwill and
Other. We perform impairment tests between scheduled annual tests in the fourth quarter 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.

We may first make a qualitative assessment of whether it is more likely than not that a reporting

unit’s fair value is less than its carrying value to determine whether it is necessary to perform the
two-step goodwill impairment test. The qualitative impairment test considers various factors including
macroeconomic conditions, industry and market considerations, cost factors, the overall financial
performance of a reporting unit, and any other relevant events affecting the entity or its reporting
units. If we determine through the qualitative assessment that a reporting unit’s fair value is more likely
than not greater than its carrying value, the two-step impairment test is not required. If the qualitative
assessment indicates it is more likely than not that a reporting unit’s fair value is less than its carrying
value, we must perform the two-step impairment test. We may also elect to proceed directly to the
two-step impairment test without considering such qualitative factors.

The first step in a two-step impairment test is the comparison of the fair value of a reporting unit

with its carrying amount, including goodwill. Our reporting units consist of our CdTe module
manufacturing business and our fully integrated systems business. In accordance with the authoritative
guidance over fair value measurements, we define the fair value of a reporting unit as the price that
would be received to sell the unit as a whole in an orderly transaction between market participants at
the measurement date. We primarily use the income approach methodology of valuation, which
includes the discounted cash flow method, to estimate the fair value of our reporting units.

Significant management judgment is required when estimating the fair value of our reporting units

including the forecasting of future operating results and the selection of discount and expected future
growth rates that we use in determining the projected cash flows. If the estimated fair value of a
reporting unit exceeds its carrying value, goodwill is not impaired and no further analysis is required.

If the carrying value of a reporting unit exceeds its estimated fair value in the first step, then we
are required to perform the second step of the impairment test. In this step, we assign the fair value of
the reporting unit calculated in step one to all of the assets and liabilities of the reporting unit, as if a
market participant just acquired the reporting unit in a business combination. The excess of the fair
value of the reporting unit determined in the first step of the impairment test over the total amount
assigned to the assets and liabilities in the second step of the impairment test represents the implied
fair value of goodwill. If the carrying value of a reporting unit’s goodwill exceeds the implied fair value
of goodwill, we would record an impairment loss equal to the difference. If there is no such excess,
then all goodwill for a reporting unit is considered impaired.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

Foreign Currency Exchange Risk

Our primary foreign currency exposures are cash flow exposure, transaction exposure, and earnings

translation exposure.

Cash Flow Exposure. We expect certain of our subsidiaries to have future cash flows that will be
denominated in currencies other than the subsidiaries’ functional currencies. Changes in the exchange
rates between the functional currencies of our subsidiaries and the other currencies in which they
transact will cause fluctuations in the cash flows we expect to receive or pay when these cash flows are
realized or settled. Accordingly, we enter into foreign exchange forward contracts to hedge a portion of
these forecasted cash flows. These foreign exchange forward contracts qualify for accounting as cash
flow hedges in accordance with ASC 815, and we designated them as such. We initially report the
effective portion of a derivative’s unrealized gain or loss in ‘‘Accumulated other comprehensive (loss)
income’’ and subsequently reclassify amounts into earnings when the hedged transaction occurs and
impacts earnings.

Our operations in Malaysia pay a portion of their operating expenses, such as associate wages and
utilities, in Malaysian ringgit, exposing us to foreign currency exchange risk for those Malaysian ringgit
expenses. As we continue to expand into new markets worldwide, particularly emerging markets, our
total foreign currency exchange risk, in terms of both size and exchange rate volatility, and the number
of foreign currencies we are exposed to could increase significantly.

For additional details on our derivative hedging instruments and activities, refer to Note 10

‘‘Derivative Financial Instruments’’ to our consolidated financial statements for the year ended
December 31, 2016 included in this Annual Report on Form 10-K.

Our international customers accounted for 17% of our net sales during the year ended

December 31, 2016, of which 2% of such sales were denominated in Euros, Australian dollars, and
Indian rupees. Our international customers accounted for 13% of our net sales during the year ended
December 31, 2015, of which 40% of such sales were denominated in Australian dollars. Our
international customers accounted for 10% of our net sales during the year ended December 31, 2014,
of which 25% of such sales were denominated in Euros. As a result, we have exposure to foreign
currency exchange risk with respect to our net sales. Fluctuations in exchange rates, particularly in the
U.S. dollar to Euro, U.S. dollar to Australian dollar, and U.S. dollar to Indian rupee, may affect our
gross profit and could result in foreign exchange and operating losses. Historically, most of our
exposure to foreign currency exchange risk has related to currency gains and losses between the time
we sign and settle our sales contracts denominated in Euros, Australian dollars, and Indian rupees. For
the year ended December 31, 2016, a 10% change in the U.S. dollar to Euro, U.S. dollar to Australian
dollar, or U.S. dollar to Indian rupee exchange rate would have had an aggregate impact to our net
sales of $3.0 million, excluding the effect of our hedging activities. For the year ended December 31,
2015, a 10% change in the U.S. dollar to Australian dollar exchange rate would have impacted our net
sales by $18.6 million, excluding the effect of our hedging activities. For the year ended December 31,
2014, a 10% change in the U.S. dollar to Euro exchange rate would have impacted our net sales by
$8.8 million, excluding the effect of our hedging activities.

Transaction Exposure. Many of our subsidiaries have assets and liabilities (primarily cash,

receivables, marketable securities, payables, debt, and solar module collection and recycling liabilities)
that are denominated in currencies other than the subsidiaries’ functional currencies. Changes in the
exchange rates between the functional currencies of our subsidiaries and the other currencies in which
these assets and liabilities are denominated will create fluctuations in our reported consolidated
statements of operations and cash flows. We may enter into foreign exchange forward contracts or
other financial instruments to economically hedge assets and liabilities against the effects of currency

exchange rate fluctuations. The gains and losses on such foreign exchange forward contracts will
economically offset all or part of the transaction gains and losses that we recognize in earnings on the
related foreign currency denominated assets and liabilities.

For additional details on our economic hedging instruments and activities, refer to Note 10
‘‘Derivative Financial Instruments’’ to our consolidated financial statements for the year ended
December 31, 2016 included in this Annual Report on Form 10-K.

If the U.S. dollar weakened by 10% against the Malaysian ringgit, we would have recorded an
additional $7.5 million of foreign currency gains for the year ended December 31, 2016. Other than
such Malaysian ringgit exposure, we did not have material transaction exposure to other foreign
currencies as of December 31, 2016.

Earnings Translation Exposure. Fluctuations in foreign currency exchange rates create volatility in

our consolidated financial statements as we are required to translate the financial statements of our
subsidiaries that do not have a U.S. dollar functional currency. We do not hedge translation exposure
at this time, but may, in the future, decide to purchase forward exchange contracts or other instruments
to offset this impact from foreign currency exchange rate fluctuations.

In the past, such fluctuations have had an impact on our business and cash flows. For example,
currency exchange rate fluctuations impacted our cash flows by $6.3 million (unfavorable), $19.3 million
(unfavorable), and $19.5 million (unfavorable) for the years ended December 31, 2016, 2015, and 2014,
respectively. Although we cannot predict the impact of future foreign currency exchange rate
fluctuations on our business or cash flows, we believe that we will continue to have risk associated with
foreign currency exchange rate fluctuations in the future.

Interest Rate Risk

Our primary interest rate risks relate to our outstanding variable rate debt, our system sales prices

from the effect of interest rates on our customers’ financing of such systems, and our investments in
marketable securities and restricted investments.

Variable Rate Debt Exposure. We are exposed to interest rate risk as certain of our project
construction credit facilities have variable interest rates, exposing us to variability in interest expense
and cash flows. An increase in the Tokyo Interbank Offered Rate or equivalent variable rates would
impact our cost of borrowings under our project construction credit facilities. If such variable rates
changed by 100 basis points, our interest expense for the year ended December 31, 2016 would have
changed by $0.1 million.

Customer Financing Exposure. We are exposed to interest rate risk because many of our systems
business customers depend on debt financing to purchase a PV solar power system from us. Although
the useful life of a PV solar power system is considered to be approximately 25 years, owners of our
systems must generally pay for the entire cost of the system at the time of sale. As a result, many of
our customers rely on debt financing to fund their up-front capital expenditures. An increase in interest
rates available to finance such purchases could make it difficult for our customers to secure the
financing necessary to purchase a system on favorable terms, or at all. Such factors could lower demand
or the price we can charge for our systems and reduce our net sales and gross profit. In addition, we
believe that a significant percentage of our customers purchase systems as an investment, funding the
initial capital expenditure through a combination of equity and debt. An increase in interest rates could
lower an investor’s return on investment in a system or make alternative investments more attractive
relative to solar power systems, which, in each case, could cause these end-users to seek alternative
investments that promise higher returns.

Investments in Marketable Securities and Restricted Investments Exposure. We invest in various debt
securities, which exposes us to interest rate risk. The primary objective of our investment activities is to
preserve principal and provide liquidity, while at the same time maximizing the income we receive from
our investments without significantly increasing risk. Some of the securities in which we invest may be
subject to market risk. Accordingly, a change in prevailing interest rates may cause the market value of
such investments to fluctuate. For example, if we hold a security that was issued with an interest rate
fixed at the then-prevailing rate and the prevailing interest rate later rises, the market value of our
investment may decline.

To provide a meaningful assessment of the interest rate risk associated with our investments in

marketable securities and restricted investments, we performed a sensitivity analysis to determine the
impact a change in interest rates would have on the value of our investments assuming a 100 basis
point change in interest rates. During 2016, our marketable securities earned a pre-tax return of 1%,
including the impact of fluctuations in the price of the underlying securities, and had a weighted
average maturity of 13 months as of December 31, 2016. Based on our investment positions as of
December 31, 2016, a hypothetical 100 basis point change in interest rates would result in a
$6.2 million change in the market value of our investment portfolio. As of December 31, 2016, our
marketable securities were comprised of foreign debt and time deposits. During 2016, our restricted
investments earned a pre-tax return of 13%, including the impact of fluctuations in the price of the
underlying securities, and had a weighted average maturity of approximately 18 years as of
December 31, 2016. Based on our investment positions as of December 31, 2016, a hypothetical
100 basis point change in interest rates would result in a $60.5 million change in the market value of
our restricted investment portfolio. As of December 31, 2016, all of our restricted investments were in
foreign and U.S. government obligations.

Commodity and Component Risk

We are exposed to price risks for the raw materials, components, and energy costs used in the
manufacturing and transportation of our solar modules and BoS parts used in our PV solar power
systems. Also, some of our raw materials and components are sourced from a limited number of
suppliers or a single supplier. We endeavor to qualify multiple suppliers using a robust qualification
process. In some cases, we also enter into long-term supply contracts for raw materials and
components. As a result, we remain exposed to price changes in the raw materials and components
used in our solar modules. In addition, the failure of a key supplier could disrupt our supply chain,
which could result in higher prices and/or a disruption in our manufacturing or construction processes.
We may be unable to pass along changes in the costs of the raw materials and components for our
products and systems to our customers and may be in default of our delivery obligations if we
experience a manufacturing or construction disruption.

Credit Risk

We have certain financial and derivative instruments that subject us to credit risk. These consist
primarily of cash, cash equivalents, marketable securities, trade accounts receivable, restricted cash and
investments, notes receivable, and foreign exchange forward contracts. We are exposed to credit losses
in the event of nonperformance by the counterparties to our financial and derivative instruments. We
place cash, cash equivalents, marketable securities, restricted cash and investments, and foreign
exchange forward contracts with various high-quality financial institutions and limit the amount of
credit risk from any one counterparty. We continuously evaluate the credit standing of our counterparty
financial institutions. Our net sales are primarily concentrated among a limited number of customers.
We monitor the financial condition of our customers and perform credit evaluations whenever
considered necessary. Depending upon the sales arrangement, we may require some form of payment

security from our customers, including parent guarantees, bank guarantees or commercial letters of
credit.

Item 8. Financial Statements and Supplementary Data

Consolidated Financial Statements

Our consolidated financial statements as required by this item are included in Item 15. ‘‘Exhibits

and Financial Statement Schedules.’’ See Item 15(a)(1) for a list of our consolidated financial
statements.

Selected Quarterly Financial Data (Unaudited)

The following selected quarterly financial data should be read in conjunction with our consolidated

financial statements, the related notes thereto and Item 7. ‘‘Management’s Discussion and Analysis of
Financial Condition and Results of Operations.’’ This information has been derived from our unaudited
consolidated financial statements that, in our opinion, reflect all recurring adjustments necessary to
fairly present this information when read in conjunction with our consolidated financial statements. The
interim periods presented below for the year ended December 31, 2016 reflect the adoption of
ASU 2016-09, Compensation—Stock Compensation (Topic 718)—Improvements to Employee Share-Based
Payment Accounting. See Note 3 ‘‘Recent Accounting Pronouncements’’ to our consolidated financial
statements for the year ended December 31, 2016 included in this Annual Report on Form 10-K for
additional information. The results of operations for any quarter are not necessarily indicative of the
results to be expected for any future period.

Quarters Ended

Dec 31,
2016

Sep 30,
2016

Sep 30,
Jun 30,
2015
2016
(In thousands, except per share amounts)

Mar 31,
2016

Dec 31,
2015

Jun 30,
2015

Mar 31,
2015

Net sales . . . . . . . . $ 480,434 $688,029 $934,381 $848,484 $942,324 $1,271,245 $896,217 $469,209
Gross profit . . . . . .
38,981
Operating (loss)

186,280

484,365

262,945

191,165

231,438

164,483

63,589

income(1) . . . . . .

(765,412)

88,696

8,871

165,255

131,823

397,821

57,133

(70,113)

Net (loss)

income(1) . . . . . .

(719,860) 169,316

14,106

178,474

164,135

349,318

93,885

(60,917)

Net (loss) income

per share:
Basic . . . . . . . . . $
Diluted . . . . . . . $

(6.92) $
(6.92) $

1.64 $
1.63 $

0.14 $
0.14 $

1.75 $
1.73 $

1.62 $
1.60 $

3.46 $
3.41 $

0.93 $
0.92 $

(0.61)
(0.61)

(1) Included restructuring and asset impairment charges of $728.9 million for the three months ended

December 31, 2016, $4.3 million for the three months ended September 30, 2016, and
$85.5 million for the three months ended June 30, 2016. See Note 4 ‘‘Restructuring and Asset
Impairments’’ to our consolidated financial statements for the year ended December 31, 2016
included in this Annual Report on Form 10-K for additional information.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain ‘‘disclosure controls and procedures,’’ as such term is defined in Rules 13a-15(e) and

15d-15(e) under the Exchange Act, that are designed to ensure that information required to be
disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed,
summarized, and reported within the time periods specified in SEC rules and forms, and that such
information is accumulated and communicated to our management, including our Chief Executive
Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required
disclosure. In designing and evaluating our disclosure controls and procedures, management recognizes
that disclosure controls and procedures, no matter how well conceived and operated, can provide only
reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are
met. Additionally, in designing disclosure controls and procedures, our management is required to
apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and
procedures. The design of any disclosure controls and procedures is also based in part upon certain
assumptions about the likelihood of future events, and there can be no assurance that any design will
succeed in achieving its stated goals under all potential future conditions.

Based on their evaluation as of the end of the period covered by this Annual Report on

Form 10-K, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure
controls and procedures were effective as of that date.

Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate ‘‘internal control over

financial reporting,’’ as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Under the
supervision and with the participation of our management, including our Chief Executive Officer and
Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over
financial reporting as of December 31, 2016 based on the criteria established in Internal Control—
Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission (‘‘COSO’’). Our internal control over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles in the
United States of America.

Based on the results of our evaluation, our management concluded that our internal control over

financial reporting was effective as of December 31, 2016. The effectiveness of our internal control over
financial reporting as of December 31, 2016 has been audited by PricewaterhouseCoopers LLP, an
independent registered public accounting firm, as stated in its report which appears herein.

Changes in Internal Control over Financial Reporting

We carried out an evaluation, under the supervision and with the participation of management,

including our Chief Executive Officer and Chief Financial Officer, of our ‘‘internal control over
financial reporting’’ as defined in Exchange Act Rule 13a-15(f) and Rule 15d-15(f) to determine
whether any changes in our internal control over financial reporting occurred during the year ended
December 31, 2016 that materially affected, or are reasonably likely to material affect, our internal
control over financial reporting.

Based on that evaluation, there were no such changes in our internal control over financial
reporting that occurred during the quarter ended December 31, 2016 that materially affected, or are
reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations on Effectiveness of Controls

Our management, including our Chief Executive Officer and Chief Financial Officer, do not expect
that our disclosure controls and procedures or our internal control over financial reporting will prevent
all errors and all fraud. Control systems, no matter how well designed and operated, can provide only
reasonable, not absolute, assurance that the control systems’ objectives are being met. Further, the
design of any control system must reflect the fact that there are resource constraints, and the benefits
of all controls must be considered relative to their costs. Because of the inherent limitations in all
control systems, no evaluation of controls can provide absolute assurance that all control issues and
instances of fraud, if any, within our Company have been detected. These inherent limitations include
the realities that judgments in decision-making can be faulty and that breakdowns can occur because of
error or mistake. Control systems can also be circumvented by the individual acts of some persons, by
collusion of two or more people, or by management override of the controls. The design of any control
system is also based in part upon certain assumptions about the likelihood of future events, and there
can be no assurance that any design will succeed in achieving its stated goals under all potential future
conditions. Over time, controls may become inadequate because of changes in conditions or
deterioration in the degree of compliance with policies or procedures.

Item 9B. Other Information

None.

Item 10. Directors, Executive Officers, and Corporate Governance

PART III

Information concerning our board of directors and audit committee will appear in our 2017 Proxy

Statement, under the sections entitled ‘‘Directors’’ and ‘‘Corporate Governance.’’ The information in
that portion of the Proxy Statement is incorporated in this Annual Report on Form 10-K by reference.

For information with respect to our executive officers, see Item 1. ‘‘Business—Executive Officers of

the Registrant.’’

Information concerning Section 16(a) beneficial ownership reporting compliance will appear in our

2017 Proxy Statement under the section entitled ‘‘Section 16(a) Beneficial Ownership Reporting
Compliance.’’ The information in that portion of the Proxy Statement is incorporated in this Annual
Report on Form 10-K by reference.

We have adopted a Code of Business Conduct and Ethics that applies to all directors, officers, and

associates of First Solar. Information concerning this code will appear in our 2017 Proxy Statement
under the section entitled ‘‘Corporate Governance.’’ The information in that portion of the Proxy
Statement is incorporated in this Annual Report on Form 10-K by reference.

Item 11. Executive Compensation

Information concerning executive compensation and related information will appear in our 2017
Proxy Statement under the section entitled ‘‘Executive Compensation,’’ and information concerning the
compensation committee will appear under ‘‘Corporate Governance’’ and ‘‘Compensation Committee
Report.’’ The information in that portion of the Proxy Statement is incorporated in this Annual Report
on Form 10-K by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder

Matters

Information concerning the security ownership of certain beneficial owners and management and

related stockholder matters, including certain information regarding our equity compensation plans, will
appear in our 2017 Proxy Statement under the section entitled ‘‘Security Ownership of Certain
Beneficial Owners and Management and Related Stockholder Matters.’’ The information in that
portion of the Proxy Statement is incorporated in this Annual Report on Form 10-K by reference.

Equity Compensation Plans

The following table sets forth certain information as of December 31, 2016 concerning securities

authorized for issuance under our equity compensation plans:

Plan Category

Number of
Securities to be
Issued Upon
Exercise of

Weighted-Average
Exercise Price of

Outstanding Options Outstanding Options

and Rights (a)(1)

and Rights (b)(2)

Number of Securities
Remaining Available
for Future Issuance
Under Equity
Compensation Plans
(Excluding
Securities Reflected
in Column (a))(c)(3)

Equity compensation plans approved by our

stockholders . . . . . . . . . . . . . . . . . . . . . .

956,120

Equity compensation plans not approved by

our stockholders . . . . . . . . . . . . . . . . . . .

—

Total

. . . . . . . . . . . . . . . . . . . . . . . . . . .

956,120

$—

—

$—

5,909,110

—

5,909,110

(1) Includes 956,120 shares issuable upon vesting of restricted stock units (‘‘RSUs’’) granted under our

2010 and 2015 Omnibus Incentive Compensation Plans.

(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 764,588 shares of common stock reserved for future issuance under our stock purchase

plan for employees.

See Note 18 ‘‘Share-Based Compensation’’ to our consolidated financial statements for the year

ended December 31, 2016 included in this Annual Report on Form 10-K for further discussion on our
equity compensation plans.

Item 13. Certain Relationships and Related Transactions, and Director Independence

Information concerning certain relationships and related party transactions will appear in our

2017 Proxy Statement under the section entitled ‘‘Certain Relationships and Related Party
Transactions.’’ The information in that portion of the Proxy Statement is incorporated in this Annual
Report on Form 10-K by reference. Information concerning director independence will appear in our
2017 Proxy Statement under the section entitled ‘‘Corporate Governance.’’ The information in that
portion of the Proxy Statement is incorporated in this Annual Report on Form 10-K by reference.

Item 14. Principal Accounting Fees and Services

Information concerning principal accounting fees and services and the audit committee’s
pre-approval policies and procedures will appear in our 2017 Proxy Statement under the section
entitled ‘‘Principal Accounting Fees and Services.’’ The information in that portion of the Proxy
Statement is incorporated in this Annual Report on Form 10-K by reference.

Item 15. Exhibits and Financial Statement Schedules

PART IV

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

(1) Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Comprehensive Income
Consolidated Statements of Stockholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements

(2) Financial Statement Schedule

Schedule II—Valuation and Qualifying Accounts

SCHEDULE II: VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended December 31, 2016, 2015, and 2014

Description

Balance at
Beginning
of Year

Additions

Deductions

(In thousands)

Balance
at End of
Year

Allowance for doubtful accounts receivable:
Year ended December 31, 2014 . . . . . . . . . . . . . . . . . . . . .
Year ended December 31, 2015 . . . . . . . . . . . . . . . . . . . . .
Year ended December 31, 2016 . . . . . . . . . . . . . . . . . . . . .

$12,310
7,108
2

$24
11
—

$(5,226)
(7,117)
(2)

$7,108
2
—

(3) Exhibits. See Item 15(b) below.

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

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the

registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized on February 22, 2017.

SIGNATURES

FIRST SOLAR, INC.

February 22, 2017

By: /s/ BRYAN SCHUMAKER

Name: Bryan Schumaker
Title: Chief Accounting Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed

below by the following persons on behalf of the registrant and in the capacities and on the dates
indicated.

Signature

Title

Date

/s/ MARK R. WIDMAR

Mark R. Widmar

/s/ ALEXANDER R. BRADLEY

Alexander R. Bradley

/s/ MICHAEL J. AHEARN

Michael J. Ahearn

/s/ SHARON L. ALLEN

Sharon L. Allen

/s/ RICHARD D. CHAPMAN

Richard D. Chapman

/s/ GEORGE A. HAMBRO

George A. Hambro

/s/ CRAIG KENNEDY

Craig Kennedy

Chief Executive Officer and Director

February 22, 2017

Chief Financial Officer

February 22, 2017

Chairman of the Board of Directors

February 22, 2017

Director

February 22, 2017

Director

February 22, 2017

Director

February 22, 2017

Director

February 22, 2017

Signature

Title

Date

/s/ JAMES F. NOLAN

James F. Nolan

/s/ WILLIAM J. POST

William J. Post

/s/ J. THOMAS PRESBY

J. Thomas Presby

/s/ PAUL H. STEBBINS

Paul H. Stebbins

/s/ MICHAEL SWEENEY

Michael Sweeney

Director

February 22, 2017

Director

February 22, 2017

Director

February 22, 2017

Director

February 22, 2017

Director

February 22, 2017

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of First Solar, Inc.

In our opinion, the consolidated financial statements listed in the index appearing under

Item 15(a)(1) present fairly, in all material respects, the financial position of First Solar, Inc. and its
subsidiaries at December 31, 2016 and December 31, 2015, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 2016 in conformity with
accounting principles generally accepted in the United States of America. In addition, in our opinion,
the financial statement schedule listed in the index appearing under Item 15(a)(2) presents fairly, in all
material respects, the information set forth therein when read in conjunction with the related
consolidated financial statements. Also in our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as of December 31, 2016, based on criteria
established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission (‘‘COSO’’). The Company’s management is responsible for
these financial statements and financial statement schedule, for maintaining effective internal control
over financial reporting and for its assessment of the effectiveness of internal control over financial
reporting, included in Management’s Report on Internal Control over Financial Reporting appearing
under Item 9A. Our responsibility is to express opinions on these financial statements, on the financial
statement schedule, and on the Company’s internal control over financial reporting based on our
integrated audits. We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the financial statements are free of material
misstatement and whether effective internal control over financial reporting was maintained in all
material respects. Our audits of the financial statements included examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall financial statement
presentation. Our audit of internal control over financial reporting included obtaining an understanding
of internal control over financial reporting, assessing the risk that a material weakness exists, and
testing and evaluating the design and operating effectiveness of internal control based on the assessed
risk. Our audits also included performing such other procedures as we considered necessary in the
circumstances. We believe that our audits provide a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable

assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles. A company’s internal
control over financial reporting includes those policies and procedures that (i) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the company are being made only
in accordance with authorizations of management and directors of the company; and (iii) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or

detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject
to the risk that controls may become inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.

/s/ PricewaterhouseCoopers LLP

Phoenix, Arizona
February 22, 2017

FIRST SOLAR, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

December 31,

2016

2015

Current assets:

ASSETS

Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Marketable securities
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable trade, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable, unbilled and retainage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance of systems parts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred project costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes receivable, affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property, plant and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PV solar power systems, net
Project assets and deferred project costs
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax assets, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted cash and investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investments in unconsolidated affiliates and joint ventures . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other intangibles, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes receivable, affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$1,347,155
607,991
266,687
205,530
363,219
62,776
701,105
15,000
217,157

3,786,620
629,142
448,601
800,770
252,655
371,307
242,361
14,462
87,970
100,512
54,737
78,076

$1,126,826
703,454
500,629
59,171
380,424
136,889
187,940
1,276
248,977

3,345,586
1,284,136
93,741
1,111,137
357,693
333,878
399,805
84,985
110,002
107,759
17,887
69,722

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$6,867,213

$7,316,331

Current liabilities:

LIABILITIES AND STOCKHOLDERS’ EQUITY

Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current portion of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Billings in excess of costs and estimated earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments and billings for deferred project costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued solar module collection and recycling liability . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 148,730
5,288
262,977
27,966
115,623
284,440
54,683

899,707
166,277
160,422
428,120

$ 337,668
1,330
409,452
38,090
87,942
28,580
57,738

960,800
163,407
251,325
392,312

Total liabilities

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1,654,526

1,767,844

Commitments and contingencies
Stockholders’ equity:

Common stock, $0.001 par value per share; 500,000,000 shares authorized; 104,034,731 and

101,766,797 shares issued and outstanding at December 31, 2016 and 2015, respectively . .
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive (loss) income . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

104
2,759,211
2,463,279
(9,907)

102
2,742,795
2,790,110
15,480

Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5,212,687

5,548,487

Total liabilities and stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$6,867,213

$7,316,331

See accompanying notes to these consolidated financial statements.

FIRST SOLAR, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$2,951,328
2,247,349

$3,578,995
2,659,728

$3,391,187
2,566,246

Years Ended December 31,
2015

2014

2016

703,979

919,267

824,941

Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating expenses:

Research and development . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative . . . . . . . . . . . . . . . . . . . . .
Production start-up . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring and asset impairments . . . . . . . . . . . . . . . . . . .

124,762
261,994
1,021
818,792

Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1,206,569

Operating (loss) income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency loss, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . .
Other income (expense), net

(502,590)
(14,007)
25,193
(20,538)
40,252

130,593
255,192
16,818
—

402,603

516,664
(6,868)
22,516
(6,975)
(5,502)

(Loss) income before taxes and equity in earnings of

unconsolidated affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax (expense) benefit . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity in earnings of unconsolidated affiliates, net of tax . . . . . .

(471,690)
(58,219)
171,945

519,835
6,156
20,430

143,969
253,827
5,146
—

402,942

421,999
(1,461)
18,030
(1,982)
(4,485)

432,101
(31,188)
(4,949)

Net (loss) income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ (357,964) $ 546,421

$ 395,964

Net (loss) income per share:

Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(3.48) $

5.42

5.37

3.96

3.90

Weighted-average number of shares used in per share

calculations:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

102,866

100,886

101,815

100,048

101,643

See accompanying notes to these consolidated financial statements.

