10-Q 1 form10q.htm SUNPOWER CORPORATION 10-Q 7-4-2010 form10q.htm


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

 
FORM 10-Q
 

 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended July 4, 2010

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

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.)

3939 North First Street, 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  x    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  x    No  ¨

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  x

The total number of outstanding shares of the registrant’s class A common stock as of August 6, 2010 was 55,663,828.
The total number of outstanding shares of the registrant’s class B common stock as of August 6, 2010 was 42,033,287.
 


 
 

 
 
SunPower Corporation

INDEX TO FORM 10-Q

 
 
 
 
Page
 
3
 
 
 
   
Item 1.
   
3
 
 
 
   
 
   
3
 
 
 
   
 
   
4
 
 
 
   
 
   
5
 
 
 
   
 
   
6
 
 
 
   
Item 2.
   
40
 
 
 
   
Item 3.
   
56
 
 
 
   
Item 4.
   
58
 
 
 
   
 
59
 
 
 
   
Item 1.
   
59
 
 
 
   
Item 1A. 
   
60
 
 
 
   
Item 2.
   
67
 
 
 
   
Item 6.
   
68
 
 
 
   
 
69
 
 
 
   
 
70

 
2

 
PART I. FINANCIAL INFORMATION

Item 1.
Financial Statements

SunPower Corporation

Condensed Consolidated Balance Sheets
(In thousands, except share data)
(unaudited)

 
 
July 4,
2010
 
 
January 3,
2010 (1)
 
Assets
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
Cash and cash equivalents
 
$
382,968
 
 
$
615,879
 
Restricted cash and cash equivalents, current portion
 
 
58,320
 
 
 
61,868
 
Short-term investments
 
 
172
 
 
 
172
 
Accounts receivable, net
 
 
199,603
 
 
 
248,833
 
Costs and estimated earnings in excess of billings
 
 
57,587
 
 
 
26,062
 
Inventories
 
 
266,756
 
 
 
202,301
 
Advances to suppliers, current portion
 
 
33,218
 
 
 
22,785
 
Project assets – plants and land, current portion
 
 
53,826
 
 
 
6,010
 
Prepaid expenses and other current assets
 
 
278,683
 
 
 
98,521
 
Assets of discontinued operations
 
 
204,950
 
 
 
 
Total current assets
 
 
1,536,083
 
 
 
1,282,431
 
 
 
 
 
 
 
 
 
 
Restricted cash and cash equivalents, net of current portion
 
 
295,566
 
 
 
248,790
 
Property, plant and equipment, net
 
 
815,147
 
 
 
682,344
 
Project assets – plants and land, net of current portion
 
 
30,766
 
 
 
9,607
 
Goodwill
 
 
353,895
 
 
 
198,163
 
Other intangible assets, net
 
 
88,654
 
 
 
24,974
 
Advances to suppliers, net of current portion
 
 
153,648
 
 
 
167,843
 
Other long-term assets
 
 
152,881
 
 
 
82,743
 
Total assets
 
$
3,426,640
 
 
$
2,696,895
 
 
 
 
 
 
 
 
 
 
Liabilities and Stockholders’ Equity
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
Accounts payable
 
$
329,310
 
 
$
234,692
 
Accrued liabilities
 
 
190,209
 
 
 
114,008
 
Billings in excess of costs and estimated earnings
 
 
9,276
 
 
 
17,346
 
Short-term debt and current portion of long-term debt
 
 
33,646
 
 
 
11,250
 
Convertible debt, current portion
 
 
143,034
 
 
 
137,968
 
Customer advances, current portion
 
 
23,494
 
 
 
19,832
 
Liabilities of discontinued operations
 
 
166,432
 
 
 
 
Total current liabilities
 
 
895,401
 
 
 
535,096
 
 
 
 
 
 
 
 
 
 
Long-term debt
 
 
237,945
 
 
 
237,703
 
Convertible debt, net of current portion
 
 
578,496
 
 
 
398,606
 
Customer advances, net of current portion
 
 
68,127
 
 
 
72,288
 
Long-term deferred tax liability
 
 
23,319
 
 
 
6,777
 
Other long-term liabilities
 
 
158,398
 
 
 
70,045
 
Total liabilities
 
 
1,961,686
 
 
 
1,320,515
 
Commitments and contingencies (Note 10)
 
 
 
 
 
 
 
 
Stockholders’ equity:
 
 
 
 
 
 
 
 
Preferred stock, $0.001 par value, 10,042,490 shares authorized; none issued and outstanding
 
 
 
 
 
 
Common stock, $0.001 par value, 150,000,000 shares of class B common stock authorized; 42,033,287 shares of class B common stock issued and outstanding; $0.001 par value, 217,500,000 shares of class A common stock authorized; 56,109,852 and 55,394,612 shares of class A common stock issued; 55,647,803 and 55,039,193 shares of class A common stock outstanding, at July 4, 2010 and January 3, 2010, respectively
 
 
98
 
 
 
97
 
Additional paid-in capital
 
 
1,548,390
 
 
 
1,520,933
 
Accumulated deficit
 
 
(107,952
)
 
 
(114,309
)
Accumulated other comprehensive income (loss)
 
 
39,380
 
 
 
(17,357
)
Treasury stock, at cost; 462,049 and 355,419 shares of class A common stock at July 4, 2010 and January 3, 2010, respectively
 
 
(14,962
)
 
 
(12,984
)
Total stockholders’ equity
 
 
1,464,954
 
 
 
1,376,380
 
Total liabilities and stockholders’ equity
 
$
3,426,640
 
 
$
2,696,895
 

 
(1)
As adjusted to reflect the adoption of new accounting guidance for share lending arrangements that were executed in connection with the Company’s convertible debt offerings in fiscal 2007 (see Note 1).

