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 unaudited 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 endedJanuary 3, 2021 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 and ramp of new products and improvements to our existing products, the impact of recently adopted accounting pronouncements, 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, interest and credit risk, general business and economic conditions in our markets, industry trends, the impact of changes in government incentives, expected restructuring charges, 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 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 ," the "Company," "we," "us," or "our" refer toSunPower Corporation and its subsidiaries.
Overview
SunPower is a leading solar technology and energy services provider that delivers fully integrated solar, storage and home energy solutions to customers primarily inthe United 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. Distributed Generation ("DG") storage and energy services market, providing customers control over electricity consumption and resiliency during power outages while providing cost savings to homeowners, businesses, governments, schools, and utilities through multiple offerings. Our sales channels include a strong network of both installing and non-installing dealers and resellers that operate in both residential and commercial markets as well as 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 our Annual Report on Form 10-K for the fiscal year endedJanuary 3, 2021 .
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Table of Contents Recent Developments
Key transactions during the fiscal quarter ended
Repayment of 0.875% Debentures Due 2021
In
Repayment of Loan Agreement with CEDA
In
Sale of Commercial Projects
InJuly 2021 , we sold certain commercial projects including the underlying fixed assets and debt to SunStrong for total consideration of$8.9 million . The transaction was considered the sale of a business as defined in ASC 805, Business Combinations, and we recorded a loss of$5.1 million , which was recorded and netted against "gain on business divestitures, net" in our unaudited condensed consolidated statements of operations for the three and six months endedJuly 4, 2021 . We received net cash consideration of$2.8 million .
Sale of Residential Leases
InJuly 2021 , we sold certain residential lease solar systems to SunStrong for total consideration of$8.5 million . The transaction was considered the sale of a business as defined in ASC 805, Business Combinations, and we recorded a gain of$5.3 million , which was recorded as "gain on business divestitures, net" in our unaudited condensed consolidated statements of operations for the three and six months endedJuly 4, 2021 .
Environmental Regulations Update
As part of our commitment to energy sustainability, we published our fiscal 2020
Environmental, Social, and Governance ("ESG") Report in May 2021 . This report
describes the Company's energy sustainability strategies and addresses other
environmental matters such as waste minimization, minimization of impact on
natural resources, and recycling. The ESG Report can be found on our website at
https://us.sunpower.com/why-sunpower/sustainability. This website reference is
provided for convenience only and the content on the referenced website is not
incorporated by reference into this Quarterly Report on Form 10-Q.
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Results of Operations
Results of operations in dollars and as a percentage of total revenue were as
follows:
Three Months Ended
July 4, 2021 June 28, 2020
in thousands % of Revenue in thousands % of Revenue
Total revenue $ 308,927 100 $ 217,667 100
Total cost of revenue 247,896 80 192,015 88
Gross profit 61,031 20 25,652 12
Research and development 4,711 2 5,994 3
Sales, general, and administrative 56,730 18 36,014 17
Restructuring charges 808 - 1,259 -
(Gain) loss on sale and impairment of residential
lease assets (68) - 141 -
Gain on business divestitures, net (224) - (10,458) (5)
Income from transition services agreement, net (1,656) - - -
Operating income (loss) 730 - (7,298) (3)
Other income, net 76,464 25 62,931 29
Income from continuing operations before income
taxes and equity in earnings of unconsolidated
investees 77,194 25 55,633 26
Provision for income taxes (2,425) (1) (1,106) (1)
Net income from continuing operations 74,769 24 54,527 25
Net loss from discontinued operations, net of taxes - - (36,129) (17)
Net income 74,769 24 18,398 8
Net loss from continuing operations attributable to noncontrolling interests and redeemable noncontrolling interests
438 - 1,363 1
Net income from discontinued operations attributable to noncontrolling interests and redeemable noncontrolling interests
- - (383) -
Net loss attributable to noncontrolling interests
and redeemable noncontrolling interests 438 - 980 -
Net income from continuing operations attributable to stockholders
