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What changed in First Solar's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of First Solar's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+324 added−304 removedSource: 10-K (2024-02-27) vs 10-K (2023-02-28)

Top changes in First Solar's 2023 10-K

324 paragraphs added · 304 removed · 217 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

85 edited+28 added−42 removed39 unchanged
Biggest changeThe increase in cost of sales was driven by a $454.4 million increase in our modules segment cost of sales primarily as a result of the following: • higher costs of $350.9 million from an increase in the volume of modules sold; • higher sales freight, demurrage, and detention charges of $167.2 million; and • a reduction to our product warranty liability of $33.1 million in 2021 due to reductions to our projected module return rates; partially offset by • continued module cost reductions, which decreased cost of sales by $60.9 million; • manufacturing charges of $15.7 million in the prior period associated with the COVID-19 pandemic; 49 Table of Contents • an increase to our module collection and recycling liability of $10.8 million in 2021 due to lower estimated by-product credits for certain semiconductor materials recovered during the recycling process and updates to certain valuation assumptions; • a reduction to our product warranty liability of $10.2 million in 2022 due to reductions to our projected module return rates; and • a reduction to our module collection and recycling liability of $7.5 million in 2022 due to lower estimated capital and chemical costs resulting from improvements to our module recycling technology.
Biggest changeThe decrease in cost of sales was driven by a $293.5 million decrease in our modules segment cost of sales primarily as a result of the following: • the recognition of the advanced manufacturing production credit under Section 45X of the IRC, which decreased cost of sales by $659.7 million; • lower sales freight, demurrage, and detention charges of $306.2 million; and • continued module cost reductions, which decreased cost of sales by $85.3 million; partially offset by • higher costs of $626.2 million from an increase in the volume of modules sold; and • higher under-utilization charges of $81.5 million associated with the initial ramp of our first Series 7 manufacturing facilities in Ohio and India.
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 restricted marketable securities.
Other (expense) income, net Other (expense) income, net is primarily comprised of miscellaneous items and realized gains and losses on the sale of marketable securities and restricted marketable securities.
We base these estimates on our experience collecting and recycling solar modules and certain assumptions regarding the estimated useful lives of modules covered by the program and the number of modules expected to be recycled.
We base these estimates on our experience collecting and recycling solar modules and on certain assumptions regarding the estimated useful lives of modules covered by the program and the number of modules expected to be recycled.
We intend to maintain appropriate debt levels based upon cash flow expectations, our overall cost of capital, and expected cash requirements for operations, including near-term construction activities and purchases of manufacturing equipment for our newest manufacturing and R&D facilities in India and the United States.
We intend to maintain appropriate debt levels based upon cash flow expectations, our overall cost of capital, and expected cash requirements for operations, including near-term construction activities and purchases of manufacturing equipment for our newest manufacturing and R&D facilities in the United States.
We are subject to income taxes in both the United States and numerous foreign jurisdictions in which we operate, principally Singapore, Malaysia, and Vietnam. Significant judgments and estimates are required to determine our consolidated income tax expense.
We are subject to income taxes in both the United States and numerous foreign jurisdictions in which we operate, principally Singapore, Malaysia, Vietnam, and India. Significant judgments and estimates are required to determine our consolidated income tax expense.
In general, we expect the return rates for our Series 6 modules to be lower than our older series, and we estimate that the return rate for such newer series of module technology will be less than 1%.
In general, we expect the return rates for our Series 6 and Series 7 modules to be lower than our older series, and we estimate that the return rate for such newer series of module technology will be less than 1%.
Based on these potential technology improvements, the contracted module volumes as of December 31, 2022, the expected timing such technology improvements are incorporated into our manufacturing process, and the expected timing of module deliveries, such adjustments, if realized, could result in additional revenue of up to $0.5 billion, the majority of which would be recognized in 2025, 2026, and 2027.
Based on these potential technology improvements, the contracted module volumes as of December 31, 2023, the expected timing such technology improvements are incorporated into our manufacturing process, and the expected timing of module deliveries, such adjustments, if realized, could result in additional revenue of up to $0.5 billion, the majority of which would be recognized in 2025, 2026, and 2027.
The statutory federal corporate income tax rate in the United States is 21%, and the tax rates in Singapore, Malaysia, and Vietnam are 17%, 24%, and 20%, respectively.
The statutory federal corporate income tax rate in the United States is 21%, and the tax rates in Singapore, Malaysia, Vietnam, and India are 17%, 24%, 20%, and 17%, respectively.
Third-party customers of our modules segment include developers and operators of systems, utilities, independent power producers, commercial and industrial companies, and other system owners.
Third-party customers of our modules segment include system developers, independent power producers, utilities, commercial and industrial companies, and other system owners and operators.
“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 the impact of other public policies, such as tariffs or other trade remedies imposed on solar cells and modules, could negatively impact demand and/or price levels for our solar 46 Table of Contents modules and limit our growth or lead to a reduction in our net sales or increase our costs, thereby adversely impacting our operating results.” Our ability to provide solar modules on economically attractive terms is also affected by the availability and cost of logistics services associated with the procurement of raw materials or equipment used in our manufacturing process and the shipping, handling, storage, and distribution of our modules.
“Risk Factors – The modification, reduction, elimination, or expiration of government subsidies, economic incentives, tax incentives, renewable energy targets, and other support for on-grid solar electricity applications, or the impact of other public policies, such as tariffs or other trade remedies imposed on solar cells and modules or related raw materials, could negatively impact demand and/or price levels for our solar modules and limit our growth or lead to a reduction in our net sales or increase our costs, thereby adversely impacting our operating results.” Our ability to provide solar modules on economically attractive terms is also affected by the availability and cost of logistics services associated with the procurement of raw materials or equipment used in our manufacturing process and the shipping, handling, storage, and distribution of our modules.
When deployed in utility-scale applications, our modules provide energy at a lower LCOE compared to traditional forms of energy generation, making them an attractive alternative to or replacement for aging fossil fuel-based generation resources. Accordingly, future retirements of aging energy generation resources represent a significant increase in the potential market for solar energy.
When deployed in utility-scale applications, our modules provide energy at a lower LCOE compared 49 Table of Contents to traditional forms of energy generation, making them an attractive alternative to or replacement for aging fossil fuel-based generation resources. Accordingly, future retirements of aging energy generation resources represent a significant increase in the potential market for solar energy.
At this time, it is uncertain whether and to what extent we may qualify for such incentives. Demand for our solar energy solutions also depends on domestic or international trade policies and government regulations, which may be proposed, revised, and/or enacted across short- and long-term time horizons with varying degrees of impact to our net sales, profit, and manufacturing operations.
At this time, it is uncertain to what extent we may qualify for such incentives. 50 Table of Contents Demand for our solar energy solutions also depends on domestic or international trade policies and government regulations, which may be proposed, revised, and/or enacted across short- and long-term time horizons with varying degrees of impact to our net sales, profit, and manufacturing operations.
As necessary, we adjust the funded amounts for our estimated collection and recycling obligations based on the 55 Table of Contents estimated costs of collecting and recycling covered modules, estimated rates of return on our restricted marketable securities, and an estimated solar module life of 25 years, less amounts already funded in prior years.
As necessary, we adjust the funded amounts for our estimated collection and recycling obligations based on the estimated costs of collecting and recycling covered modules, estimated rates of return on our restricted marketable securities, and an estimated solar module life of 25 years, less amounts already funded in prior years.
For example, we currently expect to qualify for the advanced manufacturing production credit under Section 45X of the IRC, which provides certain specified 45 Table of Contents benefits for solar modules and solar module components manufactured in the United States and sold to third parties.
For example, we currently expect to qualify for the advanced manufacturing production credit under Section 45X of the IRC, which provides certain specified benefits for solar modules and certain solar module components manufactured in the United States and sold to third parties.
As of December 31, 2022, we had no off-balance sheet debt or similar obligations, other than financial assurance related instruments, which are not classified as debt. We do not guarantee any third-party debt. See Note 12. “Commitments and Contingencies” to our consolidated financial statements for further information about our financial assurance related instruments.
As of December 31, 2023, we had no off-balance sheet debt or similar obligations, other than financial assurance related instruments, which are not classified as debt. We do not guarantee any third-party debt. See Note 14. “Commitments and Contingencies” to our consolidated financial statements for further information about our financial assurance related instruments.
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.” 47 Table of Contents 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, 2022, 2021, and 2020: Years Ended December 31, 2022 2021 2020 Net sales 100.0 % 100.0 % 100.0 % Cost of sales 97.3 % 75.0 % 74.9 % Gross profit 2.7 % 25.0 % 25.1 % Selling, general and administrative 6.3 % 5.8 % 8.2 % Research and development 4.3 % 3.4 % 3.5 % Production start-up 2.8 % 0.7 % 1.5 % Litigation loss — % — % 0.2 % Gain on sales of businesses, net 9.7 % 5.0 % — % Operating (loss) income (1.0) % 20.1 % 11.7 % Foreign currency loss, net (0.6) % (0.3) % (0.2) % Interest income 1.3 % 0.2 % 0.6 % Interest expense, net (0.5) % (0.4) % (0.9) % Other income (expense), net 1.2 % — % (0.4) % Income tax (expense) benefit (2.0) % (3.5) % 4.0 % Net (loss) income (1.7) % 16.0 % 14.7 % Segment Overview Our primary segment is our modules business, which involves the design, manufacture, and sale of CdTe solar modules, which convert sunlight into electricity.
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.” 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, 2023, 2022, and 2021: Years Ended December 31, 2023 2022 2021 Net sales 100.0 % 100.0 % 100.0 % Cost of sales 60.8 % 97.3 % 75.0 % Gross profit 39.2 % 2.7 % 25.0 % Selling, general and administrative 6.0 % 6.3 % 5.8 % Research and development 4.6 % 4.3 % 3.4 % Production start-up 2.0 % 2.8 % 0.7 % Litigation loss 1.1 % — % — % Gain on sales of businesses, net 0.2 % 9.7 % 5.0 % Operating income (loss) 25.8 % (1.0) % 20.1 % Foreign currency loss, net (0.6) % (0.6) % (0.3) % Interest income 2.9 % 1.3 % 0.2 % Interest expense, net (0.4) % (0.5) % (0.4) % Other (expense) income, net (0.9) % 1.2 % — % Income tax expense (1.8) % (2.0) % (3.5) % Net income (loss) 25.0 % (1.7) % 16.0 % 52 Table of Contents Segment Overview Our primary segment is our modules business, which involves the design, manufacture, and sale of CdTe solar modules, which convert sunlight into electricity.
Our residual business operations include certain project development activities, O&M services, the results of operations from PV solar power systems we owned and operated in certain international regions, and the sale of such systems to third-party customers. Net sales We generally price and sell our solar modules on a per watt basis.
Our residual business operations include certain project development activities, operations and maintenance (“O&M”) services, the results of operations from PV solar power systems we owned and operated in certain international regions, and the sale of such systems to third-party customers. Net sales We generally price and sell our solar modules on a per watt basis.
Treasury Department, we continue to evaluate the extent of benefits available to us, which we expect will favorably impact our results of operations in future periods.
Treasury Department. Given the complexities of the IRA, we continue to evaluate the extent of benefits available to us, which we expect will favorably impact our results of operations in future periods.
Such credit may be refundable or transferable to a third party and is available from 2023 to 2032, subject to phase down beginning in 2030.
Such credit may be refundable by the IRS or transferable to a third party and is available from 2023 to 2032, subject to phase down beginning in 2030.
We continue to invest significant financial resources in such initiatives, including approximately $0.3 billion for a dedicated R&D facility in the United States to support the implementation of our technology roadmap. We expect such R&D facility to feature a high-tech pilot manufacturing line, allowing for the production of full-sized prototypes of thin film and tandem PV modules.
We continue to invest significant financial resources in such initiatives, including approximately $0.2 billion of remaining investment for a dedicated R&D facility in the United States to support the implementation of our technology roadmap. We expect such R&D facility to feature a high-tech pilot manufacturing line, allowing for the production of full-sized prototypes of thin film and multi-junction PV modules.
“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 the impact of other public policies, such as tariffs or other trade remedies imposed on solar cells and modules, could negatively impact demand and/or price levels for our solar modules and limit our growth or lead to a reduction in our net sales or increase our costs, thereby adversely impacting our operating results.” Separately, the U.S.
“Risk Factors – The modification, reduction, elimination, or expiration of government subsidies, economic incentives, tax incentives, renewable energy targets, and other support for on-grid solar electricity applications, or the impact of other public policies, such as tariffs or other trade remedies imposed on solar cells and modules or related raw materials, could negatively impact demand and/or price levels for our solar modules and limit our growth or lead to a reduction in our net sales or increase our costs, thereby adversely impacting our operating results.” • United States.
As of December 31, 2022, we had $2.6 billion in cash, cash equivalents, and marketable securities compared to $1.8 billion as of December 31, 2021.
As of December 31, 2023, we had $2.1 billion in cash, cash equivalents, and marketable securities compared to $2.6 billion as of December 31, 2022.
Such R&D facility is expected to be completed in 2024. During 2023, we expect to spend $1.9 billion to $2.1 billion for capital expenditures, including the new facilities mentioned above and upgrades to machinery and equipment that we believe will further increase our module wattage and expand capacity and throughput at our manufacturing facilities.
Such R&D facility is expected to be completed in the first half of 2024. During 2024, we expect to spend between $1.7 billion and $1.9 billion for capital expenditures, including the new facilities mentioned above, and upgrades to machinery and equipment that we believe will further increase our module wattage and expand capacity and throughput at our manufacturing facilities.
See Note 7. “Consolidated Balance Sheet Details” to our consolidated financial statements for discussion of the impairment of our Luz del Norte project.
“Consolidated Balance Sheet Details” to our consolidated financial statements for discussion of the impairment of our Luz del Norte project.
We have the right to terminate these agreements upon payment of specified termination penalties (which, in aggregate, are up to $251 million as of December 31, 2022 and decline over the remaining supply periods).
We have the right to terminate certain of these agreements upon payment of specified termination penalties (which, in aggregate, are up to $595 million as of December 31, 2023 and decline over the remaining supply periods).