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

 
3

 
SunPower Corporation

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

 
 
Three Months Ended
 
 
Six Months Ended
 
 
 
July 4, 2010
 
 
June 28, 2009 (1)
 
 
July 4, 2010
 
 
June 28, 2009 (1)
 
Revenue:
 
 
 
 
 
 
 
 
 
 
 
 
Utility and power plants
 
$
119,999
 
 
$
124,295
 
 
$
264,093
 
 
$
233,551
 
Residential and commercial
 
 
264,239
 
 
 
175,046
 
 
 
467,419
 
 
 
277,433
 
Total revenue
 
 
384,238
 
 
 
299,341
 
 
 
731,512
 
 
 
510,984
 
Cost of revenue:
 
 
 
 
 
 
 
 
 
 
 
 
Utility and power plants
 
 
97,224
 
 
 
114,968
 
 
 
208,652
 
 
 
210,612
 
Residential and commercial
 
 
199,163
 
 
 
143,695
 
 
 
363,266
 
 
 
227,459
 
Total cost of revenue
 
 
296,387
 
 
 
258,663
 
 
 
571,918
 
 
 
438,071
 
Gross margin
 
 
87,851
 
 
 
40,678
 
 
 
159,594
 
 
 
72,913
 
Operating expenses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Research and development
 
 
11,206
 
 
 
6,937
 
 
 
21,613
 
 
 
14,817
 
Selling, general and administrative
 
 
78,376
 
 
 
42,775
 
 
 
142,656
 
 
 
85,179
 
Total operating expenses
 
 
89,582
 
 
 
49,712
 
 
 
164,269
 
 
 
99,996
 
Operating loss
 
 
(1,731
)
 
 
(9,034)
 
 
 
(4,675
)
 
 
(27,083
)
Other income (expense):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest income
 
 
279
 
 
 
765
 
 
 
552
 
 
 
1,949
 
Interest expense
 
 
(19,310
)
 
 
(9,763
)
 
 
(30,250
)
 
 
(16,034
)
Gain on change in equity interest in unconsolidated investee
   
28,348
     
     
28,348
     
 
Gain on mark-to-market derivatives
 
 
34,070
 
 
 
21,193
 
 
 
31,852
 
 
 
21,193
 
Other, net
 
 
(10,806
)
 
 
2,807
 
 
 
(16,397
)
 
 
(4,350
)
Other income (expense), net
 
 
32,581
 
 
 
15,002
 
 
 
14,105
 
 
 
2,758
 
Income (loss) from continuing operations before income taxes and equity in earnings of unconsolidated investees
 
 
30,850
 
 
 
5,968
 
 
 
9,430
 
 
 
(24,325
)
Benefit from (provision for) income taxes
 
 
(46,992
)
 
 
5,223
 
 
 
(16,117
)
 
 
24,419
 
Equity in earnings of unconsolidated investees
 
 
2,030
 
 
 
3,133
 
 
 
5,148
 
 
 
4,378
 
Income (loss) from continuing operations
   
(14,112
)
   
14,324
     
(1,539
)
   
4,472
 
Income from discontinued operations, net of taxes
   
7,896
     
     
7,896
     
 
Net income (loss)
 
$
(6,216
)
 
$
14,324
 
 
$
6,357
 
 
$
4,472
 
Net income (loss) per share of class A and class B common stock:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss) per share – basic:
                               
Continuing operations
 
$
(0.15
)
 
$
0.16
 
 
$
(0.01
)
 
$
0.05
 
Discontinued operations
   
0.08
     
     
0.08
     
 
Net income (loss) per share – basic
 
$
(0.07
)
 
$
0.16
   
$
0.07
   
$
0.05
 
Net income (loss) per share – diluted:
                               
Continuing operations
 
$
(0.15
)
 
$
0.15
   
$
(0.01
)
 
$
0.05
 
Discontinued operations
   
0.08
     
     
0.08
     
 
Net income (loss) per share – diluted
 
$
(0.07
)
 
$
0.15
   
$
0.07
   
$
0.05
 
Weighted-average shares:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic
 
 
95,564
 
 
 
90,873
 
 
 
95,359
 
 
 
87,311
 
Diluted
 
 
95,564
 
 
 
92,640
 
 
 
96,644
 
 
 
89,110
 
 
 
(1)
The Condensed Consolidated Statements of Operations for the three and six months ended June 28, 2009 has been adjusted to reflect the adoption of new accounting guidance for share lending arrangements that were executed in connection with the Company’s convertible debt offerings in fiscal 2007 (see Note 1).

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

 
4

 
SunPower Corporation

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

 
 
Six Months Ended
 
 
 
July 4, 2010
 
 
June 28, 2009 (1)
 
Cash flows from operating activities:
 
 
 
 
 
 
 
Net income
 
$
6,357
 
 
$
4,472
 
Less: Income from discontinued operations, net of taxes
   
7,896
     
 
Income (loss) from continuing operations
   
(1,539
)
   
4,472
 
Adjustments to reconcile income (loss) from continuing operations to net cash used in operating activities of continuing operations:
 
 
 
 
 
 
 
 
Stock-based compensation
 
 
22,399
 
 
 
21,130
 
Depreciation
 
 
49,273
 
 
 
38,934
 
Amortization of other intangible assets
 
 
16,461
 
 
 
8,150
 
Impairment (gain on sale) of investments
 
 
(1,572
)
 
 
1,807
 
Gain on mark-to-market derivatives
   
(31,852
)
   
(21,193
)
Non-cash interest expense
 
 
15,768
 
 
 
11,321
 
Amortization of debt issuance costs
 
 
1,790
 
 
 
1,721
 
Amortization of promissory notes
   
2,919
     
 
Gain on change in equity interest in unconsolidated investee
   
(28,348
)
   
 
Equity in earnings of unconsolidated investees
 
 
(5,148
)
 
 
(4,378
)
Excess tax benefits from stock-based award activity
 
 
(3,828
)
 
 
 
Deferred income taxes and other tax liabilities
 
 
12,219
 
 
 
(29,785
)
Changes in operating assets and liabilities, net of effect of acquisition and divestiture:
 
 
         
 
Accounts receivable
 
 
41,662
 
 
 
(24,491
)
Costs and estimated earnings in excess of billings
 
 
(32,564
)
 
 
18,079
 
Inventories
 
 
(72,248
)
 
 
6,081
 
Project assets
 
 
(47,906
)
 
 
 
Prepaid expenses and other assets
 
 
(107,315
)
 
 
(22,080
)
Advances to suppliers
 
 
3,757
 
 
 
