SPWR_09.28.2014_10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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T | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 28, 2014
OR
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o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ______________ to ______________
Commission file number 001-34166
SunPower Corporation
(Exact Name of Registrant as Specified in Its Charter)
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| | |
Delaware | | 94-3008969 |
(State or Other Jurisdiction of Incorporation or Organization) | | (I.R.S. Employer Identification No.) |
77 Rio Robles, San Jose, California 95134
(Address of Principal Executive Offices and Zip Code)
(408) 240-5500
(Registrant's Telephone Number, Including Area Code)
_________________________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes T No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes T No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer x | Accelerated filer o | Non-accelerated filer o | Smaller reporting company o |
| | (Do not check if a smaller reporting company) | |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No T
The total number of outstanding shares of the registrant’s common stock as of October 24, 2014 was 131,330,619.
TABLE OF CONTENTS |
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Part 1. FINANCIAL INFORMATION | |
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Item 1. | Financial Statements (unaudited) | |
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| Consolidated Balance Sheets | |
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| Consolidated Statements of Operations | |
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| Consolidated Statements of Comprehensive Income | |
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| Consolidated Statement of Equity | |
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| Consolidated Statements of Cash Flows | |
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| Notes to Consolidated Financial Statements | |
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Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations | |
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Item 3. | Quantitative and Qualitative Disclosure About Market Risk | |
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Item 4. | Controls and Procedures | |
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Part II. OTHER INFORMATION | |
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Item 1. | Legal Proceedings | |
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Item 1A. | Risk Factors | |
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Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | |
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Item 6. | Exhibits | |
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Signatures | |
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Index to Exhibits | |
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SunPower Corporation
Consolidated Balance Sheets
(In thousands, except share data)
(unaudited)
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| | | | | | | |
| September 28, 2014 | | December 29, 2013 |
Assets | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 922,729 |
| | $ | 762,511 |
|
Restricted cash and cash equivalents, current portion | 17,156 |
| | 13,926 |
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Accounts receivable, net1 | 520,166 |
| | 360,594 |
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Costs and estimated earnings in excess of billings1 | 46,256 |
| | 31,787 |
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Inventories | 195,342 |
| | 245,575 |
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Advances to suppliers, current portion | 87,837 |
| | 58,619 |
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Project assets - plants and land, current portion | 25,244 |
| | 69,196 |
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Prepaid expenses and other current assets1 | 795,119 |
| | 646,270 |
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Total current assets | 2,609,849 |
| | 2,188,478 |
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| | | |
Restricted cash and cash equivalents, net of current portion | 23,894 |
| | 17,573 |
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Restricted long-term marketable securities | 7,182 |
| | 8,892 |
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Property, plant and equipment, net | 538,321 |
| | 533,387 |
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Solar power systems leased and to be leased, net | 361,727 |
| | 345,504 |
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Project assets - plants and land, net of current portion | 67,152 |
| | 6,411 |
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Advances to suppliers, net of current portion | 314,054 |
| | 324,695 |
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Long-term financing receivables, net | 252,382 |
| | 175,273 |
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Other long-term assets1 | 233,977 |
| | 298,477 |
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Total assets | $ | 4,408,538 |
| | $ | 3,898,690 |
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| | | |
Liabilities and Equity | |
| | |
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Current liabilities: | |
| | |
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Accounts payable1 | $ | 440,613 |
| | $ | 443,969 |
|
Accrued liabilities | 352,724 |
| | 358,157 |
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Billings in excess of costs and estimated earnings | 349,090 |
| | 308,650 |
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Short-term debt | 17,728 |
| | 56,912 |
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Convertible debt, current portion | 240,213 |
| | 455,889 |
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Customer advances, current portion1 | 37,274 |
| | 36,883 |
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Total current liabilities | 1,437,642 |
| | 1,660,460 |
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Long-term debt | 149,848 |
| | 93,095 |
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Convertible debt, net of current portion1 | 700,079 |
| | 300,079 |
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Customer advances, net of current portion1 | 153,493 |
| | 167,282 |
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Other long-term liabilities | 520,116 |
| | 523,991 |
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Total liabilities | 2,961,178 |
| | 2,744,907 |
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Commitments and contingencies (Note 7) |
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Redeemable noncontrolling interests in subsidiaries | 28,588 |
| | — |
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Equity: | |
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Preferred stock, $0.001 par value; 10,000,000 shares authorized; none issued and outstanding as of both September 28, 2014 and December 29, 2013 | — |
| | — |
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Common stock, $0.001 par value, 367,500,000 shares authorized; 138,398,641 shares issued, and 131,304,479 outstanding as of September 28, 2014; 126,946,763 shares issued, and 121,535,913 outstanding as of December 29, 2013 | 131 |
|
| 122 |
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Additional paid-in capital | 2,197,790 |
| | 1,980,778 |
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Accumulated deficit | (695,313 | ) | | (806,492 | ) |
Accumulated other comprehensive loss | (5,752 | ) | | (4,318 | ) |
Treasury stock, at cost; 7,094,162 shares of common stock as of September 28, 2014; 5,410,850 shares of common stock as of December 29, 2013 | (109,937 | ) | | (53,937 | ) |
Total stockholders' equity | 1,386,919 |
| | 1,116,153 |
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Noncontrolling interests in subsidiaries | 31,853 |
| | 37,630 |
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Total equity | 1,418,772 |
| | 1,153,783 |
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Total liabilities and equity | $ | 4,408,538 |
| | $ | 3,898,690 |
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1 | The Company has related-party balancesfor transactions made with Total and its affiliates as well as unconsolidated entities in which the Company has a direct equity investment. These related-party balances are recorded within the "Accounts Receivable,net," "Costs and estimated earnings in excess of billings," "Prepaid expenses and other current assets," "Other long-term assets," "Accounts payable," "Customer advances, current portion," "Convertible debt, net of current portion," and "Customer advances, net of current portion" financial statement line items in the Consolidated Balance Sheets (see Note 2, Note 4, Note 7, Note 8, and Note 9). |
The accompanying notes are an integral part of these consolidated financial statements.
SunPower Corporation
Consolidated Statements of Operations
(In thousands, except per share data)
(unaudited)
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| | | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
| | September 28, 2014 | | September 29, 2013 | | September 28, 2014 | | September 29, 2013 |
| | | | | | | | |
Revenue | | $ | 662,734 |
| | $ | 657,120 |
| | $ | 1,863,027 |
| | $ | 1,869,069 |
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Cost of revenue | | 554,220 |
| | 463,890 |
| | 1,497,379 |
| | 1,508,665 |
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Gross margin | | 108,514 |
| | 193,230 |
| | 365,648 |
| | 360,404 |
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Operating expenses: | | | | | | | | |
Research and development | | 17,291 |
| | 14,903 |
| | 50,618 |
| | 41,108 |
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Sales, general and administrative | | 68,394 |
| | 63,229 |
| | 213,821 |
| | 195,356 |
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Restructuring charges | | 188 |
| | 1,114 |
| | (990 | ) | | 1,705 |
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Total operating expenses | | 85,873 |
| | 79,246 |
| | 263,449 |
| | 238,169 |
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Operating income | | 22,641 |
| | 113,984 |
| | 102,199 |
| | 122,235 |
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Other income (expense), net: | | | | | | | | |
Interest income | | 922 |
| | 258 |
| | 1,908 |
| | 839 |
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Interest expense | | (17,170 | ) | | (28,861 | ) | | (53,072 | ) | | (80,765 | ) |
Other, net | | 882 |
| | (4,159 | ) | | 2,175 |
| | (11,972 | ) |
Other expense, net | | (15,366 | ) | | (32,762 | ) | | (48,989 | ) | | (91,898 | ) |
Income before income taxes and equity in earnings of unconsolidated investees | | 7,275 |
| | 81,222 |
| | 53,210 |
| | 30,337 |
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Benefit from (provision for) income taxes | | 8,320 |
| | 4,575 |
| | 2,868 |
| | (2,920 | ) |
Equity in earnings of unconsolidated investees | | 1,689 |
| | 1,585 |
| | 5,408 |
| | 2,261 |
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Net income | | 17,284 |
| | 87,382 |
| | 61,486 |
| | 29,678 |
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Net loss attributable to noncontrolling interests and redeemable noncontrolling interests | | 14,749 |
| | 21,004 |
| | 49,693 |
| | 43,577 |
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Net income attributable to stockholders | | $ | 32,033 |
| | $ | 108,386 |
| | $ | 111,179 |
| | $ | 73,255 |
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| | | | | | | | |
Net income per share attributable to stockholders: | | | | | | | | |
Basic | | $ | 0.24 |
| | $ | 0.89 |
| | $ | 0.87 |
| | $ | 0.61 |
|
Diluted | | $ | 0.20 |
| | $ | 0.73 |
| | $ | 0.72 |
| | $ | 0.55 |
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Weighted-average shares: | | | | | | | | |
Basic | | 131,204 |
| | 121,314 |
| | 127,716 |
| | 120,604 |
|
Diluted | | 167,117 |
| | 153,876 |
| | 158,962 |
| | 134,859 |
|
The accompanying notes are an integral part of these consolidated financial statements.
