SUNPOWER CORPORATION Cautionary Statement Regarding Forward-Looking Statements
You should read the following discussion of our financial condition and results of operations in conjunction with the condensed consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q and the consolidated financial statements and the notes thereto included in our Annual Report on Form 10-K for the fiscal year endedDecember 29, 2019 filed with theSecurities and Exchange Commission ("SEC") pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange Act"). This Quarterly Report on Form 10-Q 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 Quarterly Report on Form 10-Q 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 our solar 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, trends in average selling prices, the success of our joint ventures and acquisitions, 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, statements regarding the anticipated impact on our business of the COVID-19 pandemic and related public health measures, macroeconomic trends and uncertainties, 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 Quarterly Report on Form 10-Q 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 Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the fiscal year endedDecember 29, 2019 , and our other filings with theSEC . 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. Unless the context otherwise requires, all references to "SunPower," "we," "us," or "our" refer toSunPower Corporation and its subsidiaries.
Overview
SunPower Corporation (together with its subsidiaries, "SunPower," ""the Company," we," "us," or "our") is a leading solar energy company that delivers complete solar solutions to customers primarily inUnited States andCanada through an array of hardware, software, and financing options, 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. We are a leader in theU.S. downstream Distributed Generation ("DG") market, providing an affordable and sustainable source of electricity compared to traditional utility energy to residential homeowners and commercial customers through multiple financial offerings. Our sales channel includes a strong network of dealers and resellers that operate in both, residential and commercial markets.
Maxeon Solar Spin-Off Transaction
OnAugust 26, 2020 , the Company completed the previously announced spin-off (the "Spin-Off") of Maxeon Solar Technologies, Ltd., aSingapore public company limited by shares ("Maxeon Solar"), consisting of certain non-U.S. operations and assets of our former SunPower Technologies business unit. The Spin-Off was completed by way of a pro rata distribution 52 --------------------------------------------------------------------------------
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of all of the then-issued and outstanding ordinary shares, no par value, of
Maxeon Solar to holders of record of the Company's common stock (the
"Distribution") as of the close of business on
In connection with the Spin-Off, and as contemplated by the Separation and Distribution Agreement entered into by us and Maxeon Solar, we and Maxeon Solar entered into certain ancillary agreements that govern the relationships between the Company and Maxeon Solar following the Distribution, including: a tax matters agreement, employee matters agreement, transition services agreement, back-to-back agreement, brand framework agreement, cross license agreement, collaboration agreement and supply agreement (collectively, the "Ancillary Agreements"), each as previously described in our announcement of the contemplated transaction.
Segments Overview
In the third quarter of fiscal 2020, and concurrent with the Spin-Off of the majority of our former SunPower Technologies segment, we reorganized our business into new segments to align our focus on theU.S. downstream DG market and new business model driven by financial offerings, solar energy storage, solutions and software services. Previously, we operated under two end-customer segments, comprised of our (i) SunPower Energy Services, and (ii)SunPower Technologies . The SunPower Energy Services segment referred to our downstream business consisting of sales of solar energy solutions to residential and commercial end-customers, and the SunPower Technologies segment referred to global manufacturing and our large-scale solar products and systems and international component sales. Under the new segmentation, Residential, Light Commercial ("RLC") refers to sales of solar energy solutions previously included in the legacy SunPower Energy Services segment, including sales to our third-party dealer network and resellers, storage solutions, cash sales and long-term leases directly to end customers. The Commercial and Industrial Solutions segment ("C&I Solutions") refers to direct sales of turn-key engineering, procurement and construction ("EPC") services, and sales of energy under power purchase agreements ("PPAs"). Certain legacy businesses consisting of worldwide power plant project development and project sales, as well asU.S. manufacturing, are not significant to overall operations, and are deemed non-core to our other businesses and classified as 'Others'. Certain key cross-functional support functions and responsibilities including corporate strategy, treasury, tax and accounting support and services, among others, continue to be centrally managed within the Corporate function . Each segment is managed by a business general manager that reports to our Chief Executive Officer, as the chief operating decision maker ("CODM"), who reviews our business, manages resource allocations and measures performance of our activities between the RLC, C&I Solutions and Other segment. The CODM further views the business performance of each segment under two key sources of revenue -Dev Co andPower Co. Dev Co refers to our solar origination and installation revenue stream within each segment such as sale of solar power systems with our dealers and resellers network as well as installation and EPC revenues, while Power Co refers to our post-system sale services revenues, mainly from O&M services for residential and commercial projects. The risk profile of each revenue stream is different and therefore, the segregation of Dev Co and Power Co provides the CODM with appropriate information to review business performance and allocate resources to each segment.
Impact of COVID-19 on our Business
InDecember 2019 , a novel strain of coronavirus ("COVID-19"), was reported to have surfaced inWuhan, China , resulting in shutdowns of manufacturing and commerce in the months that followed. Since then, the COVID-19 pandemic has spread to multiple countries worldwide, includingthe United States and has resulted in authorities implementing numerous measures to try to contain the disease or slow its spread, such as travel bans and restrictions, quarantines, shelter-in-place orders and shutdowns. The pandemic has driven organizations across the globe to operate most functions virtually, and support remote workforce at a faster speed and greater scale than ever before. Following the first shelter-in-place orders, we expanded our internal virtual salesforce and helped enable our dealers to complete sales consultations in a virtual setting. We have seen leads through our online and virtual sales channels at attractive customer acquisition costs. We believe that a virtual sales model will position us and our dealers to reduce customer acquisition costs in the future. The health and safety of our employees, contractors, and customers are a top priority for us. In an effort to protect our employees and contractors, we took and continue to take proactive and aggressive actions, starting with the earliest signs of the outbreak to adopt social distancing policies at our locations around the world, including working from home and suspending employee travel. We have seamlessly transitioned to work from home with flexible work policies, and most of our non-installation workforce is working from home and is expected to continue to do so untilJuly 2021 . As the installation of solar systems is considered an essential business in many jurisdictions, employees and contractors who are working onsite are required to adhere to strict safety measures, including the use of masks and sanitizer, wellness screenings prior to accessing work sites, staggered break times to prevent congregation, prohibitions on physical contact with 53 --------------------------------------------------------------------------------
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co-workers or customers, restrictions on access through only a single point of entry and exit, eliminating carpooling, and utilizing video conferencing, where possible. We have also incorporated other rules such as restricting visitors to any of our facilities that remain open and proactively providing employees with hand sanitizer and disinfectant wipes. Also, we developed aCOVID-19 Response Team that meets regularly to develop tailored action plans and protocols to protect our employees and publishes these actions, guidelines, and rules on our intranet available to all employees. At the onset of the pandemic, across the organization, we have taken specific measures to sustain our business and operations as well as protect our employees. These measures included temporary reductions in the salaries of certain of our executive officers and the fees payable to our independent directors, as well as temporary reductions in salaries and reduced work week schedules for certain of our employees to address reduced demand and workloads, with exceptions for certain groups, including those supporting customer and asset services. InJune 2020 , most of our employees resumed a full work week and returned to full salary during the last week of July. InSeptember 2020 , our executive officers and independent directors returned to full salary. As ofOctober 2020 , COVID-19 cases are rebounding and increasing in certain areas of theU.S. and worldwide, and as a result, many jurisdictions are restricting or planning to restrict businesses and economic activities again. It is not clear what the potential effects any such future developments, including any new government restrictions, may have on our business, including the effects on our customers, employees, and prospects, or on our financial results for the remainder of fiscal 2020 and beyond. We will continue to actively monitor the situation and may take further actions altering our business operations that we determine are in the best interests of our employees, customers, partners, suppliers, and stakeholders, and as required by federal, state, or local authorities.