21,739
 
Accounts payable and other accrued liabilities
 
 
120,782
 
 
 
(105,638
)
Billings in excess of costs and estimated earnings
 
 
(5,288
)
 
 
34,528
 
Customer advances
 
 
951
 
 
 
(8,086
)
Net cash used in operating activities of continuing operations
 
 
(49,627
)
 
 
(47,689
)
Net cash provided by operating activities of discontinued operations
   
649
     
 
Net cash used in operating activities
   
(48,978
)
   
(47,689
)
Cash flows from investing activities:
 
 
 
 
 
 
 
 
Increase in restricted cash and cash equivalents
 
 
(8,253
)
 
 
(42,336
)
Purchase of property, plant and equipment
 
 
(100,292
)
 
 
(111,667
)
Proceeds from sale of equipment to third-party
 
 
2,875
 
 
 
7,902
 
Proceeds from sales or maturities of available-for-sale securities
 
 
1,572
 
 
 
19,678
 
Cash paid for acquisition, net of cash acquired
 
 
(272,699
)
 
 
 
Cash paid for investments in other non-public companies
 
 
(1,618
)
 
 
 
Net cash used in investing activities of continuing operations
 
 
(378,415
)
 
 
(126,423
)
Net cash used in investing activities of discontinued operations
   
(17,708
)
   
 
Net cash used in investing activities
   
(396,123
)
   
(126,423
)
Cash flows from financing activities:
 
 
 
 
 
 
 
 
Proceeds from issuance of long-term debt, net of issuance costs
 
 
5,134
 
 
 
82,150
 
Proceeds from issuance of convertible debt, net of issuance costs
 
 
244,241
 
 
 
225,018
 
Proceeds from offering of class A common stock, net of offering expenses
 
 
 
 
 
218,895
 
Repayment of bank loans
 
 
(30,000
)
 
 
 
Cash paid for repurchased convertible debt
 
 
 
 
 
(67,949
)
Cash paid for bond hedge
 
 
(75,200
)
 
 
 
Cash paid for purchased options
 
 
 
 
 
(97,336
)
Proceeds from warrant transactions
 
 
61,450
 
 
 
71,001
 
Excess tax benefits from stock-based award activity
 
 
3,828
 
 
 
 
Proceeds from exercise of stock options
 
 
346
 
 
 
838
 
Purchases of stock for tax withholding obligations on vested restricted stock
 
 
(1,977
)
 
 
(3,122
)
Net cash provided by financing activities from continuing operations
 
 
207,822
 
 
 
429,495
 
Net cash provided by financing activities of discontinued operations
   
17,059
     
 
Net cash provided by financing activities
   
224,881
     
429,495
 
Effect of exchange rate changes on cash and cash equivalents
 
 
(12,691
)
 
 
(879
)
Net increase (decrease) in cash and cash equivalents
 
 
(232,911
)
 
 
254,504
 
Cash and cash equivalents at beginning of period
 
 
615,879
 
 
 
202,331
 
Cash and cash equivalents at end of period
   
382,968
     
456,835
 
Less: Cash and cash equivalents of discontinued operations
   
     
 
Cash and cash equivalents of continuing operations, end of period
 
$
382,968
 
 
$
456,835
 
 
 
 
 
 
 
 
 
 
Non-cash transactions:
 
 
 
 
 
 
 
 
Additions to property, plant and equipment included in accounts payable and other accrued liabilities
 
$
84,094
 
 
$
 
Non-cash interest expense capitalized and added to the cost of qualified assets
 
 
1,095
 
 
 
3,583
 
Issuance of common stock for purchase acquisition
 
 
 
 
 
1,471
 

 
(1)
The Condensed Consolidated Statements of Cash Flows for the three and six months ended June 28, 2009 has been adjusted to reflect the adoption of new accounting guidance for share lending arrangements that were executed in connection with the Company’s convertible debt offerings in fiscal 2007 (see Note 1).

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

 
5

 
SunPower Corporation

Notes to Condensed Consolidated Financial Statements
(unaudited)

Note 1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Company
 
SunPower Corporation (together with its subsidiaries, the “Company” or “SunPower”) is a vertically integrated solar products and services company that designs, manufactures and delivers high-performance solar electric systems worldwide for residential, commercial and utility-scale power plant customers.

In the second quarter of fiscal 2010, the Company changed its segment reporting from its Components Segment and Systems Segment to its Utility and Power Plants (“UPP”) Segment and Residential and Commercial (“R&C”) Segment. Historically, Components Segment sales were generally solar cells and solar panels sold to a third-party dealer or original equipment manufacturer (“OEM”) who would re-sell the product to the eventual customer, while Systems Segment sales were generally complete turn-key offerings sold directly to the end customer. Under the new segmentation, the Company’s UPP Segment refers to its large-scale solar products and systems business, which includes power plant project development and project sales, turn-key engineering, procurement and construction (“EPC”) services for power plant construction, and power plant operations and maintenance (“O&M”) services. The UPP Segment also has responsibility for the Company’s components business, which includes large volume sales of solar panels to third parties, often on a multi-year, firm commitment basis, and is a reflection of the growing demand of its utilities and other large-scale industrial solar equipment customers. The Company’s R&C Segment focuses on solar equipment sales into the residential and small commercial market through its third-party global dealer network, as well as direct sales and EPC and O&M services for the commercial and public sectors installing rooftop and ground-mounted solar systems. The Company’s President and Chief Executive Officer, as the chief operating decision maker (“CODM”), has organized the Company and manages resource allocations and measures performance of the Company’s activities among these two segments.

Fiscal Years

The Company reports on a fiscal-year basis and ends its quarters on the Sunday closest to the end of the applicable calendar quarter, except in a 53-week fiscal year, in which case the additional week falls into the fourth quarter of that fiscal year. Fiscal year 2010 consists of 52 weeks while fiscal year 2009 consists of 53 weeks. The second quarter of fiscal 2010 ended on July 4, 2010 and the second quarter of fiscal 2009 ended on June 28, 2009.