75,207 24 55,890 26
Net loss from discontinued operations attributable to stockholders
- - (36,512) (17)
Net income attributable to stockholders $ 75,207 24 $ 19,378 9
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Six Months Ended
July 4, 2021 June 28, 2020
in thousands % of Revenue in thousands % of Revenue
Total revenue $ 615,325 100 $ 508,213 100
Total cost of revenue 504,420 82 453,377 89
Gross profit 110,905 18 54,836 11
Research and development 9,726 2 13,762 3
Sales, general, and administrative 104,474 17 76,731 15
Restructuring charges 4,574 - 2,835 -
Gain on sale and impairment of residential lease
assets (294) - (133) -
Gain on business divestitures, net (224) - (10,458) (2)
Income from transition services agreement, net (4,743) (1) - -
Operating loss (2,608) - (27,901) (5)
Other income, net 25,080 4 104,580 20
Income from continuing operations before income
taxes and equity in earnings of unconsolidated
investees 22,472 4 76,679 15
Benefit from (provision for) income taxes 2,799 - (1,991) -
Net income from continuing operations 25,271 4 74,688 15
Net loss from discontinued operations, net of taxes - - (58,428) (12)
Net income 25,271 4 16,260 3
Net loss from continuing operations attributable to noncontrolling interests and redeemable noncontrolling interests
1,551 - 2,742 -
Net income from discontinued operations
attributable to noncontrolling interests and
redeemable noncontrolling interests - - (1,055) -
Net loss attributable to noncontrolling interests
and redeemable noncontrolling interests 1,551 - 1,687 -
Net income from continuing operations attributable to stockholders
26,822 4 77,430 15
Net loss from discontinued operations attributable to stockholders
- - (59,483) (12)
Net income attributable to stockholders $ 26,822 4 $ 17,947 3
Total Revenue:
Our total revenue during the three and six months ended July 4, 2021 increased
by 42% and 21%, as compared to the three and six months ended June 28, 2020 ,
respectively, primarily due to an increase in revenue from our RLC segment and,
to a lesser extent, the C&I Solutions segment. Changes by segments are discussed
below in detail.
One customer in our RLC segment accounted for approximately 16% of total revenue
for the three and six months ended
One customer in our RLC segment accounted for approximately 20% of total revenue
for the three and six months ended
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Revenue - by Segment
A description of our segments, along with other required information, can be
found in Note 15, "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 Six Months Ended
(In thousands, except
percentages) July 4, 2021 June 28, 2020 % Change July 4, 2021 June 28, 2020 % Change
Residential, Light Commercial $ 254,119 $ 160,290 59 % $ 492,056 $ 392,430 25 %
Commercial and Industrial
Solutions 48,176 50,320 (4) % 114,439 100,931 13 %
Others 6,628 12,700 (48) % 8,194 45,559 (82) %
Intersegment and GAAP
adjustments1 4 (5,643) 100 % 636 (30,707) 102 %
Total revenue $ 308,927 $ 217,667 42 % $ 615,325 $ 508,213 21 %
1 Represents intersegment eliminations and adjustments to segment revenue to
determine consolidated GAAP revenue. Refer to details of reconciling items in
Note 15. Segment and Geographical Information of the consolidated financial
statements.
Residential, Light Commercial
Revenue for the segment increased by 59% and 25% during the three and six months endedJuly 4, 2021 , respectively, as compared to the three and six months endedJune 28, 2020 , primarily due to a higher volume in residential cash and loan deals, as well as an increase in solar services revenue and lower adverse impact from the COVID-19 pandemic compared to the second quarter of fiscal 2020.
Commercial and Industrial Solutions
Revenue for the segment decreased by 4% during the three months endedJuly 4, 2021 as compared to the three months endedJune 28, 2020 , primarily due to a decrease in the number of cash deals and sale of development projects. Revenue for the segment increased by 13% during the six months endedJuly 4, 2021 as compared to the six months endedJune 28, 2020 , primarily due to an increase in the number of cash deals and sale of development projects, as well as an increase in incentive revenue due to the completion of the commercial sale-leaseback portfolio.
Others
Revenue for the segment decreased by 48% and 82% during the three and six months endedJuly 4, 2021 , respectively, as compared to the three and six months endedJune 28, 2020 , primarily due to the halt of production in our manufacturing facility inHillsboro, Oregon , in the first and second quarters of fiscal 2021, and lower O&M revenue as a result of the sale of our O&M services contracts and related assets and liabilities during the second quarter of fiscal 2020. This was partially offset by an increase in revenue primarily in the second quarter of fiscal 2021 upon reaching milestones related to one legacy power plant project.
