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MarketScreener Homepage  >  Equities  >  Nasdaq  >  SunPower Corporation    SPWR

SUNPOWER CORPORATION

(SPWR)
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SUNPOWER CORP : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-K)

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02/18/2020 | 06:16am EDT

Cautionary Statement Regarding Forward-Looking Statements


You should read the following discussion of our financial condition and results
of operations in conjunction with the consolidated financial statements and the
notes thereto included elsewhere in this Annual Report on Form 10-K for the
fiscal year ended December 29, 2019.

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This Annual Report on Form 10-K contains forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking
statements are statements that do not represent historical facts or the
assumptions underlying such statements. We use words such as "anticipate,"
"believe," "continue," "could," "estimate," "expect," "intend," "may," "plan,"
"predict," "project," "potential," "seek," "should," "will," "would," and
similar expressions to identify forward-looking statements. Forward-looking
statements in this Annual Report on Form 10-K include, but are not limited to,
our plans and expectations regarding future financial results, expected
operating results, business strategies, the sufficiency of our cash and our
liquidity, projected costs and cost reduction measures, development of new
products and improvements to our existing products, the impact of recently
adopted accounting pronouncements, our manufacturing capacity and manufacturing
costs, the adequacy of our agreements with our suppliers, our ability to
monetize utility projects, legislative actions and regulatory compliance,
competitive positions, management's plans and objectives for future operations,
our ability to obtain financing, our ability to comply with debt covenants or
cure any defaults, our ability to repay our obligations as they come due, our
ability to continue as a going concern, our ability to complete certain
divestiture transactions, trends in average selling prices, the success of our
joint ventures and acquisitions, expected capital expenditures, warranty
matters, outcomes of litigation, our exposure to foreign exchange, interest and
credit risk, general business and economic conditions in our markets, industry
trends, the impact of changes in government incentives, expected restructuring
charges, risks related to privacy and data security, and the likelihood of any
impairment of project assets, long-lived assets, and investments. These
forward-looking statements are based on information available to us as of the
date of this Annual Report on Form 10-K and current expectations, forecasts and
assumptions and involve a number of risks and uncertainties that could cause
actual results to differ materially from those anticipated by these
forward-looking statements. Such risks and uncertainties include a variety of
factors, some of which are beyond our control. Factors that could cause or
contribute to such differences include, but are not limited to, those identified
above, those discussed in the section titled "Risk Factors" included in this
Annual Report on Form 10-K and our Annual Report on Form 10-K for the fiscal
year ended December 29, 2019, and our other filings with the SEC. These
forward-looking statements should not be relied upon as representing our views
as of any subsequent date, and we are under no obligation to, and expressly
disclaim any responsibility to, update or alter our forward-looking statements,
whether as a result of new information, future events or otherwise.

Our fiscal year ends on the Sunday closest to the end of the applicable calendar year. All references to fiscal periods apply to our fiscal quarter or year, which end on the Sunday closest to the calendar month end.

Overview


SunPower Corporation (together with its subsidiaries, "SunPower," "we," "us," or
"our") is a leading global energy company that delivers solar solutions to
customers worldwide through an array of hardware, software, and financing
options and through development capabilities, operations and maintenance ("O&M")
services, and "Smart Energy" solutions. Our 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, we believe our solar cells have the
highest conversion efficiency, a measurement of the amount of sunlight converted
by the solar cell into electricity. For more information about our business,
please refer to the section titled "Part I. Item 1. Business" in our Annual
Report on Form 10-K for the fiscal year ended December 29, 2019.

Recent Developments


    Effective December 31, 2018, we adopted Accounting Standards Update ("ASU")
No. 2016-02, Leases (Topic 842), as amended ("ASC 842") using the optional
transition method as discussed in "Part I-Item 1. Financial Statements-Notes to
the Consolidated Financial Statements-Note 1. Organization and Summary of
Significant Accounting Policies" of this Annual Report on Form 10-K.

Key transactions during the fiscal quarter ended December 29, 2019 include the following:

Announcement of Separation Transaction


On November 8, 2019, we entered into the Separation and Distribution Agreement
with Maxeon Solar. The Separation and Distribution Agreement governs the
principal corporate transactions required to effect the separation and the
Spin-Off distribution, and provides for the allocation between SunPower and
Maxeon Solar of the assets, liabilities, and obligations of the respective
companies as of the separation. In addition, the Separation and Distribution
Agreement, together with certain Ancillary Agreements, provide a framework for
the relationship between SunPower and Maxeon Solar subsequent to the completion
of the Spin-Off. Also on November 8, 2019, we entered into the Investment
Agreement with Maxeon Solar, TZS, and, for the limited purposes set forth
therein, Total. Pursuant to the Investment Agreement, we, Maxeon Solar, TZS and,
with respect to certain provisions, Total have agreed to certain customary
representations, warranties and covenants, including
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certain representations and warranties as to the financial statements, contracts, liabilities, and other attributes of Maxeon Solar, certain business conduct restrictions and covenants requiring efforts to complete the transactions. The Spin-Off is intended to be tax-free to SunPower stockholders.

Common Stock Offering


On November 20, 2019, we completed an offering of 25,300,000 shares of the
Company's common stock at a price of $7.00 per share, which
included 3,300,000 shares issued and sold pursuant to the underwriter's exercise
in full of its option to purchase additional shares, for gross proceeds of
$177.1 million. We received net proceeds of $171.8 million from the offering,
after deducting underwriter discounts which were recorded as a reduction of
additional paid in capital. We incurred other expenses of $1.1 million for the
transaction which was recorded in additional paid in capital ("APIC"). In
addition, we incurred incremental organization costs in connection with the
offering of $1.3 million which was recorded in the consolidated statement of
operations. We intend to use the net proceeds from the offering for general
corporate purposes, including partially funding the repayment of our senior
convertible debentures. Refer to "Item 8. Financial Statements and Supplementary
Data-Notes to Consolidated Financial Statements- Note 18. Subsequent Events" for
further details.

Segments Overview

Consistent with fiscal 2018, our segment reporting consists of upstream and
downstream structure. Under this segmentation, the SunPower Energy Services
Segment ("SunPower Energy Services" or "Downstream") refers to sales of solar
energy solutions in the North America region previously included in the legacy
Residential Segment and Commercial Segment (collectively previously referred to
as "Distributed Generation" or "DG") including direct sales of turn-key
engineering, procurement and construction ("EPC") services, sales to our
third-party dealer network, sales of energy under power purchase agreements
("PPAs"), storage solutions, cash sales and long-term leases directly to end
customers, and sales to resellers. SunPower Energy Services Segment also
includes sales of our global Operations and Maintenance ("O&M") services. The
SunPower Technologies Segment ("SunPower Technologies" or "Upstream") refers to
our technology development, worldwide solar panel manufacturing operations,
equipment supply to resellers, commercial and residential end-customers outside
of North America ("International DG"), and worldwide power plant project
development and project sales. Some support functions and responsibilities have
been shifted to each segment, including financial planning and analysis, legal,
treasury, tax and accounting support and services, among others.

The operating structure provides our management with a comprehensive financial
overview of our key businesses. The application of this structure permits us to
align our strategic business initiatives and corporate goals in a manner that
best focuses our businesses and support operations for success.

Our Chief Executive Officer, as the chief operating decision maker ("CODM"),
reviews our business, manages resource allocations and measures performance of
our activities between the SunPower Energy Services Segment and SunPower
Technologies Segment.

For more information about our business segments, see the section titled "Part
I. Item 1. Business" of our Annual Report on Form 10-K for the fiscal year ended
December 29, 2019. For more segment information, see "Item 1. Financial
Statements-Note 17. Segment Information and Geographical Information" in the
notes to the consolidated financial statements in this Annual Report on Form
10-K.

Fiscal Years

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. Fiscal
2019, 2018 and 2017 are 52 week fiscal years. Our fiscal 2019 ended on December
29, 2019, fiscal 2018 ended on December 30, 2018 and fiscal 2017 ended on
December 31, 2017.

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Outlook

Demand

During fiscal 2019, we faced market challenges, including competitive solar
product pricing pressure and the impact of tariffs imposed pursuant to Section
201 and Section 301 of the Trade Act of 1974. On February 7, 2018, tariffs went
into effect pursuant to Proclamation 9693, which approved recommendations to
provide relief to U.S. manufacturers and imposed safeguard tariffs on imported
solar cells and modules, based on the investigations, findings, and
recommendations of the International Trade Commission. While solar cells and
modules based on interdigitated back contact ("IBC") technology, like our
X-Series (Maxeon 3), E-Series (Maxeon 2)A-Series (Maxeon 5) panels and related
products, were granted exclusion from these safeguard tariffs on September 19,
2018, our solar products based on other technologies continue to be subject to
the safeguard tariffs. On June 13, 2019, the Office of the United States Trade
Representative ("USTR") published a notice describing its grant of exclusion
requests for three additional categories of solar products. Beginning on June
13, 2019, the following categories of solar products are not subject to the
Section 201 safeguard tariffs: (i) bifacial solar panels that absorb light and
generate electricity on each side of the panel and that consist of only bifacial
solar cells that absorb light and generate electricity on each side of the
cells; (ii) flexible fiberglass solar panels without glass components other than
fiberglass, such panels having power outputs ranging from 250 to 900 watts; and
(iii) solar panels consisting of solar cells arranged in rows that are laminated
in the panel and that are separated by more than 10 mm, with an optical film
spanning the gaps between all rows that is designed to direct sunlight onto the
solar cells, and not including panels that lack said optical film or only have a
white or other backing layer that absorbs or scatters sunlight. We are working
to understand the opportunities and challenges created by the exclusion of these
products, as well as the impact of the exclusions on the demand and availability
of competing products. However, the excluded technologies currently represent a
small percentage of the global solar market.

Additionally, the USTR initiated an investigation under Section 301 of the Trade
Act of 1974 into the government of China's acts, policies, and practices related
to technology transfer, intellectual property, and innovation. The USTR imposed
additional import duties of up to 25% on certain Chinese products covered by the
Section 301 remedy. These tariffs include certain solar power system components
and finished products, including those purchased from our suppliers for use in
our products and used in our business. In the near term, imposition of these
tariffs - on top of anti-dumping and countervailing duties on Chinese solar
cells and modules, imposed under the prior administration - is likely to result
in a wide range of impacts to the U.S. solar industry, global manufacturing
market and our business. Such tariffs could cause market volatility, price
fluctuations, and demand reduction. Uncertainties associated with the Section
201 and Section 301 trade cases prompted us to adopt a restructuring plan and
implement initiatives to reduce operating expenses and cost of revenue overhead
and improve cash flow. During fiscal 2019 and 2018, we incurred total tariffs
charges of approximately $6.5 million and $42.5 million, respectively.

