Corporate HeadquartersSunPower Corporation77 Rio Robles San Jose, California 95134408.240.5500sunpower.comAnnual Report 2016©2017 SunPower Corporation. All Rights Reserved. SUNPOWER, the SUNPOWER logo, and all other trademarks cited herein are the property of SunPower Corporation in the U.S. and other countries as well.SUNPOWER 2016 ANNUAL REPORT Changing the Way Our World is PoweredWith more than 30 years of proven experience, SunPower is a global leader in solar innovation and sustainability. Our unique approach emphasizes the seamless integration of advanced SunPower technologies, delivering The Power of OneTM complete solar solutions and lasting customer value. SunPower delivers outstanding service and impressive electricity cost savings for residential, commercial and power plant customers.At SunPower, we are passionately committed to changing the way our world is powered. And as we continue shaping the future of Smart Energy, we are guided by our legacy of innovation, optimism, perseverance and integrity. Headquartered in Silicon Valley, SunPower has about 7,000 dedicated, customer-focused employees in Africa, Asia, Australia, Europe, North America and South America. Since 2011, we’ve been majority-owned by Total, the fourth largest* publicly-listed energy company in the world. For more information, visit sunpower.com. *Based on market capitalization in U.S. dollars at December 31, 2016.Executive OfficersThomas H. Werner President, CEO and Chairman of the Board Charles D. Boynton Executive Vice President and Chief Financial OfficerKen Mahaffey Executive Vice President and General CounselDr. Bill Mulligan Executive Vice President Global OperationsDouglas J. Richards Executive Vice President AdministrationBoard of DirectorsThomas H. Werner Chairman of the Board Helle Kristoffersen Director Daniel Lauré Director Catherine Lesjak Director Thomas R. McDaniel Director Ladislas Paszkiewicz Director Julien Pouget Director Laurent Wolffsheim Director Pat Wood III Director Dear Shareholders,
We just went through another monumental year for solar with residential, commercial and power plant
customers around the globe favoring economic, clean and reliable solar. For those of you following us, you
probably know the trends we experienced in 2016:
• Solar in the U.S. had its biggest year to date, nearly doubling its annual record with 14,626 megawatts
(MWs) installed, according to GTM Research and the Solar Energy Industries Association (SEIA);
• Close to 260,000 people were employed in the U.S. solar industry, twice as many as those in the
country’s coal industry; and
• Solar and wind are now the same price or cheaper than new fossil fuel capacity in more than 30
countries according to the World Economic Forum.
We are witnessing a worldwide shift to renewable energy. The long-term growth prospects are compelling,
and as a solar industry veteran, I expect solar energy to become the largest contributor to incremental
electricity generation globally.
Despite the dramatic shift to solar energy, the industry is currently going through another transition
period as it faced a number of challenges last year. Historically, energy policy has been a key driver
for us, with policy having a significant impact on the sector. For example, cost reductions drove solar
generation towards parity with traditional generation in many markets. As a result, a number of
governments either reduced solar incentives, or in some cases, eliminated them, which pressured system
pricing. We also saw demand disruption in the U.S. during the last half of the year due to the unexpected
extension of the federal solar Investment Tax Credit in late 2015. Changes to the Feed-in-Tariff structure in
China caused a global oversupply environment, which further depressed pricing. Challenges aside, we
expect that the solar industry’s track record of technical innovation and cost reduction will drive
long-term demand dynamics.
We know from other industries that companies win in transition. Our answer this past year was to
strategically position ourselves, to innovate relentlessly and focus on our customers – all while
reducing our breakeven point. Already at the start of 2017, we’re continuing in a direction to prove
the benefits of our differentiated, industry-leading technology with the ability to deploy it across a
diversified portfolio of markets, channels and applications. This will allow us to profitably capitalize on the
world’s increasing demand for solar power.
Leading the Market in Efficiency
At our core, we are a technology company with more than 750 industry patents. For decades, we’ve been a
world leader in conversion efficiency, or converting sunlight into energy. Utilizing our advantage in cell and
panel technology, we’re helping to usher in a new era of solar generation. Our long-term investments in
Research and Development (R&D) are paying off as our R&D and Operations teams continue to beat their
own bar for cell and panel efficiency. Last year, we extended our world record for solar cell efficiency to
25.2 percent. History shows that we know how to immediately transition new technology to the
manufacturing environment – as we did when we recently achieved average cell efficiency of 25 percent at
our next generation Fab 4 manufacturing facility. One of the reasons customers prefer SunPower is
because our proprietary interdigitated back contact (IBC) cell technology offers the industry’s highest system
performance with unmatched quality and reliability.
To help make sure we’re constantly innovating, we’ve made some strategic investments for the future.
During 2016, we built out an impressive state-of-the-art solar cell pilot line at our Silicon Valley
headquarters. Soon to be completed, this facility will allow us to test new equipment and processes, while
producing new generation products at pilot scale. It represents the work of some of our greatest minds and
results from hundreds of thousands of hours of innovative R&D. We’re also focusing on R&D in the field at
our SunPower R&D Ranch in Davis, Calif. There, we’re testing new technologies that will help drive continued
innovation in the field for our customers and the industry overall. Last year’s launch of our next generation
SunPower® Oasis® for power plants, which uses drones and robots to optimize energy production, is an
example of what’s to come.
Streamlining Manufacturing, Containing Costs
We ramped up and hit our stride at Fab 4 in the Philippines, shipping our world-leading 22 percent efficient
X-Series solar panels. We also ramped up our new Performance Series (P-Series) panel manufacturing in
Mexicali. Taking a long view on capacity, we acquired AUO’s portion of our Malaysia joint venture. This will
allow us to more quickly upgrade our technology and maximize cost reductions. It also gives us some
flexibility for future expansion as market conditions warrant. Despite these accomplishments, we decided to
reduce our capacity of legacy products. We made prudent decisions to consolidate our module assembly
capacity to Mexico, closing and relocating our Philippines modco facilities in order to be closer to our largest
markets, the U.S. and Latin America.
In 2016, we also enhanced our product offerings for a new customer base, commercializing our P-Series
technology. A result from our strategic 2015 Cogenra acquisition, our P-Series panels provide slightly higher
performance and much better reliability compared with conventional solar panels, but at a cost that is very
competitive for those markets that are more price sensitive.
A critical component of our growth strategy, we’re initially targeting P-Series panels for use at power plant
installations in non-Organization for Economic Cooperation and Development (OECD) countries. This
includes emerging solar markets where financing costs are typically much higher than in developed solar
markets. The capital expenditures required to scale this new technology are significantly lower compared
with that of our IBC products, so we can now flex our panel capacity and downstream footprint to match
industry conditions with modest investment. We currently have 400 MWs of P-Series panel capacity
installed in Mexico.
We are seeing good early demand for our P-Series product, including a 125-MW supply contract with a
major U.S. Independent Power Producer, a one-MW scale solar power plant for Tucson Electric Power and
numerous Commercial projects, including 607 kWs for Methods Machine Tools’ 60,000 square foot roof in
Sudbury, Mass. The cost and performance of our P-Series technology is meeting or exceeding our
projections, and we are enthusiastic about the expanded sales prospects that this new technology will
enable, in parallel with our established IBC products.
Defining Innovation with Integrated Technology and Solutions
In addition to our world leading high-efficiency modules, we lead the industry with complete solar solutions.
This past year we added the SunPower Equinox™ platform, a complete residential equipment solution that
combines our modules with micro-inverters, a unique mounting system, and a world-class monitoring hub.
More than five years ago, we pioneered the standardized systems approach initially in our Power Plant
business when we introduced the SunPower Oasis power block. Since then, we've applied the same design
philosophy and planning discipline to our Commercial and Residential businesses with our launches of the
SunPower® Helix™ and SunPower Equinox systems. These complete solar solution platforms reduce costs
through scale and standardization, enable more efficient installation and operation, and provide enhanced
customer benefit by virtue of seamless interoperability between components. We refer to this as The Power
of OneTM approach. We believe that this type of standardized solution will become increasingly important to
facilitate the continuing mainstream adoption of solar power.
There is no better way to share The Power of One approach than to explain our work for Stanford University,
where we’re delivering more than 50 percent of the campus’ energy needs using the full breadth of
SunPower capability. One of the world's leading teaching and research universities, and where many of our
employees were educated, Stanford boasts off-site solar through a 67-MW Oasis power plant in Southern
California and 6 MWs of solar on buildings across the campus, including a Helix rooftop system, a long-span
parking system, and a SunPower residential system on the historical residence of the Stanford Provost.
During the past year, we launched a new solar solutions business to capitalize on the market power of our
complete solutions approach. The mandate of this group is to expand SunPower’s market presence in
emerging global power plant markets through the sale of complete equipment packages based on our Oasis
power block system and P-Series panel technology. We plan to greatly expand this approach in 2017 and
are encouraged by early results.
Providing Residential Customers with Ultimate Performance and Smart Energy
Launched in 2016 and unique in the market, the SunPower Equinox system is our complete residential
system solution. Key elements include SunPower's industry-leading, high-efficiency 22 percent efficient X-
Series panels, and proprietary microinverters that are factory integrated with every panel, eliminating field
assembly and allowing each panel to operate at peak performance. Our low-profile, all-black, pre-assembled
InvisiMount® mounting system seamlessly hides the racking system beneath the panels, and our proprietary
gateway and EnergyLink® monitoring platform track energy production and consumption in real time.
Also, customers now have the ability to manage their consumption patterns to maximize system
performance, with access to data through an intuitive user interface on multiple device platforms. This is
what we call Smart Energy.
Combining our integrated SunPower Equinox solution with our best-in-class dealer partner network, we saw
industry-leading Net Promoter Scores. With customer-centricity at the heart of what we do, we focused
intensely on delivering an excellent end-to-end solution and customer experience. We saw solid demand,
particularly in the U.S. where solar power is competitive with retail electricity in many states, and stable,
profitable growth in Europe and Japan.
Broadening our reach, we signed an exclusive arrangement with AT&T to co-market our high-efficiency solar
solutions to their customers. These solutions feature SunPower's plug-and-play SunPower Equinox system,
which includes 24 x 7 high-reliability connectivity enabled by AT&T's Internet of Things technology. We also
expanded our partnership with Con Edison in New York to include energy storage as we look to further
empower our customers to control and manage their energy footprint.
SunPower is also investing in a digital strategy to revolutionize the way residential customers access our
solar solutions. As solar mainstreams, the way customers use solar energy will evolve, and we will be a
leader driving this change.
Giving Commercial Customers Faster Installations and Impressive Returns
We were proud to receive acknowledgements this past year for our Helix system, which set a record and
won an award. Introduced in 2015, the world’s first fully-integrated commercial solar solution was designed
for businesses and public agencies to make the complex simple. We showed that simple also meant
efficient, when our team set a record on installing our Helix product at a rate 2.5 times faster than
conventional systems – as validated by an independent third-party.
Already, after its first year, the Helix system was named a winner in The Architect’s Newspaper’s 2016 Best of
Products Awards. It won in the category of HVAC and Smart Building Systems where a jury of design
professionals and editors selected the Helix system because of its innovation, aesthetics, performance and
value.
We expect our Helix platform to help us continue to grow share in the commercial market driven by
excellent customer acceptance of this solution. We competed and booked projects for the public and private
sectors, including for well-known brands. For retailer Macy’s, we installed our Helix product line, rooftop,
carport and ground-based systems, enabling flexibility to design around their preferences and site specifics.
Other projects secured included 8 MWs for Toyota, 11 MWs for the County of Santa Clara, 9.5 MWs for the
California Department of Water Resources, 10 MWs for the U.S. Army, 28 MWs for Vandenberg Air Force
Base, 4 MWs for Cal State Fullerton and our 102-MW Henrietta project. Additionally, we secured a 15-MW
contract in Japan.
Refocusing the Power Plants Segment and Reinventing with Drones, Robots and ROI
During the past year, we scaled back our power plants approach and realigned our development business
to focus on core markets. It was an example of how we dealt with solar industry headwinds. We faced a
number of external factors, including shifts in demand signings, an increase in investor Internal Rate of
Return hurdle rates, as well as an increasingly competitive global Power Purchase Agreement price
environment.
Despite these headwinds, our team delivered SunPower Oasis 3.0 late last year for utility scale solar. It
significantly lowers cost, while improving overall system performance. We believe this solution will help us
sustain our competitive leadership in our key markets. Oasis 3.0 is the core offering in our new solar
solutions global equipment business.
The SunPower Oasis power plant allows customers to generate more value from a broader selection of
potential sites. From project development through operations and maintenance (O&M), Oasis optimizes
return on investment with features that include the SunPower® Oasis GEO™ system. This groundbreaking
system optimizes site design and improves site assessment and design speed by 90 percent versus
conventional methods. It automates project design using drones and proprietary software and is designed
for use with both SunPower’s high efficiency E-Series panels as well as SunPower’s P-Series panels.
We continue to innovate in O&M, with our proprietary robotic panel cleaning technology which uses 75
percent less water than manual methods, operates at night and offers other increased efficiencies, as well
as cleaning speed. Additionally, we can provide large scale solar customers with 24/7/365 site monitoring
and control through our Remote Operations and Control Center (ROCC) in Austin, Texas, optimizing energy
production and providing better energy management. By the end of last year, the ROCC was monitoring and
controlling more than 1.8 gigawatts (GWs) of solar power plants around the world.
Currently, we have more than 700 MWs of third-generation Oasis power plants awarded, and we’re
currently constructing plants in the U.S., Mexico and China through our joint venture utilizing our Oasis 3.0
design.
In Chile, we began construction of a new 100-MW project, which will make Metro of Santiago the first public
transportation system in the world to run mostly on solar. Altogether, our Latin America pipeline exceeds
2.5 GWs, and together with our U.S. pipeline, gives SunPower a very strong position in this segment
throughout the Americas.
In Japan, we finished the construction of our 27-MW Nanao project, with full project completion scheduled
by the end of the year. We also secured a 47-MWs panel supply agreement for a power plant project that a
partner is currently developing. While Japan remains primarily a Distributed Generation market for
SunPower, our unique technology allows us to opportunistically address the power plant business there as
well.
In China, we continued progress with our three joint ventures and continue to pursue both manufacturing
and project development activities there. With more than 320 MWs deployed to date, our joint venture
ecosystem is gradually building a solid footprint in the world’s largest solar market. Already this year, we’ve
taken steps to expand our relationships in China to leverage the low-cost China supply chain for our P-
Series technology.
Additional international success includes completing our 86-MW Prieska project in South Africa, as well as
being awarded 39 MWs for projects on several French islands. These systems include the use of battery
storage to optimize late afternoon energy delivery during periods of highest value.
Leveraging 8point3 Energy Partners
We also saw strong 2016 performance from 8point3 Energy Partners (8point3), our joint YieldCo with First
Solar. 8point3 marked its first full year of operations as it acquired more than 400 MWs of projects,
increased its annual distribution by 15 percent and successfully raised more than $100 million from
investors. In 2017, we’ll continue to support the growth of 8point3 as both a buyer of our high-quality
projects, as well as a strategic investment asset.
Benefitting From Our Five-Year Strong Relationship with Total
There is no doubt that the future will be powered in large part by renewable sources, but we must identify
ways in which clean and traditional sources can evolve together. The world’s largest energy companies are
taking steps to diversify their portfolios, but companies that embrace integrated traditional renewable
models will be the ones that are well positioned in a clean energy economy. Our business model and
relationship with Total are living proof that renewable and traditional energy models can not only co-exist,
but thrive alongside one another. We need both in this 21st century energy economy.
Since Total’s transformational majority investment in 2011, we have continued to work together to bring
about our joint vision of the future of energy. Total remains very supportive of SunPower as reflected by
the expansion of our strategic cooperation in a number of areas during 2016 – all in line with Total’s public
commitment to better energy. For example, we signed a four-year, up to 200-MW panel supply agreement
to solarize various Total facilities around the world. Additionally, we’re working to expand their global power
plant partnership to include potential Total project ownership opportunities in such markets as Japan, Africa
and France.
Changing the Way Our World is Powered
As we go about our daily jobs, it is sometimes important to take a step back and reflect on what we’re
accomplishing and to assess how our work is affecting the planet for future generations. Every day,
SunPower is manufacturing roughly one million cells and 10,000 modules. What we produce in one day
avoids 4,000 metric tons of carbon dioxide (CO2) from being emitted into the atmosphere – the equivalent
to the CO2 emissions from burning four million pounds of coal. That one day of production also is
equivalent to taking over 800 cars off the road for a year.
We’re proud of our sustainability efforts across the company and especially at our manufacturing facilities
where we’re leading the way. SunPower is the world’s first and only solar company to earn the prestigious
Cradle to Cradle Certified™ Silver designation for our E-Series and X-Series direct current panels because of
our environmental stewardship and sustainable manufacturing practices. We also have earned the solar
industry’s first and only landfill-free verifications from NSF Sustainability. Our Mexicali facility is the first
manufacturing facility to obtain LEED Gold, Cradle to Cradle and Landfill-Free certifications. Beyond
manufacturing, we're proud to be the world’s first and only solar company to join the Circular Economy 100
(CE100) to help transition towards a more regenerative circular economy.
We believe that solar power will remain one of the largest and most exciting growth industries for many
decades to come. With costs dropping and solar becoming a mainstream choice of residential, commercial
and power plant customers around the globe, SunPower has an incredible opportunity. We’re working to
reposition SunPower to adapt to the changing solar market. We’ve already made some necessary but hard
changes in our workforce. We right-sized our operations expenses, organized differently, and reduced our
IBC capacity to align with current levels of profitable demand. Thanks to our team of about 7,000 employees
across nearly every continent, we began to change the way we work as we know that being agile and nimble
is key to success in an ever-shifting competitive solar market. These changes, along with a refocused Power
Plant business and leading positions in Commercial and Residential markets, position SunPower to return to
strong operating results.
By combining our passion for changing the way our world is powered with a focused and targeted business
approach, we’re creating an innovative and sustainable energy company as we enable millions of customers
around the globe to take control of their energy future.
Sincerely,
Thomas H. Werner
President and Chief Executive Officer
SunPower Corporation
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 1, 2017
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
SunPower Corporation
(Exact Name of Registrant as Specified in Its Charter)
Delaware
(State or Other Jurisdiction of Incorporation or Organization)
94-3008969
(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)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock $0.001 par value
Preferred Stock Purchase Rights
Name of each exchange on which registered
Nasdaq Global Select Market
Nasdaq Global Select Market
Securities registered pursuant to Section 12(g) of the Act: None
_________________________________________
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 of Section 15(d) of the Act. Yes No
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 No
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 No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not
contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K.
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 Accelerated filer Non-accelerated filer Smaller reporting company
(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 No
The aggregate market value of the voting stock held by non-affiliates of the registrant on July 3, 2016 was $906 million. Such
aggregate market value was computed by reference to the closing price of the common stock as reported on the Nasdaq Global Select Market on
July 1, 2016. For purposes of determining this amount only, the registrant has defined affiliates as including Total Energies Nouvelles Activités
USA, formerly known as Total Gas & Power USA, SAS and the executive officers and directors of registrant on July 1, 2016.
The total number of outstanding shares of the registrant’s common stock as of February 10, 2017 was 138,651,751.
DOCUMENTS INCORPORATED BY REFERENCE
Parts of the registrant’s definitive proxy statement for the registrant’s 2017 annual meeting of stockholders are
incorporated by reference in Items 10, 11, 12, 13, and 14 of Part III of this Annual Report on Form 10-K.
TABLE OF CONTENTS
Page
Part I.
Part II.
Part III.
Part IV.
Item 1. Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Mine Safety Disclosures
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
Item 6. Selected Consolidated Financial Data
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosure About Market Risk
Item 8. Financial Statements and Supplementary Data
Item 9. Changes and Disagreements with Accountants on Accounting and Financial Disclosures
Item 9A. Controls and Procedures
Item 9B. Other Information
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accountant Fees and Services
Item 15. Exhibits and Financial Statement Schedules
Index to Exhibits
Signatures
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4
17
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50
50
51
52
53
53
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84
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149
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INTRODUCTORY NOTES
Trademarks
The following terms, among others, are our trademarks and may be used in this report: SunPower®, Maxeon®, Oasis®,
EnergyLink™, InvisiMount®, Tenesol®, Greenbotics®, Customer Cost of Energy™ (“CCOE™”), SunPower Spectrum™, Helix™,
Equinox™, Signature™, SolarBridge®, and The Power of One™. Other trademarks appearing in this report are the property of
their respective owners.
Unit of Power
When referring to our solar power systems, our facilities’ manufacturing capacity, and total sales, the unit of electricity
in watts for kilowatts (“KW”), megawatts (“MW”), and gigawatts (“GW”) is direct current (“DC”), unless otherwise noted as
alternating current (“AC”).
Levelized Cost of Energy (“LCOE”)
LCOE is an evaluation of the life-cycle energy cost and life-cycle energy production of an energy producing system. It
allows alternative technologies to be compared to different scales of operation, investment or operating time periods. It captures
capital costs and ongoing system-related costs, along with the amount of electricity produced, and converts them into a common
metric. Key drivers for LCOE reduction for photovoltaic products include panel efficiency, capacity factors, reliable system
performance, and the life of the system.
Customer Cost of Energy™ (“CCOE™”)
Our customers are focused on reducing their overall cost of energy by intelligently integrating solar and other distributed
generation, energy efficiency, energy management, and energy storage systems with their existing utility-provided energy.
The CCOE™ measurement is an evaluation of a customer’s overall cost of energy, taking into account the cost impact of each
individual generation source (including the utility), energy storage systems, and energy management systems. The CCOE
measurement includes capital costs and ongoing operating costs, along with the amount of electricity produced, stored, saved,
or re-sold, and converts all of these variables into a common metric. The CCOE metric allows a customer to compare different
portfolios of generation sources, energy storage, and energy management, and to tailor towards optimization.
Cautionary Statement Regarding Forward-Looking Statements
This Annual Report on Form 10-K contains forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Forward-looking statements are statements that do not represent historical facts and the assumptions
underlying such statements. We use words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,”
“may,” “plan,” “predict,” “project,” “potential,” “will,” “would,” “should,” and similar expressions to identify forward-
looking statements. Forward-looking statements in this Annual Report on Form 10-K include, but are not limited to, our plans and
expectations regarding future financial results, expected operating results, business strategies, projected costs and cost reduction,
development of new products and improvements to our existing products, our manufacturing capacity and manufacturing costs,
the adequacy of our agreements with our suppliers, our ability to monetize utility projects, competitive positions, management’s
plans and objectives for future operations, the sufficiency of our cash and our liquidity, our ability to obtain financing, our ability to
comply with debt covenants or cure any defaults, trends in average selling prices, the success of our joint ventures and acquisitions,
expected capital expenditures, warranty matters, outcomes of litigation, our exposure to foreign exchange, interest and credit risk,
general business and economic conditions in our markets, industry trends, the impact of changes in government incentives, expected
restructuring charges, and the likelihood of any impairment of project assets and long-lived assets. These forward-looking statements
are based on information available to us as of the date of this Annual Report on Form 10-K and current expectations, forecasts and
assumptions and involve a number of risks and uncertainties that could cause actual results to differ materially from those anticipated
by these forward-looking statements. Such risks and uncertainties include a variety of factors, some of which are beyond our
control. Please see “Item 1A. Risk Factors” herein and our other filings with the Securities and Exchange Commission (“SEC”) for
additional information on risks and uncertainties that could cause actual results to differ. These forward-looking statements should
not be relied upon as representing our views as of any subsequent date, and we are under no obligation to, and expressly disclaim any
responsibility to, update or alter our forward-looking statements, whether as a result of new information, future events or otherwise.
The following information should be read in conjunction with the Consolidated Financial Statements and the
accompanying Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K. Our fiscal year ends on
the Sunday closest to the end of the applicable calendar year. All references to fiscal periods apply to our fiscal quarter or year,
which end on the Sunday closest to the calendar month end.
3
ITEM 1. BUSINESS
Corporate History
PART I
SunPower has been a leader in the solar industry for 30 years, originally incorporated in California in 1985 and
reincorporated in Delaware during 2004 in connection with our initial public offering. In November 2011, our stockholders
approved the reclassification of all outstanding former class A common stock and class B common stock into a single class of
common stock listed on the Nasdaq Global Select Market under the symbol “SPWR.” In fiscal 2011, we became a majority
owned subsidiary of Total Energies Nouvelles Activités USA, formerly known as Total Gas & Power USA, SAS (“Total”), a
subsidiary of Total S.A. (“Total S.A.”).
Company Overview
We are a leading global energy company dedicated to changing the way our world is powered. We deliver complete solar
solutions to residential, commercial, and power plant customers worldwide by offering:
• Cutting-edge solar module technology and solar power systems that are designed to generate electricity over a
system life typically exceeding 25 years;
•
•
•
Integrated Smart Energy software solutions that enable customers to effectively manage and optimize their
CCOE measurement;
Installation, construction, and ongoing maintenance and monitoring services; and
Financing solutions that provide customers a variety of options for purchasing or leasing high efficiency solar
products at competitive energy rates.
Our global reach is enhanced by Total S.A.’s long-standing presence in many countries where significant solar
installation goals are being established.
Residential
Residential Systems
We offer a complete set of residential solutions that deliver value to homeowners and our dealer partners. We have
developed the capability to deliver AC panels with factory-integrated microinverters. AC system architecture, as compared with
DC systems, facilitates direct panel installation, eliminating the need to mount or assemble additional components on the roof or
the side of a building, driving down system costs, improving overall system reliability, and providing improved, cleaner design
aesthetics. As part of our complete solution approach, we offer our Equinox™ residential market product, a fully-integrated
solar platform utilizing Maxeon® cells, AC panel architecture, and EnergyLink™ monitoring hardware to combine solar power
production and energy management, allowing residential customers to quickly and easily complete their system installations
and to ensure always-on connectivity so homeowners can easily access their data anytime, anywhere. The Equinox platform is
also sold with our Smart Energy software analytics, which provides our customers with detailed information about their energy
consumption and production, enabling them to further reduce their energy costs.
We offer the SunPower® InvisiMount® residential mounting system in our product portfolio. The InvisiMount® system is
designed specifically for use with our panels and reduces installation time through pre-assembled parts and integrated grounding.
The InvisiMount system is well-suited for residential sloped roof applications and provides design flexibility and enhanced
aesthetics by delivering a unique, “floating” appearance.
We support our hardware development with investments in our proprietary set of advanced monitoring applications
(the “SunPower Monitoring System”) and our EnergyLink™ customer portal, which enable customers to gain visibility
into their solar system production and household energy consumption. This software is available for use on the web or
through the SunPower mobile application on smartphones and tablets. In fiscal 2016, we issued nine software upgrades
to our EnergyLink customer portal offering and, as a result, have experienced increases in customer traffic, engagement,
satisfaction, and referrals.
4
Sales Channels, Residential Leasing Program and other Financing Options
We sell our residential solar energy solutions to end customers through a variety of means, including cash sales and long-
term leases directly to end customers, sales to resellers, including the Company’s third-party global dealer network, and sales of
the Company’s operations and maintenance (“O&M”) services.
We offer financing programs that are designed to offer customers a variety of options to obtain high efficiency solar
products and systems, including loans arranged through our third-party lending partners, in some cases for no money down, or
by leasing high efficiency solar systems at competitive energy rates. Our residential lease program, in partnership with third-
party investors, provides U.S. customers SunPower systems under 20-year lease agreements that include system maintenance
and warranty coverage, including warranties on system performance. SunPower residential lease customers have the option to
purchase their leased solar systems upon the sale or transfer of their home. These financing options enhance our ability to provide
individually-tailored solar solutions to a broad range of residential customers.
We also have the ability to sell residential systems to 8point3 Energy Partners LP, a joint Yieldco vehicle in which we
have an approximately 37% ownership stake, through transactions in which we sell portfolios of residential leases. For additional
information on transactions with 8point3 Energy Partners LP, please see “Item 8. Financial Statements and Supplementary Data—
Note 10. Equity Method Investments” in our Annual Report on Form 10-K for the fiscal year ended January 3, 2016.
Commercial
Commercial Roof and Ground Mounted Systems
As part of our complete solution product approach, we offer our Helix™ commercial market product. The Helix system
is a pre-engineered, modular solution that combines our industry-leading solar module technology with integrated plug-and-play
power stations, cable management systems, and mounting hardware that is built to last and fast to install, enabling customers to
scale their solar programs quickly with minimal business disruption. The Helix platform is standardized across rooftop, carport
and ground installations and designed to lower system cost while improving performance. The Helix platform is also bundled with
our Smart Energy software analytics, which provides our customers with detailed information about their energy consumption and
production, enabling them to further reduce their energy costs.
We also offer a variety of commercial solutions designed to address a wide range of site requirements for commercial
rooftop, parking lot and open space applications, including a portfolio of solutions utilizing framed panels and a variety of
internally or externally developed mounting methods for flat roof and high tilt roof applications. Our commercial flat rooftop
systems are designed to be lightweight and interlock, enhancing wind resistance and providing for secure, rapid installations.
We offer parking lot structures designed specifically for SunPower panels, balance of system components, and inverters
and in fiscal 2015 expanded our capability to design and install innovative solar structures and systems for carport applications.
These systems are typically custom design-build projects that utilize standard templates and design best practices to create
a solution tailored to unique site conditions. SunPower’s highest efficiency panels are especially well suited to stand-alone
structures, such as those found in parking lot applications, because our systems require less steel and other materials per unit of
power or energy produced as compared with our competitors.
Sales Channels and Financing Options
We sell our commercial solar energy solutions to commercial and public entity end customers through a variety of
means, including direct sales of turn-key engineering, procurement and construction (“EPC”) services, sales to our third-party
global dealer network and to 8point3 Energy Partners, and sales of our O&M services. We also offer some of our commercial
customers alternatives to purchasing systems, such as selling energy to them under power purchase agreements (“PPAs”).
Power Plants
Power Plant Systems
We offer the industry’s first modular solar power block, the Oasis® system, which combines SunPower solar
panels and tracker technology into a scalable 1.5 MW solar power block, which streamlines the construction process
while optimizing the use of available land by conforming to the contours of the production site. The power block kits
are shipped pre-assembled to the job site for rapid field installation. The Oasis operating system is designed to support
future grid interconnection requirements for large-scale solar power plants, such as voltage ride-through and power factor
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control. More than 2 GW of the Oasis system is installed or under contract worldwide. The Oasis system was deployed at
the 748 MW Solar Star Projects in California, formerly known as Antelope Valley Solar Projects, the world’s largest solar
power project to date. Our robotic solar power plant cleaning system technology has been deployed on many of the utility-
scale solar power systems for which we provide O&M services. The robots may be configured for use with a variety of
solar panels and mounting types, including fixed-tilt arrays and single access trackers and significantly reduce water use
and improve system performance.
Our single axis tracking systems automatically pivot solar panels to track the sun’s movement throughout the day. This
tracking feature increases the amount of sunlight that is captured and converted into energy by up to 30% over flat or fixed-tilt
systems, depending on geographic location and local climate conditions. A single motor and drive mechanism can control 10 to 20
rows, or more than 200 KW, of solar panels. This multi-row feature represents a cost advantage for our customers over dual axis
tracking systems, as such systems require more motors, drives, land, and power to operate per KW of capacity.
Utility-Scale Solar Power System Construction and Development
Our global project teams have established a scalable, fully integrated, vertical approach to constructing and
developing utility-scale photovoltaic power plants in a sustainable way. Our industry experienced power plant development
and project finance teams evaluate sites for solar developments; obtain land rights through purchase and lease options; conduct
environmental and grid transmission studies; and obtain building, construction and grid-interconnection permits, licenses, and
regulatory approvals.
We enter into turnkey EPC agreements with customers under which we design, engineer, construct, commission, and
deliver functioning rooftop- and ground-mounted solar power systems. This includes the development, execution, and sale of
solar power plants, which generally include the sale or lease of related real estate. Under such development projects, the plants
and project development rights, initially owned by us, are later sold to third parties. In the United States, commercial and electric
utility customers typically choose to purchase solar electricity under a PPA with an investor or financing company that buys
the system from us. In other areas, such as the Middle East, Africa, and South America, projects are typically purchased by an
investor or financing company and operated as central-station solar power plants.
Sales Channels and Financing
Our power plant business refers to sales of our large-scale solar products and systems, including power plant project
development and project sales, EPC services for power plant construction, power plant O&M services and component sales
for power plants developed by third parties, sometimes on a multi-year, firm commitment basis. Our utility-scale solar power
systems are typically purchased by an investor or financing company and operated as central-station solar power plants. We also
sell utility-scale solar power plants to 8point3 Energy Partners.
We are able to utilize various means to finance our utility-scale power plant development and construction projects,
which include arranging tax equity financing structures, utilizing non-recourse project debt facilities, and executing our HoldCo
strategy in conjunction with project sales to 8point3 Energy Partners.
Operations and Maintenance
Our solar power systems are designed to generate electricity over a system life typically exceeding 25 years. We offer
our customers various levels of post-installation O&M services with the objective of optimizing our customers’ electrical energy
production over the life of the system. The terms and conditions of post-installation O&M services may provide for remote
monitoring of system production and performance, including providing performance reports, preventative maintenance, including
solar module cleanings, corrective maintenance, and rapid-response outage restoration, including repair or replacement of all
system components covered under warranty or major maintenance agreements.
We incorporate leading information technology platforms to facilitate the management of our solar power systems
operating worldwide. Real-time flow of data from our customers’ sites is aggregated centrally where an engine applies advanced
solar specific algorithms to detect and report potential performance issues. Our work management system routes any anomalies
to the appropriate responders to help ensure timely resolution. Our performance model, PVSim, was developed over the last 20
years and has been audited by independent engineers. Solar panel performance coefficients are established through independent
third-party testing. The SunPower Monitoring System also provides customers real-time performance status of their solar power
system, with access to historical or daily system performance data through our customer website (www.sunpowermonitor.com).
The SunPower Monitoring System is available through applications on Apple® and Android™ devices. Some customers choose
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to install “digital signs” or kiosks to display system performance information from the lobby of their facility. We believe these
displays enhance our brand and educate the public and prospective customers about solar power.
We typically provide a system output performance warranty, separate from our standard solar panel product warranty,
to customers that have subscribed to our post-installation O&M services. The system output performance warranty expires
upon termination of the post-installation O&M services related to the system. In connection with system output performance
warranties, we agree to pay liquidated damages in the event the system does not perform to the stated specifications, with certain
exclusions. The warranty excludes system output shortfalls attributable to force majeure events, customer curtailment, irregular
weather, and other similar factors. In the event that the system output falls below the warrantied performance level during the
applicable warranty period, and provided that the shortfall is not caused by a factor that is excluded from the performance
warranty, the warranty provides that SunPower will pay the customer an amount based on the value of the shortfall of energy
produced relative to the applicable warrantied performance level. For leased systems, we provide a system output performance
warranty with similar terms and conditions as that for non-leased systems.
We calculate our expectation of system output performance based on a particular system’s design specifications,
including the type of panels used, the type of inverters used, site irradiation measures derived from historical weather data,
our historical experience as a manufacturer, EPC services provider, and project developer as well as other unique design
considerations such as system shading. The warrantied system output performance level varies by system depending on the
characteristics of the system and the negotiated agreement with the customer, and the level declines over time to account for
the expected degradation of the system. Actual system output is typically measured annually for purposes of determining
whether warrantied performance levels have been met.
Our primary remedy for the system output performance warranty is our ongoing O&M services which enable us to quickly
identify and remediate potential issues before they have a significant impact on system performance. We also have remedies in the
form of our standard product warranties and third-party original equipment manufacturer warranties that cover certain components,
such as inverters, to prevent potential losses under our system output performance warranties or to minimize further losses.
Technology
We believe that we possess a technological advantage as the leading manufacturer of back-contact, back-junction
cells that enables our panels to produce more electricity, last longer and resist degradation more effectively. We believe that our
technology allows us to deliver:
•
•
•
•
•
superior performance, including the ability to generate up to 45% more power per unit area than conventional
solar cells;
superior aesthetics, with our uniformly black surface design that eliminates highly visible reflective grid lines and
metal interconnection ribbons;
superior reliability, as confirmed by multiple independent reports and internal reliability data;
superior energy production per rated watt of power, as confirmed by multiple independent reports; and
solar power systems that are designed to generate electricity over a system life typically exceeding 25 years.
With industry-leading conversion efficiencies, we continuously improve our Maxeon® solar cells and believe they
perform better and are tested more extensively to deliver maximum return on investment when compared with the products
of our competitors.
Panels
Solar panels are solar cells electrically connected together and encapsulated in a weatherproof panel. Solar cells are
semiconductor devices that convert sunlight into direct current electricity. Our solar cells are designed without highly reflective
metal contact grids or current collection ribbons on the front of the solar cell, which provides additional efficiency and allows our
solar cells to be assembled into solar panels with a more uniform appearance. Our X-Series solar panels, made with our Maxeon
Gen 3 solar cells, have demonstrated panel efficiencies exceeding 22% in high-volume production. In fiscal 2016, one of our
standard production modules set a world record for aperture area efficiency as tested by National Renewable Energy Laboratory
(“NREL”). We believe our X-Series solar panels are the highest efficiency solar panels available for the mass market, and we
continue to focus on increasing cell efficiency even as we produce solar cells with over 25% efficiency in a lab setting. Because
our solar cells are more efficient relative to conventional solar cells, when our solar cells are assembled into panels, the assembly
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cost per watt is less because more power can be incorporated into a given size panel. Higher solar panel efficiency allows
installers to mount a solar power system with more power within a given roof or site area and can reduce per watt installation
costs. Our suite of SunPower solar panels provides customers a variety of features to fit their needs, including the SunPower®
Signature™ Black design which allows the panels to blend seamlessly into the rooftop. We offer panels that can be used both with
inverters that require transformers as well as with the highest performing transformer-less inverters to maximize output. Both our
X-Series and E-Series panels have proven performance with low levels of degradation, as validated by third-party performance
tests. Additionally, in fiscal 2016, we launched a new line of solar panels under the Performance Series product name. These
products utilize a proprietary manufacturing process to assemble conventional silicon solar cells into panels with increased
efficiency and reliability compared with conventional panels. Designed to target a new set of customers and global markets, we
expect Performance Series panels to contribute to the growth of all three of SunPower’s business segments.
Balance of System Components
“Balance of system components” are components of a solar power system other than the solar panels, and include
mounting structures, charge controllers, grid interconnection equipment, and other devices, depending on the specific
requirements of a particular system and project. We possess advanced module-level control electronics in our technology portfolio
that enable longer series strings and significant balance of system components cost reductions in large arrays.
Inverters
Every solar power system needs an inverter to transform the direct current electricity collected from the solar panels
into utility-grade AC power that is ready for use. We sell inverters manufactured by third parties, some of which are SunPower-
branded. We also have integrated microinverter technology that converts DC generated by a single solar photovoltaic panel
into AC directly on the panel. We are utilizing this technology to develop next generation microinverters for use with our high
efficiency solar panels. Panels with these factory-integrated microinverters perform better in shaded applications compared
to conventional string inverters and allow for optimization and monitoring at the solar panel level, enabling maximum energy
production by the solar system.
Warranties
SunPower provides a 25-year standard solar panel product warranty for defects in materials and workmanship. The solar
panel product warranty also warrants that the panel will provide 95% of the panel’s minimum peak power rating for the first five
years, declining due to expected degradation by no more than 0.4% per year for the following 20 years, such that the power output
at the end of year 25 will be at least 87% of the panel’s minimum peak power rating. Our warranty provides that we will repair
or replace any defective solar panels during the warranty period. We also pass through long-term warranties from the original
equipment manufacturers of certain system components to customers for periods ranging from five to 20 years. In addition, we
generally warrant our workmanship on installed systems for periods ranging up to 25 years.
Smart Energy
We see “Smart Energy” as a way to harness our world’s energy potential by connecting the most powerful and reliable
solar systems on the market with an increasingly vast array of actionable data that can help our customers make smarter decisions
about their energy use. Our Smart Energy initiative is designed to add layers of intelligent control to homes, buildings and grids—
all personalized through easy-to-use customer interfaces. In order to enhance the portfolio of Smart Energy solutions we offer, we
continue to invest in integrated technology solutions to help customers manage and optimize their CCOE measurement.
We have an investment in Tendril Networks, Inc. and have licensed its data-driven Energy Services Management Platform.
We believe that this open, cloud-based software platform provides the infrastructure, analytics and understanding required to power
the development of new Smart Energy applications that will deliver personalized energy services to our residential customers.
We have also negotiated several agreements with residential and commercial energy storage providers to integrate
storage technology into our residential and commercial solar solutions. By combining storage with energy management, we lower
our customers’ cost of energy through improvements in self-consumption, rate arbitrage, demand management, and grid and
market participation. We continue to work to make combined solar and storage solutions broadly commercially available.
We are developing next generation microinverters for use with our high efficiency solar panels in order to enhance our
portfolio of Smart Energy solutions. Panels with these factory-integrated microinverters can convert direct current generated by
the solar panel into alternating current, enabling optimization and monitoring at the solar panel level to ensure maximum energy
production by the solar system.
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Research and Development
We engage in extensive research and development efforts to improve solar cell efficiency through enhancement of
our existing products, development of new techniques, and reducing manufacturing cost and complexity. Our research and
development group works closely with our manufacturing facilities, our equipment suppliers and our customers to improve our
solar cell design and to lower solar cell, solar panel and system product manufacturing and assembly costs. In addition, we have
dedicated employees who work closely with our current and potential suppliers of crystalline silicon, a key raw material used in
the manufacture of our solar cells, to develop specifications that meet our standards and ensure the high quality we require, while
at the same time controlling costs. Under our Research & Collaboration Agreement with Total, our majority stockholder, we have
established a joint committee to engage in long-term research and development projects with continued focus on maintaining
and expanding our technology position in the crystalline silicon domain and ensuring our competitiveness. Please see “Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations - Research and Development.”
Supplier Relationships, Manufacturing, and Panel Assembly
We purchase polysilicon, ingots, wafers, solar cells, balance of system components, and inverters from various
manufacturers on both a contracted and a purchase order basis. We have contracted with some of our suppliers for multi-
year supply agreements. Under such agreements, we have annual minimum purchase obligations and in certain cases
prepayment obligations. Please see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations—Liquidity and Capital Resources—Contractual Obligations” for further information regarding the amount of
our purchase obligations in fiscal 2017 and beyond. Under other supply agreements, we are required to make prepayments
to vendors over the terms of the arrangements. As of January 1, 2017, advances to suppliers totaled $284.8 million. We
may be unable to recover such prepayments if the credit conditions of these suppliers materially deteriorate or if we are
otherwise unable to fulfill our obligations under these supply agreements. For further information regarding our future
prepayment obligations, please see “Item 8. Financial Statements and Supplementary Data—Note 9. Commitments and
Contingencies—Advances to Suppliers.” We currently believe our supplier relationships and various short- and long-term
contracts will afford us the volume of material and services required to meet our planned output over the next several
years. For more information about risks related to our supply chain, please see “Item 1A. Risk Factors—Risks Related to
Our Supply Chain.”
We are working with our suppliers and partners along all steps of the value chain to reduce costs by improving
manufacturing technologies and expanding economies of scale. Crystalline silicon is the principal commercial material for solar
cells and is used in several forms, including single-crystalline, or monocrystalline silicon, multicrystalline, or polycrystalline
silicon, ribbon and sheet silicon, and thin-layer silicon. Our solar cell value chain starts with high purity silicon called polysilicon.
Polysilicon is created by refining quartz or sand.
Polysilicon is melted and grown into crystalline ingots and sawed into wafers by business partners specializing in those
processes. The wafers are processed into solar cells in our manufacturing facilities located in the Philippines and Malaysia.
During fiscal 2016, we substantially completed the construction of the solar cell manufacturing facility that we own and operate in
the Philippines. Once fully operational, which is expected to occur in the first half of fiscal 2017, the facility has a planned annual
capacity of 350 MW. The solar cell manufacturing facility we own and operate in Malaysia has a total rated annual capacity
of over 800 MW.
We use our solar cells to manufacture our X- and E-series solar panels at our solar panel assembly facilities located in
Mexico and France, while we source solar cells from third parties for use in our Performance Series solar panels at our solar
panel assembly facility in Mexico. Our solar panel manufacturing facilities have a combined total rated annual capacity of close
to 1.9 GW.
We source the solar panels and balance of system components based on quality, performance, and cost considerations
both internally and from third-party suppliers. We typically assemble proprietary components, while we purchase generally
available components from third-party suppliers. The balance of system components, along with the EPC cost to construct
the project, can comprise as much as two-thirds of the cost of a solar power system. Therefore, we focus on standardizing our
products with the goal of driving down installation costs, such as with our Equinox, Helix, and SunPower® Oasis® systems.
Customers
We operate in three end-customer segments: (i) Residential Segment, (ii) Commercial Segment and (iii) Power Plant
Segment. The Residential and Commercial Segments combined are referred to as Distributed Generation. Our scope and scale
allow us to deliver solar solutions across all segments, ranging from consumer homeowners to the largest commercial and
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governmental entities in the world. Our customers typically include investors, financial institutions, project developers, electric
utilities, independent power producers, commercial and governmental entities, production home builders, residential owners and
small commercial building owners. We leverage a combination of direct sales as well as a broad partner ecosystem to efficiently
reach our global customer base.
We work with development, construction, system integration, and financing companies to deliver our solar power
products and solutions to wholesale sellers, retail sellers, and retail users of electricity. In the United States, commercial and
electric utility customers typically choose to purchase solar electricity under a PPA with an investor or financing company that
buys the system from us. End-user customers typically pay the investors and financing companies over an extended period of
time based on energy they consume from the solar power systems, rather than paying for the full capital cost of purchasing
the solar power systems. Our utility-scale solar power systems are typically purchased by an investor or financing company,
such as 8point3 Energy Partners, and operated as central-station solar power plants. In addition, our third-party global dealer
network and our new homes division have deployed thousands of SunPower rooftop solar power systems to residential
customers. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Revenue”
for our significant customers.
Competition
The market for solar electric power technologies is competitive and continually evolving. In the last year, we faced
increased competition, resulting in price reductions in the market and reduced margins, which may continue and could lead to loss
of market share. Our solar power products and systems compete with many competitors in the solar power market, including, but
not limited to:
• Residential and Commercial: Canadian Solar Inc., Hanwha Corporation, JA Solar Holdings Co., Kyocera
Corporation, LG Corporation, Mitsubishi Corporation, NRG Energy, Inc., Panasonic Corporation, Recurrent Energy,
Sharp Corporation, SolarWorld AG, Sungevity, Inc., SunRun, Inc., Tesla, Inc., Trina Solar Ltd., Vivint, Inc., and
Yingli Green Energy Holding Co. Ltd.
• Utility and Power Plant: Abengoa Solar S.A., Acciona Energia S.A., AES Solar Energy Ltd., Chevron Energy
Solutions (a subsidiary of Chevron Corporation), EDF Energy plc, First Solar Inc., NextEra Energy, Inc., NRG
Energy, Inc., Sempra Energy, Silverado Power LLC., Skyline Solar, Inc., Solargen Energy, Inc., Solaria Corporation,
and Tenaska, Inc.
We also face competition from resellers that have developed related offerings that compete with our product and service
offerings, or have entered into strategic relationships with other existing solar power system providers. We compete for limited
government funding for research and development contracts, customer tax rebates and other programs that promote the use of
solar, and other renewable forms of energy with other renewable energy providers and customers.
In addition, universities, research institutions, and other companies have brought to market alternative technologies,
such as thin films, which compete with our technology in certain applications. Furthermore, the solar power market in general
competes with conventional fossil fuels supplied by utilities and other sources of renewable energy such as wind, hydro, biomass,
solar thermal, and emerging distributed generation technologies such as micro-turbines, sterling engines and fuel cells.
In the large-scale on-grid solar power systems market, we face direct competition from a number of companies,
including those that manufacture, distribute, or install solar power systems as well as construction companies that have expanded
into the renewable sector. In addition, we will occasionally compete with distributed generation equipment suppliers.
We believe that the key competitive factors in the market for solar systems include:
•
total system price;
• LCOE evaluation;
• CCOE evaluation;
•
•
•
power efficiency and performance;
aesthetic appearance of solar panels and systems;
speed and ease of installation through modular solutions such as Oasis and Helix systems;
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•
•
•
•
•
strength of distribution relationships;
availability of third-party financing and investments;
established sales channels to customers such as 8point3 Energy Partners;
timeliness of new product introductions;
bankability, strength, and reputation of our company; and
• warranty protection, quality, and customer service.
We believe that we can compete favorably with respect to each of these elements, although we may be at a disadvantage
in comparison to larger companies with broader product lines, greater technical service and support capabilities, and financial
resources. For more information on risks related to our competition, please see the risk factors set forth under the caption “Item
1A. Risk Factors” including “Risks Related to Our Sales Channels—The increase in the global supply of solar cells and panels,
and increasing competition, may cause substantial downward pressure on the prices of such products and cause us to lose sales or
market share, resulting in lower revenues, earnings, and cash flows.”
Intellectual Property
We rely on a combination of patent, copyright, trade secret, trademark, and contractual protections to establish and
protect our proprietary rights. “SunPower” and the “SunPower” logo are our registered trademarks in countries throughout the
world for use with solar cells, solar panels, energy monitoring systems, inverters, and mounting systems. We also hold registered
trademarks for, among others, “Maxeon,” “Oasis,” “EnergyLink,” “Equinox,” “Helix,” “InvisiMount,” “Pantheon,” “Serengeti,”
“Smarter Solar,” “Smart Energy,” “Solar Showdown,” “SolarBridge,” “Solaire,” “Solaire Generation,” “SunTile,” “SunPower
Electric,” “SuPo Solar,” “Tenesol,” “TrueAC,” “Greenbotics,” “PowerLight,” “More Energy. For Life.,” “The Planet’s Most
Powerful Solar,” “The Power of One,” “The World’s Standard for Solar,” and “Use More Sun” in certain countries. We are
seeking and will continue to seek registration of the “SunPower” trademark and other trademarks in additional countries as we
believe is appropriate. As of January 1, 2017, we held registrations for 32 trademarks in the United States, and had 17 trademark
registration applications pending. We also held 152 trademark registrations and had over 45 trademark applications pending in
foreign jurisdictions. We typically require our business partners to enter into confidentiality and non-disclosure agreements before
we disclose any sensitive aspects of our solar cells, technology, or business plans. We typically enter into proprietary information
agreements with employees, consultants, vendors, customers, and joint venture partners.
We own multiple patents and patent applications that cover aspects of the technology in the solar cells, mounting
products, and electrical and electronic systems that we currently manufacture and market. We continue to file for and
receive new patent rights on a regular basis. The lifetime of a utility patent typically extends for 20 years from the date of
filing with the relevant government authority. We assess appropriate opportunities for patent protection of those aspects of
our technology, designs, methodologies, and processes that we believe provide significant competitive advantages to us,
and for licensing opportunities of new technologies relevant to our business. As of January 1, 2017, we held 404 patents in
the United States, which will expire at various times through 2035, and had 385 U.S. patent applications pending. We also
held 348 patents and had 778 patent applications pending in foreign jurisdictions. While patents are an important element of
our intellectual property strategy, our business as a whole is not dependent on any one patent or any single pending patent
application. We additionally rely on trade secret rights to protect our proprietary information and know-how. We employ
proprietary processes and customized equipment in our manufacturing facilities. We therefore require employees and
consultants to enter into confidentiality agreements to protect them.
When appropriate, we enforce our intellectual property rights against other parties. For more information about risks
related to our intellectual property, please see the risk factors set forth under the caption “Item 1A. Risk Factors” including “Risks
Related to Our Intellectual Property—We depend on our intellectual property, and we may face intellectual property infringement
claims that could be time-consuming and costly to defend and could result in the loss of significant rights,” “Risks Related to Our
Intellectual Property—We rely substantially upon trade secret laws and contractual restrictions to protect our proprietary rights,
and, if these rights are not sufficiently protected, our ability to compete and generate revenue could suffer,” and “Risks Related to
Our Intellectual Property—We may not obtain sufficient patent protection on the technology embodied in the solar products we
currently manufacture and market, which could harm our competitive position and increase our expenses.”
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Backlog
We believe that backlog is not a meaningful indicator of our future business prospects. In the residential and commercial
markets we often sell large volumes of solar panel, mounting systems, and other solar equipment to third parties, which are
typically ordered by our third-party global dealer network and customers under standard purchase orders with relatively short
delivery lead-times. We often require project financing for development and construction of our solar power plant projects,
which require significant investments before the equity is later sold to investors. Our solar power system project backlog
would therefore exclude sales contracts signed and completed in the same quarter and contracts still conditioned upon obtaining
financing. Based on these reasons, we believe backlog at any particular date is not necessarily a meaningful indicator of our
future revenue for any particular period of time.
Regulations
Public Policy Considerations
Different policy mechanisms have been used by governments to accelerate the adoption of solar power. Examples of
customer-focused financial mechanisms include capital cost rebates, performance-based incentives, feed-in tariffs, tax credits,
and net metering. Some of these government mandates and economic incentives are scheduled to be reduced or to expire, or
could be eliminated altogether. Capital cost rebates provide funds to customers based on the cost and size of a customer’s
solar power system. Performance-based incentives provide funding to a customer based on the energy produced by their solar
power system. Feed-in tariffs pay customers for solar power system generation based on energy produced, at a rate generally
guaranteed for a period of time. Tax credits reduce a customer’s taxes at the time the taxes are due. Net metering allows
customers to deliver to the electric grid any excess electricity produced by their on-site solar power systems, and to be credited
for that excess electricity at or near the full retail price of electricity.
In addition to the mechanisms described above, new market development mechanisms to encourage the use of renewable
energy sources continue to emerge. For example, many states in the United States have adopted renewable portfolio standards
which mandate that a certain portion of electricity delivered to customers come from eligible renewable energy resources. Some
states, such as California and Hawaii, have significantly expanded their renewable portfolio standards in recent years. In certain
developing countries, governments are establishing initiatives to expand access to electricity, including initiatives to support off-
grid rural electrification using solar power. For more information about how we avail ourselves of the benefits of public policies
and the risks related to public policies, please see the risk factors set forth under the caption “Item 1A. Risk Factors” including
“Risks Related to Our Sales Channels—The reduction, modification or elimination of government incentives could cause our
revenue to decline and harm our financial results,” and “Risks Related to Our Sales Channels—Existing regulations and policies
and changes to these regulations and policies may present technical, regulatory, and economic barriers to the purchase and use of
solar power products, which may significantly reduce demand for our products and services.”
Environmental Regulations
We use, generate, and discharge toxic, volatile, or otherwise hazardous chemicals and wastes in our research and
development, manufacturing, and construction activities. We are subject to a variety of foreign, U.S. federal and state, and local
governmental laws and regulations related to the purchase, storage, use, and disposal of hazardous materials. We believe that we
have all environmental permits necessary to conduct our business and expect to obtain all necessary environmental permits for
future activities. We believe that we have properly handled our hazardous materials and wastes and have appropriately remediated
any contamination at any of our premises. For more information about risks related to environmental regulations, please see
the risk factors set forth under the caption “Item 1A. Risk Factors” including “Risks Related to Our Operations—Compliance
with environmental regulations can be expensive, and noncompliance with these regulations may result in adverse publicity and
potentially significant monetary damages and fines.”
The Iran Threat Reduction and Syria Human Rights Act of 2012
Section 13(r) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), requires us to disclose whether
Total S.A. or any of its affiliates (collectively, the “Total Group”) engaged during the 2016 calendar year in certain Iran-related
activities. While the Total Group has not engaged in any activity that would be required to be disclosed pursuant to subparagraphs
(A), (B) or (C) of Section 13(r)(1), affiliates of Total S.A. may be deemed to have engaged in certain transactions or dealings with
the government of Iran that would require disclosure pursuant to Section 13(r)(1)(D), as discussed below. Unless otherwise noted,
all foreign currency translations to U.S. dollars in this section are made using exchange rates as of January 1, 2017.
12
Upstream
Following the suspension of certain international economic sanctions against Iran on January 16, 2016, the Total Group
commenced various business development activities in Iran. The Total Group entered into a memorandum of understanding
(“MOU”) with the National Iranian Oil Company (“NIOC”), pursuant to which NIOC provided technical data on certain oil and
gas projects so that the Total Group could assess potential developments in Iran in compliance with the remaining applicable
international economic sanctions. The Total Group subsequently proposed to develop and operate the South Pars Phase 11 gas field
offshore Iran in the Persian Gulf along the international border with Qatar. This resulted in the negotiation and signing, on November
8, 2016, of a heads of agreement (“HOA”) for the development and operation of the field. The parties to the HOA are NIOC, Total
E&P South Pars S.A.S. (a wholly owned affiliate of Total S.A.), CNPC International Ltd. (a wholly owned affiliate of China National
Petroleum Company) and Petropars Ltd. (a wholly owned affiliate of NIOC). The HOA contains the key principles and commercial
terms that will be adopted in a definitive contract for the development and operation of South Pars Phase 11, should such definitive
contract be finally agreed. The project is expected to have a production capacity of 370,000 boe/d and the produced gas will be fed
into Iran’s gas network. The Total Group is expected to operate the project with a 50.1% interest alongside Petropars (19.9%) and
CNPC (30%). The required investment is expected to be approximately $4 billion, of which The Total Group would finance 50.1%,
with all equity contributions and payments in non-U.S. currency. In preparation for the South Pars Phase 11 project, The Total Group
commenced engineering and reservoir studies, which were presented in part to Pars Oil & Gas Company (a NIOC affiliate) in 2016
during a technical workshop. In the event of new or reinstated international economic sanctions, if such sanctions were to prevent the
Total Group from performing under the anticipated contract for South Pars Phase 11, The Total Group expects to be able to terminate
the contract and recover its past costs from NIOC (unless prevented by sanctions).
Regarding other potential oil and gas projects covered by the aforementioned MOU, The Total Group held technical
meetings in 2016 with representatives of NIOC and its affiliated companies and carried out a technical review of the South
Azadegan oil field in Iran as well as the Iran LNG Project (a project contemplating a 10 Mt/y LNG production facility at Tombak
Port on Iran’s Persian Gulf coast), the results of which were partially disclosed to NIOC and relevant affiliated companies.
In addition, in connection with anticipated activities under the aforementioned MOU and HOA, The Total Group
attended meetings in 2016 with the Iranian oil and gas ministry and several Iranian companies with ties to the government of Iran.
Also in 2016, The Total Group was selected, along with other international oil and gas companies, to form an advisory
group to the oil and gas ministries of Iran and Oman concerning a possible future gas pipeline between the two countries. In that
regard, The Total Group entered into a confidentiality agreement and attended meetings with these companies and ministries.
In addition, The Total Group registered in 2016 a branch office of a new entity, Total Iran B.V., a wholly-owned affiliate
of Total S.A., the purpose of which is to serve as the representation office for the Total Group in Iran. This entity replaces Total
E&P Iran, which previously served the same purpose, but only for Exploration & Production.
Neither revenues nor profits were recognized from any of the aforementioned activities in 2016, and the Total Group
expects to conduct similar business development activities in 2017.
Some payments are yet to be reimbursed to the Total Group with respect to past expenditures and remuneration under
buyback contracts entered into between 1997 and 1999 with NIOC for the development of the South Pars 2&3 and Dorood fields.
With respect to these contracts, development operations were completed in 2010 and the Total Group is no longer involved in the
operation of these fields.
Concerning payments to Iranian entities in 2016, Total E&P Iran (100%), Elf Petroleum Iran (99.8%), Total Sirri (100%)
and Total South Pars (99.8%) collectively made payments of approximately IRR 3 billion (approximately $92,705) to (i) the
Iranian administration for taxes and social security contributions concerning the personnel of the aforementioned local office and
residual buyback contract-related obligations, and (ii) Iranian public entities for payments with respect to the maintenance of the
aforementioned local office (e.g., utilities, telecommunications). The Total Group expects similar types of payments to be made
by these affiliates in 2017, albeit in higher amounts due to increased business development activity in Iran. Neither revenues nor
profits were recognized from the aforementioned activities in 2016.
Furthermore, Total E&P UK Limited (“TEP UK”), a wholly-owned affiliate of The Total Group, holds a 43.25%
interest in a joint venture at the Bruce field in the UK with BP Exploration Operating Company Limited (37.5%, operator),
BHP Billiton Petroleum Great Britain Ltd (16%) and Marubeni Oil & Gas (North Sea) Limited (3.75%). This joint venture
is party to an agreement (the “Bruce Rhum Agreement”) governing certain transportation, processing and operation services
provided to a joint venture at the Rhum field in the UK that is co-owned by BP (50%, operator) and the Iranian Oil Company
UK Ltd (“IOC”), a subsidiary of NIOC (50%) (together, the “Rhum Owners”). TEP UK owned and operated the pipeline of
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the Frigg UK Association and the St Fergus Gas Terminal and was party to an agreement governing provision of transportation
and processing services to the Rhum Owners (the “Rhum FUKA Agreement”) (the Bruce Rhum Agreement and the Rhum
FUKA Agreement being referred to collectively as the “Rhum Agreements”). On August 27, 2015, TEP UK signed a sale and
purchase agreement to divest its entire interest in the Frigg UK Association pipeline and St Fergus Gas Terminal to NSMP
Operations Limited (“NSMP”). On March 15, 2016, the divestment was completed and TEP UK’s interest in the Rhum
FUKA Agreement was novated to NSMP. As from this date, TEP UK’s only interest in the Rhum FUKA Agreement is in
relation to the settlement of historical force majeure claims with the Rhum Owners relating to the period when the Rhum
field was shut down. To The Total Group’s knowledge, provision of all services under the Rhum Agreements was initially
suspended in November 2010, when the Rhum field stopped production following the adoption of EU sanctions, other than
critical safety-related services (i.e., monitoring and marine inspection of the Rhum facilities), which were permitted by EU
sanctions regulations. On October 22, 2013, the UK government notified IOC of its decision to apply a temporary management
scheme to IOC’s interest in the Rhum field within the meaning of UK Regulations 3 and 5 of the Hydrocarbons (Temporary
Management Scheme) Regulations 2013 (the “Hydrocarbons Regulations”). From October 22, 2013 until the termination of the
temporary management scheme on March 16, 2016 (as further explained below), all correspondence by TEP UK in respect of
IOC’s interest in the Rhum Agreements was with the UK government in its capacity as temporary manager of IOC’s interests.
On December 6, 2013, the UK government authorized TEP UK, among others, under Article 43a of EU Regulation 267/2012,
as amended by 1263/2012 and under Regulation 9 of the Hydrocarbons Regulations, to carry out activities in relation to
the operation and production of the Rhum field. In addition, on September 4, 2013, the U.S. Treasury Department issued a
license to BP authorizing BP and certain others to engage in various activities relating to the operation and production of the
Rhum field. Following receipt of all necessary authorizations, the Rhum field resumed production on October 26, 2014 with
IOC’s interest in the Rhum field and the Rhum Agreements subject to the UK government’s temporary management pursuant
to the Hydrocarbons Regulations. Services were provided by TEP UK under the Rhum Agreements from October 26, 2014
and TEP UK received tariff income and revenues from BP and the UK government (in its capacity as temporary manager of
IOC’s interest in the Rhum field) in accordance with the terms of the Rhum Agreements until the termination of the temporary
management scheme in March 2016. As IOC ceased to be a listed person within the meaning of the Hydrocarbons Regulations
on January 16, 2016, the UK government gave notice to IOC on January 22, 2016 of the termination of the temporary
management scheme with effect from March 16, 2016 in accordance with regulation 26(1)(a) and 27(1)(a) of the Hydrocarbons
Regulations. As a result, since March 16, 2016, TEP UK has liaised directly with IOC concerning its interest in the Bruce
Rhum Agreement, and services have been provided by TEP UK under the Bruce Rhum Agreement to IOC as Rhum Owner.
In 2016, these activities generated for TEP UK gross revenue of approximately £8 million (approximately $9.9 million) and
net profit of approximately £0.20 million (approximately $0.2 million). Subject to the foregoing, TEP UK intends to continue
such activities so long as they continue to be permissible under UK and EU law and not be in breach of remaining applicable
international economic sanctions.
Downstream
The Total Group does not own or operate any refineries or chemicals plants in Iran and did not purchase Iranian
hydrocarbons when prohibited by applicable EU and U.S. economic and financial sanctions (refer to point 1.9.1, above).
The Total Group resumed its trading activities with Iran in February 2016 via its wholly-owned affiliates Totsa Total
Oil Trading S.A. and Total Trading Asia Pte Ltd. During 2016, approximately 50 Mb of crude oil from Iran were purchased for
nearly €1.8 billion (approximately $1.9 billion) pursuant to a mix of spot and term contracts. Most of this crude oil was used to
supply the Total Group’s refineries and, therefore, it is not possible to estimate the related gross revenue and net profit. However,
approximately 1.4 Mb of this crude oil were sold to entities outside of the Total Group. In addition, in 2016 approximately 11 Mb
of petroleum products were bought from/sold to entities with ties to the government of Iran. These operations generated gross
revenue of nearly €374 million (approximately $393.5 million) and net profit of approximately €2.7 million (approximately
$2.8 million). The affiliates expect to continue these activities in 2017.
Saft Groupe S.A. (“Saft”), a wholly-owned affiliate of the Total Group, in 2016 sold signaling and backup battery
systems for metros and railways as well as products for the utilities and oil and gas sectors to companies in Iran, including
some having direct or indirect ties with the Iranian government. In 2016, this activity generated gross revenue of approximately
€5.6 million (approximately $5.9 million) and net profit of approximately €800,000 (approximately $841,636). Saft expects to
continue this activity in 2017.
Saft also attended the Iran Oil Show in 2016, where it discussed business opportunities with Iranian customers,
including those with direct or indirect ties with the Iranian government. Saft expects to conduct similar business development
activities in 2017.
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Total Solar (formerly named Total Energie Developpement), a wholly-owned affiliate of the Total Group, had
preliminary discussions in 2016 regarding the potential development of solar projects with companies in Iran, including some
having direct or indirect ties with the Iranian government. Neither revenues nor profits were recognized from this activity in 2016,
and Total Solar expects to continue this activity in 2017.
Total S.A. signed in 2016 a non-binding memorandum of understanding with the National Petrochemical Company, a
company owned by the government of Iran, to consider a project for the construction in Iran of a steamcracker and polyethylene
production lines. In relation to the early stages of this project, several visits to Iran were conducted in 2016 and one employee has
been seconded to Total Iran B.V. Total S.A. recognized no revenue or profit from this activity in 2016 and similar activities are
expected to continue in 2017.
Representatives of the companies Le Joint Français (a subsidiary of Hutchinson SA) and Hutchinson SNC, wholly-
owned affiliates of the Total Group, conducted multiple visits to Iran in 2016 to discuss business opportunities in the car industry
sector with several companies, including some having direct or indirect ties with the Iranian government. These companies
recognized no revenue or profit from this activity in 2016 and expect to continue such discussions in the future.
Hutchinson Gmbh, a wholly-owned affiliate of the Total Group, sold plastic tubing for automobiles in 2016 to Iran
Khodro, a company in which the government of Iran holds a 20% interest and which is supervised by Iran’s Industrial Management
Organization. In 2016, these activities generated gross revenue of approximately €900,000 (approximately $946,840) and net profit
of approximately €150,000 (approximately $157,807). This company expects to continue this activity in 2017.
Hanwha Total Petrochemicals (“HTC”), a joint venture in which Total Holdings UK Limited (a wholly-owned affiliate
of The Total Group) holds a 50% interest and Hanwha General Chemicals holds a 50% interest, purchased nearly 25 Mb of
condensates from NIOC for approximately KRW 1,300 billion (approximately $1.1 million). These condensates are used as raw
material for certain of the Total Group’s steamcrackers. HTC expects to continue this activity in 2017.
Total Research & Technology Feluy (“TRTF”), a wholly-owned affiliate of The Total Group, commenced in 2016
the process to file a patent in Iran for pipes comprising a multimodal metallocene-catalyzed polyethylene resin. Related to this
process, TRTF had contacts with Iranian government officials, but no fees were paid. TRTF expects to continue the patent filing
process in 2017.
Until December 2012, at which time it sold its entire interest, the Total Group held a 50% interest in the lubricants
retail company Beh Total (now named Beh Tam) along with Behran Oil (50%), a company controlled by entities with ties to
the government of Iran. As part of the sale of the Total Group’s interest in Beh Tam, Total S.A. agreed to license the trademark
“Total” to Beh Tam for an initial 3-year period for the sale by Beh Tam of lubricants to domestic consumers in Iran. In 2014,
Total E&P Iran (“TEPI”), a wholly-owned affiliate of Total S.A., received, on behalf of Total S.A., royalty payments of
approximately IRR 24 billion (nearly $1 million) from Beh Tam for such license. These payments were based on Beh Tam’s
sales of lubricants during the previous calendar year. In 2015, royalty payments were suspended due to a procedure brought
by the Iranian tax authorities against TEPI. At the end of 2016, this procedure was still pending and no royalty payments had
been received since 2015. Representatives of Total Outre Mer, a wholly-owned affiliate of the Total Group, made several visits
to Beh Tam and Behran Oil during 2016 regarding the possible purchase of shares of Beh Tam. Subsequent to an internal
reorganization, the matter was transferred to Total Oil Asia-Pacific Ltd, another wholly-owned affiliate of the Total Group,
which had several exchanges with representatives of Behran Oil. As of the end of 2016, no agreement had been reached, no
money was paid or received by either company. Similar discussions may take place in the future.
Total Marketing Middle East FZE (“TMME”), a wholly-owned affiliate of the Total Group, sold lubricants to Beh Tam
in 2016. The sale in 2016 of approximately 54 tons of lubricants and special fluids generated gross revenue of approximately
AED 420,000 (approximately $30,711) and net profit of approximately AED 360,000 (approximately $26,324). TMME expects to
continue this activity in 2017.
Total Marketing France (“TMF”), a company wholly-owned by Total Marketing Services (“TMS”), itself a company
wholly-owned by Total S.A. and six Total Group employees, provided in 2016 fuel payment cards to the Iranian embassy
in France for use in the Total Group’s service stations. In 2016, these activities generated gross revenue of nearly €22,000
(approximately $23,145) and net profit of nearly €900 (approximately $947). TMF expects to continue this activity in 2017.
TMF also sold jet fuel in 2016 to Iran Air as part of its airplane refueling activities at Paris Orly airport in France.
The sale of approximately 2.8 million liters of jet fuel generated gross revenue of approximately €982,000 (approximately
$1.0 million) and net profit of approximately €10,000 (approximately $10,520). TMF expects to continue this activity through at
least February 2017, when the contract arrives at its term.
15
Air Total International (“ATI”), a wholly-owned affiliate of the Total Group, on two occasions in 2016 sold jet fuel to
a broker based at Le Bourget airport near Paris that was destined for the refueling of an Iranian government airplane (official
presidential/ministerial visits). These sales generated gross revenue of approximately €8,000 (approximately $8,416) and net
profit of approximately €1,600 (approximately $1,683). ATI may conduct similar activities in 2017.
Total Belgium (“TB”), a company wholly-owned by the Total Group, provided in 2016 fuel payment cards to the Iranian
embassy in Brussels (Belgium) for use in the Total Group’s service stations. In 2016, these activities generated gross revenue of
approximately €1,500 (approximately $1,578) and net profit of approximately €300 (approximately $316). TB expects to continue
this activity in 2017.
Proxifuel, a company wholly-owned by the Total Group, sold in 2016 heating oil to the Iranian embassy in Brussels. In
2016, these activities generated gross revenue of approximately €200 (approximately $210) and net profit of approximately €80
(approximately $84). Proxifuel expects to continue this activity in 2017.
Caldeo, a company wholly-owned by TMS, sold in 2016 approximately 3 cubic meters of domestic heating oil to the
Iranian embassy in France, which generated gross revenue of nearly €435 (approximately $458) and net profit of nearly €115
(approximately $121). Caldeo expects to continue this activity in 2017.
Total Namibia (PTY) Ltd (“TN”), a wholly-owned affiliate of Total South Africa (PTY) Ltd (of which the Total Group
holds 50.1%), sold petroleum products and services during 2016 to Rössing Uranium Limited, a company in which the Iranian
Foreign Investment Co. holds an interest of 15.3%. In 2016, these activities generated gross revenue of nearly N$249 million
(approximately $18.2 million) and net profit of approximately N$8 million (approximately $0.6 million). TN expects to continue
this activity in 2017.
Employees
As of January 1, 2017, we had approximately 8,902 full-time employees worldwide, of which 1,290 were located in the
United States, 3,588 were located in the Philippines, 1,633 were located in Malaysia, and 2,391 were located in other countries.
Of these employees, 6,588 were engaged in manufacturing, 881 in construction projects, 406 in research and development, 492
in sales and marketing, and 535 in general and administrative services. Although in certain countries we have works councils and
statutory employee representation obligations, our employees are generally not represented by labor unions on an ongoing basis.
We have never experienced a work stoppage, and we believe our relations with our employees are good.
Geographic Information
Information regarding financial data by segment and geographic area is available in Note 5 and Note 17 under “Item 8.
Financial Statements and Supplementary Data—Notes to Consolidated Financial Statements.”
Seasonal Trends
Our business is subject to industry-specific seasonal fluctuations including changes in weather patterns and economic
incentives, among others. Sales have historically reflected these seasonal trends with the largest percentage of total revenues
realized during the last two quarters of our fiscal year. The construction of solar power systems or installation of solar power
components and related revenue may decline during cold winter months. In the United States, many customers make purchasing
decisions towards the end of the year in order to take advantage of tax credits or for other budgetary reasons. In addition, revenues
may fluctuate due to the timing of project sales, construction schedules, and revenue recognition of certain projects, such as those
involving real estate, which may significantly impact the quarterly profile of the Company’s results of operations. We may also
retain certain development projects on our balance sheet for longer periods of time than in preceding periods in order to optimize
the economic value we receive at the time of sale in light of market conditions, which can fluctuate after we have committed to
projects. Delays in disposing of projects, or changes in amounts realized on disposition, may lead to significant fluctuations to the
period-over-period profile of our results of operations and our cash available for working capital needs.
Available Information
We make available our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form
8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or Section 15(d) of the Securities Exchange
Act of 1934 (the “Exchange Act”) free of charge on our website at www.sunpower.com, as soon as reasonably practicable after
they are electronically filed with or furnished to the SEC. The contents of our website are not incorporated into, or otherwise to
be regarded as part of this Annual Report on Form 10-K. Copies of such material may be obtained, free of charge, upon written
16
request submitted to our corporate headquarters: SunPower Corporation, Attn: Investor Relations, 77 Rio Robles, San Jose,
California, 95134. Copies of materials we file with the SEC may also be accessed at the SEC’s Public Reference Room at 100
F Street NE, Washington, D.C., or at the SEC’s website at www.sec.gov. The public may obtain additional information on the
operation of the SEC’s Public Reference Room by calling the SEC at 1-800-SEC-0330.
ITEM 1A. RISK FACTORS
Our business is subject to various risks and uncertainties, including those described below and elsewhere in this
Annual Report on Form 10-K, which could adversely affect our business, results of operations, and financial condition.
Although we believe that we have identified and discussed below certain key risk factors affecting our business, there may be
additional risks and uncertainties that are not currently known to us or that are not currently believed by us to be material that
may also harm our business, results of operations and financial condition.
Risks Related to Our Sales Channels
Our operating results are subject to significant fluctuations and are inherently unpredictable.
We do not know whether our revenue will continue to grow, or if it will continue to grow sufficiently to outpace our
expenses, which we also expect to grow. As a result, we may not be profitable on a quarterly basis. Our quarterly revenue
and operating results are difficult to predict and have in the past fluctuated significantly from quarter to quarter. The principal
reason for these significant fluctuations in our results is that we derive a substantial portion of our total revenues from our large
commercial and utility-scale and power plant customers, and, consequently:
•
•
•
the amount, timing and mix of sales to our large commercial, utilities and power plant customers, often for a single
medium or large-scale project, may cause large fluctuations in our revenue and other financial results because, at any
given time, a single large-scale project can account for a material portion of our total revenue in a given quarter;
our inability to monetize our projects as planned, or any delay in obtaining the required government support or
initial payments to begin recognizing revenue under the relevant recognition criteria, and the corresponding revenue
impact, may similarly cause large fluctuations in our revenue and other financial results;
our ability to monetize projects as planned is also subject to market conditions, including fluctuations in demand
based on the availability of regulatory incentives and other factors, changes in the internal rate of return expected
by customers in light of market conditions, the increasing number of power plants being constructed or available
for sale and competition for financing, which can make both financing and disposition more challenging and may
significantly affect project sales prices;
• market conditions may deteriorate after we have committed to projects, resulting in delays in disposing of projects,
or changes in amounts realized on disposition, which may lead to significant fluctuations in the period-over-period
profile of our results of operations and our cash available for working capital needs;
•
•
•
•
•
in the event a project is subsequently canceled, abandoned, or is deemed unlikely to occur, we will charge all prior
capital costs as an operating expense in the quarter in which such determination is made, which could materially
adversely affect operating results;
a delayed disposition of a project could require us to recognize a gain on the sale of assets instead of
recognizing revenue;
our agreements with these customers may be canceled if we fail to meet certain product specifications or materially
breach the agreement;
in the event of a customer bankruptcy, our customers may seek to terminate or renegotiate the terms of current
agreements or renewals; and
the failure by any significant customer to pay for orders, whether due to liquidity issues or otherwise, could
materially and adversely affect our results of operations.
Any decrease in revenue from our large commercial and utility-scale power plant customers, whether due to a loss
or delay of projects or an inability to collect, could have a significant negative impact on our business. See also “Item 7A.
Quantitative and Qualitative Disclosures About Market Risk.” See also “Risks Related to Our Sales Channels - Revenues from
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a limited number of customers and large projects are expected to continue to comprise a significant portion of our total revenues
and any decrease in revenues from those customers or projects, payment of liquidated damages, or an increase in related expenses,
could have a material adverse effect on our business, results of operations and financial condition.”
Sales to our residential and light commercial customers are similarly susceptible to fluctuations in volumes and revenue,
as well as fluctuations in demand based on the availability of regulatory incentives and other factors. In addition, demand from our
commercial and residential customers may fluctuate based on the perceived cost-effectiveness of the electricity generated by our
solar power systems as compared to conventional energy sources, such as natural gas and coal (which fuel sources are subject to
significant price swings from time to time), and other non-solar renewable energy sources, such as wind. Declining average selling
prices immediately affect our residential and light commercial sales volumes, and therefore lead to large fluctuations in revenue.
Further, our revenue mix of materials sales versus project sales can fluctuate dramatically from quarter to quarter, which
may adversely affect our margins and financial results in any given period.
Any of the foregoing may cause us to miss our financial guidance for a given period, which could adversely impact the
market price for our common stock and our liquidity.
We base our planned operating expenses in part on our expectations of future revenue and a significant portion of
our expenses is fixed in the short term. If revenue for a particular quarter is lower than we expect, we likely will be unable to
proportionately reduce our operating expenses for that quarter, which would materially adversely affect our operating results
for that quarter. See also “-Risks Related to Our Sales Channels-Our business could be adversely affected by seasonal trends
and construction cycles,” “-Risks Related to Our Sales Channels-The reduction, modification or elimination of government
incentives could cause our revenue to decline and harm our financial results” and “-Risks Related to Our Sales Channels-Existing
regulations and policies and changes to these regulations and policies may present technical, regulatory, and economic barriers to
the purchase and use of solar power products, which may significantly reduce demand for our products and services.”
We may not achieve some or all of the expected benefits of our restructuring plans and our restructuring may adversely affect
our business.
We announced restructuring plans in August 2016 and December 2016 to realign our downstream investments, optimize
our supply chain, and reduce operating expenses, in response to market dislocation, including expected near-term challenges
primarily relating to our power plant and commercial segments, and to reduce costs and focus on improving cash flow while
positioning us to succeed in the next phase of industry growth. As part of such plans, our Board of Directors approved the closure
of our Philippine-based Fab 2 manufacturing facility. Implementation of our restructuring plans may be costly and disruptive to
our business, and we may not be able to obtain the cost savings and benefits that were initially anticipated in connection with
our restructuring. Additionally, as a result of our restructuring, we may experience a loss of continuity, loss of accumulated
knowledge, or inefficiency during transitional periods. Reorganization and restructuring can require a significant amount of
management and other employees’ time and focus, which may divert attention from operating and growing our business. If we
fail to achieve some or all of the expected benefits of restructuring, it could have a material adverse effect on our competitive
position, business, financial condition, results of operations and cash flows. For more information about our restructuring plans,
see our Current Reports on Form 8-K filed on August 9, 2016 and December 7, 2016 and “Item 8. Financial Statements and
Supplementary Data–Notes to Consolidated Financial Statements–Note 8. Restructuring.”
The execution of our growth strategy is dependent upon the continued availability of third-party financing arrangements for
our solar power plants, our residential lease program and our customers, and is affected by general economic conditions and
other factors.
Our growth strategy depends on third-party financing arrangements. We often require project financing for development
and construction of our solar power plant projects, which require significant investments before the equity is later sold to investors.
Many purchasers of our systems projects have entered into third-party arrangements to finance their systems over an extended period
of time, while many end-customers have chosen to purchase solar electricity under a power purchase agreement (“PPA”) with an
investor or financing company that purchases the system from us or our authorized dealers. We often execute PPAs directly with
the end-user, with the expectation that we will later assign the PPA to a financier. Under such arrangements, the financier separately
contracts with us to acquire and build the solar power system, and then sells the electricity to the end-user under the assigned PPA.
When executing PPAs with end-users, we seek to mitigate the risk that financing will not be available for the project by allowing
termination of the PPA in such event without penalty. However, we may not always be successful in negotiating for penalty-free
termination rights for failure to obtain financing, and certain end-users have required substantial financial penalties in exchange for
such rights. These structured finance arrangements are complex and may not be feasible in many situations.
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Global economic conditions, including conditions that may make it more difficult or expensive for us to access credit and
liquidity, could materially and adversely affect our business and results of operations. Credit markets are unpredictable, and if they
become more challenging, we may be unable to obtain project financing for our projects, customers may be unable or unwilling to
finance the cost of our products, we may have difficulties in reaching agreements with financiers to finance the construction of our
solar power systems, or the parties that have historically provided this financing may cease to do so, or only do so on terms that are
substantially less favorable for us or our customers, any of which could materially and adversely affect our revenue and growth in all
segments of our business. Our plans to continue to grow our residential lease program may be delayed if credit conditions prevent
us from obtaining or maintaining arrangements to finance the program. We are actively arranging additional third-party financing
for our residential lease program; however, if we encounter challenging credit markets, we may be unable to arrange additional
financing partners for our residential lease program in future periods, which could have a negative impact on our sales. In the event
we enter into a material number of additional leases without obtaining corresponding third-party financing, our cash, working capital
and financial results could be negatively affected. In addition, a rise in interest rates would likely increase our customers’ cost of
financing or leasing our products and could reduce their profits and expected returns on investment in our products. The general
reduction in available credit to would-be borrowers or lessees, worldwide economic uncertainty, and the condition of worldwide
housing markets could delay or reduce our sales of products to new homebuilders and authorized resellers.
The availability of financing depends on many factors, including market conditions, the demand for and supply of solar
projects, and resulting risks of refinancing or disposing of such projects. It also depends in part on government incentives, such
as tax incentives. In the United States, with the expiration of the Treasury Grant under Section 1603 of the American Recovery
and Reinvestment Act program, we have needed to identify interested financiers with sufficient taxable income to monetize the
tax incentives created by our solar systems. In the long term, as we look toward markets not supported (or supported less) by
government incentives, we will continue to need to identify financiers willing to finance residential solar systems without such
incentives. Our failure to effectively do so could materially and adversely affect our business and results of operations. In addition,
the new administration and Congress have expressed interest in comprehensive reform of the U.S. tax code, which could result in the
reduction or elimination of various industry-specific tax incentives in return for an overall reduction in corporate tax rates.
The lack of project financing, due to tighter credit markets or other reasons, could delay the development and
construction of our solar power plant projects, thus reducing our revenues from the sale of such projects. We may in some
cases seek to pursue partnership arrangements with financing entities to assist residential and other customers to obtain
financing for the purchase or lease of our systems, which would expose us to credit or other risks. We face competition
for financing partners and if we are unable to continue to offer a competitive investment profile, we may lose access to
financing partners or they may offer financing on less favorable terms than our competitors, which could materially and
adversely affect our business and results of operations.
If we fail to successfully execute our cost reduction roadmap, or fail to develop and introduce new and enhanced products and
services, we may be unable to compete effectively, and our ability to generate revenues would suffer.
Our solar panels are currently competitive in the market compared with lower cost conventional solar cells, such as
thin-film, due to our products’ higher efficiency, among other things. Given the general downward pressure on prices for solar
panels driven by increasing supply and technological change, a principal component of our business strategy is reducing our costs
to manufacture our products to remain competitive. We also focus on standardizing our products with the goal of driving down
installation costs. If our competitors are able to drive down their manufacturing and installation costs or increase the efficiency
of their products faster than we can, our products may become less competitive even when adjusted for efficiency. Further, if raw
materials costs and other third-party component costs were to increase, we may not meet our cost reduction targets. If we cannot
effectively execute our cost reduction roadmap, our competitive position will suffer, and we could lose market share and our
margins would be adversely affected as we face downward pricing pressure.
The solar power market is characterized by continually changing technology and improving features, such as increased
efficiency, higher power output and enhanced aesthetics. Technologies developed by our direct competitors, including thin-film
solar panels, concentrating solar cells, solar thermal electric and other solar technologies, may provide energy at lower costs than
our products. We also face competition in some markets from other energy generation sources, including conventional fossil fuels,
wind, biomass, and hydro. In addition, other companies could potentially develop a highly reliable renewable energy system
that mitigates the intermittent energy production drawback of many renewable energy systems. Companies could also offer
other value-added improvements from the perspective of utilities and other system owners, in which case such companies could
compete with us even if the cost of electricity associated with any such new system is higher than that of our systems. We also
compete with traditional utilities that supply energy to our potential customers. Such utilities have greater financial, technical,
operational and other resources than we do. If electricity rates decrease and our products become less competitive by comparison,
our operating results and financial condition will be adversely affected.
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Our failure to further refine our technology, reduce cost in our manufacturing process, and develop and introduce new
solar power products could cause our products or our manufacturing facilities to become less competitive or obsolete, which could
reduce our market share, cause our sales to decline, and cause the impairment of our assets. This risk requires us to continuously
develop new solar power products and enhancements for existing solar power products to keep pace with evolving industry
standards, competitive pricing and changing customer preferences, expectations, and requirements. It is difficult to successfully
predict the products and services our customers will demand. If we cannot continually improve the efficiency of our solar panels
as compared with those of our competitors, our pricing will become less competitive, we could lose market share and our margins
would be adversely affected. We have new products, such as our Performance Series, which have not yet been mass-deployed in
the market. We need to prove their reliability in the field as well as drive down their cost in order to gain market acceptance.
As we introduce new or enhanced products or integrate new technology and components into our products, we will
face risks relating to such transitions including, among other things, the incurrence of high fixed costs, technical challenges,
acceptance of products by our customers, disruption in customers’ ordering patterns, insufficient supplies of new products
to meet customers’ demand, possible product and technology defects arising from the integration of new technology and
a potentially different sales and support environment relating to any new technology. Our failure to manage the transition
to newer products or the integration of newer technology and components into our products could adversely affect our
business’s operating results and financial condition.
We may fail to realize the expected benefits of our YieldCo strategy, which could materially adversely affect our business,
financial condition, and results of operations.
In June 2015, 8point3 Energy Partners, a joint YieldCo vehicle formed by us and First Solar, Inc. to own, operate and
acquire solar energy generation assets, launched an initial public offering of Class A shares representing its limited partner
interests. The IPO was consummated on June 24, 2015, whereupon the Class A shares were listed on The NASDAQ Global Select
Market under the trading symbol “CAFD.”
Immediately after the IPO, we contributed a portfolio of solar generation assets to 8point3 Energy Partners in exchange
for cash proceeds as well as equity interests in several 8point3 Energy Partners affiliated entities (collectively, the “8point3
Group”). Additionally, we entered into a Right of First Offer Agreement with 8point3 Energy Partners in connection with the
IPO under which we granted 8point3 Energy Partners a right of first offer to purchase certain of our solar energy projects that are
in various stages of development in our project pipeline. We have sold four of these projects to 8point3 Energy Partners to date,
including two projects which are currently in the process of being sold in phases.
We may be unable to fully realize our expected strategic and financial benefits from the 8point3 Group on a timely
basis or at all. The operations of the 8point3 Group are not consolidated with ours. Instead, we account for our investments in
the 8point3 Group using the equity method, whereby the book value of our investments is recorded as a non-current asset and
our portion of their earnings is recorded in the Consolidated Statements of Operations under the caption “Equity in earnings
(loss) of unconsolidated investees.”
There is no assurance that we will realize a return on our equity investments in the 8point3 Group. The ability of the
8point3 Group to make cash distributions will depend primarily upon its cash flow, which is not solely a function of 8point3
Energy Partners’ profitability. There is no assurance that we will receive any further cash distributions. Accordingly, we
may never recover the value of the assets we contribute to the YieldCo vehicle, and we may realize less of a return on such
contribution than if we had retained or operated these assets. In addition, 8point3 Energy Partners may be unable to obtain
funding through the sale of equity securities or otherwise. If adequate funds and other resources are not available on acceptable
terms, 8point3 Group may be unable to purchase assets that we wish to sell, or otherwise function as anticipated and planned.
In such event, our YieldCo strategy may not succeed, and our business, financial condition and results of operations would be
materially adversely affected.
We believe that the viability of our YieldCo strategy will depend, among other things, upon our ability to continue
to develop revenue-generating solar assets, to build and manage relationships with sponsors, and to productively manage our
relationship with First Solar and the 8point3 Group, which are subject to the project-level, joint venture relationship, business, and
industry risks described herein. If we are unable to realize the strategic and financial benefits that we expect to derive from our
YieldCo strategy and 8point3 Energy Partners in particular, our business, financial condition and results of operations could be
materially adversely affected.
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The increase in the global supply of solar cells and panels, and increasing competition, may cause substantial downward
pressure on the prices of such products and cause us to lose sales or market share, resulting in lower revenues, earnings,
and cash flows.
Global solar cell and panel production capacity has been materially increasing overall, and solar cell and solar panel
manufacturers currently have excess capacity, particularly in China. Excess capacity and industry competition have resulted in
the past, and may continue to result, in substantial downward pressure on the price of solar cells and panels, including SunPower
products. Intensifying competition could also cause us to lose sales or market share. Such price reductions or loss of sales or
market share could have a negative impact on our revenue and earnings, and could materially adversely affect our business,
financial condition and cash flows. In addition, our internal pricing forecasts may not be accurate in such a market environment,
which could cause our financial results to be different than forecasted. See also under this section, “Risks Related to Our Sales
Channels - If we fail to successfully execute our cost reduction roadmap, or fail to develop and introduce new and enhanced
products and services, we may be unable to compete effectively, and our ability to generate revenues would suffer.”
The reduction, modification or elimination of government incentives could cause our revenue to decline and harm our
financial results.
The market for on-grid applications, where solar power is used to supplement a customer’s electricity purchased from
the utility network or sold to a utility under tariff, depends in large part on the availability and size of government mandates and
economic incentives because, at present, the cost of solar power generally exceeds retail electric rates in many locations and
wholesale peak power rates in some locations. Incentives and mandates vary by geographic market. Various government bodies
in most of the countries where we do business have provided incentives in the form of feed-in tariffs, rebates, and tax credits
and other incentives and mandates, such as renewable portfolio standards and net metering, to end-users, distributors, system
integrators and manufacturers of solar power products to promote the use of solar energy in on-grid applications and to reduce
dependency on other forms of energy. These various forms of support for solar power are subject to change (as for example
occurred in 2011 in Germany and other European countries, and in 2015 with Nevada’s decision to change net energy metering),
and are expected in the longer term to decline. Even changes that may be viewed as positive (such as the extension at the end of
2015 of U.S. tax credits related to solar power) can have negative effects if they result, for example, in delaying purchases that
otherwise might have been made before expiration or scheduled reductions in such credits. Governmental decisions regarding the
provision of economic incentives often depend on political and economic factors that we cannot predict and that are beyond our
control. The reduction, modification or elimination of grid access, government mandates or economic incentives in one or more of
our customer markets would materially and adversely affect the growth of such markets or result in increased price competition,
either of which could cause our revenue to decline and materially adversely affect our financial results.
Existing regulations and policies and changes to these regulations and policies may present technical, regulatory, and
economic barriers to the purchase and use of solar power products, which may significantly reduce demand for our
products and services.
The market for electric generation products is heavily influenced by federal, state and local government laws,
regulations and policies concerning the electric utility industry in the United States and abroad, as well as policies promulgated
by electric utilities. These regulations and policies often relate to electricity pricing and technical interconnection of
customer-owned electricity generation, and changes that make solar power less competitive with other power sources could
deter investment in the research and development of alternative energy sources as well as customer purchases of solar
power technology, which could in turn result in a significant reduction in the demand for our solar power products. The
market for electric generation equipment is also influenced by trade and local content laws, regulations and policies that
can discourage growth and competition in the solar industry and create economic barriers to the purchase of solar power
products, thus reducing demand for our solar products. In addition, on-grid applications depend on access to the grid, which
is also regulated by government entities. We anticipate that our solar power products and their installation will continue to
be subject to oversight and regulation in accordance with federal, state, local and foreign regulations relating to construction,
safety, environmental protection, utility interconnection and metering, trade, and related matters. It is difficult to track the
requirements of individual states or local jurisdictions and design equipment to comply with the varying standards. In addition,
the U.S., European Union and Chinese governments, among others, have imposed tariffs or are in the process of evaluating
the imposition of tariffs on solar panels, solar cells, polysilicon, and potentially other components. These and any other tariffs
or similar taxes or duties may increase the price of our solar products and adversely affect our cost reduction roadmap, which
could harm our results of operations and financial condition. Any new regulations or policies pertaining to our solar power
products may result in significant additional expenses to us, our resellers and our resellers’ customers, which could cause a
significant reduction in demand for our solar power products.
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As owners and operators of solar power systems that deliver electricity to the grid, certain of our affiliated entities may be
considered public utilities for purposes of the Federal Power Act, as amended (the “FPA”), and are subject to regulation by
the Federal Energy Regulatory Commission (“FERC”), as well as various local and state regulatory bodies.
Although we are not directly subject to FERC regulation under the FPA, we are considered to be a “holding company”
for purposes of Section 203 of the FPA, which regulates certain transactions involving public utilities, and such regulation could
adversely affect our ability to grow the business through acquisitions. Likewise, investors seeking to acquire our public utility
subsidiaries or acquire ownership interests in their securities may require prior FERC approval to do so. Such approval could
result in transaction delays or uncertainties.
Public utilities under the FPA are required to obtain FERC acceptance of their rate schedules for wholesale sales
of electricity and to comply with various regulations. FERC may grant our affiliated entities the authority to sell electricity
at market-based rates and may also grant them certain regulatory waivers, such as waivers from compliance with FERC’s
accounting regulations. These FERC orders reserve the right to revoke or revise market-based sales authority if FERC
subsequently determines that our affiliated entities can exercise market power in the sale of generation products, the provision
of transmission services, or if it finds that any of the entities can create barriers to entry by competitors. In addition, if the
entities fail to comply with certain reporting obligations, FERC may revoke their power sales tariffs. Finally, if the entities
were deemed to have engaged in manipulative or deceptive practices concerning their power sales transactions, they would
be subject to potential fines, disgorgement of profits, and/or suspension or revocation of their market-based rate authority.
If our affiliated entities were to lose their market-based rate authority, such companies would be required to obtain FERC’s
acceptance of a cost-of-service rate schedule and could become subject to the accounting, record-keeping, and reporting
requirements that are imposed on utilities with cost-based rate schedules, which would impose cost and compliance
burdens on us and have an adverse effect on our results of operations. In addition to the risks described above, we may be
subject to additional regulatory regimes at state or foreign levels to the extent we own and operate solar power systems in
such jurisdictions.
As our sales to residential customers have continued to grow, we have increasingly become subject to substantial financing
and consumer protection laws and regulations.