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Total Cost of Revenue and Gross Margin
Our total cost of revenue increased by 29% during the three months ended
Our total cost of revenue increased by 11% during the six months endedJuly 4, 2021 as compared to the six months endedJune 28, 2020 , primarily due to an increase in cost from development sale projects due to higher installations and deconsolidation of those projects, as well as higher department spending during fiscal 2021 in our C&I Solutions segment. Our gross margin increased by 8 percentage points and 7 percentage points during the three and six months endedJuly 4, 2021 , respectively, as compared to the three and six months endedJune 28, 2020 , primarily due to a strong contribution in both our RLC and our Others segments. Changes by segments are discussed below in detail.
Total Cost of Revenue and Gross Margin - by Segment
Three Months Ended Six Months Ended
(In thousands, except
percentages) July 4, 2021 June 28, 2020 % Change July 4, 2021 June 28, 2020 % Change
Cost of Revenue
Residential, Light Commercial $ 196,909 $ 134,073 47 % $ 381,925 $ 332,708 15 %
Commercial and Industrial
Solutions 47,473 39,612 20 % 109,525 91,518 20 %
Others 1,348 18,983 (93) % 3,162 61,297 (95) %
Intersegment and GAAP
adjustments1 2,166 (653) 432 % 9,808 (32,146) 131 %
Total cost of revenue $ 247,896 $ 192,015 29 % $ 504,420 $ 453,377 11 %
Gross Margin
Residential, Light Commercial 23 % 16 % 22 % 15 %
Commercial and Industrial
Solutions 1 % 21 % 4 % 9 %
Others 80 % (49) % 61 % (35) %
Intersegment and GAAP
adjustments 1 (54,050) % 88 % (1,442) % (5) %
Total gross margin percentage 20 % 12 % 18 % 11 %
1 Represents intersegment eliminations and adjustments to segment revenue to
determine consolidated GAAP revenue. Refer to details of reconciling items in
Note 15. Segment and Geographical Information of the consolidated financial
statements.
Residential, Light Commercial
Gross margin for the segment increased by 7 percentage points during both the three and six months endedJuly 4, 2021 as compared to the three and six months endedJune 28, 2020 , primarily due to a higher volume of residential cash and loan deals.
Commercial and Industrial Solutions
Gross margin for the segment decreased by 20 percentage points and 5 percentage points during the three and six months endedJuly 4, 2021 , respectively, as compared to the six months endedJune 28, 2020 , primarily due to lower revenue and sales of projects with lower margins.
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Table of Contents Others Gross margin for the segment increased by 129 percentage points and 96 percentage points during the three and six months endedJuly 4, 2021 , respectively, as compared to the three and six months endedJune 28, 2020 , primarily due to revenue recognition for milestones reached related to one legacy power plant project resulting in full profit, the closure and halt of production at our manufacturing facility inHillsboro, Oregon in the first and second quarters of fiscal 2021, and lower O&M cost of revenue due to the sale of our O&M service contracts and related assets and liabilities during the second quarter of fiscal 2020.
Research and Development ("R&D")
Three Months Ended Six Months Ended
(In thousands, except
percentages) July 4, 2021 June 28, 2020 % Change July 4, 2021 June 28, 2020 % Change
R&D $ 4,711 $ 5,994 (21) % $ 9,726 $ 13,762 (29) %
As a percentage of
revenue 2 % 3 % 2 % 3 %
R&D expense decreased by $1.3 million , or 21%, during the three months ended
July 4, 2021 , as compared to the three months ended June 28, 2020 , primarily due
to a credit received from Department of Energy for qualified expenses in the
second quarter of fiscal 2021 and cost reduction activities in the second
quarter of fiscal 2020 related to the COVID-19 pandemic.
R&D expense decreased by $4.0 million , or 29%, during the six months ended
July 4, 2021 , as compared to the six months ended June 28, 2020 , primarily due
to lower research costs on software, consisting of direct project and contract
labor costs, as well as a credit received from Department of Energy for
qualified expenses in the second quarter of fiscal 2021 and cost reduction
activities in the second quarter of fiscal 2020 related to the COVID-19
pandemic.