In fiscal 2019, focused on investments that we expected would offer the best
opportunities for growth including our industry-leading A-Series (Maxeon 5) cell
and panel technology, solar-plus-storage solutions and digital platform to
improve customer service and satisfaction in our SunPower Energy Services
offerings. We believe that our strategic decision to re-segment our business
into an upstream and downstream structure, to focus our downstream efforts on
our leading U.S. DG business while growing global sales of our upstream solar
panel business through our SunPower Technologies business segment, will improve
transparency and enable us to regain profitability.

In late fiscal 2015, the U.S. government enacted a budget bill that extended the
solar commercial investment tax credit (the "Commercial ITC") under Section
48(c) of the Code, and the individual solar investment tax credit under Section
25D of the Code (together with the Commercial ITC, the "ITC") for five years, at
rates gradually decreasing from 30% through 2019 to 22% in 2021. After 2021, the
Commercial ITC is retained at 10% while the individual solar investment tax
credit is reduced to 0%. In fiscal 2019 we completed a transaction to purchase
solar equipment in accordance with IRS safe harbor guidance, allowing us to
preserve the current ITC rates for solar projects that are completed after the
scheduled reduction in rates. During December 2017, the current administration
and Congress passed comprehensive reform of the Code which resulted in the
reduction or elimination of various industry-specific tax incentives in return
for an overall reduction in corporate tax rates. These changes are likely to
result in a wide range of impacts to the U.S. solar industry and our business.
For more information about how we avail ourselves of the benefits of public
policies and the risks related to public policies, please see the risk factors
set forth under the caption "Part I. Item 1A. Risk Factors-Risks Related to Our
Sales Channels," including "-The reduction, modification or elimination of
government incentives could cause our revenue to decline and harm our financial
results" and "-Existing regulations and policies and changes to these
regulations and policies may present technical, regulatory, and economic
barriers to the purchase and use of solar power products, which may
significantly reduce demand for our products and services."

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Supply

We are focused on delivering complete solar power generation solutions to our
customers. As part of our solutions-focused approach, we launched our SunPower
Helix product for our commercial business customers during fiscal 2015 and our
SunPower Equinox product for our residential business customers during fiscal
2016. The Equinox and Helix systems are pre-engineered modular solutions for
residential and commercial applications, respectively, that combine our
high-efficiency solar module technology with integrated plug-and-play power
stations, cable management systems, and mounting hardware that enable our
customers to quickly and easily complete system installations and manage their
energy production. Our Equinox systems utilize our latest Maxeon Gen 3 cell and
ACPV technology for residential applications, where we are also expanding our
initiatives on storage and Smart Energy solutions. Additionally, we continue to
focus on producing our new lower cost, high efficiency P-Series product line and
our A-Series (Maxeon 5) product line, which will enhance our ability to rapidly
expand our global footprint with minimal capital cost.

We continue to see significant and increasing opportunities in technologies and
capabilities adjacent to our core product offerings that can significantly
reduce our customers' CCOE, including the integration of energy storage and
energy management functionality into our systems, and have made investments to
realize those opportunities, enabling our customers to make intelligent energy
choices by addressing how they buy energy, how they use energy, and when they
use it. We have added advanced module-level control electronics to our portfolio
of technology designed to enable longer series strings and significant balance
of system components cost reductions in large arrays. We currently offer solar
panels that use microinverters designed to eliminate the need to mount or
assemble additional components on the roof or the side of a building and enable
optimization and monitoring at the solar panel level to ensure maximum energy
production by the solar system.

We continue to improve our unique, differentiated solar cell and panel
technology. We emphasize improvement of our solar cell efficiency and LCOE and
CCOE performance through enhancement of our existing products, development of
new products and reduction of manufacturing cost and complexity in conjunction
with our overall cost-control strategies. We are now producing production
efficiencies for our solar cells of over 25% and our solar panels of over 22%.

We monitor and change our overall solar cell manufacturing output in an ongoing
effort to match profitable demand
levels, with increasing bias toward our highest efficiency X-Series (Maxeon 3)
product platform, which utilizes our latest solar cell technology, and our
P-Series product, which utilizes conventional cell technology that we purchase
from third parties in low-cost supply chain ecosystems such as China. We are
focusing on our latest generation, lower cost panel assembly facilities in
Mexico. We are also increasing production of our new P-Series technology at our
newly-acquired U.S. manufacturing facility.

We are focused on reducing the cost of our solar panels and systems, including
working with our suppliers and partners along all steps of the value chain to
reduce costs by improving manufacturing technologies, expanding economies of
scale and reducing manufacturing cost and complexity in conjunction with our
overall cost-control strategies. We believe that the global demand for solar
systems is highly elastic and that our current aggressive, but achievable, cost
reduction roadmap will reduce installed costs for our customers across both of
our business segments and drive increased demand for our solar solutions.

We also work with our suppliers and partners to ensure the reliability of our
supply chain. We have contracted with some of our suppliers for multi-year
supply agreements, under which we have annual minimum purchase obligations. For
more information about our purchase commitments and obligations, see "Liquidity
and Capital Resources-Contractual Obligations" and "Item 1. Financial
Statements-Note 4. Business Divestiture and Sale of Assets" and "Note 9.
Commitments and Contingencies."

We currently believe our supplier relationships and various short- and long-term
contracts will afford us the volume of material and services required to meet
our planned output; however, we face the risk that the pricing of our long-term
supply contracts may exceed market value. For example, we purchase our
polysilicon under fixed-price long-term supply agreements. The pricing under
these agreements significantly in excess of market value results in inventory
write-downs based on expected net realizable value. Additionally, existing
arrangements from prior years have resulted in above current market pricing for
purchasing polysilicon, resulting in inventory losses we have realized. For
several years now, we have elected to sell polysilicon inventory in excess of
short-term needs to third parties at a loss, and may enter into further similar
transactions in future periods. For more information about these risks, see the
risk factors set forth under the caption "Part 1. Item 1A. Risk Factors-Risks
Related to Our Supply Chain," including "-Our long-term, firm commitment supply
agreements could result in excess or insufficient inventory, place us at a
competitive disadvantage on pricing, or lead to disputes, each of which could
impair our ability to meet our cost reduction roadmap, and in some circumstances
may force us to take a significant accounting charge" and "-We will continue to
be dependent on a limited number of third-party suppliers for certain raw
materials and
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components for our products, which could prevent us from delivering our products
to our customers within required time frames and could in turn result in sales
and installation delays, cancellations, penalty payments and loss of market
share."

Results of Operations


Results of operations in dollars and as a percentage of net revenue were as
follows:

                                                                                                      Fiscal Year Ended
                                                    December 29, 2019December 30, 2018                                               December 31, 2017
                                        in thousands               % of Revenue            in thousands              % of Revenue            in thousands              % of Revenue
Total revenue                               1,864,225                        100               1,726,085                       100               1,794,047                       100
Total cost of revenue                       1,738,320                         93               2,023,166                       117               1,812,692                       101
Gross profit (loss)                           125,905                          7                (297,081)                      (17)                (18,645)                       (1)
Research and development                       67,515                          4                  81,705                         5                  82,247                         5
Sales, general and
administrative                                260,443                         14                 260,111                        15                 278,645                        16
Restructuring charges                          14,110                          1                  17,497                         1                  21,045                         1
Loss on sale and impairment of
residential lease assets                       25,352                          1                 251,984                        15                 624,335                        35
Gain on business divestitures                (143,400)                        (8)                (59,347)                       (3)                      -                         -
Operating loss                                (98,115)                        (5)               (849,031)                      (50)             (1,024,917)                      (56)
Other income (expense), net                   124,083                          7                 (49,640)                       (3)               (175,833)                      (10)
Income (loss) before income
taxes and equity in losses of
unconsolidated investees                       25,968                          2                (898,671)                      (53)             (1,200,750)                      (66)
(Provision) benefit for income
taxes                                         (26,631)                        (1)                 (1,010)                        -                   3,944                         -
Equity in earnings (losses) of
unconsolidated investees                       (7,058)                         -                 (17,815)                       (1)                 25,938                         1
Net loss                                       (7,721)                        (1)               (917,496)                      (54)             (1,170,868)                      (65)
Net loss attributable to
noncontrolling interests and
redeemable noncontrolling
interests                                      29,880                          2                 106,405                         6                 241,747                        13
Net income (loss) attributable
to stockholders                        $       22,159                          1          $     (811,091)                      (48)         $     (929,121)                      (52)



Total Revenue:

Our total revenue increased by 8% during fiscal 2019 as compared to 2018, primarily due to an increase in our SunPower Technologies Segment. Increase and decrease by segments is further discussed below.


Our total revenue decreased by 4% during fiscal 2018 as compared to fiscal 2017,
primarily due to reduced sales in our SunPower Technologies Segment in the U.S.
and in Asia as result of our decision to cease the development of large-scale
solar power projects. We sold our remaining U.S. power plant development
portfolio in the third quarter of fiscal 2018. This was partially offset by an
increase in our SunPower Energy Services Segment in the proportion of capital
leases placed in service relative to total leases placed in service under our
residential leasing program within the U.S., as well as stronger sales of solar
power systems and components to residential customers in all regions, and
stronger sales of commercial solar power projects in all regions.

We did not have customers that accounted for greater than 10% of total revenue in the years ended December 29, 2019 and December 30, 2018.

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Revenue - by Segment:

A description of our segments, along with other required information can be found in Note 17, "Segment and Geographical Information" of the consolidated financial statements in Item 8 of Part II, which is incorporated herein by reference.

Below, we have further discussed increase and decrease in revenue for each segment.


                                                                                                     Fiscal Year
(In thousands, except percentages)               December 29, 2019            % Change            December 30, 2018            % Change            December 31, 2017
SunPower Energy Services                        $       1,148,006                     -  %       $       1,143,967                    (2) %       $       1,170,253
SunPower Technologies1                                  1,314,076                    24  %               1,059,506                   (26) %               1,425,254
Intersegment Eliminations and other                      (597,857)                   25  %                (477,388)                  (40) %                (801,460)
Total Revenue                                           1,864,225                     8  %               1,726,085                    (4) %               1,794,047



SunPower Energy Services

Overall, revenue for the segment remained flat during fiscal 2019 as compared to
fiscal 2018. Higher volume of sales to our residential customers, was partially
offset by a decrease in our commercial business.