To mitigate such costs and better meet our customer commitments, we may adjust our shipping plans to include additional lead times for module deliveries and/or utilize our network of U.S. distribution centers. We are also employing module contract structures that provide additional consideration to us if the cost of logistics services, excluding demurrage and detention, exceeds a defined threshold.
To mitigate certain logistics costs, we employ module contract structures that provide additional consideration to us if the cost of logistics services, excluding demurrage and detention, exceeds a defined threshold. We may also adjust our shipping plans to include additional lead times for module deliveries and/or utilize our network of U.S. distribution centers.
Under the PLI scheme, manufacturers are selected through a competitive bid process and receive certain cash incentives over a five-year period following the commissioning of their manufacturing facilities.
Under the PLI scheme, manufacturers were selected through a competitive bid process and may be entitled to receive certain cash incentives over a five-year period following the commissioning of their manufacturing facilities.
The financial incentives provided by the IRA are also expected to significantly increase demand for solar modules in general due to the incremental tax credit available for the qualified production of clean hydrogen that is powered by renewable resources. Given the complexities of the IRA, which is pending technical guidance and regulations from the IRS and U.S.
The financial incentives provided by the IRA have also increased demand for solar modules in general due to the incremental tax credit available for the qualified production of clean hydrogen that is powered by renewable resources. Several aspects of the IRA are pending technical guidance and regulations from the IRS and U.S.
The following table shows income tax (expense) benefit for the years ended December 31, 2022, 2021, and 2020: Years Ended Change (Dollars in thousands) 2022 2021 2020 2022 over 2021 2021 over 2020 Income tax (expense) benefit $ (52,764) $ (103,469) $ 107,294 $ 50,705 49 % $ (210,763) (196) % Effective tax rate 613.7 % 18.1 % (36.6) % 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 following table shows income tax expense for the years ended December 31, 2023, 2022, and 2021: Years Ended Change (Dollars in thousands) 2023 2022 2021 2023 over 2022 2022 over 2021 Income tax expense $ (60,513) $ (52,764) $ (103,469) $ (7,749) 15 % $ 50,705 (49) % Effective tax rate 6.8 % 613.7 % 18.1 % 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.
“Commitments and Contingencies” to our consolidated financial statements for discussion of our indemnification arrangements. Cost of sales Our modules business 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 frames.
Cost of sales Our modules business 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 frames.
Additionally, we are in the process of expanding our manufacturing capacity by approximately 11 GW DC , including the construction of our third manufacturing facility in the United States, which commenced commercial production of modules in early 2023; our first manufacturing facility in India, which is expected to commence operations in the second half of 2023; our fourth manufacturing facility in the United States, which is expected to commence operations in late 2024; and the expansion of our manufacturing footprint at our existing facilities in Ohio.
Additionally, we recently commenced production of Series 7 modules at our third manufacturing facility in Ohio and our first manufacturing facility in India, and we are in the process of expanding our manufacturing capacity by approximately 8 GW, including the construction of our fourth manufacturing facility in the United States, which is expected to commence operations in the second half of 2024; our fifth manufacturing facility in the United States, which is expected to commence operations in late 2025; and the expansion of our manufacturing footprint at our existing facilities in Ohio, which is expected to be completed in the first half of 2024.
Such volume includes contracts for the sale of 31.5 GW DC of solar modules that include transaction price adjustments associated with future module technology improvements, including new product designs and enhancements to certain energy related attributes.
Such volume includes contracts for the sale of 39.1 GW of solar modules that include transaction price adjustments associated with future module technology improvements, including enhancements to certain energy related attributes.
As of December 31, 2022 and 2021, $1.2 billion and $0.8 billion, respectively, of our cash, cash equivalents, and marketable securities was held by our foreign subsidiaries and was primarily based in U.S. dollar, Japanese yen, Indian rupee, and Euro denominated holdings.
As of December 31, 2023 and 2022, $1.2 billion of our cash, cash equivalents, and marketable securities was held by our foreign subsidiaries and was primarily based in U.S. dollar denominated holdings.
As of December 31, 2022, such funds were comprised of restricted marketable securities of $182.1 million and restricted cash and cash equivalents balances of $6.7 million. As of December 31, 2022, our module collection and recycling liability was $128.1 million.
As of December 31, 2023, such funds were comprised of restricted marketable securities of $198.3 million and restricted cash and cash equivalents balances of $6.2 million. As of December 31, 2023, our module collection and recycling liability was $135.1 million.
As of December 31, 2022, we had entered into contracts with customers for the future sale of 61.4 GW DC of solar modules for an aggregate transaction price of $17.7 billion, which we expect to recognize as revenue through 2029 as we transfer control of the modules to the customers.
As of December 31, 2023, we had entered into contracts with customers for the future sale of 78.3 GW of solar modules for an aggregate transaction price of $23.3 billion, which we expect to recognize as revenue through 2030 as we transfer control of the modules to the customers.
During 2022, Intersect Power, Lightsource BP, and NextEra Energy each accounted for more than 10% of our modules business net sales, and the majority of our solar modules were sold to developers and operators of systems in the United States. Substantially all of our modules business net sales during 2022 were denominated in U.S. dollars.
During 2023, Lightsource BP was the only customer that accounted for 10% or more of our modules business net sales, and the majority of our solar modules were sold to developers and operators of systems in the United States. Substantially all of our modules business net sales during 2023 were denominated in U.S. dollars.
Net sales from our residual business operations primarily consists of revenue recognized for sales of development projects or completed systems, including any modules installed in such systems and any revenue from energy generated by such systems.
Net sales from our residual business operations primarily consists of revenue recognized for sales of development projects or completed systems, including any modules installed in such systems and any revenue from energy generated by such systems. In certain prior periods, our residual business operations also included O&M services we provided to third parties.
Investing Activities The increase in net cash used in investing activities during 2022 was primarily due to higher net purchases of marketable securities, higher purchases of property, plant and equipment, and proceeds from the sales of our North American O&M operations and U.S. project development business in the prior year, partially offset by proceeds from the sales of our Japan project development business and certain international O&M operations in the current year.
Investing Activities The decrease in net cash used in investing activities during 2023 was primarily due to higher maturities of marketable securities in the current year, partially offset by higher purchases of property, plant and equipment in the current year and proceeds from the sale of our Japan project development business in the prior year.
Cash Flows The following table summarizes key cash flow activity for the years ended December 31, 2022, 2021, and 2020 (in thousands): 2022 2021 2020 Net cash provided by operating activities $ 873,369 $ 237,559 $ 37,120 Net cash used in investing activities (1,192,574) (99,040) (131,227) Net cash provided by (used in) financing activities 309,392 40,550 (82,587) Effect of exchange rate changes on cash, cash equivalents, restricted cash and restricted cash equivalents 47,438 3,174 3,778 Net increase (decrease) in cash, cash equivalents, restricted cash and restricted cash equivalents $ 37,625 $ 182,243 $ (172,916) Operating Activities The increase in net cash provided by operating activities during 2022 was primarily driven by higher cash receipts from module sales, including advance payments for future sales, partially offset by higher expenditures for the construction of certain projects in Japan and certain advance payments for raw materials in the current year.
Cash Flows The following table summarizes key cash flow activity for the years ended December 31, 2023, 2022, and 2021 (in thousands): 2023 2022 2021 Net cash provided by operating activities $ 602,260 $ 873,369 $ 237,559 Net cash used in investing activities (472,791) (1,192,574) (99,040) Net cash provided by financing activities 336,853 309,392 40,550 Effect of exchange rate changes on cash, cash equivalents, restricted cash, and restricted cash equivalents 5,285 47,438 3,174 Net increase in cash, cash equivalents, restricted cash, and restricted cash equivalents $ 471,607 $ 37,625 $ 182,243 Operating Activities The decrease in net cash provided by operating activities during 2023 was primarily driven by higher operating expenditures in support of our ongoing manufacturing expansion and lower advance payments received for future module sales, partially offset by higher cash receipts from modules sold in the current year.
The system-level limited module performance warranty is typically 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. 57 Table of Contents When we recognize revenue for sales of modules or projects, we accrue liabilities for the estimated future costs of meeting our limited warranty obligations.
The system-level limited module performance warranty is typically 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.
Income tax expense decreased by $50.7 million during 2022 compared to 2021 primarily due to lower pretax income in the current year, partially offset by higher tax expense of $37.3 million associated with the sale of our Luz del Norte PV solar power plant during 2022. 53 Table of Contents Liquidity and Capital Resources As of December 31, 2022, we believe that our cash, cash equivalents, marketable securities, cash flows from operating activities, and contracts with customers for the future sale of solar modules will be sufficient to meet our working capital and capital expenditure needs for at least the next 12 months.
Income tax expense increased by $7.7 million during 2023 compared to 2022 primarily due to higher pretax income in the current year, partially offset by the beneficial effect of tax law changes associated with the IRA and higher prior period losses in certain jurisdictions for which no tax benefit could be recorded. 58 Table of Contents Liquidity and Capital Resources As of December 31, 2023, we believe that our cash, cash equivalents, marketable securities, cash flows from operating activities, and contracts with customers for the future sale of solar modules will be sufficient to meet our working capital and capital expenditure needs for at least the next 12 months.
“Business – Business Strategy.” Additionally, we warrant that our solar modules will produce at least 98% of their labeled power output rating during the first year, with the warranty coverage reducing by a degradation factor between 0.3% and 0.5%, depending on the module series, every year thereafter throughout the limited power output warranty period of up to 30 years. 44 Table of Contents While our modules 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.
“Business – Business Strategy.” Additionally, we warrant that our solar modules will produce at least 98% of their labeled power output rating during the first year, with the warranty coverage reducing by a degradation factor between 0.3% and 0.5%, depending on the module series, every year thereafter throughout the limited power output warranty period of up to 30 years.
This updated information reflected lower-than-expected warranty claims for our older series of module technology as well as the evolving claims profile of our newest series of module technology, resulting in reductions to our projected module return rates.
This updated information reflected lower-than-expected warranty claims for our older series of module technology and revisions to projected settlements, resulting in reductions to our projected module return rate.
We have also committed and expect to continue committing significant working capital to purchase various raw materials used in our module manufacturing process. Our failure to obtain raw materials and components that meet our quality, quantity, and cost requirements in a timely manner could interrupt or impair our ability to manufacture our solar modules, or increase our manufacturing costs.
Our failure to obtain raw materials and components that meet our quality, quantity, and cost requirements in a timely manner could interrupt or impair our ability to manufacture our solar modules or increase our manufacturing costs.
Among other things, our solar module warranty also covers the resulting power output loss from cell cracking. As an alternative form of our standard limited module power output warranty, we have also offered 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.
Among other things, our solar module warranty also covers the resulting power output loss from cell cracking. 62 Table of Contents As an alternative form of our standard limited module power output warranty, we have also offered an aggregated or system-level limited module performance warranty.
The following table shows interest income for the years ended December 31, 2022, 2021, and 2020: Years Ended Change (Dollars in thousands) 2022 2021 2020 2022 over 2021 2021 over 2020 Interest income $ 33,284 $ 6,179 $ 16,559 $ 27,105 439 % $ (10,380) (63) % Interest income during 2022 increased compared to 2021 primarily due to higher interest rates on cash, marketable securities, and restricted marketable securities.
The following table shows interest income for the years ended December 31, 2023, 2022, and 2021: Years Ended Change (Dollars in thousands) 2023 2022 2021 2023 over 2022 2022 over 2021 Interest income $ 97,667 $ 33,284 $ 6,179 $ 64,383 193 % $ 27,105 439 % Interest income during 2023 increased compared to 2022 primarily due to higher average balances of marketable securities and higher interest rates on cash and cash equivalents and marketable securities, partially offset by lower average balances of cash and cash equivalents.
For example, we have entered into long-term supply agreements for the purchase of certain specified minimum volumes of substrate glass and cover glass for our PV solar modules. Our remaining purchases under these supply agreements are expected to be approximately $3.7 billion of substrate glass and approximately $301 million of cover glass.
For example, we have entered into long-term supply agreements for the purchase of certain specified minimum volumes of substrate glass and cover glass for our PV solar modules.
For example, many governments have proposed or enacted policies or support programs intended to encourage renewable energy investments to achieve decarbonization objectives and/or establish greater energy independence.
Demand for our PV solar module offerings depends, in part, on market factors outside our control. For example, many governments have proposed or enacted policies or support programs intended to encourage renewable energy investments to achieve decarbonization objectives and/or establish greater energy independence.
In addition to these price adjustments, certain of our contracts with customers may include favorable price adjustments associated with the extension of the ITC and/or sales freight in excess of a defined threshold.
In addition to these price adjustments, certain of our contracts with customers may include favorable price adjustments associated 51 Table of Contents with sales freight in excess of a defined threshold. Certain of our contracts with customers may also include favorable or unfavorable price adjustments associated with changes to certain commodity prices and/or the module wattage committed for delivery.
During 2021, we incurred production start-up expense primarily for the transition to Series 6 module manufacturing at our second facility in Kulim, Malaysia, which commenced commercial production in early 2021, and for certain manufacturing upgrades at our Malaysian facilities. 51 Table of Contents Gain on sales of businesses, net The following table shows gain on sales of businesses, net for the years ended December 31, 2022, 2021, and 2020: Years Ended Change (Dollars in thousands) 2022 2021 2020 2022 over 2021 2021 over 2020 Gain on sales of businesses, net $ 253,511 $ 147,284 $ — $ 106,227 72 % $ 147,284 100 % % of net sales 9.7 % 5.0 % — % In 2022, we completed the sales of our Japan project development business and our Japan O&M operations to PAG and the sales of certain other international O&M operations to a subsidiary of Clairvest Group, Inc.
Gain on sales of businesses, net The following table shows gain on sales of businesses, net for the years ended December 31, 2023, 2022, and 2021: Years Ended Change (Dollars in thousands) 2023 2022 2021 2023 over 2022 2022 over 2021 Gain on sales of businesses, net $ 6,883 $ 253,511 $ 147,284 $ (246,628) (97) % $ 106,227 72 % % of net sales 0.2 % 9.7 % 5.0 % During 2022, we completed the sales of our Japan project development business and our Japan O&M operations to PAG Real Assets (“PAG”) and the sales of certain other international O&M operations to a subsidiary of Clairvest Group, Inc.