Basis of Presentation

The accompanying condensed consolidated interim financial statements have been prepared under the rules and regulations of the Securities and Exchange Commission (SEC) regarding interim financial reporting and include the accounts of the Company and all of its subsidiaries. Intercompany transactions and balances have been eliminated in consolidation. The year-end Condensed Consolidated Balance Sheet data was derived from audited financial statements as adjusted for the retrospective application of the new share lending guidance discussed below.
 
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America ("United States" or "U.S.") requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Significant estimates in these financial statements include percentage-of-completion for construction projects, allowances for doubtful accounts receivable and sales returns, inventory write-downs, estimates for future cash flows and economic useful lives of property, plant and equipment, goodwill, other intangible assets and other long-term assets, asset impairments, investments in joint ventures, certain accrued liabilities including accrued warranty reserves, valuation of debt without the conversion feature, valuation of share lending arrangements, income taxes and tax valuation allowances. Actual results could materially differ from those estimates.
   
    In connection with the Company’s continued efforts to remediate internal controls in the Philippines operations, it has identified certain out-of-period and incorrectly recorded adjustments that had the net effect of increasing income from continuing operations before income taxes and equity in earnings of unconsolidated investees by $1.1 million for the three months ended July 4, 2010 and decreasing income from continuing operations before income taxes and equity in earnings of unconsolidated investees by $0.1 million for the six months ended July 4, 2010. Those adjustments are primarily related to accounts payable, accrued liabilities, inventories and prepaid expenses and related to the first quarter ended April 4, 2010, and the years ended January 3, 2010 and December 28, 2008. The effect of these items is not material to current and prior period income from continuing operations before income taxes and equity in earnings of unconsolidated investees and net income (loss).
 
    In the opinion of management, the accompanying condensed consolidated interim financial statements contain all adjustments, consisting only of normal recurring adjustments, which the Company believes are necessary for a fair statement of the Company’s financial position as of July 4, 2010 and its results of operations for the three and six months ended July 4, 2010 and June 28, 2009, and cash flows for the six months ended July 4, 2010 and June 28, 2009. These condensed consolidated interim financial statements are not necessarily indicative of the results to be expected for the entire year.

Certain prior period balances have been reclassified to conform to the current period presentation in the Company’s Condensed Consolidated Financial Statements and the accompanying notes. Such reclassification had no effect on previously reported results of operations or accumulated deficit.

 
6

 
Restatement of Previously Issued Condensed Consolidated Financial Statements

On November 16, 2009, the Company announced that its Audit Committee commenced an independent investigation into certain accounting and financial reporting matters at its Philippines operations (“SPML”). The Audit Committee retained independent counsel, forensic accountants and other experts to assist it in conducting the investigation.

As a result of the investigation, the Audit Committee concluded that certain unsubstantiated accounting entries were made at the direction of the Philippines-based finance personnel in order to report results for manufacturing operations that would be consistent with internal expense projections. The entries generally resulted in an understatement of the Company’s cost of goods sold (referred to as “Cost of revenue” in its Condensed Consolidated Statements of Operations). The Audit Committee concluded that the efforts were not directed at achieving the Company’s overall financial results or financial analysts’ projections of the Company’s financial results. The Audit Committee also determined that these accounting issues were confined to the accounting function in the Philippines. Finally, the Audit Committee concluded that executive management neither directed nor encouraged, nor was aware of, these activities and was not provided with accurate information concerning the unsubstantiated entries. In addition to the unsubstantiated entries, during the Audit Committee investigation various accounting errors were discovered by the investigation and by management.

The nature and effect of the restatements resulting from the Audit Committee’s independent investigation, including the impact to the previously issued interim condensed consolidated financial statements, were provided in the Company’s Annual Report on Form 10-K for the year ended January 3, 2010. Prior year reports on Form 10-Q were restated and filed on May 3, 2010 by submission of Forms 10-Q/A. The amounts presented in this Form 10-Q reflect the restatements filed in these amendments. For additional information regarding the Company’s disclosure controls and procedures see Part I — “Item 4: Controls and Procedures” in the Company’s Quarterly Report on Form 10-Q for the quarter ended July 4, 2010.

Summary of Significant Accounting Policies

These condensed consolidated financial statements and accompanying notes should be read in conjunction with the Company’s annual consolidated financial statements and notes thereto for the year ended January 3, 2010 included in its Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”).

Revenue Recognition of Power Plants

In connection with the Company’s acquisition of SunRay Malta Holdings Limited (“SunRay”), the Company began to develop and sell power plants which generally include sale or lease of related real estate (see Note 2). Revenue recognition for these power plants require adherence to specific guidance for real estate sales, which provides that if the Company held control over land or land rights prior to the execution of an EPC contract, the Company would recognize revenue and the corresponding costs once the sale is consummated, the buyer’s initial and any continuing investments are adequate, the resulting receivables are not subject to subordination and the Company has transferred the customary risk and rewards of ownership to the buyer. In general, the sale is consummated upon the execution of an agreement documenting the terms of the sale and a minimum initial payment by the buyer to substantiate the transfer of risk to the buyer. This may result in the Company deferring revenue during construction, even if a sale was consummated, until the buyer’s initial investment payment is received by the Company, at which time revenue would be recognized on a percentage of completion basis as work is completed. Revenue recognition methods for the Company’s power plants not involving real estate remain subject to the Company’s historical practice using the percentage-of-completion method.

Recently Adopted Accounting Guidance

Share Lending Arrangements
 
In June 2009, the Financial Accounting Standards Board (“FASB”) issued new accounting guidance that changed how companies account for share lending arrangements that were executed in connection with convertible debt offerings or other financings. The new accounting guidance requires all such share lending arrangements to be valued and amortized as interest expense in the same manner as debt issuance costs. As a result of the new accounting guidance, existing share lending arrangements relating to the Company’s class A common stock are required to be measured at fair value and amortized as interest expense in its Condensed Consolidated Financial Statements. In addition, in the event that counterparty default under the share lending arrangement becomes probable, the Company is required to recognize an expense in its Condensed Consolidated Statement of Operations equal to the then fair value of the unreturned loaned shares, net of any probable recoveries. The Company adopted the new accounting guidance effective January 4, 2010, the start of its fiscal year, and applied it retrospectively to all prior periods as required by the guidance.
 
