Edgar Filing: SUNPOWER CORP

Document

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 April 2, 2017



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, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth 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	Emerging growth company o
		(Do not check if a smaller reporting company)

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No T

The total number of outstanding shares of the registrant’s common stock as of May 5, 2017 was 139,427,737.

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TABLE OF CONTENTS

		Page
Part I. FINANCIAL INFORMATION

Item 1.	Financial Statements (unaudited)	3

	Consolidated Balance Sheets	3

	Consolidated Statements of Operations	4

	Consolidated Statements of Comprehensive Loss	5

	Consolidated Statements of Equity	6

	Consolidated Statements of Cash Flows	7

	Notes to Consolidated Financial Statements	8

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	45

Item 3.	Quantitative and Qualitative Disclosure About Market Risks	65

Item 4.	Controls and Procedures	67

Part II. OTHER INFORMATION

Item 1.	Legal Proceedings	67

Item 1A.	Risk Factors	67

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	69

Item 6.	Exhibits	70

Signatures		70

Index to Exhibits		71

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

SunPower Corporation

Consolidated Balance Sheets

(In thousands, except share data)

(unaudited)



	April 2, 2017			January 1, 2017
Assets
Current assets:
Cash and cash equivalents	$	387,378		$	425,309
Restricted cash and cash equivalents, current portion	22,013			33,657
Accounts receivable, net¹	167,861			219,638
Costs and estimated earnings in excess of billings¹	21,482			32,780
Inventories	428,178			401,707
Advances to suppliers, current portion	111,850			111,479
Project assets - plants and land, current portion¹	285,321			374,459
Prepaid expenses and other current assets¹	225,611			315,670
Total current assets	1,649,694			1,914,699

Restricted cash and cash equivalents, net of current portion	52,952			55,246
Restricted long-term marketable securities	4,876			4,971
Property, plant and equipment, net	1,073,183			1,027,066
Solar power systems leased and to be leased, net	645,862			621,267
Project assets - plants and land, net of current portion	34,701			33,571
Advances to suppliers, net of current portion	159,204			173,277
Long-term financing receivables, net	537,976			507,333
Other intangible assets, net	41,066			44,218
Other long-term assets¹	126,879			185,519
Total assets	$	4,326,393		$	4,567,167

Liabilities and Equity
Current liabilities:
Accounts payable¹	$	437,671		$	540,295
Accrued liabilities¹	261,471			391,226
Billings in excess of costs and estimated earnings	16,118			77,140
Short-term debt	79,613			71,376
Customer advances, current portion¹	20,397			10,138
Total current liabilities	815,270			1,090,175

Long-term debt	501,285			451,243
Convertible debt¹	1,114,143			1,113,478
Customer advances, net of current portion¹	81,902			298
Other long-term liabilities¹	774,881			721,032
Total liabilities	3,287,481			3,376,226
Commitments and contingencies (Note 8)
Redeemable noncontrolling interests in subsidiaries	104,861			103,621
Equity:
Preferred stock, $0.001 par value; 10,000,000 shares authorized; none issued and outstanding as of both April 2, 2017 and January 1, 2017	—			—
Common stock, $0.001 par value, 367,500,000 shares authorized; 149,481,192 shares issued, and 139,411,261 outstanding as of April 2, 2017; 148,079,718 shares issued, and 138,510,325 outstanding as of January 1, 2017	139			139
Additional paid-in capital	2,417,053			2,410,395
Accumulated deficit	(1,398,504		)	(1,218,681		)
Accumulated other comprehensive loss	(10,145		)	(7,238		)
Treasury stock, at cost; 10,069,931 shares of common stock as of April 2, 2017; 9,569,393 shares of common stock as of January 1, 2017	(180,845		)	(176,783		)
Total stockholders' equity	827,698			1,007,832
Noncontrolling interests in subsidiaries	106,353			79,488
Total equity	934,051			1,087,320
Total liabilities and equity	$	4,326,393		$	4,567,167

The Company has related-party balances for transactions made with Total S.A. 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 6, Note 9, Note 10, and Note 11).

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
	April 2, 2017			April 3, 2016

Revenue¹
Solar power systems, components, and other	$	349,849		$	328,700
Residential leasing	49,227			56,175
	$	399,076		$	384,875
Cost of revenue¹
Solar power systems, components, and other	397,091			290,241
Residential leasing	32,917			43,097
	430,008			333,338
Gross margin	(30,932		)	51,537
Operating expenses:
Research and development¹	20,515			32,706
Sales, general and administrative¹	67,403			97,791
Restructuring charges	9,790			96
Total operating expenses	97,708			130,593
Operating loss	(128,640		)	(79,056		)
Other income (expense), net:
Interest income	938			697
Interest expense¹	(20,769		)	(12,881		)
Other, net	(2,190		)	(6,232		)
Other expense, net	(22,021		)	(18,416		)
Loss before income taxes and equity in earnings of unconsolidated investees	(150,661		)	(97,472		)
Provision for income taxes	(2,031		)	(3,181		)
Equity in earnings (loss) of unconsolidated investees	1,052			(764		)
Net loss	(151,640		)	(101,417		)
Net loss attributable to noncontrolling interests and redeemable noncontrolling interests	17,161			16,008
Net loss attributable to stockholders	$	(134,479	)	$	(85,409	)

Net loss per share attributable to stockholders:
Basic	$	(0.97	)	$	(0.62	)
Diluted	$	(0.97	)	$	(0.62	)
Weighted-average shares:
Basic	138,902			137,203
Diluted	138,902			137,203

The Company has related-party transactions with Total S.A. and its affiliates as well as unconsolidated entities in which the Company has a direct equity investment. These related-party transactions are recorded within the "Revenue: Solar power systems and components," "Cost of revenue: Solar power systems and components," "Operating expenses: Research and development," "Operating expenses: Sales, general and administrative," and "Other income (expense), net: Interest expense" financial statement line items in the Consolidated Statements of Operations (see Note 2 and Note 9).

