10-Q
Table of Contents


 
 
 
 
 
 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
T
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 27, 2015
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______________ to ______________

Commission file number 001-34166


SunPower Corporation
(Exact Name of Registrant as Specified in Its Charter)
Delaware
 
94-3008969
(State or Other Jurisdiction of Incorporation or Organization)
 
(I.R.S. Employer Identification No.)
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):
Large accelerated filer x
Accelerated filer o
Non-accelerated filer o
Smaller reporting company o
 
 
(Do not check if a smaller reporting company)
 
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 October 23, 2015 was 136,593,184.


 
 
 
 
 
d


1
Table of Contents



TABLE OF CONTENTS
 
 
Page
Part I. FINANCIAL INFORMATION
 
 
 
 
Item 1.
Financial Statements (unaudited)
 
 
 
 
Consolidated Balance Sheets
 
 
 
 
Consolidated Statements of Operations
 
 
 
 
Consolidated Statements of Comprehensive Income (Loss)
 
 
 
 
Consolidated Statements of Equity
 
 
 
 
Consolidated Statements of Cash Flows
 
 
 
 
Notes to Consolidated Financial Statements
 
 
 
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
 
 
 
Item 3.
Quantitative and Qualitative Disclosure About Market Risk
 
 
 
Item 4.
Controls and Procedures
 
 
 
Part II. OTHER INFORMATION
 
 
 
 
Item 1.
Legal Proceedings
 
 
 
Item IA.
Risk Factors
 
 
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
 
 
 
Item 6.
Exhibits
 
 
 
 
 
 

2
Table of Contents



PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS


SunPower Corporation
Consolidated Balance Sheets
(In thousands, except share data)
(unaudited)
 
September 27, 2015
 
December 28, 2014
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
502,881

 
$
956,175

Restricted cash and cash equivalents, current portion
24,957

 
18,541

Accounts receivable, net1
207,073

 
504,316

Costs and estimated earnings in excess of billings1
39,069

 
187,087

Inventories
349,615

 
208,573

Advances to suppliers, current portion
73,303

 
98,129

Project assets - plants and land, current portion1
562,699

 
101,181

Prepaid expenses and other current assets1
279,055

 
328,845

Total current assets
2,038,652

 
2,402,847

 
 
 
 
Restricted cash and cash equivalents, net of current portion
45,764

 
24,520

Restricted long-term marketable securities
6,577

 
7,158

Property, plant and equipment, net
681,380

 
585,344

Solar power systems leased and to be leased, net
492,149

 
390,913

Project assets - plants and land, net of current portion
18,141

 
15,475

Advances to suppliers, net of current portion
306,554

 
311,528

Long-term financing receivables, net
300,236

 
269,587

Goodwill and other intangible assets, net
112,570

 
37,981

Other long-term assets1
392,302

 
300,229

Total assets
$
4,394,325

 
$
4,345,582

 
 
 
 
Liabilities and Equity
 

 
 

Current liabilities:
 

 
 

Accounts payable1
$
444,045

 
$
419,919

Accrued liabilities1
533,699

 
331,034

Billings in excess of costs and estimated earnings
79,472

 
83,440

Short-term debt
20,523

 
18,105

Convertible debt, current portion
—

 
245,325

Customer advances, current portion1
27,814

 
31,788

Total current liabilities
1,105,553

 
1,129,611

 
 
 
 
Long-term debt
263,883

 
214,181

Convertible debt, net of current portion1
694,214

 
692,955

Customer advances, net of current portion1
131,861

 
148,896

Other long-term liabilities1
552,120

 
555,344

Total liabilities
2,747,631

 
2,740,987

Commitments and contingencies (Note 10)


 


Redeemable noncontrolling interests in subsidiaries
49,833

 
28,566

Equity:
 

 
 

Preferred stock, $0.001 par value; 10,000,000 shares authorized; none issued and outstanding as of both September 27, 2015 and December 28, 2014
—

 
—

Common stock, $0.001 par value, 367,500,000 shares authorized, 145,057,767 shares issued, and 136,584,629 shares outstanding as of September 27, 2015; 367,500,000 shares authorized, 138,616,252 shares issued, and 131,466,777 shares outstanding as of December 28, 2014;
137


131

Additional paid-in capital
2,314,849

 
2,219,581

Accumulated deficit
(619,996
)
 
(560,598
)
Accumulated other comprehensive loss
(11,364
)
 
(13,455
)
Treasury stock, at cost; 8,473,138 shares of common stock as of September 27, 2015; 7,149,475 shares of common stock as of December 28, 2014
(153,892
)
 
(111,485
)
Total stockholders' equity
1,529,734

 
1,534,174

Noncontrolling interests in subsidiaries
67,127

 
41,855

Total equity
1,596,861

 
1,576,029

Total liabilities and equity
$
4,394,325

 
$
4,345,582

1 
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," "Project assets - plants and land, current portion," "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 8, Note 11, Note 12, and Note 13).