FIRST SOLAR, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

Years Ended December 31,
2015

2016

2014

Net (loss) income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive (loss) income, net of tax:

Foreign currency translation adjustments . . . . . . . . . . . . . . . . . . .
Unrealized (loss) gain on marketable securities and restricted

$(357,964) $546,421

$395,964

(7,409)

(16,432)

(19,147)

investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized gain (loss) on derivative instruments . . . . . . . . . . . . . .

(21,713)
3,735

(15,415)
(2,813)

Other comprehensive (loss) income, net of tax . . . . . . . . . . . . . . . . .

(25,387)

(34,660)

90,741
4,322

75,916

Comprehensive (loss) income . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$(383,351) $511,761

$471,880

See accompanying notes to these consolidated financial statements.

100

FIRST SOLAR, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands)

Balance, December 31, 2013 . .
Net income . . . . . . . . . . . .
Other comprehensive

Common Stock

Amount

Additional
Paid-In
Capital

Accumulated
Earnings

Accumulated
Other
Comprehensive
(Loss) Income

Total
Equity

99,506
—

$100
—

$2,646,022
—

$1,847,725
395,964

$(25,776)
—

$4,468,071
395,964

75,916

income . . . . . . . . . . . . . .

—

Common stock issued for

share-based compensation

1,126

Share-based compensation

tax benefits . . . . . . . . . . .

—

Tax withholding related to

vesting of restricted stock

(344)

Share-based compensation

expense . . . . . . . . . . . . .

—

Balance, December 31, 2014 . .
Net income . . . . . . . . . . . .
Other comprehensive loss . .
Common stock issued for

100,288
—
—

share-based compensation

1,782

Share-based compensation

tax benefits . . . . . . . . . . .

—

Tax withholding related to

vesting of restricted stock

(303)

Share-based compensation

expense . . . . . . . . . . . . .

—

Balance, December 31, 2015 . .

101,767

Cumulative-effect

adjustment for the
adoption of ASU 2016-09
Net loss . . . . . . . . . . . . . . .
Other comprehensive loss . .
Common stock issued for

—
—
—

share-based compensation

2,574

Tax withholding related to

vesting of restricted stock

(306)

Share-based compensation

expense . . . . . . . . . . . . .

—

100
—
—

—

102

—
—
—

—

4,950

24,505

(23,100)

45,181

2,697,558
—
—

5,886

14,567

(18,189)

42,973

—

2,243,689
546,421
—

50,140
—
(34,660)

—

4,950

24,505

(23,100)

45,181

4,991,487
546,421
(34,660)

5,888

14,567

(18,189)

42,973

2,742,795

2,790,110

15,480

5,548,487

2,420
—
—

6,318

(20,407)

28,085

31,133
(357,964)
—

—
—
(25,387)

—

33,553
(357,964)
(25,387)

6,320

(20,407)

28,085

Balance, December 31, 2016 . .

104,035

$104

$2,759,211

$2,463,279

$ (9,907)

$5,212,687

See accompanying notes to these consolidated financial statements.

101

FIRST SOLAR, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

Cash flows from operating activities:
Net (loss) income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net (loss) income to cash provided by (used in) operating activities:

Depreciation, amortization and accretion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment of long-lived assets, intangible assets and goodwill . . . . . . . . . . . . . . . . . . . .
Share-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity in earnings of unconsolidated affiliates, net of tax . . . . . . . . . . . . . . . . . . . . . . .
Distributions received from equity method investments
. . . . . . . . . . . . . . . . . . . . . . . .
Remeasurement of monetary assets and liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on sales of marketable securities and restricted investments . . . . . . . . . . . . . . . . . .
Other, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in operating assets and liabilities:

Accounts receivable, trade, unbilled and retainage . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories and balance of systems parts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Project assets and deferred project costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax receivable and payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses and other liabilities
Accrued solar module collection and recycling liability . . . . . . . . . . . . . . . . . . . . . . .

Years Ended December 31,

2016

2015

2014

$ (357,964)

$ 546,421

$ 395,964

230,940
838,467
28,712
(171,945)
18,562
5,442
123,864
(41,632)
13,863

92,747
9,574
95,785
(592,204)
(19,423)
(59,640)
(191,642)
179,610
3,637

257,825
14,593
44,899
(20,430)
—
(4,229)
(17,534)
—
520

(340,292)
(38,635)
113,537
(857,529)
(8,484)
(13,281)
143,872
(67,236)
(79,226)

245,798
5,228
43,810
4,949
—
7,477
14,068
—
1,780

462,630
(36,805)
(99,870)
143,047
(5,371)
(1,131)
(53,057)
(419,053)
26,052

Net cash provided by (used in) operating activities

. . . . . . . . . . . . . . . . . . . . . . . . . . . .

206,753

(325,209)

735,516

Cash flows from investing activities:

Purchases of property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . .
Purchases of marketable securities and restricted investments
Proceeds from sales and maturities of marketable securities and restricted investments . . . . .
Proceeds from sales of equity and cost method investments . . . . . . . . . . . . . . . . . . . . . .
Distributions received from equity method investments
. . . . . . . . . . . . . . . . . . . . . . . .
Investments in notes receivable, affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments received on notes receivable, affiliate . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisitions, net of cash acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(229,452)
(422,609)
525,515
291,502
1,502
(4,760)
3,053
(10,272)
(9,959)

(166,438)
(556,479)
353,359
—
238,980
(55,163)
57,866
—
(28,302)

(257,549)
(305,396)
227,900
—
—
(72,692)
49,517
(4,306)
(25,292)

Net cash provided by (used in) investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

144,520

(156,177)

(387,818)

Cash flows from financing activities:

Repayment of borrowings under revolving credit facility . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from borrowings under revolving credit facility
. . . . . . . . . . . . . . . . . . . . . . .
Repayment of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from borrowings under long-term debt, net of discounts and issuance costs
. . . . . .
Repayment of sale-leaseback financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sale-leaseback financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments of tax withholdings for restricted shares
Contingent consideration payments and other financing activities . . . . . . . . . . . . . . . . . .

(550,000)
550,000
(137,367)
26,816
(5,276)
—
(20,407)
(159)

—
—
(47,078)
146,027
(3,702)
44,718
(18,189)
(20,569)

Net cash (used in) provided by financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(136,393)

101,207

Effect of exchange rate changes on cash, cash equivalents and restricted cash . . . . . . . . . . . .

(6,306)

(19,272)

—
—
(60,063)
65,563
—
—
(23,100)
(29,307)

(46,907)

(19,487)

Net increase (decrease) in cash, cash equivalents and restricted cash . . . . . . . . . . . . . . . . .
Cash, cash equivalents and restricted cash, beginning of the period . . . . . . . . . . . . . . . . . .

208,574
1,207,116

(399,451)
1,606,567

281,304
1,325,263

Cash, cash equivalents and restricted cash, end of the period . . . . . . . . . . . . . . . . . . . . . .

$1,415,690

$1,207,116

$1,606,567

Supplemental disclosure of noncash investing and financing activities:

Equity interests retained from the partial sale of project assets . . . . . . . . . . . . . . . . . . . .
Property, plant and equipment acquisitions funded by liabilities . . . . . . . . . . . . . . . . . . .
Acquisitions currently or previously funded by liabilities and contingent consideration . . . . . .
Sale of equity method investment funded by note receivable, affiliate . . . . . . . . . . . . . . . .

$
$
$
$

(3,697)
28,687
30,092
50,000

$ 324,430
17,749
$
$
17,988
$

$ 220,679
61,130
$
53,894
$
—
— $

See accompanying notes to these consolidated financial statements.

102

FIRST SOLAR, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. First Solar and Its Business

We are a leading global provider of comprehensive photovoltaic (‘‘PV’’) solar energy solutions. We

design, manufacture, and sell PV solar modules with an advanced thin-film semiconductor technology
and also develop, design, construct, and sell PV solar power systems that primarily use the modules we
manufacture. Additionally, we provide operations and maintenance (‘‘O&M’’) services to system owners
that use solar modules manufactured by us or by third-party manufacturers. We have substantial,
ongoing research and development efforts focused on module and system-level innovations. We are the
world’s largest thin-film PV solar module manufacturer and one of the world’s largest PV solar module
manufacturers. Our mission is to create enduring value by enabling a world powered by clean,
affordable solar energy.

2. Summary of Significant Accounting Policies

Basis of Presentation. These consolidated financial statements include the accounts of First

Solar, Inc. (‘‘FSI’’) and all of its subsidiaries and are prepared in accordance with accounting principles
generally accepted in the United States of America (‘‘U.S. GAAP’’). We eliminated all intercompany
transactions and balances during consolidation. Investments in unconsolidated affiliates in which we
have less than a controlling interest are accounted for using the equity or cost method of accounting.
Certain prior year balances have been reclassified to conform to the current year presentation. Such
reclassifications primarily related to the adoptions of Accounting Standards Update (‘‘ASU’’) 2016-09
and ASU 2016-18 as further described in Note 3 ‘‘Recent Accounting Pronouncements’’ to our
consolidated financial statements.

Use of Estimates. The preparation of consolidated financial statements in conformity with
U.S. GAAP requires us to make estimates and assumptions that affect the amounts reported in our
consolidated financial statements and the accompanying notes. On an ongoing basis, we evaluate our
estimates, including those related to percentage-of-completion revenue recognition, inventory valuation,
recoverability of project assets and PV solar power systems, estimates of future cash flows from and the
economic useful lives of long-lived assets, asset retirement obligations (‘‘AROs’’), certain accrued
liabilities, income taxes and tax valuation allowances, reportable segment allocations, product
warranties, solar module collection and recycling liabilities, applying the acquisition method of
accounting for business combinations, and testing goodwill for impairment. Despite our intention to
establish accurate estimates and reasonable assumptions, actual results could differ materially from
these estimates and assumptions.

Fair Value Measurements. We measure certain financial assets and liabilities at fair value. As of

December 31, 2016, our financial assets and liabilities consisted principally of cash and cash
equivalents, marketable securities, trade accounts receivable, unbilled accounts receivable and retainage,
notes receivable, restricted cash and investments, derivative contracts, accounts payable, income taxes
payable, accrued expenses, and debt. Fair value is defined as the price that would be received from the
sale of an asset or paid to transfer a liability (i.e., an exit price) on the measurement date in an orderly
transaction between market participants in the principal or most advantageous market for the asset or
liability. Accounting standards include disclosure requirements around fair values used for certain
financial instruments and establish a fair value hierarchy. The hierarchy prioritizes valuation inputs into

103

FIRST SOLAR, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

three levels based on the extent to which inputs used in measuring fair value are observable in the
market. Each fair value measurement is reported in one of three levels:

• Level 1—Valuation techniques in which all significant inputs are unadjusted quoted prices from

active markets for assets or liabilities that are identical to the assets or liabilities being
measured.

• Level 2—Valuation techniques in which significant inputs include quoted prices from active

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

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

When available, we use quoted market prices to determine the fair value of an asset or liability. If
quoted market prices are not available, we measure fair value using valuation techniques that use, when
possible, current market-based or independently-sourced market parameters, such as interest rates and
currency rates.

Cash and Cash Equivalents. We consider all highly liquid investments with original maturities of

90 days or less at the time of purchase to be cash equivalents.

Marketable Securities—Current and Noncurrent and Restricted Investments. We determine the
classification of our marketable securities and restricted investments at the time of purchase and
reevaluate such designation at each balance sheet date. We have classified our marketable securities
and restricted investments as available-for-sale. These marketable securities and restricted investments
are recorded at fair value and unrealized gains and losses are recorded to ‘‘Accumulated other
comprehensive (loss) income’’ until realized. Realized gains and losses on sales of these marketable
securities and restricted investments are reported in earnings, computed using the specific identification
method.

We may sell marketable securities prior to their stated maturities after consideration of our

liquidity requirements. We view unrestricted securities with maturities beyond 12 months as available to
support current operations and, accordingly, classify all such securities as current assets under
‘‘Marketable securities’’ in the consolidated balance sheets. Restricted investments consist of long-term
duration marketable securities that we hold through a custodial account to fund the estimated future
costs of our solar module collection and recycling obligations. Accordingly, we classify all restricted
investments as noncurrent assets under ‘‘Restricted cash and investments’’ in the consolidated balance
sheets.

All of our available-for-sale marketable securities and restricted investments are subject to a
periodic impairment review. We consider a marketable security or restricted investment to be impaired
when its fair value is less than its carrying cost, in which case we would further review the marketable
security or restricted investment to determine if it is other-than-temporarily impaired. When we
evaluate a marketable security or restricted investment for other-than-temporary impairment, we review
factors such as the length of time and the extent to which its fair value has been below its cost basis,

104

FIRST SOLAR, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

the financial conditions 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 or restricted investment before
we have recovered its cost basis. If a marketable security or restricted investment were
other-than-temporarily impaired, we would write it down through ‘‘Other income (expense), net’’ to its
impaired value and establish that value as a new cost basis for the marketable security or restricted
investment.

Derivative Instruments. We recognize derivative instruments on our consolidated balance sheets at

their fair value. On the date that we enter into a derivative contract, we designate the derivative
instrument as a fair value hedge, a cash flow hedge, a hedge of a net investment in a foreign operation,
or a derivative instrument that will not be accounted for using hedge accounting methods. As of
December 31, 2016 and 2015, all of our derivative instruments were designated either as cash flow
hedges or as derivative instruments not accounted for using hedge accounting methods.

We record changes in the fair value of a derivative instrument that is highly effective and that is

designated and qualifies as a cash flow hedge in ‘‘Other comprehensive (loss) income, net of tax’’ until
our earnings are affected by the variability of cash flows of the underlying hedge. We record any hedge
ineffectiveness and amounts excluded from effectiveness testing in current period earnings within
‘‘Other income (expense), net.’’ We report changes in the fair values of derivative instruments that are
not designated or do not qualify for hedge accounting in current period earnings. We classify cash flows
from derivative instruments on the consolidated statements of cash flows in the same category as the
item being hedged or on a basis consistent with the nature of the instrument.

We formally document all relationships between hedging instruments and the underlying hedged

items, as well as our risk-management objective and strategy for undertaking various hedge
transactions, at the inception of the hedge. We support all of our derivatives with documentation
specifying the underlying exposure being hedged. We also formally assess (both at the hedge’s inception
and on an ongoing basis) whether the derivative instruments that we use in hedging transactions have
been highly effective in offsetting changes in the fair value or cash flows of the underlying hedged
items and whether those derivatives are expected to remain highly effective in future periods. When we
determine that a derivative instrument is not highly effective as a hedge, we discontinue hedge
accounting prospectively. In all situations in which we discontinue hedge accounting and the derivative
instrument remains outstanding, we will carry the derivative instrument at its fair value on our
consolidated balance sheets and recognize subsequent changes in its fair value in our current period
earnings.

Receivables and Allowance for Doubtful Accounts. The carrying value of our receivables, net of the

allowance for doubtful accounts, represents their estimated net realizable value. We estimate our
allowance for doubtful accounts based on historical collection trends, the age of outstanding
receivables, and existing economic conditions. If events or changes in circumstances indicate that
specific receivable balances may be impaired, further consideration is given to the collectability of those
balances, and the allowance is adjusted accordingly. Past-due receivable balances are written off when
our internal collection efforts have been unsuccessful.

Retainage. Certain of our engineering, procurement, and construction (‘‘EPC’’) contracts for PV

solar power systems we build contain retainage provisions. 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. We consider whether collectability of such
retainage is reasonably assured in connection with our overall assessment of the collectability of
amounts due or that will become due under our EPC contracts. Retainage expected to be collected

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within 12 months is classified within ‘‘Accounts receivable, unbilled and retainage’’ on the consolidated
balance sheets. Retainage expected to be collected after 12 months is classified within ‘‘Other assets’’
on the consolidated balance sheets. After we have met the EPC contract requirements to bill for
retainage, we will reclassify such amounts to ‘‘Accounts receivable trade, net.’’

Inventories—Current and Noncurrent. We report our inventories at the lower of cost or net

realizable value. We determine cost on a first-in, first-out basis and include both the costs of acquisition
and the costs of manufacturing in our inventory costs. These costs include direct material, direct labor,
and indirect manufacturing costs, including depreciation and amortization. Our capitalization of costs
into inventory is based on the normal utilization of our plants. If our plant utilization is abnormally
low, the portion of our indirect manufacturing costs related to the abnormal utilization level is
expensed as incurred. Finished goods inventory is comprised exclusively of solar modules that have not
yet been installed in a solar power plant under construction or sold to a third-party customer.

We regularly review the cost of inventories, including noncurrent inventories, against their
estimated net realizable value and record write-downs if any inventories have costs in excess of their
net realizable values. We also regularly evaluate the quantities and values of our inventories, including
noncurrent inventories, in light of current market conditions and market trends, among other factors,
and record write-downs for any quantities in excess of demand and for any new obsolescence. This
evaluation considers the use of modules in our systems business, historical usage, expected demand,
anticipated sales prices, desired strategic raw material requirements, new product development
schedules, the effect new products might have on the sale of existing products, product obsolescence,
customer concentrations, product merchantability, and other factors. Market conditions are subject to
change, and actual consumption of our inventory could differ from forecasted demand.

As needed, we may purchase a critical raw material that is used in our core production process in
quantities that exceed anticipated consumption within our normal operating cycle (which is 12 months).
We classify such raw materials that we do not expect to consume within our normal operating cycle as
noncurrent.

Balance of Systems Parts. Balance of systems (‘‘BoS’’) parts represent mounting, electrical, and
other construction parts purchased for PV solar power systems to be constructed or currently under
construction, which we hold title to and are not yet installed in a system. Such construction parts
include items such as posts, tilt brackets, tables, harnesses, combiner boxes, inverters, cables, tracker
equipment, and other parts we may purchase or assemble for the systems we construct. We carry these
parts at the lower of cost or net realizable value, with such value being based primarily on
recoverability through installation in a system or recoverability through a sales agreement. BoS parts do
not include any solar modules that we manufacture.

Asset Impairments. We assess long-lived assets classified as ‘‘held and used,’’ including our
property, plant and equipment, project assets, deferred project costs, PV solar power systems, and
intangible assets for impairment whenever events or changes in circumstances arise, including
consideration of technological obsolescence, that may indicate that the carrying amount of such assets
may not be recoverable. These events and changes in circumstances may include a significant decrease
in the market price of a long-lived asset; a significant adverse change in the extent or manner in which
a long-lived asset is being used or in its physical condition; a significant adverse change in the business
climate that could affect the value of a long-lived asset; an accumulation of costs significantly in excess
of the amount originally expected for the acquisition or construction of a long-lived asset; a current-
period operating or cash flow loss combined with a history of such losses or a projection of future
losses associated with the use of a long-lived asset; or a current expectation that, more likely than not,

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a long-lived asset will be sold or otherwise disposed of significantly before the end of its previously
estimated useful life. For purposes of recognition and measurement of an impairment loss, long-lived
assets are grouped with other assets and liabilities at the lowest level for which identifiable cash flows
are largely independent of the cash flows of other assets and liabilities.

When impairment indicators are present, we compare undiscounted future cash flows, including

the eventual disposition of the asset group at market value, to the asset group’s carrying value to
determine if the asset group is recoverable. If the carrying value of the asset group exceeds the
undiscounted future cash flows, we measure any impairment by comparing the fair value of the asset
group to its carrying value. Fair value is generally determined by considering (i) internally developed
discounted cash flows for the asset group, (ii) actual third-party valuations, and/or (iii) information
available regarding the current market value for such assets. If the fair value of an asset group is
determined to be less than its the carrying value, an impairment in the amount of the difference is
recorded in the period that the impairment indicator occurs. Estimating future cash flows requires
significant judgment, and such projections may vary from the cash flows eventually realized.

We consider a long-lived asset to be abandoned after we have ceased use of such asset and we
have no intent to use or repurpose the asset in the future. Abandoned long-lived assets are recorded at
their salvage value, if any.

We classify long-lived assets we plan to sell, excluding project assets and PV solar power systems,
as held for sale on our consolidated balance sheets only after certain criteria have been met including:
(i) management has the authority and commits to a plan to sell the asset; (ii) the asset is available for
immediate sale in its present condition; (iii) an active program to locate a buyer and the plan to sell
the asset have been initiated; (iv) the sale of the asset is probable within 12 months; (v) the asset is
being actively marketed at a reasonable sales price relative to its current fair value; and (vi) it is
unlikely that the plan to sell will be withdrawn or that significant changes to the plan will be made. We
record assets held for sale at the lower of their carrying value or fair value less costs to sell. If, due to
unanticipated circumstances, such assets are not sold in the 12 months after being classified as held for
sale, then held for sale classification will continue as long as the above criteria are still met.

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 expenditures that
substantially add to the value of or substantially extend the useful life of the assets. We expense repair
and maintenance costs at the time we incur them.

We begin depreciation for our property, plant and equipment when they are placed in service. We
consider such assets to be placed in service when they are both in the location and condition for their
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

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reassessed whenever applicable facts and circumstances indicate a change in the estimated useful life of
such asset has occurred.

Buildings and building improvements . . . . . . . . . . . . . . . . . . . . . . . . . .
Manufacturing machinery and equipment . . . . . . . . . . . . . . . . . . . . . . .
Furniture, fixtures, computer hardware, and computer software . . . . . . .
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Useful Lives
in Years

25 - 40
5 - 7
3 - 7
up to 15

As further described in Note 4 ‘‘Restructuring and Asset Impairments,’’ we recently introduced our
next generation module technology, Series 6TM (‘‘Series 6’’), which is expected to enable the production
of modules with a larger form factor, better product attributes, and a lower cost structure. Accordingly,
any of our existing Series 4TM (‘‘Series 4’’) manufacturing machinery and equipment that cannot be
repurposed for Series 6 manufacturing is expected to be removed from service at various dates through
December 31, 2018 as we transition our production lines to Series 6 technology. The useful lives of
such Series 4 assets have been adjusted to align with the timing of the manufacturing transition for the
individual production lines. Our Series 6 manufacturing machinery and equipment is expected to have a
useful life of up to 10 years when placed in service.

PV Solar Power Systems. PV solar power systems represent solar systems that we may temporarily

own and operate after being placed in 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 systems prior to being placed in service is accounted for as a reduction in
the related carrying value of the assets. We begin depreciation for PV solar power systems when they
are placed in service. We compute depreciation expense for the 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 15 to 25
years.

We sell energy generated by our PV solar power systems under PPAs or on an open contract basis.

We recognize revenue from such sales at the time the energy is delivered to our customers or the grid
(in the case of sales made on an open contract basis). For the years ended December 31, 2016 and
2015, we recognized revenue from PV solar power system energy sales of $25.9 million and
$9.8 million, respectively.

Asset Retirement Obligations. We develop, construct, and operate certain project assets and PV

solar power systems under power purchase or other agreements that include a requirement for the
removal of the assets at the end of the term of the agreement. We recognize AROs at fair value in the
period in which they are incurred, and the carrying amounts of the related project assets or PV solar
power systems are correspondingly increased. AROs represent the present value of the expected costs
and timing of the related decommissioning activities. At December 31, 2016 and 2015, our AROs
totaled $22.4 million and $15.9 million, respectively.

Internal-Use Software Costs. We capitalize the costs related to computer software obtained or

developed for internal use. Software obtained for internal use has generally been enterprise-level
business and finance software that we customize to meet our specific operational requirements. The
capitalized costs are amortized on a straight-line basis over the estimated useful life of the software,
ranging from 3 to 7 years.

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Interest Capitalization. We capitalize interest as part of the historical cost of acquiring or

constructing certain assets, including property, plant and equipment, project assets, and PV solar power
systems, during the period of time required to place the assets in service or, in the case of project
assets, to sell the assets to customers. Interest capitalized for property, plant and equipment or PV
solar power systems is depreciated over the estimated useful life of the related assets when they are
placed in service. We charge interest capitalized for project assets to cost of sales when such assets are
sold and we have met all revenue recognition criteria. We capitalize interest to the extent that
expenditures to acquire, construct, or develop an asset have occurred and interest cost has been
incurred. We cease capitalization of interest for assets in development or under construction if the
assets are substantially complete or if we have sold such assets.

Project Assets. Project assets primarily consist of costs related to solar power projects in various
stages of development that are capitalized prior to entering into a definitive sales agreement for the
projects, including projects that may have begun commercial operation under PPAs and are actively
marketed and intended to be sold. These project related costs include costs for land, development, and
construction of a PV solar power system. Development costs may include legal, consulting, permitting,
transmission upgrade, interconnection, and other similar costs. Once we enter into a definitive sales
agreement, we reclassify project assets to deferred project costs on our consolidated balance sheets
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 and
deferred project costs to cost of sales after each respective project is sold to a customer and all revenue
recognition criteria have been met (matching the expensing of costs to the underlying revenue
recognition method). In addition, we present all expenditures related to the development and
construction of project assets or deferred project costs, whether fully or partially owned, as a
component of cash flows from operating activities. 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.

We review project assets for impairment whenever events or changes in circumstances indicate that
the carrying amount may not be recoverable. We consider a project commercially viable or recoverable
if it is anticipated to be sold for a profit once it is either fully developed or fully constructed. We
consider a partially developed or partially constructed project commercially viable or recoverable if the
anticipated selling price is higher than the carrying value of the related project assets. We examine a
number of factors to determine if the project is expected to be recoverable, including whether there are
any changes in environmental, ecological, permitting, market pricing, or regulatory conditions that may
impact the project. Such changes could cause the costs of the project to increase or the selling price of
the project to decrease. If a project is not considered recoverable, we impair the respective project
assets and adjust the carrying value to the estimated fair value, with the resulting impairment recorded
within ‘‘Selling, general and administrative’’ expense.

Deferred Project Costs. 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 are expected within the next 12 months.

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If a project is completed and begins commercial operation prior to entering into or the closing of a

sales arrangement, the completed project will remain in project assets or deferred project costs until
the earliest of the closing of the sale of such project, our decision to temporarily hold such project, or
one year from the project’s commercial operations date. Any income generated by a project while it
remains within project assets or deferred project costs is accounted for as a reduction to our basis in
the project, which at the time of sale and meeting all revenue recognition criteria will be recorded
within cost of sales.

The following table summarizes the balance sheet classification of project assets and deferred

project costs:

Milestone

Arrangements Accounted for under
ASC 360-20 (Real Estate Sales)

Arrangements Accounted for under
ASC 605-35 (Long-Term Construction
Contracts)

Execution of a definitive sales

Deferred project costs

arrangement, but all revenue
recognition criteria are not yet met

Pre-execution of a definitive sales

Project asset

arrangement

Deferred project costs
(recoverable pre-contract costs)

Accounts Receivable, Unbilled. 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 PV solar power
systems, which include the sale of such assets over the construction period using applicable accounting
methods. One such method is the percentage-of-completion method, which recognizes revenue and
gross profit as work is performed based on the relationship between actual costs incurred compared to
the total estimated costs for the contract. Under this accounting method, revenue could be recognized
under applicable revenue recognition criteria 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 customer 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.

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

Payments and Billings for Deferred Project Costs. The liability ‘‘Payments and billings for deferred

project costs’’ represents 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 costs are included within
deferred project costs. We classify such amounts as current if all revenue recognition criteria are
expected to be met within the next 12 months, consistent with the classification of the associated
deferred project costs.

Deferred Revenue. Deferred revenue consists of payments received in advance of meeting all
revenue recognition criteria (with the exception of payments and billings for deferred project costs) for

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the sale of solar modules or services performed under our O&M agreements. We recognize deferred
revenue as net sales after all revenue recognition criteria are met.

Business Combinations. We account for business combinations using the acquisition method of

accounting and record intangible assets separate from goodwill. Such intangible assets are recorded at
fair value based on estimates as of the date of acquisition. Goodwill is recorded as the residual amount
of the purchase price consideration less the fair value assigned to the individual assets acquired and
liabilities assumed as of the date of acquisition. We charge acquisition related costs that are not part of
the purchase price consideration to general and administrative expense as they are incurred. These
costs typically include transaction and integration costs, such as legal, accounting, and other
professional fees. Contingent consideration, which represents an obligation of the acquirer to transfer
additional assets or equity interests to the former owner as part of the exchange if specified future
events occur or conditions are met, is accounted for at fair value either as a liability or as equity
depending on the terms of the acquisition agreement.

Goodwill. 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. If
necessary, we would record any impairment in accordance with Accounting Standards Codification
(‘‘ASC’’) 350, Intangibles—Goodwill and Other. We perform impairment tests between scheduled annual
tests in the fourth quarter 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.