As we continue to seek to expand our retail customer base, our activities with customers – and in particular, our
financing activities with our residential customers – are subject to consumer protection laws that may not be applicable to our
commercial and power plant segments, such as federal truth-in-lending, consumer leasing, and equal credit opportunity laws
and regulations, as well as state and local finance laws and regulations. Claims arising out of actual or alleged violations of law
may be asserted against us by individuals or governmental entities and may expose us to significant damages or other penalties,
including fines.
We may incur unexpected warranty and product liability claims that could materially and adversely affect our financial
condition and results of operations.
Our current standard product warranty for our solar panels and their components includes a 25-year warranty period for
defects in materials and workmanship and for greater than promised declines in power performance. We believe our warranty
offering is in line with industry practice. This long warranty period creates a risk of extensive warranty claims long after we have
shipped product and recognized revenue. We perform accelerated lifecycle testing that exposes our products to extreme stress
and climate conditions in both environmental simulation chambers and in actual field deployments in order to highlight potential
failures that could occur over the 25-year warranty period. We also employ measurement tools and algorithms intended to help us
assess actual and expected performance; these attempt to compare actual performance against an expected performance baseline
that is intended to account for many factors (like weather) that can affect performance. Although we conduct accelerated testing
of our solar panels and components, they have not and cannot be tested in an environment that exactly simulates the 25-year
warranty period and it is difficult to test for all conditions that may occur in the field. Further, there can be no assurance that
our efforts to accurately measure and predict panel and component performance will be successful. Although we have not faced
any material warranty claims to date, we have sold products under our warranties since the early 2000s and have therefore not
experienced the full warranty cycle.
In our project installations, our current standard warranty for our solar power systems differs by geography and end-
customer application and usually includes a limited warranty of 10 years for defects in workmanship, after which the customer
may typically extend the period covered by its warranty for an additional fee. We also typically provide a system output
performance warranty, separate from our standard solar panel product warranty, to customers that have subscribed to our post-
installation O&M services. The long warranty period and nature of the warranties create a risk of extensive warranty claims long
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after we have completed a project and recognized revenues. Warranty and product liability claims may also result from defects
or quality issues in certain technology and components (whether manufactured by us or third parties) that we incorporate into
our solar power systems, such as solar cells, panels, inverters, and microinverters, over which we may have little or no control.
See also “-Risks Related to Our Supply Chain-We will continue to be dependent on a limited number of third-party suppliers for
certain raw materials and components for our products, which could prevent us from delivering our products to our customers
within required timeframes and could in turn result in sales and installation delays, cancellations, penalty payments and loss of
market share.” While we generally pass through to our customers manufacturer warranties we receive from our suppliers, in some
circumstances, we may be responsible for repairing or replacing defective parts during our warranty period, often including those
covered by manufacturers’ warranties, or incur other non-warranty costs. If a manufacturer disputes or otherwise fails to honor
its warranty obligations, we may be required to incur substantial costs before we are compensated, if at all, by the manufacturer.
Furthermore, our warranties may exceed the period of any warranties from our suppliers covering components, such as third-
party solar cells, third-party panels and third-party inverters, included in our systems. In addition, manufacturer warranties may
not fully compensate us for losses associated with third-party claims caused by defects or quality issues in their products. For
example, most manufacturer warranties exclude certain losses that may result from a system component’s failure or defect, such
as the cost of de-installation, re-installation, shipping, lost electricity, lost renewable energy credits or other solar incentives,
personal injury, property damage, and other losses. In certain cases the direct warranty coverage we provide to our customers,
and therefore our financial exposure, may exceed our recourse available against cell, panel or other manufacturers for defects in
their products. In addition, in the event we seek recourse through warranties, we will also be dependent on the creditworthiness
and continued existence of the suppliers to our business. In the past, certain of our suppliers have entered bankruptcy and our
likelihood of a successful warranty claim against such suppliers is minimal.
Increases in the defect rate of SunPower or third-party products, including components, could cause us to increase the
amount of warranty reserves and have a corresponding material, negative impact on our results of operations. Further, potential
future product or component failures could cause us to incur substantial expense to repair or replace defective products or
components, and we have agreed in some circumstances to indemnify our customers and our distributors against liability from
some defects in our solar products. A successful indemnification claim against us could require us to make significant damage
payments. Repair and replacement costs, as well as successful indemnification claims, could materially and negatively impact our
financial condition and results of operations.
Like other retailers, distributors and manufacturers of products that are used by customers, we face an inherent risk of
exposure to product liability claims in the event that the use of the solar power products into which solar cells, solar panels, and
microinverters are incorporated results in injury, property damage or other damages. We may be subject to warranty and product
liability claims in the event that our solar power systems fail to perform as expected or if a failure of our solar power systems or
any component thereof results, or is alleged to result, in bodily injury, property damage or other damages. Since our solar power
products are electricity-producing devices, it is possible that our systems could result in injury, whether by product malfunctions,
defects, improper installation or other causes. In addition, since we only began selling our solar cells and solar panels in the
early 2000s and the products we are developing incorporate new technologies and use new installation methods, we cannot
predict the extent to which product liability claims may be brought against us in the future or the effect of any resulting negative
publicity on our business. Moreover, we may not have adequate resources to satisfy a successful claim against us. We rely on our
general liability insurance to cover product liability claims. A successful warranty or product liability claim against us that is not
covered by insurance or is in excess of our available insurance limits could require us to make significant payments of damages.
In addition, quality issues can have various other ramifications, including delays in the recognition of revenue, loss of revenue,
loss of future sales opportunities, increased costs associated with repairing or replacing products, and a negative impact on our
goodwill and reputation, any of which could adversely affect our business, operating results and financial condition.
Revenues from a limited number of customers and large projects are expected to continue to comprise a significant portion of our
total revenues and any decrease in revenues from those customers or projects, payment of liquidated damages, or an increase in
related expenses, could have a material adverse effect on our business, results of operations and financial condition.
Even though over the long term we expect our customer base and number of large projects to expand and our revenue
streams to diversify, a substantial portion of our revenues will continue to depend on sales to a limited number of customers
as well as construction of a limited number of large projects, and the loss or delay of sales to, or construction of, or inability to
collect from those customers or for those projects, or an increase in expenses (such as financing costs) related to any such large
projects, would have a significant negative impact on our business. In fiscal 2016, our top customer accounted for 15% of our
total revenue. These larger projects create concentrated operating and financial risks. The effect of recognizing revenue or other
financial measures on the sale of a larger project, or the failure to recognize revenue or other financial measures as anticipated in
a given reporting period because a project is not yet completed under applicable accounting rules by period end, may materially
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affect our financial results. In addition, if construction, warranty or operational challenges arise on a larger project, or if the
timing of such a project unexpectedly changes for other reasons, our financial results could be materially, adversely affected.
Our agreements for such projects may be cancelled or we may incur large liquidated damages if we fail to execute the projects
as planned, obtain certain approvals or consents by a specified time, meet certain product and project specifications, or if we
materially breach the governing agreements, or in the event of a customer’s or project entity’s bankruptcy, our customers may
seek to cancel or renegotiate the terms of current agreements or renewals. In addition, the failure by any significant customer
to make payments when due, whether due to liquidity issues, failure of anticipated government support or otherwise, could
materially adversely affect our business, results of operations and financial condition.
We do not typically maintain long-term agreements with our customers and accordingly we could lose customers without
warning, which could adversely affect our operating results.
Our product sales to residential dealers and components customers typically are not made under long-term agreements.
We often contract to construct or sell large projects with no assurance of repeat business from the same customers in the future.
Although we believe that cancellations on our purchase orders to date have been infrequent, our customers may cancel or
reschedule purchase orders with us on relatively short notice. Cancellations or rescheduling of customer orders could result in
the delay or loss of anticipated sales without allowing us sufficient time to reduce, or delay the incurrence of, our corresponding
inventory and operating expenses. In addition, changes in forecasts or the timing of orders from these or other customers expose
us to the risks of inventory shortages or excess inventory. These circumstances, in addition to the completion and non-repetition
of large projects, declining average selling prices, changes in the relative mix of sales of solar equipment versus solar project
installations, and the fact that our supply agreements are generally long-term in nature and many of our other operating costs
are fixed, could cause our operating results to fluctuate and may result in a material adverse effect in our business, results of
operations, and financial condition. In addition, since we rely partly on our network of international dealers for marketing and
other promotional programs, if our dealers fail to perform up to our standards, our operating results could be adversely affected.
Our business could be adversely affected by seasonal trends and construction cycles.
Our business is subject to significant industry-specific seasonal fluctuations. Our sales have historically reflected
these seasonal trends, with the largest percentage of our total revenues realized during the second half of each fiscal year.
There are various reasons for this seasonality, mostly related to economic incentives and weather patterns. For example,
in European countries with feed-in tariffs, the construction of solar power systems may be concentrated during the second
half of the calendar year, largely due to the annual reduction of the applicable minimum feed-in tariff and the fact that
the coldest winter months in the Northern Hemisphere are January through March. In the United States, many customers
make purchasing decisions towards the end of the year in order to take advantage of tax credits. In addition, sales in the
new home development market are often tied to construction market demands, which tend to follow national trends in
construction, including declining sales during cold weather months.
The competitive environment in which we operate often requires us to undertake customer obligations, which may turn out to be
costlier than anticipated and, in turn, materially and adversely affect our business, results of operations and financial condition.
We are often required, as a condition of financing or at the request of our end customer, to undertake certain
obligations such as:
•
•
•
•
•
•
system output performance warranties;
system maintenance;
penalty payments or customer termination rights if the system we are constructing is not commissioned within
specified timeframes or other construction milestones are not achieved;
guarantees of certain minimum residual value of the system at specified future dates;
system put-rights whereby we could be required to buy back a customer’s system at fair value on a future date if
certain minimum performance thresholds are not met; and
indemnification against losses customers may suffer as a result of reductions in benefits received under the solar
commercial investment tax credit (“ITC”) under Section 48(c) of the Internal Revenue Code of 1986, as amended
(the “Code”), and Treasury grant programs under Section 1603 of the American Recovery and Reinvestment Act
(the “Cash Grant”).
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Such financing arrangements and customer obligations involve complex accounting analyses and judgments regarding
the timing of revenue and expense recognition, and in certain situations these factors may require us to defer revenue or profit
recognition until projects are completed or until contingencies are resolved, which could adversely affect our revenues and profits
in a particular period.
Risks Related to Our Liquidity
We may be unable to generate sufficient cash flows or obtain access to external financing necessary to fund our operations
and make adequate capital investments as planned due to the general economic environment and the continued market
pressure driving down the average selling prices of our solar power products, among other factors.
To develop new products, support future growth, achieve operating efficiencies, and maintain product quality, we must
make significant capital investments in manufacturing technology, facilities and capital equipment, research and development,
and product and process technology. We also anticipate increased costs as we make advance payments for raw materials or pay to
procure such materials (especially polysilicon), increase our sales and marketing efforts, invest in joint ventures and acquisitions,
invest in our residential lease business, and continue our research and development. Our manufacturing and assembly activities
have required and will continue to require significant investment of capital and substantial engineering expenditures. In addition,
we expect to invest a significant amount of capital to develop solar power systems and plants for sale to customers. Developing
and constructing solar power plants requires significant time and substantial initial investments. The delayed disposition of
such projects, or the inability to realize the full anticipated value of such projects on disposition, could have a negative impact
on our liquidity. See under this section, “Risks Related to Our Operations - Project development or construction activities may
not be successful and we may make significant investments without first obtaining project financing, which could increase our
costs and impair our ability to recover our investments.” See also under this section, “Risks Related to Our Sales Channels - A
limited number of customers and large projects are expected to continue to comprise a significant portion of our revenues and any
decrease in revenues from those customers or projects, payment of liquidated damages, or an increase in related expenses, could
have a material adverse effect on our business, results of operations and financial condition.”
Our capital expenditures and use of working capital may be greater than we anticipate if we decide to make additional
investments in the development and construction of solar power plants, or if sales of power plants and associated receipt of
cash proceeds is delayed, or if we decide to accelerate increases in our manufacturing capacity internally or through capital
contributions to joint ventures. In addition, we could in the future make additional investments in certain of our joint ventures or
could guarantee certain financial obligations of our joint ventures, which could reduce our cash flows, increase our indebtedness
and expose us to the credit risk of our joint venture partners. In addition, if our financial results or operating plans deviate from
our current assumptions, we may not have sufficient resources to support our business plan. See under this section, “Risks
Related to Our Liquidity - We have a significant amount of debt outstanding. Our substantial indebtedness and other contractual
commitments could adversely affect our business, financial condition and results of operations, as well as our ability to meet our
payment obligations under our debentures and our other debt.”
Certain of our customers also require performance bonds issued by a bonding agency, or bank guarantees or letters
of credit issued by financial institutions, which are returned to us upon satisfaction of contractual requirements. If there is a
contractual dispute with the customer, the customer may withhold the security or make a draw under the security, which could
have an adverse impact on our liquidity. Our uncollateralized letter of credit facility with Deutsche Bank, as of January 1, 2017,
had an outstanding amount of $45.8 million. Our bilateral letter of credit agreements with The Bank of Tokyo-Mitsubishi UFJ,
Ltd. (“BTMU”), Credit Agricole, and HSBC Bank USA, National Association, which as of January 1, 2017 had an outstanding
amount of $244.8 million, are guaranteed by Total S.A. pursuant to the Credit Support Agreement between us and Total S.A.
dated June 29, 2016 (the “Credit Support Agreement”). Any draws under these uncollateralized facilities would require us to
immediately reimburse the bank for the drawn amount. A default under the Credit Support Agreement or the guaranteed letter of
credit facility, or the acceleration of our other indebtedness greater than $25 million, could cause Total S.A. to declare all amounts
due and payable to Total S.A. and direct the bank to cease issuing additional letters of credit on our behalf, which could have a
material adverse effect on our operations.
In addition, the Credit Support Agreement will terminate as of December 2018 by its terms, and we may be unable to
find adequate credit support in replacement, on acceptable terms or at all. In such case, our ability to obtain adequate amounts of
debt financing, through our letter of credit facility or otherwise, may be harmed.
We manage our working capital requirements and fund our committed capital expenditures, including the
development and construction of our planned solar power plants, through our current cash and cash equivalents, cash
generated from operations, and funds available under our revolving credit facilities with (i) Credit Agricole Corporate
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and Investment Bank (“Credit Agricole”) and (ii) Mizuho Bank Ltd. and Goldman Sachs Bank USA (the “Construction
Revolver”). On February 17, 2016, we entered into an amendment to the credit agreement with Credit Agricole, expanding
our available borrowings under the revolving credit facility to $300 million and adding a $200.0 million letter of credit
subfacility, subject to the satisfaction of certain conditions. As of January 1, 2017, $295.3 million remained undrawn
under our revolving credit facility with Credit Agricole, with the utilized portion of the facility pertaining to outstanding
letters of credit that are fully cash collateralized; however, we are currently not in compliance with the covenant for the
Credit Agricole credit facility that requires the ratio that our debt at the end of each quarter to our EBITDA for the last
twelve months, as defined, to not exceed 4.5 to 1. We are not in default with Credit Agricole; however, we may not draw
on the facility without collateralizing additional future borrowings with cash. We expect to not be in compliance with the
aforementioned financial ratio covenant for the Credit Agricole credit facility for at least the remainder of fiscal 2017,
which will affect the availability of borrowings under the line, if not remedied. As of January 1, 2017, we had $189.5
million available under the Construction Revolver.
The lenders under our credit facilities and holders of our debentures may also require us to repay our indebtedness to
them in the event that our obligations under other indebtedness or contracts in excess of the applicable threshold amount, are
accelerated and we fail to discharge such obligations. If our capital resources are insufficient to satisfy our liquidity requirements,
for example, due to cross acceleration of indebtedness, we may seek to sell additional equity securities or debt securities or obtain
other debt financings. Market conditions, however, could limit our ability to raise capital by issuing new equity or debt securities
on acceptable terms, and lenders may be unwilling to lend funds on acceptable terms. The sale of additional equity securities
or convertible debt securities may result in additional dilution to our stockholders. Additional debt would result in increased
expenses and could impose new restrictive covenants that may be different from those restrictions contained in the covenants
under certain of our current debt agreements and debentures. Financing arrangements, including project financing for our solar
power plants and letters of credit facilities, may not be available to us, or may not be available in amounts or on terms acceptable
to us. If additional financing is not available, we may be forced to seek to sell assets or reduce or delay capital investments, any of
which could adversely affect our business, results of operations and financial condition.
If we cannot generate sufficient cash flows, find other sources of capital to fund our operations and solar power plant
projects, make adequate capital investments to remain technologically and price competitive, or provide bonding or letters of
credit required by our projects, we may need to sell additional equity securities or debt securities, or obtain other debt financings.
If adequate funds from these or and other sources are not available on acceptable terms, our ability to fund our operations,
develop and construct solar power plants, develop and expand our manufacturing operations and distribution network, maintain
our research and development efforts, provide collateral for our projects, meet our debt service obligations, or otherwise respond
to competitive pressures would be significantly impaired. Our inability to do any of the foregoing could have a material adverse
effect on our business, results of operations and financial condition.
We have a significant amount of debt outstanding. Our substantial indebtedness and other contractual commitments could
adversely affect our business, financial condition, and results of operations, as well as our ability to meet our payment
obligations under the debentures and our other debt.
We currently have a significant amount of debt and debt service requirements. As of January 1, 2017, we had
approximately $1.6 billion of outstanding debt for borrowed money.
This level of debt could have material consequences on our future operations, including:
• making it more difficult for us to meet our payment and other obligations under the debentures and our other
outstanding debt;
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resulting in an event of default if we fail to comply with the financial and other restrictive covenants contained in
our debt agreements (with certain covenants becoming more restrictive over time), which event of default could
result in all or a significant portion of our debt becoming immediately due and payable;
reducing the availability of our cash flows to fund working capital, capital expenditures, project development,
acquisitions and other general corporate purposes, and limiting our ability to obtain additional financing for
these purposes;
subjecting us to the risk of increased sensitivity to interest rate increases on our indebtedness with variable interest
rates, including borrowings under our credit agreement with Credit Agricole;
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limiting our flexibility in planning for, or reacting to, and increasing our vulnerability to, changes in our business,
the industry in which we operate and the general economy; and
placing us at a competitive disadvantage compared with our competitors that have less debt or have lower
leverage ratios.
In the event, expected or unexpected, that any of our joint ventures is consolidated with our financial statements, such
consolidation could significantly increase our indebtedness. See also under this section, “Risks Related to Our Operations - We
may in the future be required to consolidate the assets, liabilities and financial results of certain of our existing or future joint
ventures, which could have an adverse impact on our financial position, gross margin and operating results.”
Our ability to meet our payment and other obligations under our debt instruments depends on our ability to generate
significant cash flows, which, to some extent, is subject to general economic, financial, competitive, legislative and regulatory
factors as well as other factors that are beyond our control. We cannot assure you that our business will generate cash flows from
operations, or that future borrowings will be available to us under our existing or any future credit facilities or otherwise, in an
amount sufficient to enable us to meet our payment obligations under our debentures and our other debt and to fund other liquidity
needs. If we are unable to generate sufficient cash flows to service our debt obligations, we may need to refinance or restructure
our debt, including our debentures, sell assets, reduce or delay capital investments, or seek to raise additional capital. There can be
no assurance that we will be successful in any refinancing effort.
Although we are currently in compliance with the financial and other covenants contained in our debt agreements (except
for the financial covenant for the Credit Agricole credit facility discussed above), we cannot assure you that we will be able to
remain in compliance with such covenants in the future. We may not be able to cure future violations or obtain waivers from our
creditors in order to avoid a default. An event of default under any of our debt agreements could have a material adverse effect on
our liquidity, financial condition, and results of operations.
Our current tax holidays in the Philippines, Malaysia, and Switzerland have expired or will expire within the next several
years, and other related international tax developments could adversely affect our results.
We benefit from income tax holiday incentives in the Philippines in accordance with our subsidiary’s registration
with the Philippine Economic Zone Authority (“PEZA”), which provide that we pay no income tax in the Philippines for
those operations subject to the ruling. Tax savings associated with the Philippines tax holidays were approximately $10.0
million, $21.2 million, and $8.3 million in fiscal 2016, 2015, and 2014, respectively. Our income tax holidays were granted as
manufacturing lines were placed in service and have expired within this fiscal year. We have applied for extensions and renewals
upon expiration; however, while we expect all approvals to be granted, we can offer no assurance that they will be. We believe
that if our Philippine tax holidays are not extended or renewed, (a) gross income attributable to activities covered by our PEZA
registrations will be taxed at a 5% preferential rate, and (b) our Philippine net income attributable to all other activities will be
taxed at the statutory Philippine corporate income tax rate, currently 30%. An increase in our tax liability could materially and
adversely affect our business, financial condition and results of operations.
We have an auxiliary company ruling in Switzerland where we sell our solar power products. The auxiliary company
ruling confirmed our entitlement to a reduced effective Swiss tax rate of approximately 11.5%. Tax savings associated with
this status were approximately $1.9 million, $1.6 million, and $3.5 million in fiscal 2016, 2015, and 2014, respectively. The
current ruling expires in 2019. If the ruling is not renewed in 2019, Swiss income would be taxable at the full Swiss tax rate of
approximately 24.2%.
We also benefit from a tax holiday granted by the Malaysian government to our former joint venture AUOSP (now
our wholly-owned subsidiary, SunPower Malaysia Manufacturing Sdn. Bhd.) subject to certain hiring, capital spending, and
manufacturing requirements. We postponed the construction of an additional manufacturing facility (“Fab 3B”), which resulted
in failure to meet certain hiring conditions required to continue to benefit from the tax ruling. We have successfully negotiated
with the Malaysian government to modify the requirements of the tax holiday; we are currently in compliance with the modified
requirements of the tax holiday and we expect to remain in compliance with the updated requirements. In addition, we are
currently awaiting a ruling for the extension of our tax holiday for a second five-year term (through June 30, 2021). Although we
currently expect an extension to be granted, should we fail to meet certain requirements in the future and are unable to renegotiate
the tax ruling further, we could be retroactively and prospectively subject to statutory tax rates and repayment of certain incentives
which could negatively impact our business.
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More generally, with the finalization of specific actions contained within the Organization for Economic Development
and Cooperation’s (“OECD”) Base Erosion and Profit Shifting (“BEPS”) study (“Actions”), many OECD countries have
acknowledged their intent to implement the Actions and update their local tax regulations. Among the considerations required by
the Actions is the need for appropriate local business operational substance to justify any locally granted tax incentives, such as
those described above, and that the incentives are not determined to constitute “state aid” which would invalidate the incentive.
If we fail to maintain sufficient operational substance or if the countries determine the incentive regimes do not conform with the
BEPS regulations being considered for implementation, adverse material economic impacts may result.
A change in our effective tax rate can have a significant adverse impact on our business, and an adverse outcome resulting
from examination of our income or other tax returns could adversely affect our results.
A number of factors may adversely affect our future effective tax rates, such as the jurisdictions in which our profits are
determined to be earned and taxed; changes in the valuation of our deferred tax assets and liabilities; adjustments to estimated
taxes upon finalization of various tax returns; adjustments to our interpretation of transfer pricing standards; changes in
available tax credits, grants and other incentives; changes in stock-based compensation expense; the availability of loss or credit
carryforwards to offset taxable income; changes in tax laws or the interpretation of such tax laws (for example, proposals for
fundamental U.S. international tax reform); changes in U.S. generally accepted accounting principles (“U.S. GAAP”); expiration
or the inability to renew tax rulings or tax holiday incentives; and the repatriation of non-U.S. earnings for which we have not
previously provided for U.S. taxes. A change in our effective tax rate due to any of these factors may adversely affect our future
results from operations.
Significant judgment is required to determine the recognition and measurement attributes prescribed in the accounting
guidance for uncertainty in income taxes. The accounting guidance for uncertainty in income taxes applies to all income tax
positions, including the potential recovery of previously paid taxes, which if settled unfavorably could adversely affect our
provision for income taxes. In addition, we are subject to examination of our income tax returns by various tax authorities. We
regularly assess the likelihood of adverse outcomes resulting from any examination to determine the adequacy of our provision
for income taxes. An adverse determination of an examination could have an adverse effect on our operating results and financial
condition. See “Item 8. Financial Statements and Supplementary Data–Notes to Consolidated Financial Statements–Note 12.
Derivative Financial Instruments.”
Additionally, longstanding international tax norms that determine each country’s jurisdiction to tax cross-border
international trade are evolving (for example, those relating to the Actions currently being undertaken by the OECD and similar
actions by the G8 and G20) and the change in Administration in the U.S. may lead to further changes in (or departure from) these
norms. As these and other tax laws and related regulations change, our financial results could be materially impacted. Given the
unpredictability of these possible changes and their potential interdependency, it is very difficult to assess whether the overall
effect of such potential tax changes would be cumulatively positive or negative for our earnings and cash flow, but such changes
could adversely impact our financial results.
Our credit agreements contain covenant restrictions that may limit our ability to operate our business.
We may be unable to respond to changes in business and economic conditions, engage in transactions that might
otherwise be beneficial to us, or obtain additional financing, because our debt agreements, our Credit Support Agreement with
Total S.A., our Affiliation Agreement with Total, foreign exchange hedging agreements and equity derivative agreements contain,
and any of our other future similar agreements may contain, covenant restrictions that limit our ability to, among other things:
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incur additional debt, assume obligations in connection with letters of credit, or issue guarantees;
create liens;
• make certain investments or acquisitions;
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enter into transactions with our affiliates;
sell certain assets;
redeem capital stock or make other restricted payments;
declare or pay dividends or make other distributions to stockholders; and
• merge or consolidate with any person.
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Our ability to comply with these covenants is dependent on our future performance, which will be subject to many
factors, some of which are beyond our control, including prevailing economic conditions. In addition, our failure to comply with
these covenants could result in a default under our other debt instruments, which could permit the holders to accelerate such
debt. If any of our debt is accelerated, we may not have sufficient funds available to repay such debt, which could materially and
negatively affect our financial condition and results of operations.
Risks Related to Our Supply Chain
We will continue to be dependent on a limited number of third-party suppliers for certain raw materials and components for
our products, which could prevent us from delivering our products to our customers within required timeframes and could in
turn result in sales and installation delays, cancellations, penalty payments, and loss of market share.
We rely on a limited number of third-party suppliers, including our joint ventures, for certain raw materials and
components for our solar cells, panels and power systems, such as polysilicon, inverters and module material. If we fail to
maintain our relationships with our suppliers or to build relationships with new suppliers, or if suppliers are unable to meet
demand through industry consolidation, we may be unable to manufacture our products or our products may be available only at a
higher cost or after a long delay.
To the extent the processes that our suppliers use to manufacture components are proprietary, we may be unable to obtain
comparable components from alternative suppliers. In addition, the financial markets could limit our suppliers’ ability to raise
capital if required to expand their production or satisfy their operating capital requirements. As a result, they could be unable to
supply necessary raw materials, inventory and capital equipment which we would require to support our planned sales operations
to us, which would in turn negatively impact our sales volume, profitability, and cash flows. The failure of a supplier to supply
raw materials or components in a timely manner, or to supply raw materials or components that meet our quality, quantity and
cost requirements, could impair our ability to manufacture our products or could increase our cost of production. If we cannot
obtain substitute materials or components on a timely basis or on acceptable terms, we could be prevented from delivering our
products to our customers within required timeframes.
Any such delays could result in sales and installation delays, cancellations, penalty payments or loss of revenue and
market share, any of which could have a material adverse effect on our business, results of operations, and financial condition.
Our long-term, firm commitment supply agreements could result in excess or insufficient inventory, place us at a competitive
disadvantage on pricing, or lead to disputes, each of which could impair our ability to meet our cost reduction roadmap, and in
some circumstances may force us to take a significant accounting charge.
If our supply agreements provide insufficient inventory to meet customer demand, or if our suppliers are unable
or unwilling to provide us with the contracted quantities, we may be forced to purchase additional supply at market prices,
which could be greater than expected and could materially and adversely affect our results of operations. Due to the industry-
wide shortage of polysilicon experienced before 2011, we purchased polysilicon that we resold to third-party ingot and wafer
manufacturers who deliver wafers to us that we then use in the manufacturing of our solar cells. Without sufficient polysilicon,
some of those ingot and wafer manufacturers would not have been able to produce the wafers on which we rely. We have
historically entered into multiple long-term fixed supply agreements for periods of up to 10 years to match our estimated
customer demand forecasts and growth strategy for the next several years. The long-term nature of these agreements, which often
provide for fixed or inflation-adjusted pricing, may prevent us from benefiting from decreasing polysilicon costs, has, and may
continue to, cause us to pay more at unfavorable payment terms than the current market prices and payment terms available to
our competitors, and has in the past, and could again in the future, cause us to record an impairment. In the event that we have
inventory in excess of short-term requirements of polysilicon, in order to reduce inventory or improve working capital, we may,
and sometimes do, elect to sell such inventory in the marketplace at prices below our purchase price, thereby incurring a loss.
Additionally, because certain of these agreements are “take or pay,” if our demand for polysilicon from these suppliers
were to decrease in the future, we could be required to purchase polysilicon that we do not need, resulting in either storage
costs or payment for polysilicon we nevertheless choose not to accept from such suppliers. Further, we face significant, specific
counterparty risk under long-term supply agreements when dealing with suppliers without a long, stable production and financial
history. In the event any such supplier experiences financial difficulties or goes into bankruptcy, it could be difficult or impossible,
or may require substantial time and expense, for us to recover any or all of our prepayments. Any of the foregoing could
materially harm our financial condition and results of operations.
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We utilize construction loans, term loans, sale-leaseback, preferred equity, and other financing structures to fund acquisition,
development, construction, and expansion of photovoltaic power plant projects in the future, and such funds may or may not
continue to be available as required to further our plans. Furthermore, such project financing increases our consolidated
debt and may be structurally senior to other debt such as our Credit Agricole revolving credit facility and outstanding
convertible debentures.
Certain of our subsidiaries and other affiliates are separate and distinct legal entities and, except in limited
circumstances, have no obligation to pay any amounts due with respect to our indebtedness or indebtedness of other
subsidiaries or affiliates, and do not guarantee the payment of interest on or principal of such indebtedness. Such subsidiaries
may borrow funds to finance particular projects. In the event of a default under a project financing which we do not cure, the
lenders or lessors generally have rights to the power plant project and related assets. In the event of foreclosure after a default,
we may not be able to retain any interest in the power plant project or other collateral supporting such financing. In addition,
any such default or foreclosure may trigger cross default provisions in our other financing agreements, including our corporate
debt obligations, which could materially and adversely affect our results of operations. In the event of our bankruptcy,
liquidation or reorganization (or the bankruptcy, liquidation or reorganization of a subsidiary or affiliate), such subsidiaries’ or
other affiliates’ creditors, including trade creditors and holders of debt issued by such subsidiaries or affiliates, will generally
be entitled to payment of their claims from the assets of those subsidiaries or affiliates before any assets are made available
for distribution to us or the holders of our indebtedness. As a result, holders of our corporate indebtedness will be effectively
subordinated to all present and future debts and other liabilities (including trade payables) of certain of our subsidiaries. As
of January 1, 2017, our subsidiaries had approximately $427.9 million in subsidiary project financing, which is effectively
senior to our corporate debt, such as our Credit Agricole revolving credit facility, our 4.00% debentures due 2023, our 0.875%
debentures due 2021, and our 0.75% debentures due 2018.
Risks Related to Our Operations
We have significant international activities and customers, and plan to continue these efforts, which subject us to additional
business risks, including logistical complexity and political instability.
A substantial portion of our sales are made to customers outside of the United States, and a substantial portion of our
supply agreements are with supply and equipment vendors located outside of the United States. We have solar cell and module
production lines located at our manufacturing facilities in the Philippines, Mexico, France, and Malaysia.
Risks we face in conducting business internationally include:
• multiple, conflicting and changing laws and regulations, export and import restrictions, employment laws,
environmental protection, regulatory requirements, international trade agreements, and other government approvals,
permits and licenses;
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difficulties and costs in staffing and managing foreign operations as well as cultural differences;
potentially adverse tax consequences associated with our permanent establishment of operations in
multiple countries;
relatively uncertain legal systems, including potentially limited protection for intellectual property rights, and laws,
changes in the governmental incentives we rely on, regulations and policies which impose additional restrictions on
the ability of foreign companies to conduct business in certain countries or otherwise place them at a competitive
disadvantage in relation to domestic companies;
taxation by the U.S. of the repatriation of non-U.S. earnings taxed at rates lower than the U.S. statutory effective
tax rate;
inadequate local infrastructure and developing telecommunications infrastructures;
financial risks, such as longer sales and payment cycles and greater difficulty collecting accounts receivable;
currency fluctuations, government-fixed foreign exchange rates, the effects of currency hedging activity, and the
potential inability to hedge currency fluctuations;
political and economic instability, including wars, acts of terrorism, political unrest, boycotts, curtailments of trade
and other business restrictions;
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trade barriers such as export requirements, tariffs, taxes and other restrictions and expenses, which could increase
the prices of our products and make us less competitive in some countries; and
liabilities associated with compliance with laws (for example, the Foreign Corrupt Practices Act in the United States
and similar laws outside of the United States).
We have a complex organizational structure involving many entities globally. This increases the potential impact
of adverse changes in laws, rules and regulations affecting the free flow of goods and personnel, and therefore heightens
some of the risks noted above. Further, this structure requires us to effectively manage our international inventory
and warehouses. If we fail to do so, our shipping movements may not map with product demand and flow. Unsettled
intercompany balances between entities could result, if changes in law, regulations or related interpretations occur, in
adverse tax or other consequences affecting our capital structure, intercompany interest rates and legal structure. If we are
unable to successfully manage any such risks, any one or more could materially and negatively affect our business, financial
condition and results of operations.
If we experience interruptions in the operation of our solar cell production lines, or we are not successful in
integrating and continuing to operate our newly acquired manufacturing subsidiary (the former joint venture, AUOSP,
in which we acquired our partner’s interest in fiscal 2016), our revenue and results of operations may be materially and
adversely affected.
If our solar cell or module production lines suffer problems that cause downtime, we might be unable to meet our
production targets, which would adversely affect our business. Our manufacturing activities require significant management
attention, a significant capital investment and substantial engineering expenditures.
In September 2016 we completed the acquisition of 100% of the voting equity interest in our former joint
venture AUOSP (now our wholly owned subsidiary). The former AUOSP constructed a manufacturing facility in Malaysia,
which we call Fab 3. The success of our manufacturing operations in Malaysia and elsewhere is subject to significant
risks including:
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cost overruns, delays, supply shortages, equipment problems and other operating difficulties;
custom-built equipment may take longer or cost more to engineer than planned and may never operate as designed;
incorporating first-time equipment designs and technology improvements, which we expect to lower unit capital and
operating costs, but which may not be successful;
our ability to obtain or maintain third party financing to fund capital requirements;
difficulties in maintaining or improving our historical yields and manufacturing efficiencies;
difficulties in protecting our intellectual property and obtaining rights to intellectual property developed by the
former AUOSP or other manufacturing partners;
difficulties in hiring and retaining key technical, management, and other personnel;
difficulties in successfully or timely integrating the former AUOSP’s operations with our own, or implementing IT
infrastructure or an effective control environment; and
potential inability to obtain, or obtain in a timely manner, financing, or approvals from governmental authorities
for operations.
Any of these or similar difficulties may unexpectedly delay or increase costs of our supply of solar cells.
If we do not achieve satisfactory yields or quality in manufacturing our solar products, our sales could decrease and our
relationships with our customers and our reputation may be harmed.
The manufacture of solar cells is a highly complex process. Minor deviations in the manufacturing process can cause
substantial decreases in yield and in some cases, cause production to be suspended or yield no output. We have from time to
time experienced lower than anticipated manufacturing yields. As we expand our manufacturing capacity and qualify additional
suppliers, we may initially experience lower yields. If we do not achieve planned yields, our product costs could increase,
and product availability would decrease resulting in lower revenues than expected. In addition, in the process of transforming
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polysilicon into ingots, a significant portion of the polysilicon is removed in the process. In circumstances where we provide the
polysilicon, if our suppliers do not have very strong controls in place to ensure maximum recovery and utilization, our economic
yield can be less than anticipated, which would increase the cost of raw materials to us.
Additionally, products as complex as ours may contain undetected errors or defects, especially when first introduced.
For example, our solar cells or solar panels may contain defects that are not detected until after they are shipped or are installed
because we cannot test for all possible scenarios. These defects could cause us to incur significant warranty, non-warranty, and
re-engineering costs, divert the attention of our engineering personnel from product development efforts, and significantly affect
our customer relations and business reputation. If we deliver solar products with errors or defects, including cells or panels of
third-party manufacturers, or if there is a perception that such solar products contain errors or defects, our credibility and the
market acceptance and sales of our products could be harmed. In addition, some of our arrangements with customers include
termination or put rights for non-performance. In certain limited cases, we could incur liquidated damages or even be required to
buy back a customer’s system at fair value on specified future dates if certain minimum performance thresholds are not met.
A change in our 1603 Treasury cash grant proceeds or solar investment tax credits could adversely affect our business,
revenues, margins, results of operations and cash flows.
We have incorporated into our financial planning and agreements with our customers certain assumptions regarding the
future level of U.S. tax incentives, including the ITC and Cash Grant, which is administered by the U.S. Treasury Department
(“Treasury”) and provides cash grant payments in lieu of the ITC. The ITC and Cash Grant allow qualified applicants to claim
an amount equal to 30% of the eligible cost basis for qualifying solar energy property. We hold projects and have sold projects to
certain customers based on certain underlying assumptions regarding the ITC and Cash Grant, including for CVSR and Solar Star.
We have also accounted for certain projects and programs in our business using the same assumptions.
Owners of our qualifying projects and our residential lease program have applied or will apply for the ITC, and have
applied for the Cash Grant. We have structured the tax incentive applications, both in timing and amount, to be in accordance
with the guidance provided by Treasury and Internal Revenue Service (“IRS”). Any changes to the Treasury or IRS guidance
which we relied upon in structuring our projects, failure to comply with the requirements, including the safe harbor protocols,
lower levels of incentives granted, or changes in assumptions including the estimated residual values and the estimated
fair market value of financed and installed systems for the purposes of Cash Grant and ITC applications, could materially
and adversely affect our business and results of operations. While all grants related to our projects have been fully paid by
Treasury, if the IRS or Treasury disagrees, as a result of any future review or audit, with the fair market value of, or other
assumptions concerning, our solar projects or systems that we have constructed or that we construct in the future, including the
systems for which tax incentives have already been paid, it could have a material adverse effect on our business and financial
condition. We also have obligations to indemnify certain of our customers for the loss of tax incentives to such customers. We
may have to recognize impairments or lower margins than initially anticipated for certain of our projects or our residential
lease program. Additionally, if the amount or timing of the Cash Grant or ITC payments received varies from what we have
projected, our revenues, margins and cash flows could be adversely affected and we may have to recognize losses, which
would have a material adverse effect on our business, results of operations and financial condition.
There are continuing developments in the interpretation and application of how companies should calculate their
eligibility and level of Cash Grant and ITC incentives. There have been recent cases in the U.S. district courts that challenge
the criteria for a true lease, which could impact whether the structure of our residential lease program qualifies under the Cash
Grant and ITC. Additionally, the Office of the Inspector General of the Treasury has issued subpoenas to a number of significant
participants in the rooftop solar energy installation industry. The Inspector General is working with the Civil Division of the
U.S. Department of Justice to investigate the administration and implementation of the Cash Grant program, including potential
misrepresentations concerning the fair market value of certain solar power systems submitted for Cash Grant. While we have not
received a subpoena, we could be asked to participate in the information gathering process. The results of the current investigation
could affect the underlying assumption used by the solar industry, including us, in our Cash Grant and ITC applications, which
could reduce eligibility and level of incentives and could adversely affect our results of operations and cash flows.
We were notified by an investor in Section 1603 residential inverted lease structures of an IRS examination of such
investor’s income tax filings. Under this structure, we transferred the cash grants to the investor pursuant to the 1603 program
regulations. If the IRS redetermines the amount of the cash grant awards, the investor may be required to make corresponding
adjustments to its taxable income or other changes. Such adjustments may provide us with an indication of IRS practice regarding
the valuation of residential leased solar assets, and we would consider such adjustments in our accounting for our indemnification
obligations to investors who receive cash grants and investment tax credits.
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We obtain certain of our capital equipment used in our manufacturing process from sole suppliers and if this equipment
is damaged or otherwise unavailable, our ability to deliver products on time will suffer, which in turn could result in order
cancellations and loss of revenue.
Some of the capital equipment used in the manufacture of our solar power products has been developed and made
specifically for us, is not readily available from multiple vendors and would be difficult to repair or replace if it were to become
damaged or stop working. If any of these suppliers were to experience financial difficulties or go out of business, or if there were
any damage to or a breakdown of our manufacturing equipment, our business would suffer. In addition, a supplier’s failure to supply
this equipment in a timely manner, with adequate quality and on terms acceptable to us, could delay our future capacity expansion or
manufacturing process improvements and otherwise disrupt our production schedule or increase our costs of production.
Project development or construction activities may not be successful, and we may make significant investments without first
obtaining project financing, which could increase our costs and impair our ability to recover our investments.
The development and construction of solar power electric generation facilities and other energy infrastructure projects
involve numerous risks. We may be required to spend significant sums for preliminary engineering, permitting, legal, and other
expenses before we can determine whether a project is feasible, economically attractive or capable of being built. In addition, we
will often choose to bear the costs of such efforts prior to obtaining project financing, prior to getting final regulatory approval,
and prior to our final sale to a customer, if any.
Successful completion of a particular project may be adversely affected by numerous factors, including:
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failures or delays in obtaining desired or necessary land rights, including ownership, leases and/or easements;
failures or delays in obtaining necessary permits, licenses or other governmental support or approvals, or in
overcoming objections from members of the public or adjoining land owners;
uncertainties relating to land costs for projects;
unforeseen engineering problems;
access to available transmission for electricity generated by our solar power plants;
construction delays and contractor performance shortfalls;
• work stoppages or labor disruptions and compliance with labor regulations;
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cost over-runs;
availability of products and components from suppliers;
adverse weather conditions;
environmental, archaeological and geological conditions; and
availability of construction and permanent financing.
If we are unable to complete the development of a solar power plant, or fail to meet one or more agreed target
construction milestone dates, we may be subject to liquidated damages and/or penalties under the EPC agreement or other
agreements relating to the power plant, and we typically will not be able to recover our investment in the project. We expect to
invest a significant amount of capital to develop projects initially owned by us or ultimately owned by third parties. If we are
unable to complete the development of a solar power project, we may write-down or write-off some or all of these capitalized
investments, which would have an adverse impact on our net income in the period in which the loss is recognized.
If we cannot offer residential lease customers an attractive value proposition due to an inability to continue to monetize tax
benefits in connection with our residential lease arrangements, an inability to obtain financing for our residential lease
program, challenges implementing our third-party ownership model in new jurisdictions, declining costs of retail electricity
or otherwise, we may be unable to continue to increase the size of our residential lease program, which could have a material,
adverse effect on our business, results of operations, and financial condition.
Our residential lease program has been eligible for the ITC and Cash Grant. We have relied on, and expect to continue
to rely on, financing structures that monetize a substantial portion of those benefits. If we were unable to continue to monetize
the tax benefits in our financing structures or such tax benefits were reduced or eliminated, we might be unable to provide
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financing or pricing that is attractive to our customers. Under current law, the ITC will be reduced from approximately 30%
of the cost of the solar system to approximately 26% for solar systems placed into service after December 31, 2019 and then
further reduced to approximately 22% for solar systems placed into service after December 31, 2020 before being reduced
permanently to 10% for commercial projects and 0% for residential projects. In addition, Cash Grants are no longer available
for new solar systems.
Changes in existing law and interpretations by the IRS, Treasury and the courts could reduce the willingness of financing
partners to invest in funds associated with our residential lease program. Additionally, benefits under the Cash Grant and ITC
programs are tied, in part, to the fair market value of our systems, as ultimately determined by the federal agency administering
the benefit program. This means that, in connection with implementing financing structures that monetize such benefits, we need
to, among other things, assess the fair market value of our systems in order to arrive at an estimate of the amount of tax benefit
expected to be derived from the benefit programs. We incorporate third-party valuation reports that we believe to be reliable
into our methodology for assessing the fair market value of our systems, but these reports or other elements of our methodology
may cause our fair market value estimates to differ from those ultimately determined by the federal agency administering the
applicable benefit program. If the amount or timing of Cash Grant payments or ITC received in connection with our residential
lease program varies from what we have projected, due to discrepancies in our fair value assessments or otherwise, our revenues,
cash flows and margins could be adversely affected.
Additionally, if any of our financing partners that currently provide financing for our solar systems decide not to continue
to provide financing due to general market conditions, changes in tax benefits associated with our solar systems, concerns about
our business or prospects or any other reason, or if they materially change the terms under which they are willing to provide
future financing, we will need to identify new financing partners and negotiate new financing terms.
See also “Risks Related to Our Supply Chain - A change in our anticipated 1603 Treasury cash grant proceeds or solar
investment tax credit could adversely affect our business, revenues, margins, results of operations and cash flows.”
We have to quickly build infrastructure to support our residential lease program, and any failure or delay in implementing
the necessary processes and infrastructure could adversely affect our financial results. We establish credit approval limits based
on the credit quality of our customers. We may be unable to collect rent payments from our residential lease customers in the
event they enter into bankruptcy or otherwise fail to make payments when due. If we experience higher customer default rates
than we currently experience or if we lower credit rating requirements for new customers, it could be more difficult or costly to
attract future financing. See also “Risks Related to Our Sales Channels - The execution of our growth strategy is dependent upon
the continued availability of third-party financing arrangements for our solar power plants, our residential lease program and our
customers, and is affected by general economic conditions.”
We make certain assumptions in accounting for our residential lease program, including, among others, assumptions
in accounting for our residual value of the leased systems. As our residential lease program grows, if the residual value of
leased systems does not materialize as assumed, it will adversely affect our results of operations. At the end of the term of the
lease, our customers have the option to extend the lease and certain of those customers may either purchase the leased systems
at fair market value or return them to us. Should there be a large number of returns, we may incur de-installation costs in
excess of amounts reserved.
We believe that, as with our other customers, retail electricity prices factor significantly into the value proposition
of our products for our residential lease customers. If prices for retail electricity or electricity from other renewable sources
decrease, our ability to offer competitive pricing in our residential lease program could be jeopardized because such
decreases would make the purchase of our solar systems or the purchase of energy under our lease agreements and PPAs less
economically attractive.
Our leases are third-party ownership arrangements. Sales of electricity by third parties face regulatory challenges
in some states and jurisdictions. Other challenges pertain to whether third-party owned systems qualify for the same levels
of rebates or other non-tax incentives available for customer-owned solar energy systems. Reductions in, or eliminations
of, this treatment of these third-party arrangements could reduce demand for our residential lease program. As we look to
extend the third party ownership model outside of the United States, we will be faced with the same risks and uncertainties
we have in the United States. Our growth outside of the United States could depend on our ability to expand the third party
ownership model, and our failure to successfully implement a third-party ownership model globally could adversely affect
our financial results.
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We act as the general contractor for many of our customers in connection with the installations of our solar power systems
and are subject to risks associated with construction, cost overruns, delays and other contingencies tied to performance bonds
and letters of credit, or other required credit and liquidity support guarantees, any of which could have a material adverse
effect on our business and results of operations.
We act as the general contractor for many of our customers in connection with the installation of our solar power
systems. Some customers require performance bonds issued by a bonding agency or letters of credit issued by financial
institutions, or may require other forms of liquidity support. Due to the general performance risk inherent in construction
activities, it has become increasingly difficult recently to attain suitable bonding agencies willing to provide performance
bonding. Obtaining letters of credit may require collateral. In the event we are unable to obtain bonding or sufficient letters of
credit or other liquidity support, we will be unable to bid on, or enter into, sales contracts requiring such bonding.
Almost all of our EPC contracts are fixed price contracts. We attempt to estimate all essential costs at the time of entering
into the EPC contract for a particular project, and these are reflected in the overall price that we charge our customers for the
project. These cost estimates are preliminary and may or may not be covered by contracts between us or the subcontractors,
suppliers, and any other parties that may become necessary to complete the project. In addition, we require qualified, licensed
subcontractors to install most of our systems. Thus, if the cost of materials or skilled labor were to rise dramatically, or if
financing costs were to increase, our operating results could be adversely affected.
In addition, the contracts with some of our larger customers require that we would be obligated to pay substantial
penalty payments for each day or other period beyond an agreed target date that a solar installation for any such customer is not
completed, up to and including the return of the entire project sale price. This is particularly true in Europe, where long-term,
fixed feed-in tariffs available to investors are typically set during a prescribed period of project completion, but the fixed amount
declines over time for projects completed in subsequent periods. We face material financial penalties in the event we fail to meet
the completion deadlines, including but not limited to a full refund of the contract price paid by the customers. In certain cases
we do not control all of the events which could give rise to these penalties, such as reliance on the local utility to timely complete
electrical substation construction.
Furthermore, investors often require that the solar power system generate specified levels of electricity in order to
maintain their investment returns, allocating substantial risk and financial penalties to us if those levels are not achieved, up to
and including the return of the entire project sale price. Also, our customers often require protections in the form of conditional
payments, payment retentions or holdbacks, and similar arrangements that condition its future payments on performance. Delays
in solar panel or other supply shipments, other construction delays, unexpected performance problems in electricity generation or
other events could cause us to fail to meet these performance criteria, resulting in unanticipated and severe revenue and earnings
losses and financial penalties. Construction delays are often caused by inclement weather, failure to timely receive necessary
approvals and permits, or delays in obtaining necessary solar panels, inverters or other materials. Additionally, we sometimes
purchase land in connection with project development and assume the risk of project completion. All such risks could have a
material adverse effect on our business and results of operations.
Acquisitions of other companies, project development pipelines and other assets, or investments in joint ventures with
other companies could materially and adversely affect our financial condition and results of operations, and dilute our
stockholders’ equity.
To expand our business and maintain our competitive position, we have acquired a number of other companies and
entered into several joint ventures over the past several years, including our 8point3 joint venture with First Solar, our acquisitions
of Cogenra Solar, Inc. and Solaire Generation, Inc. in fiscal 2015, and our acquisition of 100% of the equity voting interest in
AUOSP in fiscal 2016. In the future, we may acquire additional companies, project pipelines, products, or technologies or enter
into joint ventures or other strategic initiatives.
Acquisitions and joint ventures involve a number of risks that could harm our business and result in the acquired
business or joint venture not performing as expected, including:
•
•
insufficient experience with technologies and markets in which the acquired business or joint venture is involved,
which may be necessary to successfully operate and/or integrate the business or the joint venture;
problems integrating the acquired operations, personnel, IT infrastructure, technologies or products with the existing
business and products;
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•
•
•
•
•
•
•
•
•
•
diversion of management time and attention from the core business to the acquired business or joint venture;
potential failure to retain or hire key technical, management, sales and other personnel of the acquired business or
joint venture;
difficulties in retaining or building relationships with suppliers and customers of the acquired business or joint
venture, particularly where such customers or suppliers compete with us;
potential failure of the due diligence processes to identify significant issues with product quality and development or
legal and financial liabilities, among other things;
potential inability to obtain, or obtain in a timely manner, approvals from governmental authorities or work councils,
which could delay or prevent acquisitions, delay our ability to achieve synergies, or our successful operation of
acquired companies or joint ventures;
potential necessity to re-apply for permits of acquired projects;
problems managing joint ventures with our partners, meeting capital requirements for expansion, potential litigation
with joint venture partners and reliance upon joint ventures which we do not control; for example, our ability to
effectively manage 8point3 Energy Partners with First Solar;
differences in philosophy, strategy or goals with our joint venture partners;
subsequent impairment of the acquired assets, including intangible assets; and
assumption of liabilities including, but not limited to, lawsuits, tax examinations, warranty issues, environmental
matters and liabilities associated with compliance with laws (for example, the FCPA).
The success of our joint venture 8point3 Energy Partners is subject to additional risks described under the risk factor
“Risks Related to Our Sales Channels - We may fail to realize the expected benefits of our YieldCo strategy.”
Additionally, we may decide that it is in our best interests to enter into acquisitions or joint ventures that are dilutive
to earnings per share or that negatively impact margins as a whole. In an effort to reduce our cost of goods sold, we have and
may continue to enter into acquisitions or joint ventures involving suppliers or manufacturing partners, which would expose us
to additional supply chain risks. Acquisitions or joint ventures could also require investment of significant financial resources
and require us to obtain additional equity financing, which may dilute our stockholders’ equity, or require us to incur additional
indebtedness. Such equity or debt financing may not be available on terms acceptable to us. In addition, we could in the future
make additional investments in our joint ventures or guarantee certain financial obligations of our joint ventures, which could
reduce our cash flows, increase our indebtedness and expose us to the credit risk of our joint ventures.
To the extent that we invest in upstream suppliers or downstream channel capabilities, we may experience competition
or channel conflict with certain of our existing and potential suppliers and customers. Specifically, existing and potential suppliers
and customers may perceive that we are competing directly with them by virtue of such investments and may decide to reduce or
eliminate their supply volume to us or order volume from us. In particular, any supply reductions from our polysilicon, ingot or
wafer suppliers could materially reduce manufacturing volume.
Acquisitions could also result in dilutive issuances of equity securities, the use of our available cash, or the incurrence of
debt, which could harm our operating results.
We may in the future be required to consolidate the assets, liabilities and financial results of certain of our existing or future
joint ventures, which could have an adverse impact on our financial position, gross margin, and operating results.
The Financial Accounting Standards Board has issued accounting guidance regarding variable interest entities
(“VIEs”) that affects our accounting treatment of our existing and future joint ventures. We have variable interests in 8point3
Energy Partners, our joint venture with First Solar. To ascertain whether we are required to consolidate this entity, we
determine whether it is a VIE and if we are the primary beneficiary in accordance with the accounting guidance. Factors we
consider in determining whether we are the VIE’s primary beneficiary include the decision making authority of each partner,
which partner manages the day-to-day operations of the joint venture and each partner’s obligation to absorb losses or right
to receive benefits from the joint venture in relation to that of the other partner. Changes in the financial accounting guidance,
or changes in circumstances at each of these joint ventures, could lead us to determine that we have to consolidate the assets,
liabilities and financial results of such joint ventures. The consolidation of 8point3 Energy Partners would significantly
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increase our indebtedness. Consolidation of our VIEs could have a material adverse impact on our financial position, gross
margin and operating results. In addition, we may enter into future joint ventures or make other equity investments, which
could have an adverse impact on us because of the financial accounting guidance regarding VIEs.
Fluctuations in the demand for our products may cause impairment of our project assets and other long-lived assets or cause
us to write off equipment or inventory, and each of these events would adversely affect our financial results.
We have tangible project assets on our Consolidated Balance Sheets related to capitalized costs incurred in connection
with the development of solar power systems. Project assets consist primarily of capitalized costs relating to solar power system
projects in various stages of development that we incur prior to the sale of the solar power system to a third party. These costs
include costs for land and costs for developing and constructing a solar power system. These project assets could become
impaired if there are changes in the fair value of these capitalized costs. If these project assets become impaired, we may write-off
some or all of the capitalized project assets, which would have an adverse impact on our financial results in the period in which
the loss is recognized.
In addition, if the demand for our solar products decreases, our manufacturing capacity could be underutilized,
and we may be required to record an impairment of our long-lived assets, including facilities and equipment, which would
increase our expenses. In improving our manufacturing processes consistent with our cost reduction roadmap, we could write
off equipment that is removed from the manufacturing process. In addition, if product demand decreases or we fail to forecast
demand accurately, we could be required to write off inventory or record excess capacity charges, which would have a
negative impact on our gross margin. Factory-planning decisions may shorten the useful lives of long-lived assets, including
facilities and equipment, and cause us to accelerate depreciation. Each of the above events would adversely affect our future
financial results.
We may not be able to sustain our recent growth rate, and we may not be able to manage our future growth effectively.
We may not be able to continue to expand our business or manage future growth. We plan to continue to improve our
manufacturing processes and build additional manufacturing production over the next five years, which will require successful
execution of:
•
•
•
•
•
•
expanding our existing manufacturing facilities and developing new manufacturing facilities, which would increase
our fixed costs and, if such facilities are underutilized, would negatively impact our results of operations;
ensuring delivery of adequate polysilicon, ingots, and third-party cells;
enhancing our customer resource management and manufacturing management systems;
implementing and improving additional and existing administrative, financial and operations systems, procedures
and controls, including the need to centralize, update and integrate our global financial internal control;
hiring additional employees;
expanding and upgrading our technological capabilities;
• managing multiple relationships with our customers, suppliers and other third parties;
• maintaining adequate liquidity and financial resources; and
•
continuing to increase our revenues from operations.
Improving our manufacturing processes, expanding our manufacturing facilities or developing new facilities may
be delayed by difficulties such as unavailability of equipment or supplies or equipment malfunction. Ensuring delivery
of adequate polysilicon, ingots, and third-party cells is subject to many market risks including scarcity, significant price
fluctuations and competition. Maintaining adequate liquidity is dependent upon a variety of factors including continued
revenues from operations, working capital improvements, and compliance with our indentures and credit agreements.
If we are unsuccessful in any of these areas, we may not be able to achieve our growth strategy and increase production
capacity as planned during the foreseeable future. In addition, we need to manage our organizational growth, including
rationalizing reporting structures, support teams, and enabling efficient decision making. For example, the administration of
the residential lease program requires processes and systems to support this business model. If we are not successful or if we
delay our continuing implementation of such systems and processes, we may adversely affect the anticipated volumes in our
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residential lease business. If we are unable to manage our growth effectively, we may not be able to take advantage of market
opportunities, develop new solar cells and other products, satisfy customer requirements, execute our business plan, or respond
to competitive pressures.
Fluctuations in foreign currency exchange rates and interest rates could adversely affect our business and results of operations.
We have significant sales globally, and we are exposed to movements in foreign exchange rates, primarily related to
sales to European customers that are denominated in Euros. A depreciation of the Euro would adversely affect our margins on
sales to European customers. When foreign currencies appreciate against the U.S. dollar, inventories and expenses denominated
in foreign currencies become more expensive. An increase in the value of the U.S. dollar relative to foreign currencies could make
our solar power products more expensive for international customers, thus potentially leading to a reduction in demand, our sales
and profitability. As a result, substantial unfavorable changes in foreign currency exchange rates could have a substantial adverse
effect on our financial condition and results of operations. Although we seek to reduce our currency exposure by engaging in
hedging transactions where we deem it appropriate, we do not know whether our efforts will be successful. Because we hedge
some of our expected future foreign exchange exposure, if associated revenues do not materialize, we could experience losses.
In the past, we have experienced an adverse impact on our revenue, gross margin, cash position and profitability as a result of
foreign currency fluctuations. In addition, any break-up of the Eurozone would disrupt our sales and supply chain, expose us to
financial counterparty risk, and materially and adversely affect our results of operations and financial condition.
We are exposed to interest rate risk because many of our customers depend on debt financing to purchase our solar power
systems. An increase in interest rates could make it difficult for our customers to obtain the financing necessary to purchase our solar
power systems on favorable terms, or at all, and thus lower demand for our solar power products, reduce revenue and adversely affect
our operating results. An increase in interest rates could lower a customer’s return on investment in a system or make alternative
investments more attractive relative to solar power systems, which, in each case, could cause our customers to seek alternative
investments that promise higher returns or demand higher returns from our solar power systems, which could reduce our revenue
and gross margin and adversely affect our operating results. Our interest expense would increase to the extent interest rates rise in
connection with our variable interest rate borrowings. Conversely, lower interest rates have an adverse impact on our interest income.
See also “Item 7A. Quantitative and Qualitative Disclosures About Market Risk” and “Risks Related to Our Sales Channels-The
execution of our growth strategy is dependent upon the continued availability of third-party financing arrangements for our solar
power plants, our residential lease program and our customers, and is affected by general economic conditions.”
We depend on third-party contract manufacturers to assemble a portion of our solar cells into solar panels and any failure
to obtain sufficient assembly and test capacity could significantly delay our ability to ship our solar panels and damage our
customer relationships.
We outsource a portion of module manufacturing to contract manufacturers in China. As a result of outsourcing this
final step in our production, we face several significant risks, including limited control over assembly and testing capacity,
delivery schedules, quality assurance, manufacturing yields and production costs. If the operations of our third-party contract
manufacturers were disrupted or their financial stability impaired, or if they were unable or unwilling to devote capacity to
our solar panels in a timely manner, our business could suffer as we might be unable to produce finished solar panels on a
timely basis. We also risk customer delays resulting from an inability to move module production to an alternate provider or to
complete production internationally, and it may not be possible to obtain sufficient capacity or comparable production costs at
another facility in a timely manner. In addition, migrating our design methodology to third-party contract manufacturers or to
a captive panel assembly facility could involve increased costs, resources and development time, and utilizing additional third-
party contract manufacturers could expose us to further risk of losing control over our intellectual property and the quality of
our solar panels. Any reduction in the supply of solar panels could impair our revenue by significantly delaying our ability to
ship products and potentially damage our relationships with new and existing customers, any of which could have a material
and adverse effect on our financial condition and results of operation.
While we believe we currently have effective internal control over financial reporting, we may identify a material weakness
in our internal control over financial reporting that could cause investors to lose confidence in the reliability of our financial
statements and result in a decrease in the value of our common stock.
Our management is responsible for maintaining internal control over financial reporting designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external
purposes in accordance with U.S. GAAP. Management concluded that as of the end of each of fiscal 2016, 2015, and 2014, our
internal control over financial reporting and our disclosure controls and procedures were effective.
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We need to continuously maintain our internal control processes and systems and adapt them as our business grows
and changes. This process is expensive, time-consuming, and requires significant management attention. We cannot be certain
that our internal control measures will continue to provide adequate control over our financial processes and reporting and
ensure compliance with Section 404 of the Sarbanes-Oxley Act. Furthermore, as we grow our business or acquire other
businesses, our internal controls may become more complex and we may require significantly more resources to ensure they
remain effective. Failure to implement required new or improved controls, or difficulties encountered in their implementation,
either in our existing business or in businesses that we may acquire, could harm our operating results or cause us to fail to
meet our reporting obligations. If we or our independent registered public accounting firm identify material weaknesses in our
internal controls, the disclosure of that fact, even if quickly remedied, may cause investors to lose confidence in our financial
statements and the trading price of our common stock may decline.
Remediation of a material weakness could require us to incur significant expense and if we fail to remedy any
material weakness, our financial statements may be inaccurate, our ability to report our financial results on a timely and
accurate basis may be adversely affected, our access to the capital markets may be restricted, the trading price of our common
stock may decline, and we may be subject to sanctions or investigation by regulatory authorities, including the Securities and
Exchange Commission (“SEC”) or The NASDAQ Global Select Market. We may also be required to restate our financial
statements from prior periods.
Our agreements with Cypress Semiconductor Corporation (“Cypress”) require us to indemnify Cypress for certain tax
liabilities. These indemnification obligations and related contractual restrictions may limit our ability to pursue certain
business initiatives.
On October 6, 2005, while a subsidiary of Cypress, our former parent company, we entered into a tax sharing
agreement with Cypress providing for each party’s obligations concerning various tax liabilities. The tax sharing agreement
is structured such that Cypress would pay all federal, state, local and foreign taxes that are calculated on a consolidated or
combined basis while we were a member of Cypress’s consolidated or combined group for federal, state, local and foreign tax
purposes. Our portion of tax liabilities or benefits was determined based upon our separate return tax liability as defined under
the tax sharing agreement. These tax liabilities or benefits were based on a pro forma calculation as if we were filing a separate
income tax return in each jurisdiction, rather than on a combined or consolidated basis, subject to adjustments as set forth in
the tax sharing agreement.
On June 6, 2006, we ceased to be a member of Cypress’s consolidated group for federal income tax purposes and
certain state income tax purposes. On September 29, 2008, we ceased to be a member of Cypress’s combined group for
all state income tax purposes. To the extent that we become entitled to utilize our separate portion of any tax credit or loss
carryforwards existing as of such date, we will distribute to Cypress the tax effect, estimated to be 40% for federal and state
income tax purposes, of the amount of such tax loss carryforwards so utilized, and the amount of any credit carryforwards so
utilized. We will distribute these amounts to Cypress in cash or in our shares, at Cypress’s option. During fiscal 2015 and fiscal
2016, we recorded an estimated liability to Cypress of $3.5 million and $0.2 million, respectively. As of January 1, 2017, we
believe there is no additional future liability.
We are jointly and severally liable for any tax liability during all periods in which we were deemed to be a member of
the Cypress consolidated or combined group. Accordingly, although the tax sharing agreement allocates tax liabilities between
Cypress and all its consolidated subsidiaries, for any period in which we were included in Cypress’s consolidated or combined
group, we could be liable in the event that any federal or state tax liability was incurred, but not discharged, by any other member
of the group.
We will continue to be jointly and severally liable to Cypress until the statute of limitations runs or all appeal options are
exercised for all years in which we joined in the filing of tax returns with Cypress. If Cypress experiences adjustments to their tax
liability pursuant to tax examinations, we may incur an incremental liability.
We would also be liable to Cypress for taxes that might arise from the distribution by Cypress of our former class B
common stock to Cypress’s stockholders on September 29, 2008, or “spin-off.” In connection with Cypress’s spin-off of our
former class B common stock, we and Cypress, on August 12, 2008, entered into an amendment to our tax sharing agreement
(“Amended Tax Sharing Agreement”) to address certain transactions that may affect the tax treatment of the spin-off and certain
other matters.
Subject to certain caveats, Cypress obtained a ruling from the IRS to the effect that the distribution by Cypress of our
former class B common stock to Cypress’s stockholders qualified as a tax-free distribution under Section 355 of the Code.
Despite such ruling, the distribution may nonetheless be taxable to Cypress under Section 355(e) of the Code if 50% or more
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of the voting power or value of our stock was or is later acquired as part of a plan or series of related transactions that included
the distribution of our stock. The Amended Tax Sharing Agreement requires us to indemnify Cypress for any liability incurred
as a result of issuances or dispositions of our stock after the distribution, other than liability attributable to certain dispositions
of our stock by Cypress, that cause Cypress’s distribution of shares of our stock to its stockholders to be taxable to Cypress
under Section 355(e) of the Code.
Under the Amended Tax Sharing Agreement, we also agreed that, until October 29, 2010, we would not effect a
conversion of any or all of our former class B common stock to former class A common stock or any similar recapitalization
transaction or series of related transactions. On November 16, 2011, we reclassified our former class A common stock and class
B common stock into a single class of common stock. In the event this reclassification does result in the spin-off being treated as
taxable, we could face substantial liabilities as a result of our obligations under the Amended Tax Sharing Agreement.
Our affiliation with Total S.A. may require us to join in certain tax filings with Total S.A. in the future. The allocation of tax
liabilities between us and Total S.A., and any future agreements with Total S.A. regarding tax indemnification and certain tax
liabilities may adversely affect our financial position.
We have not joined in tax filings on a consolidated, combined or unitary basis with Total S.A., and no tax sharing
agreement is currently in place. We may in the future become required to join in certain tax filings with Total S.A. on a
consolidated, combined, or unitary basis in certain jurisdictions, at which point we may seek to enter into a tax sharing agreement
with Total S.A., which would allocate the tax liabilities among the parties. The entry into any future agreement with Total
S.A. may result in less favorable allocation of certain liabilities than we experienced before becoming subject to consolidated,
combined, or unitary filing requirements, and may adversely affect our financial position.
Our ability to use our net operating loss and credit carryforwards to offset future taxable income may be subject to
certain limitations.
As of January 1, 2017, we estimate that we have available to offset future taxable income approximately $480 million
of federal and $438.5 million of California state operating loss carry-forwards, which expire at various dates from 2028 to 2036,
federal credit carryforwards of approximately $54.3 million, which expire at various dates from 2018 to 2036, and $7.5 million
of California state credit carryforwards that do not expire. Our ability to utilize our net operating loss and credit carryforwards
is dependent upon our ability to generate taxable income in future periods and may be limited due to restrictions imposed on
utilization of net operating loss and credit carryforwards under federal and state laws upon a change in ownership, such as the
transaction with Cypress.
Section 382 of the Code imposes restrictions on the use of a corporation’s net operating losses, as well as certain
recognized built-in losses and other carryforwards, after an “ownership change” occurs. A Section 382 “ownership change” occurs
if one or more stockholders or groups of stockholders who own at least 5% of our stock increase their ownership by more than
50 percentage points over their lowest ownership percentage within the prior three-year period (calculated on a rolling basis).
The issuance of common stock upon a conversion of our outstanding convertible notes debentures, and/or other issuances or
sales of our stock (including certain transactions involving our stock that are outside of our control) could result in (or could have
resulted in) an ownership change under Section 382. If an “ownership change” occurs, Section 382 would impose an annual limit
on the amount of pre-change net operating losses and other losses we can use to reduce our taxable income generally equal to
the product of the total value of our outstanding equity immediately prior to the “ownership change” and the applicable federal
long-term tax-exempt interest rate for the month of the “ownership change” (subject to certain adjustments). The applicable rate
for ownership changes occurring in the month of February 2016 is 2.65%.
Because U.S. federal net operating losses generally may be carried forward for up to 20 years, the annual limitation
may effectively provide a cap on the cumulative amount of pre-ownership change losses, including certain recognized built-in
losses that may be utilized. Such pre-ownership change losses in excess of the cap may be lost. In addition, if an ownership
change were to occur, it is possible that the limitations imposed on our ability to use pre-ownership change losses and certain
recognized built-in losses could cause a net increase in our U.S. federal income tax liability and require U.S. federal income
taxes to be paid earlier than otherwise would be paid if such limitations were not in effect. Further, if for financial reporting
purposes the amount or value of these deferred tax assets is reduced, such reduction would have a negative impact on the book
value of our common stock.
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Our headquarters and manufacturing facilities, as well as the facilities of certain subcontractors and suppliers, are located in
regions that are subject to earthquakes, floods, and other natural disasters, and climate change and climate change regulation
could have an adverse effect on our operations.
Our headquarters and research and development operations are located in California, and our manufacturing facilities
are located in the Philippines, Malaysia, France, and Mexico. Any significant earthquake, flood, or other natural disaster in these
countries or countries where our suppliers are located could materially disrupt our management operations and/or our production
capabilities, and could result in our experiencing a significant delay in delivery, or substantial shortage, of our products and services.
In addition, legislators, regulators, and non-governmental organizations, as well as companies in many business sectors,
are considering ways to reduce green-house gas emissions. Further regulation could be forthcoming at the federal or state level
with respect to green-house gas emissions. Such regulation or similar regulations in other countries could result in regulatory
or product standard requirements for our global business, including our manufacturing operations. Furthermore, the potential
physical impacts of climate change on our operations may include changes in weather patterns (including floods, tsunamis,
drought and rainfall levels), water availability, storm patterns and intensities, and temperature levels. These potential physical
effects may adversely affect the cost, production, sales and financial performance of our operations.
We could be adversely affected by any violations of the FCPA and foreign anti-bribery laws.
The FCPA generally prohibits companies and their intermediaries from making improper payments to non-U.S.
government officials for the purpose of obtaining or retaining business. Other countries in which we operate also have anti-bribery
laws, some of which prohibit improper payments to government and non-government persons and entities. Our policies mandate
compliance with these anti-bribery laws. We continue to acquire businesses outside of the United States and operate in many
parts of the world that have experienced governmental corruption to some degree and, in certain circumstances, strict compliance
with anti-bribery laws may conflict with local customs and practices. In addition, due to the level of regulation in our industry,
our entry into new jurisdictions through internal growth or acquisitions requires substantial government contact where norms can
differ from U.S. standards. While we implement policies and procedures and conduct training designed to facilitate compliance
with these anti-bribery laws, thereby mitigating the risk of violations of such laws, our employees, subcontractors and agents may
take actions in violation of our policies and anti-bribery laws. Any such violation, even if prohibited by our policies, could subject
us to criminal or civil penalties or other sanctions, which could have a material adverse effect on our business, financial condition,
cash flows and reputation.
We sell our solar products to agencies of the U.S. government, and as a result, we are subject to a number of procurement
rules and regulations, and our business could be adversely affected by an audit by the U.S. government if it were to identify
errors or a failure to comply with regulations.
We have sold and continue to sell our solar power systems to various U.S. government agencies. In connection with these
contracts, we must comply with and are affected by laws and regulations relating to the award, administration, and performance
of U.S. government contracts, which may impose added costs on our business. We are expected to perform in compliance with
a vast array of federal laws and regulations, including, without limitation, the Federal Acquisition Regulation, the Truth in
Negotiations Act, the Federal False Claims Act, the Anti-Kickback Act of 1986, the Trade Agreements Act, the Buy American
Act, the Procurement Integrity Act, and the Davis Bacon Act. A violation of specific laws and regulations, even if prohibited by
our policies, could result in the imposition of fines and penalties, reductions of the value of our contracts, contract modifications
or termination, or suspension or debarment from government contracting for a period of time.
In some instances, these laws and regulations impose terms or rights that are more favorable to the government than
those typically available to commercial parties in negotiated transactions. For example, the U.S. government may terminate any
of our government contracts either at its convenience or for default based on performance. A termination arising out of our default
may expose us to liability and have a material adverse effect on our ability to compete for future contracts.
U.S. government agencies may audit and investigate government contractors. These agencies review a contractor’s
performance under its contracts, cost structure, and compliance with applicable laws, regulations, and standards. If an audit
or investigation uncovers improper or illegal activities, we may be subject to civil or criminal penalties and administrative
sanctions, including termination of contracts, forfeiture of profits, suspension of payments, fines, and suspension or prohibition
from doing business with the U.S. government. In addition, we could suffer reputational harm if allegations of impropriety
were made against us.
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Compliance with environmental regulations can be expensive, and noncompliance with these regulations may result in
adverse publicity and potentially significant monetary damages and fines.
We are required to comply with all foreign, U.S. federal, state and local laws and regulations regarding pollution
control and protection of the environment. In addition, under some statutes and regulations, a government agency, or other
parties, may seek recovery and response costs from owners or operators of property where releases of hazardous substances
have occurred or are ongoing, even if the owner or operator was not responsible for such release or otherwise at fault. We
use, generate and discharge toxic, volatile and otherwise hazardous chemicals and wastes in our research and development
and manufacturing activities. Any failure by us to control the use of, or to restrict adequately the discharge of, hazardous
substances could subject us to, among other matters, potentially significant monetary damages and fines or liabilities or
suspensions in our business operations. In addition, if more stringent laws and regulations are adopted in the future, the
costs of compliance with these new laws and regulations could be substantial. If we fail to comply with present or future
environmental laws and regulations, we may be required to pay substantial fines, suspend production or cease operations, or be
subjected to other sanctions.
In addition, U.S. legislation includes disclosure requirements regarding the use of “conflict” minerals mined from
the Democratic Republic of Congo and adjoining countries and procedures regarding a manufacturer’s efforts to prevent
the sourcing of such “conflict” minerals. We have incurred and will incur additional costs to comply with the disclosure
requirements, including costs related to determining the source of any of the relevant minerals and metals used in our products.
The implementation of these requirements could affect the sourcing and availability of minerals used in the manufacture of solar
products. As a result, there may only be a limited pool of suppliers who provide conflict free minerals, and we cannot be certain
that we will be able to obtain products in sufficient quantities or at competitive prices. Since our supply chain is complex, we
have not been able to sufficiently verify, and in the future we may not be able to sufficiently verify, the origins for these conflict
minerals used in our products. As a result, we may face reputational challenges with our customers and other stakeholders if we
are unable to sufficiently verify the origins for all minerals used in our products.
Our success depends on the continuing contributions of our key personnel.
We rely heavily on the services of our key executive officers and the loss of services of any principal member of
our management team could adversely affect our operations. In addition, we anticipate that we will need to hire a number of
highly skilled technical, manufacturing, sales, marketing, administrative and accounting personnel. In recent years, we have
conducted several restructurings, which may negatively affect our ability to execute our strategy and business model. The
competition for qualified personnel is intense in our industry. We may not be successful in attracting and retaining sufficient
numbers of qualified personnel to support our anticipated growth. We cannot guarantee that any employee will remain
employed with us for any definite period of time since all of our employees, including our key executive officers, serve at-will
and may terminate their employment at any time for any reason.
Our insurance for certain indemnity obligations we have to our officers and directors may be inadequate, and potential claims
could materially and negatively impact our financial condition and results of operations.
Pursuant to our certificate of incorporation, by-laws, and certain indemnification agreements, we indemnify our officers
and directors for certain liabilities that may arise in the course of their service to us. Although we currently maintain directors
and officers liability insurance for certain potential third-party claims for which we are legally or financially unable to indemnify
them, such insurance may be inadequate to cover certain claims. In addition, in previous years, we have primarily self-insured
with respect to potential third-party claims. If we were required to pay a significant amount on account of these liabilities for
which we self-insured, our business, financial condition, and results of operations could be materially harmed.
Risks Related to Our Intellectual Property
We depend on our intellectual property, and we may face intellectual property infringement claims that could be time-
consuming and costly to defend and could result in the loss of significant rights.
From time to time, we, our respective customers, or third parties with whom we work may receive letters, including
letters from other third parties, and may become subject to lawsuits with such third parties alleging infringement of their patents.
Additionally, we are required by contract to indemnify some of our customers and our third-party intellectual property providers
for certain costs and damages of patent infringement in circumstances where our products are a factor creating the customer’s
or these third-party providers’ infringement liability. This practice may subject us to significant indemnification claims by our
customers and our third-party providers. We cannot assure investors that indemnification claims will not be made or that these
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claims will not harm our business, operating results or financial condition. Intellectual property litigation is very expensive and
time-consuming and could divert management’s attention from our business and could have a material adverse effect on our
business, operating results or financial condition. If there is a successful claim of infringement against us, our customers or our
third-party intellectual property providers, we may be required to pay substantial damages to the party claiming infringement, stop
selling products or using technology that contains the allegedly infringing intellectual property, or enter into royalty or license
agreements that may not be available on acceptable terms, if at all. Parties making infringement claims may also be able to bring
an action before the International Trade Commission that could result in an order stopping the importation into the United States
of our solar products. Any of these judgments could materially damage our business. We may have to develop non-infringing
technology, and our failure in doing so or in obtaining licenses to the proprietary rights on a timely basis could have a material
adverse effect on our business.
We have filed, and may continue to file, claims against other parties for infringing our intellectual property that may be very
costly and may not be resolved in our favor.
To protect our intellectual property rights and to maintain our competitive advantage, we have filed, and may continue
to file, suits against parties who we believe infringe our intellectual property. Intellectual property litigation is expensive
and time consuming, could divert management’s attention from our business, and could have a material adverse effect on
our business, operating results, or financial condition, and our enforcement efforts may not be successful. In addition, the
validity of our patents may be challenged in such litigation. Our participation in intellectual property enforcement actions may
negatively impact our financial results.
We rely substantially upon trade secret laws and contractual restrictions to protect our proprietary rights, and, if these rights
are not sufficiently protected, our ability to compete and generate revenue could suffer.
We seek to protect our proprietary manufacturing processes, documentation, and other written materials primarily
under trade secret and copyright laws. We also typically require employees, consultants, and third parties, such as our vendors
and customers, with access to our proprietary information to execute confidentiality agreements. The steps we take to protect
our proprietary information may not be adequate to prevent misappropriation of our technology. Our systems may be subject
to intrusions, security breaches, or targeted theft of our trade secrets. In addition, our proprietary rights may not be adequately
protected because:
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•
•
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others may not be deterred from misappropriating our technologies despite the existence of laws or contracts
prohibiting such misappropriation;
policing unauthorized use of our intellectual property may be difficult, expensive, and time-consuming, the remedy
obtained may be inadequate to restore protection of our intellectual property, and moreover, we may be unable to
determine the extent of any unauthorized use;
the laws of other countries in which we market our solar products, such as some countries in the Asia/Pacific region,
may offer little or no protection for our proprietary technologies; and
reports we file in connection with government-sponsored research contracts are generally available to the public and
third parties may obtain some aspects of our sensitive confidential information.
Reverse engineering, unauthorized copying, or other misappropriation of our proprietary technologies could enable
third parties to benefit from our technologies without compensating us for doing so. Our joint ventures or our partners may
not be deterred from misappropriating our proprietary technologies despite contractual and other legal restrictions. Legal
protection in countries where our joint ventures are located may not be robust and enforcement by us of our intellectual
property rights may be difficult. As a result, our joint ventures or our partners could directly compete with our business.
Any such activities or any other inabilities to adequately protect our proprietary rights could harm our ability to compete, to
generate revenue, and to grow our business.
We may not obtain sufficient patent protection on the technology embodied in the solar products we currently manufacture
and market, which could harm our competitive position and increase our expenses.
Although we substantially rely on trade secret laws and contractual restrictions to protect the technology in the solar
products we currently manufacture and market, our success and ability to compete in the future may also depend to a significant
degree upon obtaining patent protection for our proprietary technology. We currently own multiple patents and patent applications
which cover aspects of the technology in the solar cells and mounting systems that we currently manufacture and market. Material
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patents that relate to our systems products and services primarily relate to our rooftop mounting products and ground-mounted
tracking products. We intend to continue to seek patent protection for those aspects of our technology, designs, and methodologies
and processes that we believe provide significant competitive advantages.
Our patent applications may not result in issued patents, and even if they result in issued patents, the patents may not have
claims of the scope we seek or we may have to refile patent applications due to newly discovered prior art. In addition, any issued
patents may be challenged, invalidated, or declared unenforceable, or even if we obtain an award of damages for infringement by a
third party, such award could prove insufficient to compensate for all damages incurred as a result of such infringement.
The term of any issued patent is generally 20 years from its earliest filing date and if our applications are pending for a
long time period, we may have a correspondingly shorter term for any patent that may issue. Our present and future patents may
provide only limited protection for our technology and may be insufficient to provide competitive advantages to us. For example,
competitors could develop similar or more advantageous technologies on their own or design around our patents. Also, patent
protection in certain foreign countries may not be available or may be limited in scope and any patents obtained may not be
readily enforceable because of insufficient judicial effectiveness, making it difficult for us to aggressively protect our intellectual
property from misuse or infringement by other companies in these countries. Our inability to obtain and enforce our intellectual
property rights in some countries may harm our business. In addition, given the costs of obtaining patent protection, we may
choose not to protect certain innovations that later turn out to be important.
We may not be able to prevent others from using the term SunPower or similar terms, or other trademarks which we hold, in
connection with their solar power products which could adversely affect the market recognition of our name and our revenue.
“SunPower” and the SunPower logo are our registered trademarks in certain countries, including the United States, for uses
that include solar cells and solar panels. We are seeking registration of these trademarks in other countries, but we may not be successful
in some of these jurisdictions. We hold registered trademarks for SunPower®, Maxeon®, Oasis®, EnergyLink™, InvisiMount®, Tenesol®,
Greenbotics®, Customer Cost of Energy™ (“CCOE™”), SunPower Spectrum™, Helix™, Equinox™, Signature™, SolarBridge®,
The Power of One™, and many more marks, in certain countries, including the United States. We have not registered, and may not
be able to register, these trademarks in other key countries. In the foreign jurisdictions where we are unable to obtain or have not tried
to obtain registrations, others may be able to sell their products using trademarks compromising or incorporating “SunPower,” or a
variation thereof, or our other chosen brands, which could lead to customer confusion. In addition, if there are jurisdictions where
another proprietor has already established trademark rights in marks containing “SunPower,” or our other chosen brands, we may face
trademark disputes and may have to market our products with other trademarks or without our trademarks, which may undermine our
marketing efforts. We may encounter trademark disputes with companies using marks which are confusingly similar to the SunPower
mark, or our other marks, which if not resolved favorably, could cause our branding efforts to suffer. In addition, we may have difficulty
in establishing strong brand recognition with consumers if others use similar marks for similar products.
Our past and possible future reliance on government programs to partially fund our research and development programs
could impair our ability to commercialize our solar power products and services.
Government funding of some of our research and development efforts imposed certain restrictions on our ability to
commercialize results and could grant commercialization rights to the government. In some funding awards, the government
is entitled to intellectual property rights arising from the related research. Such rights include a nonexclusive, nontransferable,
irrevocable, paid-up license to practice or have practiced each subject invention developed under an award throughout the world by
or on behalf of the government. Other rights include the right to require us to grant a license to the developed technology or products
to a third party or, in some cases, if we refuse, the government may grant the license itself, if the government determines that action is
necessary because we fail to achieve practical application of the technology, because action is necessary to alleviate health or safety
needs, to meet requirements of federal regulations, or to give the United States industry preference. Accepting government funding
can also require that manufacturing of products developed with federal funding be conducted in the United States.
We may be subject to information technology system failures or network disruptions that could damage our business
operations, financial conditions, or reputation.
We may be subject to information technology system failures and network disruptions. These may be caused by natural
disasters, accidents, power disruptions, telecommunications failures, acts of terrorism or war, computer viruses, physical or
electronic break-ins, or similar events or disruptions. System redundancy may be ineffective or inadequate, and our disaster
recovery planning may not be sufficient for all eventualities. Such failures or disruptions could result in delayed or canceled
orders. System failures and disruptions could also impede the manufacturing and shipping of products, delivery of online services,
transactions processing, and financial reporting.
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We may be subject to breaches of our information technology systems, which could lead to disclosure of our internal
information, damage our reputation or relationships with dealers and customers, and disrupt access to our online services.
Such breaches could subject us to significant reputational, financial, legal, and operational consequences.
Our business requires us to use and store customer, employee, and business partner personally identifiable information
(“PII”). This may include names, addresses, phone numbers, email addresses, contact preferences, tax identification numbers,
and payment account information. Malicious attacks to gain access to PII affect many companies across various industries,
including ours.
We use encryption and authentication technologies to secure the transmission and storage of data. These security
measures may be compromised as a result of third-party security breaches, employee error, malfeasance, faulty password
management, or other irregularity, and result in persons obtaining unauthorized access to our data. Third parties may attempt to
fraudulently induce employees or customers into disclosing passwords or other sensitive information, which may in turn be used
to access our information technology systems.
We devote resources to network security, data encryption, and other security measures to protect our systems and
data, but these security measures cannot provide absolute security. Because the techniques used to obtain unauthorized access,
disable or degrade service, or sabotage systems change frequently and may be difficult to detect for long periods of time, we
may be unable to anticipate these techniques or implement adequate preventative measures and as a result, we may experience
a breach of our systems and may be unable to protect sensitive data. In addition, hardware, software, or applications we
develop or procure from third parties may contain defects in design or manufacture or other problems that could unexpectedly
compromise information security. Unauthorized parties may also attempt to gain access to our systems or facilities through
fraud, trickery or other forms of deceiving our team members, contractors and temporary staff. If we experience a significant
data security breach or fail to detect and appropriately respond to a significant data security breach, we could be exposed to a
risk of loss, litigation and possible liability, or government enforcement actions, any of which could detrimentally affect our
business, results of operations, and financial condition.
PII may also be shared with contractors and third-party providers to conduct our business. Although such contractors and
third-party providers typically implement encryption and authentication technologies to secure the transmission and storage of
data, those third-party providers may experience a significant data security breach of the shared PII.
See also “Risks Related to Our Intellectual Property - We rely substantially upon trade secret laws and contractual
restrictions to protect our proprietary rights, and, if these rights are not sufficiently protected, our ability to compete and generate
revenue could suffer.”
Our business is subject to a variety of U.S. and international laws, rules, policies, and other obligations regarding privacy, data
protection, and other matters.
We are subject to federal, state and international laws relating to the collection, use, retention, security, and transfer
of PII. In many cases, these laws apply not only to third-party transactions, but also to transfers of information between one
company and its subsidiaries, and among the subsidiaries and other parties with which we have commercial relations. The
introduction of new products or expansion of our activities in certain jurisdictions may subject us to additional laws and
regulations. In addition, foreign data protection, privacy, and other laws and regulations can be more restrictive than those
in the United States. These U.S. federal and state and foreign laws and regulations, which can be enforced by private parties
or government entities, are constantly evolving and can be subject to significant change. In addition, the application and
interpretation of these laws and regulations are often uncertain, particularly in the new and rapidly evolving industry in which
we operate, and may be interpreted and applied inconsistently from country to country and inconsistently with our current
policies and practices. These existing and proposed laws and regulations can be costly to comply with and can delay or impede
the development of new products, result in negative publicity, increase our operating costs, require significant management
time and attention, and subject us to inquiries or investigations, claims or other remedies, including fines or demands that we
modify or cease existing business practices.
A failure by us, our suppliers or other parties with whom we do business to comply with a posted privacy policies or
with other federal, state or international privacy-related or data protection laws and regulations could result in proceedings
against us by governmental entities or others, which could have a detrimental effect on our business, results of operations, and
financial condition.
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Risks Related to Our Debt and Equity Securities
Our debentures are effectively subordinated to our existing and any future secured indebtedness and structurally subordinated
to existing and future liabilities and other indebtedness of our current and any future subsidiaries.
Our debentures are our general, unsecured obligations and rank equally in right of payment with all of our existing
and any future unsubordinated, unsecured indebtedness. As of January 1, 2017, we and our subsidiaries had $1.1 billion in
principal amount of senior unsecured indebtedness outstanding, which ranks pari passu with our debentures. Our debentures
are effectively subordinated to our existing and any future secured indebtedness we may have, including for example,
our $300.0 million revolving credit facility with Credit Agricole, to the extent of the value of the assets securing such
indebtedness, and structurally subordinated to our existing and any future liabilities and other indebtedness of our subsidiaries.
In addition to our unsecured indebtedness described above, as of January 1, 2017, we and our subsidiaries had $495.1 million
in principal amount of senior secured indebtedness outstanding, which includes $139.7 million in non-recourse project debt
and $293.1 million in non-recourse long-term debt related to our residential lease business. These liabilities may also include
other indebtedness, trade payables, guarantees, lease obligations, and letter of credit obligations. Our debentures do not restrict
us or our current or any future subsidiaries from incurring indebtedness, including senior secured indebtedness, in the future,
nor do they limit the amount of indebtedness we can issue that is equal in right of payment.
Recent or future regulatory actions may adversely affect the trading price and liquidity of our debentures.
We believe that many investors in our debentures employ, or will seek to employ, a convertible arbitrage strategy with
respect to our debentures. Investors that employ a convertible arbitrage strategy with respect to convertible debt instruments
typically implement that strategy by selling short the common stock underlying the convertible debt instruments and dynamically
adjusting their short position while they hold the debt instruments. Investors may also implement this strategy by entering into
swaps on the common stock underlying the convertible debt instruments in lieu of or in addition to short selling the common
stock. As a result, rules regulating equity swaps or short selling of securities or other governmental action that interferes with the
ability of market participants to effect short sales or equity swaps with respect to our common stock could adversely affect the
ability of investors in our debentures to conduct the convertible arbitrage strategy that we believe they employ, or will seek to
employ, with respect to our debentures. This could, in turn, adversely affect the trading price and liquidity of our debentures.
The SEC and other regulatory and self-regulatory authorities have implemented various rules in recent years and may
adopt additional rules in the future that may impact those engaging in short selling activity involving equity securities (including
our common stock). In particular, Rule 201 of SEC Regulation SHO restricts certain short selling when the price of a “covered
security” triggers a “circuit breaker” by falling 10% or more from the security’s closing price as of the end of regular trading
hours on the prior day. If this circuit breaker is triggered, short sale orders can be displayed or executed for the remainder of that
day and the following day only if the order price is above the then-current national best bid, subject to certain limited exceptions.
Because our common stock is a “covered security”, these Rule 201 restrictions, if triggered, may interfere with the ability of
investors in our debentures to effect short sales in our common stock and conduct a convertible arbitrage strategy.
In addition, during 2012, the SEC approved two proposals submitted by the national securities exchanges and the
Financial Industry Regulatory Authority, Inc. (“FINRA”) concerning extraordinary market volatility that may impact the ability
of investors to effect a convertible arbitrage strategy. One initiative is the “Limit Up-Limit Down” plan, which requires securities
exchanges, alternative trading systems, broker-dealers, and other trading centers to establish policies and procedures that prevent
the execution of trades or the display of bids or offers outside of specified price bands. If the bid or offer quotations for a security
are at the far limit of the price band for more than 15 seconds, trading in that security will be subject to a five-minute trading
pause. The Limit Up-Limit Down plan became effective, on a pilot basis, on April 8, 2013 and has been extended several times,
most recently through April 21, 2017.
The second initiative revised existing national securities exchange and FINRA rules that establish the market-wide
circuit breaker system. The market-wide circuit breaker system provides for specified market-wide halts in trading of listed stocks
and options for certain periods following specified market declines. The changes lowered the percentage-decline thresholds for
triggering a market-wide trading halt and shortened the amount of time that trading is halted. Market declines under the new
system are measured based on a decline in the S&P 500 Index compared to the prior day’s closing value rather than a decline in
the Dow Jones Industrial Average compared to the prior quarterly closing value. The changes to the market-wide circuit breaker
system became effective, on a pilot basis, on April 8, 2013 and have been extended so that the system will continue in effect so
long as the Limit Up-Limit Down plan is effective, currently until April 21, 2017. The potential restrictions on trading imposed
by the Limit Up-Limit Down plan and the market-wide circuit breaker system may interfere with the ability of investors in our
debentures to effect short sales in our common stock and conduct a convertible arbitrage strategy.
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The enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act, (the “Dodd-Frank Act”) on
July 21, 2010 also introduced regulatory changes that may impact trading activities relevant to our debentures. As a result
of this legislation and implementing rules, certain interest rate swaps and credit default swaps are currently required to be
cleared through regulated clearinghouses. Certain other swaps (regulated by the U.S. Commodity Futures Trading Commission
(the “CFTC”) and security-based swaps (regulated by the SEC) are likely going to be required to be cleared through regulated
clearinghouses in the future. In addition, certain swaps and security-based swaps will be required to be traded on exchanges
or comparable trading facilities. Furthermore, swap dealers, security-based swap dealers, major swap participants and major
security-based swap participants will be required to comply with margin and capital requirements, the indirect cost of which
will likely be borne by market participants. Market participants will also be subject to certain direct margin requirements. In
addition, certain market participants are required to comply with public reporting requirements to provide transaction and
pricing data on both cleared and uncleared swaps. Public reporting requirements will also apply with respect to security-
based swaps in the future. These requirements could adversely affect the ability of investors in our debentures to maintain
a convertible arbitrage strategy with respect to our debentures (including increasing the costs incurred by such investors in
implementing such strategy). This could, in turn, adversely affect the trading price and liquidity of our debentures. Although
some of the implementing rules have been adopted and are currently effective, we cannot predict how the SEC, CFTC, and
other regulators will ultimately implement the legislation or the magnitude of the effect that this legislation will have on the
trading price or liquidity of our debentures.
Although the direction and magnitude of the effect that the amendments to Regulation SHO, FINRA and securities
exchange rule changes, and/or implementation of the Dodd-Frank Act may have on the trading price and the liquidity of our
debentures will depend on a variety of factors, many of which cannot be determined at this time, past regulatory actions have
had a significant impact on the trading prices and liquidity of convertible debentures. For example, between July 2008 and
September 2008, the SEC issued a series of emergency orders placing restrictions on the short sale of the common stock of certain
financial services companies. The orders made the convertible arbitrage strategy that many holders of convertible debentures
employ difficult to execute and adversely affected both the liquidity and trading price of convertible debentures issued by many of
the financial services companies subject to the prohibition. Any governmental action that similarly restricts the ability of investors
in our debentures to effect short sales of our common stock, including the amendments to Regulation SHO, FINRA and exchange
rule changes, and the implementation of the Dodd-Frank Act, could similarly adversely affect the trading price and the liquidity of
our debentures.
Total’s majority ownership of our common stock may adversely affect the liquidity and value of our common stock.
As of January 1, 2017, Total owned approximately 57% of our outstanding common stock. Pursuant to the Affiliation
Agreement between us and Total, the Board of Directors of SunPower includes five designees from Total, giving Total majority
control of our Board. As a result, subject to the restrictions in the Affiliation Agreement, Total possesses significant influence
and control over our affairs. Our non-Total stockholders have reduced ownership and voting interest in our company and, as a
result, have less influence over the management and policies of our company than they exercised prior to Total’s tender offer.
As long as Total controls us, the ability of our other stockholders to influence matters requiring stockholder approval is limited.
