9. Consolidated Balance Sheet Details

Accounts receivable trade, net

Accounts receivable trade, net consisted of the following at September 30, 2012 and December 31, 2011 (in thousands):



	September 30, 2012			December 31, 2011
Accounts receivable trade, gross	$	480,575		$	320,600
Allowance for doubtful accounts	(12,935		)	(10,032		)
Accounts receivable trade, net	$	467,640		$	310,568

At September 30, 2012, $71.9 million of our Accounts receivable trade, net were secured by letters of credit, bank guarantees or other forms of financial security issued by credit worthy financial institutions.

Accounts receivable, unbilled

Accounts receivable, unbilled represents revenue that has been recognized in advance of billing the customer. This is common for construction contracts. For example, we recognize revenue from contracts for the construction and sale of solar power systems which include the sale of project assets over the construction period using applicable accounting methods. One applicable accounting method is the percentage-of-completion method under which sales and gross profit are recognized as construction work is performed based on the relationship between actual costs incurred compared to the total estimated costs for constructing the project. Under this accounting method, revenue can be recognized in advance of billing the customer, resulting in an amount recorded to Accounts receivable, unbilled. Once we meet the billing criteria under a construction contract, we bill our customer accordingly and reclassify the Accounts receivable, unbilled to Accounts receivable trade, net. Billing requirements vary by contract but are generally structured around completion of certain construction milestones.

Included within Accounts receivable, unbilled is the current portion of retainage. Retainage refers to the portion of the contract price earned by us for work performed, but held for payment by our customer as a form of security until we reach certain construction milestones.

Accounts receivable, unbilled were $398.9 million (including $17.0 million of retainage) and $533.4 million (including $35.4 million of retainage) at September 30, 2012 and December 31, 2011, respectively.

Inventories

Inventories consisted of the following at September 30, 2012 and December 31, 2011 (in thousands):



	September 30, 2012		December 31, 2011
Raw materials	$	188,845	$	230,675
Work in process	7,244		28,817
Finished goods	478,374		277,126
Inventories	$	674,463	$	536,618
Inventories — current	$	537,567	$	475,867
Inventories — noncurrent (1)	$	136,896	$	60,751

(1) We purchase a critical raw material that is used in our core production process in quantities that exceed anticipated consumption within our operating cycle (which is 12 months). We classify the raw materials that we do not expect to be consumed within our operating cycle as noncurrent. The increase in our noncurrent inventories was primarily the result of a decrease in the amount of such critical raw material we anticipate consuming in our next operating cycle. Such decrease resulted from a combination of the planned reduction in our manufacturing capacity and the amount of critical raw material for our next operating cycle that is required to be sourced through vendor supply agreements.

Prepaid expenses and other current assets

Prepaid expenses and other current assets consisted of the following at September 30, 2012 and December 31, 2011 (in thousands):



	September 30, 2012		December 31, 2011
Prepaid expenses	$	36,313	$	151,630
Derivative instruments	2,842		63,673
Deferred costs of goods sold	95,940		1,152
Other assets — current	81,101		112,577
Prepaid expenses and other current assets	$	216,196	$	329,032

Property, plant and equipment, net

Property, plant and equipment, net consisted of the following at September 30, 2012 and December 31, 2011 (in thousands):



	September 30, 2012			December 31, 2011
Buildings and improvements	$	438,672		$	393,676
Machinery and equipment	1,367,752			1,453,293
Office equipment and furniture	115,616			110,936
Leasehold improvements	54,299			48,374
Depreciable property, plant and equipment, gross	1,976,339			2,006,279
Accumulated depreciation	(777,044		)	(617,787		)
Depreciable property, plant and equipment, net	1,199,295			1,388,492
Land	22,348			8,065
Construction in progress (1)	328,046			419,401
Property, plant and equipment, net	$	1,549,689		$	1,815,958

(1)

Included within construction in progress as of September 30, 2012 is $222.8 million of machinery and equipment (“stored assets”) that was originally purchased for installation in our previously planned manufacturing capacity expansions. We intend to install and place the stored assets into service once market demand supports such additional manufacturing capacity. As the stored assets are neither in the condition or location to produce modules as intended, we will not begin depreciation until the assets are placed into service. The stored assets are evaluated for impairment whenever events or changes in business circumstances arise that may indicate that the carrying amount of the stored assets may not be recoverable.

See Note 12. “Economic Development Funding,” to our condensed consolidated financial statements for further information about grants recorded as a reduction to the carrying value of the property, plant and equipment related to the expansion of our manufacturing plant in Frankfurt (Oder), Germany.