Revenue from residential customers increased 10% during fiscal 2019 as compared
to fiscal 2018, primarily due to a higher volume in residential deals, as well
as an increase in the sales of solar power components and systems to our
residential customers in the U.S., partially offset by lower third-party dealer
cash transactions. Revenue from commercial customers decreased 24% during fiscal
2019 as compared to fiscal 2018 primarily due to reduction in power generation
revenue due to sale of our commercial sale-leaseback portfolio in the first and
second quarters of fiscal 2019, and lower volume of systems sales and EPC
contracts.

Revenue from residential customers increased 28% during fiscal 2018 as compared
to fiscal 2017, primarily due to a higher volume in residential deals together
with the increased proportion of capital leases placed in service relative to
total leases placed in service under our residential leasing program within the
U.S., as well as an increase in the sales of solar power components and systems
to our residential customers in the U.S., partially offset by lower third-party
dealer cash transactions. Revenue from commercial customers decreased 57% during
fiscal 2018 as compared to fiscal 2017 primarily because of weaker sales of EPC
and PPA commercial systems.

SunPower Technologies

Revenue for the segment increased 24% during fiscal 2019 as compared to fiscal
2018, primarily due to higher volume of module sales in Europe and Asia, as well
as revenue from sale of development projects in Japan, Chile, and Mexico.

Revenue for the segment decreased 26% during fiscal 2018 as compared to fiscal
2017, primarily due to divesting our U.S. power plant development portfolio
during the third quarter of fiscal 2018 partially offset by increased sales of
power plant development and solar power solutions sales in regions outside of
the U.S.

Concentrations:

Our SunPower Energy Services Segment as a percentage of total revenue recognized
was 62% during fiscal 2019 as compared to 66% during fiscal 2018. The relative
change in revenue for SunPower Energy Services Segment as a percentage of total
revenue recognized reflects the impact of a significant increase in revenue in
SunPower Technologies Segment. Our SunPower Technologies Segment as a percentage
of total revenue recognized was 70% during fiscal 2019, as compared to 61%
during fiscal 2018. The relative change in revenue for SunPower Technologies
Segment as a percentage of total revenue recognized reflects higher volume of
module sales in Europe and Asia, as well as revenue from sale of development
projects in Japan, Chile, and Mexico.
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                                                                    Fiscal 

Year

(As a percentage of total revenue)                       2019            2018           2017
Significant Customer:   Business Segment:
Actis GP LLP            Power Plant               n/a              *             13  %

* percentage is less than 10%.

Total Cost of Revenue:


Our total cost of revenue decreased 14% during fiscal 2019 as compared to fiscal
2018, primarily due to the non-cash impairment charge of $355.1 million during
fiscal 2018, offset by increases in cost of revenue in both SunPower Energy
Services segment and SunPower Technology segment. Increase and decrease by
segments is discussed below in detail.

Our total cost of revenue increased 12% during fiscal 2018 as compared to fiscal
2017, primarily as a result of a non-cash impairment charge of $355.1 million,
total tariffs charge of approximately $42.5 million, higher volume in U.S.
residential deals, and increased cost in solar power solutions in our sales to
commercial customers. The increase was partially offset by lower project cost in
our sales to power plant following our decision to cease the development of
large-scale power projects. During fiscal 2018, we incurred a write-down of
$24.7 million on certain solar development projects which we sold during the
third quarter of fiscal 2018. In addition, we incurred charges totaling
$31.6 million recorded in connection with the contracted sale of raw material
inventory to third parties during 2018.

                                                                                                     Fiscal Year
(In thousands, except percentages)               December 29, 2019            % Change            December 30, 2018            % Change            December 31, 2017
SunPower Energy Services                        $       1,026,832                     2  %       $       1,001,879                    (4) %       $       1,040,885
SunPower Technologies1                                  1,142,671                    10  %               1,040,456                   (19) %               1,289,681
Intersegment elimination and other                       (431,183)                2,149  %                 (19,169)                  (96) %                (517,874)
Total Cost of Revenue                                   1,738,320                   (14) %               2,023,166                    12  %               1,812,692

1 Balance is net of intersegment elimination

Cost of Revenue - by Segment:

Below, we have further discussed increase and decrease in cost of revenue for each segment.


SunPower Energy Services

Cost of revenue for the segment increased by 2% during fiscal 2019 as compared
to fiscal 2018, primarily due to a higher volume of sales to our residential
customers, partially offset by a decrease in our commercial business as a result
of sale of commercial sale-leaseback portfolio in the first and second quarter
of fiscal 2019.

Cost of revenue for the segment decreased by 4% during fiscal 2018 as compared
to fiscal 2017, primarily due to a higher volume of sales to our residential
customers.

    SunPower Technologies

Cost of revenue for the segment increased by 10% during fiscal 2019 as compared
to fiscal 2018, primarily due to higher volume of module sales in Europe and
Asia, offset by a gain on the sale and leaseback of our Oregon manufacturing
facility, (refer to Note 4 Business Divestiture and Sale of Assets for further
details), as well as a reduction in cost of revenues relating to power plant
development as we ceased the development of large-scale solar power projects in
the fourth quarter of fiscal 2018.

Cost of revenue for the segment decreased by 19% during fiscal 2018 as compared
to fiscal 2017, primarily due to divesting our U.S. power plant development
portfolio during the third quarter of fiscal 2018 partially offset by increased
sales of power plant development and solar power solutions sales in regions
outside of the U.S.

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Gross Margin

Our gross margin increased from (17%) in fiscal 2018 to 7% in fiscal 2019, primarily due to non-cash impairment charges on certain property, plant and equipment recorded in fiscal 2018.

Our gross margin decreased from (1%) in fiscal 2017 to (17%) in fiscal 2018, primarily due to non-cash impairment charges on certain property, plant and equipment recorded in fiscal 2018.

Gross Margin - by Segment

                                        Fiscal Year
                                 2019         2018      2017
SunPower Energy Services            11  %     12  %     11  %
SunPower Technologies               13  %      2  %     10  %



SunPower Energy Services

Gross margin for the segment decreased by 1% during fiscal 2019 as compared to
fiscal 2018, primarily as a result of lower margin on sales in our residential
business and higher project costs in our commercial business.

Gross margin for our SunPower Energy Services Segment increased by 1% during
fiscal 2018 as compared to fiscal 2017. Gross margin improved primarily due to a
higher volume in residential deals together with the increased proportion of
capital leases placed in service on residential sales, offset by lower margin on
sales to residential customers and higher cost incurred related to solar power
solutions deals.

SunPower Technologies

Gross margin for the segment increased by 11%, during fiscal 2019 as compared to
fiscal 2018, primarily due to higher volume of module sales in Europe and Asia,
as well as the sale of development projects in Japan and Chile, and profit
contributed by the gain on sale and leaseback of our Oregon manufacturing
facility.

    Gross margin for our SunPower Technologies Segment decreased by 8% during
fiscal 2018 as compared to fiscal 2017, primarily as a result of lower volume in
sales, and reduction due to pressure on project pricing due to increased global
competition and other factors.

Research and Development ("R&D")

                                                        Fiscal Year
(In thousands, except percentages)           2019           2018          2017
R&D                                         67,515        81,705        82,247
As a percentage of revenue                       4  %          5  %          5  %



R&D expense decreased by $14.2 million during the fiscal 2019 as compared to
fiscal 2018, primarily due to a decrease in labor and facility costs as a result
of reductions in headcount driven by our February 2018 restructuring plan.

R&D expense decreased by $0.5 million during fiscal 2018 as compared to fiscal
2017. The decrease was primarily due to a decrease in labor costs as a result of
reductions in headcount and salary expenses driven by our February 2018
restructuring plan. The decrease was partially offset by the impairment of
property, plant and equipment related to R&D facilities of $12.8 million.

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Sales, General and Administrative ("SG&A")

                                                       Fiscal Year
(In thousands, except percentages)         2019           2018           2017
SG&A                                     260,443        260,111        278,645
As a percentage of revenue                    14  %          15  %          16  %



SG&A expense increased by $0.3 million during fiscal 2019 as compared to fiscal
2018 primarily due to an increase in transaction expenses incurred as a result
of the proposed spin-off, as well as organization expenses incurred as a result
of the equity offering in the fourth quarter of 2019, offset by reductions in
headcount and salary expenses driven by our February 2018 restructuring plan and
ongoing cost reduction efforts.

SG&A expense decreased by $18.5 million during fiscal 2018 as compared to fiscal
2017 primarily due to reductions in headcount and salary expenses driven by our
February 2018 restructuring plan and ongoing cost reduction efforts.

Restructuring Charges

                                                      Fiscal Year
(In thousands, except percentages)         2019           2018          2017
Restructuring charges                     14,110        17,497        21,045
As a percentage of revenue                     1  %          1  %          1  %



Restructuring charges decreased by $3.4 million during fiscal 2019 as compared
to fiscal 2018, due to lower severance charges incurred in fiscal 2019 in
connection with the newly implemented December 2019 restructuring plan compared
to February 2018 restructuring plan. During the fourth quarter of fiscal 2019,
we adopted a restructuring plan ("December 2019 Restructuring Plan") to realign
and optimize workforce requirements in light of recent changes to its business,
including the previously announced planned spin-off of Maxeon Solar. Total costs
incurred under the December 2019 Plan during fiscal 2019 was $7.4 million. See
"Item 8. Financial Statements and Supplementary Data-Notes to Consolidated
Financial Statements-Note 8 Restructuring" in the Notes to the consolidated
financial statements in this annual report on Form 10-K for further information
regarding our restructuring plans. As a result of the December 2019
Restructuring Plan, we expect to generate total cost savings of $1.3 million of
operating expenses and $1.3 million of cost of goods sold, which are expected to
be cash savings, primarily from a reduction in U.S. workforce, with effects
beginning the first quarter of 2020. Actual savings realized may, however,
differ if our assumptions are incorrect or if other unanticipated events occur.

Restructuring charges decreased by $3.5 million during fiscal 2018 as compared
to fiscal 2017, primarily because we have incurred slightly lower severance and
benefits charges in connection with the February 2018 restructuring plan
compared to the facilities related expenses in the prior periods in connection
with our December 2016 restructuring plan. See "Item 8. Financial
Statements-Note 9. Restructuring" in the Notes to the Consolidated Financial
Statements in this Annual Report on Form 10-K for further information regarding
our restructuring plans. As a result of the February 2018 restructuring plan, we
expected to generate annual cost savings of approximately $20.5 million in
operating expenses, which are expected to be cash savings primarily from a
reduction in global workforce, and the effects commenced in the first quarter of
fiscal 2018. Actual savings realized may, however, differ if our assumptions are
incorrect or if other unanticipated events occur.

