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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 27, 2020
OR
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


SPWR-20200927_G1.GIF
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.)
51 Rio Robles San Jose California 95134
(Address of Principal Executive Offices)
(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  x    No  o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes  x    No  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer Accelerated filer
 x
Non-accelerated filer Smaller reporting company Emerging growth company
    If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.   o

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

Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol Name of exchange on which registered
Common Stock SPWR NASDAQ

The total number of outstanding shares of the registrant’s common stock as of October 23, 2020 was 170,159,499.


1


TABLE OF CONTENTS


2

PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SunPower Corporation
Condensed Consolidated Balance Sheets
(In thousands, except share par values)
(unaudited)
  September 27, 2020 December 29, 2019
Assets
Current assets:
Cash and cash equivalents $ 324,741  $ 301,999 
Restricted cash and cash equivalents, current portion 16,605  26,348 
Accounts receivable, net1
94,756  127,878 
Contract assets1
126,474  99,426 
Inventories 178,139  163,405 
Advances to suppliers, current portion —  31,843 
Project assets - plants and land, current portion 24,366  12,650 
Prepaid expenses and other current assets2
96,247  86,755 
Current assets of discontinued operations —  530,627 
Total current assets 861,328  1,380,931 
Restricted cash and cash equivalents, net of current portion 8,419  9,354 
Property, plant and equipment, net 50,397  55,860 
Operating lease right-of-use assets 53,716  40,699 
Solar power systems leased, net 51,179  54,338 
Other intangible assets, net 1,073  7,121 
Other long-term assets 423,197  277,805 
Long-term assets of discontinued operations —  345,813 
Total assets $ 1,449,309  $ 2,171,921 
Liabilities and (Deficit) Equity    
Current liabilities:    
Accounts payable1,2
$ 162,499  $ 207,062 
Accrued liabilities1
128,647  116,276 
Operating lease liabilities, current portion 9,995  7,559 
Contract liabilities, current portion1
55,274  91,345 
Short-term debt 96,625  44,473 
Convertible debt, current portion1
301,258  — 
Current liabilities of discontinued operations —  431,694 
Total current liabilities 754,298  898,409 
Long-term debt 68,386  112,340 
Convertible debt1
422,132  820,259 
Operating lease liabilities, net of current portion 44,100  36,657 
Contract liabilities, net of current portion1
29,478  31,922 
Other long-term liabilities 137,981  157,774 
Long-term liabilities of discontinued operations —  93,061 
Total liabilities 1,456,375  2,150,422 
Commitments and contingencies (Note 8)
(Deficit) equity:    
Preferred stock, $0.001 par value; 10,000 shares authorized; none issued and outstanding as of September 27, 2020 and December 29, 2019
—  — 
Common stock, $0.001 par value, 367,500 shares authorized; 182,941 shares issued, and 170,139 shares outstanding as of September 27, 2020; 182,830 shares issued, and 170,059 shares outstanding as of December 29, 2019
170  168 
Additional paid-in capital 2,679,960  2,661,819 
Accumulated deficit (2,497,409) (2,449,679)
Accumulated other comprehensive gain (loss) 8,070  (9,512)
Treasury stock, at cost: 12,801 shares of common stock as of September 27, 2020; 12,770 shares of common stock as of December 29, 2019
(201,090) (192,633)
Total stockholders' (deficit) equity (10,299) 10,163 
Noncontrolling interests in subsidiaries 3,233  11,336 
Total (deficit) equity (7,066) 21,499 
Total liabilities and (deficit) equity $ 1,449,309  $ 2,171,921 
1 We have related-party balances for transactions made with Total SE and its affiliates as well as unconsolidated entities in which we have a direct equity investment. These related-party balances are recorded within the "accounts receivable, net," "contract assets," "accounts payable," "accrued liabilities," "contract liabilities, current portion," "convertible debt," and "contract liabilities, net of current portion," financial statement line items on our condensed consolidated balance sheets (see Note 3, Note 10, Note 11, and Note 12).

2 We have related-party balances for transactions entered with Maxeon Solar. These related-party balances are recorded within "prepaid expenses and other current assets" and "accrued liabilities" on our condensed consolidated balance sheets (see Note 13).



The accompanying notes are an integral part of these condensed consolidated financial statements.
3

SunPower Corporation
Condensed Consolidated Statements of Operations
(In thousands, except per share data)
(unaudited)
  Three Months Ended Nine Months Ended
  September 27, 2020 September 29, 2019 September 27, 2020 September 29, 2019
Revenue:
Solar power systems, components, and other1
$ 267,619  $ 277,280  $ 765,316  $ 665,623 
Residential leasing 1,284  3,523  3,937  9,083 
Solar services 5,903  5,239  13,766  15,902 
274,806  286,042  783,019  690,608 
Cost of revenue:
Solar power systems, components, and other1,2
233,144  236,991  681,649  600,947 
Residential leasing 1,209  1,567  3,722  5,939 
Solar services 3,313  1,989  5,672  6,319 
237,666  240,547  691,043  613,205 
Gross profit 37,140  45,495  91,976  77,403 
Operating expenses:
Research and development2
5,344  8,837  19,106  26,494 
Sales, general and administrative 35,462  41,428  112,193  129,582 
Restructuring (credits) charges (97) 4,252  2,738  6,626 
(Gain) loss on sale and impairment of residential lease assets 386  10,756  253  28,283 
Gain on business divestiture —  —  (10,458) (143,400)
Income from transition services agreement, net2
(1,889) —  (1,889) — 
Total operating expenses 39,206  65,273  121,943  47,585 
Operating income (loss) (2,066) (19,778) (29,967) 29,818 
Other income (expense), net:
Interest income 104  951  682  2,184 
Interest expense1
(7,090) (8,930) (24,731) (40,570)
Other, net 155,457  45,111  277,100  145,343 
Other income, net 148,471  37,132  253,051  106,957 
Income from continuing operations before income taxes and equity in earnings of unconsolidated investees 146,405  17,354  223,084  136,775 
Provision for income taxes (36,725) (2,928) (38,716) (10,074)
Equity in losses of unconsolidated investees —  (960) —  (716)
Net income from continuing operations 109,680  13,466  184,368  125,985 
Loss from discontinued operations before income taxes and equity in earnings (losses) of unconsolidated investees (70,761) (29,417) (125,599) (131,181)
Provision for income taxes 6,137  (2,450) 3,191  (7,169)
Equity in earnings (losses) of unconsolidated investees 58  (807) (586) (1,334)
Net loss from discontinued operations, net of taxes (64,566) (32,674) (122,994) (139,684)
Net income (loss) 45,114  (19,208) 61,374  (13,699)
Net (income) loss from continuing operations attributable to noncontrolling interests and redeemable noncontrolling interests (230) 5,178  2,512  33,474 
Net (income) loss from discontinued operations attributable to noncontrolling interests and redeemable noncontrolling interests (258) (987) (1,313) (3,057)
Net (income) loss attributable to noncontrolling interests and redeemable noncontrolling interests (488) 4,191  1,199  30,417 
Net income from continuing operations attributable to stockholders $ 109,450  $ 18,644  $ 186,880  $ 159,459 
Net loss from discontinued operations attributable to stockholders (64,824) $ (33,661) $ (124,307) $ (142,741)
Net income (loss) attributable to stockholders $ 44,626  $ (15,017) $ 62,573  $ 16,718 
Net income (loss) per share attributable to stockholders - basic:
Continuing operations 0.64  0.13  1.10  1.12 
Discontinued operations (0.38) (0.24) (0.73) (1.00)
Net income (loss) per share - basic 0.26  (0.11) 0.37  0.12 
Net income (loss) per share attributable to stockholders - diluted:
Continuing operations 0.57  0.12  0.99  1.03 
Discontinued operations (0.33) (0.22) (0.62) (0.86)
Net income (loss) per share - diluted 0.24  (0.10) 0.37  0.17 
Weighted-average shares:
Basic 170,113  142,553  169,646  142,248 
Diluted 198,526  155,583  200,124  166,861 

1We have related-party transactions with Total SE and its affiliates as well as unconsolidated entities in which we have a direct equity investment. These related-party transactions are recorded within the "revenue: solar power systems, components, and other," "cost of revenue: solar power systems, components, and other," "operating expenses: research and development," and "other income (expense), net: interest expense" financial statement line items in our condensed consolidated statements of operations (see Note 3 and Note 11).

