SunPower Corporation
SUNPOWER CORP (Form: 10-Q, Received: 05/10/2017 06:02:24)
Table of Contents


 
 
 
 
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
T
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 2, 2017
OR
o
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

SP2014LOGOA01A13.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.)
77 Rio Robles, San Jose, California 95134
(Address of Principal Executive Offices and 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   T     No   o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes   T     No   o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or 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. (Check one):
Large accelerated filer x
Accelerated filer o
Non-accelerated filer o
Smaller reporting company o
Emerging growth company o
 
 
(Do not check if a smaller reporting 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   o     No   T

The total number of outstanding shares of the registrant’s common stock as of May 5, 2017 was 139,427,737 .
 
 
 
 
 
d


1

Table of Contents


TABLE OF CONTENTS
 
 
Page
Part I. FINANCIAL INFORMATION
 
 
 
 
Item 1.
Financial Statements (unaudited)
 
 
 
 
Consolidated Balance Sheets
 
 
 
 
Consolidated Statements of Operations
 
 
 
 
Consolidated Statements of Comprehensive Loss
 
 
 
 
Consolidated Statements of Equity
 
 
 
 
Consolidated Statements of Cash Flows
 
 
 
 
Notes to Consolidated Financial Statements
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
Part II. OTHER INFORMATION
 
 
 
 
Item 1.
Legal Proceedings
 
 
 
Item 1A.
Risk Factors
 
 
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
 
 
 
Item 6.
Exhibits
 
 
 
 
 
 


2

Table of Contents


PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

SunPower Corporation
Consolidated Balance Sheets
(In thousands, except share data)
(unaudited)
 
April 2, 2017
 
January 1, 2017
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
387,378

 
$
425,309

Restricted cash and cash equivalents, current portion
22,013

 
33,657

Accounts receivable, net 1
167,861

 
219,638

Costs and estimated earnings in excess of billings 1
21,482

 
32,780

Inventories
428,178

 
401,707

Advances to suppliers, current portion
111,850

 
111,479

Project assets - plants and land, current portion 1
285,321

 
374,459

Prepaid expenses and other current assets 1
225,611

 
315,670

Total current assets
1,649,694

 
1,914,699

 
 
 
 
Restricted cash and cash equivalents, net of current portion
52,952

 
55,246

Restricted long-term marketable securities
4,876

 
4,971

Property, plant and equipment, net
1,073,183

 
1,027,066

Solar power systems leased and to be leased, net
645,862

 
621,267

Project assets - plants and land, net of current portion
34,701

 
33,571

Advances to suppliers, net of current portion
159,204

 
173,277

Long-term financing receivables, net
537,976

 
507,333

Other intangible assets, net
41,066

 
44,218

Other long-term assets 1
126,879

 
185,519

Total assets
$
4,326,393

 
$
4,567,167

 
 
 
 
Liabilities and Equity
 

 
 

Current liabilities:
 

 
 

Accounts payable 1
$
437,671

 
$
540,295

Accrued liabilities 1
261,471

 
391,226

Billings in excess of costs and estimated earnings
16,118

 
77,140

Short-term debt
79,613

 
71,376

Customer advances, current portion 1
20,397

 
10,138

Total current liabilities
815,270

 
1,090,175

 
 
 
 
Long-term debt
501,285

 
451,243

Convertible debt 1
1,114,143

 
1,113,478

Customer advances, net of current portion 1
81,902

 
298

Other long-term liabilities 1
774,881

 
721,032

Total liabilities
3,287,481

 
3,376,226

Commitments and contingencies (Note 8)


 
 
Redeemable noncontrolling interests in subsidiaries
104,861

 
103,621

Equity:
 

 
 

Preferred stock, $0.001 par value; 10,000,000 shares authorized; none issued and outstanding as of both April 2, 2017 and January 1, 2017

 

Common stock, $0.001 par value, 367,500,000 shares authorized; 149,481,192 shares issued, and 139,411,261 outstanding as of April 2, 2017; 148,079,718 shares issued, and 138,510,325 outstanding as of January 1, 2017
139

 
139

Additional paid-in capital
2,417,053

 
2,410,395

Accumulated deficit
(1,398,504
)
 
(1,218,681
)
Accumulated other comprehensive loss
(10,145
)
 
(7,238
)
Treasury stock, at cost; 10,069,931 shares of common stock as of April 2, 2017; 9,569,393 shares of common stock as of January 1, 2017
(180,845
)
 
(176,783
)
Total stockholders' equity
827,698

 
1,007,832

Noncontrolling interests in subsidiaries
106,353

 
79,488

Total equity
934,051

 
1,087,320

Total liabilities and equity
$
4,326,393

 
$
4,567,167

1  
The Company has related-party balances for transactions made with Total S.A. and its affiliates as well as unconsolidated entities in which the Company has a direct equity investment. These related-party balances are recorded within the "Accounts Receivable, net," "Costs and estimated earnings in excess of billings," "Project assets - plants and land, current portion," "Prepaid expenses and other current assets," "Other long-term assets," "Accounts payable," "Accrued Liabilities," "Customer advances, current portion," "Convertible debt, net of current portion," and "Customer advances, net of current portion" financial statement line items in the Consolidated Balance Sheets (see Note 2 , Note 6 , Note 9 , Note 10 , and Note 11 ).


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

3

Table of Contents


SunPower Corporation
Consolidated Statements of Operations
(In thousands, except per share data)
(unaudited)
 
 
Three Months Ended
 
 
April 2, 2017
 
April 3, 2016

 
 
 
 
Revenue 1
 
 
 
 
Solar power systems, components, and other
 
$
349,849

 
$
328,700

Residential leasing
 
49,227

 
56,175


 
$
399,076

 
$
384,875

Cost of revenue 1
 
 
 
 
Solar power systems, components, and other
 
397,091

 
290,241

Residential leasing
 
32,917

 
43,097


 
430,008

 
333,338

Gross margin
 
(30,932
)
 
51,537

Operating expenses:
 
 
 
 
Research and development 1
 
20,515

 
32,706

Sales, general and administrative 1
 
67,403

 
97,791

Restructuring charges
 
9,790

 
96

Total operating expenses
 
97,708

 
130,593

Operating loss
 
(128,640
)
 
(79,056
)
Other income (expense), net:
 
 
 
 
Interest income
 
938

 
697

Interest expense 1
 
(20,769
)
 
(12,881
)
Other, net
 
(2,190
)
 
(6,232
)
Other expense, net
 
(22,021
)
 
(18,416
)
Loss before income taxes and equity in earnings of unconsolidated investees
 
(150,661
)
 
(97,472
)
 Provision for income taxes
 
(2,031
)
 
(3,181
)
Equity in earnings (loss) of unconsolidated investees
 
1,052

 
(764
)
Net loss
 
(151,640
)
 
(101,417
)
Net loss attributable to noncontrolling interests and redeemable noncontrolling interests
 
17,161

 
16,008

Net loss attributable to stockholders
 
$
(134,479
)
 
$
(85,409
)
 
 
 
 
 
Net loss per share attributable to stockholders:
 
 
 
 
Basic
 
$
(0.97
)
 
$
(0.62
)
Diluted
 
$
(0.97
)
 
$
(0.62
)
Weighted-average shares:
 
 
 
 
Basic
 
138,902

 
137,203

Diluted
 
138,902

 
137,203

1  
The Company has related-party transactions with Total S.A. and its affiliates as well as unconsolidated entities in which the Company has a direct equity investment. These related-party transactions are recorded within the "Revenue: Solar power systems and components," "Cost of revenue: Solar power systems and components," "Operating expenses: Research and development," "Operating expenses: Sales, general and administrative," and "Other income (expense), net: Interest expense" financial statement line items in the Consolidated Statements of Operations (see Note 2 and Note 9 ).