Total’s stock ownership and relationships with members of our Board of Directors could have the effect of preventing minority
stockholders from exercising significant control over our affairs, delaying or preventing a future change in control, impeding
a merger, consolidation, takeover, or other business combination or discouraging a potential acquirer from making a tender
offer or otherwise attempting to obtain control of us, limiting our financing options. These factors in turn could adversely
affect the market price of our common stock or prevent our stockholders from realizing a premium over the market price of our
common stock. The Affiliation Agreement limits Total and any member of the Total affiliated companies (“Total Group”) from
effecting, seeking, or entering 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 during a standstill period. The Affiliation Agreement
also imposes certain limitations on the Total Group’s ability to seek to affect a tender offer or merger to acquire 100% of our
outstanding voting power. Such provisions may not be successful in preventing the Total Group from engaging in transactions
which further increase their ownership and negatively impact the price of our common stock. See also “Risks Related to Our
Liquidity - We may be unable to generate sufficient cash flows or obtain access to external financing necessary to fund our
operations and make adequate capital investments as planned due to the general economic environment and the continued
market pressure driving down the average selling prices of our solar power products, among other factors.” Finally, the market
for our common stock has become less liquid and more thinly traded as a result of the Total tender offer. The lower number of
shares available to be traded could result in greater volatility in the price of our common stock and affect our ability to raise
capital on favorable terms in the capital markets.
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Conversion of our outstanding 0.75% debentures, 0.875% debentures, 4.00% debentures, and future substantial issuances or
dispositions of our common stock or other securities, could dilute ownership and earnings per share or cause the market price
of our stock to decrease.
The conversion of some or all of our outstanding 0.75%, 0.875%, or 4.00% debentures into shares of our common
stock will dilute the ownership interests of existing stockholders, including holders who had previously converted their
debentures. Any sales in the public market of the common stock issuable upon such conversion could adversely affect
prevailing market prices of our common stock. Sales of our common stock in the public market or sales of any of our other
securities could dilute ownership and earnings per share, and even the perception that such sales could occur could cause the
market prices of our common stock to decline. In addition, the existence of our outstanding debentures may encourage short
selling of our common stock by market participants who expect that the conversion of the debentures could depress the prices
of our common stock.
Future sales of our common stock in the public market could lower the market price for our common stock and adversely
impact the trading price of our debentures.
In the future, we may sell additional shares of our common stock to raise capital. We cannot predict the size of future
issuances or the effect, if any, that they may have on the market price for our common stock. In addition, a substantial number of
shares of our common stock is reserved for issuance upon the exercise of stock options, restricted stock awards, restricted stock
units, warrants, and upon conversion of the debentures and our outstanding 0.75%, 0.875%, and 4.00% debentures. The issuance
and sale of substantial amounts of common stock, or the perception that such issuances and sales may occur, could adversely
affect the trading price of our debentures and the market price of our common stock and impair our ability to raise capital through
the sale of additional equity or equity-linked securities.
The price of our common stock, and therefore of our outstanding 0.75%, 0.875%, and 4.00% debentures, may fluctuate significantly.
Our common stock has experienced extreme price and volume fluctuations. The trading price of our common stock
could be subject to further wide fluctuations due to many factors, including the factors discussed in this risk factors section.
In addition, the stock market in general, and The NASDAQ Global Select Market and the securities of technology companies
and solar companies in particular, have experienced severe price and volume fluctuations. These trading prices and valuations,
including our own market valuation and those of companies in our industry generally, may not be sustainable. These
broad market and industry factors may decrease the market price of our common stock, regardless of our actual operating
performance. Because the 0.75%, 0.875%, and 4.00% debentures are convertible into our common stock (and/or cash
equivalent to the value of our common stock), volatility or depressed prices of our common stock could have a similar effect
on the trading price of the debentures.
If securities or industry analysts change their recommendations regarding our stock adversely, our stock price and trading
volume could decline.
The trading market for our common stock is influenced by the research and reports that industry or securities analysts
publish about us, our business or our market. If one or more of the analysts who cover us change their recommendation regarding
our stock adversely, our stock price would likely decline. If one or more of these analysts ceases coverage of our company or fails
to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause our stock price or
trading volume, and the value of our debentures, to decline.
We do not intend to pay dividends on our common stock in the foreseeable future.
We have never declared or paid cash dividends. For the foreseeable future, we intend to retain any earnings, after
considering any dividends on any preferred stock, to finance the development of our business, and we do not anticipate paying
any cash dividends on our common stock. Any future determination to pay dividends will be at the discretion of our Board of
Directors and will be dependent upon then-existing conditions, including our operating results and financial condition, capital
requirements, contractual restrictions, business prospects, and other factors that our Board of Directors considers relevant.
Accordingly, holders of our common stock must rely on sales of their common stock after price appreciation, which may never
occur, as the only way to realize a return on their shares of common stock.
48
Delaware law and our certificate of incorporation and by-laws contain anti-takeover provisions, our outstanding 0.75%,
0.875%, and 4.00% debentures provide for a right to convert upon certain events, and our Board of Directors entered into a
rights agreement and declared a rights dividend, any of which could delay or discourage takeover attempts that stockholders
may consider favorable.
Provisions in our certificate of incorporation and by-laws may have the effect of delaying or preventing a change of
control or changes in our management. These provisions include the following:
•
•
•
•
•
•
•
the right of the Board of Directors to elect a director to fill a vacancy created by the expansion of the
Board of Directors;
the prohibition of cumulative voting in the election of directors, which would otherwise allow less than a majority of
stockholders to elect director candidates;
the requirement for advance notice for nominations for election to the Board of Directors or for proposing matters
that can be acted upon at a stockholders’ meeting;
the ability of the Board of Directors to issue, without stockholder approval, up to 10 million shares of preferred
stock with terms set by the Board of Directors, which rights could be senior to those of common stock;
our Board of Directors is divided into three classes of directors, with the classes to be as nearly equal in number
as possible;
stockholders may not call special meetings of the stockholders, except by Total under limited circumstances; and
our Board of Directors is able to alter our by-laws without obtaining stockholder approval.
Certain provisions of our outstanding debentures could make it more difficult or more expensive for a third party to
acquire us. Upon the occurrence of certain transactions constituting a fundamental change, including an entity (such as Total)
becoming the beneficial owner of 75% of our voting stock, holders of our outstanding debentures will have the right, at their
option, to require us to repurchase, at a cash repurchase price equal to 100% of the principal amount plus accrued and unpaid
interest on the debentures, all or a portion of their debentures. We may also be required to issue additional shares of our common
stock upon conversion of such debentures in the event of certain fundamental changes. In addition, we entered into a Rights
Agreement with Computershare Trust Company, N.A., commonly referred to as a “poison pill,” which could delay or discourage
takeover attempts that stockholders may consider favorable.
ITEM 1B: UNRESOLVED STAFF COMMENTS
None.
49
ITEM 2: PROPERTIES
The table below presents details for each of our principal properties:
Facility
Solar cell manufacturing facility1, 2
Solar cell manufacturing facility3
Former solar cell manufacturing facility1, 4
Solar cell manufacturing support and
storage facility
Former solar module assembly facility1, 4
Solar module assembly facility
Solar module assembly facility
Solar module assembly facility
Solar module assembly facility
Corporate headquarters
Global support offices
Global support offices
Global support offices
Global support offices
Location
Philippines
Malaysia
Philippines
Philippines
Philippines
Mexico
Mexico
France
France
California, U.S.
California, U.S.
Texas, U.S.
France
Philippines
Approximate
Square
Footage
392,000
885,000
641,000
167,000
183,000
320,000
186,000
11,000
13,000
129,000
163,000
69,000
27,000
65,000
Held
Owned
Owned
Owned
Leased
Owned
Leased
Leased
Owned
Leased
Leased
Leased
Leased
Leased
Owned
Lease Term
n/a
n/a
n/a
2024
n/a
2021
2026
n/a
2018
2021
2023
2019
2023
n/a
1 The lease for the underlying land expires in May 2048 and is renewable for an additional 25 years.
2 The solar cell manufacturing facility we operate in the Philippines has a total annual capacity of 350 MW.
3 The solar cell manufacturing facility we operate in Malaysia has a total rated annual capacity of over 800 MW.
4 We still own this facility as of January 1, 2017 but relevant operations ceased during fiscal 2016.
As of January 1, 2017, our principal properties include operating solar cell manufacturing facilities with a combined
total annual capacity of over 1.1 GW and solar module assembly facilities with a combined total annual capacity of approximately
1.9 GW. For more information about our manufacturing capacity, see “Item 1. Business.”
We do not identify or allocate assets by business segment. For more information on property, plant and equipment by
country, see “Item 8. Financial Statements and Supplementary Data—Notes to Consolidated Financial Statements—Note 5.
Balance Sheet Components.”
ITEM 3. LEGAL PROCEEDINGS
Tax Benefit Indemnification Litigation
On March 19, 2014, a lawsuit was filed by NRG Solar LLC, now known as NRG Renew LLC (“NRG”), against
SunPower Corporation, Systems, our wholly-owned subsidiary (“SunPower Systems”), in the Superior Court of Contra Costa
County, California. The complaint asserts that, according to the indemnification provisions in the contract pertaining to SunPower
Systems’ sale of a large California solar project to NRG, SunPower Systems owes NRG $75.0 million in connection with certain
tax benefits associated with the project that were approved by the U.S. Treasury Department (“Treasury”) for an amount that
was less than expected. We do not believe that the facts support NRG’s claim under the operative indemnification provisions
and SunPower Systems is vigorously contesting the claim. Additionally, SunPower Systems filed a cross-complaint against
NRG seeking damages in excess of $7.5 million for breach of contract and related claims arising from NRG’s failure to fulfill its
obligations under the contract, including its obligation to take “reasonable, available steps” to engage Treasury. We are currently
unable to determine if the resolution of this matter will have a material effect on our consolidated financial statements.
Class Action and Derivative Suits
On August 16, 2016 and August 26, 2016, two securities class action lawsuits were filed against the Company and
certain of its officers and directors (the “Defendants”) in the United States District Court for the Northern District of California
on behalf of a class consisting of those who acquired the Company’s securities from February 17, 2016 through August 9, 2016
50
(the “Class Period”). The substantially identical complaints allege violations of Sections 10(b) and 20(a) of the Exchange Act,
15 U.S.C. §§78j(b) and 78t(a) and SEC Rule 10b-5, 17 C.F.R. §240.10b-5. The complaints were filed following the issuance
of the Company’s August 9, 2016 earnings release and revised guidance and generally allege that throughout the Class Period,
Defendants made materially false and/or misleading statements and failed to disclose material adverse facts about the Company’s
business, operations, and prospects. On December 9, 2017, the court consolidated the cases and appointed a lead plaintiff.
Four shareholder derivative actions have been filed in federal court, purporting to be brought on the Company’s behalf
against certain of the Company’s current and former officers and directors based on the same events alleged in the securities
class action lawsuits described above. The Company is named as a nominal defendant. The plaintiffs assert claims for alleged
breaches of fiduciary duties, unjust enrichment, and waste of corporate assets for the period February 2016 through the present
and generally allege that the defendants made or caused the Company to make materially false and/or misleading statements and
failed to disclose material adverse facts about the Company’s business, operations, and prospects. The plaintiffs also claim that
the alleged conduct is a breach of the Company’s Code of Business Conduct and Ethics, and that defendants, including members
of the Company’s Audit Committee, breached their fiduciary duties by failing to ensure the adequacy of the Company’s internal
controls, and by causing or allowing the Company to disseminate false and misleading statements in the Company’s SEC filings
and other disclosures. The securities class action lawsuits and the federal derivative actions have all been related by the Court and
assigned to one judge.
Shareholder derivative actions purporting to be brought on the Company’s behalf were brought in the Superior Court
of California for the County of Santa Clara against certain of the Company’s current and former officers and directors based on
the same events alleged in the securities class action and federal derivative lawsuits described above, and alleging breaches of
fiduciary duties.
The Company is currently unable to determine if the resolution of these matters will have a material adverse effect on the
Company’s financial position, liquidity, or results of operations.
Other Litigation
We are a party to various other litigation matters and claims that arise from time to time in the ordinary course of our
business. While we believe that the ultimate outcome of such matters will not have a material adverse effect on our business,
their outcomes are not determinable and negative outcomes may adversely affect our financial position, liquidity, or results
of operations.
ITEM 4: MINE SAFETY DISCLOSURES
Not applicable.
51
ITEM 5: MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PART II
PURCHASES OF EQUITY SECURITIES
Market Information
Our common stock is listed on the Nasdaq Global Select Market under the trading symbol “SPWR.” During fiscal 2016
and 2015, the high and low closing trading prices of our common stock were as follows:
Fiscal Year 2016
Fourth quarter
Third quarter
Second quarter
First quarter
Fiscal Year 2015
Fourth quarter
Third quarter
Second quarter
First quarter
SPWR
High
Low
$
$
$
$
$
$
$
$
9.11
16.07
22.09
30.46
30.77
28.73
34.85
33.60
$
$
$
$
$
$
$
$
6.30
7.53
13.49
20.38
19.12
20.95
30.01
23.35
As of February 10, 2017, there were approximately 814 record holders of our common stock. A substantially greater
number of holders are in “street name” or beneficial holders, whose shares are held of record by banks, brokers, and other
financial institutions.
Dividends
We have never declared or paid any cash dividend on our common stock, and we do not currently intend to pay a cash
dividend on our common stock in the foreseeable future. Certain of the Company’s debt agreements place restrictions on the
Company and its subsidiaries’ ability to pay cash dividends. For more information on our common stock and dividend rights, see
“Item 8. Financial Statements and Supplementary Data—Notes to Consolidated Financial Statements—Note 14. Common Stock.”
Issuer Purchases of Equity Securities
The following table sets forth all purchases made by or on behalf of us or any “affiliated purchaser,” as defined in Rule
10b-18(a)(3) under the Exchange Act, of shares of our common stock during each of the indicated periods.
Maximum
Number
of Shares
That May
Yet Be
Purchased
Under the
Publicly
Announced
Plans or
Programs
—
—
—
Total
Number
of Shares
Purchased
as Part of
Publicly
Announced
Plans or
Programs
—
—
—
—
Total
Number
of Shares
Purchased1
44,123
6,626
19,129
69,878
Average
Price Paid
Per Share
8.65
$
7.01
$
7.13
$
8.08
$
Period
October 3, 2016 through October 30, 2016
October 31, 2016 through November 27, 2016
November 28, 2016 through January 1, 2017
1 The shares purchased represent shares surrendered to satisfy tax withholding obligations in connection with the vesting of restricted
stock issued to employees.
52
ITEM 6: SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read together with “Item 7. Management’s Discussion and
Analysis of Financial Condition and Results of Operations” and “Item 8. Financial Statements and Supplementary Data” included
elsewhere in this Annual Report on Form 10-K.
January 1,
2017
January 3,
2016
Year Ended
December 28,
2014
December 29,
2013
December 30,
2012
(In thousands, except per share data)
Consolidated Statements of Operations Data
Revenue
Gross margin
Operating income (loss)
Income (loss) from continuing operations
before income taxes and equity in earnings
(loss) of unconsolidated investees
Income (loss) from continuing operations
per share of common stock:
$2,559,562
$ 189,966
$ (462,414)
$1,576,473
$ 244,646
$ (206,294)
$
$
$
3,027,265
625,127
251,240
$ (564,595)
$ (242,311)
$
184,614
$
$
$
$
$
$
2,507,203
491,072
158,909
41,583
0.79
0.70
$
$
$
$
$
$
2,417,501
246,398
(287,708)
(329,663)
(3.01)
(3.01)
Basic
Diluted
$
$
(3.41)
(3.41)
$
$
(1.39)
(1.39)
$
$
1.91
1.55
As of
(In thousands)
Consolidated Balance Sheet Data
Cash and cash equivalents
Working capital
Total assets
Long-term debt
Convertible debt, net of current portion
Total stockholders’ equity
January 1,
2017
January 3,
2016
December 28,
2014
December 29,
2013
December 30,
2012
$ 425,309
$ 824,524
$4,567,167
$ 451,243
$1,113,478
$1,007,832
$ 954,528
$1,515,918
$4,856,993
$ 478,948
$1,110,960
$1,449,149
$
$
$
$
$
$
956,175
1,273,236
4,345,582
214,181
692,955
1,534,174
$
$
$
$
$
$
762,511
528,017
3,898,690
93,095
300,079
1,116,153
$
$
$
$
$
$
457,487
976,627
3,340,948
375,661
438,629
993,352
ITEM 7: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Overview
SunPower is a leading global energy company that delivers complete solar solutions to residential, commercial, and
power plant customers worldwide through an array of hardware, software, and financing options and through utility-scale solar
power system construction and development capabilities, O&M services, 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. Of all the solar cells commercially available to the mass market, we believe our solar cells have the highest
conversion efficiency, a measurement of the amount of sunlight converted by the solar cell into electricity. For more information
about our business, please refer to the section titled “Part I. Item 1. Business” in this Annual Report on Form 10-K.
Segments Overview
We operate in three end-customer segments: (i) Residential Segment, (ii) Commercial Segment and (iii) Power Plant
Segment. Our President and Chief Executive Officer, as the chief operating decision maker, reviews our business and manages
resource allocations and measures performance of our activities among these three end-customer segments. The Residential and
Commercial Segments combined are referred to as Distributed Generation. For more information about our business segments,
see the section titled “Part I. Item 1. Business” in this Annual Report on Form 10-K. For more segment information, see “Item 8.
Financial Statements and Supplementary Data—Note 17. Segment Information” in this Annual Report.
53
Unit of Power
When referring to our solar power systems, our facilities’ manufacturing capacity, and total sales, the unit of electricity
in watts for kilowatts (“KW”), megawatts (“MW”), and gigawatts (“GW”) is direct current (“DC”), unless otherwise noted as
alternating current (“AC”).
Seasonal Trends
Our business is subject to industry-specific seasonal fluctuations including changes in weather patterns and economic
incentives, among others. Sales have historically reflected these seasonal trends with the largest percentage of total revenues
realized during the last two quarters of a fiscal year. The construction of solar power systems or installation of solar power
components and related revenue may decline during cold winter months. In the United States, many customers make purchasing
decisions towards the end of the year in order to take advantage of tax credits or for other budgetary reasons. In addition, revenues
may fluctuate due to the timing of project sales, construction schedules, and revenue recognition of certain projects, such as those
involving the sale of real estate, which may significantly impact the quarterly profile of our results of operations. We may also
retain certain development projects on our balance sheet for longer periods of time than in preceding periods in order to optimize
the economic value we receive at the time of sale in light of market conditions, which can fluctuate after we have committed to
projects. Delays in disposing of projects, or changes in amounts realized on disposition, may lead to significant fluctuations to the
period-over-period profile of our results of operations and our cash available for working capital needs.
Fiscal Years
We have a 52-to-53-week fiscal year that ends on the Sunday closest to December 31. Accordingly, every fifth or sixth
year will be a 53-week fiscal year. The current fiscal year, fiscal 2016, is a 52-week fiscal year, fiscal year 2015 was a 53-week
fiscal year and had a 14-week fourth fiscal quarter, while fiscal year 2014 was a 52-week fiscal year. Fiscal 2016 ended on
January 1, 2017, fiscal 2015 ended on January 3, 2016, and fiscal 2014 ended on December 28, 2014.
Outlook
Demand
In fiscal 2016 we faced market challenges, primarily in our Power Plant Segment, which impacted our margins and
prompted us to implement changes to our business in order to realign our downstream investments, optimize our supply chain,
and reduce operating expenses. Our actions included the consolidation of our manufacturing operations in order to accelerate
operating cost reductions and improve overall operating efficiency. Factors that impacted our margins included write-downs
totaling $46.2 million on certain solar power development projects during 2016 because of adjustments to pricing assumptions,
as well as charges totaling $58.2 million that were recorded in fiscal 2016 in connection with the contracted sale of raw material
inventory to third parties as we sought to improve our working capital. In fiscal 2017, we plan to focus on projects that we expect
will be profitable; however, market conditions can deteriorate after we have committed to projects. For example, shifts in the
timing of demand and changes in the internal rate of return (“IRR”) that our customers expect can significantly affect project sale
prices. A pronounced increase in expected customer and investor IRR rates in light of market conditions may continue to drive
lower overall project sale prices in fiscal 2017. For more information see “Part I. Item 1A. Risk Factors—Risks Related to Our
Sales Channels—Our operating results are subject to significant fluctuations and are inherently unpredictable” in this Annual
Report on Form 10-K.
In the face of these near-term challenges, we remain focused on each of our three business segments as well as on
continued investment in next-generation technology. We plan to expand the footprint of our SunPower EquinoxTM and HelixTM
complete solutions in our Residential and Commercial businesses. We plan to focus our Power Plant business development
resources on a limited number of core markets, primarily in the Americas, where we believe we have a sustainable competitive
advantage. Outside of these core markets, we will focus our Power Plant business on the sale of our new Oasis® complete
solution, incorporating Performance Series panel technology, to developers and EPC companies in global markets. 8point3 Energy
Partners remains a source of demand for our business and we plan to continue to sell to it our solar energy generating assets,
including utility-scale solar power plants and commercial solar projects. We have used and expect to continue to use additional
financing structures and sources of demand in order to maximize economic returns. For additional information on transactions
with 8point3 Energy Partners and associated revenue recognition, see “Item 8. Financial Statements and Supplementary Data—
Note 10. Equity Method Investments” in this Annual Report on Form 10-K.
54
In late fiscal 2015, the U.S. government enacted a budget bill that extended the solar commercial investment tax
credit (the “Commercial ITC”) under Section 48(c) of the Internal Revenue Code of 1986 (the “IRC”) and the individual solar
investment tax credit under Section 25D of the IRC (together with the Commercial ITC, the “ITC”) for five years, at rates
gradually decreasing from 30% through 2019 to 22% in 2021. After 2021, the Commercial ITC is retained at 10%. We also saw
other recent developments that contributed to a favorable policy environment, including (i) a significant focus on reducing world-
wide carbon emissions through such events as the COP21 sustainable innovation forum held in Paris and the announcement of
the Clean Power Plan in the United States, and (ii) domestic policy measures such as the extension of bonus depreciation and
approval of California Net Metering “NEM 2.0.” We believe these factors will strengthen long-term demand for our products
in all three business segments in U.S. and global markets and provide us an opportunity to expand our suite of energy solutions.
However, in the near term, the extension of the ITC has had adverse impacts on our business, as it has reduced the pressure for
commercial or residential customers to make purchases before the end of 2016, which was the time when the ITC had previously
been set to expire, and instead has pushed demand from these customers into future periods. In addition, the new administration
and Congress have expressed interest in comprehensive reform of the U.S. tax code, which could result in the reduction
or elimination of various industry-specific tax incentives in return for an overall reduction in corporate tax rates. For more
information about the ITC and other policy mechanisms, please refer to the section titled “Item 1. Business—Regulations—Public
Policy Considerations” in this Annual Report on Form 10-K. For more information about how we avail ourselves of the benefits
of public policies and the risks related to public policies, please see the risk factors set forth under the caption “Part I. Item
1A. Risk Factors—Risks Related to Our Sales Channels” in this Annual Report on Form 10-K, including “—The reduction,
modification or elimination of government incentives could cause our revenue to decline and harm our financial results” and
“—Existing regulations and policies and changes to these regulations and policies may present technical, regulatory, and economic
barriers to the purchase and use of solar power products, which may significantly reduce demand for our products and services.”
Supply
We are focused on delivering complete solutions to customers in all three of our business segments. As part of our
complete solution approach, we launched our SunPower HelixTM product for our Commercial Segment during fiscal 2015 and
our SunPower EquinoxTM product for our Residential Segment during fiscal 2016. The SunPower Equinox and Helix systems
are pre-engineered modular solutions for residential and commercial applications, respectively, that combine our high-efficiency
solar module technology with integrated plug-and-play power stations, cable management systems, and mounting hardware that
enable our customers to quickly and easily complete system installations and manage their energy production. Our SunPower
EquinoxTM systems utilize our latest X-Series cell and ACPV technology for residential applications, where we are also expanding
our initiatives on storage and Smart Energy solutions. During fiscal 2016 we also launched our new generation technology
for our existing Oasis® modular solar power blocks for power plant applications. With the addition of these modular solutions
in our residential and commercial applications, we are able to provide complete solutions across all end-customer segments.
Additionally, we continue to focus on producing on our new lower cost, high efficiency Performance Series product line, which
will enhance our ability to rapidly expand our global footprint with minimal capital cost.
We continue to see significant and increasing opportunities in technologies and capabilities adjacent to our core product
offerings that can significantly reduce our customers’ CCOE measurement, including the integration of energy storage and energy
management functionality into our systems, and have made investments to realize those opportunities, including our investment in
a data-driven Energy Services Management Platform from Tendril Networks, Inc., and our strategic partnership with EnerNOC to
deploy their Software as a Service energy intelligence software solution to our commercial and power plant customers, enabling
our customers to make intelligent energy choices by addressing how they buy energy, how they use energy and when they use it.
We have added advanced module-level control electronics to our portfolio of technology designed to enable longer series strings
and significant balance of system components cost reductions in large arrays. We are developing next generation microinverter
technology and currently offer solar panels that use microinverters designed to eliminate the need to mount or assemble
additional components on the roof or the side of a building and enable optimization and monitoring at the solar panel level to
ensure maximum energy production by the solar system. We also continue to work on making combined solar and distributed
energy storage solutions broadly commercially available to certain customers in the United States through our agreement to
offer Sunverge SIS energy solutions comprising batteries, power electronics, and multiple energy inputs controlled by software
in the cloud.
We continue to improve our unique, differentiated solar cell and panel technology. We emphasize improvement of our
solar cell efficiency and LCOE and CCOE performance through enhancement of our existing products, development of new
products and reduction of manufacturing cost and complexity in conjunction with our overall cost-control strategies. We are now
producing our solar cells with over 25% efficiency in the lab, have reached production panel efficiencies over 24%, and have
started up our high-volume Performance Series production lines in Mexico.
55
We plan to reduce our overall solar cell manufacturing output to match profitable demand levels, with increasing bias
toward our highest efficiency X-Series product platform, which utilizes our latest solar cell technology, and our Performance
Series product, which utilizes conventional cell technology that we purchase from third parties in low-cost supply chain
ecosystems such as China. We recently closed our Fab 2 cell manufacturing facility and our panel assembly facility in
the Philippines and are focusing on our latest generation, lower cost panel assembly facilities in Mexico. As part of this
realignment, we expect to reduce our back-contact panel assembly capacity while ramping production of our new Performance
Series technology.
We are focused on reducing the cost of our solar panels and systems and are working with our suppliers and partners
along all steps of the value chain to reduce costs by improving manufacturing technologies and expanding economies of
scale. We also continually focus on reducing manufacturing cost and complexity in conjunction with our overall cost-control
strategies. We believe that the global demand for solar systems is highly elastic and that our aggressive, but achievable, cost
reduction roadmap will reduce installed costs for our customers across all business segments and drive increased demand for our
solar solutions.
We also work with our suppliers and partners to ensure the reliability of our supply chain. We have contracted with
some of our suppliers for multi-year supply agreements, under which we have annual minimum purchase obligations. For more
information about our purchase commitments and obligations, please see “Item 7. Management’s Discussion and Analysis
of Financial Condition and Results of Operations—Liquidity and Capital Resources—Contractual Obligations” and “Item 8.
Financial Statements and Supplementary Data—”Note 9. Commitments and Contingencies” in the Notes to the Consolidated
Financial Statements in this Annual Report on Form 10-K.
We currently believe our supplier relationships and various short- and long-term contracts will afford us the volume of
material and services required to meet our planned output; however, we face the risk that the pricing of our long-term contracts
may exceed market value. We purchase our polysilicon under fixed-price long-term supply agreements; purchases in fiscal 2016
under these agreements significantly exceeded market value and the volume contracted to be purchased in fiscal 2017 exceeds
our planned utilization, which may result in higher inventory balances until we are able to fully utilize the polysilicon inventory
in future periods. We have also elected to sell polysilicon inventory in excess of short-term needs to third parties at a loss, and
may enter into further similar transactions in future periods. For more information about these risks, please see “—Our long-term,
firm commitment supply agreements could result in excess or insufficient inventory, place us at a competitive disadvantage on
pricing, or lead to disputes, each of which could impair our ability to meet our cost reduction roadmap” and “—We will continue
to be dependent on a limited number of third-party suppliers for certain raw materials and components for our products, which
could prevent us from delivering our products to our customers within required timeframes and could in turn result in sales
and installation delays, cancellations, penalty payments and loss of market share” under “Part 1. Item 1A. Risk Factors—Risks
Related to Our Supply Chain” in this Annual Report on Form 10-K.
Projects Under Contract
The table below presents significant construction and development projects under contract as of January 1, 2017:
Project
Iberdrola Gala Solar Project
Location
Oregon, USA
Size (MW)
71
Boulder Solar Project II
Nevada, USA
62
Third-Party
Owner /
Purchaser(s)
Avangrid
Renewables, LLC
AEP Renewables,
LLC
Power Purchase
Agreement(s)
Customer A
Expected
Substantial
Completion of
Project1
2017
Sierra Pacific
Power Company
2017
1 Expected completion of revenue recognition assumes completion of construction in the stated fiscal year.
As of January 1, 2017, an aggregate of approximately $222.6 million of remaining revenue is expected to be recognized
on projects reflected in the table above through the expected completion dates noted. Projects will be removed from the table
above in the period in which substantially all of the revenue for such project has been recognized.
56
Projects with Executed Power Purchase Agreements - Not Sold / Not Under Contract
The table below presents significant construction and development projects with executed PPAs, but not sold or under
contract as of January 1, 2017:
Project
Ticul Solar Projects
Guajiro Solar Project
El Pelicano Solar Project
Location
Mexico
Mexico
Chile
Size (MW)
399
117
111
Power Purchase Agreement(s)
Comision Federal Electricidad
Comision Federal Electricidad
Empresa de Transporte de
Pasajeros Metro S.A.
Expected
Substantial
Completion of
Project1
2018
2018
2017
1 Expected completion of revenue recognition assumes completion of construction and sale of the project in the stated fiscal year.
Our project pipeline extends beyond the projects represented in the tables above. Significant projects with development
and milestone activities in progress will be excluded from the table above until an associated PPA has been executed.
Components of Results of Operations
The following section describes certain line items in our Consolidated Statements of Operations:
Revenue
We recognize revenue from the following activities and transactions within our end-customer segments:
•
•
Solar power components: the sale of panels and balance of system components, primarily to dealers, system
integrators and distributors, in some cases on a multi-year, firm commitment basis.
Solar power systems: the design, manufacture, and sale of high-performance rooftop and ground-mounted solar
power systems under construction and development agreements.
• Residential leases: revenue recognized on systems under lease agreements with residential customers for terms of up
to 20 years.
• Other: revenue related to our solar power services and solutions, such as post-installation systems monitoring and
maintenance in connection with construction contracts and commercial PPAs.
For a discussion of how and when we recognize revenue, see “—Critical Accounting Estimates—Revenue Recognition.”
Cost of Revenue
We generally recognize our cost of revenue in the same period that we recognize related revenue. Our cost of revenue
fluctuates from period to period due to the mix of projects that we complete and the associated revenue that we recognize,
particularly for construction contracts and large-scale development projects involving real estate. For a discussion of how and
when we recognize revenue, see “—Critical Accounting Estimates—Revenue Recognition.”
The cost of solar panels is the single largest cost element in our cost of revenue. Our cost of solar panels consists
primarily of: (i) polysilicon, silicon ingots and wafers used in the production of solar cells; (ii) other materials and chemicals
including glass, frame, and backing; and (iii) direct labor costs and assembly costs. Other cost of revenue associated with the
construction of solar power systems includes real estate, mounting systems, inverters, capitalized financing costs, and construction
subcontract and dealer costs. Other factors that contribute to our cost of revenue include salaries and personnel-related costs,
depreciation, facilities related charges, freight, as well as charges related to sales of raw material inventory and write-downs on
certain solar power development projects when costs exceed expected selling prices.
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Gross Margin
Our gross margin each quarter is affected by a number of factors, including average selling prices for our solar power
components, the timing and nature of project revenue recognition, the types of projects in progress, the gross margins estimated
for those projects in progress, our product mix, our actual manufacturing costs, the utilization rate of our solar cell manufacturing
facilities, and actual overhead costs.
Research and Development
Research and development expense consists primarily of salaries and related personnel costs; depreciation of equipment;
and the cost of solar panel materials, various prototyping materials, and services used for the development and testing of products.
Research and development expense is reported net of contributions under collaborative arrangements.
Sales, General and Administrative
Sales, general and administrative expense consists primarily of salaries and related personnel costs, professional fees,
bad debt expenses, and other selling and marketing expenses.
Restructuring
Restructuring expense in fiscal 2016 consists mainly of costs associated with our August 2016 and December 2016
restructuring plans aimed to realign our downstream investments, optimize our supply chain, and reduce operating expenses
in response to expected near-term challenges. Charges in connection with these plans consist primarily of asset impairments,
severance benefits, and lease and related termination costs. For more information, see “Item 8. Financial Statements and
Supplementary Data—Note 8. Restructuring” in this Annual Report.
Restructuring expense in fiscal 2015 and 2014 consists mainly of costs associated with our November 2014
reorganization plan aimed towards realigning resources consistently with SunPower’s global strategy and improving overall
operating efficiency and cost structure. Charges in connection with this plan are primarily related to severance benefits.
Remaining restructuring costs are related to plans effected in prior fiscal periods. Restructuring activities related to these legacy
plans were substantially complete as of January 1, 2017; however, we expect to continue to incur costs as we finalize previous
estimates and actions in connection with these plans, primarily due to other costs, such as legal services.
Other Income (Expense), Net
Interest expense primarily relates to: (i) amortization expense recorded for warrants issued to Total S.A. in connection
with the Liquidity Support Agreement executed in the first quarter of fiscal 2012; (ii) debt under our senior convertible
debentures; (iii) fees for our outstanding letters of credit; and (iv) other outstanding bank and project debt.
Other, net includes gains or losses on foreign exchange and derivatives as well as gains or losses related to sales and
impairments of certain investments.
In fiscal 2016, significant items contributing to Other income (expense), net consisted of a gain on the settlement of
preexisting relationships in connection with our acquisition of AUOSP, a loss on our equity method investment in connection
with our acquisition of AUOSP, and goodwill impairment. For more information on these items, see “—Note 3. Business
Combinations” and “—Note 4. Goodwill and Other Intangible Assets” under “Item 8. Financial Statements and Supplementary
Data” in this Annual Report.
Income Taxes
Deferred tax assets and liabilities are recognized for temporary differences between financial statement and income tax
bases of assets and liabilities. Valuation allowances are provided against deferred tax assets when management cannot conclude
that it is more likely than not that some portion or all deferred tax assets will be realized.
We currently benefit from income tax holidays incentives in the Philippines in accordance with our registration with the
Philippine Economic Zone Authority (“PEZA”). We also benefit from a tax holiday granted by the Malaysian government to our
former joint venture AUOSP (now our wholly-owned subsidiary, SunPower Malaysia Manufacturing Sdn. Bhd.) subject to certain
hiring, capital spending, and manufacturing requirements. We have an auxiliary company ruling in Switzerland, where we sell
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our solar power products, which currently reduces our Swiss tax rate. For additional information see “—Note 1. The Company
and Summary of Significant Accounting Policies” and “—Note 13. Income Taxes” under “Item 8. Financial Statements and
Supplementary Data” in this Annual Report on Form 10-K.
For financial reporting purposes, during periods when we were a subsidiary of Cypress, income tax expense and deferred
income tax balances were calculated as if we were a separate entity and had prepared our own separate tax return. Effective
with the closing of our public offering of common stock in June 2006, we were no longer eligible to file federal and most state
consolidated tax returns with Cypress. As of September 29, 2008, Cypress completed a spin-off of all of its shares of our former
class B common stock to its shareholders, so we are no longer eligible to file any remaining state consolidated tax returns with
Cypress. Under our tax sharing agreement with Cypress, we agreed to pay Cypress for any federal and state income tax credit or
net operating loss carryforwards utilized in our federal and state tax returns in subsequent periods that originated while our results
were included in Cypress’s federal tax returns.
Equity in Earnings (Loss) of Unconsolidated Investees
Equity in earnings (loss) of unconsolidated investees represents our reportable share of earnings (loss) generated from
entities in which we own an equity interest accounted for under the equity method.
Net Loss Attributable to Noncontrolling Interests and Redeemable Noncontrolling Interests
We have entered into facilities with third-party investors under which the parties invest in entities that hold SunPower
solar power systems and leases with residential customers. We determined that we hold controlling interests in these less-than-
wholly-owned entities and have fully consolidated these entities as a result. The investors were determined to hold noncontrolling
interests, some of which are redeemable at the option of the noncontrolling interest holder. We apply the hypothetical liquidation
at book value method in allocating recorded net income (loss) to each investor based on the change in the reporting period of the
amount of net assets of the entity to which each investor would be entitled to under the governing contractual arrangements in a
liquidation scenario.
Results of Operations
Revenue
(In thousands)
Distributed Generation
Residential
Commercial
Power Plant
Total revenue
2016
% of total
revenue
2015
% of total
revenue
2014
% of total
revenue
Fiscal Year
$ 720,331
436,915
1,402,316
$2,559,562
28% $ 643,520
277,143
17%
655,810
55%
$1,576,473
41% $ 655,936
361,828
17%
2,009,501
42%
$3,027,265
22%
12%
66%
Total Revenue: Our total revenue increased by 62% during fiscal 2016 as compared to fiscal 2015, primarily due to
increased sales of solar power systems across all Segments and particularly due to revenue recognized on the sale of several
utility-scale solar power projects in the Power Plant Segment during the second half of fiscal 2016, such as the 128 MW Henrietta
project and the 125 MW Boulder Solar I project.
Our total revenue decreased 48% during fiscal 2015 as compared to fiscal 2014 primarily because during fiscal 2015 we
deferred the recognition of any revenue or profit on the sale of projects involving real estate to 8point3 Energy Partners under the
accounting treatment described in “Item 8. Financial Statements and Supplementary Data—Note 3. 8point3 Energy Partners LP”
in our Annual Report on Form 10-K for the fiscal year ended January 3, 2016. The decrease in revenue in fiscal 2015 was also due
to substantial completion of revenue recognition at the end of fiscal 2014 on certain large-scale solar power systems. A decline in
sales of solar power systems and components to residential and commercial customers also contributed to the period-over-period
decrease in total revenue.
Concentrations: The Power Plant Segment as a percentage of total revenue recognized was approximately 55% during
fiscal 2016 as compared to 42% during fiscal 2015. The revenue for the Power Plant Segment as a percentage of total revenue
recognized increased primarily due to: (i) an increase in the volume of utility-scale solar power projects sold in fiscal 2016 in
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our Power Plants Segment, and (ii) an increase in the revenue recognized in fiscal 2016 in our Power Plant Segment due to the
accounting treatment of certain utility-scale projects as partial sales of real estate as described in “Item 8. Financial Statements
and Supplementary Data—Note 10. Equity Method Investments” in this Annual Report on Form 10-K.
Sales for the Power Plant Segment as a percentage of total revenue recognized were approximately 42% and 66% during
fiscal 2015 and fiscal 2014, respectively. The revenue for the Power Plant Segment as a percentage of total revenue recognized
decreased primarily because we deferred the recognition of any revenue or profit on the sale of projects involving real estate to
8point3 Energy Partners under the accounting treatment described in “Item 8. Financial Statements and Supplementary Data—
Note 3. 8point3 Energy Partners LP” in our Annual Report on Form 10-K for the fiscal year ended January 3, 2016. The decrease
during fiscal 2015 was additionally driven by substantial completion of revenue recognition at the end of fiscal 2014 on certain
large-scale solar power systems.
The table below represents our significant customers that accounted for greater than 10 percent of total revenue in fiscal
2016, 2015, and 2014, respectively.
Revenue
Significant Customers:
8point3 Energy Partners
Southern Renewable Partnerships, LLC
MidAmerican Energy Holdings Company
* denotes less than 10% during the period
Business Segment
Power Plant
Power Plant
Power Plant
2016
Fiscal Year
2015
2014
10%
15%
*
n/a
n/a
14%
n/a
n/a
49%
Residential Revenue: Residential revenue increased 12% percent during fiscal 2016 as compared to fiscal 2015,
primarily due to an increase in sales of residential solar power systems in North America driven by stronger sales through our
dealer network, an increase in the number of leases placed in service under our residential leasing program within the United
States, and an increase in the proportion of capital leases relative to total leases placed in service.
Residential revenue decreased 2% during fiscal 2015 as compared to fiscal 2014 primarily due to a decline in the sales of
solar power components and systems to our residential customers, particularly in Japan, where a reduction in the country’s feed-
in tariff during the last half of fiscal 2015 reduced demand for solar power systems and the decline in the value of the Japanese
Yen reduced demand for imported goods in general. The decrease in residential revenue was partially offset by an increase in
residential component sales in North America driven by stronger sales through our dealer network and an increase in the number
of leases placed in service under our residential leasing program within the United States.
Commercial Revenue: Commercial revenue increased 58% during fiscal 2016 as compared to fiscal 2015, primarily
because of stronger sales of commercial components and systems in North America due to a favorable policy environment that
encouraged investment in renewable energy by commercial customers.
Commercial revenue decreased 23% during fiscal 2015 as compared to fiscal 2014 primarily because we deferred the
recognition of any revenue or profit on the sale to 8point3 Energy Partners of projects involving real estate under the accounting
treatment described in “Item 8. Financial Statements and Supplementary Data—Note 3. 8point3 Energy Partners LP” in our
Annual Report on Form 10-K for the fiscal year ended January 3, 2016. The decrease in revenue during fiscal 2015 was also due
to the completion of certain commercial solar power system projects, and the associated revenue recognition, during fiscal 2014
and a decrease in commercial component sales across all geographies, particularly in Japan, where a reduction in the country’s
feed-in tariff during the third quarter of fiscal 2015 reduced demand for solar power systems and the decline in the value of the
Japanese Yen reduced demand for imported goods in general.
Power Plant Revenue: Power Plant revenue increased 114% during fiscal 2016 as compared to fiscal 2015, respectively,
primarily due to: (i) an increase in the volume of utility-scale solar power projects sold in fiscal 2016, primarily in North America,
including the 128 MW Henrietta project and the 125 MW Boulder Solar I project, and (ii) the deferral of revenue in fiscal 2015
due to the accounting treatment of certain utility-scale projects as partial sales of real estate as described in “Item 8. Financial
Statements and Supplementary Data—Note 10. Equity Method Investments” in this Annual Report.
Power Plant revenue decreased 67% during fiscal 2015 as compared to fiscal 2014 primarily because we deferred the
recognition of any revenue or profit on the sale of projects involving real estate to 8point3 Energy Partners under the accounting
treatment described in “Item 8. Financial Statements and Supplementary Data—Note 3. 8point3 Energy Partners LP” in our
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Annual Report on Form 10-K for the fiscal year ended January 3, 2016. The decrease in revenue during fiscal 2015 was also
due to substantial completion of revenue recognition at the end of fiscal 2014 on certain large-scale solar power systems located
within the United States.
Cost of Revenue
(In thousands)
Distributed Generation
Residential
Commercial
Power Plant
Total cost of revenue
Total cost of revenue as a percentage of revenue
Total gross margin percentage
2016
Fiscal Year
2015
2014
$ 603,559
438,711
1,327,326
$2,369,596
93%
7%
$ 508,449
259,600
563,778
$1,331,827
84%
16%
$ 541,812
326,324
1,534,002
$2,402,138
79%
21%
Total Cost of Revenue: Our total cost of revenue increased 78% during fiscal 2016 as compared to fiscal 2015,
primarily as a result of the increase in the recognition of revenue and corresponding costs of certain large-scale solar power
systems within the United States during fiscal 2016, as well as write-downs totaling $46.2 million on certain solar power
development projects during fiscal 2016. The increase in total cost of revenue during 2016 was also a result of charges totaling
$58.2 million recorded in fiscal 2016 in connection with the contracted sale of raw material inventory to third parties.
Our total cost of revenue decreased 45% in fiscal 2015 as compared to fiscal 2014 primarily because we deferred the
recognition of any revenue or profit, and corresponding costs, on the sale of projects involving real estate to 8point3 Energy
Partners under the accounting treatment described in “Item 8. Financial Statements and Supplementary Data—Note 3. 8point3
Energy Partners LP” in our Annual Report on Form 10-K for the fiscal year ended January 3, 2016. The decrease in the cost of
sales during fiscal 2015 was also a result of the substantial completion at the end of fiscal 2014 of recognition of revenue and
corresponding costs of certain large-scale solar power systems within the United States.
Gross Margin
Distributed Generation
Residential
Commercial
Power Plant
2016
16%
—%
5%
Fiscal Year
2015
21%
6%
14%
2014
17%
10%
24%
Residential Gross Margin: Gross margin for our Residential Segment decreased five percentage points during fiscal
2016 as compared to fiscal 2015, as a result of declining average selling prices in Japan, where a reduction in the country’s feed-
in tariff during the last half of fiscal 2015 continued to reduce demand for solar power systems and the volatility of the value of
the Japanese Yen reduced demand for imported goods in general, partially offset by an increased volume of sales with favorable
margins for residential leases and higher average selling prices for residential components and systems in North America. The
decrease in gross margin during 2016 was also a result of charges totaling $15.2 million recorded in fiscal 2016 in connection
with the contracted sale of raw material inventory to third parties, as compared to a similar charge of $10.9 million recorded
in fiscal 2015.
Gross margin for our Residential Segment increased four percentage points during fiscal 2015 as compared to fiscal
2014 primarily as a result of increased volume of sales with favorable margins for residential leases and solar power systems and
components in the United States, partially offset by lower margins on solar power components resulting from declines in average
selling prices in Japan and a charge of $10.9 million recorded in fiscal 2015 in connection with the contracted sale of raw material
inventory to a third party.
Commercial Gross Margin: Gross margin for our Commercial Segment decreased six percentage points during fiscal
2016 as compared to fiscal 2015, primarily because of pricing pressures on sales of solar power systems due to factors such as
an increase in the internal rate of return expected by our customers in light of market conditions, as well as declining average
selling prices in Japan, where a reduction in the country’s feed-in tariff during the during the last half of fiscal 2015 continued to
61
reduce demand for solar power systems and the volatility of the value of the Japanese Yen reduced demand for imported goods
in general. The decrease in gross margin during 2016 was also a result of charges totaling $12.5 million recorded in fiscal 2016
in connection with the contracted sale of raw material inventory to third parties, as compared to a similar charge of $5.7 million
recorded in fiscal 2015.
Gross margin for our Commercial Segment decreased four percentage points during fiscal 2015 as compared to
fiscal 2014 primarily because we deferred the recognition of any profit on the sale of projects involving real estate to 8point3
Energy Partners under the accounting treatment described in “Item 8. Financial Statements—Notes to Consolidated Financial
Statements—Note 3. 8point3 Energy Partners LP” in our Annual Report on Form 10-K for the fiscal year ended January 3, 2016.
Gross margin during fiscal 2015 also decreased as a result of higher than expected costs on and changes in the scope of certain
commercial EPC projects in the United States and a charge of $5.7 million recorded in fiscal 2015 in connection with the
contracted sale of raw material inventory to a third party.
Power Plant Gross Margin: Gross margin for our Power Plant Segment decreased nine percentage points during
fiscal 2016 as compared to fiscal 2015 primarily because we experienced pressure on project pricing due to increased global
competition and other factors, including an increase in the internal rate of return expected by our customers in light of market
conditions, which led to write-downs totaling $46.2 million in fiscal 2016 on certain solar power development projects. The
decrease in gross margin during 2016 was also a result of charges totaling $30.5 million recorded in fiscal 2016 in connection
with the contracted sale of raw material inventory to third parties, as compared to a similar charge of $16.1 million recorded
in fiscal 2015.
Gross margin for our Power Plant Segment decreased 10 percentage points during fiscal 2015 as compared to fiscal 2014
primarily because we deferred the recognition of any profit on the sale to 8point3 Energy Partners of projects involving real estate
under the accounting treatment described in “Item 8. Financial Statements and Supplementary Data—Note 3. 8point3 Energy
Partners LP” in our Annual Report on Form 10-K for the fiscal year ended January 3, 2016. The decrease in gross margin during
2015 was also a result of the substantial completion of large-scale solar power systems with favorable margins at the end of fiscal
2014 within the United States and a charge of $16.1 million recorded in fiscal 2015 in connection with the contracted sale of raw
material inventory to a third party.
Research and Development (“R&D”)
(In thousands)
R&D
As a percentage of revenue
2016
$ 116,130
Fiscal Year
2015
99,063
$
2014
73,343
$
5%
6%
2%
R&D expense increased $17.1 million in fiscal 2016 as compared to fiscal 2015, primarily due to an increase in labor
costs as a result of additional headcount and salary related expenses, as well as an increase in other net expenses such as materials,
consulting and outside services as we continue to develop our next generation solar technology and expand our product offering.
The remaining increase was a result of other net expenses to support R&D programs as well as amortization of intangible assets
attributable to R&D activity.
R&D expense increased $25.7 million or 35%, in fiscal 2015 as compared to fiscal 2014 primarily due to a $16.8 million
increase in labor costs as a result of additional headcount and salary related expenses and a $4.5 million increase in consulting and
outside services as we continue to develop our next generation solar technology and expand our product offerings. The remaining
increase was a result of other net expenses to support R&D programs as well as amortization of intangible assets attributable to
R&D activity. These increases were partially offset by contributions under the R&D Agreement with Total.
Sales, General and Administrative (“SG&A”)
(In thousands)
SG&A
As a percentage of revenue
2016
$ 329,061
Fiscal Year
2015
$ 345,486
2014
$ 288,321
13%
22%
10%
SG&A expense decreased $16.4 million in fiscal 2016 as compared to fiscal 2015 primarily due to labor savings
resulting from our August 2016 and December 2016 restructuring plans, as well as a decrease in stock-based compensation
expense attributable to SG&A functions. The decrease was partially offset by an increase in marketing activity for
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residential and commercial products in North America and through digital media, as well as increased other costs related to
ongoing legal proceedings and non-cash charges primarily related to depreciation and the amortization and disposition of
intangible assets.
SG&A expense increased $57.2 million, or 19.8%, during fiscal 2015 as compared to fiscal 2014 due to a $21.4 million
increase in selling and marketing expenses as we grow our sales teams and increase our marketing activity in North America and
through digital media and a $26.5 million increase in legal, consulting, and other costs related to the formation and IPO of 8point3
Energy Partners, acquisitions, and ongoing legal proceedings.
Restructuring Charges
(In thousands)
Restructuring charges
As a percentage of revenue
2016
$ 207,189
Fiscal Year
2015
$
6,391
$
2014
12,223
8%
—%
—%
Restructuring charges increased $200.8 million during fiscal 2016 as compared to fiscal 2015 due to our August 2016
and December 2016 restructuring plans, $166.7 million of which consisted of non-cash charges related to asset impairments.
The remaining charges were primarily related to severance benefits and lease and related termination costs.
Restructuring charges decreased $5.8 million, or 48%, during fiscal 2015 as compared to fiscal 2014 and were primarily
related to severance and other charges associated with our November 2014 restructuring plan. Remaining charges are associated
with legacy restructuring plans approved in fiscal 2012 and 2011.
See “Item 8. Financial Statements and Supplementary Data—Note 8. Restructuring” for further information regarding
our restructuring plans.
Other Income (Expense), Net
(In thousands)
Interest income
Interest expense
Gain on settlement of preexisting relationships in connection with acquisition
Loss on equity method investment in connection with acquisition
Goodwill impairment
Other, net
Other expense, net
As a percentage of revenue
$
2016
2,652
(60,735)
203,252
(90,946)
(147,365)
(9,039)
$ (102,181)
$
Fiscal Year
2015
2,120
(43,796)
—
—
—
5,659
$
2014
2,583
(69,658)
—
—
—
449
$ (36,017)
$ (66,626)
(4)%
(2)%
(2)%
Other expense, net increased $66.2 million, in fiscal 2016 as compared to fiscal 2015, primarily driven by a
$147.4 million expense related to the impairment of goodwill and a $90.9 million expense related to the impairment of our
equity method investment in AUOSP, partially offset by a $203.3 million gain recognized on the termination of our preexisting
relationships upon completing our acquisition of AUOSP, all of which occurred in the third quarter of fiscal 2016. For more
information on these transactions, see “—Note 3. Business Combinations” and “—Note 4. Goodwill and Other Intangible Assets”
in “Item 8. Financial Statements and Supplementary Data” in this Annual Report on Form 10-K.
The remainder of the increase in Other expense, net was driven by the gain recognized on the sale of a residential lease
portfolio to 8point3 Energy Partners during fiscal 2015 which did not recur in fiscal 2016, an increase in interest expense in
fiscal 2016 due to the issuance of the 4.00% debentures due 2023 late in the fourth quarter of fiscal 2015, and additional interest
incurred on financing activities related to our residential lease business in fiscal 2016, as well as unfavorable changes in the fair
value of foreign currency derivatives and other net expenses.
Other expense, net decreased $30.6 million, or 46%, in fiscal 2015 as compared to fiscal 2014 primarily driven by the
$27.9 million gain recognized on the sale of a residential lease portfolio to 8point3 Energy Partners, a decrease in interest expense
due to the maturity of the 4.50% debentures in March of fiscal 2015, as well as favorable changes in the fair value of foreign
currency derivatives and other net expenses.
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Income Taxes
(In thousands)
Provision for income taxes
As a percentage of revenue
$
2016
(7,319)
—%
Fiscal Year
2015
$ (66,694)
(4)%
$
2014
(8,760)
—%
In fiscal 2016, our income tax provision of $7.3 million, on a loss before income taxes and equity in earnings of
unconsolidated investees of $564.6 million, was primarily due to tax expense in profitable jurisdictions, the amortization of U.S.
prepaid income tax related to intercompany transactions, offset by tax benefits from provision to return adjustments in U.S. and
foreign jurisdictions and realization of the tax benefit related to net operating losses that are eligible to be claimed as a refund on
the prior year U.S. tax returns.
In fiscal 2015, our income tax provision of $66.7 million on a loss before income taxes and equity in earnings of
unconsolidated investees of $242.3 million was due to an increase in taxable income resulting from gains realized primarily on
the sale of projects involving real estate and a coinciding utilization of carryforward tax attributes; however, revenue and margin
on the transactions that generated tax gains were deferred due to real estate accounting guidelines. For further information on
the accounting treatment of projects involving real estate, see “Item 8. Financial Statements and Supplementary Data—Note
10. Equity Method Investments” in this Annual Report on Form 10-K. Other factors contributing to the increase in provision
for income taxes in fiscal 2015 were a shift in the geographic mix of taxable income to jurisdictions with higher statutory tax
rates, prior year transfer pricing adjustments, intracompany profit deferral and accrual of unrecognized tax benefits, and deemed
foreign dividends.
A material amount of our total revenue is generated from customers located outside of the United States, and a
substantial portion of our assets and employees are located outside of the United States. U.S. income taxes and foreign
withholding taxes have not been provided on the undistributed earnings of our non-U.S. subsidiaries as such earnings are intended
to be indefinitely reinvested in operations outside the United States to the extent that such earnings have not been currently or
previously subjected to taxation of the United States.
We record a valuation allowance to reduce our U.S., France, and Spain deferred tax assets to the amount that is
more likely than not to be realized. In assessing the need for a valuation allowance, we consider historical levels of income,
expectations and risks associated with the estimates of future taxable income and ongoing prudent and feasible tax planning
strategies. In the event we determine that we would be able to realize additional deferred tax assets in the future in excess of the
net recorded amount, or if we subsequently determine that realization of an amount previously recorded is unlikely, we would
record an adjustment to the deferred tax asset valuation allowance, which would change income tax in the period of adjustment.
As of January 1, 2017, we believe there is insufficient evidence to realize additional deferred tax assets other than U.S. net
operating losses that can be carried back for a refund on prior year tax returns.
Equity in Earnings of Unconsolidated Investees
(In thousands)
Equity in earnings of unconsolidated investees
As a percentage of revenue
2016
28,070
$
Fiscal Year
2015
2014
$
9,569
$
7,241
1%
1%
—%
Our equity in earnings of unconsolidated investees increased $18.5 million in fiscal 2016, compared to fiscal
2015, primarily due to our share of the earnings generated by the activities of the 8point3 Group during fiscal 2016 as well
as our share of the earnings generated by the activities of our former joint venture AUOSP during fiscal 2016 prior to the
acquisition and subsequent consolidation of AUOSP on September 29, 2016. For more information on the acquisition of
AUOSP, see “Item 8. Financial Statements and Supplemental Data—Note 3. Business Combinations” in this Annual Report
on Form 10-K.
In fiscal 2015 and 2014, our equity in earnings of unconsolidated investees was a net gain of $9.6 million and
$7.2 million, respectively, and was primarily due to increased activities at AUOSP during the two fiscal years. The $9.6 million
net gain in fiscal 2015 also includes the activities of the 8point3 Group that took place during the last half of fiscal 2015.
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Net Income (loss)
(In thousands)
Net income (loss)
2016
Fiscal Year
2015
2014
$ (543,844)
$ (299,436)
$ 183,095
Net loss increased by $244.4 million in fiscal 2016 as compared to fiscal 2015. The increase in net loss was primarily
driven by: (i) a $200.8 million increase in restructuring expense related to our August 2016 and December 2016 restructuring
plans; (ii) a $66.2 million increase in other expense, net primarily driven by the impairment of goodwill and the loss on our
equity method investment in our former joint venture AUOSP during fiscal 2016 (partially offset by the settlement of preexisting
relationships with AUOSP), a gain recognized on the sale of a residential lease portfolio to 8point3 Energy Partners during
fiscal 2015 which did not recur in fiscal 2016, an overall increase in interest expense in fiscal 2016 due to the issuance of our
4.00% debentures late in the fourth quarter of fiscal 2015 and additional interest incurred on financing activities related to our
residential lease business, and unfavorable changes in the fair value of foreign currency derivatives and other net expenses;
(iii) a decrease in gross margin of $54.7 million primarily driven by charges totaling $58.2 million recorded in fiscal 2016 in
connection with the contracted sale of raw material inventory to third parties, partially offset by a similar charge of $32.7 million
in fiscal 2015, write-downs totaling $46.2 million on certain solar power development projects during fiscal 2016 that were based
on the estimated selling price of such projects, and by declines in the margins of our Residential and Commercial Segments
due to lower average selling prices in some markets; and (iv) a $0.6 million net increase in operating expenses due to increased
marketing spend and increased R&D headcount, mostly offset by a reduction in total labor costs and stock-based compensation
expense in SG&A functions resulting from our August 2016 and December 2016 restructuring plans. The increase in net loss
was partially offset by: (i) a $59.4 million decrease in provision for income taxes primarily due to a shift from domestic taxable
income to domestic taxable loss which reduced the overall tax provision in the period; and (ii) a $18.5 million increase in our
equity in earnings of unconsolidated investees due to the activities of the 8point3 Group during fiscal 2016 and the activities at
our former AUOSP joint venture prior to our acquisition of AUOSP.
Net income decreased by $482.5 million and changed from a net income to a net loss in fiscal 2015 as compared to
fiscal 2014. The decrease in net income (loss) was primarily driven by: (i) a $380.5 million decrease in gross margin, primarily
due to the substantial completion of revenue recognition on various large-scale solar power systems at the end of fiscal 2014 and
the deferral of all profits on transactions with the 8point3 Group involving real estate in fiscal 2015; (ii) a $77.1 million increase
in operating expenses due to increased headcount and marketing spend and costs incurred for acquisition-related diligence and
the formation and IPO of 8point3 Energy Partners; and (iii) a $57.9 million increase in income tax due to an increase in taxable
income resulting from gains realized primarily on the sale of projects involving real estate, on which revenue was deferred, and
a coinciding utilization of carryforward tax attributes. The decrease in net income was partially offset by: (i) a $30.6 million
decrease in Other expense, net driven by the gain recognized on the sale of a residential lease portfolio to 8point3 Energy
Partners, a decrease in interest expense due to the maturity of the 4.50% debentures in March of fiscal 2015, as well as favorable
changes in the fair value of foreign currency derivatives and other net expenses; and (ii) a $2.3 million increase in our equity in
earnings of unconsolidated investees due to activities at AUOSP and the 8point3 Group during fiscal 2015.
Information about other significant variances in our results of operations is described above.
Net Loss Attributable to Noncontrolling Interests and Redeemable Noncontrolling Interests
(In thousands)
Net loss attributable to noncontrolling interests and redeemable noncontrolling interests
2016
$ 72,780
Fiscal Year
2015
$ 112,417
2014
$ 62,799
We have entered into facilities with third-party tax equity investors under which the investors invest in a structure known
as a partnership flip. We determined that we hold controlling interests in these less-than-wholly-owned entities and therefore
we have fully consolidated these entities. We apply the hypothetical liquidation at book value method in allocating recorded net
income (loss) to each investor based on the change in the reporting period, of the amount of net assets of the entity to which each
investor would be entitled to under the governing contractual arrangements in a liquidation scenario.
In fiscal 2016, 2015, and 2014, we attributed $72.8 million, $112.4 million and $62.8 million, respectively, of net losses
primarily to the third-party investors as a result of allocating certain assets, including tax credits and accelerated tax depreciation
benefits, to the investors. The $39.6 million decrease in net loss attributable to noncontrolling interests and redeemable
noncontrolling interests is primarily attributable to a decrease in income per watt for leases placed in service under new facilities
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executed with third-party investors, partially offset by an increase in total number of leases placed in service under new and
existing facilities with third-party investors. The $49.6 million increase in net loss attributable to noncontrolling interests and
redeemable noncontrolling interests in fiscal 2015, as compared to fiscal 2014, is primarily attributable to additional leases placed
in service under new facilities executed with third-party investors in fiscal 2015.
Critical Accounting Estimates
We prepare our consolidated financial statements in conformity with U.S. generally accepted accounting principles,
which requires management to make estimates and assumptions that affect the amounts of assets, liabilities, revenues, and
expenses recorded in our financial statements. We base our estimates on historical experience and on various other assumptions
that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the
carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these
estimates under different assumptions and conditions. In addition to our most critical estimates discussed below, we also have
other key accounting policies that are less subjective and, therefore, judgments involved in their application would not have
a material impact on our reported results of operations (See “Item 8. Financial Statements and Supplementary Data—Note 1.
The Company and Summary of Significant Accounting Policies” in this Annual Report on Form 10-K).
Revenue Recognition
Solar Power Components
We sell our solar panels and balance of system components primarily to dealers, system integrators and distributors, and
recognize revenue, net of accruals for estimated sales returns, when persuasive evidence of an arrangement exists, delivery of
the product has occurred, title and risk of loss has passed to the customer, the sales price is fixed or determinable, collectability
of the resulting receivable is reasonably assured and the risks and rewards of ownership have passed to the customer. Other
than standard warranty obligations, there are no rights of return and there are no significant post-shipment obligations,
including installation, training, or customer acceptance clauses, with any of our customers that could have an impact on revenue
recognition. Our revenue recognition policy is consistent across all geographic areas and end-customer segments.
Construction Contracts
Revenue is also composed of EPC projects which are governed by customer contracts that require us to deliver
functioning solar power systems and are generally completed within three to twelve months from commencement of construction.
Construction on large projects may be completed within eighteen to thirty six months, depending on the size and location. We
recognize revenue from fixed-price construction contracts, which do not include land or land rights, using the percentage-of-
completion method of accounting. Under this method, revenue arising from fixed price construction contracts is recognized as
work is performed based on the percentage of incurred costs to estimated total forecasted costs.
Incurred costs used in our percentage-of-completion calculation include all direct material, labor and subcontract costs,
and those indirect costs related to contract performance, such as indirect labor, supplies, and tools. Project material costs are
included in incurred costs when the project materials have been installed by being permanently attached or fitted to the solar
power system as required by the project’s engineering design.
In addition to an EPC deliverable, a limited number of arrangements also include multiple deliverables such as post-
installation systems monitoring and maintenance. For contracts with separately priced monitoring and maintenance, we recognize
revenue related to such separately priced elements over the contract period. For contracts including monitoring and maintenance
not separately priced, we determined that post-installation systems monitoring and maintenance qualify as separate units of
accounting. Such post-installation monitoring and maintenance are deferred at the time the contract is executed based on the
best estimate of selling price on a standalone basis and are recognized to revenue over the contractual term. The remaining EPC
revenue is recognized on a percentage-of-completion basis.
In addition, when arrangements include contingent revenue clauses, such as customer termination or put rights for
non-performance, we defer the contingent revenue if there is a reasonable possibility that such rights or contingencies may be
triggered. In certain limited cases, we could be required to buy-back a customer’s system at fair value on specified future dates
if certain minimum performance thresholds are not met for specified periods. To date, no such repurchase obligations have been
triggered (see “Note 9. Commitments and Contingencies” under “Item 8. Financial Statements and Supplementary Data—Notes
to Consolidated Financial Statements” in this Annual Report on Form 10-K).
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Provisions for estimated losses on uncompleted contracts, if any, are recognized in the period in which the loss first
becomes probable and reasonably estimable. Contracts may include profit incentives such as milestone bonuses. These profit
incentives are included in the contract value when their realization is reasonably assured.
Development Projects
We develop and sell solar power plants which generally include the sale or lease of related real estate. Revenue
recognition for these solar power plants require adherence to specific guidance for real estate sales, which provides that if we
execute a sale of land in conjunction with an EPC contract requiring the future development of the property, we recognize
revenue and the corresponding costs under the full accrual method when all of the following requirements are met: the sale
is consummated, the buyer’s initial and any continuing investments are adequate, the resulting receivables are not subject to
subordination, the future costs to develop the property can be reasonably estimated, we have transferred the customary risk and
rewards of ownership to the buyer, and we do not have prohibited continuing involvement with the property or the buyer. In
general, a sale is consummated upon the execution of an agreement documenting the terms of the sale and receipt of a minimum
initial payment by the buyer to substantiate the transfer of risk to the buyer. Depending on the value of the initial and continuing
investment of the buyer, and provided the recovery of the costs of the solar power plant are assured if the buyer defaults, we may
defer revenue and profit during construction by aligning our revenue recognition and release of deferred project costs to cost
of sales with the receipt of payment from the buyer. At the time we have unconditionally received payment from the buyer,
revenue is recognized and deferred project costs are released to cost of sales at the same rate of profit estimated throughout the
construction of the project. Further, in situations where we have a noncontrolling equity interest in the buyer, we may defer all or
a portion of our revenue or profit in accordance with specific guidance for partial sales of real estate.
We have determined that our standard product and workmanship warranties do not represent prohibited forms of
continuing involvement that would otherwise preclude revenue recognition as these warranties do not result in the retention of
substantial risks or rewards of ownership or result in a seller guarantee as described in real estate accounting guidance. Similarly,
we have determined that when we provide post-installation monitoring and maintenance services and associated system output
performance warranties to customers of projects that include the sale or lease of real estate, these are not forms of prohibited
continuing involvement since the terms and conditions of the post-installation monitoring and maintenance services are
commensurate with market rates, control over the right to terminate the post-installation monitoring and maintenance contract
and associated system output performance warranties rests with the customer since the customer has the right to terminate for
convenience, and the terms and conditions for the system output performance warranties do not result in any additional services
or efforts by us or in the retention of ownership risks outside of our control.
Residential Leases
We offer a solar lease program, in partnership with third-party financial institutions, which allows our 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, which involve making a variety of
estimates, including the fair value and residual value of leased solar power systems. Changes in these estimates can have
a significant impact on the related accounting results, including the relative proportion of leases classified as operating- or
sales-type leases.
For those systems classified as sales-type leases, the net present value of the minimum lease payments, net of executory
costs, is recognized as revenue when the lease is placed in service. This net present value as well as the net present value of the
residual value of the lease at termination are recorded as receivables in our Consolidated Balance Sheets. The difference between
the initial net amounts and the gross amounts are amortized to revenue over the lease term using the interest method. The residual
values of our solar systems are determined at the inception of the lease by applying an estimated system fair value at the end of
the lease term.
For those systems classified as operating leases, rental revenue is recognized, net of executory costs, on a straight-line
basis over the term of the lease.
Allowance for Doubtful Accounts and Sales Returns
We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make
required payments. A considerable amount of judgment is required to assess the likelihood of the ultimate realization of accounts
receivable. We make our estimates of the collectability of our accounts receivable by analyzing historical bad debts, specific
customer creditworthiness and current economic trends.
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In addition, at the time revenue is recognized from the sale of solar panels and balance of system components, we record
estimates for sales returns which reduce revenue. These estimates are based on historical sales returns and analysis of credit memo
data, among other known factors.
Warranty Reserves
We generally provide a 25-year standard warranty for our solar panels that we manufacture for defects in materials
and workmanship. The warranty provides that we will repair or replace any defective solar panels during the warranty period.
In addition, we pass through to customers long-term warranties from the original equipment manufacturers of certain system
components, such as inverters. Warranties of 25 years from solar panel suppliers are standard in the solar industry, while certain
system components carry warranty periods ranging from five to 20 years.
In addition, we generally warrant our workmanship on installed systems for periods ranging up to 25 years and also
provide a separate system output performance warranty to customers that have subscribed to our post-installation monitoring and
maintenance services which expires upon termination of the post-installation monitoring and maintenance services related to the
system. The warrantied system output performance level varies by system depending on the characteristics of the system and the
negotiated agreement with the customer, and the level declines over time to account for the expected degradation of the system.
Actual system output is typically measured annually for purposes of determining whether warrantied performance levels have
been met. The warranty excludes system output shortfalls attributable to force majeure events, customer curtailment, irregular
weather, and other similar factors. In the event that the system output falls below the warrantied performance level during the
applicable warranty period, and provided that the shortfall is not caused by a factor that is excluded from the performance
warranty, the warranty provides that we will pay the customer a liquidated damage based on the value of the shortfall of energy
produced relative to the applicable warrantied performance level.
We maintain reserves to cover the expected costs that could result from these warranties. Our expected costs are
generally in the form of product replacement or repair. Warranty reserves are based on our best estimate of such costs and are
recognized as a cost of revenue. We continuously monitor product returns for warranty failures and maintain a reserve for the
related warranty expenses based on various factors including historical warranty claims, results of accelerated lab testing, field
monitoring, vendor reliability estimates, and data on industry averages for similar products. Due to the potential for variability
in these underlying factors, the difference between our estimated costs and our actual costs could be material to our consolidated
financial statements. If actual product failure rates or the frequency or severity of reported claims differ from our estimates or
if there are delays in our responsiveness to outages, we may be required to revise our estimated warranty liability. Historically,
warranty costs have been within management’s expectations.
Valuation of Inventories
Inventories are accounted for on a first-in-first-out basis and are valued at the lower of cost or net realizable value.
We evaluate the realizability of our inventories, including future purchase commitments under fixed-price long-term supply
agreements, based on assumptions about expected demand and market conditions. Our assumption of expected demand is
developed based on our analysis of bookings, sales backlog, sales pipeline, market forecast and competitive intelligence.
Our assumption of expected demand is compared to available inventory, production capacity, future polysilicon purchase
commitments, available third-party inventory and growth plans. Our factory production plans, which drive materials requirement
planning, are established based on our assumptions of expected demand. We respond to reductions in expected demand by
temporarily reducing manufacturing output and adjusting expected valuation assumptions as necessary. In addition, expected
demand by geography has changed historically due to changes in the availability and size of government mandates and
economic incentives.
We evaluate the terms of our long-term inventory purchase agreements with suppliers for the procurement of polysilicon,
ingots, wafers, and solar cells and establish accruals for estimated losses on adverse purchase commitments as necessary, such
as lower of cost or net realizable value adjustments, forfeiture of advanced deposits and liquidated damages. 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. We anticipate total
obligations related to long-term supply agreements for inventories will be realized because quantities are less than management’s
expected demand for its solar power products over a period of years; however, if raw materials inventory balances temporarily
exceed near-term demand, we may elect to sell such inventory to third parties to optimize working capital needs. In addition,
because the purchase prices required by our long-term polysilicon agreements are significantly higher than current market
prices for similar materials, if we are not able to profitably utilize this material in our operations or elect to sell near-term
excess, we may incur additional losses. Other market conditions that could affect the realizable value of our inventories and are
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periodically evaluated by management include the aging of inventories on hand, historical inventory turnover ratio, anticipated
sales price, new product development schedules, the effect new products might have on the sale of existing products, product
obsolescence, customer concentrations, the current market price of polysilicon as compared to the price in our fixed-price
arrangements, and product merchantability, among other factors. If, based on assumptions about expected demand and market
conditions, we determine that the cost of inventories exceeds its net realizable value or inventory is excess or obsolete, or we
enter into arrangements with third parties for the sale of raw materials that do not allow us to recover our current contractually
committed price for such raw materials, we record a write-down or accrual, which may be material, equal to the difference
between the cost of inventories and the estimated net realizable value. If actual market conditions are less favorable than those
projected by management, additional inventory write-downs may be required that could negatively affect our gross margin and
operating results. If actual market conditions are more favorable, we may have higher gross margin when products that have been
previously written down are sold in the normal course of business.
Stock-Based Compensation
We provide stock-based awards to our employees, executive officers and directors through various equity compensation
plans including our employee stock option and restricted stock plans. We measure and record compensation expense for all
stock-based payment awards based on estimated fair values. The fair value of restricted stock awards and units is based on the
market price of our common stock on the date of grant. We have not granted stock options since fiscal 2008. We are required
under current accounting guidance to estimate forfeitures at the date of grant. Our estimate of forfeitures is based on our historical
activity, which we believe is indicative of expected forfeitures. In subsequent periods if the actual rate of forfeitures differs
from our estimate, the forfeiture rates are required to be revised, as necessary. Changes in the estimated forfeiture rates can have
a significant effect on stock-based compensation expense since the effect of adjusting the rate is recognized in the period the
forfeiture estimate is changed.
We also grant performance share units to executive officers and certain employees that require us to estimate expected
achievement of performance targets over the performance period. This estimate involves judgment regarding future expectations
of various financial performance measures. If there are changes in our estimate of the level of financial performance measures
expected to be achieved, the related stock-based compensation expense may be significantly increased or reduced in the period
that our estimate changes.
Variable Interest Entities (“VIE”)
We regularly evaluate our relationships and involvement with unconsolidated VIEs, including our investments in the
8point3 Group and our other equity and cost method investments, to determine whether we have a controlling financial interest
in them or have become the primary beneficiary, thereby requiring us to consolidate their financial results into our financial
statements. In connection with the sale of the equity interests in the entities that hold solar power plants, we also consider whether
we retain a variable interest in the entity sold, either through retaining a financial interest or by contractual means. If we determine
that the entity sold is a VIE and that we hold a variable interest, we then evaluate whether we are the primary beneficiary. If we
determine that we are the primary beneficiary, we will consolidate the VIE. The determination of whether we are the primary
beneficiary is based upon whether we have the power to direct the activities that most directly impact the economic performance
of the VIE and whether we absorb any losses or benefits that would be potentially significant to the VIE.
Accounting for Business Combinations
We record all acquired assets and liabilities, including goodwill, other intangible assets and in-process research and
development, at fair value. The initial recording of goodwill, other intangible assets and in-process research and development
requires certain estimates and assumptions concerning the determination of the fair values and useful lives. The judgments
made in the context of the purchase price allocation can materially affect our future results of operations. Accordingly, for
significant acquisitions, we obtain assistance from third-party valuation specialists. The valuations calculated from estimates are
based on information available at the acquisition date. Goodwill is not amortized, but is subject to annual tests for impairment
or more frequent tests if events or circumstances indicate it may be impaired. Other intangible assets are amortized over their
estimated useful lives and are subject to impairment if events or circumstances indicate a possible inability to realize the carrying
amount. For additional details see “Note 3. Business Combinations” and “Note 4. Goodwill and Other Intangible Assets” under
“Item 8. Financial Statements and Supplementary Data—Notes to Consolidated Financial Statements” in this Annual Report
on Form 10-K.
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Valuation of Long-Lived Assets
Our long-lived assets include property, plant and equipment, solar power systems leased and to be leased, and other
intangible assets with finite lives. We evaluate our long-lived assets for impairment whenever events or changes in circumstances
indicate that the carrying value of such assets may not be recoverable. 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. Our impairment
evaluation of long-lived assets includes an analysis of estimated future undiscounted net cash flows expected to be generated
by the assets over their remaining estimated useful lives. If our estimate of future undiscounted net cash flows is insufficient to
recover the carrying value of the assets over the remaining estimated useful lives, we record an impairment loss in the amount
by which the carrying value of the assets exceeds the fair value. Fair value is generally measured based on either quoted market
prices, if available, or discounted cash flow analyses.
Valuation of Project Assets - Plant and Land
Project assets consist primarily of capitalized costs relating to solar power system projects in various stages of
development that we incur prior to the sale of the solar power system to a third-party. These costs include costs for land and costs
for developing and constructing a solar power system. Development costs can include legal, consulting, permitting, and other
similar costs. Once we enter into a definitive sales agreement, we reclassify these project asset costs to deferred project costs
within “Prepaid expenses and other current assets” in our Consolidated Balance Sheet until we have met the criteria to recognize
the sale of the project asset or solar power project as revenue. We release these project costs to cost of revenue as each respective
project asset or solar power system is sold to a customer, since the project is constructed for a customer (matching the underlying
revenue recognition method).
We evaluate the realizability of project assets whenever events or changes in circumstances indicate that the carrying
amount may not be recoverable. We consider the project to be recoverable if it is anticipated to be sellable for a profit once it
is either fully developed or fully constructed or if costs incurred to date may be recovered via other means, such as a sale prior
to the completion of the development cycle. We examine a number of factors to determine if the project will be profitable,
including whether there are any environmental, ecological, permitting, or regulatory conditions that have changed for the
project since the start of development. In addition, we must anticipate market conditions, such as the future cost of energy and
changes in the factors that our future customers use to value our project assets in sale arrangements, including the internal rate
of return that customers expect. Changes in such conditions could cause the cost of the project to increase or the selling price
of the project to decrease. Due to the development, construction, and sale timeframe of our larger solar projects, we classify
project assets which are not expected to be sold within the next 12 months as “Project assets - plants and land, net of current
portion” on the Consolidated Balance Sheets. Once specific milestones have been achieved, we determine if the sale of the
project assets will occur within the next 12 months from a given balance sheet date and, if so, we then reclassify the project
assets as current.
Goodwill Impairment
Goodwill is tested for impairment at least annually, or more frequently if certain indicators are present. If goodwill
is determined more likely than not to be impaired upon an initial assessment of qualitative factors, a two-step valuation and
accounting process is used to test for goodwill impairment. The first step is to determine if there is an indication of impairment
by comparing the estimated fair value of each reporting unit to its carrying value, including existing goodwill. Goodwill is
considered impaired if the carrying value of a reporting unit exceeds the estimated fair value. Upon an indication of impairment,
a second step is performed to determine the amount of the impairment by comparing the implied fair value of the reporting unit’s
goodwill with its carrying value.
We conduct our annual impairment test of goodwill as of the first day of the fourth fiscal quarter of each year, or on an
interim basis if circumstances warrant. Impairment of goodwill is tested at our reporting unit level. Management determined that
the Residential Segment, the Commercial Segment, and the Power Plant Segment are also the reporting units. In estimating the
fair value of the reporting units, we make estimates and judgments about our future cash flows using an income approach defined
as Level 3 inputs under fair value measurement standards. The income approach, specifically a discounted cash flow analysis,
included assumptions for, among others, forecasted revenue, gross margin, operating income, working capital cash flow, perpetual
growth rates and long-term discount rates, all of which require significant judgment by management. The sum of the fair values of
our reporting units are also compared to our total external market capitalization to validate the appropriateness of its assumptions
and such reporting unit values are adjusted, if appropriate. These assumptions also consider the current industry environment and
the resulting impact on our expectations for the performance of our business. In the event that management determines that the
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value of goodwill has become impaired, we will incur an accounting charge for the amount of the impairment during the fiscal
quarter in which the determination is made. For additional details see “Item 8. Financial Statements—Notes to Consolidated
Financial Statements—Note 4. Goodwill and Other Intangible Assets” in this Annual Report on Form 10-K.
Accounting for Income Taxes
Our global operations involve manufacturing, research and development, and selling and project development activities.
Profit from non-U.S. activities is subject to local country taxation, but not subject to U.S. tax until repatriated to the United States.
It is our intention to indefinitely reinvest these earnings outside the United States. We record a valuation allowance to reduce our
U.S., French, and Spanish deferred tax assets to the amount that is more likely than not to be realized. In assessing the need for a
valuation allowance, we consider historical levels of income, expectations and risks associated with the estimates of future taxable
income and ongoing prudent and feasible tax planning strategies. In the event we determine that we would be able to realize
additional deferred tax assets in the future in excess of the net recorded amount, or if we subsequently determine that realization
of an amount previously recorded is unlikely, we would record an adjustment to the deferred tax asset valuation allowance, which
would change income tax in the period of adjustment. As of January 1, 2017, we believe there is insufficient evidence to realize
additional deferred tax assets beyond the U.S. net operating losses that can be benefitted through a carryback election; however,
the reversal of the valuation allowance, which could be material, could occur in a future period.
The calculation of tax expense and liabilities involves dealing with uncertainties in the application of complex global tax
regulations, including in the tax valuation of projects sold to tax equity partnerships and other third parties. We recognize potential
liabilities for anticipated tax audit issues in the United States and other tax jurisdictions based on our estimate of whether, and the
extent to which, additional taxes will be due. If payment of these amounts ultimately proves to be unnecessary, the reversal of the
liabilities would result in tax benefits being recognized in the period in which we determine the liabilities are no longer necessary.
If the estimate of tax liabilities proves to be less than the ultimate tax assessment, a further charge to expense would result.
We accrue interest and penalties on tax contingencies which are classified as “Provision for income taxes” in our Consolidated
Statements of Operations and are not considered material.
Pursuant to the Tax Sharing Agreement with Cypress, our former parent company, we are obligated to indemnify Cypress
upon current utilization of carryforward tax attributes generated while we were part of the Cypress consolidated or combined
group. Further, to the extent Cypress experiences any tax examination assessments attributable to our operations while part of the
Cypress consolidated or combined group, Cypress will require an indemnification from us for those aspects of the assessment
that relate to our operations. See also “Item 1A. Risk Factors—Risks Related to Our Operations—Our agreements with Cypress
require us to indemnify Cypress for certain tax liabilities. These indemnification obligations and related contractual restrictions
may limit our ability to pursue certain business initiatives.”
In addition, foreign exchange gains (losses) may result from estimated tax liabilities which are expected to be realized in
currencies other than the U.S. dollar.
Liquidity and Capital Resources
Cash Flows
A summary of the sources and uses of cash and cash equivalents is as follows:
(In thousands)
Net cash provided by (used in) operating activities
Net cash provided by (used in) investing activities
Net cash provided by financing activities
Operating Activities
2016
$ (312,283)
$ (377,450)
$ 159,779
Fiscal Year
2015
$ (726,231)
$ 109,399
$ 619,967
2014
$
8,360
$ (309,239)
$ 498,566
Net cash used in operating activities in fiscal 2016 was $312.3 million and was primarily the result of: (i) a net loss
of $543.8 million; (ii) a $203.3 million non-cash settlement of preexisting relationships in connection with the acquisition of
AUOSP; (iii) a $172.5 million increase in long-term financing receivables related to our net investment in sales-type leases;
(iv) a $70.4 million increase in inventories driven by purchases of polysilicon; (v) a $38.2 million decrease in billings in excess
of costs and estimated earnings driven by the recognition revenue and corresponding costs of certain utility-scale projects;
(vi) a $33.5 million increase in accounts receivable, primarily driven by billings; (vii) a $28.1 million increase in equity in
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earnings of unconsolidated investees; (viii) a $17.0 million decrease in customer advances; (ix) a $12.1 million decrease
in accounts payable and other accrued liabilities, primarily attributable to recognition of revenue of certain utility-scale
projects; (x) a $6.6 million net change in deferred income taxes, and (xi) a $2.8 million in excess tax benefit from stock-based
compensation. This was partially offset by: (i) other net non-cash charges of $241.6 million related to depreciation, non-cash
interest charges and stock-based compensation; (ii) $166.7 million in non-cash restructuring charges; (iii) a $147.4 million
impairment of goodwill; (iv) $90.9 million in impairment of equity method investments; (v) a $74.3 million decrease in advance
payments made to suppliers; (vi) a $48.8 million decrease in prepaid expenses and other assets, primarily related to recognition of
revenue and corresponding costs of certain utility-scale projects; (vii) a $33.2 million decrease in project assets primarily related to
revenue recognition and corresponding costs of certain utility-scale and commercial projects; (viii) $6.9 million dividend from 8point3
Energy Partners LP; (ix) a $6.2 million decrease in costs and estimated earnings in excess of billings driven by milestone billings.
Net cash used in operating activities in fiscal 2015 was $726.2 million and was primarily the result of: (i) a net loss
of $299.4 million; (ii) a $763.1 million increase in project assets primarily related to our Henrietta, Hooper and Quinto Solar
Energy Projects; (iii) a $237.8 million increase in inventories driven by project assets for construction of solar power systems for
Commercial and Power Plant projects in North America and purchases of polysilicon; (iv) a $143.0 million increase in long-
term financing receivables related to our net investment in sales-type leases; (v) a $87.0 million increase in prepaid expenses and
other assets; (vi) a $39.4 million excess tax benefit from stock-based compensation; (vii) a $27.9 million gain on the sale of a
residential lease portfolio to 8point3 Energy Partners; (viii) a $20.8 million increase in customer advances; and (ix) a $9.6 million
increase in equity in earnings of unconsolidated investees. This was partially offset by: (i) a $311.7 million decrease in accounts
receivable, primarily driven by the collection of retainage related to Solar Star Projects; (ii) other net non-cash charges of
$205.7 million related to depreciation, non-cash interest charges and stock-based compensation; (iii) a $148.4 million decrease
in costs and estimated earnings in excess of billings driven by a decrease related to the Solar Star Projects; (iv) a $90.9 million
increase in accounts payable and other accrued liabilities; (v) a $63.7 million increase in deferred income taxes and income tax
liabilities; (vi) a $50.6 million decrease in advance payment made to suppliers; and (vii) a $30.7 million increase in billings in
excess of costs and estimated earnings driven by an increase related to Solar Star and other projects.
Net cash provided by operating activities in fiscal 2014 was $8.4 million and was primarily the result of: (i) a net income
of $183.1 million; (ii) a $205.5 million decrease in prepaid expenses and other assets driven by a decline in deferred costs related
to the Solar Star Projects; (iii) net non-cash charges of $186.0 million related to depreciation, non-cash interest charges, and stock
based compensation; (iv) a $45.8 million increase in accounts payable and other accrued liabilities; and (v) a $21.7 million net
increase in deferred income taxes and other liabilities. This was partially offset by: (i) a $225.2 million decrease in billings in
excess of costs and estimated earnings driven by a decline related to the Solar Star Projects; (ii) a $155.3 million increase in costs
and estimated earnings in excess of billings driven by an increase related to the Solar Star Projects; (iii) a $94.3 million increase
in long-term financing receivables related to our net investment in sales-type leases; (iv) a $68.2 million increase in project assets
primarily related to our Quinto Solar Energy project; (v) a $26.3 million increase in advance payments made to suppliers; (vi) a
$31.5 million increase in accounts receivable; (vii) a $23.5 million decrease in customer advances; and (viii) a $9.4 million net
change in other operating assets.
Investing Activities
Net cash used in investing activities in fiscal 2016 was $377.5 million, which included (i) $310.1 million in capital
expenditures primarily related to the expansion of our solar cell manufacturing capacity and costs associated with solar power
systems, leased and to be leased; (ii) $24.0 million paid for the acquisition of AUOSP, net of cash acquired; (iii) a $22.7 million
increase in restricted cash; (iv) $11.5 million paid for investments in consolidated and unconsolidated investees; (v) $9.8 million
in payments to 8point3 Energy Partners; (vi) $5.0 million paid for purchases of marketable securities; and (vii) $0.5 million paid
for intangibles. This was offset by: (i) $6.2 million in proceeds from sales or maturities of marketable securities.
Net cash provided by investing activities in fiscal 2015 was $109.4 million, which included $539.8 million in proceeds
from 8point3 Energy Partners. This was partially offset by (i) $328.4 million in capital expenditures primarily related to the
expansion of our solar cell manufacturing capacity and costs associated with solar power systems, leased and to be leased;
(ii) $64.8 million paid for acquisitions; (iii) a $23.2 million increase in restricted cash; (iv) $9.9 million paid for intangibles; and
(v) $4.1 million paid for investments in unconsolidated investees.
Net cash used in investing activities in fiscal 2014 was $309.2 million, which included: (i) $166.9 million related
to capital expenditures primarily related to the expansion of our solar cell manufacturing capacity and costs associated with
solar power systems, leased and to be leased; (ii) $97.0 million paid for investments in unconsolidated investees driven by a
$72.0 million equity contribution to AUOSP; (iii) $35.1 million paid for acquisitions; and (iv) a $11.6 million increase in
restricted cash. This was partially offset by $1.4 million proceeds from maturities of marketable securities.
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Financing Activities
Net cash provided by financing activities in fiscal 2016 was $159.8 million, which included: (i) $146.1 million
in net proceeds from the issuance of non-recourse residential financing, net of issuance costs; and (ii) $127.3 million
of net contributions from noncontrolling interests and redeemable noncontrolling interests related to the residential
lease projects. This was partially offset by: (i) $56.4 million in net repayments from the issuance of non-recourse power
plant and commercial financing, net of issuance costs; (ii) $30.0 million in net repayments of bank loans and other
debt; (iii) $21.5 million in purchases of treasury stock for tax withholding obligations on vested restricted stock; and
(iv) $5.7 million in cash paid for acquisitions.
Net cash provided by financing activities in fiscal 2015 was $620.0 million, which included: (i) $416.3 million in
proceeds from issuance of our 4.00% convertible debentures due 2023; (ii) $424.6 million in proceeds from the issuance of
project loans, net of issuance costs; (iii) $170.6 million of net contributions from noncontrolling interests and redeemable
noncontrolling interests related to the residential lease program; (iv) $90.6 million in net proceeds from the issuance of non-
recourse debt financing, net of issuance costs; (v) $39.9 million in proceeds from exercise of stock options and excess tax benefit
from stock-based compensation; (vi) $29.3 million in proceeds from 8point3 Energy Partners; (vii) $15.0 million in net proceeds
from sale-leaseback financing; and (viii) $12.4 million in contributions from noncontrolling interests related to real estate
projects. This was partially offset by: (i) $250.3 million in net payment to settle the 4.50% debentures due 2015, and the 4.50%
Bond Hedge and Warrant (defined below); (ii) $252.6 million in repayments of bank loans, project loans and other debt, primarily
the Quinto Credit Facility; (iii) $43.8 million in purchases of treasury stock for tax withholding obligations on vested restricted
stock; and (iv) $32.0 million of net repayments of residential lease financing.
Net cash provided by financing activities in fiscal 2014 was $498.6 million, which included: (i) $395.3 million in
net proceeds from the issuance of our 0.875% convertible debentures due 2021; (ii) $100.7 million of contributions from
noncontrolling interests and redeemable noncontrolling interests related to the residential lease program; (iii) $81.9 million of
proceeds from issuance of non-recourse debt financing to finance solar power systems and leases under our residential lease
program; (iv) $61.5 million in proceeds from issuance of project loans; (v) $46.4 million in net proceeds from sale-leaseback
financing arrangements; and (vi) $3.4 million in proceeds from exercise of stock options and excess tax benefit from stock-based
compensation. This was partially offset by: (i) $57.5 million in purchases of stock for tax withholding obligations on vested
restricted stock; (ii) $42.3 million cash paid to repurchase convertible debt; (iii) a $40.7 million assumption of a project loan
by a customer; (iv) $17.1 million in repayments of bank loans, project loans and other debt; (v) $15.7 million of repayments of
residential lease financing; (vi) a $12.2 million net payment to settle the 4.75% Bond Hedge and Warrant; and (vii) $5.1 million of
distributions to noncontrolling interests and redeemable noncontrolling interests.
Debt and Credit Sources
Convertible Debentures
As of January 1, 2017, an aggregate principal amount of $425.0 million of the 4.00% debentures due 2023 remained
issued and outstanding. The 4.00% debentures due 2023 were issued on December 15, 2015. Interest on the 4.00% debentures
due 2023 is payable on January 15 and July 15 of each year, beginning on July 15, 2016. Holders are able to exercise their right
to convert the debentures at any time into shares of our common stock at an initial conversion price approximately equal to
$30.53 per share, subject to adjustment in certain circumstances. If not earlier repurchased or converted, the 4.00% debentures
due 2023 mature on January 15, 2023. Holders may require us to repurchase all or a portion of their 4.00% debentures due 2023,
upon a fundamental change, as described in the related indenture, at a cash repurchase price equal to 100% of the principal
amount plus accrued and unpaid interest. If we undergo a non-stock change of control fundamental change, as described in the
related indenture, the 4.00% debentures due 2023 will be subject to redemption at our option, in whole but not in part, for a
period of 30 calendar days following a repurchase date relating to the non-stock change of control fundamental change, at a cash
redemption price equal to 100% of the principal amount plus accrued and unpaid interest. Otherwise, the 4.00% debentures due
2023 are not redeemable at our option prior to the maturity date. In the event of certain events of default, Wells Fargo Bank,
National Association (“Wells Fargo”), the trustee, or the holders of a specified amount of then-outstanding 4.00% debentures due
2023 will have the right to declare all amounts then outstanding due and payable.
As of January 1, 2017, an aggregate principal amount of $400.0 million of the 0.875% debentures due 2021 remained issued
and outstanding. The 0.875% debentures due 2021 were issued on June 11, 2014. Interest on the 0.875% debentures due 2021 is
payable on June 1 and December 1 of each year. Holders are able to exercise their right to convert the debentures at any time into
shares of our common stock at an initial conversion price approximately equal to $48.76 per share, subject to adjustment in certain
circumstances. If not earlier repurchased or converted, the 0.875% debentures due 2021 mature on June 1, 2021. Holders may
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require us to repurchase all or a portion of their 0.875% debentures due 2021, upon a fundamental change, as described in the related
indenture, at a cash repurchase price equal to 100% of the principal amount plus accrued and unpaid interest. If we undergo a non-
stock change of control fundamental change, as described in the related indenture, the 0.875% debentures due 2021 will be subject
to redemption at our option, in whole but not in part, for a period of 30 calendar days following a repurchase date relating to the
non-stock change of control fundamental change, at a cash redemption price equal to 100% of the principal amount plus accrued and
unpaid interest. Otherwise, the 0.875% debentures due 2021 are not redeemable at our option prior to the maturity date. In the event
of certain events of default, Wells Fargo, the trustee, or the holders of a specified amount of then-outstanding 0.875% debentures due
2021 will have the right to declare all amounts then outstanding due and payable.
As of January 1, 2017, an aggregate principal amount of $300.0 million of the 0.75% debentures due 2018 remained
issued and outstanding. The 0.75% debentures due 2018 were issued on May 29, 2013. Interest on the 0.75% debentures due
2018 is payable on June 1 and December 1 of each year. Holders are able to exercise their right to convert the debentures at
any time into shares of our common stock at an initial conversion price equal to $24.95 per share. The applicable conversion
rate may be subject to adjustment in certain circumstances. If not earlier converted, the 0.75% debentures due 2018 mature on
June 1, 2018. Holders may require us to repurchase all or a portion of their 0.75% debentures due 2018, upon a fundamental
change, as described in the related indenture, at a cash repurchase price equal to 100% of the principal amount plus accrued
and unpaid interest. If we undergo a non-stock change of control fundamental change, as described in the related indenture, the
0.75% debentures due 2018 will be subject to redemption at our option, in whole but not in part, for a period of 30 calendar days
following a repurchase date relating to the non-stock change of control fundamental change, at a cash redemption price equal to
100% of the principal amount plus accrued and unpaid interest. Otherwise, the 0.75% debentures due 2018 are not redeemable
at our option prior to the maturity date. In the event of certain events of default, Wells Fargo, the trustee, or the holders of a
specified amount of then-outstanding 0.75% debentures due 2018 will have the right to declare all amounts then outstanding
due and payable. Please see “Part I. Item 1A. Risk Factors—Risks Related to our Debt and Equity Securities—Conversion of
our outstanding 0.75% debentures, 0.875% debentures, 4.00% debentures, and future substantial issuances or dispositions of
our common stock or other securities, could dilute ownership and earnings per share or cause the market price of our stock to
decrease” in this Annual Report on Form 10-K.