2We have related-party transactions with Maxeon Solar. These related-party transactions are recorded within the "cost of revenue: solar power systems, components, and other", "research and development" expenses", and "income from transition services agreement, net" (see Note 13).


The accompanying notes are an integral part of these condensed consolidated financial statements.
4

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

  Three Months Ended Nine Months Ended
September 27, 2020 September 29, 2019 September 27, 2020 September 29, 2019
Net income (loss) $ 45,114  $ (19,208) $ 61,374  $ (13,699)
Components of other comprehensive income:
Translation adjustment 2,619  (1,547) 2,753  (755)
Net change in derivatives (Note 12) (1,602) 2,267  (2,540) 1,550 
Net gain (loss) on long-term pension liability obligation 16  —  (33) — 
Income taxes (5) (626) (5) (436)
Total other comprehensive income (loss) 1,028  94  175  359 
Total comprehensive income (loss) 46,142  (19,114) 61,549  (13,340)
Comprehensive income (loss) attributable to noncontrolling interests and redeemable noncontrolling interests (488) 4,191  1,199  30,417 
Comprehensive income (loss) attributable to stockholders $ 45,654  $ (14,923) $ 62,748  $ 17,077 


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

5

SunPower Corporation
Condensed Consolidated Statements of Equity (Deficit)
(In thousands)
  Common Stock          
  Shares Value Additional
Paid-in
Capital
Treasury
Stock
Accumulated Other
Comprehensive Loss
Accumulated Deficit Total
Stockholders’
Equity (Deficit)
Noncontrolling Interests in Subsidiaries Total Equity (Deficit)
Balances at December 29, 2019 168,121  $ 168  $ 2,661,819  $ (192,633) $ (9,512) $ (2,449,679) $ 10,163  $ 11,336  $ 21,499 
Net loss —  —  —  —  —  (1,431) (1,431) (707) (2,138)
Other comprehensive income —  —  —  —  723  —  723  —  723 
Issuance of restricted stock to employees, net of cancellations 2,452  —  —  —  —  — 
Stock-based compensation expense —  —  6,885  —  —  —  6,885  —  6,885 
Purchases of treasury stock (818) (1) —  (6,910) —  —  (6,911) —  (6,911)
Balances at March 29, 2020 169,755  170  2,668,704  (199,543) (8,789) (2,451,110) 9,432  10,629  20,061 
Net income (loss) —  —  —  —  —  19,378  19,378  (980) 18,398 
Other comprehensive loss —  —  —  —  (1,576) —  (1,576) —  (1,576)
Issuance of restricted stock to employees, net of cancellations 533  —  —  —  —  —  —  —  — 
Stock-based compensation expense —  —  5,675  —  —  —  5,675  —  5,675 
Purchases of treasury stock (229) —  —  (1,253) —  —  (1,253) —  (1,253)
Balances at June 28, 2020 170,059  170  2,674,379  (200,796) (10,365) (2,431,732) 31,656  9,649  41,305 
Net income —  —  —  —  —  44,626  44,626  488  45,114 
Other comprehensive loss —  —  —  —  1,028  —  1,028  —  1,028 
Distributions to non-controlling interest (302) (302)
Issuance of restricted stock to employees, net of cancellations 111  —  —  —  —  —  —  — 
Stock-based compensation expense —  —  5,581  —  —  —  5,581  —  5,581 
Purchases of treasury stock (31) —  —  (294) —  —  (294) —  (294)
Contributions to non-controlling interest 22  22 
Issuance of Maxeon Solar green convertible notes —  —  53,040  —  —  —  53,040  —  53,040 
Impact of Maxeon Solar Spin-Off —  (53,040) —  17,407  (110,303) (145,936) (6,624) (152,560)
Balances at September 27, 2020 170,139  $ 170  $ 2,679,960  $ (201,090) $ 8,070  $ (2,497,409) $ (10,299) $ 3,233  $ (7,066)


6

  Common Stock          
  Shares Value Additional
Paid-in
Capital
Treasury
Stock
Accumulated Other
Comprehensive Loss
Accumulated Deficit Total
Stockholders’
Deficit
Noncontrolling Interests in Subsidiaries Total Equity
Balances at December 30, 2018 141,178  $ 141  $ 2,463,370  $ (187,069) $ (4,150) $ (2,480,988) $ (208,696) $ 58,810  $ (149,886)
Net loss —  —  —  —  —  (89,724) (89,724) (14,841) (104,565)
Cumulative-effect upon adoption of ASC 842 —  —  —  —  —  9,151  9,151  —  9,151 
Other comprehensive income —  —  —  —  99  —  99  —  99 
Issuance of restricted stock to employees, net of cancellations 1,848  —  —  —  —  — 
Stock-based compensation expense —  —  6,628  —  —  —  6,628  —  6,628 
Contributions from noncontrolling interests —  —  —  —  —  —  —  20,987  20,987 
Purchases of treasury stock (633) (1) —  (3,871) —  —  (3,872) —  (3,872)
Balances at March 31, 2019 142,393  142  2,469,998  (190,940) (4,051) (2,561,561) (286,412) 64,956  (221,456)
Net income (loss) —  —  —  —  —  121,459  121,459  (11,385) 110,074 
Other comprehensive income —  —  —  —  166  —  166  —  166 
Issuance of restricted stock to employees, net of cancellations 173  —  —  —  —  — 
Stock-based compensation expense —  —  6,790  —  —  —  6,790  —  6,790 
Contributions from noncontrolling interests —  —  —  —  —  —  —  8,590  8,590 
Distributions from noncontrolling interests —  —  —  —  —  —  —  (316) (316)
Purchases of treasury stock (51) —  —  (494) —  —  (494) —  (494)
Balances at June 30, 2019 142,515  143  2,476,788  (191,434) (3,885) (2,440,102) (158,490) 61,845  (96,645)
Net loss —  —  —  —  —  (15,017) (15,017) (4,191) (19,208)
Other comprehensive income —  —  —  —  94  —  94  —  94 
Issuance of restricted stock to employees, net of cancellations 85  —  —  —  —  —  —  —  — 
Stock-based compensation expense —  —  7,027  —  —  —  7,027  —  7,027 
Contributions from noncontrolling interests —  —  —  —  —  —  —  1,836  1,836 
Distributions from noncontrolling interests —  —  —  —  —  —  —  (1,236) (1,236)
Purchases of treasury stock (23) —  —  (291) —  —  (291) —  (291)
Reduction of non-controlling interests, due to sale of interest in residential lease portfolio1
—  —  —  —  —  —  —  (51,833) (51,833)
Balances at September 29, 2019 142,577  $ 143  $ 2,483,815  $ (191,725) $ (3,791) $ (2,455,119) $ (166,677) $ 6,421  $ (160,256)


The accompanying notes are an integral part of these condensed consolidated financial statements.
7

SunPower Corporation
Condensed Consolidated Statements of Cash Flows
(In thousands)
(unaudited)    

