Last10K.com

Sunpower Corp (SPWR) SEC Filing 10-Q Quarterly report for the period ending Sunday, September 29, 2019

Sunpower Corp

CIK: 867773 Ticker: SPWR


Exhibit 99.1

Contacts:

Investors
Bob Okunski
408-240-5447
Bob.Okunski@sunpower.com

Media
Natalie Wymer
408-457-2348
Natalie.Wymer@sunpower.com

SunPower Reports Third Quarter 2019 Results
Record Shipments, Continued Strength Across Global Distributed Generation Markets

SAN JOSE, Calif., Oct. 30, 2019
- SunPower Corp. (NASDAQ:SPWR) today announced financial results for its third quarter ended Sept. 29, 2019.

Third Quarter Company Highlights
Continued strength in U.S. and international distributed generation (DG) markets
Generated positive cash at the business unit level for the quarter
SunPower Energy Services (SPES)
Record residential and new homes bookings - strong traction in California ahead of 2020 new home solar mandate
Formally launched Equinox Storage solution for the residential market
SunPower Technologies (SPT)
Record shipments into international DG markets - more than 70% percent of volume
Tracking to a fourth quarter agreement on potential investment to expand Maxeon 5 production
($ Millions, except percentages and per-share data)
3rd Quarter 2019
2nd Quarter 2019
3rd Quarter 2018
GAAP revenue
$476.0
$436.3
$428.3
GAAP gross margin
10.1%
4.5%
2.3%
GAAP net income (loss)
$(15.0)
$121.5
$(89.8)
GAAP net income (loss) per diluted share
$(0.11)
$0.75
$(0.64)
Non-GAAP revenue1
$491.7
$481.9
$443.4
Non-GAAP gross margin1
15.9%
10.5%
4.7%
Non-GAAP net income (loss)1
$10.6
$(31.1)
$(40.9)
Non-GAAP net income (loss) per diluted share1
$0.07
$(0.22)
$(0.29)
Adjusted EBITDA1
$42.0
$8.0
$6.7
MW Deployed
586
622
346
1Information about SunPower's use of non-GAAP financial information, including a reconciliation to U.S. GAAP, is provided under "Use of Non-GAAP Financial Measures" below.







The following information was filed by Sunpower Corp (SPWR) on Wednesday, October 30, 2019 as an 8K 2.02 statement, which is an earnings press release pertaining to results of operations and financial condition. It may be helpful to assess the quality of management by comparing the information in the press release to the information in the accompanying 10-Q Quarterly Report statement of earnings and operation as management may choose to highlight particular information in the press release.

 
 
 
 
 
 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 29, 2019
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______________ to ______________

Commission file number 001-34166


sp2014logoa01a28.gif
SunPower Corporation
(Exact Name of Registrant as Specified in Its Charter)

Delaware
 
94-3008969
(State or Other Jurisdiction of Incorporation or Organization)
 
(I.R.S. Employer Identification No.)
51 Rio Robles
 
95134
San Jose
 
 
California
 
 
(Address of Principal Executive Offices)

 
(Zip Code)


(408) 240-5500
(Registrant's Telephone Number, Including Area Code)

_________________________________________
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  x    No  o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes  x    No  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 x
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.   o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes   No  x

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol
Name of exchange on which registered
Common Stock
SPWR
NASDAQ

The total number of outstanding shares of the registrant’s common stock as of October 25, 2019 was 142,612,199.
 
 
 
 
 
d


1


TABLE OF CONTENTS
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



2


PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

SunPower Corporation
Condensed Consolidated Balance Sheets
(In thousands, except share par values)
(unaudited)
 
September 29, 2019
 
December 30, 2018
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
188,983


$
309,407

Restricted cash and cash equivalents, current portion
10,097


41,762

Restricted short-term marketable securities
6,033

 

Accounts receivable, net1
205,667


175,605

Contract assets1
78,868


58,994

Inventories
388,508


308,146

Advances to suppliers, current portion
75,366


37,878

Project assets - plants and land, current portion
20,260


10,796

Prepaid expenses and other current assets
132,643


131,183

Total current assets
1,106,425


1,073,771

 





Restricted cash and cash equivalents, net of current portion
11,655


12,594

Restricted long-term marketable securities


5,955

Property, plant and equipment, net
335,375


839,871

Operating lease right-of-use assets
46,283



Solar power systems leased and to be leased, net
55,444


92,557

Advances to suppliers, net of current portion
62,914


133,694

Long-term financing receivables, net - held for sale


19,592

Other intangible assets, net
9,504


12,582

Other long-term assets
262,072


162,033

Total assets
$
1,889,672


$
2,352,649

 
 
 
 
Liabilities and Equity
 

 
 

Current liabilities:
 

 
 

Accounts payable1
$
440,267


$
325,550

Accrued liabilities1
194,367


235,252

Operating lease liabilities, current portion
8,644



Contract liabilities, current portion1
118,644


104,130

Short-term debt
80,297


40,074

Total current liabilities
842,219


705,006

 
 
 
 
Long-term debt
48,460


40,528

Convertible debt1
819,783


818,356

Operating lease liabilities, net of current portion
44,807



Contract liabilities, net of current portion1
67,930


99,509

Other long-term liabilities
226,729


839,136

Total liabilities
2,049,928


2,502,535

Commitments and contingencies (Note 9)


 


Equity:
 

 
 

Preferred stock, $0.001 par value; 10,000 shares authorized; none issued and outstanding as of September 29, 2019 and December 30, 2018



Common stock, $0.001 par value, 367,500 shares authorized; 154,190 shares issued, and 142,577 shares outstanding as of September 29, 2019; 152,085 shares issued, and 141,180 shares outstanding as of December 30, 2018
143


141

Additional paid-in capital
2,483,815


2,463,370

Accumulated deficit
(2,455,119
)

(2,480,988
)
Accumulated other comprehensive loss
(3,791
)

(4,150
)
Treasury stock, at cost: 11,613 shares of common stock as of September 29, 2019; 10,905 shares of common stock as of December 30, 2018
(191,725
)

(187,069
)
Total stockholders' deficit
(166,677
)

(208,696
)
Noncontrolling interests in subsidiaries
6,421


58,810

Total deficit
(160,256
)

(149,886
)
Total liabilities and equity
$
1,889,672


$
2,352,649


1We have related-party balances for transactions made with Total S.A. and its affiliates as well as unconsolidated entities in which we have a direct equity investment. These related-party balances are recorded within the "accounts receivable, net," "contract assets," "accounts payable," "accrued liabilities," "contract liabilities, current portion," "convertible debt," and "contract liabilities, net of current portion," financial statement line items on our condensed consolidated balance sheets (see Note 2, Note 9, Note 10, and Note 11).



The accompanying notes are an integral part of these condensed consolidated financial statements.