SunPower Corporation
Consolidated Statements of Comprehensive Income
(In thousands)
(unaudited)
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| | | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
| | September 28, 2014 | | September 29, 2013 | | September 28, 2014 | | September 29, 2013 |
Net income | | $ | 17,284 |
| | $ | 87,382 |
| | $ | 61,486 |
| | $ | 29,678 |
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Components of comprehensive income: | | | | | | | | |
Translation adjustment | | (3,777 | ) | | 1,923 |
| | (3,435 | ) | | (2,003 | ) |
Net unrealized gain (loss) on derivatives (Note 10) | | 2,148 |
| | (2,005 | ) | | 2,505 |
| | (524 | ) |
Unrealized loss on investments | | — |
| | 7 |
| | — |
| | — |
|
Income taxes | | (425 | ) | | 379 |
| | (504 | ) | | 100 |
|
Net change in accumulated other comprehensive income (loss) | | (2,054 | ) | | 304 |
| | (1,434 | ) | | (2,427 | ) |
Total comprehensive income | | 15,230 |
| | 87,686 |
| | 60,052 |
| | 27,251 |
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Comprehensive loss attributable to noncontrolling interests and redeemable noncontrolling interests | | 14,749 |
| | 21,004 |
| | 49,693 |
| | 43,577 |
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Comprehensive income attributable to stockholders | | $ | 29,979 |
| | $ | 108,690 |
| | $ | 109,745 |
| | $ | 70,828 |
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The accompanying notes are an integral part of these consolidated financial statements.
SunPower Corporation
Consolidated Statement of Equity
(In thousands)
(unaudited)
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| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | 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 | | $ | — |
| | 121,536 |
| | $ | 122 |
| | $ | 1,980,778 |
| | $ | (53,937 | ) | | $ | (4,318 | ) | | $ | (806,492 | ) | | $ | 1,116,153 |
| | $ | 37,630 |
| | $ | 1,153,783 |
|
Net income (loss) | | (27,058 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | 111,179 |
| | 111,179 |
| | (22,635 | ) | | 88,544 |
|
Other comprehensive income (loss) | | — |
| | — |
| | — |
| | — |
| | — |
| | (1,434 | ) | | — |
| | (1,434 | ) | | — |
| | (1,434 | ) |
Issuance of common stock upon exercise of options | | — |
| | 75 |
| | — |
| | 939 |
| | — |
| | — |
| | — |
| | 939 |
| | — |
| | 939 |
|
Issuance of restricted stock to employees, net of cancellations | | — |
| | 4,245 |
| | 2 |
| | (2 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Issuance of common stock upon conversion of convertible debt | | — |
| | 7,131 |
| | 7 |
| | 188,256 |
| | — |
| | — |
| | — |
| | 188,263 |
| | — |
| | 188,263 |
|
Settlement of the 4.75% Bond hedge | | — |
| | — |
| | — |
| | 68,842 |
| | — |
| | — |
| | — |
| | 68,842 |
| | — |
| | 68,842 |
|
Settlement of the 4.75% Warrants | | — |
| | — |
| | — |
| | (81,077 | ) | | — |
| | — |
| | — |
| | (81,077 | ) | | — |
| | (81,077 | ) |
Stock-based compensation expense | | — |
| | — |
| | — |
| | 41,725 |
| | — |
| | — |
| | — |
| | 41,725 |
| | — |
| | 41,725 |
|
Tax benefit from convertible debt interest deduction | | — |
| | — |
| | — |
| | (1,378 | ) | | — |
| | — |
| | — |
| | (1,378 | ) | |
| | (1,378 | ) |
Tax benefit from stock-based compensation | | — |
| | — |
| | — |
| | (293 | ) | | — |
| | — |
| | — |
| | (293 | ) | | — |
| | (293 | ) |
Contributions from noncontrolling interests and redeemable noncontrolling interests | | 33,521 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 41,790 |
| | 41,790 |
|
Distributions to noncontrolling interests and redeemable noncontrolling interests | | (1,866 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (941 | ) | | (941 | ) |
Purchases of treasury stock | | — |
| | (1,683 | ) | | — |
| | — |
| | (56,000 | ) | | — |
| | — |
| | (56,000 | ) | | — |
| | (56,000 | ) |
Transfer of redeemable noncontrolling interests | | 23,991 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (23,991 | ) | | (23,991 | ) |
Balances at September 28, 2014 | | $ | 28,588 |
| | 131,304 |
| | $ | 131 |
| | $ | 2,197,790 |
| | $ | (109,937 | ) | | $ | (5,752 | ) | | $ | (695,313 | ) | | $ | 1,386,919 |
| | $ | 31,853 |
| | $ | 1,418,772 |
|
The accompanying notes are an integral part of these consolidated financial statements.
SunPower Corporation
Consolidated Statements of Cash Flows
(In thousands)
(unaudited)
|
| | | | | | | |
| Nine Months Ended |
| September 28, 2014 | | September 29, 2013 |
Cash flows from operating activities: | | | |
Net income | $ | 61,486 |
| | $ | 29,678 |
|
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | | | |
Depreciation and amortization | 75,124 |
| | 73,124 |
|
Stock-based compensation | 41,940 |
| | 31,103 |
|
Non-cash interest expense | 15,991 |
| | 36,382 |
|
Gain from contract termination | — |
| | (51,988 | ) |
Equity in earnings of unconsolidated investees | (5,408 | ) | | (2,261 | ) |
Deferred income taxes and other tax liabilities | (1,893 | ) | | 2,317 |
|
Other, net | 25 |
| | 3,212 |
|
Changes in operating assets and liabilities, net of effect of acquisition: | | | |
Accounts receivable | (45,934 | ) | | (46,391 | ) |
Costs and estimated earnings in excess of billings | (14,469 | ) | | (6,168 | ) |
Inventories | 23,860 |
| | (38,543 | ) |
Project assets | (33,338 | ) | | (42,113 | ) |
Prepaid expenses and other assets | (147,351 | ) | | 119,790 |
|
Long-term financing receivables, net | (77,109 | ) | | (71,435 | ) |
Advances to suppliers | (18,578 | ) | | (13,735 | ) |
Accounts payable and other accrued liabilities | (15,376 | ) | | 106,769 |
|
Billings in excess of costs and estimated earnings | 40,440 |
| | 27,779 |
|
Customer advances | (13,399 | ) | | (27,967 | ) |
Net cash provided by (used in) operating activities | (113,989 | ) | | 129,553 |
|
Cash flows from investing activities: | | | |
Decrease (increase) in restricted cash and cash equivalents | (9,550 | ) | | 14,944 |
|
Purchases of property, plant and equipment | (45,508 | ) | | (25,460 | ) |
Cash paid for solar power systems, leased and to be leased | (35,559 | ) | | (83,619 | ) |
Cash paid for solar power systems | (4,917 | ) | | — |
|
Proceeds from sales or maturities of marketable securities | 1,380 |
| | 100,947 |
|
Proceeds from sale of equipment to third parties | — |
| | 645 |
|
Purchases of marketable securities | (30 | ) | | (99,928 | ) |
Cash paid for acquisitions, net of cash acquired | (6,894 | ) | | — |
|
Cash paid for investments in unconsolidated investees | (5,013 | ) | | (1,411 | ) |
Net cash used in investing activities | (106,091 | ) | | (93,882 | ) |
Cash flows from financing activities: | | | |
Proceeds from issuance of convertible debt, net of issuance costs | 395,275 |
| | 296,283 |
|
Cash paid for repurchase of convertible debt | (42,153 | ) | | — |
|
Proceeds from settlement of 4.75% Bond Hedge | 68,842 |
| | — |
|
Payments to settle 4.75% Warrants | (81,077 | ) | | — |
|
Proceeds from settlement of 4.50% Bond Hedge | 114 |
| | — |
|
Proceeds from issuance of non-recourse debt financing, net of issuance costs | 74,840 |
| | — |
|
Proceeds from issuance of project loans, net of issuance costs | — |
| | 68,225 |
|
Assumption of project loan by customer | (40,672 | ) | | — |
|
Proceeds from residential lease financing | — |
| | 83,365 |
|
Repayment of residential lease financing | (15,686 | ) | | — |
|
Proceeds from sale-leaseback financing | 23,578 |
| | 40,757 |
|
Repayment of sale-leaseback financing | (1,360 | ) | | (5,124 | ) |
Contributions from noncontrolling interests and redeemable noncontrolling interests | 75,312 |
| | 73,401 |
|
Distributions to noncontrolling interests and redeemable noncontrolling interests | (2,808 | ) | | — |
|
Proceeds from exercise of stock options | 939 |
| | 98 |
|
Purchases of stock for tax withholding obligations on vested restricted stock | (56,000 | ) | | (17,584 | ) |
Repayment of bank loans, project loans and other debt | (16,540 | ) | | (290,098 | ) |
Net cash provided by financing activities | 382,604 |
| | 249,323 |
|
Effect of exchange rate changes on cash and cash equivalents | (2,306 | ) | | 1,094 |
|
Net increase in cash and cash equivalents | 160,218 |
| | 286,088 |
|
Cash and cash equivalents, beginning of period | 762,511 |
| | 457,487 |
|
Cash and cash equivalents, end of period | $ | 922,729 |
| | $ | 743,575 |
|
| | | |
Non-cash transactions: | | | |
Assignment of residential lease receivables to a third-party financial institution | $ | 6,419 |
| | $ | 67,400 |
|
Costs of solar power systems, leased and to be leased, sourced from existing inventory | $ | 25,808 |
| | $ | 43,341 |
|
Costs of solar power systems, leased and to be leased, funded by liabilities | $ | 2,389 |
| | $ | 2,315 |
|
Costs of solar power systems under sale-leaseback financing arrangements, sourced from project assets | $ | 17,333 |
| | $ | 24,399 |
|
Property, plant and equipment acquisitions funded by liabilities | $ | 12,146 |
| | $ | 5,628 |
|
Issuance of common stock upon conversion of convertible debt | $ | 188,263 |
| | $ | — |
|
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 vertically integrated solar products and solutions company that designs, manufactures and delivers high-performance solar systems worldwide, serving as a one-stop shop for residential, commercial, and utility-scale power plant customers. SunPower Corporation is a majority owned subsidiary of Total Energies Nouvelles Activités USA ("Total"), a subsidiary of Total S.A. ("Total S.A.") (see Note 2).