Nine Months Ended
  September 27, 2020 September 29, 2019
Cash flows from operating activities:
Net income 61,374  (13,699)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 45,737  62,022 
Non-cash restructuring charges —  5,874 
Stock-based compensation 18,788  18,927 
Non-cash interest expense 5,495  7,468 
Bad debt expense 998  1,319 
Equity in losses of unconsolidated investees 586  2,050 
Gain on equity investments with readily determinable fair value (275,645) (129,038)
Gain on retirement of convertible debt (3,060) — 
Gain on sale of assets —  (21,383)
Gain on business divestiture (10,458) (143,400)
Gain on sale of investments without determinable fair value —  (17,275)
Deferred income taxes 1,639  500 
Impairment of property, plant and equipment —  777 
Loss on sale and impairment of residential lease assets 815  36,709 
Changes in operating assets and liabilities:
       Accounts receivable 113,029  (47,029)
       Contract assets (22,771) (18,107)
       Inventories (12,107) (108,093)
       Project assets (11,202) (9,238)
       Prepaid expenses and other assets (4,324) 1,482 
       Operating lease right-of-use assets 9,898  6,219 
       Long-term financing receivables, net —  (473)
       Advances to suppliers 16,296  33,292 
       Accounts payable and other accrued liabilities (75,141) 64,009 
       Contract liabilities (53,818) 8,127 
       Operating lease liabilities (8,642) (7,202)
Net cash used in operating activities (202,513) (266,162)
Cash flows from investing activities:
Purchases of property, plant and equipment (13,174) (35,100)
Cash paid for solar power systems (5,394) (51,826)
Cash outflow upon Maxeon Solar Spin-Off, net of proceeds2
(140,132) — 
Proceeds from business divestiture, net of cash3
15,418  40,491 
Proceeds from sale of equity investment 119,439  42,957 
Proceeds from maturities of marketable securities 6,588  — 
Purchases of marketable securities (1,338) — 
Proceeds from sale of assets —  39,970 
Cash outflow from sale of residential lease portfolio —  (16,397)
Proceeds from return of capital of equity investments with fair value option 7,724  — 
Cash paid for investments in unconsolidated investees —  (12,400)
Net cash provided by (used in) investing activities (10,869) 7,695 
Cash flows from financing activities:
Proceeds from bank loans and other debt 183,731  231,489 
Repayment of bank loans and other debt (183,070) (209,095)
Proceeds from issuance of non-recourse residential and commercial financing, net of issuance costs 13,434  72,259 
Repayment of non-recourse commercial and residential financing (7,231) (2,959)
Contributions from noncontrolling interests and redeemable noncontrolling interests attributable to residential projects 22  31,413 
Distributions to noncontrolling interests and redeemable noncontrolling interests attributable to residential projects (302) (316)
Cash paid for repurchase of convertible debt (95,178) — 
Proceeds from issuance of Maxeon Solar green convertible debt 200,000  — 
Settlement of contingent consideration arrangement, net of cash received 2,245  (2,448)
Equity offering costs paid (928) — 
Payment for prior business combination —  (9,000)
Purchases of stock for tax withholding obligations on vested restricted stock (8,455) (4,657)
Net cash provided by financing activities 104,268  106,686 
Effect of exchange rate changes on cash, cash equivalents, restricted cash and restricted cash equivalents 222  (1,247)
Net decrease in cash, cash equivalents, restricted cash and restricted cash equivalents (108,892) (153,028)
Cash, cash equivalents, restricted cash and restricted cash equivalents, beginning of period1
458,657  363,763 
Cash, cash equivalents, restricted cash and restricted cash equivalents, end of period1
$ 349,765  $ 210,735 
Non-cash transactions:
Costs of solar power systems sourced from existing inventory $ —  $ 29,206 
Costs of solar power systems funded by liabilities $ 598  $ 3,604 
Property, plant and equipment acquisitions funded by liabilities $ 36  $ 11,911 
Right-of-use assets obtained in exchange for lease obligations4
$ 21,786  $ 103,744 
Derecognition of financing obligations upon business divestiture $ —  $ 590,884 
Assumption of liabilities in connection with business divestiture5
$ 9,056  $ — 
Holdbacks in connection with business divestiture5
$ 7,199  $ 2,425 
Receivables in connection with sale of residential lease assets $ —  $ 8,043 
Assumption of debt by buyer in connection with sale of residential lease assets $ —  $ 69,076 
Holdback related to sale of assets $ —  $ 18,300 
1"Cash, cash equivalents, restricted cash and restricted cash equivalents" balance consisted of "cash and cash equivalents", "restricted cash and cash equivalents, current portion" and "restricted cash and cash equivalents, net of current portion" financial statement line items on the condensed consolidated balance sheets for the respective periods.

2Amount for the nine months ended September 27, 2020 consists of $125 million of cash received from Maxeon Solar under the Separation and Distribution Agreement, net of de-consolidated cash of $265.1 million

3 Amount for the nine months ended September 27, 2020 is net of de-consolidated cash of $0.6 million

4 Amounts for the nine months ended September 29, 2019 include the transition adjustment for the adoption of Accounting Standards Update ("ASU") No. 2016-02, Leases (Topic 842), as amended ("ASC 842") and additional Right-of-Use ("ROU") asset additions.

5See Note 5.

The accompanying notes are an integral part of these condensed consolidated financial statements.
8

Notes to the Condensed Consolidated Financial Statements

Note 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization

SunPower Corporation (together with its subsidiaries, "SunPower," the “Company,” "we," "us," or "our") is a leading solar energy company that delivers complete solar solutions to customers primarily in the United States and Canada through an array of hardware, software, and financing options, and "Smart Energy" solutions. Our Smart Energy initiative is designed to add layers of intelligent control to homes, buildings and grids—all personalized through easy-to-use customer interfaces. We are a leader in the U.S. downstream Distributed Generation (“DG”) market, providing an affordable and sustainable source of electricity compared to traditional utility energy to residential homeowners and commercial customers through multiple financial offerings. Our sales channels include a strong network of dealers and resellers that operate in both residential and commercial markets. SunPower is a majority-owned subsidiary of Total Solar INTL SAS ("Total," formerly Total Solar International SAS) and Total Gaz Electricité Holdings France SAS (“Total Gaz”), each a subsidiary of Total SE (“Total SE,” formerly Total SA) (see “Note 3. Transactions with Total and Total SE”).

On August 26, 2020, we completed the previously announced spin-off (the “Spin-Off”) of Maxeon Solar Technologies, Ltd., a Singapore public company limited by shares (“Maxeon Solar”), consisting of certain non-U.S. operations and assets of our former SunPower Technologies business unit. The Spin-Off was completed by way of a pro rata distribution of all of the then-issued and outstanding ordinary shares, no par value, of Maxeon Solar to holders of record of the Company’s common stock (the “Distribution”) as of the close of business on August 17, 2020.

As a result of the Spin-Off, SunPower no longer consolidates Maxeon Solar within its financial results of continuing operations. For all the periods prior to the Spin-Off, the financial results of Maxeon Solar are presented as net earnings from discontinued operations on the condensed consolidated statement of operations and the assets and liabilities of Maxeon Solar are presented as assets and liabilities of discontinued operations on the condensed consolidated balance sheets. (Refer Note 2. Discontinued Operations for additional details).

Liquidity

The global spread of the coronavirus ("COVID-19") created significant uncertainty and economic disruptions worldwide. In our response to the COVID-19 pandemic, we instituted several measures, including requirements to work remotely for the majority of our workforce and travel restrictions, as well as other mitigating actions to prudently manage our business during the current industry uncertainty. These measures included temporary reductions in the salaries of certain of our executive officers and the fees payable to our independent directors, as well as temporary reductions in salaries and reduced work week schedules for certain of our employees to address reduced demand and workloads, with exceptions for certain groups, including those supporting customer and asset services. In June 2020, most of our employees resumed a full work week and returned to full salary during the last week of July. In September 2020, our executive officers and independent board of directors returned to full salary.

Despite the challenging and volatile economic conditions, we believe that our total cash and cash equivalents will be sufficient to meet our obligations over the next 12 months from the date of issuance of our financial statements, including repayment of our 0.875% senior convertible debentures due June 1, 2021 (the "0.875% debentures due 2021"), which were outstanding in an aggregate principal amount of $301.6 million as of September 27, 2020. In addition, we have historically been successful in our ability to divest certain investments and non-core assets, secure other sources of financing, such as accessing the capital markets, and implement other cost reduction initiatives such as restructuring, to address our liquidity needs. However, our ability to take these steps may be adversely affected by many factors impacting us and the markets generally, including the COVID-19 pandemic. If alternative actions were to be necessary, we believe they could be implemented prior to the maturity date of the 0.875% debentures due 2021.