We may first make a qualitative assessment of whether it is more likely than not that a reporting

The first step in a two-step impairment test is the comparison of the fair value of a reporting unit
with its carrying amount, including goodwill. Our reporting units consist of our module manufacturing
(or ‘‘components’’) business and our fully integrated systems business. In accordance with the
authoritative guidance over fair value measurements, we define the fair value of a reporting unit as the
price that would be received to sell the unit as a whole in an orderly transaction between market
participants at the measurement date. We primarily use the income approach methodology of valuation,
which includes the discounted cash flow method, to estimate the fair value of our reporting units.

Significant management judgment is required when estimating the fair value of our reporting units

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See Note 6 ‘‘Goodwill and Intangible Assets’’ for additional information on our goodwill

impairment tests.

In-Process Research and Development.

In-process research and development (‘‘IPR&D’’) is initially

capitalized at fair value as an intangible asset with an indefinite life and assessed for impairment
thereafter. When the IPR&D project is complete, it is reclassified as a definite-lived intangible asset
and amortized over its estimated useful life. If an IPR&D project is abandoned, we record an
impairment charge for the carrying value of the related intangible asset in the period it is abandoned.

Product Warranties. We provide a limited PV solar module warranty covering defects in materials

As an alternative form of our standard limited module power output warranty, we also offer an

aggregated or system-level limited module performance warranty. This system-level limited module
performance warranty is designed for utility-scale systems and provides 25-year system-level energy
degradation protection. In addition, this warranty represents a practical expedient to address the
challenge of identifying, from the potential millions of modules installed in a utility-scale system,
individual modules that may be performing below warranty thresholds by focusing on the aggregate
energy generated by the system rather than the power output of individual modules. The system-level
module performance warranty typically is calculated as a percentage of a system’s expected energy
production, adjusted for certain actual site conditions, with the warranted level of performance
declining each year in a linear fashion, but never falling below 80% during the term of the warranty. In
resolving claims under the system-level limited module performance warranty to restore the system to
warranted performance levels, we first must validate that the root cause of the issue is due to module
performance; we then have the option of either repairing or replacing the covered modules, providing
supplemental modules, or making a cash payment. Consistent with our limited module power output
warranty, when we elect to satisfy a warranty claim by providing replacement or supplemental modules
under the system-level module performance warranty, we do not have any obligation to pay for the
labor to remove or install modules.

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In addition to our limited solar module warranties described above, for PV solar power systems

Accrued Solar Module Collection and Recycling Liability. We recognize expense at the time of sale

for the estimated cost of our future obligations for collecting and recycling solar modules covered by
our solar module collection and recycling program. See Note 14 ‘‘Solar Module Collection and
Recycling Liability’’ for further information.

Income Taxes. We use the asset and liability method to account for income taxes whereby we
calculate the deferred tax asset or liability account balances using the enacted tax rates and tax law
applicable to when the temporary differences are expected to be recovered or settled. We establish
valuation allowances, when necessary, to reduce deferred tax assets to the extent it is more likely than
not that such deferred tax assets will not be realized. We do not provide deferred taxes related to the
U.S. GAAP basis in excess of the outside tax basis in the investment in our foreign subsidiaries to the
extent such amounts relate to indefinitely reinvested earnings and profits of such foreign subsidiaries.

Income tax expense includes (i) deferred tax expense, which generally represents the net change in

the deferred tax asset or liability balance during the year plus any change in valuation allowances and
(ii) current tax expense, which represents the amount of tax currently payable to or receivable from
taxing authorities. We only recognize tax benefits related to uncertain tax positions that are more likely
than not of being sustained upon examination. For those positions that satisfy such recognition criteria,
the amount of tax benefit that we recognize is the largest amount of tax benefit that is more likely than
not of being sustained on ultimate settlement of the uncertain tax position.

Foreign Currency Translation. The functional currencies of certain of our international subsidiaries
are their local currencies. Accordingly, we apply period-end exchange rates to translate their assets and
liabilities, and daily transaction exchange rates are used to translate their revenues, expenses, gains, and
losses into U.S. dollars. We include the associated translation adjustments as a separate component of
‘‘Accumulated other comprehensive (loss) income’’ within stockholders’ equity. The functional currency
of most of our subsidiaries in Canada, Malaysia, Singapore, Chile, and Jordan is the U.S. dollar;
therefore, we do not translate their financial statements. Gains and losses arising from the
remeasurement of monetary assets and liabilities denominated in currencies other than a subsidiary’s
functional currency are included in ‘‘Foreign currency loss, net’’ in the period in which they occur.

Comprehensive Income. Our comprehensive income consists of our net income, the effects on our
consolidated financial statements of translating the financial statements of our subsidiaries that operate
in foreign currencies, the unrealized gains or losses on available-for-sale marketable securities and
restricted investments, and the unrealized gains or losses on derivative instruments that qualify for and
have been designated as cash flow hedges. We present our comprehensive income in the consolidated

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statements of comprehensive income. Our ‘‘Accumulated other comprehensive (loss) income’’ is
presented as a component of stockholders’ equity in our consolidated balance sheets.

Per Share Data. Basic net income per share is based on the weighted effect of all common shares

outstanding and is calculated by dividing net income by the weighted average number of common
shares outstanding during the period. Diluted net income per share is based on the weighted effect of
all common shares and dilutive potential common shares outstanding and is calculated by dividing net
income by the weighted average number of common shares and dilutive potential common shares
outstanding during the period.

Systems business sales arrangements in which we construct a PV solar power system for a specific

customer on land that is controlled by the customer, and has not been previously controlled by First
Solar, are accounted for under ASC 605-35. For such sales arrangements, we use the
percentage-of-completion method, as described further below, using actual costs incurred over total
estimated costs to develop and construct the system (including module costs) as our standard
accounting policy.

Systems business sales arrangements in which we convey control of land or land rights as part of

(ii) Depending on whether the initial and continuing investment requirements have been met and

For any systems business sales arrangements containing multiple deliverables not required to be

accounted for under ASC 605-35 (long-term construction contracts) or ASC 360-20 (real estate sales),
we analyze each activity within the sales arrangement to adhere to the separation guidelines of
ASC 605-25 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

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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 the total estimated costs (including module costs) in order
to determine the progress towards completion and calculate the corresponding amount of revenue and
profit to recognize. Costs incurred include solar modules, direct materials, labor, subcontractor costs,
and those indirect costs related to contract performance, such as indirect labor and supplies. We
recognize solar module and direct material costs as incurred when such items have been installed in a
system. When contracts specify that title to solar modules and direct materials 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
solar modules and direct materials to be installed when they are permanently placed or affixed to a PV
solar power system as required by engineering designs. Solar modules manufactured and owned by us
that will be used in our systems remain within inventory until such modules are installed in a system.

The percentage-of-completion method of revenue recognition requires us to make estimates of net

If estimated total costs on any contract are greater than the net contract revenues, we recognize

Revenue Recognition—Operations and Maintenance. Our O&M revenue is billed and recognized as

services are performed. Costs of these services are expensed in the period in which they are incurred.
For O&M agreements that contain provisions whereby we may receive a bonus payment if system
availability exceeds a contractual threshold, we recognize such bonuses as revenue following the
completion of the applicable measurement period.

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 modules 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 contract. Our customers typically do not have extended payment
terms or rights of return for our products.

Research and Development Expense. We incur research and development costs during the process

of researching and developing new products and enhancing our existing products, technologies, and
manufacturing processes. Our research and development costs consist primarily of employee

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compensation, materials, outside services, and depreciation. We expense these costs as incurred until
the resulting product has been completed, tested, and made ready for commercial manufacturing.

Restructuring and Exit Activities. We record costs associated with exit activities such as employee
termination benefits that represent a one-time benefit when management approves and commits to a
plan of termination, or over the future service period, if any. Other costs associated with exit activities
may include contract termination costs, including costs related to leased facilities to be abandoned or
subleased, and facility and employee relocation costs.

Production Start-Up. Production start-up expense consists primarily of employee compensation

and other costs associated with operating a production line before it has been qualified for full
production, including the cost of materials for solar modules run through the production line during
the qualification phase and applicable facility related costs. Costs related to equipment upgrades and
implementation of manufacturing process improvements are also included in production start-up
expense as well as costs related to the selection of a new site, including related legal and regulatory
costs, to the extent we cannot capitalize these expenditures.

Share-Based Compensation. We recognize share-based compensation expense on the estimated

grant-date fair value of equity instruments issued as compensation to employees over the requisite
service period, which is generally four years. We account for forfeitures of share-based awards as such
forfeitures occur. Accordingly, when an associate’s employment is terminated, all previously unvested
awards granted to such associate are forfeited, which results in a benefit to share-based compensation
expense in the period of such associate’s termination equal to the cumulative expense recorded through
the termination date for such forfeited unvested awards. We recognize share-based compensation
expense for awards with graded vesting schedules on a straight-line basis over the requisite service
periods for each separately vesting portion of the awards as if each award was in substance multiple
awards.

Shipping and Handling Costs. We classify shipping and handling costs as a component of cost of

sales. We record customer payments of shipping and handling costs as a component of net sales.

Taxes Collected from Customers and Remitted to Governmental Authorities. We do not include tax

amounts collected from customers in sales transactions as a component of net sales.

Self-Insurance. We are self-insured for certain healthcare benefits provided to our U.S. employees.
The liability for the self-insured benefits is limited by the purchase of stop-loss insurance. The stop-loss
coverage provides payment for claims exceeding$0.2 million per covered person for any given year.
Accruals for losses are made based on our claim experience and estimates based on historical data.
Actual losses may differ from accrued amounts. Should actual losses exceed the amounts expected and,
as a result, the recorded liabilities are determined to be insufficient, an additional expense would be
recorded.

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 VIEs when we are considered the primary beneficiary of such entities. Additionally, we have,
and may in the future form, joint venture type arrangements, including partnerships and partially
owned limited liability companies or similar legal structures, with one or more third parties primarily to
develop, construct, own, and/or sell solar power projects. These types of ventures are core to our
business and long-term strategy related to providing PV solar generation solutions using our modules in
key geographic markets. We analyze all of our ventures and classify them into two groups: (i) ventures

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that must be consolidated because they are either not VIEs and we hold a 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 cost or equity method 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 subordinated 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 conducted on behalf of that investor. Our venture agreements typically require us to fund
some form of capital for the development and construction of a project, depending upon the
opportunity and the market in which our ventures are located.

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

Cost and Equity Method Investments. We account for our unconsolidated ventures using either the
cost or equity method of accounting depending upon whether we have the ability to exercise significant
influence over the venture. As part of this evaluation, we consider our participating and protective
rights in the venture as well as its legal form. We use the cost method of accounting for our
investments when we do not have the ability to significantly influence the operations or financial
activities of the investee. We record our cost method investments at their historical cost and
subsequently record any distributions received from the net accumulated earnings of such investments
as income. Distributions received from our cost method investments in excess of their earnings are
considered returns of investment and are recorded as reductions in the cost of the investments. We use
the equity method of accounting for our investments when we have the ability to significantly influence,
but not control, the operations or financial activities of the investee. We record our equity method
investments at cost and subsequently adjust their carrying amount each period for our share of the
earnings or losses of the investee and other adjustments required by the equity method of accounting.
Distributions received from our equity method investments are recorded as reductions in the carrying
value of such investments and are classified on the consolidated statements of cash flows pursuant to
the cumulative earnings approach. Under this approach, distributions received are considered returns
on investment and are classified as cash inflows from operating activities unless our cumulative
distributions received, less distributions received in prior periods that were determined to be returns of
investment, exceed our cumulative equity in earnings recognized from the investment. When such an
excess occurs, the current period distributions up to this excess are considered returns of investment
and are classified as cash inflows from investing activities.

We monitor our investments, which are included in ‘‘Investments in unconsolidated affiliates and

joint ventures’’ in the accompanying consolidated balance sheets, for impairment and record reductions
in their carrying values if the carrying amount of an investment exceeds its fair value. An impairment
charge is recorded when such impairment is deemed to be other-than-temporary. To determine whether
an impairment is other-than-temporary, we consider our ability and intent to hold the investment until
the carrying amount is fully recovered. Circumstances that indicate an other-than-temporary

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impairment may have occurred include factors such as decreases in quoted market prices or declines in
the operations of the investee. The evaluation of an investment for potential impairment requires us to
exercise significant judgment and to make certain assumptions. The use of different judgments and
assumptions could result in different conclusions. We recorded impairment losses related to our cost
and equity method investments of $15.3 million, zero, and $7.1 million, respectively, during the years
ended December 31, 2016, 2015, and 2014.

3. Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (‘‘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. Under ASU 2014-09, revenue is recognized when a customer obtains control of
promised goods or services and is recognized at an amount that reflects the consideration expected to
be received in exchange for such goods or services. In addition, ASU 2014-09 requires disclosure of the
nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with
customers.

An entity has the option to apply the provisions of ASU 2014-09 either retrospectively to each

prior reporting period presented (the ‘‘full retrospective method’’) 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, 2017, and early adoption is permitted for periods beginning after December 15, 2016. We
expect to adopt ASU 2014-09 in the first quarter of 2017 using the full retrospective method. However,
our ability to early adopt using the full retrospective method is subject to the completion of our
analysis of certain matters and obtaining the information necessary to restate prior periods.

We expect this adoption to primarily affect our systems business sales arrangements currently
accounted for under ASC 360-20, which requires us to evaluate whether such arrangements have any
forms of continuing involvement that may affect the revenue or profit recognition of the transactions,
including arrangements with prohibited forms of continuing involvement requiring us to reduce the
potential profit on a project sale by our maximum exposure to loss. We anticipate that ASU 2014-09,
which supersedes the real estate sales guidance under ASC 360-20, will require us to recognize revenue
and profit from our systems business sales arrangements earlier and in a more linear fashion than our
historical practice under ASC 360-20, including the estimation of certain profits that would otherwise
have been deferred. For systems business sales arrangements in which we retain an interest in the
project sold to a customer (i.e., a partial sale of real estate), we expect to recognize all of the revenue
and profit associated with the consideration received, including the fair value of our retained ownership
interest. We expect revenue recognition for our other sales arrangements, including sales of solar
modules and O&M services, to remain materially consistent with our historical practice.

In February 2015, the FASB issued ASU 2015-02, Consolidation (Topic 810)—Amendments to the

Consolidation Analysis. ASU 2015-02 modifies existing consolidation guidance related to (i) limited
partnerships and similar legal entities, (ii) the evaluation of variable interests for fees paid to decision
makers or service providers, (iii) the effect of fee arrangements and related parties on the primary
beneficiary determination, and (iv) certain investment funds. These changes are expected to limit the
number of consolidation models and place more emphasis on risk of loss when determining a
controlling financial interest. The adoption of ASU 2015-02 in the first quarter of 2016 did not have a
significant impact on our consolidated financial statements and associated disclosures.

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In January 2016, the FASB issued ASU 2016-01, Financial Instruments—Overall (Subtopic 825-10)—

Recognition and Measurement of Financial Assets and Financial Liabilities. ASU 2016-01 changes how
entities measure certain equity investments and present changes in the fair value of financial liabilities
measured under the fair value option that are attributable to their own credit. The guidance also
changes certain disclosure requirements and other aspects of current U.S. GAAP. ASU 2016-01 is
effective for fiscal years and interim periods within those years beginning after December 15, 2017, and
early adoption is permitted for certain provisions of the guidance. We are currently evaluating the
impact ASU 2016-01 will have on our consolidated financial statements and associated disclosures.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), to increase transparency and

comparability among organizations by recognizing a right-of-use asset and a lease liability on the
balance sheet for all leases with terms longer than 12 months. Leases will be classified as either
operating or financing, with such classification affecting the pattern of expense recognition in the
income statement. ASU 2016-02 is effective for fiscal years and interim periods within those years
beginning after December 15, 2018, and early adoption is permitted. We are currently evaluating the
impact ASU 2016-02 will have on our consolidated financial statements and associated disclosures.

In March 2016, the FASB issued ASU 2016-09, Compensation—Stock Compensation (Topic 718)—

Improvements to Employee Share-Based Payment Accounting, to simplify several aspects of the
accounting for share-based payment transactions, including income tax consequences, accounting for
forfeitures, classification of awards as either equity or liabilities, and classification on the statement of
cash flows. The adoption of ASU 2016-09 in the fourth quarter of 2016 resulted in a $33.6 million
cumulative-effect increase to retained earnings to record deferred tax assets for excess tax benefits that
had previously not been recognized, as such benefits did not reduce our income taxes payable in prior
periods, and a $2.4 million cumulative-effect decrease to retained earnings for previously estimated
forfeitures of share-based awards. As a result of the adoption, we have also adjusted our consolidated
statements of cash flows on a retrospective basis to eliminate the reclassification of excess tax benefits
to cash flows from financing activities and to present payments for tax withholdings on share-based
awards as cash flows from financing activities. These adjustments increased our cash flows from
operating activities by $35.9 million and $54.3 million for the years ended December 31, 2015 and 2014,
respectively.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326), to

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

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230)—Classification

of Certain Cash Receipts and Cash Payments. ASU 2016-15 clarifies the classification of certain cash
receipts and cash payments in the statement of cash flows with the objective of reducing the existing
diversity in practice related to such classifications. As a result of the adoption of ASU 2016-15 in the
third quarter of 2016, we will continue to classify distributions received from our equity method
investments pursuant to the cumulative earnings approach. See Note 2 ‘‘Summary of Significant
Accounting Policies—Cost and Equity Method Investments’’ to our consolidated financial statements
for additional information on this policy.

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In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 230)—Intra-Entity Transfers
of Assets Other Than Inventory. ASU 2016-16 requires the recognition of income tax consequences of
intra-entity transfers of assets, other than inventory, when the transfer occurs. Two common examples
of assets included in the scope of ASU 2016-16 are intellectual property and long-lived assets.
ASU 2016-16 is effective for fiscal years and interim periods within those years beginning after
December 15, 2017, and early adoption is permitted in annual reporting periods for which financial
statements (interim or annual) have not been issued. We are currently evaluating the impact
ASU 2016-16 will have on our consolidated financial statements and associated disclosures.

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230)—Restricted

Cash. ASU 2016-18 requires that the statement of cash flows explain the change during the period in
the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash
equivalents. As a result of the adoption of ASU 2016-18 in the fourth quarter of 2016, we have
included amounts generally described as restricted cash and restricted cash equivalents with cash and
cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on
the statement of cash flows. This change in presentation decreased cash flows from investing activities
by $44.0 million for the year ended December 31, 2015 and increased cash flows from investing
activities by $124.1 million for the year ended December 31, 2014.

In January 2017, the FASB issued ASU 2017-04, Goodwill and Other (Topic 350)—Simplifying the

Test for Goodwill Impairment. ASU 2017-04 simplifies the subsequent measurement of goodwill by
eliminating Step 2 of the goodwill impairment test. In computing the implied fair value of goodwill
under Step 2, an entity had to perform procedures to determine the fair value at the impairment
testing date of its assets and liabilities (including unrecognized assets and liabilities) following the
procedure that would be required in determining the fair value of assets acquired and liabilities
assumed in a business combination. As a result of ASU 2017-04, an entity should perform its goodwill
impairment test by comparing the fair value of a reporting unit with its carrying amount and then
recognize an impairment charge, as necessary, for the amount by which the carrying amount exceeds
the reporting unit’s fair value, not to exceed the total amount of goodwill allocated to that reporting
unit. ASU 2017-04 is effective for fiscal years and interim periods within those years beginning after
December 15, 2019, and early adoption is permitted for interim or annual goodwill impairment tests
performed after January 1, 2017. We expect to adopt ASU 2017-04 for our goodwill impairment tests
in 2017.

4. Restructuring and Asset Impairments

Cadmium Telluride Module Manufacturing and Corporate Restructuring

In November 2016, our board of directors approved a set of initiatives intended to accelerate our
transition to Series 6 module manufacturing and restructure our operations to reduce costs and better
align the organization with our long term strategic plan. Accordingly, we expect to upgrade and replace
our existing manufacturing fleet over the next two years with Series 6 manufacturing equipment,
thereby enabling the production of solar modules with a larger form factor, better product attributes,
and a lower cost structure.

This operational transition represented an expectation that certain of our module manufacturing

assets would be sold or otherwise disposed of significantly before the end of their previously estimated
useful lives. As a result of this event, we compared the undiscounted future cash flows of our module
manufacturing assets to the carrying value of the asset group and determined that the group was not
recoverable. Accordingly, we measured the fair value of the asset group using a combination of income

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and cost valuation techniques and recorded impairment losses of $640.3 million for the year ended
December 31, 2016. Such impairment losses included $120.7 million of charges related to stored
Series 4 manufacturing equipment originally intended for use in previously planned manufacturing
capacity expansions.

As part of these and related initiatives for the year ended December 31, 2016, we substantially

reduced our workforce at our domestic and international facilities, including reductions in
administrative and other staff, and incurred charges of $14.1 million for severance benefits to
terminated employees. We also incurred $8.1 million of charges for the closure of ancillary foreign
operations, the write-off of operating supplies, and other miscellaneous charges. Substantially all
amounts associated with these restructuring and asset impairment charges related to our components
segment and were classified as ‘‘Restructuring and asset impairments’’ on the consolidated statements
of operations. We expect to incur up to $80 million of additional charges related to these actions as we
complete the transition to Series 6 module manufacturing in 2017 and 2018.

The following table summarizes our cadmium telluride (‘‘CdTe’’) module manufacturing and
corporate restructuring activity recorded during the year ended December 31, 2016 and the remaining
liability balance at December 31, 2016 (in thousands):

Charges to income . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-cash amounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 640,340
—
(640,340)

$14,056
(6,191)

$ 8,111
(151)
— (7,410)

$ 662,507
(6,342)
(647,750)

Ending liability balance at December 31, 2016 . . . . . . . . .

— $ 7,865

550

8,415

Asset
Impairments

Severance

Other

Total

Crystalline Silicon Module Manufacturing Restructuring

In June 2016, our executive management elected to reallocate our crystalline silicon module

production capacity to support next generation CdTe module offerings. As a result, we ended
production of our crystalline silicon modules to focus on our core CdTe module technology and utility-
scale PV solar power systems. The majority of our crystalline silicon module manufacturing associates
were expected to be redeployed in other manufacturing operations.

In connection with these restructuring activities, we incurred charges of $87.5 million during the

year ended December 31, 2016, which included (i) $35.9 million of impairment charges related to
certain crystalline silicon module manufacturing equipment considered abandoned for accounting
purposes, (ii) $35.8 million of impairment charges for developed technology intangible assets associated
with our crystalline silicon module technology, (iii) $6.1 million of goodwill impairment charges from
the disposal of our crystalline silicon components reporting unit, (iv) $8.4 million of miscellaneous
charges related to certain contract manufacturing agreements and the write-off of operating supplies,
and (v) $1.3 million of charges for severance benefits to terminated employees. All amounts associated
with these charges related to our components segment and were classified as ‘‘Restructuring and asset
impairments’’ on the consolidated statements of operations.

Other Goodwill Impairments

As a result of our annual goodwill impairment testing in the fourth quarter of 2016, we determined

that the estimated fair value of our systems reporting unit was less than its carrying value and that the
implied fair value of goodwill for the systems reporting unit was zero. Accordingly, we recorded
$68.8 million of goodwill impairment charges in ‘‘Restructuring and asset impairments’’ on the
consolidated statements of operations. See Note 6 ‘‘Goodwill and Intangible Assets’’ to our
consolidated financial statements for more information on this impairment.

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5. Business Acquisitions

Enki Technology

In October 2016, we acquired 100% of the shares of Enki Technology, Inc. (‘‘Enki’’), a developer

of advanced coating materials for the PV solar industry, for cash payments of $10.3 million, net of cash
acquired of $0.3 million, and a promise to pay additional consideration of up to $7.0 million contingent
on the achievement of certain production and module performance milestones. In connection with
applying the acquisition method of accounting, $17.3 million of the purchase price consideration was
assigned to an IPR&D intangible asset to be amortized over its useful life upon successful completion
of the underlying projects, $4.4 million was assigned to a deferred tax liability, and $4.4 million was
assigned to goodwill. The acquired IPR&D includes patents, technical information and know-how, and
other proprietary information associated with the development and production of anti-reflective coating
material that we expect to use in the production of our solar modules. Such technology is expected to
improve our module conversion efficiency and overall durability at a lower cost structure compared to
our current production processes.

6. Goodwill and Intangible Assets

Goodwill

The changes in the carrying amount of goodwill, by reporting unit, for the years ended

December 31, 2016 and 2015 were as follows (in thousands):

Components . . . . . . . . . . . . . . . . . . . . . . .
Crystalline silicon components . . . . . . . . . .
Systems . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated impairment losses . . . . . . . . .

Balance at
December 31,
2015

$ 403,420
6,097
68,833
(393,365)

Acquisitions
(Impairments)

$ 4,407
—
—
(74,930)

Balance at
December 31,
2016

$ 407,827
6,097
68,833
(468,295)

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 84,985

$(70,523)

$ 14,462

Balance at
December 31,
2014

$ 403,420
6,097
68,833
(393,365)

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 84,985

Acquisitions
(Impairments)

$—
—
—
—

$—

Balance at
December 31,
2015

$ 403,420
6,097
68,833
(393,365)

$ 84,985

Accumulated impairment losses at December 31, 2016 were $393.4 million for our components,
$68.8 million for our systems, and $6.1 million for our crystalline silicon components reporting units.
Accumulated impairment losses at December 31, 2015 were entirely for our components reporting unit.

2016 Goodwill Impairment Testing

Our annual impairment analysis was performed in the fourth quarter of 2016. We elected to
perform the first step of the two-step goodwill impairment test instead of first performing a qualitative

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goodwill impairment test. Such first-step impairment test represented the comparison of the fair value
of our reporting units with their carrying amounts, including goodwill. As of the date of our testing, our
reporting units were consistent with our reportable segments: components and systems. In determining
the fair value of our reporting units, we used a combination of income and market based valuation
techniques.

Significant estimates used in our income approach fair value calculations included: (i) future sales
volumes and average selling prices per watt; (ii) cost per watt projections for module and system sales;
(iii) future effective tax rates, which we estimated to be between 10% and 35%; (iii) forecasts of capital
expenditures and working capital requirements; (iv) discount rates, which we estimated to range
between 11.5% and 18%; and (v) future terminal values of our reporting units, which are based on
their ability to exist into perpetuity. Significant estimates used in our market approach fair value
calculations included business enterprise values and revenue multiples of various publicly traded
companies. The underlying assumptions used in the first step of our 2016 impairment test also
considered our market capitalization as of the date of our testing and current solar industry market
conditions.

As a result of our testing, we determined that the estimated fair value of our components
reporting unit exceeded its carrying value indicating no impairment was necessary for this reporting
unit. However, we determined that the estimated fair value of our systems reporting unit was less than
its carrying value, which required us to perform the second step of the goodwill impairment test for our
systems reporting unit. We performed such second-step impairment test to determine the implied fair
value of goodwill for the systems reporting unit, which required us to allocate the fair value of the
systems reporting unit to its individual assets and liabilities, including any unrecognized intangible
assets. Based on this second-step impairment test, the implied fair value of goodwill for the systems
reporting unit was zero, and we recorded an impairment loss of $68.8 million.

In June 2016, we impaired $6.1 million of goodwill associated with our crystalline silicon
components reporting unit as a result of the decision to end the related manufacturing operations.
See Note 4 ‘‘Restructuring and Asset Impairments’’ to our consolidated financial statements for further
discussion related to these restructuring activities.

2015 Goodwill Impairment Testing

We performed our annual impairment analysis in the fourth quarter of 2015. ASC 350-20 provides
that prior to performing the traditional two-step goodwill impairment test, companies are permitted to
perform a qualitative assessment of whether it is more likely than not that a reporting unit’s fair value
is less than its carrying value to determine whether it is necessary to perform the two-step goodwill
impairment test. The qualitative impairment test considers various factors including macroeconomic
conditions, industry and market considerations, cost factors, the overall financial performance of a
reporting unit, and any other relevant events affecting the entity or its reporting units. We performed a
qualitative assessment for each of our reporting units and concluded that it was not more likely than
not that the fair value of each reporting unit was less than its carrying amount. Accordingly, the
two-step goodwill impairment test for our reporting units was not considered necessary.

Intangible Assets

Intangible assets primarily include developed technologies from prior business acquisitions, certain

PPAs acquired after the associated PV solar power systems were placed in service, our internally-
generated intangible assets, substantially all of which were patents on technologies related to our

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products and production processes, and IPR&D related to our Enki acquisition as described in Note 5
‘‘Business Acquisitions’’. 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.

The following table summarizes our intangible assets at December 31, 2016 and 2015 (in

thousands):

December 31, 2016

Gross Amount

Accumulated
Amortization

Accumulated
Impairments

Net Amount

Developed technology . . . . . . . . . . . . . . . . . . . . .
Power purchase agreements . . . . . . . . . . . . . . . . .
Patents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
In-process research and development . . . . . . . . . .

