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

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 1, 2023

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


sp2014logoa01a34.gif
SunPower Corporation
(Exact Name of Registrant as Specified in Its Charter)

Delaware94-3008969
(State or Other Jurisdiction of Incorporation or Organization)(I.R.S. Employer Identification No.)
880 Harbour Way SouthSuite 600RichmondCalifornia94804
(Address of Principal Executive Offices)(Zip Code)

(408) 240-5500
(Registrant's Telephone Number, Including Area Code)

1414 Harbour Way South, Suite 1901, Richmond, California, 94804
(Former address, if changed since last report)


_________________________________________

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of exchange on which registered
Common Stock, $0.001 par value per shareSPWRThe Nasdaq Stock Market LLC

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  x    No  o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes  x    No  o

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

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

The total number of outstanding shares of the registrant’s common stock as of December 15, 2023 was 175,361,088.

1

SunPower Corporation
Form 10-Q for the quarterly period ended October 1, 2023

Table of Contents
Page


2

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

SunPower Corporation
Condensed Consolidated Balance Sheets
(In thousands, except share par values)
(unaudited)

 October 1, 2023January 1, 2023
(As Restated)
Assets
Current assets:
Cash and cash equivalents$103,683 $377,026 
Restricted cash and cash equivalents, current portion2,728 10,668 
Short-term investments 132,480 
Accounts receivable, net1
203,689 169,674 
Contract assets37,128 57,070 
Loan receivables held for sale, net15,443  
Inventories324,484 295,731 
Advances to suppliers, current portion6,487 12,059 
Prepaid expenses and other current assets1
233,558 197,811 
Total current assets927,200 1,252,519 
Restricted cash and cash equivalents, net of current portion9,548 18,812 
Property, plant and equipment, net106,069 76,473 
Operating lease right-of-use assets32,534 36,926 
Solar power systems leased, net38,845 41,779 
Goodwill125,998 125,998 
Other intangible assets, net19,830 24,192 
Other long-term assets1
187,308 186,927 
Total assets$1,447,332 $1,763,626 
Liabilities and Equity  
Current liabilities:  
Accounts payable1
$186,543 $243,139 
Accrued liabilities1
130,643 148,119 
Operating lease liabilities, current portion10,846 11,356 
Contract liabilities, current portion1
231,591 141,863 
Short-term debt, net
306,375 82,240 
Convertible debt, current portion1
 424,919 
Total current liabilities865,998 1,051,636 
Long-term debt, net
255 308 
Operating lease liabilities, net of current portion24,328 29,347 
Contract liabilities, net of current portion10,805 11,588 
Other long-term liabilities1
122,406 114,702 
Total liabilities1,023,792 1,207,581 
Commitments and contingencies (Note 10)
Equity:  
Preferred stock, $0.001 par value; 10,000 shares authorized; none issued and outstanding as of October 1, 2023 and January 1, 2023
  
Common stock, $0.001 par value, 367,500 shares authorized; 189,834 shares issued and 175,302 shares outstanding as of October 1, 2023; 188,287 shares issued and 174,269 shares outstanding as of January 1, 2023
175 174 
Additional paid-in capital2,853,487 2,855,930 
Accumulated deficit(2,208,992)(2,085,784)
Accumulated other comprehensive income11,569 11,568 
Treasury stock, at cost: 14,532 shares of common stock as of October 1, 2023; 14,018 shares of common stock as of January 1, 2023
(233,626)(226,646)
Total stockholders' equity422,613 555,242 
Noncontrolling interests in subsidiaries927 803 
Total equity423,540 556,045 
Total liabilities and equity$1,447,332 $1,763,626 

1 We have related-party balances for transactions made with TotalEnergies SE and its affiliates, Maxeon Solar Technologies, Ltd. (“Maxeon Solar”), and unconsolidated entities in which we have a direct equity investment. These related-party balances are recorded within the “accounts receivable, net,” “prepaid expenses and other current assets,” “other long-term assets,” “accounts payable,” “accrued liabilities,” “convertible debt, current portion,” “contract liabilities, current portion,” and “other long-term liabilities” financial statement line items on our condensed consolidated balance sheets (see Note 3, Note 10, Note 11, and Note 13).


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


SunPower Corporation
Condensed Consolidated Statements of Operations
(In thousands, except per share data)
(unaudited)

 Three Months EndedNine Months Ended
 October 1, 2023October 2, 2022October 1, 2023October 2, 2022
(As Restated)
(As Restated)
Total revenues1
$430,690 $476,393 $1,328,317 $1,243,975 
Total cost of revenues1
358,181 359,728 1,100,841 954,738 
Gross profit72,509 116,665 227,476 289,237 
Operating expenses:
Research and development1
5,406 6,846 19,161 19,199 
Sales, general, and administrative1
93,345 101,185 288,161 294,412 
Restructuring charges (credits)5,873 111 5,873 244 
Expense (income) from transition services agreement, net1
170 (1,059)30 (1,287)
 Total operating expenses104,794 107,083 313,225 312,568 
Operating (loss) income(32,285)9,582 (85,749)(23,331)
Other (expense) income, net:
Interest income1,096 144 2,256 278 
Interest expense1
(7,660)(3,712)(19,124)(15,223)
Other, net103 135,368 (10,591)122,160 
Other (expense) income, net(6,461)131,800 (27,459)107,215 
(Loss) income from continuing operations before income taxes and equity in earnings (losses) of unconsolidated investees(38,746)141,382 (113,208)83,884 
(Provision for) benefits from income taxes
137 (2,442)(1,569)6,480 
Equity in earnings (losses) of unconsolidated investees2,990 1,936 3,410 1,936 
Net (loss) income from continuing operations(35,619)140,876 (111,367)92,300 
(Loss) income from discontinued operations before income taxes and equity in earnings (losses) of unconsolidated investees1
(1,924)(2,395)(12,080)(50,253)
Benefits from (provision for) income taxes from discontinued operations208 358 363 798 
Net (loss) income from discontinued operations(1,716)(2,037)(11,717)(49,455)
Net (loss) income(37,335)138,839 (123,084)42,845 
Net (income) loss from continuing operations attributable to noncontrolling interests(29)(3,225)(124)(3,671)
Net loss (income) from discontinued operations attributable to noncontrolling interests   250 
Net (income) loss attributable to noncontrolling interests(29)(3,225)(124)(3,421)
Net (loss) income from continuing operations attributable to stockholders(35,648)137,651 (111,491)88,629 
Net (loss) income from discontinued operations attributable to stockholders(1,716)(2,037)(11,717)(49,205)
Net (loss) income attributable to stockholders$(37,364)$135,614 $(123,208)$39,424 
Net (loss) income per share attributable to stockholders - basic:
Continuing operations$(0.20)$0.79 $(0.64)$0.51 
Discontinued operations$(0.01)$(0.01)$(0.07)$(0.28)
Net (loss) income per share – basic
$(0.21)$0.78 $(0.71)$0.23 
Net (loss) income per share attributable to stockholders - diluted:
Continuing operations$(0.20)$0.73 $(0.64)$0.51 
Discontinued operations$(0.01)$(0.01)$(0.07)$(0.26)
Net (loss) income per share – diluted
$(0.21)$0.72 $(0.71)$0.25 
Weighted-average shares:
Basic175,241 174,118 174,937 173,815 
Diluted175,241 192,497 174,937 191,589 

1 We have related-party transactions with TotalEnergies SE and its affiliates, Maxeon Solar, and unconsolidated entities in which we have a direct equity investment. These related-party transactions are recorded within the “total revenues,” “total cost of revenues,” “operating expenses: research and development,” “operating expenses: sales, general, and administrative,” “operating expenses: expense (income) from transition services agreement, net,” “other (expense) income, net: interest expense,” and “(loss) income from discontinued operations before income taxes” financial statement line items in our condensed consolidated statements of operations (see Note 3, Note 11, and Note 13).


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


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

 Three Months EndedNine Months Ended
October 1, 2023October 2, 2022October 1, 2023October 2, 2022
(As Restated)
(As Restated)
Net (loss) income $(37,335)$138,839 $(123,084)$42,845 
Components of other comprehensive income (loss):
Translation adjustment(17)(42)1 (71)
Total other comprehensive income (loss)(17)(42)1 (71)
Total comprehensive (loss) income(37,352)138,797 (123,083)42,774 
Comprehensive (income) loss attributable to noncontrolling interests(29)(3,225)(124)(3,421)
Comprehensive (loss) income attributable to stockholders$(37,381)$135,572 $(123,207)$39,353 


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

5


SunPower Corporation
Condensed Consolidated Statements of Equity
(In thousands)
(unaudited)


 Common Stock     
 SharesValueAdditional
Paid-in
Capital
Treasury
Stock
Accumulated Other
Comprehensive Income (Loss)
Accumulated DeficitTotal
Stockholders’
Equity
Noncontrolling Interests in SubsidiariesTotal Equity
Balances at January 1, 2023 (as reported)
174,269 $174 $2,855,930 $(226,646)$11,568 $(2,066,175)$574,851 $803 $575,654 
Cumulative restatement adjustments
     (19,609)(19,609) (19,609)
Balances at January 1, 2023 (as restated)
174,269 $174 $2,855,930 $(226,646)$11,568 $(2,085,784)$555,242 $803 $556,045 
Net (loss) income— — — — — (54,636)(54,636)81 (54,555)
Other comprehensive income— — — — 5 — 5 — 5 
Issuance of restricted stock to employees, net of cancellations959 1 — — — — 1 — 1 
Stock-based compensation expense— — 6,877 — — — 6,877 — 6,877 
Purchases of treasury stock(327)— — (5,071)— — (5,071)— (5,071)
Net working capital settlement related to the sale of our C&I Solutions business, net of taxes of $0.3 million
— — (23,574)— — — (23,574)— (23,574)
Balances at April 2, 2023 (as restated)
174,901 $175 $2,839,233 $(231,717)$11,573 $(2,140,420)$478,844 $884 $479,728 
Net (loss) income— — — — — (31,208)(31,208)14 (31,194)
Other comprehensive income— — — — 13 — 13 — 13 
Issuance of restricted stock to employees, net of cancellations399 — — — — — — — — 
Stock-based compensation expense— — 8,659 — — — 8,659 — 8,659 
Purchases of treasury stock(127)— — (1,223)— — (1,223)— (1,223)
Other adjustments— — (8)— — — (8)— (8)
Balances at July 2, 2023 (as restated)
175,173 $175 $2,847,884 $(232,940)$11,586 $(2,171,628)$455,077 $898 $455,975 
Net (loss) income— — — — — (37,364)(37,364)29 (37,335)
Other comprehensive loss
— — — — (17)— (17)— (17)
Issuance of restricted stock to employees, net of cancellations190 — — — — — — — — 
Stock-based compensation expense— — 5,603 — — — 5,603 — 5,603 
Purchases of treasury stock(61)— — (686)— — (686)— (686)
Balances at October 1, 2023175,302 $175 $2,853,487 $(233,626)$11,569 $(2,208,992)$422,613 $927 $423,540 
6



SunPower Corporation
Condensed Consolidated Statements of Equity
(In thousands)
(unaudited)


 Common Stock     
 SharesValueAdditional
Paid-in
Capital
Treasury
Stock
Accumulated Other
Comprehensive Income (Loss)
Accumulated DeficitTotal
Stockholders’
Equity
Noncontrolling Interests in SubsidiariesTotal Equity
Balances at January 2, 2022 (as reported)
173,051 $173 $2,714,500 $(215,240)$11,168 $(2,122,212)$388,389 $1,635 $390,024 
Cumulative restatement adjustments
     (6,421)(6,421) (6,421)
Balances at January 2, 2022 (as restated)
173,051 173 2,714,500 (215,240)11,168 (2,128,633)381,968 1,635 383,603 
Net (loss) income— — — — — (32,898)(32,898)(589)(33,487)
Other comprehensive income— — — — 2 — 2 — 2 
Issuance of restricted stock to employees, net of cancellations1,201 1 — — — — 1 — 1 
Stock-based compensation expense— — 5,427 — — — 5,427 — 5,427 
Purchases of treasury stock(407)— — (7,333)— — (7,333)— (7,333)
Balances at April 3, 2022 (as restated)
173,845 $174 $2,719,927 $(222,573)$11,170 $(2,161,531)$347,167 $1,046 $348,213 
Net (loss) income— — — — — (63,292)(63,292)785 (62,507)
Other comprehensive loss— — — — (31)— (31)— (31)
Issuance of restricted stock to employees, net of cancellations359 — — — — — — — — 
Stock-based compensation expense— — 7,071 — — — 7,071 — 7,071 
Purchases of treasury stock(123)— — (2,256)— — (2,256)— (2,256)
Gain on sale of C&I Solutions business, net of tax — 113,030 — — — 113,030 3,943 116,973 
Balances at July 3, 2022 (as restated)
174,081 $174 $2,840,028 $(224,829)$11,139 $(2,224,823)$401,689 $5,774 $407,463 
Net income (loss)— — — — — 135,614 135,614 3,225 138,839 
Other comprehensive loss— — — — (42)— (42)— (42)
Issuance of restricted stock to employees, net of cancellations114 — — — — — — — — 
Stock-based compensation expense— — 6,557 — — — 6,557 — 6,557 
Purchases of treasury stock(40)— — (874)— — (874)— (874)
Closing statement adjustment in connection with the sale of our C&I Solutions business— — (740)— — — (740)— (740)
Balances at October 2, 2022 (as restated)
174,155 $174 $2,845,845 $(225,703)$11,097 $(2,089,209)$542,204 $8,999 $551,203 




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


SunPower Corporation
Condensed Consolidated Statements of Cash Flows
(In thousands)
(unaudited)
    
Nine Months Ended
 October 1, 2023October 2, 2022
(As Restated)
Cash flows from operating activities:
Net (loss) income$(123,084)$42,845 
Adjustments to reconcile net (loss) income to net cash used in operating activities:
Depreciation and amortization36,994 22,261 
Amortization of cloud computing arrangements4,251 3,549 
Stock-based compensation21,139 19,056 
Amortization of debt issuance costs
1,532 2,556 
Equity in (earnings) losses of unconsolidated investees(3,410)(1,936)
Loss (gain) on equity investments10,805 (120,965)
Unrealized (gain) loss on derivatives(1,330)(2,304)
Dividend from equity method investee596 133 
Deferred income taxes(536)(12,659)
Loss (gain) on loan receivables held for sale361  
Other, net935 128 
Changes in operating assets and liabilities:
       Accounts receivable(34,954)(65,802)
       Contract assets19,942 (318)
       Inventories(28,753)(14,764)
       Project assets3 295 
Loan receivables held for sale(15,804) 
       Prepaid expenses and other assets(23,411)(204,988)
       Operating lease right-of-use assets8,398 8,612 
       Advances to suppliers5,572 (6,288)
       Accounts payable and other accrued liabilities(70,333)74,631 
       Contract liabilities88,945 98,297 
       Operating lease liabilities(9,531)(11,828)
Net cash (used in) provided by operating activities(111,673)(169,489)
Cash flows from investing activities:
Purchases of property, plant, and equipment(39,509)(36,958)
Investments in software development costs(4,649)(4,225)
Proceeds from sale of property, plant, and equipment25  
Cash paid for working capital settlement related to C&I Solutions sale(30,892) 
Cash received from C&I Solutions sale, net of de-consolidated cash 146,303 
Cash paid for equity investments under the Dealer Accelerator Program and other(7,500)(30,920)
Proceeds from sale of equity investment121,675 440,108 
Cash paid for investments in unconsolidated investees(9,070)(5,742)
Dividend from equity method investee, in excess of cumulative earnings149 137 
Net cash provided by (used in) investing activities30,229 508,703 
Cash flows from financing activities:
Proceeds from bank loans and other debt493,440 124,729 
Repayment of bank loans and other debt(267,482)(166,901)
Repayment of convertible debt(424,991) 
Payments for financing leases(3,091)(764)
Purchases of stock for tax withholding obligations on vested restricted stock(6,979)(10,462)
Net cash (used in) provided by financing activities(209,103)(53,398)
Net (decrease) increase in cash, cash equivalents, and restricted cash(290,547)285,816 
Cash, cash equivalents, and restricted cash, beginning of period406,506 152,599 
Cash, cash equivalents, and restricted cash, end of period$115,959 $438,415 
Reconciliation of cash, cash equivalents, and restricted cash to the condensed consolidated balance sheets:
Cash and cash equivalents$103,683 $396,510 
Restricted cash and cash equivalents, current portion2,728 14,009 
Restricted cash and cash equivalents, net of current portion9,548 27,896 
Total cash, cash equivalents, and restricted cash$115,959 $438,415 
Supplemental disclosure of non-cash activities:
Property, plant and equipment acquisitions funded by liabilities (including financing leases)$14,956 $9,082 
Right-of-use assets obtained in exchange for lease obligations$4,006 $12,988 
Net working capital settlement related to C&I Solutions sale$ $7,005 
Supplemental cash flow disclosures:
Cash paid for interest$25,261 $20,323 
Cash paid for income taxes$1,442 $5,187 



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

Notes to Condensed Consolidated Financial Statements (Unaudited)

Note 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization

SunPower Corporation (together with its subsidiaries, “SunPower,” the “Company,” “we,” “us,” or “our”) is a leading residential solar technology and energy services provider that offers fully integrated solar, storage, and home energy solutions to customers in North America. Through a multi-channel strategy of distributed dealer network, SunPower direct sales channel, and new home builder partnerships, we provide customers control over electricity consumption, resiliency during power outages, and cost savings, while also reducing carbon emissions and contributing to a more sustainable grid.

SunPower was a majority-owned subsidiary of TotalEnergies Solar INTL SAS (“Total,” formerly Total Solar International SAS) and TotalEnergies Gaz & Electricité Holdings France SAS (“Total Gaz,” formerly Total Gaz Electricité Holdings France SAS), each a subsidiary of TotalEnergies SE (“TotalEnergies SE,” formerly Total SE). On September 12, 2022, Total and Total Gaz sold to GIP III Sol Acquisition, LLC (“GIP Sol”) 50% less one unit of the equity interests in a newly formed Delaware limited liability company, Sol Holding, LLC (“HoldCo”), which is now the record holder of all of the shares of SunPower common stock (see Note 3. Transactions with Total and TotalEnergies SE).

Liquidity and Going Concern

The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which assumes the Company will be able to continue as a going concern and contemplates the realization of assets and satisfaction of liabilities in the normal course of business. However, for the three and nine months ended October 1, 2023, the Company had recurring operating losses and, as of October 1, 2023, we breached a financial covenant and a reporting covenant of our Credit Agreement, dated as of September 12, 2022 (as amended, the “Credit Agreement”) (see Note 12. Debt and Credit Sources). The breaches created events of default thereunder (the “Existing Defaults”), which enables the requisite lenders under the Credit Agreement to demand immediate payment or exercise other remedies. As a result of the events of default, we no longer had the ability to borrow from the remaining capacity of $53.7 million of revolving commitments. On December 8, 2023 (the “Amendment Effective Date”), the Company obtained a waiver and amendment to the Credit Agreement (the “Amendment and Waiver”) as amended by the First Amendment to Credit Agreement, dated as of January 26, 2023 (together and as amended, the “Amended Credit Agreement”) by and among the Company, certain of its subsidiaries as guarantors, Bank of America, N.A. (“Bank of America”), BMO Bank, N.A., Citibank, N.A. and JPMorgan Chase Bank, N.A. as the lenders and L/C issuers party thereto (together, the “Existing Lenders”), and Bank of America, as administrative agent which provides for, among other things, a temporary waiver until January 19, 2024 of the breaches, and modification to the remaining available commitments through (ii) the Existing Lenders to provide access to $25 million of existing revolving commitments and (ii) commitments by HoldCo, as a new lender, to provide an additional $25 million of capacity. Subsequent to the amendment, we borrowed the entire $50 million against the remaining capacity on the revolving credit facility. Although we entered into the Amendment and Waiver to temporarily address the Existing Defaults, we are also projecting to be noncompliant with certain debt covenants, which would cause further defaults under our existing debt arrangements. Following the expiration of the Amendment and Waiver, absent additional waivers, the events of default enable the requisite lenders under the Credit Agreement to demand immediate payment or exercise other remedies, such as subject all or a portion of obligations to a default rate of interest. Further, the Company also breached a financial covenant set forth in the Loan and Security Agreement, dated June 30, 2022, entered into by a wholly owned indirect subsidiary of the Company, the lenders party thereto from time to time, Atlas Securitized Products Holdings, L.P., as administrative agent and Computershare Trust Company, National Association, as paying agent (as amended, the “Loan Facility with Credit Suisse AG,” the “Credit Suisse Warehouse Loan,” or the “Atlas Credit Agreement”) (see Note 12. Debt and Credit Sources) due to delay in delivery of the quarterly financials for the third quarter of 2023 (the “Quarterly Financials Default”), which results in an event of default, thereby enabling the requisite lenders to demand immediate payment or exercise other remedies. The Company is in discussion with the lenders under the Atlas Credit Agreement regarding a waiver of any breaches. There can be no assurance that such waiver will be obtained. Absent a waiver, the event of default enables the requisite lenders under the Atlas Credit Agreement to demand immediate payment or exercise other remedies, such as subject all or a portion of obligations to a default rate of interest. If the lenders under the Credit Agreement and the Atlas Credit Agreement were to demand immediate repayment, the Company would not have sufficient liquidity to meet its obligations and pay its liabilities arising from normal business operations when they come due. As such, substantial doubt exists about the Company's ability to continue as a going concern.

9

To address our liquidity needs, management is currently seeking additional waivers and evaluating various funding alternatives and may seek to raise additional funds through the issuance of equity, mezzanine or debt securities, through arrangements with strategic partners, which may include related parties, the capital markets, or through obtaining credit from financial institutions. As we seek additional sources of financing, there can be no assurance that such financing would be available to us on favorable terms or at all. Our ability to obtain additional financing in the debt and equity capital markets is subject to several factors, including market and economic conditions, our performance and investor sentiment with respect to us and our industry. The outcome of these matters cannot be predicted with any certainty at this time.