Loss on sale and impairment of residential lease assets

                                                                                            Fiscal Year
(In thousands, except percentages)                                   2019                      2018                      2017
Loss on sale and impairment of residential lease assets                 25,352                   251,984                   624,335
As a percentage of revenue                                                   1  %                     15  %                     35  %



Loss on sale and impairment of residential lease assets decreased by $226.6
million during the fiscal 2019 as compared to fiscal 2018, primarily due to the
sale of a majority of our residential lease assets portfolio in the fourth
quarter of fiscal 2018. During fiscal year 2019, we sold the remaining portion
of the portfolio of residential lease assets to SunStrong Capital Holdings, LLC,
and recorded a loss on sale of $7.2 million.

In the fourth quarter of fiscal 2017, in conjunction with our efforts to
generate more available liquid funds in the near-term, we made the decision to
sell a portion of our interest in our Residential Lease Portfolio. As a result,
in the fourth quarter
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of fiscal 2017, we determined it was necessary to evaluate the potential for
impairment in our ability to recover the carrying amount of our Residential
Lease Portfolio. As a result of our evaluation, we recognized noncash impairment
charges of $624.3 million. In fiscal 2018, we continued recording additional
non-cash impairment charges through the sale of a portion of our equity
interests in SunStrong, our previously wholly-owned subsidiary, to Hannon
Armstrong in November 2018. During the year ended December 30, 2018, we
recognized, in aggregate, loss on sale and impairment of residential lease
assets of $252.0 million on the consolidated statements of operations for fiscal
2018. See Note 4. Business Divestitures and Sale of Assets for further details.
Gain on business divestiture
                                                      Fiscal Year
(In thousands, except percentages)          2019             2018         2017
Gain on business divestiture            $ (143,400)$ (59,347)      $ -
As a percentage of revenue                      (8) %           (3) %      -  %



Gain on business divestiture increased by $84.1 million during the fiscal 2019
as compared to fiscal 2018, primarily due to the gain on the sale of our
commercial sale-leaseback portfolio of $143.4 million, compared to the gain on
sale of $59.3 million for the sale of our microinverter business recorded during
fiscal 2018.

Gain on business divestiture increased by $59.3 million during the fiscal 2018
as compared to fiscal 2017, primarily due to the gain on sale of $59.3 million
for sale of our microinverter business recorded in fiscal 2018.

Other Income (Expense), Net

                                                           Fiscal Year
(In thousands, except percentages)            2019            2018            2017
Interest income                           $   2,702$   3,057$    2,100
Interest expense                            (53,353)       (108,011)         (90,288)
Other Income (expense):
Other, net                                  174,734          55,314          (87,645)
Other income (expense), net               $ 124,083$ (49,640)$ (175,833)
As a percentage of revenue                        7  %           (3) %           (10) %


Interest expense decreased $54.7 million during fiscal 2019 as compared to fiscal 2018, primarily due to elimination of the non-recourse residential financing obligations in connection with the sale of the Residential Lease Portfolio in November 2018, as well as the elimination of the sales-leaseback financing obligations in connection with the sale of the commercial sale-leaseback portfolio during the first and second quarters of fiscal 2019.

Interest expense increased $17.7 million in fiscal 2018 as compared to fiscal 2017 primarily due to new debt and new commercial sale-leaseback arrangements.


Other income increased by $119.4 million during fiscal 2019 as compared to
fiscal 2018, primarily due to a $158.3 million gain on an equity investment with
readily determinable fair value in fiscal 2019, as compared to a loss of $6.4
million in fiscal 2018. Additionally, gain on sale of equity investments during
fiscal 2019 was $17.7 million, compared to $54.2 million in fiscal 2018.

Other income increased by $143.0 million in fiscal 2018 as compared to fiscal
2017. The change is primarily due to a $54.2 million gain on the sale of our
equity method investments in fiscal 2018, a $73.0 million impairment charge in
fiscal 2017 in our 8point3 Energy Partners LP equity investment balance due to
the adoption of ASC 606 which materially increased the investment balance and
consequently, led to the recognition of an other-than-temporary impairment in
the first quarter of fiscal 2017.






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Income Taxes

                                                            Fiscal Year
(In thousands, except percentages)                2019           2018       

2017

Benefit from (provision for) income taxes (26,631) (1,010)

3,944

As a percentage of revenue                           (1) %          -  %    

- %




In the year ended December 29, 2019, our income tax provision of $26.6 million
on a profit before income taxes and equity in earnings (losses) of
unconsolidated investees of $26.0 million was primarily due to related tax
expense in foreign jurisdictions that were profitable. In the year ended
December 30, 2018, our income tax provision of $1.0 million on a loss before
income taxes and equity in earnings of unconsolidated investees of $898.7
million was also primarily due to tax expense in foreign jurisdictions that were
profitable, offset by tax benefit related to release of valuation allowance in a
foreign jurisdiction and release of tax reserve due to lapse of statutes of
limitation. The income tax benefit of $3.9 million in the year ended
December 31, 2017 on a loss before income taxes and equity in earnings of
unconsolidated investees of $1,200.8 million, was primarily due to the related
tax effects of the carryback of fiscal 2016 net operating losses to fiscal 2015
domestic tax returns, partially offset by tax expense in profitable
jurisdictions.

We record a valuation allowance to reduce our deferred tax assets in the U.S.,
Malta, South Africa, Spain, and Mexico to the amount that is more likely than
not to be realized. In assessing the need for a valuation allowance, we consider
historical levels of income, expectations and risks associated with the
estimates of future taxable income and ongoing prudent and feasible tax planning
strategies. In the event we determine that we would be able to realize
additional deferred tax assets in the future in excess of the net recorded
amount, or if we subsequently determine that realization of an amount previously
recorded is unlikely, we would record an adjustment to the deferred tax asset
valuation allowance, which would change income tax in the period of adjustment.

A material amount of our total revenue is generated from customers located
outside of the United States, and a substantial portion of our assets and
employees are located outside of the United States. Because of the one-time
transition tax related to the Tax Cuts and Jobs Act enacted in 2017, a
significant portion of the accumulated foreign earnings were deemed to have been
repatriated, and accordingly taxed, and were no longer subject to the U.S.
federal deferred tax liability, and the post-2017 accumulated foreign-sourced
earnings are generally not taxed in the U.S. upon repatriation. Foreign
withholding taxes have not been provided on the existing undistributed earnings
of our non-U.S. subsidiaries as of December 29, 2019 as these are intended to be
indefinitely reinvested in operations outside the United States.

In June 2019, the U.S. Court of Appeals for the Ninth Circuit overturned the
2015 U.S. tax court decision in Altera Co v. Commissioner, regarding the
inclusion of stock-based compensation costs under cost sharing agreements. In
July 2019, Altera Corp., a subsidiary of Intel Inc., requested en banc review of
the decision from the Ninth Circuit panel and the request was denied in November
2019. In February 2020, Altera Corp. petitioned the U.S. Supreme Court for
review. While a final decision remains outstanding, we quantified and recorded
the impact of the case of $5.8 million as a reduction to deferred tax asset,
fully offset by a reduction to valuation allowance of the same amount, without
any income tax expense impact. If the Altera Ninth Circuit opinion is reversed
by the U.S. Supreme Court, we would anticipate unwinding the reduction to both
deferred tax asset and valuation allowance impact as aforementioned. We will
continue to monitor the effects of the case's outcome on our tax provision and
related disclosures once more information becomes available.

Equity in Earnings (Losses) of Unconsolidated Investees

                                                                                   Fiscal Year
(In thousands, except percentages)                                  2019               2018               2017

Equity in earnings (losses) of unconsolidated investees $ (7,058)

        $ (17,815)$  25,938
As a percentage of revenue                                              -  %              (1) %               1  %



Our equity in losses of unconsolidated investees decreased by $10.8 million in
fiscal 2019 as compared to fiscal 2018, primarily driven by a decrease in our
share of losses of unconsolidated investees, specifically, 8point3 Energy
Partners and its affiliates (the "8point3 Group") which we divested in June
2018.

 Our equity in earnings (losses) of unconsolidated investees decreased $43.8
million in fiscal 2018 as compared to fiscal 2017, primarily driven by the
activities of the 8point3 Group, which we divested in June 2018. As a result of
this transaction, we received, after the payment of fees and expenses, merger
proceeds of approximately $359.9 million in cash and no longer
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directly or indirectly owns any equity interests in the 8point3 Group. In
connection with the sale, we recognized a $34.4 million gain within "Other, net"
in "Other income (expense), net" of our consolidated statements of operations
for fiscal 2018.

Net Loss Attributable to Noncontrolling Interests and Redeemable Noncontrolling Interests

                                                                                   Fiscal Year
(In thousands, except percentages)                                  2019               2018               2017

Net loss attributable to noncontrolling interests and redeemable noncontrolling interests

                             $  29,880

$ 106,405$ 241,747




We have entered into facilities with third-party tax equity investors under
which the investors invest in a structure known as a partnership flip. We
determined that we hold controlling interests in these less-than-wholly-owned
entities and therefore we have fully consolidated these entities. We apply the
HLBV method in allocating recorded net income (loss) to each investor based on
the change in the reporting period, of the amount of net assets of the entity to
which each investor would be entitled to under the governing contractual
arrangements in a liquidation scenario.

In fiscal 2019, we attributed $29.9 million of net losses primarily to the
third-party investors as a result of allocating certain assets, including tax
credits and accelerated tax depreciation benefits, to the investors. The $76.5
million decrease in net loss attributable to noncontrolling interests and
redeemable noncontrolling interests is primarily due to the deconsolidation of a
majority of our residential lease assets in the last quarter of fiscal 2018 and
during the third quarter of fiscal 2019, and partially offset by an increase in
contributions by Hannon Armstrong for the equity interest in a new joint venture
formed during the third quarter of fiscal 2019.

In fiscal 2018 and 2017, we attributed $106.4 million and $241.7 million,
respectively, of net losses primarily to the third-party investors as a result
of allocating certain assets, including tax credits and accelerated tax
depreciation benefits, to the investors. The $135.3 million increase in net loss
attributable to noncontrolling interests and redeemable noncontrolling interests
is primarily attributable to the allocated portion of the impairment charge
related to our residential lease assets of $150.6 million (see "Item 1.
Financial Statements-Note 7. Leasing"), and an increase in total number of
leases placed in service under new and existing facilities with third-party
investors.