$114,612
6,486
6,538
17,255

$(18,208)
—
(2,498)
—

$(36,215)
—
—
—

$60,189
6,486
4,040
17,255

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$144,891

$(20,706)

$(36,215)

$87,970

December 31, 2015

Gross Amount

Accumulated
Amortization

Accumulated
Impairments

Developed technology . . . . . . . . . . . . . . . . . . . . .
Patents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$114,565
6,070

$ (8,809)
(1,824)

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$120,635

$(10,633)

$—
—

$—

Net Amount

$105,756
4,246

$110,002

Amortization expense for our intangible assets was $10.1 million, $9.2 million, and $1.2 million for

the years ended December 31, 2016, 2015, and 2014, respectively.

Estimated future amortization expense for our intangible assets was as follows at December 31,

2016 (in thousands):

2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Amortization
Expense

$ 8,272
8,272
8,272
8,272
8,271
29,356

Total amortization expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$70,715

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7. Cash, Cash Equivalents, and Marketable Securities

Cash, cash equivalents, and marketable securities consisted of the following at December 31, 2016

and 2015 (in thousands):

2016

2015

Cash and cash equivalents:

Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash equivalents:

$1,347,155

$1,126,496

Money market funds . . . . . . . . . . . . . . . . . . . . . . . . .

—

330

Total cash and cash equivalents . . . . . . . . . . . . . . . .

1,347,155

1,126,826

Marketable securities:

Foreign debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Time deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total marketable securities . . . . . . . . . . . . . . . . . . .

567,991
40,000

607,991

663,454
40,000

703,454

Total cash, cash equivalents, and marketable

securities . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$1,955,146

$1,830,280

We classify our marketable securities as available-for-sale. Accordingly, we record them at fair
value and account for the net unrealized gains and losses as part of ‘‘Accumulated other comprehensive
(loss) income’’ until realized. We record realized gains and losses on the sale of our marketable
securities in ‘‘Other income (expense), net’’ computed using the specific identification method. During
the years ended December 31, 2016, 2015, and 2014, we realized gains on the sale of our marketable
securities of $0.3 million, less than $0.1 million, and $0.2 million, respectively. See Note 11 ‘‘Fair Value
Measurements’’ to our consolidated financial statements for information about the fair value of our
marketable securities.

As of December 31, 2016, we identified three investments totaling $51.2 million that had been in a

loss position for a period of time greater than 12 months with unrealized losses of $0.1 million. As of
December 31, 2015, we identified two investments totaling $31.5 million that had been in a loss
position for a period of time greater than 12 months with unrealized losses of less than $0.1 million.
The unrealized losses were primarily due to increases in interest rates relative to rates at the time of
purchase. Based on the underlying credit quality of the investments, we do not intend to sell these
securities prior to the recovery of our cost basis. Therefore, we did not consider these securities to be
other-than-temporarily impaired. All of our available-for-sale marketable securities are subject to a
periodic impairment review. We did not identify any of our marketable securities as
other-than-temporarily impaired as of December 31, 2016 and 2015.

125

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The following tables summarize the unrealized gains and losses related to our available-for-sale

marketable securities, by major security type, as of December 31, 2016 and 2015 (in thousands):

As of December 31, 2016

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Amortized
Cost

Foreign debt . . . . . . . . . . . . . . . . . . . .
Time deposits . . . . . . . . . . . . . . . . . . .

$570,442
40,000

Total

. . . . . . . . . . . . . . . . . . . . . . . .

$610,442

$ 2
—

$ 2

$2,453
—

$2,453

As of December 31, 2015

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Amortized
Cost

Foreign debt . . . . . . . . . . . . . . . . . . . .
Time deposits . . . . . . . . . . . . . . . . . . .

$665,900
40,000

Total

. . . . . . . . . . . . . . . . . . . . . . . .

$705,900

$ 9
—

$ 9

$2,455
—

$2,455

Estimated
Fair
Value

$567,991
40,000

$607,991

Estimated
Fair
Value

$663,454
40,000

$703,454

The contractual maturities of our marketable securities as of December 31, 2016 and 2015 were as

follows (in thousands):

One year or less . . . . . . . . . . . . . . . . .
One year to two years . . . . . . . . . . . . .
Two years to three years . . . . . . . . . . . .

Amortized
Cost

$283,247
164,797
162,398

Total

. . . . . . . . . . . . . . . . . . . . . . . .

$610,442

One year or less . . . . . . . . . . . . . . . . .
One year to two years . . . . . . . . . . . . .
Two years to three years . . . . . . . . . . . .

Amortized
Cost

$290,377
228,492
187,031

Total

. . . . . . . . . . . . . . . . . . . . . . . .

$705,900

As of December 31, 2016

Gross
Unrealized
Gains

Gross
Unrealized
Losses

$—
2
—

$ 2

$ 429
414
1,610

$2,453

As of December 31, 2015

Gross
Unrealized
Gains

Gross
Unrealized
Losses

$ 9
—
—

$ 9

$ 406
1,183
866

$2,455

Estimated
Fair
Value

$282,818
164,385
160,788

$607,991

Estimated
Fair
Value

$289,980
227,309
186,165

$703,454

The net unrealized losses of $2.5 million and $2.4 million on our marketable securities as of
December 31, 2016 and 2015, respectively, were primarily the result of changes in interest rates relative
to rates at the time of purchase. 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.

126

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The following tables show gross unrealized losses and estimated fair values for those marketable

securities that were in an unrealized loss position as of December 31, 2016 and 2015, aggregated by
major security type and the length of time the marketable securities have been in a continuous loss
position (in thousands):

In Loss Position for
Less Than 12 Months
Gross
Estimated
Unrealized
Fair
Losses
Value

As of December 31, 2016
In Loss Position for
12 Months or Greater
Estimated
Fair
Value

Gross
Unrealized
Losses

Foreign debt . . . .

$506,835

Total . . . . . . . .

$506,835

$2,308

$51,236

$145

In Loss Position for
Less Than 12 Months
Gross
Estimated
Unrealized
Fair
Losses
Value

As of December 31, 2015
In Loss Position for
12 Months or Greater
Estimated
Fair
Value

Gross
Unrealized
Losses

Foreign debt . . . .

$629,033

Total . . . . . . . .

$629,033

$2,386

$31,491

$69

Total

Estimated
Fair
Value

$558,071

Gross
Unrealized
Losses

$2,453

Total

Estimated
Fair
Value

$660,524

Gross
Unrealized
Losses

$2,455

8. Restricted Cash and Investments

Restricted cash and investments consisted of the following at December 31, 2016 and 2015

(in thousands):

Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 31,381
339,926

7,764
326,114

Total restricted cash and investments(1) . . . . . . . . . . . . . . .

$371,307

$333,878

2016

2015

(1) There was an additional $37.2 million and $72.5 million of restricted cash included within

prepaid expenses and other current assets at December 31, 2016 and 2015, respectively.

At December 31, 2016 and 2015, 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 payment of amounts related to project construction credit facilities. Restricted cash for our letters
of credit is classified as current or noncurrent based on the maturity date of the corresponding letter of
credit. See Note 16 ‘‘Commitments and Contingencies’’ to our consolidated financial statements for
further discussion relating to letters of credit. Restricted cash for project construction and financing is
classified as current or noncurrent based on the projected use of the restricted funds.

At December 31, 2016 and 2015, our restricted investments consisted of long-term marketable
securities that were held in custodial accounts to fund the estimated future costs of collecting and
recycling modules covered under our solar module collection and recycling program. We classify our
restricted investments as available-for-sale. Accordingly, we record them at fair value and account for

127

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

the net unrealized gains and losses as a part of ‘‘Accumulated other comprehensive (loss) income’’ until
realized. We record realized gains and losses on the sale of our restricted investments in ‘‘Other
income (expense), net’’ computed using the specific identification method. During 2016, we realized
gains of $41.3 million on the sale of certain restricted investments primarily as part of an effort to align
the currencies of the investments with those of the corresponding collection and recycling liabilities.
Restricted investments are classified as noncurrent as the underlying accrued solar module collection
and recycling liability is also noncurrent in nature. See Note 11 ‘‘Fair Value Measurements’’ to our
consolidated financial statements for information about the fair value of our restricted investments.

As necessary, we fund any incremental amounts for our estimated collection and recycling
obligations within 90 days of the end of each year. We determine the funding requirement, if any,
based on estimated costs of collecting and recycling covered modules, estimated rates of return on our
restricted investments, and an estimated solar module life of 25 years less amounts already funded in
prior years. No incremental funding was required in 2016 for covered module sales in 2015, and we do
not expect to fund any incremental amounts in 2017. To ensure that these funds will be available in the
future regardless of any potential adverse changes in our financial condition (even in the case of our
own insolvency), we have established a trust under which estimated funds are put into custodial
accounts with an established and reputable bank, for which 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 performing the required
collection and recycling services. Investments in these custodial accounts must meet certain investment
quality criteria comparable to 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.

The following tables summarize the unrealized gains and losses related to our restricted

investments, by major security type, as of December 31, 2016 and 2015 (in thousands):

As of December 31, 2016

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Estimated
Fair
Value

Foreign government obligations . . . . . .
U.S. government obligations . . . . . . . . .

$107,604
169,294

$62,350
10,468

$ — $169,954
169,972

9,790

Total

. . . . . . . . . . . . . . . . . . . . . . . .

$276,898

$72,818

$9,790

$339,926

As of December 31, 2015

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Amortized
Cost

Foreign government obligations . . . . . .
U.S. government obligations . . . . . . . . .

$177,507
61,228

$75,670
11,709

Total

. . . . . . . . . . . . . . . . . . . . . . . .

$238,735

$87,379

$—
—

$—

Estimated
Fair
Value

$253,177
72,937

$326,114

As of December 31, 2016, the contractual maturities of our restricted investments were between

11 years and 20 years. As of December 31, 2015, the contractual maturities of our restricted
investments were between 12 years and 21 years.

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9. Consolidated Balance Sheet Details

Accounts receivable trade, net

Accounts receivable trade, net consisted of the following at December 31, 2016 and 2015

(in thousands):

Accounts receivable trade, gross . . . . . . . . . . . . . . . . . . . . . . .
Allowance for doubtful accounts . . . . . . . . . . . . . . . . . . . . . .

$266,687
—

$500,631
(2)

Accounts receivable trade, net . . . . . . . . . . . . . . . . . . . . . .

$266,687

$500,629

2016

2015

At December 31, 2016 and 2015, $12.2 million and $21.5 million, respectively, of our accounts
receivable trade, net were secured by letters of credit, bank guarantees, or other forms of financial
security issued by creditworthy financial institutions.

Accounts receivable, unbilled and retainage

Accounts receivable, unbilled and retainage consisted of the following at December 31, 2016 and

2015 (in thousands):

Accounts receivable, unbilled . . . . . . . . . . . . . . . . . . . . . . . . . .
Retainage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$199,265
6,265

$40,205
18,966

Accounts receivable, unbilled and retainage . . . . . . . . . . . . .

$205,530

$59,171

2016

2015

Inventories

Inventories consisted of the following at December 31, 2016 and 2015 (in thousands):

2016

2015

Raw materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Work in process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finished goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$148,222
13,204
302,305

$159,078
19,736
309,369

Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$463,731

$488,183

Inventories—current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories—noncurrent

$363,219
$100,512

$380,424
$107,759

129

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Prepaid expenses and other current assets

Prepaid expenses and other current assets consisted of the following at December 31, 2016 and

2015 (in thousands):

2016

2015

Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid income taxes
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Value added tax receivables . . . . . . . . . . . . . . . . . . . . . . . . . .
Derivative instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 42,007
35,336
37,154
22,308
6,078
74,274

$ 51,317
23,673
72,526
51,473
2,691
47,297

Prepaid expenses and other current assets . . . . . . . . . . . . . .

$217,157

$248,977

Property, plant and equipment, net

Property, plant and equipment, net consisted of the following at December 31, 2016 and 2015

(in thousands):

2016

2015

Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Buildings and improvements . . . . . . . . . . . . . . . . . . . . . .
Machinery and equipment . . . . . . . . . . . . . . . . . . . . . . .
Office equipment and furniture . . . . . . . . . . . . . . . . . . .
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . .
Construction in progress . . . . . . . . . . . . . . . . . . . . . . . .
Stored assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

7,839
378,981
1,444,442
147,833
53,552
93,164
17,995

12,063
410,898
1,824,717
144,773
50,546
37,734
138,954

Property, plant and equipment, gross . . . . . . . . . . . . . .
Less: accumulated depreciation . . . . . . . . . . . . . . . . . . .

2,143,806
(1,514,664)

2,619,685
(1,335,549)

Property, plant and equipment, net . . . . . . . . . . . . . . .

629,142

$ 1,284,136

In June and November 2016, we incurred various asset impairment charges associated with the end

of our crystalline silicon module manufacturing operations and transition to Series 6 module
manufacturing. Such charges included the majority of the machinery and equipment (‘‘stored assets’’)
originally intended for use in previously planned manufacturing capacity expansions. As the remaining
stored assets are neither in the condition nor location to produce modules as intended, we will not
begin depreciation until such assets are placed in service. See Note 4 ‘‘Restructuring and Asset
Impairments’’ to our consolidated financial statements for further discussion related to these
restructuring activities.

Depreciation of property, plant and equipment was $211.2 million, $245.7 million, and

$245.0 million for the years ended December 31, 2016, 2015, and 2014, respectively.

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PV solar power systems, net

PV solar power systems, net consisted of the following at December 31, 2016 and 2015

(in thousands):

PV solar power systems, gross . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$464,581
(15,980)

$97,991
(4,250)

PV solar power systems, net . . . . . . . . . . . . . . . . . . . . . . . . .

$448,601

$93,741

2016

2015

During 2016, we placed $391.2 million of projects in service, including certain projects in Chile and

India. Such PV solar power systems are assessed for impairment whenever events or changes in
circumstances arise that may indicate that the carrying amount of such systems may not be recoverable.
As part of this process, we assessed our 30 megawatt (‘‘MW’’) Barilla Solar project, which primarily
sells electricity produced by the system on an open contract basis, for recoverability in December 2016
due to continued operating and cash flow losses combined with forecasts of continuing losses due
primarily to the decline of retail electricity prices in the Electric Reliability Council of Texas (or
‘‘ERCOT’’) market. As a result of this event, we compared the probability-weighted undiscounted
future cash flows of our Barilla Solar project to its carrying value and determined that the project was
not recoverable. Accordingly, we measured the fair value of the project using an income approach
valuation technique and recorded an impairment loss of $24.6 million in ‘‘Cost of sales’’ for the
difference between the estimated fair value and carrying value of the project.

Depreciation of PV solar power systems was $11.7 million, $2.9 million, and $1.4 million for the

years ended December 31, 2016, 2015, and 2014, respectively.

Capitalized interest

The cost of constructing facilities, equipment, and project assets includes interest costs incurred

during the assets’ construction period. The components of interest expense and capitalized interest
were as follows during the years ended December 31, 2016, 2015, and 2014 (in thousands):

Interest cost incurred . . . . . . . . . . . . . . . . . . . . . . .
Interest cost capitalized—property, plant and

equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest cost capitalized—project assets . . . . . . . . . .

2016

2015

2014

$(26,157) $(19,367) $(10,828)

1,878
3,741

1,335
11,057

2,324
6,522

Interest expense, net . . . . . . . . . . . . . . . . . . . . . .

$(20,538) $ (6,975) $ (1,982)

131

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Project assets and deferred project costs

Project assets and deferred project costs consisted of the following at December 31, 2016 and 2015

(in thousands):

2016

2015

Project assets—development costs, including project

acquisition and land costs . . . . . . . . . . . . . . . . . . . . . . .
Project assets—construction costs . . . . . . . . . . . . . . . . . . .

$ 379,161
382,809

$ 436,375
674,762

Project assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

761,970

1,111,137

. . . . . . . . . . . . . . . . . . . .
Deferred project costs—current
Deferred project costs—noncurrent . . . . . . . . . . . . . . . . . .

Deferred project costs . . . . . . . . . . . . . . . . . . . . . . . . . .

701,105
38,800

739,905

187,940
—

187,940

Total project assets and deferred project costs . . . . . . . .

$1,501,875

$1,299,077

Other assets

Other assets consisted of the following at December 31, 2016 and 2015 (in thousands):

Notes receivable(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 7,385
4,230
27,160
39,301

$12,648
4,071
23,317
29,686

Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$78,076

$69,722

2016

2015

(1) 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 A17.5 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 8.0% per annum payable
quarterly with the full amount due in December 2026. As of December 31, 2016 and
2015, the balance outstanding on the credit facility was A7.0 million ($7.4 million and
$7.6 million, respectively, at the balance sheet dates). In February 2014, we entered into a
convertible loan agreement with a strategic entity for an available amount of up to
$5.0 million. As of December 31, 2015, the balance outstanding on the convertible loan
was $5.0 million, which we converted into an equity interest in the entity in January 2016.

132

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Accrued expenses

Accrued expenses consisted of the following at December 31, 2016 and 2015 (in thousands):

2016

2015

Accrued compensation and benefits . . . . . . . . . . . . . . . . . . . .
Accrued property, plant and equipment . . . . . . . . . . . . . . . . .
Accrued inventory and balance of systems parts . . . . . . . . . . .
Accrued project assets and deferred project costs . . . . . . . . . .
Product warranty liability(1) . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 47,877
14,828
13,085
71,164
40,079
75,944

$ 63,699
7,808
53,542
145,695
38,468
100,240

Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$262,977

$409,452

(1) See Note 16 ‘‘Commitments and Contingencies’’ to our consolidated financial statements

for further discussion of ‘‘Product warranty liability.’’

Other current liabilities

Other current liabilities consisted of the following at December 31, 2016 and 2015 (in thousands):

Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Derivative instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contingent consideration(1) . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financing liability(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 7,742
6,642
19,620
5,219
15,460

$17,957
16,450
9,233
5,277
8,821

Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$54,683

$57,738

2016

2015

(1) See Note 16 ‘‘Commitments and Contingencies’’ to our consolidated financial statements

for further discussion.

(2) See Note 12 ‘‘Investments in Unconsolidated Affiliates and Joint Ventures’’ to our

consolidated financial statements for further discussion of the financing liabilities
associated with our leaseback of the Maryland Solar project.

133

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Other liabilities

Other liabilities consisted of the following at December 31, 2016 and 2015 (in thousands):

Product warranty liability(1) . . . . . . . . . . . . . . . . . . . . . . . . . .
Other taxes payable(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contingent consideration(1) . . . . . . . . . . . . . . . . . . . . . . . . . .
Financing liability(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$212,329
24,099
10,472
33,314
147,906

$193,283
66,549
8,756
36,706
87,018

Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$428,120

$392,312

2016

2015

(1) See Note 16 ‘‘Commitments and Contingencies’’ to our consolidated financial statements
for further discussion on ‘‘Product warranty liability’’ and ‘‘Contingent consideration.’’

(2) See Note 20 ‘‘Income Taxes’’ to our consolidated financial statements for further

discussion on our liabilities associated with uncertain tax positions.

(3) See Note 12 ‘‘Investments in Unconsolidated Affiliates and Joint Ventures’’ to our

consolidated financial statements for further discussion of the financing liabilities
associated with our leaseback of the Maryland Solar project.

10. Derivative Financial Instruments

As a global company, we are exposed in the normal course of business to interest rate and foreign

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

Depending on the terms of the specific derivative instruments and market conditions, some of our

derivative instruments may be assets and others liabilities at any particular balance sheet date. We
report all of our derivative instruments at fair value and account for changes in the fair value of
derivative instruments within ‘‘Accumulated other comprehensive (loss) income’’ 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 11
‘‘Fair Value Measurements’’ to our consolidated financial statements for information about the
techniques we use to measure the fair value of our derivative instruments.

134

FIRST SOLAR, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following tables present the fair values of derivative instruments included in our consolidated

balance sheets as of December 31, 2016 and 2015 (in thousands):

December 31, 2016

Prepaid
Expenses and
Other
Current
Assets

Other
Current
Liabilities

Other
Liabilities

Derivatives designated as hedging instruments:

Foreign exchange forward contracts . . . . . . . . . . . . . . . . . . . . . . .

Total derivatives designated as hedging instruments . . . . . . . . . . . . .

Derivatives not designated as hedging instruments:

Foreign exchange forward contracts . . . . . . . . . . . . . . . . . . . . . . .

Total derivatives not designated as hedging instruments . . . . . . . . . .

Total derivative instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$2,072

$4,006

$6,078

$ 387

$6,255

$6,642

$444

$ —

$444

Derivatives designated as hedging instruments:

Foreign exchange forward contracts . . . . . . . . . . . . . . . . . . . . . . .
Cross-currency swap contract . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest rate swap contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total derivatives designated as hedging instruments . . . . . . . . . . . . .

Derivatives not designated as hedging instruments:

Foreign exchange forward contracts . . . . . . . . . . . . . . . . . . . . . . .

Total derivatives not designated as hedging instruments . . . . . . . . . .

Total derivative instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

December 31, 2015

Prepaid
Expenses and
Other
Current
Assets

Other
Current
Liabilities

Other
Liabilities

$ —
—
—

$ —

$2,691

132
6,909
16

285
13,835
—

$ 7,057

$14,120

$ 9,393

$ —

$ 9,393

$ —

$16,450

$14,120

The impact of offsetting balances associated with derivative instruments designated as hedging

instruments is shown below (in thousands):

December 31, 2016

Gross
Offset in
Consolidated
Balance Sheet

Net
Amount
Recognized
in Financial
Statements

Gross Asset
(Liability)

Gross Amounts Not
Offset in Consolidated
Balance Sheet

Financial
Instruments

Cash
Collateral
Pledged

Net
Amount

Foreign exchange forward

contracts . . . . . . . . . . . . . . . .

$1,241

—

1,241

—

$1,241

135

FIRST SOLAR, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2015

Gross
Offset in
Consolidated
Balance Sheet

Net
Amount
Recognized
in Financial
Statements

Gross Asset
(Liability)

Gross Amounts Not
Offset in Consolidated
Balance Sheet

Financial
Instruments

Cash
Collateral
Pledged

Net
Amount

Foreign exchange forward

contracts . . . . . . . . . . . . . . .
Cross-currency swap contract
.
Interest rate swap contract . . .

(417)
(20,744)
(16)

—
—
—

(417)
(20,744)
(16)

—
—
—

(417)
(20,744)
(16)

The following table presents the effective amounts related to derivative instruments designated as

cash flow hedges affecting accumulated other comprehensive income (loss) and our consolidated
statements of operations for the years ended December 31, 2016, 2015, and 2014 (in thousands):

Balance in accumulated other comprehensive income (loss) at

December 31, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amounts recognized in other comprehensive income (loss) . . .
Amounts reclassified to earnings impacting:

Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency loss, net . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense, net

Balance in accumulated other comprehensive income (loss) at

Foreign
Exchange
Forward
Contracts

Interest
Rate
Swap
Contract

Cross
Currency
Swap
Contract

Total

$ 4,351
1,769

$(703)
12

$ (5,820) $ (2,172)
(1,065)

(2,846)

501
—
—

—
—
481

—
5,050
217

501
5,050
698

December 31, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

6,621

(210)

(3,399)

3,012

Amounts reclassified to net sales as a result of forecasted

transactions being probable of not occurring . . . . . . . . . . . .
Amounts recognized in other comprehensive income (loss) . . .
Amounts reclassified to earnings impacting:

Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency loss, net . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense, net

Balance in accumulated other comprehensive income (loss) at

December 31, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amounts recognized in other comprehensive income (loss) . . .
Amounts reclassified to earnings impacting:

Foreign currency loss, net . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense, net

Balance in accumulated other comprehensive income (loss) at

(1,295)
832

(487)
(5,509)
—
—

162
2,513

—
(119)

—
23

—
—
—
171

— (1,295)
(8,364)

(9,219)

(487)
—
— (5,509)
10,135
637

10,135
466

(16)
(2)

(2,017)
5,108

(1,871)
7,619

—
18

(4,896)
1,805

(4,896)
1,704

December 31, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 2,556

$ — $ — $ 2,556

We recorded no amounts related to ineffective portions of our derivative instruments designated as
cash flow hedges during the years ended December 31, 2016, 2015, and 2014. We recognized unrealized
losses of $0.9 million and $0.1 million and unrealized gains of $1.8 million related to amounts excluded

136

FIRST SOLAR, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

from effectiveness testing for our foreign exchange forward contracts designated as cash flow hedges
within ‘‘Other income (expense), net’’ during the years ended December 31, 2016, 2015, and 2014,
respectively.

The following table presents amounts related to derivative instruments not designated as hedges

affecting our consolidated statements of operations for the years ended December 31, 2016, 2015, and
2014 (in thousands):

Income Statement Line Items

Amount of Gain (Loss) Recognized
in Income
2015

2014

2016

Foreign exchange forward contracts . . . . . . Foreign currency loss, net
Foreign exchange forward contracts . . . . . . Cost of sales

$(14,002) $ (3,425) $ (8,066)
13,240

— 12,422

Interest Rate Risk

We use cross-currency swap and interest rate swap contracts to mitigate our exposure to interest
rate fluctuations associated with certain of our debt instruments. We do not use such swap contracts for
speculative or trading purposes.

On September 30, 2011, we entered into a cross-currency swap contract to hedge the floating rate

foreign currency denominated loan under our Malaysian Ringgit Facility Agreement (as defined below).
This swap had an initial notional value of Malaysian Ringgit (‘‘MYR’’) MYR 465.0 million and entitled
us to receive a three-month floating Kuala Lumpur Interbank Offered Rate interest rate while
requiring us to pay a U.S. dollar fixed rate of 3.495%. Additionally, this swap hedged the foreign
currency risk of the Malaysian Ringgit denominated principal and interest payments as we made swap
payments in U.S. dollars and received swap payments in Malaysian Ringgits at a fixed exchange rate of
3.19 MYR to USD. This swap qualified for accounting as a cash flow hedge in accordance with
ASC 815, and we designated it as such. The notional amount of the swap declined in line with our
scheduled principal payments on the underlying hedged debt. In June 2016, we paid the remaining
principal on the Malaysian Ringgit Facility Agreement and closed the corresponding cross-currency
swap contract. As of December 31, 2015, the notional value of the cross-currency swap contract was
MYR 232.6 million ($54.2 million).

On May 29, 2009, we entered into an interest rate swap contract to hedge a portion of the floating

rate loans under our Malaysian credit facility, which became effective on September 30, 2009 with an
initial notional value of A57.3 million and pursuant to which we are entitled to receive a six-month
floating Euro Interbank Offered Rate interest rate while being required to pay a fixed rate of 2.80%.
The derivative instrument qualified for accounting as a cash flow hedge in accordance with ASC 815,
and we designated it as such. The notional amount of the interest rate swap contract declined in line
with our scheduled principal payments on the underlying hedged debt. In March 2016, we paid the
remaining principal on the Malaysian Credit Facility and closed the corresponding interest rate swap
contract. As of December 31, 2015, the notional value of the interest rate swap contract was
A2.2 million ($2.4 million).

137

FIRST SOLAR, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Foreign Currency Exchange Risk

Cash Flow Exposure

We expect certain of our subsidiaries to have future cash flows that will be denominated in

currencies other than the subsidiaries’ functional currencies. Changes in the exchange rates between the
functional currencies of our subsidiaries and the other currencies in which they transact will cause
fluctuations in the cash flows we expect to receive or pay when these cash flows are realized or settled.
Accordingly, we enter into foreign exchange forward contracts to hedge a portion of these forecasted
cash flows. As of December 31, 2016 and 2015, these foreign exchange forward contracts hedged our
forecasted cash flows for up to 21 months and 33 months, respectively. These foreign exchange forward
contracts qualify for accounting as cash flow hedges in accordance with ASC 815, and we designated
them as such. We initially report the effective portion of a derivative’s unrealized gain or loss in
‘‘Accumulated other comprehensive (loss) income’’ and subsequently reclassify amounts into earnings
when the hedged transaction occurs and impacts earnings. We determined that these derivative
financial instruments were highly effective as cash flow hedges as of December 31, 2016 and 2015.

As of December 31, 2016 and 2015, the notional values associated with our foreign exchange

forward contracts qualifying as cash flow hedges were as follows (notional amounts and U.S. dollar
equivalents in millions):

Currency

December 31, 2016

Notional Amount

USD Equivalent

Indian rupee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Australian dollar . . . . . . . . . . . . . . . . . . . . . . . . . . .