Regulatory Changes related to COVID-19
OnMarch 27, 2020 , the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") was enacted in response to the COVID-19 pandemic. The CARES Act permits Net Operating Losses ("NOLs") carryovers and carrybacks to offset 100% of taxable income for taxable years beginning before 2021. In addition, the CARES Act allows NOLs incurred in 2018, 2019, and 2020 to be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes. Furthermore, the CARES Act contains modifications on the limitation of business interest for tax years beginning in 2019 and 2020. The modifications to Section 163(j) increase the allowable business interest deduction from 30% of adjusted taxable income to 50% of adjusted taxable income. We are currently evaluating the impact of the CARES Act, but at present do not expect that the NOL carryback provision and Section 163(j) modification of the CARES Act would result in a material cash benefit to us. As per the new provisions of the CARES Act, we have deferred payment of payroll taxes that allows payments of share ofSocial Security payroll taxes that would otherwise be due from the date of enactment throughDecember 31, 2020 , to be paid over the following two years. We are currently exploring the availability of the employee retention credit provided for under the CARES Act.
Outlook
We believe the execution of our strategy will provide attractive opportunities for profitable growth over the long term. We believe the most significant elements of uncertainty are the intensity and duration of the impact of the COVID-19 pandemic on project installation and commercial and consumer spending as well as the ability of our sales channels, supply chain, and distribution to operate with minimal disruption for the remainder of fiscal 2020 and beyond, especially if local governments impose new measures and restrictions in jurisdictions in which we operate. The disruptions noted above could negatively impact our financial position, results of operations, cash flows, and outlook.
Solutions
We are focused on delivering complete solar power generation solutions to our customers. As part of our solutions-based approach, we focus on SunPower Helix products for our commercial business customers and our SunPower Equinox product for our residential business customers. 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 A-Series cell and ACPV technology for residential applications, where we are also expanding our initiatives on storage and Smart Energy solutions. Our Helix products are available for carport, ground and roof installations and provides seamless solar solutions at lowest cost. Additionally, we continue to focus on installing our lower cost, high efficiency Performance Line and our A-Series 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 54 --------------------------------------------------------------------------------
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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 micro-inverters 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. Our all-in-one solutions include a full suite of solar power systems including storage, software and services. Our RLC segment offers its solutions in three distinct categories to Residential,Light Commercial and New Homes . Our comprehensive platform drives partner success, loyalty and gross margin growth. This Power of One® platform is a key element of our strategy to attack the "long-tail" of the market. Our complete, all-in-one solutions generate the highest customer reviews.
OneRoof™
Our latest roofing system, OneRoof™, is a Class A fire-rated, UL-certified roofing system that replaces concrete roofing tiles for a fully integrated roof-plus-solar solution. With flexible design configurations, integrated panel clips and built-in grounding, installation is simple and designed specifically for new homes. With direct-to-deck attachments, self-aligning modules and snap-in-place module attachments, OneRoof™ installs two to three times faster than conventional mounting. Kynar-coated metal components add a rugged layer of roof protection that lasts longer than typical composite shingles and are covered by our 25-year Complete Confidence Warranty. OneRoof™ sits seamlessly with the rest of the roof for a sleek, low-profile look with virtually no visible parts. Interlocking flashings and pans with individually sealed screws create a watertight barrier against harsh conditions- including wind-driven rain. Our OneRoof™? system is watertight, Class A fire-rated and built to last. And for extra peace of mind, our Complete Confidence Warranty covers products, parts and service for 25 years, monitoring hardware for 10 years and the Kynar-coated-steel finish for 5 years. OneRoof™ is the only roof-integrated solar system; paired with the world's best solar. The solution is designed specifically for new construction, installs much faster than conventional solar and is cost efficient by replacing roof materials.
SunVault™ Storage
Our new SunVault™ storage solution is primarily designed for residential customers and its 2-box solution fits in indoor or outdoor areas. Homeowners get seamless backup power during an outage and the system provides the flexibility to manage energy as they deem fit. SunVault™ storage integrates seamlessly with SunPower solar systems creating the only home solar + storage solution designed, installed and warranted by one company. Its intelligent software shifts when drawing power from the grid, maximizing the use of solar, as well as provides real-time updates as to home solar usage and storage, through customized settings. With only 0.1% of homes in theU.S. having storage and power outages continue to rise, our storage solutions provides the optimum way to use solar.
Financial Products, flexible financing options
We have a long track record of attracting low-cost capital from diverse sources, including tax equity and debt investors. Since inception we have raised tax equity investment funds to finance the installation of solar energy systems.
Advances in financing are playing a big part in driving increased profits and dealer loyalty. We sell our residential solar energy solutions to end customers through a variety of means, including cash sales directly to end customers, and sales to resellers, including our third-party dealer network. We offer financing programs that are designed to offer customers a variety of options to obtain high efficiency solar products and systems, including loans arranged through our third-party lending partners, in some cases for no money down, or leases at competitive energy rates. Since its launch in 2011, our residential lease program, in partnership with third-party investors, providesU.S. customers SunPower systems under 20-year lease agreements that include system maintenance and warranty coverage, including warranties on system performance. SunPower residential lease customers have the option to purchase their leased solar systems upon the sale or transfer of their home. These financing options enhance our ability to provide individually-tailored solar solutions to a broad range of residential customers.
Commercial Roof, Carport, and Ground Mounted Systems
As part of our complete solution product approach, we offer our Helix commercial market product. The Helix system is a pre-engineered, modular solution that combines our industry-leading solar module technology with integrated plug-and-play power stations, cable management systems, and mounting hardware that is built to last and fast to install, enabling 55 --------------------------------------------------------------------------------
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customers to scale their solar programs quickly with minimal business disruption. The Helix platform is standardized across rooftop, carport, and ground installations and designed to lower system cost while improving performance. The Helix platform is also bundled with our Smart Energy software analytics, which provides our customers with information about their energy consumption and production, enabling them to further reduce their energy costs.