Depreciation of property, plant and equipment was $65.6 million and $60.8 million for the three months ended September 30, 2012 and September 30, 2011, respectively, and was $202.3 million and $162.3 million for the nine months ended September 30, 2012 and September 30, 2011, respectively.

In December 2011, February 2012, and April 2012, we announced a series of restructuring initiatives. As part of those initiatives, certain property, plant and equipment were determined to be impaired and impairment charges were recorded. See Note 4. “Restructuring,” for more information on the long-lived asset impairments related to these restructuring initiatives.

Capitalized interest

We capitalized interest costs incurred into property, plant and equipment or project assets as follows during the three and nine months ended September 30, 2012 and September 30, 2011 (in thousands):



	Three Months Ended						Nine Months Ended
	September 30, 2012			September 30, 2011			September 30, 2012			September 30, 2011
Interest cost incurred	$	(4,254	)	$	(4,847	)	$	(20,304	)	$	(8,638	)
Interest cost capitalized —– property, plant and equipment	715			1,442			3,538			4,553
Interest cost capitalized —– project assets	637			3,405			5,572			4,085
Interest expense, net	$	(2,902	)	$	—		$	(11,194	)	$	—

Project assets

Project assets consist primarily of costs relating to solar power projects in various stages of development that we capitalize prior to entering into a definitive sales agreement for the solar power project. These costs include costs for land and costs for developing and constructing a PV solar power plant. Development costs can include legal, consulting, permitting, interconnect, and other similar costs. Once we enter into a definitive sales agreement, we reclassify project assets to deferred project costs on our condensed consolidated balance sheet until the sale is completed and we have met all of the criteria to recognize the sale as revenue. We expense project assets to cost of sales after each respective project asset is sold to a customer and all revenue recognition criteria have been met (matching the expensing of costs to the underlying revenue recognition method). We classify project assets generally as noncurrent due to the nature of a solar power project and the time required to complete all activities to sell a specific project, which is typically longer than 12 months.

Project assets consisted of the following at September 30, 2012 and December 31, 2011 (in thousands):



	September 30, 2012		December 31, 2011
Project assets — land	$	8,900	$	13,704
Project assets — development costs	142,848		136,251
Project assets — construction costs	99,064		224,926
Project assets	$	250,812	$	374,881

We review project assets for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. We consider a project commercially viable or recoverable if it is anticipated to be sold for a profit once it is either fully developed or fully constructed. We consider a partially developed or partially constructed project commercially viable or recoverable if the anticipated selling price is higher than the carrying value of the related project assets. We examine a number of factors to determine if the project will be recoverable, the most notable of which include whether there are any changes in environmental, ecological, permitting, market pricing or regulatory conditions that impact the project. Such changes could cause the cost of the project to increase or the selling price of the project to decrease. If a project is not considered recoverable, we impair the respective project assets and adjust the carrying value to the estimated recoverable amount, with the resulting impairment recorded within operations.

Deferred project costs

Deferred project costs represent (i) costs that we capitalize as project assets for arrangements that we account for as real estate transactions after we have entered into a definitive sales arrangement, but before the sale is completed and we have met all criteria to recognize the sale as revenue, (ii) recoverable pre-contract costs that we capitalize for arrangements accounted for as long-term construction contracts prior to entering into a definitive sales agreement, or (iii) costs that we capitalize for arrangements accounted for as long-term construction contracts after we have signed a definitive sales agreement, but before all revenue recognition criteria have been met. As of September 30, 2012, deferred project costs were $518.3 million, of which, $143.4 million was classified as current and $374.9 million was classified as noncurrent. As of December 31, 2011, our deferred project costs were $320.4 million, of which $197.7 million was classified as current and $122.7 million was classified as noncurrent. We classify deferred project costs as current if completion of the sale and the meeting of all revenue recognition criteria is expected within the next 12 months.

Note Receivable

On April 8, 2009, we entered into a credit facility agreement with a solar project entity of one of our customers for an available amount of €17.5 million ($22.6 million at the balance sheet close rate on September 30, 2012 of $1.29/€1.00) to provide financing for a PV power generation facility. The credit facility replaced a bridge loan that we had made to this entity. The credit facility bears interest at 8% per annum and is due on December 31, 2026. As of September 30, 2012 and December 31, 2011, the balance on this credit facility was €7.0 million ($9.0 million at the balance sheet close rate on September 30, 2012 of $1.29/€1.00). The outstanding amount of this credit facility is included within “Other assets” on our condensed consolidated balance sheets.