INR 860.0
AUD 55.3

$12.7
$40.0

Currency

December 31, 2015

Notional Amount

USD Equivalent

Indian rupee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

INR1,290.0

$19.4

In the following 12 months, we expect to reclassify to earnings $2.4 million of net unrealized gains

related to these forward contracts that are included in ‘‘Accumulated other comprehensive (loss)
income’’ at December 31, 2016 as we realize the earnings effect of the related forecasted transactions.
The amount we ultimately record to earnings will depend on the actual exchange rates when we realize
the related forecasted transactions.

Transaction Exposure and Economic Hedging

Many of our subsidiaries have assets and liabilities (primarily cash, receivables, marketable

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

We enter into foreign exchange forward contracts to economically hedge balance sheet and other

exposures related to transactions between certain of our subsidiaries and transactions with third parties.

138

FIRST SOLAR, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Such contracts are considered economic hedges and do not qualify for hedge accounting. Accordingly,
we recognize gains or losses from the fluctuations in foreign exchange rates and the fair value of these
derivative contracts in ‘‘Foreign currency loss, net’’ on our consolidated statements of operations. As of
December 31, 2016 and 2015, the total net unrealized loss on our economic hedge foreign exchange
forward contracts was $2.2 million and $6.7 million, respectively. These contracts mature at dates within
the next 1.8 years.

As of December 31, 2016 and 2015, the notional values of our foreign exchange forward contracts
that do not qualify for hedge accounting were as follows (notional amounts and U.S. dollar equivalents
in millions):

December 31, 2016

Transaction

Currency

Purchase . . . . . . . . . . . . . . . . Euro
. . . . . . . . . . . . . . . . . . . . Euro
Sell
Purchase . . . . . . . . . . . . . . . . Australian dollar
. . . . . . . . . . . . . . . . . . . . Australian dollar
Sell
. . . . . . . . . . . . . . . . . . . . Malaysian ringgit
Sell
. . . . . . . . . . . . . . . . . . . . Canadian dollar
Sell
Sell
. . . . . . . . . . . . . . . . . . . . Chilean Peso
Purchase . . . . . . . . . . . . . . . . Chinese yuan
Japanese yen
Purchase . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . .
Sell
Japanese yen
. . . . . . . . . . . . . . . . . . . . British pound
Sell
Indian rupee
. . . . . . . . . . . . . . . . . . . .
Sell
South African rand
. . . . . . . . . . . . . . . . . . . .
Sell

Notional Amount
A64.5
A103.6
AUD 1.2
AUD 19.3
MYR 24.5
CAD 17.7
CLP 13,611.6
CNY 24.3
JPY 97.3
JPY 15,610.4
GBP 0.6
INR 12,753.2
ZAR 51.2

December 31, 2015

Transaction

Currency

Purchase . . . . . . . . . . . . . . . . Euro
Sell
. . . . . . . . . . . . . . . . . . . . Euro
Purchase . . . . . . . . . . . . . . . . Australian dollar
Sell
. . . . . . . . . . . . . . . . . . . . Australian dollar
Purchase . . . . . . . . . . . . . . . . Malaysian ringgit
. . . . . . . . . . . . . . . . . . . . Malaysian ringgit
Sell
. . . . . . . . . . . . . . . . . . . . Canadian dollar
Sell
Sell
Japanese yen
. . . . . . . . . . . . . . . . . . . .
Purchase . . . . . . . . . . . . . . . . British pound
. . . . . . . . . . . . . . . . . . . . British pound
Sell
Indian rupee
. . . . . . . . . . . . . . . . . . . .
Sell
South African rand
Purchase . . . . . . . . . . . . . . . .
South African rand
. . . . . . . . . . . . . . . . . . . .
Sell

Notional Amount
A42.0
A150.1
AUD 41.1
AUD 89.0
MYR 61.4
MYR 80.7
CAD 4.5
JPY 8,448.7
GBP 11.1
GBP 16.0
INR 8,939.0
ZAR 41.1
ZAR 81.5

USD Equivalent

$ 68.0
$109.3
$
0.9
$ 14.0
$
5.5
$ 13.2
$ 20.3
3.5
$
$
0.8
$133.7
0.7
$
$187.7
3.7
$

USD Equivalent

$ 45.9
$164.0
$ 29.9
$ 64.8
$ 14.3
$ 18.8
3.2
$
$ 70.1
$ 16.5
$ 23.7
$134.6
2.7
$
5.3
$

139

FIRST SOLAR, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

11. Fair Value Measurements

The following is a description of the valuation techniques that we use to measure the fair value of

assets and liabilities that we measure and report at fair value on a recurring basis:

• Cash Equivalents. At December 31, 2015, our cash equivalents consisted of money market funds.
We value our money market cash equivalents using observable inputs that reflect quoted prices
for securities with identical characteristics, and accordingly, we classify the valuation techniques
that use these inputs as Level 1.

• Marketable Securities and Restricted Investments. At December 31, 2016 and 2015, our marketable
securities consisted of foreign 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 standings in these fair
value measurements.

• Derivative Assets and Liabilities. At December 31, 2016 and 2015, our derivative assets and
liabilities consisted of foreign exchange forward contracts involving major currencies. At
December 31, 2015, our derivative assets and liabilities also consisted of a cross-currency swap
contract involving certain currencies and interest rates and an interest rate swap. Since our
derivative assets and liabilities are not traded on an exchange, we value them using standard
industry valuation models. Where 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.

140

FIRST SOLAR, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

At December 31, 2016 and 2015, the fair value measurements of our assets and liabilities that we

measure on a recurring basis were as follows (in thousands):

December 31, 2016

Fair Value Measurements at Reporting Date
Using

Total Fair
Value and
Carrying
Value on Our
Balance Sheet

Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

Assets:

Marketable securities:

Foreign debt
Time deposits

. . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . .
Restricted investments . . . . . . . . . . . . . . . . . . .
Derivative assets . . . . . . . . . . . . . . . . . . . . . . .

$567,991
40,000
339,926
6,078

Total assets . . . . . . . . . . . . . . . . . . . . . . . .

$953,995

$ —
40,000
—
—

$40,000

$567,991
—
339,926
6,078

$913,995

$—
—
—
—

$—

Liabilities:

Derivative liabilities . . . . . . . . . . . . . . . . . . . . .

7,086

$ —

7,086

$—

December 31, 2015

Fair Value Measurements at Reporting Date
Using

Total Fair
Value and
Carrying
Value on Our
Balance Sheet

Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

Assets:

Cash equivalents:

Money market funds
Marketable securities:

. . . . . . . . . . . . . . . . . .

330

—

$—

Foreign debt
Time deposits

663,454
40,000
326,114
2,691

—
40,000
—
—

663,454
—
326,114
2,691

—
—
—
—

Total assets . . . . . . . . . . . . . . . . . . . . . . . .

$1,032,589

$40,330

$992,259

$—

Liabilities:

Derivative liabilities . . . . . . . . . . . . . . . . . . . . .

30,570

$ —

$ 30,570

$—

141

FIRST SOLAR, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Fair Value of Financial Instruments

The carrying values and fair values of our financial and derivative instruments at December 31,

2016 and 2015 were as follows (in thousands):

December 31, 2016
Fair
Value

Carrying
Value

December 31, 2015
Fair
Value

Carrying
Value

Assets:

Marketable securities . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign exchange forward contract assets . . . . . . . . . . .
Restricted investments . . . . . . . . . . . . . . . . . . . . . . . . .
Notes receivable—noncurrent . . . . . . . . . . . . . . . . . . . .
Notes receivable, affiliates—current . . . . . . . . . . . . . . .
. . . . . . . . . . . .
Notes receivable, affiliates—noncurrent

Liabilities:

Long-term debt, including current maturities . . . . . . . . .
Interest rate swap contract liabilities . . . . . . . . . . . . . . .
Cross-currency swap contract liabilities . . . . . . . . . . . . .
Foreign exchange forward contract liabilities . . . . . . . . .

$607,991
6,078
339,926
7,385
15,000
54,737

$187,826
—
—
7,086

$607,991
6,078
339,926
7,493
16,946
53,586

$195,160
—
—
7,086

$703,454
2,691
326,114
12,648
1,276
17,887

$288,350
16
20,744
9,810

$703,454
2,691
326,114
18,382
1,276
19,932

$294,449
16
20,744
9,810

The carrying values on our consolidated balance sheets of our cash and cash equivalents, trade

accounts receivable, unbilled accounts receivable and retainage, restricted cash, accounts payable,
income taxes payable, and accrued expenses approximated their fair values due to their nature and
relatively short maturities; therefore, we excluded them from the foregoing table.

We estimated the fair value of our notes receivable and long-term debt using a discounted cash
flow approach (an income approach) or a market approach based on observable market inputs. We
incorporated the credit risk of our counterparty for all asset fair value measurements and our own
credit risk for all liability fair value measurements. Such fair value measurements are considered
Level 2 under the fair value hierarchy.

Credit Risk

142

FIRST SOLAR, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

12. Investments in Unconsolidated Affiliates and Joint Ventures

We have joint ventures or other strategic arrangements with partners in several markets, which are

generally used to expedite our penetration of those markets and establish relationships with potential
customers. We also enter into joint ventures or strategic arrangements with customers or other entities
to maximize the value of particular projects. Some of these arrangements involve and are expected in
the future to involve significant investments or other allocations of capital. Investments in
unconsolidated entities for which we have significant influence, but not control, over the entities’
operating and financial activities are accounted for under the equity method of accounting. Investments
in unconsolidated entities for which we do not have the ability to exert such significant influence are
accounted for under the cost method of accounting. The following table summarizes our equity and
cost method investments as of December 31, 2016 and 2015 (in thousands):

Equity method investments . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost method investments . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$240,088
2,273

$375,355
24,450

Investments in unconsolidated affiliates and joint ventures . .

$242,361

$399,805

2016

2015

8point3 Energy Partners LP

In June 2015, 8point3 Energy Partners LP (the ‘‘Partnership’’), a limited partnership formed by

First Solar and SunPower Corporation (the ‘‘Sponsors’’), completed its initial public offering (the
‘‘IPO’’) pursuant to a Registration Statement on Form S-1, as amended. As part of the IPO, the
Sponsors contributed interests in various projects to 8point3 Operating Company, LLC (‘‘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. Since the formation of the Partnership, we and
SunPower Corporation have, from time to time, continued to sell interests in solar projects to the
Partnership. The Partnership owns and operates this portfolio of solar energy generation projects and is
expected to acquire additional interests in projects from the Sponsors.

As of December 31, 2016, we owned an aggregate of 22,116,925 Class B shares representing a 28%

voting interest in the Partnership, and an aggregate of 6,721,810 common units and 15,395,115
subordinated units in OpCo together representing a 28% limited liability company interest in the entity.
Future quarterly distributions from OpCo are subject to a subordination period in which holders of the
subordinated units are not entitled to receive any distributions until the common units have received
their minimum quarterly distribution plus any arrearages in the payment of minimum distributions from
prior quarters. The subordination period will end after OpCo has earned and paid minimum quarterly
distributions for three years ending on or after August 31, 2018 and there are no outstanding
arrearages on common units. Notwithstanding the foregoing, the subordination period could end after
OpCo has earned and paid 150% of minimum quarterly distributions, plus the related distributions to
incentive distribution right holders, for one year ending on or after August 31, 2016 and there are no
outstanding arrearages on common units. At the end of the subordination period, all subordinated units
will convert to common units on a one-for-one basis. During the year ended December 31, 2016, we
received distributions from OpCo of $5.3 million. We also hold certain incentive distribution rights in
OpCo, which represent a right to incremental distributions after certain distribution thresholds are met.

The Partnership is managed and controlled by its general partner, 8point3 General Partner, LLC
(‘‘General Partner’’), and we account for our interest in OpCo, a subsidiary of the Partnership, under
the equity method of accounting as we are able to exercise significant influence over the Partnership

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due to our representation on the board of directors of its General Partner. Under the equity method of
accounting, we recognize equity in earnings for our proportionate share of OpCo’s net income or loss,
including adjustments for the amortization of a $38.8 million remaining basis difference, which resulted
from the cost of our investment differing from our proportionate share of OpCo’s equity. We
recognized equity in earnings, net of tax, from our investment in OpCo of $32.3 million and
$20.8 million for the years ended December 31, 2016 and 2015, respectively. Our equity in earnings for
the year ended December 31, 2016 also included a $7.9 million gain, net of tax, following OpCo’s
issuance of 8,050,000 shares to the Partnership as part of its public offering of a corresponding number
of shares. As of December 31, 2016 and 2015, the carrying value of our investment in OpCo was
$214.6 million and $152.5 million, respectively.

In connection with the IPO, we also entered into an agreement with a subsidiary of the

Partnership to lease back one of our originally contributed projects, Maryland Solar, until
December 31, 2019. Under the terms of the agreement, we make fixed rent payments to the
Partnership’s subsidiary and are entitled to all of the energy generated by the project. Due to our
continuing involvement with the project, we account for the leaseback agreement as a financing
transaction. As of December 31, 2016 and 2015, our financing obligation associated with the leaseback
was $38.5 million and $42.0 million, respectively.

In December 2016, we completed the sale of our remaining 34% interest in the 300 MW Desert

Stateline project (‘‘Desert Stateline’’) located in San Bernardino County, California to OpCo for
aggregate consideration of $329.5 million, including a $50.0 million promissory note, and accounted for
the transaction as a partial sale of real estate pursuant to ASC 360-20. The promissory note is
unsecured and matures in December 2020. The promissory note bears interest at 4% per annum, which
rate may increase to 6% per annum (i) upon the occurrence and during the continuation of a specified
event of default and (ii) in respect of amounts accrued as payments-in-kind pursuant to the terms of
such promissory note. OpCo is not permitted to prepay the promissory note without the consent of
certain lenders under its existing credit facility (except for certain mandatory quarterly prepayments).
Until OpCo has paid in full the principal and interest on the promissory note, OpCo is restricted in its
ability to: (i) acquire interests in additional projects (other than the acquisition of an 8 MW project
located in Kern County, California); (ii) use the net proceeds of equity issuances except as prescribed
in the promissory note; (iii) incur additional indebtedness to which the promissory note would be
subordinate; and (iv) extend the maturity date under OpCo’s existing credit facility. As the
unconditional cash proceeds from the sale of our remaining interest in Desert Stateline exceeded the
total cost of our investment, the sale met the initial and continuing investment criteria, and the
promissory note was not subject to future subordination, we recognized profit on the sale of
$125.1 million, net of tax, in equity in earnings for the year ended December 31, 2016.

In May 2016, we completed the sale of our two 20 MW Kingbird projects (‘‘Kingbird’’) located in

Kern County, California to OpCo and a third-party investor for net revenue of $57.4 million and
accounted for the transaction as a partial sale of real estate pursuant to ASC 360-20. Due to certain
continuing involvement associated with tax related indemnifications to the third-party investor, we did
not recognize any profit on the sale as our maximum exposure to loss exceeded the profit on the
transaction. All of the cash proceeds from the sale of the Kingbird project were classified as cash flows
from operating activities on our consolidated statements of cash flows.

We provide O&M services to certain of the Partnership’s partially owned project entities, including

SG2 Holdings, LLC; Lost Hills Blackwell Holdings, LLC; NS Solar Holdings, LLC; Kingbird
Solar A, LLC; Kingbird Solar B, LLC; and Desert Stateline LLC. During the years ended

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December 31, 2016 and 2015, we recognized revenue of $6.1 million and $2.6 million, respectively, for
such O&M services.

In June 2015, OpCo entered into a $525.0 million senior secured credit facility, consisting of a

$300.0 million term loan facility, a $25.0 million delayed draw term loan facility, and a $200.0 million
revolving credit facility (the ‘‘OpCo Credit Facility’’). In September 2016, OpCo amended its senior
secured credit facility to include an incremental $250.0 million term loan facility, which increased the
maximum borrowing capacity under the OpCo Credit Facility to $775.0 million. The OpCo Credit
Facility is secured by a pledge of the Sponsors’ equity interests in OpCo.

Desert Stateline Holdings, LLC

In August 2015, we sold 51% of our partially constructed Desert Stateline project to a subsidiary
of Southern Power Company. In March 2016, we amended the original sale agreement with Southern
Power Company to include an additional 15% of the partially constructed project. Electricity generated
by the system is contracted to serve a 20-year PPA with a local utility company. Our remaining 34%
membership interest in the project holding company, Desert Stateline Holdings, LLC, was accounted
for under the equity method of accounting as we were able to exercise significant influence over the
project due to our representation on its management committee. Under the terms of the project LLC
agreement, each member is entitled to receive cash distributions based on their respective membership
interests, and Southern Power Company is entitled to substantially all of the project’s federal tax
benefits. In December 2016, we sold our 34% interest in Desert Stateline Holdings, LLC to OpCo.
Prior to the sale, we recognized equity in earnings, net of tax, from our investment in Desert Stateline
Holdings, LLC of $10.2 million and also received a distribution of $13.0 million for the year ended
December 31, 2016. As of December 31, 2015, the carrying value of our investment was $196.9 million.

Clean Energy Collective, LLC

In November 2014, we entered into various agreements to purchase a minority ownership interest

in Clean Energy Collective, LLC (‘‘CEC’’). This investment provided us with additional access to the
distributed generation market and a partner to develop and market community solar offerings to North
American residential customers and businesses directly on behalf of client utility companies. As part of
the investment, we also received a warrant, valued at $1.8 million, to purchase additional ownership
interests at prices at or above our initial investment price per unit.

In addition to our equity investment in CEC, we also entered into a loan agreement to provide
CEC with term loan advances up to $15.0 million. All term loans are due in November 2017 on the
third anniversary of the initial loan agreement. Interest is payable semiannually at rates ranging from
7% to 16% depending on CEC’s current capital structure. As of December 31, 2016 and 2015, the
balance outstanding on the term loans was $15.0 million. In February 2016, we entered into a
convertible loan agreement with CEC for $4.6 million, which was funded in April 2016. The convertible
loan bears interest at 10% per annum, and the outstanding principal and interest are due in February
2018 on the second anniversary of the initial loan agreement unless converted earlier pursuant to a
qualified equity financing by CEC.

CEC is considered a VIE, and our 27% ownership interest in and loans to the company are
considered variable interests. We account for our investment in CEC under the equity method of
accounting as we concluded we are not the primary beneficiary of the company given that we do not
have the power to make decisions over the activities that most significantly impact the company’s
economic performance. Under the equity method of accounting, we recognize equity in earnings for

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our proportionate share of CEC’s net income or loss including adjustments for the amortization of a
basis difference resulting from the cost of our investment differing from our proportionate share of
CEC’s equity. During the years ended December 31, 2016 and 2015, we recognized losses, net of tax, of
$3.6 million and $1.9 million, respectively, from our investment in CEC. As of December 31, 2016 and
2015, the carrying value of our investment was $10.5 million and $16.1 million, respectively.

Joint Venture with Customer

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 supply solar
modules for various solar power projects and our customer develops and constructs the projects. The
joint venture agreement also requires each party to consent to all decisions related to 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 2014 and 2015, we subsequently entered into various loan agreements with solar power project
entities of the joint venture pursuant to which the project entities borrowed funds for the construction
of PV solar power systems in the United Kingdom. The loans bore interest at rates ranging from 6% to
8% per annum and were generally paid upon the sale of the associated project entities. As of
December 31, 2016 and 2015, the balance outstanding on the loans was zero and £2.8 million
($4.2 million), respectively.

Summarized Financial Information

The following table presents summarized financial information, in the aggregate, for our significant

equity method investees, as provided to us by the investees (in thousands):

Summary statement of operations information:

Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income attributable to equity method investees(1) . . . . . . . . . . . . . . . . . .

$125,643
55,266
63,893
190,240

7,099
(555)
8,936
111,135

Fiscal 2016

Fiscal 2015

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FIRST SOLAR, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Summary balance sheet information:

Current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncontrolling interests, including redeemable noncontrolling

35,407
$
1,299,656
26,606
398,192

70,135
1,938,785
150,313
309,169

interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

58,658

101,520

As of Fiscal 2016

As of Fiscal 2015

(1) The difference between Net income and Net income attributable to equity method investees is due
to our investment in OpCo, which has entered into tax equity financing facilities with third-party
investors that hold noncontrolling ownership interests in certain of its subsidiaries. Accordingly,
earnings or losses are allocated to such tax equity investors using the Hypothetical Liquidation at
Book Value (or ‘‘HLBV’’) method. During the fiscal 2016 and 2015 periods, OpCo allocated
certain losses to such third-party investors under the HLBV method, which represented the
difference between Net income and Net income attributable to equity method investees.

13. Percentage-of-Completion Changes in Estimates

We recognize revenue for certain systems business sales arrangements under the

percentage-of-completion method. The percentage-of-completion method of revenue recognition
requires us to make estimates of net contract revenues and costs to complete our projects. In making
such estimates, management judgments are required to evaluate significant assumptions including the
amount of net contract revenues, the cost of materials and labor, expected labor productivity, the
impact of potential variances in schedule completion, and the impact of any penalties, claims, or
performance incentives. If estimated total costs on any contract are greater than the net 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 net contract revenues and costs to complete contracts are
recorded in the period in which the revisions to estimates are identified and the amounts can be
reasonably estimated.

Changes in estimates for systems business sales arrangements accounted for under the

percentage-of-completion method occur for a variety of reasons, including but not limited to
(i) construction plan accelerations or delays, (ii) module cost forecast changes, and (iii) changes in
other information used to estimate costs. Changes in estimates could have a material effect on our
consolidated statements of operations. The table below outlines the impact on gross profit of the
aggregate net change in systems business contract estimates (both increases and decreases) for the
years ended December 31, 2016 and 2015 as well as the number of projects that comprise such
aggregate net change. For purposes of the following table, we only include projects with changes in
estimates that have a net impact on gross profit of at least $1.0 million during the periods presented.

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Also included in the table is the net change in estimate as a percentage of the aggregate gross profit
for such projects.

Number of projects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase in gross profit resulting from net changes in estimates

2016

2015

(in thousands) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$60,968

$31,928

Net change in estimate as percentage of aggregate gross profit

for associated projects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

6.8%

3.4%

14. Solar Module Collection and Recycling Liability

We voluntarily established a module collection and recycling program to collect and recycle
modules sold and covered under such program once the modules reach the end of their useful lives.
For customer sales contracts that include modules covered under this program, we agree to pay the
costs for the collection and recycling of qualifying solar modules, and the end-users agree to notify us,
disassemble their solar power systems, package the solar modules for shipment, and revert ownership
rights over the modules back to us at the end of the modules’ service lives. Accordingly, we record our
collection and recycling obligations within ‘‘Cost of sales’’ at the time of sale based on the estimated
cost to collect and recycle the covered solar modules. During the years ended December 31, 2016 and
2015, substantially all of our modules sold were not subject to our collection and recycling program.
During the year ended December 31, 2014, 56% of our modules sold were subject to our collection and
recycling program.

We estimate the cost of our collection and recycling obligations based on the present value of the
expected probability-weighted future cost of collecting and recycling the solar modules, which includes
estimates for the cost of packaging materials, the cost of freight from the solar module installation sites
to a recycling center, the material, labor, capital costs, and scale of recycling centers, and an estimated
third-party profit margin and return on risk for collection and recycling services. We base these
estimates on (i) our experience collecting and recycling our solar modules, (ii) the expected timing of
when our solar modules will be returned for recycling, and (iii) expected economic conditions at the
time the solar modules will be collected and recycled. In the periods between the time of sale and the
related settlement of the collection and recycling obligation, we accrete the carrying amount of the
associated liability by applying the discount rate used for its initial measurement. We classify accretion
as an operating expense within ‘‘Selling, general and administrative’’ expense on our consolidated
statements of operations. We periodically review our estimates of expected future recycling costs and
may adjust our liability accordingly.

During the year ended December 31, 2015, we completed our annual cost study of obligations
under our module collection and recycling program based on certain recycling technology advancements
at our manufacturing facility in Perrysburg, Ohio and reduced the associated liability by $80.0 million.
The recycling technology advancements represented a significant improvement over previous
technologies and included a continuous flow recycling process, which increased the throughput of
modules able to be recycled at a point in time. Such process improvements also resulted in
corresponding reductions in capital, chemical, labor, maintenance, and other general recycling costs,
which further contributed to the reduction in the recycling rate per module and corresponding change
in the liability.

Our module collection and recycling liability was $166.3 million and $163.4 million at

December 31, 2016 and 2015, respectively. During the year ended December 31, 2016, we did not sell

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any modules subject to our collection and recycling program but recognized accretion expense of
$6.1 million associated with our module collection and recycling liability. During the year ended
December 31, 2015, we recognized a benefit of $67.6 million to cost of sales and a benefit of
$4.4 million to accretion expense primarily as a result of the reduction in our module collection and
recycling liability described above, net of the incremental costs associated with module sales and
accretion expense. During the year ended December 31, 2014, we recognized $30.7 million in cost of
sales for the estimated costs of collection and recycling for modules sold during the period and also
recognized accretion expense of $7.5 million associated with our module collection and recycling
liability. As of December 31, 2016, a 1% increase in the annualized inflation rate used in our estimated
future collection and recycling cost per module would increase our liability by $37.5 million, and a 1%
decrease in that rate would decrease our liability by $31.0 million.

See Note 8 ‘‘Restricted Cash and Investments’’ to our consolidated financial statements for more

information about our arrangements for funding this liability.

15. Debt

Our long-term debt consisted of the following at December 31, 2016 and 2015 (in thousands):

Loan Agreement

Revolving credit facility . . . . . . . . . . . . . . . . . .
Project construction credit facilities . . . . . . . . . .
. . . . . . . . .
Malaysian ringgit facility agreement
Malaysian euro facility agreement . . . . . . . . . . .
Malaysian facility agreement . . . . . . . . . . . . . . .
Capital lease obligations . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . .
Long-term debt principal
Less: unamortized discount and issuance costs . .

Total long-term debt . . . . . . . . . . . . . . . . . . . . .
Less: current portion . . . . . . . . . . . . . . . . . . . .

Noncurrent portion . . . . . . . . . . . . . . . . . . . . .

Revolving Credit Facility

Maturity

July 2018
Various
September 2018
April 2018
March 2016
Various

Loan
Denomination

Balance (USD)

2016

2015

USD
Various
MYR
EUR
EUR
Various

— $

$
196,691
—
—
—
562

—
218,183
54,175
21,869
5,100
1,065

197,253
(8,865)

188,388
(27,966)

300,392
(10,977)

289,415
(38,090)

$160,422

$251,325

Our amended and restated credit agreement with several financial institutions as lenders and
JPMorgan Chase Bank, N.A. as administrative agent provides us with a senior secured credit facility
(the ‘‘Revolving Credit Facility’’) with an aggregate available amount of $700.0 million, with the right to
request an increase up to $900.0 million, subject to certain conditions. Borrowings under the Revolving
Credit Facility bear interest at (i) LIBOR (adjusted for Eurocurrency reserve requirements) plus a
margin of 2.25% or (ii) a base rate as defined in the credit agreement plus a margin of 1.25%,
depending on the type of borrowing requested. These margins are subject to adjustment depending on
our consolidated leverage ratio. We had no borrowings under our Revolving Credit Facility as of
December 31, 2016 and 2015 and had issued $125.0 million and $191.6 million, respectively, of letters
of credit using availability under the facility, leaving a total remaining availability of $575.0 million and
$508.4 million, respectively. Loans and letters of credit issued under the Revolving Credit Facility are
jointly and severally guaranteed by FSI; First Solar Electric, LLC (‘‘FSE’’); First Solar Electric

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(California), Inc.; and First Solar Development, LLC and are secured by interests in substantially all of
the guarantors’ tangible and intangible assets other than certain excluded assets.

In January 2017, we entered into a sixth amendment to the Revolving Credit Facility. The
amendment modified certain financial condition covenants to remove the requirement to maintain a
minimum consolidated EBITDA and to increase the liquidity availability required to be maintained
from $400.0 million to $800.0 million. Following this amendment, the remaining covenants of the credit
agreement include a leverage ratio covenant and the minimum liquidity covenant noted above.
Additionally, the credit agreement contains customary non-financial covenants and certain restrictions
on our ability to pay dividends. We were in compliance with all covenants of the facility as of
December 31, 2016.

In addition to paying interest on outstanding principal under the Revolving Credit Facility, we are
required to pay a commitment fee at a rate of 0.375% per annum, based on the average daily unused
commitments under the facility. The commitment fee may also be adjusted due to changes in our
consolidated leverage ratio. We also pay a letter of credit fee based on the applicable margin for
Eurocurrency revolving loans on the face amount of each letter of credit and a fronting fee of 0.125%.