Mortgage Loan Agreement with IFC
On May 6, 2010, we entered into a mortgage loan agreement with IFC. Under the loan agreement, we borrowed
$75.0 million and are required to repay the amount borrowed starting two years after the date of borrowing, in 10 equal
semiannual installments over the following 5 years. We are required to pay interest of LIBOR plus 3% per annum on outstanding
borrowings; a front-end fee of 1% on the principal amount of borrowings at the time of borrowing; and a commitment fee of 0.5%
per annum on funds available for borrowing and not borrowed. We may prepay all or a part of the outstanding principal, subject to
a 1% prepayment premium. We have pledged certain assets as collateral supporting repayment obligations.
As of January 1, 2017, we had $17.5 million outstanding under the mortgage loan agreement. Additionally, in accordance
with the terms of the mortgage loan agreement, we are required to establish a debt service reserve account which shall contain
the amount, as determined by IFC, equal to the aggregate principal and interest due on the next succeeding interest payment date
after such date. As of January 1, 2017, we had restricted cash and cash equivalents of $9.2 million related to the IFC debt service
reserve. On January 17, 2017, the Company repaid the entire outstanding balance, and the associated interest, of the mortgage
loan agreement with IFC (see Note 18).
Loan Agreement with California Enterprise Development Authority (“CEDA”)
On December 29, 2010, we borrowed from CEDA the proceeds of the $30.0 million aggregate principal amount of
CEDA’s tax-exempt Recovery Zone Facility Revenue Bonds (SunPower Corporation - Headquarters Project) Series 2010 (the
“Bonds”) maturing April 1, 2031 under a loan agreement with CEDA. Certain of our obligations under the loan agreement were
contained in a promissory note dated December 29, 2010 issued by us to CEDA, which assigned the promissory note, along with
all right, title and interest in the loan agreement, to Wells Fargo, as trustee, with respect to the Bonds for the benefit of the holders
of the Bonds. The Bonds bear interest at a fixed-rate of 8.50% per annum.
As of January 1, 2017, the $30.0 million aggregate principal amount of the Bonds was classified as “Long-term debt” in
our Consolidated Balance Sheets.
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Revolving Credit Facility with Credit Agricole
On July 3, 2013, we entered into a revolving credit agreement with Credit Agricole Corporate and Investment Bank
(“Credit Agricole”), as administrative agent, and certain financial institutions, under which we may borrow up to $250.0 million.
On August 26, 2014, we entered into an amendment to the revolving credit facility that extends, among other things, the maturity
date of the facility from July 3, 2016 to August 26, 2019 (the “Maturity Date”). Amounts borrowed may be repaid and reborrowed
until the Maturity Date. On February 17, 2016, the Company entered into an amendment to the credit agreement, expanding the
available borrowings under the revolving credit facility to $300.0 million and adding a $200.0 million letter of credit subfacility,
subject to the satisfaction of certain conditions. The revolving credit facility includes representations, covenants, and events of
default customary for financing transactions of this type. The revolving credit facility was entered into in conjunction with the
delivery by Total S.A. of a guarantee of our obligations under the facility. On January 31, 2014, (i) our obligations under the
revolving credit facility became secured by a pledge of certain accounts receivable and inventory, (ii) certain of our subsidiaries
entered into guaranties of the revolving credit facility, and (iii) Total S.A.’s guarantee of our obligations under the revolving credit
facility expired.
We are required to pay (a) interest on outstanding borrowings under the facility of (i) with respect to any LIBOR rate
loan, an amount ranging from 1.50% to 2.00% (depending on our leverage ratio from time to time) plus the LIBOR rate divided
by a percentage equal to one minus the stated maximum rate of all reserves required to be maintained against “Eurocurrency
liabilities” as specified in Regulation D; and (ii) with respect to any alternate base rate loan, an amount ranging from 0.50% to
1.00% (depending on our leverage ratio from time to time) plus the greater of (1) the prime rate, (2) the Federal Funds rate plus
0.50%, and (3) the one-month LIBOR rate plus 1%; and (b) a commitment fee ranging from 0.25% to 0.35% (depending on
our leverage ratio from time to time) per annum on funds available for borrowing and not borrowed. We will be required to pay
interest on letters of credit under the agreement of (a) with respect to any performance letter of credit, an amount ranging from
0.90% to 1.20% (depending on our leverage ratio from time to time); and (b) with respect to any other letter of credit, an amount
ranging from 1.50% to 2.00% (depending on our leverage ratio from time to time).
As of January 1, 2017, we had $4.7 million of outstanding borrowings under the revolving credit facility, all of which
were related to letters of credit that are fully cash collateralized. Although we are not in default with Credit Agricole, we are
currently not in compliance with the covenant for this credit facility that would permit us to draw further and therefore we may
not make additional draws on the facility without collateralizing the borrowings with cash. We expect to not be in compliance
with the covenant for the Credit Agricole credit facility for at least the remainder of the 2017 fiscal year, which will affect the
availability of borrowings under the line, if not remedied.
August 2016 Letter of Credit Facility Agreement
In August 2016, we entered into a letter of credit facility with Banco Santander, S.A. which provides for the issuance,
upon request by us, of letters of credit to support our obligations in an aggregate amount not to exceed $85 million. As of
January 1, 2017, there were no letters of credit issued and outstanding under the facility with Banco Santander, S.A.
2016 Letter of Credit Facility Agreements
In June 2016, we entered into a Continuing Agreement for Standby Letters of Credit and Demand Guarantees with
Deutsche Bank AG New York Branch and Deutsche Bank Trust Company Americas (the “2016 Non-Guaranteed LC Facility”)
which provides for the issuance, upon request by us, of letters of credit to support our obligations in an aggregate amount not to
exceed $50.0 million. The 2016 Non-Guaranteed LC Facility will terminate on June 29, 2018. As of January 1, 2017, letters of
credit issued and outstanding under the 2016 Non-Guaranteed LC Facility totaled $45.8 million.
In June 2016, we entered into bilateral letter of credit facility agreements (the “2016 Guaranteed LC Facilities”) with The
Bank of Tokyo-Mitsubishi UFJ (“BTMU”), Credit Agricole, and HSBC USA Bank, National Association (“HSBC”). Each letter
of credit facility agreement provides for the issuance, upon our request, of letters of credit by the issuing bank thereunder in order
to support certain of our obligations until December 31, 2018. Payment of obligations under each of the letter of credit facilities
are guaranteed by Total S.A. pursuant to the Credit Support Agreement. Aggregate letter of credit amounts may be increased
upon the agreement of the respective parties but, otherwise, may not exceed $75.0 million with BTMU, $75.0 million with Credit
Agricole and $175.0 million with HSBC, for a total capacity of $325.0 million. Each letter of credit issued under one of the letter
of credit facilities generally must have an expiration date, subject to certain exceptions, no later than the earlier of (a) two years
from completion of the applicable project and (b) March 31, 2020.
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In June 2016, in connection with the 2016 Guaranteed LC Facilities, we entered into a transfer agreement to transfer
to the 2016 Guaranteed LC Facilities all existing outstanding letters of credit issued under our letter of credit facility agreement
with Deutsche Bank AG New York Branch and Deutsche Bank Trust Company Americas, as administrative agent, and certain
financial institutions, entered into in August 2011 and amended from time to time. In connection with the transfer of the existing
outstanding letters of credit, the aggregate commitment amount under the August 2011 letter of credit facility was permanently
reduced to zero on June 29, 2016. As of January 1, 2017, there were no letters of credit issued and outstanding under the August
2011 letter of credit facility with Deutsche Bank. As of January 1, 2017, letters of credit issued and outstanding under the 2016
Guaranteed LC Facilities totaled $244.8 million.
September 2011 Letter of Credit Facility with Deutsche Bank and Deutsche Bank Trust Company Americas (together,
“Deutsche Bank Trust”)
On September 27, 2011, we entered into a letter of credit facility with Deutsche Bank Trust which provides for the
issuance, upon request by us, of letters of credit to support our obligations in an aggregate amount not to exceed $200.0 million.
Each letter of credit issued under the facility is fully cash-collateralized and we have entered into a security agreement with
Deutsche Bank Trust, granting them a security interest in a cash collateral account established for this purpose.
As of January 1, 2017 letters of credit issued under the Deutsche Bank Trust facility totaled $3.1 million, which was fully
collateralized with restricted cash as classified on the Consolidated Balance Sheets.
Revolving Credit Facility with Mizuho and Goldman Sachs
On May 4, 2016, we entered into a revolving credit facility (the “Construction Revolver”) with Mizuho Bank Ltd.,
as administrative agent, and Goldman Sachs Bank USA, under which we may borrow up to $200 million. The Construction
Revolver also includes a $100 million accordion feature. Amounts borrowed under the Construction Revolver may be repaid
and reborrowed in support of our commercial and small scale utility projects in the United States until the May 4, 2021 maturity
date. The Construction Revolver includes representations, covenants, and events of default customary for financing transactions
of this type.
Borrowings under the Construction Revolver bear interest at the applicable LIBOR rate plus 1.50% for the first two years
(with the final year at LIBOR plus 1.75%). All outstanding indebtedness under the facility may be voluntarily prepaid in whole
or in part without premium or penalty (with certain limitations to partial repayments), other than customary breakage costs. The
Construction Revolver is secured by the assets of, and equity in, the various project companies to which the borrowings relate, but
is otherwise non-recourse to us and our other affiliates.
As of January 1, 2017, outstanding borrowings under the Construction Revolver totaled $10.5 million.
Non-recourse Financing and Other Debt
In order to facilitate the construction, sale or ongoing operation of certain solar projects, including our residential
leasing program, we regularly obtain project-level financing. These financings are secured either by the assets of the specific
project being financed or by our equity in the relevant project entity and the lenders do not have recourse to the general assets
of the Company for repayment of such debt obligations, and hence the financings are referred to as non-recourse. Non-recourse
financing is typically in the form of loans from third-party financial institutions, but also takes other forms, including “flip
partnership” structures, sale-leaseback arrangements, or other forms commonly used in the solar or similar industries. We may
seek non-recourse financing covering solely the construction period of the solar project or may also seek financing covering
part or all of the operating life of the solar project. We classify non-recourse financings in our Consolidated Balance Sheets
in accordance with their terms; however, in certain circumstances, we may repay or refinance these financings prior to stated
maturity dates in connection with the sale of the related project or similar such circumstances. In addition, in certain instances,
the customer may assume the loans at the time that the project entity is sold to the customer. In these instances, subsequent debt
assumption is reflected as a financing outflow and operating inflow in the Consolidated Statements of Cash Flows to reflect the
substance of the assumption as a facilitation of customer financing from a third party.
For our residential lease program, non-recourse financing is typically accomplished by aggregating an agreed-upon
volume of solar power systems and leases with residential customers into a specific project entity. The Company has entered into
the following non-recourse financings with respect to its residential lease program:
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In fiscal 2016, we entered into bridge loans to finance solar power systems and leases under our residential lease
program. The loans are repaid over terms ranging from two to seven years. Some loans may be prepaid without penalties at our
option at any time, while other loans may be prepaid, subject to a prepayment fee, after one year. During fiscal 2016, we had net
proceeds of $5.7 million, in connection with these loans. As of January 1, 2017, the aggregate carrying amount of these loans,
presented in “Long-term debt” on our Consolidated Balance Sheets, was $6.7 million.
We enter into long-term loans to finance solar power systems and leases under our residential lease program. The loans
are repaid over their terms of between 17 and 18 years, and may be prepaid without penalty at our option beginning seven years
after the original issuance of the loan. During fiscal 2016 and 2015, we had net proceeds of $111.8 million and $90.6 million,
respectively, in connection with these loans. As of January 1, 2017, and January 3, 2016, the aggregate carrying amount of
these loans, presented in “Short-term debt” and “Long-term debt” on our Consolidated Balance Sheets, was $283.9 million and
$171.8 million, respectively.
We have entered into multiple arrangements under which solar power systems are financed by third-party investors
or customers, including by a legal sale of the underlying asset that is accounted for as a borrowing under relevant accounting
guidelines as the requirements to recognize the transfer of the asset were not met. Under the terms of these arrangements, the third
parties make an upfront payment to us, which we recognize as a liability that will be reduced over the term of the arrangement as
lease receivables and government incentives are received by the third party. As the liability is reduced, we make a corresponding
reduction in receivables. We use this approach to account for both operating and sales-type leases with our residential lease
customers in our consolidated financial statements. During fiscal 2016 and 2015, we had net proceeds (repayments) of
$28.5 million and $(32.0) million, respectively, in connection with these facilities. As of January 1, 2017 and January 3, 2016,
the aggregate carrying amount of these facilities, presented in “Accrued liabilities” and “Other long-term liabilities” on our
Consolidated Balance Sheets, was $29.4 million and $36.8 million, respectively (see Note 5).
We also enter into facilities with third-party tax equity investors under which the investors invest in a structure known
as a partnership flip. We hold controlling interests in these less-than-wholly-owned entities and therefore fully consolidate
these entities. We account for the portion of net assets in the consolidated entities attributable to the investors as noncontrolling
interests in our consolidated financial statements. Noncontrolling interests in subsidiaries that are redeemable at the option of
the noncontrolling interest holder are classified accordingly as redeemable, between liabilities and equity on the Company’s
Consolidated Balance Sheets. During fiscal 2016 and 2015, we had net contributions of $127.3 million and $170.6 million,
respectively, under these facilities and attributed losses of $74.9 million and $111.5 million, respectively, to the non-controlling
interests corresponding principally to certain assets, including tax credits, which were allocated to the non-controlling interests
during the periods. As of January 1, 2017 and January 3, 2016, the aggregate carrying amount of these facilities, presented in
“Redeemable non-controlling interests in subsidiaries” and “Non-controlling interests in subsidiaries” on our Consolidated
Balance Sheets, was $183.1 million and $128.6 million, respectively.
For our power plant and commercial solar projects, non-recourse financing is typically accomplished using an individual
solar power system or a series of solar power systems with a common end customer, in each case owned by a specific project
entity. We have entered into the following non-recourse financings with respect to our power plant and commercial projects:
In fiscal 2016, we entered into the Construction Revolver credit facility to support the construction of our commercial
and small scale utility projects in the United States. During fiscal 2016, we had net proceeds of $9.9 million, in connection with
the facility. As of January 1, 2017, the aggregate carrying amount of the Construction Revolver, presented in “Short-term debt”
and “Long-term debt” on our Consolidated Balance Sheets, was $10.5 million.
In fiscal 2016, we entered into a long-term credit facility to finance the 125 MW utility-scale Boulder power plant project
in Nevada. During fiscal 2016, we had net proceeds of $21.9 million, in connection with the facility. As of January 1, 2017,
the aggregate carrying amount of this facility, presented in “Short-term debt” and “Long-term debt” on our Consolidated Balance
Sheets, was $28.8 million.
In fiscal 2016, we entered into a short-term credit facility to finance the utility-scale Rio Bravo power plant projects in
California, with an aggregate size of approximately 50 MW. During fiscal 2016, in connection with the sale of the project, the
Company repaid the full amount outstanding, and as a result, the Company had net proceeds of $114.8 million and net repayments
of $117.6 million in connection with the facility. As of January 1, 2017, the aggregate carrying amount of this facility, presented in
“Short-term debt” on our Consolidated Balance Sheets, was zero.
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In fiscal 2016, we entered into a short-term credit facility to finance the 20 MW utility-scale Wildwood power plant
project in California. During fiscal 2016, in connection with the sale of the project, the Company repaid the full amount
outstanding, and as a result, the Company had net proceeds of $44.5 million and net repayments of $45.6 million, in connection
with the facility. As of January 1, 2017, the aggregate carrying amount of this facility, presented in “Short-term debt” on our
Consolidated Balance Sheets, was zero.
In fiscal 2016, we entered into a long-term credit facility to finance several related utility-scale power plant projects in
California, including the Stanford and Turlock projects, with an aggregate size of approximately 350 MW. During fiscal 2016,
in connection with the sale of the project, the Company repaid the full amount outstanding, and as a result, the Company had
net proceeds of $192.2 million and net repayments of $201.6 million, in connection with the facility. As of January 1, 2017, the
aggregate carrying amount of this facility, presented in “Short-term debt” and “Long-term debt” on our Consolidated Balance
Sheets, was zero.
In fiscal 2016, we entered into a long-term credit facility to finance the 111 MW utility-scale El Pelicano power plant
project in Chile. During fiscal 2016, we had net proceeds of $84.6 million in connection with the facility. As of January 1, 2017,
the aggregate carrying amount of this facility, presented in “Long-term debt” on our Consolidated Balance Sheets,
was $90.5 million.
In fiscal 2015, we entered into a long-term credit facility to finance the 128 MW utility-scale Henrietta power plant in
California. During fiscal 2016, in connection with the sale of the project, we repaid the full amount outstanding, and as a result,
the Company had net repayments of $216.7 million in connection with the facility. As of January 1, 2017 and January 3, 2016,
the aggregate carrying amount of this loan, presented in “Short-term debt” and “Long-term debt” on our Consolidated Balance
Sheets, was zero and $216.7 million, respectively.
In fiscal 2015, we entered into a long-term credit facility to finance the 60 MW Hooper utility-scale power plant in
Colorado. In the first quarter of fiscal 2016, we repaid the full amount outstanding. During fiscal 2016, we had net repayments
of $37.3 million in connection with the facility. As of January 1, 2017 and January 3, 2016, the carrying amount of this facility,
presented in “Long-term debt” on our Consolidated Balance Sheets, was zero and $37.3 million, respectively.
In fiscal 2013, we entered into a long-term loan agreement to finance a 5.4 MW utility and power plant operating in
Arizona. As of January 1, 2017 and January 3, 2016, the aggregate carrying amount under this loan, presented in “Short-term
debt” and “Long-term debt” on our Consolidated Balance Sheets, was $7.6 million and $8.1 million, respectively.
Other debt is further composed of non-recourse project loans in EMEA, which are scheduled to mature through 2028.
See “Item 8. Financial Statements—Notes to Consolidated Financial Statements—Note 6. Leasing” for a discussion of
the Company’s sale-leasebacks accounted for under the financing method.
Liquidity
As of January 1, 2017, we had unrestricted cash and cash equivalents of $425.3 million as compared to $954.5 million
as of January 3, 2016. Our cash balances are held in numerous locations throughout the world and as of January 1, 2017, we had
approximately $149.8 million held outside of the United States. This offshore cash is used to fund operations of our business
in the Europe and Asia Pacific regions as well as non-U.S. manufacturing operations, which require local payment for product
materials and other expenses. The amounts held outside of the United States represent the earnings of our foreign subsidiaries
which, if repatriated to the United States under current law, would be subject to United States federal and state tax less applicable
foreign tax credits. Repatriation of earnings that have not been subjected to U.S. or foreign withholding tax and that have been
indefinitely reinvested outside the U.S. could result in additional United States federal income tax or foreign withholding tax
payments in future years.
We expect total capital expenditures related to purchases of property, plant and equipment in the range of $110 million to
$130 million in fiscal 2017 in order to increase our manufacturing capacity for our highest efficiency X-Series product platform
and our new Performance Series technology, improve our current and next generation solar cell manufacturing technology, and
other projects. In addition, we expect to invest a significant amount of capital to develop solar power systems and plants for
sale to customers. The development of solar power plants can require long periods of time and substantial initial investments.
Our efforts in this area may consist of all stages of development, including land acquisition, permitting, financing, construction,
operation and the eventual sale of the projects. We often choose to bear the costs of such efforts prior to the final sale to a
customer, which involves significant upfront investments of resources (including, for example, large transmission deposits or
other payments, which may be non-refundable), land acquisition, permitting, legal and other costs, and in some cases the actual
78
costs of constructing a project, in advance of the signing of PPAs and EPC contracts and the receipt of any revenue, much of
which is not recognized for several additional months or years following contract signing. Any delays in disposition of one or
more projects could have a negative impact on our liquidity.
Certain of our customers also require performance bonds issued by a bonding agency or letters of credit issued by
financial institutions, which are returned to us upon satisfaction of contractual requirements. If there is a contractual dispute with
the customer, the customer may withhold the security or make a draw under such security, which could have an adverse impact on
our liquidity. Obtaining letters of credit may require adequate collateral. All letters of credit issued under our 2016 Guaranteed
LC Facilities are guaranteed by Total S.A. pursuant to the Credit Support Agreement. Our September 2011 letter of credit facility
with Deutsche Bank Trust is fully collateralized by restricted cash, which reduces the amount of cash available for operations.
As of January 1, 2017, letters of credit issued under the Deutsche Bank Trust facility amounted to $3.1 million which were fully
collateralized with restricted cash on the Consolidated Balance Sheets.
In fiscal 2011, we launched our residential lease program with dealers in the United States, in partnership with a third-
party financial institution, which allows customers to obtain SunPower systems under lease agreements up to 20 years, subject to
financing availability. We have entered into facilities with financial institutions that will provide financing to support additional
residential solar lease projects. Under the terms of certain programs, we receive upfront payments for periods under which the
third-party financial institution has agreed to assume collection risk for certain residential leases. Changes in the amount or
timing of upfront payments received from the financial institutions may have an impact on our cash position within the next
twelve months. The normal collection of monthly rent payments for leases placed in service is not expected to have a material
impact on our cash position within the next twelve months. We have entered into multiple facilities with third-party investors
under which both parties will invest in entities that hold SunPower solar power systems and leases with residential customers.
We determined that we hold a controlling interest in these less-than-wholly-owned entities and have fully consolidated these
entities as a result (see “Item 8. Financial Statements—Notes to Consolidated Financial Statements—Note 6. Leasing”). During
fiscal 2016, we received $146.3 million in contributions from investors under the related facility agreements. Additionally, during
fiscal 2014, 2015 and 2016, we entered into several long-term non-recourse loans to finance solar power systems and leases under
our residential lease program. In fiscal 2016, we drew down $116.1 million of proceeds, net of issuance costs, under the loan
agreements. The loans have 17- and 18-year terms and as of January 1, 2017, the short-term and long-term balances of the loans
were $7.3 million and $276.6 million, respectively. We are actively arranging additional third-party financing for our residential
lease program; however, the credit markets are unpredictable, and if they become challenging, we may be unable to arrange
additional financing partners for our residential lease program in future periods, which could have a negative impact on our sales.
In the unlikely event that we enter into a material number of additional leases without promptly obtaining corresponding third-
party financing, our cash and working capital could be negatively affected. Additionally, we have approximately $33.1 million
of cash and cash equivalents within our consolidated residential leasing subsidiaries that is used by those subsidiaries for their
working capital needs. This cash is typically not available to us to use for general corporate purposes unless certain financial
obligations are first settled. In the event that we choose to transfer cash out of these subsidiaries for general corporate purposes
in the future, we would first be required to distribute a portion of the cash to lender debt reserves and investors who hold
noncontrolling interests in the relevant subsidiaries.
Solar power plant projects often require significant up-front investments. These include payments for preliminary
engineering, permitting, legal, and other expenses before we can determine whether a project is feasible. We often make
arrangements with third-party financiers to acquire and build solar power systems or to fund project construction using non-
recourse project debt. As of January 1, 2017, outstanding amounts related to our project financing totaled $427.9 million.
We believe that our current cash, cash equivalents, cash expected to be generated from operations and funds available
under our existing credit facilities will be sufficient to meet our working capital needs and fund our committed capital
expenditures over the next 12 months from the date of the issuance of the financial statements, including the development and
construction of solar power systems and plants. As such, we do not believe substantial doubt exists regarding the Company’s
ability to continue as a going concern. In conjunction with evaluating our ability to continue as a going concern, we have
considered our historical ability to work with our vendors to obtain favorable payment terms, when possible, and our ability
to reduce manufacturing output to reduce inventory in order to optimize our working capital. We may also choose to explore
additional options in connection with our short-term liquidity needs, such as selling raw materials inventory to third parties,
liquidating certain investments, discontinuing the development of certain projects, implementing additional restructuring plans,
and deferring or canceling uncommitted capital expenditures and other investment or acquisition activities. We expect to be able
to supplement our short-term liquidity, if necessary, with access to capital markets and additional credit facilities, including non-
recourse debt, made available by various domestic and foreign financial institutions. However, there can be no assurance that our
liquidity will be adequate over time or that we will in fact have access to capital markets on reasonable terms or at all, whether to
meet operating needs or to refinance debt. A significant portion of our revenue is generated from a limited number of customers
79
and large projects and our inability to execute these projects, or to collect from these customers or for these projects, would have a
significant negative impact on our business. Our capital expenditures and use of working capital may be greater than we expect if
we decide to make additional investments in the development and construction of solar power plants and sales of power plants and
associated cash proceeds are delayed, or if we decide to accelerate increases in our manufacturing capacity internally or through
capital contributions to joint ventures. We require project financing in connection with the construction of solar power plants,
which financing may not be available on terms acceptable to us. In addition, we could in the future make additional investments
or guarantee certain financial obligations of our investments, which could reduce our cash flows, increase our indebtedness and
expose us to the credit risk of our joint ventures. See also “Risks Related to Our Sales Channels—A limited number of customers
and large projects are expected to continue to comprise a significant portion of our revenues and any decrease in revenues from
those customers or projects, payment of liquidated damages, or an increase in related expenses, could have a material adverse
effect on our business, results of operations and financial condition,” and “Risks Related to Our Liquidity—We may be unable to
generate sufficient cash flows or obtain access to external financing necessary to fund our operations and make adequate capital
investments as planned due to the general economic environment and the continued market pressure driving down the average
selling prices of our solar power products,” among other factors in Part I. “Item 1A. Risk Factors”.
On February 17, 2016, we entered into an amendment to the credit agreement with Credit Agricole to expand the
available borrowings under the revolving credit facility to $300.0 million and to add a $200.0 million letter of credit subfacility,
subject to the satisfaction of certain conditions. Proceeds from our revolving credit facility with Credit Agricole may be used for
general corporate purposes. Our revolving credit facility with Credit Agricole requires that we maintain certain financial ratios,
including the ratio that our debt at the end of each quarter to our EBITDA for the last twelve months, as defined, will not exceed
4.5 to 1. As of January 1, 2017, $295.3 million remained undrawn under our revolving credit facility with Credit Agricole;
however we are currently not in compliance with the covenant for the Credit Agricole credit facility that requires the ratio of our
debt at the end of each quarter to our EBITDA for the last twelve months, as defined, to not exceed 4.5 to 1. We are not in default
with Credit Agricole; however, we may not draw on the facility without collateralizing additional future borrowings with cash.
We expect to not be in compliance with the aforementioned financial ratio covenant for the Credit Agricole credit facility for at
least the remainder of fiscal 2017, which will affect the availability of borrowings under the line, if not remedied. Additionally,
on May 4, 2016, we entered into the Construction Revolver credit facility, under which we may borrow up to $200 million,
with a $100 million accordion feature, in support of our commercial and small scale utility projects in the United States until its
May 4, 2021 maturity date, subject to certain conditions. As of January 1, 2017, we had $189.5 million available to us under the
Construction Revolver credit facility. There are no assurances, however, that we will have sufficient available cash to repay our
indebtedness or that we will be able to refinance such indebtedness on similar terms to the expiring indebtedness. If our capital
resources are insufficient to satisfy our liquidity requirements, we may seek to sell additional equity securities or debt securities
or obtain other debt financing. The current economic environment, however, could limit our ability to raise capital by issuing
new equity or debt securities on acceptable terms, and lenders may be unwilling to lend funds on acceptable terms in the amounts
that would be required to supplement cash flows to support operations. The sale of additional equity securities or convertible
debt securities would result in additional dilution to our stockholders (and the potential for further dilution upon the exercise of
warrants or the conversion of convertible debt) and may not be available on favorable terms or at all, particularly in light of the
current conditions in the financial and credit markets. Additional debt would result in increased expenses and would likely impose
new restrictive covenants which may be similar or different than those restrictions contained in the covenants under our current
loan agreements and debentures. In addition, financing arrangements, including project financing for our solar power plants and
letters of credit facilities, may not be available to us, or may not be available in amounts or on terms acceptable to us.
80
Contractual Obligations
The following table summarizes our contractual obligations as of January 1, 2017:
(In thousands)
Convertible debt, including interest1
IFC mortgage loan, including interest2
CEDA loan, including interest3
Other debt, including interest4
Future financing commitments5
Operating lease commitments6
Sale-leaseback financing7
Capital lease commitments8
Non-cancellable purchase orders9
Purchase commitments under agreements10
Deferred purchase consideration in connection
with acquisition
Total
Total
$ 1,246,360
17,526
66,338
680,238
8,233
130,419
187,627
4,510
209,372
1,073,537
$
2017
22,750
17,526
2,550
71,031
8,233
15,894
27,987
1,032
209,372
526,734
Payments Due by Fiscal Period
2018-2019
$ 341,944
—
5,100
77,222
—
29,169
23,848
1,509
—
381,955
2020-2021
$ 438,958
—
5,100
70,623
—
24,427
22,079
1,192
—
162,848
Beyond 2021
442,708
$
—
53,588
461,362
—
60,929
113,713
777
—
2,000
61,100
$ 3,685,260
—
$ 903,109
31,100
$ 891,847
30,000
$ 755,227
—
$ 1,135,077
1 Convertible debt, including interest, relates to the aggregate of $1,125.0 million in outstanding principal amount of our senior
convertible debentures on January 1, 2017. For the purpose of the table above, we assume that all holders of the outstanding
debentures will hold the debentures through the date of maturity, and upon conversion, the values of the senior convertible debentures
will be equal to the aggregate principal amount with no premiums.
2
IFC mortgage loan, including interest, relates to the $17.5 million outstanding principal amount as of January 1, 2017. Under the
loan agreement, we are required to repay the amount borrowed, starting 2 years after the date of borrowing, in 10 equal semiannual
installments over the following 5 years. We are required to pay interest of LIBOR plus 3% per annum on outstanding borrowings;
a front-end fee of 1% on the principal amount of borrowings at the time of borrowing; and a commitment fee of 0.5% per annum on
funds available for borrowing and not borrowed.
3 CEDA loan, including interest, relates to the proceeds of the $30.0 million aggregate principal amount of the Bonds. The Bonds mature
on April 1, 2031 and bear interest at a fixed rate of 8.50% through maturity.
4 Other debt, including interest, primarily relates to non-recourse finance projects and solar power systems and leases under our
residential lease program as described in “Item 8. Financial Statements—Notes to Consolidated Financial Statements—Note 9.
Commitments and Contingencies.”
5
In connection with purchase and joint venture agreements with non-public companies, we will be required to provide additional
financing to such parties of up to $8.2 million, subject to certain conditions.
6 Operating lease commitments primarily relate to certain solar power systems leased from unaffiliated third parties over minimum lease
terms of up to 20 years and various facility lease agreements.
7 Sale-leaseback financing relates to future minimum lease obligations for solar power systems under sale-leaseback arrangements
which were determined to include integral equipment and accounted for under the financing method.
8 Capital lease commitments primarily relate to certain buildings, manufacturing and equipment under capital leases in Europe for terms
of up to 12 years.
9 Non-cancellable purchase orders relate to purchases of raw materials for inventory and manufacturing equipment from a variety
of vendors.
10 Purchase commitments under agreements relate to arrangements entered into with several suppliers, including some of our non-
consolidated investees, for polysilicon, ingots, wafers, and Solar Renewable Energy Credits, among others. These agreements specify
future quantities and pricing of products to be supplied by the vendors for periods up to 8 years and there are certain consequences,
such as forfeiture of advanced deposits and liquidated damages relating to previous purchases, in the event that we terminate
the arrangements. During fiscal 2016, we did not fulfill all of the purchase commitments we were otherwise obligated to take by
December 31, 2016, as specified in related contracts with a supplier. As of January 1, 2017, the Company has recorded an offsetting
asset, recorded within “Prepaid expenses and other current assets,” and liability, recorded within “Accrued liabilities,” totaling
$83.9 million. This amount represents the unfulfilled amount as of that date as the Company expects to satisfy the obligation via
purchases of inventory in fiscal 2017, within the applicable contractual cure period.
81
Liabilities Associated with Uncertain Tax Positions
Due to the complexity and uncertainty associated with our tax positions, we cannot make a reasonably reliable estimate
of the period in which cash settlement will be made for our liabilities associated with uncertain tax positions in other long-term
liabilities. Therefore, they have been excluded from the table above. As of January 1, 2017, total liabilities associated with
uncertain tax positions were $47.2 million and are included in “Other long-term liabilities” in our Consolidated Balance Sheets
as they are not expected to be paid within the next twelve months.
Off-Balance-Sheet Arrangements
As of January 1, 2017, we did not have any significant off-balance-sheet arrangements, as defined in Item 303(a)(4)(ii)
of SEC Regulation S-K.
ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Foreign Currency Exchange Risk
Our exposure to movements in foreign currency exchange rates is primarily related to sales to European customers
that are denominated in Euros. Revenue generated from European customers represented 3%, 8% and 10% of our total revenue
in fiscal 2016, 2015 and 2014, respectively. A 10% change in the Euro exchange rate would have impacted our revenue by
approximately $7.6 million, $12.2 million and $28.9 million in fiscal 2016, 2015 and 2014, respectively.
In the past, we have experienced an adverse impact on our revenue, gross margin and profitability as a result of foreign
currency fluctuations. When foreign currencies appreciate against the U.S. dollar, inventories and expenses denominated in
foreign currencies become more expensive. An increase in the value of the U.S. dollar relative to foreign currencies could make
our solar power products more expensive for international customers, thus potentially leading to a reduction in demand, our sales
and profitability. Furthermore, many of our competitors are foreign companies that could benefit from such a currency fluctuation,
making it more difficult for us to compete with those companies.
We currently conduct hedging activities which involve the use of option and forward currency contracts that are
designed to address our exposure to changes in the foreign exchange rate between the U.S. dollar and other currencies. As of
January 1, 2017, we had outstanding hedge option currency contracts and forward currency contracts with aggregate notional
values of $28.3 million and $42.9 million, respectively. As of January 3, 2016, we had outstanding hedge option currency
contracts and forward currency contracts with aggregate notional values of zero and $35.7 million, respectively. Because we
hedge some of our expected future foreign exchange exposure, if associated revenues do not materialize we could experience a
reclassification of ineffective gains or losses into earnings. Such a reclassification could adversely impact our revenue, margins
and results of operations. We cannot predict the impact of future exchange rate fluctuations on our business and operating results.
Credit Risk
We have certain financial and derivative instruments that subject us to credit risk. These consist primarily of cash and
cash equivalents, restricted cash and cash equivalents, investments, accounts receivable, notes receivable, advances to suppliers,
foreign currency option contracts, foreign currency forward contracts, bond hedge and warrant transactions. We are exposed to
credit losses in the event of nonperformance by the counterparties to our financial and derivative instruments. Our investment
policy requires cash and cash equivalents, restricted cash and cash equivalents, and investments to be placed with high-quality
financial institutions and limits the amount of credit risk from any one issuer. We additionally perform ongoing credit evaluations
of our customers’ financial condition whenever deemed necessary and generally do not require collateral.
We enter into agreements with vendors that specify future quantities and pricing of polysilicon to be supplied for
periods up to 10 years. Under certain agreements, we are required to make prepayments to the vendors over the terms of the
arrangements. As of January 1, 2017 and January 3, 2016, advances to suppliers totaled $284.8 million and $359.1 million,
respectively. Two suppliers accounted for 90% and 10% of total advances to suppliers as of January 1, 2017, and 82% and
16% as of January 3, 2016.
We enter into foreign currency derivative contracts and convertible debenture hedge transactions with high-quality
financial institutions and limit the amount of credit exposure to any single counterparty. The foreign currency derivative
contracts are limited to a time period of 12 months or less. We regularly evaluate the credit standing of our counterparty
financial institutions.
82
Interest Rate Risk
We are exposed to interest rate risk because many of our customers depend on debt financing to purchase our solar
power systems. An increase in interest rates could make it difficult for our customers to obtain the financing necessary to purchase
our solar power systems on favorable terms, or at all, and thus lower demand for our solar power products, reduce revenue and
adversely impact our operating results. An increase in interest rates could lower a customer’s return on investment in a system
or make alternative investments more attractive relative to solar power systems, which, in each case, could cause our customers
to seek alternative investments that promise higher returns or demand higher returns from our solar power systems, reduce gross
margin and adversely impact our operating results. This risk is significant to our business because our sales model is highly
sensitive to interest rate fluctuations and the availability of credit, and would be adversely affected by increases in interest rates
or liquidity constraints.
Our interest expense would increase to the extent interest rates rise in connection with our variable interest rate
borrowings. As of January 1, 2017, the outstanding principal balance of our variable interest borrowings was $201.4 million.
We do not believe that an immediate 10% increase in interest rates would have a material effect on our financial statements. In
addition, lower interest rates would have an adverse impact on our interest income. Our investment portfolio primarily consists
of $3.0 million in money market funds as of January 1, 2017 which exposes us to interest rate risk. Due to the relatively short-
term nature of our investment portfolio, we do not believe that an immediate 10% increase in interest rates would have a material
effect on the fair market value of our money market funds. Since we believe we have the ability to liquidate substantially all of
this portfolio, we do not expect our operating results or cash flows to be materially affected to any significant degree by a sudden
change in market interest rates on our investment portfolio.
Equity Price Risk Involving Minority Investments in Joint Ventures and Other Non-Public Companies
Our investments held in joint ventures and other non-public companies expose us to equity price risk. As of
January 1, 2017 and January 3, 2016, investments of $(6.9) million and $186.4 million, respectively, are accounted for using the
equity method, and $39.4 million and $36.4 million, respectively, are accounted for using the cost method. The carrying value
of our equity method investments as of January 1, 2017 and January 3, 2016 included the negative balance of $60.6 million and
$30.9 million, respectively, of our investment in the 8point3 Group (See “Item 8. Financial Statements—Notes to Consolidated
Financial Statements—Note 10. Equity Method Investments”). These strategic investments in third parties are subject to risk of
changes in market value, which if determined to be other-than-temporary, could result in realized impairment losses. We generally
do not attempt to reduce or eliminate our market exposure in equity and cost method investments. We monitor these investments
for impairment and record reductions in the carrying values when necessary. Circumstances that indicate an other-than-temporary
decline include the valuation ascribed to the issuing company in subsequent financing rounds, decreases in quoted market prices
and declines in operations of the issuer. There can be no assurance that our equity and cost method investments will not face risks
of loss in the future.
Interest Rate Risk and Market Price Risk Involving Convertible Debt
The fair market value of our outstanding convertible debentures is subject to interest rate risk, market price risk and
other factors due to the convertible feature of the debentures. The fair market value of the debentures will generally increase as
interest rates fall and decrease as interest rates rise. In addition, the fair market value of the debentures will generally increase
as the market price of our common stock increases and decrease as the market price of our common stock falls. The interest and
market value changes affect the fair market value of the debentures, but do not impact our financial position, cash flows or results
of operations due to the fixed nature of the debt obligations, except to the extent increases in the value of our common stock
may provide the holders of our 4.00% debentures due 2023, 0.875% debentures due 2021, or 0.75% debentures due 2018 the
right to convert such debentures into cash in certain instances. The aggregate estimated fair value of our outstanding convertible
debentures was $839.2 million as of January 1, 2017. The aggregate estimated fair value of our outstanding convertible
debentures was $1,253.2 million as of January 3, 2016. Estimated fair values are based on quoted market prices as reported
by an independent pricing source. A 10% increase in quoted market prices would increase the estimated fair value of our then-
outstanding debentures to $923.1 million and $1,378.5 million as of January 1, 2017 and January 3, 2016, respectively, and a 10%
decrease in the quoted market prices would decrease the estimated fair value of our then-outstanding debentures to $755.3 million
and $1,127.9 million as of January 1, 2017 and January 3, 2016, respectively.
83
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
SUNPOWER CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
REPORTS OF ERNST & YOUNG LLP, INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED STATEMENTS OF OPERATIONS
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
CONSOLIDATED STATEMENTS OF EQUITY
CONSOLIDATED STATEMENTS OF CASH FLOWS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Page
85
87
88
89
90
91
93
84
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of SunPower Corporation
We have audited the accompanying consolidated balance sheets of SunPower Corporation as of January 1, 2017 and January 3,
2016, and the related consolidated statements of operations, comprehensive income (loss), equity, and cash flows for each of the
three years in the period ended January 1, 2017. These financial statements are the responsibility of the Company’s management.
Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position
of SunPower Corporation at January 1, 2017 and January 3, 2016, and the consolidated results of its operations and its cash flows
for each of the three years in the period ended January 1, 2017, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States),
SunPower Corporation’s internal control over financial reporting as of January 1, 2017, based on criteria established in Internal
Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013
framework) and our report dated February 17, 2017 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
San Jose, California
February 17, 2017
85
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of SunPower Corporation
We have audited SunPower Corporation’s internal control over financial reporting as of January 1, 2017, based on criteria
established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (2013 framework) (the COSO criteria). SunPower Corporation’s management is responsible for maintaining
effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial
reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is
to express an opinion on the company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal
control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in
the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that
(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions
of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation
of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
As indicated in the accompanying Management’s Report on Internal Control over Financial Reporting, management’s assessment
of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of
SunPower Corporation’s former AUOSP joint venture (now a wholly-owned subsidiary, SunPower Malaysia Manufacturing Sdn.
Bhd.), which is included in the January 1, 2017 consolidated financial statements of SunPower Corporation and constituted 7% of
the Company’s consolidated total assets as of January 1, 2017. Our audit of internal control over financial reporting of SunPower
Corporation also did not include an evaluation of the internal control over financial reporting of SunPower Corporation’s former
AUOSP joint venture (now a wholly-owned subsidiary, SunPower Malaysia Manufacturing Sdn. Bhd.).
In our opinion, SunPower Corporation maintained, in all material respects, effective internal control over financial reporting as of
January 1, 2017, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the
2016 consolidated financial statements of SunPower Corporation and our report dated February 17, 2017 expressed an unqualified
opinion thereon.
/s/ Ernst & Young LLP
San Jose, California
February 17, 2017
86
Assets
Current assets:
Cash and cash equivalents
Restricted cash and cash equivalents, current portion
Accounts receivable, net1
Costs and estimated earnings in excess of billings1
Inventories
Advances to suppliers, current portion
Project assets - plants and land, current portion1
Prepaid expenses and other current assets1
Total current assets
Restricted cash and cash equivalents, net of current portion
Restricted long-term marketable securities
Property, plant and equipment, net
Solar power systems leased and to be leased, net
Project assets - plants and land, net of current portion
Advances to suppliers, net of current portion
Long-term financing receivables, net
Goodwill and other intangible assets, net
Other long-term assets1
Total assets
Liabilities and Equity
Current liabilities:
Accounts payable1
Accrued liabilities1
Billings in excess of costs and estimated earnings
Short-term debt
Customer advances, current portion1
Total current liabilities
Long-term debt
Convertible debt1
Customer advances, net of current portion1
Other long-term liabilities1
Total liabilities
Commitments and contingencies (Note 9)
Redeemable noncontrolling interests in subsidiaries
Equity:
Preferred stock, $0.001 par value; 10,000,000 shares authorized; none issued and
outstanding as of both January 1, 2017 and January 3, 2016
Common stock, $0.001 par value, 367,500,000 shares authorized; 148,079,718 shares issued,
and 138,510,325 outstanding as of January 1, 2017; 145,242,705 shares issued, and 136,712,339
outstanding as of January 3, 2016
Additional paid-in capital
Accumulated deficit
Accumulated other comprehensive loss
Treasury stock, at cost; 9,569,393 shares of common stock as of January 1, 2017; 8,530,366 shares
of common stock as of January 3, 2016
Total stockholders’ equity
Noncontrolling interests in subsidiaries
Total equity
Total liabilities and equity
January 1,
2017
January 3,
2016
$
$
$
425,309
33,657
219,638
32,780
401,707
111,479
374,459
315,670
1,914,699
55,246
4,971
1,027,066
621,267
33,571
173,277
507,333
44,218
185,519
4,567,167
540,295
391,226
77,140
71,376
10,138
1,090,175
451,243
1,113,478
298
721,032
3,376,226
$
$
$
954,528
24,488
190,448
38,685
382,390
85,012
479,452
359,517
2,514,520
41,748
6,475
731,230
531,520
5,072
274,085
334,791
119,577
297,975
4,856,993
514,654
313,497
115,739
21,041
33,671
998,602
478,948
1,110,960
126,183
564,557
3,279,250
103,621
69,104
—
—
139
2,410,395
(1,218,681)
(7,238)
(176,783)
1,007,832
79,488
1,087,320
4,567,167
$
137
2,359,917
(747,617)
(8,023)
(155,265)
1,449,149
59,490
1,508,639
4,856,993
$
1 The Company has related-party balances for transactions made with Total S.A. and its affiliates as well as unconsolidated entities in which the
Company has a direct equity investment. These related-party balances are recorded within the “Accounts Receivable, net,” “Costs and estimated
earnings in excess of billings,” “Project assets - plants and land, current portion,” “Prepaid expenses and other current assets,” “Other long-term assets,”
“Accounts payable,” “Accrued Liabilities,” and “Convertible debt, net of current portion,” financial statement line items in the Consolidated Balance
Sheets (see Note 2, Note 7, Note 10, Note 11, and Note 12).
87
SunPower Corporation Consolidated Balance Sheets (In thousands, except share data)The accompanying notes are an integral part of these consolidated financial statements. Revenue1
Solar power systems, components, and other
Residential leasing
Cost of revenue1
Solar power systems, components, and other
Residential leasing
Gross margin
Operating expenses:
Research and development1
Sales, general and administrative1
Restructuring charges
Total operating expenses
Operating income (loss)
Other income (expense), net:
Interest income
Interest expense1
Gain on settlement of preexisting relationships in connection
with acquisition2
Loss on equity method investment in connection with acquisition2
Goodwill impairment
Other, net
Other expense, net
Income (loss) before income taxes and equity in earnings of unconsolidated
investees
Provision for income taxes
Equity in earnings of unconsolidated investees
Net income (loss)
Net loss attributable to noncontrolling interests and redeemable
noncontrolling interests
Net income (loss) attributable to stockholders
Net income (loss) per share attributable to stockholders:
Basic
Diluted
Weighted-average shares:
Basic
Diluted
January 1,
2017
Fiscal Year
January 3,
2016
December 28,
2014
$2,294,608
264,954
$2,559,562
$1,389,660
186,813
$1,576,473
$
$
2,897,305
129,960
3,027,265
2,173,364
196,232
2,369,596
189,966
1,192,535
139,292
1,331,827
244,646
2,315,894
86,244
2,402,138
625,127
116,130
329,061
207,189
652,380
(462,414)
2,652
(60,735)
203,252
(90,946)
(147,365)
(9,039)
(102,181)
(564,595)
(7,319)
28,070
(543,844)
99,063
345,486
6,391
450,940
(206,294)
2,120
(43,796)
—
—
—
5,659
(36,017)
(242,311)
(66,694)
9,569
(299,436)
72,780
$ (471,064)
112,417
$ (187,019)
$
$
(3.41)
(3.41)
$
$
(1.39)
(1.39)
137,985
137,985
134,884
134,884
$
$
$
73,343
288,321
12,223
373,887
251,240
2,583
(69,658)
—
—
—
449
(66,626)
184,614
(8,760)
7,241
183,095
62,799
245,894
1.91
1.55
128,635
162,751
1 The Company has related-party transactions with Total S.A. and its affiliates as well as unconsolidated entities in which the Company
has a direct equity investment. These related-party transactions are recorded within the “Revenue: Solar power systems and
components,” “Cost of revenue: Solar power systems and components,” “Operating expenses: Research and development,” “Operating
expenses: Sales, general and administrative,” and “Other income (expense), net: Interest expense” financial statement line items in the
Consolidated Statements of Operations (see Note 2 and Note 10).
2 See Note 3.
88
SunPower Corporation Consolidated Statements of Operations (In thousands, except per share data)The accompanying notes are an integral part of these consolidated financial statements. Net income (loss)
Components of comprehensive income (loss):
Translation adjustment
Net change in derivatives (Note 12)
Net gain (loss) on long-term pension liability adjustment
Income taxes
Net change in accumulated other comprehensive income (loss)
January 1,
2017
Fiscal Year
January 3,
2016
December 28,
2014
$ (543,844)
$ (299,436)
$
183,095
(1,085)
(4,739)
6,283
326
785
(2,452)
7,385
823
(324)
5,432
(4,946)
(638)
(2,878)
(675)
(9,137)
Total comprehensive income (loss)
(543,059)
(294,004)
173,958
Comprehensive loss attributable to noncontrolling interests and
redeemable noncontrolling interests
72,780
112,417
62,799
Comprehensive income (loss) attributable to stockholders
$ (470,279)
$ (181,587)
$
236,757
89
SunPower Corporation Consolidated Statements of Comprehensive Income (Loss) (In thousands)The accompanying notes are an integral part of these consolidated financial statements. Common Stock
Redeemable
Noncontrolling
Interests
Shares
Value
Additional
Paid-in
Capital
Treasury
Stock
Accumulated
Other
Comprehensive
Income (Loss)
Retained
Earnings
(Accumulated
Deficit)
Total
Stockholders’
Equity
Noncontrolling
Interests
Total Equity
Balances at December 29, 2013
Net income (loss)
$
— 121,536
—
(27,089)
$ 122
—
$ 1,980,778
—
Other comprehensive loss
Issuance of common stock upon
exercise of options
Issuance of restricted stock to
employees, net of cancellations
Issuance of common stock upon
conversion of convertible debt
Settlement of the 4.75% Bond hedge
Settlement of the 4.75% Warrants
Stock-based compensation expense
Tax benefit from convertible debt
interest deduction
Tax benefit from stock-based
compensation
Contributions from noncontrolling
interests and redeemable
noncontrolling interests
Distributions to noncontrolling
interests and redeemable
noncontrolling interests
Purchases of treasury stock
Transfer of redeemable
noncontrolling interests
—
—
—
—
—
—
—
—
—
34,102
(2,438)
—
106
4,431
7,131
—
—
—
—
—
—
—
— (1,738)
23,991
—
—
—
2
7
—
—
—
—
—
—
—
—
—
—
1,052
(2)
188,256
68,842
(81,077)
55,592
3,761
2,379
—
—
—
—
$ (53,937) $
—
—
—
—
—
—
—
—
—
—
—
—
(57,548)
—
(4,318) $
—
(806,492)
245,894
$1,116,153
245,894
$
37,630
(35,710)
$ 1,153,783
210,184
(9,137)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(9,137)
1,052
—
188,263
68,842
(81,077)
55,592
3,761
2,379
—
—
—
—
—
—
—
—
—
—
—
(9,137)
1,052
—
188,263
68,842
(81,077)
55,592
3,761
2,379
66,581
66,581
(2,655)
(2,655)
(57,548)
—
(57,548)
—
(23,991)
(23,991)
Balances at December 28, 2014
$
28,566
131,466
$ 131
$ 2,219,581
$ (111,485) $
(13,455) $
(560,598)
$1,534,174
$
41,855
$ 1,576,029
Net loss
(13,689)
Other comprehensive income
Issuance of common stock upon
exercise of options
Issuance of restricted stock to
employees, net of cancellations
Settlement of the 4.5% Warrants
Stock-based compensation expense
Tax benefit from convertible debt
interest deduction
Tax benefit from stock-based
compensation
Contributions from noncontrolling
interests
Distributions to noncontrolling
interests
—
—
—
—
—
—
—
57,064
(2,837)
—
—
58
3,560
3,008
—
—
—
—
—
Purchases of treasury stock
—
(1,381)
—
—
—
3
3
—
—
—
—
—
—
—
—
514
(3)
(577)
61,481
39,546
39,375
—
—
—
—
—
—
—
—
—
—
—
—
—
(43,780)
—
5,432
—
—
—
—
—
—
—
—
—
(187,019)
(187,019)
(98,728)
(285,747)
—
—
—
—
—
—
—
—
—
—
5,432
514
—
(574)
61,481
39,546
39,375
—
—
—
—
—
—
—
5,432
514
—
(574)
61,481
39,546
—
39,375
123,817
123,817
(7,454)
(7,454)
(43,780)
—
(43,780)
Balances at January 3, 2016
$
69,104
136,711
$ 137
$ 2,359,917
$(155,265) $
(8,023) $
(747,617)
$1,449,149
$
59,490
$ 1,508,639
Net income (loss)
(75,817)
Other comprehensive loss
Issuance of restricted stock to
employees, net of cancellations
Stock-based compensation expense
Tax benefit from convertible debt
interest deduction
Tax benefit from stock-based
compensation
Contributions from noncontrolling
interests
Distributions to noncontrolling
interests
—
—
—
—
—
117,120
(6,786)
—
—
2,836
—
—
—
—
—
Purchases of treasury stock
—
(1,039)
—
—
3
—
—
—
—
—
(1)
—
—
—
56,110
(2,822)
(2,810)
—
—
—
—
—
—
—
—
—
—
—
(21,518)
—
785
—
—
—
—
—
—
—
(471,064)
(471,064)
3,036
(468,028)
—
—
—
—
—
—
—
—
785
3
56,110
(2,822)
(2,810)
—
—
(21,519)
—
—
—
—
—
785
3
56,110
(2,822)
(2,810)
29,215
29,215
(12,253)
—
(12,253)
(21,519)
Balances at January 1, 2017
$
103,621
138,508
$ 139
$ 2,410,395
$(176,783) $
(7,238) $ (1,218,681)
$1,007,832
$
79,488
$ 1,087,320
90
SunPower Corporation Consolidated Statements of Equity (In thousands)The accompanying notes are an integral part of these consolidated financial statements. Cash flows from operating activities:
Net income (loss)
Adjustments to reconcile net loss to net cash used in operating activities,
net of effect of acquisitions:
Depreciation and amortization
Stock-based compensation
Non-cash interest expense
Non-cash restructuring charges
Gain on settlement of preexisting relationships in connection with
acquisition
Loss on equity method investment in connection with acquisition
Goodwill impairment
Dividend from 8point3 Energy Partners LP
Equity in earnings of unconsolidated investees
Excess tax benefit from stock-based compensation
Deferred income taxes
Gain on sale of residential lease portfolio to 8point3 Energy Partners LP
Other, net
Changes in operating assets and liabilities, net of effect of acquisitions:
Accounts receivable
Costs and estimated earnings in excess of billings
Inventories
Project assets
Prepaid expenses and other assets
Long-term financing receivables, net
Advances to suppliers
Accounts payable and other accrued liabilities
Billings in excess of costs and estimated earnings
Customer advances
Net cash provided by (used in) operating activities
Cash flows from investing activities:
Increase in restricted cash and cash equivalents
Purchases of property, plant and equipment
Cash paid for solar power systems, leased and to be leased
Cash paid for solar power systems
Proceeds from sales or maturities of marketable securities
Proceeds from (payments to) 8point3 Energy Partners LP
Purchases of marketable securities
Cash paid for acquisitions, net of cash acquired
Cash paid for investments in unconsolidated investees
Cash paid for intangibles
Net cash provided by (used in) investing activities
January 1,
2017
Fiscal Year
January 3,
2016
December 28,
2014
$ (543,844)
$ (299,436)
$
183,095
174,209
61,498
1,057
166,717
(203,252)
90,946
147,365
6,949
(28,070)
(2,810)
(6,611)
—
4,793
(33,466)
6,198
(70,448)
33,248
48,758
(172,542)
74,341
(12,146)
(38,204)
(16,969)
(312,283)
(22,667)
(187,094)
(84,289)
(38,746)
6,210
(9,838)
(4,955)
(24,003)
(11,547)
(521)
(377,450)
138,007
58,960
6,184
—
—
—
—
—
(9,569)
(39,375)
50,238
(27,915)
2,589
311,743
148,426
(237,764)
(763,065)
(80,105)
(142,973)
50,560
97,433
30,661
(20,830)
(726,231)
(23,174)
(230,051)
(88,376)
(10,007)
—
539,791
—
(64,756)
(4,092)
(9,936)
109,399
108,795
55,592
21,585
—
—
—
—
—
(7,241)
(2,379)
6,120
—
5,278
(31,505)
(155,300)
(1,247)
(68,247)
203,654
(94,314)
(26,343)
59,508
(225,210)
(23,481)
8,360
(11,562)
(102,505)
(50,974)
(13,457)
1,380
—
(30)
(35,078)
(97,013)
—
(309,239)
91
SunPower Corporation Consolidated Statements of Cash Flows (In thousands)The accompanying notes are an integral part of these consolidated financial statements. Cash flows from financing activities:
Proceeds from issuance of convertible debt, net of issuance costs
Cash paid for repurchase of convertible debt
Proceeds from settlement of 4.75% Bond Hedge
Payments to settle 4.75% Warrants
Proceeds from settlement of 4.50% Bond Hedge
Payments to settle 4.50% Warrants
Cash paid for acquisitions
Proceeds from bank loans and other debt
Repayment of bank loans and other debt
Proceeds from issuance of non-recourse residential financing, net of
issuance costs
Repayment of non-recourse residential financing
Contributions from noncontrolling interests and redeemable noncontrolling
interests attributable to residential projects
Distributions to noncontrolling interests and redeemable noncontrolling
interests attributable to residential projects
Proceeds from issuance of non-recourse power plant and commercial
financing, net of issuance costs
Assumption of project loan by customer
Repayment of non-recourse power plant and commercial financing
Proceeds from 8point3 Energy Partners LP attributable to operating leases
and unguaranteed sales-type lease residual values
Contributions from noncontrolling interests attributable to
real estate projects
Proceeds from exercise of stock options
Excess tax benefit from stock-based compensation
Purchases of stock for tax withholding obligations on vested restricted stock
Net cash provided by financing activities
Effect of exchange rate changes on cash and cash equivalents
Net decrease in cash and cash equivalents
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
Non-cash transactions:
Assignment of residential lease receivables to third parties
Costs of solar power systems, leased and to be leased, sourced from
existing inventory
Costs of solar power systems, leased and to be leased, funded by liabilities
Costs of solar power systems under sale-leaseback financing arrangements,
sourced from project assets
Property, plant and equipment acquisitions funded by liabilities
Net reclassification of cash proceeds offset by project assets in connection
with the deconsolidation of assets sold to the 8point3 Group
Issuance of common stock upon conversion of convertible debt
Exchange of receivables for an investment in an unconsolidated investee
Sale of residential lease portfolio in exchange for non-controlling
equity interests in the 8point3 Group
Acquisition funded by liabilities
Supplemental cash flow information:
Cash paid for interest, net of amount capitalized
Cash paid for income taxes
92
January 1,
2017
Fiscal Year
January 3,
2016
December 28,
2014
—
—
—
—
—
—
(5,714)
113,645
(143,601)
416,305
(324,352)
—
—
74,628
(574)
—
—
(16,088)
183,990
(37,932)
100,108
(41,503)
395,275
(42,250)
68,842
(81,077)
131
—
—
—
(16,852)
81,926
(15,930)
146,334
180,881
100,683
(19,039)
(10,291)
(5,093)
738,822
—
(795,209)
441,775
—
(238,744)
112,137
(40,672)
(4,437)
—
29,300
—
—
—
—
(21,517)
159,779
735
(529,219)
954,528
$ 425,309
12,410
517
39,375
(43,780)
619,967
(4,782)
(1,647)
956,175
$ 954,528
$
$
$
$
$
$
$
$
$
$
$
$
$
$
4,290
57,422
3,026
27,971
43,817
45,862
$
$
$
$
$
3,315
66,604
10,972
6,076
28,950
$ 102,333
— $
$
2,890
$
— $
— $
1,052
2,379
(57,548)
498,566
(4,023)
193,664
762,511
956,175
8,023
41,204
3,786
28,259
11,461
—
188,263
—
$
$ 103,354
— $
$
68,273
$
— $
—
—
$
$
35,770
35,414
$
$
34,909
29,509
$
$
39,857
8,765
The accompanying notes are an integral part of these consolidated financial statements. Note 1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company
SunPower Corporation (together with its subsidiaries, the “Company” or “SunPower”) is a leading global energy
company that delivers complete solar solutions to residential, commercial, and power plant customers worldwide through an
array of hardware, software, and financing options and through utility-scale solar power system construction and development
capabilities, operations and maintenance (“O&M”) services, and “Smart Energy” solutions. SunPower’s Smart Energy initiative
is designed to add layers of intelligent control to homes, buildings and grids—all personalized through easy-to-use customer
interfaces. Of all the solar cells commercially available to the mass market, the Company believes its solar cells have the highest
conversion efficiency, a measurement of the amount of sunlight converted by the solar cell into electricity. SunPower Corporation
is a majority owned subsidiary of Total Energies Nouvelles Activités USA (“Total”), a subsidiary of Total S.A. (“Total S.A.”)
(see Note 2).
The Company’s President and Chief Executive Officer, as the chief operating decision maker (“CODM”), has organized
the Company, manages resource allocations and measures performance of the Company’s activities among three end-customer
segments: (i) Residential Segment, (ii) Commercial Segment and (iii) Power Plant Segment. The Residential and Commercial
Segments combined are referred to as Distributed Generation.
The Company’s Residential Segment refers to sales of solar energy solutions to residential end customers through a
variety of means, including cash sales and long-term leases directly to end customers, sales to resellers, including the Company’s
third-party global dealer network, and sales of the Company’s O&M services. The Company’s Commercial Segment refers
to sales of solar energy solutions to commercial and public entity end customers through a variety of means, including direct
sales of turn-key engineering, procurement and construction (“EPC”) services, sales to the Company’s third-party global dealer
network, sales of energy under power purchase agreements (“PPAs”), and sales of the Company’s O&M services. The Power
Plant Segment refers to the Company’s large-scale solar products and systems business, which includes power plant project
development and project sales, EPC services for power plant construction, power plant O&M services and component sales for
power plants developed by third parties, sometimes on a multi-year, firm commitment basis.
Basis of Presentation and Preparation
Principles of Consolidation
The consolidated financial statements are prepared in accordance with accounting principles generally accepted in the
United States of America (“United States” or “U.S.”) and include the accounts of the Company, all of its subsidiaries and special
purpose entities, as appropriate under consolidation accounting guidelines. Intercompany transactions and balances have been
eliminated in consolidation. The assets of the special purpose entities that the Company establishes in connection with certain
project financing arrangements for customers are not designed to be available to service the general liabilities and obligations
of the Company.
Reclassifications
Certain prior period balances have been reclassified to conform to the current period presentation in the Company’s
consolidated financial statements and the accompanying notes. Such reclassifications had no effect on previously reported results
of operations or accumulated deficit.
Fiscal Years
The Company has a 52-to-53-week fiscal year that ends on the Sunday closest to December 31. Accordingly, every fifth
or sixth year will be a 53-week fiscal year. The current fiscal year, fiscal 2016, is a 52-week fiscal year, fiscal year 2015 was a
53-week fiscal year and had a 14-week fourth fiscal quarter, while fiscal year 2014 was a 52-week fiscal year. Fiscal 2016 ended
on January 1, 2017, fiscal 2015 ended on January 3, 2016, and fiscal 2014 ended on December 28, 2014.
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;
93
inventory and project asset write-downs; stock-based compensation; estimates for valuation assumptions including discount rates,
future cash flows and economic useful lives of property, plant and equipment, goodwill, valuations for business combinations,
other intangible assets, investments, and other long-term assets; the fair value and residual value of solar power systems; fair
value of financial instruments; valuation of contingencies and certain accrued liabilities such as accrued warranty; and income
taxes and tax valuation allowances and indemnities. Actual results could materially differ from those estimates.
Summary of Significant Accounting Policies
Fair Value of Financial Instruments
The fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability
in an orderly transaction between market participants at the measurement date. The carrying values of cash and cash equivalents,
accounts receivable, and accounts payable approximate their respective fair values due to their short-term maturities. Investments
in available-for-sale securities are carried at fair value based on quoted market prices or estimated based on market conditions
and risks existing at each balance sheet date. Derivative financial instruments are carried at fair value based on quoted market
prices for financial instruments with similar characteristics. Unrealized gains and losses of the Company’s available-for-sale
securities and the effective portion of derivative financial instruments are excluded from earnings and reported as a component
of “Accumulated other comprehensive loss” in the Consolidated Balance Sheets. Additionally, the Company assesses whether an
other-than-temporary impairment loss on its available-for-sale securities has occurred due to declines in fair value or other market
conditions. Declines in fair value that are considered other-than-temporary and the ineffective portion of derivatives financial
instruments are included in “Other, net” in the Consolidated Statements of Operations.
Comprehensive Income (Loss)
Comprehensive income (loss) is defined as the change in equity during a period from non-owner sources. The
Company’s comprehensive income (loss) for each period presented is comprised of (i) the Company’s net income (loss);
(ii) foreign currency translation adjustment of the Company’s foreign subsidiaries whose assets and liabilities are translated
from their respective functional currencies at exchange rates in effect at the balance sheet date, and revenues and expenses are
translated at average exchange rates prevailing during the applicable period; and (iii) changes in unrealized gains or losses, net of
tax, for the effective portion of derivatives designated as cash flow hedges (see Note 12) and available-for-sale securities carried
at their fair value.
Cash Equivalents
Highly liquid investments with original or remaining maturities of ninety days or less at the date of purchase are
considered cash equivalents.
Cash in Restricted Accounts
The Company maintains cash and cash equivalents in restricted accounts pursuant to various letters of credit, surety
bonds, loan agreements, and other agreements in the normal course of business. The Company also holds debt securities,
consisting of Philippine government bonds, which are classified as “Restricted long-term marketable securities” on the
Company’s Consolidated Balance Sheets as they are maintained as collateral for present and future business transactions
within the country (see Note 5).
Short-Term and Long-Term Investments
The Company invests in money market funds and debt securities. In general, investments with original maturities of
greater than ninety days and remaining maturities of one year or less are classified as short-term investments, and investments
with maturities of more than one year are classified as long-term investments. Investments with maturities beyond one year may
be classified as short-term based on their highly liquid nature and because such investments represent the investment of cash
that is available for current operations. Despite the long-term maturities, the Company has the ability and intent, if necessary,
to liquidate any of these investments in order to meet the Company’s working capital needs within its normal operating cycles.
The Company has classified these investments as available-for-sale securities.
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Inventories
Inventories are accounted for on a first-in-first-out basis and are valued at the lower of cost or net realizable value.
The Company evaluates the realizability of its inventories, including purchase commitments under fixed-price long-term
supply agreements, based on assumptions about expected demand and market conditions. The Company’s assumption of
expected demand is developed based on its analysis of bookings, sales backlog, sales pipeline, market forecast, and competitive
intelligence. The Company’s assumption of expected demand is compared to available inventory, production capacity, future
polysilicon purchase commitments, available third-party inventory, and growth plans. The Company’s factory production plans,
which drive materials requirement planning, are established based on its assumptions of expected demand. The Company
responds to reductions in expected demand by temporarily reducing manufacturing output and adjusting expected valuation
assumptions as necessary. In addition, expected demand by geography has changed historically due to changes in the availability
and size of government mandates and economic incentives.
The Company evaluates the terms of its long-term inventory purchase agreements with suppliers, including joint
ventures, for the procurement of polysilicon, ingots, wafers, and solar cells and establishes accruals for estimated losses on
adverse purchase commitments as necessary, such as lower of cost or net realizable value adjustments, forfeiture of advanced
deposits and liquidated damages. 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 realized because quantities are less than management’s expected demand for its solar power products for the foreseeable
future and because the raw materials subject to these long-term supply agreements are not subject to spoilage or other factors
that would deteriorate its usability; however, if raw materials inventory balances temporarily exceed near-term demand, the
Company may elect to sell such inventory to third parties to optimize working capital needs. In addition, because the purchase
prices required by the Company’s long-term polysilicon agreements are significantly higher than current market prices for similar
materials, if the Company is not able to profitably utilize this material in its operations or elect to sell near-term excess, the
Company may incur additional losses. Other market conditions that could affect the realizable value of the Company’s inventories
and are periodically evaluated by management include historical inventory turnover ratio, anticipated sales price, new product
development schedules, the effect new products might have on the sale of existing products, product obsolescence, customer
concentrations, the current market price of polysilicon as compared to the price in the Company’s fixed-price arrangements,
and product merchantability, among other factors. If, based on assumptions about expected demand and market conditions,
the Company determines that the cost of inventories exceeds its net realizable value or inventory is excess or obsolete, or the
Company enters into arrangements with third parties for the sale of raw materials that do not allow it to recover its current
contractually committed price for such raw materials, the Company records a write-down or accrual equal to the difference
between the cost of inventories and the estimated net realizable value, which may be material. If actual market conditions are
more favorable, the Company may have higher gross margin when products that have been previously written down are sold in
the normal course of business (see Note 5).
Solar Power Systems Leased and to be Leased
Solar power systems leased to residential customers under operating leases are stated at cost, less accumulated
depreciation and are amortized to their estimated residual value over the life of the lease term of up to 20 years.
Solar power systems to be leased represents systems that are under installation or which have not been interconnected,
which will be depreciated as solar power systems leased to customers when the respective systems are completed, interconnected
and subsequently leased to residential customers under operating leases.
Initial direct costs for operating leases are capitalized and amortized over the term of the related customer
lease agreements.
Financing Receivables
Leases are classified as either operating or sales-type leases in accordance with the relevant accounting guidelines.
Financing receivables are generated by solar power systems leased to residential customers under sales-type leases. Financing
receivables represents gross minimum lease payments to be received from customers over a period commensurate with the
remaining lease term of up to 20 years and the systems estimated residual value, net of unearned income and allowance for
estimated losses. Initial direct costs for sales-type leases are recognized as cost of sales when the solar power systems are
placed in service.
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Due to the homogeneous nature of its leasing transactions, SunPower manages its financing receivables on an aggregate
basis when assessing credit risk. SunPower also considers the credit risk profile for its lease customers to be homogeneous due
to the criteria the Company uses to approve customers for its residential leasing program, which among other things, requires
a minimum “fair” FICO credit quality. Accordingly, the Company does not regularly categorize its financing receivables by
credit risk.
The Company recognizes an allowance for losses on financing receivables in an amount equal to the probable losses
net of recoveries. SunPower maintains reserve percentages on past-due receivable aging buckets and bases such percentages on
several factors, including consideration of historical credit losses and information derived from industry benchmarking. To date,
the allowance for losses has not comprised a material portion of the Company’s financing receivables.
Property, Plant and Equipment
Property, plant and equipment are stated at cost, less accumulated depreciation. Depreciation, excluding solar power
systems leased to residential customers and those associated with sale-leaseback transactions under the financing method, is
computed using the straight-line method over the estimated useful lives of the assets as presented below. Solar power systems
leased to residential customers and those associated with sale-leaseback transactions under the financing method are depreciated
using the straight-line method to their estimated residual values over the lease terms of up to 20 years. Leasehold improvements
are amortized over the shorter of the estimated useful lives of the assets or the remaining term of the lease. Repairs and
maintenance costs are expensed as incurred.
Buildings
Leasehold improvements
Manufacturing equipment
Computer equipment
Solar power systems
Furniture and fixtures
Interest Capitalization
Useful Lives
in Years
20 to 30
1 to 20
7 to 15
2 to 7
30
3 to 5
The interest cost associated with major development and construction projects is capitalized and included in the cost
of the property, plant and equipment or project assets. Interest capitalization ceases once a project is substantially complete or
no longer undergoing construction activities to prepare it for its intended use. When no debt is specifically identified as being
incurred in connection with a construction project, the Company capitalizes interest on amounts expended on the project at the
Company’s weighted average cost of borrowed money.
Long-Lived Assets
The Company evaluates its long-lived assets, including property, plant and equipment, solar power systems leased and to
be leased, and other intangible assets with finite lives, for impairment whenever events or changes in circumstances indicate that
the carrying value of such assets may not be recoverable. 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. The Company’s impairment evaluation
of long-lived assets includes an analysis of estimated future undiscounted net cash flows expected to be generated by the assets
over their remaining estimated useful lives. If the Company’s estimate of future undiscounted net cash flows is insufficient to
recover the carrying value of the assets over the remaining estimated useful lives, it records an impairment loss in the amount
by which the carrying value of the assets exceeds the fair value. Fair value is generally measured based on either quoted market
prices, if available, or discounted cash flow analysis.
Project Assets - Plant and Land
Project assets consist primarily of capitalized costs relating to solar power system projects in various stages of
development that the Company incurs prior to the sale of the solar power system to a third-party. These costs include costs for
land and costs for developing and constructing a solar power system. Development costs can include legal, consulting, permitting,
and other similar costs. Once the Company enters into a definitive sales agreement, it reclassifies these project asset costs to
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deferred project costs within “Prepaid expenses and other current assets” in its Consolidated Balance Sheet until the Company
has met the criteria to recognize the sale of the project asset or solar power project as revenue. The Company releases these
project costs to cost of revenue as each respective project asset or solar power system is sold to a customer, since the project is
constructed for a customer (matching the underlying revenue recognition method).
The Company evaluates the realizability of project assets whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. The Company considers the project to be recoverable if it is anticipated to be sellable
for a profit once it is either fully developed or fully constructed or if costs incurred to date may be recovered via other means,
such as a sale prior to the completion of the development cycle. The Company examines a number of factors to determine if
the project will be profitable, including whether there are any environmental, ecological, permitting, or regulatory conditions
that have changed for the project since the start of development. In addition, the company must anticipate market conditions,
such as the future cost of energy and changes in the factors that its future customers use to value its project assets in sale
arrangements, including the internal rate of return that customers expect. Changes in such conditions could cause the cost of the
project to increase or the selling price of the project to decrease. Due to the development, construction, and sale timeframe of
the Company’s larger solar projects, it classifies project assets which are not expected to be sold within the next 12 months as
“Project assets - plants and land, net of current portion” on the Consolidated Balance Sheets. Once specific milestones have been
achieved, the Company determines if the sale of the project assets will occur within the next 12 months from a given balance
sheet date and, if so, it then reclassifies the project assets as current.
Product Warranties
The Company generally provides a 25-year standard warranty for the solar panels that it manufactures for defects in
materials and workmanship. The warranty provides that the Company will repair or replace any defective solar panels during
the warranty period. In addition, the Company passes through to customers long-term warranties from the original equipment
manufacturers of certain system components, such as inverters. Warranties of 25 years from solar panel suppliers are standard in
the solar industry, while certain system components carry warranty periods ranging from five to 20 years.
In addition, the Company generally warrants its workmanship on installed systems for periods ranging up to 25 years and
also provides a separate system output performance warranty to customers that have subscribed to the Company’s post-installation
monitoring and maintenance services which expires upon termination of the post-installation monitoring and maintenance
services related to the system. The warrantied system output performance level varies by system depending on the characteristics
of the system and the negotiated agreement with the customer, and the level declines over time to account for the expected
degradation of the system. Actual system output is typically measured annually for purposes of determining whether warrantied
performance levels have been met. The warranty excludes system output shortfalls attributable to force majeure events,
customer curtailment, irregular weather, and other similar factors. In the event that the system output falls below the warrantied
performance level during the applicable warranty period, and provided that the shortfall is not caused by a factor that is excluded
from the performance warranty, the warranty provides that the Company will pay the customer a liquidated damage based on the
value of the shortfall of energy produced relative to the applicable warrantied performance level.
The Company maintains reserves to cover the expected costs that could result from these warranties. The Company’s
expected costs are generally in the form of product replacement or repair. Warranty reserves are based on the Company’s best
estimate of such costs and are recognized as a cost of revenue. The Company continuously monitors product returns for warranty
failures and maintains a reserve for the related warranty expenses based on various factors including historical warranty claims,
results of accelerated lab testing, field monitoring, vendor reliability estimates, and data on industry averages for similar products.
Due to the potential for variability in these underlying factors, the difference between the Company’s estimated costs and its
actual costs could be material to the Company’s consolidated financial statements. If actual product failure rates or the frequency
or severity of reported claims differ from the Company’s estimates or if there are delays in the Company’s responsiveness to
outages, the Company may be required to revise its estimated warranty liability. Historically, warranty costs have been within
management’s expectations (see Note 9).
Revenue Recognition
Solar Power Components
The Company sells its solar panels and balance of system components primarily to dealers, system integrators and
distributors, and recognizes revenue, net of accruals for estimated sales returns, when persuasive evidence of an arrangement
exists, delivery of the product has occurred, title and risk of loss has passed to the customer, the sales price is fixed or
determinable, collectability of the resulting receivable is reasonably assured, and the risks and rewards of ownership have passed
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to the customer. Other than standard warranty obligations, there are no rights of return and there are no significant post-shipment
obligations, including installation, training or customer acceptance clauses with any of the Company’s customers that could have
an impact on revenue recognition. The Company’s revenue recognition policy is consistent across all geographic areas.
The provision for estimated sales returns on product sales is recorded in the same period the related revenues are
recorded. These estimates are based on historical sales returns, analysis of credit memo data, and other known factors. Actual
returns could differ from these estimates.
Construction Contracts
Revenue is also composed of EPC projects which are governed by customer contracts that require the Company to
deliver functioning solar power systems and are generally completed within three to twelve months from commencement of
construction. Construction on large projects may be completed within eighteen to thirty-six months, depending on the size and
location. The Company recognizes revenue from fixed price construction contracts, which do not include land or land rights,
using the percentage-of-completion method of accounting. Under this method, revenue arising from fixed-price construction
contracts is recognized as work is performed based on the percentage of incurred costs to estimated total forecasted costs.
Incurred costs used in the Company’s percentage-of-completion calculation include all direct material, labor and
subcontract costs, and those indirect costs related to contract performance, such as indirect labor, supplies, and tools. Project
material costs are included in incurred costs when the project materials have been installed by being permanently attached or
fitted to the solar power system as required by the project’s engineering design.
In addition to an EPC deliverable, many arrangements also include multiple deliverables such as post-installation
systems monitoring and maintenance. For contracts with separately priced monitoring and maintenance, the Company recognizes
revenue related to such separately priced elements over the contract period. For contracts including monitoring and maintenance
not separately priced, the Company determined that post-installation systems monitoring and maintenance qualify as separate
units of accounting. Such post-installation monitoring and maintenance are deferred at the time the contract is executed based on
the best estimate of selling price on a standalone basis and are recognized to revenue over the contractual term. The remaining
EPC revenue is recognized on a percentage-of-completion basis.
In addition, when arrangements include contingent revenue clauses, such as customer termination or put rights for non-
performance, the Company defers the contingent revenue if there is a reasonable possibility that such rights or contingencies may
be triggered. In certain limited cases, 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. To date, no such repurchase
obligations have been required.
Provisions for estimated losses on uncompleted contracts, if any, are recognized in the period in which the loss first
becomes probable and reasonably estimable. Contracts may include profit incentives such as milestone bonuses. These profit
incentives are included in the contract value when their realization is reasonably assured.
Development Projects
The Company develops and sells solar power plants which generally include the sale or lease of related real estate.
Revenue recognition for these solar power plants require adherence to specific guidance for real estate sales, which provides that
if the Company executes a sale of land in conjunction with an EPC contract requiring the future development of the property, it
recognizes revenue and the corresponding costs under the full accrual method when all of the following requirements are met:
the sale is consummated, the buyer’s initial and any continuing investments are adequate, the resulting receivables are not subject
to subordination, the future costs to develop the property can be reasonably estimated, it has transferred the customary risk and
rewards of ownership to the buyer, and it does not have prohibited continuing involvement with the property or the buyer. In
general, a sale is consummated upon the execution of an agreement documenting the terms of the sale and receipt of a minimum
initial payment by the buyer to substantiate the transfer of risk to the buyer. Depending on the value of the initial and continuing
investment of the buyer, and provided the recovery of the costs of the solar power plant are assured if the buyer defaults, it may
defer revenue and profit during construction by aligning its revenue recognition and release of deferred project costs to cost of
sales with the receipt of payment from the buyer. At the time the Company has unconditionally received payment from the buyer,
revenue is recognized and deferred project costs are released to cost of sales at the same rate of profit estimated throughout the
construction of the project. Further, in situations where we have a noncontrolling equity interest in the buyer, we may defer all or
a portion of our revenue or profit in accordance with specific guidance for partial sales of real estate.
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The Company has determined that its standard product and workmanship warranties do not represent prohibited forms
of continuing involvement that would otherwise preclude revenue recognition as these warranties do not result in the retention of
substantial risks or rewards of ownership or result in a seller guarantee as described in real estate accounting guidance. Similarly,
the Company has determined that when it provides post-installation monitoring and maintenance services and associated
system output performance warranties to customers of projects that include the sale or lease of real estate, these are not forms of
prohibited continuing involvement since the terms and conditions of the post-installation monitoring and maintenance services
are commensurate with market rates, control over the right to terminate the post-installation monitoring and maintenance contract
and associated system output performance warranties rests with the customer since the customer has the right to terminate for
convenience, and the terms and conditions for the system output performance warranties do not result in any additional services or
efforts by the Company or in the retention of ownership risks outside of the Company’s control.
Residential Leases
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.
For those systems classified as sales-type leases, the net present value of the minimum lease payments, net of executory
costs, is recognized as revenue when the lease is placed in service. This net present value as well as the net present value of the
residual value of the lease at termination are recorded as financing receivables in the Consolidated Balance Sheets. The difference
between the initial net amounts and the gross amounts are amortized to revenue over the lease term using the interest method. The
residual values of our solar systems are determined at the inception of the lease applying an estimated system fair value at the end
of the lease term.
For those systems classified as operating leases, rental revenue is recognized, net of executory costs, on a straight-line
basis over the term of the lease.
Shipping and Handling Costs
The Company records costs related to shipping and handling in cost of revenue.
Stock-Based Compensation
The Company measures and records compensation expense for all stock-based payment awards based on estimated fair
values. The Company provides stock-based awards to its employees, executive officers, and directors through various equity
compensation plans including its employee stock option and restricted stock plans. The fair value of restricted stock units is based on
the market price of the Company’s common stock on the date of grant. The Company has not granted stock options since fiscal 2008.
The Company estimates forfeitures at the date of grant. The Company’s estimate of forfeitures is based on its historical
activity, which it believes is indicative of expected forfeitures. In subsequent periods if the actual rate of forfeitures differs from
the Company’s estimate, the forfeiture rates are required to be revised, as necessary. Changes in the estimated forfeiture rates can
have a significant effect on stock-based compensation expense since the effect of adjusting the rate is recognized in the period the
forfeiture estimate is changed.
The Company also grants performance share units to executive officers and certain employees that require it to estimate
expected achievement of performance targets over the performance period. This estimate involves judgment regarding future
expectations of various financial performance measures. If there are changes in the Company’s estimate of the level of financial
performance measures expected to be achieved, the related stock-based compensation expense may be significantly increased or
reduced in the period that its estimate changes.
Advertising Costs
Advertising costs are expensed as incurred. Advertising expense totaled approximately $24.9 million, $23.4 million and
$11.9 million, in fiscal 2016, 2015, and 2014, respectively.
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Research and Development Expense
Research and development expense consists primarily of salaries and related personnel costs, depreciation and the cost
of solar cell and solar panel materials and services used for the development of products, including experiments and testing. All
research and development costs are expensed as incurred. Research and development expense is reported net of contributions
under the R&D Agreement with Total and contracts with governmental agencies because such contracts are considered
collaborative arrangements.
Translation of Foreign Currency
The Company and certain of its subsidiaries use their respective local currency as their functional currency. Accordingly,
foreign currency assets and liabilities are translated using exchange rates in effect at the end of the period. Aggregate exchange
gains and losses arising from the translation of foreign assets and liabilities are included in “Accumulated other comprehensive
loss” in the Consolidated Balance Sheets. Foreign subsidiaries that use the U.S. dollar as their functional currency remeasure
monetary assets and liabilities using exchange rates in effect at the end of the period. Exchange gains and losses arising from
the remeasurement of monetary assets and liabilities are included in “Other, net” in the Consolidated Statements of Operations.
Non-monetary assets and liabilities are carried at their historical values.
The Company includes gains or losses from foreign currency transactions in “Other, net” in the Consolidated Statements
of Operations with the other hedging activities described in Note 12.
Concentration of Credit Risk
The Company is exposed to credit losses in the event of nonperformance by the counterparties to its financial and
derivative instruments. Financial and derivative instruments that potentially subject the Company to concentrations of credit risk
are primarily cash and cash equivalents, restricted cash and cash equivalents, investments, accounts receivable, notes receivable,
advances to suppliers, foreign currency option contracts, foreign currency forward contracts, bond hedge and warrant transactions,
and purchased options. The Company’s investment policy requires cash and cash equivalents, restricted cash and cash equivalents,
and investments to be placed with high-quality financial institutions and to limit the amount of credit risk from any one issuer.
Similarly, the Company enters into foreign currency derivative contracts and convertible debenture hedge transactions with high-
quality financial institutions and limits the amount of credit exposure to any one counterparty. The foreign currency derivative
contracts are limited to a time period of less than 15 months, while the bond hedge and warrant transactions expired in fiscal
2015. The Company regularly evaluates the credit standing of its counterparty financial institutions.
The Company performs ongoing credit evaluations of its customers’ financial condition whenever deemed necessary
and generally does not require collateral. The Company maintains an allowance for doubtful accounts based on the expected
collectability of all accounts receivable, which takes into consideration an analysis of historical bad debts, specific customer
creditworthiness and current economic trends. Qualified customers under our residential lease program are generally required to
have a minimum credit score. We believe that our concentration of credit risk is limited because of our large number of customers,
credit quality of the customer base, small account balances for most of these customers, and customer geographic diversification.
As of January 1, 2017 and January 3, 2016 the Company had no customers that accounted for 10% of accounts receivable. In
addition, one customer accounted for approximately 10% of the Company’s “Costs and estimated earnings in excess of billings”
balance as of January 1, 2017 on the Consolidated Balance Sheets as compared to one customer that accounted for approximately
59% of the balance as of January 3, 2016.
The Company has entered into agreements with vendors that specify future quantities and pricing of polysilicon to
be supplied for remaining periods of four years. The purchase prices required by these polysilicon supply agreements are
significantly higher than current market prices for similar materials. Under certain agreements, the Company was required to
make prepayments to the vendors over the terms of the arrangements.
Income Taxes
Deferred tax assets and liabilities are recognized for temporary differences between financial statement and income tax
bases of assets and liabilities. Valuation allowances are provided against deferred tax assets when management cannot conclude
that it is more likely than not that some portion or all deferred tax assets will be realized.
As applicable, interest and penalties on tax contingencies are included in “Provision for income taxes” in the Consolidated
Statements of Operations and such amounts were not material for any periods presented. In addition, foreign exchange gains (losses)
may result from estimated tax liabilities, which are expected to be settled in currencies other than the U.S. dollar.
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Investments in Equity Interests
Investments in entities in which the Company can exercise significant influence, but does not own a majority equity
interest or otherwise control, are accounted for under the equity method. The Company records its share of the results of these
entities as “Equity in earnings of unconsolidated investees” on the Consolidated Statements of Operations. The Company
monitors its investments for other-than-temporary impairment by considering factors such as current economic and market
conditions and the operating performance of the entities and records reductions in carrying values when necessary. The fair value
of privately held investments is estimated using the best available information as of the valuation date, including current earnings
trends, undiscounted cash flows, and other company specific information, including recent financing rounds (see Notes 5 and 7).
Noncontrolling Interests
Noncontrolling interests represents the portion of net assets in consolidated subsidiaries that are not attributable, directly
or indirectly, to the Company. Beginning in the first quarter of fiscal 2013, the Company has entered into facilities with third-party
investors under which the investors are determined to hold noncontrolling interests in entities fully consolidated by the Company.
The net assets of the shared entities are attributed to the controlling and noncontrolling interests based on the terms of the
governing contractual arrangements. The Company further determined the hypothetical liquidation at book value method (“HLBV
Method”) to be the appropriate method for attributing net assets to the controlling and noncontrolling interests as this method
most closely mirrors the economics of the governing contractual arrangements. Under the HLBV Method, the Company allocates
recorded income (loss) to each investor based on the change, during the reporting period, of the amount of net assets each investor
is entitled to under the governing contractual arrangements in a liquidation scenario.
Business Combinations
The Company records all acquired assets and liabilities, including goodwill, other intangible assets, and in-process
research and development, at fair value. The initial recording of goodwill, other intangible assets, and in-process research and
development requires certain estimates and assumptions concerning the determination of the fair values and useful lives. The
judgments made in the context of the purchase price allocation can materially impact the Company’s future results of operations.
Accordingly, for significant acquisitions, the Company obtains assistance from third-party valuation specialists. The valuations
calculated from estimates are based on information available at the acquisition date (see Notes 3 and 4). The Company charges
acquisition related costs that are not part of the consideration to general and administrative expense as they are incurred. These
costs typically include transaction and integration costs, such as legal, accounting, and other professional fees.
The Company initially records receipts of net assets or equity interests between entities under common control at their
carrying amounts in the accounts of the transferring entity. Financial statements and financial information presented for prior
years are retrospectively adjusted to effect the transfer as of the first date for which the entities were under common control. If the
carrying amounts of the assets and liabilities transferred differ from the historical cost of the parent of the entities under common
control then amounts recognized in the Company’s financial statements reflect the transferred assets and liabilities at the historical
cost of the parent of the entities under common control. Financial statements and financial information presented for prior years
are also retrospectively adjusted to furnish comparative information as though the assets and liabilities had been transferred
at that date.
Recent Accounting Pronouncements
In January 2017, the Financial Accounting Standards Board (“FASB”) issued an update to the standards to simplify the
subsequent measurement of goodwill by removing the second step of the two-step impairment test. The new guidance is effective
for the Company no later than the first quarter of fiscal 2020 and requires a prospective approach to adoption. Early adoption is
permitted. The Company is evaluating the potential impact of this standard on its consolidated financial statements and disclosures.
In January 2017, the FASB issued an update to the standards to clarify the definition of a business to assist entities with
evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The new guidance
is effective for the Company no later than the first quarter of fiscal 2018 and requires a prospective approach to adoption. Early
adoption is permitted. The Company is evaluating the potential impact of this standard on its consolidated financial statements
and disclosures.
In November 2016, the FASB issued an update to the standards to require management to present their Statement of Cash
Flows including amounts generally described as restricted cash or restricted cash equivalents with cash and cash equivalents when
reconciling the beginning-of-period and end-of-period total amounts shown on the Statement of Cash Flows. The new guidance
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is effective for the Company no later than the first quarter of fiscal 2018 and requires a retrospective approach to adoption. Early
adoption is permitted. The Company is evaluating the potential impact of this standard on its consolidated financial statements
and disclosures.
In October 2016, the FASB issued an update to the standards to amend how a reporting entity considers indirect interests
held by related parties under common control when evaluating whether it is the primary beneficiary of a VIE. The new guidance
is effective for the Company no later than the first quarter of fiscal 2017 and requires a retrospective approach to adoption. Early
adoption is permitted. The Company is evaluating the potential impact of this standard on its consolidated financial statements
and disclosures.
In October 2016, the FASB issued an update to the standards to require entities to recognize the income tax consequences
of an intra-entity transfer of an asset other than inventory when the transfer occurs. The new guidance is effective for the
Company no later than the first quarter of fiscal 2018. Early adoption is permitted beginning in the first quarter of fiscal 2017 and
requires a modified retrospective approach to adoption. The Company is evaluating the potential impact of this standard on its
consolidated financial statements and disclosures.
In August 2016, the FASB issued an update to the standards to reduce diversity in practice in how certain transactions
are presented and classified in the statement of cash flows. The new guidance is effective for the Company no later than the
first quarter of fiscal 2018. Early adoption is permitted. The Company is evaluating the potential impact of this standard on its
consolidated financial statements and disclosures.
In June 2016, the FASB issued an update to the standards to amend the methodology for measuring credit losses on
financial instruments and the timing of when such losses are recorded. The new guidance is effective for the Company no later
than the first quarter of fiscal 2020. Early adoption is permitted beginning in the first quarter of fiscal 2019. The Company is
evaluating the potential impact of this standard on its consolidated financial statements and disclosures.
In March 2016, the FASB issued an update to the standards to simplify the accounting for employee share-based
payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and
classification on the statement of cash flows. The new guidance is effective for the Company no later than the first quarter of
fiscal 2017. Early adoption is permitted. The Company is evaluating the potential impact of this standard on its consolidated
financial statements and disclosures.
In February 2016, the FASB issued an update to the standards to require lessees to recognize a lease liability and a
right-of-use asset for all leases (lease terms of more than 12 months) at the commencement date. The new guidance is effective
for the Company no later than the first quarter of fiscal 2019 and requires a modified retrospective approach to adoption. Early
adoption is permitted. The Company is evaluating the potential impact of this standard on its consolidated financial statements
and disclosures.
In January 2016, the FASB issued an update to the standards to require equity investments to be measured at fair
value with changes in the fair value recognized through net income (other than those accounted for under the equity method of
accounting or those that result in consolidation of the investee). The new guidance is effective for the Company no later than the
first quarter of fiscal 2018 and upon adoption, an entity should apply the amendments by means of a cumulative-effect adjustment
to the balance sheet at the beginning of the first reporting period in which the guidance is effective. Early adoption is permitted
for the accounting guidance on financial liabilities under the fair value option. The Company is evaluating the potential impact of
this standard on its consolidated financial statements and disclosures.
In July 2015, the FASB issued an update to the standards to simplify the measurement of inventory. The updated standard
more closely aligns the measurement of inventory with that of International Financial Reporting Standards (“IFRS”) and amends
the measurement standard from lower of cost or market to lower of cost or net realizable value. The new guidance is effective for
the Company no later than the first quarter of fiscal 2017 and requires a prospective approach to adoption. The Company elected
early adoption of the updated accounting standard, effective in the second quarter of fiscal 2016. The adoption of this updated
accounting standard did not result in a significant impact to the Company’s consolidated financial statements.
In February 2015, the FASB issued a new standard that modifies existing consolidation guidance for reporting
organizations that are required to evaluate whether they should consolidate certain legal entities. The Company adopted the new
accounting standard, effective in the first quarter of fiscal 2016. Adoption of the new accounting standard did not have a material
impact to the Company’s consolidated financial statements.
102
In August 2014, the FASB issued an update to the standards to require management to evaluate whether there are
conditions and events that raise substantial doubt about the Company’s ability to continue as a going concern within one year
after the date the financial statements are issued, and to provide related disclosures. The Company adopted the new accounting
standard, effective in the fourth quarter of fiscal 2016. The Company concluded that its current cash, cash equivalents, cash
expected to be generated from operations and funds available under existing credit facilities will be sufficient to meet working
capital needs and fund committed capital expenditures for the period required to be evaluated. While the Company believes its
assumptions inherent in this conclusion are reasonable, the Company also believes that it has viable additional options available
to support short-term liquidity needs if necessary. Adoption of the new accounting standard did not have a material impact to
the Company’s consolidated financial statements, however may increase the disclosure requirements regarding the Company’s
evaluation of going concern.
In May 2014, the FASB issued a new revenue recognition standard based on the principle that revenue is recognized to
depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to
be entitled in exchange for those goods and services. The FASB has issued several updates to the standard which i) clarify the
application of the principal versus agent guidance; ii) clarify the guidance relating to performance obligations and licensing; and
iii) clarify assessment of the collectability criterion, presentation of sales taxes, measurement date for non-cash consideration and
completed contracts at transaction; and iv) clarify narrow aspects of ASC 606 or corrects unintended application of the guidance.
The new revenue recognition standard, amended by the updates, becomes effective for the Company in the first quarter of fiscal
2018 and is to be applied retrospectively using one of two prescribed methods. Early adoption is permitted. The Company
currently plans to adopt effective January 1, 2018 using the full retrospective approach; however, a final decision regarding the
adoption method has not been made at this time. The Company’s final determination will depend on a number of factors such as
the process of finalizing the impact to the Company’s financial results and from additional disclosure requirements.
The Company has made significant progress with its evaluation of the impact of the new standard on its accounting
policies, processes, and with updating its systems to fulfill the accounting and disclosure requirements under the new
standard. The Company has assigned sufficient internal resources and also retained a third party service provider to assist with
its implementation.