Basis of Presentation and Preparation
    
Principles of Consolidation

The accompanying condensed consolidated financial statements have been prepared by us in accordance with generally accepted accounting principles in the United States (“United States” or “U.S.,” and such accounting principles, “U.S. GAAP”) for interim financial information, and include the accounts of SunPower, all of our subsidiaries and special purpose entities, as appropriate under U.S. GAAP. All intercompany transactions and balances have been eliminated in consolidation. The financial information included herein is unaudited, and reflects all adjustments which are, in the opinion of our management, of a normal recurring nature and necessary for a fair statement of the results for the periods presented. The January 1, 2023 consolidated balance sheet data was derived from SunPower’s audited consolidated financial statements included in our Annual Report on Form 10-K/A for the fiscal year ended January 1, 2023, as filed with the Securities and Exchange Commission (“SEC”) on December 18, 2023, but does not include all disclosures required by U.S. GAAP. The condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in SunPower's Annual Report on Form 10-K/A for the fiscal year ended January 1, 2023. The operating results for the three and nine months ended October 1, 2023 are not necessarily indicative of the results that may be expected for fiscal year 2023, or for any other future period.

We have a 52-to-53-week fiscal year that ends on the Sunday closest to December 31. Accordingly, every fifth or sixth year will be a 53-week fiscal year. Both the current fiscal year, fiscal 2023, and prior fiscal year, fiscal 2022, are 52-week fiscal years. The third quarter of fiscal 2023 ended on October 1, 2023, while the third quarter of fiscal 2022 ended on October 2, 2022.

Management Estimates

The preparation of the condensed consolidated financial statements in conformity with U.S. GAAP requires our management to make estimates and assumptions that affect the amounts of assets and liabilities and disclosures of contingent assets and liabilities reported in these condensed consolidated financial statements and accompanying notes. We base our estimates on historical experience and various other assumptions believed to be reasonable. Our actual financial results could materially differ from those estimates. Significant estimates in these condensed consolidated financial statements include revenue recognition, specifically nature and timing of satisfaction of performance obligations, standalone selling price of performance obligations, and variable consideration; credit losses, including estimating macroeconomic factors affecting historical recovery rate of receivables; inventory write-downs; long-lived assets and goodwill impairment, specifically estimates for valuation assumptions including discount rates and future cash flows; fair value of investments, including equity investments for which we apply the fair value option and other financial instruments; actuarial estimates related to our self-insured health benefits; valuation of goodwill and intangible assets acquired in a business combination; valuation of contingent consideration in a business combination; valuation of contingencies such as warranty and litigation; the incremental borrowing rate used in discounting of lease liabilities; the fair value of indemnities provided to customers and other parties; and income taxes and tax valuation allowances.

10

Restatement of Previously Issued Condensed Consolidated Financial Statements

As described in Note 2. Restatement of Previously Issued Condensed Consolidated Financial Statements, our condensed consolidated financial statements as of January 1, 2023 and for the three and nine months ended October 2, 2022 are restated in this Quarterly Report on Form 10-Q (or this “Quarterly Report”) to reflect the corrections related to the value of consignment inventory of microinverter (“MI”) components at certain warehouse and third-party locations and corrections related to reclassification of certain expenses in our statements of operations, along with other immaterial corrections. The restated condensed consolidated financial statements are indicated as “Restated” in the unaudited condensed consolidated financial statements and accompanying notes, as applicable. See Note 2. Restatement of Previously Issued Condensed Consolidated Financial Statements for further discussion.

Segment Information

We operate in a single operating segment, providing solar power systems and services to residential customers. While our chief executive officer, as the chief operating decision maker (“CODM”), reviews financial information by different functions and revenue streams, he considers the business on a consolidated basis for purposes of allocating resources and reviewing overall business performance.

Summary of Selected Significant Accounting Policies
    
The following significant accounting policies are updates to our significant accounting policies from our Annual Report on Form 10-K/A for the fiscal year ended January 1, 2023. Refer to our Annual Report on Form 10-K/A for the fiscal year ended January 1, 2023 for the full list of our significant accounting policies. There have been no material changes or updates to our significant accounting policies disclosed in the Form 10-K/A except as updated below.

Revenue Recognition

We recognize revenue from contracts with customers when we have completed our performance obligations under an identified contract. The revenue is recognized in an amount that reflects the consideration for the corresponding performance obligations for the goods and services transferred.

Solar Power Systems and Component Sales

A majority of our revenue is generated by sales of fully functioning solar power systems to our customers. We sell our products through a network of installing and non-installing dealers and resellers, as well as our internal sales team. Usually, our performance obligation is to design and install a fully functioning solar energy system. We recognize revenue when the solar power system is fully installed and the final permit is received from the authority having jurisdiction, as we deem our performance obligation under the contract to be complete at such time, and the customer retains all of the significant risks and rewards of ownership of the solar power system. In situations when we are not responsible for construction and installation of solar power systems, usually when the sales are made by one of our installing dealers or resellers, we recognize revenue when the components of the solar power system are delivered at the customer site. Our costs to obtain and fulfill contracts associated with systems sales are expensed as sales, general, and administrative expense and cost of revenue, respectively. In addition, incentives we provide to our customers, such as discounts and rebates, are recorded net to the revenue we have recognized on the solar power system. In addition, we expense sales commissions when incurred if the amortization period is one year or less, and record within sales, general, and administrative expense in our condensed consolidated statements of operations.

Revenue is generally recognized at transaction price, net of costs of financing, or other consideration paid to the customers that is not in exchange for a distinct good or service. Also, our arrangements may contain clauses that can either increase or decrease the transaction price. Variable consideration is estimated at each measurement date at its most likely amount to the extent that it is probable that a significant reversal of cumulative revenue recognized will not occur and true-ups are applied prospectively as such estimates change.

We also provide solar power systems to our customers in the form of 20-year lease agreements which are entered into by the customer with our third-party leasing partners. These third-party leasing partners are special-purpose entities that we do not control or consolidate. We recognize revenue when the system is fully installed, when permit to operate is given by the local utility company, and the solar system has produced meterable quantities of electricity, as we deem our performance obligation under the contract to be complete at such time.

Transfers of financial assets

In April 2023, to support the expansion of our residential solar and storage loan funding capacity, we entered into a series of agreements to sell solar loan receivables to a special-purpose entity in our existing joint venture, SunStrong, with
11

Hannon Armstrong Sustainable Infrastructure Capital, Inc. (“HASI”). Under the agreements, we have secured financing commitments to fund more than $450.0 million for our residential solar and storage loan program, including a $300.0 million revolving credit facility from Credit Agricole Corporate & Investment Bank (“CA-CIB”). The CA-CIB credit revolver serves as a warehouse facility for SunStrong to temporarily finance solar assets prior to arranging long-term financings, such as asset-backed securities. The revolving warehouse facility will allow SunStrong to fund the acquisition of solar loans entered into by SunPower Financial's customers and issue asset-backed securities on an ongoing basis.

In May 2023, to further support the expansion of our residential solar and storage loan funding capacity, we also entered into a series of agreements to sell solar loan receivables to a newly created special-purpose trust beneficially owned by one or more affiliates of KKR Credit Advisors (US) LLC (“KKR Credit”). Under the agreements, we have secured financing commitments to fund up to $550.0 million for our residential solar and storage loan program over a 15-month term, with annual renewal options.

These agreements to sell solar loan receivables to third-parties are accounted for in accordance with ASC 860, Transfers and Servicing. We make judgments, based in part, on supporting legal opinions, on whether these entities should be consolidated as a variable interest entity, as defined in ASC 810, Consolidation, and whether the transfers to these entities are accounted for as a sale of a financial asset or a secured borrowing under ASC 860 (see Note 11. Equity Investments for a discussion of our conclusion under ASC 810).

Under ASC 860, for our loan receivables that are held for sale and the transfer of the financial assets to be considered a sale, the asset must be legally isolated from the transferor and the transferee must have actual and effective control of the asset. When the sale criteria are met, we, as the transferor, derecognize the lower of cost or fair value of the financial asset transferred and recognize a net gain or loss on the sale based on the difference between proceeds received (less any transaction costs) over the carrying value or fair value. Even though we serve as the primary or master servicer of the special-purpose entity, which represents a form of continuing involvement under ASC 860, this does not preclude sale accounting, because as the servicer, we do not have the power to make significant decisions or any other form of control impacting the performance of the entity. We do not retain actual or effective control in the transferred loan receivables, and therefore, the transfers are accounted for as a sale with the gain or loss from the sales included in our condensed consolidated statements of operations. The gain or loss, and cash proceeds, related to the sales of the financial assets are classified as operating activities in our condensed consolidated statements of cash flows.

Our loan receivables are held for sale and recorded at the net present value of the loan payments upon loan origination, adjusted for the significant financing component using the same interest rate that the Company would use if it was to enter into a separate financing transaction with the customer. We subsequently measure our loan receivables held for sale at the lower of cost or fair value on a loan-by-loan basis until the loan receivables are sold. Our loan receivables held for sale are typically sold within 30 days of origination. If the purchased loans do not meet the eligibility criteria to be sold, the loan receivables are transferred to held to maturity and included at amortized cost within “accounts receivable, net” and “other long-term assets” on our condensed consolidated balance sheets. These loan receivable agreements held to maturity have a term of typically 20 - 25 years and relate to loans that our customers enter into to pay for their solar power systems.

The sale of loan receivables that is outside of the scope of ASC 860 are accounted for as the sale of future revenues. The upfront payments received from third-party purchasers are classified as deferred income until revenue is recognized, and are presented within “contract liabilities” on our condensed consolidated balance sheets.

Recent Accounting Pronouncements Not Yet Adopted

In October 2023, the FASB issued ASU 2023-06, Disclosure Agreements Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative. This amendment will impact various disclosure areas, including the statement of cash flows, accounting changes and error corrections, earnings per share, debt, equity, derivatives, and transfers of financial assets. The amendments in this ASU 2023-06 will be effective on the date the related disclosures are removed from Regulation S-X or Regulation S-K by the SEC, and will no longer be effective if the SEC has not removed the applicable disclosure requirement by June 30, 2027. Early adoption is prohibited. We are currently evaluating the impacts of the amendment on our disclosures.

Note 2. RESTATEMENT OF CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Restatement Background

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On October 19, 2023, the Audit Committee of the Board of Directors (the “Board”) of the Company, based upon the recommendation of management, determined that our (i) audited consolidated financial statements included in our Annual Report on Form 10-K for the period ended January 1, 2023, filed with the SEC on March 10, 2023 (the “Original Form 10-K”), (ii) unaudited condensed consolidated financial statements included in our Quarterly Report on Form 10-Q for the quarterly period ended April 2, 2023, filed with the SEC on May 3, 2023 (the “Q1 2023 Form 10-Q”), and (iii) unaudited condensed consolidated financial statements included in our Quarterly Report on Form 10-Q for the quarterly period ended July 2, 2023, filed with the SEC on August 2, 2023 (the “Q2 2023 Form 10-Q,” and collectively, the “Affected Periods”), as well as the relevant portions of any communication which describe or are based on such consolidated financial statements, should no longer be relied upon, and that the previously issued financial statements for the Affected Periods should be restated.

This Note discloses the nature of the restatement adjustments and discloses the cumulative effects of these adjustments on the condensed consolidated balance sheet as of January 1, 2023, statements of operations for the three and nine months ended October 2, 2022, and statements of cash flows for the nine months ended October 2, 2022. The consolidated statements of comprehensive income (loss) and statements of equity for the three and nine months ended October 2, 2022 have also been restated for the correction to net income (loss).

The unaudited condensed consolidated balance sheet as of January 1, 2023, and the unaudited condensed consolidated financial statements for the three and nine months ended October 2, 2022, have been restated to reflect the corrections related to the value of consignment inventory of MI components at certain warehouse and third-party locations, and reclassification of certain expenses in our condensed consolidated statements of operations as further described below, along with other immaterial items pertaining to the periods noted above. The effects of the restatement, including the related income tax impacts, have been reflected in the impacted tables and footnotes throughout these condensed consolidated financial statements in this Q3 2023 Form 10-Q. The restatement adjustments and their impacts on the previously issued condensed consolidated balance sheet as of January 1, 2023, the statements of operations for the three and nine months ended October 2, 2022, and the statement of cash flows for the nine months ended October 2, 2022 are described below.

Description of Restatement Adjustments

The categories of the restatement adjustments and their impact on the previously reported condensed consolidated balance sheet as of January 1, 2023, statements of operations for the three and nine months ended October 2, 2022, and statement of cash flows for the nine months ended October 2, 2022 are described below.

a.Inventory Related Adjustments - In the third quarter of fiscal year 2023, while reviewing our inventory account reconciliations, we identified that the consumption of certain MI costs in photo-voltaic module manufacturing had been inaccurately recorded starting in the first quarter of fiscal year 2022. This resulted in an overstatement of MI costs included in finished goods inventory, and an understatement of cost of revenues for the impacted periods. The impact of the correction is to recognize an increase in cost of revenues for the relevant MI costs, with a corresponding reduction to our finished goods inventory and increase in accrued liabilities related to additional accruals for sales and use taxes. In addition, we also identified other immaterial miscellaneous inventory-related misstatements as of January 1, 2023 and for the three and nine months ended October 2, 2022, pertaining to the physical inventory counts and classifications between financial statement line items related to inventories.
The aggregated impact to the condensed consolidated statements of operations for the three and nine months ended October 2, 2022 is a decrease to total cost of revenues of $2.9 million and an increase to total cost of revenues of $4.5 million, respectively. The impact to the condensed consolidated balance sheets as of January 1, 2023 is a decrease in inventories of $19.7 million, an increase in advances to suppliers, current portion of $2.8 million, an increase in prepaid expenses and other current assets of $2.4 million, an increase in accounts payable of $0.8 million, and an increase in accrued liabilities of $0.4 million.

b.Classification of Expense in the Statements of Operations - In fiscal year 2023, we identified errors related to the classification of certain expenses as cost of revenues instead of operating expenses. This resulted in the reclassification of certain expenses from cost of revenues to selling, general, and administrative expense for the three and nine months ended October 2, 2022.
The aggregated impact to the condensed consolidated statements of operations for the three and nine months ended October 2, 2022 is a decrease to total cost of revenues of $11.5 million and $37.1 million, respectively, and an increase to sales, general, and administrative expenses of $11.5 million and $37.1 million, respectively.

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c.Other Restatement Adjustments - There are other restatement adjustments otherwise not described in items (a) to (b) above, which are individually and in the aggregate insignificant as of January 1, 2023 and for the three and nine months ended October 2, 2022.

Condensed Consolidated Financial Statements - Restatement Reconciliation Tables

In light of the foregoing, in accordance with ASC 250, Accounting Changes and Error Corrections, we are restating the previously issued condensed consolidated financial statements as of January 1, 2023 and for the three and nine months ended October 2, 2022 to reflect the effects of the restatement adjustments, and to make certain corresponding disclosures. In the following tables, we have presented a reconciliation of our condensed consolidated balance sheets, statements of operations, and cash flows as previously reported for these periods to the restated and revised amounts.




Summary of Restatement - Condensed Consolidated Balance Sheets
 January 1, 2023
(In thousands)As Previously ReportedRestatement AdjustmentsRestatement Reference As Restated
Assets
Current assets:
Cash and cash equivalents$377,026 $ $377,026 
Restricted cash and cash equivalents, current portion9,855 813 c10,668 
Short-term investments132,480  132,480 
Accounts receivable, net174,577 (4,903)c169,674 
Contract assets50,692 6,378 c57,070 
Inventories316,815 (21,084)a, c295,731 
Advances to suppliers, current portion9,309 2,750 a12,059 
Prepaid expenses and other current assets197,760 51 a, c197,811 
Total current assets1,268,514 (15,995)1,252,519 
Restricted cash and cash equivalents, net of current portion15,151 3,661 c18,812 
Property, plant and equipment, net74,522 1,951 c76,473 
Operating lease right-of-use assets36,926  36,926 
Solar power systems leased, net41,779  41,779 
Goodwill126,338 (340)c125,998 
Other intangible assets, net24,192  24,192 
Other long-term assets192,585 (5,658)c186,927 
Total assets$1,780,007 $(16,381)$1,763,626 
Liabilities and Equity  
Current liabilities:  
Accounts payable$242,229 $910 a, c$243,139 
Accrued liabilities145,229 2,890 a, c148,119 
Operating lease liabilities, current portion11,356  11,356 
Contract liabilities, current portion144,209 (2,346)c141,863 
Short-term debt, net82,404 (164)c82,240 
Convertible debt, current portion424,919  424,919 
Current liabilities of discontinued operations   
Total current liabilities1,050,346 1,290 1,051,636 
Long-term debt, net308  308 
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Operating lease liabilities, net of current portion29,347  29,347 
Contract liabilities, net of current portion11,555 33 c11,588 
Other long-term liabilities112,797 1,905 c114,702 
Long-term liabilities of discontinued operations   
Total liabilities1,204,353 3,228 1,207,581 
Commitments and contingencies (Note 10)
Equity:
Preferred stock
   
Common stock
174  174 
Additional paid-in capital2,855,930  2,855,930 
Accumulated deficit(2,066,175)(19,609)a, c(2,085,784)
Accumulated other comprehensive income11,568  11,568 
Treasury stock, at cost
(226,646) (226,646)
Total stockholders' equity574,851 (19,609)555,242 
Noncontrolling interests in subsidiaries803  803 
Total equity575,654 (19,609)556,045 
Total liabilities and equity$1,780,007 $(16,381)$1,763,626 

Summary of Restatement - Condensed Consolidated Statements of Operations

 Three Months EndedNine Months Ended
 October 2, 2022October 2, 2022
(In thousands, except per share data)As Previously ReportedRestatement AdjustmentsRestatement Reference As RestatedAs Previously ReportedRestatement AdjustmentsRestatement Reference As Restated
Total revenues$475,711 $682 c$476,393 $1,243,760 $215 c$1,243,975 
Total cost of revenues370,264 (10,536)a-c359,728 984,505 (29,767)a-c954,738 
Gross profit105,447 11,218 116,665 259,255 29,982 289,237 
Operating expenses:
Research and development6,784 62 c6,846 19,199  19,199 
Sales, general, and administrative87,124 14,061 b, c101,185 257,163 37,249 b, c294,412 
Restructuring charges (credits)111  111 244  244 
(Income) expense from transition services agreement, net(1,059) (1,059)(1,287) (1,287)
 Total operating expenses92,960 14,123 107,083 275,319 37,249 312,568 
Operating income (loss)12,487 (2,905)9,582 (16,064)(7,267)(23,331)
Other income (expense), net:
Interest income144  144 278  278 
Interest expense(4,216)504 c(3,712)(15,224)1 c(15,223)
Other, net135,368  135,368 122,160  122,160 
Other income (expense), net131,296 504 131,800 107,214 1 107,215 
Income (loss) from continuing operations before income taxes and equity in earnings (losses) of unconsolidated investees143,783 (2,401)141,382 91,150 (7,266)83,884 
(Provision for) benefits from income taxes(3,109)667 c(2,442)5,308 1,172 c6,480 
Equity in earnings (losses) of unconsolidated investees1,958 (22)c1,936 1,958 (22)c1,936 
Net income (loss) from continuing operations142,632 (1,756)140,876 98,416 (6,116)92,300 
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(Loss) income from discontinued operations before income taxes and equity in earnings (losses) of unconsolidated investees (2,395)c(2,395)(47,155)(3,098)c(50,253)
Benefits from (provision for) income taxes from discontinued operations 358 c358 584 214 c798 
Net (loss) income from discontinued operations (2,037)(2,037)(46,571)(2,884)(49,455)
Net income (loss)142,632 (3,793)138,839 51,845 (9,000)42,845 
Net (income) loss from continuing operations attributable to noncontrolling interests(3,225) (3,225)(3,671) (3,671)
Net loss (income) from discontinued operations attributable to noncontrolling interests   250  250 
Net (income) loss attributable to noncontrolling interests(3,225) (3,225)(3,421) (3,421)
Net income (loss) from continuing operations attributable to stockholders139,407 (1,756)137,651 94,745 (6,116)88,629 
Net (loss) income from discontinued operations attributable to stockholders (2,037)(2,037)(46,321)(2,884)(49,205)
Net income (loss) attributable to stockholders$139,407 $(3,793)$135,614 $48,424 $(9,000)$39,424 
Net income (loss) per share attributable to stockholders - basic:
Continuing operations$0.80 $(0.01)a, c$0.79 $0.55 $(0.04)a, c$0.51 
Discontinued operations$ $(0.01)c$(0.01)$(0.27)$(0.01)c$(0.28)
Net income (loss) per share – basic
$0.80 $(0.02)a, c$0.78 $0.28 $(0.05)a, c$0.23 
Net income (loss) per share attributable to stockholders - diluted:
Continuing operations$0.74 $(0.01)a, c$0.73 $0.54 $(0.03)a, c$0.51 
Discontinued operations$ $(0.01)c$(0.01)$(0.24)$(0.02)c$(0.26)
Net income (loss) per share – diluted
$0.74 $(0.02)a, c$0.72 $0.30 $(0.05)a, c$0.25 
Weighted-average shares:
Basic174,118  174,118 173,815  173,815 
Diluted192,497  192,497 191,589  191,589 

Summary of Restatement - Condensed Consolidated Statement of Cash Flows

Nine Months Ended
 October 2, 2022
(In thousands)As Previously ReportedRestatement AdjustmentsRestatement Reference As Restated
Cash flows from operating activities:
Net income (loss)$51,845 $(9,000)a, c$42,845 
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization21,704 557 c22,261 
Amortization of cloud computing arrangements3,392 157 c3,549 
Stock-based compensation19,056  19,056 
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Amortization of debt issuance costs2,556  2,556 
Equity in (earnings) losses of unconsolidated investees(1,958)22 c(1,936)
(Gain) loss on equity investments(120,965) (120,965)
Unrealized (gain) loss on derivatives(2,304) (2,304)
Dividend from equity method investees133  133 
Deferred income taxes(12,606)(53)c(12,659)
Other, net128  128 
Changes in operating assets and liabilities:
Accounts receivable(66,254)452 c(65,802)
Contract assets2,326 (2,644)c(318)
Inventories(22,787)8,023 a, c(14,764)
Project assets295  295 
Prepaid expenses and other assets(212,164)7,176 a, c(204,988)
Operating lease right-of-use assets8,424 188 c8,612 
Advances to suppliers(6,288) (6,288)
Accounts payable and other accrued liabilities77,844 (3,213)a, c74,631 
Contract liabilities98,663 (366)c98,297 
Operating lease liabilities(10,906)(922)c(11,828)
Net cash (used in) provided by operating activities(169,866)377 (169,489)
Cash flows from investing activities:
Purchases of property, plant, and equipment(36,958) (36,958)
Investments in software development costs(4,225) (4,225)
Cash received from C&I Solutions sale, net of de-consolidated cash146,303  146,303 
Cash paid for equity investments under the Dealer Accelerator Program and other(30,920) (30,920)
Proceeds from sale of equity investment440,108  440,108 
Cash paid for investments in unconsolidated investees(5,742) (5,742)
Dividend from equity method investee, in excess of cumulative earnings137  137 
Net cash provided by (used in) investing activities508,703  508,703 
Cash flows from financing activities:
Proceeds from bank loans and other debt124,729  124,729 
Repayment of bank loans and other debt(167,003)102 c(166,901)
Payments for financing leases(735)(29)c(764)
Purchases of stock for tax withholding obligations on vested restricted stock(10,462) (10,462)
Net cash (used in) provided by financing activities(53,471)73 (53,398)
Net increase (decrease) in cash, cash equivalents, and restricted cash285,366 450 285,816 
Cash, cash equivalents, and restricted cash, beginning of period148,613 3,986 152,599 
Cash, cash equivalents, and restricted cash, end of period$433,979 $4,436 $438,415 
Reconciliation of cash, cash equivalents, and restricted cash to the condensed consolidated balance sheets:
Cash and cash equivalents$396,510 $ $396,510 
Restricted cash and cash equivalents, current portion13,204 805 c14,009 
Restricted cash and cash equivalents, net of current portion24,265 3,631 c27,896 
Total cash, cash equivalents, and restricted cash$433,979 $4,436 $438,415 
Supplemental disclosure of non-cash activities:
17

Property, plant and equipment acquisitions funded by liabilities (including financing leases)$9,130 $(48)c$9,082 
Right-of-use assets obtained in exchange for lease obligations$14,005 $(1,017)c$12,988 
Working capital adjustment related to C&I Solutions sale$7,005 $ $7,005 
Supplemental cash flow disclosures:
Cash paid for interest$20,323 $ $20,323 
Cash paid for income taxes$5,187 $ $5,187 

Note 3. TRANSACTIONS WITH TOTAL AND TOTALENERGIES SE

In June 2011, Total completed a cash tender offer to acquire 60% of our then outstanding shares of common stock at a price of $23.25 per share, for a total cost of approximately $1.4 billion. In December 2011, we entered into a Private Placement Agreement with Total, under which Total purchased, and we issued and sold, 18.6 million shares of our common stock for a purchase price of $8.80 per share, thereby increasing Total's ownership to approximately 66% of our outstanding common stock as of that date.

