SUNPOWER CORP
10-Ks and 10-Qs
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
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T
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended
June 28, 2015
OR
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from ______________ to ______________
Commission file number 001-34166
SunPower Corporation
(Exact Name of Registrant as Specified in Its Charter)
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Delaware
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94-3008969
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(State or Other Jurisdiction of Incorporation or Organization)
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(I.R.S. Employer Identification No.)
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77 Rio Robles, San Jose, California 95134
(Address of Principal Executive Offices and Zip Code)
(408) 240-5500
(Registrant's Telephone Number, Including Area Code)
_________________________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes
T
No
o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes
T
No
o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer
x
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Accelerated filer
o
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Non-accelerated filer
o
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Smaller reporting company
o
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(Do not check if a smaller reporting company)
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||
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
o
No
T
The total number of outstanding shares of the registrant’s common stock as of
July 24, 2015
was
136,404,821
.
1
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TABLE OF CONTENTS
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Page
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Part I. FINANCIAL INFORMATION
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Item 1.
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Financial Statements (unaudited)
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Consolidated Balance Sheets
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Consolidated Statements of Operations
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Consolidated Statements of Comprehensive Income (Loss)
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Consolidated Statements of Equity
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Consolidated Statements of Cash Flows
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Notes to Consolidated Financial Statements
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Item 2.
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Management's Discussion and Analysis of Financial Condition and Results of Operations
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Item 3.
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Quantitative and Qualitative Disclosure About Market Risk
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Item 4.
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Controls and Procedures
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Part II. OTHER INFORMATION
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Item 1.
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Legal Proceedings
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Item IA.
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Risk Factors
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Item 2.
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Unregistered Sales of Equity Securities and Use of Proceeds
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Item 6.
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Exhibits
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2
ITEM 1.
FINANCIAL STATEMENTS
SunPower Corporation
(In thousands, except share data)
(unaudited)
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June 28, 2015
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December 28, 2014
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|||||
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Assets
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|||||||
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Current assets:
|
|||||||
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Cash and cash equivalents
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$
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623,043
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$
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956,175
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Restricted cash and cash equivalents, current portion
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26,033
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18,541
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|||
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Accounts receivable, net
1
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433,627
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504,316
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|||
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Costs and estimated earnings in excess of billings
1
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48,449
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187,087
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|||
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Inventories
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310,432
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208,573
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|||
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Advances to suppliers, current portion
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96,277
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98,129
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|||
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Project assets - plants and land, current portion
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379,900
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101,181
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|||
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Prepaid expenses and other current assets
1
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254,352
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328,845
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|||
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Total current assets
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2,172,113
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2,402,847
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|||
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Restricted cash and cash equivalents, net of current portion
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45,436
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24,520
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|||
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Restricted long-term marketable securities
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6,905
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7,158
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Property, plant and equipment, net
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643,912
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585,344
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|||
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Solar power systems leased and to be leased, net
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458,708
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390,913
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|||
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Project assets - plants and land, net of current portion
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42,741
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15,475
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|||
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Advances to suppliers, net of current portion
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288,285
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311,528
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|||
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Long-term financing receivables, net
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261,076
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269,587
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|||
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Goodwill and other intangible assets, net
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37,387
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37,981
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|||
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Other long-term assets
1
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391,960
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300,229
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|||
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Total assets
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$
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4,348,523
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$
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4,345,582
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Liabilities and Equity
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|||
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Current liabilities:
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Accounts payable
1
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$
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427,412
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$
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419,919
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Accrued liabilities
1
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550,956
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331,034
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Billings in excess of costs and estimated earnings
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92,770
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83,440
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Short-term debt
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12,160
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18,105
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|||
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Convertible debt, current portion
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—
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245,325
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|||
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Customer advances, current portion
1
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30,662
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31,788
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Total current liabilities
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1,113,960
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1,129,611
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Long-term debt
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225,338
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214,181
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Convertible debt, net of current portion
1
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693,938
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692,955
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Customer advances, net of current portion
1
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137,539
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148,896
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Other long-term liabilities
1
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535,438
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555,344
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Total liabilities
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2,706,213
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2,740,987
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|||
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Commitments and contingencies (Note 9)
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Redeemable noncontrolling interests in subsidiaries
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31,515
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28,566
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Equity:
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Preferred stock, $0.001 par value; 10,000,000 shares authorized; none issued and outstanding as of both June 28, 2015 and December 28, 2014
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—
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—
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Common stock, $0.001 par value, 367,500,000 shares authorized; 144,783,659 shares issued, and 136,395,049 shares outstanding as of June 28, 2015; 367,500,000 shares authorized; 138,616,252 shares issued, and 131,466,777 shares outstanding as of December 28, 2014;
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136
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131
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Additional paid-in capital
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2,263,260
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2,219,581
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Accumulated deficit
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(563,670
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)
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(560,598
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)
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|||
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Accumulated other comprehensive loss
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(13,951
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)
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(13,455
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)
|
|||
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Treasury stock, at cost; 8,388,610 shares of common stock as of June 28, 2015; 7,149,475 shares of common stock as of December 28, 2014
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(151,811
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)
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(111,485
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)
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|||
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Total stockholders' equity
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1,533,964
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1,534,174
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|
|||
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Noncontrolling interests in subsidiaries
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76,831
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41,855
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|
|||
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Total equity
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1,610,795
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1,576,029
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|
|||
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Total liabilities and equity
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$
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4,348,523
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$
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4,345,582
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1
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The Company has related-party balances for transactions made with Total and its affiliates as well as unconsolidated entities in which the Company has a direct equity investment. These related-party balances are recorded within the "Accounts Receivable, net," "Costs and estimated earnings in excess of billings," "Prepaid expenses and other current assets," "Other long-term assets," "Accounts payable," "Accrued Liabilities," "Customer advances, current portion," "Convertible debt, net of current portion," and "Customer advances, net of current portion" financial statement line items in the Consolidated Balance Sheets (see Note 2, Note 3, Note 7, Note 10, Note 11, and Note 12).
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The accompanying notes are an integral part of these consolidated financial statements.
3
SunPower Corporation
(In thousands, except per share data)
(unaudited)
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Three Months Ended
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Six Months Ended
|
||||||||||||||
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June 28, 2015
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June 29, 2014
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June 28, 2015
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June 29, 2014
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Revenue
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$
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381,020
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$
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507,871
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$
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821,891
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$
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1,200,293
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||||
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Cost of revenue
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310,139
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413,726
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660,192
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943,159
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||||||||
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Gross margin
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70,881
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94,145
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161,699
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257,134
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|
||||||||
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Operating expenses:
|
||||||||||||||||
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Research and development
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20,560
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16,581
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41,728
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33,327
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|
||||||||
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Sales, general and administrative
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81,520
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71,499
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158,734
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145,427
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||||||||
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Restructuring charges
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1,749
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(717
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)
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5,330
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(1,178
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)
|
||||||||
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Total operating expenses
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103,829
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87,363
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205,792
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177,576
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|
||||||||
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Operating income (loss)
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(32,948
|
)
|
6,782
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(44,093
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)
|
79,558
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|
||||||||
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Other income (expense), net:
|
||||||||||||||||
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Interest income
|
494
|
|
668
|
|
1,050
|
|
986
|
|
||||||||
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Interest expense
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(8,517
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)
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(16,310
|
)
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(24,198
|
)
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(35,902
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)
|
||||||||
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Other, net
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14,982
|
|
(76
|
)
|
12,362
|
|
1,293
|
|
||||||||
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Other income (expense), net
|
6,959
|
|
(15,718
|
)
|
(10,786
|
)
|
(33,623
|
)
|
||||||||
|
Income (loss) before income taxes and equity in earnings of unconsolidated investees
|
(25,989
|
)
|
(8,936
|
)
|
(54,879
|
)
|
45,935
|
|
||||||||
|
Benefit from (provision for) income taxes
|
659
|
|
8,168
|
|
(1,692
|
)
|
(5,452
|
)
|
||||||||
|
Equity in earnings of unconsolidated investees
|
1,864
|
|
1,936
|
|
4,055
|
|
3,719
|
|
||||||||
|
Net income (loss)
|
(23,466
|
)
|
1,168
|
|
(52,516
|
)
|
44,202
|
|
||||||||
|
Net loss attributable to noncontrolling interests and redeemable noncontrolling interests
|
29,975
|
|
12,934
|
|
49,444
|
|
34,944
|
|
||||||||
|
Net income (loss) attributable to stockholders
|
$
|
6,509
|
|
$
|
14,102
|
|
$
|
(3,072
|
)
|
$
|
79,146
|
|
||||
|
Net income (loss) per share attributable to stockholders:
|
||||||||||||||||
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Basic
|
$
|
0.05
|
|
$
|
0.11
|
|
$
|
(0.02
|
)
|
$
|
0.63
|
|
||||
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Diluted
|
$
|
0.04
|
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$
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0.09
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$
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(0.02
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)
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$
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0.52
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|
||||
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Weighted-average shares:
|
||||||||||||||||
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Basic
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134,376
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129,747
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133,205
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125,972
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|
||||||||
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Diluted
|
156,995
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156,333
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133,205
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154,886
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|
||||||||
The accompanying notes are an integral part of these consolidated financial statements.
4
SunPower Corporation
Consolidated Statements of Comprehensive Income (Loss)
(In thousands)
(unaudited)
|
|
Three Months Ended
|
Six Months Ended
|
||||||||||||||
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June 28, 2015
|
June 29, 2014
|
June 28, 2015
|
June 29, 2014
|
|||||||||||||
|
Net income (loss)
|
$
|
(23,466
|
)
|
$
|
1,168
|
|
$
|
(52,516
|
)
|
$
|
44,202
|
|
||||
|
Components of comprehensive income (loss):
|
||||||||||||||||
|
Translation adjustment
|
242
|
|
68
|
|
(1,761
|
)
|
342
|
|
||||||||
|
Net unrealized gain (loss) on derivatives (Note 12)
|
4,996
|
|
(28
|
)
|
808
|
|
357
|
|
||||||||
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Income taxes
|
346
|
|
31
|
|
457
|
|
(79
|
)
|
||||||||
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Net change in accumulated other comprehensive gain (loss)
|
5,584
|
|
71
|
|
(496
|
)
|
620
|
|
||||||||
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Total comprehensive income (loss)
|
(17,882
|
)
|
1,239
|
|
(53,012
|
)
|
44,822
|
|
||||||||
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Comprehensive loss attributable to noncontrolling interests and redeemable noncontrolling interests
|
29,975
|
|
12,934
|
|
49,444
|
|
34,944
|
|
||||||||
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Comprehensive income (loss) attributable to stockholders
|
$
|
12,093
|
|
$
|
14,173
|
|
$
|
(3,568
|
)
|
$
|
79,766
|
|
||||
The accompanying notes are an integral part of these consolidated financial statements.
5
SunPower Corporation
Consolidated Statements of Equity
(In thousands)
(unaudited)
|
|
Common Stock
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||
|
|
Redeemable Noncontrolling Interests
|
Shares
|
Value
|
Additional
Paid-in
Capital
|
Treasury
Stock
|
Accumulated Other
Comprehensive Income (Loss)
|
Retained Earnings (Accumulated Deficit)
|
Total
Stockholders’
Equity
|
Noncontrolling Interests
|
Total Equity
|
|||||||||||||||||||||||||||||
|
Balances at December 28, 2014
|
$
|
28,566
|
|
131,466
|
|
$
|
131
|
|
$
|
2,219,581
|
|
$
|
(111,485
|
)
|
$
|
(13,455
|
)
|
$
|
(560,598
|
)
|
$
|
1,534,174
|
|
$
|
41,855
|
|
$
|
1,576,029
|
|
||||||||||
|
Net income (loss)
|
1,029
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(3,072
|
)
|
(3,072
|
)
|
(50,473
|
)
|
(53,545
|
)
|
|||||||||||||||||||
|
Other comprehensive income (loss)
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(496
|
)
|
—
|
|
(496
|
)
|
—
|
|
(496
|
)
|
|||||||||||||||||||
|
Issuance of common stock upon exercise of options
|
—
|
|
24
|
|
—
|
|
177
|
|
—
|
|
—
|
|
—
|
|
177
|
|
—
|
|
177
|
|
|||||||||||||||||||
|
Issuance of restricted stock to employees, net of cancellations
|
—
|
|
3,136
|
|
2
|
|
(2
|
)
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|||||||||||||||||||
|
Settlement of the 4.5% Warrants
|
—
|
|
3,008
|
|
3
|
|
(577
|
)
|
—
|
|
—
|
|
—
|
|
(574
|
)
|
—
|
|
(574
|
)
|
|||||||||||||||||||
|
Stock-based compensation expense
|
—
|
|
—
|
|
—
|
|
29,389
|
|
—
|
|
—
|
|
—
|
|
29,389
|
|
—
|
|
29,389
|
|
|||||||||||||||||||
|
Tax benefit from convertible debt interest deduction
|
—
|
|
—
|
|
—
|
|
7,965
|
|
—
|
|
—
|
|
—
|
|
7,965
|
|
—
|
|
7,965
|
|
|||||||||||||||||||
|
Tax benefit from stock-based compensation
|
—
|
|
—
|
|
—
|
|
6,727
|
|
—
|
|
—
|
|
—
|
|
6,727
|
|
—
|
|
6,727
|
|
|||||||||||||||||||
|
Contributions from noncontrolling interests
|
3,045
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
88,891
|
|
88,891
|
|
|||||||||||||||||||
|
Distributions to noncontrolling interests
|
(1,125
|
)
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(3,442
|
)
|
(3,442
|
)
|
|||||||||||||||||||
|
Purchases of treasury stock
|
|
(1,239
|
)
|
—
|
|
—
|
|
(40,326
|
)
|
—
|
|
—
|
|
(40,326
|
)
|
—
|
|
(40,326
|
)
|
||||||||||||||||||||
|
Balances at June 28, 2015
|
$
|
31,515
|
|
136,395
|
|
$
|
136
|
|
$
|
2,263,260
|
|
$
|
(151,811
|
)
|
$
|
(13,951
|
)
|
$
|
(563,670
|
)
|
$
|
1,533,964
|
|
$
|
76,831
|
|
$
|
1,610,795
|
|
||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
6
SunPower Corporation
(In thousands)
(unaudited)
|
Six Months Ended
|
|||||||
|
|
June 28, 2015
|
June 29, 2014
|
|||||
|
Cash flows from operating activities:
|
|||||||
|
Net income (loss)
|
$
|
(52,516
|
)
|
$
|
44,202
|
|
|
|
Adjustments to reconcile net income (loss) to net cash used in operating activities:
|
|||||||
|
Depreciation and amortization
|
60,005
|
|
49,397
|
|
|||
|
Stock-based compensation
|
27,586
|
|
28,215
|
|
|||
|
Non-cash interest expense
|
5,251
|
|
10,492
|
|
|||
|
Equity in earnings of unconsolidated investees
|
(4,055
|
)
|
(3,719
|
)
|
|||
|
Excess tax benefit from stock-based compensation
|
(6,727
|
)
|
—
|
|
|||
|
Deferred income taxes and other tax liabilities
|
(5,812
|
)
|
3,434
|
|
|||
|
Gain on sale of residential lease portfolio to 8point3 Energy Partners LP
|
(27,915
|
)
|
—
|
|
|||
|
Other, net
|
1,377
|
|
2,214
|
|
|||
|
Changes in operating assets and liabilities, net of effect of acquisitions:
|
|||||||
|
Accounts receivable
|
65,202
|
|
10,091
|
|
|||
|
Costs and estimated earnings in excess of billings
|
138,638
|
|
(76
|
)
|
|||
|
Inventories
|
(130,726
|
)
|
1,976
|
|
|||
|
Project assets
|
(311,774
|
)
|
(1,668
|
)
|
|||
|
Prepaid expenses and other assets
|
29,425
|
|
(59,364
|
)
|
|||
|
Long-term financing receivables, net
|
(69,258
|
)
|
(54,846
|
)
|
|||
|
Advances to suppliers
|
25,094
|
|
(12,481
|
)
|
|||
|
Accounts payable and other accrued liabilities
|
(66,084
|
)
|
(32,213
|
)
|
|||
|
Billings in excess of costs and estimated earnings
|
9,330
|
|
(59,580
|
)
|
|||
|
Customer advances
|
(12,482
|
)
|
(7,645
|
)
|
|||
|
Net cash used in operating activities
|
(325,441
|
)
|
(81,571
|
)
|
|||
|
Cash flows from investing activities:
|
|||||||
|
Increase in restricted cash and cash equivalents
|
(28,407
|
)
|
(9,347
|
)
|
|||
|
Purchases of property, plant and equipment
|
(68,778
|
)
|
(20,318
|
)
|
|||
|
Cash paid for solar power systems, leased and to be leased
|
(41,832
|
)
|
(24,937
|
)
|
|||
|
Cash paid for solar power systems
|
(10,007
|
)
|
—
|
|
|||
|
Proceeds from sales or maturities of marketable securities
|
—
|
|
1,380
|
|
|||
|
Proceeds from 8point3 Energy Partners LP attributable to real estate projects and residential lease portfolio
|
341,174
|
|
—
|
|
|||
|
Purchases of marketable securities
|
—
|
|
(30
|
)
|
|||
|
Cash paid for acquisitions, net of cash acquired
|
—
|
|
(5,894
|
)
|
|||
|
Cash paid for investments in unconsolidated investees
|
(7,092
|
)
|
(5,013
|
)
|
|||
|
Cash paid for intangibles
|
(526
|
)
|
—
|
|
|||
|
Net cash provided by (used in) investing activities
|
184,532
|
|
(64,159
|
)
|
|||
|
Cash flows from financing activities:
|
|||||||
|
Proceeds from issuance of convertible debt, net of issuance costs
|
—
|
|
395,275
|
|
|||
|
Cash paid for repurchase of convertible debt
|
(324,273
|
)
|
(42,102
|
)
|
|||
|
Proceeds from settlement of 4.75% Bond Hedge
|
—
|
|
68,842
|
|
|||
|
Payments to settle 4.75% Warrants
|
—
|
|
(81,077
|
)
|
|||
|
Proceeds from settlement of 4.50% Bond Hedge
|
74,628
|
|
110
|
|
|||
|
Payments to settle 4.50% Warrants
|
(574
|
)
|
—
|
|
|||
|
Proceeds from issuance of non-recourse debt financing, net of issuance costs
|
54,830
|
|
73,414
|
|
|||
|
Repayment of non-recourse debt financing
|
(827
|
)
|
—
|
|
|||
|
Proceeds from issuance of project loans, net of issuance costs
|
190,491
|
|
—
|
|
|||
|
Assumption of project loan by customer
|
—
|
|
(40,672
|
)
|
|||
|
Repayment of bank loans, project loans and other debt
|
(240,160
|
)
|
(8,568
|
)
|
|||
|
Repayment of residential lease financing
|
(39,975
|
)
|
(15,686
|
)
|
|||
|
Proceeds from sale-leaseback financing
|
17,219
|
|
16,685
|
|
|||
|
Repayment of sale-leaseback financing
|
(2,237
|
)
|
(779
|
)
|
|||
|
Proceeds from 8point3 Energy Partners LP attributable to operating leases and unguaranteed sales-type lease residual values
|
29,300
|
|
—
|
|
|||
|
Contributions from noncontrolling interests and redeemable noncontrolling interests
|
91,936
|
|
52,778
|
|
|||
|
Distributions to noncontrolling interests and redeemable noncontrolling interests
|
(4,567
|
)
|
(1,636
|
)
|
|||
|
Proceeds from exercise of stock options
|
178
|
|
630
|
|
|||
|
Excess tax benefit from stock-based compensation
|
6,727
|
|
—
|
|
|||
|
Purchases of stock for tax withholding obligations on vested restricted stock
|
(40,326
|
)
|
(52,804
|
)
|
|||
|
Net cash provided by (used in) financing activities
|
(187,630
|
)
|
364,410
|
|
|||
|
Effect of exchange rate changes on cash and cash equivalents
|
(4,593
|
)
|
(333
|
)
|
|||
|
Net increase (decrease) in cash and cash equivalents
|
(333,132
|
)
|
218,347
|
|
|||
|
Cash and cash equivalents, beginning of period
|
956,175
|
|
762,511
|
|
|||
|
Cash and cash equivalents, end of period
|
$
|
623,043
|
|
$
|
980,858
|
|
|
|
Non-cash transactions:
|
|||||||
|
Assignment of residential lease receivables to a third-party financial institution
|
$
|
1,689
|
|
$
|
4,256
|
|
|
|
Costs of solar power systems, leased and to be leased, sourced from existing inventory
|
$
|
30,428
|
|
$
|
13,903
|
|
|
|
Costs of solar power systems, leased and to be leased, funded by liabilities
|
$
|
3,971
|
|
$
|
1,867
|
|
|
|
Costs of solar power systems under sale-leaseback financing arrangements, sourced from project assets
|
$
|
6,076
|
|
$
|
15,269
|
|
|
|
Property, plant and equipment acquisitions funded by liabilities
|
$
|
37,017
|
|
$
|
9,326
|
|
|
|
Issuance of common stock upon conversion of convertible debt
|
$
|
—
|
|
$
|
188,263
|
|
|
|
Sale of residential lease portfolio in exchange for non-controlling equity interests in the 8point3 Group
|
$
|
68,273
|
|
$
|
—
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
7
Note 1.
THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company
SunPower Corporation (together with its subsidiaries, the "Company" or "SunPower") is a vertically integrated solar energy products and solutions company that designs, manufactures and delivers high-performance solar systems worldwide, serving as a one-stop shop for residential, commercial and utility-scale power plant customers. SunPower Corporation is a majority owned subsidiary of Total Energies Nouvelles Activités USA
("Total"), a subsidiary of Total S.A
.
("Total S.A.") (see Note 2).
In the first quarter of fiscal 2015, in connection with a realignment of its internal organizational structure, the Company changed its segment reporting from its Americas, EMEA and APAC Segments to three end-customer segments: (i) Residential Segment, (ii) Commercial Segment and (iii) Power Plant Segment. The Residential and Commercial Segments combined are referred to as Distributed Generation. Historically, the Americas Segment included both North and South America, the EMEA Segment included European countries as well as the Middle East and Africa, and the APAC Segment included all Asia-Pacific countries.
Under the new segmentation, the Company’s Residential Segment refers to sales of solar energy solutions to residential end customers through a variety of means, including cash sales and long-term leases directly to end customers, sales to resellers, including the Company's third-party global dealer network, and sales of the Company's operations and maintenance (“O&M”) services. The Company’s Commercial Segment refers to sales of solar energy solutions to commercial and public entity end customers through a variety of means, including direct sales of turn-key engineering, procurement and construction ("EPC") services, sales to the Company's third-party global dealer network, sales of energy under power purchase agreements ("PPAs"), and sales of the Company's O&M services. The Power Plant Segment refers to the Company's large-scale solar products and systems business, which includes power plant project development and project sales, EPC services for power plant construction, power plant O&M services and component sales for power plants developed by third parties, sometimes on a multi-year, firm commitment basis.
The Company’s President and Chief Executive Officer, as the chief operating decision maker (“CODM”), reviews the Company's business and manages resource allocations and measures performance of the Company’s activities among these three end-customer segments.
Reclassifications of prior period segment information have been made to conform to the current period presentation. This change does not affect the Company's previously reported Consolidated Financial Statements.
Basis of Presentation and Preparation
Principles of Consolidation
The consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America ("United States" or "U.S.") and include the accounts of the Company, all of its subsidiaries and special purpose entities, as appropriate under consolidation accounting guidelines. Intercompany transactions and balances have been eliminated in consolidation. The assets of the special purpose entities that the Company establishes in connection with certain project financing arrangements for customers are not designed to be available to service the general liabilities and obligations of the Company.
Reclassifications
Certain prior period balances, including prior period segment information, have been reclassified to conform to the current period presentation in the Company's consolidated financial statements and the accompanying notes. Such reclassifications had no effect on previously reported results of operations or accumulated deficit.
Fiscal Years
The Company has a 52-to-53-week fiscal year that ends on the Sunday closest to December 31. Accordingly, every fifth or sixth year will be a 53-week fiscal year. The current fiscal year, fiscal 2015, is a 53-week fiscal year and includes a 14-week fourth fiscal quarter, while fiscal year 2014 was a 52-week fiscal year. The second quarter of fiscal
2015
ended on
June 28, 2015
, while the second quarter of fiscal
2014
ended on
June 29, 2014
. The second quarters of fiscal
2015
and fiscal
2014
were both 13-week quarters.
8
Management Estimates
The preparation of the consolidated financial statements in conformity with U.S. generally accepted accounting principles ("U.S. GAAP") requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Significant estimates in these consolidated financial statements include percentage-of-completion for construction projects; allowances for doubtful accounts receivable and sales returns; inventory and project asset write-downs; stock-based compensation; estimates for future cash flows and economic useful lives of property, plant and equipment, goodwill, valuations for business combinations, other intangible assets and other long-term assets; the fair value and residual value of leased solar power systems; fair value of financial instruments; valuation of contingencies and certain accrued liabilities such as accrued warranty; and income taxes and tax valuation allowances. Actual results could materially differ from those estimates.
Recent Accounting Pronouncements
In July 2015, the Financial Accounting Standards Board ("FASB") issued an update to the standards to simplify the measurement of inventory. The updated standard more closely aligns the measurement of inventory with that of International Financial Reporting Standards (“IFRS”) and amends the measurement standard from lower of cost or market to lower of cost or net realizable value. The new guidance is effective for the Company no later than the first quarter of fiscal 2017 and requires a prospective approach to adoption. Early adoption is permitted. The Company is evaluating the potential impact of this standard on its consolidated financial statements and disclosures.
In April 2015, the FASB issued an update to the standards to provide a practical expedient for the measurement date of defined benefit obligation and plan assets for reporting entities with fiscal year-ends that do not coincide with a month-end. The updated standard allows such entities to measure defined benefit plan assets and obligations using the month-end that is closest to the entity's fiscal year-end and apply that practical expedient consistently from year to year and to all plans, if an entity has more than one plan. The new practical expedient guidance is effective for the Company no later than the first quarter of fiscal 2016 and requires a prospective approach to adoption. Early adoption is permitted. The Company is evaluating the potential impact of this standard on its consolidated financial statements and disclosures.
In April 2015, the FASB issued an update to the standards for the presentation of debt issuance costs to reduce complexity in accounting standards and to align with IFRS. The updated standard requires debt issuance costs to be presented in the balance sheet as a direct deduction from the carrying value of the associated debt liability. U.S. generally accepted accounting principles previously required debt issuance costs to be reflected as an asset on the Company's balance sheet. The new debt issuance cost guidance is effective for the Company no later than the first quarter of fiscal 2016 and requires a retrospective approach to adoption. The Company elected early adoption of the updated accounting standard, effective in the first quarter of fiscal 2015, resulting in a one-time reclassification of
$11.6M
of debt issuance costs from "Other long-term assets" to "Long-term debt" and "Convertible debt, net of current portion" in the Consolidated Balance Sheets as of December 28, 2014.
In February 2015, the FASB issued a new standard that modifies existing consolidation guidance for reporting organizations that are required to evaluate whether they should consolidate certain legal entities. The new consolidation guidance is effective for the Company in the first quarter of fiscal 2016 and requires either a retrospective or a modified retrospective approach to adoption. Early adoption is permitted. The Company is evaluating the available methods and the potential impact of this standard on its consolidated financial statements and disclosures.
In May 2014, the FASB issued a new revenue recognition standard based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. The new revenue recognition standard becomes effective for the Company in the first quarter of fiscal 2018 and is to be applied retrospectively using one of two prescribed methods. Early adoption is permitted. The Company is evaluating the available methods and the potential impact of this standard on its consolidated financial statements and disclosures.
Other than as described above, there has been no issued accounting guidance not yet adopted by the Company that it believes is material or potentially material to its consolidated financial statements.
Note 2.
TRANSACTIONS WITH TOTAL AND TOTAL S.A.
9
In June 2011, Total completed a cash tender offer to acquire
60%
of the Company's then outstanding shares of common stock at a price of
$23.25
per share, for a total cost of approximately
$1.4 billion
. In December 2011, the Company entered into a Private Placement Agreement with Total, under which Total purchased, and the Company issued and sold,
18.6 million
shares of the Company's common stock for a purchase price of
$8.80
per share, thereby increasing Total's ownership to approximately
66%
of the Company's outstanding common stock as of that date.
Credit Support Agreement
On April 28, 2011, the Company and Total S.A. entered into a Credit Support Agreement (the "Credit Support Agreement") under which Total S.A. agreed to enter into one or more guarantee agreements (each a "Guaranty") with banks providing letter of credit facilities to the Company. Total S.A. will guarantee the Company's obligation to reimburse the applicable issuing bank a draw on a letter of credit and pay interest thereon in accordance with the letter of credit facility between such bank and the Company. Under the Credit Support Agreement, the Company may also request that Total S.A. provide a Guaranty in support of the Company's payment obligations with respect to a letter of credit facility. The Company is required to pay Total S.A. a guarantee fee for each letter of credit that is the subject of a Guaranty under the Credit Support Agreement and was outstanding for all or part of the preceding calendar quarter. The Credit Support Agreement was amended on June 7, 2011, it became effective on June 28, 2011 in connection with the completion of the Tender Offer (the "CSA Effective Date"), and it was further amended on each of December 12, 2011, and December 14, 2012.