Sales, General, and Administrative ("SG&A")
Three Months Ended Six Months Ended
(In thousands, except
percentages) July 4, 2021 June 28, 2020 % Change July 4, 2021 June 28, 2020 % Change
SG&A $ 56,730 $ 36,014 58 % $ 104,474 $ 76,731 36 %
As a percentage of revenue 18 % 17 % 17 % 15 %
SG&A expenses increased by $20.7 million , or 58%, during the three months ended
July 4, 2021 as compared to the three months ended June 28, 2020 , primarily due
to higher litigation costs, higher labor costs from incremental hires,
accelerated vesting of stock held by former executives, and cost actions to
reduce salaries of certain of our executive officers taken in the second quarter
of fiscal 2020 related to the COVID-19 pandemic.
SG&A expenses increased by $27.7 million , or 36%, during the six months ended
July 4, 2021 as compared to the six months ended June 28, 2020 , primarily due to
higher litigation costs, as well as higher labor and consulting costs from
incremental hires and developers, and cost actions to reduce salaries of certain
of our executive officers taken in the second quarter of fiscal 2020 related to
the COVID-19 pandemic.
Restructuring Charges
Three Months Ended Six Months Ended
(In thousands, except
percentages) July 4, 2021 June 28, 2020 % Change July 4, 2021 June 28, 2020 % Change
Restructuring charges $ 808 $ 1,259 (36) % $ 4,574 $ 2,835 61 %
As a percentage of revenue - % 1 % 1 % 1 %
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Table of Contents Restructuring charges decreased by$0.5 million , or 36%, during the three months endedJuly 4, 2021 as compared to the three months endedJune 28, 2020 , primarily due to the wind-down of the restructuring plan adopted during the first quarter of fiscal 2021 related to the closure of ourHillsboro, Oregon , manufacturing facility. Restructuring charges increased by$1.7 million , or 61%, during the six months endedJuly 4, 2021 as compared to the six months endedJune 28, 2020 , primarily due to charges incurred during the first and second quarters of fiscal 2021 related to the new restructuring plan adopted during the first quarter of fiscal 2021. See "Item 1. Financial Statements-Note 7. Restructuring" in the Notes to the unaudited condensed consolidated financial statements in this Quarterly Report on Form 10-Q for further information regarding our restructuring plans.
(Gain) loss on sale and impairment of residential lease assets
Three Months Ended Six Months Ended
(In thousands, except
percentages) July 4, 2021 June 28, 2020 % Change July 4, 2021 June 28, 2020 % Change
(Gain) loss on sale and
impairment of residential
lease assets $ (68) $ 141 (148) % $ (294) $ (133) 121 %
As a percentage of revenue - % - % - % - %
Gain on sale and impairment of residential lease assets decreased by
Gain on sale and impairment of residential lease assets increased by
Gain on business divestitures, net
Three Months Ended Six Months Ended
(In thousands, except
percentages) July 4, 2021 June 28, 2020 % Change July 4, 2021 June 28, 2020 % Change
Gain on business divestitures,
net $ (224) $ (10,458) (98) % $ (224) $ (10,458) (98) %
As a percentage of revenue - % (5) % - % (2) %
Gain on business divestitures, net decreased by $10.2 million during the three
and six months ended July 4, 2021 as compared to the three and six months ended
June 28, 2020 , primarily due to the gain on sale of $10.5 million of our O&M
business recorded in the quarter ended June 28, 2020 compared to the aggregate
net gain on sale of $0.2 million of our commercial projects and residential
leases recorded in the quarter ended July 4, 2021 .
Income from transition services agreement, net
Three Months Ended Six Months Ended
(In thousands, except
percentages) July 4, 2021 June 28, 2020 % Change July 4, 2021 June 28, 2020 % Change
Income from transition
services agreement, net $ (1,656) $ - 100 % $ (4,743) $ - 100 %
As a percentage of revenue (1) % - % (1) % - %
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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 received limited services with respect to certain shared processes following the 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. We recorded$1.7 million and$4.7 million of income for services provided under the transition services agreement, net of services provided by Maxeon Solar, resulting in a reduction to operating expenses on the consolidated statement of operations during the three and six months endedJuly 4, 2021 , respectively.
