Document
Table of Contents


 
 
 
 
 
 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
T
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 2, 2016
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______________ to ______________

Commission file number 001-34166


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SunPower Corporation
(Exact Name of Registrant as Specified in Its Charter)
Delaware
 
94-3008969
(State or Other Jurisdiction of Incorporation or Organization)
 
(I.R.S. Employer Identification No.)
77 Rio Robles, San Jose, California 95134
(Address of Principal Executive Offices and Zip Code)
(408) 240-5500
(Registrant's Telephone Number, Including Area Code)

_________________________________________

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer x
Accelerated filer o
Non-accelerated filer o
Smaller reporting company o
 
 
(Do not check if a smaller reporting company)
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes  o    No  T

The total number of outstanding shares of the registrant’s common stock as of November 4, 2016 was 138,418,112.

 
 
 
 
 
d


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Table of Contents



TABLE OF CONTENTS
 
 
Page
Part I. FINANCIAL INFORMATION
 
 
 
 
Item 1.
Financial Statements (unaudited)
 
 
 
 
Consolidated Balance Sheets
 
 
 
 
Consolidated Statements of Operations
 
 
 
 
Consolidated Statements of Comprehensive Loss
 
 
 
 
Consolidated Statements of Equity
 
 
 
 
Consolidated Statements of Cash Flows
 
 
 
 
Notes to Consolidated Financial Statements
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
Part II. OTHER INFORMATION
 
 
 
 
Item 1.
Legal Proceedings
 
 
 
Item 1A.
Risk Factors
 
 
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
 
 
 
Item 6.
Exhibits
 
 
 
 
 
 

2
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

SunPower Corporation
Consolidated Balance Sheets
(In thousands, except share data)
(unaudited)
 
October 2, 2016
 
January 3, 2016
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
383,868

 
$
954,528

Restricted cash and cash equivalents, current portion
27,476

 
24,488

Accounts receivable, net1
223,836

 
190,448

Costs and estimated earnings in excess of billings1
25,399

 
38,685

Inventories
447,114

 
382,390

Advances to suppliers, current portion
72,968

 
85,012

Project assets - plants and land, current portion1
828,842

 
479,452

Prepaid expenses and other current assets1
336,683

 
359,517

Total current assets
2,346,186

 
2,514,520

 
 
 
 
Restricted cash and cash equivalents, net of current portion
51,615

 
41,748

Restricted long-term marketable securities
—

 
6,475

Property, plant and equipment, net
1,125,014

 
731,230

Solar power systems leased and to be leased, net
618,755

 
531,520

Project assets - plants and land, net of current portion
111,282

 
5,072

Advances to suppliers, net of current portion
241,126

 
274,085

Long-term financing receivables, net
471,334

 
334,791

Goodwill and other intangible assets, net
46,965

 
119,577

Other long-term assets1
84,393

 
297,975

Total assets
$
5,096,670

 
$
4,856,993

 
 
 
 
Liabilities and Equity
 

 
 

Current liabilities:
 

 
 

Accounts payable1
$
515,775

 
$
514,654

Accrued liabilities1
280,032

 
313,497

Billings in excess of costs and estimated earnings
99,465

 
115,739

Short-term debt
535,226

 
21,041

Customer advances, current portion1
12,669

 
33,671

Total current liabilities
1,443,167

 
998,602

 
 
 
 
Long-term debt
455,769

 
478,948

Convertible debt1
1,112,813

 
1,110,960

Customer advances, net of current portion1
296

 
126,183

Other long-term liabilities1
656,013

 
564,557

Total liabilities
3,668,058

 
3,279,250

Commitments and contingencies (Note 9)


 


Redeemable noncontrolling interests in subsidiaries
102,242

 
69,104

Equity:
 

 
 

Preferred stock, $0.001 par value; 10,000,000 shares authorized; none issued and outstanding as of both October 2, 2016 and January 3, 2016
—

 
—

Common stock, $0.001 par value, 367,500,000 shares authorized; 147,839,311 shares issued, and 138,339,796 outstanding as of October 2, 2016; 145,242,705 shares issued, and 136,712,339 outstanding as of January 3, 2016
138


137

Additional paid-in capital
2,407,764

 
2,359,917

Accumulated deficit
(943,563
)
 
(747,617
)
Accumulated other comprehensive loss
(12,847
)
 
(8,023
)
Treasury stock, at cost; 9,499,515 shares of common stock as of October 2, 2016; 8,530,366 shares of common stock as of January 3, 2016
(176,219
)
 
(155,265
)
Total stockholders' equity
1,275,273

 
1,449,149

Noncontrolling interests in subsidiaries
51,097

 
59,490

Total equity
1,326,370

 
1,508,639

Total liabilities and equity
$
5,096,670

 
$
4,856,993

1 
The Company has related-party balances for transactions made with Total S.A. and its affiliates as well as unconsolidated entities in which the Company has a direct equity investment. These related-party balances are recorded within the "Accounts Receivable, net," "Costs and estimated earnings in excess of billings," "Project assets - plants and land, current portion," "Prepaid expenses and other current assets," "Other long-term assets," "Accounts payable," "Accrued Liabilities," and "Convertible debt, net of current portion," financial statement line items in the Consolidated Balance Sheets (see Note 2, Note 7, Note 10, Note 11, and Note 12).


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

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SunPower Corporation
Consolidated Statements of Operations
(In thousands, except per share data)
(unaudited)
 
 
Three Months Ended
 
Nine Months Ended
 
 
October 2, 2016

September 27, 2015
 
October 2, 2016
 
September 27, 2015

 
 
 
 
 
 
 
 
Revenue1
 
 
 
 
 
 
 
 
Solar power systems, components, and other
 
$
673,538

 
$
330,401

 
$
1,358,249

 
$
1,062,166

Residential leasing
 
55,808

 
49,817

 
176,424

 
139,943


 
$
729,346

 
$
380,218

 
$
1,534,673

 
$
1,202,109

Cost of revenue1
 
 
 
 
 
 
 
 
Solar power systems, components, and other
 
558,342

 
280,226

 
1,179,777

 
874,022

Residential leasing
 
41,796

 
37,348

 
132,857

 
103,744


 
600,138

 
317,574

 
1,312,634

 
977,766

Gross margin
 
129,208

 
62,644

 
222,039

 
224,343

Operating expenses:
 
 
 
 
 
 
 
 
Research and development1
 
28,153

 
24,973

 
92,270

 
66,701

Sales, general and administrative1
 
80,070

 
81,109

 
262,544

 
239,843

Restructuring charges
 
31,202

 
726

 
31,415

 
6,056

Total operating expenses
 
139,425

 
106,808

 
386,229

 
312,600

Operating loss
 
(10,217
)
 
(44,164
)
 
(164,190
)
 
(88,257
)
Other income (expense), net:
 
 
 
 
 
 
 
 
Interest income
 
630

 
448

 
2,133

 
1,498

Interest expense1
 
(15,813
)
 
(8,796
)
 
(42,644
)
 
(32,994
)
Gain on settlement of preexisting relationships in connection with acquisition2
 
203,252

 
—

 
203,252

 
—

Loss on equity method investment in connection with acquisition2
 
(90,946
)
 
—

 
(90,946
)
 
—

Goodwill impairment
 
(147,365
)
 
—

 
(147,365
)
 
—

Other, net
 
(5,169
)
 
(3,601
)
 
(17,223
)
 
8,761

Other expense, net
 
(55,411
)
 
(11,949
)
 
(92,793
)
 
(22,735
)
Loss before income taxes and equity in earnings of unconsolidated investees
 
(65,628
)
 
(56,113
)
 
(256,983
)
 
(110,992
)
 Provision for income taxes
 
(7,049
)
 
(36,224
)
 
(16,878
)
 
(37,916
)
Equity in earnings of unconsolidated investees
 
16,770

 
5,052

 
24,356

 
9,107

Net loss
 
(55,907
)
 
(87,285
)
 
(249,505
)
 
(139,801
)
Net loss attributable to noncontrolling interests and redeemable noncontrolling interests
 
15,362

 
30,959

 
53,559

 
80,403

Net loss attributable to stockholders
 
$
(40,545
)
 
$
(56,326
)
 
$
(195,946
)
 
$
(59,398
)
 
 
 
 
 
 
 
 
 
Net loss per share attributable to stockholders:
 
 
 
 
 
 
 
 
Basic
 
$
(0.29
)
 
$
(0.41
)
 
$
(1.42
)
 
$
(0.44
)
Diluted
 
$
(0.29
)
 
$
(0.41
)
 
$
(1.42
)
 
$
(0.44
)
Weighted-average shares:
 
 
 
 
 
 
 
 
Basic
 
138,209

 
136,473

 
137,832

 
134,294

Diluted
 
138,209

 
136,473

 
137,832

 
134,294

1 
The Company has related-party transactions with Total S.A. and its affiliates as well as unconsolidated entities in which the Company has a direct equity investment. These related-party transactions are recorded within "Revenue: Solar power systems and components," "Cost of revenue: Solar power systems and components," "Operating expenses: Research and development," "Operating expenses: Sales, general and administrative," and "Other income (expense), net: Interest expense" financial statement line items in the Consolidated Statements of Operations (see Note 2 and Note 10).