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

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SunPower Corporation

Consolidated Statements of Comprehensive Loss

(In thousands)

(unaudited)



	Three Months Ended
	April 2, 2017			April 3, 2016
Net loss	$	(151,640	)	$	(101,417	)
Components of comprehensive loss:
Translation adjustment	(1,988		)	1,419
Net change in derivatives (Note 11)	(1,262		)	(6,745		)
Income taxes	343			750
Net change in accumulated other comprehensive loss	(2,907		)	(4,576		)
Total comprehensive loss	(154,547		)	(105,993		)
Comprehensive loss attributable to noncontrolling interests and redeemable noncontrolling interests	17,161			16,008
Comprehensive loss attributable to stockholders	$	(137,386	)	$	(89,985	)

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

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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 January 1, 2017	$	103,621		138,508		$	139		$	2,410,395	$	(176,783	)	$	(7,238	)	$	(1,218,681	)	$	1,007,832		$	79,488		$	1,087,320
Cumulative-effect upon adoption of ASU 2016-09 and ASU 2016-16 (Note 1)	—			—		—			—		—			—			(45,344		)	(45,344		)	—			(45,344		)
Net loss	(8,381		)	—		—			—		—			—			(134,479		)	(134,479		)	(8,781		)	(143,260		)
Other comprehensive loss	—			—		—			—		—			(2,907		)	—			(2,907		)	—			(2,907		)
Issuance of restricted stock to employees, net of cancellations	—			1,401		1			—		—			—			—			1			—			1
Stock-based compensation expense	—			—		—			6,658		—			—			—			6,658			—			6,658
Contributions from noncontrolling interests	11,345			—		—			—		—			—			—			—			37,685			37,685
Distributions to noncontrolling interests	(1,724		)	—		—			—		—			—			—			—			(2,039		)	(2,039		)
Purchases of treasury stock	—			(501	)	(1		)	—		(4,062		)	—			—			(4,063		)	—			(4,063		)
Balances at April 2, 2017	$	104,861		139,408		$	139		$	2,417,053	$	(180,845	)	$	(10,145	)	$	(1,398,504	)	$	827,698		$	106,353		$	934,051

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

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SunPower Corporation

Consolidated Statements of Cash Flows

(In thousands)

(unaudited)



	Three Months Ended
	April 2, 2017			April 3, 2016
Cash flows from operating activities:
Net loss	$	(151,640	)	$	(101,417	)
Adjustments to reconcile net loss to net cash used in operating activities, net of effect of acquisitions:
Depreciation and amortization	42,084			42,117
Stock-based compensation	7,375			16,520
Non-cash interest expense	2,958			346
Dividend from 8point3 Energy Partners LP	7,192			—
Equity in loss (earnings) of unconsolidated investees	(1,052		)	764
Deferred income taxes	227			(762		)
Other, net	4,777			890
Changes in operating assets and liabilities, net of effect of acquisitions:
Accounts receivable	51,669			12,561
Costs and estimated earnings in excess of billings	11,298			(17,525		)
Inventories	(40,004		)	(18,248		)
Project assets	37,192			(179,376		)
Prepaid expenses and other assets	85,251			(45,441		)
Long-term financing receivables, net	(30,643		)	(44,011		)
Advances to suppliers	13,701			11,913
Accounts payable and other accrued liabilities	(198,119		)	(69,974		)
Billings in excess of costs and estimated earnings	(61,022		)	26,866
Customer advances	91,863			(5,124		)
Net cash used in operating activities	(126,893		)	(369,901		)
Cash flows from investing activities:
Purchases of property, plant and equipment	(27,877		)	(47,044		)
Cash paid for solar power systems, leased and to be leased	(18,217		)	(23,238		)
Cash paid for solar power systems	(4,605		)	—
Payments to 8point3 Energy Partners LP	—			(9,968		)
Cash paid for investments in unconsolidated investees	(10,142		)	(9,752		)
Net cash used in investing activities	(60,841		)	(90,002		)
Cash flows from financing activities:
Proceeds from bank loans and other debt	110,763			—
Repayment of bank loans and other debt	(129,027		)	(7,725		)
Proceeds from issuance of non-recourse residential financing, net of issuance costs	20,580			28,339
Repayment of non-recourse residential financing	(1,298		)	(1,065		)
Contributions from noncontrolling interests and redeemable noncontrolling interests attributable to residential projects	49,030			24,082
Distributions to noncontrolling interests and redeemable noncontrolling interests attributable to residential projects	(3,763		)	(5,309		)
Proceeds from issuance of non-recourse power plant and commercial financing, net of issuance costs	121,818			79,440
Repayment of non-recourse power plant and commercial financing	(28,964		)	(37,301		)
Purchases of stock for tax withholding obligations on vested restricted stock	(4,062		)	(18,876		)
Net cash provided by financing activities	135,077			61,585
Effect of exchange rate changes on cash, cash equivalents, restricted cash and restricted cash equivalents	788			774
Net decrease in cash, cash equivalents, restricted cash and restricted cash equivalents	(51,869		)	(397,544		)
Cash, cash equivalents, restricted cash and restricted cash equivalents, beginning of period¹	514,212			1,020,764
Cash, cash equivalents, restricted cash and restricted cash equivalents, end of period¹	$	462,343		$	623,220

Non-cash transactions:
Assignment of residential lease receivables to third parties	$	18		$	1,097
Costs of solar power systems, leased and to be leased, sourced from existing inventory	$	13,389		$	15,085
Costs of solar power systems, leased and to be leased, funded by liabilities	$	3,169		$	9,050
Costs of solar power systems under sale-leaseback financing arrangements, sourced from project assets	$	52,917		$	—
Property, plant and equipment acquisitions funded by liabilities	$	44,966		$	81,369
Net reclassification of cash proceeds offset by project assets in connection with the deconsolidation of assets sold to the 8point3 Group	$	2,615		$	8,726


¹	"Cash, cash equivalents, restricted cash and restricted cash equivalents" balance consisted of "Cash and cash equivalents", "Restricted cash and cash equivalents, current portion" and "Restricted cash and equivalents, net of current portion" financial statement line items in the Consolidated Balance Sheets for the respective periods.

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 leading global energy company that delivers complete solar solutions to residential, commercial, and power plant customers worldwide through an array of hardware, software, and financing options and through utility-scale solar power system construction and development capabilities, operations and maintenance ("O&M") services, and "Smart Energy" solutions. SunPower's Smart Energy initiative is designed to add layers of intelligent control to homes, buildings and grids-all personalized through easy-to-use customer interfaces. Of all the solar cells commercially available to the mass market, the Company believes its solar cells have the highest conversion efficiency, a measurement of the amount of sunlight converted by the solar cell into electricity. 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).

