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FAIR VALUE MEASUREMENT

12 Months Ended

Dec. 31, 2020

FAIR VALUE MEASUREMENT

FAIR VALUE MEASUREMENT

9. FAIR VALUE MEASUREMENT

The Company measures at fair value its financial assets and liabilities by using a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. Fair value is the price that would be received from the sale of an asset or paid to transfer a liability (i.e., an exit price) on the measurement date in an orderly transaction between market participants.

As of December 31, 2019 and 2020, the Company’s financial assets and liabilities were measured at fair value on a recurring basis in periods subsequent to their initial recognition all using the significant other observable inputs, which are Level 2 inputs.

Foreign exchange option and forward contracts

The Company entered into certain foreign currency derivative contracts to protect against volatility of future cash flows caused by the changes in foreign exchange rates. The foreign currency derivative contracts do not qualify for hedge accounting and, as a result, the changes in fair value of the foreign currency derivative contracts are recognized in the consolidated statements of operations.

The Company’s foreign currency derivative instruments relate to foreign exchange options or forward contracts involving major currencies such as Renminbi, Canadian dollars, Brazilian reals, Japanese yen and Australian dollars. Since its derivative instruments are not traded on an exchange, the Company values them using valuation models. Interest rate yield curves and foreign exchange rates are the significant inputs into these valuation models. These inputs are observable in active markets over the terms of the instruments the Company holds, and accordingly, the fair value measurements are classified as Level 2 in the hierarchy. The Company considers the effect of its own credit standing and that of its counterparties in valuations of its derivative financial instruments.

Interest rate swap

In 2016, interest rate swap contracts of total notional amounts of approximately $399,000 were entered into for Recurrent projects and these were designated as cash flow hedges. The interest rate swap contracts were transferred along with the sale of the underlying projects, and the fair value of the residual notional contract amount of approximately $47,439 related to the Roserock back-leverage loan was recorded as derivative liabilities of $2,170 on the balance sheet as of December 31, 2019. In July 2020, the Company completed the sale of its class B membership interests in the Roserock project to an unrelated third party, and consequently all of the Company’s interest rate swap contracts were paid off following the loan repayment.

The estimated fair value of interest rate swaps was measured based on observable market data, which were considered Level 2 inputs.

9. FAIR VALUE MEASUREMENT (Continued)

The fair value of derivative instruments on the consolidated balance sheets as of December 31, 2019 and 2020 and the effect of derivative instruments on the consolidated statements of operations for the years ended December 31, 2018, 2019 and 2020 are as follows:


		Fair Value of Derivative Assets
		At December 31, 2019				At December 31, 2020
		Balance Sheet Location		Fair Value		Balance Sheet Location		Fair Value
				$				$
Foreign exchange forward contracts		Derivative assets — current		5,097		Derivative assets — current		22,178
Foreign exchange option contracts		Derivative assets — current		450		Derivative assets — current		1,173
		Total		5,547		Total		23,351


		Fair Value of Derivative Liabilities
		At December 31, 2019				At December 31, 2020
		Balance Sheet Location		Fair Value		Balance Sheet Location		Fair Value
				$				$
Foreign exchange forward contracts		Derivative liabilities — current		10,127		Derivative liabilities — current		10,753
Foreign exchange option contracts		Derivative liabilities — current		25		Derivative liabilities — current		2
Interest rate swap		Derivative liabilities — current		329		Derivative liabilities — current		—
Interest rate swap		Derivative liabilities — non-current		1,841		Derivative liabilities — non-current		—
		Total		12,322		Total		10,755


				Amount of Gain (Loss)
				Recognized in Statements
		Location of		of Operations
		Gain (Loss) Recognized		Years Ended December 31
		in Statements of Operations		2018		2019		2020
				$		$		$
Foreign exchange forward contracts		Gain (loss) on change in fair value of derivatives		(16,414)		(20,249)		49,807
Foreign exchange option contracts		Gain (loss) on change in fair value of derivatives		(2,023)		(1,022)		1,376
Interest rate swap		Loss on change in fair value of derivatives		(793)		(947)		(1,182)
		Total		(19,230)		(22,218)		50,001

Other fair value measurements

The Company measures certain long-lived assets or long-term investments at fair value on a non-recurring basis in periods after initial measurement in circumstances when the fair value of such assets is below its recorded cost and impairment is required.

The Company recorded impairment charges for certain manufacturing asset group of $30,968, $21,866 and $11,854 for the years ended December 31, 2018, 2019 and 2020, respectively. The fair value of these assets was measured based on prices offered by unrelated third-party willing buyers and classified as Level 3 fair value measurements as the offering prices are not observable. The impairment was recorded in general and administrative expenses of the CSI Solar segment.

9. FAIR VALUE MEASUREMENT (Continued)

Other fair value measurements (Continued)

The Company also holds financial instruments that are not recorded at fair value in the consolidated balance sheets, but whose fair value is required to be disclosed under the U.S. GAAP.

The carrying values of cash and cash equivalents, restricted cash, trade receivables, billed and unbilled, amounts due from related parties, accounts payables, short-term notes payable, amounts due to related parties and short-term borrowings approximate their fair values due to the short-term maturity of these instruments. Long-term borrowings were $619,477 and $446,090 as of December 31, 2019 and 2020, respectively, which approximate their fair values since most of the borrowings contain variable interest rates. The fair value of long-term borrowings was measured based on discounted cash flow approach, which is classified as Level 2 as the key inputs can be corroborated with market data.

The carrying value of the Company’s outstanding convertible notes was nil and $223,214 as of December 31, 2019 and 2020, respectively, which approximates the fair value.

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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