2 
See Note 3.

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

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

 
 
Three Months Ended
 
Nine Months Ended
 
 
October 2, 2016
 
September 27, 2015
 
October 2, 2016
 
September 27, 2015
Net loss
 
$
(55,907
)
 
$
(87,285
)
 
$
(249,505
)
 
$
(139,801
)
Components of comprehensive loss:
 
 
 
 
 
 
 
 
Translation adjustment
 
(272
)
 
(1,276
)
 
1,285

 
(3,037
)
Net change in derivatives (Note 12)
 
56

 
4,799

 
(6,825
)
 
5,607

Income taxes
 
(30
)
 
(936
)
 
716

 
(479
)
Net change in accumulated other comprehensive income (loss)
 
(246
)
 
2,587

 
(4,824
)
 
2,091

Total comprehensive loss
 
(56,153
)
 
(84,698
)
 
(254,329
)
 
(137,710
)
Comprehensive loss attributable to noncontrolling interests and redeemable noncontrolling interests
 
15,362

 
30,959

 
53,559

 
80,403

Comprehensive loss attributable to stockholders
 
$
(40,791
)
 
$
(53,739
)
 
$
(200,770
)
 
$
(57,307
)

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


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

 
 
 
 
Common Stock
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Redeemable Noncontrolling Interests
 
Shares
 
Value
 
Additional
Paid-in
Capital
 
Treasury
Stock
 
Accumulated Other
Comprehensive Loss
 
Accumulated Deficit
 
Total
Stockholders’
Equity
 
Noncontrolling Interests
 
Total Equity
Balances at January 3, 2016
 
$
69,104

 
136,711

 
$
137

 
$
2,359,917

 
$
(155,265
)
 
$
(8,023
)
 
$
(747,617
)
 
$
1,449,149

 
$
59,490

 
$
1,508,639

Net loss
 
(56,282
)
 
—

 
—

 
—

 
—

 
—

 
(195,946
)
 
(195,946
)
 
2,723

 
(193,223
)
Other comprehensive loss
 
—

 
—

 
—

 
—

 
—

 
(4,824
)
 
—

 
(4,824
)
 
—

 
(4,824
)
Issuance of restricted stock to employees, net of cancellations
 
—

 
2,596

 
2

 
—

 
—

 
—

 
—

 
2

 
—

 
2

Stock-based compensation expense
 
—

 
—

 
—

 
45,397

 
—

 
—

 
—

 
45,397

 
—

 
45,397

Tax benefit from convertible debt interest deduction
 
—

 
—

 
—

 
1,228

 
—

 
—

 
—

 
1,228

 

 
1,228

Tax benefit from stock-based compensation
 
—

 
—

 
—

 
1,222

 
—

 
—

 
—

 
1,222

 
—

 
1,222

Contributions from noncontrolling interests
 
93,924

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(2,201
)
 
(2,201
)
Distributions to noncontrolling interests
 
(4,504
)
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(8,915
)
 
(8,915
)
Purchases of treasury stock
 
—

 
(969
)
 
(1
)
 
—

 
(20,954
)
 
—

 
—

 
(20,955
)
 
—

 
(20,955
)
Balances at October 2, 2016
 
$
102,242

 
138,338

 
$
138

 
$
2,407,764

 
$
(176,219
)
 
$
(12,847
)
 
$
(943,563
)
 
$
1,275,273

 
$
51,097

 
$
1,326,370


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

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SunPower Corporation
Consolidated Statements of Cash Flows
(In thousands)
(unaudited)
 
 
Nine Months Ended
 
 
October 2, 2016
 
September 27, 2015
Cash flows from operating activities:
 
 
 
 
Net loss
 
$
(249,505
)
 
$
(139,801
)
Adjustments to reconcile net loss to net cash used in operating activities, net of effect of acquisitions:
 
 
 
 
Depreciation and amortization
 
122,842

 
97,369

Stock-based compensation
 
48,902

 
42,484

Non-cash interest expense
 
963

 
5,768

Non-cash restructuring charges
 
17,926

 
—

Gain on settlement of preexisting relationships in connection with acquisition
 
(203,252
)
 
—

Loss on equity method investment in connection with acquisition
 
90,946

 
—

Goodwill impairment
 
147,365

 
—

Equity in earnings of unconsolidated investees
 
(24,356
)
 
(9,107
)
Excess tax benefit from stock-based compensation
 
(1,222
)
 
(25,090
)
Deferred income taxes
 
2,059

 
25,748

Gain on sale of residential lease portfolio to 8point3 Energy Partners LP
 
—

 
(27,915
)
Other, net
 
3,805

 
1,940

Changes in operating assets and liabilities, net of effect of acquisitions:
 
 
 
 
Accounts receivable
 
(36,563
)
 
292,102

Costs and estimated earnings in excess of billings
 
13,579

 
148,018

Inventories
 
(101,146
)
 
(187,153
)
Project assets
 
(434,645
)
 
(499,847
)
Prepaid expenses and other assets
 
70,025

 
12,640

Long-term financing receivables, net
 
(136,543
)
 
(108,418
)
Advances to suppliers
 
45,003

 
29,800

Accounts payable and other accrued liabilities
 
(144,202
)
 
(62,921
)
Billings in excess of costs and estimated earnings
 
(15,879
)
 
(3,968
)
Customer advances
 
(14,440
)
 
(21,009
)
Net cash used in operating activities
 
(798,338
)
 
(429,360
)
Cash flows from investing activities:
 
 
 
 
Increase in restricted cash and cash equivalents
 
(12,855
)
 
(27,659
)
Purchases of property, plant and equipment
 
(149,475
)
 
(132,352
)
Cash paid for solar power systems, leased and to be leased
 
(64,417
)
 
(64,419
)
Cash paid for solar power systems
 
(2,282
)
 
(10,007
)
Proceeds from sales or maturities of marketable securities
 
6,210

 
—

Proceeds from (payments to) 8point3 Energy Partners LP
 
(9,838
)
 
363,928

Cash paid for acquisitions, net of cash acquired
 
(24,003
)
 
(59,021
)
Cash paid for investments in unconsolidated investees
 
(11,046
)
 
(4,092
)
Cash paid for intangibles
 
—

 
(3,401
)
Net cash provided by (used in) investing activities
 
(267,706
)
 
62,977

Cash flows from financing activities:
 
 
 
 
Cash paid for repurchase of convertible debt
 
—

 
(324,352
)
Proceeds from settlement of 4.50% Bond Hedge
 
—

 
74,628

Payments to settle 4.50% Warrants
 
—

 
(574
)
Repayment of bank loans and other debt
 
(15,572
)
 
(15,857
)
Proceeds from issuance of non-recourse residential financing, net of issuance costs
 
142,862

 
82,664

Repayment of non-recourse residential financing
 
(36,707
)
 
(41,058
)
Contributions from noncontrolling interests and redeemable noncontrolling interests attributable to residential projects
 
91,723

 
133,732

Distributions to noncontrolling interests and redeemable noncontrolling interests attributable to residential projects
 
(13,419
)
 
(6,790
)
Proceeds from issuance of non-recourse power plant and commercial financing, net of issuance costs
 
602,286

 
229,066

Repayment of non-recourse power plant and commercial financing
 
(257,538
)
 
(226,578
)
Proceeds from 8point3 Energy Partners LP attributable to operating leases and unguaranteed sales-type lease residual values
 
—

 
29,300

Proceeds from exercise of stock options
 
—

 
467

Excess tax benefit from stock-based compensation
 
1,222

 
25,090

Purchases of stock for tax withholding obligations on vested restricted stock
 
(20,953
)
 
(42,407
)
Net cash provided by (used in) financing activities
 
493,904

 
(82,669
)
Effect of exchange rate changes on cash and cash equivalents
 
1,480

 
(4,242
)
Net decrease in cash and cash equivalents
 
(570,660
)
 
(453,294
)
Cash and cash equivalents, beginning of period
 
954,528

 
956,175

Cash and cash equivalents, end of period
 
$
383,868

 
$
502,881

 
 
 
 
 
Non-cash transactions:
 
 
 
 
Assignment of residential lease receivables to third parties
 
$
3,722

 
$
2,742

Costs of solar power systems, leased and to be leased, sourced from existing inventory
 
$
43,983

 
$
47,295

Costs of solar power systems, leased and to be leased, funded by liabilities
 
$
6,226

 
$
8,229

Costs of solar power systems under sale-leaseback financing arrangements, sourced from project assets
 
$
7,375

 
$
6,076

Property, plant and equipment acquisitions funded by liabilities
 
$
85,994

 
$
43,083

Net reclassification of cash proceeds offset by project assets in connection with the deconsolidation of assets sold to the 8point3 Group
 
$
43,588

 
$
5,061

Exchange of receivables for an investment in an unconsolidated investee
 
$
2,890

 
$
—

Sale of residential lease portfolio in exchange for non-controlling equity interests in the 8point3 Group
 
$
—

 
$
68,273

Acquisition of intangible assets funded by liabilities
 
$
—

 
$
6,512

Acquisition funded by liabilities
 
$
100,550

 
$
—


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

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Note 1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Company
 
SunPower Corporation (together with its subsidiaries, the "Company" or "SunPower") is a leading global energy company that delivers complete solar solutions to residential, commercial, and power plant customers worldwide through an array of hardware, software, and financing options and through utility-scale solar power system construction and development capabilities, operations and maintenance ("O&M") services, and "Smart Energy" solutions. SunPower's Smart Energy initiative is designed to add layers of intelligent control to homes, buildings and grids—all personalized through easy-to-use customer interfaces. Of all the solar cells commercially available to the mass market, the Company believes its solar cells have the highest conversion efficiency, a measurement of the amount of sunlight converted by the solar cell into electricity. SunPower Corporation is a majority owned subsidiary of Total Energies Nouvelles Activités USA ("Total"), a subsidiary of Total S.A. ("Total S.A.") (see Note 2).
    