The Company has two historical share lending arrangements subject to the new guidance. In connection with the issuance of its 1.25% senior convertible debentures (“1.25% debentures”) and 0.75% senior convertible debentures (“0.75% debentures”), the Company loaned 2.9 million shares of its class A common stock to Lehman Brothers International (Europe) Limited (“LBIE”) and 1.8 million shares of its class A common stock to Credit Suisse International (“CSI”) under share lending arrangements. Application of the new accounting guidance resulted in higher non-cash amortization of imputed share lending costs in the current and prior periods, as well as a significant non-cash loss resulting from Lehman Brothers Holding Inc. (“Lehman”) filing of a petition for protection under Chapter 11 of the U.S. bankruptcy code on September 15, 2008, and LBIE commencing administration proceedings (analogous to bankruptcy) in the United Kingdom. The then fair value of the 2.9 million shares of the Company’s class A common stock loaned and unreturned by LBIE is $213.4 million, which was expensed retrospectively in the third quarter of fiscal 2008. In addition, on a cumulative basis from the respective issuance dates of the share lending arrangements through January 3, 2010, the Company has recognized $1.6 million in additional non-cash interest expense (see Note 12).

 
7

 
As a result of the Company’s adoption of the new accounting guidance for share lending arrangements, the Company’s Condensed Consolidated Balance Sheet as of January 3, 2010 has been adjusted as follows:

(In thousands)
 
As Adjusted in this Quarterly Report on Form 10-Q
 
 
As Previously Reported
in the 2009 Annual Report on Form 10-K (1)
 
Assets
 
 
 
 
 
 
Prepaid expenses and other current assets
 
$
104,531
 
 
$
104,442
 
Other long-term assets
 
 
82,743
 
 
 
81,973
 
Total assets
 
 
2,696,895
 
 
 
2,696,036
 
Stockholders’ Equity
 
 
 
 
 
 
 
 
Additional paid-in capital
 
 
1,520,933
 
 
 
1,305,032
 
Retained earnings (accumulated deficit)
 
 
(114,309
)
 
 
100,733
 
Total stockholders’ equity
 
 
1,376,380
 
 
 
1,375,521
 
 
(1)
The prior period balance of “Other long-term assets” has been reclassified to conform to the current period presentation in the Company’s Condensed Consolidated Balance Sheets which separately discloses “Project assets – plants and land, net of current portion.”

As a result of the Company’s adoption of the new accounting guidance for share lending arrangements, the Company’s Condensed Consolidated Statement of Operations for the three and six months ended June 28, 2009 has been adjusted as follows:

(In thousands, except per share data)
 
Three Months Ended
June 28, 2009
   
Six Months Ended
June 28, 2009
 
   
As Adjusted in this Quarterly Report on Form 10-Q
   
As Previously Reported in Quarterly Report on Form 10-Q/A
   
As Adjusted in this Quarterly Report on Form 10-Q
   
As Previously Reported in Quarterly Report on Form 10-Q/A
 
Interest expense
  $ (9,763 )   $ (9,528 )   $ (16,034 )   $ (15,649 )
Income (loss) before income taxes and equity in earnings of unconsolidated investees
    5,968       6,203       (24,325 )     (23,940 )
Net income
    14,324       14,559       4,472       4,857  
Net income per share of class A and class B common stock:
                               
Basic
  $ 0.16     $ 0.16     $ 0.05     $ 0.06  
Diluted
  $ 0.15     $ 0.16     $ 0.05     $ 0.05  

As a result of the Company’s adoption of the new accounting guidance for share lending arrangements, the Company’s Condensed Consolidated Statement of Cash Flows for the six months ended June 28, 2009 has been adjusted as follows:

 
 
Six Months Ended
 
(In thousands)
 
June 28, 2009
 
 
 
As Adjusted in this Quarterly Report on Form 10-Q
 
 
As Previously Reported in Quarterly Report on Form 10-Q/A
 
Cash flows from operating activities:
 
 
 
 
 
 
 
 
Net income
 
$
4,472
 
 
$
4,857
 
Non-cash interest expense
 
 
11,321
 
 
 
10,936
 
Net cash used in operating activities
 
 
(47,689
)
 
 
(47,689
)

 
8

 
Variable Interest Entities (“VIEs”)

In June 2009, the FASB issued new accounting guidance regarding consolidation of VIEs to eliminate the exemption for qualifying special purpose entities, provide a new approach for determining which entity should consolidate a VIE, and require an enterprise to regularly perform an analysis to determine whether the enterprise’s variable interest or interests give it a controlling financial interest in a VIE. The new accounting guidance became effective for fiscal years beginning after November 15, 2009. The Company’s adoption of the new accounting guidance in the first quarter of fiscal 2010 had no impact on its Condensed Consolidated Financial Statements (see Note 11).

Revenue Arrangements with Multiple Deliverables

In October 2009, the FASB issued new accounting guidance for revenue arrangements with multiple deliverables. Specifically, the new guidance requires an entity to allocate arrangement consideration at the inception of an arrangement to all of its deliverables based on their relative selling prices. In addition, the new guidance eliminates the use of the residual method of allocation and requires the relative-selling-price method in all circumstances in which an entity recognizes revenue for an arrangement with multiple deliverables. The new accounting guidance is effective in the fiscal year beginning on or after June 15, 2010. Early adoption is permitted. The Company adopted the new accounting guidance in the first quarter of fiscal 2010 and applied the prospective application for new or materially modified arrangements with multiple deliverables. The Company’s adoption of the new accounting guidance did not have a material impact on its Condensed Consolidated Financial Statements.

Fair Value of Assets and Liabilities

In January 2010, the FASB issued updated guidance related to fair value measurements and disclosures, which will require the Company to disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and to describe the reasons for the transfers. In addition, in the reconciliation for fair value measurements using significant unobservable inputs, or Level 3, the Company will disclose separately information about purchases, sales, issuances and settlements on a gross basis rather than on a net basis. The updated guidance also requires that the Company provide fair value measurement disclosures for each class of assets and liabilities and disclosures about the valuation techniques and inputs used to measure fair value for both recurring and non-recurring fair value measurements for Level 2 and Level 3 fair value measurements. The updated guidance is effective for interim or annual financial reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances and settlements in the roll forward activity in Level 3 fair value measurements, which are effective for fiscal years beginning after December 15, 2010 and for interim periods within those fiscal years. The Company’s adoption of the updated guidance had no impact on its financial position, results of operations, or cash flows and only required additional financial statements disclosures as set forth in Notes 7, 12 and 14.