We continue to increase the nameplate production capacity of our existing manufacturing facilities by improving our production throughput, increasing module wattage (or conversion efficiency), and reducing manufacturing yield losses.
As a result, the revenue recognized from such contracts may increase or decrease in future periods relative to the original transaction price. We continue to increase the nameplate production capacity of our existing manufacturing facilities by improving our production throughput, increasing module wattage (or conversion efficiency), and reducing manufacturing yield losses.
The following table shows research and development expense for the years ended December 31, 2022, 2021, and 2020: Years Ended Change (Dollars in thousands) 2022 2021 2020 2022 over 2021 2021 over 2020 Research and development $ 112,804 $ 99,115 $ 93,738 $ 13,689 14 % $ 5,377 6 % % of net sales 4.3 % 3.4 % 3.5 % Research and development expense in 2022 increased compared to 2021 primarily due to higher employee compensation expense resulting from an increase in headcount, lower share-based compensation expense in the prior period driven by the forfeiture of unvested shares by our former Chief Technology Officer, who retired in March 2021, increased freight costs, and increased material and module testing costs.
The following table shows research and development expense for the years ended December 31, 2023, 2022, and 2021: Years Ended Change (Dollars in thousands) 2023 2022 2021 2023 over 2022 2022 over 2021 Research and development $ 152,307 $ 112,804 $ 99,115 $ 39,503 35 % $ 13,689 14 % % of net sales 4.6 % 4.3 % 3.4 % Research and development expense in 2023 increased compared to 2022 primarily due to higher employee compensation expense resulting from an increase in headcount, an increase in material and module testing costs, and higher professional fees due to increased research services.
As necessary, we also believe we will have adequate access to the capital markets. We monitor our working capital to ensure we have adequate liquidity, both domestically and internationally.
In addition, we have availability under our Revolving Credit Facility, under which we have made no borrowings as of December 31, 2023. As necessary, we also believe we will have adequate access to the capital markets. We monitor our working capital to ensure we have adequate liquidity, both domestically and internationally.
The following table shows production start-up expense for the years ended December 31, 2022, 2021, and 2020: Years Ended Change (Dollars in thousands) 2022 2021 2020 2022 over 2021 2021 over 2020 Production start-up $ 73,077 $ 21,052 $ 40,528 $ 52,025 247 % $ (19,476) (48) % % of net sales 2.8 % 0.7 % 1.5 % During 2022, we incurred production start-up expense primarily for our third manufacturing facility in the U.S. and for certain manufacturing upgrades at our Malaysian facilities.
Production start-up expense also includes costs related to the selection of a new site and implementation costs for manufacturing process improvements to the extent we cannot capitalize these expenditures. 55 Table of Contents The following table shows production start-up expense for the years ended December 31, 2023, 2022, and 2021: Years Ended Change (Dollars in thousands) 2023 2022 2021 2023 over 2022 2022 over 2021 Production start-up $ 64,777 $ 73,077 $ 21,052 $ (8,300) (11) % $ 52,025 247 % % of net sales 2.0 % 2.8 % 0.7 % During 2023, we incurred production start-up expense primarily for our first manufacturing facility in India, our third and fourth manufacturing facilities in the U.S., and certain manufacturing upgrades at our Malaysian facilities.
Recent developments to government support programs include the following: • United States. In August 2022, the U.S. President signed the IRA into law, which is intended to accelerate the country’s ongoing transition to clean energy. The provisions of the IRA are generally effective for tax years beginning after 2022.
Recent developments to government support programs include the following: • United States. In August 2022, the U.S. President signed the IRA into law, which is intended to accelerate the country’s ongoing transition to clean energy. Among other things, the financial incentives provided by the IRA have significantly increased demand for modules manufactured in the United States.
We have also committed certain financial resources to fulfill our solar module collection and recycling obligations and have established a trust under which these funds are put into custodial accounts with an established and reputable bank.
Additionally, for certain strategic suppliers, we have made, and may in the future be required to make, certain advance payments to secure the raw materials necessary for our module manufacturing. 60 Table of Contents We have also committed certain financial resources to fulfill our solar module collection and recycling obligations and have established a trust under which these funds are put into custodial accounts with an established and reputable bank.
As of December 31, 2022, our deferred revenue was approximately $1.2 billion. Accordingly, the capital expenditures necessary to expand our capacity in the near term are expected to be financed, in part, by advance payments for module sales in future periods and by the advanced manufacturing production credit described above.
The capital expenditures necessary to expand our capacity may be financed, in part, by advance payments from customers for module sales in future periods, the advanced manufacturing production credit described above, and/or near-term bridge financing instruments.
Our business is evolving worldwide and is shaped by the varying ways in which our offerings can be compelling and economically viable solutions to energy needs in various markets.
“Risk Factors” and elsewhere in this Annual Report on Form 10-K for discussions of other risks that may affect us. Our business is evolving worldwide and is shaped by the varying ways in which our offerings can be compelling and economically viable solutions to energy needs in various markets.
As of December 31, 2022, a 10% increase in the expected future recycling costs would increase the liability by $13.7 million. Product Warranties. We provide a limited PV solar module warranty covering defects in materials and workmanship under normal use and service conditions for up to 12.5 years.
We provide a limited PV solar module warranty covering defects in materials and workmanship under normal use and service conditions for up to 12.5 years.
The ALMM was introduced in 2021 as a non-tariff barrier to incentivize domestic manufacturing of PV modules by approving the list of models and manufacturers who can participate in certain solar development projects. The ALMM is approved by the MNRE, and any modifications to the ALMM and its application may affect future investments in solar module manufacturing in India.
Our operating results could be adversely impacted if the USDOC imposes duties on such imports. • India . The ALMM was introduced in 2021 as a non-tariff barrier to incentivize domestic manufacturing of PV modules by approving the list of models and manufacturers who can participate in certain solar development projects.
We make and revise these estimates based primarily on the number of solar modules under warranty installed at customer locations, our historical experience with and projections of warranty claims, and our estimated per-module replacement costs. We also monitor our expected future module performance through certain quality and reliability testing and actual performance in certain field installation sites.
When we recognize revenue for sales of modules or projects, 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 solar modules under warranty installed at customer locations, our historical experience with and projections of warranty claims, and our estimated per-module replacement costs.
We maintain the intent and ability to permanently reinvest our accumulated earnings outside the United States, with the exception of our subsidiaries in Canada and Germany.
We maintain the intent and ability to permanently reinvest our accumulated earnings outside the United States, with the exception of certain subsidiaries for which applicable income taxes have been recorded as of December 31, 2023.
For more information about certain risks associated with the benefits available to us under the IRA, see Item 1A. “Risk Factors – “We expect certain financial benefits as a result of tax incentives provided by the Inflation Reduction Act of 2022.
“Risk Factors – We expect certain financial benefits as a result of tax incentives provided by the Inflation Reduction Act of 2022.
In September 2022, the government of India approved an expansion to its PLI scheme to INR 195 billion ($2.5 billion), which is intended to promote the manufacturing of high efficiency solar modules in India and to reduce India’s dependency on foreign imports of solar modules.
The PLI scheme is expected to provide aggregate funding of INR 185 billion ($2.3 billion), of which INR 11.8 billion ($143 million) was allocated to First Solar, to promote the manufacturing of high efficiency solar modules in India and to reduce India’s dependency on foreign imports of solar modules.
In certain prior periods, our residual business operations also included O&M services we provided to third parties. 48 Table of Contents The following table shows net sales by reportable segment for the years ended December 31, 2022, 2021, and 2020: Years Ended Change (Dollars in thousands) 2022 2021 2020 2022 over 2021 2021 over 2020 Modules $ 2,428,278 $ 2,331,380 $ 1,736,060 $ 96,898 4 % $ 595,320 34 % Other 191,041 591,997 975,272 (400,956) (68) % (383,275) (39) % Net sales $ 2,619,319 $ 2,923,377 $ 2,711,332 $ (304,058) (10) % $ 212,045 8 % Net sales from our modules segment increased by $96.9 million in 2022 primarily due to a 20% increase in the volume of watts sold, partially offset by a 13% decrease in the average selling price per watt.
The following table shows net sales by reportable segment for the years ended December 31, 2023, 2022, and 2021: Years Ended Change (Dollars in thousands) 2023 2022 2021 2023 over 2022 2022 over 2021 Modules $ 3,296,809 $ 2,428,278 $ 2,331,380 $ 868,531 36 % $ 96,898 4 % Other 21,793 191,041 591,997 (169,248) (89) % (400,956) (68) % Net sales $ 3,318,602 $ 2,619,319 $ 2,923,377 $ 699,283 27 % $ (304,058) (10) % Net sales from our modules segment increased by $868.5 million in 2023 primarily due to a 28% increase in the volume of watts sold and a 6% increase in the average selling price per watt.
During the year ended December 31, 2022, we revised this estimate based on updated information regarding our warranty claims, which reduced our product warranty liability by $10.2 million.
We also monitor our expected future module performance through certain quality and reliability testing and actual performance in certain field installation sites. During the year ended December 31, 2023, we revised this estimate based on updated information regarding our warranty claims, which reduced our product warranty liability by $5.4 million.
Such increase in our modules segment cost of sales was partially offset by a $98.4 million decrease in our residual business operations cost of sales primarily due to the sales of certain projects in the United States and Japan in the prior period, partially offset by the impairment loss in the current period for our Luz del Norte PV solar power plant.
The decrease in cost of sales was also driven by a $238.0 million decrease in our residual business operations cost of sales primarily due to the sale of our Luz del Norte PV solar power plant in 2022 and the associated impairment loss in the same period. See Note 8.
Interest income Interest income is earned on our cash, cash equivalents, marketable securities, restricted cash, and restricted marketable securities. Interest income also includes interest earned from late customer payments.
Interest income also includes interest earned from late customer payments.
The increase in cash, cash equivalents, and marketable securities was primarily driven by cash receipts from module sales, including advance payments for future sales, proceeds from the sales of our Japan project development business and certain international O&M operations, and proceeds from borrowings, partially offset by purchases of property, plant and equipment, expenditures for the construction of certain projects in Japan, and other operating expenditures.
This decrease was primarily driven by purchases of property, plant and equipment for our U.S. and Indian facilities, various operating expenditures, and certain advance payments of raw materials, partially offset by proceeds from borrowings under debt agreements and cash receipts from module sales, including advance payments for future sales.
The following table shows selling, general and administrative expense for the years ended December 31, 2022, 2021, and 2020: Years Ended Change (Dollars in thousands) 2022 2021 2020 2022 over 2021 2021 over 2020 Selling, general and administrative $ 164,724 $ 170,320 $ 222,918 $ (5,596) (3) % $ (52,598) (24) % % of net sales 6.3 % 5.8 % 8.2 % 50 Table of Contents Selling, general and administrative expense in 2022 decreased compared to 2021 primarily due to higher charges for impairments of certain project assets in the prior period, a decrease in employee compensation expense primarily driven by reductions in headcount from the sales of our North American O&M operations and U.S. project development business in the prior period, and lower professional fees, partially offset by an increase in employee compensation expense driven by higher share-based compensation and employee bonus expenses.
The following table shows selling, general and administrative expense for the years ended December 31, 2023, 2022, and 2021: Years Ended Change (Dollars in thousands) 2023 2022 2021 2023 over 2022 2022 over 2021 Selling, general and administrative $ 197,622 $ 164,724 $ 170,320 $ 32,898 20 % $ (5,596) (3) % % of net sales 6.0 % 6.3 % 5.8 % Selling, general and administrative expense in 2023 increased compared to 2022 primarily due to higher professional fees associated with litigation and the sale of Section 45X tax credits to Fiserv, higher costs associated with the implementation of a new global enterprise resource planning system, higher employee compensation expense due to an increase in headcount, and higher share-based compensation expense, partially offset by higher professional fees in the prior period related to the sale of our Luz del Norte project.
The following table shows foreign currency loss, net for the years ended December 31, 2022, 2021, and 2020: Years Ended Change (Dollars in thousands) 2022 2021 2020 2022 over 2021 2021 over 2020 Foreign currency loss, net $ (16,414) $ (7,975) $ (4,890) $ (8,439) 106 % $ (3,085) 63 % Foreign currency loss increased in 2022 compared to 2021 primarily due to the differences between our economic hedge positions and the underlying exposures and higher costs associated with hedging activities related to our subsidiaries in India.
The following table shows foreign currency loss, net for the years ended December 31, 2023, 2022, and 2021: Years Ended Change (Dollars in thousands) 2023 2022 2021 2023 over 2022 2022 over 2021 Foreign currency loss, net $ (21,533) $ (16,414) $ (7,975) $ (5,119) 31 % $ (8,439) 106 % Foreign currency loss increased in 2023 compared to 2022 primarily due to higher hedging costs due to an increase in foreign currency exposures being hedged by our subsidiaries in India and the beneficial impact of certain hedging activities in Japan in the prior period. 56 Table of Contents Interest income Interest income is earned on our cash, cash equivalents, marketable securities, restricted cash, and restricted marketable securities.
Certain Trends and Uncertainties We believe that our business, financial condition, and results of operations may be favorably or unfavorably impacted by the following trends and uncertainties. See Item 1A. “Risk Factors” and elsewhere in this Annual Report on Form 10-K for discussions of other risks that may affect us.
We continue to focus on enhancing the competitiveness of our solar modules through our module technology and cost reduction roadmaps. Certain Trends and Uncertainties We believe that our business, financial condition, and results of operations may be favorably or unfavorably impacted by the following trends and uncertainties. See Item 1A.
The following table shows cost of sales by reportable segment for the years ended December 31, 2022, 2021, and 2020: Years Ended Change (Dollars in thousands) 2022 2021 2020 2022 over 2021 2021 over 2020 Modules $ 2,312,881 $ 1,858,454 $ 1,306,929 $ 454,427 24 % $ 551,525 42 % Other 236,580 334,969 723,730 (98,389) (29) % (388,761) (54) % Cost of sales $ 2,549,461 $ 2,193,423 $ 2,030,659 $ 356,038 16 % $ 162,764 8 % % of net sales 97.3 % 75.0 % 74.9 % Cost of sales increased $356.0 million, or 16%, and increased 22.3 percentage points as a percent of net sales when comparing 2022 with 2021.
