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6. Derivative Financial Instruments (Notes) | 9 Months Ended
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Sep. 30, 2024
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivative Financial Instruments | 6. Derivative Financial Instruments As a global company, we are exposed in the normal course of business to various risks, including foreign currency and commodity price risks, that could affect our financial position, results of operations, and cash flows. We may use derivative instruments to hedge against these risks and only hold such instruments for hedging purposes, not for speculative or trading purposes. Depending on the terms of the specific derivative instruments and market conditions, some of our derivative instruments may be assets and others liabilities at any particular balance sheet date. We report all of our derivative instruments at fair value and account for changes in the fair value of derivative instruments within “Accumulated other comprehensive loss” if the derivative instruments qualify for hedge accounting. For those derivative instruments that do not qualify for hedge accounting (i.e., “economic hedges”), we record the changes in fair value directly to earnings. See Note 8. “Fair Value Measurements” to our condensed consolidated financial statements for information about the techniques we use to measure the fair value of our derivative instruments. The following tables present the fair values of derivative instruments included in our condensed consolidated balance sheets as of September 30, 2024 and December 31, 2023 (in thousands):
|  | September 30, 2024
|  | Other Current Assets |  |  |  | Other Current Liabilities |  |
Derivatives designated as hedging instruments: |  |  |  |  |  |  |  |
Commodity swap contracts |  | $ | — |  |  |  |  | $ | 469 |  |  |
Total derivatives designated as hedging instruments |  | $ | — |  |  |  |  | $ | 469 |  |  |
Derivatives not designated as hedging instruments: |  |  |  |  |  |  |  |
Foreign exchange forward contracts |  | $ | 2,228 |  |  |  |  | $ | 2,602 |  |  |
Total derivatives not designated as hedging instruments |  | $ | 2,228 |  |  |  |  | $ | 2,602 |  |  |
Total derivative instruments |  | $ | 2,228 |  |  |  |  | $ | 3,071 |  |  |
|  | December 31, 2023
|  | Other Current Assets |  |  |  | Other Current Liabilities |  |
Derivatives designated as hedging instruments: |  |  |  |  |  |  |  |
Commodity swap contracts |  | $ | — |  |  |  |  | $ | 344 |  |  |
Total derivatives designated as hedging instruments |  | $ | — |  |  |  |  | $ | 344 |  |  |
Derivatives not designated as hedging instruments: |  |  |  |  |  |  |  |
Foreign exchange forward contracts |  | $ | 1,778 |  |  |  |  | $ | 1,400 |  |  |
Total derivatives not designated as hedging instruments |  | $ | 1,778 |  |  |  |  | $ | 1,400 |  |  |
Total derivative instruments |  | $ | 1,778 |  |  |  |  | $ | 1,744 |  |  |
The following table presents the pretax amounts related to derivative instruments designated as cash flow hedges affecting accumulated other comprehensive income (loss) and our condensed consolidated statements of operations for the nine months ended September 30, 2024 and 2023 (in thousands):
|  |  |  | Commodity Swap Contracts |  |
Balance as of December 31, 2023 |  |  |  | $ | (1,493) |  |  |
Amounts recognized in other comprehensive income (loss) |  |  |  | (1,094) |  |  |
Amount reclassified to cost of sales |  |  |  | 1,715 |  |  |
Balance as of September 30, 2024 |  |  |  | $ | (872) |  |  |
Balance as of December 31, 2022 |  |  |  | $ | (7,242) |  |  |
Amounts recognized in other comprehensive income (loss) |  |  |  | (962) |  |  |
Amount reclassified to cost of sales |  |  |  | 5,576 |  |  |
Balance as of September 30, 2023 |  |  |  | $ | (2,628) |  |  |
The following table presents the effect of derivative instruments not designated as hedges on our condensed consolidated statements of operations for the three and nine months ended September 30, 2024 and 2023 (in thousands):
|  |  |  | Amount of Gain (Loss) Recognized in Income Statement
|  |  |  | Three Months Ended September 30, |  | Nine Months Ended September 30,
|  | Income Statement Line Item |  | 2024 |  | 2023 |  | 2024 |  | 2023
Foreign exchange forward contracts |  | Foreign currency loss, net |  | $ | 12,759 |  |  | $ | 4,533 |  |  | $ | (3,049) |  |  | $ | (9,568) |