We also offer a variety of commercial solutions designed to address a wide range of site requirements for commercial rooftop, parking lot, and open space applications, including a portfolio of solutions utilizing framed panels and a variety of internally or externally developed mounting methods for flat roof and high tilt roof applications. Our commercial flat rooftop systems are designed to be lightweight and to interlock, enhancing wind resistance and providing for secure, rapid installations. We offer parking lot structures designed specifically for SunPower panels, balance of system components, and inverters and in 2015 expanded our capability to design and install innovative solar structures and systems for carport applications. These systems are typically custom design-build projects that utilize standard templates and design best practices to create a solution tailored to unique site conditions.SunPower's highest efficiency panels are especially well suited to stand-alone structures, such as those found in parking lot applications, because our systems require less steel and other materials per unit of power or energy produced as compared with our competitors.
Community Solar
SunPower's Community Solar is a way for customers to obtain the benefits of solar without having any panels installed on their roofs. This enables people who live in apartments, condominiums and other residences to go solar. These customers are all part of a "community" of solar energy supporters who obtain their power from large solar projects built within their utility district rather than from panels on their respective rooftops.
SunPower has a large commercial customer base to leverage opportunities to expand its community solar footprint. We believe our community solar market policy fits well into long term growth strategy, and provides a significant opportunity for growth by leveraging the existing installation base.
Supply
The solar power panels used in our systems and solutions are entirely sourced from Maxeon Solar during the exclusivity period under the terms of the supply agreement that we entered into with Maxeon Solar in connection with the Spin-Off. 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 "Note 9. Commitments and Contingencies" in the Notes to the condensed consolidated financial statements in this Quarterly Report on Form 10-Q.
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Results of Operations
Results of operations in dollars and as a percentage of net revenue were as
follows:
Three Months Ended
September 27, 2020 September 29, 2019
in thousands % of Revenue in thousands % of Revenue
Total revenue $ 274,806 100 $ 286,042 100
Total cost of revenue 237,666 86 240,547 84
Gross profit 37,140 14 45,495 16
Research and development 5,344 2 8,837 3
Sales, general and administrative 35,462 13 41,428 14
Restructuring charges (97) - 4,252 1
Gain on sale and impairment of residential lease
assets 386 - 10,756 4
Income from Transition Services Agreement, Net (1,889) (1) - -
Gain on business divestitures - - - -
Operating income (loss) (2,066) - (19,778) (6)
Other income, net 148,471 54 37,132 13Income before income taxes and equity in losses of unconsolidated investees
146,405 54 17,354 7
Provision for income taxes (36,725) (13) (2,928) (1)
Equity in losses of unconsolidated investees - - (960) -
Income from continuing operations 109,680 41 13,466 6
Loss from discontinued operations (64,566) (23) (32,674) (11)
Net income (loss) 45,114 16 (19,208) (7)
Net income (loss) attributable to noncontrolling
interests and redeemable noncontrolling interests (230) - 5,178 2
Net loss from discontinued operations attributable to noncontrolling interests and redeemable noncontrolling interests
(258) - (987) -
Net income (loss) attributable to non-controlling
interests and redeemable non-controlling interest $ (488) - $ 4,191 1
Net income from continuing operations attributable to stockholders
$ 109,450 40$ 18,644 7
Net loss from discontinued operations attributable to stockholders
$ (64,824) (24)$ (33,661) (12) Net income (loss) attributable to stockholders$ 44,626 16$ (15,017) (5) 57
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Nine Months Ended
September 27, 2020 September 29, 2019
in thousands % of Revenue in thousands % of Revenue
Total revenue $ 783,019 100 $ 690,608 100
Total cost of revenue 691,043 88 613,205 89
Gross profit 91,976 12 77,403 11
Research and development 19,106 2 26,494 4
Sales, general and administrative 112,193 14 129,582 19
Restructuring charges 2,738 - 6,626 1
(Gain) loss on sale and impairment of residential
lease assets 253 - 28,283 4
Income from Transition Services Agreement, Net (1,889) - - -
Gain on business divestitures (10,458) (1) (143,400) (21)
Operating income (loss) (29,967) (3) 29,818 4
Other income, net 253,051 32 106,957 15Income before income taxes and equity in losses of unconsolidated investees
223,084 29 136,775 19
Provision for income taxes (38,716) (5) (10,074) (1)
Equity in losses of unconsolidated investees - - (716) -
Income from continuing operations 184,368 24 125,985 18
Loss from discontinued operations (122,994) (16) (139,684) (20)
Net income (loss) 61,374 8 (13,699) (2)
Net income attributable to noncontrolling interests and redeemable noncontrolling interests
2,512 - 33,474 5
Net loss from discontinued operations attributable to noncontrolling interests and redeemable noncontrolling interests
(1,313) - (3,057) -
Net loss attributable to non-controlling interests and redeemable non-controlling interest
1,199 - 30,417 4
Net income from continuing operations attributable to stockholders
186,880 24 159,459 23
Net loss from discontinued operations attributable to stockholders
(124,307) (16) (142,741) (21)
Net income attributable to stockholders $ 62,573 8 $ 16,718 2
Total Revenue:
Our total revenue during the three months ended September 27, 2020 decreased by
4%, as compared to the three months ended on September 29, 2019 , primarily due
to decreases in revenue of our Residential, Light Commercial segment. Our total
revenue during the nine months ended September 27, 2020 increased by 13%, as
compared to the nine months ended on September 29, 2019 , primarily due to
increases in revenue of our Commercial and Industrial Solutions segment. Our
commercial backlog in Commercial and Industrial Solutions Segment is less
susceptible to the adverse impact as a result of the COVID-19 pandemic since the
commercial backlog is booked months in advance.
We did not have significant customers that accounted for greater than 10% of
total revenue in the three months and nine months ended September 27, 2020 and
September 29, 2019 .
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There is significant uncertainty with respect to the impact of the COVID-19 pandemic on our business. The impact of the COVID-19 pandemic to our revenue during the three months and nine months endedSeptember 27, 2020 is discussed below and in our overview.
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Table of Contents 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 1 Financial Statements. Below, we have further discussed changes in revenue for each segment.