Cost of sales for our residual business operations includes project-related costs, such as development costs (legal, consulting, transmission upgrade, interconnection, permitting, and other similar costs), EPC costs (consisting primarily of solar modules, inverters, electrical and mounting hardware, project management and engineering, and construction labor), and site-specific costs. 53 Table of Contents The following table shows cost of sales by reportable segment for the years ended December 31, 2023, 2022, and 2021: Years Ended Change (Dollars in thousands) 2023 2022 2021 2023 over 2022 2022 over 2021 Modules $ 2,019,388 $ 2,312,881 $ 1,858,454 $ (293,493) (13) % $ 454,427 24 % Other (1,465) 236,580 334,969 (238,045) (101) % (98,389) (29) % Cost of sales $ 2,017,923 $ 2,549,461 $ 2,193,423 $ (531,538) (21) % $ 356,038 16 % % of net sales 60.8 % 97.3 % 75.0 % Cost of sales decreased $531.5 million, or 21%, and decreased 36.5 percentage points as a percent of net sales when comparing 2023 with 2022.
If these expected financial benefits vary significantly from our assumptions, our business, financial condition, and results of operations could be adversely affected.” 54 Table of Contents As a result of such market opportunities and increased demand for our products, we are in the process of expanding our capacity by approximately 11 GW DC , including the construction of our third manufacturing facility in the United States, which commenced commercial production of modules in early 2023; our first manufacturing facility in India, which is expected to commence operations in the second half of 2023; our fourth manufacturing facility in the United States, which is expected to commence operations in late 2024; and the expansion of our manufacturing footprint at our existing facilities in Ohio.
We are in the process of expanding our manufacturing capacity by approximately 8 GW, including the construction of our fourth manufacturing facility in the United States, which is expected to commence operations in the second half of 2024; our fifth manufacturing facility in the United States, which is expected to commence operations in late 2025; and the expansion of our manufacturing footprint at our existing facilities in Ohio, which is expected to be completed in the first half of 2024.
The following table shows gross profit for the years ended December 31, 2022, 2021, and 2020: Years Ended Change (Dollars in thousands) 2022 2021 2020 2022 over 2021 2021 over 2020 Gross profit $ 69,858 $ 729,954 $ 680,673 $ (660,096) (90) % $ 49,281 7 % % of net sales 2.7 % 25.0 % 25.1 % Gross profit decreased 22.3 percentage points to 2.7% in 2022 from 25.0% in 2021 primarily due to a decrease in the average selling price per watt of our modules, the volume of higher gross profit projects sold during the prior period, an increase in sales freight, demurrage, and detention charges, the impairment loss in the current period for our Luz del Norte PV solar power plant described above, and the prior period indemnification matter descried above.
The following table shows gross profit for the years ended December 31, 2023, 2022, and 2021: Years Ended Change (Dollars in thousands) 2023 2022 2021 2023 over 2022 2022 over 2021 Gross profit $ 1,300,679 $ 69,858 $ 729,954 $ 1,230,821 >500% $ (660,096) (90) % % of net sales 39.2 % 2.7 % 25.0 % Gross profit increased 36.5 percentage points to 39.2% in 2023 from 2.7% in 2022 primarily due to (i) the advanced manufacturing credit mentioned above, (ii) a decrease in sales freight costs, (iii) an increase in the average selling price per watt of our modules, (iv) continued module cost reductions, and (v) the prior period sale and related impairment of the Luz del Norte project described above. 54 Table of Contents Selling, general and administrative Selling, general and administrative expense consists primarily of salaries and other personnel-related costs, professional fees, insurance costs, and other business development and selling expenses.
The following table shows other income (expense), net for the years ended December 31, 2022, 2021, and 2020: Years Ended Change (Dollars in thousands) 2022 2021 2020 2022 over 2021 2021 over 2020 Other income (expense), net $ 31,189 $ 314 $ (11,932) $ 30,875 >100% $ 12,246 103 % Other income, net increased in 2022 compared to 2021 primarily due to the partial loan forgiveness of the Luz del Norte Credit Facilities in connection with the sale of our Luz del Norte PV solar power plant.
The following table shows other (expense) income, net for the years ended December 31, 2023, 2022, and 2021: Years Ended Change (Dollars in thousands) 2023 2022 2021 2023 over 2022 2022 over 2021 Other (expense) income, net $ (29,145) $ 31,189 $ 314 $ (60,334) (193) % $ 30,875 >500% Other expense, net increased in 2023 compared to 2022 primarily due to the impairment of a strategic investment in 2023 and the partial forgiveness of a loan in 2022 associated with the sale of the Luz del Norte project. 57 Table of Contents Income tax expense 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 may capitalize interest expense to 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. 52 Table of Contents The following table shows interest expense, net for the years ended December 31, 2022, 2021, and 2020: Years Ended Change (Dollars in thousands) 2022 2021 2020 2022 over 2021 2021 over 2020 Interest expense, net $ (12,225) $ (13,107) $ (24,036) $ 882 (7) % $ 10,929 (45) % Interest expense, net in 2022 was consistent with 2021.
The following table shows interest expense, net for the years ended December 31, 2023, 2022, and 2021: Years Ended Change (Dollars in thousands) 2023 2022 2021 2023 over 2022 2022 over 2021 Interest expense, net $ (12,965) $ (12,225) $ (13,107) $ (740) 6 % $ 882 (7) % Interest expense, net in 2023 was consistent with 2022.
Additionally, our manufacturing capacity expansions in the U.S. and India are expected to bring manufacturing activities closer to customer demand, further mitigating our exposure to the cost of ocean freight. While it is currently unclear how long these issues will persist, they may be further exacerbated by the disruption of major shipping routes or other economic disruptions.
Additionally, our manufacturing capacity expansions in the U.S. and India are expected to bring manufacturing activities closer to customer demand, further mitigating our exposure to the cost of ocean freight. We generally price and sell our solar modules on a per watt basis.
Any declines in the competitiveness of our products could result in further declines in the average selling prices of our modules and additional margin compression. We continue to focus on enhancing the competitiveness of our solar modules through our module technology and cost reduction roadmaps.
While our modules 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 further declines in the average selling prices of our modules and additional margin compression.
(“Clairvest”). During 2021, we completed the sales of our North American O&M operations to a subsidiary of Clairvest and our U.S. project development business to Leeward Renewable Energy Development, LLC (“Leeward”). See Note 3. “Sales of Businesses” to our consolidated financial statements for further information related to these transactions.
(“Clairvest”). In 2023, we recognized certain post-closing adjustments and earnouts associated with the prior sale of our Japan project development business. See Note 4. “Sales of Businesses” to our consolidated financial statements for further information related to these transactions.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeWe face numerous difficulties in executing on our long-term strategic plans, particularly in new foreign jurisdictions, including the following: • difficulty in competing against companies who may have greater financial resources and/or a more effective or established localized business presence and/or an ability to operate with minimal or negative operating margins for sustained periods of time; • difficulty in competing successfully with other technologies, such as hybrid perovskites, tandem solar cells, or other thin films; • difficulty in accurately prioritizing geographic markets that we can most effectively and profitably serve with our solar module offerings, including miscalculations in overestimating or underestimating addressable market demand; • adverse public policies in countries we operate in and/or are pursuing, including local content requirements, the imposition of trade remedies, the removal of trade barriers, 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 or adverse economic, social, and/or operating environments, 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 talent in geographies targeted for expansion; • difficulty in maintaining proper controls and procedures as we expand our business operations in terms of geographical reach, including transitioning certain business functions to low-cost geographies, with any material control failure potentially leading to reputational damage and loss of confidence in our financial reporting; • difficulty in competing successfully for market share in overall solar markets as a result of the success of companies participating in other solar segments in which we do not have significant historical experience, such as residential; • difficulty in establishing and implementing a commercial and operational approach adequate to address the specific needs of the markets we are pursuing; • difficulty in identifying effective local partners and developing any necessary partnerships with local businesses on commercially acceptable terms; and • difficulty in balancing market demand and manufacturing production in an efficient and timely manner, potentially causing our manufacturing capacity to be constrained in some future periods or over-supplied in others. 23 Table of Contents Refer also to 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,” “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 the impact of other public policies, such as tariffs or other trade remedies imposed on solar cells and modules, could negatively impact demand and/or price levels for our solar modules and limit our growth or lead to a reduction in our net sales or increase our costs, thereby adversely impacting our operating results,” and “We may be unable to generate sufficient cash flows or have access to the sources of external financing necessary to fund planned capital investments in manufacturing capacity and product development.” Risks Related to Our Operations, Manufacturing, and Technology We face intense competition from manufacturers of crystalline silicon solar modules; if global supply exceeds global demand, it could lead to a further reduction in the average selling price for PV solar modules , which could reduce our net sales and adversely affect our results of operations.
Biggest changeWe face numerous difficulties in executing on our long-term strategic plans, particularly in new foreign jurisdictions, including the following: • difficulty in competing against companies who may have greater financial resources and/or a more effective or established localized business presence and/or an ability to operate with minimal or negative operating margins for sustained periods of time; • difficulty in competing successfully with other technologies, such as crystalline silicon, hybrid perovskites, tandem solar cells, or other thin films; • difficulty in accurately prioritizing geographic markets that we can most effectively and profitably serve with our solar module offerings, including miscalculations in overestimating or underestimating addressable market demand; • adverse public policies in countries we operate in and/or are pursuing, including local content requirements, the imposition of trade remedies, the removal of trade barriers, 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 or adverse economic, social, and/or operating environments, 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 talent in geographies targeted for expansion; • difficulty in realizing the potential benefits of strategic acquisitions and investments; • difficulty in maintaining proper controls and procedures as we expand our business operations in terms of geographical reach, including transitioning certain business functions to low-cost geographies, with any material control failure potentially leading to reputational damage and loss of confidence in our financial reporting; • difficulty in competing successfully for market share in overall solar markets as a result of the success of companies participating in other solar segments in which we do not have significant historical experience, such as residential; • 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 23 Table of Contents • difficulty in balancing market demand and manufacturing production in an efficient and timely manner, potentially causing our manufacturing capacity to be constrained in some future periods or over-supplied in others.
Our ability to effectively manage our cost per watt or successfully expand production capacity is subject to significant risks and uncertainties, including the following: • failure to reduce manufacturing material, labor, or overhead costs; • an inability to increase production throughput or the average power output per module, or minimize manufacturing yield losses; • failure to effectively manage the availability and cost of logistics services associated with the procurement of raw materials or equipment used in our manufacturing process and the shipping, handling, storage, and distribution of our modules; • 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 economical contracts with equipment vendors; • our custom-built equipment taking longer and costing more to manufacture than expected and not operating as designed; • delays or denial of required approvals by relevant government authorities; • an inability to hire qualified staff; • capital expenditures exceeding our initial estimates with respect to expanding and building our manufacturing and R&D facilities; 28 Table of Contents • difficulty in balancing market demand and manufacturing production in an efficient and timely manner, potentially causing our manufacturing capacity to be constrained in some future periods or over-supplied in others; and • incurring manufacturing asset write-downs, write-offs, and other charges and costs, which may be significant, during those periods in which we idle, slow down, shut down, or otherwise adjust our manufacturing capacity.
Our ability to effectively manage our cost per watt or successfully expand production capacity is subject to significant risks and uncertainties, including the following: • failure to reduce manufacturing material, labor, or overhead costs; • an inability to increase production throughput or the average power output per module, or minimize manufacturing yield losses; 28 Table of Contents • failure to effectively manage the availability and cost of logistics services associated with the procurement of raw materials or equipment used in our manufacturing process and the shipping, handling, storage, and distribution of our modules; • 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 economical contracts with equipment vendors; • our custom-built equipment taking longer and costing more to manufacture than expected and not operating as designed; • delays or denial of required approvals by relevant government authorities; • an inability to hire qualified staff; • capital expenditures exceeding our initial estimates with respect to expanding and building our manufacturing and R&D facilities; • difficulty in balancing market demand and manufacturing production in an efficient and timely manner, potentially causing our manufacturing capacity to be constrained in some future periods or over-supplied in others; and • incurring manufacturing asset write-downs, write-offs, and other charges and costs, which may be significant, during those periods in which we idle, slow down, shut down, or otherwise adjust our manufacturing capacity.
For example, we currently expect to qualify for the advanced manufacturing production credit under Section 45X of the IRC, which provides certain specified benefits for solar modules and solar module components manufactured in the United States and sold to third parties.
For example, we currently expect to qualify for the advanced manufacturing production credit under Section 45X of the IRC, which provides certain specified benefits for solar modules and certain solar module components manufactured in the United States and sold to third parties.
If we are unable to attract, train, retain, and successfully integrate key talent into our management team, our business may be materially and adversely affected. Our future success depends, to a significant extent, on our ability to attract, train, and retain management, operations, sales, and technical talent, including associates in foreign jurisdictions.
If we are unable to attract, train, retain, and successfully integrate key talent into our team, our business may be materially and adversely affected. Our future success depends, to a significant extent, on our ability to attract, train, and retain management, operations, sales, and technical talent, including associates in foreign jurisdictions.
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 global demand for PV modules decreases relative to installed production capacity, our business, financial condition, and results of operations could be adversely affected. • 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 public policies could negatively impact demand and/or price levels for our solar modules.
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 global demand for PV modules decreases relative to installed production capacity, our business, financial condition, and results of operations could be adversely affected. • The modification, 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 public policies could negatively impact demand and/or price levels for our solar modules.
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 customers to seek alternative investments. 22 Table of Contents We may be unable to fully execute on our long-term strategic plans, which could have a material adverse effect on our business, financial condition, or results of operations.
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 customers to seek alternative investments. 22 Table of Contents We may be unable to execute on our long-term strategic plans, which could have a material adverse effect on our business, financial condition, or results of operations.