Basis of Presentation and Preparation
Principles of Consolidation
The consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America ("United States" or "U.S.") and include the accounts of the Company, all of its subsidiaries and special purpose entities, as appropriate under consolidation accounting guidelines. Intercompany transactions and balances have been eliminated in consolidation. The assets of the special purpose entities that the Company sets up related to project financing for customers are not designed to be available to service the general liabilities and obligations of the Company in certain circumstances.
Reclassifications
Certain prior period balances have been reclassified to conform to the current period presentation in the Company's consolidated financial statements and the accompanying notes. Such reclassifications had no effect on previously reported results of operations or accumulated deficit.
Fiscal Years
The Company has a 52-to-53-week fiscal year that ends on the Sunday closest to December 31. Accordingly, every fifth or sixth year will be a 53-week fiscal year. Both fiscal 2014 and 2013 are 52-week fiscal years. The third quarter of fiscal 2014 ended on September 28, 2014, while the third quarter of fiscal 2013 ended on September 29, 2013. The third quarters of fiscal 2014 and fiscal 2013 were both 13-week quarters.
Management Estimates
The preparation of the consolidated financial statements in conformity with U.S. generally accepted accounting principles ("U.S. GAAP") requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Significant estimates in these consolidated financial statements include percentage-of-completion for construction projects; allowances for doubtful accounts receivable and sales returns; inventory and project asset write-downs; stock-based compensation; estimates for future cash flows and economic useful lives of property, plant and equipment and other long-term assets; the fair value and residual value of leased solar power systems; fair value of financial instruments; valuation of certain accrued liabilities such as accrued warranty; and income taxes and tax valuation allowances. Actual results could materially differ from those estimates.
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board ("FASB") issued a new revenue recognition standard based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. The new revenue recognition standard becomes effective for the Company in the first quarter of fiscal 2017 and is to be applied retrospectively using one of two prescribed methods. The Company is evaluating the application method and impact on its consolidated financial statements and disclosures.
In July 2013, the FASB amended its guidance related to the presentation of unrecognized tax benefits. The amended guidance specifies when an unrecognized tax benefit or a portion of an unrecognized tax benefit should be presented as a liability versus an offset against a deferred tax asset when a net operating loss carryforward, a similar tax loss or tax credit carryforward exists. The amendment became effective for the Company in the first quarter of fiscal 2014 and did not have a material impact on its consolidated financial statements.
In March 2013, the FASB and International Accounting Standards Board ("IASB") issued common disclosure requirements that are intended to enhance comparability between financial statements prepared in accordance with U.S. GAAP and those prepared in accordance with International Financial Reporting Standards ("IFRS"). This new guidance is applicable to companies that have financial instruments or derivatives that are either offset in the balance sheet (presented on a net basis) or subject to an enforceable master netting arrangement or similar arrangement. The requirement does not change the existing offsetting eligibility criteria or the permitted balance sheet presentation for those instruments that meet the eligibility criteria. However, once this disclosure requirement becomes effective, companies will also be required to disclose information about financial instruments and derivatives instruments that have been offset and related arrangements and to provide both net (offset amounts) and gross information in the notes to the financial statements for relevant assets and liabilities that are offset. The disclosure requirement became effective retrospectively in the first quarter of the Company's fiscal year 2014 and did not have a material impact on the Company's consolidated financial statements as the requirement is disclosure-based only.
In March 2013, the FASB amended its guidance related to foreign currency matters requiring the release of the cumulative translation adjustment into net income when an entity ceases to have a controlling financial interest in a subsidiary or a group of assets within a foreign entity. The amendment became effective for the Company in the first quarter of fiscal 2014 and did not have a material impact on its consolidated financial statements.
Other than as described above, there has been no issued accounting guidance not yet adopted by the Company that it believes is material or potentially material to its consolidated financial statements.
Note 2. TRANSACTIONS WITH TOTAL AND TOTAL S.A.
In June 2011, Total completed a cash tender offer to acquire 60% of the Company's then outstanding shares of common stock at a price of $23.25 per share, for a total cost of approximately $1.4 billion. In December 2011, the Company entered into a Private Placement Agreement with Total, under which Total purchased, and the Company issued and sold, 18.6 million shares of the Company's common stock for a purchase price of $8.80 per share, thereby increasing Total's ownership to approximately 66% of the Company's outstanding common stock as of that date.
Credit Support Agreement
In fiscal 2011, the Company and Total S.A. entered into a Credit Support Agreement (the "Credit Support Agreement") under which Total S.A. agreed to enter into one or more guarantee agreements (each a "Guaranty") with banks providing letter of credit facilities to the Company. Total S.A. will guarantee the Company's obligation to reimburse the applicable issuing bank a draw on a letter of credit and pay interest thereon in accordance with the letter of credit facility between such bank and the Company. Under the Credit Support Agreement, the Company may also request that Total S.A. provide a Guaranty in support of the Company's payment obligations with respect to a letter of credit facility. The Company is required to pay Total S.A. a guarantee fee for each letter of credit that is the subject of a Guaranty under the Credit Support Agreement and was outstanding for all or part of the preceding calendar quarter.
The Credit Support Agreement will terminate following the fifth anniversary of the CSA Effective Date, after the later of the payment in full of all obligations thereunder and the termination or expiration of each Guaranty provided thereunder.
Affiliation Agreement
The Company and Total have entered into an Affiliation Agreement that governs the relationship between Total and the Company (the "Affiliation Agreement"). Until the expiration of a standstill period (the "Standstill Period"), and subject to certain exceptions, Total, Total S.A., any of their respective affiliates and certain other related parties (the "Total Group") may not effect, seek, or enter into discussions with any third-party regarding any transaction that would result in the Total Group beneficially owning shares of the Company in excess of certain thresholds, or request the Company or the Company's independent directors, officers or employees, to amend or waive any of the standstill restrictions applicable to the Total Group.
The Affiliation Agreement imposes certain limitations on the Total Group's ability to seek to effect a tender offer or merger to acquire 100% of the outstanding voting power of the Company and imposes certain limitations on the Total Group's ability to transfer 40% or more of outstanding shares or voting power of the Company to a single person or group that is not a direct or indirect subsidiary of Total S.A. During the Standstill Period, no member of the Total Group may, among other things, solicit proxies or become a participant in an election contest relating to the election of directors to the Company's Board of Directors.
The Affiliation Agreement provides Total with the right to maintain its percentage ownership in connection with any new securities issued by the Company, and Total may also purchase shares on the open market or in private transactions with disinterested stockholders, subject in each case to certain restrictions.
The Affiliation Agreement also imposes certain restrictions with respect to the Company's and 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.
Liquidity Support Agreement with Total S.A.
The Company was party to an agreement with a customer to construct the California Valley Solar Ranch, a solar park. Part of the debt financing necessary for the customer to pay for the construction of this solar park was provided by the Federal Financing Bank in reliance on a guarantee of repayment provided by the Department of Energy (the "DOE") under a loan guarantee program. In February 2012, the Company entered into a Liquidity Support Agreement with Total S.A. and the DOE, and a series of related agreements with Total S.A. and Total, under which Total S.A. agreed to provide the Company, or cause to be provided, additional liquidity under certain circumstances to a maximum amount of $600.0 million ("Liquidity Support Facility"). The Liquidity Support Facility was available until the completion of the solar park, which was completed in accordance with the terms of the relevant agreement in March 2014. Upon completion, the Liquidity Support Agreement was terminated. There were no outstanding guarantees or debt under the facility upon termination.
Compensation and Funding Agreement
In February 2012, the Company entered into a Compensation and Funding Agreement (the "Compensation and Funding Agreement") with Total S.A. which established the parameters for the terms of liquidity injections that may be required to be provided by Total S.A. to the Company from time to time. During the term of the Compensation and Funding Agreement, the Company is required to pay Total S.A. a guarantee fee in an amount equal to 2.75% per annum of the average amount of the Company's indebtedness that is guaranteed by Total S.A. pursuant to any guaranty issued in accordance with the terms of the Compensation and Funding Agreement during such quarter. Any payment obligations of the Company to Total S.A. under the Compensation and Funding Agreement that are not paid when due accrue interest until paid in full at a rate equal to 6-month U.S. LIBOR as in effect from time to time plus 5.00% per annum.
Upfront Warrant
In February 2012, the Company issued a warrant (the "Upfront Warrant") to Total S.A. to purchase 9,531,677 shares of the Company's common stock with an exercise price of $7.8685, subject to adjustment for customary anti-dilution and other events. The Upfront Warrant, governed by the Private Placement Agreement and the Compensation and Funding Agreement, is exercisable at any time for seven years after its issuance, provided that, so long as at least $25.0 million in aggregate of the Company's convertible debt remains outstanding, such exercise will not cause "any person," including Total S.A., to, directly or indirectly, including through one or more wholly-owned subsidiaries, become the "beneficial owner" (as such terms are defined in Rule 13d-3 and Rule 13d-5 under the Securities and Exchange Act of 1934, as amended), of more than 74.99% of the voting power of the Company's common stock at such time, a circumstance which would trigger the repurchase or conversion of the Company's existing convertible debt.
0.75% Debentures Due 2018
In May 2013, the Company issued $300.0 million in principal amount of its 0.75% senior convertible debentures due 2018 (the "0.75% debentures due 2018"). $200.0 million in aggregate principal amount of the 0.75% debentures due 2018 were acquired by Total. The 0.75% debentures due 2018 are convertible into shares of the Company's common stock at any time based on an initial conversion price equal to $24.95 per share, which provides Total the right to acquire up to 8,017,420 shares of the Company's common stock. The applicable conversion rate may adjust in certain circumstances, including a fundamental change, as described in the indenture governing the 0.75% debentures due 2018 (see Note 9).
0.875% Debentures Due 2021
In June 2014, the Company issued $400.0 million in principal amount of its 0.875% senior convertible debentures due 2021 (the "0.875% debentures due 2021"). An aggregate principal amount of $250.0 million of the 0.875% debentures due 2021 were acquired by Total. The 0.875% debentures due 2021 are convertible into shares of the Company's common stock at any time based on an initial conversion price equal to $48.76 per share, which provides Total the right to acquire up to 5,126,775 shares of the Company's common stock. The applicable conversion rate may adjust in certain circumstances, including a fundamental change, as described in the indenture governing the 0.875% debentures due 2021 (see Note 9).
Joint Projects with Total and its Affiliates:
The Company enters into various engineering, procurement and construction ("EPC") and operations and maintenance ("O&M") agreements relating to solar projects, including EPC and O&M services agreements relating to projects owned or partially owned by Total and its affiliates. As of September 28, 2014, the Company had $34.3 million of "Costs and estimated earnings in excess of billings" and $38.8 million of "Accounts receivable, net" on its Consolidated Balance Sheets related to projects in which Total and its affiliates have a direct or indirect material interest.
Related-Party Transactions with Total and its Affiliates:
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
(In thousands) | | September 28, 2014 | | September 29, 2013 | | September 28, 2014 | | September 29, 2013 |
Revenue: | | | | | | | | |
EPC and O&M revenue under joint projects | | $ | 107,289 |
| | $ | — |
| | $ | 142,790 |
| | $ | — |
|
Research and development expense: | | | | | | | | |
Offsetting contributions received under R&D Agreement | | $ | (724 | ) | | $ | (270 | ) | | $ | (1,277 | ) | | $ | (1,225 | ) |
Interest expense: | | | | | | | | |
Guarantee fees incurred under Credit Support Agreement | | $ | 3,358 |
| | $ | 2,665 |
| | $ | 8,704 |
| | $ | 6,198 |
|
Fees incurred under the Compensation and Funding Agreement | | $ | — |
| | $ | 1,496 |
| | $ | 1,200 |
| | $ | 4,037 |
|
Interest expense incurred on the 0.75% debentures due 2018 | | $ | 375 |
| | $ | 375 |
| | $ | 1,203 |
| | $ | 500 |
|
Interest expense incurred on the 0.875% debentures due 2021 | | $ | 547 |
| | $ | — |
| | $ | 662 |
| | $ | — |
|
Note 3. BALANCE SHEET COMPONENTS
|
| | | | | | | | |
| | As of |
(In thousands) | | September 28, 2014 | | December 29, 2013 |
Accounts receivable, net: | | | | |
Accounts receivable, gross1,2 | | $ | 541,024 |
| | $ | 389,152 |
|
Less: allowance for doubtful accounts | | (18,695 | ) | | (26,463 | ) |
Less: allowance for sales returns | | (2,163 | ) | | (2,095 | ) |
| | $ | 520,166 |
| | $ | 360,594 |
|
| |
1 | Includes short-term financing receivables associated with solar power systems leased of $8.8 million and $4.4 million as of September 28, 2014 and December 29, 2013, respectively (see Note 4). |
| |
2 | Includes short-term retainage of $173.1 million and $8.3 million as of September 28, 2014 and December 29, 2013, respectively. Retainage refers to the earned, but unbilled, portion of a construction and development project for which payment is deferred by the customer until certain contractual milestones are met. |
|
| | | | | | | | |
| | As of |
(In thousands) | | September 28, 2014 | | December 29, 2013 |
Inventories: | | | | |
Raw materials | | $ | 42,559 |
| | $ | 51,905 |
|
Work-in-process | | 49,308 |
| | 52,756 |
|
Finished goods | | 103,475 |
| | 140,914 |
|
| | $ | 195,342 |
| | $ | 245,575 |
|
|
| | | | | | | | |
| | As of |
(In thousands) | | September 28, 2014 | | December 29, 2013 |
Prepaid expenses and other current assets: | | | | |
Deferred project costs | | $ | 423,441 |
| | $ | 275,389 |
|
Bond hedge derivative | | 155,069 |
| | 110,477 |
|
VAT receivables, current portion | | 15,929 |
| | 21,481 |
|
Deferred costs for solar power systems to be leased | | 21,881 |
| | 23,429 |
|
Foreign currency derivatives | | 7,921 |
| | 4,642 |
|
Other receivables | | 81,440 |
| | 112,062 |
|
Other prepaid expenses | | 36,584 |
| | 28,629 |
|
Other current assets | | 52,854 |
| | 70,161 |
|
| | $ | 795,119 |
| | $ | 646,270 |
|
|
| | | | | | | | |
| | As of |
(In thousands) | | September 28, 2014 | | December 29, 2013 |
Project assets - plants and land: | | | | |
Project assets — plants | | $ | 79,969 |
| | $ | 64,564 |
|
Project assets — land | | 12,426 |
| | 11,043 |
|
| | $ | 92,395 |
| | $ | 75,607 |
|
Project assets - plants and land, current portion | | $ | 25,244 |
| | $ | 69,196 |
|
Project assets - plants and land, net of current portion | | $ | 67,152 |
| | $ | 6,411 |
|
|
| | | | | | | | |
| | As of |
(In thousands) | | September 28, 2014 | | December 29, 2013 |
Property, plant and equipment, net: | | | | |
Manufacturing equipment3 | | $ | 552,212 |
| | $ | 538,616 |
|
Land and buildings | | 26,138 |
| | 26,138 |
|
Leasehold improvements | | 235,212 |
| | 229,846 |
|
Solar power systems4 | | 105,138 |
| | 82,036 |
|
Computer equipment | | 84,973 |
| | 79,519 |
|
Furniture and fixtures | | 9,288 |
| | 8,392 |
|
Construction-in-process | | 32,308 |
| | 11,724 |
|
| | 1,045,269 |
| | 976,271 |
|
Less: accumulated depreciation | | (506,948 | ) | | (442,884 | ) |
| | $ | 538,321 |
| | $ | 533,387 |
|
| |
3 | The Company's mortgage loan agreement with International Finance Corporation ("IFC") is collateralized by certain manufacturing equipment with a net book value of $123.2 million and $145.9 million as of September 28, 2014 and December 29, 2013, respectively. |
| |
4 | Includes $74.9 million and $52.6 million of solar power systems associated with sale-leaseback transactions under the financing method as of September 28, 2014 and December 29, 2013, 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 4). |
|
| | | | | | | | |
| | As of |
(In thousands) | | September 28, 2014 | | December 29, 2013 |
Property, plant and equipment, net by geography5: | | | | |
Philippines | | $ | 308,913 |
| | $ | 321,410 |
|
United States | | 168,831 |
| | 153,074 |
|
Mexico | | 35,472 |
| | 32,705 |
|
Europe | | 23,965 |
| | 25,293 |
|
Other | | 1,140 |
| | 905 |
|
| | $ | 538,321 |
| | $ | 533,387 |
|
| |
5 | Property, plant and equipment, net by geography is based on the physical location of the assets. |
|
| | | | | | | | |
| | As of |
(In thousands) | | September 28, 2014 | | December 29, 2013 |
Other long-term assets: | | | | |
Equity method investments | | $ | 137,064 |
| | $ | 131,739 |
|
Retainage6 | | — |
| | 88,934 |
|
Cost method investments | | 17,319 |
| | 12,374 |
|
Long-term debt issuance costs | | 12,688 |
| | 10,274 |
|
Other | | 66,906 |
| | 55,156 |
|
| | $ | 233,977 |
| | $ | 298,477 |
|
| |
6 | Retainage refers to the earned, but unbilled, portion of a construction and development project for which payment is deferred by the customer until certain contractual milestones are met. |
|
| | | | | | | | |
| | As of |
(In thousands) | | September 28, 2014 | | December 29, 2013 |
Accrued liabilities: | | | | |
Bond hedge derivatives | | $ | 155,075 |
| | $ | 110,477 |
|
Employee compensation and employee benefits | | 56,326 |
| | 50,449 |
|
Deferred revenue | | 24,791 |
| | 29,287 |
|
Short-term residential lease financing | | 1,364 |
| | 14,436 |
|
Interest payable | | 5,958 |
| | 10,971 |
|
Short-term warranty reserves | | 11,073 |
| | 10,426 |
|
Restructuring reserve | | 1,490 |
| | 7,134 |
|
VAT payables | | 10,236 |
| | 7,089 |
|
Foreign currency derivatives | | 2,244 |
| | 6,170 |
|
Other | | 84,167 |
| | 111,718 |
|
| | $ | 352,724 |
| | $ | 358,157 |
|
|
| | | | | | | | |
| | As of |
(In thousands) | | September 28, 2014 | | December 29, 2013 |
Other long-term liabilities: | | | | |
|
Deferred revenue | | $ | 177,806 |
| | $ | 176,925 |
|
Long-term warranty reserves | | 143,670 |
| | 138,946 |
|
Long-term sale-leaseback financing | | 87,253 |
| | 65,944 |
|
Long-term residential lease financing | | 27,669 |
| | 31,933 |
|
Unrecognized tax benefits | | 27,098 |
| | 28,927 |
|
Other | | 56,620 |
| | 81,316 |
|
| | $ | 520,116 |
| | $ | 523,991 |
|
|
| | | | | | | | |
| | As of |
(In thousands) | | September 28, 2014 | | December 29, 2013 |
Accumulated other comprehensive loss: | | | | |
|
Cumulative translation adjustment | | $ | (7,201 | ) | | $ | (3,766 | ) |
Net unrealized income (loss) on derivatives | | 1,700 |
| | (805 | ) |
Deferred taxes | | (251 | ) | | 253 |
|
| | $ | (5,752 | ) | | $ | (4,318 | ) |
Note 4. LEASING
Residential Lease Program
The Company offers a solar lease program, in partnership with third-party financial institutions, which allows its residential customers to obtain SunPower systems under lease agreements for terms of up to 20 years. Leases are classified as either operating or sales-type leases in accordance with the relevant accounting guidelines.
Operating Leases
The following table summarizes "Solar power systems leased and to be leased, net" under operating leases on the Company's Consolidated Balance Sheets as of September 28, 2014 and December 29, 2013, respectively:
|
| | | | | | | | |
| | As of |
(In thousands) | | September 28, 2014 | | December 29, 2013 |
Solar power systems leased and to be leased, net1,2: | | | | |
Solar power systems leased | | $ | 369,759 |
| | $ | 324,202 |
|
Solar power systems to be leased | | 15,073 |
| | 36,645 |
|
| | 384,832 |
| | 360,847 |
|
Less: accumulated depreciation | | (23,105 | ) | | (15,343 | ) |
| | $ | 361,727 |
| | $ | 345,504 |
|
| |
1 | Solar power systems leased and to be leased, net are physically located in the United States. |
| |
2 | As of September 28, 2014 and December 29, 2013, the Company has pledged solar assets with an aggregate book value of $141.7 million and $147.7 million, respectively, to third-party investors as security for the Company's contractual obligations. |
The following table presents the Company's minimum future rental receipts on operating leases placed in service as of September 28, 2014:
|
| | | | | | | | | | | | | | | | | | | | | | | |
(In thousands) | | 2014 (remaining three months) | | 2015 | | 2016 | | 2017 | | 2018 | | Thereafter | | Total |
Minimum future rentals on operating leases placed in service1 | | $ | 3,442 |
| | 11,782 |
| | 11,802 |
| | 11,837 |
| | 11,880 |
| | 178,366 |
| | $ | 229,109 |
|
| |
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. |
Sales-Type Leases
As of September 28, 2014 and December 29, 2013, respectively, the Company's net investment in sales-type leases presented in "Accounts receivable, net" and "Long-term financing receivables, net" on the Company's Consolidated Balance Sheets was as follows:
|
| | | | | | | | |
| | As of |
(In thousands) | | September 28, 2014 | | December 29, 2013 |
Financing receivables: | | | | |
Minimum lease payments receivable1 | | $ | 301,392 |
| | $ | 217,666 |
|
Unguaranteed residual value | | 31,518 |
| | 23,366 |
|
Unearned income | | (71,737 | ) | | (61,326 | ) |
Net financing receivables | | $ | 261,173 |
| | $ | 179,706 |
|
Current | | $ | 8,791 |
| | $ | 4,433 |
|
Long-term | | $ | 252,382 |
| | $ | 175,273 |
|
| |
1 | Net of allowance for doubtful accounts. |
As of September 28, 2014, future maturities of net financing receivables for sales-type leases are as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | |
(In thousands) | | 2014 (remaining three months) | | 2015 | | 2016 | | 2017 | | 2018 | | Thereafter | | Total |
Scheduled maturities of minimum lease payments receivable1 | | $ | 3,804 |
| | 14,287 |
| | 14,458 |
| | 14,642 |
| | 14,832 |
| | 239,369 |
| | $ | 301,392 |
|
| |
1 | Minimum future rentals on sales-type leases placed in service does not include contingent rentals that may be received from customers under agreements that include performance-based incentives. |
Third-Party Financing Arrangements
The Company has entered into multiple facilities under which solar power systems are financed by third-party investors. Under the terms of certain programs the investors make an upfront payment to the Company, which the Company recognizes as a non-recourse liability that will be reduced over the specified term of the program as customer receivables and government incentives are received by the third-party investors. As the non-recourse liability is reduced over time, the Company makes a corresponding reduction in customer and government incentive receivables on its balance sheet. Under this approach, for both operating and sales-type leases the Company continues to account for these arrangements with its residential lease customers in the consolidated financial statements. As of September 28, 2014, and December 29, 2013, the remaining liability to the third-party investors, presented in "Accrued liabilities" and "Other long-term liabilities" on the Company's Consolidated Balance Sheets, was $29.0 million and $46.4 million, respectively (see Note 3).
The Company has entered into a total of seven facilities with third-party investors under which the parties invest in entities that hold SunPower solar power systems and leases with residential customers. The Company holds controlling interests in these less-than-wholly-owned entities and has therefore fully consolidated these entities. The Company accounts
for the portion of net assets in the consolidated entities attributable to the investors as "Redeemable noncontrolling interests" and "Noncontrolling interests" in its consolidated financial statements. Noncontrolling interests in subsidiaries that are redeemable at the option of the noncontrolling interest holder are classified as "Redeemable noncontrolling interests in subsidiaries," between liabilities and equity on the Company's Consolidated Balance Sheets. During the three and nine months ended September 28, 2014, the Company received $22.5 million and $75.3 million, respectively, in contributions from investors under the related facilities and attributed $14.7 million and $49.7 million, respectively, in losses to the third-party investors primarily as a result of allocating certain assets, including tax credits, to the investors. By comparison, during the three and nine months ended September 29, 2013, the Company received $29.5 million and $73.4 million, respectively, in contributions from investors under these facilities and attributed $21.0 million and $43.6 million, respectively, in losses to the third-party investors primarily as a result of allocating certain assets, including tax credits, to the investors.
Sale-Leaseback Arrangements
The Company enters into sale-leaseback arrangements under which solar power systems are sold to third parties and subsequently leased back by the Company over minimum lease terms of up to 20 years. Separately, the Company enters into power purchase agreements ("PPAs") with end customers, who host the leased solar power systems and buy the electricity directly from the Company under PPAs with durations of up to 20 years. At the end of the lease term, the Company has the option to purchase the systems at fair value or may be required to remove the systems and return them to the third parties.
The Company has classified its sale-leaseback arrangements of solar power systems not involving integral equipment as operating leases. The deferred profit on the sale of these systems is recognized over the term of the lease. As of September 28, 2014, future minimum lease obligations associated with these systems was $97.5 million, which will be recognized over the minimum lease terms. Future minimum payments to be received from customers under PPAs associated with the solar power systems under sale-leaseback arrangements classified as operating leases will be recognized over the lease terms of up to 20 years and are contingent upon the amounts of energy produced by the solar power systems.
The Company enters into sale-leaseback arrangements under which the systems under the sale-leaseback arrangements have been determined to be integral equipment as defined under the accounting guidance for such transactions. The Company was further determined to have continuing involvement with the solar power systems throughout the lease due to purchase option rights. As a result of such continuing involvement, the Company accounts for each transaction as a financing. Under the financing method, the proceeds received from the sale of the solar power systems are recorded by the Company as financing liabilities and presented within "Other long-term liabilities" in the Company's Consolidated Balance Sheets (see Note 3). The financing liabilities are subsequently reduced by the Company's payments to lease back the solar power systems, less interest expense calculated based on the Company's incremental borrowing rate adjusted to the rate required to prevent negative amortization. The solar power systems under the sale-leaseback arrangements remain on the Company's balance sheet and are classified within "Property, plant and equipment, net" (see Note 3). As of September 28, 2014, future minimum lease obligations for the sale-leaseback arrangements accounted for under the financing method were $80.3 million, which will be recognized over the lease terms of up to 20 years.
Note 5. FAIR VALUE MEASUREMENTS
Fair value is estimated by applying the following hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement (observable inputs are the preferred basis of valuation):
| |
• | Level 1 — Quoted prices in active markets for identical assets or liabilities. |
| |
• | Level 2 — Measurements are inputs that are observable for assets or liabilities, either directly or indirectly, other than quoted prices included within Level 1. |
| |
• | Level 3 — Prices or valuations that require management inputs that are both significant to the fair value measurement and unobservable. |
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The Company measures certain assets and liabilities at fair value on a recurring basis. There were no transfers between fair value measurement levels during any presented period. The Company did not have any assets or liabilities measured at fair value on a recurring basis requiring Level 3 inputs as of September 28, 2014 or December 29, 2013.
The following table summarizes the Company's assets and liabilities measured and recorded at fair value on a recurring basis as of September 28, 2014 and December 29, 2013, respectively:
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | September 28, 2014 | | December 29, 2013 |
(In thousands) | | Total | | Level 1 | | Level 2 | | Total | | Level 1 | | Level 2 |
Assets | | | | | | | | | | | | |
Cash and cash equivalents1: | | | | | | | | | | | | |
Money market funds | | $ | 463,001 |
| | $ | 463,001 |
| | $ | — |
| | $ | 358,001 |
| | $ | 358,001 |
| | $ | — |
|
Prepaid expenses and other current assets: | | | | | | | | | | | | |
Debt derivatives (Note 9) | | 155,069 |
| | — |
| | 155,069 |
| | 110,477 |
| | — |
| | 110,477 |
|
Foreign currency derivatives (Note 10) | | 7,921 |
| | — |
| | 7,921 |
| | 4,642 |
| | — |
| | 4,642 |
|
Other long-term assets: | | | | | | | | | | | | |
Foreign currency derivatives (Note 10) | | — |
| | — |
| | — |
| | 588 |
| | — |
| | 588 |
|
Total assets | | $ | 625,991 |
| | $ | 463,001 |
| | $ | 162,990 |
| | $ | 473,708 |
| | $ | 358,001 |
|
| $ | 115,707 |
|
Liabilities | | | | | | | | | | | | |
Accrued liabilities: | | | | | | | | | | | | |
Debt derivatives (Note 9) | | $ | 155,075 |
| | $ | — |
| | $ | 155,075 |
| | $ | 110,477 |
| | $ | — |
| | $ | 110,477 |
|
Foreign currency derivatives (Note 10) | | 2,244 |
| | — |
| | 2,244 |
| | 6,170 |
| | — |
| | 6,170 |
|
Other long-term liabilities: | | | | | | | | | | | | |
Foreign currency derivatives (Note 10) | | — |
| | — |
| | — |
| | 555 |
| | — |
| | 555 |
|
Total liabilities | | $ | 157,319 |
| | $ | — |
| | $ | 157,319 |
| | $ | 117,202 |
| | $ | — |
| | $ | 117,202 |
|
| |
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. |
Other financial instruments, including the Company's accounts receivable, accounts payable and accrued liabilities, are carried at cost, which generally approximates fair value due to the short-term nature of these instruments.
Debt Derivatives
The 4.50% Bond Hedge (as defined in Note 9) and the embedded cash conversion option within the 4.50% debentures due 2015 (as defined in Note 9) are classified as derivative instruments that require mark-to-market treatment with changes in fair value reported in the Company's Consolidated Statements of Operations. The fair values of these derivative instruments were determined utilizing the following Level 1 and Level 2 inputs:
|
| | | | | | | | |
| | As of 1 |
| | September 28, 2014 | | December 29, 2013 |
Stock price | | $ | 36.11 |
| | $ | 28.91 |
|
Exercise price | | $ | 22.53 |
| | $ | 22.53 |
|
Interest rate | | 0.29 | % | | 0.33 | % |
Stock volatility | | 54.9 | % | | 57.7 | % |
Credit risk adjustment | | 0.21 | % | | 0.71 | % |
Maturity date | | February 18, 2015 |
| | February 18, 2015 |
|
| |
1 | The valuation model utilizes these inputs to value the right but not the obligation to purchase one share of the Company's common stock at $22.53. The Company utilized a Black-Scholes valuation model to value the 4.50% Bond Hedge and embedded cash conversion option. The underlying input assumptions were determined as follows: |
| |
(i) | Stock price. The closing price of the Company's common stock on the last trading day of the quarter. |
| |
(ii) | Exercise price. The exercise price of the 4.50% Bond Hedge and the embedded cash conversion option. |
| |
(iii) | Interest rate. The Treasury Strip rate associated with the life of the 4.50% Bond Hedge and the embedded cash conversion option. |
| |
(iv) | Stock volatility. The volatility of the Company's common stock over the life of the 4.50% Bond Hedge and the embedded cash conversion option. |
| |
(v) | Credit risk adjustment. Represents the weighted average of the credit default swap rate of the counterparties. |
Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis
The Company measures certain investments and non-financial assets (including project assets, property, plant and equipment, and other intangible assets) at fair value on a non-recurring basis in periods after initial measurement in circumstances when the fair value of such asset is impaired below its recorded cost.
Held-to-Maturity Debt Securities
The Company's debt securities, classified as held-to-maturity, consist of Philippine government bonds that are maintained as collateral for present and future business transactions within the country. These bonds have maturity dates of up to five years and are classified as "Restricted long-term marketable securities" on the Company's Consolidated Balance Sheets. As of September 28, 2014 and December 29, 2013, these bonds had a carrying value of $7.2 million and $8.9 million respectively. The Company records such held-to-maturity investments at amortized cost based on its ability and intent to hold the securities until maturity. The Company monitors for changes in circumstances and events that would 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 the both equity and cost method. The Company monitors these investments, which are included in "Other long-term assets" in its Consolidated Balance Sheets, for impairment and records reductions in the carrying values when necessary. Circumstances that indicate an other-than-temporary decline include Level 2 and Level 3 measurements such as the valuation ascribed to the issuing company in subsequent financing rounds, decreases in quoted market prices, and declines in operations of the issuer.
As of September 28, 2014 and December 29, 2013, the Company had $137.1 million and $131.7 million, respectively, in investments accounted for under the equity method (see Note 8). As of September 28, 2014 and December 29, 2013, the Company had $17.3 million and $12.4 million, respectively, in investments accounted for under the cost method.
Related-Party Transactions with Equity and Cost Method Investees:
|
| | | | | | | | |
| | As of |
(In thousands) | | September 28, 2014 | | December 29, 2013 |
Accounts receivable | | $ | 23,689 |
| | $ | 11,780 |
|
Accounts payable | | $ | 37,355 |
| | $ | 51,499 |
|
Other long-term assets: | | | | |
Long-term note receivable | | $ | 3,279 |
| | $ | 3,688 |
|
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
(In thousands) | | September 28, 2014 | | September 29, 2013 | | September 28, 2014 | | September 29, 2013 |
Payments made to investees for products/services | | $ | 118,890 |
| | $ | 117,872 |
| | $ | 363,209 |
| | $ | 364,703 |
|
Note 6. RESTRUCTURING
During fiscal 2012 and 2011, the Company implemented approved restructuring plans, related to all segments, to align with changes in the global solar market, which included the consolidation of the Company's Philippine manufacturing operations as well as actions to accelerate operating cost reduction and improve overall operating efficiency. These restructuring activities were substantially complete as of September 28, 2014. The Company expects to continue to incur costs as it finalizes previous estimates and actions in connection with these plans, primarily due to other costs, such as legal services.
The following table summarizes the restructuring reserve activity during the nine months ended September 28, 2014:
|
| | | | | | | | | | | | | | | | |
| | Nine Months Ended |
(In thousands) | | December 29, 2013 | | Charges (Benefits) | | Payments | | September 28, 2014 |
Severance and benefits | | 3,961 |
| | (1,657 | ) | | (1,875 | ) | | 429 |
|
Lease and related termination costs | | 1,609 |
| | 382 |
| | (1,587 | ) | | 404 |
|
Other costs1 | | 1,564 |
| | 285 |
| | (1,192 | ) | | 657 |
|
Total restructuring liabilities | | $ | 7,134 |
| | $ | (990 | ) | | $ | (4,654 | ) | | $ | 1,490 |
|
| |
1 | Other costs primarily represent associated legal services. |
Note 7. COMMITMENTS AND CONTINGENCIES
Facility and Equipment Lease Commitments
The Company leases certain facilities under non-cancellable operating leases from unaffiliated third parties. As of September 28, 2014, future minimum lease payments for facilities under operating leases was $57.5 million, to be paid over the remaining contractual terms of up to 10 years. The Company also leases certain buildings, machinery and equipment under non-cancellable capital leases. As of September 28, 2014, future minimum lease payments for assets under capital leases was $5.3 million, to be paid over the remaining contractual terms of up to 10 years.
Purchase Commitments
The Company purchases raw materials for inventory and manufacturing equipment from a variety of vendors. During the normal course of business, in order to manage manufacturing lead times and help assure adequate supply, the Company enters into agreements with contract manufacturers and suppliers that either allow them to procure goods and services based on specifications defined by the Company, or that establish parameters defining the Company's requirements. In certain instances, these agreements allow the Company the option to cancel, reschedule or adjust the Company's requirements based on its business needs prior to firm orders being placed. Consequently, only a portion of the Company's disclosed purchase commitments arising from these agreements are firm, non-cancellable, and unconditional commitments.
The Company also has agreements with several suppliers, including some of its non-consolidated investees, for the procurement of polysilicon, ingots, wafers, and Solar Renewable Energy Credits, among others, which specify future quantities and pricing of products to be supplied by the vendors for periods up to 10 years and provide for certain consequences, such as forfeiture of advanced deposits and liquidated damages relating to previous purchases, in the event that the Company terminates the arrangements.
Future purchase obligations under non-cancellable purchase orders and long-term supply agreements as of September 28, 2014 are as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | |
(In thousands) | | 2014 (remaining three months) | | 2015 | | 2016 | | 2017 | | 2018 | | Thereafter | | Total1,2 |
Future purchase obligations | | $ | 557,109 |
| | 358,634 |
| | 324,968 |
| | 292,181 |
| | 182,517 |
| | 341,541 |
| | $ | 2,056,950 |
|
| |
1 | Total future purchase obligations as of September 28, 2014 include $91.8 million to related parties. |
| |
2 | Total future purchase obligations was composed of $230.7 million related to non-cancellable purchase orders and $1.8 billion related to long-term supply agreements. |
The Company expects that all obligations related to non-cancellable purchase orders for manufacturing equipment will be recovered through future cash flows of the solar cell manufacturing lines and solar panel assembly lines when such long-lived assets are placed in service. Factors considered important that could result in an impairment review include significant under-performance relative to expected historical or projected future operating results, significant changes in the manner of use of acquired assets, and significant negative industry or economic trends. Obligations related to non-cancellable purchase orders for inventories match current and forecasted sales orders that will consume these ordered materials and actual consumption of these ordered materials are compared to expected demand regularly. The Company anticipates total obligations related to long-term supply agreements for inventories will be recovered because quantities are less than management's expected demand for its solar power products. The terms of the long-term supply agreements are reviewed by management and the Company assesses the need for any accruals for estimated losses on adverse purchase commitments, such as lower of cost or market value adjustments that will not be recovered by future sales prices, forfeiture of advanced deposits and liquidated damages, as necessary.
Advances to Suppliers
As noted above, the Company has entered into agreements with various vendors that specify future quantities and pricing of products to be supplied. Certain agreements also provide for penalties or forfeiture of advanced deposits in the event the Company terminates the arrangements. Under certain agreements, the Company is required to make prepayments to the vendors over the terms of the arrangements. During the three and nine months ended September 28, 2014, the Company made additional advance payments totaling $16.4 million and $49.3 million, respectively, in accordance with the terms of existing long-term supply agreements. As of September 28, 2014 and December 29, 2013, advances to suppliers totaled $401.9 million and $383.3 million, respectively, of which $87.8 million and $58.6 million, respectively, is classified as short-term in the Company's Consolidated Balance Sheets. Two suppliers accounted for 82% and 18% of total advances to suppliers as of September 28, 2014, and 77% and 22% as of December 29, 2013. As of September 28, 2014, the Company has remaining future prepayment obligations totaling $16.4 million through the end of fiscal 2014 .
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 September 28, 2014 is as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | |
(In thousands) | | 2014 (remaining three months) | | 2015 | | 2016 | | 2017 | | 2018 | | Thereafter | | Total |
Estimated utilization of advances from customers | | $ | 7,020 |
| | 34,850 |
| | 22,713 |
| | 27,039 |
| | 27,039 |
| | 72,106 |
| | $ | 190,767 |
|
In fiscal 2010, the Company and its joint venture, AUO SunPower Sdn. Bhd. ("AUOSP"), entered into an agreement under which the Company resells to AUOSP polysilicon purchased from a third-party supplier. Advance payments provided by AUOSP related to such polysilicon are then made by the Company to the third-party supplier. These advance payments are applied as a credit against AUOSP’s polysilicon purchases from the Company. Such polysilicon is used by AUOSP to manufacture solar cells which are sold to the Company on a "cost-plus" basis. As of September 28, 2014 and December 29, 2013, outstanding advance payments received from AUOSP totaled $170.8 million and $181.3 million, respectively, of which $17.3 million and $14.0 million, respectively, is classified as short-term in the Company's Consolidated Balance Sheets, based on projected product shipment dates.
Product Warranties
The following table summarizes accrued warranty activity for the three and nine months ended September 28, 2014 and September 29, 2013, respectively:
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
(In thousands) | | September 28, 2014 | | September 29, 2013 | | September 28, 2014 | | September 29, 2013 |
Balance at the beginning of the period | | $ | 150,793 |
| | $ | 126,293 |
| | $ | 149,372 |
| | $ | 117,172 |
|
Accruals for warranties issued during the period | | 9,112 |
| | 9,643 |
| | 18,613 |
| | 21,995 |
|
Settlements made during the period | | (5,162 | ) | | (1,161 | ) | | (13,242 | ) | | (4,392 | ) |
Balance at the end of the period | | $ | 154,743 |
| | $ | 134,775 |
| | $ | 154,743 |
| | $ | 134,775 |
|
Contingent Obligations
Project agreements often require the Company to undertake obligations including: (i) system output performance guarantees; (ii) system maintenance; (iii) penalty payments or customer termination rights if the system the Company is constructing is not commissioned within specified timeframes or other milestones are not achieved; and (iv) system put-rights whereby the Company could be required to buy back a customer's system at fair value on specified future dates if certain minimum performance thresholds are not met for periods of up to two years. Historically, the Company's systems have performed significantly above the performance guarantee 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 the joint venture agreement with AU Optronics Singapore Pte. Ltd. ("AUO") and another unconsolidated investee, subject to certain conditions (see Note 8). As of September 28, 2014, the Company has future financing obligations through 2014 totaling $243.9 million.
Liabilities Associated with Uncertain Tax Positions
Total liabilities associated with uncertain tax positions were $27.1 million and $28.9 million as of September 28, 2014 and December 29, 2013, respectively, and are included in "Other long-term liabilities" in the Company's Consolidated Balance Sheets as they are not expected to be paid within the next 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 Treasury Grant payments under Section 1603 of the American Recovery and Reinvestment Act ("Cash Grant"). In each of these circumstances, payment by the Company is typically subject to the other party making a claim to the Company that is contemplated by and valid under the indemnification provisions of the particular contract, which provisions are typically contract-specific, as well as bringing the claim under the procedures specified in the particular contract. These procedures usually allow the Company to challenge the
other party's claims or, in case of breach of intellectual property representations or covenants, to control the defense or settlement of any third party claims brought against the other party. Further, the Company's obligations under these agreements may be limited in terms of activity (typically to replace or correct the products or terminate the agreement with a refund to the other party), duration and/or amounts. In some instances, the Company may have recourse against third parties and/or insurance covering certain payments made by the Company.
In certain limited circumstances the Company has provided indemnification to customers and investors under which the Company is contractually obligated to compensate these parties for losses they may suffer as a result of reductions in benefits received under ITC and Treasury Cash Grant programs. The Company applies for ITC and Cash Grant incentives based on guidance provided by IRS and the Treasury Department, which include assumptions regarding the fair value of the qualified solar power systems, among others. Certain of the Company’s development agreements, sales-leaseback arrangements, and financing arrangements with investors of its residential lease program, incorporate assumptions regarding the future level of incentives to be received, which in some instances may be claimed directly by its customers and investors. Since the Company cannot determine future revisions to the U.S. Treasury guidelines governing system values or how the IRS will evaluate system values used in claiming ITCs, the Company is unable to reliably estimate the maximum potential future payments that it could have to make under the Company’s contractual investor obligation as of each reporting date.