Although we have historically been able to generate liquidity, we cannot predict, with certainty, the outcome of our actions to generate liquidity as planned. Additionally, we are uncertain of the full extent to which the COVID-19 pandemic will impact our business, operations and financial results over time.


9

Basis of Presentation and Preparation
    
    Principles of Consolidation

    The accompanying condensed consolidated financial statements include the accounts of SunPower and our wholly-owned subsidiaries, and have been prepared by us in accordance with generally accepted accounting principles in the United States ("United States" or "U.S.," and such accounting principles, "U.S. GAAP") for interim financial information, and include the accounts of SunPower, all of our subsidiaries and special purpose entities, as appropriate under U.S. GAAP. For all the periods prior to the Spin-Off, the financial results, assets and liabilities of Maxeon Solar are presented as net of earnings from discontinued operations in the condensed statement of operations and the assets and liabilities are presented as assets and liabilities from discontinued operations in the condensed consolidated balance sheets The historical statements of comprehensive income and cash flows and the balances related to stockholders’ (deficit) equity have not been revised to reflect the effect of the Spin-Off. For further information on discontinued operations, see Note 2. “Discontinued Operations." All intercompany transactions and balances have been eliminated on consolidation. The financial information included herein is unaudited, and reflects all adjustments which are, in the opinion of our management, of a normal recurring nature and necessary for a fair statement of the results for the periods presented. The December 29, 2019 consolidated balance sheet data was derived from SunPower’s audited consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 29, 2019, as filed with the Securities and Exchange Commission ("SEC") on February 18, 2020 but does not include all disclosures required by U.S. GAAP. The condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in SunPower's Annual Report on Form 10-K for the fiscal year ended December 29, 2019. The operating results for the three and nine months ended September 27, 2020 are not necessarily indicative of the results that may be expected for fiscal year 2020, or for any other future period.

    We have a 52-to-53-week fiscal year that ends on the Sunday closest to December 31. Accordingly, every fifth or sixth year will be a 53-week fiscal year. The current fiscal year, fiscal 2020, is a 53-week fiscal year, while fiscal year 2019 was a 52-week fiscal year. The third quarter of fiscal 2020 ended on September 27, 2020, while the third quarter of fiscal 2019 ended on September 29, 2019.
Management Estimates

The preparation of the condensed consolidated financial statements in conformity with U.S. GAAP requires our management to make estimates and assumptions that affect the amounts reported in these condensed consolidated financial statements and accompanying notes. Significant estimates in these condensed consolidated financial statements include: revenue recognition, specifically the nature and timing of satisfaction of performance obligations, standalone selling price of performance obligations and variable consideration; allowances for credit losses, including estimating macroeconomic factors affecting historical recovery rate of receivables; inventory and project asset write-downs; stock-based compensation; fair value assumptions for solar power systems and other long-lived assets sold under sale-leaseback transactions; long-lived asset impairment, specifically estimates for valuation assumptions including discount rates and future cash flows; economic useful lives of property, plant and equipment, and intangible assets; fair value of investments, including equity investments for which we apply the fair value option and other financial instruments; residual value of solar power systems; valuation of contingencies such as accrued warranty; the incremental borrowing rate used in discounting of lease liabilities; the fair value of indemnities provided to customers and other parties; and income taxes and tax valuation allowances. As a result of the uncertainty involved with industry impacts of the COVID-19 pandemic, many of our estimates and assumptions require increased judgment and carry a higher degree of variability and volatility. These estimates may change as impacts become more certain and additional information becomes available, which may result in a significant change to our estimates in future periods. Actual results could materially differ from those estimates.

Summary of Selected Significant Accounting Policies
    
Included below, are selected significant accounting policies that were added or modified during the nine months ended September 27, 2020 as a result of new transactions entered into or the adoption of new accounting policies. Refer to our Annual Report on Form 10-K for the fiscal year ended December 29, 2019 for the full list of our significant accounting policies.

Financial Instruments - Credit Losses

Effective December 30, 2019, we adopted Accounting Standards Update ("ASU") No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASU 2016-13) and subsequent amendments to the initial guidance: ASU 2018-19, ASU 2019-04, ASU 2019-05, ASU 2019-10, ASU 2019-11, ASU 2020-02, and ASU 2020-03 (collectively, "Topic 326"). Topic 326 requires measurement and recognition of expected credit losses for financial assets held. The amendment applies to entities which hold financial assets and net investments in leases that are not
10

accounted for at fair value through net income as well as loans, debt securities, accounts receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. For additional information on the changes resulting from the new standard and the impact to our financial results on adoption, refer to the section Recently Adopted Accounting Pronouncements below.

We recognize an allowance for credit loss at the time a receivable is recorded based on our estimate of expected credit losses and adjust this estimate over the life of the receivable as needed. We evaluate the aggregation and risk characteristics of a receivable pool and develop loss rates that reflect historical collections, current forecasts of future economic conditions over the time horizon we are exposed to credit risk, and payment terms or conditions that may materially affect future forecasts.

As of September 27, 2020, we reported $94.8 million of accounts receivable, net of allowances of $17.0 million. Based on aging analysis as of September 27, 2020, 77% of our trade accounts receivable was outstanding less than 60 days. Refer to Note 6. Balance Sheet Components for more details on changes in allowance for credit losses. We are continuing to actively monitor the impact of the COVID-19 pandemic on our expected credit losses.

Recently Adopted Accounting Pronouncements

In August 2018, the FASB issued ASU 2018-14, Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20) to add, remove, and clarify disclosure requirements related to defined benefit pension and other postretirement plans. We adopted the ASU during first quarter of fiscal 2020. The adoption did not have a material impact on our consolidated financial statements.

In August 2018, the FASB issued ASU 2018-15, Intangibles Goodwill and Other Internal-Use Software (Subtopic 350-40) requiring a customer in a cloud computing arrangement that is a service contract to follow the internal-use software guidance in ASC 350-40 to determine which implementation costs to capitalize as assets. We adopted the ASU during the first quarter of fiscal 2020. The adoption did not have a material impact on our consolidated financial statements.

In October 2018, the FASB issued ASU 2018-17, Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities, which broadens the scope of the private company alternative to include all common control arrangements that meet specific criteria (not just leasing arrangements) and also eliminates the requirement that entities consider indirect interests held through related parties under common control in their entirety when assessing whether a decision-making fee is a variable interest. We adopted the ASU during the first quarter of fiscal 2020. The adoption did not have a material impact on our consolidated financial statements.

In November 2018, the FASB issued ASU 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606, which 1) clarifies that certain transactions between collaborative arrangement participants should be accounted for as revenue under Topic 606; 2) adds unit-of-account guidance in Topic 808 to align with the guidance in Topic 606; and 3) requires that in a transaction with a collaborative arrangement participant that is not directly related to sales to third parties, presenting the transaction together with revenue recognized under Topic 606 is precluded if the collaborative arrangement participant is not a customer. We adopted the ASU during the first quarter of fiscal 2020. The adoption did not have a material impact on our consolidated financial statements.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The ASU is intended to provide temporary optional expedients and exceptions to the U.S. GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates. This guidance is effective beginning on March 12, 2020, or prospectively from a date within an interim period that includes or is subsequent to March 12, 2020, up to the date that the financial statements are available to be issued. We adopted the ASU during the second quarter of fiscal 2020. The adoption did not have a material impact on our consolidated financial statements.


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Recent Accounting Pronouncements Not Yet Adopted

In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes, eliminates certain exceptions within ASC 740, Income Taxes, and clarifies certain aspects of the current guidance to promote consistency among reporting entities. ASU 2019-12 is effective for us no later than the first quarter of fiscal 2021. Most amendments within the standard are required to be applied on a prospective basis, while certain amendments must be applied on a retrospective or modified retrospective basis. We are currently evaluating the impacts of the provisions of ASU 2019-12 on our financial statements and disclosures.