Moreover, the extension measure does not apply tariffs to imports of bifacial modules. The extension measure’s tariff rate was originally set at 14.75%, with annual reductions of 0.25 percentage points over the remainder of its four-year term. The current rate is 14.5%.
Moreover, the extension measure does not apply tariffs to imports of bifacial modules. The extension measure’s tariff rate was originally set at 14.75%, with annual reductions of 0.25 percentage points over the remainder of its four-year term. The current rate is 14.25%.
The extension measure also provides an annual tariff-rate quota, whereby tariffs apply to imported crystalline silicon solar cells above the first 5.0 GW DC of imports. • United States — Antidumping and countervailing duties on certain imported crystalline silicon PV cells and modules.
The extension measure also provides an annual tariff-rate quota, whereby tariffs apply to imported crystalline silicon solar cells above the first 5.0 GW of imports. • United States — Antidumping and countervailing duties on certain imported crystalline silicon PV cells and modules.
Additionally, certain module manufacturers have introduced n-type mono-crystalline modules, such as tunnel oxide passivated contact (“TOPCon”) modules, which are expected to provide certain improvements to module efficiency, temperature coefficient, and bifacial performance, and claim to provide certain degradation advantages compared to other mono-crystalline modules.
Additionally, certain module manufacturers have introduced n-type mono-crystalline modules, such as tunnel oxide passivated contact modules, which are expected to provide certain improvements to module efficiency, temperature coefficient, and bifacial performance, and claim to provide certain degradation advantages compared to other mono-crystalline modules.
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. See Note 12. “Commitments and Contingencies – Legal Proceedings” to our consolidated financial statements for more information on our legal proceedings.
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. See Note 14. “Commitments and Contingencies – Legal Proceedings” to our consolidated financial statements for more information on our legal proceedings.
Such clarification may impact the extent to which we will be able to make additional direct payment elections across multiple years for multiple manufacturing facilities.
Such clarification may impact the extent to which we will be able to make additional direct payment elections across multiple tax years for multiple manufacturing facilities.
Furthermore, the guidance is expected to address (i) how and when the credit is claimed by the taxpayer, including the type of information necessary to verify the credit amount, (ii) whether the credit must be applied as a reduction to any quarterly estimated tax payments or as an offset to any taxes that are reported on the taxpayer’s income tax return for any taxable year in which a direct payment election is made, and (iii) the degree of review or examination by the IRS or any other agency, including whether such review or examination would be a condition to receiving any direct payment.
Furthermore, the final regulations are expected to address (i) how and when the credit is claimed by the taxpayer, including the type of information necessary to verify the credit amount, (ii) whether the credit must be applied as a reduction to any quarterly estimated tax payments or as an offset to any taxes that are reported on the taxpayer’s income tax return for any taxable year in which a direct payment election is made, and (iii) the degree of review or examination by the IRS or any other agency, including whether such review or examination would be a condition to receiving any direct payment.
For additional information, 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 the impact of other public policies, such as tariffs or other trade remedies imposed on solar cells and modules, could negatively impact demand and/or price levels for our solar modules and limit our growth or lead to a reduction in our net sales or increase our costs, thereby adversely impacting our operating results.” In addition, we believe that a significant percentage of our customers install systems as an investment, funding the initial capital expenditure through a combination of equity and debt.
For additional information, see the Risk Factor entitled, “The modification, reduction, elimination, or expiration of government subsidies, economic incentives, tax incentives, renewable energy targets, and other support for on-grid solar electricity applications, or the impact of other public policies, such as tariffs or other trade remedies imposed on solar cells and modules or related raw materials, could negatively impact demand and/or price levels for our solar modules and limit our growth or lead to a reduction in our net sales or increase our costs, thereby adversely impacting our operating results.” In addition, we believe that a significant percentage of our customers install systems as an investment, funding the initial capital expenditure through a combination of equity and debt.
We estimate the cost of our collection and recycling obligations based on the present value of the expected 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; material, labor, and capital costs; by-product credits for certain materials recovered during the recycling process; the estimated useful lives of modules covered by the program; and the number of modules expected to be recycled.
We estimate the cost of our collection and recycling obligations based on the present value of the expected future cost of collecting and recycling the solar modules, which includes estimates for the cost of packaging 29 Table of Contents materials; the cost of freight from the solar module installation sites to a recycling center; material, labor, and capital costs; by-product credits for certain materials recovered during the recycling process; the estimated useful lives of modules covered by the program; and the number of modules expected to be recycled.
Other countries in which we operate also have anti-bribery laws, some of which prohibit improper payments to government and non-government persons and 33 Table of Contents entities, and others (e.g., the FCPA and the U.K. Bribery Act) extend their application to activities outside their country of origin. Our policies mandate compliance with all applicable anti-bribery laws.
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 their country of origin. Our policies mandate compliance with all applicable anti-bribery laws.
Risks inherent to international operations include, but are not limited to, the following: • difficulty in enforcing agreements in foreign legal systems; • 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 flows in U.S. dollars to the extent that our net sales or our costs are denominated in a foreign currency and the cost associated with hedging the U.S. dollar equivalent of such exposures is prohibitive; the longer the duration of such foreign currency exposure, the greater the risk; • anti-corruption compliance issues, including the costs related to the mitigation of such risk; • risk of nationalization or other expropriation of private enterprises; • changes in general economic and political conditions in the countries in which we operate, including changes in government incentive provisions; • unexpected adverse changes in U.S. or foreign laws or regulatory requirements, including those with respect to environmental protection, import or export duties, and quotas; • opaque approval processes in which the lack of transparency may cause delays and increase the uncertainty of project approvals; • difficulty in staffing and managing widespread operations; • difficulty in repatriating earnings; • difficulty in negotiating a successful collective bargaining agreement in applicable foreign jurisdictions; • trade barriers such as export requirements, tariffs, taxes, local content requirements, anti-dumping regulations and requirements, and other restrictions and expenses, which could increase the effective price of our solar modules and make us less competitive in some countries or increase the costs to perform under our existing contracts; 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. 31 Table of Contents Risks Related to Regulations We expect certain financial benefits as a result of tax incentives provided by the Inflation Reduction Act of 2022.
Risks inherent to international operations include, but are not limited to, the following: • difficulty in enforcing agreements in foreign legal systems; • 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 flows in U.S. dollars to the extent that our net sales or our costs are denominated in a foreign currency and the cost associated with hedging the U.S. dollar equivalent of such exposures is prohibitive; the longer the duration of such foreign currency exposure, the greater the risk; • anti-corruption compliance issues, including the costs related to the mitigation of such risk; • risk of nationalization or other expropriation of private enterprises; • changes in general economic and political conditions in the countries in which we operate, including changes in government incentive provisions; 31 Table of Contents • 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 or increase the costs to perform under our existing contracts; 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.
These clarifications may impact the timing and extent of cash benefits available to us and, if the 32 Table of Contents direct payment election cannot be made a second time, our ability to transfer the tax credits to another taxpayer or taxpayers, which depends on the future demand for such credits. • Domestic content requirements.
These clarifications may impact the timing and extent of cash benefits available to us and, if the direct payment election cannot be made a second time, our ability to transfer the tax credits to another taxpayer or taxpayers, which depends on the future demand for such credits. • Domestic content requirements.
However, the extent to which public health threats (including pandemics such as COVID-19 or similarly infectious diseases) could impact us in the future is highly uncertain and cannot be predicted, and will depend largely on subsequent developments, including but not limited to (i) the severity and duration of any public health threat, (ii) measures taken to contain the spread of any public health threat, such as restrictions on travel and gatherings of people and temporary closures of or limitations on businesses and other commercial activities, (iii) the timing and nature of policies implemented by governmental authorities, and (iv) any future variants of any public health threat, which may surge over time.
The extent to which public health threats (including pandemics such as COVID-19 or similarly infectious diseases) could impact us in the future is highly uncertain and unpredictable, and will depend largely on subsequent developments, including but not limited to (i) the severity and duration of any public health threat, (ii) measures taken to contain the spread of any public health threat, such as restrictions on travel and gatherings of people and temporary closures of or limitations on businesses and other commercial activities, (iii) the timing and nature of policies implemented by governmental authorities, and (iv) any future variants of the public health threat, which may surge over time.
While the expected potential of the markets we are targeting is significant, 21 Table of Contents policy promulgation and market development are especially vulnerable to governmental inertia, political instability, the imposition or lowering of trade remedies and other trade barriers, geopolitical risk, fossil fuel subsidization, potentially stringent localization requirements, and limited available infrastructure.
While the expected potential of the markets we are targeting is significant, policy promulgation and market development are especially vulnerable to governmental inertia, political instability, the imposition or lowering of trade remedies and other trade barriers, geopolitical risk, fossil fuel subsidization, potentially stringent localization requirements, and limited available infrastructure.
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 the impact of other public policies, such as tariffs or other trade remedies imposed on solar cells and modules, could negatively impact demand and/or price levels for our solar modules and limit our growth or lead to a reduction in our net sales or increase our costs, thereby adversely impacting our operating results.
The modification, reduction, elimination, or expiration of government subsidies, economic incentives, tax incentives, renewable energy targets, and other support for on-grid solar electricity applications, or the impact of other public policies, such as tariffs or other trade remedies imposed on solar cells and modules or related raw materials, could negatively impact demand and/or price levels for our solar modules and limit our growth or lead to a reduction in our net sales or increase our costs, thereby adversely impacting our operating results.
Nothing in our Bylaws precludes stockholders that assert claims under the Exchange Act from bringing such claims in any court, subject to applicable law. 39 Table of Contents Any person or entity holding, owning or otherwise acquiring any interest in any of our securities shall be deemed to have notice of and consented to these provisions.
Nothing in our Bylaws precludes stockholders that assert claims under the Exchange Act from bringing such claims in any court, subject to applicable law. Any person or entity holding, owning or otherwise acquiring any interest in any of our securities shall be deemed to have notice of and consented to these provisions.
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. 37 Table of Contents Unanticipated changes in our tax provision, the enactment of new tax legislation, or exposure to additional income tax liabilities could affect our profitability.
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. Unanticipated changes in our tax provision, the enactment of new tax legislation, or exposure to additional income tax liabilities could affect our profitability.
If we are unable to achieve the necessary technology improvements to remain competitive, our overall growth and financial performance may be limited relative to our competitors and our operating results could be adversely impacted. 26 Table of Contents We often forward price our products in anticipation of future technology improvements.
If we are unable to achieve the necessary technology improvements to remain competitive, our overall growth and financial performance may be limited relative to our competitors and our operating results could be adversely impacted. We often forward price our products in anticipation of future technology improvements.
Consequently, we may seek to raise additional funds through the issuance of equity, equity-related, or debt securities or through obtaining credit from financial institutions to fund, together with our traditional sources of liquidity, the costs of developing and manufacturing our current or future products.
Consequently, we may seek to raise additional funds through the issuance of equity, equity-related, or debt securities, through obtaining credit from financial institutions to fund, together with our traditional sources of liquidity, the costs of developing and manufacturing our current or future products, or through the sale of tax credits.
The guidance is expected to confirm that a vertically-integrated solar module manufacturer is entitled to the sum of the credit amounts for each eligible component that is integrated into the solar module, including the credit amounts for the PV wafer, cell, and module, provided such components are produced in the United States.
The final regulations are expected to confirm that a vertically-integrated solar module manufacturer is entitled to the sum of the credit amounts for each eligible component that is integrated into the solar module, including the credit amounts for the PV wafer, cell, and module, provided such components are produced in the United States.
Recruiting and retaining capable individuals, particularly those with expertise in the PV solar industry across a variety of technologies, are vital to our success. We are also dependent on the services of our executive officers and other members of our senior management team.
Recruiting and retaining capable individuals, particularly those with expertise in the PV solar and related industries across a variety of technologies, are vital to our success. We are also dependent on the services of our executive officers and other members of our senior management team.
President signed into law the IRA, which revised U.S. tax law by, among other things, including a new corporate alternative minimum tax (the “CAMT”) of 15% on certain large corporations, imposing a 1% excise tax on stock buybacks, and providing various incentives to address climate change, including the introduction of the advanced manufacturing production credit.
President signed into law the IRA, which revised U.S. tax law by, among other things, including a new corporate alternative minimum tax (the “CAMT”) of 15% on certain large corporations, imposing a 1% excise tax on stock buybacks, and providing various incentives to address climate change, including the introduction of the advanced manufacturing production credit under Section 45X of the IRC.
As a result, we may 24 Table of Contents be unable to sell our solar modules 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.
As a result, we may be unable to sell our solar modules 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.
This clarification may impact to what extent we qualify for a credit of approximately 17 cents per watt based on the current form factor of our modules. • Standardization of per-watt measurements. The guidance is expected to confirm and/or clarify the method by which wattage is calculated to determine the applicable credit amounts for PV cells and modules.
This clarification may impact to what extent we qualify for a credit of approximately 17 cents per watt based on the current form factor of our modules. • Standardization of per-watt measurements. The final regulations are expected to confirm and/or clarify the method by which wattage is calculated to determine the applicable credit amounts for PV cells and modules.
Any such violation, even if prohibited by our policies, could subject us and such persons to criminal and/or civil penalties or other sanctions potentially by government prosecutors from more than one country, which could have a material adverse effect on our business, financial condition, cash flows, and reputation.
Any such violation, even if prohibited by our policies, could subject us and such persons to criminal and/or civil penalties or other sanctions potentially by government prosecutors from more 34 Table of Contents than one country, which could have a material adverse effect on our business, financial condition, cash flows, and reputation.
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 29 Table of Contents and future patents could be challenged, invalidated, circumvented, or rendered unenforceable.
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.
Even if any future lawsuits are not resolved against us, the costs of defending such lawsuits may be significant. These costs may exceed the dollar limits of our insurance policies or may not be covered at all by our 38 Table of Contents insurance policies.
Even if any future lawsuits are not resolved against us, the costs of defending such lawsuits may be significant. These costs may exceed the dollar limits of our insurance policies or may not be covered at all by our insurance policies.