The Company expects the adoption of ASC 606 to primarily affect our Power Plants and Commercial segments. Sales of
solar power systems that include the sale or lease of related real estate, which occur under both segments, are currently accounted
for under ASC 360-20. ASC 360-20 requires us to evaluate whether such arrangements have any forms of continuing involvement
that may affect the revenue or profit recognition of the transactions, including arrangements with prohibited forms of continuing
involvement requiring us to reduce the potential profit on a project sale by our maximum exposure to loss. We anticipate that
ASC 606, which supersedes the real estate sales guidance under ASC 360-20, will result in the earlier recognition of revenue
and profit. In addition, the Company’s investment in the 8point3 Group currently has a negative carrying value of $60.6 million
primarily as a result of profit deferred under ASC 360-20. Under ASC 606, the Company expects that a material amount of this
deferred profit will have been recognized prior to January 1, 2018, and as a result the Company’s carrying value in the 8point3
Group will materially increase upon adoption. The Company expects that revenue recognition for our other sales arrangements,
including the sales of components, sales and construction of solar systems, and operations and maintenance services, will remain
materially consistent.
The Company continues to assess the potential impacts of the new standard, including the areas described above, and
anticipates that this standard will have a material impact on its consolidated financial statements. However, the Company does
not know or cannot reasonably estimate quantitative information, beyond that discussed above, related to the impact of the new
standard on the financial statements at this time.
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. As of January 1, 2017, through the increase of the Company’s
total outstanding common stock due to the exercise of warrants and issuance of restricted and performance stock units, Total’s
ownership of the Company’s outstanding common stock has decreased to approximately 57%.
103
Amended and Restated Credit Support Agreement
In June 2016, the Company and Total S.A. entered into an Amended and Restated Credit Support Agreement (the
“Credit Support Agreement”) which amended and restated the Credit Support Agreement dated April 28, 2011 by and between
the Company and Total S.A., as amended. Under the Credit Support Agreement, Total S.A. agreed to enter into one or more
guarantee agreements (each a “Guaranty”) with banks providing letter of credit facilities to the Company. At any time until
December 31, 2018, Total S.A. will, at the Company’s request, guarantee the payment to the applicable issuing bank of the
Company’s obligation to reimburse a draw on a letter of credit and pay interest thereon in accordance with the letter of credit
facility between such bank and the Company. Such letters of credit must be issued no later than December 31, 2018 and expire no
later than March 31, 2020. Total is required to issue and enter into a Guaranty requested by the Company, subject to certain terms
and conditions. In addition, Total will not be required to enter into the Guaranty if, after giving effect to the Company’s request
for a Guaranty, the sum of (a) the aggregate amount available to be drawn under all guaranteed letter of credit facilities, (b) the
amount of letters of credit available to be issued under any guaranteed facility, and (c) the aggregate amount of draws (including
accrued but unpaid interest) on any letters of credit issued under any guaranteed facility that have not yet been reimbursed by the
Company, would exceed $500 million in the aggregate. Such maximum amounts of credit support available to the Company can
be reduced upon the occurrence of specified events.
In consideration for the commitments of Total S.A. pursuant to the Credit Support Agreement, the Company is required
to pay Total S.A. a guaranty fee for each letter of credit that is the subject of a Guaranty under the Credit Support Agreement
and was outstanding for all or part of the preceding calendar quarter. The Credit Support Agreement will terminate following
December 31, 2018, after the later of the satisfaction of all obligations thereunder and the termination or expiration of each
Guaranty provided thereunder.
Affiliation Agreement
The Company and Total have entered into an Affiliation Agreement that governs the relationship between Total and
the Company (the “Affiliation Agreement”). Until the expiration of a standstill period specified in the Affiliation Agreement
(the “Standstill Period”), and subject to certain exceptions, Total, Total S.A., any of their respective affiliates and certain other
related parties (collectively the “Total Group”) may not effect, seek, or enter into discussions with any third-party regarding any
transaction that would result in the Total Group beneficially owning shares of the Company in excess of certain thresholds, or
request the Company or the Company’s independent directors, officers or employees, to amend or waive any of the standstill
restrictions applicable to the Total Group.
The Affiliation Agreement imposes certain limitations on the Total Group’s ability to seek to effect a tender offer or
merger to acquire 100% of the outstanding voting power of the Company and imposes certain limitations on the Total Group’s
ability to transfer 40% or more of the outstanding shares or voting power of the Company to a single person or group that is
not a direct or indirect subsidiary of Total S.A. During the Standstill Period, no member of the Total Group may, among other
things, solicit proxies or become a participant in an election contest relating to the election of directors to the Company’s
Board of Directors.
The Affiliation Agreement provides Total with the right to maintain its percentage ownership in connection with any
new securities issued by the Company, and Total may also purchase shares on the open market or in private transactions with
disinterested stockholders, subject in each case to certain restrictions.
The Affiliation Agreement also imposes certain restrictions with respect to the Company’s and its Board of Directors’
ability to take certain actions, including specifying certain actions that require approval by the directors other than the directors
appointed by Total and other actions that require stockholder approval by Total.
Research & Collaboration Agreement
Total and the Company have entered into a Research & Collaboration Agreement (the “R&D Agreement”) that
establishes a framework under which the parties engage in long-term research and development collaboration (“R&D
Collaboration”). The R&D Collaboration encompasses a number of different projects, with a focus on advancing the Company’s
technology position in the crystalline silicon domain, as well as ensuring the Company’s industrial competitiveness. The R&D
Agreement enables a joint committee to identify, plan and manage the R&D Collaboration.
104
Upfront Warrant
In February 2012, the Company issued a warrant (the “Upfront Warrant”) to Total S.A. to purchase 9,531,677 shares
of the Company’s common stock with an exercise price of $7.8685, subject to adjustment for customary anti-dilution and
other events. The Upfront Warrant, which is governed by the Private Placement Agreement and a Compensation and Funding
Agreement entered into in February 2012, is exercisable at any time for seven years after its issuance, provided that, so long
as at least $25.0 million in aggregate of the Company’s convertible debt remains outstanding, such exercise will not cause any
“person,” including Total S.A., to, directly or indirectly, including through one or more wholly-owned subsidiaries, become
the “beneficial owner” (as such terms are defined in Rule 13d-3 and Rule 13d-5 under the Securities Exchange Act of 1934, as
amended), of more than 74.99% of the voting power of the Company’s common stock at such time, a circumstance which would
trigger the repurchase or conversion of the Company’s existing convertible debt.
0.75% Debentures Due 2018
In May 2013, the Company issued $300.0 million in principal amount of its 0.75% senior convertible debentures due
2018 (the “0.75% debentures due 2018”). $200.0 million in aggregate principal amount of the 0.75% debentures due 2018 were
acquired by Total. The 0.75% debentures due 2018 are convertible into shares of the Company’s common stock at any time based
on an initial conversion price equal to $24.95 per share, which provides Total the right to acquire up to 8,017,420 shares of the
Company’s common stock. The applicable conversion rate may adjust in certain circumstances, including a fundamental change,
as described in the indenture governing the 0.75% debentures due 2018.
0.875% Debentures Due 2021
In June 2014, the Company issued $400.0 million in principal amount of its 0.875% senior convertible debentures due
2021 (the “0.875% debentures due 2021”). An aggregate principal amount of $250.0 million of the 0.875% debentures due 2021
were acquired by Total. The 0.875% debentures due 2021 are convertible into shares of the Company’s common stock at any time
based on an initial conversion price equal to $48.76 per share, which provides Total the right to acquire up to 5,126,775 shares
of the Company’s common stock. The applicable conversion rate may adjust in certain circumstances, including a fundamental
change, as described in the indenture governing the 0.875% debentures due 2021.
4.00% Debentures Due 2023
In December 2015, the Company issued $425.0 million in principal amount of its 4.00% senior convertible debentures
due 2023 (the “4.00% debentures due 2023”). An aggregate principal amount of $100.0 million of the 4.00% debentures due
2023 were acquired by Total. The 4.00% debentures due 2023 are convertible into shares of the Company’s common stock at
any time based on an initial conversion price equal to $30.53 per share, which provides Total the right to acquire up to 3,275,680
shares of the Company’s common stock. The applicable conversion rate may adjust in certain circumstances, including a
fundamental change, as described in the indenture governing the 4.00% debentures due 2023.
Joint Projects with Total and its Affiliates:
The Company enters into various EPC and O&M agreements relating to solar projects, including EPC and O&M
services agreements relating to projects owned or partially owned by Total and its affiliates. As of January 1, 2017, the Company
had $2.0 million of “Costs and estimated earnings in excess of billings” on its Consolidated Balance Sheets related to projects in
which Total and its affiliates have a direct or indirect material interest.
During fiscal 2016, in connection with a co-development project between SunPower and Total, the Company made a
$7.0 million payment to Total in exchange for Total’s ownership interest in the co-development project.
105
Related-Party Transactions with Total and its Affiliates:
(In thousands)
Revenue:
EPC, O&M, and components revenue under joint projects
Research and development expense:
Offsetting contributions received under the R&D Agreement
Interest expense:
Guarantee fees incurred under the Credit Support Agreement
Fees incurred under the Compensation and Funding Agreement
Interest expense incurred on the 0.75% debentures due 2018
Interest expense incurred on the 0.875% debentures due 2021
Interest expense incurred on the 4.00% debentures due 2023
Note 3. BUSINESS COMBINATIONS
AUOSP
$
$
$
$
$
$
$
2016
Fiscal Year
2015
2014
64,719
(557)
$
$
56,772
$ 155,568
(1,620)
$
(1,612)
7,130
$
— $
$
$
$
1,500
2,188
4,000
11,227
$
— $
$
$
$
1,500
2,188
167
12,035
1,200
1,604
1,209
—
On September 29, 2016, the Company completed the acquisition of AUO SunPower Sdn. Bhd. (“AUOSP”) pursuant to
a Stock Purchase Agreement (the “Stock Purchase Agreement”) entered into between SunPower Technology, Ltd. (“SPTL”), a
wholly-owned subsidiary of the Company, and AU Optronics Singapore Pte. Ltd. (“AUO”). AUOSP was a joint venture of SPTL
and AUO for the purpose of manufacturing solar cells. Prior to the acquisition, SPTL and AUO each owned 50% of the shares
of AUOSP. Pursuant to the Stock Purchase Agreement, SPTL purchased all of the shares of AUOSP held by AUO for a total
purchase price of $170.1 million in cash, payable in installments as set forth in the Stock Purchase Agreement, to obtain 100%
of the voting equity interest in AUOSP. As a result, AUOSP became a consolidated subsidiary of the Company and the results of
operations of AUOSP have been included in the Consolidated Statement of Operations of the Company since September 29, 2016.
Simultaneously with the entry into the Stock Purchase Agreement, SunPower Systems Sarl (“SPSW”) and AU Optronics
Corporation (“AUO Corp”), the ultimate parent of AUO, entered into a Module Supply Agreement whereby AUO Corp agreed
to purchase on commercial terms 100MW of SunPower’s E-Series solar modules, with the purchase price having been prepaid in
full by AUO Corp prior to the closing of the acquisition. As a result, the Company accounted for its purchase price consideration
in accordance with the substance of the combined transactions, which resulted in consideration of $91.1 million in cash to be paid
according to the following installment schedule: (i) $30.0 million in cash paid on the closing date; (ii) $1.1 million in cash to be
paid on the second anniversary of the closing date; (iii) $30.0 million in cash to be paid on the third anniversary of the closing
date; and (iv) $30.0 million in cash to be paid on the fourth anniversary of the closing date, as well as the 100MW of modules
to be delivered during fiscal 2017 and 2018. The total purchase price consideration, including the estimated fair value of the
modules and discounted to present value as of September 29, 2016, was $130.6 million.
Prior to the acquisition date, the Company accounted for its 50% interest in AUOSP as an equity method investment
(see Note 10). The Company engaged a third-party valuation expert to assist in determining the fair value of AUOSP’s assets,
liabilities, and equity interests. The acquisition-date fair value of the previous equity interest, computed as the Company’s
50% interest in the net asset value of AUOSP, as determined using the income approach and with assistance from the third-
party valuation expert, was $120.5 million and is included in the measurement of the consideration transferred. The Company
recognized a loss of $90.9 million as a result of remeasuring its prior equity interest in AUOSP held before the business
combination. The loss is included in the “Other income (expense), net” section of the Consolidated Statements of Operations.
As a result of the acquisition, the Company obtained full control of a solar cell manufacturing facility, from which it
expects to achieve significant synergies. Also in connection with the Stock Purchase Agreement and Module Supply Agreement,
the Company, SPTL, SunPower Philippines Manufacturing Limited, a wholly owned subsidiary of the Company, and SPSW
entered into an agreement (the “Settlement Agreement”) with AUO, AUO Corp, and AUOSP to settle all claims, demands,
damages, actions, causes of action, or suits between them, including but not limited to the arbitration before the ICC International
Court of Arbitration (see Note 9).
106
Prior to the acquisition, AUOSP sold its solar cells to both SPSW and AUO, with the significant majority of sales
to SPSW. Sales to AUO, with the exception of the Module Supply agreement discussed above, ceased in connection with
the acquisition. As the sales to SPSW would be intercompany transactions upon consolidation, and the sales to AUO are
not continuing business, the Company determined that the pro-forma effects to the Company’s Statements of Operations of
consolidating AUOSP from December 29, 2014 were not material.
Preexisting Relationships
Prior to the acquisition, the Company had several preexisting relationships with AUOSP. In connection with the original
joint venture agreement, the Company and AUO had also entered into licensing and joint development, supply, and other ancillary
transaction agreements. Through the Licensing and Technology Transfer 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, the
Company was committed to purchase 80% of AUOSP’s total annual output on cost-plus pricing terms, allocated on a monthly
basis to the Company. The Company and AUO had 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 would resell to AUOSP, under
contractually fixed terms for quantity and price, polysilicon purchased from a third-party supplier. Under the agreement, AUOSP
would provide prepayments to the Company related to such polysilicon, which prepayment would then be made by the Company
to the third-party supplier.
In connection with the transactions contemplated under the Stock Purchase Agreement, the Company (and certain of
its affiliates), AUO (and certain of its affiliates), and AUOSP terminated certain agreements, including (a) the Joint Venture
Agreement by and among SPTL, AUO, AUO Corp, and AUOSP, dated as of May 27, 2010 and as amended from time to time,
(b) the Supply Agreement for solar cells by and among SPSW, AUO, and AUOSP, dated as of July 5, 2010, and (c) the License
and Technology Transfer Agreement by and among SPTL, AUO, and AUOSP, dated as of July 5, 2010.
As a result of the acquisition and the settlement of the preexisting agreements, the Company recognized a net gain
of $203.3 million, which was recognized separately from the business combination and is included in the “Other income
(expense), net” section of the Consolidated Statements of Operations. The gain was comprised of three primary components:
first, a $133.0 million gain related to the elimination of a customer advance liability without return of any proceeds by the
Company that was previously recognized in the Company’s books associated with the prepayment by AUOSP under the
polysilicon purchase contract with the Company. The fair value of this prepayment on AUOSP’s opening balance sheet was
determined to be zero and accordingly the offsetting balance on the Company’s balance sheet was written off. Second, an
$87.2 million gain associated with the termination of the polysilicon purchase contract between AUOSP and the Company, as
the contract required AUOSP to purchase polysilicon at above-market prices. These amounts were partially offset by a $16.9
million loss associated with the termination of the cell supply contract, as the contract required the Company to purchase cells
at above-market prices.
Purchase Price Allocation
The Company accounted for this acquisition using the acquisition method. The Company allocated the purchase price to
the acquired assets and liabilities based on their estimated fair values at the acquisition date as summarized in the following table.
(In thousands)
Net tangible assets acquired
Goodwill
Total allocable consideration
$ 161,432
89,600
$ 251,032
107
The fair value of the net tangible assets acquired on September 29, 2016 is presented in the following table:
(In thousands)
Cash and cash equivalents
Inventories
Prepaid expenses and other current assets:
Cell supply agreement*
Related party receivables*
Other receivables
Other prepaid expenses
Property, plant, and equipment
Other long-term assets
Total assets acquired
Accounts payable
Accrued liabilities:
Polysilicon supply agreement*
Related party payables*
Employee compensation and employee benefits
Other accrued liabilities
Short-term debt
Other long-term liabilities
Total liabilities assumed
Net tangible assets acquired
* Amount eliminated upon consolidation with the Company.
Goodwill
$
5,997
9,072
16,928
22,875
23,956
2,711
285,589
342
$ 367,470
$ 41,186
87,198
14,333
4,017
760
58,248
296
$ 206,038
$ 161,432
As noted above, $89.6 million had been allocated to goodwill within all three Segments during the year ended
January 1, 2017 (see Note 4). Goodwill represents the excess of the purchase price of an acquired business over the fair value of
the underlying net tangible and other intangible assets and is not deductible for tax purposes. Among the factors that contributed
to a purchase price in excess of the fair value of the net tangible and other intangible assets was the acquisition of an assembled
workforce, synergies in technologies, skill sets, operations, and organizational cultures. In connection with the Company’s overall
goodwill impairment evaluation as discussed further in Note 4, this goodwill was subsequently impaired during the year ending
January 1, 2017, and no further goodwill related to the acquisition remained on the Company’s Consolidated Balance Sheet as of
January 1, 2017.
Note 4. GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill
The following table presents the changes in the carrying amount of goodwill under the Company’s reportable
business segments:
(In thousands)
As of January 3, 2016
Goodwill arising from business combinations
Goodwill impairment
Adjustments to goodwill
As of January 1, 2017
108
$
Residential Commercial
10,314
$
23,316
(33,260)
(370)
—
32,180
17,771
(49,951)
—
—
$
$
Power
Plant
15,641
48,513
(64,154)
—
—
$
$
Total
58,135
89,600
(147,365)
(370)
—
$
$
Goodwill is tested for impairment at least annually, or more frequently if certain indicators are present. If goodwill
is determined more likely than not to be impaired upon an initial assessment of qualitative factors, a two-step valuation and
accounting process is used to test for goodwill impairment. The first step is to determine if there is an indication of impairment
by comparing the estimated fair value of each reporting unit to its carrying value, including existing goodwill. Goodwill is
considered impaired if the carrying value of a reporting unit exceeds the estimated fair value. Upon an indication of impairment,
a second step is performed to determine the amount of the impairment by comparing the implied fair value of the reporting unit’s
goodwill with its carrying value.
The Company conducts its annual impairment test of goodwill as of the first day of the fourth fiscal quarter of each
year, or on an interim basis if circumstances warrant. Impairment of goodwill is tested at the Company’s reporting unit level.
Management determined that the Residential Segment, the Commercial Segment, and the Power Plant Segment are the reporting
units. In estimating the fair value of the reporting units, the Company makes estimates and judgments about its future cash flows
using an income approach defined as Level 3 inputs under fair value measurement standards. The income approach, specifically
a discounted cash flow analysis, included assumptions for, among others, forecasted revenue, gross margin, operating income,
working capital cash flow, perpetual growth rates and long-term discount rates, all of which require significant judgment by
management. The sum of the fair values of the Company’s reporting units are also compared to the Company’s total external
market capitalization to validate the appropriateness of its assumptions and such reporting unit values are adjusted, if appropriate.
These assumptions also consider the current industry environment and outlook, and the resulting impact on the Company’s
expectations for the performance of its business.
Due to market circumstances that occurred during the third quarter of fiscal 2016, including a decline in the Company’s
stock price which resulted in the market capitalization of the Company being below its book value, the Company determined
that an interim goodwill impairment evaluation was necessary. Based on the interim impairment test as of October 2, 2016, the
Company determined that the carrying value of all reporting units exceeded their fair value. As a result, the Company performed
an evaluation of the second step of the impairment analysis for the reporting units discussed above. The Company’s calculation
of the implied fair value of goodwill included significant assumptions for, among others, the fair values of recognized assets
and liabilities and of unrecognized intangible assets, all of which require significant judgment by management. The Company
calculated that the implied fair value of goodwill for all reporting units was zero and therefore recorded a goodwill impairment
loss of $147.4 million, representing all of the goodwill associated with these reporting units.
Other Intangible Assets
The following tables present details of the Company’s acquired other intangible assets:
(In thousands)
As of January 1, 2017
Patents and purchased technology
Project pipeline assets
Purchased in-process research and development
Other
As of January 3, 2016
Patents and purchased technology
Project pipeline assets
Purchased in-process research and development
Other
Gross
Accumulated
Amortization
Net
$
$
$
$
48,640
9,446
3,700
1,000
62,786
53,499
9,446
3,700
500
67,145
$
$
$
$
(15,529)
(1,804)
(485)
(750)
(18,568)
(5,328)
—
—
(375)
(5,703)
$
$
$
$
33,111
7,642
3,215
250
44,218
48,171
9,446
3,700
125
61,442
Aggregate amortization expense for intangible assets totaled $13.0 million, $5.1 million and $0.6 million for fiscal 2016,
2015 and 2014, respectively. Aggregate impairment loss for intangible assets amounted to 4.7 million for fiscal 2016.
109
As of January 1, 2017, the estimated future amortization expense related to intangible assets with finite useful lives
is as follows:
(In thousands)
Fiscal Year
2017
2018
2019
2020
Note 5. BALANCE SHEET COMPONENTS
(In thousands)
Accounts receivable, net:
Accounts receivable, gross1,2
Less: allowance for doubtful accounts
Less: allowance for sales returns
Amount
$ 12,315
14,405
9,961
6,315
$ 42,996
As of
January 1,
2017
January 3,
2016
$ 242,451
(20,380)
(2,433)
$ 219,638
$ 207,860
(15,505)
(1,907)
$ 190,448
1
2
Includes short-term financing receivables associated with solar power systems leased of $19.3 million and $12.5 million as of
January 1, 2017 and January 3, 2016, respectively (see Note 6).
Includes short-term retainage of $8.8 million and $11.8 million as of January 1, 2017 and January 3, 2016, respectively. Retainage
refers to the earned, but unbilled, portion of a construction and development project for which payment is deferred by the customer
until certain contractual milestones are met.
(In thousands)
Allowance for doubtful accounts:
Year ended January 1, 2017
Year ended January 3, 2016
Year ended December 28, 2014
Allowance for sales returns:
Year ended January 1, 2017
Year ended January 3, 2016
Year ended December 28, 2014
Valuation allowance for deferred tax assets:
Year ended January 1, 2017
Year ended January 3, 2016
Year ended December 28, 2014
(In thousands)
Inventories:
Raw materials
Work-in-process
Finished goods
Balance at
Beginning
of Period
Charges
(Releases) to
Expenses /
Revenues
Balance
at End of
Period
Deductions
$
15,505
18,152
26,463
1,907
1,145
2,095
268,671
118,748
90,571
$
$
7,319
1,163
(1,023)
(2,445)
(3,810)
(7,288)
$
526
762
(950)
228,565
149,923
28,177
—
—
—
—
—
—
20,379
15,505
18,152
2,433
1,907
1,145
497,236
268,671
118,748
As of
January 1,
2017
January 3,
2016
$ 136,906
184,967
79,834
$ 401,707
$ 124,297
131,258
126,835
$ 382,390
110
(In thousands)
Prepaid expenses and other current assets:
Deferred project costs
VAT receivables, current portion
Deferred costs for solar power systems to be leased
Derivative financial instruments
Prepaid inventory
Other receivables
Prepaid taxes
Other prepaid expenses
Other current assets
(In thousands)
Project assets - plants and land:
Project assets — plants
Project assets — land
Project assets - plants and land, current portion
Project assets - plants and land, net of current portion
(In thousands)
Property, plant and equipment, net:
Manufacturing equipment1
Land and buildings
Leasehold improvements
Solar power systems2
Computer equipment
Furniture and fixtures
Construction-in-process
Less: accumulated depreciation
As of
January 1,
2017
January 3,
2016
$
68,338
14,260
28,705
4,802
83,943
85,834
5,468
24,260
60
$ 315,670
$
67,479
14,697
40,988
8,734
50,615
78,824
71,529
26,651
—
$ 359,517
As of
January 1,
2017
January 3,
2016
$ 389,103
18,927
$ 408,030
$ 374,459
33,571
$
$ 479,108
5,416
$ 484,524
$ 479,452
5,072
$
As of
January 1,
2017
January 3,
2016
$ 403,808
130,080
280,620
207,277
185,518
12,591
39,849
1,259,743
(232,677)
$ 1,027,066
$ 556,963
32,090
244,098
141,075
103,443
10,640
247,511
1,335,820
(604,590)
$ 731,230
1 The Company’s mortgage loan agreement with International Finance Corporation (“IFC”) is collateralized by certain manufacturing
equipment with a net book value of $14.3 million and $85.1 million as of January 1, 2017 and January 3, 2016, respectively.
2
Includes $177.1 million and $110.4 million of solar power systems associated with sale-leaseback transactions under the financing
method as of January 1, 2017 and January 3, 2016, respectively, which are depreciated using the straight-line method to their estimated
residual values over the lease terms of up to 20 years (see Note 6).
111
(In thousands)
Property, plant and equipment, net by geography1:
Philippines
Malaysia
United States
Mexico
Europe
Other
1 Property, plant and equipment, net by geography is based on the physical location of the assets.
(In thousands)
Other long-term assets:
Equity method investments1
Derivative financial instruments
Cost method investments
Other
As of
January 1,
2017
January 3,
2016
$ 373,286
275,980
276,053
81,419
20,154
174
$1,027,066
$ 460,420
—
201,419
44,164
22,962
2,265
$ 731,230
As of
January 1,
2017
January 3,
2016
$
(6,931)
11,429
39,423
141,598
$ 185,519
$ 186,405
—
36,369
75,201
$ 297,975
1
Includes the carrying value of the Company’s investment in the 8point3 Group, which had a negative value of $60.6 million and
$30.9 million as of January 1, 2017 and January 3, 2016, respectively (see Note 10).
(In thousands)
Accrued liabilities:
Employee compensation and employee benefits
Deferred revenue
Short-term residential lease financing
Interest payable
Short-term warranty reserves
Restructuring reserve
VAT payables
Derivative financial instruments
Inventory payable
Liability due to 8point3 Energy Partners
Proceeds from 8point3 Energy Partners attributable to projects prior to Commercial Operation
Date (“COD”)
Contributions from noncontrolling interests attributable to projects prior to COD
Taxes payable
Liability due to AU Optronics
Other
As of
January 1,
2017
January 3,
2016
$
43,370
27,649
—
15,329
4,894
18,001
4,743
2,023
83,943
—
$
59,476
19,887
7,395
8,165
16,639
1,823
4,225
2,316
50,615
9,952
3,665
93,875
25,602
31,714
36,418
$ 391,226
—
—
36,824
—
96,180
$ 313,497
112
(In thousands)
Other long-term liabilities:
Deferred revenue
Long-term warranty reserves
Long-term sale-leaseback financing
Long-term residential lease financing with 8point3 Energy Partners
Unrecognized tax benefits
Long-term pension liability
Derivative financial instruments
Long-term liability due to AU Optronics
Other
(In thousands)
Accumulated other comprehensive loss:
Cumulative translation adjustment
Net unrealized gain on derivatives
Net gain (loss) on long-term pension liability adjustment
Deferred taxes
Note 6. LEASING
Residential Lease Program
As of
January 1,
2017
January 3,
2016
$ 188,932
156,315
204,879
29,370
47,203
3,381
448
71,639
18,865
$ 721,032
$ 179,779
147,488
125,286
29,389
43,297
12,014
1,033
—
26,271
$ 564,557
As of
January 1,
2017
January 3,
2016
$
$
(12,249)
1,203
4,228
(420)
(7,238)
$
$
(11,164)
5,942
(2,055)
(746)
(8,023)
The Company offers a solar lease program, which provides U.S. residential customers with SunPower systems under
20-year lease agreements that include system maintenance and warranty coverage. Leases are classified as either operating or
sales-type leases in accordance with the relevant accounting guidelines.
Operating Leases
The following table summarizes “Solar power systems leased and to be leased, net” under operating leases on the
Company’s Consolidated Balance Sheets as of January 1, 2017 and January 3, 2016:
(In thousands)
Solar power systems leased and to be leased, net1,2:
Solar power systems leased
Solar power systems to be leased
Less: accumulated depreciation
As of
January 1,
2017
January 3,
2016
$ 666,700
25,367
692,067
(70,800)
$ 621,267
$ 543,358
34,319
577,677
(46,157)
$ 531,520
1 Solar power systems leased and to be leased, net are physically located exclusively in the United States.
2 As of January 1, 2017 and January 3, 2016, the Company had pledged solar assets with an aggregate book value of $13.1 million and
zero, respectively, to third-party investors as security for the Company’s contractual obligations.
113
The following table presents the Company’s minimum future rental receipts on operating leases placed in service as of
January 1, 2017:
(In thousands)
Minimum future rentals on operating
leases placed in service1
Fiscal
2017
Fiscal
2018
Fiscal
2019
Fiscal
2020
Fiscal
2021
Thereafter
Total
24,459
24,286
24,333
24,383
24,433
330,379
$ 452,273
1 Minimum future rentals on operating leases placed in service does not include contingent rentals that may be received from
customers under agreements that include performance-based incentives nor does it include rent receivables on operating leases sold to
the 8point3 Group.
Sales-Type Leases
As of January 1, 2017 and January 3, 2016, the Company’s net investment in sales-type leases presented in “Accounts
receivable, net” and “Long-term financing receivables, net” on the Company’s Consolidated Balance Sheets was as follows:
(In thousands)
Financing receivables1:
Minimum lease payments receivable2
Unguaranteed residual value
Unearned income
Net financing receivables
Current
Long-term
As of
January 1,
2017
January 3,
2016
$ 560,582
70,636
(104,624)
$ 526,594
$
19,261
$ 507,333
$ 366,759
50,722
(70,155)
$ 347,326
$
12,535
$ 334,791
1 As of January 1, 2017 and January 3, 2016, the Company had pledged financing receivables of $18.6 million and zero, respectively, to
third-party investors as security for the Company’s contractual obligations.
2 Net of allowance for doubtful accounts amounting to $4.9 million and $2.6 million, as of January 1, 2017 and January 3, 2016,
respectively.
As of January 1, 2017, future maturities of net financing receivables for sales-type leases are as follows:
(In thousands)
Scheduled maturities of minimum
lease payments receivable1
Fiscal
2017
Fiscal
2018
Fiscal
2019
Fiscal
2020
Fiscal
2021
Thereafter
Total
28,769
28,285
28,530
28,783
29,041
417,174
$ 560,582
1 Minimum future rentals on sales-type leases placed in service does not include contingent rentals that may be received from customers
under agreements that include performance-based incentives.
Sale-Leaseback Arrangements
The Company enters into sale-leaseback arrangements under which solar power systems are sold to third parties and
subsequently leased back by the Company over minimum lease terms of up to 25 years. Separately, the Company enters into
PPAs with end customers, who host the leased solar power systems and buy the electricity directly from the Company under PPAs
with terms of up to 25 years. At the end of the lease term, the Company has the option to purchase the systems at fair value or
may be required to remove the systems and return them to the third parties.
The Company has classified its sale-leaseback arrangements of solar power systems not involving integral equipment as
operating leases. The deferred profit on the sale of these systems is recognized over the term of the lease. As of January 1, 2017,
future minimum lease obligations associated with these systems were $78.2 million, which will be recognized over the minimum
lease terms. Future minimum payments to be received from customers under PPAs associated with the solar power systems
under sale-leaseback arrangements classified as operating leases will be recognized over the lease terms of up to 20 years and are
contingent upon the amounts of energy produced by the solar power systems.
114
The Company enters into certain sale-leaseback arrangements under which the systems subject to the sale-leaseback
arrangements have been determined to be integral equipment as defined under the accounting guidance for such transactions.
The Company has continuing involvement with the solar power systems throughout the lease due to purchase option rights in the
arrangements. As a result of such continuing involvement, the Company accounts for each of these transactions as a financing.
Under the financing method, the proceeds received from the sale of the solar power systems are recorded by the Company as
financing liabilities. The financing liabilities are subsequently reduced by the Company’s payments to lease back the solar
power systems, less interest expense calculated based on the Company’s incremental borrowing rate adjusted to the rate required
to prevent negative amortization. The solar power systems under the sale-leaseback arrangements remain on the Company’s
balance sheet and are classified within “Property, plant and equipment, net” (see Note 5). As of January 1, 2017, future minimum
lease obligations for the sale-leaseback arrangements accounted for under the financing method were $187.6 million, which will
be recognized over the lease terms of up to 25 years. During fiscal 2016 and 2015, the Company had net financing proceeds of
$94.8 million and 15.0 million, respectively, in connection with these sale-leaseback arrangements. As of January 1, 2017 and
January 3, 2016, the carrying amount of the sale-leaseback financing liabilities, presented in “Other long-term liabilities” on the
Company’s Consolidated Balance Sheets, was $204.9 million and $125.3 million, respectively (see Note 5).
Note 7. FAIR VALUE MEASUREMENTS
Fair value is estimated by applying the following hierarchy, which prioritizes the inputs used to measure fair value into
three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the
fair value measurement (observable inputs are the preferred basis of valuation):
• Level 1 — Quoted prices in active markets for identical assets or liabilities.
• Level 2 — Measurements are inputs that are observable for assets or liabilities, either directly or indirectly, other
than quoted prices included within Level 1.
• Level 3 — Prices or valuations that require management inputs that are both significant to the fair value
measurement and unobservable.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The Company measures certain assets and liabilities at fair value on a recurring basis. There were no transfers between
fair value measurement levels during any presented period. The Company did not have any assets or liabilities measured at fair
value on a recurring basis requiring Level 3 inputs as of January 1, 2017 or January 3, 2016.
The following table summarizes the Company’s assets and liabilities measured and recorded at fair value on a recurring
basis as of January 1, 2017 and January 3, 2016:
(In thousands)
Assets
Cash and cash equivalents1:
Money market funds
Prepaid expenses and other current assets:
January 1, 2017
Level 1
Total
Level 2
Total
January 3, 2016
Level 1
Level 2
$
3,002
$
3,002
$
— $540,000
$540,000
$
—
Derivative financial instruments (Note 12)
4,802
—
4,802
8,734
—
8,734
Other long-term assets:
Derivative financial instruments (Note 12)
Total assets
Liabilities
Accrued liabilities:
11,429
$ 19,233
—
3,002
$
11,429
$ 16,231
—
$548,734
—
$540,000
—
8,734
$
Derivative financial instruments (Note 12)
2,023
Other long-term liabilities:
Derivative financial instruments (Note 12)
Total liabilities
448
2,471
$
$
—
—
—
2,023
2,316
448
2,471
$
1,033
3,349
$
$
—
—
—
2,316
1,033
3,349
$
1 The Company’s cash equivalents consist of money market fund instruments and commercial paper that are classified as available-for-
sale and are highly liquid investments with original maturities of 90 days or less. The Company’s money market fund instruments are
categorized within Level 1 of the fair value hierarchy because they are valued using quoted market prices for identical instruments in
active markets.
115
Other financial instruments, including the Company’s accounts receivable, accounts payable and accrued liabilities, are
carried at cost, which generally approximates fair value due to the short-term nature of these instruments.
Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis
The Company measures certain investments and non-financial assets (including property, plant and equipment, and
other intangible assets) at fair value on a non-recurring basis in periods after initial measurement in circumstances when the fair
value of such asset is impaired below its recorded cost. Information regarding the Company’s goodwill and intangible asset
balances are disclosed in Note 4. As of January 1, 2017, the Company’s Fab 2 manufacturing facility was measured at fair value,
determined using a combination of the cost and market approaches in conjunction with a third-party appraiser. While certain
inputs used when applying the market approach, such as market prices of assets with comparable features, were observable, the
application of the cost approach required the Company to develop certain of its own assumptions, such as the remaining useful
life of the facility. Thus, although a combination of Level 2 and Level 3 inputs were utilized to determine the estimated fair value,
the Fab 2 manufacturing facility was classified as a Level 3 fair value measurement based on the lowest level of significant inputs.
As of January 3, 2016, there were no such items recorded at fair value.
Held-to-Maturity Debt Securities
The Company’s debt securities, classified as held-to-maturity, are Philippine government bonds that the Company
maintains as collateral for business transactions within the Philippines. These bonds have various maturity dates and are
classified as “Restricted long-term marketable securities” on the Company’s Consolidated Balance Sheets. As of January 1, 2017
and January 3, 2016 these bonds had a carrying value of $5.0 million and $6.5 million, respectively. The Company records such
held-to-maturity investments at amortized cost based on its ability and intent to hold the securities until maturity. The Company
monitors for changes in circumstances and events that would affect its ability and intent to hold such securities until the recorded
amortized costs are recovered. No other-than-temporary impairment loss was incurred during any presented period. The held-to-
maturity debt securities were categorized in Level 2 of the fair value hierarchy.
Equity and Cost Method Investments
The Company holds equity investments in non-consolidated entities that are accounted for under both the equity and cost
method. The Company monitors these investments, which are included in “Other long-term assets” in its Consolidated Balance
Sheets, for impairment and records reductions in the carrying values when necessary. Circumstances that indicate an other-than-
temporary decline include Level 2 and Level 3 measurements such as the valuation ascribed to the issuing company in subsequent
financing rounds, decreases in quoted market prices, and declines in the results of operations of the issuer.
As of January 1, 2017 and January 3, 2016, the Company had $(6.9) million and $186.4 million, respectively, in
investments accounted for under the equity method (see Note 10). As of January 1, 2017 and January 3, 2016, the Company had
$39.4 million and $36.4 million respectively, in investments accounted for under the cost method.
Note 8. RESTRUCTURING
December 2016 Restructuring Plan
On December 2, 2016, the Company adopted, and the Company began implementing, a restructuring plan to reduce costs
and focus on improving cash flow while positioning the Company to succeed in the next phase of industry growth. As part of the
plan, the Board of Directors approved the closure of the Company’s Philippine-based Fab 2 manufacturing facility. In connection
with the plan, which is expected to be completed by the end of fiscal 2017, the Company expects approximately 2,500 employees
to be affected, primarily in the Philippines, representing approximately 25% of the Company’s global workforce. The Company
expects to incur restructuring charges in connection with the plan totaling approximately $225 million to $275 million, consisting
primarily of asset impairments, severance benefits, lease and related termination costs, and other associated costs. The Company
expects approximately 30% of such total restructuring charges to be cash. The actual timing and costs of the plan may differ from
the Company’s current expectations and estimates.
August 2016 Restructuring Plan
On August 9, 2016, the Company adopted and began implementing initiatives to realign the Company’s downstream
investments, optimize the Company’s supply chain and reduce operating expenses, in response to expected near-term challenges
primarily relating to the Company’s Power Plant Segment. In connection with the realignment, which is expected to be completed
116
by the end of fiscal 2017, the Company expects approximately 1,200 employees to be affected, primarily in the Philippines,
representing approximately 15% of the Company’s global workforce at the time. The Company expects to incur restructuring
charges totaling approximately $35 million to $45 million, consisting primarily of severance benefits, asset impairments, lease
and related termination costs, and other associated costs. The Company expects more than 50% of total charges to be cash.
The actual timing and costs of the plan may differ from the Company’s current expectations and estimates due to a number of
factors, including uncertainties related to required consultations with employee representatives as well as other local labor law
requirements and mandatory processes in the relevant jurisdictions.
Legacy Restructuring Plans
During prior fiscal years, the Company implemented approved restructuring plans, related to all segments, to align with
changes in the global solar market which included the consolidation of the Company’s Philippine manufacturing operations as
well as actions to accelerate operating cost reduction and improve overall operating efficiency. These restructuring activities were
substantially complete as of January 1, 2017; however, the Company expects to continue to incur costs as it finalizes previous
estimates and actions in connection with these plans, primarily due to other costs, such as legal services.
The following table summarizes the restructuring charges recognized in the Company’s Consolidated Statements
of Operations:
(In thousands)
December 2016 Plan:
Non-cash impairment charges
Severance and benefits
Other costs1
August 2016 Plan:
Non-cash impairment charges
Severance and benefits
Lease and related termination costs
Other costs1
Legacy Restructuring Plans:
Non-cash impairment charges
Severance and benefits
Lease and related termination costs
Other costs1
Total restructuring charges
Fiscal Year
2016
2015
2014
$ 148,791
15,901
$
$
7,819
$ 172,511
$
$
$
17,926
15,591
557
364
34,438
$
$
$
$
$
$
$
— $
— $
—
$
— $
— $
—
—
$
—
— $
Cumulative
To Date
— $ 148,791
15,901
— $
—
7,819
$
— $ 172,511
— $
—
—
—
— $
17,926
15,591
557
364
34,438
$
— $
350
(171)
62
$
241
$ 207,190
$
$
5
2,710
1,210
2,466
6,391
6,391
$
$
$
719
10,535
244
725
12,223
12,223
$
61,320
61,949
6,813
13,599
$ 143,681
$ 350,630
1 Other costs primarily represent associated legal services and costs of relocating employees.
117
The following table summarizes the restructuring reserve activity during the fiscal year ended January 1, 2017:
(In thousands)
December 2016 Plan:
Non-cash impairment charges
Severance and benefits
Lease and related termination costs
Other costs1
August 2016 Plan:
Non-cash impairment charges
Severance and benefits
Lease and related termination costs
Other costs1
Legacy Restructuring Plans:
Non-cash impairment charges
Severance and benefits
Lease and related termination costs
Other costs1
Total restructuring liability
$
$
$
$
$
$
$
$
$
Fiscal Year
2015
Charges
(Benefits)
Payments
2016
— $ 148,791
— $ 15,901
— $
—
7,819
$
— $ 172,511
$
$
— $
$
$
(7,790)
—
— $
8,111
$
—
— $
$
5,932
$ 14,043
(1,887)
(9,677)
— $ 17,926
15,591
—
557
—
364
—
34,438
—
$
— $
(12,143)
(557)
(278)
$ (12,978)
—
3,448
—
86
3,534
— $
— $
395
743
685
1,823
1,823
— $
350
(171)
62
241
$ 207,190
(446)
(520)
(674)
(1,640)
$ (24,295)
—
299
52
73
424
$ 18,001
1 Other costs primarily represent associated legal services and costs of relocating employees.
Note 9. COMMITMENTS AND CONTINGENCIES
Facility and Equipment Lease Commitments
The Company leases certain facilities under non-cancellable operating leases from unaffiliated third parties. As of
January 1, 2017, future minimum lease payments for facilities under operating leases were $52.2 million, to be paid over the
remaining contractual terms of up to 8 years. The Company also leases certain buildings, machinery and equipment under
non-cancellable capital leases. As of January 1, 2017, future minimum lease payments for assets under capital leases were
$4.5 million, to be paid over the remaining contractual terms of up to 7 years.
Purchase Commitments
The Company purchases raw materials for inventory and manufacturing equipment from a variety of vendors. During
the normal course of business, in order to manage manufacturing lead times and help assure adequate supply, the Company
enters into agreements with contract manufacturers and suppliers that either allow them to procure goods and services based on
specifications defined by the Company, or that establish parameters defining the Company’s requirements. In certain instances,
these agreements allow the Company the option to cancel, reschedule or adjust the Company’s requirements based on its business
needs before firm orders are placed. Consequently, not all of the Company’s disclosed purchase commitments arising from these
agreements are firm, non-cancellable, and unconditional commitments.
The Company also has agreements with several suppliers, including some of its non-consolidated investees, for the
procurement of polysilicon, ingots, wafers, and Solar Renewable Energy Credits, among others, which specify future quantities
and pricing of products to be supplied by the vendors for periods up to 8 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.
118
Future purchase obligations under non-cancellable purchase orders and long-term supply agreements as of
January 1, 2017 are as follows:
(In thousands)
Future purchase obligations
Fiscal
2017
736,106
Fiscal
2018
206,261
Fiscal
2019
175,694
Fiscal
2020
161,848
Fiscal
2021
1,000
Thereafter
2,000
Total12
$1,282,909
1 Total future purchase obligations were composed of $209.4 million related to non-cancellable purchase orders and $1.1 billion related
to long-term supply agreements.
2 During fiscal 2016, the Company did not fulfill all of the purchase commitments it was otherwise obligated to take by December
31, 2016, as specified in related contracts with a supplier. As of January 1, 2017, the Company has recorded an offsetting asset,
recorded within “Prepaid expenses and other current assets,” and liability, recorded within “Accrued liabilities,” totaling $83.9 million.
This amount represents the unfulfilled amount as of that date as the Company expects to satisfy the obligation via purchases of
inventory in fiscal 2017, within the applicable contractual cure period.
The Company expects that all obligations related to non-cancellable purchase orders for manufacturing equipment will
be recovered through future cash flows of the solar cell manufacturing lines and solar panel assembly lines when such long-lived
assets are placed in service. Factors considered important that could result in an impairment review include significant under-
performance relative to expected historical or projected future operating results, significant changes in the manner of use of
acquired assets, and significant negative industry or economic trends. Obligations related to non-cancellable purchase orders for
inventories match current and forecasted sales orders that will consume these ordered materials and actual consumption of these
ordered materials are compared to expected demand regularly. The Company anticipates total obligations related to long-term
supply agreements for inventories, which in the case of polysilicon are at purchase prices significantly above current market prices
for similar materials, will be recovered because quantities are less than management’s expected demand for its solar power products
over the next several years. The terms of the long-term supply agreements are reviewed by management and the Company assesses
the need for any accruals for estimated losses on adverse purchase commitments, such as lower of cost or net realizable value
adjustments that will not be recovered by future sales prices, forfeiture of advanced deposits and liquidated damages, as necessary.
Advances to Suppliers
As noted above, the Company has entered into agreements with various vendors, some of which are structured as “take or
pay” contracts, that specify future quantities and pricing of products to be supplied. Certain agreements also provide for penalties
or forfeiture of advanced deposits in the event the Company terminates the arrangements. Under certain agreements, the Company
was required to make prepayments to the vendors over the terms of the arrangements. As of January 1, 2017 and January 3, 2016,
advances to suppliers totaled $284.8 million and $359.1 million, respectively, of which $111.5 million and $85.0 million,
respectively, is classified as short-term in the Company’s Consolidated Balance Sheets. Two suppliers accounted for 90% and 10%
of total advances to suppliers, respectively, as of January 1, 2017, and 82% and 16%, respectively, as of January 3, 2016.
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 January 1, 2017 is as follows:
(In thousands)
Estimated utilization of advances
from customers
Fiscal
2017
Fiscal
2018
Fiscal
2019
Fiscal
2020
Fiscal
2021
Thereafter
Total
9,256
1,180
—
—
—
— $ 10,436
In fiscal 2010, the Company and its then joint venture, AUO SunPower Sdn. Bhd. (“AUOSP”), entered into an agreement
under which the Company resold to AUOSP polysilicon purchased from a third-party supplier. In the third quarter of fiscal
2016, the Company terminated this agreement in connection with its acquisition and subsequent consolidation of AUOSP (See
Note 3). Prior to the termination of the agreement, advance payments provided by AUOSP related to such polysilicon were then
made by the Company to the third-party supplier. These advance payments were applied as a credit against AUOSP’s polysilicon
purchases from the Company. Such polysilicon was used by AUOSP to manufacture solar cells that were sold to the Company
on a “cost-plus” basis. The outstanding advance payments received from AUOSP are no longer included in the table above as the
amounts are now eliminated as intercompany transactions in the purchase accounting for the acquisition and accordingly, as of
119
January 1, 2017, the Company did not have a balance for advance payments received from AUOSP on its Consolidated Balance
Sheets. As of January 3, 2016, advance payments received from AUOSP totaled $148.9 million, of which $22.7 million was
classified as short-term in the Company’s Consolidated Balance Sheets, based on projected product shipment dates.
Product Warranties
The following table summarizes accrued warranty activity for fiscal 2016, 2015 and 2014, respectively:
(In thousands)
Balance at the beginning of the period
Accruals for warranties issued during the period
Settlements and adjustments during the period
Balance at the end of the period
Contingent Obligations
2016
$ 164,127
14,575
(17,493)
$ 161,209
Fiscal Year
2015
$ 154,648
25,561
(16,082)
$ 164,127
2014
$ 149,372
24,942
(19,666)
$ 154,648
Project agreements entered into with the Company’s Commercial and Power Plant customers often require the Company
to undertake obligations including: (i) system output performance warranties; (ii) system maintenance; (iii) penalty payments or
customer termination rights if the system the Company is constructing is not commissioned within specified timeframes or other
milestones are not achieved; and (iv) system put-rights whereby the Company could be required to buy back a customer’s system
at fair value on specified future dates if certain minimum performance thresholds are not met for specified periods. Historically,
the Company’s systems have performed significantly above the performance warranty thresholds, and there have been no cases in
which the Company has had to buy back a system.
Future Financing Commitments
The Company is required to provide certain funding under agreements with unconsolidated investees, subject to certain
conditions (see Note 10). As of January 1, 2017, the Company has future financing obligations related to these agreements
through fiscal 2017 totaling $8.2 million.
Liabilities Associated with Uncertain Tax Positions
Total liabilities associated with uncertain tax positions were $47.2 million and $43.3 million as of January 1, 2017
and January 3, 2016, respectively. These amounts are included in “Other long-term liabilities” in the Company’s Consolidated
Balance Sheets in their respective periods as they are not expected to be paid within the next 12 months. Due to the complexity
and uncertainty associated with its tax positions, the Company cannot make a reasonably reliable estimate of the period in which
cash settlement, if any, would be made for its liabilities associated with uncertain tax positions in other long-term liabilities.
Indemnifications
The Company is a party to a variety of agreements under which it may be obligated to indemnify the counterparty
with respect to certain matters. Typically, these obligations arise in connection with contracts and license agreements or the sale
of assets, under which the Company customarily agrees to hold the other party harmless against losses arising from a breach
of warranties, representations and covenants related to such matters as title to assets sold, negligent acts, damage to property,
validity of certain intellectual property rights, non-infringement of third-party rights, and certain tax related matters including
indemnification to customers under §48(c) solar commercial investment tax credit (“ITC”) and U.S. Treasury Department
(“Treasury Department”) grant payments under Section 1603 of the American Recovery and Reinvestment Act (each a “Cash
Grant”). In each of these circumstances, payment by the Company is typically subject to the other party making a claim to the
Company that is contemplated by and valid under the indemnification provisions of the particular contract, which provisions
are typically contract-specific, as well as bringing the claim under the procedures specified in the particular contract. These
procedures usually allow the Company to challenge the other party’s claims or, in case of breach of intellectual property
representations or covenants, to control the defense or settlement of any third party claims brought against the other party. Further,
the Company’s obligations under these agreements may be limited in terms of activity (typically to replace or correct the products
or terminate the agreement with a refund to the other party), duration and/or amounts. In some instances, the Company may have
recourse against third parties and/or insurance covering certain payments made by the Company.
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In certain circumstances, the Company has provided indemnification to customers and investors under which the
Company is contractually obligated to compensate these parties for losses they may suffer as a result of reductions in benefits
received under ITC and Treasury Cash Grant programs. The Company applies for ITC and Cash Grant incentives based on
guidance provided by the Internal Revenue Service (“IRS”) and the Treasury Department, which include assumptions regarding
the fair value of the qualified solar power systems, among others. Certain of the Company’s development agreements, sale-
leaseback arrangements, and financing arrangements with tax equity investors, incorporate assumptions regarding the future
level of incentives to be received, which in some instances may be claimed directly by the Company’s customers and investors.
Generally, such obligations would arise as a result of reductions to the value of the underlying solar power systems as assessed
by the IRS. At each balance sheet date, the Company assesses and recognizes, when applicable, the potential exposure from
these obligations based on all the information available at that time, including any audits undertaken by the IRS. The maximum
potential future payments that the Company could have to make under this obligation would depend on the difference between
the eligible basis claimed on the tax filing for the solar energy systems sold or transferred to indemnified parties and the values
that the IRS may redetermine as the eligible basis for the systems for purposes of claiming ITCs or U.S. Treasury grants. The
Company uses the eligible basis for tax filing purposes determined with the assistance of independent third-party appraisals to
determine the ITCs that are passed-through to and claimed by the indemnified parties. Since the Company cannot determine
future revisions to Treasury Department guidelines governing system values, how the IRS will evaluate system values used in
claiming ITCs, or U.S. Treasury grants, or how its customers and investors have utilized or will utilize these benefits in their own
filings, the Company is unable to reliably estimate the maximum potential future payments that it could have to make under the
Company’s contractual investor obligation as of each reporting date.
Defined Benefit Pension Plans
The Company maintains defined benefit pension plans for the majority of its non-U.S. employees. Benefits under these
plans are generally based on an employee’s years of service and compensation. Funding requirements are determined on an
individual country and plan basis and are subject to local country practices and market circumstances. The funded status of the
pension plans, which represents the difference between the benefit obligation and fair value of plan assets, is calculated on a plan-
by-plan basis. The benefit obligation and related funded status are determined using assumptions as of the end of each fiscal year.
The Company recognizes the overfunded or underfunded status of its pension plans as an asset or liability on its Consolidated
Balance Sheets. As of January 1, 2017 and January 3, 2016, the underfunded status of the Company’s pension plans, presented
in “Other long-term liabilities” on the Company’s Consolidated Balance Sheets, was $3.4 million and $12.0 million, respectively.
The impact of transition assets and obligations and actuarial gains and losses are recorded in “Accumulated other comprehensive
loss”, and are generally amortized as a component of net periodic cost over the average remaining service period of participating
employees. Total other comprehensive gain related to the Company’s benefit plans was $6.3 million for the year ended
January 1, 2017.
Legal Matters
Tax Benefit Indemnification Litigation
On March 19, 2014, a lawsuit was filed by NRG Solar LLC, now known as NRG Renew LLC (“NRG”), against
SunPower Corporation, Systems, a wholly-owned subsidiary of the Company (“SunPower Systems”), in the Superior Court
of Contra Costa County, California. The complaint asserts that, according to the indemnification provisions in the contract
pertaining to SunPower Systems’ sale of a large California solar project to NRG, SunPower Systems owes NRG $75.0 million in
connection with certain tax benefits associated with the project that were approved by the Treasury Department for an amount that
was less than expected. The Company does not believe that the facts support NRG’s claim under the operative indemnification
provisions and is vigorously contesting the claim. Additionally, SunPower Systems filed a cross-complaint against NRG
seeking damages in excess of $7.5 million for breach of contract and related claims arising from NRG’s failure to fulfill its
obligations under the contract, including its obligation to take “reasonable, available steps” to engage the Treasury Department.
The Company is currently unable to determine if the resolution of this matter will have a material effect on the Company’s
consolidated financial statements.
Class Action and Derivative Suits
On August 16, 2016 and August 26, 2016, two securities class action lawsuits were filed against the Company and
certain of its officers and directors (the “Defendants”) in the United States District Court for the Northern District of California
on behalf of a class consisting of those who acquired the Company’s securities from February 17, 2016 through August 9, 2016
(the “Class Period”). The substantially identical complaints allege violations of Sections 10(b) and 20(a) of the Exchange Act,
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15 U.S.C. §§78j(b) and 78t(a) and SEC Rule 10b-5, 17 C.F.R. §240.10b-5. The complaints were filed following the issuance
of the Company’s August 9, 2016 earnings release and revised guidance and generally allege that throughout the Class Period,
Defendants made materially false and/or misleading statements and failed to disclose material adverse facts about the Company’s
business, operations, and prospects. On December 9, 2016, the court consolidated the cases and appointed a lead plaintiff.
Four shareholder derivative actions have been filed in federal court, purporting to be brought on the Company’s behalf
against certain of the Company’s current and former officers and directors based on the same events alleged in the securities
class action lawsuits described above. The Company is named as a nominal defendant. The plaintiffs assert claims for alleged
breaches of fiduciary duties, unjust enrichment, and waste of corporate assets for the period February 2016 through the present
and generally allege that the defendants made or caused the Company to make materially false and/or misleading statements and
failed to disclose material adverse facts about the Company’s business, operations, and prospects. The plaintiffs also claim that
the alleged conduct is a breach of the Company’s Code of Business Conduct and Ethics, and that defendants, including members
of the Company’s Audit Committee, breached their fiduciary duties by failing to ensure the adequacy of the Company’s internal
controls, and by causing or allowing the Company to disseminate false and misleading statements in the Company’s SEC filings
and other disclosures. The securities class action lawsuits and the federal derivative actions have all been related by the Court and
assigned to one judge.
Shareholder derivative actions purporting to be brought on the Company’s behalf were brought in the Superior Court of
California for the County of Santa Clara against certain of the Company’s current and former officers and directors based on
the same events alleged in the securities class action and federal derivative lawsuits described above, and alleging breaches of
fiduciary duties.
The Company is currently unable to determine if the resolution of these matters will have a material adverse effect on the
Company’s financial position, liquidity, or results of operations.
First Philec Arbitration
On January 28, 2015, an arbitral tribunal of the International Court of Arbitration of the International Chamber of
Commerce issued a first partial award in the matter of an arbitration between First Philippine Electric Corporation (“FPEC”) and
First Philippine Solar Corporation (“FPSC”) against SunPower Philippines Manufacturing, Ltd. (“SPML”), our wholly-owned
subsidiary. FPSC was a joint venture of FPEC and SPML for the purpose of slicing silicon wafers from ingots. The tribunal
found SPML in breach of its obligations under its supply agreement with FPSC, and in breach of its joint venture agreement with
FPEC. In its first partial award, the tribunal ordered that (i) SPML must purchase FPEC’s interests in FPSC for an aggregate of
$30.3 million, and (ii) after completing the purchase of FPEC’s controlling interest in FPSC, SPML must pay FPSC damages in
the amount of $25.2 million. The arbitral tribunal issued its second partial award dated July 14, 2015, which ordered that (i) the
price payable by SPML to FPEC for its interests in FPSC be reduced from $30.3 million to $23.2 million, (ii) FPEC’s request for
interest is refused, and (iii) the payment and transfer of shares between FPEC and SPML is to take place in accordance with the
procedure agreed between the parties. The tribunal issued its final award dated September 30, 2015, which ordered that (i) each
side should bear its own costs and attorneys’ fees, and (ii) the arbitration costs should be split between the parties evenly.
SPML had filed a challenge to both the first and second partial awards, as well as the final award, with the High Court
in Hong Kong. SPML had also filed applications to the Court in the Philippines to: (i) prevent FPSC or FPEC from enforcing the
awards pending the outcome of the challenge in Hong Kong; and (ii) gain access to FPSC’s books and records. The application
for access was granted, and the application to prevent enforcement of the award had not been ruled on as of the time the
proceedings were discontinued as a result of the settlement described below.
On July 22, 2016, SPML entered into an agreement (the “Compromise Agreement”) with FPEC and FPSC to settle all
claims, counterclaims, disputes, and proceedings between FPEC and FPSC on the one hand, and SPML on the other hand. All
legal proceedings that are pending between the parties in Hong Kong and in the Philippines have been discontinued, terminated
and dismissed. Pursuant to the terms of the Compromise Agreement, on July 22, 2016, SPML paid a total of $50.5 million to
FPSC and FPEC in settlement of all claims between the parties. Also pursuant to the Compromise Agreement, SPML transferred
all of its shares in FPSC to FPEC.
AUO Arbitration
On April 17, 2015, SunPower Technology Ltd. (“SPTL”), a wholly-owned subsidiary, commenced an arbitration before
the ICC International Court of Arbitration against AUO and AU Optronics Corporation, the ultimate parent company of AUO
(“AUO Corp.,” and together with AUO, the “AUO Group”), for breaches of the AUOSP Joint Venture Agreement and associated
agreements (the “JVA”). SPTL’s claim alleged that, among other things, the AUO Group had sold solar modules containing
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cells manufactured by AUOSP in violation of provisions in the JVA that set geographical restrictions on sales activities as well
as provisions that restrict each party’s use of the other’s confidential information. SPTL sought approximately $23.0 million in
damages, as well as the right to purchase AUO’s shares in AUOSP at 70% of “fair market value” determined as provided under
the JVA.
On June 23, 2015, the AUO Group filed and served its formal Memorial of Claim and Counterclaims against SPTL and
the Company (collectively, the “SunPower Group”). In its counterclaim, the AUO Group alleged breach of contract, breach
of covenant of good faith and fair dealing, several tort causes of action, and improper use of the AUO Group’s proprietary
manufacturing expertise. The AUO Group sought $20.0 million in lost profits and $48.0 million in disgorgement from the
SunPower Group, and an order requiring SPTL to purchase AUO’s shares in AUOSP at 150% of “fair market value” determined
as provided under the JVA.
On September 19, 2016, the SunPower Group entered into a full and final settlement agreement (the “Settlement
Agreement”) with the AUO Group to settle all claims, demands, damages, actions, causes of action, or suits between them,
including but not limited to the arbitration before the ICC International Court of Arbitration. Pursuant to the Settlement
Agreement, SunPower acquired AUO’s shares in AUOSP on September 29, 2016 in accordance with the Stock Purchase
Agreement (see Note 3). No monetary amounts specifically related to the arbitration were exchanged between the parties
as a result of the Settlement Agreement.
Other Litigation
The Company is also a party to various other litigation matters and claims that arise from time to time in the ordinary
course of its business. While the Company believes that the ultimate outcome of such matters will not have a material adverse
effect on the Company, their outcomes are not determinable and negative outcomes may adversely affect the Company’s financial
position, liquidity, or results of operations.
Note 10. EQUITY METHOD INVESTMENTS
As of January 1, 2017 and January 3, 2016, the Company’s carrying value of its equity method investments totaled
$(6.9) million and $186.4 million, respectively, and is classified as “Other long-term assets” in its Consolidated Balance Sheets.
These balances include the carrying value of the Company’s investment in the 8point3 Group, which had a negative value of
$60.6 million and $30.9 million as of January 1, 2017 and January 3, 2016, respectively (see below). The Company’s share
of its earnings (loss) from equity method investments is reflected as “Equity in earnings of unconsolidated investees” in its
Consolidated Statements of Operations.
Equity Investment and Joint Venture with AUOSP
In fiscal 2010, the Company, AUO and AUO Corp. formed the joint venture AUOSP. On September 29, 2016, the
Company completed its acquisition of AUOSP pursuant to the Stock Purchase agreement, under which the Company acquired
100% of the voting equity interest in AUOSP (see Note 3). Prior to the acquisition, the Company and AUO each owned 50% of
the equity in AUOSP. AUOSP owns a solar cell manufacturing facility in Malaysia and manufactures solar cells and, prior to the
acquisition, sold 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 was committed to purchase
80% of AUOSP’s total annual output allocated on a monthly basis to the Company. The Company and AUO had 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 would resell to AUOSP polysilicon purchased from a third-party supplier and AUOSP
would provide prepayments to the Company related to such polysilicon, which prepayment would then be made by the Company
to the third-party supplier. In connection with the transactions contemplated under the Stock Purchase Agreement, the Company
and AUOSP terminated certain agreements, including the agreements described in this paragraph (see Note 3).
Prior to the acquisition, the Company had concluded that it was not the primary beneficiary of AUOSP since, although
the Company and AUO were both obligated to absorb losses or had the right to receive benefits, the Company alone did not
have the power to direct the activities of AUOSP that most significantly impacted its economic performance. In making this
determination, the Company considered the shared power arrangement, including equal board governance for significant
123
decisions, elective appointment, and the fact that both parties contributed to the activities that most significantly impacted the joint
venture’s economic performance. Prior to the acquisition, the Company accounted for its investment in AUOSP using the equity
method as a result of the shared power arrangement. As a result of the acquisition, AUOSP became a consolidated subsidiary of
the Company and the results of operations of AUOSP have been included in the Consolidated Statement of Operations of the
Company since September 29, 2016. Up until the acquisition date of September 29, 2016, the Company’s maximum exposure to
loss as a result of its equity investment in AUOSP was limited to the carrying value of the investment. As of January 1, 2017 and
January 3, 2016, the Company’s investment in AUOSP had a carrying value of zero and $202.3 million, respectively.
Equity Investment in Huaxia CPV (Inner Mongolia) Power Co., Ltd. (“CCPV”)
In December 2012, the Company entered into an agreement with Tianjin Zhonghuan Semiconductor Co. Ltd., Inner
Mongolia Power Group Co. Ltd. and Hohhot Jinqiao City Development Company Co., Ltd. to form CCPV, a jointly owned entity
to manufacture and deploy the Company’s LCPV concentrator technology in Inner Mongolia and other regions in China. CCPV
is based in Hohhot, Inner Mongolia. The establishment of the entity was subject to approval of the Chinese government, which
was received in the fourth quarter of fiscal 2013. In December 2013, the Company made a $16.4 million equity investment in
CCPV, for a 25% equity ownership.
The Company has concluded that it is not the primary beneficiary of CCPV since, although the Company is obligated to
absorb losses and has the right to receive benefits, the Company alone does not have the power to direct the activities of CCPV
that most significantly impact its economic performance. The Company accounts for its investment in CCPV using the equity
method since the Company is able to exercise significant influence over CCPV due to its board position.
Equity Investment in Diamond Energy Pty Ltd. (“Diamond Energy”)
In October 2012, the Company made a $3.0 million equity investment in Diamond Energy, an alternative energy project
developer and clean electricity retailer headquartered in Melbourne, Australia, in exchange for a 25% equity ownership.
The Company has concluded that it is not the primary beneficiary of Diamond Energy since, although the Company is
obligated to absorb losses and has the right to receive benefits, the Company alone does not have the power to direct the activities
of Diamond that most significantly impact its economic performance. The Company accounts for its investment in Diamond using
the equity method since the Company is able to exercise significant influence over Diamond due to its board position.
Equity Investment in 8point3 Energy Partners
In June 2015, 8point3 Energy Partners, a joint YieldCo vehicle formed by the Company and First Solar, Inc. (“First
Solar” and, together with the Company, the “Sponsors”) to own, operate and acquire solar energy generation assets, consummated
its initial public offering (“IPO”) and its Class A shares are now listed on the NASDAQ Global Select Market under the trading
symbol “CAFD”.
Immediately after the IPO, the Company contributed a portfolio of solar generation assets (the “SPWR Projects”) to
8point3 Operating Company, LLC (“OpCo”), 8point3 Energy Partners’ primary operating subsidiary. In exchange for the SPWR
Projects, the Company received cash proceeds of $371 million as well as equity interests in several 8point3 Energy Partners
affiliated entities: primarily common and subordinated units representing a 40.7% stake in OpCo (since reduced to 36.5% via a
secondary issuance of shares in fiscal 2016) and a 50.0% economic and management stake in 8point3 Holding Company, LLC
(“Holdings”), the parent company of the general partner of 8point3 Energy Partners and the owner of incentive distribution
rights (“IDRs”) in OpCo. Holdings, OpCo, 8point3 Energy Partners and their respective subsidiaries are referred to herein as the
“8point3 Group.” Additionally, pursuant to a Right of First Offer Agreement between the Company and OpCo, the 8point3 Group
has rights of first offer on interests in an additional portfolio of the Company’s solar energy projects that are currently contracted
or are expected to be contracted before being sold by the Company to other parties (the “ROFO Projects”). In connection with
the IPO, the Company also entered into O&M, asset management and management services agreements with the 8point3 Group.
The services the Company provides under these agreements are priced consistently with market rates for such services and the
agreements are terminable by the 8point3 Group for convenience.
The Company has concluded that it is not the primary beneficiary of the 8point3 Group or any of its individual
subsidiaries since, although the Sponsors are both obligated to absorb losses or have the right to receive benefits, the Company
alone does not have the power to direct the activities of the 8point3 Group that most significantly impact its economic
performance. In making this determination the Company considered, among other factors, the equal division between the
Sponsors of management rights in the 8point3 Group and the corresponding equal influence over its significant decisions, the
role and influence of the independent directors on the board of directors of the general partner of 8point3 Energy Partners, and
124
how both Sponsors contribute to the activities that most significantly impact the 8point3 Group’s economic performance. The
Company accounts for its investment in the 8point3 Group using the equity method because the Company determined that,
notwithstanding the division of management and ownership interests between the Sponsors, the Company exercises significant
influence over the operations of the 8point3 Group.
Future quarterly distributions from OpCo are subject to certain forbearance and subordination periods. During the
forbearance period, the Sponsors agreed to forego any distributions declared on their common and subordinated units. The
forbearance period ended during fiscal 2016 and the OpCo units held by the Company were entitled to distributions beginning
in the fourth fiscal quarter of 2016. During the quarter ended January 1, 2017, the Company received $6.9 million in dividend
distributions from the 8point3 Group.
During the subordination period, holders of the subordinated units are not entitled to receive any distributions until the
common units have received their minimum quarterly distribution plus any arrearages in the payment of minimum distributions
from prior quarters. Approximately 70% of the Company’s OpCo units are subject to subordination. The subordination period
will end after OpCo has earned and paid minimum quarterly distributions for three years ending on or after August 31, 2018 and
there are no outstanding arrearages on common units. Notwithstanding the foregoing, the subordination period could end after
OpCo has earned and paid 150% of minimum quarterly distributions, plus the related distribution on the incentive distribution
rights, for one year ending on or after August 31, 2016 and there are no outstanding arrearages on common units. At the end of the
subordination period, all subordinated units will convert to common units on a one-for-one basis. The Company also, through its
interests in Holdings, holds IDRs in OpCo, which represent rights to incremental distributions after certain distribution thresholds
are met.
In June 2015, OpCo entered into a $525.0 million senior secured credit facility, consisting of a $300.0 million term
loan facility, a $25.0 million delayed draw term loan facility, and a $200.0 million revolving credit facility (the “8point3 Credit
Facility”). Proceeds from the term loan were used to make initial distributions to the Sponsors. The 8point3 Credit Facility
is secured by a pledge of the Sponsors’ equity interests in OpCo. On September 30, 2016, OpCo entered into an amendment
and joinder agreement under its existing senior secured credit facility, pursuant to which OpCo obtained a new $250.0 million
incremental term loan facility, increasing the maximum borrowing capacity under the credit facility to $775.0 million.
Under relevant guidance for leasing transactions, the Company treated the portion of the sale of the residential lease
portfolio originally sold to the 8point3 Group in connection with the IPO transaction, composed of operating leases and
unguaranteed sales-type lease residual values, as a borrowing and reflected the cash proceeds attributable to this portion of the
residential lease portfolio as liabilities recorded within “Accrued liabilities” and “Other long-term liabilities” in the Consolidated
Balance Sheets (see Note 5). As of January 1, 2017 and January 3, 2016 the operating leases and the unguaranteed sales-type
lease residual values which were sold to the 8point3 Group had an aggregate carrying value of $74 million and $78 million,
respectively, on the Company’s Consolidated Balance Sheets.
During fiscal 2016, the Company sold several ROFO Projects to 8point3 Energy Partners, including a noncontrolling
interest in the 128 MW Henrietta utility-scale power plant in California (the “Henrietta Project”) and controlling interests
in the 60 MW Hooper utility-scale power plant in Colorado and several commercial projects. The Company accounted for
these sales as partial sales of real estate and recognized revenue equal to total project costs when such projects reached their
commercial operation date. No profit on these sales was recognized, as unconditional cash proceeds did not exceed total project
costs, and such derecognition resulted in a net $45.9 million reduction in the carrying value of the Company’s investments in
the 8point3 Group. Some of the commercial projects have not yet reached their commercial operation date and therefore, the
Company continues to record these projects on its Consolidated Balance Sheet as of January 1, 2017. The net cash proceeds from
the sales of these projects to the 8point3 Group as well as related proceeds from tax equity investors were classified as operating
cash inflows in the Consolidated Statement of Cash Flows. In addition to the treatment above with respect to the transactions
with the 8point3 Group, the sale of the controlling interest in the Henrietta project in the third quarter of fiscal 2016 was
accounted for as a partial sale of real estate pursuant to which the Company recognized revenue equal to the sales value.
As of January 1, 2017 and January 3, 2016, the Company’s investment in the 8point3 Group had a negative carrying
value of $60.6 million and $30.9 million, respectively, resulting from the continued deferral of profit recognition for projects
sold to the 8point3 Group that included the sale or lease of real estate. The Company owns approximately 29 million shares in
OpCo as well as exchange rights to convert these shares on a 1:1 basis to the publicly traded Class A shares of 8point3 Energy
Partners. Based on the closing stock price of Class A shares as of December 30, 2016, the final trading day prior to the end of the
Company’s fiscal year, the Company’s investment in OpCo has a market value of $374.9 million.
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Equity Investments in Project Entities
The Company has from time to time maintained noncontrolling interests in project entities, which may be accounted for
as either cost or equity method investments depending on the magnitude of the Company’s investment and whether the Company
exercises significant influence over the investee. The Company’s involvement in these entities primarily takes two forms: first, the
Company may take a noncontrolling interest in an early-stage project and maintain that investment over the development cycle,
often in situations in which the Company’s products are also sold to the entity under separate agreements. Second, the Company
may retain a noncontrolling interest in a development project after a controlling interest is sold to a third party. In either form, the
Company may maintain its investment for all or part of the operational life of the project or may seek to subsequently dispose
of its investment. As of January 1, 2017, the Company’s investments in such projects have a carrying value of $45.5 million,
of which $41.2 million is accounted for under the equity method and the remainder under the cost method. The majority of this
balance relates to the Boulder Solar Project, which is a ROFO project that may be sold to the 8point3 Group in the future. As of
January 3, 2016, the Company’s investments in such projects have a carrying value of $4.4 million, of which none is accounted
for under the equity method and all under the cost method.
Summarized Financial Statements
The following table presents summarized financial statements for significant investees accounted for by the equity
method, based on the investees’ fiscal years and on information provided to the Company by the investee:
(In thousands)
Summarized statements of operations information:
Revenue
Cost of sales and operating expenses
Net income
Net income attributable to the entity
(In thousands)
Summarized balance sheet information
Current assets
Long-term assets
Current liabilities
Long-term liabilities
Noncontrolling interests and redeemable noncontrolling interests
Related-Party Transactions with Investees:
(In thousands)
Accounts receivable
Other long-term assets
Accounts payable
Accrued liabilities
Customer advances
Other long-term liabilities
2016
Fiscal Year
2015
2014
$
61,197
38,716
30,432
156,793
$ 480,106
457,392
38,770
140,969
$ 463,275
437,207
22,769
22,769
Fiscal Year
2016
2015
$
35,407
1,299,656
26,606
398,192
58,658
$ 204,055
1,488,418
273,144
315,574
101,520
As of
January 1,
2017
January 3,
2016
32,389
1,455
42,080
9,952
710
29,389
$
3,397
723
$
— $
$
$
$
3,665
57
29,370
$
$
$
$
$
$
(In thousands)
Payments made to investees for products/services
Revenues and fees received from investees for products/services1
2016
$ 337,831
$ 317,314
Fiscal Year
2015
$ 444,121
47,019
$
2014
$ 462,596
—
$
1
Includes a portion of proceeds received from tax equity investors in connection with 8point3 transactions.
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Cost Method Investment in Tendril Networks, Inc.
In November 2014, the Company purchased $20.0 million of preferred stock constituting a minority stake in Tendril
Networks, Inc. (“Tendril”), accounted for under the cost method because the preferred stock was deemed not to be in-substance
common stock. In connection with the investment, the Company acquired warrants to purchase up to approximately 14 million
shares of Tendril common stock exercisable through November 23, 2024. The number of shares of Tendril common stock that
may be purchased pursuant to the warrants is subject to the Company’s and Tendril’s achievement of certain financial and
operational milestones and other conditions.
In connection with the initial investment in Tendril, the Company also entered into commercial agreements with Tendril
under a Master Services Agreement and related Statements of Work. Under these commercial agreements, Tendril will use up to
$13.0 million of the Company’s initial investment to develop, jointly with the Company, certain solar software solution products.
Note 11. DEBT AND CREDIT SOURCES
The following table summarizes the Company’s outstanding debt on its Consolidated Balance Sheets:
(In thousands)
Convertible debt:
4.00%
debentures
due 2023
0.875%
debentures
due 2021
0.75%
debentures
due 2018
IFC mortgage
loan
CEDA loan
Non-recourse
financing and
other debt1
January 1, 2017
January 3, 2016
Face Value Short-term Long-term
Total
Face Value Short-term Long-term
Total
$ 425,000
$
— $ 417,473
$ 417,473
$ 425,000
$
— $ 416,369
$ 416,369
400,000
—
397,079
397,079
400,000
—
396,424
396,424
300,000
—
298,926
298,926
300,000
—
298,167
298,167
17,500
30,000
17,121
—
—
28,191
17,121
28,191
32,500
30,000
14,994
—
16,778
27,778
31,772
27,778
477,594
$1,650,094 $
52,892
70,013 $1,561,574 $1,631,587 $1,623,463 $
435,963
419,905
472,797
4,642
434,623
429,981
19,636 $1,585,497 $1,605,133
1 Other debt excludes payments related to capital leases, which are disclosed in Note 9.
As of January 1, 2017, the aggregate future contractual maturities of the Company’s outstanding debt, at face value, were
as follows:
(In thousands)
Aggregate future maturities
of outstanding debt
Fiscal 2017 Fiscal 2018 Fiscal 2019 Fiscal 2020 Fiscal 2021 Thereafter
Total
69,799
324,725
13,825
16,432
417,531
807,782 $ 1,650,094
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Convertible Debt
The following table summarizes the Company’s outstanding convertible debt:
(In thousands)
Convertible debt:
4.00% debentures due 2023
0.875% debentures due 2021
0.75% debentures due 2018
January 1, 2017
January 3, 2016
Carrying
Value
Face Value
Fair Value1
Carrying
Value
Face Value
Fair Value1
$ 417,473
397,079
298,926
$ 1,113,478
$ 425,000
400,000
300,000
$1,125,000
$ 301,555
266,996
270,627
$ 839,178
$ 416,369
396,424
298,167
$ 1,110,960
$ 425,000
400,000
300,000
$1,125,000
$
515,903
340,500
396,792
$ 1,253,195
1 The fair value of the convertible debt was determined using Level 2 inputs based on quarterly market prices as reported by an
independent pricing source.
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.
4.00% Debentures Due 2023
In December 2015, the Company issued $425.0 million in principal amount of its 4.00% debentures due 2023. Interest
is payable semi-annually, beginning on July 15, 2016. Holders may exercise their right to convert the debentures at any time
into shares of the Company’s common stock at an initial conversion price approximately equal to $30.53 per share, subject
to adjustment in certain circumstances. If not earlier repurchased or converted, the 4.00% debentures due 2023 mature on
January 15, 2023.
0.875% Debentures Due 2021
In June 2014, the Company issued $400.0 million in principal amount of its 0.875% debentures due 2021. Interest
is payable semi-annually, beginning on December 1, 2014. Holders may exercise their right to convert the debentures at any
time into shares of the Company’s common stock at an initial conversion price approximately equal to $48.76 per share, subject
to adjustment in certain circumstances. If not earlier repurchased or converted, the 0.875% debentures due 2021 mature on
June 1, 2021.
0.75% Debentures Due 2018
In May 2013, the Company issued $300.0 million in principal amount of its 0.75% debentures due 2018. Interest is payable
semi-annually, beginning on December 1, 2013. Holders may exercise their right to convert the debentures at any time into shares of
the Company’s common stock at an initial conversion price approximately equal to $24.95 per share, subject to adjustment in certain
circumstances. If not earlier repurchased or converted, the 0.75% debentures due 2018 mature on June 1, 2018.
4.50% Debentures Due 2015
In 2010, the Company issued $250.0 million in principal amount of its 4.50% senior cash convertible debentures
(“4.50% debentures due 2015”). Interest was payable semi-annually, beginning on September 15, 2010. The 4.50% debentures
due 2015 were convertible only into cash, and not into shares of the Company’s common stock (or any other securities) at
a conversion price of $22.53 per share. The 4.50% debentures due 2015 matured on March 15, 2015. During March 2015,
the Company paid holders an aggregate of $324.3 million in cash in connection with the settlement of the outstanding 4.50%
debentures due 2015. No 4.50% debentures due 2015 remained outstanding after the maturity date.
The embedded cash conversion option was a derivative instrument (derivative liability) that was required to be separated
from the 4.50% debentures due 2015. The fair value of the derivative liability is classified within “Other long-term liabilities” on
the Company’s Consolidated Balance Sheets. Changes in the fair value of the derivative liability were reported in the Company’s
Consolidated Statements of Operations until the 4.50% debentures due 2015 matured in March 2015.
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During fiscal 2015, the Company recognized a non-cash loss of $52.0 million, recorded in “Other, net” in the Company’s
Consolidated Statements of Operations to recognize the change in fair value prior to the expiration of the embedded cash
conversion option. During fiscal 2014, the Company recognized a non-cash loss of $58.5 million, 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.
In fiscal 2016, 2015 and 2014, the Company recognized zero, $4.3 million, and $19.8 million of non-cash interest
expense, respectively, related to the amortization of the debt discount on the 4.50% debentures.
Call Spread Overlay with Respect to 4.50% Debentures
Concurrently with the issuance of the 4.50% debentures due 2015, the Company entered into privately-negotiated
convertible debenture hedge transactions (collectively, the “4.50% Bond Hedge”) and warrant transactions (collectively, the
“4.50% Warrants” and together with the 4.50% Bond Hedge, the “CSO2015” transactions), with certain of the initial purchasers
of the 4.50% debentures due 2015 or their affiliates. The CSO2015 transactions represented a call spread overlay with respect to
the 4.50% debentures due 2015, whereby the cost of the 4.50% Bond Hedge purchased by the Company to cover the cash outlay
upon conversion of the debentures was reduced by the sales prices of the 4.50% Warrants. The transactions effectively reduced
the Company’s potential payout over the principal amount on the 4.50% debentures due 2015 upon conversion of the 4.50%
debentures due 2015.
Under the terms of the 4.50% Bond Hedge, the Company bought options to acquire, at an exercise price of $22.53 per
share, subject to customary adjustments for anti-dilution and other events, cash in an amount equal to the market value of up to
11.1 million shares of the Company’s common stock.
Each 4.50% Bond Hedge was a separate transaction, entered into by the Company with each counterparty, and was not
part of the terms of the 4.50% debentures due 2015. The 4.50% Bond Hedge, which was indexed to the Company’s common
stock, was a derivative instrument that required mark-to-market accounting treatment due to the cash settlement features until the
4.50% Bond Hedge settled in March 2015. During March 2015, the Company exercised its rights under the 4.50% Bond Hedge,
resulting in a payment to the Company of $74.6 million.
During fiscal 2015, the Company recognized a non-cash gain of $52.0 million, recorded in “Other, net” in the
Company’s Consolidated Statements of Operations related to recognize the change in fair value before settlement of the 4.50%
Bond Hedge. During fiscal 2014, the Company recognized a non-cash gain of $58.5 million, recorded in “Other, net” in the
Company’s Consolidated Statement of Operations related to the change in fair value of the 4.50% Bond Hedge.
In connection with the 4.50% Warrants, the Company entered into warrant confirmations (collectively, and as
amended from time to time, the “2015 Warrant Confirms”) with Deutsche Bank AG, London Branch, Bank of America, N.A.,
Barclays Bank PLC and Credit Suisse International providing for the acquisition, subject to anti-dilution adjustments, of up to
approximately 11.1 million shares of the Company’s common stock via net share settlement. Each 4.50% Warrant transaction was
a separate transaction, entered into by the Company with each counterparty, and was not part of the terms of the 4.50% debentures
due 2015.
During the second quarter of fiscal 2015, the Company entered into separate partial unwind agreements with each of
Deutsche Bank AG, London Branch; Bank of America, N.A.; Barclays Bank PLC; and Credit Suisse International in order to
reduce the number of warrants issued pursuant to the 2015 Warrant Confirms. Pursuant to the terms of these partial unwind
agreements, the Company issued an aggregate of approximately 3.0 million shares of common stock to settle all of the warrants
under the 2015 Warrant Confirms. Accordingly, as of January 1, 2017, no 4.50% Warrants remained outstanding.
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
borrowed $75.0 million and is required to repay the amount borrowed starting two years after the date of borrowing, in 10 equal
semi-annual installments. The Company is required to pay interest of LIBOR plus 3% per annum on outstanding borrowings; a
front-end fee of 1% on the principal amount of borrowings at the time of borrowing; and a commitment fee of 0.5% per annum
on funds available for borrowing and not borrowed. The Company may prepay all or a part of the outstanding principal, subject
to a 1% prepayment premium. The Company has pledged certain assets as collateral supporting its repayment obligations
(see Note 5). As of both January 1, 2017 and January 3, 2016, the Company had restricted cash and cash equivalents of
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$9.2 million related to the IFC debt service reserve, which is the amount, as determined by IFC, equal to the aggregate principal
and interest due on the next succeeding interest payment date. On January 17, 2017, the Company repaid the entire outstanding
balance, and the associated interest, of the mortgage loan agreement with IFC (see Note 18).
Loan Agreement with California Enterprise Development Authority (“CEDA”)
In 2010, the Company borrowed the proceeds of the $30.0 million aggregate principal amount of CEDA’s tax-exempt
Recovery Zone Facility Revenue Bonds (SunPower Corporation - Headquarters Project) Series 2010 (the “Bonds”) maturing
April 1, 2031 under a loan agreement with CEDA. The Bonds mature on April 1, 2031, bear interest at a fixed rate of 8.50%
through maturity, and include customary covenants and other restrictions on the Company.
Revolving Credit Facility with Credit Agricole
In July 2013, the Company entered into a revolving credit facility with Credit Agricole, as administrative agent, and
certain financial institutions, under which the Company may borrow up to $250.0 million. On August 26, 2014, the Company
entered into an amendment to the revolving credit facility that, among other things, extends the maturity date of the facility
from July 3, 2016 to August 26, 2019 (the “Maturity Date”). Amounts borrowed may be repaid and reborrowed until the
Maturity Date. On February 17, 2016, the Company entered into an amendment to the credit agreement, expanding the available
borrowings under the revolving credit facility to $300.0 million and adding a $200.0 million letter of credit subfacility, subject
to the satisfaction of certain conditions. The revolving credit facility includes representations, covenants, and events of default
customary for financing transactions of this type.
The revolving credit facility was entered into in conjunction with the delivery by Total S.A. of a guarantee of the
Company’s obligations under the related facility. On January 31, 2014, as contemplated by the facility, (i) the Company’s
obligations under the facility became secured by a pledge of certain accounts receivable and inventory; (ii) certain of the
Company’s subsidiaries entered into guarantees of the facility; and (iii) Total S.A.’s guarantee of the Company’s obligations under
the facility expired.
After January 31, 2014, the Company is required to pay interest on outstanding borrowings and fees of (a) with respect
to any LIBOR rate loan, an amount ranging from 1.50% to 2.00% (depending on the Company’s leverage ratio from time to
time) plus the LIBOR rate divided by a percentage equal to one minus the stated maximum rate of all reserves required to be
maintained against “Eurocurrency liabilities” as specified in Regulation D; (b) with respect to any alternate base rate loan, an
amount ranging from 0.50% to 1.00% (depending on the Company’s leverage ratio from time to time) plus the greater of (1) the
prime rate, (2) the Federal Funds rate plus 0.50%, and (3) the one-month LIBOR rate plus 1%; and (c) a commitment fee ranging
from 0.25% to 0.35% (depending on the Company’s leverage ratio from time to time) per annum on funds available for borrowing
and not borrowed. The Company will be required to pay interest on letters of credit under the agreement of (a) with respect to
any performance letter of credit, an amount ranging from 0.90% to 1.20% (depending on the Company’s leverage ratio from time
to time); and (b) with respect to any other letter of credit, an amount ranging from 1.50% to 2.00% (depending on the Company’s
leverage ratio from time to time).
As of January 1, 2017, the Company had $4.7 million of outstanding borrowings under the revolving credit facility, all
of which were related to letters of credit. The Company had no outstanding borrowings under the revolving credit facility as of
January 3, 2016.
August 2016 Letter of Credit Facility Agreement
In August 2016, the Company entered into a letter of credit facility with Banco Santander, S.A. which provides for the
issuance, upon request by the Company, of letters of credit to support obligations of the Company in an aggregate amount not to
exceed $85 million. As of January 1, 2017 and January 3, 2016, there were no letters of credit issued and outstanding under the
facility with Banco Santander, S.A.
2016 Letter of Credit Facility Agreements
In June 2016, the Company entered into a Continuing Agreement for Standby Letters of Credit and Demand Guarantees
with Deutsche Bank AG New York Branch and Deutsche Bank Trust Company Americas (the “2016 Non-Guaranteed LC
Facility”) which provides for the issuance, upon request by the Company, of letters of credit to support the Company’s obligations
in an aggregate amount not to exceed $50.0 million. The 2016 Non-Guaranteed LC Facility will terminate on June 29, 2018. As of
January 1, 2017 and January 3, 2016, letters of credit issued and outstanding under the 2016 Non-Guaranteed LC Facility totaled
$45.8 million and zero, respectively.
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In June 2016, the Company entered into bilateral letter of credit facility agreements (the “2016 Guaranteed LC
Facilities”) with Bank of Tokyo-Mitsubishi UFJ (“BTMU”), Credit Agricole, and HSBC USA Bank, National Association
(“HSBC”). Each letter of credit facility agreement provides for the issuance, upon the Company’s request, of letters of credit
by the issuing bank thereunder in order to support certain of the Company’s obligations until December 31, 2018. Payment
of obligations under the 2016 Guaranteed Letter of Credit Facilities is guaranteed by Total S.A. pursuant to the Credit Support
Agreement. Aggregate letter of credit amounts may be increased upon the agreement of the respective parties but, otherwise, may
not exceed $75.0 million with BTMU, $75.0 million with Credit Agricole and $175.0 million with HSBC. Each letter of credit
issued under one of the letter of credit facilities generally must have an expiration date, subject to certain exceptions, no later than
the earlier of (a) two years from completion of the applicable project and (b) March 31, 2020.
In June 2016, in connection with the 2016 Guaranteed LC Facilities, the Company entered into a transfer agreement to
transfer to the 2016 Guaranteed LC Facilities all existing outstanding letters of credit issued under the Company’s letter of credit
facility agreement with Deutsche Bank AG New York Branch and Deutsche Bank Trust Company Americas, as administrative
agent, and certain financial institutions, entered into in August 2011 and amended from time to time. In connection with the
transfer of the existing outstanding letters of credit, the aggregate commitment amount under the August 2011 letter of credit
facility was permanently reduced to zero on June 29, 2016. As of January 1, 2017 and January 3, 2016, letters of credit issued
and outstanding under the August 2011 letter of credit facility with Deutsche Bank AG New York Branch totaled zero and
$294.5 million, respectively. As of January 1, 2017 and January 3, 2016, letters of credit issued and outstanding under the 2016
Guaranteed LC Facilities totaled $244.8 million and zero, respectively.
September 2011 Letter of Credit Facility with Deutsche Bank and Deutsche Bank Trust Company Americas
(together, “Deutsche Bank Trust”)
In September 2011, the Company entered into a letter of credit facility with Deutsche Bank Trust which provides for the
issuance, upon request by the Company, of letters of credit to support obligations of the Company in an aggregate amount not to exceed
$200.0 million. Each letter of credit issued under the facility is fully cash-collateralized and the Company has entered into a security
agreement with Deutsche Bank Trust, granting them a security interest in a cash collateral account established for this purpose.
As of January 1, 2017 and January 3, 2016, letters of credit issued and outstanding under the Deutsche Bank Trust
facility totaled $3.1 million and $8.6 million, respectively, which were fully collateralized with restricted cash on the Consolidated
Balance Sheets.
Revolving Credit Facility with Mizuho and Goldman Sachs
On May 4, 2016, the Company entered into a revolving credit facility (the “Construction Revolver”) with Mizuho
Bank Ltd., as administrative agent, and Goldman Sachs Bank USA, under which the Company may borrow up to $200 million.
The Construction Revolver also includes a $100 million accordion feature. Amounts borrowed under the facility may be
repaid and reborrowed in support of the Company’s commercial and small scale utility projects in the United States until the
May 4, 2021 maturity date. The facility includes representations, covenants, and events of default customary for financing
transactions of this type.
Borrowings under the Construction Revolver bear interest at the applicable LIBOR rate plus 1.50% for the first two
years, with the final year at LIBOR plus 1.75%. All outstanding indebtedness under the facility may be voluntarily prepaid in
whole or in part without premium or penalty (with certain limitations to partial repayments), other than customary breakage
costs. The facility is secured by the assets of, and equity in, the various project companies to which the borrowings relate, but is
otherwise non-recourse to the Company and its other affiliates.
As of January 1, 2017 and January 3, 2016, the aggregate carrying value of the Construction Revolver totaled
$10.5 million and zero, respectively.
Non-recourse Financing and Other Debt
In order to facilitate the construction, sale or ongoing operation of certain solar projects, including the Company’s
residential leasing program, the Company regularly obtains project-level financing. These financings are secured either by
the assets of the specific project being financed or by the Company’s equity in the relevant project entity and the lenders do
not have recourse to the general assets of the Company for repayment of such debt obligations, and hence the financings are
referred to as non-recourse. Non-recourse financing is typically in the form of loans from third-party financial institutions, but
also takes other forms, including “partnership flip” structures, sale-leaseback arrangements, or other forms commonly used in
the solar or similar industries. The Company may seek non-recourse financing covering solely the construction period of the
131
solar project or may also seek financing covering part or all of the operating life of the solar project. The Company classifies
non-recourse financings in the Consolidated Balance Sheets in accordance with their terms; however, in certain circumstances,
the Company may repay or refinance these financings prior to stated maturity dates in connection with the sale of the related
project or similar such circumstances. In addition, in certain instances, the customer may assume the loans at the time that the
project entity is sold to the customer. In these instances, subsequent debt assumption is reflected as a financing outflow and
operating inflow in the Consolidated Statements of Cash Flows to reflect the substance of the assumption as a facilitation of
customer financing from a third party.
The following presents a summary of the Company’s non-recourse financing arrangements, including arrangements that
are not classified as debt:
(In thousands)
Residential Lease Program
Bridge loans
Long-term loans
Aggregate Carrying Value
January 3,
January 1,
2016
2017
Balance Sheet Classification
$
6,718
283,852
$
171,752
36,784
— Short-term debt and Long-term debt
Short-term debt and Long-term debt
Accrued liabilities and Other long-
term liabilities
Redeemable non-controlling interests
in subsidiaries and Non-controlling
interests in subsidiaries
128,594
Financing arrangements with third parties
29,370
Tax equity partnership flip facilities
183,109
Power Plant and Commercial Projects
Henrietta credit facility
Boulder I credit facility
El Pelicano credit facility
Hooper credit facility
Construction Revolver
Arizona loan
—
28,775
90,474
—
10,469
7,649
216,691
Short-term debt and Long-term debt
— Short-term debt and Long-term debt
— Long-term debt
37,269
Short-term debt and Long-term debt
— Long-term debt
8,113
Short-term debt and Long-term debt
For the Company’s residential lease program, non-recourse financing is typically accomplished by aggregating an
agreed-upon volume of solar power systems and leases with residential customers into a specific project entity. The Company has
entered into the following non-recourse financings with respect to its residential lease program:
In fiscal 2016, the Company entered into bridge loans to finance solar power systems and leases under its residential
lease program. The loans are repaid over terms ranging from two to seven years. Some loans may be prepaid without penalties
at the Company’s option at any time, while other loans may be prepaid, subject to a prepayment fee, after one year. During fiscal
2016, the Company had net proceeds of $5.7 million in connection with these loans. As of January 1, 2017, the aggregate carrying
amount of these loans, presented in “Long-term debt” on the Company’s Consolidated Balance Sheets, was $6.7 million.
The Company enters into long-term loans to finance solar power systems and leases under its residential lease program.
The loans are repaid over their terms of between 17 and 18 years, and may be prepaid without penalty at the Company’s option
beginning seven years after the original issuance of the loan. During fiscal 2016 and 2015, the Company had net proceeds of
$111.8 million and $90.6 million, respectively, in connection with these loans. As of January 1, 2017, and January 3, 2016, the
aggregate carrying amount of these loans, presented in “Short-term debt” and “Long-term debt” on the Company’s Consolidated
Balance Sheets, was $283.9 million and $171.8 million, respectively.
The Company has entered into multiple arrangements under which solar power systems are financed by third-party
investors or customers, including by a legal sale of the underlying asset that is accounted for as a borrowing under relevant
accounting guidelines as the requirements to recognize the transfer of the asset were not met. Under the terms of these
arrangements, the third parties make an upfront payment to the Company, which the Company recognizes as a liability that will
be reduced over the term of the arrangement as lease receivables and government incentives are received by the third party.