The accompanying notes are an integral part of these consolidated financial statements.

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SunPower Corporation
Consolidated Statements of Operations
(In thousands, except per share data)
(unaudited)

 
 
Three Months Ended
 
Nine Months Ended
 
 
September 27, 2015
 
September 28, 2014
 
September 27, 2015

September 28, 2014

 
 
 
 
 
 
 
 
Revenue
 
$
380,218

 
$
662,734

 
$
1,202,109

 
$
1,863,027

Cost of revenue
 
317,574

 
554,220

 
977,766

 
1,497,379

Gross margin
 
62,644

 
108,514

 
224,343

 
365,648

Operating expenses:
 
 
 
 
 
 
 
 
Research and development
 
24,973

 
17,291

 
66,701

 
50,618

Sales, general and administrative
 
81,109

 
68,394

 
239,843

 
213,821

Restructuring charges
 
726

 
188

 
6,056

 
(990
)
Total operating expenses
 
106,808

 
85,873

 
312,600

 
263,449

Operating income (loss)
 
(44,164
)
 
22,641

 
(88,257
)
 
102,199

Other income (expense), net:
 
 
 
 
 
 
 
 
Interest income
 
448

 
922

 
1,498

 
1,908

Interest expense
 
(8,796
)
 
(17,170
)
 
(32,994
)
 
(53,072
)
Other, net
 
(3,601
)
 
882

 
8,761

 
2,175

Other expense, net
 
(11,949
)
 
(15,366
)
 
(22,735
)
 
(48,989
)
Income (loss) before income taxes and equity in earnings of unconsolidated investees
 
(56,113
)
 
7,275

 
(110,992
)
 
53,210

Benefit from (provision for) income taxes
 
(36,224
)
 
8,320

 
(37,916
)
 
2,868

Equity in earnings of unconsolidated investees
 
5,052

 
1,689

 
9,107

 
5,408

Net income (loss)
 
(87,285
)
 
17,284

 
(139,801
)
 
61,486

Net loss attributable to noncontrolling interests and redeemable noncontrolling interests
 
30,959

 
14,749

 
80,403

 
49,693

Net income (loss) attributable to stockholders
 
$
(56,326
)
 
$
32,033

 
$
(59,398
)
 
$
111,179

 
 
 
 
 
 
 
 
 
Net income (loss) per share attributable to stockholders:
 
 
 
 
 
 
 
 
Basic
 
$
(0.41
)
 
$
0.24

 
$
(0.44
)
 
$
0.87

Diluted
 
$
(0.41
)
 
$
0.20

 
$
(0.44
)
 
$
0.72

Weighted-average shares:
 
 
 
 
 
 
 
 
Basic
 
136,473

 
131,204

 
134,294

 
127,716

Diluted
 
136,473

 
167,117

 
134,294

 
158,962


The accompanying notes are an integral part of these consolidated financial statements.

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Table of Contents


SunPower Corporation
Consolidated Statements of Comprehensive Income (Loss)
(In thousands)
(unaudited)


 
 
Three Months Ended
 
Nine Months Ended
 
 
September 27, 2015
 
September 28, 2014
 
September 27, 2015
 
September 28, 2014
Net income (loss)
 
$
(87,285
)
 
$
17,284

 
$
(139,801
)
 
$
61,486

Components of comprehensive income (loss):
 
 
 
 
 
 
 
 
Translation adjustment
 
(1,276
)
 
(3,777
)
 
(3,037
)
 
(3,435
)
Net unrealized gain on derivatives (Note 13)
 
4,799

 
2,148

 
5,607

 
2,505

Income taxes
 
(936
)
 
(425
)
 
(479
)
 
(504
)
Net change in accumulated other comprehensive gain (loss)
 
2,587

 
(2,054
)
 
2,091

 
(1,434
)
Total comprehensive income (loss)
 
(84,698
)
 
15,230

 
(137,710
)
 
60,052

Comprehensive loss attributable to noncontrolling interests and redeemable noncontrolling interests
 
30,959

 
14,749

 
80,403

 
49,693

Comprehensive income (loss) attributable to stockholders
 
$
(53,739
)
 
$
29,979

 
$
(57,307
)
 
$
109,745


The accompanying notes are an integral part of these consolidated financial statements.