On May 24, 2022, Total and Total Gaz (collectively, “Sellers”) agreed to sell 50% less one unit of the equity interests in HoldCo, which upon closing of such transaction would be the record holder of all of the shares of our common stock held by Sellers, to GIP Sol (and such transaction, the “Transaction”).

On September 12, 2022, Sellers closed the Transaction. In connection with the completion of the Transaction, TotalEnergies Renewables, GIP Sol, and HoldCo entered into a Letter Agreement, dated September 12, 2022, concerning certain governance rights with respect to HoldCo and the shares of our common stock held directly by HoldCo. Specifically, TotalEnergies Renewables and GIP Sol agreed to, among other things, take all actions necessary to cause HoldCo to designate and elect to our board of directors (the “Board”) such individuals as HoldCo is entitled to appoint pursuant to the Affiliation Agreement; provided, however, that for so long as HoldCo is entitled to appoint at least five directors to our Board, GIP Sol shall have the right to appoint two of such five directors. The Letter Agreement also contained certain provisions on voting and on the transfer of HoldCo interests and common stock of the Company.

As of October 1, 2023, ownership of our outstanding common stock by TotalEnergies SE and its affiliates, and GIP Sol, was 50.2%.

Sale of C&I Solutions Business

On May 31, 2022, pursuant to the terms of the Definitive Agreement we signed with TotalEnergies Renewables on February 6, 2022, TotalEnergies Renewables acquired all of the issued and outstanding common stock of our C&I Solutions business. The preliminary purchase price of $190.0 million was subject to certain adjustments, including cash, indebtedness, and an estimated closing date working capital adjustment. Upon closing, we received net cash consideration of $149.2 million based on the estimated net assets of the business on that date. As of the third quarter of fiscal 2022, we recorded a payable of $7.0 million to Total, based on our review of the closing date working capital and our submission of the closing statement. On October 25, 2022, we received a notice of disagreement from TotalEnergies Renewables with respect to the closing statement. As set forth in the Definitive Agreement, we appointed an independent accountant to adjudicate the amount owed under the closing statement. On April 12, 2023, the independent accountant issued its final and binding determination with respect to the disputed items and an additional $23.9 million was deemed in favor of TotalEnergies Renewables. We recorded a payable of $30.9 million in our condensed consolidated balance sheets as of April 2, 2023, and such amount was paid on April 19, 2023.

Affiliation Agreement

In April 2011, we and Total entered into an Affiliation Agreement that governs the relationship between Total and us (the “Affiliation Agreement”). Until the expiration of a standstill period specified in the Affiliation Agreement (the “Standstill Period”), and subject to certain exceptions, Total, TotalEnergies SE, and any of their respective affiliates and certain other related parties (collectively, the “Total Group”) may not effect, seek, or enter into discussions with any third party regarding any transaction that would result in the Total Group beneficially owning our shares in excess of certain thresholds, or request us or our independent directors, officers, or employees to amend or waive any of the standstill restrictions applicable to the Total Group. The Standstill Period ends when Total holds less than 15% ownership of us.

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The Affiliation Agreement imposes certain limitations on the Total Group’s ability to seek to effect a tender offer or merger to acquire 100% of our outstanding voting power and imposes certain limitations on the Total Group's ability to transfer 40% or more of our outstanding shares or voting power to a single person or group that is not a direct or indirect subsidiary of TotalEnergies SE. During the Standstill Period, no member of the Total Group may, among other things, solicit proxies or become a participant in an election contest relating to the election of directors to our Board.

The Affiliation Agreement provides Total with the right to maintain its percentage ownership in connection with any new securities issued by us, and Total may also purchase shares on the open market or in private transactions with disinterested stockholders, subject in each case to certain restrictions.

The Affiliation Agreement also imposes restrictions with respect to our and our Board’s 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.

On April 19, 2021, we entered into an amendment to the Affiliation Agreement with Total (the “April Affiliation Agreement Amendment”). The April Affiliation Agreement Amendment provided that our Board would include eleven members, composed of our president and chief executive officer, our immediate past chief executive officer, Tom Werner, six directors designated by Total, and three non-Total-designated directors. If the ownership of our voting securities by Total, together with the controlled subsidiaries of TotalEnergies SE, declined below certain thresholds, the number of members of the Board that Total was entitled to designate would be reduced as set forth in the Affiliation Agreement. Pursuant to the April Affiliation Agreement Amendment, Mr. Werner resigned from his position as a member of the Board on November 1, 2021. On October 29, 2021, we entered into an additional amendment to the Affiliation Agreement (the “October Affiliation Agreement Amendment”), which provided that our Board would remain at eleven members until March 31, 2022 and allowed for the appointment of one additional independent director to fill the vacancy created by Mr. Werner’s resignation from the Board, which was filled as of December 31, 2021. The October Affiliation Agreement Amendment further provided that, after March 31, 2022, the Board would revert to nine members, at which time one independent director and one Total designee would resign from the Board. As previously disclosed, on March 31, 2022, one independent director and one Total designee resigned from the Board, and the Board reverted to nine members as of such date.

In accordance with the Letter Agreement entered into by TotalEnergies Renewables, GIP Sol, and HoldCo on September 12, 2022, GIP had the right to appoint two designees to our Board. On September 23, 2022, two Total designees resigned from the Board, and on September 26, 2022, the Board appointed two GIP designees.

4.00% Debentures Due 2023

In December 2015, we issued $425.0 million in principal amount of our 4.00% debentures due 2023. An aggregate principal amount of $100.0 million of the 4.00% debentures due 2023 was acquired by Total. On January 17, 2023, we repaid the outstanding principal amount of $425.0 million of our 4.00% debentures due 2023, $100.0 million of which was held by TotalEnergies, as well as the remaining interest on the 4.00% debentures due 2023 of $8.5 million which was payable upon maturity.

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Related-Party Transactions with Total and its Affiliates:

The following are balances and transactions entered into with Total and its affiliates.

As of
(In thousands)October 1, 2023January 1, 2023
Accounts receivable$490 $489 
Prepaid expenses and other current assets2,107 2,898 
Other long-term assets 1,284 
Accrued liabilities121 8,033 

Three Months EndedNine Months Ended
(In thousands)October 1, 2023October 2, 2022October 1, 2023October 2, 2022
Expense (income) from transition services agreement, net
$146 $(1,095)$(44)$(1,613)
Sublease income (recorded in sales, general, and administrative expense) (214) (285)
Interest expense:
Interest expense incurred on the 4.00% debentures due 2023
 1,000 171 3,000 

Note 4. REVENUE FROM CONTRACTS WITH CUSTOMERS

Disaggregation of Revenue

The following table represents disaggregated revenue from contracts with customers for the three and nine months ended October 1, 2023 and October 2, 2022:

Three Months EndedNine Months Ended
October 1, 2023October 2, 2022October 1, 2023October 2, 2022
(In thousands)
(As Restated)
(As Restated)
Solar power systems sales$348,052 $360,223 $1,059,536 $951,694 
Component sales74,285 105,303 249,097 239,722 
Light commercial sales(50)4,918 562 43,683 
Services and other8,403 5,949 19,122 8,876 
Total revenues$430,690 $476,393 $1,328,317 $1,243,975 

We recognize revenue from contracts with customers when we have completed our performance obligations under an identified contract. The revenue is recognized in an amount that reflects the consideration for the corresponding performance obligations for the goods and services transferred.

Contract Assets and Liabilities

Contract assets represent accounts receivable unbilled for transactions where revenue has been recognized in advance of billing the customer. Revenue may be recognized in advance of billing the customer, resulting in an amount recorded to “contract assets” or “accounts receivable, net” depending on the expected timing of payment for such unbilled accounts receivable. Once we have an unconditional right to consideration, we typically bill our customer and reclassify the “contract assets” to “accounts receivable, net.” Contract liabilities consist of deferred revenue and customer advances, which represent consideration received from a customer prior to transferring control of goods or services to the customer under the terms of a sales contract. Total contract assets and contract liabilities balances as of the respective dates are as follows:
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As of
October 1, 2023January 1, 2023
(In thousands)
(As Restated)
Contract assets$37,438 $57,379 
Contract liabilities1
$242,396 $153,451 

1 As of October 1, 2023 and January 1, 2023, we had indemnifications of $1.1 million retained in connection with our C&I Solutions sale, which are presented within “contract liabilities, net of current portion” on our condensed consolidated balance sheets.

During the three and nine months ended October 1, 2023, we recognized revenue of $115.5 million and $103.7 million that was included in contract liabilities as of July 2, 2023 and January 1, 2023, respectively. During the three and nine months ended October 2, 2022, we recognized revenue of $55.9 million and $40.8 million that was included in contract liabilities as of July 3, 2022 and January 2, 2022, respectively.

As of October 1, 2023, we have entered into contracts with customers for sales of solar systems and components for an aggregate transaction price of $645.3 million, the substantial majority of which we expect to recognize over the next 12 months.

Note 5. BALANCE SHEET COMPONENTS

Accounts Receivable, Net
As of
October 1, 2023January 1, 2023
(In thousands)(As Restated)
Accounts receivable, gross$217,748 $184,733 
Less: allowance for credit losses(13,829)(14,750)
Less: allowance for sales returns(230)(309)
     Accounts receivable, net$203,689 $169,674 

Allowance for Credit Losses
Three Months EndedNine Months Ended
(In thousands)October 1, 2023October 2, 2022October 1, 2023October 2, 2022
Balance at beginning of period$13,871 $15,659 $14,750 $14,375 
Provision (recoveries) for credit losses
33 (74)1,340 1,854 
Write-offs(75)(330)(2,261)(974)
Balance at end of period$13,829 $15,255 $13,829 $15,255 

Inventories
As of
October 1, 2023January 1, 2023
(In thousands)(As Restated)
Photovoltaic modules$172,178 $136,006 
Microinverters54,610 48,645 
Energy storage systems47,106 62,861 
Other solar power system component materials 50,590 48,219 
Inventories1
$324,484 $295,731 

1 Photovoltaic modules are classified as finished goods, while the remaining components of total inventories are classified as raw materials.

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Prepaid Expenses and Other Current Assets
As of
October 1, 2023January 1, 2023
(In thousands)(As Restated)
Deferred project costs$74,777 $125,604 
Deferred costs for solar power systems118,302 34,124 
Related-party receivables7,499 3,959 
Other32,980 34,124 
Prepaid expenses and other current assets$233,558 $197,811 

Property, Plant and Equipment, Net
As of
October 1, 2023January 1, 2023
(In thousands)(As Restated)
Testing equipment and tools$1,973 $1,157 
Leasehold improvements17,137 16,960 
Solar power systems12,709 10,271 
Computer equipment15,015 14,411 
Internal-use software82,515 71,477 
Furniture and fixtures7,895 8,088 
Transportation equipment6,481 3,941 
Vehicle finance leases26,221 12,316 
Work-in-progress9,187 5,958 
   Property, plant and equipment, gross2
179,133 144,579 
Less: accumulated depreciation and impairment2,3
(73,064)(68,106)
   Property, plant, and equipment, net1,3
$106,069 $76,473 

1 Property, plant, and equipment is predominantly located in the U.S.

2 Our property, plant, and equipment includes fully depreciated fixed assets. When any of our property, plant, and equipment are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from our condensed consolidated balance sheets, and any resulting gain or loss is included within our condensed consolidated statements of operations. As of October 1, 2023 and January 1, 2023, $21.9 million and $0.1 million, respectively, of our gross property, plant, and equipment, which were fully depreciated, were retired, thus, no gain or loss was recognized from the disposal.

3 For the three and nine months ended October 1, 2023, we recorded depreciation expense, including accretion expense related to our asset retirement obligations, of $11.4 million and $30.5 million, respectively. For the three and nine months ended October 2, 2022, we recorded depreciation expense of $6.0 million and $14.0 million, respectively.

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Other Long-term Assets
As of
October 1, 2023January 1, 2023
(In thousands)
(As Restated)
Equity investments without readily determinable fair value$39,803 $31,699 
Equity investments with fair value option (“FVO”)
29,594 18,346 
Cloud computing arrangements (“CCA”) implementation costs, net of current portion1
2,759 7,934 
Deposits with related parties6,549 7,329 
Retail installment contract receivables, net of current portion2, 3
88,026 98,001 
Long-term deferred project costs2,837 3,109 
Derivative assets3,712 2,293 
Debt issuance costs 3,556 
Loan receivables held to maturity, net of current portion3
811  
Other13,217 14,660 
Other long-term assets$187,308 $186,927 

1 For the three and nine months ended October 1, 2023, we recorded $1.4 million and $4.3 million, respectively, of amortization expense related to the amortization of our capitalized CCA costs. For the three and nine months ended October 2, 2022, we recorded $1.6 million and $3.5 million, respectively, of amortization expense related to the amortization of our capitalized CCA costs.

2 Our long-term retail installment contract receivables are presented net of the significant financing component of $21.4 million and $22.5 million, and allowance for credit losses of $1.1 million and $0.4 million as of October 1, 2023 and January 1, 2023, respectively.

3 We are exposed to credit risk from certain customers and their potential payment delinquencies on our retail installment contracts and other loan receivables held to maturity. As of October 1, 2023, the average Fair Isaac Corporation (“FICO”) score of our customers under a retail installment contract agreement remained at or above 750, which is generally categorized as a “Very Good” credit profile by the Fair Isaac Corporation. As of October 1, 2023, the average FICO score of our customers under other loan receivable agreements is above 760, which is also categorized as a “Very Good” credit profile by the Fair Isaac Corporation.

Accrued Liabilities
As of
October 1, 2023January 1, 2023
(In thousands)(As Restated)
Employee compensation and employee benefits$22,415 $36,452 
Interest payable734 8,549 
Short-term warranty reserves26,157 29,677 
Restructuring reserve
1,674 2 
Legal expenses3,989 2,681 
Taxes payable9,429 9,641 
Payable to related parties
7,959 11,239 
Short-term finance lease liabilities5,958 2,949 
Indemnification obligations retained from C&I Solutions sale1
22,608 20,781 
Short-term asset retirement obligation liability
1,773 1,396 
Other27,947 24,752 
Accrued liabilities$130,643 $148,119 

1 As of October 1, 2023, we had a total of $20.4 million and $2.2 million of warranty reserves and other indemnifications, respectively, retained in connection with the sale of our C&I Solutions business to TotalEnergies Renewables. As of January 1, 2023, we retained a total of $13.5 million and $7.3 million of warranty reserves and other indemnifications, respectively.

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Other Long-term Liabilities

As of
October 1, 2023January 1, 2023
(In thousands)(As Restated)
Deferred revenue$32,597 $35,864 
Long-term warranty reserves27,278 23,931 
Unrecognized tax benefits13,098 12,295 
Related-party liabilities1,458 1,458 
Long-term finance lease liabilities15,709 7,878 
Indemnification obligations retained from C&I Solutions sale1
10,904 11,385 
Long-term asset retirement obligation liability
2,536 2,395 
Other18,826 19,496 
Other long-term liabilities$122,406 $114,702 

1 As of October 1, 2023, we had a total of $7.2 million and $3.7 million of warranty reserves and other indemnifications, respectively, retained in connection with the sale of our C&I Solutions business to TotalEnergies Renewables. As of January 1, 2023, we retained a total of $7.6 million and $3.8 million of warranty reserves and other indemnifications, respectively.

Accumulated Other Comprehensive Income
As of
(In thousands)October 1, 2023January 1, 2023
Cumulative translation adjustment$9,577 $9,576 
Net gain on long-term pension liability obligation1,992 1,992 
Accumulated other comprehensive income$11,569 $11,568 

Note 6. LOAN RECEIVABLES HELD FOR SALE

The following table summarizes the activity in the balance of loan receivables held for sale, net at the lower of costs or fair value for the three and nine months ended October 1, 2023:

Three Months EndedNine Months Ended
(In thousands)
October 1, 2023October 1, 2023
Balance at beginning of period$11,947 $ 
Additions1
67,924 110,882 
Proceeds from sales(67,402)(98,754)
Gain (loss) on sale2
3,310 3,676 
(Increase) decrease in valuation allowance3
(336)(361)
Balance at end of period$15,443 $15,443 

1 In the nine months ended October 1, 2023, we capitalized $5.3 million of transaction costs related to the structuring of the sale of receivables, which are presented within “prepaid expenses and other current assets” on our condensed consolidated balance sheets.

2 In the three and nine months ended October 1, 2023, we recognized a gain of $3.1 million and $3.6 million, respectively, recorded within our condensed consolidated statements of operations related to the loan receivables held for sale that were transferred and derecognized during the periods. In addition, we recorded an unrealized gain of $0.2 million and $0.1 million, respectively, from contracts sold during the three and nine months ended October 1, 2023 but not yet recognized as revenue, which was deferred and recorded within “contract liabilities” on our condensed consolidated balance sheets.

3 In the three and nine months ended October 1, 2023, we recorded a valuation allowance related to the write-down of our loan receivables held for sale to fair value on our condensed consolidated balance sheets.

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Note 7. GOODWILL AND INTANGIBLE ASSETS

Goodwill

On October 4, 2021, we entered into a Securities Purchase Agreement to acquire all of the issued and outstanding membership interests of Blue Raven Solar Holdings, LLC (“Blue Raven”) and 35% of the issued and outstanding membership interests in Albatross Software, LLC, an affiliate of Blue Raven. Goodwill presented on our condensed consolidated financial statements represents goodwill resulting from the acquisition of Blue Raven.

We test goodwill impairment at least annually during the last day of the third fiscal quarter, or when events or changes in circumstances indicate that goodwill might be impaired. The evaluation of impairment involves comparing the current fair value of our reporting unit to the book value (including goodwill). We have performed a qualitative assessment of goodwill prior to completing a quantitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill. After assessing the totality of events and circumstances, we concluded that as of October 1, 2023, the date our last qualitative test was performed, it was more likely than not that the fair value of our reporting unit with goodwill was greater than the book value and, therefore, that there is no goodwill impairment.

Other Intangible Assets

The following table represents our other intangible assets with finite useful lives:

(In thousands)Gross Carrying AmountAccumulated AmortizationNet Book Value
As of October 1, 2023:
Developed technology$3,700 $(2,467)$1,233 
Brand15,800 (7,900)7,900 
Non-compete agreements3,400 (2,267)1,133 
Software development costs13,840 (4,276)9,564 
Total$36,740 $(16,910)$19,830 
As of January 1, 2023:
Developed technology$3,700 $(1,542)$2,158 
Brand15,800 (4,937)10,863 
Non-compete agreements3,400 (1,417)1,983 
Software development costs9,250 (62)9,188 
Total$32,150 $(7,958)$24,192 

Aggregate amortization expense for intangible assets was $3.2 million and $9.0 million for the three and nine months ended October 1, 2023, and $1.6 million and $4.8 million for the three and nine months ended October 2, 2022, respectively. No impairment loss was recorded for intangible assets for the three and nine months ended October 1, 2023 and October 2, 2022.

