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 consolidated financial statements and the notes thereto included elsewhere in this Annual Report on Form 10-K for the fiscal year endedJanuary 3, 2021 . 49 -------------------------------------------------------------------------------- Table of Contents 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 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 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 for the fiscal year endedJanuary 3, 2021 , 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 financing options. Our sales channels include a strong network of dealers and resellers that operate in both, residential and commercial markets, as well a group of talented and driven in-house sales team within each segment engaged in direct sales to end customers. For more information about our business, please refer to the section titled "Part I. Item 1. Business" in this Annual Report on Form 10-K for the fiscal year endedJanuary 3, 2021 .
Recent Developments
Key transactions during the fiscal year ended
Maxeon Solar Spin-Off Transaction
OnAugust 26, 2020 , we completed the 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 of all of the then-issued and outstanding ordinary shares, no par value, of Maxeon Solar to holders of record of our common stock (the "Distribution") as of the close of business onAugust 17, 2020 . 50 -------------------------------------------------------------------------------- Table of Contents 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.
Sale of Operations and Maintenance Business
OnMay 14, 2020 , we sold the substantial majority of our O&M ("Operations & Maintenance") services contracts for utility, commercial, and industrial scale photovoltaic power projects and related assets and liabilities to NovaSource Power Services ("NovaSource") for total consideration of$36.3 million . Upon closing, we received net cash consideration of$16.0 million , excluding certain hold-backs totaling in aggregate$15.0 million for certain retained obligations and contracts not novated as of closing. We assessed the recoverability of these hold-backs and included our best estimate of the amount recoverable in the future in our calculation of net gain on sale. Additionally, we also agreed to retain and subcontract certain O&M contracts for selected large utility scale power plant projects inNorth America at a fixed price to NovaSource. The contracts were deemed loss-making on the closing date and accordingly, we recorded a liability for the expected loss to be recognized for these contracts that will be amortized over the expected period of loss of three years. 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 across 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. For more information about our business segments, see the section titled "Part I. Item 1. Business" of this Annual Report on Form 10-K. For more segment information, see "Item 1. Financial Statements-Note 18. Segment Information and Geographical Information" in the notes to the consolidated financial statements in this Annual Report on Form 10-K. 51 -------------------------------------------------------------------------------- Table of Contents Fiscal Years We have a 52-to-53-week fiscal year that ends on the Sunday closest toDecember 31 . Accordingly, every fifth or sixth year will be a 53-week fiscal year. Fiscal 2020 was a 53-week fiscal year while fiscal 2019 and 2018 were 52-week fiscal years. Our fiscal 2020 ended onJanuary 3, 2021 , fiscal 2019 ended onDecember 29, 2019 and fiscal 2018 ended onDecember 30, 2018 .
Recent Accounting Pronouncements
See Note 1, Organization and Summary of Significant Accounting Policies, in Notes to the Consolidated Financial Statements in Item 8 of Part II of this Report for a full description of recent accounting pronouncements, including the expected dates of adoption and estimated effects on financial condition and results of operations, which is incorporated herein by reference.
Results of Operations
Results of operations in dollars and as a percentage of net revenue were as follows:
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Fiscal Year Ended
January 3, 2021 December 29, 2019 December 30, 2018
in thousands % of Revenue in thousands % of Revenue in thousands % of Revenue
Total revenue $ 1,124,829 100 $ 1,092,226 100 $ 1,202,311 100
Total cost of revenue 957,702 85 928,748 85 1,053,814 88
Gross profit 167,127 15 163,478 15 148,497 12
Research and development 22,381 2 34,217 3 49,240 4
Sales, general, and administrative 164,703 15 172,109 16 200,069 16
Restructuring charges 2,604 1 14,627 1 9,731 1
Loss on sale and impairment of
residential lease assets 45 - 25,352 2 251,984 21
Gain on business divestitures (10,334) (1) (143,400) (13) (59,347) (5)
Income from transition services
agreement, net (6,260) (1) - - - -
Operating income (loss) (6,012) (1) 60,573 6 (303,180) (25)
Other income (expense), net 660,581 59 130,435 12 (63,356) (5)
Income (loss) from continuing
operations before income taxes and
equity in losses of unconsolidated
investees 654,569 58 191,008 18 (366,536) (30)
Provision for income taxes (57,549) (5) (16,509) (2) (2,060) -
Equity in losses of unconsolidated
investees - - (1,716) - (14,872) (1)
Income (loss) from continuing
operations 597,020 53 172,783 16 (383,468) (31)
Loss from discontinued operations (122,994) (11) (180,504) (17) (534,028) (44)
Net income (loss) 474,026 42 (7,721) (1) (917,496) (75)
Net income attributable to
noncontrolling interests and
redeemable noncontrolling
interests 2,335 - 34,037 3 106,139 9
Net income (loss) from
discontinued operations
attributable to noncontrolling
interests and redeemable
noncontrolling interests (1,313) - (4,157) - 266 -
Net income attributable to
non-controlling interests and
redeemable non-controlling
interest 1,022 - 29,880 3 106,405 9
Net income (loss) from continuing
operations attributable to
stockholders $ 599,355 53 $ 206,820 19 $ (277,329) (23)
Net loss from discontinued
operations attributable to
stockholders (124,307) (11) (184,661) (17) (533,762) (44)
Net income (loss) attributable to
stockholders $ 475,048 42 $ 22,159 2 $ (811,091) (67)
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Total Revenue:
Our total revenue increased by 3% during fiscal 2020 as compared to 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.