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Table of Contents


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 loss
 
(1,920
)
 
—

 
—

 
—

 
—

 
—

 
(59,398
)
 
(59,398
)
 
(78,483
)
 
(137,881
)
Other comprehensive income
 
—

 
—

 
—

 
—

 
—

 
2,091

 
—

 
2,091

 
—

 
2,091

Issuance of common stock upon exercise of options
 
—

 
54

 
—

 
464

 
—

 
—

 
—

 
464

 
—

 
464

Issuance of restricted stock to employees, net of cancellations
 
—

 
3,379

 
3

 
(3
)
 
—

 
—

 
—

 
—

 
—

 
—

Settlement of the 4.5% Warrants
 
—

 
3,008

 
3

 
(577
)
 
—

 
—

 
—

 
(574
)
 
—

 
(574
)
Stock-based compensation expense
 
—

 
—

 
—

 
43,906

 
—

 
—

 
—

 
43,906

 
—

 
43,906

Tax benefit from convertible debt interest deduction
 
—

 
—

 
—

 
26,388

 
—

 
—

 
—

 
26,388

 
—

 
26,388

Tax benefit from stock-based compensation
 
—

 
—

 
—

 
25,090

 
—

 
—

 
—

 
25,090

 
—

 
25,090

Contributions from noncontrolling interests
 
24,953

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
108,779

 
108,779

Distributions to noncontrolling interests
 
(1,766
)
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(5,024
)
 
(5,024
)
Purchases of treasury stock
 

 
(1,324
)
 
—

 
—

 
(42,407
)
 
—

 
—

 
(42,407
)
 
—

 
(42,407
)
Balances at September 27, 2015
 
$
49,833

 
136,583

 
$
137

 
$
2,314,849

 
$
(153,892
)
 
$
(11,364
)
 
$
(619,996
)
 
$
1,529,734

 
$
67,127

 
$
1,596,861


The accompanying notes are an integral part of these consolidated financial statements.

6
Table of Contents


SunPower Corporation
Consolidated Statements of Cash Flows
(In thousands)
(unaudited)
 
Nine Months Ended
 
September 27, 2015
 
September 28, 2014
Cash flows from operating activities:
 
 
 
Net income (loss)
$
(139,801
)
 
$
61,486

Adjustments to reconcile net income (loss) to net cash (used in) operating activities:
 
 
 
Depreciation and amortization
97,369

 
75,124

Stock-based compensation
42,484

 
41,940

Non-cash interest expense
5,768

 
15,991

Equity in earnings of unconsolidated investees
(9,107
)
 
(5,408
)
Excess tax benefit from stock-based compensation
(25,090
)
 
—

Deferred income taxes and other tax liabilities
22,668

 
(1,893
)
Gain on sale of residential lease portfolio to 8point3 Energy Partners LP
(27,915
)
 
—

Other, net
1,940

 
2,619

Changes in operating assets and liabilities, net of effect of acquisitions:
 
 
 
Accounts receivable
292,102

 
(45,934
)
Costs and estimated earnings in excess of billings
148,018

 
(14,469
)
Inventories
(187,153
)
 
23,860

Project assets
(499,847
)
 
(33,338
)
Prepaid expenses and other assets
12,640

 
(149,945
)
Long-term financing receivables, net
(108,418
)
 
(77,109
)
Advances to suppliers
29,800

 
(18,578
)
Accounts payable and other accrued liabilities
(59,841
)
 
(15,376
)
Billings in excess of costs and estimated earnings
(3,968
)
 
40,440

Customer advances
(21,009
)
 
(13,399
)
Net cash used in operating activities
(429,360
)
 
(113,989
)
Cash flows from investing activities:
 
 
 
Increase in restricted cash and cash equivalents
(27,659
)
 
(9,550
)
Purchases of property, plant and equipment
(132,352
)
 
(45,508
)
Cash paid for solar power systems, leased and to be leased
(64,419
)
 
(35,559
)
Cash paid for solar power systems
(10,007
)
 
(4,917
)
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
363,928

 
—

Purchases of marketable securities
—

 
(30
)
Cash paid for acquisitions, net of cash acquired
(59,021
)
 
(6,894
)
Cash paid for investments in unconsolidated investees
(4,092
)
 
(5,013
)
Cash paid for intangibles
(3,401
)
 
—

Net cash provided by (used in) investing activities
62,977

 
(106,091
)
Cash flows from financing activities:
 