3


SunPower Corporation
Condensed Consolidated Statements of Operations
(In thousands, except per share data)
(unaudited)
 
 
Three Months Ended
 
Nine Months Ended
 
 
September 29, 2019
 
September 30, 2018
 
September 29, 2019
 
September 30, 2018
Revenue:
 
 
 
 
 
 
 
 
Solar power systems, components, and other1
 
$
467,196

 
$
358,403

 
$
1,235,479

 
$
1,041,043

Residential leasing
 
3,523

 
69,860

 
9,083

 
228,205

Solar services
 
5,239

 

 
15,902

 


 
475,958

 
428,263

 
1,260,464

 
1,269,248

Cost of revenue:
 
 
 
 
 


 
 
Solar power systems, components, and other1
 
424,151

 
373,282

 
1,217,440

 
1,404,345

Residential leasing
 
1,567

 
45,104

 
5,939

 
154,413

Solar services
 
1,989

 

 
6,319

 


 
427,707

 
418,386

 
1,229,698

 
1,558,758

Gross profit (loss)
 
48,251

 
9,877

 
30,766

 
(289,510
)
Operating expenses:
 
 
 
 
 


 
 
Research and development1
 
16,101

 
15,898

 
49,253

 
66,225

Sales, general and administrative
 
64,734

 
76,069

 
189,569

 
206,272

Restructuring charges
 
4,283

 
3,923

 
6,071

 
18,604

Loss on sale and impairment of residential lease assets
 
10,756

 
53,537

 
28,283

 
170,898

Gain on business divestiture
 

 
(59,347
)
 
(143,400
)
 
(59,347
)
Total operating expenses
 
95,874

 
90,080

 
129,776

 
402,652

Operating loss
 
(47,623
)
 
(80,203
)
 
(99,010
)
 
(692,162
)
Other income (expense), net:
 
 
 
 
 

 
 
Interest income
 
1,025

 
1,087

 
2,443

 
2,280

Interest expense1
 
(10,649
)
 
(25,972
)
 
(43,864
)
 
(77,796
)
Other, net
 
45,184

 
(3,643
)
 
146,025

 
48,775

Other income (expense), net
 
35,560

 
(28,528
)
 
104,604

 
(26,741
)
Income (loss) before income taxes and equity in losses of unconsolidated investees
 
(12,063
)
 
(108,731
)
 
5,594

 
(718,903
)
Provision for income taxes
 
(5,378
)
 
(3,680
)
 
(17,243
)
 
(9,389
)
Equity in losses of unconsolidated investees
 
(1,767
)
 
(1,500
)
 
(2,050
)
 
(17,059
)
Net loss
 
(19,208
)
 
(113,911
)
 
(13,699
)
 
(745,351
)
Net loss attributable to noncontrolling interests and redeemable noncontrolling interests
 
4,191

 
24,085

 
30,417

 
92,434

Net income (loss) attributable to stockholders
 
$
(15,017
)
 
$
(89,826
)
 
$
16,718

 
$
(652,917
)
 
 
 
 
 
 
 
 
 


Net income (loss) per share attributable to stockholders:
 
 
 
 
 
 
 
 
Basic
 
$
(0.11
)
 
$
(0.64
)
 
$
0.12

 
$
(4.64
)
Diluted
 
$
(0.11
)
 
$
(0.64
)
 
$
0.12

 
$
(4.64
)
Weighted-average shares:
 
 
 
 
 
 
 
 
Basic
 
142,553

 
141,027

 
142,248

 
140,722

Diluted
 
142,553

 
141,027

 
144,736

 
140,722

1We have related-party transactions with Total S.A. and its affiliates as well as unconsolidated entities in which we have a direct equity investment. These related-party transactions are recorded within the "revenue: solar power systems, components, and other," "cost of revenue: solar power systems, components, and other," "operating expenses: research and development," and "other income (expense), net: interest expense" financial statement line items in our condensed consolidated statements of operations (see Note 2 and Note 10).


The accompanying notes are an integral part of these condensed consolidated financial statements.

4


SunPower Corporation
Condensed Consolidated Statements of Comprehensive Income (Loss)
(In thousands)
(unaudited)

 
 
Three Months Ended
 
Nine Months Ended
 
 
September 29, 2019
 
September 30, 2018
 
September 29, 2019
 
September 30, 2018
Net loss
 
$
(19,208
)
 
$
(113,911
)
 
$
(13,699
)
 
$
(745,351
)
Components of other comprehensive income (loss):
 
 
 
 
 
 
 
 
Translation adjustment
 
(1,547
)
 
(2,120
)
 
(755
)
 
(2,445
)
Net change in derivatives (Note 12)
 
2,267

 
231

 
1,550

 
2,273

Income taxes
 
(626
)
 
(36
)
 
(436
)
 
(421
)
Total other comprehensive income (loss)
 
94

 
(1,925
)
 
359

 
(593
)
Total comprehensive loss
 
(19,114
)
 
(115,836
)
 
(13,340
)
 
(745,944
)
Comprehensive loss attributable to noncontrolling interests and redeemable noncontrolling interests
 
4,191

 
24,085

 
30,417

 
92,434

Comprehensive income (loss) attributable to stockholders
 
$
(14,923
)
 
$
(91,751
)
 
$
17,077

 
$
(653,510
)


The accompanying notes are an integral part of these condensed consolidated financial statements.


5


SunPower Corporation
Condensed Consolidated Statements of Equity (Deficit)
(In thousands)

 
Three Months Ended September 29, 2019
 
 
Common Stock
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Shares
 
Value
 
Additional
Paid-in
Capital
 
Treasury
Stock
 
Accumulated Other
Comprehensive Loss
 
Accumulated Deficit
 
Total
Stockholders’
Deficit
 
Noncontrolling Interests in Subsidiaries
 
Total Deficit
Balances at June 30, 2019
 
142,515

 
$
143

 
$
2,476,788

 
$
(191,434
)
 
$
(3,885
)
 
$
(2,440,102
)
 
$
(158,490
)
 
$
61,845

 
$
(96,645
)
Net loss
 

 

 

 

 

 
(15,017
)
 
(15,017
)
 
(4,191
)
 
(19,208
)
Other comprehensive income
 

 

 

 

 
94

 

 
94

 

 
94

Issuance of restricted stock to employees, net of cancellations
 
85

 

 

 

 

 

 

 

 

Stock-based compensation expense
 

 

 
7,027

 

 

 

 
7,027

 

 
7,027

Contributions from noncontrolling interests
 

 

 

 

 

 

 

 
1,836

 
1,836

Distributions to noncontrolling interests
 

 

 

 

 

 

 

 
(1,236
)
 
(1,236
)
Purchases of treasury stock
 
(23
)
 

 

 
(291
)
 

 

 
(291
)
 

 
(291
)
Reduction of non-controlling interests, due to sale of interest in residential lease portfolio1
 

 

 

 

 

 

 

 
(51,833
)
 
(51,833
)
Balances at September 29, 2019
 
142,577

 
$
143

 
$
2,483,815

 
$
(191,725
)
 
$
(3,791
)
 
$
(2,455,119
)
 
$
(166,677
)
 
$
6,421

 
$
(160,256
)
1See Note 4 "Business Divestiture and Sale of Assets".