Our total revenue decreased by 9% during fiscal 2019 as compared to 2018, primarily due to decreases in revenue of our Commercial and Industrial Solutions segment. Increase and decrease by segments is further discussed below.
One customer accounted for approximately 18% and 10% of total revenue primarily in our Residential, Light Commercial segment for the year endedJanuary 3, 2021 andDecember 29, 2019 , respectively. We did not have customers that accounted for greater than 10% of our total revenue in the year endedDecember 30, 2018 .
Revenue - by Segment:
A description of our segments along with other required information can be found
in Note 18, "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
December 29, December 30,
(In thousands, except percentages) January 3, 2021 % Change 2019 % Change 2018
Residential, Light Commercial $ 848,073 (2) % $ 863,853 10 % $ 788,765
Commercial and Industrial Solutions 254,811 5 % 243,311 (22) % 312,648
Other 65,574 (58) % 156,615 (17) % 189,747
Intersegment and GAAP adjustments 1 (43,629) (75) % (171,553) 93 % (88,849)
Total Revenue $ 1,124,829 3 % $ 1,092,226 (9) % $ 1,202,311
1 Represents intersegment eliminations and adjustments to segment revenue to
determine consolidated GAAP revenue. Refer details of reconciling items in Note
18. Segment and Geographical Information.
Residential, Light Commercial
Revenue for the segment decreased by 2% during fiscal 2020 as compared to fiscal 2019, primarily as a result of a decrease in the revenue from remaining construction on leases sold as part of sale and deconsolidation of residential lease portfolio in fiscal 2019, that did not recur in fiscal 2020. This was partially offset with an increase in revenue from new leases as well as cash and loan channels.
Revenue for the segment increased by 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
Commercial and Industrial Solutions
Revenue for the segment increased by 5% during fiscal 2020 as compared to fiscal
2019, primarily due to increase in number of cash deals and sale of development
sale projects, as well as increased volume of construction revenue on EPC
arrangements.
Revenue for the segment decreased 22% 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 during fiscal 2019, and lower volume of
systems sales and EPC contracts.
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Other
Revenue for the segment decreased by 58% during fiscal 2020 as compared to
fiscal 2019, primarily due to the winding down of our worldwide power plant
project development and project sales, as well as U.S. manufacturing. Also, our
O&M business revenue was lower in fiscal 2020 compared to fiscal 2019 because of
the sale of a substantial majority of that business during fiscal 2020.
Revenue for the segment decreased by 17% during fiscal 2019 as compared to fiscal 2018 due to lower revenue from domestic and international power plant development projects.
Concentrations: Our Residential, Light Commercial as a percentage of total revenue recognized was 75% during fiscal 2020 as compared to 79% during fiscal 2019. The relative change in revenue for Residential, Light Commercial as a percentage of total revenue recognized reflects the adverse impacts from the COVID-19 pandemic on our residential customers, and all our sales channels. Our Commercial and Industrial Solutions segment as a percentage of total revenue recognized was 23% during fiscal 2020, as compared to 22% during fiscal 2019. The relative change in revenue for Commercial and Industrial Solutions as a percentage of total revenue recognized reflects increased cash deal and development sale projects, as well as increased volume of construction revenue on EPC arrangements.