 
 
Proceeds from issuance of convertible debt, net of issuance costs
—

 
395,275

Cash paid for repurchase of convertible debt
(324,352
)
 
(42,153
)
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

 
114

Payments to settle 4.50% Warrants
(574
)
 
—

Proceeds from issuance of non-recourse debt financing, net of issuance costs
80,445

 
74,840

Repayment of non-recourse debt financing
(1,083
)
 
—

Proceeds from issuance of project loans, net of issuance costs
211,847

 
—

Assumption of project loan by customer
—

 
(40,672
)
Repayment of bank loans, project loans and other debt
(240,198
)
 
(16,540
)
Proceeds from residential lease financing
2,219

 
—

Repayment of residential lease financing
(39,975
)
 
(15,686
)
Proceeds from sale-leaseback financing
17,219

 
23,578

Repayment of sale-leaseback financing
(2,237
)
 
(1,360
)
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
133,732

 
75,312

Distributions to noncontrolling interests and redeemable noncontrolling interests
(6,790
)
 
(2,808
)
Proceeds from exercise of stock options
467

 
939

Excess tax benefit from stock-based compensation
25,090

 
—

Purchases of stock for tax withholding obligations on vested restricted stock
(42,407
)
 
(56,000
)
Net cash provided by (used in) financing activities
(82,669
)
 
382,604

Effect of exchange rate changes on cash and cash equivalents
(4,242
)
 
(2,306
)
Net increase (decrease) in cash and cash equivalents
(453,294
)
 
160,218

Cash and cash equivalents, beginning of period
956,175

 
762,511

Cash and cash equivalents, end of period
$
502,881

 
$
922,729

 
 
 
 
Non-cash transactions:
 
 
 
Assignment of residential lease receivables to third parties
$
2,742

 
$
6,419

Costs of solar power systems, leased and to be leased, sourced from existing inventory
$
47,295

 
$
25,808

Costs of solar power systems, leased and to be leased, funded by liabilities
$
8,229

 
$
2,389

Costs of solar power systems under sale-leaseback financing arrangements, sourced from project assets
$
6,076

 
$
17,333

Property, plant and equipment acquisitions funded by liabilities
$
43,083

 
$
12,146

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

 
$
—

Acquisition of intangible assets funded by liabilities
$
6,512

 
$
—


The accompanying notes are an integral part of these consolidated financial statements.

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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. These changes do 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 third quarter of fiscal 2015 ended on September 27, 2015, while the third quarter of fiscal 2014 ended on September 28, 2014. The third quarters of fiscal 2015 and fiscal 2014 were both 13-week quarters.

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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 September 2015, the Financial Accounting Standards Board ("FASB") issued an update to the business combination standards to eliminate the requirement for an acquirer in a business combination to account for measurement-period adjustments retrospectively. Instead, acquirers must recognize measurement-period adjustments during the period in which it determines the amounts, including the effect on earnings of any amounts that would have been recorded in previous periods if the accounting had been completed at the acquisition date.  The new 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 July 2015, the 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. GAAP 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 $11.6 million 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.

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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.

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

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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.

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 12).

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 12).

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 September 27, 2015, the Company had $1.1 million of "Costs and estimated earnings in excess of billings" and $1.0 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.

Related-Party Transactions with Total and its Affiliates:

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Three Months Ended
 
Nine Months Ended
(In thousands)
 
September 27, 2015
 
September 28, 2014
 
September 27, 2015
 
September 28, 2014
Revenue:
 
 
 
 
 
 
 
 
EPC, O&M, and components revenue under joint projects
 
$
11,905

 
$
107,289

 
$
14,860

 
$
142,790

Research and development expense:
 
 
 
 
 
 
 
 
Offsetting contributions received under the R&D Agreement
 
$
(360
)
 
$
(724
)
 
$
(1,177
)
 
$
(1,277
)
Interest expense:
 
 
 
 
 
 
 
 
Guarantee fees incurred under the Credit Support Agreement
 
$
3,479

 
$
3,358

 
$
8,477

 
$
8,704

Fees incurred under the Compensation and Funding Agreement
 
$
—

 
$
—

 
$
—

 
$
1,200

Interest expense incurred on the 0.75% debentures due 2018
 
$
375

 
$
375

 
$
875

 
$
1,203

Interest expense incurred on the 0.875% debentures due 2021
 
$
680

 
$
547

 
$
1,907

 
$
662


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 11 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 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

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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. As of September 27, 2015 the operating leases and the unguaranteed sales-type lease residual values which were sold to the 8point3 Group had an aggregate carrying value of $74 million.