Critical Accounting Estimates


We prepare our consolidated financial statements in conformity with U.S.
generally accepted accounting principles, which requires management to make
estimates and assumptions that affect the amounts of assets, liabilities,
revenues, and expenses recorded in our financial statements. We base our
estimates on historical experience and on various other assumptions that we
believe to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results may differ from
these estimates under different assumptions and conditions. In addition to our
most critical estimates discussed below, we also have other key accounting
policies that are less subjective and, therefore, judgments involved in their
application would not have a material impact on our reported results of
operations (See "Item 8. Financial Statements and Supplementary Data-Notes to
Consolidated Financial Statements-Note 1. Organization and Summary of
Significant Accounting Policies").


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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 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 our joint venture for residential projects, we
recognize revenue at the point-in-time when such systems are placed in service.
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.

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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 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.

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 classified as finance 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 and Sale of Assets, for details of the
sale of our commercial sale-leaseback portfolio during fiscal 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.

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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.
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 consolidated statement of
operations.

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.

Impairment of Residential Lease Assets


We evaluate our long-lived assets, including property, plant and equipment,
solar power systems leased and to be leased, and other intangible assets with
finite lives, for impairment whenever events or changes in circumstances
indicate that the carrying value of such assets may not be recoverable. Factors
considered important that could result in an impairment review include
significant under-performance relative to expected historical or projected
future operating results, significant changes in the manner of use of acquired
assets, and significant negative industry or economic trends. Our impairment
evaluation of long-lived assets includes an analysis of estimated future
undiscounted net cash flows expected to be generated by the assets over their
remaining estimated useful lives. If our estimate of future undiscounted net
cash flows is insufficient to recover the carrying value of the assets over the
remaining estimated useful lives, we record an impairment loss in the amount by
which the carrying value of the assets exceeds the fair value. Fair value is
generally measured based on either quoted market prices, if available, or
discounted cash flow analysis.

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Financing receivables are generated by solar power systems leased to residential
customers under sales-type leases. Financing receivables represent gross minimum
lease payments to be received from customers over a period commensurate with the
remaining lease term and the system's estimated residual value, net of unearned
income and allowance for estimated losses. Our evaluation of the recoverability
of these financing receivables is based on evaluation of the likelihood, based
on current information and events, and whether we will be able to collect all
amounts due according to the contractual terms of the underlying lease
agreements. In accordance with this evaluation, we recognize an allowance for
losses on financing receivables based on our estimate of the amount equal to the
probable losses net of recoveries. The combination of the leased solar power
systems discussed in the preceding paragraph together with the lease financing
receivables is referred to as the "Residential Lease Portfolio."

We performed a recoverability test for assets in the residential assets by
estimating future undiscounted net cash flows
expected to be generated by the assets, based on our own specific alternative
courses of action under consideration. The
alternative courses were either to sell or refinance the assets, or hold the
assets until the end of their previously estimated useful
lives. Upon consideration of the alternatives, we determined that market value,
in the form of indicative purchase price from a
third-party investor was available for a portion of our residential assets. As
we intend to sell these remaining residential portfolio assets, we used the
indicative purchase price from a third-party investor as fair value of the
underlying net assets in our impairment evaluation.

Allowance for Doubtful Accounts and Sales Returns


We maintain allowances for doubtful accounts for estimated losses resulting from
the inability of our customers to make required payments. A considerable amount
of judgment is required to assess the likelihood of the ultimate realization of
accounts receivable. We make our estimates of the collectability of our accounts
receivable by analyzing historical bad debts, specific customer creditworthiness
and current economic trends.

In addition, at the time revenue is recognized from the sale of solar panels and
balance of system components, we record estimates for sales returns which reduce
revenue. These estimates are based on historical sales returns and analysis of
credit memo data, among other known factors.

Product Warranties


We generally provide a 25-year standard warranty for solar panels that we
manufacture for defects in materials and workmanship. The warranty provides that
we will repair or replace any defective solar panels during the warranty period.
In addition, we pass through to customers' long-term warranties from the
original equipment manufacturers of certain system components, such as
inverters. Warranties of 25 years from solar panel suppliers are standard in the
solar industry, while certain system components carry warranty periods ranging
from five to 20 years.

In addition, we generally warrant our workmanship on installed systems for
periods ranging up to 25 years and also provide a separate system output
performance warranty to customers that have subscribed to our post-installation
monitoring and maintenance services which expires upon termination of the
post-installation monitoring and maintenance services related to the system. The
warrantied system output performance level varies by system depending on the
characteristics of the system and the negotiated agreement with the customer,
and the level declines over time to account for the expected degradation of the
system. Actual system output is typically measured annually for purposes of
determining whether warrantied performance levels have been met. 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 a liquidated damage based on the value of the shortfall of
energy produced relative to the applicable warrantied performance level.

We maintain reserves to cover the expected costs that could result from these
warranties. Our expected costs are generally in the form of product replacement
or repair. Warranty reserves are based on our best estimate of such costs and
are recognized as a cost of revenue. We continuously monitor product returns for
warranty failures and maintain a reserve for the related warranty expenses based
on various factors including historical warranty claims, results of accelerated
lab testing, field monitoring, vendor reliability estimates, and data on
industry averages for similar products. Due to the potential for variability in
these underlying factors, the difference between our estimated costs and our
actual costs could be material to our consolidated financial statements. If
actual product failure rates or the frequency or severity of reported claims
differ from our estimates or if there are delays in our responsiveness to
outages, we may be required to revise our estimated warranty liability.
Historically, warranty costs have been within management's expectations.

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Inventories


Inventories are accounted for on a first-in-first-out basis and are valued at
the lower of cost or net realizable value. We evaluate the realizability of our
inventories, including future purchase commitments under fixed-price long-term
supply agreements, based on assumptions about expected demand and market
conditions. Our assumption of expected demand is developed based on our analysis
of bookings, sales backlog, sales pipeline, market forecast and competitive
intelligence. Our assumption of expected demand is compared to available
inventory, production capacity, future polysilicon purchase commitments,
available third-party inventory and growth plans. Our factory production plans,
which drive materials requirement planning, are established based on our
assumptions of expected demand. We respond to reductions in expected demand by
temporarily reducing manufacturing output and adjusting expected valuation
assumptions as necessary. In addition, expected demand by geography has changed
historically due to changes in the availability and size of government mandates
and economic incentives.

We evaluate the terms of our long-term inventory purchase agreements with
suppliers for the procurement of polysilicon, ingots, wafers, and solar cells
and establish accruals for estimated losses on adverse purchase commitments as
necessary, such as lower of cost or net realizable value adjustments, forfeiture
of advanced deposits and liquidated damages. Obligations related to
non-cancellable purchase orders for inventories match current and forecasted
sales orders that will consume these ordered materials and actual consumption of
these ordered materials are compared to expected demand regularly. We anticipate
total obligations related to long-term supply agreements for inventories will be
realized because quantities are less than management's expected demand for its
solar power products over a period of years; however, if raw materials inventory
balances temporarily exceed near-term demand, we may elect to sell such
inventory to third parties to optimize working capital needs. In addition,
because the purchase prices required by our long-term polysilicon agreements are
significantly higher than current market prices for similar materials, if we are
not able to profitably utilize this material in our operations or elect to sell
near-term excess, we may incur additional losses. Other market conditions that
could affect the realizable value of our inventories and are periodically
evaluated by management include the aging of inventories on hand, historical
inventory turnover ratio, anticipated sales price, new product development
schedules, the effect new products might have on the sale of existing products,
product obsolescence, customer concentrations, the current market price of
polysilicon as compared to the price in our fixed-price arrangements, and
product merchantability, among other factors. If, based on assumptions about
expected demand and market conditions, we determine that the cost of inventories
exceeds its net realizable value or inventory is excess or obsolete, or we enter
into arrangements with third parties for the sale of raw materials that do not
allow us to recover our current contractually committed price for such raw
materials, we record a write-down or accrual, which may be material, equal to
the difference between the cost of inventories and the estimated net realizable
value. If actual market conditions are less favorable than those projected by
management, additional inventory write-downs may be required that could
negatively affect our gross margin and operating results. If actual market
conditions are more favorable, we may have higher gross margin when products
that have been previously written down are sold in the normal course of
business. Additionally, the Company's classification of its inventory as either
current or long-term inventory requires it to estimate the portion of on-hand
inventory that we estimate will be realized over the next 12 months.

Stock-Based Compensation


We provide stock-based awards to our employees, executive officers and directors
through various equity compensation plans including our employee stock option
and restricted stock plans. We measure and record compensation expense for all
stock-based payment awards based on estimated fair values. The fair value of
restricted stock awards and units is based on the market price of our common
stock on the date of grant. We have not granted stock options since fiscal 2008.
We are required under current accounting guidance to estimate forfeitures at the
date of grant. Our estimate of forfeitures is based on our historical activity,
which we believe is indicative of expected forfeitures. In subsequent periods if
the actual rate of forfeitures differs from our estimate, the forfeiture rates
are required to be revised, as necessary. Changes in the estimated forfeiture
rates can have a significant effect on stock-based compensation expense since
the effect of adjusting the rate is recognized in the period the forfeiture
estimate is changed.

We also grant performance share units to executive officers and certain
employees that require us to estimate expected achievement of performance
targets over the performance period. This estimate involves judgment regarding
future expectations of various financial performance measures. If there are
changes in our estimate of the level of financial performance measures expected
to be achieved, the related stock-based compensation expense may be
significantly increased or reduced in the period that our estimate changes.

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Variable Interest Entities ("VIE")


We regularly evaluate our relationships and involvement with unconsolidated VIEs
and our other equity and cost method investments, to determine whether we have a
controlling financial interest in them or have become the primary beneficiary,
thereby requiring us to consolidate their financial results into our financial
statements. In connection with the sale of the equity interests in the entities
that hold solar power plants, we also consider whether we retain a variable
interest in the entity sold, either through retaining a financial interest or by
contractual means. If we determine that the entity sold is a VIE and that we
hold a variable interest, we then evaluate whether we are the primary
beneficiary. If we determine that we are the primary beneficiary, we will
consolidate the VIE. The determination of whether we are the primary beneficiary
is based upon whether we have the power to direct the activities that most
directly impact the economic performance of the VIE and whether we absorb any
losses or benefits that would be potentially significant to the VIE.