6


 
 
Three Months Ended September 30, 2018
 
 
 
 
Common Stock
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Redeemable Noncontrolling Interests
 
Shares
 
Value
 
Additional
Paid-in
Capital
 
Treasury
Stock
 
Accumulated Other
Comprehensive Loss
 
Accumulated Deficit
 
Total
Stockholders’
Equity (Deficit)
 
Noncontrolling Interests
 
Total Equity
Balances at July 1, 2018
 
$
14,335

 
140,985

 
$
141

 
$
2,455,813

 
$
(186,439
)
 
$
(1,676
)
 
$
(2,232,988
)
 
$
34,851

 
$
95,790

 
$
130,641

Net loss
 
(7,245
)
 

 

 

 

 

 
(89,826
)
 
(89,826
)
 
(16,840
)
 
(106,666
)
Other comprehensive income
 

 

 

 

 

 
(1,925
)
 

 
(1,925
)
 

 
(1,925
)
Issuance of restricted stock to employees, net of cancellations
 

 
90

 

 

 

 

 

 

 

 

Stock-based compensation expense
 

 

 

 
6,225

 

 

 

 
6,225

 

 
6,225

Contributions from noncontrolling interests
 
10,520

 

 

 

 

 

 

 

 
23,868

 
23,868

Distributions to noncontrolling interests
 
(2,380
)
 

 

 

 

 

 

 

 
(3,676
)
 
(3,676
)
BAML2 equity buyout
 

 

 

 
(4,933
)
 

 

 

 
(4,933
)
 
(7,400
)
 
(12,333
)
Purchases of treasury stock
 

 
(19
)
 

 

 
(349
)
 

 

 
(349
)
 

 
(349
)
Balances at September 30, 2018
 
$
15,230

 
141,056

 
$
141

 
$
2,457,105

 
$
(186,788
)
 
$
(3,601
)
 
$
(2,322,814
)
 
$
(55,957
)
 
$
91,742

 
$
35,785





7


 
 
Nine Months Ended September 29, 2019
 
 
Common Stock
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Shares
 
Value
 
Additional
Paid-in
Capital
 
Treasury
Stock
 
Accumulated Other
Comprehensive Loss
 
Accumulated Deficit
 
Total
Stockholders’
Deficit
 
Noncontrolling Interests
 
Total Deficit
Balances at December 30, 2018
 
141,178

 
$
141

 
$
2,463,370

 
$
(187,069
)
 
$
(4,150
)
 
$
(2,480,988
)
 
$
(208,696
)
 
$
58,810

 
$
(149,886
)
Net income (loss)
 

 

 

 

 

 
16,718

 
16,718

 
(30,417
)
 
(13,699
)
Cumulative-effect upon adoption of ASC 842
 

 

 

 

 

 
9,151

 
9,151

 

 
9,151

Other comprehensive income
 

 

 

 

 
359

 

 
359

 

 
359

Issuance of restricted stock to employees, net of cancellations
 
2,106

 
3

 

 

 

 

 
3

 

 
3

Stock-based compensation expense
 

 

 
20,445

 

 

 

 
20,445

 

 
20,445

Contributions from noncontrolling interests
 

 

 

 

 

 

 

 
31,413

 
31,413

Distributions to noncontrolling interests
 

 

 

 

 

 

 

 
(1,552
)
 
(1,552
)
Purchases of treasury stock
 
(707
)
 
(1
)
 

 
(4,656
)
 

 

 
(4,657
)
 

 
(4,657
)
Reduction of non-controlling interests, due to sale of interest in residential lease portfolio1

 



 

 

 

 

 

 
(51,833
)
 
(51,833
)
Balances at September 29, 2019
 
$
142,577

 
$
143

 
$
2,483,815

 
$
(191,725
)
 
$
(3,791
)
 
$
(2,455,119
)
 
$
(166,677
)
 
$
6,421

 
$
(160,256
)
1See Note 4 "Business Divestiture and Sale of Assets".
 
 
Nine Months Ended September 30, 2018
 
 
 
 
Common Stock
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Redeemable Noncontrolling Interests
 
Shares
 
Value
 
Additional
Paid-in
Capital
 
Treasury
Stock
 
Accumulated Other
Comprehensive Loss
 
Accumulated Deficit
 
Total
Stockholders’
Equity (Deficit)
 
Noncontrolling Interests
 
Total Equity
Balances at December 31, 2017
 
$
15,236

 
139,661

 
$
140

 
$
2,442,513

 
$
(181,539
)
 
$
(3,008
)
 
$
(1,669,897
)
 
$
588,209

 
$
104,179

 
$
692,388

Net loss
 
(28,860
)
 

 

 

 

 

 
(652,917
)
 
(652,917
)
 
(63,574
)
 
(716,491
)
Other comprehensive income
 

 

 

 

 

 
(593
)
 

 
(593
)
 

 
(593
)
Issuance of restricted stock to employees, net of cancellations
 

 
2,099

 
2

 

 

 

 

 
2

 

 
2

Stock-based compensation expense
 

 

 

 
19,525

 

 

 

 
19,525

 

 
19,525

Contributions from noncontrolling interests
 
36,154

 

 

 

 

 

 

 

 
71,525

 
71,525

Distributions to noncontrolling interests
 
(7,300
)
 

 

 

 

 

 

 

 
(12,988
)
 
(12,988
)
Noncontrolling interest buyout
 

 

 

 
(4,933
)
 

 

 

 
(4,933
)
 
(7,400
)
 
(12,333
)
Purchases of treasury stock
 

 
(704
)
 
(1
)
 

 
(5,249
)
 

 

 
(5,250
)
 

 
(5,250
)
Balances at September 30, 2018
 
$
15,230

 
141,056

 
$
141

 
$
2,457,105

 
$
(186,788
)
 
$
(3,601
)
 
$
(2,322,814
)
 
$
(55,957
)
 
$
91,742

 
$
35,785


The accompanying notes are an integral part of these condensed consolidated financial statements.

8


SunPower Corporation
Condensed Consolidated Statements of Cash Flows
(In thousands)
(unaudited)    

 
 
Nine Months Ended
 
 
September 29, 2019
 
September 30, 2018
Cash flows from operating activities:
 
 
 
 
Net loss
 
$
(13,699
)

$
(745,351
)
Adjustments to reconcile net loss to net cash used in operating activities:
 



Depreciation and amortization
 
62,022


103,144

Non-cash restructuring charges
 
5,874



Stock-based compensation
 
18,927


20,087

Non-cash interest expense
 
7,468


12,133

Dividend from equity method investee
 


3,947

Equity in losses of unconsolidated investees
 
2,050


17,059

Mark-to-market (gain) loss on equity investment with readily determinable fair value
 
(129,038
)

6,225

Gain on sale of assets
 
(21,383
)
 

Gain on business divestiture
 
(143,400
)

(59,347
)
Gain on sale of investments without readily determinable fair value
 
(17,275
)

(50,568
)
Deferred income taxes
 
500


3,006

Impairment of property, plant and equipment
 
777


369,168

Loss on sale and impairment of residential lease assets
 
36,709


170,898

Other, net
 


(5,737
)
Changes in operating assets and liabilities:
 



Accounts receivable
 
(45,710
)

(19,090
)
Contract assets
 
(18,107
)

(38,014
)
Inventories
 
(108,093
)

(103,791
)
Project assets
 
(9,238
)

(9,140
)
Prepaid expenses and other assets
 
1,482


39,924

Operating lease right-of-use assets
 
6,219



Long-term financing receivables, net - held for sale
 
(473
)