As of October 1, 2023, the estimated future amortization expense related to intangible assets with finite useful lives for each of the next three fiscal years was as follows, through the end of the useful life of all intangible assets:

Expected Amortization Expense
Fiscal Year(In thousands)
2023 (remaining three months)$3,181 
202410,871 
20255,778 
Total$19,830 

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Note 8. 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

We measure 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 following tables summarize our assets and liabilities measured at fair value on a recurring basis:

October 1, 2023
(In thousands)Carrying ValueTotal Fair ValueLevel 3Level 2Level 1
Assets
Cash and cash equivalents:
Money market funds$30,000 $30,000 $ $ $30,000 
Loan receivables held for sale, net15,443 17,116  17,116  
Other long-term assets:
Equity investments with FVO29,594 29,594 29,594   
Interest rate swaps3,712 3,712  3,712  
Total assets$78,749 $80,422 $29,594 $20,828 $30,000 
Liabilities
Accrued liabilities:
Interest rate swaps$90 $90 $ $90 $ 
Total liabilities$90 $90 $ $90 $ 

January 1, 2023
(In thousands)Carrying ValueTotal Fair ValueLevel 3Level 2Level 1
Assets
Cash and cash equivalents:
Money market funds$297,474 $297,474 $ $ $297,474 
Other long-term assets:
Equity investments with FVO18,346 18,346 18,346   
Equity investments with readily determinable fair value132,480 132,480   132,480 
Interest rate swaps2,293 2,293  2,293  
Total assets$450,593 $450,593 $18,346 $2,293 $429,954 

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Money market funds

During fiscal 2022, we entered into investments in money market funds with Bank of America. As of October 1, 2023, we recorded an amount of $30.0 million within “cash and cash equivalents” in our consolidated balance sheets for our investments held in the money market funds. The money market funds are classified within Level 1 in the fair value hierarchy as we value the funds using observable inputs that reflect quoted prices for securities with identical characteristics.

Loan receivables held for sale, net

Loan receivables held for sale are recorded in the condensed consolidated balance sheets at the net present value when originated, and subsequently measured at lower of cost or fair value on a loan-by-loan basis until the loan receivables are sold. Fair value of our loan receivables held for sale is determined based on the anticipated sale price of the solar loan receivables to third-parties. The loan receivables held for sale are classified within Level 2 of the fair value hierarchy, as the primary component of the price is obtained from observable values of loan receivables with similar terms and characteristics.

Equity investments with fair value option (“FVO”)

We have elected the FVO in accordance with the guidance in ASC 825, Financial Instruments, for our investment in the SunStrong Capital Holdings, LLC (“SunStrong”), Dorado Development Partners, LLC (“Dorado DevCo”), and SunStrong Partners, LLC (“SunStrong Partners”) joint ventures, to mitigate volatility in reported earnings that results from the use of different measurement attributes (see Note 11. Equity Investments). We initially computed the fair value for our investments consistent with the methodology and assumptions that market participants would use in their estimates of fair value with the assistance of a third-party valuation specialist. The fair value computation is updated using the same methodology on an annual basis, during the third fiscal quarter, considering material changes in the business of SunStrong, Dorado DevCo, and SunStrong Partners or other inputs. The investments are classified within Level 3 in the fair value hierarchy because we estimate the fair value of the investments using the income approach based on the discounted cash flow method which considered estimated future financial performance, including assumptions for, among others, forecasted contractual lease income, lease expenses, residual value of these lease assets, and long-term discount rates, and forecasted default rates over the lease and loan term and discount rates, some of which require significant judgment by management and are not based on observable inputs.

The following table summarizes movements in equity investments for the nine months ended October 1, 2023. There were no internal movements between Level 1 or Level 2 fair value measurements to or from Level 3 fair value measurements for the nine months ended October 1, 2023.

(In thousands)Beginning balance as of January 1, 2023Equity DistributionAdditional Investment
Other adjustment1
Ending balance as of October 1, 2023
Equity investments with FVO$18,346 $ $9,071 $2,177 $29,594 

1 During the third quarter of fiscal 2023, we recorded a fair value adjustment of $2.2 million as a result of our assessment of the fair value of our equity investments with FVO during the quarter. The fair value adjustment was recorded within “Equity in earnings (losses) of unconsolidated investees” in our condensed consolidated statements of operations.

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Level 3 significant unobservable inputs sensitivity

The following table summarizes the significant unobservable inputs used in Level 3 valuation of our investments carried at fair value as of October 1, 2023. Included in the table are the inputs and range of possible inputs that have an effect on the overall valuation of the financial instruments.

2023
Assets:Fair valueValuation Technique
Unobservable Input
Range1
Weighted Average1
Other long-term assets:
    Equity investments with FVO$29,594 Discounted cash flows
Discount rate

Residual value
14.0%-14.5%

6.4%-17.5%
14.2%

9.5%
Total assets$29,594 

1 The primary unobservable inputs used in the fair value measurement of our equity investments, when using a discounted cash flow model, are the discount rate and residual value. Significant increases (decreases) in the discount rate in isolation would result in a significantly lower (higher) fair value measurement. We estimate the discount rate based on risk appropriate projected cost of equity. We estimate the residual value based on the contracted systems in place in the years being projected. Significant increases (decreases) in the residual value in isolation would result in a significantly higher (lower) fair value measurement.

Equity investments with readily determinable fair value

In connection with the divestment of our microinverter business to Enphase on August 9, 2018, we received 7.5 million shares of Enphase common stock (NASDAQ:ENPH). The common stock received was recorded as an equity investment with readily determinable fair value (Level 1), with changes in fair value recognized in net income in accordance with ASU 2016-01 Recognition and Measurement of Financial Assets and Liabilities.

On January 5, 2023, we sold our remaining 0.5 million shares of Enphase common stock in open market transactions for cash proceeds of $121.7 million, with a loss of $10.8 million, which was recorded within “other, net” in our condensed consolidated statements of operations for the nine months ended October 1, 2023. During the three and nine months ended October 2, 2022, we sold one and two million shares of Enphase common stock in open market transactions for net cash proceeds of $290.3 million and $440.1 million, respectively.

Interest Rate Swaps

Credit Suisse Interest Rate Swap

In connection with the entry into our loan and security purchase agreement with Credit Suisse AG, New York Branch, and other financial institutions to finance our retail installment contract receivables on June 30, 2022, we also entered into interest rate swaps under the agreement, which convert the floating rate loan to a fixed rate. The interest rate swaps were entered into to mitigate the risks associated with interest rate volatility. The swaps terminate in September of 2026, unless we terminate with the maturity of the loan, subject to any early termination costs.

The interest rate swaps qualify as derivatives in accordance with the guidance in ASC 815, Derivatives and Hedging. The fair value of the interest rate swaps is determined using a discounted cash flow model that incorporates an assessment of the risk of non-performance by the interest rate swap counterparty and an evaluation of credit risk in valuing derivative instruments. The valuation model uses various inputs including contractual terms, interest rate curves, credit spreads and measures of volatility.

As of October 1, 2023, we recorded derivative assets of $3.7 million, within “other long-term assets” in our condensed consolidated balance sheets related to the interest rate swaps. These interest rate swap derivatives not designated as hedges had an aggregate notional value of $65.8 million as of October 1, 2023. In addition, we recognize changes in the fair value of the interest rate swaps immediately and recorded a gain of $1.2 million and $1.4 million within “interest expense” in our condensed consolidated statements of operations for the three and nine months ended October 1, 2023, respectively. During the three and nine months ended October 2, 2022, we recorded a gain of $2.8 million and $2.3 million, respectively, for changes in the fair value of the interest rate swaps.
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Bank of America Interest Rate Swap

In the first quarter of fiscal 2023, we entered into interest rate swaps in our SunPower FinancialTM business with Bank of America, which converts the fixed rate loans entered into by SunPower Financial's customers to floating rates. The interest rate swaps were entered into to mitigate the interest rate volatility risks associated with the timing lag between when the customer enters into these fixed rate loans and when the loan is funded and sold to a third-party investor. The swaps terminate in May 2024.

The interest rate swaps qualify as derivatives in accordance with the guidance in ASC 815, Derivatives and Hedging. The fair value of the interest rate swaps is determined using a discounted cash flow model that incorporates an assessment of the risk of non-performance by the interest rate swap counterparty and an evaluation of credit risk in valuing derivative instruments. The valuation model uses various inputs including contractual terms, interest rate curves, credit spreads and measures of volatility.

As of October 1, 2023, we recorded derivative liabilities of $0.1 million, within “accrued liabilities” in our condensed consolidated balance sheets related to the interest rate swaps. These interest rate swap derivatives not designated as hedges had an aggregate notional value of $150.0 million as of October 1, 2023. We recognize changes in the fair value of the interest rate swaps immediately and record such changes within “total revenues” in our condensed consolidated statements of operations. We recorded a loss of $0.2 million and gain of $0.1 million for changes in fair value of the interest rate swaps during the three and nine months ended October 1, 2023, respectively. In addition, during the third quarter of fiscal 2023, we received $5.9 million to cash settle our existing interest rate swaps, and subsequently entered into a new interest rate swap with Bank of America. The gain on the swap settlement was recorded in “total revenues” in our condensed consolidated statements of operations.

Retail installment contract receivables, net

The aggregate carrying value of our long-term retail installment contracts as of October 1, 2023 was $101.9 million, included within “accounts receivable, net” and “other long-term assets” on our condensed consolidated balance sheets. We measure the retail installment contracts using the amortized cost method, where the significant financing component amount is deferred and recognized as revenue over the contract term. The fair value of these receivables as of October 1, 2023 was $74.7 million. The fair value was determined using a third-party investor determined formula that starts with initial investor pricing by product, adjusted to account for the fair value impact relating to any changes in market spreads based on Level 2 inputs for the relevant benchmark interest rate and credit spread, as reported by Bloomberg.

Note 9. RESTRUCTURING

Fiscal 2023 Restructuring Plans

In July 2023, we adopted a restructuring plan to align operating costs with current market conditions driven by slower sales partly due to higher interest rates. The plan was intended to improve near-term financial strength in order to remain competitive for future market conditions. As part of the restructuring plan, approximately 140 employees, representing approximately 5% of our labor costs, exited the business in the third quarter of fiscal 2023. We expect to incur restructuring charges totaling approximately $4.8 million, consisting primarily of severance benefits.

In September 2023, we adopted another restructuring plan with similar intentions to improve near-term financial strength in order to remain competitive for future market conditions. As part of the restructuring plan, approximately 55 employees exited the business in the third quarter of fiscal 2023. We expect to incur restructuring charges totaling approximately $1.0 million, consisting primarily of severance benefits.

As of October 1, 2023, we had incurred cumulative costs of approximately $5.9 million in restructuring charges, primarily relating to the payment of severance benefits. The July 2023 restructuring plan is substantially completed, with the only remaining activities on the plan relating to severance payments for certain employees retained through the end of the fiscal year. The September 2023 restructuring plan is expected to be completed by the fourth quarter of fiscal 2023. As a result of these restructuring activities, we expect to realize cost reductions over the next 12 months of approximately $20.6 million primarily in cost of revenues and selling, general, and administrative expenses.

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The following table summarizes the restructuring charges for the July 2023 and September 2023 restructuring plans recognized in our condensed consolidated statements of operations:

Nine Months Ended
(In thousands)October 1, 2023Cumulative To Date
July 2023 Restructuring Plan:
Severance and benefits$4,667 $4,667 
Other costs
159 159 
Total July 2023 Restructuring Plan4,826 4,826 
September 2023 Restructuring Plan:
Severance and benefits959 959 
Other costs
88 88 
Total September 2023 Restructuring Plan
1,047 1,047 
Total restructuring charges (credits)$5,873 $5,873 

The following table summarizes the restructuring reserve activities during the nine months ended October 1, 2023:

Nine Months Ended
(In thousands)July 2, 2023Charges (Benefits)(Payments) RecoveriesOctober 1, 2023
July 2023 Restructuring Plan:
Severance and benefits$ $4,667 $(4,167)$500 
Other costs
 159  159 
Total July 2023 Restructuring Plan 4,826 (4,167)659 
September 2023 Restructuring Plan:
Severance and benefits 959 (32)927 
Other costs
 88  88 
Total September 2023 Restructuring Plan
 1,047 (32)1,015 
Total restructuring reserve activities$ $5,873 $(4,199)$1,674 


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Note 10. COMMITMENTS AND CONTINGENCIES

Facility and Equipment Leases

The tables below present the summarized quantitative information with regard to facility and equipment lease contracts we have entered into:

Three Months EndedNine Months Ended
(In thousands)October 1, 2023October 2, 2022October 1, 2023October 2, 2022
(As Restated)
(As Restated)
Operating lease expense$3,676 $3,609 $10,958 $10,188 
Finance lease expense:
Amortization expense1,285 615 3,091 764 
Interest expense on lease liabilities354 111 817 142 
Sublease income(515)(429)(1,556)(620)
Total$4,800 $3,906 $13,310 $10,474 
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases$4,191 $4,565 $12,091 $13,404 
Operating cash flows for finance leases354 111 817 142 
Financing cash flows for finance leases1,285 615 3,091 764 
Right-of-use assets and property, plant, and equipment obtained in exchange for leases:
Operating leases$197 $12,479 $4,006 $12,988 
Finance leases5,939 3,338 14,603 7,526 

As of
October 1, 2023January 1, 2023
Weighted-average remaining lease term (in years):
Operating leases3.63.7
Finance leases3.53.4
Weighted-average discount rate:
Operating leases7.8 %8.0 %
Finance leases7.0 %7.0 %

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The future minimum lease payments to be paid under non-cancellable leases in effect as of October 1, 2023, are as follows:

Operating LeasesFinance Leases
As of October 1, 2023(In thousands)
2023 (remaining three months)$3,022 $1,806 
202413,252 7,201 
20259,489 7,116 
20267,841 5,635 
20274,932 2,207 
Thereafter2,090 307 
Total lease payments40,626 24,272 
Less: imputed interest(5,452)(2,605)
Total$35,174 $21,667 

Purchase Commitments
 
Future purchase obligations under non-cancellable purchase orders and long-term supply agreements as of October 1, 2023 are as follows:

(In thousands)
Fiscal 2023 (remaining three months)
Fiscal 2024
Fiscal 2025
Fiscal 2026
Fiscal 2027
ThereafterTotal
Future purchase obligations$45,833 $22,193 $5,988 $5,838 $5,844 $4,167 $89,863 

The future purchase obligations presented above primarily consist of commitments to purchase photovoltaic modules pursuant to the supply agreements with Maxeon Solar entered into on February 14, 2022 and December 31, 2022, as well as commitments to purchase Module-Level Power Electronics (“MLPEs”) supplied by one vendor. On November 13, 2023, we terminated both Master Supply Agreements with Maxeon Solar, and entered into a new Master Supply Agreement.

On April 5, 2023, we entered into a new Master Supply Agreement with Waaree Energies Ltd. (“Waaree”) for the purchase of various photovoltaic modules and components to be used in our residential systems. On May 25, 2023, we terminated the Master Supply Agreement with Waaree, including all outstanding purchase orders, and the parties are discussing the disposition of work-in-progress at the time of termination. Waaree products continue to be warranted by Waaree in accordance with the relevant provisions of the Master Supply Agreement.

We review the terms of all our long-term supply agreements annually and assess 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.

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Product Warranties

The following table summarizes accrued warranty activities for the three and nine months ended October 1, 2023 and October 2, 2022:

Three Months EndedNine Months Ended
October 1, 2023October 2, 2022October 1, 2023October 2, 2022
(In thousands)
(As Restated)
(As Restated)
Balance at the beginning of the period$83,101 $75,813 $74,751 $80,592 
Accruals for warranties issued during the period6,821 6,163 27,838 10,490 
Settlements and adjustments during the period(8,859)(6,103)(21,526)(15,209)
Balance at the end of the period$81,063 $75,873 $81,063 $75,873 

Pursuant to the Definitive Agreement entered into by us and TotalEnergies Renewables in connection with the sale of our C&I Solutions business, we agreed to indemnify TotalEnergies Renewables for certain projects that were sold as part of our business prior to the sale. During the three and nine months ended October 1, 2023, we recorded an additional $0.3 million and $9.0 million of warranty expenses related to our indemnifications of TotalEnergies Renewables, respectively, which is included within “net (loss) income from discontinued operations attributable to stockholders” on our condensed consolidated statements of operations. During the three and nine months ended October 2, 2022, we recorded an additional $2.3 million of warranty expenses related to the above noted indemnifications.

Liabilities Associated with Uncertain Tax Positions
 
Total liabilities associated with uncertain tax positions were $13.1 million and $12.3 million as of October 1, 2023 and January 1, 2023, respectively. These amounts are included within “other long-term liabilities” on our condensed 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 our tax positions, we cannot make a reasonably reliable estimate of the period in which cash settlement, if any, would be made for our liabilities associated with uncertain tax positions in other long-term liabilities.

Indemnifications
 
We are a party to various agreements under which we 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 we customarily agree 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 Section 48(c) of the Internal Revenue Code of 1986, as amended, regarding solar commercial investment tax credits (“ITCs”) and U.S. Treasury Department (“U.S. Treasury”) cash grant payments under Section 1603 of the American Recovery and Reinvestment Act (each a “Cash Grant”). Further, in connection with our sale of residential lease assets in fiscal 2018 to SunStrong, we provide Hannon Armstrong Sustainable Infrastructure Capital, Inc. (“Hannon Armstrong”) indemnification related to cash flow losses arising from a recapture of California property taxes on account of a change in ownership, recapture of federal tax attributes and cash flow losses from leases that do not generate the promised savings to homeowners. The maximum exposure to loss arising from the indemnification for SunStrong is limited to the consideration received for the solar power systems. In each of these circumstances, payment by us is typically subject to the other party making a claim to us 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 typically allow us 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, our 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 or amount. In some instances, we may have recourse against third parties or insurance covering certain payments made by us.
 
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In certain circumstances, we are contractually obligated to compensate customers and investors for losses they may suffer as a result of reductions in benefits received under ITCs and U.S. Treasury Cash Grant programs. The indemnity expires in conjunction with the statute of limitation and recapture periods in accordance with the underlying laws and regulations for such ITCs and related benefits. We apply for ITCs and Cash Grant incentives based on guidance provided by the Internal Revenue Service (“IRS”) and the U.S. Treasury, which include assumptions regarding the fair value of the qualified solar power systems, among others. Certain of our 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 our 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, we assess and recognize, 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 we 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 determine as the eligible basis for the systems for purposes of claiming ITCs or Cash Grants. We use 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. We continue to retain certain indemnities, specifically, around ITCs, Cash Grants and California property taxes, even after the underlying portfolio of assets is sold to a third party. For contracts that have such indemnification provisions, we recognize a liability under ASC 460, Guarantees, for the estimated premium that would be required by a guarantor to issue the same guarantee in a standalone arm’s-length transaction with an unrelated party. We recognize such liabilities at the greater of the fair value of the indemnity or the contingent liability required to be recognized under ASC 450, Contingencies. We initially estimate the fair value of any such indemnities provided based on the cost of insurance policies that cover the underlying risks being indemnified and may purchase such policies to mitigate our exposure to potential indemnification payments. After an indemnification liability is recorded, we derecognize such amount typically upon expiration or settlement of the arrangement. As of October 1, 2023 and January 1, 2023, our provision was $8.2 million, primarily for tax-related indemnifications. In addition, as of October 1, 2023 and January 1, 2023, we retained an additional $4.9 million of tax-related indemnifications with TotalEnergies Renewables in connection with the sale of our C&I Solutions business, which is included within “accrued liabilities,” “contract liabilities,” and “other long-term liabilities” on our consolidated balance sheets.

SunPower is party to various supply agreements with Hemlock Semiconductor Operations, LLC (f/k/a Hemlock Semiconductor Corporation) and its affiliate, Hemlock Semiconductor, LLC, (collectively, the “Hemlock Agreements”), for the procurement of polysilicon. In connection with the Spin-off of Maxeon Solar, SunPower and Maxeon Solar entered into an agreement pursuant to which Maxeon Solar received the benefit of SunPower’s rights under the Hemlock Agreements (including SunPower’s deposits and advanced payments thereunder) and, in return, Maxeon Solar agreed to perform all of SunPower’s existing and future obligations under the Hemlock Agreements, including all take-or-pay obligations (the “Back-to-Back Agreement”). As of the first quarter of 2023, Maxeon Solar's commitment under the Hemlock Agreement was finalized. As of October 1, 2023, there are no further payment obligations remaining under the Hemlock Agreements or the Back-to-Back Agreement.

Pursuant to the Separation and Distribution Agreement entered into by us and Maxeon Solar, we agreed to indemnify Maxeon Solar for any liabilities arising out of certain existing litigation relating to businesses contributed to Maxeon Solar in connection with the Spin-off. We expect to be actively involved in managing this litigation together with Maxeon Solar. The indemnity qualifies for the criteria for accounting under the guidance in ASC 460, and we have recorded the liability of litigation of $2.8 million as of October 1, 2023.

In addition, as of October 1, 2023, we have retained a total of $27.6 million of warranty reserves related to our indemnification with TotalEnergies Renewables in connection with the sale of our C&I Solutions business, which are included within “accrued liabilities” and “other long-term liabilities” on our condensed consolidated balance sheets. On December 13, 2023, SunPower received an additional claim notice from Total seeking further indemnification in the amount of $12.8 million related to issues involving repairs and work performed at certain sites related to system components supplied by third parties. SunPower is in the process of evaluating these claims.

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Legal Matters

Edelman v. TotalEnergies SE et al., No. 2023-0136 (Del. Ch.)

As previously disclosed, on February 6, 2023, Plaintiff Jeffrey Edelman filed a putative stockholder derivative complaint in the Delaware Court of Chancery, purportedly on behalf of SunPower, against Total SE, HoldCo, TotalEnergies Renewables, Francois Badoual, Bernadette Baudier, Peter Faricy, Vinayak Hegde, Catherine A. Lesjak, Thomas R. McDaniel, Nathalie Portes-Laville, Julien Pouget, Vincent Stoquart, Denis Toulouse, Franck Trochet, Thomas H. Werner, Laurent Wolffsheim, and Patrick Wood III, current or former directors and officers of the Company. On July 7, 2023, the stockholder filed an amended derivative complaint against TotalEnergies SE, TotalEnergies Gaz & Electricité Holdings SAS, TotalEnergies Solar INTL SAS and TotalEnergies Renewables USA, LLC, as well as the Company’s current and former directors and officers. The amended complaint likewise alleges breach of fiduciary duty and unjust enrichment related to the acquisition of the Company’s C&I Solutions business by TotalEnergies Renewables and seeks monetary damages from the defendants on behalf of the Company, together with costs and attorney’s fees. In September 2023, certain defendants answered the amended complaint, and others moved to dismiss the amended complaint. The Company cannot reasonably estimate any loss or range of loss that may arise from the litigation.

We are also party to various litigation matters and claims, including but not limited to intellectual property, environmental, and employment matters, 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 us, their outcomes are not determinable and negative outcomes may adversely affect our financial position, liquidity, or results of operations.