Project Construction Credit Facilities

Chile

In August 2014, Parque Solar Fotovoltaico Luz del Norte SpA (‘‘Luz del Norte’’), our indirect
wholly-owned subsidiary, entered into credit facilities with the Overseas Private Investment Corporation
(‘‘OPIC’’) and the International Finance Corporation (‘‘IFC’’) to provide limited-recourse senior
secured debt financing in an aggregate principal amount of up to $290.0 million for the design,
development, financing, construction, testing, commissioning, operation, and maintenance of a 141 MW
AC PV solar power plant located near Copiap´o, Chile. In September 2015, Luz del Norte reduced the
borrowing capacity on the credit facilities to $238.0 million.

Up to $178.0 million of the aggregate principal amount of the loans will be funded by OPIC. The

OPIC commitment is comprised of fixed rate loans in an aggregate principal amount of up to
$133.3 million and variable rate loans in an aggregate principal amount of up to $44.7 million. The
fixed rate loans mature in September 2029, and the variable rate loans mature in September 2032. As
of December 31, 2016 and 2015, the balance outstanding on the OPIC loans was $125.1 million.

Up to $60.0 million of the aggregate principal amount of the loans will be funded by IFC. The IFC

commitment is comprised of fixed rate loans in an aggregate principal amount of up to $44.9 million
and variable rate loans in an aggregate principal amount of up to $15.1 million. The fixed rate loans
mature in September 2029, and the variable rate loans mature in September 2032. As of December 31,
2016 and 2015, the balance outstanding on the IFC loans was $42.2 million.

In August 2014, Luz del Norte also entered into a Chilean peso facility (‘‘VAT facility’’ and

together with the OPIC and IFC loans, the ‘‘Luz del Norte Credit Facilities’’) equivalent to
$65.0 million with Banco de Cr´edito e Inversiones to fund Chilean value added tax associated with the
construction of the Luz del Norte project described above. In February 2017, Luz de Norte extended
the maturity date of the VAT facility until June 2017. First Solar, Inc. has provided a guaranty of
substantially all payment obligations of Luz del Norte under the VAT facility. As of December 31, 2016
and 2015, the balance outstanding on the VAT facility was $13.7 million and $40.4 million, respectively.

The OPIC and IFC loans are secured by liens over all of Luz del Norte’s assets, which had an
aggregate book value of $357.7 million, including intercompany charges, as of December 31, 2016 and

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by a pledge of the equity interests in the entity. The Luz del Norte Credit Facilities contain customary
representations and warranties, covenants, and events of default for comparable credit facilities. We
were in compliance with all covenants related to the Luz del Norte Credit Facilities as of December 31,
2016.

Japan

In December 2016, FS Japan Project 12 GK, our indirectly wholly-owned subsidiary, entered into a

credit agreement with Mizuho Bank Ltd. for aggregate borrowings up to ¥27.3 billion ($233.9 million)
for the development and construction of a 59 MW PV solar power plant located in Ishikawa, Japan
(the ‘‘Ishikawa Credit Agreement’’). The credit agreement is comprised of a ¥24.0 billion
($205.6 million) senior loan facility, a ¥2.1 billion ($18.0 million) consumption tax facility, and a
¥1.2 billion ($10.3 million) letter of credit facility. The credit agreement is secured by pledges of the
projects’ assets and by the equity interests in the entity. The credit agreement matures in October 2036
and contains customary representations and warranties, covenants, and events of default for comparable
construction loan facilities in Japan. As of December 31, 2016, there was no balance outstanding under
the Ishikawa Credit Agreement.

In September 2015, First Solar Japan GK, our wholly-owned subsidiary, entered into a construction

loan facility with Mizuho Bank Ltd. for borrowings up to ¥4.0 billion ($34.3 million) for the
development and construction of utility-scale PV solar power plants in Japan (the ‘‘Japan Credit
Facility’’). In September 2016, First Solar Japan GK renewed the facility for an additional one-year
period until September 2017. The facility is guaranteed by FSI and secured by pledges of certain
projects’ cash accounts and other rights in the projects. As of December 31, 2016 and 2015, the balance
outstanding on the facility was $9.5 million and $5.3 million, respectively. The facility contains
customary representations and warranties, covenants, and events of default for comparable construction
loan facilities in Japan. We were in compliance with all covenants related to the Japan Credit Facility
as of December 31, 2016.

India

In March 2015, Marikal Solar Parks Private Limited and Mahabubnagar Solar Parks Private
Limited, our indirect wholly-owned subsidiaries, entered into term loan facilities with Axis Bank, as
administrative agent, for combined aggregate borrowings up to Rs1.1 billion ($16.2 million) for the
development and construction of two 10 MW PV solar power plants located in Telangana, India. The
term loan facilities have a combined letter of credit sub-limit of Rs0.8 billion ($11.8 million), which
may also be used to support construction activities. As of December 31, 2016 and 2015, we had issued
Rs0.8 billion ($11.2 million) and Rs0.8 billion ($11.3 million), respectively, of letters of credit under the
facilities. The term loan facilities mature in December 2028 and are secured by certain assets of the
borrowers, which had an aggregate book value of $90.3 million, including intercompany charges, as of
December 31, 2016 and by a pledge of a portion of the equity interests in the borrowers. As of
December 31, 2016 and 2015 the balance outstanding on the term loan facilities was $4.1 million and
$5.2 million, respectively. The term loan facilities contain various financial covenants, including a
leverage ratio covenant, a debt service ratio covenant, and a fixed asset coverage ratio covenant. We
were in compliance with all covenants related to the term loan facilities as of December 31, 2016.

In March 2016, Polepally Solar Parks Private Limited, our indirect wholly-owned subsidiary,
entered into a term loan facility (together with the Marikal and Mahabubnagar term loans, the ‘‘India
Credit Facilities’’) with Axis Bank, as administrative agent, for borrowings up to Rs1.3 billion
($19.1 million) for costs related to a 25 MW PV solar power plant located in Telangana, India. The

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term loan facility has a letter of credit sub-limit of Rs1.1 billion ($16.2 million), which may also be used
for project related costs. As of December 31, 2016, we had issued Rs1.0 billion ($15.3 million) of
letters of credit under the facility. The term loan facility matures in September 2029 and is secured by
certain assets of the borrower, which had an aggregate book value of $33.3 million, including
intercompany charges, as of December 31, 2016 and by a pledge of a portion of the equity interests in
the borrower. The term loan facility is guaranteed by FSI until certain conditions are met, including the
achievement of commercial operations by the plant and various other compliance and performance
metrics. As of December 31, 2016, the balance outstanding on the term loan facility was $2.2 million.
The term loan facility contains various covenants including a leverage ratio covenant, a debt service
ratio covenant, and a fixed asset ratio covenant. We were in compliance with all covenants related to
the term loan facility as of December 31, 2016.

In November 2016, Hindupur Solar Parks Private Limited, our indirect wholly-owned subsidiary,
entered into a term loan facility (‘‘Hindupur Credit Facility’’) with Yes Bank Limited for borrowings up
to Rs4.3 billion ($63.3 million) for costs related to an 80 MW PV solar power plant located in Andhra
Pradesh, India. The term loan facility has a letter of credit sub-limit of Rs3.2 billion ($47.1 million),
which may also be used for project related costs. The Hindupur term loan facility matures in December
2030 and is secured by certain assets of the borrower, which had an aggregate book value of
$90.5 million, including intercompany charges, as of December 31, 2016 and by a pledge of a portion of
the equity interests in the borrower. In addition, the Hindupur term loan facility is guaranteed by FSI
until certain conditions are met, including the achievement of commercial operations by the plant and
various other compliance and performance metrics. As of December 31, 2016, there was no balance
outstanding on the term loan facility. The Hindupur term loan facility contains various covenants
including a leverage ratio covenant, a debt service ratio covenant, and a fixed asset ratio covenant.

Malaysian Ringgit Facility Agreement

FS Malaysia, our indirect wholly-owned subsidiary, entered into a credit facility agreement
(‘‘Malaysian Ringgit Facility Agreement’’), among FSI as guarantor, CIMB Investment Bank Berhad,
Maybank Investment Bank Berhad, and RHB Investment Bank Berhad as arrangers with CIMB
Investment Bank Berhad also acting as facility agent and security agent, and the original lenders party
thereto. The loans made to FS Malaysia were secured by, among other things, FS Malaysia’s leases for
the lots on which our fifth and sixth manufacturing plants in Kulim, Malaysia (‘‘Plants 5 and 6’’) are
located and all plant, machinery, and equipment purchased by FS Malaysia with the proceeds of the
facility or otherwise installed in or utilized in Plants 5 and 6, to the extent not financed, or subject to a
negative pledge under a separate financing facility related to Plants 5 and 6. In June 2016, we repaid
the remaining $47.3 million principal balance on the Malaysian Ringgit Facility Agreement. There were
no prepayment penalties associated with this early repayment.

Malaysian Euro Facility Agreement

FS Malaysia entered into a credit facility agreement (‘‘Malaysian Euro Facility Agreement’’) with
Commerzbank Aktiengesellschaft and Natixis Zweigniederlassung Deutschland as arrangers and original
lenders, and Commerzbank Aktiengesellschaft, Luxembourg Branch as facility agent and security agent.
In connection with the Malaysian Euro Facility Agreement, FSI concurrently entered into a first
demand guarantee agreement in favor of the lenders. Under this agreement, FS Malaysia’s obligations
related to the credit facility were guaranteed, on an unsecured basis, by FSI. At the same time, FS
Malaysia and FSI also entered into a subordination agreement, pursuant to which any payment claims
of FSI against FS Malaysia were subordinated to the claims of the lenders. In April 2016, we repaid the
remaining $22.7 million principal balance on the Malaysian Euro Facility Agreement. There were no
prepayment penalties associated with this early repayment.

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Variable Interest Rate Risk

Certain of our long-term debt agreements bear interest at prime, London Interbank Offered Rate

(‘‘LIBOR’’), Tokyo Interbank Offered Rate (‘‘TIBOR’’), or equivalent variable rates. A disruption of
the credit environment, as previously experienced, could negatively impact interbank lending and,
therefore, negatively impact these floating rates. An increase in prime, LIBOR, TIBOR, or equivalent
variable rates would increase the cost of borrowing under our Revolving Credit Facility and various
project construction credit facilities.

Our long-term debt borrowing rates as of December 31, 2016 were as follows:

Loan Agreement

Borrowing Rate at December 31, 2016

Revolving Credit Facility . . . . . . . . . . . . . . . .
Luz del Norte Credit Facilities . . . . . . . . . . .

Japan Credit Facility . . . . . . . . . . . . . . . . . . .
Ishikawa Credit Agreement . . . . . . . . . . . . . .

India Credit Facilities . . . . . . . . . . . . . . . . . .
Hindupur Credit Facility . . . . . . . . . . . . . . . .
Capital lease obligations . . . . . . . . . . . . . . . .

3.02%
Fixed rate loans at bank rate plus 3.50%
Variable rate loans at 91-Day U.S. Treasury Bill Yield
or LIBOR plus 3.50%
VAT loans at bank rate plus 1.30%
TIBOR plus 0.5%
Senior loan facility at 6-month TIBOR plus 0.75%
Consumption tax facility at 3-month TIBOR plus 0.5%
Bank rate plus 2.35%
Bank rate plus 1.0%
Various

During the years ended December 31, 2016, 2015, and 2014, we paid $4.3 million, $15.2 million,

and $7.6 million, respectively, of interest related to our long-term debt arrangements.

Future Principal Payments

At December 31, 2016, the future principal payments on our long-term debt, excluding payments

related to capital leases, were due as follows (in thousands):

2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total Debt

$ 27,958
4,799
5,775
11,921
11,149
135,089

Total long-term debt future principal payments . . . . . . . . . . . . . . . . . .

$196,691

16. Commitments and Contingencies

Commercial Commitments

During the normal course of business, we enter into commercial commitments in the form of
letters of credit, bank guarantees, and surety bonds to provide financial and performance assurance to
third parties. Our Revolving Credit Facility provides us with a sub-limit of $500.0 million to issue letters
of credit, subject to certain additional limits depending on the currencies of the letters of credit, at a

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fee based on the applicable margin for Eurocurrency revolving loans and a fronting fee. As of
December 31, 2016, we had $125.0 million in letters of credit issued under our Revolving Credit
Facility, leaving $375.0 million of availability for the issuance of letters of credit after adjusting for
borrowings on the facility. The majority of these letters of credit were supporting our systems business
projects. As of December 31, 2016, we also had $7.3 million of bank guarantees and letters of credit
under separate agreements that were posted by certain of our foreign subsidiaries, $220.2 million of
letters of credit issued under three bilateral facilities, of which $28.6 million was secured with cash, and
$128.9 million of surety bonds outstanding primarily for our systems business projects. The available
bonding capacity under our surety lines was $654.6 million as of December 31, 2016.

Lease Commitments

We lease our corporate headquarters, administrative offices, research and development facilities,
and warehouse space in the United States and international locations under noncancelable operating
leases. We also hold various land leases for the development and construction of PV solar power
systems and, in international locations, for certain of our manufacturing facilities. These leases may
require us to pay property taxes, common area maintenance, and certain other costs in addition to base
rent. We also lease certain machinery and equipment under operating and capital leases. Future
minimum payments under all of our noncancelable leases were as follows as of December 31, 2016 (in
thousands):

Gross operating lease obligations
.
Sublease income .

2017

2018

2019

2020

2021

Thereafter Payments

Total
Minimum
Lease

$18,296 $15,233 $12,278 $7,547 $6,702
—

(1,449)

(906)

—

$134,835
—

$194,891
(2,355)

Present
Value of

Less

Current Noncurrent
Amounts Minimum Portion of Portion of

Representing
Interest

Lease
Payments

Capital
Leases

Net operating lease obligations
.
Capital leases .

Total

.
.

16,847
420

14,327
97

12,278
65

7,547
—

6,702
—

134,835
—

192,536
582

. $17,267 $14,424 $12,343 $7,547 $6,702

$134,835

$193,118

(20)

562

(355)

207

Our rent expense was $24.5 million, $22.5 million, and $18.0 million for the years ended

December 31, 2016, 2015, and 2014, respectively.

Purchase Commitments

We purchase raw materials for inventory, manufacturing equipment, construction materials, and
various services from a variety of vendors. During the normal course of business, in order to manage
manufacturing and construction lead times and help assure an adequate supply of certain items, we
enter into agreements with suppliers that either allow us to procure goods and services when we choose
or that establish purchase requirements over the term of the agreement. In certain instances, the
agreements with purchase requirements allow us the option to cancel, reschedule, or adjust our
requirements based on our business needs prior to firm orders being placed. Consequently, only a
portion of our purchase commitments are firm, noncancelable, enforceable, and legally binding. At
December 31, 2016, our obligations under such arrangements were $525.0 million, of which
$135.1 million was for commitments related to capital expenditures. $464.3 million of our purchase
obligations are due in 2017.

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Product Warranties

When we recognize revenue for module or systems sales, we accrue liabilities for the estimated

future costs of meeting our limited warranty obligations for both modules and the balance of the
systems. We make and revise these estimates based primarily on the number of our solar modules
under warranty installed at customer locations, our historical experience with warranty claims, our
monitoring of field installation sites, our internal testing of and the expected future performance of our
solar modules and BoS components, and our estimated replacement costs. From time to time, we have
taken remediation actions with respect to affected modules beyond our limited warranties, and we may
elect to do so in the future, in which case we would incur additional expenses. Such potential voluntary
future remediation actions beyond our limited warranty obligations could be material to our
consolidated statements of operations if we commit to any such remediation actions.

Product warranty activities during the years ended December 31, 2016, 2015, and 2014 were as

follows (in thousands):

2016

2015

2014

Product warranty liability, beginning of period . . . .
Accruals for new warranties issued . . . . . . . . . . .
Settlements . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in estimate of product warranty liability .

$231,751
35,256
(16,266)
1,667

$223,057
50,040
(13,392)
(27,954)

$198,041
40,599
(16,721)
1,138

Product warranty liability, end of period . . . . . . . .

$252,408

$231,751

$223,057

Current portion of warranty liability . . . . . . . . . . .
Noncurrent portion of warranty liability . . . . . . . . .

$ 40,079
$212,329

$ 38,468
$193,283

$ 69,656
$153,401

We estimate our limited product warranty liability for power output and defects in materials and

workmanship under normal use and service conditions based on a warranty return rate of
approximately 1% to 3% for modules covered under warranty. As of December 31, 2016, a 1% change
in the estimated warranty return rate would change our module warranty liability by $83.5 million, and
a 1% change in the estimated warranty return rate for BoS components would not have a material
impact on the associated warranty liability.

Performance Guarantees

As part of our systems business, we conduct performance testing of a system prior to substantial

completion to confirm the system meets its operational and capacity expectations noted in the EPC
agreement. In addition, we may provide an energy performance test during the first or second year of a
system’s operation to demonstrate that the actual energy generation for the applicable year meets or
exceeds the modeled energy expectation, after certain adjustments. If there is an underperformance
event with regards to these tests, we may incur liquidated damages as a percentage of the EPC contract
price. In certain instances, a bonus payment may be received at the end of the first year if the system
performs above a specified level. As of December 31, 2016 and 2015, we accrued $6.3 million and
$0.3 million, respectively, of estimated obligations under such arrangements, which were classified as
‘‘Other current liabilities’’ in the consolidated balance sheets.

As part of our O&M service offerings, we typically offer an effective availability guarantee, which

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availability. Effective availability guarantees are only offered as part of our O&M services and
terminate at the end of an O&M arrangement. If we fail to meet the contractual threshold for these
guarantees, we may incur liquidated damages for certain lost energy under the PPA. Our O&M
agreements typically contain provisions limiting our total potential losses under an agreement, including
amounts paid for liquidated damages, to a percentage of O&M fees. Many of our O&M agreements
also contain provisions whereby we may receive a bonus payment if system availability exceeds a
separate threshold. As of December 31, 2016 and 2015, we did not accrue any estimated obligations
under our effective availability guarantees.

Indemnifications

In certain limited circumstances, we have provided indemnifications to customers or project tax

equity investors under which we are contractually obligated to compensate such parties for losses they
may suffer as a result of reductions in tax benefits received, including investment tax credits. Project
related tax benefits are, in part, based on guidance provided by the Internal Revenue Service and U.S.
Treasury Department, which includes assumptions regarding the fair value of qualifying PV solar power
systems. For any sales agreements that have such indemnification provisions, we reduce the profit
recognized, if any, by the maximum exposure to loss until the indemnification provisions are of no
further force or effect and all other necessary revenue recognition criteria have been met.

Contingent Consideration

As part of our Enki acquisition, we agreed to pay additional consideration of up to $7.0 million to

the selling shareholders contingent upon the achievement of certain production and module
performance milestones. See Note 5 ‘‘Business Acquisitions’’ to our consolidated financial statements
for further discussion of this acquisition. In connection with our previously disclosed TetraSun
acquisition, we agreed to pay additional amounts to the sellers contingent upon achievement by the
acquired business of certain negotiated goals, such as targeted module shipment volumes. In June 2016,
we reversed the outstanding contingent consideration associated with our TetraSun acquisition of
$7.4 million as a result of our executive management’s decision to end production of our crystalline
silicon modules, which adversely affected the likelihood of achieving certain module shipment volume
milestones. Such reversal resulted in a corresponding gain recorded within ‘‘Other income (expense),
net’’ on our consolidated statements of operations for the year ended December 31, 2016. See Note 4
‘‘Restructuring and Asset Impairments’’ to our consolidated financial statements for further discussion
related to these restructuring activities. As of December 31, 2016, we had recorded $7.0 million of
long-term liabilities for contingent obligations based on their estimated fair values. As of December 31,
2015, we had recorded $2.5 million of current liabilities and $4.9 million of long-term liabilities for such
contingent obligations based on their estimated fair values.

We continually seek to make additions to our advanced-stage project pipeline and are also actively

developing our early to mid-stage project pipeline in order to secure PPAs and are also pursuing
opportunities to acquire advanced-stage projects, which already have PPAs in place. In connection with
such project acquisitions, we may agree to pay additional amounts to project sellers upon achievement
of certain project-related milestones, such as obtaining a PPA, obtaining financing, and selling the
project to a new owner. We recognize an estimated project acquisition contingent liability when we
determine that such liability is both probable and reasonably estimable, and the carrying amount of the
related project asset is correspondingly increased. As of December 31, 2016 and 2015, we recorded
$19.6 million and $6.7 million of current liabilities, respectively, and $3.5 million and $3.9 million of
long-term liabilities, respectively, for such contingent obligations. Any future differences between the
acquisition-date contingent obligation estimate and the ultimate settlement of the obligations will be
recognized primarily as an adjustment to project assets, as contingent payments are considered direct
and incremental to the underlying value of the related projects.

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Legal Proceedings

We are party to legal matters and claims in the normal course of our operations. While we believe

that the ultimate outcome of these matters will not have a material adverse effect on our financial
position, results of operations, or cash flows, the outcome of these matters is not determinable with
certainty, and negative outcomes may adversely affect us.

Class Action

On March 15, 2012, a purported class action lawsuit titled Smilovits v. First Solar, Inc., et al., Case

No. 2:12-cv-00555-DGC, was filed 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
directors and officers. The complaint was filed on behalf of persons who purchased or otherwise
acquired the Company’s publicly traded securities between April 30, 2008 and February 28, 2012 (the
‘‘Class Action’’). The complaint generally alleges that the defendants violated Sections 10(b) and 20(a)
of the Securities Exchange Act of 1934 by making false and misleading statements regarding the
Company’s financial performance and prospects. The action includes claims for damages, including
interest, and an award of reasonable costs and attorneys’ fees to the putative class. The Company
believes it has meritorious defenses and will vigorously defend this action.

On July 23, 2012, the Arizona District Court issued an order appointing as lead plaintiffs in the

Class Action the Mineworkers’ Pension Scheme and British Coal Staff Superannuation Scheme
(collectively ‘‘Pension Schemes’’). The Pension Schemes filed an amended complaint on August 17,
2012, which contains similar allegations and seeks similar relief as the original complaint. Defendants
filed a motion to dismiss on September 14, 2012. On December 17, 2012, the court denied defendants’
motion to dismiss. On October 8, 2013, the Arizona District Court granted the Pension Schemes’
motion for class certification, and certified a class comprised of all persons who purchased or otherwise
acquired publicly traded securities of the Company between April 30, 2008 and February 28, 2012 and
were damaged thereby, excluding defendants and certain related parties. Merits discovery closed on
February 27, 2015.

Defendants filed a motion for summary judgment on March 27, 2015. On August 11, 2015, the
Arizona District Court granted defendants’ motion in part and denied it in part, and certified an issue
for immediate appeal to the Ninth Circuit Court of Appeals (the ‘‘Ninth Circuit’’). First Solar filed a
petition for interlocutory appeal with the Ninth Circuit, and that petition was granted on November 18,
2015. On May 20, 2016, the Pension Schemes moved to vacate the order granting the petition, dismiss
the appeal, and stay the merits briefing schedule. On December 13, 2016, the Ninth Circuit denied the
Pension Schemes’ motion. Merits briefing on the appeal is ongoing. The Arizona District Court has
entered a stay of the proceedings in district court until the appeal is decided. Given the pending
appeal, the need for further expert discovery, and the uncertainties of trial, we are not in a position to
assess whether any loss or adverse effect on our financial condition is probable or remote or to
estimate the range of potential loss, if any.

Opt-Out Action

On June 23, 2015, a suit titled Maverick Fund, L.D.C. v. First Solar, Inc., et al., Case

No. 2:15-cv-01156-ROS, was filed in Arizona District Court by putative stockholders that opted out of
the Class Action. The complaint names the Company and certain of our current and former directors
and officers as defendants, and alleges that the defendants violated Sections 10(b) and 20(a) of the
Securities Exchange Act of 1934, and violated state law, by making false and misleading statements

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regarding the Company’s financial performance and prospects. The action includes claims for
recessionary and actual damages, interest, punitive damages, and an award of reasonable attorneys’
fees, expert fees, and costs. The Company believes it has meritorious defenses and will vigorously
defend this action.

The Arizona District Court has extended the deadline for responding to the complaint until after
the Ninth Circuit resolves the appeal in the Smilovits matter described above. Accordingly, we are not
in a position to assess whether any loss or adverse effect on our financial condition is probable or
remote or to estimate the range of potential loss, if any.

Derivative Actions

On April 3, 2012, a derivative action titled Tsevegmid v. Ahearn, et al., Case

No. 1:12-cv-00417-CJB, was filed by a putative stockholder on behalf of the Company in the United
States District Court for the District of Delaware (hereafter ‘‘Delaware District Court’’) against certain
current and former directors and officers of the Company, alleging breach of fiduciary duties and
unjust enrichment. The complaint generally alleges that from June 1, 2008, to March 7, 2012, the
defendants caused or allowed false and misleading statements to be made concerning the Company’s
financial performance and prospects. The action includes claims for, among other things, damages in
favor of the Company, certain corporate actions to purportedly improve the Company’s corporate
governance, and an award of costs and expenses to the putative plaintiff stockholder, including
attorneys’ fees. On April 10, 2012, a second derivative complaint was filed in the Delaware District
Court. The complaint, titled Brownlee v. Ahearn, et al., Case No. 1:12-cv-00456-CJB, contains similar
allegations and seeks similar relief to the Tsevegmid action. By court order on April 30, 2012, pursuant
to the parties’ stipulation, the Tsevegmid action and the Brownlee action were consolidated into a
single action in the Delaware District Court. On May 15, 2012, defendants filed a motion to challenge
Delaware as the appropriate venue for the consolidated action. On March 4, 2013, the magistrate judge
issued a Report and Recommendation recommending to the court that defendants’ motion be granted
and that the case be transferred to the Arizona District Court. On July 12, 2013, the court adopted the
magistrate judge’s Report and Recommendation and ordered the case transferred to the Arizona
District Court. The transfer was completed on July 15, 2013.

On April 12, 2012, a derivative complaint was filed in the Arizona District Court, titled Tindall v.
Ahearn, et al., Case No. 2:12-cv-00769-ROS. In addition to alleging claims and seeking relief similar to
the claims and relief asserted in the Tsevegmid and Brownlee actions, the Tindall complaint alleges
violations of Sections 14(a) and 20(b) of the Securities Exchange Act of 1934. On April 19, 2012, a
second derivative complaint was filed in the Arizona District Court, titled Nederhood v. Ahearn, et al.,
Case No. 2:12-cv-00819-JWS. The Nederhood complaint contains similar allegations and seeks similar
relief to the Tsevegmid and Brownlee actions. On May 17, 2012 and May 30, 2012, respectively, two
additional derivative complaints, containing similar allegations and seeking similar relief as the
Nederhood complaint, were filed in Arizona District Court: Morris v. Ahearn, et al., Case
No. 2:12-cv-01031-JAT and Tan v. Ahearn, et al., 2:12-cv-01144-NVW.

On July 17, 2012, the Arizona District Court issued an order granting First Solar’s motion to
transfer the derivative actions to Judge David Campbell, the judge to whom the Smilovits class action is
assigned. On August 8, 2012, the court consolidated the four derivative actions pending in Arizona
District Court, and on August 31, 2012, plaintiffs filed an amended complaint. Defendants filed a
motion to stay the action on September 14, 2012. On December 17, 2012, the Arizona District Court
granted defendants’ motion to stay pending resolution of the Smilovits class action. On August 13,
2013, Judge Campbell consolidated the two derivative actions transferred from the Delaware District

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Court with the stayed Arizona derivative actions. On February 19, 2016, the Arizona District Court
issued an order lifting the stay in part. Pursuant to the February 19, 2016 order, the plaintiffs filed an
amended complaint on March 11, 2016, and defendants filed a motion to dismiss the amended
complaint on April 1, 2016. On June 30, 2016, the Arizona District Court granted defendants’ motion
to dismiss the insider trading and unjust enrichment claims with prejudice, and further granted
defendants’ motion to dismiss the claims for alleged breaches of fiduciary duties with leave to amend.
On July 15, 2016, plaintiffs filed a motion to reconsider certain aspects of the order granting
defendants’ motion to dismiss. The Arizona District Court denied the plaintiffs’ motion for
reconsideration on August 4, 2016. On July 15, 2016, plaintiffs filed a motion to intervene, lift the stay,
and unseal documents in the securities Class Action. On September 30, 2016, the Arizona District
Court denied plaintiffs’ motion. On October 17, 2016, plaintiffs filed a notice of appeal to the Ninth
Circuit of the September 30, 2016 order. On October 27, 2016, plaintiffs filed a motion to extend the
October 31, 2016 deadline to file an amended complaint. On November 29, 2016, the Arizona District
Court denied plaintiffs’ request and directed the clerk to terminate the action. On January 23, 2017,
the Arizona District Court entered judgment in favor of Defendants and terminated the action. On
January 27, 2017, plaintiffs filed a notice of appeal to the Ninth Circuit. Plaintiffs’ opening brief on
their appeal of the order denying intervention is due on March 1, 2017. Plaintiffs’ opening brief on
their appeal of the judgment dismissing the action is due on May 8, 2017.