Three Months Ended Nine Months Ended
(In thousands, except September 27, September 29, September 27,
percentages) 2020 2019 % Change 2020 September 29, 2019 % Change
Residential, Light
Commercial $ 197,710 219,880 (10) % $ 590,141 606,994 (3) %
Commercial and Industrial
Solutions 74,334 63,524 17 % 175,264 155,773 13 %
Other 10,056 33,975 (70) % 55,615 78,728 (29) %
Intersegment and GAAP
adjustments1 (7,294) (31,337) (77) % (38,001) (150,887) (75) %
Total revenue $ 274,806 $ 286,042 (4) % $ 783,019 690,608 13 %
1 Represents intersegment eliminations and adjustments to segment revenue to
determine consolidated GAAP revenue. Refer details of reconciling items in Note
17. Segment and Geographical Information of the consolidated financial
statements.
Residential, Light Commercial
Revenue for the segment decreased by 10% and 3% during the three and nine months endedSeptember 27, 2020 , respectively, as compared to the three and nine months endedSeptember 29, 2019 , primarily as a result of adverse impacts from the COVID-19 pandemic on our residential customers, and all our sales channels.
Commercial and Industrial Solutions
Revenue for the segment increased by 17% and 13% during the three and nine months endedSeptember 27, 2020 , respectively, as compared to the three and nine months endedSeptember 29, 2019 , primarily due to increased cash deal and development sale projects, as well as increased volume of construction revenue on EPC arrangements. Other Revenue for the segment decreased by 70% and 29% during the three and nine months endedSeptember 27, 2020 , respectively as compared to the three and nine months endedSeptember 29, 2019 primarily due to lower O&M revenue due to the sale of our O&M services contracts and related assets and liabilities to NovaSource Power Services (NovaSource") in the second quarter of fiscal 2020, as well as due to lower revenue from international power plant development projects due to sales of projects inChile andJapan in the prior year.
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Table of Contents Total Cost of Revenue Our total cost of revenue remained relatively consistent during the three months endedSeptember 27, 2020 and increased by 13% during the nine months endedSeptember 27, 2020 as compared to the three months and nine months endedSeptember 29, 2019 , primarily due to increases in volumes for Commercial and Industrial Solutions as well as gain relating to a sale-leaseback of our manufacturing facility inHillsboro, Oregon in the quarter endedSeptember 29, 2019 , that did not recur. Changes by segments are discussed below in detail. Three Months Ended Nine Months Ended (In thousands, except September 27, September 29,
September 27, September 29,
percentages) 2020 2019 % Change 2020 2019 % Change
Residential, Light
Commercial $ 162,931 $ 191,271 (15) % $ 495,640 $ 542,566 (9) %
Commercial and Industrial
Solutions 69,214 61,452 13 % 160,731 147,742 9 %
Other 13,224 17,115 (23) % 74,521 72,977 2 %
Intersegment elimination and
other (7,703) (29,291) (74) % (39,849) (150,080) (73) %
Total cost of revenue $ 237,666 $ 240,547 (1) % $ 691,043 $ 613,205 13 %
Total cost of revenue as a
percentage of total revenue 86 % 84 % 88 % 89 %
Total gross margin
percentage 14 % 16 % 12 % 11 %
Below, we have further discussed changes in cost of revenue for each segment.
Residential, Light Commercial
Cost of revenue for the segment decreased by 15% and 9% during the three months and nine months endedSeptember 27, 2020 , respectively as compared to the three months and nine months endedSeptember 29, 2019 , primarily due to lower sales as a result of adverse impacts from the COVID-19 pandemic.
Commercial and Industrial Solutions
Cost of revenue for the segment increased by 13% and 9% during the three and nine months endedSeptember 27, 2020 , respectively as compared to the three and nine months endedSeptember 29, 2019 , primarily due to increased cash deal and development sale projects, as well as increased volume of construction revenue on EPC arrangements. Other Cost of revenue for the segment decreased by 23% during the three months endedSeptember 27, 2020 as compared to the three monthsSeptember 29, 2019 , primarily due to lower O&M cost of revenue due to the sale of our O&M services contracts for utility, commercial, and industrial scale photovoltaic power projects and related assets and liabilities to NovaSource in the second quarter of fiscal 2020, partially offset by a gain of$21.3 million on the sale and leaseback of ourOregon manufacturing facility in the third quarter of fiscal 2019. Cost of revenue for the segment increased by 2% during the nine months endedSeptember 27, 2020 as compared to the three months endedSeptember 29, 2019 , primarily due to a gain of$21.3 million on the sale and leaseback of ourOregon manufacturing facility in the third quarter of fiscal 2019, partially offset by a reduction in O&M revenue due to the sale of our O&M services contracts and related assets and liabilities to NovaSource in the second quarter of fiscal 2020. 61
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Gross Margin
Three Months Ended Nine Months Ended
September 27, 2020
18 % 13 % 16 % 11 %
Commercial and Industrial Solutions 7 % 3 % 8 % 5 %
Other (32) % 50 % (34) % 7 %
Residential, Light Commercial
Gross margin for the segment increased by 5% for both the three months and nine
months ended September 27, 2020 , as compared to the three months and nine months
ended September 29, 2019 , primarily as a result of better product mix with
higher volume in cash and loan channel sales.
Commercial and Industrial Solutions
Gross margin for the segment increased by 4% and 3%, during the three months and
nine months ended
Other
Gross margin for the segment decreased by 82% and 41%, during the three months and nine months endedSeptember 27, 2020 , respectively, as compared to the three months and nine months endedSeptember 29, 2019 , primarily due to lower O&M revenue due to the sale of our O&M service contracts and related assets and liabilities to NovaSource during the second quarter of fiscal 2020, and also due to the sale of development projects inChile andJapan in fiscal 2019, as well as the sale and leaseback of ourOregon manufacturing facility in the third quarter of fiscal 2019.
Research and Development ("R&D")
Three Months Ended Nine Months Ended
(In thousands, except
percentages) September 27, 2020 September 29, 2019 % Change September 27, 2020 September 29, 2019 % Change
R&D 5,344 8,837 (40) % 19,106 26,494 (28) %
As a percentage of
revenue 2 % 3 % 2 % 4 %
R&D expense decreased by $3.5 million and $7.4 million during the three months
and nine months ended September 27, 2020 , respectively, as compared to the three
months and nine months ended September 29, 2019 , primarily due to reimbursement
of $3.6 million by Maxeon Solar during the third quarter of fiscal 2020, post
Spin-Off under the product collaboration agreement entered into with Maxeon
Solar in connection with the Spin-Off, as well as lower labor expense, and lower
travel expenditures following the implementation of travel restrictions as a
result of the COVID-19 pandemic.
Sales, General and Administrative ("SG&A")
Three Months Ended Nine Months Ended
(In thousands, except September 27, September 27,
percentages) 2020 September 29, 2019 % Change 2020 September 29, 2019 % Change
SG&A 35,462 41,428 (14) % 112,193 129,582 (13) %
As a percentage of revenue 13 % 14 % 14 % 19 %
SG&A expenses decreased by $6.0 million and $17.4 million during the three and
nine months ended September 27, 2020 , respectively, as compared to the three and
nine months ended September 29, 2019 , primarily due to a decrease in labor costs
due to restructuring, as well as lower office related expenses given that the
majority of our workforce is working remotely, partially offset by higher
litigation claims settlement payments.
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Restructuring Charges
Three Months Ended Nine Months Ended
(In thousands, except
percentages) September 27, 2020 September 29, 2019 % Change September 27, 2020 September 29, 2019 % Change
Restructuring charges (97) 4,252 (102) % 2,738 6,626 (59) %
As a percentage of revenue - % 1 % - % 1 %
Restructuring charges decreased by $4.3 million and $3.9 million during the
three and nine months ended September 27, 2020 , respectively, as compared to the
three months ended September 29, 2019 , primarily due to the non-cash
restructuring charges we incurred during the three months ended September 29,
2019 associated with lease termination, which did not reoccur during the three
months ended September 27, 2020 .
See "Item 1. Financial Statements-Note 9. Restructuring" in the Notes to the
condensed consolidated financial statements in this Quarterly Report on Form
10-Q for further information regarding our restructuring plans.
Loss on sale and impairment of residential lease assets
Three Months Ended Nine Months Ended
(In thousands, except
percentages) September 27, 2020 September 29, 2019 % Change September 27, 2020 September 29, 2019 % Change
(Gain) loss on sale and
impairment of residential
lease assets 386 10,756 (96) % 253 28,283 (99) %
As a percentage of revenue - % 4 % - % 4 %
Loss on sale and impairment of residential lease assets decreased by
$10.4 million and $28.0 million during the three months and nine months ended
September 27, 2020 , respectively as compared to the three months and nine months
ended September 29, 2019 , primarily due to non-cash impairment charges for the
remaining assets in the residential lease portfolio that have yet to be sold.
During the three months ended September 29, 2019 , we sold the majority of the
remaining portion of the portfolio of residential lease assets that was still
retained by us to SunStrong Capital Holdings, LLC , and recorded a loss on sale
of $10.5 million on such sale.
Gain on business divestiture
Three Months Ended Nine Months Ended
(In thousands, except
percentages) September 27, 2020 September 29, 2019 % Change September 27, 2020 September 29, 2019 % Change
Gain on business divestiture - - 100 % (10,458) (143,400) (93) %
As a percentage of revenue - % - % - % (21) %
During the nine months ended September 27, 2020 , we recorded a gain on sale of
our O&M business of $10.5 million . During the nine months ended September 29,
2019 , we recorded a gain of $143.4 million on sale of the commercial
sale-leaseback portfolio.
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Income from Transition Services Agreement, net
Three Months Ended Nine Months Ended
(In thousands, except
percentages) September 27, 2020 September 29, 2019 % Change September 27, 2020 September 29, 2019 % Change
Income from transaction
service agreement (1,889) - 100 % (1,889) - 100 %
As a percentage of revenue (1) % - % - % - %
In connection with the Spin-Off, we and Maxeon Solar entered into a transition
services agreement, under which, we are providing certain labor and non-labor
services to Maxeon Solar, and also receiving certain limited services with
respect to certain shared processes post Spin-Off. The term of the transition
services agreement is 12 months, extendable by 6 months, and the services are
billed at cost plus a fixed mark-up. During the three and nine months ended
September 27, 2020 , we recorded $2.1 million of income for services provided
under the agreement. This was offset by $0.2 million of services provided by
Maxeon Solar to us, resulting in net reduction of $1.9 million to operating
expenses on the condensed consolidated statement of operations.
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Other Income (Expense), Net
Three Months Ended Nine Months Ended
(In thousands, except September 27, September 29, September 27, September 29,
percentages) 2020 2019 % Change 2020 2019 % Change
Interest income $ 104 $ 951 (89) % $ 682 $ 2,184 (69) %
Interest expense (7,090) (8,930) (21) % (24,731) (40,570) (39) %
Other Income:
Other, net 155,457 45,111 245 % 277,100 145,343 91 %
Other income, net $ 148,471 $ 37,132 300 % $ 253,051 $ 106,957 137 %
As a percentage of
revenue 54 % 13 % 32 % 15 %
Interest expense decreased $1.8 million and $15.8 million during the three
months and nine months ended September 27, 2020 , respectively as compared to the
three months and nine months ended September 29, 2019 primarily due to sale of
the sale-leaseback financing obligations in connection with the sale of the
commercial sale-leaseback portfolio during the first quarter of fiscal 2019 as
well as the repurchase of our convertible debentures during the first and third
quarters of fiscal 2020.
Other income increased by $110.3 million and $131.8 million in the three months
and nine months ended September 27, 2020 , respectively, as compared to the three
months and nine months ended September 29, 2019 , primarily due to a $155.4
million and $274.4 million gain on an equity investment with a readily
determinable fair value in the three months and nine months ended September 27,
2020 , as compared to a gain of $28.5 million and $129.0 million in the three
months and nine months ended September 29, 2019 , respectively. Additionally, we
recorded a gain of $0.1 million and $3.1 million as a result of the early
repurchase of a portion of our 0.875% debentures due 2021 in the three months
and nine months ended September 27, 2020 , respectively.
Income Taxes
Three Months Ended Nine Months Ended
(In thousands, except September 27, September 29, September 27, September 29,
percentages) 2020 2019 % Change 2020 2019 % Change
Provision for income taxes
1,154 %$ (38,716) $ (10,074) 284 % As a percentage of revenue (13) % (1) % (5) % (1) % In the three months endedSeptember 27, 2020 , our income tax provision of$36.7 million on profit from continuing operations before income taxes and equity in earnings of unconsolidated investees of$146.4 million was primarily due to associated domestic tax expenses arising from the taxable gain related to the Spin-Off, and foreign withholding taxes relating to foreign dividend distributions. Our income tax provision of$2.9 million in the three months endedSeptember 29, 2019 on a profit from continuing operations before income taxes and equity in earnings of unconsolidated investees of$17.4 million was primarily due to tax expense in foreign jurisdictions that were profitable. In the nine months endedSeptember 27, 2020 , our income tax provision of$38.7 million on a profit from continuing operations before income taxes and equity in earnings of unconsolidated investees of$223.1 million was primarily due to domestic tax expense arising from the taxable gain related to the Spin-Off, and foreign withholding taxes relating to foreign dividend distributions. Our income tax provision of$10.1 million in the nine months endedSeptember 29, 2019 on a profit from continuing operations before income taxes and equity in earnings of unconsolidated investees of$136.8 million was primarily due to the projected tax expense in foreign jurisdictions that were profitable, and a net change in valuation allowance from a foreign jurisdiction. In the first half of fiscal 2020, we distributed earnings from certain foreign jurisdictions because of business and cash needs, and accrued withholding tax of$0.5 million . In addition, as part of the reorganization steps to execute the Spin-Off onAugust 26, 2020 , non-U.S. subsidiaries' earnings were distributed during the first two months of the third quarter of fiscal 2020, which resulted in$4.8 million withholding tax liabilities. After the Spin-Off, our operations are predominantly located inthe United States with limited earnings generated in foreign jurisdictions. It is our intention to indefinitely reinvest any non-U.S. earnings outsidethe United States . 65 --------------------------------------------------------------------------------
Table of Contents We record a valuation allowance to reduce our deferred tax assets in theU.S 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. InJune 2019 , theU.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. SunPower previously quantified and recorded the impact of including such compensation costs, as described in the Ninth Circuit decision, of$5.8 million in the fourth quarter of fiscal 2019, as a reduction to deferred tax asset, fully offset by a reduction to a valuation allowance of the same amount, without any income tax expense impact. We will reevaluate the deferred tax disclosure at the end of the fiscal year 2020.