The Company's President and Chief Executive Officer, as the chief operating decision maker ("CODM"), has organized the Company, manages resource allocations and measures performance of the Company's activities among three end-customer segments: (i) Residential Segment, (ii) Commercial Segment and (iii) Power Plant Segment. The Residential and Commercial Segments combined are referred to as Distributed Generation.

The Company’s Residential Segment refers to sales of solar energy solutions to residential end customers through a variety of means, including cash sales and long-term leases directly to end customers, sales to resellers, including the Company's third-party global dealer network, and sales of the Company's O&M services.  The Company’s Commercial Segment refers to sales of solar energy solutions to commercial and public entity end customers through a variety of means, including direct sales of turn-key engineering, procurement and construction ("EPC") services, sales to the Company's third-party global dealer network, sales of energy under power purchase agreements ("PPAs"), and sales of the Company's O&M services. The Power Plant Segment refers to the Company's large-scale solar products and systems business, which includes power plant project development and project sales, EPC services for power plant construction, power plant O&M services and component sales for power plants developed by third parties, sometimes on a multi-year, firm commitment basis. 

Basis of Presentation and Preparation
    
Principles of Consolidation

The consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America ("United States" or "U.S.") and include the accounts of the Company, all of its subsidiaries and special purpose entities, as appropriate under consolidation accounting guidelines. Intercompany transactions and balances have been eliminated in consolidation. The assets of the special purpose entities that the Company establishes in connection with certain project financing arrangements for customers are not designed to be available to service the general liabilities and obligations of the Company.

Reclassifications

Certain prior period balances have been reclassified to conform to the current period presentation in the Company's consolidated financial statements and the accompanying notes. Such reclassifications had no effect on previously reported results of operations or accumulated deficit.

Fiscal Years

The Company has a 52-to-53-week fiscal year that ends on the Sunday closest to December 31. Accordingly, every fifth or sixth year will be a 53-week fiscal year. The current fiscal year, fiscal 2016, is a 52-week fiscal year, while fiscal year 2015 was a 53-week fiscal year and had a 14-week fourth fiscal quarter. The third quarter of fiscal 2016 ended on October 2, 2016, while the third quarter of fiscal 2015 ended on September 27, 2015. The third quarters of fiscal 2016 and fiscal 2015 were both 13-week quarters.

Management Estimates

The preparation of the consolidated financial statements in conformity with U.S. generally accepted accounting principles ("U.S. GAAP") requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Significant estimates in these consolidated financial statements

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include percentage-of-completion for construction projects; allowances for doubtful accounts receivable and sales returns; inventory and project asset write-downs; stock-based compensation; estimates for valuation assumptions including discount rates, future cash flows and economic useful lives of property, plant and equipment, goodwill, valuations for business combinations, other intangible assets, investments, and other long-term assets; the fair value and residual value of solar power systems; fair value of financial instruments; valuation of contingencies and certain accrued liabilities such as accrued warranty; and income taxes and tax valuation allowances and indemnities. Actual results could materially differ from those estimates.

Summary of Significant Accounting Policies

Long-Lived Assets

The Company evaluates its long-lived assets, including property, plant and equipment, solar power systems leased and to be leased, and other intangible assets with finite lives, for impairment whenever events or changes in circumstances indicate that the carrying value of such assets may not be recoverable. Factors considered important that could result in an impairment review include significant under-performance relative to expected historical or projected future operating results, significant changes in the manner of use of acquired assets, and significant negative industry or economic trends. The Company's impairment evaluation of long-lived assets includes an analysis of estimated future undiscounted net cash flows expected to be generated by the assets over their remaining estimated useful lives. If the Company's estimate of future undiscounted net cash flows is insufficient to recover the carrying value of the assets over the remaining estimated useful lives, it records an impairment loss in the amount by which the carrying value of the assets exceeds the fair value. Fair value is generally measured based on either quoted market prices, if available, or discounted cash flow analysis.

Project Assets - Plant and Land

Project assets consist primarily of capitalized costs relating to solar power system projects in various stages of development that the Company incurs prior to the sale of the solar power system to a third-party. These costs include costs for land and costs for developing and constructing a solar power system. Development costs can include legal, consulting, permitting, and other similar costs. Once the Company enters into a definitive sales agreement, it reclassifies these project asset costs to deferred project costs within "Prepaid expenses and other current assets" in its Consolidated Balance Sheet until the Company has met the criteria to recognize the sale of the project asset or solar power project as revenue. The Company releases these project costs to cost of revenue as each respective project asset or solar power system is sold to a customer, since the project is constructed for a customer (matching the underlying revenue recognition method).

The Company evaluates the realizability of project assets whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. The Company considers the project to be recoverable if it is anticipated to be sellable for a profit once it is either fully developed or fully constructed or if costs incurred to date may be recovered via other means, such as a sale prior to the completion of the development cycle. The Company examines a number of factors to determine if the project will be profitable, including whether there are any environmental, ecological, permitting, or regulatory conditions that have changed for the project since the start of development. In addition, the company must anticipate market conditions, such as the future cost of energy and changes in the factors that its future customers use to value its project assets in sale arrangements, including the internal rate of return that customers expect. Changes in such conditions could cause the cost of the project to increase or the selling price of the project to decrease. Due to the development, construction, and sale timeframe of the Company's larger solar projects, it classifies project assets which are not expected to be sold within the next 12 months as "Project assets - plants and land, net of current portion" on the Consolidated Balance Sheets. Once specific milestones have been achieved, the Company determines if the sale of the project assets will occur within the next 12 months from a given balance sheet date and, if so, it then reclassifies the project assets as current.

Inventories

Inventories are valued at the lower of cost or market value. The Company evaluates the realizability of its inventories, including purchase commitments under fixed-price long-term supply agreements, based on assumptions about expected demand and market conditions. The Company’s assumption of expected demand is developed based on its analysis of bookings, sales backlog, sales pipeline, market forecast, and competitive intelligence. The Company’s assumption of expected demand is compared to available inventory, production capacity, future polysilicon purchase commitments, available third-party inventory, and growth plans. The Company’s factory production plans, which drive materials requirement planning, are established based on its assumptions of expected demand. The Company responds to reductions in expected demand by temporarily reducing manufacturing output and adjusting expected valuation assumptions as necessary. In addition, expected demand by geography has changed historically due to changes in the availability and size of government mandates and economic incentives.

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The Company evaluates the terms of its long-term inventory purchase agreements with suppliers, including joint ventures, for the procurement of polysilicon, ingots, wafers, and solar cells and establishes accruals for estimated losses on adverse purchase commitments as necessary, such as lower of cost or market value adjustments, forfeiture of advanced deposits and liquidated damages. Obligations related to non-cancellable purchase orders for inventories match current and forecasted sales orders that will consume these ordered materials and actual consumption of these ordered materials are compared to expected demand regularly. The Company anticipates total obligations related to long-term supply agreements for inventories will be realized because quantities are less than management's expected demand for its solar power products over a period of years; however, if raw materials inventory balances temporarily exceed near-term demand, the Company may elect to sell such inventory to third parties to optimize working capital needs. Other market conditions that could affect the realizable value of the Company's inventories and are periodically evaluated by management include historical inventory turnover ratio, anticipated sales price, new product development schedules, the effect new products might have on the sale of existing products, product obsolescence, customer concentrations, the current market price of polysilicon as compared to the price in the Company's fixed-price arrangements, and product merchantability, among other factors. If, based on assumptions about expected demand and market conditions, the Company determines that the cost of inventories exceeds its net realizable value or inventory is excess or obsolete, or the Company enters into arrangements with third parties for the sale of raw materials that do not allow it to recover its current contractually committed price for such raw materials, the Company records a write-down or accrual equal to the difference between the cost of inventories and the estimated net realizable value, which may be material. If actual market conditions are more favorable, the Company may have higher gross margin when products that have been previously written down are sold in the normal course of business.