Total Cost of Revenue:
Our total cost of revenue increased by 3% during fiscal 2020 as compared to fiscal 2019, which is below the increases in our total revenue. Increase and decrease by segments is discussed below in detail.
Our total cost of revenue decreased by 12% during fiscal 2019 as compared to
fiscal 2018, primarily due a decrease in our commercial business as a result of
sale of commercial sale-leaseback portfolio during fiscal 2019, partially offset
by a higher volume of sales to our residential customers.
Fiscal Year
January 3, December 29, December 30,
(In thousands, except percentages) 2021 % Change 2019 % Change 2018
Residential, Light Commercial $ 691,990 (8) % $ 755,120 15 % $ 658,448
Commercial and Industrial Solutions 226,145 (4) % 236,164 (20) % 295,498
Other 89,780 (23) % 117,046 (42) % 202,227
Intersegment and GAAP adjustments 1 (50,213) (72) % (179,582) 75 % (102,359)
Total Cost of Revenue $ 957,702 3 % $ 928,748 (12) % $ 1,053,814 1 Represents intersegment eliminations and adjustments to segment cost of revenue to determine consolidated GAAP cost of revenue. Refer to Note 18. Segment and Geographical Information. Cost of Revenue - by Segment:
Below, we have further discussed increase and decrease in cost of revenue for each segment.
Residential, Light Commercial
Cost of revenue for the segment decreased by 8% during fiscal 2020 as compared
to fiscal 2019, primarily due to lower sales as a result of adverse impacts from
the COVID-19 pandemic.
Cost of revenue for the segment increased by 15% during fiscal 2019 as compared
to fiscal 2018, primarily due to a higher volume of sales to our residential
customers, as well as an increase in the sales of solar power components and
systems.
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Commercial and Industrial Solutions
Cost of revenue for the segment decreased by 4% during fiscal 2020 as compared
to fiscal 2019, primarily due to lower department spending from cost reduction
initiatives and the COVID-19 pandemic.
Cost of revenue for the segment decreased by 20% during fiscal 2019 as compared
to fiscal 2018, primarily due to a reduction in power generation revenue due to
the sale of our commercial sale-leaseback portfolio during fiscal 2019, and
lower volume of systems sales and EPC contracts.
Other
Cost of revenue for the segment decreased by 23% during fiscal 2020 as compared to fiscal 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 during fiscal 2020, partially offset by a gain of$21.3 million on the sale and leaseback of ourOregon manufacturing facility during fiscal 2019. Cost of revenue for the segment decreased by 42% during fiscal 2019 as compared to fiscal 2018, 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. Gross Margin
Our gross margin remains 15% in fiscal 2020 and 2019, increase and decrease by segments is discussed below in detail.
Our gross margin increased from 12% in fiscal 2018 to 15% in fiscal 2019, primarily due to non-cash impairment charges on certain property, plant and equipment recorded during fiscal 2018.
Gross Margin - by Segment
Fiscal Year
2020 2019 2018
Residential, Light Commercial 18 % 13 % 17 %
Commercial and Industrial Solutions 11 % 3 % 5 %
Other (37) % 25 % (7) %
Intersegment and GAAP adjustments 1 (15) % (5) % (15) %
Total gross margin percentage 15 % 15 % 12 %
1 Represents intersegment eliminations and adjustments to segment gross margin. Refer details of reconciling items in Note 18. Segment and Geographical Information.
Residential, Light Commercial
Gross margin for the segment increased by 5 percentage points during fiscal 2020 as compared to fiscal 2019, primarily as a result of better product mix with higher volume in cash and loan channel sales. Gross margin for the segment decreased by 4 percentage points during fiscal 2019 as compared to fiscal 2018, primarily as a result of lower margin on sales to our residential customers.
Commercial and Industrial Solutions
Gross margin for the segment increased by 8 percentage points during fiscal 2020 as compared to fiscal 2019, primarily as a result of product mix with higher cash sales and commercial EPC projects.
Gross margin for the segment decreased by 2 percentage points during fiscal 2019 as compared to fiscal 2018, primarily as a result of higher cost incurred related to solar power solutions deals.