Legal Matters
Derivative Litigation
Derivative actions purporting to be brought on the Company's behalf have been filed in state and federal courts against several of the Company's current and former officers and directors. The actions arise from the Audit Committee's investigation announcement on November 16, 2009 regarding certain unsubstantiated accounting entries. The California state derivative cases were consolidated as In re SunPower Corp. S'holder Derivative Litig., Lead Case No. 1-09-CV-158522 (Santa Clara Sup. Ct.), and co-lead counsel for plaintiffs have been appointed. The complaints assert state-law claims for breach of fiduciary duty, abuse of control, unjust enrichment, gross mismanagement, and waste of corporate assets. Plaintiffs filed a consolidated amended complaint on March 5, 2012. The federal derivative complaints were consolidated as In re SunPower Corp. S'holder Derivative Litig., Master File No. CV-09-05731-RS (N.D. Cal.), and lead plaintiffs and co-lead counsel were appointed on January 4, 2010. The federal complaints assert state-law claims for breach of fiduciary duty, waste of corporate assets, and unjust enrichment, and seek an unspecified amount of damages. Plaintiffs filed a consolidated complaint on May 13, 2011. A Delaware state derivative case, Brenner v. Albrecht, et al., C.A. No. 6514-VCP (Del Ch.), was filed on May 23, 2011 in the Delaware Court of Chancery. The complaint asserted state-law claims for breach of fiduciary duty and contribution and indemnification, and sought an unspecified amount of damages. On December 19, 2013, the parties executed a stipulated settlement agreement, providing that all claims against all defendants would be released and dismissed with prejudice, and that the Company would not oppose a request by the plaintiffs' counsel for an award of attorneys' fees up to $1 million, one half of which would be paid from the proceeds of directors and officers liability insurance. At a hearing on August 22, 2014, the Superior Court of California for Santa Clara County entered an order providing for final approval of the stipulated settlement and dismissing that action with prejudice. On September 9, 2014, the court in the consolidated federal derivative action dismissed that action with prejudice. Those dismissals are now final. On October 22, 2014, the Delaware Chancery Court entered an order dismissing the Delaware derivative action with prejudice.
Tax Benefit Indemnification Litigation
On March 19, 2014, the Company received notice that a lawsuit had been filed by NRG Solar LLC (“NRG”) against SunPower Corporation, Systems, a wholly-owned subsidiary of the Company (“SunPower Systems”), in the Superior Court of Contra Costa County, California. The complaint asserts that, according to the indemnification provisions in the contract pertaining to SunPower Systems’ sale of a large California solar project to NRG, SunPower Systems owes NRG $75 million in connection with certain tax benefits associated with the project that were approved by the Treasury Department for an amount that was less than expected. The Company does not believe that the facts support NRG’s claim under the operative indemnification provisions and intends to vigorously contest the claim. On May 5, 2014, SunPower Systems filed a demurrer to NRG’s complaint, which remains pending. The Court sustained the demurrer with leave to amend. NRG filed its amended complaint on September 3, 2014. The Company filed a demurrer to NRG's amended complaint on September 22, 2014, and that demurrer is scheduled to be heard on November 18, 2014. The Court has not yet set a trial date or case schedule. The company is currently unable to determine if the resolution of this matter will have an adverse effect on the company's financial position, liquidity or results of operations.
Other Litigation
The Company is also a party to various other litigation matters and claims that arise from time to time in the ordinary course of its business. While the Company believes that the ultimate outcome of such matters will not have a material adverse effect on the Company, their outcomes are not determinable and negative outcomes may adversely affect the Company's financial position, liquidity or results of operations.
Note 8. EQUITY METHOD INVESTMENTS
As of September 28, 2014 and December 29, 2013, the Company's carrying value of its equity method investments totaled $137.1 million and $131.7 million, respectively, and is classified as “Other long-term assets” in its Consolidated Balance Sheets. The Company's share of its earnings (loss) from equity method investments is reflected as "Equity in earnings of unconsolidated investees" in its Consolidated Statement of Operations.
Equity Investment and Joint Venture with AUOSP
In fiscal 2010, the Company, AUO and AU Optronics Corporation, the ultimate parent company of AUO ("AUO Taiwan"), formed the joint venture AUOSP. The Company and AUO each own 50% of the joint venture AUOSP. AUOSP owns a solar cell manufacturing facility in Malaysia and manufactures solar cells and sells them on a "cost-plus" basis to the Company and AUO.
In connection with the joint venture agreement, the Company and AUO also entered into licensing and joint development, supply, and other ancillary transaction agreements. Through the licensing agreement, the Company and AUO licensed to AUOSP, on a non-exclusive, royalty-free basis, certain background intellectual property related to solar cell manufacturing (in the case of the Company), and manufacturing processes (in the case of AUO). Under the seven-year supply agreement with AUOSP, renewable by the Company for one-year periods thereafter, the Company is committed to purchase 80% of AUOSP's total annual output allocated on a monthly basis to the Company. The Company and AUO have the right to reallocate supplies from time to time under a written agreement. In fiscal 2010, the Company and AUOSP entered into an agreement under which the Company will resell to AUOSP polysilicon purchased from a third-party supplier and AUOSP will provide prepayments to the Company related to such polysilicon, which prepayment will then be made by the Company to the third-party supplier.
The Company and AUO are not permitted to transfer any of AUOSP's shares held by them, except to each other. In the joint venture agreement, the Company and AUO agreed to each contribute additional amounts through 2014 amounting to $241.0 million, or such lesser amount as the parties may mutually agree. In addition, if AUOSP, the Company or AUO requests additional equity financing to AUOSP, then the Company and AUO will each be required to make additional cash contributions of up to $50.0 million in the aggregate.
The Company has concluded that it is not the primary beneficiary of AUOSP since, although the Company and AUO are both obligated to absorb losses or have the right to receive benefits, the Company alone does not have the power to direct the activities of AUOSP that most significantly impact its economic performance. In making this determination the Company considered the shared power arrangement, including equal board governance for significant decisions, elective appointment, and the fact that both parties contribute to the activities that most significantly impact the joint venture's economic performance. The Company accounts for its investment in AUOSP using the equity method as a result of the shared power arrangement. As of September 28, 2014, the Company's maximum exposure to loss as a result of its equity investment in AUOSP is limited to the carrying value of the investment.
Equity Investment in Huaxia CPV (Inner Mongolia) Power Co., Ltd. ("CCPV")
In December 2012, the Company entered into an agreement with Tianjin Zhonghuan Semiconductor Co. Ltd., Inner Mongolia Power Group Co. Ltd. and Hohhot Jinqiao City Development Company Co., Ltd. to form CCPV, a jointly owned entity to manufacture and deploy the Company's C-7 Tracker concentrator technology in Inner Mongolia and other regions in China. CCPV is based in Hohhot, Inner Mongolia. The establishment of the entity was subject to approval of the Chinese government, which was received in the fourth quarter of fiscal 2013. In December 2013, the Company made a $16.4 million equity investment in CCPV, for a 25% equity ownership.
The Company has concluded that it is not the primary beneficiary of CCPV since, although the Company is obligated to absorb losses and has the right to receive benefits, the Company alone does not have the power to direct the activities of CCPV that most significantly impact its economic performance. The Company accounts for its investment in CCPV using the equity method since the Company is able to exercise significant influence over CCPV due to its board position.
Equity Investment in Diamond Energy Pty Ltd. ("Diamond Energy")
In October 2012, the Company made a $3.0 million equity investment in Diamond Energy, an alternative energy project developer and clean electricity retailer headquartered in Melbourne, Australia, in exchange for a 25% equity ownership.
The Company 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.
Note 9. DEBT AND CREDIT SOURCES
The following table summarizes the Company's outstanding debt on its Consolidated Balance Sheets:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 28, 2014 | | December 29, 2013 |
(In thousands) | | Face Value | | Short-term | | Long-term | | Total | | Face Value | | Short-term | | Long-term | | Total |
Convertible debt: | | | | | | | | | | | | | | | | |
0.875% debentures due 2021 | | $ | 400,000 |
| | $ | — |
| | $ | 400,000 |
| | $ | 400,000 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
0.75% debentures due 2018 | | 300,000 |
| | — |
| | 300,000 |
| | 300,000 |
| | 300,000 |
| | — |
| | 300,000 |
| | 300,000 |
|
4.50% debentures due 2015 | | 249,716 |
| | 240,213 |
| | — |
| | 240,213 |
| | 250,000 |
| | 225,889 |
| | — |
| | 225,889 |
|
4.75% debentures due 2014 | | — |
| | — |
| | — |
| | — |
| | 230,000 |
| | 230,000 |
| | — |
| | 230,000 |
|
0.75% debentures due 2015 | | 79 |
| | — |
| | 79 |
| | 79 |
| | 79 |
| | — |
| | 79 |
| | 79 |
|
IFC mortgage loan | | 47,500 |
| | 15,000 |
| | 32,500 |
| | 47,500 |
| | 62,500 |
| | 15,000 |
| | 47,500 |
| | 62,500 |
|
CEDA loan | | 30,000 |
| | — |
| | 30,000 |
| | 30,000 |
| |