(151,931
)
Advances to suppliers
 
33,292


29,181

Accounts payable and other accrued liabilities
 
64,009


(69,056
)
Contract liabilities
 
8,127


(39,823
)
Operating lease liabilities
 
(7,202
)


Net cash used in operating activities
 
(266,162
)

(517,076
)
Cash flows from investing activities:
 



Purchases of property, plant and equipment
 
(35,100
)

(37,708
)
Cash paid for solar power systems, leased, net
 


(55,659
)
Cash paid for solar power systems
 
(51,826
)

(4,340
)
Proceeds from business divestiture, net of cash sold
 
40,491


13,257

Dividend from equity method investee
 


12,952

Proceeds from sale of assets
 
39,970



Cash outflow from sale of residential lease portfolio
 
(16,397
)
 

Proceeds from sale of investments
 
42,957

 
417,766

Cash paid for investments in unconsolidated investees
 
(12,400
)

(14,061
)
Net cash provided by investing activities
 
7,695


332,207

Cash flows from financing activities:
 



Proceeds from bank loans and other debt
 
231,489


167,477

Repayment of 0.75% debentures due 2018, bank loans and other debt
 
(209,095
)

(476,229
)
Proceeds from issuance of non-recourse residential financing, net of issuance costs
 
72,259


187,208

Repayment of non-recourse residential financing
 
(2,959
)

(14,931
)
Contributions from noncontrolling interests and redeemable noncontrolling interests attributable to residential projects
 
31,413


107,678

Distributions to noncontrolling interests and redeemable noncontrolling interests attributable to residential projects
 
(316
)

(19,176
)
Proceeds from issuance of non-recourse power plant and commercial financing, net of issuance costs
 


50,266

Repayment of non-recourse power plant and commercial financing
 


(4,899
)
Payment for prior business combination
 
(9,000
)


Settlement of contingent consideration arrangement
 
(2,448
)


Purchases of stock for tax withholding obligations on vested restricted stock
 
(4,657
)

(5,249
)
Net cash provided by (used in) financing activities
 
106,686


(7,855
)
Effect of exchange rate changes on cash, cash equivalents, restricted cash and restricted cash equivalents
 
(1,247
)

772

Net decrease in cash, cash equivalents, restricted cash and restricted cash equivalents
 
(153,028
)

(191,952
)
Cash, cash equivalents, restricted cash and restricted cash equivalents, beginning of period1
 
363,763


544,337

Cash, cash equivalents, restricted cash and restricted cash equivalents, end of period1
 
$
210,735


$
352,385

 
 



Non-cash transactions:
 



Stock consideration received from a business divestiture
 
$

 
$
42,600

Acquisition of noncontrolling interests funded by Mezzanine Loan proceeds
 
$

 
$
12,400

Short-term receivables in connection with business divestiture
 
$

 
$
10,000

Accounts receivable due to disposal of shares in joint venture
 
$

 
$
4,635

Costs of solar power systems, leased, sourced from existing inventory
 
$


$
30,409

Costs of solar power systems, leased, funded by liabilities
 
$


$
4,903

Costs of solar power systems sourced from existing inventory
 
$
29,206


$

Costs of solar power systems funded by liabilities
 
$
3,604


$

Costs of solar power systems under sale-leaseback financing arrangements, sourced from project assets
 
$


$
30,208

Property, plant and equipment acquisitions funded by liabilities
 
$
11,911


$
11,453

Contractual obligations satisfied with inventory
 
$


$
48,916

Assumption of debt by buyer upon sale of equity interest
 
$


$
27,321

Right-of-use assets obtained in exchange of lease obligations2
 
$
103,744


$

Derecognition of financing obligations upon business divestiture3
 
$
590,884


$

Holdback related to sale of commercial sale-leaseback portfolio3
 
$
2,425


$

Receivables in connection with sale of residential lease assets3
 
$
8,043

 
$

Assumption of debt by buyer in connection with sale of residential lease assets3
 
$
69,076

 
$

Holdback related to sale of assets3
 
$
18,300

 
$

Aged supplier financing balances reclassified from AP to short-term debt
 
$
22,852

 
$


1"Cash, cash equivalents, restricted cash and restricted cash equivalents" balance consisted of "cash and cash equivalents", "restricted cash and cash equivalents, current portion" and "restricted cash and cash equivalents, net of current portion" financial statement line items on the condensed consolidated balance sheets for the respective periods.

2Amounts for the nine months ended September 29, 2019 include the transition adjustment for the adoption of ASC 842 and new ROU asset additions.

3See Note 4 Business Divestiture and Sale of Assets.

The accompanying notes are an integral part of these condensed consolidated financial statements.

9


Notes to the Condensed Consolidated Financial Statements

Note 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization
 
SunPower Corporation (together with its subsidiaries, "SunPower," "we," "us," and "our") is a leading global energy company that delivers complete solar solutions to residential, commercial, and power plant customers worldwide through an array of hardware, software, and financing options and through solar power solutions, operations and maintenance ("O&M") services, and "Smart Energy" solutions. SunPower's Smart Energy initiative is designed to add layers of intelligent controls to homes, buildings and grids - all personalized through easy-to-use customer interfaces. Of all the solar cells commercially available to the mass market, we believe our solar cells have the highest solar power conversion efficiency, a measurement of the amount of sunlight converted by the solar cell into electricity. SunPower is a majority-owned subsidiary of Total Solar International SAS ("Total"), formerly Total Energies Nouvelles Activités USA, a subsidiary of Total S.A. ("Total S.A.") (see "Note 2. Transactions with Total and Total S.A").

Liquidity

While challenging industry conditions and a competitive environment extended throughout fiscal 2018 and into three quarters of fiscal 2019, we generated positive net total cash and cash equivalents in the current quarter and we expect to continue to do so in the fourth quarter of fiscal 2019. We believe that our total cash and cash equivalents, including cash expected to be generated from operations, will be sufficient to meet our obligations over the next 12 months from the date of issuance of our financial statements. We have been successful in our ability to divest certain investments and non-core assets, such as the divestiture of our equity interest in 8point3 Energy Partners LP, the sale of certain assets and intellectual property related to the production of microinverters, the sale of membership interests in our Residential Lease Portfolio, and the sale of membership interests in our Commercial Sale-Leaseback Portfolio (Note 4. Business Divestiture). Additionally, we have secured other sources of financing in connection with our liquidity needs, as well as realizing cash savings resulting from restructuring actions and cost reduction initiatives (Note 11. Debt and Credit Sources). We continue to focus on improving our overall operating performance and liquidity, including managing cash flows and working capital.

While we have not drawn on it. we also have the ability to enhance our available cash by borrowing up to $55.0 million under a revolving credit facility ("2019 Revolver") with Crédit Agricole Corporate and Investment Bank (“Credit Agricole”) pursuant to a Green Revolving Credit Agreement. See Note 17. Subsequent Events.

Although we have historically been able to generate liquidity, we cannot predict, with certainty, the outcome of our actions to generate liquidity as planned.

