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, 2022
	Other Current Assets		Other Current Liabilities		Other Liabilities
Derivatives designated as hedging instruments:
Foreign exchange forward contracts	$	4,341	$	—	$	—
Commodity swap contracts	—		9,133		840
Total derivatives designated as hedging instruments	$	4,341	$	9,133	$	840

Derivatives not designated as hedging instruments:
Foreign exchange forward contracts	$	6,906	$	3,759	$	—

Total derivatives not designated as hedging instruments	$	6,906	$	3,759	$	—
Total derivative instruments	$	11,247	$	12,892	$	840


	December 31, 2021
	Other Current Assets		Other Current Liabilities
Derivatives designated as hedging instruments:
Foreign exchange forward contracts	$	1,336	$	139
Total derivatives designated as hedging instruments	$	1,336	$	139

Derivatives not designated as hedging instruments:
Foreign exchange forward contracts	$	4,480	$	3,411
Total derivatives not designated as hedging instruments	$	4,480	$	3,411
Total derivative instruments	$	5,816	$	3,550


	Foreign Exchange Forward Contracts		Commodity Swap Contracts		Total
Balance as of December 31, 2021	$	1,126	$	—	$	1,126
Amounts recognized in other comprehensive income (loss)	545		(10,832)		(10,287)

Amounts reclassified to earnings impacting:

Cost of sales	(1,671)		—		(1,671)



Balance as of September 30, 2022	$	—	$	(10,832)	$	(10,832)

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

During the nine months ended September 30, 2022, we recognized unrealized losses of less than $0.1 million 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, 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.


		Amount of Gain (Loss) Recognized in Income
		Three Months Ended September 30,				Nine Months Ended September 30,
	Income Statement Line Item	2022		2021		2022		2021
Foreign exchange forward contracts	Cost of sales	$	55	$	103	$	577	$	(174)
Foreign exchange forward contracts	Foreign currency loss, net	7,905		1,802		71,420		10,821
Interest rate swap contracts	Interest expense, net	—		96		—		(595)

From time to time, we may 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, 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.”

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 December 31, 2021, these foreign exchange forward contracts hedged our forecasted cash flows for periods up to 11 months. 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 December 31, 2021.

The functional currencies of certain of our foreign subsidiaries are their local currencies. Accordingly, we apply period-end exchange rates to translate their assets and liabilities and daily transaction exchange rates to translate their revenues, expenses, gains, and losses into U.S. dollars. We include the associated translation adjustments as a separate component of “Accumulated other comprehensive loss” within stockholders’ equity. From time to time, we may seek to mitigate the impact of such translation adjustments by entering into foreign exchange forward contracts that are designated as hedges of net investments in certain foreign subsidiaries. In June 2022, we entered into a foreign exchange forward contract with a notional value of ¥8.0 billion ($60.6 million), which qualifies for and was designated as a hedge of our net investment in a certain foreign subsidiary in Japan. As of September 30, 2022, this foreign exchange forward contract hedged such net investment for a remaining period of 3 months. We report unrealized gains or losses on this contract, which are based on spot exchange rates, as a component of our foreign currency translation adjustments within “Accumulated other comprehensive loss” and subsequently reclassify applicable amounts into earnings when the net investments are sold or substantially liquidated. We determined that this derivative financial instrument was highly effective as a net investment hedge as of September 30, 2022.

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, 2022

Transaction

Currency

Notional Amount

USD Equivalent

Sell

Chilean peso

CLP 5,996.5

$6.2

Purchase

Euro

€89.0

$85.7

Sell

Euro

€29.4

$28.3

Sell

Indian rupee

INR 18,611.5

$227.8

Purchase

Japanese yen

¥1,820.9

$12.6

Sell

Japanese yen

¥11,674.4

$80.8

Purchase

Malaysian ringgit

MYR 38.2

$8.3

Sell

Malaysian ringgit

MYR 28.1

$6.1

Sell

Mexican peso

MXN 34.6

$1.7

Purchase

Singapore dollar

SGD 1.4

$1.0

December 31, 2021

Transaction

Currency

Notional Amount

USD Equivalent

Purchase

Australian dollar

AUD 3.2

$2.3

Purchase

Brazilian real

BRL 2.6

$0.5

Sell

Brazilian real

BRL 2.6

$0.5

Purchase

British pound

GBP 2.5

$3.4

Sell

Chilean peso

CLP 4,058.6

$4.8

Purchase

Euro

€77.6

$88.0

Sell

Euro

€38.6

$43.8

Sell

Indian rupee

INR 10,943.0

$147.1

Purchase

Japanese yen

¥667.5

$5.8

Sell

Japanese yen

¥31,524.6

$273.9

Purchase

Malaysian ringgit

MYR 17.0

$4.1

Sell

Malaysian ringgit

MYR 24.5

$5.9

Sell

Mexican peso

MXN 34.6

$1.7

Purchase

Singapore dollar

SGD 5.5

$4.1

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 nine months ended September 30, 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 entitle 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 adjusts with forecasted purchases of aluminum frames. As of September 30, 2022, the notional value associated with these contracts were $42.5 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, 2022. In the following 12 months, we expect to reclassify into earnings $7.7 million of net unrealized losses related to these commodity swap contracts that are included in “Accumulated other comprehensive loss” at September 30, 2022 as we realize the earnings effects of the related forecasted transactions. The amount we ultimately record to earnings will depend on the actual commodity pricing when we realize the related forecasted transactions.