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

4

Table of Contents


SunPower Corporation
Consolidated Statements of Comprehensive Loss
(In thousands)
(unaudited)
 
 
Three Months Ended
 
 
April 2, 2017
 
April 3, 2016
Net loss
 
$
(151,640
)
 
$
(101,417
)
Components of comprehensive loss:
 
 
 
 
Translation adjustment
 
(1,988
)
 
1,419

Net change in derivatives (Note 11)
 
(1,262
)
 
(6,745
)
Income taxes
 
343

 
750

Net change in accumulated other comprehensive loss
 
(2,907
)
 
(4,576
)
Total comprehensive loss
 
(154,547
)
 
(105,993
)
Comprehensive loss attributable to noncontrolling interests and redeemable noncontrolling interests
 
17,161

 
16,008

Comprehensive loss attributable to stockholders
 
$
(137,386
)
 
$
(89,985
)

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


5

Table of Contents


SunPower Corporation
Consolidated Statements of Equity
(In thousands)
(unaudited)
 
 
 
 
Common Stock
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Redeemable Noncontrolling Interests
 
Shares
 
Value
 
Additional
Paid-in
Capital
 
Treasury
Stock
 
Accumulated Other
Comprehensive Income (Loss)
 
Retained Earnings(Accumulated Deficit)
 
Total
Stockholders’
Equity
 
Noncontrolling Interests
 
Total Equity
Balances at January 1, 2017
 
$
103,621

 
138,508

 
$
139

 
$
2,410,395

 
$
(176,783
)
 
$
(7,238
)
 
$
(1,218,681
)
 
$
1,007,832

 
$
79,488

 
$
1,087,320

Cumulative-effect upon adoption of ASU 2016-09 and ASU 2016-16 (Note 1)
 

 

 

 

 

 

 
(45,344
)
 
(45,344
)
 

 
(45,344
)
Net loss
 
(8,381
)
 

 

 

 

 

 
(134,479
)
 
(134,479
)
 
(8,781
)
 
(143,260
)
Other comprehensive loss
 

 

 

 

 

 
(2,907
)
 

 
(2,907
)
 

 
(2,907
)
Issuance of restricted stock to employees, net of cancellations
 

 
1,401

 
1

 

 

 

 

 
1

 

 
1

Stock-based compensation expense
 

 

 

 
6,658

 

 

 

 
6,658

 

 
6,658

Contributions from noncontrolling interests
 
11,345

 

 

 

 

 

 

 

 
37,685

 
37,685

Distributions to noncontrolling interests
 
(1,724
)
 

 

 

 

 

 

 

 
(2,039
)
 
(2,039
)
Purchases of treasury stock
 

 
(501
)
 
(1
)
 

 
(4,062
)
 

 

 
(4,063
)
 

 
(4,063
)
Balances at April 2, 2017
 
$
104,861

 
139,408

 
$
139

 
$
2,417,053

 
$
(180,845
)
 
$
(10,145
)
 
$
(1,398,504
)
 
$
827,698

 
$
106,353

 
$
934,051


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

6

Table of Contents


SunPower Corporation
Consolidated Statements of Cash Flows
(In thousands)
(unaudited)
 
 
Three Months Ended
 
 
April 2, 2017
 
April 3, 2016
Cash flows from operating activities:
 
 
 
 
Net loss
 
$
(151,640
)
 
$
(101,417
)
Adjustments to reconcile net loss to net cash used in operating activities, net of effect of acquisitions:
 
 
 
 
Depreciation and amortization
 
42,084

 
42,117

Stock-based compensation
 
7,375

 
16,520

Non-cash interest expense
 
2,958

 
346

Dividend from 8point3 Energy Partners LP
 
7,192

 

Equity in loss (earnings) of unconsolidated investees
 
(1,052
)
 
764

Deferred income taxes
 
227

 
(762
)
Other, net
 
4,777

 
890

Changes in operating assets and liabilities, net of effect of acquisitions:
 

 
 
Accounts receivable
 
51,669

 
12,561

Costs and estimated earnings in excess of billings
 
11,298

 
(17,525
)
Inventories
 
(40,004
)
 
(18,248
)
Project assets
 
37,192

 
(179,376
)
Prepaid expenses and other assets
 
85,251

 
(45,441
)
Long-term financing receivables, net
 
(30,643
)
 
(44,011
)
Advances to suppliers
 
13,701

 
11,913

Accounts payable and other accrued liabilities
 
(198,119
)
 
(69,974
)
Billings in excess of costs and estimated earnings
 
(61,022
)
 
26,866

Customer advances
 
91,863

 
(5,124
)
Net cash used in operating activities
 
(126,893
)
 
(369,901
)
Cash flows from investing activities:
 
 
 
 
Purchases of property, plant and equipment
 
(27,877
)
 
(47,044
)
Cash paid for solar power systems, leased and to be leased
 
(18,217
)
 
(23,238
)
Cash paid for solar power systems
 
(4,605
)
 

Payments to 8point3 Energy Partners LP
 

 
(9,968
)
Cash paid for investments in unconsolidated investees
 
(10,142
)
 
(9,752
)
Net cash used in investing activities
 
(60,841
)
 
(90,002
)
Cash flows from financing activities:
 
 
 
 
Proceeds from bank loans and other debt
 
110,763

 

Repayment of bank loans and other debt
 
(129,027
)
 
(7,725
)
Proceeds from issuance of non-recourse residential financing, net of issuance costs
 
20,580

 
28,339

Repayment of non-recourse residential financing
 
(1,298
)
 
(1,065
)
Contributions from noncontrolling interests and redeemable noncontrolling interests attributable to residential projects
 
49,030

 
24,082

Distributions to noncontrolling interests and redeemable noncontrolling interests attributable to residential projects
 
(3,763
)
 
(5,309
)
Proceeds from issuance of non-recourse power plant and commercial financing, net of issuance costs
 
121,818

 
79,440

Repayment of non-recourse power plant and commercial financing
 
(28,964
)
 
(37,301
)
Purchases of stock for tax withholding obligations on vested restricted stock
 
(4,062
)
 
(18,876
)
Net cash provided by financing activities
 
135,077

 
61,585

Effect of exchange rate changes on cash, cash equivalents, restricted cash and restricted cash equivalents
 
788

 
774

Net decrease in cash, cash equivalents, restricted cash and restricted cash equivalents
 
(51,869
)
 
(397,544
)
Cash, cash equivalents, restricted cash and restricted cash equivalents, beginning of period 1
 
514,212

 
1,020,764

Cash, cash equivalents, restricted cash and restricted cash equivalents, end of period 1
 
$
462,343

 
$
623,220

 
 
 
 
 
Non-cash transactions:
 
 
 
 
Assignment of residential lease receivables to third parties
 
$
18

 
$
1,097

Costs of solar power systems, leased and to be leased, sourced from existing inventory
 
$
13,389

 
$
15,085

Costs of solar power systems, leased and to be leased, funded by liabilities
 
$
3,169

 
$
9,050

Costs of solar power systems under sale-leaseback financing arrangements, sourced from project assets
 
$
52,917

 
$

Property, plant and equipment acquisitions funded by liabilities
 
$
44,966

 
$
81,369

Net reclassification of cash proceeds offset by project assets in connection with the deconsolidation of assets sold to the 8point3 Group
 
$
2,615

 
$
8,726

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 equivalents, net of current portion" financial statement line items in the Consolidated Balance Sheets for the respective periods.