In January 2020, the FASB issued ASU 2020-01, Investments—Equity Securities (Topic 321), Investments—Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815)—Clarifying the Interactions between Topic 321, Topic 323, and Topic 815. The amendment clarifies accounting for equity investments and non-derivative forward contracts or purchased call options under ASC 321. ASU 2020-01 is effective no later than the first quarter of fiscal 2021. Early adoption is permitted, and the ASU should be applied prospectively. While we are still evaluating the impacts of the provisions of ASU 2020-01 on our financial statements and disclosures, the impact is not expected to be material.

In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40)—Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. The amendment reduces the number of accounting models used for convertible debt instruments and convertible preferred stock, which results in fewer embedded conversion features separately recognized from the host contracts. ASU 2020-06 is effective no later than the first quarter of fiscal 2022. Early adoption is permitted no earlier than the first quarter of fiscal 2021, and the ASU should be applied retrospectively. We are currently evaluating the impacts of the provisions of ASU 2020-06 on our financial statements and disclosures.


Note 2. Discontinued Operations

Maxeon Solar Separation Transaction

On August 26, 2020, the Company completed the Spin-Off of Maxeon Solar, consisting of certain non-U.S. operations and assets of our former SunPower Technologies business unit. The Spin-Off was completed by way of a pro rata Distribution of all of the then-issued and outstanding ordinary shares, no par value, of Maxeon Solar to holders of record of the Company’s common stock as of the close of business on August 17, 2020.

Immediately after the Distribution, Maxeon Solar and Tianjin Zhonghuan Semiconductor Co., Ltd., a PRC joint stock limited company (“TZS”), completed the previously announced transaction in which Zhonghuan Singapore Investment and Development Pte. Ltd., a Singapore private limited company and an affiliate of TZS, purchased from Maxeon Solar, for $298.0 million, 8,915,692 additional ordinary shares of Maxeon Solar (the “TZS Investment”), representing approximately 28.848% of the outstanding ordinary shares of Maxeon Solar after giving effect to the Spin-Off and the TZS Investment.

Shortly after the Spin-Off, Maxeon Solar paid us $125.0 million for the transfer of certain intellectual property and reimbursement of transaction expenses in accordance with the Separation and Distribution Agreement entered into between us and Maxeon Solar in connection with the Spin-Off.

In connection with the Spin-Off, we and Maxeon Solar entered into various ancillary agreements that provide a framework for the relationships between the parties going forward, including a tax matters agreement, an employee matters agreement, a transition services agreement, a brand framework agreement, a cross license agreement, a product collaboration agreement and a supply agreement (collectively, the “Ancillary Agreements”). For the descriptions of the Ancillary Agreements and the full text of such agreements, refer to our Current Report on Form 8-K and exhibits filed with the SEC on August 27, 2020.

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Under the transition services agreement, Maxeon Solar and SunPower will provide various administrative services and assets to each other through August 26, 2021 with an option to extend for up to an additional 180 days. Services to be provided include, among others, certain services related to finance, accounting, business technology, human resources, facilities, document management and record retention, relationship and strategy management, module operations, and technical and quality support. In consideration for such services, Maxeon Solar and SunPower will each pay fees to the other for the services provided, and those fees will generally be in amounts intended to allow the party providing services to recover all of its direct and indirect costs incurred in providing those services, plus a standard markup, and subject to a 25% increase following an extension of the initial term (unless otherwise mutually agreed to by the parties). During the three and nine months ended September 27, 2020, we recorded $2.1 million of income associated with the transition services agreement. This was offset by $0.2 million of services provided by Maxeon Solar to us, resulting in a net reduction of operating expenses of $1.9 million, presented separately within operating expenses on the condensed consolidated statement of operations.

The product collaboration agreement provides a framework for the development of next-generation Maxeon 7 panels, flex panels, single solar panels, and any other products that are agreed to by the parties. Each project that will occur under the agreement will be governed by written plans that will be agreed to by the parties. These plans will include agreed-upon budgets, cost allocations and resource responsibilities of the parties and will last a maximum of 2 years. Both parties will have the sole right to manufacture the products developed under the agreement within the 50 states of the United States, the District of Columbia and Canada (the “Collaboration Territory”). Maxeon Solar will have the exclusive right to manufacture the products outside of the Collaboration Territory. For a period that will not be longer than two years commencing on the effective date or approval of a development plan for each developed product (the “Exclusivity Period”), SunPower will have the exclusive right to sell, and Maxeon Solar will have the exclusive right to supply, each developed product in specified markets. For one year after the Exclusivity Period for each developed product, neither party will be permitted to enter into an exclusive supply relationship with a third party for the relevant developed product within those markets. In addition, after the Exclusivity Period, if either party intends to enter into a supply agreement for the developed product, the other party has a right of first offer or refusal. Any new intellectual property arising from the agreement will be owned by Maxeon Solar, subject to a sole license to SunPower within the Collaboration Territory during the Exclusivity Period, and which will become non-exclusive after the Exclusivity Period. During the three and nine months ended September 27, 2020, we recorded an amount of $3.6 million reimbursable from Maxeon Solar under the product collaboration agreement, which is presented as a reduction of our R&D expense on the condensed consolidated statement of operations.

The supply agreement, which reflects good faith negotiations between the parties, provides that SunPower will purchase from Maxeon Solar certain designated products for use in residential and commercial solar applications in the Domestic Territory (as defined in the supply agreement). The supply agreement has a two-year term, subject to customary early termination provisions. Under the supply agreement, SunPower is required to purchase certain minimum volumes of products during each calendar quarter of the term. For the remainder of 2020, the minimum volumes are specifically enumerated for different types of products, and for each subsequent period, the minimum volumes will be established based on SunPower’s forecasted requirements, subject to certain limitations. The parties will be subject to reciprocal penalties for failing to purchase or supply, as applicable, the minimum product volumes. The purchase price for each product will be fixed for 2020 and 2021 based on the power output (in watts) of the relevant product. For subsequent periods, the purchase price will be set based on a formula and fixed for the covered period.

The Spin-Off meets the criteria for classification as “discontinued operations” in accordance with the guidance in ASC 205-20. Since Maxeon Solar was a major line of SunPower's business and formerly our global cell and module manufacturing platform, our global sales platform in Europe, and our distributed generation and power plant operations, the disposal has a strategic shift that has major impacts on SunPower's current and historical financial results. Thus, in accordance with the guidance, SunPower no longer consolidates the financial results of Maxeon Solar within its financial results of continuing operations. For all the periods prior to the Spin-Off, the financial results of Maxeon Solar are presented as net earnings from discontinued operations on the condensed consolidated statement of operations and assets and liabilities of discontinued operations on the condensed consolidated balance sheets.

The following table presents the assets and liabilities of Maxeon Solar as of December 29, 2019 presented as assets and liabilities of discontinued operations on the condensed consolidated balance sheet:

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(In thousands) December 29, 2019
Assets:
Current Assets:
   Cash and cash equivalents $ 120,956 
   Restricted cash and cash equivalents, current portion — 
   Restricted short-term marketable securities 6,187 
   Accounts receivable, net 98,598 
   Contract assets, current portion — 
   Inventories 194,852 
   Advances to suppliers, current portion 75,545 
   Prepaid expenses and other current assets 34,489 
     Total current assets of discontinued operations 530,627 
   Property, plant and equipment, net 267,866 
   Operating lease right-of-use assets 10,559 
   Advances to suppliers, net of current portion 13,993 
   Other long-term assets 53,395 
      Total assets of discontinued operations $ 876,440 
Liabilities:
Current Liabilities:
   Accounts payable $ 234,697 
   Accrued and other current liabilities1
87,614 
   Contract liabilities, current portion 47,096 
   Short-term debt and current portion of long-term debt 60,383 
     Total current liabilities of discontinued operations 431,694 
   Long-term debt 1,487 
   Convertible debt, net of current portion — 
   Contract liabilities, net of current portion 35,616 
   Other long-term liabilities 46,526 
     Total liabilities of discontinued operations $ 524,755 