During the third quarter of fiscal 2015, the Company received $22.8 million of additional cash proceeds from the 8point3 Group, primarily associated with the pass-through of tax equity proceeds, which were classified as an investing cash inflow in the Consolidated Statement of Cash Flows. In addition, one of the SPWR Projects reached COD during the third quarter and, pursuant to the accounting treatment discussed in the preceding paragraphs, the Company derecognized the associated project assets and current liability. No profit on the sale of the project was recognized, and the derecognition resulted in a net $5.1 million reduction in the carrying value of the Company’s investments in the 8point3 Group.


Note 4. BUSINESS COMBINATIONS

In the third quarter of fiscal 2015, the Company acquired an entity that qualified as a business combination, accounted for by the acquisition method, for a total cash consideration, net of cash acquired, of approximately $59 million. Based on the preliminary accounting for the business combination, $31 million was attributed to goodwill, $36 million to intangible assets, and $8 million to net liabilities assumed, which includes an estimate of contingent consideration that may be paid in a future period. The composition of the intangible assets acquired is presented in Note 5. This acquisition enhances the breadth and depth of our expertise in our technologies and our product offerings. The total goodwill of $31 million is primarily attributable to synergies expected to arise out of the acquisition. Goodwill is expected to be amortized over 15 years for tax purposes.

Pro forma results of operations for the acquisition have not been presented as the impact of the acquisition is not material to the Company's consolidated results of operations for the current or prior periods. The actual results of operations of this acquisition have been included in the Company's consolidated results of operations from the date of acquisition.

Note 5. GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill

The following table presents the changes in the carrying amount of goodwill under the Company's reportable business segments:

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(In thousands)
 
Residential
 
Commercial
 
Power Plant
 
Total
As of December 28, 2014

 
$
20,780

 
$
—

 
$
440

 
$
21,220

Goodwill arising from business combinations
 
11,122

 
4,943

 
14,831

 
30,896

As of September 27, 2015
 
$
31,902

 
$
4,943

 
$
15,271

 
$
52,116


Other Intangible Assets

During the third quarter of fiscal 2015, the Company acquired solar power plant development assets from Australia-based Infigen Energy, which it accounted for as an asset acquisition. The acquisition consisted partially of intangible assets related to a pipeline of solar power plant projects in various early stages of development. The following tables present details of the Company's acquired other intangible assets:
(In thousands)
 
Gross
 
Accumulated
Amortization
 
Net
As of September 27, 2015
 
 
 
 
 
 
Patents and purchased technology
 
$
49,799

 
$
(2,705
)
 
$
47,094

Project pipeline assets
 
9,410

 
—

 
9,410

Purchased in-process research and development
 
3,700

 
—

 
3,700

Other
 
500

 
(250
)
 
250

 
 
$
63,409

 
$
(2,955
)
 
$
60,454

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 $1.2 million and $2.3 million for the three and nine months ended September 27, 2015, respectively. Amortization expense for intangible assets totaled $0.2 million for both the three and nine months ended September 28, 2014.

As of September 27, 2015, the average remaining useful life of the Company's intangible assets was 5.2 years and the estimated future amortization expense related to intangible assets with finite useful lives is as follows:
(In thousands)
 
Amount
Fiscal Year
 
 
2015 (remaining three months)
 
$
2,956

2016
 
14,693

2017
 
10,539

2018
 
11,270

2019
 
8,989

Thereafter
 
8,307

 
 
$
56,754


The estimated future amortization expense for purchased in-process research and development will be added to the table above when the Company begins to amortize the associated assets.

Note 6. BALANCE SHEET COMPONENTS

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As of
(In thousands)
 
September 27, 2015
 
December 28, 2014
Accounts receivable, net:
 
 
 
 
Accounts receivable, gross1,2
 
$
225,881

 
$
523,613

Less: allowance for doubtful accounts
 
(16,832
)
 
(18,152
)
Less: allowance for sales returns
 
(1,976
)
 
(1,145
)
 
 
$
207,073

 
$
504,316

1 
Includes short-term financing receivables associated with solar power systems leased of $10.3 million and $9.1 million as of September 27, 2015 and December 28, 2014, respectively (see Note 7).