Recent Accounting Pronouncements

In August 2016, the Financial Accounting Standards Board (“FASB”) issued an update to the standards to reduce diversity in practice in how certain transactions are presented and classified in the statement of cash flows. The new guidance is effective for the Company no later than the first quarter of fiscal 2018. Early adoption is permitted. The Company is evaluating the potential impact of this standard on its consolidated financial statements and disclosures.

In June 2016, the FASB issued an update to the standards to amend the methodology for measuring credit losses on financial instruments and the timing of when such losses are recorded. The new guidance is effective for the Company no later than the first quarter of fiscal 2020. Early adoption is permitted beginning in the first quarter of fiscal 2019. The Company is evaluating the potential impact of this standard on its consolidated financial statements and disclosures.

In March 2016, the FASB issued an update to the standards to simplify the accounting for employee share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The new guidance is effective for the Company no later than the first quarter of fiscal 2017. Early adoption is permitted. The Company is evaluating the potential impact of this standard on its consolidated financial statements and disclosures.

In February 2016, the FASB issued an update to the standards to require lessees to recognize a lease liability and a right-of-use asset for all leases (lease terms of more than 12 months) at the commencement date. The new guidance is effective for the Company no later than the first quarter of fiscal 2019 and requires a modified retrospective approach to adoption.  Early adoption is permitted.  The Company is evaluating the potential impact of this standard on its consolidated financial statements and disclosures.

In January 2016, the FASB issued an update to the standards to require equity investments to be measured at fair value with changes in the fair value recognized through net income (other than those accounted for under the equity method of accounting or those that result in consolidation of the investee). The new guidance is effective for the Company no later than the first quarter of fiscal 2018 and upon adoption, an entity should apply the amendments by means of a cumulative-effect adjustment to the balance sheet at the beginning of the first reporting period in which the guidance is effective. Early adoption is permitted for the accounting guidance on financial liabilities under the fair value option. The Company is evaluating the potential impact of this standard on its consolidated financial statements and disclosures.

In July 2015, the FASB issued an update to the standards to simplify the measurement of inventory.  The updated standard more closely aligns the measurement of inventory with that of International Financial Reporting Standards (“IFRS”) and amends the measurement standard from lower of cost or market to lower of cost or net realizable value.  The new guidance is effective for the Company no later than the first quarter of fiscal 2017 and requires a prospective approach to adoption.  The Company elected early adoption of the updated accounting standard, effective in the second quarter of fiscal 2016. The

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adoption of this updated accounting standard did not result in a significant impact to the Company’s consolidated financial statements.

In April 2015, the FASB issued an update to the standards to provide a practical expedient for the measurement date of defined benefit obligation and plan assets for reporting entities with fiscal year-ends that do not coincide with a month-end. The updated standard allows such entities to measure defined benefit plan assets and obligations using the month-end that is closest to the entity's fiscal year-end and apply that practical expedient consistently from year to year and to all plans, if an entity has more than one plan. The Company elected early adoption of the updated accounting standard, effective in the fourth quarter of fiscal 2015, and measured its defined benefit plan assets and obligations as of December 31, 2015, the calendar month-end closest to the Company’s fiscal year-end. The adoption of this updated accounting standard did not have a significant impact to the Company’s consolidated financial statements.

In February 2015, the FASB issued a new standard that modifies existing consolidation guidance for reporting organizations that are required to evaluate whether they should consolidate certain legal entities. The Company adopted the new accounting standard, effective in the first quarter of fiscal 2016. Adoption of the new accounting standard did not have a material impact to the Company's consolidated financial statements.

In August 2014, the FASB issued an update to the standards to require management to evaluate whether there are conditions and events that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date the financial statements are issued, and to provide related disclosures. The new guidance is effective for the Company no later than the fourth quarter of fiscal 2016. Early adoption is permitted. The Company is evaluating the potential impact of this standard on its consolidated financial statements and disclosures.

In May 2014, the FASB issued a new revenue recognition standard based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services.  The FASB has issued several updates to the standard which i) clarify the application of the principal versus agent guidance; ii) clarify the guidance relating to performance obligations and licensing; and iii) clarify assessment of the collectability criterion, presentation of sales taxes, measurement date for non-cash consideration and completed contracts at transaction. The new revenue recognition standard, amended by the updates, becomes effective for the Company in the first quarter of fiscal 2018 and is to be applied retrospectively using one of two prescribed methods. Early adoption is permitted. The Company is currently evaluating and considering the possibility of early adoption of the new standard effective January 2, 2017. The Company's ability to early adopt, potentially using the modified retrospective method, is dependent on process, internal control and system readiness and a complete evaluation of all the disclosures required under the new standard. While the Company is continuing to assess all potential impacts of the standard, it currently believes the most significant accounting impact will likely relate to its projects that involve the sale of real estate. Under the new standard the Company is evaluating whether revenue and profit recognition on sales of projects involving real estate would be accelerated, and in certain cases significantly so, as compared to the accounting treatment under existing real estate accounting guidance. However, due to the complexity and various terms that exist within certain of the Company's contracts, the actual revenue recognition treatment required under the standard will be dependent on contract-specific terms and may vary from contract to contract. The Company expects revenue related to residential leasing and sales of solar power systems and components not subject to existing real estate accounting guidance to remain substantially unchanged under the new standard.

Other than as described above, there has been no issued accounting guidance not yet adopted by the Company that it believes is material or potentially material to its consolidated financial statements.

Note 2. TRANSACTIONS WITH TOTAL AND TOTAL S.A.

In June 2011, Total completed a cash tender offer to acquire 60% of the Company's then outstanding shares of common stock at a price of $23.25 per share, for a total cost of approximately $1.4 billion. In December 2011, the Company entered into a Private Placement Agreement with Total, under which Total purchased, and the Company issued and sold, 18.6 million shares of the Company's common stock for a purchase price of $8.80 per share, thereby increasing Total's ownership to approximately 66% of the Company's outstanding common stock as of that date. As of October 2, 2016, through the increase of the Company's total outstanding common stock due to the exercise of warrants and issuance of restricted and performance stock units, Total's ownership of the Company's outstanding common stock has decreased to approximately 57%.

Amended and Restated Credit Support Agreement

In June 2016, the Company and Total S.A. entered into an Amended and Restated Credit Support Agreement (the "Credit Support Agreement") which amended and restated the Credit Support Agreement dated April 28, 2011 by and between the

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Company and Total S.A., as amended. Under the Credit Support Agreement, Total S.A. agreed to enter into one or more guarantee agreements (each a "Guaranty") with banks providing letter of credit facilities to the Company. At any time until December 31, 2018, Total S.A. will, at the Company's request, guarantee the payment to the applicable issuing bank of the Company's obligation to reimburse a draw on a letter of credit and pay interest thereon in accordance with the letter of credit facility between such bank and the Company. Such letters of credit must be issued no later than December 31, 2018 and expire no later than March 31, 2020. Total is required to issue and enter into the Guaranty requested by the Company, subject to certain terms and conditions. In addition, Total will not be required to enter into the Guaranty if, after giving effect to the Company’s request for a Guaranty, the sum of (a) the aggregate amount available to be drawn under all guaranteed letter of credit facilities, (b) the amount of letters of credit available to be issued under any guaranteed facility, and (c) the aggregate amount of draws (including accrued but unpaid interest) on any letters of credit issued under any guaranteed facility that have not yet been reimbursed by the Company, would exceed $500 million in the aggregate. Such maximum amounts of credit support available to the Company can be reduced upon the occurrence of specified events.

In consideration for the commitments of Total S.A. pursuant to the Credit Support Agreement, the Company is required to pay Total S.A. a guaranty fee for each letter of credit that is the subject of a Guaranty under the Credit Support Agreement and was outstanding for all or part of the preceding calendar quarter. The Credit Support Agreement will terminate following December 31, 2018, after the later of the satisfaction of all obligations thereunder and the termination or expiration of each Guaranty provided thereunder.

Affiliation Agreement

The Company and Total have entered into an Affiliation Agreement that governs the relationship between Total and the Company (the "Affiliation Agreement"). Until the expiration of a standstill period specified in the Affiliation Agreement (the "Standstill Period"), and subject to certain exceptions, Total, Total S.A., any of their respective affiliates and certain other related parties (collectively the "Total Group") may not effect, seek, or enter into discussions with any third-party regarding any transaction that would result in the Total Group beneficially owning shares of the Company in excess of certain thresholds, or request the Company or the Company's independent directors, officers or employees, to amend or waive any of the standstill restrictions applicable to the Total Group.

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

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

The Affiliation Agreement also imposes certain restrictions with respect to the Company's and its Board of Directors' ability to take certain actions, including specifying certain actions that require approval by the directors other than the directors appointed by Total and other actions that require stockholder approval by Total.

Research & Collaboration Agreement

Total and the Company have entered into a Research & Collaboration Agreement (the "R&D Agreement") that establishes a framework under which the parties engage in long-term research and development collaboration ("R&D Collaboration"). The R&D Collaboration encompasses a number of different projects, with a focus on advancing the Company's technology position in the crystalline silicon domain, as well as ensuring the Company's industrial competitiveness. The R&D Agreement enables a joint committee to identify, plan and manage the R&D Collaboration.