Note 11. EQUITY INVESTMENTS

Our equity investments consist of equity investments with readily determinable fair value, investments without readily determinable fair value, and equity investments accounted for using the fair value option.

Our share of earnings (losses) from equity investments accounted for under the equity method is reflected as “Equity in earnings (losses) of unconsolidated investees” in our condensed consolidated statements of operations. Mark-to-market gains and losses on equity investments with readily determinable fair value are reflected as “other, net” under other income (expense), net in our condensed consolidated statements of operations. The carrying value of our equity investments, classified as “short-term investments” and “other long-term assets” on our condensed consolidated balance sheets, are as follows:

As of

October 1, 2023January 1, 2023
(In thousands)
(As Restated)
Equity investments with readily determinable fair value:
Enphase Energy, Inc.$ $132,480 
Total equity investments with readily determinable fair value 132,480 
Equity investments without readily determinable fair value:
OhmConnect investment5,000 5,000 
Equity method investments under the Dealer Accelerator Program34,523 26,419 
Other equity investments without readily determinable fair value280 280 
Total equity investments without readily determinable fair value39,803 31,699 
Equity investments with FVO:
SunStrong Capital Holdings, LLC12,110 9,871 
Dorado Development Partners, LLC17,181 8,173 
SunStrong Partners, LLC303 302 
Total equity investment with FVO29,594 18,346 
Total equity investments$69,397 $182,525 

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Equity investments without readily determinable fair value

In February 2022, we made an equity investment in OhmConnect, Inc. (“OhmConnect”). We accounted for the investment as an equity investment without readily determinable fair value in accordance with the guidance in ASC 321, Investments - Equity Securities.

In fiscal 2022, we launched our Dealer Accelerator Program to help speed the adoption of renewable energy across the U.S. by making minority investments in solar dealers to advance their growth in coordination with the rapid growth of their direct business. As part of the program, dealers receive preferred access to SunPower solar, EV charging equipment, battery storage, and financial products offerings. In addition, we provide the dealers with enhanced lead generation and business strategy support.

During fiscal 2022, we entered into four equity investments as part of the Dealer Accelerator Program. The equity investments made were in Sea Bright Solar, Inc for an equity interest of 20.0%, Freedom Solar Holdings, LLC, for an equity interest of 4.5%, EmPower CES, LLC for an equity interest of 20.0% and Renova Energy Corp. for an equity interest of 10.6%.

In April 2023, as part of the Dealer Accelerator Program, we entered into an equity investment with LTL LED, LLC, d/b/a Wolf River Electric LLC (“Wolf River”). The investment included a cash payment for an equity interest of 16.7%.

All of these equity investments were accounted for as equity method investments without readily determinable fair value in accordance with the guidance in ASC 323, Investments - Equity Method and Joint Ventures, given the material intra-entity transactions that exist under our exclusive supplier agreements as a result of our investments. We recognize our earnings from our equity method investments in the fiscal quarter after the corresponding earnings are recognized by the investee, and recorded earnings from equity method investments of $0.8 million and $1.2 million during the three and nine months ended October 1, 2023, respectively, as compared to earnings from equity method investments of $0.2 million recorded during the three and nine months ended October 2, 2022. In addition, during the nine months ended October 1, 2023, we received a dividend from one of our investees in the amount of $0.7 million, as compared to the $0.3 million dividend received from one of our investees during the three months ended October 2, 2022.

Variable Interest Entities (“VIEs”)

A VIE is an entity that has either (i) insufficient equity to permit the entity to finance its activities without additional subordinated financial support, or (ii) equity investors who lack the characteristics of a controlling financial interest.

We follow guidance on the consolidation of VIEs that requires companies to utilize a qualitative approach to determine whether it is the primary beneficiary of a VIE. The process for identifying the primary beneficiary of a VIE requires consideration of the factors that indicate a party has the power to direct activities that most significantly impact the investees' economic performance, including powers granted to the investees' governing board and, to a certain extent, a company's economic interest in the investee. We analyze our investments in VIEs and classify them as either unconsolidated VIEs or consolidated VIEs (refer to our Form 10-K/A for the fiscal year ended January 1, 2023 for further details on our various VIE arrangements).

Unconsolidated VIEs

In March 2022, we entered into a joint venture with Hannon Armstrong and SunStrong to form Dorado DevCo, a jointly-owned entity, to hold our residential lease solar power projects. Similar to our prior joint ventures for residential lease assets, SunPower and Hannon Armstrong will make total capital contributions of up to $17.2 million into Dorado DevCo for 50% effective equity interest, each. SunStrong, our existing joint venture with Hannon Armstrong, was appointed as a manager of the entity. We also entered into a development asset purchase agreement to provide development services for solar power systems sold into the fund.

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With respect to our interest in Dorado DevCo, we determined there is not sufficient equity at risk in the joint venture, thus, we determined the joint venture is a VIE as considered under the guidance in ASC 810. Based on the assessment of the required criteria for consolidation, we determined that SunStrong, as the manager of Dorado DevCo, has the power to make decisions over activities that significantly affect Dorado DevCo and subsidiaries. We and Hannon Armstrong do not have the power to unilaterally make decisions that affect the performance of the investee, and we do not have kick-out rights to unilaterally buyout the other party's equity interests, while Hannon Armstrong has a right to purchase our equity interest of the investee. In addition, much of our exposure to absorb the losses of the VIE that could potentially be significant to the VIE, or the right to receive the economic interest from the VIE, is in our capacity as a developer and service provider, where we provide development services at market terms. Therefore, we concluded we are not the primary beneficiary of the investee, and we do not consolidate.

In September 2023, the Dorado DevCo joint venture was modified to add another tax equity fund with Bank of America Merrill Lynch (“BAML”). This resulted in two new Limited Liability Company's (“LLCs”), Dorado 2 Residential Solar, LLC and Dorado 2 Class B Member, LLC. Additionally, existing warehouse and mezzanine loan facilities under the Dorado DevCo were amended, upsized, and extended to support the new tax equity fund. Other than the foregoing, the overall Dorado DevCo structure remains unchanged. SunStrong remains the manager of the Dorado DevCo joint venture and continues to have the power to make decisions over the activities of the Dorado DevCo and its subsidiaries.

During the three and nine months ended October 1, 2023, we made $0.1 million and $7.2 million of capital contributions in the Dorado DevCo equity method investee. These investments contributed to our equity investment balances in the Dorado DevCo joint venture and are classified in “other long-term assets” on our condensed consolidated balance sheets.

In April 2023, to support the expansion of our solar loan funding capacity, we entered into a series of agreements to sell solar loans to a special-purpose entity within our existing joint venture, SunStrong. The new special-purpose entity is an indirect wholly owned subsidiary of SunStrong. SunPower and Hannon Armstrong will make total capital contributions of up to $24.2 million into SunStrong for 51% and 49% effective equity interest, respectively. In these agreements, we serve as the primary or master servicer of the special-purpose entity, however, as the servicer, we do not have the power to make significant decisions impacting the performance of the entity.

With respect to our interest in the special-purpose entity, we determined there is not sufficient equity at risk in the entity, thus, we determined the entity is a VIE as considered under the guidance in ASC 810. Based on the assessment of the required criteria for consolidation, we determined that SunStrong, as the manager of the special-purpose entity, has the power to make decisions over activities that significantly affect the entity and subsidiaries. Therefore, we concluded we are not the primary beneficiary of the entity, and we do not consolidate. During the three and nine months ended October 1, 2023, we made $1.3 million and $1.9 million of capital contributions in the equity method investee, respectively. The investment contributed to our equity investment balance in SunStrong and is classified in “other long-term assets” on our condensed consolidated balance sheets.

We have elected the FVO in accordance with the guidance in ASC 825, Financial Instruments, for our investments in SunStrong, SunStrong Partners, and Dorado DevCo, our unconsolidated VIEs. Refer to Note 8. Fair Value Measurements.

Summarized Financial Information of Unconsolidated VIEs

The following tables present summarized consolidated financial statements for SunStrong, a significant investee, based on unaudited information provided to us by the investee:1

Three Months EndedNine Months Ended
(In thousands)October 1, 2023October 2, 2022October 1, 2023October 2, 2022
Summarized statements of operations information:
Revenues$43,621 $37,444 $120,780 $109,604 
Net (loss) income1,557 2,307 (9,130)(4,817)
Net (loss) income attributable to parents5,177 7,201 5,154 15,983 

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As of
(In thousands)October 1, 2023January 1, 2023
Summarized balance sheet information:
Current assets$102,997 $88,561 
Long-term assets2,073,553 1,823,437 
Current liabilities74,489 94,414 
Long-term liabilities1,514,828 1,378,462 

1 Note that amounts are reported one quarter in arrears as permitted by applicable guidance.

Related-Party Transactions with Investees

Related-party transactions and balances with SunStrong, SunStrong Partners, Dorado DevCo, and our dealer accelerator equity investees are as follows:

As of
(In thousands)October 1, 2023January 1, 2023
Accounts receivable$60,495 $33,864 
Loan receivables held for sale, net17,040  
Prepaid expenses and other current assets6,720 3,959 
Other long-term assets6,549 6,549 
Accounts payable742 165 
Accrued liabilities858 97 
Contract liabilities186,112 63,504 

Three Months EndedNine Months Ended

October 1, 2023October 2, 2022October 1, 2023October 2, 2022
(In thousands)
(As Restated)(As Restated)
Revenues and fees received from investees for products/services$145,336 $77,770 $348,080 $170,631 

Consolidated VIEs

For Solar Sail, LLC (Solar Sail) and Solar Sail Commercial Holdings, LLC (Solar Sail Commercial), joint ventures with Hannon Armstrong, our consolidated VIEs, total revenue was $0.7 million and $7.3 million for the three and nine months ended October 1, 2023, respectively. Total revenue was $5.4 million and $13.5 million for the three and nine months ended October 2, 2022, respectively. The assets of these consolidated VIEs are restricted for use only by the particular investee and are not available for our general operations. As of October 1, 2023, we had $23.1 million of assets from the consolidated VIEs.

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Note 12. DEBT AND CREDIT SOURCES

The following table summarizes our outstanding debt on our condensed consolidated balance sheets:

October 1, 2023January 1, 2023
(As Restated)
(In thousands)Face ValueShort-termLong-term
Total1
Face ValueShort-termLong-term
Total1
Recourse Debt:
4.00% convertible debentures due 20232
$ $ $ $ $424,991 $424,919 $ $424,919 
Revolver and Term Loan Facility3
246,250 242,319  242,319     
Other debt    11,733 11,733  11,733 
Total recourse debt$246,250 $242,319 $ $242,319 $436,724 $436,652 $ $436,652 
Non-Recourse Debt:
Credit Suisse Warehouse Loan3
$65,272 $63,991 $ $63,991 $71,577 $70,443 $ $70,443 
Other debt336 65 255 320 371 64 308 372 
Total non-recourse debt65,608 64,056 255 64,311 71,948 70,507 308 70,815 
Total$311,858 $306,375 $255 $306,630 $508,672 $507,159 $308 $507,467 

1 Refers to the total carrying value of the outstanding debt arrangement.

2 On January 17, 2023, we repaid the remaining outstanding principal amount of $425.0 million of our 4.00% debentures due 2023.

3 Classified as a current liability as of October 1, 2023 due to breaches of certain contractual covenants.

As of October 1, 2023, the aggregate future contractual maturities of our outstanding debt, at face value, were as follows:

(In thousands) (as restated)
Fiscal 2023 (remaining three months)Fiscal 2024Fiscal 2025Fiscal 2026Fiscal 2027ThereafterTotal
Aggregate future maturities of outstanding debt$1,267 $310,341 $73 $76 $80 $21 $311,858 

October 2021 Letter of Credit Facility with Bank of the West

In October 2021, we entered into a letter of credit facility with Bank of the West which provides for the issuance, upon our request, of letters of credit to support our obligations in an aggregate amount not to exceed $25.0 million. The letters of credit issued under the facility are 50% cash secured, and we have entered into a security agreement with Bank of the West granting them a security interest in a cash collateral account established for this purpose. In September 2023, we entered into an amendment of the letter of credit facility with Bank of the West to reduce the letters of credit commitments to an amount not to exceed $5.0 million. The letters of credit issued under the facility remain 50% cash secured.

As of October 1, 2023, letters of credit issued and outstanding under the Bank of the West facility totaled $5.0 million, which were collateralized with $2.5 million of restricted cash on the condensed consolidated balance sheets.

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Loan Facility with Credit Suisse AG

On June 30, 2022, we entered into a loan and security purchase agreement with Credit Suisse AG, New York Branch, and other financial institutions, to finance our retail installment contract receivables. The agreement provided for a $100.0 million delayed draw term loan which will mature on December 29, 2023. In connection with the loan agreement, we have established a special purpose entity acting as the borrower under the facility. During the second quarter of fiscal 2023, we amended our loan agreement and extended the facility through June 29, 2026.

The loans under the agreement bear interest at a rate as adjusted by the benchmark adjustment, as defined in the term loan agreement, or the base rate plus the applicable margin for such loans. In addition, we also entered into an interest rate swap under the agreement, which converts the floating rate loan to a fixed rate. The swap terminates in September of 2026, unless we terminate early with the maturity of the loan, subject to any early termination costs. The term loan agreement contains customary representations and warranties as well as customary affirmative and negative covenants, including a covenant that any assets of the special purpose borrowing entity will not be available to other creditors of any of our other SunPower entities.

As of October 1, 2023, we had $65.3 million borrowings outstanding under the term loan facility, of which $0.6 million is being held in a Liquidity Reserve Account, in accordance with the loan and security purchase agreement, and is collateralized with restricted cash on the condensed consolidated balance sheets as of October 1, 2023. All borrowings outstanding under the term loan facility have a weighted average interest rate of between 6.3% to 6.8%.

Revolver and Term Loan Facility with Bank of America and Bank of the West

On September 12, 2022, we entered into a Credit Agreement with BofA Securities, Inc. and Bank of the West, as joint lead arrangers and joint bookrunners, and Bank of America, N.A., as Administrative Agent, Collateral Agent, Swingline Lender, and an L/C Issuer. The Credit Agreement consists of a revolving credit facility (the “Revolver”) and a term loan facility (“Term Loan Facility” and, together with the Revolver, the “Facilities”), each facility providing for an aggregate principal amount of $100.0 million. The Credit Agreement was amended on January 26, 2023, and provided for, among other things, an increase of the Revolver commitments by $100.0 million (the “Increased Revolving Commitments”), including CitiBank, N.A. and JP Morgan Chase Bank, N.A. as the 2023 Incremental Revolving Lenders’. The Increased Revolving Commitments are governed by the same terms and conditions applicable to the Revolver commitments under the Credit Agreement prior to the effectiveness of the Amendment. The Revolver and Term Loan Facility both mature on September 12, 2027.

The interest rate for borrowings under the Facilities is based on, at the Company's option, either (1) the highest of (a) the Federal Funds Rate plus 0.50%, (b) Bank of America's “prime rate,” or (c) Term SOFR plus 1%, plus, in each case, a margin; or (2) Term SOFR plus a margin. A commitment fee of between 0.25% and 0.35%, depending on our Total Net Leverage Ratio, is payable quarterly on the undrawn portion of the Revolver.

The Credit Agreement contains affirmative and negative covenants customarily applicable to senior secured credit facilities, including covenants restricting the ability of the Company and certain of our subsidiaries, subject to negotiated exceptions, to: incur additional indebtedness; create liens or guarantee obligations; enter into sale-leaseback transactions; merge, liquidate or dispose assets; make acquisitions or other investments; enter into hedging agreements; pay dividends and make other distributions and engage in transactions with affiliates. Under the Credit Agreement, the Company's Restricted Subsidiaries may not invest cash or property in, or loan to, our Unrestricted Subsidiaries amounts exceeding the limitations set forth in the Credit Agreement.

As of October 1, 2023, we had borrowings of $96.6 million and $149.6 million under the Term Loan Facility and Revolver, respectively. The interest rate for the borrowings is Term SOFR plus a margin. In addition, as of October 1, 2023, we had no issued but undrawn letters of credit outstanding under the Facilities. The letters of credit have a maximum aggregate amount that can be issued of $50.0 million, which is included within the total principal amount of the Revolver facility.

Note 13. RELATED-PARTY TRANSACTIONS

In connection with the Spin-off of Maxeon Solar, we entered into certain agreements with Maxeon Solar, including a transition services agreement, supply agreement, and collaboration agreement. On June 8, 2022, we entered into a First Amendment to the Cross License Agreement with Maxeon Solar to amend the Cross License Agreement that we entered into in connection with the Spin-off.

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The below table summarizes our transactions with Maxeon Solar for the three and nine months ended October 1, 2023:
Three Months EndedNine Months Ended
(In thousands)October 1, 2023October 2, 2022October 1, 2023October 2, 2022
Purchases of photovoltaic modules (recorded in cost of revenues)$24,124 $68,060 $173,014 $203,121 
Research and development expenses reimbursement received129 840 1,135 18,375 
Sublease income (recorded in sales, general, and administrative expense)468 176 1,404 176 
(Expense) income from transition services agreement, net
(24)(36)(74)(326)

We had the following balances related to transactions with Maxeon Solar as of October 1, 2023:

As of
(In thousands)October 1, 2023January 1, 2023
Prepaid and other current assets$419 $607 
Accrued liabilities7,959 11,239 
Accounts payable3,697 38,486 
Other long-term liabilities1,458 1,458 

Refer to Note 3. Transactions with Total and TotalEnergies SE. for related-party transactions with Total and its affiliates and to Note 11. Equity Investments for related-party transactions with SunStrong, SunStrong Partners, Dorado DevCo, and our dealer accelerator equity investees.

Note 14. INCOME TAXES

In the three months ended October 1, 2023, our income tax benefit of $0.1 million on a loss from continuing operations before income taxes and equity in earnings of unconsolidated investees of $38.7 million, was primarily due to the benefit of operating losses that reduce our state tax on sale of equity investments, partially offset by the accrual for uncertain tax positions. Our income tax provision of $2.4 million in the three months ended October 2, 2022 on an income from continuing operations before income taxes of $141.4 million was primarily due to state taxes on realized gains from sale of equity investments, partially offset by a net tax benefit from prior year uncertain tax positions.

In the nine months ended October 1, 2023, our income tax provision of $1.6 million on a loss from continuing operations before income taxes and equity in earnings of unconsolidated investees of $113.2 million, was primarily due to discrete items including taxes on realized gains from sale of equity investments and accrual of interest and penalties on prior year uncertain tax positions. Our income tax benefit of $6.5 million in the nine months ended October 2, 2022 on an income from continuing operations before income taxes of $83.9 million was primarily due to the reversal of deferred taxes previously accrued for California as a result of the enactment of Senate Bill 113 which restored our ability to utilize net operating losses in 2022, partially offset by state tax expense on realized gains from sale of equity investments.

During the three and nine months ended October 1, 2023, in accordance with FASB guidance for interim reporting of income tax, our annual effective tax rate was computed based on year-to-date results. The income tax differs from the amounts computed by applying the statutory income tax rate to the loss from continuing operations before income tax primarily as a result of our valuation allowance and discrete items recorded during the quarter.

For the three and nine months ended October 1, 2023, our income tax benefit on the loss from discontinued operations before income taxes of $1.9 million and $12.1 million was $0.2 million and $0.4 million, respectively. In the three and nine months ended October 2, 2022, our income tax benefit of $0.4 million and $0.8 million on a loss from discontinued operations before income taxes of $2.4 million and $50.3 million, respectively, was primarily due to the state tax benefit of year-to-date operating losses of the C&I Solutions business.

Total liabilities associated with uncertain tax positions were $13.1 million and $12.3 million as of October 1, 2023 and January 1, 2023, respectively. The increase of $0.8 million was primarily due to the accrual of additional state liabilities, and interest and penalties on existing reserves.
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On August 16, 2022, the Inflation Reduction Act of 2022 (“IRA”) was signed into law by President Joe Biden. The IRA includes, among other provisions, a 15% minimum tax based on “adjusted financial statement income” exceeding $1.0 billion and a 1% excise tax on net repurchases of stock after December 31, 2022. We do not anticipate that these provisions of the IRA will have an impact on our business.

Note 15. NET (LOSS) INCOME PER SHARE
 
We calculate basic net (loss) income per share by dividing earnings allocated to common stockholders by the basic weighted-average number of common shares outstanding for the period.

Diluted weighted-average shares is computed by using the basic weighted-average number of common shares outstanding plus any potentially dilutive securities outstanding during the period using the if-converted method, except when their effect is anti-dilutive. Potentially dilutive securities include restricted stock units and the outstanding senior convertible debentures.

The guidance in ASC 260, Earnings Per Share, requires that companies use income from continuing operations as a control number or benchmark to determine whether potential common shares are dilutive or antidilutive. When calculating discontinued operations, we used the same number of potential common shares used in computing the diluted per-share amount of income from continuing operations in computing all other reported diluted per-share amounts, even if the effect will be antidilutive compared to their respective basic per-share amounts.

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The following table presents the calculation of basic and diluted net (loss) income per share attributable to stockholders:

 Three Months EndedNine Months Ended
October 1, 2023October 2, 2022October 1, 2023October 2, 2022
(In thousands, except per share amounts)
(As Restated)
(As Restated)
Basic net (loss) income per share:
Numerator:
Net (loss) income attributable to stockholders - continuing operations1
$(35,648)$137,651 $(111,491)$88,629 
Net (loss) income attributable to stockholders - discontinued operations
(1,716)(2,037)(11,717)(49,205)
Net (loss) income attributable to stockholders
$(37,364)$135,614 $(123,208)$39,424 
Denominator:
Basic weighted-average common shares175,241 174,118 174,937 173,815 
Basic net (loss) income per share - continuing operations
$(0.20)$0.79 $(0.64)$0.51 
Basic net (loss) income per share - discontinued operations
(0.01)(0.01)(0.07)(0.28)
Basic net (loss) income per share
$(0.21)$0.78 $(0.71)$0.23 
Diluted net (loss) income per share:
Numerator:
Net (loss) income available to stockholders - continuing operations
$(35,648)$137,651 $(111,491)$88,629 
       Add: Interest expense on 4.00% debentures due 2023, net of tax
 3,026  9,078 
Net (loss) income available to common stockholders - continuing operations
(35,648)140,677 (111,491)97,707 
Net (loss) income available to common stockholders - discontinued operations$(1,716)$(2,037)$(11,717)$(49,205)
Denominator:
    Basic weighted-average common shares175,241 174,118 174,937 173,815 
    Effect of dilutive securities:
        Restricted stock units 1,311  706 
        4.00% debentures due 2023
 17,068  17,068 
Dilutive weighted-average common shares:175,241 192,497 174,937 191,589 
Dilutive net (loss) income per share - continuing operations
$(0.20)$0.73 $(0.64)$0.51 
Dilutive net (loss) income per share - discontinued operations(0.01)(0.01)(0.07)(0.26)
Dilutive net (loss) income per share
$(0.21)$0.72 $(0.71)$0.25 

1 There was no add back of interest expense for the convertible debentures or effect of dilutive securities for the nine months ended October 1, 2023. The convertible debentures were repaid during the first quarter of fiscal 2023.

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The following is a summary of outstanding anti-dilutive potential common stock that was excluded from diluted net (loss) income per share attributable to stockholders in the following periods:

 Three Months EndedNine Months Ended
(In thousands)October 1, 2023October 2, 2022October 1, 2023October 2, 2022
Restricted stock units4,722 1,119 4,503 3,422 
4.00% debentures due 2023
  1,000  

Note 16. STOCK-BASED COMPENSATION

The following table summarizes the consolidated stock-based compensation expense by line item in our condensed consolidated statements of operations:

 Three Months EndedNine Months Ended
(In thousands)October 1, 2023October 2, 2022October 1, 2023October 2, 2022
Cost of revenues$887 $1,144 $4,040 $3,494 
Research and development 446 454 1,671 1,293 
Sales, general, and administrative 4,270 4,959 15,428 14,222 
Total stock-based compensation expense$5,603 $6,557 $21,139 $19,009 

Note 17. SUBSEQUENT EVENTS

Restructuring Plan

On October 30, 2023, we adopted a restructuring plan to align operating costs with current market conditions characterized by higher interest rates and slower consumer demand. The plan is intended to preserve near-term financial strength in order to remain competitive during current and future market conditions. As part of the restructuring plan, we expect approximately 83 employees representing severance costs of approximately $2.6 million to exit. We also expect to impair approximately $4.3 million, primarily in capitalized internal-use software and equipment related to development of new products due to management’s determination to cancel these projects. The actual timing and costs of the plan may differ from our current plan. The plan is expected to be substantially complete by January 31, 2024.

Legal Matters

Jaszczyszyn v. SunPower Corporation, et al., No. 3:22-cv-00956-AMO (N.D. Cal.)

As previously disclosed, on February 16, 2022, a purported securities class action lawsuit was filed against the Company, its Chief Executive Officer (Peter Faricy), and its former Chief Financial Officer (Manavendra Sial) (the “Defendants”) in the United States District Court for the Northern District of California by putative shareholder Piotr Jaszczyszyn purportedly on behalf of a class consisting of those who acquired the Company's securities from August 3, 2021 to January 20, 2022. Defendants filed a motion to dismiss the amended complaint on February 24, 2023. After briefing on the motion was completed, the Court heard oral argument on the motion on October 26, 2023, and the motion was submitted for decision. The Company intends to vigorously defend the purported securities class action lawsuit and cannot reasonably estimate any loss or range of loss that may arise from the litigation. Accordingly, the Company can provide no assurance as to the scope and outcome of this matter and no assurance as to whether it will have a material adverse effect on the Company’s financial position, liquidity, or results of operations.

Craven v. SunPower Corporation, et al., No. 3:23-cv-05544-RFL (N.D. Cal.); Simpson v. SunPower Corporation, et al., No. 3:23-cv-06302-RFL (N.D. Cal.)

On October 27, 2023, a purported securities class action lawsuit was filed in the United States District Court for the Northern District of California by putative shareholder Jacob Craven purportedly on behalf of a class consisting of those who acquired the Company's securities from March 9, 2023 to October 24, 2023 (the “Craven Complaint”). On December 6, 2023, another purported securities class action lawsuit was filed in the United States District Court for the Northern District of California by putative shareholder Matthew Simpson purportedly on behalf of the same alleged class (the “Simpson Complaint”).
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The Craven Complaint and the Simpson Complaint name the Company, its Chief Executive Officer (Peter Faricy), its Chief Financial Officer (Elizabeth Eby), and its former Interim Chief Financial Officer (Guthrie Dundas) as defendants. The Craven Complaint and the Simpson Complaint allege violations of Sections 10(b) and 20(a) of the Exchange Act and allege that the defendants misled investors by failing to disclose that: (1) due to a material weakness in its internal control over financial reporting, the Company had inaccurately reported cost of revenue and inventory metrics; (2) as a result of the foregoing, the Company was reasonably likely to incur significant charges to restate prior reporting; and (3) as a result of the foregoing, defendants’ statements about the Company’s business, operations, and prospects allegedly were materially misleading and/or lacked a reasonable basis. The Craven Complaint and the Simpson Complaint seek monetary damages for alleged securities law violations, together with costs and attorney’s fees.

The Company intends to vigorously defend the purported securities class action lawsuits and cannot reasonably estimate any loss or range of loss that may arise from the litigations. Accordingly, the Company can provide no assurance as to the scope and outcome of these matters and no assurance as to whether they will have a material adverse effect on the Company’s financial position, liquidity, or results of operations.

Amendment and Waiver

On December 8, 2023, the Company obtained the Amendment and Waiver amending the Amended Credit Agreement by and among the Company, certain of its subsidiaries as guarantors, the Existing Lenders, and Bank of America, as administrative agent which provides for, among other things, a temporary waiver until January 19, 2024 of the breaches, and modification to the remaining available commitments through (i) the Existing Lenders to provide access to $25 million of existing revolving commitments and (ii) commitments by HoldCo, as a new lender, to provide $25 million of new revolving credit. Although we entered into the Amendment and Waiver to temporarily address the Existing Defaults, we are projecting to be noncompliant with certain debt covenants, which would cause further defaults or an event of default under our existing debt arrangements.

Dorado Credit Agreement

The Company received a reservation of rights letter from the administrative agent under (on behalf of the lenders thereunder) that certain credit agreement, dated as of March 31, 2022, by and among (inter alia) Dorado 1 Senior Borrower, LLC and Dorado 1 Senior Pledgor, LLC (each of which are non-wholly owned subsidiaries of Company), Bank of America N.A., as administrative agent, Computershare Trust Company, National Association, as the collateral agent and the financial institutions party thereto from time to time as lenders (as amended, the “Dorado Credit Agreement”) as a result of the Restatement. We are in active discussions with this lender group, who are aware that SunPower does not agree that there has been any such breach of representation.

ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Cautionary Statement Regarding Forward-Looking Statements

You should read the following discussion of our financial condition and results of operations in conjunction with the condensed consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q and the consolidated financial statements and the notes thereto included in our Annual Report on Form 10-K/A for the fiscal year ended January 1, 2023 filed with the Securities and Exchange Commission (“SEC”) on December 18, 2023 pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

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This Quarterly Report on Form 10-Q 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 may be based on underlying assumptions. We use words such as anticipate,” believe,” continue,” could, estimate, expect, intend, may, plan, predict, project, potential, seek, should, will, would, and similar expressions to identify forward-looking statements. Forward-looking statements in this Quarterly Report on Form 10-Q include, but are not limited to, our ability to continue as a going concern, our ability to raise additional capital or obtain financing, our ability to obtain additional waivers or amendments under our debt agreements, comply with debt covenants or cure any defaults, our ability to repay our obligations as they come due, our plan and ability to remediate the material weaknesses in our internal control over financial reporting; expectations related to any restated items disclosed herein; our plans and expectations regarding future financial results, expected operating results, business strategies, the sufficiency of our cash and our liquidity and ability to raise capital, projected costs and cost reduction measures, restructuring plans and activities, development and ramp of new products and improvements to our existing products, the impact of recently adopted accounting pronouncements, supply chain challenges, the adequacy of our agreements with our suppliers, the impact of inflation and changes in raw materials and component prices and availability, our ability to monetize our solar projects, legislative actions and regulatory compliance, competitive positions, management’s plans and objectives for future operations, trends in average selling prices, the success of our joint ventures and acquisitions, warranty matters, outcomes of litigation, cost of compliance with applicable regulations, interest and credit risk, general business and economic conditions in our markets, industry trends, the impact of changes in government incentives, expected restructuring charges, the impact on our business of health crises and epidemics and related public health measures, macroeconomic trends and uncertainties, and the likelihood of any impairment of project assets, long-lived assets, and investments, our ability to obtain necessary environmental permits, our environmental compliance initiatives, our commitment to energy sustainability, our diversity, equity, and inclusion initiative and related programs, our commitments to making renewable energy more accessible for historically underserved communities, increasing workforce diversity, expanding access for customers, ensuring industry equity and dealer and supplier diversity, our environmental, social, and governance initiatives and report, setting and upholding high standards for our employees, officers and directors, and sound corporate governance, and our human capital management strategies and initiatives. These forward-looking statements are based on information available to us as of the date of this Quarterly Report on Form 10-Q 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. Factors that could cause or contribute to such differences include, but are not limited to, those identified above, those discussed in the section titled “Risk Factors” included in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K/A for the fiscal year ended January 1, 2023 filed on December 18, 2023, and our other filings with the SEC. 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, except as required by applicable law.

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. Unless the context otherwise requires, all references to “SunPower,” the “Company,” “we,” “us,” or “our” refer to SunPower Corporation and its subsidiaries.

Restatement of Previously Issued Condensed Consolidated Financial Statements

In this Quarterly Report on Form 10-Q, we have restated our previously issued condensed consolidated financial statements as of January 1, 2023 and for the three and nine months ended October 2, 2022. Refer to “Item 1. Financial Statements (unaudited)—Notes to Condensed Consolidated Financial Statements—Note 2. Restatement of Previously Issued Condensed Consolidated Financial Statements” for background on the restatement, the fiscal periods impacted, control considerations, and other information. As a result, we have also restated certain previously reported financial information as of January 1, 2023 and for the three and nine months ended October 2, 2022 in this “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations,” including but not limited to information within the “Results of Operations” and “Liquidity and Capital Resources” sections to conform the discussion with the appropriate restated amounts. See “Item 1. Financial Statements (unaudited)—Notes to Condensed Consolidated Financial Statements—Note 2. Restatement of Previously Issued Condensed Consolidated Financial Statements,” for additional information related to the restatement.

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Overview

SunPower is a leading residential solar technology and energy services provider that offers fully integrated solar, storage, and home energy solutions to customers in North America. Through a multi-channel strategy of distributed dealer network, SunPower direct sales channel, and new home builder partnerships, we provide customers control over electricity consumption, resiliency during power outages, and cost savings, while also reducing carbon emissions and contributing to a more sustainable grid. The five pillars of our strategy include:

1) Customer Care: provide a world-class customer experience that moves beyond the initial system sale to create a lifetime relationship with SunPower;
2) Products: offer all market segments a growing ecosystem of integrated high-value, high-performance products and services;
3) Growth: optimize a multi-channel strategy of distributed dealer network, geographically diverse SunPower Direct channel, and new home builder partnerships for above-market growth;
4) Digital Innovation: enable operational excellence that supports our dealers, accelerates sales, improves financial products and adds customer control and monitoring of systems for optimum efficiency; and
5) Financial Solutions: expand affordable and easy-to-use customer financing products, reducing the biggest barrier to solar adoption.

We operate as a single operating segment, providing solar power systems and services to residential customers. While our chief executive officer, as the chief operating decision maker (“CODM”), reviews financial information by different functions and revenue streams, he considers the business on a consolidated basis for purposes of allocating resources and reviewing overall business performance.

For more information about our business, please refer to the section titled “Part I. Item 1. Business” in our Annual Report on Form 10-K/A for the fiscal year ended January 1, 2023.

Key Developments

In April 2023, to support the expansion of our residential solar and storage loan funding capacity, we entered into a series of agreements to sell solar loan receivables to a special-purpose entity in our existing joint venture, SunStrong, with Hannon Armstrong Sustainable Infrastructure Capital, Inc. (“HASI”). Under the agreements, we have secured financing commitments to fund more than $450.0 million for our residential solar and storage loan program, including a $300.0 million revolving credit facility from Credit Agricole Corporate & Investment Bank (“CA-CIB”). The CA-CIB credit revolver serves as a warehouse facility for SunStrong to temporarily finance solar assets prior to arranging long-term financings, such as asset-backed securities. The revolving warehouse facility will allow SunStrong to fund the acquisition of solar loans entered into by SunPower Financial's customers and issue asset-backed securities on an ongoing basis.

In May 2023, to further support the expansion of our residential solar and storage loan funding capacity, we also entered into a series of agreements to sell solar loan receivables to a newly created special-purpose trust beneficially owned by one or more affiliates of KKR Credit Advisors (US) LLC (“KKR Credit”). Under the agreements, we have secured financing commitments to fund up to $550.0 million for our residential solar and storage loan program over a 15-month term, with annual renewal options.

In August 2023, ADT Solar, a division of ADT Inc., entered into an agreement in principle with SunPower Financial™ to become a provider of lease and power purchase agreements (“PPA”) for ADT Solar customers. Through this arrangement, ADT Solar is offering customers a lease option for the first time, making solar accessible to more Americans. SunPower Financial is acting as the lessor for ADT Solar customers that choose to finance with a lease or PPA.

Results of Operations

Results of operations in dollars and as a percentage of total revenues were as follows:

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 Three Months Ended
 October 1, 2023October 2, 2022
(As Restated)
in thousands% of Revenuesin thousands% of Revenues
Total revenues$430,690 100 $476,393 100 
Total cost of revenues358,181 83 359,728 76 
Gross profit 72,509 17 116,665 24 
Research and development5,406 6,846 
Sales, general, and administrative93,345 22 101,185 21 
Restructuring charges (credits)5,873 111 — 
Expense (income) from transition services agreement, net
170 — (1,059)— 
Operating (loss) income(32,285)(7)9,582 
Other (expense) income, net(6,461)(2)131,800 28 
(Loss) income from continuing operations before income taxes and equity in earnings (losses) of unconsolidated investees(38,746)(9)141,382 30 
Benefits from (provision for) income taxes
137 — (2,442)(1)
Equity in earnings (losses) of unconsolidated investees2,990 1,936 — 
Net (loss) income from continuing operations(35,619)(8)140,876 30 
Net (income) loss from continuing operations attributable to noncontrolling interests(29)— (3,225)(1)
Net (loss) income from continuing operations attributable to stockholders$(35,648)(8)$137,651 29 

 Nine Months Ended
 October 1, 2023October 2, 2022
(As Restated)
in thousands% of Revenuesin thousands% of Revenues
Total revenues$1,328,317 100 $1,243,975 100 
Total cost of revenues1,100,841 83 954,738 77 
Gross profit 227,476 17 289,237 23 
Research and development19,161 19,199 
Sales, general, and administrative288,161 22 294,412 24 
Restructuring charges (credits)5,873 — 244 — 
Expense (income) from transition services agreement, net
30 — (1,287)— 
Operating (loss) income(85,749)(6)(23,331)(2)
Other (expense) income, net(27,459)(2)107,215 
(Loss) income from continuing operations before income taxes and equity in earnings (losses) of unconsolidated investees(113,208)(9)83,884 
(Provision for) benefits from income taxes(1,569)— 6,480 
Equity in earnings (losses) of unconsolidated investees3,410 — 1,936 — 
Net (loss) income from continuing operations(111,367)(8)92,300 
Net (income) loss from continuing operations attributable to noncontrolling interests(124)— (3,671)— 
Net (loss) income from continuing operations attributable to stockholders$(111,491)(8)$88,629 

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Total Revenues 
 Three Months EndedNine Months Ended
October 1, 2023October 2, 2022% ChangeOctober 1, 2023October 2, 2022% Change
(In thousands, except percentages)
(As Restated)
(As Restated)
Total revenues$430,690 $476,393 (10)%$1,328,317 $1,243,975 %
Our total revenues during the three months ended October 1, 2023 decreased by 10% or $45.7 million, as compared to the three months ended October 2, 2022, of which $54.2 million was related to decreased volume, primarily in our installing dealer, New Homes, and Blue Raven channels, as a result of decreased demand for solar energy systems due to the net energy metering program (“NEM 3.0”) that went live in California in April 2023, an overall softening in the industry due to reduced economic outlook in key markets, and rising interest rates. In addition, we saw a reduction in revenue of $4.9 million from the continued wind-down of our Light Commercial business during fiscal 2023. This decrease in revenue was partially offset by an increase of $12.6 million due to increases in the average selling price of systems primarily in our installing, non-installing dealer, and SunPower Direct channels.

Our total revenues during the nine months ended October 1, 2023 increased by 7% or $84.3 million, as compared to the nine months ended October 2, 2022. We experienced an increase in demand for solar energy systems during the first half of fiscal 2023 as a result of the transition to NEM 3.0 in California in April 2023 and the expanding capacity of our SunPower Residential Installer (“SPRI”) team, which began to trail off during the third quarter of fiscal 2023 as a result of the overall softening in the industry due to reduced economic outlook in key markets and rising interest rates. As a result, we saw an increase in volume of $72.1 million, and an increase of $54.7 million in the average selling price of our systems, primarily in our SunPower Direct and dealer channels. This was partially offset by a reduction in revenue of $43.2 million from the continued wind-down of our Light Commercial business during fiscal 2023.

One customer accounted for approximately 28% and 20% of total revenues for the three and nine months ended October 1, 2023, respectively, primarily within solar power systems sales revenue category. We did not have any customers that accounted for greater than 10% of total revenues for the three and nine months ended October 2, 2022.

Total Cost of Revenues and Gross Margin

 Three Months EndedNine Months Ended
October 1, 2023October 2, 2022% ChangeOctober 1, 2023October 2, 2022% Change
(In thousands, except percentages)
(As Restated)
(As Restated)
Cost of Revenues
Total cost of revenues$358,181 $359,728 — %$1,100,841 $954,738 15 %
Gross Margin
Total gross margin17 %24 %(7)%17 %23 %(6)%

Our total cost of revenues decreased by 0% during the three months ended October 1, 2023, as compared to the three months ended October 2, 2022, primarily as a result of the reduction in revenue volume from the decreased demand for solar energy products during the third quarter of fiscal 2023 as a result of an overall softening in the industry due to reduced economic outlook in key markets and rising interest rates. This contributed to a decrease in cost of revenues volume of $36.9 million, primarily in our installing dealer, New Homes, and Blue Raven channels, similarly to the decrease in revenue volume. This was partially offset by a continuation of the rising costs of material and labor into the third quarter of fiscal 2023, which contributed to an increase in costs of $32.1 million, as well as the settlement of claims with Maxeon of $2.4 million as a result of the termination of our master supply agreement during the third quarter of fiscal 2023.

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Our total cost of revenues increased by 15% during the nine months ended October 1, 2023, as compared to the nine months ended October 2, 2022, primarily as a result of the revenue volume growth from the increased demand for solar energy products during the first half of fiscal 2023, which began to trail off during the third quarter of fiscal 2023 as a result of the softening in the industry. This revenue volume growth caused an increase in total cost of revenues of $64.1 million in the nine months ended October 1, 2023, as compared to the nine months ended October 2, 2022. In addition, the rising costs of material and labor continued and contributed to an increase of $114.0 million, partly due to the absorption of cost over lower than expected volumes. This was partially offset by a decrease in cost of revenues related to the continued wind-down of our Light Commercial business of $31.6 million during fiscal 2023.

Our gross margin decreased by 7 and 6 percentage points during the three and nine months ended October 1, 2023, respectively, as compared to the three and nine months ended October 2, 2022, respectively, primarily due to cost increases of $32.1 million and $114.0 million which were not commensurate with the corresponding increases in the average selling price of our systems of $12.6 million and $54.7 million, for the three and nine months ended October 1, 2023 as compared to the three and nine months ended October 2, 2022, respectively. In addition, the three months ended October 1, 2023 had a larger decrease in margin as a result of the decreased demand for solar energy systems caused by NEM 3.0 in California in April 2023, an overall softening in the industry due to reduced economic outlook in key markets, and rising interest rates, as compared to the increased demand for systems in the first half of 2023 and thus the nine months ended October 1, 2023. This caused the gross margin in the three months ended October 1, 2023 to decrease by $17.3 million as compared to the three months ended October 2, 2022, and increase by $8.0 million during the nine months ended October 1, 2023 as compared to the nine months ended October 2, 2022.

Research and Development (“R&D”)

Three Months EndedNine Months Ended
October 1, 2023October 2, 2022% ChangeOctober 1, 2023October 2, 2022% Change
(In thousands, except percentages)
(As Restated)
(As Restated)
R&D$5,406 $6,846 (21)%$19,161 $19,199 — %
As a percentage of revenues%%%%

R&D expense decreased by $1.4 million during the three months ended October 1, 2023, as compared to the three months ended October 2, 2022, primarily due to the creation of various cost cutting measures to reduce expenses, including a decrease in consulting and contractor support costs of $0.8 million and a reduction in headcount contributing to decreased labor and personnel-related costs of $0.6 million.

R&D expense remained fairly constant during the nine months ended October 1, 2023, as compared to the nine months ended October 2, 2022.

Sales, General, and Administrative (“SG&A”)

 Three Months EndedNine Months Ended
October 1, 2023October 2, 2022% ChangeOctober 1, 2023October 2, 2022% Change
(In thousands, except percentages)
(As Restated)
(As Restated)
SG&A$93,345 $101,185 (8)%$288,161 $294,412 (2)%
As a percentage of revenues22 %21 %22 %24 %

SG&A expenses decreased by $7.8 million during the three months ended October 1, 2023, as compared to the three months ended October 2, 2022, primarily due to the creation of various cost cutting measures to reduce expenses, including a decrease in legal expenses of $0.6 million, a reduction in transaction-related costs of $3.3 million, and a reduction in headcount contributing to decreased labor and personnel-related costs of $2.7 million.

SG&A expenses decreased by $6.3 million during the nine months ended October 1, 2023, as compared to the nine months ended October 2, 2022, primarily due to various cost cutting measures to reduce expenses during fiscal 2023, including a reduction in headcount and the resulting decrease in labor and personnel-related costs of $4.2 million.