Equity in Losses of Unconsolidated Investees
Three Months Ended Nine Months Ended
(In thousands, except
percentages) September 27, 2020 September 29, 2019 % Change September 27, 2020 September 29, 2019 % Change
Equity in losses of
unconsolidated investees $ - $ (960) (100) % $ - $ (716) (100) %
As a percentage of revenue - % - % - % - %
Our equity in losses of unconsolidated investees increased by $1.0 million and
$0.7 million in the three months and nine ended September 27, 2020 as compared
to the three months and nine months ended September 29, 2019 , which was driven
by a decrease in our share of losses of unconsolidated investees.
Net (Income) Loss Attributable to Noncontrolling Interests and Redeemable
Noncontrolling Interests
Three Months Ended Nine Months Ended
(In thousands, except
percentages) September 27, 2020 September 29, 2019 % Change September 27, 2020 September 29, 2019 % Change
Net income (loss) attributable
to noncontrolling interests
and redeemable noncontrolling
interests (230) 5,178 (104) % 2,512 33,474 (92) %
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
hypothetical liquidation at book value 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.
The decrease in net loss attributable to noncontrolling interests and redeemable
noncontrolling interests of $(0.2) million and $2.5 million during the three
months and nine months ended September 27, 2020 , respectively as compared to the
three months and nine months ended September 29, 2019 , was primarily due to the
deconsolidation of a majority of our residential lease assets during the quarter
ended September 29, 2019 .
Critical Accounting Estimates
We prepare our condensed consolidated financial statements in conformity withU.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.
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Due to the COVID-19 pandemic, there has been uncertainty and disruption in the global economy and financial markets. We are not aware of any specific event or circumstance that would require updates to our estimates or judgments or require us to revise the carrying value of our assets and liabilities as ofOctober 28, 2020 , the date of issuance of this Quarterly Report on Form 10-Q. These estimates may change as new events occur and additional information is obtained. Actual results may differ from these estimates under different assumptions and conditions. There were no other significant changes in our critical accounting estimates during the fiscal quarter endedSeptember 27, 2020 compared to those previously disclosed in "Critical Accounting Estimates" in "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in the 2019 Annual Report on Form 10-K. 67 --------------------------------------------------------------------------------
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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:
Nine Months Ended
September 27, September 29,
(In thousands) 2020 2019
Net cash provided by (used in) operating activities $ (202,513) $ (266,162)
Net cash provided by (used in) investing activities $ (10,869) $ 7,695
Net cash (used in) provided by financing activities $ 104,268 $ 106,686
Operating Activities
Net cash used in operating activities for the nine months ended September 27,
2020 was $202.5 million and was primarily the result of: (i) $275.6 million
mark-to-market gain on equity investments with readily determinable fair value;
(ii) a $75.1 million decrease in accounts payable and accrued liabilities,
primarily attributable to payments of accrued expenses; (iii) a $53.8 million
decrease in contract liabilities primarily due to the attainment of milestones
billings for a variety of projects; (iv) a $22.8 million increase in contract
assets; (v) a $12.1 million increase in inventories to support the construction
of our solar energy projects; (vi) a $11.2 million increase in project assets
driven by construction activities; (vii) $10.5 million gain on sale of our O&M
business; (viii) $8.6 million decrease in operating lease liabilities; (ix) $4.3
increase in prepaid expenses and other assets, primarily related to movements in
prepaid inventory; and (x) $3.1 million gain on retirement of our convertible
debentures. This was partially offset by (i) $113.0 million decrease in accounts
receivable due to timing of billings and payments; (ii) net non-cash charges of
$71.0 million related to depreciation, stock-based compensation and other
non-cash charges; (iii) net income of $61.4 million ; (iv) a $16.3 million
decrease in advances to suppliers; and (v) a $9.9 million decrease in operating
lease right-of-use assets.
Net cash used in operating activities for the nine months ended September 29,
2019 was $266.2 million and was primarily the result of: (i) net loss of $13.7
million ; (ii) $143.4 million gain on business divestiture; (iii) $129.0 million
mark-to-market gain on equity investments with readily determinable fair value;
(iv) $108.1 million increase in inventories to support the construction of our
solar energy projects; (v) $47.0 million increase in accounts receivable,
primarily driven by increases billings; (vi) $21.4 million gain on sale of
assets; (vii) $18.1 million increase in contract assets driven by construction
activities; (viii) $17.3 million gain on sale of equity investments without
readily determinable fair value; (ix) $9.2 million increase in project assets,
primarily related to the construction of our Commercial solar energy projects;
(x) $7.2 million decrease in operating lease liabilities; and (xi) $0.5 million
increase in long-term financing receivables. This was offset by (i) $62.0
million of depreciation and amortization; (ii) $64.0 million increase in
accounts payable and other accrued liabilities; (iii) $36.7 million loss on sale
and impairment of residential lease assets; (iv) $33.3 million increase in
advances to suppliers; (v) stock-based compensation of $18.9 million ; (vi) $8.1
million increase in contract liabilities driven by construction activities;
(vii) $1.5 million decrease in prepaid expenses and other assets, primarily
related to movements in prepaid inventory (viii) $7.5 million non-cash interest
expense; (ix) $6.2 million decrease in operating lease right-of-use assets; (x)
$5.9 million non-cash restructuring charges; (xi) $2.1 million loss in equity in
earnings of unconsolidated investees; (xii) bad debt expense of $1.3 million ;
(xiii) impairment of long-lived assets of $0.8 million ; and (ix) $0.5 million
net change in deferred income taxes.
Investing Activities
Net cash used in investing activities in the nine months endedSeptember 27, 2020 was$10.9 million , which included (i) cash outflow of$140.1 million upon the Spin-Off; (ii)$13.2 million purchase of property, plant and equipment; (iii)$5.4 million in capital expenditures primarily related to the expansion of our solar cell manufacturing capacity and costs associated with solar power systems before the Spin-Off and (iv)$1.3 million of purchases of marketable securities.. This was partially offset by (i)$119.4 million proceeds from sale of equity investment; (ii)$15.4 million cash received from the sale of our O&M business, net of de-consolidated cash; (iii)$7.7 million proceeds from return of capital of equity investments, and (iv)$6.6 million proceeds from maturities of marketable securities. Net cash provided by investing activities in the nine months endedSeptember 29, 2019 was$7.7 million , which included (i)$42.9 million proceeds from sale of investments; (ii) net proceeds of$40.5 million from business divestiture; and (iii) proceeds of$40.0 million from sale of property, plant, and equipment. This was offset by (i) cash paid for solar power systems 68 --------------------------------------------------------------------------------
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of$51.8 million ; (ii)$35.1 million purchases of property, plant and equipment; (iii)$16.4 million cash de-consolidated from sale of residential lease assets; and (iv) cash paid for investments in unconsolidated investees of$12.4 million .
Financing Activities
Net cash provided by financing activities in the nine months endedSeptember 27, 2020 was$104.3 million , which included: (i)$200 million proceeds from issuance by Maxeon Solar of its green convertible debt which was derecognized upon Spin-Off; (ii)$183.7 million cash received from a bank loan and other debt; (iii)$13.4 million proceeds from non-recourse residential financing debt, net of issuance costs; and (iv)$2.2 million settlement of contingent consideration arrangement. This was partially offset by: (i)$183.1 million repayment of bank loans and other debt; (ii)$95.2 million cash paid for repurchase of our convertible debentures; (iii)$8.5 million in purchases of treasury stock for tax withholding obligations on vested restricted stock; and (iv).$7.2 million repayment of non-recourse residential financing debt. Net cash provided by financing activities in the nine months endedSeptember 29, 2019 was$106.7 million , which included: (i)$69.3 million net proceeds from the issuance of non-recourse residential financing debt, net of incurrence costs; (ii)$31.1 million of net contributions from noncontrolling interests and redeemable noncontrolling interests related to residential lease projects; and (iii)$22.4 million in net proceeds of 0.75% debentures due 2018, bank loans and other debt. This was partially offset by (i)$9.0 million of payment for prior business combination; (ii)$4.7 million in purchases of treasury stock for tax withholding obligations on vested restricted stock; and (iii)$2.4 million settlement of a contingent consideration arrangement
Debt and Credit Sources
Convertible Debentures
As ofSeptember 27, 2020 , 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 onDecember 15, 2015 . Interest on the 4.00% debentures due 2023 is payable onJanuary 15 andJuly 15 of each year, beginning onJuly 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 onJanuary 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. InJune 2014 , we issued$400.0 million in principal amount of our 0.875% debentures dueJune 1, 2021 . Interest is payable semi-annually, beginning onDecember 1, 2014 . An aggregate principal amount of$250.0 million of the 0.875% debentures due 2021 were initially acquired by Total. The 0.875% debentures due 2021 are convertible into shares of our common stock at any time based on an initial conversion rate of 20.5071 shares of common stock per$1,000 principal amount of 0.875% senior convertible debentures (which is equivalent to an initial conversion price of approximately$48.76 per share, which provides Total the right to acquire up to 3,969,375 shares of our common stock following the purchase noted below). The applicable conversion rate may adjust in certain circumstances, including a fundamental change, as described in the indenture governing the 0.875% debentures due 2021. During the three and nine months endedSeptember 27, 2020 , we purchased$8.1 million and$98.4 million respectively, of aggregated principal amount of the above convertible debt due 2021 for approximately$95.1 million , net. Total held a principal amount of$56.4 million of the total convertible debt repurchased and the remaining was held by other third-party investors. The purchases and early retirements resulted in a gain from extinguishment of debt of approximately$0.1 million and$3.1 million in the three and nine months endedSeptember 27, 2020 respectively, which represented the difference between the book value of the convertible notes, net of the remaining unamortized discount prior to repurchase and the reacquisition price of the convertible notes upon repurchase. The gain was recorded within "Other, net" on the condensed consolidated statement of operations. If not earlier repurchased or converted, the 0.875% debentures due 2021 mature onJune 1, 2021 .
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During the third quarter fiscal 2020, we updated our conversion rates for our convertible debentures. Specifically, effectiveSeptember 11, 2020 , the new conversion rates are 25.1388 shares ofSunPower's common stock per$1,000 principal amount of 2021 Debentures (equivalent to a conversion price of$39.78 per share) and 40.1552 shares ofSunPower's common stock per$1,000 principal amount of 2023 Debentures (equivalent to a conversion price of$24.90 per share). The conversion rates were previously 20.5071 shares ofSunPower's common stock per$1,000 principal amount of 2021 Debentures and 32.7568 shares ofSunPower's common stock per$1,000 principal amount of 2023 Debentures. Notice of the conversion rate adjustment was delivered toWells Fargo Bank, National Association , the trustee, in accordance with the terms of the Indentures. 70 --------------------------------------------------------------------------------
Table of Contents Financing for Safe Harbor Panels Inventory OnSeptember 27, 2019 , we entered into a joint venture with Hannon Armstrong Sustainable Infrastructure Capital, Inc. ("Hannon Armstrong"), to finance up to 200 MWs of panels inventory, preserving the 30% federal Investment Tax Credit ("ITC") for third-party owned commercial and residential systems and meeting safe harbor guidelines. The loan carries an interest rate of 7.5% per annum payable quarterly. Principal amount on the loan is expected to be repaid quarterly from the financing proceeds of the underlying projects. The ultimate maturity date for the loan isJune 30, 2022 . As ofSeptember 27, 2020 , we had drawn$96.8 million under this facility. During the three and nine months endedSeptember 27, 2020 , we repaid$2.6 million and$4.2 million , respectively and did not have any additional drawdowns. Loan Agreement withCalifornia Enterprise Development Authority ("CEDA") OnDecember 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") maturingApril 1, 2031 , under a loan agreement with CEDA. Certain of our obligations under the loan agreement were contained in a promissory note datedDecember 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 ofSeptember 27, 2020 , the fair value of the Bonds was$30.6 million , determined by using Level 2 inputs based on quarterly market prices as reported by an independent pricing source. As ofSeptember 27, 2020 , the$30.0 million aggregate principal amount of the Bonds was classified as "Long-term debt" in our condensed consolidated balance sheet.