Accounting for Business Divestitures


From time to time, we may dispose of significant assets or portion of our
business by sale or exchange for other assets. In accounting for such
transactions, we apply the applicable guidance of U.S. GAAP pertaining to
discontinued operations and disposals of components of an entity. We assess such
transaction as regards specified significance measures to determine whether a
disposal qualifies as a discontinuance of operations verses a sale of asset
components of our entity. Our assessment includes how such a disposal may
represent a significant strategic shift in our operations and its impact on our
continuing involvement as regards that portion of our business. Instances where
disposals do not remove our ability to participate in a significant portion of
our business are accounted as disposal of assets. Instances where disposals
remove our ability to participate in a significant portion of our business are
accounted as discontinued operations. For additional details see Note 4.
Business Combinations and Divestitures" under "Item 8. Financial Statements and
Supplementary Data-Notes to Consolidated Financial Statements." We charge
disposal related costs that are not part of the consideration to general and
administrative expense as they are incurred. These costs typically include
transaction and disposal costs, such as legal, accounting, and other
professional fees.

Long-Lived Assets


Our long-lived assets include property, plant and equipment, solar power systems
leased and to be leased, and other intangible assets with finite lives. We
evaluate our long-lived assets for impairment whenever events or changes in
circumstances indicate that the carrying value of such assets may not be
recoverable. Factors considered important that could result in an impairment
review include significant under-performance relative to expected historical or
projected future operating results, significant changes in the manner of use of
acquired assets and significant negative industry or economic trends. Our
impairment evaluation of long-lived assets includes an analysis of estimated
future undiscounted net cash flows expected to be generated by the assets over
their remaining estimated useful lives. If our estimate of future undiscounted
net cash flows is insufficient to recover the carrying value of the assets over
the remaining estimated useful lives, we record an impairment loss in the amount
by which the carrying value of the assets exceeds the fair value. Fair value is
generally measured based on either quoted market prices, if available, or
discounted cash flow analyses.

Accounting for Income Taxes


Our global operations involve manufacturing, research and development, and
selling and project development activities. Profit from non-U.S. activities is
subject to local country taxation. It is our intention to indefinitely reinvest
these earnings outside the United States. We record a valuation allowance to
reduce our U.S., Malta, South Africa, Mexico, and Spain entities' deferred tax
assets to the amount that is more likely than not to be realized. In assessing
the need for a valuation allowance, we consider historical levels of income,
expectations and risks associated with the estimates of future taxable income
and ongoing prudent and feasible tax planning strategies. In the event we
determine that we would be able to realize additional deferred tax assets in the
future in excess of the net recorded amount, or if we subsequently determine
that realization of an amount previously recorded is unlikely, we would record
an adjustment to the deferred tax asset valuation allowance, which would change
income tax in the period of adjustment. As of December 29, 2019, we believe
there is insufficient evidence to realize additional deferred tax assets beyond
the U.S. net operating losses that can be benefited through a carryback
election; however, the reversal of the valuation allowance, which could be
material, could occur in a future period.

The calculation of tax expense and liabilities involves dealing with
uncertainties in the application of complex global tax regulations, including in
the tax valuation of projects sold to tax equity partnerships and other third
parties. We recognize potential liabilities for anticipated tax audit issues in
the United States and other tax jurisdictions based on our estimate of whether,
and the extent to which, additional taxes will be due. If payment of these
amounts ultimately proves to be unnecessary, the reversal of the liabilities
would result in tax benefits being recognized in the period in which we
determine the liabilities are
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no longer necessary. If the estimate of tax liabilities proves to be less than
the ultimate tax assessment, a further charge to expense would result. We accrue
interest and penalties on tax contingencies which are classified as "Provision
for income taxes" in our Consolidated Statements of Operations and are not
considered material. In addition, foreign exchange gains (losses) may result
from estimated tax liabilities which are expected to be realized in currencies
other than the U.S. dollar.

Pursuant to the Tax Sharing Agreement with Cypress, our former parent company,
we are obligated to indemnify Cypress upon current utilization of carryforward
tax attributes generated while we were part of the Cypress consolidated or
combined group. Further, to the extent Cypress experiences any tax examination
assessments attributable to our operations while part of the Cypress
consolidated or combined group, Cypress will require an indemnification from us
for those aspects of the assessment that relate to our operations. See also
"Item 1A. Risk Factors - Risks Related to Our Operations-Our agreements with
Cypress require us to indemnify Cypress for certain tax liabilities. These
indemnification obligations and related contractual restrictions may limit our
ability to pursue certain business initiatives."

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Liquidity and Capital Resources

Cash Flows

A summary of the sources and uses of cash, cash equivalents, restricted cash and restricted cash equivalents is as follows:

                                                                                            Fiscal Year Ended
(In thousands)                                                    December 

29, 2019 December 30, 2018December 31, 2017 Net cash used in operating activities

                            $       

(270,413) $ (543,389)$ (267,412) Net cash provided by (used in) investing activities

              $         

21,366 $ 274,900$ (293,084) Net cash provided by financing activities

                        $        344,314          $         85,847          $        589,932



Operating Activities

Net cash used in operating activities for the year ended December 29, 2019 was
$270.4 million and was primarily the result of: (i) $158.3 million
mark-to-market gain on equity investments with readily determinable fair value;
(ii) $143.4 million gain on business divestiture; (iii) $128.4 million increase
in inventories to support the construction of our solar energy projects; (iv)
$66.2 million increase in accounts receivable, primarily driven by billings in
excess of collections; (v) $38.2 million increase in contract assets driven by
construction activities; (vi) $25.2 million gain on sale of assets; (vii)
$17.3 million gain on sale of equity investments without readily determinable
fair value; (viii) $8.9 million decrease in operating lease liabilities; (ix)
$8.8 million increase in prepaid expenses and other assets, primarily related to
movements in prepaid inventory; (x) net loss of $7.7 million; and (xi)
$2.2 million increase in project assets, primarily related to the construction
of our commercial solar energy projects. This was offset by: (i) $80.1 million
depreciation and amortization; (ii) $79.3 million increase in accounts payable
and other accrued liabilities; (iii) $50.2 million increase in advances to
suppliers; (iv) $33.8 million loss on sale and impairment of residential lease
assets; (v) $27.5 million increase in contract liabilities driven by
construction activities; (vi) stock-based compensation of $26.9 million; (vii)
$9.5 million non-cash interest expense; (viii) $8.6 million decrease in
operating lease right-of-use assets; (ix) $7.1 million loss in equity in
earnings of unconsolidated investees; (x) $5.9 million non-cash restructuring
charges; and (xi) $5.0 million net change in deferred income taxes; and (xii)
impairment of long-lived assets of $0.8 million.

In December 2018 and May 2019, we entered into factoring arrangements with two
separate third-party factor agencies related to our accounts receivable from
customers in Europe. As a result of these factoring arrangements, title of
certain accounts receivable balances was transferred to third-party vendors, and
both arrangements were accounted for as a sale of financial assets given
effective control over these financial assets has been surrendered. As a result,
these financial assets have been excluded from our consolidated balance sheets.
In connection with the factoring arrangements, we sold accounts receivable
invoices amounting to $119.4 million and $26.3 million in fiscal 2019 and 2018,
respectively. As of December 29, 2019 and December 30, 2018, total uncollected
accounts receivable from end customers under both arrangements were $11.6
million and $21.0 million, respectively.

Net cash used in operating activities in fiscal 2018 was $543.4 million and was
primarily the result of: (i) net loss of $917.5 million; (ii) $182.9 million
increase in long-term financing receivables related to our net investment in
sales-type leases; (iii) $127.3 million decrease in accounts payable and other
accrued liabilities, primarily attributable to payments of accrued expenses;
(iv) $59.3 million gain on business divestiture; (v) $54.2 million gain on the
sale of equity investments; (vi) $43.5 million increase in contract assets
driven by construction activities; (vii) $39.2 million increase in inventories
due to the support of various construction projects; (viii) $30.5 million
decrease in contract liabilities driven by construction activities; (ix)
$6.9 million increase in deferred income taxes; (x) $6.8 million increase due to
other various activities; and (xi) $0.2 million increase in accounts receivable,
primarily driven by billings. This was partially offset by: (i) impairment of
property, plant and equipment of $369.2 million; (ii) impairment of residential
lease assets of $189.7 million; (iii) net non-cash charges of $162.1 million
related to depreciation, stock-based compensation and other non-cash charges;
(iv) loss on sale of residential lease assets of $62.2 million; (v)
$44.4 million decrease in advance payments made to suppliers; (vi) $39.5 million
decrease in project assets, primarily related to the construction of our
Commercial solar energy projects; (vii) $22.8 million decrease in prepaid
expenses and other assets, primarily related to the receipt of prepaid
inventory; (viii) $17.8 million decrease in equity in earnings of unconsolidated
investees; (ix) $6.9 million net change in income taxes; (x) $6.4 million
unrealized loss on equity investments with readily determinable fair value; and
(xi) $3.9 million dividend from equity method investees.

Net cash used in operating activities in fiscal 2017 was $267.4 million and was
primarily the result of: (i) net loss of $1,170.9 million; (ii) $216.3 million
decrease in accounts payable and other accrued liabilities, primarily
attributable to payment of accrued expenses; (iii) $123.7 million increase in
long-term financing receivables related to our net investment in
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sales-type leases; (iv) $38.2 million increase in inventories to support the
construction of our solar energy projects; (vi) $25.9 million increase in equity
in earnings of unconsolidated investees; (vii) $7.0 million net change in income
taxes; (viii) $5.3 million gain on sale of equity method investment; and
(ix) $1.2 million decrease in accounts receivable, primarily driven by
collections; This was partially offset by: (i) $624.3 million impairment of
residential lease assets; (ii) other net non-cash charges
of $239.6 million related to depreciation, stock-based compensation and other
non-cash charges; (iii) $145.2 million increase in contract liabilities driven
by construction activities; (iv) $110.5 million decrease in prepaid expenses and
other assets, primarily related to the receipt of prepaid inventory; (v)
$89.6 million impairment of 8point3 Energy Partners investment balance;
(vi) $68.8 million decrease in advance payments made to suppliers;
(vii) $30.1 million dividend from 8point3 Energy Partners; (viii)
$10.7 million decrease in contract assets driven by milestone billings; (ix)
$2.3 million decrease in project assets, primarily related to the construction
of our commercial and power plant solar energy projects

Investing Activities


Net cash provided by investing activities in the year ended December 29, 2019
was $21.4 million, which included (i) proceeds of $60.0 million from sale of
property, plant, and equipment; (ii) $42.9 million proceeds from sale of
investments; (iii) net proceeds of $40.5 million from business divestiture; and
(iv) $2.0 million of proceeds resulting from realization of estimated
receivables from a business divestiture. This was offset by (i) cash paid for
solar power systems of $53.3 million; (ii) $47.4 million of purchases of
property, plant and equipment; (iii) cash paid for investments in unconsolidated
investees of $12.4 million; and (iv) $10.9 million of cash de-consolidated from
the sale of residential lease assets.