Basis of Presentation and Preparation
    
Principles of Consolidation

The accompanying condensed consolidated financial statements include the accounts of SunPower and our wholly-owned subsidiaries, and have been prepared by us in accordance with generally accepted accounting principles in the United States ("United States" or "U.S.," and such accounting principles, "U.S. GAAP") for interim financial information, and include the accounts of SunPower, all of our subsidiaries and special purpose entities, as appropriate under U.S. GAAP. All intercompany transactions and balances have been eliminated on consolidation. The financial information included herein is unaudited, and reflects all adjustments which are, in the opinion of our management, of a normal recurring nature and necessary for a fair statement of the results for the periods presented. The December 30, 2018 consolidated balance sheet data were derived from SunPower’s audited consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 30, 2018, as filed with the Securities and Exchange Commission ("SEC") on February 13, 2019, but do not include all disclosures required by U.S. GAAP. The condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in SunPower's Annual Report on Form 10-K for the fiscal year ended December 30, 2018. The operating results for the nine months ended September 29, 2019 are not necessarily indicative of the results that may be expected for fiscal year 2019, or for any other future period.
Certain prior period balances have been reclassified to conform to the current period presentation in our condensed consolidated financial statements and the accompanying notes.

10


We have a 52-to-53-week fiscal year that ends on the Sunday closest to December 31. Accordingly, every fifth or sixth year will be a 53-week fiscal year. Both fiscal 2019 and 2018 are 52-week fiscal years. The third quarter of fiscal 2019 ended on September 29, 2019, while the third quarter of fiscal 2018 ended on September 30, 2018.

Management Estimates

The preparation of the condensed consolidated financial statements in conformity with U.S. GAAP requires our management to make estimates and assumptions that affect the amounts reported in these condensed consolidated financial statements and accompanying notes. Significant estimates in these condensed consolidated financial statements include revenue recognition, specifically the nature and timing of satisfaction of performance obligations, standalone selling price of performance obligations and variable consideration; allowances for doubtful accounts receivable; recoverability of financing receivables related to residential leases; inventory and project asset write-downs; stock-based compensation; fair value assumptions for solar power systems and other long-lived assets sold under sale-leaseback transactions; long-lived asset impairment, specifically estimates for valuation assumptions including discount rates and future cash flows; economic useful lives of property, plant and equipment, and intangible assets; fair value of investments, including equity investments for which we apply the fair value option and other financial instruments; residual value of solar power systems, including those subject to residential operating leases; valuation of contingencies such as accrued warranty; the incremental borrowing rate used in discounting of lease liabilities; the fair value of indemnities provided to customers and other parties; and income taxes and tax valuation allowances. Actual results could materially differ from those estimates.

Summary of Selected Significant Accounting Policies
    
Included below, are selected significant accounting policies that were added or modified during the three and nine months ended September 29, 2019 as a result of new transactions entered into or the adoption of new accounting policies. Refer to our Annual Report on Form 10-K for the fiscal year ended December 30, 2018 for the full list of our significant accounting policies.

Lease Accounting

Effective December 31, 2018, we adopted Accounting Standards Update ("ASU") No. 2016-02, Leases (Topic 842), as amended ("ASC 842"). For additional information on the changes resulting from the new standard and the impact to our financial results on adoption, refer to the section Recently Adopted Accounting Pronouncements below.
Arrangements with SunPower as a lessee
We determine if an arrangement is a lease at inception. Our operating lease agreements are primarily for real estate and are included within operating lease right-of-use ("ROU") assets and operating lease liabilities on the consolidated balance sheets. We elected the practical expedient to combine our lease and related non-lease components for all our leases.
ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. Variable lease payments are excluded from the ROU assets and lease liabilities and are recognized in the period in which the obligation for those payments is incurred. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. ROU assets also include any lease prepayments made and exclude lease incentives. Many of our lessee agreements include options to extend the lease, which we do not include in our minimum lease terms unless they are reasonably certain to be exercised. Rental expense for lease payments related to operating leases is recognized on a straight-line basis over the lease term.
Sale-Leaseback Arrangements
We enter into sale-leaseback arrangements under which solar power systems are sold to third parties and subsequently leased back by us over lease terms of up to 25 years.
We classify our initial sale-leaseback arrangements of solar power systems as operating leases or sales-type leases, in accordance with the underlying accounting guidance on leases. We may sell our lessee interests in these arrangements in entirety before the end of the underlying term of the leaseback.
For all sale-leaseback arrangements classified as operating leases, the profit related to the excess of the proceeds compared to the fair value of the solar power systems is deferred and recognized over the term of the lease. Sale-leaseback arrangements

11


classified as sales-type leases or failed sale, are accounted for under the financing method, the proceeds received from the sale of the solar power systems are recorded as financing liabilities. The financing liabilities are subsequently reduced by our payments to lease back the solar power systems, less interest expense calculated based on our incremental borrowing rate adjusted to the rate required to prevent negative amortization. Refer to Note 4, Business Divestiture, for details of the sale of our commercial sale-leaseback portfolio during the nine months ended September 29, 2019.
Arrangements with SunPower as a lessor

Solar Services

We offer solar services, in partnership with third-party financial institutions, which allows our residential customers to obtain continuous access to SunPower solar power systems under contracts for terms of up to 20 years. Solar services revenue is primarily comprised of revenue from such contracts wherein we provide continuous access to an operating solar system to third parties.

We begin to recognize revenue on solar services when permission to operate ("PTO") is given by the local utility company, the system is interconnected and operation commences. We recognize revenue evenly over the time that we satisfy our performance obligations over the initial term of the solar services contracts. Solar services contracts typically have an initial term of 20 years. After the initial contract term, our customers may request an extension of the term of the contract on prevailing market terms, or request to remove the system. Otherwise, the contract will automatically renew and continue on a month-to-month basis.

We also apply for and receive Solar Renewable Energy Credits ("SRECs") associated with the energy generated by our solar energy systems and sell them to third parties in certain jurisdictions. SREC revenue is estimated net of any variable consideration related to possible liquidated damages if we were to deliver fewer SRECs than contractually committed, and is generally recognized upon delivery of the SRECs to the counterparty.

We typically provide a system output performance warranty, separate from our standard solar panel product warranty, to our solar services customers. In connection with system output performance warranties, we agree to pay liquidated damages in the event the system does not perform to the stated specifications, with certain exclusions. The warranty excludes system output shortfalls attributable to force majeure events, customer curtailment, irregular weather, and other similar factors. In the event that the system output falls below the warrantied performance level during the applicable warranty period, and provided that the shortfall is not caused by a factor that is excluded from the performance warranty, the warranty provides that we will pay the customer an amount based on the value of the shortfall of energy produced relative to the applicable warrantied performance level. Such liquidated damages represent a form of variable consideration and are estimated at contract inception and updated at each reporting period and recognized over time as customers receive and consume the benefits of the solar services.

There are rebate programs offered by utilities in various jurisdictions and are issued directly to homeowners, based on the lease agreements, the homeowners assign these rights to rebate to us. These rights to rebate are considered non-cash consideration, measured based on the utilities' rebates from the installed solar panels on the homeowners' roofs and recognized over the lease term.
We capitalize incremental costs incurred to obtain a contract in prepaid and other assets on the condensed consolidated balance sheets. These amounts are amortized on a straight-line basis over the term of the solar services contracts, and are included in cost of revenue in the consolidated statements of operations.
Revenue from solar services contracts entered into prior to the adoption of ASC 842 were accounted for as leases under the superseded lease accounting guidance and reported within ‘Residential Leasing’ on the condensed consolidated statement of operations.