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

7

Table of Contents



Note 1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Company
 
SunPower Corporation (together with its subsidiaries, the "Company" or "SunPower") 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 utility-scale solar power system construction and development capabilities, operations and maintenance ("O&M") services, and "Smart Energy" solutions. SunPower's Smart Energy initiative is designed to add layers of intelligent control to homes, buildings and grids-all personalized through easy-to-use customer interfaces. Of all the solar cells commercially available to the mass market, the Company believes its solar cells have the highest conversion efficiency, a measurement of the amount of sunlight converted by the solar cell into electricity. SunPower Corporation is a majority-owned subsidiary of Total Energies Nouvelles Activités USA ("Total"), a subsidiary of Total S.A. ("Total S.A.") (see Note 2 ).
    
The Company's President and Chief Executive Officer, as the chief operating decision maker ("CODM"), has organized the Company, manages resource allocations and measures performance of the Company's activities among three end-customer segments: (i) Residential Segment, (ii) Commercial Segment and (iii) Power Plant Segment. The Residential and Commercial Segments combined are referred to as Distributed Generation.

The Company’s Residential Segment refers to sales of solar energy solutions to residential end customers through a variety of means, including cash sales and long-term leases directly to end customers, sales to resellers, including the Company's third-party global dealer network, and sales of the Company's O&M services. The Company’s Commercial Segment refers to sales of solar energy solutions to commercial and public entity end customers through a variety of means, including direct sales of turn-key engineering, procurement and construction ("EPC") services, sales to the Company's third-party global dealer network, sales of energy under power purchase agreements ("PPAs"), and sales of the Company's O&M services. The Power Plant Segment refers to the Company's large-scale solar products and systems business, which includes power plant project development and project sales, EPC services for power plant construction, power plant O&M services and component sales for power plants developed by third parties, sometimes on a multi-year, firm commitment basis.

Basis of Presentation and Preparation
    
Principles of Consolidation

The consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America ("United States" or "U.S.") and include the accounts of the Company, all of its subsidiaries and special purpose entities, as appropriate under consolidation accounting guidelines. Intercompany transactions and balances have been eliminated in consolidation. The assets of the special purpose entities that the Company establishes in connection with certain project financing arrangements for customers are not designed to be available to service the general liabilities and obligations of the Company.

Reclassifications

Certain prior period balances have been reclassified to conform to the current period presentation in the Company's consolidated financial statements and the accompanying notes. Such reclassifications had no effect on previously reported results of operations or accumulated deficit.

Fiscal Years

The Company has 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 2017 and 2016 are 52-week fiscal years. The first quarter of fiscal 2017 ended on April 2, 2017 , while the first quarter of fiscal 2016 ended on April 3, 2016 . The first quarters of fiscal 2017 and 2016 were both 13-week quarters.

Management Estimates

The preparation of the consolidated financial statements in conformity with U.S. generally accepted accounting principles ("U.S. GAAP") requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Significant estimates in these consolidated financial statements

8



include percentage-of-completion for construction projects; allowances for doubtful accounts receivable and sales returns; inventory and project asset write-downs; stock-based compensation; estimates for valuation assumptions including discount rates, future cash flows and economic useful lives of property, plant and equipment, valuations for business combinations, other intangible assets, investments, and other long-term assets; the fair value and residual value of solar power systems; fair value of financial instruments; valuation of contingencies and certain accrued liabilities such as accrued warranty; and income taxes and tax valuation allowances and indemnities. Actual results could materially differ from those estimates.

Recently Adopted Accounting Pronouncements

In November 2016, the Financial Accounting Standards Board ("FASB") issued an update to the standards to require companies to include amounts generally described as restricted cash and restricted cash equivalents in cash and cash equivalents when reconciling beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The new standard is effective for the Company no later than the first quarter of fiscal 2018. The Company elected early adoption of the updated accounting standard in the first quarter of fiscal 2017. The Company had restricted cash and cash equivalents held by various banks to secure our letter of credit facilities and deposits designated for the construction of various residential, commercial and power plant solar energy projects. The adoption of this accounting standard did not result in a significant impact to the Company’s consolidated financial statements and related disclosures.

In October 2016, the FASB issued an update to the standards to amend how a reporting entity considers indirect interests held by related parties under common control when evaluating whether it is the primary beneficiary of a VIE. The Company adopted the updated accounting standard in the first quarter of fiscal 2017. Adoption of the new accounting standard did not have a material impact to the Company's consolidated financial statements.

In October 2016, the FASB issued an update to the standards to require entities to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. The new guidance is effective for the Company no later than the first quarter of fiscal 2018. The Company elected early adoption of the accounting standard in the first quarter of fiscal 2017, resulting in a cumulative-effect adjustment of a $61.0 million increase in accumulated deficit as of January 1, 2017, with corresponding adjustments to Prepaid expenses and other current assets, and Other long-term assets of $4.9 million and $56.1 million , respectively.

In August 2016, the FASB issued an update to the standards to clarify the classification of certain cash receipts and cash payments in the statement of cash flows, including debt prepayment or extinguishment costs, settlement of contingent consideration arising from a business combination, insurance settlement proceeds, and distributions from certain equity method investees. The new guidance is effective for the Company no later than the first quarter of fiscal 2018. The Company elected early adoption of the updated accounting standard on a retrospective basis in the first quarter of fiscal 2017. The adoption of this updated accounting standard did not result in a significant impact to the Company’s consolidated financial statements.

In March 2016, the FASB issued an update to the standards to simplify certain aspects of the accounting for share-based payment transactions to employees. The new standard requires excess tax benefits and tax deficiencies to be recorded in the statements of income as a component of the provision for income taxes when stock awards vest or are settled. In addition, it eliminates the requirement to reclassify cash flows related to excess tax benefits from operating activities to financing activities on the consolidated statements of cash flows. The standard also provides an accounting policy election to account for forfeitures as they occur, allows companies to withhold more of an employee’s vesting shares for tax withholding purposes without triggering liability accounting, and clarifies that all cash payments made to tax authorities on an employee’s behalf for withheld shares should be presented as a financing activity on the cash flows statement.
    
The Company adopted the new guidance in the first quarter of fiscal 2017. Upon adoption on a prospective basis, excess tax benefits or deficiencies from share-based award activity are reflected in the consolidated statements of income as a component of the provision for income taxes, whereas they were previously recognized in equity. The Company also elected to continue to estimate expected forfeitures to determine stock-based compensation expense and to present excess tax benefits as an operating activity in the statement of cash flows retrospectively. Adoption of the new accounting standard resulted in a decrease of net cumulative-effect adjustment of $15.7 million , primarily related to the recognition of the previously unrecognized excess tax benefits which decreased the accumulated deficit with a corresponding adjustment to long-term tax liabilities as of January 1, 2017. The Company adopted the guidance on a modified retrospective basis.

In March 2016, the FASB issued an update to the standards to eliminate the retroactive adoption of the equity method of accounting if an investment qualifies for use of the equity method as a result of an increase in the level of ownership or degree of influence. The new guidance is effective for the Company no later than the first quarter of fiscal 2017 and requires a prospective approach to adoption. The Company adopted the guidance in the first quarter of 2017, which impacted its

9



investment in Dongfang Huansheng Photovoltaic (Jiangsu) Co., Ltd., given it qualified for equity method treatment during the quarter (see Note 9).