As the liability is reduced, the Company makes a corresponding reduction in receivables. We use this approach to account for
both operating and sales-type leases with our residential lease customers in our consolidated financial statements. During fiscal
2016 and 2015, the Company had net proceeds (repayments) of $28.5 million and $(32.0) million, respectively, in connection
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with these facilities. As of January 1, 2017, and January 3, 2016, the aggregate carrying amount of these facilities, presented in
“Accrued liabilities” and “Other long-term liabilities” on the Company’s Consolidated Balance Sheets, was $29.4 million and
$36.8 million, respectively (see Note 5).
The Company also enters into facilities with third-party tax equity investors under which the investors invest in a
structure known as a partnership flip. The Company holds controlling interests in these less-than-wholly-owned entities and
therefore fully consolidates these entities. The Company accounts for the portion of net assets in the consolidated entities
attributable to the investors as noncontrolling interests in its consolidated financial statements. Noncontrolling interests in
subsidiaries that are redeemable at the option of the noncontrolling interest holder are classified accordingly as redeemable,
between liabilities and equity on the Company’s Consolidated Balance Sheets. During fiscal 2016 and 2015, the Company had
net contributions of $127.3 million and $170.6 million, respectively, under these facilities and attributed losses of $74.9 million
and $111.5 million, respectively, to the non-controlling interests corresponding principally to certain assets, including tax
credits, which were allocated to the non-controlling interests during the periods. As of January 1, 2017 and January 3, 2016,
the aggregate carrying amount of these facilities, presented in “Redeemable non-controlling interests in subsidiaries”
and “Non-controlling interests in subsidiaries” on the Company’s Consolidated Balance Sheets, was $183.1 million and
$128.6 million, respectively.
For the Company’s power plant and commercial solar projects, non-recourse financing is typically accomplished using
an individual solar power system or a series of solar power systems with a common end customer, in each case owned by a
specific project entity. The Company has entered into the following non-recourse financings with respect to its power plant and
commercial projects:
In fiscal 2016, the Company entered into the Construction Revolver credit facility to support the construction of
the Company’s commercial and small scale utility projects in the United States. During fiscal 2016, we had net proceeds
of $9.9 million in connection with the facility. As of January 1, 2017, the aggregate carrying amount of the Construction
Revolver, presented in “Short-term debt” and “Long-term debt” on the Company’s Consolidated Balance Sheets, was
$10.5 million.
In fiscal 2016, the Company entered into a long-term credit facility to finance the 125 MW utility-scale Boulder power
plant project in Nevada. During fiscal 2016, the Company had net proceeds of $21.9 million in connection with the facility. As
of January 1, 2017, the aggregate carrying amount of this facility, presented in “Short-term debt” and “Long-term debt” on the
Company’s Consolidated Balance Sheets, was $28.8 million.
In fiscal 2016, the Company entered into a short-term credit facility to finance the utility-scale Rio Bravo power plant
projects in California, with an aggregate size of approximately 50 MW. During fiscal 2016, in connection with the sale of the
project, the Company repaid the full amount outstanding, and as a result, the Company had net proceeds of $114.8 million and net
repayments of $117.6 million in connection with the facility. As of January 1, 2017, the aggregate carrying amount of this facility,
presented in “Short-term debt” on the Company’s Consolidated Balance Sheets, was zero.
In fiscal 2016, the Company entered into a short-term credit facility to finance the 20 MW utility-scale Wildwood power
plant project in California. During fiscal 2016, in connection with the sale of the project, the Company repaid the full amount
outstanding, and as a result, the Company had net proceeds of $44.5 million and net repayments of $45.6 million in connection
with the facility. As of January 1, 2017, the aggregate carrying amount of this facility, presented in “Short-term debt” on the
Company’s Consolidated Balance Sheets, was zero.
In fiscal 2016, the Company entered into a long-term credit facility to finance several related utility-scale power plant
projects in California, including the Stanford and Turlock projects, with an aggregate size of approximately 350 MW. During
fiscal 2016, in connection with the sale of the project, the Company repaid the full amount outstanding, and as a result, the
Company had net proceeds of $192.2 million and net repayments of $201.6 million in connection with the facility. As of
January 1, 2017, the aggregate carrying amount of this facility, presented in “Short-term debt” and “Long-term debt” on the
Company’s Consolidated Balance Sheets, was zero.
In fiscal 2016, the Company entered into a long-term credit facility to finance the 111 MW utility-scale El Pelicano
power plant project in Chile. During fiscal 2016, the Company had net proceeds of $84.6 million in connection with the
facility. As of January 1, 2017, the aggregate carrying amount of this facility, presented in “Long-term debt” on the Company’s
Consolidated Balance Sheets, was $90.5 million.
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In fiscal 2015, the Company entered into a long-term credit facility to finance the 128 MW utility-scale Henrietta
power plant in California. During fiscal 2016, in connection with the sale of the project, the Company repaid the full amount
outstanding, and as a result, the Company had net repayments of $216.7 million in connection with the facility. As of
January 1, 2017 and January 3, 2016, the aggregate carrying amount of this loan, presented in “Short-term debt” and “Long-term
debt” on the Company’s Consolidated Balance Sheets, was zero and $216.7 million, respectively.
In fiscal 2015, the Company entered into a long-term credit facility to finance the 60 MW Hooper utility-scale power
plant in Colorado. In the first quarter of fiscal 2016, the Company repaid the full amount outstanding. During fiscal 2016, the
Company had net repayments of $37.3 million, in connection with the facility. As of January 1, 2017 and January 3, 2016, the
carrying amount of this facility, presented in “Long-term debt” on the Company’s Consolidated Balance Sheets, was zero and
$37.3 million, respectively.
In fiscal 2013, the Company entered into a long-term loan agreement to finance a 5.4 MW utility and power
plant operating in Arizona. As of January 1, 2017 and January 3, 2016, the aggregate carrying amount under this loan,
presented in “Short-term debt” and “Long-term debt” on the Company’s Consolidated Balance Sheets, was $7.6 million,
and $8.1 million, respectively.
Other debt is further composed of non-recourse project loans in EMEA, which are scheduled to mature through 2028.
See Note 6 for discussion of the Company’s sale-leaseback arrangements accounted for under the financing method.
Note 12. DERIVATIVE FINANCIAL INSTRUMENTS
The following tables present information about the Company’s hedge instruments measured at fair value on a recurring
basis as of January 1, 2017 and January 3, 2016, all of which utilize Level 2 inputs under the fair value hierarchy:
Balance Sheet Classification
January 1,
2017
January 3,
2016
(In thousands)
Assets:
Derivatives designated as hedging instruments:
Foreign currency option contracts
Derivatives not designated as hedging instruments:
Foreign currency option contracts
Foreign currency forward exchange contracts
Interest rate contracts
Prepaid expenses and other
current assets
Prepaid expenses and other
current assets
Prepaid expenses and other
current assets
Other long-term assets
Liabilities:
Derivatives designated as hedging instruments:
Foreign currency option contracts
Foreign currency forward exchange contracts
Interest rate contracts
Accrued liabilities
Accrued liabilities
Other long-term liabilities
Derivatives not designated as hedging instruments:
Foreign currency option contracts
Foreign currency forward exchange contracts
Interest rate contracts
Accrued liabilities
Accrued liabilities
Other long-term liabilities
134
$
$
$
$
$
$
$
$
$
1,711
1,711
1,076
2,015
11,429
14,520
71
—
448
519
15
1,937
—
1,952
$
$
$
$
$
$
$
$
$
—
—
—
8,734
—
8,734
—
141
583
724
—
2,175
450
2,625
(In thousands)
Derivative assets
Derivative liabilities
(In thousands)
Derivative assets
Derivative liabilities
Gross
Amounts
Recognized
16,231
$
2,471
$
Gross
Amounts
Recognized
8,734
$
3,349
$
January 1, 2017
Gross Amounts Not
Offset in the Consolidated
Balance Sheets, but Have
Rights to Offset
Gross
Amounts
Offset
Net
Amounts
Presented
— $ 16,231
2,471
— $
$
$
Financial
Instruments
1,694
$
1,694
$
Cash
Collateral
$
$
Net
Amounts
— $ 14,537
777
— $
January 3, 2016
Gross Amounts Not
Offset in the Consolidated
Balance Sheets, but Have
Rights to Offset
Gross
Amounts
Offset
$
$
— $
— $
Net
Amounts
Presented
8,734
3,349
Financial
Instruments
2,316
$
2,316
$
Cash
Collateral
$
$
— $
— $
Net
Amounts
6,418
1,033
The following table summarizes the pre-tax amount of unrealized gain or loss recognized in “Accumulated other
comprehensive income” (“OCI”) in “Stockholders’ equity” in the Consolidated Balance Sheets:
(In thousands)
Derivatives designated as cash flow hedges:
Gain (loss) in OCI at the beginning of the period
Unrealized gain (loss) recognized in OCI (effective portion)
Less: Loss (gain) reclassified from OCI to revenue (effective portion)
Net gain (loss) on derivatives
Gain (loss) in OCI at the end of the period
2016
Fiscal Year
2015
2014
$
$
$
5,942
2,626
(7,365)
(4,739)
1,203
$
$
$
(1,443)
12,129
(4,744)
7,385
5,942
$
$
$
(805)
(255)
(383)
(638)
(1,443)
The following table summarizes the amount of gain or loss recognized in “Other, net” in the Consolidated Statements of
Operations in the years ended January 1, 2017, January 3, 2016 and December 28, 2014:
(In thousands)
Derivatives designated as cash flow hedges:
2016
Fiscal Year
2015
2014
Gain (loss) recognized in “Other, net” on derivatives (ineffective portion and
amount excluded from effectiveness testing)
Derivatives not designated as hedging instruments:
Gain (loss) recognized in “Other, net”
$
$
(1,069)
(6,964)
$
$
(1,925)
4,146
$
$
704
6,463
Foreign Currency Exchange Risk
Designated Derivatives Hedging Cash Flow Exposure
The Company’s cash flow exposure primarily relates to anticipated third-party foreign currency revenues and expenses
and interest rate fluctuations. To protect financial performance, the Company enters into foreign currency forward and option
contracts designated as cash flow hedges to hedge certain forecasted revenue transactions denominated in currencies other than
their functional currencies.
135
As of January 1, 2017, the Company had designated outstanding cash flow hedge option contracts with an aggregate
notional value of $17.3 million. As of January 3, 2016, the Company had designated outstanding cash flow hedge forward
contracts with an aggregate notional value of $23.6 million. The Company designates either gross external or intercompany
revenue up to its net economic exposure. These derivatives have a maturity of 12 months or less and consist of foreign currency
option and forward contracts. The effective portion of these cash flow hedges is reclassified into revenue when third-party
revenue is recognized in the Consolidated Statements of Operations.
Non-Designated Derivatives Hedging Transaction Exposure
Derivatives not designated as hedging instruments consist of forward and option contracts used to hedge re-measurement of
foreign currency denominated monetary assets and liabilities primarily for intercompany transactions, receivables from customers,
and payables to third parties. Changes in exchange rates between the Company’s subsidiaries’ functional currencies and the
currencies in which these assets and liabilities are denominated can create fluctuations in the Company’s reported consolidated
financial position, results of operations and cash flows. As of January 1, 2017, to hedge balance sheet exposure, the Company held
options contracts and forward contracts with an aggregate notional value of $11.0 million and $42.9 million, respectively. The
maturity dates of these contracts range from January 2017 to June 2017. As of January 3, 2016, to hedge balance sheet exposure,
the Company held forward contracts with an aggregate notional value of $12.1 million. The maturity dates of these contracts ranged
from December 2015 to April 2016.
Interest Rate Risk
The Company also enters into interest rate swap agreements to reduce the impact of changes in interest rates on its
project specific non-recourse floating rate debt. As of January 1, 2017 and January 3, 2016, the Company had interest rate swap
agreements designated as cash flow hedges with an aggregate notional value of $7.6 million and $8.1 million, respectively, and
interest rate swap agreements not designated as cash flow hedges with an aggregate notional value of $170.3 million and zero,
respectively. These swap agreements allow the Company to effectively convert floating-rate payments into fixed rate payments
periodically over the life of the agreements. These derivatives have a maturity of more than 12 months. The effective portion
of these swap agreements designated as cash flow hedges is reclassified into interest expense when the hedged transactions are
recognized in the Consolidated Statements of Operations. The Company analyzes its designated interest rate swaps quarterly to
determine if the hedge transaction remains effective or ineffective. The Company may discontinue hedge accounting for interest
rate swaps prospectively if certain criteria are no longer met, the interest rate swap is terminated or exercised, or if the Company
elects to remove the cash flow hedge designation. If hedge accounting is discontinued, and the forecasted hedged transaction
is considered possible to occur, the previously recognized gain or loss on the interest rate swaps will remain in accumulated
other comprehensive loss and will be reclassified into earnings during the same period the forecasted hedged transaction
affects earnings or is otherwise deemed improbable to occur. All changes in the fair value of non-designated interest rate swap
agreements are recognized immediately in current period earnings.
Credit Risk
The Company’s option and forward contracts do not contain any credit-risk-related contingent features. The Company
is exposed to credit losses in the event of nonperformance by the counterparties to these option and forward contracts. The
Company enters into derivative contracts with high-quality financial institutions and limits the amount of credit exposure to any
single counterparty. In addition, the Company continuously evaluates the credit standing of its counterparties.
136
Note 13. INCOME TAXES
The geographic distribution of income (loss) from continuing operations before income taxes and equity earnings of
unconsolidated investees and the components of provision for income taxes are summarized below:
(In thousands)
Geographic distribution of income (loss) from continuing operations before income
taxes and equity in earnings of unconsolidated investees:
U.S. income (loss)
Non-U.S. income (loss)
Income (loss) before income taxes and equity in earnings (loss) of
unconsolidated investees
Provision for income taxes:
Current tax benefit (expense)
Federal
State
Foreign
Total current tax expense
Deferred tax benefit (expense)
Federal
State
Foreign
Total deferred tax benefit (expense)
Provision for income taxes
2016
Fiscal Year
2015
2014
$(696,232)
131,637
$(222,688)
(19,623)
$ 183,412
1,202
$(564,595)
$(242,311)
$ 184,614
$
(6,843)
9,254
(19,073)
$ (16,662)
$ (43,676)
(22,143)
(2,009)
$ (67,828)
$
141
3,554
(16,571)
$ (12,876)
$
$
3,286
6,819
(762)
9,343
(7,319)
$
1,278
—
(144)
1,134
$ (66,694)
$
$
2,797
10
1,309
4,116
(8,760)
The provision for income taxes differs from the amounts obtained by applying the statutory U.S. federal tax rate to income
before taxes as shown below:
(In thousands)
Statutory rate
Tax benefit (expense) at U.S. statutory rate
Foreign rate differential
State income taxes, net of benefit
Return to provision adjustments
Deemed foreign dividend
Tax credits (investment tax credit and other)
Change in valuation allowance
Unrecognized tax benefits
Non-controlling interest income
Goodwill impairment
Domestic production activity
Transfer Pricing Adjustment
Intercompany profit deferral
Other, net
Total
2016
35%
Fiscal Year
2015
35%
$ 197,608
24,932
(329)
10,784
—
6,396
(189,245)
(42,697)
17,183
(20,236)
—
—
(4,933)
(6,782)
(7,319)
$
$ 84,809
(9,676)
(21,547)
—
(16,618)
19,723
(164,236)
(20,634)
14,353
—
10,262
(6,304)
49,705
(6,531)
$ (66,694)
2014
35%
$ (64,614)
(15,387)
2,180
—
(4,625)
9,262
47,768
1,948
11,052
—
—
—
4,721
(1,065)
(8,760)
$
137
(In thousands)
Deferred tax assets:
Net operating loss carryforwards
Tax credit carryforwards
Reserves and accruals
Stock-based compensation stock deductions
Outside basis difference on investment in 8point3
Basis difference on third-party project sales
Other
Total deferred tax asset
Valuation allowance
Total deferred tax asset, net of valuation allowance
Deferred tax liabilities:
Foreign currency derivatives unrealized gains
Other intangible assets and accruals
Fixed asset basis difference
Other
Total deferred tax liabilities
Net deferred tax asset
As of
January 1,
2017
January 3,
2016
$ 209,431
6,898
187,250
24,357
108,941
148,636
(331)
685,182
(497,236)
187,946
(574)
(13,908)
(149,380)
(10,866)
(174,728)
13,218
$
$
$
61,021
595
196,926
19,293
136,269
—
846
414,950
(268,671)
146,279
(747)
(23,950)
(116,089)
—
(140,786)
5,493
As of January 1, 2017, the Company had federal net operating loss carryforwards of $480 million for tax purposes. These
federal net operating loss carryforwards will expire at various dates from 2028 to 2036. As of January 1, 2017, the Company had
California state net operating loss carryforwards of approximately $438.5 million for tax purposes, of which $40.4 million relate
to stock deductions and $39.7 million relate to debt issuance, both of which will benefit equity when realized. These California
net operating loss carryforwards will expire at various dates from 2029 to 2036. The Company also had credit carryforwards
of approximately $54.3 million for federal tax purposes, of which $24.0 million relate to stock deductions and $23.6 million
relate to debt issuance, both of which will benefit equity when realized. The Company had California credit carryforwards of
$7.5 million for state tax purposes, of which $3.4 million relate to stock deductions and $3.3 million relate to debt issuance, both
of which will benefit equity when realized. These federal credit carryforwards will expire at various dates from 2018 to 2036,
and the California credit carryforwards do not expire. The Company’s ability to utilize a portion of the net operating loss and
credit carryforwards is dependent upon the Company being able to generate taxable income in future periods or being able to
carryback net operating losses to prior year tax returns. The Company’s ability to utilize net operating losses may be limited due
to restrictions imposed on utilization of net operating loss and credit carryforwards under federal and state laws upon a change in
ownership, such as the transaction with Cypress.
The Company is subject to tax holidays in the Philippines where it manufactures its solar power products. The
Company’s current income tax holidays were granted as manufacturing lines were placed in service and thereafter expire within
this fiscal year, and we are in the process of or have applied for extensions and renewals upon expiration. Tax holidays in the
Philippines reduce the Company’s tax rate to 0% from 30%. Tax savings associated with the Philippines tax holidays were
approximately $10.0 million, $21.2 million, and $8.3 million in fiscal 2016, 2015, and 2014, respectively, which provided a
diluted net income (loss) per share benefit of $0.07, $0.16, and $0.05, respectively.
The Company qualifies for the auxiliary company status in Switzerland where it sells its solar power products. The
auxiliary company status entitles the Company to a reduced tax rate of 11.5% in Switzerland from approximately 24.2%. Tax
savings associated with this ruling were approximately $1.9 million, $1.6 million, and $3.5 million in fiscal 2016, 2015, and 2014,
respectively, which provided a diluted net income (loss) per share benefit of $0.01, $0.01, and $0.02 in fiscal 2016, 2015, and
2014, respectively.
The Company is subject to tax holidays in Malaysia where it manufactures its solar power products. The Company’s
current tax holidays in Malaysia were granted to its former joint venture AUOSP (now a wholly-owned subsidiary). Tax
holidays in Malaysia reduce the Company’s tax rate to 0% from 25%. Tax savings associated with the Malaysia tax holiday were
approximately $2.0 million in fiscal 2016, which provided a diluted net income (loss) per share benefit of $0.01 in fiscal 2016.
138
As of January 1, 2017, the Company’s foreign subsidiaries have accumulated undistributed earnings of approximately
$269.2 million that are intended to be indefinitely reinvested outside the United States and, accordingly, no provision for U.S.
federal and state tax has been made for the distribution of these earnings. At January 1, 2017, the amount of the unrecognized
deferred tax liability on the indefinitely reinvested earnings was $50.0 million.
Valuation Allowance
The Company’s valuation allowance is related to deferred tax assets in the United States, France, and Spain and was
determined by assessing both positive and negative evidence. When determining whether it is more likely than not that deferred
assets are recoverable, with such assessment being required on a jurisdiction by jurisdiction basis, management believes that
sufficient uncertainty exists with regard to the realizability of these assets such that a valuation allowance is necessary. Factors
considered in providing a valuation allowance include the lack of a significant history of consistent profits, the lack of consistent
profitability in the solar industry, the limited capacity of carrybacks to realize these assets, and other factors. Based on the absence
of sufficient positive objective evidence, management is unable to assert that it is more likely than not that the Company will
generate sufficient taxable income to realize net deferred tax assets aside from the U.S. net operating losses that can be carried
back to prior year tax returns. Should the Company achieve a certain level of profitability in the future, it may be in a position to
reverse the valuation allowance which would result in a non-cash income statement benefit. The change in valuation allowance
for fiscal 2016, 2015, and 2014 was $228.6 million, $149.9 million, and $28.2 million, respectively.
Unrecognized Tax Benefits
Current accounting guidance contains a two-step approach to recognizing and measuring uncertain tax positions. The
first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is
more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes,
if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon
ultimate settlement.
A reconciliation of the beginning and ending amounts of unrecognized tax benefits during fiscal 2016, 2015, and 2014 is
as follows:
(In thousands)
Balance, beginning of year
Additions for tax positions related to the current year
Additions (reductions) for tax positions from prior years
Reductions for tax positions from prior years/statute of limitations expirations
Foreign exchange (gain) loss
Balance at the end of the period
2016
$ 41,058
35,768
7,322
(2,063)
168
$ 82,253
Fiscal Year
2015
$ 44,287
10,478
(12,545)
(944)
(218)
$ 41,058
2014
$ 29,618
5,579
14,408
(3,391)
(1,927)
$ 44,287
Included in the unrecognized tax benefits at fiscal 2016 and 2015 is $44.3 million and $41.7 million, respectively that,
if recognized, would result in a reduction of the Company’s effective tax rate. The amounts differ from the long term liability
recorded of $47.2 million and $43.3 million as of fiscal 2016 and 2015 due to accrued interest and penalties. Certain components
of the unrecognized tax benefits are recorded against deferred tax asset balances.
Management believes that events that could occur in the next 12 months and cause a change in unrecognized tax benefits
include, but are not limited to, the following:
•
commencement, continuation or completion of examinations of the Company’s tax returns by the U.S. or foreign
taxing authorities; and
•
expiration of statutes of limitation on the Company’s tax returns.
The calculation of unrecognized tax benefits involves dealing with uncertainties in the application of complex global
tax regulations. Uncertainties include, but are not limited to, the impact of legislative, regulatory and judicial developments,
transfer pricing and the application of withholding taxes. Management regularly assesses the Company’s tax positions in light
of legislative, bilateral tax treaty, regulatory and judicial developments in the countries in which the Company does business.
Management determined that an estimate of the range of reasonably possible change in the amounts of unrecognized tax benefits
within the next 12 months cannot be made.
139
Classification of Interests and Penalties
The Company accrues interest and penalties on tax contingencies which are classified as “Provision for income taxes”
in the Consolidated Statements of Operations. Accrued interest as of January 1, 2017 and January 3, 2016 was approximately
$2.8 million and $1.7 million, respectively. Accrued penalties were not material for any of the periods presented.
Tax Years and Examination
The Company files tax returns in each jurisdiction in which it is registered to do business. In the United States and many
of the state jurisdictions, and in many foreign countries in which the Company files tax returns, a statute of limitations period
exists. After a statute of limitations period expires, the respective tax authorities may no longer assess additional income tax for
the expired period. Similarly, the Company is no longer eligible to file claims for refund for any tax that it may have overpaid.
The following table summarizes the Company’s major tax jurisdictions and the tax years that remain subject to examination by
these jurisdictions as of January 1, 2017:
Tax Jurisdictions
United States
California
Switzerland
Philippines
France
Italy
Tax Years
2010 and onward
2011 and onward
2007 and onward
2012 and onward
2012 and onward
2011 and onward
Additionally, certain pre-2010 U.S. corporate tax return and pre-2011 California tax returns are not open for assessment
but the tax authorities can adjust net operating loss and credit carryovers that were generated.
The Company is under tax examinations in various jurisdictions. The Company does not expect the examinations to
result in a material assessment outside of existing reserves. If a material assessment in excess of current reserves results, the
amount that the assessment exceeds current reserves will be a current period charge to earnings.
Note 14. COMMON STOCK
Common Stock
Voting Rights - Common Stock
All common stock holders are entitled to one vote per share on all matters submitted to be voted on by the Company’s
stockholders, subject to the preferences applicable to any preferred stock outstanding.
Dividends - Common Stock
All common stock holders are entitled to receive equal per share dividends when and if declared by the Board of
Directors, subject to the preferences applicable to any preferred stock outstanding. Certain of the Company’s debt agreements
place restrictions on the Company and its subsidiaries’ ability to pay cash dividends.
Shares Reserved for Future Issuance
The Company had shares of common stock reserved for future issuance as follows:
(In thousands)
Equity compensation plans
January 1,
2017
January 3,
2016
7,018
7,174
140
Note 15. NET INCOME (LOSS) PER SHARE
The Company calculates net income (loss) per share by dividing earnings allocated to common stockholders by the
weighted average number of common shares outstanding for the period.
Diluted weighted average shares is computed using basic weighted average shares plus any potentially dilutive securities
outstanding during the period using the treasury-stock-type method and the if-converted method, except when their effect is anti-
dilutive. Potentially dilutive securities include stock options, restricted stock units, the Upfront Warrants held by Total, warrants
associated with the CSO2015, and the outstanding senior convertible debentures.
The following table presents the calculation of basic and diluted net income (loss) per share:
(In thousands, except per share amounts)
Basic net income (loss) per share:
Numerator
2016
Fiscal Year
2015
2014
Net income (loss) attributable to stockholders
$(471,064)
$(187,019)
$ 245,894
Denominator
Basic weighted-average common shares
137,985
134,884
128,635
Basic net income (loss) per share
$
(3.41)
$
(1.39)
$
1.91
Diluted net income (loss) per share:
Numerator
Net income (loss) attributable to stockholders
Add: Interest expense incurred on the 0.75% debentures due 2018, net of tax
Add: Interest expense incurred on the 0.875% debentures due 2021, net of tax
Add: Interest expense incurred on the 4.75% debentures due 2014, net of tax
Net income (loss) available to common stockholders
Denominator
Basic weighted-average common shares
Effect of dilutive securities:
Stock options
Restricted stock units
Upfront Warrants (held by Total)
Warrants (under the CSO2015)
Warrants (under the CSO2014)
0.75% debentures due 2018
0.875% debentures due 2021
4.75% debentures due 2014
Dilutive weighted-average common shares
$(471,064)
—
—
—
$(471,064)
$(187,019)
—
—
—
$(187,019)
$ 245,894
2,103
1,897
2,630
$ 252,524
137,985
134,884
128,635
—
—
—
n/a
n/a
—
—
—
137,985
—
—
—
—
—
—
—
—
134,884
84
4,522
7,236
2,945
262
12,026
4,530
2,511
162,751
Diluted net income (loss) per share
$
(3.41)
$
(1.39)
$
1.55
The Upfront Warrants allow Total to acquire up to 9,531,677 shares of the Company’s common stock at an exercise
price of $7.8685. The warrants under the CSO2015, when such warrants were still outstanding, entitled holders to acquire up to
11.1 million shares of the Company’s common stock at an exercise price of $24.00. During the second quarter of fiscal 2015, the
Company entered into unwind agreements pursuant to which the Company issued common stock to settle all of the outstanding
warrants relating to the CSO2015 (refer to “Note 12. Debt and Credit Sources” in our Annual Report on Form 10-K for the fiscal
year ended January 3, 2016).
Holders of the Company’s 4.00% debentures due 2023, 0.875% debentures due 2021, and 0.75% debentures due 2018
can convert the debentures into shares of the Company’s common stock, at the applicable conversion rate, at any time on or
before maturity. These debentures are included in the calculation of diluted net income per share if they were outstanding during
the period presented and if their inclusion is dilutive under the if-converted method.
141
Holders of the Company’s 4.50% debentures due 2015 could, under certain circumstances at their option and before
maturity, convert the debentures into cash, and not into shares of the Company’s common stock (or any other securities).
Therefore, the 4.50% debentures due 2015 are excluded from the net income per share calculation. In March 2015, the 4.50%
debentures due 2015 matured and were settled in cash.
The following is a summary of outstanding anti-dilutive potential common stock that was excluded from income (loss)
per diluted share in the following periods:
(In thousands)
Stock options
Restricted stock units
Upfront Warrants (held by Total)
Warrants (under the CSO2015)
4.00% debentures due 2023
0.75% debentures due 2018
0.875% debentures due 2021
20161
141
4,997
3,721
n/a
13,922
12,026
8,203
Fiscal Year
20151
151
3,152
6,801
913
682
12,026
8,203
2014
142
374
—
—
n/a
—
—
1 As a result of the net loss per share for fiscal 2016 and 2015, the inclusion of all potentially dilutive stock options, restricted stock
units, and common shares under noted warrants and convertible debt would be anti-dilutive. Therefore, those stock options,
restricted stock units and shares were excluded from the computation of the weighted-average shares for diluted net loss per share
for such periods.
Note 16. STOCK-BASED COMPENSATION
The following table summarizes the consolidated stock-based compensation expense by line item in the Consolidated
Statements of Operations:
(In thousands)
Cost of Residential revenue
Cost of Commercial revenue
Cost of Power Plant revenue
Research and development
Sales, general and administrative
Total stock-based compensation expense
2016
$
5,464
4,235
10,878
11,075
29,847
$ 61,499
Fiscal Year
2015
$
4,764
2,676
5,904
9,938
35,678
$ 58,960
2014
$
3,959
1,954
8,408
7,714
33,557
$ 55,592
The following table summarizes the consolidated stock-based compensation expense by type of award:
(In thousands)
Restricted stock units
Change in stock-based compensation capitalized in inventory
Total stock-based compensation expense
2016
$ 58,562
2,937
$ 61,499
Fiscal Year
2015
$ 61,818
(2,858)
$ 58,960
2014
$ 55,591
1
$ 55,592
As of January 1, 2017, the total unrecognized stock-based compensation related to outstanding restricted stock units was
$88.6 million, which the Company expects to recognize over a weighted-average period of 2.72 years.
Equity Incentive Programs
Stock-based Incentive Plans
The Company has four stock incentive plans: (i) the 1996 Stock Plan (“1996 Plan”); (ii) the Third Amended and Restated
2005 SunPower Corporation Stock Incentive Plan (“2005 Plan”); (iii) the PowerLight Corporation Common Stock Option
and Common Stock Purchase Plan (“PowerLight Plan”); and (iv) the SunPower Corporation 2015 Omnibus Incentive Plan
(“2015 Plan”). The PowerLight Plan, which was adopted by PowerLight’s Board of Directors in October 2000, was assumed
by the Company by way of the acquisition of PowerLight in fiscal 2007. Under the terms of all plans, the Company may issue
142
incentive or non-statutory stock options or stock purchase rights to directors, employees and consultants to purchase common
stock. The 2005 Plan, which replaced the 1996 Plan, was adopted by the Company’s Board of Directors in August 2005, and
was approved by shareholders in November 2005. The 2015 Plan, which subsequently replaced the 2005 Plan, was adopted by
the Company’s Board of Directors in February 2015, and was approved by shareholders in June 2015. The 2015 Plan allows for
the grant of options, as well as grant of stock appreciation rights, restricted stock grants, restricted stock units and other equity
rights. The 2015 Plan also allows for tax withholding obligations related to stock option exercises or restricted stock awards to be
satisfied through the retention of shares otherwise released upon vesting.
The 2015 Plan includes an automatic annual increase mechanism equal to the lower of three percent of the outstanding
shares of all classes of the Company’s common stock measured on the last day of the immediately preceding fiscal year,
6.0 million shares, or such other number of shares as determined by the Company’s Board of Directors. In fiscal 2015, the
Company’s Board of Directors voted to reduce the stock incentive plan’s automatic increase from 3% to 2% for 2016. Subsequent
to the adoption of the 2015 Plan, no new awards are being granted under the 2005 Plan, the 1996 Plan, or the PowerLight
Plan. Outstanding awards granted under these plans continue to be governed by their respective terms. As of January 1, 2017,
approximately 7.0 million shares were available for grant under the 2015 Plan.
Incentive stock options, nonstatutory stock options, and stock appreciation rights may be granted at no less than the
fair value of the common stock on the date of grant. The options and rights become exercisable when and as determined by the
Company’s Board of Directors, although these terms generally do not exceed ten years for stock options. Under the 1996 and
2005 Plans, the options typically vest over five years with a one-year cliff and monthly vesting thereafter. Under the PowerLight
Plan, the options typically vest over five years with yearly cliff vesting. The Company has not granted stock options since fiscal
2008, and accordingly all outstanding options are fully vested. Under the 2005 and 2015 plans, the restricted stock grants and
restricted stock units typically vest in equal installments annually over three or four years.
The majority of shares issued are net of the minimum statutory withholding requirements that the Company pays on
behalf of its employees. During fiscal 2016, 2015, and 2014, the Company withheld 1.0 million, 1.4 million and 1.7 million
shares, respectively, to satisfy the employees’ tax obligations. The Company pays such withholding requirements in cash to the
appropriate taxing authorities. Shares withheld are treated as common stock repurchases for accounting and disclosure purposes
and reduce the number of shares outstanding upon vesting.
Restricted Stock and Stock Options
The following table summarizes the Company’s non-vested restricted stock activities:
Outstanding as of December 29, 2013
Granted
Vested2
Forfeited
Outstanding as of December 28, 2014
Granted
Vested2
Forfeited
Outstanding as of January 3, 2016
Granted
Vested2
Forfeited
Outstanding as of January 1, 2017
Restricted Stock Units
Shares
(in thousands)
9,592
2,187
(4,432)
(792)
6,555
2,695
(3,560)
(627)
5,063
4,978
(2,837)
(1,057)
6,147
Weighted-
Average
Grant Date Fair
Value Per Share1
12.26
31.80
11.61
15.00
18.88
29.77
15.31
22.99
26.68
18.81
23.47
26.30
21.85
1 The Company estimates the fair value of its restricted stock awards and units at its stock price on the grant date.
2 Restricted stock awards and units vested include shares withheld on behalf of employees to satisfy the minimum statutory tax
withholding requirements.
143
The following table summarizes the Company’s outstanding options as of January 1, 2017:
Outstanding and exercisable as of January 1, 2017
Shares
(in thousands)
134
Outstanding Stock Options
Weighted-
Average
Remaining
Contractual
Term (in
years)
Weighted-
Average
Exercise
Price
Per Share
56.21
$
1.41
Aggregate
Intrinsic
Value
(in
thousands)
2
$
There were no options exercised in fiscal 2016. The intrinsic value of options exercised in fiscal 2016, 2015, and 2014
were zero, $1.0 million, and $2.4 million, respectively. There were no stock options granted in fiscal 2016, 2015, and 2014.
The aggregate intrinsic value in the preceding table represents the total pre-tax intrinsic value, based on the Company’s
closing stock price of $6.61 at January 1, 2017 which would have been received by the option holders had all option
holders exercised their options as of that date. The total number of in-the-money options exercisable was not material as of
January 1, 2017.
Note 17. SEGMENT AND GEOGRAPHICAL INFORMATION
The Company’s President and Chief Executive Officer, as the CODM, has organized the Company, manages resource
allocations and measures performance of the Company’s activities among three end-customer segments: (i) Residential Segment,
(ii) Commercial Segment and (iii) Power Plant Segment (see Note 1). The Residential and Commercial Segments combined are
referred to as Distributed Generation.
The CODM assesses the performance of the three end-customer segments using information about their revenue,
gross margin, and adjusted earnings before interest, taxes, depreciation and amortization (“Adjusted EBITDA”) after certain
adjustments, described below in further detail. Additionally, for purposes of calculating Adjusted EBITDA, the calculation
includes equity in earnings of unconsolidated investees and net loss attributable to noncontrolling interests and redeemable
noncontrolling interests and excludes cash interest expense, net of interest income, and depreciation. The CODM does not review
asset information by segment.
Adjustments Made for Segment Purposes
8point3 Energy Partners
The Company includes adjustments related to the sales of projects contributed to 8point3 based on the difference
between the fair market value of the consideration received and the net carrying value of the projects contributed, of which, a
portion is deferred in proportion to the Company’s retained equity interest in 8point3. Under U.S. GAAP (“GAAP”), these sales
are recognized under either real estate, lease, or consolidation accounting guidance depending upon the nature of the individual
asset contributed, with outcomes ranging from no, partial, or full profit recognition.
Utility and power plant projects
The Company includes adjustments related to the revenue recognition of certain utility and power plant projects based on
percentage-of-completion accounting and, when relevant, the allocation of segment revenue and margin to the Company’s project
development efforts at the time of initial project sale. Under GAAP, such projects are accounted for under real estate accounting
guidance, under which no separate allocation to the Company’s project development efforts occurs and the amount of revenue and
margin that is recognized may be limited in circumstances where the Company has certain forms of continuing involvement in the
project. Over the life of each project, cumulative revenue and gross margin will eventually be equivalent under both the GAAP
and segment treatments; however, revenue and gross margin will generally be recognized earlier under the Company’s segment
treatment. Within each project, the relationship between the adjustments to revenue and gross margins is generally consistent.
However, as the Company may have multiple utility and power plant projects in differing stages of progress at any given time,
the relationship in the aggregate will occasionally appear otherwise.
144
Sale of operating lease assets
The Company includes adjustments related to the revenue recognition on the sale of certain solar assets subject to
an operating lease (or of solar assets that are leased by or intended to be leased by the third-party purchaser to another party)
based on the net proceeds received from the purchaser. Under GAAP, these sales are accounted for as borrowing transactions in
accordance with lease accounting guidance. Under such guidance, revenue and profit recognition is based on rental payments
made by the end lessee, and the net proceeds from the purchaser are recorded as a non-recourse borrowing liability, with imputed
interest expense recorded on the liability. This treatment continues until the Company has transferred the substantial risks of
ownership, as defined by lease accounting guidance, to the purchaser, at which point the sale is recognized.
Sale-leaseback transactions
The Company includes adjustments related to the revenue recognition on certain sale-leaseback transactions based on
the net proceeds received from the buyer-lessor. Under GAAP, these transactions are accounted for under the financing method in
accordance with real estate accounting guidance. Under such guidance, no revenue or profit is recognized at the inception of the
transaction, and the net proceeds from the buyer-lessor are recorded as a financing liability. Imputed interest is recorded on the
liability equal to the Company’s incremental borrowing rate adjusted solely to prevent negative amortization.
Stock-based compensation
The Company incurs stock-based compensation expense related primarily to the Company’s equity incentive awards.
The Company excludes this expense from its segment results.
Amortization of intangible assets
The Company incurs amortization expense on intangible assets as a result of acquisitions, which includes patents, project
assets, purchased technology, in-process research and development and trade names. The Company excludes this expense from its
segment results.
Non-cash interest expense
The Company incurs non-cash interest expense related to the amortization of items such as original issuance discounts
on certain of its convertible debt. The Company excludes this expense from its segment results.
Restructuring expense
The Company incurs restructuring expense related to reorganization plans aimed towards realigning resources consistent
with the Company’s global strategy and improving its overall operating efficiency and cost structure. The Company excludes this
expense from its segment results.
Goodwill Impairment
In the third quarter of fiscal 2016, the Company performed an interim goodwill impairment evaluation due to market
circumstances at the time, including a decline in the Company’s stock price which resulted in the market capitalization of the
Company being below its book value. The Company’s preliminary calculation determined that the implied fair value of goodwill
for all reporting units was zero and therefore recorded a goodwill impairment loss of $147.4 million, which includes $89.6
million of goodwill recognized in the third quarter of 2016 in connection with the Company’s acquisition of the remaining 50% of
AUOSP (see Notes 3 and 4). The Company excludes from its segment results the impairment of goodwill arising from business
combinations prior to the acquisition of AUOSP. No adjustment was made for the impairment of the goodwill arising from the
acquisition of AUOSP.
Arbitration ruling
On January 28, 2015, an arbitral tribunal of the International Court of Arbitration of the International Chamber of
Commerce declared a binding partial award in the matter of an arbitration between First Philippine Electric Corporation (“FPEC”)
and First Philippine Solar Corporation (“FPSC”) against SunPower Philippines Manufacturing, Ltd. (“SPML”), the Company’s
wholly-owned subsidiary. The tribunal found SPML in breach of its obligations under its supply agreement with FPSC, and in
breach of its joint venture agreement with FPEC. The second partial and final awards dated July 14, 2015 and September 30,
2015, respectively, reduced the estimated amounts to be paid to FPEC, and on July 22, 2016, SPML entered into a settlement
145
with FPEC and FPSC and paid a total of $50.5 million in settlement of all claims between the parties. As a result, the Company
recorded its best estimate of probable loss related to this case at the time of the initial ruling and updated the estimate as
circumstances warranted. The Company excludes these amounts from its segment results.
IPO-related costs
The Company incurred costs related to the IPO of 8point3 related to legal, accounting, advisory, valuation, and other
expenses, as well as modifications to or terminations of certain existing financing structures in preparation for the sale to 8point3.
The Company excludes these costs from its segment results.
Other
The Company combines amounts previously disclosed under separate captions into “Other” when amounts do not have a
significant impact on the presented fiscal periods.
Segment and Geographical Information
The following tables present information by end-customer segment including revenue, gross margin, and adjusted
EBITDA, each as reviewed by the CODM, as well as information about significant customers and revenue by geography, based
on the destination of the shipments.
A reconciliation of the Company’s segment revenue and gross margin to its consolidated financial statements for the
fiscal years ended January 1, 2017, January 3, 2016, and December 28, 2014 is as follows:
Revenue
Gross margin
Fiscal 2016
Revenue and Gross margin
by segment (in thousands,
except percentages):
As reviewed by CODM
8point3 Energy Partners
Utility and power plant
projects
Sale of operating lease
assets
Sale-leaseback transactions
Stock-based compensation
Amortization of intangible
assets
Non-cash interest expense
Arbitration ruling
GAAP
Revenue and Gross
margin by segment
(in thousands, except
percentages):
As reviewed by CODM
8point3 Energy Partners
Utility and power plant
projects
Sale of operating lease
assets
Stock-based compensation
Residential Commercial Power Plant
$ 1,473,355
$
(61,596)
520,818
(5,370)
708,687
5,248
$
Residential
Commercial
Power Plant
$ 120,484
1,657
17.0% $ 19,876
(3,751)
3.8% $ 103,161
(8,418)
7.0%
—
6,396
—
—
—
—
—
720,331 $
$
—
(9,443)
—
—
—
(78,533)
—
—
—
—
1,942
—
(5,464)
—
(11,351)
(4,234)
(10,274)
—
—
(10,879)
—
—
—
(2,965)
(227)
1,345
436,915 $ 1,402,316 $ 116,772
—
—
—
(3,059)
(199)
922
16.2% $ (1,796)
(1,655)
(530)
3,585
(0.4)% $ 74,990
5.3%
Revenue
Gross margin
Fiscal 2015
Residential Commercial Power Plant
$ 1,572,571
$
(898,765)
392,866
(115,723)
647,213
2,754
$
Residential
Commercial
Power Plant
$ 140,010
1,148
21.6% $ 52,070
(32,734)
13.3% $ 432,921
(338,371)
27.5%
—
(6,447)
—
—
—
—
(17,996)
—
—
—
(2,000)
(4,764)
—
—
(2,676)
3,016
—
(5,903)
146
Revenue and Gross
margin by segment
(in thousands, except
percentages):
Amortization of intangible
assets
Non-cash interest expense
Arbitration ruling
Other
GAAP
Revenue and Gross
margin by segment
(in thousands, except
percentages):
As reviewed by CODM
Utility and power plant
projects
Stock-based compensation
Non-cash interest expense
Arbitration ruling
Other
GAAP
Revenue
Gross margin
Fiscal 2015
Residential Commercial Power Plant
Residential
Commercial
Power Plant
—
—
—
—
643,520
$
—
—
—
—
277,143 $
—
—
—
—
(728)
(638)
2,084
(41)
655,810 $ 135,071
(451)
(330)
1,697
(33)
21.0% $ 17,543
$
(1,155)
(1,069)
2,678
(85)
6.3% $ 92,032 14.0%
Revenue
Gross margin
Fiscal 2014
Residential Commercial Power Plant
$ 1,600,885
$
361,828
655,936
$
Residential
Commercial
Power Plant
$ 137,532
21.0% $ 47,497
13.1% $ 328,516
20.5%
—
—
—
—
655,936 $
$
—
—
—
408,616
—
—
—
(3,959)
(765)
(18,684)
—
361,828 $ 2,009,501 $ 114,124
—
—
—
(1,954)
(379)
(9,660)
—
17.4% $ 35,504
190,712
(8,408)
(1,615)
(28,462)
(5,244)
9.8% $ 475,499
23.7%
147
(In thousands):
Adjusted EBITDA as reviewed by CODM
Distributed Generation
Residential
Commercial
Power Plant
Total Segment Adjusted EBITDA as reviewed by CODM
Reconciliation to Consolidated Statements of Income (Loss)
8point3 Energy Partners
Utility and power plant projects
Sale of operating lease assets
Sale-leaseback transactions
Stock-based compensation
Amortization of intangible assets
Non-cash interest expense
Restructuring expense
Goodwill impairment
Arbitration ruling
IPO-related costs
Other
Equity in earnings of unconsolidated investees
Net loss attributable to noncontrolling interests and redeemable noncontrolling
interests
Cash interest expense, net of interest income
Depreciation
Corporate and unallocated items
Loss before taxes and equity in earnings of unconsolidated investees
(As a percentage of total revenue):
Significant Customers:
8point3 Energy Partners
Southern Renewable Partnerships, LLC
MidAmerican Energy Holdings Company
* denotes less than 10% during the period
Business Segment
Power Plant
Power Plant
Power Plant
(As a percentage of total revenue):
Revenue by geography:
United States
Japan
Rest of World
Note 18. SUBSEQUENT EVENTS
2016
Fiscal Year
2015
2014
$ 134,157
2,268
78,800
$ 215,225
$ 194,906
18,743
396,379
$ 610,028
$ 153,456
29,293
329,787
$ 512,536
(54,379)
(10,274)
1,889
(11,700)
(61,498)
(17,369)
(1,057)
(207,189)
(57,765)
5,852
304
31
(28,070)
(408,780)
3,016
(2,000)
—
(58,960)
(4,717)
(6,519)
(6,056)
—
6,459
(28,033)
(162)
(9,569)
—
190,712
—
—
(55,592)
(614)
(21,585)
(12,684)
—
(56,806)
—
(6,930)
(7,241)
(72,780)
(57,734)
(156,464)
(51,617)
$(564,595)
(112,417)
(37,643)
(133,456)
(53,502)
$(242,311)
(62,799)
(48,364)
(107,406)
(138,613)
$ 184,614
Fiscal Year
2015
2014
2016
10%
15%
*
n/a
n/a
14%
n/a
n/a
49%
2016
Fiscal Year
2015
2014
85%
6%
9%
100%
69%
12%
19%
100%
72%
12%
16%
100%
In May 2010, the Company entered into a mortgage loan agreement with IFC to borrow $75.0 million (see Note 11). As of
January 1, 2017, the Company had $17.5 million outstanding under the mortgage loan agreement. On January 17, 2017, the Company
made an $18.0 million payment to IFC to repay the outstanding balance, and the associated interest, of the mortgage loan agreement.
148
Consolidated Statements of Operations:
SELECTED UNAUDITED QUARTERLY FINANCIAL DATA
(In thousands, except per share data)
January 1,
2017
October 2,
2016
July 3,
2016
Three Months Ended
January 3,
2016
April 3,
2016
September 27,
2015
June 28,
2015
March 29,
2015
Revenue
Gross margin
Net income (loss)
Net income (loss) attributable to
stockholders
Net income (loss) per share attributable
to stockholders:
$ 1,024,889
$
729,346
$ 420,452
$ 384,875
$
(32,073) $
129,208
$
41,294
$
51,537
$
$
374,364
20,303
$
$
380,218
62,644
$
$
381,020
70,881
$
$
440,871
90,818
$ (294,339) $
(55,907) $
(92,181) $ (101,417) $ (159,635) $
(87,285) $
(23,466) $
(29,050)
$ (275,118) $
(40,545) $
(69,992) $ (85,409) $ (127,621) $
(56,326) $
6,509
$
(9,581)
Basic
Diluted
$
$
(1.99) $
(1.99) $
(0.29) $
(0.29) $
(0.51) $
(0.51) $
(0.62) $
(0.62) $
(0.93) $
(0.93) $
(0.41) $
(0.41) $
0.05
0.04
$
$
(0.07)
(0.07)
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None.
ITEM 9A: CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain “disclosure controls and procedures,” as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange
Act, that are designed to provide reasonable assurance that information required to be disclosed in reports that we file or submit
under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and
forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer
and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. In designing and evaluating
our disclosure controls and procedures, management recognizes that disclosure controls and procedures, no matter how well
conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and
procedures are met. Additionally, in designing disclosure controls and procedures, our management is required to apply its
judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure
control and procedure also is based in part upon certain assumptions about the likelihood of future events, and there can be no
assurance that any design will succeed in achieving its stated goals under all potential future conditions.
Based on their evaluation as of the end of the period covered by this Annual Report on Form 10-K, our Chief
Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of
January 1, 2017 at a reasonable assurance level.
Management’s Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as
defined in Exchange Act Rule 13a-15(f). Management conducted an evaluation of the effectiveness of our internal control over
financial reporting using the criteria described in Internal Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (2013 framework) (“COSO”). Based on this evaluation, management concluded that
our internal control over financial reporting was effective as of January 1, 2017 based on the criteria described in Internal Control-
Integrated Framework issued by COSO. Management reviewed the results of its assessment with our Audit Committee.
The effectiveness of the Company’s internal control over financial reporting as of January 1, 2017 has been audited by
Ernst & Young LLP, an independent registered public accounting firm, as stated in their report which is included in Item 8 of this
Annual Report on Form 10-K.
The Company’s evaluation of the effectiveness of its internal control over financial reporting as of January 1, 2017
excluded the internal controls of our former joint venture AUOSP because AUOSP was acquired by the Company in a business
combination during fiscal 2016. Our former joint venture AUOSP (now our wholly-owned subsidiary, SunPower Malaysia
149
Manufacturing Sdn. Bhd.) is a subsidiary whose total assets represent approximately 7% of the Company’s consolidated total
assets as of the year ended January 1, 2017. In accordance with guidance issued by the SEC, companies may exclude acquisitions
from their assessment of internal control over financial reporting during the first year subsequent to the acquisition while
integrating the acquired operations.
Changes in Internal Control over Financial Reporting
We regularly review our system of internal control over financial reporting and make changes to our processes and
systems to improve controls and increase efficiency, while ensuring that we maintain an effective internal control environment.
Changes may include such activities as implementing new, more efficient systems, consolidating activities, and migrating
processes.
There were no changes in our internal control over financial reporting that occurred during our most recent fiscal quarter
that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B: OTHER INFORMATION
None.
150
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information appearing under this Item is incorporated herein by reference to our proxy statement for the 2017 annual
meeting of stockholders.
We have adopted a code of ethics, entitled Code of Business Conduct and Ethics, that applies to all of our directors, officers
and employees, including our principal executive officer, principal financial officer, and principal accounting officer. We have
made it available, free of charge, on our website at www.sunpower.com, and if we amend it or grant any waiver under it that
applies to our principal executive officer, principal financial officer, or principal accounting officer, we will promptly post that
amendment or waiver on our website as well.
ITEM 11: EXECUTIVE COMPENSATION
Information appearing under this Item is incorporated herein by reference to our proxy statement for the 2017 annual
meeting of stockholders.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
Information appearing under this Item is incorporated herein by reference to our proxy statement for the 2017 annual
meeting of stockholders.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Information appearing under this Item is incorporated herein by reference to our proxy statement for the 2017 annual
meeting of stockholders.
ITEM 14: PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information appearing under this Item is incorporated herein by reference to our proxy statement for the 2017 annual
meeting of stockholders.
151
ITEM 15: EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The following documents are filed as a part of this Annual Report on Form 10-K:
1. Financial Statements:
PART IV
Reports of Ernst & Young LLP, Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Comprehensive Income (Loss)
Consolidated Statements of Stockholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
2. Financial Statement Schedule:
Page
85
87
88
89
90
91
93
All financial statement schedules are omitted as the required information is inapplicable or the information is presented in
the Consolidated Financial Statements or Notes to Consolidated Financial Statements under Item 8 of this Annual Report
on Form 10-K.
152
3. Exhibits:
Exhibit
Number
Description
EXHIBIT INDEX
3.1
3.2
4.1
4.2
4.3
4.4
4.5
4.6
4.7
10.1
10.2
10.3
10.4
10.5
Restated Certificate of Incorporation of SunPower Corporation (incorporated by reference to Exhibit 3.1 to the
Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on November 16, 2011).
Amended and Restated By-Laws of SunPower Corporation (incorporated by reference to Exhibit 3.1 to the
Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on March 7, 2012).
Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.1 to the Registrant’s Annual Report
on Form 10-K filed with the Securities and Exchange Commission on February 29, 2012).
Amended and Restated Rights Agreement, dated November 16, 2011, by and between SunPower Corporation and
Computershare Trust Company, N.A., as Rights Agent, including the form of Certificate of Designation of Series A
Junior Participating Preferred Stock, the forms of Right Certificates, and the Summary of Rights attached thereto
as Exhibits A, B, and C, respectively (incorporated by reference to Exhibit 4.1 to the Registrant’s Registration
Statement on Form 8-A filed with the Securities and Exchange Commission on November 16, 2011).
Certificate of Designation of Series A Junior Participating Preferred Stock of SunPower Corporation (incorporated
by reference to Exhibit 4.6 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange
Commission on November 16, 2011).
Amendment No. 1, dated May 10, 2012, to the Amended and Restated Rights Agreement, dated as of
November 16, 2011, by and between the SunPower Corporation and Computershare Trust Company, N.A., as
rights agent (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed with the
Securities and Exchange Commission on May 10, 2012).
Indenture, dated as of May 29, 2013, by and between SunPower Corporation and Wells Fargo Bank, National
Association, as Trustee (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K
filed with the Securities and Exchange Commission on May 29, 2013).
Indenture, dated as of December 15, 2015 by and between SunPower Corporation and Wells Fargo Bank, National
Association, as Trustee (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K
filed with the Securities and Exchange Commission on December 16, 2015).
Indenture, dated as of June 11, 2014 by and between SunPower Corporation and Wells Fargo Bank, National
Association, as Trustee (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K
filed with the Securities and Exchange Commission on June 11, 2014).
Credit Support Agreement, dated April 28, 2011, between SunPower Corporation and Total S.A. (incorporated by
reference to Exhibit 99.5 to the Registrant’s Quarterly Report on Form 10-Q filed with the Securities and Exchange
Commission on May 12, 2011).
Amended and Restated Credit Support Agreement, dated June 29, 2016, between SunPower Corporation and Total
S.A. (incorporated by reference to Exhibit 10.62 to the Registrant’s Quarterly Report on Form 10-Q filed with the
Securities and Exchange Commission on August 9, 2016).
Continuing Agreement for Standby Letters of Credit and Demand Guarantees, dated June 29, 2016 by and among
the Company, Deutsche Bank AG New York Branch, and Deutsche Bank Trust Company Americas (incorporated
by reference to Exhibit 10.63 to the Registrant’s Quarterly Report on Form 10-Q filed with the Securities and
Exchange Commission on August 9, 2016).
Letter of Credit Facility Agreement, dated June 29, 2016, by and among SunPower Corporation, SunPower
Corporation, Systems, Total S.A., the Subsidiary Applicants party thereto, and The Bank of Tokyo-Mitsubishi UFJ,
Ltd. (incorporated by reference to Exhibit 10.64 to the Registrant’s Quarterly Report on Form 10-Q filed with the
Securities and Exchange Commission on August 9, 2016).
Letter of Credit Facility Agreement, dated June 29, 2016, by and among SunPower Corporation, SunPower
Corporation, Systems, Total S.A., the Subsidiary Applicants party thereto, and Credit Agricole Corporate and
Investment Bank (incorporated by reference to Exhibit 10.65 to the Registrant’s Quarterly Report on Form 10-Q
filed with the Securities and Exchange Commission on August 9, 2016).
153
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
Letter of Credit Facility Agreement, dated June 29, 2016, by and among SunPower Corporation, SunPower
Corporation, Systems, Total S.A., the Subsidiary Applicants party thereto, and HSBC Bank USA, National
Association (incorporated by reference to Exhibit 10.66 to the Registrant’s Quarterly Report on Form 10-Q filed
with the Securities and Exchange Commission on August 9, 2016).
Transfer Agreement, dated June 29, 2016, by and among SunPower Corporation, SunPower Corporation,
Systems, Total S.A., Deutsche Bank AG New York Branch as administrative agent, and the Banks party thereto
(incorporated by reference to Exhibit 10.67 to the Registrant’s Quarterly Report on Form 10-Q filed with the
Securities and Exchange Commission on August 9, 2016).
Amendment to Credit Support Agreement, dated June 7, 2011, between SunPower Corporation and Total S.A.
(incorporated by reference to Exhibit 10.1 of Registrant’s Current Report on Form 8-K filed with the Securities and
Exchange Commission on June 7, 2011).
Second Amendment to Credit Support Agreement, dated December 12, 2011, by and between Total S.A. and
SunPower Corporation (incorporated by reference to Exhibit 10.3 of Registrant’s Current Report on Form 8-K filed
with the Securities and Exchange Commission on December 23, 2011).
Third Amendment to Credit Support Agreement, dated December 14, 2012, by and between SunPower Corporation
and Total S.A. (incorporated by reference to Exhibit 10.34 to the Registrant’s Annual Report on Form 10-K filed
with the Securities and Exchange Commission on February 25, 2013)
Affiliation Agreement, dated April 28, 2011, between SunPower Corporation and Total Gas & Power USA, SAS
(incorporated by reference to Exhibit 99.6 to the Registrant’s Quarterly Report on Form 10-Q filed with the
Securities and Exchange Commission on May 12, 2011).
Amendment to Affiliation Agreement, dated June 7, 2011, between SunPower Corporation and Total Gas & Power
USA, SAS (incorporated by reference to Exhibit 10.2 of Registrant’s Current Report on Form 8-K filed with the
Securities and Exchange Commission on June 7, 2011).
Second Amendment to Affiliation Agreement, dated December 23, 2011, by and between Total G&P and
SunPower Corporation (incorporated by reference to Exhibit 10.4 of Registrant’s Current Report on Form 8-K filed
with the Securities and Exchange Commission on December 23, 2011).
Amendment No. 3 to Affiliation Agreement, dated February 28, 2012, by and between SunPower Corporation and
Total Gas & Power USA, SAS (incorporated by reference to Exhibit 10.91 to the Registrant’s Annual Report on
Form 10-K filed with the Securities and Exchange Commission on February 29, 2012).
Amendment No. 4 to Affiliation Agreement, dated August 10, 2012, by and between SunPower Corporation and
Total Gas & Power USA, SAS (incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on
Form 10-Q filed with the Securities and Exchange Commission on November 2, 2012).
Affiliation Agreement Guaranty, dated April 28, 2011, between SunPower Corporation and Total S.A.
(incorporated by reference to Exhibit 99.7 to the Registrant’s Quarterly Report on Form 10-Q filed with the
Securities and Exchange Commission on May 12, 2011).
Research & Collaboration Agreement, dated April 28, 2011, between SunPower Corporation and Total Gas &
Power USA, SAS (incorporated by reference to Exhibit 99.8 to the Registrant’s Quarterly Report on Form 10-Q
filed with the Securities and Exchange Commission on May 12, 2011).
Amendment to Research & Collaboration Agreement, dated June 7, 2011, between SunPower Corporation and
Total Gas & Power USA, SAS (incorporated by reference to Exhibit 10.3 of Registrant’s Current Report on Form
8-K filed with the Securities and Exchange Commission on June 7, 2011).
Registration Rights Agreement, dated April 28, 2011, between SunPower Corporation and Total Gas & Power
USA, SAS (incorporated by reference to Exhibit 99.9 to the Registrant’s Quarterly Report on Form 10-Q filed with
the Securities and Exchange Commission on May 12, 2011).
10.20^
10.21^
SunPower Corporation 2005 Stock Unit Plan (incorporated by reference to Exhibit 10.28 to the Registrant’s
Registration Statement on Form S-1/A filed with the Securities and Exchange Commission on October 31, 2005).
Third Amended and Restated SunPower Corporation 2005 Stock Incentive Plan and forms of agreements there-
under (incorporated by reference to Exhibit 4.1 to the Registrant’s Registration Statement on Form S-8 filed with
the Securities and Exchange Commission on November 17, 2011).
154
10.22^
10.23^
10.24^
10.25^
10.26^
10.27^
10.28^
10.29^
10.30^
10.31^
10.32†
10.33
10.34
10.35
10.36
10.37
10.38
SunPower Corporation 2015 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.1 to the Registrant’s
Registration Statement on Form S-8 (File No. 333-205207), filed with the Securities and Exchange Commission on
June 25, 2015).
Forms of agreements under SunPower Corporation 2015 Omnibus Incentive Plan (incorporated by reference
to Exhibit 10.60 to the Registrant’s Quarterly Report on Form 10-Q filed with the Securities and Exchange
Commission on May 6, 2016).
PowerLight Corporation Common Stock Option and Common Stock Purchase Plan (incorporated by reference
to Exhibit 4.3 to the Registrant’s Registration Statement on Form S-8 filed with the Securities and Exchange
Commission on January 25, 2007).
Form of PowerLight Corporation Incentive/Non-Qualified Stock Option, Market Standoff and Stock Restriction
Agreement (Employees) (incorporated by reference to Exhibit 4.4 to the Registrant’s Registration Statement on
Form S-8 filed with the Securities and Exchange Commission on January 25, 2007).
Outside Director Compensation Policy, as amended on July 22, 2015 (incorporated by reference to Exhibit 10.1
to the Registrant’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on
October 29, 2015).
Form of Employment Agreement for Executive Officers (incorporated by reference to Exhibit 10.47 to the
Registrant’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 18, 2014).
SunPower Corporation Annual Executive Bonus Plan (incorporated by reference to Exhibit 10.1 to the Registrant’s
Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on April 30, 2014).
SunPower Corporation Executive Semi-Annual Bonus Plan (incorporated by reference to Exhibit 10.2 to the
Registrant’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on April 30, 2014).
Form of Indemnification Agreement for Directors and Officers (incorporated by reference to Exhibit 10.24 to the
Registrant’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 19, 2016).
2016 Management Career Transition Plan, dated August 10, 2015 (incorporated by reference to Exhibit 10.2 to the
Registrant’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on October 29, 2015).
Mortgage Loan Agreement, dated May 6, 2010, by and among SunPower Philippines Manufacturing Ltd., SPML
Land, Inc. and International Finance Corporation (incorporated by reference to Exhibit 10.13 to the Registrant’s
Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on August 13, 2010).
Guarantee Agreement, dated May 6, 2010, by and between SunPower Corporation and International Finance
Corporation (incorporated by reference to Exhibit 10.14 to the Registrant’s Quarterly Report on Form 10-Q filed
with the Securities and Exchange Commission on August 13, 2010).
Amendment No. 1 to Loan Agreement, dated November 2, 2010, by and between SunPower Philippines
Manufacturing Ltd. and International Finance Corporation (incorporated by reference to Exhibit 10.42 to the
Registrant’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 28, 2011).
Mortgage Supplement No. 1, dated November 3, 2010, by and between SunPower Philippines Manufacturing
Ltd., SPML Land, Inc. and International Finance Corporation (incorporated by reference to Exhibit 10.63 to the
Registrant’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 25, 2013).
Mortgage Supplement No. 2, dated October 9, 2012, by and between SunPower Philippines Manufacturing
Ltd., SPML Land, Inc. and International Finance Corporation (incorporated by reference to Exhibit 10.64 to the
Registrant’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 25, 2013).
Mortgage Supplement No. 3, dated February 7, 2013, by and between SunPower Philippines Manufacturing
Ltd., SPML Land, Inc. and International Finance Corporation (incorporated by reference to Exhibit 10.1 to the
Registrant’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on May 7, 2013).
Loan Agreement, dated December 1, 2010, by and among California Enterprise Development Authority and
SunPower Corporation, relating to $30,000,000 California Enterprise Development Authority Tax Exempt
Recovery Zone Facility Revenue Bonds (SunPower Corporation - Headquarters Project) Series 2010 (incorporated
by reference to Exhibit 10.50 to the Registrant’s Annual Report on Form 10-K filed with the Securities and
Exchange Commission on February 28, 2011).
155
10.39
10.40†
10.41†
10.42
10.43
10.44
10.45
10.46
10.47
10.48
10.49
10.50
10.51
First Supplement to Loan Agreement, dated June 1, 2011, by and between California Enterprise Development
Authority and SunPower Corporation, relating to $30,000,000 California Enterprise Development Authority Tax
Exempt Recovery Zone Facility Revenue Bonds (SunPower Corporation - Headquarters Project) Series 2010
(incorporated by reference to Exhibit 10.16 to the Registrant’s Quarterly Report on Form 10-Q filed with the
Securities and Exchange Commission on August 9, 2011).
Letter of Credit Facility Agreement, dated August 9, 2011, by and among SunPower Corporation, Total S.A.,
the Subsidiary Applicants party thereto, the Banks party thereto, and Deutsche Bank AG New York Branch
(incorporated by reference to Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q filed with the
Securities and Exchange Commission on November 10, 2011).
First Amendment to Letter of Credit Facility Agreement, dated December 20, 2011, by and among SunPower
Corporation, Total S.A., the Subsidiary Applicants party thereto, the Banks party thereto, and Deutsche Bank AG
New York Branch (incorporated by reference to Exhibit 10.65 to the Registrant’s Annual Report on Form 10-K
filed with the Securities and Exchange Commission on February 29, 2012).
Second Amendment to Letter of Credit Facility Agreement, dated December 19, 2012, by and among SunPower
Corporation, Total S.A., the Subsidiary Applicants party thereto, the Banks party thereto, and Deutsche Bank AG
New York Branch (incorporated by reference to Exhibit 10.69 to the Registrant’s Annual Report on Form 10-K
filed with the Securities and Exchange Commission on February 25, 2013).
Third Amendment to Letter of Credit Facility Agreement, dated December 20, 2013, by and among SunPower
Corporation, SunPower Corporation, Systems, Total S.A., Deutsche Bank AG New York Branch (incorporated by
reference to Exhibit 10.61 to the Registrant’s Annual Report on Form 10-K filed with the Securities and Exchange
Commission on February 18, 2014).
Fourth Amendment to Letter of Credit Facility Agreement, dated December 23, 2014, by and among SunPower
Corporation, SunPower Corporation, Systems, Total S.A., Deutsche Bank AG New York Branch (incorporated by
reference to Exhibit 10.66 to the Registrant’s Annual Report on Form 10-K filed with the Securities and Exchange
Commission on February 24, 2015).
Fifth Amendment to Letter of Credit Facility Agreement, dated October 7, 2015, by and among SunPower
Corporation, SunPower Corporation, Systems, Total S.A., Deutsche Bank AG New York Branch (incorporated by
reference to Exhibit 10.3 to the Registrant’s Annual Report on Form 10-Q filed with the Securities and Exchange
Commission on October 29, 2015).
Continuing Agreement for Standby Letters of Credit and Demand Guarantees, dated September 27, 2011, by and
among SunPower Corporation, Deutsche Bank Trust Company Americas, and Deutsche Bank AG New York
Branch (incorporated by reference to Exhibit 10.10 to the Registrant’s Quarterly Report on Form 10-Q filed with
the Securities and Exchange Commission on November 10, 2011).
Security Agreement, dated September 27, 2011, by and among SunPower Corporation, Deutsche Bank Trust Company
Americas, and Deutsche Bank AG New York Branch (incorporated by reference to Exhibit 10.11 to the Registrant’s
Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on November 10, 2011).
Revolving Credit Agreement, dated July 3, 2013, by and among SunPower Corporation and Credit Agricole Corporate
and Investment Bank, and the financial institutions party thereto (incorporated by reference to Exhibit 10.1 to the
Registrant’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on October 31, 2013).
First Amendment to Revolving Credit Agreement, dated August 26, 2014, by and among SunPower Corporation, its
subsidiaries, SunPower Corporation, Systems; SunPower North America LLC; and SunPower Capital, LLC, and Credit
Agricole Corporate and Investment Bank and the other lenders party thereto (incorporated by reference to Exhibit 10.1 to
the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on August 28, 2014).
Second Amendment to Revolving Credit Agreement, dated February 17, 2016, by and among SunPower Corporation, its
subsidiaries, SunPower Corporation, Systems; SunPower North America LLC; and SunPower Capital, LLC, and Credit
Agricole Corporate and Investment Bank and the other lenders party thereto (incorporated by reference to Exhibit 10.57
to the Registrant’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on May 6, 2016).
Third Amendment to Revolving Credit Agreement, dated March 18, 2016, by and among SunPower Corporation,
its subsidiaries, SunPower Corporation, Systems; SunPower North America LLC; and SunPower Capital, LLC,
and Credit Agricole Corporate and Investment Bank and the other lenders party thereto (incorporated by reference
to Exhibit 10.58 to the Registrant’s Quarterly Report on Form 10-Q filed with the Securities and Exchange
Commission on May 6, 2016).
156
10.52†
10.53
10.54
10.55
10.56
10.57
10.58†
10.59
10.60
10.61
10.62
10.63†
10.64
Security Agreement, dated January 31, 2014, by and among SunPower Corporation, SunPower Corporation,
Systems, SunPower North America, LLC, SunPower Capital, LLC, and Credit Agricole Corporate and Investment
Bank (incorporated by reference to Exhibit 10.91 to the Registrant’s Annual Report on Form 10-K filed with the
Securities and Exchange Commission on February 18, 2014).
First Amendment to Security Agreement, dated February 17, 2016, by and among SunPower Corporation,
SunPower Corporation, Systems, SunPower North America, LLC, SunPower Capital, LLC, and Crédit Agricole
Corporate and Investment Bank (incorporated by reference to Exhibit 10.59 to the Registrant’s Quarterly Report on
Form 10-Q filed with the Securities and Exchange Commission on May 6, 2016).
Joint Venture Agreement, dated May 27, 2010, by and among SunPower Technology, Ltd., AU Optronics
Singapore Pte. Ltd., AU Optronics Corporation and AUO SunPower Sdn. Bhd. (formerly known as SunPower
Malaysia Manufacturing Sdn. Bhd.) (incorporated by reference to Exhibit 10.15 to the Registrant’s Quarterly
Report on Form 10-Q filed with the Securities and Exchange Commission on August 13, 2010).
Amendment No. 1 to Joint Venture Agreement, dated June 29, 2010, by and among SunPower Technology, Ltd.,
AU Optronics Singapore Pte. Ltd., AU Optronics Corporation and AUO SunPower Sdn. Bhd. (formerly known
as SunPower Malaysia Manufacturing Sdn. Bhd.) (incorporated by reference to Exhibit 10.1 to the Registrant’s
Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on November 12, 2010).
Amendment No. 2 to Joint Venture Agreement, dated July 5, 2010, by and among SunPower Technology, Ltd.,
AU Optronics Singapore Pte. Ltd., AU Optronics Corporation and AUO SunPower Sdn. Bhd. (formerly known
as SunPower Malaysia Manufacturing Sdn. Bhd.) (incorporated by reference to Exhibit 10.2 to the Registrant’s
Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on November 12, 2010).
Amendment No. 3 to Joint Venture Agreement, dated March 3, 2014, by and among SunPower Technology, Ltd.,
AU Optronics Singapore Pte. Ltd., AU Optronics Corporation and AUO SunPower Sdn. Bhd. (formerly known
as SunPower Malaysia Manufacturing Sdn. Bhd.) (incorporated by reference to Exhibit 10.3 to the Registrant’s
Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on April 30, 2014).
Supply Agreement, dated July 5, 2010, by and among AUO SunPower Sdn. Bhd. (formerly known as SunPower
Malaysia Manufacturing Sdn. Bhd.), SunPower Systems, Sarl and AU Optronics Singapore Pte. Ltd. (incorporated
by reference to Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q filed with the Securities and
Exchange Commission on November 12, 2010).
License and Technology Agreement, dated July 5, 2010, by and among SunPower Technology, Ltd., AU Optronics
Singapore Pte. Ltd. and AUO SunPower Sdn. Bhd. (formerly known as SunPower Malaysia Manufacturing Sdn.
Bhd.) (incorporated by reference to Exhibit 10.4 to the Registrant’s Quarterly Report on Form 10-Q filed with the
Securities and Exchange Commission on November 12, 2010).
Compensation and Funding Agreement, dated February 28, 2012, by and between SunPower Corporation and Total
S.A. (incorporated by reference to Exhibit 10.90 to the Registrant’s Annual Report on Form 10-K filed with the
Securities and Exchange Commission on February 29, 2012).
Amendment No. 1 to Compensation and Funding Agreement, dated August 10, 2012, by and between SunPower
Corporation and Total S.A. (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on
Form 10-Q filed with the Securities and Exchange Commission on November 2, 2012).
Warrant to Purchase Common Stock, dated February 28, 2012, issued to Total Gas & Power USA, SAS
(incorporated by reference to Exhibit 10.92 to the Registrant’s Annual Report on Form 10-K filed with the
Securities and Exchange Commission on February 29, 2012).
Amended and Restated Limited Liability Company Agreement of 8point3 Holding Company, LLC, dated as of
June 24, 2015, by and between SunPower YC Holdings, LLC and First Solar 8point3 Holdings, LLC (incorporated
by reference to Exhibit 10.2 to the Registrant’s Annual Report on Form 10-Q filed with the Securities and
Exchange Commission on July 29, 2015).
Amended and Restated Limited Liability Company Agreement of 8point3 Operating Company, LLC, dated as of
June 24, 2015, by and between 8point3 Energy Partners LP, SunPower YC Holdings, LLC, First Solar 8point3
Holdings, LLC, Maryland Solar Holdings, Inc. and 8point3 Holdings, LL (incorporated by reference to Exhibit
10.3 to the Registrant’s Annual Report on Form 10-Q filed with the Securities and Exchange Commission on
July 29, 2015).
157
10.65
10.66
10.67
21.1*
23.1*
24.1*
31.1*
31.2*
32.1**
Master Formation Agreement, dated as of March 10, 2015, by and between First Solar, Inc. and SunPower
Corporation (incorporated by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K filed with
the Securities and Exchange Commission on March 11, 2015).
Credit Agreement, dated May 4, 2016, by and among SunPower Revolver HoldCo I, LLC, Mizuho Bank, Ltd.,
Mizuho Bank (USA), Mizuho Bank, Ltd., Goldman Sachs Bank USA, and the Lenders party thereto (incorporated
by reference to Exhibit 10.61 to the Registrant’s Quarterly Report on Form 10-Q filed with the Securities and
Exchange Commission on August 9, 2016).
First Amendment to Credit Agreement, dated June 30, 2016, by and among SunPower Revolver HoldCo I, LLC,
Mizuho Bank, Ltd., Mizuho Bank (USA), Mizuho Bank, Ltd., Goldman Sachs Bank USA, and the Lenders party
thereto (incorporated by reference to Exhibit 10.68 to the Registrant’s Quarterly Report on Form 10-Q filed with
the Securities and Exchange Commission on August 9, 2016).
List of Subsidiaries.
Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm.
Power of Attorney.
Certification by Chief Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a).
Certification by Chief Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a).
Certification Furnished Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002.
101.INS*+
XBRL Instance Document.
101.SCH*+ XBRL Taxonomy Schema Document.
101.CAL*+ XBRL Taxonomy Calculation Linkbase Document.
101.LAB*+ XBRL Taxonomy Label Linkbase Document.
101.PRE*+ XBRL Taxonomy Presentation Linkbase Document.
101.DEF*+ XBRL Taxonomy Definition Linkbase Document.
Exhibits marked with a carrot (^) are director and officer compensatory arrangements.
Exhibits marked with an asterisk (*) are filed herewith.
Exhibits marked with two asterisks (**) are furnished and not filed herewith.
Exhibits marked with an extended cross (†) are subject to a request for confidential treatment filed with the Securities and
Exchange Commission.
Exhibits marked with a cross (+) are XBRL (Extensible Business Reporting Language) information furnished and not filed herewith,
are not a part of a registration statement or Prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, are deemed not
filed for purposes of section 18 of the Securities Exchange Act of 1934, and otherwise are not subject to liability under these sections.
158
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned, thereto duly authorized.
SIGNATURES
SUNPOWER CORPORATION
Dated: February 17, 2017
By:
/s/ CHARLES D. BOYNTON
Charles D. Boynton
Executive Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/S/ THOMAS H. WERNER
Thomas H. Werner
President, Chief Executive Officer
and Director
(Principal Executive Officer)
February 17, 2017
/S/ CHARLES D. BOYNTON
Charles D. Boynton
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
*
Helle Kristoffersen
*
Daniel Laure
*
Catherine A. Lesjak
*
Thomas R. McDaniel
*
Ladislas Paszkiewicz
*
Julien Pouget
*
Laurent Wolffsheim
*
Patrick Wood III
Director
Director
Director
Director
Director
Director
Director
Director
* By: /S/ CHARLES D. BOYNTON
Charles D. Boynton
Power of Attorney
159
February 17, 2017
February 17, 2017
February 17, 2017
February 17, 2017
February 17, 2017
February 17, 2017
February 17, 2017
February 17, 2017
February 17, 2017
NOTICE OF THE 2017 ANNUAL MEETING OF STOCKHOLDERS
TO ALL SUNPOWER STOCKHOLDERS:
NOTICE IS HEREBY GIVEN that the 2017 Annual Meeting of Stockholders (the “Annual Meeting”) of SunPower
Corporation, a Delaware corporation (“SunPower”), will be held on:
Date:
Time:
Place:
Virtual
Meeting
Admission:
Items of
Business:
Thursday, April 27, 2017
12:00 p.m. Pacific Time
Online at www.virtualshareholdermeeting.com/SPWR2017
This year’s Annual Meeting will be a virtual meeting of stockholders, conducted via a live webcast. You will
be able to attend the Annual Meeting online, vote your shares electronically and submit questions during
the meeting by visiting www.virtualshareholdermeeting.com/SPWR2017. Have your Notice of Internet
Availability of Proxy Materials or proxy card in hand when you access the website and then follow the
instructions. To participate in the meeting, you will need the 16-digit control number included on the Notice of
Internet Availability of Proxy Materials or proxy card. Online check-in will begin at 11:30 a.m. Pacific Time,
and you should allow ample time for the online check-in procedures.
1. The re-election of three directors to serve as Class III directors on our board of directors (the “Board”);
2. The approval, in an advisory vote, of our named executive officer compensation;
3. The proposal to approve, in an advisory vote, whether a stockholder advisory vote on our named executive
officer compensation should be held every (a) year, (b) two years, or (c) three years;
4. The ratification of the appointment of Ernst & Young LLP as our independent registered public accounting
firm for fiscal year 2017; and
5. The transaction of such other business as may properly come before the Annual Meeting or any
adjournment or postponement thereof.
The foregoing items of business are more fully described in the proxy statement accompanying this notice of the Annual
Meeting. On or about March 17, 2017 we began mailing to stockholders either a Notice of Internet Availability of Proxy Materials
or this notice of the Annual Meeting, the proxy statement and the form of proxy.
All stockholders are cordially invited to attend the Annual Meeting. Only stockholders of record at the close of business on
February 28, 2017 (the “Record Date”) are entitled to receive notice of, and to vote at, the Annual Meeting or any adjournment or
postponement of the Annual Meeting. Any registered stockholder in attendance at the Annual Meeting and entitled to vote may do
so during the meeting even if such stockholder returned a proxy.
San Jose, California
March 17, 2017
FOR THE BOARD OF DIRECTORS
Kenneth Mahaffey
Corporate Secretary
IMPORTANT: WHETHER OR NOT YOU EXPECT TO ATTEND THE ANNUAL MEETING, PLEASE COMPLETE,
DATE AND SIGN THE PROXY CARD AND MAIL IT PROMPTLY, OR YOU MAY VOTE BY TELEPHONE OR VIA
THE INTERNET BY FOLLOWING THE DIRECTIONS ON THE PROXY CARD. ANY ONE OF THESE METHODS
WILL ENSURE REPRESENTATION OF YOUR SHARES AT THE ANNUAL MEETING. NO POSTAGE NEED BE
AFFIXED TO THE COMPANY-PROVIDED PROXY CARD ENVELOPE IF MAILED IN THE UNITED STATES.
PROXY STATEMENT FOR
2017 ANNUAL MEETING OF STOCKHOLDERS
TABLE OF CONTENTS
INFORMATION CONCERNING SOLICITATION AND VOTING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Important Notice Regarding the Availability of Proxy Materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Delivery of Voting Materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Record Date and Shares Outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Board Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Voting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
How Your Proxy Will Be Voted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Revoking Your Proxy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Solicitation of Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Voting Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note Concerning Forward-Looking Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PROPOSAL ONE—RE-ELECTION OF CLASS III DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
BOARD STRUCTURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Determination of Independence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leadership Structure and Risk Oversight . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Board Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Controlled Company, NASDAQ Listing Standards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Board Committees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Audit Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Compensation Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Compensation Committee Interlocks and Insider Participation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nominating and Corporate Governance Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finance Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CORPORATE GOVERNANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stockholder Communications with Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Directors’ Attendance at Our Annual Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Submission of Stockholder Proposal for the 2018 Annual Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate Governance Principles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Code of Business Conduct and Ethics; Related Persons Transactions Policy and Procedures . . . . . . . . . . . . . . . . . . . . .
Certain Relationships and Related Persons Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
AUDIT COMMITTEE REPORT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
DIRECTOR COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 Director Compensation Table . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 Director Compensation Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock Ownership Guidelines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PROPOSAL TWO—ADVISORY VOTE TO APPROVE NAMED EXECUTIVE OFFICER COMPENSATION . . . .
PROPOSAL THREE—ADVISORY VOTE ON THE FREQUENCY OF FUTURE ADVISORY VOTES ON
NAMED EXECUTIVE OFFICER COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
EXECUTIVE OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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COMPENSATION DISCUSSION AND ANALYSIS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General Philosophy and Objectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Compensation Setting Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Compensation Consultant and Peer Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benchmarking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 Compensation Components . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Analysis of Fiscal 2016 Compensation Decisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employment and Severance Arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Section 162(m) Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock Ownership Guidelines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Use of Non-GAAP Financial Measures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Compensation of Named Executive Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 Summary Compensation Table . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Grants of Plan-Based Awards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 Grants of Plan-Based Awards Table . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-Equity Incentive Plan Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Estimated Possible Payouts Under Non-Equity Incentive Plan Awards Table . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity Incentive Plan Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employment and Severance Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outstanding Equity Awards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outstanding Equity Awards At 2016 Fiscal Year-End Table . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 Option Exercises and Stock Vested Table . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Potential Payments Upon Termination or Change of Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Termination Payments Table . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
COMPENSATION COMMITTEE REPORT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS . . . . . . . . . . . . . . . . . .
Section 16(a) Beneficial Ownership Reporting Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
COMPANY STOCK PRICE PERFORMANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
EQUITY COMPENSATION PLAN INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PROPOSAL FOUR—RATIFICATION OF THE APPOINTMENT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM FOR FISCAL YEAR 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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SUNPOWER CORPORATION
77 Rio Robles
San Jose, California 95134
PROXY STATEMENT FOR
2017 ANNUAL MEETING OF STOCKHOLDERS
INFORMATION CONCERNING SOLICITATION AND VOTING
General
The Board of Directors (the “Board”) of SunPower Corporation, a Delaware corporation, is furnishing this proxy statement
and proxy card to you in connection with its solicitation of proxies to be used at SunPower Corporation’s Annual Meeting of
Stockholders to be held on April 27, 2017 at 12:00 p.m. Pacific Time (the “Meeting Date”), or at any adjournment(s), continuation(s)
or postponement(s) of the meeting (the “Annual Meeting”).
This year’s Annual Meeting will be a virtual meeting of stockholders, conducted via a live webcast. You will be able to
attend the Annual Meeting online, vote your shares electronically and submit your questions during the meeting by visiting www.
virtualshareholdermeeting.com/SPWR2017. Have your Notice of Internet Availability of Proxy Materials or proxy card in hand
when you access the website and then follow the instructions. To participate in the meeting, you will need the 16-digit control
number included on the Notice of Internet Availability of Proxy Materials or proxy card.
Online check-in will begin at 11:30 a.m. Pacific Time on the Meeting Date, and you should allow ample time for the
online check-in procedures. We will have technicians ready to assist you should you have any technical difficulties accessing the
virtual meeting.
We use a number of abbreviations in this proxy statement. We refer to SunPower Corporation as “SunPower,” “the
Company,” or “we,” “us” or “our.” The term “proxy solicitation materials” includes this proxy statement, the notice of the Annual
Meeting, and the proxy card. References to “fiscal 2016” mean our 2016 fiscal year, which began on January 4, 2016 and ended
on January 1, 2017, while references to “fiscal 2015” mean our 2015 fiscal year, which began on December 29, 2014 and ended on
January 3, 2015.
Our principal executive offices are located at 77 Rio Robles, San Jose, California 95134, and our telephone number is
(408) 240-5500.
Important Notice Regarding the Availability of Proxy Materials
We have elected to comply with the Securities and Exchange Commission (the “SEC”) “Notice and Access” rules, which
allow us to make our proxy solicitation materials available to our stockholders over the Internet. Under these rules, on or about
March 17, 2017, we started mailing to certain of our stockholders a Notice of Internet Availability of Proxy Materials (the “Notice
of Internet Availability”). The Notice of Internet Availability contains instructions on how our stockholders can both access the
proxy solicitation materials and our 2016 Annual Report on Form 10-K for the fiscal year ended January 1, 2017 (the “2016 Annual
Report”) online and vote online. By sending the Notice of Internet Availability instead of paper copies of the proxy materials, we
expect to lower the costs and reduce the environmental impact of our Annual Meeting.
Our proxy solicitation materials and our 2016 Annual Report are available at www.proxyvote.com.
Stockholders receiving the Notice of Internet Availability may request a paper or electronic copy of our proxy solicitation
materials by following the instructions set forth on the Notice of Internet Availability. Stockholders who did not receive the Notice
of Internet Availability will continue to receive a paper or electronic copy of our proxy solicitation materials, which were first
mailed to stockholders and made public on or about March 17, 2017.
Delivery of Voting Materials
If you would like to further reduce our environmental impact and costs in mailing proxy materials, you can consent
to receiving all future proxy statements, proxy cards and annual reports electronically via e-mail or the Internet. To sign up for
electronic delivery, please follow the instructions provided for voting via www.proxyvote.com and, when prompted, indicate that
you agree to receive or access proxy materials electronically in future years.
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To reduce the environmental waste and expense of delivering duplicate materials to our stockholders, we are taking
advantage of householding rules that permit us to deliver only one set of proxy solicitation materials and our 2016 Annual Report,
or one copy of the Notice of Internet Availability, to stockholders who share the same address, unless otherwise requested. Each
stockholder retains a separate right to vote on all matters presented at the Annual Meeting.
If you share an address with another stockholder and have received only one set of materials, you may write or call us
to request a separate copy of these materials at no cost to you. For future annual meetings, you may request separate materials or
request that we only send one set of materials to you if you are receiving multiple copies by writing to us at SunPower Corporation,
77 Rio Robles, San Jose, California 95134, Attention: Corporate Secretary, or calling us at (408) 240-5500.
A copy of our 2016 Annual Report has been furnished with this proxy statement to each stockholder. A stockholder may
also request a copy of our 2016 Annual Report by writing to our Corporate Secretary at 77 Rio Robles, San Jose, California 95134.
Upon receipt of such request, we will provide a copy of our 2016 Annual Report without charge, including the financial statements
required to be filed with the SEC pursuant to Rule 13a-1 of the Securities Exchange Act of 1934 (“Exchange Act”) for our fiscal
year 2016. Our 2016 Annual Report is also available on our website at http://investors.sunpower.com/sec.cfm.
Record Date and Shares Outstanding
Stockholders who owned shares of our common stock, par value $0.001 per share, at the close of business on February 28,
2017, which we refer to as the Record Date, are entitled to notice of, and to vote at, the Annual Meeting. On the Record Date, we had
138,699,919 shares of common stock outstanding. For more information about beneficial ownership of our issued and outstanding
common stock, please see “Security Ownership of Management and Certain Beneficial Owners.”
Board Recommendations
Our Board recommends that you vote:
“FOR” Proposal One: re-election of each of the nominated Class III directors;
“FOR” Proposal Two: the approval, on an advisory basis, of the compensation of our named executive officers; and
For a frequency of “EVERY YEAR” in response to Proposal Three: the approval, on an advisory basis, of the frequency
of future advisory votes on the compensation of our named executive officers; and
“FOR” Proposal Four: the ratification of the appointment of Ernst & Young LLP as our independent registered public
accounting firm for fiscal year 2017.
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Voting
Each holder of shares of common stock is entitled to one vote for each share of common stock held as of the Record Date.
Cumulating votes is not permitted under our By-laws.
Many of our stockholders hold their shares through a stockbroker, bank or other nominee, rather than directly in his or her
own name. As summarized below, there are distinctions between shares held of record and those beneficially owned.
Stockholder of Record. If your shares are registered directly in your name with our transfer agent, Computershare Trust
Company N.A., you are considered, with respect to those shares, the stockholder of record and these proxy solicitation materials are
being furnished to you directly by us.
Beneficial Owner. If your shares are held in a stock brokerage account, or by a bank or other nominee (also known as
shares registered in “street name”), you are considered the beneficial owner of such shares held in street name, and these proxy
solicitation materials are being furnished to you by your broker, bank or other nominee, who is considered, with respect to those
shares, the stockholder of record. As the beneficial owner, you have the right to direct your broker, bank or other nominee how to
vote your shares, or to vote your shares during the Annual Meeting.
How to Vote. If you hold shares directly as a stockholder of record, you can vote in one of the following four ways:
(1) Vote via the Internet before the Meeting Date. Go to www.proxyvote.com to transmit your voting instructions
and for electronic delivery of information up until 11:59 p.m. Eastern Time on April 26, 2017. Have your Notice of Internet
Availability or proxy card in hand when you access the website and then follow the instructions.
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(2) Vote by Telephone at 1-800-690-6903 before the Meeting Date. Use a touch-tone telephone to transmit your
voting instructions up until 11:59 p.m. Eastern Time on April 26, 2017. Have your Notice of Internet Availability or proxy
card in hand when you call and then follow the instructions. This number is toll free in the United States and Canada.
(3) Vote by Mail before the Meeting Date. Mark, sign and date your proxy card and return it in the postage-
paid envelope we have provided, or return the proxy card to SunPower Corporation, c/o Broadridge, 51 Mercedes Way,
Edgewood, NY 11717.
(4) Vote via the Internet during the Annual Meeting. You may attend the Annual Meeting on April 27, 2017 at
12:00 p.m. Pacific Time via the Internet at www.virtualshareholdermeeting.com/SPWR2017 and vote during the Annual
Meeting. Have your Notice of Internet Availability or proxy card in hand when you access the website and then follow
the instructions.
If you hold shares beneficially in street name, you may submit your voting instructions in the manner prescribed by your
broker, bank or other nominee by following the instructions provided by your broker, bank or other nominee, or you may vote your
shares during the Annual Meeting.
Even if you plan to attend the Annual Meeting, we recommend that you vote your shares in advance as described in options
(1), (2), and (3) above so that your vote will be counted if you later decide not to attend the Annual Meeting.
Quorum. A quorum, which is the holders of at least a majority of shares of our stock issued and outstanding and entitled to
vote as of the Record Date, is required to be present in person or by proxy at the Annual Meeting in order to hold the Annual Meeting
and to conduct business. Your shares will be counted as being present at the Annual Meeting if you attend the Annual Meeting (and
are the stockholder of record for your shares), if you vote your shares by telephone or over the Internet, or if you submit a properly
executed proxy card. Abstentions and “broker non-votes” are counted as present and entitled to vote for purposes of determining
a quorum. Votes against a particular proposal will also be counted both to determine the presence or absence of a quorum and to
determine whether the requisite number of voting shares has been obtained.
Explanation of Broker Non-Votes and Abstentions. A “broker non-vote” occurs when a nominee holding shares for a
beneficial owner does not vote on a particular proposal because the nominee does not have discretionary voting power with respect to
that item and has not received instructions from the beneficial owner. The rules of The New York Stock Exchange (which also apply to
companies listed on The NASDAQ Global Select Market) prohibit brokers from voting in their discretion on any non-routine proposals
without instructions from the beneficial owners. If you do not instruct your broker how to vote on a non-routine proposal, your broker
will not vote for you. Abstentions are deemed to be entitled to vote for purposes of determining whether stockholder approval of that
matter has been obtained, and they would be included in the tabulation of voting results as votes against the proposal.
Votes Required/Treatment of Broker Non-Votes and Abstentions.
Proposal One—Re-election of Class III Directors. Election of a director requires the affirmative vote of the holders of a
plurality of votes represented by the shares in attendance or represented by proxy at the Annual Meeting and entitled to vote on the
election of directors. The three persons receiving the greatest number of votes at the Annual Meeting shall be elected as Class III
directors. Neither “broker non-votes” nor abstentions will affect the outcome of the voting on Proposal One.
Proposal Two—Advisory Vote on Named Executive Officer Compensation. The non-binding advisory vote on named
executive officer compensation requires the affirmative vote of the holders of a majority of our stock having voting power and in
attendance or represented by proxy at the Annual Meeting. “Broker non-votes” have no effect and will not be counted towards the
vote total for this proposal. Abstentions will have the effect of votes against Proposal Two.
Proposal Three—Advisory Vote on the Frequency of Future Advisory Votes on Named Executive Officer Compensation.
The option of one year, two years or three years that receives the highest number of votes cast by holders of our stock having voting
power and in attendance or represented by proxy at the Annual Meeting will be the frequency of future advisory votes on executive
compensation that has been recommended by our stockholders. Neither “broker non-votes” nor abstentions will be counted towards
the vote total for this proposal.
Proposal Four—Ratification of the Appointment of Independent Registered Public Accounting Firm for Fiscal Year 2017.
Ratification of the appointment of our independent registered public accounting firm requires the affirmative vote of the holders of
a majority of our stock having voting power and in attendance or represented by proxy at the Annual Meeting. “Broker non-votes”
have no effect and will not be counted towards this proposal. We do not expect “broker non-votes” since brokers have discretionary
authority to vote on this proposal. Abstentions will have the effect of votes against Proposal Four.
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How Your Proxy Will Be Voted
If you complete and submit your proxy card or vote via the Internet or by telephone, the shares represented by your proxy
will be voted at the Annual Meeting in accordance with your instructions. If you submit your proxy card by mail, but do not fill
out the voting instructions on the proxy card, the shares represented by your proxy will be voted in favor of each of Proposals One,
Two and Four and for Proposal Three in favor of holding future stockholder advisory votes annually on named executive officer
compensation. In addition, if any other matters properly come before the Annual Meeting, it is the intention of the persons named in
the enclosed proxy card to vote the shares they represent as directed by the Board. We have not received notice of any other matters
that may properly be presented at the Annual Meeting.
Revoking Your Proxy
You may revoke your proxy at any time before the Meeting Date by: (1) submitting a later-dated vote by telephone, by
mail, or via the Internet before or at the Annual Meeting; or (2) delivering instructions to us at 77 Rio Robles, San Jose, California
95134 to the attention of our Corporate Secretary. Any notice of revocation sent to us must include the stockholder’s name and must
be actually received by us before the Annual Meeting to be effective. Your attendance at the Annual Meeting after having executed
and delivered a valid proxy card or vote via the Internet or by telephone will not in and of itself constitute a revocation of your proxy.
If you are the stockholder of record or if your shares are held in “street name,” you may revoke your proxy by voting electronically
at the Annual Meeting.
Solicitation of Proxies
We will pay for the cost of this proxy solicitation. We may reimburse brokerage firms and other persons representing
beneficial owners of shares for their expenses in forwarding or furnishing proxy solicitation materials to such beneficial owners.
Proxies may also be solicited personally or by telephone, telegram or facsimile by certain of our directors, officers, and regular
employees, without additional compensation.
Voting Results
We will announce preliminary voting results at the Annual Meeting and publish final results on a Current Report on Form
8-K, which we intend to file with the SEC within four business days after the Meeting Date.