Our current evaluation of the benefits available to us is based on the use of industry-wide standard test conditions to determine the nameplate capacity of PV cells and modules. The guidance is expected to create meaningful consistency for credit calculation by standardizing the process for determining solar module nameplate capacity.
Our current evaluation of the benefits available to us is based on the use of industry-wide standard test conditions to determine the nameplate capacity of PV cells and modules. The final regulations are expected to create meaningful consistency for credit calculation by standardizing the process for determining solar module nameplate capacity.
The imposition of tariffs on our products could materially increase our costs to perform under our contracts with customers, which could adversely affect our results of operations. • The loss of any of our large customers, or the inability of our customers and counterparties to perform under their contracts with us, could significantly reduce our net sales and negatively impact our results of operations.
The imposition of tariffs on our products or their related raw materials and components could materially increase our costs to perform under our contracts with customers, which could adversely affect our results of operations. • The loss of any of our large customers, or the inability of our customers and counterparties to perform under their contracts with us, could significantly reduce our net sales and negatively impact our results of operations.
If we are unable to pass such cost increases to our customers, a substantial increase in 27 Table of Contents prices or any limitations or disruptions in our supply chain could adversely impact our profitability and long-term growth objectives.
If we are unable to pass such cost increases to our customers, a substantial increase in prices or any limitations or disruptions in our supply chain could adversely impact our profitability and long-term growth objectives.
The guidance is expected to clarify whether a taxpayer’s direct payment election with respect to the Section 45X credit applies only to a single 5-year period or whether the taxpayer is entitled to make a second direct payment election for a subsequent 5-year period during the 10-year credit period.
The final regulations are expected to clarify whether a taxpayer’s direct payment election with respect to the Section 45X credit applies only to a single 5-year period or whether the taxpayer is entitled to make a second direct payment election for a subsequent 5-year period during the 10-year credit period.
In the aggregate, we believe manufacturers of solar cells and modules have significant installed production capacity, relative to global demand, and the ability for additional capacity expansion. For example, we estimate that in 2022 approximately 160 GW DC of capacity was added by solar module manufacturers, primarily in China.
In the aggregate, we believe manufacturers of solar cells and modules have significant installed production capacity, relative to global demand, and the ability for additional capacity expansion. For example, we estimate that in 2023 approximately 305 GW of capacity was added by solar module manufacturers, primarily in China.
In recent years, such cyber incidents have become increasingly frequent and sophisticated, targeting or otherwise affecting a wide range of companies.
In recent years, such cybersecurity incidents and events have become increasingly frequent and sophisticated, targeting or otherwise affecting a wide range of companies.
The guidance is expected to confirm that domestic content rules are applied separately with respect to steel and iron as compared to manufactured products, which would require that only a certain percentage of the total costs of such manufactured product components are of U.S. origin.
Further guidance (in the form of technical guidance or regulations) is expected to confirm that domestic content rules are applied separately with respect to steel and iron as compared to manufactured products, which would require that only a certain percentage of the total costs of such manufactured product components are of U.S. origin.
If a court were to find the exclusive forum provisions in our Bylaws to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving the dispute in other jurisdictions, which could adversely affect our results of operations. Item 1B. Unresolved Staff Comments None.
If a court were to find the exclusive forum provisions in our Bylaws to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving the dispute in other jurisdictions, which could adversely affect our results of operations.
In addition, due to the level of regulation in our industry, our operations in certain jurisdictions where norms can differ from U.S. standards, including China, India, South America, and the Middle East, require 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).
In addition, due to the level of regulation in our industry, our operations in certain jurisdictions where norms can differ from U.S. standards may require 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).
Furthermore, longstanding international tax laws that determine each country’s jurisdictional tax rights in cross-border international trade continue to evolve as a result of the base erosion and profit shifting reporting requirements and the introduction of the global minimum tax recommended by the Organization for Economic Co-operation and Development. Additionally, in August 2022, the U.S.
Longstanding international tax laws that determine each country’s jurisdictional tax rights in cross-border international trade continue to evolve as a result of the base erosion and profit shifting reporting requirements and the introduction of the global minimum tax recommended by the Organization for Economic Co-operation and Development (“OECD”).
For example, during 2022, we received various indemnification demands from certain customers, for whom we provided EPC services, regarding claims that such customers’ PV tracker systems infringe, in part, on patents owned by Rovshan Sade (“Sade”), the owner of a company called Trabant Solar, Inc. See Note 12.
For example, during 2022, we received various indemnification demands from certain customers, for whom we provided engineering, procurement, and construction (“EPC”) services, regarding claims that such customers’ PV tracker systems infringe, in part, on patents owned by Rovshan Sade (“Sade”), the owner of a company called Trabant Solar, Inc. See Note 14.
While we have instituted security measures and procured insurance to mitigate 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.
While we have instituted security measures and procured insurance to mitigate the likelihood and impact of a cybersecurity incident and other events, including information and security breaches, there is no assurance that these measures, or those of the third parties with which we do business, will be adequate in the future.
Examples of such regulations include the following: • European Union Directive 2011/65/EU on the Restriction of the Use of Hazardous Substances (“RoHS”) in electrical and electronic equipment (the “RoHS Directive”) restricts the use of certain hazardous substances, including cadmium and its compounds, in all electronic equipment sold into the European market, unless excluded from the law.
For example, European Union Directive 2011/65/EU on the Restriction of the Use of Hazardous Substances (“RoHS”) in electrical and electronic equipment (the “RoHS Directive”) restricts the use of certain hazardous substances, including cadmium and its compounds, in all electronic equipment sold into the European market, unless excluded from the law.
This clarification will impact whether we can monetize the credit in the form of cash payments directly from the government throughout the 10-year credit period, or whether we would be required to monetize the credit through a sale to another taxpayer or taxpayers during the subsequent 5-year period.
This clarification will impact whether we can monetize the credit in the form of cash payments directly from the government throughout the 10-year credit period, or whether we would be required to monetize the credit through a sale to another taxpayer or taxpayers after a single 5-year period for the direct payment.
We need to continue to invest significant financial resources in R&D to continue to improve our module conversion efficiencies and otherwise keep pace with technological advances in the solar industry. However, R&D activities are inherently uncertain, and we could encounter difficulties in commercializing our research results.
We need to continue to invest significant financial resources in R&D to further improve the energy yield of our modules and otherwise keep pace with technological advances in the solar industry. However, R&D activities are inherently uncertain, and we could encounter difficulties in commercializing our research results.
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 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.
These 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.
These information systems may be compromised by cybersecurity incidents, including those caused by computer viruses, malware, ransomware and other cyber-attacks, as well as other events, including information and security breaches, 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 January 2023, the EU adopted the Foreign Subsidies Regulation (“FSR”), which was established to provide the European Commission with authority to investigate financial contributions granted by foreign governments to businesses operating within the EU.
In January 2023, the EU adopted the Foreign Subsidies Regulation (“FSR”), which was established to provide the European Commission with authority to investigate financial contributions granted by foreign governments to businesses operating within the EU. In July 2023, the FSR became effective, and the European Commission issued application guidance.
The guidance is also expected to clarify whether the taxpayer is entitled to make the direct payment election on a facility-by-facility basis, especially with respect to new manufacturing facilities that commence production after the taxpayer has made the initial direct payment election.
The final regulations are also expected to clarify the definition of a Section 45X manufacturing facility and whether the taxpayer is entitled to make the direct payment election on a facility-by-facility basis, especially with respect to new manufacturing facilities that commence production after the taxpayer has made the initial direct payment election.
The solar industry may experience periods of structural imbalance between global PV module supply and demand that result in periods of pricing volatility, which could have a material adverse effect on our business, financial condition, and results of operations.” In addition, we believe any significant decrease in the cost of silicon feedstock or polysilicon would reduce the manufacturing cost of crystalline silicon modules and lead to further pricing pressure for solar modules and potentially an oversupply of solar modules.
The solar industry may experience periods of structural imbalance between global PV module supply and demand that result in periods of pricing volatility, which could have a material adverse effect on our business, financial condition, and results of operations.” In addition, we believe any significant decrease in the cost of silicon feedstock or polysilicon would reduce the manufacturing cost of crystalline silicon modules and lead to further pricing pressure for solar modules and potentially an oversupply of solar modules. 24 Table of Contents 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.
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.
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.
Treasury Department, including the certain aspects disclosed above, (ii) subsequent amendments to or interpretations of the law, and/or (iii) future laws or regulations rendering certain provisions of the IRA less effective or ineffective, in whole or in part, could result in changes to the expected and/or actual benefits in the future, which could have a material adverse effect on demand and/or price levels for our solar modules, our net sales, and future expansion plans within the United States, and/or otherwise adversely impact our business, financial condition, and results of operations.
Treasury Department, or the courts, (iii) future laws or regulations rendering certain provisions of the IRA less effective or ineffective, in whole or in part, and/or (iv) changes to U.S. government priorities, policies, and/or initiatives as a result of the 2024 election cycle, could result in changes to the expected and/or actual benefits in the future, which could have a material adverse effect on demand and/or price levels for our solar modules, our net sales, and future expansion plans within the United States, and/or otherwise adversely impact our business, financial condition, and results of operations.
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.
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.
We are in the process of expanding our manufacturing capacity by approximately 11 GW DC including the construction of our third manufacturing facility in the United States, which commenced commercial production of modules in early 2023; our first manufacturing facility in India, which is expected to commence operations in the second half of 2023; our fourth manufacturing facility in the United States, which is expected to commence operations in late 2024; and the expansion of our manufacturing footprint at our existing facilities in Ohio.
We are in the process of expanding our manufacturing capacity by approximately 8 GW including the construction of our fourth manufacturing facility in the United States, which is expected to commence operations in the second half of 2024; our fifth manufacturing facility in the United States, which is expected to commence operations in late 2025; and the expansion of our manufacturing footprint at our existing facilities in Ohio, which is expected to be completed in the first half of 2024.
Such tariffs and policies, or any other U.S. or global trade remedies or other trade barriers, may directly or indirectly affect U.S. or global markets for solar energy and our business, financial condition, and results of operations. • India — Domestic and foreign imports. India maintains an Approved List of Module Manufacturers (“ALMM”), which is set by the MNRE.
Such tariffs and policies, or any other U.S. or global trade remedies or other trade barriers, may directly or indirectly affect U.S. or global markets for solar energy and our business, financial condition, and results of operations. • India — Domestic and foreign imports.
Additionally, the California Consumer Privacy Act, which became effective in January 2020, imposed similar data privacy requirements. 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.
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.
We are subject to income taxes in the various jurisdictions in which we operate. Accordingly, we are subject to a variety of tax laws and interpretations of such laws by local tax authorities. For example, in January 2022, the U.S. government published new regulations in the U.S.
We are subject to income taxes in the various jurisdictions in which we operate. Accordingly, we are subject to a variety of tax laws and interpretations of such laws by local tax authorities.
A constraint on our production may result in our inability 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 constraint on our production may result in our inability to meet our capacity plans and/or our obligations under our customer contracts, which would have an adverse impact on our business.
Conversely, affirmative final circumvention determinations could positively impact our operating results. • United States — Tariffs on certain Chinese imports . The United States currently imposes tariffs on various articles imported from China at a rate of 25%, including crystalline silicon solar cells and modules, based on an investigation under Section 301 of the Trade Act of 1974.
The United States currently imposes tariffs on various articles imported from China at a rate of 25%, including crystalline silicon solar cells and modules, based on an investigation under Section 301 of the Trade Act of 1974.
However, our operating results could be adversely impacted if the ALMM restriction is significantly relaxed to allow modules to be imported from countries that are part of the Association of Southeast Asian Nations. • European Union — Foreign subsidies .
Our operating results could be adversely impacted if such suspension is extended in future periods or if the ALMM restriction is significantly relaxed to allow modules to be imported from countries that are part of the Association of Southeast Asian Nations.
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.
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 business arrangements outside the United States have involved and may involve significant investments denominated in local currencies.
If our modules manufactured in the U.S. do not meet the domestic content requirements as defined by the final guidance or if the guidance definition is defined broadly, this may adversely impact demand and/or price levels for our solar modules and future expansion plans within the United States.
If our modules manufactured in the U.S. do not meet the domestic content requirements as defined by the final guidance or if the guidance definition is defined broadly, this may adversely impact demand and/or price levels for our solar modules and future expansion plans within the United States. 33 Table of Contents Any modifications to the law or its effects arising, for example, through (i) technical guidance and regulations from the IRS and U.S.
Our operations rely on our computer systems, hardware, software, and networks, as well as those of third parties with which we do business, to securely process, store, and transmit proprietary, confidential, and other information, including intellectual property and personally identifiable information. We also rely heavily on these information systems to operate our manufacturing lines.
Our operations rely on our information systems, including hardware, software, and networks, as well as on the information systems of third parties with which we do business (including their upstream and/or downstream service providers, as applicable), to securely process, store, and transmit proprietary, confidential, and other information, including intellectual property and personally identifiable information.
To develop new products, support future growth, and maintain product quality, we may need to make significant capital investments in manufacturing technology, facilities and capital equipment, and research and development.
Our business and our future plans for expansion are capital-intensive, and we anticipate that our operating and capital expenditure requirements may increase. To develop new products, support future growth, and maintain product quality, we may need to make significant capital investments in manufacturing technology, facilities and capital equipment, and research and development.
If any future production lines are not built in line with committed schedules, it may adversely affect our 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 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.
We have been and may be subject to or involved in litigation or threatened litigation, the outcome of which may be difficult to predict, and which may be costly to defend, divert management attention, require us to pay damages, or restrict the operation of our business.
Any changes in our effective tax rate may have a material adverse impact on our business, financial conditions, and results of operations. 40 Table of Contents We have been and may be subject to or involved in litigation or threatened litigation, the outcome of which may be difficult to predict, and which may be costly to defend, divert management attention, require us to pay damages, or restrict the operation of our business.
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. In addition, on January 5, 2023, the U.S.
However, we may not be able to retain or replace these key associates in a timely manner. 38 Table of Contents Although several of our current key associates, including our executive officers, are subject to employment conditions or arrangements that contain post-employment non-competition provisions, these arrangements permit the associates to terminate their employment with us upon little or no notice.