The Credit Support Agreement will terminate following the fifth anniversary of the CSA Effective Date, after the later of the payment in full of all obligations thereunder and the termination or expiration of each Guaranty provided thereunder.
Affiliation Agreement
The Company and Total have entered into an Affiliation Agreement that governs the relationship between Total and the Company (the "Affiliation Agreement"). Until the expiration of a standstill period specified in the Affiliation Agreement (the "Standstill Period"), and subject to certain exceptions, Total, Total S.A., any of their respective affiliates and certain other related parties (collectively the "Total Group") may not effect, seek, or enter into discussions with any third-party regarding any transaction that would result in the Total Group beneficially owning shares of the Company in excess of certain thresholds, or request the Company or the Company's independent directors, officers or employees, to amend or waive any of the standstill restrictions applicable to the Total Group.
The Affiliation Agreement imposes certain limitations on the Total Group's ability to seek to effect a tender offer or merger to acquire
100%
of the outstanding voting power of the Company and imposes certain limitations on the Total Group's ability to transfer
40%
or more of outstanding shares or voting power of the Company to a single person or group that is not a direct or indirect subsidiary of Total S.A. During the Standstill Period, no member of the Total Group may, among other things, solicit proxies or become a participant in an election contest relating to the election of directors to the Company's Board of Directors.
The Affiliation Agreement provides Total with the right to maintain its percentage ownership in connection with any new securities issued by the Company, and Total may also purchase shares on the open market or in private transactions with disinterested stockholders, subject in each case to certain restrictions.
The Affiliation Agreement also imposes certain restrictions with respect to the Company's and its Board of Directors' ability to take certain actions, including specifying certain actions that require approval by the directors other than the directors appointed by Total and other actions that require stockholder approval by Total.
Research & Collaboration Agreement
Total and the Company have entered into a Research & Collaboration Agreement (the "R&D Agreement") that establishes a framework under which the parties engage in long-term research and development collaboration ("R&D Collaboration"). The R&D Collaboration encompasses a number of different projects, with a focus on advancing the Company's technology position in the crystalline silicon domain, as well as ensuring the Company's industrial competitiveness. The R&D Agreement enables a joint committee to identify, plan and manage the R&D Collaboration.
10
Compensation and Funding Agreement
In February 2012, the Company entered into a Compensation and Funding Agreement (the "Compensation and Funding Agreement") with Total S.A. that established the parameters for the terms of liquidity injections that may be required to be provided by Total S.A. to the Company from time to time. During the term of the Compensation and Funding Agreement, the Company is required to pay Total S.A. a guarantee fee in an amount equal to
2.75%
per annum of the average amount of the Company's indebtedness that is guaranteed by Total S.A. pursuant to any guaranty issued in accordance with the terms of the Compensation and Funding Agreement during such quarter. Any payment obligations of the Company to Total S.A. under the Compensation and Funding Agreement that are not paid when due accrue interest until paid in full at a rate equal to
6
-month U.S. LIBOR as in effect from time to time plus
5.00%
per annum.
Upfront Warrant
In February 2012, the Company issued a warrant (the "Upfront Warrant") to Total S.A. to purchase
9,531,677
shares of the Company's common stock with an exercise price of
$7.8685
, subject to adjustment for customary anti-dilution and other events. The Upfront Warrant, governed by the Private Placement Agreement and the Compensation and Funding Agreement, is exercisable at any time for
seven
years after its issuance, provided that, so long as at least
$25.0 million
in aggregate of the Company's convertible debt remains outstanding, such exercise will not cause "any person," including Total S.A., to, directly or indirectly, including through one or more wholly-owned subsidiaries, become the "beneficial owner" (as such terms are defined in Rule 13d-3 and Rule 13d-5 under the Securities and Exchange Act of 1934, as amended), of more than
74.99%
of the voting power of the Company's common stock at such time, a circumstance which would trigger the repurchase or conversion of the Company's existing convertible debt.
0.75%
Debentures Due 2018
In May 2013, the Company issued
$300.0 million
in principal amount of its 0.75% senior convertible debentures due 2018 (the "0.75% debentures due 2018").
$200.0 million
in aggregate principal amount of the 0.75% debentures due 2018 were acquired by Total. The 0.75% debentures due 2018 are convertible into shares of the Company's common stock at any time based on an initial conversion price equal to
$24.95
per share, which provides Total the right to acquire up to
8,017,420
shares of the Company's common stock. The applicable conversion rate may adjust in certain circumstances, including a fundamental change, as described in the indenture governing the 0.75% debentures due 2018 (see Note 11).
0.875%
Debentures Due 2021
In June 2014, the Company issued
$400.0 million
in principal amount of its 0.875% senior convertible debentures due 2021 (the "0.875% debentures due 2021"). An aggregate principal amount of
$250.0 million
of the 0.875% debentures due 2021 were acquired by Total. The 0.875% debentures due 2021 are convertible into shares of the Company's common stock at any time based on an initial conversion price equal to
$48.76
per share, which provides Total the right to acquire up to
5,126,775
shares of the Company's common stock. The applicable conversion rate may adjust in certain circumstances, including a fundamental change, as described in the indenture governing the 0.875% debentures due 2021 (see Note 11).
Joint Projects with Total and its Affiliates:
The Company enters into various engineering, procurement and construction ("EPC") and operations and maintenance ("O&M") agreements relating to solar projects, including EPC and O&M services agreements relating to projects owned or partially owned by Total and its affiliates. As of
June 28, 2015
, the Company had
$0.6 million
of "Costs and estimated earnings in excess of billings" and
$1.4 million
of "Accounts receivable, net" on its Consolidated Balance Sheets related to projects in which Total and its affiliates have a direct or indirect material interest.
11
Related-Party Transactions with Total and its Affiliates:
|
Three Months Ended
|
Six Months Ended
|
|||||||||||||||
|
(In thousands)
|
June 28, 2015
|
June 29, 2014
|
June 28, 2015
|
June 29, 2014
|
||||||||||||
|
Revenue:
|
||||||||||||||||
|
EPC, O&M, and components revenue under joint projects
|
$
|
100
|
|
$
|
32,612
|
|
$
|
299
|
|
$
|
35,501
|
|
||||
|
Research and development expense:
|
||||||||||||||||
|
Offsetting contributions received under the R&D Agreement
|
$
|
(395
|
)
|
$
|
(293
|
)
|
$
|
(817
|
)
|
$
|
(553
|
)
|
||||
|
Interest expense:
|
||||||||||||||||
|
Guarantee fees incurred under the Credit Support Agreement
|
$
|
2,272
|
|
$
|
2,601
|
|
$
|
4,998
|
|
$
|
5,346
|
|
||||
|
Fees incurred under the Compensation and Funding Agreement
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
1,200
|
|
||||
|
Interest expense incurred on the 0.75% debentures due 2018
|
$
|
125
|
|
$
|
453
|
|
$
|
500
|
|
$
|
828
|
|
||||
|
Interest expense incurred on the 0.875% debentures due 2021
|
$
|
547
|
|
$
|
115
|
|
$
|
1,227
|
|
$
|
115
|
|
||||
Note 3.
8POINT3 ENERGY PARTNERS LP
In June 2015, 8point3 Energy Partners LP ("8point3 Energy Partners"), a joint YieldCo vehicle formed by the Company and First Solar, Inc. ("First Solar" and, together with the Company, the "Sponsors") to own, operate and acquire solar energy generation assets, completed an initial public offering (“IPO”) of Class A shares representing limited partner interests in 8point3 Energy Partners. The IPO was consummated on June 24, 2015 (the “IPO Closing Date”) whereupon the Class A shares were listed on the NASDAQ Global Select Market under the trading symbol “CAFD.”
Immediately after the IPO, the Company contributed a portfolio of 170 MW of its solar generation assets (the “SPWR Projects”) to 8point3 Operating Company, LLC ("OpCo"), 8point3 Energy Partners' primary operating subsidiary. In exchange for the SPWR Projects, the Company received cash proceeds of
$371 million
as well as equity interests in several 8point3 Energy Partners affiliated entities: primarily common and subordinated units representing a 40.7% stake in OpCo and a 50.0% economic and management stake in 8point3 Holding Company, LLC (“Holdings”), the parent company of the general partner of 8point3 Energy Partners and the owner of incentive distribution rights (“IDRs”) in OpCo. Holdings, OpCo, 8point3 Energy Partners and their respective subsidiaries are referred to herein as the “8point3 Group.” Additionally, pursuant to a Right of First Offer Agreement between the Company and OpCo, the 8point3 Group has rights of first offer on interests in an additional 513 MW of the Company’s solar energy projects that are currently contracted or are expected to be contracted before being sold by the Company (the “ROFO Projects”). In connection with the IPO, the Company also entered into operations and maintenance, asset management and management services agreements with the 8point3 Group. The services the Company provides under these agreements are priced consistently with market rates for such services and the agreements are terminable by the 8point3 Group for convenience.
The Company accounts for its investments in the 8point3 Group using the equity method, whereby the book value of the Company’s investments is recorded as a non-current asset and the Company’s portion of the 8point3 Group’s earnings is recorded in the Consolidated Statements of Operations under the caption "Equity in earnings (loss) of unconsolidated investees." Refer to Note 10 for further discussion of the Company’s equity method investments in the 8point3 Group.
The Company’s agreements with the 8point3 Group include substantive, non-standard guarantees of minimum cash flows in respect of each project among the SPWR Projects that had not yet reached its commercial operations date (“COD”) before the IPO Closing Date. The Company’s guarantees relating to each such project expire when the project reaches COD. The Company therefore determined that the risks and rewards of ownership in these projects are not transferred until COD and, accordingly, the Company continues to record the projects on its Consolidated Balance Sheet until that time. Projects that had not reached COD by June 28, 2015 totaled 131 MW of the SPWR Projects and the Company recorded
$302 million
of IPO proceeds attributable to those projects as a current liability within “Accrued liabilities” in the Consolidated Balance Sheets.
The projects discussed in the previous paragraph, which had not reached COD by June 28, 2015, are projects that include the sale or lease of real estate. Accordingly, each of these projects will be evaluated under relevant guidance for real
12
estate transactions after COD and the concomitant expiration of the Company’s non-standard guarantees (and associated risks of ownership) in respect of the project. The Company determined that the subordination of certain of its OpCo units until such time that the 8point3 Group achieves certain cash distribution targets in respect of the OpCo common and subordinated units (the “subordination period”) constituted a form of support to the operations of the SPWR Projects that also survived the sale of the projects. Accordingly, the Company will defer recognition of any profit on the sale of any such project until unconditional cash proceeds from the sale exceed the Company’s total costs incurred in connection with the project. The Company has reflected the
$302 million
of IPO cash proceeds attributable to these assets as an investing cash inflow in the Consolidated Statement of Cash Flows.
The balance of the SPWR Projects was composed of a portfolio of residential leases (the “residential lease portfolio”) which included both sales-type and operating leases. The Company evaluated the sale of the residential lease portfolio, excluding the portion related to operating leases and unguaranteed residual values accounted for under lease guidance in the following paragraph, under relevant accounting guidance for consolidations and determined that this portion of the residential lease portfolio met the definition of a business and that deconsolidation criteria were met. The Company received cash proceeds of
$39 million
and equity proceeds of
$68 million
attributable to the sale of this portion of the residential lease portfolio and recorded a resulting
$28 million
gain upon deconsolidation, reflected in “Other, net” in the Consolidated Statements of Operations. The equity proceeds were valued using the income approach which utilized a discounted cash flow model based on forecasted cash flows, indexed to 8point3 Energy Partners' IPO price of $21 per Class A share. The Company has reflected the
$39 million
of IPO cash proceeds attributable to this portion of the residential lease portfolio as an investing cash inflow in the Consolidated Statement of Cash Flows.
The Company evaluated the sale of the portion of the residential lease portfolio that was composed of operating leases and unguaranteed sales-type lease residual values under relevant guidance for leasing transactions and determined that the Company retained significant risks of ownership as defined in such guidance due, in part, to the subordination of certain of the Company’s OpCo units during the subordination period. Accordingly, the Company accounted for the sale of the operating leases and the unguaranteed sales-type lease residual values as a borrowing and reflected the
$29 million
of IPO cash proceeds attributable to this portion of the residential lease portfolio as a financing cash inflow in the Consolidated Statement of Cash Flows and as liabilities recorded within “Accrued liabilities” and “Other long-term liabilities” in the Consolidated Balance Sheets.
Note 4.
GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill
As of both
June 28, 2015
and
December 28, 2014
, the Company had goodwill with a carrying amount of
$21.2 million
,
$20.8 million
of which was allocated to the Residential Segment and
$0.4 million
of which was allocated to the Power Plant Segment. No goodwill impairment was recorded during the three and six months ended
June 28, 2015
or
June 29, 2014
.
Other Intangible Assets
The following tables present details of the Company's acquired other intangible assets:
|
(In thousands)
|
|
Gross
|
|
Accumulated
Amortization
|
|
Net
|
||||||
|
As of June 28, 2015
|
|
|
|
|||||||||
|
Patents and purchased technology
|
|
$
|
13,675
|
|
|
$
|
(1,584
|
)
|
|
$
|
12,091
|
|
|
Purchased in-process research and development
|
|
3,700
|
|
|
—
|
|
|
3,700
|
|
|||
|
Other
|
500
|
|
(125
|
)
|
375
|
|
||||||
|
|
|
$
|
17,875
|
|
|
$
|
(1,709
|
)
|
|
$
|
16,166
|
|
|
As of December 28, 2014
|
||||||||||||
|
Patents and purchased technology
|
|
$
|
13,675
|
|
|
$
|
(615
|
)
|
|
$
|
13,060
|
|
|
Purchased in-process research and development
|
|
3,700
|
|
|
—
|
|
|
3,700
|
|
|||
|
|
|
$
|
17,375
|
|
|
$
|
(615
|
)
|
|
$
|
16,760
|
|
Amortization expense for intangible assets totaled
$0.6 million
and
$1.1 million
for the three and six months ended
June 28, 2015
, respectively. No amortization expense was incurred during the three and six months ended
June 29, 2014
.
13
As of
June 28, 2015
, the estimated future amortization expense related to intangible assets with finite useful lives is as follows:
|
(In thousands)
|
|
Amount
|
||
|
Fiscal Year
|
||||
|
2015 (remaining six months)
|
|
$
|
1,269
|
|
|
2016
|
|
2,114
|
|
|
|
2017
|
|
1,989
|
|
|
|
2018
|
1,989
|
|
||
|
2019
|
1,989
|
|
||
|
Thereafter
|
3,116
|
|
||
|
|
|
$
|
12,466
|
|
Note 5.
BALANCE SHEET COMPONENTS
|
As of
|
||||||||
|
(In thousands)
|
June 28, 2015
|
December 28, 2014
|
||||||
|
Accounts receivable, net:
|
||||||||
|
Accounts receivable, gross
1,2
|
$
|
453,853
|
|
$
|
523,613
|
|
||
|
Less: allowance for doubtful accounts
|
(18,432
|
)
|
(18,152
|
)
|
||||
|
Less: allowance for sales returns
|
(1,794
|
)
|
(1,145
|
)
|
||||
|
|
$
|
433,627
|
|
$
|
504,316
|
|
||
|
1
|
Includes short-term financing receivables associated with solar power systems leased of
$9.4 million
and
$9.1 million
as of
June 28, 2015
and
December 28, 2014
, respectively (see Note 6).
|
|
2
|
Includes short-term retainage of
$243.8 million
and
$213.0 million
as of
June 28, 2015
and
December 28, 2014
, respectively. Retainage refers to the earned, but unbilled, portion of a construction and development project for which payment is deferred by the customer until certain contractual milestones are met.
|
|
As of
|
||||||||
|
(In thousands)
|
June 28, 2015
|
December 28, 2014
|
||||||
|
Inventories:
|
||||||||
|
Raw materials
|
$
|
85,512
|
|
$
|
46,848
|
|
||
|
Work-in-process
|
116,364
|
|
67,903
|
|
||||
|
Finished goods
|
108,556
|
|
93,822
|
|
||||
|
|
$
|
310,432
|
|
$
|
208,573
|
|
||
14
|
As of
|
||||||||
|
(In thousands)
|
June 28, 2015
|
December 28, 2014
|
||||||
|
Prepaid expenses and other current assets:
|
||||||||
|
Deferred project costs
|
$
|
55,213
|
|
$
|
64,784
|
|
||
|
Bond hedge derivative
|
—
|
|
51,951
|
|
||||
|
VAT receivables, current portion
|
8,607
|
|
7,554
|
|
||||
|
Deferred costs for solar power systems to be leased
|
29,852
|
|
22,537
|
|
||||
|
Derivative financial instruments
|
1,907
|
|
7,018
|
|
||||
|
Prepaid inventory
|
5,085
|
|
—
|
|
||||
|
Other receivables
|
74,370
|
|
79,927
|
|
||||
|
Other prepaid expenses
|
64,053
|
|
47,448
|
|
||||
|
Other current assets
|
15,265
|
|
47,626
|
|
||||
|
|
$
|
254,352
|
|
$
|
328,845
|
|
||
|
As of
|
||||||||
|
(In thousands)
|
June 28, 2015
|
December 28, 2014
|
||||||
|
Project assets - plants and land:
|
|
|||||||
|
Project assets — plants
|
$
|
410,581
|
|
$
|
104,328
|
|
||
|
Project assets — land
|
12,060
|
|
12,328
|
|
||||
|
|
$
|
422,641
|
|
$
|
116,656
|
|
||
|
Project assets — plants and land, current portion
|
$
|
379,900
|
|
$
|
101,181
|
|
||
|
Project assets — plants and land, net of current portion
|
$
|
42,741
|
|
$
|
15,475
|
|
||
|
As of
|
||||||||
|
(In thousands)
|
June 28, 2015
|
December 28, 2014
|
||||||
|
Property, plant and equipment, net:
|
||||||||
|
Manufacturing equipment
3
|
$
|
565,813
|
|
$
|
554,124
|
|
||
|
Land and buildings
|
26,138
|
|
26,138
|
|
||||
|
Leasehold improvements
|
241,764
|
|
236,867
|
|
||||
|
Solar power systems
4
|
140,678
|
|
124,848
|
|
||||
|
Computer equipment
|
94,486
|
|
88,257
|
|
||||
|
Furniture and fixtures
|
9,892
|
|
9,436
|
|
||||
|
Construction-in-process
|
137,359
|
|
75,570
|
|
||||
|
|
1,216,130
|
|
1,115,240
|
|
||||
|
Less: accumulated depreciation
|
(572,218
|
)
|
(529,896
|
)
|
||||
|
|
$
|
643,912
|
|
$
|
585,344
|
|
||
|
3
|
The Company's mortgage loan agreement with International Finance Corporation ("IFC") is collateralized by certain manufacturing equipment with a net book value of
$100.1 million
and
$111.9 million
as of
June 28, 2015
and
December 28, 2014
, respectively.
|
|
4
|
Includes
$110.4 million
and
$94.4 million
of solar power systems associated with sale-leaseback transactions under the financing method as of
June 28, 2015
and
December 28, 2014
, respectively, which are depreciated using the straight-line method to their estimated residual values over the lease terms of up to 20 years (see Note 6).
|
15
|
As of
|
||||||||
|
(In thousands)
|
June 28, 2015
|
December 28, 2014
|
||||||
|
Property, plant and equipment, net by geography
5
:
|
|
|||||||
|
Philippines
|
$
|
382,485
|
|
$
|
335,643
|
|
||
|
United States
|
196,017
|
|
183,631
|
|
||||
|
Mexico
|
39,511
|
|
40,251
|
|
||||
|
Europe
|
23,258
|
|
24,748
|
|
||||
|
Other
|
2,641
|
|
1,071
|
|
||||
|
|
$
|
643,912
|
|
$
|
585,344
|
|
||
|
5
|
Property, plant and equipment, net by geography is based on the physical location of the assets.
|
|
As of
|
||||||||
|
(In thousands)
|
June 28, 2015
|
December 28, 2014
|
||||||
|
Other long-term assets:
|
||||||||
|
Equity method investments
|
$
|
283,225
|
|
$
|
210,898
|
|
||
|
Cost method investments
|
36,378
|
|
32,308
|
|
||||
|
Derivative financial instruments
|
848
|
|
—
|
|
||||
|
Other
|
71,509
|
|
57,023
|
|
||||
|
|
$
|
391,960
|
|
$
|
300,229
|
|
||
|
As of
|
||||||||
|
(In thousands)
|
June 28, 2015
|
December 28, 2014
|
||||||
|
Accrued liabilities:
|
||||||||
|
Bond hedge derivatives
|
$
|
—
|
|
$
|
51,951
|
|
||
|
Employee compensation and employee benefits
|
41,923
|
|
47,667
|
|
||||
|
Deferred revenue
|
22,835
|
|
33,412
|
|
||||
|
Short-term residential lease financing
|
—
|
|
1,489
|
|
||||
|
Interest payable
|
5,038
|
|
10,575
|
|
||||
|
Short-term warranty reserves
|
12,184
|
|
13,278
|
|
||||
|
Restructuring reserve
|
4,278
|
|
13,477
|
|
||||
|
VAT payables
|
7,797
|
|
6,073
|
|
||||
|
Derivative financial instruments
|
4,443
|
|
1,345
|
|
||||
|
Inventory payable
|
5,084
|
|
—
|
|
||||
|
Short-term residential lease financing with 8point3 Energy Partners
|
4,220
|
|
—
|
|
||||
|
Proceeds from 8point3 Energy Partners IPO attributable to pre-COD projects
|
301,746
|
|
—
|
|
||||
|
Other
|
141,408
|
|
151,767
|
|
||||
|
|
$
|
550,956
|
|
$
|
331,034
|
|
||
16
|
As of
|
||||||||
|
(In thousands)
|
June 28, 2015
|
December 28, 2014
|
||||||
|
Other long-term liabilities:
|
|
|
||||||
|
Deferred revenue
|
$
|
180,176
|
|
$
|
176,804
|
|
||
|
Long-term warranty reserves
|
144,347
|
|
141,370
|
|
||||
|
Long-term sale-leaseback financing
|
127,925
|
|
111,904
|
|
||||
|
Long-term residential lease financing
|
—
|
|
27,122
|
|
||||
|
Long-term residential lease financing with 8point3 Energy Partners
|
25,149
|
|
—
|
|
||||
|
Unrecognized tax benefits
|
20,128
|
|
31,764
|
|
||||
|
Long-term pension liability
|
11,571
|
|
9,980
|
|
||||
|
Derivative financial instruments
|
470
|
|
3,712
|
|
||||
|
Other
|
25,672
|
|
52,688
|
|
||||
|
|
$
|
535,438
|
|
$
|
555,344
|
|
||
|
As of
|
||||||||
|
(In thousands)
|
June 28, 2015
|
December 28, 2014
|
||||||
|
Accumulated other comprehensive loss:
|
|
|
||||||
|
Cumulative translation adjustment
|
$
|
(10,473
|
)
|
$
|
(8,712
|
)
|
||
|
Net unrealized loss on derivatives
|
(635
|
)
|
(1,443
|
)
|
||||
|
Net loss on long-term pension liability adjustment
|
(2,878
|
)
|
(2,878
|
)
|
||||
|
Deferred taxes
|
35
|
|
(422
|
)
|
||||
|
|
$
|
(13,951
|
)
|
$
|
(13,455
|
)
|
||
Note 6.
LEASING
Residential Lease Program
The Company offers a solar lease program, in partnership with third-party investors, which provides U.S. residential customers SunPower systems under
20
-year lease agreements that include system maintenance and warranty coverage. Leases are classified as either operating or sales-type leases in accordance with the relevant accounting guidelines.
Operating Leases
The following table summarizes "Solar power systems leased and to be leased, net" under operating leases on the Company's Consolidated Balance Sheets as of
June 28, 2015
and
December 28, 2014
:
|
As of
|
||||||||
|
(In thousands)
|
June 28, 2015
|
December 28, 2014
|
||||||
|
Solar power systems leased and to be leased, net
1,2
:
|
||||||||
|
Solar power systems leased
|
$
|
470,532
|
|
$
|
396,704
|
|
||
|
Solar power systems to be leased
|
23,994
|
|
21,202
|
|
||||
|
494,526
|
|
417,906
|
|
|||||
|
Less: accumulated depreciation
|
(35,818
|
)
|
(26,993
|
)
|
||||
|
$
|
458,708
|
|
$
|
390,913
|
|
|||
|
1
|
S
olar power systems leased and to be leased, net are physically located exclusively in the United States.
|
|
2
|
As of
June 28, 2015
and
December 28, 2014
, the Company had pledged solar assets with an aggregate book value of
zero
and
$140.1 million
, respectively, to third-party investors as security for the Company's contractual obligations.
|
17
The following table presents the Company's minimum future rental receipts on operating leases placed in service as of
June 28, 2015
:
|
(In thousands)
|
Fiscal 2015 (remaining six months)
|
Fiscal 2016
|
Fiscal 2017
|
Fiscal 2018
|
Fiscal 2019
|
Thereafter
|
Total
|
||||||||||||||||
|
Minimum future rentals on operating leases placed in service
1
|
$
|
9,252
|
|
17,068
|
|
17,112
|
|
17,162
|
|
17,213
|
|
248,240
|
|
$
|
326,047
|
|
|||||||
|
1
|
Minimum future rentals on operating leases placed in service does not include contingent rentals that may be received from customers under agreements that include performance-based incentives.
|
Sales-Type Leases
As of
June 28, 2015
and
December 28, 2014
, the Company's net investment in sales-type leases presented in "Accounts receivable, net" and "Long-term financing receivables, net" on the Company's Consolidated Balance Sheets was as follows:
|
As of
|
||||||||
|
(In thousands)
|
June 28, 2015
|
December 28, 2014
|
||||||
|
Financing receivables:
|
||||||||
|
Minimum lease payments receivable
1
|
$
|
283,936
|
|
$
|
319,244
|
|
||
|
Unguaranteed residual value
|
42,248
|
|
34,343
|
|
||||
|
Unearned income
|
(55,719
|
)
|
(74,859
|
)
|
||||
|
Net financing receivables
|
$
|
270,465
|
|
$
|
278,728
|
|
||
|
Current
|
$
|
9,389
|
|
$
|
9,141
|
|
||
|
Long-term
|
$
|
261,076
|
|
$
|
269,587
|
|
||
|
1
|
Net of allowance for doubtful accounts.
|
As of
June 28, 2015
, future maturities of net financing receivables for sales-type leases are as follows:
|
(In thousands)
|
Fiscal 2015 (remaining six months)
|
Fiscal 2016
|
Fiscal 2017
|
Fiscal 2018
|
Fiscal 2019
|
Thereafter
|
Total
|
||||||||||||||||
|
Scheduled maturities of minimum lease payments receivable
1
|
$
|
7,240
|
|
13,803
|
|
13,924
|
|
14,052
|
|
14,184
|
|
220,733
|
|
$
|
283,936
|
|
|||||||
|
1
|
Minimum future rentals on sales-type leases placed in service does not include contingent rentals that may be received from customers under agreements that include performance-based incentives.
|
Third-Party Financing Arrangements
The Company has entered into multiple facilities under which solar power systems are financed by third-party investors. Under the terms of certain arrangements the investors make an upfront payment to the Company, which the Company recognizes as a non-recourse liability that will be reduced over the term of the arrangement as customer receivables and government incentives are received by the third-party investors. As the non-recourse liability is reduced over time, the Company makes a corresponding reduction in customer and government incentive receivables on its balance sheet. The Company uses this approach to account for both operating and sales-type leases with its residential lease customers in the consolidated financial statements. These arrangements were terminated during the six months ended
June 28, 2015
. As of
June 28, 2015
, and
December 28, 2014
, the remaining liability to third-party investors under these arrangements presented in "Accrued liabilities" and "Other long-term liabilities" on the Company's Consolidated Balance Sheets, was
zero
and
$28.6 million
, respectively (see Note 5).
The Company has entered into multiple financing facilities with third-party investors under which the investors invest in entities that hold SunPower solar power systems and leases with residential customers. The Company holds controlling interests in these less-than-wholly-owned entities and therefore fully consolidates these entities. The Company accounts for the
18
portion of net assets in the consolidated entities attributable to the investors as "Redeemable noncontrolling interests" and "Noncontrolling interests" in its consolidated financial statements. Noncontrolling interests in subsidiaries that are redeemable at the option of the noncontrolling interest holder are classified as "Redeemable noncontrolling interests in subsidiaries," between liabilities and equity on the Company's Consolidated Balance Sheets. During the three and six months ended
June 28, 2015
the Company received
$46.0 million
and
$91.9 million
, respectively, in contributions from investors under the related facilities and attributed losses of
$30.1 million
and
$49.7 million
, respectively, to the third-party investors corresponding principally to certain assets, including tax credits, that were allocated to the investors during the periods. During the three and six months ended
June 29, 2014
, the Company received
$22.2 million
and
$52.8 million
, respectively, in contributions from investors under the related facilities and attributed losses of
$12.9 million
and
$34.9 million
, respectively, to the third-party investors corresponding principally to certain assets, including tax credits, that were allocated to the investors during the periods.