Note Concerning Forward-Looking Statements
Certain of the statements contained in this proxy statement are “forward-looking statements” within the meaning of the
Private Securities Litigation Reform Act of 1995. Forward-looking statements are statements that do not represent historical facts
and the assumptions underlying such statements. We use words such as “anticipate,” “believe,” “continue,” “could,” “estimate,”
“expect,” “intend,” “may,” “potential,” “should,” “will,” “would” and similar expressions to identify forward-looking statements.
These statements include, but are not limited to, operating results, business strategies, management’s plans and objectives for future
operations, expectations and intentions, actions to be taken by us and other statements that are not historical facts. These forward-
looking statements are based on information available to us as of the date of this proxy statement and our current expectations,
forecasts and assumptions and involve a number of risks and uncertainties that could cause actual results to differ materially from
those anticipated by these forward-looking statements. Such risks and uncertainties include a variety of factors, some of which
are beyond our control. All of the forward-looking statements are qualified in their entirety by reference to the factors discussed
in Part I, Item 1A, “Risk Factors” and elsewhere in our 2016 Annual Report, which accompanies this proxy statement. There
may be other factors of which we are not currently aware that may affect matters discussed in the forward-looking statements and
may cause actual results to differ materially from those discussed. These forward-looking statements should not be relied upon as
representing our views as of any subsequent date, and we are under no obligation to, and expressly disclaim any responsibility to,
update our forward-looking statements, whether as a result of new information, future events or otherwise.
WHETHER OR NOT YOU EXPECT TO ATTEND THE ANNUAL MEETING, YOU ARE REQUESTED TO
COMPLETE, DATE AND SIGN THE PROXY CARD AND RETURN IT PROMPTLY, OR VOTE BY TELEPHONE
OR VIA THE INTERNET BY FOLLOWING THE DIRECTIONS ON THE PROXY CARD. STOCKHOLDERS WHO
ATTEND THE ANNUAL MEETING MAY REVOKE A PRIOR PROXY VOTE AND VOTE THEIR SHARES AS SET
FORTH IN THIS PROXY STATEMENT.
4
PROPOSAL ONE
RE-ELECTION OF CLASS III DIRECTORS
Our Board is currently composed of nine directors and divided into three classes, in accordance with Article IV, Section
B of our Certificate of Incorporation. Only the terms of the three directors serving as Class III directors are scheduled to expire in
2017. The terms of other directors expire in subsequent years.
On April 28, 2011, we and Total Energies Nouvelles Activités USA, SAS, formerly known as Total Gas & Power
USA, SAS (“Total”), a subsidiary of Total S.A. (“Total S.A.”), entered into a Tender Offer Agreement (the “Tender Offer
Agreement”). Pursuant to the Tender Offer Agreement, on June 21, 2011, Total purchased in a cash tender offer approximately
60% of the outstanding shares of our former Class A common stock and 60% of the outstanding shares of our former Class B
common stock (the “Tender Offer”). In connection with the Tender Offer, we and Total entered into an Affiliation Agreement
that governs the relationship between Total and us following the close of the Tender Offer (the “Affiliation Agreement”).
In accordance with the terms of the Affiliation Agreement, our Board has nine members, composed of our Chief Executive
Officer, three non-Total-designated members of the Board, and five directors designated by Total. If the ownership of our
voting power by Total, together with the controlled subsidiaries of Total S.A., declines below certain thresholds, the number
of members of the Board that Total is entitled to designate will be reduced as set forth in the Affiliation Agreement. See
“Certain Relationships and Related Persons Transactions—Agreements with Total Energies Nouvelles Activités USA, SAS and
Total S.A.—Affiliation Agreement.”
The Board has considered and approved the nomination of Helle Kristoffersen, Thomas McDaniel and Thomas Werner, our
current Class III directors, for re-election as directors at the Annual Meeting. Ms. Kristoffersen is a Total-designated director. Mr.
McDaniel is an independent director. Mr. Werner is our President, CEO and Chairman of the Board. Each nominee has consented
to being named in this proxy statement and to serve if re-elected. Unless otherwise directed, the proxy holders will vote the proxies
received by them for the three nominees named below. If any nominee is unable or declines to serve as a director at the time of the
Annual Meeting, the proxies will be voted for any nominee who is designated by the present Board to fill the vacancy. We do not
expect that any nominee will be unable or will decline to serve as a director. The Class III directors elected will hold office until the
annual meeting of stockholders in 2020 or until their successors are elected.
The Class I group of directors consists of Daniel Lauré, Laurent Wolffsheim and Pat Wood III, who will hold office until
the annual meeting of stockholders in 2018 or until their successors are elected. Messrs. Lauré and Wolffsheim are Total-designated
directors. Mr. Wood is an independent director. The Class II group of directors consists of Cathie Lesjak, Ladislas Paszkiewicz and
Julien Pouget, who will hold office until the annual meeting of stockholders in 2019 or until their successors are elected. Ms. Lesjak
is an independent director. Messrs. Paszkiewicz and Pouget are Total-designated directors.
Additional information about the Class III director nominees for re-election and the Class I and Class II directors is set
forth below.
Name
Helle Kristoffersen
Thomas R. McDaniel
Thomas H. Werner
Class III Directors Nominated for Re-Election at the Annual Meeting
Age
53
68
57
Position(s) with
SunPower
Director
Director
President and
CEO, Director and
Chairman of the
Board
Director
Since
2016
2009
2003
Ms. Helle Kristoffersen has served as Senior Vice President, Strategy and Corporate Affairs, Gas, Renewables & Power
segment for Total S.A. since September 2016. From January 2012 to August 2016, she was Senior Vice President, Strategy &
Business Intelligence at the group level of Total S.A. Prior to that, she served as Deputy Vice President of the same department since
January 2011. In 1994, she joined Alcatel, where she spent 16 years and served in particular as Vice President Corporate Strategy of
Alcatel and subsequently Alcatel-Lucent. She currently serves as a director of Orange and PSA Group (Peugeot). Ms. Kristoffersen
served as a director of Valeo from 2007 to 2013. Ms. Kristoffersen is a graduate of the Ecole Normale Supérieure and the Paris
Graduate School of Economics, Statistics and Finance (ENSAE). Ms. Kristoffersen also holds a master’s degree in econometrics
from Université Paris 1.
5
Ms. Kristoffersen brings significant international strategic and business development experience to the Board. Her extensive
experience in the energy and technology industries, including her service on the boards of directors of several international, publicly
listed companies, gives her a valuable perspective on our role in the global marketplace. It is based on the Board’s identification
of these qualifications, skills and experience that the Board has concluded that Ms. Kristoffersen should serve as a director on
our Board.
Mr. Thomas R. McDaniel was Executive Vice President, Chief Financial Officer and Treasurer of Edison International,
a generator and distributor of electric power and investor in infrastructure and energy assets, before retiring in July 2008 after 37
years of service. Before January 2005, Mr. McDaniel was Chairman, Chief Executive Officer and President of Edison Mission
Energy, a power generation business specializing in the development, acquisition, construction, management and operation of
power production facilities. Mr. McDaniel was also Chief Executive Officer and a director of Edison Capital, a provider of capital
and financial services supporting the growth of energy and infrastructure projects, products and services, both domestically and
internationally. Mr. McDaniel has served on our Board since February 2009. He is Chairman of the Board of Tendril, a smart-grid,
software-as-a-service company. Mr. McDaniel is chairman of the board of SemGroup, L.P., a midstream energy services company,
and is also on the advisory board of Cypress Envirosystems, which develops and markets energy efficiency products. He also serves
on the Advisory Board of On Ramp Wireless, a communications company serving electrical, gas and water utilities. Mr. McDaniel
formerly served on the board of directors of the Senior Care Action Network (SCAN) from 2000-2013. Through the McDaniel
Family Foundation, he is also actively involved in a variety of charitable activities such as the Boys and Girls Club of Huntington
Beach, Heifer International and the Free Wheelchair Mission.
Mr. McDaniel brings significant operational and development experience to the Board. Mr. McDaniel’s extensive
experience growing and operating global electric power businesses is directly aligned with our efforts to further develop the utility
and power plant portions of our business. In addition, Mr. McDaniel’s prior experience as a Chief Financial Officer qualifies him
as a financial expert, which is relevant to his duties as an audit committee member. It is based on the Board’s identification of
these qualifications, skills and experience that the Board has concluded that Mr. McDaniel should serve as a director on our Board,
Chairman of the Audit Committee and Chairman of the Finance Committee.
Mr. Thomas H. Werner has served as our President and Chief Executive Officer since May 2010, as a member of our
Board since June 2003, and Chairman of the Board since May 2011. From June 2003 to April 2010, Mr. Werner served as our Chief
Executive Officer. Before joining SunPower, from 2001 to 2003, he held the position of Chief Executive Officer of Silicon Light
Machines, Inc., an optical solutions subsidiary of Cypress Semiconductor Corporation. From 1998 to 2001, Mr. Werner was Vice
President and General Manager of the Business Connectivity Group of 3Com Corp., a network solutions company. He has also held
a number of executive management positions at Oak Industries, Inc. and General Electric Co. Mr. Werner currently serves as a board
member of Cree, Inc., Silver Spring Networks, and the Silicon Valley Leadership Group. Mr. Werner is on the Board of Trustees of
Marquette University. Mr. Werner holds a bachelor’s degree in industrial engineering from the University of Wisconsin–Madison, a
bachelor’s degree in electrical engineering from Marquette University and a master’s degree in business administration from George
Washington University.
Mr. Werner brings significant leadership, technical, operational and financial management experience to the Board.
Mr. Werner provides the Board with valuable insight into management’s perspective with respect to our operations. Mr. Werner
has demonstrated strong executive leadership skills through nearly 20 years of executive officer service with various companies
and brings the most comprehensive view of our operational history over the past several years. Mr. Werner also brings to the
Board leadership experience through his service on the board of directors for three other organizations, which gives him the ability
to compare the way in which management and the boards operate within the companies he serves. It is based on the Board’s
identification of these qualifications, skills and experience that the Board has concluded that Mr. Werner should serve as a director
on our Board and Chairman of the Board.
Class I Directors with Terms Expiring in 2018
Name
Daniel Lauré
Laurent Wolffsheim
Pat Wood III
Age
60
45
54
Position(s) with
SunPower
Director
Director
Director
Director
Since
2016
2016
2005
Mr. Daniel Lauré currently serves as President and CEO of Total New Energies USA Inc. Before taking this position
in March 2016, Mr. Lauré served as Senior Vice President Industrial Assets, Finance & Information Technology from 2012
through 2015. Before that, he held other positions within Total Gas & Power beginning in 2004, including Vice President,
6
Strategy, Markets & IT, and Deputy Director, Renewable Energy, Strategy, Human Resources & Communication. Prior to
those positions, Mr. Lauré held various other positions within the Total Group, where he has been employed since 1988. Mr.
Lauré holds a degree in civil engineering from l’École Nationale des Ponts et Chaussées and a law degree from Université
Panthéon Assas (Paris II).
Mr. Lauré brings significant international managerial and operational experience to the Board. His extensive experience
in the energy industry gives him a valuable perspective on our efforts to manage our business and project development activities.
It is based on the Board’s identification of these qualifications, skills and experience that the Board has concluded that Mr. Lauré
should serve as a director on our Board.
Mr. Laurent Wolffsheim has served as Vice President, Budget & Financial Control for the Total group since February
2014. Before that, he served as Strategic Planning Manager within the Refining & Chemicals division of Total S.A. and Managing
Director of Total Polska Sp. z o.o. Prior to those positions, Mr. Wolffsheim held various other positions within the Total group,
where he has been employed since 1995. Mr. Wolffsheim holds a degree in engineering from the Ecole Centrale de Lyon and a
degree in business administration from École Supérieure des Sciences Économiques et Commerciales.
Mr. Wolffsheim brings significant international strategic and financial management experience to the Board. His extensive
experience in the energy industry gives him a valuable perspective on our financial strategy going forward. It is based on the Board’s
identification of these qualifications, skills and experience that the Board has concluded that Mr. Wolffsheim should serve as a
director on our Board.
Mr. Pat Wood III has served as a Principal of Wood3 Resources, an energy infrastructure developer, since July 2005.
He is active in the development of electric power and natural gas infrastructure assets in North America. From 2001 to 2005 Mr.
Wood served as the Chairman of the Federal Energy Regulatory Commission. From 1995 to 2001, he chaired the Public Utility
Commission of Texas. Mr. Wood has also been an attorney with Baker & Botts, a global law firm, and an associate project engineer
with Arco Indonesia, an oil and gas company, in Jakarta. He currently serves as Chairman of Dynegy, Inc., and is a director of
Quanta Services, Inc. and of Memorial Resource Development Corp. He is a strategic advisor to Hunt Transmission Services/
InfraREIT Capital Partners. Mr. Wood is a past director of the American Council on Renewable Energy and is a member of the
National Petroleum Council.
Mr. Wood brings significant strategic and operational management experience to the Board. Mr. Wood has demonstrated
strong leadership skills through a decade of regulatory leadership in the energy sector. Mr. Wood brings a unique perspective
and extensive knowledge of energy project development, public policy development, governance and the regulatory process.
His legal background also provides the Board with a perspective on the legal implications of matters affecting our business. It
is based on the Board’s identification of these qualifications, skills and experience that the Board has concluded that Mr. Wood
should serve as a director on our Board, Chairman of the Nominating and Corporate Governance Committee and Chairman of
the Compensation Committee.
Class II Directors with Terms Expiring in 2019
Name
Catherine Lesjak
Ladislas Paszkiewicz
Julien Pouget
Age
58
54
40
Position(s) with
SunPower
Director
Director
Director
Director
Since
2013
2016
2017
Ms. Catherine A. Lesjak has served as Executive Vice President and Chief Financial Officer of HP Inc. (formerly Hewlett-
Packard Company) (HP) since January 1, 2007. Ms. Lesjak served as interim Chief Executive Officer of HP from August 2010
through October 2010. As a 30-year veteran at HP, Ms. Lesjak held a broad range of financial leadership roles across HP. Before
being named as CFO, Ms. Lesjak served as Senior Vice President and Treasurer, responsible for managing HP’s worldwide cash,
debt, foreign exchange, capital structure, risk management and benefits plan administration. Earlier in her career at HP, she managed
financial operations for Enterprise Marketing and Solutions and the Software Global Business Unit. Before that, she was group
controller for HP’s Software Solutions Organization and managed HP’s global channel credit risk as controller and credit manager
for the Commercial Customer Organization. Ms. Lesjak has a bachelor’s degree in biology from Stanford University and a master
of business degree in finance from the University of California, Berkeley.
7
Ms. Lesjak’s extensive experience as the chief financial officer of a major corporation, with significant presence in both
the business-to-consumer and business-to-business markets, allows her to make significant contributions to our strategic business
planning and execution. Her background is also valuable in terms of financial oversight and review of our strategic investments.
It is based on the Board’s identification of these qualifications, skills and experience that the Board has concluded that Ms. Lesjak
should serve as a director on our Board.
Mr. Ladislas Paszkiewicz has served as Senior Vice President of Mergers and Acquisitions for Total S.A. since 2015. From
2010 to 2014, he was Senior Vice President, Americas for the Exploration and Production Division of Total S.A. Prior to that, he
served as Senior Vice President, Middle East for the same division from 2007 to 2010. Mr. Paszkiewicz has also served as General
Manager of the Total group’s subsidiary in Argentina, as head of the Investor Relations Department of Total S.A., and in various
other positions in the Total group, which he joined in 1985. Mr. Paszkiewicz holds a master’s degree in business administration from
New York University and a master’s degree in finance from the Insitut d’Etudes Politiques in Paris, France.
Mr. Paszkiewicz brings significant international strategic and business development experience to the Board. His extensive
experience in the energy industry gives him a valuable perspective on the development of our strategy going forward. It is based on
the Board’s identification of these qualifications, skills and experience that the Board has concluded that Mr. Paszkiewicz should
serve as a director on our Board.
Mr. Julien Pouget has served as Senior Vice President of the Renewables division of Total S.A. since January 1, 2017.
From 2014 to 2016, he served as a senior advisor to the President of France, initially responsible for industry, then industry and
digital, and finally for the economy. His responsibilities during this time included the restructuring of the French nuclear industry.
Prior to his service to the president, Mr. Pouget spent six years in various positions at Alstom Power, including as Vice President of
the heat exchangers product line for France, Switzerland, and China, as Vice President and General Manager of Asian activities and
as project leader and as head of engineering for the heat exchangers on the Flamanville 3 EPR nuclear plant in France. From 2001
to 2008, Mr. Pouget held various positions in the French Ministry of Industry, and at the state shareholding agency at the French
Ministry for Finance and Economy. Mr. Pouget is a chief engineer of the prestigious French Corps de Mines and a graduate of the
École Polytechnique.
Mr. Pouget brings significant international managerial and operational experience to the Board. His extensive experience
in the energy industry and in government gives him a valuable perspective on policy and the global energy marketplace. It is based
on the Board’s identification of these qualifications, skills and experience that the Board has concluded that Mr. Pouget should serve
as a director on our Board.
Vote Required
Election of a director requires the affirmative vote of the holders of a plurality of votes represented by the shares in
attendance or represented by proxy at the Annual Meeting and entitled to vote on the election of directors. The three persons
receiving the greatest number of votes at the Annual Meeting shall be elected as Class III directors. Neither “broker non-votes” nor
abstentions will affect the outcome of the voting on this proposal.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE ELECTION TO THE BOARD OF EACH
OF THE CLASS III DIRECTOR NOMINEES.
8
Determination of Independence
BOARD STRUCTURE
Our Board has determined that three of our nine directors, namely Ms. Lesjak and Messrs. McDaniel and Wood, each meet
the standards for independence as defined by applicable listing standards of The NASDAQ Stock Market and rules and regulations
of the SEC. Our Board has also determined that Mr. Werner, our President and Chief Executive Officer, and Messrs. Kristoffersen,
Lauré, Paszkiewicz, Pouget and Wolffsheim, as directors designated by our controlling stockholder Total Energies Nouvelles
Activités USA, SAS, formerly known as Total Gas & Power USA, SAS, pursuant to our Affiliation Agreement with Total, are not
“independent” as defined by applicable listing standards of The NASDAQ Stock Market. There are no family relationships among
any of our directors or executive officers.
Leadership Structure and Risk Oversight
The Board has determined that having a lead independent director assist Mr. Werner, the Chairman of the Board and
Chief Executive Officer, is in the best interest of our stockholders. Mr. Wood has served as the lead independent director of the
Board since June 2012. The Board believes this structure ensures a greater role for the independent directors in the oversight
of our company and encourages active participation of the independent directors in setting agendas and establishing priorities
and procedures for the work of the Board. We believe that this leadership structure also is preferred by a significant number of
our stockholders.
The Board is actively involved in oversight of risks that could affect our company. This oversight is conducted primarily
through committees of the Board, in particular our Audit Committee, as disclosed in the descriptions of each of the committees
below and in the respective charters of each committee. The full Board, however, has retained responsibility for general
oversight of risks. The Board satisfies this responsibility through full reports by each committee chair regarding the committee’s
considerations and actions, as well as through regular reports directly from our officers responsible for oversight of particular
risks within our company.
Board Meetings
Our Board held four regular, quarterly meetings, one annual meeting and six special meetings during fiscal 2016. During
fiscal 2016, each director attended at least 75% of the aggregate number of meetings of the Board and its committees on which such
director served during his or her term. Our independent directors held four executive sessions during regular, quarterly meetings
without management present during fiscal 2016.
Controlled Company, NASDAQ Listing Standards
Since the Tender Offer in June 2011 (including as of March 17, 2017) Total has owned greater than 50% of our outstanding
voting securities and we are therefore considered a “controlled company” within the meaning of The NASDAQ Stock Market
rules. As long as we remain a “controlled company,” we are exempt from the rules that would otherwise require that our Board be
composed of a majority of independent directors and that our Compensation Committee and Nominating and Corporate Governance
Committee be composed entirely of independent directors. This “controlled company” exception does not modify the independence
requirements for the Audit Committee, and we comply with the requirements of the Sarbanes-Oxley Act and The NASDAQ Stock
Market rules that require that our Audit Committee be composed exclusively of independent directors.
9
Board Committees
We believe that good corporate governance is important to ensure that we are managed for the long-term benefit of
our stockholders. Our Board has established committees to ensure that we maintain strong corporate governance standards.
Our Board has standing Audit, Compensation, Finance and Nominating and Corporate Governance Committees. The charters
of our Audit, Compensation, Finance and Nominating and Corporate Governance Committees are available on our website at
http://investors.sunpower.com. You may also request copies of our committee charters free of charge by writing to SunPower
Corporation, 77 Rio Robles, San Jose, California 95134, Attention: Corporate Secretary. Below is a summary of our committee
structure and membership information.
Audit Committee
—
—
Member
Chair
—
—
—
Member
Compensation
Committee
Member
—
—
Member
—
Member
—
Chair
Finance Committee
Member
—
Member
Chair
—
—
Member
—
Nominating
and Corporate
Governance
Committee
—
Member
—
Member
Member
—
—
Chair
Director
Helle Kristoffersen
Daniel Lauré
Catherine Lesjak (I)
Thomas R. McDaniel (I)
Ladislas Paszkiewicz
Julien Pouget
Laurent Wolffsheim
Pat Wood III (I)(*)
(I) Indicates an independent director.
(*) Indicates the lead independent director.
Audit Committee
Mr. McDaniel is the Chairman of the Audit Committee, appointed in June 2012. Our Audit Committee is a separately-
designated standing committee established in accordance with Section 3(a)(58)(A) of the Exchange Act. The Board has determined
that each member of our Audit Committee is “independent” as that term is defined in Section 10A of the Exchange Act and as defined
by applicable listing standards of The NASDAQ Stock Market. Each member of the Audit Committee is financially literate and has
the financial sophistication required by the applicable listing standards of The NASDAQ Stock Market. The Board has determined that
each of Ms. Lesjak and Mr. McDaniel meet the criteria of an “audit committee financial expert” within the meaning of applicable SEC
regulations due to their professional experience. Mr. McDaniel’s and Ms. Lesjak’s relevant professional experience is described above
under “Proposal One—Re-election of Class III Directors.” The Audit Committee held eight meetings during fiscal 2016.
The purpose of the Audit Committee, pursuant to its charter, is, among other things, to:
•
•
•
•
•
•
provide oversight of our accounting and financial reporting processes and the audit of our financial statements and
internal controls by our independent registered public accounting firm;
assist the Board in the oversight of: (1) the integrity of our financial statements; (2) our compliance with legal and
regulatory requirements; (3) the independent registered public accounting firm’s performance, qualifications and
independence; and (4) the performance of our internal audit function;
oversee management’s identification, evaluation and mitigation of major risks to our company;
prepare an audit committee report as required by the SEC to be included in our annual proxy statement;
provide to the Board such information and materials as it may deem necessary to make the Board aware of financial
matters requiring the attention of the Board;
consider questions of actual and potential conflicts of interest (including corporate opportunities) of Board members
and corporate officers and review and approve proposed related party transactions that would be required to be
disclosed under Item 404 of Regulation S-K, provided that any approval of related party transactions may be made
only by the disinterested members of the Audit Committee; and
•
oversee any waiver of the Code of Business Conduct and Ethics for directors and executive officers;
10
The Audit Committee also serves as the representative of the Board with respect to its oversight of the matters described
below in the “Audit Committee Report.” The Audit Committee has established procedures for (1) the receipt, retention and treatment
of complaints received by us regarding accounting, internal accounting controls or auditing matters, and (2) the confidential,
anonymous submission by our employees of concerns regarding accounting or auditing matters. The Audit Committee promptly
reviews such complaints and concerns.
Compensation Committee
Mr. Wood is the Chairman of the Compensation Committee, appointed in November 2012. Two of the four members
of the Compensation Committee, Messrs. McDaniel and Wood, are “independent” as defined by applicable listing standards of
The NASDAQ Stock Market. Ms. Kristoffersen and Mr. Pouget were designated by Total to be on the Compensation Committee
pursuant to our Affiliation Agreement with Total. The Compensation Committee held five meetings during fiscal 2015.
The Compensation Committee, pursuant to its charter, assists the Board in discharging its duties with respect to:
•
•
•
•
the formulation, implementation, review and modification of the compensation of our directors and executive officers;
the preparation of an annual report of the Compensation Committee for inclusion in our annual proxy statement or
Annual Report on Form 10-K, in accordance with applicable rules of the SEC and applicable listing standards of The
NASDAQ Stock Market;
reviewing and discussing with management the Compensation Discussion and Analysis section of our annual proxy
statement or Annual Report on Form 10-K;
oversight of our company compensation philosophy, which may be performance-based, to reward and retain employees
based on achievement of goals; and
•
the administration of our equity incentive plans, including the SunPower Corporation 2015 Omnibus Incentive Plan.
We also have a Section 16/162(m) Subcommittee of the Compensation Committee consisting solely of independent
directors available to approve certain compensation matters in accordance with Section 162(m) of the Internal Revenue Code of
1986, as amended (the Code) and Rule 16b-3 of the Exchange Act, each as recommended by the Compensation Committee.
In certain instances, the Compensation Committee has delegated limited authority to Mr. Werner, in his capacity as a Board
member, with respect to compensation and equity awards for employees other than our executive officers. For more information on
our processes and procedures for the consideration and determination of executive compensation, see “Compensation Discussion
and Analysis” below.
Compensation Committee Interlocks and Insider Participation
No member of our Compensation Committee was at any time during fiscal 2016 one of our officers or employees, or is
one of our former officers or employees. No member of our Compensation Committee had any relationship requiring disclosure
under Item 404 and Item 407(e)(4) of Regulation S-K. Additionally, during fiscal 2016, none of our executive officers or directors
was a member of the board of directors, or any committee of the board of directors, or of any other entity such that the relationship
would be construed to constitute a compensation committee interlock within the meaning of the rules and regulations of the SEC.
Nominating and Corporate Governance Committee
Mr. Wood is the Chairman of our Nominating and Corporate Governance Committee. Two of the four members of the
Nominating and Corporate Governance Committee, Messrs. McDaniel and Wood, are “independent” as defined by applicable listing
standards of The NASDAQ Stock Market. Messrs. Lauré and Paszkiewicz were designated by Total to be on the Nominating and
Corporate Governance Committee pursuant to our Affiliation Agreement with Total. The Nominating and Corporate Governance
Committee held four meetings during fiscal 2016.
The Nominating and Corporate Governance Committee, pursuant to its charter, assists the Board in discharging its
responsibilities with respect to:
•
the identification of individuals qualified to become directors and the selection or recommendation of candidates for
all directorships to be filled by the Board or by the stockholders;
11
•
•
the evaluation of whether an incumbent director should be nominated for re-election to the Board upon expiration of
such director’s term, based upon factors established for new director candidates as well as the incumbent director’s
qualifications, performance as a Board member, and such other factors as the Nominating and Governance Committee
deems appropriate; and
the development, maintenance and recommendation of a set of corporate governance principles applicable to us, and
periodically reviewing such principles.
The Nominating and Governance Committee also considers diversity in identifying nominees for directors. In particular,
the Nominating and Governance Committee believes that the members of the Board should reflect a diverse range of talent, skill and
expertise sufficient to provide sound and prudent guidance with respect to our operations and interests. In addition, the Nominating
and Governance Committee has determined that the Board as a whole must have the right diversity, mix of characteristics and skills
for the optimal functioning of the Board in its oversight role.
The Nominating and Governance Committee believes the Board should be composed of persons with skills in areas such as:
•
•
•
•
•
•
•
•
•
relevant industries, especially solar products and services;
technology manufacturing;
sales and marketing;
leadership of large, complex organizations;
finance and accounting;
corporate governance and compliance;
strategic planning;
international business activities; and
human capital and compensation.
Under our Corporate Governance Principles, during the director nominee evaluation process, the Nominating and Corporate
Governance Committee and the Board take the following into account:
• A significant number of directors on the Board should be independent directors, unless otherwise required by applicable
law or The NASDAQ Stock Market rules;
• Candidates should be capable of working in a collegial manner with persons of different educational, business and
cultural backgrounds and should possess skills and expertise that complement the attributes of the existing directors;
• Candidates should represent a diversity of viewpoints, backgrounds, experiences and other demographics;
• Candidates should demonstrate notable or significant achievement and possess senior-level business, management or
regulatory experience that would inure to our benefit;
• Candidates shall be individuals of the highest character and integrity;
• Candidates shall be free from any conflict of interest that would interfere with their ability to properly discharge their
duties as a director or would violate any applicable law or regulation;
• Candidates for the Audit and Compensation Committees should have the enhanced independence and financial literacy
and expertise that may be required under law or The NASDAQ Stock Market rules;
• Candidates shall be capable of devoting the necessary time to discharge their duties, taking into account memberships
on other boards and other responsibilities; and
• Candidates shall have the desire to represent the interests of all stockholders.
12
Finance Committee
Mr. McDaniel is the Chairman of the Finance Committee. Two of the four members of the Finance Committee, Ms. Lesjak
and Mr. McDaniel, are “independent” as defined by applicable listing standards of The NASDAQ Stock Market. Ms. Kristoffersen
and Mr. Wolffsheim were designated by Total to be on the Finance Committee pursuant to our Affiliation Agreement with Total. The
Finance Committee held five meetings during fiscal 2016.
The Finance Committee, pursuant to its charter, assists the Board in discharging its duties with respect to:
• The review, evaluation and approval of financing transactions, including credit facilities, structured finance, issuance
of debt and equity securities in private and public transactions, sales of project assets or ownership therein to publicly
traded entities in which we have an equity interest greater than 10% or their subsidiaries, and the repurchase of debt
and equity securities (other than financing activity exceeding $50 million which requires the review and approval of
the Board);
• The review of our annual operating plan for recommendation to the Board, and the monitoring of capital spend as
compared with the annual operating plan;
• The review and recommendation to the Board of investments, acquisitions, divestitures and other corporate
transactions; and
• General oversight of our treasury activities, and the review, at least annually, of our counterparty credit risk and
insurance programs.
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Stockholder Communications with Board of Directors
CORPORATE GOVERNANCE
We provide a process by which stockholders may send communications to our Board, any committee of the Board, our
non-management directors or any particular director. Stockholders can contact our non-management directors by sending such
communications to the Chairman of the Nominating and Corporate Governance Committee, c/o Corporate Secretary, SunPower
Corporation, 77 Rio Robles, San Jose, California 95134. Stockholders wishing to communicate with a particular Board member,
a particular Board committee or the Board as a whole, may send a written communication to our Corporate Secretary, SunPower
Corporation, 77 Rio Robles, San Jose, California 95134. The Corporate Secretary will forward such communication to the full
Board, to the appropriate committee or to any individual director or directors to whom the communication is addressed, unless
the communication is unduly hostile, threatening, illegal, or harassing, in which case the Corporate Secretary has the authority to
discard the communication or take appropriate legal action regarding the communication.
Directors’ Attendance at Our Annual Meetings
Although we do not have a formal policy that mandates the attendance of our directors at our annual stockholder meetings,
our directors are encouraged to attend. All of our directors are expected to attend the 2017 Annual Meeting, and eight of our nine
directors attended our annual meeting of stockholders held on April 28, 2016 (the “2016 Annual Meeting”).
Submission of Stockholder Proposals for the 2018 Annual Meeting
As a SunPower stockholder, you may submit a proposal, including director nominations, for consideration at future annual
meetings of stockholders.
Stockholder Proposals. Only stockholders meeting certain criteria outlined in our By-laws are eligible to submit
nominations for election to the Board or to propose other proper business for consideration by stockholders at an annual meeting.
Under the By-laws, stockholders who wish to nominate persons for election to the Board or propose other proper business for
consideration by stockholders at an annual meeting must give proper written notice to us not earlier than the 120th day and not
later than the 90th day before the first anniversary of the preceding year’s annual meeting, provided that in the event that an annual
meeting is called for a date that is not within 25 days before or after such anniversary date, notice by the stockholder in order to
be timely must be received not later than the close of business on the 10th day following the day on which we mail or publicly
announce our notice of the date of the annual meeting, whichever occurs first. Therefore, notices regarding nominations of persons
for election to the Board and proposals of other proper business for consideration at the 2018 annual meeting of stockholders must
be submitted to us no earlier than December 28, 2017 and no later than January 27, 2018. If the date of the 2018 annual meeting
is moved more than 25 days before or after the anniversary date of the 2017 annual meeting, the deadline will instead be the close
of business on the 10th day following notice of the date of the 2018 annual meeting of stockholders or public disclosure of such
date, whichever occurs first. We have discretionary power, but are not obligated, to consider stockholder proposals submitted after
January 27, 2018 for the 2018 annual meeting.
Stockholder proposals will also need to comply with SEC regulations, such as Rule 14a-8 of the Exchange Act regarding
the inclusion of stockholder proposals in any Company-sponsored proxy material. In order to be included in our proxy materials
for the 2017 annual meeting of stockholders, pursuant to Rule 14a-8 of the Exchange Act the submission deadline for stockholder
proposals is November 17, 2017. All written proposals must be received by our Corporate Secretary, at our corporate offices at 77
Rio Robles, San Jose, California 95134 by the close of business on the required deadline in order to be considered for inclusion in
our proxy materials for the 2018 annual meeting of stockholders.
Nomination of Director Candidates. Our Nominating and Corporate Governance Committee will consider director
candidates recommended by our stockholders. Such nominations should be directed to the Nominating and Corporate Governance
Committee, c/o Corporate Secretary, SunPower Corporation, 77 Rio Robles, San Jose, California 95134. In addition, the stockholder
must give notice of a nomination to our Corporate Secretary, and such notice must be received within the time period described
above under “Stockholder Proposals.” Any such proposal must include the following:
•
•
•
•
the name, age, business address, residence address and record address of such nominee;
the principal occupation or employment of such nominee;
the class or series and number of shares of our stock owned beneficially or of record by such nominee;
any information relating to the nominee that would be required to be disclosed in our proxy statement;
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•
the nominee holder for, and number of, shares owned beneficially but not of record by such person;
• whether and the extent to which any hedging or other transaction or series of transactions has been entered into by or
on behalf of, or any other agreement, arrangement or understanding (including any derivative or short positions, profit
interests, options or borrowed or loaned shares) has been made, the effect or intent of which is to mitigate loss to or
manage risk or benefit of share price changes for, or to increase or decrease the voting power of, such person with
respect to any share of our stock;
•
•
•
to the extent known by the stockholder giving the notice, the name and address of any other stockholder supporting
the nominee for election or reelection as a director on the date of such stockholder’s notice;
a description of all arrangements or understandings between or among such persons pursuant to which the nomination(s)
are to be made by the stockholder and any relationship between or among the stockholder giving notice and any person
acting in concert, directly or indirectly, with such stockholder and any person controlling, controlled by or under
common control with such stockholder, on the one hand, and each proposed nominee, on the other hand; and
a representation that the stockholder intends to appear in person or by proxy at the meeting to nominate the persons
named in its notice.
If a director nomination is made pursuant to the process set forth above, the Nominating and Corporate Governance
Committee will apply the same criteria in evaluating the nominee as it would any other board nominee candidate, and will recommend
to the Board whether or not the stockholder nominee should be included as a candidate for election in our proxy statement. The
nominee and nominating stockholder should be willing to provide any information reasonably requested by the Nominating and
Corporate Governance Committee in connection with its evaluation. The Board will make the final determination whether or not a
nominee will be included in the proxy statement and on the proxy card for election.
Once either a search firm selected by the Nominating and Corporate Governance Committee or a stockholder has provided
our Nominating and Corporate Governance Committee with the identity of a prospective candidate, the Nominating and Corporate
Governance Committee communicates the identity and known background and experience of the candidate to the Board. If warranted
by a polling of the Board, members of our Nominating and Corporate Governance Committee and/or other members of our senior
management may interview the candidate. If the Nominating and Governance Committee reacts favorably to a candidate, the
candidate is next invited to interview with the members of the Board who are not on the Nominating and Governance Committee.
The Nominating and Governance Committee then makes a final determination whether to recommend the candidate to the Board
for directorship. The Nominating and Governance Committee currently has not set specific, minimum qualifications or criteria
for nominees that it proposes for Board membership, but evaluates the entirety of each candidate’s credentials. The Nominating
and Governance Committee believes, however, that we will be best served if our directors bring to the Board a variety of diverse
experience and backgrounds and, among other things, demonstrated integrity, executive leadership and financial, marketing or
business knowledge and experience. See “Board Structure—Nominating and Corporate Governance Committee” for factors
considered by the Nominating and Corporate Governance Committee and the Board in considering director nominees.
Corporate Governance Principles
We believe that strong corporate governance practices are the foundation of a successful, well-run company. The Board
has adopted Corporate Governance Principles that set forth our core corporate governance principles, including:
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•
•
•
•
oversight responsibilities of the Board;
election and responsibilities of the lead independent director;
role of Board committees and assignment and rotation of members;
review of the Code of Business Conduct and Ethics and consideration of related party transactions;
independent directors meetings without management and with outside auditors;
• Board’s access to employees;
•
annual review of Board member compensation;
• membership criteria and selection of the Board;
•
annual review of Board performance;
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•
•
•
•
director orientation and continuing education;
stock ownership guidelines for certain of our executive officers and directors;
annual review of performance and compensation of executive officers; and
succession planning for key executive officers.
Our Corporate Governance Principles are available on our website at http://investors.sunpower.com.
Code of Business Conduct and Ethics; Related Persons Transactions Policy and Procedures
It is our general policy to conduct our business activities and transactions with the highest level of integrity and ethical
standards and in accordance with all applicable laws. In addition, it is our policy to avoid situations that create an actual or potential
conflict between our interests and the personal interests of our officers and directors. Such principles are described in our Code
of Business Conduct and Ethics. Our Code of Business Conduct and Ethics is applicable to our directors, officers, and employees
(including our principal executive officer, principal financial officer and principal accounting officer) and is designed to promote
compliance with the laws applicable to our business, accounting standards, and proper and ethical business methods and practices.
Our Code of Business Conduct and Ethics is available on our website at http://investors.sunpower.com/corporate-governance.cfm
under the link for “Code of Business Conduct and Ethics.” You may also request a copy by writing to us at SunPower Corporation,
77 Rio Robles, San Jose, California 95134, Attention: Corporate Secretary. If we amend our Code of Business Conduct and Ethics
or grant a waiver applicable to our principal executive officer, principal financial officer or principal accounting officer, we will
post a copy of such amendment or waiver on our website. Under our Corporate Governance Principles, the Audit Committee is
responsible for reviewing and recommending changes to our Code of Business Conduct and Ethics.
Pursuant to our Corporate Governance Principles and our Audit Committee Charter, our Audit Committee will consider
questions of actual and potential conflicts of interest (including corporate opportunities) of directors and officers, and approve or
prohibit such transactions. The Audit Committee will review and approve in advance all proposed related-party transactions that
would be required to be disclosed under Item 404 of Regulation S-K, in compliance with the applicable NASDAQ Stock Market
rules. A related-party transaction will only be approved if the Audit Committee determines that it is in our best interests. If a director
is involved in the transaction, he or she will be recused from all voting and approval processes in connection with the transaction.
Certain Relationships and Related Persons Transactions
Other than the compensation agreements and other arrangements described herein, and the transactions described below,
since the start of our last fiscal year on January 4, 2016, there has not been, nor is there currently proposed, any transaction or series
of similar transactions to which we have been or will be a party:
•
•
in which the amount involved exceeded or will exceed $120,000; and
in which any director, director nominee, executive officer, beneficial owner of more than 5% of any class of our
common stock, or any immediate family member of such persons had or will have a direct or indirect material interest.
Agreements with Total Energies Nouvelles Activités USA, SAS and Total S.A.
Credit Support Agreement
In connection with the Tender Offer, on April 28, 2011, we entered into a Credit Support Agreement with Total S.A.
Pursuant to the Credit Support Agreement, subject to the terms and conditions described below, Total S.A., as “Guarantor” agreed
to enter into one or more guarantee agreements (each a “Guaranty”) with banks providing letter of credit facilities to us or our
subsidiaries in support of our utility and power plant (“UPP”) and large commercial portion of the residential and commercial
segment (“LComm”) businesses and certain other permitted purposes. Pursuant to such Guarantees, Guarantor would guarantee the
payment to the applicable bank of our obligation to reimburse a draw on a letter of credit and pay interest thereon in accordance
with the letter of credit facility between such bank and us. The Credit Support Agreement became effective on June 28, 2011 (the
“CSA Effective Date”), was amended on June 7, 2011, December 12, 2011 and December 14, 2012, and was amended and restated
on June 29, 2016.
Under the Credit Support Agreement, at any time from the CSA Effective Date until the fifth anniversary thereof, we could
request that Guarantor provide a Guaranty with respect to a letter of credit facility. Guarantor was required to issue and enter into
the Guaranty requested by us subject to certain terms and conditions, any of which could be waived by Total S.A. The aggregate
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letter of credit amount could not exceed $1 billion for the period from January 1, 2016 through the termination of the Credit Support
Agreement (the “Maximum L/C Amount”), subject to certain adjustments.
Payments to be Paid by us to the Guarantor. In consideration for the commitments of Guarantor, we were required to
pay Guarantor a guarantee fee, repay any payments made under any Guaranty plus interest, and pay certain expenses of Guarantor
and interest on overdue amounts owed to Guarantor. The guarantee fee for each letter of credit that was the subject of a Guaranty
and was outstanding for all or part of the preceding calendar quarter was equal to: (w) the average daily amount of the undrawn
amount of such letter of credit plus the amount drawn on such letter of credit that had not yet been reimbursed by us or Guarantor,
(x) multiplied by 2.35% for letters of credit issued or extended from the fourth anniversary of the CSA Effective Date until the fifth
anniversary of the CSA Effective Date, (y) multiplied by the number of days that such letter of credit was outstanding, (z) divided
by 365. We were required to reimburse payments made by Guarantor under any Guaranty within 30 days plus interest at a rate
equal to LIBOR (as in effect as of the date of Guarantor’s payment) plus 3.00%. The expenses of Guarantor to be reimbursed by
us included reasonable out-of-pocket expenses incurred after the CSA Effective Date in the performance of its services under the
Credit Support Agreement and reasonable out-of-pocket attorneys’ fees and expenses incurred in connection with payments to a
bank under a Guaranty or enforcement of any of our obligations. Overdue payment obligations accrued interest at a rate per annum
equal to LIBOR as in effect at such time such payment was due plus 5.00%. Finally, we were solely responsible for any bank fees
incurred in connection with securing any letter of credit facilities
Benchmark Credit Terms. Annually not later than every June 30, and also at any time we desired to obtain a letter of credit
facility that would be the subject of a Guaranty, we were required to solicit benchmark credit terms for a letter of credit facility
without a Guaranty from Guarantor and without collateral and report those benchmark terms to Guarantor. If (a) the annual fees
payable by us on the issued amount of a letter of credit under a proposed letter of credit facility that was not guaranteed by Guarantor
were equal to or less than 110% of the annual fees plus any applicable guarantee fee payable to Guarantor pursuant to a guaranteed
letter of credit facility under the Credit Support Agreement, (b) the other fees payable under such non-guaranteed letter of credit
facility were reasonable in light of the fees payable under a guaranteed letter of credit facility and the anticipated uses of such non-
guaranteed letter of credit facility and (c) the other terms and conditions of such non-guaranteed letter of credit facility (including
restrictive covenants) were reasonable in light of the anticipated use of such non-guaranteed letter of credit facility, then (i) we
were required to enter into such non-guaranteed letter of credit facility as soon as commercially reasonable, (ii) we were required
to reduce the commitments under guaranteed letter of credit facilities in an amount equal to such non-guaranteed letter of credit
facility and (iii) so long as such non-guaranteed letter of credit facility remained in effect, the Maximum L/C Amount during such
period was reduced by the maximum aggregate amount of the letters of credit that could be issued pursuant to such non-guaranteed
letter of credit facility.
Covenants of SunPower. Under the Credit Support Agreement, we agreed to undertake certain actions, including, but not
limited to, ensuring that our payment obligations to Guarantor ranked at least equal in right of payment with all of our other present
and future indebtedness, other than certain permitted secured indebtedness. We agreed to refrain from taking certain actions as
detailed in the Credit Support Agreement, including (1) amending any agreements related to any guaranteed letter of credit facility,
(2) granting any lien to secure indebtedness unless (a) an identical lien was granted to Guarantor and (b) such other lien was at all
times equal or subordinate to the priority of the lien granted to Guarantor under (a), and (3) making any equity distributions.
Trigger Events. Under the Credit Support Agreement, following a Trigger Event (as defined in the agreement and described
below), and during its continuation, Guarantor could elect not to enter into any additional Guarantees; declare all or any portion of
the outstanding amounts owed by us to Guarantor to be due and payable; direct banks that had provided guaranteed letter of credit
facilities to stop all issuances of any additional letters of credit under such facilities; access and inspect our relevant financial records
and other documents upon reasonable notice to us; and exercise all other rights it may have had under applicable law, provided that
at its discretion Guarantor could also rescind such actions.
Each of the following events constituted a “Trigger Event”:
• we defaulted with respect to our reimbursement obligations to Guarantor described above or any other payment
obligation under the Credit Support Agreement that was 30 days overdue for which Guarantor had demanded payment
in writing;
•
any representation or warranty made by us in the Credit Support Agreement was false, incorrect, incomplete or
misleading in any material respect when made and had not been cured within 15 days after notice thereof by Guarantor;
• we failed, and continued to fail for 15 days, to observe or perform any material covenant, obligation, condition or
agreement in the Credit Support Agreement;
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• we defaulted in the observance or performance of any agreement, term or condition contained in a guaranteed letter
of credit facility that would constitute an event of default or similar event thereunder (other than an obligation to pay
any amount, the payment of which was guaranteed by Guarantor), up to or beyond any grace period provided in such
facility, unless waived by the applicable bank and Guarantor;
• we or any of our subsidiaries defaulted in the observance or performance of any agreement, term or condition contained
in any bond, debenture, note or other indebtedness such that the holders of such indebtedness could accelerate the
payment of $25 million or more of such indebtedness; and
•
certain bankruptcy or insolvency events.
Termination. The Credit Support Agreement was scheduled to 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. The Credit Support Agreement was amended and restated on June 29, 2016.
Amended and Restated Credit Support Agreement
On June 29, 2016, we and Total S.A. entered into an Amended and Restated Credit Support Agreement (the “A&R Credit
Support Agreement”), which amended and restated the Credit Support Agreement.
Under the A&R Credit Support Agreement, Total S.A. has agreed to enter into one or more Guaranties with banks
providing letter of credit facilities to us in support of certain of our businesses and for other permitted purposes. Total S.A. will
guarantee the payment to the applicable issuing bank of our obligation to reimburse a draw on a letter of credit and pay interest
thereon in accordance with the letter of credit facility between such bank and us. The A&R Credit Support Agreement became
effective on June 29, 2016 (the “A&R CSA Effective Date”). Under the Credit Support Agreement, at any time from the A&R
CSA Effective Date until December 31, 2018, we may request that Total S.A. provide a Guaranty in support of our payment
obligations with respect to a letter of credit facility. Such letters of credit must be issued no later than December 31, 2018 and
expire no later than March 31, 2020. Total S.A. is required to issue and enter into the Guaranty requested by us, subject to certain
terms and conditions. In addition, Total S.A. will not be required to enter into the Guaranty if, after giving effect to our request
for a Guaranty, the sum of (a) the aggregate amount available to be drawn under all guaranteed letter of credit facilities, (b) the
amount of letters of credit available to be issued under any guaranteed facility, and (c) the aggregate amount of draws (including
accrued but unpaid interest) on any letters of credit issued under any guaranteed facility that have not yet been reimbursed by
us, would exceed $500 million in the aggregate. Such maximum amounts of credit support available to us can be reduced upon
the occurrence of specified events.
In consideration for the commitments of Total S.A. pursuant to the A&R Credit Support Agreement, we are required to
pay Total S.A. a guaranty fee for each letter of credit that is the subject of a Guaranty and was outstanding for all or part of the
preceding calendar quarter, which fee (applied on a tiered basis) will be equal to: (x) the average daily amount of the undrawn
amount outstanding on each guaranteed letter of credit plus any drawn amounts that have not been reimbursed by us or Total
S.A., (y) multiplied by (1) 2.35% for letters of credit issued or extended if our leverage ratio (subject to reduction or increase
consistent with the minimum leverage covenant set forth in the Revolving Credit Agreement among us, Crédit Agricole Corporate
and Investment Bank (“Crédit Agricole”), as agent, and the lenders party thereto, as amended from time to time) (the “Leverage
Ratio”) is less than or equal to 4.5 to 1.0; or (2) if the Leverage Ratio is greater than 4.5 to 1.0, 2.35% for letters of credit issued or
extended for amounts less than $200 million; 4.50% for amounts greater than or equal to $200 million and less than $300 million;
6.50% for amounts greater than or equal to $300 million and less than $400 million; and 8.00% for amounts greater than or equal
to $400 million and less than or equal to $500 million (z) multiplied by the number of days during such calendar quarter that such
letter of credit was outstanding, divided by 365. As an example, if at the end of a fiscal quarter our leverage ratio is greater than 4.5
to 1.0 and we had $250 million in letters of credit outstanding during 50 days of the preceding calendar quarter, the guarantee fee
would be equal to $0.95 million (($200 million * 2.35% + $50 million * 4.5%) * 50/365). In addition, we are required to pay Total
S.A. a commitment fee equal to 0.50% times the average daily available facility amount for the preceding calendar quarter. We are
also required to reimburse Total S.A. for payments made under any Guaranty and certain expenses of Total S.A., plus interest on
both. In fiscal 2016, we incurred guaranty fees of approximately $7.1 million to Total S.A. under the Credit Support Agreement and
the A&R Credit Support Agreement.
We have agreed to undertake certain actions, including, but not limited to, ensuring that our payment obligations to Total
S.A. rank at least equal in right of payment with all of our other present and future indebtedness, other than certain permitted
secured indebtedness. We have also agreed to refrain from taking certain actions, including refraining from making any dividend
distributions so long as it has any outstanding repayment obligation to Total S.A. resulting from a draw on a guaranteed letter
of credit.
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The A&R Credit Support Agreement will terminate following December 31, 2018, after the later of the satisfaction of all
obligations thereunder and the termination or expiration of each Guaranty provided thereunder.
The A&R Credit Support Agreement may not be assigned by us without the prior written consent of Total S.A. Total
S.A., as the initial guarantor (but not any assignee of Total S.A.), may assign its rights and obligations under the A&R Credit
Support Agreement without our consent to an entity that is a Total S.A. subsidiary and which satisfies certain credit requirements.
In connection with an assignment to an assignee that is rated lower than A/A2, Total S.A. would be required to either (a) pay to
us an assignment fee equal to $10 million as of June 29, 2016 and reduced by $1 million at the beginning of each calendar quarter
thereafter until reduced to zero (for example, the fee payable for an assignment on March 17, 2017 would be $7 million) or (b) agree
to pay us a make-whole amount based on a calculation of the amount actually paid by us to banks that are party to letter of credit
facilities (both guaranteed and non-guaranteed) and to lenders in revolving credit facilities permitted under the A&R Credit Support
Agreement in increased costs as a result of Total S.A.’s assignment of its rights and obligations under the A&R Credit Support
Agreement. Such make-whole amount would be payable on a quarterly basis from the assignment date through the termination date
of the A&R Credit Support Agreement.
Under the A&R Credit Support Agreement, we have agreed to undertake certain actions, including, but not limited to,
ensuring that our payment obligations to Total S.A. rank at least equal in right of payment with all of our other present and future
indebtedness, other than certain permitted secured indebtedness. We also agreed to refrain from taking certain actions as detailed in
the A&R Credit Support Agreement, including (1) amending any agreements related to any guaranteed letter of credit facility, (2)
granting any lien to secure indebtedness unless (a) an identical lien was granted to Total S.A. and (b) such other lien was at all times
equal or subordinate to the priority of the lien granted to Total S.A. under (a), and (3) making any equity distributions.
Under the A&R Credit Support Agreement, following a Trigger Event (as defined in the agreement and described below),
and during its continuation, Total S.A. could elect not to enter into any additional Guarantees; declare all or any portion of the
outstanding amounts owed by us to Total S.A. to be due and payable; direct banks that had provided guaranteed letter of credit
facilities to stop all issuances of any additional letters of credit under such facilities; access and inspect our relevant financial records
and other documents upon reasonable notice to us; and exercise all other rights it may have had under applicable law, provided that
at its discretion Total S.A. could also rescind such actions.
Each of the following events constitute a “Trigger Event”:
• we default with respect to our reimbursement obligations to Total S.A. described above or any other payment obligation
under the A&R Credit Support Agreement that is 30 days overdue for which Total S.A. demands payment in writing;
•
any representation or warranty made by us in the A&R Credit Support Agreement was false, incorrect, incomplete or
misleading in any material respect when made and is not cured within 15 days after notice thereof by Total S.A.;
• we fail, and continued to fail for 15 days, to observe or perform any material covenant, obligation, condition or
agreement in the A&R Credit Support Agreement;
• we default in the observance or performance of any agreement, term or condition contained in a guaranteed letter of
credit facility that would constitute an event of default or similar event thereunder (other than an obligation to pay
any amount, the payment of which was guaranteed by Total S.A.), up to or beyond any grace period provided in such
facility, unless waived by the applicable bank and Total S.A.;
• we or any of our subsidiaries default in the observance or performance of any agreement, term or condition contained
in any bond, debenture, note or other indebtedness such that the holders of such indebtedness could accelerate the
payment of $25 million or more of such indebtedness; and
•
certain bankruptcy or insolvency events.
Affiliation Agreement
In connection with the Tender Offer, we and Total entered into an affiliation agreement (the “Affiliation Agreement”). The
Affiliation Agreement was amended on June 7, 2011, December 12, 2011, February 28, 2012 and August 10, 2012. The Affiliation
Agreement governs the relationship following the closing of the Tender Offer between SunPower, on the one hand, and Total S.A.,
Total, any other affiliate of Total S.A. and any member of a group of persons formed for the purpose of acquiring, holding, voting,
disposing of or beneficially owning our voting stock of which Total S.A. or any of its affiliates is a member (the “Total Group”),
on the other hand.
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Standstill. Following the closing of the Tender Offer and during the Standstill Period (as defined below), Total, Total S.A.,
and the Total Group may not:
•
•
effect or seek, or announce any intention to effect or seek, any transaction that would result in the Total Group
beneficially owning shares in excess of the Applicable Standstill Limit (as defined below), or take any action that
would require us to make a public announcement regarding the foregoing;
request that (i) we, (ii) our Board members that are independent directors and not appointed to the Board by Total
(the “Disinterested Directors”), or (iii) our officers or employees, amend or waive any of the standstill restrictions
applicable to the Total Group described above; or
•
enter into any discussions with any third party regarding any of the foregoing.
In addition, no member of the Total Group may, among other things, solicit proxies relating to the election of directors to
our Board without the prior approval of the Disinterested Directors.
The Total Group is, however, permitted to either (i) make and consummate a Total Tender Offer or (ii) propose and effect
a Total Merger so long as, in each case, Total complies with certain advance notice and prior negotiation obligations, including
providing written notice to us at least 120 days before commencing or proposing such Total Tender Offer or Total Merger and
making its designees reasonably available for the purpose of negotiation with the Disinterested Directors concerning such Total
Tender Offer or Total Merger.
The “Standstill Period” is the period beginning on the date of the Affiliation Agreement and ending on the earlier to occur of:
•
•
a change of control of our company;
the first time that the Total Group beneficially owns less than 15% of outstanding voting power of our company;
• we or our Board take or fail to take certain of the actions described below under “—Events Requiring Stockholder
Approval by Total” or fail to comply with certain of the covenants described below under “—Covenants of Total and
SunPower” during the time when Total, together with the controlled subsidiaries of Total S.A., owns 50% or less of
the outstanding voting power of our company or 40% or less of the outstanding voting power of our company when at
least $100 million in Guarantees are outstanding under the Credit Support Agreement;
•
a tender offer for at least 50% of the outstanding voting power of our company is commenced by a third party after
the time when Total, together with the controlled subsidiaries of Total S.A. owns 50% or less of the outstanding voting
power of our company or 40% or less of the outstanding voting power of our company when at least $100 million in
Guarantees are outstanding under the Credit Support Agreement; and
•
the termination of the Affiliation Agreement.
The “Applicable Standstill Limit” is 70% of the lower of (i) the then outstanding shares of our common stock or (ii) the
then outstanding voting power of our company.
During the Standstill Period, the Total Group will not be in breach of its standstill obligations described above if any
member of the Total Group holds beneficial ownership of shares of our common stock in excess of the Applicable Standstill Limit
solely as a result of:
•
•
•
recapitalizations, repurchases or other actions taken by us or our controlled subsidiaries that have the effect of reducing
the number of shares of our common stock then outstanding;
the issuance of shares of our common stock to Total in connection with the acquisition of Tenesol SA; or
the rights specified in any “poison pill” share purchase rights plan having separated from the shares of our common
stock and a member of the Total Group having exercised such rights.
Transfer of Control. If any member or members of the Total Group seek to transfer, in one or a series of transactions, either
(i) 40% or more of the outstanding shares of our common stock or (ii) 40% or more of the outstanding voting power of our company
to a single person or group, then such transfer must be conditioned on, and may not be effected, unless the transferee either:
• makes a tender offer to acquire 100% of the voting power of our company, at the same price per share of voting stock
and using the same form of consideration to be paid by the transferee to the Total Group; or
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proposes a merger providing for the acquisition of 100% of the voting power of our company, at the same price per
share of voting stock and using the same form of consideration to be paid by the transferee to the Total Group.
Total’s Rights to Maintain. The Total Group has the following rights to maintain its ownership in us until (i) the first time
that the Total Group owns less than 40% of the outstanding voting power of our company, or (ii) until the first time that Total
transfers shares of our common stock to a person other than Total S.A. or a controlled subsidiary of Total S.A. and as a result of such
transfer Total S.A. and its subsidiaries own less than 50% of the outstanding voting power of our company.
If we propose to issue new securities primarily for cash in a financing transaction, then Total has the right to purchase a
portion of such new securities equal to its percentage ownership in us. Total can also elect to purchase our securities in open market
transactions or through privately-negotiated transactions in an amount equal to its percentage ownership in connection with such
issuance of new securities. If we propose to issue new securities in consideration for our purchase of a business or assets of a
business, then Total has the right to purchase additional securities in the open market or through privately-negotiated transactions
equal to its percentage ownership in us. Total has similar rights in the event that we issue or propose to issue (including pursuant to
our equity plans or as the result of the conversion of our convertible securities) securities that, together with all other issuances of
securities by us since the end of the preceding fiscal quarter aggregate to more than 1% of our fully diluted equity. Total has a nine-
month grace period, subject to certain extensions to satisfy regulatory conditions, to acquire securities in the open market or through
privately-negotiated transactions in connection with any of the securities issuances described above.
SunPower Board. The Affiliation Agreement provides that Total is entitled to designate nominees to our Board, subject to
the maintenance of certain ownership thresholds described below. See “Proposal One” above for more details on our current Board
membership.
So long as Total, together with the controlled subsidiaries of Total S.A., owns at least 10% of the outstanding voting power
of our company, then our Board must use its reasonable best efforts to elect the directors designated by Total as follows:
•
•
•
•
•
until the first time that Total, together with the controlled subsidiaries of Total S.A., owns less than 50% of the voting
power of our company, Total will be entitled to designate five nominees to serve on our Board;
until the first time that Total, together with the controlled subsidiaries of Total S.A., owns less than 50% but not less
than 40% of the voting power of our company, Total will be entitled to designate four nominees to serve on our Board;
until the first time that Total, together with the controlled subsidiaries of Total S.A., owns less than 40% but not less
than 30% of the voting power of our company, Total will be entitled to designate three nominees to serve on our Board;
until the first time that Total, together with the controlled subsidiaries of Total S.A., owns less than 30% but not less
than 20% of the voting power of our company, Total will be entitled to designate two nominees to serve on our Board;
and
until the first time that Total, together with the controlled subsidiaries of Total S.A., owns less than 20% but not less
than 10% of the voting power of our company, Total will be entitled to designate one nominee to serve on our Board.
For as long as they are serving on our Board, the directors designated by Total will be allocated across the three classes that
comprise our Board in a manner as equal as practicable.
Subject to the listing standards of The NASDAQ Stock Market, until the first time that Total, together with the controlled
subsidiaries of Total S.A., owns less than 30% of the outstanding voting power of our company:
•
•
the Audit Committee will be composed of three Disinterested Directors;
the Compensation Committee and the Nominating and Governance Committee will each be composed of two
Disinterested Directors and two directors designated by Total; and
•
any other standing committee will be composed of two Disinterested Directors and two directors designated by Total.
Until the first time that Total, together with the controlled subsidiaries of Total S.A., own less than 10% of the outstanding
voting power of our company, a representative of Total will, subject to certain exceptions, be permitted to attend all meetings of our
Board or any committee thereof in a non-voting, observer capacity (other than any committee whose sole purpose is to consider
a transaction for which there exists an actual conflict of interest between the Total Group, on the one hand, and us and any of our
affiliates, on the other hand).
21
Events Requiring Specific Board Approval. At any time when Total, together with the controlled subsidiaries of Total S.A.,
owns at least 30% of the outstanding voting power of our company, neither the Total Group nor we (or any of our affiliates) may
effect any of the following without first obtaining the approval of a majority of the Disinterested Directors:
•
•
•
•
•
•
•
•
•
•
any amendment to our Certificate of Incorporation or By-laws;
any transaction that, in the reasonable judgment of the Disinterested Directors, involves an actual conflict of interest
between the Total Group, on the one hand, and us and any of our affiliates, on the other hand;
the adoption of any shareholder rights plan or the amendment or failure to renew our existing shareholder rights plan;
except as provided above, the commencement of any tender offer or exchange offer by the Total Group for shares of
our common stock or securities convertible into shares of our common stock, or the approval of a merger of us or any
company that we control with a member of the Total Group;
any voluntary dissolution or liquidation of our company or any company that we control;
any voluntary bankruptcy filing by us or any company that we control or the failure to oppose any other person’s
bankruptcy filing or action to appoint a receiver of our company or any company that we control;
any delegation of all or a portion of the authority of our Board to any committee thereof;
any amendment, modification or waiver of any provision of the Affiliation Agreement;
any modification of, or action with respect to, director’s and officer’s insurance coverage; or
any reduction in the compensation of the Disinterested Directors.
Events Requiring Supermajority Board Approval. At any time when Total, together with the controlled subsidiaries
of Total S.A., owns at least 30% of the outstanding voting power of our company, neither Total nor we (nor any of Total’s
or our affiliates, respectively) may, without first obtaining the approval of two-thirds of our directors (including at least one
Disinterested Director), effect any approval or adoption of our annual operating plan or budget that has the effect of reducing the
planned letter of credit utilization in any given year by more than 10% below the applicable maximum letter of credit amount in
the Credit Support Agreement.
Events Requiring Stockholder Approval by Total. Until the first time that Total, together with the controlled subsidiaries of
Total S.A., owns 50% or less of the outstanding voting power of our company or 40% or less of the outstanding voting power of our
company when at least $100 million in Guarantees are outstanding pursuant to the Credit Support Agreement and, thereafter, for
so long as (1) any loans by Total S.A. to us remain outstanding, (2) any guarantees by Total S.A. of any of our indebtedness remain
outstanding, or (3) any other continuing obligation of Total S.A. to or for the benefit of us remain outstanding (“Total Stockholder
Approval Period”), neither we (including any of our controlled subsidiaries) nor our Board may effect any of the following without
first obtaining the approval of Total:
•
•
•
•
•
any amendment to our Certificate of Incorporation or By-laws;
any transaction pursuant to which we or any company that we control acquires or otherwise obtains the ownership
or exclusive use of any business, property or assets of a third party if as of the date of the consummation of such
transaction the aggregate net present value of the consideration paid or to be paid exceeds the lower of (i) 15% of our
then-consolidated total assets or (ii) 15% of our market capitalization;
any transaction pursuant to which a third party obtains ownership or exclusive use of any of our business, property or
assets or those of any company that we control if as of the date of the consummation of such transaction the aggregate
net present value of the consideration received or to be received exceeds the lower of (i) 10% of our then-consolidated
total assets or (ii) 10% of our market capitalization;
the adoption of any shareholder rights plan or certain changes to our existing shareholder rights plan;
except for the incurrence of certain permitted indebtedness, the incurrence of additional indebtedness in excess of the
difference, if any, of 3.5 times our LTM EBITDA (as defined in the Affiliation Agreement) less our Outstanding Gross
Debt (as defined in the Affiliation Agreement);
•
subject to certain exceptions, any voluntary dissolution or liquidation of our company or any company that we control;
22
•
any voluntary bankruptcy filing by us or any company that we control or the failure to oppose any other person’s
bankruptcy filing or action to appoint a receiver of our company or any company that we control; or
•
any repurchase of our common stock.
Certain Matters Related to SunPower’s Shareholder Rights Plan. Until the Total Group beneficially owns less than 15%
of the outstanding voting power of our company, neither we nor our Board is permitted to adopt any shareholder rights plan or make
certain changes to our existing shareholder rights plan without the approval of Total.
Covenants of Total and SunPower. In order to effect the transactions contemplated by the Affiliation Agreement, each of
Total and we have committed to taking certain actions. With respect to us, such actions include:
•
•
•
amending our By-laws to provide that the Total Group may call a special meeting of stockholders in certain circumstances;
taking certain actions to exculpate Total S.A., Total, any controlled subsidiary of Total S.A. and those of our directors
designated by Total from corporate opportunities, to the fullest extent permitted by applicable law;
taking certain actions to render Delaware’s business combination statute inapplicable to the Total Group and certain
future transferees of the Total Group;
• making certain amendments to our shareholder rights plan, including excluding the Total Group from the definition of
“Acquiring Person” under such plan;
•
renewing our existing shareholder rights plan so long as the Total Group beneficially owns at least 15% of our
outstanding voting power; and
•
providing Total with certain of our financial information from time to time.
Termination. The Affiliation Agreement generally terminates upon the earlier to occur of (i) Total, together with the
controlled subsidiaries of Total S.A., owning less than 10% of the outstanding voting power of our company or (ii) Total, together
with the controlled subsidiaries of Total S.A., owning 100% of the outstanding voting power of our company.
Affiliation Agreement Guaranty
Total S.A. entered into a guaranty (the “Affiliation Agreement Guaranty”) in connection with the Tender Offer and
entry into the Affiliation Agreement, pursuant to which Total S.A. unconditionally guarantees the full and prompt payment of
Total S.A.’s, Total’s and each Total S.A. controlled company’s payment obligations under the Affiliation Agreement and the
full and prompt performance of their respective representations, warranties, covenants, duties and agreements contained in
the Affiliation Agreement.
Research & Collaboration Agreement
In connection with the Tender Offer, we and Total entered into a Research & Collaboration Agreement (the “R&D
Agreement”) that established a framework under which the parties could engage in long-term research and development collaboration
(the “R&D Collaboration”). The R&D Collaboration encompassed a number of different projects (“R&D Projects”), with a focus on
advancing technology in the area of photovoltaics. The primary purpose of the R&D Collaboration was to: (i) maintain and expand
our technology position in the crystalline silicon domain; (ii) ensure our industrial competitiveness; and (iii) guarantee a sustainable
position for both us and Total to be best-in-class industry players.
The R&D Agreement contemplated a joint committee (the “R&D Strategic Committee”) that identified, planned and
managed the R&D Collaboration. Due to the impracticability of anticipating and establishing all of the legal and business terms that
would be applicable to the R&D Collaboration or to each R&D Project, the R&D Agreement set forth broad principles applicable
to the parties’ potential R&D Collaboration, and the R&D Collaboration Committee established the particular terms governing each
particular R&D Project consistent with the terms set forth in the R&D Agreement. In fiscal 2016, Total contributed $0.6 million to
us under the R&D Agreement.
Registration Rights Agreement
In connection with the Tender Offer, we and Total entered into a customary registration rights agreement (the “Registration
Rights Agreement”) related to Total’s ownership of shares of our common stock. The Registration Rights Agreement provides Total
with shelf registration rights, subject to certain customary exceptions, and up to two demand registration rights in any 12-month
23
period, also subject to certain customary exceptions. Total also has certain rights to participate in any registrations of securities that
we initiate. We will generally pay all costs and expenses we incur and that Total incurs in connection with any shelf or demand
registration (other than selling expenses incurred by Total). We and Total have also agreed to certain indemnification rights under
the agreement. The Registration Rights Agreement terminates on the first date on which: (i) the shares held by Total constitute less
than 5% of our then-outstanding common stock; (ii) all of our securities held by Total may be immediately resold pursuant to Rule
144 promulgated under the Exchange Act during any 90-day period without any volume limitation or other restriction; or (iii) we
cease to be subject to the reporting requirements of the Exchange Act.
The Registration Rights Agreement was amended on May 29, 2013, in connection with the issuance of our 0.75% Senior
Convertible Debentures due 2018, to provide that convertible debentures and our common stock underlying such debentures are
“registrable securities” within the meaning of the Registration Rights Agreement.
Stockholder Rights Plan
On April 28, 2011, before the execution of the Tender Offer Agreement, we entered into an amendment (the “Rights
Agreement Amendment”) to the Rights Agreement, dated August 12, 2008, by and between us and Computershare Trust Company,
N.A., as Rights Agent (the “Rights Agreement”), in order to, among other things, render the rights therein inapplicable to each of:
(i) the approval, execution or delivery of the Tender Offer Agreement; (ii) the commencement or consummation of the Tender Offer;
(iii) the consummation of the other transactions contemplated by the Tender Offer Agreement and the related agreements; and (iv)
the public or other announcement of any of the foregoing.
On June 14, 2011, we entered into a second amendment to the Rights Agreement (the “Second Rights Agreement
Amendment”), in order to, among other things, exempt Total, Total S.A. and certain of their affiliates and certain members of a
group of which they may become members from the definition of “Acquiring Person” thereunder, such that the rights issuable
pursuant to the Rights Agreement will not become issuable in connection with the completion of the Tender Offer.
By-laws Amendment
On June 14, 2011, our Board approved amendments of our By-laws as required under the Affiliation Agreement. The
amendments: (i) allow any member of the Total Group to call a meeting of stockholders for the sole purpose of considering and
voting on a proposal to effect a Total Merger or a Transferee Merger (as defined in the Affiliation Agreement); (ii) provide that the
number of directors of our Board shall be determined from time to time by resolution adopted by the affirmative vote of a majority
of our entire Board at any regular or special meeting; and (iii) require, before the termination of the Affiliation Agreement, the
approval of a majority of our independent directors to amend our By-laws so long as Total, together with the controlled subsidiaries
of Total S.A., owns at least 30% of our voting securities as well as require, before the termination of the Affiliation Agreement,
Total’s written consent during the Total Stockholder Approval Period to amend the By-laws. In addition, in November 2011, our
By-laws were amended to remove restrictions prohibiting stockholder consents in writing.
The Credit Support Agreement, Amended and Restated Credit Support Agreement, Affiliation Agreement, Affiliation
Agreement Guaranty, Research and Collaboration Agreement, Registration Rights Agreement, Rights Agreement Amendment,
Second Rights Agreement Amendment and By-Law amendments, and amendments thereto, as described above are attached to, and
more fully described in, our Form 8-Ks as filed with the SEC on May 2, 2011, June 7, 2011, June 15, 2011 and December 23, 2011,
our Solicitation/Recommendation Statement on Form 14D-9 filed with the SEC on May 3, 2011, and our Form 10-Q as filed with
the SEC on November 2, 2012.
Upfront Warrant
On February 28, 2012, in consideration for Total S.A.’s agreement to enter into a Liquidity Support Agreement and for
Total S.A.’s commitments set forth in such agreement, we issued to Total a warrant (the “Upfront Warrant”) that is exercisable to
purchase 9,531,677 shares of our common stock at an exercise price of $7.8685 per share, subject to adjustment for customary anti-
dilution and other events. The Upfront Warrant is exercisable at any time for seven years after its issuance, provided that, so long as
at least $25 million of our existing 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 our common stock at such time, because “any person” becoming such “beneficial owner” would trigger the
repurchase or conversion of our existing convertible debt.
24
Sale of 0.75% Debentures Due 2018
In May 2013, we issued $300 million in aggregate principal amount of our 0.75% Senior Convertible Debentures due
2018 (the “2018 Debentures”) in a private offering. $200 million in aggregate principal amount of the 2018 Debentures were sold
to Total by the initial purchasers of the 2018 Debentures. The 2018 Debentures are convertible into shares of our common stock at
any time based on an initial conversion rate of 40.0871 shares of common stock per $1,000 principal amount of 2018 Debentures
(which is equivalent to an initial conversion price of approximately $24.95 per share of our common stock), subject to adjustment
under certain circumstances. The holders of the 2018 Debentures may require us to repurchase their 2018 Debentures under certain
circumstances. The 2018 Debentures are subject to redemption at our option under certain circumstances.
Sale of 0.875% Debentures Due 2021
In June 2014, we issued $400 million in aggregate principal amount of our 0.875% Senior Convertible Debentures due
2021 (the “2021 Debentures”) in a private offering. $250 million in aggregate principal amount of the 2021 Debentures were sold
to Total by the initial purchasers of the 2021 Debentures. The 2021 Debentures are convertible into shares of our common stock at
any time based on an initial conversion rate of 20.5071 shares of common stock per $1,000 principal amount of 2021 Debentures
(which is equivalent to an initial conversion price of approximately $48.76 per share of our common stock), subject to adjustment
under certain circumstances. The holders of the 2021 Debentures may require us to repurchase their 2021 Debentures under certain
circumstances. The 2021 Debentures are subject to redemption at our option under certain circumstances.
Sale of 4.00% Debentures Due 2023
In December 2015, we issued $425 million in aggregate principal amount of our 4.00% Senior Convertible Debentures due
2023 (the “2023 Debentures”) in a private offering. $100 million in aggregate principal amount of the 2023 Debentures were sold
to Total by the initial purchasers of the 2023 Debentures. The 2023 Debentures are convertible into shares of our common stock at
any time based on an initial conversion rate of 32.7568 shares of common stock per $1,000 principal amount of 2023 Debentures
(which is equivalent to an initial conversion price of approximately $30.53 per share of our common stock), subject to adjustment
under certain circumstances. The holders of the 2023 Debentures may require us to repurchase their 2023 Debentures under certain
circumstances. The 2023 Debentures are subject to redemption at our option under certain circumstances.
Project Co-Development
In the ordinary course of our business, from time to time we enter into agreements with Total or its affiliates in connection
with certain of our international project co-development initiatives, whereby SunPower and Total split the associated costs evenly.
In fiscal 2016, such total project co-development costs were approximately $3.4 million.
During fiscal 2016, in connection with a co-development project between us and Total, we made a $7.0 million payment
to Total in exchange for Total’s ownership interest in the co-development project.
We have entered into an agreement to sell to Total one of our international power plant assets, with such sale expected to
close in Q1 2017. We expect to receive from Total approximately $0.4 million for our 50% equity stake in the asset. In addition,
in connection with the project, we anticipate receiving from the project company to be wholly-owned by Total (i) a development
fee of approximately $1.8 million and (ii) a purchase price of approximately $24.0 million for solar modules being sold for use
on the project.
EPC, O&M Services and Components Agreements
In the ordinary course of our business, from time to time we enter into various engineering, procurement and construction
(“EPC”) services, operations and maintenance services (“O&M services”) and component sales agreements relating to solar projects,
including EPC services, O&M services and component sales agreements relating to projects owned or partially owned by Total or
its affiliates. On November 9, 2016, we and Total executed a four-year, up to 200-MW supply agreement to support the solarization
of Total facilities around the world. This agreement, which was amended and restated in March 2017 with changes not material
to the Company, covers the supply of 150 MW of E-series panels with an option to purchase up to another 50 MW of P-Series
panels, and includes a Q1 2017 pre-payment in the amount of approximately $90 million. In fiscal 2016, we received an aggregate
of approximately $64.7 million from Total and its affiliates under EPC services, O&M services and component sales agreements in
respect of projects in which Total has a direct or indirect material interest.
25
The Audit Committee of our Board of Directors serves as the representative of the Board of Directors with respect to its
AUDIT COMMITTEE REPORT
oversight of:
•
•
•
•
•
•
our accounting and financial reporting processes and the audit of our financial statements;
the integrity of our financial statements;
our internal controls;
our compliance with legal and regulatory requirements and efficacy of and compliance with our corporate policies;
the independent registered public accounting firm’s appointment, qualifications and independence; and
the performance of our internal audit function.
The Audit Committee also reviews the performance of our independent registered public accounting firm, Ernst & Young
LLP, in the annual audit of financial statements and in assignments unrelated to the audit, and reviews the independent registered
public accounting firm’s fees.
The Audit Committee provides the Board such information and materials as it may deem necessary to make the Board
aware of financial matters requiring the attention of the Board. The Audit Committee reviews our financial disclosures, and meets
privately, outside the presence of our management, with our independent registered public accounting firm. In fulfilling its oversight
responsibilities, the Audit Committee reviewed and discussed the audited financial statements in our Annual Report on Form 10-K
for our fiscal year ended January 1, 2017 with management, including a discussion of the quality and substance of the accounting
principles, the reasonableness of significant judgments made in connection with the audited financial statements, and the clarity of
disclosures in the financial statements. The Audit Committee reports on these meetings to our Board of Directors.
Our management has primary responsibility for preparing our financial statements and for our financial reporting
process. In addition, our management is responsible for establishing and maintaining adequate internal control over financial
reporting. Our independent registered public accounting firm, Ernst & Young LLP, is responsible for expressing an opinion on
the conformity of our financial statements to generally accepted accounting principles, and on the effectiveness of our internal
control over financial reporting.
The Audit Committee reports as follows:
(1) The Audit Committee has reviewed and discussed the audited financial statements for fiscal year 2016 with
our management.
(2) The Audit Committee has discussed with Ernst & Young LLP, our independent registered public accounting
firm, the matters required to be discussed by Auditing Standard No. 1301, “Communications with Audit Committees”
issued by the Public Company Accounting Oversight Board.
(3) The Audit Committee has received the written disclosures and the letter from Ernst & Young LLP required
by the applicable requirements of the Public Company Accounting Oversight Board regarding the independent
accountant’s communications with the Audit Committee regarding independence, and has discussed with Ernst & Young
LLP its independence, including whether Ernst & Young LLP’s provision of non-audit services to us is compatible with
its independence.
The Audit Committee has adopted a policy that requires advance approval of all audit, audit-related, tax services, and
other services performed by the independent registered public accounting firm. The policy provides for pre-approval by the Audit
Committee (or its Chair pursuant to delegated authority) of specifically defined audit and non-audit services. Unless the specific
service has been previously pre-approved with respect to that fiscal year, the Audit Committee (or its Chair pursuant to delegated
authority) must approve the specific service before the independent registered public accounting firm is engaged to perform such
services for us.
Based on the review and discussion referred to in items (1) through (3) above, the Audit Committee recommended to our
Board of Directors, and the Board approved, the inclusion of our audited financial statements in our Annual Report on Form 10-K
for the fiscal year ended January 1, 2017, as filed with the SEC.
26
The foregoing report was submitted by the Audit Committee of the Board and shall not be deemed to be “soliciting
material” or to be “filed” with the SEC or subject to Regulation 14A promulgated by the SEC or Section 18 of the Exchange Act,
and shall not be deemed incorporated by reference into any prior or subsequent filing by us under the Securities Act of 1933 or the
Exchange Act.
AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
Thomas R. McDaniel, Chair
Catherine A. Lesjak
Pat Wood III
27
DIRECTOR COMPENSATION
The following table sets forth a summary of the compensation we paid to our non-employee directors for fiscal 2016. The
table does not include Mr. Werner, who did not receive separate compensation for his service on the Board.
2016 Director Compensation Table
Name
Total-designated members of the Board(3)
Catherine Lesjak
Thomas R. McDaniel
Pat Wood III(4)
Fees Earned or
Paid in Cash
($)(1)
—
100,000
100,000
125,000
Stock Awards
($)(2)(4)
—
300,032
300,032
300,032
Total
($)
—
400,032
400,032
425,032
(1) The amounts reported in this column represent the aggregate cash retainers received by the non-employee directors for fiscal
2016, but do not include amounts reimbursed to the non-employee directors for expenses incurred in connection with attending
Board and committee meetings.
(2) The amounts reported in this column represent the aggregate grant date fair value computed in accordance with Financial
Accounting Standards Board (or FASB) ASC Topic 718 for restricted stock units granted to our non-employee directors in
fiscal 2016, as further described below. Each non-employee director received the following grants of restricted stock units on
the following dates with the following grant date fair values (please note that some amounts reported may not add up exactly
due to rounding on an award-by-award basis):
Non-Employee Director
Catherine Lesjak
Thomas R. McDaniel
Pat Wood III
Grant Date
2/11/2016
5/11/2016
8/11/2016
11/11/2016
2/11/2016
5/11/2016
8/11/2016
11/11/2016
2/11/2016
5/11/2016
8/11/2016
11/11/2016
Restricted Stock Units (#)
3,681
4,323
7,056
11,539
Grant Date Fair Value ($)
$75,019
$75,004
$75,005
$75,004
3,681
4,323
7,056
11,539
3,681
4,323
7,056
11,539
$75,019
$75,004
$75,005
$75,004
$75,019
$75,004
$75,005
$75,004
(3) Ms. Kristoffersen and Messrs. Lauré, Paszkiewicz and Wolffsheim, joined our Board on September 15, 2016, March 9, 2016,
June 22, 2016 and September 15, 2016, respectively. Messrs. Arnaud Chaperon, Jean Marc Otero del Val, Bernard Clément,
Denis Giorno and Humbert de Wendel resigned from our Board on September 15, 2016, March 8, 2016, January 19, 2017, June
21, 2016 and September 15, 2016, respectively.
(4) As of January 1, 2017, Mr. Wood held options for 6,000 shares. No other non-employee directors held stock awards or stock
options as of January 1, 2017.
2016 Director Compensation Program
Our outside director compensation policy provides for the compensation set forth below for our non-employee directors,
other than the Total-nominated directors:
•
•
an annual fee of $400,000 ($100,000 quarterly) for our non-employee directors (other than the Chairman of the Board)
for service on our Board and on Board committees;
if our Chairman is an independent director, an annual fee of $450,000 ($112,500 quarterly) to our Chairman of the
Board for service on our Board and on Board committees; and
•
an additional annual fee of $25,000 ($6,250 quarterly) to the lead independent director.
28
Our policy provides that these annual fees are prorated on a quarterly basis for any director that joins the Board during the
year. The $25,000 additional fee payable to the lead independent director is paid in cash. Any fees payable to the Chairman of the
Board are paid in the form of restricted stock units. The other fees are paid on a quarterly basis, 25% in cash on or about the date of
the quarterly Board meeting and 75% in the form of fully-vested restricted stock units on the 11th day in the second month of each
quarter (or on the next trading day if such day is not a trading day). Any fractional shares resulting from this calculation are rounded
up to a full share. The restricted stock units are settled in shares of our common stock within seven days of the date of grant. Because
Mr. Werner is our President and Chief Executive Officer, he is not separately compensated for his service as Chairman of the Board.
Similarly, because each of our Total-nominated directors do not qualify as independent directors under our director compensation
policy, such individuals receive no director compensation.
Stock Ownership Guidelines
In 2015, we adopted stock ownership guidelines for our Chief Executive Officer, certain executive officers, and non-
employee directors. Under the guidelines and subject to certain exceptions, non-employee directors are expected to own shares
of our common stock that have a value equal to five times the annual cash retainer they receive for serving on our Board, with
ownership measured at the end of each calendar year. Shares may be owned directly by the individual, owned by the individual’s
spouse, or held in trust for the benefit of the individual’s family. Each non-employee director is expected to maintain ownership
at or above the threshold applicable to them beginning the later of December 31, 2020 or five years after first becoming subject
to the guidelines.
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PROPOSAL TWO
ADVISORY VOTE TO APPROVE NAMED EXECUTIVE OFFICER COMPENSATION
As required under the Dodd-Frank Wall Street Reform and Consumer Protection Act, or the Dodd-Frank Act, and Section
14A of the Exchange Act, we are asking our stockholders to again vote to approve, on an advisory (non-binding) basis, the
compensation of our named executive officers as disclosed in this proxy statement in accordance with the SEC’s rules.
As described in detail under the headings “Compensation Discussion and Analysis” and “Executive Compensation,” we
have adopted an executive compensation philosophy designed to deliver competitive total compensation to our executive officers
upon the achievement of financial and strategic performance objectives. In order to implement that philosophy, the Compensation
Committee has established a disciplined process for adopting executive compensation programs and individual executive officer pay
actions that includes the analysis of competitive market data, a review of each executive officer’s role, performance assessments and
consultation with the Compensation Committee’s independent compensation consultant. Please read the “Compensation Discussion
and Analysis” and “Executive Compensation” sections for additional details about our executive compensation programs, including
information about the fiscal 2016 compensation of our named executive officers.
2016 Compensation Features. Our compensation programs are intended to align our executive officers’ interests with
those of our stockholders by rewarding performance that meets or exceeds the goals that the Compensation Committee establishes
with the objective of increasing stockholder value. The Compensation Committee annually reviews the compensation programs for
our named executive officers to ensure they achieve the desired goals of aligning our executive compensation structure with our
stockholders’ interests and current market practices. Among the program features incorporated by the Compensation Committee in
fiscal 2016 to implement the executive compensation philosophy stated above are the following:
• Revenue, EBITDA1, and cash metrics and corresponding performance targets, along with corporate milestone
performance targets and individual modifiers assigned based on individual performance, determined the actual payouts
under our performance-based cash bonus programs (specifically, the 2016 Annual Bonus Program and the Executive
Semi-Annual Incentive Bonus Plan) for our named executive officers.
• Long-term incentives in the form of time- and performance-based restricted stock units comprised a large portion of
each named executive officer’s compensation and are linked to the long-term performance of our stock. Restricted
stock units generally vest over four years, and performance-based restricted stock units are earned only after the
achievement of corporate performance targets and also generally vest over a four-year period.
• Earning performance-based restricted stock units depends on the achievement of performance targets corresponding to
our revenue and EBITDA metrics, as well as other individualized metrics (in the case of certain of our executive officers).
•
Individual performance was also measured for each half of the fiscal year based on each named executive officer’s
achievement of his or her personal Key Initiatives, which support our corporate, strategic, and operational milestones,
as well as other individual performance factors, as evaluated by our Chief Executive Officer (or, in the case of our
Chief Executive Officer, by the Board) in connection with the assignment of an individual modifier to each named
executive officer.
• Our change of control severance agreements do not entitle our named executive officers to payment without termination
of employment following a change of control (a “double trigger”).
Our financial and operational performance was the key factor in the compensation decisions and outcomes for fiscal 2016,
as further described in “Compensation Discussion and Analysis” and “Executive Compensation.” One of the core tenets of our
executive compensation philosophy is our emphasis on performance pay. As highlighted in the Compensation Components chart in
“Compensation Discussion and Analysis,” in fiscal 2016, a large portion of our named executive officers’ target compensation (93%
for our Chief Executive Officer and averaging 78% for our other named executive officers) consisted of annual and semi-annual
incentive bonus programs and long-term equity incentives.
The Compensation Committee believes that our executive compensation programs, executive officer pay levels, and
individual pay actions approved for our executive officers, including our named executive officers, are directly aligned with our
executive compensation philosophy and fully support its goals. Performance with respect to our revenue metric target exceeded
1 EBITDA is a non-GAAP financial measure defined as net income before income taxes, interest income, depreciation and
amortization. See “Use of Non-GAAP Financial Measures” below.
30
the minimum trigger but fell short of target performance levels in fiscal 2016, and performance with respect to our EBITDA metric
target fell short of the minimum trigger, which, combined, resulted in performance-based restricted stock awards being earned at
approximately 28% of the target level. Our corporate performance in fiscal 2016 also resulted in aggregate cash bonus awards under
our performance-based cash bonus programs below the target level. We are asking our stockholders to indicate their support for our
named executive officer compensation as described in this proxy statement. This proposal, commonly known as a “say-on-pay”
proposal, gives our stockholders the opportunity to express their views on our named executive officers’ compensation. This vote
is not intended to address any specific compensation item, but rather the overall compensation of our named executive officers and
the philosophy, policies and practices described in this proxy statement. Accordingly, the Board recommends that our stockholders
vote “FOR” the following resolution at the Annual Meeting:
“RESOLVED, that, on an advisory basis, the compensation of SunPower’s named executive officers, as disclosed
pursuant to Item 402 of Regulation S-K, including the Compensation Discussion and Analysis, compensation
tables and related narratives and descriptions in SunPower’s proxy statement for the Annual Meeting, is hereby
APPROVED.”
Vote Required
The non-binding advisory vote on named executive officer compensation requires the affirmative vote of the holders
of a majority of our stock having voting power and in attendance or represented by proxy at the Annual Meeting. “Broker non-
votes” have no effect and will not be counted towards the vote total for this proposal. Abstentions will have the effect of votes
against this proposal.
Although the say-on-pay vote is advisory, and therefore not binding on us, the Compensation Committee or our Board, our
Board and our Compensation Committee value the opinions of our stockholders. To the extent there is any significant vote against
our named executive officers’ compensation as disclosed in this proxy statement, we expect to consider our stockholders’ concerns
and the Compensation Committee expects to evaluate whether any actions are necessary to address those concerns.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE APPROVAL OF THE COMPENSATION
OF OUR NAMED EXECUTIVE OFFICERS, AS DISCLOSED IN THIS PROXY STATEMENT PURSUANT TO THE
COMPENSATION DISCLOSURE RULES OF THE SEC ON A NON-BINDING, ADVISORY BASIS.
31
PROPOSAL THREE
ADVISORY VOTE ON THE FREQUENCY OF FUTURE ADVISORY VOTES ON NAMED EXECUTIVE OFFICER
COMPENSATION
The Dodd-Frank Act and Section 14A of the Exchange Act also requires us to ask our stockholders to vote, on an advisory
(non-binding) basis, at the Annual Meeting on how frequently we should seek future advisory votes on the compensation of our
named executive officers. In voting on this proposal, stockholders may indicate whether they would prefer an advisory vote on
named executive officer compensation every one, two, or three years.
While we will continue to monitor developments in this area, our Board believes that an advisory vote to approve executive
compensation every year is appropriate. This will enable our stockholders to vote, on an advisory basis, on the most recent executive
compensation information that is presented in our proxy statement, leading to a more meaningful and coherent communication
between us and our stockholders on the executive compensation of our named executive officers.
Based on the factors discussed, our Board recommends that future advisory votes to approve executive compensation
occur every year until the next advisory vote on the frequency of advisory votes to approve executive compensation. Stockholders
are not being asked to approve or disapprove our Board’s recommendation, but rather to indicate their choice among the following
frequency options: one year, two years or three years, or to abstain from voting.
Vote Required
The option of one year, two years or three years that receives the highest number of votes cast by holders of our stock
having voting power and in attendance or represented by proxy at the Annual Meeting will be the frequency of future advisory votes
on executive compensation that has been recommended by our stockholders. Neither “broker non-votes” nor abstentions will be
counted towards the vote total for this proposal.
Although the frequency of say-on-pay vote is advisory, and therefore not binding on us, the Compensation Committee or
our Board, our Board and our Compensation Committee value the opinions of our stockholders. To the extent there is any significant
vote against our proposed frequency, we expect to consider our stockholders’ concerns and the Compensation Committee expects
to evaluate whether any actions are necessary to address those concerns.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EVERY YEAR AS THE FREQUENCY WITH
WHICH OUR STOCKHOLDERS WILL BE PROVIDED FUTURE ADVISORY VOTES ON NAMED EXECUTIVE
OFFICER COMPENSATION PURSUANT TO THE COMPENSATION DISCLOSURE RULES OF THE SEC ON A
NON-BINDING, ADVISORY BASIS.
32
EXECUTIVE OFFICERS
Biographical information for our executive officers, other than Mr. Werner, is listed below. Biographical information for
Mr. Werner, who is both a director and an executive officer of the Company, can be found in the section entitled “Proposal One—
Re-election of Class III Directors”.
Name
Charles D. Boynton
Kenneth J. Mahaffey
Bill Mulligan
Douglas J. Richards
Age
Position
49
48
56
58
Executive Vice President and Chief Financial Officer, and Principal Accounting Officer
Executive Vice President, General Counsel and Corporate Secretary
Executive Vice President, Global Operations
Executive Vice President, Administration
Mr. Charles D. Boynton has served as our Executive Vice President, Chief Financial Officer, and Principal Accounting
Officer since October 2016. From March 2012 to October 2016, Mr. Boynton served as our Executive Vice President and Chief
Financial Officer. In March 2012, Mr. Boynton also served as our Acting Financial Officer. From June 2010 to March 2012, he
served as our Vice President, Finance and Corporate Development, where he drove strategic investments, joint ventures, mergers
and acquisitions, field finance and finance, planning and analysis. Before joining SunPower in June 2010, Mr. Boynton was the
Chief Financial Officer for ServiceSource, LLC from April 2008 to June 2010. From March 2004 to April 2008 he served as the
Chief Financial Officer at Intelliden. Earlier in his career, Mr. Boynton held key financial positions at Commerce One, Inc., Kraft
Foods, Inc. and Grant Thornton, LLP. He is a member of the board of trustees of the San Jose Technology Museum of Innovation
and has served as Chairman and Chief Executive Officer of 8Point3 Energy Partners LP since June 2015. Mr. Boynton was a
certified public accountant, State of Illinois, and a Member FEI, Silicon Valley Chapter. Mr. Boynton earned his master’s degree in
business administration at Northwestern University and his Bachelor of Science degree in business from Indiana University.
Mr. Kenneth J. Mahaffey has served as our Executive Vice President, General Counsel and Corporate Secretary since
November 2016. Mr. Mahaffey previously served as our Vice President, General Counsel, Global Business Units from January
2007 to October 2016. From September 2006 to January 2007, he served as Associate General Counsel of PowerLight Corporation,
a solar system integration company that we acquired in January 2007 and subsequently renamed SunPower Corporation, Systems.
Before PowerLight, Mr. Mahaffey was in private practice from 1995 to 2006. Mr. Mahaffey has a Bachelor of Arts degree from
University of California, San Diego, and a Juris Doctor degree from McGeorge School of Law, University of the Pacific.
Dr. Bill Mulligan has served as our Executive Vice President, Global Operations since February 2017, responsible for
leading our global operations and worldwide materials sourcing. Dr. Mulligan originally joined SunPower in 1998 and worked for
more than 12 years as Vice President of research and development, where he led the development of our PV cell technology and
the world’s highest efficiency commercial solar panel. He left SunPower in 2010, but returned four years later with our acquisition
of SolarBridge, where he was serving as President and CEO. Most recently he was SunPower’s Vice President Upstream Strategy.
Dr. Mulligan has more than 30 years of solar and microelectronics industry experience, and prior to SunPower served in various
engineering and management positions at JX Crystals, Inc., the National Renewable Energy Laboratory, AstroPower, and Fairchild/
National Semiconductor. Dr. Mulligan received dual undergraduate degrees in chemistry and history from the University of
Washington, a master’s of science in chemical engineering from the University of Michigan and his doctorate in materials science
from the Colorado School of Mines. He holds 10 patents and is the author of more than 30 publications related to solar energy.
Mr. Douglas J. Richards has served as our Executive Vice President, Administration since November 2011. From
April 2010 to October 2011, Mr. Richards served as our Executive Vice President, Human Resources and Corporate Services.
From September 2007 to March 2010, Mr. Richards served as our Vice President, Human Resources and Corporate Services.
From 2006 to 2007, Mr. Richards was Vice President of Human Resources and Administration for SelectBuild, a construction
services company and a wholly-owned subsidiary of BMHC, and from 2000 to 2006, Mr. Richards was Senior Vice President of
Human Resources and Administration for BlueArc, a provider of high performance unified network storage systems to enterprise
markets. Before BlueArc, Mr. Richards spent 10 years at Compaq Computer Corporation and five years at Apple Computer,
Inc. in various management positions. Mr. Richards graduated from California State University, Chico, with a Bachelor of Arts
degree in public administration.
33
COMPENSATION DISCUSSION AND ANALYSIS
This Compensation Discussion and Analysis provides a detailed review and analysis of our compensation policies and
programs that applied to our named executive officers during the fiscal year ended January 1, 2017. Our named executive officers,
as set forth in the following table, were our Chief Executive Officer, our Chief Financial Officer, and the next three most highly-
compensated executive officers serving as of January 1, 2017.