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Other
Gross margin for the segment was a loss of 37% during fiscal 2020 as compared to
a 25% profit during fiscal 2019, primarily due to the sale of a substantial
majority of our O&M contracts and related assets and liabilities to NovaSource
during fiscal 2020. Also, gross margin in fiscal 2019 was significantly higher
due to the sale of development projects in Chile and Japan , as well as the gain
on sale and leaseback of our Oregon manufacturing facility, that were recorded
as revenue and reduction in cost of goods sold, respectively, and were
non-recurring in nature.
Gross margin for the segment increased by 32 percentage points during fiscal
2019 as compared to fiscal 2018, primarily due to revenue from sale of
development projects in Japan , Chile and Mexico , contributing 100% to gross
margin as well as a lower cost of goods sold due to gain on sale and leaseback
of our Oregon manufacturing facility, in 2019.
Research and Development ("R&D")
Fiscal Year
(In thousands, except percentages) 2020 2019 2018
R&D 22,381 34,217 49,240
As a percentage of revenue 2 % 3 % 4 %
R&D expense decreased by $11.8 million during the fiscal 2020 as compared to
fiscal 2019, primarily due to the reimbursement of $12.5 million by Maxeon Solar
during fiscal 2020, under the product collaboration agreement entered into with
Maxeon Solar in connection with the Spin-Off.
R&D expense decreased by $15.0 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.
Sales, General, and Administrative ("SG&A")
Fiscal Year
(In thousands, except percentages) 2020 2019 2018
SG&A 164,703 172,109 200,069
As a percentage of revenue 15 % 16 % 17 %
SG&A expense decreased by $7.4 million during fiscal 2020 as compared to fiscal
2019 primarily due to a decrease in labor costs due to our December 2019
restructuring plan, as well as lower travel expenses and office-related expenses
given that the majority of our workforce worked remotely due to COVID-19. During
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.
SG&A expense decreased by $28.0 million during fiscal 2019 as compared to fiscal
2018 primarily due to reductions in headcount and salary expenses driven by our
February 2018 restructuring plan and cost reduction efforts.
Restructuring Charges
Fiscal Year
(In thousands, except percentages) 2020 2019 2018
Restructuring charges 2,604 14,627 9,731
As a percentage of revenue - % 1 % 1 %
Restructuring charges decreased by $12.0 million during fiscal 2020 as compared
to fiscal 2019, primarily due to lower severance charges incurred in fiscal 2020
in connection with the December 2019 restructuring plan, since a substantial
portion of such charges had been incurred during fiscal 2019.
Restructuring charges increased by $4.9 million during fiscal 2019 as compared
to fiscal 2018, primarily due to higher severance charges in fiscal 2019 in
connection with the December 2019 restructuring plan compared to the February
2018 restructuring plan.
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Loss on sale and impairment of residential lease assets
Fiscal Year
(In thousands, except percentages) 2020 2019 2018
Loss on sale and impairment of residential lease assets $ 45 $ 25,352 $ 251,984
As a percentage of revenue - % 2 % 21 %
During fiscal 2020, we recorded an immaterial impairment of residential lease
assets since a substantial majority of such assets were sold in prior years.
During fiscal 2019, we recorded loss on sale and non-cash impairment charges of
$25.4 million on the remaining portfolio of residential lease assets that we
owned, before it was sold towards the end of the year to SunStrong Capital
Holdings, LLC .
Loss on sale and impairment of residential lease assets was $252.0 million in
fiscal 2018 and was higher by $226.6 million compared to fiscal 2019, primarily
due to the sale of a majority of our residential lease assets portfolio in the
fourth quarter of fiscal 2018. During fiscal 2019, we also sold the remaining
portion of the portfolio of residential lease assets to SunStrong Capital
Holdings, LLC .
Gain on business divestiture
Fiscal Year
(In thousands, except percentages) 2020 2019 2018
Gain on business divestiture $ (10,334) $ (143,400) $ (59,347)
As a percentage of revenue (1) % (13) % (5) %
During fiscal 2020, we recorded a gain on sale of our O&M business of
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.