The Company's President and Chief Executive Officer, as the chief operating decision maker ("CODM"), has organized the Company, manages resource allocations and measures performance of the Company's activities among 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.

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 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.

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 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. Both fiscal 2017 and 2016 are 52-week fiscal years. The first quarter of fiscal 2017 ended on April 2, 2017, while the first quarter of fiscal 2016 ended on April 3, 2016. The first quarters of fiscal 2017 and 2016 were both 13-week quarters.

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

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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 valuation assumptions including discount rates, future cash flows and economic useful lives of property, plant and equipment, valuations for business combinations, other intangible assets, investments, and other long-term assets; the fair value and residual value of 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 and indemnities. Actual results could materially differ from those estimates.

Recently Adopted Accounting Pronouncements

In November 2016, the Financial Accounting Standards Board ("FASB") issued an update to the standards to require companies to include amounts generally described as restricted cash and restricted cash equivalents in cash and cash equivalents when reconciling beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The new standard is effective for the Company no later than the first quarter of fiscal 2018. The Company elected early adoption of the updated accounting standard in the first quarter of fiscal 2017. The Company had restricted cash and cash equivalents held by various banks to secure our letter of credit facilities and deposits designated for the construction of various residential, commercial and power plant solar energy projects. The adoption of this accounting standard did not result in a significant impact to the Company’s consolidated financial statements and related disclosures.

In October 2016, the FASB issued an update to the standards to amend how a reporting entity considers indirect interests held by related parties under common control when evaluating whether it is the primary beneficiary of a VIE. The Company adopted the updated accounting standard in the first quarter of fiscal 2017. Adoption of the new accounting standard did not have a material impact to the Company's consolidated financial statements.

In October 2016, the FASB issued an update to the standards to require entities to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. The new guidance is effective for the Company no later than the first quarter of fiscal 2018. The Company elected early adoption of the accounting standard in the first quarter of fiscal 2017, resulting in a cumulative-effect adjustment of a $61.0 million increase in accumulated deficit as of January 1, 2017, with corresponding adjustments to Prepaid expenses and other current assets, and Other long-term assets of $4.9 million and $56.1 million, respectively.

In August 2016, the FASB issued an update to the standards to clarify the classification of certain cash receipts and cash payments in the statement of cash flows, including debt prepayment or extinguishment costs, settlement of contingent consideration arising from a business combination, insurance settlement proceeds, and distributions from certain equity method investees. The new guidance is effective for the Company no later than the first quarter of fiscal 2018. The Company elected early adoption of the updated accounting standard on a retrospective basis in the first quarter of fiscal 2017. The adoption of this updated accounting standard did not result in a significant impact to the Company’s consolidated financial statements.

In March 2016, the FASB issued an update to the standards to simplify certain aspects of the accounting for share-based payment transactions to employees. The new standard requires excess tax benefits and tax deficiencies to be recorded in the statements of income as a component of the provision for income taxes when stock awards vest or are settled. In addition, it eliminates the requirement to reclassify cash flows related to excess tax benefits from operating activities to financing activities on the consolidated statements of cash flows. The standard also provides an accounting policy election to account for forfeitures as they occur, allows companies to withhold more of an employee’s vesting shares for tax withholding purposes without triggering liability accounting, and clarifies that all cash payments made to tax authorities on an employee’s behalf for withheld shares should be presented as a financing activity on the cash flows statement.

The Company adopted the new guidance in the first quarter of fiscal 2017. Upon adoption on a prospective basis, excess tax benefits or deficiencies from share-based award activity are reflected in the consolidated statements of income as a component of the provision for income taxes, whereas they were previously recognized in equity. The Company also elected to continue to estimate expected forfeitures to determine stock-based compensation expense and to present excess tax benefits as an operating activity in the statement of cash flows retrospectively. Adoption of the new accounting standard resulted in a decrease of net cumulative-effect adjustment of $15.7 million, primarily related to the recognition of the previously unrecognized excess tax benefits which decreased the accumulated deficit with a corresponding adjustment to long-term tax liabilities as of January 1, 2017. The Company adopted the guidance on a modified retrospective basis.

In March 2016, the FASB issued an update to the standards to eliminate the retroactive adoption of the equity method of accounting if an investment qualifies for use of the equity method as a result of an increase in the level of ownership or degree of influence. The new guidance is effective for the Company no later than the first quarter of fiscal 2017 and requires a prospective approach to adoption. The Company adopted the guidance in the first quarter of 2017, which impacted its

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investment in Dongfang Huansheng Photovoltaic (Jiangsu) Co., Ltd., given it qualified for equity method treatment during the quarter (see Note 9).

Recent Accounting Pronouncements Not Yet Adopted

In February 2017, the FASB issued new guidance to clarify the scope and application of the sale or transfer of nonfinancial assets to noncustomers, including partial sales and also defines what constitutes an “in substance nonfinancial asset” which can include financial assets. The new guidance eliminates several accounting differences between transactions involving assets and transactions involving businesses. Further, the guidance aligns the accounting for derecognition of a nonfinancial asset with that of a business. The new guidance is effective for the Company no later than the first quarter of 2018. The Company is evaluating the potential impact of this standard on its consolidated financial statements and disclosures.

In January 2017, the FASB issued an update to the standards to clarify the definition of a business to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The new guidance is effective for the Company no later than the first quarter of fiscal 2018 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 June 2016, the FASB issued an update to the standards to amend the methodology for measuring credit losses on financial instruments and the timing of when such losses are recorded. The new guidance is effective for the Company no later than the first quarter of fiscal 2020. Early adoption is permitted beginning in the first quarter of fiscal 2019. The Company is evaluating the potential impact of this standard on its consolidated financial statements and disclosures.

In February 2016, the FASB issued an update to the standards to require lessees to recognize a lease liability and a right-of-use asset for all leases (lease terms of more than 12 months) at the commencement date. The new guidance is effective for the Company no later than the first quarter of fiscal 2019 and requires a modified retrospective 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 January 2016, the FASB issued an update to the standards to require equity investments to be measured at fair value with changes in the fair value recognized through net income (other than those accounted for under the equity method of accounting or those that result in consolidation of the investee). The new guidance is effective for the Company no later than the first quarter of fiscal 2018 and upon adoption, an entity should apply the amendments by means of a cumulative-effect adjustment to the balance sheet at the beginning of the first reporting period in which the guidance is effective. Early adoption is permitted for the accounting guidance on financial liabilities under the fair value option. The Company is evaluating the potential impact of this standard on its consolidated financial statements and disclosures.