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Restructuring charges (credits)

 Three Months EndedNine Months Ended
(In thousands, except percentages)October 1, 2023October 2, 2022% ChangeOctober 1, 2023October 2, 2022% Change
Restructuring charges (credits)$5,873 $111 (5191)%$5,873 $244 2307 %
As a percentage of revenues%— %— %— %

Restructuring charges (credits) increased by $5.8 million and $5.6 million during the three and nine months ended October 1, 2023, respectively, as compared to the three and nine months ended October 2, 2022, primarily due to additional severance payments incurred in fiscal 2023 related to the adoption of the new July 2023 and September 2023 restructuring plans in the third quarter of fiscal 2023. As a result of these restructuring activities, we expect to realize cost reductions over the next 12 months of approximately $20.6 million primarily in cost of revenues and selling, general, and administrative expenses.

Expense (income) from transition services agreement, net

 Three Months Ended
Nine Months Ended
(In thousands, except percentages)October 1, 2023October 2, 2022% ChangeOctober 1, 2023October 2, 2022% Change
Expense (income) from transition services agreement, net
$170 $(1,059)(116)%$30 $(1,287)(102)%
As a percentage of revenues— %— %— %— %

Income from transition services agreement, net was lower by $1.2 million and $1.3 million during the three and nine months ended October 1, 2023, as compared to the three and nine months ended October 2, 2022, respectively, as we began to provide transition services to Total in connection with the sale of the C&I Solutions business during the second quarter of fiscal 2022. We received an income for transition services during the three and nine months October 2, 2022, as compared to an expense during fiscal 2023.

Other (Expense) Income, Net

Three Months EndedNine Months Ended
October 1, 2023October 2, 2022% ChangeOctober 1, 2023October 2, 2022% Change
(In thousands, except percentages)
(As Restated)
(As Restated)
Interest income$1,096 $144 661 %$2,256 $278 712 %
Interest expense(7,660)(3,712)106 %(19,124)(15,223)26 %
Other (expense) income:
Other, net103 135,368 100 %(10,591)122,160 109 %
Other (expense) income, net$(6,461)$131,800 105 %$(27,459)$107,215 126 %
As a percentage of revenues(2)%28 %(2)%%
    
Interest income increased by $1.0 million and $2.0 million during the three and nine months ended October 1, 2023, as compared to the three and nine months ended October 2, 2022, primarily due to interest earned from our money market fund investments.

Interest expense increased by $3.9 million during the three months ended October 1, 2023, as compared to the three months ended October 2, 2022, primarily due to higher interest expense and a lower unrealized gain on our Credit Suisse interest rate swap in the third quarter of fiscal 2023 as compared to the third quarter of fiscal 2022. In particular, we incurred $6.9 million of interest expense on our term loan, revolver, and Credit Suisse warehouse debt facilities in the third quarter of fiscal 2023, partially offset by $1.2 million of unrealized gain on our Credit Suisse interest rate swap, as compared to $5.7 million interest expense incurred during the third quarter of fiscal 2022 on our 2023 convertible debentures and Credit Suisse
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warehouse debt loans, partially offset by $2.3 million of unrealized gain on our interest rate swap. Our 2023 convertible debentures were paid in the first quarter of fiscal 2023.

Interest expense increased by $3.9 million during the nine months ended October 1, 2023, as compared to the nine months ended October 2, 2022. This was primarily due to $16.8 million interest incurred and amortization of debt issuance costs related to our revolver, term loan, and Credit Suisse warehouse debt facilities, as well as $0.7 million interest incurred related to the repayment of our convertible debentures during the first quarter of fiscal 2023, partially offset by $1.4 million of unrealized gain on our Credit Suisse interest rate swap during the nine months ended October 1, 2023. In comparison, during the nine months ended October 2, 2022, we incurred $15.7 million of interest expense related to our 2023 convertible debentures, our Safe Harbor facility, and Credit Suisse warehouse debt loan, partially offset by $2.3 million of unrealized gain on our interest rate swap.

Other income, net decreased by $135.3 million and $132.8 million during the three and nine months ended October 1, 2023, as compared to the three and nine months ended October 2, 2022. This was due to a gain of $135.4 million and $121.5 million on our equity investment with readily determinable fair value in the three and nine months ended October 2, 2022, respectively, compared to a loss of $10.8 million in the nine months ended October 1, 2023.

Income Taxes

 Three Months EndedNine Months Ended
October 1, 2023October 2, 2022% ChangeOctober 1, 2023October 2, 2022% Change
(In thousands, except percentages)
(As Restated)
(As Restated)
Benefits from (provision for) income taxes
$137 $(2,442)(106)%$(1,569)$6,480 (124)%
As a percentage of revenues— %(1)%— %%

In the three months ended October 1, 2023, our income tax benefit of $0.1 million on a loss from continuing operations before income taxes and equity in earnings of unconsolidated investees of $38.7 million, was primarily due to the benefit of operating losses that reduce our state tax on sale of equity investments, partially offset by the accrual for uncertain tax positions. Our income tax provision of $2.4 million in the three months ended October 2, 2022 on an income from continuing operations before income taxes of $141.4 million was primarily due to state taxes on realized gains from sale of equity investments, partially offset by a net tax benefit from prior year uncertain tax positions.

In the nine months ended October 1, 2023, our income tax provision of $1.6 million on a loss from continuing operations before income taxes and equity in earnings of unconsolidated investees of $113.2 million, was primarily due to discrete items including taxes on realized gains from sale of equity investments and accrual of interest and penalties on prior year uncertain tax positions. Our income tax benefit of $6.5 million in the nine months ended October 2, 2022 on an income from continuing operations before income taxes of $83.9 million was primarily due to the reversal of deferred taxes previously accrued for California as a result of the enactment of Senate Bill 113 which restored our ability to utilize net operating losses in 2022, partially offset by state tax expense on realized gains from sale of equity investments.

As of the end of the third quarter of fiscal 2023, as part of our continuing operations, an insignificant amount of the accumulated foreign earnings was located outside of the United States and may be subject to foreign income tax or withholding tax liability upon repatriations. However, the accumulated foreign earnings are intended to be indefinitely reinvested in our foreign subsidiaries; therefore, no provision for such foreign taxes has been made. Determination of the amount of unrecognized deferred tax liability related to these earnings is not practicable.

We record a valuation allowance to reduce our deferred tax assets in the United States and Mexico 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.

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Equity in earnings (losses) of unconsolidated investees

 Three Months Ended
Nine Months Ended
October 1, 2023October 2, 2022% ChangeOctober 1, 2023October 2, 2022% Change
(In thousands, except percentages)
(As Restated)
(As Restated)
Equity in earnings (losses) of unconsolidated investees$2,990 $1,936 54 %$3,410 $1,936 76 %
As a percentage of revenues%— %— %— %

Equity in earnings (losses) of unconsolidated investees increased by $1.1 million and $1.5 million for the three and nine months ended October 1, 2023, primarily due to earnings recorded from our equity method investees which began during the third quarter of fiscal 2022. Equity in earnings increased by $0.6 million and $1.0 million during the three and nine months ended October 1, 2023 as compared to the nine months ended October 2, 2022. In addition, as a result of our annual assessment of the fair value of our equity investments with fair value option (“FVO”), we recorded an additional $0.4 million fair value adjustment in the three months ended October 1, 2023, as compared to the three months ended October 2, 2022.

Net (Income) Loss Attributable to Noncontrolling Interests

 Three Months EndedNine Months Ended
(In thousands, except percentages)October 1, 2023October 2, 2022% ChangeOctober 1, 2023October 2, 2022% Change
Net (income) loss attributable to noncontrolling interests$(29)$(3,225)(99)%$(124)$(3,671)97 %

In September 2019, we entered into the Solar Sail, LLC (“Solar Sail”) and Solar Sail Commercial Holdings, LLC (“Solar Sail Commercial”) joint ventures with Hannon Armstrong to finance the purchase of 200 megawatts of panel inventory in accordance with IRS safe harbor guidance to preserve the 30% federal ITC for third-party owned commercial and residential systems. We determined that we hold controlling interests in Solar Sail and Solar Sail Commercial, and therefore we have fully consolidated these entities. We apply the hypothetical liquidation at book value (“HLBV”) 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.

The net income attributable to noncontrolling interests decreased by $3.2 million and $3.5 million for the three and nine months ended October 1, 2023, as compared to the three and nine months ended October 2, 2022, primarily due to lower sales volume of safe harbor panels by Solar Sail, and higher allocation of net loss, including tax credits and accelerated tax depreciation benefits using HLBV method to noncontrolling interests in Solar Sail and Solar Sail Commercial.

Critical Accounting Estimates

We prepare our condensed consolidated financial statements in conformity with U.S. GAAP, 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.

These estimates may change as new events occur and additional information is obtained. Actual results may differ from these estimates under different assumptions and conditions.

There were no significant changes in our critical accounting estimates during the fiscal quarter ended October 1, 2023 compared to those previously disclosed in “Critical Accounting Estimates” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K/A for the fiscal year ended January 1, 2023.

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Liquidity and Capital Resources

Liquidity

A summary of the sources and uses of cash, cash equivalents, restricted cash, and restricted cash equivalents is as follows:
 Nine Months Ended
October 1, 2023October 2, 2022
(In thousands)
(As Restated)
Net cash (used in) provided by operating activities$(111,673)$(169,489)
Net cash provided by (used in) investing activities30,229 508,703 
Net cash (used in) provided by financing activities(209,103)(53,398)

Operating Activities

The $57.8 million decrease in cash used in operations in the nine months ended October 1, 2023 compared to the corresponding nine months ended October 2, 2022, was primarily due to changes in operating assets and liabilities. Cash used in operations decreased year over year due to lower prepaid expenses and other current assets, partially offset by net payment for accounts payable and other accrued liabilities.

Investing Activities

The $478.5 million decrease in net cash provided by investing activities in the nine months ended October 1, 2023 compared to the corresponding nine months ended October 2, 2022 primarily resulted from cash proceeds received from the sale of our C&I Solutions business during fiscal 2022, as well as lower proceeds from the sale of our equity investments in Enphase in fiscal 2023 as compared to fiscal 2022.

Financing Activities

The $155.7 million increase in net cash used in financing activities in the nine months ended October 1, 2023 compared to the corresponding nine months ended October 2, 2022 primarily resulted from repayment of our convertible debt and bank loans and other debt in fiscal 2023, partially offset by higher net proceeds from bank loans and other debt than in the nine months ended October 2, 2022.

Capital Resources

As of October 1, 2023, we had unrestricted cash and cash equivalents of $103.7 million as compared to $377.0 million as of January 1, 2023. These cash balances were held primarily in the United States; however, we had approximately $0.6 million held outside of the United States. This offshore cash is used to fund our business operations in Mexico, Canada, and the Asia Pacific region, which require local payment for payroll, materials, and other expenses. We use our available cash on-hand and short-term equity investment as well as various types of recourse and non-recourse debt as a primary source of funding for our operations, capital expenditure and mergers and acquisitions.

While we move towards a less capital-intensive business model in the near-term, with the sale of our C&I Solutions business which closed in the second quarter of fiscal 2022, we will continue to need additional capital in order to grow our business, including investments in customer acquisition, product and digital, as well as mergers and acquisition activities. We will seek to raise additional required capital through various cost-effective sources, which could include accessing the capital markets.

Overall, we maintain working capital and debt levels that we establish through consideration of a number of factors, including cash flow expectations, cash requirements for operations, our cost of capital, and targeted capital structure. We may also make debt purchases and/or exchanges for debt or equity from time to time through tender offers, exchange offers, redemptions, open market purchases, private transactions, or otherwise, or seek to raise additional debt or equity capital, depending on market conditions.

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The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which assumes the Company will be able to continue as a going concern and contemplates the realization of assets and satisfaction of liabilities in the normal course of business. However, for the three and nine months ended October 1, 2023, the Company had recurring operating losses and, as of October 1, 2023, we breached a financial covenant and a reporting covenant of the Credit Agreement (see “Item 1. Financial StatementsNote 12. Debt and Credit Sources”). The breaches created events of default thereunder (the “Existing Defaults”), which enables the requisite lenders under the Credit Agreement to demand immediate payment or exercise other remedies. As a result of the events of default, we no longer had the ability to borrow from the remaining capacity of $53.7 million of revolving commitments. On December 8, 2023, the Company obtained the Amendment and Waiver amending the Amended Credit Agreement by and among the Company, certain of its subsidiaries as guarantors, the Existing Lenders, and Bank of America, as administrative agent which provides for, among other things, a temporary waiver until January 19, 2024 of the breaches, and modification to the remaining available commitments through (i) the Existing Lenders to provide access to $25 million of existing revolving commitments and (ii) commitments by HoldCo, as a new lender, to provide and additional $25 million of capacity. Subsequent to the amendment, we borrowed the entire $50 million against the remaining capacity on the revolving credit facility. Although we entered into the Amendment and Waiver to temporarily address the Existing Defaults, we are also projecting to be noncompliant with certain debt covenants, which would cause further defaults under our existing debt arrangements. Following the expiration of the Amendment and Waiver, absent additional waivers, the events of default enable the requisite lenders under the Credit Agreement to demand immediate payment or exercise other remedies, such as subject all or a portion of obligations to a default rate of interest. Further, the Company also breached a financial covenant set forth under the Atlas Credit Agreement (see “Item 1. Financial StatementsNote 12. Debt and Credit Sources”) due to delay in delivery of the quarterly financials for the third quarter of 2023 (the “Quarterly Financials Default”), which results in an event of default, thereby enabling the requisite lenders to demand immediate payment or exercise other remedies. The Company is in discussion with the lenders under the Atlas Credit Agreement regarding a waiver of any breaches. There can be no assurance that such waiver will be obtained. Absent a waiver, the event of default enables the requisite lenders under the Atlas Credit Agreement to demand immediate payment or exercise other remedies, such as subject all or a portion of obligations to a default rate of interest. If the lenders were to demand immediate repayment, the Company would not have sufficient liquidity to meet its obligations and pay its liabilities arising from normal business operations when they come due. As such, substantial doubt exists about the Company's ability to continue as a going concern. Additionally, the Company received a reservation of rights letter from the administrative agent under the Dorado Credit Agreement as a result of the Restatement. We are in active discussions with this lender group, who are aware that SunPower does not agree that there has been any such breach of representation.

To address our liquidity needs, management is currently seeking additional waivers and evaluating various funding alternatives and may seek to raise additional funds through the issuance of equity, mezzanine or debt securities, through arrangements with strategic partners, which may include related parties, the capital markets, or through obtaining credit from financial institutions. As we seek additional sources of financing, there can be no assurance that such financing would be available to us on favorable terms or at all. Our ability to obtain additional financing in the debt and equity capital markets is subject to several factors, including market and economic conditions, our performance and investor sentiment with respect to us and our industry. The outcome of these matters cannot be predicted with any certainty at this time. Please see “Item 1A. Risk Factors” included elsewhere in this Quarterly Report on Form 10-Q.

For information about the terms of debt instruments and changes thereof in the period, see “Item 1. Financial Statements—Note 12. Debt and Credit Sources” and “Item 1. Financial Statements—Note 17. Subsequent Events” in the Notes to the condensed consolidated financial statements in this Quarterly Report on Form 10-Q.

In addition, see “Risk Factors—Substantial doubt exists about our ability to continue as a going concern and if we are unable to continue our business, our common stock might have little or no value. Although our financial statements have been prepared on a going concern basis, unless we obtain a waiver or amendment of the covenant breaches under the Credit Agreement and Atlas Credit Agreement and we are able to raise additional capital, there is a material risk that we will continue to be in breach of our financial covenants under the Credit Agreement and Atlas Credit Agreement, which may cause future events of default under our other existing debt agreements” in this Quarterly Report on Form 10-Q.

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Contractual Obligations

The following table summarizes our material contractual obligations and cash requirements for future periods as of October 1, 2023:
 Payments Due by Fiscal Period
(In thousands)Total20232024-20252026-2027Beyond 2027
Other debt, including interest1
$323,129 $2,284 $320,656 $168 $21 
Operating lease commitments2
40,626 3,022 22,741 12,773 2,090 
Supply agreement commitments and other3
89,863 45,833 28,181 11,682 4,167 
Total$453,618 $51,139 $371,578 $24,623 $6,278 

1 Other debt, including interest, primarily relates to our Revolver and Term Loan facilities, non-recourse financing and other debt arrangements as described in Note 12. Debt and Credit Sources.

2 Operating lease commitments primarily relate to various facility lease agreements including leases entered into that have not yet commenced.

3 Supply agreement commitments and other primarily relate to arrangements entered into with several suppliers, including Maxeon Solar, for purchase of photovoltaic solar modules, as well as with a supplier for module-level power electronics and alternating current cables. These agreements specify future quantities and pricing of products to be supplied by the vendors for periods of two years and five years, respectively, and there are certain consequences, such as forfeiture of advanced deposits and liquidated damages relating to previous purchases, in the event we terminate these arrangements.

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 October 1, 2023 and January 1, 2023, total liabilities associated with uncertain tax positions were $13.1 million and $12.3 million, respectively, and are included within "Other long-term liabilities" in our condensed consolidated balance sheets as they are not expected to be paid within the next twelve months.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

For quantitative and qualitative disclosures about market risk affecting SunPower, see “Quantitative and Qualitative Disclosures About Market Risk” in Item 7A of Part II of our Annual Report on Form 10-K/A for the fiscal year ended January 1, 2023, except as disclosed below.

Credit Risk
 
We have certain financial instruments that subject us to credit risk. These consist primarily of cash and cash equivalents, restricted cash and cash equivalents, investments, accounts receivable, advances to suppliers, and our interest rate swaps. We are exposed to credit losses in the event of nonperformance by the counterparties to our financial instruments and interest rate swap contracts. 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.

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We are also exposed to credit risk from customers and their potential payment delinquencies on our retail installment contracts and solar loan receivable agreements that are held to maturity. These retail installment contracts and solar loan receivable agreements have a typical term of 10 - 25 years and require customers to make monthly payments. As of October 1, 2023 and January 1, 2023, the average Fair Isaac Corporation (“FICO”) score of our customers under a retail installment contract agreement remained at or above 750 and 740, respectively, which are each generally categorized as a “Very Good” credit profile by the Fair Isaac Corporation. As of October 1, 2023, the average FICO score of our customers under a solar loan receivable is above 760, which is generally categorized as a “Very Good” credit profile. However, existing and future customers’ credit profiles may decline due to economic headwinds. Our retail installment contract and solar loan receivables held to maturity portfolios have not experienced a significant number of customer defaults, however, they may occur as we continue our business. Based on our estimate of expected credit losses, historical write-off experience, and current account knowledge, our reserve for this exposure is minimal. If we experience a significant number of customer credit defaults, our revenue and our ability to raise capital could be adversely affected. If economic conditions worsen, certain customers may face liquidity concerns and may be unable to satisfy their payment obligations to us on a timely basis or at all, which could have a material impact on our condensed consolidated financial statements.

Interest Rate Risk

We are exposed to interest rate risk from our financing receivables based on the fixed rate of interest as established by the underlying contract between us and the customer. This risk is significant to our business because our financing model is sensitive to interest rate fluctuations.

As of October 1, 2023, our retail installment contract receivables had a fair value of $74.7 million. A hypothetical 50 basis points increase or decrease in market interest rates in the financing contracts would change the fair value of these receivables by a decrease or increase of approximately $3.6 million and $3.5 million, respectively.

In addition, as of October 1, 2023, our solar loan receivables held to maturity had a fair value of $1.1 million. A hypothetical 50 basis points increase or decrease in market interest rates in the financing contracts would change the fair value of these receivables by a decrease or increase of approximately $0.1 million and $0.1 million, respectively.

Also, we are exposed to interest rate risk because many of our customers depend on debt financing to purchase our solar power systems, as well as our long-term financing receivables through our retail installment contract receivable program. Further increases in market 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.

We also enter into interest rate swap agreements to reduce the impact of changes in interest rates on our non-recourse floating rate debt and fixed rate loans entered into by customers. As of October 1, 2023, we had interest rate swap derivatives not designated as hedges with aggregate notional value of $215.8 million.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management is responsible for establishing and maintaining our “disclosure controls and procedures” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that their objectives are met. Because of the inherent limitations in all control systems, no evaluation of disclosure controls and procedures can provide absolute assurance that all disclosure control issues, if any, have been detected.

Based on their evaluation as of the end of the period covered by our Quarterly Report on Form 10-Q for the quarterly period ended October 1, 2023, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of October 1, 2023 because of the material weakness in our internal control over financial reporting described below.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected in a timely basis.

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We have identified the following unremediated material weaknesses in internal control over financial reporting as of October 1, 2023:

1. Inventory Related Matters:

In connection with the preparation of the financial statements for the third quarter of fiscal year 2023, we identified that the consumption of certain MI costs in photo-voltaic module manufacturing had been inaccurately recorded starting in the first quarter of fiscal year 2022. We also identified deficiencies relating to the reconciliations of inventory at our prepositioned inventory (“PPI”) dealer locations. In light of these matters, management concluded that our internal controls around the review of certain inventory reconciliations were not operating effectively. This material weakness resulted in a net overstatement of costs included in inventory, and a net understatement of cost of revenues for the impacted periods.

2. Classification of Expenses in the Statement of Operations:

In fiscal year 2023, we identified errors related to the classification of certain expenses as cost of revenues instead of operating expenses and as continuing operations instead of discontinued operations. We identified deficiencies in the design of the controls related to the mapping of the chart of accounts for expenses to the statements of operations. We further identified an operating deficiency related to the review of the accounting evaluation regarding the classification of certain discontinued operations items within the statements of operations. These deficiencies in aggregate were determined to be a material weakness. This material weakness resulted in the misclassification of certain expenses on our condensed consolidated statements of operations for the three and nine months ended October 2, 2022.

These material weaknesses resulted in the restatement of our condensed consolidated financial statements as of January 1, 2023 and for the three and nine months ended October 2, 2022. Additionally, these material weaknesses could result in misstatements that would not be prevented or detected in our accounts and disclosures, resulting in a material misstatement to the annual or interim consolidated financial statements. Our management performed additional analysis as deemed necessary to ensure that our financial statements were prepared in accordance with generally accepted accounting principles in the United States of America. Accordingly, management believes that the financial statements included in this Form 10-Q present fairly, in all material respects, the Company’s financial position, result of operations and cash flows for the periods presented.