On July 16, 2013, a derivative complaint was filed in the Superior Court of Arizona, Maricopa

County, titled Bargar, et al. v. Ahearn, et al., Case No. CV2013-009938, by a putative stockholder
against certain current and former directors and officers of the Company. The complaint contains
similar allegations to the Delaware and Arizona derivative cases, and includes claims for, among other
things, breach of fiduciary duties, insider trading, unjust enrichment, and waste of corporate assets. By
court order on October 3, 2013, the Superior Court of Arizona, Maricopa County granted the parties’
stipulation to defer defendants’ response to the complaint pending resolution of the Smilovits class
action or expiration of the stay issued in the consolidated derivative actions in the Arizona District
Court. On November 5, 2013, the matter was placed on the court’s inactive calendar. The parties have
jointly sought and obtained multiple requests to continue the stay in this action. Most recently, on
October 31, 2016, the court entered an order continuing the stay until March 31, 2017.

The Company believes that plaintiffs in the derivative actions lack standing to pursue litigation on

behalf of First Solar. The derivative actions are still in the initial stages and there has been no
discovery. Accordingly, we are not in a position to assess whether any loss or adverse effect on our
financial condition is probable or remote or to estimate the range of potential loss, if any.

Department of Labor Proceeding

In March 2015, the Wage and Hour Division of the U.S. Department of Labor (the ‘‘DOL’’)
notified our wholly-owned subsidiary FSE of the DOL’s findings following a labor standards compliance
review under the Davis Bacon and Related Acts at the Agua Caliente project in southwestern Arizona.
FSE served as the general contractor for the project. The DOL alleges that certain workers at the
project were misclassified and, as a result of that misclassification, were not paid the required
prevailing wage. We disagree with certain of the DOL’s investigative findings and are currently
reviewing those issues of disagreement with the DOL. Possible adverse outcomes include the payment
of back wages to certain project workers. We do not expect the outcome of the DOL proceeding to
have a material adverse effect on our business, financial condition, or results of operations.

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17. Stockholders’ Equity

Preferred Stock

We have authorized 30,000,000 shares of undesignated preferred stock, $0.001 par value, none of

which was issued and outstanding at December 31, 2016 and 2015. Our board of directors is authorized
to determine the rights, preferences, and restrictions on any series of preferred stock that we may issue.

Common Stock

We have authorized 500,000,000 shares of common stock, $0.001 par value, of which 104,034,731

and 101,766,797 shares were issued and outstanding at December 31, 2016 and 2015, respectively. Each
share of common stock is entitled to a single vote. We have not declared or paid any dividends through
December 31, 2016.

18. Share-Based Compensation

We measure share-based compensation cost at the grant date based on the fair value of the award

and recognize this cost as share-based compensation expense over the required or estimated service
period for awards that vest. The share-based compensation expense that we recognized in our
consolidated statements of operations for the years ended December 31, 2016, 2015, and 2014 was as
follows (in thousands):

Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Research and development . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative . . . . . . . . . . . . . . .
Production start-up . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 7,598
3,284
17,830
—

$10,713
4,109
30,052
25

$11,713
4,417
27,660
20

Total share-based compensation expense . . . . . . . . .

$28,712

$44,899

$43,810

2016

2015

2014

The following table presents our share-based compensation expense by type of award for the years

ended December 31, 2016, 2015, and 2014 (in thousands):

Restricted and performance stock units . . . . . . . . . . . .
Unrestricted stock . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock purchase plan . . . . . . . . . . . . . . . . . . . . . . . . . .

Net amount released from (absorbed into) inventory . .

2016

2015

2014

$25,076
1,677
1,332

28,085
627

$40,393
1,326
1,254

42,973
1,926

$42,852
1,326
1,003

45,181
(1,371)

Total share-based compensation expense . . . . . . . . .

$28,712

$44,899

$43,810

Share-based compensation expense capitalized in inventory was $2.7 million and $3.4 million as of

December 31, 2016 and 2015, respectively. As of December 31, 2016, we had $23.5 million of
unrecognized share-based compensation expense related to unvested restricted stock units and rights
under our stock purchase plan (the ‘‘Stock Purchase Plan’’), which we expect to recognize as expense
over a weighted-average period of approximately 1.2 years.

160

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As a result of the adoption of ASU 2016-09, we have elected to account for forfeitures of share-

based awards as such forfeitures occur. Prior to the adoption of this guidance, the estimated forfeiture
rate used to record share-based compensation expense was primarily based on historical forfeitures and
adjusted periodically based on actual results. Accordingly, at December 31, 2016 and 2015, our
forfeiture rate was zero and 9.5%, respectively. See Note 3 ‘‘Recent Accounting Pronouncements’’ to
our consolidated financial statements for additional information on the adoption of ASU 2016-09.

During the years ended December 31, 2016, 2015, and 2014, we recognized an income tax benefit
in our statement of operations of $9.6 million, $15.3 million, and $15.8 million, respectively, related to
share-based compensation expense.

We authorize our transfer agent to issue new shares, net of shares withheld for minimum statutory
withholding taxes as appropriate, for the vesting of restricted and performance stock units or grants of
unrestricted stock.

Share-Based Compensation Plans

During 2015, we adopted our 2015 Omnibus Incentive Compensation Plan (‘‘the 2015 Omnibus
Plan’’), under which directors, officers, employees, and consultants of First Solar (including any of its
subsidiaries) are eligible to participate in various forms of share-based compensation. The 2015
Omnibus Plan is administered by the compensation committee of our board of directors (or any other
committee designated by our board of directors), which is authorized to, among other things, determine
who will receive grants and determine the exercise price and vesting schedule of the awards made
under the 2015 Omnibus Plan. Our board of directors may amend, modify, or terminate the 2015
Omnibus Plan without the approval of our stockholders, except stockholder approval is required for
amendments that would increase the maximum number of shares of our common stock available for
awards under the 2015 Omnibus Plan, increase the maximum number of shares of our common stock
that may be delivered by incentive stock options, or modify the requirements for participation in the
2015 Omnibus Plan.

The 2015 Omnibus Plan provides for the grant of incentive stock options, non-qualified stock
options, stock appreciation rights, restricted shares, restricted stock units, performance units, cash
incentive awards, performance compensation awards, and other equity-based and equity-related awards.
In addition, the shares underlying any forfeited, expired, terminated, or canceled awards, or shares
surrendered as payment for taxes required to be withheld, become available for new award grants. We
may not grant awards under the 2015 Omnibus Plan after 2025, which is the tenth anniversary of the
2015 Omnibus Plan’s approval by our stockholders. As of December 31, 2016, 5,144,522 shares were
reserved for future issuance under the 2015 Omnibus Plan.

Restricted Stock Units and Performance Based Restricted Stock Units

We issue shares to the holders of restricted stock units on the date the restricted units vest. The

majority of shares issued are net of the minimum statutory withholding requirements, which we pay on
behalf of our associates. As a result, the actual number of shares issued will be less than the number of
restricted stock units granted. Prior to vesting, restricted stock units do not have dividend equivalent
rights or voting rights, and the shares underlying the restricted stock units are not considered issued
and outstanding.

Some of our restricted stock units have been characterized as performance based restricted stock

units. Our board of directors previously approved and adopted the Key Senior Talent Equity
Performance Program (‘‘KSTEPP’’), a performance unit program under our prior 2010 Omnibus

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FIRST SOLAR, INC. AND SUBSIDIARIES

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Incentive Compensation Plan applicable to our senior executives. The KSTEPP rewarded achievement
of certain performance objectives aligned to the success of our long term strategic plan. Such
performance objectives included KSTEPP adjusted operating income, sales in key geographic markets,
and cash adjusted return on invested capital. The KSTEPP awards were designed so that the
attainment of the performance criteria required for full or partial vesting would be attained over time.
In July 2016, the compensation committee of our board of directors certified the Company’s
achievement of the full KSTEPP vesting conditions for the rolling annual period ended June 30, 2016.
Accordingly, the remaining two-thirds of each KSTEPP award vested in 2016, and each KSTEPP
participant received one share of common stock for each vested KSTEPP performance unit, net of any
forfeitures.

The following is a summary of our restricted stock unit activity, including performance stock unit

activity, for the year ended December 31, 2016:

Unvested restricted stock units at December 31, 2015 . . . . . .
Restricted stock units granted . . . . . . . . . . . . . . . . . . . . .
Restricted stock units vested . . . . . . . . . . . . . . . . . . . . . .
Restricted stock units forfeited . . . . . . . . . . . . . . . . . . . .

Number of
Shares

2,973,975
605,005
(2,361,426)
(261,434)

Unvested restricted stock units at December 31, 2016 . . . . . .

956,120

Weighted
Average
Grant-Date
Fair Value

$31.58
59.64
26.96
57.85

$53.55

We estimate the fair value of our restricted stock unit awards based on our stock price at the grant

date. For the years ended December 31, 2015 and 2014, the weighted average grant-date fair value for
restricted stock units granted in such years was $60.91 and $57.74, respectively. The total fair value of
restricted stock units vested during 2016, 2015, and 2014 was $131.0 million, $96.4 million, and
$66.8 million, respectively.

Stock Awards

During the years ended December 31, 2016, 2015, and 2014, we awarded 38,429, 25,376,

and 21,879, respectively, of fully vested, unrestricted shares of our common stock to the independent
members of our board of directors. Accordingly, we recognized $1.7 million, $1.3 million, and
$1.3 million of share-based compensation expense for these awards during the years ended
December 31, 2016, 2015, and 2014, respectively.

Stock Purchase Plan

Our shareholders approved our stock purchase plan for employees in June 2010. The plan allows

employees to purchase our common stock through payroll withholdings over a six-month offering
period at 85% of the closing share price on the last day of the offering period (the ‘‘exercise date’’).
We estimate the fair value of our stock purchase plan compensation expense based primarily on our
stock price on the exercise date.

162

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19. Benefit Plans

We offer a 401(k) retirement savings plan into which all of our U.S. associates (our term for

employees) can voluntarily contribute a portion of their annual salaries or wages, subject to legally
prescribed dollar limits. Our contributions to the plan are made at the discretion of our board of
directors and are based on a percentage of the participating associates’ contributions. We match
associate contributions on a dollar-for-dollar basis up to the first 4% of their annual salaries or wages.
Our contributions to the plan were $8.2 million, $7.4 million, and $6.5 million for the years ended
December 31, 2016, 2015, and 2014, respectively. Our 401(k) retirement savings plan does not offer
participants an option to invest in our common stock.

We also offer retirement savings plans to certain non-U.S. associates. These plans are managed in

accordance with applicable local statutes and practices and are defined contribution plans. Our
contributions to these plans were $0.9 million for the years ended December 31, 2016, 2015, and 2014,
respectively.

20. Income Taxes

The U.S. and non-U.S. components of our loss or income before income taxes for the years ended

December 31, 2016, 2015, and 2014 were as follows (in thousands):

U.S. income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-U.S. income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$(361,231) $126,958
392,877
(110,459)

$139,137
292,964

(Loss) income before taxes and equity in earnings of unconsolidated
affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$(471,690) $519,835

$432,101

2016

2015

2014

The components of our income tax expense or benefit for the years ended December 31, 2016,

2015, and 2014 were as follows (in thousands):

2016

2015

2014

Current (benefit) expense:

Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ (7,689) $ 20,208
4,172
23,215

1,877
(29,009)

$15,492
1,699
8,123

Total current (benefit) expense . . . . . . . . . . . . .

(34,821)

47,595

25,314

Deferred expense (benefit):

115,905
(7,343)
(15,522)

(716)
3,118
(56,153)

2,926
5,133
(2,185)

Total deferred expense (benefit) . . . . . . . . . . . .

93,040

(53,751)

5,874

Total income tax expense (benefit) . . . . . . . . . .

$ 58,219

$ (6,156) $31,188

The current tax expense listed above does not reflect income tax benefits of $14.6 million and

$24.5 million for the years ended December 31, 2015 and 2014, respectively, related to excess tax
deductions on share-based compensation as we recorded such benefits directly to additional paid-in
capital. Following the adoption of ASU 2016-09, we recorded excess tax deductions on share-based

163

FIRST SOLAR, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

compensation in income tax expense for the year ended December 31, 2016. See Note 3 ‘‘Recent
Accounting Pronouncements’’ to our consolidated financial statements for additional information on
the adoption of ASU 2016-09.

We use the deferral method of accounting for investment tax credits under which the credits are
recognized as reductions in the carrying value of the related assets. The use of the deferral method also
results in a basis difference from the recognition of a deferred tax asset and an immediate income tax
benefit for the future tax depreciation of the related assets. Such basis differences are accounted for
pursuant to the income statement method. During 2015, we generated a $19.2 million investment tax
credit from placing a project in service.

Our Malaysian subsidiary has been granted a long-term tax holiday that expires in 2027. The tax
holiday, which generally provides for a full exemption from Malaysian income tax, is conditional upon
our continued compliance with meeting certain employment and investment thresholds, which we are
currently in compliance with and expect to continue to comply with through the expiration of the tax
holiday in 2027.

Income tax expense increased by $64.4 million during 2016 compared to 2015, primarily due to

certain U.S. taxes on a cash distribution received from a foreign subsidiary, partially offset by tax
benefits from restructuring charges and a $35.4 million reversal of an uncertain tax position related to
the income of a foreign subsidiary. Income tax expense decreased by $37.3 million during 2015
compared to 2014, primarily as a result of a $41.7 million discrete tax benefit associated with the
receipt of a private letter ruling.

Our income tax results differed from the amount computed by applying the U.S. statutory federal
income tax rate of 35.0% to our income or loss before income taxes for the following reasons for the
years ended December 31, 2016, 2015, and 2014 (in thousands):

2016

2015

2014

Tax

Percent

Tax

Percent

Tax

Percent

Statutory income tax (benefit) expense . .
Foreign dividend income . . . . . . . . . . . .
Change in tax contingency . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . .
Share-based compensation . . . . . . . . . . .
Return to provision adjustments . . . . . . .
Non-deductible expenses . . . . . . . . . . . .
State tax, net of federal tax . . . . . . . . . .
Effect of tax holiday . . . . . . . . . . . . . . .
Foreign tax rate differential . . . . . . . . . .
Effect of private letter ruling . . . . . . . . .
Tax credits . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . .
Impact of changes in valuation allowance

$(165,091)
248,013
(34,541)
22,468
(23,283)
11,757
324
(5,065)
4,640
6,833
—
(15,435)
5,187
2,412

35.0% $ 181,936
—
(52.6)%
—
7.3%
—
(4.8)%
—
5.0%
6,596
(2.5)%
4,161
(0.1)%
1.1%
5,437
(1.0)% (126,324)
(1.4)% (9,637)
—% (41,694)
3.3%
(2,566)
(1.1)% (16,266)
(0.5)% (7,799)

35.0% $151,235
—
—%
—
—%
—
—%
—%
—
1.3% (3,163)
3,001
0.8%
4,549
1.0%
(24.3)% (80,049)
(1.9)% (7,524)
—
(8.0)%
(0.5)% (3,014)
(3.1)% (2,206)
(1.5)% (31,641)

35.0%
—%
—%
—%
—%
(0.7)%
0.7%
1.0%
(18.5)%
(1.7)%
—%
(0.7)%
(0.5)%
(7.4)%

Reported income tax expense (benefit) . .

$ 58,219

(12.3)% $

(6,156)

(1.2)% $ 31,188

7.2%

For the year ended December 31, 2016, the tax expense from the foreign tax rate differential

primarily related to our loss generated in Malaysia calculated at a statutory tax rate of 24.0%,
compared to the U.S. statutory tax rate of 35.0%. For the years ended December 31, 2015 and 2014,

164

FIRST SOLAR, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

the tax benefit from the foreign tax rate differential primarily related to our income generated in
Malaysia calculated at a statutory tax rate of 25.0%, compared to the U.S. statutory tax rate of 35.0%.

During the years ended December 31, 2016, 2015 and 2014, we made net tax payments of

$1.9 million, $30.8 million and $17.0 million, respectively.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying

amounts of assets and liabilities calculated for U.S. GAAP financial reporting purposes and the
amounts calculated for preparing our income tax returns in accordance with tax regulations. The items
that gave rise to our deferred taxes as of December 31, 2016 and 2015 were as follows (in thousands):

2016

2015

Deferred tax assets:

Goodwill
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net operating losses . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property, plant and equipment . . . . . . . . . . . . . . . . . . . . .
Long-term contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 42,168
18,289
83,349
62,254
86,328
6,830
3,276
64,150
48,364
10,034

$ 32,022
38,938
74,432
211,066
95,562
5,961
8,559
38,869
2,522
8,622

Deferred tax assets, gross . . . . . . . . . . . . . . . . . . . . . . . . . .
Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . .

425,042
(123,936)

516,553
(121,524)

Deferred tax assets, net of valuation allowance . . . . . . . . . . .
Deferred tax liabilities:

Capitalized interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition accounting / basis difference . . . . . . . . . . . . . .
Restricted investments and derivatives . . . . . . . . . . . . . . .
Investments in foreign subsidiaries . . . . . . . . . . . . . . . . . .
Equity in earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

301,106

395,029

(6,821)
(6,848)
(12,429)
(582)
(38,650)
(322)

(4,270)
(3,527)
(14,128)
(379)
(21,895)
(2,388)

Deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(65,652)

(46,587)

Net deferred tax assets and liabilities . . . . . . . . . . . . . . . . . .

$ 235,454

$ 348,442

In July 2016, we received a letter from a foreign tax authority confirming our residency status in
that jurisdiction. In accordance with the letter, we reversed a liability associated with an uncertain tax
position related to the income of a foreign subsidiary. Accordingly, we recorded a benefit of
$35.4 million through the tax provision from the reversal of such liability.

In April 2015, we received a private letter ruling in a foreign jurisdiction related to the timing of
the deduction for certain of our obligations. In accordance with the private letter ruling, we will begin
treating these obligations as deductible when we actually make payments on the obligations, which are
expected to occur subsequent to the expiration of the tax holiday. Accordingly, we recorded a benefit of
$41.7 million through the tax provision to establish a deferred tax asset associated with the future
deductibility of these obligations.

165

FIRST SOLAR, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

During the years ended December 31, 2016 and 2015, FS Malaysia prepaid $59.0 million and
$96.6 million, respectively, for intellectual property royalties to FSI. As a result of such transactions,
FS Malaysia and FSI expect to recognize certain remaining amounts for royalty expense and royalty
revenue, respectively, in 2017.

Changes in the valuation allowance against our deferred tax assets were as follows during the years

ended December 31, 2016, 2015, and 2014 (in thousands):

Valuation allowance, beginning of year . . . . . . . . . .
Additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reversals . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$121,524
13,933
(11,521)

$129,323
368
(8,167)

$160,965
2,068
(33,710)

Valuation allowance, end of year . . . . . . . . . . . . . .

$123,936

$121,524

$129,323

2016

2015

2014

We maintained a valuation allowance of $123.9 million and $121.5 million as of December 31, 2016

and 2015, respectively, against certain of our deferred tax assets, as it is more likely than not that such
amounts will not be fully realized. In 2016, the valuation allowance increased by $2.4 million primarily
due to (i) current year operating losses in certain jurisdictions and (ii) an increase in deferred tax assets
with a full valuation allowance due to a change in foreign exchange rates. These increases were
partially offset by the partial release of valuation allowances in jurisdictions with current year operating
income.

Except as required under U.S. tax law, we do not provide for U.S. or non-U.S. taxes on the
cumulative undistributed earnings of our foreign subsidiaries that have not been previously taxed since
we intend to invest such undistributed earnings indefinitely or repatriation of such earnings would not
give rise to additional U.S. or non-U.S. taxes. If our intent changes or if these funds are needed for our
U.S. or non-U.S. operations, we would be required to accrue or pay U.S. or non-U.S. taxes on some or
all of these undistributed earnings. Accordingly, we have not provided for $0.9 billion of deferred
income taxes on $2.4 billion of undistributed earnings of our foreign subsidiaries. These taxes would be
required to be recognized when and if we determine that these amounts are not indefinitely reinvested.

At December 31, 2016, we had federal and aggregate state net operating loss carryforwards of
$5.8 million and $12.1 million, respectively. At December 31, 2015, we had federal and aggregate state
net operating loss carryforwards of $129.5 million and $23.8 million, respectively. If not used, the
federal net operating loss carryforwards will begin to expire in 2031, and the state net operating loss
carryforwards will begin to expire in 2028. The utilization of a portion of our net operating loss
carryforwards is subject to an annual limitation under Section 382 of the Internal Revenue Code due to
changes in ownership. Based on our analysis, we do not believe such annual limitation will impact our
realization of the net operating loss carryforwards as we anticipate utilizing them prior to 2022.

At December 31, 2016 we had gross federal and state research and development credit

carryforwards of $47.5 million, U.S. foreign tax credit carryforwards of $22.5 million, and investment tax
credits of $57.4 million available to reduce future federal and state income tax liabilities. If not used,
the research and development credits, investment tax credits, and U.S. foreign tax credits will begin to
expire in 2026 through 2036, 2026 through 2035, and 2024 through 2025, respectively.

166

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

A reconciliation of the beginning and ending amount of liabilities associated with uncertain tax

positions for the years ended December 31, 2016, 2015, and 2014 is as follows (in thousands):

2016

2015

2014

Unrecognized tax benefits, beginning of year . . . . .
Increases related to prior year tax positions . . . .
Decreases related to prior year tax positions . . . .
Decreases from lapse in statute of limitations . . .
Decreases relating to settlements with authorities
Increases related to current tax positions . . . . . .

$141,755
—
(6,119)
(14,421)
(35,416)
3,457

$162,029
484
(2,693)
(13,827)
(20,485)
16,247

$183,239
522
(2,513)
(28,649)
(3,111)
12,541

Unrecognized tax benefits, end of year

. . . . . . . . .

$ 89,256

$141,755

$162,029

If recognized, $86.1 million of unrecognized tax benefits would reduce our annual effective tax

rate. Due to the uncertain and complex application of tax laws and regulations, it is possible that the
ultimate resolution of uncertain tax positions may result in liabilities that could be materially different
from these estimates. In such an event, we will record additional tax expense or tax benefit in the
period in which such resolution occurs. Our policy is to recognize any interest and penalties that we
might incur related to our tax positions as a component of income tax expense. We did not accrue any
penalties related to these unrecognized tax benefits during 2016, 2015, or 2014. We also did not accrue
any interest related to these unrecognized tax benefits in 2016, 2015, or 2014. It is reasonably possible
that an additional $11.0 million of uncertain tax positions will be recognized within the next 12 months
due to the expiration of the statute of limitations associated with such positions.

We are subject to audit by U.S. federal, state, local, and foreign tax authorities. During the year
ended December 31, 2015, we settled a tax audit in Spain, which resulted in a discrete tax expense of
$3.0 million. We are currently under examination in India, Chile, Germany, and the state of California.
We believe that adequate provisions have been made for any adjustments that may result from tax
examinations. However, the outcome of tax audits cannot be predicted with certainty. If any issues
addressed by our tax audits are not resolved in a manner consistent with our expectations, we could be
required to adjust our provision for income taxes in the period such resolution occurs.

The following table summarizes the tax years that are either currently under audit or remain open

and subject to examination by the tax authorities in the most significant jurisdictions in which we
operate:

Australia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
India . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Malaysia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2011 - 2015
2014 - 2016
2010 - 2015
2008 - 2009; 2012 - 2015

Tax Years

In certain of the jurisdictions noted above, we operate through more than one legal entity, each of
which has different open years subject to examination. The table above presents the open years subject
to examination for the most material of the legal entities in each jurisdiction. Additionally, tax years are
not closed until the statute of limitations in each jurisdiction expires. In the jurisdictions noted above,
the statute of limitations can extend beyond the open years subject to examination.

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21. Net (Loss) Income per Share

Basic net (loss) income per share is computed by dividing net (loss) income by the weighted-

average number of common shares outstanding for the period. Diluted net income per share is
computed giving effect to all potentially dilutive common shares, including restricted and performance
stock units and stock purchase plan shares, unless there is a net loss for the period. In computing
diluted net income per share, we utilize the treasury stock method.

The calculation of basic and diluted net (loss) income per share for the years ended December 31,

2016, 2015, and 2014 was as follows (in thousands, except per share amounts):

2016

2015

2014

Basic net (loss) income per share
Numerator:

Net (loss) income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$(357,964) $546,421

$395,964

Denominator:

Weighted-average common shares outstanding . . . . . . . . . . . . . . .

102,866

100,886

100,048

Diluted net (loss) income per share
Denominator:

Weighted-average common shares outstanding . . . . . . . . . . . . . . .
Effect of restricted and performance stock units and stock

102,866

100,886

100,048

purchase plan shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

—

929

1,595

Weighted-average shares used in computing diluted net (loss)

income per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

102,866

101,815

101,643

Net (loss) income per share:

Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$
$

(3.48) $
(3.48) $

5.42
5.37

$
$

3.96
3.90

The following table summarizes the potential shares of common stock that were excluded from the
computation of diluted net income per share for the years ended December 31, 2016, 2015, and 2014 as
they would have had an anti-dilutive effect (in thousands):

Anti-dilutive shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

753

2016

2015

2014

168

FIRST SOLAR, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

22. Comprehensive (Loss) Income and Accumulated Other Comprehensive (Loss) Income

Comprehensive (loss) income, which includes foreign currency translation adjustments, unrealized

gains and losses on available-for-sale securities, and unrealized gains and losses on derivative
instruments designated and qualifying as cash flow hedges, the impact of which has been excluded from
net (loss) income and reflected as components of stockholders’ equity, was as follows for the years
ended December 31, 2016, 2015, and 2014 (in thousands):

Net (loss) income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive (loss) income, net of tax:
Foreign currency translation adjustments . . . . . . . . . . . . . . . . . . . . .
Unrealized gain (loss) on marketable securities and restricted
investments for the period, net of tax of $(504), $1,248 and
$(6,644) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Less: reclassification for gains included in net income, net of tax of

2016

2015

2014

$(357,964) $546,421

$395,964

(7,409)

(16,432)

(19,147)

16,898

(15,413)

90,868

$3,022, $0 and $83 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(38,611)

(2)

(127)

Unrealized (loss) gain on marketable securities and restricted

investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(21,713)

(15,415)

90,741

Unrealized gain (loss) on derivative instruments for the period, net

of tax of $(691), $(207) and $(711) . . . . . . . . . . . . . . . . . . . . . . .
Less: reclassification for (gains) losses included in net income, net of
tax of $0, $2,278 and $(150) . . . . . . . . . . . . . . . . . . . . . . . . . . . .

6,927

(8,572)

(1,777)

(3,192)

5,759

6,099

4,322

Unrealized gain (loss) on derivative instruments . . . . . . . . . . . . . . .

3,735

(2,813)

Other comprehensive (loss) income, net of tax . . . . . . . . . . . . . . . . .

(25,387)

(34,660)

75,916

Comprehensive (loss) income . . . . . . . . . . . . . . . . . . . . . . . . . . .

$(383,351) $511,761

$471,880

169

FIRST SOLAR, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following tables reflect the changes in accumulated other comprehensive (loss) income, net of

tax, for the years ended December 31, 2016 and 2015 (in thousands):

Balance as of December 31, 2014 . . . . . . . . . . . . . . .
Other comprehensive loss before reclassifications . . .
Amounts reclassified from accumulated other

Unrealized
Gain (Loss)
on
Marketable
Securities and
Restricted
Investments

Foreign
Currency
Translation
Adjustment

Unrealized
Gain (Loss)
on Derivative
Instruments

Total

$(53,337)
(16,432)

$102,299
(15,413)

$ 1,178
(8,572)

$ 50,140
(40,417)

comprehensive (loss) income . . . . . . . . . . . . . . . .

—

(2)

Net other comprehensive loss . . . . . . . . . . . . . . . . .

(16,432)

(15,415)

Balance as of December 31, 2015 . . . . . . . . . . . . . . .
Other comprehensive (loss) income before

(69,769)

86,884

5,759

(2,813)

(1,635)

5,757

(34,660)

15,480

reclassifications . . . . . . . . . . . . . . . . . . . . . . . . . .

(7,409)

16,898

6,927

16,416

Amounts reclassified from accumulated other

comprehensive (loss) income . . . . . . . . . . . . . . . .

—

Net other comprehensive (loss) income . . . . . . . . . .

(7,409)

(38,611)

(21,713)

(3,192)

(41,803)

3,735

(25,387)

Balance as of December 31, 2016 . . . . . . . . . . . . . . .