Issued Accounting Guidance Not Yet Adopted

There has been no issued accounting guidance not yet adopted by the Company that it believes is material, or is potentially material to the Company’s Condensed Consolidated Financial Statements.

Note 2. BUSINESS COMBINATIONS

SunRay
 
On March 26, 2010, the Company completed its acquisition of SunRay, a European solar power plant developer company organized under the laws of Malta, under which the Company purchased all the issued share capital of SunRay for $296.1 million. As a result, SunRay became a wholly-owned subsidiary of the Company and the results of operations of SunRay have been included in the Condensed Consolidated Statement of Operations of the Company since March 26, 2010. As part of the acquisition, the Company acquired SunRay’s project pipeline of solar photovoltaic projects in Italy, France, Israel, Spain, the United Kingdom and Greece. The pipeline consists of projects in various stages of development. SunRay’s power plant development and project finance team consists of approximately 70 employees.

 
9

 
Purchase Price Consideration

The total consideration for the acquisition was $296.1 million, including: (i) $263.4 million paid in cash to SunRay’s class A shareholders, class B shareholders and class C shareholders; (ii) $18.7 million paid in cash to repay outstanding debt of SunRay; and (iii) $14.0 million in promissory notes issued by SunPower North America, LLC, a wholly-owned subsidiary of the Company, and guaranteed by SunPower. A portion of the purchase price allocated to SunRay’s class A shareholders, class B shareholders and certain non-management class C shareholders ($244.4 million in total) was paid by the Company in cash and the remaining portion of the purchase price allocated to SunRay’s class C management shareholders was paid with a combination of $19.0 million in cash and $14.0 million in promissory notes.

The $14.0 million in promissory notes issued to SunRay’s management shareholders have been structured to provide a retention incentive. Since the vesting and payment of the promissory notes are contingent on future employment, the promissory notes are considered deferred compensation and therefore are not included in the purchase price allocated to the net assets acquired.

A total of $32.3 million of the purchase price paid and promissory notes payable to certain principal shareholders of SunRay will be held in escrow for two years following March 26, 2010, and be subject to potential indemnification claims that may be made by the Company during that period. The escrow fund consists of $28.7 million paid in cash and $3.6 million in promissory notes issued by SunPower North America, LLC. The escrow is generally tied to compliance with the representations and warranties made as part of the acquisition. Therefore, the $28.7 million in cash of the $263.4 million cash consideration is considered a part of the purchase price allocated to the net assets acquired. The funds in escrow, less any amounts relating to paid or pending claims, will be released two years following March 26, 2010.

Preliminary 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. The allocation of the purchase price on March 26, 2010 was adjusted in this report as follows:

(In thousands)
 
As Adjusted
 
 
As Previously Reported
 
Net tangible assets acquired
 
$
44,686
 
 
$
48,999
 
Project assets
 
 
79,160
 
 
 
98,784
 
Purchased technology
 
 
1,120
 
 
 
1,120
 
Goodwill
 
 
157,124
 
 
 
133,187
 
Total purchase consideration
 
$
282,090
 
 
$
282,090
 

The fair value of net tangible assets acquired on March 26, 2010 was adjusted in this report as follows:
 
(In thousands)
 
As Adjusted
 
 
As Previously Reported
 
Cash and cash equivalents
 
$
9,391
 
 
$
9,391
 
Restricted cash and cash equivalents
 
 
36,701
 
 
 
46,917
 
Accounts receivable, net
 
 
1,958
 
 
 
5,891
 
Prepaid expenses and other assets
 
 
7,933
 
 
 
54,584
 
Project assets – plants and land
 
 
19,624
 
 
 
 
Property, plant and equipment, net
 
 
452
 
 
 
455
 
Assets of discontinued operations
 
 
186,674
 
 
 
175,439
 
Total assets acquired
 
 
262,733
 
 
 
292,677
 
Accounts payable
 
 
(4,324
)
 
 
(16,479
)
Other accrued expenses and liabilities
 
 
(11,688
)
 
 
(52,984
)
Debt (see Note 12)
 
 
(42,707
)
 
 
(174,215
)
Liabilities of discontinued operations
 
 
(159,328
)
 
 
 
Total liabilities acquired
 
 
(218,047
)
 
 
(243,678
)
Net assets acquired
 
$
44,686
 
 
$
48,999
 

Since the Company’s purchase price allocation was not fully complete as of the first quarter ended April 4, 2010, the Company recorded adjustments to the fair value of certain assets and liabilities as additional information became available in the second quarter of fiscal 2010. These fair value adjustments were retrospectively applied to the acquisition date of March 26, 2010 as required by current accounting guidance. We are still in the process of reviewing the fair value of certain assets and liabilities acquired as additional information becomes available in the third quarter of fiscal 2010.

 
10

 
In the Company’s determination of the fair value of the project assets and purchased technology acquired, it considered, among other factors, three generally accepted valuation approaches: the income approach, the market approach and the cost approach. The Company selected the approaches that it believed to be most indicative of the fair value of the assets acquired.

Project Assets

The project assets totaling $79.2 million represent intangible assets that consist of: (i) projects and EPC pipeline, which relate to the development of power plants; and (ii) O&M pipeline, which relate to maintenance contracts that are established after the developed plants are sold. The Company applied the income approach using the Multi-Period Excess Earnings Method based on estimates and assumptions of future performance of these project assets provided by SunRay’s and the Company’s management to determine the fair value of the project assets. SunRay’s and the Company’s estimates and assumptions regarding the fair value of the project assets is derived from probability adjusted cash flows of certain project assets acquired based on the varying development stages of each project asset on the acquisition date. The Company is amortizing the project assets to “Selling, general and administrative” expense based on the pattern of economic benefit provided using the same probability adjusted cash flows from the sale of solar power plants over estimated lives of 4 years from the date of acquisition.