2 
Includes short-term retainage of $14.3 million and $213.0 million as of September 27, 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)
 
September 27, 2015
 
December 28, 2014
Inventories:
 
 
 
 
Raw materials
 
$
69,317

 
$
46,848

Work-in-process
 
154,920

 
67,903

Finished goods
 
125,378

 
93,822

 
 
$
349,615

 
$
208,573


 
 
As of
(In thousands)
 
September 27, 2015
 
December 28, 2014
Prepaid expenses and other current assets:
 
 
 
 
Deferred project costs
 
$
61,468

 
$
64,784

Bond hedge derivative
 
—

 
51,951

VAT receivables, current portion
 
11,302

 
7,554

Deferred costs for solar power systems to be leased
 
34,239

 
22,537

Derivative financial instruments
 
6,546

 
7,018

Other receivables
 
72,787

 
79,927

Other prepaid expenses
 
73,427

 
47,448

Other current assets
 
19,286

 
47,626

 
 
$
279,055

 
$
328,845


 
 
As of
(In thousands)
 
September 27, 2015
 
December 28, 2014
Project assets - plants and land:
 
 
 
 
Project assets — plants
 
$
568,814

 
$
104,328

Project assets — land
 
12,026

 
12,328

 
 
$
580,840

 
$
116,656

Project assets — plants and land, current portion
 
$
562,699

 
$
101,181

Project assets — plants and land, net of current portion
 
$
18,141

 
$
15,475



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As of
(In thousands)
 
September 27, 2015
 
December 28, 2014
Property, plant and equipment, net:
 
 
 
 
Manufacturing equipment3
 
$
558,187

 
$
554,124

Land and buildings
 
26,138

 
26,138

Leasehold improvements
 
242,583

 
236,867

Solar power systems4
 
140,783

 
124,848

Computer equipment
 
99,371

 
88,257

Furniture and fixtures
 
9,963

 
9,436

Construction-in-process
 
186,492

 
75,570

 
 
1,263,517

 
1,115,240

Less: accumulated depreciation
 
(582,137
)
 
(529,896
)
 
 
$
681,380

 
$
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 $86.4 million and $111.9 million as of September 27, 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 September 27, 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 7).
 
 
As of
(In thousands)
 
September 27, 2015
 
December 28, 2014
Property, plant and equipment, net by geography5:
 
 
 
 
Philippines
 
$
418,044

 
$
335,643

United States
 
195,609

 
183,631

Mexico
 
42,529

 
40,251

Europe
 
24,142

 
24,748

Other
 
1,056

 
1,071

 
 
$
681,380

 
$
585,344

5 
Property, plant and equipment, net by geography is based on the physical location of the assets.

 
 
As of
(In thousands)
 
September 27, 2015
 
December 28, 2014
Other long-term assets:
 
 
 
 
Equity method investments
 
$
283,216

 
$
210,898

Cost method investments
 
36,378

 
32,308

Other
 
72,708

 
57,023

 
 
$
392,302

 
$
300,229



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As of
(In thousands)
 
September 27, 2015
 
December 28, 2014
Accrued liabilities:
 
 
 
 
Bond hedge derivatives
 
$
—

 
$
51,951

Employee compensation and employee benefits
 
46,205

 
47,667

Deferred revenue
 
17,892

 
33,412

Short-term residential lease financing
 
—

 
1,489

Interest payable
 
8,868

 
10,575

Short-term warranty reserves
 
17,275

 
13,278

Restructuring reserve
 
2,374

 
13,477

VAT payables
 
3,878

 
6,073

Derivative financial instruments
 
1,698

 
1,345

Short-term residential lease financing with 8point3 Energy Partners
 
4,221

 
—

Proceeds from 8point3 Energy Partners IPO attributable to pre-COD projects
 
286,382

 
—

Other
 
144,906

 
151,767

 
 
$
533,699

 
$
331,034


 
 
As of
(In thousands)
 
September 27, 2015
 
December 28, 2014
Other long-term liabilities:
 
 
 
 

Deferred revenue
 
$
179,978

 
$
176,804

Long-term warranty reserves
 
144,364

 
141,370

Long-term sale-leaseback financing
 
127,592

 
111,904

Long-term residential lease financing
 
2,236

 
27,122

Long-term residential lease financing with 8point3 Energy Partners
 
25,087

 
—

Unrecognized tax benefits
 
27,868

 
31,764

Long-term pension liability
 
12,305

 
9,980

Derivative financial instruments
 
1,180

 
3,712

Other
 
31,510

 
52,688

 
 
$
552,120

 
$
555,344


 
 
As of
(In thousands)
 
September 27, 2015
 
December 28, 2014
Accumulated other comprehensive loss:
 
 
 
 

Cumulative translation adjustment
 
$
(11,749
)
 
$
(8,712
)
Net unrealized loss on derivatives
 
4,164

 
(1,443
)
Net loss on long-term pension liability adjustment
 
(2,878
)
 
(2,878
)
Deferred taxes
 
(901
)
 
(422
)
 
 
$
(11,364
)
 
$
(13,455
)

Note 7. 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.

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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 September 27, 2015 and December 28, 2014:
 
 
As of
(In thousands)
 
September 27, 2015
 
December 28, 2014
Solar power systems leased and to be leased, net1,2:
 
 
 
 
Solar power systems leased
 
$
505,496

 
$
396,704

Solar power systems to be leased
 
27,443

 
21,202

 
 
532,939

 
417,906

Less: accumulated depreciation
 
(40,790
)
 
(26,993
)
 
 
$
492,149

 
$
390,913

1 
Solar power systems leased and to be leased, net are physically located exclusively in the United States.

2 
As of September 27, 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.

The following table presents the Company's minimum future rental receipts on operating leases placed in service as of September 27, 2015:
(In thousands)
 
Fiscal 2015 (remaining three months)
 
Fiscal 2016
 
Fiscal 2017
 
Fiscal 2018
 
Fiscal 2019
 
Thereafter
 
Total
Minimum future rentals on operating leases placed in service1
 
$
4,520

 
15,159

 
15,185

 
15,218

 
15,251

 
226,845

 
$
292,178

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 nor does it include rent receivables on operating leases sold to the 8point3 Group.

Sales-Type Leases

As of September 27, 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)
 
September 27, 2015
 
December 28, 2014
Financing receivables:
 
 
 
 
Minimum lease payments receivable1
 
$
327,300

 
$
319,244

Unguaranteed residual value
 
46,687

 
34,343

Unearned income
 
(63,403
)
 
(74,859
)
Net financing receivables
 
$
310,584

 
$
278,728

Current
 
$
10,348

 
$
9,141

Long-term
 
$
300,236

 
$
269,587

1 
Net of allowance for doubtful accounts.

As of September 27, 2015, future maturities of net financing receivables for sales-type leases are as follows:

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(In thousands)
 
Fiscal 2015 (remaining three months)
 
Fiscal 2016
 
Fiscal 2017
 
Fiscal 2018
 
Fiscal 2019
 
Thereafter
 
Total
Scheduled maturities of minimum lease payments receivable1
 
$
4,286

 
16,020

 
16,156

 
16,297

 
16,441

 
258,100

 
$
327,300

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 in the first half of fiscal 2015. The Company entered into a new arrangement in the third quarter of fiscal 2015 that is similarly accounted for as a borrowing. As of September 27, 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 $2.2 million and $28.6 million, respectively (see Note 6).

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 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 nine months ended September 27, 2015 the Company received $41.8 million and $133.7 million, respectively, in contributions from investors under the related facilities and attributed losses of $31.1 million and $80.9 million, respectively, to the third-party investors corresponding principally to certain assets, including tax credits, that were allocated to the investors during the periods. During the three and nine months ended September 28, 2014, the Company received $22.5 million and $75.3 million, respectively, in contributions from investors under the related facilities and attributed losses of $14.7 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.

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 September 27, 2015, future minimum lease obligations associated with these systems was $89.2 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

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Company as financing liabilities and presented within "Other long-term liabilities" in the Company's Consolidated Balance Sheets (see Note 6). 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 6). As of September 27, 2015, future minimum lease obligations for the sale-leaseback arrangements accounted for under the financing method were $108.0 million, which will be recognized over the lease terms of up to 20 years.


Note 8. 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 September 27, 2015 or December 28, 2014.

The following table summarizes the Company's assets and liabilities measured and recorded at fair value on a recurring basis as of September 27, 2015 and December 28, 2014:
 
 
September 27, 2015
 
December 28, 2014
(In thousands)
 
Total
 
Level 1
 
Level 2
 
Total
 
Level 1
 
Level 2
Assets
 
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents1:
 
 
 
 
 
 
 
 
 
 
 
 
Money market funds
 
$
225,000

 
$
225,000

 
$
—

 
$
375,000

 
$
375,000

 
$
—

Prepaid expenses and other current assets:
 
 
 
 
 
 
 
 
 
 
 
 
Debt derivatives (Note 12)
 
—

 
—

 
—

 
51,951

 
—

 
51,951

Derivative financial instruments (Note 13)
 
6,546

 
—

 
6,546

 
7,018

 
—

 
7,018

Total assets
 
$
231,546

 
$
225,000

 
$
6,546

 
$
433,969

 
$
375,000


$
58,969

Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
Accrued liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
Debt derivatives (Note 12)
 
$
—

 
$
—

 
$
—

 
$
51,951

 
$
—

 
$
51,951

Derivative financial instruments (Note 13)
 
1,698

 
—

 
1,698

 
1,345

 
—

 
1,345

Other long-term liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
Derivative financial instruments (Note 13)
 
1,180

 
—

 
1,180

 
3,712

 
—

 
3,712

Total liabilities
 
$
2,878

 
$
—

 
$
2,878

 
$
57,008

 
$
—

 
$
57,008

1 The Company's cash equivalents consist of money market fund instruments and commercial paper that are classified as available-for-sale and highly liquid investments with original maturities of 90 days or less. The Company's money market fund instruments are categorized within Level 1 of the fair value hierarchy because they are valued using quoted market prices for identical instruments in active markets.

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.

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Debt Derivatives

The 4.50% Bond Hedge (as described in Note 12) and the embedded cash conversion option within the 4.50% debentures due 2015 (as described in Note 12), 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 of1
 
 
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

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 prices. 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 September 27, 2015 and December 28, 2014, these bonds had a carrying value of $6.6 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 September 27, 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 11). As of September 27, 2015 and December 28, 2014, the Company had $36.4 million and $32.3 million, respectively, in investments accounted for under the cost method.


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Related-Party Transactions with Investees:
 
 
As of
(In thousands)
 
September 27, 2015
 
December 28, 2014
Accounts receivable
 
$
20,543

 
$
22,425

Other long-term assets
 
$
1,405

 
$
1,623

Accounts payable
 
$
50,507

 
$
50,039

Accrued liabilities
 
$
290,604

 
$
—

Customer advances
 
$
85

 
$
4,210

Other long-term liabilities
 
$
25,087

 
$
—

 
 
Three Months Ended
 
Nine Months Ended
(In thousands)
 
September 27, 2015
 
September 28, 2014
 
September 27, 2015
 
September 28, 2014
Payments made to investees for products/services
 
$
100,129

 
$
107,328

 
$
328,159

 
$
329,434

Revenue from sales to investees of products/services
 
$
8,953

 
$
—

 
$
35,755

 
$
—


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 9. 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. These restructuring activities were substantially complete as of September 27, 2015; however, the Company expects to continue to incur costs as it finalizes previous estimates and actions in connection with this plan, primarily due to other costs, such as legal and accounting services.

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 September 27, 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:

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Nine Months Ended
 
Cumulative To Date
(In thousands)
 
September 27, 2015
 
September 28, 2014
 
November 2014 Plan:
 
 
 
 
 
 
Non-cash impairment charges
 
$
5

 
$
—

 
$
724

Severance and benefits
 
3,462

 
—

 
15,642

Other costs1
 
3,034

 
—

 
3,247

 
 
6,501

 
—

 
19,613

 
 
 
 
 
 
 
Legacy Restructuring Plans:
 
 
 
 
 
 
Non-cash impairment charges
 
—

 
—

 
60,596

Severance and benefits
 
(143
)
 
(1,657
)
 
46,566

Lease and related termination costs
 
—

 
382

 
5,774

Other costs1
 
(302
)
 
285

 
10,558

 
 
(445
)
 
(990
)
 
123,494

Total restructuring charges
 
$
6,056

 
$
(990
)
 
$
143,107

 
 
 
 
 
 
 
    
The following table summarizes the restructuring reserve activity during the nine months ended September 27, 2015:
 
 
Nine Months Ended
(In thousands)
 
December 28, 2014
 
Charges (Benefits)
 
Payments
 
September 27, 2015
November 2014 Plan:
 
 
 
 
 
 
 
 
Severance and benefits
 
$
12,075

 
$
3,462

 
$
(14,559
)
 
$
978

Other costs1
 
145

 
3,034

 
(2,046
)
 
1,133

 
 
12,220

 
6,496

 
(16,605
)
 
2,111

 
 
 
 
 
 
 
 
 
Legacy Restructuring Plans:
 
 
 
 
 
 
 
 
Severance and benefits
 
421

 
(143
)
 
(276
)
 
2

Lease and related termination costs
 
390

 
—

 
(23
)
 
367

Other costs1
 
446

 
(302
)
 
(250
)
 
(106
)
 
 
1,257

 
(445
)
 
(549
)
 
263

Total restructuring liability
 
$
13,477

 
$
6,051

 
$