Net cash provided by investing activities in fiscal 2018 was $274.9 million,
which included (i) proceeds from the sale of investment in joint ventures and
non-public companies of $420.3 million; (ii) proceeds of $23.3 million from
business divestiture; and (iii) a $13.0 million dividend from equity method
investees. This was partially offset by: (i) $167.0 million in capital
expenditures primarily related to the expansion of our solar cell manufacturing
capacity and costs associated with solar power systems, leased and to be leased;
and (ii) $14.7 million paid for investments in consolidated and unconsolidated
investees.

Net cash used in investing activities in fiscal 2017 was $293.1 million, which
included (i) $283.0 million in capital expenditures primarily related to the
expansion of our solar cell manufacturing capacity and costs associated with
solar power systems, leased and to be leased; (ii) $18.6 million paid for
investments in consolidated and unconsolidated investees; and (iii) $1.3 million
purchase of marketable securities. This was partially offset by proceeds from
the sale of investment in joint ventures of $6.0 million and a $3.8 million
dividend from equity method investees.

Financing Activities


Net cash provided by financing activities in the year ended December 29, 2019
was $344.3 million, which included: (i) $171.9 million from the common stock
offering; (ii) $110.9 million in net proceeds of bank loans and other debt;
(iii) $69.2 million net proceeds from the issuance of non-recourse residential
financing, net of issuance costs; (iv) $35.5 million of net contributions from
noncontrolling interests and redeemable noncontrolling interests related to
residential lease projects; (v) $3.0 million of proceeds from issuance of
non-recourse power plant and commercial financing, net of issuance costs. This
was partially offset by (i) $39.0 million of payment associated with prior
business combination; (ii) $5.6 million in purchases of treasury stock for tax
withholding obligations on vested restricted stock; and (iii) $1.6 million
settlement of contingent consideration arrangement, net of cash received.

Net cash provided by financing activities in fiscal 2018 was $85.8 million,
which included: (i) $174.9 million in net proceeds from the issuance of
non-recourse residential financing, net of issuance costs; (ii) $129.3 million
of net contributions from noncontrolling interests and redeemable noncontrolling
interests related to residential lease projects; and (iii) $94.7 million in net
proceeds from the issuance of non-recourse power plant and commercial financing,
net of issuance costs. This was partially offset by: (i) $307.6 million in net
repayments of 0.75% debentures due 2018, bank loans and other debt; and (ii)
$5.5 million in purchases of treasury stock for tax withholding obligations on
vested restricted stock.

Net cash provided by financing activities in fiscal 2017 was $589.9 million,
which included: (i) $351.8 million in net proceeds from the issuance of
non-recourse power plant and commercial financing, net of issuance costs;
(ii) $179.2 million of net contributions from noncontrolling interests and
redeemable noncontrolling interests primarily related to residential lease
projects; and (iii) $82.7 million in net proceeds from the issuance of
non-recourse residential financing, net of issuance costs. This was partially
offset by: (i) 19.1 million in net repayments of bank loans and other debt; and
(ii) $4.7 million in purchases of treasury stock for tax withholding obligations
on vested restricted stock.

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Debt and Credit Sources

Convertible Debentures

As of December 29, 2019, an aggregate principal amount of $425.0 million of the
4.00% senior convertible debentures due 2023 (the "4.00% debentures due 2023")
remained issued and outstanding. The 4.00% debentures due 2023 were issued on
December 15, 2015. Interest on the 4.00% debentures due 2023 is payable on
January 15 and July 15 of each year, beginning on July 15, 2016. Holders are
able to exercise their right to convert the debentures at any time into shares
of our common stock at an initial conversion price approximately equal to $30.53
per share, subject to adjustment in certain circumstances. If not earlier
repurchased or converted, the 4.00% debentures due 2023 mature on January 15,
2023. Holders may require us to repurchase all or a portion of their 4.00%
debentures due 2023, upon a fundamental change, as described in the related
indenture, at a cash repurchase price equal to 100% of the principal amount plus
accrued and unpaid interest. If we undergo a non-stock change of control, as
described in the related indenture, the 4.00% debentures due 2023 will be
subject to redemption at our option, in whole but not in part, for a period of
30 calendar days following a repurchase date relating to the non-stock change of
control, at a cash redemption price equal to 100% of the principal amount plus
accrued and unpaid interest. Otherwise, the 4.00% debentures due 2023 are not
redeemable at our option prior to the maturity date. In the event of certain
events of default, Wells Fargo Bank, National Association ("Wells Fargo"), the
trustee, or the holders of a specified amount of then-outstanding 4.00%
debentures due 2023 will have the right to declare all amounts then outstanding
due and payable.

As of December 29, 2019, an aggregate principal amount of $400.0 million of the
0.875% senior convertible debentures due 2021 (the "0.875% debentures due 2021")
remained issued and outstanding. The 0.875% debentures due 2021 were issued on
June 11, 2014. Interest on the 0.875% debentures due 2021 is payable on June 1
and December 1 of each year. Holders are able to exercise their right to convert
the debentures at any time into shares of our common stock at an initial
conversion price approximately equal to $48.76 per share, subject to adjustment
in certain circumstances. If not earlier repurchased or converted, the 0.875%
debentures due 2021 mature on June 1, 2021. Holders may require us to repurchase
all or a portion of their 0.875% debentures due 2021, upon a fundamental change,
as described in the related indenture, at a cash repurchase price equal to 100%
of the principal amount plus accrued and unpaid interest. If we undergo a
non-stock change of control, as described in the related indenture, the 0.875%
debentures due 2021 will be subject to redemption at our option, in whole but
not in part, for a period of 30 calendar days following a repurchase date
relating to the non-stock change of control, at a cash redemption price equal to
100% of the principal amount plus accrued and unpaid interest. Otherwise, the
0.875% debentures due 2021 are not redeemable at our option prior to the
maturity date. In the event of certain events of default, Wells Fargo, the
trustee, or the holders of a specified amount of then-outstanding 0.875%
debentures due 2021 will have the right to declare all amounts then outstanding
due and payable. (See "Item 8. Financial Statements - Note 18. Subsequent
Event")

Loan Agreement with California Enterprise Development Authority ("CEDA")


On December 29, 2010, we borrowed from CEDA the proceeds of the $30.0 million
aggregate principal amount of CEDA's tax-exempt Recovery Zone Facility Revenue
Bonds (SunPower Corporation - Headquarters Project) Series 2010 (the "Bonds")
maturing April 1, 2031 under a loan agreement with CEDA. Certain of our
obligations under the loan agreement were contained in a promissory note dated
December 29, 2010 issued by us to CEDA, which assigned the promissory note,
along with all right, title and interest in the loan agreement, to Wells Fargo,
as trustee, with respect to the Bonds for the benefit of the holders of the
Bonds. The Bonds bear interest at a fixed-rate of 8.50% per annum. As of
December 29, 2019, the fair value of the Bonds was $32.1 million, determined by
using Level 2 inputs based on quarterly market prices as reported by an
independent pricing source.

As of December 29, 2019, the $30.0 million aggregate principal amount of the Bonds was classified as "Long-term debt" in our consolidated balance sheets.

Revolving Credit Facility with Credit Agricole


On October 29, 2019, we entered into a new Green Revolving Credit Agreement (the
"2019 Revolver") with Crédit Agricole Corporate and Investment Bank ("Credit
Agricole"), as lender, with a revolving credit commitment of $55.0 million. The
2019 Revolver contains affirmative covenants, events of default and repayment
provisions customarily applicable to similar facilities and has a per annum
commitment fee of 0.05% on the daily unutilized amount, payable quarterly. Loans
under the 2019 Revolver bear either an adjusted LIBOR interest rate for the
period elected for such loan or a floating interest rate of the higher of prime
rate, federal funds effective rate, or LIBOR for an interest period of one
month, plus an applicable margin, ranging from 0.25% to 0.60%, depending on the
base interest rate applied, and each matures on the earlier of April 29, 2021,
or the termination of commitments thereunder. Our payment obligations under the
2019 Revolver are guaranteed by Total S.A. up to the maximum aggregate principal
amount of $55.0 million. In consideration of the commitments of Total S.A., we
are required
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to pay them a guaranty fee of 0.25% per annum on any amounts borrowed under the
2019 Revolver and to reimburse Total S.A. for any amounts paid by them under the
parent guaranty. We have pledged the equity of a wholly-owned subsidiary of the
Company that holds our shares of Enphase Energy, Inc. common stock to secure our
reimbursement obligation under the 2019 Revolver. We have also agreed to limit
our ability to draw funds under the 2019 Revolver, to no more than 67% of the
fair market value of the common stock held by our subsidiary at the time of the
draw.

As of December 29, 2019, we had no outstanding borrowings under the 2019 Revolver.

September 2011 Letter of Credit Facility with Deutsche Bank and Deutsche Bank Trust Company Americas (together, "Deutsche Bank Trust")


On September 27, 2011, we entered into a letter of credit facility with Deutsche
Bank Trust which provides for the issuance, upon request by us, of letters of
credit to support our obligations in an aggregate amount not to exceed $200.0
million. Each letter of credit issued under the facility is fully
cash-collateralized and we have entered into a security agreement with Deutsche
Bank Trust, granting them a security interest in a cash collateral account
established for this purpose.

As of December 29, 2019, letters of credit issued under the Deutsche Bank Trust
facility totaled $3.6 million, which was fully collateralized with restricted
cash as classified on the consolidated balance sheets.

Other Facilities

Asset-Backed Loan with Bank of America


On March 29, 2019, we entered in a Loan and Security Agreement with Bank of
America, N.A., which provides a revolving credit facility secured by certain
inventory and accounts receivable in the maximum aggregate principal amount of
$50.0 million. The Loan and Security Agreement contains negative and affirmative
covenants, events of default and repayment and prepayment provisions customarily
applicable to asset-backed credit facilities. The facility bears a floating
interest rate of LIBOR plus an applicable margin, and matures on the earlier of
March 29, 2022, a date that is 91 days prior to the maturity of our 2021
convertible debentures, or the termination of the commitments thereunder. During
fiscal 2019, we drew loans totaling $31.3 million, under this facility and we
repaid loans of $12.2 million, leaving a balance outstanding of $19.2 million as
of December 29, 2019.