Purchased Technology

The Company applied the cost approach to calculate the fair value of internally developed technologies related to the project development business. The Company determined the fair value of the purchased technology totaling $1.1 million based on estimates and assumptions for the cost of reproducing or replacing the asset based on third party charges, salaries of employees and other internal development costs incurred. The Company is amortizing the purchased technology to “Cost of revenue” within the UPP Segment on a straight-line basis over estimated lives of 5 years.

Goodwill

Of the total estimated purchase price paid at the time of acquisition, $133.2 million had been initially allocated to goodwill within the UPP Segment during the first quarter ended April 4, 2010. During the second quarter ended July 4, 2010, the Company recorded adjustments aggregating $23.9 million to increase goodwill related to the acquisition of SunRay on March 26, 2010 to $157.1 million. These adjustments were based upon the Company obtaining additional information on the acquired assets and liabilities as additional information became available in the second quarter of fiscal 2010. The adjustments included: (i) the elimination of a non-current tax receivable and a related non-current tax liability; (ii) changes to the value of certain assets and liabilities acquired in “Assets of discontinued operations” and “Liabilities of discontinued operations,” respectively; as well as (iii) changes to the value of certain acquired prepaid expenses, other current assets, accounts payable, other accrued liabilities and debt. These fair value adjustments were retrospectively applied to the acquisition date of March 26, 2010 as required by current accounting guidance. 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, customer base and organizational cultures.
 
Acquisition Related Costs

Acquisition-related costs of $0.1 million and $6.5 million recognized in the three and six months ended July 4, 2010, respectively, include transaction costs such as legal, accounting, valuation and other professional services, which the Company has classified in “Selling, general and administrative” expense in its Condensed Consolidated Statement of Operations.

Pro Forma Financial Information
 
Supplemental information on an unaudited pro forma basis, as if the acquisition of SunRay was completed at the beginning of the first quarter in fiscal 2010 and 2009, is as follows:

 
 
Three Months Ended
 
 
Six Months Ended
 
(In thousands, except per share amounts)
 
July 4, 2010
 
 
June 28, 2009
 
 
July 4, 2010
 
 
June 28, 2009
 
Revenue
 
$
384,238
 
 
$
299,341
 
 
$
731,095
 
 
$
510,984
 
Net income (loss)
 
 
(6,216
)
 
 
2,989
 
 
 
(14,277
)
 
 
(20,683
)
Basic net income (loss) per share
 
$
(0.07
)
 
$
0.03
 
 
$
(0.15
)
 
$
(0.24
)
Diluted net income (loss) per share
 
$
(0.07
)
 
$
0.03
 
 
$
(0.15
)
 
$
(0.24
)

The unaudited pro forma supplemental information is based on estimates and assumptions, which the Company believes are reasonable. The unaudited pro forma supplemental information prepared by management is not necessarily indicative of the consolidated financial position or results of operations in future periods or the results that actually would have been realized had the Company and SunRay been a combined company during the specified periods.

 
11

 
Note 3. DISCONTINUED OPERATIONS

In connection with the Company’s acquisition of SunRay on March 26, 2010, it acquired a SunRay project company, Cassiopea PV S.r.l (“Cassiopea”), operating a previously completed 20 megawatt (“MWac”) solar power plant in Montalto di Castro, Italy. In the period in which a component of the Company is classified as held-for-sale, it is required to present the related assets, liabilities and results of operations as discontinued operations. As of July 4, 2010, the Company had not sold Cassiopea and its assets and liabilities are classified as discontinued operations on the Condensed Consolidated Balance Sheet. In addition, Cassiopea’s results of operations for the three and six months ended July 4, 2010 were classified as “Income from discontinued operations, net of taxes” in the Condensed Consolidated Statements of Operations. On August 5, 2010, the Company entered into an agreement providing for the sale of Cassiopea (see Note 19).

As of July 4, 2010, the assets and liabilities of Cassiopea are as follows:

(In thousands)
 
July 4, 2010
 
Assets of discontinued operations
 
 
 
 
Restricted cash and cash equivalents
 
$
27,697
 
Accounts receivable, net
 
 
5,517
 
Prepaid expenses and other assets
 
 
13,344
 
Property, plant and equipment, net
 
 
158,392
 
 
 
$
204,950
 
Liabilities of discontinued operations
 
 
 
 
Accounts payable and other accrued liabilities
 
$
19,900
 
Bank loans
 
 
146,532
 
 
 
$
166,432
 

In both the three and six months ended July 4, 2010, condensed results of operations relating to Cassiopea are as follows:

(In thousands)
 
July 4, 2010
 
Utility and power plants revenue
 
$
7,905
 
Income before income taxes
 
 
11,510
 
Income from discontinued operations, net of taxes
 
 
7,896
 

Cassiopea Project Loan

In connection with its acquisition of SunRay, the Company consolidated the project debt of Cassiopea, which was provided by a consortium of lenders (“Cassiopea Lenders”). As of July 4, 2010, Cassiopea had outstanding Euro 116.4 million ($146.5 million based on the exchange rate as of July 4, 2010) under the credit agreement. Concurrent with entering into the credit agreement, Cassiopea entered into interest rate swaps with the Cassiopea Lenders to mitigate the interest rate risk on the debt. For additional details regarding the terms of the credit agreement and valuation of the interest rate swaps see Note 12 below.

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)
 
UPP
 
 
R&C
 
 
Total
 
As of January 3, 2010
 
$
78,634
 
 
$
119,529
 
 
$
198,163
 
Goodwill arising from business combination
 
 
157,124
 
 
 
 
 
 
157,124
 
Translation adjustment
 
 
 
 
 
(1,392
)
 
 
(1,392
)
As of July 4, 2010
 
$
235,758
 
 
$
118,137
 
 
$
353,895
 

The balance of goodwill within the UPP Segment increased $157.1 million in the first half of fiscal 2010 due to the Company’s acquisition of SunRay. This amount represents the excess of the purchase price over the fair value of the underlying net tangible and other intangible assets of SunRay (see Note 2). The translation adjustment for the revaluation of the Company’s subsidiaries’ goodwill into U.S. dollar equivalents decreased the balance of goodwill within the R&C Segment by $1.4 million during the first half of fiscal 2010.