Recent Accounting Pronouncements Not Yet Adopted

In February 2017, the FASB issued new guidance to clarify the scope and application of the sale or transfer of nonfinancial assets to noncustomers, including partial sales and also defines what constitutes an “in substance nonfinancial asset” which can include financial assets. The new guidance eliminates several accounting differences between transactions involving assets and transactions involving businesses. Further, the guidance aligns the accounting for derecognition of a nonfinancial asset with that of a business. The new guidance is effective for the Company no later than the first quarter of 2018. The Company is evaluating the potential impact of this standard on its consolidated financial statements and disclosures.

In January 2017, the FASB issued an update to the standards to clarify the definition of a business to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The new guidance is effective for the Company no later than the first quarter of fiscal 2018 and requires a prospective approach to adoption. Early adoption is permitted. The Company is evaluating the potential impact of this standard on its consolidated financial statements and disclosures.

In June 2016, the FASB issued an update to the standards to amend the methodology for measuring credit losses on financial instruments and the timing of when such losses are recorded. The new guidance is effective for the Company no later than the first quarter of fiscal 2020. Early adoption is permitted beginning in the first quarter of fiscal 2019. The Company is evaluating the potential impact of this standard on its consolidated financial statements and disclosures.

In February 2016, the FASB issued an update to the standards to require lessees to recognize a lease liability and a right-of-use asset for all leases (lease terms of more than 12 months) at the commencement date. The new guidance is effective for the Company no later than the first quarter of fiscal 2019 and requires a modified retrospective approach to adoption.  Early adoption is permitted. The Company is evaluating the potential impact of this standard on its consolidated financial statements and disclosures.

In January 2016, the FASB issued an update to the standards to require equity investments to be measured at fair value with changes in the fair value recognized through net income (other than those accounted for under the equity method of accounting or those that result in consolidation of the investee). The new guidance is effective for the Company no later than the first quarter of fiscal 2018 and upon adoption, an entity should apply the amendments by means of a cumulative-effect adjustment to the balance sheet at the beginning of the first reporting period in which the guidance is effective. Early adoption is permitted for the accounting guidance on financial liabilities under the fair value option. The Company is evaluating the potential impact of this standard on its consolidated financial statements and disclosures.

In May 2014, the FASB issued a new revenue recognition standard ("ASC 606") based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services.  The FASB has issued several updates to the standard which i) clarify the application of the principal versus agent guidance; ii) clarify the guidance relating to performance obligations and licensing; and iii) clarify the assessment of the collectability criterion, presentation of sales taxes, measurement date for non-cash consideration and completed contracts at transaction; and iv) clarify narrow aspects of ASC 606 or corrects unintended application of the guidance. The new revenue recognition standard, amended by the updates, becomes effective for the Company in the first quarter of fiscal 2018 and is to be applied retrospectively using one of two prescribed methods. Early adoption is permitted. The Company has preliminarily decided to adopt ASC 606 effective January 1, 2018 using the full retrospective approach; however, the final determination will depend on a number of factors such as the process of finalizing the impact to the Company’s financial results and from additional disclosure requirements.

The Company has made significant progress with its evaluation of the impact of the new standard on its accounting policies, processes, and with updating its systems to fulfill the accounting and disclosure requirements under the new standard. The Company has assigned sufficient internal resources and also retained a third party service provider to assist with its implementation.

The Company expects the adoption of ASC 606 to primarily affect its Power Plants and Commercial segments. Sales of solar power systems that include the sale or lease of related real estate, which occur under both segments, are currently accounted for under the guidance for real estate sales ("ASC 360-20"). ASC 360-20 requires the Company to evaluate whether such arrangements have any forms of continuing involvement that may affect the revenue or profit recognition of the transactions, including arrangements with prohibited forms of continuing involvement requiring us to reduce the potential

10



profit on a project sale by our maximum exposure to loss.  We anticipate that ASC 606, which supersedes the real estate sales guidance under ASC 360-20, will result in the earlier recognition of revenue and profit. In addition, the Company’s investment in the 8point3 Group currently has a negative carrying value of $74.9 million primarily as a result of profit deferred under ASC 360-20. Under ASC 606, the Company expects that a material amount of this deferred profit will have been recognized prior to January 1, 2018, and as a result the Company’s carrying value in the 8point3 Group will materially increase upon adoption. The Company expects that revenue recognition for our other sales arrangements, including the sales of components, sales and construction of solar systems, and operations and maintenance services, will remain materially consistent.

The Company continues to assess the potential impacts of the new standard, including the areas described above, and anticipates that this standard will have a material impact on its consolidated financial statements. However, the Company does not know or cannot reasonably estimate quantitative information, beyond that discussed above, related to the impact of the new standard on the financial statements at this time.

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

In June 2011, Total completed a cash tender offer to acquire 60% of the Company's 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, the Company entered into a Private Placement Agreement with Total, under which Total purchased, and the Company issued and sold, 18.6 million shares of the Company's common stock for a purchase price of $8.80 per share, thereby increasing Total's ownership to approximately 66% of the Company's outstanding common stock as of that date. As of April 2, 2017 , through the increase of the Company's total outstanding common stock due to the exercise of warrants and issuance of restricted and performance stock units, Total's ownership of the Company's outstanding common stock has decreased to approximately 56% .

Supply Agreement

In November 2016, the Company and Total entered into a four-year, up to 200-MW supply agreement to support the solarization of Total facilities. The agreement covers the supply of 150 MW of E-series panels with an option to purchase up to another 50 MW of P-Series panels. In March 2017, the Company received a prepayment totaling $88.5 million . The prepayment is secured by certain of the Company's assets located in the United States and in Mexico.

The Company recognizes revenue for the solar panels consistent with its revenue recognition policy for solar power components: when persuasive evidence of an arrangement exists, delivery of the product has occurred, title and risk of loss has passed to Total, the sales price is fixed or determinable, collectability of the resulting receivable is reasonably assured, and the risks and rewards of ownership have passed. As of April 2, 2017 , the Company had $6.7 million of "Customer Advances, current portion" and $81.7 million of "Customer Advances, net of current portion" on its Consolidated Balance Sheets related to the aforementioned supply agreement.

Amended and Restated Credit Support Agreement

In June 2016, the Company and Total S.A. entered into an Amended and Restated Credit Support Agreement (the "Credit Support Agreement") which amended and restated the Credit Support Agreement dated April 28, 2011 by and between the Company and Total S.A., as amended. Under the Credit Support Agreement, Total S.A. agreed to enter into one or more guarantee agreements (each a "Guaranty") with banks providing letter of credit facilities to the Company. At any time until December 31, 2018, Total S.A. will, at the Company's request, guarantee the payment to the applicable issuing bank of the Company's obligation to reimburse a draw on a letter of credit and pay interest thereon in accordance with the letter of credit facility between such bank and the Company. Such letters of credit must be issued no later than December 31, 2018 and expire no later than March 31, 2020. Total is required to issue and enter into a Guaranty requested by the Company, subject to certain terms and conditions. In addition, Total will not be required to enter into the Guaranty if, after giving effect to the Company’s request for a Guaranty, the sum of (a) the aggregate amount available to be drawn under all guaranteed letter of credit facilities, (b) the amount of letters of credit available to be issued under any guaranteed facility, and (c) the aggregate amount of draws (including accrued but unpaid interest) on any letters of credit issued under any guaranteed facility that have not yet been reimbursed by the Company, would exceed $500 million in the aggregate. Such maximum amounts of credit support available to the Company can be reduced upon the occurrence of specified events.