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, India, Europe, and in many other jurisdictions in which we operate.
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 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.
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.
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 United States currently imposes antidumping and countervailing duties on certain imported crystalline silicon PV cells and modules from China and Taiwan. Such antidumping and countervailing duties can change over time pursuant to annual reviews conducted by the U.S.
The United States currently imposes antidumping and countervailing duties (“AD/CVD”) on certain imported crystalline silicon PV cells and modules from China and Taiwan. Such AD/CVD can change over time pursuant to annual reviews conducted by the U.S. Department of Commerce (“USDOC”), 20 Table of Contents and a decline in duty rates or USDOC failure to fully enforce U.S.
These risks could be amplified as we implement design and process changes in connection with our efforts to improve our products and accelerate module wattage as part of our long-term strategic plans. In addition, if we increase the number of installations in extreme climates, we may experience increased failure rates due to deployment into such field conditions.
These risks could be amplified as we implement design and process changes in connection with our efforts to improve our products and accelerate module wattage as part of our long-term strategic plans.
A disruption in our supply chain for CdTe, other key raw materials, or equipment 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.
Additionally, reductions in our production volume may put pressure on suppliers, resulting in increased material and component costs. 27 Table of Contents A disruption in our supply chain for CdTe, other key raw materials, or equipment could interrupt or impair our ability to manufacture solar modules and could adversely impact our profitability and long-term growth prospects.
Although it is uncertain if the rule will be adopted or what the final language of the rule, if adopted, will be, the implementation of a ban on non-competition provisions could make it more difficult for us to retain qualified associates. 36 Table of Contents There is substantial competition for qualified technical and manufacturing personnel, and while we continue to benchmark our organization against a broad spectrum of businesses in our market space to remain economically competitive, there can be no assurances that we will be able to attract and retain technical personnel.
There is substantial competition for qualified technical and manufacturing personnel, and while we continue to benchmark our organization against a broad spectrum of businesses in our market space to remain economically competitive, there can be no assurances that we will be able to attract and retain technical personnel.
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. 25 Table of Contents 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 or making certain cash payments; however, historical versions of our module warranty did not provide a refund remedy.
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.
These consequences of a failure of security measures could, individually or in the aggregate, have a material adverse effect on our business, financial condition, and results of operations. 35 Table of Contents The severity and duration of public health threats (including pandemics such as COVID-19 or similarly infectious diseases) could materially impact our business, financial condition, and results of operations.
These consequences of a failure of security measures could, individually or in the aggregate, have a material adverse effect on our business, financial condition, and results of operations.
Accordingly, an inability to further refine our technology and execute our module technology roadmap, or changes to the expected timing such technology improvements are incorporated into our manufacturing process, could adversely affect our operating results. Some of our manufacturing equipment is customized and sole sourced.
Furthermore, certain of our contracts with customers may include transaction price adjustments associated with future module technology improvements, including enhancements to certain energy related attributes. Accordingly, an inability to further refine our technology and execute our module technology roadmap, or changes to the expected timing such technology improvements are incorporated into our manufacturing process, could adversely affect our operating results.
Such credit may be refundable or transferable to a third party and is available from 2023 to 2032, subject to phase down beginning in 2030. There are currently several critical and complex aspects of the IRA pending technical guidance and regulations from the Internal Revenue Service (“IRS”) and U.S.
Such credit may be refundable by the IRS or transferable to a third party and is available from 2023 to 2032, subject to phase down beginning in 2030. On May 12, 2023, the U.S.
Our Amended and Restated Bylaws designate a state or federal court located within the State of Delaware as the exclusive forum for substantially all disputes between us and our stockholders, and the federal district courts of the United States as the exclusive forum for the resolution of any complaint asserting a cause of action under the Securities Act of 1933, which could limit our stockholders’ ability to choose the judicial forum for disputes with us or our directors, officers, employees, agents or stockholders.
Although we have implemented policies, procedures, and, in certain cases, contractual arrangements designed to facilitate compliance with applicable privacy and data security laws and standards, 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 fines, costs, and liabilities to us, damage our reputation, inhibit sales, and adversely affect our business. 41 Table of Contents Our Amended and Restated Bylaws designate a state or federal court located within the State of Delaware as the exclusive forum for substantially all disputes between us and our stockholders, and the federal district courts of the United States as the exclusive forum for the resolution of any complaint asserting a cause of action under the Securities Act of 1933, which could limit our stockholders’ ability to choose the judicial forum for disputes with us or our directors, officers, employees, agents or stockholders.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeProperties As of December 31, 2022, our principal properties consisted of the following: Nature Primary Segment(s) Using Property Location Held Corporate headquarters Modules & Other Tempe, Arizona, United States Lease Manufacturing plants, R&D facilities, and administrative offices Modules Perrysburg and Lake Township, Ohio, United States Own R&D facility Modules Santa Clara, California, United States Lease Manufacturing plant and administrative offices Modules Kulim, Kedah, Malaysia Lease land, own buildings Administrative offices Modules & Other Georgetown, Penang, Malaysia Lease Manufacturing plant Modules Ho Chi Minh City, Vietnam Lease land, own buildings Manufacturing plant (1) Modules Tamil Nadu, India Lease land, own buildings Manufacturing plant (2) Modules Frankfurt/Oder, Germany Own Manufacturing plant (3) Modules Trinity, Alabama, United States Own —————————— (1) Manufacturing plant currently under construction; operations are expected to commence in the second half of 2023.
Biggest changeProperties As of December 31, 2023, our principal properties consisted of the following: Nature Primary Segment(s) Using Property Location Held Corporate headquarters Modules & Other Tempe, Arizona, United States Lease Administrative offices Modules & Other Georgetown, Penang, Malaysia Lease R&D facility Modules Santa Clara, California, United States Lease R&D facility Modules Uppsala, Sweden Lease Manufacturing plants, R&D facilities, and administrative offices Modules Perrysburg and Lake Township, Ohio, United States Own Manufacturing plant and administrative offices Modules Kulim, Kedah, Malaysia Lease land, own buildings Manufacturing plant Modules Ho Chi Minh City, Vietnam Lease land, own buildings Manufacturing plant Modules Tamil Nadu, India Lease land, own buildings Manufacturing plant (1) Modules Trinity, Alabama, United States Own Manufacturing plant (2) Modules Iberia Parish, Louisiana, United States Lease land, own buildings Manufacturing plant (3) Modules Frankfurt/Oder, Germany Own —————————— (1) Manufacturing plant currently under construction; operations are expected to commence in the second half of 2024.
(2) In December 2012, we ceased manufacturing at our German plant. Since its closure, we have, from time to time, marketed such property for sale. (3) Manufacturing plant currently under construction; operations are expected to commence in late 2024.
(2) Manufacturing plant currently under construction; operations are expected to commence in late 2025. (3) In December 2012, we ceased manufacturing at our German plant. Since its closure, we have, from time to time, marketed such property for sale.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeItem 5. Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities Market Information Our common stock is listed on The Nasdaq Stock Market LLC under the symbol FSLR. Holders As of February 24, 2023, there were 44 record holders of our common stock, which does not reflect beneficial owners of our shares.
Biggest changeItem 5. Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities Market Information Our common stock is listed on The Nasdaq Stock Market LLC under the symbol FSLR. Holders As of February 23, 2024, there were 41 record holders of our common stock, which does not reflect beneficial owners of our shares.
The stock price performance shown in the graph represents past performance and is not necessarily indicative of future stock price performance. 41 Table of Contents Recent Sales of Unregistered Securities None. Purchases of Equity Securities by the Issuer and Affiliate Purchases None. Item 6. Reserved None.
The stock price performance shown in the graph represents past performance and is not necessarily indicative of future stock price performance. 45 Table of Contents Recent Sales of Unregistered Securities None. Purchases of Equity Securities by the Issuer and Affiliate Purchases None. Item 6. Reserved None.
For purposes of the graph, 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 Invesco Solar ETF on December 31, 2017, and its relative performance is tracked through December 31, 2022.
For purposes of the graph, 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 Invesco Solar ETF on December 31, 2018, and its relative performance is tracked through December 31, 2023.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeThe decrease in net sales was primarily attributable to sales of certain projects in the United States and Japan in the prior period, the prior period settlement of an outstanding indemnification arrangement associated with the sale of one of our projects, and a decrease in the average selling price per watt, partially offset by an increase in the volume of modules sold to third parties. • Gross profit decreased 22.3 percentage points to 2.7% in 2022 from 25.0% in 2021 primarily due to a decrease in the average selling price per watt of our modules, the volume of higher gross profit projects sold during the prior period, an increase in sales freight, demurrage, and detention charges, an impairment loss for our Luz del Norte PV solar power plant, and the prior period settlement of the indemnification matter mentioned above.
Biggest changeThe increase in net sales was primarily attributable to an increase in the volume of modules sold to third parties and an increase in the average selling price per watt sold, partially offset by the sale of our Luz del Norte PV solar power plant in the prior year. • Gross profit increased 36.5 percentage points to 39.2% in 2023 from 2.7% in 2022 primarily due to the recognition of the advanced manufacturing production credit under Section 45X of the IRC, reductions to sales freight costs, an increase in the average selling price per watt of our modules, continued module cost reductions, and the prior period sale and related impairment of the Luz del Norte PV solar power plant. 46 Table of Contents • During 2023, we commenced production of Series 7 modules at our third manufacturing facility in Ohio and our first manufacturing facility in India, bringing our total installed nameplate production capacity across all our facilities to approximately 16.6 GW.
Our results of operations could be adversely affected if competitors reduce pricing to levels below their costs, bid aggressively low prices for module sale agreements, or are able to operate at minimal or negative operating margins for sustained periods of time.
Our results of operations could be adversely affected if competitors reduce pricing below their costs, bid aggressively low prices for module sale agreements, or are able to operate at minimal or negative operating margins for sustained periods of time.
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. This discussion and analysis does not address certain items in respect of the year ended December 31, 2020. See Item 7.
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. This discussion and analysis does not address certain items in respect of the year ended December 31, 2021. See Item 7.
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2021 for comparative discussions of our results of operations and liquidity and capital resources for the years ended December 31, 2021 and 2020.
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2022 for comparative discussions of our results of operations and liquidity and capital resources for the years ended December 31, 2022 and 2021.
Bifaciality compromises nameplate efficiency, but by converting both front and rear side irradiance, such technology may improve the overall energy production of a module relative to nameplate efficiency when applied in certain applications, which could potentially lower the overall LCOE of a system when compared to systems using conventional solar modules, including the modules we currently produce.
Bifaciality compromises nameplate efficiency, but by converting both front and rear side irradiance, such technology may improve the overall energy production of a module relative to nameplate efficiency when applied in certain applications, which could potentially lower the overall LCOE of a system when compared to systems using monofacial solar modules.
In light of such market realities, we continue to focus on our strategies and points of differentiation, which include our advanced module technology, our manufacturing process, our R&D capabilities, the sustainability advantage of our modules, and our financial stability. 43 Table of Contents Pricing competition.
In light of such market realities, we continue to focus on our strategies and points of differentiation, which include our advanced module technology, our manufacturing process and distributed manufacturing presence, our R&D capabilities, the sustainability advantage of our modules, and our financial stability.
Additionally, recently enacted government support programs, such as the IRA discussed above, have contributed to this momentum by providing solar module manufacturers, project developers, and project owners with various incentives to accelerate the ongoing transition to clean energy. For more information about these support programs, see Item 1. “Business - Support Programs.” Supply and demand.
Recently enacted government support programs, such as the IRA discussed previously, have contributed and are expected to continue to contribute to this momentum by providing solar module manufacturers, project developers, and project owners with various incentives to accelerate the ongoing transition to clean energy. For more information about these support programs, see Item 1.
Certain of our financial results and other key operational developments for the year ended December 31, 2022 include the following: • Net sales for 2022 decreased by 10% to $2.6 billion compared to $2.9 billion in 2021.
Certain of our financial results and other key operational developments for the year ended December 31, 2023 include the following: • Net sales for 2023 increased by 27% to $3.3 billion compared to $2.6 billion in 2022.
Sales price per watt may also be influenced by warranty terms and customer payment terms. While conventional solar modules are monofacial, meaning their ability to produce energy is a function of direct and diffuse irradiance on their front side, most module manufacturers offer bifacial modules that also capture diffuse irradiance on the back side of a module.
While conventional solar modules are monofacial, meaning their ability to produce energy is a function of direct and diffuse irradiance on their front side, most module manufacturers offer bifacial modules that also capture diffuse irradiance on the back side of a module.
As a result of the market opportunities described above, we are in the process of expanding our manufacturing capacity by approximately 11 GW DC , including the construction of our third manufacturing facility in the United States, which commenced commercial production of modules in early 2023; our first manufacturing facility in India, which is expected to commence operations in the second half of 2023; our fourth manufacturing facility in the United States, which is expected to commence operations in late 2024; and the expansion of our manufacturing footprint at our existing facilities in Ohio.
As a result of the market opportunities and increased demand described above, we are in the process of expanding our manufacturing capacity by approximately 8 GW, including the construction of our fourth manufacturing facility in the United States, which is expected to commence operations in the second half of 2024; our fifth manufacturing facility in the United States, which is expected to commence operations in late 2025; and the expansion of our manufacturing footprint at our existing facilities in Ohio, which is expected to be completed in the first half of 2024.
We face intense competition from manufacturers of crystalline silicon solar modules and other emerging technologies. Solar module manufacturers compete with one another on sales price per watt, which may be influenced by several module value attributes, including wattage (through a larger form factor or an improved conversion efficiency), energy yield, degradation, sustainability, and reliability.
Solar module manufacturers compete with one another on sales price per watt, which may be influenced by several module value attributes, including energy yield, wattage (through a larger form factor or an improved conversion efficiency), degradation, sustainability, and reliability. Sales price per watt may also be influenced by warranty terms, customer payment terms, and/or module content attributes.
The solar industry has been characterized by intense pricing competition, both at the module and system levels. This competition may result in an environment in which pricing falls rapidly, thereby potentially increasing demand for solar energy solutions but constraining the ability for project developers and module manufacturers to sustain meaningful and consistent profitability.