Upfront Warrant

In February 2012, the Company issued a warrant (the "Upfront Warrant") to Total S.A. to purchase 9,531,677 shares of the Company's common stock with an exercise price of $7.8685, subject to adjustment for customary anti-dilution and other events. The Upfront Warrant, which is governed by the Private Placement Agreement and a Compensation and Funding Agreement, is exercisable at any time for seven years after its issuance, provided that, so long as at least $25.0 million in aggregate of the Company's convertible debt remains outstanding, such exercise will not cause any "person," including Total

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S.A., to, directly or indirectly, including through one or more wholly-owned subsidiaries, become the "beneficial owner" (as such terms are defined in Rule 13d-3 and Rule 13d-5 under the Securities Exchange Act of 1934, as amended), of more than 74.99% of the voting power of the Company's common stock at such time, a circumstance which would trigger the repurchase or conversion of the Company's existing convertible debt.

0.75% Debentures Due 2018

In May 2013, the Company issued $300.0 million in principal amount of its 0.75% senior convertible debentures due 2018 (the "0.75% debentures due 2018"). $200.0 million in aggregate principal amount of the 0.75% debentures due 2018 were acquired by Total. The 0.75% debentures due 2018 are convertible into shares of the Company's common stock at any time based on an initial conversion price equal to $24.95 per share, which provides Total the right to acquire up to 8,017,420 shares of the Company's common stock. The applicable conversion rate may adjust in certain circumstances, including a fundamental change, as described in the indenture governing the 0.75% debentures due 2018.

0.875% Debentures Due 2021

In June 2014, the Company issued $400.0 million in principal amount of its 0.875% senior convertible debentures due 2021 (the "0.875% debentures due 2021"). An aggregate principal amount of $250.0 million of the 0.875% debentures due 2021 were acquired by Total. The 0.875% debentures due 2021 are convertible into shares of the Company's common stock at any time based on an initial conversion price equal to $48.76 per share, which provides Total the right to acquire up to 5,126,775 shares of the Company's common stock. The applicable conversion rate may adjust in certain circumstances, including a fundamental change, as described in the indenture governing the 0.875% debentures due 2021.

4.00% Debentures Due 2023

In December 2015, the Company issued $425.0 million in principal amount of its 4.00% senior convertible debentures due 2023 (the "4.00% debentures due 2023"). An aggregate principal amount of $100.0 million of the 4.00% debentures due 2023 were acquired by Total. The 4.00% debentures due 2023 are convertible into shares of the Company's common stock at any time based on an initial conversion price equal to $30.53 per share, which provides Total the right to acquire up to 3,275,680 shares of the Company's common stock. The applicable conversion rate may adjust in certain circumstances, including a fundamental change, as described in the indenture governing the 4.00% debentures due 2023.

Joint Projects with Total and its Affiliates:

The Company enters into various EPC and O&M agreements relating to solar projects, including EPC and O&M services agreements relating to projects owned or partially owned by Total and its affiliates. As of October 2, 2016, the Company had $5.7 million of "Costs and estimated earnings in excess of billings" and $0.8 million of "Accounts receivable, net" on its Consolidated Balance Sheets related to projects in which Total and its affiliates have a direct or indirect material interest.

During the third quarter of fiscal 2016, in connection with a co-development project between SunPower and Total, the Company made a $7.0 million payment to Total in exchange for Total's ownership interest in the co-development project.

Related-Party Transactions with Total and its Affiliates:

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Three Months Ended
 
Nine Months Ended
(In thousands)
 
October 2, 2016
 
September 27, 2015
 
October 2, 2016
 
September 27, 2015
Revenue:
 
 
 
 
 
 
 
 
EPC, O&M, and components revenue under joint projects
 
$
1,632

 
$
11,905

 
$
63,161

 
$
14,868

Research and development expense:
 
 
 
 
 
 
 
 
Offsetting contributions received under the R&D Agreement
 
$
(111
)
 
$
(360
)
 
$
(532
)
 
$
(1,177
)
Interest expense:
 
 
 
 
 
 
 
 
Guarantee fees incurred under the Credit Support Agreement
 
$
1,821

 
$
3,479

 
$
5,088

 
$
8,477

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

 
$
375

 
$
1,125

 
$
1,125

Interest expense incurred on the 0.875% debentures due 2021
 
$
547

 
$
547

 
$
1,641

 
$
1,641

Interest expense incurred on the 4.00% debentures due 2023
 
$
1,000

 
n/a

 
$
3,000

 
n/a


Note 3. BUSINESS COMBINATIONS

AUOSP

On September 29, 2016, the Company completed the acquisition of AUO SunPower Sdn. Bhd. (“AUOSP”) pursuant to a Stock Purchase Agreement (the “Stock Purchase Agreement”) entered into between SunPower Technology, Ltd. (“SPTL”), a wholly-owned subsidiary of the Company, and AU Optronics Singapore Pte. Ltd. (“AUO”). AUOSP was a joint venture of SPTL and AUO for the purpose of manufacturing solar cells. Prior to the acquisition, SPTL and AUO each owned 50% of the shares of AUOSP. Pursuant to the Stock Purchase Agreement, SPTL purchased all of the shares of AUOSP held by AUO for a total purchase price of $170.1 million in cash, payable in installments as set forth in the Stock Purchase Agreement, to obtain 100% of the voting equity interest in AUOSP. As a result, AUOSP became a consolidated subsidiary of the Company and the results of operations of AUOSP have been included in the Consolidated Statement of Operations of the Company since September 29, 2016.

Simultaneously with the entry into the Stock Purchase Agreement, SunPower Systems Sarl (“SPSW”) and AU Optronics Corporation (“AUO Corp”), the ultimate parent of AUO, entered into a Module Supply Agreement whereby AUO Corp agreed to purchase on commercial terms 100MW of SunPower’s E-Series solar modules, with the purchase price having been prepaid in full by AUO Corp prior to the closing of the acquisition. As a result, the Company accounted for its purchase price consideration in accordance with the substance of the combined transactions, which resulted in consideration of $91.1 million in cash to be paid according to the following installment schedule: (i) $30.0 million in cash paid on the closing date; (ii) $1.1 million in cash to be paid on the second anniversary of the closing date; (iii) $30.0 million in cash to be paid on the third anniversary of the closing date; and (iv) $30.0 million in cash to be paid on the fourth anniversary of the closing date, as well as the 100MW of modules to be delivered during fiscal 2017 and 2018. The total purchase price consideration, including the estimated fair value of the modules and discounted to present value as of September 29, 2016, was $130.6 million.

Prior to the acquisition date, the Company accounted for its 50% interest in AUOSP as an equity method investment (see Note 10). The Company engaged a third-party valuation expert to assist in determining the fair value of AUOSP's assets, liabilities, and equity interests. The acquisition-date fair value of the previous equity interest, computed as the Company's 50% interest in the net asset value of AUOSP, as determined using the income approach and with assistance from the third-party valuation expert, was $120.5 million and is included in the measurement of the consideration transferred. The Company recognized a loss of $90.9 million as a result of remeasuring its prior equity interest in AUOSP held before the business combination. The loss is included in the "Other income (expense), net" section of the Consolidated Statements of Operations.

As a result of the acquisition, the Company obtained full control of a solar cell manufacturing facility, from which it expects to achieve significant synergies. Also in connection with the Stock Purchase Agreement and Module Supply Agreement, the Company, SPTL, SunPower Philippines Manufacturing Limited, a wholly owned subsidiary of the Company, and SPSW entered into an agreement (the “Settlement Agreement”) with AUO, AUO Corp, and AUOSP to settle all claims,

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demands, damages, actions, causes of action, or suits between them, including but not limited to the arbitration before the ICC International Court of Arbitration (see Note 9).

Prior to the acquisition, AUOSP sold its solar cells to both SPSW and AUO, with the significant majority of sales to SPSW. Sales to AUO, with the exception of the Module Supply agreement discussed above, ceased in connection with the acquisition. As the sales to SPSW would be intercompany transactions upon consolidation, and the sales to AUO are not continuing business, the Company determined that the pro-forma effects to the Company’s Statements of Operations of consolidating AUOSP from December 29, 2014 were not material.

Preexisting Relationships

Prior to the acquisition, the Company had several preexisting relationships with AUOSP. In connection with the original joint venture agreement, the Company and AUO had also entered into licensing and joint development, supply, and other ancillary transaction agreements. Through the Licensing and Technology Transfer Agreement, the Company and AUO licensed to AUOSP, on a non-exclusive, royalty-free basis, certain background intellectual property related to solar cell manufacturing (in the case of the Company) and manufacturing processes (in the case of AUO). Under the seven-year Supply Agreement with AUOSP, the Company was committed to purchase 80% of AUOSP's total annual output on cost-plus pricing terms, allocated on a monthly basis to the Company. The Company and AUO had the right to reallocate supplies from time to time under a written agreement. In fiscal 2010, the Company and AUOSP entered into an agreement under which the Company would resell to AUOSP, under contractually fixed terms for quantity and price, polysilicon purchased from a third-party supplier. Under the agreement, AUOSP would provide prepayments to the Company related to such polysilicon, which prepayment would then be made by the Company to the third-party supplier.