The following table presents financial results of Maxeon Solar presented as discontinued operations in the Company's income statement in the corresponding periods:

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Three Months Ended Nine Months Ended
(In thousands) September 27, 2020 September 29, 2019 September 27, 2020 September 29, 2019
Net revenues1
$ 63,272  $ 189,916  $ 357,164  $ 569,856 
Gross income (loss)1
(30,820) 2,756  (26,609) (46,637)
Operating expenses2
33,177  30,601  92,581  82,191 
Operating loss (63,997) (27,845) 119,191  (128,828)
Loss before income taxes and equity in earnings (losses) of unconsolidated investees (70,761) (29,417) (125,599) (131,181)
Provision for income taxes 6,137  (2,450) 3,191  (7,169)
Equity in earnings (losses) of unconsolidated investees 58  (807) (586) (1,334)
Net loss from discontinued operations, net of taxes (64,566) (32,674) (122,994) (139,684)
Net income from discontinued operations attributable to noncontrolling interests and redeemable noncontrolling interests (258) (987) (1,313) (3,057)
Net loss from discontinued operations attributable to stockholders $ (64,824) $ (33,661) $ (124,307) $ (142,741)

1 Excludes intersegment revenue and gross margin from sale of photovoltaic modules to SunPower prior to the Spin-Off, which is eliminated in consolidation.

2 Operating expenses include separation costs classified within discontinued operations.

The following table presents significant non-cash items and capital expenditures of discontinued operations:

Nine Months Ended
(In thousands) September 27, 2020 September 29, 2019
Depreciation and amortization $ 31,143  $ 34,759 
Stock-based compensation 6,401  5,246 
Equity in losses of unconsolidated investees 586  1,334 
Gain from sale of investments —  6,275 
Purchases of property, plant and equipment 10,707  31,523 
Aged supplier financing balances reclassified from accounts payable to short-term debt 63,111  22,852 

Note 3. TRANSACTIONS WITH TOTAL AND TOTAL SE

In June 2011, Total completed a cash tender offer to acquire 60% of our 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, we entered into a Private Placement Agreement with Total (the "Private Placement Agreement"), under which Total purchased, and we issued and sold, 18.6 million shares of our common stock for a purchase price of $8.80 per share, thereby increasing Total's ownership to approximately 66% of our outstanding common stock as of that date. As of September 27, 2020, ownership of our outstanding common stock by Total SE and its affiliates was approximately 52%. Subsequent to the Spin-Off of Maxeon Solar on August 26, 2020, Total received a pro rata distribution of ordinary shares of Maxeon Solar and its percentage ownership of shares in SunPower did not change.

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Supply Agreements

In December 2019, we sold our membership interests in certain project companies to Total Strong, LLC., a joint venture between Total and Hannon Armstrong. We recognized revenue of $6.2 million for sales to this joint venture, which is included within "Solar power systems, components, and other" on our consolidated statements of operations for fiscal 2019. During the three months and nine months ended September 27, 2020, we recognized revenue of $34.3 million and $65.7 million, respectively, for sales to this joint venture, that included project companies sold in the previous quarters, and continued recognition of engineering, procurement and construction ("EPC") revenue for sales in the previous quarters, which is included within "Solar power systems, components, and other" on our condensed consolidated statements of operations.

Affiliation Agreement

We and Total have entered into an Affiliation Agreement that governs the relationship between Total and us (the "Affiliation Agreement"). Until the expiration of a standstill period specified in the Affiliation Agreement (the "Standstill Period"), and subject to certain exceptions, Total, Total SE, and any of their respective affiliates and certain other related parties (collectively, the "Total Group") may not effect, seek, or enter into discussions with any third party regarding any transaction that would result in the Total Group beneficially owning our shares in excess of certain thresholds, or request us or our independent directors, officers or employees, to amend or waive any of the standstill restrictions applicable to the Total Group. The Standstill Period ends when Total holds less than 15% ownership of us.

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 our outstanding voting power and imposes certain limitations on the Total Group's ability to transfer 40% or more of our outstanding shares or voting power to a single person or group that is not a direct or indirect subsidiary of Total SE. 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 our Board of Directors.

The Affiliation Agreement provides Total with the right to maintain its percentage ownership in connection with any new securities issued by us, 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 ability of us and our board of directors 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.

0.875% Debentures Due 2021

In June 2014, we issued $400.0 million in principal amount of our 0.875% debentures due 2021. An aggregate principal amount of $250.0 million of the 0.875% debentures due 2021 was initially acquired by Total. During the three and nine months ended September 27, 2020, we purchased $8.1 million and $98.4 million respectively, in aggregated principal amount of the 0.875% debentures for approximately $95.1 million, net. Total held a principal amount of $56.4 million, of the 0.875% debentures due 2021 repurchased and the remaining debentures were held by other third-party investors. The purchases and early retirements resulted in a gain from extinguishment of debt of approximately $0.0 million and $3.1 million in the three and nine months ended September 27, 2020 respectively, which represented the difference between the book value of the 0.875% debentures due 2021, net of the remaining unamortized discount prior to repurchase and the reacquisition price of the 0.875% debentures due 2021 upon repurchase. The gain was recorded within “Other, net” on the condensed consolidated statement of operations.

Interest is payable on the 0.875% debentures due 2021 semi-annually, beginning on December 1, 2014. The 0.875% debentures due 2021 are convertible into shares of our common stock at any time. When issued, the initial conversion rate in respect of the 0.875% debentures due 2021 was 20.5071 shares of common stock per $1,000 principal amount of debentures (which was equivalent to an initial conversion price of approximately $48.76 per share). After giving effect to the Spin-Off, effective September 1, 2020, the conversion rate was adjusted to 25.1388 shares of common stock per $1,000 principal amount of debentures (which is equivalent to a conversion price of approximately $39.78 per share), which provides Total the right to acquire up to 4,865,886 shares of our common stock after giving effect to the purchase described above. The applicable conversion rate may further adjust in certain circumstances, including a fundamental change, as described in the indenture governing the 0.875% debentures due 2021. If not earlier repurchased or converted, the 0.875% debentures due 2021 mature on June 1, 2021.

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4.00% Debentures Due 2023

In December 2015, we issued $425.0 million in principal amount of our 4.00% senior convertible debentures due 2023 (the "4.00% debentures due 2023"). An aggregate principal amount of $100.0 million of the 4.00% debentures due 2023 was acquired by Total. The 4.00% debentures due 2023 are convertible into shares of our common stock at any time. When issued, the initial conversion rate in respect of the 4.00% debentures due 2023 was 32.7568 shares of common stock per $1,000 principal amount of debentures (which was equivalent to an initial conversion price of approximately $30.53 per share). After giving effect to the Spin-Off, effective September 1, 2020, the conversion rate adjusted to 40.1552 shares of common stock per $1,000 principal amount of debentures (which is equivalent to a conversion price of approximately $24.90 per share), which provides Total the right to acquire up to 4,015,515 shares of our common stock. The applicable conversion rate may further adjust in certain circumstances, including a fundamental change, as described in the indenture governing the 4.00% debentures due 2023.

Joint Solar Projects with Total and its Affiliates

We enter into various EPC and O&M agreements relating to solar projects, including EPC and O&M services agreements relating to projects owned or partially owned by Total and its affiliates. As of September 27, 2020, we had $44.8 million of "Contract assets" and $0.3 million of "Accounts receivable, net" on our condensed consolidated balance sheets related to projects in which Total and its affiliates have a direct or indirect material interest.

During fiscal year 2018, in connection with a co-development solar project in Japan among us, Total, and an independent third party, we sold 25% of ownership interests in the co-development solar project to Total, for an immaterial amount of proceeds. We sold the remaining 25% of ownership interest to Total in the nine months ended September 29, 2019, for proceeds of $4.6 million, and recognized a gain of $2.9 million, which is included within "other, net" in our condensed consolidated statements of operations for fiscal 2019. Development service revenue of $6.4 million was also recognized during fiscal 2019. We have also agreed to supply solar panels under this arrangement with sales beginning in October 2019 and expected to occur through November 2020. We recognize revenue from these sales consistent with our revenue recognition policy from solar power components.