SunTrust Facility

On June 28, 2018, we entered into a Financing Agreement with SunTrust Bank,
which provides a revolving credit facility in the maximum aggregate principal
amount of $75.0 million. Each loan draw from the facility bears interest at
either a base rate or federal funds rate plus an applicable margin or a floating
interest rate of LIBOR plus an applicable margin, and matures no later than
three years following the date of the draw. As of December 29, 2019, we had
$75.0 million in borrowing capacity under this limited recourse construction
financing facility.

Non-recourse Financing and Other Debt


In order to facilitate the construction, sale or ongoing operation of certain
solar projects, including our residential leasing program, we regularly obtain
project-level financing. These financings are secured either by the assets of
the specific project being financed or by our equity in the relevant project
entity and the lenders do not have recourse to our general assets for repayment
of such debt obligations, and hence the financings are referred to as
non-recourse. Non-recourse financing is typically in the form of loans from
third-party financial institutions, but also takes other forms, including "flip
partnership" structures, sale-leaseback arrangements, or other forms commonly
used in the solar or similar industries. We may seek non-recourse financing
covering solely the construction period of the solar project or may also seek
financing covering part or all of the operating life of the solar project. We
classify non-recourse financings in our consolidated balance sheets in
accordance with their terms; however, in certain circumstances, we may repay or
refinance these financings prior to stated maturity dates in connection with the
sale of the related project or similar circumstances. In addition, in certain
instances, the customer may assume the loans at the time that the project entity
is sold to the customer. In these instances, subsequent debt assumption is
reflected as a financing outflow and operating inflow in the consolidated
statements of cash flows to reflect the substance of the assumption as a
facilitation of customer financing from a third party.

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Liquidity


As of December 29, 2019, we had unrestricted cash and cash equivalents of $423.0
million as compared to $309.4 million as of December 30, 2018. Our cash balances
are held in numerous locations throughout the world, and as of December 29,
2019, we had approximately $79.6 million held outside of the United States. This
offshore cash is used to fund operations of our business in the Europe and Asia
Pacific regions as well as non-U.S. manufacturing operations, which require
local payment for product materials and other expenses. The amounts held outside
of the United States represent the earnings of our foreign subsidiaries which
under the enacted Tax Act, incurred a one-time transition tax (such amounts were
previously tax deferred), however, would not result in a cash payment due to our
cumulative net operating loss position. We expect total capital expenditures
related to purchases of property, plant and equipment of approximately $96.8
million in fiscal 2020 in order to increase our manufacturing capacity for our
highest efficiency A-Series (Maxeon 5) product platform and our P-Series
technology, improve our current and next generation solar cell manufacturing
technology, and other projects. In addition, while we have begun the transition
away from our project development business, we still expect to invest capital to
develop solar power systems and plants for sale to customers. The development of
solar power plants can require long periods of time and substantial initial
investments. Our efforts in this area may consist of all stages of development,
including land acquisition, permitting, financing, construction, operation and
the eventual sale of the projects. We often choose to bear the costs of such
efforts prior to the final sale to a customer, which involves significant
upfront investments of resources (including, for example, large transmission
deposits or other payments, which may be non-refundable), land acquisition,
permitting, legal and other costs, and in some cases the actual costs of
constructing a project, in advance of the signing of PPAs and EPC contracts and
the receipt of any revenue, much of which is not recognized for several
additional months or years following contract signing. Any delays in disposition
of one or more projects could have a negative impact on our liquidity.

Certain of our customers also require performance bonds issued by a bonding
agency or letters of credit issued by financial institutions, which are returned
to us upon satisfaction of contractual requirements. If there is a contractual
dispute with the customer, the customer may withhold the security or make a draw
under such security, which could have an adverse impact on our liquidity.
Obtaining letters of credit may require adequate collateral. All letters of
credit issued under our 2016 Guaranteed LC Facilities are guaranteed by Total
S.A. pursuant to the Credit Support Agreement. Our September 2011 letter of
credit facility with Deutsche Bank Trust is fully collateralized by restricted
cash, which reduces the amount of cash available for operations. As of
December 29, 2019, letters of credit issued under the Deutsche Bank Trust
facility amounted to $3.6 million which were fully collateralized with
restricted cash on our consolidated balance sheets.

Solar power plant projects often require significant up-front investments. These
include payments for preliminary engineering, permitting, legal, and other
expenses before we can determine whether a project is feasible. We often make
arrangements with third-party financiers to acquire and build solar power
systems or to fund project construction using non-recourse project debt. As of
December 29, 2019, outstanding amounts related to our project financing totaled
$9.1 million.

There are no assurances, however, that we will have sufficient available cash to
repay our indebtedness or that we will be able to refinance such indebtedness on
similar terms to the expiring indebtedness. If our capital resources are
insufficient to satisfy our liquidity requirements, we may seek to sell
additional equity investments or debt securities or obtain other debt financing.
The current economic environment, however, could limit our ability to raise
capital by issuing new equity or debt securities on acceptable terms, and
lenders may be unwilling to lend funds on acceptable terms in the amounts that
would be required to supplement cash flows to support operations. The sale of
additional equity investments or convertible debt securities would result in
additional dilution to our stockholders (and the potential for further dilution
upon the exercise of warrants or the conversion of convertible debt) and may not
be available on favorable terms or at all, particularly in light of the current
conditions in the financial and credit markets. Additional debt would result in
increased expenses and would likely impose new restrictive covenants which may
be similar or different than those restrictions contained in the covenants under
our current loan agreements and debentures. In addition, financing arrangements,
including project financing for our solar power plants and letters of credit
facilities, may not be available to us, or may not be available in amounts or on
terms acceptable to us.
While challenging industry conditions and a competitive environment extended
throughout 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
consolidated financial statements. Also, we have been successful in our ability
to divest certain investments and non-core assets, such as the sale of
membership interests in our Commercial Sale-Leaseback Portfolio, and the sale
and leaseback of Hillsboro facility (Note 4. Business Divestiture and Sale of
Assets). Additionally, we have secured other sources of financing to satisfy our
liquidity needs such as the issuance of common stock through the public offering
completed in November 2019 and realizing cash savings resulting from
restructuring actions and cost reduction initiatives (Note 14. Common Stock and
Note 8. Restructuring). 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 million under our 2019 Revolver. See Note 11. Debt
and Credit Sources.

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


Contractual Obligations

The following table summarizes our contractual obligations as of December 29,
2019:
                                                                                            Payments Due by Fiscal Period
(In thousands)                                         Total                2020            2021-2022          2023-2024          Beyond 2024
Convertible debt, including interest1              $   881,958          $  

20,500 $ 435,750$ 425,708 $ - CEDA loan, including interest2

                          59,325              2,550              5,100              5,100              46,575
Other debt, including interest3                        209,283            114,437             89,153              2,048               3,645
Future financing commitments4                            2,900              2,900                  -                  -                   -
Operating lease commitments5                           110,312             15,390             29,189             17,902              47,831
Finance lease commitments6                               2,087                627              1,282                178                   -
Non-cancellable purchase orders7                       154,653            154,653                  -                  -                   -
Purchase commitments under agreements8                 513,803            354,666            119,197             33,858               6,082
Deferred purchase consideration in
connection with acquisition9                            30,000             30,000                                     -                   -
Total                                              $ 1,964,321$ 695,723$ 679,671$ 484,794$  104,133



1Convertible debt, including interest, relates to the aggregate of $825.0
million in outstanding principal amount of our senior convertible debentures on
December 29, 2019. For the purpose of the table above, we assume that all
holders of the outstanding debentures will hold the debentures through the date
of maturity, and upon conversion, the values of the senior convertible
debentures will be equal to the aggregate principal amount with no premiums.

2CEDA loan, including interest, relates to the proceeds of the $30.0 million
aggregate principal amount of the Bonds. The Bonds mature on April 1, 2031 and
bear interest at a fixed rate of 8.50% through maturity.

3Other debt, including interest, primarily relates to non-recourse finance
projects and solar power systems and leases under our residential lease program
as described in "Item 1. Financial Statements-Note 9. Commitments and
Contingencies" in the Notes to the Consolidated Financial Statements in this
Annual Report on Form 10-K.

4In connection with purchase and joint venture agreements with non-public companies, we will be required to provide additional financing to such parties of up to $2.9 million, subject to certain conditions.


5Operating lease commitments primarily relate to certain solar power systems
leased from unaffiliated third parties over minimum lease terms of up to 20
years as of December 29, 2019, and various facility lease agreements including
leases entered into that have not yet commenced.

6Finance lease commitments primarily relate to certain buildings, manufacturing and equipment under capital leases in Europe for terms of up to 6 years.

7Non-cancellable purchase orders relate to purchases of raw materials for inventory and manufacturing equipment from a variety of vendors.


8Purchase commitments under agreements primarily relate to arrangements entered
into with several suppliers, including some of our unconsolidated investees, for
polysilicon, ingots, wafers, and module-level power electronics and alternating
current cables, among others. These agreements specify future quantities and
pricing of products to be supplied by the vendors for periods up to 5 years and
there are certain consequences, such as forfeiture of advanced deposits and
liquidated damages relating to previous purchases, in the event we terminate
these arrangements.

9In connection with the acquisition of AUO SunPower Sdn. Bhd. in 2016, we are
required to make noncancellable annual installment payments during 2019 and
2020. The payment due in fiscal 2019 was made on the first day of the fourth
quarter of fiscal 2019.

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Liabilities Associated with Uncertain Tax Positions


Due to the complexity and uncertainty associated with our tax positions, we
cannot make a reasonably reliable estimate of the period in which cash
settlement will be made for our liabilities associated with uncertain tax
positions in other long-term liabilities. Therefore, they have been excluded
from the table above. As of December 29, 2019 and December 30, 2018, total
liabilities associated with uncertain tax positions were $20.1 million and $16.8
million, respectively, and are included within "Other long-term liabilities" in
our consolidated balance sheets as they are not expected to be paid within the
next twelve months.

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Off-Balance Sheet Arrangements

As of December 29, 2019, we did not have any significant off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.

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© Edgar Online, source Glimpses

Stocks mentioned in the article
ChangeLast1st jan.
SUNPOWER CORPORATION 0.14% 7.29 Delayed Quote.-6.54%
TOTAL S.A. 0.29% 34.135 Real-time Quote.-30.81%
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