Name
Thomas H. Werner
Charles D. Boynton
Howard J. Wenger (1)
Marty T. Neese (2)
Douglas J. Richards
Title
President and Chief Executive Officer
Executive Vice President and Chief Financial Officer
President, Business Units
Chief Operating Officer
Executive Vice President, Administration
(1) Mr. Wenger’s employment terminated on March 3, 2017.
(2) Mr. Neese’s employment terminated on February 10, 2017.
Executive Summary
Our compensation programs are intended to align our named executive officers’ interests with those of our stockholders
by rewarding performance that meets or exceeds the goals that the Compensation Committee establishes with the ultimate objective
of increasing stockholder value. We have adopted an executive compensation philosophy designed to deliver competitive total
compensation upon the achievement of financial and strategic performance objectives. The total compensation received by our
named executive officers varies based on corporate and individual performance, as measured against performance goals. Therefore,
a significant portion of each named executive officer’s total pay is tied to Company performance (see the “2016 Compensation
Components” chart below).
In fiscal 2016 we faced significant market challenges, which impacted our margins and prompted us to implement changes
to our business in order to realign our downstream investments, optimize our supply chain, and reduce operating expenses. This
impacted our financial and operational results for fiscal 2016:
• We achieved $2.7 billion in annual revenue and adjusted EBITDA2 of $163.6 million (a GAAP net loss of $3.41 per
diluted share) in fiscal 2016, lower than our targets for each measure.
• We undertook a major restructuring in order to reduce our costs and rationalize our manufacturing capacity, which
included a reduction in our workforce and closure of Fab 2, and scaled back our power plants approach and realigned
our development business to focus on core markets.
• We completed construction of our 128 MW Henrietta project in California, the 125 MW Boulder Solar project in
Nevada, and our 27 MW Nanao project in Japan, and ended the year with a more than 2.5 GW pipeline in Latin
America.
2 To supplement its consolidated financial results presented in accordance with U.S. generally accepted accounting principles
(GAAP), the Company uses non-GAAP measures that are adjusted for certain items from the most directly comparable GAAP
measures, as described below in the section entitled “Use of Non-GAAP Financial Measures”. The specific non-GAAP measures
used are revenue and adjusted earnings before interest, taxes, depreciation and amortization (Adjusted EBITDA). These non-
GAAP measures are not prepared in accordance with GAAP or intended to be a replacement for GAAP financial data; the
non-GAAP measures should be reviewed together with the GAAP measures and are not intended to serve as a substitute for
results under GAAP, and may be different from non-GAAP measures used by other companies. Non-GAAP revenue includes
adjustments relating to 8point3, utility and power plant projects, the sale of operating lease assets, and sale-leaseback transactions,
each as described below in “Use of Non-GAAP Financial Measures”. In addition to the same adjustments as non-GAAP revenue,
Adjusted EBITDA includes adjustments relating to stock-based compensation expense, amortization of intangible assets, non-
cash interest expense, goodwill impairment, restructuring expense, arbitration ruling, IPO-related costs, cash interest expense (net
of interest income), provision for (benefit from) income taxes, depreciation, and other items, each as described below in “Use of
Non-GAAP Financial Measures”.
34
• We achieved record performance in our existing manufacturing facilities, ramped up our new Performance Series
(P-Series) panel manufacturing facility in Mexicali, and taking a long view on capacity, acquired AUO’s portion of
our Malaysia joint venture.
• We saw continuing growth in our North American residential business, and we signed an exclusive arrangement
with AT&T to co-market our high efficiency solar solutions to their customers and expanded our partnership with
Consolidated Edison in New York to include storage solutions.
• We successfully launched our SunPower Equinox™ platform, a complete residential equipment solution, and our
SunPower® Oasis® 3.0 platform for utility scale solar.
•
8point3 Energy Partners, our joint YieldCo with First Solar, marked its first full year of operations, as it acquired
more than 400 MW of projects, increased its annual distribution by 15 percent and successfully raised more than $100
million from investors.
For fiscal 2016, our financial performance and the difficult market environment we faced were the key factors in the
compensation decisions and outcomes for the year. In fiscal 2016, the highlights of our named executive officer compensation
program were as follows:
• Our annual bonus program incorporated financial metrics that we believe align our compensation practices with
our business goals and, correspondingly, align executives’ interests with stockholders’ interests. Achievement
of performance targets related to our revenue and EBITDA, along with achievement of our corporate milestone
performance targets and individual modifiers assigned based on individual performance determined the actual payouts
under our performance-based cash bonus programs (specifically, the 2016 Annual Bonus Program and the Amended
and Restated Executive Semi-Annual Incentive Bonus Plan, which we refer to as our Executive Semi-Annual Plan)
for our named executive officers. Our corporate performance in fiscal 2016 resulted in aggregate cash bonus awards
under these programs below the target level. Performance metrics, thresholds, and targets are further described below
in “Executive Compensation—Non-Equity Incentive Plan Compensation.”
• During fiscal 2016, in response to difficult market conditions and out of a desire to focus our executives on cash
preservation, we replaced the metrics and goals previously approved in respect of the Executive Semi-Annual Plan
with a cash trigger tied to fiscal 2016 ending cash. We did not make payments to our executive officers under the
Executive Semi-Annual Plan after we failed to achieve this target. Performance metrics, thresholds, and targets are
further described below in “Executive Compensation—Non-Equity Incentive Plan Compensation.”
• Long-term incentives in the form of time- and performance-based restricted stock units comprised more than
50% of each named executive officer’s compensation and were linked to the long-term performance of our stock.
Restricted stock units generally vest over three or four years. Performance-based restricted stock units were earned
only after the achievement of corporate performance targets and, to the extent earned, generally vest over a three- or
four-year period.
• Certain performance-based restricted stock units granted in 2016 to each of our named executive officers were only
earned if we achieved performance targets set in respect of our revenue and EBITDA metrics. Performance with
respect to the revenue target exceeded the minimum performance level but fell short of the target performance level,
and performance with respect to the profitability metric target fell short of the minimum performance level, which
resulted in 28.7% of these equity awards being earned. Performance metrics, thresholds, and targets are further
described below in “Executive Compensation—Equity Incentive Plan Compensation.”
• Additional performance-based restricted stock units granted in 2016 to Mr. Werner were only earned if we achieved
performance targets set in respect of other specified metrics relating to other strategic goals. Those awards, as well as
performance metrics, and achievement levels with respect to all such awards, are further described below in “Executive
Compensation—Equity Incentive Plan Compensation.”
•
In fiscal 2016, we raised the salary of Mr. Boynton, our Executive Vice President and Chief Financial officer, by
4%. We did not raise the salary of any of our other named executive officers, including Mr. Werner, our Chief
Executive Officer.
• Effective August 1, 2016, at Mr. Werner’s request in light of difficult market conditions and to set an example for
cost reduction across the organization, Mr. Werner’s salary was reduced to $1, net of benefit costs, for the remainder
35
of fiscal 2016. Mr. Werner also communicated his intention to decline any bonus earned for fiscal 2016 pursuant to
our performance-based cash bonus programs (specifically, the 2016 Annual Bonus Program and the Executive Semi-
Annual Plan).
• Our change of control severance agreements entitle our named executive officers to severance benefits only in
connection with termination of employment following a change of control.
In fiscal 2016, a significant majority of our named executive officers’ target compensation (93% for our Chief Executive
Officer, before taking into account his salary reduction and decline of bonus payout, and averaging 78% for our other named
executive officers) consisted of semi-annual and annual bonus programs and long-term equity incentives.
At our 2016 Annual Meeting of Stockholders, our stockholders voted to approve, on an advisory basis, the compensation
of our named executive officers, as disclosed in the proxy statement for that meeting. We refer to this vote as our Say-on-Pay vote.
Our Compensation Committee considered the results of the Say-on-Pay vote (which received 98% approval of the votes cast) at its
meetings after the Say-on-Pay vote when it set annual executive compensation. After our Compensation Committee reviewed the
stockholders’ approval of the Say-on-Pay vote in 2016, our Compensation Committee decided to maintain the general framework
of our fiscal 2015 compensation policies and programs for our named executive officers in fiscal 2016, with certain modifications,
as it believed such programs continued to be in the best interest of our stockholders.
The following discussion should be read together with the information we present in the compensation tables, the footnotes
and narratives to those tables and the related disclosure appearing in “Executive Compensation” below.
General Philosophy and Objectives
In fiscal 2016, we continued to operate a compensation program designed primarily to reward our named executive officers
based on our financial performance and the achievement of corporate objectives consistent with increasing long-term stockholder
value. Our compensation program continued to be based on the following principal goals:
•
•
•
aligning executive compensation with business objectives and performance;
enabling us to attract, retain, and reward executive officers who contribute to our long-term success; and
providing long-term incentives to executives to work to maximize stockholder value.
In order to implement our philosophy, the Compensation Committee has a disciplined process for adopting executive
compensation programs and individual executive officer pay actions that includes the analysis of competitive market data, a review
of each executive officer’s role, performance assessments, and consultation with the Compensation Committee’s independent
compensation consultant, as described below.
The Compensation Committee believes that the most effective executive compensation program is one that rewards the
achievement of specific corporate and financial goals, with the ultimate objective of increasing stockholder value. In addition, we
believe the mix of base salary, performance-based cash awards, and time-based and performance-based equity awards provides
proper incentives without encouraging excessive risk taking. We believe that the risks arising from our compensation policies and
practices for our employees are not reasonably likely to have a material adverse effect on our company.
Compensation Setting Process
The Compensation Committee is responsible for managing the compensation of our executive officers, including our named
executive officers, in a manner consistent with our compensation philosophy. In accordance with the “controlled company” exception
under the applicable listing standards of The NASDAQ Stock Market, our Compensation Committee is composed of two independent
directors and two directors designated by our controlling stockholder, Total. We also have a Section 16/162(m) Subcommittee
of the Compensation Committee consisting solely of independent directors available to approve certain compensation matters in
accordance with Section 162(m) of the Code and Rule 16b-3 of the Exchange Act. The Compensation Committee establishes our
compensation philosophy and objectives and annually reviews and, as necessary and appropriate, adjusts each named executive
officer’s compensation. Consistent with its philosophy, the Compensation Committee offered our named executive officers total target
compensation opportunities ranging from the 50th percentile to the 75th percentile of our peer group of companies (as further described
below) during fiscal 2016. When determining appropriate compensation for the named executive officers, the Compensation Committee
considered the advice of an independent compensation consultant, recommendations from management and internal compensation
specialists, practices of companies within our peer group, our performance, our business plan and individual performance. As part of
this process, the compensation consultant prepared a competitive analysis of our compensation program, and management presented
36
its recommendations regarding base salary, time- and performance-based equity awards and performance targets under our 2016
Annual Bonus Program and Executive Semi-Annual Bonus Plan to the Compensation Committee for its review and consideration. The
Compensation Committee accepts, rejects, or accepts as modified, management’s various recommendations regarding compensation for
the named executive officers other than our Chief Executive Officer. The Compensation Committee also approves, after modification,
management’s recommendations on various performance targets and milestones. The Compensation Committee met without our Chief
Executive Officer when reviewing and establishing his compensation.
Compensation Consultant and Peer Group
In fiscal 2016, the Compensation Committee again directly engaged and retained Radford, a compensation consulting firm
and a business unit of Aon Hewitt, to identify and maintain a list of our peer group of companies. The Compensation Committee
selected Radford on the basis of its experience and familiarity with the technology industry. The Compensation Committee established
the peer group used in connection with fiscal 2016 compensation decisions consistent with the Compensation Committee’s belief
that the peer group should closely match our business, and be based on our historical and anticipated growth. In comparison to
our peer group used for purposes of setting fiscal 2015 compensation, our peer group in fiscal 2016 was updated to remove three
companies, Energizer Holdings, Inc., International Rectifier and Roper Industries, Inc. and to add seven companies, Advanced Micro
Devices, Inc., ARRIS Group, Inc., Belden Inc., Lam Research Corporation, Marvell Technology Group Ltd., NVIDIA Corporation
and SolarCity Corporation. The peer group was selected using a mix of the following factors:
•
Publicly-traded North American semiconductor, semiconductor equipment, communications equipment and clean
technology companies; and
• Companies with between 50% and 250% of each of our annual revenues, market value and employee headcount.
The Compensation Committee believes the characteristics of our fiscal 2016 peer group closely match those of our core
business. The companies included in our peer group for purposes of establishing fiscal 2016 compensation are listed below:
• Advanced Micro Devices, Inc.
• Altera Corporation
• Analog Devices, Inc.
• ARRIS Group, Inc.
• AVX Corporation
• Belden Inc.
• Fairchild Semiconductor International, Inc.
• First Solar, Inc.
• FLIR Systems, Inc.
• Hexcel Corporation
•
•
•
Itron, Inc.
JDS Uniphase Corporation
Juniper Networks, Inc.
• KLA-Tencor Corporation
• Lam Research Corporation
• Linear Technology Corporation
• Marvell Technology Group Ltd.
• NVIDIA Corporation
• ON Semiconductor Corporation
• Quanta Services, Inc.
• SolarCity Corporation
• SunEdison, Inc.
• Trimble Navigation Limited
• Waters Corporation
•
Xilinx, Inc.
Radford provided the Compensation Committee with market information on the peer companies, as well as aggregated
data on the broader technology market with respect to base salaries, cash bonus awards as a percentage of base salaries, total cash
compensation, equity awards, and total direct compensation. In fiscal 2016, Radford also advised the Compensation Committee
in connection with evaluating our compensation practices, developing and implementing our executive compensation program
and philosophy, establishing total compensation targets, and setting specific compensation components to reach the determined
total compensation targets. We also participated in the Radford Global Technology Survey. Radford did not provide any services
to us other than advising the Compensation Committee and us, at the direction of the Compensation Committee, on executive
compensation issues. The Compensation Committee has considered and assessed all relevant factors, including, but not limited to,
those set forth in Rule 10C-1(b)(4)(i) through (vi) under the Exchange Act, that could give rise to a potential conflict of interest with
respect to the compensation consultant described above. Based on this review, the Compensation Committee determined that no
material conflict of interest has been raised by the work performed by Radford.
37
Benchmarking
In making its compensation decisions for our named executive officers for fiscal 2016, the Compensation Committee
benchmarked each named executive officer’s total compensation to the compensation of individuals in comparative positions at
companies in the peer group based on information that management obtained from public filings, supplemented by data Radford
provided from surveys. In general, the Compensation Committee initially established base salaries at the 50th percentile of the peer
group and both performance-based cash bonus awards and long-term time- and performance-based equity awards generally above
the 50th percentile of the peer group. In establishing incentive opportunities, the Compensation Committee focused on corporate
performance so that if our corporate performance was achieved at target levels, the Compensation Committee expected that our
named executive officers’ total pay would be between the 50th percentile of the peer group and the 75th percentile of the peer group.
The Compensation Committee viewed benchmarking as just the beginning, and not the end, of its discussion regarding our named
executive officers’ pay opportunities for fiscal 2016, and looked to individual performance, the named executive officer’s experience
in the executive role, and the executive’s scope of responsibility being narrower or broader than that of comparable positions at our
peer group companies to establish final pay opportunities either above or below the initial benchmarks.
2016 Compensation Components
For fiscal 2016, the Compensation Committee allocated total compensation among various pay elements consisting of base
salary, performance-based cash bonus awards, time-based equity awards, performance-based equity awards, and perquisites and
other compensation. The table below provides an overview of each element of compensation and is followed by a further discussion
and analysis of the specific decisions that we made for each element for fiscal 2016:
Compensation
Component
Base salary
Objective and Basis
Fixed compensation that is set at a competitive
level for each position to reward demonstrated
experience and skills.
Performance-based
cash bonus awards
Semi-annual and annual incentives that drive
our performance and align executives’ interests
with stockholders’ interests.
Form
Cash
Cash
Time-based
equity awards
Performance-based
equity awards
Perquisites and other
compensation
Long-term incentive that aligns executives’
interests with stockholders’ interests and
helps retain executives through long-term
vesting periods.
Long-term incentive that focuses and rewards
our performance and aligns executives’
interests with stockholders’ interests and
helps retain executives through long-term
vesting periods.
Offered to attract and retain talent and to
maintain competitive compensation packages.
Restricted
stock units
Performance
stock units
Various
Practice
Competitive market ranges are generally
established at the 50th percentile, with
consideration for experience and scope of role
relative to comparable positions in one peer group.
Target incentives are set as a percentage of base
salary and are based on benchmarking from the
50th to the 75th percentile. Actual payment is
calculated based on achievement of corporate and
individual goals.
Target equity awards (time-based plus
performance-based) generally set between the 50th
percentile and the 75th percentile.
Target equity awards (time-based plus
performance-based) generally set between the
50th percentile and the 75th percentile. Actual
payment is calculated based on achievement of
corporate goals.
Named executive officers are eligible for certain
severance benefits pursuant to their employment
agreements and our 2014 Management Career
Transition Plan. We do not provide any special
perquisites to our named executive officers.
Named executive officers are eligible to
participate in health and welfare benefits and
401(k) matching available to all employees.
The relative proportion of each element for fiscal 2016, as set forth below, was based generally on the Compensation
Committee’s comparison of compensation that we offered our named executive officers against compensation offered by peer group
companies to their named executive officers, the tax and accounting consequences of certain types of equity compensation, and a
desire to allocate a higher proportion of total compensation to performance-based and equity incentive awards.
38
2016 Compensation Components
Tom Werner
7%
14%
50%
29%
0%
Chuck Boynton
25%
23%
25%
25%
2%
Howard Wenger
22%
22%
28%
28%
0%
Marty Neese
23%
21%
36%
19%
1%
Doug Richards
28%
22%
24%
24%
2%
%0
%05
%001
Base Salary
Peformance-Based Cash Bonus (Target)
Time-Based Equity
Performance-Based Equity
Perquisites and Other
Analysis of Fiscal 2016 Compensation Decisions
Base Salary. For fiscal 2016, only Mr. Boynton received an increase in base salary to bring his base salary closer to the
compensation paid by companies in our competitive peer group for similar positions. The Compensation Committee chose not to
adjust the base salaries of our other named executive officers after determining the levels were consistent with market practices and
reflective of their roles, skill sets, and performance. In August 2016, we reduced our Chief Executive Officer’s base salary to $1,
net of benefit costs, at his request, in recognition of the difficulties faced by our company in the remainder of 2016 and as part of
our cost cutting measures implemented in our third quarter.
The table below sets forth the salaries in effect in fiscal 2016 compared with the salaries in effect in fiscal 2015 for each
of our named executive officers:
Name
Thomas H. Werner
Charles D. Boynton
Howard J. Wenger (4)
Marty T. Neese (5)
Douglas J. Richards
2015 Base Salary(1)
$ 600,000
$ 450,000
$ 460,000
$ 450,000
$ 370,000
2016 Base Salary(2)
$ 347,959(3)
$ 470,000
$ 460,000
$ 450,000
$ 370,000
% Increase
—
4.4%
—
—
—
(1) These amounts represent 2015 base salaries after April 1, 2015.
(2) These amounts represent 2016 base salaries after April 1, 2016.
(3) Reflects an annualized salary of $600,000, which was reduced at Mr. Werner’s request as of August 1, 2016 to $1, net of benefit
costs, for the remainder of fiscal 2016.
(4) Mr. Wenger’s employment terminated on March 3, 2017.
(5) Mr. Neese’s employment terminated on February 10, 2017.
39
Performance-Based Cash Bonus Awards. As in the prior fiscal year, we maintained two performance-based cash bonus
programs during fiscal 2016 in order to link bonus payments both to corporate financial goals and operational objectives and to
individual performance. The first program was our Annual Executive Bonus Plan, under which we adopted the 2016 Annual Bonus
Program. The second program was our Executive Semi-Annual Incentive Bonus Plan (referenced as our Semi-Annual Bonus Plan).
Because we generally set base salaries for our executive officers at the 50th percentile of the range of salaries for executive
officers in similar positions and with similar responsibilities at comparable companies, we rely on performance-based cash bonus
awards to elevate target total cash compensation to between the 50th percentile and the 75th percentile. In fiscal 2016, target cash
compensation (base salary plus target bonus opportunity) was set between the 50th and 75th percentile for each named executive
officer, except for Mr. Neese, whose target bonus opportunity was set above the 75th percentile to achieve the desired total target
cash compensation.
In fiscal 2016, we allocated 75% of each named executive officer’s aggregate annual target cash bonus awards under the
2016 Annual Bonus Program and 25% under the Executive Semi-Annual Bonus Plan, to tie a significant proportion of our named
executive officers’ incentive compensation to our full fiscal year operating and financial results. The table below summarizes the
total target payout levels for each named executive officer in each of fiscal 2015 and fiscal 2016, as well as the target payout levels
under the 2016 Annual Bonus Program and the Executive Semi-Annual Bonus Plan (for fiscal 2016), expressed as a percentage
of annual base salary. For 2016, the Compensation Committee maintained target payout levels under these programs at the same
percentage of annual salary for each of our named executive officers, after it evaluated the market data, individual performance, and
the scope of the named executive officer roles.
Name
Thomas H. Werner
Charles D. Boynton
Howard J. Wenger (1)
Marty T. Neese (2)
Douglas J. Richards
2015 Total
Target Payout
(including
Annual and
Quarterly
Programs) as
Percentage of
Annual Salary
200%
90%
100%
90%
80%
2016 Total
Target Payout
(including
Annual and
Semi-Annual
Programs) as
Percentage of
Annual Salary
200%(3)
90%
100%
90%
80%
2016
Semi-Annual
Bonus Plan
Target Payout
as Percentage of
Annual Salary
50%(3)
22.5%
25%
22.5%
20%
2016 Annual
Bonus Program
Target Payout
as Percentage of
Annual Salary
150%(3)
67.5%
75%
67.5%
60%
(1) Mr. Wenger’s employment terminated on March 3, 2017.
(2) Mr. Neese’s employment terminated on February 10, 2017.
(3) Target percentages are based on Mr. Werner’s salary as of April 1, 2016, prior to reduction. Mr. Werner informed the
Compensation Committee of his intent to decline any bonus otherwise earned for fiscal 2016, and the Compensation Committee
thus used its negative discretion not to award a bonus to Mr. Werner under the 2016 Annual Bonus Program.
Actual bonus payments for each named executive officer under both the 2016 Annual Bonus Program and the Semi-Annual
Bonus Plan are formula-driven, and the formulas are used to calculate actual bonus payments. See “Executive Compensation—Non-
Equity Incentive Plan Compensation” below for more information about these formulas.
In fiscal 2016, we replaced the pre-tax net income metric (previously used under our 2015 Annual Bonus Program)
with an adjusted EBITDA metric, which we believed to be more reflective of the results of our operations, removed the cash
flow metric to simplify and avoid unintended results, and lowered the minimum payout to 50% (from 80% in fiscal 2015).
Our 2016 Annual Bonus Program required the achievement of corporate targets established in respect of our: annual revenue
metric (50% of payment) and EBITDA metric (50% of payment). Please see “Executive Compensation—Non-Equity Incentive
Plan Compensation” for information on how we calculated revenue and EBITDA. The targets were set by the Compensation
Committee based on the operating plan approved by our Board at the beginning of fiscal 2016. The operating plan was based on
our history of growth and expectations regarding our future growth, as well as potential challenges in achieving such growth. The
performance targets were established at a level that the Compensation Committee determined to be challenging for our named
executive officers to achieve. In fiscal 2016, we achieved a 57.4% payout factor in respect of the annual revenue target and a
0% payout factor in respect of the annual EBITDA target. Earned bonus amounts are reflected in the “2016 Total Non-Equity
Incentive Plan Compensation” table below.
40
Payments to our named executive officers under our Semi-Annual Bonus Plan required the achievement of corporate
targets set in respect of our semi-annual profitability metric and quarterly corporate milestones, as modified by an individual
modifier assigned by the Chief Executive Officer (or, in the case of our Chief Executive Officer, by the Board of Directors)
based on his or her individual performance. Such individual modifiers are expressed as a percentage, capped at 125%, and are
combined with a Company milestone factor and the level of achievement of our corporate targets, to calculate bonus payments
under the plan.
Example Calculation:
$150,000
20%
100%
100%
105%
$31,500
We incorporate a “management by objective” system throughout our organization to establish performance goals that
supplement our financial goals. Management establishes five-year corporate milestones, and then derives from them annual and
quarterly corporate milestones. Each milestone is reviewed, revised and approved by our Board of Directors, and subsequently the
scores are reviewed and approved by our Compensation Committee. In addition, for fiscal 2016, each named executive officer,
other than our Chief Executive Officer, established quarterly personal Key Initiatives which were approved by the Chief Executive
Officer and were in line with each quarter’s corporate milestones. Quarterly corporate milestones in fiscal 2016 included sensitive
business objectives applicable to our entire company, focusing on confidential cost targets, major customer transactions, new product
development, manufacturing plans, process enhancements, and inventory turns. For fiscal 2016, personal Key Initiative objectives
included executing on confidential cost and revenue targets, achieving liquidity objectives, product development, market expansion,
manufacturing and process efficiencies, among others. The Board determined the Chief Executive Officer’s Key Initiatives, which
consisted solely of the quarterly corporate milestones selected after discussion with the Chief Executive Officer. These corporate
milestones and personal objectives are typically challenging in nature and designed to encourage the individual to achieve success
in his position during the performance period. At the end of the year, the Compensation Committee determines the Chief Executive
Officer’s individual modifier, and the Chief Executive Officer determines the individual modifier for each other named executive
officer, based on achievement of their respective Key Initiatives. As reference points, in fiscal 2014, we achieved an average of 83%
of our corporate milestones and an average of 80% of the personal Key Initiatives; in fiscal 2015, we achieved an average of 74%
of our corporate milestones, and the average individual modifier assigned to our named executive officers was 92%. In fiscal 2016,
we achieved an average of 70.4% of our corporate milestones, and the average individual modifier assigned to our named executive
officers was 80%.
However, in August 2016, management recommended, in light of our financial situation and to promote management’s
focus on cost reduction and cash preservation, that the Compensation Committee adopt an additional “cash trigger”, based on our
ending cash for fiscal 2016, equal to the amount reported in our consolidated balance sheet as of the fiscal year end for the line item
“Cash and cash equivalents”.
Example Calculation (With Cash Trigger):
$150,000
20%
0%
100%
105%
$0
In fiscal 2016, we did not meet the cash trigger, and therefore no amounts were paid to our executive officers under the
Semi-Annual Bonus Plan.
41
Equity Awards. Our Compensation Committee believes that long-term company performance is best achieved by an
ownership culture that encourages long-term performance by our executive officers through the use of equity-based awards. Our
SunPower Corporation 2015 Omnibus Incentive Plan, or 2015 Equity Plan, permits the grant of stock options, stock appreciation
rights, restricted shares, restricted stock units, performance shares, and other stock-based awards. Consistent with our goal
to attract, retain and reward the best available talent, and in light of our setting our total direct compensation above the 50th
percentile of our peer group, we targeted long-term equity awards generally approximating the 75th percentile of our peer group.
In fiscal 2016, our long-term equity awards ranged from below the 50th percentile to the 75th percentile of our peer group. Our
Chief Executive Officer’s long-term equity awards were between the 50th and 75th percentile in order to align more of his at-risk
compensation with stockholder returns and to promote long-term retention. Our other named executive officers’ long-term equity
awards were above the 50th percentile if the scope of their responsibilities was significantly broader than that of executives in
similar positions at peer companies.
The Compensation Committee then allocated long-term equity awards between time-based and performance-based
restricted stock units. We believe that time-based restricted stock units provide a more effective retention tool while performance-
based restricted stock units provide a stronger performance driver. To balance the advantages of both time-based and performance-
based awards, the Compensation Committee decided that annual long-term equity incentive awards granted to our named executive
officers other than the Chief Executive Officer in fiscal 2016 would be made half in the form of performance-based restricted stock
units (which could be earned in amounts between 0% and 150% of the target amount) and half in the form of time-based restricted
stock units, all of which would vest over four years.
The Compensation Committee decided to grant an additional restricted stock unit award to Mr. Neese in fiscal 2016 in
recognition of record fab performance during the previous fiscal year, to vest annually over two years (subject to Mr. Neese’s
continued employment. The Compensation Committee decided that annual long-term equity incentive awards granted to Mr.
Werner in fiscal 2016 would be made 50% in the form of time-based restricted stock units, all of which would vest over three years,
and 50% in the form of performance-based restricted stock units (which could be earned in amounts between 0% and 150% of the
target amount), all of which would vest over three years. In addition to these annual awards, the Compensation Committee decided
to grant an additional 40,000 performance-based restricted stock units (which could be earned in amounts between 0% and 150%
of the target amount) to Mr. Werner, to be earned based on the achievement of performance goals tied to our 2016 Annual Bonus
Program and our Semi-Annual Bonus Plan, all of which would vest on March 31, 2020, as additional incentive for performance,
and as a long-term retention measure. The Compensation Committee also approved a one-time grant to Mr. Werner of an additional
120,000 restricted stock units, all of which would vest on March 31, 2020, also as a long-term retention measure.
Awards granted and earned in fiscal 2016 were as follows:
Name
Thomas H. Werner
Charles D. Boynton
Howard J. Wenger
Marty T. Neese
Douglas J. Richards
Performance-
Based
Restricted
Stock Units
(Target)
111,600
21,700
26,700
16,700
15,000
Performance-
Based
Restricted
Stock Units
Earned
29,159
6,228
7,663
- (1)
4,305
Time-Based
Restricted
Stock Units
191,600
21,700
26,700
31,700
15,000
(1) Mr. Neese’s employment terminated on February 10, 2017, prior to the March 1, 2017 vesting date, and thus no 2016
performance-based RSUs were earned.
Performance-based restricted stock units were used as incentive compensation during fiscal 2016 to align our named executive
officers’ compensation with corporate performance. In connection with our annual review of executive officer compensation, the
Compensation Committee approved performance targets in respect of our: annual revenue metric (50% of the award) and annual
EBITDA metric (50% of the award), and a formula under which actual awards would be calculated after completion of the 2016
fiscal year. See “Executive Compensation—Equity Incentive Plan Compensation” below for more information about these metrics,
targets, and formulas.
These performance metrics were selected on the basis of the operating plan approved by our Board after considering our
history of growth and expectations regarding our future growth, as well as potential challenges in achieving such growth. The
performance targets were established at a level that the Compensation Committee determined to be challenging for our named
executive officers to achieve. In fiscal 2016, our named executive officers achieved a 57.4% payout factor in respect of the annual
42
revenue metric target and a 0% payout factor in respect of the annual EBITDA metric target. The performance-based restricted stock
units earned by our named executive officers began vesting in four equal annual installments, subject to continued service, starting
March 1, 2017.
For fiscal 2016, our Compensation Committee continued to grant time-based restricted stock units that vest in four equal
annual installments, subject to continued service, starting March 1, 2017.
Perquisites and Other Compensation. As in prior years, we did not provide any special perquisites to our named executive
officers in fiscal 2016. We provided certain perquisites and other health and welfare and retirement benefits, such as health, vision,
and life insurance coverage and participation in and matching contributions under our 401(k) defined contribution plan, which
benefits are generally available to all employees. For more information about these arrangements and benefits, see footnote four to
the “2016 Summary Compensation Table” below.
Pension Benefits. None of our named executive officers participate in or have account balances in qualified or non-
qualified defined benefit plans sponsored by us.
Nonqualified Deferred Compensation. None of our named executive officers participate in or have account balances in
non-qualified defined contribution plans or other deferred compensation plans maintained by us.
Employment and Severance Arrangements
Change in Control Arrangements. We are party to employment agreements with certain of our executive officers,
including our named executive officers, which provide severance benefits for employment terminations in connection with a change
of control. The change of control severance arrangements generally entitle each named executive officer to certain calculated
payments tied to base salary and bonus targets and accelerated vesting of his outstanding equity awards, but only upon termination
by the us without cause or by the executive for good reason (as those terms are defined in the agreements) in connection with a
change of control of the company (a “double trigger” arrangement). The Compensation Committee believes that these reinforce and
encourage the continued attention and dedication of our named executive officers to their assigned duties without the distraction
arising from the possibility of a change of control, and to enable and encourage our named executive officers to focus their attention
on obtaining the best possible outcome for our stockholders without being influenced by personal concerns regarding the possible
impact of a change of control on their job security and benefits. For more information, see “Executive Compensation—Employment
Agreements” and “Executive Compensation—Potential Payments Upon Termination or Change of Control.”
Severance Arrangements. We also maintain our 2016 Management Career Transition Plan, adopted in August 2015,
which generally entitles each named executive officer to certain calculated payments tied to salary and bonus targets, healthcare
benefits, and outplacement assistance if the individual is terminated without cause. Under his employment agreement, our Chief
Executive Officer also receives limited accelerated vesting of outstanding equity awards if terminated without cause or if he
resigns for good reason.
The Compensation Committee believes that the 2016 Management Career Transition Plan provides benefits that are
consistent with industry practice. We believe that entering into change of control and severance arrangements with certain of
our executives has helped us attract and retain excellent executive talent and that offering standard packages avoids case-by-case
negotiations. Without these provisions, our named executive officers may not have chosen to accept employment with us or remain
employed by us. The severance arrangements also promote stability and continuity in our senior management team. For more
information, please see “Executive Compensation―Employment Agreements,” “Executive Compensation—2016 Management
Career Transition Plan” and “Executive Compensation―Potential Payments Upon Termination or Change of Control” below.
Section 162(m) Considerations
Section 162(m) of the Code limits the deductions companies may take for compensation paid to a chief executive officer
and the next three most highly compensated executive officers (other than the chief financial officer) to the extent the compensation
for any such individual exceeds $1 million for the taxable year, unless the compensation qualifies as “qualified performance-based
compensation” under Section 162(m) of the Code. Our Compensation Committee considers deductibility as one of a number of
factors considered in determining appropriate levels or methods of compensation. Accordingly, we may award compensation that is
not deductible for federal income tax purposes.
43
Stock Ownership Guidelines
In 2015, our Board adopted Stock Ownership Guidelines for Executives and Directors. Under these guidelines and subject
to certain exceptions, our Chief Executive Officer is expected to own shares of our stock that have a value equal to five times his
annual salary, with ownership measured at the end of each calendar year. Although Mr. Werner was required to satisfy the stock
ownership guidelines beginning five years after their implementation in 2015, he already owns shares with a value in excess of the
guidelines. Other named executive officers are expected to own shares that have a value equal to their annual salary beginning five
years after such officer first becomes subject to the guidelines. None of our executive officers other than Mr. Werner are currently
subject to the guidelines. Shares may be owned directly by the individual, or owned by the individual’s spouse, or held in trust for
the benefit of the individual’s spouse family.
Other Disclosures
Under our insider trading policy, our executive officers, directors and employees are prohibited from engaging in short
sales of our securities, establishing margin accounts or otherwise pledging our securities, hedging our securities or buying or selling
options, puts or calls on our securities.
We do not have a policy regarding adjustment or recovery of awards or payments if the relevant performance goals or
measures upon which they are based are restated or otherwise adjusted so that awards or payments are reduced.
Use of Non-GAAP Financial Measures
Adjustments Based on International Financial Reporting Standards (IFRS)
Our non-GAAP results include adjustments to recognize revenue and profit under International Financial Reporting
Standards (IFRS) that are consistent with the adjustments made in connection with our reporting process as part of our status as a
consolidated subsidiary of Total S.A., a foreign public registrant which reports under IFRS. Differences between GAAP and IFRS
reflected in our non-GAAP results are further described below. In these situations, we believe that IFRS enables us to better evaluate
our revenue and profit generation performance, and assists in aligning the perspectives of our management and noncontrolling
shareholders with those of Total S.A., our controlling shareholder.
•
8point3. We include adjustments related to the sales of projects contributed to 8point3 Energy Partners LP
(8point3), a joint YieldCo vehicle we formed with First Solar, Inc. to own, operate and acquire solar energy
generation assets, based on the difference between the fair market value of the consideration received and the
net carrying value of the projects contributed, of which a portion is deferred in proportion to our retained equity
stake in 8point3 and its subsidiaries.
• Utility and power plant projects. We include adjustments related to the revenue recognition of certain utility and power
plant projects based on percentage-of-completion accounting and, when relevant, the allocation of revenue and margin
to our project development efforts at the time of initial project sale.
•
•
Sale of operating lease assets. We include adjustments related to the revenue recognition on the sale of certain solar
assets subject to an operating lease (or of solar assets that are leased by or intended to be leased by the third-party
purchaser to another party) based on the net proceeds received from the purchaser.
Sale-leaseback transactions. We include adjustments related to the revenue recognition on certain sale-leaseback
transactions based on the net proceeds received from the buyer-lessor. Under GAAP, these transactions are accounted
for under the financing method in accordance with real estate accounting guidance.
Other Non-GAAP Adjustments
•
Stock-based compensation. Stock-based compensation relates primarily to our equity incentive awards, and is a non-
cash expense that is dependent on market forces that are difficult to predict. We believe that this adjustment for stock-
based compensation provides a basis to measure our core performance, including compared with the performance of
other companies, without the period-to-period variability created by stock-based compensation.
• Amortization of intangible assets. We incur amortization of intangible assets as a result of acquisitions, which includes
patents, purchased technology, project pipeline assets, and in-process research and development. We believe that it is
appropriate to exclude these amortization charges as they arise from prior acquisitions, are not reflective of ongoing
operating results, and do not contribute to a meaningful evaluation of our past operating performance.
44
• Non-cash interest expense. We incur non-cash interest expense related to the amortization of items such as original
issuance discounts on our debt. We exclude non-cash interest expense because the expense does not reflect our
financial results in the period incurred.
• Goodwill impairment. No adjustment to non-GAAP financial measures was made for the portion of our goodwill
impairment charge in the third quarter of 2016 derived from our acquisition of our partner’s interest in our joint
venture AUO SunPower Sdn. Bhd. We believe that it is appropriate to exclude this impairment charge as it arises from
prior acquisitions, is not reflective of ongoing operating results, and does not contribute to a meaningful evaluation of
a company’s past operating performance.
• Restructuring expense. We incur restructuring expenses related to reorganization plans aimed towards realigning
resources consistent with our global strategy and improving our overall operating efficiency and cost structure. We
excluded restructuring charges from non-GAAP financial measures because they are not considered core operating
activities and such costs have historically occurred infrequently.
• Arbitration ruling. We recorded our best estimate of probable loss related to this case at the time of the initial ruling
and updated the estimate as circumstances warranted in connection with tribunal rulings and the ultimate settlement of
an arbitration between First Philippine Electric Corporation and First Philippine Solar Corporation against SunPower
Philippines Manufacturing, Ltd. (SPML), our wholly-owned subsidiary. On July 22, 2016, SPML entered into a
settlement with the counterparties and paid a total of $50.5 million in settlement of all claims between the parties. As
this loss is nonrecurring in nature, excluding this data provides us with a basis to evaluate the Company’s performance,
including compared with the performance of other companies, without similar impacts.
•
IPO-related costs. Costs incurred related to the initial public offering of 8point3 included legal, accounting, advisory,
valuation, and other expenses, as well as modifications to or terminations of certain existing financing structures
in preparation for sale to 8point3. As these costs are non-recurring in nature, excluding this data provides us with a
basis to evaluate the Company’s performance, including compared with the performance of other companies, without
similar impacts.
• Other. We combine amounts previously disclosed under separate captions into “Other” when amounts do not have a
significant impact on the presented fiscal periods. We believe that these adjustments provide us with a basis to evaluate
the Company’s performance, including compared with the performance of other companies, without similar impacts.
•
Tax effect. This amount is used to present each of the adjustments described above on an after-tax basis in connection
with the presentation of non-GAAP net income and non-GAAP net income per diluted share. The Company’s non-
GAAP tax amount is based on estimated cash tax expense and reserves. We forecast our annual cash tax liability and
allocate the tax to each quarter in a manner generally consistent with its GAAP methodology. This approach is designed
to enhance our ability to understand the impact of the Company’s tax expense on its current operations, provide
improved modeling accuracy, and substantially reduce fluctuations caused by GAAP to non-GAAP adjustments,
which may not reflect actual cash tax expense.
• Adjusted EBITDA adjustments. When calculating Adjusted EBITDA, in addition to adjustments described above, we
exclude the impact during the period of the following items:
ᴏ Cash interest expense, net of interest income
ᴏ
Provision for (benefit from) income taxes
ᴏ Depreciation
We use this non-GAAP financial measure to enable us to evaluate the Company’s performance, including compared
with the performance of other companies.
45
Compensation of Named Executive Officers
EXECUTIVE COMPENSATION
The 2016 Summary Compensation Table below quantifies the compensation for each of our named executive officers for services
rendered during fiscal 2016 and, as applicable, fiscal 2015 and fiscal 2014. The primary elements of each named executive officer’s total
compensation during fiscal 2016 are reported in the table below and include, among others, base salary, performance-based cash bonuses
under our 2016 Annual Bonus Program and Semi-Annual Bonus Plan, awards of restricted stock units subject to time-based vesting, and
awards of performance-based restricted stock units subject to achievement of financial targets and subsequent time-based vesting.
2016 Summary Compensation Table
Name and Principal Position
Thomas H. Werner,
President, Chief
Executive Officer and
Chairman of the Board
Charles D. Boynton
Executive Vice President
and Chief Financial
Officer
Howard J. Wenger,(1)
President, Business Units
Marty T. Neese,(2)
Chief Operating Officer
Douglas J. Richards,
Executive Vice President,
Administration
Year
2016
2015
2014
2016
2015
2014
2016
2015
2014
2016
2015
2014
2016
2015
2014
Salary
($)(3)
347,959(7)
600,000
600,000
465,077
443,077
425,000
460,000
457,231
450,000
450,000
450,000
450,000
370,000
367,231
357,269
Bonus
($)
—
—
—
—
—
—
—
—
—
—
—
—
—
Stock
Awards
($)(4)
6,773,488
6,751,062
Non-Equity
Incentive Plan
Compensation
($)(5)
—
1,265,722
All Other
Compensation
($)(6)
24,436
28,181
Total ($)
7,145,883
8,644,966
2,985,000
1,375,948
25,666
4,986,614
949,592
1,125,309
1,014,900
1,168,392
1,486,660
1,014,900
1,058,992
925,160
1,014,900
656,400
835,605
799,980
90,097
435,231
445,951
99,015
513,147
522,141
434,776
461,665
63,714
328,522
335,520
30,949
30,949
1,535,715
2,034,566
29,139
1,914,991
9,493
9,498
9,348
24,214
24,219
22,929
22,088
28,032
26,583
1,736,900
2,466,536
1,996,389
1,533,206
1,834,156
1,949,464
1,112,202
1,559,390
1,183,832
(1) Mr. Wenger’s employment terminated on March 3, 2017.
(2) Mr. Neese’s employment terminated on February 10, 2017.
(3) The amounts reported in this column for fiscal 2016 reflect each named executive officer’s salary for fiscal 2016 plus payments
for paid and unpaid time off, and holidays.
(4) The amounts reported in the “Stock Awards” column for fiscal 2016 represent the aggregate grant date fair value computed in
accordance with FASB ASC Topic 718 of stock awards granted during the year (time-based and performance-based restricted
stock units), excluding the effect of certain forfeiture assumptions. For the performance-based restricted stock units reported
in this column for fiscal 2016, such amounts are based on the probable outcome of the relevant performance conditions as
of the grant date. Assuming that the highest level of performance is achieved for these awards, the grant date fair value of
the performance-based restricted stock unit awards would be: Mr. Werner, $3,683,866; Mr. Boynton, $712,194; Mr. Wenger,
$876,294; Mr. Neese, $548,094; and Mr. Richards, $492,300. See Note 16 to our consolidated financial statements in our 2016
Annual Report for details as to the assumptions used to determine the aggregate grant date fair value of these awards. See also
our discussion of stock-based compensation under “Management’s Discussion and Analysis of Financial Condition and Results
of Operations—Critical Accounting Estimates” in our 2016 Annual Report.
(5) The amounts reported in this column for fiscal 2016 reflect the amounts earned under our 2016 Annual Bonus Program; no
amounts were paid under our Semi-Annual Bonus Plan for fiscal 2016 to our named executive officers. Additional information
about non-equity incentive plan compensation earned during fiscal 2016 is set forth above in the supplemental “2016 Total Non-
Equity Incentive Plan Compensation” table in our “Compensation Discussion and Analysis” and in “Executive Compensation—
Non-Equity Incentive Plan Compensation” below.
46
(6) The amounts reported in this column for fiscal 2016 as “All Other Compensation” consist of the elements summarized in the
table below.
Name
Thomas H. Werner
Charles D. Boynton
Howard J. Wenger (1)
Marty T. Neese (2)
Douglas J. Richards
Health
Benefits ($)
15,654
22,167
711
15,433
13,454
Group Life
Insurance
($)
832
832
832
832
684
401(k)
Match ($)
7,950
7,950
7,950
7,950
7,950
Total
($)
24,436
30,949
9,493
24,214
22,088
(1) Mr. Wenger’s employment terminated on March 3, 2017.
(2) Mr. Neese’s employment terminated on February 10, 2017.
(7) Reflects an annualized salary of $600,000, which was reduced at Mr. Werner’s request as of August 1, 2016 to $1, net of benefit
costs, for the remainder of fiscal 2016.
Grants of Plan-Based Awards
During fiscal 2016, our named executive officers were granted plan-based restricted stock units and performance stock
units under our SunPower Corporation 2015 Omnibus Incentive Plan, which we refer to as our 2015 Equity Plan. They were also
granted cash bonus awards under our 2016 Annual Bonus Program, but no awards were earned or paid to our named executive
officers under the Semi-Annual Bonus Plan due to non-achievement of the cash trigger for fiscal 2016. The following table sets
forth information regarding the stock awards and cash bonus awards granted to each named executive officer during fiscal 2016.
2016 Grants of Plan-Based Awards Table
Name
Thomas H. Werner
Charles D. Boynton
Howard J. Wenger (11)
Marty T. Neese (12)
Grant Date
—(3)
—(4)
3/31/2016(5)
3/31/2016(6)
3/31/2016(7)
3/31/2016(8)
3/31/2016(9)
—(3)
—(4)
2/22/2016(8)
2/22/2016(5)
—(3)
—(4)
2/22/2016(8)
2/22/2016(5)
—(3)
—(4)
2/22/2016(8)
2/22/2016(10)
2/22/2016(5)
Estimated Possible Payouts
Under Non-Equity Incentive Plan
Awards(1)
Target
($)
900,000
300,000
—
—
—
—
—
Maximum
($)
1,350,000
468,750
—
—
—
—
—
Threshold
($)
450,000
300,000
—
—
—
—
—
158,625
105,750
—
—
172,500
115,000
—
—
151,875
101,250
—
—
—
317,250
105,750
—
—
345,000
115,000
—
—
303,750
101,250
—
—
—
475,875
165,234
—
—
517,500
179,688
—
—
455,625
158,203
—
—
—
47
Estimated Possible Payouts
Under Equity Incentive Plan
Awards(2)
Target
(#)
Threshold
(#)
Maximum
(#)
—
—
35,800
15,000
—
—
—
—
—
—
10,850
—
—
—
13,350
—
—
—
—
8,350
—
—
71,600
30,000
10,000
—
—
—
—
—
21,700
—
—
—
26,700
—
—
—
—
16,700
—
—
107,400
45,000
12,500
—
—
—
—
—
32,550
—
—
—
40,050
—
—
—
—
25,050
All Other Stock
Awards:
Number of
Shares of Stock
or Units (#)
Grant Date
Fair Value of
Stock and
Option
Awards ($)
—
—
--
—
—
71,600
120,000
—
—
21,700
—
—
—
26,700
—
—
—
16,700
15,000
—
—
—
1,599,544
670,200
223,400
1,599,544
2,680,800
—
—
474,796
474,796
—
—
584,196
584,196
—
—
365,396
328,200
365,396
Name
Douglas J. Richards
Grant Date
—(3)
—(4)
2/22/2016(8)
2/22/2016(5)
Estimated Possible Payouts
Under Non-Equity Incentive Plan
Awards(1)
Target
($)
222,000
74,000
—
—
Maximum
($)
333,000
115,625
—
—
Threshold
($)
111,000
74,000
—
—
Estimated Possible Payouts
Under Equity Incentive Plan
Awards(2)
Target
(#)
Threshold
(#)
Maximum
(#)
All Other Stock
Awards:
Number of
Shares of Stock
or Units (#)
Grant Date
Fair Value of
Stock and
Option
Awards ($)
—
—
—
7,500
—
—
—
15,000
—
—
—
22,500
—
—
15,000
—
—
—
328,200
328,200
(1) Additional information about estimated possible payouts under non-equity incentive plan awards is set forth below in the
“Estimated Possible Payouts Under Non-Equity Incentive Plan Awards Table.”
(2) The amounts reported in these columns represent performance-based restricted stock unit opportunities. The Compensation
Committee approved the awards on February 22, 2016 and March 31, 2016. The grant date fair value of these awards is reported
based on the probable outcome of the applicable performance conditions and is consistent with the estimate of aggregate
compensation cost, if any, expected to be recognized over the service period determined as of the grant date under FASB ASC
Topic 718, excluding the effect of estimated forfeitures. See Note 16 to our consolidated financial statements in our 2016
Annual Report for details as to the assumptions used to determine the aggregate grant date fair value of these awards. See also
our discussion of stock-based compensation under “Management’s Discussion and Analysis of Financial Condition and Results
of Operations—Critical Accounting Estimates” in our 2016 Annual Report.
(3) Consists of an award under our 2016 Annual Bonus Program. Achievement levels for certain performance targets could reduce
payouts to zero when the applicable formula is applied, as further described below.
(4) Consists of an award under our Semi-Annual Bonus Plan. Achievement levels for certain performance targets could reduce
payouts to zero when the applicable formula is applied, as further described below.
(5) Consists of an award of restricted stock units, subject to achievement of specific performance metrics in addition to time-based
vesting requirements, under the 2015 Equity Plan. Failure to achieve certain performance metrics could result in zero restricted
stock units being awarded. The maximum attainable award is 150% of target. The closing price of our common stock was
$21.88 on February 22, 2016, and $22.34 on March 31, 2016. Actual awards were determined in the first quarter of 2017 and are
described in “Equity Incentive Plan Compensation” below. The earned award vests ratably on March 1, 2017, March 1, 2018,
March 1, 2019, and March 1, 2020.
(6) Consists of an award of restricted stock units, subject to achievement of specific performance metrics in addition to time-based
vesting requirements, under the 2015 Equity Plan. Failure to achieve certain performance metrics could result in zero restricted
stock units being awarded. The maximum attainable award is 150% of target. The earned award vests in full on March 31, 2020.
(7) Consists of an award of restricted stock units, subject to achievement of specific performance metrics in addition to time-based
vesting requirements, under the 2015 Equity Plan. Failure to achieve certain performance metrics could result in zero restricted
stock units being awarded. The maximum attainable award is 125% of target. The earned award vests in full on March 31, 2020.
(8) Consists of an award of restricted stock units, subject to time-based vesting requirements, under the 2015 Equity Plan. The
award vests ratably on March 1, 2017, March 1, 2018, March 1, 2019, and March 1, 2020. The closing price of our common
stock was $21.88 on February 22, 2016, and $22.34 on March 31, 2016.
(9) Consists of an award of restricted stock units, subject to time-based vesting requirements, under the 2015 Equity Plan. The
award vests in full on March 31, 2020.
(10) Consists of an award of restricted stock units, subject to time-based vesting requirements, under the 2015 Equity Plan. The
award vests ratably on March 1, 2017, and March 1, 2018.
Non-Equity Incentive Plan Compensation
During fiscal 2016, our named executive officers were eligible for cash bonus payments under our Annual Executive Bonus
Plan, under which we adopted our 2016 Annual Bonus Program and our Semi-Annual Bonus Plan. The supplemental table below
entitled “Estimated Possible Payouts Under Non-Equity Incentive Plan Awards Table” sets forth each named executive officer’s target
and maximum payout opportunities under both the 2016 Annual Bonus Program and the Semi-Annual Bonus Plan. Under the terms
of both bonus plans, failure to achieve certain corporate or individual metrics could have resulted in zero payouts to an individual for
a given period. The table entitled “2016 Total Non-Equity Incentive Plan Compensation” above in “Compensation Discussion and
Analysis” details the actual payouts awarded under the two bonus plans to each named executive officer for fiscal 2016.
48
Estimated Possible Payouts Under Non-Equity Incentive Plan Awards Table
Name
Thomas H. Werner
Charles D. Boynton
Howard J. Wenger (1)
Marty T. Neese (2)
Douglas J. Richards
2016 Semi-Annual
Bonus Plan Target
(Aggregate)
($)
300,000
105,750
115,000
101,250
74,000
2016 Semi-
Annual Bonus
Plan Maximum
(Aggregate)
($)
468,750
165,234
179,688
158,203
115,625
2016 Annual Bonus
Program Target
($)
900,000
317,250
345,000
303,750
222,000
2016 Annual Bonus
Program Maximum
($)
1,350,000
475,875
517,500
455,625
333,000
(1) Mr. Wenger’s employment terminated on March 3, 2017.
(2) Mr. Neese’s employment terminated on February 10, 2017.
2016 Annual Bonus Program. Awards under the 2016 Annual Bonus Program were formula-driven. At the beginning
of fiscal 2016, the Compensation Committee established and approved minimum, target, and maximum levels in respect of two
performance criteria: (1) an annual revenue metric, and (2) an annual EBITDA metric. Our annual revenue metric is based on our
annual revenue, with certain adjustments such as amounts related to utility and power plant projects. Our annual EBITDA metric
is based on our annual earnings before interest, taxes, depreciation, and amortization, with certain adjustments such as amounts
related to utility and power plant projects3. Each named executive officer would earn 50% of his target bonus under the 2016 Annual
Bonus Program upon the achievement of the revenue target, and the remaining 50% of his target bonus upon the achievement of
the EBITDA target. In order to encourage our named executive officers to exceed the performance targets, our Compensation
Committee set the maximum payment under the program at 150% of target. Payment for each target is determined based on
performance achievement relative to minimum, target, and maximum levels, as follows:
Performance Level Achieved
Below minimum
At minimum
Between minimum and target
At target
Between target and maximum
At or above maximum
Bonus Payment as Percentage of Bonus Target
No bonus paid
50% of target bonus (minimum award for minimum achievement)
Prorated on a straight-line basis, between 50% and 100%
100% of target
Prorated on a straight-line basis, between 100% and 150%
150% of target
The annual performance targets, set at the beginning of fiscal 2016, were assessed at the end of the year. Based on our
actual results in fiscal 2016, bonuses were earned and paid to our named executive officers for the annual revenue target, but not the
EBITDA target, as presented below in the aggregate.
Performance Criterion
Annual revenue metric
EBITDA metric
Minimum
$2,600 million
$300 million
Target
$3,300 million
$500 million
Achievement
$2,703 million
$164 million
Payment as % of Target
Payment
57.4%
0%
Semi-Annual Bonus Plan. Awards under the Semi-Annual Bonus Plan were also formula-driven, with targets in respect of
a semi-annual profitability metric and corporate performance metrics, consisting of a set of corporate milestones representing key
initiatives that would support our corporate business plan. The semi-annual profitability metric is based on our quarterly EBITDA,
adjusted for amounts related to utility and power plant projects, non-cash interest expense, stock-based compensation expense and
other items. Each named executive officer is further assigned an individual modifier by his or her manager, or, in the case of our
Chief Executive Officer, by the Board of Directors, meant to take into account individual performance and accomplishments. These
three metrics were then incorporated into the plan’s formula. Each named executive officer’s individual modifier could result in
no award being payable even if we achieved our quarterly profitability metric and corporate milestones targets in the event that the
individual modifier was determined to be zero. If threshold corporate milestones were achieved and we exceeded our semi-annual
profitability metric target, bonus payments could exceed 100% of target, up to a maximum payment of 156% (based on the semi-
annual EBITDA metric), depending on the individual modifier.
3 Includes adjustments relating to 8point3, utility and power plant projects, the sale of operating lease assets, sale-leaseback
transactions, cash interest expense (net of interest income), provision for (benefit from) income taxes, and depreciation, as
described in footnote 1.
49
Subject to the imposition of an additional “cash trigger” by the Compensation Committee in August 2016 (which was not
achieved), payments under the Semi-Annual Bonus Plan were to have been made as follows:
Achievement of Semi-Annual
Profitability Metric Target
Under target
Between target and maximum
Achievement of Corporate Milestones
Under 60%
Payment
No payment
Over 60% but equal to or under
80%
50% payment
Payment = 2016 semi-annual salary multiplied by
Semi-Annual Bonus Plan target bonus (%) multiplied
by semi-annual profitability metric achievement (up to
a maximum of 125%) multiplied by individual modifier
(up to a maximum of 125%) multiplied by 50%
At target
80% or over
100% payment
Payment = 2016 semi-annual salary multiplied by
Semi-Annual Bonus Plan target bonus (%) multiplied
by semi-annual profitability metric achievement (up to
a maximum of 125%) multiplied by individual modifier
(up to a maximum of 125%)
Between target and maximum
80% or over
Greater than 100% payment
Payment = 2016 semi-annual salary multiplied by
Semi-Annual Bonus Plan target bonus (%) multiplied
by semi-annual profitability metric achievement (up to
a maximum of 125%) multiplied by individual modifier
(up to a maximum of 125%)
Under target
80% or over
No payment
Our 2016 corporate milestones are confidential because disclosure of these milestones would result in competitive
harm, but they generally consisted of milestones relating to cost targets, major customer transactions, new product development,
manufacturing plans, process enhancements, and inventory turns. The quarterly corporate milestone scores were 87%, 75%, 67%,
and 53% for each quarter in fiscal 2016, respectively. Individual modifiers for the named executive officers ranged from 50% to
100%, and averaged 80% for the first half of fiscal 2016. We did not assign individual modifiers for the second half of fiscal 2016,
due to projected non-achievement of the cash trigger.
Equity Incentive Plan Compensation
In addition to time-based restricted stock unit awards, to further align executive compensation with maximizing stockholder
value, our Compensation Committee granted to our named executive officers certain performance-based equity awards, consisting
of restricted stock units, or RSUs, that would be released and begin time-based vesting only upon achievement of certain corporate
or individual performance objectives.
50
Our Compensation Committee met at the beginning of 2016 and established and approved target levels in respect of two
performance criteria for our traditional performance-based equity awards: (1) an annual revenue metric, and (2) an annual EBITDA
metric. Each eligible named executive officer would earn 50% of his target performance-based RSUs upon the achievement of the
annual revenue metric target, and the remaining 50% of his target performance-based RSUs upon the achievement of the EBITDA
metric target. The two metrics and their corresponding targets are the same as those for our 2016 Annual Bonus Program, described
above in “Executive Compensation—Non-Equity Incentive Plan Compensation.” Payment for each target was determined based on
the performance metric achieved relative to minimum, target, and maximum performance levels, as follows:
Percentage of Performance Target Achieved
Below minimum
At minimum
Between minimum and target
At target
Between target and maximum
At or above maximum
Grant of RSUs as Percentage of Target RSUs
No RSUs earned
50% of target RSUs (minimum award for minimum achievement)
Prorated on a straight-line basis, between 50% and 100%
100% of target
Prorated on a straight-line basis, between 100% and 150%
150% of target
Performance-based restricted stock units vest, if at all, in four equal annual installments, subject to continued service
after achievement of the performance measures, starting March 1, 2017. In connection with our 2016 traditional performance-
based equity awards, we achieved 57.4% of our annual revenue metric target, and 0% of our EBITDA metric target. Based on our
actual results in fiscal 2016, traditional performance-based RSUs were earned by our named executive officers for achievement
of the annual revenue metric target only. See “Compensation Discussion and Analysis—Equity Awards,” which details the actual
performance-based restricted stock units earned in fiscal 2016.
The named executive officers’ targets and earned performance-based RSUs are described above in “Compensation
Discussion and Analysis—Analysis of Fiscal 2016 Compensation Decisions—Equity Awards.”
Employment and Severance Agreements
We have entered into employment agreements with certain of our executive officers, including our named executive
officers. In August 2015, we adopted a severance policy entitled the 2016 Management Career Transition Plan, which replaced our
2014 Management Career Transition Plan. Additionally, our named executive officers are entitled to receive certain payments from
us or our affiliates in the event of certain termination events in connection with a change of control.
Employment Agreements. We are party to employment agreements with several executive officers, including the named
executive officers. Each employment agreement provides that the executive’s employment is “at-will” and may be terminated at any
time by either party. Each employment agreement generally provides for a three-year term that will automatically renew unless we
provide notice of our intent not to renew at least 120 days before the renewal date. The agreements do not specify salary, bonus or
other basic compensation terms, but instead provide that each executive’s base salary, annual bonus and equity compensation will be
determined in accordance with our normal practices. The primary purpose of the agreements is to provide certain severance benefits
for employment terminations in connection with a change of control (as defined in the agreement). In the event an executive’s
employment is terminated by us without cause (as defined in the agreement), or if the executive resigns for good reason (as defined
in the agreement), and if such termination or resignation occurs during the period three months prior to, and ending 36 months
following, a change of control, then the agreements also provide that the executive is entitled to the following benefits:
•
•
•
•
•
•
•
a lump-sum payment equivalent to 24 months of such executive’s base salary;
a lump-sum payment equal to any earned but unpaid annual bonus for a completed fiscal year;
a lump-sum payment equal to the product of (a) such executive’s target bonus for the then current fiscal year, multiplied
by (b) two;
continuation of such executive’s and such executive’s eligible dependents’ coverage under our benefit plans for up to
24 months, at our expense;
a lump-sum payment equal to such executive’s accrued and unpaid base salary and paid time off;
reimbursement of up to $15,000 for services of an outplacement firm mutually acceptable to us and the executive;
annual make-up payments for taxes incurred by the executive in connection with benefit plans’ coverage; and
51
•
all of such executive’s unvested options, shares of restricted stock and restricted stock units (including performance-
based restricted stock units) will become fully vested and (as applicable) exercisable as of the termination date and
remain exercisable for the time period otherwise applicable to such equity awards following such termination date.
In addition, Mr. Werner’s agreement provides for full accelerated vesting upon termination of employment without
cause or resignation for good reason, regardless of whether such termination is in connection with a change of control;
provided, however, that absent a change of control, no such accelerated vesting or lapsing shall apply to Mr. Werner’s
performance-based equity awards.
Under the employment agreements, “cause” means the occurrence of any of the following, as determined by us in
good faith:
•
•
•
•
acts or omissions constituting gross negligence or willful misconduct on the part of the executive with respect to the
executive’s obligations or otherwise relating to our business,
the executive’s conviction of, or plea of guilty or nolo contendere to, crimes involving fraud, misappropriation or
embezzlement, or a felony crime of moral turpitude,
the executive’s violation or breach of any fiduciary duty (whether or not involving personal profit) to us, except to the
extent that his violation or breach was reasonably based on the advice of our outside counsel, or willful violation of
any of our published policies governing the conduct of it executives or other employees, or
the executive’s violation or breach of any contractual duty to us which duty is material to the performance of the
executive’s duties or results in material damage to us or our business;
provided that if any of the foregoing events is capable of being cured, we will provide notice to the executive describing the nature
of such event and the executive will thereafter have 30 days to cure such event.
In addition, under the employment agreements, “good reason” means the occurrence of any of the following without the
executive’s express prior written consent:
•
•
•
•
a material reduction in the executive’s position or duties,
a material breach of the employment agreement,
a material reduction in the executive’s aggregate target compensation, including the executive’s base salary and target
bonus on a combined basis, excluding a reduction that is applied to substantially all of our other senior executives;
provided, however, that for purposes of this clause, whether a reduction in target bonus has occurred shall be determined
without any regard to any actual bonus payments made to the executive, or
a relocation of the executive’s primary place of business for the performance of his duties to us to a location that is
more than 45 miles from our current business location.
The executive shall be considered to have “good reason” under the employment agreement only if, no later than 90 days
following an event otherwise constituting “good reason” under the employment agreement, the executive gives notice to us of the
occurrence of such event and we fail to cure the event within 30 days following its receipt of such notice from the executive, and
the executive terminates service within 36 months following a change of control.
If any of the severance payments, accelerated vesting and lapsing of restrictions would constitute a “parachute payment”
within the meaning of Section 280G of the Code and be subject to excise tax or any interest or penalties payable with respect to
such excise tax, then the executive’s benefits will be either delivered in full or delivered as to such lesser extent which would result
in no portion of such benefits being subject to such taxes, interest or penalties, whichever results in the executive receiving, on an
after-tax basis, the greatest amount of benefits.
Before receiving the benefits described in the employment agreements, the executive will be required to sign a separation
agreement and release of claims. In addition, the benefits will be conditioned upon the executive not soliciting our or our affiliates’
(as defined in the employment agreement) employees, consultants, customers or users for one year following the termination date.
Mr. Werner’s agreement also provides that, if his termination without cause or resignation for good reason is not in connection with
a change of control, his severance benefits will be conditioned upon a non-competition arrangement lasting one year following
employment termination.
52
2016 Management Career Transition Plan. In August 2015, we adopted the 2016 Management Career Transition Plan,
(the “Severance Plan”), which replaced our 2014 Management Career Transition Plan. The Severance Plan generally terminates
on the third anniversary of the effective date. The Severance Plan addresses severance for certain employment terminations, and
payments are only made if the executive or employee is not already entitled to severance benefits under a separate employment
agreement. Participants in the Severance Plan include our Chief Executive Officer, Thomas H. Werner, and those employees who
have been employed by the Company for at least six months and report directly to him (including our other named executive
officers), as well as other key employees of the Company who are provided with written notice from the Chief Executive Officer
that they are Severance Plan participants. Under the terms of the Severance Plan, Mr. Werner and the other named executive officers
will be eligible for benefits following a termination of employment by us without cause (as defined in the Severance Plan). Such
benefits include:
•
•
•
•
•
•
•
a lump-sum payment equivalent to 12 months (or 24 months in Mr. Werner’s case) of such executive’s base salary;
a lump-sum payment equal to any earned but unpaid annual bonus for a completed fiscal year;
a lump-sum payment equal to the pro rata portion of such executive’s actual bonus for the then current fiscal year,
based on the number of whole calendar months between the start of the fiscal year and the termination date;
continuation of such executive’s and such executive’s eligible dependents’ coverage under the Company’s health
benefit plans for up to 12 months (or 24 months in Mr. Werner’s case), at the Company’s expense;
a lump-sum payment equal to such executive’s accrued and unpaid base salary and paid time off;
annual make-up payments for taxes incurred by the executive in connection with such health benefit plans’ coverage; and
reimbursement of up to $15,000 for services of an outplacement firm mutually acceptable to the Company and the
executive.
Outstanding Equity Awards
The following table sets forth information regarding the outstanding equity awards held by our named executive officers
as of January 1, 2017.
Outstanding Equity Awards At 2016 Fiscal Year-End Table
Option Awards
Stock Awards
Equity
Incentive
Plan
Awards:
Number of
Unearned
Shares, Units
or Other
Rights That
Have Not
Vested
(#)
Equity
Incentive
Plan Awards:
Market or
Payout Value
of Unearned
Shares, Units
or Other
Rights That
Have Not
Vested
($)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Number
of Shares
or Units
of Stock
That Have
Not Vested
(#)
16,666
20,724
27,800
29,388
2,800
71,600
120,000
20,549
8,610
Market
Value of
Shares
or Units
of Stock
That Have
Not Vested
($)(1)
110,162
136,986
183,758
194,255
18,508
473,276
793,200
135,829
56,912
Name
Thomas H.
Werner
Grant Date
02/05/2014(2)
02/05/2014(3)
02/23/2015(4)
02/23/2015(5)
03/20/2015(6)
03/31/2016(7)
03/31/2016(8)
03/31/2016(9)
03/31/2016(10)
Number of
Securities
Underlying
Unexercised
Options
(#)
Exercisable
Number of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable
Option
Exercise
Price
($)
Option
Expiration
Date
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
53
Option Awards
Stock Awards
Number of
Securities
Underlying
Unexercised
Options
(#)
Exercisable
Number of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable
Option
Exercise
Price
($)
Option
Expiration
Date
Number
of Shares
or Units
of Stock
That Have
Not Vested
(#)
Market
Value of
Shares
or Units
of Stock
That Have
Not Vested
($)(1)
Equity
Incentive
Plan
Awards:
Number of
Unearned
Shares, Units
or Other
Rights That
Have Not
Vested
(#)
Equity
Incentive
Plan Awards:
Market or
Payout Value
of Unearned
Shares, Units
or Other
Rights That
Have Not
Vested
($)
Name
Charles D.
Boynton
Howard J.
Wenger (15)
Marty T.
Neese (16)
Douglas J.
Richards
Grant Date
02/05/2014(2)
02/05/2014(3)
02/03/2015(4)
02/23/2015(5)
03/20/2015(6)
07/21/2015(11)
02/22/2016(7)
02/22/2016(12)
02/05/2014(2)
02/05/2014(3)
02/03/2015(4)
02/23/2015(5)
02/23/2015(5)
03/20/2015(6)
02/22/2016(7)
02/22/2016(12)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
07/02/2008(13)
100,000
02/05/2014(2)
02/05/2014(3)
02/03/2015(4)
02/22/2016(7)
02/22/2016(14)
02/22/2016(12)
02/05/2014(2)
02/05/2014(3)
02/03/2015(4)
02/23/2015(5)
03/20/2015(6)
02/22/2016(7)
02/22/2016(12)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
62.82
07/02/2018
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
5,666
7,046
11,134
11,756
1,134
5,000
21,700
6,228
5,666
7,046
13,334
14,106
8,934
1,334
26,700
7,663
—
5,666
7,046
5,600
16,700
15,000
4,793
4,466
5,554
10,000
10,580
1,000
15,000
4,305
37,452
46,574
73,596
77,707
7,496
33,050
143,437
41,167
37,452
46,574
88,138
93,241
59,054
8,818
176,487
50,652
—
37,452
46,574
37,016
110,387
99,150
31,682
29,520
36,712
66,100
69,934
6,610
99,150
28,456
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(1) The closing price of our common stock on December 30, 2016 (the last trading day of fiscal 2016) was $6.61.
(2) Each of these awards of restricted stock units provided for vesting in three equal annual installments on each of March 1, 2015,
March 1, 2016, and March 1, 2017 subject to the recipient’s continued employment with us.
(3) On February 5, 2014, the named executive officer was awarded a number of performance-based restricted stock units within a
pre-set range, with the actual number earned contingent on the achievement of certain performance criteria. The actual earned
award was determined in the first quarter of fiscal 2015. The earned award vests in three equal annual installments on March 1,
2015, March 1, 2016, and March 1, 2017, subject to the recipient’s continued employment with us.
(4) Each of these awards of restricted stock units provided for vesting in three equal annual installments on each of March 1, 2016,
March 1, 2017, and March 1, 2018, subject to the recipient’s continued employment with us.
54
(5) On February 23, 2015, the named executive officer was awarded a number of performance-based restricted stock units within
a pre-set range, with the actual number contingent on the achievement of certain performance criteria. The actual earned award
was determined in the first quarter of fiscal 2016. The earned award vests in three equal annual installments on March 1, 2016,
March 1, 2017, and March 1, 2018, subject to the recipient’s continued employment with us.
(6) On March 20, 2015, the named executive officer was awarded a number of performance-based restricted stock units within a
pre-set range, with the actual number contingent on the achievement of certain performance criteria. The actual earned award
was determined in the first quarter of fiscal 2016. The earned award vests in three equal annual installments on March 1, 2016,
March 1, 2017, and March 1, 2018, subject to the recipient’s continued employment with us.
(7) Each of these awards of restricted stock units provided for vesting in four equal annual installments on each of March 1, 2017,
March 1, 2018, March 1, 2019, and March 1, 2020, subject to the recipient’s continued employment with us.
(8) Each of these awards of restricted stock units provided for one-time vesting on March 31, 2020 subject to the recipient’s
continued employment with us.
(9) On March 31, 2016, the named executive officer was awarded a number of performance-based restricted stock units within
a pre-set range, with the actual number contingent on the achievement of certain performance criteria. The actual award was
determined in the first quarter of 2017 and is described in “Equity Incentive Plan Compensation” above. The earned award
vests in four equal annual installments on March 1, 2017, March 1, 2018, March 1, 2019, and March 1, 2020, subject to the
recipient’s continued employment with us.
(10) On March 31, 2016, the named executive officer was awarded a number of performance-based restricted stock units within
a pre-set range, with the actual number contingent on the achievement of certain performance criteria. The actual award was
determined in the first quarter of 2017 and is described in “Equity Incentive Plan Compensation” above. The earned award
vests in full on March 1, 2020, subject to the recipient’s continued employment with us.
(11) Each of these awards of restricted stock units provided for vesting in three equal annual installments on each of August 1, 2016,
August 1, 2017, and August 1, 2018, subject to the recipient’s continued employment with us.
(12) On February 22, 2016, the named executive officer was awarded a number of performance-based restricted stock units within
a pre-set range, with the actual number contingent on the achievement of certain performance criteria. The actual award was
determined in the first quarter of 2017 and is described in “Equity Incentive Plan Compensation” above. The earned award
vests in four equal annual installments on March 1, 2017, March 1, 2018, March 1, 2019, and March 1, 2020, subject to the
recipient’s continued employment with us.
(13) This option has a 10-year term and vests in equal annual installments over a four-year period starting on July 2, 2009.
(14) Each of these awards of restricted stock units provided for vesting in two equal annual installments on each of March 1, 2017,
and March 1, 2018, subject to the recipient’s continued employment with us.
(15) Mr. Wenger’s last day of employment was March 3, 2017.
(16) Mr. Neese’s last day of employment was February 10, 2017.
The following table sets forth the number of shares acquired pursuant to the vesting of stock awards held by our named
executive officers during fiscal 2016 and the aggregate dollar amount realized by our named executive officers upon such events.
Because there were no shares acquired by our named executive officers pursuant to the exercise of options during fiscal 2016, we
have not included columns pertaining to option awards in the table below.
2016 Option Exercises and Stock Vested Table
Name
Thomas H. Werner
Charles D. Boynton
Howard J. Wenger (2)
Marty T. Neese (3)
Douglas J. Richards
Stock Awards
Number of Shares
Acquired on Vesting
(#)
Value Realized on
Vesting
($)(1)
275,810
82,592
86,934
70,883
64,316
4,829,906
1,932,879
2,058,597
1,678,509
1,523,003
(1) The aggregate dollar value realized upon the vesting of a stock award represents the fair market value of the underlying shares
on the vesting date multiplied by the number of shares vested.
(2) Mr. Wenger’s employment terminated on March 3, 2017.
(3) Mr. Neese’s employment terminated on February 10, 2017.
55
Potential Payments Upon Termination or Change of Control
Tabular Disclosure of Termination Payments. Our employment agreements with our named executive officers contain
provisions that provide for payments upon certain events of termination and change of control. See “Employment and Severance
Agreements” above for a detailed description of these agreements. The following tables summarize the estimated payments that
would have been made on December 31, 2016 which our named executive officers would be eligible to receive upon the following
termination events, assuming each such event had occurred on December 31, 2016, the last business day of our fiscal year ended
January 1, 2017:
•
•
•
•
•
termination with cause or voluntary resignation without good reason;
involuntary termination without cause or voluntary resignation for good reason in connection with a change of control;
involuntary termination without cause or voluntarily resignation for good reason not in connection with a change of control;
retirement; or
discontinued service due to death or disability.
The dollar value identified with respect to each type of equity award is based on each named executive officer’s accelerated
restricted stock units as of December 31, 2016 is based on the $6.61 per share closing price for our common stock on December
31, 2016, the last trading day of our fiscal year ended January 1, 2017. No named executive officers held unvested stock options
as of December 31, 2016. For more information on each officer’s outstanding equity awards as of January 1, 2017, please see the
“Outstanding Equity Awards At 2016 Fiscal-Year End Table” above. The tables do not include unpaid regular salary, nor the impact
of certain “best net” provisions of each named executive officer’s employment agreement that provides that, in the event any
payments under such employment agreement would constitute parachute payments under Section 280G of the Code or be subject to
the excise tax of Section 4999 of the Code, then such payments should be either delivered in full or reduced to result in no portion
being subject to such tax provisions and still yield the greatest payment to the individual on an after tax basis.
56
Termination Payments Table
Bonus and
Accelerated
Non-Equity
Incentive
Plan
Awards ($)
Base
Salary ($)
Accelerated
Restricted
Stock Units
($)(1)(2)
Continued
Medical
Benefits
and Gross
Up ($)
Outplace-
ment
Services
($)
Accrued
Paid Time
Off and
Sabbatical
($)
Total ($)
—
—
—
—
—
492
492
1,200,000
2,400,000
2,102,886
67,420
15,000
492
5,785,798
1,200,000
1,200,000
1,560,396
67,420
15,000
492
4,048,308
—
—
—
—
—
—
—
2,621,447
—
—
—
—
—
—
—
492
492
492
2,621,939
—
—
940,000
846,000
460,479
99,388
15,000
— 2,360,867
470,000
423,000
—
—
—
—
—
—
—
—
478,723
—
49,694
15,000
—
—
—
—
—
—
—
—
—
—
957,694
—
478,723
—
920,000
920,000
560,416
85
15,000
— 2,415,501
460,000
460,000
—
—
—
—
—
—
602,225
42
—
—
15,000
—
—
—
—
—
935,042
—
602,225
Name
Thomas H. Werner
Charles D. Boynton
Howard J. Wenger
Termination Scenario
Termination with cause or
voluntary resignation without
good reason
Involuntary termination
without cause or voluntary
resignation for good reason
in connection with change
of control
Involuntary termination
without cause or voluntary
resignation for good reason
not in connection with
change of control
Retirement
Death or disability
Termination with cause or
voluntary resignation without
good reason
Involuntary termination
without cause or voluntary
resignation for good reason
in connection with change
of control
Involuntary termination
without cause or voluntary
resignation for good reason
not in connection with
change of control
Retirement
Death or disability
Termination with cause or
voluntary resignation without
good reason
Involuntary termination
without cause or voluntary
resignation for good reason
in connection with change of
control
Involuntary termination
without cause or voluntary
resignation for good reason
not in connection with
change of control
Retirement
Death or disability
57
Name
Marty T. Neese
Douglas J. Richards
Termination Scenario
Termination with cause or
voluntary resignation without
good reason
Involuntary termination
without cause or voluntary
resignation for good reason
in connection with change of
control
Involuntary termination
without cause or voluntary
resignation for good reason
not in connection with
change of control
Retirement
Death or disability
Termination with cause or
voluntary resignation without
good reason
Involuntary termination
without cause or voluntary
resignation for good reason
in connection with change of
control
Involuntary termination
without cause or voluntary
resignation for good reason
not in connection with
change of control
Retirement
Death or disability
Bonus and
Accelerated
Non-Equity
Incentive
Plan
Awards ($)
Continued
Base
Salary ($)
Accelerated
Restricted
Stock Units
($)(1)(2)
Continued
Medical
Benefits
and Gross
Up ($)
Outplace-
ment
Services
($)
Accrued
Paid Time
Off and
Sabbatical
($)
Total ($)
—
—
—
—
—
—
—
900,000
810,000
362,261
68,440
15,000
— 2,155,701
450,000
405,000
—
—
—
—
—
—
—
—
356,940
—
34,220
15,000
—
—
—
—
—
—
—
—
—
—
904,220
—
356,940
—
740,000
592,000
336,482
52,717
15,000
— 1,736,199
370,000
296,000
—
—
—
—
—
—
340,944
26,359
15,000
—
—
—
—
—
—
—
707,359
—
340,944
(1) In connection with a change of control, accelerated restricted stock units’ calculation assumes that the change of control does
not involve Total or one of its affiliates.
(2) Awards under the SunPower Corporation 2015 Omnibus Incentive Plan provide for accelerated vesting upon death or disability.
58
The following report has been submitted by the Compensation Committee of the Board of Directors:
COMPENSATION COMMITTEE REPORT
The Compensation Committee of the Board of Directors has reviewed and discussed our Compensation Discussion and
Analysis with management. Based on this review and discussion, the Compensation Committee recommended to the Board of
Directors that the Compensation Discussion and Analysis be included in our Annual Report on Form 10-K for the fiscal year ended
January 1, 2017 and definitive proxy statement on Schedule 14A for our 2017 Annual Meeting, each as filed with the SEC. The
foregoing report was submitted by the Compensation Committee of the Board and shall not be deemed to be “soliciting material” or
to be “filed” with the SEC or subject to Regulation 14A promulgated by the SEC or Section 18 of the Exchange Act, and shall not
be deemed incorporated by reference into any prior or subsequent filing by us under the Securities Act of 1933 or the Exchange Act.
COMPENSATION COMMITTEE OF
THE BOARD OF DIRECTORS
Helle Kristoffersen
Thomas R. McDaniel
Julien Pouget
Pat Wood III, Chair
March 17, 2017
59
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information regarding beneficial ownership of our common stock as of
February 28, 2017 (except as described below) by:
•
•
•
•
each of our directors;
our Chief Executive Officer, Chief Financial Officer, and each of the three other most highly compensated individuals
who served as our executive officers at the end of our fiscal year 2016, whom we collectively refer to as our “named
executive officers”;
our directors, director nominees and executive officers as a group; and
each person (including any “group” as that term is used in Section 13(d)(3) of the Exchange Act) who is known by us
to beneficially own more than 5% of any class of our common stock.
Applicable beneficial ownership percentages listed below are based on 138,699,919 shares of common stock outstanding
as of February 28, 2017. The business address for each of our directors and executive officers is our corporate headquarters at
77 Rio Robles, San Jose, California 95134.
Directors and Named Executive Officers
Charles D. Boynton (2)
Helle Kristoffersen (3)
Daniel Lauré (4)
Catherine Lesjak
Thomas R. McDaniel (5)
Marty T. Neese (6)
Ladislas Paszkiewicz (7)
Julien Pouget (8)
Douglas J. Richards (9)
Howard J. Wenger (10)
Thomas H. Werner (11)
Laurent Wolffsheim
Pat Wood III (12)
All Directors and Executive Officers as a Group (14 persons) (13)
Other Persons
Total S.A.
Total Energies Nouvelles Activités USA, SAS (14)
2 place Jean Millier
La Défense 6
92400 Courbevoie
France
Wellington Management Group LLP
Wellington Group Holdings LLP
Wellington Investment Advisors Holdings LLP
Wellington Management Company LLP (15)
c/o Wellington Management Group LLP
280 Congress Street
Boston, MA 02210
Common Stock Beneficially Owned (1)
Number of Shares
%
74,919
—
—
52,732
138,858
225,879
—
—
72,924
255,234
487,864
—
77,476
1,276,157
*
—
—
*
*
*
—
—
*
*
*
—
*
*
104,528,234
63.48%
8,600,048
6.2%
* Less than 1%.
(1) Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power
with respect to the securities. In computing the number of shares beneficially owned by a person and the percentage ownership
of that person, shares underlying restricted stock units and options held by that person that will vest or be exercisable within
60 days of February 28, 2017 are deemed to be outstanding. Such shares, however, are not deemed to be outstanding for the
purpose of computing the percentage ownership of any other person.
60
(2) Includes 16,658 RSUs and 15,048 PSUs vesting within 60 days of February 28, 2017.
(3) Ms. Kristoffersen joined our Board on September 15, 2016.
(4) Mr. Lauré joined our Board on March 9, 2016.
(5) Includes 138,742 shares of common stock held indirectly in the McDaniel Trust dtd 7/26/2000 of which Mr. McDaniel and his
spouse are co-trustees.
(6) Includes 100,000 shares of common stock issuable upon exercise of options exercisable within 60 days of February 28, 2017.
Mr. Neese’s last day of employment was February 10, 2017.
(7) Mr. Paszkiewicz joined our Board on June 22, 2016.
(8) Mr. Pouget joined our Board on September 15, 2016.
(9) Includes 13,216 RSUs and 12,420 PSUs vesting within 60 days of February 28, 2017.
(10) Includes 19,008 RSUs and 21,148 PSUs vesting within 60 days of February 28, 2017. Mr. Wenger’s last day of employment
was March 3, 2017.
(11) Includes 1,218 shares of common stock held by The Werner Family Trust (“WF Trust”), of which Mr. Werner and his wife
are co-trustees and the beneficiaries are the surviving spouse between Thomas Werner and Suzanne Werner, to be followed by
Jessica Werner and Katheryn Werner. Thomas and Suzanne Werner have been delegated joint control and voting power over
the WF Trust. Includes 48,466 RSUs and 41,955 PSUs vesting within 60 days of February 28, 2017.
(12) Includes 6,000 shares of common stock issuable upon exercise of options exercisable within 60 days of February 28, 2017.
(13) Includes the shares described in footnotes 2-5 and 7-12 plus 104,865 shares of common stock held by additional executive
officers and 11,285 RSUs vesting within 60 days of February 28, 2017 held by additional executive officers.
(14) The ownership information set forth in the table is based on information contained in a statement on Schedule 13D/A, filed with
the SEC on December 10, 2015 by Total Energies Nouvelles Activités USA, SAS (formerly known as Total Gas & Power USA,
SAS) and its parent Total S.A., which indicated that the parties have shared voting and shared dispositive power with respect to
said shares. Includes 9,531,677 shares of common stock issuable pursuant to a warrant issued by us to Total Gas & Power USA,
SAS on February 28, 2012, 8,017,420 shares of common stock issuable upon conversion of the convertible debentures issued
by us to Total Gas & Power USA, SAS on May 29, 2013, 5,126,775 shares of common stock issuable upon conversion of the
convertible debentures issued by us to Total Energies Nouvelles Activités USA, SAS on June 11, 2014 and 3,275,680 shares of
common stock issuable upon conversion of the convertible debentures issued by us to Total Energies Nouvelles Activités USA,
SAS on December 15, 2015.
(15) The ownership information set forth in the table is based on information contained in a statement on Schedule 13G/A, filed with
the SEC on February 9, 2017 by Wellington Management Group LLP, Wellington Group Holdings LLP, Wellington Investment
Advisors Holdings LLP and Wellington Management Company LLP. Such statement disclosed that Wellington Management
Group LLP, Wellington Group Holdings LLP, Wellington Investment Advisors Holdings LLP have shared dispositive power
with respect to 8,600,048 shares (or 6.2% of the shares of common stock outstanding as of February 28, 2017) and shared
voting power with respect to 6,760,524 shares (or 4.87% of the shares of common stock outstanding as of February 28, 2017)
and that Wellington Management Company LLP has shared dispositive power with respect to 8,389,041 shares and shared
voting power with respect to 6,631,269 shares.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires certain of our executive officers and our directors, and
persons who own more than 10% of a registered class of our equity securities, to file an initial report of ownership on Form 3 and
reports of changes in ownership on Forms 4 or 5 with the SEC and The NASDAQ Global Select Market. Such executive officers,
directors and greater than 10% stockholders are also required by SEC regulations to furnish us with copies of all Section 16 forms
that they file. We periodically remind our directors and executive officers of their reporting obligations and assist in making the
required disclosures once we have been notified that a reportable event has occurred. We are required to report in this proxy
statement any failure by any of the above-mentioned persons to make timely Section 16 reports.
Based solely on our review of the copies of such forms received by us, and written representations from our directors and
executive officers, we are unaware of any instances of noncompliance, or late compliance, with Section 16(a) filing requirements by
our directors, executive officers or greater than 10% stockholders during fiscal 2016, except for Form 3 filings by Ms. Kristoffersen
and Mr. Wolffsheim which were four and five days late, respectively.
61
COMPANY STOCK PRICE PERFORMANCE
The following graph compares the performance of an investment in our common stock from December 30, 2011 through
January 1, 2017, with the NASDAQ Composite index and with the Guggenheim Solar ETF. The graph assumes $100 was invested
on December 30, 2011 in our common stock at the closing price of $6.23 per share, at the closing price for the NASDAQ Composite
and at the closing price for the Guggenheim Solar ETF. In addition, the graph assumes that any dividends were reinvested on the
date of payment without payment of any commissions. The performance shown in the graph represents past performance and
should not be considered an indication of future performance. The following graph is not, and shall not be deemed to be, filed
as part of our Annual Report on Form 10-K. Such graph should not be deemed filed or incorporated by reference into any of our
filings under the Securities Act of 1933, or the Securities Exchange Act of 1934, except to the extent specifically incorporated by
reference therein by us.
SunPower Corpora(cid:3)on
NASDAQ Composite
Guggenheim Solar ETF
$600
$500
$400
$300
$200
$100
$-
December 30,
2011
December 28,
2012
December 27,
2013
December 26,
2014
December 31,
2015
December 30,
2016
ASSUMES $100 INVESTED ON DECEMBER 30, 2011
(ASSUMES DIVIDEND REINVESTED)
UNTIL FISCAL YEAR ENDED JANUARY 1, 2017
December 28, 2012
December 27, 2013
December 26, 2014
December 31, 2015
December 30, 2016
SunPower Corporation
NASDAQ Composite
Guggenheim Solar ETF
$88.12
$113.63
$67.30
$464.04
$159.55
$156.15
$422.47
$184.51
$157.64
$481.70
$192.21
$142.15
$106.10
$206.63
$80.69
62
EQUITY COMPENSATION PLAN INFORMATION
The following table provides certain information as of January 1, 2017 with respect to our equity compensation plans under
which our equity securities are authorized for issuance (in thousands, except dollar figures).
Plan Category
Equity compensation plans approved by security holders
Total(1)
Number of
securities
to be issued
upon
exercise of
outstanding
options,
warrants
and rights
Weighted
average
exercise
price of
outstanding
options,
warrants
and rights
Number of securities
remaining available
for future issuance
under equity
compensation plans
(excluding securities
reflected in the first
column)
126
126
$57.77
—
7,018
7,018
(1) This table excludes options to purchase an aggregate of approximately 7,503 shares of common stock, at a weighted average
exercise price of $30.04 per share, that we assumed in connection with the acquisition of PowerLight Corporation, now
known as SunPower Corporation, Systems, in January 2007. Under the terms of our three equity incentive plans, we may
issue incentive or non-statutory stock options, restricted stock awards, restricted stock units, or stock purchase rights to
directors, employees and consultants to purchase common stock. The SunPower Corporation 2015 Omnibus Incentive Plan
includes an automatic share reserve increase feature effective for fiscal 2016 through fiscal 2025. This share reserve increase
feature will cause an annual and automatic increase in the number of shares of our common stock reserved for issuance under
the Stock Incentive Plan in an amount each year equal to the least of: 3% of the outstanding shares of our common stock
measured on the last day of the immediately preceding fiscal year; 6,000,000 shares; and such other number of shares as
determined by our Board. On January 2, 2017, the share reserve increase feature caused an automatic increase of 4,155,310
(3%) shares for fiscal 2017.
63
PROPOSAL FOUR
RATIFICATION OF THE APPOINTMENT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR FISCAL YEAR 2017
The Board of Directors, upon recommendation of the Audit Committee, has reappointed the firm of Ernst & Young LLP
as our independent registered public accounting firm for the fiscal year ending December 31, 2017, subject to ratification by our
stockholders.
Ernst & Young LLP has served as our auditor since May 3, 2012. A representative of Ernst & Young LLP is expected to be
present at the Annual Meeting and will have an opportunity to make a statement if he or she desires to do so, and is expected to be
available to respond to appropriate questions.
Stockholder ratification of the selection of Ernst & Young LLP as our independent registered public accounting firm is not
required by our By-Laws or other applicable legal requirements. However, the Board is submitting the selection of Ernst & Young
LLP to the stockholders for ratification as a matter of good corporate governance.
If the stockholders fail to ratify the selection of our independent registered accounting firm, the Audit Committee and the
Board will reconsider whether or not to retain that firm. Even if the selection is ratified, the Board, at its discretion, may direct the
appointment of a different independent registered public accounting firm at any time during the year if it determines that such a
change would be in our and our stockholders’ best interests.
Ernst & Young LLP
Ernst & Young LLP fees incurred by us for fiscal years 2015 and 2016 were as follows:
Services
Audit Fees
Audit-Related Fees
Tax Fees
All Other Fees
Total
2015
($)
2,871,088
1,440,551
983,365
19,000
5,314,005
2016
($)
4,641,049
73,720
838,785
306,444
5,859,998
• Audit Fees: Audit fees for 2015 and 2016 were for professional services rendered in connection with audits of our
consolidated financial statements, statutory audits of our subsidiary companies, quarterly reviews and assistance with
documents that we filed with the SEC (including our Forms 10-Q and 8-K) for periods covering fiscal 2015 and 2016.
• Audit-Related Fees: Audit-related fees for 2015 and 2016 were for professional services rendered in connection with
debt offerings and consultations with management on various accounting matters.
• Tax Fees: Tax fees for 2015 and 2016 were for tax consulting services.
• All Other Fees: Other fees in 2015 and 2016 were for access to technical accounting services.
Audit Committee Pre-Approval
As required by Section 10A(i)(1) of the Exchange Act, our Audit Committee has adopted a pre-approval policy requiring
that the Audit Committee pre-approve all audit and permissible non-audit services to be performed by our independent registered
public accounting firm. Any proposed service that has received pre-approval but which will exceed pre-approved cost limits will
require additional pre-approval by the Audit Committee. In addition, pursuant to Section 10A(i)(3) of the Exchange Act, the Audit
Committee has established procedures by which the Audit Committee may from time to time delegate pre-approval authority to
the Chairman of the Audit Committee. If the Chairman exercises this authority, he must report any pre-approval decisions to the
full Audit Committee at its next meeting. The independent registered public accounting firm and our management are required to
periodically report to the Audit Committee regarding the extent of services provided by the independent registered public accounting
firm in accordance with the committee’s pre-approval, and the fees for the services performed to date.
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During fiscal years 2015 and 2016 all services provided to us by Ernst & Young LLP were pre-approved by the Audit
Committee in accordance with the pre-approval policy described above. The scope and services was reviewed and approved by
the Audit Committee after the services were rendered. Ernst & Young LLP and our Audit Committee have each concluded that
Ernst & Young LLP’s objectivity and ability to exercise impartial judgment on all issues encompassed with the audit engagement
has not been impaired because (i) the services did not include prohibited non-audit related services and (ii) the fees we paid were
insignificant both to Ernst & Young LLP and to SunPower.
Vote Required
The ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm for fiscal
year 2017 requires the affirmative vote of the holders of a majority of our stock having voting power and in attendance or represented
by proxy at the Annual Meeting. We do not expect “broker non-votes” on this proposal since brokers have discretionary authority
to vote on this proposal. Abstentions will have the effect of votes against this proposal.
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Changing the Way Our World is PoweredWith more than 30 years of proven experience, SunPower is a global leader in solar innovation and sustainability. Our unique approach emphasizes the seamless integration of advanced SunPower technologies, delivering The Power of OneTM complete solar solutions and lasting customer value. SunPower delivers outstanding service and impressive electricity cost savings for residential, commercial and power plant customers.At SunPower, we are passionately committed to changing the way our world is powered. And as we continue shaping the future of Smart Energy, we are guided by our legacy of innovation, optimism, perseverance and integrity. Headquartered in Silicon Valley, SunPower has about 7,000 dedicated, customer-focused employees in Africa, Asia, Australia, Europe, North America and South America. Since 2011, we’ve been majority-owned by Total, the fourth largest* publicly-listed energy company in the world. For more information, visit sunpower.com. *Based on market capitalization in U.S. dollars at December 31, 2016.Executive OfficersThomas H. Werner President, CEO and Chairman of the Board Charles D. Boynton Executive Vice President and Chief Financial OfficerKen Mahaffey Executive Vice President and General CounselDr. Bill Mulligan Executive Vice President Global OperationsDouglas J. Richards Executive Vice President AdministrationBoard of DirectorsThomas H. Werner Chairman of the Board Helle Kristoffersen Director Daniel Lauré Director Catherine Lesjak Director Thomas R. McDaniel Director Ladislas Paszkiewicz Director Julien Pouget Director Laurent Wolffsheim Director Pat Wood III Director Corporate HeadquartersSunPower Corporation77 Rio Robles San Jose, California 95134408.240.5500sunpower.comAnnual Report 2016©2017 SunPower Corporation. All Rights Reserved. SUNPOWER, the SUNPOWER logo, and all other trademarks cited herein are the property of SunPower Corporation in the U.S. and other countries as well.SUNPOWER 2016 ANNUAL REPORT