In consideration for the commitments of Total S.A. pursuant to the Credit Support Agreement, the Company is required to pay Total S.A. a guaranty fee for each letter of credit that is the subject of a Guaranty under the Credit Support Agreement and was outstanding for all or part of the preceding calendar quarter. The Credit Support Agreement will terminate following December 31, 2018, after the later of the satisfaction of all obligations thereunder and the termination or expiration of each Guaranty provided thereunder.

11




Affiliation Agreement

The Company and Total have entered into an Affiliation Agreement that governs the relationship between Total and the Company (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., 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 shares of the Company in excess of certain thresholds, or request the Company or the Company's independent directors, officers or employees, to amend or waive any of the standstill restrictions applicable to the Total Group.

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 the Company and imposes certain limitations on the Total Group's ability to transfer 40% or more of the outstanding shares or voting power of the Company 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 the Company's Board of Directors.

The Affiliation Agreement provides Total with the right to maintain its percentage ownership in connection with any new securities issued by the Company, 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 Company's and its Board of Directors' ability 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

Total and the Company 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 the Company's technology position in the crystalline silicon domain, as well as ensuring the Company's industrial competitiveness. The R&D Agreement enables a joint committee to identify, plan and manage the R&D Collaboration.

Upfront Warrant

In February 2012, the Company issued a warrant (the "Upfront Warrant") to Total S.A. to purchase 9,531,677 shares of the Company's common stock with an exercise price of $7.8685 , subject to adjustment for customary anti-dilution and other events. The Upfront Warrant, which is governed by the Private Placement Agreement and a Compensation and Funding Agreement entered into in February 2012, is exercisable at any time for seven years after its issuance, provided that, so long as at least $25.0 million in aggregate of the Company's convertible debt remains outstanding, such exercise will 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), of more than 74.99% of the voting power of the Company's common stock at such time, a circumstance which would trigger the repurchase or conversion of the Company's existing convertible debt.

0.75% Debentures Due 2018

In May 2013, the Company issued $300.0 million in principal amount of its 0.75% senior convertible debentures due 2018 (the "0.75% debentures due 2018"). $200.0 million in aggregate principal amount of the 0.75% debentures due 2018 were acquired by Total. The 0.75% debentures due 2018 are convertible into shares of the Company's common stock at any time based on an initial conversion price equal to $24.95 per share, which provides Total the right to acquire up to 8,017,420 shares of the Company's common stock. The applicable conversion rate may adjust in certain circumstances, including a fundamental change, as described in the indenture governing the 0.75% debentures due 2018.

0.875% Debentures Due 2021

In June 2014, the Company issued $400.0 million in principal amount of its 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

12



2021 were acquired by Total. The 0.875% debentures due 2021 are convertible into shares of the Company's 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 the Company's 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.

4.00% Debentures Due 2023

In December 2015, the Company issued $425.0 million in principal amount of its 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 the Company's 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 the Company's 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 Projects with Total and its Affiliates:

The Company enters 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 April 2, 2017 , the Company had $3.5 million of "Billings in excess of costs and estimated earnings", $0.9 million of "Costs and estimated earnings in excess of billings" and $2.8 million of "Accounts receivable, net" on its Consolidated Balance Sheets related to projects in which Total and its affiliates have a direct or indirect material interest.

During the first quarter of fiscal 2017, in connection with a co-development project between SunPower and Total, Total paid $0.5 million to the Company in exchange for the Company's ownership interest in the co-development project.

Related-Party Transactions with Total and its Affiliates:
 
 
Three Months Ended
(In thousands)
 
April 2, 2017
 
April 3, 2016
Revenue:
 
 
 
 
EPC, O&M, and components revenue under joint projects
 
$
4,132

 
$
40,916

Research and development expense:
 
 
 
 
Offsetting contributions received under the R&D Agreement
 
$
(67
)
 
$

Interest expense:
 
 
 
 
Guarantee fees incurred under the Credit Support Agreement
 
$
1,799

 
$
1,646

Interest expense incurred on the 0.75% debentures due 2018
 
$
375

 
$
375

Interest expense incurred on the 0.875% debentures due 2021
 
$
547

 
$
547

Interest expense incurred on the 4.00% debentures due 2023
 
$
1,000

 
$
1,000


Note 3 . OTHER INTANGIBLE ASSETS

Other Intangible Assets

The following tables present details of the Company's acquired other intangible assets:

13


(In thousands)
 
Gross
 
Accumulated
Amortization
 
Net
As of April 2, 2017
 
 
 
 
 
 
Patents and purchased technology
 
$
51,140

 
$
(18,582
)
 
$
32,558

Project pipeline assets
 
9,446

 
(2,263
)
 
7,183

Purchased in-process research and development
 
1,200

 

 
1,200

Other
 
1,000

 
(875
)
 
125

 
 
$
62,786

 
$
(21,720
)
 
$
41,066

 
 
 
 
 
 
 
As of January 1, 2017
 
 
 
 
 
 
Patents and purchased technology
 
$
51,140

 
$
(16,014
)
 
$
35,126

Project pipeline assets
 
9,446

 
(1,804
)
 
7,642

Purchased in-process research and development
 
1,200

 

 
1,200

Other
 
1,000

 
(750
)
 
250

 
 
$
62,786

 
$
(18,568
)
 
$
44,218


Aggregate amortization expense for intangible assets totaled $3.2 million and $8.3 million for the three months ended April 2, 2017 and April 3, 2016 , respectively.

As of April 2, 2017 , the estimated future amortization expense related to intangible assets with finite useful lives is as follows:
(In thousands)
 
Amount
Fiscal Year
 
 
2017 (remaining nine months)
 
$
9,143

2018
 
14,407

2019
 
9,963

2020
 
6,317

2021
 
2

Thereafter
 
12

 
 
$
39,844



Note 4 . BALANCE SHEET COMPONENTS
 
 
As of
(In thousands)
 
April 2, 2017
 
January 1, 2017
Accounts receivable, net:
 
 
 
 
Accounts receivable, gross 1,2
 
$
196,000

 
$
242,451

Less: allowance for doubtful accounts
 
(25,718
)
 
(20,380
)
Less: allowance for sales returns
 
(2,421
)
 
(2,433
)
 
 
$
167,861

 
$
219,638

1  
Includes short-term financing receivables associated with solar power systems leased of $20.7 million and $19.3 million as of April 2, 2017 and January 1, 2017 , respectively (see Note 5 ).

2  
Includes short-term retainage of $6.8 million and $8.8 million as of April 2, 2017 and January 1, 2017 , respectively. Retainage refers to the earned, but unbilled, portion of a construction and development project for which payment is deferred by the customer until certain contractual milestones are met.