In connection with the transactions contemplated under the Stock Purchase Agreement, the Company (and certain of its affiliates), AUO (and certain of its affiliates), and AUOSP terminated certain agreements, including (a) the Joint Venture Agreement by and among SPTL, AUO, AUO Corp, and AUOSP, dated as of May 27, 2010 and as amended from time to time, (b) the Supply Agreement for solar cells by and among SPSW, AUO, and AUOSP, dated as of July 5, 2010, and (c) the License and Technology Transfer Agreement by and among SPTL, AUO, and AUOSP, dated as of July 5, 2010.

As a result of the acquisition and the settlement of the preexisting agreements, the Company recognized a net gain of $203.3 million, which was recognized separately from the business combination and is included in the "Other income (expense), net" section of the Consolidated Statements of Operations. The gain was comprised of three primary components: first, a $133.0 million gain related to the elimination of a customer advance liability without return of any proceeds by the Company that was previously recognized in the Company’s books associated with the prepayment by AUOSP under the polysilicon purchase contract with the Company. The fair value of this prepayment on AUOSP’s opening balance sheet was determined to be zero and accordingly the offsetting balance on the Company’s balance sheet was written off. Second, an $87.2 million gain associated with the termination of the polysilicon purchase contract between AUOSP and the Company, as the contract required AUOSP to purchase polysilicon at above-market prices. These amounts were partially offset by a $16.9 million loss associated with the termination of the cell supply contract, as the contract required the Company to purchase cells at above-market prices.

Purchase Price Allocation 

The Company accounted for this acquisition using the acquisition method. The Company preliminarily allocated the purchase price to the acquired assets and liabilities based on their estimated fair values at the acquisition date as summarized in the following table.

(In thousands)
 
 
Net tangible assets acquired
 
$
161,432

Goodwill
 
89,600

Total allocable consideration
 
$
251,032


The fair value of the net tangible assets acquired on September 29, 2016 is presented in the following table:

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(In thousands)
 
 
Cash and cash equivalents
 
$
5,997

Inventories
 
9,072

Prepaid expenses and other current assets:
 


Cell supply agreement*
 
16,928

Related party receivables*
 
22,875

Other receivables
 
23,956

Other prepaid expenses
 
2,711

Property, plant, and equipment
 
285,589

Other long-term assets
 
342

Total assets acquired
 
$
367,470

 
 
 
Accounts payable
 
$
41,186

Accrued liabilities:
 


Polysilicon supply agreement*
 
87,198

Related party payables*
 
14,333

Employee compensation and employee benefits
 
4,017

Other accrued liabilities
 
760

Short-term debt
 
58,248

Other long-term liabilities
 
296

Total liabilities assumed
 
$
206,038

 
 
 
Net assets acquired
 
$
161,432

*Amount eliminated upon consolidation with the Company.

Goodwill 

As noted above, $89.6 million had been allocated to goodwill within all three Segments during the quarter ended October 2, 2016 (see Note 4). Goodwill represents the excess of the purchase price of an acquired business over the fair value of the underlying net tangible and other intangible assets and is not deductible for tax purposes. Among the factors that contributed to a purchase price in excess of the fair value of the net tangible and other intangible assets was the acquisition of an assembled workforce, synergies in technologies, skill sets, operations, and organizational cultures. In connection with the Company’s overall goodwill impairment evaluation as discussed further in Note 4, this goodwill was subsequently impaired during the quarter ending October 2, 2016, and no further goodwill related to the acquisition remained on the Company’s Consolidated Balance Sheet as of October 2, 2016.

Note 4. GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill

The following table presents the changes in the carrying amount of goodwill under the Company's reportable business segments:
(In thousands)
 
Residential
 
Commercial
 
Power Plant
 
Total
As of January 3, 2016
 
$
32,180

 
$
10,314

 
$
15,641

 
$
58,135

Goodwill arising from business combinations
 
17,771

 
23,316

 
48,513

 
89,600

Goodwill impairment
 
(49,951
)
 
(33,260
)
 
(64,154
)
 
(147,365
)
Adjustments to goodwill
 
—

 
(370
)
 
—

 
(370
)
As of October 2, 2016
 
$
—

 
$
—

 
$
—

 
$
—



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Goodwill is tested for impairment at least annually, or more frequently if certain indicators are present. If goodwill is determined more likely than not to be impaired upon an initial assessment of qualitative factors, a two-step valuation and accounting process is used to test for goodwill impairment. The first step is to determine if there is an indication of impairment by comparing the estimated fair value of each reporting unit to its carrying value, including existing goodwill. Goodwill is considered impaired if the carrying value of a reporting unit exceeds the estimated fair value. Upon an indication of impairment, a second step is performed to determine the amount of the impairment by comparing the implied fair value of the reporting unit's goodwill with its carrying value.

The Company conducts its annual impairment test of goodwill as of the first day of the fourth fiscal quarter of each year, or on an interim basis if circumstances warrant. Impairment of goodwill is tested at the Company's reporting unit level. Management determined that the Residential Segment, the Commercial Segment, and the Power Plant Segment are the reporting units. In estimating the fair value of the reporting units, the Company makes estimates and judgments about its future cash flows using an income approach defined as Level 3 inputs under fair value measurement standards. The income approach, specifically a discounted cash flow analysis, included assumptions for, among others, forecasted revenue, gross margin, operating income, working capital cash flow, perpetual growth rates and long-term discount rates, all of which require significant judgment by management. The sum of the fair values of the Company's reporting units are also compared to the Company's total external market capitalization to validate the appropriateness of its assumptions and such reporting unit values are adjusted, if appropriate. These assumptions also consider the current industry environment and outlook, and the resulting impact on the Company's expectations for the performance of its business.

Due to market circumstances that occurred during the third quarter of fiscal 2016, including a decline in the Company's stock price which resulted in the market capitalization of the Company being below its book value, the Company determined that an interim goodwill impairment evaluation was necessary. Based on the interim impairment test as of October 2, 2016, the Company determined that the carrying value of all reporting units exceeded their fair value. As a result, the Company performed a preliminary evaluation of the second step of the impairment analysis for the reporting units discussed above, which was not finalized at the time the financial statements were issued. The Company's preliminary calculation of the implied fair value of goodwill included significant assumptions for, among others, the fair values of recognized assets and liabilities and of unrecognized intangible assets, all of which require significant judgment by management. The Company preliminarily calculated that the implied fair value of goodwill for all reporting units was zero and therefore preliminarily recorded a goodwill impairment loss of $147.4 million, representing all of the goodwill associated with these reporting units. The Company will finalize its analysis during the fourth quarter of fiscal 2016.

Other Intangible Assets

The following tables present details of the Company's acquired other intangible assets:
(In thousands)
 
Gross
 
Accumulated
Amortization
 
Net
As of October 2, 2016
 
 
 
 
 
 
Patents and purchased technology
 
$
48,619

 
$
(13,087
)
 
$
35,532

Project pipeline assets
 
9,446

 
(1,353
)
 
8,093

Purchased in-process research and development
 
3,700

 
(360
)
 
3,340

Other
 
500

 
(500
)
 
—

 
 
$
62,265

 
$
(15,300
)
 
$
46,965

 
 
 
 
 
 
 
As of January 3, 2016
 
 
 
 
 
 
Patents and purchased technology
 
$
53,499

 
$
(5,328
)
 
$
48,171

Project pipeline assets
 
9,446

 
—

 
9,446

Purchased in-process research and development
 
3,700

 
—

 
3,700

Other
 
500

 
(375
)
 
125

 
 
$
67,145

 
$
(5,703
)
 
$
61,442


During the three and nine months ended October 2, 2016, aggregate amortization expense for intangible assets totaled $3.0 million and $14.4 million, respectively. During the three and nine months ended September 27, 2015, aggregate amortization expense for intangible assets totaled $1.2 million and $2.3 million, respectively.


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As of October 2, 2016, the estimated future amortization expense related to intangible assets with finite useful lives is as follows:
(In thousands)
 
Amount
Fiscal Year
 
 
2016 (remaining three months)
 
$
6,658

2017
 
11,854

2018
 
12,014

2019
 
8,902

2020
 
6,317

 
 
$
45,745


Note 5. BALANCE SHEET COMPONENTS
 
 
As of
(In thousands)
 
October 2, 2016
 
January 3, 2016
Accounts receivable, net:
 
 
 
 
Accounts receivable, gross1,2
 
$
246,090

 
$
207,860

Less: allowance for doubtful accounts
 
(20,446
)
 
(15,505
)
Less: allowance for sales returns
 
(1,808
)
 
(1,907
)
 
 
$
223,836

 
$
190,448

1 
Includes short-term financing receivables associated with solar power systems leased of $17.8 million and $12.5 million as of October 2, 2016 and January 3, 2016, respectively (see Note 6).