Foreign Currency Risk Transaction Exposure and Economic Hedging 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. 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 condensed 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. The gains and losses on such foreign exchange forward contracts will economically offset all or part of the transaction gains and losses that we recognize in earnings on the related foreign currency denominated assets and liabilities. We also enter into foreign exchange forward contracts to economically hedge balance sheet and other exposures related to transactions between certain of our subsidiaries and transactions with third parties. Such contracts are considered economic hedges and do not qualify for hedge accounting. Accordingly, we recognize gains or losses from the fluctuations in foreign exchange rates and the fair value of these derivative contracts in “Foreign currency loss, net” on our condensed consolidated statements of operations. As of September 30, 2024 and December 31, 2023, the notional values of our foreign exchange forward contracts that do not qualify for hedge accounting were as follows (notional amounts and U.S. dollar equivalents in millions):
|  | September 30, 2024
Transaction |  | Currency |  | Notional Amount |  | USD Equivalent
Sell |  | Canadian dollar |  | CAD 4.2 |  | $3.1
Purchase |  | Euro |  | €155.5 |  | $173.6
Sell |  | Euro |  | €8.6 |  | $9.6
Purchase |  | Indian rupee |  | INR 18,055.0 |  | $215.7
Sell |  | Indian rupee |  | INR 83,157.0 |  | $993.3
Purchase |  | Japanese yen |  | ¥1,464.0 |  | $10.3
Sell |  | Japanese yen |  | ¥563.6 |  | $4.0
Purchase |  | Malaysian ringgit |  | MYR 193.0 |  | $46.8
Sell |  | Malaysian ringgit |  | MYR 17.0 |  | $4.1
Sell |  | Mexican peso |  | MXN 34.6 |  | $1.8
Purchase |  | Singapore dollar |  | SGD 14.1 |  | $11.0
Sell |  | Singapore dollar |  | SGD 19.7 |  | $15.4
|  | December 31, 2023
Transaction |  | Currency |  | Notional Amount |  | USD Equivalent
Sell |  | Canadian dollar |  | CAD 4.2 |  | $3.2
Sell |  | Chilean peso |  | CLP 1,372.6 |  | $1.6
Purchase |  | Euro |  | €98.3 |  | $108.7
Sell |  | Euro |  | €14.1 |  | $15.6
Sell |  | Indian rupee |  | INR 62,967.4 |  | $756.9
Purchase |  | Japanese yen |  | ¥1,053.6 |  | $7.5
Sell |  | Japanese yen |  | ¥705.2 |  | $5.0
Purchase |  | Malaysian ringgit |  | MYR 160.7 |  | $35.0
Sell |  | Mexican peso |  | MXN 34.6 |  | $2.0
Purchase |  | Singapore dollar |  | SGD 6.5 |  | $4.9
Commodity Price Risk From time to time, we use commodity swap contracts to mitigate our exposure to commodity price fluctuations for certain raw materials used in the production of our modules. During the year ended December 31, 2022, we entered into various commodity swap contracts to hedge a portion of our forecasted cash flows for purchases of aluminum frames between July 2022 and December 2023. Such swaps had an aggregate initial notional value based on metric tons of forecasted aluminum purchases, equivalent to $70.5 million, and entitled us to receive a three-month average London Metals Exchange price for aluminum while requiring us to pay certain fixed prices. The notional amount of the commodity swap contracts proportionately adjusted with forecasted purchases of aluminum frames. During the nine months ended September 30, 2024, we entered into various commodity swap contracts to hedge a portion of our forecasted cash flows for purchases of steel between April 2024 and December 2024. Such swaps had an aggregate initial notional value based on short tons of forecasted steel purchases, equivalent to $7.6 million, and entitle us to receive the price based on the U.S. Midwest Hot-Rolled Coil Steel Index while requiring us to pay certain fixed prices. The notional amount of the commodity swap contracts proportionately adjusts with forecasted purchases of steel. As of September 30, 2024, the notional value associated with these contracts was $0.2 million. These commodity swap contracts qualify for accounting as cash flow hedges in accordance with ASC 815, and we designated them as such. We report unrealized gains or losses on such contracts in “Accumulated other comprehensive loss” and subsequently reclassify applicable amounts into earnings when the hedged transactions occur and impact earnings. We determined that these derivative financial instruments were highly effective as cash flow hedges as of September 30, 2024 and December 31, 2023. In the following 12 months, we expect to reclassify into earnings $0.9 million of net unrealized losses related to these commodity swap contracts that are included in “Accumulated other comprehensive loss” at September 30, 2024 as we realize the earnings effects of the related forecasted transactions.

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