Revenue Recognition
Module and Component Sales

We sell our solar panels and balance of system components primarily to dealers, system integrators and distributors, and recognizes revenue at a point in time when control of such products transfers to the customer, which generally occurs upon shipment or delivery depending on the terms of the contracts with the customer. There are no rights of return. Other than standard warranty obligations, there are no significant post-shipment obligations (including installation, training or customer

12


acceptance clauses) with any of our customers that could have an impact on revenue recognition. Our revenue recognition policy is consistent across all geographic areas.

Solar Power System Sales and Engineering, Procurement, and Construction Services

We design, manufacture and sell rooftop and ground-mounted solar power systems under construction and development agreements, to our residential and commercial customers. In contracts where we sell completed systems as a single performance obligation, primarily to residential customers through our joint venture, we recognize revenue at the point-in-time when such systems are completed and delivered. Any advance payments received before control is transferred is classified as "contract liabilities."

Engineering, procurement and construction ("EPC") projects governed by customer contracts that require us to deliver functioning solar power systems are generally completed within three to twelve months from commencement of construction. Construction on large projects may be completed within eighteen to thirty-six months, depending on the size and location. We recognize revenue from EPC services over time as our performance creates or enhances an energy generation asset controlled by the customer. We use an input method based on cost incurred as we believe that this method most accurately reflects our progress toward satisfaction of the performance obligation. Under this method, revenue arising from fixed-price construction contracts is recognized as work is performed based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligations.

Incurred costs include all direct material, labor and subcontract costs, and those indirect costs related to contract performance, such as indirect labor, supplies, and tools. Project material costs are included in incurred costs when the project materials have been installed by being permanently attached or fitted to the solar power system as required by the project’s engineering design. Cost-based input methods of revenue recognition require us to make estimates of net contract revenues and costs to complete the projects. In making such estimates, significant judgment is required to evaluate assumptions related to the amount of net contract revenues, including the impact of any performance incentives, liquidated damages, and other payments to customers. Significant judgment is also required to evaluate assumptions related to the costs to complete the projects, including materials, labor, contingencies, and other system costs. If the estimated total costs on any contract are greater than the net contract revenues, we recognize the entire estimated loss in the period the loss becomes known and can be reasonably estimated.

Our arrangements may contain clauses such as contingent repurchase options, delay liquidated damages or early performance bonus, most favorable pricing, or other provisions that can either increase or decrease the transaction price. These variable amounts generally are awarded upon achievement of certain performance metrics or milestones. Variable consideration is estimated at each measurement date at its most likely amount to the extent that it is probable that a significant reversal of cumulative revenue recognized will not occur and true-ups are applied prospectively as such estimates change.

Changes in estimates for sales of systems and EPC services occur for a variety of reasons, including but not limited to (i) construction plan accelerations or delays, (ii) product cost forecast changes, (iii) change orders, or (iv) changes in other information used to estimate costs. The cumulative effect of revisions to transaction prices or input cost estimates are recorded in the period in which the revisions to estimates are identified and the amounts can be reasonably estimated. 
 
Operations and Maintenance

We offer our customers various levels of post-installation operations and maintenance ("O&M") services with the objective of optimizing our customers' electrical energy production over the life of the system. We determine that the post-installation systems monitoring and maintenance qualifies as a separate performance obligation. Post-installation monitoring and maintenance is deferred at the time the contract is executed, based on the estimate of selling price on a standalone basis, and is recognized to revenue over time as customers receive and consume benefits of such services. The non-cancellable term of the O&M contracts are typically 90 days for commercial and residential customers and 180 days for power plant customers.

We typically provide a system output performance warranty, separate from our standard solar panel product warranty, to customers that have subscribed to our post-installation O&M services. In connection with system output performance warranties, we agree to pay liquidated damages in the event the system does not perform to the stated specifications, with certain exclusions. The warranty excludes system output shortfalls attributable to force majeure events, customer curtailment, irregular weather, and other similar factors. In the event that the system output falls below the warrantied performance level during the applicable warranty period, and provided that the shortfall is not caused by a factor that is excluded from the performance warranty, the warranty provides that we will pay the customer an amount based on the value of the shortfall of energy produced relative to the applicable warrantied performance level. Such liquidated damages represent a form of variable

13


consideration and are estimated at contract inception and updated at each reporting period and recognized over time as customers receive and consume the benefits of the O&M services.

Shipping and Handling Costs

We account for shipping and handling activities related to contracts with customers as costs to fulfill our promise to transfer goods and, accordingly, records such costs in cost of revenue.

Taxes Collected from Customers and Remitted to Governmental Authorities

We exclude from our measurement of transaction prices all taxes assessed by governmental authorities that are both (i) imposed on and concurrent with a specific revenue-producing transaction and (ii) collected from customers. Accordingly, such tax amounts are not included as a component of revenue or cost of revenue.

Recently Adopted Accounting Pronouncements

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820) which changes the fair value measurement disclosure requirements of ASC 820. The guidance adds and clarifies certain disclosure requirements for fair value measurements with the objective of improving the effectiveness of disclosures in the notes to financial statements. The adoption did not have an impact on our consolidated financial statements.

In October 2018, the Financial Accounting Standard Board ("FASB") issued ASU 2018-16, Derivatives and Hedging (Topic 815): Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes, which permits the use of the Overnight Index Swap Rate based on the Secured Overnight Financing Rate as a fifth U.S. benchmark interest rate for purposes of hedge accounting. The new guidance is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years and should be applied prospectively for qualifying new or re-designated hedging relationships entered into after December 31, 2018. We adopted the new guidance on December 31, 2018. The adoption did not have an impact on our consolidated financial statements.

In February 2016, the FASB issued ASC 842, which supersedes the existing guidance for lease accounting, Leases (Topic 840). ASC 842 requires lessees to recognize a lease liability and a ROU asset for virtually all of their leases (other than leases that meet the definition of a short-term lease). ASC 842 is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. In July 2018, the FASB issued several ASUs to clarify and improve certain aspects of the new lease standard including, among many other things, the rate implicit in the lease, lessee reassessment of lease classification, variable payments that depend on an index or rate, methods of transition including an optional transition method to continue recognizing and disclosing leases entered into prior to the adoption date under current GAAP ("ASC 840"). In December 2018, the FASB issued ASU 2018-20, Leases (Topic 842) Narrow-Scope Improvements for Lessors, related to sales taxes and other similar taxes collected from lessees, certain lessor costs paid by lessees to third parties, and related to recognition of variable payments for contracts.
 
On December 31, 2018, we adopted ASC 842 using the optional transitional method for all leases that existed at or commenced before that date. We elected to apply the practical expedients in ASC 842-10-65-1 (f) and (g), and therefore:

1)
did not reassess expired contracts for presence of lease components therein and if it was already concluded that such contracts had lease components, then the classification of the respective lease components therein have not been re-assessed;
2)
did not re-assess initial direct costs for any existing leases;
3)
used hindsight for determining the lease term for all leases whereon ASC 842 has been applied;
4)
elected to not separate the lease and non-lease components;
5)
elected to not apply the recognition and measurement requirements of the new guidance to short-term leases;
6)
did not assess whether existing or expired land easements that were not previously assessed under legacy guidance on leases are or contain a lease under the new guidance;

The adoption of ASC 842 had a material impact on our condensed consolidated balance sheet as the standard requires us to recognize an ROU asset and lease liability on our condensed consolidated balance sheet as of December 31, 2018, for all existing leases other than those to which we have applied the short-term lease practical expedient.