In May 2014, the FASB issued a new revenue recognition standard ("ASC 606") 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 FASB has issued several updates to the standard which i) clarify the application of the principal versus agent guidance; ii) clarify the guidance relating to performance obligations and licensing; and iii) clarify the assessment of the collectability criterion, presentation of sales taxes, measurement date for non-cash consideration and completed contracts at transaction; and iv) clarify narrow aspects of ASC 606 or corrects unintended application of the guidance. The new revenue recognition standard, amended by the updates, 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 has preliminarily decided to adopt ASC 606 effective January 1, 2018 using the full retrospective approach; however, the final determination will depend on a number of factors such as the process of finalizing the impact to the Company’s financial results and from additional disclosure requirements.

The Company has made significant progress with its evaluation of the impact of the new standard on its accounting policies, processes, and with updating its systems to fulfill the accounting and disclosure requirements under the new standard. The Company has assigned sufficient internal resources and also retained a third party service provider to assist with its implementation.

The Company expects the adoption of ASC 606 to primarily affect its Power Plants and Commercial segments. Sales of solar power systems that include the sale or lease of related real estate, which occur under both segments, are currently accounted for under the guidance for real estate sales ("ASC 360-20"). ASC 360-20 requires the Company to evaluate whether such arrangements have any forms of continuing involvement that may affect the revenue or profit recognition of the transactions, including arrangements with prohibited forms of continuing involvement requiring us to reduce the potential

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profit on a project sale by our maximum exposure to loss. We anticipate that ASC 606, which supersedes the real estate sales guidance under ASC 360-20, will result in the earlier recognition of revenue and profit. In addition, the Company’s investment in the 8point3 Group currently has a negative carrying value of $74.9 million primarily as a result of profit deferred under ASC 360-20. Under ASC 606, the Company expects that a material amount of this deferred profit will have been recognized prior to January 1, 2018, and as a result the Company’s carrying value in the 8point3 Group will materially increase upon adoption. The Company expects that revenue recognition for our other sales arrangements, including the sales of components, sales and construction of solar systems, and operations and maintenance services, will remain materially consistent.

The Company continues to assess the potential impacts of the new standard, including the areas described above, and anticipates that this standard will have a material impact on its consolidated financial statements. However, the Company does not know or cannot reasonably estimate quantitative information, beyond that discussed above, related to the impact of the new standard on the financial statements at this time.

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. As of April 2, 2017, through the increase of the Company's total outstanding common stock due to the exercise of warrants and issuance of restricted and performance stock units, Total's ownership of the Company's outstanding common stock has decreased to approximately 56%.

Supply Agreement

In November 2016, the Company and Total entered into a four-year, up to 200-MW supply agreement to support the solarization of Total facilities. The agreement covers the supply of 150 MW of E-series panels with an option to purchase up to another 50 MW of P-Series panels. In March 2017, the Company received a prepayment totaling $88.5 million. The prepayment is secured by certain of the Company's assets located in the United States and in Mexico.

The Company recognizes revenue for the solar panels consistent with its revenue recognition policy for solar power components: when persuasive evidence of an arrangement exists, delivery of the product has occurred, title and risk of loss has passed to Total, the sales price is fixed or determinable, collectability of the resulting receivable is reasonably assured, and the risks and rewards of ownership have passed. As of April 2, 2017, the Company had $6.7 million of "Customer Advances, current portion" and $81.7 million of "Customer Advances, net of current portion" on its Consolidated Balance Sheets related to the aforementioned supply agreement.

Amended and Restated Credit Support Agreement

In June 2016, the Company and Total S.A. entered into an Amended and Restated Credit Support Agreement (the "Credit Support Agreement") which amended and restated the Credit Support Agreement dated April 28, 2011 by and between the Company and Total S.A., as amended. Under the Credit Support Agreement, 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. At any time until December 31, 2018, Total S.A. will, at the Company's request, guarantee the payment to the applicable issuing bank of the Company's obligation to reimburse 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. Such letters of credit must be issued no later than December 31, 2018 and expire no later than March 31, 2020. Total is required to issue and enter into a Guaranty requested by the Company, subject to certain terms and conditions. In addition, Total will not be required to enter into the Guaranty if, after giving effect to the Company’s request for a Guaranty, the sum of (a) the aggregate amount available to be drawn under all guaranteed letter of credit facilities, (b) the amount of letters of credit available to be issued under any guaranteed facility, and (c) the aggregate amount of draws (including accrued but unpaid interest) on any letters of credit issued under any guaranteed facility that have not yet been reimbursed by the Company, would exceed $500 million in the aggregate. Such maximum amounts of credit support available to the Company can be reduced upon the occurrence of specified events.

In consideration for the commitments of Total S.A. pursuant to the Credit Support Agreement, the Company is required to pay Total S.A. a guaranty 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 will terminate following December 31, 2018, after the later of the satisfaction of all obligations thereunder and the termination or expiration of each Guaranty provided thereunder.

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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 the 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.

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, which is governed by the Private Placement Agreement and a Compensation and Funding Agreement entered into in February 2012, 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 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.

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

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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.

4.00% Debentures Due 2023

In December 2015, the Company issued $425.0 million in principal amount of its 4.00% senior convertible debentures due 2023 (the "4.00% debentures due 2023"). An aggregate principal amount of $100.0 million of the 4.00% debentures due 2023 were acquired by Total. The 4.00% debentures due 2023 are convertible into shares of the Company's common stock at any time based on an initial conversion price equal to $30.53 per share, which provides Total the right to acquire up to 3,275,680 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 4.00% debentures due 2023.

Joint Projects with Total and its Affiliates:

The Company enters into various EPC and 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 April 2, 2017, the Company had $3.5 million of "Billings in excess of costs and estimated earnings", $0.9 million of "Costs and estimated earnings in excess of billings" and $2.8 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.

During the first quarter of fiscal 2017, in connection with a co-development project between SunPower and Total, Total paid $0.5 million to the Company in exchange for the Company's ownership interest in the co-development project.

Related-Party Transactions with Total and its Affiliates:



	Three Months Ended
(In thousands)	April 2, 2017			April 3, 2016
Revenue:
EPC, O&M, and components revenue under joint projects	$	4,132		$	40,916
Research and development expense:
Offsetting contributions received under the R&D Agreement	$	(67	)	$	—
Interest expense:
Guarantee fees incurred under the Credit Support Agreement	$	1,799		$	1,646
Interest expense incurred on the 0.75% debentures due 2018	$	375		$	375
Interest expense incurred on the 0.875% debentures due 2021	$	547		$	547
Interest expense incurred on the 4.00% debentures due 2023	$	1,000		$	1,000

Note 3. OTHER INTANGIBLE ASSETS

Other Intangible Assets

The following tables present details of the Company's acquired other intangible assets:

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(In thousands)	Gross		Accumulated Amortization			Net
As of April 2, 2017
Patents and purchased technology	$	51,140	$	(18,582	)	$	32,558
Project pipeline assets	9,446		(2,263		)	7,183
Purchased in-process research and development	1,200		—			1,200
Other	1,000		(875		)	125
	$	62,786	$	(21,720	)	$	41,066

As of January 1, 2017
Patents and purchased technology	$	51,140	$	(16,014	)	$	35,126
Project pipeline assets	9,446		(1,804		)	7,642
Purchased in-process research and development	1,200		—			1,200
Other	1,000		(750		)	250
	$	62,786	$	(18,568	)	$	44,218

Aggregate amortization expense for intangible assets totaled $3.2 million and $8.3 million for the three months ended April 2, 2017 and April 3, 2016, respectively.

As of April 2, 2017, the estimated future amortization expense related to intangible assets with finite useful lives is as follows:



(In thousands)	Amount
Fiscal Year
2017 (remaining nine months)	$	9,143
2018	14,407
2019	9,963
2020	6,317
2021	2
Thereafter	12
	$	39,844

Note 4. BALANCE SHEET COMPONENTS



	As of
(In thousands)	April 2, 2017			January 1, 2017
Accounts receivable, net:
Accounts receivable, gross^1,2	$	196,000		$	242,451
Less: allowance for doubtful accounts	(25,718		)	(20,380		)
Less: allowance for sales returns	(2,421		)	(2,433		)
	$	167,861		$	219,638


¹	Includes short-term financing receivables associated with solar power systems leased of $20.7 million and $19.3 million as of April 2, 2017 and January 1, 2017, respectively (see Note 5).


²	Includes short-term retainage of $6.8 million and $8.8 million as of April 2, 2017 and January 1, 2017, 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.

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	As of
(In thousands)	April 2, 2017		January 1, 2017
Inventories:
Raw materials	$	128,024	$	136,906
Work-in-process	193,357		184,967
Finished goods	106,797		79,834
	$	428,178	$	401,707



	As of
(In thousands)	April 2, 2017		January 1, 2017
Prepaid expenses and other current assets:
Deferred project costs	$	18,630	$	68,338
VAT receivables, current portion	18,560		14,260
Deferred costs for solar power systems to be leased	26,070		28,705
Derivative financial instruments	3,263		4,802
Prepaid inventory	61,214		83,943
Other receivables	71,730		85,834
Prepaid taxes	882		5,468
Other prepaid expenses	25,203		24,260
Other current assets	59		60
	$	225,611	$	315,670



	As of
(In thousands)	April 2, 2017		January 1, 2017
Project assets - plants and land:
Project assets — plants	$	302,162	$	389,103
Project assets — land	17,860		18,927
	$	320,022	$	408,030
Project assets - plants and land, current portion	$	285,321	$	374,459
Project assets - plants and land, net of current portion	$	34,701	$	33,571



	As of
(In thousands)	April 2, 2017			January 1, 2017
Property, plant and equipment, net:
Manufacturing equipment¹	$	404,054		$	403,808
Land and buildings	130,077			130,080
Leasehold improvements	287,279			280,620
Solar power systems²	266,172			207,277
Computer equipment	189,921			185,518
Furniture and fixtures	12,920			12,591
Construction-in-process	47,581			39,849
	1,338,004			1,259,743
Less: accumulated depreciation	(264,821		)	(232,677		)
	$	1,073,183		$	1,027,066


¹	The Company's mortgage loan agreement with International Finance Corporation ("IFC") was collateralized by certain manufacturing equipment with a net book value of $14.3 million as of January 1, 2017. As of April 2, 2017, the entire outstanding balance, and the associated interest, of the mortgage loan agreement with IFC has been repaid.

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²	Includes $234.6 million and $177.1 million of solar power systems associated with sale-leaseback transactions under the financing method as of April 2, 2017 and January 1, 2017, 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 5).



	As of
(In thousands)	April 2, 2017		January 1, 2017
Property, plant and equipment, net by geography¹:
Philippines	$	365,683	$	373,286
Malaysia	265,959		275,980
United States	335,241		276,053
Mexico	85,873		81,419
Europe	20,040		20,154
Other	387		174
	$	1,073,183	$	1,027,066


¹	Property, plant and equipment, net by geography is based on the physical location of the assets.



	As of
(In thousands)	April 2, 2017			January 1, 2017
Other long-term assets:
Equity method investments¹	$	(2,391	)	$	(6,931	)
Derivative financial instruments	11,452			11,429
Cost method investments	31,668			39,423
Other	86,150			141,598
	$	126,879		$	185,519


¹	Includes the carrying value of the Company's investment in the 8point3 Group, which had a negative value of $74.9 million and $60.6 million as of April 2, 2017 and January 1, 2017, respectively (see Note 9).



	As of
(In thousands)	April 2, 2017		January 1, 2017
Accrued liabilities:
Employee compensation and employee benefits	$	34,947	$	43,370
Deferred revenue	29,463		27,649
Interest payable	12,651		15,329
Short-term warranty reserves	18,540		4,894
Restructuring reserve	9,840		18,001
VAT payables	6,270		4,743
Derivative financial instruments	1,194		2,023
Inventory payable	61,214		83,943
Proceeds from 8point3 Energy Partners attributable to projects prior to Commercial Operation Date ("COD")	2,492		3,665
Contributions from noncontrolling interests attributable to projects prior to COD	295		93,875
Taxes payable	18,951		25,602
Liability due to AU Optronics	38,171		31,714
Other	27,443		36,418
	$	261,471	$	391,226

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	As of
(In thousands)	April 2, 2017		January 1, 2017
Other long-term liabilities:
Deferred revenue	$	187,416	$	188,932
Long-term warranty reserves	149,573		156,315
Long-term sale-leaseback financing	259,208		204,879
Long-term residential lease financing with 8point3 Energy Partners	29,354		29,370
Unrecognized tax benefits	31,586		47,203
Long-term pension liability	3,627		3,381
Derivative financial instruments	827		448
Long-term liability due to AU Optronics	68,105		71,639
Other	45,185		18,865
	$	774,881	$	721,032



	As of
(In thousands)	April 2, 2017			January 1, 2017
Accumulated other comprehensive loss:
Cumulative translation adjustment	$	(14,237	)	$	(12,249	)
Net unrealized gain on derivatives	(59		)	1,203
Net gain on long-term pension liability adjustment	4,228			4,228
Deferred taxes	(77		)	(420		)
	$	(10,145	)	$	(7,238	)

Note 5. LEASING

Residential Lease Program

The Company offers a solar lease program, which provides U.S. residential customers with 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 April 2, 2017 and January 1, 2017:



	As of
(In thousands)	April 2, 2017			January 1, 2017
Solar power systems leased and to be leased, net^1,2:
Solar power systems leased	$	703,205		$	666,700
Solar power systems to be leased	20,490			25,367
	723,695			692,067
Less: accumulated depreciation	(77,833		)	(70,800		)
	$	645,862		$	621,267


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


²	As of April 2, 2017 and January 1, 2017, the Company had pledged solar assets with an aggregate book value of $20.0 million and $13.1 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 April 2, 2017:

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(In thousands)	Fiscal 2017 (remaining nine months)		Fiscal 2018	Fiscal 2019	Fiscal 2020	Fiscal 2021	Thereafter	Total
Minimum future rentals on operating leases placed in service¹	$	19,756	26,229	26,280	26,334	26,390	360,794	$	485,783


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 April 2, 2017 and January 1, 2017, 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)	April 2, 2017			January 1, 2017
Financing receivables¹:
Minimum lease payments receivable²	$	593,094		$	560,582
Unguaranteed residual value	74,464			70,636
Unearned income	(108,900		)	(104,624		)
Net financing receivables	$	558,658		$	526,594
Current	$	20,682		$	19,261
Long-term	$	537,976		$	507,333


¹	As of April 2, 2017 and January 1, 2017, the Company had pledged financing receivables of $25.2 million and $18.6 million, respectively, to third-party investors as security for the Company's contractual obligations.


²	Net of allowance for doubtful accounts amounting to $5.0 million and $4.5 million, as of April 2, 2017 and January 1, 2017, respectively.

As of April 2, 2017, future maturities of net financing receivables for sales-type leases are as follows:



(In thousands)	Fiscal 2017 (remaining nine months)		Fiscal 2018	Fiscal 2019	Fiscal 2020	Fiscal 2021	Thereafter	Total
Scheduled maturities of minimum lease payments receivable¹	$	23,215	30,109	30,368	30,636	30,909	447,857	$	593,094


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.

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 25 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 April 2, 2017, future minimum lease obligations associated with these systems were $77.3 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.

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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. 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 4). As of April 2, 2017, future minimum lease obligations for the sale-leaseback arrangements accounted for under the financing method were $221.8 million, which will be recognized over the lease terms of up to 25 years. During the three months ended April 2, 2017 and April 3, 2016, the Company had net financing proceeds of $38.1 million and zero, respectively, in connection with these sale-leaseback arrangements. As of April 2, 2017 and January 1, 2017, the carrying amount of the sale-leaseback financing liabilities, presented in "Other long-term liabilities" on the Company's Consolidated Balance Sheets, was $259.2 million and $204.9 million, respectively (see Note 4).

Note 6. 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 April 2, 2017 or January 1, 2017.

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The following table summarizes the Company's assets and liabilities measured and recorded at fair value on a recurring basis as of April 2, 2017 and January 1, 2017:



	April 2, 2017						January 1, 2017
(In thousands)	Total		Level 1		Level 2		Total		Level 1		Level 2
Assets
Cash and cash equivalents¹:
Money market funds	$	3,002	$	3,002	$	—	$	3,002	$	3,002	$	—
Prepaid expenses and other current assets:
Derivative financial instruments (Note 11)	3,263		—		3,263		4,802		—		4,802
Other long-term assets:
Derivative financial instruments (Note 11)	11,452		—		11,452		11,429		—		11,429
Total assets	$	17,717	$	3,002	$	14,715	$	19,233	$	3,002	$	16,231
Liabilities
Accrued liabilities:
Derivative financial instruments (Note 11)	1,194		—		1,194		2,023		—		2,023
Other long-term liabilities:
Derivative financial instruments (Note 11)	827		—		827		448		—		448
Total liabilities	$	2,021	$	—	$	2,021	$	2,471	$	—	$	2,471

The Company's cash equivalents consist of money market fund instruments and commercial paper that are classified as available-for-sale and are 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.

Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis

The Company measures certain investments and non-financial assets (including 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. As of April 2, 2017and April 3, 2016, there were no such items recorded at fair value.

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 various maturity dates and are classified as "Restricted long-term marketable securities" on the Company's Consolidated Balance Sheets. As of April 2, 2017 and January 1, 2017 these bonds had a carrying value of $4.9 million and $5.0 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-

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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 April 2, 2017 and January 1, 2017, the Company had $(2.4) million and $(6.9) million, respectively, in investments accounted for under the equity method (see Note 9). As of April 2, 2017 and January 1, 2017, the Company had $31.7 million and $39.4 million respectively, in investments accounted for under the cost method.

Note 7. RESTRUCTURING

December 2016 Restructuring Plan

On December 2, 2016, the Company adopted a restructuring plan to reduce costs and focus on improving cash flow. As part of the plan, the Board of Directors approved the closure of the Company’s Philippine-based Fab 2 manufacturing facility. In connection with the plan, which is expected to be completed by the end of fiscal 2017, the Company expects approximately 2,500 employees to be affected, primarily in the Philippines. The Company expects to incur restructuring charges in connection with the plan totaling approximately $225 million to $275 million, consisting primarily of asset impairments, severance benefits, lease and related termination costs, and other associated costs. The Company expects approximately 30% of such total restructuring charges to be cash. The actual timing and costs of the plan may differ from the Company’s current expectations and estimates.

August 2016 Restructuring Plan

On August 9, 2016, the Company adopted a restructuring plan in response to expected near-term challenges primarily relating to the Company’s Power Plant Segment. In connection with the realignment, which is expected to be completed by the end of fiscal 2017, the Company expects approximately 1,200 employees to be affected, primarily in the Philippines. The Company expects to incur restructuring charges totaling approximately $35 million to $45 million, consisting primarily of severance benefits, asset impairments, lease and related termination costs, and other associated costs. The Company expects more than 50% of total charges to be cash. 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 prior fiscal years, 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 April 2, 2017, and the remaining costs to be incurred are not expected to be material.

The following table summarizes the restructuring charges recognized in the Company's Consolidated Statements of Operations:

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	Three Months Ended
(In thousands)	April 2, 2017			April 3, 2016		Cumulative To Date
December 2016 Plan:
Non-cash impairment charges (benefits)	$	(124	)	$	—	$	148,667
Severance and benefits	$	2,974		$	—	$	18,875
Lease and related termination costs	$	580		$	—	$	580
Other costs¹	$	6,404		$	—	$	14,223
	$	9,834		$	—	$	182,345
August 2016 Plan:
Non-cash impairment charges	$	—		$	—	$	17,926
Severance and benefits	(267		)	—		15,324
Lease and related termination costs	2			—		559
Other costs¹	$	208		$	—	572
	$	(57	)	$	—	$	34,381
Legacy Restructuring Plans:
Non-cash impairment charges	$	—		$	—	$	61,320
Severance and benefits	14			—		61,963
Lease and related termination costs	—			—		6,813
Other costs¹	(1		)	96		13,598
	$	13		$	96	$	143,694
Total restructuring charges	$	9,790		$	96	$	360,420

¹Other costs primarily represent associated legal and advisory services, and costs of relocating employees.

The following table summarizes the restructuring reserve activity during the three months ended April 2, 2017:



	Three Months Ended
(In thousands)	January 1, 2017		Charges (Benefits)			Payments			April 2, 2017
December 2016 Plan:
Non-cash impairment charges (benefits)	$	—	$	(124	)	$	—		$	—
Severance and benefits	$	8,111	$	2,974		$	(7,423	)	$	3,662
Lease and related termination costs	$	—	$	580		$	(204	)	$	376
Other costs¹	$	5,932	$	6,404		$	(9,148	)	$	3,188
	$	14,043	$	9,834		$	(16,775	)	$	7,226
August 2016 Plan:
Non-cash impairment charges	$	—	$	—		$	—		$	—
Severance and benefits	3,448		(267		)	(1,128		)	2,053
Lease and related termination costs	—		2			(2		)	—
Other costs¹	86		208			(133		)	161
	$	3,534	(57		)	$	(1,263	)	2,214
Legacy Restructuring Plans:
Severance and benefits	299		14			(10		)	303
Lease and related termination costs	52		—			(24		)	28
Other costs¹	73		(1		)	(3		)	69
	424		13			(37		)	400
Total restructuring liability	$	18,001	$	9,790		$	(18,075	)	$	9,840


¹	Other costs primarily represent associated legal and advisory services, and costs of relocating employees.

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The following table summarizes the restructuring reserve activity during the three months ended April 3, 2016:



	Three Months Ended
(In thousands)	January 3, 2016		Charges (Benefits)		Payments			April 3, 2016
Legacy Restructuring Plans:
Severance and benefits	395		$	—	$	16		$	411
Lease and related termination costs	743		—		(127		)	616
Other costs¹	685		96		(194		)	587
Total restructuring liability	$	1,823	$	96	$	(305	)	$	1,614


¹	Other costs primarily represent associated legal services and costs of relocating employees.

Note 8. COMMITMENTS AND CONTINGENCIES

Facility and Equipment Lease Commitments

The Company leases certain facilities under non-cancellable operating leases from unaffiliated third parties. As of April 2, 2017, future minimum lease payments for facilities under operating leases were $50.1 million, to be paid over the remaining contractual terms of up to 8 years. The Company also leases certain buildings, machinery and equipment under non-cancellable capital leases. As of April 2, 2017, future minimum lease payments for assets under capital leases were $4.3 million, to be paid over the remaining contractual terms of up to 7 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, 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 4 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 April 2, 2017 are as follows:



(In thousands)	Fiscal 2017 (remaining nine months)		Fiscal 2018	Fiscal 2019	Fiscal 2020	Fiscal 2021	Thereafter	Total¹²
Future purchase obligations	$	659,370	206,486	175,695	161,847	1,000	2,000	$	1,206,398


¹	Total future purchase obligations were composed of $191.6 million related to non-cancellable purchase orders and $1.0 billion related to long-term supply agreements.

During fiscal 2016, the Company did not fulfill all of the purchase commitments it was otherwise obligated to take by December 31, 2016, as specified in related contracts with a supplier. As of April 2, 2017, the Company has recorded an offsetting asset, recorded within "Prepaid expenses and other current assets," and liability, recorded within "Accrued liabilities," totaling $61.2 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 2017, 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

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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, which in the case of polysilicon are at purchase prices significantly above current market prices for similar materials, will be recovered because quantities are less than management's expected demand for its solar power products over the next several years. 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 net realizable 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 was required to make prepayments to the vendors over the terms of the arrangements. As of April 2, 2017 and January 1, 2017, advances to suppliers totaled $271.1 million and $284.8 million, respectively, of which $111.9 million and $111.5 million, respectively, is classified as short-term in the Company's Consolidated Balance Sheets. Two suppliers accounted for 92% and 8% of total advances to suppliers, respectively, as of April 2, 2017, and 90% and 10%, respectively, as of January 1, 2017.