Other Income (Expense), Net
Three Months Ended Six Months Ended
(In thousands, except
percentages) July 4, 2021 June 28, 2020 % Change July 4, 2021 June 28, 2020 % Change
Interest income $ 114 $ 174 (34) % $ 166 $ 578 (71) %
Interest expense (7,721) (8,448) (9) % (15,686) (17,641) (11) %
Other income (expense):
Other, net 84,071 71,205 18 % 40,600 121,643 (67) %
Other income (expense),
net $ 76,464 $ 62,931 22 % $ 25,080 $ 104,580 (76) %
As a percentage of
revenue 25 % 29 % 4 % 20 %
Interest expense decreased by $0.7 million during the three months ended July 4,
2021 as compared to the three months ended June 28, 2020 , primarily due to the
repayment of our convertible debentures during the quarter ended July 4, 2021 ,
as well as the repurchase of our convertible debentures during the first and
third quarters of fiscal 2020.
Interest expense decreased by $2.0 million during the six months ended July 4,
2021 as compared to the six months ended June 28, 2020 , primarily due to the
repayment of our convertible debentures during the quarter ended July 4, 2021 ,
as well as the repurchase of our convertible debentures during the first and
third quarters of fiscal 2020.
Other income increased by
Other income decreased by$81.0 million in the six months endedJuly 4, 2021 as compared to the six months endedJune 28, 2020 , primarily due to a$38.3 million gain on an equity investment with a readily determinable fair value in the six months endedJuly 4, 2021 , as compared to a gain of$119.0 million in the six months endedJune 28, 2020 . Income Taxes Three Months Ended Six Months Ended (In thousands, except percentages) July 4, 2021 June 28, 2020 % Change July 4, 2021 June 28, 2020 % Change (Provision for) benefit from income taxes$ (2,425) $ (1,106) 119 %$ 2,799 $ (1,991) (241) % As a percentage of revenue (1) % (1) % - % - % In the three months endedJuly 4, 2021 , our income tax provision of$2.4 million on a profit from continuing operations before income taxes and equity in earnings of unconsolidated investees of$77.2 million was primarily due to the deferred tax liability on mark-to-market unrealized gains on equity investments. Our income tax provision of$1.1 million in the three months endedJune 28, 2020 on a profit from continuing operations before income taxes and equity in earnings of unconsolidated investees of$55.6 million was primarily due to tax expense in foreign jurisdictions, unrelated to Maxeon Solar, that were profitable.
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In the six months endedJuly 4, 2021 , our income tax benefit of$2.8 million on a profit from continuing operations before income taxes and equity in earnings of unconsolidated investees of$22.5 million was primarily due to windfall benefits from stock-based compensation deduction and the true-up of estimated state tax liability, partially offset by deferred tax liability on mark-to-market unrealized gains on equity investments. Our income tax provision of$2.0 million in the six months endedJune 28, 2020 on a profit from continuing operations before income taxes and equity in earnings of unconsolidated investees of$76.7 million was primarily due to tax expense in foreign jurisdictions, unrelated to Maxeon Solar, that were profitable. As of the end of the second quarter of fiscal 2021, as part of our 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. 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.
Net Loss Attributable to Noncontrolling Interests
Three Months Ended Six Months Ended
(In thousands, except
percentages) July 4, 2021 June 28, 2020 % Change July 4, 2021 June 28, 2020 % Change
Net loss attributable to
noncontrolling interests $ 438 $ 1,363 (68) %$ 1,551 $ 2,742 (43) % 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 under the governing contractual arrangements in a liquidation scenario. The decrease in net loss attributable to noncontrolling interests of$0.9 million and$1.2 million during the three and six months endedJuly 4, 2021 , respectively, as compared to the three and six months endedJune 28, 2020 , was primarily due to the deconsolidation of our residential lease assets under the HLBV method and 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.
Critical Accounting Estimates
We prepare our unaudited condensed consolidated financial statements in conformity withU.S. GAAP, 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.
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 significant changes in our critical accounting estimates during the fiscal quarter endedJuly 4, 2021 compared to those previously disclosed in "Critical Accounting Estimates" in "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in our Annual Report on Form 10-K for the fiscal year endedJanuary 3, 2021 .