In connection with a co-development solar project in Chile between us and Total, we sold all of our 50% of ownership interests in the co-development project to Total in fiscal 2019, for proceeds of $14.1 million, and recognized a gain of $11.0 million, which is included within "other, net" in our condensed consolidated statements of operations for fiscal 2019.

Related-Party Transactions with Total and its Affiliates:

The following related-party balances and amounts are associated with transactions entered into with Total and its Affiliates. Refer to Note 11. Equity Investments for related-party transactions with unconsolidated entities in which we have a direct equity investment.
As of
(In thousands) September 27, 2020 December 29, 2019
Accounts receivable $ 267  $ 3,973 
1 Refer to Note 10. Commitments and Contingencies - Advances from Customers.

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Three Months Ended Nine Months Ended
(In thousands) September 27, 2020 September 29, 2019 September 27, 2020 September 29, 2019
Revenue:
Solar power systems, components, and other $ 34,465  $ 112  $ 98,244  $ 112 
Cost of revenue:
Solar power systems, components, and other 26,177  84  70,501  84 
Other income
     Gain on early retirement of convertible debt 104  —  1,954  — 
Interest expense:
Guarantee fees incurred under the Credit Support Agreement —  93  13  244 
Interest expense incurred on the 0.875% debentures due 2021
384  547  1,216  1,641 
Interest expense incurred on the 4.00% debentures due 2023
1,000  1,000  3,000  3,000 

Note 4. REVENUE FROM CONTRACTS WITH CUSTOMERS

Disaggregation of Revenue

The following tables represent disaggregated revenue from contracts with customers for the three and nine months ended September 27, 2020, and September 29, 2019 along with the reportable segment for each category:


Three Months Ended
(In thousands) September 27, 2020 September 29, 2019
Category Residential, Light Commercial Commercial and Industrial Solutions Others Total Residential, Light Commercial Commercial and Industrial Solutions Others Total
Solar power systems sales and EPC services 191,016  73,840  2,688  267,544  195,686  58,507  8,354  262,547 
Operations and maintenance —  —  75  75  —  4,659  10,074  14,733 
Residential leasing 1,284  —  —  1,284  3,523  —  —  3,523 
Solar services1
5,485  418  —  5,903  4,881  358  —  5,239 
Revenue $ 197,785  $ 74,258  $ 2,763  $ 274,806  $ 204,090  $ 63,524  $ 18,428  $ 286,042 


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Nine Months Ended
(In thousands) September 27, 2020 September 29, 2019
Category Residential, Light Commercial Commercial and Industrial Solutions Other Total Residential, Light Commercial Commercial and Industrial Solutions Other Total
Solar power systems sales and EPC services 568,303  170,403  3,147  741,853  458,141  147,221  22,973  628,335 
Operations and maintenance —  3,619  19,844  23,463  —  7,696  29,592  37,288 
Residential leasing 3,937  —  —  3,937  9,083  —  —  9,083 
Solar services1
12,524  1,242  —  13,766  15,046  856  —  15,902 
Revenue $ 584,764  $ 175,264  $ 22,991  $ 783,019  $ 482,270  $ 155,773  $ 52,565  $ 690,608 

1 Upon adoption of ASC 842, revenues from residential leasing are being accounted for under ASU No. 2014-09 ("ASC 606") and recorded under 'Solar services'

We recognize revenue for sales of modules and components at the point that control transfers to the customer, which typically occurs upon shipment or delivery to the customer, depending on the terms of the contract, and we recognize revenue for operations and maintenance and solar services over the term of the service period.

For EPC revenue and solar power systems sales, we commence recognizing revenue when control of the underlying system transfers to the customer and continue recognizing revenue over time as work is performed based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligations. For contracts in which we sell membership interests in certain project companies that are owned by a to joint venture formed between Total and Hannon Armstrong, we recognize revenue for the initial development and other solar assets at the point that control transfers to the customer, and we recognize continuing EPC revenue for work provided to the joint venture over time as work is performed.

Judgment is required to evaluate assumptions including the amount of net contract revenues and the total estimated costs to determine our progress towards contract completion and to calculate the corresponding amount of revenue to recognize. If estimated total costs on any contract are greater than the net contract revenues, we recognize the entire estimated loss in the period the loss becomes known. For contracts with post-installation systems monitoring and maintenance, we recognize revenue related to systems monitoring and maintenance over the non-cancellable contract term on a straight-line basis.

Changes in estimates for EPC services occur for a variety of reasons, including but not limited to (i) construction plan accelerations or delays, (ii) product cost forecast changes, (iii) change orders, or (iv) changes in other information used to estimate costs. Changes in estimates may have a material effect in our condensed consolidated statements of operations. The table below outlines the impact on revenue of net changes in estimated transaction prices and input costs for systems related sales contracts (both increases and decreases) for the three and nine months ended September 27, 2020 and September 29, 2019 as well as the number of projects that comprise such changes. For purposes of the following table, only projects with changes in estimates that have an impact on revenue and or cost of at least $1.0 million during the periods were presented. Also included in the table is the net change in estimate as a percentage of the aggregate revenue for such projects.

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Three Months Ended Nine Months Ended
(In thousands, except number of projects) September 27, 2020 September 29, 2019 September 27, 2020 September 29, 2019
Increase (decrease) in revenue from net changes in transaction prices $ 1,142  $ —  $ 834  $ (3,301)
Increase (decrease) in revenue from net changes in input cost estimates (1,041) 1,734  (1,092) 4,144 
Net decrease in revenue from net changes in estimates $ 101  $ 1,734  (258) $ 843 
 
Number of projects 2 1 4 2
Net change in estimate as a percentage of aggregate revenue for associated projects 0.3  % 3.6  % (0.2) % 1.5  %

Contract Assets and Liabilities

Contract assets consist of (i) retainage which represents the earned, but unbilled, portion of a construction and development project for which payment is deferred by the customer until certain contractual milestones are met; and (ii) unbilled receivables which represent revenue that has been recognized in advance of billing the customer, which is common for long-term construction contracts. Contract liabilities consist of deferred revenue and customer advances, which represent consideration received from a customer prior to transferring control of goods or services to the customer under the terms of a sales contract. Refer to "Note 6. Balance Sheet Components" for further details.

During the three and nine months ended September 27, 2020, the increase in contract assets of $5.7 million and $4.5 million, respectively, was primarily driven by billings for commercial projects where certain milestones had not yet been reached, but criteria for revenue recognition has been met. During the three and nine months ended September 29, 2019, the increase in contract assets of $26.0 million and $18.4 million, respectively, was primarily driven by unbilled receivables for commercial projects where certain milestones had not yet been reached, but the criteria for revenue had been met. During the three and nine months ended September 27, 2020, the decrease in contract liabilities of $2.0 million and $6.7 million, respectively, was primarily due to utilization of customer advances. During the three and nine months ended September 29, 2019, the increase in contract liabilities of $15.2 million and $16.7 million was primarily due to additional customer advances. During the three and nine months ended September 27, 2020, we recognized revenue of $26.9 million and $78.4 million that was included in contract liabilities as of June 28, 2020 and December 29, 2019, respectively. During the three and nine months ended September 29, 2019, we recognized revenue of $32.5 million and $29.2 million, respectively, that was included in contract liabilities as of June 30, 2019 and December 30, 2018, respectively.

The following table represents our remaining performance obligations as of September 27, 2020 for EPC agreements for projects that we are constructing or expect to construct. We expect to recognize $140.5 million of revenue upon transfer of control of the projects.
Project Revenue Category EPC Contract/Partner Developed Project Expected Year Revenue Recognition Will Be Completed Average Percentage of Revenue Recognized
Various Distribution Generation Projects Solar power systems sales and EPC services Various 2021 76.9%

As of September 27, 2020, we have entered into contracts with customers for sales of modules, components, and residential solar systems, for an aggregate transaction price of $211.9 million, the substantial majority of which we expect to recognize over the next 12 months.