Revolving Credit Facility with Credit Agricole
OnOctober 29, 2019 , we entered into the 2019 Revolver with 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 ofApril 29, 2021 , or the termination of commitments thereunder. Our payment obligations under the 2019 Revolver are guaranteed byTotal SE up to the maximum aggregate principal amount of$55.0 million . In consideration of the commitments ofTotal SE , we are required to pay them a guaranty fee of 0.25% per annum on any amounts borrowed under the 2019 Revolver and to reimburseTotal SE for any amounts paid by them under the parent guaranty. We have pledged the equity of a wholly-owned subsidiary that holds our shares ofEnphase Energy, Inc. common stock to secure our reimbursement obligation under the parent guaranty. 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
OnSeptember 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 ofSeptember 27, 2020 andDecember 29, 2019 , letters of credit issued and outstanding under theDeutsche Bank Trust facility totaled$2.6 million and$3.6 million , respectively, which were fully collateralized with restricted cash on the condensed consolidated balance sheets.
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Asset-Backed Loan with
OnMarch 29, 2019 , we entered in a Loan and Security Agreement withBank of America, N.A , which provides a revolving credit facility secured by certain inventory and accounts receivable in the maximum aggregate principal amount of$60.0 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 earliest ofMarch 29, 2022 , if the balance of the revolver at the time is not zero,March 1, 2021 (a date that is 91 days prior to the maturity of our 0.875% debentures due 2021), or the termination of the commitments thereunder. OnSeptember 8, 2020 , we signed an amendment withBank of America , that provides that if we pay the full outstanding balance 91 days before the maturity of our convertible debt, and maintain the outstanding at zero during that period of 91 days, as well as immediately after the repayment of the 0.875% debentures due 2021, then the convert maturity does not trigger the termination of the Asset-Backed Loan. During the three and nine months endedSeptember 27, 2020 we repaid$28.1 million and$40.4 million , respectively. During the three and nine months endedSeptember 27, 2020 , we drew an additional$25.3 million and$46.4 million , respectively. We had a balance outstanding of$25.2 million as ofSeptember 27, 2020 . SunTrust Facility OnJune 28, 2018 , we entered in a Financing Agreement withSunTrust Bank , which provides a revolving credit facility in the maximum aggregate principal amount of$75.0 million . Each draw down from the facility bears 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. As ofSeptember 27, 2020 , 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 condensed 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 such 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 condensed 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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Table of Contents Liquidity As ofSeptember 27, 2020 , we had unrestricted cash and cash equivalents of$324.7 million as compared to$302.0 million as ofDecember 29, 2019 . Our cash balances are held in numerous locations throughout the world, and as ofSeptember 27, 2020 , we had approximately$2.3 million held outside ofthe United States . This offshore cash is used to fund operations of our business in theEurope andAsia Pacific regions as well as non-U.S. manufacturing operations, which require local payment for product materials and other expenses. The amounts held outside ofthe 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). The incurrence, however, would did not result in a cash payment due to our cumulative net operating loss position. 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 byTotal SE pursuant to the Credit Support Agreement. OurSeptember 2011 letter of credit facility withDeutsche Bank Trust is fully collateralized by restricted cash, which reduces the amount of cash available for operations. As ofSeptember 27, 2020 , letters of credit issued under theDeutsche Bank Trust facility amounted to$2.6 million which were fully collateralized with restricted cash on our condensed 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 ofSeptember 27, 2020 , outstanding amounts related to our project financing totaled$15.7 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 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 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. We also continue to focus on improving our overall operating performance and liquidity, including managing cash flow and working capital. The global COVID-19 pandemic created significant uncertainty and economic disruptions worldwide. In our response to the COVID-19 pandemic, we instituted several measures, including requirements to work remotely for the majority of our workforce, travel restrictions as well as several mitigating actions to prudently manage our business during the current industry uncertainty. These actions included reducing management salaries, freezing hiring and merit increases, reducing capital expenditures and discretionary spending, and temporarily moving most of our employees to a four-day work week in recognition of reduced demand and workloads due to the pandemic. All of our employees reverted back to a full work week during the last week of June and returned to full salary during the last week of July.
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Despite the challenging and volatile economic conditions, we believe that our total cash and cash equivalents will be sufficient to meet our obligations over the next 12 months from the date of issuance of our financial statements, including repayment of the remaining$301.6 million principal amount outstanding under the 0.875% debentures due 2021. In addition, we have historically been successful in our ability to divest certain investments and non-core assets including some of our equity investments, secure other sources of financing, such as accessing the capital markets, and implement other cost reduction initiatives such as restructuring, to address our liquidity needs; however, our ability to take these steps may be adversely affected by many factors impacting us and the markets generally, including the COVID-19 pandemic. If alternative actions were to be necessary, we believe they could be implemented prior to the maturity date of the 0.875% debentures due 2021. Although we have historically been able to generate liquidity, we cannot predict, with certainty, the outcome of our actions to generate liquidity as planned. Additionally, we are uncertain of the full extent to which the COVID-19 pandemic will impact our business, operations and financial results over time. 74 --------------------------------------------------------------------------------
Table of Contents Contractual Obligations The following table summarizes our contractual obligations as ofSeptember 27, 2020 : Payments Due by Fiscal Period 2020 (remaining (In thousands) Total three months) 2021-2022 2023-2024 Beyond 2024 Convertible debt, including interest1$ 763,929 $
1,319
58,050 1,275 5,100 5,100 46,575
Other debt, including interest3 149,468 42,693 101,070 2,051 3,654
Operating lease commitments4 102,442 3,663 31,229 21,348 46,202
Non-cancellable purchase orders5 47,879 47,879 - - -
Supply agreement commitments6 449,231 107,607 300,684 34,858 6,082
Total $ 1,570,999 $ 204,436 $ 774,985 $ 489,065 $ 102,513
1 Convertible debt, including interest, relates to the aggregate of
$726.6 million in outstanding principal amount of our senior convertible
debentures on September 27, 2020 . 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.
2 CEDA 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.
3 Other debt, including interest, primarily relates to non-recourse finance projects and solar power systems and leases under our residential lease program as described in Note 12. Debt and Credit Sources.
3 Operating lease commitments primarily relate to various facility lease agreements including leases entered into that have not yet commenced.
4 Non-cancellable purchase orders relate to purchases of raw materials for inventory and manufacturing equipment from a variety of vendors.
5 Purchase commitments under agreements primarily relate to arrangements entered into with several suppliers, including Maxeon Solar for purchase of photovoltaic solar modules, as well as with a supplier for module-level power electronics and alternating current cables. These agreements specify future quantities and pricing of products to be supplied by the vendors for periods 2 years and 5 years, respectively, 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.
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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
Off-Balance Sheet Arrangements
As of
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