14





As of
(In thousands)

April 2, 2017

January 1, 2017
Inventories:




Raw materials

$
128,024


$
136,906

Work-in-process

193,357


184,967

Finished goods

106,797


79,834

 

$
428,178


$
401,707


 
 
As of
(In thousands)
 
April 2, 2017
 
January 1, 2017
Prepaid expenses and other current assets:
 
 
 
 
Deferred project costs
 
$
18,630

 
$
68,338

VAT receivables, current portion
 
18,560

 
14,260

Deferred costs for solar power systems to be leased
 
26,070

 
28,705

Derivative financial instruments
 
3,263

 
4,802

Prepaid inventory
 
61,214

 
83,943

Other receivables
 
71,730

 
85,834

Prepaid taxes
 
882

 
5,468

Other prepaid expenses
 
25,203

 
24,260

Other current assets
 
59

 
60

 
 
$
225,611

 
$
315,670


 
 
As of
(In thousands)
 
April 2, 2017
 
January 1, 2017
Project assets - plants and land:
 
 
 
 
Project assets — plants
 
$
302,162

 
$
389,103

Project assets — land
 
17,860

 
18,927

 
 
$
320,022

 
$
408,030

Project assets - plants and land, current portion
 
$
285,321

 
$
374,459

Project assets - plants and land, net of current portion
 
$
34,701

 
$
33,571


 
 
As of
(In thousands)
 
April 2, 2017
 
January 1, 2017
Property, plant and equipment, net:
 
 
 
 
Manufacturing equipment 1
 
$
404,054

 
$
403,808

Land and buildings
 
130,077

 
130,080

Leasehold improvements
 
287,279

 
280,620

Solar power systems 2
 
266,172

 
207,277

Computer equipment
 
189,921

 
185,518

Furniture and fixtures
 
12,920

 
12,591

Construction-in-process
 
47,581

 
39,849

 
 
1,338,004

 
1,259,743

Less: accumulated depreciation
 
(264,821
)
 
(232,677
)
 
 
$
1,073,183

 
$
1,027,066

1  
The Company's mortgage loan agreement with International Finance Corporation ("IFC") was collateralized by certain manufacturing equipment with a net book value of $14.3 million as of January 1, 2017 . As of April 2, 2017 , the entire outstanding balance, and the associated interest, of the mortgage loan agreement with IFC has been repaid.


15



2  
Includes $234.6 million and $177.1 million of solar power systems associated with sale-leaseback transactions under the financing method as of April 2, 2017 and January 1, 2017 , respectively, which are depreciated using the straight-line method to their estimated residual values over the lease terms of up to 20 years (see Note 5 ).
 
 
As of
(In thousands)
 
April 2, 2017
 
January 1, 2017
Property, plant and equipment, net by geography 1 :
 
 
 
 
Philippines
 
$
365,683

 
$
373,286

Malaysia
 
265,959

 
275,980

United States
 
335,241

 
276,053

Mexico
 
85,873

 
81,419

Europe
 
20,040

 
20,154

Other
 
387

 
174

 
 
$
1,073,183

 
$
1,027,066

1  
Property, plant and equipment, net by geography is based on the physical location of the assets.

 
 
As of
(In thousands)
 
April 2, 2017
 
January 1, 2017
Other long-term assets:
 
 
 
 
Equity method investments 1
 
$
(2,391
)
 
$
(6,931
)
Derivative financial instruments
 
11,452

 
11,429

Cost method investments
 
31,668

 
39,423

Other
 
86,150

 
141,598

 
 
$
126,879

 
$
185,519

1  
Includes the carrying value of the Company's investment in the 8point3 Group, which had a negative value of $74.9 million and $60.6 million as of April 2, 2017 and January 1, 2017 , respectively (see Note 9 ).

 
 
As of
(In thousands)
 
April 2, 2017
 
January 1, 2017
Accrued liabilities:
 
 
 
 
Employee compensation and employee benefits
 
$
34,947

 
$
43,370

Deferred revenue
 
29,463

 
27,649

Interest payable
 
12,651

 
15,329

Short-term warranty reserves
 
18,540

 
4,894

Restructuring reserve
 
9,840

 
18,001

VAT payables
 
6,270

 
4,743

Derivative financial instruments
 
1,194

 
2,023

Inventory payable
 
61,214

 
83,943

Proceeds from 8point3 Energy Partners attributable to projects prior to Commercial Operation Date ("COD")
 
2,492

 
3,665

Contributions from noncontrolling interests attributable to projects prior to COD
 
295

 
93,875

Taxes payable
 
18,951

 
25,602

Liability due to AU Optronics
 
38,171

 
31,714

Other
 
27,443

 
36,418

 
 
$
261,471

 
$
391,226



16



 
 
As of
(In thousands)
 
April 2, 2017
 
January 1, 2017
Other long-term liabilities:
 
 
 
 

Deferred revenue
 
$
187,416

 
$
188,932

Long-term warranty reserves
 
149,573

 
156,315

Long-term sale-leaseback financing
 
259,208

 
204,879

Long-term residential lease financing with 8point3 Energy Partners
 
29,354

 
29,370

Unrecognized tax benefits
 
31,586

 
47,203

Long-term pension liability
 
3,627

 
3,381

Derivative financial instruments
 
827

 
448

Long-term liability due to AU Optronics
 
68,105

 
71,639

Other
 
45,185

 
18,865

 
 
$
774,881

 
$
721,032


 
 
As of
(In thousands)
 
April 2, 2017
 
January 1, 2017
Accumulated other comprehensive loss:
 
 
 
 

Cumulative translation adjustment
 
$
(14,237
)
 
$
(12,249
)
Net unrealized gain on derivatives
 
(59
)
 
1,203

Net gain on long-term pension liability adjustment
 
4,228

 
4,228

Deferred taxes
 
(77
)
 
(420
)
 
 
$
(10,145
)
 
$
(7,238
)

Note 5 . LEASING

Residential Lease Program

The Company offers a solar lease program, which provides U.S. residential customers with SunPower® systems under 20 -year lease agreements that include system maintenance and warranty coverage. Leases are classified as either operating or sales-type leases in accordance with the relevant accounting guidelines.

Operating Leases

The following table summarizes "Solar power systems leased and to be leased, net" under operating leases on the Company's Consolidated Balance Sheets as of April 2, 2017 and January 1, 2017 :
 
 
As of
(In thousands)
 
April 2, 2017
 
January 1, 2017
Solar power systems leased and to be leased, net 1,2 :
 
 
 
 
Solar power systems leased
 
$
703,205

 
$
666,700

Solar power systems to be leased
 
20,490

 
25,367

 
 
723,695

 
692,067

Less: accumulated depreciation
 
(77,833
)
 
(70,800
)
 
 
$
645,862

 
$
621,267

1  
Solar power systems leased and to be leased, net are physically located exclusively in the United States.

2  
As of April 2, 2017 and January 1, 2017 , the Company had pledged solar assets with an aggregate book value of $20.0 million and $13.1 million , respectively, to third-party investors as security for the Company's contractual obligations.

The following table presents the Company's minimum future rental receipts on operating leases placed in service as of April 2, 2017 :

17



(In thousands)
 
Fiscal 2017 (remaining nine months)
 
Fiscal 2018
 
Fiscal 2019
 
Fiscal 2020
 
Fiscal 2021
 
Thereafter
 
Total
Minimum future rentals on operating leases placed in service 1
 
$
19,756

 
26,229

 
26,280

 
26,334

 
26,390

 
360,794

 
$
485,783

1  
Minimum future rentals on operating leases placed in service does not include contingent rentals that may be received from customers under agreements that include performance-based incentives nor does it include rent receivables on operating leases sold to the 8point3 Group.

Sales-Type Leases

As of April 2, 2017 and January 1, 2017 , the Company's net investment in sales-type leases presented in "Accounts receivable, net" and "Long-term financing receivables, net" on the Company's Consolidated Balance Sheets was as follows:
 
 
As of
(In thousands)
 
April 2, 2017
 
January 1, 2017
Financing receivables 1 :
 
 
 
 
Minimum lease payments receivable 2
 
$
593,094

 
$
560,582

Unguaranteed residual value
 
74,464

 
70,636

Unearned income
 
(108,900
)
 
(104,624
)
Net financing receivables
 
$
558,658

 
$
526,594

Current
 
$
20,682

 
$
19,261

Long-term
 
$
537,976

 
$
507,333

1  
As of April 2, 2017 and January 1, 2017 , the Company had pledged financing receivables of $25.2 million and $18.6 million , respectively, to third-party investors as security for the Company's contractual obligations.