Remediation Plan

We have identified and are implementing actions intended to improve the effectiveness of our internal control over financial reporting and disclosure controls and procedures and will continue to do so until such remediation is complete. Management intends to remediate the material weaknesses described above primarily by:

improving the consistency of execution for inventory control procedures by providing additional training to ensure that our accounting and finance personnel identify, escalate and resolve reconciling items including those that could impact recognition of cost of revenues in each reporting period;
implementing automated inventory processes which will reduce the number of manual adjustments and reconciling items; and
instituting a monitoring control to review and approve account mapping to ensure the mapping of expenses to the appropriate financial statement line items within the statement of operations is in line with applicable presentation and disclosure guidance.

We believe these measures will remediate the material weaknesses in internal control over financial reporting described above. The material weaknesses will not be considered formally remediated until the controls have operated effectively for a sufficient period of time and management has concluded, through testing, that the controls are operating effectively.

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 helping ensure that we maintain an effective internal control environment. Changes may include such activities as implementing new, more efficient systems, consolidating activities, and migrating processes.

Other than the material weaknesses described above, there were no changes in our internal control over financial reporting (as such term is defined in the Exchange Act) that occurred during the quarter ended October 1, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

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ITEM 1. LEGAL PROCEEDINGS

The disclosure under “Item 1. Financial Statements—Note 10. Commitments and Contingencies—Legal Matters” and “Item 1. Financial Statements—Note 17. Subsequent Events—Legal Matters” in the Notes to the condensed consolidated financial statements in this Quarterly Report on Form 10-Q is incorporated herein by reference.

ITEM 1A. RISK FACTORS

The following information updates, and should be read in conjunction with, the risk factors disclosed in our Annual Report on Form 10-K/A for the fiscal year ended January 1, 2023 filed with the SEC on December 18, 2023.

Substantial doubt exists about our ability to continue as a going concern and if we are unable to continue our business, our common stock might have little or no value. Although our financial statements have been prepared on a going concern basis, unless we obtain a full waiver or amendment of the covenant breaches under the Credit Agreement and Atlas Credit Agreement and we are able to raise additional capital, there is a material risk that we will continue to be in breach of our financial covenants under the Credit Agreement and Atlas Credit Agreement, which may cause future events of default under our other existing debt agreements.

Ernst & Young LLP, our independent registered public accounting firm, has included an explanatory paragraph in their opinion that accompanies our audited consolidated financial statements as of and for the period ended January 1, 2023 included in our Annual Report on Form 10-K/A filed with the SEC on December 18, 2023, indicating that substantial doubt exists about our ability to continue as a going concern. Although we have improved our liquidity position by obtaining the Amendment and Waiver, if we are unable to continue to do so, including by receiving a full waiver and raising additional capital, we will continue to be in breach of our financial covenants under the Credit Agreement, which may impact conditions that could lead to future events of default under our other debt agreements, and we may not be able to continue as a going concern. Further, we also breached a financial covenant set forth under the Atlas Credit Agreement due to delay in delivery of the quarterly financials for the third quarter of 2023, which results in an event of default, thereby enabling the requisite lenders to demand immediate payment of the borrowings outstanding or exercise other remedies. We are currently in discussion with the lenders under the Atlas Credit Agreement regarding a waiver of any breaches. Absent a waiver, the event of default enables the requisite lenders under the Atlas Credit Agreement to demand immediate payment or exercise other remedies, such as subject all or a portion of obligations to a default rate of interest. If the lenders were to demand immediate repayment, the Company would not have sufficient liquidity to meet its obligations and pay its liabilities arising from normal business operations when they come due. As such, substantial doubt exists about the Company's ability to continue as a going concern. Additionally, the Company received a reservation of rights letter from the administrative agent under the Dorado Credit Agreement as a result of the Restatement. We are in active discussions with this lender group, who are aware that SunPower does not agree that there has been any such breach of representation.

Although we are seeking additional sources of financing, there can be no assurance that such financing would be available to us on acceptable terms or at all. Any financing that we are able to obtain could entail substantial dilution to stockholders, onerous interest rates or covenants, or other terms that are unfavorable to us and the holders of our common stock. Our ability to obtain additional financing is subject to several factors, including market and economic conditions, our performance and investor and lender sentiment with respect to us and our industry. The failure to obtain sufficient capital on acceptable terms may require us to delay, limit, or eliminate the development of business opportunities and our ability to achieve our business objectives and our competitiveness, and our business, financial condition, and results of operations would be materially adversely affected. In addition, the perception that we may not be able to continue as a going concern may cause customers and other business partners to choose not to conduct business with us due to concerns about our ability to meet our contractual obligations. The accompanying condensed consolidated financial statements to this Quarterly Report on Form 10-Q do not include any adjustments that might result if we are unable to continue as a going concern and, therefore, be required to realize our assets and discharge our liabilities other than in the normal course of business, which could cause investors to suffer the loss of all or a substantial portion of their investment.

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Continued breaches under the Credit Agreement, and potential future breaches of the Credit Agreement, will require a long-term solution, which might not be available on acceptable terms or at all, and may result in a material adverse effect on our business, financial condition, results of operations and the value of our common stock.

Although we have entered into the Amendment and Waiver, it is possible that our operating results for the fiscal quarters ending December 31, 2023, March 29, 2024, June 30, 2024 and September 29, 2024 will require further waivers under the Credit Agreement in order for us to be in compliance with certain financial covenants thereunder as of such dates, and that the lenders will not agree to extend or fully waive the Existing Defaults. Accordingly, if the requisite lenders under the Credit Agreement do not agree to waive or amend these covenants, whether pursuant to the above mentioned Amendment and Waiver or a different waiver or amendment, it is possible that we will be in further default of the covenants under the Credit Agreement.

Any full waiver or amendment of the Credit Agreement to address the current breach, which is temporarily waived, and possible future breaches under the Credit Agreement may not be obtainable on acceptable terms or at all, and may require payment of costly fees to the lenders and subject us to additional or more onerous covenants on our business.

In the event we are unable to enter into a solution for breaches under the Credit Agreement in the near future, there would be a material adverse effect on our business, financial condition, results of operations and the value of our common stock.

Breaches, or alleged breaches, of financial or other covenants in our other existing debt agreements may result in a material adverse effect on our business, financial condition, results of operations and the value of our common stock.

Our other existing debt agreements contain various financial and other covenants. Any breach could result in an event of default under such agreement or an acceleration of maturity. The Company breached a financial covenant and a quarterly financial reporting covenant set forth in the Atlas Credit Agreement, and received a reservation of rights letter from the administrative agent under the Dorado Credit Agreement. Any such breach, or alleged breach, could limit our ability to access certain borrowings or letters of credit under the Dorado Credit Agreement. Such effects may result in a decrease of liquidity and a material adverse effect on our business, financial condition, results of operations and the value of our common stock. Please see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Capital Resources” for additional information.

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We have identified material weaknesses in our internal control over financial reporting, and have concluded that our disclosure controls and procedures were not effective as of October 1, 2023. If we fail to properly remediate these or any future deficiencies or material weaknesses or to maintain proper and effective internal controls, material misstatements in our financial statements could occur and impair our ability to produce accurate and timely financial statements and could adversely affect investor confidence in our financial reports, which could negatively affect our business. As a result, our stockholders could lose confidence in our financial reporting, which could harm our business and the trading price of our common stock. Also, as a result of such material weaknesses and the related restatements of our financial statements, we currently face, and may continue to be subject to litigation or other disputes.

In connection with the preparation of the financial statements for the third quarter of fiscal year 2023, we identified that the consumption of certain MI costs in photo-voltaic module manufacturing had been inaccurately recorded starting in the first quarter of fiscal year 2022. We also identified deficiencies relating to the reconciliations of inventory at our PPI dealer locations. In light of these matters, management concluded that our internal controls around the review of certain inventory reconciliations were not operating effectively. This material weakness resulted in a net overstatement of costs included in inventory, and a net understatement of cost of revenues for the impacted periods. In addition, we identified errors related to the classification of certain expenses as cost of revenues instead of operating expenses, and as continuing operations instead of discontinued operations. We identified deficiencies in the design of the controls related to the mapping of the chart of accounts for expenses to the statements of operations. We further identified an operating deficiency related to the review of the accounting evaluation regarding the classification of certain discontinued operations items within the statements of operations. These deficiencies in aggregate were determined to be a material weakness. The Audit Committee, based upon the recommendation of management, determined that our (i) audited financial statements included in our Annual Report on Form 10-K for the period ended January 1, 2023, filed with the SEC on March 10, 2023, (ii) unaudited financial statements included in our Quarterly Report on Form 10-Q for the quarterly period ended April 2, 2023, filed with the SEC on May 3, 2023, and (iii) unaudited financial statements included in our Quarterly Report on Form 10-Q for the quarterly period ended July 2, 2023, filed with the SEC on August 2, 2023 (collectively, the “Affected Periods”), as well as the relevant portions of any communication which describe or are based on such financial statements, should no longer be relied upon, and that the previously issued financial statements for the Affected Periods should be restated.

As part of such process, we identified material weaknesses in our internal control over financial reporting related to the Company’s review of certain inventory reconciliations and the classification of expenses in the statements of operations.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected and corrected on a timely basis.

Effective internal controls are necessary for us to provide reliable financial reports and prevent fraud. We continue to evaluate and implement steps to remediate the material weaknesses. These remediation measures may be time consuming and costly and there is no assurance that these initiatives will ultimately have the intended effects. The material weaknesses in our internal control over financial reporting will not be considered remediated until the controls operate for a sufficient period of time and management has concluded, through testing that these controls operate effectively. If we do not successfully remediate the material weaknesses, or if other material weaknesses or other deficiencies arise in the future, we may be unable to accurately report our financial results, which could cause our financial results to be materially misstated and require restatement. In such case, we may be unable to maintain compliance with securities law requirements regarding timely filing of periodic reports in addition to applicable stock exchange listing requirements and requirements in our other agreements, our ability to raise additional capital, access the equity or debt markets or undertake certain types of transactions could adversely impact our liquidity, investors may lose confidence in our financial reporting, and our stock price may decline as a result. We cannot assure you that the measures we have taken to date, or any measures we may take in the future, will be sufficient to avoid potential future material weaknesses.

If we identify any new material weaknesses in the future, any such newly identified material weakness could limit our ability to prevent or detect a misstatement of our accounts or disclosures that could result in a material misstatement of our annual or interim financial statements. In such case, we may be unable to maintain compliance with securities law requirements regarding timely filing of periodic reports in addition to applicable stock exchange listing requirements, investors may lose confidence in our financial reporting and our stock price may decline as a result. We cannot assure you that the measures we have taken to date, or any measures we may take in the future, will be sufficient to avoid potential future material weaknesses.

In addition, as a result of such material weaknesses, which could require us to incur significant expense and the related restatements of our financial statements, we currently face, and may continue to be subject to, litigation or other disputes which may include, among others, claims invoking the federal and state securities laws, regulatory actions, contractual claims or other claims arising from the material weaknesses in our internal control over financial reporting and the preparation of our financial statements. Any such litigation, dispute or regulatory actions, whether successful or not, could have a material adverse effect on our business, results of operations and financial condition. Please see “Legal Matters” section within “Item 1. Financial
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Statements (unaudited)—Notes to Condensed Consolidated Financial Statements—Note 10. Commitments and Contingencies” for a description of the currently filed litigation.

Adverse publicity and potential concerns from our customers relating to or arising from the restatements could have an adverse effect on our business and financial condition.

We could continue to be the subject of negative publicity focusing on the restatement and adjustment of our financial statements, and we may be adversely impacted by negative reactions from our customers or others with whom we do business. Concerns include the perception of the effort required to address our accounting and control environment, and the ability for us to be a long-term provider to our customers, particularly in light of the outstanding principal amount of our debt obligations and our ability to comply with the financial covenants contained within our debt agreements. Continued adverse publicity and potential concerns from our customers could harm our business and have an adverse effect on our financial condition.

The execution of our growth strategy is dependent upon the continued availability of third-party financing arrangements for our projects, including our residential finance programs and offerings through SunPower Financial, and is affected by general economic conditions, our creditworthiness and perceived credit risk, and other factors.

Our growth strategy, including portions of our 25x25 DE&I growth initiative, depends on third-party financing arrangements, and with the addition of SunPower Financial, our ability to provide financing directly to our customers. We often require project financing for development and construction of certain of our projects, which require significant investments before the equity is later sold to investors. SunPower Financial relies on third-party capital providers to provide financing options through our platform to customers. As our business grows, SunPower Financial will need additional funding sources for those financing options, either from its existing capital providers or by entering into program funding agreements with new capital providers. We regularly look to minimize our cost of capital, and in support of that strategy, we will from time to time provide temporary capital support for consumer financial products in order to maximize the benefits from new funding sources. Our failure to obtain additional funding commitments in an amount needed to fund projected volume, or failure to extend our existing commitments or identify new capital providers or renewing existing providers on favorable economic terms could have a material adverse impact on our business, results of operations, cash flows, and financial condition.

In addition, many purchasers of our systems 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. These structured finance arrangements are complex and may not be feasible in many situations.

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 financial results. If our perceived creditworthiness diminishes, including as a result of future or alleged breaches of financial covenants under our debt agreements, or if credit markets, which 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. As a result of economic conditions, certain of our capital partners have either reduced the amount of available capital for such financing or made the terms of such financing less favorable. Our plans to continue to grow our residential finance program may be delayed if credit conditions, or other factors, including our creditworthiness, prevent us from obtaining or maintaining arrangements to finance those programs. We are actively arranging additional third-party financing for our residential finance program; however, there can be no assurance that we will be able to arrange additional financing partners for our residential finance programs in future periods, which could have a negative impact on our sales. In the event we enter into a material number of financing arrangements with customers without obtaining corresponding third-party financing, our cash, working capital, and results of operations 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, tax rates, the demand for and supply for residential solar installations, resulting risks of refinancing or disposing of such projects, our creditworthiness and perceived credit risk. It also depends in part on government incentives, such as tax incentives. 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
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residential solar systems without such incentives. Our failure to effectively do so could materially and adversely affect our business and financial results.

The lack of project financing, due to tighter credit markets or other reasons, including but not limited to those described above, could limit our ability to offer competitive financing options for potential customers, 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 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 to our competitors, which could materially and adversely affect our business and financial results.

For information about the terms of debt instruments and changes thereof in the period, see “Item 1. Financial Statements—Note 12. Debt and Credit Sources” in the Notes to the condensed consolidated financial statements in this Quarterly Report on Form 10-Q.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES, USE OF PROCEEDS, AND ISSUER PURCHASES OF EQUITY SECURITIES

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:
Period
Total Number of Shares Purchased1
Average Price
Paid Per Share
Total Number of Shares Purchased as Part of Publicly Announced Plans or ProgramsMaximum Number of Shares That May Yet Be Purchased Under the Publicly Announced Plans or Programs
July 3, 2023 through July 30, 20238,821 $9.68 
July 31, 2023 through August 27, 202310,595 $8.67 
August 28, 2023 through October 1, 202341,345 $7.16 
 60,761 — 

1    The shares purchased represent shares surrendered to satisfy tax withholding obligations in connection with the vesting of restricted stock issued to employees.

ITEM 5. OTHER INFORMATION

Information concerning certain limited activities related to Iran

On March 24, 2023, all the information concerning the activities of our affiliate TotalEnergies SE and its affiliated companies (collectively, the “TotalEnergies”) related to Iran that took place in the third quarter of 2023 provided in this section is disclosed pursuant to Section 13(r) of the Securities Exchange Act of 1934, as amended (the “U.S. Exchange Act”).

In addition, information for the third quarter of 2023 is provided concerning the payments made by TotalEnergies’ affiliates to, or additional cash flow that operations of TotalEnergies affiliates generate for the government of Iran (identified by the United States as a state sponsor of terrorism) or any entity controlled by such government.

TotalEnergies believes that these activities are not subject to sanctions under applicable international economic sanctions regimes, including those adopted by the United States and the European Union (the “Sanctions Regime”).

TotalEnergies’ operational activities related to Iran were stopped in 2018 following the withdrawal of the United States from the Joint Comprehensive Plan of Action (“JCPOA”) in May 2018 and prior to the re-imposition of U.S. secondary sanctions on the oil industry as of November 5, 2018.

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Statements in this section concerning companies controlled by TotalEnergies SE intending or expecting to continue activities described below are subject to such activities continuing to be permissible under applicable international economic sanctions regimes and are based on information provided to us by Total Energies.

Exploration & Production

The Tehran branch office of Total E&P South Pars S.A.S., a wholly-owned subsidiary of TotalEnergies SE, which opened in 2017 for the purposes of the development and production of phase 11 of the South Pars gas field, ceased all operational activities prior to November 1, 2018. In addition, since November 2018, TotalEnergies EP Iran BV maintains a local representative office in Tehran with four employees solely for non-operational functions.

Concerning payments made to Iranian entities in the third quarter of 2023, TotalEnergies EP Iran BV and Elf Petroleum Iran collectively made payments of approximately IRR 1,578,680,785 billion (€33,1471) to the Iranian administration for taxes and social security contributions concerning the staff of this representative office. None of these payments were executed in US dollars.

Since November 30, 2018, TotalEnergies E&P UK Limited (“TEP UK”), a wholly owned subsidiary, holds a 1% interest in a joint-venture relating to the Bruce field in the United Kingdom (the “Bruce Field Joint-Venture”) with Serica Energy (UK) Limited (“Serica”) (98%, operator) and BP Exploration Operating Company Limited (“BPEOC”) (1%), following the completion of the sale of 42.25% of TEP UK’s interest in the Bruce Field Joint-Venture on November 30, 2018 pursuant to a sale and purchase agreement dated August 2, 2018 entered into between TEP UK and Serica.

The Bruce Field Joint-Venture is party to an agreement governing certain transportation, processing and operation services provided to another joint-venture at the Rhum field in the UK (the “Bruce Rhum Agreement”). The licensees of the Rhum field are Serica (50%, operator) and the Iranian Oil Company UK Ltd (“IOC UK”), a subsidiary of NIOC (50%), an Iranian government-owned corporation. Under the terms of the Bruce Rhum Agreement, the Rhum field owners pay a proportion of the operating costs of the Bruce field facilities calculated on a gas throughput basis.

In November 2018, the US Treasury Department’s Office of Foreign Asset Control (“OFAC”) granted a conditional license to BPEOC and Serica authorizing provision of services to the Rhum field following the re-imposition of US secondary sanctions. The principal condition of the license is that the ownership of shares in IOC UK by Naftiran Intertrade Company Limited (the trading branch of the NIOC) are transferred into and held in a Jersey-based trust, thereby ensuring that the Iranian government does not derive any economic benefit from the Rhum field so long as US sanctions against these entities remain in place. IOC UK’s interest is managed by an independent management company established by the trust and referred to as the “Rhum Management Company” (“RMC”). If necessary, TEP UK liaises with RMC in relation to the Bruce Rhum Agreement and TEP UK expects to continue liaising with RMC on the same basis in 2023.

In January 2021, OFAC renewed the conditional license to Serica authorizing the provision of services to the Rhum field, until January 31, 2023, subject to early termination if the trust arrangements described above should terminate. In addition, OFAC confirmed that, to the extent that the license remains valid and Serica represents that the conditions set out in the license are met, activities and transactions of non-US persons involving the Rhum field or the Bruce field, including in relation to the operation of the trust, IOC UK and RMC will not be exposed to US secondary sanctions with respect to Iran. Following an application filed with the OFAC on November 9, 2022, Serica received in January 2023 the renewal of its license until January 31, 2025.

IOC UK’s share of costs incurred under the Bruce Rhum Agreement will be paid to TEP UK by year end of 2023 by RMC. TEP UK expects to continue this activity in 2023.

TEP UK is also party to an agreement with Serica whereby TEP UK uses reasonable endeavors to evacuate Rhum NGL from the St Fergus Terminal (the “Rhum NGL Agreement”). TEP UK provides this service subject to Serica having title to all of the Rhum NGL to be evacuated and Serica having a valid license from OFAC for the activity. The service is provided on a cost basis, and TEP UK charges a monthly handling fee that generates an income of approximately £39,500 per annum relating to IOC UK’s 50% interest in the Rhum field. After costs, TEP UK generates little profit from this arrangement. TEP UK expects to continue this activity in 2023.

Marketing & Services

In the third quarter of 2023, TotalEnergies Marketing France, a wholly owned subsidiary, provided fuel payment cards to be used in TotalEnergies' service stations to the Iranian Embassy and the Iranian delegation to UNESCO located in Paris (France). This activity generated a gross turnover of approximately €4,000 (without tax) and a net profit of approximately €600 on the third quarter of 2023. TotalEnergies Marketing France expects to continue this activity in 2023.

1 Exchange rate IRR/EUR: 45,567, as published by the Central Bank of Iran.
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In the third quarter of 2023, TotalEnergies Marketing Belgium, a wholly owned subsidiary, provided fuel payment cards to be used in TotalEnergies' service stations to the Iranian Embassy located in Brussels (Belgium). This activity generated a gross turnover of approximately €2,705 (without tax) and a net profit of approximately €311 on the third quarter of 2023. TotalEnergies Marketing Belgium expects to continue this activity in 2023.

Trademarks

In the third quarter of 2023, TotalEnergies made small payments to Iranian authorities related to the maintenance and protection of trademarks and designs in Iran and may make similar small payments in 2023. These payments are not prohibited by applicable Sanctions Regimes.

Trading Plans of Directors and Officers

During the quarter ended October 1, 2023, no director or Section 16 officer adopted or terminated any Rule 10b5-1 trading arrangements or non-Rule 10b5-1 trading arrangements (in each case, as defined in Item 408(a) of Regulation S-K).
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ITEM 6. EXHIBITS
    
Index to Exhibits
Exhibit NumberDescription
10.1
10.2
10.3*
31.1*
31.2*
32.1**
32.2**
101.SCH*Inline XBRL Taxonomy Schema Document.
101.CAL*Inline XBRL Taxonomy Calculation Linkbase Document.
101.LAB*Inline XBRL Taxonomy Label Linkbase Document.
101.PRE*Inline XBRL Taxonomy Presentation Linkbase Document.
101.DEF*Inline XBRL Taxonomy Definition Linkbase Document.
104
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

*  Filed herewith.

** Furnished herewith.
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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 SUNPOWER CORPORATION
Dated:December 18, 2023By:/S/ ELIZABETH EBY
  Elizabeth Eby
 Executive Vice President and
Chief Financial Officer


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