Other Assets

Other assets consisted of the following at September 30, 2012 and December 31, 2011 (in thousands):



	September 30, 2012		December 31, 2011
Retainage (1)	$	225,483	$	—
Other assets - noncurrent	54,592		67,615
Other assets	$	280,075	$	67,615

(1)

Certain of the EPC contracts for solar power plants we build contain retainage provisions. Retainage refers to the portion of the EPC contract price earned by us for work performed, but held for payment by our customer as a form of security until we reach certain construction milestones. We consider whether collectability of such retainage is reasonably assured in connection with our overall assessment of the collectability of amounts due or that will become due under our EPC contracts. Retainage expected to be collected within the next 12 months is classified within Accounts receivable, unbilled on the condensed consolidated balance sheet. After we have met the EPC contract requirements to bill for retainage, we will reclassify such amounts to Accounts receivable trade, net. Amounts are expected to be collected in 2013 through 2015, after certain construction milestones have been met.

Accrued expenses

Accrued expenses consisted of the following at September 30, 2012 and December 31, 2011 (in thousands):



	September 30, 2012		December 31, 2011
Accrued compensation, benefits and severance	$	97,128	$	57,480
Accrued property, plant and equipment	27,979		41,015
Accrued inventory	61,063		46,028
Accrued project assets and deferred project costs	97,880		34,837
Product warranty liability (Note 15)	82,795		78,637
Accrued expenses in excess of normal product warranty liability and related expenses (1)	116,655		89,893
Other accrued expenses	91,656		58,769
Accrued expenses	$	575,156	$	406,659

(1) $100.9 million of accrued expenses in excess of normal product warranty liability and related expenses as of September 30, 2012 consisted primarily of commitments to certain customers, each related to the manufacturing excursion occurring during the period between June 2008 to June 2009 (“2008-2009 manufacturing excursion”), whereby certain modules manufactured during that time period may experience premature power loss once installed in the field. The accrued expense as of September 30, 2012 included the following commitments to certain customers, each related to the 2008-2009 manufacturing excursion and our related remediation program: (i) $61.9 million in estimated expenses for remediation efforts related to module removal, replacement and logistical services committed to by us beyond the normal product warranty; and (ii) $37.8 million in estimated compensation payments to customers, under certain circumstances, for power lost prior to remediation of the customer’s system under our remediation program.

$15.8 million of accrued expenses in excess of normal product warranty liability and related expenses as of September 30, 2012 consisted of commitments to certain customers related to a workmanship issue potentially affecting a limited number of solar modules manufactured between October 2008 to June 2009. A limited number of the modules manufactured during that time utilized a new material and process to attach the cord plate (junction box) to the module which may not adhere securely over time. We know the serial numbers of the affected modules and are proactively contacting the system owners to repair or replace the potentially impaired modules currently in service in a manner consistent with our normal workmanship warranty. For roof-mounted systems, we will also remove and replace the affected modules at no cost to the system owner, which remediation is in excess of our limited workmanship warranty obligation.

Our best estimate for such remediation programs is based on evaluation and consideration of currently available information, including the estimated number of potentially affected modules in the field, historical experience related to our remediation efforts, customer-provided data related to potentially affected systems, the estimated costs of performing the removal, replacement and logistical services and the post-sale expenses covered under our remediation program. If any of our estimates prove incorrect, we could be required to accrue additional expenses.

Deferred Revenue

We recognize deferred revenue as net sales only after all revenue recognition criteria are met. We expect to recognize these amounts as revenue within the next 12 months.

Other current liabilities

Other current liabilities consisted of the following at September 30, 2012 and December 31, 2011 (in thousands):



	September 30, 2012		December 31, 2011
Derivative instruments	$	10,427	$	37,342
Deferred tax liabilities	1,898		6,612
Payments and billings for deferred project costs and deferred cost of sales (1)	224,759		192,440
Other liabilities — current	22,929		58,252
Other current liabilities	$	260,013	$	294,646

(1)

Payments and billings for deferred project costs and deferred cost of sales represent customer payments received or customer billings made under the terms of certain solar power project related sales contracts for which all revenue recognition criteria for real estate transactions under ASC 360 have not yet been met. Such solar power project related costs are included as current deferred project costs or other current assets.

Other liabilities

Other liabilities consisted of the following at September 30, 2012 and December 31, 2011 (in thousands):



	September 30, 2012		December 31, 2011
Product warranty liability	$	94,419	$	79,105
Other taxes payable	96,481		73,054
Payments and billings for deferred project costs and deferred cost of sales (1)	468,562		167,374
Other liabilities — noncurrent	42,585		53,973
Other liabilities	$	702,047	$	373,506

(1)