This competition may result in an environment in which pricing falls rapidly, which could potentially increase demand for solar energy solutions but constrain the ability for project developers and module manufacturers to sustain meaningful and consistent profitability.
In the aggregate, we believe manufacturers of solar cells and modules, particularly those in China, have significant installed production capacity, relative to global demand, and the ability for additional capacity expansion. Accordingly, we believe the solar industry may experience periods of structural imbalance between supply and demand, which could lead to periods of pricing volatility.
We continue to evaluate opportunities for future expansion worldwide. In the aggregate, we 47 Table of Contents believe manufacturers of solar cells and modules, particularly those in China, have significant installed production capacity, relative to global demand, and the ability for additional capacity expansion.
Such expansion plans, in combination with our previously announced expansion plans, are expected to increase our manufacturing capacity by approximately 11 GW DC by 2025. • In May 2022, we entered into various agreements with certain subsidiaries of PAG Real Assets (“PAG”), a private investment firm, for the sale of our Japan project development business.
Such expansion plans, in combination with our previously announced expansion plans, are expected to increase our manufacturing capacity by approximately 8 GW by 2026. • In October 2023, we began commercial production of our bifacial Series 6 Plus modules at certain manufacturing facilities in the U.S.
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These decreases to gross profit were partially offset by the higher volume of modules sold and continued module cost reductions. 42 Table of Contents • As of December 31, 2022, we had approximately 9.8 GW DC of total installed nameplate module production capacity across all our facilities.
Added
During 2023, we produced 12.1 GW and sold 11.4 GW of solar modules.
Removed
We produced 9.1 GW DC of solar modules during 2022, which represented a 15% increase in module production from 2021. The increase in production was primarily driven by higher throughput at our manufacturing facilities.
Added
During 2024, we expect to produce between 15.6 GW and 16.0 GW and sell between 15.6 GW and 16.3 GW. • In June 2023, we entered into a credit agreement with several financial institutions, which provides us with a senior secured revolving credit facility (the “Revolving Credit Facility”) with an aggregate borrowing capacity of $1.0 billion.
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We expect to produce between 11.5 GW DC and 12.2 GW DC of solar modules during 2023. • During 2022, we announced plans to expand our manufacturing capacity by an additional 4.4 GW DC by constructing our fourth manufacturing facility in the United States and increasing our manufacturing footprint at our existing facilities in Ohio.
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The facility, which is undrawn as of December 31, 2023, matures in 2028. See Note 13. “Debt” to our consolidated financial statements for more information about the Revolving Credit Facility. • In July 2023, we announced plans to expand our manufacturing capacity by an additional 3.5 GW by constructing our fifth manufacturing facility in the United States.
Removed
In June 2022, we completed the sale and, following certain customary post-closing adjustments, received total consideration of ¥66.4 billion ($490.8 million) and transferred cash and restricted cash of ¥8.4 billion ($61.9 million) to PAG.
Added
This facility, which will be located in Iberia Parish, Louisiana, is expected to commence operations in late 2025.
Removed
As a result of this transaction, we recognized a gain of $245.2 million, net of transaction costs, which was included in “Gain on sales of businesses, net” in our consolidated statements of operations for the year ended December 31, 2022.
Added
Our bifacial module features an innovative transparent back contact which, in addition to converting both front and rear side irradiance, allows infrared light to pass through rather than be absorbed as heat. This design lowers the operational temperature of the module, resulting in a higher energy yield. • In December 2023, we entered into an agreement with Fiserv, Inc.
Removed
In September 2022, we also completed the sale of our Japanese O&M operations to a subsidiary of PAG and, following certain customary post-closing adjustments, received total consideration of ¥692.7 million ($4.8 million).
Added
(“Fiserv”) for the sale of $687.2 million of Section 45X tax credits we generated during 2023 for aggregate cash proceeds of $659.7 million. We received initial cash proceeds of $336.0 million in January 2024 and expect to receive the remaining cash proceeds during the first half of 2024.
Removed
As a result of this transaction, we recognized a gain of $1.4 million, net of transaction costs and post-closing adjustments, which was included in “Gain on sales of businesses, net” in our consolidated statements of operations for the year ended December 31, 2022.
Added
Other technological developments in the industry, such as the advancement of energy storage capabilities, have further enhanced the prospects of solar energy as an alternative to traditional forms of energy generation. In addition to these economic benefits, solar energy has substantial environmental benefits.
Removed
Although module average selling prices in many global markets have declined for several years, recent module spot pricing has increased, in part, due to trade measures and policies, government regulations, raw material availability, and supply chain disruptions.
Added
For example, PV solar power systems generate no greenhouse gas or other emissions and use minimal amounts of water compared to traditional energy generation assets. As a result of these and other factors, worldwide solar markets continue to develop and expand.
Removed
For example, module spot pricing in the United States has increased, in part, due to elevated commodity and logistics costs and, more recently, due to the rising demand for modules manufactured in the United States as a result of the IRA. The duration of this elevated period of pricing is uncertain. Diverse offerings.
Added
Accordingly, we believe the solar industry may experience periods of structural imbalance between supply and demand, which could lead to periods of pricing volatility.
Removed
We currently produce monofacial solar modules and, based on recent R&D activities, expect to produce bifacial solar modules in the near term.
Added
As a result of this focus, we recently commenced production of Series 7 modules at our third manufacturing facility in Ohio and our first manufacturing facility in India. Pricing competition. The solar industry has been characterized by intense pricing competition, both at the module and system levels.
Removed
Additionally, certain module manufacturers have introduced n-type mono-crystalline modules, such as TOPCon modules, which are expected to provide certain improvements to module efficiency, temperature coefficient, and bifacial performance, and claim to provide certain degradation advantages compared to other mono-crystalline modules. Product efficiencies.
Added
Although module average selling prices in many global markets have generally declined for several years, near-term module pricing in the United States, our primary market, remains strong primarily due to the rising demand for domestically manufactured modules as a result of the IRA. Diverse offerings. We face intense competition from manufacturers of crystalline silicon solar modules and other emerging technologies.
Added
We believe that utility-scale solar will continue to be a compelling offering and will continue to represent an increasing portion of the overall electricity generation mix. However, this focus on utility-scale module offerings exists within a current market environment that includes rooftop and distributed generation solar, which may influence our future offerings.
Added
We continue to devote significant resources to support the implementation of our technology roadmap and improve the energy output of our modules. In the course of our R&D activities, we explore various technologies in our efforts to sustain competitive differentiation of our modules.
Added
Such technologies include the development of bifacial modules, the implementation of our CuRe program, and ongoing research and development of multi-junction solar modules. • Bifacial.
Added
We recently began commercial production of bifacial solar modules at certain of our manufacturing facilities in Ohio. Our bifacial module features an innovative transparent back contact which, in addition to converting both front and rear side irradiance, allows infrared light to pass through rather than be absorbed as heat.
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This design lowers the operational temperature of the module, resulting in a higher energy yield. • CuRe . Our CuRe program is intended to improve our current semiconductor structure by replacing copper with certain other elements that are expected to enhance module performance by improving its bifaciality characteristics, improving its temperature coefficient, and improving its warranted degradation.
Added
As a result of these performance improvements, our PV solar modules are expected to produce more energy in real world operating conditions over their estimated useful lives than crystalline silicon modules with the same 48 Table of Contents nameplate capacity.
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In September 2023 and January 2024, we established new world record CdTe research cell conversion efficiencies of 22.4% and 22.6%, respectively, which were based on our CuRe program and certified by the U.S. Department of Energy’s National Renewable Energy Laboratory. We currently expect to complete our lead line implementation of CuRe in the fourth quarter of 2024. • Multi-junction .
Added
We continue to evaluate opportunities to develop and leverage other solar cell technologies in multi-junction applications that combine our thin film PV technology with another high efficiency PV semiconductor, with each layer optimized for a different range of the solar spectrum.
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We believe such applications, which are expected to utilize at least one thin-film semiconductor, have the potential to significantly increase the efficiency of PV modules beyond the limits of traditional single-junction devices. Our recent acquisition of Evolar is expected to accelerate the development of high efficiency multi-junction devices by integrating Evolar’s know-how with First Solar’s existing R&D capabilities. Product efficiencies.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeThese 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 unrealized gains or losses for such contracts in “Accumulated other comprehensive loss” and subsequently reclassify amounts into earnings when the hedged transaction occurs and impacts earnings.
Biggest changeWe report unrealized gains or losses on such contracts in “Accumulated other comprehensive loss” and subsequently reclassify applicable amounts into earnings when the hedged transaction occurs and impacts earnings. For additional details on our derivative hedging instruments and activities, see Note 10. “Derivative Financial Instruments” to our consolidated financial statements.
Although we may enter into long-term supply contracts for certain raw materials and components, we may be exposed to price changes for certain raw materials and components used to manufacture our solar modules for which we are unable to secure long-term supply contracts or if our demand exceeds our committed supply.
Although we may enter into long-term supply contracts for certain raw materials and components, we may be exposed to price changes for certain raw materials and components used to manufacture our solar modules for which we are unable to secure long-term supply contracts or for which our demand exceeds our committed supply.
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, see Note 8. “Derivative Financial Instruments” to our consolidated financial statements.
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, see Note 10. “Derivative Financial Instruments” to our consolidated financial statements.
To the extent we expand into new markets, 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.
To the extent we expand into new markets, 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. Transaction Exposure.
To mitigate such price changes, we have used and expect to continue using module contract structures that provide additional consideration to us if the cost of certain raw materials or logistics services 60 Table of Contents exceeds a defined threshold.
To mitigate such price changes, we have used, and expect to continue using, module contract structures that provide additional consideration to us if the cost of certain raw materials or logistics services exceeds a defined threshold.
Many of our subsidiaries have assets and liabilities (primarily cash, receivables, deferred taxes, payables, accrued expenses, long-term debt, and solar module collection and recycling liabilities) that are denominated in currencies other than the subsidiaries’ functional currencies.
Many of our subsidiaries have assets and liabilities (primarily cash, receivables, deferred taxes, payables, accrued expenses, lease liabilities, debt, and solar module collection and recycling liabilities) that are denominated in currencies other than the subsidiaries’ functional currencies.
Such factors could reduce demand or lower the price we can charge for our modules, thereby reducing our net sales and gross profit. Marketable Securities and Restricted Marketable Securities Exposure. We invest in various debt securities, which exposes us to interest rate risk.
Such factors could reduce demand or lower the price we can charge for our modules, thereby reducing our net sales and gross profit. 64 Table of Contents Marketable Securities and Restricted Marketable Securities Exposure. We invest in various debt securities, which exposes us to interest rate risk.
We typically require some form of payment security from our customers, including, but not limited to, advance payments, parent guarantees, letters of credit, bank guarantees, or surety bonds.
We typically require some form of payment security from our customers, including, but not limited to, advance payments, parent guarantees, letters of credit, bank guarantees, or surety bonds. 65 Table of Contents
Based on our investment positions as of December 31, 2022, a hypothetical 100 basis point change in interest rates would have resulted in a $0.5 million change in the market value of our marketable securities investment portfolio.
Based on our investment positions as of December 31, 2023, a hypothetical 100 basis point change in interest rates would have resulted in a $0.4 million change in the market value of our marketable securities investment portfolio.
Based on our restricted marketable securities positions as of December 31, 2022, a hypothetical 100 basis point change in interest rates would have resulted in a $17.6 million change in the market value of our restricted marketable securities portfolio.
Based on our restricted marketable securities positions as of December 31, 2023, a hypothetical 100 basis point change in interest rates would have resulted in a $17.4 million change in the market value of our restricted marketable securities portfolio.
As of December 31, 2022, a 10% change in the U.S. dollar relative to our primary foreign currency exposures would not have had a significant impact to our net foreign currency income or loss, including the effect of our hedging activities. Interest Rate Risk Customer Financing Exposure.
As of December 31, 2023, a 10% change in the U.S. dollar relative to our primary foreign currency exposures would not have had a significant impact to our net foreign currency income or loss, including the effect of our hedging activities. Interest Rate Risk Variable Rate Debt Exposure.
For the year ended December 31, 2022, our restricted marketable securities incurred a loss of 22%, including the impact of fluctuations in the price of the underlying securities, and had a weighted-average maturity of approximately 12 years as of the end of the period.
For the year ended December 31, 2023, our restricted marketable securities incurred a loss of 8%, including the impact of fluctuations in the price of the underlying securities, and had a weighted-average maturity of approximately 11 years as of the end of the period.
For the year ended December 31, 2022, our marketable securities earned a return of 2%, including the impact of fluctuations in the price of the underlying securities, and had a weighted-average maturity of 6 months as of the end of the period.
For the year ended December 31, 2023, our marketable securities earned a return of 5%, including the impact of fluctuations in the price of the underlying securities, and had a weighted-average maturity of 1 month as of the end of the period.
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.
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.
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.
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. 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.
Removed
For additional details on our derivative hedging instruments and activities, see Note 8. “Derivative Financial Instruments” to our consolidated financial statements.
Added
Accordingly, from time to time we may 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 Accounting Standards Codification (“ASC”) 815 and we designate them as such.
Removed
For the year ended December 31, 2022, 5% of our net sales were denominated in foreign currencies, including Japanese yen and Euro. As a result, we may, from time to time, have exposure to foreign currencies with respect to our net sales, which has historically represented one of our primary foreign currency exchange risks.
Added
We are exposed to interest rate risk as certain of our debt arrangements have variable interest rates, exposing us to variability in interest expense and cash flows. See Note 13. “Debt” to our consolidated financial statements for additional information on our debt borrowing rates.
Removed
A 10% change in the U.S. dollar to Japanese yen and Euro exchange rates would have had an aggregate impact on our net sales of $9.1 million, excluding the effect of our hedging activities. Transaction Exposure.
Added
An increase in relevant interest rates would increase the cost of borrowing under certain of our debt arrangements. For the year ended December 31, 2023, a 100 basis point change in such variable interest rates would not have had a significant impact to our interest expense. Customer Financing Exposure.
Removed
Changes in the exchange rates between 59 Table of Contents 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.

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