2  
Net of allowance for doubtful accounts amounting to $5.0 million and $4.5 million , as of April 2, 2017 and January 1, 2017 , respectively.

As of April 2, 2017 , future maturities of net financing receivables for sales-type leases are as follows:
(In thousands)
 
Fiscal 2017 (remaining nine months)
 
Fiscal 2018
 
Fiscal 2019
 
Fiscal 2020
 
Fiscal 2021
 
Thereafter
 
Total
Scheduled maturities of minimum lease payments receivable 1
 
$
23,215

 
30,109

 
30,368

 
30,636

 
30,909

 
447,857

 
$
593,094

1  
Minimum future rentals on sales-type leases placed in service does not include contingent rentals that may be received from customers under agreements that include performance-based incentives.

Sale-Leaseback Arrangements

The Company enters into sale-leaseback arrangements under which solar power systems are sold to third parties and subsequently leased back by the Company over minimum lease terms of up to 25 years . Separately, the Company enters into PPAs with end customers, who host the leased solar power systems and buy the electricity directly from the Company under PPAs with terms of up to 25 years . At the end of the lease term, the Company has the option to purchase the systems at fair value or may be required to remove the systems and return them to the third parties.

The Company has classified its sale-leaseback arrangements of solar power systems not involving integral equipment as operating leases. The deferred profit on the sale of these systems is recognized over the term of the lease. As of April 2, 2017 , future minimum lease obligations associated with these systems were $77.3 million , which will be recognized over the minimum lease terms. Future minimum payments to be received from customers under PPAs associated with the solar power systems under sale-leaseback arrangements classified as operating leases will be recognized over the lease terms of up to 20 years and are contingent upon the amounts of energy produced by the solar power systems.

18




The Company enters into certain sale-leaseback arrangements under which the systems subject to the sale-leaseback arrangements have been determined to be integral equipment as defined under the accounting guidance for such transactions. The Company has continuing involvement with the solar power systems throughout the lease due to purchase option rights in the arrangements. As a result of such continuing involvement, the Company accounts for each of these transactions as a financing. Under the financing method, the proceeds received from the sale of the solar power systems are recorded by the Company as financing liabilities. The financing liabilities are subsequently reduced by the Company's payments to lease back the solar power systems, less interest expense calculated based on the Company's incremental borrowing rate adjusted to the rate required to prevent negative amortization. The solar power systems under the sale-leaseback arrangements remain on the Company's balance sheet and are classified within "Property, plant and equipment, net" (see Note 4 ). As of April 2, 2017 , future minimum lease obligations for the sale-leaseback arrangements accounted for under the financing method were $221.8 million , which will be recognized over the lease terms of up to 25 years . During the three months ended April 2, 2017 and April 3, 2016 , the Company had net financing proceeds of $38.1 million and zero , respectively, in connection with these sale-leaseback arrangements. As of April 2, 2017 and January 1, 2017 , the carrying amount of the sale-leaseback financing liabilities, presented in "Other long-term liabilities" on the Company's Consolidated Balance Sheets, was $259.2 million and $204.9 million , respectively (see Note 4 ).

Note 6 . FAIR VALUE MEASUREMENTS

Fair value is estimated by applying the following hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement (observable inputs are the preferred basis of valuation):

Level 1 — Quoted prices in active markets for identical assets or liabilities.
Level 2 — Measurements are inputs that are observable for assets or liabilities, either directly or indirectly, other than quoted prices included within Level 1.
Level 3 — Prices or valuations that require management inputs that are both significant to the fair value measurement and unobservable.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The Company measures certain assets and liabilities at fair value on a recurring basis. There were no transfers between fair value measurement levels during any presented period. The Company did not have any assets or liabilities measured at fair value on a recurring basis requiring Level 3 inputs as of April 2, 2017 or January 1, 2017 .


19



The following table summarizes the Company's assets and liabilities measured and recorded at fair value on a recurring basis as of April 2, 2017 and January 1, 2017 :
 
 
April 2, 2017
 
January 1, 2017
(In thousands)
 
Total
 
Level 1
 
Level 2
 
Total
 
Level 1
 
Level 2
Assets
 
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents 1 :
 
 
 
 
 
 
 
 
 
 
 
 
Money market funds
 
$
3,002

 
$
3,002

 
$

 
$
3,002

 
$
3,002

 
$

Prepaid expenses and other current assets:
 
 
 
 
 
 
 
 
 
 
 
 
Derivative financial instruments (Note 11)
 
3,263

 

 
3,263

 
4,802

 

 
4,802

Other long-term assets:
 
 
 
 
 
 
 
 
 
 
 
 
Derivative financial instruments (Note 11)
 
11,452

 

 
11,452

 
11,429

 

 
11,429

Total assets
 
$
17,717

 
$
3,002

 
$
14,715

 
$
19,233

 
$
3,002


$
16,231

Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
Accrued liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
Derivative financial instruments (Note 11)
 
1,194

 

 
1,194

 
2,023

 

 
2,023

Other long-term liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
Derivative financial instruments (Note 11)
 
827

 

 
827

 
448

 

 
448

Total liabilities
 
$
2,021

 
$

 
$
2,021

 
$
2,471

 
$

 
$
2,471

1  
The Company's cash equivalents consist of money market fund instruments and commercial paper that are classified as available-for-sale and are highly liquid investments with original maturities of 90 days or less. The Company's money market fund instruments are categorized within Level 1 of the fair value hierarchy because they are valued using quoted market prices for identical instruments in active markets.

Other financial instruments, including the Company's accounts receivable, accounts payable and accrued liabilities, are carried at cost, which generally approximates fair value due to the short-term nature of these instruments.

Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis

The Company measures certain investments and non-financial assets (including property, plant and equipment, and other intangible assets) at fair value on a non-recurring basis in periods after initial measurement in circumstances when the fair value of such asset is impaired below its recorded cost. As of April 2, 2017 and April 3, 2016 , there were no such items recorded at fair value.

Held-to-Maturity Debt Securities

The Company's debt securities, classified as held-to-maturity, are Philippine government bonds that the Company maintains as collateral for business transactions within the Philippines. These bonds have various maturity dates and are classified as "Restricted long-term marketable securities" on the Company's Consolidated Balance Sheets. As of April 2, 2017 and January 1, 2017 these bonds had a carrying value of $4.9 million and $5.0 million , respectively. The Company records such held-to-maturity investments at amortized cost based on its ability and intent to hold the securities until maturity. The Company monitors for changes in circumstances and events that would affect its ability and intent to hold such securities until the recorded amortized costs are recovered. No other-than-temporary impairment loss was incurred during any presented period. The held-to-maturity debt securities were categorized in Level 2 of the fair value hierarchy.

Equity and Cost Method Investments

The Company holds equity investments in non-consolidated entities that are accounted for under both the equity and cost method. The Company monitors these investments, which are included in "Other long-term assets" in its Consolidated Balance Sheets, for impairment and records reductions in the carrying values when necessary. Circumstances that indicate an other-

20



than-temporary decline include Level 2 and Level 3 measurements such as the valuation ascribed to the issuing company in subsequent financing rounds, decreases in quoted market prices, and declines in the results of operations of the issuer.

