As a global company, we are exposed in the normal course of business to interest rate, foreign currency, and commodity price risks that could affect our financial position, results of operations, and cash flows. We 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.


	September 30, 2021
	Prepaid Expenses and Other Current Assets		Other Assets		Other Current Liabilities		Other Liabilities
Derivatives designated as hedging instruments:
Foreign exchange forward contracts	$	628	$	18	$	36	$	—
Commodity swap contracts	633		—		—		—
Total derivatives designated as hedging instruments	$	1,261	$	18	$	36	$	—

Derivatives not designated as hedging instruments:
Foreign exchange forward contracts	$	5,421	$	—	$	1,684	$	—
Interest rate swap contracts	—		—		—		595
Total derivatives not designated as hedging instruments	$	5,421	$	—	$	1,684	$	595
Total derivative instruments	$	6,682	$	18	$	1,720	$	595


	December 31, 2020
	Prepaid Expenses and Other Current Assets		Other Current Liabilities		Other Liabilities
Derivatives designated as hedging instruments:
Foreign exchange forward contracts	$	—	$	2,504	$	341
Commodity swap contracts	1,478		—		—
Total derivatives designated as hedging instruments	$	1,478	$	2,504	$	341

Derivatives not designated as hedging instruments:
Foreign exchange forward contracts	$	1,837	$	2,776	$	—
Total derivatives not designated as hedging instruments	$	1,837	$	2,776	$	—
Total derivative instruments	$	3,315	$	5,280	$	341

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, 2021 and 2020 (in thousands):


	Foreign Exchange Forward Contracts		Commodity Swap Contracts		Total
Balance as of December 31, 2020	$	(3,644)	$	1,472	$	(2,172)
Amounts recognized in other comprehensive income (loss)	2,268		1,531		3,799

Amounts reclassified to earnings impacting:

Cost of sales	1,913		(883)		1,030



Balance as of September 30, 2021	$	537	$	2,120	$	2,657

Balance as of December 31, 2019	$	(962)	$	—	$	(962)
Amounts recognized in other comprehensive income (loss)	(2,129)		(228)		(2,357)
Amounts reclassified to earnings impacting:

Cost of sales	647		—		647



Balance as of September 30, 2020	$	(2,444)	$	(228)	$	(2,672)

During the three and nine months ended September 30, 2021, we recognized unrealized gains of less than $0.1 million and unrealized losses of less than $0.1 million, respectively, within “Cost of sales” for amounts excluded from effectiveness testing for our foreign exchange forward contracts designated as cash flow hedges. During the three and nine months ended September 30, 2020, we recognized unrealized gains of $0.1 million and $1.2 million, respectively, within “Cost of sales” for amounts excluded from effectiveness testing for our foreign exchange forward contracts designated as cash flow hedges.

The following table presents gains and losses related to derivative instruments not designated as hedges affecting our condensed consolidated statements of operations for the three and nine months ended September 30, 2021 and 2020 (in thousands):


		Amount of Gain (Loss) Recognized in Income
		Three Months Ended September 30,				Nine Months Ended September 30,
	Income Statement Line Item	2021		2020		2021		2020
Foreign exchange forward contracts	Cost of sales	$	103	$	(195)	$	(174)	$	(73)
Foreign exchange forward contracts	Foreign currency loss, net	1,802		(2,598)		10,821		(2,405)
Interest rate swap contracts	Interest expense, net	96		(5,878)		(595)		(7,259)

We use interest rate swap contracts to mitigate our exposure to interest rate fluctuations associated with certain of our debt instruments. We do not use such swap contracts for speculative or trading purposes. During the nine months ended September 30, 2021 and 2020, all of our interest rate swap contracts related to project specific debt facilities. Such swap contracts did not qualify for accounting as cash flow hedges in accordance with Accounting Standards Codification (“ASC”) 815 due to our expectation to sell the associated projects before the maturity of their project specific debt financings and corresponding swap contracts. Accordingly, changes in the fair values of these swap contracts were recorded directly to “Interest expense, net.”