In the second quarter of fiscal 2010, the Company changed its segment reporting structure to present the UPP Segment and R&C Segment to better align its sales, construction, engineering and customer service teams based on end-customer segments rather than by sales channel. Management evaluated all the facts and circumstances relating to the change in its segment reporting structure and concluded that no impairment indicator exists as of July 4, 2010 that would require impairment testing of its new reporting units.

 
12

 
Intangible Assets

The following tables present details of the Company's acquired other intangible assets:

(In thousands)
 
Gross
 
 
Accumulated Amortization
 
 
Net
 
As of July 4, 2010
 
 
 
 
 
 
 
 
 
Project assets
 
$
79,160
 
 
$
(8,032
)
 
$
71,128
 
Patents and purchased technology
 
 
52,519
 
 
 
(47,457
)
 
 
5,062
 
Purchased in-process research and development
 
 
1,000
 
 
 
-
 
 
 
1,000
 
Trade names
 
 
2,530
 
 
 
(2,366
)
 
 
164
 
Customer relationships and other
 
 
28,215
 
 
 
(16,915
)
 
 
11,300
 
 
 
$
163,424
 
 
$
(74,770
)
 
$
88,654
 
 
 
 
 
 
 
 
 
 
 
 
 
 
As of January 3, 2010
 
 
 
 
 
 
 
 
 
 
 
 
Patents and purchased technology
 
$
51,398
 
 
$
(42,014
)
 
$
9,384
 
Purchased in-process research and development
 
 
1,000
 
 
 
 
 
 
1,000
 
Trade names
 
 
2,623
 
 
 
(2,212
)
 
 
411
 
Customer relationships and other
 
 
28,616
 
 
 
(14,437
)
 
 
14,179
 
 
 
$
83,637
 
 
$
(58,663
)
 
$
24,974
 

In connection with the acquisition of SunRay on March 26, 2010, the Company recorded $80.2 million of other intangible assets. All of the Company’s acquired other intangible assets are subject to amortization. Aggregate amortization expense for other intangible assets totaled $11.7 million and $16.5 million in the three and six months ended July 4, 2010, respectively, and $4.1 million and $8.2 million in the three and six months ended June 28, 2009, respectively. As of July 4, 2010, the estimated future amortization expense related to other intangible assets is as follows (in thousands):
 
Year
 
Amount
 
2010 (remaining six months)
 
$
22,143
 
2011
 
 
27,423
 
2012
 
 
22,830
 
2013
 
 
16,153
 
2014
 
 
86
 
Thereafter
 
 
19
 
 
 
$
88,654
 

 
13

 
Note 5. BALANCE SHEET COMPONENTS

 
 
July 4, 2010
 
 
January 3, 2010
 
(In thousands)
 
 
 
 
 
 
Accounts receivable, net:
 
 
 
 
 
 
Accounts receivable, gross
 
$
205,258
 
 
$
253,039
 
Less: allowance for doubtful accounts
 
 
(3,831
)
 
 
(2,298
)
Less: allowance for sales returns
 
 
(1,824
)
 
 
(1,908
)
 
 
$
199,603
 
 
$
248,833
 

Inventories:
 
 
 
 
 
 
Raw materials
 
$
67,669
 
 
$
76,423
 
Work-in-process
 
 
26,340
 
 
 
20,777
 
Finished goods
 
 
172,747
 
 
 
105,101
 
 
 
$
266,756
 
 
$
202,301
 

Costs and estimated earnings in excess of billings as compared to billings in excess of costs and estimated earnings for all contracts in progress:
Costs and estimated earnings in excess of billings on contracts in progress
 
$
57,587
 
 
$
26,062
 
Billings in excess of costs and estimated earnings on contracts in progress
 
 
(9,276
)
 
 
(17,346
)
 
 
$
48,311
 
 
$
8,716
 
 
 
 
 
 
 
 
 
 
Contracts in progress at quarter end:
 
 
 
 
 
 
 
 
Costs incurred to date
 
$
948,664
 
 
$
1,473,464
 
Estimated earnings to date
 
 
259,148
 
 
 
314,892
 
Contract revenue earned to date
 
 
1,207,812
 
 
 
1,788,356
 
Less: Billings to date, including earned incentive rebates
 
 
(1,159,501
)
 
 
(1,779,640
)
 
 
$
48,311
 
 
$
8,716
 

Prepaid expenses and other current assets:
 
 
 
 
 
 
VAT receivables, current portion
 
$
41,188
 
 
$
27,054
 
Short-term deferred tax assets
 
 
4,973
 
 
 
5,920
 
Foreign currency derivatives
 
 
90,236
 
 
 
5,000
 
Income tax receivable
 
 
12,605
 
 
 
3,171
 
Note receivable (1)
 
 
10,000
 
 
 
 
Other receivables (2)
 
 
60,660
 
 
 
43,531
 
Other prepaid expenses
 
 
59,021
 
 
 
13,845
 
 
 
$
278,683
 
 
$
98,521
 

Other long-term assets:
 
 
 
 
 
 
Investments in joint ventures
 
$
73,316
 
 
$
39,820
 
Bond hedge derivative
 
 
40,693
 
 
 
 
Note receivable (1)
 
 
 
 
 
10,000
 
Investments in non-public companies
 
 
6,178
 
 
 
4,560
 
VAT receivables, net of current portion
 
 
6,459
 
 
 
7,357
 
Long-term debt issuance costs
 
 
12,521
 
 
 
6,942
 
Other
 
 
13,714
 
 
 
14,064
 
 
 
$
152,881
 
 
$
82,743
 
 
(1) In June 2008, the Company loaned $10.0 million to a third-party private company under a three-year note receivable that is convertible into equity at the Company’s option.
(2) Includes tolling agreements with suppliers in which the Company provides polysilicon required for silicon ingot manufacturing and procures the manufactured silicon ingots from the suppliers (see Notes 10 and 11).

 
14

 
 
 
July 4, 2010
 
 
January 3, 2010
 
(In thousands)
 
 
 
 
 
 
Accrued liabilities:
 
 
 
 
 
 
VAT payables
 
$
22,236