As of April 2, 2017 and January 1, 2017 , the Company had $(2.4) million and $(6.9) million , respectively, in investments accounted for under the equity method (see Note 9 ). As of April 2, 2017 and January 1, 2017 , the Company had $31.7 million and $39.4 million respectively, in investments accounted for under the cost method.

Note 7 . RESTRUCTURING

December 2016 Restructuring Plan

On December 2, 2016, the Company adopted a restructuring plan to reduce costs and focus on improving cash flow. As part of the plan, the Board of Directors approved the closure of the Company’s Philippine-based Fab 2 manufacturing facility. In connection with the plan, which is expected to be completed by the end of fiscal 2017, the Company expects approximately 2,500 employees to be affected, primarily in the Philippines. The Company expects to incur restructuring charges in connection with the plan totaling approximately $225 million to $275 million , consisting primarily of asset impairments, severance benefits, lease and related termination costs, and other associated costs. The Company expects approximately 30% of such total restructuring charges to be cash. The actual timing and costs of the plan may differ from the Company’s current expectations and estimates.

August 2016 Restructuring Plan

On August 9, 2016 , the Company adopted a restructuring plan in response to expected near-term challenges primarily relating to the Company’s Power Plant Segment. In connection with the realignment, which is expected to be completed by the end of fiscal 2017, the Company expects approximately 1,200 employees to be affected, primarily in the Philippines. The Company expects to incur restructuring charges totaling approximately $35 million to $45 million , consisting primarily of severance benefits, asset impairments, lease and related termination costs, and other associated costs. The Company expects more than 50% of total charges to be cash. The actual timing and costs of the plan may differ from the Company’s current expectations and estimates due to a number of factors, including uncertainties related to required consultations with employee representatives as well as other local labor law requirements and mandatory processes in the relevant jurisdictions.

Legacy Restructuring Plans

During prior fiscal years, the Company implemented approved restructuring plans, related to all segments, to align with changes in the global solar market which included the consolidation of the Company's Philippine manufacturing operations as well as actions to accelerate operating cost reduction and improve overall operating efficiency. These restructuring activities were substantially complete as of April 2, 2017 , and the remaining costs to be incurred are not expected to be material.

The following table summarizes the restructuring charges recognized in the Company's Consolidated Statements of Operations:

21



 
 
Three Months Ended
(In thousands)
 
April 2, 2017
 
April 3, 2016
 
Cumulative To Date
December 2016 Plan:
 
 
 
 
 
 
Non-cash impairment charges (benefits)
 
$
(124
)
 
$

 
$
148,667

Severance and benefits
 
$
2,974

 
$

 
$
18,875

Lease and related termination costs
 
$
580

 
$

 
$
580

Other costs 1
 
$
6,404

 
$

 
$
14,223

 
 
$
9,834

 
$

 
$
182,345

August 2016 Plan:
 
 
 
 
 
 
Non-cash impairment charges
 
$

 
$

 
$
17,926

Severance and benefits
 
(267
)
 

 
15,324

Lease and related termination costs
 
2

 

 
559

Other costs 1
 
$
208

 
$

 
572

 
 
$
(57
)
 
$

 
$
34,381

Legacy Restructuring Plans:
 
 
 
 
 
 
Non-cash impairment charges
 
$

 
$

 
$
61,320

Severance and benefits
 
14

 

 
61,963

Lease and related termination costs
 

 

 
6,813

Other costs 1
 
(1
)
 
96

 
13,598

 
 
$
13

 
$
96

 
$
143,694

Total restructuring charges
 
$
9,790

 
$
96

 
$
360,420

1 Other costs primarily represent associated legal and advisory services, and costs of relocating employees.

The following table summarizes the restructuring reserve activity during the three months ended April 2, 2017 :
 
 
Three Months Ended
(In thousands)
 
January 1, 2017
 
Charges (Benefits)
 
Payments
 
April 2, 2017
December 2016 Plan:
 
 
 
 
 
 
 
 
Non-cash impairment charges (benefits)
 
$

 
$
(124
)
 
$

 
$

Severance and benefits
 
$
8,111

 
$
2,974

 
$
(7,423
)
 
$
3,662

Lease and related termination costs
 
$

 
$
580

 
$
(204
)
 
$
376

Other costs 1
 
$
5,932

 
$
6,404

 
$
(9,148
)
 
$
3,188

 
 
$
14,043

 
$
9,834

 
$
(16,775
)
 
$
7,226

August 2016 Plan:
 
 
 
 
 
 
 
 
Non-cash impairment charges
 
$

 
$

 
$

 
$

Severance and benefits
 
3,448

 
(267
)
 
(1,128
)
 
2,053

Lease and related termination costs
 

 
2

 
(2
)
 

Other costs 1
 
86

 
208

 
(133
)
 
161

 
 
$
3,534

 
(57
)
 
$
(1,263
)
 
2,214

Legacy Restructuring Plans:
 
 
 
 
 
 
 
 
Severance and benefits
 
299

 
14

 
(10
)
 
303

Lease and related termination costs
 
52

 

 
(24
)
 
28

Other costs 1
 
73

 
(1
)
 
(3
)
 
69

 
 
424

 
13

 
(37
)
 
400

Total restructuring liability
 
$
18,001

 
$
9,790

 
$
(18,075
)
 
$
9,840

1  
Other costs primarily represent associated legal and advisory services, and costs of relocating employees.


22



The following table summarizes the restructuring reserve activity during the three months ended April 3, 2016 :
 
 
Three Months Ended
(In thousands)
 
January 3, 2016
 
Charges (Benefits)
 
Payments
 
April 3, 2016
Legacy Restructuring Plans:
 
 
 
 
 
 
 
 
Severance and benefits
 
395

 
$

 
$
16

 
$
411

Lease and related termination costs
 
743

 

 
(127
)
 
616

Other costs 1
 
685

 
96

 
(194
)
 
587

Total restructuring liability
 
$
1,823

 
$
96

 
$
(305
)
 
$
1,614

1  
Other costs primarily represent associated legal services and costs of relocating employees.

Note 8 . COMMITMENTS AND CONTINGENCIES

Facility and Equipment Lease Commitments

The Company leases certain facilities under non-cancellable operating leases from unaffiliated third parties. As of April 2, 2017 , future minimum lease payments for facilities under operating leases were $50.1 million , to be paid over the remaining contractual terms of up to 8 years . The Company also leases certain buildings, machinery and equipment under non-cancellable capital leases. As of April 2, 2017 , future minimum lease payments for assets under capital leases were $4.3 million , to be paid over the remaining contractual terms of up to 7 years .

Purchase Commitments
 
The Company purchases raw materials for inventory and manufacturing equipment from a variety of vendors. During the normal course of business, in order to manage manufacturing lead times and help assure adequate supply, the Company enters into agreements with contract manufacturers and suppliers that either allow them to procure goods and services based on specifications defined by the Company, or that establish parameters defining the Company's requirements. In certain instances, these agreements allow the Company the option to cancel, reschedule or adjust the Company's requirements based on its business needs before firm orders are placed. Consequently, not all of the Company's disclosed purchase commitments arising from these agreements are firm, non-cancellable, and unconditional commitments.

The Company also has agreements with several suppliers, including some of its non-consolidated investees, for the procurement of polysilicon, ingots, wafers, and Solar Renewable Energy Credits, among others, which specify future quantities and pricing of products to be supplied by the vendors for periods up to 4 years and provide for certain consequences, such as forfeiture of advanced deposits and liquidated damages relating to previous purchases, in the event that the Company terminates the arrangements.

Future purchase obligations under non-cancellable purchase orders and long-term supply agreements as of April 2, 2017 are as follows: