SPWR_03.30.2014_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 March 30, 2014
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 April 25, 2014 was 130,686,326.

 
 
 
 
 
d


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TABLE OF CONTENTS
 
 
Page
Part 1. FINANCIAL INFORMATION
 
 
 
Item 1.
Financial Statements (unaudited)
 
 
 
 
Consolidated Balance Sheets
 
 
 
 
Consolidated Statements of Operations
 
 
 
 
Consolidated Statements of Comprehensive Income (Loss)
 
 
 
 
Consolidated Statement 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 1A.
Risk Factors
 
 
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
 
 
 
Item 6.
Exhibits
 
 
 
Signatures
 
 
 
Index to Exhibits

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PART I. FINANCIAL INFORMATION


ITEM 1. FINANCIAL STATEMENTS

SunPower Corporation
Consolidated Balance Sheets
(In thousands, except share data)
(unaudited)

 
March 30, 2014
 
December 29, 2013
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
754,741

 
$
762,511

Restricted cash and cash equivalents, current portion
14,140

 
13,926

Accounts receivable, net
265,402

 
360,594

Costs and estimated earnings in excess of billings
17,778

 
31,787

Inventories
234,380

 
245,575

Advances to suppliers, current portion
69,103

 
58,619

Project assets - plants and land, current portion
30,304

 
69,196

Prepaid expenses and other current assets1
648,979

 
646,270

Total current assets
2,034,827

 
2,188,478

 
 
 
 
Restricted cash and cash equivalents, net of current portion
19,652

 
17,573

Restricted long-term marketable securities
8,715

 
8,892

Property, plant and equipment, net
535,287

 
533,387

Solar power systems leased and to be leased, net
360,571

 
345,504

Project assets - plants and land, net of current portion
7,751

 
6,411

Advances to suppliers, net of current portion
321,474

 
324,695

Long-term financing receivables, net
207,606

 
175,273

Other long-term assets1
330,458

 
298,477

Total assets
$
3,826,341

 
$
3,898,690

 
 
 
 
Liabilities and Equity
 

 
 

Current liabilities:
 

 
 

Accounts payable1
$
418,566

 
$
443,969

Accrued liabilities
378,501

 
358,157

Billings in excess of costs and estimated earnings1
191,641

 
308,650

Short-term debt
17,157

 
56,912

Convertible debt, current portion
460,501

 
455,889

Customer advances, current portion1
38,752

 
36,883

Total current liabilities
1,505,118

 
1,660,460

 
 
 
 
Long-term debt
123,423

 
93,095

Convertible debt, net of current portion1
300,079

 
300,079

Customer advances, net of current portion1
162,686

 
167,282

Other long-term liabilities
544,646

 
523,991

Total liabilities
2,635,952

 
2,744,907

Commitments and contingencies (Note 7)


 


Equity:
 

 
 

Preferred stock, $0.001 par value; 10,000,000 shares authorized; none issued and outstanding as of both March 30, 2014 and December 29, 2013

 

Common stock, $0.001 par value, 367,500,000 shares authorized; 130,266,418 shares issued, and 123,542,147 outstanding as of March 30, 2014; 126,946,763 shares issued, and 121,535,913 outstanding as of December 29, 2013
124


122

Additional paid-in capital
1,987,870

 
1,980,778

Accumulated deficit
(741,448
)
 
(806,492
)
Accumulated other comprehensive loss
(3,769
)
 
(4,318
)
Treasury stock, at cost; 6,724,271 shares of common stock as of March 30, 2014; 5,410,850 shares of common stock as of December 29, 2013
(97,443
)
 
(53,937
)
Total stockholders' equity
1,145,334

 
1,116,153

Noncontrolling interests in subsidiaries
45,055

 
37,630

Total equity
1,190,389

 
1,153,783

Total liabilities and equity
$
3,826,341

 
$
3,898,690

1 
The Company has related party balances in connection with 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 "Prepaid expenses and other current assets," "Other long-term assets," "Accounts payable," "Billings in excess of costs and estimated earnings," "Customer advances, current portion," "Convertible debt, net of current portion," and "Customer advances, net of current portion" financial statement line items in the Condensed Consolidated Balance Sheets (see Note 2, Note 3, Note 7, Note 8, and Note 9).

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
 
 
March 30, 2014
 
March 31, 2013

 
 
 
 
Revenue
 
$
692,422

 
$
635,433

Cost of revenue
 
529,433

 
576,120

Gross margin
 
162,989

 
59,313

Operating expenses:
 
 
 
 
Research and development
 
16,746

 
13,170

Sales, general and administrative
 
73,928

 
70,092

Restructuring charges
 
(461
)
 
(337
)
Total operating expenses
 
90,213

 
82,925

Operating income (loss)
 
72,776

 
(23,612
)
Other income (expense), net:
 
 
 
 
Interest income
 
318

 
255

Interest expense
 
(19,592
)
 
(27,034
)
Other, net
 
1,369

 
(8,256
)
Other expense, net
 
(17,905
)
 
(35,035
)
Income (loss) before income taxes and equity in earnings (loss) of unconsolidated investees
 
54,871

 
(58,647
)
Provision for income taxes
 
(13,620
)
 
(2,989
)
Equity in earnings (loss) of unconsolidated investees
 
1,783

 
(333
)
Net income (loss)
 
43,034

 
(61,969
)
Net loss attributable to noncontrolling interests
 
22,010

 
7,273

Net income (loss) attributable to stockholders
 
$
65,044

 
$
(54,696
)
 
 
 
 
 
Net income (loss) per share attributable to stockholders:
 
 
 
 
Basic
 
$
0.53

 
$
(0.46
)
Diluted
 
$
0.42

 
$
(0.46
)
Weighted-average shares:
 
 
 
 
Basic
 
122,196

 
119,553

Diluted
 
160,434

 
119,553


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

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

 
 
Three Months Ended
(In thousands)
 
March 30, 2014
 
March 31, 2013
Net income (loss)
 
$
43,034

 
$
(61,969
)
Components of comprehensive income (loss):
 
 
 
 
Translation adjustment
 
274

 
(1,343
)
Net unrealized gain on derivatives (Note 10)
 
385

 
2,835

Income taxes
 
(110
)
 
(533
)
Net change in accumulated other comprehensive income (loss)
 
549

 
959

Total comprehensive income (loss)
 
43,583

 
(61,010
)
Comprehensive loss attributable to noncontrolling interests
 
22,010

 
7,273

Comprehensive income (loss) attributable to stockholders
 
$
65,593

 
$
(53,737
)

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


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SunPower Corporation
Consolidated Statement of Equity
(In thousands)
(unaudited)

 
 
Common Stock
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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 29, 2013
 
121,536

 
$
122

 
$
1,980,778

 
$
(53,937
)
 
$
(4,318
)
 
$
(806,492
)
 
$
1,116,153

 
$
37,630

 
$
1,153,783

Net income (loss)
 

 

 

 

 

 
65,044

 
65,044

 
22,010

 
43,034

Other comprehensive income
 

 

 

 

 
549

 

 
549

 

 
549

Issuance of common stock upon exercise of options
 
18

 

 
68

 

 

 

 
68

 

 
68

Issuance of restricted stock to employees, net of cancellations
 
3,300

 
2

 
(2
)
 

 

 

 

 

 

Conversion of 4.75% debentures
 
1

 

 
35

 

 

 

 
35

 

 
35

Settlement of the 4.75% Bond hedge
 

 

 
68,842

 

 

 

 
68,842

 

 
68,842

Settlement of the 4.75% Warrants
 

 

 
(81,077
)
 

 

 

 
(81,077
)
 

 
(81,077
)
Stock-based compensation expense
 

 

 
14,876

 

 

 

 
14,876

 

 
14,876

Tax benefit from convertible debt interest deduction
 

 

 
3,589

 

 

 

 
3,589

 

 
3,589

Tax benefit from stock-based compensation
 

 

 
761

 

 

 

 
761

 

 
761

Contributions from noncontrolling interests
 

 

 

 

 

 

 

 
30,552

 
30,552

Distributions to noncontrolling interests
 

 

 

 

 

 

 

 
(1,117
)
 
(1,117
)
Purchases of treasury stock
 
(1,313
)
 

 

 
(43,506
)
 

 

 
(43,506
)
 

 
(43,506
)
Balances at March 30, 2014
 
123,542

 
$
124

 
$
1,987,870

 
$
(97,443
)
 
$
(3,769
)
 
$
(741,448
)
 
$
1,145,334

 
$
45,055

 
$
1,190,389


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
 
March 30, 2014
 
March 31, 2013
Cash flows from operating activities:
 
 
 
Net income (loss)
$
43,034

 
$
(61,969
)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 
Depreciation and amortization
25,371

 
23,767

Stock-based compensation
14,867

 
8,516

Non-cash interest expense
5,170

 
11,890

Equity in (earnings) loss of unconsolidated investees
(1,783
)
 
333

Deferred income taxes and other tax liabilities
17,985

 
4,724

Other, net
9

 
1,094

Changes in operating assets and liabilities, net of effect of acquisition:
 
 
 
Accounts receivable
93,574

 
60,340

Costs and estimated earnings in excess of billings
14,009

 
(849
)
Inventories
4,043

 
(5,606
)
Project assets
22,491

 
(35,250
)
Long-term financing receivables, net
(32,333
)
 
(25,798
)
Prepaid expenses and other assets
(11,994
)
 
223,287

Advances to suppliers
(7,263
)
 
(4,319
)
Accounts payable and other accrued liabilities
(16,972
)
 
(28,825
)
Billings in excess of costs and estimated earnings
(117,009
)
 
(2,697
)
Customer advances
(2,727
)
 
(1,775
)
Net cash provided by operating activities
50,472

 
166,863

Cash flows from investing activities:
 
 
 
Decrease (increase) in restricted cash and cash equivalents
(2,293
)
 
17,797

Purchases of property, plant and equipment
(8,800
)
 
(12,042
)
Cash paid for solar power systems, leased and to be leased
(14,989
)
 
(41,688
)
Proceeds from sale of equipment to third-party

 
11

Cash paid for investments in unconsolidated investees
(5,013
)
 

Net cash used in investing activities
(31,095
)
 
(35,922
)
Cash flows from financing activities:
 
 
 
Proceeds from issuance of non-recourse debt financing, net of issuance costs
39,108

 

Proceeds from issuance of project loans, net of issuance costs

 
24,061

Proceeds from residential lease financing

 
39,090

Proceeds from sale-leaseback financing
16,685

 
33,850

Contributions from noncontrolling interests
30,552

 
12,315

Proceeds from exercise of stock options
68

 
25

Proceeds from settlement of 4.75% Bond Hedge
68,842

 

Payments to settle 4.75% Warrants
(81,077
)
 

Repayment of bank loans, project loans and other debt
(7,850
)
 
(180,501
)
Assumption of project loan by customer
(40,672
)
 

Repayment of residential lease financing
(7,213
)
 

Repayment of sale-leaseback financing
(779
)
 

Distributions to noncontrolling interests
(1,117
)
 

Purchases of stock for tax withholding obligations on vested restricted stock
(43,506
)
 
(10,739
)
Cash paid for repurchase of convertible debt
(1
)
 

Net cash used in financing activities
(26,960
)
 
(81,899
)
Effect of exchange rate changes on cash and cash equivalents
(187
)
 
(942
)
Net increase (decrease) in cash and cash equivalents
(7,770
)
 
48,100

Cash and cash equivalents, beginning of period
762,511

 
457,487

Cash and cash equivalents, end of period
$
754,741

 
$
505,587

 
 
 
 
Non-cash transactions:
 
 
 
Assignment of residential lease receivables to a third party financial institution
$
1,496

 
$
33,969

Costs of solar power systems, leased and to be leased, sourced from existing inventory
$
7,120

 
$
15,536

Costs of solar power systems, leased and to be leased, funded by liabilities
$
1,634

 
$
4,070

Costs of solar power systems under sale-leaseback financing arrangements, sourced from project assets
$
15,269

 
$
20,066

Property, plant and equipment acquisitions funded by liabilities
$
5,544

 
$
5,042



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 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).

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 sets up related to project financing for customers are not designed to be available to service the general liabilities and obligations of the Company in certain circumstances.

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 2014 and 2013 are 52-week fiscal years. The first quarter of fiscal 2014 ended on March 30, 2014, while the first quarter of fiscal 2013 ended on March 31, 2013. Both the first quarter of fiscal 2014 and fiscal 2013 were 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 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 and other long-term assets; the fair value and residual value of leased solar power systems; fair value of financial instruments; valuation of certain accrued liabilities such as accrued warranty; and income taxes and tax valuation allowances. Actual results could materially differ from those estimates.

Recent Accounting Pronouncements

In July 2013, the Financial Accounting Standards Board ("FASB") amended its guidance related to the presentation of unrecognized tax benefits. The amended guidance specifies when an unrecognized tax benefit or a portion of an unrecognized tax benefit should be presented as a liability versus an offset against a deferred tax asset when a net operating loss carryforward, a similar tax loss or tax credit carryforward exists. The amendment became effective for the Company in the first quarter of fiscal 2014 and did not have a material impact on its consolidated financial statements.

In March 2013, the FASB and International Accounting Standards Board ("IASB") issued common disclosure requirements that are intended to enhance comparability between financial statements prepared in accordance with U.S. GAAP and those prepared in accordance with International Financial Reporting Standards ("IFRS"). This new guidance is applicable to companies that have financial instruments or derivatives that are either offset in the balance sheet (presented on a net basis) or subject to an enforceable master netting arrangement or similar arrangement. The requirement does not change the existing offsetting eligibility criteria or the permitted balance sheet presentation for those instruments that meet the eligibility criteria. However, once this disclosure requirement becomes effective, companies will also be required to disclose information about

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financial instruments and derivatives instruments that have been offset and related arrangements and to provide both net (offset amounts) and gross information in the notes to the financial statements for relevant assets and liabilities that are offset. The disclosure requirement became effective retrospectively in the first quarter of the Company's fiscal year 2014 and did not have a material impact on its consolidated financial statements as it is disclosure only in nature.

In March 2013, the FASB amended its guidance related to foreign currency matters requiring the release of the cumulative translation adjustment into net income when an entity ceases to have a controlling financial interest in a subsidiary or a group of assets within a foreign entity. The amendment became effective for the Company in the first quarter of fiscal 2014 and did not have a material impact on its consolidated financial statements.

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

In fiscal 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 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 (the "Standstill Period"), and subject to certain exceptions, Total, Total S.A., any of their respective affiliates and certain other related parties (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 the Company's 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.


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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.

Liquidity Support Agreement with Total S.A.

The Company was party to an agreement with a customer to construct the California Valley Solar Ranch, a solar park. Part of the debt financing necessary for the customer to pay for the construction of this solar park was provided by the Federal Financing Bank in reliance on a guarantee of repayment provided by the Department of Energy (the "DOE") under a loan guarantee program. In February 2012, the Company entered into a Liquidity Support Agreement with Total S.A. and the DOE, and a series of related agreements with Total S.A. and Total, under which Total S.A. agreed to provide the Company, or cause to be provided, additional liquidity under certain circumstances to a maximum amount of $600.0 million ("Liquidity Support Facility").  The Liquidity Support Facility was available until the completion of the solar park, which was completed in accordance with the terms of the relevant agreement in March 2014. Upon completion, the Liquidity Support Agreement was terminated. There were no outstanding guarantees or debt under the facility upon termination.

Compensation and Funding Agreement

In connection with the Liquidity Support Agreement, in February 2012, the Company entered into a Compensation and Funding Agreement (the "Compensation and Funding Agreement") with Total S.A., pursuant to which, among other things, the Company and Total S.A. established the parameters for the terms of the Liquidity Support Facility and any liquidity injections that may be required to be provided by Total S.A. to the Company pursuant to the Liquidity Support Agreement.

During the term of the Compensation and Funding Agreement, the Company is required to pay Total S.A. commitment and guarantee fees as follows: (i) quarterly payment of a commitment fee in an amount equal to 0.25% of the unused portion of the $600.0 million Liquidity Support Facility as of the end of such quarter; and (ii) quarterly payment of 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 shall 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.

In July 2013, Total S.A. issued a guarantee for the Company's obligations under the July 2013 revolving credit facility with Credit Agricole (the "July 2013 revolving credit facility"), which reduced the capacity available under the Liquidity Support Facility from $600.0 million to $350.0 million. The Company was required to pay Total S.A. an annual guarantee fee of 2.75% of the outstanding amount under the July 2013 revolving credit facility through expiration of the guarantee on January 31, 2014 (see Note 9).

Upfront Warrant

In February 2012, as consideration for Total S.A.'s agreement to provide the Liquidity Support Facility, the Company issued a warrant ("the Upfront Warrant") 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, will be exercisable at any time for seven years after its issuance, provided that, so long as at least $25.0 million 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

10

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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 9).

Joint Projects with Total and its Affiliates:

We enter into various engineering, procurement and construction ("EPC") and operations and maintenance ("O&M") agreements relating to solar projects, including EPC services and O&M agreements relating to projects owned or partially owned by Total and its affiliates. As of March 30, 2014, the Company had $9.1 million of "Billings in excess of costs and estimated earnings" on its Consolidated Balance Sheets related to projects in which Total has a direct or indirect interest.

Related Party Transactions with Total and its Affiliates:
 
 
Three Months Ended
(In thousands)
 
March 30, 2014
 
March 31, 2013
Revenue:
 
 
 
 
EPC and O&M revenue under joint projects
 
$
2,889

 
$

Research and development expense:
 
 
 
 
Offsetting contributions received under R&D Agreement
 
$
260

 
$

Interest expense:
 
 
 
 
Guarantee fees incurred under Credit Support Agreement
 
$
2,745

 
$
1,811

Fees incurred under the Compensation and Funding Agreement
 
$
1,200

 
$
1,701

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

 
$



Note 3. BALANCE SHEET COMPONENTS
 
 
As of
(In thousands)
 
March 30, 2014
 
December 29, 2013
Accounts receivable, net:
 
 
 
 
Accounts receivable, gross1,2
 
$
293,813

 
$
389,152

Less: allowance for doubtful accounts
 
(26,474
)
 
(26,463
)
Less: allowance for sales returns
 
(1,937
)
 
(2,095
)
 
 
$
265,402

 
$
360,594

1 
Includes short-term financing receivables associated with solar power systems leased of $5.7 million and $4.4 million as of March 30, 2014 and December 29, 2013, respectively (see Note 4).

2 
Includes short-term retainage of $4.4 million and $8.3 million as of March 30, 2014 and December 29, 2013, respectively. Retainage refers to the earned, but unbilled, portion of a construction and development project which is withheld for payment by the customer until certain milestones are met in accordance with the related contract.

 
 
As of
(In thousands)
 
March 30, 2014
 
December 29, 2013
Inventories:
 
 
 
 
Raw materials
 
$
45,027

 
$
51,905

Work-in-process
 
63,553

 
52,756

Finished goods
 
125,800

 
140,914

 
 
$
234,380

 
$
245,575



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As of
(In thousands)
 
March 30, 2014
 
December 29, 2013
Prepaid expenses and other current assets:
 
 
 
 
Deferred project costs
 
$
285,387

 
$
275,389

Bond hedge derivative
 
129,539

 
110,477

VAT receivables, current portion
 
16,116

 
21,481

Deferred costs for solar power systems to be leased
 
13,708

 
23,429

Foreign currency derivatives
 
1,677

 
4,642

Other receivables
 
86,399

 
112,062

Other prepaid expenses
 
50,134

 
28,629

Other current assets
 
66,019

 
70,161

 
 
$
648,979

 
$
646,270


 
 
As of
(In thousands)
 
March 30, 2014
 
December 29, 2013
Project assets - plants and land:
 
 
 
 
Project assets — plants
 
$
31,822

 
$
64,564

Project assets — land
 
6,233

 
11,043

 
 
$
38,055

 
$
75,607

Project assets - plants and land, current portion
 
$
30,304

 
$
69,196

Project assets - plants and land, net of current portion
 
$
7,751

 
$
6,411


 
 
As of
(In thousands)
 
March 30, 2014
 
December 29, 2013
Property, plant and equipment, net:
 
 
 
 
Manufacturing equipment3
 
$
542,422

 
$
538,616

Land and buildings
 
26,138

 
26,138

Leasehold improvements
 
230,503

 
229,846

Solar power systems4
 
97,127

 
82,036

Computer equipment
 
82,038

 
79,519

Furniture and fixtures
 
8,432

 
8,392

Construction-in-process
 
13,953

 
11,724

 
 
1,000,613

 
976,271

Less: accumulated depreciation
 
(465,326
)
 
(442,884
)
 
 
$
535,287

 
$
533,387

3 
The Company's mortgage loan agreement with International Finance Corporation ("IFC") is collateralized by certain manufacturing equipment with a net book value of $138.3 million and $145.9 million as of March 30, 2014 and December 29, 2013, respectively.

4 
Includes $67.9 million and $52.6 million of solar power systems associated with sale-leaseback transactions under the financing method as of March 30, 2014 and December 29, 2013 which are depreciated using the straight-line method to their estimated residual values over the lease terms of up to 20 years (see Note 4).

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As of
(In thousands)
 
March 30, 2014
 
December 29, 2013
Property, plant and equipment, net by geography5:
 
 
 
 
Philippines
 
$
311,499

 
$
321,410

United States
 
165,035

 
153,074

Mexico
 
32,948

 
32,705

Europe
 
24,769

 
25,293

Other
 
1,036

 
905

 
 
$
535,287

 
$
533,387

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

 
 
As of
(In thousands)
 
March 30, 2014
 
December 29, 2013
Other long-term assets:
 
 
 
 
Equity method investments
 
$
133,537

 
$
131,739

Retainage6
 
114,335

 
88,934

Cost method investments
 
17,344

 
12,374

Long-term debt issuance costs
 
10,081

 
10,274

Other
 
55,161

 
55,156

 
 
$
330,458

 
$
298,477

6 
Retainage refers to the earned, but unbilled, portion of a construction and development project which is withheld for payment by the customer until certain milestones are met in accordance with the related contract. The Company's noncurrent retainage is expected to be collected in 2015 through 2016.

 
 
As of
(In thousands)
 
March 30, 2014
 
December 29, 2013
Accrued liabilities:
 
 
 
 
Bond hedge derivatives
 
$
129,548

 
$
110,477

Employee compensation and employee benefits
 
47,555

 
50,449

Deferred revenue
 
30,737

 
29,287

Short-term residential lease financing
 
7,379

 
14,436

Interest payable
 
9,730

 
10,971

Short-term warranty reserves
 
10,988

 
10,426

Restructuring reserve
 
4,095

 
7,134

VAT payables
 
6,605

 
7,089

Foreign currency derivatives
 
1,700

 
6,170

Other
 
130,164

 
111,718

 
 
$
378,501

 
$
358,157



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As of
(In thousands)
 
March 30, 2014
 
December 29, 2013
Other long-term liabilities:
 
 
 
 

Deferred revenue
 
$
177,976

 
$
176,925

Long-term warranty reserves
 
140,427

 
138,946

Long-term sale-leaseback financing
 
82,008

 
65,944

Long-term residential lease financing
 
31,400

 
31,933

Unrecognized tax benefits
 
32,533

 
28,927

Other
 
80,302

 
81,316

 
 
$
544,646

 
$
523,991


 
 
As of
(In thousands)
 
March 30, 2014
 
December 29, 2013
Accumulated other comprehensive loss:
 
 
 
 

Cumulative translation adjustment
 
$
(3,492
)
 
$
(3,766
)
Net unrealized loss on derivatives
 
(420
)
 
(805
)
Deferred taxes
 
143

 
253

 
 
$
(3,769
)
 
$
(4,318
)


Note 4. LEASING

Residential Lease Program

The Company offers a solar lease program, in partnership with third-party financial institutions, which allows its residential customers to obtain SunPower systems under lease agreements for terms of up to 20 years. 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" under operating leases on the Company's Consolidated Balance Sheets as of March 30, 2014 and December 29, 2013, respectively:
 
 
As of
(In thousands)
 
March 30, 2014
 
December 29, 2013
Solar power systems leased and to be leased, net1,2:
 
 
 
 
Solar power systems leased
 
$
359,918

 
$
324,202

Solar power systems to be leased
 
24,621

 
36,645

 
 
384,539

 
360,847

Less: accumulated depreciation
 
(23,968
)
 
(15,343
)
 
 
$
360,571

 
$
345,504

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

2 
As of March 30, 2014 and December 29, 2013, the Company has pledged solar assets with an aggregate book value of $144.7 million and $147.7 million, respectively, to the third-party investors as security for its obligations under the contractual arrangements.


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The following table presents the Company's minimum future rental receipts on operating leases placed in service as of March 30, 2014:
(In thousands)
 
 2014 (remaining nine months)
 
2015
 
2016
 
2017
 
2018
 
Thereafter
 
Total
Minimum future rentals on operating leases placed in service1
 
$
9,419

 
9,552

 
9,588

 
9,626

 
9,666

 
143,501

 
$
191,352

1 
Minimum future rentals on operating leases placed in service does not include contingent rentals that may be received from customers under agreements which include performance based incentives.

Sales-Type Leases

As of March 30, 2014 and December 29, 2013, the Company's net investment in sales-type leases presented in "Accounts receivable" and "Long-term financing receivables, net" on the Company's Consolidated Balance Sheets was as follows:
 
 
As of
(In thousands)
 
March 30, 2014
 
December 29, 2013
Financing receivables:
 
 
 
 
Minimum lease payments receivable1
 
$
252,487

 
$
217,666

Unguaranteed residual value
 
26,144

 
23,366

Unearned income
 
(65,306
)
 
(61,326
)
Net financing receivables
 
$
213,325

 
$
179,706

Current
 
$
5,719

 
$
4,433

Long-term
 
$
207,606

 
$
175,273

1 
Net of allowance for doubtful accounts.

As of March 30, 2014, future maturities of net financing receivables for sales-type leases are as follows:
(In thousands)
 
2014 (remaining nine months)
 
2015
 
2016
 
2017
 
2018
 
Thereafter
 
Total
Scheduled maturities of minimum lease payments receivable1
 
$
9,241

 
11,674

 
11,837

 
12,004

 
12,177

 
195,554

 
$
252,487

1 
Minimum future rentals on sales-type leases placed in service does not include contingent rentals that may be received from customers under agreements which include performance based incentives.

Third-Party Financing Arrangements

The Company has entered into multiple facilities under which solar power systems are financed with third-party investors. Under the terms of certain programs the investors make upfront payments to the Company, which the Company recognizes as a non-recourse liability that will be reduced over the specified term of the program 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. Under this approach, for both operating and sales-type leases the Company continues to account for these arrangements with its residential lease customers in the consolidated financial statements. As of March 30, 2014, and December 29, 2013, the remaining liability to the third-party investors, presented in "Accrued liabilities" and "Other long-term liabilities" on the Company's Consolidated Balance Sheets, was $38.8 million and $46.4 million, respectively (see Note 3).

The Company has entered into facilities with third-party investors under which the parties invest in entities that hold SunPower solar power systems and leases with residential customers. The Company was determined to hold controlling

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interests in these less-than-wholly-owned entities and has fully consolidated these entities as a result. The Company accounts for the portion of net assets in the consolidated entities attributable to the investors as "Noncontrolling interests" in its consolidated financial statements. As of March 30, 2014, the Company has entered into a total of six facilities with third-party investors. During the three months ended March 30, 2014 and March 31, 2013, the Company received $30.6 million and $12.3 million, respectively, in contributions from investors under the related facilities and attributed $22.0 million and $7.3 million, respectively, in losses to the third-party investors primarily as a result of allocating certain assets, including tax credits, to the investors.

Sale-Leaseback Arrangements

The Company enters into sale-leaseback arrangements under which solar power systems are sold to third parties and subsequently leased back over minimum lease terms of up to 20 years. Separately, the Company enters into power purchase agreements ("PPAs") with end customers, who host the leased solar power systems and buy the electricity directly from the Company under PPAs with durations of up to 20 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 March 30, 2014, future minimum lease obligations associated with these systems was $101.7 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 energy produced by the solar power systems.

The Company enters into sale-leaseback arrangements under which the systems under the sale-leaseback arrangements have been determined to be integral equipment as defined under the accounting guidance for such transactions. The Company was further determined to have continuing involvement with the solar power systems throughout the lease due to purchase option rights. As a result of such continuing involvement, the Company accounts for each transaction as a financing. Under the financing method, the proceeds received from the sale of the solar power systems are recorded by the Company as financing liabilities and presented within "Other long-term liabilities" in the Company's Consolidated Balance Sheets (see Note 3). 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 remains on the Company's balance sheet and are classified within "Property, plant and equipment, net" (see Note 3). As of March 30, 2014, future minimum lease obligations for the sale-leaseback arrangements accounted for under the financing method were $78.0 million, which will be recognized over the lease terms of up to 20 years.


Note 5. 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 March 30, 2014 or December 29, 2013.


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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 March 30, 2014 and December 29, 2013, respectively:
 
 
March 30, 2014
 
December 29, 2013
(In thousands)
 
Total
 
Level 1
 
Level 2
 
Total
 
Level 1
 
Level 2
Assets
 
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents:
 
 
 
 
 
 
 
 
 
 
 
 
Money market funds1
 
$
378,001

 
$
378,001

 
$

 
$
358,001

 
$
358,001

 
$

Prepaid expenses and other current assets:
 
 
 
 
 
 
 
 
 
 
 
 
Debt derivatives (Note 9)
 
129,539

 

 
129,539

 
110,477

 

 
110,477

Foreign currency derivatives (Note 10)
 
1,677

 

 
1,677

 
4,642

 

 
4,642

Other long-term assets:
 
 
 
 
 
 
 
 
 
 
 
 
Foreign currency derivatives (Note 10)
 
237

 

 
237

 
588

 

 
588

Total assets
 
$
509,454

 
$
378,001

 
$
131,453

 
$
473,708

 
$
358,001


$
115,707

Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
Accrued liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
Debt derivatives (Note 9)
 
$
129,548

 
$

 
$
129,548

 
$
110,477

 
$

 
$
110,477

Foreign currency derivatives (Note 10)
 
1,700

 

 
1,700

 
6,170

 

 
6,170

Other long-term liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
Foreign currency derivatives (Note 10)
 
191

 

 
191

 
555

 

 
555

Total liabilities
 
$
131,439

 
$

 
$
131,439

 
$
117,202

 
$

 
$
117,202

1 
The Company's cash equivalents consist of money market fund instruments which are classified as available-for-sale and 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.

Debt Derivatives

The 4.50% Bond Hedge (as defined in Note 9) and the embedded cash conversion option within the 4.50% debentures (as defined in Note 9) are classified as derivative instruments that require 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 were determined utilizing the following Level 1 and Level 2 inputs:

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Table of Contents


 
 
As of 1
 
 
March 30, 2014
 
December 29, 2013
Stock price
 
$
31.85

 
$
28.91

Exercise price
 
$
22.53

 
$
22.53

Interest rate
 
0.27
%
 
0.33
%
Stock volatility
 
58.1
%
 
57.7
%
Credit risk adjustment
 
0.73
%
 
0.71
%
Maturity date
 
February 18, 2015

 
February 18, 2015

1 
The valuation model utilizes these inputs to value the right but not the obligation to purchase one share at $22.53. The Company utilized a Black-Scholes valuation model to value the 4.50% Bond Hedge and embedded cash conversion option. The underlying input assumptions were determined as follows:
(i)
Stock price. The closing price of the Company's common stock on the last trading day of the quarter.
(ii)
Exercise price. The exercise price of the 4.50% Bond Hedge and the embedded cash conversion option.
(iii)
Interest rate. The Treasury Strip rate associated with the life of the 4.50% Bond Hedge and the embedded cash conversion option.
(iv)
Stock volatility. The volatility of the Company's common stock over the life of the 4.50% Bond Hedge and the embedded cash conversion option.
(v)
Credit risk adjustment. Represents the weighted average of the credit default swap rate of the counterparties.

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

The Company measures certain investments and non-financial assets (including project assets, property, plant and equipment, and other intangible assets) at fair value on a non-recurring basis in periods after initial measurement in circumstances when the fair value of such asset is impaired below its recorded cost.

Held-to-Maturity Debt Securities

The Company's debt securities, classified as held-to-maturity, consist of Philippine government bonds which are maintained as collateral for present and future business transactions within the country. These bonds have maturity dates of up to 5 years and are classified as "Restricted long-term marketable securities" on the Company's Consolidated Balance Sheets. As of March 30, 2014 and December 29, 2013, these bonds had a carrying value of $8.7 million and $8.9 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 impact 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 which are accounted for under the both 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 operations of the issuer.

As of March 30, 2014 and December 29, 2013, the Company had $133.5 million and $131.7 million, respectively, in investments accounted for under the equity method (see Note 8). As of March 30, 2014 and December 29, 2013, the Company had $17.3 million and $12.4 million, respectively, in investments accounted for under the cost method.


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Table of Contents


Related Party Transactions with Equity and Cost Method Investees:
 
 
As of
(In thousands)
 
March 30, 2014
 
December 29, 2013
Accounts receivable
 
$
16,230

 
$
11,780

Accounts payable
 
$
53,940

 
$
51,499

Other long-term assets:
 
 
 
 
Long-term note receivable
 
$
3,755

 
$
3,688

 
 
Three Months Ended
(In thousands)
 
March 30, 2014
 
March 31, 2013
Payments made to investees for products/services
 
$
112,039

 
$
134,916



Note 6. RESTRUCTURING

October 2012 Restructuring Plan

In fiscal 2012, the Company's Board of Directors approved a reorganization (the "October 2012 Plan") to accelerate operating cost reduction and improve overall operating efficiency. In connection with the October 2012 Plan, which is expected to be completed within the first half of fiscal 2014, the Company expects to eliminate approximately 900 positions, primarily in the Philippines, representing approximately 15% of the Company's global workforce. As a result, the Company expects to record restructuring charges totaling $30.0 million to $35.0 million, related to all segments. Such charges are composed of severance benefits, lease and related termination costs, and other associated costs. The Company expects greater than 90% of these charges to be cash. The Company has recorded $31.5 million in restructuring charges in connection with the October 2012 Plan to date.

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 March 30, 2014. 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 reserve activity during the three months ended March 30, 2014:
 
 
Three Months Ended
(In thousands)
 
December 29, 2013
 
Charges (Benefits)
 
Payments
 
March 30, 2014
October 2012 Plan:
 
 
 
 
 
 
 
 
Severance and benefits
 
$
3,942

 
$
(495
)
 
$
(1,255
)
 
$
2,192

Lease and related termination costs
 
362

 
(233
)
 
(100
)
 
29

Other costs1
 
914

 
711

 
(403
)
 
1,222

Legacy Restructuring Plans:
 
 
 
 
 
 
 
 
Severance and benefits
 
19

 
(36
)
 
17

 

Lease and related termination costs
 
1,247

 
(169
)
 
(1,078
)
 

Other costs1
 
650

 
(239
)
 
241

 
652

Total restructuring liabilities
 
$
7,134

 
$
(461
)
 
$
(2,578
)
 
$
4,095

1 
Other costs primarily represent associated legal services.

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Table of Contents



Note 7. COMMITMENTS AND CONTINGENCIES

Facility and Equipment Lease Commitments

The Company leases certain facilities under non-cancellable operating leases from unaffiliated third parties. As of March 30, 2014, future minimum lease payments for facilities under operating leases was $61.5 million, which will be paid over the remaining contractual terms of up to 10 years. The Company additionally leases certain buildings, machinery and equipment under non-cancelable capital leases. As of March 30, 2014, future minimum lease payments for assets under capital leases was $6.3 million, which will be paid over the remaining contractual terms of up to 10 years.

Purchase Commitments
 
The Company purchases raw materials for inventory and manufacturing equipment from a variety of vendors. During the normal course of business, in order to manage manufacturing lead times and help assure adequate supply, the Company enters into agreements with contract manufacturers and suppliers that either allow them to procure goods and services based on specifications defined by the Company, or that establish parameters defining the Company's requirements. In certain instances, these agreements allow the Company the option to cancel, reschedule or adjust the Company's requirements based on its business needs prior to firm orders being placed. Consequently, only a portion of the Company's disclosed purchase commitments arising from these agreements are firm, non-cancellable, and unconditional commitments.

The Company also has agreements with several suppliers, including some of its non-consolidated investees, for the procurement of polysilicon, ingots, wafers, and Solar Renewable Energy Credits, among others, which specify future quantities and pricing of products to be supplied by the vendors for periods up to 10 years and provide for certain consequences, such as forfeiture of advanced deposits and liquidated damages relating to previous purchases, in the event that the Company terminates the arrangements.

Future purchase obligations under non-cancellable purchase orders and long-term supply agreements as of March 30, 2014 are as follows:
(In thousands)
 
2014 (remaining nine months)
 
2015
 
2016
 
2017
 
2018
 
Thereafter
 
Total1,2
Future purchase obligations
 
$
710,375

 
373,353

 
336,247

 
299,782

 
181,216

 
335,542

 
$
2,236,515

1 
Total future purchase obligations as of March 30, 2014 include $80.7 million to related parties.
2 
Total future purchase obligations was comprised of $212.5 million related to non-cancellable purchase orders and $2.0 billion related to long-term supply agreements.

The Company expects that all obligations related to non-cancellable purchase orders for manufacturing equipment will be recovered through future cash flows of the solar cell manufacturing lines and solar panel assembly lines when such long-lived assets are placed in service. Factors considered important that could result in an impairment review include significant under-performance relative to expected historical or projected future operating results, significant changes in the manner of use of acquired assets, and significant negative industry or economic trends. Obligations related to non-cancellable purchase orders for inventories match current and forecasted sales orders that will consume these ordered materials and actual consumption of these ordered materials are compared to expected demand regularly. The Company anticipates total obligations related to long-term supply agreements for inventories will be recovered because quantities are less than management's expected demand for its solar power products. The terms of the long-term supply agreements are reviewed by management and the Company assesses the need for any accruals for estimated losses on adverse purchase commitments, such as lower of cost or market value adjustments that will not be recovered by future sales prices, forfeiture of advanced deposits and liquidated damages, as necessary.

Advances to Suppliers

As noted above, the Company has entered into agreements with various vendors that specify future quantities and pricing of products to be supplied. Certain agreements also provide for penalties or forfeiture of advanced deposits in the event the Company terminates the arrangements. Under certain agreements, the Company is required to make prepayments to the vendors over the terms of the arrangements. During the three months ended March 30, 2014, the Company made additional

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advance payments totaling $16.5 million in accordance with the terms of existing long-term supply agreements. As of March 30, 2014 and December 29, 2013, advances to suppliers totaled $390.6 million and $383.3 million, respectively, of which $69.1 million and $58.6 million, respectively, is classified as short-term in the Company's Consolidated Balance Sheets. Two suppliers accounted for 79% and 21% of total advances to suppliers as of March 30, 2014, and 77% and 22% as of December 29, 2013. As of March 30, 2014, the Company has future prepayment obligations through fiscal 2014 totaling $49.3 million.

Advances from Customers

The Company has entered into other agreements with customers who have made advance payments for solar power products and systems. These advances will be applied as shipments of product occur or upon completion of certain project milestones. The estimated utilization of advances from customers as of March 30, 2014 is as follows:
(In thousands)
 
2014 (remaining nine months)
 
2015
 
2016
 
2017
 
2018
 
Thereafter
 
Total
Estimated utilization of advances from customers
 
$
26,082

 
26,461

 
22,713

 
27,039

 
27,039

 
72,104

 
$
201,438


In fiscal 2010, the Company and its joint venture, AUO SunPower Sdn. Bhd. ("AUOSP"), entered into an agreement under which the Company resells to AUOSP polysilicon purchased from a third-party supplier. Advance payments provided by AUOSP related to such polysilicon are then made by the Company to the third-party supplier. These advance payments are applied as a credit against AUOSP’s polysilicon purchases from the Company. Such polysilicon is used by AUOSP to manufacture solar cells which are sold to the Company on a "cost-plus" basis. As of March 30, 2014 and December 29, 2013, outstanding advance payments received from AUOSP totaled $177.8 million and $181.3 million, respectively, of which $15.1 million and $14.0 million, respectively, is classified as short-term in the Company's Consolidated Balance Sheets, based on projected product shipment dates.

Product Warranties

The following table summarizes accrued warranty activity for the three months ended March 31, 2013 and March 30, 2014, respectively:
 
 
Three Months Ended
(In thousands)
 
March 30, 2014
 
March 31, 2013
Balance at the beginning of the period
 
$
149,372

 
$
117,172

Accruals for warranties issued during the period
 
5,190

 
4,455

Settlements made during the period
 
(3,147
)
 
(2,078
)
Balance at the end of the period
 
$
151,415

 
$
119,549


Contingent Obligations

Projects often require the Company to undertake obligations including: (i) system output performance guarantees; (ii) system maintenance; (iii) penalty payments or customer termination rights if the system the Company is constructing is not commissioned within specified timeframes or other milestones are not achieved; and (iv) system put-rights whereby the Company could be required to buy-back a customer's system at fair value on specified future dates if certain minimum performance thresholds are not met for periods of up to two years. Historically the systems have performed significantly above the performance guarantee thresholds, and there have been no cases in which the Company had to buy back a system.

Future Financing Commitments

The Company is required to provide certain funding under the joint venture agreement with AU Optronics Singapore Pte. Ltd. ("AUO") and another unconsolidated investee, subject to certain conditions (see Note 8). As of March 30, 2014, the Company has future financing obligations through fiscal 2014 totaling $243.9 million.


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Liabilities Associated with Uncertain Tax Positions
 
Total liabilities associated with uncertain tax positions were $32.5 million and $28.9 million as of March 30, 2014 and December 29, 2013, respectively, and are included in "Other long-term liabilities" in the Company's Consolidated Balance Sheets as they are not expected to be paid within the next twelve 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 other party with respect to certain matters. Typically, these obligations arise in connection with contracts and license agreements or the sale of assets, under which the Company customarily agrees to hold the other party harmless against losses arising from a breach of warranties, representations and covenants related to such matters as title to assets sold, negligent acts, damage to property, validity of certain intellectual property rights, non-infringement of third-party rights, and certain tax related matters including indemnification to customers under §48(c) solar commercial investment tax credit ("ITC") and Treasury Grant payments under Section 1603 of the American Recovery and Reinvestment Act ("Cash Grant"). In each of these circumstances, payment by the Company is typically subject to the other party making a claim to the Company that is contemplated by and valid under the indemnification provisions of the particular contract, which provisions are typically contract-specific, as well as bringing the claim under the procedures specified in the particular contract. These procedures usually allow the Company to challenge the other party's claims or, in case of breach of intellectual property representations or covenants, to control the defense or settlement of any third party claims brought against the other party. Further, the Company's obligations under these agreements may be limited in terms of activity (typically to replace or correct the products or terminate the agreement with a refund to the other party), duration and/or amounts. In some instances, the Company may have recourse against third parties and/or insurance covering certain payments made by the Company.

In certain limited circumstances the Company has provided indemnification to customers and investors under which the Company is contractually obligated to compensate these parties for losses they may suffer as a result of reductions in benefits received under ITC and Treasury Cash Grant programs. The Company applies for ITC and Cash Grant incentives based on guidance provided by 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, sales-leaseback arrangements, and financing arrangements with investors of its residential lease program, incorporate assumptions regarding the future level of incentives to be received, which in some instances may be claimed directly by its customers and investors. Since the Company cannot determine future revisions to the U.S. Treasury guidelines governing system values or how the IRS will evaluate system values used in claiming ITCs, the Company is unable to reliably estimate the maximum potential future payments that it could have to make under the Company’s contractual investor obligation as of each reporting date.

Legal Matters

Derivative Litigation

Derivative actions purporting to be brought on the Company's behalf have been filed in state and federal courts against several of the Company's current and former officers and directors. The actions arise from the Audit Committee's investigation announcement on November 16, 2009 regarding certain unsubstantiated accounting entries. The California state derivative cases were consolidated as In re SunPower Corp. S'holder Derivative Litig., Lead Case No. 1-09-CV-158522 (Santa Clara Sup. Ct.), and co-lead counsel for plaintiffs have been appointed. The complaints assert state-law claims for breach of fiduciary duty, abuse of control, unjust enrichment, gross mismanagement, and waste of corporate assets. Plaintiffs filed a consolidated amended complaint on March 5, 2012. The federal derivative complaints were consolidated as In re SunPower Corp. S'holder Derivative Litig., Master File No. CV-09-05731-RS (N.D. Cal.), and lead plaintiffs and co-lead counsel were appointed on January 4, 2010. The federal complaints assert state-law claims for breach of fiduciary duty, waste of corporate assets, and unjust enrichment, and seek an unspecified amount of damages. Plaintiffs filed a consolidated complaint on May 13, 2011. A Delaware state derivative case, Brenner v. Albrecht, et al., C.A. No. 6514-VCP (Del Ch.), was filed on May 23, 2011 in the Delaware Court of Chancery. The complaint asserts state-law claims for breach of fiduciary duty and contribution and indemnification, and seeks an unspecified amount of damages. On June 29, 2013, the parties to each of the derivative actions entered into an agreement in principle to settle all the derivative actions, and on December 19, 2013, the parties executed a stipulated settlement agreement, providing that the Company institute certain specified corporate governance measures, which were implemented by the Board of Directors on October 22, 2013 in connection with periodic review and update of corporate governance matters, that all claims against all defendants will be released and dismissed with prejudice, and that the Company will not oppose a request by the plaintiffs' counsel for an award of attorneys' fees up to $1 million, one half of which will be

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paid from the proceeds of directors and officers liability insurance. On January 24, 2014, the parties filed a motion with the court in the consolidated California state derivative cases to approve the stipulated settlement. A preliminary approval hearing is scheduled to occur on May 16, 2014.

Tax Benefit Indemnification Litigation

On March 19, 2014, the Company received notice that a lawsuit had been filed by NRG Solar LLC (“NRG”) against SunPower Corporation, Systems, a wholly-owned subsidiary of the Company (“SunPower Systems”), in the Superior Court of Contra Costa County, California. The complaint asserts that, according to the indemnification provisions in the contract pertaining to SunPower Systems’ sale of a large California solar project to NRG, SunPower Systems owes NRG $75 million in connection with certain tax benefits associated with the project that were approved by the Treasury Department for an amount that was less than expected. The Company does not believe that the facts support NRG’s claim under the operative indemnification provisions and intends to vigorously contest the claim. SunPower Systems’ response to NRG’s complaint is due on May 5, 2014. The Court has not yet set a trial date or case schedule.

Other Litigation

The Company is also a party to various other litigation matters and claims that arise from time to time in the ordinary course of its business. While the Company believes that the ultimate outcome of such matters will not have a material adverse effect on the Company, their outcomes are not determinable and negative outcomes may adversely affect the Company's financial position, liquidity or results of operations.

Note 8. EQUITY METHOD INVESTMENTS

As of March 30, 2014 and December 29, 2013, the Company's carrying value of its equity method investments totaled $133.5 million and $131.7 million, respectively, and is classified as “Other long-term assets” in its Consolidated Balance Sheets. The Company's share of its earnings (loss) from equity method investments is reflected as "Equity in earnings (loss) of unconsolidated investees" in its Consolidated Statement of Operations.

Equity Investment in Huaxia CPV (Inner Mongolia) Power Co., Ltd. ("CCPV")

In December 2012, the Company entered into an agreement with Tianjin Zhonghuan Semiconductor Co. Ltd., Inner Mongolia Power Group Co. Ltd. and Hohhot Jinqiao City Development Company Co., Ltd. to form CCPV, a jointly owned entity to manufacture and deploy the Company's C-7 Tracker concentrator technology in Inner Mongolia and other regions in China. CCPV is based in Hohhot, Inner Mongolia. The establishment of the entity was subject to approval of the Chinese government, which was received in the fourth quarter of fiscal 2013. In December 2013, the Company made a $16.4 million equity investment in CCPV, for a 25% equity ownership.

The Company has concluded that it is not the primary beneficiary of CCPV since, although the Company is obligated to absorb losses and has the right to receive benefits, the Company alone does not have the power to direct the activities of CCPV that most significantly impact its economic performance. The Company accounts for its investment in CCPV using the equity method since the Company is able to exercise significant influence over CCPV due to its board position.

Equity Investment in Diamond Energy Pty Ltd. ("Diamond Energy")

In October 2012, the Company made a $3.0 million equity investment in Diamond Energy, an alternative energy project developer and clean electricity retailer headquartered in Melbourne, Australia, in exchange for a 25% equity ownership. The Company additionally provided Diamond Energy AUD 2.0 million (or $1.9 million based on the exchange rate as of March 30, 2014) under a five-year convertible note agreement and will receive interest of 1% per annum on the amounts lent to Diamond Energy, to be paid upon conversion or maturity.

The Company has concluded that it is not the primary beneficiary of Diamond Energy since, although the Company is obligated to absorb losses and has the right to receive benefits, the Company alone does not have the power to direct the activities of Diamond that most significantly impact its economic performance. The Company accounts for its investment in Diamond using the equity method since the Company is able to exercise significant influence over Diamond due to its board position.


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Equity Investment and Joint Venture with AUOSP

In fiscal 2010, the Company, AUO and AU Optronics Corporation, the ultimate parent company of AUO ("AUO Taiwan"), formed the joint venture AUOSP. The Company and AUO each own 50% of the joint venture AUOSP. AUOSP owns a solar cell manufacturing facility in Malaysia and manufactures solar cells and sells them on a "cost-plus" basis to the Company and AUO.

In connection with the joint venture agreement, the Company and AUO also entered into licensing and joint development, supply, and other ancillary transaction agreements. Through the licensing agreement, the Company and AUO licensed to AUOSP, on a non-exclusive, royalty-free basis, certain background intellectual property related to solar cell manufacturing (in the case of the Company), and manufacturing processes (in the case of AUO). Under the seven-year supply agreement with AUOSP, renewable by the Company for one-year periods thereafter, the Company is committed to purchase 80% of AUOSP's total annual output allocated on a monthly basis to the Company. The Company and AUO have the right to reallocate supplies from time to time under a written agreement. In fiscal 2010, the Company and AUOSP entered into an agreement under which the Company will resell to AUOSP polysilicon purchased from a third-party supplier and AUOSP will provide prepayments to the Company related to such polysilicon, which prepayment will then be made by the Company to the third-party supplier.

The Company and AUO are not permitted to transfer any of AUOSP's shares held by them, except to each other. In the joint venture agreement, the Company and AUO agreed to each contribute additional amounts through 2014 amounting to $241.0 million, or such lesser amount as the parties may mutually agree. In addition, if AUOSP, the Company or AUO requests additional equity financing to AUOSP, then the Company and AUO will each be required to make additional cash contributions of up to $50.0 million in the aggregate.

The Company has concluded that it is not the primary beneficiary of AUOSP since, although the Company and AUO are both obligated to absorb losses or have the right to receive benefits, the Company alone does not have the power to direct the activities of AUOSP that most significantly impact its economic performance. In making this determination the Company considered the shared power arrangement, including equal board governance for significant decisions, elective appointment, and the fact that both parties contribute to the activities that most significantly impact the joint venture's economic performance. The Company accounts for its investment in AUOSP using the equity method as a result of the shared power arrangement. As of March 30, 2014, the Company's maximum exposure to loss as a result of its involvement with AUOSP is limited to the carrying value of its investment.


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Note 9. DEBT AND CREDIT SOURCES

The following table summarizes the Company's outstanding debt on its Consolidated Balance Sheets:
 
 
March 30, 2014
 
December 29, 2013
(In thousands)
 
Face Value
 
Short-term
 
Long-term
 
Total
 
Face Value
 
Short-term
 
Long-term
 
Total
Convertible debt:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
0.75% debentures due 2018
 
$
300,000

 
$

 
$
300,000

 
$
300,000

 
$
300,000

 
$

 
$
300,000

 
$
300,000

4.50% debentures due 2015
 
250,000

 
230,537

 

 
230,537

 
250,000

 
225,889

 

 
225,889

4.75% debentures due 2014
 
230,000

 
229,964

 

 
229,964

 
230,000

 
230,000

 

 
230,000

0.75% debentures due 2015
 
79

 

 
79

 
79

 
79

 

 
79

 
79

IFC mortgage loan
 
55,000

 
15,000

 
40,000

 
55,000

 
62,500

 
15,000

 
47,500

 
62,500

CEDA loan
 
30,000

 

 
30,000

 
30,000

 
30,000

 

 
30,000

 
30,000

Credit Agricole revolving credit facility
 

 

 

 

 

 

 

 

Other debt1
 
49,284

 
1,320

 
47,964

 
49,284

 
50,926

 
41,227

 
9,699

 
50,926

 
 
$
914,363

 
$
476,821

 
$
418,043

 
$
894,864

 
$
923,505

 
$
512,116

 
$
387,278

 
$
899,394

1 
The balance of Other debt excludes payments related to capital leases which are disclosed in Note 7. "Commitments and Contingencies" to these consolidated financial statements.

As of March 30, 2014 the aggregate future contractual maturities of the Company's outstanding debt, at face value, was as follows:
(In thousands)
 
2014 (remaining nine months)
 
2015
 
2016
 
2017
 
2018
 
Thereafter
 
Total
Aggregate future maturities of outstanding debt
 
$
238,395

 
266,166

 
16,217

 
16,272

 
303,852

 
73,461

 
$
914,363



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Convertible Debt

The following table summarizes the Company's outstanding convertible debt:
 
 
March 30, 2014
 
December 29, 2013
(In thousands)
 
Carrying Value
 
Face Value
 
Fair Value1
 
Carrying Value
 
Face Value
 
Fair Value1
Convertible debt:
 
 
 
 
 
 
 
 
 
 
 
 
0.75% debentures due 2018
 
$
300,000

 
$
300,000

 
$
417,132

 
$
300,000

 
$
300,000

 
$
367,578

4.50% debentures due 2015
 
230,537

 
250,000

 
372,500

 
225,889

 
250,000

 
343,895

4.75% debentures due 2014
 
229,964

 
230,000

 
275,704

 
230,000

 
230,000

 
269,252

0.75% debentures due 2015
 
79

 
79

 
80

 
79

 
79

 
102

 
 
$
760,580

 
$
780,079

 
$
1,065,416

 
$
755,968

 
$
780,079

 
$
980,827

1 
The fair value of the convertible debt was determined using Level 1 inputs based on quarterly market prices as reported by an independent pricing source.

The Company's outstanding convertible debentures are senior, unsecured obligations of the Company, ranking equally with all existing and future senior unsecured indebtedness of the Company.

0.75% Debentures Due 2018

In May 2013, the Company issued $300.0 million in principal amount of its 0.75% debentures due 2018. Interest is payable semi-annually, beginning on December 1, 2013. Holders are able to exercise their right to convert the debentures at any time into shares of the Company's common stock at an initial conversion price approximately equal to $24.95 per share, subject to adjustment in certain circumstances. The maximum number of shares of the Company's common stock that may be issued through the conversion is 15,633,957, subject to anti-dilution and certain other adjustments. If not earlier repurchased or converted, the 0.75% debentures due 2018 mature on June 1, 2018.

4.50% Debentures due 2015

In fiscal 2010, the Company issued $250.0 million in principal amount of its 4.50% senior cash convertible debentures ("4.50% debentures due 2015"). Interest is payable semi-annually, beginning on September 15, 2010. If not earlier repurchased or converted, the 4.50% debentures due 2015 mature on March 15, 2015. The 4.50% debentures due 2015 are convertible, upon certain events and restrictions, only into cash, and not into shares of the Company's common stock (or any other securities) at an initial conversion price of $22.53 per share. The conversion price is subject to adjustment in certain events, such as distributions of dividends or stock splits. Upon conversion, the Company will deliver an amount of cash calculated by reference to the price of its common stock over the applicable observation period.

The embedded cash conversion option is a derivative instrument (derivative liability) that is required to be separated from the 4.50% debentures due 2015. The fair value of the derivative liability is classified within "Other long-term liabilities" on the Company's Consolidated Balance Sheets. Changes in the fair value of the derivative liability are reported in the Company's Consolidated Statements of Operations until such transaction settles or expires.

During the three months ended March 30, 2014 and March 31, 2013 the Company recognized a non-cash loss of $19.1 million and $11.6 million, respectively, recorded in "Other, net" in the Company's Consolidated Statement of Operations related to the change in fair value of the embedded cash conversion option.

Call Spread Overlay with Respect to 4.50% Debentures

Concurrent with the issuance of the 4.50% debentures due 2015, the Company entered into privately negotiated convertible debenture hedge transactions (collectively, the "4.50% Bond Hedge") and warrant transactions (collectively, the "4.50% Warrants" and together with the 4.50% Bond Hedge, the “CSO2015”), with certain of the initial purchasers of the 4.50% debentures due 2015 or their affiliates. The CSO2015 transactions represent a call spread overlay with respect to the 4.50% debentures due 2015, whereby the cost of the 4.50% Bond Hedge purchased by the Company to cover the cash outlay upon conversion of the debentures is reduced by the sales prices of the 4.50% Warrants. Assuming full performance by the counterparties (and 4.50% Warrants strike prices in excess of the conversion price of the 4.50% debentures due 2015), the

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transactions effectively reduce the Company's potential payout over the principal amount on the 4.50% debentures due 2015 upon conversion of the 4.50% debentures due 2015.

Under the terms of the 4.50% Bond Hedge, the Company bought from affiliates of certain of the initial purchasers options to acquire, at an exercise price of $22.53 per share, subject to customary adjustments for anti-dilution and other events, cash in an amount equal to the market value of up to 11.1 million shares of the Company's common stock. Under the terms of the 4.50% Warrants the Company sold to affiliates of certain of the initial purchasers of the 4.50% cash convertible debentures warrants to acquire, at an exercise price of $24.00 per share, up to 11.1 million shares of the Company's common stock. Each 4.50% Bond Hedge and 4.50% Warrant transaction is a separate transaction, entered into by the Company with each counterparty, and is not part of the terms of the 4.50% debentures due 2015.

The 4.50% Bond Hedge, which is indexed to the Company's common stock, is a derivative instrument that requires mark-to-market accounting treatment due to the cash settlement features until such transactions settle or expire. The fair value of the 4.50% Bond Hedge is classified as "Other long-term assets" in the Company's Consolidated Balance Sheets.

During the three months ended March 30, 2014 and March 31, 2013, the Company recognized a non-cash gain of $19.1 million and $11.6 million, respectively, in "Other, net" in the Company's Consolidated Statement of Operations related to the change in fair value of the 4.50% Bond Hedge.

4.75% Debentures

In May 2009, the Company issued $230.0 million in principal amount of its 4.75% senior convertible debentures ("4.75% debentures due 2014"). Interest on the 4.75% debentures due 2014 is payable semi-annually, beginning October 15, 2009. Holders of the 4.75% debentures due 2014 are able to exercise their right to convert the debentures at any time into shares of the Company's common stock at a conversion price equal to $26.40 per share, subject to adjustment upon certain events.

Call Spread Overlay with Respect to the 4.75% Debentures

Concurrently with the issuance of the 4.75% debentures due 2014, the Company entered into certain convertible debenture hedge transactions (the "4.75% Bond Hedge") and warrant transactions (the "4.75% Warrants") with affiliates of certain of the underwriters of the 4.75% debentures (together, the "CSO2014"), whereby the cost of the 4.75% Bond Hedges purchased by the Company to cover the potential share outlays upon conversion of the debentures is reduced by the sales prices of the 4.75% Warrants. The CSO2014 are not subject to mark-to-market accounting treatment since they may only be settled by issuance of the Company's common stock.

The 4.75% Bond Hedge allows the Company to purchase up to 8.7 million shares of the Company's common stock, on a net share basis. Each 4.75% Bond Hedge and 4.75% Warrant is a separate transaction, entered into by the Company with each counterparty, and is not part of the terms of the 4.75% debentures due 2014. The exercise prices of the 4.75% Bond Hedge are $26.40 per share of the Company's common stock, subject to customary adjustment for anti-dilution and other events. In February 2014, the parties agreed to unwind the 4.75% Bond Hedge in full for a total cash settlement of $68.8 million, calculated by reference to the weighted price of the Company's common stock on the settlement day, received by the Company.

Under the 4.75% Warrants, the Company sold warrants to acquire up to 8.7 million shares of the Company's common stock at an exercise price of $26.40 per share of the Company's common stock, subject to adjustment for certain anti-dilution and other events. The 4.75% Warrants expire in 2014. In February 2014, the parties agreed to unwind the 4.75% Warrants in full for a total cash settlement of $81.1 million, calculated by reference to the weighted price of the Company's common stock on the settlement date, paid by the Company.

Other Debt and Credit Sources

Mortgage Loan Agreement with IFC

In May 2010, the Company entered into a mortgage loan agreement with IFC. Under the loan agreement, the Company may borrow up to $75.0 million during the first two years, and shall repay the amount borrowed, starting 2 years after the date of borrowing, in 10 equal semi-annual installments. The Company is required to pay interest of LIBOR plus 3% per annum on outstanding borrowings; a front-end fee of 1% on the principal amount of borrowings at the time of borrowing; and a commitment fee of 0.5% per annum on funds available for borrowing and not borrowed. The Company may prepay all or a part of the outstanding principal, subject to a 1% prepayment premium. The Company has pledged certain assets as collateral

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supporting its repayment obligations (see Note 3). As of both March 30, 2014 and December 29, 2013, the Company had restricted cash and cash equivalents of $9.2 million related to the IFC debt service reserve which contains the amount, as determined by IFC, equal to the aggregate principal and interest due on the next succeeding interest payment date.

Loan Agreement with California Enterprise Development Authority ("CEDA")

In fiscal 2010, the Company borrowed the proceeds of the $30.0 million aggregate principal amount of CEDA's tax-exempt Recovery Zone Facility Revenue Bonds (SunPower Corporation - Headquarters Project) Series 2010 (the "Bonds") maturing April 1, 2031 under a loan agreement with CEDA. The Bonds mature on April 1, 2031, bear interest at a fixed rate of 8.50% through maturity, and include customary covenants of, and other restrictions on the Company.

July 2013 Revolving Credit Facility with Credit Agricole

In July 2013, the Company entered into a revolving credit facility with Credit Agricole, as administrative agent, and certain financial institutions, under which the Company may borrow up to $250.0 million until the earliest of: (i) July 3, 2016, or (ii) December 31, 2014, if the Company has not repaid, exchanged or repurchased its outstanding 4.50% debentures due 2015 by September 30, 2014 and is not in compliance with certain liquidity requirements as of such date (the earliest of the above events, the "Maturity Date"). Amounts borrowed may be repaid and reborrowed until the Maturity Date. The Company may request increases to the available capacity of the July 2013 revolving credit facility to an aggregate of $300.0 million, subject to the satisfaction of certain conditions. The July 2013 revolving credit facility includes representations, covenants, and events of default customary for financing transactions of this type.

The July 2013 revolving credit facility was entered into in conjunction with the delivery by Total S.A. of a guarantee of the Company's obligations under the related facility. On January 31, 2014, as contemplated by the facility, (i) the Company's obligations under the facility became secured by a pledge of certain accounts receivable and inventory; (ii) certain of the Company's subsidiaries entered into guarantees of the facility; and (iii) Total S.A.'s guarantee of the Company's obligations under the facility expired. Until the expiration of the guarantee on January 31, 2014, the Company was required to pay Total S.A. an annual guarantee fee of 2.75% of the outstanding amount under the July 2013 revolving credit facility.

Before January 31, 2014, the Company was required to pay interest on outstanding borrowings and fees of (a) with respect to any LIBOR rate loan, 0.60% plus the LIBOR rate divided by a percentage equal to one minus the stated maximum rate of all reserves required to be maintained against "Eurocurrency liabilities" as specified in Regulation D; (b) with respect to any alternative base rate loan, 0.25% plus the greater of (1) the prime rate, (2) the Federal funds rate plus 0.50%, and (3) the one month LIBOR rate plus 1%; and (c) a commitment fee of 0.06% per annum on funds available for borrowing and not borrowed.

After January 31, 2014, the Company is required to pay interest on outstanding borrowings and fees of (a) with respect to any LIBOR rate loan, an amount ranging from 1.50% to 2.00% (depending on the Company's leverage ratio from time to time) plus the LIBOR rate divided by a percentage equal to one minus the stated maximum rate of all reserves required to be maintained against “Eurocurrency liabilities” as specified in Regulation D; (b) with respect to any alternate base rate loan, an amount ranging from 0.50% to 1.00% (depending on the Company's leverage ratio from time to time) plus the greater of (1) the prime rate, (2) the Federal Funds rate plus 0.50%, and (3) the one-month LIBOR rate plus 1%; and (c) a commitment fee ranging from 0.25% to 0.35% (depending on the Company's leverage ratio from time to time) per annum on funds available for borrowing and not borrowed.

As of March 30, 2014 and December 29, 2013, the Company had no outstanding borrowing under the July 2013 revolving credit facility.

Liquidity Support Agreement with Total S.A.

In February 2012, the Company entered into a Liquidity Support Agreement with Total S.A. and the DOE, and a series of related agreements with Total S.A. and Total, under which Total S.A. has agreed to provide the Company, or cause to be provided, additional liquidity under certain circumstances. The Liquidity Support Agreement was terminated in the first quarter of fiscal 2014. There were no outstanding guarantees or debt under the agreement upon termination (see Note 2).


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Project Financing

In order to facilitate the construction and sale of certain solar projects, the Company obtains non-recourse project loans from third-party financial institutions and are contemplated as part of the structure of the sales transaction. The customer, which is not a related party to either the financial institution or the Company, in certain circumstances is permitted to assume the loans at the time that the project entity is sold to the customer. During fiscal 2013, the Company entered into a project loan with a consortium of lenders to facilitate the development of a 10 MW utility and power plant projects under construction in Israel. During the first quarter of fiscal 2014, the Company sold the Israeli project. The related loan, amounting to ILS 141.8 million (approximately $40.7 million based on the exchange rate at the time of sale), and accrued and unpaid interest was assumed by the customer. In instances where the debt is issued as a form of pre-established customer financing, subsequent debt assumption is reflected as a financing outflow and operating inflow for purposes of the statement of cash flows to reflect the substance of the assumption as a facilitation of customer financing from a third-party.

Other Debt

During the first quarter of fiscal 2014, the Company entered into a long-term non-recourse loan to finance solar power systems and leases under its residential lease program. During the quarter, the Company drew down $39.1 million of proceeds, net of issuance costs, under the loan agreement.

During fiscal 2013, the Company entered into a long-term non-recourse loan agreement with a third-party financial institution to finance a 5.4 MW utility and power plant operating in Arizona. The outstanding balance of the loan as of March 30, 2014 was $9.0 million.

Other debt is further comprised of non-recourse project loans in EMEA which are scheduled to mature through 2028.

August 2011 Letter of Credit Facility with Deutsche Bank

In August 2011, the Company entered into a letter of credit facility agreement with Deutsche Bank, as administrative agent, and certain financial institutions. Payment of obligations under the letter of credit facility is guaranteed by Total S.A. pursuant to the Credit Support Agreement (see Note 2). The letter of credit facility provides for the issuance, upon request by the Company, of letters of credit by the issuing banks thereunder in order to support certain obligations of the Company, in an aggregate amount not to exceed (i) $771.0 million for the period from January 1, 2013 through December 31, 2013, and (ii) $878.0 million for the period from January 1, 2014 through December 31, 2014. Aggregate letter of credit amounts may be increased upon the agreement of the parties but, otherwise, may not exceed (i) $936.0 million for the period from January 1, 2015 through December 31, 2015, and (ii) $1.0 billion for the period from January 1, 2016 through June 28, 2016.

As of March 30, 2014 and December 29, 2013, letters of credit issued under the August 2011 letter of credit facility with Deutsche Bank totaled $755.9 million and $736.0 million