Advances from Customers

The estimated utilization of advances from customers as of April 2, 2017 is as follows:



(In thousands)	Fiscal 2017 (remaining nine months)		Fiscal 2018	Fiscal 2019	Fiscal 2020	Fiscal 2021	Thereafter	Total
Estimated utilization of advances from customers	$	8,397	21,922	37,170	34,810	—	—	$	102,299

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. In November 2016, the Company and Total entered into a four-year, up to 200-MW supply agreement to support the solarization of Total facilities (see Note 2); in March 2017, the Company received a prepayment totaling $88.5 million. As of April 2, 2017, the Company had $88.4 million advanced payments received from Total, of which $6.7 million was classified as short-term in the Company's Consolidated Balance Sheets, based on projected shipment dates.

Product Warranties

The following table summarizes accrued warranty activity for the three months ended April 2, 2017 and April 3, 2016, respectively:



	Three Months Ended
(In thousands)	April 2, 2017			April 3, 2016
Balance at the beginning of the period	$	161,209		$	164,127
Accruals for warranties issued during the period	9,660			5,879
Settlements and adjustments during the period	(2,756		)	(3,566		)
Balance at the end of the period	$	168,113		$	166,440

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

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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 agreements with unconsolidated investees, subject to certain conditions (see Note 9). As of April 2, 2017, the Company has future financing obligations related to these agreements as follows:



(In thousands)	Amount
Year
2017 (remaining nine months)	$	17,979
2018	12,830
	$	30,809

Liabilities Associated with Uncertain Tax Positions

Total liabilities associated with uncertain tax positions were $31.6 million and $47.2 million as of April 2, 2017 and January 1, 2017, respectively. These amounts are included in "Other long-term liabilities" in the Company's Consolidated Balance Sheets in their respective periods as they are not expected to be paid within the next 12 months. 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.

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 U.S. Treasury Department ("Treasury Department") grant payments under Section 1603 of the American Recovery and Reinvestment Act (each a "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 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 Internal Revenue Service ("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 tax equity investors, incorporate assumptions regarding the future level of incentives to be received, which in some instances may be claimed directly by the Company's customers and investors. Generally, such obligations would arise as a result of reductions to the value of the underlying solar power systems as assessed by the IRS. At each balance sheet date, the Company assesses and recognizes, when applicable, the potential exposure from these obligations based on all the information available at that time, including any audits undertaken by the IRS. The maximum potential future payments that the Company could have to make under this obligation would depend on the difference between the eligible basis claimed on the tax filing for the solar energy systems sold or transferred to indemnified parties and the values that the IRS may redetermine as the eligible basis for the systems for purposes of claiming ITCs or U.S. Treasury grants. The Company uses the eligible basis for tax filing purposes determined with the assistance of independent third-party appraisals to determine the ITCs that are passed-through to and claimed by the indemnified parties. Since the Company cannot determine

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future revisions to Treasury Department guidelines governing system values, how the IRS will evaluate system values used in claiming ITCs, or U.S. Treasury grants, or how its customers and investors have utilized or will utilize these benefits in their own filings, 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 April 2, 2017 and January 1, 2017, the underfunded status of the Company’s pension plans, presented in "Other long-term liabilities" on the Company’s Consolidated Balance Sheets, was $3.6 million and $3.4 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. Total other comprehensive gain related to the Company’s benefit plans was zero for the three months ended April 2, 2017.

Legal Matters

Tax Benefit Indemnification Litigation

On March 19, 2014, a lawsuit was filed by NRG Solar LLC, now known as NRG Renew 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 benefits associated with the project that were approved by the Treasury Department for an amount that was less than expected. 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 the Treasury Department. In April 2017, SunPower Systems and NRG entered into a binding term sheet to resolve the matter by settlement. The Company recorded a litigation accrual of $43.9 million in its April 2, 2017 financial statements related to this matter.

Class Action and Derivative Suits

On August 16, 2016 and August 26, 2016, two securities class action lawsuits were filed against the Company and certain of its officers and directors (the "Defendants") in the United States District Court for the Northern District of California on behalf of a class consisting of those who acquired the Company's securities from February 17, 2016 through August 9, 2016 (the "Class Period"). The substantially identical complaints allege violations of Sections 10(b) and 20(a) of the Exchange Act,

15 U.S.C. §§78j(b) and 78t(a) and SEC Rule 10b-5, 17 C.F.R. §240.10b-5. The complaints were filed following the issuance of the Company's August 9, 2016 earnings release and revised guidance and generally allege that throughout the Class Period, Defendants made materially false and/or misleading statements and failed to disclose material adverse facts about the Company’s business, operations, and prospects. On December 9, 2016, the court consolidated the cases and appointed a lead plaintiff. On March 31, 2017, the lead plaintiff filed a motion to withdraw as lead plaintiff. That motion is set to be heard on May 25, 2017. A hearing to appoint a new lead plaintiff and lead counsel is set to be heard on June 1, 2017. No operative complaint has been filed.

Four shareholder derivative actions have been filed in federal court, purporting to be brought on the Company's behalf against certain of the Company's current and former officers and directors based on the same events alleged in the securities class action lawsuits described above. The Company is named as a nominal defendant. The plaintiffs assert claims for alleged breaches of fiduciary duties, unjust enrichment, and waste of corporate assets for the period from February 2016 through the present and generally allege that the defendants made or caused the Company to make materially false and/or misleading statements and failed to disclose material adverse facts about the Company’s business, operations, and prospects. The plaintiffs also claim that the alleged conduct is a breach of the Company's Code of Business Conduct and Ethics, and that defendants, including members of the Company's Audit Committee, breached their fiduciary duties by failing to ensure the adequacy of the Company's internal controls, and by causing or allowing the Company to disseminate false and misleading statements in the Company’s SEC filings and other disclosures. The securities class action lawsuits and the federal derivative actions have all

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been related by the Court and assigned to one judge. The derivative cases are stayed pending the outcome of an anticipated motion to dismiss the not yet filed class action complaint.

Shareholder derivative actions purporting to be brought on the Company’s behalf were brought in the Superior Court of California for the County of Santa Clara against certain of the Company’s current and former officers and directors based on the same events alleged in the securities class action and federal derivative lawsuits described above, and alleging breaches of fiduciary duties. The state court cases are stayed pending the outcome of an anticipated motion to dismiss the not yet filed class action complaint.

The Company is currently unable to determine if the resolution of these matters will have a material adverse effect on the Company's financial position, liquidity, or results of operations.

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