2 
Includes short-term retainage of $12.7 million and $11.8 million as of October 2, 2016 and January 3, 2016, respectively. Retainage refers to the earned, but unbilled, portion of a construction and development project for which payment is deferred by the customer until certain contractual milestones are met.



As of
(In thousands)

October 2, 2016

January 3, 2016
Inventories:




Raw materials

$
143,373


$
124,297

Work-in-process

170,499


131,258

Finished goods

133,242


126,835

 

$
447,114


$
382,390


 
 
As of
(In thousands)
 
October 2, 2016
 
January 3, 2016
Prepaid expenses and other current assets:
 
 
 
 
Deferred project costs
 
$
84,602

 
$
67,479

VAT receivables, current portion
 
13,068

 
14,697

Deferred costs for solar power systems to be leased
 
34,469

 
40,988

Derivative financial instruments
 
2,875

 
8,734

Prepaid inventory
 
—

 
50,615

Other receivables
 
97,646

 
78,824

Prepaid taxes
 
68,997

 
71,529

Other prepaid expenses
 
34,954

 
26,651

Other current assets
 
72

 
—

 
 
$
336,683

 
$
359,517



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As of
(In thousands)
 
October 2, 2016
 
January 3, 2016
Project assets - plants and land:
 
 
 
 
Project assets — plants
 
$
921,357

 
$
479,108

Project assets — land
 
18,767

 
5,416

 
 
$
940,124

 
$
484,524

Project assets - plants and land, current portion
 
$
828,842

 
$
479,452

Project assets - plants and land, net of current portion
 
$
111,282

 
$
5,072


 
 
As of
(In thousands)
 
October 2, 2016
 
January 3, 2016
Property, plant and equipment, net:
 
 
 
 
Manufacturing equipment1
 
$
764,002

 
$
556,963

Land and buildings
 
127,725

 
32,090

Leasehold improvements
 
434,844

 
244,098

Solar power systems2
 
149,518

 
141,075

Computer equipment
 
183,417

 
103,443

Furniture and fixtures
 
12,463

 
10,640

Construction-in-process
 
62,667

 
247,511

 
 
1,734,636

 
1,335,820

Less: accumulated depreciation
 
(609,622
)
 
(604,590
)
 
 
$
1,125,014

 
$
731,230

1 
The Company's mortgage loan agreement with International Finance Corporation ("IFC") is collateralized by certain manufacturing equipment with a net book value of $60.8 million and $85.1 million as of October 2, 2016 and January 3, 2016, respectively.

2 
Includes $120.1 million and $110.4 million of solar power systems associated with sale-leaseback transactions under the financing method as of October 2, 2016 and January 3, 2016, respectively, which are depreciated using the straight-line method to their estimated residual values over the lease terms of up to 20 years (see Note 6).
 
 
As of
(In thousands)
 
October 2, 2016
 
January 3, 2016
Property, plant and equipment, net by geography1:
 
 
 
 
Philippines
 
$
524,707

 
$
460,420

Malaysia
 
285,589

 
—

United States
 
221,914

 
201,419

Mexico
 
70,648

 
44,164

Europe
 
21,084

 
22,962

Other
 
1,072

 
2,265

 
 
$
1,125,014

 
$
731,230

1 
Property, plant and equipment, net by geography is based on the physical location of the assets.

 
 
As of
(In thousands)
 
October 2, 2016
 
January 3, 2016
Other long-term assets:
 
 
 
 
Equity method investments1
 
$
(43,664
)
 
$
186,405

Cost method investments
 
48,472

 
36,369

Other
 
79,585

 
75,201

 
 
$
84,393

 
$
297,975

1 
Includes the carrying value of the Company's investment in the 8point3 Group, which had a negative value of $55.2 million and $30.9 million as of October 2, 2016 and January 3, 2016, respectively (see Note 10).

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As of
(In thousands)
 
October 2, 2016
 
January 3, 2016
Accrued liabilities:
 
 
 
 
Employee compensation and employee benefits
 
$
50,443

 
$
59,476

Deferred revenue
 
31,730

 
19,887

Short-term residential lease financing
 
23,453

 
7,395

Interest payable
 
11,991

 
8,165

Short-term warranty reserves
 
3,742

 
16,639

Restructuring reserve
 
6,199

 
1,823

VAT payables
 
5,161

 
4,225

Derivative financial instruments
 
8,803

 
2,316

Inventory payable
 
—

 
50,615

Liability due to 8point3 Energy Partners
 
—

 
9,952

Proceeds from 8point3 Energy Partners attributable to projects prior to Commercial Operation Date ("COD")
 
13,997

 
—

Contributions from noncontrolling interests attributable to projects prior to COD
 
2,409

 
—

Taxes payable
 
25,076

 
36,824

Liability due to AU Optronics
 
23,408

 
—

Other
 
73,620

 
96,180

 
 
$
280,032

 
$
313,497


 
 
As of
(In thousands)
 
October 2, 2016
 
January 3, 2016
Other long-term liabilities:
 
 
 
 

Deferred revenue
 
$
179,022

 
$
179,779

Long-term warranty reserves
 
156,312

 
147,488

Long-term sale-leaseback financing
 
138,864

 
125,286

Long-term residential lease financing with 8point3 Energy Partners
 
29,415

 
29,389

Unrecognized tax benefits
 
44,105

 
43,297

Long-term pension liability
 
14,222

 
12,014

Derivative financial instruments
 
1,780

 
1,033

Long-term liability due to AU Optronics
 
77,142

 
—

Other
 
15,151

 
26,271

 
 
$
656,013

 
$
564,557


 
 
As of
(In thousands)
 
October 2, 2016
 
January 3, 2016
Accumulated other comprehensive loss:
 
 
 
 

Cumulative translation adjustment
 
$
(9,879
)
 
$
(11,164
)
Net unrealized gain (loss) on derivatives
 
(883
)
 
5,942

Net loss on long-term pension liability adjustment
 
(2,055
)
 
(2,055
)
Deferred taxes
 
(30
)
 
(746
)
 
 
$
(12,847
)
 
$
(8,023
)

Note 6. LEASING

Residential Lease Program

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The Company offers a solar lease program, which provides U.S. residential customers with SunPower systems under 20-year lease agreements that include system maintenance and warranty coverage. Leases are classified as either operating or sales-type leases in accordance with the relevant accounting guidelines.

Operating Leases

The following table summarizes "Solar power systems leased and to be leased, net" under operating leases on the Company's Consolidated Balance Sheets as of October 2, 2016 and January 3, 2016:
 
 
As of
(In thousands)
 
October 2, 2016
 
January 3, 2016
Solar power systems leased and to be leased, net1,2:
 
 
 
 
Solar power systems leased
 
$
655,352

 
$
543,358

Solar power systems to be leased
 
28,002

 
34,319

 
 
683,354

 
577,677

Less: accumulated depreciation
 
(64,599
)
 
(46,157
)
 
 
$
618,755

 
$
531,520

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

2 
As of October 2, 2016 and January 3, 2016, the Company had pledged solar assets with an aggregate book value of $11.0 million and zero, respectively, to third-party investors as security for the Company's contractual obligations.

The following table presents the Company's minimum future rental receipts on operating leases placed in service as of October 2, 2016:
(In thousands)
 
Fiscal 2016 (remaining three months)
 
Fiscal 2017
 
Fiscal 2018
 
Fiscal 2019
 
Fiscal 2020
 
Thereafter
 
Total
Minimum future rentals on operating leases placed in service1
 
$
4,884

 
22,255

 
22,298

 
22,339

 
22,383

 
322,090

 
$
416,249

1 
Minimum future rentals on operating leases placed in service does not include contingent rentals that may be received from customers under agreements that include performance-based incentives nor does it include rent receivables on operating leases sold to the 8point3 Group.

Sales-Type Leases

As of October 2, 2016 and January 3, 2016, the Company's net investment in sales-type leases presented in "Accounts receivable, net" and "Long-term financing receivables, net" on the Company's Consolidated Balance Sheets was as follows:
 
 
As of
(In thousands)
 
October 2, 2016
 
January 3, 2016
Financing receivables1:
 
 
 
 
Minimum lease payments receivable2
 
$
520,245

 
$
366,759

Unguaranteed residual value
 
66,349

 
50,722

Unearned income
 
(97,499
)
 
(70,155
)
Net financing receivables
 
$
489,095

 
$
347,326

Current
 
$
17,761

 
$
12,535

Long-term
 
$
471,334

 
$
334,791

1 
As of October 2, 2016 and January 3, 2016, the Company had pledged financing receivables of $13.8 million and zero, respectively, to third-party investors as security for the Company's contractual obligations.