Sale-Leaseback Arrangements
The Company enters into sale-leaseback arrangements under which solar power systems are sold to third parties and subsequently leased back by the Company over minimum lease terms of up to
20 years
. Separately, the Company enters into PPAs with end customers, who host the leased solar power systems and buy the electricity directly from the Company under PPAs with terms of up to
25 years
. At the end of the lease term, the Company has the option to purchase the systems at fair value or may be required to remove the systems and return them to the third parties.
The Company has classified its sale-leaseback arrangements of solar power systems not involving integral equipment as operating leases. The deferred profit on the sale of these systems is recognized over the term of the lease. As of
June 28, 2015
, future minimum lease obligations associated with these systems was
$92.5 million
, which will be recognized over the minimum lease terms. Future minimum payments to be received from customers under PPAs associated with the solar power systems under sale-leaseback arrangements classified as operating leases will be recognized over the lease terms of up to
20
years and are contingent upon the amounts of energy produced by the solar power systems.
The Company enters into certain sale-leaseback arrangements under which the systems subject to the sale-leaseback arrangements have been determined to be integral equipment as defined under the accounting guidance for such transactions. The Company has continuing involvement with the solar power systems throughout the lease due to purchase option rights in the arrangements. As a result of such continuing involvement, the Company accounts for each of these transactions as a financing. Under the financing method, the proceeds received from the sale of the solar power systems are recorded by the Company as financing liabilities and presented within "Other long-term liabilities" in the Company's Consolidated Balance Sheets (see Note 5). The financing liabilities are subsequently reduced by the Company's payments to lease back the solar power systems, less interest expense calculated based on the Company's incremental borrowing rate adjusted to the rate required to prevent negative amortization. The solar power systems under the sale-leaseback arrangements remain on the Company's balance sheet and are classified within "Property, plant and equipment, net" (see Note 5). As of
June 28, 2015
, future minimum lease obligations for the sale-leaseback arrangements accounted for under the financing method were
$110.4 million
, which will be recognized over the lease terms of up to
20
years.
Note 7.
FAIR VALUE MEASUREMENTS
Fair value is estimated by applying the following hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement (observable inputs are the preferred basis of valuation):
|
•
|
Level 1 — Quoted prices in active markets for identical assets or liabilities.
|
|
•
|
Level 2 — Measurements are inputs that are observable for assets or liabilities, either directly or indirectly, other than quoted prices included within Level 1.
|
|
•
|
Level 3 — Prices or valuations that require management inputs that are both significant to the fair value measurement and unobservable.
|
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The Company measures certain assets and liabilities at fair value on a recurring basis. There were
no
transfers between fair value measurement levels during any presented period. The Company did not have any assets or liabilities measured at fair value on a recurring basis requiring Level 3 inputs as of
June 28, 2015
or
December 28, 2014
.
19
The following table summarizes the Company's assets and liabilities measured and recorded at fair value on a recurring basis as of
June 28, 2015
and
December 28, 2014
:
|
June 28, 2015
|
December 28, 2014
|
|||||||||||||||||||||||
|
(In thousands)
|
Total
|
Level 1
|
Level 2
|
Total
|
Level 1
|
Level 2
|
||||||||||||||||||
|
Assets
|
||||||||||||||||||||||||
|
Cash and cash equivalents
1
:
|
||||||||||||||||||||||||
|
Money market funds
|
$
|
255,000
|
|
$
|
255,000
|
|
$
|
—
|
|
$
|
375,000
|
|
$
|
375,000
|
|
$
|
—
|
|
||||||
|
Prepaid expenses and other current assets:
|
||||||||||||||||||||||||
|
Debt derivatives (Note 11)
|
—
|
|
—
|
|
—
|
|
51,951
|
|
—
|
|
51,951
|
|
||||||||||||
|
Derivative financial instruments (Note 12)
|
1,907
|
|
—
|
|
1,907
|
|
7,018
|
|
—
|
|
7,018
|
|
||||||||||||
|
Other long-term assets:
|
||||||||||||||||||||||||
|
Derivative financial instruments (Note 12)
|
848
|
|
—
|
|
848
|
|
—
|
|
—
|
|
—
|
|
||||||||||||
|
Total assets
|
$
|
257,755
|
|
$
|
255,000
|
|
$
|
2,755
|
|
$
|
433,969
|
|
$
|
375,000
|
|
|
$
|
58,969
|
|
|||||
|
Liabilities
|
||||||||||||||||||||||||
|
Accrued liabilities:
|
||||||||||||||||||||||||
|
Debt derivatives (Note 11)
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
51,951
|
|
$
|
—
|
|
$
|
51,951
|
|
||||||
|
Derivative financial instruments (Note 12)
|
4,443
|
|
—
|
|
4,443
|
|
1,345
|
|
—
|
|
1,345
|
|
||||||||||||
|
Other long-term liabilities:
|
||||||||||||||||||||||||
|
Derivative financial instruments (Note 12)
|
470
|
|
—
|
|
470
|
|
3,712
|
|
—
|
|
3,712
|
|
||||||||||||
|
Total liabilities
|
$
|
4,913
|
|
$
|
—
|
|
$
|
4,913
|
|
$
|
57,008
|
|
$
|
—
|
|
$
|
57,008
|
|
||||||
Other financial instruments, including the Company's accounts receivable, accounts payable and accrued liabilities, are carried at cost, which generally approximates fair value due to the short-term nature of these instruments.
Debt Derivatives
The
4.50%
Bond Hedge (as described in Note 11) and the embedded cash conversion option within the
4.50%
debentures due 2015 (as described in Note 11), which both matured in the first quarter of 2015, were classified as derivative instruments that required mark-to-market treatment with changes in fair value reported in the Company's Consolidated Statements of Operations. The fair values of these derivative instruments as of
December 28, 2014
were determined utilizing the following Level 1 and Level 2 inputs:
|
|
As of
1
|
|||
|
|
December 28, 2014
|
|||
|
Stock price
|
$
|
26.32
|
|
|
|
Exercise price
|
$
|
22.53
|
|
|
|
Interest rate
|
0.19
|
%
|
||
|
Stock volatility
|
61.7
|
%
|
||
|
Credit risk adjustment
|
0.65
|
%
|
||
|
Maturity date
|
February 18, 2015
|
|
||
20
|
1
|
The valuation model utilizes these inputs to value the right but not the obligation to purchase one share of the Company's common stock at
$22.53
. The Company utilized a Black-Scholes valuation model to value the
4.50%
Bond Hedge and embedded cash conversion option. The underlying input assumptions were determined as follows:
|
|
(i)
|
Stock price. The closing price of the Company's common stock on the last trading day of the quarter.
|
|
(ii)
|
Exercise price. The exercise price of the
4.50%
Bond Hedge and the embedded cash conversion option.
|
|
(iii)
|
Interest rate. The Treasury Strip rate associated with the life of the
4.50%
Bond Hedge and the embedded cash conversion option.
|
|
(iv)
|
Stock volatility. The volatility of the Company's common stock over the life of the
4.50%
Bond Hedge and the embedded cash conversion option.
|
|
(v)
|
Credit risk adjustment. Represents the weighted average of the credit default swap rate of the counterparties.
|
Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis
The Company measures certain investments and non-financial assets (including project assets, property, plant and equipment, and other intangible assets) at fair value on a non-recurring basis in periods after initial measurement in circumstances when the fair value of such asset is impaired below its recorded cost.
Held-to-Maturity Debt Securities
The Company's debt securities, classified as held-to-maturity, are Philippine government bonds that the Company maintains as collateral for business transactions within the Philippines. These bonds have maturity dates of up to
five years
and are classified as "Restricted long-term marketable securities" on the Company's Consolidated Balance Sheets. As of
June 28, 2015
and
December 28, 2014
, these bonds had a carrying value of
$6.9 million
and
$7.2 million
, respectively. The Company records such held-to-maturity investments at amortized cost based on its ability and intent to hold the securities until maturity. The Company monitors for changes in circumstances and events that would affect its ability and intent to hold such securities until the recorded amortized costs are recovered.
No
other-than-temporary impairment loss was incurred during any presented period. The held-to-maturity debt securities were categorized in Level 2 of the fair value hierarchy.
Equity and Cost Method Investments
The Company holds equity investments in non-consolidated entities that are accounted for under both the equity and cost method. The Company monitors these investments, which are included in "Other long-term assets" in its Consolidated Balance Sheets, for impairment and records reductions in the carrying values when necessary. Circumstances that indicate an other-than-temporary decline include Level 2 and Level 3 measurements such as the valuation ascribed to the issuing company in subsequent financing rounds, decreases in quoted market prices, and declines in the results of operations of the issuer.
As of
June 28, 2015
and
December 28, 2014
, the Company had
$283.2 million
and
$210.9 million
, respectively, in investments accounted for under the equity method (see Note 10). As of
June 28, 2015
and
December 28, 2014
, the Company had
$36.4 million
and
$32.3 million
, respectively, in investments accounted for under the cost method.
Related-Party Transactions with Investees:
|
As of
|
||||||||
|
(In thousands)
|
June 28, 2015
|
December 28, 2014
|
||||||
|
Accounts receivable
|
$
|
9,399
|
|
$
|
22,425
|
|
||
|
Other long-term assets
|
$
|
1,530
|
|
$
|
1,623
|
|
||
|
Accounts payable
|
$
|
42,301
|
|
$
|
50,039
|
|
||
|
Accrued liabilities
|
$
|
305,965
|
|
$
|
—
|
|
||
|
Customer advances
|
$
|
1,673
|
|
$
|
4,210
|
|
||
|
Other long-term liabilities
|
$
|
25,149
|
|
$
|
—
|
|
||
|
Three Months Ended
|
Six Months Ended
|
|||||||||||||||
|
(In thousands)
|
June 28, 2015
|
June 29, 2014
|
June 28, 2015
|
June 29, 2014
|
||||||||||||
|
Payments made to investees for products/services
|
$
|
108,853
|
|
$
|
117,096
|
|
$
|
228,030
|
|
$
|
222,106
|
|
||||
|
Revenue from sales to investees of products/services
|
$
|
21,199
|
|
$
|
—
|
|
$
|
26,802
|
|
$
|
—
|
|
||||
21
Cost Method Investment in Tendril Networks, Inc. (“Tendril”)
In November 2014, the Company purchased
$20.0 million
of preferred stock for a minority stake in Tendril, accounted for under the cost method because the preferred stock was deemed not to be in-substance common stock. In connection with the investment, the Company acquired warrants to purchase up to approximately
14.3 million
shares of Tendril common stock through November 23, 2024. The number of shares of Tendril common stock that may be purchased pursuant to the warrants is subject to the Company's and Tendril's achievement of certain financial and operational milestones and other conditions.
In connection with the initial investment in Tendril, the Company also entered into commercial agreements with Tendril under a Master Services Agreement and related Statements of Work. Under these commercial agreements, Tendril will use up to
$13.0 million
of the Company's initial investment to develop, jointly with the Company, certain solar software solution products.
Note 8.
RESTRUCTURING
November 2014 Restructuring Plan
On
November 14, 2014
, the Company announced a reorganization plan intended to realign resources consistent with the Company's global strategy and improve its overall operating efficiency and cost structure. In connection with this plan, which is expected to be completed by the end of fiscal 2015, SunPower expects approximately
95
to
115
employees to be affected, primarily in Europe, representing approximately
1%
to
2%
of the Company's global workforce. The Company expects to incur restructuring charges totaling approximately
$17 million
to
$25 million
, principally composed of severance benefits, lease and related termination costs, and other associated costs. The Company expects more than
90%
of total charges to be cash charges. The actual timing and costs of the plan may differ from the Company’s current expectations and estimates due to a number of factors, including uncertainties related to required consultations with employee representatives as well as other local labor law requirements and mandatory processes in the relevant jurisdictions.
Legacy Restructuring Plans
During fiscal
2012
and
2011
, the Company implemented approved restructuring plans, related to all segments, to align with changes in the global solar market which included the consolidation of the Company's Philippine manufacturing operations as well as actions to accelerate operating cost reduction and improve overall operating efficiency. These restructuring activities were substantially complete as of
June 28, 2015
, however, the Company expects to continue to incur costs as it finalizes previous estimates and actions in connection with these plans, primarily due to other costs, such as legal services.
The following table summarizes the restructuring charges recognized in the Company's Consolidated Statements of Operations:
22
|
Six Months Ended
|
Cumulative To Date
|
|||||||||||
|
(In thousands)
|
June 28, 2015
|
June 29, 2014
|
||||||||||
|
November 2014 Plan:
|
||||||||||||
|
Non-cash impairment charges
|
$
|
5
|
|
$
|
—
|
|
$
|
724
|
|
|||
|
Severance and benefits
|
3,310
|
|
—
|
|
15,490
|
|
||||||
|
Other costs
1
|
2,338
|
|
—
|
|
2,551
|
|
||||||
|
5,653
|
|
—
|
|
18,765
|
|
|||||||
|
Legacy Restructuring Plans:
|
||||||||||||
|
Non-cash impairment charges
|
—
|
|
—
|
|
60,596
|
|
||||||
|
Severance and benefits
|
(132
|
)
|
(1,265
|
)
|
46,577
|
|
||||||
|
Lease and related termination costs
|
—
|
|
339
|
|
5,774
|
|
||||||
|
Other costs
1
|
(191
|
)
|
(252
|
)
|
10,668
|
|
||||||
|
(323
|
)
|
(1,178
|
)
|
123,615
|
|
|||||||
|
Total restructuring charges
|
$
|
5,330
|
|
$
|
(1,178
|
)
|
$
|
142,380
|
|
|||
The following table summarizes the restructuring reserve activity during the six months ended
June 28, 2015
:
|
Six Months Ended
|
||||||||||||||||
|
(In thousands)
|
December 28, 2014
|
Charges (Benefits)
|
Payments
|
June 28, 2015
|
||||||||||||
|
November 2014 Plan:
|
||||||||||||||||
|
Severance and benefits
|
$
|
12,075
|
|
$
|
3,310
|
|
$
|
(13,260
|
)
|
$
|
2,125
|
|
||||
|
Other costs
1
|
145
|
|
2,338
|
|
(368
|
)
|
2,115
|
|
||||||||
|
12,220
|
|
5,648
|
|
(13,628
|
)
|
4,240
|
|
|||||||||
|
Legacy Restructuring Plans:
|
||||||||||||||||
|
Severance and benefits
|
421
|
|
(132
|
)
|
(281
|
)
|
8
|
|
||||||||
|
Lease and related termination costs
|
390
|
|
—
|
|
(390
|
)
|
—
|
|
||||||||
|
Other costs
1
|
446
|
|
(191
|
)
|
(225
|
)
|
30
|
|
||||||||
|
1,257
|
|
(323
|
)
|
(896
|
)
|
38
|
|
|||||||||
|
Total restructuring liability
|
$
|
13,477
|
|
$
|
5,325
|
|
$
|
(14,524
|
)
|
$
|
4,278
|
|
||||
|
1
|
Other costs primarily represent associated legal services and costs of relocating employees.
|
Note 9.
COMMITMENTS AND CONTINGENCIES
Facility and Equipment Lease Commitments
The Company leases certain facilities under non-cancellable operating leases from unaffiliated third parties. As of
June 28, 2015
, future minimum lease payments for facilities under operating leases were
$50.8 million
, to be paid over the remaining contractual terms of up to
10 years
. The Company also leases certain buildings, machinery and equipment under non-cancellable capital leases. As of
June 28, 2015
, future minimum lease payments for assets under capital leases were
$6.4 million
, to be paid over the remaining contractual terms of up to
10 years
.
Purchase Commitments
The Company purchases raw materials for inventory and manufacturing equipment from a variety of vendors. During the normal course of business, in order to manage manufacturing lead times and help assure adequate supply, the Company enters into agreements with contract manufacturers and suppliers that either allow them to procure goods and services based on specifications defined by the Company, or that establish parameters defining the Company's requirements. In certain instances,
23
these agreements allow the Company the option to cancel, reschedule or adjust the Company's requirements based on its business needs before firm orders are placed. Consequently, not all of the Company's disclosed purchase commitments arising from these agreements are firm, non-cancellable and unconditional commitments.
The Company also has agreements with several suppliers, including some of its non-consolidated investees, for the procurement of polysilicon, ingots, wafers, and Solar Renewable Energy Credits, among others, which specify future quantities and pricing of products to be supplied by the vendors for periods up to
10
years and provide for certain consequences, such as forfeiture of advanced deposits and liquidated damages relating to previous purchases, in the event that the Company terminates the arrangements.
Future purchase obligations under non-cancellable purchase orders and long-term supply agreements as of
June 28, 2015
are as follows:
|
(In thousands)
|
Fiscal 2015 (remaining six months)
|
Fiscal 2016
|
Fiscal 2017
|
Fiscal 2018
|
Fiscal 2019
|
Thereafter
|
Total
1,2,3
|
||||||||||||||||
|
Future purchase obligations
|
$
|
713,339
|
|
323,543
|
|
349,587
|
|
184,199
|
|
177,714
|
|
166,867
|
|
$
|
1,915,249
|
|
|||||||
|
1
|
Total future purchase obligations as of
June 28, 2015
include
$130.1 million
to related parties.
|
|
2
|
Total future purchase obligations was composed of
$238.7 million
related to non-cancellable purchase orders and
$1.7 billion
related to long-term supply agreements.
|
3
The Company did not fulfill all of the purchase commitments it was otherwise obligated to take by December 31, 2014, as specified in several related contracts with a supplier. A
s of
June 28, 2015
, the Company has recorded an offsetting asset, recorded within "Prepaid expenses and other current assets," and liability, recorded within "Accrued liabilities," totaling
$5.1 million
. This amount represents the unfulfilled amount as of that date as the Company expects to satisfy the obligation via purchases of inventory in fiscal 2015, within the applicable contractual cure period.
The Company expects that all obligations related to non-cancellable purchase orders for manufacturing equipment will be recovered through future cash flows of the solar cell manufacturing lines and solar panel assembly lines when such long-lived assets are placed in service. 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. 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. The Company anticipates total obligations related to long-term supply agreements for inventories will be recovered because quantities are less than management's expected demand for its solar power products. The terms of the long-term supply agreements are reviewed by management and the Company assesses the need for any accruals for estimated losses on adverse purchase commitments, such as lower of cost or market value adjustments that will not be recovered by future sales prices, forfeiture of advanced deposits and liquidated damages, as necessary.
Advances to Suppliers
As noted above, the Company has entered into agreements with various vendors, some of which are structured as "take or pay" contracts, that specify future quantities and pricing of products to be supplied. Certain agreements also provide for penalties or forfeiture of advanced deposits in the event the Company terminates the arrangements. Under certain agreements, the Company is required to make prepayments to the vendors over the terms of the arrangements. The Company did not make any additional advance payments under its long-term supply agreements during the first half of fiscal 2015. During the three and six months ended
June 29, 2014
, the Company made additional advance payments totaling
$16.4 million
and
$32.9 million
, respectively, in accordance with the terms of existing long-term supply agreements. As of
June 28, 2015
and
December 28, 2014
, advances to suppliers totaled
$384.6 million
and
$409.7 million
, respectively, of which
$96.3 million
and
$98.1 million
, respectively, is classified as short-term in the Company's Consolidated Balance Sheets. Two suppliers accounted for
84%
and
16%
of total advances to suppliers as of
June 28, 2015
, and
82%
and
17%
as of
December 28, 2014
.
Advances from Customers
The Company has entered into other agreements with customers who have made advance payments for solar power products and systems. These advances will be applied as shipments of product occur or upon completion of certain project milestones. The estimated utilization of advances from customers as of
June 28, 2015
is as follows:
24
|
(In thousands)
|
Fiscal 2015 (remaining six months)
|
Fiscal 2016
|
Fiscal 2017
|
Fiscal 2018
|
Fiscal 2019
|
Thereafter
|
Total
|
||||||||||||||||
|
Estimated utilization of advances from customers
|
$
|
11,357
|
|
30,662
|
|
27,039
|
|
27,039
|
|
28,842
|
|
43,263
|
|
$
|
168,202
|
|
|||||||
In fiscal 2010, the Company and its joint venture, AUO SunPower Sdn. Bhd. ("AUOSP"), entered into an agreement under which the Company resells to AUOSP polysilicon purchased from a third-party supplier. Advance payments provided by AUOSP related to such polysilicon are then made by the Company to the third-party supplier. These advance payments are applied as a credit against AUOSP’s polysilicon purchases from the Company. Such polysilicon is used by AUOSP to manufacture solar cells that are sold to the Company on a "cost-plus" basis. As of
June 28, 2015
and
December 28, 2014
, outstanding advance payments received from AUOSP totaled
$158.1 million
and
$167.2 million
, respectively, of which
$20.5 million
and
$18.3 million
, respectively, was classified as short-term in the Company's Consolidated Balance Sheets, based on projected product shipment dates.
Product Warranties
The following table summarizes accrued warranty activity for the three months ended
June 28, 2015
and
June 29, 2014
, respectively:
|
Three Months Ended
|
Six Months Ended
|
|||||||||||||||
|
(In thousands)
|
June 28, 2015
|
June 29, 2014
|
June 28, 2015
|
June 29, 2014
|
||||||||||||
|
Balance at the beginning of the period
|
$
|
154,098
|
|
$
|
151,415
|
|
$
|
154,648
|
|
$
|
149,372
|
|
||||
|
Accruals for warranties issued during the period
|
4,181
|
|
4,311
|
|
12,342
|
|
9,501
|
|
||||||||
|
Settlements and adjustments during the period
|
(1,748
|
)
|
(4,933
|
)
|
(10,459
|
)
|
(8,080
|
)
|
||||||||
|
Balance at the end of the period
|
$
|
156,531
|
|
$
|
150,793
|
|
$
|
156,531
|
|
$
|
150,793
|
|
||||
Contingent Obligations
Project agreements entered into with the Company's Commercial and Power Plant customers often require the Company to undertake obligations including: (i) system output performance warranties; (ii) system maintenance; (iii) penalty payments or customer termination rights if the system the Company is constructing is not commissioned within specified timeframes or other milestones are not achieved; and (iv) system put-rights whereby the Company could be required to buy back a customer's system at fair value on specified future dates if certain minimum performance thresholds are not met for specified periods. Historically, the Company's systems have performed significantly above the performance warranty thresholds, and there have been
no
cases in which the Company has had to buy back a system.
Future Financing Commitments
The Company is required to provide certain funding under the joint venture agreement with AU Optronics Singapore Pte. Ltd. ("AUO") and other unconsolidated investees, subject to certain conditions (see Note 10). As of
June 28, 2015
, the Company has future financing obligations through fiscal 2015 totaling
$179.8 million
.
Liabilities Associated with Uncertain Tax Positions
Total liabilities associated with uncertain tax positions were
$24.1 million
and
$31.8 million
as of
June 28, 2015
and
December 28, 2014
, respectively. As of
June 28, 2015
, approximately
$4.0 million
of transfer-pricing uncertain tax positions are included in "Accrued liabilities" in the Company's Consolidated Balance Sheets as they are reasonably possible to be paid within the next 12 months as a result of settlement, and
$20.1 million
of uncertain tax positions are included in "Other long-term liabilities" in the Company's Consolidated Balance Sheets as they are not expected to be paid within the next 12 months. As of
December 28, 2014
, total liabilities of
$31.8 million
associated with uncertain tax positions were included in "Other long-term liabilities" as they were not expected to be paid within the next 12 months. The reduction in liabilities associated with uncertain tax positions from
December 28, 2014
, was primarily due to tax settlements in certain foreign jurisdictions in the quarter ended
June 28, 2015
. Due to the complexity and uncertainty associated with its tax positions, the Company cannot make a reasonably reliable estimate of the period in which cash settlement, if any, would be made for its liabilities associated with uncertain tax positions in other long-term liabilities.
25
Indemnifications
The Company is a party to a variety of agreements under which it may be obligated to indemnify the counterparty with respect to certain matters. Typically, these obligations arise in connection with contracts and license agreements or the sale of assets, under which the Company customarily agrees to hold the other party harmless against losses arising from a breach of warranties, representations and covenants related to such matters as title to assets sold, negligent acts, damage to property, validity of certain intellectual property rights, non-infringement of third-party rights, and certain tax related matters including indemnification to customers under §48(c) solar commercial investment tax credit ("ITC") and Treasury Grant payments under Section 1603 of the American Recovery and Reinvestment Act ("Cash Grant"). In each of these circumstances, payment by the Company is typically subject to the other party making a claim to the Company that is contemplated by and valid under the indemnification provisions of the particular contract, which provisions are typically contract-specific, as well as bringing the claim under the procedures specified in the particular contract. These procedures usually allow the Company to challenge the other party's claims or, in case of breach of intellectual property representations or covenants, to control the defense or settlement of any third party claims brought against the other party. Further, the Company's obligations under these agreements may be limited in terms of activity (typically to replace or correct the products or terminate the agreement with a refund to the other party), duration and/or amounts. In some instances, the Company may have recourse against third parties and/or insurance covering certain payments made by the Company.
In certain limited circumstances the Company has provided indemnification to customers and investors under which the Company is contractually obligated to compensate these parties for losses they may suffer as a result of reductions in benefits received under ITC and Treasury Cash Grant programs. The Company applies for ITC and Cash Grant incentives based on guidance provided by the IRS and the Treasury Department, which include assumptions regarding the fair value of the qualified solar power systems, among others. Certain of the Company’s development agreements, sale-leaseback arrangements, and financing arrangements with investors of its residential lease program, incorporate assumptions regarding the future level of incentives to be received, which in some instances may be claimed directly by its customers and investors. Since the Company cannot determine future revisions to the U.S. Treasury guidelines governing system values or how the IRS will evaluate system values used in claiming ITCs, the Company is unable to reliably estimate the maximum potential future payments that it could have to make under the Company’s contractual investor obligation as of each reporting date.
Defined Benefit Pension Plans
The Company maintains defined benefit pension plans for the majority of its non-U.S. employees. Benefits under these plans are generally based on an employee’s years of service and compensation. Funding requirements are determined on an individual country and plan basis and are subject to local country practices and market circumstances. The funded status of the pension plans, which represents the difference between the benefit obligation and fair value of plan assets, is calculated on a plan-by-plan basis. The benefit obligation and related funded status are determined using assumptions as of the end of each fiscal year. The Company recognizes the overfunded or underfunded status of its pension plans as an asset or liability on its Consolidated Balance Sheets. As of
June 28, 2015
and
December 28, 2014
, the underfunded status of the Company’s pension plans, presented in "Other long-term liabilities" on the Company’s Consolidated Balance Sheets, was
$11.6 million
and
$10.0 million
, respectively. The impact of transition assets and obligations and actuarial gains and losses are recorded in "Accumulated other comprehensive loss", and are generally amortized as a component of net periodic cost over the average remaining service period of participating employees.
Legal Matters
Tax Benefit Indemnification Litigation
On March 19, 2014, a lawsuit was filed by NRG Solar LLC (“NRG”) against SunPower Corporation, Systems, a wholly-owned subsidiary of the Company (“SunPower Systems”), in the Superior Court of Contra Costa County, California. The complaint asserts that, according to the indemnification provisions in the contract pertaining to SunPower Systems’ sale of a large California solar project to NRG, SunPower Systems owes NRG
$75.0 million
in connection with certain tax benefits associated with the project that were approved by the Treasury Department for an amount that was less than expected. The Company does not believe that the facts support NRG’s claim under the operative indemnification provisions and is vigorously contesting the claim. Additionally, SunPower Systems filed a cross-complaint against NRG seeking damages in excess of
$7.5 million
for breach of contract and related claims arising from NRG’s failure to fulfill its obligations under the contract, including its obligation to take “reasonable, available steps” to engage Treasury. The Company is currently unable to determine if the resolution of this matter will have a material effect on the Company's consolidated financial statements.
26
First Philec Arbitration
On January 28, 2015, an arbitral tribunal of the International Court of Arbitration of the International Chamber of Commerce issued a first partial award in the matter of an arbitration between First Philippine Electric Corporation ("FPEC") and First Philippine Solar Corporation ("FPSC") against SunPower Philippines Manufacturing, Ltd. ("SPML"), our wholly-owned subsidiary. FPSC is a joint venture of FPEC and SPML for the purpose of slicing silicon wafers from ingots. SPML has not purchased any wafers from FPSC since the third quarter of 2012.