Income from transition services agreement, net
Fiscal Year
(In thousands, except percentages) 2020 2019 2018
Income from transition services agreement
(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 for up to an additional 180 days,
and the services are billed at cost plus a standard mark-up. During the fiscal
year ended January 3, 2021 , we recorded $6.6 million of income for services
provided under the agreement. This was offset by $0.3 million of services
provided by Maxeon Solar to us, resulting in a net reduction of $6.3 million to
operating expenses on the consolidated statement of operations.
Other Income (Expense), Net
Fiscal Year
(In thousands, except percentages) 2020 2019 2018
Interest income $ 754 $ 2,313 $ 2,349
Interest expense (33,153) (48,962) (108,258)
Other income (expense):
Other, net 692,980 177,084 42,553
Other income (expense), net $ 660,581 $ 130,435 $ (63,356)
As a percentage of revenue 59 % 12 % (5) %
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Interest expense decreased by$15.8 million during fiscal 2020 as compared to fiscal 2019, primarily due to the sale of the commercial sale-leaseback portfolio during fiscal 2019 as well as the retirement of the majority of our convertible debentures due in 2021 during fiscal 2020. Interest expense decreased by$59.3 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 inNovember 2018 , as well as the elimination of the sales-leaseback financing obligations in connection with the sale of the commercial sale-leaseback portfolio during fiscal 2019. Other income increased by$515.9 million during fiscal 2020 as compared to fiscal 2019, primarily due to a$692.1 million gain on an equity investment with readily determinable fair value during fiscal 2020, as compared to a gain of$158.3 million during fiscal 2019. Additionally, we had a gain of$17.3 million in fiscal 2019 relating to sale of certain international power plant projects inChile andSouth Africa that did not recur in fiscal 2020. Other income increased by$134.5 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 during fiscal 2019, as compared to a loss of$6.4 million during fiscal 2018. Additionally, gain on sale of equity investments without readily determinable fair value during fiscal 2019 was$17.3 million for power plant projects sold inChile andSouth Africa , compared to$54.2 million during fiscal 2018 related to gain on sale of our equity interest in8point3 Energy Partners . Income Taxes Fiscal Year (In thousands, except percentages) 2020 2019 2018 Provision for income taxes$ (57,549) $ (16,509) $ (2,060) As a percentage of revenue (5) % (2) % - % In the year endedJanuary 3, 2021 , our income tax provision of$57.5 million on income from continuing operations before income taxes and equity in earnings of unconsolidated investees of$654.6 million was primarily due to state tax expenses arising from the taxable gains related to the Spin-Off transaction, withholding taxes from foreign dividend distributions, sale of equity investments, and deferred tax liability related to mark-to-market unrealized gain on equity investments. In the year endedDecember 29, 2019 , our income tax provision of$16.5 million on income from continuing operations before income taxes and equity in earnings of unconsolidated investees of$191.0 million was primarily due to expenses from foreign power plant projects and tax expenses in foreign jurisdictions unrelated to Maxeon that were profitable. In the year endedDecember 30, 2018 , our income tax provision of$2.1 million on income from continuing operations was primarily due tax expenses in foreign jurisdictions unrelated to Maxeon that were profitable. In the year endedJanuary 3, 2021 , our income tax benefit of$3.2 million on a loss from discontinuing operations before income taxes and equity in earnings of unconsolidated investees of$125.6 million was primarily due to allocation of the state tax benefit related to discontinued operations; offset by foreign taxes in foreign jurisdictions that were profitable. In the year endedDecember 29, 2019 , our income tax provision of$10.1 million on a loss from discontinuing operations before income taxes and equity in earnings of unconsolidated investees of$165.0 million was primarily due to tax expenses in foreign jurisdictions that were profitable. In the year endedDecember 30, 2018 , our income tax benefit of$1.1 million for discontinued operations was primarily due to releases of valuation allowance in a foreign jurisdiction and tax reserves due to lapse of statutes of limitation offset by income tax expenses in foreign jurisdictions that were profitable. We record a valuation allowance to reduce our deferred tax assets inthe United States andMexico 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. 59 -------------------------------------------------------------------------------- Table of Contents As of the end of fiscal year 2020, as part ofSunPower's continuing operations, an insignificant amount of the accumulated foreign earnings was located outside ofthe United States and may be subjected to foreign income tax or withholding tax liability upon repatriations. However, the accumulated foreign earnings are intended to be indefinitely reinvested in our foreign subsidiaries; therefore, no such foreign taxes have been provided. Determination of the amount of unrecognized deferred tax liability related to these earnings is not practicable. OnJune 29, 2020 , the California Assembly Bill ("AB 85") suspended the use ofCalifornia net operating loss deduction and limited the maximum business incentive tax credit utilization to$5.0 million annually starting with tax years beginning on or afterJanuary 1, 2020 throughDecember 31, 2022 . In addition, states legislatures are considering limitations on tax attributes in order to raise tax revenues. As a result, our state income tax may increase if more states adopt restrictions on the use of tax attributes.