Upon adoption, we made the following changes to our accounting policies:

14



Solar leases no longer meet the criteria for lease accounting as our contracts do not allow the customer to direct the use of the underlying solar system. Instead, we will now account for these arrangements as contracts with customers pursuant to ASC Topic 606 and recognize revenue ratably based on contractual lease cash flows over the lease term;
All operating lease arrangements, other than short term leases, are now recorded on the balance sheet as a ROU asset with a corresponding lease liability;
 
Further, arrangements that involve the lease-back of solar systems sold to a financier will continue to be accounted for as a failed sale and result in the recording of a financing liability.

Impact to Condensed Consolidated Financial Statements

The below table shows the impact of adoption of ASC 842 on our condensed consolidated financial statements as of December 31, 2018:
(In thousands)
 
December 31, 2018
 
Adoption of ASC 842
 
December 31, 2018
Assets:
 
 
 
 
 
 
Prepaid expenses and other current assets
 
$
131,183

 
$
(4,433
)
 
$
126,750

Operating lease right-of-use assets
 

 
81,525

 
81,525

Other long-term assets
 
162,033

 
(14,028
)
 
148,005

Current Liabilities:
 
 
 
 
 
 
Accrued liabilities
 
235,252

 
(2,455
)
 
232,797

Operating lease liabilities
 

 
11,499

 
11,499

Contract liabilities, current portion
 
104,130

 
(2,079
)
 
102,051

Non-current liabilities:
 
 
 
 
 
 
Operating lease liabilities, net of current portion
 

 
70,132

 
70,132

Contract liabilities, net of current portion
 
99,509

 
(19,928
)
 
79,581

Other long-term liabilities
 
839,136

 
(3,256
)
 
835,880

Equity:
 
 
 
 
 
 
Accumulated deficit
 
$
(2,480,988
)
 
$
9,151

 
$
(2,471,837
)


Recent Accounting Pronouncements Not Yet Adopted

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASU 2016-13) and subsequent amendment to the initial guidance: ASU 2018-19 (collectively, Topic 326). Topic 326 requires measurement and recognition of expected credit losses for financial assets held. The amendment applies to entities which hold financial assets and net investments in leases that are not accounted for at fair value through net income as well as loans, debt securities, accounts receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. Topic 326 is effective for us no later than the first quarter of fiscal 2020 with early adoption permitted. We are evaluating the potential impact of this standard on our consolidated financial statements and disclosures.
    
In August 2018, the FASB issued ASU 2018-14, Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20) to add, remove, and clarify disclosure requirements related to defined benefit pension and other postretirement plans. This ASU is effective for us no later than the first quarter of fiscal 2020 with early adoption permitted. No material impact is expected on our consolidated financial statements and disclosures, upon adoption.

In August 2018, the FASB issued ASU 2018-15, Intangibles Goodwill and Other Internal-Use Software (Subtopic 350-40) requiring a customer in a cloud computing arrangement that is a service contract to follow the internal-use software guidance in ASC 350-40 to determine which implementation costs to capitalize as assets. This ASU is effective for us no later than the first quarter of fiscal 2020 with early adoption permitted. This ASU can be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. We are evaluating the potential impact of this standard on our consolidated financial statements and disclosures.


15


In October 2018, the FASB issued ASU 2018-17, Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities, which broadens the scope of the private company alternative to include all common control arrangements that meet specific criteria (not just leasing arrangements) and also eliminates the requirement that entities consider indirect interests held through related parties under common control in their entirety when assessing whether a decision-making fee is a variable interest. This ASU is effective for us no later than the first quarter of fiscal 2020 on a retrospective basis with a cumulative-effect adjustment to retained earnings at the beginning of the earliest period presented. We are evaluating the potential impact of this ASU on our consolidated financial statements and disclosures.

In November 2018, the FASB issued ASU 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606, which 1) clarifies that certain transactions between collaborative arrangement participants should be accounted for as revenue under Topic 606; 2) adds unit-of-account guidance in Topic 808 to align with the guidance in Topic 606; and 3) requires that in a transaction with a collaborative arrangement participant that is not directly related to sales to third parties, presenting the transaction together with revenue recognized under Topic 606 is precluded if the collaborative arrangement participant is not a customer. This ASU is effective for us no later than the first quarter of fiscal 2020 on a retrospective basis with early adoption permitted. We are evaluating the potential impact of this ASU on our consolidated financial statements and disclosures.


Note 2. TRANSACTIONS WITH TOTAL AND TOTAL S.A.

In June 2011, Total completed a cash tender offer to acquire 60% of our then outstanding shares of common stock at a price of $23.25 per share, for a total cost of approximately $1.4 billion. In December 2011, we entered into a Private Placement Agreement with Total (the "Private Placement Agreement"), under which Total purchased, and we issued and sold, 18.6 million shares of our common stock for a purchase price of $8.80 per share, thereby increasing Total's ownership to approximately 66% of our outstanding common stock as of that date. As of September 29, 2019, through the increase of our total outstanding common stock due to the exercise of warrants and issuance of restricted and performance stock units, Total's ownership of our outstanding common stock was approximately 55%.

Supply Agreements

In November 2016, we and Total entered into a four-year, up to 200 megawatts ("MW") supply agreement to support the solarization of certain Total facilities. The agreement covers the supply of 150 MW of Maxeon 2 (formally known as E-Series) panels with an option to purchase up to another 50 MW of P-Series solar panels. In March 2017, we received a prepayment totaling $88.5 million. The prepayment is secured by some of our assets located in the United States and in Mexico.

We recognize revenue for the solar panels supplied under this arrangement consistent with our revenue recognition policy for solar power components at a point in time when control of such products transfers to the customer, which generally occurs upon shipment or delivery depending on the terms of the contracts. In the second quarter of fiscal 2017, we started to supply Total with solar panels under the supply agreement and as of September 29, 2019, we had $19.6 million of "contract liabilities, current portion" and $35.4 million of "contract liabilities, net of current portion" on our condensed consolidated balance sheets related to the aforementioned supply agreement (see Note 9. Commitments and Contingencies").

In March 2018, we and Total, each through certain affiliates, entered into an agreement whereby we agreed to sell 3.42 MW of photovoltaic ("PV") modules to Total for a development project in Chile. This agreement provided for payment from Total in the amount of approximately $1.3 million, 10% of which was paid upon execution of the agreement.

On January 7, 2019, we and Total, each through certain affiliates, entered into an agreement whereby we agreed to sell 3.7 MW of PV modules to Total for a ground-mounted PV installation in Dubai. This agreement provided for payment from Total in the amount of approximately $1.4 million, 10% of which was received after execution of the agreement.
On March 4, 2019, we and Total, each through certain affiliates, entered into an agreement whereby we agreed to sell 10 MW of PV modules to Total for commercial rooftop PV installations in Dubai. This agreement provided for payment from Total in the amount of approximately $3.2 million, 10% of which was received in April 2019.