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Liquidity and Capital Resources
Liquidity
A summary of the sources and uses of cash, cash equivalents, restricted cash, and restricted cash equivalents is as follows:
Six Months Ended
(In thousands) July 4, 2021
Net cash used in operating activities $ (18,353) $ (158,842)
Net cash provided by investing activities $ 7,363 $ 55,838
Net cash used in financing activities $ (84,187) $ (81,409)
Operating Activities
Net cash used in operating activities for the six months ended July 4, 2021 of
$18.4 million consisted of net income adjusted for certain non-cash items and
changes in operating assets and liabilities.
The $140.5 million decrease in cash used in operations in the current quarter
compared to the corresponding fiscal quarter ended June 28, 2020 , was primarily
due to lower payments for accounts payable and accrued liabilities in the
current quarter compared to the prior quarter, as well as lower contract assets
from a settlement for milestone accomplishment in the current quarter.
Investing Activities
Net cash provided by investing activities for the six months endedJuly 4, 2021 of$7.4 million primarily consisted of proceeds from business divestitures, net of cash, and proceeds from return of capital of equity investments, partially offset by purchases of property, plant, and equipment. The$48.5 million decrease in net cash provided by investing activities in the current quarter compared to the corresponding fiscal quarter endedJune 28, 2020 , is due to lower cash proceeds from sale of equity investment, as well as lower proceeds from business divestitures, net of cash.
Financing Activities
Net cash used in financing activities for the six months endedJuly 4, 2021 of$84.2 million primarily consisted of cash paid for repurchase of convertible debt, net repayment of bank loans and other debt, including repayment of non-recourse residential and commercial financing debt, net of proceeds from bank loans and other debt, and purchase of stock for tax withholding obligations on vested restricted stock.
The
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Table of Contents Capital Resources As ofJuly 4, 2021 , we had unrestricted cash and cash equivalents of$140.5 million as compared to$232.8 million as ofJanuary 3, 2021 . We have invested and expect to continue to invest capital to develop solar power systems and plants for sale to customers, especially for development and construction projects in our C&I Solutions segment. The development of solar power plants can extend over long periods of time and require substantial initial investments, and 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 obtaining project financing, prior to receipt of final regulatory approval, and prior to the final sale to a customer, if any, which means we must make 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 power purchase agreements 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, or our inability to complete development of one or more projects, could have a negative impact on our liquidity. As ofJuly 4, 2021 , our cash balances were held primarily inthe United States ; however, we had approximately$1.9 million held outside ofthe United States . This offshore cash is used to fund our business operations inMexico ,Canada , and theAsia Pacific region, which require local payment for payroll, 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 ofJuly 4, 2021 , letters of credit issued under theDeutsche Bank Trust facility amounted to$2.7 million .
Overall, we maintain debt levels that we establish through consideration of a number of factors, including cash flow expectations, cash requirements for operations, our cost of capital, and targeted capital structure.
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 these financial statements. In addition, we have historically been successful in generating liquidity by divesting certain investments and businesses, such as our shares of Enphase common stock, as well as other non-core assets; securing other sources of financing, such as accessing the capital markets; and implementing other cost reduction initiatives such as restructuring, to address our liquidity needs. Although we have historically been able to generate liquidity, we cannot assure that we will be able to continue to do so. For information about the terms of debt instruments and changes thereof in the period, see "Item 1. Financial Statements-Note 10. Debt and Credit Sources" in the Notes to the unaudited condensed consolidated financial statements in this Quarterly Report on Form 10-Q.
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Table of Contents 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 451,203 $
8,500
137,839 77,825 1,574 58,238 202
Operating lease commitments3 63,276 8,800 26,621 12,382 15,473
Non-cancellable purchase orders4 26,722 26,722 - - -
Supply agreement commitments5 289,218 123,108 158,318 2,485 5,307
Total $ 968,258 $ 244,955 $ 629,216 $ 73,105 $ 20,982 1 Convertible debt, including interest, relates to the aggregate of
2 Other debt, including interest, primarily relates to our non-recourse financing and other debt arrangements as described in Note 10. 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 tools and construction equipment.
5 Supply agreement commitments 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 of two years and five 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 ofJuly 4, 2021 andJanuary 3, 2021 , total liabilities associated with uncertain tax positions were$12.2 million and$12.6 million , respectively, and are included within "Other long-term liabilities" in our unaudited condensed consolidated balance sheets as they are not expected to be paid within the next twelve months.
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