Equity in Earnings (Losses) of Unconsolidated Investees
Fiscal Year
(In thousands, except percentages) 2020 2019 2018
Equity in losses of unconsolidated investees $ - $ (1,716) $ (14,872)
As a percentage of revenue - % - % (1) %
There is no earnings (losses) in unconsolidated investees in fiscal 2020, as we
do not have any equity method investees in fiscal 2020. Our equity in losses of
unconsolidated investees decreased by $13.2 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 .
Net Loss Attributable to Noncontrolling Interests and Redeemable Noncontrolling Interests
Fiscal Year
(In thousands, except percentages) 2020 2019 2018
Net loss attributable to noncontrolling interests and redeemable noncontrolling interests
$ 2,335
Prior to fiscal 2020, we 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 (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. During fiscal 2020, we attributed$2.3 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 in a jointly owned entity that is consolidated by us. The$31.7 million decrease in net loss attributable to noncontrolling interests and redeemable noncontrolling interests was primarily due to the deconsolidation of a majority of our residential lease assets during fiscal 2019. During fiscal 2019 and 2018, we attributed$34.0 million and$106.1 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$72.1 million decrease in net loss attributable to noncontrolling interests and redeemable noncontrolling interests was primarily due to the deconsolidation of a majority of our residential lease assets during fiscal 2018 and fiscal 2019, and partially offset by an increase in contributions byHannon Armstrong for the equity interest in a new joint venture formed during fiscal 2019. 60 -------------------------------------------------------------------------------- Table of Contents Critical Accounting Estimates We prepare our 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. 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"). 61 -------------------------------------------------------------------------------- Table of Contents Revenue Recognition
Solar Power System Sales and Engineering, Procurement, and Construction Services
We 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 in our residential as well as commercial business
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.
Subsequent to the sale of O&M business in the second quarter of fiscal 2020, we
sold a substantial majority of our commercial O&M contracts except for selected
large utility scale power plant projects in North America at a fixed price to
NovaSource. Refer to Note 5. Business Divestiture and Sale of Assets for further
details. We continue to provide O&M services to our residential customers.
Lease Accounting
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 that do not depend on an index or rate are excluded from the ROU
assets and lease liabilities and are recognized in the period in which the
obligation for those payments is incurred. 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, 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, any gain on
sale up to the difference in the cost basis and fair value is recognized
immediately. Any amount in excess of the proceeds compared to the fair value of
the solar power systems is deferred and recognized over the term of the lease.
Failed sale-leaseback arrangements 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 5. Business Divestiture and Sale of Assets,
for details of the sale of our commercial sale-leaseback portfolio during fiscal
2020.
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Arrangements with SunPower as a Lessor
Solar Services
We offer solar services, in partnership with third-party financial institutions,
which allows our residential customers to obtain continuous access to SunPower
solar power systems under contracts for terms of up to 20 years. Solar services
revenue is primarily comprised of revenue from such contracts wherein we provide
continuous access to an operating solar system to third parties.
We 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.
Impairment of Long-Lived 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.
Product Warranties
We provide a workmanship warranty of up to 25 years from installation and a
25-year standard warranty for previously SunPower-manufactured microinverters.
We also warranty for our installed systems for defective materials and
workmanship for periods ranging up to 25 years. We pass through to customers
warranties from the original equipment manufacturers of certain system
components such as solar panels, monitoring equipment and inverters. For such
components, our warranties may exceed the warranty coverage from the original
equipment manufacturers. For solar energy systems we do not install directly, we
receive workmanship warranties from our solar partners.
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In addition, we 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.
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, 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. 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 our expected demand for our 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. Our classification of our inventory as either current or long-term inventory requires us to estimate the portion of on-hand inventory that we estimate will be realized over the next 12 months.
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.
