12. Share-Based Compensation

6 Months Ended

Jun. 30, 2019

Share-based Compensation, Allocation and Classification in Financial Statements [Abstract]

Share-Based Compensation

12. Share-Based Compensation

The following table presents share-based compensation expense recognized in our condensed consolidated statements of operations for the three and six months ended June 30, 2019 and 2018 (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
Cost of sales	$	1,961	$	2,286	$	3,801	$	3,536
Selling, general and administrative	7,046		6,603		9,384		12,264
Research and development	1,701		1,639		2,542		3,064
Production start-up	55		56		55		372
Total share-based compensation expense	$	10,763	$	10,584	$	15,782	$	19,236

The following table presents share-based compensation expense by type of award for the three and six months ended June 30, 2019 and 2018 (in thousands):

	Three Months Ended June 30,					Six Months Ended June 30,
	2019			2018		2019		2018
Restricted and performance stock units	$	10,435		$	9,588	$	14,623	$	17,993
Unrestricted stock	379			419		758		879
	10,814			10,007		15,381		18,872
Net amount (absorbed into) released from inventory	(51		)	577		401		364
Total share-based compensation expense	$	10,763		$	10,584	$	15,782	$	19,236

Share-based compensation expense capitalized in inventory was $1.4 million and $1.8 million as of June 30, 2019 and December 31, 2018, respectively. As of June 30, 2019, we had $42.5 million of unrecognized share-based compensation expense related to unvested restricted and performance stock units, which we expect to recognize over a weighted-average period of approximately 1.3 years.

In February 2017, the compensation committee of our board of directors approved a long-term incentive program for key executive officers and associates. The program is intended to incentivize retention of our key executive talent, provide a smooth transition from our former key senior talent equity performance program, and align the interests of executive management and stockholders. Specifically, the program consists of (i) performance stock units to be earned over an approximately three-year performance period ending in December 2019 and (ii) stub-year grants of separate performance stock units to be earned over an approximately two-year performance period, which ended in December 2018. In February 2019, the compensation committee of our board of directors certified the achievement of the maximum vesting conditions applicable for the stub-year grants. Accordingly, each participant received one share of common stock for each vested performance unit, net of any tax withholdings. Vesting of the remaining 2017 grants of performance stock units is contingent upon the relative attainment of target cost per watt and operating expense metrics.

In April 2018, in continuation of our long-term incentive program for key executive officers and associates, the compensation committee of our board of directors approved additional grants of performance stock units to be earned over an approximately three-year performance period ending in December 2020. Vesting of the 2018 grants of performance stock units is contingent upon the relative attainment of target gross margin, operating expense, and contracted revenue metrics.

Vesting of performance stock units is also contingent upon the employment of program participants through the applicable vesting dates, with limited exceptions in case of death, disability, a qualifying retirement, or a change-in-control of First Solar. Outstanding performance stock units are included in the computation of diluted net income per share based on the number of shares that would be issuable if the end of the reporting period were the end of the contingency period.