16


Affiliation Agreement

We and Total have entered into an Affiliation Agreement that governs the relationship between Total and us (the "Affiliation Agreement"). Until the expiration of a standstill period specified in the Affiliation Agreement (the "Standstill Period"), and subject to certain exceptions, Total, Total S.A., and any of their respective affiliates and certain other related parties (collectively, the "Total Group") may not effect, seek, or enter into discussions with any third party regarding any transaction that would result in the Total Group beneficially owning our shares in excess of certain thresholds, or request us or our independent directors, officers or employees, to amend or waive any of the standstill restrictions applicable to the Total Group. The Standstill Period ends when Total holds less than 15% ownership of us.

The Affiliation Agreement imposes certain limitations on the Total Group's ability to seek to effect a tender offer or merger to acquire 100% of the outstanding voting power of us and imposes certain limitations on the Total Group's ability to transfer 40% or more of the outstanding shares or voting power of us to a single person or group that is not a direct or indirect subsidiary of Total S.A. During the Standstill Period, no member of the Total Group may, among other things, solicit proxies or become a participant in an election contest relating to the election of directors to our Board of Directors.

The Affiliation Agreement provides Total with the right to maintain its percentage ownership in connection with any new securities issued by us, and Total may also purchase shares on the open market or in private transactions with disinterested stockholders, subject in each case to certain restrictions.

The Affiliation Agreement also imposes certain restrictions with respect to the ability of us and our board of directors to take certain actions, including specifying certain actions that require approval by the directors other than the directors appointed by Total and other actions that require stockholder approval by Total.

Research & Collaboration Agreement

We and Total have entered into a Research & Collaboration Agreement (the "R&D Agreement") that establishes a framework under which the parties engage in long-term research and development collaboration ("R&D Collaboration"). The R&D Collaboration encompasses a number of different projects, with a focus on advancing our technology position in the crystalline silicon domain, as well as ensuring our industrial competitiveness. The R&D Agreement enables a joint committee to identify, plan and manage the R&D Collaboration.

Upfront Warrant

In February 2012, we issued a warrant (the "Upfront Warrant") to Total S.A. to purchase 9,531,677 shares of our common stock with an exercise price of $7.8685, subject to adjustment for customary anti-dilution and other events. The Upfront Warrant, which was governed by a Private Placement Agreement and a Compensation and Funding Agreement, dated February 28, 2012, as amended, was exercisable at any time for seven years after its issuance, provided that, so long as at least $25.0 million in aggregate of our convertible debt remains outstanding, such exercise would not cause any "person," including Total S.A., to, directly or indirectly, including through one or more wholly-owned subsidiaries, become the "beneficial owner" (as such terms are defined in Rule 13d-3 and Rule 13d-5 under the Securities Exchange Act of 1934, as amended) (the "Exchange Act"), of more than 74.99% of the voting power of our common stock at such time, a circumstance which would trigger the repurchase or conversion of our existing convertible debt. The Upfront Warrant expired by its terms on February 27, 2019.

0.875% Debentures Due 2021

In June 2014, we issued $400.0 million in principal amount of our 0.875% senior convertible debentures due 2021 (the "0.875% debentures due 2021"). An aggregate principal amount of $250.0 million of the 0.875% debentures due 2021 were acquired by Total. The 0.875% debentures due 2021 are convertible into shares of our common stock at any time based on an initial conversion price equal to $48.76 per share, which provides Total the right to acquire up to 5,126,775 shares of our common stock. The applicable conversion rate may adjust in certain circumstances, including a fundamental change, as described in the indenture governing the 0.875% debentures due 2021.


17


4.00% Debentures Due 2023

In December 2015, we issued $425.0 million in principal amount of our 4.00% senior convertible debentures due 2023 (the "4.00% debentures due 2023"). An aggregate principal amount of $100.0 million of the 4.00% debentures due 2023 were acquired by Total. The 4.00% debentures due 2023 are convertible into shares of our common stock at any time based on an initial conversion price equal to $30.53 per share, which provides Total the right to acquire up to 3,275,680 shares of our common stock. The applicable conversion rate may adjust in certain circumstances, including a fundamental change, as described in the indenture governing the 4.00% debentures due 2023.

Joint Solar Projects with Total and its Affiliates

We enter into various EPC and O&M agreements relating to solar projects, including EPC and O&M services agreements relating to projects owned or partially owned by Total and its affiliates. As of September 29, 2019, we had an insignificant amount of "Contract assets" and $8.4 million of "Accounts receivable, net" on our Condensed Consolidated Balance Sheets related to projects in which Total and its affiliates have a direct or indirect material interest.

During the fiscal quarter ended September 29, 2019, in connection with a co-development solar project in Japan among us, Total, and an independent third party, we sold 25% of ownership interests in the co-development solar project to Total. The amount received from Total was immaterial in fiscal 2018. We sold the remaining 25% of ownership interest to Total in the three months ended September 29, 2019, for proceeds of $4.6 million, and recognized a gain of $2.9 million, which is included within "other, net" in our condensed consolidated statements of operations for three and nine months ended September 29, 2019. Development service revenue of $6.4 million was also recognized during the three months ended September 29, 2019. We will supply solar panels under this arrangement from October 2019 to November 2020 and will recognize revenue consistent with our revenue recognition policy from solar power components.

In connection with a co-development solar project in Chile between us and Total, we sold all of our 50% of ownership interests in the co-development project to Total in the three months ended September 29, 2019, for proceeds of $14.1 million, and recognized a gain of $11.0 million, which is included within "other, net" in our condensed consolidated statements of operations for three and nine months ended September 29, 2019.

Related-Party Transactions with Total and its Affiliates:

The following related-party balances and amounts are associated with transactions entered into with Total and its Affiliates. Refer to Note 10. Equity Investments for related-party transactions with unconsolidated entities in which we have a direct equity investment.
 
 
As of
(In thousands)
 
September 29, 2019
 
December 30, 2018
Accounts receivable
 
$
8,433

 
$
3,823

Contract assets
 
80

 
18

Contract liabilities, current portion1 
 
19,618

 
18,408

Contract liabilities, net of current portion1 
 
35,357

 
45,258


1 Refer to Note 9. Commitments and Contingencies - Advances from Customers.

18


 
Three Months Ended
 
Nine Months Ended
(In thousands)
September 29, 2019
 
September 30, 2018
 
September 29, 2019

September 30, 2018
Revenue:
 
 
 
 
 
 
 
Solar power systems, components, and other
$
14,407

 
$
4,980

 
$
27,091

 
$
23,079

Cost of revenue:
 
 
 
 
 
 
 
Solar power systems, components, and other
4,673

 
3,967

 
14,047

 
13,155

Other income:
 
 
 
 
 
 
 
    Other, net
13,941

 

 
13,941

 

Research and development expense:
 
 
 
 
 
 
 
Offsetting contributions received under the R&D Agreement

 
3

 

 
(84
)
Interest expense:
 
 
 
 
 
 
 
Guarantee fees incurred under the Credit Support Agreement
67

 
1,393

 
311

 
4,176

Interest expense incurred on the 0.75% debentures due 2018

 

 

 
547

Interest expense incurred on the 0.875% debentures due 2021
547

 
547

 
1,641

 
1,641