In June 2021, FS Japan Project B4 GK, our indirect wholly-owned subsidiary and project company, entered into an interest rate swap contract to hedge a portion of the floating rate term loan facility under the project’s Ikeda Credit Facility (as defined in Note 9. “Debt” to our condensed consolidated financial statements). Such swap had an initial notional value of ¥0.7 billion and entitled the project to receive a six-month floating Tokyo Interbank Offered Rate (“TIBOR”) plus 0.70% interest rate while requiring the project to pay a fixed rate of 1.12%. The notional amount of the interest rate swap contract proportionately adjusts with scheduled draws and principal payments on the underlying hedged debt. As of September 30, 2021, the notional value of the interest rate swap contract was ¥1.0 billion ($8.6 million).

We expect certain of our subsidiaries to have future cash flows that will be 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 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. As of September 30, 2021 and December 31, 2020, these foreign exchange forward contracts hedged our forecasted cash flows for periods up to 14 months and 20 months, respectively. These foreign exchange forward 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 transaction occurs and impacts earnings. We determined that these derivative financial instruments were highly effective as cash flow hedges as of September 30, 2021 and December 31, 2020.

In the following 12 months, we expect to reclassify to earnings $0.5 million of net unrealized gains related to foreign exchange forward contracts that are included in “Accumulated other comprehensive loss” at September 30, 2021 as we realize the earnings effects of the related forecasted transactions. The amount we ultimately record to earnings will depend on the actual exchange rates when we realize the related forecasted transactions.

Many of our subsidiaries have assets and liabilities (primarily cash, receivables, deferred taxes, payables, accrued expenses, operating lease liabilities, 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 and cash flows. 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.

September 30, 2021

Transaction

Currency

Notional Amount

USD Equivalent

Purchase

Australian dollar

AUD 3.2

$2.3

Purchase

Brazilian real

BRL 2.6

$0.5

Purchase

Chilean peso

CLP 985.0

$1.2

Sell

Chilean peso

CLP 4,240.6

$5.3

Purchase

Euro

€86.4

$100.6

Sell

Euro

€32.6

$37.9

Purchase

British pound

GBP 2.5

$3.4

Sell

Indian rupee

INR 1,830.0

$24.7

Purchase

Japanese yen

¥151.8

$1.4

Sell

Japanese yen

¥27,325.6

$244.9

Purchase

Malaysian ringgit

MYR 30.5

$7.3

Sell

Malaysian ringgit

MYR 26.8

$6.4

Sell

Mexican peso

MXN 34.6

$1.7

Purchase

Singapore dollar

SGD 5.5

$4.0

December 31, 2020

Transaction

Currency

Notional Amount

USD Equivalent

Purchase

Australian dollar

AUD 3.2

$2.5

Purchase

Brazilian real

BRL 2.6

$0.5

Sell

Canadian dollar

CAD 8.9

$7.0

Purchase

Chilean peso

CLP 2,006.0

$2.8

Sell

Chilean peso

CLP 4,476.7

$6.3

Purchase

Euro

€140.0

$172.1

Sell

Euro

€63.6

$78.2

Sell

Indian rupee

INR 619.2

$8.4

Purchase

Japanese yen

¥1,593.7

$15.5

Sell

Japanese yen

¥20,656.6

$200.5

Purchase

Malaysian ringgit

MYR 69.3

$17.2

Sell

Malaysian ringgit

MYR 24.9

$6.2

Sell

Mexican peso

MXN 34.6

$1.7

Purchase

Singapore dollar

SGD 2.9

$2.2

We use commodity swap contracts to mitigate our exposure to commodity price fluctuations for certain raw materials used in the production of our modules. In August 2020, we entered into a commodity swap contract to hedge a portion of our forecasted cash flows for purchases of aluminum frames for a one-year period. Such swap had an initial notional value based on metric tons of forecasted aluminum purchases, equivalent to $24.9 million, and entitles 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 contract proportionately adjusted with forecasted purchases of aluminum frames.

This commodity swap contract qualifies for accounting as a cash flow hedge in accordance with ASC 815, and we designated it as such. We report unrealized gains or losses on such contract in “Accumulated other comprehensive loss” and subsequently reclassify applicable amounts into earnings when the hedged transaction occurs and impacts earnings. We determined that this derivative financial instrument was highly effective as a cash flow hedge as of September 30, 2021 and December 31, 2020. In the following 12 months, we expect to reclassify into earnings $2.1 million of net unrealized gains related to this commodity swap contract that are included in “Accumulated other comprehensive loss” at September 30, 2021 as we realize the earnings effects of the related forecasted transactions.