$(77,178)

$ 65,171

$ 2,100

$ (9,907)

Details of Accumulated Other Comprehensive Income or Loss

2016

2015

Income Statement Line Item

Gains and (losses) on marketable securities and

restricted investments:

Amounts Reclassified
for the
Year Ended
December 31,

Gains and (losses) on derivative contracts:
Foreign exchange forward contracts . . . . . . . . . . . .
Foreign exchange forward contracts . . . . . . . . . . . .
Cross-currency swap contract . . . . . . . . . . . . . . . .
Foreign exchange forward, interest rate, and cross-
currency swap contracts . . . . . . . . . . . . . . . . . . .

$41,633
(3,022)

$38,611

2 Other income (expense), net
— Tax expense

2 Total, net of tax

$ — $ 1,782 Net sales

—
4,896

5,509 Cost of sales

(10,135) Foreign currency loss, net

(1,704)

(637)

Interest expense, net

3,192
—

(3,481) Total before tax
(2,278) Tax expense

$ 3,192

$ (5,759) Total, net of tax

170

FIRST SOLAR, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

23. Segment and Geographical Information

We operate our business in two segments. Our components segment involves the design,
manufacture, and sale of CdTe solar modules, which convert sunlight into electricity. Third-party
customers of our components segment include integrators and operators of PV solar power systems.
Our second segment is our fully integrated systems business (‘‘systems segment’’), through which we
provide complete turn-key PV solar power systems, or solar solutions, that draw upon our capabilities,
which include (i) project development, (ii) EPC services, and (iii) O&M services. We may provide our
full EPC services or any combination of individual products and services within our EPC capabilities
depending upon the customer and market opportunity. All of our systems segment products and
services are for PV solar power systems, which primarily use our solar modules, and we sell such
products and services to utilities, independent power producers, commercial and industrial companies,
and other system owners. Additionally within our systems segment, we may temporarily own and
operate certain of our PV solar power systems for a period of time based on strategic opportunities.

Our Chief Operating Decision Maker (‘‘CODM’’), consisting of certain members of our senior

executive officers, views both the manufacturing of solar modules from our components segment and
our ability to provide customers with a complete PV solar power system through our fully integrated
systems segment as the primary drivers of our resource allocation, profitability, and cash flows. Our
components segment contributes to our operating results by providing the fundamental technologies
and solar modules that drive our business, and our systems segment contributes to our operating results
by using these modules as part of a range of comprehensive PV solar energy solutions to meet our
customers’ needs.

In our reportable segment financial disclosures, we include an allocation of net sales value for all
solar modules manufactured by our components segment and installed in projects sold or built by our
systems segment in the net sales of our components segment. In the gross profit of our reportable
segment disclosures, we include the corresponding cost of sales value for the solar modules installed in
projects sold or built by our systems segment in the components segment. The cost of solar modules is
comprised of the manufactured cost incurred by our components segment.

After we have determined the amount of revenue earned for our systems projects following the
applicable accounting guidance for the underlying sales arrangements, we allocate module revenue from
the systems segment to the components segment based on how our CODM strategically views these
segments. The amount of module revenue allocated from the systems segment to the components
segment approximates the average selling price for such solar modules as if the modules were sold to a
third-party customer. In order to develop our estimate of the average selling price used for this revenue
allocation, we utilize a combination of our actual third-party module sales transactions, our competitor
benchmarking, and our internal pricing lists used to provide quotes to potential customers. This
allocation methodology and the estimated average selling prices are consistent with how our CODM
views the value proposition our components segment brings to a utility-scale system and how our
CODM reviews financial information to assess the performance of the components segment. Our
CODM generally makes decisions about allocating resources to our segments and assessing their
performance based on gross profit. However, information about segment assets is not reported to the
CODM for purposes of making such decisions. Accordingly, we have excluded such asset information
from our reportable segment financial disclosures.

171

FIRST SOLAR, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Financial information about our reportable segments during the years ended December 31, 2016,

2015, and 2014 was as follows (in thousands):

Year Ended December 31, 2016
Systems

Total

Components

Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization expense . . . . .
Goodwill(1) . . . . . . . . . . . . . . . . . . . . . . . . .

$1,484,300
378,886
190,818
14,462

$1,467,028
325,093
13,433
—

$2,951,328
703,979
204,251
14,462

Year Ended December 31, 2015
Systems

Total

Components

Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit(2) . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization expense . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill

$1,389,579
347,853
214,937
16,152

$2,189,416
571,414
10,289
68,833

$3,578,995
919,267
225,226
84,985

Year Ended December 31, 2014
Systems

Total

Components

Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization expense . . . . .

$1,102,674
93,510
198,731

$2,288,513
731,431
17,857

$3,391,187
824,941
216,588

(1) As a result of our annual impairment testing in the fourth quarter of 2016, we

determined that the estimated fair value of our systems reporting unit was less than its
carrying value and that the implied fair value of goodwill for the systems reporting unit
was zero. Accordingly, we recorded a goodwill impairment loss of $68.8 million. See
Note 6 ‘‘Goodwill and Intangible Assets’’ to our consolidated financial statements for
more information on this impairment.

(2) Gross profit for our components segment for the year ended December 31, 2015 included

a $69.6 million benefit to cost of sales associated with the reduction in our module
collection and recycling obligation. See Note 14 ‘‘Solar Module Collection and Recycling
Liability’’ to our consolidated financial statements for more information regarding the
change in this obligation.

Product Revenue

The following table sets forth the total amounts of solar module and solar power system net sales
recognized for the years ended December 31, 2016, 2015, and 2014. For the purposes of the following
table, (i) solar module revenue is composed of revenue from the sale of solar modules to third parties,
which does not include any modules sold as part of our PV solar power systems, and (ii) solar power
system revenue is composed of revenues from the sale of PV solar power systems and related products

172

FIRST SOLAR, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

and services, including any modules installed in such systems and any revenue generated by such
systems (in thousands):

Solar module revenue . . . . . . . . . . . . . . . . . .
Solar power system revenue . . . . . . . . . . . . . .

$ 675,453
2,275,875

$ 227,461
3,351,534

$ 228,319
3,162,868

Net sales . . . . . . . . . . . . . . . . . . . . . . . . . .

$2,951,328

$3,578,995

$3,391,187

2016

2015

2014

The following table presents net sales for the years ended December 31, 2016, 2015, and 2014 by

geographic region, which is based on the customer country of invoicing (in thousands):

2016

2015

2014

United States . . . . . . . . . . . . . . . . . . . . . . . .
India . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Spain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Jordan . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Germany . . . . . . . . . . . . . . . . . . . . . . . . . . .
Australia . . . . . . . . . . . . . . . . . . . . . . . . . . .
All other foreign countries . . . . . . . . . . . . . . .

$2,448,627
158,182
141,319
120,134
14,498
9,568
59,000

$3,117,797
134,462
797
—
63,709
185,064
77,166

$3,042,006
44,118
—
—
121,941
157,152
25,970

Net sales . . . . . . . . . . . . . . . . . . . . . . . . . .

$2,951,328

$3,578,995

$3,391,187

The following table presents long-lived assets, which includes property, plant and equipment,
PV solar power systems, project assets, and deferred project costs (current and noncurrent) as of
December 31, 2016 and 2015 by geographic region, based on the physical location of the assets (in
thousands):

United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Malaysia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Chile . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
All other foreign countries . . . . . . . . . . . . . . . . . . . . . . . .

$1,606,064
339,230
260,751
373,573

$1,434,891
788,086
270,623
183,354

Long-lived assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$2,579,618

$2,676,954

2016

2015

173

FIRST SOLAR, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

24. Concentrations of Risks

Customer Concentration. The following customers each comprised 10% or more of our total net

sales and/or 10% or more of our total accounts receivable for the years ended December 31, 2016,
2015, and 2014:

2015
% of Total NS % of Total A/R % of Total NS % of Total A/R % of Total NS % of Total A/R

2016

2014

Customer #1 . . . .
Customer #2 . . . .
Customer #3 . . . .
Customer #4 . . . .
Customer #5 . . . .
Customer #6 . . . .
Customer #7 . . . .
Customer #8 . . . .

38%
13%
10%
*
*
*
*
*

*
*
*
32%
12%
*
*
*

30%
26%
*
*
*
*
*
*

21%
48%
*
*
15%
*
*
*

31%
14%
*
*
*
15%
*
*

*
*
*
*
*
24%
14%
13%

* Net sales and/or accounts receivable to these customers were less than 10% of our total net sales

and/or accounts receivable for the period.

Geographic Risk. During 2016, our third-party solar module and solar power system net sales

were predominantly in the United States. The concentration of our net sales in a limited number of
geographic regions exposes us to local economic, public policy, and regulatory risks in such regions.

Production. Our products include components that are available from a limited number of
suppliers or sources. Shortages of essential components could occur due to increases in demand or
interruptions of supply, thereby impairing our ability to meet customer demand for our products. Our
solar modules are produced at our facilities in Perrysburg, Ohio and Kulim, Malaysia. Damage to or
disruption of these facilities could interrupt our business and impair our ability to generate net sales.

174

Set forth below is a list of exhibits that are being filed or incorporated by reference into this

Annual Report on Form 10-K:

INDEX TO EXHIBITS

Incorporated by Reference

Exhibit
Number

Exhibit Description

Form

File No.

Date of

Exhibit

Filed

First Filing Number Herewith

3.1 Amended and Restated Certificate of
Incorporation of First Solar, Inc.

S-1/A 333-135574

9/18/06

3.2 Amended and Restated Bylaws of First

10-K

001-33156

2/24/16

3.1

3.2

Solar, Inc.

4.4† Facility Agreement dated May 6, 2008

8-K

001-33156

5/12/08

10.1

between First Solar Malaysia Sdn. Bhd.,
as borrower, and IKB Deutsche
Industriebank AG, as arranger,
NATIXIS Zweigniederlassung
Deutschland, as facility agent and
original lender, AKA Ausfuhrkredit-
Gesellschaft mbH, as original lender,
and NATIXIS Labuan Branch as security
agent

4.5 First Demand Guaranty dated May 6,

8-K

001-33156

5/12/08

10.2

2008 by First Solar, Inc. as guarantor, in
favor of IKB Deutsche Industriebank
AG, NATIXIS Zweigniederlassung
Deutschland, AKA Ausfuhrkredit-
Gesellschaft mbH and NATIXIS Labuan
Branch

4.6 Credit Agreement, dated as of

8-K

001-33156

9/10/09

10.1

September 4, 2009, among First
Solar, Inc., First Solar
Manufacturing GmbH, the lenders party
thereto, JPMorgan Chase Bank, N.A., as
Administrative Agent, Bank of America
and The Royal Bank of Scotland plc, as
Documentation Agents, and Credit
Suisse, Cayman Islands Branch, as
Syndication Agent

4.7 Charge of Company Shares, dated as of
September 4, 2009, between First
Solar, Inc., as Chargor, and JPMorgan
Chase Bank, N.A., as Security Agent,
relating to 66% of the shares of First
Solar FE Holdings Pte. Ltd. (Singapore)

175

8-K

001-33156

9/10/09

10.2

Incorporated by Reference

Exhibit
Number

Exhibit Description

4.8 German Share Pledge Agreements,

Form

8-K

dated as of September 4, 2009, between
First Solar, Inc., First Solar
Holdings GmbH, First Solar
Manufacturing GmbH, First
Solar GmbH, and JPMorgan Chase
Bank, N.A., as Administrative Agent

File No.

First Filing Number Herewith

Date of

Exhibit

Filed

001-33156

9/10/09

10.3

4.9 Guarantee and Collateral Agreement,

8-K

001-33156

9/10/09

10.4

dated as of September 4, 2009, by First
Solar, Inc. in favor of JPMorgan Chase
Bank, N.A., as Administrative Agent

4.10 Guarantee, dated as of September 8,

8-K

001-33156

9/10/09

10.5

2009, between First Solar
Holdings GmbH, First Solar GmbH,
First Solar Manufacturing GmbH, as
German Guarantors, and JPMorgan
Chase Bank, N.A., as Administrative
Agent

4.11 Assignment Agreement, dated as of

8-K

001-33156

9/10/09

10.6

September 4, 2009, between First Solar
Holdings GmbH and JPMorgan Chase
Bank, N.A., as Administrative Agent

4.12 Assignment Agreement, dated as of

8-K

001-33156

9/10/09

10.7

September 4, 2009, between First
Solar GmbH and JPMorgan Chase
Bank, N.A., as Administrative Agent

4.13 Assignment Agreement, dated as of

8-K

001-33156

9/10/09

10.8

8-K

001-33156

9/10/09

10.9

4.14

September 8, 2009, between First Solar
Manufacturing GmbH and JPMorgan
Chase Bank, N.A., as Administrative
Agent

Security Trust Agreement, dated as of
September 4, 2009, between First
Solar, Inc., First Solar Holdings GmbH,
First Solar GmbH, First Solar
Manufacturing GmbH, as Security
Grantors, JPMorgan Chase Bank, N.A.,
as Administrative Agent, and the other
Secured Parties party thereto

176

Incorporated by Reference

File No.

First Filing Number Herewith

Date of

Exhibit

Filed

001-33156

10/20/10

10.1

Exhibit
Number

Exhibit Description

4.15 Amended and Restated Credit

Form

8-K

Agreement, dated as of October 15,
2010, among First Solar, Inc., the
borrowing subsidiaries party thereto, the
lenders party thereto, Bank of America
N.A. and The Royal Bank of
Scotland PLC, as documentation agents,
Credit Suisse, Cayman Islands Branch,
as syndication agent and JPMorgan
Chase Bank, N.A., as administrative
agent

4.16 Facility Agreement dated as of August 3,

10-Q

001-33156

8/5/11

10.1

2011 among First Solar Malaysia Sdn.
Bhd., Commerzbank Aktiengesellschaft,
as arranger and original lender,
Commerzbank Aktiengesellschaft,
Luxembourg Branch, as facility agent
and security agent, and Natixis
Zweigniederlassung Deutschland, as
arranger and original lender

4.17 First Demand Guaranty, dated as of

10-Q

001-33156

8/5/11

10.2

August 3, 2011, among First Solar, Inc.,
First Solar Malaysia Sdn. Bhd. and
Commerzbank Aktiengesellschaft,
Luxembourg Branch, as facility agent
and security agent

4.18 First Amendment, dated as of May 6,

8-K

001-33156

5/12/11

10.1

2011, to the Amended and Restated
Credit Agreement, dated as of
October 15, 2010, among First
Solar, Inc., the borrowing subsidiaries
party thereto, the lenders party thereto,
Bank of America, N.A. and The Royal
Bank of Scotland plc, as documentation
agents, Credit Suisse, Cayman Islands
Branch, as syndication agent, and
JPMorgan Chase Bank, N.A., as
administrative agent

4.19 Credit Facility Agreement, dated as of
May 18, 2011, among First Solar
Manufacturing GmbH, Commerzbank
Aktiengesellschaft, Luxembourg Branch,
as security agent, and the additional
finance parties party thereto

177

8-K

001-33156

5/24/11

10.1

Exhibit
Number

Exhibit Description

4.20 Guarantee Agreement, dates as of

Form

8-K

File No.

First Filing Number Herewith

Date of

Exhibit

Filed

001-33156

5/24/11

10.2

Incorporated by Reference

May 18, 2011, among First Solar, Inc.,
First Solar Manufacturing GmbH and
Commerzbank Aktiengesellschaft,
Luxembourg Branch

4.21 Facility Agreement, dated June 30, 2011,
among First Solar Malaysia Sdn. Bhd., as
borrower, First Solar, Inc., as guarantor,
CIMB Investment Bank Berhad,
Maybank Investment Bank Berhad and
RHB Investment Bank Berhad, as
arrangers, CIMB Investment Bank
Berhad as facility agent and security
agent, and the original lenders party
thereto

4.22

Second Amendment and Waiver, dated
as of June 30, 2011, to the Amended
and Restated Credit Agreement, dated
as of October 15, 2010, among First
Solar, Inc., the lenders party thereto,
Bank of America, N.A. and The Royal
Bank of Scotland plc, as documentation
agents, Credit Suisse, Cayman Islands
Branch, as syndication agent, and
JPMorgan Chase Bank, N.A., as
administrative agent

8-K

001-33156

7/7/11

10.1

8-K

001-33156

7/14/11

10.1

4.23 Amendment Letter, dated as of

10-K

001-33156

2/29/12

10.1

November 8, 2011, to the Facility
Agreement, dated June 30, 2011, among
First Solar Malaysia Sdn. Bhd., as
borrower, First Solar, Inc., as guarantor,
CIMB Investment Bank Berhad,
Maybank Investment Bank Berhad and
RHB Investment Bank Berhad, as
arrangers, CIMB Investment Bank
Berhad as facility agent and security
agent, and the original lenders party
thereto

178

Exhibit
Number

Exhibit Description

4.24 Third Amendment, dated as of

Form

8-K

File No.

First Filing Number Herewith

Date of

Exhibit

Filed

001-33156

10/26/12

10.1

Incorporated by Reference

October 23, 2012 to the Amended and
Restated Credit Agreement dated as of
October 15, 2010, among First
Solar, Inc., the lenders party thereto,
Bank of America, N.A. and The Royal
Bank of Scotland plc, as documentation
agents, Credit Suisse, Cayman Islands
Branch, as syndication agent, and
JPMorgan Chase Bank, N.A., as
administrative agent

4.25 Amendment dated as of November 7,
2012 to the Export Financing Facility
Agreement dated May 6, 2008 (as
amended, the ‘‘Malaysian Facility
Agreement’’) among FS Malaysia, the
lenders party thereto, and Natixis
Zweigniederlassung Deutschland, as
Facility Agent.

10-K

001-33156

2/27/13

4.25

4.26 Fourth Amendment dated as of July 15,

8-K

001-33156

7/15/13

10.1

2013, to the Amended and Restated
Credit Agreement, dated as of
October 15, 2010, among First
Solar, Inc., the lenders party thereto and
JPMorgan Chase Bank, N.A., as
administrative agent.

4.27 Amended and Restated Guarantee and
Collateral Agreement, dated as of
July 15, 2013, by First Solar, Inc., First
Solar Electric, LLC, First Solar Electric
(California), Inc. and First Solar
Development, LLC in favor of
JPMorgan Chase Bank, N.A., as
administrative agent

4.28

Second Amendment to the Malaysian
Euro Facility Agreement

8-K

001-33156

7/15/13

10.2

10-Q

001-33156

8/7/13

4.1

4.29 Fifth Amendment, dated as of June 3,

8-K

001-33156

8/6/15

10.1

2015, to the Amended and Restated
Credit Agreement, dated as of
October 1, 2010, among First Solar, Inc.,
the lenders party thereto and JPMorgan
Chase Bank, N.A., as administrative
agent

179

Incorporated by Reference

Exhibit
Number

4.30

Form

8-K

Exhibit Description

Sixth Amendment, dated as of
January 20, 2017, to the Amended and
Restated Credit Agreement, dated as of
October 1, 2010, among First Solar, Inc.,
the lenders party thereto and JPMorgan
Chase Bank, N.A., as administrative
agent

File No.

First Filing Number Herewith

Date of

Exhibit

Filed

001-33156

1/26/17

10.1

10.1† Amendment to the Framework

10-K

001-33156

3/16/07

10.02

Agreement dated April 10, 2006 on the
Sale and Purchase of Solar Modules
between First Solar GmbH and
Blitzstrom GmbH

10.2 Amended and Restated 2006 Omnibus

10-Q

001-33156

5/1/09

10.2

Incentive Compensation Plan

10.3 Form of Change in Control Severance

S-1/A 333-135574 10/25/06

10.15

Agreement

10.4 Form of Director and Officer

10-K

001-33156

2/27/13

10.20

Indemnification Agreement

10.5 First Solar, Inc. 2010 Omnibus Incentive DEF 14A 001-33156

4/20/10 App. A

Compensation Plan

10.6 First Solar, Inc. Stock Purchase Plan

DEF 14A 001-33156

4/20/10 App. B

10.7 Employment Agreement, dated

10-Q

001-33156

5/5/11

10.3

March 15, 2011, and Change in Control
Severance Agreement, dated April 4,
2011 between First Solar, Inc. and Mark
Widmar

10.8 Employment Agreement, dated

10-Q

001-33156

5/4/12

10.1

March 14, 2012, and Change in Control
Severance Agreement, dated March 19,
2012 between First Solar, Inc. and James
Hughes

10.9 Form of Key Senior Talent Equity

10-Q

001-33156

5/4/12

10.2

Performance Program Grant Notice

10.10 Amendment to Employment Agreement,

8-K

001-33156

5/11/12

10.1

effective as of May 3, 2012, between
First Solar, Inc. and James Hughes, and
Amendment to Non-Competition and
Non-Solicitation Agreement, effective as
of May 3, 2012, between First Solar, Inc.
and James Hughes.

180

Incorporated by Reference

Exhibit
Number

Exhibit Description

10.11 Employment Agreement, effective July 1,

2012, and Change in Control Severance
Agreement, effective July 1, 2012
between First Solar, Inc. and Georges
Antoun

Form

10-Q

File No.

First Filing Number Herewith

Date of

Exhibit

Filed

001-33156

8/3/12

10.1

10.12 Non-Competition and Non-Solicitation

10-Q

001-33156

5/7/13

10.2

Agreement, effective as of March 15,
2011, between First Solar, Inc. and Mark
Widmar

10.13 Change in Control Severance

10-Q

001-33156

5/7/13

10.3

Agreement, effective as of July 1, 2012,
between First Solar, Inc. and Georges
Antoun

10.14 Amendment to Change in Control

10-Q

001-33156

8/7/13

10.1

Severance Agreement

10.15 Employment Agreement, effective
September 9, 2013, and Change in
Control Severance Agreement, effective
September 9, 2013 between First
Solar, Inc. and Joseph Kishkill

10-K

001-33156

2/25/15

10.25

10.16 Employment Agreement, effective

10-K

001-33156

2/26/14

10.1

March 3, 2014, and Change in Control
Severance Agreement, effective March 3,
2014 between First Solar, Inc. and Paul
Kaleta

10.17 Amended and Restated Corporate

10-K

001-33156

2/24/16

10.17

Governance Guidelines dated
February 18, 2016

10.18 Restricted Cash Assignment of Deposits

10-Q

001-33156

8/6/14

10.19 Master Formation Agreement by and

8-K

001-33156

3/11/15

10.2

2.1

between First Solar, Inc. and SunPower
Corporation as of March 10, 2015

10.20 First Solar, Inc. 2015 Omnibus Incentive DEF 14A 001-33156

4/8/15 App. A

Compensation Plan

10.21 Amended and Restated Limited Liability
Company Agreement of 8Point3
Operating Company, LLC as of June 24,
2015

10.22† Amended and Restated Limited Liability
Company Agreement of 8Point3 Holding
Company, LLC as of June 24, 2015

10-Q

001-33156

8/5/15

10.1

10-Q

001-33156

8/5/15

10.2

181

Incorporated by Reference

Exhibit
Number

Exhibit Description

10.23 Employment Agreement, effective as of

Form

10-K

July 25, 2011, and Change in Control
Severance Agreement, effective as of
October 25, 2011 and amended as of
August 1, 2013, between First Solar, Inc.
and Philip Tymen deJong

File No.

First Filing Number Herewith

Date of

Exhibit

Filed

001-33156

2/24/16

10.23

10.24 Employment Agreement, effective as of

10-K

001-33156

2/24/16

10.24

May 1, 2012, and Change in Control
Severance Agreement, effective as of
May 1, 2012 and amended as of
August 1, 2013, between First Solar, Inc.
and Raffi Garabedian

10.25 Employment Agreement, effective as of
December 31, 2012 and amended as of
April 8, 2013, and Change in Control
Severance Agreement, effective as of
December 31, 2012 and amended as of
August 1, 2013, between First Solar, Inc.
and Timothy Rebhorn

10.26 Employment Agreement, effective as of
February 17, 2016, and Change in
Control Severance Agreement, effective
as of February 17, 2016 between First
Solar, Inc. and Chris Bueter

10-K

001-33156

2/24/16

10.25

10-K

001-33156

2/24/16

10.26

10.27 Amendment to Employment Agreement,

10-Q

001-33156

4/28/16

10.1

effective as of July 1, 2016, between
First Solar, Inc. and Mark Widmar, and
Amendment to Non-Competition and
Non-Solicitation Agreement, effective as
of July 1, 2016, between First Solar, Inc.
and Mark Widmar, and Second
Amendment to Change-in-Control
Severance Agreement, effective as of
July 1, 2016, between First Solar, Inc.
and Mark Widmar

10.28

Second Amendment to Employment
Agreement, effective as of June 30, 2016,
between First Solar, Inc. and James
Hughes

10-Q

001-33156

4/28/16

10.2

10.29 Employment Agreement, effective as of

10-Q

001-33156

11/3/16

10.1

October 24, 2016, and
Change-in-Control Severance
Agreement, effective as of October 24,
2016, between First Solar, Inc. and
Alexander Bradley

182

Exhibit
Number

Exhibit Description

Form

File No.

Date of

Exhibit

Filed

First Filing Number Herewith

Incorporated by Reference

10.30 Form of RSU Award Agreement

10.31 Form of Option Award Agreement

10.32 Form of Share Award Agreement

10.33 Form of Performance Unit Award

Agreement

10.34 Form of Cash Incentive Award

Agreement

14.1 Code of Ethics

21.1 List of Subsidiaries of First Solar, Inc.

23.1 Consent of Independent Registered

Public Accounting Firm

31.01 Certification of Chief Executive Officer
pursuant to Rule 13a-14(a) and
15d-14(a), as amended

31.02 Certification of Chief Financial Officer
pursuant to Rule 13a-14(a) and
15d-14(a), as amended

32.01* Certification of Chief Executive Officer
and Chief Financial Officer pursuant to
18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes
Oxley Act of 2002

101.INS XBRL Instance Document

101.SCH XBRL Taxonomy Extension Schema

Document

101.DEF XBRL Definition Linkbase Document

101.CAL XBRL Taxonomy Extension Calculation

Linkbase Document

101.LAB XBRL Taxonomy Label Linkbase

Document

101.PRE XBLR Taxonomy Extension Presentation

Document

—

— X

10-Q

001-33156

8/5/15

14.1

—

— X

†

Confidential treatment has been requested and granted for portions of this exhibit.

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.

Item 16. Form 10-K Summary

None.

183

Corporate Information

EXECUTIVE MANAGEMENT
Mark Widmar, Chief Executive Officer
Alexander Bradley, Chief Financial Officer
Georges Antoun, Chief Commercial Officer
Philip Tymen deJong, Chief Operating Officer
Raffi Garabedian, Chief Technology Officer
Paul Kaleta, Executive Vice President and General Counsel
Chris Bueter, Executive Vice President, Human Resources

BOARD OF DIRECTORS
Michael J. Ahearn, Chairman of the Board
Sharon L. Allen, Independent Director
Richard Chapman, Independent Director
George Hambro, Independent Director
Craig Kennedy, Independent Director
James F. Nolan, Independent Director
William J. Post, Independent Director
J. Thomas Presby, Independent Director
Paul H. Stebbins, Independent Director
Michael Sweeney, Independent Director
Mark Widmar, Director and Chief Executive Officer

INVESTOR RELATIONS
350 West Washington Street
Suite 600
Tempe, AZ 85281
Telephone +1 602 414 9315
investor@firstsolar.com

STOCK LISTING
First Solar, Inc. common stock
is traded on the Nasdaq Global
Select Market, listed under FSLR.

CORPORATE HEADQUARTERS
350 West Washington Street
Suite 600
Tempe, AZ 85281
Telephone +1 602 414 9300
Facsimile +1 602 414 9400
info@firstsolar.com
www.firstsolar.com

TRANSFER AGENT
Computershare Trust Company, N.A.
250 Royal Street
Canton, MA 02021
Stockholder Services:
+1 781 575 2879
www.computershare.com

INDEPENDENT AUDITORS
PricewaterhouseCoopers LLP

FIRST SOLAR | ANNUAL REPORT 2016

Corporate Headquarters

350 West Washington Street, Suite 600

Tempe, AZ 85281 USA

Telephone: +1 602 414 9300

Facsimile: +1 602 414 9400

info@firstsolar.com

www.firstsolar.com

All financial numbers in this report are based on U.S. Generally
Accepted Accounting Principles.

This report contains forward-looking statements within the meaning
of the United States federal securities laws. These forward-looking
statements do not constitute guarantees of future performance.
These forward-looking statements are based on current information
and expectations, are subject to uncertainties and changes in
circumstances, and involve a number of factors that could cause
actual results to differ materially from those anticipated by these
forward-looking statements, including risks described in the
company’s most recent annual report on Form 10-K, and other filings
with the Securities and Exchange Commission. First Solar assumes
no obligation to update any forward-looking information contained in
this report or with respect to the information described herein.