2 
Net of allowance for doubtful accounts.

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As of October 2, 2016, future maturities of net financing receivables for sales-type leases are as follows:
(In thousands)
 
Fiscal 2016 (remaining three months)
 
Fiscal 2017
 
Fiscal 2018
 
Fiscal 2019
 
Fiscal 2020
 
Thereafter
 
Total
Scheduled maturities of minimum lease payments receivable1
 
$
7,089

 
25,946

 
26,168

 
26,391

 
26,621

 
408,030

 
$
520,245

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

Sale-Leaseback Arrangements

The Company enters into sale-leaseback arrangements under which solar power systems are sold to third parties and subsequently leased back by the Company over minimum lease terms of up to 25 years. Separately, the Company enters into PPAs with end customers, who host the leased solar power systems and buy the electricity directly from the Company under PPAs with terms of up to 25 years. At the end of the lease term, the Company has the option to purchase the systems at fair value or may be required to remove the systems and return them to the third parties.

The Company has classified its sale-leaseback arrangements of solar power systems not involving integral equipment as operating leases. The deferred profit on the sale of these systems is recognized over the term of the lease. As of October 2, 2016, future minimum lease obligations associated with these systems were $80.3 million, which will be recognized over the minimum lease terms. Future minimum payments to be received from customers under PPAs associated with the solar power systems under sale-leaseback arrangements classified as operating leases will be recognized over the lease terms of up to 20 years and are contingent upon the amounts of energy produced by the solar power systems.

The Company enters into certain sale-leaseback arrangements under which the systems subject to the sale-leaseback arrangements have been determined to be integral equipment as defined under the accounting guidance for such transactions. The Company has continuing involvement with the solar power systems throughout the lease due to purchase option rights in the arrangements. As a result of such continuing involvement, the Company accounts for each of these transactions as a financing. Under the financing method, the proceeds received from the sale of the solar power systems are recorded by the Company as financing liabilities. The financing liabilities are subsequently reduced by the Company's payments to lease back the solar power systems, less interest expense calculated based on the Company's incremental borrowing rate adjusted to the rate required to prevent negative amortization. The solar power systems under the sale-leaseback arrangements remain on the Company's balance sheet and are classified within "Property, plant and equipment, net" (see Note 5). As of October 2, 2016, future minimum lease obligations for the sale-leaseback arrangements accounted for under the financing method were $111.4 million, which will be recognized over the lease terms of up to 25 years. During the three and nine months ended October 2, 2016, the Company had net financing proceeds (repayments) of $(3.3) million and $12.4 million, respectively, in connection with these sale-leaseback arrangements. During the three and nine months ended September 27, 2015, the Company had net financing proceeds of zero and $15.0 million, respectively, in connection with these sale-leaseback arrangements. As of October 2, 2016 and January 3, 2016, the carrying amount of the sale-leaseback financing liabilities, presented in "Other long-term liabilities" on the Company's Consolidated Balance Sheets, was $138.9 million and $125.3 million, respectively (see Note 5).

Note 7. FAIR VALUE MEASUREMENTS

Fair value is estimated by applying the following hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement (observable inputs are the preferred basis of valuation):

•
Level 1 — Quoted prices in active markets for identical assets or liabilities.
•
Level 2 — Measurements are inputs that are observable for assets or liabilities, either directly or indirectly, other than quoted prices included within Level 1.
•
Level 3 — Prices or valuations that require management inputs that are both significant to the fair value measurement and unobservable.


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Assets and Liabilities Measured at Fair Value on a Recurring Basis

The Company measures certain assets and liabilities at fair value on a recurring basis. There were no transfers between fair value measurement levels during any presented period. The Company did not have any assets or liabilities measured at fair value on a recurring basis requiring Level 3 inputs as of October 2, 2016 or January 3, 2016.

The following table summarizes the Company's assets and liabilities measured and recorded at fair value on a recurring basis as of October 2, 2016 and January 3, 2016:
 
 
October 2, 2016
 
January 3, 2016
(In thousands)
 
Total
 
Level 1
 
Level 2
 
Total
 
Level 1
 
Level 2
Assets
 
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents1:
 
 
 
 
 
 
 
 
 
 
 
 
Money market funds
 
$
3,002

 
$
3,002

 
$
—

 
$
540,000

 
$
540,000

 
$
—

Prepaid expenses and other current assets:
 
 
 
 
 
 
 
 
 
 
 
 
Derivative financial instruments (Note 12)
 
2,875

 
—

 
2,875

 
8,734

 
—

 
8,734

Other long-term assets:
 
 
 
 
 
 
 
 
 
 
 
 
Derivative financial instruments (Note 12)
 
356

 
—

 
356

 
—

 
—

 
—

Total assets
 
$
6,233

 
$
3,002

 
$
3,231

 
$
548,734

 
$
540,000


$
8,734

Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
Accrued liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
Derivative financial instruments (Note 12)
 
8,803

 
—

 
8,803

 
2,316

 
—

 
2,316

Other long-term liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
Derivative financial instruments (Note 12)
 
1,780

 
—

 
1,780

 
1,033

 
—

 
1,033

Total liabilities
 
$
10,583

 
$
—

 
$
10,583

 
$
3,349

 
$
—

 
$
3,349

1 
The Company's cash equivalents consist of money market fund instruments and commercial paper that are classified as available-for-sale and are highly liquid investments with original maturities of 90 days or less. The Company's money market fund instruments are categorized within Level 1 of the fair value hierarchy because they are valued using quoted market prices for identical instruments in active markets.

Other financial instruments, including the Company's accounts receivable, accounts payable and accrued liabilities, are carried at cost, which generally approximates fair value due to the short-term nature of these instruments.

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

The Company measures certain investments and non-financial assets (including property, plant and equipment, and other intangible assets) at fair value on a non-recurring basis in periods after initial measurement in circumstances when the fair value of such asset is impaired below its recorded cost. As of October 2, 2016 and January 3, 2016, there were no such items recorded at fair value.

Held-to-Maturity Debt Securities

The Company's debt securities, classified as held-to-maturity, are Philippine government bonds that the Company maintains as collateral for business transactions within the Philippines. These bonds have various maturity dates and are classified as "Restricted long-term marketable securities" on the Company's Consolidated Balance Sheets. As of October 2, 2016 and January 3, 2016 these bonds had a carrying value of zero and $6.5 million, respectively. The Company records such held-to-maturity investments at amortized cost based on its ability and intent to hold the securities until maturity. The Company monitors for changes in circumstances and events that would affect its ability and intent to hold such securities until the recorded amortized costs are recovered. No other-than-temporary impairment loss was incurred during any presented period. The held-to-maturity debt securities were categorized in Level 2 of the fair value hierarchy.


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Table of Contents


Equity and Cost Method Investments

The Company holds equity investments in non-consolidated entities that are accounted for under both the equity and cost method. The Company monitors these investments, which are included in "Other long-term assets" in its Consolidated Balance Sheets, for impairment and records reductions in the carrying values when necessary. Circumstances that indicate an other-than-temporary decline include Level 2 and Level 3 measurements such as the valuation ascribed to the issuing company in subsequent financing rounds, decreases in quoted market prices, and declines in the results of operations of the issuer.

As of October 2, 2016 and January 3, 2016, the Company had $(43.7) million and $186.4 million, respectively, in investments accounted for under the equity method (see Note 10). As of October 2, 2016 and January 3, 2016, the Company had $48.5 million and $36.4 million respectively, in investments accounted for under the cost method.

Note 8. RESTRUCTURING

August 2016 Restructuring Plan

On August 9, 2016, the Company adopted and began implementing initiatives to realign the Company’s downstream investments, optimize the Company’s supply chain and reduce operating expenses, in response to expected near-term challenges primarily relating to the Company’s Power Plant Segment. In connection with the realignment, which is expected to be completed by the end of fiscal 2017, the Company expects approximately 1,200 employees to be affected, primarily in the Philippines, representing approximately 15% of the Company’s global workforce. The Company expects to incur restructuring charges totaling approximately $30 million to $45 million, consisting primarily of severance benefits, asset impairments, lease and related termination costs, and other associated costs. The Company expects more than 50% of total charges to be cash. The actual timing and costs of the plan may differ from the Company’s current expectations and estimates due to a number of factors, including uncertainties related to required consultations with employee representatives as well as other local labor law requirements and mandatory processes in the relevant jurisdictions.

Legacy Restructuring Plans

During fiscal 2011, 2012 and 2014, the Company implemented approved restructuring plans, related to all segments, to align with changes in the global solar market which included the consolidation of the Company's Philippine manufacturing operations as well as actions to accelerate operating cost reduction and improve overall operating efficiency. These restructuring activities were substantially complete as of October 2, 2016; however, the Company expects to continue to incur costs as it finalizes previous estimates and actions in connection with these plans, primarily due to other costs, such as legal services.

The following table summarizes the restructuring charges recognized in the Company's Consolidated Statements of Operations:
 
 
Nine Months Ended
(In thousands)
 
October 2, 2016
 
September 27, 2015
 
Cumulative To Date
August 2016 Plan:
 
 
 
 
 
 
Non-cash impairment charges
 
$
17,926

 
$
—

 
$
17,926

Severance and benefits
 
12,624

 
—

 
12,624

Lease and related termination costs
 
557

 
—

 
557

Other costs1
 
$
85

 
$
—

 
85

 
 
$
31,192

 
$
—