The tribunal found SPML in breach of its obligations under its supply agreement with FPSC, and in breach of its joint venture agreement with FPEC. In its first partial award, the tribunal ordered that (i) SPML must purchase FPEC’s interests in FPSC for an aggregate of
$30.3 million
and (ii) after completing the purchase of FPEC’s controlling interest in FPSC, SPML must pay FPSC damages in the amount of
$25.2 million
. The arbitral tribunal issued its second partial award dated July 14, 2015, which ordered that (i) the price payable by SPML to FPEC for its interests in FPSC be reduced from
$30.3 million
to
$23.2 million
, (ii) FPEC’s request for interest is refused, and (iii) the payment and transfer of shares between FPEC and SPML is to take place in accordance with the procedure agreed between the parties. The tribunal reserved for its final award the determination of the costs of the proceeding.
SPML has filed a challenge to the first partial award with the High Court in Hong Kong and also given notice of its intention to challenge the second partial award. SPML has also filed applications to the Court in the Philippines to: (i) prevent FPSC or FPEC from enforcing the awards pending the outcome of the challenge in Hong Kong; and (ii) seeking access to FPSC's books and records.
As of
June 28, 2015
, the Company recorded an accrual of
$55.9 million
related to this matter based on the Company's best estimate of probable loss.
AUO Arbitration
On April 17, 2015, SunPower Technology Ltd. ("SPTL"), a wholly-owned subsidiary of the Company, commenced an arbitration before the ICC International Court of Arbitration against AUO and AU Optronics Corporation, the ultimate parent company of AUO ("AUO Corp.," and together with AUO, the “AUO Group”), for breaches of the AUOSP Joint Venture Agreement and associated agreements executed in 2010 (the "JVA") as well as breaches of the License and Patent Technology Agreement executed in 2011 (the "LTA"). SPTL’s claim alleges that, among other things, the AUO Group has sold solar modules containing cells manufactured at AUOSP in violation of provisions in the JVA and the LTA that set geographical restrictions on sales activities as well as provisions that restrict each party’s use of the other’s confidential information. On June 23, 2015, the AUO Group filed and served its formal Memorial of Claim and Counterclaims against SPTL and the Company (collectively, the "SunPower Group"). In its counterclaim, the AUO Group seeks
$28.6 million
in lost profits and
$35.6 million
in disgorgement from the SunPower Group, alleging improper use of the AUO Group’s proprietary manufacturing expertise. The merits hearings are scheduled to begin in the first quarter of 2016. The Company is currently unable to determine whether the resolution of this matter will have a material effect on the Company’s consolidated financial statements.
Other Litigation
The Company is also a party to various other litigation matters and claims that arise from time to time in the ordinary course of its business. While the Company believes that the ultimate outcome of such matters will not have a material adverse effect on the Company, their outcomes are not determinable and negative outcomes may adversely affect the Company's financial position, liquidity or results of operations.
Note 10.
EQUITY METHOD INVESTMENTS
As of
June 28, 2015
and
December 28, 2014
, the Company's carrying value of its equity method investments totaled
$283.2 million
and
$210.9 million
, respectively, and is classified as "Other long-term assets" in its Consolidated Balance Sheets. The Company's share of its earnings (loss) from equity method investments is reflected as "Equity in earnings of unconsolidated investees" in its Consolidated Statements of Operations.
Equity Investment and Joint Venture with AUOSP
In fiscal 2010, the Company, AUO and AUO Corp. formed the joint venture AUOSP. The Company and AUO each own
50%
of the joint venture AUOSP. AUOSP owns a solar cell manufacturing facility in Malaysia and manufactures solar cells and sells them on a "cost-plus" basis to the Company and AUO.
27
In connection with the joint venture agreement, the Company and AUO also entered into licensing and joint development, supply, and other ancillary transaction agreements. Through the licensing agreement, the Company and AUO licensed to AUOSP, on a non-exclusive, royalty-free basis, certain background intellectual property related to solar cell manufacturing (in the case of the Company), and manufacturing processes (in the case of AUO). Under the seven-year supply agreement with AUOSP, renewable by the Company for one-year periods thereafter, the Company is committed to purchase
80%
of AUOSP's total annual output allocated on a monthly basis to the Company. The Company and AUO have the right to reallocate supplies from time to time under a written agreement. In fiscal 2010, the Company and AUOSP entered into an agreement under which the Company will resell to AUOSP polysilicon purchased from a third-party supplier and AUOSP will provide prepayments to the Company related to such polysilicon, which prepayment will then be made by the Company to the third-party supplier.
The Company and AUO are not permitted to transfer any of AUOSP's shares held by them, except to each other. The Company and AUO agreed to each contribute additional amounts through fiscal 2015 amounting to
$169.0 million
, or such lesser amount as the parties may mutually agree. In addition, if AUOSP, the Company or AUO requests additional equity financing to AUOSP, then the Company and AUO will each be required to make additional cash contributions of up to
$50.0 million
in the aggregate.
The Company has concluded that it is not the primary beneficiary of AUOSP since, although the Company and AUO are both obligated to absorb losses or have the right to receive benefits, the Company alone does not have the power to direct the activities of AUOSP that most significantly impact its economic performance. In making this determination the Company considered the shared power arrangement, including equal board governance for significant decisions, elective appointment, and the fact that both parties contribute to the activities that most significantly impact the joint venture's economic performance. The Company accounts for its investment in AUOSP using the equity method as a result of the shared power arrangement. As of
June 28, 2015
, the Company's maximum exposure to loss as a result of its equity investment in AUOSP is limited to the carrying value of the investment. As of
June 28, 2015
and
December 28, 2014
, the Company's investment in AUOSP had a carrying value of
$196.7 million
and
$191.7 million
, respectively.
Equity Investment in Huaxia CPV (Inner Mongolia) Power Co., Ltd. ("CCPV")
In December 2012, the Company entered into an agreement with Tianjin Zhonghuan Semiconductor Co. Ltd., Inner Mongolia Power Group Co. Ltd. and Hohhot Jinqiao City Development Company Co., Ltd. to form CCPV, a jointly owned entity to manufacture and deploy the Company's C7 Tracker concentrator technology in Inner Mongolia and other regions in China. CCPV is based in Hohhot, Inner Mongolia. The establishment of the entity was subject to approval of the Chinese government, which was received in the fourth quarter of fiscal 2013. In December 2013, the Company made a
$16.4 million
equity investment in CCPV, for a
25%
equity ownership.
The Company has concluded that it is not the primary beneficiary of CCPV since, although the Company is obligated to absorb losses and has the right to receive benefits, the Company alone does not have the power to direct the activities of CCPV that most significantly impact its economic performance. The Company accounts for its investment in CCPV using the equity method since the Company is able to exercise significant influence over CCPV due to its board position.
Equity Investment in Diamond Energy Pty Ltd. ("Diamond Energy")
In October 2012, the Company made a
$3.0 million
equity investment in Diamond Energy, an alternative energy project developer and clean electricity retailer headquartered in Melbourne, Australia, in exchange for a
25%
equity ownership.
The Company has concluded that it is not the primary beneficiary of Diamond Energy since, although the Company is obligated to absorb losses and has the right to receive benefits, the Company alone does not have the power to direct the activities of Diamond that most significantly impact its economic performance. The Company accounts for its investment in Diamond using the equity method since the Company is able to exercise significant influence over Diamond due to its board position.
Equity Investment in 8point3 Energy Partners
In June 2015, 8point3 Energy Partners, a joint YieldCo vehicle formed by the Sponsors to own, operate and acquire solar energy generation assets, consummated its IPO and its Class A shares are now listed on the NASDAQ Global Select Market under the trading symbol “CAFD.” Refer to the sections titled "Note 3. 8point3 Energy Partners LP" in the Notes to the
28
Consolidated Financial Statements in this Quarterly Report on Form 10-Q for further information regarding the Company’s transactions with the 8point3 Group.
The Company has concluded that it is not the primary beneficiary of the 8point3 Group or any of its individual subsidiaries since, although the Sponsors are both obligated to absorb losses or have the right to receive benefits, the Company alone does not have the power to direct the activities of the 8point3 Group that most significantly impact its economic performance. In making this determination the Company considered, among other factors, the equal division between the Sponsors of management rights in the 8point3 Group and the corresponding equal influence over its significant decisions, the role and influence of the independent directors on the board of directors of the general partner of 8point3 Energy Partners, and how both Sponsors contribute to the activities that most significantly impact the 8point3 Group's economic performance. The Company accounts for its investment in the 8point3 Group using the equity method because the Company determined that, notwithstanding the division of management and ownership interests between the Sponsors, the Company exercises significant influence over the operations of the 8point3 Group.
Future quarterly distributions from OpCo are subject to certain forbearance and subordination periods. During the forbearance period, the Sponsors have agreed to forego any distributions declared on their common and subordinated units. The forbearance period will end when, on or after March 1, 2016, the board of directors of the general partner of 8point3 Energy Partners, with the concurrence of its conflicts committee, determines that OpCo will be able to earn and pay at least the minimum quarterly distribution on each of its outstanding common and subordinated units for such quarter and the successive quarter.
During the subordination period, holders of the subordinated units are not entitled to receive any distributions until the common units have received their minimum quarterly distribution plus any arrearages in the payment of minimum distributions from prior quarters. Approximately 70% of the Company’s OpCo units are subject to subordination. The subordination period will end after OpCo has earned and paid minimum quarterly distributions for three years ending on or after August 31, 2018 and there are no outstanding arrearages on common units. Notwithstanding the foregoing, the subordination period could end after OpCo has earned and paid 150% of minimum quarterly distributions, plus the related distribution on the incentive distribution rights, for one year ending on or after August 31, 2016 and there are no outstanding arrearages on common units. At the end of the subordination period, all subordinated units will convert to common units on a one-for-one basis. The Company also, through its interests in Holdings, holds IDRs in OpCo, which represent rights to incremental distributions after certain distribution thresholds are met.
In June 2015, OpCo entered into a $525.0 million senior secured credit facility, consisting of a $300.0 million term loan facility, a $25.0 million delayed draw term loan facility, and a $200.0 million revolving credit facility (the “8point3 Credit Facility”). Proceeds from the term loan were used to make initial distributions to the Sponsors. The 8point3 Credit Facility is secured by a pledge of the Sponsors’ equity interests in OpCo.
As of
June 28, 2015
and
December 28, 2014
, the Company's investment in the 8point3 Group had a carrying value of
$68.2 million
and
zero
, respectively.
29
Note 11.
DEBT AND CREDIT SOURCES
The following table summarizes the Company's outstanding debt on its Consolidated Balance Sheets:
|
June 28, 2015
|
December 28, 2014
|
|||||||||||||||||||||||||||||||
|
(In thousands)
|
Face Value
|
Short-term
|
Long-term
|
Total
|
Face Value
|
Short-term
|
Long-term
|
Total
|
||||||||||||||||||||||||
|
Convertible debt:
|
||||||||||||||||||||||||||||||||
|
0.875% debentures due 2021
|
$
|
400,000
|
|
$
|
—
|
|
$
|
396,083
|
|
$
|
396,083
|
|
$
|
400,000
|
|
$
|
—
|
|
$
|
395,475
|
|
$
|
395,475
|
|
||||||||
|
0.75% debentures due 2018
|
300,000
|
|
—
|
|
297,776
|
|
297,776
|
|
300,000
|
|
—
|
|
297,401
|
|
297,401
|
|
||||||||||||||||
|
4.50% debentures due 2015
|
—
|
|
|
|
—
|
|
—
|
|
249,645
|
|
245,325
|
|
—
|
|
245,325
|
|
||||||||||||||||
|
0.75% debentures due 2027
|
79
|
|
79
|
|
—
|
|
79
|
|
79
|
|
—
|
|
79
|
|
79
|
|
||||||||||||||||
|
IFC mortgage loan
|
32,500
|
|
7,500
|
|
24,097
|
|
31,597
|
|
47,500
|
|
14,983
|
|
31,492
|
|
46,475
|
|
||||||||||||||||
|
CEDA loan
|
30,000
|
|
—
|
|
27,537
|
|
27,537
|
|
30,000
|
|
—
|
|
27,379
|
|
27,379
|
|
||||||||||||||||
|
Quinto Credit Facility
|
—
|
|
—
|
|
—
|
|
—
|
|
61,481
|
|
—
|
|
61,481
|
|
61,481
|
|
||||||||||||||||
|
Other debt
1
|
173,055
|
|
3,371
|
|
168,627
|
|
171,998
|
|
91,398
|
|
1,963
|
|
88,605
|
|
90,568
|
|
||||||||||||||||
|
$
|
935,634
|
|
$
|
10,950
|
|
$
|
914,120
|
|
$
|
925,070
|
|
$
|
1,180,103
|
|
$
|
262,271
|
|
$
|
901,912
|
|
$
|
1,164,183
|
|
|||||||||
|
1
|
Other debt excludes payments related to capital leases, which are disclosed in Note 9.
|
As of
June 28, 2015
, the aggregate future contractual maturities of the Company's outstanding debt, at face value, was as follows:
|
(In thousands)
|
Fiscal 2015 (remaining six months)
|
Fiscal 2016
|
Fiscal 2017
|
Fiscal 2018
|
Fiscal 2019
|
Thereafter
|
Total
|
||||||||||||||||
|
Aggregate future maturities of outstanding debt
|
$
|
1,123
|
|
18,591
|
|
19,487
|
|
308,208
|
|
5,256
|
|
582,969
|
|
$
|
935,634
|
|
|||||||
Convertible Debt
The following table summarizes the Company's outstanding convertible debt:
|
|
March 29, 2015
|
December 28, 2014
|
||||||||||||||||||||||
|
(In thousands)
|
Carrying Value
|
Face Value
|
Fair Value
1
|
Carrying Value
|
Face Value
|
Fair Value
1
|
||||||||||||||||||
|
Convertible debt:
|
||||||||||||||||||||||||
|
0.875% debentures due 2021
|
$
|
396,083
|
|
$
|
400,000
|
|
$
|
406,772
|
|
$
|
395,475
|
|
$
|
400,000
|
|
$
|
358,000
|
|
||||||
|
0.75% debentures due 2018
|
297,776
|
|
300,000
|
|
413,955
|
|
297,401
|
|
300,000
|
|
366,750
|
|
||||||||||||
|
4.50% debentures due 2015
|
—
|
|
—
|
|
—
|
|
245,325
|
|
249,645
|
|
294,581
|
|
||||||||||||
|
0.75% debentures due 2027
|
79
|
|
79
|
|
76
|
|
79
|
|
79
|
|
80
|
|
||||||||||||
|
$
|
693,938
|
|
$
|
700,079
|
|
$
|
820,803
|
|
$
|
938,280
|
|
$
|
949,724
|
|
$
|
1,019,411
|
|
|||||||
|
1
|
The fair value of the convertible debt was determined using Level 2 inputs based on quarterly market prices as reported by an independent pricing source.
|
30
The Company's outstanding convertible debentures are senior, unsecured obligations of the Company, ranking equally with all existing and future senior unsecured indebtedness of the Company.
0.875%
Debentures Due 2021
In June 2014, the Company issued
$400.0 million
in principal amount of its 0.875% debentures due 2021. Interest is payable semi-annually, beginning on December 1, 2014. Holders may exercise their right to convert the debentures at any time into shares of the Company's common stock at an initial conversion price approximately equal to
$48.76
per share, subject to adjustment in certain circumstances. If not earlier repurchased or converted, the 0.875% debentures due 2021 mature on June 1, 2021.
0.75%
Debentures Due 2018
In May 2013, the Company issued
$300.0 million
in principal amount of its 0.75% debentures due 2018. Interest is payable semi-annually, beginning on December 1, 2013. Holders may exercise their right to convert the debentures at any time into shares of the Company's common stock at an initial conversion price approximately equal to
$24.95
per share, subject to adjustment in certain circumstances. If not earlier repurchased or converted, the 0.75% debentures due 2018 mature on June 1, 2018.
4.50%
Debentures Due 2015
In 2010, the Company issued
$250.0 million
in principal amount of its 4.50% senior cash convertible debentures ("4.50% debentures due 2015"). Interest was payable semi-annually, beginning on September 15, 2010. The 4.50% debentures due 2015 were convertible only into cash, and not into shares of the Company's common stock (or any other securities) at a conversion price of
$22.53
per share. The 4.50% debentures due 2015 matured on March 15, 2015. During March 2015, the Company paid holders an aggregate of
$324.3 million
in cash in connection with the settlement of the outstanding 4.50% debentures due 2015. No 4.50% debentures due 2015 remained outstanding after the maturity date.
The embedded cash conversion option was a derivative instrument (derivative liability) that was required to be separated from the 4.50% debentures due 2015. The fair value of the derivative liability is classified within "Other long-term liabilities" on the Company's Consolidated Balance Sheets. Changes in the fair value of the derivative liability were reported in the Company's Consolidated Statements of Operations until the 4.50% debentures due 2015 matured in March 2015.
During the three and six months ended
June 28, 2015
, the Company recognized a non-cash loss of
zero
and
$52.0 million
, recorded in "Other, net" in the Company's Consolidated Statements of Operations to recognize the change in fair value prior to expiration of the embedded conversion option. During the three and six months ended
June 29, 2014
, the Company recognized a non-cash loss of
$82.1 million
and
$101.1 million
, respectively, recorded in "Other, net" in the Company's Consolidated Statements of Operations related to the change in fair value of the embedded cash conversion option.
Call Spread Overlay with Respect to 4.50% Debentures
Concurrently with the issuance of the 4.50% debentures due 2015, the Company entered into privately-negotiated convertible debenture hedge transactions (collectively, the "4.50% Bond Hedge") and warrant transactions (collectively, the "4.50% Warrants" and together with the 4.50% Bond Hedge, the “CSO2015”), with certain of the initial purchasers of the 4.50% debentures due 2015 or their affiliates. The CSO2015 transactions represented a call spread overlay with respect to the 4.50% debentures due 2015, whereby the cost of the 4.50% Bond Hedge purchased by the Company to cover the cash outlay upon conversion of the debentures is reduced by the sales prices of the 4.50% Warrants. The transactions effectively reduced the Company's potential payout over the principal amount on the 4.50% debentures due 2015 upon conversion of the 4.50% debentures due 2015.
Under the terms of the 4.50% Bond Hedge, the Company bought options to acquire, at an exercise price of
$22.53
per share, subject to customary adjustments for anti-dilution and other events, cash in an amount equal to the market value of up to
11.1 million
shares of the Company's common stock.
Each 4.50% Bond Hedge was a separate transaction, entered into by the Company with each counterparty, and was not part of the terms of the 4.50% debentures due 2015. The 4.50% Bond Hedge, which was indexed to the Company's common stock, was a derivative instrument that required mark-to-market accounting treatment due to the cash settlement features until the 4.50% Bond Hedge settled in March 2015. During March 2015, the Company exercised its rights under the 4.50% Bond Hedge, resulting in a payment to the Company of
$74.6 million
.
31
During the three and six months ended
June 28, 2015
, the Company recognized a non-cash gain of
zero
and
$52.0 million
, respectively, recorded in "Other, net" in the Company's Consolidated Statements of Operations to recognize the change in fair value before settlement of the 4.50% Bond Hedge. During the three and six months ended
June 29, 2014
, the Company recognized a non-cash gain of
$82.1 million
and
$101.2 million
, respectively, recorded in "Other, net" in the Company's Consolidated Statements of Operations related to the change in fair value of the 4.50% Bond Hedge.
In connection with the 4.50% Warrants, the Company entered into warrant confirmations (collectively, and as amended from time to time, the “2015 Warrant Confirms”) with Deutsche Bank AG, London Branch, Bank of America, N.A., Barclays Bank PLC and Credit Suisse International providing for the acquisition, subject to anti-dilution adjustments, of up to approximately
11.1 million
shares of the Company's common stock via net share settlement. Each 4.50% Warrant transaction was a separate transaction, entered into by the Company with each counterparty, and was not part of the terms of the 4.50% debentures due 2015.
During the second quarter of fiscal 2015, the Company entered into separate partial unwind agreements with each of Deutsche Bank AG, London Branch; Bank of America, N.A.; Barclays Bank PLC; and Credit Suisse International in order to reduce the number of warrants issued pursuant to the 2015 Warrant Confirms. Pursuant to the terms of these partial unwind agreements, the Company issued an aggregate of approximately 3.0 million shares of common stock to settle all of the warrants under the 2015 Warrant Confirms. Accordingly, as of June 28, 2015, no 4.50% Warrants remained outstanding.
4.75%
Debentures Due 2014
In May 2009, the Company issued
$230.0 million
in principal amount of its 4.75% senior convertible debentures ("4.75% debentures due 2014"). Interest on the 4.75% debentures due 2014 was payable semi-annually, beginning October 15, 2009. Holders of the 4.75% debentures due 2014 were able to exercise their right to convert the debentures at any time into shares of the Company's common stock at a conversion price equal to
$26.40
per share, subject to adjustment upon certain events. In April 2014, the 4.75% debentures due 2014 matured. During April 2014, the Company issued approximately
7.1 million
shares of common stock to holders that exercised conversion rights before maturity and paid holders an aggregate of
$41.7 million
in cash in connection with the settlement of the remaining 4.75% debentures. Accordingly, after the maturity date, no 4.75% debentures remained outstanding.
Call Spread Overlay with Respect to the 4.75% Debentures
Concurrently with the issuance of the 4.75% debentures due 2014, the Company entered into certain convertible debenture hedge transactions (the "4.75% Bond Hedge") and warrant transactions (the "4.75% Warrants") with affiliates of certain of the underwriters of the 4.75% debentures due 2014 (together, the "CSO2014"), whereby the cost of the 4.75% Bond Hedges purchased by the Company to cover the potential share outlays upon conversion of the debentures was reduced by the sales prices of the 4.75% Warrants. The components of the CSO2014 were not subject to mark-to-market accounting treatment since they could only be settled by issuance of the Company's common stock.
The
4.75%
Bond Hedge allowed the Company to purchase up to
8.7 million
shares of the Company's common stock, on a net share basis. Each 4.75% Bond Hedge and
4.75%
Warrant was a separate transaction, entered into by the Company with each counterparty, and was not part of the terms of the 4.75% debentures due 2014. The exercise prices of the 4.75% Bond Hedge were
$26.40
per share of the Company's common stock, subject to customary adjustment for anti-dilution and other events. In February 2014, the parties agreed to unwind the 4.75% Bond Hedge in full for a total cash settlement of
$68.8 million
, calculated by reference to the weighted price of the Company's common stock on the settlement day, received by the Company.
Under the 4.75% Warrants, the Company sold warrants to acquire up to
8.7 million
shares of the Company's common stock at an exercise price of
$26.40
per share of the Company's common stock, subject to adjustment for certain anti-dilution and other events. In February 2014, the parties agreed to unwind the 4.75% Warrants in full for a total cash settlement of
$81.1 million
, calculated by reference to the weighted price of the Company's common stock on the settlement date, paid by the Company.
Other Debt and Credit Sources
Mortgage Loan Agreement with IFC
32
In May 2010, the Company entered into a mortgage loan agreement with IFC. Under the loan agreement, the Company borrowed
$75.0 million
and is required to repay the amount borrowed starting
two years
after the date of borrowing, in
10
equal semi-annual installments. The Company is required to pay interest of LIBOR plus
3%
per annum on outstanding borrowings; a front-end fee of
1%
on the principal amount of borrowings at the time of borrowing; and a commitment fee of
0.5%
per annum on funds available for borrowing and not borrowed. The Company may prepay all or a part of the outstanding principal, subject to a
1%
prepayment premium. The Company has pledged certain assets as collateral supporting its repayment obligations (see Note 5). As of both
June 28, 2015
and
December 28, 2014
, the Company had restricted cash and cash equivalents of
$9.2 million
related to the IFC debt service reserve, which is the amount, as determined by IFC, equal to the aggregate principal and interest due on the next succeeding interest payment date.
Loan Agreement with California Enterprise Development Authority ("CEDA")
In 2010, the Company borrowed the proceeds of the
$30.0 million
aggregate principal amount of CEDA's tax-exempt Recovery Zone Facility Revenue Bonds (SunPower Corporation - Headquarters Project) Series 2010 (the "Bonds") maturing April 1, 2031 under a loan agreement with CEDA. The Bonds mature on April 1, 2031, bear interest at a fixed rate of 8.50% through maturity, and include customary covenants and other restrictions on the Company.
Revolving Credit Facility with Credit Agricole
In July 2013, the Company entered into a revolving credit facility (the "revolving credit facility") with Credit Agricole, as administrative agent, and certain financial institutions, under which the Company may borrow up to
$250.0 million
. On August 26, 2014, the Company entered into an amendment to the revolving credit facility that, among other things, extends the maturity date of the facility from July 3, 2016 to August 26, 2019 (the "Maturity Date"). Amounts borrowed may be repaid and reborrowed until the Maturity Date. The Company may request increases to the available capacity of the revolving credit facility to an aggregate of
$300.0 million
, subject to the satisfaction of certain conditions. The revolving credit facility includes representations, covenants, and events of default customary for financing transactions of this type.
The revolving credit facility was entered into in conjunction with the delivery by Total S.A. of a guarantee of the Company's obligations under the related facility. On January 31, 2014, as contemplated by the facility, (i) the Company's obligations under the facility became secured by a pledge of certain accounts receivable and inventory; (ii) certain of the Company's subsidiaries entered into guarantees of the facility; and (iii) Total S.A.'s guarantee of the Company's obligations under the facility expired.
After January 31, 2014, the Company is required to pay interest on outstanding borrowings and fees of (a) with respect to any LIBOR rate loan, an amount ranging from
1.50%
to
2.00%
(depending on the Company's leverage ratio from time to time) plus the LIBOR rate divided by a percentage equal to one minus the stated maximum rate of all reserves required to be maintained against "Eurocurrency liabilities" as specified in Regulation D; (b) with respect to any alternate base rate loan, an amount ranging from
0.50%
to
1.00%
(depending on the Company's leverage ratio from time to time) plus the greater of (1) the prime rate, (2) the Federal Funds rate plus
0.50%
, and (3) the one-month LIBOR rate plus
1%
; and (c) a commitment fee ranging from
0.25%
to
0.35%
(depending on the Company's leverage ratio from time to time) per annum on funds available for borrowing and not borrowed.
As of both
June 28, 2015
and
December 28, 2014
, the Company had no outstanding borrowings under the revolving credit facility.
Project Financing
In order to facilitate the construction and sale of certain solar projects, the Company obtains non-recourse project loans from third-party financial institutions that are contemplated as part of the structure of the sales transaction. The customer, which is not a related party to either the financial institution or the Company, in certain circumstances is permitted to assume the loans at the time that the project entity is sold to the customer. During fiscal
2013
, the Company entered into a project loan with a consortium of lenders to facilitate the development of a 10 MW utility and power plant project under construction in Israel. During the first quarter of fiscal 2014, the Company sold the Israeli project. The related loan, amounting to ILS
141.8 million
(approximately
$40.7 million
based on the exchange rate at the time of sale), and accrued and unpaid interest was assumed by the customer. In instances where the debt is issued as a form of pre-established customer financing, subsequent debt assumption is reflected as a financing outflow and operating inflow for purposes of the statement of cash flows to reflect the substance of the assumption as a facilitation of customer financing from a third-party.
33
On October 17, 2014, the Company, through a wholly-owned subsidiary (the "Quinto Project Company"), entered into an approximately
$377.0 million
credit facility with Santander Bank, N.A., Mizuho Bank, Ltd. and Credit Agricole (the "Quinto Credit Facility") in connection with the planned construction of the approximately 135 MW Quinto Solar Energy Project, located in Merced County, California (the "Quinto Project").
On June 24, 2015, in connection with the closing of 8point3 Energy Partners' IPO and the concurrent transfer of the Quinto Project to an affiliate of 8point3 Energy Partners, the Quinto Project Company repaid the full amount outstanding under the Quinto Credit Facility and terminated the agreement early. Immediately before termination, there were outstanding borrowings of
$224.3 million
under the Quinto Credit Facility. The Quinto Project Company did not incur any material penalties for early repayment of the Quinto Credit Facility.
Other Debt
During fiscal 2015, the Company entered into a long-term non-recourse credit facility to finance a 52 MW utility and power plant in Colorado. The outstanding borrowings under this facility amounted to
$27.6 million
as of
June 28, 2015
.
During fiscal 2014 and 2015, the Company entered into three long-term non-recourse loans to finance solar power systems and leases under its residential lease program. In fiscal
2015
, the Company drew down
$54.8 million
of proceeds, net of issuance costs, under the loan agreements. The loans have 17-year terms and as of
June 28, 2015
, the short-term and long-term balances of the loans were
$2.8 million
and
$132.2 million
, respectively.
During fiscal 2013, the Company entered into a long-term non-recourse loan agreement to finance a 5.4 MW utility and power plant operating in Arizona. The outstanding balance of the loan as of
June 28, 2015
and
December 28, 2014
was
$8.5 million
and
$8.6 million
, respectively.
Other debt is further composed of non-recourse project loans in EMEA, which are scheduled to mature through 2028.
August 2011 Letter of Credit Facility with Deutsche Bank
In August 2011, the Company entered into a letter of credit facility agreement with Deutsche Bank, as administrative agent, and certain financial institutions. Payment of obligations under the letter of credit facility is guaranteed by Total S.A. pursuant to the Credit Support Agreement (see Note 2). The letter of credit facility provides for the issuance, upon request by the Company, of letters of credit by the issuing banks thereunder in order to support certain obligations of the Company, in an aggregate amount not to exceed
$878.0 million
for the period from January 1, 2014 through December 31, 2014. Aggregate letter of credit amounts may be increased upon the agreement of the parties but, otherwise, may not exceed (i)
$936.0 million
for the period from January 1, 2015 through December 31, 2015, and (ii)
$1.0 billion
for the period from January 1, 2016 through June 28, 2016.
As of
June 28, 2015
and
December 28, 2014
, letters of credit issued and outstanding under the August 2011 letter of credit facility with Deutsche Bank totaled
$594.6 million
and
$654.7 million
, respectively.
September 2011 Letter of Credit Facility with Deutsche Bank Trust
In September 2011, the Company entered into a letter of credit facility with Deutsche Bank Trust which provides for the issuance, upon request by the Company, of letters of credit to support obligations of the Company in an aggregate amount not to exceed
$200.0 million
. Each letter of credit issued under the facility is fully cash-collateralized and the Company has entered into a security agreement with Deutsche Bank Trust, granting them a security interest in a cash collateral account established for this purpose.
As of
June 28, 2015
and
December 28, 2014
, letters of credit issued and outstanding under the Deutsche Bank Trust facility amounted to
$14.5 million
and
$1.6 million
, respectively, which were fully collateralized with restricted cash on the Consolidated Balance Sheets.
Note 12.
DERIVATIVE FINANCIAL INSTRUMENTS
The following tables present information about the Company's hedge instruments measured at fair value on a recurring basis as of
June 28, 2015
and
December 28, 2014
, all of which utilize Level 2 inputs under the fair value hierarchy:
34
|
(In thousands)
|
Balance Sheet Classification
|
June 28, 2015
|
December 28, 2014
|
|||||||
|
Assets
|
||||||||||
|
Derivatives designated as hedging instruments:
|
|
|||||||||
|
Foreign currency option contracts
|
Prepaid expenses and other current assets
|
$
|
—
|
|
$
|
2,240
|
|
|||
|
Foreign currency forward exchange contracts
|
Prepaid expenses and other current assets
|
103
|
|
4
|
|
|||||
|
|
|
$
|
103
|
|
$
|
2,244
|
|
|||
|
Derivatives not designated as hedging instruments:
|
|
|||||||||
|
Foreign currency forward exchange contracts
|
Prepaid expenses and other current assets
|
1,804
|
|
4,774
|
|
|||||
|
Interest rate contracts
|
Other long-term assets
|
$
|
848
|
|
$
|
—
|
|
|||
|
|
$
|
2,652
|
|
$
|
4,774
|
|
||||
|
|
|
|||||||||
|
Liabilities
|
||||||||||
|
Derivatives designated as hedging instruments:
|
|
|||||||||
|
Foreign currency forward exchange contracts
|
Accrued liabilities
|
925
|
|
—
|
|
|||||
|
Interest rate contracts
|
Other long-term liabilities
|
470
|
|
3,712
|
|
|||||
|
|
$
|
1,395
|
|
$
|
3,712
|
|
||||
|
|
|
|||||||||
|
Derivatives not designated as hedging instruments:
|
|
|||||||||
|
Foreign currency forward exchange contracts
|
Accrued liabilities
|
3,518
|
|
1,345
|
|
|||||
|
Interest rate contracts
|
Other long-term liabilities
|
—
|
|
—
|
|
|||||
|
|
$
|
3,518
|
|
$
|
1,345
|
|
||||
|
June 28, 2015
|
||||||||||||||||||||||||
|
Gross Amounts Not Offset in the Consolidated Balance Sheets, but Have Rights to Offset
|
||||||||||||||||||||||||
|
(In thousands)
|
Gross Amounts Recognized
|
Gross Amounts Offset
|
Net Amounts Presented
|
Financial Instruments
|
Cash Collateral
|
Net Amounts
|
||||||||||||||||||
|
Derivative assets
|
$
|
2,755
|
|
$
|
—
|
|
$
|
2,755
|
|
$
|
2,377
|
|
$
|
—
|
|
$
|
378
|
|
||||||
|
Derivative liabilities
|
$
|
4,913
|
|
$
|
—
|
|
$
|
4,913
|
|
$
|
2,377
|
|
$
|
—
|
|
$
|
2,536
|
|
||||||
|
December 28, 2014
|
||||||||||||||||||||||||
|
Gross Amounts Not Offset in the Consolidated Balance Sheets, but Have Rights to Offset
|
||||||||||||||||||||||||
|
(In thousands)
|
Gross Amounts Recognized
|
Gross Amounts Offset
|
Net Amounts Presented
|
Financial Instruments
|
Cash Collateral
|
Net Amounts
|
||||||||||||||||||
|
Derivative assets
|
$
|
7,018
|
|
$
|
—
|
|
$
|
7,018
|
|
$
|
1,345
|
|
$
|
—
|
|
$
|
5,673
|
|
||||||
|
Derivative liabilities
|
$
|
5,057
|
|
$
|
—
|
|
$
|
5,057
|
|
$
|
1,345
|
|
$
|
—
|
|
$
|
3,712
|
|
||||||
35
The following table summarizes the pre-tax amount of unrealized gain or loss recognized in "Accumulated other comprehensive income" ("OCI") in "Stockholders' equity" in the Consolidated Balance Sheets:
|
Three Months Ended
|
Six Months Ended
|
|||||||||||||||
|
(In thousands)
|
June 28, 2015
|
June 29, 2014
|
June 28, 2015
|
June 29, 2014
|
||||||||||||
|
Derivatives designated as cash flow hedges:
|
||||||||||||||||
|
Loss in OCI at the beginning of the period
|
$
|
(5,631
|
)
|
$
|
(420
|
)
|
$
|
(1,443
|
)
|
$
|
(805
|
)
|
||||
|
Unrealized gain (loss) recognized in OCI
|
7,343
|
|
(135
|
)
|
4,635
|
|
(138
|
)
|
||||||||
|
Less: Loss (gain) reclassified from OCI to earnings
|
(2,347
|
)
|
107
|
|
(3,827
|
)
|
495
|
|
||||||||
|
Net gain (loss) on derivatives
|
$
|
4,996
|
|
$
|
(28
|
)
|
$
|
808
|
|
$
|
357
|
|
||||
|
Loss in OCI at the end of the period
|
$
|
(635
|
)
|
$
|
(448
|
)
|
$
|
(635
|
)
|
$
|
(448
|
)
|
||||
The following table summarizes the amount of gain or loss recognized in "Other, net" in the Consolidated Statements of Operations in the three and six months ended
June 28, 2015
, and
June 29, 2014
:
|
Three Months Ended
|
Six Months Ended
|
|||||||||||||||
|
(In thousands)
|
June 28, 2015
|
June 29, 2014
|
June 28, 2015
|
June 29, 2014
|
||||||||||||
|
Derivatives designated as cash flow hedges:
|
||||||||||||||||
|
Gain (loss) recognized in "Other, net" on derivatives (ineffective portion and amount excluded from effectiveness testing)
|
$
|
(1,968
|
)
|
$
|
331
|
|
$
|
(5,223
|
)
|
$
|
811
|
|
||||
|
Derivatives not designated as hedging instruments:
|
||||||||||||||||
|
Gain (loss) recognized in "Other, net"
|
$
|
(8,417
|
)
|
$
|
(1,224
|
)
|
$
|
(902
|
)
|
$
|
206
|
|
||||
Foreign Currency Exchange Risk
Designated Derivatives Hedging Cash Flow Exposure
The Company's cash flow exposure primarily relates to anticipated third-party foreign currency revenues and expenses and interest rate fluctuations. To protect financial performance, the Company enters into foreign currency forward and option contracts designated as cash flow hedges to hedge certain forecasted revenue transactions denominated in currencies other than their functional currencies.
As of
June 28, 2015
, the Company had designated outstanding cash flow hedge option contracts and forward contracts with an aggregate notional value of
zero
and
$40.4 million
, respectively. As of
December 28, 2014
, the Company had designated outstanding cash flow hedge option contracts and forward contracts with an aggregate notional value of
$26.6 million
and
$12.2 million
, respectively. The Company designates either gross external or intercompany revenue up to its net economic exposure. These derivatives have a maturity of 12 months or less and consist of foreign currency option and forward contracts. The effective portion of these cash flow hedges is reclassified into revenue when third-party revenue is recognized in the Consolidated Statements of Operations.
Non-Designated Derivatives Hedging Transaction Exposure
Derivatives not designated as hedging instruments consist of forward and option contracts used to hedge re-measurement of foreign currency denominated monetary assets and liabilities primarily for intercompany transactions, receivables from customers, and payables to third parties. Changes in exchange rates between the Company's subsidiaries' functional currencies and the currencies in which these assets and liabilities are denominated can create fluctuations in the Company's reported consolidated financial position, results of operations and cash flows. As of
June 28, 2015
, the Company held option contracts and forward contracts with an aggregate notional value of
zero
and
$55.8 million
, respectively, to hedge balance sheet exposure. The maturity dates of these contracts range from June 2015 to September 2015. The Company held option contracts and forward contracts with an aggregate notional value of
zero
and
$122.5 million
, respectively, as of
December 28, 2014
, to hedge balance sheet exposure.
Interest Rate Risk
36
The Company also enters into interest rate swap agreements to reduce the impact of changes in interest rates on its project specific non-recourse floating rate debt. As of
June 28, 2015
and
December 28, 2014
, the Company had interest rate swap agreements designated as cash flow hedges with an aggregate notional value of
$8.5 million
and
$247.0 million
, respectively. These swap agreements allow the Company to effectively convert floating rate payments into fixed rate payments periodically over the life of the agreements. These derivatives have a maturity of more than 12 months. The effective portion of these cash flow hedges is reclassified into interest expense when the hedged transactions are recognized in the Consolidated Statements of Operations. The Company analyzes its interest rate swaps quarterly to determine if the hedge transaction remains effective or ineffective. The Company may discontinue hedge accounting for interest rate swaps prospectively if certain criteria are no longer met, the interest rate swap is terminated or exercised, or if the Company elects to remove the cash flow hedge designation. If hedge accounting is discontinued, and the forecasted hedged transaction is considered possible to occur, the previously recognized gain or loss on the interest rate swaps will remain in accumulated other comprehensive loss and will be reclassified into earnings during the same period the forecasted hedged transaction affects earnings or is otherwise deemed improbable to occur.
Credit Risk
The Company's option and forward contracts do not contain any credit-risk-related contingent features. The Company is exposed to credit losses in the event of nonperformance by the counterparties to these option and forward contracts. The Company enters into derivative contracts with high-quality financial institutions and limits the amount of credit exposure to any single counterparty. In addition, the Company continuously evaluates the credit standing of its counterparties.
Note 13.
INCOME TAXES
In the three and six months ended
June 28, 2015
, the Company's income tax benefit of
$0.7 million
and income tax provision of
$1.7 million
, respectively, on a loss before income taxes and equity in earnings of unconsolidated investees of
$26.0 million
and
$54.9 million
, respectively, was primarily due to projected tax expense, partially offset by discrete benefits pertaining to tax settlements in certain foreign jurisdictions in the three months ended June 28, 2015. In the three and six months ended
June 29, 2014
, the Company's income tax benefit of
$8.2 million
and income tax provision of
$5.5 million
, respectively, on a loss before income taxes and equity in earnings of unconsolidated investees of
$8.9 million
and an income before income taxes and equity in earnings of unconsolidated investees of
$45.9 million
, respectively, was primarily due to the change in the amount and mix of forecasted earnings.
Note 14.
NET INCOME (LOSS) PER SHARE
The Company calculates net income (loss) per share by dividing earnings allocated to common stockholders by the weighted average number of common shares outstanding for the period.
Diluted weighted average shares is computed using basic weighted average shares plus any potentially dilutive securities outstanding during the period using the treasury-stock-type method and the if-converted method, except when their effect is anti-dilutive. Potentially dilutive securities include stock options, restricted stock units, the Upfront Warrants held by Total, warrants associated with the CSO2015 and CSO2014, and the outstanding senior convertible debentures.
37
The following table presents the calculation of basic and diluted net income (loss) per share:
|
|
Three Months Ended
|
Six Months Ended
|
||||||||||||||
|
(In thousands, except per share amounts)
|
June 28, 2015
|
June 29, 2014
|
June 28, 2015
|
June 29, 2014
|
||||||||||||
|
Basic net income (loss) per share:
|
||||||||||||||||
|
Numerator
|
||||||||||||||||
|
Net income (loss) attributable to stockholders
|
$
|
6,509
|
|
$
|
14,102
|
|
$
|
(3,072
|
)
|
$
|
79,146
|
|
||||
|
Denominator
|
||||||||||||||||
|
Basic weighted-average common shares
|
134,376
|
|
129,747
|
|
133,205
|
|
125,972
|
|
||||||||
|
Basic net income (loss) per share
|
$
|
0.05
|
|
$
|
0.11
|
|
$
|
(0.02
|
)
|
$
|
0.63
|
|
||||
|
Diluted net income (loss) per share:
|
||||||||||||||||
|
Numerator
|
||||||||||||||||
|
Net income (loss) attributable to stockholders
|
6,509
|
|
14,102
|
|
(3,072
|
)
|
79,146
|
|
||||||||
|
Add: Interest expense incurred on the 0.75% debentures due 2018, net of tax
|
512
|
|
551
|
|
—
|
|
1,001
|
|
||||||||
|
Add: Interest expense incurred on the 0.875% debentures due 2021, net of tax
|
—
|
|
—
|
|
—
|
|
181
|
|
||||||||
|
Net income (loss) available to common stockholders
|
7,021
|
|
14,653
|
|
(3,072
|
)
|
80,328
|
|
||||||||
|
Denominator
|
||||||||||||||||
|
Basic weighted-average common shares
|
134,376
|
|
129,747
|
|
133,205
|
|
125,972
|
|
||||||||
|
Effect of dilutive securities:
|
||||||||||||||||
|
Stock options
|
36
|
|
93
|
|
—
|
|
101
|
|
||||||||
|
Restricted stock units
|
1,483
|
|
4,095
|
|
—
|
|
5,149
|
|
||||||||
|
Upfront Warrants (held by Total)
|
7,201
|
|
7,278
|
|
—
|
|
7,253
|
|
||||||||
|
Warrants (under the CSO2015)
|
1,873
|
|
3,094
|
|
—
|
|
3,004
|
|
||||||||
|
Warrants (under the CSO2014)
|
—
|
|
—
|
|
—
|
|
524
|
|
||||||||
|
0.75% debentures due 2018
|
12,026
|
|
12,026
|
|
—
|
|
12,026
|
|
||||||||
|
0.875% debentures due 2021
|
—
|
|
—
|
|
—
|
|
857
|
|
||||||||
|
Dilutive weighted-average common shares
|
156,995
|
|
156,333
|
|
133,205
|
|
154,886
|
|
||||||||
|
Diluted net income (loss) per share
|
$
|
0.04
|
|
$
|
0.09
|
|
$
|
(0.02
|
)
|
$
|
0.52
|
|
||||
The Upfront Warrants allow Total to acquire up to
9,531,677
shares of the Company's common stock at an exercise price of
$7.8685
. The warrants under the CSO2015 and CSO2014, when such warrants were still outstanding, entitled holders to acquire up to
11.1 million
and
8.7 million
shares, respectively, of the Company's common stock at an exercise price of
$24.00
and
$26.40
, respectively. In February 2014, the CSO2014 was settled, leaving none of the related Warrants outstanding (see Note 11); and during the second quarter of fiscal 2015, the Company entered into unwind agreements pursuant to which the Company issued common stock to settle all of the outstanding warrants relating to the CSO2015 (see Note 11).
Holders of the Company's 0.875% debentures due 2021 and 0.75% debentures due 2018 may, and holders of the 4.75% debentures due 2014 before their maturity could, convert the debentures into shares of the Company's common stock, at the applicable conversion rate, at any time on or before maturity. These debentures are included in the calculation of diluted net income per share if they were outstanding during the period presented and if their inclusion is dilutive under the if-converted method. In April 2014, the 4.75% debentures due 2014 matured and were fully settled in both cash and shares of the Company's common stock (see Note 11).
Holders of the Company's 4.50% debentures due 2015 could, under certain circumstances at their option and before maturity, convert the debentures into cash, and not into shares of the Company's common stock (or any other securities).
38
Therefore, the 4.50% debentures due 2015 are excluded from the net income per share calculation. In March 2015, the 4.50% debentures due 2015 matured and were settled in cash (see Note 11).
The following is a summary of outstanding anti-dilutive potential common stock that was excluded from income (loss) per diluted share in the following periods:
|
|
Three Months Ended
|
Six Months Ended
|
||||||||||
|
(In thousands)
|
June 28, 2015
|
June 29, 2014
|
June 28, 2015
1
|
June 29, 2014
|
||||||||
|
Stock options
|
149
|
|
139
|
|
185
|
|
149
|
|
||||
|
Restricted stock units
|
293
|
|
293
|
|
1,776
|
|
379
|
|
||||
|
Upfront Warrants (held by Total)
|
—
|
|
—
|
|
7,055
|
|
—
|
|
||||
|
Warrants (under the CSO2015)
|
—
|
|
—
|
|
1,827
|
|
—
|
|
||||
|
0.75% debentures due 2018
|
—
|
|
—
|
|
12.026
|
|
—
|
|
||||
|
0.875% debentures due 2021
|
8,203
|
|
1,713
|
|
8,203
|
|
—
|
|
||||
|
4.75% debentures due 2014
|
n/a
|
|
1,330
|
|
n/a
|
|
5,021
|
|
||||
1
As a result of the net loss per share for the six months ended June 28, 2015, the inclusion of all potentially dilutive stock options, restricted stock units, and common shares under noted warrants and convertible debt would be anti-dilutive. Therefore, those stock options, restricted stock units and shares were excluded from the computation of the weighted-average shares for diluted net loss per share for such period.
Note 15.
STOCK-BASED COMPENSATION
The following table summarizes the consolidated stock-based compensation expense by line item in the Consolidated Statements of Operations:
|
|
Three Months Ended
|
Six Months Ended
|
||||||||||||||
|
(In thousands)
|
June 28, 2015
|
June 29, 2014
|
June 28, 2015
|
June 29, 2014
|
||||||||||||
|
Cost of Residential revenue
|
$
|
1,212
|
|
$
|
890
|
|
$
|
2,134
|
|
$
|
1,884
|
|
||||
|
Cost of Commercial revenue
|
531
|
|
491
|
|
919
|
|
1,031
|
|
||||||||
|
Cost of Power Plant revenue
|
1,517
|
|
1,969
|
|
2,773
|
|
3,991
|
|
||||||||
|
Research and development
|
2,380
|
|
1,912
|
|
4,653
|
|
3,709
|
|
||||||||
|
Sales, general and administrative
|
8,400
|
|
8,086
|
|
17,107
|
|
17,600
|
|
||||||||
|
Total stock-based compensation expense
|
$
|
14,040
|
|
$
|
13,348
|
|
$
|
27,586
|
|
$
|
28,215
|
|
||||
The following table summarizes the consolidated stock-based compensation expense by type of awards:
|
|
Three Months Ended
|
Six Months Ended
|
||||||||||||||
|
(In thousands)
|
June 28, 2015
|
June 29, 2014
|
June 28, 2015
|
June 29, 2014
|
||||||||||||
|
Restricted stock units
|
14,885
|
|
13,472
|
|
29,389
|
|
28,348
|
|
||||||||
|
Change in stock-based compensation capitalized in inventory
|
(845
|
)
|
(124
|
)
|
(1,803
|
)
|
(133
|
)
|
||||||||
|
Total stock-based compensation expense
|
$
|
14,040
|
|
$
|
13,348
|
|
$
|
27,586
|
|
$
|
28,215
|
|
||||
Note 16.
SEGMENT AND GEOGRAPHICAL INFORMATION
In the first quarter of fiscal 2015, in connection with a realignment of its internal organizational structure, the Company changed its segment reporting from its Americas, EMEA and APAC Segments to three end-customer segments: (i) Residential Segment, (ii) Commercial Segment and (iii) Power Plant Segment (see Note 1). The Residential and Commercial Segments combined are referred to as Distributed Generation. Reclassifications of prior period segment information have been made to conform to the current period presentation. This change does not affect the Company's previously reported Consolidated Financial Statements.
The following tables present information by end-customer segment including revenue, gross margin, and depreciation and amortization, as well as revenue by geography, based on the destination of the shipments:
|
|
Three Months Ended
|
Six Months Ended
|
||||||||||||||
|
(In thousands)
|
June 28, 2015
|
June 29, 2014
|
June 28, 2015
|
June 29, 2014
|
||||||||||||
|
Revenue
|
||||||||||||||||
|
Distributed Generation
|
||||||||||||||||
|
Residential
|
152,205
|
|
156,134
|
|
307,529
|
|
320,852
|
|
||||||||
|
Commercial
|
62,984
|
|
85,087
|
|
112,047
|
|
161,591
|
|
||||||||
|
Power Plant
|
165,831
|
|
266,650
|
|
402,315
|
|
717,850
|
|
||||||||
|
Total revenue
|
381,020
|
|
507,871
|
|
821,891
|
|
1,200,293
|
|
||||||||
|
Cost of revenue
|
||||||||||||||||
|
Distributed Generation
|
||||||||||||||||
|
Residential
|
116,979
|
|
125,002
|
|
239,751
|
|
257,689
|
|
||||||||
|
Commercial
|
58,842
|
|
74,789
|
|
105,722
|
|
139,252
|
|
||||||||
|
Power Plant
|
134,318
|
|
213,935
|
|
314,719
|
|
546,218
|
|
||||||||
|
Total cost of revenue
|
310,139
|
|
413,726
|
|
660,192
|
|
943,159
|
|
||||||||
|
Gross margin
|
||||||||||||||||
|
Distributed Generation
|
||||||||||||||||
|
Residential
|
35,226
|
|
31,132
|
|
67,778
|
|
63,163
|
|
||||||||
|
Commercial
|
4,142
|
|
10,298
|
|
6,325
|
|
22,339
|
|
||||||||
|
Power Plant
|
31,513
|
|
52,715
|
|
87,596
|
|
171,632
|
|
||||||||
|
Total gross margin
|
$
|
70,881
|
|
$
|
94,145
|
|
$
|
161,699
|
|
$
|
257,134
|
|
||||
|
Three Months Ended
|
Six Months Ended
|
|||||||||||||||
|
Depreciation and amortization by segment (in thousands):
|
June 28, 2015
|
June 29, 2014
|
June 28, 2015
|
June 29, 2014
|
||||||||||||
|
Distributed Generation
|
||||||||||||||||
|
Residential
|
$
|
10,504
|
|
$
|
7,128
|
|
$
|
20,676
|
|
$
|
13,163
|
|
||||
|
Commercial
|
$
|
6,287
|
|
$
|
3,989
|
|
$
|
9,694
|
|
$
|
6,792
|
|
||||
|
Power Plant
|
$
|
14,651
|
|
$
|
12,909
|
|
$
|
29,635
|
|
$
|
29,442
|
|
||||
The following tables present information by significant customers and categories:
|
Three Months Ended
|
Six Months Ended
|
||||||||||||
|
(As a percentage of total revenue)
|
June 28, 2015
|
June 29, 2014
|
June 28, 2015
|
June 29, 2014
|
|||||||||
|
Significant Customers:
|
Business Segment
|
||||||||||||
|
MidAmerican Energy Holdings Company
|
Power Plant
|
15
|
%
|
31
|
%
|
25
|
%
|
37
|
%
|
||||
|
Three Months Ended
|
Six Months Ended
|
|||||||||||
|
(As a percentage of total revenue)
|
June 28, 2015
|
June 29, 2014
|
June 28, 2015
|
June 29, 2014
|
||||||||
|
Revenue by geography:
|
||||||||||||
|
United States
|
62
|
%
|
59
|
%
|
66
|
%
|
64
|
%
|
||||
|
Japan
|
15
|
%
|
19
|
%
|
15
|
%
|
15
|
%
|
||||
|
Rest of World
|
23
|
%
|
22
|
%
|
19
|
%
|
21
|
%
|
||||
|
100
|
%
|
100
|
%
|
100
|
%
|
100
|
%
|
|||||
39
A reconciliation of the Company's segment revenue and gross margin to its consolidated financial statements for the three months ended
June 28, 2015
, and
June 29, 2014
is as follows:
|
Three Months Ended
June 28, 2015
|
|||||||||||||||||||||||||||||||||
|
Revenue
|
Gross margin
|
||||||||||||||||||||||||||||||||
|
Revenue and Gross margin by segment (in thousands, except percentages):
|
Residential
|
Commercial
|
Power Plant
|
Residential
|
Commercial
|
Power Plant
|
|||||||||||||||||||||||||||
|
As reviewed by CODM
|
$
|
152,205
|
|
$
|
62,984
|
|
$
|
161,518
|
|
$
|
35,410
|
|
23.3
|
%
|
$
|
4,016
|
|
6.4
|
%
|
$
|
26,717
|
|
16.5
|
%
|
|||||||||
|
Utility and power plant projects
|
—
|
|
—
|
|
4,313
|
|
—
|
|
—
|
|
4,328
|
|
|||||||||||||||||||||
|
FPSC arbitration ruling
|
—
|
|
—
|
|
—
|
|
1,969
|
|
1,294
|
|
3,837
|
|
|||||||||||||||||||||
|
Stock-based compensation
|
—
|
|
—
|
|
—
|
|
(1,212
|
)
|
(531
|
)
|
(1,516
|
)
|
|||||||||||||||||||||
|
Other
|
—
|
|
—
|
|
—
|
|
(941
|
)
|
(637
|
)
|
(1,853
|
)
|
|||||||||||||||||||||
|
GAAP
|
$
|
152,205
|
|
$
|
62,984
|
|
$
|
165,831
|
|
$
|
35,226
|
|
23.1
|
%
|
$
|
4,142
|
|
6.6
|
%
|
$
|
31,513
|
|
19.0
|
%
|
|||||||||
|
Three Months Ended
June 29, 2014
|
|||||||||||||||||||||||||||||||||
|
Revenue
|
Gross margin
|
||||||||||||||||||||||||||||||||
|
Revenue and Gross margin by segment (in thousands, except percentages):
|
Residential
|
Commercial
|
Power Plant
|
Residential
|
Commercial
|
Power Plant
|
|||||||||||||||||||||||||||
|
As reviewed by CODM
|
$
|
156,134
|
|
$
|
85,087
|
|
$
|
379,845
|
|
$
|
32,207
|
|
20.6
|
%
|
$
|
10,887
|
|
12.8
|
%
|
$
|
77,738
|
|
20.5
|
%
|
|||||||||
|
Utility and power plant projects
|
—
|
|
—
|
|
(113,195
|
)
|
—
|
|
—
|
|
(22,614
|
)
|
|||||||||||||||||||||
|
Stock-based compensation
|
—
|
|
—
|
|
—
|
|
(890
|
)
|
(491
|
)
|
(1,969
|
)
|
|||||||||||||||||||||
|
Other
|
—
|
|
—
|
|
—
|
|
(185
|
)
|
(98
|
)
|
(440
|
)
|
|||||||||||||||||||||
|
GAAP
|
$
|
156,134
|
|
$
|
85,087
|
|
$
|
266,650
|
|
$
|
31,132
|
|
19.9
|
%
|
$
|
10,298
|
|
12.1
|
%
|
$
|
52,715
|
|
19.8
|
%
|
|||||||||
A reconciliation of the Company's segment revenue and gross margin to its consolidated financial statements for the six months ended
June 28, 2015
, and
June 29, 2014
is as follows:
|
Six Months Ended
June 28, 2015
|
|||||||||||||||||||||||||||||||||
|
Revenue
|
Gross margin
|
||||||||||||||||||||||||||||||||
|
Revenue and Gross margin by segment (in thousands, except percentages):
|
Residential
|
Commercial
|
Power Plant
|
Residential
|
Commercial
|
Power Plant
|
|||||||||||||||||||||||||||
|
As reviewed by CODM
|
$
|
307,529
|
|
$
|
112,047
|
|
$
|
387,732
|
|
$
|
70,688
|
|
23.0
|
%
|
$
|
7,041
|
|
6.3
|
%
|
$
|
76,575
|
|
19.7
|
%
|
|||||||||
|
Utility and power plant projects
|
—
|
|
—
|
|
14,583
|
|
—
|
|
—
|
|
15,579
|
|
|||||||||||||||||||||
|
FPSC arbitration ruling
|
—
|
|
—
|
|
—
|
|
1,969
|
|
1,294
|
|
3,837
|
|
|||||||||||||||||||||
|
Stock-based compensation
|
—
|
|
—
|
|
—
|
|
(2,134
|
)
|
(919
|
)
|
(2,772
|
)
|
|||||||||||||||||||||
|
Other
|
—
|
|
—
|
|
—
|
|
(2,745
|
)
|
(1,091
|
)
|
(5,623
|
)
|
|||||||||||||||||||||
|
GAAP
|
$
|
307,529
|
|
$
|
112,047
|
|
$
|
402,315
|
|
$
|
67,778
|
|
22.0
|
%
|
$
|
6,325
|
|
5.6
|
%
|
$
|
87,596
|
|
21.8
|
%
|
|||||||||
|
Six Months Ended
June 29, 2014
|
|||||||||||||||||||||||||||||||||
|
Revenue
|
Gross margin
|
||||||||||||||||||||||||||||||||
|
Revenue and Gross margin by segment (in thousands, except percentages):
|
Residential
|
Commercial
|
Power Plant
|
Residential
|
Commercial
|
Power Plant
|
|||||||||||||||||||||||||||
|
As reviewed by CODM
|
$
|
320,852
|
|
$
|
161,591
|
|
$
|
822,336
|
|
$
|
65,420
|
|
20.4
|
%
|
$
|
23,562
|
|
14.6
|
%
|
$
|
182,487
|
|
22.2
|
%
|
|||||||||
|
Utility and power plant projects
|
—
|
|
—
|
|
(104,486
|
)
|
—
|
|
—
|
|
(6,006
|
)
|
|||||||||||||||||||||
|
Stock-based compensation
|
—
|
|
—
|
|
—
|
|
(1,884
|
)
|
(1,031
|
)
|
(3,991
|
)
|
|||||||||||||||||||||
|
Other
|
—
|
|
—
|
|
—
|
|
(373
|
)
|
(192
|
)
|
(858
|
)
|
|||||||||||||||||||||
|
GAAP
|
$
|
320,852
|
|
$
|
161,591
|
|
$
|
717,850
|
|
$
|
63,163
|
|
19.7
|
%
|
$
|
22,339
|
|
13.8
|
%
|
$
|
171,632
|
|
23.9
|
%
|
|||||||||
40
Note 17.
SUBSEQUENT EVENTS
Acquisition of Solar Power Plant Development Assets
On July 27, 2015, the Company acquired 1.5 GWs of U.S. solar power plant development assets from Australia-based Infigen Energy. With the acquisition, the Company assumed ownership of projects in varying stages of development across 11 states.
Included in the development portfolio are three projects totaling 55 MWac with power purchase agreements with Southern California Edison. All three are located in Kern County, California. The Company expects to start construction on these projects later this year with commercial operation anticipated in 2016. The Company expects to offer some of the acquired projects for sale to 8point3 Energy Partners.
ITEM 2:
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the fiscal year ended December 28, 2014 filed with the Securities and Exchange Commission 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 and the assumptions underlying such statements. We use words such as "anticipate," "believe," "continue," "could," "estimate," "expect," "intend," "may," "plan," "predict," "potential," "will," "would," "should," 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, projected costs and cost reduction, development of new products and improvements to our existing products, our manufacturing capacity and manufacturing costs, the adequacy of our agreements with our suppliers, our ability to monetize utility projects, competitive positions, management's plans and objectives for future operations, our YieldCo strategy and the future performance of 8point3 Energy Partners LP, the sufficiency of our cash and our liquidity, our ability to obtain financing, our ability to comply with debt covenants or cure any defaults, trends in average selling prices, the success of our joint ventures and acquisitions, expected capital expenditures, warranty matters, outcomes of litigation, our exposure to foreign exchange, interest and credit risk, general business and economic conditions in our markets, industry trends, the impact of changes in government incentives, expected restructuring charges, and the likelihood of any impairment of project assets and long-lived assets. 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 below, 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 ended December 28, 2014, and our other filings with the Securities and Exchange Commission ("SEC"). These forward-looking statements should not be relied upon as representing our views as of any subsequent date, and we are under no obligation to, and expressly disclaim any responsibility to, update or alter our forward-looking statements, whether as a result of new information, future events or otherwise.
Our fiscal year ends on the Sunday closest to the end of the applicable calendar year. All references to fiscal periods apply to our fiscal quarter or year, which end on the Sunday closest to the calendar month end.
Overview
We are a vertically integrated solar products and solutions company that designs, manufactures and delivers high-performance solar systems worldwide, serving as a one-stop shop for residential, commercial and utility-scale power plant customers. Of all the solar cells commercially introduced to the mass market, we believe our solar cells have the highest conversion efficiency, a measurement of the amount of sunlight converted by the solar cell into electricity.
Our products and services include Solar Power Components, Solar Power Systems, and Solutions and Services. Solar Power Components consist of solar panels, inverters, and balance of system components including mounting structures, charge
41
controllers, grid interconnection equipment, and other devices. Solar Power Systems include our residential systems, commercial roof and ground mounted systems, and utility and power plant systems including utility-scale solar power system construction and development. Our Solutions and Services include O&M services, a residential leasing program, and "Smart Energy" solutions. We see Smart Energy as a way to harness our world’s energy potential by connecting the most powerful and reliable solar systems on the market with an increasingly vast array of actionable data that can help our customers make smarter decisions about their energy use. 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. For more information about our business, please refer to the section titled "Part I. Item 1.
Business
" in our Annual Report on Form 10-K for the fiscal year ended December 28, 2014.
8point3 Energy Partners LP
In June 2015, 8point3 Energy Partners LP ("8point3 Energy Partners"), a joint YieldCo vehicle formed by us and First Solar, Inc. ("First Solar" and, together with us, the "Sponsors") to own, operate and acquire solar energy generation assets, completed an initial public offering (“IPO”) of Class A shares representing limited partner interests in 8point3 Energy Partners. The IPO was consummated on June 24, 2015 (the “IPO Closing Date”) whereupon the Class A shares were listed on the NASDAQ Global Select Market under the trading symbol “CAFD.”
Immediately after the IPO, we contributed a portfolio of 170 MW of our solar generation assets (the “SPWR Projects”) to 8point3 Operating Company, LLC (“OpCo”), 8point3 Energy Partners’ primary operating subsidiary. In exchange for the SPWR Projects, we received cash proceeds of $371 million as well as equity interests in several 8point3 Energy Partners affiliated entities: primarily common and subordinated units representing a 40.7% stake in OpCo and a 50% economic and management stake in 8point3 Holding Company, LLC (“Holdings”), the parent company of the general partner of 8point3 Energy Partners and the owner of incentive distribution rights (“IDRs”) in OpCo. Holdings, OpCo, 8point3 Energy Partners and their respective subsidiaries are referred to herein as the “8point3 Group.” Additionally, pursuant to a Right of First Offer Agreement between us and OpCo, the 8point3 Group has rights of first offer on interests in an additional 513 MW of our solar energy projects that are currently contracted or are expected to be contracted before being sold by us (the “ROFO Projects”). In connection with the IPO, we also entered into operations and maintenance, asset management and management services agreements with the 8point3 Group. The services we provide under these agreements are priced consistently with market rates for such services and the agreements are terminable by the 8point3 Group for convenience.
We account for our investments in the 8point3 Group using the equity method, whereby the book value of our investments is recorded as a non-current asset and our portion of the 8point3 Group’s earnings is recorded in the Consolidated Statements of Operations under the caption "Equity in earnings (loss) of unconsolidated investees."
For more information about our accounting of the IPO and related transactions, please refer to the sections titled "Note 3. 8point3 Energy Partners LP" and "Note 10. Equity Method Investments" in the Notes to the Consolidated Financial Statements in this Quarterly Report on Form 10-Q.
Segments Overview
In the first quarter of fiscal 2015, in connection with a realignment of our internal organizational structure, we changed our segment reporting from our Americas, EMEA and APAC Segments to three end-customer segments: (i) Residential Segment, (ii) Commercial Segment and (iii) Power Plant Segment. The Residential and Commercial Segments combined are referred to as Distributed Generation. Historically, the Americas Segment included both North and South America, the EMEA Segment included European countries as well as the Middle East and Africa, and the APAC Segment included all Asia-Pacific countries.
Under the new segmentation, our Residential Segment refers to sales of solar energy solutions to residential end customers through a variety of means, including cash sales and long-term leases directly to end customers, sales to resellers, including our third-party global dealer network, and sales of our O&M services. Our Commercial Segment refers to sales of solar energy solutions to commercial and public entity end customers through a variety of means, including direct sales of turn-key EPC services, sales to our third-party global dealer network, sales of energy under PPAs, and sales of our O&M services. Our Power Plant Segment refers to our large-scale solar products and systems business, which includes power plant project development and project sales, EPC services for power plant construction, power plant O&M services and component sales for power plants developed by third-parties, sometimes on a multi-year, firm commitment basis.
Our President and Chief Executive Officer, as the CODM, reviews our business and manages resource allocations and measures performance of our activities among these three end-customer segments.
42
Unit of Power
When referring to our solar power systems, our facilities’ manufacturing capacity, and total sales, the unit of electricity in watts for kilowatts ("KW"), megawatts ("MW"), and gigawatts ("GW") is direct current ("dc").
Levelized Cost of Energy ("LCOE")
LCOE is an evaluation of the life-cycle energy cost and life-cycle energy production of an energy producing system. It allows alternative technologies to be compared when different scales of operation, investment or operating time periods exist. LCOE captures capital costs and ongoing system-related costs, along with the amount of electricity produced, and converts them into a common metric. Key drivers for LCOE reduction for photovoltaic products include panel efficiency, capacity factors, reliable system performance, and the life of the system.
Customer Cost of Energy
™
("CCOE
™
")
Our customers are focused on reducing their overall cost of energy by intelligently integrating solar and other distributed generation, energy efficiency, energy management, and energy storage systems with their existing utility-provided energy. CCOE™ is an evaluation of a customer’s overall cost of energy, taking into account the cost impact of each individual generation source (including the utility), energy storage systems, and energy management systems. CCOE includes capital costs and ongoing operating costs, along with the amount of electricity produced, stored, saved, or re-sold, and converts all of these variables into a common metric. The CCOE metric allows a customer to compare different portfolios of generation sources, energy storage, and energy management in order to tailor energy supply and usage to the customer's unique lifestyle and financial goals.
Seasonal Trends
Our business is subject to industry-specific seasonal fluctuations including changes in weather patterns and economic incentives, among others. Sales have historically reflected these seasonal trends with the largest percentage of total revenues realized during the last two quarters of a fiscal year. The construction of solar power systems or installation of solar power components and related revenue may decline during cold winter months. In the United States, many customers make purchasing decisions towards the end of the year in order to take advantage of tax credits or for other budgetary reasons.
Fiscal Years
We have a 52-to-53-week fiscal year that ends on the Sunday closest to December 31. Accordingly, every fifth or sixth year will be a 53-week fiscal year. The current fiscal year, fiscal 2015, is a 53-week fiscal year and includes a 14-week fourth fiscal quarter, while fiscal year 2014 was a 52-week fiscal year. The second quarter of fiscal
2015
ended on
June 28, 2015
, while the second quarter of fiscal
2014
ended on
June 29, 2014
. The second quarters of fiscal
2015
and fiscal
2014
were both 13-week quarters.
Outlook
While remaining focused on our U.S. market, we plan to continue to expand our business in growing and sustainable markets, including Africa, Australia, China, Saudi Arabia, South America, and Turkey. Through our investment in Huaxia CPV (Inner Mongolia) Power Co., Ltd. with partners in China, we plan to manufacture and deploy our C7 Tracker systems in Inner Mongolia and other regions in China. We plan to expand our solar cell manufacturing capacity through the construction of a facility in the Philippines with a planned annual capacity of 350 MW once fully operational, which is expected to occur in fiscal 2016, with initial production expected towards the end of fiscal 2015.
We continue to improve our unique, differentiated solar cell and panel technology. Our new residential product line includes our SunPower X-Series Solar Panels with demonstrated average panel efficiencies exceeding 21.5%. We are focused on reducing the cost of our solar panels and systems and are working with our suppliers and partners along all steps of the value chain to reduce costs by improving manufacturing technologies and expanding economies of scale. We continue to emphasize improvement of our solar cell efficiency and LCOE and CCOE performance through enhancement of our existing products, development of new products and reduction of manufacturing cost and complexity in conjunction with our overall cost-control strategies. In fiscal 2014, we produced our first solar cells with over 25% efficiency in the lab and in fiscal 2015 we expect to reach production panel efficiencies of 23% using a simplified, lower cost manufacturing process.
43
We continue to see significant and increasing opportunities in technologies and capabilities adjacent to our core product offerings that can significantly reduce CCOE, including the integration of energy storage and energy management functionality into our systems, and have made investments to realize those opportunities, including our investment in Tendril Networks, our acquisition of SolarBridge Technologies, and our exclusive agreement with Sunverge Energy. In the fourth quarter of fiscal 2014, we licensed a data-driven Energy Services Management ("ESM") Platform from Tendril Networks, Inc. to power the development of new Smart Energy applications designed to deliver personalized energy services to our customers. In the first quarter of fiscal 2015, we entered into a strategic partnership with EnerNOC, a leading provider of energy intelligence software, to deploy EnerNOC's Software as a Service ("SaaS") solution to our commercial and power plant customers so they can make intelligent energy choices by addressing how they buy energy, how they use energy and when they use it. We have added advanced module-level control electronics to our portfolio of technology designed to enable longer series strings and significant balance of system components cost reductions in large arrays. We are developing next generation microinverters designed to eliminate the need to mount or assemble additional components on the roof or the side of a building and enable optimization and monitoring at the solar panel level to ensure maximum energy production by the solar system. We also expect to make combined solar and distributed energy storage solutions broadly commercially available to certain customers in the United States and Australia in fiscal 2015 through an exclusive agreement to offer Sunverge SIS energy solutions comprising batteries, power electronics, and multiple energy inputs controlled by software in the cloud.
In June 2015, 8point3 Energy Partners, our joint YieldCo vehicle formed to own, operate and acquire solar energy generation assets, completed its IPO. Through our investments in and involvement with the 8point3 Group, we anticipate that we will be able to reliably access a lower cost of capital, which will further enable the continued development of our project pipeline described below in our key U.S. market and in select, sustainable foreign markets. As part of this strategy, we plan to retain these development projects on our balance sheet for longer periods of time than in preceding periods in order to optimize the economic value we receive at the time of sale.
Projects Sold / Under Contract
The table below presents significant construction and development projects sold or under contract as of
June 28, 2015
:
|
Project
|
Location
|
Size (MW)
|
Third-Party Owner / Purchaser
|
Power Purchase Agreement(s)
|
Expected Substantial Completion of Project
|
|||||
|
Solar Star Projects
|
California, USA
|
748
|
MidAmerican Energy Holdings Company
|
Southern California Edison
|
2015
|
|||||
|
Quinto Solar Project
|
California, USA
|
135
|
8point3 Energy Partners
|
Southern California Edison
|
2015
|
|||||
|
Prieska Solar Project
1
|
South Africa
|
86
|
Mulilo Prieska PV (RF) Proprietary Limited
|
Eskom Holdings Soc LTD
|
2016
|
|||||
|
1
|
We have entered into an EPC agreement and a long-term fixed price O&M agreement with the owners of the Prieska Solar Project.
|
As of
June 28, 2015
, an aggregate of approximately $176 million of remaining revenue is expected to be recognized on projects reflected in the table above through the expected completion dates noted. Projects will be removed from the table above in the period in which substantially all of the revenue for such project has been recognized.
44
Projects with Executed Power Purchase Agreements - Not Sold / Not Under Contract
The table below presents significant construction and development projects with executed power purchase agreements, but not sold or under contract as of
June 28, 2015
:
|
Project
|
Location
|
Size (MW)
|
Power Purchase Agreement(s)
|
Expected Substantial Completion of Project
|
||||
|
Henrietta Solar Project*
|
California, USA
|
128
|
PG&E
|
2016
|
||||
|
Stanford Solar Generating Station*
|
California, USA
|
68
|
Stanford University
|
2016
|
||||
|
Hooper Solar Project*
|
Colorado, USA
|
60
|
Public Service Company of Colorado
|
2016
|
||||
*
ROFO Project—pursuant to a Right of First Offer Agreement between SunPower and OpCo, the 8point3 Group has rights of first offer on interests in these projects. For additional information on 8point3 Energy Partners and related transactions, please refer to the section titled "Note 3. 8point3 Energy Partners LP" in the Notes to the Consolidated Financial Statements in this Quarterly report on Form 10-Q.
Our project pipeline extends beyond the projects represented in the tables above. Significant projects with development and milestone activities in progress will be excluded from the table above until an associated power purchase agreement has been executed.
Results of Operations
Revenue
|
|
Three Months Ended
|
Six Months Ended
|
||||||||||||||||||
|
(In thousands)
|
June 28, 2015
|
June 29, 2014
|
% Change
|
June 28, 2015
|
June 29, 2014
|
% Change
|
||||||||||||||
|
Distributed Generation
|
||||||||||||||||||||
|
Residential
|
152,205
|
|
156,134
|
|
(3)%
|
307,529
|
|
320,852
|
|
(4)%
|
||||||||||
|
Commercial
|
62,984
|
|
85,087
|
|
(26)%
|
112,047
|
|
161,591
|
|
(31)%
|
||||||||||
|
Power Plant
|
165,831
|
|
266,650
|
|
(38)%
|
402,315
|
|
717,850
|
|
(44)%
|
||||||||||
|
Total revenue
|
$
|
381,020
|
|
$
|
507,871
|
|
(25)%
|
$
|
821,891
|
|
$
|
1,200,293
|
|
(32)%
|
||||||
Total Revenue:
Our total revenue decreased
25%
and
32%
during the three and six months ended
June 28, 2015
as compared to the three and six months ended
June 29, 2014
, respectively, due to substantial completion of revenue recognition at the end of fiscal 2014 on certain large-scale solar power systems. A decline in sales of solar power systems and components to residential and commercial customers also contributed to the period-over-period decrease in total revenue. Additionally, during the second quarter of fiscal 2015, we deferred the recognition of any profit on the sale of projects involving real estate to 8point3 Energy Partners under the accounting treatment described in "Item 1. Financial Statements—Notes to Consolidated Financial Statements—Note 3. 8point3 Energy Partners LP." Furthermore, we do not expect to recognize any profit during the remainder of fiscal 2015 on sales to 8point3 Energy Partners of projects that involve real estate.
Concentrations:
Sales for the Power Plant Segment as a percentage of total revenue recognized were approximately
44%
and
49%
during the three and six months ended
June 28, 2015
as compared to
53%
and
60%
during the three and six months ended
June 29, 2014
, respectively. The decrease in the percentage of revenue for the Power Plant Segment was primarily driven by substantial completion of revenue recognition at the end of fiscal 2014 on certain large-scale solar power systems. Additionally, during the second quarter of fiscal 2015, we deferred the recognition of any profit on the sale of projects involving real estate to 8point3 Energy Partners under the accounting treatment described in "Item 1. Financial Statements—Notes to Consolidated Financial Statements—Note 3. 8point3 Energy Partners LP."
The table below represents our significant customers that accounted for greater than 10 percent of total revenue in each of the three and six months ended
June 28, 2015
and
June 29, 2014
.
45
|
|
Three Months Ended
|
Six Months Ended
|
|||||||||||
|
(As a percentage of total revenue)
|
June 28, 2015
|
June 29, 2014
|
June 28, 2015
|
June 29, 2014
|
|||||||||
|
Significant Customers:
|
Business Segment
|
||||||||||||
|
MidAmerican Energy Holdings Company
|
Power Plant
|
15
|
%
|
31
|
%
|
25
|
%
|
37
|
%
|
||||
Residential Revenue:
Residential revenue decreased
3%
and
4%
during the three and six months ended
June 28, 2015
as compared to the three and six months ended
June 29, 2014
, respectively, primarily due to a decline in the sales of solar power components and systems to our residential customers, particularly in Japan, where the decline in the value of the Japanese Yen reduced demand for imported goods. The decrease in residential revenue was partially offset by an increase in residential component sales in North America due to stronger sales through our dealer network and an increase in the number of leases placed in service under our residential leasing program within the United States.
Commercial Revenue:
Commercial revenue decreased
26%
and
31%
during the three and six months ended
June 28, 2015
as compared to the three and six months ended
June 29, 2014
, respectively, primarily due to the completion of certain commercial solar power system projects and a decrease in commercial component sales across all geographies. Additionally, during the second quarter of fiscal 2015, we deferred the recognition of any profit on the sale to 8point3 Energy Partners of projects involving real estate under the accounting treatment described in "Item 1. Financial Statements—Notes to Consolidated Financial Statements—Note 3. 8point3 Energy Partners LP." Furthermore, we do not expect to recognize any Commercial profit during the remainder of fiscal 2015 on sales to 8point3 Energy Partners of projects that involve real estate.
Power Plant Revenue
: Power Plant revenue decreased
38%
and
44%
during the three and six months ended
June 28, 2015
as compared to the three and six months ended
June 29, 2014
, respectively, primarily due to substantial completion of revenue recognition at the end of fiscal 2014 on certain large-scale solar power systems located within the United States. Additionally, during the second quarter of fiscal 2015, we deferred the recognition of any profit on the sale of projects involving real estate to 8point3 Energy Partners under the accounting treatment described in "Item 1. Financial Statements—Notes to Consolidated Financial Statements—Note 3. 8point3 Energy Partners LP." Furthermore, we do not expect to recognize any power Plant Plant profit during the remainder of fiscal 2015 on sales to 8point3 Energy Partners of projects that involve real estate.
Cost of Revenue
|
|
Three Months Ended
|
Six Months Ended
|
||||||||||||||||||||
|
(In thousands)
|
June 28, 2015
|
June 29, 2014
|
% Change
|
June 28, 2015
|
June 29, 2014
|
% Change
|
||||||||||||||||
|
Distributed Generation
|
||||||||||||||||||||||
|
Residential
|
116,979
|
|
125,002
|
|
(6
|
)%
|
239,751
|
|
257,689
|
|
(7
|
)%
|
||||||||||
|
Commercial
|
58,842
|
|
74,789
|
|
(21
|
)%
|
105,722
|
|
139,252
|
|
(24
|
)%
|
||||||||||
|
Power Plant
|
134,318
|
|
213,935
|
|
(37
|
)%
|
314,719
|
|
546,218
|
|
(42
|
)%
|
||||||||||
|
Total cost of revenue
|
$
|
310,139
|
|
$
|
413,726
|
|
(25
|
)%
|
$
|
660,192
|
|
$
|
943,159
|
|
(30
|
)%
|
||||||
|
Total cost of revenue as a percentage of revenue
|
81
|
%
|
81
|
%
|
80
|
%
|
79
|
%
|
||||||||||||||
|
Total gross margin percentage
|
19
|
%
|
19
|
%
|
20
|
%
|
21
|
%
|
||||||||||||||
Total Cost of Revenue:
Our total cost of revenue decreased
25%
and
30%
during the three and six months ended
June 28, 2015
as compared to the three and six months ended
June 29, 2014
, primarily as a result of the substantial completion at the end of fiscal 2014 of recognition of revenue and corresponding costs of certain large-scale solar power systems within the United States.
46
Gross Margin
|
|
Three Months Ended
|
Six Months Ended
|
||||||||||
|
(As a percentage of revenue)
|
June 28, 2015
|
June 29, 2014
|
Change
|
June 28, 2015
|
June 29, 2014
|
Change
|
||||||
|
Distributed Generation
|
||||||||||||
|
Residential
|
23%
|
20%
|
3%
|
22%
|
20%
|
2%
|
||||||
|
Commercial
|
7%
|
12%
|
(5)%
|
6%
|
14%
|
(8)%
|
||||||
|
Power Plant
|
19%
|
20%
|
(1)%
|
22%
|
24%
|
(2)%
|
||||||
Residential Gross Margin:
Gross margin for our Residential Segment increased
3
percentage points and
2
percentage points during the three and six months ended
June 28, 2015
as compared to the three and six months ended
June 29, 2014
, respectively, primarily as a result of increased volume of sales with favorable margins for residential leases, solar power systems and components in the United States, partially offset by lower margins on solar power components resulting from declines in average selling prices in Japan.
Commercial Gross Margin:
Gross margin for our Commercial Segment decreased
5
percentage points and
8
percentage points during the three and six months ended
June 28, 2015
as compared to the three and six months ended
June 29, 2014
, respectively, primarily as a result of higher than expected costs on and change in scope of certain commercial EPC projects in the United States. Additionally, during the second quarter of fiscal 2015, we deferred the recognition of any profit on the sale of projects involving real estate to 8point3 Energy Partners under the accounting treatment described in "Item 1. Financial Statements—Notes to Consolidated Financial Statements—Note 3. 8point3 Energy Partners LP." Furthermore, we do not expect to recognize any Commercial profit during the remainder of 2015 on sales to 8point3 Energy Partners of projects that involve real estate.
Power Plant Gross Margin:
Gross margin for our Power Plant Segment decreased
1
percentage point and
2
percentage points during the three and six months ended
June 28, 2015
as compared to the three and six months ended
June 29, 2014
, respectively, primarily as a result of the substantial completion of large-scale solar power systems with favorable margins at the end of fiscal 2014 within the United States. Additionally, during the second quarter of fiscal 2015, we deferred the recognition of any profit on the sale to 8point3 Energy Partners of projects involving real estate under the accounting treatment described in "Item 1. Financial Statements—Notes to Consolidated Financial Statements—Note 3. 8point3 Energy Partners LP." Furthermore, we do not expect to recognize any Power Plant profit during the remainder of 2015 on sales to 8point3 Energy Partners of projects that involve real estate.
Research and Development ("R&D")
|
Three Months Ended
|
Six Months Ended
|
|||||||||||||||||||||
|
(In thousands)
|
June 28, 2015
|
June 29, 2014
|
% Change
|
June 28, 2015
|
June 29, 2014
|
% Change
|
||||||||||||||||
|
R&D
|
$
|
20,560
|
|
$
|
16,581
|
|
24
|
%
|
$
|
41,728
|
|
$
|
33,327
|
|
25
|
%
|
||||||
|
As a percentage of revenue
|
5
|
%
|
3
|
%
|
5
|
%
|
3
|
%
|
||||||||||||||
R&D expense increased
$4.0 million
and
$8.4 million
in the three and six months ended
June 28, 2015
as compared to the three and six months ended
June 29, 2014
, respectively, primarily due to an increase in labor costs as a result of additional headcount and salary related expenses, as well as an increase in other net expenses such as consulting and outside services supporting programs related to our next generation solar technology. These increases were partially offset by contributions under the R&D Agreement with Total.
47
Sales, General and Administrative ("SG&A")
|
|
Three Months Ended
|
Six Months Ended
|
||||||||||||||||||||
|
(In thousands)
|
June 28, 2015
|
June 29, 2014
|
% Change
|
June 28, 2015
|
June 29, 2014
|
% Change
|
||||||||||||||||
|
SG&A
|
$
|
81,520
|
|
$
|
71,499
|
|
14
|
%
|
$
|
158,734
|
|
$
|
145,427
|
|
9
|
%
|
||||||
|
As a percentage of revenue
|
21
|
%
|
14
|
%
|
19
|
%
|
12
|
%
|
||||||||||||||
SG&A expense increased
$10.0 million
and
$13.3 million
in the three and six months ended
June 28, 2015
as compared to the three and six months ended
June 29, 2014
, respectively, primarily due to costs related to the formation and IPO of 8point3 Energy Partners.
Restructuring Charges
|
|
Three Months Ended
|
Six Months Ended
|
||||||||||||||||||
|
(In thousands)
|
June 28, 2015
|
June 29, 2014
|
% Change
|
June 28, 2015
|
June 29, 2014
|
% Change
|
||||||||||||||
|
Restructuring charges
|
$
|
1,749
|
|
$
|
(717
|
)
|
n.m.
|
$
|
5,330
|
|
$
|
(1,178
|
)
|
n.m.
|
||||||
|
As a percentage of revenue
|
—
|
%
|
—
|
%
|
1
|
%
|
—
|
%
|
||||||||||||
Restructuring charges in the three and six months ended
June 28, 2015
increased
$2.5 million
and
$6.5 million
as compared to the three and six months ended
June 29, 2014
, respectively, primarily related to severance charges associated with our November 2014 restructuring plan. Remaining restructuring charges are associated with legacy restructuring plans approved in fiscal 2012 and 2011.
See "Item 1. Financial Statements and Supplementary Data—Notes to Consolidated Financial Statements—Note 8. Restructuring" for further information regarding our restructuring plans.
Other Income (Expense), Net
|
Three Months Ended
|
Six Months Ended
|
|||||||||||||||||||||
|
(In thousands)
|
June 28, 2015
|
June 29, 2014
|
% Change
|
June 28, 2015
|
June 29, 2014
|
% Change
|
||||||||||||||||
|
Interest income
|
$
|
494
|
|
$
|
668
|
|
(26
|
)%
|
$
|
1,050
|
|
$
|
986
|
|
6
|
%
|
||||||
|
Interest expense
|
(8,517
|
)
|
(16,310
|
)
|
(48
|
)%
|
(24,198
|
)
|
(35,902
|
)
|
(33
|
)%
|
||||||||||
|
Other, net
|
14,982
|
|
(76
|
)
|
n.m.
|
|
12,362
|
|
1,293
|
|
n.m.
|
|
||||||||||
|
Other income (expense), net
|
$
|
6,959
|
|
$
|
(15,718
|
)
|
144
|
%
|
$
|
(10,786
|
)
|
$
|
(33,623
|
)
|
68
|
%
|
||||||
|
As a percentage of revenue
|
2
|
%
|
3
|
%
|
1
|
%
|
3
|
%
|
||||||||||||||
Other income (expense), net decreased
$22.7 million
and
$22.8 million
in the three and six months ended
June 28, 2015
as compared to the three and six months ended
June 29, 2014
, respectively, primarily driven by the gain recognized on the sale of a residential lease portfolio to 8point3 Energy Partners during the second quarter of fiscal 2015, a decrease in interest expense due to the maturity of the 4.75% debentures due 2014, as well as favorable changes in the fair value of foreign currency derivatives and other net expenses.
Income Taxes
48
|
|
Three Months Ended
|
Six Months Ended
|
||||||||||||||||||||
|
(In thousands)
|
June 28, 2015
|
June 29, 2014
|
% Change
|
June 28, 2015
|
June 29, 2014
|
% Change
|
||||||||||||||||
|
Benefit from (provision for) income taxes
|
$
|
659
|
|
$
|
8,168
|
|
(92
|
)%
|
$
|
(1,692
|
)
|
$
|
(5,452
|
)
|
69
|
%
|
||||||
|
As a percentage of revenue
|
—
|
%
|
2
|
%
|
—
|
%
|
—
|
%
|
||||||||||||||
In the three and six months ended
June 28, 2015
, our income tax benefit of
$0.7 million
and income tax provision of
$1.7 million
, respectively, on a loss before income taxes and equity in earnings of unconsolidated investees of
$26.0 million
and
$54.9 million
, respectively, was primarily due to projected tax expense, partially offset by discrete benefits pertaining to tax settlements in certain foreign jurisdictions in the three months ended
June 28, 2015
. In the three and six months ended
June 29, 2014
, our income tax benefit of
$8.2 million
and income tax provision of
$5.5 million
, respectively, on a loss before income taxes and equity in earnings of unconsolidated investees of
$8.9 million
and an income before income taxes and equity in earnings of unconsolidated investees of
$45.9 million
, respectively, was primarily due to the change in the amount and mix of forecasted earnings.
A material amount of our total revenue is generated from customers located outside of the United States, and a substantial portion of our assets and employees are located outside of the United States. U.S. income taxes and foreign withholding taxes have not been provided on the undistributed earnings of our non-U.S. subsidiaries as such earnings are intended to be indefinitely reinvested in operations outside the United States to the extent that such earnings have not been currently or previously subjected to taxation of the United States.
We record a valuation allowance to reduce our U.S. and France 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
June 28, 2015
, we believe there is insufficient evidence to realize additional deferred tax assets.
Equity in Earnings of Unconsolidated Investees
|
|
Three Months Ended
|
Six Months Ended
|
||||||||||||||||||||
|
(In thousands)
|
June 28, 2015
|
June 29, 2014
|
% Change
|
June 28, 2015
|
June 29, 2014
|
% Change
|
||||||||||||||||
|
Equity in earnings of unconsolidated investees
|
$
|
1,864
|
|
$
|
1,936
|
|
(4
|
)%
|
$
|
4,055
|
|
$
|
3,719
|
|
9
|
%
|
||||||
|
As a percentage of revenue
|
0.5
|
%
|
0.4
|
%
|
0.5
|
%
|
0.3
|
%
|
||||||||||||||
Our equity in earnings of unconsolidated investees decreased
$0.1 million
and increased
$0.3 million
in the three and six months ended
June 28, 2015
compared to the three and six months ended
June 29, 2014
, respectively, primarily due to activities at our AUOSP joint venture.
Net Income (loss)
|
|
Three Months Ended
|
Six Months Ended
|
||||||||||||||||||
|
(In thousands)
|
June 28, 2015
|
June 29, 2014
|
% Change
|
June 28, 2015
|
June 29, 2014
|
% Change
|
||||||||||||||
|
Net income (loss)
|
$
|
(23,466
|
)
|
$
|
1,168
|
|
n.m.
|
$
|
(52,516
|
)
|
$
|
44,202
|
|
n.m.
|
||||||
In the three months ended
June 28, 2015
our net income (loss) decreased
$24.6 million
and changed from a net income to a net loss as compared to the three months ended
June 29, 2014
. The decrease in net income (loss) was primarily driven by: (i) a
$23.3 million
decrease in gross margin, primarily due to the substantial completion of revenue recognition on various large-scale solar power systems at the end of fiscal 2014, (ii) a
$16.5 million
increase in operating expenses due to increased headcount, activities related to the formation and IPO of 8point3 Energy Partners and charges related to the November 2014 restructuring plan, and (iii) a
$7.5 million
increase in income taxes primarily due to a change in the geographic mix of forecasted earnings and an increase in unbenefited deferred tax assets, partially offset by discrete benefits recorded pertaining
49
to tax settlements in certain foreign jurisdictions in the three months ended
June 28, 2015
. The decrease was partially offset by a
$22.7 million
decrease in Other expense, net driven by the gain recognized on the sale of a residential lease portfolio to 8point3 Energy Partners, a decrease in interest expense due to the maturity of the 4.75% debentures due 2014, and favorable changes in the fair value of foreign currency derivatives.
In the six months ended
June 28, 2015
our net income (loss) decreased by
$96.7 million
and changed from a net income to a net loss as compared to six months ended
June 29, 2014
. The decrease in net income (loss) was primarily driven by (i) a
$95.4 million
decrease in gross margin, primarily due to the substantial completion of revenue recognition on various large-scale solar power systems at the end of fiscal 2014, and (ii) a
$28.2 million
increase in operating expenses due to increased headcount, activities related to the formation and IPO of 8point3 Energy Partners and charges related to the November 2014 restructuring plan. The decrease was partially offset by (i) a
$22.8 million
decrease in Other expense, net due to a decrease in interest expense due to the maturity of the 4.75% debentures due 2014, as well as favorable changes in the fair value of foreign currency derivatives and other net expenses and (ii) a
$3.8 million
decrease in income tax primarily due to a reduction in pre-tax earnings, and material discrete benefits recorded pertaining to tax settlements in certain foreign jurisdictions in the six months ended
June 28, 2015
, partially offset by increased tax expense due to a change in the geographic mix of forecasted earnings and an increase in unbenefited deferred tax assets.
Information about other significant variances in our results of operations is described above.
Net Loss Attributable to Noncontrolling Interests and Redeemable Noncontrolling Interests
|
|
Three Months Ended
|
Six Months Ended
|
||||||||||||||||||||
|
(In thousands)
|
June 28, 2015
|
June 29, 2014
|
% Change
|
June 28, 2015
|
June 29, 2014
|
% Change
|
||||||||||||||||
|
Net loss attributable to noncontrolling interests and redeemable noncontrolling interests
|
$
|
29,975
|
|
$
|
12,934
|
|
132
|
%
|
$
|
49,444
|
|
$
|
34,944
|
|
41
|
%
|
||||||
We have entered into facilities with third-party investors under which the parties invest in entities that hold SunPower solar power systems and leases with residential customers. We determined that we hold controlling interests in these less-than-wholly-owned entities and have fully consolidated these entities as a result. We apply the hypothetical liquidation 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.
In the three months ended
June 28, 2015
and
June 29, 2014
, we attributed
$30.0 million
and
$12.9 million
, respectively, of losses to the third-party investors primarily as a result of allocating certain assets, including tax credits and accelerated tax depreciation benefits, to the investors. The
$17.0 million
increase in loss attributable to these third-party investors is primarily the result of additional leases placed in service under existing and new facilities executed with third-party investors in the interim period.
In the six months ended
June 28, 2015
and
June 29, 2014
, we attributed
$49.4 million
and
$34.9 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
$14.5 million
increase in net loss attributable to noncontrolling interests and redeemable noncontrolling interests is primarily due to additional leases placed in service under existing and new facilities executed with third-party investors in the interim period.
50
Liquidity and Capital Resources
Cash Flows
A summary of the sources and uses of cash and cash equivalents is as follows:
|
|
Six Months Ended
|
|||||||
|
(In thousands)
|
June 28, 2015
|
June 29, 2014
|
|
|||||
|
Net cash used in operating activities
|
$
|
(325,441
|
)
|
$
|
(81,571
|
)
|
||
|
Net cash provided by (used in) investing activities
|
$
|
184,532
|
|
$
|
(64,159
|
)
|
||
|
Net cash provided by (used in) financing activities
|
$
|
(187,630
|
)
|
$
|
364,410
|
|
||
Operating Activities
Net cash used in operating activities in the six months ended
June 28, 2015
was
$325.4 million
and was primarily the result of: (i) a net loss of
$52.5 million
; (ii) a
$311.8 million
increase in project assets primarily related to our Quinto Solar Energy Project; (iii) a
$130.7 million
increase in inventories driven by project assets for construction of solar power systems for Commercial and Power Plant projects in North America and purchases of polysilicon; (iv) a
$69.3 million
increase in long-term financing receivables related to our net investment in sales-type leases; (v) a
$66.1 million
decrease in accounts payable and other accrued liabilities; (vi) a
$27.9 million
gain on the sale of a residential lease portfolio to 8point3 Energy Partners; (vii) a
$12.5 million
decrease in customer advances; (viii) a
$6.7 million
in excess tax benefit from stock-based compensation; (ix) a
$4.1 million
increase in equity in earnings of unconsolidated investees; and (x) a
$5.8 million
net change in deferred income taxes and other liabilities. This was partially offset by: (i) a
$138.6 million
decrease in costs and estimated earnings in excess of billings driven by a decrease related to the Solar Star Projects; (ii) a
$65.2 million
decrease in accounts receivable; (iii) other net non-cash charges of
$94.2 million
related to depreciation, non-cash interest charges and stock-based compensation; (iv) a
$29.4 million
decrease in prepaid expenses and other assets driven by an increase in deferred costs related to the Solar Star Projects; (v) a
$25.1 million
decrease in advance payment made to suppliers; and (vi) a
$9.3 million
increase in billings in excess of costs and estimated earnings driven by an increase related to the Solar Star Projects.
Net cash used in operating activities in the six months ended
June 29, 2014
was
$81.6 million
and was primarily the result of: (i) a
$59.6 million
decrease in billings in excess of costs and estimated earnings; (ii) a
$59.4 million
increase in prepaid and other current assets; (iii) a
$54.8 million
increase in long-term financing receivables; and (iv) a $42.0 million net increase in other liabilities, net of other assets. This was partially offset by: (i) $88.1 million in other net non-cash charges primarily related to depreciation, non-cash interest charges, and stock based compensation and (ii) net income of
$44.2 million
.
Investing Activities
Net cash provided by investing activities in the six months ended
June 28, 2015
was
$184.5 million
, which included
$341.2 million
in proceeds from 8point3 Energy Partners. This was partially offset by (i) a
$120.6 million
related to 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) a
$28.4 million
increase in restricted cash; and (iii)
$7.1 million
paid for investments in unconsolidated investees.
Net cash used in investing activities in the six months ended
June 29, 2014
was
$64.2 million
, which included: (i) $45.3 million related to costs associated with solar power systems leased and to be leased, as well as capital expenditures; (ii) a
$9.3 million
increase in restricted cash; (iii)
$5.9 million
paid for acquisitions; and (iv)
$5.0 million
paid for investments in unconsolidated investees. This was partially offset by
$1.4 million
in net proceeds from maturities of marketable securities.
51
Financing Activities
Net cash used in financing activities in the six months ended
June 28, 2015
was
$187.6 million
, which included: (i) a $249.6 million net payment to settle the 4.50% debentures due 2015 and the 4.50% Bond Hedge (defined below); (ii)
$240.2 million
in repayments of bank loans, project loans and other debt, primarily in the Quinto Credit Facility; (iii)
$40.3 million
in purchases of stock for tax withholding obligations on vested restricted stock; and (iv)
$40.0 million
of repayments of residential lease financing. This was partially offset by: (i)
$190.5 million
in net proceeds from the issuance of project loans; (ii)
$87.4 million
of net contributions from noncontrolling interests and redeemable noncontrolling interests related to the residential lease program; (iii)
$54.8 million
in proceeds from the issuance of non-recourse debt financing, net of issuance costs; (iv)
$29.3 million
in proceeds from 8point3 Energy Partners; (v)
$15.0 million
in net proceeds from sale-leaseback financing; and (vi)
$5.5 million
in other net financing activities.
Net cash provided by financing activities in the six months ended
June 29, 2014
was
$364.4 million
, which included: (i)
$395.3 million
in net proceeds from the issuance of our 0.875% convertible debentures due 2021; (ii)
$73.4 million
of proceeds from issuance of non-recourse debt financing to finance solar power systems and leases under our residential lease program; (iii)
$52.8 million
of contributions from noncontrolling interests and redeemable noncontrolling interests; and (iv)
$16.7 million
in net proceeds from sale-leaseback financing arrangements. This was partially offset by: (i)
$52.8 million
in purchases of stock for tax withholding obligations on vested restricted stock; (ii)
$42.1 million
cash paid to repurchase convertible debt; (iii) a
$40.7 million
assumption of a project loan by a customer; (iv) $16.5 million of repayments of residential lease and sale-leaseback financing; (v) a $12.2 million net payment to settle the 4.75% Bond Hedge and Warrant; (vi)
$8.6 million
in repayments of bank loans, project loans and other debt; and (vii) $1.6 million of distributions to noncontrolling interests and redeemable noncontrolling interests.
Debt and Credit Sources
Convertible Debentures
As of
June 28, 2015
, an aggregate principal amount of $400.0 million of the 0.875% debentures due 2021 remained issued and outstanding. The 0.875% debentures due 2021 were issued on June 11, 2014. Interest on the 0.875% debentures due 2021 is payable on June 1 and December 1 of each year. Holders are able to exercise their right to convert the debentures at any time into shares of our common stock at an initial conversion price approximately equal to $48.76 per share, subject to adjustment in certain circumstances. If not earlier repurchased or converted, the 0.875% debentures due 2021 mature on June 1, 2021. Holders may require us to repurchase all or a portion of their 0.875% debentures due 2021, upon a fundamental change, as described in the related indenture, at a cash repurchase price equal to 100% of the principal amount plus accrued and unpaid interest. If we undergo a non-stock change of control fundamental change, as described in the related indenture, the 0.875% debentures due 2021 will be subject to redemption at our option, in whole but not in part, for a period of 30 calendar days following a repurchase date relating to the non-stock change of control fundamental change, at a cash redemption price equal to 100% of the principal amount plus accrued and unpaid interest. Otherwise, the 0.875% debentures due 2021 are not redeemable at our option prior to the maturity date. In the event of certain events of default, Wells Fargo Bank, National Association ("Wells Fargo"), the trustee, or the holders of a specified amount of then-outstanding 0.875% debentures due 2021 will have the right to declare all amounts then outstanding due and payable.
As of
June 28, 2015
, an aggregate principal amount of $300.0 million of the 0.75% debentures due 2018 remained issued and outstanding. The 0.75% debentures due 2018 were issued on May 29, 2013. Interest on the 0.75% debentures due 2018 is payable on June 1 and December 1 of each year. Holders are able to exercise their right to convert the debentures at any time into shares of our common stock at an initial conversion price equal to $24.95 per share. The applicable conversion rate may be subject to adjustment in certain circumstances. If not earlier converted, the 0.75% debentures due 2018 mature on June 1, 2018. Holders may require us to repurchase all or a portion of their 0.75% debentures due 2018, upon a fundamental change, as described in the related indenture, at a cash repurchase price equal to 100% of the principal amount plus accrued and unpaid interest. If we undergo a non-stock change of control fundamental change, as described in the related indenture, the 0.75% debentures due 2018 will be subject to redemption at our option, in whole but not in part, for a period of 30 calendar days following a repurchase date relating to the non-stock change of control fundamental change, at a cash redemption price equal to 100% of the principal amount plus accrued and unpaid interest. Otherwise, the 0.75% debentures due 2018 are not redeemable at our option prior to the maturity date. In the event of certain events of default, Wells Fargo, the trustee, or the holders of a specified amount of then-outstanding 0.75% debentures due 2018 will have the right to declare all amounts then outstanding due and payable.
52
For more information, please see "Part I. Item 1A. Risk Factors-Risks Related to our Debt and Equity Securities-Conversion of our outstanding 0.75% debentures, 0.875% debentures, our warrants related to our outstanding 4.50% debentures, and future substantial issuances or dispositions of our common stock or other securities, could dilute ownership and earnings per share or cause the market price of our stock to decrease" in our Annual Report on Form 10-K for the fiscal year ended December 28, 2014.
Mortgage Loan Agreement with IFC
On May 6, 2010, we entered into a mortgage loan agreement with IFC. Under the loan agreement, we borrowed $75.0 million and are required to repay the amount borrowed starting two years after the date of borrowing, in 10 equal semiannual installments over the following 5 years. We are required to pay interest of LIBOR plus 3% per annum on outstanding borrowings; a front-end fee of 1% on the principal amount of borrowings at the time of borrowing; and a commitment fee of 0.5% per annum on funds available for borrowing and not borrowed. We may prepay all or a part of the outstanding principal, subject to a
1%
prepayment premium. We have pledged certain assets as collateral supporting repayment obligations.
As of
June 28, 2015
, we had
$32.5 million
outstanding under the mortgage loan agreement. Additionally, in accordance with the terms of the mortgage loan agreement, we are required to establish a debt service reserve account which shall contain the amount, as determined by IFC, equal to the aggregate principal and interest due on the next succeeding interest payment date after such date. As of
June 28, 2015
, we had restricted cash and cash equivalents of
$9.2 million
related to the IFC debt service reserve.
Loan Agreement with California Enterprise Development Authority ("CEDA")
On December 29, 2010, we borrowed from CEDA the proceeds of the
$30.0 million
aggregate principal amount of CEDA's tax-exempt Recovery Zone Facility Revenue Bonds (SunPower Corporation - Headquarters Project) Series 2010 (the "Bonds") maturing April 1, 2031 under a loan agreement with CEDA. Certain of our obligations under the loan agreement were contained in a promissory note dated December 29, 2010 issued by us to CEDA, which assigned the promissory note, along with all right, title and interest in the loan agreement, to Wells Fargo, as trustee, with respect to the Bonds for the benefit of the holders of the Bonds. The Bonds bear interest at a fixed-rate of 8.50% per annum.
As of
June 28, 2015
, the $30.0 million aggregate principal amount of the Bonds was classified as "Long-term debt" in our Consolidated Balance Sheets.
Revolving Credit Facility with Credit Agricole
On July 3, 2013, we entered into a revolving credit agreement with Credit Agricole, as administrative agent, and certain financial institutions ("the revolving credit facility"), under which we may borrow up to $250.0 million. On August 26, 2014, we entered into an amendment to the revolving credit facility that extends, among other things, the maturity date of the facility from July 3, 2016 to August 26, 2019 (the "Maturity Date"). Amounts borrowed may be repaid and reborrowed until the Maturity Date. The revolving credit facility allows us to request increases to the available capacity of the revolving credit facility to an aggregate of $300.0 million, subject to the satisfaction of certain conditions. The revolving credit facility includes representations, covenants, and events of default customary for financing transactions of this type. The revolving credit facility was entered into in conjunction with the delivery by Total S.A. of a guarantee of our obligations under the facility. On January 31, 2014, (i) our obligations under the revolving credit facility became secured by a pledge of certain accounts receivable and inventory, (ii) certain of our subsidiaries entered into guaranties of the revolving credit facility, and (iii) Total S.A.'s guarantee of our obligations under the revolving credit facility expired (collectively, the "Restructuring").
We are required to pay interest on outstanding borrowings under the facility and fees of (a) with respect to any LIBOR rate loan, an amount ranging from 1.50% to 2.00% (depending on our leverage ratio from time to time) plus the LIBOR rate divided by a percentage equal to one minus the stated maximum rate of all reserves required to be maintained against "Eurocurrency liabilities" as specified in Regulation D; (b) with respect to any alternate base rate loan, an amount ranging from 0.50% to 1.00% (depending on our leverage ratio from time to time) plus the greater of (1) the prime rate, (2) the Federal Funds rate plus 0.50%, and (3) the one-month LIBOR rate plus 1%; and (c) a commitment fee ranging from 0.25% to 0.35% (depending on our leverage ratio from time to time) per annum on funds available for borrowing and not borrowed.
As of
June 28, 2015
, we had no outstanding borrowings under the revolving credit facility.
August 2011 Letter of Credit Facility with Deutsche Bank
53
On August 9, 2011, we entered into a letter of credit facility agreement with Deutsche Bank, as issuing bank and as administrative agent, and certain financial institutions. Payment of obligations under the letter of credit facility is guaranteed by Total S.A. pursuant to the Credit Support Agreement between us and Total S.A. The letter of credit facility provides for the issuance, upon our request, of letters of credit by the issuing banks thereunder in order to support certain of our obligations, in an aggregate amount not to exceed
$878.0 million
for the period from January 1, 2014 through December 31, 2014. Aggregate letter of credit amounts may be increased upon the agreement of the parties but, otherwise, may not exceed (i)
$936.0 million
for the period from January 1, 2015 through December 31, 2015, and (ii)
$1.0 billion
for the period from January 1, 2016 through June 28, 2016. Each letter of credit issued under the letter of credit facility must have an expiration date no later than the second anniversary of the issuance of that letter of credit, provided that up to 15% of the outstanding value of the letters of credit may have an expiration date of between two and three years from the date of issuance.
As of
June 28, 2015
, letters of credit issued under the August 2011 letter of credit facility with Deutsche Bank totaled
$594.6 million
.
September 2011 Letter of Credit Facility with Deutsche Bank and Deutsche Bank Trust Company Americas (together, "Deutsche Bank Trust")
On September 27, 2011, we entered into a letter of credit facility with Deutsche Bank Trust which provides for the issuance, upon request by us, of letters of credit to support our obligations in an aggregate amount not to exceed
$200.0 million
. Each letter of credit issued under the facility is fully cash-collateralized and we have entered into a security agreement with Deutsche Bank Trust, granting them a security interest in a cash collateral account established for this purpose.
As of
June 28, 2015
letters of credit issued under the Deutsche Bank Trust facility amounted to
$14.5 million
, which were fully collateralized with restricted cash as classified on the Consolidated Balance Sheets.
Project Debt
On October 17, 2014, we, through a wholly-owned subsidiary (the "Project Company"), entered into an approximately
$377.0 million
credit facility with Santander Bank, N.A., Mizuho Bank, Ltd. and Credit Agricole (the "Quinto Credit Facility") in connection with the planned construction of the approximately 135 MW Quinto Solar Energy Project, located in Merced County, California (the "Quinto Project").
On June 24, 2015, in connection with the closing of 8point3 Energy Partners' IPO and the concurrent transfer of the Quinto Project to an affiliate of 8point3 Energy Partners, the Quinto Project Company repaid the full amount outstanding under the Quinto Credit Facility and terminated the agreement early. Immediately before termination, there were outstanding borrowings of $224.3 million under the Quinto Credit Facility. The Quinto Project Company did not incur any material penalties for early repayment of the Quinto Credit Facility.
Liquidity
As of
June 28, 2015
, we had unrestricted cash and cash equivalents of
$623.0 million
as compared to
$956.2 million
as of
December 28, 2014
. Our cash balances are held in numerous locations throughout the world and as of
June 28, 2015
, we had approximately $161.3 million held outside of the United States. This offshore cash is used to fund operations of our business in the Europe and Asia Pacific regions as well as non-U.S. manufacturing operations, which require local payment for product materials and other expenses. The amounts held outside of the United States represent the earnings of our foreign subsidiaries which, if repatriated to the United States under current law, would be subject to United States federal and state tax less applicable foreign tax credits. Repatriation of earnings that have not been subjected to U.S. or foreign withholding tax and that have been indefinitely reinvested outside the U.S. could result in additional United States federal income tax or foreign withholding tax payments in future years.
On July 5, 2010, we formed AUP SunPower Sdn. Bhd. ("AUOSP"), our joint venture with AU Optronics Singapore Pte. Ltd. ("AUO"). Under the terms of the joint venture agreement, we and AUO each own 50% of AUOSP. We are each obligated to provide additional funding to AUOSP in the future. Under the joint venture agreement, each shareholder agreed to contribute additional amounts to the joint venture through 2015 amounting to
$169.0 million
, or such lesser amount as the parties may mutually agree (see the Contractual Obligations table below). In addition, if AUOSP, or either shareholder requests additional equity financing to AUOSP, then the shareholders will each be required to make additional cash contributions of up to
$50.0 million
in the aggregate. See also "Part I. Item 1A. Risk Factors—Risks Related to Our Operations—If we experience interruptions in the operation of our solar cell production lines, or we are not successful in operating our joint venture AUOSP,
54
our revenue and results of operations may be materially and adversely affected" in our Annual Report on Form 10-K for the fiscal year ended December 28, 2014.
We expect total capital expenditures related to purchases of property, plant and equipment in the range of
$250 million
to $
300 million
in fiscal 2015 in order to increase our manufacturing capacity, improve our current and next generation solar cell manufacturing technology, and other projects. In addition, we expect to invest a significant amount of capital to develop solar power systems and plants for sale to customers. The development of solar power plants can require long periods of time and substantial initial investments. Our efforts in this area may consist of all stages of development, including land acquisition, permitting, financing, construction, operation and the eventual sale of the projects. We often choose to bear the costs of such efforts prior to the final sale to a customer, which involves significant upfront investments of resources (including, for example, large transmission deposits or other payments, which may be non-refundable), land acquisition, permitting, legal and other costs, and in some cases the actual costs of constructing a project, in advance of the signing of PPAs and EPC contracts and the receipt of any revenue, much of which is not recognized for several additional months or years following contract signing. Any delays in disposition of one or more projects could have a negative impact on our liquidity.
Certain of our customers also require performance bonds issued by a bonding agency or letters of credit issued by financial institutions, which are returned to us upon satisfaction of contractual requirements. If there is a contractual dispute with the customer, the customer may withhold the security or make a draw under such security, which could have an adverse impact on our liquidity. Obtaining letters of credit may require adequate collateral. All letters of credit issued under our August 2011 Deutsche Bank facility are guaranteed by Total S.A. pursuant to the Credit Support Agreement. Our September 2011 letter of credit facility with Deutsche Bank Trust is fully collateralized by restricted cash, which reduces the amount of cash available for operations. As of
June 28, 2015
, letters of credit issued under the Deutsche Bank Trust facility amounted to
$14.5 million
which were fully collateralized with restricted cash on the Consolidated Balance Sheets.
In fiscal 2011, we launched our residential lease program with dealers in the United States, in partnership with a third-party financial institution, which allows customers to obtain SunPower systems under lease agreements up to 20 years, subject to financing availability. We have entered into facilities with financial institutions that will provide financing to support additional residential solar lease projects. Under the terms of certain programs we receive upfront payments for periods under which the third-party financial institution has agreed to assume collection risk for certain residential leases. Changes in the amount or timing of upfront payments received from the financial institutions may have an impact on our cash position within the next twelve months. The normal collection of monthly rent payments for leases placed in service is not expected to have a material impact on our cash position within the next twelve months. We have entered into multiple facilities with third-party investors under which both parties will invest in entities that hold SunPower solar power systems and leases with residential customers. We determined that we hold a controlling interest in these less-than-wholly-owned entities and have fully consolidated these entities as a result (see "Item 8. Financial Statements and Supplementary Data—Notes to Consolidated Financial Statements—Note 6. Leasing"). As of
June 28, 2015
, we received
$292.6 million
in contributions from investors under the related facility agreements. Additionally, during fiscal 2014 and 2015, we entered into three long-term non-recourse loans to finance solar power systems and leases under our residential lease program. In fiscal
2015
, we drew down
$54.8 million
of proceeds, net of issuance costs, under the loan agreements. The loans have 17-year terms and as of
June 28, 2015
, the short-term and long-term balances of the loans were
$2.8 million
and
$132.2 million
, respectively. We are actively arranging additional third-party financing for our residential lease program; however, the credit markets are unpredictable, and if they become challenging, we may be unable to arrange additional financing partners for our residential lease program in future periods, which could have a negative impact on our sales. In the unlikely event that we enter into a material number of additional leases without promptly obtaining corresponding third-party financing, our cash and working capital could be negatively affected.
We believe that our current cash, cash equivalents and cash expected to be generated from operations will be sufficient to meet our working capital and fund our committed capital expenditures over the next 12 months, including the development and construction of solar power systems and plants. We are able to supplement this short-term liquidity, if necessary, with broad access to capital markets and credit facilities, including non-recourse debt, made available by various domestic and foreign financial institutions. For example, we have $250 million available to us under our revolving credit facility with Credit Agricole. However, there can be no assurance that our liquidity will be adequate over time. A significant portion of our revenue is generated from a limited number of customers and large projects and our inability to execute these projects, or to collect from these customers or for these projects, would have a significant negative impact on our business. Our capital expenditures and use of working capital may be greater than we expect if we decide to make additional investments in the development and construction of solar power plants and sales of power plants and associated cash proceeds are delayed, or if we decide to accelerate increases in our manufacturing capacity internally or through capital contributions to joint ventures. We require project financing in connection with the construction of solar power plants, which financing may not be available on terms acceptable to us. In addition, we could in the future make additional investments in our joint ventures or guarantee
55
certain financial obligations of our joint ventures, which could reduce our cash flows, increase our indebtedness and expose us to the credit risk of our joint ventures
.
See also "Risks Related to Our Sales Channels—A limited number of customers and large projects are expected to continue to comprise a significant portion of our revenues and any decrease in revenues from those customers or projects, payment of liquidated damages, or an increase in related expenses, could have a material adverse effect on our business, results of operations and financial condition," and "Risks Related to Our Liquidity—We may be unable to generate sufficient cash flows or obtain access to external financing necessary to fund our operations and make adequate capital investments as planned due to the general economic environment and the continued market pressure driving down the average selling prices of our solar power products, among other factors" in "Part I. Item 1A.
Risk Factors
" in our Annual Report on Form 10-K for the fiscal year ended December 28, 2014.
As of
June 28, 2015
, we have $250.0 million available to us under our revolving credit facility with Credit Agricole and may request increases to the available capacity of the revolving credit facility to an aggregate of $300.0 million, subject to the satisfaction of certain conditions. Proceeds from our revolving credit facility with Credit Agricole may be used for general corporate purposes. However, there are no assurances that we will have sufficient available cash to repay our indebtedness or 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 securities or debt securities or obtain other debt financing. The current economic environment, however, could limit our ability to raise capital by issuing new equity or debt securities on acceptable terms, and lenders may be unwilling to lend funds on acceptable terms that would be required to supplement cash flows to support operations. The sale of additional equity securities or convertible debt securities would result in additional dilution to our stockholders (and potential for further dilution upon the exercise of warrants or the conversion of convertible debt) and may not be available on favorable terms or at all, particularly in light of the current conditions in the financial and credit markets. Additional debt would result in increased expenses and would likely impose new restrictive covenants which may be similar or different than those restrictions contained in the covenants under our current loan agreements and debentures. In addition, financing arrangements, including project financing for our solar power plants and letters of credit facilities, may not be available to us, or may not be available in amounts or on terms acceptable to us.
Contractual Obligations
The following table summarizes our contractual obligations as of
June 28, 2015
:
|
|
Payments Due by Fiscal Period
|
|||||||||||||||||||
|
(In thousands)
|
Total
|
2015 (remaining six months)
|
2016-2017
|
2018-2019
|
Beyond 2019
|
|||||||||||||||
|
Convertible debt, including interest
1
|
$
|
727,356
|
|
$
|
2,954
|
|
$
|
11,500
|
|
$
|
307,944
|
|
$
|
404,958
|
|
|||||
|
IFC mortgage loan, including interest
2
|
35,355
|
|
833
|
|
31,977
|
|
2,545
|
|
—
|
|
||||||||||
|
CEDA loan, including interest
3
|
70,163
|
|
1,275
|
|
5,100
|
|
5,100
|
|
58,688
|
|
||||||||||
|
Other debt, including interest
4
|
273,498
|
|
5,868
|
|
27,214
|
|
28,635
|
|
211,781
|
|
||||||||||
|
Future financing commitments
5
|
179,817
|
|
179,817
|
|
—
|
|
—
|
|
—
|
|
||||||||||
|
Operating lease commitments
6
|
143,280
|
|
10,804
|
|
29,498
|
|
26,477
|
|
76,501
|
|
||||||||||
|
Sale-leaseback financing
7
|
110,405
|
|
6,453
|
|
16,031
|
|
15,241
|
|
72,680
|
|
||||||||||
|
Capital lease commitments
8
|
6,367
|
|
754
|
|
2,135
|
|
1,515
|
|
1,963
|
|
||||||||||
|
Non-cancellable purchase orders
9
|
238,689
|
|
238,689
|
|
—
|
|
—
|
|
—
|
|
||||||||||
|
Purchase commitments under agreements
10
|
1,676,560
|
|
474,650
|
|
673,130
|
|
361,913
|
|
166,867
|
|
||||||||||
|
Liabilities associated with uncertain tax positions
|
4,000
|
|
4,000
|
|
—
|
|
—
|
|
—
|
|
||||||||||
|
Total
|
$
|
3,465,490
|
|
$
|
926,097
|
|
$
|
796,585
|
|
$
|
749,370
|
|
$
|
993,438
|
|
|||||
|
1
|
Convertible debt, including interest, relates to the aggregate of
$700.1 million
in outstanding principal amount of our senior convertible debentures as of
June 28, 2015
. 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
|
IFC mortgage loan, including interest, relates to the
$32.5 million
borrowed as of
June 28, 2015
. Under the loan agreement, we are required to repay the amount borrowed, starting 2 years after the date of borrowing, in 10 equal semiannual installments over the following 5 years. We are required to pay interest of LIBOR plus 3% per annum on outstanding borrowings; a front-end fee of 1% on
|
56
the principal amount of borrowings at the time of borrowing; and a commitment fee of 0.5% per annum on funds available for borrowing and not borrowed.
|
3
|
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.
|
|
4
|
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 "Item 1. Financial Statements—Notes to Consolidated Financial Statements—Note 9. Commitments and Contingencies."
|
|
5
|
We and AUO agreed in the joint venture agreement to contribute additional amounts to AUOSP through 2014 amounting to $169.0 million by each shareholder, or such lesser amount as the parties may mutually agree. Further, in connection with a purchase agreement with a non-public company we will be required to provide additional financing to such party of up to $2.9 million, subject to certain conditions.
|
|
6
|
Operating lease commitments primarily relate to certain solar power systems leased from unaffiliated third parties over minimum lease terms of up to 20 years and various facility lease agreements.
|
|
7
|
Sale-leaseback financing relates to future minimum lease obligations for solar power systems under sale-leaseback arrangements which were determined to include integral equipment and accounted for under the financing method
.
|
|
8
|
Capital lease commitments primarily relate to certain buildings, manufacturing
and equipment under capital leases in Europe for terms of up to 12 years.
|
|
9
|
Non-cancellable purchase orders relate to purchases of raw materials for inventory and manufacturing equipment from a variety of vendors.
|
|
10
|
Purchase commitments under agreements relate to arrangements entered into with several suppliers, including joint ventures, for polysilicon, ingots, wafers, and
Solar Renewable Energy Credits, among others
. These agreements specify future quantities and pricing of products to be supplied by the vendors for periods up to 10 years and there are certain consequences, such as forfeiture of advanced deposits and liquidated damages relating to previous purchases, in the event that we terminate the arrangements. We did not fulfill all of the purchase commitments we were otherwise obligated to take by December 31, 2014, as specified in several related contracts with a supplier. As of June 28, 2015, we have recorded an offsetting asset, recorded within "Prepaid expenses and other current assets," and liability, recorded within "Accrued liabilities," totaling
$5.1 million
. This amount represents the unfulfilled amount as of that date as we expect to satisfy the obligation via purchases of inventory in fiscal 2015, within the cure period specified in the contracts.
|
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. Therefore, long-term liabilities associated with uncertain tax positions of
$20.1 million
included in "Other long-term liabilities" in the Company's Consolidated Balance Sheets as of
June 28, 2015
have been excluded from the table above. Short-term liabilities associated with transfer-pricing uncertain tax positions of
$4.0 million
included in "Accrued liabilities" in our Consolidated Balance Sheets as of
June 28, 2015
have been included in the table above as they are reasonably possible to be paid within the next 12 months as a result of settlement.
Off-Balance-Sheet Arrangements
As of
June 28, 2015
, we did not have any significant off-balance-sheet arrangements, as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.
57
ITEM 3:
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Foreign Currency Exchange Risk
Our exposure to movements in foreign currency exchange rates is primarily related to sales to European customers that are denominated in Euros. Revenue generated from European customers represented 10% and 9% of our total revenue in the three and six months ended
June 28, 2015
, respectively, and 13% and 16% of our total revenue in the three and six months ended
June 29, 2014
, respectively. A 10% change in the Euro exchange rate would have impacted our revenue by approximately $3.7 million and $7.2 million in the three and six months ended
June 28, 2015
, respectively, and $6.5 million and $19.1 million in the three and six months ended
June 29, 2014
, respectively.
In the past, we have experienced an adverse impact on our revenue, gross margin and profitability as a result of foreign currency fluctuations. When foreign currencies appreciate against the U.S. dollar, inventories and expenses denominated in foreign currencies become more expensive. Strengthening of the Malaysian Ringgit against the U.S. dollar would increase AUOSP's liability under the facility agreement with the Malaysian government which in turn would negatively impact our equity in earnings (loss) of the unconsolidated investee. An increase in the value of the U.S. dollar relative to foreign currencies could make our solar power products more expensive for international customers, thus potentially leading to a reduction in demand, our sales and profitability. Furthermore, many of our competitors are foreign companies that could benefit from such a currency fluctuation, making it more difficult for us to compete with those companies.
We currently conduct hedging activities which involve the use of option and forward currency contracts that are designed to address our exposure to changes in the foreign exchange rate between the U.S. dollar and other currencies. As of
June 28, 2015
, we had outstanding hedge option currency contracts and forward currency contracts with aggregate notional values of
zero
and
$40.4 million
, respectively. As of
December 28, 2014
, we held option and forward contracts totaling
$26.6 million
and
$134.7 million
, respectively, in notional value. Because we hedge some of our expected future foreign exchange exposure, if associated revenues do not materialize we could experience a reclassification of ineffective gains or losses into earnings. Such a reclassification could adversely impact our revenue, margins and results of operations. We cannot predict the impact of future exchange rate fluctuations on our business and operating results.
Credit Risk
We have certain financial and derivative instruments that subject us to credit risk. These consist primarily of cash and cash equivalents, restricted cash and cash equivalents, investments, accounts receivable, notes receivable, advances to suppliers, foreign currency option contracts, foreign currency forward contracts, bond hedge and warrant transactions. We are exposed to credit losses in the event of nonperformance by the counterparties to our financial and derivative instruments. Our investment policy requires cash and cash equivalents, restricted cash and cash equivalents, and investments to be placed with high-quality financial institutions and limits the amount of credit risk from any one issuer. We additionally perform ongoing credit evaluations of our customers’ financial condition whenever deemed necessary and generally do not require collateral.
We enter into agreements with vendors that specify future quantities and pricing of polysilicon to be supplied for periods up to 10 years. Under certain agreements, we are required to make prepayments to the vendors over the terms of the arrangements. As of
June 28, 2015
and
December 28, 2014
, advances to suppliers totaled
$384.6 million
and
$409.7 million
, respectively. Two suppliers accounted for
84%
and
16%
of total advances to suppliers as of
June 28, 2015
, and
82%
and
17%
as of
December 28, 2014
.
We enter into foreign currency derivative contracts and convertible debenture hedge transactions with high-quality financial institutions and limit the amount of credit exposure to any single counterparty. The foreign currency derivative contracts are limited to a time period of 15 months or less. We regularly evaluate the credit standing of our counterparty financial institutions.
Interest Rate Risk
We are exposed to interest rate risk because many of our customers depend on debt financing to purchase our solar power systems. An increase in interest rates could make it difficult for our customers to obtain the financing necessary to purchase our solar power systems on favorable terms, or at all, and thus lower demand for our solar power products, reduce revenue and adversely impact our operating results. An increase in interest rates could lower a customer's return on investment in a system or make alternative investments more attractive relative to solar power systems, which, in each case, could cause our customers to seek alternative investments that promise higher returns or demand higher returns from our solar power systems, reduce gross margin and adversely impact our operating results. This risk is significant to our business because our
58
sales model is highly sensitive to interest rate fluctuations and the availability of credit, and would be adversely affected by increases in interest rates or liquidity constraints.
Our interest expense would increase to the extent interest rates rise in connection with our variable interest rate borrowings. As of
June 28, 2015
, the outstanding principal balance of our variable interest borrowings was
$32.5 million
. We do not believe that an immediate 10% increase in interest rates would have a material effect on our financial statements. In addition, lower interest rates would have an adverse impact on our interest income. Our investment portfolio primarily consists of
$255.0 million
in money market funds as of
June 28, 2015
which exposes us to interest rate risk. Due to the relatively short-term nature of our investment portfolio, we do not believe that an immediate 10% increase in interest rates would have a material effect on the fair market value of our money market funds. Since we believe we have the ability to liquidate substantially all of this portfolio, we do not expect our operating results or cash flows to be materially affected to any significant degree by a sudden change in market interest rates on our investment portfolio.
Equity Price Risk Involving Minority Investments in Joint Ventures and Other Companies
Our investments held in joint ventures and other companies expose us to equity price risk. As of
June 28, 2015
and
December 28, 2014
, investments of
$283.2 million
and
$210.9 million
, respectively, are accounted for using the equity method, and
$36.4 million
and
$32.3 million
, respectively, are accounted for using the cost method. These strategic investments in third parties are subject to risk of changes in market value, which if determined to be other-than-temporary, could result in realized impairment losses. We generally do not attempt to reduce or eliminate our market exposure in equity and cost method investments. We monitor these investments for impairment and record reductions in the carrying values when necessary. Circumstances that indicate an other-than-temporary decline include the valuation ascribed to the issuing company in subsequent financing rounds, decreases in quoted market prices and declines in operations of the issuer. There can be no assurance that our equity and cost method investments will not face risks of loss in the future. See also "Risks Related to Our Operations—We have significant international activities and customers, and plan to continue these efforts, which subject us to additional business risks, including logistical complexity and political instability" and "Acquisitions of other companies or investments in joint ventures with other companies could materially and adversely affect our financial condition and results of operations, and dilute our stockholders' equity" in "Part I. Item 1A.
Risk Factors
" in our Annual Report on Form 10-K for the fiscal year ended December 28, 2014 and “Part II - Item 1A. Risk Factors - We may not realize the expected benefits of our YieldCo strategy.” in this Quarterly Report on Form 10-Q.
Interest Rate Risk and Market Price Risk Involving Convertible Debt
The fair market value of our outstanding convertible debentures is subject to interest rate risk, market price risk and other factors due to the convertible feature of the debentures. The fair market value of the debentures will generally increase as interest rates fall and decrease as interest rates rise. In addition, the fair market value of the debentures will generally increase as the market price of our common stock increases and decrease as the market price of our common stock falls. The interest and market value changes affect the fair market value of the debentures, but do not impact our financial position, cash flows or results of operations due to the fixed nature of the debt obligations. The aggregate estimated fair value of our outstanding convertible debentures was
$820.8 million
as of
June 28, 2015
. The aggregate estimated fair value of our outstanding convertible debentures was
$1,019.4 million
as of
December 28, 2014
. Estimated fair values are based on quoted market prices as reported by an independent pricing source. A 10% increase in quoted market prices would increase the estimated fair value of our then-outstanding debentures to
$902.9 million
and
$1,121.4 million
as of
June 28, 2015
and
December 28, 2014
, respectively, and a 10% decrease in the quoted market prices would decrease the estimated fair value of our then-outstanding debentures to
$738.7 million
and
$917.5 million
as of
June 28, 2015
and
December 28, 2014
, respectively.
59
ITEM 4:
CONTROLS
AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain "disclosure controls and procedures," as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act, that are designed to provide reasonable assurance that information required to be disclosed in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognizes that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management is required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure control and procedure also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
Based on their evaluation as of the end of the period covered by this Quarterly Report on Form 10-Q, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of
June 28, 2015
at a reasonable assurance level.
Changes in Internal Control over Financial Reporting
We regularly review our system of internal control over financial reporting and make changes to our processes and systems to improve controls and increase efficiency, while ensuring that we maintain an effective internal control environment. Changes may include such activities as implementing new, more efficient systems, consolidating activities, and migrating processes.
There were no changes in our internal control over financial reporting that occurred during our most recent fiscal quarter that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 1.
LEGAL PROCEEDINGS
The disclosure under "Note 9. Commitments and Contingencies—Legal Matters" in "Notes to Condensed Consolidated Financial Statements" contained in this Quarterly Report on Form 10-Q is incorporated herein by reference
.
ITEM 1A.
RISK FACTORS
There have been no material changes to the risk factors we previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 28, 2014, except for the risk factors described and included below.
Because 8point3 Energy Partners has completed the IPO of its Class A shares, we updated the risk factor entitled “
Risks Related to Our Sales Channels
-
We may be unable to successfully form the previously announced YieldCo vehicle; the proposed initial public offering of the YieldCo vehicle may not occur on favorable terms or at all; and even if the proposed initial public offering is completed, we may not achieve the expected benefits
” and replaced it with a risk factor entitled “
We may fail to realize the expected benefits of our YieldCo strategy.
” that is set forth below.
Additionally, we have updated the risk factor entitled “
Risks Related to Our Operations-Acquisitions of other companies or investments in joint ventures with other companies could materially and adversely affect our financial condition and results of operations, and dilute our stockholders' equity
” to reflect the consummation of the 8point3 Energy Partners IPO on June 24, 2015.
We may fail to realize the expected benefits of our YieldCo strategy.
In June, 2015, 8point3 Energy Partners, a joint YieldCo vehicle formed by us and First Solar, Inc. to own, operate and acquire solar energy generation assets, launched an initial public offering of Class A shares representing its limited partner interests. The IPO was consummated on June 24, 2015, whereupon the Class A shares were listed on the NASDAQ Global Select Market under the trading symbol “CAFD.”
60
Immediately after the IPO, we contributed a portfolio of 170 MW of our solar generation assets (the “SPWR Contributed Assets”) to 8point3 Operating Company, LLC ("OpCo"), 8point3 Energy Partners' primary operating subsidiary. In exchange for the SPWR Contributed Assets, we received cash proceeds of $371 million as well as equity interests in several 8point3 Energy Partners affiliated entities: primarily common and subordinated units representing a 40.7% stake in OpCo and a 50.0% economic and management stake in 8point3 Holding Company, LLC (“Holdings”), the parent company of the general partner of 8point3 Energy Partners and the owner of incentive distribution rights (“IDRs”) in OpCo. We refer to Holdings, OpCo, 8point3 Energy Partners and their respective subsidiaries as the “8point3 Group.”
We may be unable to fully realize our expected strategic and financial benefits from the 8point3 Group on a timely basis or at all. The operations of the 8point3 Group are not consolidated with ours. Instead, we account for our investments in the 8point3 Group using the equity method, whereby the book value of our investments is recorded as a non-current asset and our portion of their earnings is recorded in the Consolidated Statements of Operations under the caption "Equity in earnings (loss) of unconsolidated investees." For more information about our accounting treatment of the 8point3 Group, please refer to Notes 3 and 10 to the Consolidated Financial Statements.
There is no assurance that we will realize a return on our equity investments in the 8point3 Group. The ability of the 8point3 Group to make cash distributions will depend primarily upon its cash flow, which is not solely a function of 8point3 Energy Partners’ profitability. There is no assurance that we will receive any such cash distributions. Accordingly, we may never recover the value of the SPWR Contributed Assets, and we may realize less of a return on such contribution than if we had retained or operated these assets.
We believe that the viability of our YieldCo strategy will depend, among other things, upon our ability to continue to develop revenue-generating solar assets and to productively manage our relationship with First Solar, which are subject to the project-level, joint venture relationship, business and industry risks described in our Annual Report on Form 10-K for the fiscal year ended December 28, 2014 under the caption “Risk Factors,” our other filings with the SEC, and the additional risk factors disclosed below. If we are unable to realize the strategic and financial benefits that we expect to derive from our YieldCo strategy and 8point3 Energy Partners in particular, our business, financial condition and results of operations could be materially adversely affected.
Acquisitions of other companies or investments in joint ventures with other companies could materially and adversely affect our financial condition and results of operations, and dilute our stockholders' equity.
To expand our business and maintain our competitive position, we have acquired a number of other companies and entered into several joint ventures over the past several years. For example, in July 2010, we formed AUOSP as a joint venture with AUO. In January 2012, we acquired Tenesol, and in November 2013, we acquired Greenbotics, Inc. In November 2014, we acquired SolarBridge Technologies, a developer of integrated microinverter technologies for the solar industry. In June 2015, our joint venture with First Solar, 8point3 Energy Partners, completed the IPO of its Class A shares. In the future we may acquire additional companies, project pipelines, products or technologies or enter into joint ventures or other strategic initiatives.
Acquisitions and joint ventures involve a number of risks that could harm our business and result in the acquired business or joint venture not performing as expected, including:
|
•
|
insufficient experience with technologies and markets in which the acquired business or joint venture is involved, which may be necessary to successfully operate and/or integrate the business or the joint venture;
|
|
•
|
problems integrating the acquired operations, personnel, IT infrastructure, technologies or products with the existing business and products;
|
|
•
|
diversion of management time and attention from the core business to the acquired business or joint venture;
|
|
•
|
potential failure to retain or hire key technical, management, sales and other personnel of the acquired business or joint venture;
|
|
•
|
difficulties in retaining or building relationships with suppliers and customers of the acquired business or joint venture, particularly where such customers or suppliers compete with us;
|
61
|
•
|
potential failure of the due diligence processes to identify significant issues with product quality and development or legal and financial liabilities, among other things;
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|
•
|
potential inability to obtain, or obtain in a timely manner, approvals from governmental authorities or work councils, which could delay or prevent acquisitions, delay our ability to achieve synergies, or our successful operation of acquired companies or joint ventures;
|
|
•
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potential necessity to re-apply for permits of acquired projects;
|
|
•
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problems managing joint ventures with our partners, meeting capital requirements for expansion, potential litigation with joint venture partners and reliance upon joint ventures which we do not control; for example, our ability to effectively manage our joint venture with AUO and our ability to effectively manage 8point3 Energy Partners with First Solar;
|
|
•
|
differences in philosophy, strategy or goals with our joint venture partners;
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|
•
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subsequent impairment of the acquired assets, including intangible assets;
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|
•
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assumption of liabilities including, but not limited to, lawsuits, tax examinations, warranty issues, and liabilities associated with compliance with laws (for example, the FCPA); and
|
|
•
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the success of our joint venture 8point3 Energy Partners is subject to additional risks described under the risk factor “—We may not realize the expected benefits of our YieldCo strategy.”
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Additionally, we may decide that it is in our best interests to enter into acquisitions or joint ventures that are dilutive to earnings per share or that negatively impact margins as a whole. In an effort to reduce our cost of goods sold, we have and may continue to enter into acquisitions or joint ventures involving suppliers or manufacturing partners, which would expose us to additional supply chain risks. Acquisitions or joint ventures could also require investment of significant financial resources and require us to obtain additional equity financing, which may dilute our stockholders' equity, or require us to incur additional indebtedness. Such equity or debt financing may not be available on terms acceptable to us. In addition, we could in the future make additional investments in our joint ventures or guarantee certain financial obligations of our joint ventures, which could reduce our cash flows, increase our indebtedness and expose us to the credit risk of our joint ventures.
To the extent that we invest in upstream suppliers or downstream channel capabilities, we may experience competition or channel conflict with certain of our existing and potential suppliers and customers. Specifically, existing and potential suppliers and customers may perceive that we are competing directly with them by virtue of such investments and may decide to reduce or eliminate their supply volume to us or order volume from us. In particular, any supply reductions from our polysilicon, ingot or wafer suppliers could materially reduce manufacturing volume.
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ITEM 2:
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Recent Sales of Unregistered Securities
As previously reported in our Current Reports on Form 8-K filed on April 9, 2015 and June 17, 2015, we entered into separate partial unwind agreements (the “Partial Unwind Agreements”) with each of Credit Suisse International, Barclays Bank PLC, Bank of America, N.A. and Deutsche Bank AG, London Branch (collectively, the “Counterparties”), respectively, in order to reduce the number of warrants outstanding pursuant to those certain separate warrant transactions (the “4.50% Warrants”) that we entered into on March 25, 2010 and April 5, 2010 with each of the Counterparties providing for the acquisition, subject to anti-dilution adjustments, of up to approximately
11.1 million
shares of our common stock via net share settlement. We entered into the 4.50% Warrants in connection with the issuance of our 4.50% Senior Cash Convertible Debentures due 2015, which matured in accordance with their terms on March 15, 2015. Pursuant to the terms of the Partial Unwind Agreements, we issued an aggregate of approximately 3.0 million shares of our common stock to settle all of the 4.50% Warrants. As of June 28, 2015, no 4.50% Warrants remained outstanding. The issuances of common stock pursuant to the Partial Unwind Agreements were made in reliance on Section 3(a)(9) of the Securities Act of 1933, as amended.
Issuer Purchases of Equity Securities
The following table sets forth all purchases made by or on behalf of us or any "affiliated purchaser," as defined in Rule 10b-18(a)(3) under the Exchange Act, of shares of our common stock during each of the indicated periods.
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Period
|
Total Number of Shares Purchased
1
|
Average Price
Paid Per Share
|
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
|
Maximum Number of Shares That May Yet Be Purchased Under the Publicly Announced Plans or Programs
|
|||||||||
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March 30, 2015 through April 26, 2015
|
8,239
|
|
$
|
33.26
|
|
—
|
|
—
|
|
||||
|
April 27, 2015 through May 24, 2015
|
34,986
|
|
$
|
32.30
|
|
—
|
|
—
|
|
||||
|
May 25, 2015 through June 28, 2015
|
6,843
|
|
$
|
32.78
|
|
—
|
|
—
|
|
||||
|
|
50,068
|
|
$
|
32.52
|
|
—
|
|
—
|
|
||||
|
1
|
The shares purchased represent shares surrendered to satisfy tax withholding obligations in connection with the vesting of restricted stock issued to employees.
|
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ITEM 6:
EXHIBITS
See the Exhibit Index following the signature page to this Quarterly Report on Form 10-Q for a list of exhibits filed or furnished with this report, which Exhibit Index is incorporated herein by reference.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereto duly authorized.
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|
SUNPOWER CORPORATION
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|
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Date: July 28, 2015
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By:
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/s/ CHARLES D. BOYNTON
|
|
|
|
Charles D. Boynton
|
|
|
|
Executive Vice President and
|
|
|
|
Chief Financial Officer
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Index to Exhibits
|
Exhibit Number
|
Description
|
|
|
10.1
|
SunPower Corporation 2015 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.1 to the Registrant’s Registration Statement on Form S-8 (File No. 333-205207), filed with the Securities and Exchange Commission on June 25, 2015).
|
|
|
10.2*†
|
Amended and Restated Limited Liability Company Agreement of 8point3 Holding Company, LLC, dated as of June 24, 2015, by and between SunPower YC Holdings, LLC and First Solar 8point3 Holdings, LLC.
|
|
|
10.3*
|
Amended and Restated Limited Liability Company Agreement of 8point3 Operating Company, LLC, dated as of June 24, 2015, by and between 8point3 Energy Partners LP, SunPower YC Holdings, LLC, First Solar 8point3 Holdings, LLC, Maryland Solar Holdings, Inc. and 8point3 Holdings, LLC.
|
|
|
31.1*
|
Certification by Chief Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a).
|
|
|
31.2*
|
Certification by Chief Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a).
|
|
|
32.1
**
|
Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
|
101.INS*
|
XBRL Instance Document.
|
|
|
101.SCH*
|
XBRL Taxonomy Schema Document.
|
|
|
101.CAL*
|
XBRL Taxonomy Calculation Linkbase Document.
|
|
|
101.LAB*
|
XBRL Taxonomy Label Linkbase Document.
|
|
|
101.PRE*
|
XBRL Taxonomy Presentation Linkbase Document.
|
|
|
101.DEF*
|
XBRL Taxonomy Definition Linkbase Document.
|
|
Exhibits marked with an asterisk (*) are filed herewith.
Portions of exhibits marked with an extended cross (†) have been omitted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission.
Exhibits marked with two asterisks (**) are furnished and not filed herewith.
66
TABLE OF CONTENTS
Part I. Financial InformationItem 1. Financial StatementsNote 1. The Company and Summary Of Significant Accounting PoliciesNote 2. Transactions with Total and Total S.aNote 3. 8point3 Energy Partners LpNote 4. Goodwill and Other Intangible AssetsNote 5. Balance Sheet ComponentsNote 6. LeasingNote 7. Fair Value MeasurementsNote 8. RestructuringNote 9. Commitments and ContingenciesNote 10. Equity Method InvestmentsNote 11. Debt and Credit SourcesNote 12. Derivative Financial InstrumentsNote 13. Income TaxesNote 14. Net Income (loss) Per ShareNote 15. Stock-based CompensationNote 16. Segment and Geographical InformationNote 17. Subsequent EventsItem 2: Management S Discussion and Analysis Of Financial Condition and Results Of OperationsItem 3: Quantitative and Qualitative Disclosure About Market RiskItem 4: Controls and ProceduresPart IIItem 1. Legal ProceedingsItem 1A. Risk FactorsItem 2: Unregistered Sales Of Equity Securities and Use Of ProceedsItem 6: Exhibits