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Accounting for Income Taxes
As of the end of fiscal year 2020 and as part of SunPower's continuing
operations, an insignificant amount of the accumulated foreign earnings was
located outside of the United States and may be subjected to foreign income tax
or withholding tax liability upon repatriations. However, the accumulated
foreign earnings are intended to be indefinitely reinvested in our foreign
subsidiaries; therefore, no such foreign taxes have been provided. Determination
of the amount of unrecognized deferred tax liability related to these earnings
is not practicable.
We record a valuation allowance to reduce our U.S. and Mexico 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 January 3, 2021 , we believe there
is insufficient evidence to realize additional U.S. and Mexico deferred tax
assets beyond the state 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 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 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.
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
December 29, December 30,
(In thousands) January 3, 2021 2019 2018
Net cash used in operating activities $
(187,391)
$ 129,190 $ 21,366 $ 274,900 Net cash (used in) provided by financing activities $
(153,852)
Operating Activities
Our net cash used in operating activities for the year endedJanuary 3, 2021 of$187.4 million , which was lower than the net income of$474.0 million , primarily due to (i) non-cash gain of$692.1 million gain on equity investments with readily determinable fair value; (ii)$78.3 million decrease in accounts payable and other accrued liabilities; (iii)$36.0 million decrease in contract liabilities; (iv)$29.8 million increase in inventories to support the construction of our solar energy projects; (v)$12.1 million increase in contract assets; (vi) non-cash gain of$10.3 million on business divestiture; (vii)$10.4 million decrease in operating lease liabilities; (viii)$6.2 million increase in prepaid expenses and other assets; and (ix)$8.2 million increase in project assets; This decrease was partially offset by: (i)$99.0 million decrease in accounts receivable; (ii) non-cash charge of$48.3 million relating to depreciation and amortization; (iii) non-cash charges of$24.8 million relating to stock-based compensation; (iv)$19.2 million net change in deferred income taxes; (v)$13.5 million decrease in advances to suppliers; (vi)$10.6 million decrease in operating lease right-of-use assets; and (vii)$6.6 million non-cash interest expense. 66 -------------------------------------------------------------------------------- Table of Contents Our net cash used in operating activities for the year endedDecember 29, 2019 of$270.4 million , which was primarily the result of net loss of$7.7 million and items consisting primarily of (i)$158.3 million non-cash mark-to-market gain on equity investments with readily determinable fair value; (ii)$143.4 million non-cash gain on business divestiture; (iii)$128.4 million increase in inventories to support the construction of our solar energy projects; (iv)$67.2 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 non-cash gain on sale of assets; (vii)$17.3 million non-cash 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; and (xi)$2.2 million increase in project assets, primarily related to the construction of our commercial solar energy projects. This decrease was partially offset by: (i) non-cash charge of$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 non-cash loss on sale and impairment of residential lease assets; (v)$27.5 million increase in contract liabilities driven by construction activities; (vi) non-cash charges of$26.9 million relating to stock-based compensation; (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; (xi)$5.0 million non-cash net change in deferred income taxes; (xii)$1.0 million of bad debt expense; and (xiii) impairment of long-lived assets of$0.8 million . Our net cash used in operating activities for the year endedDecember 30, 2018 was$543.4 million , which was primarily the result of net loss of$917.5 million and items consisting primarily of (i)$182.9 million increase in long-term financing receivables related to our net investment in sales-type leases; (ii)$127.3 million decrease in accounts payable and other accrued liabilities, primarily attributable to payments of accrued expenses; (iii)$59.3 million non-cash gain on business divestiture; (iv)$54.2 million non-cash gain on the sale of equity investments; (v)$43.5 million increase in contract assets driven by construction activities; (vi)$39.2 million increase in inventories due to the support of various construction projects; (vii)$30.5 million decrease in contract liabilities driven by construction activities; (viii)$6.9 million non-cash increase in deferred income taxes and (ix)$6.8 million increase due to other various non-cash activities. This was partially offset by: (i) non-cash impairment of property, plant and equipment of$369.2 million ; (ii) non-cash impairment of residential lease assets of$189.7 million ; (iii) non-cash net 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 non-cash earnings of unconsolidated investees; (ix)$15.3 million non-cash interest expense; (ix)$6.9 million non-cash net change in income taxes; (x)$6.4 million non-cash unrealized loss on equity investments with readily determinable fair value; and (xi)$3.9 million non-cash dividend from equity method investees.