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Note 5. BUSINESS DIVESTITURE

Sale of Operations and Maintenance Business

In the third quarter of fiscal 2019, we signed a Membership Interest and Purchase Agreement ("MIPA") with NovaSource Power Services ("NovaSource”) to sell certain operation and maintenance assets and related liabilities for total consideration of $36.3 million. The transaction closed on May 14, 2020 upon the satisfaction of agreed conditions precedent to closing, and payment was received from NovaSource at that time.

Upon closing, we received net cash consideration of $16.0 million after an estimated $5.3 million working capital adjustment, as well as hold-backs totaling in aggregate $15.0 million for certain retained obligations and contracts not novated as of closing. We assessed the recoverability of these holdbacks and included our best estimate of the amount recoverable in the future, in our calculation of net gain on sale. The final net consideration is subject to final working capital adjustments that are expected to be agreed and finalized with NovaSource during the fourth quarter of fiscal 2020, which are not expected to materially impact the gain recognized in the second quarter of fiscal 2020. Additionally, we also agreed to retain and subcontract certain O&M contracts for selected large utility scale power plant projects in North America at a fixed price to NovaSource. The contracts were deemed loss-making on the closing date and accordingly, we recorded a liability for the expected loss to be recognized for these contracts that will be amortized over the expected period of loss of 3 years. In the third quarter of fiscal 2020, we recorded final working capital adjustments as agreed upon with NovaSource which had an immaterial impact on the consolidated financial statements.

In evaluating the accounting treatment for this sale, the transaction was considered the sale of a business as defined in ASC 805, Business Combinations. We recorded a gain of $10.5 million, which was recorded "gain on business divestiture" in our condensed consolidated statements of operations for the nine months ended September 27, 2020. We recorded $2.1 million of tax expense related to the sale during the nine months ended September 27, 2020. We also recorded $2.7 million of transaction expenses, which were expensed as incurred and included within “sales, general and administrative expenses” in our condensed consolidated statement of operations for the nine months ended September 27, 2020.

The assets and liabilities of our O&M business that were sold in the transaction are summarized below:

(In thousands)
Accounts receivable $ 5,693 
Contract assets, current portion 3,239 
Prepaid expenses, other current assets, and cash 4,786 
Other long-term assets 634 
      Total assets 14,352 
Accounts payable 3,434 
Contract liabilities, current portion 4,204 
Other current liabilities 808 
Other long-term liabilities 2,245 
      Total liabilities 10,691 
Net assets $ 3,661 

Net proceeds received were as follows:

(In thousands)
Purchase price $ 36,300 
Holdback receivables, including contracts not novated (15,000)
Working capital adjustment, upon close
(5,324)
     Net proceeds received $ 15,976 

21


Net gain on sale for the nine months ended September 27, 2020 was as follows:

(In thousands) Nine Months Ended
September 27, 2020
Net proceeds received $ 15,976 
Estimated receivable from amount held back for retained obligations
7,199 
Liabilities for loss-making contracts retained (6,026)
Book value of net assets sold (3,661)
Working capital adjustment, post close (3,030)
    Net gain on sale $ 10,458 


Note 6. BALANCE SHEET COMPONENTS

Accounts Receivable, Net
As of
(In thousands) September 27, 2020 December 29, 2019
Accounts receivable, gross1
$ 112,025  $ 145,392 
Less: allowance for credit losses (16,986) (17,208)
Less: allowance for sales returns (283) (306)
     Accounts receivable, net $ 94,756  $ 127,878 
1 There is a lien on our accounts receivable of $58.1 million of our consolidated accounts receivable, gross, as of September 27, 2020 in connection with a Loan and Security Agreement entered into on March 29, 2019. See Note 12. Debt and Credit Sources.

Allowance for Credit Losses

Three Months Ended Nine Months Ended
(In thousands) September 27, 2020 September 29, 2019 September 27, 2020 September 29, 2019
Balance at beginning of period $ 19,485  $ 17,697  $ 17,208  $ 12,656 
Provision for credit losses (2,568) (118) 998  1,361 
Charge offs, net of recoveries 69  647  (1,220) 4,209 
Balance at end of period $ 16,986  $ 18,226  $ 16,986  $ 18,226 


Inventories
As of
(In thousands) September 27, 2020 December 29, 2019
Raw materials1
$ 31,351  $ 36,072 
Work-in-process1
791  948 
Finished goods and components 145,997  126,385 
Inventories2 3
$ 178,139  $ 163,405 
1 Pertains to inventory at our U.S. manufacturing facilities in Hillsboro, Oregon that was retained by the Company post-spin and other components including micro-inverters and installation materials.

2 A lien of $127.4 million exists on our gross inventory as of September 27, 2020 in connection with a Loan and Security Agreement entered into on March 29, 2019. See Note 12. Debt and Credit Sources.

3 Refer to long-term inventory for the safe harbor program under the caption "Other long-term assets."
22


Prepaid Expenses and Other Current Assets
As of
(In thousands) September 27, 2020 December 29, 2019
Deferred project costs $ 21,812  $ 29,202 
VAT receivables, current portion 993  2,989 
Deferred costs for solar power systems 23,401  29,631 
Other receivables 33,148  17,185 
Prepaid taxes 198  462 
Other 16,695  7,286 
Prepaid expenses and other current assets $ 96,247  $ 86,755 

Property, Plant and Equipment, Net
As of
(In thousands) September 27, 2020 December 29, 2019
Manufacturing equipment $ 17,192  $ 17,080 
Leasehold improvements 29,385  22,237 
Solar power systems 30,895  29,192 
Computer equipment 57,436  62,292 
Furniture and fixtures 7,909  8,043 
Construction-in-process 2,499  4,506 
   Property, plant and equipment, gross 145,316  143,350 
Less: accumulated depreciation (94,919) (87,490)
   Property, plant and equipment, net 50,397  55,860 

Property, Plant and Equipment, Net, by Geography
As of
(In thousands) September 27, 2020 December 29, 2019
United States $ 49,474  $ 54,923 
Philippines 294  323 
Other 629  614 
Property, plant and equipment, net, by geography1
$ 50,397  $ 55,860 
1 Based on the physical location of the assets.

Other Long-term Assets
As of
(In thousands) September 27, 2020 December 29, 2019
Equity investments with readily determinable fair value $ 331,293  $ 173,908 
Equity investments without readily determinable fair value 801  801 
Equity investments with fair value option 9,924  17,500 
Long-term inventory1
42,582  48,214 
Other 38,597  37,382 
Other long-term assets $ 423,197  $ 277,805 
1 Entire balance consists of finished goods under the safe harbor program. Refer to Note 11. Equity Investments for details.

23


Accrued Liabilities
As of
(In thousands) September 27, 2020 December 29, 2019
Employee compensation and employee benefits $ 15,865  $ 28,354 
Interest payable 7,713  10,161 
Short-term warranty reserves 40,505  20,868 
Restructuring reserve 3,806  6,085 
Legal expenses 12,244  7,846 
Taxes payable 25,314  18,365 
Other 23,200  24,597 
Accrued liabilities $ 128,647  $ 116,276 

Other Long-term Liabilities
As of
(In thousands) September 27, 2020 December 29, 2019
Deferred revenue1
$ 37,458  $ 40,246 
Long-term warranty reserves 47,889  80,512 
Unrecognized tax benefits 8,181  7,218 
Long-term pension liability 4,440  2,894 
Derivative financial instruments 633  373 
Other 39,380  26,531 
Other long-term liabilities $ 137,981  $ 157,774 
1 Consists of advance consideration received from customers under the residential lease program for leases entered into prior to December 31, 2018, which continue to be accounted for in accordance with the superseded lease accounting guidance.

Accumulated Other Comprehensive Loss
As of
(In thousands) September 27, 2020 December 29, 2019