Investing Activities
Net cash provided by investing activities for the year endedJanuary 3, 2021 was$129.2 million , which was the primarily result of: (i)$253.0 million proceeds from sale of equity investments; (ii)$15.4 million proceeds from business divestiture; (iii)$7.7 million proceeds from return of capital of equity investments with fair value option; and (iv)$6.6 million proceeds from maturities of marketable securities. This was offset by (i)$131.1 million cash outflow upon Spin-Off; (ii)$14.6 million purchases of property, plant and equipment; and (iii)$6.5 million cash paid for solar power systems. Net cash provided by investing activities for the year endedDecember 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 from sale of distribution rights of debt refinancing. This was partially 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$453.7 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)$155.3 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)$28.0 million cash outflow from sale of residential lease portfolio, net of cash received; (iii)$17.0 million cash paid for acquisitions, net of cash acquired; and (iv)$14.7 million paid for investments in consolidated and unconsolidated investees. 67 -------------------------------------------------------------------------------- Table of Contents Financing Activities Net cash used in financing activities for the year endedJanuary 3, 2021 was$153.9 million , which was the primarily result of: (i)$334.7 million repurchase of convertible debt; (ii)$227.7 million repayments of bank loans and other debt; (iii)$12.8 million purchases of stock for tax withholding obligations on vested restricted stock; and (iv)$9.0 million repayment of non-recourse residential and commercial financing. This was offset by (i)$216.5 million proceeds from bank loans and other debt; (ii)$14.8 million proceeds from issuance of non-recourse residential and commercial financing; and (iii)$200.0 million proceeds from issuance of Maxeon Solar green convertible debt. Net cash provided by financing activities for the year endedDecember 29, 2019 was$344.3 million , which included: (i)$171.8 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; and (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. Debt and Credit Sources
For information about the terms of debt instruments and changes thereof in the period, see "Item 8. Financial Statements and Supplementary Data-Notes to Consolidated Financial Statements-Note 12. Debt and Credit Sources".
Liquidity
As ofJanuary 3, 2021 , we had unrestricted cash and cash equivalents of$232.8 million as compared to$302.0 million as ofDecember 29, 2019 . We expect to invest capital to develop solar power systems and plants for sale to customers, especially for development and construction projects in our commercial and industrial segment. 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. 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 ofJanuary 3, 2021 , outstanding amounts related to our project financing totaled$15.1 million . As ofJanuary 3, 2021 , our cash balances are held primarily held inU.S. however, we had approximately$3.1 million held outside ofthe United States . This offshore cash is used to fund operations of our business in theMexico ,Canada andAsia Pacific regions, which require local payment for product materials and other expenses. 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. 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 ofJanuary 3, 2021 , letters of credit issued under theDeutsche Bank Trust facility amounted to$2.7 million which were fully collateralized with restricted cash on our consolidated balance sheets. 68 -------------------------------------------------------------------------------- Table of Contents 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 and other factors, 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. 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. 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$62.6 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.
Contractual Obligations
The following table summarizes our material contractual obligations and cash
requirements for future periods as of
Payments Due by Fiscal Period
(In thousands) Total 2021 2022-2023 2024-2025 Beyond 2025
Convertible debt, including interest1 $ 522,616 $
79,908
56,775 2,550 5,100 5,100 44,025
Other debt, including interest3 134,555 104,664 25,219 2,037 2,635
Operating lease commitments4 77,919 14,164 26,543 12,440 24,772
Non-cancellable purchase orders5 37,437 37,437 - - -
Supply agreement commitments6 394,411 248,965 137,654 2,485 5,307
Total $ 1,223,713 $ 487,688 $ 637,224 $ 22,062 $ 76,739
1 Convertible debt, including interest, relates to the aggregate of $487.6
million in outstanding principal amount of our senior convertible debentures on
January 3, 2021 . 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.
4 Operating lease commitments primarily relate to various facility lease agreements including leases entered into that have not yet commenced.
5 Non-cancellable purchase orders relate to purchases of raw materials for inventory and manufacturing equipment from a variety of vendors.
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6 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.
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 ofJanuary 3, 2021 andDecember 29, 2019 , total liabilities associated with uncertain tax positions were$12.6 million and$7.2 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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